Q4 2020 First Republic Bank Earnings Call
[music].
Please stand by.
Greetings and welcome to the first Republic things the fourth quarter and full year 2020, <unk> earnings Conference call.
Today's conference is being recorded.
During todays call the lines will be in a listen only mode.
Following the presentation of the conference well the open for questions.
The join the queue. Please press star one on your telephone keypad at any point during the call.
I would now like to turn the call over to.
Mike I own Alley, Vice President and director of Investor Relations. Please go ahead.
Thank you welcome to the first Republic Bank fourth quarter of 2020 conference call.
Speaking today will be Jim Herbert the bank's founder chairman and CEO.
The Airclic, President and board member and Mike Roffler, Chief Financial Officer.
Before I hand, the call over the Jim.
Please note the we may make forward looking statements during today's call.
That are subject to risks that's true.
Our country is kind of sanctions.
Well the more complete discussion of the risks and uncertainties the could cause actual results to differ materially from any forward looking statements see the bank FDIC filings, including the form 8-K filed today all available on the banks watched price.
And now I'd like to turn the call over to Jim Herbert.
I can like.
The 2020 of which are very strong year for the first Republic.
We have been consistently profitable each year for the 35 years since our founding of 1985.
2020 loan origination volume the dollar $50 billion or luck.
The important like what were able to fully fund our loan growth with deposit book.
Okay.
Well the mantra assets grew more than $43 billion for on New York I don't know just short of 200 volume.
Importantly, the majority of the growth during the year was driven by net client inflows.
If you ever has proven once again, the resilience of the high touch points centric service model.
Both the levered and pushing the through digital channels.
The trusted relationships between our bankers and our clients have proven to be more important than the of Central Park City.
In fact, all the results show that our 2020 net promoter score the nature of our client satisfaction.
At least as high as the prior year.
This client satisfaction level is more than twice the banking industry average and do the job growth driver.
Now I will discuss the moment, we are for the use of technology to enhance the it's quite sure of its experience.
Our country you weren't consistent performance under a wide range of economic conditions dozens.
Demonstrates the stability of long term nature and power of our clients Sherbet small.
Let me cover a few metrics for the year total loans outstanding were up 22%.
Total deposits have grown 28%.
And wealth management assets increased 29%.
This strong growth in turn has led to strong financial performance.
Year over year, our revenues grew 17%.
Net interest income grew 18%.
And the real bottom line tangible book value per share of is increased by 14% during the day.
Most importantly, our credit quality continues to be exceptional maintaining consistently strong credit and all the economic the market environments is a hallmark and a focus the first Republic.
Net charge offs for the entire year were only $2.4 million less than a simple basis points of average loans grew.
During the year, we did the at 157 million to our reserves.
In the fourth quarter, we actually had net recoveries of $600000 and non performing assets have ended the year and the only 13 basis points.
Oh, the capital remains quite strong at year end, our tier one leverage ratio was 8.14%.
This includes the benefit of three successful capital raises during 2020, Mike will touch on the beach in a moment.
I would note that first Republic does not engage in common share buybacks.
As we head into the 2021, our clients remain very active and our loan pipeline is quite strong.
Hi, Brian This is up from the same time last year.
The lower rate environment continues throughout the journey terrific opportunity for single family residential purchase and refinance.
Single family residential lending continues to be the primary driver of our growth representing two thirds of our loan growth during the year.
I would like the loan originations have some seasonality with the fourth quarter typically being the that's the quite strong and the first quarter typically being a little bit slower.
December was the 10th anniversary of our second.
P.L.
Which we did shortly after we bought first Republic bank back for the Big I'd say the 2010.
Do any of these 10 years total loans have grown 20% compound of annually.
Total deposits have grown 20% compound the value.
And told the bank assets have grown 20% compound the day.
And wealth management assets are growing 28% compound. The then.
Oh sure of orders of also done well in 2000 of John We went public debt to price of $25. The trophy assets for sure.
Sure well the volume has compounded the 21% per year since that time, including dividends.
One of the two actually S&P 500 during the same period and the like 3.5 times of KBW Bank index for the same period.
These results reflect our steadfast focus on the Liberty extraordinary client service, which in turn drives consistent organic growth.
Overall, it was a very successful quarter and a very successful four year now let me turn the call over the Guy Eric on our president of.
Thank you Jim 22, when it was indeed, a very successful year first first Republic.
The delivered record results.
While also supporting our colleagues clients and communities during this challenging time.
For example in 2020, New York fleets. The has welcomed more than 600 net new colleagues to the organization.
And rolled out a number of new benefits to support the of all being of our colleagues.
The made more debt for Calvin Klein fan the loan what did the occasions, where our clients impacted by called the <unk>.
We delivered over 11500, P.P.P. loans, the small business and non profit clients.
We did this all while originating a record number of loans.
Let me now turn to the an update on lending.
Well in originations for the year, excluding PPP work fit the $1 billion.
Single family residential volume for the year was the record at $24 billion.
