First Republic Bank at Goldman Sachs US Financial Services Conference

FRC - First Republic Bank
First Republic Bank at Goldman Sachs US Financial Services Conference
Dec 08, 2015 / 08:20PM GMT 

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Corporate Participants
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   *  Jim Herbert
      First Republic Bank - Chairman and CEO
   *  Gaye Erkan
      First Republic Bank - CIO
   *  Mike Roffler
      First Republic Bank - CFO
   *  Jeff Bruce
      First Republic Bank - Deputy Regional Managing Director

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Conference Call Participants
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   *  Ryan Nash
      Goldman Sachs & Company - Analyst

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Presentation
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 Ryan Nash,  Goldman Sachs & Company - Analyst   [1]
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 All right we're going to get started here. Finishing up the first day we are pleased to have First Republic here. It was a very busy year for First Republic as they successfully crossed the $50 billion asset mark, and continued to drive peal right-leading growth across their urban coastal franchise.

 Here to tell us how they're going to continue to drive this type of growth is Chairman and CEO Jim Herbret, Chief Financial Officer Mike Roffler, and Chief Investment Officer Gaye Erkan.

 I'm going pass it over to Jim, who's going to kick us off.

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 Jim Herbert,  First Republic Bank - Chairman and CEO   [2]
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 Great. Thank you, Ryan very much. So we're going to go through the slide show pretty quickly here, and then we'll open up for Q&A. Allow me first also introduce, we have in the audience here, Jeff Bruce and Erin Fitzsimmons who are also here with us. Deputy Head of New York, Relationship Manager. Erin runs our [Eagle Lending] on the East Coast. So we'll have them in the Q&A section as well.

 First, the bank's doing well. We continue to grow. We're past $50 billion. We have done almost everything we need to dealing with that, but it's an ongoing activity. So I want to emphasize that. Mike can talk for a moment or two about just a couple of things we have not yet completed. We've had good growth in the third quarter. Those are older numbers at this point so I won't linger there.

 Why First Republic? You know it's a very simple structure. It's a very strong culture. It is a service organization that rests our brand and our positioning on extraordinary service to clients. And in turn, them being happy doing more with us and referring their friends.

 We have a long list of things we don't do. I won't go through this list with you. I'm sure you're interested in every one of them. But the reality is that there are a lot of things we don't do. We keep it very, very simple. We don't even have a holding company.

 Today, we're basically a mid-$50's bank in terms of billions of dollars of assets. We have wealth management of the high $50's. We have made a couple of announcements [in that area] recently and Mike will talk about that in a moment. Tier 1 leverage is strong. We are a [Denoble] Charter still. We have about a year and a half yet as a [Denoble] status coming out of Bank of America. And as a result, our guiding capital ratio is Tier 1 leverage at 8% minimum. We tend to run in the low 9's recently

 We have about 70 banking offices bi-coastally. And we have enjoyed good growth for quite a long time. We'll come to some of those numbers in a moment.

 Our model is simple. It's an old fashioned banking model. It revolves around a quarterback. And the quarterback is primarily your banker and the relationship manager or a business banker or a wealth manager or possibly an office manager. And those folks basically reach out to the organization in a very holistically way and bring to bear on your relationship, our clients relationship, any piece of the organization you may need.

 Our compensation program is very holistically as well. Everybody that works on that relationship will be compensated in some way. So we deem it to be not a zero sum gain.

 If somebody brings somebody else in to help them with the relationship, the total comp that the bank pays goes up a bit so that they're not fighting with each other about it. They're just doing the best they can for the client. We like it because the more people in the room our history tells us the better the experience and the deeper the relationship.

 How do we grow? We grow mostly through the growth of our existing clients, that's more than half of our growth every year, [their growth]. Them doing more things with us and them getting larger. We operate in costal urban markets San Francisco, LA, New York, and Boston primarily. Also San Diego, Portland, and Palm Beach, and smaller markets. They are outgrowing the US generally speaking.

