First Republic Bank (FRC) Q2 2022 Earnings Call Transcript

First Republic Bank (NYSE: FRC) Q2 2022 earnings call dated Jul. 14, 2022

Corporate Participants:

Michael Ioanilli — Vice President and Director, Investor Relations

James H. Herbert — Founder and Executive Chairman

Michael J. Roffler — Chief Executive Officer and President

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

Robert L. Thornton — Executive Vice President and President, First Republic Private Wealth Management

Olga Tsokova — Executive Vice President, Acting Chief Financial Officer and Chief Accounting Officer

Analysts:

Steven Alexopoulos — J.P. Morgan — Analyst

David Rochester — Compass Point — Analyst

John Pancari — Evercore ISI — Analyst

Casey Haire — Jefferies — Analyst

Erika Najarian — UBS — Analyst

Bill Carcache — Wolfe Research — Analyst

Manan Gosalia — Morgan Stanley — Analyst

Andrew Liesch — Piper Sandler — Analyst

Jared Shaw — Wells Fargo Securities — Analyst

Christopher McGratty — Keefe, Bruyette & Woods — Analyst

Brian Foran — Autonomous Research — Analyst

Ebrahim Poonawala — Bank of America Merrill Lynch — Analyst

Jon Arfstrom — RBC Capital Markets — Analyst

Timothy Coffey — Janney Montgomery Scott — Analyst

David Chiaverini — Wedbush Securities — Analyst

Presentation:

Operator

Greetings, and welcome to First Republic Bank’s Second Quarter 2022 Earnings Conference Call. Today’s conference is being recorded. [Operator Instructions]

I would now like to turn the call over to Mike Ioanilli, Vice President and Director of Investor Relations. Please go ahead.

Michael Ioanilli — Vice President and Director, Investor Relations

Thank you, and welcome to First Republic Bank’s Second Quarter 2022 Conference Call.

Speaking today will be Jim Herbert, Founder and Executive Chairman; Mike Roffler, CEO and President; Mike Selfridge, Chief Banking Officer; Bob Thornton, President, Private Wealth Management; and Olga Tsokova, Chief Accounting Officer and Acting Chief Financial Officer.

Before I hand the call over to Jim, please note that we may make forward-looking statements during today’s call that are subject to risks, uncertainties and assumptions. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, see the bank’s FDIC filings, including the Form 8-K filed today, all available on the bank’s website.

And now, I’d like to turn the call over to Jim Herbert.

James H. Herbert — Founder and Executive Chairman

Thank you, Mike, and good morning, everyone.

Driven by a steady and intense focus on service, safety and stability, First Republic has produced consistent growth and results since our founding 37 years ago. This quarter strong results once again demonstrate the stability and the power of our business model and our culture. Our model is straightforward. Extraordinary service leads to client satisfaction levels that are significantly higher than the banking industry and are even higher than most other leading companies, regardless of industry. This very high client satisfaction level in turn drives our organic growth. Our existing, very satisfied clients stay with us, they do more with us and they refer their friends and their colleagues.

At the same time, we maintain a steadfast focus on long-term safety and stability. This focus has produced steady long-term results, strong capital and exceptional credit quality throughout the bank’s history. For example, since the year 2000, our net charge-offs have been only 0.1 of those of the top 50 banks. Our model and our culture have proven to be very successful long term through all economic cycles.

In fact, during times of broader economic uncertainty, our holistic client-centric service is even more valued by our clients. During these times, we often see our new client household acquisition rate increase, as it is currently doing. Today, our model is stronger than ever. This has once again driven our actual performance during this most recent quarter, and we’re well positioned to go ahead in the current conditions.

Now, let me turn the call over to Mike Roffler, CEO.

Michael J. Roffler — Chief Executive Officer and President

Thank you, Jim. It was another terrific quarter of continued strong growth and financial performance. This quarter’s results once again demonstrate the strength of our business model and culture and the consistency of our execution.

Let me now share a few highlights for the quarter. Year-over-year total loans outstanding were up 23%. Total deposits have also grown 23%. Wealth management assets were up 2.5%, despite the S&P 500 being down 12% over the same period. Bob will touch a bit more on this momentarily. Our growth in turn led to strong financial performance. Year-over-year total revenues have grown 23%. Net interest income has grown 24%. Earnings per share is up 11%, and importantly, tangible book value per share has increased more than 13%.

Our focus on safety and stability supports consistent service, growth and results over time. Maintaining strong capital, credit and liquidity is a fundamental part of our business model. Our credit remains very strong. Non-performing assets were only 7 basis points at quarter end, and net charge-offs were only $1.3 million during the quarter. We remain very well capitalized with a Tier 1 leverage ratio of 8.59% at quarter end.

Effective asset liability matching is another important part of our model. We have always focused on delivering a stable net interest margin through all environments as we do more business with clients and grow our earning assets. This drives strong growth in net interest income and total revenues. We continue to make strategic investments in people, technology and new offices to further strengthen client service and drive future growth. We have invested in people by growing our colleague base by 14% year-over-year. This supports our growth and differentiated level of client service.

Looking ahead, we see great opportunities to acquire new talent in client facing and support roles. Investments in technology also support our differentiated client experience and are critical to our strategy. Earlier this year, we successfully completed our core conversion, and we now remain focused on optimizing its potential. And we also continue to invest in our office footprint, which strengthens our brand and provides an important service point for clients.

During the quarter, we opened our first banking office in the Seattle area, where we had hired a couple of wealth management teams in the past two years. We are very pleased to now offer full-service banking and wealth management in this very attractive market. We remained focused on deepening our presence in urban, coastal and highly interconnected markets like Seattle. Over the next year, we expect to open approximately four new offices across our markets. Our success and consistent performance are the result of staying true to our client service model and remaining disciplined in our execution. Overall, it was a great quarter and first half of the year.

Now, I will turn the call over to Mike Selfridge, Chief Banking Officer.

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

Thank you, Mike.

Let me provide an update on lending and funding across our business. Loan origination volume for the second quarter was exceptionally strong at $22 billion. Single-family residential volume was very robust at $10.6 billion. Purchase activity accounted for 52% of single-family residential volume. Financing a home purchase provides a great opportunity for First Republic to demonstrate our differentiated service as the ability to execute on a home purchase transaction is even more important to the client.

Multifamily volume for the quarter was very strong at $2.3 billion. The very robust lending activity during the quarter reflects the strong spring buying season. The continued strengths of our markets and our clients is further reflected in our strong loan pipeline heading into the third quarter. Given our year-to-date growth, we currently expect to achieve high-teens loan growth for the full year.

Turning to credit. We continue to maintain our conservative underwriting standards. The average loan-to-value ratio for all real estate loans originated during the quarter was just 58%. Business banking also had a strong quarter. Business loans and line commitments, excluding PPP loans, were up 18% year-over-year. During the quarter, the utilization rate on capital call lines of credit decreased slightly to 38.5%.

