Greetings, and welcome to First Republic Bank's Q1 2022 Earnings Conference Call. Today's conference is being recorded. During today's call, the lines will be in a listen-only mode. Following the presentation, the conference will be opened for questions. To join the queue, please press star one on your telephone keypad at any point during the call. I would now like to turn the call over to Mike Ioanilli, Vice President and Director of Investor Relations. Please go ahead. Thank you, and welcome to First Republic Bank's Q1 2022 Conference Call. Speaking today will be Jim Herbert, Founder and Executive Chairman, Mike Roffler, CEO and President, Mike Selfridge, Chief Banking Officer, Bob Thornton, President of Private Wealth Management, Olga Tsokova, Chief Accounting Officer and acting Chief Financial Officer. Before I hand the call over to Jim, please note that we may make forward-looking statements during today's call that 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, see the bank's FDIC filings, including the Form 8-K filed today, all available on the bank's website. Now I'd like to turn the call over to Jim Herbert. Thank you, Mike. Good morning, everyone. I'd like to make a few introductory comments before I turn this over to the team. Let me start by saying I am very pleased that the board of directors has appointed Mike Roffler as CEO. Mike joined us more than a decade ago prior to the management buyback of the bank. His leadership contributions have been felt far beyond his previous role as Chief Financial Officer. Mike truly embodies our service culture and growth mindset. Most importantly, this appointment ensures the continuity of our very differentiated service-based business model. Mike and our experienced leadership team have a deep understanding of what makes First Republic uniquely successful, including the empowerment of our colleagues, our steadfast focus on safety and stability, and our dedication to extraordinary client service. This model has delivered consistently profitable results and strong, steady growth for 36 years through a very wide range of economic and geopolitical environments. In my new role as Executive Chairman, I look forward to leading the board, engaging with our largest clients and shareholders while focusing on our strategy, corporate culture, and supporting Mike and the rest of the team as they carry the First Republic model forward. As you can see from today's terrific earnings results, the continuity of our culture and business model continues to deliver consistent, very good results. Now let me turn the call over to Mike. Thank you very much, Jim. It is an honor and privilege to serve as First Republic's CEO. We have many opportunities in front of us, and I look forward to partnering with Jim, the board of directors, our leadership team, and our colleagues to continue the growth and success of First Republic. Now let me turn to this quarter's results. As Jim mentioned, it was a terrific Q1 across the board. Loans, deposits, and wealth management assets were all up significantly from last year. In terms of loan originations, this was our best quarter ever. At the same time, credit quality remained very strong. Non-performing assets were only eight basis points at quarter- end, and we actually had net recoveries during the quarter. Exceptionally strong credit has been a hallmark of First Republic since our founding, and it will continue to be going forward. We are pleased to raise our quarterly dividend for the 11th consecutive year. The consistency of our dividend is indicative of our strength and stability and our continued positive outlook. Year-over-year, total loans outstanding were up 19.7%. Total deposits have grown 27%, and wealth management assets were up 25%. This strong growth in turn led to strong financial performance. Year-over-year, total revenues have grown 23%. Net interest income is up 22%, while net income was up 20%. Tangible book value per share has increased more than 14%. Importantly, our Tier 1 capital was up 26%. As you recall, we added $2.8 billion of net new capital in 2021 in anticipation of our growth. In addition to this strong financial performance during the quarter, we also successfully completed our core conversion, the largest technology project in the bank's history. Strategically, our new core system lays the foundation for continued growth by further enabling digital banking innovation, driving the scalability of the entire enterprise in support of our bankers and wealth professionals, and enhancing client customization and security. As important, the system strengthens our regulatory and operational infrastructure as we continue to grow. The core conversion was a true team effort that points to the highly collaborative nature of First Republic. I want to thank all of our colleagues for a job very well done. While this major effort is behind us, we continue to invest in technology to serve our clients and empower our colleagues. During the quarter, we also released our 2021 Net Promoter Score, or NPS, an independent measure of client satisfaction. We are very pleased that our overall NPS increased by 6 points to 79 points, our highest level ever, and significantly higher than the US banking industry average of 34. Our consistently high scores increased across every region, every line of business, and every generation of clients. Additionally, the more clients do with us, the more satisfied they are. For clients who consider us their primary bank or lead bank, our NPS increased to 88 points, the highest level ever. Quite importantly, nearly two-thirds of our clients now consider us their lead bank. Our improved NPS, even during the pandemic, demonstrates the strength of our client-centric model under challenging conditions, is a testament to the dedication of our team and the effectiveness of our technology investment in recent years. It is clear that the more challenging the environment, the more client service is valued. As we look ahead to the rising rate environment, First Republic remains well positioned. Our balance sheet is strong, and our service model continues to thrive. Demand for client service is not cyclical. Overall, it was a great quarter. Now I'll turn the call over to Mike Selfridge, Chief Banking Officer. Thank you, Mike. Let me begin with an update on lending. It's been a very strong start to the year. Loan origination volume for the Q1 was a record $17.8 billion. Single-family residential volume was very strong at $8.4 billion, our second-highest quarter ever. Single-family volume accounted for nearly half of our total volume during the quarter. Multifamily volume for the quarter was also very strong at $1.7 billion, also our second-highest quarter ever. This robust lending activity during the quarter highlights the strength of our markets and our clients. This is further reflected in our loan pipeline, which is significantly higher compared to the same time last year. We continue to expect mid-teens loan growth for the full year of 2022. In terms of credit, we continue to maintain our conservative underwriting standards. Our average loan-to-value ratio for all real estate loans originated during the quarter was just 57%. Turning to business banking, it was a very successful quarter. Business loans and line commitments, excluding PPP loans, were up 18% year-over-year. During the quarter, the utilization rate on capital call lines of credit decreased slightly to 