 And then within those markets we tend to bank basically highly educated urban professionals doctors, lawyers, venture capitalists, entrepreneurs, real estate folks. And so you add all that up and you get a relatively rapid growth rate of the existing client.

 And then our job every day is to make every client we have really happy that they're at First Republic. And if they're really happy, they're going to tell their [lifetime] friend.

 The markets we are in are growing quite nicely. The top one is San Francisco that's about 45% of the bank. That's the Bay Area, not just the city. And then LA doing very well, and recovered very strongly recently the last year and a half or two years. This is a proprietary GDP that we do on our markets through Rosen Consulting. We do it mostly because we can get the data earlier. It's about a quarter earlier than national data.

 Then this is a chart that explains what I was just talking about. The growth is more than half from current clients. The next 25% of growth comes from their direct referrals which by the way generally quantitatively are as strong or stronger than the referrer. The most important data on this page is the lower left box which points out that only 2% is our attrition rate per annum. That's a lot less than the industry as a whole. So we're not fighting a riptide. That's coming from the net promotor score which is a measure of satisfaction that we do every year on all of our areas rather. And if the client self-designates in the survey data First Republic as their lead bank which is about half our clients do that.

 By the way, almost directly related to the number of products we do with them. We're at about a 77% net promotor. That score is above Apple and Amazon with client satisfaction.

 Give you a quick little version of how we market. This is very short.

 (video played)

 We've used a testimonial-type advertising for a very long time, 20 years or so, because the only way you can really sell service is have somebody testify to it. That's really the backbone of the net promotor score. It's actually the utilization of the net promotor score.

 We are very active in our communities. One of the most important things that we're very proud of is that over 20% of our home loans by units are in LMI census tracks. We take a great deal of involvement -- we're basically very urban, and we stay focused on urban. We're very involved in a number of activities in the community. And we've done a lot of low-income housing financing, and municipal financing for various infrastructure projects and units and activities.

 And let me turn the regulatory oversight over to Gaye Erkan. Thank you.

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 Gaye Erkan,  First Republic Bank - CIO   [3]
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 Thanks, Jim. So I got the most fun parts, the regulatory part so I'll do it quickly as much as I could. Let me just first provide a quick update on where we are on the regulatory initiatives. As you may recall in the third quarter, we surpassed the four quarter average of the ending total assets crossing the $50 billion threshold.

 And about a year and a half ago we had been -- [we've yet] started actually implementing a lot of these initiatives. Especially focusing on and significant investments had been made in infrastructure and staffing levels around BSA/AML, Enterprise Risk Management, capital and liquidity stress testing, compliance, internal audits, and building their own balance sheet liquidity portfolio.

 Now having crossed the $50 billion mark, are there any incremental requirements? They are minimal. They're projected to get to the minimum of First Republic. And that's mainly driven due to the simple organizational structure, no bank holding company nature and much relatively smaller operational scale and structure of First Republic.

 Now while we're implanting these (inaudible) enhancements and infrastructure enhancements the franchise activity has been shrunk. I mean looking back to the divestiture back in 2010 both on the loan and deposits side, the compounded growth rate has been close to 20% especially in the last year and a half as you're probably watching how they're building the investment portfolio. The deposit growth has been strong in whatever is beyond and above the loan growth that has been [nice] funding the liquidity portfolio.

 In terms of the loan originations, in the third quarter we had $4.9 billion of loan originations. And the first nine months of 2015, we originated $15 billion of loans. Up 18% from the same period prior year.

 As a result, year to date loan growth has been very strong. And as you may recall, as Jim mentioned, the purchase [of the home] is a key opportunity for us to gain a trial for the potential prospective customers. So whether we hold or sell the loan as I'm switching to the secondary market activity, the loan product allows us to cross sell into banking and wealth management opportunities.

 So we have been active since the inception, since 1985, we have been active in the secondary markets. And in the third quarter, we sold $600 million of loans at a 49 basis points of gain on sale. We continue to expect gain on sales to be modest and balance sheet growth for the loan for 2015 in the mid-teens for the year of 2015. An important point is that when we sell the loan we always retain the servicing of these loans.

