First Republic Bank at Goldman Sachs US Financial Services Conference

Dec 07, 2016 AM EST
FRC - First Republic Bank
First Republic Bank at Goldman Sachs US Financial Services Conference
Dec 07, 2016 / 08:20PM GMT 

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Corporate Participants
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   *  Mike Selfridge
      First Republic Bank - Senior EVP, Chief Banking Officer
   *  Mike Roffler
      First Republic Bank - EVP and CFO
   *  Michele Celestino
      First Republic Bank - Senior Managing Director

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Conference Call Participants
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   *  Ryan Nash
      Goldman Sachs & Co. - Analyst

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Presentation
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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [1]
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 All right. Last and certainly not least, fresh off its Investor Day and a Cubs World Series win for Mr. Roffler, we are pleased to have First Republic joining us once again. First Republic has continued to have best-in-class growth across its urban coastal markets. In addition, it recently completed another successful equity offering which should position it well for further growth.

 Here to tell us how they're going to continue to drive this kind of growth is Chief Banking Officer, Mike Selfridge, and Chief Financial Officer, Mike Roffler. I'm going to pass it over to Mike Selfridge, who's going to kick it off.

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 Mike Selfridge,  First Republic Bank - Senior EVP, Chief Banking Officer   [2]
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 Thank you, Ryan. And thank you for joining us. Mike and I are delighted to present here today to you. And we're also joined by Michele Celestino right here in the front. She's a senior managing director in our New York office right here in Rock Center.

 So, let me run through a few slides here.

 Talk a little bit about the third quarter. We had, we think, a very strong third quarter. Deposits were up 24.2%; loan growth, 17.6% year over year; and tangible book value, up 13.5% year over year.

 Origination activity was very strong, at about $6.5 billion. That was our second-best quarter in the history of the organization, only surpassed by the prior quarter, the second quarter, which was our first-best quarter. The pipeline, as we said in our earnings call, going into this quarter was strong.

 And as Ryan mentioned, we recently, in November, did a common stock offering for about $325 million. We issued 4 million shares. And we also announced the redemption of our Series A preferred stock.

 So, when you step back and look at First Republic and what we're doing day-in, day-out, it really is a client service organization, and at the hallmark of what we do it's a differentiated business market. Very simple in our approach. Very focused. And operating in outperforming markets in urban coastal settings. Strong culture that ties into credit as well as client service orientation. And consistency over the long run.

 The model itself, if you look at our approach, we have relationship managers that really serve clients not only for years but, in some instances, decades. And if you look at the activity that someone like Michele does here, who's been in a market like New York, she is the single point of contact for her clients. And unlike other organizations, we tend not to segment the world or silo our organization. Michele will always serve as that single point of contact regardless of client size or even a geographic relocation.

 I'll talk a little bit about how that translates into growth for the organization. We have incentive structures that are really centered not around unit sales, but volume sales. And there's a large deferred component to our compensation that really is designed to incent the longer-term relationship of what a client does with First Republic.

 Our markets in which we operate, again, very focused, carefully selected urban coastal markets. About 79% of our markets, on the top three lines here -- that would be San Francisco or the Bay Area, New York, and Los Angeles -- have outperformed the broader US economy; most of our markets have over an extended period of time by, on a composite basis, about 42%.

 The opportunity for us, we believe, is quite significant. One proxy, and not the only proxy, but one proxy for penetration of households in our markets is the high net worth households. And some of you are familiar with the Capgemini study that we do every two years to look at our penetration of high net worth households in our urban coastal markets. This would be defined as those with $1 million or more in investable assets.

 The interesting thing to note here is that while the penetration rate itself, if you go back 12 years, has gone up modestly, from a little over 3% to a little over 4%, the absolute increase on a compounded annual basis in those high net worth households has increased at about a rate of 13% per year.

 And more interestingly is looking at the composite market penetration of 4%. That gives us great opportunity to grow as we look forward. Also, coupled with that is the fact that about 58% of high net worth households reside in the markets in which we operate.

 As I mentioned, the hallmark of what we do is really extraordinary service, and that's what we do when we wake up in the morning. We serve clients, and the entire organization is devoted to this. One metric that we use commonly is called a net promoter score, really just measuring client loyalty and satisfaction: what percentage of your clients are extremely loyal and satisfied and would refer on an unsolicited basis a friend or colleague to your organization.

