First Republic Bank

Thank you and welcome to First Republic Bank’s fourth quarter and full-year 2014 conference call. Speaking today will be Jim Herbert, the bank’s Chairman and Chief Executive Officer; Katherine August deWilde, President; Mike Selfridge, Chief Operating Officer; and Mike Roffler, 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. In addition, some of our discussion may include non-GAAP financial measures.

For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements and reconciliations of non-GAAP financial measures, see the bank’s FDIC filings, including the Form 8-K filed today, all available on the bank’s website. And now I’d like to turn the call over to Jim Herbert.

Thank you, Dianne. We’re very pleased with the results for both for the fourth quarter and for the full year 2014.

Let me reflect for a moment on the full year, and then I’ll ask Katherine, Mike and Mike to talk about the quarter in greater detail. 2014 was indeed a very good year; in fact, our best ever.

In today’s complex world, the continuing simplicity of our model and our strong client relationships remain a considerable competitive advantage. In fact, well over half of the growth of our business each year comes from existing loyal clients.

Let me highlight a few numbers. Core revenue was up 17% for the year.

Core net income was a record. Our loan volume was the second best ever at a total of $17 billion, and we successfully sold a record $4.4 billion into the secondary loan market.

Tier 1 leverage capital at year-end increased over last year to 9.43%, and quite importantly our credit quality remains excellent. Net losses for the year were only $2 million, or less than a single basis point.

Simultaneously, we increased our loan loss reserve by $56 million. Deposit gathering continued to be quite successful as well with deposits growing 15.7% for the full year.

Quite importantly, particularly in the lower rate interest environment that we’re operating in, checking balances now represent 58% of total deposits at year-end. On the private wealth front, we had an outstanding year.

Assets under management grew organically 28% while revenues grew 29%, and business banking had a very strong year and is a major contributor to the franchise, particularly on the deposit side. We’re also quite pleased with the progress in our operating areas as we enhance regulatory scrutiny and controls.

We invested significant resources during the year to strengthen internal audit systems and procedures as well as enterprise risk management, compliance, BSA, AML, and our overall infrastructure. Additionally and quite successfully, we restructured our investment portfolio during the year and significantly improved our on-balance sheet liquidity.

We continue to add to a HQLA in the fourth quarter. High-quality liquid assets, including cash, totaled $3.3 billion at year-end.

Our overall investment portfolio has grown to $6.6 billion by year-end, or fully 14% of total assets. While making substantial progress in all of these areas, core earnings per share were a record $2.83.

Quite importantly, book value per share grew by 14.2%, not bad in an almost zero rate environment. Book value per share, we would note, has compounded at a rate of 15% per annum since our divestiture 4.5 years ago.

Importantly, we continue to deliver extraordinary client service across the entire enterprise. This has been recently reaffirmed with our 2014 net promoter scores, which measure client satisfaction.

Across the board, this year’s net promoter scores are even higher than the already strong rankings that we garnered in 2013. I would note that our scores are also substantially higher than the industry’s as a whole.

Let me speak briefly about how we view 2015. We are going into the new year with meaningful business momentum on all fronts.

Our loan and wealth management pipelines are quite robust, and our deposit gathering has considerable momentum. Credit remains strong.

From an economic perspective, we currently expect 2015 to be a good year in the U.S. - greater volatility possibly, but nonetheless a good year.

In particular, the urban coastal markets in which we are operating are doing very, very well. Looking ahead, the opportunities in these markets for our brand of extraordinary service-focused banking remain outstanding.

Overall, we’re optimistic about 2015. Now, let me turn the call over to Katherine.

Thank you, Jim. It was indeed a very good year, capped off by a strong fourth quarter.

Let me summarize some of the highlights for the quarter. Core earnings per share were $0.67.

Loan originations totaled $4.3 billion, up 6% from the fourth quarter of the prior year. Loan growth for the quarter was 13.7% on an annualized basis, and average loan balances for the quarter were up 13% year-over-year.

Non-performing assets continued to be extremely low at 10 basis points. I would note that the net charge-offs for the entire year were less than 1 basis point.

Wealth management assets for the fourth quarter were up 3.9%. Wealth management revenues were up nearly 5% from the third quarter.

With respect to loan volume, we had a very good quarter. Loan volume was driven by robust economic activity in our markets as our intense focus on relationship banking.