The finance activity, which was particularly robust accounted for 66% of single family volume during the year.
Is the of noted before the finance the continues to be a strong means of the wiring new clients.
In terms of credit we continue to maintain our conservative underwriting standard.
The average launch of value ratio for all the let's say of loans originated during the year was just 55%.
Turning to the business banking growth of loans and line commitments was very strong.
The 28% year over year, excluding the paycheck protection program.
During the fourth quarter business line utilization increased the 38%.
This is in line with our historical utilization range of mid to high Thirtys.
In terms of funding it was a record year.
Total deposits were up $25 billion orders.
Or 28% from a year ago.
We continue to maintain it diversifies deposit funding base.
Checking deposits represented 67% of total deposits at year end.
[noise] isn't as deposits represented 57% of total deposits at yearend.
The average rate paid on all deposits for the quarter was just 11 basis points, leading to a total funding cost of 31 day that's going.
In wealth management assets grew 29% year over year and are now over $194 billion.
Well over half of this growth came from net decline in flow.
Our integrated banking and wealth management model continues to attract very successful wealth managers.
During 2020, the we're pleased to have welcomed 18, new wealth management team, including two teams in Bellevue, Washington, a key part of the greater Seattle market.
We plan to open up the first banking office in value later this year to further establish our presence in the market.
It's the grow our business safely and organically, we continue to make investments the.
For the reinforce and scale our differentiated service model.
The one H I'll pick strategy and continuous process improvement.
Our strategy is focused on using technology to enhance human to human relationships between clients and our bankers.
Not to replace the.
We are doing the supply.
Empowering our bankers, the actionable insights and tools to reduce the transactional time and maximize the emotional time with their clients.
And also by rapidly developing and rolling out additional digital capabilities, which allow for a customized and convenient experience for our clients.
2020 demonstrated the effectiveness of the strategy.
During the year and at the mid stuff the pandemic.
Approximately 70% of our mortgage applications were submitted digitally.
The redesign our corporate mobile app, leading to an increase in assets users by more than 40%.
The triple the number of teach the deposit account openings.
The relieved one new digital banking feature per week on average.
The double past the automation and gave bad <unk> hundred 50000 hours and the only to our bankers the first or the like their clients.
Each time savings aren't equal one who have one of the house per Se work force expansion.
These achievements were enabled by our unique take strategy.
On T. need operation of investments.
And focus on omni channel client experience the enhanced connectivity to their trust the bankers.
As the result over the past several years the number of Klein hassle, sorry for a bank or it has increased significantly.
While we have maintained our net promoter score because that's the only double the interest rate average as Jim mentioned earlier.
Overall, thanks to the hard work and dedication of every one of the first Republic, we have successfully navigated a challenging here.
Now I would like to turn the call over to Mike Roffler Chief Financial Officer.
Thank you Guy of let me review of the results for the year and quarter and also offer some guidance for 2021.
Our capital position remains strong.
During the fourth quarter, we successfully raised $225 million of common stock and completed the redemption of the series a preferred stock.
In total debt.
During 2020, we added over $900 million of net new tier one capital.
Liquidity also remain strong as high quality liquid assets were 12.8%, while the average total assets in the fourth quarter.
Our credit quality remains excellent.
Our provision for credit losses for the fourth quarter was $35 million.
This provision was driven almost entirely by our strong loan growth.
As Jim mentioned for the entire year net charge offs were only $2.4 million.
One quarter of one basis point of the average loans.
Over the period, we added a $157 million to our reserves.
We're pleased with the progress of our covered loan modifications.
Yearend covert modifications totaled only 1.1% of the total portfolio debt.
Down from 3.7% of September Thirtyth of.
In 2012, the loans were up a very strong 22% excluding the PPP.
For 2021 low growth is expected to be in the mid teens range.
Our net interest margin has remained stable at 2.73 percentage for the fourth quarter and 272 for the full year 2020.
In light of with our guidance.
The 2021.
Our net interest margin the is expected to be in the range of 265 of the 275 consistent with current levels.
Within this range our net interest margin may be influenced by higher cash levels. As the result of current economic conditions and government stimulus.
Our efficiency ratio was 61.6% for the fourth quarter and 61.9% for the full year 2020.
As a reminder, the efficiency ratio has benefited from reduced marketing travel and events due to the pandemic.
For 2021 of the efficiency ratio is expected to be in the range of the 62, the 64% as we continued to investor business of the regulatory infrastructure.
Our effective tax rate was 20.2% for the full year 2020 in line with our guidance.
For 2021, we expect our tax rate to be the range of 20% to 21% assuming no change to the corporate tax rate.
Overall it was the very strong year, that's speaks to the sustainable power of our quality of service model.
Now I will turn the call back over to Jim.
Thank you Mark in the <unk>, which is strong core and the strong year.
The first Republic simple straightforward very client centric business model has proven to be consisting of a wide variety of environments.
[noise] delivering exceptional client satisfaction, one client at the time, you're in you're out is the driver of our growth and success.
