First Republic Bank Investor Day - Day 1

THOMSON REUTERS STREETEVENTS EDITED TRANSCRIPT FRC - First Republic Bank Investor Day - Day 1

EVENT DATE/TIME: NOVEMBER 01, 2016 / 8:00PM GMT

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CORPORATE PARTICIPANTS Shannon Houston First Republic Bank - VP, Director of IR Jim Herbert First Republic Bank - Chairman & CEO (Founding) Ken Rosen Rosen Consulting Group - Chairman Gaye Erkan First Republic Bank - EVP, CIO and Chief Deposit Officer Jason Bender First Republic Bank - EVP & COO Mike Selfridge First Republic Bank - Senior EVP & Chief Banking Officer David Lichtman First Republic Bank - EVP & Chief Credit Officer Mary Deckebach First Republic Bank - Regional MD, Los Angeles Bill Dessoffy First Republic Bank - Regional MD, New York Kellie Abreu First Republic Bank - Regional MD, San Francisco Scott Dufresne First Republic Bank - Regional MD, Boston Nancy Segreto First Republic Bank - SVP, Head of Lending Services Dale Smith First Republic Bank - EVP & CIO Roberto Rivera First Republic Bank - MD, Relationship Manager Janice Jensen First Republic Bank - President & CEO, Habitat for Humanity East Bay/Silicon Valley Scott Finder First Republic Bank - SVP, Head of Digital Channels Gayatri Brar First Republic Bank - Relationship Manager-Eagle Lending Mollie Richardson First Republic Bank - SVP, Chief Administrative Officer Bill Ward First Republic Bank - EVP, Chief BSA/AML and Security Officer Crystal Bryant First Republic Bank - VP, Chief of Staff to the Chairman & CEO

PRESENTATION Shannon Houston - First Republic Bank - VP, Director of IR Hi everyone, thank you very much for joining us today for First Republic Bank's Investor Day 2016. We appreciate the time you've taken to travel here and spend with us this afternoon and tomorrow. My name is Shannon Houston, I'm the Head of Investor Relations for First Republic Bank. A couple of quick housekeeping items first for those of us joining us in the room. (Conference Instructions) For those joining us via webcast, our presentations are available on the online portal. They can also be found in the filing section of First Republic Bank's website.

Let me take just a moment to introduce in the room the kiosks that you'll see outlining the outside walls here. We hope that you'll take the time during the breaks to come visit these kiosks and learn even more about First Republic Bank. Over here on my right, we have [Maulee and Eiree]. They're sharing the all in one client experience workflow. We have the Deepak and Victoria to their right. They're providing a glimpse of our new online desktop and mobile banking experience. Over on this side, we have Mike O'Brien and Chris. We don't talk about technology without talking about safety and security, they're here joining us from our cyber security team. And next to them, we have [Tim, Meghan and Niery], they are sharing Eagle invest, our online investment management platform.

With that, just a few notices. Please note that we may make forward-looking statements during this event that are subject to risks, uncertainties and assumptions. In addition, some of our discussion may include non-GAAP financial measures. For a more complete discussion of the risks and

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Additionally, this event is being simultaneously audio webcast and the recording will be made available for replay following through the Bank's website. These sessions are not confidential and participants should have no expectation of privacy. Your participation in this event implies your consent to record these sessions for use in this webcast.

And with that, before I turn it over to Jim Herbert, our Chairman and Chief Executive Officer, let us share with you a quick video. Thank you.

(Video Playing)

Jim Herbert - First Republic Bank - Chairman & CEO (Founding) Welcome. We're glad to have everybody here. Thanks very much. I'm Jim Herbert. I want to go over just a few things. And I want to introduce Ken Rosen. But let me start. You're going to see a lot of our management team that you just saw and others. There will be about 25 or 30 people that you'll see at different times, or be engaged with at dinner tonight. And I would encourage you, first and foremost, to get to know them, it's very important. It's a team, it's the way that the Bank has been built. And we're delighted to have everybody here. Thanks for the great attendance and coming along ways in many cases. So we appreciate that.

The thoughts that I want to get across in this day and a half, or the team wants to get across is the team. That's first and foremost, is a very broad group of people leading and running and operating the Bank day to day, and that's very important. Also, let me back up and start with what Mike told me to start with -- Mike Roffler told me to start with. There are no surprises. You can read the charts and the filings and there are no surprises in here. We thought we'd try an Investor Day, we haven't done it for 30 years of being public and we're anxious to have your feedback on how it goes and what you'd like to see that you didn't see.

The essence of the enterprise remains the same, it's not going to change; it's service for the client, it's efficiency of operation -- we'll talk about that in a little bit. We are very focused on the team and the support of each other, as well as the client. Our fundamental premise is very simple. We have happy employees, we'll have happy clients. We have happy clients, we're going to have happy shareholders.

Let me go to this. I'm just going to do a couple of slides and I'll move on. But the measure that we care the most about, the one I care the most about is actually this one in here. If we take good care of the clients, they will continue to do more business with us. If they do more business with us and they're happy, they will tell their friends who will come over. And actually, if you think about it, that's the entire mantra of the enterprise. It's what we do and if you do it well, you win.

And then the thing I don't normally talk about, that's a comparative activity, saw it in the absolute. The vast majority of the banking in the markets we operate in [coastal] is in the hands of four or five very large banks. So when you think about us and you say to yourself, can they keep this up, I would ask you to add to that, how are their big competitors doing? If they are not doing so well, the answer is yes. Even if they're doing well, then it gets a little tougher. But just so, when people say to us -- said to us years ago when we went into New York, how do you come into the Big Apple? The answer was, are you having a great experience at your local bank? And if the answer was anything other than yes, the opportunity was there.

This leads to low client attrition. One of the keys to growth is not losing. The first rule is don't have to fight a riptide, don't have to fight a loss of client base. If you succeed in that, if you keep the clients that you have by saying to yourself every day, the best client is the one I already have. Take extremely good care of them, make them happy at the 66% -- 62% and 77% level. Then you can get new clients, and they will not -- the ones you have won't leave you. We have some charts later on that show the growth of some of the early cohorts of clients, it is quite stunning. Source of growth is 50% existing clients; that just all comes together.

Let me just go to -- actually, we don't have one on here, I realize. That promoter score is in the -- standing here in the abstract, but that's more of -- the industry is 34, we should have put that on there, maybe.

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Let me just go to the next slide here for a second. I'm going to touch on this, but Mike Roffler will come back to it. The efficiency ratio. We're running an extremely high-touch model. We're probably the highest-touch model in American banking. And by that I don't mean just the care that one officer gives a client. I mean the team approach, as you saw in the early video, being delivered to the clients. So we may have a client who is reasonably far along in their life, say, 50, 55 and has 6, or 8, or 10 things with us, might deal with in a period of a year between five and seven First Republic bankers of various kinds, the office, wealth management, business banking, their personal banking, call center. So that's an expensive model. On the other hand, the payback for that is that client gives us virtually everything they have, and they don't leave, and they tell their friend who is very much like them, that they ought to try us out. So, the efficiency ratio. And then the other thing that's going on in the efficiency ratio is clearly we're tipping a little more towards wealth management, and that has some impact in this. But, we don't intend to dwell on this particularly, because I like the narrowness of the range over -- what have we got here, about a year and half time frame. And in that year and a half time frame, we included the continuing build out of the regulatory needs for passing $50 billion, and the growth at wealth management, and a number of the technology activities that you're going to see around the room. I'm very pleased with the stability of that.

Let me talk briefly about this, something we don't normally bring up, but in this room it seems appropriate, the shareholder base of the Bank. Access to capital is very important. It is not a theoretical activity, it's not -- so we can get out on the road and have nice trips, some of which are nice, but very busy, (inaudible). We love interacting with shareholders. But as important to us are good clients, good shareholders are equally important.

We have a diversity of shareholders. This is a geographic breakdown, and it's very interesting. Let me go to the next slide because the -- look at this for a second. This is the percentage of First Republic held outside the US, almost 30%, I think. The next closest is down at 14%. A signature JPMorgan, 10%. And then look at the -- on the very right hand upper, median turnover by metro area. This is long-only advisors, money managed actively. Turnover in New York is 82% per annum, London is 42%, Tokyo is 21%. So, we have focused in on trying to find shareholders who have the same vision we do.

One of the main things that we have done in First Republic that has been successful all these years is, we don't think about anything, one year at a time. We plant seeds and they grow into big trees. We think 5 years and 10 years, and we need investors to think the same, because this is a plant seeds all the time business. And this is not just about new things. In fact, we don't do that much that's new. It's about how long it takes to nurture a client to full relationship with the Bank. You'll hear a little bit later on, tomorrow or later today about some of our newer initiatives. We have Eagle Lending over here, on one of these kiosks. Go and listen to that, and think about how long it takes to nurture the young lawyer or the young professional of any kind, the young engineer, to a full service client, maybe after 5 or 10 years with us even. And then how do they grow and what kind of long-term thinking does it take to work with them.

One of the primary correlations is that happy colleagues, happy employees, happy clients. The other one is low turnover. Stability of relationship really matters, and that's a long, slow process. But it pays handsomely in stability of results and breadth of relationship. We're very pleased with the shareholder base, couldn't be happier, although we always have room for new.

This is a business school slide, I won't dwell on it, except to talk about the fact that these are the constituents that we focus on, and we focus equally and probably sequentially on them in a couple of ways. The clients are number one always, but the regulators are very high on the list, if not in fact number one. If we mess up the regulator relationship, everything else is in trouble, including the clients, by the way, because we'll get distracted.

So the rules of the game are the rules of the game and our approach to this is always been very simple. We know the rules of the game. If we don't -- if there is a new rule, we'd like to understand it and get on it right away. We spend a lot of time on this. We spend a lot of time with regulators. It's very important. And you all, particularly focusing on banks, know the consequences of not doing that, and not getting it right. And nobody is perfect, we will stumble. But so far it's been quite successful, and we intend to continue to do it that way. We think them as consultants in a way. They see a lot of stuff that we don't see, because their job is to go around to a lot of different organizations. They see stumbles that we can't necessarily -- not have experienced ourselves. It's very important.

If the clients are happy, if the regulators are happy, if our colleagues are happy, maybe in a slightly different order, our shareholders will be happy. So in this meeting, I guess, I should say we focus first on shareholders, but actually we don't. The shareholder satisfaction is the result of the others. If we do them right, shareholders win. If we mess them up, shareholders don't go so well.

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What's been the result of this, it's worked out pretty well. Our objective for years and years has been to take very good care of all these constituencies and have the shareholder benefit from that. And we've tried to be shareholder friendly, we hope we have been. We try to get on the road, we try to share information, we try to be very transparent, hopefully that's been the case.

So with that brief introduction, let me -- what comes after that? Investor Day. Well I like that, so I'll leave it up there. Let me introduce our speakers this morning, who's going to set the tone for us. We thought it would be interesting. We've known Ken Rosen for a very long time, have a very high regard for him. We thought it would be interesting if we set off with kind of a macro view. Nobody is better qualified than Ken to do this. He founded his forum, Rosen Consulting, which has done work for us, and you'll find in some of our investor slides, the GDPs of our local markets, their firm does that for us. We went to them, quite frankly, because their data was more accurate and more timely than the government's data, at the market level, and it's been very, very useful to us. He's also been a trustee -- I'm sorry, he's Chairman of the Fisher Center for Real Estate at UC Berkeley, the high school. He serves as Trustee on Urban Land Institute and many other profit and non-profit organizations. He was at one point Managing Director of Research for real estate at Salomon. Ken got his PhD from MIT, and his Bachelor's from University of Connecticut. He's been a Professor of Economics at the Princeton University, and he's authored hundreds of articles, and four or five books. It's a real pleasure to have Ken here today. I know you'll enjoy the presentation. We pay a lot of attention to him. Thank you very much Ken for being here.

Ken Rosen - Rosen Consulting Group - Chairman Welcome to San Francisco. I moved here 37 years ago, and every day is like today. If you came in yesterday, you know it's not true. I'm going to give you a little view of the macro environment, and we do this regularly with First Republic's clients and friends, and for me it's been a great experience. I've known Jim and the team here for a long time, and the Bay Area was the initial location, but obviously we're in a number of markets. Now let's talk about today.

It's a very uncertain time, seven days to the Election, and we've already had one October surprise, so we're waiting for the next. But the economy continues to do fairly well nationally. This recovery, we measure it by job creation, and job creation since the recovery began in February 2010, has been 15.3 million jobs. During the Great Recession, we lost 8.8 million jobs.

You can see the monthly numbers, these are private sector jobs, it's tracked from the government side and just look at the private side. Have been very strong, but we had an anomaly in May, you all remember that. And it remained and haven't revised it away. But we're back running about 160,000 jobs per month in 2016.

Our view is job growth is slowing, because we've used up all of our available skilled labor. And so, we think in 2017, regardless who wins the election, we're going to see slower job growth, 110,000, because we are at full employment, and it's really hard to add more people to the labor force at this point. This number, by the way, is one that the Federal Reserve itself thinks is the equilibrium number, equilibrium number going forward, 110,000 a month, given where we are today is what they expect to see for employment situation. So, I didn't actually just make this up. This is actually the Fed's official forecast, view of where we're going to be going in the economy.

As many of you know, people still think 200,000, 250,000 is the right number, but that isn't the right number with our aging population and full employment situation we're in now. So think a lower number. I don't know if the bond market yet will understand that, but they will eventually and the Fed has done a series of research papers, which you can look up on this topic.

The unemployment rate is 5% today nationally. You can see all those lines; that's the orange line. And the under-employment rate is 9.7%. So there are people who are working part time, who would like to work full time. There're also people who dropped out of the labor force and probably won't come back, but they might come back. But the Bay Area, you can see the green line, which usually tracks below the US, is much below the US. We're at 3.3% unemployment rate right now, one of the lowest of any large metropolitan area in the country. New York City is 5.4%, it usually tracks above the US a little bit and so it's also very tight. And if you're college-educated, the unemployment rate is 2.5%. So it's really a bifurcation of the economy. If you don't have a high school degree, you're not doing as well. If you're older in the Midwest, in manufacturing, you're not doing as well. And that partly explains what we're seeing in the election cycle. If you're young and highly educated and in the right metropolitan area, you have your choice of jobs and less, of course, you majored in creative writing, as my son did. That was a mistake. But he then went to law school, another mistake. But most of you haven't done that, you've had business backgrounds of some type or another.

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Job openings is another measure of how tight the labor market is. And again, these are record levels of openings in terms of absolute numbers and as a percent of the labor force. So we have labor shortages all over the country. And as many of you know, Janet Yellen was a colleague of mine at Berkeley, for many years a Berkeley Professor. And I send her a few slides every month or two with my view of where things are. And we are very, very tight in labor markets. It's very strong. And the reason people don't think it's stronger is that wages aren't skyrocketing. But, in fact, if you correct for the age structure of the labor force, that is more older people dropping out, younger people coming in, wage growth is 3.6%, not 2.6%. So we're approaching the 4% level, which would be considered a pretty strong labor market. And in many submarkets that First Republic is in, obviously they have stronger labor markets. So this is a really full employment situation. Again, if I were Mrs. Clinton I would use slides and charts, as my good friend Ross Perot did years ago and show the case for the good economy, but it seems like they're not debating on the economic level.

Consumer confidence, again, a bifurcation here. The top two income classes feel very good and they can see they feel much better than the lower income classes, because they have the education. Their asset values have gone up. That's one of the big things in monetary policy, extremely low interest rates have pushed up asset values. So they're feeling pretty good. And, of course, these are the First Republic clients, and also explains why there are a lot of disgruntled and unhappy people in the country who are at the bottom of the heap. And even though they feel better than they did in 2009, they are still way under-appreciated in the labor force.

Inflation, you hear all these discussions of inflation is dead, deflation, especially in Europe. But, in fact, the CPI core is running 2.2% year-over-year. And even the Fed's measure core PCE is running 1.7% year-over-year. So we don't really have deflation. But I think it's important to say that we need to look underneath the hood here. And we have goods deflation and we've had it for almost this whole Great Recession. And goods deflation means, the China bubble burst, so we have energy prices that are half of what they were. We have drops in a lot of other commodity prices. They've rebounded since February, but we still have goods deflation. And I think that's where the view is we have deflation. But we have service inflation and service is 70% of the economy. So people in this environment are actually better off. Goods deflation is actually a good thing. Wages growing is a good thing. So there are, I think, at least half and maybe more of the economy is actually better off substantially and we're starting to see that recognition in consumer confidence and others as well. So this idea that we have a terrible recovery, slow growth economy, is really not right. It's a much better economy than I think the aggregate data show.