40%. This remains at the higher end of the historical utilization range. Now let me turn to funding. Overall, it was another very successful quarter of deposit growth. Deposits were up 3.7% from year-end and 26.7% year-over-year. We continue to maintain a diversified deposit funding base. Checking deposits represented 70% of total deposits at quarter- end, and business deposits represented 60% of total deposits at quarter- end. The average rate paid on all deposits for the quarter was just 5 basis points, in line with the prior quarter. This led to an overall funding cost of just 11 basis points, down 1 basis point from the last quarter. Our strategy of acquiring and growing the next generation of client relationships, which began over a decade ago, continues to be very effective. For example, year-over-year households acquired through our personal line of credit and professional loan programs were up 15%, and we've acquired more than 5,000 such households in the last 12- months. Clients who came to First Republic through these programs now represent fully one-third of our total consumer borrowing households. I would note these two programs are more than self-funded with deposits. Our next generation client base has grown. We've also continued to develop the next generation of relationship managers. These internally trained relationship managers now make up over one-quarter of all relationship managers. As Mike mentioned, our model is performing quite well and continues to drive our safe, stable, and organic growth. Now I'd like to turn the call over to Bob Thornton, President, Private Wealth Management. Thank you, Mike. Our wealth management business continues to perform very well despite market volatility. Year-over-year, assets under management grew 25%. During the Q1, our investment management business had a record net client inflow of $4.9 billion. Our overall AUM decreased a modest 2% during the quarter due to market depreciation. Wealth management fee revenue for the Q1 was $221 million, up 39% year-over-year. We remain very focused on serving our clients with financial planning, brokerage, trust, insurance, and foreign exchange services in addition to investment management. This comprehensive approach benefits our clients while also diversifying our fee revenue with services that are less subject to market fluctuations. We also continue to focus on deepening relationships with our wealth management clients by meeting their banking needs. Deposits sourced from our wealth management colleagues increased 28% year-over-year and now represent 14% of total bank deposits. Our integrated banking and wealth management model has continued to make First Republic an attractive destination for very successful wealth professionals. Since the start, we've welcomed 3 new wealth manager teams to First Republic. Overall, our wealth management business continues to perform very well despite the broader market volatility. Times like these are a great opportunity to demonstrate our exceptional service and acquire new households. Now I'd like to turn the call over to Olga Tsokova, Acting Chief Financial Officer. Thank you, Bob. With a consistent focus on credit, capital, and liquidity, we continue to operate in a safe and sound manner. Our credit quality remains excellent. As Mike mentioned, during the Q1, we had net recoveries of approximately $300,000. Our provision for loan losses for the quarter was $10 million. This modest provision reflects our underwriting discipline and excellent credit track record as well as our portfolio mix. Our capital position remains very strong. At quarter- end, our Tier 1 leverage ratio was 8.7%. This reflects the benefits from 5 successful capital raises since 2021, totaling $2.8 billion on a net basis. Liquidity also remains very strong. High-quality liquid assets were 16% of average total assets for the Q1. Our net interest margin was 2.68% for the Q1, in line with our guidance. We continue to expect our net interest margin to be in the range of 2.65% to 2.75% for the full year 2022. Importantly, net interest income was up a very strong 22% year-over-year. This is due to the robust growth in earning assets and a stable net interest margin. Our efficiency ratio was 62% for the Q1. We are pleased to maintain a stable efficiency ratio as we continue to invest in the business. We continue to expect the efficiency ratio to be in the range of 62% to 64% for the full year 2022. Our effective tax rate was 22.9% for the Q1. We now expect the effective tax rate for the full year 2022 to be in the range of 21% to 22%. This slight increase is due to reduced tax benefits from the vesting of stock-based awards. Overall, the year is off to a very strong start, reflecting the consistency of our model. Now I'll turn the call back over to Mike Roffler. Thank you, Jim, Mike, Bob, and Olga. We've had a great start to the year. For over 36 years, First Republic's business model has been grounded in conservative credit, strong capital and liquidity, colleague empowerment, and most importantly, an extraordinary level of client service. This foundation remains unchanged. Our model is as strong as ever, and our entire team remains focused on executing each and every day. Now, we'd be happy to take your questions. Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one to ask a question. We'll pause for just a moment to allow an opportunity to signal for questions. Our first question comes from Steven Alexopoulos with JPMorgan. Hey, good morning, everyone. Morning. Morning. Morning, Mike. On loan growth. Regarding the record originations you guys saw in the quarter, maybe could you unpack that a bit? Give us some more color on why we saw the best quarter of originations ever. I don't know if there was a rush to refi or what happened there. Then as rates rise, how much of a headwind will that likely be? Could, for the first time in many years, the mid-teens outlook for loan growth be at risk? Hey, Steve, it's Mike Selfridge. Yeah, thanks for the question. Yeah, just to unpack it a little bit to your question, I would say overall, the service model is what differentiated us in the market and drove a lot of the significant growth. Maybe a little bit of pull forward on refi, given the rise in rates, but I think it was very consistently steady, particularly in single family. Good mix of refi purchase. Refi was a little bit higher than normal, about 58%, but very solid. In the purchase market where you know we excel, was quite strong despite limited inventory. The capital call line activity was strong, and I would say the backlog going into the Q2 is strong. Rising rates, yes, that'll be a headwind for refi. Looking back historically, refi has never dropped below 40% of our total single-family origination volume. We think that'll hold pretty well. Okay. So, even with rising rates, still confident in the mid-teens outlook for the year. Confident in the mid-teens for 2022. I might just add on, Steve, if you go back to a couple of the last cycles when rates have risen, we've been pretty much sort of 15% to 18% loan growth. It comes back to where Mike Selfridge started with the service model, being there for clients, acquiring new households, and really serving their needs. Because even in times of, y ou know, a bit of challenge in the market or a bit of challenge in the economy, we're there to serve clients every day. That resonates and that leads to, you know, the sort of