First Republic Bank (NYSE: FRC) Q4 2022 earnings call dated Jan. 13, 2023
Corporate Participants:
Michael Ioanilli — Vice President and Director of Investor Relations
James H. Herbert — Founder and Executive Chairman
Michael J. Roffler — Chief Executive Officer, President and Board Member
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
Robert L. Thornton — Executive Vice President and President, First Republic Private Wealth Management
Olga Tsokova — Chief Accounting Officer and Deputy Chief Financial Officer
Neal Holland — Executive Vice President, Chief Financial Officer
Analysts:
Steven Alexopoulos — JPMorgan — Analyst
David Rochester — Compass Point — Analyst
Ebrahim Poonawala — Bank of America — Analyst
Casey Haire — Jefferies — Analyst
Manan Gosalia — Morgan Stanley — Analyst
Jared Shaw — Wells Fargo — Analyst
John Pancari — Evercore — Analyst
Bill Carcache — Wolfe Research — Analyst
Erika Najarian — UBS — Analyst
Christopher McGratty — KBW — Analyst
Terry McEvoy — Stephens — Analyst
Andrew Liesch — Piper Sandler — Analyst
David Smith — Autonomous — Analyst
Presentation:
Operator
Greetings, and welcome to First Republic Bank’s Fourth Quarter and Full-Year 2022 Earnings Conference Call. [Operator Instructions] Following the presentation, the conference will be opened 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.
Michael Ioanilli — Vice President and Director of Investor Relations
Thank you, and welcome to First Republic Bank’s fourth 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; Olga Tsokova, Chief Accounting Officer and Deputy Chief Financial Officer; and Neal Holland, 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. We also discuss certain non-GAAP measures of our financial performance, which should be considered in addition to not as a substitute for financial measures prepared in accordance with GAAP. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements and for reconciliations of the non-GAAP calculation of certain financial measures to the most comparable GAAP financial measure, 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, very much, and good morning, everyone. It was a very strong year for First Republic. Our time-tested business model and service culture continue to perform really well. In fact, it was our best year ever in many ways. Our new 2022 Net Promoter Score, which was announced this morning, is our highest ever client satisfaction level. It’s actually extraordinarily strong. Our non-performing assets at year-end were just five basis points. This is low even for First Republic. Exceptional client service and our strong focused lending led to safe organic growth during the year.
In 2022, total loans grew $32 billion, a record, and we had record earnings for the year. In uncertain times like these and ability to continue to grow safely, it is quite viable and very rare. Let me take a moment to provide some perspective on the current rate environment and the Fed tightening cycle as we see it. Since our last call about 90 days ago, the Fed has raised rates another 125 basis points. At the same time, the 10-year treasury has declined 50 basis points.
The resulting increased rate inversion has begun to put some pressure on our net interest margin and net interest income. However, history and experience has shown that this type of inverted yield curve has a limited duration. Cycles are just that they are cycles. During First Republic’s 37-year history, there have been five tightening cycles. We’ve continued to grow and prosper through them and especially after each one. On average, over the last 40 years, the Fed has started to cut rates less than a year after the 10-year yield has peaked.
The market currently expects the Fed to start cutting rates during the back half of this year, which will be consistent with prior tightening cycles and is also our current assumption. We are staying focused on executing our model, and we remain very committed to delivering solid results through all market conditions. The bedrock of our performance is providing truly exceptional differentiated service, maintaining very strong credit, delivering safe organic growth and the results follow.
Now let me turn the call over to Mike Roffler, CEO and President.
Michael J. Roffler — Chief Executive Officer, President and Board Member
Thanks, Jim. 2022 was a terrific year with record loan growth, record loan origination volume, record revenue and record earnings per share. Let me begin by covering some key results for the year. Total loans were — outstanding were up 24%. Total deposits have grown 13%. Wealth management assets were down only 3%, while the S&P 500 was down more than 19% over the same period. This strong growth in turn has led to strong financial performance. Year-over-year, total revenues have grown 17%. Net interest income has grown 17%. Earnings per share has grown 7%. And importantly, tangible book value per share has increased 11% during the year.
As we look to a more challenging year ahead, we remain well positioned to deliver safe, strong growth through the consistent execution of our service-focused culture and business model. We remain very well capitalized as a result of raising capital methodically and opportunistically over time. Our Tier 1 leverage ratio was 8.51% at quarter end. Credit quality remains excellent. Net charge-offs for the fourth quarter were less than $1 million. For the entire year, net charge-offs were less than $3 million or less than one-fifth of a single basis point of average loans.
Non-performing assets ended the year at only five basis points of total assets. As Jim mentioned, this is one of our best levels ever. We do not stretch on credit quality to deliver loan growth. Our growth is driven by consistent execution of exceptional client service, one client at a time each and every day. Today, we released the results of our 2022 Net Promoter Score survey, our client satisfaction scorecard. We are pleased to have achieved a record high score of 80. This is an increase from last year’s score, which was also a record at the time. At the same time, client satisfaction has declined for the overall banking industry.
In 2022, the Net Promoter Score for the U.S. banking industry declined to only 31. Our service-focused model is truly differentiated even more so during challenging and disruptive environments. During 2022, we also continued to make thoughtful investments that support service excellence and growth. We expanded into the Seattle area by opening our first banking location in the market. We brought on 13 new wealth manager teams, one of our best recruiting years ever. And we successfully upgraded our core banking system, the largest technology project we’ve ever undertaken.