Oh, the high touch model is the put her on the cash that you heard from GAAP.
And our growing digital capabilities.
Looking ahead to the 2021, we expect to contribute to the Liberty safe organic growth, coupled with very conservative underwriting standards and strong capital at all times now we'd be happy the take your questions.
Thank you and if you would like to ask a question the signal by pressing star of one on your telephone keypad.
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Well take our first question from Steve Alexopoulos from JP Morgan. Please go ahead.
Hi, good morning, everyone.
First of all these hard.
The Jim one of the hallmarks clearly of the franchise of consistency.
And when I look at the Mac true macro backdrop for 2021, and the one variable that may not stay consistent on longer term interest rate.
And if we look at 2020 rate over two thirds of the long growth. The from single family of so can you walk us through I know, Mike said mid teens loan growth again is the guidance for 2021, but how how do you see that playing out if we see a material increase.
And mortgage rates.
If you see the material increase the mortgage rage that the competitors, perhaps true number.
Remember our liquid the system is.
Why you will you all have a rise in the wage at the I bought the we'll have we'll watch the you'll have a like a slowdown in refinance purchase from the afternoon upsell down all that much because the man who is very hot I'm of the problem in the first on the purchase side of the supply actually not the man I would tell you that the.
With 66% of all of our loan business in single family of this year, which we finance that would probably slowed down and in fact, the need to get married anyway, because the rate you're already up a little bit we don't worry about a move that will be destructive to the market.
Rate you know mortgage rates are going out of the high twos low police the looks very high twos I don't think the low threes to the mid threes slows down purchase and that's very much the does flow down the reason that sort of like.
Yeah.
[laughter].
That's helpful and maybe for Mike Roffler, if we stay with the theme of potentially rising rates.
Happens, we'll see but given that get along sales eventually elevated how the chart right when the 10 year debt.
I think we need to see before you would start to see that translate into NIM expansion and I recognize this as much part of the science, but any color would be appreciated.
Well I think one of the things Jim says it is important to think about is the competitors.
How do they feel about pricing of the market. So even though the tenure has risen in the past couple of weeks I don't think you've seen a of much change in mortgage rates to the consumer clients at all so I think it was very dependent upon.
What happens with competitors and do they pass out through or not.
Okay.
Got it Okay and then finally.
Oh for Jim and I think I've asked you. This every quarter. So it's kind of it really broke but if we think about price.
Got it.
How do you see the rest of the cycle playing out from here, particularly when we think about commercial real estate, whether it be New York, San Francisco and free good I think.
Didn't administration may not the two trillion of additional stimulus of Tonight.
The satellite it's the cycle of the we've just have losses coming like the you've been through so many side how do you see the is playing out from here. Thanks.
Well, it's hard to call of course is is just an estimate but it does seem to us of certain of so classes of will particularly disadvantage of beginning of the falling price points hotels, the limited quantity, but they're trading day.
Down obviously the biggest one of the biggest on the owned is clearly the retail card.
We don't have the opinion on the up to be honest with you. It's got the just find its level of that's going to work on the what that is office space is currently available in the of the cities. We operate in can speak about the others, but the cities we operate their moves out of all of the sudden a bit of an excess of office space.
New York is particularly I think Oh hit hard, but it's also the with the London, particularly the new eight buildings or are funding the general level of out of being signed up probably down 15% for the thought of as before.
The of question is how far down the the liberal in the quality of straight from the aid of B. The C properties are not small yet clear single family goes I know the not or is picking up pretty good even in the even in the New York, but I think that the cycle is probably within the quarter.
Or to the maximum of bottom would be our opinion.
Okay.
That's very helpful. Thanks for taking all my questions.
Well now take our next question from Christopher Mcgratty from KBW. Please go ahead.
Hi, good morning.
Like maybe a question of the efficiency, earning your initial 2020 guide was 65 to 64 or five and the outperformed that 550 250 basis points I guess on the ones. The first question is how much of that would you attribute your just the the covert impacted relief on certain expense items.
But then secondarily positive operating leverage is pretty notable for the year, which is in the past.
The business significant.
How do we think of a positive operating leverage potential in 21.
So thanks for the question I think the you're right being added just under 62% for the year definitely did benefit from a lack of a lot of travel a lack of in person client events. You know my guess is we're at least the percent of higher if you have those items at the normal rate.
You know in terms of of positive operating leverage obviously, we're pleased with the year I do think those costs will start to come back in 2021, and that's you know probably later in the year they'll start to come back because of you know vaccines and people wanting to get out of so I think that's why the the rate.
James sort of went up a bunch of 62 to 64. We also are continuing to invest in the franchise, we've talked about on several calls Hudson yards coming online this year.
The core conversion being worked on the so we're continuing to support the franchise and the one I think the the range is appropriate for next year.
And the other side of the that's important is the margin being relatively stable.
[noise] [noise], Okay, if I could just ask a follow up on the margin.
