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Executives

Rich Stimel – Communications Manager

John Dolan – President, CEO

Ed Lipkus – CFO

Mike Price – President First Commonwealth Bank

Analysts

Tim [Brazillo] – KBW

Matt Schultheis – Ferris, Baker and Watts

David Darst – FTN Midwest Securities

Rick Weiss – Janney Montgomery Scott LLC

Mac Hodgson – SunTrust Robinson Humphrey

First Commonwealth Financial Corp (FCF) Q1 2008 Earnings Call Transcript April 17, 2008 2:00 PM ET

Operator

Good afternoon I would like to welcome everyone to First Commonwealth’s first quarter earnings conference call. (Operator instructions). At this time I will turn the call over to Rich Stimel Communications Manager at First Commonwealth. Mr. Stimel, the floor is yours sir.

Rich Stimel

Thank you Mike, as a reminder a copy of today’s earning release can be accessed by logging on to www.scbanking.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 10K 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

Thanks Rich, good afternoon everyone, we certainly appreciate you joining us today for our first quarter earnings call. Joining me today is our Chief Financial Officer, Ed Lipkus, who will be providing additional details on our first quarter performance and Mike Price, President of First Commonwealth Bank and he’ll update you on the progress we’re making in our wealth management commercial services and consumer services lines of business.

I would like to start out by stating that our strategy is to win in our marketplace by becoming the best community based financial institution in our markets and first choice amongst our clients employees and shareholders. I’m please with our first quarter results and I’d like to share some key highlights with you.

Net income increased 2.1% compared to the same period last year. Net interest income increased 2.3% compared to the fourth quarter 2007 or 9.2% annualized and has increased consecutively over the last three quarters. Total loans increased $190 million and the provision for credit losses increased $200,000, primarily due to the increase in loan growth year of year.

Net interest income increased 17.8% compared to the first quarter 2007. We had a great quarter of loan growth. Mike will talk to you about the strengths of our corporate lending group however I would like to discuss opportunities that were created as a result of market conditions and how our balance sheet allowed us to capitalize on them.

Regarding the market, for credits over a certain size, say $5 to $10 million the market seemed to have seized up. The bigger banks are reticent to lend and are much more cautious with their balance sheets. We see this especially in the commercial real estate and corporate finance both areas where we’ve grown appreciably.

Regarding our positioning, we’d like to think of ourselves as a community bank because we feel strongly that you win by delivering locally. Those community roots have served us well on the relationship side as we’ve gone up market over the last few years. We are finding that our size has given us an advantage versus smaller community banks with both our lending limits and our capacity.

Conversely as the credit markets have seized up, we find that there are fewer lenders and the supply of good quality credit opportunities on some larger participation loans. This has served us well and we’ve grown some quality companies. Our relatively strong balance sheet in these troubled times has allowed us to follow some long standing commercial real estate relationship to adjacent or contiguous markets like state colleges or Morgan Town West Virginia.

Our pipeline remains strong and this is perhaps a limited opportunity to simultaneously grow assets of the company both quickly and safely. We’re also beginning to see improvements in our assets quality performance measurements. Our core loan balances decreased $5.2 million and now represents 1.25% of our loans as of March 31st, 2008 compared to 1.46% December 31st, 2007. I’d also like to reiterate that we have, what we have previously disclosed. First Commonwealth is not a participant or underwriter in the sub prime mortgage loan or collateralized debt marketplace and therefore does not have any exposure to risk associated with these activities.

All mortgage back securities in First Commonwealth’s portfolio are AAA rated and back by US government agencies. Over the past year we’ve worked very had to position First Commonwealth to become first choice of our clients, our employees and our shareholders to become a first choice financial institution, we felt it necessary to realign the structure of our organization in 2007 so to enhance our ability to respond to the needs of all our stake holders.

This realignment took place in 2007 and continues to be refined. With this realignment, and out commitment to find and retain the very best talent possible, we now have a corporate structure which facilitates open communication and teamwork and a management team that’s focused on long term success. Our purpose of realigning the team was to better provide role clarity and alignment of structure with our strategy. We wanted to get the right people in the right seats with the appropriate focus.

