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First Republic Bank (NYSE:FRC)
Q4 2020 Earnings Call
Jan 14, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Please stand by. Greetings and welcome to First Republic Bank's fourth-quarter and full-year 2020 earnings conference call. Today's conference is being recorded. [Operator instructions] Following the presentation, the conference will be open for questions.

[Operator instructions] I would now like to turn the call over to Mike Ioanilli, vice president and director of investor relations. Please go ahead.

Mike Ioanilli -- Vice President and Director of Investor Relations

Thank you, and welcome to the First Republic Bank's fourth-quarter 2020 conference call. Speaking today will be Jim Herbert, the bank's founder, chairman, and CEO; Gaye Erkan, president and board member; 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. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements to the bank's FDIC filings, including the Form 8-K filed today, all available on the bank's website.

And I would like to turn the call over to Jim Herbert.

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

Thank you, Mike. 2020 was a very strong year for First Republic. We have been consistently profitable each year for the 35 years since our founding in 1985. 2020 loan origination volume was over $50 billion, a record.

Importantly, we were able to fully fund our loan growth with deposit growth. Wealth management assets grew more than $43 billion during the year and are now just short of $200 billion. Importantly, the majority of the growth during the year was driven by net client inflows. This year has proven once again the resilience of our high touch, client-centric service model, both delivered in person and through digital channels.

The trusted relationships between our bankers and our clients have proven to be more important than their social proximity. In fact, early results showed that our 2020 Net Promoter Score, the measure of our client satisfaction, is at least as high as the prior year. This client satisfaction level is more than twice the banking industry's average and is our growth driver. Gaye will discuss in a moment how we are further using technology to enhance this client service experience.

Our continuing consistent performance under a wide range of economic conditions demonstrates the stability and long term nature and power of our client service model. Let me cover a few metrics for the year. Total loans outstanding were up 22%. Total deposits have grown 28%.

And wealth management assets increased 29%. This strong growth in turn has led to strong financial performance. Year over year, our revenues grew 17%. Net interest income grew 18%.

And the real bottom-line, tangible book value per share has increased more than 14% during the year. Most importantly, our credit quality continues to be exceptional. Maintaining consistently strong credit in all economic and market environments is a hallmark and a focus of First Republic. Net charge after the entire year were only $2.4 million, less than a single basis points of average loans.

During the year, we did add $157 million to our reserves. In the fourth quarter, we actually had net recoveries of $600,000, and nonperforming assets have ended the year at only 13 basis points. Our capital remains quite strong. At year-end, our Tier 1 leverage ratio was 8.14%.

This includes the benefit of three successful capital raises during 2020. Mike will touch on these in a moment. I would note that First Republic does not engage in common share buybacks. As we head into 2021, our clients remain very active and our loan pipeline is quite strong.

Our pipeline is up from the same time last year. The lower rate environment continues to represent a terrific opportunity for single-family residential purchases and refinance. Single-family residential lending continues to be the primary driver of our growth, representing two-thirds of our loan growth during the year. I would note that loan originations have some seasonality, with the fourth quarter typically being a bit -- being quite strong and the first quarter typically being a little bit slower.

December was the 10th anniversary of our second IPO, which we did shortly after we bought First Republic Bank back from the B of A in 2010. During these 10 years, total loans have grown 20% compounded annually, total deposits have grown 20% compounded annually, and total bank assets have grown 20% compounded annually. And wealth management assets have grown 28% compounded annually. Our shareholders have also done well.

In 2010, we went public at a price of $25.50 per share. Shareholder value has compounded at 21% per year since that time, including dividends. This is more than 2x the S&P 500 during the same period and nearly 3.5 times in KBW Bank Index for the same period. These results reflect our steadfast focus on delivering extraordinary client service, which in turn drives consistent organic growth.

Overall, it was a very successful quarter and a very successful full year. Now let me turn the call over to Gaye Erkan, our president.

Gaye Erkan -- President

Thank you, Jim. 2020 was indeed a very successful year for First Republic. We delivered record results while also supporting our colleagues, clients, and communities during this challenging time. For example, in 2020, we are pleased to have welcomed more than 600 net new colleagues to the organization and rolled out a number of new benefits to support the well-being of our colleagues.

We made more than 4,000 client-friendly loan modifications for our clients impacted by COVID. We delivered over 11,500 PPP loans to small business and nonprofit clients. We did this all while originating a record number of loans. Let me now turn to an update on lending.

Loan originations for the year, excluding PPP, worth $51 billion. Single-family residential volume for the year was a record at $24 billion. Refinance activity, which was particularly robust, accounted for 66% of single-family volume during the year. As we have noted before, refinance continues to be a strong means of acquiring new clients.

In terms of credit, we continue to maintain our conservative underwriting standards. The average loan to value ratio for all real estate loans originated during the year was just 55%. Turning to business banking, growth of loans and line commitments was very strong, up 28% year over year, excluding the Paycheck Protection Program. During the fourth quarter, business line utilization increased to 38%.

This is in line with our historical utilization range of mid to high 30s. In terms of funding, it was a record year. Total deposits were up $25 billion, or 28%, from a year ago. We continue to maintain a diversified deposit funding base.

Checking deposits represented 6% to 7% of total deposits at year-end. Business deposits represented 57% of total deposits at year-end. The average rate paid on all deposits for the quarter was just 11 basis points, leading to a total funding cost of 31 basis points. In wealth management, assets grew 29% year over year and are now over $194 billion.

