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Executives

Rich Stimel – Communications Manager

John Dolan – President and CEO

Bob Rout – EVP and CFO

Mike Price – President, First Commonwealth Bank

Bob Emmerich – EVP and Chief Credit Officer

John Previte – SVP, Investments

Analysts

Andy Stapp – B. Riley & Company

Mike Shafir – Stern, Agee

Damon DelMonte – KBW

Rick Weiss – Janney Montgomery Scott

Julienne Cassarino – Prospector Partners

First Commonwealth Financial (FCF) Q3 2010 Earnings Conference Call October 28, 2010 2:00 PM ET

Operator

Good afternoon and welcome to the First Commonwealth third quarter 2010 earnings conference call. All participants will be in a listen-only mode.

(Operator Instructions)

Please note this event is being recorded. At this time I would like to turn the conference over to Rich Stimel, Communications Manager at First Commonwealth. Please go ahead sir.

Rich Stimel

Thank you. As a reminder a copy of today’s earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page and then selecting News on the left side of the page. We’ve also included slide presentations on our Investor Relations page with supplemental financial information that we will reference throughout today’s call.

With me in the room today are John Dolan, President and CEO of First Commonwealth Financial Corporation; Mike Price, President of First Commonwealth Bank; and Bob Rout, Executive Vice President and Chief Financial Officer. After brief comments from management, we’ll open the call for your questions. For that portion of the call we’ll be joined by Bob Emmerich, our Chief Credit officer and John Previte, our Senior Vice President of Investments.

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. Please refer to our forward-looking statements disclaimer on page 2 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

Now I would like to turn the call over to John Dolan.

John Dolan

Thank you and good afternoon everyone. Thanks for joining us on today’s call. This morning we released our financial results for the third quarter and we’re pleased to announce net income of $10.7 million compared to a loss of $5 million in the third quarter of 2009. The revenue growth we’ve generated year-to-date has been largely driven by a combination of fee income and net interest margin expansion. Net interest margin improved over both the last quarter and third quarter 2009. Our gains in net interest margin are products of more effective deposit mix and the deleveraging of our balance sheet.

Market share we’re continuing to win in consumer and small business segments has enhanced our low cost deposit base. Looking at the year-over-year comparison, our low cost savings and DDA deposits increased 13%, on-time deposits decreased 8%. Throughout 2010 we’ve continued to execute on the strategy to reduce our balance sheet leverage. We sold three quarters of our Municipal Investment Portfolio and sold or participated in eight of our 62 credit commercial relationships that were loan commitments of $15 million or over.

The common stock offering we completed in the third quarter helps us solidify our strong capital base. This will position us well as the economic recovery begins to gain traction and as we continue to build on the momentum of our organic growth. But all of this is taking place in an environment of tremendous economic and political uncertainty, which will require an ongoing focus on improving credit quality and prudent capital management.

We’ll continue our strategic focus of reducing problem assets and mitigating our exposure to large credits but I’ll say we expect more favorable asset quality trends going forward.

Mike Price will speak to the details around credit quality but overall our provision for credit losses was $4.5 million for the third quarter compared to $4 million last quarter and $23 million in the third quarter of last year.

Our nonperforming loans decreased 7% in the third quarter and they’re down 26% since their peak in the first quarter of this year. Again, Mike will delve into these details a little later.

In the third quarter we realized a $4.3 million OTTI charge compared to a $2.1 million charge in the previous quarter and $11.9 million charge in the third quarter of last year. Impairment charges in the third quarter of this year were partially offset by a $1.4 million in realized gains on the sale of the municipal securities. We reduced our exposure on our municipal securities portfolio from $209 million at the end of 2009 to $53 million at the end of the third quarter of 2010.

As 2011 rapidly approaches, we remain committed to growing our retail and small business market share and continuing to improve our funding mix. We also anticipate soft loan demand but believe that genuine opportunity exists as we build our middle market commercial lending infrastructure.