continued deepening and expansion of relationships you see. Okay. That's helpful. On loan yields, the original view is that as mortgage rates moved up a bit, you might not see much benefit to loan yields. I think you thought you might see spreads compress. Maybe can you walk us through what you're seeing real-time here and within the NIM outlook being maintained, you know, what are you expecting for loan yields as mortgage rates continue to drift up? Steve, back on the heels of strong origination volumes. At the end of the quarter, we were originating single family just a little bit over 3%, about 3.05%. Multifamily, about 3.45%. And commercial real estate, about 3.65%. Business banking depends on the segment. Capital call is the largest segment there. It's probably about prime minus 25 to 50 basis points, maybe 75, depending on the situation. And I would say it's trending upward. Yeah, I think that's the key point is in starting in the quarter, Steve, I think you're getting that competition a little bit, very highly competitive. You didn't see a lot of repricing in the early parts of the quarter. As you got later, we've started to see the drift up. That's, you know, Mike Selfridge is quoting sort of even last week rates, and it's even sort of still climbing a little bit from here. Okay. I guess what I'm trying to understand, the last time you gave the outlook for NIM for this year on the prior call, you said lower end of the range. Are you still thinking lower or maybe could we push up, I don't know, to the upper end of the range? Given it sounds like loan yields are going to get a bit better here. I think that's right, based on where we see the business today. I think you're probably pushing up towards the middle, of the range versus the lower end of where we've been at. Okay. Thanks. Finally, in terms of quite a few management transitions over the past few months, maybe for you, Mike, now as CEO, give us an outline. What are you most focused on here? What do you think you need to improve on? You know, I don't know what the message has been to employees since you took over. Jim, I'd love to hear from you too. Right. Executive Chairman implies you're going to be more involved than just a typical chairman role. How are you thinking about this new role, and what will the involvement be with the company? Thanks. Well, thanks, Steve. I appreciate the question, as does Jim. You know, the first thing I'd say is my transition to the CEO role does not represent a strategic shift in our direction. It represents the continued thoughtful evolution of our client-focused model and the continuity of our unique service-focused culture, which has been at the heart of everything we've done for over 36 years. The bank has a very successful business model and strategy. That doesn't change, right? As we talked about in the prepared remarks, our foundation is built on strong credit, capital, liquidity at all times. Our total focus, our colleagues that have come to work so far today and that are on their way in this morning, is on providing exceptional client service. That then drives our growth. In terms of improvement, you know, exceptional service comes from continuous innovation. That doesn't stop. We'll keep doing that. We stay close to clients. We listen to what they need, and then we empower our colleagues to go deliver. That doesn't change. We're going to continue to invest in the franchise to support our colleagues and support our clients, again, which drives our growth. Maybe just a few examples, right? Mike Selfridge touched on acquiring and building next generation relationships. A very important part of the strategy as we plant seeds for the future. The relationship between banking and wealth management through an unsiloed, again, focused on client delivery. We also look at markets. We're excited with Hudson Yards coming online. We're excited that we're going into Seattle through Bellevue here pretty shortly and are already there with wealth management. Again, exceptional service, both in person, digital, online, continue to leverage technology and data, and most importantly, continue to empower our colleagues. In terms of our employees, every day, we wake up and think about our current client and taking care of them. Take great care of them. They will bring you more business. They will also bring you to your next client. We're going to continue to be thoughtful and focused in how we invest in technology and innovation to serve clients. Frankly, the fantastic people in this company are what drive the collective success and the results you see and what we've talked about so far today. I'm extremely grateful and thankful for their efforts continuously and to just be a part of the team. Just a wonderful business and our job is to now continue to build it, and serve clients and take great care of them every day. That's helpful. Steve, it's Jim. Excuse me. Thank you. Mike just gave you the game plan basically going forward, which is really no change, no major change. My role is going to be to work with the board to focus on strategy along with Mike and the whole team to pay attention to our largest shareholders and clients, and also work with some of our largest bankers and wealth managers in terms of what can we do to help them more. I do see it as a fairly active role, but not day-to-day. Not full-time day-to-day. Okay. Got you. Great. Thanks for taking all my questions. Our next question comes from Manan Gosalia with Morgan Stanley. Hi, good morning. I wanted to ask a question on expenses. You kept your expenses flat quarter-over-quarter, you know, despite the negative seasonality that you would typically have. You know, I know you kept your full year efficiency ratio guidance, but I was wondering, can you talk about how expense growth is tracking relative to the expectations you had in January? You know, to what extent are high inflation and competition for talent driving higher expenses? You also mentioned that you completed your core systems conversion, so I was wondering if that drives some incremental cost savings, you know, given that it gives you more flexibility and also, you know, some costs associated with the transition should come out as we go through the year. Sure. In terms of efficiency ratio, as I mentioned in the remarks, we continue to expect to be within our guided range of 62% to 64% for the full year. We were pleased to see that the pace of revenue growth outpaced the growth of our expenses. For the Q1, we see the seasonal impact of higher payroll taxes and benefits, but also we have some benefit from still reduced costs due to the pandemic. We have a lot of opportunities ahead of us to invest in our franchise, in our colleagues, in our preferred banking offices, and our new technologies. In terms of inflationary pressures in compensation, our colleagues are the reason for the success of our business, and we're always focused on treating our colleagues fairly and compensating them properly as well. This is why we don't expect to see much of the pressure on our existing colleagues, but we see some inflationary pressures on the new colleagues that we bring on board. For the core conversion, we have expense backed in our guidance for the full year. We completed the conversion, but we still have to maintain the system, so you'll still continue to see the cost around the system going forward. Overall, for those reasons, we believe that, we feel confident with our