Q3 2021 First Republic Bank Earnings Call

October 13, 2021

Greetings and welcome to First Republic Bank's third-quarter 2021 earnings conference call. Today's conference is being recorded. During today's call, the lines will be in a listen-only mode. Following the presentation, the conference will be opened for questions. To join the queue, please press star one on your telephone keypad at any point during the call. I'd now like to turn the call over to Mike I. O'Malley, Vice President and Director of Investor Relations. Please go ahead.

Today's conference is being recorded during todays call the lines will be in a listen only mode. Following the presentation. The conference will be opened for questions to join the queue. Please press star one on your telephone keypad at any point during the call.

I'd now like to turn the call over to Mike I O'malley, Vice President and director of Investor Relations. Please go ahead.

Thank you and welcome to First Republic Bank's third-quarter 2021 conference call. Speaking today will be Jim Herbert the bank's founder Chairman and Co-CEO. Erkan Co-CEO, and President. And Mike Roffler, Chief Financial Officer. Before I hand, the call over to Jim, please note that we may make forward-looking statements during today's call, which are subject to risks uncertainties and assumptions.

Speaking today will be Jim Herbert the bank's founder Chairman and co CEO.

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 good morning, everyone.

All are available on the bank's website.

And now I'd like to turn the call over to Jim Herbert. Thank you Mike good morning, everyone.

Thank you Mike good morning, everyone.

It was another strong quarter with robust growth in loans deposits and wealth management assets. First Republic's unique simple client-centric business model continues to perform very well across all of our segments and our markets. This 1985 First Republic's success has been grounded in a culture of exceptional service taking care of each client one at a time. Serving our existing clients exceptionally well, nothing has changed.

First republic's unique simple client server client centric business model continues to perform very well across all of our segments and our markets.

This 1985 first Republic's success has been grounded in a culture of exceptional service taking care of each client one other time.

Having our existing car existing clients exceptionally well nothing has changed.

It is a story of straightforward execution of our model, which results in consistent compounding, organic growth year after year. This quarter was not an exception. I'm going to review briefly the results for the third quarter. Total loans outstanding were up 18.8% year to date annualized. Total deposits have grown 39% year over year.

This quarter was not an exception.

I'm going to review briefly the results for the third quarter. Total loans outstanding were up 18, 8% year to date annualized.

Total loans outstanding were up 18, 8% year to date annualized.

Total deposits have grown 39% year over year.

Wealth management assets were up 50% year over year to a total of more than 250 billion. Just across the board organic growth drove our very strong financial performance for the quarter. Year over year total revenue was growing 30%. Net interest income was up 27%. And quite importantly, tangible book value per share increased almost 19%.

Just across the board organic growth drove our very strong financial performance for the quarter.

Year over year total revenue was growing 30%.

Net interest income was up 27%.

And quite importantly, tangible book value per share increased almost 19%.

The safety and soundness of the bank continues to reflect very strong credit quality. Net charge offs for the quarter were only 292000, just a fraction of a basis point. Non-performing assets at quarter-end were only seven basis points of total assets. As always we're very focused on capital and liquidity. During the third quarter, we raised $1.2 billion of new tier one capital to support our continued growth.

Net charge offs for the quarter were only 292000, just a fraction of a basis point.

Nonperforming assets at quarter end were only seven basis points of total assets.

As always we're very focused on capital and liquidity.

During the third quarter, we raised $3.0 billion of new tier one capital to support our continued growth.

This included common equity as well as our series and perpetual preferred. Stock, which was issued at our lowest dividend rate ever actually 4%. At quarter-end, our tier-one leverage ratio was 8.55%. Our HQLA liquidity level at quarter-end was 16, 7% of total average assets. This included very strong cash levels.

Stock, which was issued at our lowest ever done rate ever actually 4%.

At quarter end, our tier one leverage ratio was $8 five 5%.

Our H girl, a liquidity level at quarter end was 16, 7% of total average assets.

This included very strong cash levels.

We continue to be focused on strengthening our communities as we have been for 36 years. For example, this month, we participated in a capital raise for the support housing fund managed by STS Capital Group. These funds will be used to address the homelessness challenge in California by providing additional permanent housing. Our participation. This initiative is only a modest part of our long term focus on investing and strengthening our communities.

These funds will be used to address the homelessness challenge in California by providing additional permanent housing.

Our participation. This initiative is a only a modest part of our long term focus on investing and strengthening our communities.

Overall 2021, so far has been a strong and successful year. Now let me turn the call over to Gaye Erkan, co CEO and President. Thank you, Jim. It is indeed being a strong year thus far. The simplicity of our business model allows us to deliver consistent performance quarter after quarter while remaining acutely focused on the long term success of the franchise. Our strong performance supports further investment in the delivery and scalability of our client service model.

Let me turn the call over to Guy <unk> co CEO and president. Thank you Jim It is indeed being a strong year thus far.

The simplicity of our business model allows us to deliver consistent performance quarter after quarter.

Remaining acutely focused on the long term success of the franchise.

Our strong performance supports further investment in the delivery and scalability of our client service model.

For example, we continue to invest in our colleagues' new talent and operational infrastructure to support our growth. New preferred banking offices to deepen our presence in our existing markets. And technology and digital enablement to further empower our colleagues and reinforce our trusted client relationships. Let me now provide some additional detail on this quarter's performance.

New preferred banking offices to deepen our presence in our existing markets.

And technology and digital enablement, just further empower our colleagues and reinforce our trusted client relationships.

Let me now provide some additional detail on this quarter's performance.

Loan origination volume was very strong at $15.5 billion up meaningfully from a year ago. This is our best third quarter ever. Single family origination volume was strong at $7 billion. Single family continues to be a key driver of our growth representing more than 75% of our year to date loan growth. I would note that the weighted average loan to value ratio of single family originations year to date was just 59%.

This is our best third quarter ever.

Single family originations volume was strong at $7 billion.

Single family continues to be a key driver of our growth representing more than 75% so far year to date loan growth.

I would note that the weighted average loan to value ratio of single family originations year to date was just 59%.

Refinance accounted for 53% of single family residential volume during the quarter. A large proportion of refinance activity continues to come from clients with loans that other institutions, providing us with great opportunities for new client acquisition. We continue to maintain our stringent underwriting standards. The weighted average loan to value ratio for all real estate loans originated during the third quarter remained conservative at 56%, slightly lower than the prior quarter.

A large proportion of refinance activity continues to come from clients with loans that other institutions, providing us with great opportunities for new client acquisition.

We continue to maintain our stringent underwriting standards.

The weighted average loan to value ratios for all real estate loans originated during the third quarter remained conservative at 56% slightly lower than the prior quarter.

Turning to business banking business loans and line commitments, excluding PPP loans, were up 31% year over year. Capital call outstanding balances increased during the quarter, reflecting growth in commitments as well as an increased utilization rate of 37.3%. In terms of funding, it was an exceptional quarter. Total deposits were up 39% from a year ago. At quarter-end, checking deposits represented 69% of total deposits.

