First Republic Bank Reports Record Quarterly Earnings
First Republic Bank Reports Record Quarterly Earnings
Cash Dividend Increases
"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.
- 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 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 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.
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.
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
|March 31,||December 31,|
|(in thousands, except per share amounts)||2013||2012||2012|
|Total interest income||323,746||309,156||328,587|
|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|
|Investment advisory fees||25,099||12,699||16,305|
|Brokerage and investment fees||2,391||2,765||2,904|
|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|
|Loan and related fees||1,912||1,483||1,829|
|Income from investments in life insurance||5,884||5,371||6,212|
|Total noninterest income||72,268||32,645||55,611|
|Salaries and related benefits||101,884||82,507||88,412|
|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|
|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||$||—||$||—||$||0.20|
|Weighted average shares - basic||130,846||129,498||130,614|
|Weighted average shares - diluted||135,252||133,621||134,731|
CONSOLIDATED BALANCE SHEET
|March 31,||December 31,||March 31,|
|($ in thousands)||2013||2012||2012|
|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|
|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|
|Commercial business loans||2,608,651||2,600,151||1,799,668|
|Unsecured loans and lines of credit||246,198||279,515||177,643|