Steve Moss - Janney Montgomery Scott David Darst - FTN Midwest Kim Brasilia - KBW

Hello and welcome to the First Commonwealth Financial Corporation Second Quarter 2008 Earnings Conference Call. All participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator instructions). Please note this conference is being recorded. Now I would like to turn the conference over to Mr. Rich Stimel Communications Manager at First Commonwealth. Mr. Stimel, you may begin.

As a reminder a copy of today’s earning release can be accessed by logging on to www.fcbanking.com and clicking on the Investor Relations link at the top of the page. Before we begin I’d like to caution listeners that this conference call will contain forward looking statements about First Commonwealth, its business, strategies and prospects. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward looking statements. These risks and uncertainties include a variety of factors, some of which are beyond our control. These forward looking statements speak as of today and you should not rely on them as representing our views in the future. We undertake no obligation to update these forward looking statements to reflect events of circumstances that occur after this call. Please refer to our SEC filings including our most recent Annual Report on Form 10-K for a more detailed description of the risk factors that may affect our results. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website. Now I would like to introduce to you, the President and CEO of First Commonwealth Financial Corporation, Mr. John Dolan. John Dolan – President, CEO: Thanks Rich and good afternoon everybody. I appreciate you all have taken the time to join us today to discuss the second quarter earnings. What we continue to see is the execution of our strategic plan is bringing us wins in our market place. Probably the most important component of this strategy execution is a relentless focus on partnering within our corporation. The result of which has been an affective client acquisition and retention strategy. Bottom line as we continue to build on the momentum from the first…

Thank you, John and good afternoon everyone. I will start by quickly reviewing our net income results for the quarter, then I am going to followup with some additional information regarding the loan growth and assets quality. We have had a good quarter from several perspectives. Net income was up appreciably over the first quarter driven by strong loan growth and an improvement in net interest margin. Excluding our security gains and losses non-interest income increased and non-interest expense was flat despite increased incentive accruals related to net income growth. We are extremely pleased with our loan growth both in year-over-year and from the 2008 first quarter. Loans to individuals increased at their 5 consecutive quarterly decreases due to stronger than expected growth in both direct and indirect portfolios. Commercial loan portfolio grew 207 million or about 9.5% from March 31st, and increased about 521 million or 28% from the same period last year. The growth in commercial loans in the second quarter this year was equally spread in three main categories; 30% in commercial and industrial, 32% in commercial construction loans, and 38% in commercial real estate. The growth in the commercial portfolios is across all sectors and its not concentrated. And about 95% of our construction growth was related to commercial real estate. And Mike is going to provide us additional color around some of our loans successes and associated programs we are getting in that growth. We are seeing some improvements in our asset quality, non-performing loans as a percentage of total loans was 1.24% at June 30th, down from 1.26% at March 31st. And down from year end 2007 at 1.47%. Loans pass due in excess of 90 days still accruing at June 30 decreased 5.9 million from the prior quarter end and were only 2.5%…

Chief Executive Officer: Thanks Mike, and thanks Ed. We made solid and steady progress in the past few quarters, despite the distraction happening in our industry. Our conservative lending practices, prudent growth strategies and business plan execution allowed us to achieve earnings growth. The couple of significant loans that moved into non-performing status the last couple of report periods were not originated during the times in which we have had significant loan growth. As pointed out by Mike, that we have actually had improvement in our credit quality of those loans that we are originating. We couldn’t achieved this performance improvement without the dedication and enthusiastic support of all of our employee base. Again, I want to thank them for their efforts and support. And as we continue the transition First Commonwealth into high performance community bank. We continue to identify solid growth opportunities in the current industry environment and in the markets we serve. We will aggressively pursue the available growth opportunities caused by current market disruption and position our company to take advantage of these and other growth opportunities in order to strengthen our long-term market position. To identify strong opportunities, to expand our wealth management, corporate banking, and consumer services business. Our success will be determined on our ability to execute the banking basics. Leverage the existing and perspective customer relationships and introduce new innovative products and provide unmatched quality in our services. We remain under penetrated as Mike said in the Pittsburgh market and have excellent potential to expand our sales campaigns in corporate banking and small business relationship. And we can further improve our internal partnership, collaboration, our cross selling activities. In closing, I will say that we are stronger and better positioned today than we were one year ago. We remain confident about our long-term business prospects because we have continued to see favorable near and long-term growth opportunities and believe that this will be a successful year for our First Commonwealth. Thank you all and we will entertain questions.