As Jim mentioned, since mid-November, we’ve been operating with a challenging yield curve. To help us navigate the margin pressure in the near-term, we continue to moderate our expense growth. At the same time, we remain focused on the long-term and continue to leverage our reputation of exceptional service to drive new business and grow total households. Our focus on service drives our growth as clients stay with us, do more with us and refer their friends and colleagues. In fact, during 2022 and driven by our highest ever level of client satisfaction, total households increased a very strong 15%. This is nearly double the growth rate of the prior year. Over time, this growth compounds continuing to deliver shareholder value and consistent profitability as it has for 37 years since our founding. Overall, 2022 was a very strong year for First Republic.
Now I’d like to turn the call over to Mike Selfridge, Chief Banking Officer.
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
Thank you, Mike. Let me provide an update on lending and deposits across our business. Loan origination volume was a record for the year at $73 billion. Our real estate secured lending remained well diversified. Both single-family residential and multifamily achieved record volumes for the year. Purchase activity accounted for 54% of single-family residential volume during the year and 64% during the fourth quarter. As refinance activity has slowed, so have the repayment rates, this provides a strong base for loan growth.
We continue to expect to deliver mid-teens loan growth for 2023. I would note that loan originations have some seasonality with the first quarter typically being somewhat slower. In terms of credit, we continue to maintain our conservative underwriting standards. The average loan-to-value ratio for all real estate loans originating — originated during the year was just 57%. Turning to Business Banking, we continue to deepen our relationships by following clients to the businesses they own or influence. Our relationship-based model also leads to a strong level of referrals to new business clients.
In 2022, our business client base grew by 18%. Business loans and line commitments were up 14% year-over-year. The utilization rate on capital call lines of credit increased slightly to approximately 33% during the fourth quarter. Our capital call line commitments grew 16% during the year as we continue to acquire new clients. Turning to deposits, we are pleased that total deposits were up 13% year-over-year and 2.4% quarter-over-quarter. We continue to see a shift in deposit product mix as a result of rising rates. Checking represented 59% of total deposits at year-end, down from 64% in September, and CDs accounted for 14% of total deposits at year-end, up from 9% in September.
Preferred Banking Offices continue to provide an important service channel for our clients and drive deposit gathering. Over the next year, we expect to selectively open new offices to deepen our presence in our existing footprint. Our programs for acquiring and growing our next generation of client relationships, which began more than a decade ago continued to deliver strong results. In 2022, millennial households grew 17%. These younger households are the same high-quality clients that we have always attracted and are part of our strategy to see the long-term growth of First Republic.
As Mike and Jim noted, our exceptional Net Promoter Score continues to demonstrate our ability to deliver differentiated client service. Let me take a moment to provide some additional detail. For clients who identify us as Lead Bank, our Net Promoter Score is 87, even higher than our overall score. And importantly, nearly two-thirds of our clients now consider us as Lead Bank. Remarkably, our Net Promoter Score increased in each of the past three years as we have dealt with the pandemic and rising levels of economic uncertainty and as we implemented a new core banking system in early 2022. And during this time, our consistently high scores also increased across every region, every line of business and every generation of clients. Our high client satisfaction remains the driver of our long-term growth.
Now let me turn the call over to Bob Thornton, President, Private Wealth Management.
Robert L. Thornton — Executive Vice President and President, First Republic Private Wealth Management
Thank you, Mike. It was a very successful year for our Wealth Management business. During the year, total assets under management were down only 3%, while the S&P 500 was down more than 19%. Investment management assets actually increased during the year, driven by strong net client inflow. Wealth management fee revenue was up more than 15% from the prior year. This includes strong growth in fees from brokerage, trust, insurance and foreign exchange services.
The combined fees from these services increased 29% year-over-year. And the strong growth in these products has also further diversified our wealth management fee revenue. As we have noted before, our exceptional client service is even more highly valued by clients during times of market volatility. We take these opportunities to engage our clients and understand their needs as market conditions change. In fact, a key strength of our business model is our holistic approach to meeting our clients’ banking and wealth management needs. This benefits clients and has driven growth through a strong level of internal referrals and a deepening of client relationships.
In this regard, 2022 was a particularly strong year. Our bankers referred over $11.5 billion of AUM to wealth management, and deposit balances from new relationships referred by our wealth management colleagues during the year totaled more than $3 billion. Wealth management referred deposits and sweep balances now represent over 13% of the Bank’s total deposits. Our integrated banking and wealth management model also continues to make First Republic a very attractive destination for successful wealth professionals.
In 2022, we welcomed 13 new wealth management teams to First Republic and one of our strongest years ever. This included five teams in the fourth quarter alone. So far in 2023, we’ve already welcomed two new wealth management teams to First Republic, reflecting our continued investment in the long-term success of this business. Overall, our team continues to execute 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, Chief Accounting Officer and Deputy Chief Financial Officer.
Olga Tsokova — Chief Accounting Officer and Deputy Chief Financial Officer
Thank you, Bob. I will briefly discuss our strength and stability. Our capital position remains strong. During 2022, we added over $400 million of net new Tier 1 capital through a successful common stock offering. At year-end, Tier 1 leverage ratio was 8.51%. Liquidity also remains strong. High-quality liquid assets were 13% of average total assets in the fourth quarter. Our credit quality remains excellent. Net charge-offs for the year were only $3 million. Over the same period, our provision for credit losses was $107 million, which was driven by our strong loan growth. This is a multiple of nearly 40 times. Heading into 2023, our balance sheet remains strong.
And now I’ll turn the call over to Neal Holland, Chief Financial Officer.
