First Republic Bank Reports Record Quarterly Earnings

First Republic Bank Reports Record Quarterly Earnings

Cash Dividend Increases

SAN FRANCISCO--(BUSINESS WIRE)-- First Republic Bank (NYS: FRC) today announced record financial results for the quarter ended March 31, 2013.


"We had an excellent first quarter. Year-over-year core earnings per share increased 47%," said Jim Herbert, Chairman and Chief Executive Officer. "Loan origination volume was our highest ever first quarter and earnings benefitted from a much higher-than-average level of loan sales and gains."

Quarterly Cash Dividend Increases to $0.12 per Share

The Bank announced an increase in its quarterly dividend to $0.12 per share of common stock, from $0.10 per share. The first quarter cash dividend of $0.12 per common share is payable on May 15, 2013 to shareholders of record on May 1, 2013.

Financial Highlights

- Net income was $122.3 million, compared to $91.8 million for last year's first quarter. Diluted earnings per share ("EPS") were $0.85, compared to $0.67 for last year's first quarter.

- Excluding the impact of purchase accounting, core net income was $105.3 million, up 55% from last year's first quarter. On this non-GAAP basis, core diluted EPS were $0.72, up 47% year-over-year. (1)

- Book value per share increased by 4% during the quarter and 14% year-over-year to $22.96.

- Asset quality remains very strong; nonperforming assets were only 14 basis points of total assets.

- Net interest margin was 3.87%, compared to 4.02% for the prior quarter.

- Excluding the impact of purchase accounting, the core net interest margin was 3.42%, compared to 3.46% for the prior quarter. (1)

- The efficiency ratio was 53.3%, compared to 51.2% for the prior quarter.

- Excluding the impact of purchase accounting, the core efficiency ratio was 57.3%, compared to 56.2% for the prior quarter. (1)

- Loan originations were $3.5 billion, up 12% compared to last year's first quarter and our highest first quarter ever.

- Loans sold were an unusually high $1.2 billion, two times the average 2012 quarterly volume of $608 million.

- Pre-tax net gains on loan sales were $26.0 million, or 2.13% of loans sold.

- Loans outstanding were $28.7 billion at March 31, 2013, up 20% compared to a year ago and up 1% compared to the prior quarter, net of loans sold.

- Deposits were $26.9 billion at March 31, 2013, up 15% compared to a year ago and down 1% from the prior quarter.

- Wealth management assets were $35.3 billion at March 31, 2013, up 60% compared to a year ago and up 11% from the prior quarter.

- Wealth management fees were up 71% year-over-year and 37% compared to the prior quarter.

"During the quarter, we saw continued economic strength in our markets as clients shifted back into real estate and equities," said Katherine August-deWilde, President and Chief Operating Officer. "This elevated activity led to strong loan originations and robust growth of wealth management assets. We took advantage of continued strong secondary market demand for high-quality home loans and sold a record level of longer-term, fixed-rate mortgages at very profitable levels."

Asset Quality Remains Very Strong

The Bank's credit quality remains strong. At March 31, 2013, nonperforming assets were only 14 basis points of total assets.

During the first quarter of 2013, the Bank recorded a provision for loan losses of $6.5 million. This provision is related primarily to the growth in loans outstanding that have been originated since July 1, 2010. At March 31, 2013, the allowance related to these loans totaled $121.0 million, or 0.60%.

Net charge-offs were $267,000 for the first quarter of 2013 (less than 1 basis point, annualized, of average loans).

Continued Capital Strength

The Bank's Tier 1 leverage ratio at March 31, 2013 was 9.35%, compared to 9.32% at year-end.

Strong Book Value Growth

Book value per share was $22.96 at March 31, 2013, up 14% from a year ago and up 4% for the quarter.

Continued Franchise Development

Assets - modest net expansion

Total assets at March 31, 2013 were $35.1 billion, up 2% for the quarter. Loans increased $4.7 billion, up 20% compared to a year ago and up 1% compared to the prior quarter. Investment securities increased $1.1 billion from a year ago.

