Q1 2021 First Republic Bank Earnings Call
Greetings and welcome to first Republic Bank first quarter 2021 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 will be opened for questions. The joined the queue. Please press star one on your terms.
The phone keypad at any point during the call and I would now like to turn the call over to Mike Donnelly, Vice President and director of Investor Relations. Please go ahead Sir.
Thank you and welcome to the first Republic Bank first quarter, 2020 One conference call.
Speaking today will be Jim Herbert the bank's founder Chairman and CEO Guy of.
Eric.
And board member and Mike <unk>, our Chief Financial Officer the.
Before I hand, the call over to Jim. Please note that we may make forward looking statements during todays call, which are subject to risks uncertainties and assumptions.
For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward looking statements. Please see the bank's FDIC filings, including the form 8-K filed today.
All of our available on the bank's website and.
And now I'd like to turn the call over to Jim Herbert.
Thank you Mike Good morning, everyone. We're off to a very strong start in 2021 with terrific growth and loans deposits and wealth management assets.
The first republic's differentiated as the.
While the continues to perform very well.
In addition to the strong earnings we're quite pleased today to announce the 10% increase and our quarterly dividend for 22 cents per common share of per quarter.
This is our 10th consecutive year of quarterly dividend increases.
Yeah.
Since 1985 first Republic success, and durability have been grounded and a culture of taking care of each client one out of time, while continuing to operate and a very safe and sound matter of.
The long term study approach has led to consistent success for a wide variety of environments and cooling this unprecedented pandemic.
We are extraordinarily proud of our team's dedication hard work and commitment the client service and do each other throughout this period, it's been absolutely amazing.
A key part of our success is to take great care of our people, who in turn and take great care of the clients.
We're pleased to have recently increased our company wide minimum wage for $30 per ounce.
And from $25, which we instituted in 2019.
Okay.
Yeah, and the wavering dedication of our clients and it's also the reason for our latest client satisfaction level and that's reflected and very strong 2020 and net promoter score.
The strong score and once again validates our client service model.
Our net promoter score.
Actually improved during the year and of remains more than twice the U S banking industry average.
Client satisfaction, among those who identify it says the lead bank is nearly two five times the industry average.
The satisfaction level leads to long term deep relationships and more referrals, which drove the all of them of drivers of our growth.
Let me summarize briefly the first quarter results.
Total loans outstanding were up 24% year over year.
Total deposits grew 37% year over year.
Wealth management assets were up 59% year over year, and we now exceed $200 billion.
This growth across the enterprise drove a very strong financial performance.
Total revenue year over year of has grown 24%.
Net interest income was up 25%.
And importantly, tangible book value per share increased 14, 5% year over year.
Our strength safety and soundness of continued to be reflected and strong capital liquidity and credit quality.
During the first quarter of for instance, we raised an additional $914 million of tier one capital.
Our total equity increased 25% year over year supporting our strong growth.
We don't engage and share buybacks.
Yeah.
Strong credit has been for almost 36 years, the core pillar of the first Republic and is a key to our strong results and stability.
Net charge offs for this quarter were only $487000 a fraction of one basis point.
Non performing assets at quarter, and well only 11 basis points of total assets.
During the first quarter, we did reduce our reserve for credit losses.
This is the result of the Ctrip guidelines, leading us to a much improved economic outlook.
Plus the substantial resumption of loan payments among our COVID-19 modified loans.
Yeah.
Mike will discuss this more in the moment.
With each of the rest of the year, we are very optimistic.
Our clients continue to be very liquid and quite active.
Our markets on the solid path to returning to normal it would appear.
And fiscal and monetary stimulus as we all know are very considerable.
Overall, it's a great start to 2021 and we are extremely pleased.
Now, let me turn the call over to Guy Archon President Thank.
Thank you Jim It was a terrific quarter that benefited from continued organic growth across the franchise, leading to strong net interest income and wealth management revenue.
And as Jim mentioned this is the direct outcome of the exceptional service provided by our of care and colleagues and the resulting satisfied and loyal and loyal clients.
Over the past year, while working most of the remotely.
Like what sort of its model has been further strengthened by our continued focus on technology and process improvements.
For example, we implemented new digital features that further the empower our clients, including the ability to connect with their personal banker directly and securely and.
Mobile app.
This is first the human service delivery provides greater convenience by allowing our clients to the bank in a way that is customized to their needs.
Today more than three quarters of our clients are using our mobile app.
Importantly, our clients know that there is always and trusted human at the heart of their relationship with us even in the case of I gave the likes the idea.
We are of people first organization and have always believed that our exceptional service starts the dark colleagues.
With that and mind, you continually do more to support and empower our colleagues so that they can be their best.
And as Jim mentioned, we recently increased our company wide and minimum wage the party dollars for out.
We also expanded our health and well being benefits that's simple.
For the colleagues through the pandemic.
And we and hence our employee of home loan program and that's more than 30% of bar of colleagues currently participating.
By taking great care of bar of colleagues, you're empowering them to deliver unparalleled service the clients.
This in turn leads for the pizza, the nuts and more client referrals.
Let me now provide some additional comments about the quarter.
Loan origination volume was $15.7 billion, our best core of best first quarter ever.
I would note that the average loan to value ratios for all of real estate loans originated during the first quarter the may.
And conservative at 55%.