Now, interest rates, of course are again at artificially low levels. The 10-year bond, and this actually was produced a few days ago -- a day ago. It's 1.83% today, it got as high as 1.88%. But just a couple of months ago, it was in the 1.40s. And short rates, the Fed raised rates once. We're still at extraordinary low levels. This has been eight years of unprecedentedly low rates. This is an environment that we can't expect to be sustained. And, of course, I said this -- many of you might have heard my speeches, I gave quite a few in New York. I've been saying this for four years, still there. So I've been wrong and the Fed has obviously been wrong and the market has been right.

The green line here is what the market thinks rates are going to do going forward. And rates are important to First Republic and the entire banking sector. According to -- again, the forward curve, the market does not think rates get over 1%, this is the short rate, a federal funds rate. The dots are what the Fed members tell us. They expect rates to be at the end of each of these years, if their economic forecast is right. And they do this once a quarter. So the dots say that Fed is going to raise rates gradually over the next four years, getting to an equilibrium -- if you look at the medians, which are the orange lines, getting to 3% roughly in the longer run. By any historic numbers, this would be extremely low, especially if we're in a 2% to 3% inflation environment. So this is a very gradual rate increase that the Fed is forecasting, but the market doesn't believe it at all. Fed has lost credibility. And the Fed, by the way, the last few years have had these dots and they've kept on lowering the lots, lowering the dots, each time realizing they are wrong. This is a September dot number. We'll get new ones in December.

So they expect to see one rate increase in December and the Fed is going to come out with a press release tomorrow that won't say that, but will imply that. And then they expect, you can see quite a bit of divergence, but probably two to three rate increases next year, moving to 3%. 3% is way below the normal equilibrium for short rates. 5% would be the number we would have long run. So this is a very different environment. And part of it is structural, I think. Part of it is -- we've been so low for so long, people forgot what the world looks like.

Also, the Fed has had a conscious policy. Central Banks here and in Europe and in Asia are keeping the real rate of interest low. This is the TIPS rate. The 10-year bond TIPS rate. And they wanted lower negative, because they thought that would encourage investment, more purchases of housing, investment in plant and equipment, a lower exchange rate and higher asset values. That's the stimulus plan that the Fed pursued. And as you can

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So this rate is way lower than normal. The low long-term rate should be a 2-plus plus. All the literature shows that, and it was there until this Great Recession. So this is such an unusual time period. Very, very unusual environment.

And let me show you where we are today. And we've had quite a move upward, about 30 basis points, 40 basis points in the last three weeks in the 10-year bond. Germany is now positive 16 basis points. Japan is nearly positive. We are at 183 basis points, and you can see that the great credit of France is at 46 basis points. So it's a little surprising that rates are so low, but they moved up quite a bit. But look where they were before this all began, December 2006, because this is where I think eventually, once we get the world economies right and get rid of this extreme monetary policy, will be back I think in the mid 4s -- high 3s, mid 4s in the US. And again, Europe will be lower than us, but not a lot lower. So this environment we're in is so unusual. And I know you are going to hear about how First Republic has navigated this very difficult environment and has done great. But it's really tough for banks to do this well in this environment. So that's why our view is that maybe the world is going to change. So, over [4%] the last few years, but about to happen.

The green curve is what the Fed's implied 10-year bond would be, given the dots. If the Fed moves short rates back to 3% in that gradual pattern, the 10-year bond will be back to 3.90%. Now, it's very tough to do that in an environment where rates are close to zero or negative in Europe. Very tough to have that happen. So the market says, no way, don't believe it. The yellow curve is what we expect. But that yellow curve again was done about a week ago and it's higher now. It says we're going to go to 2.03% on the 10-year bond. But remember at the end of last year, we were 2.27%. So this 10-year bond assumes that we're not going to get much inflation, which is I think dead wrong. We're already above the inflation numbers here. And it assumes the extreme monetary policy will continue. The yellow curve is wrong, I think, but it's been there for some time. Three years ago that yellow curve had a 10-year bond out four years at 4%. So the forward curve is no more accurate than our typical dart thrower, but it tells you what the expectations are.

The dotted line says, if we went back into recession and it's possible that if the election turns out to create a lot of volatility, here and abroad, we might see that happen and that would put the 10-year bond lower. And of course hard to believe that it can get to 1%, but we got to 1.39% during the various points in this cycle, so it's possible. So we're thinking that the green curve is possible, very possible, actually more likely, but since the market thinks the yellow curve is right, there is huge opportunities to hedge against that move.

So just to summarize our view of the economy, then I'll drill down into the details of both the housing market and some of the markets that First Republic obviously works in. We think the GDP numbers are going to continue to be weak. They'll show 1.5% to 2% growth. These are below what people would have thought, given everything else that's going on. I think we're missing about 1% of GDP, because we can't capture the new economy well. How do we capture all that stuff that we don't charge for, but it's affecting the economy? How Varian is Head of Research at Google and formally was a professor at Berkeley and was a colleague of mine when I was getting my PhD at MIT. So I know him very well and he's written a series of articles, you've seen them (inaudible) saying, we're missing, we're not capturing the full effect of the new economy. And there's a disconnect, because GDP seemed so weak and yet job growth seems to be decent and other aspects of the economy are pretty good.

The unemployment rate we think is going to remain around 5%, but job growth will be slowing, as we've used up our people and we don't have the qualified people for many of these jobs. In fact, the debate --- one of the debates we don't have during the election is how to retrain the people to get them back in the labor force in the new economy. We're not even hearing the word education. (inaudible) but that's the biggest issue we have. We have half the people not graduating college and just graduating high school and they are not graduating high school, that's what we have to do.

In terms of interest rates, you can see the 10-year bond, we have it moving up to 1.9%, it's nearly there now, by the end of this year, 2016, and moving up to 2.5% next year. And the short rate, again, one more increase in December, two to three next year.

The stock market really doesn't know what to make of this. Today it had a little bit of a flutter, little AFib about the drug possibility. Lot of people have that same AFib. There are pills for it. But I think there's a lot of uncertainty and it will be resolved, hopefully in a week, we'll find out.

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Now, the work we do with First Republic, the macro environment is important, but really it's markets, it is about markets. Choosing the right markets and the right customers and we help with the markets, we don't really help with the customers. That's the specialty of this great organization. But you can see it in yellow, we rank all these by percentage growth year-over-year and the yellow are the First Republic markets. You can see that they are in some very interesting places that have a lot of intellectual capital. So, say, Silicon Valley, San Francisco, Portland, San Diego, New York and Boston. And the only one that's at the national average is LA and that's still a lot of jobs being created. So we rank them by percentage growth. There are lot of hot places out there. You may not know this, but absolutely boom places. We're growing 1.7% national average in terms of jobs, but you can see that the hot places are growing two and three times the national average. So Seattle, Denver, Austin as well. There are very strong markets out there, and that's why this is very puzzling, why is the national number so weak when we have metropolitan areas that are absolutely booming.

We created an index for First Republic, which we update regularly, based on three categories of data. One is we look at clearly the employment job income, Nexus. And so that's one part of our index. Second is the housing markets, since that's the prime lending area that First Republic works in. And the third is general commercial activity and capital markets activity. So regional stock prices related to the companies that employ people there. And you can't really see, there are so many lines here, but the US is in about the middle, that black line, is right in the middle. And you can see that some of the First Republic markets have really outperformed since the recovery began. Obviously, San Francisco is one of those markets. LA is another one. Newport Beach, Orange County, another outperforming market. And even New York is an outperforming market.

Some are lagging behind, places like San Diego, which is really accelerating now. Portland is lagging behind a little bit, again, accelerating. West Palm Beach lagging behind. But I think the nice thing is this is a mix of markets that has -- they are not all the same. They've got different characteristics, since there are the jobs, employment growth. They have one thing in common, they've got a lot of high net worth, very successful people, but that's another element of the selection process.

So these are pretty interesting data. And you can see that San Francisco, and we'll talk about San Francisco a lot, because you're here and there is some perception on the East Coast that we might be in a market that's not sustainable. So let me say that what makes a lot of these First Republic markets different, and there are some others that they aren't in yet that are different also, is the intellectual capital.

In terms of patents, again, we're by far and away the largest place in the country in terms of number of patents granted at Silicon Valley, San Francisco. New York has a lot, again, biomedical. LA has quite a few as well. Boston, again, biomedical and tech. Seattle, again, biomed and tech as well. So there are a lot of places where the intellectual activity is concentrated. We measure it by patents, we measured it by H1B visas, we measured it by the number of PhDs per capita. But there are a lot of ways to look at this. Where is the intellectual capital congregating today?

So, San Francisco, you are here and you know that we have been one of the strongest economies in the country. And many of you remember what happened in the late 90s. We had a boom, was called at that point the .com boom, Internet 1.0 and it didn't end well. And we had companies that didn't have business models that were sustainable, or not sustainable yet. And so, my favorite one was a company called Webvan. And Webvan was a food delivery company and had a lot of real estate and I knew the guys doing this and had built the specialized warehouses and I made a large bet against it, It turned out to be right. Because I at Berkeley was teaching a class in real estate, but nobody wanted to be in real estate then. They all wanted to be in the new economy. So they made me teach the venture class. So that was very exciting, as I brought in, Webvan guys spoke. And then the second half of the class I brought in Albertsons, and what they were trying to do. And I tried to juxtapose the new economy with the old economy and how the old economy was going to respond. And at that point, we had the gap. We had all these different players and it was clear to me that this was not sustainable, because they hadn't had the business model. It wasn't right. And so, we had this huge decline in jobs and it took us three years to get over that, start recovering again. And then of course we had the Great Recession, which didn't really hurt San Francisco, as much it did hurt, but not as much. But this recovery that we've had since 2010 has been much stronger than before. And what's different this time is we still have some of those new economy companies that are -- business models are questionable and I'm going to talk about those, some Unicorns. You're going to see my favorite slaughtering of the Unicorn slide. Yesterday was Halloween and my whole office decided to dress in uniform -- Unicorn costumes and I thought that was really great. But now we've got to put blood over them and do a YouTube video. But we're a little obsessed with that out here. But we also have this new sustainable business model, the media companies like a Facebook, a Google, their advertising. Obviously, Apple. We also have a lot of the big traditional companies like Mercedes and GE locating their new economy research centers here to use our engineers and cross-fertilize. And we got the Apples and Teslas. So this is a completely differ makeup than we had before. There are still a lot of unsustainable companies, no question, but I'm going to show you it's a much smaller proportion of the total.

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Now, job growth is going to slow. It already is slowing in San Francisco. We do expect a correction, not only in the new economy, but again, we have a shortage of labor, 3.3% unemployment rate, cost of housing has skyrocketed, hard to attract people as usually here. I'm on the Board of our medical school, UC, University of California, San Francisco Medical School and again attracting the best and brightest for biomedical research. We're doing a good job, but it's hard to compete, even to get real estate professors at Berkeley. We are competing against Harvard for the best guy in the country, and he said, well it's housing, I can't do it. So over a weekend, we arranged a $100,000 silent second mortgage, which doesn't sound like a lot to you on Wall Street, but it's enough to move a professor. Remember, our average salaries are lot lower than yours, for most of you at least. That is why I went to Salomon Brothers for up to five years. Jim mentioned I was Head of Research there and they offered me 10 times my salary at Berkeley. And I had to take a leave and take advantage of that. But Salomon Brothers collapsed after I left, so here goes.

Silicon Valley, so we have three distinct markets here, San Francisco, Silicon Valley and the East Bay, which is Alameda and Contra Costa County, and they're all about a million jobs each. So Silicon Valley is where a lot of these big companies, their main headquarters are; Facebook, Google, a lot of their main headquarters were there and they're showing less of a slowdown. They are also setting up outposts in San Francisco, because they need to attract employment, engineers and again, it had the same sort of boom-bust. This time it's slowing down a little bit again, but lot less.

Now a lot of this has been -- as we all know, money has driven a lot of this new economy. But it's also a lot less than it was last time. The venture capital numbers are not quite at the level they were last time, but a lot of money is coming here to invest in these companies that will hopefully have business models that succeed, make profits, go public or get acquired. So the venture capital levels are pretty strong and the money is being put out, but much more carefully than last time.

We're not seeing many public offerings and you all know that it's not as -- there is a few, but nowhere near as many as last time. In late 1990s, we had public offerings that you were sure were going to fail. It was a certain thing. And so, if you were a short seller, eventually you made money after you went bankrupt. It was great, you had to have patience. But we've had a lot of companies stay private and these are the unicorns and you can see that we've got a lot of them right now, about 180. But the down runs have already begun, that is the round of financing they're doing is actually lower than the previous price level. So we're seeing quite a bit of that here and elsewhere. And so these are private companies that have not gone public yet, may not go public, may sell to someone else, but they're looking for a sustainable business model. So in the last nine months the world is changed. They're all looking at how do we produce profitability, not just users and growth. So I think it's happening in a different fashion than last time where these companies went public and then went bankrupt.

However, fortune knows that a lot of people know that this was put out, I think, in February or March that there will be a day of reckoning and those, by the way, are unicorns who my staff didn't dress quite like that, but had these big horns. And they're all trying to get through that IPO or purchase gate. And so, the day of reckoning will come. So the question is, what it does it do to the Bay Area housing market and the economy.

So part of what we've had happening is the venture capital volumes are up, no question about it, but we've also had a huge amount of what we call tourist money. And some of you probably work for some of these tourist entities in Boston and New York, who thought quick buck, let's invest in these companies, late stage and when they go public will make a big pop. Well, those typically haven't worked out so far. There's still more to come. But we think the tourist money has decided to not be here now. We don't have the [2016] numbers, but we will shortly. But I think the most important thing is how big is the unicorns relative to the rest of the economy, in the new economy. It's important to say it's really a little bit less than 10%. So it's much smaller. Last time it was -- of those new economies, was 70%. So it's a much smaller number and it's also biased to some of these very large companies like an Airbnb and Uber.

So there are a lot of start-ups that will fail, there are a lot of companies that are overvalued. But it's a small number, it's about 10% of the economy and the companies that really are making the place grow are the Alphabets, the Facebooks, the Apples, the Oracles, Intels and we have a lot of biotech companies that are growing very dramatically. So it's a different economy and I hate to say the world is different this time, since I was giving all the speeches in 1999, 2000, saying it was going to collapse and was on every television station you can think of saying this and I remember, had eight meetings in New York, in CBS, ABC. We wrote this paper, said 85% will disappear and that was an understatement and the impact was an understatement. This time it's different. But we do have some risk correction, which means a slowdown in job growth and maybe even some job loss. Twitter is a perfect case in point. It's a public company, they keep on letting people off. They haven't got the business model to make enough money yet, right. So its aborted auction is the perfect case in point, but it's a public company. There are so many private companies, I could you give a list of them, you would not know 80% of these companies, you never heard of them. And they're worth a billion dollars. That's very exciting.

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So, New York, New York is typically considered a different economy than here, but it also has a very big part of its economy coming from this tech, advertising, media industry now. The growth in New York is not in finance, it's actually in those sectors. So, New York is somewhat susceptible to the slowdown as well, but New York has had a great job growth. You can see this actually, not a total outright boom, but very strong, steady growth. But it's got some of the same risk factors. And we do this for each of the First Republic markets. In fact, we do it for all the large metropolitan areas in the US.

So, the first pillar is pick the right markets. And again, we just did these two markets and again, First Republic has other very strong markets, have similar characteristics, but not as tech exposed.

The second issue is housing markets. And by this chart, you say housing is not doing very well. New housing production, single family starts hit a peak of 1.7 million in 2006 and it's collapsed and it's come back by about [50%], but it's still very much below where it would normally be. The single-family housing sector should be in a boom, but it isn't and it is part because of tight mortgage credit, partly we had to digest all the problems we had. Also, millennials are deciding to delay marriage, childbirth and buying. So we're seeing much slower recovery in the sector.

The resales numbers are again good, they are recovering, but are not at boom levels. And this compares to, if you look at a Sweden or a Canada, we've got outright booms with these low interest rates, it's not happening here, which is good, because bubbles never end well.

The proportion of homeowners has declined dramatically, from about 69%, it ticked up last month, but it's still very, very low compared to where it has been historically in the 63s, it got to 62.7%. And so, this is a headwind for anyone in this marketplace, and it's especially true of young households. Their home ownership rate has really plunged a lot more than the overall number, of about 12 percentage points. So twice as big decline. Now we view this is as backlog of demand, but some could view it as a permanent shift that maybe people permanently shifted there in terms of where they're going to be.

In terms of affordability, we have, again, affordability quite good compared to where it was around the 2005 and 2006 periods. But it's come back down, because house prices have come up and even with these low interest rates, affordability is good, but not great. It was better a couple of years ago. This is because of rising house prices, interest rates haven't yet gone up. And we have a deficit of first-time home buyers. First-time home buyers would typically be 40% of the market or about 34%, but they are increasing. And again, the investor market is much smaller now, because prices have come up and they aren't the [steels] they were. We saw a lot of the big institutions buy up plots of foreclosed houses and we're seeing some of these companies public, others coming public.