In fact, over 55% of all loans originated in 2014 were to existing proven borrowing clients. Over 52% of single-family home loans were for purchases.

We are particularly well positioned to capture new business in both purchase and refinance environments. Our loan pipeline is strong going into 2015 and is a bit stronger this year than it was at the same time last year.

Though loan pricing remains competitive, our relationship-based, client-focused service model continues to be successful. In terms of loan sales, we continue to see steady demand for our high quality loans in the secondary market.

In the fourth quarter, we sold almost $1 billion with a gain of sale of 41 basis points. The sales in the fourth quarter included primarily intermediate term fixed rate home loans.

I would note that our loan servicing portfolio was just under $10 billion at year-end, and loan servicing income was almost $10 million or up 34% for the year. We expect to continue to sell loans into the secondary market as we have done historically.

Secondary market sales give us the flexibility to manage our balance sheet and interest rate risk. Turning to our success in private wealth management, we are very pleased with the quarter and the full year.

The strong increase in wealth management fees was all organic and was driven primarily by effective cross-sell and net client inflow from both existing and new clients. Since our divestiture 4.5 years ago, wealth management revenues have increased at a compounded rate of 35% per annum.

Our full service integrated platform continues to resonate very well with clients who are attracted to our customized solutions. We are very pleased with the quarter and the year, and now I’d like to turn the call over to Mike Selfridge.

Thank you, Katherine. I’d like to cover business banking, multi-family and commercial real estate lending, and our investments in the client experience.

Business banking had another great quarter. Business loans outstanding and deposits grew strongly.

As of year-end, business loans outstanding represented 13% of total loans while deposits represented nearly one half of our total deposits. The development of our business banking franchise has been an important driver for both deposit gathering and the improvement in our overall deposit mix.

Business banking has also contributed significantly to the growth in checking accounts. Checking account balances were 30% of our total deposits in 2010 and fully 58% at year end.

We continue to be quite successful following our very satisfied personal banking clients to the businesses or non-profits they own, operate or influence. Multi-family and commercial real estate lending also had a strong year.

Multi-family loans represented 12% of the total loan portfolio at year-end with an average loan size of $2.1 million and a weighted average loan to value of 58%. Commercial real estate loans totaled 10% of the portfolio at year-end with an average loan size of $2.1 million and a weighted average loan to value of 52%.

As Jim said, First Republic’s urban coastal markets are performing very well. This is especially evident in the innovation economy of the San Francisco Bay Area, which is led by both the technology and biotechnology sectors.

We continue to benefit from the strength of our markets and our reputation for exceptional service. We also continue to invest in technology to enhance the client experience, including our online and mobile banking platform.

To this point, we are quite pleased to have recently received the Javelin Mobile Banking Award in 2014 for the highest rated smartphone app in comparison to the mobile banking offerings of the top 30 banks in the United States. Now, I’d like to turn the call over to Mike Roffler.

Thank you, Mike. I’d like to take a quick moment to remind everyone of how we look at our business and discuss core versus GAAP results.

Since our divestiture from Bank of America in 2010, we have focused almost exclusively on core results, including core revenues, core earnings per share, core margin, and core efficiency. Since 2010, our GAAP earnings have included a benefit of purchase accounting which is diminishing over time reasonably rapidly.

As a result, our core measures fully reflect the growth and success of the enterprise and are the most meaningful to analyze the bank. As a quick note, since our divestiture, core revenues have grown at a compounded annual growth rate of 19%, core net interest income 15%, and core earnings per share 17%.

In the last 12 months, core revenues are up 17%, core net interest income 14%, and core earnings per share 7%. Our core net interest margin in the fourth quarter was down 3 basis points to 3.06% primarily due to a small decrease in contractual loan yields.

Such loan yield was partially offset by a continued improvement in deposits costs, which decreased 2 basis points to 17 basis points for the quarter. Turning to our efficiency ratio, which was 59.9% for the quarter, consistent with our previous guidance.

We’re pleased with our ongoing cost containment efforts. We continue to expect the core efficiency ratio to be in the range of 57% to 61% through the end of 2015, excluding the normal seasonal impact of elevated payroll taxes in the first quarter.