Capital call outstanding balances increased during the quarter, reflecting growth in commitments as well as increased utilization rate of 37, 3%.

In terms of funding it was an exceptional quarter.

Total deposits were up 39% from a year ago.

At quarter end checking deposits represented 69% of total deposits.

Business deposits represented 62% of total deposits up slightly from the prior quarter. The average rate paid on all deposits for the quarter was just six basis points. Leading to a total funding costs of 17 basis point. Turning to wealth management assets under management increased to $252 billion. This is an increase of $57 billion year to date. Over 60% of which was from net client inflows. Year to date, wealth management fees were up 47% from the same period a year ago.

The average rate paid on all deposits for the quarter was just six basis points.

Leading to a total funding costs of 17 basis point.

Turning to wealth management assets under management increased to $252 billion.

This is an increase of $57 billion year to date.

Over 60% of which was from net client inflows.

Year to date wealth management fees were up 47% from the same period a year ago.

The strength of our integrated model continues to attract very high-quality wealth management teams to First Republic. In total, we have welcomed nine new teams year to date. This includes one team in the third quarter. And another team already this quarter. Our third-quarter performance, the most trades the power of our service model and the ongoing dedication and care of our amazing colleagues. Now I would like to turn the call over to Mike Roffler, Chief Financial Officer.

In total we have welcomed nine new teams year to date.

This includes one team in the third quarter.

And another team already this quarter.

Our third quarter performance, the most trades the power of our service model and the ongoing dedication and care of our amazing colleagues.

Now I would like to turn the call over to Mike Rossi, Our Chief Financial Officer.

Thank you, Gaye. Our strong third-quarter results reflect the consistency of our business model. Revenue growth for the quarter was exceptional up 30% year over year. This was driven by strong organic growth across the franchise, including loans deposits and wealth management assets. Our net interest margin for the third quarter was 2.65%. This reflects 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 in our previously communicated range of 2.65% to 2.75%.

Revenue growth for the quarter was exceptional up 30% year over year.

This was driven by strong organic growth across the franchise, including loans deposits and wealth management assets.

Our net interest margin for the third quarter was 2.65%.

This reflects 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 in our previously communicated range of 2.65% to 2.75%.

Importantly, net interest income was up a very strong 27% year over year. This is due to the robust growth in earning assets. Let me now provide a brief update on our core banking system conversion and we're very pleased with the progress of our core conversion and are in the final phase of delivery. We now expect to complete the conversion in the first quarter of 2022. This extension of one quarter will give us time for additional in-person testing and training that has been delayed due to the COVID-19 Delta variant.

Let me now provide a brief update on our core banking system conversion and we're very pleased with the progress of our core conversion and are in the final phase of delivery.

We now expect to complete the conversion in the first quarter of 2022.

This extension of one quarter will give us time for additional in person testing and training that has been delayed due to the COVID-19 Delta variant.

I would note that our efficiency ratio guidance for the full year of 2021 remains unchanged at 62% to 64%. For the quarter, our provision for credit losses was $34 million, which is reflective of our strong loan growth. As Jim noted earlier, we were particularly pleased with our series M preferred stock offering in the third quarter. In the fourth quarter of 2021, our preferred stock dividend will be approximately $33 million. Turning to the tax rate our effective tax rate for the third quarter was 21, 4%.

For the quarter.

Our provision for credit losses was $34 million, which is reflective of our strong loan growth.

As Jim noted earlier, we were particularly pleased with our series M preferred stock offering in the third quarter.

In the fourth quarter of 2021, our preferred stock dividend will be approximately $33 million.

Turning to the tax rate our effective tax rate for the third quarter was 21, 4%.

Under current tax law, we continue to expect our tax rate for the full year of 2021 to be in the range of 20% to 21%. Overall this was a strong quarter. Now I will turn the call back over to Jim. Thank you, Gaye. Thank you, Mike. First Republic's time and cycle tested. Quite straightforward business model remains very focused on delivering the highest possible level of client service. Staying focused on doing all of what we do best. And operating safely and soundly. We'd be delighted now to take your questions. Thank you.

Overall this was a strong quarter now I will turn the call back over to Jim.

Thank you Guy I'd. Thank you Mike.

First republics time and cycle tested.

Quite straightforward business model remains very focused on delivering the highest possible level of client service.

Staying focused on doing all of what we do best.

And operating safely and soundly.

We'd be delighted now to take your questions. Thank you.

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again press star one to ask a question. We'll pause for just a moment to assemble the queue. We'll take our first question from Steven Alexopoulos with JP Morgan.

We'll take our first question from Steven Alexopoulos with J P. Morgan.

Good morning, everyone. I wanted to start with the big picture question for Jim. And Gaye, feel free to add on as well. Jim, when I look at your key growth metrics. We have business bank deposits up 50% year over year. Wealth management assets up 50% year over year. Loans were up 23% and that's your best quarter ever for the third quarter originations. When I look at the company, it's growing faster now at 170 billion than what it was at 70 billion in terms of assets. As you analyze the key business drivers, what in your mind explains much stronger than expected growth being delivered and across the entire company?

I wanted to start with the Big picture question for Jim and Guy I feel free to add on as well Jim when I look at your key growth metrics. We are a business bank deposits up 50% year over year wealth management assets up 50% year over year loans were up 23% and that's your best quarter ever for the third quarter origination.

When I look at the company, it's growing faster now at 170 billion than what it was 70 billion in terms of assets.

As you analyze the key business drivers what in your mind explains much stronger than.

Unexpected growth being delivered and across the entire company.

Thanks, Steve. Well you know. The growth is embedded in the nature of the model in that we take extremely good care of our existing clients so we don't lose them. And they compound and grow, but also they refer their friends. And the more you have of happy clients from where you're gonna get referrals. And if they stay with you and you don't lose them, you don't lose their business. This adds to the compounding our network effects of the franchise, but I'd also add, and this is very important not to take credit for what you shouldn't have credit for, we're in a very good market, and things are going up very nicely in the stock market and deposits and loans. And we're benefiting from all of the liquidity in the system in a rising equity market. So.

The grocers are.

Embedded in the nature of the model are in that we take extremely good care of our existing clients. So we don't lose them and they compound and grow but also and they refer their friends and the more you have of happy clients from where you're gonna get referrals and if they stay with you and you don't lose them.

Lose their visits.

This adds to the compounding our network effects of the franchise, but I'd also add and this is very important not to take credit for what you didn't don't shouldn't have credit for we're in a we're in a very good market and and and where things are going up very nicely in the stock market and ended up in deposits and loans and and where burner.

Fitting from all of the liquidity in the system in a rising equity market. So.