The inventory, however, of unsold houses is at really low levels. So that is a problem in the market, because we don't have -- markets would be stronger if there are more inventory to buy and in many of the key markets, inventories are just about the lowest they've been in a long time. People [aren't bringing] the houses on the market to sell. Why is that? Well, it's a big puzzle. But one of the reasons we think is the prices in many markets are still not above the previous peak. People don't have a lot of equity, and so if they want to sell their house and buy another one, it's hard to get a mortgage, so they're staying put. So we're not seeing the turnover that we'd normally expect at this point of the cycle.

California has a special situation. We have something called Prop-13, where a few owned units a long time ago or whatever -- your property taxes can't go up by more than 2% a year. So if you've owned your house since 1979, your appraised value and your taxed value is so much below current market. So if you move, instead of paying $10,000 here in property taxes for a median house in San Francisco, you go to $40,000. So the turnover rate has been a little bit lower than normal. And we know we have to reform Prop-13. We wonder if Governor Brown will do that, not to raise taxes dramatically, but to slowly phase out some of these components. As the turnover happens, of course, the house then goes to current market and current property tax rates.

House prices had a spurt after its huge decline. And you can see, that happened obviously in 2012 and 2013. Latest numbers, year-over-year, running about 5.6%, so that's above the inflation rate. San Francisco, you can see had four years of double-digit price increases, we are now running in the low-single-digits, and I expect will be there for some time. We don't see anything that would lead to a -- unless we have another great recession that would lead to a house price super-decline, as we did in 2008 and 2009.

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Silicon Valley, some of the same phenomena. Despite all these great companies there, house price growth is slow, in a gradual fashion. We don't see the big decline again as we did in 2008. Part of what's going on is we've got a lot of household formation. What does that mean? That people are setting up separate living units. They are renting and they're also buying and we've got these at about 1.3 million a year and it's going to continue to be strong for some time, because we had delayed households in 2000. You can see 2007, 2008, 2009 and 2010, we didn't have many households forming, people stayed living together, waited to get divorced, people waited to move out of their family's house.

And also 4 million more young people than normal are living with their parents. Now, some of you may still be doing that. I had my son home for a little bit longer than we thought we would after school, but then he went to law school and could afford to rent his own place, just kidding. He couldn't afford it, but we paid a third of the rent and he paid a third and the girlfriend paid the other third. But there are 4 million people who are still living with their parents, more than normal, who want to move out. So there's backlog of demand, especially for apartments, but eventually these will be home buyers.

Job growth among young households is very strong. You can see those numbers, that's the orange line, much stronger than the rest of the population. And we have this demographic of those turning age 18, who enter the household formation range, continuing for the next decade. A lot of people don't remember we had a boom in the 70s and we had a sharp drop in the late 80s and early 90s. But we don't have it. At this time it's a lot of strength continuing in the young households forming.

Also, that orange curve is probably the single most important demographic to think about, when you analyze what's going on. Huge numbers of people, percentage wise and absolute numbers turning age 65. This is the baby boom of the late 40s through the 1960s that is retiring, and retiring later, lot more net worth and you can see, we're about a third of the way up that orange curve. We're going to go from 12.5% to about 23% of the population, over 65%. Huge market potential, lot of high net worth and clearly going to look at different places to live and work.

Lastly, we do think immigration is a big positive for the US economy. The biggest mistake, and there are many of them that are being made by one of the candidates is to be negative on the immigration. Immigration is a single most important source of population growth, half of population growth. Best and brightest and others all come here, we've got to make it, so everyone who gets a college education from an offshore place gets a green card. We want this population growth to happen, because it's really good for the economy and housing markets. So it's hard to believe a real estate guy is anti-immigration, but we won't even go there. So let me just stop and then we will be able to take some questions.

The bigger economy that you're here in and I know that some of you're going to spend a few more days here and look at the various things going on, it's quite different than what we had in the late 90s. It's a much deeper economy of lot bigger companies. Technology is now in every part of our economy, retail, automotive, hospitality. And the [rev] financial of the quotes and puts tech sector is really the revenue potential of the economy. It's really integrated in everything and the fact that the automotive companies, GE all have their research centers and their engineers out here, trying to develop this stuff, shows you that it's a different economy.

Also, we have just a lot of young people doing things differently. And we have tech savvy millennials, who think and do things differently. They want experiences, they're not buying traditional retail goods, they want a lot of different things. And so, again, that's important for the companies and it creates the opportunity to continue to grow at modest rates.

We also have big companies. I mentioned that, I showed you the chart. We are going to get a contraction from these unicorns that don't make it, and we've seen a few already. We've also seen a few frauds. There's probably more fraud this cycle than in one I've ever seen. (inaudible), but there was another one recently as well. We changed the law to make it little faster and looser in this business. I think the Bay Area, while it's the center of this phenomena. There is basically the biotech industry at San Diego; Los Angles has Silicon Beach, New York has again a lot of the strength in this economy, some of it's migrating to Portland as well. So we are seeing this diversify, not just here, it's around the country.

So at this point, I think that they want me to leave about 20 minutes for questions. And we'd be delighted to answer anything about regional economies, housing markets, anything that you'd like. I can't answer anything about the election, since I have no idea what's going to happen, but it's frightening. And I would say one other thing, not Partisan, but we did get an offer to work about 15 years ago for the Trump Organization, and we met them. And it's the only time we've ever turned down a client. Hard to believe, but his people -- I mean, he's who he is. But his people will not have the same caliber that we've dealt within the real estate business. So he may have a reputation personally that's bad, but the industry as

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QUESTIONS AND ANSWERS Unidentified Audience Member Yeah, Ken. Thanks for your interesting remarks. I think two questions please. One, even though we've been advised that recoveries don't end of old age, right, if the recovery suddenly were to falter in the near-term, the question is what the Fed has left in its bag of tricks to get us out of the next recession if it happens, if things are where we are today, given the fact that rates are so low. So, what do you think the Fed can do, if anything? And the second point is, if I heard you correctly in your comments where real interest rates should be, I know it's come down from 4% to 3%, where we are today, I think you implied it should be around 2%. I'm just curious if you could maybe expand on your thoughts about where real rates should be, given comments from Larry Summers and others?

Ken Rosen - Rosen Consulting Group - Chairman So let's talk about the Fed first and then Larry Summers second. The Fed has put itself in an awkward situation. They should have been raising rates three years ago, they should be back at a 3% level. I think if you really ask them carefully the emergency was over three, four, five years ago and they should have normalized, but there was always an event they got in the way that they didn't do it. They basically haven't, and this happened, by the way, in the 90s and in 2000s. So they are way behind the curve. One argument is, of course, the weak global economy, rates so low elsewhere, how could they do something without the dollar strengthening too much? So I don't think they have much powder. more QE would do almost nothing. QE3 did not do much, their own research shows that. I don't think they have much powder. So we're going to shift, I think, here and globally to more fiscal policy, infrastructure, deficits, which I think would actually be good for the world economy. It does mean higher interest rates, though, because we have more inflation.

Now, the real interest rate, the question is, is there a structural shift that's taken place in the economy; aging population, lot of savings, whole bunch of explanations, lower productivity growth, then maybe the real rate of interest shouldn't be 2% anymore, but could be 1% or zero. Zero doesn't work. How do you encourage people to basically defer consumption. The real rate of interest is all about deferring consumption. But it could be lower. Summers believes we're in a long-term pause and I think the main characteristics that he would say is aging population around the world, which is true; and second would be lower productivity growth. So there is some truth to that, but I think it's hard to distinguish and separate the fact that we have such extraordinary global monetary policy, buying up bonds like we've never seen on earth before. We are at [five-stair] deviations away from normal. So I don't know for sure that he isn't partly right, but I like to see them at least start getting their worldwide portfolios back to normal and see what happens. So we won't know until that takes place. I think we're going to be surprised how fast rates move when they do move, because it's inflation that will trigger everything.

Other questions? You have to have lots of questions. Yes?

Unidentified Audience Member For your forecast of two or three hikes next year, in 2017, do you need the fiscal side in order for that to happen, like if we don't get fiscal stimulus in 2017, you still think we'd see that level of hike?

Ken Rosen - Rosen Consulting Group - Chairman I think that the Fed is going to tell us in December they are going to do three hikes. But I think if we don't get the fiscal stimulus and some feeling that the economy is on a stronger path, it'll be hard for them to do. And hard for them to do -- now if you look at Europe and Brexit and what does that do. So it's -- in the global context, I think it's going to be hard to do three if we don't get worldwide fiscal stimulus, coordinated worldwide

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©2016 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. NOVEMBER 01, 2016 / 8:00PM, FRC - First Republic Bank Investor Day - Day 1 fiscal stimulus. And again, taking the candidates, it's interesting to say this, but Trump's policies are going to actually, if he ever can get them through, are actually much more fiscally simulative than Clinton's policies. She is trying to raise taxes at the same time as infrastructure program. His program is deficit expanding, which from the near-term actually might not be a bad thing to do, probably be a good thing to do. So, the election does matter, if the question is can you do anything through Congress. Can you get infrastructure program through Congress? Can you get any of this fiscal stimulus? The deficit of share of GDP has come way down. So we do have room here, we have room in Europe to do this, but will they do it? I don't know the answer, but I think it requires some of that to happen.

Unidentified Audience Member Some of the Fed governors have said they're willing to tolerate it overshoot on inflation. Do you not believe them?

Ken Rosen - Rosen Consulting Group - Chairman So I think there's a number of articles that have been written that says that 2% is not to be the target, we could be -- run harder than that for a while. I do believe them, but I do think also that even those people are saying that with a few exceptions, they know rate shouldn't be this low. I think if they get back to 2% or 3%, they might not go to 4% or 5%. But I think that they don't want to be this low. This makes no sense, very hard to be a money manager of a bank. It's really hard to run an investment business, an insurance company, an endowment and all the pensioners are really being hurt by this, they have to take too much risk. There was a very good article in the Financial Times about a week ago by Tony James who I think is the CEO of Blackstone, listed the six or seven big distortions happening. China, one of the biggest distortions of all, their bubbles popping up everywhere. I think that easy money, this easy money is a mistake. So I think they'd want to move more towards neutral, not tight money, but more towards neutral, no matter what happens.

Unidentified Audience Member I'm interested in the Bay Area economy. And you basically painted a fairly optimistic near-term or mid-term projection for the Bay Area. What would be signs to you of problems emerging in the Bay Area economy? What metrics would you look that might give you a warning signal if things weren't going to be -- go so great?

Ken Rosen - Rosen Consulting Group - Chairman So I think the biggest worry is, do we get the bubble in valuations unwinding rapidly. So if the stocks of the (inaudible) not it's really dropped dramatically, the unicorn values dropped in half. They'd have no choice, but to lay off people, because they're trying to grow, but they wouldn't have the capital around to do it. So I'd say the capital markets, if there was a big upset in the capital markets, that's a worry. There's a longer term worry in the Bay Area that I think that I didn't highlight, but we have had a big increase in the cost of rental housing, as well as on occupied housing. And it's very difficult for people who don't have those high salaries to stay here. So we are going to see out-migration and we're already seeing it to places like a Portland and other markets; Austin, Texas, where they can do some of the same work and have a higher real income. So, I'd watch the migration numbers pretty carefully. Corporations, Schwab did it, a few others did it, but the tech companies, they are not taking people out of here, but they're just opening satellite campuses in Seattle and other places to get the workers they need. So I'd watch that as well, the migration; the two key things. If we saw a lot of IPOs of these companies and they had really high valuations that would scare me, to put money in people's pockets temporarily. We haven't yet seen that, but I can tell you, people are waiting and would like to do that. Our biggest of the unicorns is Uber and I know you've all had your own Uber experiences. But it seems like a pretty high valuation for what they're doing. So we'll have to see.

Unidentified Audience Member Given the continuing dispersion in consumer confidence by income class, just wondering, in your work in the First Republic markets index, if you've ever adjusted that index for income strat, to see how sort of the more affluent are performing in First Republic's markets, is that possible or have you looked at that in the past?

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Ken Rosen - Rosen Consulting Group - Chairman Income stratification is, I think, the target market and I know that they're going to see some of the presentations later on today and tomorrow, really talk about exactly, First Republic does exactly that. They know where those high net worth households are, the data is there. And those are the ones who are the targets.

Unidentified Audience Member But you haven't measured the growth among that?

Ken Rosen - Rosen Consulting Group - Chairman We haven't, they have. They have done that themselves. We didn't. I don't know if we existed in that or not, but I know that they have done that.

Unidentified Audience Member For most of the past 60 years, maybe, longer, this country has seen emigration into suburbs. Maybe, starting five years ago or so, it seems like that has turned. Do you believe that is just a cyclical thing, where millennials get older and move on to suburbs again or is this a 50 year shift of now moving back into cities?

Ken Rosen - Rosen Consulting Group - Chairman So this is the $5 trillion question for the housing industry. It is certainly the growth rate of inner core cities with people has two, or three, or four times higher than suburban growth. Suburban, most suburban places are still growing, but very slowly. The question is, will the millennial generation delay having marriage to the point where they don't have those kids and not marry and not move out to the suburbs. I think there's a reasonable chance that half the people, maybe 70% of the people, will not have the traditional lifestyle that our generation has, many of our generation. And so, I think that it could be a permanent shift. But I don't think we know yet. And talking to millennials, looking at surveys, they still show 70% want to own. The surveys show they want to be like their parents. But their actions have not shown that so far at least, their actions are -- I have a sample of my son's 28 year old friends, they're delaying everything. But maybe 10 years from now, when they are 40 and they have those two kids in the schools, they can't get into the schools, because there is only so many private schools, they'll move out. Clearly, we're seeing this revival not just -- we all think of San Francisco and New York, but it's happening in Philadelphia, it's happening in Cleveland, it's happening in Denver, it's happening all over the country. So this is a widespread phenomenon and it may be more than just a short term change, can't really know yet. And the surveys I see, indicate probably is just a cyclical phenomenon that might change back, but you don't really know.

Shannon Houston - First Republic Bank - VP, Director of IR Excuse me. Pardon my interruption. We have time for one more question.

Unidentified Audience Member Thanks. So it's a two-part question on income inequality. And clearly that's been building over time. It's at, I think, multi-decade highs. First, how do you think about the sort of shift away from monetary stimulus to fiscal stimulus and how much that shifts things back, if at all? And then second, thinking further out, do you think that we are now at or close to the high, or do you think the trend can keep on going?

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Ken Rosen - Rosen Consulting Group - Chairman Well, I think, first of all, the extreme monetary policy has pushed out the asset values dramatically and that really is not all, but certainly a significant part of the income, wealth inequality we've seen. Shannon, says, no, she didn't do any of it, but they did. So I think a shift in policies away from that will help. But I do think that it's much more than that. It's globalization, it's education, it's a whole new technology that we have, communication technology that allows that concentration in that top quartile, in a way which is quite different, and the bottom quartile, which has typically been manual labor, the value of that has declined. So, I think is there is a longer-term issue. I think it will be resolved to some extent by political action. What we saw is somewhat of a reaction, Brexit, what might happen here, happening all around the world. It's a reaction against that. Those left behind are saying, we don't like the values of globalization, cosmopolitan activity and all that. And I think it could be the backlash that Isis is, in a way, a backlash to that as well. Tom Friedman has written a book that many of you read about the flat world and this is a backlash and the backlash politically could be significant enough to slow it down and even stop it in the [19]. And remember, the same thing happened in the 20s, huge income inequality boom and then we slowed it down and stopped it and got political conflict, which would be awful, but that could happen. So it's a Black Swan out there.

Ken Rosen - Rosen Consulting Group - Chairman Alright, Shannon, I'm going to turn it back over to the First Republic team.

Shannon Houston - First Republic Bank - VP, Director of IR Thank you very much, Ken. We're just going to take a moment to adjust the seating here on the stage and then welcome the First Republic team; Mike Selfridge , our Chief Banking Officer; Jason Bender, our Chief Operating Officer; and Gaye Erkan, our Chief Deposit Officer and Chief Investment Officer.

Mike Selfridge - First Republic Bank - Senior EVP & Chief Banking Officer As Jim mentioned earlier, thank you again for joining us for our Investor Day. For this session, Gaye, Jason and myself would like to talk about service and opportunity at First Republic. And specifically what we'd like to cover are a few key areas. First, the business model of First Republic Bank. Second, the growth drivers for First Republic. And third, the opportunity within our urban/coastal markets.

Let me talk briefly about the model of First Republic. In as much as service is really the big differentiator for what we do at First Republic, I believe the business model is also very unique in the financial services industry and is a real differentiator. And as you go through these sessions, you'll hear from clients and colleagues about specifics on why we believe we're different, but I want to highlight a few key areas. First, single point of contact. Second, elimination of silos. Third, compensation and credit clawbacks. And fourth, team and empowerment of decisions.

