Rich Stimel - VP, Corporate Communications Mike Price - President and CEO Bob Rout - EVP and CFO Bob Emmerich - EVP and CCO Mark Lopushansky - CTO.

Bob Ramsay - FBR Capital Markets Collyn Gilbert - Keefe, Bruyette & Woods Matthew Breese - Sterne Agee John Moran - Macquarie Capital.

Good day ladies and gentlemen, and welcome to the First Commonwealth Financial First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder this call maybe recorded.

I’ll now introduce your host for today’s conference, Rich Stimel, Vice President, Corporate Communications. You may begin..

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

With me in the room today are Mike Price, President and CEO of First Commonwealth Financial Corporation and Bob Rout, Executive Vice President and Chief Financial Officer. After brief comments from management, we’ll open the call to your questions.

For that portion of the call we’ll be joined by Bob Emmerich, our Chief Credit Officer and Mark Lopushansky, our Chief Treasury Officer. 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 the results to differ materially from those reflected in forward-looking statements. Now, I’d like to turn the call over to Mike Price..

Hi. Thank you, Rich and good afternoon, everyone and thank you for joining us on today’s call. Despite many of you on the phone saying your goodbyes last quarter, Bob Rout, our CFO is graciously here with us again as Jim Reske our new CFO will start with us next week.

I know Bob has images of far off destinations dancing in his head and some pretty significant other endeavors, but he is going to continue to stick around and help us out and for that we’re very appreciative.

In terms of our performance in the first quarter of this year, net income of 12.3 million translated to $0.13 earnings per share, encouragingly first quarter earnings overcame a 2.4 million in IT conversion expenses and a specific reserve of 4.5 million for a larger credit that was downgraded to non-accrual.

Bob will also talk about some tailwinds from the sale of our RIA and also a recovery -- an insurance recovery from a fraud. We really like the progress we’re seeing with our credit quality metrics with our efficiency efforts, with the conversion of our core processing platform, with our de-novo mortgage efforts and with our Cleveland business center.

However, we need to grow our top-line and I’ll talk a little bit more about that. We’ve talked frequently about our strategic focus on building an enduring credit culture - our NPAs are down more than 50% from their peak levels a couple of years ago and our NPOs have decreased 28% over the last 12 months.

Even with the $4.5 million reserve provision expense totaled 3.2 million for the quarter. Our corporate and retail banking businesses are well positioned despite a tepid loan growth in the first quarter.

You’ll see average loan growth for the quarter was up 29.4 million but we had a significant downdraft at the end of the quarter with several large payoffs and a pay down as a result actual quarter end balances dropped over the year-end. In the first quarter we experienced some low origination volumes.

We have already begun to see a pick up in the second quarter and we kicked off a new retail lending campaign; our de-novo mortgage effort will make the Bank’s first purchase money mortgage loan since 2006.

In the third quarter we have begun a configuration of our loan origination systems and we plan to hire 12 mortgage originators within our existing retail footprint.

Earlier this month we announced the official opening of the Cleveland Business Center, this office is now staffed with three commercial lenders and has approved commitments so far in excess of $67 million.

Our overall business center strategy is to prudently expand into larger contiguous metropolitan markets where there is ample cross sell and fee generation opportunities.

Operation excellence which is our initiative to convert our core processing platform is on-track and achieving all milestones, our directly related savings that have been identified at this point totaled $6 million with at least an additional $0.5 million in supplemental cost savings also identified.

Importantly on an annualized basis we’re already seeing over $1 million in annualized savings from the project at this early stage.

Beyond these savings, these direct savings, and indirectly associated with Operation Excellence our executive team has specified dozens of other incremental cost savings and process improvements that will further support our efficiency efforts. So we’re very optimistic about the trajectory of our non-interest expense.

Bob will get into the details of our financial results but in general our first quarter results are encouraging. Even with tampered loan growth, the additional revenue engines of mortgage and the Cleveland Business Center portend well for the second half of the year into 2015. With that I’ll turn it over to Bob..

Thank you, Mike and good afternoon everyone. As Mike mentioned that we had a fairly noisy quarter with a number of one-time items that essentially offset one another, the gain on our sell of the registered investment advisory business and some fraud insurance proceeds were enough to offset the IT conversion cost.

On top of that we had a really good quarter with respect to asset quality. Our ongoing focus in this area is starting to generate some real earnings benefits and also some stability. Our net interest margin of 3.31% and net interest income was fairly stable on a linked-quarter basis.