The the momentum of the deposits has enabled you to reduce how far range any comments about the ability to further remix the liabilities towards a lot of basis points the cost of deposits versus the north of one on the of the bar with.
Yeah, I think we're really pleased with the deposit growth, which has allowed us to reduce.
Our FHLB advances, which are a little bit higher cost, but the next year. We have about 5 billion that that comes due so you'll either with new that lower rates or will remain ex those and as we looked at as the we look at optimizing our funding.
The deposit growth remained strong you can reduce those even further the to keep the funding costs are the pretty low level.
And where would those be finance cost me today to secure the swap them out.
Oh, you know term FHLB is you know if you sort of in the four your range is probably around the 50 60 basis points.
Okay. The paved the way the way you may want to think about it is of the spot the positive rate of the 10 basis points. The average was 11.
And and where we are seeing incremental lots of deals coming in at about 30% call. It an incremental funding cost at about 30 basis points. The two seven days right smack in the middle of the two six the five to seven to five range, but that's one driver of the equation. The other drivers of the safe and sound, earning asset growth.
That's driving the and I and we'll continue to invest into our biggest strength our people and our service model. So we'll continue to make investments but at the core.
Not because the more long term driven the short term investments.
Great. Thanks for the color.
[noise] well now take our next question from Bill Carcache from Wolfe Research. Please go ahead.
Thank you good morning, I wasn't bad.
Ask about gross in particular, the nexgen, which represents 34% of consumer borrowing households, hot items that Mexico from the or any color you can give on the trajectory that you expect would be helpful and sort of along these lines I don't think missed the mixture of household growth was the focus of yours in the last sort of cycle. So.
Any thoughts on how you think the low rate environment is impacting mixture of growth and what kind of impact if any.
I would expect from the higher rate environment.
Absolutely. So we're very pleased with the success of our millennial strategy of.
And the old where it started five first time close to 40% of our bar and household our millennial day to day significant increase compared to 2015 type of levels.
And our millennial strategy goes way beyond the interest rate environment. So a he had seen some trend in terms of the suburbs of some clients are buying secondary homes, but the millennial population. The kids for instance are accelerating their first time homebuyers, especially in the suburbs, which me of being able to help those close.
Science and in order to sort of these clients the of also being continually expanding our tool kit. So for example, the of included personal line of credit. In addition to professional loan program Robo advisor and financial planning products and you see that were getting the same great nextgen clients, who are actually fly the further along in their lives and closer to the buying at home.
We're already the refinancing the debt so and the digital investment in the next John population, while the sales dollar value the human to human relationship at least the clients, which is first Republic digital and mobile first of importance all the investments there the making all the long had been paying off handsomely in serving our clients in the nexgen population.
Got it presumably not all of your of action households, or high net worth can you give a sense of the extent to which you're seeing some of those extra in the households the.
Eventually because of high net worth.
Absolutely. So our clients are or have been closed so professionals highly employable highly educated conservative prudent financial decision makers. So whether they are millennials surveyed the boomers, it's actually the earlier of the catch them in their lives Negro the them and they grow the does a trusting us is there.
At trusted adviser so that's the most important key sales being seen in our and day Eagle lending such as the.
The way that the of successful navigated the core of it in one arm and our clients have been very prudent financial decision makers. So we will continue to grow the and out and create a lot of four of them.
Thank you and lastly, if I may of I think you gave a little bit on the its kind of the new money rates that you're seeing a low.
The average securities, but I was wondering if on the securities portfolio, specifically, if you could discuss how you're thinking about reinvestment risk given.
Given the dynamics around anticipated maturity schedules in the call provisions.
Absolutely so weird thing and then the new look at it across the assets side. So we're seeing A.H.P.L. at about one of the quarter to one of the half percent government agency each feel like a meat.
Meaning they of your thing and the Georgia Burgess has been H.B.L.A. new needs in the up to 75 T Y type of range, although with the 10 year of selling Delta the bad so that's helping the yields compared to single family of 275% to 3% range and multifamily in theory of to be the saying the half, but the majority of originations have been.
And with the residential originations and some of 'em up I found the Wi Fi so earning asset yields are coming in around three that incremental funding cost at about 30 and slightly better. So that's the range of two takes the five to seven of five from the NIM the strong earning asset growth.
Great. Thank you and the good the dynamics around the sort of the reinvestment risk.
Given the maturity schedules and call provisions and color on that.
So I would just comment I mean, obviously, we do of repayments of all the government agencies and things like that you haven't seen our investment portfolio grow as much the last couple of quarters if at all.
Because frankly, we found a better way the put that money the views from a liquidity standpoint in the client activity and client demand Ah. We do have municipal portfolio that we've averaged over frankly, the 10 year basis. So there's always periodic called.
Called the redemptions that occur, but nothing you know that's coming out of the send the big in the big jump or big them, though.
Understood. Thank you for taking all the questions.
Well now take our next question from Bank, Ken Zerbe from Morgan Stanley. Please go ahead.
All right great. Thanks.
The first question on business for Mike.
