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First Republic Reports Strong Second Quarter Results

Stocks in this article: FRC

__________

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

Conference Call Details

First Republic Bank’s second quarter 2012 earnings conference call is scheduled for July 18, 2012 at 11:00 a.m. PDT / 2:00 p.m. EDT. To listen to the live call by telephone, please dial (877) 407-3982 approximately 10 minutes prior to the start time (to allow time for registration) and use conference ID #396823. International callers should dial (201) 493-6780. 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 18, 2012, at 2:00 p.m. PDT / 5:00 p.m. EDT, through July 25, 2012, at 8:59 p.m. PDT / 11:59 p.m. EDT. To access the replay, dial (877) 870-5176 (U.S.) and use conference ID #396823. International callers should dial (858) 384-5517 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 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 Index SM, 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 operations and current or future 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 Ended June 30,

 

Three Months Ended March 31,

 

Six Months Ended June 30,

(in thousands, except per share amounts)   2012       2011     2012     2012       2011
Interest income:
Interest on loans $ 291,040 $ 268,768 $ 279,674 $ 570,714 $ 537,508
Interest on investments 30,265 15,890 28,859 59,124 27,878
Interest on cash equivalents   822     1,276     623     1,445     2,469

Total interest income

  322,127     285,934     309,156     631,283     567,855
 
Interest expense:
Interest on customer deposits 16,678 22,313 14,987 31,665 44,067
Interest on FHLB advances and other borrowings 14,302 6,246 12,345 26,647 11,341
Interest on subordinated notes   550     573     556     1,106     1,151
Total interest expense   31,530     29,132     27,888     59,418     56,559
 
Net interest income 290,597 256,802 281,268 571,865 511,296
Provision for loan losses   14,875     13,026     14,852     29,727     20,639
Net interest income after provision for loan losses   275,722     243,776     266,416     542,138     490,657
 
Noninterest income:
Investment advisory fees 14,674 11,814 12,699 27,373 22,470
Brokerage and investment fees 2,667 2,155 2,765 5,432 4,501
Trust fees 2,185 1,694 1,773 3,958 3,420
Foreign exchange fee income 2,639 2,152 2,421 5,060 4,247
Deposit customer fees 3,445 3,771 3,281 6,726 7,413
Loan servicing fees, net (704 ) 805 (1,904 ) (2,608 ) 573
Loan and related fees 1,465 833 1,483 2,948 1,649
Gain on sale of loans 4,754 427 3,809 8,563 4,781
Income from investments in life insurance 5,618 4,092 5,371 10,989 7,822
Other income (loss)   (104 )   (546 )   947     843     1,387
Total noninterest income   36,639     27,197     32,645     69,284     58,263
 
Noninterest expense:
Salaries and related benefits 81,533 68,733 82,507 164,040 132,954
Occupancy 20,690 15,912 19,895 40,585 31,926
Information systems 17,746 14,212 16,174 33,920 26,725
Advertising and marketing 7,144 7,053 5,962 13,106 13,362
FDIC and other deposit assessments 5,902 4,497 5,400 11,302 13,197
Professional fees 5,453 3,010 4,278 9,731 7,443
Amortization of intangibles 5,170 5,760 5,288 10,458 11,677
Tax credit investments 4,521 1,474 5,250 9,771 3,078
Other expenses   23,396     18,178     20,001     43,397     33,456
Total noninterest expense   171,555     138,829     164,755     336,310     273,818
 
Income before provision for income taxes 140,806 132,144 134,306 275,112 275,102
Provision for income taxes   42,274     46,142     41,635     83,909     99,037
Net income before noncontrolling interests 98,532 86,002 92,671 191,203 176,065
Less: Net income from noncontrolling interests   625     1,170     913     1,538     2,461
First Republic Bank net income 97,907 84,832 91,758 189,665 173,604
Dividends on preferred stock 4,091 - 2,451 6,542 -
Redemption of preferred stock   13,200     -     -     13,200     -
Net income available to common stockholders $ 80,616   $ 84,832   $ 89,307   $ 169,923   $ 173,604
 
Basic earnings per common share $ 0.62   $ 0.66   $ 0.69   $ 1.31   $ 1.35
Diluted earnings per common share $ 0.60   $ 0.64   $ 0.67   $ 1.27   $ 1.31
 
Weighted average shares - basic   129,890     128,858     129,498     129,694     128,858
Weighted average shares - diluted   134,002     133,091     133,621     133,816     132,848
 

CONSOLIDATED BALANCE SHEET

 
  As of
($ in thousands)

June 30, 2012

 

March 31, 2012

 

December 31, 2011

 

