First Republic Bank Reports Record Annual and Quarterly Earnings
First Republic Bank Reports Record Annual and Quarterly Earnings
Core EPS Up 28% Year-Over-Year(1)
"First Republic had a terrific year by every performance measure," said Jim Herbert, Chairman and Chief Executive Officer. "Core earnings per share increased 28% in 2012, while loans, deposits, business banking and wealth management assets all grew strongly. Credit quality and capital ratios are strong."
2012 Full Year Highlights
- Book value per share increased by 13.5% to $22.08.
- Tier 1 leverage ratio increased to 9.32%, up from 8.81% a year ago.
- Asset quality remains very strong; nonperforming assets were only 14 basis points of total assets.
- Net income was a record $402.5 million, an increase of 14%, and diluted earnings per share ("EPS") were $2.76.
- Excluding the impact of purchase accounting, net income was $307.0 million, up 38%. (1)
- Excluding the impact of purchase accounting and the one-time charge on redemption of preferred stock in the second quarter, core diluted EPS were $2.15, up 28%. (1)
- Excluding the impact of purchase accounting, the net interest margin was 3.53% in 2012 and 2011. (1)
- Loan originations were a record $15.5 billion.
- Loans outstanding were $28.5 billion at December 31, 2012, up 23%.
- Deposits were $27.1 billion at December 31, 2012, up 21%.
- Wealth management assets were $31.7 billion, including $5.9 billion from the Luminous Capital Holdings, LLC ("Luminous") acquisition, up 55%.
- A dividend on our common stock was initiated in the third quarter of 2012.
Fourth Quarter Highlights
- Net income was $110.1 million, up 21% from last year's fourth quarter. Diluted EPS were $0.77, up 13% from last year's fourth quarter.
- Excluding the impact of purchase accounting, net income was $89.3 million, up 51% from last year's fourth quarter and diluted EPS were $0.61, up 39% from last year's fourth quarter. (1)
- Net interest margin was 4.02%, compared to 4.13% for the prior quarter.
- Excluding the impact of purchase accounting, the net interest margin was 3.46%, compared to 3.47% for the prior quarter. (1)
- The efficiency ratio was 51.2%, compared to 52.1% for the prior quarter.
- Excluding the impact of purchase accounting, the efficiency ratio was 56.2%, versus 58.6% for the prior quarter. (1)
- Loan originations were $4.3 billion, our highest quarter ever.
- Loans sold were $671 million for the quarter and pre-tax net gains on sales were $17.7 million, compared to sales of $774 million and pre-tax gains of $12.5 million for the prior quarter.
"First Republic's success in 2012 was due to its intense focus on exceptional client service coupled with disciplined asset underwriting," said Katherine August-deWilde, President and Chief Operating Officer. "We're particularly pleased with the robust growth of business banking and wealth management assets, including those acquired in the Luminous transaction."
Asset Quality Remains Very Strong
The Bank's credit quality remains strong. At December 31, 2012, nonperforming loans were only 14 basis points of total assets and the Bank had no other real estate owned.
During the fourth quarter of 2012, the Bank recorded an additional provision for loan losses of $17.2 million. This provision is related primarily to the growth in loans outstanding that have been originated since July 1, 2010. At December 31, 2012, the allowance related to these loans totaled $114.3 million, or 0.59%.
Net charge-offs were $315,000 for the fourth quarter of 2012 and $1.7 million (only 1 basis point of average loans) for the year ended December 31, 2012.
Continued Capital Strength
The Bank's Tier 1 leverage ratio increased at December 31, 2012 to 9.32%, compared to 8.81% a year ago. The Bank issued $150 million of 5.625% Noncumulative Perpetual Series C Preferred Stock during the fourth quarter of 2012. During 2012, the Bank raised $500 million of noncumulative perpetual preferred stock with a weighted average rate of 6.23%.
Strong Book Value Growth
Book value per share was $22.08 at December 31, 2012, up 13.5% during 2012.
Continued Franchise Development
Total assets at December 31, 2012 were $34.4 billion. During 2012, loans increased $5.4 billion, of which 57% was in single family loans and related home equity lines of credit. Investment securities increased $686.1 million in 2012.