While all these things are taking place within an environment that I believe has fundamentally and permanently changed, and that means the way we do business must develop to reflect these changes. The new regulatory environment will infringe on our ability to generate revenue. At the same time, cost to comply with additional regulatory requirements will increase. With FDIC insurance premiums, credit cycle cost and added regulatory compliance, effectively managing our expenses takes on even greater significance.

Since we launched our cost savings initiative in January 2009, we’ve maintained good stability over our discretionary expenses and we’re pleased with our organization’s cost control efforts. But there is still opportunities to improve processes and operating efficiencies. We’ll be paying particular attention to technology and implementation and staffing efficiencies. It’s not about doing the same things at a lower cost, it’s about doing things better whether it’s managing expenses or building market share, the intention is to get closer to the customer and build deeper relationships to drive future growth and financial performance.

So to discuss the most recent financial results in greater detail, I’d like to introduce Bob Rout, Bob?

Bob Rout

Thank you John and good afternoon everyone. As John mentioned and as evidenced by our third quarter results, we continued good progress, getting the organization back on an improved performance track. The credit issues were fairly well contained this quarter. However these loans are large complex relationships, many times involving multiple participants and by their nature take a long time to work through.

The economic conditions for distressed assets also complicates these efforts where Michael speaks to in his upcoming presentation, the progress is encouraging. Walking through the financials I want to start with the balance sheet. As you are aware, balance sheet restructuring and derisking has been a strategic focus over the last 18 months. During that time we have significantly improved our funding mix with more transactional accounts and corporate cash management. We reduced borrowings by almost $1 billion, diversified the loan portfolios with a better mix of small business consumer, corporate finance and middle market loans.

Middle market lending is an area that we believe presents good opportunity particularly with the Marcellus Shale potential and we’re just now starting to scratch that surface. We aggressively addressed the credit issues in both the loan and the trust preferred portfolios. We reduced our exposure to municipal securities. And the last piece was shoring up our capital position, which we accomplished here in the third quarter with a common stock offering of net proceeds of $81 million.

Certainly more work remains cleaning up some troubled credits that were primarily out of market and in many cases inappropriately sized. Despite that ongoing clean-up activity we believe the balance sheet is well positioned to move the organization forward.

In the net interest income area, the net interest margin has been on a fairly steep trend currently at 3.9%. The change in the mix of the deposits has been instrumental in that improvement. That trend is slowing somewhat as the balance sheet derisking activities take full effect. Many of those out of the market construction loans and municipal securities have fairly attractive yields but we are certainly willing to make the trade-off for a less risky credit profile. In addition like all banks a flattening yield curve if that forecast does in fact come to fruition will not be helpful for that upward trend.

Net interest income growth has been slowed by deleveraging activities. Now some of that deleveraging is by design such as the reduction in loans beyond our in-house lending limits, a higher loan geographic market and reducing risk in the investment portfolios and some of that deleveraging is involuntary such as comes with weak loan demand generally.

We’re certainly willing to negotiate price, but this is not the market to be stretching on credit terms and I think our folks are doing a wonderful job of holding to newly established credit guidelines.

After three consecutive quarters of improvement in the trust preferred portfolios we have a slight uptick in defaults and referrals generating $4 million of other than temporary impairment this quarter. It’s still too early to tell this uptick is in an anomaly and we’re fortunate that the muni market continues to hold while we implement our portfolio reduction strategy. Sale of munies generated $1.4 million of realized gains this third quarter.

Most areas of non-interest income continue upward trends except, of course, the NSF fees, which were impacted by new regulations. We had projected a monthly decrease of $200,000 per month in these fees as a result of those new regulations. The actual effects are coming in around $250,000 a month. We believe we have strategies to mitigate these effects and of course, continuing the strong growth in our DDA households will also be a mitigator.

Non-interest expense is fairly well controlled but we know that further improvement will be a critical performance factor. I believe ample opportunity is available to drive that efficiency number to a better performance level. That will be an important strategic focus for us going forward and we believe that could be accomplished without hampering the market growth opportunities that we see developing.

So with that I’ll turn the discussion over to Mike Price.