June 30, 2011

ASSETS

Cash and cash equivalents $ 800,818 $ 1,429,286 $ 630,780 $ 790,767
Securities purchased under agreements to resell 19,330 12,973 4,890 8,267
Investment securities available-for-sale 782,098 682,835 722,280 563,008
Investment securities held-to-maturity 2,323,241 2,209,463 2,097,198 1,430,655
 
Loans:
Single family (1-4 units) 15,192,602 14,175,779 13,538,218 12,124,085
Home equity lines of credit 1,934,143 1,826,061 1,878,969 1,781,041
Commercial real estate 2,719,024 2,629,595 2,504,791 2,312,605
Multifamily (5+ units) 2,631,934 2,569,780 2,437,169 2,121,549
Single family construction 209,156 198,240 183,863 182,977
Multifamily/commercial construction 129,159 110,193 122,885 85,751
Commercial business loans 2,036,005 1,799,668 1,656,795 1,286,026
Other secured 171,579 192,619 169,502 151,084
Unsecured loans and lines of credit 337,480 300,038 224,069 145,857
Stock secured   99,346     79,005     103,208     82,150  
Total unpaid principal balance   25,460,428     23,880,978     22,819,469     20,273,125  
Net unaccreted discount (410,197 ) (455,885 ) (493,895 ) (590,460 )
Net deferred fees and costs 17,780 13,456 10,020 5,604
Allowance for loan losses   (97,049 )   (82,418 )   (68,113 )   (38,200 )

Loans, net

  24,970,962     23,356,131     22,267,481     19,650,069  
 
Loans held for sale 63,957 53,184 305,881 59,358
Investments in life insurance 620,085 591,397 585,956 432,496
Tax credit investments 419,968 389,000 330,447 166,589
Prepaid expenses and other assets 686,096 695,575 548,395 395,183
Premises, equipment and leasehold improvements, net 128,481 123,439 118,365 106,478
Goodwill 24,604 24,604 24,604 24,604
Other intangible assets 126,456 129,286 134,574 145,620
Mortgage servicing rights 17,415 17,466 17,269 21,725
Other real estate owned   3,490     4,348     3,681     2,954  
Total Assets $ 30,987,001   $ 29,718,987   $ 27,791,801   $ 23,797,773  
 

LIABILITIES AND EQUITY

Liabilities:
Customer deposits:
Noninterest-bearing accounts $ 7,546,456 $ 6,275,752 $ 6,115,571 $ 3,936,714
Interest-bearing checking accounts 3,765,848 3,793,085 3,675,813 2,602,362
Money Market (MM) checking accounts 3,645,809 3,583,467 3,139,448 3,196,680
MM savings and passbooks 5,876,837 6,030,096 5,520,558 5,178,516
Certificates of deposit   3,380,353     3,572,561     4,007,869     5,025,576  
Total customer deposits   24,215,303     23,254,961     22,459,259     19,939,848  
 
FHLB advances 3,150,000 3,050,000 2,200,000 1,100,000
Subordinated notes 64,346 65,032 65,711 67,054
Debt related to variable interest entity 53,581 60,030 63,259 22,763
Other liabilities   447,158     425,491     408,550     267,992  
Total Liabilities   27,930,388     26,855,514     25,196,779     21,397,657  
 
Equity:
First Republic Bank stockholders’ equity
Preferred stock 349,525 199,525 - -
Common stock 1,305 1,302 1,294 1,289
Additional paid-in capital 2,012,857 2,019,194 2,020,832 2,008,280
Retained earnings 677,573 583,757 494,450 315,966
Accumulated other comprehensive income (loss)   15,353     12,895     1,186     (2,679 )
Total First Republic Bank stockholders’ equity 3,056,613 2,816,673 2,517,762 2,322,856
Noncontrolling interests   -     46,800     77,260     77,260  
Total Equity   3,056,613     2,863,473     2,595,022     2,400,116  

Total Liabilities and Equity

$ 30,987,001   $ 29,718,987   $ 27,791,801   $ 23,797,773  
     

Three Months Ended June 30,

Three Months Ended March 31,

Six Months Ended June 30,

($ in thousands)   2012       2011     2012     2012       2011  

Operating Information

Loans originated $ 3,963,579 $ 2,443,159 $ 3,156,526 $ 7,120,105 $ 4,298,379
Loans sold $ 435,786 $ 266,242 $ 552,050 $ 987,836 $ 505,039
Net income to average assets (2) 1.29 % 1.42 % 1.29 % 1.29 % 1.48 %
Net income available to common stockholders
to average common equity (2) 12.07 % 14.83 % 13.86 % 12.95 % 15.57 %
Efficiency ratio (3) 52.4 % 48.9 % 52.5 % 52.5 % 48.1 %
Efficiency ratio (non-GAAP) (3), (4) 60.5 % 59.1 % 59.6 % 60.1 % 58.9 %
 