We did not get any significant help from loan growth this quarter, but we did have some nice prepayment penalty fees and other fees plus a nice increase in the Fed Home Loan stock dividends this quarter. As we announced earlier this quarter we did sell our registered investment advisory business.

This business represented a very small portion of our overall wealth management activities and there were some challenges trying to get this operation up to a larger scale.

A gain of $1.2 million was a nice addition to our earnings and also our non-interest income this quarter helping to offset some of the one-time conversion cost that we’ve been incurring.

Non-interest expense is a bright spot; as you all know this has been a major strategic focus for us through our 50 by 15 campaigns and our operation excellence IT initiatives.

There too we have some one-time benefits relating to insurance proceeds but we are seeing the efficiencies from these two initiatives coming on much stronger than we had originally anticipated.

Someone shared the statistic with me just the other day that since January of 2010 our full time equivalent staff is down by 288 positions and we certainly believe we are a much better run organization despite having significantly less staff.

We see finding more efficiency opportunities especially through some of the remapping processes that we’re going through in conjunction with the IT conversion project.

With respect of capital, we continue to prudently manage down what we believe is excess capital levels now with some of the unpleasant credit surprises that we have experienced in the past have moderated.

In February of this year we announced an additional $25 million common stock buyback that is in addition to the $75 million of buybacks we have already accomplished since 2012. Currently our effective tax rate is 28.3%.

We also noticed in our non-interest expense that we have and most the other banks in Pennsylvania have benefited from a change in Pennsylvania shares tax laws. Pennsylvania legislators and administration, the officials are currently reassessing that law to determine if these changes affect too deeply into the Commonwealth’s revenue streams.

So with that I will turn over the discussion to Mike Price for any questions..

Operator, if you could open the line, we’d love to entertain some questions..

Question:.

and:.

Thank you. (Operator Instructions) Our first question comes from Bob Ramsay of FBR. Your line is open..

Hi. Good morning guys or good afternoon I should say. And my first question is about the provision expense this quarter for you guys is to say [quite] [ph] trends looked really stable this quarter, you’ve had several quarters where things are performing pretty well.

The allowance looks pretty big relative to that charge-offs and yet I guess you guys sort of kept the allowance relatively stable I guess a modest build to the allowance if not much.

Just kind of curious how you’re thinking about the size of the allowance whether there is opportunity if credit continues to be stable or a little bit better to release a little bit as reserves or how you’re thinking about the reserving methodology?.

Hi. Good morning guys or good afternoon I should say. And my first question is about the provision expense this quarter for you guys is to say [quite] [ph] trends looked really stable this quarter, you’ve had several quarters where things are performing pretty well.

The allowance looks pretty big relative to that charge-offs and yet I guess you guys sort of kept the allowance relatively stable I guess a modest build to the allowance if not much.

Just kind of curious how you’re thinking about the size of the allowance whether there is opportunity if credit continues to be stable or a little bit better to release a little bit as reserves or how you’re thinking about the reserving methodology?.

I’ll let Bob Emmerich add, this is Mike Price, but typically our provision has been covering charge-offs and I think our allowance is now at about 90 something percent of non-performers.

Bob any other comment you’d like to make?.

Only that I think we’re comfortable with the level of the reserve where it is particularly when we look at peer group statistics we are sort of in line with peer groups and I think I wouldn’t expect to see a lot of release of reserves going forward..

So that is the right way to think about it that you all will likely cover whatever then the charge-offs are in the quarter as long as non-performers are in the same ballpark as they are now or you will kind of keep the allowance to non-performer ratio kind of stable and cover net charge-offs?.

So that is the right way to think about it that you all will likely cover whatever then the charge-offs are in the quarter as long as non-performers are in the same ballpark as they are now or you will kind of keep the allowance to non-performer ratio kind of stable and cover net charge-offs?.

We would probably look to cover net charge-off, yes..

Okay. And then to I think Bob mentioned that there was some benefit from prepayments in the quarter I’m not sure if I caught that exactly right.

But I’m curious if that was the case how material that was and how you guys are thinking about the net interest margin outlook from here?.

Okay. And then to I think Bob mentioned that there was some benefit from prepayments in the quarter I’m not sure if I caught that exactly right.

But I’m curious if that was the case how material that was and how you guys are thinking about the net interest margin outlook from here?.

Bob, this is Bob Rout. That prepayment penalty was $853,000 that equates to about 6 basis points to the margin..

Okay.

So next quarter I guess it would be reasonable to expect prepayments are sort of go back and so the margin you probably start off 6 basis points give or take lower and then a little bit of core pressure, is that fair?.