guidance, and we expect our expenses to grow in line with our revenues. Great. That's very helpful. Maybe if I can follow up with a question on securities. I mean, I think securities grew 18% versus your end, which is higher than the 6% or so that we've seen in recent quarters. You know, I assume part of this was deposit growth and also there's more opportunity from higher rates. Can you talk about like, you know, what duration and, you know, what kinds of securities you're putting on? You know, also how we should expect securities growth to trend from here? Yeah, no, thanks for the question. So the securities strategy is largely, you know, two-pronged as it's been. Our HQLA portfolio, we've continued to average in over time, and that continued during the quarter. Given the strong liquidity and how we feel, we felt it was, you know, appropriate to maybe add a little bit more than we had in, 2021, for example. The second part of our investment strategy is, municipal bonds, which has been, a core part of the bank really since we bought the bank back, in 2010 and have been investing in municipals from that time on. It's been a very good, one, yield for portfolio, and number two, effective way of managing our taxes. We've been very active in the muni marketplace, frankly, every quarter for the last 12 years, and that continues. If you think about the long term of First Republic, it's really about investing for the future, and that goes with investments, right? We average in over time, and we continue to do so as the balance sheet grows. You know, the percentage of investments to total assets doesn't deviate a whole lot. It's probably in this range is a safe one as you go forward. Great. I appreciate it. Thanks for taking my questions. Our next question comes from Casey Haire with Jefferies. Yeah, thanks. Good morning, everyone. Wanted to follow up on the NIM guide, you know, holding it flat. I think last quarter you guys talked about three hikes and cash balances elevated. Just wondering, you know, how many hikes you're expecting now, and then, you know, the cash deployment was up this quarter, so cash balance is down. Just wondering what you mean, what you're looking for there. Then finally, just, you know, deposit betas, should we just use the last tightening cycle as a proxy for how deposit prices trend? For the NIM, we still believe that our guided range, we feel comfortable with 2.65% to 2.75% for the full year 2022. As you noticed, the cash balance has decreased to $8 billion at the end of Q1 compared to $13 billion at the end of last year. It will benefit NIM in the Q2. Mike Selfridge talked about the loan yields picking up during the later part of the quarter and going into the Q2. This will benefit the NIM. In terms of the beta, as we've seen in the rate cycles, 2015 through 2019, the beta was about 19%. As we know, cycles are not the same. In the last cycle, it took us about two years to get over 100 basis points. We think this time it will take them sooner to get there. That being said, we've shown over time that t he model produces stable and consistent results in different rate environments. On the last call in January, we assumed 3 Fed hikes. For this time, we've seen 7 Fed hikes going forward. Okay, great. Thank you. Then, another one on the loan growth outlook for Mike Selfridge. I'm sorry if I missed this, but the loan pipeline, how is that shaping up versus the 12/31 pipeline? Casey, it's above the 12/31, and as I mentioned, it's up significantly year-over-year, and it's. I would characterize it as strong going into Q2. Okay, very good. Just last one from me. You know, as you guys, you know, continue to put up this robust growth, you are tracking towards, you know, that ever important $250 billion asset level, probably 2024. Just what do you guys see as, you know, you know, the heavy lifting that you need to do between now and then, to keep onside with regulators and- Yeah. You know, what are the implications for, you know, financial implications? Thanks for the question. I think the one thing I would characterize is when we went from under $50 billion to over $50 billion, we had to build everything, right? There was a big leap at that point to get, you know, liquidity stress testing, capital stress testing, all built and established. Even though now we're not subject to those $50 billion rules anymore, we still have those programs in place, right? We still run capital stress tests. We still run liquidity stress tests. There's only enhancement from here, which we're working towards. You know, we've done resolution planning, for example, and we're still subject to that. A lot is not new, and the infrastructure's in place. You'll have to enhance. One of the great things about the core conversion is it will help with the data needs and also faster data, faster information to allow us to do these things on a more real-time basis. We're obviously building already, but it's not as big of a leap as you would have saw, like we all remember from about seven years ago when we went over $50 billion. Great. Thank you. Our next question comes from Erika Najarian with UBS. Hi. Good morning, Jim. It's so good to hear from you again. And Mike, congratulations on your new role. My first question is, you know, a follow-up to Steve's line of questioning. You know, given the volatility in the outlook for the economy, you know, there are a lot of investors that we're speaking to that are newer to First Republic. You know, Jim and Mike, perhaps you can answer this question that I'm getting. You know, clearly the rate trajectory that the forward curve is pricing in is much more violent and significant than we've seen, you know, over the past several years. You know, I guess, how do you reassure future shareholders about the durability of single-family growth? You know, maybe, you know, say in this public forum, what the secret sauce is. For Mike Selfridge, I think there's a big debate on what much higher rates will mean for private equity and venture capital. You know, given your experience here, you know, how should we think about you know, investment speed and, you know, other financing needs as rates you know, increase materially and quickly? Erika. Excuse me. It's Jim. Let me start with the answer on mortgages. We have, I've been, you know, at this business a long time. Mortgages lag a little bit, as Mike was indicating, both Mikes actually. They are climbing fairly rapidly. What happens as they move fairly quickly is competition tends to pull back, particularly mortgage broker originations and secondary market originations. Those are coming almost to a halt already. Our opportunity to continue to grow is greater than one thinks. The other thing is we're doing most of our business 60%+ with existing clients, and we still are. The other thing is that our deposit base is entirely different now than in any prior run-up. We're at almost 70% checking and 60% from business banking, which is to some extent, working capital. The mortgage business will continue. Part of this bank I started when in 1980 and went through the early 1980s. Even then, we made a lot of money. The spread widened on mortgages, and there was business to be done. I don't really worry about it very much. The increase is gonna be more violent than we had predicted. As Olga just said, we've redone our forward projections around 7 increases, if I have that right. We did 7 increases, and the NIM stays the