It's very important to take that into account too. And let me turn this over to Gaye for some more detail. Absolutely. When we look at our loan growth, over 70% of our loan growth year over year was driven by strong single-family residential lending. Mostly with our existing clients. Single-family residential loans were up 30% year over year. And I would note that the loan to value ratios of all single-family residential loans originated in the last 12 months was under 60% as is our portfolio. And then Steve, you mentioned the business deposits. As Jim mentioned, our model continues to benefit from the liquidity and the activity in the market. And this is reflected in the higher account balances. Half of the increase in the business deposits we've seen driven by increased average account balances with our existing well-known clients. And we have also seen very strong client activity and continued referrals. So for example.

We're up 30% year over year, and I would note that the loan to value ratios all single family residential loans originated in the last 12 months was under 60% as is our portfolio and then Steve you mentioned the business deposits as Jim mentioned, our model continues to benefit from the liquidity and the.

The activity in the market and this is reflected in the higher account balances half of the increase in the business to pause we've seen driven by increased average account balances with our existing well now and clients and we have also seen very strong client activity and continued deferrals. So for example.

Our business households were up over 20% year over year. And with regards to AUM, S&P 500 was up 28% year over year. So our AUM does reflect the strong stock market, as well as quite strong client inflows from both existing as well as new clients as you mentioned earlier. So the model continues to perform nicely and benefit from what's going on in the market.

So the model continues to perform nicely and benefit from what's going on in the market.

Okay. That's helpful. Maybe for Mike Roffler on the margin. Given the recent move higher in the 10 year, how does this impact your appetite to invest some of the excess cash that's building up? And if the 10 year holds at least at the current level, do you think that NIM has bottomed here?

Given the recent move higher in the 10 year and how does this impact your your appetite to invest some of the excess cash that's building up and if the 10 year holds at least at the current level do you think that NIM has bottomed here.

So one of the things that is impacting the margin and I think we called this out a little bit as the level of liquidity and cash on the balance sheet. It's continued to go up and it was you know up another 2 billion on average during the quarter. And so that's you know, that caused the decline this quarter. With respect to your question about the 10 year, I do think there's probably a little bit better buying opportunities in securities. Yields are a little bit higher, but we're always going to be prudent and methodical Jim. Because we have the cash you know here, we're going to deploy it in a rational and methodical manner. And most importantly respond to client demand from a lending standpoint.

It's continued to go up and it was you know up another 2 billion on average during the quarter and so that's you know call. It that caused the decline this quarter are with respect to your question about the 10 year I do think there's probably a little bit better buying opportunities in securities yields are a little bit higher, but we're always going to be prudent and methodical Jim.

Because we have the cash you know here, we're going to deploy it in a rational and methodical manner and most importantly respond to client demand from a lending standpoint.

Okay. So do you think NIM has bottomed based on that? That would be the best guess at this point? Honestly, a lot of it in the near term is based on the cash levels. If the cash levels were to dissipate a little bit, then you'd probably see the NIM up a little a couple of basis points.

So if you think NIM has bottomed based on that that would that be the best guess.

Honestly a lot of it in the near term is based on the cash levels. If the cash levels were to dissipate a little bit then you'd probably see the NIM up a little a couple of basis points.

And then a final question if I could squeeze one more. It's been quite a few quarters that the loan growth just continues to run above the mid-teens guidance. Just staying with the 10 year, if that continues to grind up the schools, the refi market a bit and imagine this pandemic buying wave will burn out at some point too. Do you think in that environment, you guys could still deliver mid-teens loan growth? Thanks.

And then a final question if I could squeeze one more and it's been quite a few quarters that the loan growth just continues to run above the mid teens guidance just.

Just staying with the 10 year, if that continues to grind up the schools, the refi market a bit and imagine this pandemic buying wave will burn out at some point to do you think in that environment, you guys could still deliver mid teens loan growth. Thanks.

Thanks, Steve well you know. So the short answer is yes. We went back and looked at 93 to 95. At 99 to 2000, 20406 and 15 to 19, all of which had a rising rate environment. And each one of them was up 19, 21, 22 and 19% year over year loan growth. So it doesn't really, it shifts a little bit in single-family, which is the backbone of our growth. This guide had just indicated over 70% I think. It shifts from purchase to refi, but remember rates going up good economy. And so more and more activity.

So the answer the short answer is yes.

We went back and looked at 93 to 95 or 99 to 2002 O $4 six and 15 to 19, all of which had a rising rate environment and each one of them was up 19, 'twenty one 'twenty two a 19% year over year our loan growth.

So it doesn't really it shifts a little bit in single family, which is a which is the backbone of our growth. This guy had just indicated over 70% I think.

Its shift from purchase to refi, but remember rates going up good economy.

And so more and more activity.

Okay, great. Thanks for taking my questions. Thank you. We will take our next question from Abraham with Bank of America. Good morning. Good morning. Just following up on the loan growth, Jim, if we think about so activity is strong I guess, your business client acquisition is strong. On the other side, you have higher rates and supply chain constraints in the housing market. Just talk to us in terms of, what do you expect the refi mix to look like if rates stay where they are and we go forward? And how big of a deal is the lack of supply in the housing market as you think about growth over the next year?

Thank you.

Waller with bank of America.

Good morning.

Just following up on the loan growth Jim if.

If we think about so activity is strong I guess, Oh, you're a business client acquisition is strong on the other side you have higher rates and supply chain constraints in the housing market just talk to US one in terms of.

Yeah.

What do you expect the refi mix to look like if rates stay where they are and we go forward and how big of a deal is the lack of supply in the housing market as you think about growth over the next year.

You know in our markets, we can't speak for the whole country of course, but in our markets, the supply constraint is still pretty tight. It is getting a little better. Listings are up slightly and prices appear to have maybe topped a little bit. I don't want to say they're done rising by any means. But on the other hand, we do see an occasional deal transacting below asking very little. And so it's not quite as frothy as it was which I consider to be good I think we'd probably all do. But our refinance volume if you'd go back many years basically has always been about 40% or greater of our total single-family loan volume. And so we seem to have a base there.

Listings are up slightly and prices appear to have maybe topped a little bit I don't I don't want to say, they're done rising by any means but on the other hand, we do see an occasional deal transacting below asking very little.

And so it's not quite as frothy as it was which I consider to be good I think we'd probably all do.

And but our our our refinance volume if you'd go back many years basically has always been about 40% or greater of our total single family loan volume and so we seem to have a we seem to have a a base there.

And to some extent that's driven by the very nature of just human activity, adding room, refinancing, moving job, et cetera. So there seems to be a pretty good base under it. Got it. And it gives just a separate question, Mike, you mentioned the systems conversion in 2022. Remind us once the conversion is over what that means if anything in terms of efficiencies or in terms of the revenue synergies that might come through once you move to the new system.

Got it and it gives just a separate question Mike you mentioned the systems conversion in <unk> 'twenty do you mind us once the conversion is or what that means if anything in terms of efficiencies.

Efficiencies or are you in terms of the revenue synergies that might come through once you have once you move to the new system.