We believe we have accomplished this. in 2007 our company recommitted itself to be responsive to our client’s need and maximizing our customer’s convenience. This includes a comprehensive review of products and services. We reevaluated our assumptions and perceptions about service. We looked at how we defined exceptional service and how we encourage and support it throughout our company.

We looked at our products, we reviewed and refined over half of our, all of our products we offer and we continue to review the remaining products. We established formal processes that more clearly define our goals and monitor our progress. Every employee will ultimately have an individual scorecard by which their performance will be measured. Once again, all of this was done in an effort to become first choice of the communities we have the privilege of serving and to meet our responsibilities to our shareholder.

To this end I would like to briefly address our dividend which I know is an issue in the minds of many of our shareholders. As you know many of our larger competitors have been forced to reduce or eliminate their dividends to provide a source of capital. We recognize the value of our dividend to our shareholder base and intend to grow our earnings to support our historically strong dividend. In addition, our capital levels will continue to support dividends over the near term we realize that we must achieve earnings growth in order to maintain our dividends at its current rate over the long term.

As always, dividends are declared at the discretion of the board of director but our objective and the focus of our strategic initiative it he achievement of earnings per share growth that supports our exceptionally strong dividends. I’ll now turn the discussion over to Ed. Ed?

Ed Lipkus

Well thank you John and good afternoon everyone. I want to start out by identifying the areas that I’ll be covering on today’s call. First I will provide some details on our quarterly earning and our net interest margin. Then I’ll follow up with some additional information regarding loan growth and asset quality. Fist commonwealth reported first quarter 2008 net income of $11.1 million or $0.15 per diluted share compared to $10.9 million or $0.15 per diluted share in the same period last year. And $11.6 million or $0.16 per share for the fourth quarter of 2007.

Net income increase $226,000 or 2.1% as John indicated earlier year over year primarily due to an increase in non interest income partly offset by a decline in net interest income slightly larger provision for debt losses and higher non interest expense. Compared to fourth quarter 2007, net income decreased $527,000 or 4.5% mainly due to higher non interest expense and provision for credit losses partly offset by increased by net interest income and a lower tax provision.

Net interest income was up $926,000 or 2.3% from the fourth quarter of 2007. this improvement in net interest income is primarily due to increased levels of loans and investments and a 29 basis point decrease in funding costs. Despite significant federal reserve bank reductions in short term rates, our net interest margin decreased on 4 basis points compared to last quarter and 8 basis point compared to the first quarter of 2007.

In anticipation of the yield curve becoming steeper in 2008 we began to reduce our de-leveraging of investments towards the end of 2007. and we began to shorten the length of our funding to be able to reacted to the expected changing yield curve. Due to the yield curve becoming steeper in the first quarter, we increased our investment securities portfolio 2.7% from year end as we began to get more favorable spreads.

We do remain cautiously optimistic about our net interest margin for the remainder of 2008 as we are liability sensitive. However certain liabilities have implied floors such as savings and certificates of deposits and the competitive landscape may prevent us from lowering rates further should the federal reserve continue this trend. We did experience strong loan growth last quarter with total loans increasing $195 million or 5.3%. this growth was mainly in commercial loans with about 61% of this commercial loan growth coming in the C & I commercial and Industrial area, about 23% in the commercial real estate area and about 16% in commercial construction loans.

Our commercial loan pipeline continues to be strong and is well over historical levels. And Mike will provide additional insight into our commercial services line of business. Non interest income for the first quarter 2008 increase $2 million or 17.8% from the first quarter 2007 and increased $626,000 or 4.9% from the fourth quarter of 2007 primarily due to higher insurance commissions and increases in other income, higher sales additional producers an enhances calling programs resulted in an increased insurance commissions. Other income grew primarily as a result of increased letter of credit fees and swap fees. And Mike will provide more details on our sales execution. Non interest expense for the first quarter of 2008 increased $1.1 million or 2.8% compared to the first quarter r 2007 and increased $2 million or 5.4% from the fourth quarter of 2007 and these increases were primarily due to higher salaries from normal merit increases as well as increased occupancy expense and other operating expenses.

