First Republic Bank Reports Record Earnings

First Republic Bank Reports Record Earnings

SAN FRANCISCO--(BUSINESS WIRE)-- First Republic Bank (NYS: FRC) today announced financial results for the third quarter and nine months ended September 30, 2012.

"We are very pleased with the continued stability and strength of our earnings, including mortgage banking results," said Jim Herbert, Chairman and Chief Executive Officer of First Republic Bank. "Credit quality remains excellent, our capital ratios are strong and we have effectively managed our core net interest margin and efficiency ratio."


Financial Highlights

  • Book value per share increased by 4% during the quarter and 15% year over year to $21.48.

  • Tier 1 leverage ratio increased to 9.33%, up from 8.95% a year ago.

  • Asset quality remains very strong; nonperforming assets were only 13 basis points of total assets.

  • Net income was $102.7 million for the third quarter of 2012, compared to $87.8 million for last year's third quarter, up 17%. Diluted earnings per share ("EPS") were $0.72 for the third quarter of 2012, compared to $0.66 for last year's third quarter.

  • Excluding the impact of purchase accounting, net income for the third quarter of 2012 was $78.7 million, up 43% from last year's third quarter. On this non-GAAP basis, the third quarter diluted EPS were $0.54, up 29% year over year. (1)

  • Net income was $292.4 million for the nine months ended September 30, 2012, an increase of 12% compared to the same period in 2011, and diluted EPS were $1.99 compared to $1.97 for the same period in 2011.

  • Excluding the impact of purchase accounting and the one-time charge on redemption of preferred stock in the second quarter of 2012, diluted EPS for the nine months ended September 30, 2012 were $1.53, up 24% compared to $1.23 for the same period in 2011. (1)

  • Net interest margin was 4.13% for the quarter, compared to 4.27% for the prior quarter and 4.48% for last year's third quarter.

  • Excluding the impact of purchase accounting, the net interest margin was 3.47% for the quarter, compared to 3.48% for the prior quarter and 3.41% for last year's third quarter. (1)

  • The efficiency ratio was 52.1% for the third quarter of 2012, compared to 52.4% for the prior quarter and 48.4% for last year's third quarter.

  • Excluding the impact of purchase accounting, the efficiency ratio was 58.6% for this quarter, improving from 60.5% for the prior quarter and 58.8% for last year's third quarter. (1)

  • Loan originations were $4.0 billion for the third quarter of 2012, slightly above the prior quarter; for the nine months ended September 30, 2012, loan originations were $11.2 billion.

  • Loans sold were $774 million for the quarter and pre-tax net gains on sales were $12.5 million, compared to sales of $436 million and net gains of $4.8 million in the prior quarter.

  • Loans outstanding were $26.9 billion at September 30, 2012, up 5% for the quarter.

  • Deposits were $25.7 billion at September 30, 2012, up 6% for the quarter.

  • Wealth management assets were $24.8 billion at September 30, 2012, up 7% for the quarter and 22% since year-end.

"First Republic continues to deliver strong results across the franchise," said President and Chief Operating Officer, Katherine August-deWilde. "We're building on the accelerating economic momentum in our coastal, urban markets. In particular, we're pleased that the continuing high quality of our home loans is allowing us to sell into the secondary market with excellent execution."

Asset Quality Remains Very Strong

The Bank's credit quality remains strong. At September 30, 2012, nonperforming assets were only 13 basis points of total assets.

During the third quarter of 2012, the Bank recorded additional provisions for loan losses of $16.5 million. The Bank's provision for loan losses is related primarily to loans outstanding that have been originated since July 1, 2010. At September 30, 2012, the allowance related to these loans totaled $96.6 million, or 0.56% of such loans.

Net charge-offs were $554,000 (1 basis point, annualized, of average loans) for the third quarter of 2012 and $1.3 million for the nine months ended September 30, 2012.

Continued Capital Strength

The Bank's Tier 1 leverage ratio at September 30, 2012 was 9.33%, compared to 8.95% a year ago. The Bank continues to exceed all current regulatory guidelines for well-capitalized institutions.

