First Republic Bank at Citi 2013 US Financial Services Conference
Mar 05, 2013 AM EST
FRC - First Republic Bank
First Republic Bank at Citi 2013 US Financial Services Conference
Mar 05, 2013 / 04:20PM GMT
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Corporate Participants
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* Jim Herbert
First Republic Bank - Chairman and CEO
* Scott DuFresne
First Republic Bank - Executive Managing Director
* Fatima
First Republic Bank
* Todd Rassiger
First Republic Bank - Relationship Manager and Managing Director
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Presentation
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Jim Herbert, First Republic Bank - Chairman and CEO [1]
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Thank you very much. Thanks for being here this morning. Let me really go through the slide deck, and then I'm going to turn to my colleagues here. The idea here is that they're on the line and have probably more often than I do in terms of how the business actually works day-to-day here in Boston. Scott really started this off here in Boston about seven years ago now. So let me go through the slide deck fairly quickly and then take questions and I'll also them to make comments as we go along.
First Republic, most of you know us, I'm going to presume so, but we started the Bank in 1985, it was de novo, it's almost entirely an organic growth story. We'd make an occasional acquisition, about once every 10 years or so; fairly modest in size usually. We recently bought Luminous, which is an asset management company, about $5 billion. We've been profitable every year since we started. I started back in 1980 and sold it in 1984, it was also profitable each year. We have $34 billion in assets, loans, deposits, I don't need to read the list for you. Our Tier 1 capital, strong; and we basically are -- we are service oriented and credit oriented, those are the two pillars of the organization. It's a simple business model, it's a bit old-fashioned in a way, but it's focused on the niche, higher-end niche, and it's focused on coastal urban markets, San Francisco, Los Angeles, Boston, New York. We have very attractive client segments, and we work hard to build the brand continually.
The loan balances in the last year, we had a very good year in 2012. Loan balances grew very dramatically, 20% plus; deposits were up likewise, we're almost entirely deposit-funded actually. Wealth management assets grew 55%, that does include the acquisition. The underlying assets grew at about 27% non-acquisition. Book value per share, we built the bank for many, many years, went public in 1986, then sold in to Merrill Lynch in 2007, and we bought the bank back from Bank of America in 2010. Since we have come out of the bank in 2010, we've been growing fairly rapidly, and the core income is up nicely. We do have some GAAP accounting income, it's plus, not minus. We tend to focus on core net income.
We raised $500 million last year in Tier 1, preferred perpetual, seemed like a good time to do it. We acquired Luminous recently, I mentioned. We've done the Series C preferred stock offering. This is a graphic depiction of our concept. It's really very simple. The client is at the center of everything. We have very low turnover of people. They stay with their clients, sometimes for their whole life. We have people that have been with us for 20 years, 25 years, [Scott's] been with us 20 years and they like doing what they do, they take care of clients. It's what we get up in the morning and hope to do well that day, and it's a very, very strong referral business. This is just a very quick [version] of how we market. (inaudible).
(video playing).
That's basically been our marketing thrust for a number of years, because the only way you can really improve the service is to have testimonial by satisfying clients, and so we've worked hard to arrange that. The annual reports, which are spread out here in the room, you'll see the same thing.
Why -- what are the growth drivers? We've compounded at 20% plus for a long time. What's the growth driver? The growth driver is two things. The second one is more obvious -- well, it's actually three things, but the second one is more obvious than the first. Very passionate clients that really like the service, tell their like-kind friends. We all talk about that, but it actually happens with us. But before that, the clients that we bank are on the average growing more rapidly than the economic environment in which they operate. There are the A types, and basically if San Francisco is growing at 3%, our client base is probably growing at 6% or 7%.
So we have an intrinsic growth rate that exceeds most organizations by virtue of the client base that we have. Then, we do the obvious things. We hire new bankers, our portfolio managers that bring client bases with them. We have very targeted marketing, and we open new offices in new locations with strong people. We opened about five or six last year; we're opening eight or nine this year.
The geographic markets in which we operate outperform. We've said this for years. We've finally decided to see if we could prove it. This is done by Rosen Consulting over in Berkeley. And basically, the GDPs of the markets [when] operate have survived the downturn much better than others and have come back more rapidly. San Francisco, LA, New York, Boston, and up and down around San Francisco, Southern California -- Los Angeles, Southern California basically.