 Now touching back a little bit on the business model that Jim went through, simplicity, stability, and consistency are fundamental to our business model. If you take a look at the geographies, and if I may just in those numbers include Boston as well because this makes the comparison rather easy. San Francisco and New York City, Los Angeles and Boston all together in 2010 we had 88% exposure. 2015 exactly 88% of exposure. So no major change. Same urban markets. Not a coincidence.

 Given our business model and conservative risk philosophy we do focus on a carefully selected (inaudible) knowledge-based markets with desirable customer base.

 And in terms of types in the mix lending types and the mix, single-family residential has been 58% in 2015 compared to 70% in 2010. And about 80% of our lending has been real estate secured. The remainder is in business banking which I'll leave to Mike to cover in detail a little later.

 I like this example. That's a great example of stability, 90% of our loans since 1985 originated by bankers still with First Republic. You can't get that without a strong service and risk culture that empowers the bankers. And they're empowered in a way that they make decisions for their clients. They're empowered in a way that they are accountable for the risks and for the decisions that they're making. And this stability is also key to high touch, consistent relationship model.

 Now strong credit is also a key driver of the safe growth. And our consistently conservative underwriting percentages you can see especially on the loan to value ratios. 60% for a single-family home (inaudible) and less than that 55% and 51% for multi-family and CRE lending. As well as [full docs], strong collateral, excellent FICO scores with a median of 773. And a high focus on post-loan liquidity of the borrowers.

 And especially when you're dealing with a 6% to 5% LTV borrower it's not just a predictor how the loan is going to perform. It actually shows the behavior of the borrower and how much liquidity or how much they're saving. It's actually a great predictor of how much more business and future liquidity business and wealth management bank [offerings] that they're going with you as well. This is fundamental to the enterprise, but it also gives us all the time to dedicate to client services as opposed to dealing with bad credit.

 And the results of the consistently conservative underwriting vendors I'll just quote a few numbers out of this page. So 7 basis points cumulative losses on $86 billion of single-family residential lending over 30 years. And similarly for all the loans included, 23 basis points on $140 billion of originations. And that has been consistently lower than the top 50 US banks.

 Now turning to deposits, diversification is important in deposits to us. And as you can see, diversification comes in three different types as we'll show in these slides. Business and consumer 50/50 split. In terms of the channel, preferred banking [offers us] about one-third of the deposit gathering which are the branches. And 59% comes from business bankers, portfolio managers, relationship managers bringing in deposits. Now wealth management which Mike is going to touch on is yet another diversification at the deposit base, it's a sweep deposit.

 And the way that I would look at it, the 2008 pie chart and the pie chart now is actually different deposit [base]. And 61% checking, and out of that total $44 billion of total deposits $17 billion is actually non-interest bearing. The deposits comprise about 89% of our total liabilities. I think it's important to also note that the short term debt funding is just under 2% of our total liabilities.

 Now having gone through the (inaudible) $50 billion you may think of First Republic as a large bank, but actually if you look at the operational scale it's a much smaller bank than you would think. We're dealing one-fourth of number of accounts of US banks with total assets between $35 to $65 billion size. So you couple strong credit, strong culture with relatively smaller operational scale it actually gives us not only the ability to compete with differentiated service, but also the time to dedicate to excellence in client service.

 With that, I'll turn it to Mike to go through the rest.

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 Mike Roffler,  First Republic Bank - CFO   [4]
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 Do we have the clicker?

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 Gaye Erkan,  First Republic Bank - CIO   [5]
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 Oh, I'm sorry.

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 Mike Roffler,  First Republic Bank - CFO   [6]
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 Okay, so business banking, Gaye was just talking about the deposit franchise. This has really had a significant impact on our deposit franchise as the business bank has grown. And you can see over the last five years it's been quite considerable. And importantly for every dollar that we lend actually we bring in over $4 of deposits, and these are very low costs as you see, 2 basis points. And this is really been a big part of our transformation of the base to get to over 60% checking.