Neal Holland — Executive Vice President, Chief Financial Officer
Thank you, Olga. With a very strong year, our exceptional client service and strong credit powered our safe growth. Our 2022 results were in line with or better than the expectations communicated at the start of the year. Let me take a moment to talk about the year ahead. With the rapid rise in rates and the current inverted yield curve, we continue to experience margin pressure. We currently expect the Fed funds rate to peak at 5% and then to gradually decline in the second half of the year.
As a result, for the full-year 2023, our expected net interest margin to be approximately 25 basis points to 30 basis points lower than the fourth quarter. As a growth Bank, we create value by consistently compounding our asset base, a direct result of the exceptional service we provide. Therefore, net interest income is a key metric for our differentiated business model. Despite the current margin pressure, we expect net interest income for the full-year 2023 to be down only 2% to 5%, given our continued strong growth in loans and investments. As we look to 2024, we expect continued strong loan growth in a more normalized rate environment. As a result, we expect to deliver strong double-digit net interest income growth in line with our past performance. As Jim mentioned, the years following tightening cycles have historically been strong for the Bank.
Turning to expenses. For 2023, we expect expense growth in the high single-digits. As a reminder, expenses are typically higher in the first quarter due to the seasonal impact of payroll taxes and benefits. As we discussed at Investor Day, we continue to prioritize our expenses in a way that will not sacrifice client service, growth or safety and soundness.
We have identified $150 million of planned expenses that we will not incur in 2023. This is already having a positive impact on our expense base and helped us keep expenses flat from the third quarter to fourth quarter. With respect to income taxes, the full-year tax rate is expected to be around 24%. While the current rate environment is challenging, our model is strong. We will continue to deliver exceptional client service, grow new households and provide safe growth in 2023 and beyond.
Now let me turn the call back to Mike Roffler.
Michael J. Roffler — Chief Executive Officer, President and Board Member
Thank you, Neal. Thank you, Neal. It was a strong year with record client service levels, record loan growth and record credit performance. Our time-tested service model remains solid. Our entire team remains focused on executing our client service strategy one client at a time.
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 JPMorgan. Please go ahead.
Steven Alexopoulos — JPMorgan — Analyst
Hey, good morning, everyone. I want to start…
Michael J. Roffler — Chief Executive Officer, President and Board Member
Good morning, Steve.
Steven Alexopoulos — JPMorgan — Analyst
Good morning, Mike. So from a big picture view, if we look at the NIM outlook, it’s a bit worse than what you had guided to at the Investor Day. And before I get into my deeper questions, what’s changed since the Investor Day, which is driving the lower NIM outlook for the year?
Michael J. Roffler — Chief Executive Officer, President and Board Member
Yes, Steve, thanks. I think if you look at Investor Day, what’s happened since then and I think we highlighted this a bit in the prepared remarks, the 10-year has gone down 50 basis points, 60 basis points. And so the inversion of the yield curve has had a pretty significant impact on just rates in general, and obviously, the macro environment is a thing that we can’t control. The things we can control are our service levels and how we acquire households. And so with that inversion, which as we noted won’t last a very long time and we are now partway through it. And so I think that is the biggest driver for the change in outlook relative to about 65 days ago.
Steven Alexopoulos — JPMorgan — Analyst
Got you, okay. And Mike, it sounds like you’re upping the expectations for expense management. And I think you guided to about a 65% efficiency ratio for 2023. Is that still intact when you put these pieces together?
Michael J. Roffler — Chief Executive Officer, President and Board Member
Because of the margin outlook, it will be a little bit higher, but we have identified incremental expenses that will be deferred not planned for the current year.
Steven Alexopoulos — JPMorgan — Analyst
Are you willing to share a new range with us?
Michael J. Roffler — Chief Executive Officer, President and Board Member
Yeah. I mean just because of the revenue outside of the equation, it’s just doing the math of a 2% to 5% decline with net interest income to about 66% to 68% with that guidepost with high single-digit growth rates of expenses.
Steven Alexopoulos — JPMorgan — Analyst
Got you, okay. And then just to dive into the deposit side a little deeper. So it’s pretty remarkable to see that the rate being paid on checking balance is more than doubled from the prior quarter, but average balances still came down about $9 billion. Can you take us behind the scenes in the quarter? What’s the typical conversation you had with customers and maybe underlying the NIM assumptions, where do you see the rate paid on checking moving to, and maybe where does that mix stabilize? Thanks.
Michael J. Roffler — Chief Executive Officer, President and Board Member
Well, importantly, I think there’s still about $67 billion, I think of zero cost checking, which is operating balances and costs. Obviously, as rates have gone to 4.5%, the conversations between our client-facing people and clients have talked about where might they be able to achieve a bit better yield. And as a service organization, that’s what we continue to focus on is that relationship with our clients to ensure they’re leaving the right balances in checking for their operating needs and there are other yield alternatives either in wealth management, money market, certificates of deposit, different alternatives. I think we communicated a low-30s beta on overall deposits in the past. And we feel like sort of 30% to 35% is about the right range still at this point, and that’s consistent with what we said before at Investor Day.
Steven Alexopoulos — JPMorgan — Analyst
Okay. And then if I could just squeeze one more, Mike, going back to the new NIM outlook, I know Jim said in his commentary that you guys expect rates would decline more in line with the market in the second half of 2023. If rates were to move to, say, 5%, 5.5% range and stay there and not come down in the second half, how would that change your NIM outlook for 2023? Thanks.