In total, purchase accounting contributed only $0.05 per share in the fourth quarter to GAAP earnings compared to $0.09 in the same quarter a year ago. Future purchase accounting will add about $0.48 to book value per share over the next few years.

We continue to make good progress in enhancing our on-balance sheet liquidity by adding HQLA to our investment portfolio. We added approximately $900 million of investments in the portfolio during the fourth quarter, bringing our total high quality liquid assets to $3.3 billion at the end of the year.

We are very pleased with our performance this quarter and with full-year results, and now I’d like to turn the call back to Jim.

Thank you, Mike, very much. In short, it was a very good quarter and a good year.

Loan volume was strong, deposit gathering was strong, wealth management grew very nicely, and credit remains very clean. We are pleased we were able to make important investments in the enterprise over the past year and still consistently deliver earnings results as expected about mid-year.

In short, the simplicity, stability and predictability of our intensely client-focused model continues to succeed. First Republic’s history has shown that this model has performed very well through numerous cycles and rate environments over a 30-year period.

We look forward to another good year in 2015. Thank you very much.

We’d be glad to open the line for questions.

Hey, good morning everyone. Jim, I wanted to start with borrowings flat in the quarter, it was really the deposit side that drove the size of the balance sheet.

Now, if deposit growth stayed at the fourth quarter pace, we would actually cross the $50 billion line in about the second quarter, so can you talk about the plan to manage deposit growth in the first half of ’15? Is there any risk that that takes you over $50 billion sooner than 3Q?

Well remember, Steve, that the measure of $50 billion for the purpose of SIFI is four quarter ending moving average looking back, so we will in fact cross $50 billion in total assets at the end of either the first or the second quarter - probably the second quarter, sometime in there. The four-quarter average will probably occur still, as we anticipated previously, around the third quarter end point.

Okay, I actually was looking at that, Jim, and I guess if you use the average and you just increase it by about a billion and a half per quarter, with this kind of deposit growth, you could get there a bit sooner. Just wondering, would you accept crossing it in the second quarter on an average basis?

To your point in terms of control, probably not; and we have control over the deposit side now in the form of sweep-out accounts. We can control the size of the deposits plus or minus a billion, billion and a half dollars rather easily, actually.

Okay, got you. Then on the HQLA build, should we expect any further build-out, at least in the first half of the year?

Maybe can you talk about the yield that you’re able to add securities in the quarter?

Sure. The answer is yes to your first part of the question.

We do expect to continue to build out HQLA steadily. You know us well - we tend to do pretty much everything we do kind of steady-eddy, and we have a target of being significantly more HQLA, although we’re very pleased with the results we’ve gotten so far, by the end of the first quarter ’16.

We are currently anticipating being there in kind of a steady quarterly basis, so you should expect to see HQLA grow each quarter. In terms of yields, right this moment, the yields are ranging in the mid 2’s, upper 2’s, lower 2’s, so kind of call it mid-2’s, which is not bad; and the duration around that is between sort of four a five years, three and five year range.

Okay, thanks Jim. My final question was on the expense side.

Are you guys still expecting $40 million per quarter average cost regulatory-related for ’15, and maybe can you talk about what that number was in the fourth quarter?

So just to be clear, I think it was $10 million per quarter in 2015, and that run rate in the fourth quarter was pretty close to that number.

Okay. Did I say $40 million, Mike?

You did. That was for the full-year.

Okay, yeah. I don’t think you’d want to spend that.

Okay. Now Mike, the one thing--so let’s just say regulatory-related in 2015 full-year, $40 million or so.

Now in terms of the 20 to 25% that you had identified as temporary, should we take that out of the 40 or is that 40 already net, assuming those temporary costs come out?

Yeah, I think the way I would look at it is the temporary sort of 20% will come out of the $40 million as you go sort of into late ’15 and into ’16.

Okay, that’s perfect. Were there any cost save benefits playing out yet, helping that?

I would say modest, very modest.

Okay. Okay, thanks for all the color.

Appreciate it.

Yes, good morning. My first question is on the reiteration of the 57 and 61% range for the efficiency ratio.

