Q2 2021 First Republic Bank Earnings Call
Greetings and welcome to first Republic Bank second quarter, 2000, and 'twenty, 1 and earnings conference call on today's conference is being recorded during today's call day lines that'd be in a listen only mode. Following the presentation day conference would be open for questions.
To try and to queue. Please press star 1 on your telephone keypad at any point during the call I would now like to turn the call over to Mike <unk>, Vice President and director of Investor Relations. Please go ahead.
Thank you and welcome to first Republic Bank second quarter, 2020.1 conference call speaking today will be Jim Herbert The bank founder Chairman and co CEO Guy.
Hi, Eric on co CEO, and President and Mike <unk>, Chief Financial Officer.
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 are available on the bank's website.
And now I'd like to turn the call over to Jim Herbert.
Thank you, Mike and good morning, everyone. It was another very strong quarter with robust growth and loans deposits and wealth manager and assets.
Our client centric business model is continuing to perform very well across all of our segments and all of our geographic markets.
So on Slide 10, 85 first Republic success success has been grounded and colleague empowerment and a service culture of taking care of each client and 1 at a time, while operating on a very safe and sound manner.
This straightforward and personal approach has led to very consistent organic growth for 36 years.
The growth is not predicated on mergers or acquisitions.
Yeah.
Let me review for a moment the results for the second quarter total loans outstanding were up 18, 9% year to date annualized.
Total deposits have grown 37% year over year.
Wealth management assets were up 55% year over year to a total more than $240 billion.
This is across the board very organic growth drove our strong financial performance.
Total revenue year over year has grown 34% and net interest income was up 27%.
Quite importantly.
Tangible book value per share increased 15, 5% year over year.
The safety and soundness of the first Republic franchise continues to reflect our strong credit quality.
Net charge offs for the quarter were only $1.2 million just a fraction of a basis point.
Nonperforming assets at quarter, and we're only 8 basis points total assets.
We remain as always focused on capital and liquidity.
Quarter, and our tier 1 leverage ratio was 8.5%.
And our HQ L. A was 14, 3% on total average assets during the second quarter. This included a higher than normal cash levels.
Yeah.
Our clients remain very active as the reopening of our urban coastal markets takes hold.
This is particularly evident and the strong growth of single family home loans during the quarter and so far this year.
Represented this growth represented a substantial portion of the quarter's total loan activities.
Including both purchase and refinance.
For some perspective on the long term stability of first Republic model residential loans have remained steady at approximately 60% of our loan portfolio for the entire past 2 decades.
This is a very safe asset class, particularly with our stringent underwriting standards and is a key to us attracting new households.
During the second quarter, we opened our first banking offices and Hudson yards.
Clients are responding well to our presence and the area and foot traffic and it's been actually quite good.
Our other new markets, including Palm Beach, and Jackson, Wyoming continues to perform very well.
Overall, it's been a strong a successful first half of 'twenty 'twenty 1.
Yeah.
Before turning the call the guy I'd like to take them out and grass later on.
On her appointment as co CEO.
<unk> been and Inviable contributed to our performance and I'm really delighted to continue our successful partnership at this new level.
Working together with 10 to ensure the consistency of first Republic's culture, which is particularly important as we emerge from the pandemic.
Now, let me turn the call over to Guy Arca and co CEO and president and thank.
Thank you very much and.
Honored to be appointed co CEO and continue to serve this truly special organization alongside you and our leadership team.
We will work hard to keep scaling our people first culture with an unwavering focus on safety and soundness and doing more of what we do best delivering exceptional service for clients.
And I'm excited about opportunities ahead, and look forward to continue to work with all of the extraordinary colleagues at first Republic.
Turning to our earnings results and it was a terrific quarter that reflects our continued focus on safe sound and organic growth.
Our top priority as an organization is taking care of our exceptional colleagues and empowering them to provide unparalleled client service.
Our client satisfaction results and exceptionally low client attrition, which in turn fuels our growth to repeat business and client referrals.
I think for people to lead to happy clients and the more happy clients. We have the more repeat business, we do and the more client referrals we get.