Well over half of this growth came from net client inflow. Our integrated banking and wealth management model continues to attract very successful wealth managers. During 2020, we are pleased to have welcomed eight new wealth management teams, including two teams in Bellevue, Washington, a key part of the Greater Seattle market. We plan to open a preferred banking office in Bellevue later this year to further establish our presence in the market.

As we grow our business safely and organically, we continue to make investments to further reinforce and scale our differentiated service model through an agile tech strategy and continuous process improvements. Our strategy is focused on using technology to enhance human to human relationships between clients and our bankers, not to replace them. We are doing this by empowering our bankers with actionable insights and tools to reduce transactional time and maximize emotional time with their clients. And also by rapidly developing and rolling out additional digital capabilities, which allow for a customized and convenient experience for our clients.

2020 demonstrated the effectiveness of this strategy. During the year, and in the midst of the pandemic, approximately 70% of our mortgage applications were submitted digitally. We redesigned our corporate mobile app, leading to an increase in active users by more than 40%. We tripled the number of digital deposit account openings.

We have released one new digital banking feature per week on average. We've doubled task automation and gave back 150,000 hours annually to our bankers to further delight their clients. These time savings are equivalent to a 1.5% workforce expansion. These achievements were enabled by our unique tech strategy, continued operational investment, and focus on omnichannel client experience with enhanced connectivity to their trusted bankers.

As a result, over the past several years, the number of client households served per banker has increased significantly while we have maintained our Net Promoter Score consistently double the industry average as Jim mentioned earlier. Overall, thanks to the hard work and dedication of everyone at First Republic, we have successfully navigated a challenging year. Now, I would like to turn the call over to Mike Roffler, chief financial officer. 

Mike Roffler -- Chief Financial Officer

Thank you, Gaye. Let me review the results for the year and quarter, and also offer some guidance for 2021. Our capital position remains strong. During the fourth quarter, we successfully raised $225 million of common stock and completed the redemption of the Series F preferred stock.

In total, during 2020, we added over $900 million of net new Tier 1 capital. Liquidity also remains strong as high-quality liquid assets were 12.8% of average total assets in the fourth quarter. Our credit quality remains excellent. Our provision for credit losses for the fourth quarter was $35 million.

This provision was driven almost entirely by our strong loan growth. As Jim mentioned, for the entire year, net charge offs were only $2.4 million, one-quarter of 1 basis point of average loans. Over this period, we added $157 million to our reserves. We're pleased with the progress of our COVID loan modifications.

At year-end, COVID modifications totaled only 1.1% of the total portfolio, down from 3.7% on September 30. In 2020, loans were up a very strong 22%, excluding PPP. For 2021, loan growth is expected to be in the mid-teens range. Our net interest margin has remained stable at 2.73% for the fourth quarter and 2.72% for the full-year 2020 in line with our guidance.

For 2021, our net interest margin is expected to be in the range of 265 to 275, consistent with current levels. Within this range, our net interest margin may be influenced by higher cash levels as a result of current economic conditions and government stimulus. Our efficiency ratio was 61.6% for the fourth quarter and 61.9% for the full-year 2020. As a reminder, the efficiency ratio has benefited from reduced marketing, travel, and events due to the pandemic.

For 2021, the efficiency ratio is expected to be in the range of 62% to 64% as we continue to invest our business in regulatory infrastructure. Our effective tax rate was 20.2% for the full-year 2020, in line with our guidance. For 2021, we expect our tax rate to be in the range of 20% to 21% assuming no change to the corporate tax rate. Overall, it was a very strong year that speaks to the sustainable power of our client service model.

Now, I'll turn the call back over to Jim.

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

Thank you, Mike and Gaye. It was a strong quarter and a strong year. First Republic's simple, straightforward, very client-centric business model has proven to be consistent in a wide variety of environments. Delivering exceptional client satisfaction one client at a time year in year, year out is the driver of our growth and success.

Our high touch model has been further enhanced as you heard from Gaye in our growing digital capabilities. Looking ahead to 2021, we expect to continue to deliver safe organic growth, coupled with very conservative underwriting standards and strong capital at all times. Now, we'd be happy to take your questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] And we'll take our first question from Steve Alexopoulos from J.P. Morgan. Please go ahead. 

Steve Alexopoulos -- J.P. Morgan -- Analyst

Hi. Good morning, everyone. [Inaudible] So, Jim, one of the hallmarks clearly of the franchise is consistency. And when I look at the macro -- macro backdrop for 2021, the one variable that may not stay consistent are longer term interest rates.

And if we look at 2020, right over two-thirds of the loan growth was from single-family. So can you walk us through -- I know Mike said mid-teens loan growth again is the guidance for 2021, but how -- how do you see that playing out if we see a material increase in mortgage rates? 

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

If you see a material increase in mortgage rates that the competitors pass through. Remember how liquid this system is. Why -- you will -- you will have a rise in rates at the -- at the -- you'll have a rise and -- you'll have a ri -- a slowdown in refinance. Purchase finance may not slow down all that much because demand is very high.

The problem in those -- on the purchase side is supply actually, not demand. I would think that the -- with 66% of our -- our loan business in single-family this year was refinanced, that would probably slow down and -- and, in fact, we think it may anyway because the rates are already at below [Inaudible]. We don't worry about a move that will be destructive to the market. Rates -- mortgage rates are going out at the high two's, low three's, but mostly high two's.

I don't think the low three's to the mid-three's slows down purchase finance very much. It does slow down refinance I think.