If I’m looking at the comparable number, Mike, it seems like you were tracking at 59.9% in the fourth quarter of 2014, and if I balance your outlook for the coming year, originations, the pipeline is stronger coming into this year versus last year. Clearly there will be margin pressure as mortgage rates are still coming down and you’re adding HQLA, but I guess it seems like the top end, you’re already under that top end of that range and I’m wondering if, as we think about the full-year efficiency ratio for 2015, if the revenue environment in terms of you’ve shown us that the regulatory costs, just as advertised, wouldn’t be moving to the lower end of that range, that 57 to 61% range.

Yeah, I think the first part of the year is probably towards the higher end of the range, and as we get out further we think it will start to come down towards probably the lower end of that range, so I do think that trend line probably starts sort of midyear.

Okay. Just a question on AUM growth - 28% in 2014, clearly impressive, and the market was strong in 2014.

I was just wondering as you think about the continued momentum in your wealth management business, if it’s reasonable for us to assume the same ballpark of AUM growth for 2015.

Well, AUM growth is hard to predict, but we have a very robust pipeline and we are optimistic. But we don’t really predict what AUMs will be.

Looking ahead, we’re pleased, but I can’t give you a precise number.

Got it. Thank you for taking my questions.

Hi, good morning. Thanks for taking my questions.

Looking at the margin, what was the prepayment penalty included in the margin this quarter?

It’s pretty modest, probably about 3 basis points, which is slightly lower than it was last quarter.

Okay, and then even though we’ve seen the 10-year continue to come down here, do you feel that the refi side of things is pretty much played out, or is there still, do you think, some room there for that to impact the margin?

Actually if rates continue to stay low, as they recently have come down a bit, we would expect to see a bit of a pick-up in refinances, and that could impact the margin. That also, however, gives us new clients and new business because we tend to win more than our fair share in the refinances.

Okay, great. Thanks.

Then on the gain on sale margin this quarter, a little lower than where we were last quarter there. At what point do you balance the gain that you’re taking from the sales versus the requirement or the desire to keep loan growth lower?

Are we getting close to the tipping point there where you’ll start to keep more on the balance sheet here, given the lower gain on sale margin?

Well, this year was probably a high for a while in the dollar volume of loans we sold, but as Jim mentioned earlier, our plan is to have a four-quarter average weight cost, four quarters to $50 million in the third quarter of 2015, so we use secondary market sales to both manage our growth and to manage asset liability management. So we have over our whole history always sold some loans, but you might look at this year, 2014, as the high point.

Okay, great. Thank you very much.

Great, thanks. I know you guys may not think about it exactly this way, but when we think about the spread that you’re getting on the HQLA investments, should we broadly assume that a lot of this is core deposit funded, or when you mentally think about growing the HQLA, are you sort of assigning, if you will, longer duration liabilities to that?

I’m trying to just get a sense of the net impact of adding the HQLA.

Well I think, Ken, let me answer it this way. You’re right - we don’t think about it quite that way, but we are not adding to wholesale funding at this point.

We might sometime in ’15 through an unsecured note or something, but generally we’re not. In fact, the FHLB borrowings, which as you know are term borrowings, we’ve allowed them to run off a bit last year.

So I would assign primarily deposit funding. Now, within deposits, we do have a blend.

We have money market accounts, we have checking, and we have CDs, and CDs in fact stopped declining and are beginning to increase slightly and purposefully in order to create some term base within the deposit base again. I don’t know if that answers your question, but that’s the way we think about it.

It does. I guess I was looking for a little more numbers, but I understand that it’s hard to get at.

Maybe a second question, then, is in terms of new mortgage yields, where are you writing new loans? I’m thinking about obviously the collapse in interest rates, what has that done to your new money yields that you’re getting, and have you intentionally changed the duration of the mortgages that you’re willing to lend?

So in the fourth quarter, our new money on the entire portfolio was about 3.75. Obviously there has been movement now and we’ve had to react to that from a market standpoint, but they’ve been holding okay.

We’re not changing the mix on the mortgages, Ken, because that’s like Detroit trying to sell large cars when people want small cars, and vice versa. We do what the client wants.

The real decision is if they want 30-year fixed, for instance, then we sell that, so we follow the client. Clients currently are demanding primarily 5-1s and 7-1s, so from our point of view that’s attractive - we’ll keep those, or the secondary market will buy them quite aggressively.

So we just--we go where the market is. The main thing about interest rates when it comes to mortgages is kind of the point that was implied in Katherine’s response.

