Earnings Call: Q2 2021

Jul 13, 2021

Greetings, and welcome to First Republic Bank's Second Quarter 2021 Earnings Conference Call. Today's conference is being recorded. During today's call, the lines will be in a listen only mode. Following the presentation, the conference will be open for questions. I would now like to turn the call over to Mike Gianelli, Vice President and Director of Investor Relations. Please go ahead. Thank you, and welcome to First Republic Bank's 2nd Quarter 2021 Conference Call. Speaking today will be Jim Herbert, the Bank's Founder, Chairman and Co CEO Gaia Erkan, Co CEO and President and Mike Roefler, Chief Financial Officer. Before I hand the call over to Jim, Please note that we may make forward looking statements during today's call, which are subject to risks, uncertainties and assumptions. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward looking statements, Please see the bank's FDIC filings, including the Form 8 ks filed today. All are available on the bank's website. And now I'd like to turn the call over to Jim Herbert. Thank you, Mike, and good morning, everyone. It was another very strong quarter With robust growth in loans, deposits and wealth management assets. Our client centric business model is Continuing to perform very well across all of our segments and all of our geographic markets. Since 1985, First Republic's success has been grounded in colleague empowerment and a service culture of taking care of each client one at a time, while operating in a very safe and sound manner. This straightforward and personal approach Has led to very consistent organic growth for 36 years. The growth is not predicated on mergers or acquisitions. Let me review for a moment the results of the Q2. Total loans outstanding were up 18.9% year to date annualized. Total deposits have grown 37% year over year. Wealth Management assets We're up 55% year over year to a total of more than $240,000,000,000 This across the board, Very organic growth drove our strong financial performance. Total revenue year over year has grown 34% And net interest income was up 27%. Quite importantly, tangible book value per share increased 15.5 The safety and soundness of the First Republic franchise continues to reflect our strong credit quality. Net charge offs for the quarter were only $1,200,000 just a fraction of a basis point. Non performing assets at quarter end We're only 8 basis points total assets. We remain as always focused on capital and liquidity. At quarter end, our Tier 1 leverage ratio was 8.05% and our HQLA was 14.3% of total average assets during the Q2. This included higher than normal cash levels. Our clients remain very active as the reopening of our urban coastal markets takes hold. This is particularly evident in the strong growth of single family home loans during the quarter and so far this year. This growth represented a substantial portion of the quarter's total loan activities, including both purchase and refinance. For some perspective on the long term stability of First Republic's model, Residential loans have remained steady at approximately 60% of our loan portfolio for the entire past 2 decades. This is a very safe asset class, particularly with our stringent underwriting standards and is a key to us attracting new households. During the Q2, we opened our 1st banking offices in Hudson Yards. Clients Are responding well to our presence in the area and food traffic has been actually quite good. Our other new markets, including Palm Beach and Jackson, Wyoming Continue to perform very well. Overall, it's been a strong and successful first half of twenty twenty one. Before turning the call to Guy, I'd like to take a moment to congratulate her on her appointment as Co CEO. Guy has been an invaluable contributor to our performance And I'm really delighted to continue our successful partnership at this new level. Working together, we intend to ensure the consistency of First Republic's culture, which is particularly important as we emerge from the pandemic. Now let me turn the call over to Guy Ercon, Co CEO And President. Thank you very much, Jim. I'm honored to be appointed co CEO and continue to serve this truly Special organization alongside you and our leadership team. We will work hard to keep scaling our people first culture with an unwavering focus on safety and soundness and doing more of what we do best, delivering exceptional service to our clients. I'm excited about opportunities ahead and look forward to continue to work with all of our extraordinary colleagues at First Republic. Turning to our earnings results, it was a terrific quarter that reflects our continued focus on safe, sound organic growth. Our top priority as an organization is taking care of our exceptional colleagues and empowering them to provide unparalleled client service. Our client satisfaction results in exceptionally low client attrition, which in turn fuels