Steve Alexopoulos -- J.P. Morgan -- Analyst

OK, that's helpful. And maybe for Mike Roffler, if we stay with the theme of potentially rising rates, assuming that happens, we'll see. But given that loan sales have been so elevated, how much of a rise in the 10-year do you think we would need to see before you would start to see that translate into NIM expansion? And I recognize this as much art as science, but any -- any color would be appreciated.

Mike Roffler -- Chief Financial Officer

Well, I think one of the things Jim said that I think is important to think about is the competitors and how do they feel about pricing in the market. So even though the 10-year has risen in the past couple of weeks, I don't think you've seen much change in mortgage rates to the consumer clients at all. So I think it will be very dependent upon what happens with competitors and do they pass that through or not.

Steve Alexopoulos -- J.P. Morgan -- Analyst

OK. Got it. OK. And then finally for Jim, and I -- I think I've asked you this every quarter since COVID really broke, but if -- if we think about credit, how do you see the rest of the cycle playing out from here, particularly when we think about commercial real estate whether it be New York or San Francisco? And if we get -- I think Biden administration may announce $2 trillion of additional stimulus tonight.

Ho -- does that [Inaudible] cycle that we have losses coming? You've been through so many cycles, how do you see this playing out from here? Thanks.

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

It's hard to call a crisis if it's just an estimate, but it does seem to us that certain asset classes that were particularly disadvantaged are beginning to find price points. Hotels, very limited quantity, but they're trading down obviously. The biggest one -- the biggest unknown is clearly retail. I -- we don't have an opinion on that to be honest with you.

It's got to just find its level that's going to work, and I don't know what that is. Office space is clearly available in the cities we operate in. I can't speak about others, but the cities we operate in, there's all of a sudden a bit of an excess of office space. New York is particularly I think hit hard.

But it's also -- but -- but rental, particularly in new A buildings, are -- are finding a rental level that is being signed up, probably down 50% from what it was before. And the question is how far down of a ripple in the quality stream from A to B to C properties? And that's not yet clear. Single-family is another matter. It's picking up pretty good, even in -- even in New York.

But I think that the cycle is probably within a quarter or two maximum of bottom would be our opinion.

Steve Alexopoulos -- J.P. Morgan -- Analyst

OK. That's very helpful. Thanks for taking all my questions.

Operator

We'll now take our next question from Christopher McGratty from KBW. Please go ahead.

Chris McGratty -- KBW -- Analyst

Great. Good morning. Mike, maybe a question on the efficiency. I think your initial 2020 guide was 635 to 645 and -- and you outperformed that by 150, 250 basis points.

I guess number one -- the first question is how much of that would you attribute to just the -- the COVID impacted relief on certain expense items. But then secondarily, positive operating leverage is pretty notable for the year, which is in the past not has been as significant. How -- how do we think of about positive operating leverage potential in '21? 

Mike Roffler -- Chief Financial Officer

Thanks for the question. I think that you're right. Being at just under 62% for the year definitely did benefit from a lack of travel, a lack of in-person client events. My guess is we're at least a percent higher if you have those items at a normal rate.

In terms of -- of positive operating leverage, obviously, we're pleased with the year. I do think those costs will start to come back in 2021, and that's -- probably later in the year, they'll start to come back because of vaccines and people wanting to get out. So I think that's why the -- the range sort of went up -- went to 62 to 64. We also are continuing to invest in the franchise.

We've talked about on several calls, Hudson Yards coming online this year. The core conversion being worked on. And so we're continuing to support the franchise in the way we think that the range is appropriate for next year. And the other side of that's important is the margin being relatively stable. 

Chris McGratty -- KBW -- Analyst

OK. If I could just ask a follow-up on the margin. The -- the momentum and the deposits has enabled you to reduce the higher cost borrowings. Any comments about the ability to further remixed the liabilities toward your 11 basis points cost of deposits versus north of one on the -- on the borrowings?

Mike Roffler -- Chief Financial Officer

Yeah, I -- I think we're really pleased with the deposit growth, which has allowed us to reduce our FHLB advances, which are a little bit higher cost. I think next year we have about $5 billion that -- that comes due, so you'll either renew at lower rates or we'll remix those, and as we looked at it -- as we look at optimizing our funding, if deposit growth remains strong, you can reduce those even further to -- to keep your funding costs at a pretty low level. 

Chris McGratty -- KBW -- Analyst

And -- and where were those refinance costs be today if you were to swap them out?

Mike Roffler -- Chief Financial Officer

Term FHLB is if you're sort of in a four-year range is probably around 50, 60 basis points.

Chris McGratty -- KBW -- Analyst

OK.

Gaye Erkan -- President

The -- the -- the way -- the way you may want to think about it is the spot deposit rate is at 10 basis points, average was 11, and -- and where we are seeing incremental assets yield coming in at about 3% [Inaudible] and incremental funding cost at about 30 basis points. The 270 is right smack in the middle of the 265, 275 range. But that's one driver of the equation. The other driver is the safe and sound earning asset growth that's driving the NAI.

And we'll continue to invest into our biggest strength, our people and our service model. So we'll continue to make investments whether it's core or Hudson Yards and what not because we're more long-term driven than short-term investments.

Chris McGratty -- KBW -- Analyst

Great. Thanks for the color.

Operator

We'll now take our next question from Bill Carcache from Wolfe Research. Please go ahead.

Bill Carcache -- Wolfe Research -- Analyst

Thank you. Good morning. I wanted to ask about growth, in particular, next-gen, which represents 34% of consumer borrowing households. How high does that mix go from here? Any color you can give on the trajectory that you expect would be helpful.

