First Republic Bank Reports Strong Quarterly Earnings
First Republic Bank Reports Strong Quarterly Earnings
Significant Growth in Deposits, Loans and Wealth Management
"We had a very good second quarter. Year-over-year core earnings per share increased 28%," said Jim Herbert, Chairman and Chief Executive Officer. "Deposit and loan growth for the quarter were up 5% and 7%, respectively. Wealth management assets increased by 6% and our credit quality remains strong."
Quarterly Cash Dividend Declared
The Bank declared a cash dividend for the second quarter of $0.12 per share of common stock, which is payable on August 15, 2013 to shareholders of record as of August 1, 2013.
Quarterly Financial Highlights
- Net income was $113.7 million for the second quarter of 2013, compared to $97.9 million last year. Diluted earnings per share ("EPS") were $0.77, compared to $0.60 (which was reduced by a $0.10 per share one-time charge upon redemption of REIT preferred stock).
- Excluding the impact of purchase accounting, core net income was $97.1 million, up 37% from last year. On this non-GAAP basis, which also excludes the one-time redemption charge in 2012, core diluted EPS for the quarter were $0.64, up 28% year-over-year. (1)
- The Bank issued $190 million of 5.50% Noncumulative Perpetual Preferred Stock, which qualifies as Tier 1 capital.
- Nonperforming assets were only 17 basis points of total assets.
- Loans outstanding were $30.7 billion, up 7% for the quarter and 20% compared to a year ago.
- Deposits were $28.2 billion, up 5% and 17% compared to a year ago.
- Wealth management assets were $37.4 billion, up 6% and 61% compared to a year ago.
- Wealth management fees were $33.1 million, up 12% and 69% compared to the same period last year.
- Loan originations were $5.3 billion, our highest quarter ever, and were up 34% compared to last year's second quarter.
- Loans sold were $945.4 million and pre-tax gains on loan sales were $8.8 million, or 0.93% of loans sold.
- The core net interest margin was 3.37%, compared to 3.42% for the prior quarter. (1)
- The core efficiency ratio was 58.9%, compared to 57.3% for the prior quarter. (1)
"Record loan originations and renewed deposit growth were the result of healthy conditions in our markets and the continued execution of our business model," said Katherine August-deWilde, President and Chief Operating Officer. "Wealth management assets grew substantially, rising $5.7 billion through the first six months of the year."
The Bank's credit quality remains very strong. Nonperforming assets were 17 basis points of total assets.
The Bank recorded a provision for loan losses of $12.7 million. This provision is related primarily to the growth in loans outstanding that have been originated since July 1, 2010. The allowance related to these loans totaled $133.4 million, or 0.58%.
Net charge-offs were $446,000 and $713,000 for the three and six months ended June 30, 2013, respectively (1 basis point, annualized, of average loans for each period).
The Bank's Tier 1 leverage ratio was 9.83%, compared to 9.35% at March 31, 2013. In April 2013, the Bank issued $190 million of 5.50% Noncumulative Perpetual Preferred Stock, which qualifies as Tier 1 capital.
Book value per share was $23.50, up 13% from a year ago.
Increased Total Assets
Total assets were $37.3 billion, up 6% for the quarter. Loans increased $5.2 billion, up 7% for the quarter and up 20% compared to a year ago.
Good Deposit Growth
Balances in checking accounts, money market accounts (including passbooks) and certificates of deposit all increased during the quarter. Total deposits were up 5% compared to the prior quarter and increased 17% compared to a year ago. The contractual rate paid on all deposits averaged 0.24% for the quarter, compared to 0.22% for the prior quarter.
At June 30, 2013, 96% of deposits were core deposits. (2)
Significant Expansion of Wealth Management
Total wealth management assets were $37.4 billion, up $2.1 billion, or 6%, from the prior quarter and up $5.7 billion, or 18%, since year-end. Such growth in assets under management was primarily due to net new assets obtained from clients. Wealth management assets include investment management assets of $19.0 billion, brokerage assets and money market mutual funds of $11.7 billion, and trust and custody assets of $6.6 billion.
Wealth management fees earned for the quarter totaled $33.1 million and were up 12% compared to the prior quarter and 69% compared to last year. The increased fees reflect both growth in assets under management along with fees related to assets of Luminous Capital Holdings, LLC ("Luminous") purchased in December 2012.
Continued Mortgage Banking Activity
Mortgage banking volume and profitability were good this quarter, although down from an unusually high level during the prior quarter. The Bank sold $945.4 million of primarily longer-term, fixed-rate home loans during the quarter and recorded gains of $8.8 million, or 0.93% of loans sold. Gain on sale of loans contributed $0.04 to diluted EPS for the quarter, compared to $0.11 for the prior quarter.
The carrying value of mortgage servicing rights ("MSRs") was $28.9 million, or 48 basis points of such loans serviced. Loans serviced for investors totaled $6.0 billion, up 58% from a year ago.
Income Statement and Key Ratio Summary
Total revenues were $365.3 million for the quarter, compared to $327.2 million last year, a 12% increase. Total revenues in the prior quarter were $370.3 million, including an elevated level of gain on sale of loans.