Certainly hurt your guidance for the change the loan growth next year, you. The I guess I'm I'm looking at one of your slides its looks like flight to where you've been very clear youve grown loans, 20% Cagar ER for the last 10 years. So just take the average five years of loan growth future, you're also up 20% of your.
Most of what we sponsored you have to someone who says the maybe your 15 percentage, probably just a little bit too low and and you know maybe 20 percentage kind of right number for loan growth on a go forward basis, maybe not so much the mixture of a store sort of the next several years.
Yeah no. It look at the at the totally fair call then you're I think you're referring to the Investor day, that's got sort of the 10 year historic look.
I think the most important thing to remember is we don't suddenly low targets.
Right or a client facing people their role is to serve the client need and client demand for whatever it might exist the deposit activity wealth activity or or whole loan buying or the businesses. So when we sort of start the year, we feel the that's an appropriate measure of based on sort of the client demand.
Maybe the economic environment of.
How were feeling about north of different geographies and the you know, there's obviously outperformed the overall.
Sustained period of time, but we're not going to chase either you know the first question is I think we're talking about higher rate. So does that impact volume that the does impacts of refinance activity and a lot of our refinance activity.
Comes from other banks.
So that that also I went back so I think we think it's of a prudent way of the plan into the estimate but also do what the good business is right in front of us and non try the stretch for it.
All right understood the U.S definitely the well some of the cost maybe the second question I have for the I know you provide the some of the 10 shoe, but how much of the growth in the wealth assets came from market appreciation versus net new client inflows.
The net mid July majority came from net client inflows about 25 billion was Klein inflows and 18 billion was marketing Creed.
So do you have that for the the quarter, though.
Yeah for it for the quarter of you have about 20, EUR 12 billion came from net client inflows third 12 13 billion.
Perfect all right. Thank you.
Sure.
Well now take out the next question from Erika Najarian from Bank of America. Please go ahead.
Hi, good morning, everyone [noise].
You. My first question is on the of the dynamics of of growth in the quarter I guess the weight. The two part question. The first question is you know if you could just talk a little bit about the investment cycle dynamics that propelled such robust capital call line of gross I think everybody was surprised to the upside of infection you know give.
In the compound the nature of the client the you actually have in house I'll be curious to understand the in terms of of.
All of your single family originations in 2020, how many more to new clients to the bank.
So I'll I'll start higher cash I'm, so proud of the on the capital call line private equity has been quite strong bad active deal flow strong the realized gain and the new fund formation of particular towards the end of the year. The strong women momentum the expects to continue into the when its way.
One of one is low given the low yields and all time high and equities, attracting more investors into the private equity and the utilization rate is ours. So we look at the commitment growth as you have seen that the commitments growth is being at quite a strong, especially in the capital of coal line about sort of 5% sales growth and commitments and we remain conservative.
In terms of repayments general of it then one day to day.
So and then on the single family residential side six it takes person of surgeon agent for the buy out of those the five over 60% word of it Nick acquiring new clients clients. The loans that other bank. So continues to be a very strong means of a client acquisition.
Got it and my second question is for Mike I think that we're entering the year of what the market gives the ASP day. It do the astec about potential curves steepening debt as the thing about the net interest margin range, which had the stage study you know how should we think about no I didn't.
The level of plank book rates would you be more compelled to redeploy the cash that you have and given the arson. Your starting point from 273, I guess you know.
You know could you be outside of the range on the upside if you do have a steepening of the card that would encourage you to be more aggressive at the point that excess cash.
Yeah. So I think we always want to remain very prudent in got a guy you mentioned some of the the Eagles. The paper of one of the quarter is not real attractive right now and given our loan demand. The we'd rather you know carry of the the cash balance and put it into client activity.
First of the Securities I mean, I think the last couple of quarters or margin has been very stable to 72 to 73.
I believe weve sort of found a pretty good place the with the the examples I gave about the current loan yields earning asset yields around three and it's funny cause 30 or slightly less.
The variability of largely I think will come from the amount of cash we hold.
Right. So I think you saw the cash balances up on average a little bit of the fourth quarter a in the L.. We still were around you know the margin was was actually extends it slightly so we're in a pretty good place, but I don't think the less competition low.
Moves up mortgage rates I.
I don't think there is a a big chance of sort of outside of the range at this point.
Let me just bad Erika to that's true the new year, we don't as Mike said earlier, we only respond to the volume of good deals we see coming in we don't chase deals because we have extra cash you're you're very aware of that but I think the.
The the bottom of those going on now back to Steve's earlier question one of the risk factors in the environment right now with the as much liquidity out there sort of credit standards. The time were very Oh, we we will not do that.
And that's probably going to be the biggest constraint on our cash utilization of the money.
Got it and maybe if I kind of squeezing a third question. So I think there's no other word for it you guys fundamentally clearly killed it this quarter margin expansion the robust loan growth I don't I don't think I'll see that in any of my releases for the rest of the season and yet the stock is underperforming today and the.