Mike Price

Thanks Bob. The economic environment is still challenging but we continue to make progress. Starting with credits, the provision expense for the third quarter was $4.5 million versus $4 million last quarter and $23 million at this time last year. Total nonperforming loans decreased 7% on a linked-quarter and now stand at $124 million or 2.9% of total loans.

Of the $9 million decrease in non-performing loans this quarter, we reached a successful settlement with borrowers on a $12 million condo project in Missouri that resulted in the repayment of 82% of our principle which freed up about $9 million in specific reserves, also contributing to the reduction in nonperforming loan balances for a $3 million participation loan for a completed recreational project in Illinois and a $2 million loan located in Western PA for the purchase of a commercial building held as collateral. Both of those loans were transferred to OREO this quarter.

As far as significant additions to nonperforming goes that included a $10 million Western Pennsylvania commercial real estate loan for tenant improvements on an office building located in downtown Pittsburg and this was due to increased vacancy rates. We took about a $1.4 million specific reserve on this credit.

Some additional noise within our provision expenses quarter was the result of downgrades on a handful of performing credits both to conform to the results of the annual shared national credit exam and due to deterioration in some commercial real estate loans within our investment real estate market area. We have also adjusted some cap rates used for economic valuations of real estate credits. The aggregate impact of these adjustments was $8.1 million.

Our three largest nonperforming loans are a $44 million line of credit to a Western Pennsylvania real estate developer that was placed on non-accrual status in the fourth quarter of 2009, a $10 million loan on a landfill located in western PA and $10 million Western Pennsylvania loan for tenant improvements to the building held as collateral that was placed on non-accrual status during this quarter.

This totaled $64 million and represents over half of the nonperforming loan portfolio. Also note the Pennsylvania landfill loan does not currently carry a specific reserve so the remaining two combined carry a $25 million allocation. Looking at the breakout of our total nonperforming loan portfolio and for your reference that’s on slide 8 in the supplemental deck, at the end of the third quarter, the construction loan portfolio represented 21% of nonperforming loans that represents only 7% of our total loan portfolio.

During the third quarter we took an additional reserve of $1.3 million on a land loan in Nevada and an additional reserve of $720,000 on a hotel water park in Illinois, which we moved to OREO.

The vast majority of our problem construction credits are located outside of our Pennsylvania market. We believe that we have taken most of the cost on these and do not anticipate them to have much of an impact on our earnings going forward. However, because most of these assets are real estate secured resolutions are painfully slow and we must typically work through an agent bank and get consensus with participants.

While we’re on the topic of settlements, we continue to make progress on restructuring of the $44 million remaining balance on the unsecured loan to a local developer. We’ve reached an agreement in principle on a restructuring of this debt and have commenced a formal documentation of that agreement. We anticipate a principle pay down on this note during the fourth quarter.

While our western Pennsylvania footprint has weathered the current economic cycle relatively well, we would be naïve to think the lack of economic growth in the national economy will not eventually affect our core Western PA portfolio. A couple of things; the favorable gap between the Western PA unemployment rate and the national unemployment rate is shrinking. Loan demand for both retail and corporate banking has been soft to say the least as evidenced in our loan balance. Spreads are under pressure as banks seek to rebalance their portfolios out of commercial real estate and aggressively go after the few quality C&I opportunities that are out there and although it’s too soon to sound any alarms vacancy rates for office space are increasing in the Pittsburg market.

Defensively we are managing down our large credit exposures. We’re accelerating the workout process for remaining problem credits and we are continuing to build our infrastructure and credit administration. More importantly offensively we’re focused on building and leveraging our lending particularly in middle market and small business and also our cash management capabilities, which really compliments our deposit gathering business. As John mentioned earlier, we’re still seeing favorable trends in substantially all areas of our community banking operations absent to credit cycle. Bob discussed our positive results and net interest income, net interest margin, non-interest income and non-interest expense.

Let me just expand on our balance sheet profile. Regarding loans as you can see on slides 5 and 7, total loans decreased $349 million or 8% from the year ago results with commercial loans declining $296 million or 10% and consumer loans decreasing $53 million or 3%.

