First Republic Bank 4Q15 Earnings Call Notes

First Republic Bank’s (FRC) CEO, James Herbert on Q4 2015 Results

James Herbert

Focused on our business despite considerable global uncertainty

“Looking ahead for a minute, while there is clearly considerable global uncertainty, we remain committed to executing our simple resilient business model has performed well in all environments. The model is focused on gathering deposits, making very high quality loans, and providing wealth management in our core domestic markets, which continue to have strong economies. ”

It’s possible that equity markets wont affect mortgage customers, but usually you do get some pricing pressure in the segment

“It’s always possible. Historically, it’s a little more likely that what you will get is pricing pressure in the segment, as Mike Selfridge alluded to already, but a reasonably good availability of flow of business. Our clientele is less affected to some extent because of the strength of their income, but more importantly the markets we operate in, the supply is so short in terms of availability of homes, that it has not been as dramatic as the overall housing numbers would indicate, pretty much ever.”

A psychological move towards caution is definitely happening

“What is happening is that we’re seeing a little bit of a slowdown, or a psychological movement towards caution – that’s definitely happening, and that translates into maybe a little more down, in fact, and a little less robust bidding. But so far, not much impact.”

CRE may be the one place that we’re paying close attention to from a credit standpoint

“The answer is we’re not really at this point–well, we’re not worried, but we worry all the time because of our sort of intrinsic conservatism. We re-review two areas in particular, business banking generally, although our largest segment is non-profits – they tend to be quite stable, and then our next largest segment is the one Mike has been talking about in terms of credit to funds, very stable as well, actually. But commercial real estate, we’re paying particular attention to. We’re not immune to the concerns that everybody has about it. I think we have mitigated that quite dramatically by our very conservative loan to value ratios.”

Demand remains strong in our markets though

“On CRE, not multifamily but non-multifamily commercial real estate, we operate in the mid-50% LTV range roughly, and so we’re comfortable there, but that doesn’t mean we wouldn’t have a problem or two. We don’t see that yet. The demand for office space and the demand for commercial space actually remains strong in all of our markets.”

Commercial Real Estate in San Francisco is calming

“We’re obviously intensely focused on it. I would say our best call would be that in the commercial area, it’s calming. The supply is beginning to meet the demand, possibly exceed it a little bit, but I wouldn’t be worried yet, although we are cautious. There is a lot of new space coming online in the next 24 months, commercial in San Francisco, much more than has historically been the case, so the rents appear to have topped a bit. Now, they’ve topped at a very nice level, I will say, historically. Some say it’s almost New York-like – that’s a little exaggerated, but not much.”

Residential is in short supply though

“And then the housing, the number one characteristic of the housing market in the San Francisco Bay Area is short supply. That’s the thing that’s most overlooked. It is very, very difficult to build new housing in the Bay Area for environmental reasons, zoning reasons, land availability – it goes on. And it’s expensive, and so there is by historical standards a fair amount of new housing that’s come online, but by comparison to demand, it isn’t 50% of demand.”

Michael Selfridge

Answer to question about weakness in mortgage production

“I think the demand is still there. There might be a little bit of caution based on prices and limited inventory, but overall it still appears to be pretty good from our perspective.”

On the capital call line portion of the business banking portfolio there is definitely a higher level of caution

“On the technology side, we do nothing more than handle cash management and deposits, so there’s no lending exposure there. On the capital call line portion of the business banking portfolio, I would say there is definitely a higher level of caution, given some of the valuations in that world. ”

Michael Roffler

Nothing unusual, although slight uptick in NPAs

“So I’d say it’s nothing unusual. Periodically, we work with clients who may run into a difficulty, but it’s nothing unusual. We feel that the portfolio continues to obviously remain very strong, and at this point those loans are very active in discussion with the clients, but nothing unusual.”

Katherine August-deWilde

Wealth management assets at 72B

“During the fourth quarter, wealth management assets were up $13 billion. For the full year, wealth management assets were up 35% to $72 billion. On an annual basis, wealth management revenues were up over 20%.”