Each year more than 75% of our safe organic growth comes from these research from these sources.
Over the past several years, we have continued to make strategic investments and technology and risk infrastructure.
These investments allow us to scale, our service model, while keeping our bank safe and sound.
Our digital and tech investments are geared towards minimizing transactional time to create more time to build further trust and deepen relationships with clients and to serve our communities.
Let me now provide some additional comments about the quarter.
Loan origination volume was $16.8 billion, our best quarter ever.
I would note that the weighted average loan to value ratio for all real estate loans originated during the second quarter remained conservative at 58%.
Single family residential volume was $8.7 billion also a record.
We finance accounted for 49% of single family residential volume during the second quarter.
A large percentage of refinance activity continues to come from clients with loans and other institutions, which provides us with great opportunities for new client acquisition.
For perspective throughout the past 10 years at gross varying interest rate environments and refinance activity has always accounted for at least 40% of single family volume.
Turning to business banking business loans and line commitments, excluding P. P. P loans were up 27% year over year.
Capital call outstanding balances were down quarter over quarter, driven mainly by a reduction and the utilization rate from 40% to 36%.
This is in line with our historic utilization range of mid Thirty's to low 40.
Yeah.
In terms of funding it was an exceptional quarter.
Total deposits were up 37% from a year ago.
Supported by client activity as well as a very meaningful impact from both fiscal and monetary policy.
We continue to maintain a diversified deposit funding base.
Checking deposits increased by $5.3 billion and the second quarter and represented 68% of total deposits.
Business deposits represented 61% of total deposits up modestly from the prior quarter.
The average rate paid on all deposits for the quarter was just 7 basis points.
Leading to a total funding costs of 20 basis points.
Turning to valve management assets under management increased to $241 billion.
This is an increase of 46 billion year to date of which more than half was from net client inflows.
Year to date wealth management fees were up 39% from the same period a year ago.
During the quarter, we welcomed for new wealth management teams to first Republic.
The strength of our integrated model continues to attract very high quality team.
Our second quarter results. The most straight the power of our service model and the dedication of our exceptional colleagues.
Now I would like to turn the call over to Microsoft and <unk> Chief Financial Officer.
Thank you Guy are our strong second quarter results reflect the consistency of our business model.
Revenue growth for the quarter was exceptional and up 34% year over year.
This was driven by strong organic growth across the franchise and.
Clothing loans deposits and wealth management assets.
Our net interest margin for the second quarter was $2.68.
This includes the impact of our elevated cash position from fiscal and monetary policy, which has resulted in significant deposit growth.
We continue to expect our net interest margin for the full year 2021 to be and the range of $2.65 to $2.75.
Importantly, net interest income was up a very strong 27.5% year over year.
This is due to the robust growth in earning assets and a stable net interest margin.
We are pleased with our efficiency ratio, which was 62% for the second quarter.
Our expense growth remains proportionate to our revenue growth as we continue to invest and the franchise to deliver outstanding client service.
I would note that our 2020 net promoter score actually increased from the prior year.
We continue to expect our efficiency ratio for the full year 2021 to be and the range of 62% to 64%.
Let me talk for a moment about Cecil which has been in place for 6 quarters now.
So it's for me like guidelines and take into account our loan growth loan mix and historic credit performance.
In accordance with C. So our provision for credit losses during the quarter was $16 million, reflecting our continued loan growth.
Since Cecil became effective at the start of 2020, we have added $160 million to our reserves.
While only experiencing for millions of losses.
Turning to the tax rate our effective tax rate for the second quarter was 17, 4%.
The decline and the tax rate from the prior quarter was due to increased tax benefits, resulting from stock awards vesting during the second quarter.
These tax benefits added 11 cents to earnings per share and the second quarter.
This compares to 3 and the same quarter last year.
Under current tax law, we continue to expect for tax rate for the full year 2021 to be and the range of 20% to 21%.
Overall, this was a great quarter and first half of the year.
Thank you and now I'll turn the call back over to Jim.
Thank you Guy and thank you, Mike our time tested quite straightforward business model remains very focused on delivering the highest possible level of client service.