We are beginning to see improvements in our asset quality performance measurements non accrual balances decreased $5.3 million from last quarter and now represents 1.25% of our loans as of March 31 compared to 1.46% at the end of the year. This decrease was primarily due to the successful workout of commercial credits including the $4.3 million commercial credit relationship that we disclosed in the fourth quarter of 2007.

Excluding the two large commercial loans that we have previously disclosed in 2007, non accrual loans as a perce4ntage of total loans as of March 31st were 0.41%. loans past due in excess of 90 days and still accruing did increase $6.4 million to $20.1 million compared March 31st, 2007 and the majority of this increase was related to one commercial loan that we feel is adequately collateralized by real estate. The provision for credit losses for the first quarter of 2008 increased $827,000 year over year.

While we experience payoffs on loans that carry specific allocated reserves that resulted in an improvement in credit quality, additional provisions were warranted in the quarter due to the growth in the commercial portfolio. And that wraps up my comments on our quarterly results. I would like to now turn the call over to Mike to take some time to discuss his focus on our lines of business and our opportunities. So with that, it is my pleasure to introduce the President of First Commonwealth Bank, Mike Price.

Mike Price

Thanks Ed, as John indicated earlier, our aspiration is simply to become the best community bank in Western Pennsylvania. I think we’ve generated good momentum in the first quarter of 2008, or corporate banking group had a strong quarter in the wealth management group also performed well. Let me just say that we have some real opportunities to grow our consumer services business which includes branch and business banking.

We’ve solidified our retail banking operations with the hiring of [Eric Brenner] as the new head of retail banking and he started just a few weeks ago. And he joins first commonwealth with about 20 years of banking experience with both a large bank and a number of community banks as well. As I think about our approach to winning in 2008, and beyond just like to talk about 5 themes in our strategic process in each line of business. And these themes are first customer focus, we feel we need to be consumed as an organization with what happens between our folks on the front line and our customers and how we can make that better, and we need to deliver locally like a community bank with all the friendliness care and respect that that entails.

The second theme in our plan is really talent and leadership and quite simply we need to retain develop and attract the most talent team in the marketplace. Our third theme is execution and accountability and our feeling is we need to become the best and the most pervasive sales force and service organization in our market. Our fourth strategic theme is strategic focus and quite simply we need to focus on the few levers in each of our lines businesses that will really drive results. Our fifth theme is partnering and our vision here is that our lines of business will work together and become each others best source of new business.

Let me briefly comment on the performance on our lines of business namely wealth management, commercial services and consumer services and give you my perspective on our momentum in each area and some of the key strategic levers. In wealth management we saw some good year over year growth in 2007 and I think we’ve maintained that momentum and perhaps wratched it up a l little bit in the first quarter of 2008. Our insurance business here and investment business is up nicely with products like our investment products where we see sales year over year up some 60%. And we’ve really increased the expectations around this important offering with our branch platform staff and I think we have better results we have a good sales leader there and we have assembled a strong team of investment reps and we’ve increased goals. Some pretty simple stuff and we manage that week to week.

We’ve also done a nice job with our employee benefits business and as I shift gears in corporate banking, both John and Ed have shared some pretty strong first quarter results and we’ve seen our commercial loans grow some 10% plus since year end 2007. And our corporate bank has developed three key areas of competency and expertise, we have a corporate finance, we have a commercial real estate lending group and we have a regional or middle market lending group. And we’ve laid a good strategic foundation with our executive in charge there his name is Joe Dell and his team.

I think we have a strong sales infrastructure with line of sight goals and incentives Joe is a good hands on leader as well as his key lieutenants who run that business and we have strong accountability. So we’re very optimistic about that business there. Our last line of business is that I’d like to comment on is our consumer services or retail banking. I think here we’ve struggled that last couple years. And I would share that our balance sheet rand off during that time both consumer loans and deposits and not surprisingly our sales productivity fell as well.