Attractive markets, this is a Capgemini studies, they are the people that do the World Wealth Report. We've had them do a report on our markets and on our client bases for every other year for about eight years now. I think this is the fifth study actually. The markets in which we operate represent 21% of the households of America, but 55% of the high net worth households, by their definition, which is $1 million liquidity per household or more, that's their standard metric. In San Francisco, in the nine counties, we have about 13.5% of such households banking with us, that's how far we can push the model.
Look at the opportunity here in Boston and New York. We're not quite 2% in Boston and 1.1% in New York. So the upside opportunity in the markets we're in is considerable. We don't expect to add new markets. We just expect to mine the markets we're in. We did just add Palm Beach, that's a service point more than anything else for the Northeast. Our share of the highest net worth households which is the $5 million and $10 million liquidity households which are subsets of the $1 million, in fact, are growing very rapidly. We had about a 9% compounded growth rate on the $5 million and an 18% compounded growth rate on the $10 million households and above.
This is our total loan and total deposit growth rates. They're proceeding apace. It's not necessarily a target for us, it just happens. The business comes in as it comes in. Since we're so credit oriented, so quality credit oriented, we never go chasing deals. We find as many good wins as we can and then that's the amount of business we do. Silicon Valley represents about a third of the bank. So one of the things you are betting on is Silicon Valley a bit when you buy us, that's three counties, San Francisco, San Mateo, Santa Clara.
The makeup of our balance sheet is fairly straightforward. We are very heavily a single-family home lender, particularly including HELOCs. That has been our asset of choice for a number of years for two reasons. Number one, it's a great way to acquire clients and they know everything about them. And number two, it's a very safe product on the way we do it which seems a little counterintuitive given what happened in 2008 and I'll come to some numbers here in a minute. Geographically, we're half San Francisco; second largest market is New York, after that Los Angeles, then Boston.
This is the profile of our home loan clients. About a call it $1 million loan. Loan-to-value ratio, 60%. Liquidity is equal more or less to the loan even in the case of the median. Net worth couple million dollars to $14 million, the average is skewed by the fact that we have some very wealthy clients. Credit score is in the high 700s and that kind of profile which has been going on for three decades almost, we have lost 5 basis points cumulatively on $60 billion of home lending in the last 27 years, 28 years almost. So it's a very different credit story than you're used to.
Our cumulative losses on all types of lending, cumulative, are 18 basis points for 27 years. We are very, very careful. [10-year loss experience], we wrote off a basis point last year. We do interest-only loans and these have gotten some press recently. So I thought I would talk about those for a second. Interest-only loan experiences in these numbers. By the way, our loss numbers on home loans include loans that we sell, but service not just what we keep and that included last year about $700 million of Fannie, Freddie. We've had very few losses on interest-only loans. We amortize them over the back 20 years, interest-only for ten. We underwrite them as if they were amortizing. Loan sizes profile is about the same as what you saw in the prior page. There is no real difference. We've been doing them since 1995. And then, this is a percentage makeup in terms of LTV. Most of them are under 70%.
Business banking, this is the story inside First Republic that isn't a self-evident and actually not the one most people think of us as. But in fact, the business bank is about half our deposits now and what's happened is in Business Banking, we have, if you think about who we bank, they are influence and decision makers. They are on the boards of non-profits, they run firms, law firms, accounting firms, private equity, venture capital. And so we have designed about seven or eight verticals in business banking that we follow them to their businesses. It's worked out extremely well. We don't go in the front door with everybody else and knock on, we go in the side door. We already know the decision maker; they're already happy as a bank client. So it's a very different conversation.
This is also a very self-funding to put a [mile]. It's about four times self-funding. We have almost $12 billion in deposits and about $3 billion outstanding. Our largest version here and I'll ask Todd to speak about this in a moment as private -- as non-profits, schools and non-profits. Next largest group is private equity and venture capital funds. We bank about 800 funds in the country. We bank about a couple hundred schools, another 100 non-profits. Of course, when you think about non-profits, it's a great world to be in, in terms of who is on the boards.