Deposit mix continues to improve
At December 31, 2012, checking and savings accounts were 89% of total deposits, compared to 82% a year ago. The contractual rate paid on all deposits averaged 0.24% for the fourth quarter of 2012, compared to 0.29% for the prior quarter, with the reduction in the average rate paid coming both from an improved deposit mix and reduced rates paid.
At December 31, 2012, 97% of deposits were core deposits. (2)
Wealth management expansion
Total wealth management assets were $31.7 billion at December 31, 2012, up 28% for the quarter and 55% for the year. The increase in wealth management assets includes $5.9 billion of assets under management from the Luminous asset purchase; the Bank will begin earning fees on these assets beginning in the first quarter of 2013. Wealth management assets include investment management assets of $17.0 billion, brokerage assets and money market mutual funds of $9.7 billion, and trust and custody assets of $5.0 billion.
Wealth management fees earned, including investment advisory, trust and brokerage fees, for the fourth quarter of 2012 were up 36%, compared to last year's fourth quarter and were up 24% for the full year.
Mortgage banking activity strong
The Bank sold $671 million of primarily fixed rate, longer-term home loans during the fourth quarter of 2012 and recorded net gains of $17.7 million. By comparison, during the prior quarter, the Bank sold $774 million of loans and recorded net gains of $12.5 million. The higher level of gain on sales resulted from improved pricing on loans sold to an average 2.64% gain. For the full year, the Bank sold $2.4 billion of loans and recorded net gains of $38.8 million, or 1.60% of loans sold, compared to loan sales of $729 million and net gains of $6.4 million for 2011.
At December 31, 2012, the carrying value of mortgage servicing rights ("MSRs") was $17.8 million, or 39 basis points on such loans serviced.
Loans serviced for investors totaled $4.6 billion at December 31, 2012, up 35%, compared to $3.4 billion at December 31, 2011.
Income Statement and Key Ratio Summary
Strong core revenue growth
Total revenues were $357.9 million for the fourth quarter of 2012, compared to $342.7 million for the prior quarter and $314.9 million for last year's fourth quarter, a 14% increase from a year ago. Total revenues for 2012 were $1.3 billion, up 13% from 2011.
Excluding the impact of purchase accounting, revenues were $316.9 million for the fourth quarter of 2012, compared to $295.8 million for the prior quarter and $254.5 million for the fourth quarter of 2011, a 25% increase from a year ago. On this basis, total revenues for 2012 were $1.2 billion, up 23% from 2011. (1)
Net interest income growth
Net interest income was $302.3 million for the fourth quarter of 2012, compared to $298.8 million for the prior quarter and $285.5 million for the fourth quarter a year ago. Net interest income for 2012 was $1.2 billion, up 10% from 2011.
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 (core net interest income) was $261.2 million for the fourth quarter of 2012, compared to $252.2 million for the prior quarter and $225.2 million for the fourth quarter of 2011, up 4% over the prior quarter and up 16% from a year ago. On this basis, net interest income for the full year 2012 was $986.8 million, up 20% from 2011. (1)
Net interest margin
The Bank's net interest margin was 4.02% for the fourth quarter of 2012, compared to 4.13% for the third quarter of 2012 and 4.53% for the fourth quarter a year ago. For the year ended December 31, 2012, the net interest margin was 4.22%.
Excluding the impact of purchase accounting, net interest margin (core net interest margin) was 3.46% for the fourth quarter of 2012, compared to 3.47% for the prior quarter and 3.55% for the fourth quarter a year ago. For the year ended December 31, 2012, the core net interest margin was 3.53%, the same as 2011. (1)
The core net interest margin remained stable compared to the prior quarter as lower deposit costs largely offset declines in contractual loan yields.
Noninterest income for the fourth quarter of 2012 was $55.6 million, up 27% from the prior quarter and up 89% from the fourth quarter a year ago. For the year ended December 31, 2012, noninterest income was $168.7 million, up 43% from 2011.
Noninterest expense for the fourth quarter of 2012 was $183.1 million, compared to $178.4 million for the prior quarter and $158.0 million for the fourth quarter a year ago, a 3% increase over the prior quarter and a 16% increase year-over-year. For the year ended December 31, 2012, noninterest expense was $697.8 million, up 21% from 2011.
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.
The Bank's efficiency ratio was 51.2% for the fourth quarter of 2012, compared to 52.1% for the third quarter of 2012 and 50.2% for the fourth quarter a year ago. For the year ended December 31, 2012 and 2011, the efficiency ratio was 52.0% and 48.7%, respectively.