 If we look at the loan portfolio, we're very targeted in the verticals that we really try to approach in the business banking. There's about nine verticals. You can see here that two of the larger ones are nonprofit organizations schools along with private equity and venture capital funds. Many of these relationships came from providing great service to our individual clients and then following them to the businesses that they lead, the organizations that they influence, where their children go to school.

 And so we've been able to build the business bank really from those personal relationships. And now the business bank is at a point where it also self-sources [deals] sort of across these verticals. But we're very focused on professional services, financial services, accountants, lawyers, and those types of firms to build the business banking practice.

 Turning to wealth management for a minute, wealth management since we came out of Bank of America very strong growth. Really that growth comes from a few places cross sell of bank clients, adding new portfolio managers. We've done a couple of acquisitions, one of which just closed on October 1st, Constellation. About almost $6 billion in assets under management. Integration continues to go quite well with that, and we're starting to already see some of the cross-sell synergies between their clients into the banking base and also our relationship managers getting to know them to hopefully bring them in to see the banking clients.

 What's different is really it's an open architecture, unbiased approach to wealth management. We don't set geographic boundaries. If Jeff wants to use a portfolio manager in Los Angeles because he thinks that's a better match for his client, he's able to do that. And we also don't create any products that the bank sponsors and then sells to their clients. So it's a completely unbiased perspective.

 Turning to fee income, again referral based, cross selling has been very important which has allowed us to continue to grow assets and fees. And importantly right now I think you've probably seen in the last 75 days we've had three announcements of teams that have joined the bank or individuals that have joined the bank, portfolio managers, very experienced.

 We're benefiting from some of the dislocation with other banks and their future wealth management activities. And so we've had three groups join us. We continue to see opportunities to do that, and we're attracting best-in-class individuals that can continue to expand the franchise and grow the wealth management business.

 Fee income, again in 2010 it was about 6% of our revenues. Today it's about 11.5%. We would hope for it to be more and we think as it continues to mature it will be more of our total revenues over time.

 I always get the costs section, don't I? So our efficiency ratio has been pretty consistent this year, sort of 58% to 60%. We're just about 60% for the year. We've been operating, since Gaye talked about our regulatory investment infrastructure that we made in a 57% to 61% range. And that's felt pretty good to us. It's continued to allow us to invest in the franchise and make some of the infrastructure enhancements that we needed to make as a large institution.

 A couple of things will probably push us to the upper end of that 61% target, possibly even slightly above for the next couple of quarters. One is the Constellation acquisition given it's a wealth management business it does run at a naturally higher efficiency ratio. As you can see here, the bank only, the gold bar, runs about 58%. And so that naturally would cause us to tilt up a little bit.

 And then some of the hiring that I just mentioned on wealth management there is an upfront cost to that, and the revenues typically come three to five months thereafter. So while we're bringing on clients and bringing on the advisors there is a little bit of a cost that comes before the revenues. But we think from a long-term perspective it's a very good investment to make at this point in time.

 Gaye had talked about a couple places, stability and consistency. I think this chart bears that very well on our net interest margin. Over many interest rate cycles of up and downs, we believe in this and maintaining a stable core margin over time. And we think that's good. And we're not trying to bet at one point in time on interest rates one way or the other. We think stability and consistency is very important over the long term.

 And so Jim talked about net promotor score. Deepening of client relationships. That's really what leads to all these last few charts I'm going to show you. Revenue growth of 16% very consistent with our loan and deposit growth over the past five years since we've been independent.

 Earnings per share again very similar percentage of increase since we came out in 2010 at 18% compounded annual growth rate. Importantly, tangible book value at the same time growing relatively consistently at 16% growth rate since 2010.

 And all that then equates to the last two charts here. Just some stock performance against various benchmarks and indexes. And then a historical view, I guess in 29 years we really have say 30 years at this point. Since our first IPO, sorry, 29 years in 1986.