Michael J. Roffler — Chief Executive Officer, President and Board Member
So it — once it stabilizes, you sort of stabilize from there. So I don’t think it changes it a whole lot. I think the pace of change is what has happened this year that led to the increase or the increase in funding costs.
Steven Alexopoulos — JPMorgan — Analyst
Okay.
Michael J. Roffler — Chief Executive Officer, President and Board Member
And the real impact if you think about it in the future, if you leap forward to ’24 and you’re stable is when you’ll start to see the inflection where net interest income starts to grow. Right now, that looks like the back half of the year on a linked-quarter basis, if the Fed delays that might delay that a quarter, but then you start to see the inflection higher thereafter.
Steven Alexopoulos — JPMorgan — Analyst
Got it. Great. Thanks for taking my questions.
Operator
We’ll take the next question from Dave Rochester with Compass Point. Please go ahead.
David Rochester — Compass Point — Analyst
Hey, good morning, guys. Just on your NIM guide real quick, are you assuming for some of the funding of earning asset growth, primarily CDs and borrowings at this point? Maybe you just talk about the mix there and the growth of deposits that you’re thinking about? And then you did have a decent amount of one-off in non-interest-bearing, which a lot of banks are experiencing at this point. I was just curious how should we expect this type of pace to continue or do you see a level at which you’d expect the trend to sort of subside and then get down to more of a sticky base that’s remaining, where do you see that sort of trailing off? Thanks.
Michael J. Roffler — Chief Executive Officer, President and Board Member
Yeah. Maybe on the — what you’re getting at is the average balance size, it has come down. So average balances per account peaked probably at the end of last year. They have come down closer to their pre-pandemic levels. And then obviously, as I mentioned earlier, there’s a level of operating needs that clients have to have to operate with. I think that the outlook, we’re going to largely fund loan growth with deposits, and then there’ll be a mix of borrowings that is also utilized just like we have in the past. And the growth rate will probably be greater in CDs than it will be in checking given where the rates are this year, and that’s reflected in our outlook.
David Rochester — Compass Point — Analyst
Okay, great. And then maybe just on capital. Tier 1 leverage looks good. I noticed the CET1 ratio dipped down a little bit below 9%. Is that an issue at all? And just how are you thinking about that level going forward? Thanks.
Michael J. Roffler — Chief Executive Officer, President and Board Member
No issue with our capital currently. We — as always, we remain opportunistic and methodical relative to capital, whether be a preferred or common.
David Rochester — Compass Point — Analyst
Great. And then maybe one last one on loan production rates, maybe if you could just kind of go through the key products and talk about where your pricing loans today, that would be great? Thanks.
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
Sure, David, it’s Mike Selfridge. I’ll give you a couple of indicators here and look more — rather look more at the lock pipeline as of today. So single-family or lock pipeline, these are deals that are in the queue due to close soon. Single-family mortgages about 5.80%, multifamily about 5.4%, commercial about 5.6%, and the whole locked real estate loans right now are a little over 5%, maybe 5.10% [Phonetic]. And then on the Business — excuse me, the Business Banking side, nothing has changed there, capital call lines tend to be the larger part of the pipeline, and that still remains in the prime minus 75 basis point to prime minus 100 basis point range.
David Rochester — Compass Point — Analyst
Great. Thanks for the color, guys. Appreciate it.
Operator
We’ll take the next question from Ebrahim Poonawala with Bank of America. Please go ahead.
Ebrahim Poonawala — Bank of America — Analyst
Hey, good morning. I just wanted to follow up on the margin on two things. One, I think, Mike, you mentioned still you expect the 30% to 35% deposit beta in the world where rates don’t actually get cut and the forward curve doesn’t play out. Like do you — like just handicap the risk? I think the concern on the margin outlook generally has been that deposit cost mix shift you’ve heard from some of the other big banks today could be much worse than we’ve seen just given that we’ve not tested for this in a long, long time. Like what’s your comfort level on the 30% to 35% beta holding?
Michael J. Roffler — Chief Executive Officer, President and Board Member
So that is our best perspective at this point in time, given our outlook. And as Jim mentioned, this doesn’t last forever, given history of 40-plus years. And so the 10-year [Phonetic] is also telling you something where it’s dipped to 3.44% [Phonetic] as of yesterday as to where the market feels rates are moving. And so the beta could be a little bit higher if they hold an extra quarter or two. But the fact that the pace is slowing, there’ll be a little bit of, what I call, a catch-up that always is at the end of a cycle, but the pace slows because of the time just passes. And so I would say that we feel pretty confident where we are. And it will be dependent upon macro outlook, which is the one thing that you all know we don’t control and nor does anyone else.
Ebrahim Poonawala — Bank of America — Analyst
Understood. And just — sorry, if I missed it, did you talk about like in terms of the margin, I’m assuming there’s some benefit in the back half if you assume rate cuts in your NIM guidance of down 25 bps to 30 bps. How should we think about the NIM trajectory? Like does it fall closer to 2% by the middle of the year by the second quarter or third quarter before rebounding in the back half?
Michael J. Roffler — Chief Executive Officer, President and Board Member
No, I wouldn’t go to 2%. It sort of stabilizes at the middle part of the year. And importantly, after you have a little bit of a dip in net interest income here in the first half, then you start to see it increase towards the back half of the year and starts to have a real positive trajectory into ’24.
Ebrahim Poonawala — Bank of America — Analyst
Understood. And just one last question around growth. I know, Jim, you’ve talked about market share in environments like this. Just give us a sense of is this environment any different in terms of gaining market share? And how your customers — there’s been a ton of wealth disruption, how is that factoring in, in terms of just the appetite to buy homes and in terms of mortgage loan growth today versus the last 10 years or 15 years?