 If you were to look at the banking industry, about 35% of the banking industry's clients are completely satisfied and passionate about their organization. For First Republic, it's almost two times on a composite basis, about 62% of our clients being overall satisfied.

 But the important message here is if we are the lead provider of, say, business banking, private banking, or private wealth management, our net promoter score jumps to about 77%, and that puts us in a different category. It compares us to some of the most extraordinary brands in the world, those like Apple and Ritz-Carlton and Mercedes-Benz. This, again, is the foundation of who we are.

 Growth really translates into clients who get trial and bring us more business, and then they refer their friends or colleagues. So, on this chart, if you were to look at the left side here, the negative 2% on the bottom of the left bar represents the churn that we get. We do get some churn in our clients. But the industry average is about five times greater than that; so, the industry average is about 10% churn.

 Importantly, though, if you look at the next bar up, which is 53%, that is the amount of growth that we get each year from our clients bringing us more business. And then what happens is, as I said, they refer their friends or colleagues, and that's another 26% of our growth rate right there. So, you have nearly three-quarters of our growth built in to the extraordinary service model, and it's all organic.

 Credit is a pillar of what we do. We have an extraordinary credit track record. Since inception, we have originated over $162 billion in loans, and our cumulative charge-off ratio of that $162 billion is about 20 basis points.

 Looking at the last 15, almost 16, years, our overall net charge-offs have been about 10 basis points. If you were to look at the top 50 banks in the United States over the same period of time, that number would be about 48 basis points. This is through a few cycles, as well.

 And then, on the home loan side, even more impressive: 3 basis points over the same period of time, whereas the top 50 banks had about 40 basis points in that charge-offs for home loans.

 Consistency of geography, consistency of loan portfolio, the markets in which we operate, again, not a lot of variation. This just shows you that San Francisco, New York, and LA, as I mentioned, back in 2000 were about 81% of our geographic focus, and today about 79% in terms of the loan geographic mix.

 Loan portfolio mix, mortgages have predominantly been our way to bring in a new household. And if you go back to 2000, that was about 49% of our loan portfolio. More recently, it's 51%. So, again, not a lot of change in the mix of our loan portfolio.

 Very conservative underwriting in many different cycles. The median home loan is $760,000, 60% LTV. If you look at income property, again our commercial real estate and multifamily median loan amounts tend to be lower than $2 million. Our loans are conservatively underwritten, both in terms of cash flow coverage with recourse. And we really stick to what we know, and we don't change our approach to underwriting despite what competitive pressures might do.

 We will be competitive on price, and that's a relationship-based pricing approach that we have. But on the credit side, we really stick to our knitting.

 Same story with single-family home loan characteristics. Again, as of the third quarter of 2016, last quarter, the median loan size was $760,000, but strong FICO scores; low loan to value, as I mentioned; and liquidity.

 The interesting thing, in some of our markets, as we've said, we've pulled back just a little bit in terms of being a little bit more conservative in our underwriting in anticipation of perhaps a plateauing or moderation of values. And so, if you were to look at our real estate segments and our loan to values at origination, as compared to when we divested out of Bank of America, we have become a little more cautious, and we messaged this about 14 to 16 months ago. But in some areas, like multifamily lending and HELOCs, you can see our loan to values have become more conservative over the last six years.

 Banker stability goes back to the net promoter score and the extraordinary service. Our bankers have been in our markets and doing what they do day-in, day-out for years. Of that $162 billion of loan originations, about 90% of that was originated by bankers still with us today. What clients like is certainty of banker relationship. And if they need something, they want to know who to call. And that's where we deliver.

 We think a lot about the next generation of First Republic clients. And while I mentioned that the home loan was often the product that brought a new household into First Republic, we have been thinking more about the next generation of household. And there's two products that are of particular noteworthiness.

 Professional loan programs are programs that are designed for professionals at venture capital firms, accounting firms, law firms. When one is to buy into a partnership, we want to be there to bring them into First Republic, and we'll give them a loan to allow them to buy into the partnership. The average loan size here is about $226,000; average age, 40; strong FICO. This has now brought us about 2,200 households into First Republic, new households, and that's a quite significant number for us.

