First Republic Bank (FRC) 2007 Q1 法說會逐字稿

Good day and welcome to the First Republic Bank quarter 2007 earnings results conference call.

As a reminder, today's call is being recorded.

Also, there will not be a question-and-answer session for today's call.

At this time, I would like to turn the call over to Ms.

Dianne Snedaker.

Thank you and welcome to First Republic Bank's first quarter 2007 conference call.

In light of the agreement announced Jan.

29 between First Republic and Merrill Lynch, we will not hold a question-and-answer session at the conclusion of this call.

Additional information about the acquisition can be found www.FirstRepublic.com or www.ML.com.

In connection with the proposed transaction, Merrill Lynch intends to file a registration statement and other materials with the SEC and First Republic Bank intends to file the proxy statement and other materials with the FDIC.

You are urge to read the registration statement, the definitive proxy statement, and other materials when they become available because they will contain important information.

You can obtain copies of all relevant documents filed by Merrill Lynch at the SEC's Internet site, www.SEC.gov, and documents filed by First Republic Bank, www.FirstRepublic.com.

Merrill Lynch and First Republic and their respective directors and executive directors and other employees may be deemed to be participants in the solicitation of proxies from First Republic stockholders in respect to the proposed transaction.

Information about these individuals is available in the annual proxy statement filed by each of Merrill Lynch and First Republic.

Additional information regarding the interest of such potential participants will be included in the definitive proxy statement and the other relevant documents filed with the SEC or the FDIC.

Information contained in this presentation may contain forward-looking statements including, for example, statements about management expectations, growth opportunities, business prospects, regulatory proceedings, benefits of the merger, and other similar matters.

These forward-looking statements are not statements of historical facts and represent only management's beliefs regarding future performance, which is inherently uncertain.

There are a variety of factors that could cause actual results and experience to differ materially from the expectations expressed in any forward-looking statements.

These factors include, but are not limited to, those factors set forth in Merrill Lynch's filings with the SEC, those factors set forth in First Republic's filings with the FDIC, and certain factors specific to the proposed merger that are contained in First Republic's form 8-K, filed with the FDIC on Jan.

29.

We refer you to the information about forward-looking statements in our earnings release, which is available on our website and which will be filed on form 8-K with the FDIC today.

Again, welcome to our call.

Speaking today will be President and CEO Jim Herbert, Chief Operating Officer Katherine August-deWilde, and Chief Financial Officer Willis Newton.

A webcast replay of this call will be available at www.FirstRepublic.com for 30 days.

An audio replay is also available for 30 days.

Domestic callers can dial in at 888-203-1112 and international callers can dial in at 719-457-0820.

The pass code number is 4542510.

Now, I would like to introduce Mr.

Jim Herbert.

Thank you, Dianne.

From a net-operating earnings perspective, the first order of 2007 was our best quarter ever.

It was also very strong by several other metrics.

For the quarter, net income from operations, excluding a onetime goodwill impairment charge, was $16.8 million, a 9% increase over the same quarter a year ago.

Diluted operating earnings per share were $0.54.

As indicated in our press release, we recorded a onetime charge to reduce the investment in our convertible manager.

Willis Newton, our Chief Financial Officer, will talk more about this in a moment.

Overall, our growth and momentum are very strong.

We have maintained our double-digit growth rates in most key areas.

For instance, on a year-over-year basis, loan originations rose 22% and we have a record pipeline.

Loans increased 19%.

Assets grew 22%.

Deposits were up 17%.

Checking balances increased by 18%.

Wealth Management assets grew 15%.

Net revenues increased 17% overall.

This included a 16% growth in net interest income, despite the continuing prolonged yield curve inversion, and 22% growth in non-interest income.

Also, very importantly, our asset quality remains excellent.

Total nonaccrual loans were (technical difficulty) quarter end, the same as last quarter.

We have only one single-family home loan on nonaccrual.

Our residential real estate loan portfolio continues to perform very well for several reasons -- a disciplined credit culture, a long-running focus on only the highest quality of credits; very conservative loan-to-value ratios; and a focus on properties primarily located in supply-constrained urban coastal markets.

Since our inception in 1985, our cumulative loan losses on over $25 billion of single-family loan originations have been just slightly over 1 basis point.

Let me take a moment to comment on the progress we're making with our pending merger with Merrill Lynch.

The alignment process is going very well across the board.

Teams from First Republic and Merrill Lynch our meeting regularly and successfully to plan for the closing.

We have encountered no major problems or issues.

The merger application was recently filed with the OTS and we expect to file a joint preliminary proxy soon.

As you know, the closing is still subject to regulatory and shareholder approval and we can give no assurances regarding the timing or certainty of the closing.