And so -- sort of along these lines. I don't think next -- next-gen household growth was a focus of yours in the last cycle, so any thoughts around how you think the low rate environment is impacting next-gen growth and what kind of impact, if any, that you would expect from a higher rate environment?

Gaye Erkan -- President

Absolute. So we're very pleased that the success of our Millennial strategy. Over 35%, close to 40% of our borrowing households are millennials, which is a significant increase compared to 2015 type of levels. And our Millennial strategy goes way beyond the interest rate environment.

So, A, we have seen some trend in terms of the suburbs. Some clients are buying secondary homes, but the millennial population, the kids, for instance, are accelerating their first-time homebuyers, especially in the suburbs, which we have been able to help those clients. And in order to serve these clients, we have also been continually expanding our toolkit. So for example, we have included personal line of credit in addition to professional loan program, robo advisor, and financial planning products.

And we see that we're getting the same grade next-gen clients who are actually slightly further along in their lives and closer to buying a home are already refinancing with us. So -- and the digital investments in the next-gen population, while they'll val -- value the human to human relationship, at least the clients, which is First Republic, digital and mobile first is important. So all the investments we have been making all along have been paying off handsomely and serving our clients in the next-gen population.

Bill Carcache -- Wolfe Research -- Analyst

Got it. And -- and presumably not all of your next-gen households are high net worth, can you give a sense of the extent to which you're seeing some of those next-gen households eventually becoming high net worth?

Gaye Erkan -- President

Absolute -- and so our clients are urban coastal professionals, highly employable, highly educated, conservative prudent financial decision makers. So whether they're millennials or baby boomers, actually the earlier we catch them in their lives, we grow with them and they grow with us, trusting us as their trusted advisors. So that's the most important key. So as we have seen in our eagle lending -- the way that they have successfully navigated the COVID environment, our clients have been very prudent financial decision makers.

So we will continue to grow with them and -- and create wealth for them.

Bill Carcache -- Wolfe Research -- Analyst

Thank you. And lastly, if I may, I think you gave a little bit on this kind of new money rates that you're seeing on -- on lending and securities, but I was wondering if on the securities portfolio specifically if you could discuss how you're thinking about reinvestment risk given the dynamics around anticipated maturity schedules and call provisions?

Gaye Erkan -- President

Absolute. So we're seeing -- and then -- and we look at it across the asset side, so we're seeing HQLA at about 1.25% to 1.5% government agency HQLA. Munis that you're seeing and the majority of purchases have been HQLA munis in the 275 TY type of range, although with the 10-year selling off a bit. So that's helping the yields.

Compared to single-family at 2.75% to 3% range and multi-family in [Inaudible] 3-3.5. But majority of the originations have been single-family residential, originations in some multi-family refi. So earning assets yields are coming in around three with incremental funding cost at about 30 and slightly better. So thus the range of 265, 275 on the NIM with strong earning asset growth.

Bill Carcache -- Wolfe Research -- Analyst

Thank -- thank you. And then the -- the dynamics around some of the reinvestment risk given the maturity schedules and -- and call commissions? Any -- any color on that?

Mike Roffler -- Chief Financial Officer

So I would just comment. I mean, obviously, we do have repayments of government agencies and things like that. You haven't seen our investment portfolio grow as much the last couple of quarters, if at all, because, frankly, we've found a better way to put that money to use from a -- a liquidity standpoint into client activity and client demand. We do have initial portfolio that we've averaged in over, frankly, a 10-year basis.

So there's always periodic calls and redemptions that occur, but nothing that's coming out in a big -- in a big jump or a big amount.

Bill Carcache -- Wolfe Research -- Analyst

Understood. Thank you for taking all the questions.

Operator

We'll now take our next question from Ken Zerbe from Morgan Stanley. Please go ahead.

Ken Zerbe -- Morgan Stanley -- Analyst

All right. Great, thanks. The first question is for Mike. Mike, I certainly heard your -- your guidance for mid-teens loan growth next year.

You -- I guess I'm -- I'm looking at one of your slides. It looks like Slide 2 where you've been very clear. You've grown loans 20% CAGR for the last 10 years. I just take the average five years of loan growth, you -- you're also up 20% a year.

Like what response would you have to someone who says that maybe your 15% is probably just a little bit too low and -- and maybe 20% is kind of right number for loan growth on a go-forward basis, maybe not so much next year, which stores over the next several years?

Mike Roffler -- Chief Financial Officer

Yeah, no, look at that. It's a totally fair comment and your -- I think you're referring to the investor deck that's got sort of a 10-year historic look. I think the most important thing to remember is we don't set any loan targets, right? Our client-facing people, their role is to serve the client need and client demand for whatever it might exist, be it deposit activity, wealth activity, or -- or home loan buying, or -- or businesses. When we sort of start the year, we feel that that's an appropriate measure based on sort of a client demand, maybe the economic environment, how we're feeling about our different geographies, and we've obviously outperformed that over a sustained period of time, but we're not going to chase either.

The first question I think we're talking about higher rates and does that impact volume? That -- that does impact some refinance activity, and a lot of our refinance activity comes from other banks. And so that -- that also has an impact. So I think we think it's a -- a prudent way to plan and to -- to estimate, but also do what the good business is right in front of us and not trying to stretch for it.

Ken Zerbe -- Morgan Stanley -- Analyst

All right. Understood. You've definitely done well in the past. The second question I have.

I know you provide this in the 10-Q, but how much of the growth in wealth assets came from market appreciation versus net new client inflows?