Yeah, I mean, I think we're excited about the progress and the new system and the things that will help with our colleagues in serving clients. So I think that's what we're really excited about. But as you know, I would say that we're always investing for client service and continuing to support and serve our clients. And so there's always something we're gonna do. This will make us operationally a bit more efficient. And also some of the costs of implementation go away. But there are other things we like to do and make sure we're serving clients well.

So I think that's what we're really excited about but as you know I would I would say that we're always investing for client service and continuing to support and serve our clients and so there's always a something we're gonna do this will make us I think operationally more efficient and also some of the cost of implementation go away.

But there are the things, we like to do and make sure we're serving clients well.

But thank you. We'll take our next question from John Pancari with Evercore. Good morning. Good morning. On that same systems topic, the delay, was there any related expense impact from that? And then separately also on expenses just wanted to see if you could talk a little bit about wage inflation and if you are seeing that impact across your business. Just given that you're still active on the hiring front and that you're investing pretty heavily still in technology, which is an area that has seen notable impacts from wage inflation. Thanks.

We'll take our next question from John Kerry with Evercore.

Good morning.

The same.

Our systems are topic. The delay is was there any related expense impact from that and then separately also on expenses just wanted to see if you could talk a little bit about wage inflation and if you are seeing that impact across your business just given that you're still active on the hiring front and that you're investing.

Being pretty heavily still in technology, which is an area that has seen notable impacts from wage inflation.

Yeah, first on the conversion really no change to our expense outlook or guidance. It was a planned fourth quarter. So those expenses were already projected and they're still there. And in the first quarter, it's very modest in terms of a little extra. And then the second in terms of wage inflation I mean, the one thing I would highlight is we did recently increase our minimum wage to $30 for colleagues for all colleagues across the bank. And so, we think that's a great step for our colleagues. And I think in terms of we have been hiring and it is very competitive from a hiring standpoint. And so I don't think it's necessarily meaningful, but we have seen a little bit more competition for new hires and some of that does come down to wages.

Wage inflation I mean, the one thing I would highlight is we did recently increase our minimum wage to $30 for colleagues for all colleagues across the bank and so we think that's a great step for our colleagues and I think in terms of we have been hiring and it is very competitive from a hiring standpoint, and so I don't think it's.

Necessarily meaningful, but we have seen a little bit more competition for new hires and some of that does come down to wages.

Got it. Alright, thanks, Mike. And then separately on the loan growth front on your production figures on page 13, I know multifamily CRE construction also very strong production in the quarter. Can you just talk about what you're seeing there in the CRE book that's starting to result in some improving production there?

Got it alright, thanks, Mike and then separately on the loan growth front on your production figures on page 13, I know multifamily CRE construction also very strong production in the quarter can you just talk about what you're seeing there in the CRE book that's starting.

Starting to result in some improving production there.

Yeah, absolutely. As you pointed out, both multifamily and commercial real estate, we have seen some increased activity. Multifamily, let me start with that, is performing strongly across all of our markets. You're seeing new leasing activity being their robust driving down vacancy rates. And multifamily lending it's been driven mostly by the California, the West Coast and majority of it is refinance activity with existing clients. On the commercial real estate front. As you know is it smaller deals we don't do large loans and that's mostly focused than either on multi-use or office type of buildings, but on the smaller scale, and class A buildings. And we don't have much exposure as you know to retail and hospitality. That's the one area macro wise, it's still struggling a bit, but it's got great optimism and tailwind there as well with our TON potential opening of international travel.

It's been driven mostly by the California, the West Coast and majority of it is refinance activity with existing clients are on the commercial real estate front. As you know is it smaller deals we don't do large three large loans and and that's mostly focused than either a multi use or office type of buildings.

On the smaller scale and class a buildings and we don't have much exposure as you know to retail and hospitality. That's the one area of macro wise, it's still I'm struggling a bit, but it's got great optimism and tailwind there as well with our T O N potential opening of international travel.

Got it. Alright, thanks Gaye, appreciate you taking my question. Thank you. We will take our next question from Dave Rochester with Compass Point. Hey, good morning, guys, nice quarter. Just wanted to start on the deposit side, growth was fantastic yet again this quarter. Can you just talk about any specific drivers impacting those trends? And I know you generally have stronger deposit growth in the back half of the year. So just kind of wanted to confirm. Do you still expect that growth onto next year?

Thank you.

We will take our next question from Dave Rochester with Compass point.

Hey, good morning, guys nice quarter, just wanted to start on the deposit side our growth was fantastic yet again. This quarter can you just talk about any specific drivers impacting those trends and I know you generally have stronger deposit growth in the back half of the year. So just kind of wanted to confirm are you still expect that my bet is it.

Gary and a four tier.

Yeah, absolutely. So we have seen the deposit growth coming in both in terms of increased average account balances that we have seen across consumer as well as business. And quite strong client activity in referral activity, especially on the business side. It has been well diversified across client types, the regions and industries, and a healthy mix of both new and existing clients. In terms of consumer, we have seen, again, a healthy mix from new and existing client referrals. And business side, technology, private equity and real estate have been performing greatly. About half of our growth is coming from these particularly strong sectors. But no vertical in our deposit franchise accounts more than 12% of our total deposits, so. Happy colleagues, happy clients and more referrals, we're seeing that on the business side as well.

The regions and industries, and a healthy mix of both new and existing clients in times of a consumer we have seen him a again a health it makes from new and existing client referrals and business side technology private equity and real estate has been performing a greatly about half.

If our growth is coming from these particularly strong sectors, but no vertical in our deposit franchise accounts more than 12% of our total deposits. So I.

Happy colleagues epic lines and more referrals, we're seeing that on the business side as well.

That's great, I appreciate that detail. And then maybe just a quick one on the borrowings front, can you just remind us how much of that matures in 4Q? And then what the maturity schedule looks like for next year? And I guess, a bigger picture question now that you've got your cash balances materially exceeding the balance of those, is there any reason to hold onto those?

Yeah, we have about just over a billion in the fourth quarter and an additional $3 billion in the next year. It is just over 4 billion coming due. And depending on the rate environment and deposit flows that we'll make decisions as we go opportunistically on those. But it does provide some room for improvement on the yield side, given the yields that they're carrying. Alright, great. Thank you very much. Thanks. We'll take our next question from Bill Carcache with Wolfe Research.

Yield side, given the yields that they're carrying.

Alright, great. Thank you very much.

Thanks.

We'll take our next question from Bill car catchy with Wolfe research.

Thanks. Good morning. Jim, your comments at the start of the call around the consistency of the model make a lot of sense, but I wanted to ask if you could comment on how you're thinking about the pace of deceleration in loan origination growth from here. Last quarter was your strongest ever and this quarter was your strongest third quarter ever, so it would be natural to see some deceleration of these very high levels, especially as you go up against tougher comps. Would be curious to hear your thoughts there on the pace. And then, separately, if you could also discuss what kind of impact if any do you think the fed's tapering could have on your mortgage business. And Gaye, please, would also love to hear your thoughts.

Third quarter ever so it would be natural to see some deceleration of these very high levels, especially as you go up against tougher comps.