Strong Book Value Growth

Book value per share was $21.48 at September 30, 2012, up 15% from a year ago.

Quarterly Cash Dividend Declared

The Bank has declared a quarterly cash dividend on its common stock of $0.10 per share. The dividend is payable on November 15, 2012 to shareholders of record on November 1, 2012.

Continued Franchise Development

Assets

Total assets at September 30, 2012 were $32.6 billion. During the first nine months of 2012, loans increased $3.8 billion, of which 60% was in single family loans and related home equity lines of credit; investment securities have increased $428 million in 2012.

Deposit mix continues to improve

At September 30, 2012, checking and savings accounts were 88% of total deposits, compared to 82% at year-end. The contractual rate paid on all deposits averaged 0.29% for the third quarter of 2012, compared to 0.38% for the prior quarter, with the reduction in the average rate paid coming both from an improved deposit mix and reduced rates paid on deposits.

At September 30, 2012, 96% of deposits were core deposits. (2)

Wealth management expansion

Total wealth management assets were $24.8 billion at September 30, 2012, up 7% for the quarter and 22% since year-end. Wealth management assets include investment management assets of $10.8 billion, brokerage assets and money market mutual funds of $9.2 billion, and trust and custody assets of $4.9 billion.

Wealth management fees earned, including investment advisory, trust and brokerage fees, were up 18% in the third quarter of 2012 compared to last year's third quarter and were up 20% for the first nine months of 2012 compared to the prior year.

Mortgage banking activity strong

The Bank sold $774 million of primarily longer-term, fixed-rate home loans during the third quarter of 2012 and recorded net gains of $12.5 million. By comparison, during the prior quarter, the Bank sold $436 million of loans and recorded net gains of $4.8 million. The higher level of gain on sales resulted from a higher volume of loans sold and improved pricing on loans sold. For the nine months ended September 30, 2012, the Bank sold $1.8 billion of loans and recorded net gains of $21.1 million, compared to loan sales of $677 million and net gains of $6.1 million for the same period last year.

At September 30, 2012, the carrying value of mortgage servicing rights ("MSRs") was $16.4 million, or 38 basis points of such loans serviced. Low interest rates and rapid loan repayments have resulted in continuing impairment charges on MSRs.

Loans serviced for investors totaled $4.3 billion at September 30, 2012, up 14% compared to $3.8 billion at September 30, 2011.

Income Statement and Key Ratio Summary

Strong revenues

Total revenues were $342.7 million for the third quarter of 2012, compared to $327.2 million for the prior quarter and $299.2 million for last year's third quarter, a 15% increase from a year ago.

Excluding the impact of purchase accounting, revenues were $295.8 million for the third quarter of 2012, compared to $275.1 million for the prior quarter and $236.7 million for the third quarter of 2011, an 8% increase over the prior quarter and a 25% increase from a year ago. (1)

Net interest income growth

Net interest income was $298.8 million for the third quarter of 2012, compared to $290.6 million for the prior quarter and $268.9 million for the third quarter a year ago.

The strong increase in contractual net interest income was primarily due to increases in the average balances of loans and investment securities as well as lower deposit costs. Excluding the impact of purchase accounting, net interest income (contractual net interest income) was $252.2 million for the third quarter of 2012, compared to $238.4 million for the prior quarter and $206.6 million for the third quarter of 2011, up 6% over the prior quarter and up 22% from a year ago. (1)

Net interest margin

The Bank's net interest margin was 4.13% for the third quarter of 2012, compared to 4.27% for the second quarter of 2012 and 4.48% for the third quarter a year ago.

Excluding the impact of purchase accounting, net interest margin (contractual net interest margin) was 3.47% for the third quarter of 2012, compared to 3.48% for the prior quarter and up from 3.41% for the third quarter a year ago. (1)

The contractual net interest margin remained stable compared to the prior quarter as lower deposit costs and the investment of more cash largely offset declines in contractual loan yields.