Gaye Erkan -- President

Major -- majority came from net client inflows, about $25 billion was client inflows and $18 billion was market increase.

Ken Zerbe -- Morgan Stanley -- Analyst

Do you have that for the -- the quarter though?

Gaye Erkan -- President

Yeah. For -- for the quarter, we have about 20 -- $12 billion came in from net client inflows, $12 billion, $13 billion.

Ken Zerbe -- Morgan Stanley -- Analyst

Perfect. All right. Thank you.

Gaye Erkan -- President

Sure.

Operator

We'll now take our next question from Erika Najarian from Bank of America. Please go ahead. 

Erika Najarian -- Bank of American Merrill Lynch -- Analyst

Hi, good morning, everyone. My first question is on the dynamics of growth in the quarter. I guess it's a two-part question. The first question is if you could just talk a little bit about the investment cycle dynamics that propelled such robust capital call line of growth.

I think everybody was surprised to the upside. And second, given the compounding nature of the clients that you actually have in-house, I'll be curious to understand in terms of -- of all your single-family originations in 2020, how many were to new clients to the bank?

Gaye Erkan -- President

So I'll -- I'll start. Hi, Erika. So private -- on the capital call line, private equity has been quite strong with active deal flow, stronger realized gains, and the new fund formation, particularly toward the end of the year. The strong momen -- momentum we expect to continue into 2021 as well given the low yields and all-time high eq -- equities attracting more investors into private equity.

And the utilization rates do vary. So we look at the commitments growth. As you have seen that the commitments growth has been quite strong especially in the capital call line, about 35% in safe growth and commitments, and we remain conservative in terms of repayments generally within 180 days. So -- and then on the single-family residential side, 66% of the originations were refi.

Out of those refi's, over 60% were with new -- acquiring new clients, clients with loans at other banks. So it continues to be a very strong means of client acquisition.

Erika Najarian -- Bank of American Merrill Lynch -- Analyst

Got it. And my second question i -- i -- is for Mike. I think that we're entering the year with the market enthusiastic -- enthusiastic about potential curve steepening. But as we think about the net interest margin range, which has stayed steady, how should we think about at what level of front book rates would you be more compelled to redeploy the cash that you have and given that also your starting point from 273? I guess could you be outside of the range on the upside if we do have a steepening of the curve that would encourage you to be more aggressive at deploying that excess cash?

Mike Roffler -- Chief Financial Officer

Yes. So I think we always want to remain very prudent and -- and Gaye -- Gaye have mentioned some of the -- the agency paper, a one and a quarter is not really attractive right now. And given our loan demand, we'd rather carry a bit of cash balance and -- and put it into client activity versus securities. I mean I think the last couple of quarters, our margins have been very stable 272, 273.

And we've -- we've sort of found a pretty good place with the -- the example Gaye gave about current loan yields or earning asset yields around three and -- and funding costs 30 or slightly less. The variability largely I think will come from the amount of cash we hold, right? So I think you saw the cash balance is up on average a little bit in the fourth quarter and yet we still were around -- the margin was -- was actually expanded slightly. So we're in a pretty good place, but I don't think that unless competition moves up mortgage rates, I don't think there's a big chance of sort of outside of the range at this point.

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

Let me just add, Erika, into that. It's Jim. The -- we -- we don't -- as Mike said earlier, we only respond to the volume of good deals we see coming in. We don't chase deals because we have extra cash.

You're -- you're very aware of that. But I think in the environment that's going on now back to Steve's earlier question, one of the risk factors in the environment right now with this much liquidity out there is -- is credit standards decline. We are very -- we -- we will not do that. And that's probably going to be the biggest constraint on our cash utilization and lending.

Erika Najarian -- Bank of American Merrill Lynch -- Analyst

Got it. And -- and maybe if I could just squeeze in a third question. So I think there's no other word for it. You -- you guys fundamentally clearly killed it this quarter, margin expansion, robust loan growth.

I don't think -- I don't think I'll see that in any of my releases for the rest of the season, and yet the stock is underperforming today. And the market is the market. But maybe, Jim, this is for you. Could you remind us, as you've been through many cycles, what does the fundamental trajectory typically look like for your bank in -- in year one of an economic recovery?

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

We generally do very well during a difficult time in part because we're well-capitalized and clean and able to continue to expand our business base and take in new clients during that period. 2020 is definitely a year of that nature. That usually gives us a larger balance sheet going into the recovery moment, which you are looking at at this very second. The balance sheet growth this year was unusually strong, even for us, and that's a result of a slowdown in competition during the sort of first half of the year at least and actually still continuing.

And it's not just competition pulling back, it's delivery quality and things of that nature. Our pickup of new households this year was probably a record number, both in absolute and percentage-wise. And I think that we -- I would say we will do very well usually in the first year of recovery if you look back over four or five cycles. 

Erika Najarian -- Bank of American Merrill Lynch -- Analyst

Thank you.

Operator

We'll now take our next question from John Pancari from Evercore. Please go ahead. 

John Pancari -- Evercore ISI -- Analyst

Morning. I heard you on the -- on your mortgage comments and -- and that's -- that's helpful in terms of the impact of potentially higher rates and what it means for -- for refinancing activity. So I just want to basically see if you can help us in terms of the actual growth that you would expect on the mortgage front, in terms of loan balance sheet, loan growth, is it -- is it fair to assume that you do expect slower mortgage growth given how much of your volume has been refinancing activity and the fact that you acknowledge that that could slow?