James H. Herbert — Founder and Executive Chairman
Well, this disruptive moment, and we all know that mortgage market is being disrupted a little bit is an extraordinary opportunity for us to take share. Moments like this are very special. The volume of demand is lower. We all know that, although my guess is it will pick up in the spring quite a lot. But the disruptive nature — the disruption that’s going on in the mortgage market, people pulling back, etc., is just handing us up. It’s on a silver potter.
Ebrahim Poonawala — Bank of America — Analyst
And does that create some pricing power like as the yield curve, Mike, you mentioned earlier dropped. Does — did the spreads widen on this product?
James H. Herbert — Founder and Executive Chairman
It’s not a pricing issue, it’s a service issue and availability issue.
Ebrahim Poonawala — Bank of America — Analyst
Got it. But I’m just wondering, are you able to see better spreads when the yield curve — or is the pricing on these like the 5.80%, Mike mentioned, will that trend more or less with whatever happens on the yield curve?
James H. Herbert — Founder and Executive Chairman
Let me turn this to Mike. But the pricing on the acquisition of a new well-off household on a short-term asset like a four-year or five-year mortgage is semi-irrelevant.
Ebrahim Poonawala — Bank of America — Analyst
Understood.
James H. Herbert — Founder and Executive Chairman
You buy — you take a lot of new household like this, they stay with you for life.
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
Yeah. And Ebrahim, I want to clarify on Dave Rochester’s comment, the lock production on the single-family is 4% — a little under 5% is what I meant to say about 4.80%. But these are still, as we’ve said in the past, A-plus [Phonetic] clients and they get very good pricing for full relationship and full service at First Republic.
Ebrahim Poonawala — Bank of America — Analyst
That’s helpful, the clarification. Thank you so much, and thanks for taking my questions.
Operator
Our next question comes from Casey Haire with Jefferies. Please go ahead.
Casey Haire — Jefferies — Analyst
Yes, thanks. Good morning, everyone. Operating leverage question for ’24. I appreciate the guide on NII up low double-digits next year. Just wondering, just given that you guys are doing a good job on the expense front and deferring, I think you bumped it up to $150 million. Just wondering, do we see a catch-up next year on all this expense deferral or is there an opportunity to improve the efficiency ratio from that 66%, 68% when NIM starts going the right way?
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
Yeah. There’s a strong opportunity in ’24 to see a very strong improvement in our efficiency ratio as we’re really looking for ways to optimize, prioritize, make the Company even more efficient than we are today, we expect strong operating leverage into the future.
Casey Haire — Jefferies — Analyst
Okay, very good. On the — switching gears to the loan growth, can we get a sense for how the pipeline is doing at year-end versus 9/30?
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
Hi, Casey, Mike Selfridge. I would say — I would characterize it as healthy. It’s down from the last quarter, but it’s up year-over-year. And obviously, there’s been headwinds on the refinance side, and that’s been more difficult. But there’s other parts of the pipeline, I would note that are doing very well. Business Banking, for example, is at a high, other avenues, PLP, PLOC, securities lending. So again, a healthy pipeline going into the quarter.
Casey Haire — Jefferies — Analyst
Okay, thanks, Mike. And just following up on the…
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
And on the loan growth, let me add — go ahead.
Casey Haire — Jefferies — Analyst
No, go ahead, go ahead.
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
I was just going to say the loan growth itself, I’ll also note that CPRs are down, and so that gives us a good base from which to grow.
Casey Haire — Jefferies — Analyst
Yeah. And then the capital call, that came in a little bit stronger than certainly what you were sort of experiencing in November. Just any color on is that business picking up?
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
I would say, well, a little bit of improvement from 32% to 33% utilization, that’s down from a year ago, which was just over 40%. So that industry is still seeing — it’s challenged in the sense of slower velocity of deals just like last quarter, slower pace of fundraising, but cautious but still active investors. And there was a slight tick-up in private equity activity overall for the industry, and that drove a little bit of the utilization for us.
Casey Haire — Jefferies — Analyst
Okay, great. And just one more, the spot deposit costs at 12/31 versus the 99 bps in the quarter. And also the spot CD costs, if you could provide that given that’s a critical driver here?
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
Yeah. We ended the quarter with an average of 99 basis points. And looking at where we ended spot at 12/31, we were up about 30 basis points from there.
Casey Haire — Jefferies — Analyst
Okay. Any color on the CDs versus that 2.79% [Phonetic] level in the quarter?
Michael J. Roffler — Chief Executive Officer, President and Board Member
Yeah. It just tends to move around depending on where we’re trying to position. So I don’t think it’s a meaningful, I think the 1.29% [Phonetic] spot is the right place to be.
Casey Haire — Jefferies — Analyst
Okay, thank you.
Operator
We’ll take the next question from Manan Gosalia with Morgan Stanley. Please go ahead.
Manan Gosalia — Morgan Stanley — Analyst
Hi, good morning. I had a question on the duration of the CD book. Some of the promo CD durations that you were offering or some of the promo CDs you were offering in the past were closer to four months. So my question is, what are you seeing clients doing there? Are they just rolling those CDs over for the same term or perhaps they may be extending the term a little bit given that you’re also offering an eight-month promo rate right now? And then if you have any comments on what the duration of the CD book is and what percentage will likely reprice over the course of the next couple of quarters?