Whether you look at that on a per branch or per FTE basis, we have some good first quarter sign and let me share just two in the interest of time. On the consumer loan side we’ve grown our HELOC and installment book for the fist time in about 2 and a half years just in the last month. And really it was on the strength of a well conceived first quarter loan campaign we call it internally success is brewing and our year over year sales productivity is up some 30% whether we’re looking at units or dollars.

Encouragingly in the first quarter we also grew our DBA and savings portfolio as well. And we consciously let our CD book dribble down slightly as interest rates got very, very competitive. You might as what are we going differently and I would characterize our approach to back to basics. Let me just share a few items. In all of our branch associates now have scorecards and they know precisely what’s expected of them. We’ve changed our goals and incentives by really switching from kind of a widgets units mentality to more balance sheets measures that are really aligned more with shareholder value and growth. we’ve done basic things, we’ve just begun a weekly sales roll up call where all the, we review all the branch and region results and we stack rank each of the branch in all of the goal categories as we review performance.

Another fun the we’ve started is we’ve just started to do monthly blitzes where we go out and call on small businesses and corporate customers as an organization across the organization and our first blitz in March we had over 50 teams make some 600 calls and we’ll really take that to the next level in the next few months. Don’t get me wrong, there’s still lots to do but I think there’s culpable progress in our retail business. We have some more important work to do I think we need to build our small business franchise, really perfect both or service and our sales culture and really perfect our approach to our [genovo] banking.

I can tell you we’ve made great strides in all three of these but there’s still plenty to do. With that I will turn it back to John. John?

John Dolan

Thanks Mike, as I indicated earlier I believe that we’re well positioned to take full advantage of the opportunities that continue to result from the recent disruptions in the credit capital markets. We can’t predict how long this window of opportunity will last but we intend to capitalize it while it’s open. We do recognize that long term grown requires improvement in our core lines of business and as you just heard from Mike this is a significant focus of his current efforts. Mike and the team have made significant progress in a short period of time and I’m excited about our plans for 2008 and beyond. This concludes our discussion segment, I’d like to now open the floor to questions.

Question-and-Answer Session

Operator

Thank you sir. (Operator instructions). Okay, our first question comes from Tom, excuse me Tim [Brazillo] with KBW. Please go ahead sir.

Tim [Brazillo] - KBW

Hello good afternoon. I have two questions for you the first one is in regard to the loan growth, it’s been healthy quarter over quarter and year over year. And I’m just kind of curious about the run rate going forward, should we be expecting the same type of growth or is it going to stifle down a little bit?

John Dolan

I think for the short term we have a nice pipeline and will continue to grow. I think quite frankly to do this quarter over quarter is unrealistic.

Ed Lipkus

And this is Ed Lipkus Tim, I’d have to say that because of some of the conduit markets if not all of them drying up and the capital market season up we don’t know how long that’s going to last so it’s really hard to predict any kind of run rate on these types of credits. It’s our expectation to minimize the run rates and we do certainly strategically try to position ourselves to avoid but it’s really hard to predict.

Tim [Brazillo] - KBW

Okay, thank you for that. And the second question I have is in regards to reserves. I see that they’ve been declining slightly for the past couple quarters, is a trend that’s going to continue or should we expect them to kind of level out at this current level.

Ed Lipkus

That’s an excellent question Tim, again it’s Ed Lipkus and I’ll say this. We’ve disclosed that we had too large credit problems that we are working out we think we’re working them out satisfactorily right now. We do believe that our asset quality overall has improved over the last couple of quarters. We do an extensive analysis every quarter to determine how, to make sure that our allowance is adequate and the numbers are the number we do a significant amount of modeling here and we are very comfortable whether or not we would expect the trend to continue we think we’re using very conservative underwriting fundamentals I don’t have a personal wall but I can tell you that they’ve been in a band here north of 1% to say 1.15 of loans and they’ll probably remain in that band.