So many of you have heard that we always put the client at the center of what we do at First Republic and everything that we do to serve that client really surrounds the client experience. But there is a key differentiator. And that is that the relationship manager is often the single point of contact at first Republic Bank. And so, what does that really mean from the client experience perspective? If you think about these relationships between a client and a relationship manager, they are deep, they are long-lasting, they're stable, they're meaningful. And so, we view this as, let's try not to disrupt that relationship. And if you think of the way other organizations might align themselves around that experience, quite often what you'll see is perhaps segmenting a client base, a small client base, a medium client base, a large client base. And every time you graduate from small to medium, large, you get a new relationship manager or perhaps, you even extend to another geography.

And so, what we have at First Republic is really a relationship that lasts for the lifetime as long as the client is working with First Republic Bank, coupled with what Jim mentioned, very low turnover with our relationship managers. So as an example of that, as David will talk about on the credit side, if you look at, for example, the loans that we've originated since inception at First Republic Bank, 90% of those loans have been originated by bankers still with us today. So there's a lot of continuity and again, deep long-lasting relationships. And at the day, we think that's what clients want.

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I mentioned elimination of silos. So, at First Republic, it really is a team orientation. So it's not a relationship that's owned by the Business Banking Group. It's not owned by the Private Wealth Management Group. It's not owned by the Private Banking Group or Personal Banking Group. It's owned by the team. Still, the single point of contact, but it's owned by the team. And, in fact, one of the things we do is mix business bankers, wealth advisors and personal bankers on the same floor, so that they collaborate and align, and again serve the client's best interest.

Compensation, I'll talk about this in a little bit more detail, but our compensation is really aligned towards teamwork and client interest. So it's team work and not territories. And then on the credit clawback side, which I believe is very unique in the industry, for any banker that originates credit that could get charged off, they would have a clawback of anywhere from 4 times to 6 times what they earned when they originated the credit.

And lastly, empowerment and trust. So if you think about our talent, we believe it's some of the most talented bankers and experienced bankers in the industry. But without the empowerment and trust of the decisions they made to have an authentic client experience, it doesn't do us a lot of good. So we try very much to enable them to make quick decisions on behalf of clients.

Jim touched on our Net Promoter Score and we often say we're a service company that happens to be a bank. Exceptional service is something that we measure and on a regular basis, we conduct a Net Promoter Score survey to better understand client loyalty and the client's experience. Now this Net Promoter Score is something that's used by many industries and in fact, about two-thirds of the Fortune 1,000 companies use this as a way to better understand client loyalty and the client experience. But what's interesting, I just want to say simply put, all this is, is the percentage of your clients that are passionate on a net basis passionate about what you're doing as a brand, as a product, as a service, and in fact they are so passionate that on an unsolicited basis they will tell their friends or colleagues about that product, brand or service.

So Jim touched on the banking industry. The banking industry as a whole has about 34% of its clients that are passionate about their financial services company. For First Republic, on a composite basis, we're almost two-times better, two-times better, at about 62%. But a key concept for us is what we call lead provider. So lead provider simply means, if the client identifies us as the lead business banker, the lead wealth manager, we're the lead personal banker that Net Promoter Score pops to 77%, which is one of the best in the financial services industry and puts us in the category of premium brands like Apple and Amazon and Mercedes-Benz.

So really this is just the output or scorecard of what goes into delivering extraordinary service for our clients.

Industry-leading Net Promoter Score, what's interesting is we found that the more services we provide our clients, the more loyal and satisfied they are. The more clients do with us, the more loyal and satisfied they are, as measured by an increase in the Net Promoter Score. So what you'll see here, for example, is that if a client is using one to two services, they have a Net Promoter Score of 61, which is still very strong for the industry, and if they use us for more than 10 services, again that Net Promoter Score pops to 77%, which we believe is outstanding.

So, now let me briefly talk about compensation and sales practices at First Republic. And what you should know about our compensation and sales practices is that they're aligned again towards the client's interests. And our intent is to build stable long-term relationships. So let me cover four attributes as it relates to our compensation.

First, size not quantity. Almost all of the compensation received by relationship managers comes from the size of a relationship and not the quantity or units sold to a client. Two, we don't set targets, we don't set lending targets, we don't set deposit quotas. Third, deferred compensation. Almost half of a relationship manager's compensation is deferred. For example, as we said on the earnings call, a trailer on deposits, which is really just a multi-year deferred compensation, again aligned and incentivizing stable long-term relationships. And lastly, the credit clawback that I mentioned, which we believe provides accountability to the type of credit that relationship managers are bringing to First Republic Bank.

So, in summary, a unique business model, client at the center, extraordinary service as measured by outstanding Net Promoter Scores, and the more they're doing with us, the more satisfied they are, and a compensation structure and sales practices aligned toward teamwork and the client's best interests.

So now I'd like to hand it over to Gaye Erkan, who will talk about the growth drivers for First Republic. Thank you.

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Gaye Erkan - First Republic Bank - EVP, CIO and Chief Deposit Officer Thank you, Mike. As Mike pointed out, we see through our Net Promoter Score, the measure of our client satisfaction. But how does that client satisfaction in turn translates to safe organic growth for us? You'll recognize this slide from our prior Investor Presentations. We did update the data through 2015, and yet it tells the same consistent story. Over half of our annual growth, whether in deposits, on the left-hand side, or loans on the right-hand side, over half of our annual growth comes from existing satisfied clients doing more with us. Another 25-plus percent comes from those existing clients -- happy clients, as Jim said, referring their friends and colleagues to us. Lastly and very importantly, we win by not losing. The client satisfaction in turn translates in a very low annual client attrition rate at 2% for First Republic compared to 10% for US banks overall.

The next slide illustrates that our households grow with us over time. In this study, we looked at our clients who originated a loan with us in 2008 and had a deposit and a wealth management relationship with us. We then compared their banking relationship with us in 2008 to the second quarter of 2016. Over time, our relationships deepened with these clients. As we can see on the slide, while our clients pay down their loans at a 3% per annum rate, they also increase their liquidity with us. Their average checking balances increased 21% and their assets under management, the average balances increased -- sorry, the checking balances 21%, and their assets management increased 25% compounded annual growth rate. And why? Because of our commitment to extraordinary service, as well as our focus on retention of existing clients and building deep long-lasting relationships with them.

After all, as Jim said, the best client is the one you already have. When we focus on our clients and we provide extraordinary -- the best in class service, we keep them happy. And when we keep them happy, not only do they stay with us, but also they do more with us. As we can see, the service-driven intrinsic growth within our client base continues to provide an amazing opportunity looking ahead.

And with that let me turn it to Jason to talk about our geographic footprint and the opportunities presented in our strong markets.

Jason Bender - First Republic Bank - EVP & COO Thank you Gaye. Okay, so we're going to spend a few minutes now just talking about the geographic markets that First Republic operates in, as well as some of the opportunities that are contained in those markets. And we've got just a few slides on those.

As many of you know, we do every two years a market study of our geographic markets, in conjunction with Capgemini. Capgemini, of course, the consulting firm that pioneered the World Wealth Report 20 years ago and publishes that once a year. And we've utilized their methodology as an accepted kind of third-party independent industry standard in order to measure our markets in terms of high net worth households. High net worth households are just a little under half of the households that we bank. So it's by no means comprehensive of all the different individuals and businesses that we do business with, but it does help to serve as a bit of a proxy in our markets for growth opportunities.

So, on this slide, we take a look at a whole range of geographic markets across the board, both in the US and globally. And there's a lot going on in this slide, but really what we're doing is we're measuring these different markets along three different dimensions. So, along the X-axis, you see the growth in high net worth households in each of these markets, measured over a five-year period. So, how fast is the market growing in terms of high net worth households. The Y-axis then takes a look at the density of high net worth households, that is on a per capita basis how many high net worth households are in those different geographic markets. And the third dimension is the absolute size, the bubble on the chart. The larger the bubble, obviously, the more high net worth households that reside in that particular market.

So when you look at this, just to decode the colors a bit, the green markets are obviously First Republic markets, the gold markets are other US markets and the gray ones are other global markets outside of the US. And really what you want to see are markets that are in the upper right hand corner of the slide, that is markets that are both growing in terms of high net worth households and that are richly populated in terms of high net worth households, and then, of course, if we're looking at overall market opportunity, those have a lot of high net worth households. As you can see, First Republic's markets, the ones that we operate in, are really clustered up in the upper right. That's largely by design. We've carefully selected

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Now the other thing that I'd point out here is again the size of the bubble on the page, the large one that you can see there sort of in the upper left part of that box is the New York market. That's about 700,000 high net worth households; that is about the same size as all of the high net worth households in Germany and all of the high net worth households in China. If you look at the market to the right, that's San Francisco, also a very large market in terms of the total number of high net worth households, a little over 300,000, and that is comparable to the UK and it's comparable to France. And so, when people ask us, where are you going to go next, it's not that there aren't other good markets in the US or globally, it's simply that the markets that we're in tend to be some of the best private banking markets available. And as you'll see in the next slide, we're just getting started in those markets.

So this is a slide that we've updated recently, this comes out of our Investor deck, so it may be familiar to some of you. But it bears taking a moment just to focus on. We'll start in the right hand side, in the gold box. About 21% of all US households reside within the markets that First Republic operates. But about 58% of the high net worth households reside in those markets. Now, that says of 2015. Now, the good news is that that percentage has actually increased over time. It was about 46% back in 2003. So the markets that we operate in are increasing in number and concentration of high net worth households, that is they are attracting or they are producing high net worth households at a faster clip than the rest of the US.

Now, the green bar chart part of this slide represents the number of high net worth households that First Republic banks. And as you can see, that's grown nicely over the years, since 2003, when we first started doing the study, on average about 13% per year growth in high net worth households that we bank.

Now the gold bar across the top shows our market penetration of the markets that we're in. As you can see, especially since about 2007, we've actually remained relatively flat in terms of market penetration. We've really ranged kind of within about 3.5% and 4% market penetration in our markets. And that's not necessarily a bad thing. We like that stable market penetration. We're not necessarily seeking to increase market penetration. What this tells us is that we are growing at about the same rate as the healthiest private banking markets in the US. That's okay. We'd rather do that frankly than be in markets where we had to stretch to acquire the next high net worth household or client. And so we view this as actually a sign of health. We're in fantastic markets and we're keeping pace for the most part.

Now, oftentimes, we get asked how about getting into the individual markets. So we were just looking at on the prior slide, where our market penetration numbers in aggregate across all markets that we operate in. This takes a look at our market penetration in the four main markets that we're in specifically. So, San Francisco, Los Angeles, Boston and New York. And the reason we put this slide up is to show a little bit of what happens if you run the model for long enough in a given market. Now, it's not necessarily a predictor, San Francisco, of course, is our headquarters market, we've been operating here for 31 years, but we have been able to achieve 12% plus market penetration over that time period in high net worth households.

Now, if you look at New York, on the right hand side, in particular, we just have extraordinary opportunity in our East Coast markets, New York, in particular. So, New York has achieved about a 1.5% market penetration in the 17 years that we've been in New York. Now that's actually increased incrementally and steadily over the years we've been in New York. But New York as a market has also grown very nicely, 1.5%, we've got a lot of growing room in the largest private banking market in the US. At 700,000 high net worth households, New York is roughly equivalent to our California markets combined. So, lot of opportunity right there on the East Coast.

Boston is a similar story. We've been in Boston for about 10 years. We've achieved about 3.2% market penetration in Boston. So just a lot of opportunity on the East Coast, in particular.

So what's all this mean? If we go back to the prior slide, and we take a look at the fact we've got a 4% market penetration in aggregate across all of our markets, the flip side of that is the true opportunity for First Republic. That's 96% of high net worth households in our markets that we don't currently bank. And so, when people ask us about other markets or where do you go next for growth, we don't have to look any further than the

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And so, with that, we'll wrap up here in a couple of concepts. Obviously, we've spoken a lot about service. Service is clearly the driver of our business model. As Gaye mentioned, it's the key driver behind growth, because it leads to that client satisfaction, which then leads to 50% growth coming from existing clients and another 25% coming from referrals from those clients. We've seen opportunities both in banking the clients that we already have, as well as growing in markets that we're just barely starting to scratch the surface in. But importantly, that client satisfaction and that client service is also a key to stability and consistency in results. And in many ways that's best reflected in our credit record over the 31 years that we've been in operation.

And so, what we're going to do now is just pause for a moment, we're going to turn over the stage to David Lichtman, who's going to spend a few minutes taking us through the credit perspective of First Republic. And then Gaye, Mike and I will read rejoin him on stage and we'll take questions then. All right, thank you.

(video playing)

David Lichtman - First Republic Bank - EVP & Chief Credit Officer Good afternoon. Now, you can hear me okay? So I am very excited to be here. I'm David Lichtman, as you saw in the video, to talk about our next segment about credit and culture at First Republic. And before we jump into a panel discussion, I'd love for our panelists to introduce themselves. We have two panelists here. I believe two have come on the video. Is that correct? We can go through the slides first, sorry we haven't changed your finance. So let me go through our slide presentation, then we'll go to our panelists.

Here we go. So let's talk about our exceptional credit quality, going back to the Bank's founding 31 years ago. And in that timeframe, we've originated over $160 billion of loans and we've lost $325 million, or cumulatively 20 basis points, less than 1 basis point per year. And that's through many economic cycles, the .com bubble bursting, the Great Recession and other very challenging economic times, including a number of natural disasters.

Most notably, I'd like to refer to the top line up there. Our single-family lending, which is about 60% of the Bank, we've lost cumulatively 7 basis points in 30-plus years of lending, again through those economic cycles. Many of you might be aware that JPMorgan recently did a mortgage-backed security with non-qualified mortgages, the first one done since the Great Recession. And JPMorgan, as you know, is one of the largest home lenders in the United States. They used First Republic's mortgages, 100% First Republic mortgages, not JPMorgan's originated loans in that security. So that's a heck of a compliment to their perception and the market perception of the strength of our loans.

So let's go to loss history. The Top 50 banks in the United States loss history is 5 times that of First Republic, over the past 15 years. We are the smaller green bars there and the Top 50 banks are the larger gold bars. They've averaged 48 basis points of loss over this 15 year timeframe, we've averaged only 10 basis points of loss. In fact, our worst year was only 48 basis points of loss. If you would have had the same slide for home loans, their losses, the Top 50 banks is 14 times more severe than First Republic's, when you look at home loans only.

So what is driving the success of this Bank and the success of our track record here? There's five key items. Number one, we have a limited number of loan products, a select group of real estate loans, a little bit of construction lending, business lending and a tiny bit of unsecured and stock secured lending.

Secondly, we have a very limited geographic market focus. The Bay Area, Southern California along the coast, New York and Boston. And that's over 80% of the market share of the Bank.

Thirdly, we have a very experienced group of relationship managers who are all credit trained.

Number four, we also have a very experienced group of credit approvers, who work with the relationship managers and bankers to meet clients and make decisions one at a time.

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And lastly, we have a stable group of clients, which means we know our clients, we know how they perform.

So the result of all this is less risk, safer loans and great customer service. So, let's go into detail a little bit more on each one of these.

So what's driving our low loan losses? 90% approximately of the loans in the Bank's portfolio are real estate secured, and they are conservatively underwritten. This is a slide by vintage and by product type of all the real estate loans for the past six years. You can see that the loan-to-value ratios at origination are almost all in the 50% range, again very conservative, and this is in spite of a lot of large loan growth in that time frame.

If you go to the brown shaded rows at the bottom, we got a little bit nervous about prices, real estate prices, rental prices and the frothiness in the market. So, we started consciously cutting back the advance rates on our deals, one at a time. And you can see that the loan-to-value ratios have dropped down on the average, a couple of percent in each of the categories.

Let's shift gears for a minute and talk about the geographic markets. Again, in our same four key markets, over 80% of the business in those four markets. The pie chart on the right is the most recent quarter, 2016, the pie chart on the left is the year 2000. Not much change, we've grown in New York, we've grown in Boston, but our four key markets have been our four key markets. So, what does that mean? We know our markets well, we know our clients well, we know what drives the local economies well. And as Jason had mentioned earlier, on the average, we have a 4% market share. So, we have a lot of opportunity to do more business in our existing markets, with the same product set, without having to stretch on credit standards.

We have a stable group of bankers, which is another key driver to the success of the institution here. And as Mike had mentioned, 90% of all the deals we've ever done, are by bankers who are still at First Republic. So they didn't do a bunch of deals and then leave. They've done a bunch of deals and stayed and done more deals.

Three quarters of the business at First Republic is coming from existing or repeat customers. We know them, we know them well, we know how they perform. And we've grown our relationship manager team over the years, but two-thirds of them have been at First Republic for over 10 years.