Michael J. Roffler — Chief Executive Officer, President and Board Member
Currently, I’d say clients are a little more inclined on the 8-month and 10-month versus shorter. Usually, every rollover opportunity presents an opportunity for us to demonstrate our extraordinary client service. And so our bankers in the offices are engaging with clients to talk about their needs and maybe do they want to be shorter, do they want to lock in a little bit more, do they have other cash needs?
And so I think what’s important is the rollover opportunity drives a conversation with the client most importantly. Given what we talked about with the cycles earlier, staying in sort of what I’ll call a four-month to seven-month range for us has made a lot of sense if you believe that the cycle does roll over sort of midyear. And so that’s been our duration has been pretty much in that range.
Manan Gosalia — Morgan Stanley — Analyst
Got it. So should we assume a majority of the CDs are going to reprice over the course of the next three months to six months?
Michael J. Roffler — Chief Executive Officer, President and Board Member
Yes. That’s a fair assumption.
Manan Gosalia — Morgan Stanley — Analyst
Okay, great. And then maybe just related to that, you said in the past that you like CDs over FHLB funding, given that CDs are a good customer acquisition tool. Is there anything you can share there on maybe the number of new customers that you’re bringing in through the promo CD offerings? And do they typically come with some checking account openings as well? And is there a rate you have in mind at which it might make more sense to pivot to FHLB over CDs? Thanks.
Michael J. Roffler — Chief Executive Officer, President and Board Member
So I think we’d always choose the client first on the first part there. And typically, the CD pricing actually is a little bit more attractive than the FHLB, especially right now. And so those are two benefits, but the first being the client first and foremost. And absolutely, when they come into an office, they experience something different versus other offices.
And so our service level is meant to, one, bring them in, but second, develop a relationship where we have their checking and their primary banking. And so typically, we’re able to get checking accounts on a very good percentage of those and build the relationship over time, which is the most important because we’re playing for the long-term client relationship, not just the rate offering in the current moment.
Manan Gosalia — Morgan Stanley — Analyst
Appreciate it. Thanks for taking my questions.
Operator
We’ll take our next question from Jared Shaw with Wells Fargo. Please go ahead.
Jared Shaw — Wells Fargo — Analyst
Hi, good morning. Maybe just circling back on the expenses and the deferred expenses. Could you maybe separate those out on how much of that is coming from maybe deferred hiring versus systems or technology spending versus overall marketing and general spending?
Michael J. Roffler — Chief Executive Officer, President and Board Member
So, Jared, it’s a good question. I think it’s really broad-based. So some of it is, we’ve hired a lot of people in the last couple of years. So we have efficiencies from the new core system, maybe we’ll hire a little bit less in certain areas. As Mike Selfridge said, and Mike — and I think Jim, mortgage volume, there’s less refinance, so you need less growth in headcount there. And so some of it is if we had projected to grow headcount, we’re going to grow a little bit less.
Olga, I think and Neal had mentioned this at Investor Day, there’s some natural adjustment to our compensation levels given the mix of business we’re doing, that’s also factored in. And then everywhere else is a team approach in marketing, IT, everywhere where the team really bands together and think about where is the best dollars to spend for client service and to make sure we continue to be safe and sound to grow, and that’s how we’re focused.
For example, we’ve hired already announced two teams this year in wealth management, as Bob mentioned, that’s a great opportunity for us to hire terrific people, bring them over and have new clients come to the Bank at the same time. And so it’s a little bit more of prioritizing and optimizing our spend to continue to drive safe, stable growth over time.
Jared Shaw — Wells Fargo — Analyst
Okay, great. Thanks. And then just finally for me, I guess on the securities portfolio. Can you give an update on reinvestment rates and what we should expect as maybe a target securities in cash to total assets as we go out the next few quarters?
Olga Tsokova — Chief Accounting Officer and Deputy Chief Financial Officer
Hi, Jared, this is Olga. So if we look at our purchases in the fourth quarter, the yield on HQLAs were in low-5s and the munis scheme high in low-6% [Phonetic], like 6.1% [Phonetic], 6.3% [Phonetic]. And if you look at the yields today or just at quarter end or subsequent to quarter end, HQLA remained relatively similar levels at 5% [Phonetic], 5.25% [Phonetic] and munis yields lowered slightly from what were seen during the quarter, they’re at 5% [Phonetic], 5.5% [Phonetic].
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
And we expect to keep cash at the same level of total assets through the next year.
Jared Shaw — Wells Fargo — Analyst
Great, thank you.
Operator
Next question comes from John Pancari with Evercore. Please go ahead.
John Pancari — Evercore — Analyst
Good morning. On the loan growth, on the mid-teens growth expectation, could you perhaps kind of break it out by loan category, what you’re thinking is a reasonable expectation for growth, particularly on the mortgage side given where we’re looking at rates as well as purchase activity. If you can give us a breakdown of that mid-teens and the key drivers that would be really helpful? Thanks.
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
John, it’s Mike. Yes, mid-teens loan growth, we’re comfortable with that. I would say the mix is going to be consistent as it has been in years previous. So nothing unusual there and where it’s coming from. And Jim mentioned the disruption going on, it’s never been a better time to acquire clients at First Republic, and that’s true for the lending side as well. We were pleasantly surprised that even refi mix was 36%, and keep in mind, those are new households as well. The majority of those refis are other banks’ clients that we acquire. So nothing unusual in terms of the mix.
John Pancari — Evercore — Analyst
Okay, all right. And then separately, on the fee side, just wondering what non-interest income growth expectation do you have baked into that 66% to 68% efficiency range? And then more specifically, can you kind of give us some color on how you think about growth that is likely in investment management and brokerage and investment fees? I’m curious what type of upside you see there and maybe what your base case assumption is for the S&P and how it could impact their wealth management revenue?