Tim [Brazillo] - KBW

Okay perfect. Thank you very much.

Operator

Our next question comes from Matt Schultheis with Ferris Baker and Watts.

Matt Schultheis - Ferris, Baker and Watts

Good afternoon. I wanted to focus in our your long range growth a little more. I noticed that obviously you had a slot of C & I and a lot of commercial real estate. The commercial real estate construction, what are we looking at there in the construction side? What type of building?

Ed Lipkus

Matt that’s an excellent question and certainly in this marketplace one might say commercial construction you think risk, you think we’re seeing it across all areas, we’re looking at commercial office buildings medical health hospitality, it’s really a mix bag here. We have some residential units, not a lot we did branch out into the State College area so we have a few deals over there.

Matt Schultheis - Ferris, Baker and Watts

Is that multi family or single family?

Ed Lipkus

Yeah, multi family.

Matt Schultheis - Ferris, Baker and Watts

Okay, just to make sure. Okay and as far as the C & I, is that what would you say the average size company is that you’re financing out of this new growth. And would you say this companies doing $5 million to $10 million in sales basically small business or somewhere north of that?

Ed Lipkus

Well Matt we’re seeing a wonderful opportunity right now for bank size we’re uniquely poised to take advantage of some of the capital markets right now so we are seeing some looks and it’s all across the board here but we are seeing some a few national syndications we are seeing a few large credit in our footprint. Nothing that I would say I could categorize as over the top here but I can say that the C & I growth because of the market seizing up we’re getting some looks that we’re kind of taking away from us in the last year or two.

Matt Schultheis - Ferris, Baker and Watts

Okay and as far as your new efforts though more aligned branches with the commercial lenders that obviously going to be somewhat smaller I would assume because they have to be branch dependent companies?

Mike Price

We are just, this is Mike Price Matt, we’re just really kicking up our small business banking effort and we have those business bankers aligned with branches and those are credits that are you know probably average a couple hundred thousand and are all south of a $1 million each.

Matt Schultheis - Ferris, Baker and Watts

A nice big margins on them I’m sure.

Mike Price

Yes, and we fell like we’re under penetrated in that market and there’s perhaps an opportunity to grown.

Matt Schultheis - Ferris, Baker and Watts

Okay, obviously you still have some EFI loans which you’re trying to work out here and I was wondering my understanding and this is just what I’m hearing through the grapevine is that there are two types of EFI loans that there have turned out to be fraudulent vapor loans which are basically paper signed by made up people. There’s nothing there and then loans that are signed by real people who are participating, colluding on fraud. And my understanding is that Sterling Financial just kind of walked away from the second type of paper saying we’re not going to take that one back and say that’s an issue between you and the borrow at this. I was wondering if you have any comment relating to that or if you’ve had any negotiations with PNC?

Ed Lipkus

Matt let me say that I think I heard you say vapor loans? That’s an interesting term I’ve never heard that one before and I’ve been in this business 26 years. But you’re following this closely and I think you know what my answer is going to be. This is a very delicate relation ship that we’re in and I’m limited to what I can disclose. We have been forthright in our last four or five quarterly disclosures we’ve said in our press release here that we have $4.1 million in outstanding which $3 million has been classified as non accrual, we have been getting cooperation from Sterling and I would not categorize our relationship as one of anything less than that. But at this point, anything can happen in these types of negotiations and we’re kind of stand where we’ve stood for the last couple of quarters. And should that change and we have to if this does change we’ll obviously disclose it but that’s kind of where we are.

Matt Schultheis - Ferris, Baker and Watts

Have you heard from anyone from PNC?

Ed Lipkus

Yes, we are currently having dialogues with the folks at PNC this deal did close with PNC on April 4th and, which has been in the works for 6 months now so I haven’t seen any southern deterioration here because of the, usually, in a [prior worlds] would send some signals out though the inquiree well in advance and we haven’t seen any change in their posturing at least any material change so we are having discussions with them that’s where we are.