Okay.

So next quarter I guess it would be reasonable to expect prepayments are sort of go back and so the margin you probably start off 6 basis points give or take lower and then a little bit of core pressure, is that fair?.

Yes, I think continued moderate pressure on that net interest margin is probably reasonable to expect..

Okay..

Okay..

Barring prepayment penalties and other such fees..

Okay.

And then the last question and I’ll hop out of the line here, but as you guys continue to make progress towards the system conversion in the third quarter this year, just wondering if you’re still thinking about the expense run rate as you come up the other end being $1 million to $2 million below sort of a $40 million run rate level?.

Okay.

And then the last question and I’ll hop out of the line here, but as you guys continue to make progress towards the system conversion in the third quarter this year, just wondering if you’re still thinking about the expense run rate as you come up the other end being $1 million to $2 million below sort of a $40 million run rate level?.

Yes. This is Mike. Absolutely we’re getting there and in fact we’re almost there but we probably have about a 1 million of the six to eight that we’ve shared before so we do expect that to come out in the first quarter of next year..

Okay, great. Thank you very much guys..

Okay, great. Thank you very much guys..

Thank you. Our next question comes from Collyn Gilbert of KBW. Your line is open..

Thanks. Good afternoon gentlemen. Bob it’s good to have you on one more call.

Just a follow-up on the expense comment, Mike, so this 38 million that you guys posted this quarter so that already is sort of reflecting some of the expense initiatives that you kind of have undertaken so we should think about lowering even from there, right, that’s what you’re saying?.

Thanks. Good afternoon gentlemen. Bob it’s good to have you on one more call.

Just a follow-up on the expense comment, Mike, so this 38 million that you guys posted this quarter so that already is sort of reflecting some of the expense initiatives that you kind of have undertaken so we should think about lowering even from there, right, that’s what you’re saying?.

I think so. I think we had talked about a $40 million run rate and $2 million less than that. We do have a pretty significant investment in mortgage that will offset that a little bit but I would expect it will be at the $38 million mark or so..

Collyn this is Bob Rout. If you’re trying to calculate run rates keep in mind that we did have a $900,000 insurance recovery this quarter that went into the non-interest expense..

Yes, right. I was looking at more of that core base, it seems like the core for the quarter was at 38.3 million. So I mean it’s just that’s impressive if you’ve captured even that’s such a big drop from the fourth quarter I guess is which is what I am trying to reconcile..

Yes, right. I was looking at more of that core base, it seems like the core for the quarter was at 38.3 million. So I mean it’s just that’s impressive if you’ve captured even that’s such a big drop from the fourth quarter I guess is which is what I am trying to reconcile..

Yes, we’re very encouraged by the trend there is using some first quarter seasonality, the medical expenses aren’t nearly as high they are towards the end of the year as people start hitting -- have not yet hit their deductables on their health savings accounts and also there is a couple less days in quarter that you won’t have in subsequent quarters..

And you haven’t fully absorbed a merit increase cycle as well..

Yes, okay. Okay, that’s helpful.

And then maybe can you guys just give a little bit more color as to your kind of expectations for loan growth from here and where you’re seeing demand and sort of how we can, how should we be thinking about that throughout the rest of the year?.

Yes, okay. Okay, that’s helpful.

And then maybe can you guys just give a little bit more color as to your kind of expectations for loan growth from here and where you’re seeing demand and sort of how we can, how should we be thinking about that throughout the rest of the year?.

Collyn I’ll walk you through that I don’t think the guidance that I’ve shared is really mid single-digit growth - mid to longer term, we feel very good and when we think about the aspects of lending commercial real estate we’re seeing good looks a little growth there nice projects and opportunities where we see a little bit of a pressure is middle market and small business.

It’s sluggish, we looked at the year-over-year productivity in the first quarter and it was down, probably down for the first time in three or four years, linked year-over-year. We see spreads and pressure on the spreads and certainly a little bit on the structure.

And as we think about other types of income in addition to loans I think there is a path there for us to begin to move our insurance our wealth advisory businesses have been flat year-over-year, trust and brokerage and we have the Cleveland Business Center and we’re very encouraged by that; I know a lot of the banks that haven’t - that have been very dependent on mortgage are down significantly year-over-year.

We’re looking at that there will be a de-novo effort for us in the fourth quarter, so that will benefit obviously our net interest income as well as our -- we’ll portfolio some of the high quality jumbos and things like that. So we’re pretty enthused about that and the individual that’s running it and the team he is putting together.