Would be curious to hear your thoughts there on the on the pace and then.

Separately, if you could also discuss what kind of impact if any do you think the fed's tapering.

Would have on your mortgage business and the Guy a police would also love to hear your thoughts.

I think the loan volume is never forced, at least the reason I'm hesitating in just how to say this, we never force on loan volume. We do as many good deals as we are exposed to opportunistically, but I would take you back to our investor deck, where about 80 or 85% of our business and over 60% is done with existing clients. And 85% roughly is done with existing clients and their direct referrals. That activity does not really reflect a lot of volatility. The refinance component of it has some volatility in it. But those clients are there they're doing they're actively, economy is quite active and they will bring their business to us at the pace with which they bring it to us. And we will compete for it and in most cases will win it.

I think the loan volume the loan volume is.

Never forced at least the reason I'm hesitating is just how to say this we never force her loan volume.

We do as many good deals as we are exposed to opportunistically, but I would take you back to our investor deck, we're about 80 or 85% of our business and over 60% is done with existing clients.

And 85% roughly is done with existing clients and their direct referrals.

That activity does not really reflect a lot of volatility.

The refinance component of it has some volatility in it. But those clients are there they're doing they're actively, economy is quite active and they will bring their business to us at the pace with which they bring it to us. And we will compete for it and in most cases will win it.

When you have a net promoter score of over 70, you tend to win the business. With your existing clients or their referrals and that's the backbone of the model. And so it's not as nearly as much a market condition driven model as it is a client need and demand model. And right this moment our clients are very active. In terms of a rising rate or a tapering if you want to let me just comment on this and then turn it into a Gaye for maybe additional comments, but, no, because we grow. We have we have between the growth, volume, which reminder. Maybe it's intrinsic in this but to state the obvious new volume was always priced at current market.

With your existing clients or their referrals and that's the backbone of that model.

And so it's not a it's not as nearly as much a market condition driven model as it is a client need and demand model.

And right. This moment our clients are very active.

In terms of a rising rate or a tapering if you want to let me just comment on this and then turned into a guy for maybe additional comments, but.

No because we grow.

We have we have between the growth.

Volume, which reminder.

Maybe its intrinsic in this but to state the obvious new volume was always priced at current market.

And so if you have new volume and you put it together with variable rate loans repayments are you've got about. 52%. Our assets are our loan book is repriced in the year. Over half. So if you look back at the company in a rising rate environments, we've done just fine. Yeah, I would just add that. And the various cycles that we have seen in a rising rate environment Refinance act of single family residential has been the majority of the driver and it's diversified a lot with the known clients and refinance activity has remained largely about 40% of higher single family originations given that much.

52%.

Our assets are our loan book is repriced in the year.

Over half.

So if you look back at the company in a rising rate environments, we've done just fine.

Yeah, I would just add that.

And the various cycles that we have seen in a rising rate environment Refinance act of single family residential has been the majority of the driver and it's diversified a lot with the known clients and refinance activity has remained largely about 40% of higher single family originations given that much.

Majority of that comes from clients with loans at other institutions and a great acquisition tool, so that stays pretty much steady across different rate cycles, and the tapering potentially cure steepness. If that were to be the case would also be helpful and in a rising rate environment, the balance sheet growth safe, mostly with known existing clients known credit that's in mid-teens, plus the repayment that we are seeing even though it slows a bit it still continues plus the floating rate asset so over 50% of our loaning portfolio re-prices over time, which is great.

<unk> known credit that's in mid teens, plus the repayment that we are seeing even though it slows a bit it's still continues plus the floating rate asset so over 50% of our loan portfolio re prices over time, which is great.

Yes.

Yeah.

That's really helpful. Thank you on the wealth management side you highlighted the success that you continue to have adding teams and that's been a nice contributor to your client inflows have you had any notable outflows recently if you could speak broadly to whether you, you know, have any concerns around attrition at all and also discuss how the pipeline looks you know any color you can give on the expectations on the ongoing addition of new teams.

Have any concerns around attrition at all and and also discuss how the pipeline looks you know any color you can give on the expectations on the ongoing addition of new teams.

We've not had any notable attrition either in teams people or assets. The pipeline is an ongoing process. It's a little, it's unpredictable because just the hiring of individual teams those are highly specialized folks and we have conversations going on at all times. I think this year's effect as this your rate is probably reflective of what we could expect going forward, but it's very hard to predict and it's certainly hard to predict quarter to quarter. We just have what is happening. However is that we have within the team who we hire a bit of a network effect just like we have client network effect, we basically have people talking to two cohorts or to their friends back where they came from saying come on over the water is fine.

It's unpredictable because just the hiring of individual teams those are highly specialized folks and we have conversations going on at all at all times I would I I think this year's this year's effect as this your rate is probably reflective of what we could expect going.

Forward, but but it's but it's very hard to predict and it's certainly hard to predict quarter to quarter.

We just have what is happening. However is that we have within the team who we hire a bit of a network effect just like we have client network effect, we basically have people talking to two cohorts are to their friends back where they came from saying come on over the water is fine.

Okay.

That's very helpful. If I could squeeze in last one, Mike you addressed you know the labor market shortages and the impact on the competitive labor market, having new guys but. I was wondering within business banking. Is your client base, can you give a little bit of color on any of the challenges that there, you know, bringing up with you guys around, you know, labor market shortages in the supply chain constraints that they're facing or where would you say. You know your business banking customers are sort of in verticals that are relatively, you know, more insulated from some of those issues, perhaps than what we're hearing from others.

The labor market shortages and the impact on the competitive labor market, having a new guys but.

I was wondering within business banking.

Is your client base can you give a little bit of color on any of the challenges that there you know.

Up with you guys around you know labor market shortages in the supply chain constraints that they're facing or where would you say.

You know your business banking customers are are sort of in verticals that are relatively you know.

More insulated.

From some of those issues, perhaps than than what we're hearing from others.

Yeah, I don't think, I think the challenge is that that we talk about in terms of hiring, that's sort of consistent I don't think I'd point out anything that's unusual relative to us or what you're hearing. Okay. Thank you for taking my questions.

[laughter], Okay. Thank you for taking my questions.

And we'll take our next question from Casey Haire with Jefferies. Great. Thanks. Good morning, guys a follow up on the on the NIM, where are new money loan yields today as well as securities reinvestment rates. So we are seeing the real estate new money yields blended is about 290 single families of little over around 275 to 80 ish multifamily at three in a quarter in CRE seeing at three and a half and when it comes to securities portfolio of investments the traditional.

Great. Thanks, Good morning, guys a follow up on the on the NIM, where are new money loan yields today as well as securities reinvestment rates.

So we are seeing them the real estate new money yields blended is about 290 single families of little over around 275 to 80 ish multifamily at three in a quarter in CRE vre seeing at three and a half and when it comes to securities portfolio of investments the traditional.