On the commercial side most of the decrease is a function of three things; one, reducing our larger exposures as John alluded to earlier; two, pruning and managing our investment real estate concentrations; and three, reduced line usage on our lines of credit in the commercial bank from about 52% a couple of years ago to about 38% in the most recent quarter. In retail banking we exited the mortgage origination business about three years ago and this portfolio continues to run off. We experienced run off about $90 million in the past 12 months. Excluding this runoff, consumer loans would have increased approximately $37 million or 2%. As you can see on page 5, total deposits increased $231 million or 5% from September 30, 2009, lower costing transaction and savings deposits increased $363 million or 13% during the same timeframe.

These lower costing deposits represented 67% of total deposits at September 30, 2010 compared to 66% at June 30, 2010 and 63% at September 30, 2009, a continued positive shift in the mix of deposits and this has helped our favorable results in the net interest margin in the past quarters. The annual FDI see summary of deposit report as of June 30, 2010 recently was released and the following is a quick summary of the results. We saw double digit growth in three of our counties year-over-year and nine of the 15 counties are deposit increase exceeded the market increase or in other words we increased our market share and importantly in Pittsburg the market we’ve been intently focused on as a result of the disruptions in the banking market, our deposit growth was 8% compared to 4.8% growth for the entire market year-over-year.

Good operating results and we hope they’ll continue to get better and I must qualify and say that, over September year-over-year when we look at our non-interest bearing deposit mix as a percentage of the total we’re getting nice traction and gone have from about 13% to about 15%. As Bob mentioned earlier this deposit growth has also helped the bank in its deleveraging efforts. Going forward we will continue to take advantage of the opportunities in the Pittsburg market and in small business, which have fueled our growth in low costing DDA and savings deposit. We have really enhanced our sales and service culture at the bank and we will continue our community banking focus in delivering locally and responsibly as a community bank.

I’d now like to turn the call back to the operator and open it up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question will come from Andy Stapp from B. Riley & Company. Please go ahead.

Andy Stapp – B. Riley & Company

Could you talk about the loan pipeline and the prospects for loan growths over next several quarters?

Mike Price

We have some head wins with the continued working down our exposures from 63 credits over $15 million down to $49 as we committed towards the end of the year. Nevertheless, on the consumer side I believe we have momentum with branch lending to slightly overcome the mortgage runoff that liquidating portfolio. On the commercial side we have good traction in small business. I think we’ll have opportunities with corporate finance and some select in market syndications. Our middle market business we’re really ramping that up and it’s a nice complement to what we’ve already established and begun to do in Pittsburg with our small business portfolio. And then selectively within market investment real estate, we will look at quality transactions. So I think the opportunity we’re going to kind of reach a trough and turn it around in 2011 probably in the first half of the year.

Andy Stapp – B. Riley & Company

Okay that’s helpful. Do you plan to sell anymore municipal securities?

Bob Rout

Yes, that’s on the table Andy, this is Bob Rout.

Andy Stapp – B. Riley & Company

Okay, are you going to try to sell all of them?

Bob Rout

That would be our intent.

Andy Stapp – B. Riley & Company

That’s your plan okay. That factor, should we expect the securities portfolio to being fairly flat in this environment?

Bob Rout

We’ll selectively add to that portfolio as opportunity – I don’t think you’ll see us stretching too far in duration at this point and it’s not going to be anything out of the ordinary – plain-vanilla agencies, treasuries, maybe some mortgage-backeds.

Andy Stapp – B. Riley & Company

What is the life of your securities portfolio, your duration?

Bob Rout

About four years.

Andy Stapp – B. Riley & Company

Okay and happen to know what dollar paydowns in Q3 were on that portfolio?

Bob Rout

Not an exact number, no.

Andy Stapp – B. Riley & Company

I have some other questions but I’ll get back into the queue.

Mike price

Thanks Andy.

Andy Stapp – B. Riley & Company

Thank you.