Yields/Rates (2)

Cash and cash equivalents 0.26 % 0.28 % 0.27 % 0.27 % 0.25 %
Securities purchased under agreements to resell 0.13 % 0.03 % 0.09 % 0.11 % 0.05 %
Investment securities (5) 5.57 % 5.81 % 5.65 % 5.61 % 6.00 %
Loans (5) 4.83 % 5.61 % 4.88 % 4.86 % 5.69 %
Total interest-earning assets 4.71 % 5.19 % 4.81 % 4.76 % 5.23 %
 
Checking 0.02 % 0.05 % 0.02 % 0.02 % 0.05 %
Money market checking and savings 0.29 % 0.45 % 0.21 % 0.25 % 0.46 %
CDs 1.09 % 0.92 % 1.04 % 1.07 % 0.88 %
Total deposits 0.28 % 0.44 % 0.26 % 0.27 % 0.44 %
FHLB advances 1.80 % 2.41 % 1.92 % 1.85 % 2.47 %
Other borrowings 2.58 % 2.90 % 2.62 % 2.60 % 2.81 %
Total borrowings 1.83 % 2.45 % 1.95 % 1.88 % 2.50 %
Total interest-bearing liabilities 0.47 % 0.55 % 0.44 % 0.46 % 0.54 %
 
Net interest spread 4.24 % 4.64 % 4.37 % 4.30 % 4.69 %
 
Net interest margin 4.27 % 4.67 % 4.39 % 4.32 % 4.72 %
 
Net interest margin (non-GAAP) (4) 3.48 % 3.54 % 3.64 % 3.56 % 3.54 %
 

(2) Ratios are annualized.

(3) Efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income.

(4) For a reconciliation of these ratios to the equivalent GAAP ratios, see “Use of Non-GAAP Financial Measures.”

(5) Yield is calculated on a tax-equivalent basis.
 

The following table separates our loan portfolio as of June 30, 2012 between loans acquired on July 1, 2010 and loans originated since July 1, 2010:

 
  Composition of Loan Portfolio
Loans acquired   Loans originated   Total loans at
on July 1, since July 1, June 30,
($ in thousands)   2010     2010     2012  
Single family (1-4 units) $ 6,173,298 $ 9,019,304 $ 15,192,602
Home equity lines of credit 1,195,775 738,368 1,934,143
Commercial real estate 1,532,012 1,187,012 2,719,024
Multifamily (5+ units) 990,690 1,641,244 2,631,934
Single family construction 20,549 188,607 209,156
Multifamily/commercial construction 12,811 116,348 129,159
Commercial business loans 556,578 1,479,427 2,036,005
Other secured 52,067 119,512 171,579
Unsecured loans and lines of credit 57,452 280,028 337,480
Stock secured   12,748     86,598     99,346  
Total unpaid principal balance   10,603,980     14,856,448     25,460,428  
Net unaccreted discount (409,439 ) (758 ) (410,197 )
Net deferred fees and costs (7,836 ) 25,616 17,780
Allowance for loan losses   (13,389 )   (83,660 )   (97,049 )
Loans, net $ 10,173,316   $ 14,797,646   $ 24,970,962  
 
  As of
June 30,   March 31,   December 31,   June 30,
(in thousands, except per share amounts)   2012     2012     2011     2011  

Book Value

Number of shares of common stock outstanding   130,532     130,236     129,372     128,858  
Book value per common share $ 20.74   $ 20.10   $ 19.46   $ 18.03  
Tangible book value per common share $ 19.58   $ 18.91   $ 18.23   $ 16.71  
 

Capital Ratios

Tier 1 leverage ratio 9.55 % 9.48 % 8.81 % 9.38 %
Tier 1 common equity ratio (6) 12.03 % 12.73 % 12.84 % 13.90 %
Tier 1 risk-based capital ratio 13.68 % 14.01 % 13.25 % 14.39 %
Total risk-based capital ratio 14.17 % 14.47 % 13.65 % 14.74 %
 
(6) Tier 1 common equity ratio represents common equity less goodwill and intangible assets divided by risk-weighted assets.
 
As of
June 30,   March 31,   December 31,   June 30,
($ in millions) 2012 2012 2011 2011

Assets Under Management (7)

First Republic Investment Management $ 9,918 $ 8,955 $ 7,940 $ 7,879
Brokerage and Investment:
Brokerage 7,663 7,777 6,806 6,862
Money Market Mutual Funds   779   666   1,037   646
Total Brokerage and Investment   8,442   8,443   7,843   7,508
Trust Company:
Trust 2,196 2,089 1,963 1,898
Custody   2,734   2,565   2,641   2,351
Total Trust Company   4,930   4,654   4,604   4,249
Total Wealth Management Assets   23,290   22,052   20,387   19,636
Loans serviced for investors   3,827   3,651   3,381   3,877
Total fee-based assets $ 27,117 $ 25,703 $ 23,768 $ 23,513
 
(7) Assets under management are presented excluding sweep deposits.
 