 But I want to pause philosophically and talk about something else, and that is student loan refinance and a program that we call All-in-One. And if you were to look at the student loan outstandings in America, it's something like $1.3 trillion and 44 million Americans with student loan debt. It's something that needs to be addressed, and we want to do our part.

 And so, we're very excited about a program that we launched only a few years ago, and that was to refinance these student loans for those that might be perhaps a few years out of graduate school, located in our urban coastal markets. And we would like -- if you look here, you see the average age is about 32. So, we're, in a sense, meeting our future household about 10 years prior to when they might have discovered First Republic Bank. So, this has really been an acceleration strategy of getting into these new millennial households.

 But more importantly, in terms of doing our part, we offer very attractive interest rates, and we can save these households hundreds of dollars per month, and that is a significant amount of money when your average age is 32 and your average loan outstanding for these student loans is $134,000.

 So, again, look at the number of households we've brought in to First Republic through this All-in-One program: almost 5,000 new households and ample opportunity for us in our current markets. But again, we're very excited about this, and it has great future prospects for us.

 So, with that, I want to turn it over to Mike Roffler. Thank you.

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 Mike Roffler,  First Republic Bank - EVP and CFO   [3]
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 Great. Thanks, Mike. I'll go through a few numbers here quick.

 What Mike talked about with culture and service and working with existing clients and doing more with them, that really results in what you see here: strong growth in both lending and deposits over the past almost five years at 18% and 21%, respectively.

 Turning to our deposit base, we're largely deposit funded, with nearly 90% of our funding coming from the deposit base. We do use longer-term, fixed-rate advances from the Federal Home Loan Bank and a little bit of public debt in the form of unsecured senior and subordinated debt. That helps both diversify funding and also term out some of our funding to help us in a rising-rate scenario, which we seem to have gone into.

 Deposit base is very diversified. It's split between what we call the office channel, preferred banking offices; preferred banking, which usually works with someone like Michele here in the front row; and then, another important contributor has been the wealth management as it's grown in size. We have sweep accounts from clients who have money in their brokerage account that's very stable, diversified that becomes an important part of our deposit base over time.

 Relatively split between business versus retail, in terms of deposit diversification also.

 This is probably something that actually is changed over time, and we'll talk about this a little bit in a minute when I talk about interest rates. But the mix of deposits since 2000, much more in checking than we had back then. 2000, we were about two years into the start of the Bank you see today after we took our first checking account. And so, that's continued to grow over time, largely driven by both business banking and individuals who are now doing their full banking with us.

 When we've added things like personal checking, wealth management, business banking, it's usually been because we did such a great job from a service perspective with the home loan that clients asked us to do more. And so, we kept doing more.

 Business banking really started about 2000, and you can see here very strong growth over the past five years. And, importantly, a great source of funding at a low cost. Over 4-times deposit-to-loan ratio. So, that's a great source of funding for the Bank.

 The business banking loan portfolio, we really focus on verticals that we're comfortable with. We're not the typical C&I lender. The two biggest verticals you see here are loans to non-profits and private schools that are within our markets, and then loans to private equity and venture capital funds. And these would be -- they're collateralized loans, typically short-term capital call lines of credit. So, bridging the ultimate call of capital to their limited partners that allows them to aggregate and maybe only go to the partner once a quarter, but allows them to make timely investments or calls as they need to.

 Wealth management. A continued focus and has been growing very well, actually a bit more than the Bank has for the past five years. I guess a year ago when we were here we were in the midst of just closing an acquisition with Constellation and hiring individuals from Credit Suisse as they began to leave the US market from a private wealth perspective.

 Those integrations have gone very well. They're co-located with our people. They're sitting next to Michele in Rock Center and, importantly, we're working together and they've assimilated to the culture very well. And it's been a very success, and that's some of the result you see in growth in assets in both fees for the year.

 And importantly, from an overall contribution perspective, the wealth business continues to grow in importance. So, six years ago, it was about 6% of our total revenue, and today it's roughly double that. It probably will continue to become a bigger part of the pie.

 One of the challenges has always been that the Bank business has continued to grow at relatively good rates, mid-teens. And so, to make a dent, you go a little bit more into wealth. We like it. It's capital efficient and a good source of diversified revenue, also.