our growth through repeat business and client referrals. Happy people lead to happy clients and the more happy clients we have, of our safe organic growth comes from these sources. Over the past several years, We have continued to make strategic investments in technology and risk infrastructure. These investments allow us to scale our service model, while keeping our bank safe and sound. Our digital and tech investments are geared towards minimizing transactional time to create more time to build further trust and deepen relationships with clients and to serve our communities. Let me now provide some additional comments about the quarter. Loan origination volume was $15,800,000,000 our best quarter ever. I would note that the weighted average Loan to value ratio for all real estate loans originated during the Q2 remained conservative at 58%. Single Family Residential volume was $8,700,000,000 also a record. Refinance accounted for 49% of single family residential volume during the 2nd quarter. A large percentage of refinance activity continues to come from clients with loans at other institutions, which provides us with great opportunities for new client acquisition. For perspective, throughout the past 10 years, across varying interest rate environments, refinance activity has always accounted for at least 40% of single family volume. Turning to Business Banking. Business loans and line commitments, Excluding PPP loans, we're up 27% year over year. Capital call outstanding balances were down quarter over Quarter, driven mainly by a reduction in the utilization rate from 40% to 36%. This is in line with our historic utilization range of mid-30s to low-40s. In terms of funding, it was an exceptional quarter. Total deposits were up 37% from a year ago, We continue to maintain a diversified deposit funding base. Checking deposits increased by CAD 5,300,000,000 in the quarter and represented 68 percent of total deposits. Business Deposits represented 61 percent of total deposits, up modestly from the prior quarter. The average rate paid on all deposits For the quarter, it was just 7 basis points, leading to a total funding cost of 20 basis points. Turning to valves management. Assets under management increased to $241,000,000,000 This is an increase of $46,000,000,000 year to date, of which more than half was from net client inflows. Year to date, Wealth Management fees were up 39% from the same period a year ago. During the quarter, we welcomed 4 new wealth management teams to First Republic. The strength of our integrated model continues to attract very high quality teams. Our second quarter results demonstrate the power of our service model and the dedication of our exceptional colleagues. Now I would like to turn the call over to Mike Roffler, Chief Financial Officer. Thank you, Gaia. Our strong second quarter results reflect the consistency of our business model. Revenue growth for the quarter was exceptional, up 34% year over year. This was driven by strong organic growth Across the franchise, including loans, deposits and Wealth Management assets. Our net interest margin for the 2nd quarter was $2.68 This includes the impact of our elevated cash position from fiscal and monetary policy, which has resulted in significant deposit growth. We continue to expect our net interest margin for the full year 2021 to be in the range of $2.65 to $2.75 Importantly, net interest income was up a very strong 27.5% year over year. This is due to the robust growth in earning assets and a stable net interest margin. We are pleased with our efficiency ratio, which was 62% for the Q2. Our expense growth remains proportionate to our revenue growth As we continue to invest in the franchise to deliver outstanding client service. I would note that our 2020 Net Promoter Score actually increased from the prior year. We continue to expect our efficiency ratio for the full year 2021 to be in the range of 62% to 64%. Let me talk for a moment about CECL, which has been in place for 6 quarters now. CECL's formulaic guidelines take into account Our loan growth, loan mix and historic credit performance. In accordance with CECL, our provision for credit loss during the quarter was $16,000,000 Reflecting our continued loan growth. Since CECL became effective at the start of 2020, We have added $160,000,000 to our reserves, while only experiencing $4,000,000 of losses. Turning to the tax rate. Our effective tax rate for the 2nd quarter was 17.4%. The decline in the tax rate from the prior quarter was due to increased tax benefits resulting from stock awards vesting during the Q2. These tax benefits added $0.11 to earnings per share in the Q2. This compares to $0.03 in the same quarter last year. Under current tax law, we continue to expect our tax rate for the full year 2021 to be in the range of 20% to 21%. Overall, this was a great quarter in the first half of the year. Thank you. And now I'll turn the call