Operator

Our next question will come from Mike Shafir from Stern, Agee.

Mike Shafir – Stern, Agee

I was just wondering if you could just real quickly, at the beginning of the presentation you guys mentioned in terms of the resolution of some of these larger loans participating them out, could you just kind of go over some of that detail again.

John Dolan

Yes I mean I’ll just give you the high level and see if that’s what you’re looking for. We started out the year at 62, credits over 15 and we’re 15, I guess it was and then we’ve got that down to 54 credits.

Bob Rout

Yes, Mike, some of that is just by encouraging the bank or the customer to seek to finance other places. Some of it is – and that’s not just the whole relationship but maybe the credits that are above our limits and this is not a number of accounts but I think it made great progress in the overall exposure bringing those down. Mike, did you want to add some color to that?

Mike Price

Just as important as the numbers the dollars of aggregate exposure that we’ve worked down since the beginning of the year is about $187 million and just $50 million in the third quarter alone. Does that help?

Mike Shafir – Stern, Agee

Yes absolutely, thank you very much for that. The largest kind of nonperforming credits, the Missouri Loan is now off the books, right?

John Dolan

That’s correct.

Mike Shafir – Stern, Agee

So now it’s the $5 million left of that construction loan to Florida to which you guys charged off a big chunk of the previous quarter. The $44 million C&I loan and then this new one is the $10 million commercial real estate project in Pittsburg?

John Dolan

That’s correct.

Mike Shafir – Stern, Agee

So I believe that you mentioned another loan. I think there was four in total when you guys were –

Mike Price

Yes. If you want to go to page 8 of our slide deck, I referred to that, there was actually four – the $5 million Florida loan that you mentioned, the $44 million unsecured, again the Missouri one and the third largest one will be that commercial real estate that just non-performing this quarter.

Mike Shafir – Stern, Agee

Right I’m sorry. I just thought there was four new ones versus the $30 million Missouri one because that’s gone now right? That’s the one that got mostly charged off this quarter?

Mike Price

It got paid off most of it.

John Dolan

Yes so there’s still only three there.

Mike Shafir – Stern, Agee

So there’s still only three. Then just where do we stand on that C&I loan in terms of potential resolution and how is that working out?

Bob Emmerich

This is Bob Emmerich. We’ve been negotiating on that loan for an extended period of time. There are three other banks involved. We are not a bank group but we all have the same terms, so we’ve been negotiating as a group. And we are very close, as Mike had mentioned we’ve reached the outline of terms for a restructuring and that’s in the process of being documented and part of that will include a paydown that will occur in the fourth quarter.

Mike Shafir – Stern, Agee

Do you guys have any idea how much the pay down will be or could you guys maybe speak to that?

Bob Emmerich

We know how much the pay down will be.

Mike Price

But we’re not prepared to disclose that at this point in time.

Mike Shafir – Stern, Agee

Okay. Then just in your press release you guys mentioned a property that was meant for sale but then the sales agreement fell through. Can you just discuss where that stands?

Bob Rout

That’s true. It’s a property we have in OREO, it’s a food processing plant and the terms called for us to deliver the plant by a certain date and we had trouble evicting the tenants so we couldn’t meet that date, so we are still working through that process.

Mike Shafir – Stern, Agee

Then just one quick one. In terms of the margin, I mean it seems like the securities portfolio, you guys as you sold off your munies is that – that’s the main reason why the tax rate went up a significant amount this quarter?

Bob Rout

No there’s a little more to it than that Mike. As you have losses in quarters like we had this first quarter, we go to a discrete method of calculating your income tax and then now that we’re back into a profitable mode, we go back to the effective tax rate. So that caused an adjustment here in the third quarter. And we think probably going forward an average or a normal run rate for us would be 23%, 25%. Fourth quarter can be lower as we continue to go through that adjustment period.

Mike Shafir – Stern, Agee

I’m sorry you say fourth quarter, it was going to back to that 23% to 25% range?

Bob Rout

No, probably 2011 we’re projecting a 23% to 25% range, fourth quarter probably will be around 7%.