 And with that, I'm happy to turn it back to Ryan.

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 Ryan Nash,  Goldman Sachs & Company - Analyst   [7]
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 Great. Thanks, Mike. Jim, maybe I can start with you. Can you give us an update of what you're seeing in your markets in terms of competition, loan demand, where are you seeing the best growth opportunities and is there any parts you're becoming a little bit more concerned about? And as we hopefully embark on the first rate rise in seven or eight years, do you think this will have any sort of impact on the willingness to borrow from your customer base?

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 Jim Herbert,  First Republic Bank - Chairman and CEO   [8]
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 On the latter, I'd say no. The first rate rise or even the first couple are not going to slow it down at all. Particularly our client base because they tend to be adjustable rate or [5171], not 30 year fixed. We do some of that, but we sell it.

 But Jeff maybe, Jeff Bruce is right here, and he has a very large book of business in New York. You want to talk about competition for a second?

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 Jeff Bruce,  First Republic Bank - Deputy Regional Managing Director   [9]
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 Sure, happy to come (inaudible). I don't speak very loudly. Okay. We're definitely looking at more loans for each one that we're doing the competition is tough. Some of our competitors are raising their LTVs that they're doing business at. They are thinning down some of the pricing so we're having to work a little harder.

 On the other hand, there's more opportunities out there. So we're focusing on the best of those. And those are the lower loan to values even if we need to be competitive. Historically, we've proven that that is the profitable client to take both initially, but more importantly when you look two or three years down the road they have multiples of the deposits that a client with a higher loan to value might have at the outset.

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 Jim Herbert,  First Republic Bank - Chairman and CEO   [10]
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 And that competition, Ryan, is pretty much -- that's consistent throughout the markets.

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 Ryan Nash,  Goldman Sachs & Company - Analyst   [11]
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 Consistent throughout the markets? Jim, I think many of us have been impressed just by how strong the growth has been over the better part of the past few years. You being able to sustain mid-teens growth rates. And I guess my question is how sustainable do you think these growth rates are at least over the next few years? And is there a certain size you think the bank will eventually get to where you then have to start thinking about more market expansion?

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 Jim Herbert,  First Republic Bank - Chairman and CEO   [12]
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 First and foremost, we don't have a growth target. When we get up in the morning we react to good opportunities in high-quality credit. And if there are many barriers, Jeff just described them. Then we try to do our share. If they aren't there, we don't go looking for them. Jeff does not have a growth target for the [yearlong] lending. We never give out lending targets. We haven't in 30 years.

 So we just react to opportunity and referrals. In terms of size, we're a pretty decentralized operation in a way. At the credit we're not. At closing we're not. But when it comes to how Jeff operates or Erin operates they do their business. And so our real issue of debt constraints growth is how many of them do we have? And then what is the flow of business coming to them? It's really not a programmatic centralized thing at all.

 In terms of whether the markets are going to change with a rise in rates, I think I answered that. But I don't think they're going to change very much at all. Could we get to some size where we can't keep growing? Yes, I suppose theoretically, but it's a long ways away.

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 Ryan Nash,  Goldman Sachs & Company - Analyst   [13]
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 Got it. You know something that you made reference to is reacting to opportunities. I mean clearly we've seen in the wealth business you guys have been very reactionary to some of the opportunities. I think you've hired three teams from Credit Suisse, we saw Raymond James as now buying Alex. Brown from Deutsche Bank.

 How big of an opportunity do you think this could be for the bank in terms of your ability to go out and recruit talent? I know Mike talked about wealth being 11% of overall revenues. Do you think this could be a catalyst to accelerate wealth management revenues across the bank?

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 Jim Herbert,  First Republic Bank - Chairman and CEO   [14]
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 Yes, but I mean Credit Suisse is a pretty unusual circumstance. And we've done only two acquisitions in ten years, Constellation and Luminous. We look at everything. Well, I don't know if we look at everything, but we look at a lot of stuff. But it's a cultural match, it's a geography match, it's a product-type match. Not so much product, but needs of clients match.