End of the market, but maybe Jim. This is for you could you remind us as you've been through many cycles. What does the fundamental trajectory typically look like for your bank in year, one of the of economic recovery.
We generally do very well during a difficult time in part because we're well capitalized sort of the clean and able to continue to expand our business basically take the new clients. During the period 2020 is definitely a year of that nature of bad.
Usually gives us a larger balance sheet going into of the recovery momentum, which youre looking up of the story second the bottle. She broke the sure was unusually strong even for us and batch of resolve the of a slow down in competition. The during the show the first half of the or at least the last.
She still continuing and the plots, yes competition pulling back its delivery quality.
And things of that nature or pick up of the new households are true probably at a record level of.
Both the.
For the seven.
Oh, and the I think that we I would say, we will do very well usually in the first year of recovery to look back over four or five cycles.
[laughter].
Thank you.
Well now take our next question.
From John Pancari from Evercore. Please go ahead.
Morning.
Or hurt you on the on your mortgage Tomlinson and that's that's helpful. In terms of the impact of potentially higher rates of what it means for for refinancing activity I'm sort of I just want to basically see if you can help us new terms of the actual growth rate you would expect all of the mortgage front in terms of on balance sheet of.
Loan growth of two she is it fair to assume that you do expect slower mortgage gross do you have in the how much of your volume has been the refinancing activity in the truck the true knowledge the debt could slow.
I wouldn't know of.
Not automatically extrapolate or comments to that we're just saying the up the refinance will at some point slowed down it's small children gone very much yet.
But if the 10, New York continues to move up in due course, the refinance a part of the demand will slow down.
<unk>, but I wouldn't the we're not saying that it's happening now, we're just saying it could easily happen.
Oh, the French Jim of related to that too sweet if that was the happened and we sold some moderation and all the balance sheet mortgage gross do you see offsets in other parts of your portfolio given the relationships. The you've added debt would I would mitigate that and keep your net loan growth range that you expect.
Sure the shipyards, the repayment of rate slow down the simultaneously.
And Oh, a slowdown of refinanced the it's not necessarily the of rising rates from each of the stronger economy stronger kind of movies were home purchase and more of multifamily purchase of et cetera, So they actually offset pretty well the refinance slow down or speed up the is always slightly faster, but the but if you look back of the.
Consistency of our growth because of those 10 years, that's one of the reasons, we put that out there.
Most of that growth is consistent true up and down the rate cycle.
Okay. That's helpful. Thanks, Jim One last question the on the margin front on the I know you talked about new money yields can you just give us where the new money yield is for the capital call lines of you're putting all of the portfolio currently.
Coming in around timeline that day.
Okay got it all right. Thank you.
Thanks.
Well now take our next question from Dave Rochester from Compass point. Please go ahead.
Hey, good morning, guys nice quarter.
Thank you Dan.
Talk about some of the assumptions behind that margin range of it assumes the current purposes going forward and what you're baking in for deposits, so being able to fund all the loan growth and maybe some cash going to pay down some of the borrowings of any any additional color there would be great.
Yeah, I think a couple of clearly the of the feds in very of public about the it on hold so we're not assuming any type of fed funds move I think the current yield curve is you know forward curve is about as good the look out from an expectation standpoint.
And then I do think the you know the like this year, we were able to fully fund our low growth with the public deposit growth, which we would like to continue into the future and so that may allow for some reason the exane.
I'm gonna of HLB, you're going to get some of that benefit anyways as you re finance maturities as I mentioned earlier.
But as Guy mentioned, the we've reiterated you know our CRE loans.
Assets are coming in you know right around 3% and funding depending on the mix of of liabilities, the sort of 30 basis points or a little less and so we're right in the us to Seventyish range and then the variable largely would be how much extra liquidity are we carrying at any point.
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Yep.
Got it that makes sense of the switching the capital are you guys thinking about love of here it sounds like you're still very comfortable with where you are.
But one of the tier one leverage ratio just over 8% of the security So you're thinking about bad and would you let that slipped the below 8%.
The Dave I mean, I think we've been pretty consistent the we always the remain opportunistic M and think about.
The markets, but that being said the balance sheets very safe right now and some of that leverage ratio is driven by the the previous conversation, we had with cash and so you know could it slip a little bit sure a bunch of the same time, we're always revealing what the markets look like and then opportunistic for small raises.
Depending on those markets.
Yes.
Maybe just the last on the expenses just given the base case for the growth and whether the new levels. This year, how does that efficiency ratio range friends play into of expense growth rate range for the year roughly.
Yeah. So I think if if you take some of the the comments we've made about.
A mid teens loan growth.
With the margin that absent cash is pretty stable the.
You know translates to probably about the mid teens revenue growth rate and then you've got an expense or a an efficiency.
No that's a little bit higher than the issue you're probably in the mid teens range from an expense standpoint, as we continue to invest in the franchise.
We've talked about the the core conversion opening up of Hudson yards, continuing to invest in our regulatory infrastructure. The feels like that's about the right percentage wise the increase.
