First Republic Bank Earnings Call NUGGETS: More Color on Yields, NIM Compression

On Wednesday, First Republic Bank (San Francisco, CA) (NYSE:FRC) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

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More Color on Yields

Dave Rochester – Deutsche Bank: Could you guys give some color on the yields for resi arms in the pipeline today and then if you have all-in residential yield and the C&I yield?

Katherine August-deWilde – President and COO: The yield of five year loans which are the predominant loan that we are booking for single families is 2.67 in July. The income property loans are higher than that.

Dave Rochester – Deutsche Bank: Where would those income property loans range, I guess, north of 3% or are they below 3%?

Katherine August-deWilde – President and COO: They are north of 3%, yes.

Dave Rochester – Deutsche Bank: I saw that money market rates were up a little bit this quarter, you guys had touched on and not a whole lot of flexibility to move those down. Can you just talk about what the driver was for that increase and is it competitive pressures, new products and I guess we should expect those to maybe come down maybe a little bit from here?

James H. Herbert, II – Chairman, CEO (Founding), and Board Member: Dave, that could come in a little bit from here. The pressures move around a little bit depending on competitors, but as you can see from our cash position and the comments we made on the average cash position during the quarter. We are still a little cash rich. So, we have room to tightening a little bit maybe.

Dave Rochester – Deutsche Bank: Can you just talk about the size of the loan pipeline versus last quarter and maybe given the activity you are seeing or you thinking the loan growth rates from this quarter are sustainable at least near term or should we expect them to decelerate?

Katherine August-deWilde – President and COO: The pipeline at the end of March versus the pipeline at the end of June is up a bit. The summer can be a little bit slower because clients are on vacations and so that impacts the closing rates. But at the moment with where our pipeline stands at the end of June it looks to be a strong quarter.

NIM Compression

Ken Zerbe – Morgan Stanley: Just in terms of the NIM compression this quarter, just want to make sure that we have all the pieces correctly bucketed. When we look forward to next quarter, obviously the cash balance that’s going to help you, I think, you said it was 3 basis points of the compression this quarter, so that goes away. The FHLB advances stay, so that’s kind of an ongoing issue lower loan yields. When you guys think about NIM compression versus – third quarter versus second quarter kind of where do you guys end up?

Willis H. Newton, Jr. – EVP and CFO: This is Willis. Relative to the NIM of (348) this quarter, you are correct that the Federal Home Loan Bank costs are included and baked into that level of NIM as well as our average cash balances of about $1.3 billion. So, if those numbers stay the same then we would look to see – we will likely see a similar trend in the contractual loan yield depending on the amount of the new loans that we originated and the rates that we put them on, we would expect to see a continued trend in the decline in our average loan yields, but we might be able to offset that a little bit with lower deposit costs and/or using some of that excess cash over the next several quarters.

Ken Zerbe – Morgan Stanley: I think at one point you guys had given – maybe a quarter or two ago, you had given sort of blended rate of average new loans, I think is about 3.25%, give an updated blended rate of what’s going on the books?

Willis H. Newton, Jr. – EVP and CFO: Let’s move on. Ken let us come back to you with that in a minute, okay. We can probably get it in a couple of minutes.

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