Single family residential volume was $649 billion.
And we finance accounted for 65% of single family residential volume during the first quarter.
The majority of the refinance activity continues to come from clients, who formerly had lung and other institutions.
Turning to the business banking business loans and line commitments were up 27% year over year, excluding PPP loans.
The growth and outstanding balances was driven by a utilization rate of 38, and a half percentage as well as the new commitment.
During the quarter and he participated in round two of the Paycheck protection program, helping our small business and nonprofit clients obtain an additional 4500 the P. P P loans.
Our efforts have provided a much needed lifeline for many during the difficult time.
Since the program started we have helped to support over 100000 jobs.
In terms of funding it was an exceptional quarter.
Total deposits were up 37% from a year ago.
We continue to maintain a diversified deposit funding base.
Checking deposits increased by nine and a half billion dollars and the first quarter and now represent over six and 7% of total deposits.
The isn't as deposits represented 59% of total deposits up slightly from the prior quarter.
The average rate paid on all deposits for the quarter was just nine basis points, leading to a total funding cost of 24 basis points.
Turning to wealth management assets under management increased of 201 $19 billion.
Since January the first 2020 assets under management are up 45% of which fully six of the percentage was net client inflow.
During the quarter, we welcomed three new valves and management teams for first Republic.
The strength of our integrated model continues to attract very high quality of team.
Our first quarter results demonstrate the power of our service culture, and the creativity care and dedication of our of colleagues.
Now I would like to turn the call over to Mike Rossi, Our Chief Financial Officer.
Thank you the aisle as Jim mentioned, we run the bank with strong credit capital and liquidity at all times.
And the first quarter, we're pleased to have raised $914 million of net new tier one capital, including both preferred and common stock.
We issued the series L preferred stock and redeem the series G. During the first quarter.
Following these two actions, we expect the quarterly dividend and preferred stock to be approximately 24 million going forward.
We also raised $331 million of common equity during the quarter.
And as a result, we expect our diluted share count to be approximately 179 million and the second quarter.
We are very pleased with the progress of our Covid loan modifications and.
March 31st Covid modifications were down more than 75% from their peak and now represent less than 1% of the bank's total loan portfolio.
Let me touch on this quarter's provision for credit losses.
Historically, the bank increased its low loss reserves by approximately $20 million to $30 million per quarter.
As a result of loan growth.
This quarter, however, we reduced our reserves by 15 million as the low growth related provision was more than offset by two positive factors.
First was the substantially improved economic outlook since year end, which largely offset any necessary provision for loan growth.
Second was the resumption of the regular consistent loan payments following the end of the Covid modification period.
For some perspective since we adopted the CFO on January one 2012, we have recorded a 142 million of net provisions over five quarters, while only recognizing 3 million of net charge offs.
Net interest income was up a very strong 5% from the fourth quarter and 25% year over year.
This reflects our robust growth in earning assets.
Our net interest margin for the first quarter was $2 67.
This is down from the fourth quarter due to the elevated cash position, resulting from our exceptionally strong deposit growth.
We continue to affect our NIM and net interest margin for the full year 2021 to be and the range of $2 65 to $2 75.
Our efficiency ratio for the first quarter was 63, 5%.
And we're very pleased.
With given the extraordinary revenue growth and the quarter and over the past year that our expenses have remained in line with the revenue growth.
We continue to expect our efficiency ratio for the full year 2021 to be and the range of 62% to 64%.
Our effective tax rate for the first quarter was 21, 9%.
Under current tax law, we continue to expect our tax rate for the full year 2021 to be in the range of 20% to 21%.
Overall, this was a great quarter and a very strong start to the year.
And thank you and now I'll turn the call back over to Jim.
Thank you Guy and my.
The first Republic's time tested the straightforward business model remains very focused on delivering extraordinary client service, while operating quite safely.
The model continues to perform very well.
We'd be delighted to take any questions. Thank you.
And if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. Once again, everyone. Please press star one to ask a question, we'll pause for just a moment to assemble the queue.
Yeah.
And we'll take our first question from Steven Alexopoulos with Jpmorgan. Please go ahead.
Hey, good morning, everyone.
My first one of my first questions for Mike Rustler.
NIM, so just given where liquidity levels now said as well as the shape of the yield curve.
Do you think the NIM has now bottomed and Mike how do you see the NIM trending through the year given the range just reconfirmed.
So the the first quarter as we mentioned it was $2 67 and impacted by.
A very strong cash levels, given the exceptional deposit growth and.
So it is depressed a little because of that if you go back to the fourth quarter for example.
Cash was about 7 billion and the margin was about six basis points higher go back to that level and our margin for the first quarter is a little bit higher than $2 73, and so cash is elevated now as you know tax day had been deferred of long. So its may 17th now and search.
Typically what happens is we have the liquidity buildup and then it.
Goes out to pay of the federal and state taxes, and so you'd see a little bit of and upward and the margin just from liquidity being reduced.
Okay. So it sounds like the NIM from here should trend modestly higher rate of that liquidity draws down and pay.
And if liquidity draws down and I think that's right yeah.
Okay.
And then.
On the loan side, Jim for years, you've pointed out that the company operates in many states that are supply constrained right.
With that said if all of our hearing now is that nationally real estate and supply constrained as the seems to be and much more pronounced issue I'm curious could this constrained and.