You know pass-through type of investments are coming in around 1.5% to 2%. The short term, we have done some short term HQLA purchases, but it was a blend of floaters and short duration CMOs and project loans, that's coming in about 75 basis points blended and then on the mini side, we did do some purchase on mini and that's at a high twos low threes on TEY.

So my niece and that's at a high twos low threes on T y.

So the new money yields, to summarize is coming around 290. With the marginal funding cost that about 1520 basis points and then you add on the elevated cash levels that brings you to the low rent off our guidance to 65 to 275 guidance. Excellent thanks for the color. And then on the $7 billion of single-family Resi originations can you just give a breakdown of how that's coming across geographically through your markets and how that compares versus historical is it pretty consistent or is there one market, that's pushing a little harder than others?

Excellent thanks for the color.

And then on the on the $7 billion of single family Resi originations can you just give a breakdown of how that's coming across geographically through your markets and how that's how that compares versus historical is it is it pretty consistent or is there one market, that's that's pushing a little harder than others.

Actually, we are seeing the activity quite robust across all of our markets and Manhattan has been catching up quite a bit as well but sitting now, what we're seeing is suburbs that'd be inactive and citizen tourists are also getting very active including Manhattan. So when you look at the months of supply across all of our Markets, with the exception of Manhattan, but then one to two months, whether it's Florida, Los Angeles, or Boston or San Francisco and in Manhattan, We are seeing that to be more after five months of supply, but the activity is robust, especially on the purchase side across all the five markets.

With the exception of Manhattan, but then one to two months, whether it's Florida, Los Angeles, or Boston or San Francisco and in Manhattan, We are seeing that to be more after five months of supply, but the activity is robust, especially on the purchase side across all the five markets.

Interestingly enough. I'd just add to this thought, interestingly enough. The demise of the center city has been a very prematurely announce. the activity in the center City, San Francisco, New York, Boston would say that this is the core of the citizens in fact quite strong. Understood. Just last one, big picture question on efficiency. You know it is you guys, year to date running at 62% the low end of your your guide and that's in spite of you know a lot of things happening that are a drag on the efficiency ratio you know wealth management, NIM compression and you've got the conversion going on and your Hudson yards build out. It just feels like you guys have figured out a way to run more efficient I'm just curious.

I'd just add to this thought interestingly enough. The the demise of the center city has been a very prematurely announce the activity in the center City, San Francisco, New York, Boston would say that this is the core of the citizens in fact quite strong.

Understood.

Just last one a big picture question on efficiency.

You know it is you guys year to date running at 62% the low end of your your guide and that's in spite of you know a lot of things happening that are a drag on the efficiency ratio you know wealth management.

NIM compression and you've got the conversion going on in your and your Hudson yards build out. It just feels like you guys have figured out a way to run more efficient I'm just curious.

Are you guys, is this, how do you guys feel about improving that efficiency ratio or at a minimum running towards the lower end of that 62 to 64, you know next year and beyond. Yeah, well I mean, we're obviously pleased that at nine months and that we've been running at the low end of the range and this quarter was a little bit even lower I would note that our you know revenue and expense growth have been pretty well matched. Throughout the last few quarters and part of that I know there was a question about wage inflation, but what's really driving the increase in salaries.

Yeah, well I mean, we're obviously pleased that at nine months and that we've been running at the low end of the range and this quarter was a little bit even lower I would note that our you know revenue and expense growth have been pretty well matched.

Throughout the last few quarters and part of that I know there was a question about wage inflation, but what's really driving the increase in salaries.

Is the growth from production and so you're seeing increases in assets under management increases in deposits. There's an expense associated with that from an incentive standpoint, that's matching pretty well with the growth in revenues, which is really over a long horizon is probably more of our focus than squeezing the last dollar out. Right, we're investing for client service in the future and so it's important those things align over time and that's what I think we're most pleased about with the last several quarters.

The growth in revenues, which is really over a long horizon is probably more of our focus sedan.

Squeezing the last dollar out right, we're investing for client service in the future and so it's important those things align over time and that's what I think we're most pleased about with the last several quarters.

I could comment on this for just one second it goes to the core of the model. The comment that Mike just made about the bonus component of our compensation. Number that we do have an incentive approach to both deposits AUM and loans with call back on the loan side, but. Our attrition of clients so somewhere in the 2% range. So our approach to this is the cost of bringing the client and getting them happy, satisfying them, getting them up and net promoter score into the '70s and '80s is a lifetime approach to the value of the client.

The comment that Mike just made about the.

The bonus component of our compensation number that we do it we do have an incentive approach to both deposits a U M M.

Animals with call back on the loan side, but.

Our attrition of clients so somewhere in the 2% range. So our approach to this is the cost of bringing the client and Gotta go I'm happy satisfying them getting them up and net promoter score into the Seventy's and Eighty's is a lifetime approach to the value of the client.

All we think about. And the question is are you going to have a client for 20, 30. 40 years. The upfront compensation to bring them in and land them happily inside the bank and keep them as modest. Or less. Thank you.

The question is are you going to have a claim for 2030.40 years.

The upfront the upfront compensation to to bring them in and land them happily inside the bank and keep them as modest.

Or less.

Okay.

Thank you.

We'll take our next question from Ken Zerbe with Morgan Stanley. Great, thanks! Good morning, guys. Good morning! Actually maybe a question for Mike to start with, I don't want to ask another big picture question, So I won't but specifically in terms of fourth quarter efficiency ratio like obviously, you're averaging so far this year call it very low 62% I guess my question is like what are you expecting in fourth quarter because

Great. Thanks, Good morning, guys.

Good morning.

Actually maybe a question for Mike to start, but it's just I don't want to ask another big picture question, So I won't but specifically in terms of fourth quarter efficiency ratio like obviously, you're averaging so far this year call. It very low 62% I guess my question is like what are you expecting in fourth quarter because I.

I'm just trying to figure out why you Wouldn't change your guidance to be a little more closer to the very low end of that 62 to 64, unless you expect something more material or materially higher expenses in fourth quarter. There's I wouldn't say, there's anything we're staring out that's unusual in the fourth quarter with a with nine months in Canada I think your observation is right. They will probably be towards the lower end on an annual basis, which puts us sort of in the you know right around 62, probably in the fourth quarter.

They're they're there's I wouldn't say, there's anything we're staring out that's unusual in the fourth quarter with a with nine months in Canada I think your your observation is right. They will probably be towards the lower end on an annual basis, which puts us sort of in the you know right around 62, probably in the fourth quarter.

As Jim just mentioned, we talked about production does, incentives. And so some of those obviously get looked at the end of the year based on where we're final balances end up in and sometimes you see a little bit of extra there. But there's nothing unusual staring at us that doesn't tell us we're sort of in the you know the lower end of our range. That's good to hear and then just a different question in terms of foreign exchange fees I know, they're like last quarter. They were fairly high and I think you guys mentioned they were you know sort of represented a healthy level of client activity. This quarter, they are even stronger could you just talk about the outlook for foreign exchange fees. I mean are we at sort of a sustained higher level or is this particularly unusually high quarter. Thanks.