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

I would not -- I would not automatically extrapolate our comments to that. We're just saying that the refinance will, at some point, slow down. It's not slowing down very much yet. But if the 10-year continues to move up, in due course, the refinance part of the demand will slow down.

So I -- but I wouldn't -- we're not saying that it's happening now. We're just saying it could easily happen.

John Pancari -- Evercore ISI -- Analyst

Got it. Thanks, Jim. Related to that, if we -- if that was to happen and we saw some moderation in on balance sheet mortgage growth, do you see offsets in other parts of your portfolio given the relationships that you've added that would -- that would mitigate that and keep you in that loan growth range that you expect?

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

Sure. The CPR, the repayment rates slow down simultaneously. And a slowdown in refinancing is not necessarily -- a rising rates means a stronger economy. Stronger economy means more home purchase and more multi-family purchase, etc.

So they actually offset pretty well. The refinance slowed down or speed up is always slightly faster. But -- but if you look back at the consistency of our growth over those 10 years, that's one of the reasons we put that out there. Those are -- that growth is consistent through up and down rate cycles. 

John Pancari -- Evercore ISI -- Analyst

Got it. That -- that's helpful. Thanks, Jim. One last question on the margin front.

On the -- I know you talked about new money yields. Can you just give us where the new money yield is for that capital call lines that you're putting on the portfolio currently?

Gaye Erkan -- President

Coming in around five minus 50. 

John Pancari -- Evercore ISI -- Analyst

OK. got it. All right. Thank you.

Gaye Erkan -- President

Thanks.

Operator

We'll now take our next question from Dave Rochester from Compass Point. Please go ahead. 

Dave Rochester -- Compass Point -- Analyst

Hey, good morning, guys. Nice quarter.

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

Thank you, Dave. 

Dave Rochester -- Compass Point -- Analyst

Talk about some of the assumptions behind that margin range, if it assumes the current curve persist going forward and what you're baking in for deposit growth, being able to fund all the loan growth, and maybe some cash going to pay down through the borrowings. Any -- any additional color there would be great.

Mike Roffler -- Chief Financial Officer

Yeah, I think -- well, clearly, the -- the Fed's been very public about being on hold. So we're not assuming any type of Fed funds move. I think the current yield curve, as you know, forward curve is about as good to look out from an expectation standpoint. And then I do think that, like this year, we were able to fully fund our loan growth with the public deposit growth, which we would like to continue into the future.

And so that may allow for some remixing of FHLB. You're going to get some of that benefit anyways as you refinance maturities as I've mentioned earlier. But as Gaye have mentioned and I think we've reiterated, our -- our loan assets are coming in right around 3%, and funding, depending on -- on the mix of -- of liabilities, is sort of 30 basis points or a little less. And so we're right in this 270-ish range.

And then the variable largely would be how much extra liquidity are we carrying at any point in time.

Dave Rochester -- Compass Point -- Analyst

Got it. That makes sense. Then the switching to capital. How are you guys thinking about levels here? It sounds like you're still very comfortable with where you are.

But look -- looking at the Tier 1 leverage ratios, it's over 8%. Just curious how you're thinking about that and would you let that slip to below 8%?

Mike Roffler -- Chief Financial Officer

Dave, I mean I think we've been pretty consistent that we always remain opportunistic and -- and think about the markets. But that being said, the balance sheet is very safe right now and -- and some of that leverage ratio is driven by the -- the previous conversation we had with cash. And so could it slip a little bit? Sure. But at the same time, we're always reviewing what the markets look like and -- and opportunistic for small raises, depending on those markets. 

Dave Rochester -- Compass Point -- Analyst

And maybe just one last on expenses. Just given your base case for the growth and revenue levels this year, how does that efficiency ratio rate translate into an expense growth rate range for the year roughly?

Mike Roffler -- Chief Financial Officer

Yeah. So I think if -- if you take some of the -- the comments we've made about mid-teens loan growth with a margin that up and cash is pretty stable, that translates to probably about a mid-teens revenue growth rate. And then you've got an expense or an efficiency that's a little bit higher than this year, you're probably in that mid-teens range from an expense standpoint. As we continue to invest in the franchise, as we've talked about be at the core conversion, opening up of Hudson Yards, continuing to invest in our regulatory infrastructure, it feels like that's about the right percentage-wise increase.

Dave Rochester -- Compass Point -- Analyst

Yeah, OK. Great. All right. Thanks, guys.

Operator

We'll now take our next question from Casey Haire from Jefferies. Please go ahead.

Casey Haire -- Jefferies -- Analyst

Yeah, thanks. Good morning. I just want to follow up on -- on the efficiency. Mike, I think you said it's 100-basis-points impact from -- from no T&E around -- around COVID.

So I'm just -- I'm just curious, it -- it's obviously been a very strong origination year. You, guys, are -- the Net Promoter Score, which I know is very important to you, was flat to maybe even up a little. So I'm just trying to understand why are you, guys, so eager to -- to -- to turn on that -- that spend when -- when you've demonstrated that you can -- you can deliver while -- while -- while running more efficient?

Mike Roffler -- Chief Financial Officer

I -- I think it's a -- it's a very good point and I do think it'll probably come later in the year and it may not come back at the same levels, right? Because you're -- you're absolutely right. We have learned and done this remotely and so there -- there'll probably be some review of things like that and whether we do as much in the future is up for discussion. But I -- there will be some modest increase, of course, but I think it won't be probably back to normal during 2021. 