There and your ability to grow mid teens. This year or is there just enough share where you don't think there'll be a factor.
Good question, Steve I think of it won't be much of a factor of couple of reasons. One although we've done very well we are still a small part of the markets that we're operating in and particularly if you think about dollar share as opposed to the unit share because of price like San Francisco is very constrained, but the prices are strong.
And the movement around the sale and transfer of action volume is down a little bit because of the supply constrained, but but the pop up and rates and prices I think as well as soon as COVID-19.
Sales into the background will pick up volume, it's already beginning to do so new Yorkers of really good example of that the volumes and New York and picked up considerably and the early part of the year. So I think we're gonna be fun.
And then maybe one final one maybe for you Jim and it looks like most of the Covid impacted loans are moving back the paying full principal and interest are there any segments of the portfolio, where you're not seeing loans on deferral resumed full payment that you would call out for us. Thanks.
And not really the the restaurants are slower and the hotels and smoke.
But they are coming around.
And so I think it's pretty much across the board with those two acceptance and Theyre not zero, there just trending more slowly.
Okay, great. Thanks for their of small parts of our portfolio what was the small parts of a vote for you as you know anyway.
Yeah got it thanks guys.
Thanks.
And the next will take the question from Dave Rochester with Compass point. Please go ahead.
Hey, good morning, guys nice quarter.
Thank you.
You guys had the tremendous deposit growth this quarter, well above that H eight page, which are the streets of your ability to continue to take share. There was just wondering if you have any sense for how much of that came from stimulus this quarter and I know the <unk> deposit trends and normally a little soft with the tax rate.
But Mike you just mentioned what was just curious if youre still seeing some momentum on and inflows there and just given the economic backdrop, if you're still expecting to have the deposit growth this coming quarter. Despite the father's day.
Let me take that high so the yesterday deposit growth has been exceptional and the and it was very valid diversified primarily driven by consumer and non financial business clients and the health and makes us growth, but the new clients as well as deepening existing relationships I'll also add that'd be.
The average account balances are up and general and the mid teens for both consumer and business clients like all banks, we have been the beneficiary of the increase the stomach deposit funding, but we are very well positioned because that's the environment that has afforded us the unique opportunity to engage new clients and prospects and we remain confident and.
And are those the gorilla and fill the fund our loan growth going forward.
Okay Fantastic and maybe just a quick one of the borrowing side I know you guys had mentioned a lot of time.
And I was expecting a 5 billion of maturities. This year was just wondering about the progression on that and then what kind of opportunity you might have a day some of those down as you roll into 'twenty two as well.
Yeah, Dave So at the end of March we've got about just under 4 billion of the S. H L. D that comes due this year.
Net rates just under 180, and you know three year money right now is around 55 basis points. So you know if you refinance those down and there is some benefit to that to help protect the margin and keep it and that range that we just talked about.
And.
And any sense for next year as well.
And the maturity.
Yeah, [noise] excuse me another just under 3 billion at about one 5%.
Okay, great. Thanks.
And then switching to write the loan growth I know, there's been some concern and the market on your ability to maintain strong loan growth trends just given the expected slowdown and mortgage activity. This year, but you guys clearly continue to execute on growing that book very nicely. This quarter can you just talk about the trends youre seeing and that market today and what's your outlook is purchase activity continues to ramp up your insecure.
Yeah. The the economy rebounding has also led to continued strong demand across all of our markets. Our pipeline is up strongly year over year or six week rate locks are the main robust they're higher than last year and and the composition of rate locks purchased rate locks are up significantly.
And that the refi rate likes are down slightly but the refi all of its constitute the great opportunity for us to get new clients and we remain confident and our mid teens guidance because the business overall is that it's from.
Yep, Great sounds good and maybe just one last one of margin where are you guys seeing new loan yields at this point and and securities purchase rates, just given the uptick we've seen and the curve.
Sure.
So the on the margin outside of the asset side of coming in and high twos low single family to the 75 to three per se and multifamily and CRE market as of today and a half for Sun range and on the security side of the munis are high twos around 3% and government agency H T. L. A is wanted.
And of half the cheaper set and so the margin outside on the asset side coming in and around 290, and then the marginal cost of funding as we have talked about the S. H L. P. As well earlier about 20 basis points or better. So we are we remain confident all of the two six to five to seven five range for NIM for the year and not to forget strong.
The organic growth across the entire franchise. The NII is what pays the bills. The net interest income and they have been very pleased and the strong growth and that which offset some fluctuation from that.
Great Alright, thank you very much.
Yeah.
And the next we'll take a question from Ken Zerbe with Morgan Stanley. Please go ahead.
Alright, great. Thanks.
Maybe the first question for Mike in terms of the reserves.
And if the outlook continues to get better for the economy, how much more room is and your reserves the.
And that could potentially come out I guess I'm, just trying to figure out like how much of sort of the sort of exit pandemic is still reflected in your and your a triple O.
So the it's a good question Ken So there's on the call. It the quantitative forecasting side, where you know all banks are looking at and economic outlook.
We're pretty much back to where we started on that aspect the pre COVID-19 and so I don't think there's a lot of room on forward looking economy.
Because it's been such a strong recovery and the second thing and this is gonna be harder to see as ever.
Every prediction, we made before didn't end up as bad as the as you thought it might for the portfolio is just that much stronger.