Now turning to funding. We continue to be in a strong position. We’re very pleased that deposits were up 23% year-over-year and 6% year-to-date. Our total funding base remained over 90% deposits, which drove an overall funding cost of just 16 basis points. This was up only 5 basis points from the last quarter. Our deposit base remains well diversified. Checking represented 72% of total deposits at quarter end, up modestly from last quarter. And business deposits represented 64% of total deposits at quarter end.

As Mike mentioned, we are very pleased to have expanded our banking and wealth management operations in the Seattle area, with the opening of our first preferred banking office in the region. Our preferred banking offices are an important element of our service delivery model, and have proven to be a great channel for gathering deposits. Our offices are very productive with deposits of nearly $700 million per office on average at quarter end. Our service model is performing quite well and continues to drive safe, stable organic growth.

And now, I’d like to turn the call over to Bob Thornton, President of Private Wealth Management.

Robert L. Thornton — Executive Vice President and President, First Republic Private Wealth Management

Thank you, Mike.

Wealth management continues to perform very well, despite market volatility. In fact, as Jim mentioned, our high-touch holistic approach to banking and wealth management is even more highly valued by clients during such times. Year-to-date, assets under management have declined 12% to $247 billion. This compares favorably to the S&P 500, which was down more than 20% over the same period.

Despite the market — the broader market volatility, we continue to see strong net client inflows. During the first half of this year, our investment management business had a net client inflow of over $7 billion, consistent with the first half of last year.

In addition to investment management, we remain focused on serving our clients with financial planning, brokerage, trust, insurance and foreign exchange services. Fees from these services help diversify our sources of fee revenue and can provide growth in times of market volatility that can offset the market decline impact on asset-based investment management fees. This diversification helped drive very strong growth in total wealth management fee revenue through the first half of this year.

Year-to-date, wealth management fee revenue is up 32% from the prior year. Our integrated banking and wealth management model makes First Republic an attractive destination for successful wealth professionals. And since our last call, we welcomed another new wealth manager team to First Republic.

Overall, our wealth management business continues to perform very well. Times like these are a great opportunity to demonstrate our exceptional service, deepen existing relationships and acquire new households.

Now, I’d like to turn the call over to Olga Tsokova, Acting Chief Financial Officer.

Olga Tsokova — Executive Vice President, Acting Chief Financial Officer and Chief Accounting Officer

Thank you, Bob.

With a consistent focus on credit, capital and liquidity, we’ll continue to operate in a safe and sound manner. Our credit quality remains excellent. Year-to-date, net charge-offs were only $1 million. Our provision for credit losses over the same period was $41 million. This provision reflects our continued strong loan growth and excellent credit performance.

Our capital position remains very strong. At quarter end, our Tier 1 leverage ratio was 8.59%. Liquidity also remains very strong. High-quality liquid assets were 14.7% of average total assets in the second quarter. In addition to safety and stability, the power of our growth during the quarter was reflected in net interest income. Net interest income for the second quarter was up a very strong 24% year-over-year. This is due to the robust growth in earning assets, as well as a higher net interest margin.

Our net interest margin was 2.8% for the second quarter. This quarter’s NIM benefited from a reduced cash level, rising asset yields and only a modest increase in our funding costs. We currently expect to be in the top half of our net interest margin range of 2.65% to 2.75% for the full year 2022. This assumes a Fed fund rate of 3.75% at year-end, which was in line with the market view.

Our efficiency ratio was 60.5% for the second quarter. This quarter’s efficiency benefited from strong revenue growth, which more than offset continued investment in the business. We currently expect to be near the lower end of our efficiency ratio range of 62% to 64% for the full-year 2022. Our effective tax rate was 23% for the second quarter. We now expect the effective tax rate to be in the range of 22% to 24% for the full year 2022. Overall, it has been a great first half of the year, reflecting the stability and consistency of our model.

Now, I will turn the call back over to Mike Roffler.

Michael J. Roffler — Chief Executive Officer and President

Thank you, Jim, Mike, Bob and Olga.

For over 37 years, First Republic’s business model has been grounded in conservative credit, strong capital and liquidity, colleague empowerment and most importantly, a focus on providing extraordinary client service. This foundation remains unchanged. Our model is as strong as ever, and all of our colleagues remain focused on executing each and every day.

Now, we’d be happy to take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And we’ll take our first question from Steven Alexopoulos with J.P. Morgan. Please go ahead.

Steven Alexopoulos — J.P. Morgan — Analyst

Hey. Good morning, everyone.

Michael J. Roffler — Chief Executive Officer and President

Good morning, Steve.

Steven Alexopoulos — J.P. Morgan — Analyst

I wanted to start on the loan side. So, there’s been this persistent concern in the market that loan growth would slow for you guys, given you have rising rates, right, negative impact on the mortgage market and then the lack of housing supply comes up more and more. With that said, you’re reporting over $10 billion of single-family originations. The period at loan growth is really strong for single-family. Can you walk through how you are able to deliver such strong single-family growth in the quarter, despite both of those headwinds? And I’d like you to drill down specifically to the housing supply issue.

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

Steve, it’s Mike Selfridge. I’ll kick it off and hand it over to the others. Well, a couple of thoughts here. First of all, I think we’re reverting back to a little bit more of a seasonal pattern that we saw in years past, a strong spring buying season, followed by a slower summer and that’s okay. The characteristics of the market, I’d say the growth rate of housing prices is slowing, in some markets going down a bit and that’s actually healthy. Supply is still constrained. It’s come up a little bit, maybe a half month supply in all of our markets on a cumulative basis. But it’s still tight and there is still a fairly active purchase market. Quite simply, Steve, I think relationship and service are at a premium in markets like this and we are taking share.

Steven Alexopoulos — J.P. Morgan — Analyst

Okay. That’s helpful. Now if we assume loan growth remains strong for the rest of the year, the other concerns for the market is, one, how you’re going to fund the growth and the impact on NIM from that? And two, whether you’ll need to eventually issue more common to support the growth? So maybe on deposits first. So assuming the loan growth remains, now you’re seeing high teens or higher. Can you walk us through which deposit types do you expect to fund that growth and how should we think about the incremental cost of those deposits?

Michael J. Roffler — Chief Executive Officer and President

Yes, Steve. So along the spring buying season that Mike just talked about, deposits are starting to sort of see that same seasonality we’ve seen in the past where the first half of the year is a little bit lighter because of the April 15 and June 15 tax dates that, obviously, in the pandemic years of ’20 and ’21 were moved around. And so we’re very pleased that the first half of the year we’ve continued to grow our deposit and funding base to support the terrific lending activity. And I think you’ll continue to see broad-based.

We probably — CDs have been declining in the last two years, given zero rates. We’ll probably see those start to tick up a little bit because it’s a great way to utilize our 80-plus office network to reach out to clients and deepen relationships where not only you do a CD but you also bring in checking dollars. And so that’s a tried and true strategy that we’ve had and we’re already starting to do a little bit of it.

The other thing I’d say is we also declined our FHLB borrowings quite a bit in the last two years. And so there’s plenty of room and capacity there to utilize those. And the other thing is we start from a position of great strength because deposits are over 90% of our funding and have been steadily climbing. And so we feel we’re in a good place because of all the things we’ve done in the past few years.