Gaye Erkan -- President

And let me just say, there's also a lot of growth opportunities in front of us in -- in the markets that we are in, as well as the Bellevue team, for instance, that we have mentioned and that core coming in. So from that perspective, we're investing -- we're -- we're investing into the long term and also taking advantage of the opportunities ahead of us. 

Casey Haire -- Jefferies -- Analyst

Great, thank you. And then I have another follow-up on the -- one the Millenial strategy, the student loan refi in particular. So that -- that product is now seven years old, 29,000 households. Can -- can you give us some metrics in terms of how many -- what percentage of those households have come to that home purchase event? And what percentage of that has -- has First Republic gotten the --the single-family business?

Gaye Erkan -- President

So we're doing multiple things, not just single-family, but about 10% of that cohort are either doing -- buying homes with us or refinancing their homes. As I've mentioned, the personal line of credit clients are coming in, they're closer to the home purchase or already have a home that they're refinancing with us. So that's a great directional trend. And also we're doing a lot on Eagle and West Side and financial planning with our millennial clients, deepening the relationship on that front as well.

So we're very pleased with the progress.

Casey Haire -- Jefferies -- Analyst

Great. Thank you. And just last one for me. The -- the Democrats have talked about rolling back the -- the SALT cap.

Obviously, that'd be a very positive catalyst for -- for real estate values in your market. How -- how do you guys see -- do you see that as a meaningful impact and -- and how would -- how would it change your outlook?

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

It would be a -- it would be a favorable impact for the company net net because most of our markets have -- have been adversely impacted by the change previously. I don't know if it's going to come back or not. None of us do at this point. If it did, it would -- it would stimulate additional real estate activity in our markets for sure.

Casey Haire -- Jefferies -- Analyst

Thank you.

Operator

We'll now take our next question from Andrew Liesch from Piper Sandler. Please go ahead.

Andrew Liesch -- Piper Sandler -- Analyst

Hi, everyone. Thanks for taking the questions. I just want to circle back with the efficiency ratio and -- and expense outlook here. I mean how do you see that playing -- playing out as the year goes on? You think maybe toward the higher end this quarter that's where you see to pull expenses then trailing off? Yeah, thanks.

Let's leave it there.

Mike Roffler -- Chief Financial Officer

What I -- I think I would say the first quarter if you look historically always is a little elevated and improved throughout the year. That's a seasonality thing because of the starting of payroll taxes and 401(k) contributions again. But I think we're going to be relatively stable during the year, consistent with a growing balance sheet versus some uptick later because there -- we will grow -- we -- we anticipate growing during the year to keep them, the efficiency, relatively stable over the period.

Andrew Liesch -- Piper Sandler -- Analyst

Got it. OK. That -- that's helpful. I guess the other leg of the stool on the revenue's front though is -- is the fee income line here.

I think there might be some seasonal aspects to the investment management fees here in -- in the fourth quarter. But ho -- ho -- how do you see fee income trending now throughout 2021, this continued growth? I mean you've -- you're growth in AUM has been -- has been pretty fantastic.

Mike Roffler -- Chief Financial Officer

Yeah, I think the bigger base of assets under management with the -- with the market strength and the strength of the net client flow in the fourth quarter leads to a growing revenue or growing fee income. I will say the fourth quarter did have a performance fee in it. So you may not see growth in the first quarter in fees, but you will see it as assets grow during the year.

Andrew Liesch -- Piper Sandler -- Analyst

OK. Thanks. Yeah, you've already covered all my other questions.

Operator

We'll now take our next question from Brock Vandervliet from UBS. Please go ahead.

Brock Vandervliet -- UBS -- Analyst

Hi, good morning. Just a couple of market competition questions. I'm seeing a lot of activity focused on nonbank origination platforms. Most of that is obviously directed at the agency space as jumbo is such a small part of the overall market.

Are you seeing any competitive threats from nontraditional platforms really directed at -- at jumbo?

Gaye Erkan -- President

So that's a great question. So we're seeing less of a penetration into jumbo markets, more into the conforming and the 30-year fixed phase. What I would say just from it -- to take a step back. From a model perspective is Centex are disrupting the banking sector.

The scarce commodity increasingly is going to be, the trust the team and relationships and the customization elements that are going to be harder to find and that's exactly where First Republic shines. So we see Centex more partnerships and collaborations that actually decrease this transactional time and increase this emotional time to allow for further customization. So we are using a lot of such collaboration to do that, as well as internal direct investments into technology to further empower the client and our bankers who are actually making the magic happen. So if you put all that together, the models actually balance like so.

And in the markets that we are in, we are -- we have -- we have -- after so many -- 35 plus years, we have -- we still have just about 5% market share. Great opportunity in the Seattle market, for example, and Florida, and Wyoming. And a very successful next-gen Millennial strategy. So bringing back with some of the expense questions, there are so many great safe and sound organic growth opportunities ahead of First Republic, so we're bound to take advantage of those even in the face of the disruption, which actually allows us to increase the customization.

Brock Vandervliet -- UBS -- Analyst

OK. And separately, I think I've always heard wealth management hiring been -- being described as extremely competitive. You're seeing new entrants now in the form of Silicon Valley. How -- how is that competitiveness versus a year -- a year or two ago?

Gaye Erkan -- President

So we continue to have a strong pipeline of sales managers who would like to join the First Republic model. That's mainly driven by the holistic non [Inaudible] approach, one client, one trusted advisor, one relationship at a time. Actually, we have been deepening our relationship with our wealth management clients. The number of -- the number of households who have given us trial on the banking side from wealth management has increased, referred deposits have increased.