And there are a few COVID-19 modifications that have some specific allocated reserves to them, but those are relatively modest in nature from this point going forward and so we would anticipate if we kept growing the portfolio.
And that there likely is some positive amount of reserve that gets recorded in future periods.
Got it understood that and that helps and then in terms of the expenses, obviously ticked up at the revenue as tire of certainly as well can you just talk about some of the new investments you guys are making in the franchise like something over the last say quarter or so that are just sort of of the new initiatives specifically all of the technology side.
Yeah, I mean, one of the the things. We're doing is we're obviously progressing through the core conversion and those costs you see a little bit of an increase and professional fees.
And some of our compensation costs are tied to that that's that's the big one for.
<unk> thousand and 21 from a project standpoint.
There's a very starting of the Hudson yards.
<unk> expense and the first quarter just in March and.
And that'll start to pick up here and the second half of the year and then you know the the third one that's maybe not as self evident is.
Given the revenue growth that you mentioned there was the variable nature do you know a bit of our compensation that's tied to the revenue growth be it in wealth management fees.
The very strong checking growth that we've talked about and loan volume, which year over year I think is up about 50%.
So all of those things sort of drives the expense growth that you see which is which is match revenue growth nicely.
Got it understood and then just one last question and then in terms of the deposit growth. Obviously, it's incredible I don't think there's any question about that and.
And you guys normally have sort of a very upward sloping trend when it comes to growing deposits, but do we think about the magnitude of deposits have come out of your balance sheet like I get in the second quarter, you know it could be some volatility and tax payments totally fine, but when we think about the next several quarters can you just talk about some of the factors that might drive that.
Up or down from here I mean outside of your normal growth and I'm, just wondering to what extent like how much if there was any excess and there just given.
Oh, no I mean, just given what's happened with the economy, where some of the growth could potentially be transitory.
Okay.
And so on the deposit side, you're right. So the tax outflows are shifted to me now so may 15th so we're going to see some tax outflows coming in and some of the average and media and accounts balances being higher and it's about mid teens higher both consumer and business side.
And over a year and that is benefiting from the stimulus and the market as well, but we are very well positioned to help manage client needs across different macro environments. The both on and off balance sheet liquidity solutions and optimizing our funding mix overall, whether its the deposit side of it which is about 90% of her.
The liabilities and beyond.
And just add to that for a second and I'll reemphasize something you guys said.
There was an unusually high savings level and the and society in general.
It shows up more consumers of pauses, but its there and business as well the liquidity of the general liquidity and the system for all of the stimulus is ending up in the banking system and we've got and I think a bit more of them of our share of that because of the way that we operate and the trust of the clients have and us, but nonetheless as Guy said earlier the average of.
Accounts size of the bank is up and.
And what we don't know is how much of a bad as is temporary or permanent and we are guessing the out a fair amount of it will be spent and thus become economic stimulus and that's of course, how the system works.
And so the last time, we've seen anything close to those who is of a while ago and and in fact, the I've never.
We've never experienced this level of stimulus before.
But it will flow out into the into the economy in due course, so our deposit growth for the future will not be this high.
Okay.
Understood Alright, thank you very much.
And up next we will take a question from Bill Clark of cheap.
With Wolfe research.
Please go ahead.
Good morning could you discuss what overlaying, a strengthening economy and the second half of 'twenty, one would mean for the trajectory of your growth could that be incremental to the trends that youre seeing now just curious how you're thinking about that.
Its good question Bill and I you know.
It's going to be supportive of growth of course.
I think that the growth rate we've experienced this.
This quarter as a relative number is high actually mostly in part because of the base. We're operating with all of the comparison, but also the housing market, which as you know the bankers drove strongly driven by single family loan level volume, which we like very much it's a very safe asset class.
And that we've managed to put to work of very successfully and I think that's.
It's going to continue the supply constraint will be the primary limiting factor there, but we're taking share rather regularly to I think of stronger economy means stronger loan volume and generally speaking there's a drag for the parallel the hard to say, but directionally it is stronger.
Thanks, Jim that's helpful and I wanted to separately shifting to expenses and I want to ask the follow up question you guys have expressed confidence in the 62 of the 64% of efficiency ratio target for 2020, one, but could you broadly speak to the longer term and sustainability of that range, you've seen over the years of bit of upward creep.
And your efficiency ratio for different reasons. Since you guys went public but it would be helpful to know, whether you think that 62% to 64% level can hold because that would suggest that more of your topline growth can drop to the bottom line without pressure that we've seen in the past from expense growth outpacing revenue growth.
Hopefully hear your thoughts on that.
I think I think the last couple of years, we feel like we've done and a pretty good and consistent range 60 to $63 60 for.
You're right. If you go back to our early public days it was a little bit lower as a smaller institution you didn't have as many infrastructure and the regulatory.
Expectations, when you're you know below 50 billion and so we feel like we're in the right range because it allows us to continue to invest.
For the opportunities, we see ahead of us and our markets for growth are.
And the great client service, we continue to deliver all of those things lead us to this pretty consistent range. We've had the last couple of years and feel good about given the opportunities that exist and our markets.
Understood.
All else equal if if if the rate of expense growth of.
The relative to revenues can hold and at that level. Then then we should see more of the topline growth and jobs and the bottom line versus history. When the when expenses, maybe for a little bit faster because of that sort of a reasonable thought process.