We get a lot of new clients when the mortgage markets are active, and remember our model brings five to eight things, other things with every mortgage. We’re at 8.2 or so last year, I think, on the average per mortgage, so the mortgage is only a modest part of the entire relationship that we capture.

So price sensitivity, to us, is much less important than it is to many other folks.

Got it, okay. Thank you very much.

Good morning, everyone. You guys sound pretty optimistic on your outlook for 2015, and you’re comfortable with becoming a $50 billion bank.

On the loan growth side for ’15, your guidance last year was 11 to 13%. How does this optimism and your comfort level in becoming a $50 billion bank impact your outlook for loan growth for First Republic in ’15?

I think that guidance is about right. It could be 12 to 14, but it’s in that sort of low double-digit range subject to getting good credits.

The number one thing we never do is set lending objectives, ever. We have an estimate of what we think it’s going to be, but we basically do as much good-quality business as we can find at prices that we’ll accept, and that’s it.

We don’t ever reach towards a target. Our estimate would be probably, to give a little wider range, in the 11 to 14%, probably.

Got you. Then as a follow-up, looking at the SIFI minimum at $50 billion, there’s talk that that could move up to 100 or even higher than that.

If that does happen here, especially earlier in the year, what does that do to your expected regulatory expenses and then loan growth expectations?

I’m not sure that it changes either one very much, to be honest with you. We’re operating in a range that we’re comfortable with on loan growth, and from an expense point of view, we’ve committed ourselves to achieving the standards and the enhancements that are required at $50 billion.

Although they’re expensive and although it’s painful to get there, the truth is we’re finding that most of the things we’re doing have value in running the enterprise, so we’re on that course. Even if they raised it to 100, we probably wouldn’t change our course.

We might change the speed of some things we’re doing, but we wouldn’t change the course at all.

Great, thanks Jim. I appreciate the color.

Hey, good morning guys. Jim, you’d mentioned you’ve got HQLA of $3.3 billion now.

Could you just update us on how much you think you need? You’d mentioned a level near roughly $4.5 billion last quarter - I didn’t know if you had an update on that.

I think it’s obviously a little bit dependent on mix in the portfolio and mix of what we purchase, but we are probably between 50 and 60% to where we need, and I’m thinking forward to a somewhat larger balance sheet as well.

Got you, thanks. Just a question on capital - when you guys go through the CCAR-like test eventually, will you have to maintain a minimum Tier 1 leverage ratio of 8% in a stress scenario in that first test?

Well, CCAR is not applicable to us. We’re not a bank holding company.

We operate under DFAST, just to be clear. The differences are modest, but there are some differences.

The 8% Tier 1 leverage capital is a function of our de novo status, and the de novo status runs for seven years from July 1 of 2010, so July 1 of 2017, the de novo status would be completed. That’s where the 8% comes from - it’s detached entirely from DFAST.

So you don’t have to meet the 8% in a stress scenario, is that right?

No, actually we are operating as if we do. We’re operating as if we do, yes.

I’m sorry, I meant to answer that directly. Yes, we do.

Okay, got you. Then I guess generally, what’s your overall outlook on margin as we look out to 2015?

It seems like you’re getting close on the loan yield ex-accretion and prepays. You have cash that’s going to be running into securities on an average basis - I know that was a little bit of source of pressure on the margin this quarter.

Also as a follow-on, what kind of assumptions do you have for the interest rate curve, given the moves we’ve seen recently?

Well I must say, it’s a difficult time, I think, for everybody to figure out because we’ve been saying this for several quarters - we’re in new territory, and I’m not sure anybody actually knows exactly where it’s going to go. We’re pleased so far with our margins, actually, and being able to maintain them in this low-3 range.

As Mike indicated, we got an additional 2 basis points out of our deposit side last quarter - that obviously has a limitation, because we’re already at 17 basis points. But the increase in checking accounts is helping and that’s a bit of an offset, and that comes from the cross-sell strength of the enterprise and how we operate.

Having said all that, if the 10-year continues to come down, or more to the point the five-year, but they're moving a bit in tandem, we’re going to be under increased margin pressure.

Okay. All right, great.

Thanks guys.

Thanks, good morning. I wanted to talk about the nice decline in the cost of deposits this quarter.

It seemed like the mix shifted from money market to checking. What was the dynamic there?

What drove that?

