First Republic 1Q16 Earnings Call Notes

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James Herbert

Demand is still pretty strong in the pay but there is a lot of new supply coming on line

“specifically, the Bay Area, the demand is still pretty strong, but we do have a lot of new buildings coming on the line over the next 24 months. So I think the jury is out a little bit on the commercial real estate demand forward 12 to 24 months in the Bay Area. I don’t know if the new buildings will be fully absorbed. If they are fully absorbed, I could ripple backwards into the older buildings.”

Getting harder to maintain lending volume as competition has pushed LTVs higherBay Area economy remains strong

“The Bay Area remains a center for innovation, job creation, and economic activity. The real estate market continues to be characterized by limited inventory and strong demand for homes. Prices are now appreciating at a more sustainable rate, which we believe is positive for the overall market.”

PE and VC clients have exercised greater caution though

“More recently, we have seen our private equity and venture capital clients exercise greater caution, which has slowed the pace of their investing and in turn has decreased borrowings on capital call lines of credits.”

We’re not seeing any ripple effect from softer PE valuations

“as far as the overall market there, there has been a bit of compression in certain valuations, such as private equity valuation for the companies that are investing in. And in terms of the ripple effect, I would say that we’re not seeing anything yet. We’re seeing a modest compression may be in certain markets on medium home prices. But outside that, the markets are still active in – on the residential side. And if you look at the number of transactions being done, it’s still coming through at a decent clip every quarter.”

Jason Bender

Credit quality continues to be strong

“Credit quality continues to be very strong. Non-performing assets remain extremely low at just 10 basis points. During the quarter, we actually had a small net amount of recoveries. The credit quality of the bank reflects a continued focus on disciplined underwriting.”

Bob Thornton

Home buyers in LA have become more selective given appreciation of home values

“Turning to the Los Angeles market, we continue to see it to be a stable source of business growth and opportunities for First Republic Bank. The Los Angeles market is driven largely by the entertainment, media, apparel, financial, and professional service industries and it’s doing quite well. Single-family home buyers in the Los Angeles market during the quarter were higher than a year ago with continued demand – continuing demand. Buyers appear more selective, given the continued appreciation on home values. Overall volume in credit quality remains strong. ”

Palm beach home prices have stabilized after years of appreciation

“Turning to Palm Beach, home prices appear to have stabilized after several years of appreciation. Demand remains strong, given somewhat limited supply, but buyers have become more selective”