Another key element regarding the Banker Group we'll come to in the panel discussion is our clawback that's been mentioned a lot. We've had that since 1986, and it's a multiple of the amounts someone earned on that deal. It keeps them responsible for the credit, from cradle to grave, and makes them focus on only originating good quality loans.

So we have a very experienced group of credit approvers that we call the Executive Loan Committee. And what happens is the relationship manager, the credit approver, work together to meet clients and make good educated decisions one at a time. This 30-person team has been at the Bank on the average for nine years and has almost 30 years of experience lending money. So they've been through cycles, they've seen problems, and they learn from their experiences that they apply to future deals. They're all located in our geography. So, we have credit people on the ground in New York, in Boston, in Southern California, and the Bay Area. So, they know those geographies and real estate markets very well.

And lastly, if you go to the bottom half of this chart here, we look at a ratio of credit approvers to relationship managers, and as we have grown that relationship manager pool, we've wanted to increase the number of credit approvers who work with them, and you can see that ratio was 8 to 1 six or seven years ago, and it's now down to 6 to 1, so we have plenty of credit support to work with the bankers to meet clients and make good educated decisions.

In this last slide here, you saw previously, puts the client at the middle and the model we have is one client assigned to one banker. They work together, and the banker figures out what the client needs and brings in specialists as appropriate, a loan specialist, a deposit specialist, a wealth management specialist, a trust specialists, to help them with the specific products or services they might require.

So how do we know this model works? There are two main ways. Number one, the Net Promoter Score that we've touched on, it won't be as high as it is if we weren't doing something right. And then secondly, our clients can go with their feet. They can go bank anywhere, and they choose to bank here and refer their friends. And again, that's three quarters of the business that we do.

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So the model is simple. We empower bankers, we stay strict to our core geographies, we have a limited suite of products that we offer, and we focus 100% of our efforts on meeting the clients' needs.

So let's hear from our relationship manager team about how they execute this on a daily basis. So let's do a quick introduction. So, Mary, if you want to start, please.

Mary Deckebach - First Republic Bank - Regional MD, Los Angeles Yes, hi. I'm Mary Deckebach, I'm Regional Managing Director of the Los Angeles market. I've been at First Republic Bank for 25 years.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer Great. Bill?

Bill Dessoffy - First Republic Bank - Regional MD, New York Hi, I'm Bill Dessoffy. I'm the Regional Managing Director of New York City. I've been with the Bank since we moved into New York City, actually this month, 17 years ago.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer Great. Kellie?

Kellie Abreu - First Republic Bank - Regional MD, San Francisco I am Kellie Abreu. I'm a Regional Managing Director, one of the few here in Northern California. And I've been with the Bank for 15 years.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer Great. Scott?

Scott Dufresne - First Republic Bank - Regional MD, Boston My name is Scott Dufresne, I'm the Regional Managing Director of our Boston business, and I've been with the Bank for 23 years.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer Perfect, thanks. So, figured we should start off with the hard question for Scott and for Mary. So, our credit standards are very high, as you know, and we're more conservative than our competition, and our pricing is at par with the competition or higher in many cases. Yet we're doing a ton of new loan business, again, with high standards. How can we do record loan business, grow our loan portfolio at a mid-teens clip and keep our credit standards high? Scott, you want to take that on?

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Scott Dufresne - First Republic Bank - Regional MD, Boston Sure. I'd be happy to take this on. One thing I can assure you. We are typically not the cheapest game in town. So you have to start from that premise. So, how do we do it? It's all about people, and you've heard David talk about people. 90% of all the loans that have been made in the Bank have been made by relationship managers who are still here. I believe that's number one. And number two, 50% of our clients are doing more and more with us, year-after-year, and they're also referring us their friends, which combined is approximately 75% of our new originations. In addition, we have culture, and at the end, service wraps around our people and our culture. So, my role as a player coach in the Boston region, is I deliver the Bank with my team to our clients one at a time.

So what makes us slightly unique versus other banks, most banks the credit team and the sales function, hypothetically what we refer to as the relationship management team, usually they're completely separate. Here at First Republic, we have a strong culture of the credit team supporting the relationship managers. In fact, we take them out into the community to meet with clients on an as needs basis, and the ability to deliver the Bank separates us from our competition. It allows us to get market pricing or slightly higher than market price on a regular basis.

The other thing I would add, and I'll close on this, the fact that the consumer has a commitment letter from First Republic Bank separates them from the competition. Why is that? Our reputation precedes us, they know we will deliver on what we say we will do, we are empowered by management to deliver the Bank and that constantly brings our clients to the forefront in a purchase situation. So, I think melding all those things together is one of the lead things that separates us and gives us the ability to grow as we continue to do this.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer Thank you. Mary, how do you think about this question?

Mary Deckebach - First Republic Bank - Regional MD, Los Angeles Yes, I would agree with what Scott is saying here. I think clearly this is about service and our ability to deliver that service. The clients know when First Republic makes a commitment that we're going to stand behind it and there is a certainty of completion. We have this on a regular basis, where we'll get referred to a client, this has happened to me recently. I got referred to a client, turns out the realtors on both ends of this transaction are both realtors that I've known for many years, and the client, when he was checking me out, and our reputation again, even though he had been referred, had said, hey, I'm looking at working with First Republic Bank and both realtors said, absolutely, that's the way to go. If they tell you we will get it done, they will get it done. And that is our job, is that certainty of completion. And I think that gives us the edge without question, without having to necessarily be lower than the next guy.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer Great, thank you. Kellie, let's shift gears. We talked about the business model and that the banker, you are the quarterback of the relationship. What does that mean on a practical day-to-day basis?

Kellie Abreu - First Republic Bank - Regional MD, San Francisco Sure. I'd be happy to talk about that. So, I typically am introduced to a client, either existing client who just wants to do more or a new client that is refinancing a loan from another bank, get to know them a little bit, spend a little time in an upfront conversation, realize we want to go down a home loan path and immediately bring in the credit officer and the deposit officer. So I meet the client initially, we talk about the relationship, we are very upfront about that. This is not just a loan for us, this is a relationship that we hope to earn their trust and their business over time. So we have that first meeting, we get to work on the loans, get the loan closed, we get the bank account set up with the direct deposit and the auto debit, sometimes there's additional pricing incentives for more deposits or wealth management to the bank and we begin our process. And, in fact, a great example of this is, I just came from a meeting and was a little bit late coming in today, because we had made a home loan a few years ago. Our client is a serial entrepreneur, and he came back to us, he wants to buy an investment property, but oh wait! He's starting his fourth company

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©2016 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. NOVEMBER 01, 2016 / 8:00PM, FRC - First Republic Bank Investor Day - Day 1 and needs financial planning and he needs a wealth advisor. And he needs our advice on structuring his life, his LLCs, his insurance and all these things that he has a need. So, it's great. We introduced -- I think one of my roles is to choose the best partner in the Bank for that particular product that our client needs. So I'm able to choose partners who may not be in this area, so maybe in New York, who may have a special expertise, who might be of a certain background in terms of experience and then marry them with the client. So it's really a great personalized fit. And I get to drive that as the quarterback of the team and then remain involved as we grow the business and allow my partners to really deliver their products and services.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer That's great. So the example that Kellie just gave happens a lot throughout the organization. We start with usually a home loan, one transaction, and it grows from there.

Let's shift gears a little bit. Again, Bill and Kellie, think about your time, we all have 24 hours in a day, you're managing a big region, you are doing your own book of business. How do you split your time? How do you make it all work and still have time for family and personal things like that?

Bill Dessoffy - First Republic Bank - Regional MD, New York You want me to lead off? Kell, I'll lead off. Hi. It's Bill in New York. It's a good question, David. Managing the book, managing our employees and working with the clients and managing our time as managers. When I first started in the region, I spent much more time as a manager building out the space, hiring people. But more recently, with a more mature business, I spend a lot of time with clients and helping relationship managers get deals done. It might be a good example for today. I came in, I had my morning coffee, had a 9 o'clock interview, that was with (inaudible) candidate. That went very well. There was my team on ELC about a particular deal, and then worked on three deals of my own, very substantial, very large transactions, real estate secured, well collateralized deals, but for big clients. I tend to focus more on the bigger clients that are in the region and work with them. I [was in this] meeting, going over some floor plans for our potential expansion on the seventh floor, our expansion for the seventh floor, how we're going to work with that. Met with an RM, who has worked with the developer to do an inventory loan of units -- condo units in the upper west side of Manhattan, those happen to be CRA type deals. We talked to the developer about making an in-loan program to reach those borrowers for that condominium project. And spent the rest of the day, working with the region, worked with RMs that may need help on pricing. There's never 100% client on my own book. We're a 100% percent client-focused as a group, but we juggle, but we make it work and we have put the client first. I put the team first and try and help them get their deals done and help them negotiate, or let them negotiate and give them advice on how to do it the next time. But it's a combination of working my book, working the Bank's clients and working with the team to help continue to grow the business.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer Great. Thanks, Bill. Kellie, anything you would add to that.

Kellie Abreu - First Republic Bank - Regional MD, San Francisco Sure. A couple of things. I think, we touched a little bit about it before, but I don't think we cannot accentuate the importance of the fact that we hire and have seasoned bankers who have been with us for a very long time. So these are people who are entrepreneurial and love what they do and are self-motivated and get up every day and have a plan. So there's not a lot of micro managing involved. And we also have a team leader structure, where that each region has several team leaders that have two or three relationship managers to work with them. So that's kind of where the nitty-gritty is done on price exceptions, their structure, our assistance with ELC and then we meet as a team to manage the team needs, the clients' needs, communicate all the products and services and the changes in the Company as we go along. So it's a very collaborative, it's very flat. Our relationship managers love it. They are happy, they stay here and they do great jobs and work very hard for our clients every day.

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David Lichtman - First Republic Bank - EVP & Chief Credit Officer That' great.

Scott Dufresne - First Republic Bank - Regional MD, Boston David, if I could just add to that, just briefly. If you look at our relationship management team and if you think of the Boston region, it's similar to most of the other regions. Relationship managers typically join us and they don't leave, okay. They are happy doing what they are doing. They are supported with the team work around them to grow their business. As I look back when we started Boston, it was with four people in 2006. Today, we have 25 client facing folks on a relationship manager on the Business Banking side and we've only had one relationship manager leave us, and that was really at our choice. And that is very similar throughout the entire organization.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer That's right. Thank you. So, Mary, you've been here 25 years. You've done a ton of business. Where do you get your clients from?

Mary Deckebach - First Republic Bank - Regional MD, Los Angeles Hi everyone. I source business through common centers of influence, which would be, in my case, real estate agents, CPAs, attorneys and really quite frequently more and more existing clients. So our relationship model provides that the client thinks of us as one-stop shopping. And that allows them to call us as their lives continue to grow and get more complicated and their financial needs expand. I'll give you a brief -- very little brief story, but quite a nice success story that gives you an idea of the impact of how our organization has allowed this to happen.

I was marketing, when I first started the business, real estate agents, because real estate agents are in the middle of when somebody is buying a home or selling a home, asking them, please give me an opportunity to do business with some of your clients. I got a call on a Saturday afternoon and a real estate agent says, listen, I just went into escrow, I'd like it if you would call -- I'm going to call them Mr. and Mrs. Smith for the sake of our conversation. Please call Mr. and Mrs. Smith, they're buying a house, but they're going to talk to other lenders. And I said, terrific. I called them that day, we spoke, and they sounded very promising. I met with them. On Monday they said, look, we can bring in all of our financials, because we have a policy of meeting our prospects and our clients, so we know who we're going to be lending money to. They came in on a Monday. I met with them and I thought this is pretty terrific, they're buying a house for about $1.5 million, we can make a loan to them and make a safe loan to them. That was about 20 years ago. What happened since then is as their business continued to grow and expand, I would get called, and the calls would always start like, hi, Mary, this is John Smith, again not his name, but you get the point. This is John Smith and I was just wondering, does First Republic do, blah, blah, blah? And sure enough, you can guess, we of course did. So every time John would call me, I would be able to say, sure, I either would do it directly or I could bring in one of my business partners that I work with here in Century City or elsewhere if it was the right situation. To fast forward, we have done multiple home loans for Mr. and Mrs. Smith. We've done construction for them, we've done commercial real estate as their business expanded out of their core source of income, we've done -- I bank the business, I bank the wife's business. We've been introduced to their CPA, we bank the CPA, we bank the CPA's firm. We bank many of the clients of the CPA, we bank the attorney and it has continued to snowball. We do investment management for them, we do brokerage, we do foreign exchange. So, one simple home loan, taking a call on a Saturday afternoon, making that response and making their deal a priority has become a full blown oak tree. One acorn becomes a full blown oak tree that is exactly how we source business, it is a deal at a time and the nucleus for me is always the home loan.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer Mary, it's awesome. Congrats to you. And that story is pretty typical around the institution. You start with one relationship, do a good job and that would expand. What Mary left out is that clients, or the piece of their business, a few months ago put in about $150 million of cash into the Bank.

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I think we're a little tight on time, so let's get to at our last question that we have been asked for many, many years. I remember getting asked this question. When we became a billion dollars, how do you scale? And now we're $65 billion or $70 billion. So how do we scale this organization and keep the culture? Scott, how would you answer that?

Scott Dufresne - First Republic Bank - Regional MD, Boston Sure, I'd be happy to take this on. So as many of you may know, I moved back to Boston in 2005 when we opened our Boston business in 2006 and we started that with someone who was there slightly before I got there. And it was four people and today all in our Boston business has a little over 200 people, all in. I believe that the scaling and the culture is the responsibility of the senior management team at the Bank and the local people in our individual regions. And I know my regional managing directors feel the same way. So we meet on a weekly basis on Monday, not a great period of time, but we talk about what we have going on. If you go back to what Jason Bender talked about in the Capgemini reports, as much as we've had great growth in each of our markets, our markets are strong and growing and there's a great deal of opportunity for us.

So we deal with clients one at a time. We always think of it that way, one of the time, and we just grow from referrals and we stick to the basics with our existing clients and I think that's how we continue to do it.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer Great. Billy, I know you had some other thoughts on that as well.

Bill Dessoffy - First Republic Bank - Regional MD, New York You know, Scott used the player coach before and the way the culture grows is when people watch us as player coaches to do our business. The team in front of you right now, I've worked with now for 17 years. Last week I referred Mary's team to deal on a construction loan for one of my clients that was going to build out in California. The deal we didn't do, but the RMs -- the fellow got there in a hurry, we made a decision and told our clients. Scott and I were on the phone this morning, talking about deposit product growth in our regions, because they are so closely correlated, how we could do things. Kellie and I worked together here in New York for a few years and we were together last week talking about some of our not-for-profit clients here. We communicate at the senior level about our culture, the people see that, they feel that and it trickles on them, back to the team leads and all that, everybody here leads by example. And it's not something you talk about, it's something you observe. The best example of that was, we had a portfolio manager interview with us three years ago. Somebody I knew in my career earlier, in my former bank. On his last round of interviews, I was scheduled for a 11:30 interview with this candidate and at 10:00 o'clock in good morning I saw him waiting on the lobby and I asked him if everything was good. He said, yes, I was here for interviews. And I said, good, I'll see you later. And an hour and a half later, I sat with [Bill Sling] and I said, well, how are your other interviews? He said, well, I only have one, that was a half hour with Glenn Degenaars. So why are you here at 10 o'clock? And he said, I came here because I hear so much about the culture. I just wanted to observe. I got a couple if coffee when I walked in the door, I sat down on the couch, I read a newspaper, I watched your client interaction, I watched your employee interaction, and I've got to tell you, no one knew who I was, but at least five people came up to me and asked me if everything was alright. He said I saw the dialog between everybody that worked there and I saw the client experience as they walked through the door. He said this culture, and that's observation, that's not talking. Those are things he saw. Every one of us do that on a regular basis with our teams. We do it in front of -- to our clients, for our clients, they see that, and that's how the culture spreads. We always talk about one hire at a time, one person at a time, one client at a time that really resonates. And every client feels the experience. The employees that join us feel the experience and that's how we preserve the culture. As Scott said, it gets harder as you build Boston to 200. We have 450 people here in New York and I'll tell you the culture here feels like it does in Century City and in San Francisco. One day at a time, one person at a time, one leader at a time, all working together.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer Great, thank you. I think that concludes the session here. I think we have a Q&A coming up. Thank you.

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Unidentified Company Representative I'm going to ask that Gaye, Jason and Mike come back up here. So we'd like to open sometime before we go to break for some Q&A around the topics that we've just covered here, around service, our markets, the credit discussion, how we grow and so I'd like to open it up and I'll help direct traffic as best I can. Ladies with the mikes, we'll start back here.

Unidentified Audience Member (technical difficulty) can you talk a little bit about what your average relationship manager makes and what he can make on commissions and what is like the percentage of the commissions relative to his overall salary?