Thank you. (Operator Instruction). Our first question comes from Steve Moss from Janney Montgomery Scott. Please go ahead

Good afternoon guys.

Hi Steve.

What is still offer the loan growth, I am sorry, if I miss heard Mike, was it -- correct me that one-third of loan this quarter came from participations or within market?

That’s year-to-date one-third came from participations.

Okay.

Those participations some end markets some or not?

Okay. And what are your expectations here for loan growth going forward?

The expectation for loan growth going forward, Mike you want to take it? Run at that?

You know, I would like to think we could sustain this, but I think that will be hard to do. I think we will continue to grow loans from both consumer and the commercial side at a pretty nice pace and probably out flank a lot of our great competitors.

Okay. And sounds good. And with regard to the construction books growing pretty nicely here. What's the mix between residential versus commercial?

I think that its predominantly commercial, but let Ed address that.

Steve, I would say out of the mix maybe 3 million is residential and the rest is commercial, I can give you kind of a flavor. Its across the board here we got about 32% office, 23% student housing, 20% major flagship hospitality, 10% retail, 10% healthcare and 5% other. And I sure hope that will adds up to 100%. But that kind of gives you across the boards spread on how we are diversifying our risk here within that portfolio.

Okay, that's helpful. Thank you. And just the color on the trust was helpful was that the reason for the swing and other comprehensive incomes this quarter?

Yeah, I believe that’s the primary explanation but Ed do you want to address that.

That is substantially all of the swing.

Okay.

And you are probably seeing that in the lot of other financial institutions or CI.

Yes, and last but not least that I want to take up all the questions here but what is good tax rate going forward?

I think annualizing - if I had if I used this in the model Steve I probably just take our six month run rate and annualized it. I don’t see any significant changes happening for the rest of the year.

Alright. Thank you very much guys.

Hey Steve, thanks.

Our next question comes from David Darst from FTN Midwest. Please go ahead.

Good afternoon.

Hi David.

The $5 million construction loan where is that located?

I don’t believe we are going to get into any specific details of the customers, David. But….

Geography or is it a participation?

It is a participation.

Okay. Then could you give us an idea of what the new loans yields are on the construction portfolio relative to the overall portfolio yield?

I don’t know that I can give you that information right now. But we do a lot of variable rates on both sides Ed may be as if can give any input on that.

Yeah generally we see the spreads are higher on and in this type of portfolio 250 to 350 probably good range. Over the LIBOR.

Okay. And then how much of the CD book do you expect to reprise in the third or fourth quarter confirmed multi grates?

Now I will give it you the first comment and turn it over to Mike, but the CDs we haven’t been very aggressive with them because some of the larger competitors who have problems with raising funds have been trying to do it through there CD pricing. So we haven’t been as aggressive and I think that we have seen some of that roll up, but I think there are core customers who are able to take care off. And the lot of that the jumbo CDs or hub money is what's left. So Mike lets you take if you want to refine that?

The only think that we add is when we look at the run off about CDs certainly disproportion about 80% of it is jumbos which is purchase money with school district and public Candies and thinks like that. When we monitor those very closely just to make sure that there single service household and its not reaping away of the fabric of a strong consumer household. And we are pretty satisfied there.

Okay. Are you looking for any acquisitions opportunities?

Yes. We are always looking for the right, the appropriate transaction so we are still in the market.

Do you think things will come to market this year?

I think there is been over slowdown and you probably have seen it more than I have but there is been slowdown and transactions and I think it would have to see work checks out last half the second half of the year ago.

Okay. Thanks a lot.

Sure David.

Our next question comes from Kim Brasilia from KBW. Please go ahead.

Hi good afternoon guys. Thank you for taking my question.

Yeah.