And so some of those obviously get looked at at the end of the year based on where we're final balances end up in and sometimes you see a little bit of.

Extra there, but theres nothing unusual staring at us that doesn't tell us we're sort of in the you know the lower end of our range.

So that's good to hear and then just a different question in terms of foreign exchange fees I know, they're late last quarter. They were fairly high and I think you guys mentioned they were they were you know sort of represented a healthy level of client activity. This quarter. They are even stronger could you just talk about the outlook for foreign exchange fees. I mean are we at sort of a sustained.

The higher level or is this ah.

Particularly unusually high quarter. Thanks.

You know, it's quite frankly, it's hard to answer with foreign exchange activity is very strong and the department, the folks that are running that have done an extraordinary job of building the business is tremendous. And the adoption of foreign exchange of us for their foreign exchange activities by our clients is well, continues to ramp up and we've added people in the area to service our clients, having said all that. It's quarter to quarter, a little bit, it's driven mostly by the velocity of business activity and business activity generally is strong and picking up.

Drawn and the department of folks that are running that I've done an extraordinary job of building the business is tremendous.

And the and the.

Adoption of foreign exchange of us for their foreign exchange activities by our clients as well as ramp as it continues to ramp up and we've added people in the area to service our clients, having said all that it's quarter to quarter, a little bit, it's driven mostly by the velocity of business activity and business activity generally.

It was strong and picking up.

And so the foreign exchange activity will parallel pretty much that plus the growth we have by having new clients adopt us for their provider and adding some people in terms of delivery of service and sales. Got it, understood, alright, perfect. Thank you very much. We'll take our next question from Chris Mcgratty with K B W.

Wider and adding some people in terms of delivery of service and sales.

Got it understood alright, perfect. Thank you very much.

We'll take our next question from Chris Mcgratty with K B W.

Okay, great good morning. I think in the prepared remarks, you guys mentioned the capital call utilization was up around 100 basis points wanted to, number one confirm that it also providing the see if you could provide any color on driving factors. Thanks. Yeah, just to confirm our capital call utilization was just over 37%. At quarter end and it was just under 36 at the end of last quarter. So it is up just about a percent and a half. Yeah and it is in our historical range that we have seen mid-30s to low 40s. So the increase, slight increase in the utilization is driven by increased deal activity. So we're seeing the PVC funds raising deal activity and exits to remain quite strong and expected to continue the deal activity is double the pre pandemic levels, a more dry powder above the pre pandemic levels and the PVC lifecycle is a bit shortening from fund raising and investments to exits coming in literally ahead of schedule. So it's reflected in that.

I think in the prepared remarks, you guys mentioned the capital call utilization was up around 100 basis points wanted to number one confirm that it also providing the see if you could provide any color on driving factors. Thanks.

Yeah, just to confirm our capital call utilization was just over 37%.

At quarter end and it was just under 36 at the end of last quarter. So it is up just about a percent of the house yeah and it is in our historical range that we have seen mid thirties to low 40. So the increase slight increase in the utilization is driven by increased deal activity. So we're seeing the P V C funds.

Zinc deal activity and exits to remain quite strong and expected to continue the deal activity is double the pre pandemic levels, a more dry powder above the pre pandemic levels and the PVC lifecycle is it bit shortening from fund raising and investments to exits coming in literally ahead of schedule. So it's reflected in that.

But it's hard to anticipate so it has been in the mid-30s to low 40s. Thank you. And we'll go to our next question from Andrew Liesch with Piper Sandler. Hi, good morning, everyone. Thanks for taking my questions. Mike, just curious, were there any one time performance fees and the investment management fee income line this quarter? No, there were not that was just the investment managements, just based on where AUM ended last quarter. Got it okay. Thanks, and then.

Okay. Thank you.

And we'll go to our next question from Andrew Liesch with Piper Sandler.

Hi, good morning, everyone.

Thanks for taking my questions.

Mike just curious were there any one time performance fees and the investment management fee income line this quarter.

No there were not that was just a the investment managements, just based on where AUM ended last quarter.

Got it okay. Thanks, and then.

Everything seems to be firing on all cylinders of balance sheet growth, and wealth of new client acquisition. This has been going on quite rapidly since the onset of the pandemic. So I guess my question is what can disrupt this momentum and these trends? What's worrying you right now?

Been going on quite rapidly since the onset of the pandemic. So I guess my question is what can disrupt this momentum and these trends what's worrying you right now.

Well, I think the thing that worries us pretty much all the time is two things. One, an anecdotal whoops somewhere in the portfolio, we don't see them now, but there are by nature anecdotal. And then number two, a rising rate environment initially reflects a stronger economy, but in due course can go too far. We don't see that happening in the near future. And then I guess the first thing we always say everybody worries about is some black Swan event around the world.

Two things one an anecdotal whoops somewhere in the portfolio, we don't see them now, but there are by nature anecdotal and then number two a rising rate environment. Initially reflects a stronger economy, but in due course can go can go too far we don't see that happening in the near future.

And then I guess the first thing we always say everybody worries about is some black Swan event around the world.

Okay. Got it. Thank you, thanks for taking my questions. We'll take our next question from Terry McEvoy with Stephens. Hi, Good morning, just one last question on my list within the wealth management assets, most of the growth occurred in brokerage in money market mutual funds are pretty limited growth within the investment management area. And I guess my question is from a profitability and revenue standpoint, where would you like to see that growth? And how much of an impact as growth in the mutual fund kind of impact quarterly performance? And any commentary on why the investment management was well it was flattish in Q3.

Got it. Thank you thanks for taking my questions.

We'll take our next question from Terry Mcevoy with Stephens.

Hi, Good morning, just just one last question on my list within the wealth management assets are most.

Most of the growth occurred in brokerage in money market mutual funds are pretty limited growth within the investment management area and I guess my question is from a profitability and revenue standpoint, where would.

Would you like to see that growth and how much of an impact as growth in the mutual fund kind of impact quarterly performance and any commentary on why the investment management was well it was flattish in Q3.

So the investment management also depends on the client activity. So we have seen strong client inflows when you look at year over year as opposed to quarter over quarter. So, and the majority of what we do with our clients is investment management and brokerage had some transactions and higher transaction volume this quarter. So we are seeing that reflect that but we are very pleased that insurance Trust foreign exchange, in addition to investment management continues to drive the growth we used to have our PWM fees to revenue you said about 5% or so of that in the last decade and now we're at over 15% shares. So we're very pleased with the continued growth. And that speaks to the holistic approach of banking and wealth management of decline and the teamwork that drives that internally. So that's what differentiates us the most, it's not some separate siloed transactions. It is mostly driven by holistically, serving decline with an amazing teamwork across banking professionals and wealth management professionals. And the cash that was elevated we did move some of it to off balance sheet tools in the toolkit, that's what's you're seeing in the money market mutual funds growing. But that our profitability and revenue off of that as a small.