Oh, I think so but I think that it's also I think about stability and consistency over long periods of time.
Right and so.
The margin has been pretty stable the last couple of years of.
The efficiency also so we're investing at the pace at which our revenues are growing and to support client service and to continue to grow the bank and that's how we think about it.
It sounds like for that for a second so that if you think about it.
Managing growth of expenses and revenue is aligned and a 15% to 20% growth company is very different than cutting expenses and the 5% growth bank in order to improve results.
[laughter].
The that makes sense.
Helpful. If I could squeeze just one last one just.
Just out of curiosity has any of your wealth clients expressed interest and gaining exposure to the crypto assets of any thoughts on how you guys are thinking about the potential of emergence of crypto as a potential of asset class.
And in light of the credit based IPO today that would be helpful. The here just.
High level, how you guys are thinking about it.
Sure I'll take that and we're approaching the crypto or is it still the outfit ecosystem, the utmost care and focus on safety and soundness and compliance like everything else and so we do not lend to create the companies are clients, however, and they can invest in crypto related funds.
For their brokerage accounts, but we did not give fiduciary advice of such digital assets and they're all for assessing potential of cockpit of partners to help our clients the regular purchase and as well as do more comprehensive aggregated reporting for those but again as I started given all the foundation of safety and soundness and rapid pace of.
The industry evolution, they're approaching it very methodically and conservative for a while accommodating our client.
Extremely helpful. Thank you so much for taking my questions.
Bank.
And the next we'll hear from John Pam Kearney with Evercore partners. Please go ahead.
Hi, Good morning. This is the Tom Stephens on debt to half of the jumping and Corey.
Just wanted to ask a quick question.
Guarding loan originations are theirs.
The drop off from the multifamily and the quarter.
Just wanted to debt you got the thoughts on when originations going throughout 2021, specifically regarding.
The multifamily portfolio. Thank.
Thank you.
Yes.
So we had been the monthly active and doing phase deals most of the refinance debt experienced owner managers and that value of our service and our relationship bottle. So multifamily hasn't been a resilient asset class on both coasts and our rate locks are actually the fix the great lakes are up year over a year or so there.
The strong momentum and the vacancies are coming off of the elevated levels of their signs of improvement and does he are seeing and and and and it's the resilient asset class of we'll continue to the assets in that.
The safe loan to value ratios for very very conservative as you know and credit underwriting.
Okay, great. Thank you for taking my question.
Okay.
Yeah.
And next question comes from Chris Mcgratty with <unk> BW. Please go ahead.
Hey, good morning, Mike last quarter, you talked about.
The efficiency.
And if it by about a point from Covid, and and that and making its way back into the run rate over the course of the here and just give an update for that in terms of the pace of these deferred expenses that didn't occur last last year, and maybe contextualize and this quarters efficiency ratio and the guy. Thanks.
Yeah, I mean, I think all of the this quarter. The efficiency you know one thing to remember too is the first quarter is our highest period for payroll taxes and 401 K.
And so there is the elevation from that that in the past us and and this quarter is typically added about a percent.
And then that obviously smoothed out over the year relative to the pandemic benefits.
And you know, they're there dissipate and a little bit of travel is still down but its you know three or $4 million of quarter down so its not a big number a marker.
Marketing and advertising has been lower because we have less events.
And that'll start to probably pick up the latter half of the year as things start to open up more so and.
It's probably a little bit less and it was a year ago.
And one because.
Expenses startup of reducing the March last year. So your comps are starting to be more normal and second is obviously the revenue base is much higher so the impacts just less.
Okay, that's great color and I.
On the I'm, just kind of switching gears capital call loans were up nicely again in the quarter can you just speak to kind of the outlook for that business given all of the liquidity injected into the kind of it.
Sure of the environment for P. N V C. Both fund raising deal activity and exits continues to the various shrunk the fund raising is robust even went down and virtually is cash rich investors are looking for returns and.
And it provides ample capital for investments that over two trillion of private capital of dry powder to stay on the sidelines and it feels the O making at a pace that actually exceeds the pre pandemic levels. Despite the high valuation and funds are also realizing gains fly of multiple channels and as equity market sales of the buyer.
And specs and so as the resolve and and as you guys know what so we are underwriting with 90 to one day to day of repayment terms with very strong seasons and L piece and the known relationships on the personal banking side. So does it feel they're pleased with the growth continued growth and commitments as well as kind of comfortable with our underwriting.
Standard.
Okay, Great and maybe one just housekeeping item the the.
And the bully income last couple of quarters.
It's about the run rate and should be using 16 of them from one quarter.
Yeah, we have done some purchases over the last couple of quarters, and so 16 and 17 millions of pretty good run rate.
Thanks, Mike.
Okay.
And up next we will take the question from Erin <unk> with Citi. Please go ahead.
Thanks, and I was hoping you could touch a little bit about the urbanization trends and how that's impacting clearly clearly its not impacting your growth and Ah.
Are you are you retaining those clients that they moved to you know from the West coast, the Idaho or East Coast, Tennessee.
And maybe just comment a little bit about what you're seeing from within.
And I'm sorry between single family of there.
Sure its the complicated issue as we all know what we're experiencing almost daily as the regeneration of the cities.
New York, San Francisco L, a boston or all of recovering.