Excluding the impact of purchase accounting, the Bank's efficiency ratio was 56.2% for the fourth quarter of 2012, compared to 58.6% for the third quarter of 2012 and 59.9% for the fourth quarter a year ago. For the year ended December 31, 2012, the efficiency ratio was 58.6% versus 59.2% during 2011. (1)
Income tax rate
The Bank's effective tax rate for 2012 was 30.4%, compared to 35.7% for 2011. The decrease in the effective tax rate in 2012 was the result of a higher level of tax-exempt securities, bank-owned life insurance, tax credit investments and tax-advantaged loans.
(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 fourth quarter 2012 earnings conference call is scheduled for January 16, 2013 at 11:00 a.m. PST / 2:00 p.m. EST. To listen to the live call by telephone, please dial (855) 224-3902 approximately 10 minutes prior to the start time (to allow time for registration) and use conference ID #85719936. 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 January 16, 2013, at 2:00 p.m. PST / 5:00 p.m. EST, through January 23, 2013, at 8:59 p.m. PST / 11:59 p.m. EST. To access the replay, dial (855) 859-2056 (U.S.) and use conference ID #85719936. 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.
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
|(in thousands, except per share amounts)||2012||2011||2012||2012||2011|
|Interest on loans||$||294,763||$||288,226||$||295,045||$||1,160,522||$||1,104,504|
|Interest on investments||33,278||25,338||31,638||124,040||73,178|
|Interest on cash equivalents||546||1,197||653||2,644||5,275|
|Total interest income||328,587||314,761||327,336||1,287,206||1,182,957|
|Interest on customer deposits||11,732||17,628||13,584||56,981||83,268|
|Interest on FHLB advances and other borrowings||14,521||11,035||14,492||55,660||31,671|
|Interest on subordinated notes||—||561||439||1,545||2,279|
|Total interest expense||26,253||29,224||28,515||114,186||117,218|
|Net interest income||302,334||285,537||298,821||1,173,020||1,065,739|
|Provision for loan losses||17,204||16,159||16,505||63,436||52,329|
|Net interest income after provision for loan losses||285,130||269,378||282,316||1,109,584||1,013,410|
|Investment advisory fees||16,305||11,897||15,376||59,054||47,030|
|Brokerage and investment fees||2,904||2,219||2,346||10,682||9,496|
|Foreign exchange fee income||3,147||3,298||3,297||11,504||10,235|
|Deposit customer fees||3,746||3,169||3,522||13,994||14,368|
|Loan servicing fees, net||217||(341||)||(2,916||)||(5,307||)||(168||)|
|Loan and related fees||1,829||1,801||1,514||6,291||4,951|
|Gain on sale of loans||17,721||335||12,547||38,831||6,417|
|Income from investments in life insurance||6,212||4,785||4,985||22,186||16,143|
|Total noninterest income||55,611||29,402||43,839||168,734||117,930|
|Salaries and related benefits||88,412||74,352||87,204||339,656||275,086|
|Advertising and marketing||6,061||8,567||5,953||25,120||28,812|
|FDIC and other deposit assessments||6,684||5,552||6,400||24,386||23,910|
|Amortization of intangibles||4,927||5,444||5,087||20,472||22,723|
|Tax credit investments||5,754||3,680||5,348||20,873||9,920|
|Total noninterest expense||183,144||158,001||178,390||697,844||576,608|
|Income before provision for income taxes||157,597||140,779||147,765||580,474||554,732|
|Provision for income taxes||47,486||49,016||45,069||176,464||198,039|
|Net income before noncontrolling interests||110,111||91,763||102,696||404,010||356,693|
|Less: Net income from noncontrolling interests||—||1,072||—||1,538||4,605|
|First Republic Bank net income||110,111||90,691||102,696||402,472||352,088|
|Dividends on preferred stock||6,534||—||5,667||18,743||—|
|Redemption of preferred stock||—||—||—||13,200||—|
|Net income available to common shareholders||$||103,577||$||90,691||$||97,029||$||370,529||$||352,088|
|Basic earnings per common share||$||0.79||$||0.70||$||0.75||$||2.85||$||2.73|
|Diluted earnings per common share||$||0.77||$||0.68||$||0.72||$||2.76||$||2.65|
|Dividends per common share||$||0.20||$||—|