Noninterest income

Noninterest income for the third quarter of 2012 was $43.8 million, up 20% compared to $36.6 million for the prior quarter and up 45% compared to $30.3 million for the third quarter a year ago. For the nine months ended September 30, 2012, noninterest income was $113.1 million, up 28% compared to $88.5 million for the same period in 2011. These increases were primarily due to increases ininvestment advisory, trust and foreign exchange fees and gain on sale of loans, partially offset by a decline in net loan servicing fees.

Noninterest expense

Noninterest expense for the third quarter of 2012 was $178.4 million, compared to $171.6 million for the prior quarter and $144.8 million for the third quarter a year ago, a 4% increase over the prior quarter and a 23% increase year over year. Noninterest expense has grown primarily due to an increase in personnel to support loan, deposit and wealth management growth, increased occupancy costs as the Bank added both corporate office space and deposit offices, increased costs related to investments in technology and increased expenses related to tax credit investments.

Efficiency ratio

The Bank's efficiency ratio was 52.1% for the third quarter of 2012, compared to 52.4% for the second quarter of 2012 and 48.4% for the third quarter a year ago. For the nine months ended September 30, 2012 and 2011, the efficiency ratio was 52.3% and 48.2%, respectively.

Excluding the impact of purchase accounting, the Bank's efficiency ratio was 58.6% for the third quarter of 2012, compared to 60.5% for the second quarter of 2012 and 58.8% for the third quarter a year ago. For the nine months ended September 30, 2012 and 2011, the efficiency ratio was 59.5% and 58.9%, respectively. (1)

Income tax rate

The Bank provides for income taxes based on an estimate of earnings and tax preference items for each calendar year. The Bank's effective tax rate for the three and nine months ended September 30, 2012 was 30.5% and represents the current estimated tax rate for the full year 2012.

_________

(1) See non-GAAP reconciliation under section "Use of Non-GAAP Financial Measures."

(2) Core deposits exclude CDs greater than $250,000.

Conference Call Details

First Republic Bank's third quarter 2012 earnings conference call is scheduled for October 17, 2012 at 11:00 a.m. PDT / 2:00 p.m. EDT. To listen to the live call by telephone, please dial (877) 882-8809 approximately 10 minutes prior to the start time (to allow time for registration) and use conference ID #37414610. International callers should dial (734) 823-3244. The call will also be broadcast live over the Internet and can be accessed in the Investor Relations section of First Republic's website at www.firstrepublic.com. To listen to the live webcast, please visit the site at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. A replay of the call will also be available for 90 days on the website. For those unable to participate in the live presentation, a replay will be available beginning October 17, 2012, at 2:00 p.m. PDT / 5:00 p.m. EDT, through October 24, 2012, at 8:59 p.m. PDT / 11:59 p.m. EDT. To access the replay, dial (855) 859-2056 (U.S.) and use conference ID #37414610. International callers should dial (404) 537-3406 and enter the same conference ID number. The Bank's press releases are available after release on the Bank's website at www.firstrepublic.com.

About First Republic Bank

First Republic Bank ("First Republic" or the "Bank") and its subsidiaries provide private banking, private business banking and private wealth management. Founded in 1985, First Republic specializes in exceptional, relationship-based service offered through preferred banking or wealth management offices primarily in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland, Boston, Greenwich and New York City. First Republic offers a complete line of banking products for individuals and businesses, including deposit services, as well as residential, commercial and personal loans. First Republic is a component of the S&P Total Market Index, the Wilshire 5000 Total Market IndexSM, the Russell 1000 ®, Russell 3000 ® and Russell Global indices and six Dow Jones indices. More information is available on the Bank's website at www.firstrepublic.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this press release that are not historical facts are hereby identified as "forward-looking statements" for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as "anticipates," "believes," "can," "could," "may," "predicts," "potential," "should," "will," "estimates," "plans," "projects," "continuing," "ongoing," "expects," "intends" and similar words or phrases and include statements about economic performance in our markets, growth in our loan originations and wealth management assets, and our projected tax rate. Accordingly, these statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: our ability to compete for banking and wealth management customers; earthquakes and other natural disasters in our markets; changes in interest rates; our ability to maintain high underwriting standards; economic conditions in our markets; and conditions in financial markets and economic conditions generally; regulatory restrictions on our operationsand current orfuture legislative or regulatory changes affecting the banking and investment management industries. For a discussion of these and other risks and uncertainties, see First Republic's FDIC filings, including, but not limited to, the risk factors in First Republic's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. These filings are available in the Investor Relations section of our website. All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