back over to Jim. Thank you, Gaia. Thank you, Mike. Our time tested quite straightforward business model remains very focused On delivering the highest possible level of client service, doing only what we do best and operating very safely and soundly. It continues to work quite well. Now we'd be delighted to take any questions. Thank And we start with our first question from Steve Alexopoulos. Please go ahead. Your line is open. To start on the loan side, and one of the highlights of the quarter was the almost 9,000,000,000 of single family originations. My question is, how did a lack of housing supply impact the spring selling season? And with rates coming down a bit further here, Should we expect another record quarter for originations in 3Q? So Steve, let me take that question. We see our pipe so first of all, the answer is that our rate locks Are coming off of the peak levels that we have seen in the Q2. It has been an exceptionally strong quarter in the Q2 for sure. While our pipeline remains strong above the last year levels, we are seeing the rate likes coming off the peak levels That reflects the limited inventory, the supply constraints in the purchase market as well as the refi slowing down into the second half of But we do remain confident for the year with our mid teens loan growth guidance. Okay. That's helpful. And maybe for you too, Guy, on deposits. It looks like private bank deposits came down a bit as expected, but you saw a surge in business bank deposits. Checking accounts are almost 70%. Can you give us some color what drove, I think it was almost $8,000,000,000 this quarter, the sharp increase in business deposits and is that strength continuing? Actually, so on the business side, 2 thirds of that business deposit growth came from non financial, And it has been very diversified. No individual sector is over 10% to 12% type of mix. We are also seeing that the consumer spending is also up on the consumer balances. So when I look at the average business Account balances versus the average consumer, the average business checking accounts are higher compared to the pre pandemic levels and consumer is kind of plateauing a bit on the average Tumor is kind of plateauing a bit on the average account balances, so that's also reflecting into that with the Fed. And the Fed stimulus is also Playing a role obviously along with the yields in the market. That's also a lot of the business are keeping more cash on the sidelines. But I would reiterate that as part of the model, we follow our Private Banking clients to their businesses. So all in all, it's one client relationship Okay. That's helpful. And final question, just on the management update that was announced. First, congratulations, Gaia. Not a surprise. Congratulations on the co CEO. But maybe for Jim, could you walk us through what will now change in terms of responsibilities under this co Thanks, Steve. Actually initially probably not very much. As you know well, actually Guy and I have been running this Together along with the rest of the team for quite a while and the direct reports are pretty well aligned already. The substantial Change really is the calmness of the transition. And we're not out of pandemic really yet. We're not back To the office shed, we have a core conversion going on. There's a lot happening. So it seems to us and it seems to the Board a very First Republic steady, eddy approach to transition. Okay, terrific. Thanks for taking my questions. Our next question is from Ken Zerbe, Morgan Stanley. Your line is open. Please go ahead. All right, great. Thank you. Good morning. I guess the first question I had just in terms of expenses, You've talked about investing in the franchise a fair bit. If I look at where the expenses are coming from, it looks like a lot of that is compensation related expenses, Where sort of everything else is, I'm going to say growing probably far less. How much of the investment in the franchise is hiring people versus Sort of non people related items. Thanks, Ken. I think the one thing I'd first focus on when we look at compensation is There is a large portion that is variable based that's tied to our revenues. And so as checking balances grow, As investment management fees and wealth fees grow, the strong production volumes that Guy had talked about earlier, all those lead to greater incentives. And the second part of your question is there is some people addition going on, especially to support those teams and the production levels that they're doing. And So we've always had a team based approach. And so as you grow a book of business, we'll add additional support people and additional team members to help you deliver extraordinary client service and then also investing in the operational capacity of the bank Because of the volumes, we've had to make sure loan operations, deposit services, investment management operations are all staffed accordingly and making