First Republic Bank Earnings Call Insights: Demand for Credit and January Trends

First Republic Bank (San Francisco, CA) (NYSE:FRC) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Demand for Credit

Steven Alexopoulos – JP Morgan: Maybe I’ll start – Jim, looking at the tax law changes that went through, impacting higher income individuals; I know it’s early, but have you noticed any change in behavior so far of your clients in terms of pulling away from real estate investing or any less demand for credit? Anything notable at this point?

James H. Herbert, II – Chairman and CEO: Actually no; not so far, although there are couple of people moving to Florida because of the California tax law change, but not really, no. I think there will be some. We saw a lot of activity at the end of the year, as I’m sure every bank and certainly in private banking did, but no pattern yet.

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Steven Alexopoulos – JP Morgan: No pattern yet, okay. And then, looking at the qualified mortgage rules that came out last week, did you see anything in there that could impact either the way you run the business or make jumbo less desirable than asset class to hold?

James H. Herbert, II – Chairman and CEO: Well, I don’t think they’re going to necessarily impact jumbos and asset class. The one thing in there, of course, is the interest-only issue, and we have a lot of interest-only loans and have done them, as you know, for a number of years. But obviously our clients are very well qualified, in terms of their ability to pay requirements under the rule, but we’re still studying to make sure that that’s the extent of the impact. It’s complicated and we’re trying to think it through. Right at this moment, I don’t think it’s too much of an impact but we are cautious.

Steven Alexopoulos – JP Morgan: No One final one Jim. If you look at the $4.3 billion of gross originations in the quarter, that’s up around $1 billion from the year-ago period. What would explain why your loan growth continues to accelerate particularly into year end? Is this just what you were saying that high net worth people are more active in the quarter? Is this New York coming online? Just any color if you could help us think about why that, origination volumes have reached this level?

Katherine August-deWilde – President and COO: There are several reasons. The markets we are in are very strong. There was a bit of year end activity but actually there always is extra activity at the end of the year. In the last 18 months we also hired additional business bankers and relationship managers who after six to 12 months become much more productive and those are the reasons.

James H. Herbert, II – Chairman and CEO: Low rates continue to impact it. Refinancing is still quite high and purchase finance is actually pretty strong. I think since if I could add to that for one thing Steve. The strength of our particular markets is not to be underestimated.

January Trends

Ken Zerbe – Morgan Stanley: Just in terms of the (gain on sale) margins, Willis, I think you mentioned it was $0.05 above your 10 quarter average. Have you seen or can you comment on any trends you may have seen so far in January relative to the fourth quarter?

Willis H. Newton, Jr. – EVP and CFO: No we don’t. We do have a few loans in the held for sale bucket at the end of year which are primarily going to the agencies in due course but we have not put out any packages for consideration in the marketplace this quarter.

Ken Zerbe – Morgan Stanley: In terms of additional wealth management acquisitions, I think Luminous is done or getting done, what is the appetite? I mean was that just such a unique one-off situation or is there potential that you if you find someone to Luminous again, you’d willing to do another deal?

Katherine August-deWilde – President and COO: Well, we’ve done one in 10 years as you probably know. This was particularly a unique situation and as you know, we preferred higher wealth managers, one at a time, or two at a time so that we understand clearly that they want to be part of us and that they have the skills. We look all the time, but this isn’t the first one that was compelling.

Ken Zerbe – Morgan Stanley: Understood. Yeah, I guess, that’s why we were a little surprised that the deal was done, I guess to start with, but I understand. Then just really quick, the yield or the average yield that you might be putting on, I guess, with all the blended rate of new loans put on during the quarter.

James H. Herbert, II – Chairman and CEO: It’s a little over 3% that’s in the home loan category, and a little higher than that in multifamily and commercial.