First Republic 2Q16 Earnings Call Notes

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First Republic Bank’s (FRC) CEO James Herbert on Q2 2016

Customers are aware of Brexit but not letting decisions be driven by it

“I think the ladder is more the case Erika, they’re mostly not — they’re very aware of it of course, but they’re not — their actions are not being driven by it. It’s a little more — the awareness is higher on the East Coast and the West Coast, I would also note.”

VC and PE activity is steady now

“I’m not so much awareness, but reaction. The VC and private equity activity level is steady now. It bottomed in the first quarter, I would say and has actually picked up a bit and that’s been helped by a decline in valuations and thus increased opportunities, particularly in VC area.”

We’re watching NY carefully for weakness

“we’re watching New York carefully because there’s a lot of new units coming on. But we don’t tend to do larger buildings in New York anyway but I think we do some and our LTVs in New York are the lowest of anywhere in our marketplace probably the average LTV in New York is possibly — on multifamily is possibly sub 55. And so I think that, that’s the market that we’re watching the closest.”

We’re not seeing anything that causes us concern on the credit front

“let me speak to the credit front, the credit front in our portfolio we’re not seeing anything that causes us concern. So we’re maintaining very high standard and in dealing as I said with mostly clients who we have dealt with for an extended period of time. So we have a lot of history with them.”

Michael Selfridge

Business activity remains healthy

“Business activity remains very healthy across the enterprise, supported by the continued strength of our geographic markets and our very active client base. California, First Republic’s largest market is now the sixth largest economy in the world and has surpassed Brazil and Franc”

San Francisco economic conditions remain good but seeing a leveling off of real estate values

“Looking at the San Francisco Bay Area, overall economic conditions remain good. Though year-over-year job growth has slowed slightly, it continues to outpace both the State and the Nation. We’re now seeing a leveling off of real estate values and rents in the area and we believe this is healthy for the market.”

LA strong driven by a bunch of frou frou industries

“Los Angeles continues to be a particularly strong market for us due to the strength of its diversified economy in sectors such as entertainment, media, apparel and financial services.”

Cooling at the high end of the market in NY

“Turning to New York, we continue to see cooling at the high end of the housing market, although this is typically not a market segment in which we’ve been very active. However demand is otherwise strong across other segments of this market.”

Jason Bender

Credit quality still very strong

“Credit quality continues to be very strong. Non-performing assets remain extremely low at just nine basis points. During the quarter, net charge-offs were just $1 million or one basis point of average loans. We added over $14 million to our loan loss provision in the quarter to support loan growth.”

Michael Roffler

We are seeing banks stretch on the credit side

Dave, its Mike. No, we’re still seeing competitive pressures and we’re still seeing banks stretch on the credit side. Our markets and as we’ve reiterated in the past, we will not follow them on the credit standard side. We still think there is ample opportunity to go after the type of borrower that we want which is low loan to value liquidity.