Steven Alexopoulos — J.P. Morgan — Analyst

Okay. That’s helpful. And then maybe, Mike, on the capital side. I know the company, you started two years or so of excess capital. Capital was last phrased, it was August 2021. Does that mean we have about one years left of additional capital? And are there levers that you might be able to pull? Who knows what the environment will be like a year from now. But are there levers to pull so that maybe you don’t need to issue common if it’s a pretty tough backdrop for the economy and bank stocks overall? Thanks.

Michael J. Roffler — Chief Executive Officer and President

Yeah. I think the two-year capital perspective has served us very well. And I think your data on the August is right on common, but we also did some preferred later in the year in November. And so that’s sort of your launch point, I would say, for the two years, which means we’re at seven months or eight months from the last, which means we’re in really good shape right now.

Similar to the past, we’ve always been opportunistic and mindful of the markets. And the right time when it presents itself, you’ve seen us probably go early in the past because you don’t know when a more uncertain market is going to occur like we’ve had here in the last four months to six months. And so we feel really good where we’re at now, but we always remain opportunistic and a bit agnostic to the common or preferred market.

Steven Alexopoulos — J.P. Morgan — Analyst

Okay. Okay. Thanks for taking my questions.

Operator

We’ll take our next question from Dave Rochester with Compass Point. Please go ahead.

David Rochester — Compass Point — Analyst

Hey. Good morning, guys. Nice quarter.

Michael J. Roffler — Chief Executive Officer and President

Thanks, Dave.

David Rochester — Compass Point — Analyst

Just starting on loans, you mentioned the strong loan pipeline heading into 3Q. I was just wondering how that pipeline compares to what you saw going into this quarter, which is obviously a very strong quarter. And can you talk about the dynamics you’re seeing in the capital call business as well just in terms of activity levels and your customer sentiment there? And maybe try to frame the opportunity set of what that looks like for growing that going forward?

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

Yeah, Dave. Thanks, Mike Selfridge. First, your question on the pipeline. The pipeline is strong going in this quarter. It is up significantly year-over-year. It’s down slightly from the last quarter. And again, a bit of that is the seasonality that we’re starting to see, particularly in the single-family business, but still plenty of market share opportunities as I mentioned earlier.

Cap call utilization rates, you saw those tick down slightly to about 38.5% from 40%. And just in terms of characteristics, I’d say the industry overall is slowing. And what I mean by that is it’s harder to raise funds. The velocity or pace of investing is slowing. People are being much more methodical and selective about their investment opportunities. And if that slows — that drives down the utilization rate, which historically we’ve said is tending to sort of gravitate toward a mid-30s to high 30s. So, I think we’re right within that range. Growth opportunities are still strong for us in terms of acquiring new funds and opportunities.

David Rochester — Compass Point — Analyst

Perfect. Thanks for the color there. And then can you just talk about where new loan yields are across your major products, especially resi and multifamily and then some of the rest as well? And then for the securities that you’re buying today, if you can just talk about on the muni side and outside of that, where you’re seeing new securities yields? Thanks.

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

Sure. Mike Selfridge. I’ll start with the loan yields. For the last six weeks, we’ve been originating single family in about the 3.7% range, multifamily about 4.15%, CRE about 4.2%. And then business banking, capital call lending tends to be the largest segment there, and I’d say that’s coming in at prime minus 75 basis points to 100 basis points, so call it 3.75% to 4%. Prime being 4.75%. We haven’t had the full benefit of the last Fed increases in June.

David Rochester — Compass Point — Analyst

Perfect. And then on the securities front?

Olga Tsokova — Executive Vice President, Acting Chief Financial Officer and Chief Accounting Officer

Hi, Dave. This is Olga. And then securities, if we look at the muni purchases during the quarter, the TEY was 5.25%. And this compared to the first quarter, the TEY was about 4%. And just subsequent to the quarter end, the TEYs for the munis is about 4.75% to 5%. And in the non-muni HQLA, the purchases during the second quarter were at around 3.4% and this compared to about 2.5% in the first quarter. And subsequent to quarter end, the TEYs are about 4% and 4.25%.

David Rochester — Compass Point — Analyst

Great. So it sounds like you’ve seen some nice move up in new loan yields and the securities purchase rates, reinvestment rates. I was just curious on your margin guide, if you average the first two quarters together, you kind of end up at the higher end of that range. I was just curious if you’re expecting NIM to sort of stabilize here. And what are the chances that you could actually still continue to see some expansion as we play out the Fed rate hikes you’re expecting in your guidance?

Olga Tsokova — Executive Vice President, Acting Chief Financial Officer and Chief Accounting Officer

Sure. So Dave, we believe we will — we expect it to be at the top half of our range of 2.65% to 2.75%.

David Rochester — Compass Point — Analyst

Yes. So I mean, I guess — go ahead.

Michael J. Roffler — Chief Executive Officer and President

Yeah, Dave. Let me just maybe comment and maybe just take a step back. We’ve always focused on stability and consistency across the board. If you think about client service, how we invest in the business and the franchise, which leads to our efficiency, and how we compete in the marketplace for clients and for business. And what that results in is stability over time.

We’re really excited about and then pleased with the first half of the year results on sort of where we — frankly, if I go back probably three years ago, we’ve said we would be in these ranges and we’ve continued to deliver quarter after quarter, further demonstrating that consistency and stability. And I think now we’re sort of towards the high end on margin and low end on efficiency, and we feel good about that because it allows us to continue serving clients, continue investing in the franchise for future growth and delivering stable, predictable results that are very safe over time.

David Rochester — Compass Point — Analyst

Yeah. Appreciate that. Maybe just one last one. In terms of how you’re thinking about deposit betas, I know you talked about the 19% you had in the last cycle. You thought maybe you’d be a little bit above that. Has that thought process changed at all, just given what we’ve seen with inflation numbers and rate hike expectations that kind of thing? Are you still generally in that range, just above 19%?

Olga Tsokova — Executive Vice President, Acting Chief Financial Officer and Chief Accounting Officer

Yeah. I would say we’re generally in this range. However, every cycle is different, and we expect that this cycle will be slightly higher than 19% in the previous rate right cycle. So, we expect to be slightly above the 19%.

David Rochester — Compass Point — Analyst

Great. All right. Thanks, guys. Appreciate it.

Operator

And we’ll take our next question from John Pancari with Evercore. Please go ahead.

John Pancari — Evercore ISI — Analyst

Good morning. Also on the loan growth side, I wanted to see if — I know — I appreciate the high-teens color that you expect for 2022. Could you maybe give us a little bit of thought process around how you’re thinking about 2023? Is that mid-teen expectation that you’ve been approximating? Do you think that’s attainable here? Or what type of slowing could we see as capital calls continue to cool and likely see potential slowing in mortgage?