sure again you're giving great service all the way through the process. Got it. Okay. Maybe a different question. Just in terms of Wealth Management, I'm just trying to understand So how to think about the fee income? Because I generally know that your fees are based off of sort of a 1 quarter lag, so whatever happened in Q1 affected Q2 fees. With fees up 15% this quarter sequentially, AUM last quarter in the Q1, I guess, was up 12.5%, it was up And what the variables are that affect fees? Thanks. Yes. So Ken, what you're describing is the largest component, which is investment management fees. And directionally, the way you described it is right. And directionally, the way you described it is right. The assets under management number at June 30th will drive the Q3 revenues. At the end of the Q1, you also have the benefits of teams that maybe joined us late last year, early this year, Where their assets came over during the Q1, so not only do you get the quarterly revenue, but you get a little bit from the, call it, the stub period. If someone joined us February 1, there'll be 5 months of revenue in this quarter versus 3 because we don't bill until you get through the quarter process. And so a little bit of that will happen and so it's probably a little stronger than normal, but your general rule of thumb The increase in AUM is a good one to use. Got it. Okay, perfect. Thank you very much. Our next question is from John Pancari, Evercore Partners. Your line is open. Please go ahead. Good morning. Just have a question on the Capital Call line lending business. I know you had indicated that The utilization rate was down to about 36%, which is in line with your historical. What are your Going forward, do you think it remains around that historical level? Or do you think it could decline below that level for the time being? Just want to get Your thoughts there. Thanks. John, that's a great question, and it's one that is very hard to estimate Because it is very much deal specific and deal dependent, it's the one variable that we are really Try to estimate it, but it's very much idiosyncratic. But what we have seen is that the mid-30s and the low-40s has been pretty much the historical range. Right now, we have come from the 40s to down to the 36%. The one variable that we always Look at it as or metric is the commitment growth. And the PVC activity continues to be strong, so we would expect the momentum in terms of the commitment growth Continue through the second half of the year, and the markets remain very active, very attractive for exits, while the fundraising is going All above the pre pandemic levels as well. So for that reason, I would look at the commitment growth and then still try to Expected to be somewhere between mid-30s to high-30s probably. Got it. Okay. Thank you, Guy. And then On the separately, on the commercial real estate side, I wanted to see if you can talk a little bit about the trends in the CRE portfolio. Are you seeing any signs of stress there? I know your LTV at origination, you indicate on Slide 19 is 45% and also the current appears to be on Slide 21 right at 45% as well. Do you expect Migration higher in that origination LTV or new production LTV level And just if you could talk about what's dialed into your reserve expectation on that front? Thanks. So in terms of the credit underwriting standards, We remain conservative when it comes to Multifamily and Sierra, both. And the Commercial real estate picture is very much region and product specific. We don't do much office, But just as general market color, office remains soft in the city centers, and there'll be clear outlook later in the year as we We have very limited exposure to Sierra Retail and Hospitality. While we are seeing positive trends as hotel occupancy rates are rising, it's still uncertain and depends on the global Tourism and Business Travel, but we will continue to do safe deals, which tend to be mostly refinance with experienced owner managers that value our service and holistic banking relationship. And John, you mentioned reserves. One thing that you talked about and you highlighted in the slide deck, there's not a large expected loss other You might look at one offs here and there because of our LTV and our coverage ratios. And if maybe just if I step back on the reserve for a moment, About 65%, 60% of our reserve is tied to home loans, which again with sorry, 60% of our portfolio, Loan portfolio is tied to home loans, which have a pretty low reserve allocation. If you look at the rest of the loan portfolio, It's about a 1% reserve rate on it. And given the strength of our underwriting, we feel that's more than appropriate. Got it. That's helpful. Thanks. If I could ask just one more. Can you just give us a status update on the core systems replacement Project, where you stand on that and what any are you on the project? Thank you. We are very pleased with the ongoing conversion