So I think on balance the guidance we’ve shared in the past is probably on target. We’re probably at the end of the de-leveraging although we let a pretty large credit go in the first quarter. But I feel good about the competitiveness of our retail and corporate banking business and growing with the number that we’ve shared previously..

Okay. Okay, that’s helpful.

And just curious what your appetite is for future buybacks, how are you guys thinking about buybacks in your sort of capital plan?.

Okay. Okay, that’s helpful.

And just curious what your appetite is for future buybacks, how are you guys thinking about buybacks in your sort of capital plan?.

We kind of weighted into one in February at about 25 million and we’ve been pretty finicky in doing some buybacks and then probably into and I think about five or six is all..

Okay. Alright, that’s all I had thanks..

Okay. Alright, that’s all I had thanks..

Thanks Collyn..

Thank you. Our next question comes from Matthew Breese of Sterne Agee. Your line is open..

Good afternoon guys..

Good afternoon guys..

Hi Matt..

I guess we spend a lot of time talking about expenses.

But I was hoping to switch gears and may be get some commentary on top line revenue growth and net interest income growth and how do you feel about your ability to move those numbers in the right direction?.

I guess we spend a lot of time talking about expenses.

But I was hoping to switch gears and may be get some commentary on top line revenue growth and net interest income growth and how do you feel about your ability to move those numbers in the right direction?.

I think we’re putting shoulder to the wheel and we’ll begin to move them organically. And we have some significant initiatives in place both with mortgage the Cleveland Business Center.

What I didn’t share with Collyn earlier is with our insurance with our wealth we’ve added some key talent there probably four or five key positions in the Pittsburgh area. And I think we’re ramping up I think that the fact that we’re getting expenses under control gives us a little bit more latitude to really invest in our businesses.

And that expense that year is absorbing really five or six executive management or senior level positions to start up our mortgage operation already..

And then with the staff on hand or the staff that you plan to hire for the mortgage team, how much are you expecting that to contribute to non-interest income?.

And then with the staff on hand or the staff that you plan to hire for the mortgage team, how much are you expecting that to contribute to non-interest income?.

I think I’ve shared in the past that just doing some simple math with the 100 branches and one or two per month, we expect that to be a couple $100 million business a year and we’ll look to sell the majority of those loan. So, several cents per share, I think I’ve thrown out a figure of about $6 million annually..

6 million annually, got it. And then Bob I think you mentioned that the overall number of FTEs is down quite a bit over the last year or two.

How do you see that number trending and then where do you cut through fat and eventually hit bone and you’re unable to reduce that headcount any further?.

6 million annually, got it. And then Bob I think you mentioned that the overall number of FTEs is down quite a bit over the last year or two.

How do you see that number trending and then where do you cut through fat and eventually hit bone and you’re unable to reduce that headcount any further?.

I would see further reductions going forward this as a result of the IT excellence just the ability to of substantial and more moderate positions with that funds and loan.

I don’t believe we are in the bone yet because the renewed IT system is going to eliminate as lot of the people and paper that we use to filling the gaps between the hotspot systems that we had previously. So I think it’s going to make us a better company despite more reductions in our headcounts..

I think it will make us a better company and we’ll be able to operate it with lower risk..

So that’s a little true, yes..

Alright, thank you guys..

Alright, thank you guys..

Thank you..

Thank you. (Operator Instructions) Our next question comes from John Moran of Macquarie Capital. Your line is open..

How are you doing, how is it going?.

How are you doing, how is it going?.

Good. Hi, John..

Hi. So I’ve just got kind of two to keep that follow-ups here at this point. One is just understanding your timing on the mortgage business and I think I just want to make sure that I heard it correctly. It sounded like 12 folks coming into the business back half of this year and mostly in 4Q.

Is that correct?.

Hi. So I’ve just got kind of two to keep that follow-ups here at this point. One is just understanding your timing on the mortgage business and I think I just want to make sure that I heard it correctly. It sounded like 12 folks coming into the business back half of this year and mostly in 4Q.

Is that correct?.

Probably third and fourth quarter and beginning -- making our first loan in the third quarter..

Okay.

And then we all just heard you say 6 million annually by the time it’s up and running so that’s really a ’15 kind of event then and I think that’s distant?.

Okay.

And then we all just heard you say 6 million annually by the time it’s up and running so that’s really a ’15 kind of event then and I think that’s distant?.

That’s correct..

Okay, good. So that’s definitely consistent with what you guys said in the past.