Mike Shafir – Stern, Agee

The tax rate?

Bob Rout

Effective tax rate.

Operator

Our next question will come from Damon DelMonte from KBW.

Damon DelMonte – KBW

Could you just give us a little more perspective on the margin kind of looking forward as you continue to try to derisk the balance sheet? Are we expecting to see much movement in the margin?

Bob Rout

As you know that’s been our very, very steep upward trend. And again some of the derisking of our balance sheet is going to have some headwinds through that trend. In addition, the interest rate forecast as most banks are looking out for flattening of the yield curve, that is going to have some headwinds as well. Now, offsetting that has been our growth in our deposit mix and as well as – we still think we have some room in our liability pricing.

So that’s a long winded answer to try not to give you an exact percentage but those are the factors we’re considering right now.

Damon DelMonte – KBW

Okay. Going back to Mike’s question before about the effort to I guess divest some of those $15 million plus credits you’re down to 54 right now. What’s the aggregate amount of outstandings for those 54 credits?

Mike Price

The aggregate commitment amount is about $1.3 billion and the aggregate outstanding is about $740 million.

Damon DelMonte – KBW

Yes I did, thank you. Is your goal to get off 54 of those below that $15 million – to get all 54 of those loans kind of out?

John Dolan

No, there will be some exceptions. And we’re really looking at this as the aggregate excess exposure, we’ve mentioned the numbers but rather than focusing on units I think we want to look at the aggregate exposure and work it down. We just had one of our credits that was renewed recently. We had a $35 million exposure in there and we dropped it down to $25 million. With that company I think we’re comfortable at that level. So we expected that there would be some exceptions to this for the major companies headquartered in Western Pennsylvania where we feel comfortable with the risk and for community institutions that we feel we should support.

Bob Rout

As a point of reference, our lending limits in-house is $15 million per loan and $15 million per relationship. However, our legal lending limit is in excess of $90 million. This is a little perspective in what we’re trying to do here.

John Dolan

Actually for 42 of the 55 names, our exposure is under $30 million.

Damon DelMonte – KBW

Okay, so definitely 12 of those are greater than $30 million?

John Dolan

That’ll be the math, yes.

Damon DelMonte – KBW

Then I guess just lastly, how do you feel about your reserve level here kind of going forward. Can we expect the provisions to match charge offs or you think you’re at a point now where you have a strong enough handle on the risk in the portfolio and then you can start to release some of the reserve from here?

Bob Rout

We just did here we adhere to the methodology that we’ve got. We’re comfortable with the reserve level that we’ve got and feel that the loans are adequately reserved right now and hopefully, we’re really not so much focused on the reserve but the resolution of the problems and moving down the non-accrual and moving out the problem loans and the reserve level sort of falls out where it falls out where it should be.

John Dolan

I should also mention that it probably wouldn’t be fair or accurate to equate provision expense to charge offs for next year considering some of the very heavy specific reserve we have on the couple of those credits. So we won’t necessarily replace that specific reserve in fact it does lead to charge offs.

Damon DelMonte – KBW

Okay. Could you help us think about just from a provision perspective then? I mean the last two quarters were in the $4 million range and the four quarters before that were three or four times that size. So I mean are we kind of heading in the same direction that we’ve seen in the last couple of quarters?

John Dolan

What you have to keep in mind in both of those quarters were some unexpected release of reserve that were previously established. So no that’s not something you can count on every quarter going forward.

Operator

Our next question will come from Rick Weiss from Janney Montgomery Scott, please go ahead.

Rick Weiss – Janney Montgomery Scott

I was wondering if you could talk a little bit about when would you expect to be comfortable enough to increase the dividend.

John Dolan

Yes, that’s a good question. I think that the components that have to be considered is the capital levels which I think we’ve taken care of capital levels and we continue to add to those capital levels as we continue adding earnings. But it’s going to be really boiling down to the other two components and that’s consistent earnings and having some stability in the economy and knowing that if you raise the dividend you’re never going to have to reduce it again. So, I can see that where I would expect if we get to that point sometime in the year 2011 but I’m not prepared to predict exactly when that is.

