First Republic Bank 1Q13 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

$FRC Earnings Call Notes

“In the first quarter, we chose to capitalize on the strong pricing and robust demand for the high-quality loans that we originate and we sold an unusually large volume.”

“Compared to the first quarter a year ago, bank assets were up 18% year-over-year.”

“if we had operated at last year’s quarterly average then about $600 million in loan sales, our loan portfolio would have grown at an annualized rate of 11% this quarter. This was a deliberate decision to take advantage of the favorable conditions in the secondary mortgage market.”

“The San Francisco Bay Area economy is outperforming the broader U.S. economy with very strong regional trends in employment and housing…Boston and New York…also outperformed the U.S. as a whole. While Southern California did not grow as fast as our other markets, we are seeing clear signs of improvement”

“Home loans accounted for 65% of total originations of which 30% were for purchases.”

“Deposit activity slowed in the first quarter as total deposits declined 1% from the previous quarter. As Jim noted earlier, our clients began to move money into real estate and equity markets.”

“I wouldn’t make too much out of one quarter’s loan sale volume, one way or the other. As Katherine said, our backlog remains very strong. ”

Analyst comment: “I think, Jim, you mentioned, of 11% loan growth this quarter, if you hadn’t sold…but the pace was about 24% last year”

“Your comment about, heaven forbid, the markets stay good. Let us presume they do for a moment to be optimistic and let us presume the real estate stays good as well. Then our real challenge is to have the growth rate, the rate of our acquisition of new clients outrun the growth rate of the loan demand. We have always looked at mortgage banking as a valve, as a control valve. We can sell assets at a profit almost always. If you go back many, many, many quarters, 15, 20 quarters, you would find that we very solemn did not make a profit in the sale in the mortgage banking market. A few quarters we didn’t but not very often.

So we have a valve that is a control mechanism for managing the growth of the enterprise. We find that actually extremely attractive and somewhat unique in the model versus others. We utilize it as we see appropriate. We also use it for asset liability matching. I don’t really want to be booking a low 3%, 30 year fixed rate mortgages at this point and we are going to. So what we have to do is outrun the decline in the excess liquidity that our particular type of clients.

Remind yourself of the makeup of the client base of the bank. It is not a broadly diversified mass consumer funding source. It’s a concentrated version of a type. Mostly people who have self made a fair amount of money. They tend to be very activists. When they see a turn, they act. That’s what’s going on.”

“It’s worth noting that business banking and wealth management now fund more than half of our deposits in total.”