Unidentified Company Representative Maybe Mike you want to start with some of that and --

Mike Selfridge - First Republic Bank - Senior EVP & Chief Banking Officer I'll be candid with you, we're not going to disclose that, and I would characterize compensation the way I described it in my presentation. It's essentially -- it's a meritocracy in many ways. So what a relationship manager wants to do in terms of good new business, they can do and so it's going to be a range.

Gaye Erkan - First Republic Bank - EVP, CIO and Chief Deposit Officer If I may add real quick, the most important point is -- that I just want to get it out is that most of -- and please chime in, if you disagree -- most of the compensation comes from a form of trailer, almost over half comes from a trailer, multi-year deferred compensation that is really focused on retention of existing client relationships and you can only do that if the client is happy, that ties into the Net Promoter Score and client satisfaction.

Unidentified Company Representative Maybe one of the RMDs that are here would like to talk briefly about their view of this.

Kellie Abreu - First Republic Bank - Regional MD, San Francisco Yes. So the way that we think of it is that our relationship managers can really earn as much as they want to. So we don't imply -- we don't put in caps, we don't put in restrictions. They are allowed to do their business every day and do the right thing for the client every day and really that leads to compensation. And so, we have relationship managers who focus on financial services, or private equity, or on realtors. And so, it's very entrepreneurial and that drives how much money we can earn based on trailers for deposits, wealth management and things that we do along the way.

Jason Bender - First Republic Bank - EVP & COO Can I just add a bit to that? You heard Mike Selfridge say earlier that the relationship managers have a clawback on our credit deals. So if something goes sideways in the first three years, it doesn't happen often, based upon our ratios, as you well know, but it is out there that we would lose in theory four to six times of what we were paid on that individual transaction and that is real. So our relationship managers are credit trained and it's not a matter of "just doing volume." This is something we're going to live with from cradle to grave. And that's been in the history of the Bank

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Mary Deckebach - First Republic Bank - Regional MD, Los Angeles Great. Thanks everybody. Let's go here to the front.

Unidentified Audience Member So, David, I know you're cautious on credit, the real estate most of this year. We've seen a big step up in the originations where you're running sub $5 billion, in the last two quarters were $6.5 billion. When you look at the data, and this could be for Mike Selfridge too, what's driving this step up in business and is it sustainable? Are there just more new clients coming to the Bank? That's my first question.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer So I think it's a few things. We've been more cautious about where we are in the cycle for probably about the past 18 months or so. We think there's plenty of good business to do in our markets. A lot of it is refinance driven, little bit more than half of our home loan business is refinance driven. As rates have come down, we picked up a lot of clients that way, either existing clients refinancing or clients coming from other institutions. The purchase transaction volume is also quite strong. So we're doing a lot of purchase money loans as well. And then the last thing I'd point out is that as we know our clients better, the time spent per client goes down, because you know who John Smith is and you've seen them perform over time. And so the amount of energy needed on John Smith reduces, which means it frees up people's time to do more business. And is it sustainable? I think it's sustainable. Some of it will be rate driven. If rates go up, then the refinance business slows down, that will clearly influence loan originations as well.

Unidentified Audience Member And then secondly, what do you -- and I'd like to hear from management and maybe from few of the RMs -- the service model is great, we know that. What's the biggest threat that's not obvious to us as outsiders there, to really challenge the service model?

Jason Bender - First Republic Bank - EVP & COO I'll take a stab at that, and maybe better characterize this as what I think about a lot, and what we all think about a lot. And if service is that differentiator, is that Net Promoter Score the differentiator, you need to maintain that as you go forward and clearly it just gets -- you get bigger and you're doing more. And what makes us special is making sure that the service and the ability to execute follows with the growth of the organization. I don't know if anybody wants to -- Kellie, maybe --

Mary Deckebach - First Republic Bank - Regional MD, Los Angeles I think I'd like to step in here. I think that this isn't a threat. I think this is actually a very positive thing. You've been talking to a lot of the folks that have been here for a while and we've enjoyed some success clearly, but we've had many people that we've had an opportunity to mentor, and they see our work efforts and they see the way we think and how we talk to clients and how we do things and why this credit decision is what we like and what we believe in and that's what we instill with them. And it's really multi-generational at this point. We continue to have them, they go on appointments with us, they sit with executive loan committee with us, which happens all the time on a regular basis. I think it's maybe contrary to what the question is. I think it's actually quite promising and quite good, because we're teaching our own.

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Mike Selfridge - First Republic Bank - Senior EVP & Chief Banking Officer Thank you, Mary. I'm going to run over here to [Vincent].

Unidentified Audience Member Thanks for taking the question. So I think the student product and the professional loan product is kind of an interesting -- I guess, in my case study, I understand it's still very small. But if you take a look back to 1985, this would have been basically a reboot of your baby boomer strategy, dealing with those individuals when they were kind of in their 30s to 40s. And so, if we fast forward to today, you have this high net worth core customer that's very powerful and you're planning some seeds with the millennials and the young professionals. So my question is, how exactly is your kind of credit and underwriting view between these two cohorts different, because even if you're looking at a young professional that has a lot of human capital, the liquidity coverage is not going to be as good, and the LTVs aren't going to be as high and you're going to have a lot more beta risk associated with that individual. So, can you just speak to how you're kind of investing in this new area of clients and how it compares to the core? Thank you.

Mike Selfridge - First Republic Bank - Senior EVP & Chief Banking Officer Great. We have a little bit of information we want to give you on that in the morning, if that will be okay to sort of pend till then. I don't think I can now. We have someone who is going to speak, who is pretty passionate about it. Alright, we will go over here.

Unidentified Audience Member Yes, on the charts you showed about the market. So what's the definition of high net worth that was shown in some of the markets of New York et cetera, and what's your median high net worth now? How has it changed relative to five years ago? Is it the case that as the median high net worth clients has risen perhaps in your Bank, some of the profitability in general, in aggregate, at the Bank should be greater, because these clients are utilizing more of your services?

Jason Bender - First Republic Bank - EVP & COO So with regards to the high net worth households, the definition is the same as what's used by Capgemini in their World Wealth Report. So that's households that have a million dollars or more in investable assets. So it's not a net worth number, it's an illiquid asset number basically. So, primary residents is not included, for instance.

With regards to your other question, I think the key thing is not so much whether the median is gone up over time. I think it's more how do we grow with our existing clients. And so that gets a little bit to what Gaye and Mike and others were talking about earlier. We tend to begin banking the clients and then we grow with them over time. So the median of each individual client tends to go over the lifespan that they are with First Republic. And obviously as the existing client base gets bigger, then that piece will get bigger as well.

Gaye Erkan - First Republic Bank - EVP, CIO and Chief Deposit Officer And maybe just -- this is roughly speaking, less than half of our households are high net worth households. So just going back to the growth drivers, and yes, 50% comes from existing clients that we already have, if we keep them happy that we believe they will continue. 25% from referrals. The only other 25% is brand new to the Bank. And when you think about it, whether it's the Capgemini study how it defines, this is not our definition, it's a third party that defines it that way. We don't have any artificial boundaries for our clients. Or the question that was just asked before, the all in one in professional loan program clients, those are all just additional opportunities, in addition to serving our client base.

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Mike Selfridge - First Republic Bank - Senior EVP & Chief Banking Officer Kellie would you like to add something?

Kellie Abreu - First Republic Bank - Regional MD, San Francisco Yes. I just want to add something and address these questions. So I think our biggest opportunity is when our competitors set these boundaries for different types of services, when they categorize their clients by size, so we don't do that. We treat every client the same, exactly the same when they walk in the door. And our competition is really delivering different levels of service to different types of clients, based on net worth. So most of the time, the first thing I have a conversation with a potential client about is they ask me how much do I have to do with the Bank to become a client of the Bank? And the answer is, this is a relationship we build over time, there is no dollar amount. And that's really, really important. And I do think it's something that we all really need to focus on and really understand this is not just a high net worth private bank.

Jim Herbert - First Republic Bank - Chairman & CEO (Founding) Mike, can I just add to that for one second. That answer that you just got from Kellie and others and going back to the growth of clients, impacts on something that is seemingly self-evident, but really important. We do not think about client relationships in one year or five year or 10 year increments. We think about them as a lifetime relationship. And so, if you think about that and what a client is worth over their lifetime and look at the longevity of the people here, 20 years, 15 years, 25 years, that's a very different way of thinking about clients. In other organizations that we compete against, some of their very best bankers have been there for a long time, but they have not been in the same job. So from the client's point of view, those bankers, they went away. Now, the banker may be promoted, but the client got demoted, because they got a new banker. They have to tell their story all over again. It's a very different model and it comes back to one of the most important things I think in both investing and in building an enterprise, what is your timeframe, what timeframe are you willing to commit your resources to and we commit our resources to decades, not to quarters and not to years, to decades. We build the relationship that way and it really matters.

Mike Selfridge - First Republic Bank - Senior EVP & Chief Banking Officer Thanks, Jim. [Jeff]?

Unidentified Audience Member In the slide deck there are lots of big CAGRs, lots of big growth numbers, but one figure that stood out as being the opposite was average consumer loan balances, down from $1.14 billion in 2008 to $933,000 in 2016. I guess, could you talk more about what's going on there, what's the strategic thought process behind it?

Mike Selfridge - First Republic Bank - Senior EVP & Chief Banking Officer So I think this is a slide where we show the growth in checking and AUMs from 2008 to now. And then the change in the corresponding loan balance for the same period. I'm not -- don't have them in my head.

Unidentified Company Representative Those are also points that stood out in the [checklist].

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Gaye Erkan - First Republic Bank - EVP, CIO and Chief Deposit Officer Let me just -- to clarify, the average balance that you talked about is a snapshot measure, whereas the slides that we walk through in terms of growing households over time, as you mentioned, it's a long-term view how are relationships change when you follow a cohort of clients. So client comes in, they had a loan origination in 2008, and over time they pay down the loan, sometimes faster than the industry CPR's paydown rates. And at the same time, they increase their liquidity. So you start with a lending client, who has some amount of deposit, some amount of wealth management, the loan pays down, the deposits grow, if we do a good job and if we keep them happy and wealth management grows over time as well. So that's a long-term view on the relationship. As opposed to the numbers you quoted, I believe I'm more snapshot numbers, that be it.

Unidentified Audience Member So maybe to put it in a different way. I guess the question would be, you talked a lot about how you're not just a high network bank. Are you toggling the client base away from high net worth as you focus more on the next generation and if so, how fast are you making that switch?

Jason Bender - First Republic Bank - EVP & COO So, I'd say it this way a little bit. As Kellie mentioned, we're focused on inner markets, urban professionals. Gaye mentioned less than half of those meet that definition of the sellers by Capgemini. And so, I don't think there is a -- we're focused on sort of the individual client relationship. And if they are in that category, okay. But if they're not and they have needs and they want to experience our service, so I don't think we're going one way or another, it's sort of a service of the urban professional whose heard about us typically from a friend and then who does more of this over time.

Kellie Abreu - First Republic Bank - Regional MD, San Francisco Typically we start with the corporate relationships. So we get introduced with the senior manager and do their home loan. In fact, this is a real case. We've done their home loan and had a great experience and then they introduce us to other senior managers and they have a great experience. And then we say we really want to meet and bank your junior people. Well, why would you want to do that? Well, because if you hired them and you think that they are the best, we really want to know them, because they'll grow up and they will go into your position over time. So that's really what takes us to that relationship in many cases.

David Lichtman - First Republic Bank - EVP & Chief Credit Officer If I could add to that, I mean it gets back a bit to what Jim was saying. I think it's important to understand that we're not describing a model that's toggling away from anything or that's changing dramatically. We've always banked a component of client that's less than a $1 million in investable assets. The key thing is that we're growing all along the spectrum. We've always been interested in banking high potential individuals, businesses and non-profits. So when we talk about the portion of the Bank that's not high net worth households, remember that there is a component of that that is less than $1 million, those are individual households. There's a component of that that's non-profits, a component that's businesses. And that's been true for a long time.

Mike Selfridge - First Republic Bank - Senior EVP & Chief Banking Officer All right, so the red light is flashing here, but we'll take one more, if we have it. [Mr. Zerby].

Unidentified Audience Member Thank you. So if we kind of take Ken Rosen's comments about the economy rate, so San Francisco is slowing a little bit, not much, still growing. New York, probably a little bit weaker, like we are emptying it from the commercial real estate side, we're hearing about tipping rents. The outlook

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©2016 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. NOVEMBER 01, 2016 / 8:00PM, FRC - First Republic Bank Investor Day - Day 1 on CRE, the commercial side is probably a little weaker than it has been in the past. And then given, over here how resi mortgage has grown over time, because of rates over the last quarter or two and that's great. When you think about the outlook for CRE, commercial in general and given where rates are, is there sort of an underlying bias of First Republic to say, not for today, maybe this quarter, next quarter, let's kind of focus a little more on the resi side. Let's de-emphasize or pull back on the commitments on the commercial side that we could actually see a little bit of a mix shift as you're pulling away from CRE, not pulling away, but you know what I mean, just de-emphasizing growth?

David Lichtman - First Republic Bank - EVP & Chief Credit Officer Let me answer that, Ken. So we always want to be in the market for our clients. We can't say we're out of the market on CRE this quarter or the next two quarters and then come back in, in six months. Or we can adjust, is how aggressive or conservative are we when making those loans. And as you can see in that loan to value chart, we became more conservative over the past couple of years to the point you're raising that prices are very high and rents are very high. And so, we've become a little bit more cautious. And what we say to the people on the front line is go find all the good safe business you can do. And if its x dollars, great, if its 2x even better, 3 x even better. What we don't want to do is stretch on our standards just to do business and we're willing to lose deals and we do these deals every day by holding our standards.

Unidentified Audience Member And has that conservatism increased over the last couple of quarters, or it has been very steady over the last couple of years?

David Lichtman - First Republic Bank - EVP & Chief Credit Officer It's increased a tad bit over the past, call it, year or so, but you can see our origination volumes have been quite strong for many years.

Mike Selfridge - First Republic Bank - Senior EVP & Chief Banking Officer Great, thank you. I am going to turn it back to Shannon here.

Shannon Houston - First Republic Bank - VP, Director of IR Alright great, thank you. Thank you all very much. We will take a break now until 3.45. Please help yourself to snacks, coffee. Please visit our kiosks. Also, if you opted for the expedited check-in, and if you could pass by the First Republic info desk just outside the doors here. Thank you. We will see you at 3.45.

Thank you. Thank you all again very much for joining us this afternoon. We'll close out today, before going to cocktails and dinner, with two sessions on operational capabilities and digital initiatives, as well as culture and talent.

And with that, I'll turn it over to a video, please.

(Video playing)

Jason Bender - First Republic Bank - EVP & COO Hello again. Again, my name is Jason Bender. I'm the Bank's Chief Operating Officer. For those of you that I haven't met, I joined the Bank 17 years ago. So been through a few phases of development with the Bank. But we're delighted to be able to spend the afternoon with you talking about couple of key topics, but in this particular session, we're going to go through some of the Bank's operational capabilities, as well as our key technology initiatives. And so, joining me up here on stage, we've got Dale Smith, who is our Chief Information Officer; Scott Finder, who is the Head of our

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Digital Channels; Nancy Segreto, who is the Head of Deposits or rather Loan Operations, Lending Services and Gayatri Brar, who is a Relationship Manager in our Eagle Lending Group. And we'll be going through each of their areas and commenting briefly on some of the things that are going on in different parts of the Bank.

What we wanted do, though, maybe to start with just an overview of our technology strategy, if you want to call it that. And folks ask us, where are you tending to invest in technology? Being headquartered in San Francisco, we get that question a lot. How are you responding to things like the FinTech challenge? How do you continue to be an innovative company even as you grow? And so really this slide and this strategy kind of gets at the core of that. And really what I'd say is, we break down our initiatives and our thinking along three different dimensions. The top dimension, we refer to, just internally, as kind of the heart of our technology strategy. This has to do with those investments in those innovations taking place on the frontline in client facing areas. So, for instance, we've invested heavily in next generation consumer online banking platform. Scott will talk more about that in a minute. That is clearly a client facing initiative and that really represents a way that First Republic presents itself, its brand and its client service experience to its customers through a technology platform. Other areas, we're enhancing our mobile offering, we are also taking a look at introducing some additional services online through our Wealth Management Group. If you haven't had a chance to look at the kiosks, we've got four of them, they really do tie into what you're about to hear on the stage today. And so, I'd suggest or urge you rather to take a look at those when we are done, because I think there'll be some exciting insights as to where we're going next with some of these things. But Eagle Invest, the kiosk over here is an example of a client facing initiative, where we've invested heavily in, a new way of offering investment services online and I know there's more on that coming up.