Rick Weiss – Janney Montgomery Scott

If you were able to get say the crystal ball is working ahead say two more quarters like this one. Then would you be comfortable?

John Dolan

It depends on the outlook for the economy. If the economy is a little more certain I think that there’ll be a little more comfort level.

Rick Weiss – Janney Montgomery Scott

Honestly, given your capital levels John, how are you looking at M&A these days?

John Dolan

I’d look at transactions within footprint at this point in time but I think that we’re focused on getting a few things nailed down; here at the home front, I would say probably in 2011 we could take a more look at that as well.

Operator

(Operator Instructions) We do have a question from Julienne Cassarino from Prospector Partners.

Julienne Cassarino – Prospector Partners

Hi, did I hear you say you’re selling your entire muni portfolio, all your muni securities?

Bob Rout

It’s something we’re considering yes.

Julienne Cassarino – Prospector Partners

Can you talk about why are you doing that, what are you seeing in the muni world?

Bob Rout

Two issues; one is our current tax position with deferred taxes and the second issue is comfort levels with some of the credit issues going on and liquidity issues with those particular investments.

Julienne Cassarino – Prospector Partners

How are your munies priced? Are they level one, two or three securities?

Bob Rout

Level one.

Julienne Cassarino – Prospector Partners

So, these are getting priced every day? Are you using some kind of index to price them?

Bob Rout

A service we use to do that for us.

Julienne Cassarino – Prospector Partners

And they price for each individual muni or are they using an index as a benchmark?

Bob Rout

No, individual instruments.

Julienne Cassarino – Prospector Partners

Okay. So these are ones that trade every day or trade daily or trade regularly?

Bob Rout

I think regularly we – an accurate assessment whether they trade daily or not I’m not sure.

Julienne Cassarino – Prospector Partners

What are the ones? Can you just go into a little more detail about what you’re concerned about, the value like what kind of munies are we talking?

Bob Rout

Why don’t I turn this discussion over to our Treasurer, who is little more knowledgeable on the details. This is John Previte.

John Previte

Yes, as mentioned earlier the portfolio was actually over $200 million at the beginning of the year and we’ve disposed about three quarters of that. The remaining securities are very solid generally general obligation type issues. So the ones we have right now are we’re very comfortable with from a credit standpoint, but as Bob mentioned there are other tax issues that we’re also looking at relative to whether we continue to hold these or not.

Bob Rout

I should also mention it wasn’t too long ago where that municipal market almost froze up on us and we see some liquidity risk in those portfolios as well.

John Previte

The remaining securities actually are, from a pricing standpoint, have an unrealized gain of about $1.5 million at the end of that quarter.

Julienne Cassarino – Prospector Partners

Yes, just curious you said you’re concerned about the market in general for munies?

Bob Rout

Yes, if you look back historically there have been some freezing up of those markets, affecting the liquidity on them.

Julienne Cassarino – Prospector Partners

Okay. How much of the munies of the original $200 million size portfolio were municipalities outside of Pennsylvania?

John Previte

Don’t know right off hand. The majority of them were Pennsy issues but I can’t give you that exact figure.

Bob Rout

The other issue is as we went through the reduction of that portfolio, we started with the ones that had the most credit concerns and got rid of them first. So the ones that we do have left are probably the stronger ones in that portfolio. So we’ll assess it as the market changes and as our own financial position changes and make a decision here over the next couple of quarters when they’re not to retain the rest of that portfolio. So we’re keeping ourselves flexible with it.

Operator

This does conclude our question and answer session. I would like to turn the conference back over to management for any closing remarks.

John Dolan

Okay thanks everyone for joining us on today’s call. I believe we’re making consistent progress and we appreciate your continued interest in First Commonwealth and look forward to speaking with you soon.

Operator

The conference has now concluded. Thank you for attending today presentation. You may now disconnect.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: First Commonwealth Financial CEO Discusses Q3 2010 Results – Earnings Call Transcript
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