 The number one screen after geography is culture. And so there are a limited number of things that might fit. Having said that, we've acquired individual relationship managers, our portfolio managers rather regularly of course.

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 Ryan Nash,  Goldman Sachs & Company - Analyst   [15]
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 I guess you made reference to Constellation, but what was it in particular about that that made sense for your clients? Was it more strategic? Was it more --

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 Jim Herbert,  First Republic Bank - Chairman and CEO   [16]
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 Constellation?

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 Ryan Nash,  Goldman Sachs & Company - Analyst   [17]
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 Yes.

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 Jim Herbert,  First Republic Bank - Chairman and CEO   [18]
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 Mike, you want to answer that?

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 Mike Roffler,  First Republic Bank - CFO   [19]
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 Yes, no it was first of all a perfect geographic fit with they're based here in New York City in Menlo Park. Client base, even some overlap with the bank already existing clients. A

 And really the way they go about serving clients was very consistent with ours. With the client at the center and focused. And not reliant upon delivering a specific solution. But really client-centric focused. And so we spent a lot of time getting to know them and them us to make sure culturally it would be a good fit. And then the markets were perfect overlap.

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 Ryan Nash,  Goldman Sachs & Company - Analyst   [20]
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 One of the big themes we've talked about with a lot of banks over the course of the day is just the impact of rising rates. And I do think that when I go out and talk to investors there's still a perception that the balance sheet isn't that rate sensitive just given your legacy asset mix. And that you're high-net worth cliental will tend to be a bit more savvy than the average small checking account customer.

 Can you just talk about some of the key metrics about why you do think the balance sheet will end up proving to be more rate sensitive? Whether it's asset repricing, level of working capital needed by your consumers, or across your different verticals, and how do you expect your customer base to react to rising rates?

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 Jim Herbert,  First Republic Bank - Chairman and CEO   [21]
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 Well, let me pass that to Gaye in a second. But I need to disabuse the concept that because we do mortgage lending we're not rate sensitive. That's simply not accurate. It is to a degree accurate, but it's not core accurate.

 We have a material portfolio, and the average beginning duration is probably five years. The current duration is about 3.6. And I'll leave the other point about the growth of the portfolio to Gaye. But our clients are savvy, and they've tuned in. But they also have large working capital needs. And they are very conservative by nature so they tend to hold a lot of cash, and they do not want to get caught short. And that's at the individual level. At the corporate level, most of our largest clients as you saw from the lending side but it parallels our nonprofit's funds.

 And the funds don't really have any working capital. It's called money going out to a deal or money coming back from a deal, it doesn't sit in the fund. So the cylinders -- and we have 2000 of them. So we have a lot of cylinders. And so there's a core amount moving at all time, about $1.5 billion to $2 billion.

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 Gaye Erkan,  First Republic Bank - CIO   [22]
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 So after Jim's comments let me just describe quickly a few of the drivers of the balance sheet rate sensitivity. So the most obvious one obviously the adjustable rate loan. So we have about 35% of the portfolio adjustable within a one-year timeframe. Number two is the checking, 60% of checking. Out of that more than 60% of that 60% is actually non-interest bearing checking. And the 50/50 split between business and retail plays into what Jim just mentioned.

 Putting those obvious ones aside for a second and talking about the growth. So when we're comparing a loan growth in mid-teens. Call it 15% hypothetically. Compared to a 5% growing bank and that's the 10% additional reprising power just by the difference. As well as our clients not only tend to have the ability but also the willingness to prepay. So faster loan prepayments.

 If you bake that in as well, you easily get to 10% to 15% of additional beyond and above what an average bank will see of a repricing. In addition to that, some of the relatively significant levers we do have additional HQLA to buy. We do have the flexible sales timing. And as you can see our HQLA yields has actually even picked up from the second quarter to third quarter.