of our core banking system. So the development work is nearly complete. And we're going to have also the 3rd data migration is also complete along with the most of the data validation too. So the next milestone for us is we're going to have multiple mock conversions Plan throughout the summer and into the fall to do end to end testing, and we are doing a lot of end user trainings as well across the bank. So It's in line with our expected time line and we intend to finalize it before by end of the year. Great. All right. Thank you for taking all my questions. Thank you. Our next question comes from Bill Carcache, Wolfe Research. Your line is open. Thank you. Good morning. Can you discuss what kind of household formation trends you're seeing among your next generation customers? What's the trajectory of that growth outlook from here? And more broadly, if you could break down where the single family loan Origination growth that you're seeing is coming from within your customer base? Well, the household formation question, thanks, is Hard to answer. We're subject we only have the same macro information. I think everybody does. It is picking up, it seems to us, Undoubtedly. The other thing that's happening is that in our millennial client base, since we shifted over to The PILOC, which is a personal line of credit lending, a larger share of the millennial households have homes already. That's almost doubled in fact from what we were doing before under the student loan refi. And so it's actually The quality of those households is higher than the prior business and it was good even then. I think in terms of The growth rates, the activity levels among the younger households, they're very high actually. The hardest thing, quite frankly, is of course finding the first home to buy, the first condo, whatever it may be. So I think the business is actually going very strongly. And I would add, we're very pleased over 20% of our millennial clients are now mortgage clients, Which is fantastic. And the household acquisition for millennial households continues to be strong, around 13% year over year and the new offerings along across the lending, deposits and wealth management, That's helpful. Thank you. If I can switch gears to Wealth Management, can you discuss Your momentum in attracting new teams, how the pipeline is looking and also maybe discuss some of the variables behind your success And retaining the teams that you've brought on board. So we are very pleased that we are seeing great quality of Teams joining us, we have welcomed 4 new PWM teams, private management teams hired in the 2nd quarter. And year to date, 7 new private management teams, and we continue to have a strong pipeline of prospective management team hires as long as They fit the culture and the holistic banking model. So that continues to be really well. Also, I would note that year to date, we have Strong net client inflows that is both from existing clients deepening their relationships as well as new client inflows coming in with the new teams. One additional thing I'd add is the success of cross selling to the new clients coming in with the wealth teams To our banking platform is accelerating very nicely. We've got that one down better now than we had before. Yes. Referred deposits, for example, are up 60% to 70% year over year. Very helpful. Thank you. If I can squeeze in one final macro question. How do you think about the performance outlook for the business in an environment where eventually perhaps we start to see short rates Rise a little bit faster than the long end of the curve. If you could just frame how you think about that and whether it makes any kind of a difference Operationally, how you run the business? It probably won't make much difference operationally as to how we run the business. We do run a very matched book, I think as Guy referred to earlier. And so if you look at our Simulation models, why rising rate environment is not a particularly threatening thing. The inversion which you implied And your question, I think, is always a little problematic, but the real problem buried in an inversion is what it does to the economy generally, Not so much what it does to us in the short run. Inversions don't last very long, so they generally don't mess with our balance sheet very much. The other thing that Guy referred to, which is very important and somewhat unique to us, almost all banks Repayment rates on their portfolio CPR. And ours is a little higher than most for various reasons, the nature of our mortgages primarily. But what they don't have is the growth rate of 15% or so in the portfolio, which adds an additional priced to market Of 15% per year, maybe 18%, whatever the growth rate is. And that those two items Together equal 30 between 30% 40% of the balance sheet. So we repriced the balance sheet about 30%, 40% every year from repayments and growth To market, that allows us to keep up with the