Michael J. Roffler — Chief Executive Officer and President

Yeah. John, I think it’s a great question. And I think year after year, the consistency and continued excellent service delivery and serving clients is what has led to that mid-teens outlook that we have. And we continue to believe that’s prudent as we go into look forward even past today into 2023. If you remember in our presentation materials, more than half of our new business comes from existing clients. And those existing clients were continuing to grow households, as we mentioned earlier.

And so they continue to do more with us. And if our client satisfaction remains as high as it’s been and you saw from the net promoter score earlier this year, remains excellent, well more than two times the industry that not only leads to repeat business but also leads to referrals. And so that service model is what drives and gives us confidence that in varying economic environments, we can continue to grow at a mid-teens pace. And this year, I think is demonstrating that even with macro uncertainty. As Mike Selfridge noted, we’ve been able to pick up share and continue to grow and serve clients extremely well.

John Pancari — Evercore ISI — Analyst

Got it. All right. Thanks, Mike. That’s helpful. And then separately, on the wealth management side, I know assets down 10% linked quarter. I mean, how should we think about wealth management revenue in the back half of this year in terms of the growth, just given the dynamics that we’re seeing in the market as well as asset flows? How should we think about the growth there when you look at the third and fourth quarter?

Robert L. Thornton — Executive Vice President and President, First Republic Private Wealth Management

Yeah. This is Bob. Look, I think our — we continue to see very strong inflow from clients. I think we’ll see some additional team hires. Obviously, markable impact on the business. As you know, we built at the beginning of each quarter for our investment management fees. So for the third quarter, our investment management fees will probably run about $148 million to $150 million. But as I stated in my comments, we continue to see strong growth in households, strong growth in assets. And again, I want to highlight the other non-investment management revenues we have, which were up 40% first half of this year versus last year. So, we have a lot of things that can offset the headwinds of the down market, but the market is something that is something we’re just having to count as we move through the rest of the year.

John Pancari — Evercore ISI — Analyst

Okay. Great. Thanks for taking my questions.

Operator

We’ll take our next question from Casey Haire with Jefferies. Please go ahead.

Casey Haire — Jefferies — Analyst

Yes. Thanks. Good morning, everyone. I had a question on the efficiency ratio. The guide coming in at the low end of 62, 64. It’s running — year-to-date, it’s at 61. And we’re used to seeing that improve in the back half of the year. Obviously, the NIM guide implies a little bit of pressure going forward. But just wondering what is driving the efficiency ratio so low year-to-date and what is the pressure in the back half of the year?

Michael J. Roffler — Chief Executive Officer and President

Thanks, Casey. I guess I’d say this, revenue growth, as you see, has been extremely strong across the business if you look at both net interest income and fee income. And so because of just the nature, the ratio is a bit lower because revenue growth, frankly, is just outpacing the investments we’re making. We are still investing, as I mentioned, in people, technology, offices to serve clients. It just outpaced it a bit this quarter.

The deposit beta, as Olga mentioned before, has been low. If that picks up a little bit, that does imply margin at the top half of our range, as we mentioned. And given the ratio nature, that probably leads to a slight increase. Could we be slightly below? Yes, maybe because we — but we’re continuing to invest in the franchise to support growth in the bank and continued growth in clients and client activity.

Olga Tsokova — Executive Vice President, Acting Chief Financial Officer and Chief Accounting Officer

And I would add that some of the COVID benefits that we experienced over the last couple of years, we will start picking up those expenses. We’ve seen them increasing during the first couple of quarters, but they’re not at the pre-COVID levels yet. So, we can see those ramping up going forward.

Casey Haire — Jefferies — Analyst

Got you. Okay. And just following up on the funding side, apologies if I missed this. But the deposit costs, where did they

— what was the spot rate at 6/30 for them? And then just on the borrowings capacity, I know you guys are — have a ton of room as you referenced, Mike. But I was just wondering what is sort of a peak level in terms of use of borrowings that would put pressure on your ability to generate the stable NIM that we’re used to from First Republic?

Olga Tsokova — Executive Vice President, Acting Chief Financial Officer and Chief Accounting Officer

I’ll start with the spot rate on deposits as of June 30 was 21 basis points.

Michael J. Roffler — Chief Executive Officer and President

On the second comment, Casey, I think from a percentage of FHLB as one of our sources of non-deposit funding, we’re well below where we’ve been in the past. And so there is an ability to use that source a bit more while being consistent with our margin guidance as Olga mentioned. So, there is an ability to use a bit more and still remain within sort of our overall NIM and even towards the middle to high end of the range.

Casey Haire — Jefferies — Analyst

Excellent. Thank you.

Operator

And we’ll take our next question from Erika Najarian with UBS. Please go ahead.

Erika Najarian — UBS — Analyst

Hi. Good morning. Just two questions. It’s been well documented how resilient growth can be particularly in single family even in a recession. So, I wanted to ask sort of especially since one of your peers just mentioned this morning that the results of the stress test is causing him to drive on-balance sheet mortgage growth lower. But there’s sort of two parts of the balance sheet in this chunky rate rising environment that I wanted to ask about.

The first is on capital call lines. Mike, I fully appreciate that you’ve responded in the past that such an environment was to get significantly more investment opportunities for funds. I’m wondering if there could be sort of a timing hiccup in terms of some of the potential mark-to-market and rising funding costs for funds until it’s a better investment environment.

And for Mike R, as we think about rapidly rising rates, I think you had 3.75 for the end of the year. Can deposit growth at First Republic continue to be positive, even if, let’s say, we actually start seeing more negative deposit growth for the industry, particularly given that your deposit exposure is now more skewed away from the consumer?

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

Erika, Mike Selfridge. I’ll start. If I think I understand your question on cap call, it’s really from an industry perspective and mark-to-market, how do they perform? And they do lag. If you think about the private markets, those valuations tend to lag depending on either a quarterly valuation or a next round of financing. So, I would expect over the next few quarters that private valuations would come down overall.

Having said that, this is an industry that has performed over many cycles, particularly quality funds. So, there will still be a level of fundraising. I think the fund manager selectivity and quality will matter. It’s going to be a little more difficult and take a little bit longer for certain funds. Others, it will take longer, but they’ll still raise money. And like many of our clients, they’re opportunistic. So some of the best investment opportunities present themselves in a down market. And whether that’s now or a few quarters from now or a year from now, I don’t know, but I know they’re very opportunistic in terms of opportunities.

Michael J. Roffler — Chief Executive Officer and President

And then, Erika, on the deposit side, absolutely, we continue to grow deposits. We’re really pleased to view the second quarter historically has been one of our most challenging periods and to grow over $3.5 billion in spite of the large tax flows that happen in April and June is a really great result and a testament to relationships with clients and the continued dedication to service of our people. As we go forward, the mix of deposit funding when we go to higher rates as we note the 3.75 Fed, you’ll see a bit more in CDs and clients will look for incremental yield. But we have no reason to believe, given the deep relationships that we have we’re going to continue to grow deposits as we have in prior rate rise periods.

James H. Herbert — Founder and Executive Chairman

Erika, it’s Jim. As you know, from following us a long time, the fundamental element is the growth of household and relationships, and that includes business households. And our growth rate, as referred in some of the comments earlier, is at a historic high point. That ultimately drives deposits.