Incrementally and measurably almost every day companies are beginning to amounts returned to the office.
Grams that are actually a little more robust I would say the than we'd expected.
The housing demand and the cities is now back.
And the prices are lower which is of course stimulating demand, which is good and rentals were down and that's pulling of pulling people back and as well. There is some movement to Texas, Florida of Wyoming et cetera of drilling probably by tax policy, but also by opportunity.
And.
And that's the kind of continue but it's not going to be the incremental AR.
Element that changes, the San Francisco or New York.
All of our opinion and observation.
And in the for folks that are moving out of your market clearly it doesn't sound like there's a.
Huge amount that youre, losing being the.
The growth there or are you actually retaining those customers.
And I'm sorry, that's the yeah, we do retain the we do retain the very seldom do we lose them with digital banking free ATM service everything else, why and and a bank or the trust, we we keep them the distances the distance and there's no longer distance.
Yeah, just to add to Jim's comments on the on that side actually we are doing the mobility study of Firefly and every year and majority of the moment. We are seeing is within our markets. The reinforced Jim's point, so and it's moving from San Francisco, and New York to places like Florida, and see and a lot of.
Moving and in Wyoming, and some of them moving from citizen enters the sub right. So we are and Manhattan as much as they are and great niche as well and I'll say I felt county, so we're able to sort of these clients and again to reinforce James points on digital investments and technology for those who moved outside of our markets, which is the immaterial portion of the.
The mobility I continue and messaging digital and technology allows us to serve them with some exceptional service and given the human trusted advisor at the height of the relationship with many years of trust.
Thank you.
And of Mexico next question will come from Casey Haire with Jefferies. Please go ahead.
Yeah. Thanks, Good morning, guys and had a question for for Mike on the Securities book looks like you guys. You know just based on the average balances and the period and.
You took advantage of.
Of higher rates and March I'm, just wondering given the improved liquidity position does that is that something that youre going to look to to aggressively continue and the second quarter here or was that just a.
The one time deal and just you know size of the Securities book.
Yeah. So as you know was a V or a very steady Eddie when it comes to the investment. So we have we have two ways weight and we look for opportunities B. We also take into account the first the lending opportunities to the clients and you want and keep it pretty it's a L. M matched book, So we're slightly asset sensitive so that drives the of.
Investment philosophy on the securities portfolio to your point rising longer term rates and the quarter allows us to opportunistic with purchase of municipal bonds and and now I've met some portfolios you've made about a $2 billion purchase of close to 3% T Y just short of it and its strength and the NII growth and given the marginal for.
Funding cost it was right and the other than the NIM guidance I liquidity position remains very strong it's driven to a great extent by the H P. L. A for the purchase of say were doing as well as the elevated cash levels and that's why you're seeing 15 points of the percentage of daily ratio today, the stomach centers like that with the card.
And the elevated cash levels and so we feel comfortable that solve clause and it hit and a quarter and above bad debts, we're gonna be discipline to keep it at about that level.
Great. Thanks, and on the next Gen strategy, those 35000 households.
And I think you guys are sort of set historically that you know 10% of that has made their first home purchase and is there and expectation that that accelerates given the given you know.
The.
The the move to the.
For for home purchases and you know I would think that would be that'd be a nice tailwind for for that that client base to the pull forward that.
And that life moment.
Yeah, Great question, and that's what I'm very pleased with the success of our millennial strategy. Let me start with your question first of all of the deepening existing relationships with our expanded toolkit actually I'm pleased to say that now over 20% of our millennial clients are now mortgage clients of the bank, which is fantastic.
From the 10% debt you have quoted them and at the same time. The millennial household debt position continues for the strong as well up 13% year of year over year, and a year, where we launched the price of a line of credit product at the same time for the team did a great job, bringing that to market so with the.
The expanded toolkit it experienced trusted advisors for the millennials valued the advice and the digital for human connection and mobile first strategy. The deliver theyre confident that we are getting the same grade clients younger and their life, which is key for private banking.
Okay, great so and so youre, 20% of the of that household base has converted or is converting towards a tour of first Republic of.
Single family product or is there any attrition too.
Where you're losing that to a competitor.
And I know you guys have 80% of.
It is in line, yes, so to confirm and over 20% of five millennial clients are now mortgage clients, whether they did the does all of the refined their loan and in terms of attrition is in line debt or overall clientele and types of household attrition and.
And as well as the lead bank percentage and the lead Bank N. P. S. For millennial households are very much in line with the overall households, and it's just more than double the banking sector.
Great. Thank you.
Thanks.
Okay.
Up next we'll take the questions from Andrew Liesch with Piper Sandler. Please go ahead.
Good morning, everyone. Thanks for taking the question.
You covered most of what I wanted to go over already but on the.
What's the date isn't front the theres been a for.
And it appears to be the an increase and press releases of routes and hires.
Curious like what's been the the trend of conversations with both Dennis and what's coming on.
And first Republic has that accelerated compared to the prior quarter's and I'll do it.
That'd be appreciated.
Yeah.
It's a continued momentum on the wealth management hiring for the hired to the new PWM teams and in the first quarter and our reputation continues to the very strong and we expect the continued to add high quality the team, but the pace of it is really you're seeing waived for the very thing Craig.