CONSOLIDATED STATEMENT OF INCOME

Three Months

Three Months

Nine Months

Ended

Ended

Ended

September 30,

June 30,

September 30,

(in thousands, except per share amounts)

2012

2011

2012

2012

2011

Interest income:

Interest on loans

$

295,045

$

278,770

$

291,040

$

865,759

$

816,278

Interest on investments

31,638

19,962

30,265

90,762

47,840

Interest on cash equivalents

653

1,609

822

2,098

4,078

Total interest income

327,336

300,341

322,127

958,619

868,196

Interest expense:

Interest on customer deposits

13,584

21,573

16,678

45,249

65,640

Interest on FHLB advances and other borrowings

14,492

9,295

14,302

41,139

20,636

Interest on subordinated notes

439

567

550

1,545

1,718

Total interest expense

28,515

31,435

31,530

87,933

87,994

Net interest income

298,821

268,906

290,597

870,686

780,202

Provision for loan losses

16,505

15,531

14,875

46,232

36,170

Net interest income after provision for loan losses

282,316

253,375

275,722

824,454

744,032

Noninterest income:

Investment advisory fees

15,376

12,663

14,674

42,749

35,133

Brokerage and investment fees

2,346

2,776

2,667

7,778

7,277

Trust fees

2,376

1,588

2,185

6,334

5,008

Foreign exchange fee income

3,297

2,690

2,639

8,357

6,937

Deposit customer fees

3,522

3,786

3,445

10,248

11,199

Loan servicing fees, net

(2,916

)

(400

)

(704

)

(5,524

)

173

Loan and related fees

1,514

1,501

1,465

4,462

3,150

Gain on sale of loans

12,547

1,301

4,754

21,110

6,082

Income from investments in life insurance

4,985

3,536

5,618

15,974

11,358

Other income (loss)

792

824

(104

)

1,635

2,211

Total noninterest income

43,839

30,265

36,639

113,123

88,528

Noninterest expense:

Salaries and related benefits

87,204

67,780

81,533

251,244

200,734

Occupancy

21,229

17,088

20,690

61,814

49,014

Information systems

18,843

14,905

17,746

52,763

41,630

Advertising and marketing

5,953

6,883

7,144

19,059

20,245

FDIC and other deposit assessments

6,400

5,161

5,902

17,702

18,358

Professional fees

5,263

4,205

5,453

14,994

11,648

Amortization of intangibles

5,087

5,602

5,170

15,545

17,279

Tax credit investments

5,348

3,162

4,521

15,119

6,240

Other expenses

23,063

20,003

23,396

66,460

53,459

Total noninterest expense

178,390

144,789

171,555

514,700

418,607

Income before provision for income taxes

147,765

138,851

140,806

422,877

413,953

Provision for income taxes

45,069

49,986

42,274

128,978

149,023

Net income before noncontrolling interests

102,696

88,865

98,532

293,899

264,930

Less: Net income from noncontrolling interests

1,072

625

1,538

3,533

First Republic Bank net income

102,696

87,793

97,907

292,361

261,397

Dividends on preferred stock

5,667

4,091

12,209

Redemption of preferred stock

13,200

13,200

Net income available to common stockholders

$

97,029

$

87,793

$

80,616

$

266,952

$

261,397

Basic earnings per common share

$

0.75

$

0.68

$

0.62

$

2.06

$

2.03

Diluted earnings per common share

$

0.72

$

0.66

$

0.60

$

1.99

$

1.97

Dividends per common share

$

0.10

$

$