change in rates rather nicely. Thank you, Jim. And let me add my congratulations, Gaye. Thanks for taking my questions. Thank you. Our next question is coming from Casey Harry. Please go ahead. Your line is open. Thanks. Good morning, all. Just a couple of follow ups on the NIM guidance still intact, but just some color on where new money loan yields are and also for securities Given a pretty volatile long end of the curve. Absolutely. So on the single time residential side, we are seeing And 2.75% to 3% type of range coming in mostly in the high 2s when we look at the rate locks. Multifamily, about 3.25%, 2.5%, So on the muni side, the tax equivalent yield is 2.75% to 3%. And on the government and agency, HQLA, which Again, Jim referred earlier to ALM Matching from a duration management perspective. We have been doing some short term barbell strategies there as well. The short term agency HQL is coming in around 75 bps and the traditional agency HQL is around 1.5% to 2%. So all in all, we're seeing the additional marginal assets coming in, in the high 2s, more around the real estate assets coming in, in the 95% type of range with a marginal funding cost about 20 basis points. And you put in the elevated cash levels, so that brings us to the Lower half of the $265,000,000 to $275,000,000 as we have printed this quarter. Okay. All right. Great. So pretty stable. On that cash position, what is I mean, I know timing in terms of working that down is a wild card, but what do you guys see Is the ideal minimum cash position for this size balance sheet? If you thought 4% to 5% of the balance sheet would be sort of like 6.5% to call it $8,000,000,000 That feels like a pretty good place for us to run given the size of our Overall balance sheet and sort of the deposit activity we see. And I think our average in the second quarter was just over 11 And so you bring that down by $3,000,000,000 $4,000,000,000 your margin is going to be towards the top end of that guided range. Yes, understood. And then Mike, just on the efficiency ratio, I think you guys in the past have talked about like In a remote work and not much entertainment, client entertainment that the COVID benefit to the efficiency ratio Is about 100 bps. I mean, can you just provide an update as to what that is today? And is there a possibility that You could run a little lighter than where you were pre pandemic based on what you've learned thus far. Yes. We're definitely talking about The learnings we've had from the pandemic and what are things maybe we used to do that you don't have to do as much of, right? I think your estimate of The things that are running lower than they had or continuing to run lower around client events, travel, Internal events, they're still running a bit lower and it's been sort of a 1% little more benefit to our efficiency. We do anticipate those things starting to ramp up. They may not get to that full effect, but we do think we will have events later in the year. People are starting to travel and entertain clients a little bit more. And I think you really start to see it probably more in the Q4. And also as Guy mentioned and talked about, we are deep into the core conversion process here for the next couple of quarters. Okay, great. Thanks for taking the questions. And Gaia, congrats. Thank you very much. Our next question is coming from Chris McGratty, KBW. Please go ahead. Your line is open. Great. Good morning. I want to follow-up on Casey's question about efficiency and maybe ask you a little bit different on just operating leverage. Maybe Mike, last year was a year of positive operating leverage in an industry that didn't have that. How are we thinking about The ability to generate revenue growth in excess of expense growth. Totally hear you on the COVID normalization, but Even so with rates where they are, you're still at kind of where the efficiency ratio was when rates were up. So that would to me suggest that maybe you do a little bit better The next tightening, Ron. Thanks. So I think one of the things that we are always focused on from a business model standpoint is client service And how that's delivered and the effectiveness of it. And that other institutions Don't have that revenue growth or revenue production. And so we're always supporting how do you deliver client Service while continuing to grow and that has led to what we think is a very stable efficiency ratio in a pretty tight range While improving our Net Promoter Score, expanding offices like Hudson Yards was mentioned earlier To deliver client service and so I think we think more about it that revenue growth and expense growth are relatively matched in terms Of how they're growing. And so it may not be your positive operating leverage that you mentioned, but it leads to a consistency and Stability over a long period of time, and I think we view that as very important. Let me just respond also in a slightly This is a growth