It’s been continued success with both consumers and businesses and increasing our checking growth, so it’s been sort of a mix change that’s helped us. There is probably some slight pricing decline in the money market area which contributed to it also, but it’s largely a mix factor.

Okay, thank you. In terms of the new securities that you actually put on this quarter, could you talk about what you actually added to the portfolio in terms of the yields and the durations, what the duration was on the portfolio at quarter end?

So I think some of this we covered on HQLA - you know, sort of mid-2’s, four to five-year duration, things like agencies and pass-throughs that qualify as such securities.

Okay, I’m sorry. I thought that was what you were expecting to put on in the near term quarter.

No, that was what was put on. Sorry, that’s what was put on.

Okay. I guess as a follow-up on that, any guidance in terms of what you expect to put on going forward, at least in the first quarter?

So far, the yields are holding.

Okay, thank you.

Good morning. I wanted to ask a little bit more follow-up on the loan yields this quarter, the new money, where you’ve put it on, where it is right now.

You gave us the blended portfolio numbers, but if you could maybe tell us where the 5-1s that you were originating this quarter were at in the fourth quarter, and where they were at in the third quarter and where they’re at right now, because I think that’s been a more steady rate so you are actually perhaps less subject to the volatility of the 10-year than a typical thrift would be. Then as a follow-up question, I have a second question on cash balances in your average balance sheet.

The single-family home loans that we’re putting on are approximately about 2.7, and that’s a mix of primarily the five-year and the seven-year, and of course with each of those loans we do a lot of cross-sell and, referring to an earlier question, that helps us grow the checking.

And then that 2.7 rate, has that been steady linked quarter between 3Q and 4Q? Is it holding steady now?

It’s relatively steady. We obviously have seen a decline in the last couple of weeks in rates, so we don’t want to look ahead and project that, but that’s what Q4 and Q3 were.

Okay. And the yields that you are putting on in your C&I, could you refresh our memory as to what those are coming in on, because those are some good originations there.

Those are coming in at over 3%, and that’s how we get to the 3.24 yield for the overall average portfolio when we look at all of the mix.

Okay. Then in terms of just switching real quick to cash and your average balance sheet, it was at $1.8 billion this quarter and at the end of the quarter, of course, it’s sub-$900 million on your EOP balance sheet.

Should we be thinking about a further decline in cash and your earning assets moving over to securities as you manage your HQLAs, and that could be a positive for the margin, or is there some level of earning cash and equivalents balance that you need to want to keep?

So we sort of think about running with cash at around $1 billion, so if you got to that on an average basis, there would be some benefit, but sort of $1 billion is a good range for us to be in.

Is that earning cash, or also including the non-earning?

I’d say probably in about total cash.

Got it. Thank you very much.

Good morning. I wanted to see if you could give us a little more color on the drivers of the commercial loan growth in the fourth quarter - very solid, and on a linked quarter basis to be up 13% in some of your markets, which certainly are competitive and you’ve got a lot of the larger banks there, particularly impressive.

So I just want to get a little bit of color about what drove it and what you may be doing differently at all to be able to put up strong double-digit linked quarter growth like that.

John, I don’t think we’re doing anything differently. Our bankers are winning more business.

We had a little uptick in utilization in the quarter, but it was really business as usual and delivering exceptional service and businesses referring other businesses through that word-of-mouth model that Jim referenced.

Okay, and what specific type of C&I product is it that’s driving the bulk of the growth?

The same as it’s been in prior quarters, generally driven by schools, non-profits, and venture capital private equity firms, and I’m speaking on the loan side specifically.

Non-profits continue to be about 40% of our business book, and it’s a very big business for us. That’s a pretty tight world - those folks talk, so we picked up a lot of momentum.

Okay, and then the fee and private equity capital call lines, what’s that contribution to total loans?

I don’t think we break that out yet, but it’s about 20, 22%, something like that. It’s about half of the non-profit.

Okay, and the production yields on those two sub-portfolios, do you have that, at what yields you’re putting on the non-profit and at what yields you’re putting on the VCPE?

Well, they’re north of 3, as Katherine said, and of course a lot of them--the schools have some term loans in them for fix facility improvements, but also they have lines of credit. The funds are almost entirely adjusted rate lines of credit and they float around prime, basically.

Okay, good. Then separately on the reserve, so you continue to add to it modestly here.