Yeah, and and referrals from our existing wealth managers as well, but the pace is really driven by the cultural fit and it's really important the V are the right fit for them and they are the right fit for the price of Republic culture. So that's going to be the key for the pace of the hiring but we're seeing great great quite high called the teams and dry and conversation.
Got it.
Thanks.
A couple of my other question.
Okay.
And our next question will come from David.
She verine with Wedbush Securities. Please go ahead.
Thanks, a couple of questions for you of starting with a follow up on the capital call lines of business. So it was up and in the first quarter of about 500 million, but growth slowed.
Slowed from the fourth quarter, and which growth was about 2 billion and so I was curious you gave some commentary about the health of the overall like private equity venture capital fund raising all of those of shrunk, but just curious as to what was really the driver of the slowdown and the first quarter of versus.
Versus the fourth quarter, particularly as if this is reflective of an indoor trees.
Industry slow down the or anything else.
Yeah.
And so.
So actually out of both our outstanding and and commitments went up and both come in and sign up and the utilization and then and so it would be outstanding is up because of those two factors. So we are seeing continued growth the deal activity and the valuation from quarter to quarter. It also changes, but again as the.
And I said earlier and yeah.
The tremendous growth and the environment is quite strong and all of sudden said its fund raising deal activity or exit and and and we are seeing and help a mix of existing clients deepening more relationships, but the fun formation and the deal activity in general it does fluctuate from quarter to quarter, but its continued growth.
And year over year, I sort of like quarter over quarter.
I think also one thing Guy I highlighted earlier is the 90 to 180 day term.
So if I think I think David you referenced the big quarter from September to December well some of those losses are getting paid back and the first quarter right because of the short duration of the the draw they come back and so I think when you consider that even growing as we did the continues to show the strength and.
And depth of the market.
Yes, that's helpful. Thanks for that and then shifting gears and.
You mentioned about how the it sounded as if the pricing on loans is consistent and in the first quarter versus the fourth quarter and that's despite the 10 year treasury yield increasing nicely and I was curious if you can comment on how much of a timing lag there could be before we see an improvement and <unk>.
And pricing, particularly on the mortgage product.
Yes to your point it does lag the lending rates are to mortgage rates to the treasury yields fell off so year to date, we have seen mortgage competition continues the strong which kept the pricing stable. So the rates have been very much in line with us at the beginning of the year and <unk>.
That said, you'll see of benefit eventually as the yield curve, steepens and especially as the multifamily activity continues to gain more traction and momentum, but again, we do a plus credit that April is pricing a lot of relationship pricing knows the we're pleased that the large and I'll yield the high twos.
Couple of bad, but about 20 basis points on the funding side on the marginal funding side for that phone side and the NIM guidance for two six to five to seven to five stars couple of good strong safe organic earnings asset growth. The net interest income follows.
Thanks very much.
Thank you.
And our next question will come from Jared Shaw with Wells Fargo Securities. Please go ahead.
Hi, good morning, everybody.
I guess most of the stuff with it I guess like just circling back on the provision going forward you'd referenced the 20 of $30 million sort of standard provision for growth.
You know as we as we look at origination activity, so being stronger and maybe of shifts where non single family residential and makes up the incrementals bigger parts of the originations that still the right range to use or should we be looking at like maybe more of a 54 basis point.
A range of impacts related to account for growth.
Yeah. So I think the the 20 to 30 does sort of give you that latitude if the mix were any different.
I think we've been I think this quarter, 70% of our growth was the single family and that obviously has a pretty low.
And reserve estimation on it and and you actually did mentioned something elsewhere.
On January 1st 2020, we were 54 days as points of reserve to loans and we're right back there.
At this time this feels like the right range and then depending upon mix it could go down or up ever so slightly and most likely.
Okay.
Great. Thanks, and then I guess, maybe just you know looking at the at the pipe volume today, you mentioned, 65% of single family origination was refi is that.
And we're already seeing that sort of a bleed out and the and the pipeline here and it did most of that happened at the beginning of the quarter or is there still a little bit of a wait from al and the.
And the pipeline.
Okay.
Yeah, we see that as well that refi usually picks up a bad as rates are going higher as well, but overall when you look at from last year. So our refi rate locks have declined slightly from last year, but at the same time purchase rate locks have shown tremendous growth Vicki is almost double of what they were for.
A year ago, so and there's a strong spring buying season coming and you talked about the economy rebounding and refinance does slow down over time as rates are going off of but and it has a natural floor. Because we do do a lot of refinance of clients new clients for the bank from other institutions. So.
Overall, given all of these dynamics of you remain confident now of mid teens loan guidance for the year.
Great. Thank you.
Yeah.
And next we will hear from Brock Vandervliet with UBS. Please go ahead.
Oh, Hey, good morning was really the only.
Isn't going to make another two.
And the on the wealth management side of the couple of people touched on and that's just.
Very strong growth I, just wanted to make sure all of our model doesn't get off sides of the your own expectations is there anything else you would.
And you would call out of a special.
This quarter in terms of the sort of balanced growth that we should.
The notes going forward.
So let me start with the.
The U M growth and all kinds of Mike for the and feed side. So majority of it is very much in line. So we have seen a majority of the growth coming from net client inflow deepening existing relationships as well as the net client flow coming in from the new hires and.
And about a third of our AUM growth came in from the market change and.