 Efficiency. One of the things with First Republic -- and Mike said this -- stability and consistency over long periods of time is very important to us. This is an example of that. We feel really good in a low 60%s efficiency ratio, because it allows us to continue investing in the franchise for some of the opportunities Mike mentioned where we have a pretty low penetration in our markets. There's opportunity to do more. And we think we can deliver good returns while continuing to invest in technology, people, and overall client service, because ultimately that allows us to continue to grow over time.

 And this also represents the time when we were investing to be over $50 billion in total assets, the early part of this period.

 Net interest margin. Again, a focus on stability, over all different rates in a cycle. You can see here going back about 15 years. Relatively stable between 3% and about 3.3%. A few years, we were above that.

 But really, we're not trying to bat one way or another. We run a match book for the most part, be slightly asset sensitive, and be prepared to benefit if and when rates do rise.

 And we break that down a little bit here on the next page, and I'll cover a few of these things and I know there might be some questions about it. I might talk about numbers 3 and 4.

 Number 1, I talked about. This is the change in the deposit mix where we've become much more checking based than in the past. And that's operating money. That's used in the operation of businesses or also in households. And so, we feel that that has a little bit more of a lag when rates do move.

 But in the loan portfolio, while we're seeing as the home loans and HELOCs is 57% of our loans, almost 40% of our loans actually either float today -- so, about 25% float today -- and then another 14%-15% will mature within a year. And so, that gives us repricing much faster than many would think of from a loan portfolio.

 And then, the second part of that is really number 4, here. A growing balance sheet also allows you to reprice a bit more quickly than one that's maybe growing at 5%. So, over the last 12 months, we grew about $7.5 billion of loans, and that's in a relatively normal rise rate environment; sort of, you're pricing at market.

 Well, underneath that we rarely have gone below a 10% payoff rate, if ever, even in a rising-rate environment. So, to grow 15% while you're having some repayments in -- I'm going to use the prior presentation -- the back book, you get the loan portfolio repriced to market relatively quickly.

 So, you'll see our benefits from a rising rate more in the second year than the first. The first year is modest; the second year picks up a bit. And that's a reflection of the way the loan portfolio over time grows.

 Revenue growth. Everything we've talked to sort of leads to strong revenue growth over the last several years, along with corresponding earnings per share growth.

 I'm going to go to one last slide maybe and talk briefly about regulatory, but I know Ryan will have a comment about it. So, here towards the back, we did invest a lot starting in early 2014 in the regulatory in preparation for becoming a $50 billion Bank. On the right side of the slide here, the current activity, a couple of those will be wrapped up here at the end of the year, including the living will and the high quality liquid asset build-out.

 Fundamentally, these things have made us a stronger institution, and we've invested. It's made us better and safer, and we've gotten a lot of value out of it. And what can't you get better out of knowing your client better?

 And so, when we think about the future spend rate, what probably happens is the pace of growth moderates a bit, because we've built the stress testing out. You may not have to add as much to it if there were to be some form of regulatory relief. But fundamentally, a lot of these things have made us safer and stronger. And so, we would continue them.

 We did stress testing before we had to. Maybe you don't have to have 1,200-page submission any more, but you still will do it, and we'll learn from it. And so, I think if anything the growth in that type of cost is probably less in the future, but fundamentally it does make us stronger.

 And with that, I'll stop, and Ryan can give us a few questions, if that works?

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Questions and Answers
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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [1]
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 Great. Mike, Mike, thank you very much for the presentation [and joining us].

 So, I guess a couple of things that I wanted to hit on, some of the big themes of the conference have been regulation, interest rates, and the ramifications. You ended with that slide on all the things that you guys have done over the last few years.

 Now, clearly, there's talk of changes that are coming. You guys sort of sit in an interesting spot where you're above $50 billion in assets, you're not technically a CCAR bank because you don't have a holding company.

 But as you've gone through and looked at all the regulations that have been put in place -- I'm not going to ask you which ones do you want to change -- but which ones have had the largest impact on the organization, whether it's from a compliance perspective, a financial perspective -- clearly, something like LCR has been a popular one that a lot of banks have pointed to -- greater control of capital? What would you say would be the two or three biggest things that have had the greatest impact on the organization?