Our deposit franchise is diversified. Business is not quite half. Consumer deposits are the rest, 58%. We also have -- the way we think about three channels, we have preferred banking offices which [Fatima] can speak to here in a moment. Preferred banking deposits which are those attached primarily to relationship managers like Scott who will bring in wealthier individuals and then wealth management sweep accounts coming off of our wealth management division.
The mix has changed. We've eliminated CDs, sold CDs, not those that are attached to a larger relationship and where checking is now over half the bank. The deposit office sizes have been very -- we've been very fortunate; people who run them do a great job and we've got good-sized branches, which are very profitable, pretty much the largest that we can find in the country. Our efficiency ratio has been pretty steady, right in the high 50s, it's a high-touch model, so it's not likely to be cost driven and efficiency driven, but it has held steady in the 58% to 62% range for quite a while. Our people are very good and very efficient, doing larger-sized business clean, that's the model basically. Keep it larger, keep it very clean, have the best people you can possibly hire. And as a result, the assets per person in the bank are 2.4 times the norm. Profitability is 2.6 times, pretax profitability is 2.6 times the norm per person.
Private wealth management for a minute. Private wealth management has grown nicely. It's a natural adjunct to the banking. We came from banking and moved into private wealth management about 12 years or 14 years ago, but it's growing very rapidly and the cross-sell is very strong and we are now succeeding much more than we did only a few years ago because the platform is complete at this point. Our fee income is growing very nicely. This does not have Luminous in it. Luminous has about a $30 million run rate on revenues per year.
Net interest income has been very strong. This is a non-GAAP. Since we came out of BofA, a nice steady increase and more to the point, earnings per share [has been] very steadily. Core earnings per share are growing very nicely, 28% or so since we came out. Net interest income -- margin -- net interest margin, rather, very stable. We've worked hard at this. We stay very matched but as you can see, the stability has held up pretty well. We are under some NIM pressure like everybody is, but we're managing to fend it off a little better than I thought we could actually so far. It will decline slightly if the Fed does what they say they're going to do, which we think they will.
Rapid growth in book value per share. At the end of the day, this is the key measure and we've done well in this regard, about 70%. Stock performance. Before we sold, we outperformed; and subsequent to selling, we -- subsequent to buying it back, we've managed to outperform as well. Private equity ownership, when we bought the bank back, we had about 75% private equity backing us. Colony and General Atlantic were the two leads. We had a number of others in and subsequent to that, we have reduced them down to 11% ownership. So that overhang, so to speak, is gone. And at this point, we've moved 49 million shares last year from them into the public market. So it's a very deep traded market in the stock now basically. It's a stress test. We ran that voluntarily; we're not in the top -- we were not over $50 billion, but we run it -- we stand out from the others, this is the main reason we ran it.
Conclusion is pretty simple. It's been leadership continuity the whole time. Katherine August-deWilde and I who's -- she is our President and Chief Operating Officer and I've run it together along with a great team of people for a long time. We're very focused. We have a unique service culture, a very intense service culture. One of the key ingredients to that is -- there are two key ingredients, empowerment of the people to make the decision on behalf of the client at all levels, and very low turnover so that they have the experience to make that decision. It is a growth model, for sure; it's not necessarily that we targeted, but it does happen; and we have very targeted client base in very attractive markets.
With that summary, let me turn maybe if I could, Scott, could you give us a quick summary on Boston.
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Scott DuFresne, First Republic Bank - Executive Managing Director [2]
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Sure. I'll be happy to. Good morning. My name is Scott DuFresne. As Jim mentioned earlier. I am a 20-year First Republic employee. We opened our Boston business in February 2006, with literally four of us; we're up to 144, all-in. We just opened our third and fourth locations. So we're on Federal Street, Post Office Square, Boylston Street in the Backbay and we opened Wellesley as well.
Our Boston business today has 17 what we call relationship managers, plus another five business bankers, what Todd does. We grew our deposits a little over 20%, just here in the Boston market. Last year, we're up to almost $2.5 billion of deposits in our all-in lending for the Boston team was about $2.2 billion of lending and that was up 30% from the prior year.
One client at a time, cross-sell all the services of the bank and the last year we've added our full complement on the wealth management side. We now have three portfolio managers, we have folks on the broker dealer side, First Republic Securities. We have three wealth advisors that act as the interface to the client, bringing them all the products and services on the wealth side as well as three portfolio managers. So in the past year, we've fully grown our Boston team, where we now have all the products and services of the bank.