Okay great.
Great Alright, thanks, guys.
Well now take our next question from Casey Haire from Jefferies. Please go ahead.
Yeah. Thanks, Good morning, I'm, just want to follow up on all of the efficiency [laughter].
Oh My God. The you said, it's 100 basis points impact from from Ah you know no today around job around call. It. So I'm just I'm. Just curious you know, it's obviously been a very strong origination here you guys are the net promoter score, which I know is very important new was flat to maybe even up a little.
So I'm just trying to understand why are you guys. So the you're too [noise].
Two of 'em took.
But you know to turn on the <unk>, that's what I'm doing the one you've demonstrated that you can you kind of deliver flow Walt Walt running more efficient.
I think it's a it's a very good point I do think it'll probably come later in the year Oh in the May not come back at the same levels right because you're you're absolutely right. We have learned a and done this remotely and so there there are probably the some review of things like that of whether we do as much you know in the future.
Is up for discussion, but there will be.
Some modest increase of of course, but I think it won't be probably back to normal during 2021.
Let me just say, there's also a lot of growth opportunity in front of the.
In the markets have the or in as well as the value team's finds the safety of mentioned and the core Ah coming into the from that perspective here in the last thing where you're investing into the long term and also taking advantage of the opportunities ahead of us.
Great. Thank you and net.
The follow up on the on them on the low strategy of the student loan refinance in particular, so that [noise] got product is now seven years old 29000 households can can you give us some metrics in terms of how many what percentage of those households have come to that home purchase.
The event and you know what percentage of that has you know has first Republic out of the all the single family business.
So you're doing the multiple things Dr thing the Phantom, but about 10% of that cohort are the they're doing it the buying homes, but does the refinance of new homes as I've mentioned the of personal line of credit clients are coming in the closer to the home purchase already have a home that they are refinancing the does Ah. So that's.
The great directional trend and also we're doing a lot of it on eagle unless side and financial planning the die millennial client deepening the relationship on that front as well. So we're very pleased with the progress.
Great. Thank you just kind of just last one for me the the Democrats talked about rolling back the all the salt jobs.
Obviously that would be a very positive catalyst for for real estate values in your market. How do you guys see the as you see that as of the meaningful.
[laughter] impact and then on top of just how would it change your outlook.
It wouldn't be it wouldn't be of favorable impact for the company net net because most of our markets have the have been adversely impacted by the change of previously I know of screen come back or not none of us feel at this point if it did it would the it would stimulate additional rental sales.
Two of it again our markets for sure.
Thank you.
Well now take our next question from Andrew Liesch, Some type of Stanley. Please go ahead.
Part of the Olympic stake of of course of.
Just wanted to go back with the efficiency ratio and make an expense outlook here, how do you see that playing playing out of the year goes all the things maybe towards the higher end this quarter, the whips and seasonal expenses then trailing off of.
On the happened since the the though.
But I think I would say the first quarter. If you look historically always has a little elevated and the improves throughout the year not the seasonality thing.
Because of the starting of payroll taxes and four one k. contributions again, but I think we're going to be relatively stable during the year.
Consistent with the growing balance sheets.
ER versus you know some uptick later because the we will grow.
We anticipate growing during the year to keep the more of the efficiency of relatively stable over the period.
Got it Okay. That's helpful. I guess the of the whether the store on the revenue front, though is the the fee income line there might be some seasonal aspects to the list of management fees here in the fourth quarter, but how do you see the fee income trend them out throughout 2020 of this continued growth in the <unk> the Gulf and maybe on the thing that's been pretty bad.
That's it.
Yeah, I think the bigger base of assets under management with the with the market strength and the strength of net client flow in the fourth quarter of.
Leads to a growing the revenue we're growing fee income I will say the fourth quarter did have.
You know a performance fee in it so you may not see growth in the first quarter in fees, but you will see it as.
As the assets grow during the year.
Okay.
The next you've already covered all my other questions.
Well now take our next question some of Brock Vandervliet. So many of you B.S. Please go ahead.
Hi, Good morning, just couple of Oh the market.
The competition questions I'm seeing a lot of activity.
[noise] Coke.
Focused on a non bank origination platforms. The most of that is obviously directed at the agency space as jumbos, such a small part of the overall market.
Are you seeing any.
Yeah competitive threats from you know non traditional platforms really directed at the jumbo.
But the so that's a good question. So we're seeing a lessening of penetration into the John the market more into the conforming and the towards your fixed space, what I would say just some of it to take a step back from the model perspective as the same takes are disrupting the banking sector of the scarce commodity income.
The thing leads going to be the trust the team member relationships and the customization elements that are gonna be harder to find and that's exactly right of first Republic shine.
So we see it then takes more partnerships and collaborations that actually decrease the transaction on time and increases the emotional time to allow for further customization. So we're using a lot of such collaborations to do that as low as internal the direct investments into the technology to further mpower decline.