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 Mike Roffler,  First Republic Bank - EVP and CFO   [2]
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 Clearly, building a liquidity portfolio. If we took you back to about two or three years, there was not a large HQLA portfolio on the balance sheet. We've actually found that to be relatively attractive, especially when you compare it to mortgage lending. The yields have been not that dissimilar and you don't have necessarily the cost that goes with it. So, we've been able to find a pretty good investment.

 And we think, again going back to where I ended with a stronger balance sheet, a stronger Company, with the level of deposit and the growth that we've had there, we think it's good to have some of that liquidity on the balance sheet. And so, that has been a good investment for us.

 And the build-out sort of in regulatory, clearly, we've added a lot more quantitative people, modeling expertise. And actually, we get benefit from it, not just in DFAST but in other parts of looking at the Bank. And so, that's been a great sort of add to our team in terms of their knowledge in quantitative capabilities to help us run a better Company. But it's been a big place that we've invested, we think, wisely in.

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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [3]
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 Another area that's gotten a lot of attention at the conference has been corporate tax reform and the potential to move tax rates from -- pick your level -- 35% down to, let's say, 15% or 20%, some of the numbers that have been thrown around.

 I guess, Mike, a technical question, for you. You guys are in the, I think, 17% to 20% range. We had done some work on it that you guys benefit a lot from the tax credit investments. You benefit from the fact that you own municipal securities which gives you -- you don't pay tax on those. If we are to get corporate tax reform, would this be a net benefit to First Republic?

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 Mike Roffler,  First Republic Bank - EVP and CFO   [4]
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 In a couple of ways, I think it would.

 Just directly, let's say it goes from 35% to 25%, our effective tax rate would go down, not as much as probably other banks that may have spoken or answered this question with you, because we've really optimized through the things you mentioned: municipal securities, low income housing tax credits, some of the lending we do to non-profits and private schools. So, we think, if you did it on September year-to-date numbers, about a 4% to 5% lift in earnings per share just based on that flat change in the rate.

 The one thing that would benefit sort of the market, in general -- and you've probably heard this from others -- is the impact it would have on businesses and consumers. And the individuals in our market, the businesses in our market, would all lead to sort of more spending power possibly or more investing power. So, wealth management could benefit from that. And so, I think that benefit, also sort of a pro-growth outlook, would benefit sort of people's optimism also towards investing and buying.

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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [5]
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 Mike, one of the big things that's changed since the Investor Day is, obviously, with the election, and we've had a really big move in interest rates. One of the comments that was made at the Investor Day was the sustainability of originations, just given how strong the growth profile is across the markets.

 Interest rates have moved a lot. Can you talk about expectations across your markets? And I want to break it down into three things -- purchase mortgage, refi, and then non-mortgage activity -- how you're thinking about that across the markets.

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 Mike Selfridge,  First Republic Bank - Senior EVP, Chief Banking Officer   [6]
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 As of right now and even post election, the pipeline is strong and activity is good. There might be a little bit of a rush to lock in some duration now in terms of consumer behavior. It hasn't impacted business banking side all that much as of toady.

 But in terms of refi activity, if rates continue up that activity could slow. Having said that then, we operate in these very vibrant markets and our clients transact a lot, regardless of cycles. And so, with rates going up, presumably the economy is doing better and there would be more activity, most likely tilting towards the purchase side.

 And then, I go back to that market penetration. There is a lot of opportunity for us to be out there in the markets and find new households to bring in to First Republic.

 So, I feel good about our position in the markets and the opportunities ahead.

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 Mike Roffler,  First Republic Bank - EVP and CFO   [7]
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 And the thing I'd add on that, too, is the differentiation you started with, the service proposition. In a purchase market, that really matters. A refi is somewhat transactional, depending on if you're switching banks or not. And so, there, it's about just getting done.

 But in competitive real estate markets like the ones we operate in, where there's -- what, Michele? -- three bids on a house, the importance of closing in 21 days is really important, and that's where the service model really, really matters, is in a competitive purchase environment.

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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [8]
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 Mike, the expectation had been for the margin to be under some pressure, just given where interest rates were. Correct me if I'm wrong. I think you're at about 10% on the HQLA build, getting to 12%.

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 Mike Roffler,  First Republic Bank - EVP and CFO   [9]
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 Yes.

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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [10]
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 Mortgage rates had been under pressure when yields were so low. We've seen a really, really big move in mortgage rates. And I remember, historically speaking, when rates are really low, your customers tend to go after 5 and 7 and 10/1 ARMs. And when rates go up, they tend to maybe move down a little bit in duration. I've done the same thing myself in the past.