Doing only what we do best and operating very safely and soundly at.
It continues to work quite well now.
Now we'd be delighted to take any questions.
Yeah.
Thank you if you would like to ask a question. Please stick now by pressing star 1 on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your sick natural each on equipment again press star 1 to ask a question and you start with our first question for.
And Steve Alexopoulos. Please go ahead your line is open.
To start on a low inside and 1 of the highlights for the quarter was the almost 9 billion of single family originations our questions. How did a lack of housing supply impact the spring selling season and with rates coming down a bit further here should we expect another record quarter for.
For originations and <unk>.
So Steve let me take that question are we see our pipe. So first of all the answer is that we are our rate locks are coming off the peak levels that we've seen and the second quarter. It has been and exceptionally strong quarter and the second quarter for sure.
While our pipeline remains strong and above the last year levels, we are seeing the rate likes coming off the peak levels.
And that reflects the and limited inventory the supply constraints and the purchase market as well as the refis slowing down and into the second half of the year, but we do remain confident for the year of it on mid teens loan growth guidance.
Hey.
That's helpful.
And maybe for you to guy on deposits it looks like private bank deposits came down a bit as expected, but you saw a surge in business bank deposits checking accounts for almost 70% could you give some color on what drove I think it was almost 8 billion this quarter, the sharp increase and business deposits and it's that strength continuing.
And Chile, so on the business side and 2 thirds of that business deposit growth came from non financial and it has been very diversified no individuals' sector is over and tend to like 10% to 12% and type of a mix.
And we're also seeing that the consumer spending is also up on the consumer balances. So when I look at the average business account balances, whereas the average consumer and the average business checking accounts are higher compared to the pre pandemic levels and consumer is kind of plateauing you bet on the average account balance.
So that's also reflecting into debt of it the first and the fed stimulus is also playing a role obviously along with the yields in the market that is also a lot of the business aren't keeping more cash on the sidelines, but I would reiterate that as part of the model we follow our private banking clients for their businesses.
So all in all it's it's 1 client relationship continues to deepen.
Okay.
That's helpful and final question just on the management update that was announced first congratulations guy not a surprise congratulations on the co CEO.
And maybe for Jim could you walk us through what will now change in terms of responsibilities under this co CEO structure. Thanks.
Thanks, Dave.
Initially probably not very much as you know as you know well actually guy and I've been running this together along with the rest of the team for quite a while and their direct reports for a pretty well aligned already the substantial change really is the call most of the transition.
And you know.
We're not out of the pandemic really yet we're not back to the office should we have a core conversion going on there's a lot happening. So it seems to us as it seemed to the board a very very.
First Republic steady Eddy approach to transition.
Okay.
Perfect. Thanks for taking my questions.
Okay.
Our next question is from Ken Zerbe Morgan Stanley. Your line is open. Please go ahead.
Alright, great. Thank you and good morning.
I guess the first question I had just in terms of expenses, you've talked about investing and the franchise a fair bit if I look at.
And where the expenses are coming from it looks like a lot because that is compensation and related expenses, whereas sort of everything else is.
Hey, growing probably far less how much of the investment and the franchise is hiring people vs.
Sort of non people related items.
Thanks, Ken and I think the 1 thing I'd first focus on and when we look at compensation is there is a large portion of that is variable base. That's tied to our revenues and so is checking balances grow as investment management fees and wealth fees grow the low strong production volumes that the guy I talked about.
Earlier, all of those lead to greater incentives.
And the second part of your question is there is some people addition, going on especially to support those teams and the production levels that they're doing and so we've always had a team based approach and so as you grow up a book of business will add additional support people and additional team members to help you deliver X.
Jordan every client service and then also investing and the operational capacity.
Capacity of the bank because of the volumes, we've had to make sure loan operations deposit services.
Investment management operations are all staffed accordingly, and making sure again.
Giving great service all the way through the process.
Okay.
Got it okay. Okay, maybe a different question just in terms of wealth management.
And just trying to understand sort of how to think about the fee income for say I generally know that your fees are based off of sort of a 1 quarter lag. So whatever happened in first quarter affected second quarter fees, but with fees up 15% this quarter sequentially.