And our bankers, who are actually making the magic happen. If you put all that together the models I to a balance like south and in the markets that we are in the idea of after settlement at 35 plus years. The of me still have just about five first on market share great opportunity in the Seattle market for example in Florida in Wyoming.
And a very successful next gen millennial strategy to bring back of some of the expense question Theres. So many great safe and sound organic growth opportunities ahead of the first Republic. So we're bound to take advantage of those even in the face of the disruption, which actually allows us to increase the customization.
Okay and.
The separately I think I've always heard of wealth management hiring of Didnt being described is extremely competitive you're seeing new entrants now in the form of Silicon Valley of.
How is that the competitiveness versus a year a year or two ago.
So we continue to of its strong pipeline of sales managers, who would like to join the first Republic model, that's mainly driven by the holistic non silent approach one client one trusted adviser one relationship at the time actually the have been deepening our relationship with our wealth management.
Clients the number the number of households have given us the trial on the banking side. Some of the health management has increased the first the positive increase so we stayed quite competitive and very pleased with the results and couple of bad that backlog and the pipeline and rate locks still strong. Despite the you know we find the moderate but the rate increasing purchase from.
The strong and year over year, very very high on the of mortgage pipeline side as well the especially on the thing of them residential so on both sides of the are doing a great job, so far and creating a holistic banking the liver, it's all our clients, including developed Nigel claims coming in.
Got it pushes the killer.
Well now take our next question from David should range from of Wedbush Securities. Please go ahead.
Hi, Thanks wanted to ask about the PPP loans on the balance sheet. It looks like about 200 of 50 million a war of forgiven in the quarter and about 100 million on an average basis. It looks like that added about one basis point to the NIM as we look out to the first quarter of the first couple of quarters. The 2021.
How much in forgiveness are you expecting in each of those quarters and the potential impact on on NIM.
So yeah, I think we did start to see forgiveness of pick up in the fourth quarter also obviously with the recent a law that was signed in there may be some acceleration on small or dollars because of of simplified forgiveness process I think by the probably the end of the second quarter maybe the.
The third man.
Most of the the first round should be through the process, either forgiven or you'll have a remain low for the amounts that are not.
You're out of summit I think we had about $4 million of what I'll call a extra accretion of the fees in the fourth quarter.
I'm, the only 24 million left and that's going to come in you know over the next couple of quarters. So it it supports the margin ever so slightly probably in the first half of the year.
Great. Thanks for bad and another housekeeping question you alluded to you know a bump in performance season of the fourth quarter can you disclose how much of the performance fees you had in the fourth quarter.
Yeah sure. So it's about $18 million, a and I would give you. The other side of that to is at about 13 of the it goes out in the form of compensation and the sub advisor costs. So there's not a lot the drops to the bottom line.
Got it thanks very much.
Well now take our next question from of Jared Shaw from Wells Fargo. Please go ahead.
Hi, good morning, everybody.
Good morning.
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Yeah. This is Mike certainly got kind of the expenses you had you mentioned are the investments and the regulatory ER, the making regulatory assets is that more processes and systems related to the core or is that actually you know hiring more personnel and the yen yeah in the first.
Sort of oversight.
I think it's just the as you as the growing institution and of being prudent safe themselves. We're investing in people and resources to do that I mean I think the.
The question about expenses.
We're supporting the larger bank of we're also have tremendous opportunities to sort of clients in front of us.
And to be able to do that you have to continuously invest in the franchise to do it better because that's what differentiates us frankly from a service model standpoint.
And so that might be from the regulatory standpoint of might be for a lot of technology, but it's really about investing for the future growth because there are tremendous opportunities in front of us.
Okay.
Okay, great. Thanks, and then I'm just looking at the at the single family.
Originations this quarter did you notice any trends in in geographic Ah moving whether you know where the words, bringing new customers in the or following your customers sort of away from those urban coastal markets of San Fran New York La.
Or is it really not is not gotten out of school.
I so to your point in San Francisco, The New York, and L.A. and Boston <unk> Wi Fi has been strong in all of our key markets. In addition, it rebound in the purchase activity in Manhattan, Oh City Center and sales arbs, while they have been suburbs syndication of.
The second homes, very ex doing exceptionally well and you're seeing the Manhattan City center to come back as well and inhibition, but I would add of Florida in Wyoming, and there's a lot of great opportunities in Portland, Seattle market as well that would be of being seen serving our clients day. So it's.
Full steam ahead and the pipeline continues to the very strong well over last years levels. At this time. In addition to rate locks also of quite quite the bus.
Great. Thank you.
And with that that does conclude our question and answer session.
Now I'd like to turn the call of acute Jim Herbert for any closing remarks.
Well. Thank you all very much for being with US today. It was a very very strong year and we're entering the new year with the <unk> with a record backlog and a record of size balance sheet and all the clients of greater good quite satisfied. So were we anticipate a M. A strong year in 20 2021 as well. Thank you very much for I've spent.
The good times of it.
And with that that does conclude today's call. Thank you for your participation you may now disconnect.
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And.
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