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Jim Herbert, First Republic Bank - Chairman and CEO [3]
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Okay. Thanks. (inaudible).
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Jim Herbert, First Republic Bank - Chairman and CEO [4]
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Absolutely. Good morning, everyone. My name is Fatima and I manage the Boston offices. We've got, as Scott mentioned, four offices in Boston currently, and knowing that we are [in effect] for the clients, we sort of have the marketing piece for the bank and what we try to do in the office is, a group of seasoned bankers are there to provide the day-to-day banking on a consultative approach rather than transactional. We also take a very holistic approach. When we're acquiring new clients, we go in as a team to provide that best possible service to meet all the clients' needs and our service model is very high touch. As Scott said, one client at a time, and we call to stop that at me or my bankers.
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Jim Herbert, First Republic Bank - Chairman and CEO [5]
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Fatima is with this for --?
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Fatima, First Republic Bank [6]
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13 years. I was in San Diego prior to coming to Boston about 4.5 years ago.
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Jim Herbert, First Republic Bank - Chairman and CEO [7]
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Todd, do you want to [specifically talk about] Business Banking?
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Todd Rassiger, First Republic Bank - Relationship Manager and Managing Director [8]
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Certainly. So my name is Todd Rassiger. I've been with Business Banking and with First Republic for 2 years and now. And as Jim mentioned, credit is the bedrock of our approach in underwriting loans strong credit and that's characterized by very clean deals, that are cash flow, strong that's are always our primary repayment source, but also we have strong collateral and almost of them almost in all circumstances have guarantors as well.
From a strategy standpoint, the types of verticals that we're involved with our business is that drive deposits to the bank. As Jim mentioned, a 4.2 to 1 ratio between deposits and loans is very substantial, but also create cross-sell opportunities. So for us, particularly in Boston. The top three verticals of private equity, venture capital, non-profit institutions, schools and games, cultural institutions and also investment management firms and professional service firms. We're fortunate that we've got strong opportunities within all of those segments and just to highlight, one, as you might be surprised how non-profits represent one of the largest components of our outstanding loans. We -- I'll give you a few examples here in Boston. So we bank close to 20 schools in this area.
And if you look at schools on the face of it, you've got terrific credits. Many schools here have been around 100-plus years, great operating history, strong enrollment base and donor base as well. We lead with loans, day-to-day banking, we're getting stronger in [down risk] management as well. But then, there's also a layer underneath that, which are the trustees and the parents of those schools, which tend to be our individual clients.
So we're getting great exposure to those individuals. In fact, Fatima and I were on a call yesterday with a trustee of a school that we've built the relationship with and that person is bringing over their mortgage to the bank as well as an investment management relationship. So we really seek to go deeper into those relationships and in some of those relationships alone, we don't necessarily have to grow our loan base over the next few years, but it's going deeper, building endowment, investment management, and also just handling the trustee personal banking business.
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Jim Herbert, First Republic Bank - Chairman and CEO [9]
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Great, thanks. The integrated nature of the model that Todd just referred to in terms of calls here and Fatima is really one of the key ingredients of differentiation. We pull everyone you needed in the room at the time, Fatima has the ability to get caught into a meeting without any problem or Scott if she thinks it's appropriate and vice versa. And the service in the offices supports the service at the private banking level. It's not two organizations kind of fighting almost. It's a big deal actually. The offices are all sit down, sit down banking. With that summary, let me open up for questions, please.
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Questions and Answers
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Unidentified Audience Member [1]
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Correct me if I'm wrong, but I'm assuming the Company is organized around either branch or city profit centers. What I'm just trying to understand is to what degree are the cities or the branches incentivized in terms of a to achieve certain sort of targets on an annual basis in terms of growth in deposits, loans, other metrics and to what degree do the employees and the managers benefit accordingly? So if you achieve 10% goal, you get paid X; if it's 15%, you get X plus that the employees really feel as if they're in essence entrepreneurs within the Company, they get paid based on the success they do or do not have?