Last quarter and the first quarter I guess it was up 12 and a half is up 10%. This quarter. It feels like maybe fees were sort of tires and they should be just based on the AUR and piece can you just help us understand what what the variables are that affect fees. Thanks.
Yeah, So Ken and what Youre, describing is the largest component, which is investment management fees and Directionally. The way you described it is right on the assets under management number at June 30th will drive the third quarter revenues.
At the end of the first quarter. You also have the benefits of of teams that may be joined us late.
Late last year early this year, where their assets came over during the first quarter. So not only do you get.
The quarterly revenue, but you get a little bit from the call. It the stub period, if someone join US February 1st there'll be 5 months of revenue and this quarter versus 3 because we don't bill until you get through the quarter process and so a little bit of that will happen and so it's probably a little stronger than normal but your gen.
From a rule of thumb on.
The increase and the U M is a good 1 to use.
Got it okay perfect. Thank you very much.
Our next question is from John Pan Curry Evercore partners. Your line is open. Please go ahead.
Good morning.
And just have a question on the capital call line lending business. I know you had indicated that the utilization rate was down to about 36%, which is in line matures historical what are your expectations. There going forward do you think.
It remains around that historical level or do you think it could decline.
Decline below that level for the time being I just wanted to get your and your thoughts there. Thanks.
John That's a great question and it's 1 that is very hard to estimate because it is very much deal specific and deal dependent.
It's the 1 variable that that were really.
Tried to estimate it but it's very much idiosyncratic.
But what we have seen is that the mid thirty's and the low forties has been credit much the historical range and right. Now you know we have come from the 42 down to the 36%. The 1 variable that we always look at it is or metric is the commitment growth and the PVC activity continues to be strong. So you would.
I expect the momentum in terms of the column and growth to continue through the second half of the year and the markets remain very active and very attractive for exits while the fundraising is going all above the pre pandemic levels as well and so for that reason I would look at the commitment growth and then still try to expect it to be.
Somewhere between mid Thirty's to high thirties, probably.
Got it okay. Thank you and then on the separately on the on the commercial real estate side.
Wanted to see if you can talk a little bit about debt.
The trends and the CRE portfolio are you seeing any any signs of stress there I know your your LTV at origination you indicate on slide 19 is 45% and also the current appears to be on.
Slide 21, right at 45% as well do you expect migration higher in that.
Origination LTV.
We're on new production LTV level.
And just if you could talk about what's dialed into your reserve expectation on that front. Thanks.
So in terms of the credit underwriting standards remain to we will remain conservative when it comes to multifamily and theory Bella and the commercial real estate picture is very much region and a product specific.
And we don't do much office, but just general market color office remains soft and the city centers and they'll be clearer outlook later in the year as we see how people are how companies are bringing people back to the offices you have very limited exposure to CRE retail and hospitality and while we are seeing positive trends as hot.
Hotel occupancy rates are rising, it's still uncertain and it depends on the global.
Tourism and business travel, but we will continue to do safe deals, which tend to be most of the refinance with experience on their managers to have all your service and holistic banking relationship.
And John you mentioned reserves.
1 thing that you talked about and you highlighted in the slide deck.
And there's not a large you know expected loss other than you know you might look at 1 offs here and there because of our LTV and our coverage ratios and then.
Maybe just if I step back on the reserve for a moment you know about 65, 60% of on our reserve is tied to home loans, which again, we're sorry, 60% of our portfolio.
Our loan portfolio is tied to home loans, which have a pretty low reserve allocation. If you look at the rest of the loan portfolio, it's about a 1% reserve rate on.
And and given the strength of our underwriting we feel that's more than appropriate.
Got it that's helpful. Thanks, if I could ask just 1 more can you just give us a status update on the core systems replacement.
And where you stand on that.
And what inning are you on the project. Thank you.
Sure. We're very pleased with the ongoing conversion of our core banking system. So the development work is nearly complete.
And we're gonna have and also the day towards data migration and is also complete along with the most of the data validation to our for the next milestone for US is we're going to have multiple mock conversions are planned throughout the summer and into the fall to do and to end testing.