same. The NII still expands, as we've said in our deck. That's the mortgage piece. Let me turn it over to Mike or Mike for the business piece. Yeah, Erika Najarian, to your question on VC/PE, just, you know, a little backdrop on last quarter. Fundraising was strong. Velocity did slow a little bit, and by velocity, I mean the pace of investment in terms of dollars. Exits slowed. That's an exit-driven business. Public markets, if they correct down, then that industry is going to lag a little bit. Having said that, there's still a lot of room for us to grow. Even if velocity slows and even if utilization rates gravitate toward the mean, which is about 33% to 35%. There's still a base level of business being done. Some of the best funds are actually investing more heavily in the down cycle because they're taking more of a three to seven year time horizon in terms of their investment cycle. I'm confident we'll still be able to do well even if the economy turns in that particular segment. I just note that credit quality in that particular segment is stellar. Erika, maybe one last comment I'd make, 'cause I like the start of your question, sort of in an uncertain backdrop or challenging backdrop and sort of what you see in the results here and sort of our outlook during challenging times in the past, the benefit of client service, which drives growth, right? If you think about a few of the things like, you know, AUM not down very much because client inflows is driving it, despite the market volatility. Loan pipeline and backlog remains very strong because again, we're there to serve clients when, as Jim mentioned, others might be pulling back a little bit. Continuing to deepen and increase relationships with clients who consider us their lead bank. Service becomes even more valuable when times are challenging. That's what drives growth and staying very focused on credit safety soundness, and it's even more valuable. It's really fundamental to the way we operate and try to maintain sort of that, consistency and stability in all periods because we want to be there for our clients. Got it. My second question is a little bit more technical, and this is for Mike Roffler and Olga Tsokova. You know, as we contemplate the bank crossing $250 million, you know, there's a big debate in the marketplace about how much more liquidity you would have to add to potentially have to adhere to the liquidity coverage ratio. A multi-part question. You know, number one, you mentioned that you have $29.9 billion in HQLA. Are munis considered Level 1 or Level 2B? And just, you know, for those, a broader audience, 2B would count for less, right? Yep. That's right. That's the first question. The second question is, you know, obviously the other factor of this is your outflow assumption or your deposit base or your liabilities. As we think of that 70% checking that you lauded for this quarter, are those higher value deposits under LCR? In other words, are they considered mostly operational, therefore you don't have to hold as much liquidity against them as you would for a non-operational deposit or a financial institution deposit, for example? Great question, Erika, and you're right. It is technical. To the first part, the municipals would be considered 2B. A good portion of our municipal portfolio qualifies as HQLA. It doesn't count as much as level 1, as you mentioned. To the second part of your question on the deposits and the different outflows, one of the things that's important to segment by industry type. Then also you're right, operational versus non-operational is very important. That's where we mentioned earlier the core system in our data is very important, so we can quantify the amounts of operational. Think about lead bank, very important designation. Typically leads to their using us for their operating activities. A good portion of those business and consumer are going to be operational in nature, less outflow. As we've mentioned before, and I think people have written about this, you know, the mix of deposits being diversified is also helpful, so you're not reliant on any particular industry. All of these activities are absolutely part of our strategic planning process and how we think about the deposit base as we go forward. Got it. Just to wrap this all up, you know, could you maintain that net interest margin range even as you add more liquidity to your balance sheet in anticipation of crossing $250 million? It's a good question. Again, a lot of it will depend on how much liquidity needs to be added, and that will depend on the deposit base at the time. It's hard to say how impactful it will be other than we don't believe it's a threatening impact. Could it move your margin to lower end versus middle to higher? Probably yes, but the deposit base at the time also will have a big impact on it and what the rate environment is. Got it. Thank you. Our next question comes from John Pancari with Evercore. Good morning. Just a couple clarifications on some of the topics already brought up. On the deposit sensitivities, Olga, I think you mentioned 19% beta prior cycle. What is your assumption now baked into your latest outlook scenarios, and has that changed? Last cycle, as we said, 19%, but for this cycle we expect beta to be slightly higher than this given how fast- So slightly- More than 19%. Yeah, just a little bit given how fast. So just a- Given how fast the Fed's gonna move. Just a little bit, but not much. Okay. All right. You don't have a quantification of what's in your assumption? It's given the deposit mix is a bit different than last time, right? The 19 is all in, so it's a little bit higher than that, but not much. Okay. Got it. All right. Thanks, Mike. On the lending side, on the capital call business, Mike Selfridge, I appreciate the detail you gave there. You indicated a modest decline in line utilization there. Could you give us a little bit more of the near-term outlook? Do you think that's likely to continue to gradually shift lower, you know, and maybe perhaps some just additional color in terms of what you're seeing in terms of, you know, a change in borrower behavior or appetite near term around those lines. Yeah. John, maybe a couple thoughts. I said it was down slightly. It was down from something like 41% to 40%. That's still elevated if you look at a longer historic view. Again, historically somewhere in the 33% to 35% range. It's hard to predict. It's still holding up well. There's still activity. I think overall, if you look at the dry powder of the industry, I think it's somewhere in the $1.8 trillion range in the United States. There's still a lot of dry powder to deploy, which will most funds will use capital call facilities to deploy capital to make investments and then call that capital. I think it's going to hold up well, but again, velocity would likely slow with the broader economy from what I see. Got it. Okay. That's helpful. Lastly, on the expense side, or at least on the efficiency side, I know you reiterated this. What are the dynamics that are influencing that range remaining in the 62% to 64% for your guidance versus where you're running now? Yeah, sure. The guidance of 60% to 64% includes several components. The Q1, as we said, we had elevated payroll tax and benefits, but we were pleased that the growth of revenues outpaced the growth of our expenses. We continue to invest in the business and our people, preferred banking offices as well as