enterprise and we're basically focused on the quality of delivery of service at the same time. So Operating leverage can be achieved by cost cutting, which others do. We're not in that game. We're in this for the long haul. It's a very long game. And so our approach has always been to maintain, as Mike just said so clearly, A balance of operating costs and invest continually in operating systems and procedures So that we have good backup and safety embedded. But so operating leverage It's not it's on the table, but it's not our primary objective. Quality of delivery of service is a primary objective. And then we grow and we grow because the clients grow. As Gaye said, 75% of our growth is driven by our clients or their direct referrals. That's actually not something we're reaching for. That's just coming in. And so we have to respond to it with the level of service that they're used to or expect from us or We'll have a diminishing franchise and that we never intend to have. So what we value above all else is stability, The predictability and stability of the model, and that's a balance that's a continual balance. So I wouldn't actually look for the company to have a lot of operating leverage. That's great color. I appreciate that. Maybe just one final one, Mike, on the model. I know your BOLI income typically bumps up in the Q3. It did so this quarter. I'm wondering, did you add more Boeing Investments and should we expect a ramp in Q3? So we did add one additional purchase mid quarter. We also from time to time have a claim and there was a modest impact in the second quarter from that. And so I think from A range I would think about $18,000,000 to $20,000,000 a quarter is sort of the new run rate after the purchase is factored in. Great. Thanks a lot. Our next question is coming from Andrew Liesch, Piper Sandler. Please go ahead. Your line is open. Hi, good morning, everyone. Gaia, congratulations on the announcement. Great to see. Thank you. Got a question on just your capital position right now. I mean, certainly regulatory ratios are solid and some of them are up year over year. But now with TCE, the tangible assets now below 7% for the last couple of quarters, Is there any do you expect that to rise as liquidity leaves the balance sheet as you see deposit levels normalize? And I guess in general, like how are you doing, where your capital stands today? So Andrew, I think you bring up a good point that We talk about the sort of 11.5 the extra cash carrying impacting the margin. It also does have a little bit of an impact to our Our leverage ratio or our TCE, as you mentioned. And I think our philosophy remains similar as it has. We were pleased the first Quarter to raise some capital at attractive pricing. We keep an eye on the market. We think about what our future opportunity to serve clients and grow is. And then we remain opportunistic when appropriate. And I think that philosophy has been here 36 years, I think, and We'll continue into the future, and it's as much a view of our outlook of future growth as anything because we always want to fund that Sort of in advance as we think about the future. Got it. You've covered all my other questions. I will step back. Thank you. Our next question is coming from David Chiaverini Wedbush Securities, your line is open. Please go ahead. Hi, thanks. I had a follow-up question on Loan pricing on resi mortgage, you mentioned about how you're getting a yield of 2.75% to 3% is the range. And when I look at the average Balance sheet, it looks like the rate came down 6 basis points sequentially in the second quarter. I was curious, is the Downward pricing pressure subsiding here. Actually, it has been stabilizing. Just recently, we have Seeing our rate logs to be just slightly higher priced than what's on the portfolio, so which is good news. So that would plateau itself. So I would say on the single family multifamily or real estate loans, The 6 week rate logs are coming in at 2.95 and above. Great. That's good to hear. And on the net interest margin with the guidance, staying the same, 265 to 275 with, It sounds like stable in the near term, but given that comment you just made where the rate locks are coming in slightly better, is there a directional bias kind of one way or the other No, I would reinforce the $265,000,000 $275,000,000 because the deposit is coming in Strong as well. The elevated cash levels have impact on the NIM too. So I would be sticking to our guidance Mid to lower half of the range, but the net interest income for us given the strong earnings asset growth is really net interest income is the metric That pays the bill. Yes, that makes sense. And then one modeling question shifting to expenses. Is the Hudson Yards expense sort of fully baked into the run rate now in the second quarter? Or should we expect another step up To come through either in the Q3 or Q4? Yes, it's pretty much fully in. The rent is fully