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Jim Herbert, First Republic Bank - Chairman and CEO [2]
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Let me ask them to answer that, but let me give an overarching answer, which is important. The one thing we seldom incentivize is growth. We do incentivize the acquisition of an individual new client. And the difference that I'm drawing, particularly in lending, is we don't have growth targets for lending because if you have a growth target for lending, you're going to make a mistake because you'll hit the target. So we operate on that basis. About 85% of the employees in the Company are incentivized directly and objectively on various programs. But, Scott, do you want to -- and we tend not to think about cities, we tend to think about teams or individuals. But Scott, do you want to --?
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Scott DuFresne, First Republic Bank - Executive Managing Director [3]
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Sure, absolutely. It's interesting. I think Jim hit on the goal issue. When I joined First Republic 20 years ago, I had come from an institution that clearly was goal driven and we do not have specific growth goals on the loans side and the issue is we don't want to reach for a deal that we don't need to do. So that's almost in our front line and that has been our culture here at the bank. The individuals are incented on an individual book of production that they bring in.
We have team goals and it goes right across the whole spectrum, whether it's the loan side, the deposit side, the wealth management side. We also have an additional incentive program where the more products we have with the client, okay, and the deeper we go, in theory, that increases the incentives for the team and the issue is we don't want it to be just a quote checking account and a home loan and then we never interact with that client again. We want to get investment properties, the wealth management client, trust services and that's been in our history and in place for a long time. Yes.
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Jim Herbert, First Republic Bank - Chairman and CEO [4]
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Fatima, on the (inaudible).
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Fatima, First Republic Bank [5]
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I think as Scott mentioned, I mean, with the initiative, I mean for our bankers, we empower them to do the right thing and we incent them well. And again, taking that consultative approach and deepening relationships and then bringing in the team of experts to expand that relationship even further.
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Jim Herbert, First Republic Bank - Chairman and CEO [6]
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We have a product with [clients] add-ons to all the business that you do, whatever type you do. And each year, I have Todd talk about [business line] in a second. But each year, we have a program that we signed with the relationship managers, just between 10 and 12 pages now, something like that, maybe 15. Like the tax code, it keeps getting longer, but we sign it up formally every year, we have for a long time.
Importantly, by the way, we've had a clawback provision on credit since 1986, whereas the person that makes a loan, if it goes bad in the first four or five years of the loan, they're clawed back four times or five times or six times what they were paid on that loan. They take the first loss. We've had that for almost three decades, it works. It's not that we claw back a lot of money; it makes you think differently about lending money because it is your money. Todd, business banking.
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Todd Rassiger, First Republic Bank - Relationship Manager and Managing Director [7]
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Sure. So I'd say where we excel where most banks maybe don't is that since we're client-centric, a lot of times, particularly in business banking, commercial lending tends to be products centric; you bring in a client that needs commercial loan; if they don't need a commercial loan, then you move on to the next opportunity or if you close your commercial loan, you move onto the next loan.
Here, it's about the relationship, what's the need of the client and as a business banker, if I close $1 million of net new loans for the year but brought in $50 million in deposits and $50 million in investment relationship, I'd say the bank would be pretty pleased with that, and my incentive and comp would reflect that. So it's about what can we do for that client and what's the opportunity in front of us. So if it's not business banking, initially, it could be a mortgage; and that's one of the things that I've grown in terms of the culture and affecting my book of business. I came on board somewhat with that mentality, but now, a good portion of my overall book of business are individuals and their personal banking needs.
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Jim Herbert, First Republic Bank - Chairman and CEO [8]
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That almost always happens, by the way. Our approach to this is that there are no companies, they're just people. Companies don't have character, people do. And so we come at it completely from the individual point of view. Even the largest companies, the largest funds companies, let's say, the sector that we have, they're just run by -- they're run by people and so we need to get to know those people and take care of their personal needs. We will migrate to the business often. We also go the other way, obviously, as Todd just implied. Other questions? Yes.
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Unidentified Audience Member [9]
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You may have touched on this earlier. Did you qualified mortgage, the proposed rules on qualified mortgages, does that change, how do you look at underwriting at all, which loans you're going to do, which loans you won't do?