And then the only other one that I had was just on the fee lines the other income line if we strip out the gain this quarter, it looks like you came in about 2.4 million, it was a little softer than it was in the fourth quarter which was softer than it was for most of the year in ’13.

Is there anything going on there and how should we kind of be thinking about that going forward?.

Okay, good. So that’s definitely consistent with what you guys said in the past.

And then the only other one that I had was just on the fee lines the other income line if we strip out the gain this quarter, it looks like you came in about 2.4 million, it was a little softer than it was in the fourth quarter which was softer than it was for most of the year in ’13.

Is there anything going on there and how should we kind of be thinking about that going forward?.

John, Bob Rout here, I would say mostly effect would be related to swap things on some commercial loans and with that we will get some variability in those numbers on the quarter-to-quarter basis and especially this quarter where the commercial lending hasn’t been totally robust..

Got it, that’s helpful. I appreciate it guys..

Got it, that’s helpful. I appreciate it guys..

Thank you..

Thank you. Our next question comes from Bob Ramsay of FBR. Your line is open..

Thanks for the follow-ups I just had a couple lawful details, one to follow-up on that fee income so it’s quarterly volatility I guess well it could be up or down in any quarter.

Is it fair to think that we get back to sort of a $3 million a quarter level on average which is kind of where you guys were last year on that other fee income line?.

Thanks for the follow-ups I just had a couple lawful details, one to follow-up on that fee income so it’s quarterly volatility I guess well it could be up or down in any quarter.

Is it fair to think that we get back to sort of a $3 million a quarter level on average which is kind of where you guys were last year on that other fee income line?.

I don’t want to give you projections this is again Bob Rout..

Here we thought we can’t hold to it..

Here we thought we can’t hold to it..

It’s disappointing that of course is the swap in from the next and depending upon the commercial loan value. We did have some mark-to-market adjustments back in last year this time and that was also related to swaps that sort of accelerated at quarter-to-quarter comparison as well..

Okay..

Okay..

Which is may be 3 million is may be a little high..

Okay, fair enough.

And then with the partial insurance recovery which line item does that show in?.

Okay, fair enough.

And then with the partial insurance recovery which line item does that show in?.

It would be in our operational losses on detailed income statement that we send out as a supplement to the press release..

Okay.

Then do you have the actual number of shares repurchased in the quarter? I know you all gave some color on I think the dollar amount and the couple of different authorizations so I was just curious that you have the actual number of shares in total in this quarter?.

Okay.

Then do you have the actual number of shares repurchased in the quarter? I know you all gave some color on I think the dollar amount and the couple of different authorizations so I was just curious that you have the actual number of shares in total in this quarter?.

Yes, that was part of the press release and I’ll just there is 383,000,387 shares for the first quarter..

I think that was from the most recent authorization wasn’t there piece left there from the last or am I wrong about that?.

I think that was from the most recent authorization wasn’t there piece left there from the last or am I wrong about that?.

No you’re right, there is about $3 million to $4 million carryover from the prior authorization, and I don’t have that exact number of shares with me..

Okay.

Do you know what the authorization is at the end of the quarter sort of what’s left outstanding?.

Okay.

Do you know what the authorization is at the end of the quarter sort of what’s left outstanding?.

I’ll have to actually look that up..

Okay, perfect. Last question I’ve got then is I know you mentioned that the registered investment advisory business you guys don’t expect much have an impact to the income statement and we are having trouble getting into scale.

Was that business profitable is the net impact a little bit of a drag or was there one end a little bit of a loss?.

Okay, perfect. Last question I’ve got then is I know you mentioned that the registered investment advisory business you guys don’t expect much have an impact to the income statement and we are having trouble getting into scale.

Was that business profitable is the net impact a little bit of a drag or was there one end a little bit of a loss?.

It’s about $38,000 a quarter in profit..

Okay, perfect. Thank you for taking the follow-ups..

Okay, perfect. Thank you for taking the follow-ups..

Thanks Bob..

Thank you. I am not showing any further questions in queue. I’d like to turn the call back over to Mike Price for any further remarks..

Just we may have the number for the stock buybacks for the Bob Ramsay and the group on the front..

And he has a question there is how much of the previous authorization or how much was left of the 25 million that we just authorized here this quarter, and at the end of the quarter was 21.9 million still remaining of the 25 million authorizations?.

Hi. Thanks Bob. And thank you for your interest in our company and your thoughtful questions. Bob and I and the team are available if you have other questions. Thank you for your interest in First Commonwealth and hope to see on the road soon..

Bye-bye..

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day..