And I look at quarter over quarter and on the fee side of you have seen tremendous growth and cross Oh differentially.
And maybe just one sort of cleanup thing since you sort of referenced it that way Brock the the first quarter.
Recall last quarter, we had of a year end performance fees for one of our.
For those that we operate.
And this quarter there was a modest adjustment to that because we sort of finalize your and numbers and review it and that added just under $4 million to our investment management fees. This quarter that won't recur. So you're starting base is probably closer to 115 and.
Net of $1 19, as you go forward and.
And then factor and a growth on top of that and just as a reminder, most of that.
For the most of that 4 million does flow through our expenses also.
Okay, great and I appreciate that color and.
And it's sort of a similar question on the occupancy which has been very well controlled mentioned of the Hudson yards.
The office.
Couple of times in the prepared remarks can cause of dimension that expense.
Okay.
Yeah, So our occupancy of rights been pretty consistent for the last few quarters 50 658 million of there is a modest amount in March and in the way we recognize the rent costs for Hudson yards. It will ramp and the second quarter are more fully and so you'll probably see occupancy and jump.
Let's call it 8 million roughly from today's first quarter level.
Got it.
Okay, great. Thank you.
That's very helpful.
And up next well hear from John Armstrong with RBC capital markets. Please go ahead.
Thanks for taking the questions.
I had a question for you just a clarification on some comments you made earlier.
What's the what's the shape of the curve.
Students of the curse of weeds today.
Would you expect earning asset yields to slowly grind higher and overtime.
Yeah, but the yield curve steepening and that is what we're looking for it to but as I said competition has been quite strong so that kept the pricing credit stable of at the beginning of the year. So that's why the high twos on the.
Two nine and took it cheaper sand range has been kind of where the asset side yields have been coming in on the real estate side Budd.
The one six the bad steepness and you take 10 year of fed funds today compares to eight against the euro compared to no steepness and 19. The I really shows how strong competition has been and really doing a plus credit and relationship pricing, we're seeing more of the relationship coming through to us given the service of X.
For the name of service our colleagues have provided during the pandemic, but again small fluctuations and that NIM is largely offset by the strong save for organic growth across the franchise, which we have tremendous growth opportunities across all of the five markets.
If I could add to that just for a second if you look for them and if you look at our investor deck on page 34.
Have a long historical NIM chart in there and that's really worth noting.
At this point, where we're at a low point in the history of 267.
But the high point is also bad 353 foot to the truly operating and a pretty narrow and stable range and that's one of the keys of the franchises as long term stability and predictability.
Right.
And Ah.
The gift for my next question and that's maybe a bit of and odd question, but.
What do you think would have to happen.
For the deposit costs and the funding cost to start to go back up.
It just seems like there's so much liquidity with maybe even the rise in short rates and if something comes back up.
And what would have to help them for both of them.
The well, let me answer the so the stimulus obviously the when he talked about the average balance and the median balances being up compared to a year ago kind of translated through the savings rate and the accounts. So that could basically are to some extent a reverse itself.
The more competition for funding as rates are going up but again, you know as the lesson to the fed chairman and debt, it's gonna be awhile before the show at the end of the curve coming up but hypothetically speaking and alternative of whether it's money market mutual funds or other alternative competition and there that could also yield.
The higher cost, but putting cost aside for a second and the person checking is much higher than than we used to have at over 6% to 7%. So that's kind of driven by the stimulus as well as the stomach and so we're not gonna have you know 37% of you every year.
And they just kind of driven by stimulus, but at the same time, we have expanded our tool kit. So much on the funding side deposits and beyond the domain and be a plus credit on the asset side and the safety and soundness of the bank. The funding has not been a niche of just a matter of the pricing as you pointed out.
Okay.
Matching and beyond the core of matching and the other caused us a lot of building luxury within the case of a rising rate environment.
Benefits of slightly.
On net interest income and margin and the primary reason and sort of thing Guy I mentioned, which is of high percentage of the checking.
Okay.
Yeah.
It's positive and the near term and certainly true.
And then.
Just one bigger picture maybe for you Jim.
The industry in general has a bit of of near term loan growth problem and it's not been of problem for you clearly, but there's this view that theres a lot of pent up demand and commercial and seeing pipelines build them and they were gonna see.
A lot of this loan growth pick up once the reopening and really the gains traction are you seen elements of that and your business I understand and mid teens growth and that's the most of it from growth, but are you seeing elements of that and areas like commercial for example.
The lower bad debt not too much yet, but where a lot of the commercial loan business has really done and the she won't be as from market and.
And outside the banking system too and.
And the church market. So you have to show of the banking system. The smart city at all of the same share of commercial lending real estate lending the others that are used to see.
I think our our growth comes from client service.
And again in our investor deck, but about 80% or more of our of London.
It's either to existing clients every year that of doing more business with us that's about 50 of the 55% and another 20% to 25% of his bear direct referrals. So to some extent, we march inside of our business and the referrals and not so much and the general market and that's why.
Higher growth rate can be fundamentally different.
Okay.
Thanks for taking my questions I appreciate it.
Thank you.
Okay.
This concludes the Q&A portion of the event I will now turn the call over to Jim Herbert.
Well. Thank you all very much for taking the times of day, we appreciate it.
And have a good day bye bye.
Yeah.
This concludes today's call. We thank you for your participation you may now disconnect.
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