 I guess, have we seen a large enough move in longer-term rates knowing that you've said a steep curve for the margin historically is pretty good? Have we seen a big enough move that we could start to think more towards stabilization in terms of margins? Or, are there other dynamics that we need to think about?

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 Mike Roffler,  First Republic Bank - EVP and CFO   [11]
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 Well, I think one is it will take a little bit, because the loans closing today were probably locked pre-election and that will go on for a little bit. But I think there's definitely been a move, and recent locks would tell you that we've moved up a little bit. And I think the 5 and 7 splits are still pretty similar, not much change. But if this continues, you'll see more people in the five-year bucket, I would say, over time. Because historically, until rates got really low, I'd say that was probably our most popular offering.

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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [12]
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 Maybe one last question on interest rates. I have a couple of strategic questions I want to ask Mike. When we think about your customer base, you put up that nice slide that had all the information on the different buckets of interest rates: 61%, being checking.

 The first move we hardly saw anything in terms of deposit repricing. I think most companies who have spoken at the conference have said similar expectations for the second one. You guys, I will say, have -- I'll try to use a politically correct word -- a more sophisticated customer base. That said, I know Jim's talked a lot about a lot of checking accounts really are working capital, people who have big expenses.

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 Mike Roffler,  First Republic Bank - EVP and CFO   [13]
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 Yes.

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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [14]
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 So, how do you think about the impact of, one, the next rate move in terms of repricing? And then, when do you think we start to see the delta pickup, given most people at the conference are talking about two to three rate rises each in the next two years?

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 Mike Roffler,  First Republic Bank - EVP and CFO   [15]
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 It's interesting. You're right: last December, it was like nothing happened from a repricing perspective. Probably similar view on the next one, similar to your other participants in the conference.

 It feels to us like a good round number of 1%, sort of that will resonate will people. Think of like a retail concept a little bit. And so, we think there you could start to see the discussions pick up and accelerate a little bit.

 But I think you're right: probably more of a sustained couple of moves and that -- yes, this is real -- before it really starts to kick in.

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 Mike Selfridge,  First Republic Bank - Senior EVP, Chief Banking Officer   [16]
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 It's interesting. I do think there is a certain amount -- if you looked at our 10-Q that Mike was kind enough to get through and publish, the beta on the checking account deposits over all is about 50%, and that feels conservative when it comes to modeling repricing of deposits.

 To your point, now with this First Republic balance sheet as compared to, say, 15 years ago and the mix now tilted toward business banking, a nice diversification of business and consumer. And as you said, Ryan, this working capital, these flows, these are active clients that have been putting money to work for several years now. And so, I don't believe there's a lot of dead cash sitting around idly chasing 25 basis points.

 The other thing to keep in -- at least in the business side, we have an earnings credit rate. So, we're philosophically not an organization that likes to charge clients a lot of deposit fees. And so, to get rid of these nuisance fees, one of the things we do on the business checking side is we offer a very healthy earnings credit rate of 1%. And in comparison to the market that on average is about 25 basis points, there's some opportunity there to create a little more stickiness in the DDAs.

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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [17]
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 (multiple speakers) Maybe a question for you, Mike, and maybe Michele could chime in, too. One of the questions we've been asking a lot of the companies is just the degree of optimism across the markets, corporate confidence post the change in Washington. Can you maybe talk about what you're seeing across your markets, whether it's on the consumer side or the commercial side? Maybe Michele could comment on (multiple speakers)?

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 Mike Selfridge,  First Republic Bank - Senior EVP, Chief Banking Officer   [18]
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 Michele, you want to talk about your clients here in New York and what you're hearing and seeing?

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 Michele Celestino,  First Republic Bank - Senior Managing Director   [19]
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 Sure. Just by way of introduction, I'm a relationship manager and team leader here at New York in our Rockefeller Center headquarters, and I've been with the Bank for 15 years.

 People are fairly optimistic. Whatever gets actually through the pipes of Washington, we'll see. But any change in personal or corporate tax rate, any stimulative effect that any of the initiatives might have is always a good thing, and I think that's starting to resonate. What actually ends up happening, no one will really know.