Robert L. Thornton — Executive Vice President and President, First Republic Private Wealth Management
This is Bob. Maybe I’ll start. So we’re looking — the first quarter, we’re looking in investment management fees somewhere in the range of $150 million. And that reflects in part, we had a number of team hires late in the year that we hadn’t seen fully reflected, but we got some of the benefit. S&P is up since September 30 and new team hires. So we look for this year to be a pretty strong year in terms of our overall growth in investment management fees and total wealth management fees.
Michael J. Roffler — Chief Executive Officer, President and Board Member
Yeah, John. And if I just stand back for total non-interest income, we’d expect it to be in the double-digits, which is inclusive of wealth management is a big part of that, and then the other items that we also have had loan fees, deposit fees, etc.
John Pancari — Evercore — Analyst
Okay, got it. Thanks, Mike. And then my last question is just around the LTV comment. I know you mentioned 57% loan-to-value on all your real estate loans that you had produced, I guess, that was, I think over the year. But maybe if you can give us a little bit more color on commercial real estate, what is the LTV at origination in your commercial real estate portfolio? And more importantly, what is — do you have an indication of what the refreshed LTV is in that portfolio?
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
John, it’s Mike. The last two years, and that would go for today, the median LTV on commercial real estate origination has been about just under 50%, about 46% to be precise. Medium size about $2 million.
John Pancari — Evercore — Analyst
Okay. Do you have a refreshed LTV for your commercial real estate book to try to give us an idea of how the — how that book is positioned here as we start to see pressure in office and other areas?
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
Yeah. No change from our conservative underwriting standards. We are — have always been conservative and cautious, even more cautious, and I even think our clients are more cautious. So just expect very conservative underwriting.
John Pancari — Evercore — Analyst
Got it. Okay, thanks, Mike. Appreciate it.
Operator
We’ll take the next question from Bill Carcache with Wolfe Research. Please go ahead.
Bill Carcache — Wolfe Research — Analyst
Thank you. Good morning. I wanted to follow up on the NIM commentary. Your net interest spread is down to 174 basis points versus your NIM at 245 basis points. How would you address the growing divergence across those metrics, including concerns that the net interest margin will eventually converge with the spread?
Michael J. Roffler — Chief Executive Officer, President and Board Member
Well, Bill, I think that the big thing that difference between those two items is the spread doesn’t factor in the nearly $67 billion of non-interest. So we’re much more focused on, as we talked about earlier, net interest income versus what the margin will be. And so the divergence doesn’t really concern us at all.
Bill Carcache — Wolfe Research — Analyst
Okay. And then on that topic, as we sort of think about like remixing the CD mix, you’ve moved back closer to pre-COVID levels, but there’s growing concern that we could see CD mix revert to pre-GFC levels in this rate environment. Your mix of CDs was just over 30% of deposits back in 2010. How are you thinking about like the remixing of non-interest-bearing deposits, essentially the mix of non-interest-bearing deposits coming lower and CDs remixing higher? Any thoughts around that would be helpful?
Michael J. Roffler — Chief Executive Officer, President and Board Member
Yeah, there is a level of operating accounts that our business clients and consumers do need. And we, as we mentioned earlier, average balances are approaching and starting to close in on pre-pandemic. We have run CDs higher in the past and some of our outlook that we provided earlier does reflect that we expect that to continue here into 2023. And as we mentioned earlier, it’s a terrific way to get trial with new households and continue to deepen relationships with clients. And so it’s a tool the Bank has used for 37 years. In some periods, you just use it a lot less than others, and now it’s one of those periods, we’re using it more.
Bill Carcache — Wolfe Research — Analyst
Understood. If I may, with a final question on — you guys have historically done very little with derivative financial instruments. With the yield that you’re earning on cash now roughly in line with your loan yields, does that dynamic influence in any way, whether you’d consider putting on swaps or at all change how you thought about the use of derivatives?
Michael J. Roffler — Chief Executive Officer, President and Board Member
It does not.
Bill Carcache — Wolfe Research — Analyst
Okay, helpful. Thank you for taking my questions.
Operator
Next question will come from Erika Najarian with UBS. Please go ahead.
Erika Najarian — UBS — Analyst
Hi, good morning. My first question is for Mike Roffler. I think that how the market is responding to your guidance today is a clear indication that the expected difficulty in 2023 and — or looking ahead to 2024. And to that end, could you share with us what you envision to be the natural efficiency ratio for First Republic as we think — as we put more volatile rate moves behind us? We think about a more normal investment cycle and also contemplate the impact of HQLA build to a modified LCR goal?
Michael J. Roffler — Chief Executive Officer, President and Board Member
Thank you, Erika. I think you’re right to look forward to 2024. And I think when you get through this period where the margin and net interest income is a bit under pressure. And then you go forward, after we stabilize, when the cycle turns, you’d come back to sort of a 62% to 64% range, which is where we’ve been for many years.
Erika Najarian — UBS — Analyst
Thank you. And as a follow-up there, obviously, in 2024, your — the investors are starting to think about cuts to Fed funds. And to that end, right, it’s been a while since we’ve seen a terminal rate above 0% [Phonetic]. How should we think about where your deposits would settle to — deposit costs would settle to relative to the terminal rate, right? We’re just — we’ve been so used to where deposits have troughed relative to 0% [Phonetic]. And when we’ve looked at other points, historically, deposit costs tend to trough above where Fed funds troughs. So perhaps give us a sense of how you — how much do you think you can cut deposit costs as Fed — as the Fed starts easing?