My question is and regards to other reserve. You guys have had some nice loan growth primarily within CNI, your construction real estate while at the same time year-over-year the reserve has actually gone down from let's say 1.8 to 1.08. Do you guys see those building in the future or are you comfortable with that at these levels?

Again I will take the first comment and then turn it over to Ed, but we have a disciplined process as the banks -- all banks do and it's a -- there is judgment involved, but there is a lot of mathematics involved and good analysis done for the allowance. So we use that measure as a percentage -- allows as a percentage as an indicator but that’s not how we monitor our reserve and we believe that any movements you have seen has been directly proportional to the risk that’s in the portfolio. That’s going to drive it going forward as well. So Ed, do you want to add anything to that?

Kim, I would probably just be repeating what John said. It's a rigorous model. There is no magic number that we provide to and that it certainly is directionally correct as far as the risk that we are taking.

Okay, thank you. The next question is in regards to your margin. There is some nice expansion this quarter and I know here in your release you are saying that about 12 basis points of that was regarding prepayment fees. Is this a good run rate going forward, the 340, 342, is that a good run rate going forward or…?

Well, I would say that the major reasons for the improvements, shifting some investments into loans and also the deposit mix changes have been favorable to us. So I think that we have a strong base going forward and I don’t see a lot of volatility there. But Ed is there anything you want to add to that?

I think that we have had some good pickup both in favorable deposit repricing as both John and Mike have pointed out, but also we have gotten some small pickups in the spreads and so I would say that don’t expect any substantial changes to that next six months.

Okay, perfect. Thank you for your time.

Great, thanks.

(Operator instructions). Joining again is David Darst from FTN Midwest. Please go ahead.

Okay. I have some more questions. Was the 130 for the first deferred, is that your market value? Can you give us the book value?

Ed, do you want to add anything to that?

Yeah, hold on for a minute, Dave. I would say that you could probably easily compute the book value by just -- hold on for one second. The 130 Mark, we have Mark (inaudible) here he is our Treasurer and the 130 million that I threw out was that…

That is the book value.

That is the book value.

We have a book value right now of throughout the corporation of 130,566,000 as far as the current market we have it 104,326,000.

So as we indicated earlier, Dave, most of that swing in OCI came from this portfolio.

Okay. And Mike, maybe you could give us an idea of where you are gaining the most market share and where you are seeing the most disruption relative to consumer, small business or within corporate business?

Just looking at our household growth and kind of just stack ranking where the growth is the greatest, I think corporate households and wealth management households have been at the top of the list and have been double-digit. Small business households are 5 to 6 and of course we have a couple of hundred thousand consumer households and although the number is relatively modest, we are very pleased with the number because a lot of our markets are flat to a slight decrease in population. So hopefully that helps you calibrate a little bit.

And would you say that the corporate growth is coming from the lack of willingness to lend or the larger banks not sending behind their customers?

I think that’s part of it. I also think that the average experience of our lenders is well in excess of 15 years and I just think we have a lot of loss long standing relationships with customers and prospects. So I think we want to prospect picks up the phone and you know maybe needs to the lease a piece of equipment and borrow some money that you know where on the shortlisted of two or three people they might call?

Yeah, I think that David and in addition to that we have developed relationships over the years and some of the business may have been going elsewhere that we are getting a short at, this is not just because the other banks are not getting into the mix, but we had to be there, and be ready. And we had (inaudible) and we have been able to step in and provide what they are looking for. We do have a three lenders in addition to what we had year ago. So I think that the all those things are coming together at the right time to provide that growth force.

Okay. That sounds good. How about for the month of July for a specific (inaudible) have you seen any change in deposit growth or deposit fronts from consumer that might be moving from larger banks?

Yeah, I thinks its too early to tell what’s going on there and I think that there is just a lot of disruption in the market. So really not comment on the third quarter yet.

Okay, Thanks a lot.

Sure.

(Operator Instructions). Gentlemen, there seems to be no further questions at this time. I would like to turn the conference over or back over to Mr. Dolan for any closing comments.

Okay. Well the only thing I would say is that I am excited about where we are headed and you know, what the momentum we are picking up here. And thank you all for participating on the call.