The second dimension here, the mind of the technology strategy, is really leveraging data and analytics, in order to make better decisions and to be more proactive about offering client service. And so, this would be things like Eagle Intelligence, which again you'll hear more about tomorrow and that's an analytics platform that we've got in the Bank to really leverage our internal data, to push things forward. It also involves things like using our data for real-time fraud monitoring. I believe that one of our other kiosks there in the back corner takes a look at that. So in our payment systems, we have the ability to take a look real time and monitor traffic and make on-spot decisions about potential activities on behalf of clients. So that's the mind of the technology strategy.

And then at the bottom here, we've got the muscles. These are the enabling technologies, the platforms, if you will, that make everything else possible. Without that kind of foundational investment it's very hard to do the other stuff. And so, these are things like a new loan origination system. This is thinking about payments hub technology. This is our very core banking systems that we have. And so, altogether, these three things really of a piece create a technology strategy and give us priorities as we're thinking about where to spend the next dollar when it comes to initiatives and investment.

So with that why don't we move to our panelists here. And Dale, maybe we'll start with you. Perhaps you can talk to us a little bit about what we're doing in the area of just overall technology infrastructure and our roadmap going forward.

Dale Smith - First Republic Bank - EVP & CIO Great, thank you, Jason. To continue the discussion, I'd like to describe a little bit about how we think about investments in technology and innovation. We have a technology and operations roadmap and within that roadmap, we have a project portfolio. The projects in this portfolio are prioritized in the following categories; client service, enabling our employees, strengthening controls and building out stability. We'll have certain examples of these a little later in describing some of the projects in each one of these categories.

But the first one is serving our clients. We consistently look at how do we enhance our customer experiences. You've heard this afternoon that clients are our main focus. And so, how do we tailor our products and services and give them what they want. We want to listen to our clients. We also want to look at what's going on in the market, to see if those are offerings we want to give them also. We also want to build a connected digital experience for our clients.

Second is enabling our employees. It ties back to the client again, how do we build tools that enable our salespeople and other employees to service our clients better? Are we making them more productive, are we making them more efficient, are we giving them good data and analytics to do their job?

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Then we move on to, we make investments in technology to strengthen our control environment and control of risk and compliance. And then, because we want to ensure that -- sorry, I got disturbed by (inaudible) strengthen our controls and ensure that we are complying with our regulatory and compliance rules and regulations and guidelines. And finally, building stability, ensuring that our infrastructure is stable, consistent and secure. Jason will talk a little bit about security and some unique offerings we give our clients, because not only do we want to make the Bank secure, but the environments of our clients secure as well. Jason?

Jason Bender - First Republic Bank - EVP & COO Thank you, Dale. Scott, why don't we turn to you now and let's hear a little bit more about the next generation consumer online banking platform. This has been a big initiative for the Bank over the last 12 to 18 months, as we get ready for rollout. And Scott, maybe you can give us a peek at what's to come here.

Scott Finder - First Republic Bank - SVP, Head of Digital Channels Sure. So this project is really a good example of the First Republic client driven approach. This has been a multi-stage iterative process, where we've worked very closely with bankers and clients over a number of months to understand what clients really want from digital solutions and ensure that we're meeting that mark by iterating and validating that we've gotten it right.

We've taken a buy and build approach. So, we're using existing and new technologies that are both internal, as well as from outside partners. To just touch on a few areas, what the front client-facing capabilities are, one, improved payments and money movement. So, things like moving money between checking accounts and brokerage accounts is now a streamlined process across online and mobile capabilities and clients get to know exactly what the status of their transactions are. So we listened to clients and really understood how do they expect it to work and what are the things they worry about and built into it.

The second thing is that clients now have access to a broader view of their complete financial picture, so they can see what's happening in one place with checking accounts, brokerage accounts, other types of accounts, balances, account details without having to go to multiple websites or mobile apps to find that information.

Third and importantly, we've invested a lot of time and effort to get the user experience right. So we've really co-developed this with clients and bankers and then validated later that the designs work, the experience works and that it's modern and easy to use, our digital solutions.

And lastly, I would point out that as excited as we are about the new capabilities that clients are about to receive, we're also equally excited about the underlying platform, because that's what allows us to have the flexibility to continue to build, to iterate and evolve solutions tailored to what clients really want on an ongoing basis. We have a degree of flexibility now that we've never had before.

Our approach to rollout, not unlike most things at First Republic, is going to be very methodical, slow and steady. So we're spending a lot of time on communication and education, making sure that our front-line back office, and importantly, our clients are educated on the features, the capabilities and how this will all work. And then what we'll do is roll this out over several months in small groups of clients to make sure the clients still get that personal service that they've become accustomed to.

One thing I want to point out is, this is a front end client facing system. This is about online and mobile banking. This is not a back-end core accounting type system change.

I would encourage you lastly to stop by the kiosk in the back and take a look at these capabilities to experience them yourself.

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Jason Bender - First Republic Bank - EVP & COO Thanks, Scott. This last point, I think it's an important one. With most types of conversions, we tend to take a phased-in approach, where we do it in waves and that's really to derisk that conversion. We will be doing the same with next gen and so you'll be able to hear more about that in early 2017 when we launch that process, but we won't be doing a one and done type of conversion. This will take place over time, which gives us a chance to react to things that we learn, as we go through that migration process.

So with that, Nancy, maybe we can turn to you now. As we talked about at the outset here, an important piece of what we're doing is investing in underlying systems that do allow us more flexibility and the chance to do more throughout the Bank. And the area of loan operations is obviously near and dear to our hearts. We've been a mortgage lender for many years, it's 60% of our loan book and so decisions we make about the underlying loan origination technology tend to be key. And so, Nancy, I know there's a lot going on in this space. Maybe you can give a few words on this.

Nancy Segreto - First Republic Bank - SVP, Head of Lending Services Sure, thanks Jason. I think one of the areas that we're very excited about lending this year is we are putting in a new loan origination system for our mortgage business. We do expect this new system to give our clients an enhanced experienced and a more efficient and effective workflow process for our colleagues. More specifically, we'll be able to collect data from third parties and integrate it with our system. We will have a much more intuitive workflow for our colleagues. Our clients will be able to submit their data to a single and secure channel. That will enable our partners, our relationship managers and our colleagues to have a real-time view of the applicant's progress, as well as the applicant themselves. And we also will be going to a more seamless and virtual signature collection wherever feasible within the mortgage process.

For our colleagues, very importantly is, we will be integrating with Bank systems, which will reduce the number of touch points and data re-entry, which we have quite a bit of right now. And so that will greatly improve our efficiency overall.

And last but not least, we expect our new process to be paperless. So for those of you who have a mortgage and may have signed all those long legal documents, we hope to have those eliminated. We're very excited about the process which we started and we will be putting in over the next year.

Jason Bender - First Republic Bank - EVP & COO A lot of the improvements that you see just in the mortgage industry in general, whether its e-signatures or e-disclosures or paperless documentation, all of that really has to be enabled by an underlying origination system. And so, that's really fundamental to our efforts there, is to allow us to be able to pursue those types of technologies. And of course, the hope would be to eventually reduce the amount of time it takes to close and fund a loan, as well as to make that a more convenient experience for the client.

At this point now, let's turn for a second to -- I realize I'm a little behind in my slides here. Okay. So this is done, let's talk for a minute about Eagle Gold. So this question came up earlier. In this particular area, we're talking about the All-in-One product, which is the product that we used to refinance student loans, among other things. And with us, we've got Gayatri Brar, who is one of our relationship managers there. Importantly, the All-in-One loan process has been an area where we've been able to pilot a lot of these new initiatives and so we thought this is a good example of where we've been able to innovate a bit on the edge. And so, Gayatri, why don't you take us through sort of the process of going through the loan or what the client experiences like in the All-in-One side?

Gayatri Brar - First Republic Bank - Relationship Manager-Eagle Lending Great, thank you, Jason. Hi, everyone. Gayatri Brar, Relationship Manager, Eagle Lending Team. Excited to be here. I'd like to talk about the All-in-One -- the Eagle Gold All-in-One loan program. We put this loan program in place to help clients refinance their existing student loans into one loan with First Republic Bank with a rate and term options that make financial sense for them.

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In particular, for this program, we've leveraged technology by developing an end-to-end workflow process that's very seamless for our clients, as well as very efficient for our team members. And I actually would like to walk you through the workflow process by using client experience as an example. Very recently, a prospective client was doing some research online, looking for options to refinance his existing student loan debt and when he came across our online estimator.

The online estimator is a very nifty tool that allows folks to run different loan scenarios that project what their monthly estimated loan payments would be. So the claim concluded that this would be of interest to him and reached out to me via my contact information on the online estimator. During our call, I was able to send him a link to our loan application, which he completed online, digitally signed it and uploaded the supporting financials into our secured portal. Within two hours of our call, I had a complete application package, uploaded directly to our workflow system, called Aviate.

Now the beauty of Aviate is that it allows our sales, processing credit and loan funding teams to have one main data point that -- one main system where we can access all the client's information, thus enabling us to review, process, approve and fund the loan.

This end-to-end workflow process, what it's really done is, it has created efficiencies, but it's allowed for us to really spend more time with our clients in addressing their other banking needs and just spending more time with them and moving away from ton of paper.

Jason Bender - First Republic Bank - EVP & COO Thank you, Gayatri. This has been an entrepreneurial process for us. I mean, literally with Eagle and All-in-One, we have set up shop a bit separately from the rest of the Bank in order to try to pilot some of these different initiatives and see how they can work in practice. Equal to in importance to what the client sees on the front end, though, is what's happening behind the scenes. And so, Nancy, maybe we can turn back to you and you can describe a little bit of what's happened on the back end of Eagle that is also interesting.

Nancy Segreto - First Republic Bank - SVP, Head of Lending Services So what we did with All-in-One, recognizing that this would be a product that was going to ramp up very quickly, we basically used the workflow tool that we already had in the Bank and we co-designed with the Eagle team. And I think that part is really important, because if we weren't working closely with them and designing it with them, I don't think we would have had the success that we did in being able to build this entire straight-through process in about eight months.

And so, in addition to the benefits that Gayatri mentioned, on the back-end, we have reduced the hand-offs that we had, we've reduced the data entry points and we've basically -- I think it's about 80% to 90% of the time it took to process and close and fund a loan, has been reduced by about 90%, by using a straight-through workflow tool.

Jason Bender - First Republic Bank - EVP & COO One of the questions that was posed earlier, (inaudible) what are some of the challenges we face as we grow as an organization? And I think most people that know First Republic would, I think, say that one of the things we strive for as we grow is to make sure that we can maintain the level of client service. That high touch aspect to everything that we do, conceivably could be more challenging as an institution gets larger. Initiatives like this, though, is what allows us to free up more time for our bankers and the more time our bankers have, the more time they have to spend with our clients.

Contrast that with a model where it's all about driving down cost and reducing headcount, that's a little less so at a place like First Republic, where we're growing each year. And so, in this case, those efficiencies come in the form of us being able to continue to offer the type of client service that we do by spending more time with the client. So it's important in the aspect of some of the operational efficiency initiatives that we've got.

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We'll close out here with a slide on a topic that I know is on a lot of folks mind, which is cyber security and what do we do about it, do we think seriously about it? Of course, we do. Being in the private banking space, protecting our clients' reputation, their information, their assets is obviously of the upmost importance. We do a number of things in this area. And again, we've got a kiosk that focuses on this in the corner over there. Our Chief Information Security Officer, Mark Van Divner is with us to underscore the importance. So feel free to ask Mark questions at the break, if you like.

But in the area of cyber security, a few things that we do. Number one, we established a Director level Board Committee, in order to provide oversight and governance directly for this initiative specifically. We consider that best practice and make sure that our Board is very, very focused on everything that we're doing in the area of cyber security.

In addition to that, a key aspect of cyber security is really acknowledging the fact that sometimes the vulnerability actually lies outside of the Bank and that can oftentimes be with the client. Sometimes the client is the weakest point in the whole chain of the financial transaction. And so, one of the things that First Republic has always done is really reach out, educate the client, make sure that we're there as a resource for our client to try to protect them right there at the very source. So as an example of that, Mark puts on in all of our different markets, at different points throughout the year, cyber security events, and we open that up to any of our clients in the market that want to come to that. We frequently have the FBI and the Secret Service there to co-present with us and literally what we do is take them through different examples, different threats, what the most recent hacking attempts are, in an attempt to educate the client, to help them make sure they're protecting themselves at the source.

We also offer to go out and do information security health checks. We'll go in and we will scan our clients' computers and talk them through some things that they can do to improve security on their end as well. By doing that together, we're strengthening that whole chain in the financial transaction and doing our best to protect the client.

And then, of course, we're always investing internally into our own systems, our own structure, we're holding our vendors to the highest standards as well. The example that we spoke of earlier, we invested heavily into a platform that allows real-time monitoring of wires. That's improved our fraud detection systems and capabilities as well. There's a lots of areas like that that we're focused on.

So with that, we've got a couple of minutes left. We wanted to go ahead and open it up for a couple of questions. [Janice], sorry, maybe we don't have time.

Janice Jensen - First Republic Bank - President & CEO, Habitat for Humanity East Bay/Silicon Valley No if I might pop in, we absolutely have time for a couple of questions. I just wanted to let our audience know, if we don't have a chance to get to your question this afternoon, we are doing an open Q&A session tomorrow morning. So we will have an opportunity to address all of your questions. Also, if we could take maybe a moment and start with Dale. And Dale, would you mind sharing your name, your role and how long you've been with First Republic?

Dale Smith - First Republic Bank - EVP & CIO Sure. Dale Smith, CIO. I've been with the Company 16 years and enjoy working here.

Scott Finder - First Republic Bank - SVP, Head of Digital Channels Scott Finder, Head of Digital Channels. I've been with the Bank going on five years, and I also enjoy working here.

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Nancy Segreto - First Republic Bank - SVP, Head of Lending Services Nancy Segreto, Head of Lending Services. I've been with bank 15 years and I think it would be redundant, because we all enjoy working here, obviously, or we wouldn't be here this long.

Gayatri Brar - First Republic Bank - Relationship Manager-Eagle Lending Gayatri Brar, Relationship Manager on the Eagle Lending team at First Republic Bank. I've been at the bank for seven and a half years.

Jason Bender - First Republic Bank - EVP & COO So with that, any questions in the area of technology, operations, roadmap?

Unidentified Audience Member Not to put you guys on the spot by any means, but when you think about like the efficiency, like the mortgage platform that you're putting in place, how does it improve your efficiency, from our perspective, right, sell side, buy side, the Street, when we see the [60mm] ballpark, 60% efficiency ratio roughly. Are those kind of initiatives, are we ever going to see the impact, because I do understand other banks, they say we have, whatever, 75% efficiency ratio, we're going to cut it down dramatically. It does improve earnings. But is this just simply a cost of doing business that you have to do it to be competitive, or is this something that the Street might actually benefit from on our side? Thanks.

Jason Bender - First Republic Bank - EVP & COO No, that's a very fair question. I think the best way to think about it is, it's probably part of the cost of growth. And so, I mean we're a company that grows double-digits in most years. And I think for us to continue to do that we have to continue to invest in the enterprise. And so, when Mike Roffler quotes a range of efficiency ratio, that's really what it's designed to be. What we're trying to do is to invest in the Company that operate within that range. So ours is not necessarily a strategy of trying to drive the efficiency ratio down as far as we can go. Instead, we're trying to couple investment with prudent growth over the years.

Unidentified Audience Member I had the exact same question. I'm just glad the (multiple speakers).

Jason Bender - First Republic Bank - EVP & COO I'd probably have the same answer.

Unidentified Audience Member Yes, I'm just glad the mice enjoyed the cookies as much as we do.

Jason Bender - First Republic Bank - EVP & COO I think on the point of efficiency, one point to make is that, as many of you know that have followed us for quite a while, a number of years ago we invested very heavily in regulatory related infrastructure, particularly as we were approaching the $50 billion mark. And while we do continue to invest in that as sort of part of the run rate, the good news is, I think over the last couple of years, the last year in particular, we've been able to shift

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Jim Herbert - First Republic Bank - Chairman & CEO (Founding) Jason, if I could add. And Jason, I along with others here, are on the Project Prioritization Committee and we have a project portfolio and it's great to be in a position now to have discretionary and non-discretionary. The majority of our spend is discretionary that we could say these are the enhancements we want to make at this point. So it's a very exciting time.

Jason Bender - First Republic Bank - EVP & COO Any questions? Okay. Shannon, shall I turn it back over to you?

Shannon Houston - First Republic Bank - VP, Director of IR Sure. All right, great. Thank you very much. Yes, [Jim].

Unidentified Audience Member Sorry, just to tag on to the last question. Perhaps, can you quantify the amount of spending on these growth initiatives.