Michael J. Roffler — Chief Executive Officer, President and Board Member
Erika, thanks for the question. It will be very mix-driven, right? And so one of the things that we’ve talked about is that through 2023 checking ends up above 50% of our deposits by the end of the year, which continues to be extremely valuable from a relative cost perspective to wherever the terminal rate ends up, and that’s reflective of deep client relationships and the growth in the Business Banking.
And then money market and CDs will again depend on client appetite and where do they want to lock in, possibly for CD versus money market. And it’s hard to project what that will be just because the mix does shift from time to time like it has now. But I think the most important thing is the value of the checking with the terminal rates above 0% [Phonetic] continues to be very strong relative to going forward.
Erika Najarian — UBS — Analyst
Thank you.
James H. Herbert — Founder and Executive Chairman
Erika, it’s Jim. If I might add for a little bit, give a little historical perspective. We — the long-term, as Mike said, the long-term checking, if you go back many years, even when we bought the Bank back, but even before that, tends to be in the 50%, 55% range and the CDs range between sort of 10% and 20% of total. It is a mix issue. And then between that is the money market. The — at what rate they land, it’s hard to predict. But the mix is actually the driver. We got — it was an abnormal mix when checking went up into the high-60s.
Erika Najarian — UBS — Analyst
Got it. And it’s good to hear from you, Jim.
James H. Herbert — Founder and Executive Chairman
Thank you.
Operator
We’ll take our next question from Chris McGratty with KBW. Please go ahead.
Christopher McGratty — KBW — Analyst
Great. Just a quick modeling question. Most of the margin questions I think have been addressed. The BOLI run rate, any help there? I know you lowered the tax rate a bit, but any help — I know there’s some seasonality quarter-to-quarter, but kind of a full-year comment on BOLI income would be great? Thanks.
Olga Tsokova — Chief Accounting Officer and Deputy Chief Financial Officer
Hi, Chris, so in the fourth quarter, we have a couple of items that contributed to increase from the third quarter of the year. One, we had a benefit from the life insurance policy, which we realized in the fourth quarter. And also we had a positive impact from mark-to-market on some of our insurance contracts. And just to remind you, I think we brought it up on the last — one of the last calls that we used to offset some of the increases and changes from our benefit costs. So those two components contributed to the change from the third quarter. And yes, if you think about the run rate for the quarter, removing those two items, I would say still within 2022 [Phonetic] in the quarter.
Christopher McGratty — KBW — Analyst
Okay, thanks.
Operator
We’ll take our next question from Terry McEvoy with Stephens. Please go ahead.
Terry McEvoy — Stephens — Analyst
Thanks. I was wondering if you could add some more color on the new offices in 2023? Certain markets that you think present the best opportunities, and strategically is the near-term focus on deposits and/or kind of capturing some of the market disruption that Jim mentioned earlier on the call?
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
Terry, the answer is yes. We are capturing a lot in terms of the disruption that Jim mentioned. But we’re focused on relationships and with relationships comes the full breadth of what we offer. We probably expect maybe around six offices over the next year or so, existing footprint. And then as Mike mentioned in his remarks, we’re delighted to have expanded into Bellevue, Seattle, and we expect good things out of that region.
Terry McEvoy — Stephens — Analyst
Great. And one last question, checking account attrition in 2022, did that differ at all from that — I think it’s at 1% longer-term average you guys put in the investor presentation?
Michael J. Roffler — Chief Executive Officer, President and Board Member
No, it did not.
Terry McEvoy — Stephens — Analyst
That’s good to hear. Thanks for taking my questions.
Operator
We’ll take the next question from Andrew Liesch with Piper Sandler. Please go ahead.
Andrew Liesch — Piper Sandler — Analyst
Thanks, everyone. Good morning. Just a question on credit, everything else has been asked and answered. Are you seeing anything concerning out there? And when you do expect credit to turn, what areas of the portfolio would you expect to see the most stress?
Michael D. Selfridge — Senior Executive Vice President, Chief Banking Officer
Andrew, it’s Mike. We feel very good about our positioning right now in credit. We don’t expect any issues going forward. So the answer is it’s business as usual from our perspective. And Mike noted the credit quality in his remarks and look at the three basis points of net charge-offs over a 23-year period. So sticking to our knitting, being cautious, selective, focusing on relationships.
Andrew Liesch — Piper Sandler — Analyst
Great. You’ve covered everything else. Thanks so much.
Operator
And the next question comes from David Smith with Autonomous. Please go ahead.
David Smith — Autonomous — Analyst
Good morning. Thanks for taking my question. I had a question about the wealth management team profitability. You’ve been adding a lot of teams there lately, both last year and even in the first few weeks of this year. Historically, how long is it before you start — tend to see these teams reach their run rate profitability? How long does it kind of take to ramp up there?
Michael J. Roffler — Chief Executive Officer, President and Board Member
Yeah. It’s actually relatively quick, usually, within a year to 18 months, and that’s really a function of fact that the teams we hired generally have a lot of traction with their clients. And then also we’re getting the deposit benefit from those teams as well, which has been quite successful.
David Smith — Autonomous — Analyst
Got it. Thank you.
Operator
And 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, President and Board Member
Thank you, everyone for joining us on today’s call. We’re optimistic about the future and continue to look forward to the year ahead. Have a wonderful weekend.
Operator
[Operator Closing Remarks]