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Jim Herbert, First Republic Bank - Chairman and CEO [10]
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Not very much, actually. We have -- that's why we've put up our experience in IO from 1995. We've had a very strong credit experience in IO. Our credit experience in interest-only is literally not differentiated at all from fully amortizing mortgages, zero difference. We understand where the CFPB was coming from in terms of interest-only because interest-only was one of the abuses of subprime lending. It is also, however, a product that fits the needs of a lot of clients, particularly those who have bonus-type arrangements, where they are not sure what the bonus will be, and so we like the lending.
We will probably tighten down our loan-to-value ratios a little more than they already are just because the collection of a -- if you have to go to a foreclosure on the question on an IO loan, you'll probably have an additional legal barrier in front of you to prove that they were qualified to get the loan, that's going to take a little time, so that thus translates into loan-to-value ratio to cover you all the time. But we have so -- quite frankly, we have so few foreclosures, it's not very relevant to us.
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Unidentified Audience Member [11]
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It looks like the new securitization market for prime jumbo mortgages is trying to get a little bit of life, [regulatory] trust has been guiding to twice as many deals this year as they did last year. How does that help your mortgage business going forward compared to the past couple of years?
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Jim Herbert, First Republic Bank - Chairman and CEO [12]
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It's actually probably positive for us generally. Because of the quality of our asset generation, our assets are very highly desired by the folks doing securitizations. We've become almost the core product inside the securitization around which they build a bit. We've done a lot of business with Redwood, as you probably know. Their securitizations the last couple of years have been about half of our product. We are -- going back in history, we're a mortgage banker in terms of need, because we have always had more business origination than we've been able to fund on the balance sheet. That's actually not quite the case now. With the mortgage banking, we never sell servicing.
So, the mortgage banking model whereby for us, a mortgage comes in, gets done well hopefully, gets sold into the secondary market, maybe at a nice profit, certainly right now, that's for sure, and the servicing we keep, and then we do the other eight products on the average with the client. That's actually a very good model for return on capital, because the biggest capital requirement is hold that loan, particularly if the loan is going to be an interest-only loan because it's going to require 100% risk-based capital. So that model actually works very well for us and we're good at it.
Our secondary desk has been active for -- since day one actually. And importantly, inside the Company, our secondary desk handles internal pricing and external secondary. So we don't get out of sync. So we have market knowledge every hour of every day basically on our pricing sheets. This is a good time for us actually. This may be close to optimum in a funny sort of way and just coming alive. I think it's generally good for the economy, because you'll get more consistent pricing.
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Unidentified Audience Member [13]
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I'm just going to ask [cancel] example. Your customers tend to be savvy. So hypothetically, someone is in Wellesley, they want to borrow $750,000 for a residential mortgage. They're going to be [savaged with the bank rate] and I'm just making this number up, I'll see 30-year fixed mortgage, just the average offering on the web is no point 3.5% interest rate, what I'm just trying to understand is what do you left to do? You kind of match the average in the market, will you charge a 50 basis point premium because of the extra high service Republic offers? How do you try to price yourself relative to the market when you know the customer knows what their other options are and they can borrow money from five different places, but what does you do to make sure they decide to grow the place they want to borrow more?
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Jim Herbert, First Republic Bank - Chairman and CEO [14]
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Scott?
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Scott DuFresne, First Republic Bank - Executive Managing Director [15]
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I'd be happy to take that, sir. Needless to say, we have to compete every day. But we always talk about internally not competing just on price. If you think of the residential mortgage sale, it has a time duration, especially if it's a purchase, okay. And especially if you're in hot real estate markets and if you look at the markets First Republic operates in between the Bay Area, New York City, Boston, and the west side of Los Angeles, these are all competitive residential markets, so A, we have to be competitive, but the most important thing is execution, okay.
If it's a purchase and you're looking at a 45-day close today or less, can the other institution actually make it happen? And that's where you will get some slight price differentiation, you're not going to get 100 basis points to be clear, but you'll clearly get between 10 basis points and 20 basis points extra on the deal. We've been competing with that kind of a market for many, many years. We talked in some of our markets where a cash buyer on a home purchase today with a commitment letter from First Republic, knowing from the real estate brokers that First Republic will deliver and they will deliver it on time, this is just as good as an all-cash buyer, but yes, we do have to compete, we do.
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Jim Herbert, First Republic Bank - Chairman and CEO [16]
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(inaudible) in LA and San Francisco. Brokers will favor a buyer with one of our commitment letters when they have five offers. (inaudible) 40 offers. I mean it's a while, it's really something, and so if you come in with one of our letters, you're going to have an advantage.