Erika Najarian — UBS — Analyst

Great. And Jim, so good to hear your voice. And just as a follow-up question, Olga. Who knows what’s going to happen to long rates. But as we think about just re-asking the question, as we think about the progression of the net interest margin from here, could we have hit a high point in the second quarter as we think about clearly, the outlook for Fed funds is quite robust? Should we think that the second quarter is a high point and for the rest of the year and perhaps into 2023 based on the forward curve, we sort of just continue to stay in that 2.65% 2.75% range on a quarterly NIM basis?

Olga Tsokova — Executive Vice President, Acting Chief Financial Officer and Chief Accounting Officer

Hi, Erika. So if we look at our NIM for the first six months of the year, we were at 2.74%. And the beta early in the year was quite low, and we were able to keep our deposit costs at 9 basis points, which is up just 4 basis points from quarter-over-quarter. And we expect in the second half of the year, the beta will pick up as the Fed fund raises its rate. So again, it’s hard to predict, but this is why we provide the guided range of the top half of our to 65% to 75%.

Erika Najarian — UBS — Analyst

Okay. Thanks so much. We’ll take our next question from Bill Carcache with Wolfe Research. Please go ahead.

Bill Carcache — Wolfe Research — Analyst

I apologize there is some construction taking near us here. You’ve addressed the appetite of your customer base to continue to engage with you at current activity levels even in more challenging environments and your strong growth to date despite the sharp increase we’ve seen in rates is certainly encouraging. But could you speak more specifically to how you think about the point at which negative wealth effects, rising unemployment and the other things that you see in a recession start to impact your model? Or should we really think of just the nature of your model is really being sort of immune to a recession?

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

Bill, Mike Selfridge. Maybe just a couple of thoughts. There’s certainly a wealth effect in macroeconomic factors affect any market. But if you look at what we’re going after here in terms of a satisfied client with a net promoter score overall of 79, we think the highest in the industry. Mike alluded to the growth rate. More than half the growth rate coming from existing clients. A lot of these clients have been with us for years. They’re active, up cycles, down cycles. And I want to reemphasize relationship and service is at a premium in a down market. And market size or market penetration, we have a lot of room to grow in any market. So, I’ll go back to the consistency that was mentioned, the stability, the room to grow safely and soundly. And we feel optimistic about that.

James H. Herbert — Founder and Executive Chairman

Maybe — it’s Jim. Maybe just let me add a little historical perspective here since I’ve been around for a while. The bank generally does very well in these cycles. And the reason is that other competitors tend to get, they pull back, they let go loan processing, they let go other people that support the service delivery and so their delivery times go out. And our ability to compete actually generally increases, and it’s based more on service than it is on rate. And we can compete on rate too because our funding costs are better, in fact, than the big banks but — if you look at their total funding cost versus ours.

But mostly, it’s about service and consistency of delivery. Remember that a lot of purchase finance has in the middle of it, the intermediary called brokers — real estate brokers and they know of our service, and they come to us. They bring the deals over to us. So in fact, it’s a very large business. We’re in these coastal urban markets. The home lending business is very big, and we do not have dominant share position. So it’s easy enough for us to take an additional share position. That’s happening now and it will happen and probably even greater percentage-wise as the — through this, whatever is coming probably a downturn. Thanks.

Bill Carcache — Wolfe Research — Analyst

Thanks. Thank you, Jim. That’s super helpful. So just following up on those final comments, Jim, are you seeing notably less competition among mortgage lenders today who’ve pulled back amid the increase that we’ve seen in rates? And is that sort of contributing to more favorable margins?

James H. Herbert — Founder and Executive Chairman

I would say at this point, we’re seeing the leading edge of it, but not very much yet. Anyone relying on the secondary market, of course, is out of the market. So it’s only the balance sheet lender is still in the market. But some of their deliveries are not as good as they were. They’re still great lenders, and they’re still great competition, but they’re not as good as they were. But mostly, it’s the degree of certainty that the intermediaries like real estate brokers can count on, and they know they can count on First Republic. And so that competitive advantage will increase as things get more volatile and more dicey as we go forward.

Bill Carcache — Wolfe Research — Analyst

And is it also fair that a unique part of the business model is that as you’re extending loans to new clients that there is incentive for them to bring perhaps other deposits over with them? Maybe could you give a sense of what percentage of the clients that you’re extending loans to are also bringing deposits over with them?

James H. Herbert — Founder and Executive Chairman

The model absolutely is that, as you probably know, we do relationship pricing. But still, as Mike Roffler — as Mike Selfridge and Roffler both said, most of our business is with existing clients and their direct referrals. The direct referrals go up in this environment. When their friends are having trouble getting something done, they say you ought to try First Republic. It’s pretty simple. This is not a complicated thing. And if you’re in the game long term and steady, you win when things are unsteady.

Bill Carcache — Wolfe Research — Analyst

That’s great. Super helpful. If I can follow up on earlier comments on the funding side, your year-over-year loan growth and deposit growth were both 23%. But on a sequential basis, some investors are asking about the roughly 60% of your loan growth this quarter that was funded by FHLB advances. Could you speak to what’s happening there? And whether as we look ahead, we should expect your deposit growth to remain in line with?

Michael J. Roffler — Chief Executive Officer and President

So, I just maybe harken back, the last two years were absolutely phenomenal from a deposit funding perspective, if you look at the growth. And that allowed us to continue to reduce non-deposit funding, which we’ve done. And then as not unexpected, and we may have even talked about this on our last call, as rates start to rise and you see this through the Federal Reserve data, deposits have grown less than an industry basis.

That said, ours have continued to grow to support our lending and investing activities. And if it grows a little bit less than loan growth this year, because of how strong we’re coming into that, we’re prepared for that. It’s considered in our forecasting, and we’ll continue to grow. It just may be at a lesser pace than it was in the past two, which were outstanding years. But again, just to reiterate, the reason we feel confident in that growth is the service model and how we develop full-service relationships, be it through wealth management, a new lending client or deepening relationships with clients each and every day.

Bill Carcache — Wolfe Research — Analyst

Thank you all for taking my questions. And thanks for especially the historical context. Jim, that was very helpful. Appreciate it.

Operator

We’ll take our next question from Manan Gosalia with Morgan Stanley. Please go ahead.

Manan Gosalia — Morgan Stanley — Analyst

Hey. Good morning. Just a couple of quick follow-ups from me on the loan growth side. First, I just wanted to ask on multifamily loans. In addition to resi, you’re seeing a lot of strength in multifamily originations as well. I know you said that part of that was seasonality, but there is clearly some strong underlying growth there as well. So can you talk a little bit more about where that underlying growth is coming from? Is that also some people getting in ahead of rates? Or is there a more fundamental share gain story there?