As of
June 30,   March 31,   December 31,   June 30,
($ in thousands)   2012     2012     2011     2011  

Asset Quality Information

Nonperforming assets:
Nonaccrual loans $ 28,595 $ 27,480 $ 26,373 $ 26,740
Other real estate owned   3,490     4,348     3,681     2,954  
Total nonperforming assets $ 32,085   $ 31,828   $ 30,054   $ 29,694  
 
Nonperforming assets to total assets 0.10 % 0.11 % 0.11 % 0.12 %
 
Restructured performing loans $ 7,978 $ 5,783 $ 6,674 $ 5,159
 
Average Balance Sheet

Three Months Ended June 30,

 

Three Months Ended March 31,

 

Six Months Ended June 30,

($ in thousands) 2012   2011 2012 2012   2011
Assets:
Cash equivalents $ 1,251,267 $ 1,826,348 $ 912,075 $ 1,081,671 $ 1,952,824
Securities purchased under agreements to resell 17,810 11,849 21,018 19,414 7,421
Investment securities (8) 3,142,539 1,630,533 2,958,810 3,050,675 1,408,535
Loans (9)   24,182,518   19,159,668   22,996,300   23,589,409   18,932,701
Total interest-earning assets 28,594,134 22,628,398 26,888,203 27,741,169 22,301,481
Noninterest-earning assets   1,837,582   1,329,315   1,733,236   1,785,408   1,311,318
Total Assets $ 30,431,716 $ 23,957,713 $ 28,621,439 $ 29,526,577 $ 23,612,799
 
 
Liabilities and Equity:
Checking $ 10,792,468 $ 6,566,733 $ 9,749,583 $ 10,271,026 $ 6,307,848
Money market checking and savings 9,480,389 8,433,182 9,254,760 9,367,574 8,302,151
CDs (9)   3,467,158   5,246,008   3,759,487   3,613,322   5,451,389
Total deposits 23,740,015 20,245,923 22,763,830 23,251,922 20,061,388
FHLB advances 3,139,011 1,027,472 2,530,769 2,834,890 913,260
Subordinated notes (9) 64,680 67,377 65,363 65,022 67,706
Debt related to variable interest entity   59,850   23,044   62,425   61,138   23,969
Total borrowings   3,263,541   1,117,893   2,658,557   2,961,050   1,004,935
Total interest-bearing liabilities 27,003,556 21,363,816 25,422,387 26,212,972 21,066,323
Noninterest-bearing liabilities 447,526 218,013 392,820 420,172 214,231
Common equity 2,686,401 2,294,634 2,591,806 2,639,103 2,248,350
Preferred equity 247,657 - 147,887 197,772 -
Noncontrolling interests   46,576   81,250   66,539   56,558   83,895
Total Liabilities and Equity $ 30,431,716 $ 23,957,713 $ 28,621,439 $ 29,526,577 $ 23,612,799
 
(8) Includes FHLB stock.
(9) Average balances are presented net of purchase accounting discounts or premiums.

Purchase Accounting Accretion and Amortization

The following table presents the impact of purchase accounting for the periods indicated:

 
 

Three Months Ended June 30,

 

Three Months Ended March 31,

 

Six Months Ended June 30,

($ in thousands) 2012   2011 2012 2012   2011
Accretion/amortization to net interest income:
Loans $ 45,768 $ 43,773 $ 38,153 $ 83,921 $ 87,082
Deposits 5,715 14,351 7,458 13,173 31,073
Borrowings   686   663   680   1,366   1,320

Total

$ 52,169 $ 58,787 $ 46,291 $ 98,460 $ 119,475
Noninterest income:
Gain on sale of loans $ - $ - $ - $ - $ 3,827
Loan commitments   15   166   69   84   1,220
Total $ 15 $ 166 $ 69 $ 84 $ 5,047
 

Amortization to noninterest expense:

Intangible assets $ 5,170 $ 5,760 $ 5,288 $ 10,458 $ 11,677
 

Use of Non-GAAP Financial Measures

Our accounting and reporting policies conform to generally accepted accounting principles in the United States (“GAAP”) and the prevailing practices in the banking industry. However, due to the application of purchase accounting, management uses certain non-GAAP measures and ratios that exclude the impact of these items to evaluate our performance, including net income, earnings per share, net interest margin and the efficiency ratio.

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