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 Ryan Nash,  Goldman Sachs & Company - Analyst   [23]
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 Got it. Jim, one of the things you talked about in a recent presentation was the fact that if we got let's say two rate rises you'd probably only see deposit costs going up in a couple of -- let's say 5 to 7 basis points was the number you used. But I think you did mention that you saw that 200 basis points as dynamic changes. Why do you think -- and I know it's not an exact science at the level, but why do you think at or around that level it starts to change?

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 Jim Herbert,  First Republic Bank - Chairman and CEO   [24]
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 Well, it's kind of what matters. One percent is a lot more than a half, and it's not just 50 basis points more. It's kind of psychological. I mean most of the world operates at some form of retail actually no matter how sophisticated people seem to get, $1.99 is less than $2.

 And so I think that's part of it actually surprisingly enough. It sounds simple, almost stupid but it's the way it's going work. But I think the other thing is that we have given our balance sheet we have excess deposits that we're sweeping out. And as a result we can pull them back when we need them. And so we have a spring. We have a gap. A couple billion dollars of if those went out, we'll pull these in so we can maneuver for a while. And that gives us an extra margin for error that Gaye hasn't mentioned.

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 Ryan Nash,  Goldman Sachs & Company - Analyst   [25]
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 Maybe one question for Mike, I mean the past 18 months have been very heavy investing period for the bank both on the regulatory side and also on the growth side. And that's led to mid-teens expense growth over the last year. As we've heard from a lot of your peers across the industry a lot of these regulatory costs do end up sticking around, but we're not seeing huge upward move on them at least relative to today's levels. How do you see the investments in growth or across the firm evolving over the next 12 to 18 months?

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 Mike Roffler,  First Republic Bank - CFO   [26]
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 You know I think from probably the early to mid part of '14 through the middle of this year much of our investment dollars was in the regulatory infrastructure and enhancements that we needed to make in those areas. And sort of the middle part of this year, I think the investments started to be more balanced between continuing to grow that as appropriate for a larger bank, but then also starting to invest in continued revenue capabilities.

 So you've seen it most visibly in wealth management recently, but there's also lots of work going on in technology from a client-facing standpoint to better deliver the client experience to our clients. And I think we'll continue to make those investments as we see sort of revenue opportunities in the future.

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 Ryan Nash,  Goldman Sachs & Company - Analyst   [27]
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 So just to follow up on that, Mike, you talked about investing in revenue capabilities in wealth. Can you just talk about when you bring on a wealth team because clearly that's been one of the things you've highlighted on why it's going to weigh on the efficiency ratio. Can you talk about the economics behind it, how long it takes to bring over assets, how long it's to break even, what does the IRR of a typical wealth team look like over a several year period?

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 Mike Roffler,  First Republic Bank - CFO   [28]
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 So I'll start with maybe the middle. The assets -- this [answer] might be a little bit different because they're leaving. But usually it's sort of a four to six month period [lull] to get all the assets and clients moved over. That may be a little bit quicker in this case because there's not really a firm grabbing at the clients any longer like there could be somewhere else.

 So the first quarter to two quarters is a bit of an earnings drag on a net because you start paying the people. In some cases you had a recruiter. If they have a team of people, you may have some sign-on type expenses that you take up front. And so in probably that maybe third quarter is when the team will become profitable because they've established their asset base and they can now bill on that.

 And then it will cover their costs. And once it gets to that point the returns are probably above our overall wealth management margins at the marginal level ignoring sort of back-office elements. But just that part will be additive once we get there.

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 Ryan Nash,  Goldman Sachs & Company - Analyst   [29]
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 Thanks. Maybe we have time for one or two questions from the audience if there are any. No? All right, well please join me in thanking the team from First Republic.

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 Jim Herbert,  First Republic Bank - Chairman and CEO   [30]
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 Thank you all very much.

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 Mike Roffler,  First Republic Bank - CFO   [31]
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 Thank you very much.

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 Ryan Nash,  Goldman Sachs & Company - Analyst   [32]
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 Appreciate it.




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