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

Manan, thanks, Mike Selfridge. Multifamily is not going to follow the seasonal patterns precisely with single family. So that’s a little more of the opportunity from the client. Like our model, more than half of the growth rate in that comes from existing clients, folks that have been in the business for a long time and look for opportunities. I think multifamily has been a solid asset class in general. As housing prices have increased, there’s more demand for rents. Rents in general are above pre-pandemic levels, but solid with lower vacancies. So, I think it’s just been investment opportunities that our clients have spotted and executed on.

Manan Gosalia — Morgan Stanley — Analyst

Okay. Great. And then separately, I know you’ve mentioned you’re investing in teams and ramping up in new markets like Florida and Seattle and also some urban areas along the coast. How much do you expect that to contribute to growth in lending this year and maybe offset any slowdown that you may see in mortgages as rates rise? Is that a second half ’22 story? Or do you think that’s more of a 2023 story at this stage?

Michael J. Roffler — Chief Executive Officer and President

Yeah. It’s probably more the latter of what you said. We’re really excited with the group of individuals and colleagues that we’ve hired to serve clients. You specifically mentioned the Seattle area, and we continue to expand our presence in Florida and in the Palm Beach area where we’re at. But I think it’s probably more of a ’23, especially in Seattle as we get known in the market greater than a big contributor in ’22. But we’re very excited about the clients we have there already and the reception we’ve received in the market thus far.

Manan Gosalia — Morgan Stanley — Analyst

Great. Thanks so much.

Operator

We’ll take our next question from Andrew Liesch with Piper Sandler. Please go ahead.

Andrew Liesch — Piper Sandler — Analyst

Hi. Good morning, everyone. Just going back to the margin range question here. I’m still thinking you can maybe beat the high end of that. And I understand the deposit beta comments. But I’m just curious, is it also on the yield side? Do you expect the growth in the asset betas just to slow? It seems like with your high-quality service, there’s an opportunity for you to charge more, especially as you’re able to serve clients better on the mortgage front than the non-balance sheet lenders that have left the market?

Michael J. Roffler — Chief Executive Officer and President

Yeah. Maybe I could just step back a little bit. I mean, we’re at the top half of the range for the first half of the year. And like I mentioned earlier, for us, it’s about consistency and stability of the margin over long periods of time. Olga mentioned that we’re really pleased where the deposit betas remain low. But we all know as the Fed accelerates, as they have, that will pop up a little bit and we talked about sort of the low 20s. And that’s not reflected quite yet. That said, we remain competitive in the marketplace also from a lending standpoint.

But Mike Selfridge talked about the capital calls, for example, the asset yields are adjusting nicely as the Fed raises rates. And if we think about how the business has operated while the Fed has raised, I guess, 150 basis points through June precisely and consistently as we would have hoped or would have expected because we — again, stability of margins, stability of efficiency while continuing to serve clients and deeper relationships, and we’re exactly on point with that. And so could we be at the top end? It feels like a pretty good spot to be. But also the Fed is going to be pretty aggressive here in the second half of the year as they really try to tame inflation. And so we think that the stable model wins over the long term and continue to be steady over the long term.

Andrew Liesch — Piper Sandler — Analyst

Got it. Okay. That’s really helpful. And then just on that 3.7% resi loan yield that you talked about, can you just talk about the mix of arms in that versus 15-year or 30-year fixed rate mortgages?

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

Casey [Phonetic] [sic] [Andrew], it’s Mike. I don’t have that off the top of my head. But most of our — I’d say a majority of our single-family origination volumes historically as well have tended to be hybrids, 5s, 7s and 10s.

Andrew Liesch — Piper Sandler — Analyst

Got it. Okay. And that’s still the case. I’m just curious like what are — what’s the demand for it? I know right now, there is bit more demand for 5s or 7s or 10s, I guess.

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

I would say the 7 is probably coming in the best right now, generally. I mean mix is week-to-week. It just depends on really the client. So it’s a little bespoke, but 7s maybe 10s.

Andrew Liesch — Piper Sandler — Analyst

Okay. Very helpful. I will step back.

Operator

We’ll take our next question from Jared Shaw with Wells Fargo. Please go ahead.

Jared Shaw — Wells Fargo Securities — Analyst

Hi. Good morning. Just following up on a few of the other questions. Mike Selfridge, I appreciate the update on the yields that you’ve seen more recently. Do you have the origination yields for the average for the quarter?

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

I have — I do, Jared. For all real estate, originations is about 3.18-ish, call it, in that range, for all loans about 3.20% for the quarter.

Jared Shaw — Wells Fargo Securities — Analyst

And what about single-family residential?

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

Single-family residential was a little over 3%, and this is an average origination. As I mentioned, I gave you the sort of the six-week average earlier with Steve’s question.

Jared Shaw — Wells Fargo Securities — Analyst

Yeah, definitely. And then Olga, on the 21 basis point spot deposit rate, is that interest-bearing? Or is that for total deposits?

Olga Tsokova — Executive Vice President, Acting Chief Financial Officer and Chief Accounting Officer

Hi, Jared. This is total deposits.

Jared Shaw — Wells Fargo Securities — Analyst

Okay. Thanks. And then, I guess, just finally. When we look at Slide 29 on the deck for the asset sensitivity, which I guess is based on March 31. Given some of that move, should we assume that, that may shift to liability sensitive with the recent rate moves and the expectation going forward?

Michael J. Roffler — Chief Executive Officer and President

Not based that our preliminary view is it’s still slightly asset sensitive, which is where we’ve consistently been.

Jared Shaw — Wells Fargo Securities — Analyst

Okay. Thank you.

Operator

We’ll take our next question is from Chris McGratty with KBW. Please go ahead.

Christopher McGratty — Keefe, Bruyette & Woods — Analyst

Great. Thanks. Just going back to the funding. Last cycle, Mike, you were around 100% loan to deposit. You’re 90% today. What’s the comfort level to let that drift given the size of the balance sheet today?

Michael J. Roffler — Chief Executive Officer and President

We’re very comfortable. Obviously, we’re coming in 85%, 90% where we’ve been, and we’ve operated in the high-90s to 100. And we feel like given our funding sources and the strength of our liquidity profile, we could operate in that range again.

Christopher McGratty — Keefe, Bruyette & Woods — Analyst

Okay. And then just a couple of quick ones. The brokers line popped up. Wondering if that was anything unusual there? And then the BOLI line, I’m wondering kind of a fair run rate. I know there’s some seasonality there. Thanks.

Robert L. Thornton — Executive Vice President and President, First Republic Private Wealth Management

I don’t think there was anything unusual. Whenever there’s quite a bit of market volatility, we tend to see more trading brokerage activity. So, I think that’s consistent with what we’ve seen in past volatile markets.

Olga Tsokova — Executive Vice President, Acting Chief Financial Officer and Chief Accounting Officer

And on the BOLI side, Chris, if we look at the income from life insurance contracts, it’s impacted — certain contracts impacted by the mark-to-market. With the market volatility during the second quarter, we’ve seen a decline in the income that was driven by mark-to-market. And just to remind you, there is offsetting a corresponding reduction from benefit costs related to those contracts. So, you’ll see the offset on the other side of the income statement. And if you remove — I’ll give you an example. On second quarter, the impact of negative mark-to-market to this line was about $12 million, which compares to about $4 million last quarter. And if you remove the market volatility component, our run rate for life insurance contracts will be around 2021 line.