Matt Schultheis - Ferris, Baker and Watts

Okay, thank you very much.

Operator

The next question we have comes from David Darst with FTN Midwest Securities.

David Darst - FTN Midwest Securities

Good afternoon. Could you, you indicated there’s still liability sensitive and I wondered if you’re now slipping back to a more neutral position or maybe becoming asset sensitive given the growth in the construction and C & I and also maybe could you give us the percentage of the loans that are tied to run rate?

Ed Lipkus

That’s a good question Dave and I think for now where we stand we still see some opportunities with deposit re-pricing in 2008. We’re as I said earlier, we’re cautiously optimistic we do have a portion of our portfolio that’s tied to prime and other and LIBOR I would say that that’s probably somewhere between 30% and 35% of our total portfolio.

David Darst - FTN Midwest Securities

Okay and what was the amount of income from the derivative of swaps. Is that a new product that you began implementing?

Ed Lipkus

Well the I believe just hold on for one minute Dave. We strategically enter into these swaps because we don’t want to put the interest rate risk on our books and so it didn’t give rise to materiality so we don’t have it on our income statement as a separate line item. I know there were several swap fees, several swaps we did during the first quarter but none gave rise to materiality.

David Darst - FTN Midwest Securities

Okay and then you indicated that you’ve done some shared national credits and some other participations, could you give us the dollar amount of those?

Ed Lipkus

Well, right now that’s not something that I would say has given rise to level of concentration or materiality that we would want or even to disclose so really don’t’ have that information right now. Let’s just say when we do underwrite these things we apply the same conservative underwriting fundamentals and we’re not taking the deals because of risk, we’re in a unique position David because we’re actually able to turn deals away that not because they’re that much more risky but because we’re, we’ve got such a healthy pipeline we can choose just to be pickier. And these are deals that are top notch and it’s hard for us to not underwrite them.

David Darst - FTN Midwest Securities

Okay and then maybe a little color on the types of loans that you’re following your customers out of market to do.

Ed Lipkus

Well when you want color on the types of loans.

David Darst - FTN Midwest Securities

Yeah you said you’ve gone to Wheeling and to State College and you’re following some customers out of market.

Ed Lipkus

Okay alright, I’m sorry.

David Darst - FTN Midwest Securities

Is that hotels?

John Dolan

We’re in State College, I’m going to be real careful as to how much information we want to share here because we don’t want to put ourselves in a competitive disadvantage. We’ve strategically placed an LPO in State College because of opportunities in I think it’s a healthy market, we’ve got some multi family residential construction out there, there’s some student housing there’s commercial construction that’s underway right now it’s a robust area and we think that we can continue to diversity our risk. Generally David the clients, our clients that we’re familiar with and we’re able to follow them to those locations where they’re growing so we know them, we know the creditors, the borrowers I mean and that’s what makes it a good relationship for us.

David Darst - FTN Midwest Securities

Okay that’s it John I appreciate you taking the time to have a call. Thank you.

John Dolan

Sure David.

Operator

The next question we have comes from Rick Weiss with Janney.

Rick Weiss - Janney Montgomery Scott

Hey Guys. I just have a follow-up question with regards on the loan growth. it came in so fast this quarter compared to last year when it was shrinking, and I guess with the loans that you are doing organically rather than the participations is that coming from kind of new business in your areas the economy doing pretty well or is it simply picking up business that these larger banks are ignoring or passing on for now.

John Dolan

Its a little combination of that Rick I’d have to say that it didn’t happen overnight and it didn’t just happen in the first quarter. There’s been a lot of work being done over the last year and a half and it takes a while to cultivate those relationships however some of the opportunities that didn’t occur was because some of the larger banks started to stumble and had to walk away from some deals some were may have been relationships that we had been talking to and weren’t able to be competitive with but all of a sudden when the competitors had to walk away, our deal looked a lot better so it’s a little bit of combination some of these larger lenders lost some of the participants as well. So they were looking to have somebody else as a participant and we were able to do it and they were good credits for us.