technology. Also, we had a benefit in the Q1 from lower costs due to the pandemic. As we're returning back to the offices, which we did in the Q1, we expect those costs to go back to more normal levels as we start doing more travel, do more client events and in-person events for our colleagues. As we said, we think about the expense growth to be in line with the growth of our revenues. Yeah, I might just add, you know, we're really pleased that we've been sort of at the low end at 62% of our range while continuing to deliver extraordinary service to our clients, continue to add to our colleague base and invest in the franchise for the future. You know, one of the things that we're always doing is investing for future growth and future client needs and what they want of us. I think it's really important that we maintain that consistent sort of range while we continue to invest and also sort of, you know, deliver good, stable, consistent returns. We're pleased at the level and, you know, it'd be great to stay at the lower end where we've been the last few quarters. We're really, you know, we're pleased with that while continuing to invest. Got it. Thanks, Mike. Yeah, I said you're 60 now, I meant you're 62 now. Thanks for the color. I appreciate it. We'll take our next question from Dave Rochester with Compass Point. Hey, good morning, guys. Nice quarter. Jim, good to see you back. Mike, congrats on the promotion. It's definitely well deserved. I want to go back to the margin- Thanks, Dave. You got it. I want to go back to the margin guidance. I was wondering how you're thinking about the deposit growth trajectory from here that you have baked into that. I appreciated the detail on the loan yields. Can you just talk about the yields on the securities you bought this quarter and where you're seeing those purchase yields today? I would imagine they're even higher now. That'd be great. Hey, Dave. Mike Selfridge. I'll start with deposits and hand it over to Mike and Olga. Olga mentioned the deposit beta, and actually I'd point you to sort of our ability to grow deposits on historic cycles of rate hikes, 2016-2018, we still grew deposits 18%. Even going back further, 2004-2006, we grew deposits at 25%. I think our ability to acquire new households, the service model that Mike talked about, the seeds we planted in areas like the next generation of households and relationship managers, the mix, business-to-deposit 60/40, the channel, private banking, wealth management, which is now a large driver of deposit growth, business banking, relationship managers. I think you put all that together and we're confident in our ability to grow the deposit base and grow it to keep pace with the mid-teens loan growth. Yeah. Maybe just on investments for a minute. You're right, Dave. The yields today, munis are, you know, 4.25% roughly, and that, you know, was probably just under 4% in the Q1. HQLA, if you think of sort of a three to four year duration is, you know, call it 3.25% now, and it was probably at the start of the Q1 in the low two's and rose to the low three's. Call it 2.50% to 2.75%. You're definitely seeing the benefit in new investment from the uptick in rates. Yeah. That makes sense. Appreciate the color. Then how are you guys thinking about cash levels from here or, you know, where's your comfort level on that bottoming out since we, you know, saw a decent drawdown in that this quarter? Hi, Dave. The cash decreased at end of the Q1 to $8 from 13 billion we had at the end of last year. Eight billion is about 4% of total assets, which we see more as more normal level for us. Gotcha. That should remain fairly steady from here, I would imagine. Sounds good. Just switching to the multifamily segment. It sounded like you guys saw a big acceleration of production there. We definitely saw that in the growth this quarter. You mentioned a little bit of a pull forward in loan production just in general given the rate move. We've heard that there could be actually a decent refi boom going on right now in the New York City multifamily market. Was just wondering if you guys had seen any evidence of that, and maybe could just give an update in what you're seeing in that segment in multifamily just across your footprint, and how your pipeline looks in that particular segment. That'd be great. Yeah. We're pleased with the second-best quarter ever in terms of the $1.7 billion originated. It's a little lumpier, but I would say overall, multifamily is performing well as an asset class investors are looking for because rents and vacancy rates have rebounded generally in our bigger markets to pre-pandemic levels. What else can I say there? I don't know if there's a little bit of a pull forward there, just like the refi on single family, but not a whole lot. I think it's just steady as she goes as it relates to multifamily. Just reminding you again, our median size of what we've originated looking back through the pandemic is less than $2 million, loan-to-value at origination about 55% to 60%. Strong debt service coverage ratio with recourse, not deviating at all from our strong stellar credit standards. All right. Great. Thanks for the detail, guys. Our next question comes from Ebrahim Poonawala with Bank of America. Hey, good morning. Just wanted to follow up. Mike, you talked about growth outlook for the loan book relative to rates. Just wanted to get your perspective in terms of how do we think about if the IPO market remains stalled and you have a significant correction in tech stocks and in the private markets. What does that mean when we think about just lack of wealth creation and what that means for mortgage lending, client acquisition? Just a perspective in terms of historically, like if you look back, how has that played out in terms of growth for the bank? Well, first of all, I'd say given our locations, Boston, New York, Silicon Valley, LA, we are in innovation centers, and that is alive and well despite ups and downs of cycles. I don't think it's going to impact our business at all. The service model that Mike mentioned, again, a little more than half our growth coming from existing clients, put it in perspective with market share that's generally on a cumulative basis less than 5%, we still have opportunity to grow despite a slowdown in the IPO market. I'd also add that, you know, I think, Ebrahim, you're hitting at a little bit of, you know, because of slowdown, people buy less homes or are not as active. The reality of it is the markets we're in are typically supply constrained. There are more buyers than sellers at any time. Even if you have a few less buyers that don't have the liquidity or didn't have the expected liquidity, there still are plenty that are looking, and typically not enough supply in the markets, which is why you see strength in multifamily and things like that. Because, you know, to Mike's point, these are innovation centers that people still want to be in. They're going to live somewhere. Got it. Understanding that you have a lot of market share opportunity in these markets, Mike, you mentioned, give us a sense of this hiring pipeline. Any new markets, that you're looking at or growing, be it Texas, Florida, places where wealth is migrating? Well, given the market share stats that I just mentioned, we can still grow this franchise very well just going deeper in our current markets. First of all, we're pleased with the growth in all of our markets. Florida, we're