Christopher McGratty — Keefe, Bruyette & Woods — Analyst

Great. Thank you.

Operator

We’ll take our next question from Brian Foran with Autonomous. Please go ahead.

Brian Foran — Autonomous Research — Analyst

Hey. Good morning. Maybe to preface the question, I mean, I think you’ve shown over and over again, you’re always going to be pristine and best-in-class on credit. But on the allowance and where it is today, can you just give us a flavor, any key assumptions? Are you assuming home price declines already in your base case probability of recession? Just any kind of flavor on some of the — I know it’s a big process and there’s no one assumption that drives it, but just helping us gauge how much of the cycle is already embedded in that allowance?

Olga Tsokova — Executive Vice President, Acting Chief Financial Officer and Chief Accounting Officer

Yeah. Sure. Hi, Brian. The allowance for loan losses were at 48 basis points at our quarter end and we feel it’s appropriate given our standing credit track record. And just to remind you, level of provisioning is dependent on the loan mix. And for example, single-family loans were in the lower reserve requirement and more than 70% of our growth during this quarter was coming from single family.

And if you think about our charge-offs for the quarter, we were at $1.3 million and we reserved $31 million. And in terms of the assumptions, we use Moody’s scenarios. And if we compare them to the previous scenarios, the assumptions did not change. The scenarios didn’t change that much. In fact, they got a little slightly better from last time we used them. So, I would say the provision was solely driven by the growth in our loan book.

Michael J. Roffler — Chief Executive Officer and President

And maybe, Brian, if I could just stand back for a minute. I mean one of the things that our reserve levels take into account is the historical performance of the bank. And over 37 years, the cumulative losses are 9 basis points. And so when you layer that in on a cumulative basis and you look at history and also look at 75%, 80% real estate secured at 55% to 60% loan to values, projected losses are pretty modest. Even when a Moody’s scenario has a home price decline in it, when you’re at 55% loan to value, there’s still not a lot of projected loss. And so I think it speaks to the long-term safety and stability of how we underwrite credit and how we think about being there for clients in all cycles and all environments. And the way you do that is to be safe at all times.

Brian Foran — Autonomous Research — Analyst

Got it. And one follow-up. This point about some instances of brokers coming to you amidst market turmoil or maybe turmoil is too strong of a word, but in greater periods of uncertainty. I hadn’t really thought of that. Is there any sizing you can give? What percentage of loans over a certain period are coming through brokers? And then I’m sure you do a great job cross-selling those customers more broadly through the bank. Does it happen over the same timeline as someone who comes to you directly? Or is there a little bit more of a lag where some of that broker referred production turns into deposits and wealth?

James H. Herbert — Founder and Executive Chairman

It’s Jim. Let me respond to that because I made that comment. First of all, let me be extremely clear. We don’t do — we do not do brokered loan business. I’m talking about real estate brokers who are on a sale, who refer their clients to find a home mortgage.

Brian Foran — Autonomous Research — Analyst

Okay.

James H. Herbert — Founder and Executive Chairman

It’s all direct lending. The bank is a direct lender. But that business picks up as a share of that business because we’re more reliable, more predictable.

Brian Foran — Autonomous Research — Analyst

Got it. Okay. So it’s a different thing. This is a real estate broker who’s seeing some deals fall through with other lenders and just starts coming to you guys because their main focus is making sure the house gets sold.

James H. Herbert — Founder and Executive Chairman

Yes. Exactly. And of course, that has great value long term because it may be the first time they ever tried us before. And they’re in the business repetitively for a long period. So it’s actually very attractive.

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

And Brian, I’ll just address your second question. Is there a lag in cross selling? Jim mentioned relationship-based pricing. So, we want a relationship. We often won’t get everything all at once. There’s a saying here, just get trial. And that’s why once they discover the service and the relationship, half the growth rate or more comes from the existing client who likes what they’re experiencing and starts to consolidate more of their banking and wealth management with us. So, I would call that a lag.

Brian Foran — Autonomous Research — Analyst

Appreciate it. Thank you.

Operator

And we’ll take our next question from Ebrahim Poonawala with Bank of America.

Ebrahim Poonawala — Bank of America Merrill Lynch — Analyst

Good morning. I just had one final question around — as we think about the margin, I think you had a bunch of questions around the outlook for deposit betas and such. I think the struggle Olga, Mike, is around if we assume that single-family originations are coming around, let’s call it, 3 to 3.25 funding costs, given how quickly the Fed is moving implies a pretty sharp compression risk in the margin. So would — I guess, one, is that a reasonable concern as we think about 2023 in terms of the risk of margin compression? And second, when you think about the relationship deposits coming on, are the costs materially different relative to your back book on the deposits when we think about pricing?

Michael J. Roffler — Chief Executive Officer and President

On the second part of your question, I would say no because, typically, they’re coming from relationships where we’re having new relationship, where relationships are being built, and you do a loan and you bring deposits and a portion of that’s in checking and some of it may be in money market, but I wouldn’t see it as a greater pricing than the current portfolio. I’d also highlight $75 billion of our deposits are noninterest-bearing relationship-based focus, right? And so again, that gives us some protection from how fast the Fed looks to be willing to move here in the second half of the year. And I’d also — there’s a page in our investor deck that talks about the resiliency and the repricing of our loan portfolio.

When you combine floating rate assets with historical repayments, it has really offset the rise in funding costs, which continue to be very modest. And the new loan yields that Mike Selfridge talked about, right, that’s a portion of the loan portfolio, right? That’s not — you don’t reprice the whole portfolio. And then if I stand back from all that, I think we had talked about this earlier, it’s about consistency and stability over long periods of time, which leads to growing balance sheet, growing net interest income. It’s never been about expand the margin and keep growth modest. It’s been about serve clients that leads to future growth, keep things consistent and stable over long periods of time.

Ebrahim Poonawala — Bank of America Merrill Lynch — Analyst

Got it. And just one quick follow-up on the market share opportunity. I think, Jim, in the past, you’ve talked about the big banks go from hot to cold. It feels like they’re getting cooler. I’m just wondering, does that create incrementally better opportunities given the kind of macro environment that we are heading into?

James H. Herbert — Founder and Executive Chairman

Generally, yes, it does. But we know the thing to remember is that although we’re very proud of the success of the bank, we’re still a small market share in most of the markets we’re in. So for us to take a bit of share is not that challenging to be perfectly frank.

Ebrahim Poonawala — Bank of America Merrill Lynch — Analyst

Got it. Thanks for taking my questions.

Operator

The next question comes from Jon Arfstrom with RBC. Please go ahead.

Jon Arfstrom — RBC Capital Markets — Analyst

Hey. Thanks for letting me in here. Just I’ll make this quick. Mike Selfridge, on the capital call lending, loan yields, you mentioned prime minus 75 or 100. Do you think that kind of pricing can hold as prime continues to rise? So if we get 75 or 100 at the end of the month, do you expect that pricing to react by 75 or 100? Or is it just too competitive to make it that linear?