So we stay quite competitive and very pleased with the results. And couple that with backlogs in the pipeline and rate logs still strong despite we find a moderate with rates increasing purchase remains strong, and year over year, we are very high on the mortgage pipeline side as well, especially on the single-family residential. So on both sides, we're doing a great job so far in creating a holistic banking delivery to all our clients, including the wealth management clients coming in.

Brock Vandervliet -- UBS -- Analyst

Got it. Appreciate the color.

Operator

We'll now take our next question from David Chiaverini from Wedbush Securities. Please go ahead.

David Chiaverini -- WedbushSecurities -- Analyst

Hi, thanks. I wanted to ask about the PPP loans on the balance sheet. It looks like about $250 million were forgiven in the quarter and about $100 million on an average basis. It looks like that added about 1 basis point to -- to the NIM.

As we look out to the first quarter, the first couple of quarters of 2021, how much in forgiveness are you expecting in each of those quarters and the potential impact on -- on NIM?

Mike Roffler -- Chief Financial Officer

So yeah, I think we did start to see forgiveness pick up in the fourth quarter. Also, obviously, with the recent law that was signed in, there may be some acceleration on smaller dollars because of a simplified forgiveness process. I think by the probably the end of the second quarter, maybe the third, most of the -- the first round should be through the process either forgiven or you'll have a remaining loan for the amounts that are not. Your estimate, I think we had about $4 million of what I'll call extra accretion of the fees in the fourth quarter.

There's only $24 million left and that's going to come in over the next couple of quarters, so it -- it supports the margin ever so slightly, probably in the first half of the year.

David Chiaverini -- WedbushSecurities -- Analyst

Great. Thanks for that. And another housekeeping question. You alluded to a bump in performance fees in the fourth quarter.

Can you disclose how much in performance fees you had in the fourth quarter? 

Mike Roffler -- Chief Financial Officer

Yeah, sure. So it's about $18 million. And I would give you the other side of that too. It's that about 13 of it goes out in the form of compensation and a sub advisor clause.

So there's not a lot that drops to the bottom line. 

David Chiaverini -- WedbushSecurities -- Analyst

Got it. Thanks very much.

Operator

We'll now take our next question from Jared Shaw from Wells Fargo. Please go ahead.

Jared Shaw -- Wells Fargo Securities -- Analyst

Good morning, everybody. 

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

Good morning.

Jared Shaw -- Wells Fargo Securities -- Analyst

Just, Mike, circling back on the expenses. You've -- you've mentioned investments in -- in regulatory -- in making regulatory investments. Is that more processes and systems related to the core or is that actually hiring more personnel medium in the -- the regulatory oversight side?

Mike Roffler -- Chief Financial Officer

I think it's just as -- as a growing institution and it be in prudent and safe and sound, we're -- we're investing in people and resources to do that. I mean I think the -- the question about expenses, we're supporting a larger bank and we're also have tremendous opportunities to serve clients in front of us. And to be able to do that, you have to continuously invest in the franchise to do it better because that's what differentiates us frankly from a service model standpoint. And so that might be from a regulatory standpoint, it might be from a -- a technology, but it's really about investing for that future growth because there are tremendous opportunities in front of us.

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. OK, great, thanks. And then just looking at the -- the single-family originations this quarter. Did you notice any trends in -- in geographic movement whether it was bringing new customers in or -- or following your customers so away from those urban coastal markets of San Fran, New York, L.A.? Or is it not as -- not that noticeable?

Gaye Erkan -- President

I -- so to your point, San Francisco, New York, and L.A., and Boston, refi has been strong in all of our key markets. In addition, a rebound in the purchase activity in Manhattan City Center and suburbs while they have been suburbs and vacation homes and second homes, they're doing exceptionally well and we're seeing the Manhattan City Center to come back as well. And in addition to that, I would add Florida and Wyoming, and -- and there is a lot of great opportunities in Portland, Seattle market as well that we have been seeing serving our clients there. So it's all full steam ahead and the pipeline continues to be very strong well over last year's levels at this time, in addition to rate logs, also quite -- quite robust.

Jared Shaw -- Wells Fargo Securities -- Analyst

Great. Thank you.

Operator

And with that, that does conclude our question-and-answer session. I would now like to turn the call over to Jim Herbert for any closing remarks.

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

Thank you all very much for being with us today. It was a very, very strong year and we're entering the new year with it -- with a record backlog, and a record-sized balance sheet. And our clients appear to be quite satisfied. So we're -- we anticipate a -- a strong year in 20 -- in 2021 as well.

Thank you very much for spending your time today.

Operator

[Operator signoff]

Duration: 63 minutes

Call participants:

Mike Ioanilli -- Vice President and Director of Investor Relations

Jim Herbert -- Founder, Chairman, and Chief Executive Officer

Gaye Erkan -- President

Mike Roffler -- Chief Financial Officer

Steve Alexopoulos -- J.P. Morgan -- Analyst

Chris McGratty -- KBW -- Analyst

Bill Carcache -- Wolfe Research -- Analyst

Ken Zerbe -- Morgan Stanley -- Analyst

Erika Najarian -- Bank of American Merrill Lynch -- Analyst

John Pancari -- Evercore ISI -- Analyst

Dave Rochester -- Compass Point -- Analyst

Casey Haire -- Jefferies -- Analyst

Andrew Liesch -- Piper Sandler -- Analyst

Brock Vandervliet -- UBS -- Analyst

David Chiaverini -- WedbushSecurities -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

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