Core revenues, excluding the impact of purchase accounting, were $331.8 million for the quarter, compared to $275.1 million last year, a 21% increase. Core revenues in the prior quarter were $336.0 million, including an elevated level of gain on sale of loans. (1)
Net Interest Income Growth
Net interest income was $303.1 million for the quarter, compared to $298.0 million for the prior quarter and $290.6 million last year.
Core net interest income, excluding the impact of purchase accounting, was $269.6 million for the quarter, compared to $263.8 million for the prior quarter and $238.4 million last year, up 2% and 13%, respectively. (1)
Net Interest Margin
The Bank's net interest margin was 3.79% for the quarter, compared to 3.87% for the prior quarter and 4.27% for the second quarter a year ago.
Core net interest margin, excluding the impact of purchase accounting, was 3.37% for the quarter, compared to 3.42% for the prior quarter and 3.48% for the second quarter a year ago. (1)
Noninterest income for the quarter was $62.3 million, up $25.6 million from the second quarter a year ago.
Excluding the gain on sale of loans, noninterest income has increased compared to the prior quarter and the same period last year by 16% and 68%, respectively, primarily due to increases inwealth management fees, foreign exchange fees, deposit fees and net loan servicing fees.
Noninterest Expense and Efficiency Ratio
Noninterest expense for the quarter was $200.1 million, compared to $197.4 million for the prior quarter and $171.6 million for the second quarter a year ago, a 1% increase over the prior quarter and a 17% increase year-over-year.
The Bank's efficiency ratio was 54.8% for the quarter, compared to 53.3% for the prior quarter and 52.4% for the second quarter a year ago.
The Bank's core efficiency ratio, excluding the impact of purchase accounting, was 58.9% for the quarter, compared to 57.3% for the prior quarter and 60.5% for the second quarter a year ago. (1)
While noninterest expense has grown due to increased personnel, increased tax credit investments and the cost of growth initiatives, our efficiency ratios have remained relatively stable.
Income Tax Rate
The Bank's effective tax rate for the six months ended June 30, 2013 was 26.0%, and represents the current estimated tax rate for the full year 2013. By comparison, the effective tax rate was 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 second quarter 2013 earnings conference call is scheduled for July 17, 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 #99945597. 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 July 17, 2013, at 12:00 p.m. PT / 3:00 p.m. ET, through July 25, 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 #99945597. 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
|(in thousands, except per share amounts)||2013||2012||2013||2013||2012|
|Total interest income||332,744||322,127||323,746||656,490||631,283|
|Total interest expense||29,652||31,530||25,697||55,349||59,418|
|Net interest income||303,092||290,597||298,049||601,141||571,865|
|Provision for loan losses||12,653||14,875||6,478||19,131||29,727|
|Net interest income after provision for loan losses||290,439||275,722||291,571||582,010||542,138|
|Investment advisory fees||27,525||14,674||25,099||52,624||27,373|
|Brokerage and investment fees||3,071||2,667||2,391||5,462||5,432|
|Foreign exchange fee income||4,639||2,639||3,087||7,726||5,060|
|Gain on sale of loans||8,779||4,754||25,990||34,769||8,563|
|Loan servicing fees, net||1,299||(704||)||336||1,635||(2,608||)|
|Loan and related fees||2,109||1,465||1,912||4,021||2,948|
|Income from investments in life insurance||5,912||5,618||5,884||11,796||10,989|
|Other income (loss)||1,807||(104||)||865||2,672||843|
|Total noninterest income||62,250||36,639||72,268||134,518||69,284|
|Salaries and employee benefits||98,157||81,533||101,884||200,041||164,040|
|Tax credit investments||11,280||4,521||10,900||22,180||9,771|
|Amortization of intangibles||6,643||5,170||6,856||13,499||10,458|
|FDIC and other deposit assessments||6,800||5,902||6,827||13,627||11,302|
|Advertising and marketing||6,842||7,144||5,803||12,645||13,106|
|Total noninterest expense||200,139||171,555||197,434||397,573||336,310|
|Income before provision for income taxes||152,550||140,806||166,405||318,955||275,112|
|Provision for income taxes||38,831||42,274||44,097||82,928||83,909|
|Net income before noncontrolling interests||113,719||98,532||122,308||236,027||191,203|
|Less: Net income from noncontrolling interests||—||625||—||—||1,538|
|First Republic Bank net income||113,719||97,907||122,308||236,027||189,665|
|Dividends on preferred stock||9,706||4,091||7,776||17,482||6,542|
|Redemption of preferred stock||—||13,200||—||—||13,200|
|Net income available to common shareholders||$||104,013||$||80,616||$||114,532||$||218,545||$||169,923|
|Basic earnings per common share||$||0.79||$||0.62||$||0.88||$||1.67||$||1.31|
|Diluted earnings per common share||$||0.77||$||0.60||$||0.85||$||1.61||$||1.27|
|Dividends per common share||$||0.12||$||—||$||—||$||0.12||$||—|
|Weighted average shares - basic||131,102||129,890||130,846||130,975||129,694|
|Weighted average shares - diluted||135,595||134,002||135,252||135,428||133,816|