Rick Weiss - Janney Montgomery Scott

Okay are any of the larger lenders cutting back on their own loan officers can you actually pick up some people?

John Dolan

There is that possibility, that’s one of the other opportunities that the marketplace has afforded us is good quality individuals and within the confines of any restrictions that we have right now but generally yes there’s more people on the market available to looking around to go to a good organization with a good franchise going forward.

Rick Weiss - Janney Montgomery Scott

Okay and let me just ask you back to the reserves so I guess the charge offs exceeded a provision this quarter, and I think this kind of like happened in the December quarter as well. So kind of like what’s the strategy here, would you think that there’s a time where provisions a going to pick up to maintain the allowance and will start exceeding charge offs as they normally do for you guys.

Ed Lipkus

Hey Rick this is Ed Lipkus. Rick let me answer your question as best I can to say that we had as I indicated earlier we had some improvement on accruals, we worked out that one large $4.3 million non accrual that we put on in the fourth quarter 2007. And with that and some of the other workouts we had, we actually worked it out faster than we thought and so we had some charge offs related to that we yes it’s a little bit higher than our provision but I right now I can just reiterate that our reserve is adequate we go through extensive modeling here we don’t target a magic number we just put it through our normal process and to put it another way, if we were to make our provision equal to our charge offs we would have had too much in our reserve and that would have been an undesired result as well.

John Dolan

Rick I can say that some of the charge offs that we had freed up some of our allowance and therefore that reduced the pressure on the provision.

Rick Weiss - Janney Montgomery Scott

Okay, alright, thank you.

Operator

The next question you have comes from Mac Hodgson with SunTrust Robinson Humphrey.

Mac Hodgson - SunTrust Robinson Humphrey

Hey guys, just a couple of other questions on the loan growth, some things that people have already asked but could you give a percentage of the loan growth that you got as a result of the inactivity in the capital markets or the lack of capital markets as an atlas of some of these borrowers?

Ed Lipkus

That’s a good question Mac and I have to say that maybe 20, two thirds that’s in total C & I, but related you are asking related to national credit?

Mac Hodgson - SunTrust Robinson Humphrey

I’m just talking about total loan growth in the quarter, how much of that would you say is a result of that disruption in the capital markets?

Mike Price

This is Mike Price and this is a bit of a slag but I would say probably about half.

Mac Hodgson - SunTrust Robinson Humphrey

And I think somebody asked this already but would that half also be the loans that you did through participations?

Mike Price

Not necessarily.

Mac Hodgson - SunTrust Robinson Humphrey

Okay. And maybe comment about the security portfolio I know it rose a little bit this quarter is that something we should anticipate going on again in the second quarter.

Mike Price

Well, it’s hard to say, we’re being real selective on our investments right now. We’re trying to get in there when we think spreads are going to be at a certain level. I’d be reluctant to try to give you any additional color.

Mac Hodgson - SunTrust Robinson Humphrey

Okay, and then maybe finally on low production obviously I know you guys have talked in the past about selectively entering some new markets. Maybe just give some commentary on the possibility of opening up another loan production office in a new market.

John Dolan

We’re going to continue looking at that right now we’ve got our hands full and our pipeline is very strong but that’s not always going to be the case so we will look at some of the faster growing market areas to, which we have already begun to look at. We aren’t ready to pull trigger yet. so we’ll try to keep the momentum going by looking at the proper places for those LPO’s.

Mac Hodgson - SunTrust Robinson Humphrey

Okay great thanks guys.

Operator

Mr. Dolan, gentlemen, there appear to be no further questions at this time.

John Dolan

Okay great, thank you everybody.

Operator

Thank you gentlemen. This now concludes First Commonwealths’ first quarter 2008 earnings conference call. A replay of today’s call can be accessed for the next 30 days by logging on to the investor relations page at fcbanking.com. Thank you for joining today’s presentation, at this time you may disconnect your lines.

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Source: First Commonwealth Financial Corp Q1 2008 Earnings Call Transcript
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