 And I think people are just generally optimistic and that it's business as usual and full steam ahead. And us, too. Our clients are sophisticated, aspirational people and everyone is hard at work, and that won't change regardless of what goes on.

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 Mike Selfridge,  First Republic Bank - Senior EVP, Chief Banking Officer   [20]
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 And I think that's a consistent theme across all of our markets. Mike touched on perhaps the changes in the tax code and what that could mean for consumers in our markets as well as businesses. For consumers, more disposable income, more opportunities to invest, perhaps wealth management opportunities.

 If you look at areas that are in discussion like the repatriation of almost $2.5 trillion of cash for corporations that have cash overseas, if that were to come back about 60% of that would go in the coffers of companies located within our urban coastal markets. And what effect could that have? That would perhaps be positive for things like M&A, maybe some dividends or stock buybacks, which again buoys things a little bit more than in the past.

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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [21]
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 I wanted to follow up on a point that you made regarding the Eagle All-in-One and (inaudible) the professional loan program. You rolled this product out in December of 2015. It's $665 million, growing fast. You referenced $1.3 trillion of student loans. And clearly, that is a market that is well beyond the size of what you guys are targeting.

 But I'm just trying to get a sense. When you look across the student loan market and you try to think about the demographic, the customer base that you're going for, how big of an opportunity do you think something like the Eagle All-in-One program is as a channel for customer acquisition?

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 Mike Selfridge,  First Republic Bank - Senior EVP, Chief Banking Officer   [22]
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 Well, first and foremost, credit quality is very much in check as it relates to this product. And then you get to, as I showed you, some of the statistics of the average age, the high FICO scores, average loan balances being modest in relation to other things that we do. The opportunity is, frankly, quite extraordinary in our markets.

 And we are looking at it as not just loans, but households and the opportunity to bring these new young households to First Republic. So, we are very much committed to this and we're doing our part, as I mentioned, and we think the opportunity is significant.

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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [23]
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 Does using this as an acquisition channel reduce the cost of customer acquisition? Or, does it increase it, if you think about the forgone interest costs relative to what it would cost you to acquire?

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 Mike Selfridge,  First Republic Bank - Senior EVP, Chief Banking Officer   [24]
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 In my opinion, the household stays for generations, potentially. The loans come and go. And it's interesting. In some instances, where we could save a household $300 or $400 a month, that could be somewhat life changing. But in some instances, the consumer behavior is actually to prepay the principal down. So, duration is actually less.

 And what do we have left? We have a great new household for First Republic for the next few decades. So, the acquisition cost is -- I would say it's less.

 And also, we've invested on the technology front to make it more efficient, not only in terms of the estimate of what your loan payments would be for the new prospective client but also the ability to apply for the loan and have a fairly straight-through process to get it done, again abiding by the same credit metrics that we always have.

 So, I think we're very efficient in the household acquisition of this product.

 And also, word of mouth is setting in, and I can't tell you how important that is as it relates to this All-in-One product. The word of mouth, friends telling other friends about this great opportunity at First Republic in our markets.

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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [25]
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 Maybe one last question from me, and then I'll see if the audience has maybe one question. Mike, you guys just did a capital offering that Mike alluded to, raising common equity. I know Jim alluded to the fact you guys want to be well positioned for the next 18 to 24 months. So, for the people in the room and on the webcast, I will ask you, do you now feel well positioned for the next 18 to 24 months?

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 Mike Roffler,  First Republic Bank - EVP and CFO   [26]
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 We do feel well positioned. You're right, Ryan. Philosophically, if you go back, the first Bank pre-Merrill and now, we've always believed in small bite-sized approaches to capital. And usually what that means is we think the outlook looks good. The markets are strong, clients are active, and we have future opportunities. And so, we want to make sure that we're well capitalized in all scenarios to do that.

 And obviously with the post election -- I said this earlier today -- there's been multiple banks that have accessed capital markets, and I think they've mostly been for offensive reasons versus shoring up. And we think that's good and healthy.

 So, we feel like we're in a good place now and it really supports our sort of future outlook.

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 Ryan Nash,  Goldman Sachs & Co. - Analyst   [27]
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 Great. I'm just going to see if maybe there's one question from the audience that we could take. If not, we'll end it there.

 All right. Great. Well, please join me in thanking Mike and Mike.




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