And and we're doing a lot of end user training says well across the bank. So it's in line with our expected timeline and we intend to finalize it before a buy and of the year by enough for you.
Great Alright, Thank you for taking on my question.
Thank you.
Our next question comes from Ben and car catchy Wolfe Research your line is open.
Thank you. Good morning can you discuss what kind of household formation trends you're seeing among your next generation customers, what's the trajectory of that growth outlook from here and more broadly if you could break down where.
The single family loan originations origination growth that Youre seeing is coming from was it within your customer base.
Well they are.
And the household formation question. Thanks. This is hard to answer and we were subject. We only have the same macro from Asia and thank everybody does it is picking up it seems to us.
On data like the other thing is happening is that our in our and our millennial client base.
Since we shifted over to the.
And the HELOC, which was reported for full line of credit.
Lending.
A larger share of millennial households have homes already.
And that's almost doubled and foster from what we were doing before under the symbol on refining and so it's it's actually the quality of those households is higher than the part of our business and it was good even than I.
Think in terms of.
The growth rates are the activity levels and among the younger households, and Theyre very high actually.
On the hardest thing quite frankly is of course, finding the first home to buy it for.
First cargo or whatever it may be so I think the business is actually growing very strongly.
And I would add we're very pleased over 20% of for millennial clients are now mortgage clients, which is fantastic and the household acquisition for millennial households continues to be strong around 13% and year over year, and the AR and the new offerings along a cross.
On the lending deposits and wealth management.
And coupled with the human trusted advisor resonate with our millennial clients.
That's helpful. Thank you.
If I can switch gears to our wealth management can you discuss your momentum and attracting new teams and how the pipeline is looking and also maybe discuss some of the variables behind your success and retaining the teams that you brought on board.
So we are very pleased that they're seeing great quality of teams are joining us via our we have welcomed for new P. W. M teams drive out management team side and the second quarter.
And year to day, 7 new private wealth management teams and we continue to have a strong pipeline of prospective out management team hires as long as they fit the culture.
And the holistic banking model. So that continues to be really well and also I would note that and year to date, we've seen strong net client inflows that is both from existing clients deepening their relationships as well as new client inflows coming in with the new teams.
And 1 additional.
And the thing I'd add is the successful cross selling to the new clients coming in with a wealth teams to our banking platform is accelerating very nicely.
We've got that went down and better now than we had before yeah referred deposits. For example are up 6% to 7% per se and year over year.
Yeah.
Very helpful. Thank you if I can squeeze in 1 final on macro question.
How do you think about the performance outlook for the business and an environment where.
Eventually, perhaps you start to see short rates rise a little bit faster than the long end of the curve. If you could just frame.
How do you think about that and and whether it makes any kind of a difference operationally how you run the business.
It probably won't make much difference operationally as to how we run the business we do run.
On a very matched book I think as Guy referred to earlier and so if you look at our stimulation.
Models, why rising rate environment is not a particularly threatening thing the inversion, which you implied in your question I think.
As always a little problematic, but the real problem and buried and an aversion is what it does to the X on the economy generally not so much what it does for us in the short run and versions don't last very long. So they generally don't mess with our balance sheet very much the only thing that guy referred to which is very important and and <unk>.
Somewhat unique to us.
You had almost all banks have repayment rates on their portfolio CPR.
And ours is a little higher than most for various reasons a the nature of our mortgage is primarily but what they don't have is the growth rate of 15% or so on the portfolio, which adds and additional priced to market of 15% per year, maybe 18% or whatever the growth rate is.
And that those 2 items together equals 30 between 30 and 40% on the balance sheet. So we repriced the balance sheet about 30, or 40% every year from pet repayments and growth up to a market that allows us to keep up with the change in rates rather nicely.
Thank you, Jim and let me add my congratulations guys. Thanks for taking my questions.
Thank you.
Our next question is coming from Casey Haire. Please go ahead. Your line is open.
Thanks, and good morning, all maybe just for a couple of follow ups on on the NIM guidance.
Guidance still intact, but.