Merrill Lynch continues to demonstrate a very strong commitment to First Republic's operating principles of exceptional client service.

As we previously announced, First Republic will remain a stand-alone brand with the same management team and San Francisco headquarters.

Importantly, our clients have responded very well to our pending partnership with Merrill Lynch.

Since the transaction was announced, our lending and Wealth Management pipelines have reached record levels.

Additionally, our deposit growth continues to be very strong.

First Republic's strong operating performance has always been and will remain predicated upon putting our clients first.

This emphasis on client service and satisfaction is the key reason our organic growth rates have remained so strong for so very long.

Now, I would like to turn the call over to our Chief Operating Officer, Katherine August-deWilde.

Thank you, Jim.

FirstRepublic had a terrific quarter in terms of operating results.

It was our first full quarter since the acquisition of the Bank of Walnut Creek.

We have completed the integration and have achieved the cost savings that we anticipated.

At the same time, we are beginning to achieve the revenue synergies we were also expecting.

Overall, lending volume and deposit growth were exceptionally strong, loan quality remains excellent, Wealth Management assets and fees grew nicely compared to a year ago, despite challenges in the convertible segment.

Our average checking balances have grown 21% in the past year, excluding balances acquired from the Bank of Walnut Creek.

Strong growth in deposits, particularly average checking balances, contributed to the increase in net interest income and also to the increased net interest margin of 3.13%.

Average deposits grew approximately $530 million in the first quarter, including a $200-million increase in average checking balances.

This increase more than funded our increase in assets, allowing us to pay down more expensive federal home loan bank borrowings.

Loan originations continue to be very strong.

Total loan volume increased 22% in the first quarter compared to a year ago.

Overall, home prices remain solid in our supply-constrained urban markets in California, New York, and Boston, although there is modest softening in some of our markets.

Home prices in New York, Los Angeles, and San Francisco are particularly strong.

In this quarter, more than half of our home loans were for purchases.

Unemployment is low and economic conditions remain relatively strong.

We continue to apply our rigorous underwriting standards to all originations.

Wealth Management fees were up 15% compared to a year ago.

Excluding our convertible manager, our Wealth Management assets are up 30% year-over-year.

This is due primarily to the successful marketing efforts of our wealth advisers and our bankers.

Our private business banking franchise continues to grow strongly.

Business loans were up 10% for the quarter and 80% year-over-year.

Business deposits were up 30.8% compared to a year ago.

Our overall cross-sell success continues to remain strong.

This year's loan clients continue to utilize approximately nine products or services per loan originated and the percentage of this year's loan clients with an investment account has also continued to climb.

Our pipeline of potential Wealth Management assets has never been higher.

Deposit growth throughout our preferred banking offices remains very strong.

Offices open more than two years have grown total deposit balances 21% in the past twelve months.

In short, First Republic is performing very well.

The alignment process with Merrill Lynch is proceeding smoothly, with a true sense that opportunity lies ahead for both clients and employees.

Our lending and Wealth Management pipelines are very strong and client satisfaction remains high.

I would now like to turn the call over to Chief Financial Officer Willis Newton.

Thank you, Katherine.

First, let me comment on the non-cash impairment charge we took this quarter.

As previously disclosed in our 10-K, Froley Revy, our institutional convertible money manager, received notice after the announcement of our pending transaction of the loss of two large clients.

As a result, we have this quarter recorded a non-cash impairment charge to reduce the book value of our goodwill by $15.7 million.

Impairment charges of this type are not deductible for tax purposes.

This write-down has no impact on our regulatory capital ratios or the Bank's tangible book value, as all goodwill was already excluded in these calculations.

I would note that at December 31, 2006, the aggregate fair value of all three of our purchased investment advisers exceeded their combined goodwill by $27 million.

Without the goodwill charge, our effective tax rate for the first quarter would have been 23%, or below the level of 26% achieved for 2006.

During the quarter our FDIC premium expense increased by $1.4 million under recent deposit insurance reform legislation.

The effect of this new deposit premium rate is to reduce diluted EPS by $0.023.

Overall, we are very pleased with the operating results of the quarter, which are the strongest we have ever had.

Additionally, we are pleased to announce the continuation of our $0.15 per share quarterly dividend, payable to stockholders of record on May 7.

Now, I would like to turn the call back over to Jim Herbert.

Thank you, Willis.

In summary, I would like to emphasize that we are very pleased with the quarter.

Deposit growth is strong; loan volume is high; asset quality remains very strong; operating net income is at an all-time high; and our loan and Wealth Management pipelines are at record levels.

In short, we continue to execute our business plan quite successfully.

The plan is based on delivering exceptional service quality to every client.

Thank you very much.

(technical difficulty) joining us and have a great day.