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

I think it’s more of the latter. It’s very competitive. And there’s, as you know, a couple of key players in that business and we’ll get some benefit to the upside. But I think the range — I feel comfortable in the range I gave you. As prime goes up, I think we’ll benefit from that. Maybe not 100% in terms of loan beta, but we’ll get some upside. But I think there’s a bit of a ceiling just due to competition.

Jon Arfstrom — RBC Capital Markets — Analyst

Yeah. Okay. And then just one quick one. In your slide deck, you show about half of your loans have repricing time frames in a year or less and then another half fixed in hybrid. Can you just talk a little bit about some of the repricing timeframe on that fixed and hybrid portion of the book? Thanks.

Michael J. Roffler — Chief Executive Officer and President

Yes. So the way that slide is built is, it’s on a historical perspective of how much of those fixed and hybrids repay over a period of time. And so that’s what’s built into it. It’s a floating rate, plus a portion of those that prepay over time. And the hybrid and fixed has sort of been a four-year to six-year period, typically, if you just were to look at it sort of on a stand-alone basis.

But really, what that’s getting at is it shows the power of growth over time, right? As rates are rising, not only — it’s a dynamic nature of our client base in our loan portfolio and balance sheet because it’s growing, it’s repricing to market as new deals are done. And as you see, we had quite a bit of good new business in the quarter. And so, again, that long-term perspective of serving clients allows us to reprice over time, which is offsetting any funding rates or the Fed very well right now.

Jon Arfstrom — RBC Capital Markets — Analyst

Okay. All right. Thank you for that.

Operator

We’ll take our next question from Tim Coffey with Janney. Please go ahead.

Timothy Coffey — Janney Montgomery Scott — Analyst

Great. Thank you. Good morning, everybody. Given the weakness that we’re seeing in office commercial real estate, especially in the San Francisco Bay area, have you increased your underwriting standards on that product or otherwise become more selective?

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

We’ve always been more selective. I would say we’ve been even more cautious over — actually in the last few years, but certainly in the last six months and you’re probably reading headlines on sort of large high rises with 30% occupancy. We’re not in that business. We’re in the small CRE deals, medium loan size, $2 million loan-to-value at origination, typically less than 5% with recourse net service coverage experienced operators.

Timothy Coffey — Janney Montgomery Scott — Analyst

Okay. Okay. So the vacancy rate in the general San Francisco market of 20%, you don’t think that’s really going to have much of an impact?

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

I don’t think so for what we do, no. I think people are being very selective in what they purchase. And typically, they’ve been in the business for many cycles. So they know what they’re doing, and they know how to make it work.

Timothy Coffey — Janney Montgomery Scott — Analyst

Okay. And then on the stock secured lending, is the collateral there just highly liquid stocks or could it include restricted stocks?

Michael J. Roffler — Chief Executive Officer and President

It’s only highly liquid stocks.

Timothy Coffey — Janney Montgomery Scott — Analyst

Okay. All right. Those are my questions. I appreciate the time. Thank you.

Operator

We’ll take our next question from David Chiaverini with Wedbush. Please go ahead.

David Chiaverini — Wedbush Securities — Analyst

Hi. Thanks. I thought it was impressive to see such a high level of refi in the quarter for SFR at 48%. I was curious, what’s the mix of new versus existing clients on the refi side? And then the follow-up would be, where do you expect that 48% refi level to go going forward?

Michael D. Selfridge — Senior Executive Vice President and Chief Banking Officer

Dave, the refi — I would just characterize refi as more than majority being another bank’s clients. So external clients coming to First Republic. And I know we’ve said historically that it hasn’t drifted over the long run down below 40%. We could see refi in terms of mix drop below 40%, given the headwinds with rising rates.

Michael J. Roffler — Chief Executive Officer and President

Dave, maybe I’d just add on a second. One of the things about refi and the business we’re doing is such a testament to our service model and our colleagues that are serving clients each and every day. As Mike mentioned, the opportunity coming from clients at other banks is a direct result of the great service that those colleagues provide to clients because as Jim, Mike have mentioned, referrals are very strong, especially in periods of maybe where service isn’t as great, right?

And so I think it’s a real testament to how we focus on service delivery at all times and our colleagues do a wonderful job of that in any environment. Being there right now for clients is extremely important in this period of volatility. And we don’t — nobody hides under the desk at First Republic. They pick up the phone and make phone calls and they engage with their clients frequently and you see that in the results.

David Chiaverini — Wedbush Securities — Analyst

Very helpful. Thanks very much.

Operator

We’ll take our next question from Steven Alexopoulos with J.P. Morgan. Please go ahead.

Steven Alexopoulos — J.P. Morgan — Analyst

Hi again, everyone. Thanks for taking the follow-up. The theme of safety and stability has been emphasized quite a few times on the call today, and I want to ask a follow-up to Jim. I know you’re not an economist, but you are one of the longest-standing executives in the industry. And like you said, you’ve seen a few cycles over the past 37 years. Jim, from a big picture view with all the uncertainty out there, what’s your assessment of the risk of what lies ahead and what are you most focused on today? Thanks.

James H. Herbert — Founder and Executive Chairman

Thanks, Steve. Well, I’m not an economist, but maybe the scars are better than in education, I’m not sure which. But the — I think we’re seeing kind of a normal, but somewhat rapid tightening cycle play out, following an excessively long period of cheap money. I started the bank in August of 1980 before this one and looked through the Volcker years. And they were pretty brutal. But on the other hand, it worked out to have two recessions, but the rest of the ’80s were actually quite attractive.

So, I think what we’re seeing is the beginning of the solution. You’re watching some prices begin to stabilize, has not come down, some are coming down. You’re watching people pull back, particularly in the Valley and the tech pull back on employment, if not letting go, they’re certainly stopping their hiring. And so it’s a normal process. The Fed has to play catch up. They’re behind and they’re doing — they’re likely to do so pretty quickly.

So, I think you’re likely to see the recession is probably coming of some kind, and it will stabilize a lot of the excesses. I don’t think that it’s threatening overly to us. We’re not naive, and it obviously is a challenge, but I think it will be fine. The quicker the rates go up, the faster inflation will be resolved. The thing that Volcker did is so important is he moved really boldly and got ahead of it. But it took two recessions to get there. And not that I’m predicting that because I’m not. But — so I think we’re just fairly — we’re in maybe the second or third inning of what’s going to be required to get inflation under control. That would be my personal opinion.

Steven Alexopoulos — J.P. Morgan — Analyst

Okay. Thanks so much.

Operator

That concludes today’s question-and-answer session. At this time, I will turn the conference back to Mike Roffler for any additional or closing remarks.

Michael J. Roffler — Chief Executive Officer and President

I’d just like to say thank you for joining our call today, and we are excited about the service model and our continued excellent delivery for clients and look forward to the future. Thank you.

Operator

[Operator Closing Remarks]