And just some color on on where are new money loan yields are and also for securities given a.
Pretty volatile along and of the curve.
Absolutely and so on the singles on residential side, we're seeing them and 275% to 3% and type of range coming in mostly in the high twos and then we look at the rate locks multifamily about 3 and a quarter or 2 and a half percentage for safe deals and CRE more mostly mid threes 3.
And a half percent and on.
On the investment side, so on the Muni side, the tax equal and yield is 2.7 to 5% to 3% and on the government and agency H T L, a which again to Jim and Jim referred earlier to ale on matching from a duration management perspective, we have been doing some short term a barbell strategy is there as well.
On the short term agents H galleys coming in and around 75 bets and the traditional agents age Kelly's around 1 and a half to 2 per cent. So all in all we're seeing the additional marginal assets coming in and they're high twos are more around and read the real estate assets coming into 2.9 to 5 type of range for the marginal funding cost.
20 basis points and you put in the elevated cash levels, so that brings us to the.
Lower half of the 2.6 to 5 to 7 to 5 as their printed this quarter.
Okay, all right, great so pretty stable on.
On that cash position what is I mean, I know timing in terms of working that down as is is a wildcard, but what do you guys see as is the idea of a minimum cash position for this size balance sheet.
You know if if you thought a 4% to 5% of the balance sheet would be sort of like 6 and a half to call. It 8 billion that feels like a pretty good place for us to run given the size of our overall balance sheet and and sort of the deposit activity, we see and I think our average and our average and the second quarter.
It was just over 11.
You know and so you you bring that down by you know.
3.4 billion.
Margin is going to be towards the top end of that guided range.
Yep understood and then Mike just on the efficiency ratio I think you guys and the past I've talked about like you know.
And our and our remote work and not much entertainment client entertainment that the Covid benefit for the efficiency ratio is about 100 bps. I mean can you just provide an update as to what that is today and.
Is there a possibility that you could you know you could run a little lighter than where you were pre pandemic based on what you've learned thus far.
Yeah, we're definitely talking about the learnings we've had from from the pandemic and and you know what what are things maybe we used to do that you don't have to do as much on right. I think your estimate of the things that are running lower than they had or continuing to run lower around client events and travel.
And our internal events, they're still running a bit lower and it's been a you know sort of a 1% little more benefit to our efficiency, we do anticipate those things starting to ramp up.
They may not get to that full effect, but we do think we will have events later in the year.
People are starting to travel and entertain clients a little bit more and I think you'll really start to see it probably more in the fourth quarter and also as Guy mentioned and talked about we are you know deep into the core conversion process here for the next couple of quarters.
Okay, great. Thanks, Thanks for taking the questions and guys congrats.
Thank you very much.
Our next question is coming from Chris Mcgratty K B W. Please go ahead your line is open.
Thank you good morning.
I wanted to follow up on Casey's question about efficiency and maybe ask it a little bit different on just operating leverage.
You know maybe Mike you know last year was a year of positive operating leverage and an industry that didn't didn't have that how.
How are we thinking about the ability to generate revenue growth in excess of expense growth and totally hear you on the on the COVID-19 normalization, but even so with rates where they are you're still at kind of where the efficiency ratio was when rates were up. So so that would to me suggest that maybe you do a little bit better the next tightening Ross. Thanks.
So I think 1 of the things that we are always focused on from a business model standpoint is client service and how that's delivered and the effectiveness of it and that you know other other institutions.
Don't have that revenue growth our revenue production and.
So we're always supporting how do you deliver client service, while continuing to grow and that has led to what we think is a very stable efficiency ratio and are in a pretty tight range while.
Improving our net promoter score.
Expanding offices like Hudson yards was mentioned earlier to deliver client service and so I think we think more about it that that revenue growth and expense growth are relatively matched in terms of of how they're growing and so it may not be your positive operating leverage that you mentioned, but it leads to a.
And see and stability over a long period of time and I think we view that as very important.
And just respond also on.
Slightly more philosophical way. This is a growth enterprise and we're basically focused on the quality of delivery of service at the same time, so operating leverage can be achieved by cost cutting which others do.