Should we expect a similar progression as we go through ’15, modest additions to the reserve according to the pace of your growth, et cetera, or do you expect that it could start to pick up at a greater pace?

We do expect to continue building the reserve as we go through ’15. We’ve been pretty consistent in terms of the reserve to the new loans since we divested from BofA of 55 to 60 basis points - I think we’re at about 60 at the end of the quarter, and we think that’s a good place for us to be given the credit quality of the portfolio today.

Okay, great. My last question is around comp expense.

I appreciate the overall detail you gave us around the efficiency ratio and your expectation there, but around the comp expense and that increase that we saw for the quarter, can you just give us a little bit of detail on the drivers, and then more importantly, what is a good run rate? I know you’ve got the seasonality coming up, but what is a good run rate in comp expense as we look into 2015?

So from the third quarter to this quarter, some of the comments we made about investment in infrastructure and regulatory. People have been added, so that’s a driver.

There is some year-end, probably given business strengths, some incentive increase from Q3 to Q4. The first quarter, I think we’ve highlighted, has a payroll tax impact, and that’s been about a 6 to $7 million increase in a quarter just for the first quarter, and then it drops back down, so I think that’s sort of a good run rate as you go forward.

Okay. All right, thank you.

Good morning, guys. Can you just talk about your comfort level with growth - should we see another refi wave here - the weekly numbers this week obviously saw a sharp spike, but also given that rates are now at historical lows, the potential for the hybrid product to fall out of favor a little bit and maybe the 30-year fixed becoming more popular among your customer base?

I know that gathering new customers helps, but just wanted to talk through that phenomenon.

Actually when we have refinances, what people tend to do is as they’re getting towards the end of a five-year or seven-year, or into the middle of it, they often tend to refinance into a similar product. That being said, we have always originated 15 and 30-year fixed rate loans and sell them into the secondary market generally, and what we want to do is have available all of the products that our clients need and manage asset liability by selling those 30-year fixed rate loans that our clients want.

The mix has not changed, even over the times that rates have dropped considerably.

Okay. Then just on gain on sale and your maybe more near-term outlook, I think you guys have guided, at least last quarter, that you thought--I think around your longer term average in terms of volumes sold, you came in in line with that guidance for the most part, but just wanted to get your updated thoughts on volume and also margin.

We’re looking to our longer term average in terms of volume. In terms of gain on sale and the profitability, it varies quarter to quarter depending on the types of products and the demands in the secondary market.

If you look over the past many years, you’ll see that there is some variability to that, and we don’t predict what that’s going to be.

Got it, thank you.

Hey, good morning everyone. Most of my questions were answered.

Just a quick follow-up on the commercial loan growth in the quarter. I’m just wondering if you can talk about if to the extent that there was any larger outsized credits that contributed to the growth, if you could comment on that; and also just what the average size of the commercial loans that were originated during the quarter was.

There weren’t any particular outsized credits. I mean, we stay well, well inside our legal limit, in any event.

Our legal limit is quite high, but we operate at about 1 or 2% of total capital max on any exposure of credit, and we’ve got a few above that but not much. So it wasn’t driven by that particularly, it was just driven by a flow of business in general.

Okay. How about the average size of--I guess both what was originated this quarter, maybe just the average for the book in general.

We haven’t supplied that number, and to some extent--well, Mike Selfridge did give you the average CRE number and the average multi-family number in the text. So the average is not a relevant number, because you’ve got such a wide range of types of businesses in there.

The biggest credits, with an occasional exception, tend to be just in time lines for funds, and then we have the few large real estate extensions, but the funds are probably on the average $10 million lines, maybe $15 million lines. We have a few that are larger.

Okay, that’s actually smaller than I would have anticipated. Okay, thanks for taking my questions.

Thanks, good morning everyone. My only question would just be should we continue to expect to see more of the cost containment efforts flow through in the first quarter, and what’s the current thoughts now on the magnitude of those savings?

Yeah, I think our thoughts haven’t changed from last quarter. We think it roughly offsets half the regulatory spend that we’ve talked about, and I think we’ll start to see some more of the benefit in the first quarter.

And then fully realized by mid-year, or--?

That’s probably about right.

Okay, thanks so much.

Thank you all very much for taking the time. We appreciate it.

Have a good day.