Deposits - mix strong, period-end balances down slightly

At March 31, 2013, checking and savings accounts were 89% of total deposits, compared to 85% a year ago. The contractual rate paid on all deposits averaged 0.22% for the first quarter of 2013, compared to 0.24% for the prior quarter. Total deposits were up 15% compared to a year ago and declined 1% compared to the prior quarter.

At March 31, 2013, 97% of deposits were core deposits. (2)

Wealth management expansion

Total wealth management assets were $35.3 billion at March 31, 2013, up 11% from the prior quarter. Wealth management assets include investment management assets of $18.6 billion, brokerage assets and money market mutual funds of $11.2 billion, and trust and custody assets of $5.5 billion.

Wealth management fees earned, including investment advisory, trust and brokerage fees, for the first quarter of 2013 totaled $29.6 million and were up 37% compared to the prior quarter and 71% compared to last year's first quarter. The increased fees reflect both growth in assets under management along with fees following the December 2012 Luminous Capital Holdings, LLC ("Luminous") asset purchase.

Mortgage banking activity unusually strong

The Bank sold $1.2 billion of primarily longer-term, fixed-rate home loans during the first quarter of 2013 and recorded net gains of $26.0 million. By comparison, during the prior quarter, the Bank sold $671 million of loans and recorded net gains of $17.7 million.

At March 31, 2013, the carrying value of mortgage servicing rights ("MSRs") was $23.1 million, or 43 basis points of such loans serviced.

Loans serviced for investors totaled $5.4 billion at March 31, 2013, up 49% from a year ago.

Income Statement and Key Ratio Summary

Strong core revenue growth

Total revenues were $370.3 million for the first quarter of 2013, compared to $357.9 million for the prior quarter and $313.9 million for last year's first quarter, an 18% increase from a year ago.

Excluding the impact of purchase accounting, revenues were $336.0 million for the first quarter of 2013, compared to $316.9 million for the prior quarter and $267.6 million for the first quarter of 2012, a 26% increase from a year ago. (1)

Core net interest income growth

Net interest income was $298.0 million for the first quarter of 2013, compared to $302.3 million for the prior quarter and $281.3 million for last year's first quarter, a 6% increase from the first quarter a year ago.

Excluding the impact of purchase accounting, net interest income (core net interest income) was $263.8 million for the first quarter of 2013, compared to $261.2 million for the prior quarter and $235.0 million for the first quarter of 2012, up 12% from a year ago. The increase in core net interest income was primarily due to increases in the average balances of loans and investment securities as well as lower deposit costs. (1)

Net interest margin

The Bank's net interest margin was 3.87% for the first quarter of 2013, compared to 4.02% for the prior quarter and 4.39% for the first quarter a year ago.

Excluding the impact of purchase accounting, the net interest margin (core net interest margin) was 3.42% for the first quarter of 2013, compared to 3.46% for the prior quarter and 3.64% for the first quarter a year ago. (1) The core net interest margin declined slightly compared to the prior quarter, primarily due to declines in contractual loan yields.

Noninterest income

Noninterest income for the first quarter of 2013 was $72.3 million, up $16.7 million, or 30%, from the prior quarter and up $39.6 million from the first quarter a year ago. These increases were primarily due to increases inwealth management fees and gain on sale of loans.

Noninterest expense

Noninterest expense for the first quarter of 2013 was $197.4 million, compared to $183.1 million for the prior quarter and $164.8 million for the first quarter a year ago, an 8% increase over the prior quarter and a 20% increase year-over-year.

Noninterest expense has grown primarily due to increased personnel costs, increased expenses related to tax credit investments and initiation of the amortization of intangibles from the Luminous asset purchase.

Efficiency ratio

The Bank's efficiency ratio was 53.3% for the first quarter of 2013, compared to 51.2% for the prior quarter and 52.5% for the first quarter a year ago.