We're not in that game.
And we're in this for the long haul, it's a very long game and so our approach has always been to maintain is as Mike just said, so clearly a balance of operating costs and invest continually and operating systems and procedures. So that we so we have good backup and and.
And safety are embedded but so operating leverage is a is.
It was not it's on the table, but it's not our primary objective the quality of delivery of services and primary objective and then we grow and we grow because the clients CRO as Guy said, 75% of our growth was driven by our clients or their direct referrals, that's actually not something that we're reaching for.
That's just coming in and so we have to respond to it with the level of service that they're used to or expect from US are will have will have a diminishing franchise and that we never and tend to have so what we value above all else is stability.
Predictability and stability of the model and.
And that's a balance and that's a continual bounds. So I wouldn't actually look for the company to have a lot of operating leverage.
That's great color I appreciate that.
And maybe just 1 final 1 Mike on the on the model I know, you're you're bully income typically bumps up and the third quarter. It did so this quarter I'm wondering did you add more bolt on investments and should we expect a ramp and excuse me.
So we did add 1 additional purchase mid quarter. We also from time to time have a claim and there was a modest impact and the second quarter from that and so I think from a.
A range I would think about $18 million to $20 million a quarter is sort of the new run rate. After the purchase is factored in.
Great. Thanks, a lot.
Our next question is coming from entrance Piper Suntrust. Please go ahead. Your line is open.
Hi, good morning, everyone.
Guy and congratulations on the announcement and great to see.
Thank you.
Got a question on <unk>.
And I just took your capital position right now and certainly regulatory ratios are solid and some of them are up year over year.
And now with TCE to tangible assets now below 7% for for the last couple of quarters.
Is there any.
Do you expect that to rise as well as liquidity leaves the balance sheet as you see the deposit levels normalize.
And I guess and general like how are you viewing where your capital stands today.
So Andrew I think you bring up a good point that we talk about the sort of <unk> 11, and a half the extra cash carry and impacting the margin. It also does have a little bit of and impact to our leverage ratio or our T. C. As you mentioned and I think our philosophy remains similar as it has we are.
We were pleased the first quarter to raise some capital at attractive pricing, we keep an eye on the market, we think about what our future opportunity to serve clients and grow is and then we remain opportunistic.
When and when appropriate and I think that that philosophy has been here 36 years, I think and and will continue into the future.
And it's as much a view of our outlook and future growth.
Is anything because we always want to fund that sort of in advance as we think about the future.
Okay.
Got it.
You've covered all my other questions I'll step back thank you.
Our next question is coming from David Schick Verine.
Bush Securities. Your line is open. Please go ahead.
Hi, Thanks, I had a follow up question on loan pricing on resin mortgage you mentioned about how you are getting a yield of 275% to 3% is the range and when I look at the average.
Balance sheet it looks like the rate came down 6 basis points sequentially and the second quarter. I was curious is the downward pricing pressure subsiding here.
Actually it is been stabilizing I'm just recently, we have seen our rate locks to be just slightly higher price than what's on the portfolio. So which is good news so that that would plateau itself. So I would say on the single family multifamily real estate.
Loans are the 6 week rate locks are coming and at 295 and above.
Great that's good to hear and on the net interest margin with the guidance staying the same 265 to 275 with them and it sounds like stable and the near term, but given that comment you just made where the rate locks are coming in slightly better is there a directional bias kind of 1 way or the other from where we were and the <unk>.
Second quarter.
No I would I would reinforce the 2.6 to 5 to 7 and 5 cause the deposits coming in strong as well like elevated cash levels have impact on the NIM too.
So I would be sticking to our guidance of.
Mid to lower half of the range, but the net interest income for us given the strong earnings asset growth and Israeli net interest income is the metric that pays the bills.
Yes that makes sense and then 1 modeling question shifting to expenses is the Hudson yards.
Spence you know sort of fully baked into the run rate now and the second quarter should we expect another step up to come through either and the third quarter or fourth quarter.
Yeah, it's pretty much fully and the rent is fully in and and most of sort of the tenant improvement depreciation is in any step up would be pretty modest at this point.