investing more in Florida. We have a new location, I think we mentioned last quarter, in Bellevue, Washington. Bob in the wealth management side led us there, and we believe that's a significant opportunity. Of course, just growth in our existing markets as well. No plans for other geographies at this stage. Got it. Thank you. Jim, welcome back. Thank you very much. We'll take our next question from Andrew Liesch with Piper Sandler. Hey, good morning, everyone. Jim, welcome back. Mike, congrats on the promotion. Great to see you here. Question on the single family originations in the quarter. Were those just some breakdown on structure? Were these 5/1 ARMs, 7/1 ARMs? What was the mix of what you originated? Yeah, we don't break it down by that category. Generally speaking, most are hybrids, and I would say 5, 7, and 10 ones, and then we do some 30-year fixed rate as well. Got it. Okay. Okay. That's always been consistent with our client base. I guess with rising rates, I think historically the duration on your single family book's been around 3.5 years. How do you expect that to shift? Do you think it extends out a little bit further? What dynamics at play do you think will be at play here as rates are moving higher? Yeah, Andrew. It will definitely extend a little bit, and that's not unexpected. You know, we see repayment rates will dip a little. But it won't extend as much as one might think just by looking at the primary rates because the client base is very active, right? They go and buy a second home, or they buy a larger home. And so it's not a drop off in terms of repayment rates extending duration as one might think. But it. You know, we've been running at 19% to 20% CPR. That will flow into the teens as you sort of get through this refinance and this rush that Mike Selfridge talked about earlier. But it's not a big duration extension that you normally would see in a mortgage lender. Got it. Okay. That's very helpful. You've covered all my other questions. Thanks so much. I'll step back. Our next question comes from Bill Carcache with Wolfe Research. Thank you. Good morning. Within the commercial real estate portfolio, as you look across your customer base, how do you see the risk that high-quality tenants in Class A properties will continue to abide by their lease obligations through the end of their lease terms, but ultimately not renew because they simply don't need as much space? A couple of maybe just from an industry perspective in our larger markets like New York, San Francisco. CRE, commercial in general is more challenged, obviously, with the pandemic. Vacancies are somewhere in the 20% range. For First Republic, that's not the case. We're doing smaller deals and they're holding up well. You did point out one important point from the industry perspective. Leases are generally longer and carrying owners through a cycle. Return to office is a tailwind. Then from our perspective, credit quality is strong, and we're being very selective for the best opportunities. Got it. That's helpful. Separate question. Some banks are expecting a more pronounced decrease in deposits across the system as the Fed begins to reduce the size of its balance sheet, but it sounds like you expect the impact on First Republic to be relatively modest. Can you go into a little bit more detail on what gives you confidence in your ability to sustain deposit growth at levels sufficient to support your loan growth without much of an increase in your deposit betas relative to the last cycle? Yeah. Thanks, Bill. I think the thing that gives us confidence is if you come back to the service model and our business model. Even in periods of rising rates in the past, we have grown deposits 15% to 18% relatively consistently. If you look back to 2015, 2019, that was the case. The reason for that is, even though the Fed is acting, service doesn't stop. We are deepening relationships. We're adding new households. We're adding new wealth management teams, which bring households. That activity leads us to continue to grow our deposit base. You've seen it time after time. It comes back to fundamentally our business model is attached to service and doing what clients have asked of us, and that doesn't ever stop. Understood. That's really helpful. That's it for me. It's great to hear you back and healthy, Jim. Let me also offer my congrats to you, Mike. Thank you. Thank you. We'll take our next question from Terry McEvoy with Stephens. Hi. Good morning. I was just wondering, in your conversations with clients, are they asking about higher deposit rates? I did notice last week you began a CD special, I think 11- months, and I didn't know if that was in response to those types of conversations or to maybe fund some of the loan growth that we've talked about on the call? Thanks, Terry. Periodically, we run a deposit special. It's a little bit of testing, and it's a little bit in response to asks, but it's not a driver of anything at this juncture. I would say that client conversations have probably started, but with only one Fed hike and at 50 basis points, they're not significant at this point in time. I would say, let me just add that we won't run into much of that conversation until we get up into a full digit of moves. You know, they've gone up 1% or so. Then it's gonna matter because the money market mutual funds are what bring about the question. We also have a great deal of money swept off the balance sheet. Mike would know that number better than I, but I think we're north of $10 billion. That's right. Well, we have solutions for clients both on and off balance sheet, and we've really expanded that capability in the past, and it exceeds $10 billion now, which again provides great optionality both for the bank and for the clients. Okay. Just as a follow-up, what's the best way to think about the Q2 investment management fees? The equity markets were down in the Q1. You also continue to have new client inflows. This is Bob. You know, you hit on the key thing. We have very strong net client inflows. We had a record net client inflow for the Q1. I think we'll be about $160 million in investment management fees for the Q1. I would also just highlight that even though we have a typical blend of fixed income and equities, most of our pricing on our client portfolios is a blended fee. The moves don't make that as big a difference as you'd think. Great. Thanks, everyone. We'll take our next question from Jared Shaw with Wells Fargo. Hi. Good morning. Thanks for taking the question. Maybe starting with Mike Selfridge, you gave us the yields on loans at quarter- end. Do you have those numbers for the average for the quarter? I don't have them off the top of my head. I want to say the average is somewhere around 3.11% totality of originations. Okay. Across all the products? Across all products, correct. Okay, great. You know, looking at the allowance level at 50 basis points here of loans, is this a good floor to assume as we go forward that you know, the allowance won't go much lower than this? Or is there still room for that to move down as a ratio? The provision levels, we had a modest provision in the Q1, but what drove it was our strong credit track record as well as our portfolio mix. If you look at our portfolio growth, about 80% of the loan growth on the balance sheet came from single-family loans. That is one of the drivers of the levels of provision. We're about 50 basis points now, but as you