Excluding the impact of purchase accounting, the Bank's core efficiency ratio was 57.3% for the first quarter of 2013, compared to 56.2% for the prior quarter and 59.6% for the first quarter a year ago. (1)

Income tax rate

The Bank's effective tax rate for 2013 is expected to be 26.5%, compared to 30.4% for 2012. The decline in the effective tax rate results from the steady increase in 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 first quarter 2013 earnings conference call is scheduled for April 15, 2013 at 11:00 a.m. PT / 2:00 p.m. ET. 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 #29911559. 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 April 15, 2013, at 2:00 p.m. PT / 5:00 p.m. ET, through April 22, 2013, at 8:59 p.m. PT / 11:59 p.m. ET. To access the replay, dial (855) 859-2056 (U.S.) and use conference ID #29911559. 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, Palm Beach, 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; 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

Ended

Ended

March 31,

December 31,

(in thousands, except per share amounts)

2013

2012

2012

Interest income:

Loans

$

288,093

$

279,674

$

294,763

Investments

35,479

28,859

33,278

Cash equivalents

174

623

546

Total interest income

323,746

309,156

328,587

Interest expense:

Deposits

11,010

14,987

11,732

Borrowings

14,687

12,901

14,521

Total interest expense

25,697

27,888

26,253

Net interest income

298,049

281,268

302,334

Provision for loan losses

6,478

14,852

17,204

Net interest income after provision for loan losses

291,571

266,416

285,130

Noninterest income:

Investment advisory fees

25,099

12,699

16,305

Brokerage and investment fees

2,391

2,765

2,904

Trust fees

2,060

1,773

2,381

Foreign exchange fee income

3,087

2,421

3,147

Deposit customer fees

4,644

3,281

3,746

Gain on sale of loans

25,990

3,809

17,721

Loan servicing fees, net

336

(1,904

)

217

Loan and related fees

1,912

1,483

1,829

Income from investments in life insurance

5,884

5,371

6,212

Other income

865

947

1,149

Total noninterest income

72,268

32,645

55,611

Noninterest expense:

Salaries and related benefits

101,884

82,507

88,412

Occupancy

22,088

19,895

21,834

Information systems

17,823

16,174

19,745

Tax credit investments

10,900

5,250

5,754

Amortization of intangibles

6,856

5,288

4,927

FDIC and other deposit assessments

6,827

5,400

6,684

Advertising and marketing

5,803

5,962

6,061

Professional fees

3,713

4,278

4,854

Other expenses

21,540

20,001

24,873

Total noninterest expense

197,434

164,755

183,144

Income before provision for income taxes

166,405

134,306

157,597

Provision for income taxes

44,097

41,635

47,486

Net income before noncontrolling interests

122,308

92,671

110,111

Less: Net income from noncontrolling interests

913

First Republic Bank net income

122,308

91,758

110,111

Dividends on preferred stock

7,776

2,451

6,534

Net income available to common shareholders

$

114,532

$

89,307

$

103,577

Basic earnings per common share

$

0.88

$

0.69

$

0.79

Diluted earnings per common share

$

0.85

$

0.67

$

0.77

Dividends per common share

$

$

$

0.20

Weighted average shares - basic

130,846

129,498

130,614

Weighted average shares - diluted

135,252

133,621

134,731

CONSOLIDATED BALANCE SHEET

As of

March 31,

December 31,

March 31,

($ in thousands)

2013

2012

2012

ASSETS

Cash and cash equivalents

$

552,837

$

602,264

$

1,429,286

Securities purchased under agreements to resell

100

30,901

12,973

Investment securities available-for-sale

1,382,138

960,433

682,835

Investment securities held-to-maturity

2,624,120

2,545,189

2,209,463

Loans:

Single family (1-4 units)

16,654,668

16,672,924

14,175,779

Home equity lines of credit

1,795,775

1,887,604

1,826,061

Multifamily (5+ units)

3,278,219

3,006,946

2,569,780

Commercial real estate

2,932,676

2,909,201

2,629,595

Single family construction

250,587

234,213

198,240

Multifamily/commercial construction

166,027

171,268

110,193

Commercial business loans

2,608,651

2,600,151

1,799,668

Other secured

356,688

391,833

315,014

Unsecured loans and lines of credit

246,198

279,515

177,643

Stock secured

151,156

145,460

79,005