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Unidentified Audience Member [17]
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(inaudible -- microphone inaccessible)
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Jim Herbert, First Republic Bank - Chairman and CEO [18]
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Maybe, maybe not depending -- if you gave us a big banking relationship, we might charge under the competition. We price -- we have a matrix pricing and if you just want a mortgage from us, you won't like our rate and quite frankly, if you just want a mortgage, we'd rather you want somewhere else. What we want is bank relationship, we want a total relationship and we know it's the beginning of a relationship if you're new to us.
But even at the beginning, we want you to [move your banking over], we want automatic deposits, we want the mortgage obviously and other things if you have them. And because we've built the bank on relationships, not on transactions. It's 100% of our relationships. We only have about 30,000 borrowing customers, 35,000; 33,000 right now I think actually. And we have about 110,000 total relationships. The 40th largest bank in the country. So we are looking for a few clients every year, 5,000 maybe new clients.
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Unidentified Participant [19]
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Okay. So I think we have time for about one more question here and I'll take it. So under the CCAR process, obviously, this year, you're now one of the top 19 or -- and you fall below the $50 billion in assets, but in towards late 2013 and 2014 under Dodd-Frank, you will have to submit some sort of a stress test or capital plans. Can you just outline for us what the main differences are for an institution of your size versus the larger banks have to go through the process that are currently going through the process?
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Jim Herbert, First Republic Bank - Chairman and CEO [20]
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We have done the stress test as if we are one of the CCAR banks from the first year. And so -- and we intend to do them voluntarily. As far as I know, we're the only bank of our size that has done that and we publish them. We will publish another one in March. This is from last year; I think we may have another page or two, I'm sure; no, sorry.
We published this last year and we'll publish it again this year when we complete it, which will be in the March timeframe. And we just feel like it's good to have the discipline long before you get there. It's good practice. But also it's good discipline. These tests are burdensome, but they have a lot of good thought behind them actually. Our whole approach to the regulatory scheme has never been adversarial. We just don't believe that. We actually think that we should learn from there, the experience they have moving around the system because they've seen all the problems.
So they have a much more open mind, much more knowledgeable base than we do as one institution. So we tend to be very proactive with the regulator. Our regulators are the FDIC and then the State of California. We are a state bank, no holding company. I don't like double leverage, so we don't have a holding company. But -- so I don't think it's going to change how we operate very much, to be honest with you. I think it's -- we're already into it. There would be additional reporting requirements over $50 billion, but they're not particularly burdensome. Again -- and the main reason is our business line is quite simple.
The real burden comes in on some [proprietary] tradings and other things that we don't actually do. Derivatives, that nature there. We don't -- when we -- for instance, we don't use derivatives to hedge our asset liability [matching]. If I want to extend my liabilities, I extend my liabilities. I don't go into the derivative markets to do it. You never know how they're going to come out as people learned recently. Do you have another question?
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Unidentified Audience Member [21]
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(inaudible -- microphone inaccessible).
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Jim Herbert, First Republic Bank - Chairman and CEO [22]
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We have about 200, including business bankers, 225, [somewhere in that area]. Yes.
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Unidentified Audience Member [23]
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(inaudible -- microphone inaccessible).
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Jim Herbert, First Republic Bank - Chairman and CEO [24]
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I'm sorry. I couldn't -- okay.
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Unidentified Audience Member [25]
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(inaudible -- microphone inaccessible).
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Jim Herbert, First Republic Bank - Chairman and CEO [26]
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Attrition, turnover. I'm sorry, turnover. I'm sorry. The attrition at the customer level is 1% or 2%. It was not measurable almost. At the employee level, we have about a 10% turnover a year. We caused probably a third of that and the rest is moving on doing something else. It's quite low. It's about half the norm in banking. Yes.
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Unidentified Participant [27]
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Okay, I think that's about all the time we have.
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Jim Herbert, First Republic Bank - Chairman and CEO [28]
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Thank you all very much. We appreciate it.
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Scott DuFresne, First Republic Bank - Executive Managing Director [29]
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Thank you.
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Fatima, First Republic Bank [30]
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Thank you.
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