Got it thanks very much.
Our next question is from Jared Shaw Wells Fargo. Please go ahead. Your line is open.
Hey, good morning, Thanks for the question I.
I guess, Mike just first was there any performance fee.
And to the wealth management revenue this quarter.
No there was not.
Okay, and then I guess more generally how sensitive do you think.
On the purchase market is and you're a primary geographies to potentially higher rates.
I would say, it's not all that sensitive the biggest problem is a supply that is improving a little bit listings are going up a little bit. The the increase in prices is pulled sellers off the sidelines and it's getting slightly better.
But it's mostly a supply issue new Yorkers that is New York is the exception there for.
Many of supply and New York, but everywhere else is virtually nothing.
Great. Thanks for the color and just wanted to give my congratulations to guy as well congratulations thank you Jared.
Yeah.
Our next question is from Tim Coffey from Janney. Please go ahead your line is on.
Great. Thank you and good morning, and and I. Thank you for the time on.
So my first question is if you look at the weighted average LTV on the residential mortgage production on the quarter. It seems like it ticked up a bit higher than we've seen in recent quarters and I'm wondering is that a function of just competition or is there other circumstances, such as borrowers, having greater liquidity and help before.
And that would be a quarter over quarter for like Chase and we will come to our overall real estate lending, 80% of our lending is real estate loans with a weighted average and the mid fifty's. The slight tick up is just a 1 off and we will remain conservative and our underwriting standards, we won't compromise on credit.
At all we will be fierce when it comes and relationship pricing, but we will not compromise on credit.
Okay. Okay.
And then my other question was do you see any benefit for first Republic from Wells Fargo canceling their personal lines of credit.
Hum.
We think there may be actually significant opportunity, we focus mostly on the millennial without product, but suddenly it might go more up it might go up age depending on what depending on what they do where we're not upset that they've done that.
Well I would think not what percentage of your moving our clients would you say use of personal line of credit.
Actually a significant amount.
The new millennial clients our profession, our personal line of credit product is only about a year old.
So it probably has 5 to 6000 out of our 30000 and so far.
Okay and.
And as a typical line amount 100000.
Later he had typical the typical commitment this is quite important actually the typical commitment is probably around 100, 110000 and something like that the typical usage is about 30 to 35, so that product is 125% self funded with checking.
Okay, Great. Those are my questions. Thank you very much thank.
Thank you.
Yeah.
Our next question is coming from Brooks on your fleet UBS. Your line is open. Please go ahead.
So the question most of it.
I already covered at this point, but just in terms of the jumbo.
LTV coming back to the earlier question on what what's the what's the average LTV interest on the jumbo.
Z product.
So we are in the mid fifties high Fifty's range, usually and the single family residential mortgage. So the uptake was just a couple of percentage points. When you look at the recent originations and.
And so the mid fifties to high fifties as really the range that we have been operating at and we will remain conservative in that regard.
Okay and just.
We're seeing especially among some of the independent.
Residential originators very intense competition at least 1 of them is and introduced the jumbo product and the Ltvs are low.
Some cases significantly higher than that.
Level are you seeing any evidence of cash.
Competition from from new new quarters around around jumbo.
Let me on.
We've been doing jumbo mortgages since 1985 and in fact, a bank that I started and 1980 before this is where we sort of stumbled into that product and realized how good. It was but we did learn through almost 40 years of jumbo production how to do it and.
1 of the number 1 and things you do not want to do is to raise your L. T V.
Because they are larger and if there's a problem and the margin for error.
And also it's it is almost axiomatic that the more someone puts down the more liquid they are after the deal which is quite interesting and so we've maintained our sub 60, right around 60% or slightly sub 60 slightly over 60% LTV range for.
3 decades at least and.
And that won't vary.
Got it okay.
Alright, thanks very much.
And it appears there are no further questions at this time I'd like to turn the call back to Jim Herbert for any further remarks.
Thank you very much everyone for your time this morning, and we appreciate it have a good day.
Yeah.
And this concludes today's call and thank you for your participation you may now disconnect.
Okay.
And.
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