Actions and higher transaction volume this quarter. So we are seeing that reflect that but we are very pleased that insurance Trust foreign exchange. In addition to investment management continues to drive the growth we used to have our PWM fees to revenue you said about 5% or so of that in the last decade and now we're.

At over 15% shares. So we're very pleased with the continued growth. And that speaks to the holistic approach of banking and wealth management of decline and the teamwork that that drives that internally. So that's what differentiates us the most, it's not some separate siloed transactions. It is mostly driven by.

Holistically, serving decline with an amazing teamwork across banking professionals and wealth management professionals. And the cash that was elevated we did move some of it to off balance sheet tools in the toolkit, that's what's you're seeing in the money market mutual funds growing. But that our profitability and revenue off of that as a small.

Great. Thanks for the incremental colour, I appreciate it. Alright. Thanks. We will go to our next question from David Chiaverini with Wedbush. Hi, Thanks, a couple follow up questions. The first on capital call lines. When you went through the loan pricing metrics, and maybe I missed it, but did you provide the pricing on capital call lines? I did not, thank you for bringing that up. So it's usually around prime -50 prime, -75 around that level that we are seeing that coming in.

Alright. Thanks.

We will go to our next question from David <unk> with Wedbush.

Hi, Thanks, a couple follow up questions. The first on capital call lines. When you went through the loan pricing metrics, and maybe I missed it, but did you provide the pricing on capital call lines?

I did not, thank you for bringing that up. So it's usually around prime -50 prime, -75 around that level that we are seeing that coming in.

Thank you for that. And then a follow-up on the performance fees, usually you guys had some come through in the fourth quarter do you have a sense of the magnitude those could be? Or is it too early to tell? Yeah. So you're right, the last two quarters. The last two years, we have had a fourth-quarter fee, it's probably too early to tell but sort of the preliminary as we don't expect it to be a meaningful amount like it has been the last couple of years. And so I don't expect to see a bump from that in the fourth quarter.

Yeah. So you're right, the last two quarters. The last two years, we have had a fourth-quarter fee, it's probably too early to tell but sort of the preliminary as we don't expect it to be a meaningful amount like it has been the last couple of years. And so I don't expect to see a bump from that in the fourth quarter.

Great. Thanks very much. We'll take our next question from Tim Coffey with Janney. Thank you good morning, everybody. Oh, I'm sorry, we've seen some movement in real estate values over the summer and I'm wondering, as it relates to your commercial real estate and multifamily investor clients, do you think that move encourage them to get off the bench and put some of their dry powder to work?

We'll take our next question from Tim Coffey with Janney.

Thank you good morning, everybody.

Oh I'm sorry, we've seen we've seen some movement in real estate values over the summer and I'm wondering as it relates to your commercial real estate and multifamily investor clients do you think that move encourage them to get off the bench and put some of their dry powder to work.

Yeah, so a little bit. Commercial real estate and, of course, burden that is retail and all kinds of things office is still slow. Multifamily on the other hand has picked up. And multifamily is stabilized at good levels, high levels. And rents and vacancy is stabilizing. And there's a lot more forward vision and the issue of rent, subsidies. And so that is stimulating multifamily activity. The good news is there's also a fair amount of new multifamily activity going on which I think the country desperately needs. So we're seeing a pick up as Gaye indicated earlier.

Hughes or stabilize at good levels high levels, and and rents and vacancy is stabilizing and Theres a lot more forward vision and the issue of of rent.

Rent.

Subsidies are.

And so that is stimulating multifamily activity. The good news is there's also a fair amount of new multifamily activity going on which I think the country desperately needs. So we're seeing a pick up as Gaye indicated earlier.

Okay. And then Jerry, if I can stick with you. Have you seen a migration, a meaningful migration of your clients from the coast more inland areas, where you're not currently you don't currently have footings? I mean, we've heard news about Texas Bozeman, Montana, certainly has seen a lot of inflow. I'm wondering if you've seen any migration like that.

And then Jerry if I can stick with you abuse seen a migration of meaningful migration of your clients from the coast more inland areas, where you're not currently you don't currently have footings I mean, we've heard news about Texas Bozeman, Montana, certainly has seen a lot of inflow I'm wondering if you've seen any migration like that.

Well, actually a majority of clients that do move have stayed within our market. So the migration activity has been very muted and in terms of going out of First Republic footprint. And in the cases, where we have some clients that they'd still in operational enhancements that we have made allows us to continue to serve those clients, especially on the deposit and wealth management side. And we have seen a lot. So for example, if a client moves from Manhattan to the suburbs or a second home in the suburbs, we have seen that to happen. Some primary residents that changes, although limited whether it's the Florida, Wyoming, we welcome those clients over there as well so the majority of that migration has been within First Republic footprint.

GA clients that do move have stayed within our market. So the migration activity has been very muted and in terms of going out of first Republic footprint and in the cases, where we have some clients that they'd still in operational enhancements that we have made allows us to continue to serve those clients, especially on the deposit and wealth management side.

And.

a lot. So for example, if a client moves from Manhattan to the suburbs or a second home in the suburbs, we have seen that to happen. Some primary residents that changes, although limited whether it's the Florida, Wyoming, we welcome those clients over there as well so the majority of that migration has been within First Republic footprint.

Great. Thanks, Gaye. And then just one last question last quarter you kind of expressed some interest in maybe perhaps expanding the personal line of credit product. And I'm wondering did you do anything on that in the quarter? Not. That product is going very, very well. We're running at a rate of around 6000, new households per year, and we're very, very comfortable with that rate. If it could go up without a credit change, we'd be delighted and we're working on that. But remember it's only about a year old now, a year and a little bit. And the results have been actually stunning. As a cohort, we have greater deposits than we have money out.

Kind of expressed some interest in maybe perhaps expanding the personal line of credit product and I'm wondering did you do anything on that in the quarter.

Not. That product is going very, very well. We're running at a rate of around 6000, new households per year, and we're very, very comfortable with that rate. If it could go up with or without a credit change we'd be delighted and we're working on that.

That that product is going very very well were running at a rate of around 6000, new households per year, and we're very very comfortable with that rate. If it if it could go up with or without a credit change we'd be delighted and we're working on that.

But remember it's only about a year old now, a year and a little bit. And the results have been actually stunning.

As a cohort they left that we have greater deposits and we have money out.

Great. Thank you, those are my questions. And that concludes today's question and answer session. At this time I will turn the conference back to Jim Herbert for closing remarks. Thank you all very much for joining us today. Have a good day. This concludes today's call. Thank you for your participation you may now disconnect.

And that concludes today's question and answer session. At this time I will turn the conference back to Jim Herbert for closing remarks.

Thank you all very much for joining us today have a good day.

Okay.

This concludes today's call. Thank you for your participation you may now disconnect.

Mhm.

Yeah.

[music].

Yeah.

[music].

Yeah.

Okay.

[music].

Q3 2021 First Republic Bank Earnings Call

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Earnings