know, the CECL introduces some volatility to the provision levels. For example, this quarter, some of the economic scenarios have worsened because of the worsened economic environment, but it didn't have a significant impact on the provision. Given our great credit track record and the portfolio composition, the levels of provision can be at the current level or can even go below where we are now. Do you have what the provision or I'm sorry, what the allowance level was just for the SFR? As 80% of that growth is coming from that lower or that higher quality bucket. It's all high quality, but you know what I mean. It's, you know, in terms of the actual allocated allowance being lower, what's the allocation for SFR? It's pretty low. I wanna say 10, 11 basis points. That's, you know, look at our history and, importantly, our underwriting, you know, of 55% to 60% loan-to-value over time. Even with a flat housing price appreciation, you don't see much change or much loss content in those loans. It is a pretty low percentage. If that drives most of your growth, you see a lower provision, which you saw this quarter. Jared, it's Mike. If I just clarify, the number I gave you on the originations for all loans is just under 3%. It's right around where the total loan yield is for the portfolio. Okay. All right. Great. Thanks. Just finally for me, you know, in the past you all have mentioned, you know, wanting to have sort of two years of growth capital under your belt. Do you feel that you're at that point given the still robust growth outlook? Or, are we sort of into the two-year cushion there now? I think we feel very good given the $2.8 billion net that we raised in 2021. That's one of the reasons, you know, we went early in many cases like we did last year. The markets were a lot more receptive than they are currently. We feel good about our positioning today. We obviously remain opportunistic, and we do want to continue to look forward to ensure the capital base is there to allow us to serve clients into the future. Right now we feel pretty good with where we're at. Great. Thanks very much. Thanks for taking my questions. Our next question comes from Chris McGratty with KBW. Morning. This is Christopher O'Connell filling in for Chris McGratty. Most of my questions have been asked but just wanted to circle back on the margin discussion. You know, you guys give comments about cash coming down, particularly toward the end of the quarter. You know, loan origination yields are, you know, above the portfolio yields. You know, and securities origination yields are, you know, coming in higher as well. You know, along with a, you know, better deposit profile than previously. Everything kind of points to, you know, you know, improvement in the margin from here. You guys are kind of starting at, you know, close to the midpoint of your guide. I guess what are the factors that are, you know, pushing back on that or not having you guys, you know, commit to being, you know, at a higher point in the NIM range? Thanks for the question and comment. I think you hit on a lot of good points with cash levels being down a little bit. That is a boost to the margin, but obviously doesn't impact net interest income a whole lot, right? When we think about sort of the forward look, the most important thing we're here to do is, again, serve clients. Competition for loans drives some of that, and it continues to be a competitive market for the clients that we've continued to acquire and serve over time. I think there's a little bit of that baked in. Also the second is, you know, the Fed's gonna move a bit faster than they had last time. Again, in the interest of serving clients, we're gonna continue to do that. Now stand back from all of that, right? What we're focused on is generating consistency and stable results while maintaining safety and soundness at all times. You're there to serve clients at the prevailing market. That's what we're here to do, and we're gonna continue to do that. If we deliver consistent margin, consistent efficiency with a growing balance sheet, that leads to the net interest income growth you saw this quarter and have seen, you know, over many quarters in our history. Which then enables investment in the future, planting seeds for growth, and it sort of continues to propel us into the future. That's how we more think about it versus, you know, a quick margin expansion that frankly may not repeat as you get further out, whereas client service and client growth, that will repeat. Understood. Appreciate the color there. Just one last touch up on the, you know, capital call utilization, you know, you were referring to before, you know, 40% this quarter versus 41% or 42% last quarter. What is the historical range on kind of the high end and low end for that? Yeah. Low range is about 33%, high range in the, you know, low 40%. 42%, I would say, was in the higher end of the range, maybe a little higher. The average is probably around 35%. Got it. That's helpful. That's all I had. Thank you. We'll take our next question from David Chiaverini with Wedbush. Hi. Thanks. Only one left for me is housekeeping. The income from investments in life insurance was down about 50% from Q4 to Q1. Can you talk about, you know, the run rate and outlook there? Hi, David. For income from investment in life insurance, last quarter, the Q4, we had a benefit which was recognized, which increased the income. This quarter, because of the volatility of the markets, we've seen some decrease in mark-to-market for some of our BOLI contracts. Got it. Thanks very much. Yeah, David, going forward, it's probably in more of a 20% to 22% if you have a stable market outlook. Helpful. Thank you. We'll take our next question from Timothy Coffey with Janney Montgomery Scott. Great. Thanks. Morning, everybody. See, last quarter, we talked about the plan to open six new offices by the middle of 2023. Given the trajectory of, you know, kind of what we're seeing this quarter top line, is there a chance those plans could be accelerated or expanded? No, we're still confident with that number. We've got a second office opening in Jackson. As I mentioned, we're opening in Bellevue. We're very excited about that. Last year, we expanded in New York. We'll open a few more in New York. I think that's still a consistent message. Okay. All right. Those are my questions. Thank you. We have no further questions at this time. I'd like to turn the conference back to Jim Herbert and Mike Roffler for any additional or closing remarks. Thank you very much. Thanks, everybody, for the time today. I'd just like to make a very fundamental point. The model is fully intact as this quarter proves, and the leadership of the company has never been stronger. I think the coming volatility is gonna prove out once again the value of the stability and strength of the model. Now let me turn it to Mike. Thanks, Jim, and thanks, everybody, and for the questions. You know, it really is a great, terrific start to 2022. Our colleagues have done an absolutely fantastic job staying focused on the client and delivering. We've got strong growth opportunities ahead. The markets remain active, and our client base remains very strong. We're really optimistic about 2022 and the opportunities ahead of us. With that, thank you for all the interest, and have a wonderful day. That does conclude today's conference. We thank you for your participation. You may now disconnect.