in and most of sort of the tenant improvement depreciation is in. Any step up would be pretty modest at this point. Got it. Thanks very much. Our next question is from Jared Shoal with Fargo. Please go ahead. Your line is open. Hi, good morning. Thanks for the question. I guess, Mike, just first, was there any performance fee component to the Wealth Management revenue this quarter? No, there was not. Okay. And then, I guess, more generally, how sensitive do you think The purchase market is in your primary geographies to potentially higher rates. I would say it's not all that sensitive. The biggest problem is supply. That is improving a little bit. Listings are going up a little bit. The increase in prices has pulled sellers off the sidelines, and it's getting slightly better. But it's mostly a supply issue. New York is the exception. There's plenty of supply in New York, but everywhere else there's virtually nothing. Thanks for the color. I just want to give my congratulations to Gaia as well. Congratulations. Thank you, Jers. Our next question is from Tim Coffey from Janney. Please go ahead. Your line is open. Great. Thank you. Good morning and thank you for the time. So my first question is, if you look at the weighted average LTV on the residential mortgage reduction in the quarter, it seems like it ticked up a bit higher than we've seen in recent quarters. And I'm wondering, is that a function of just competition? Or is there other circumstances such as borrowers having greater liquidity than they have before? That would be a quarter over quarter fluctuation. We will our overall real estate lending 80% of our lending is Real estate loans with a weighted average in the mid-50s, so slight tick up is just a one off. We will remain conservative in our underwriting standards. We won't compromise On credit at all, we will be fierce when it comes to relation pricing, but we will not compromise on credit. Okay. Okay. And then my other question was, do you see any benefit to First Republic from Wells Fargo canceling their personal lines of credit? We think there may be actually significant opportunity. We focus mostly in the millennial with that product, but suddenly it might go more up it might go up age, depending on what they do. We're not upset that they've done that. Yes, I would think not. What percentage of your millennial clients would you say use a personal line of credit? Actually a significant amount Of the new millennial clients, our professional our personal line of credit product is only about a year old. So it probably has 5000 to 6000 out of our 30,000 so far. Okay. And is the typical line amount $100,000 or later? The typical commitment, this is quite important actually, the typical commitment It's probably around $100,000 to $110,000 something like that. The typical usage is about $30,000 to $35,000 So that Product is 125% self funded with checking. Great. Okay. Great. Those are my questions. Thank you very much. Thank you. Our next question is coming from Bruker Van Der Vliet, UBS. Your line is open. Please go ahead. Thanks for the question. Most of it's already covered at this point. But just in terms of the jumbo LTV, coming back to the earlier question, what's the average LTV just in the jumbo resi product? So we are in the mid-50s, high-50s range, usually in the single family residential mortgage. So the uptick was just a couple of percentage points when you look at the recent originations. So the mid-50s to high-50s is really the range that we have been operating at, and we will remain conservative in that regard. Okay. And just we're seeing especially among some of the independent Residential originators, very intense competition, at least one of them is introduced to jumbo Product and the LTVs are in some cases significantly higher than that level. Are you seeing any evidence of Competition from new quarters around jumbo? We've been doing jumbo mortgages since 1985. And in fact, a bank that I started in 1980 before this is We sort of stumbled into that product and realized how good it was. But we did learn through almost 40 years of jumbo production, How to do it? And one of the number one things you do not want to do is to raise your LTV, because they are larger and if there's a problem, you need margin for air. And also it is almost axiomatic that the more someone puts down, the more liquid they are after the deal, which is quite interesting. And so we've maintained our sub-sixty percent right around 60% or slightly sub-sixty percent, slightly over 60% LTV range for 3 decades at least, and that won't vary. Got it. Okay. All right. Thanks very much. It appears there are no further questions. At this time, I'd like to turn the call back to Tim Herpel for any further remarks. Thank you very much everyone for your time this morning. We appreciate it. Have a good day. And this concludes today's call. Thank you for your participation. You may now disconnect.