Jason Bender - First Republic Bank - EVP & COO We haven't broken out the specific amount of the spend. So we can't comment on that specifically. But I can take you to the financials and point out, if you take a look at the growth rate, for instance, in the IS expense line versus, say, the professional fees expense line, you will see an example of what I was just describing, as professional fees, a lot of the expenses related to the regulatory spend really baked into that line and a lot of what you're hearing up here on the stage now is baked into the IS line. And you can see the growth rate in those. The growth rate in IS has gone up, while the professional fees expense line has gone down.

Unidentified Audience Member With the infrastructure in place and everything you are talking about, how big could you grow the Company to, with the current infrastructure?

Jason Bender - First Republic Bank - EVP & COO So the goal with each initiative, we're kind of have to take them piece meal, I think, of each initiative, we're really looking to set the stage for -- particularly with some of these bigger initiatives for say the next 10 years. So we're not going to invest in a loan origination system that's only going to get us through the next three to five. We're really looking for kind of 10-year periods. And so, I mean this gets back to something Jim was talking about earlier. We take a very long dated timeframe when we're thinking these things through. Now, will there be other initiatives and projects that we need to engage in over the years? Yes, for certain. This is isn't the one and done type of thing, but when we do make these big investments, we're trying to do it over the long haul.

Shannon Houston - First Republic Bank - VP, Director of IR All right. Great. Thank you very much. Well, I now turn it over to culture and talent.

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(Video playing)

Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer Thank you. Can you hear me okay? All right. Good afternoon. My name is Mollie Richardson. I'm the Chief Administrative Officer at First Republic Bank. And I'm truly honored to be here today to lead a discussion with some of my colleagues here on culture and talent at First Republic. Before we go into our discussion, I would like to start with introductions, and if I could ask Bill Ward to kick things off.

Bill Ward - First Republic Bank - EVP, Chief BSA/AML and Security Officer Sure. Thank you Mollie think. My name is Bill Ward, I am the Chief BSA/AML and Security Officer of the Bank. And for those of you that don't know those acronyms, that's Bank Secrecy Act, Anti-Money Laundering Officer. I have been here for two and a half years, so I'm the new guy on the block. And prior to First Republic I was with a large multinational bank. And prior to my 15 year banking career, I was in law enforcement for 20 years. So, the last time I wired, it was for different reason (inaudible).

Crystal Bryant - First Republic Bank - VP, Chief of Staff to the Chairman & CEO Good afternoon. My name is Crystal Bryant. I'm Chief of Staff to the Chairman and CEO and I've been with the Bank about 10 years. I wear a lot of hats in my role, including working with our Board members as Director of Board Relations. But I also spend a lot of time thinking about First Republic's culture and have helped to create or manage many of the programs we have in place to maintain that unique culture.

Roberto Rivera - First Republic Bank - MD, Relationship Manager I'm Roberto Rivera, I'm the Relationship Manager. I am coming up on 10 years at First Republic as well. And I'm the point of contact for my client relationships. My focus is specifically on lending, but partner with colleagues for clients other needs, like investment management, deposits, foreign exchange, et cetera.

Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer Thank you. So all cultures have a language or a way to communicate and strong cultures are often described with consistency, using the same words. I'm a big fan of the word clouds. They provide a way to visually express commonalities and description. And I'm a fan because the size of each word indicates the frequency it was used and allows you to visually see important themes. So this particular word cloud here actually represents the collective input of First Republic employees, and in their words describes the important components of our culture. So you can clearly see that customer focused, empowered and transparent are three words that really stand out. On our panel discussion today, we are going to have a conversation about culture. What it is, how we sustain it and what we can do to carry it forward?

Turning to the team for our first question, Roberto, you joined the Bank in May 2007 as a Credit Analyst, after having been an intern with us while you were in college. Can you share with us an example of culture and action at First Republic?

Roberto Rivera - First Republic Bank - MD, Relationship Manager Sure. So recently about two weeks ago I had a client prospect call me early on a Monday. He's a C-level executive at a technology company here in San Francisco. And he called me and said that he would like to go specifically to an office, the Transbay office in SoMa, and that he wanted to be there in 30 minutes to sign account documents and set things up. So I told the client, no problem, I would handle it. And immediately got on the phone with [Sam] who is the manager at the Transbay office. The client had a great experience with the team, he met everybody there. They

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Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer So how is that story an example of our culture?

Roberto Rivera - First Republic Bank - MD, Relationship Manager Sure. So when I called my colleague at the Transbay office and asked him to help, he without hesitation said, certainly, send him over, I'll have everything ready for him to go. And that's how we work. Right? What the client experienced that day was our culture. We moved quickly to get done what the client wanted to get done. And like Phil, I've worked with other offices with people in other departments and I would never hesitate to send clients their way. And that's truly an example of how collaborative we are. It's a culture that's hyper-focused on making sure that we take care of our clients, that we move quickly, and that the client has a great experience.

Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer Great. Thank you. So Roberto, Crystal and I, are what I call home-grown, as we really started our careers at the Bank. And so the culture of First Republic is really in our DNA. Bill Ward, is a newer member of the team. And I just think it would be really interesting to get his perspective on what it's like to acclimate to the Bank's culture after having had a very successful career at other financial institutions.

Bill Ward - First Republic Bank - EVP, Chief BSA/AML and Security Officer Sure. Thanks, Mollie. So, I heard a lot about culture during the recruitment process. And I was hired specifically to -- as pursuant to our growth and to respond to this fairly intense regulatory environment and what that meant for our future growth. And during the process, I heard a lot about culture. And to have a sound regulatory platform on which to grow transparency, accountability, do the right thing, have to be paramount. And I have to admit, initially, I was very skeptical. I'm used to cultures and values being on the walls of break rooms in most of the firms I worked for. And I admittedly, initially, I said okay. Thanks, Jim. I get it, but with my trusted sidekick, Mollie as my guide when I first joined, as I immersed myself into the organization, I felt, well, these guys really mean that. And it made for a fairly easy -- it didn't come without challenges, believe me, but all change does, but far less than what I had experienced in other firms. And again, that culture of do the right thing, being accountable, transparency served as the perfect catalyst to take the program to a level to provide that sound platform for growth.

Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer So how did our culture ultimately support you in accomplishing what you needed to accomplish when you joined the Bank?

Bill Ward - First Republic Bank - EVP, Chief BSA/AML and Security Officer Well, again, I think it's -- use a term DNA quite a bit. I think it's in the cultural DNA, First Republic to be the appropriate corporate citizen and do what's right. And I harnessed that energy and that culture and further, and so, taking us to a level to prevent us from being one of the many firms around the country that have experienced the negative aspects of not being so prepared for changes in regulations and the expectations of the regulatory environment. So again, it was the culture, do the right thing, move forward, move fast, keeping the customer service in mind during the entire program, having the likes of my colleagues that are sitting here today with me to guide my team and I, as the impact that would have on the customer experience and balancing that with doing what was right.

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Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer Thank you. So shifting gears, we recognize that strong cultures can take some time to get to know and get used to. Crystal, you have been instrumental in leading many programs that we've put in place to continue to scale our culture as we grow. Can you describe what we do to meet our flat organizational structure, where ideas can come to fruition from all parts of the organization and not just the top?

Crystal Bryant - First Republic Bank - VP, Chief of Staff to the Chairman & CEO Absolutely, Mollie. One of the core tenants of our culture is listening to the voice of our employees, our people. This is something that we try to do every day, but we also have a couple of more programmatic channels for that, one being our Company engagement survey and another being an employee ideas campaign that we like to call inspiration to action. This is really based on the fundamental truth that the best ideas come from the people who are closest to the work, closest to the clients. And we implemented this program as a way for those people to have their voices be heard and to see their ideas in action. We see a lot of engagement from our employees with this program and have many, many ideas that have been implemented or are currently in the process of being implemented, often with the participation of the person or the team that came up with the idea to begin with. I think also importantly, to our culture is, the idea that we include everyone in the reasoning behind a decision. If we decide not to move forward with an idea, we circle back with the person who submitted it and let them know why. We thank them for the idea and ask them to keep those ideas coming and they do.

Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer Great. Could you also describe what we're doing as an organization to support both the integration of newer colleagues, as well as the furthering of professional development of other colleagues?

Crystal Bryant - First Republic Bank - VP, Chief of Staff to the Chairman & CEO Sure. One of the things that we heard a lot about through these channels, including inspiration to action, is the idea that we could be doing more to acculturate our newer colleagues. This actually led to us implementing several ideas that came out of the program, including assigning a lunch buddy for new hires from a different department, improving our orientation, a new welcome box to welcome employees to the Bank and something that we call First Republic Flight School. This is a half-day session that all employees are invited to within their first 90 days with us, and they learn about the history, the culture and the values of First Republic. They also have the chance to get to know one another and build relationships across the organization. Our executives make the time to be there, to speak directly to who we are and to our mission of providing extraordinary service one client at a time.

Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer We've also been doing some executive education efforts. Do you want to talk about that a little bit?

Crystal Bryant - First Republic Bank - VP, Chief of Staff to the Chairman & CEO I would love to talk about that, Mollie. One of the more problematic things that we've been doing at the executive level is sponsoring leaders throughout the organization to attend general management executive education programs. We've been utilizing four of the top business schools in the US, Tuck, Wharton, Stanford and Harvard, with the goal of further strengthening our leadership bench, encouraging openness to new ideas and new ways of thinking and also creating a shared language and a shared experience amongst the leaders of the organization. We've had 73 people participate in the last three years that we've been doing this, with another 50 in the queue, scheduled to go over the next couple of years. We began with our executive team, but have expanded well beyond that to include participants from every area, from sales to operations and everything in between. We include relationship managers, branch managers, team leads and other high-potential employees.

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Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer Thank you, Crystal. So, Bill, you and I have both been participants in similar executive education programs. In your own words, what have you gained from your experience?

Bill Ward - First Republic Bank - EVP, Chief BSA/AML and Security Officer Sure. So like yourself Mollie, we attended the Number 1 business school in the US, Harvard Business School, so just to point that out since you mentioned it last, Crystal. But my academic credentials are in sociology and public administration, given my background and we know how high value those degrees are. So the experience, most of my business acumen has come from OJT over the last 15 years. So this is particularly enlightening for me. And in addition to the academics of the Harvard Business School, the case study method, I was exposed to 150 executives in every business you can imagine from all over the globe. That coupled with the relevant case studies was invaluable, and I'm flattered, given that I was only here for a couple years that they selected me to attend, and it's quite an investment in time and money, and it's something I'll cherish for the rest of my life.

Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer Thank you. Next I'd like to talk about our flagship cultural program at the Bank, called the Culture Carrier Roundtable. We launched the Culture Carrier Roundtable in the fall of 2010 with the intention to preserve and develop the entrepreneurial culture of First Republic. It's a two-day off-site for approximately 90 employees that we hold twice a year, one in the spring and one in the fall. It's like any other off-site that we have at the Bank, in that the participants are a true microcosm of the Bank overall. We have representation across all geographies, all departments, all tenures. We bring in subject matter experts, business school professors, and bank leaders and lead discussions on culture. I'd like to play a brief video for you, just to give you a quick glimpse.

(Video playing)

Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer Before we open up to audience Q&A, I want to ask you, Roberto, you've attended The Culture Carrier Roundtable. Can you share your experience, and how do you view your role as a Culture Carrier at First Republic? Specifically, how can you spend two days talking about culture, and why do we do it?

Roberto Rivera - First Republic Bank - MD, Relationship Manager So, I was naturally a bit skeptical when I received the invitation. I'm sure we've all had to go to an off-site, and you get to thinking, oh gosh, what are we going to talk about for two days. But, frankly, I thought it was powerful. I mean, the experience gave me perspective on my career and I did it several years back, but it also gave me a perspective on sort of the future of the Bank. And I think that it just inspires sort of idea sharing, some collaboration of people you would normally talk to, and it's an experience that you can't really get through another form.

And just to your question about how I view myself as a Culture Carrier, I've been here, my entire career in banking at First Republic, and I think back to the people that have helped mentor me and have showed me sort of what the culture of First Republic is and how we protect and how we maintain it. And I think that all of us that have gone to a roundtable like this have that responsibility as well. Not everybody can attend the roundtable, but for those of us that do, we can certainly help spread the ideas and share what we've learned, and then hopefully sort of inspire the next generation, whether it's the intern that's just starting out or the person who wants to be the next relationship manager.

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Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer Okay, thank you. Thank you, Roberto, Crystal and Bill. I would like to give the audience an opportunity to ask any questions.

Unidentified Audience Member Yes, I just wanted to ask how the culture has changed over time. I mean what are the new elements to the culture, or has it just remained exactly the same as ever?

Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer Anyone -- you want to take that Crystal?

Crystal Bryant - First Republic Bank - VP, Chief of Staff to the Chairman & CEO I would be happy to give you my perspective on that. I've been with the Bank 10 years. From my perspective, the culture hasn't changed at all. The Bank has changed a bit, in that, we've made a lot of investments over the last few years, particularly in our infrastructure. But our focus on the client and on collaboration and on team work has been the same ever since I started here on day one, 10 years ago.

Unidentified Audience Member With the Culture Carrier Initiative that launched in 2010, so that would, I guess, roughly been about a year after exiting BofA. So I'm just curious, was that initiative launched in anyway because the culture was stressed after being inside of Merrill and BofA and if it was stressed, do you think it was stressed to a level that had the separation not take place, but the value that you offer to your clients and the enterprise value of the unit would have been impaired? Thank you?

Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer Sure. So, what's interesting is that the roundtable itself actually transformed into something that we had started, actually previously when we were acquired by Merrill. They created something called the Culture Maintenance Council, and I wouldn't say that it was created because the culture was stressed. But I think as you've heard from Scott Dufresne and Jason Bender and Mike Selfridge speaking today, we all know how important our culture is. It's our competitive advantage. We are very protective of it. It's what enables us to provide extraordinary service to our clients. And so it was created in a time where we knew that we just needed to make sure that we stayed focused and connected and coordinated and not losing it.

Going back to your question, I would agree with Crystal, I don't think that the culture has changed. But we've definitely been much more thoughtful of building out initiatives that make sure that we talk about it, we act on it, we indoctrinate new people. It can take time to get to know an organization and to be adjusted, and maybe when we were smaller, it was easier to acclimate. But as we grow, it's even more important to make sure that we take the time to build in the discussions, to build in the training and build in the time to learn the culture. Did I answer your question?

Janice Jensen - First Republic Bank - President & CEO, Habitat for Humanity East Bay/Silicon Valley Mollie, pardon the interruption. I think we have time -- I know we are over by a couple of minutes -- for maybe one more question.

Unidentified Audience Member I would be interested to hear more about how you guys think about the Wealth Management teams coming in and incorporating the culture?

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Mollie Richardson - First Republic Bank - SVP, Chief Administrative Officer The Wealth Management team, Bob Thornton, and every member of the leadership team takes culture very, very seriously, and I know he and his team take a lot of care and pride and time in ensuring that we spend a lot of time with those new teams, whether it's a new hire orientation or various cultural initiatives. And those teams, just like other new members of the Bank, are included in the Culture Carrier Roundtable. What's great about the CCRT, as we call it, is we've had people who have been there, and it's their first day on the job, sitting next to our Chief Financial Officer and someone who runs Field Services and IR. So it's real mix of people who are there and we're just as thoughtful about cultural integration within the Private Wealth Management side of the business as we are in all of our other lines of business. Did I answer your question?

If I could just have a few minutes for some final thoughts. So, when I think about culture, I really think about behavior or the expectations of how to behave. And if our goal truly is service quality at the highest possible level, then in order to deliver on that goal, we need to hire, engage, incentivize and retain the right people who both believe and value the behaviors of our culture.

I think you saw in the previous video clip, for me it always comes back to the people. People like Bill, Crystal and Roberto, who are diverse in their backgrounds and experiences, but united in their shared belief of how to behave. It's the people who enable us to deliver extraordinary service, one client at a time.

So, thank you so much for allowing us to be here today, and I think I'm turning it over to Shannon for some few housekeeping items.

Shannon Houston - First Republic Bank - VP, Director of IR Sure, thank you. Thank you Mollie, Roberto, Crystal, and I'm proud to have shadowed Mollie in Investor Relations, as well as Chairing the Culture Carrier Roundtable. So, also near and dear to my heart as well.

Thank you all very much. This concludes our sessions for today. We have cocktails, you'll know on your agenda, beginning at 6:00 PM. We'll actually be open at 5.45. If anyone wants to come down a little bit earlier that is in the pavilion room, which is on the other side of the outdoor courtyard. And then we'll be back in here for dinner this evening. Thank you very much.

Jim, did you want to say?

Jim Herbert - First Republic Bank - Chairman & CEO (Founding) (inaudible - microphone inaccessible)

Shannon Houston - First Republic Bank - VP, Director of IR Correct. So, you've gotten to meet a lot of folks from First Republic already. Today, we'll have a bunch of additional client facing and culture carriers at cocktails and at dinner as well. Thank you, very much.

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