First Republic Reports Strong Second Quarter Results

Our net income, earnings per share, net interest margin and efficiency ratio are significantly impacted by accretion and amortization of the fair value adjustments recorded in purchase accounting. The accretion and amortization affect our net income, earnings per share and certain operating ratios as we accrete loan discounts to interest income; accrete discounts on loan commitments to noninterest income; recognize discounts established in purchase accounting on the sale of loans, which increase gain on sale of loans; amortize premiums on liabilities such as CDs and subordinated notes to interest expense; and amortize intangible assets to noninterest expense. In addition, earnings per share was impacted following the redemption of the FRPCC Series D preferred stock in the second quarter of 2012 due to the $13.2 million difference between the liquidation preference and the carrying value established in purchase accounting.

We believe these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding our performance. Our management uses, and believes that investors benefit from referring to, these non-GAAP measures and ratios in assessing our current operating results and related trends, and when planning and forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, not as a substitute for or preferable to, ratios prepared in accordance with GAAP. In the tables below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures and ratios to the non-GAAP financial measures and ratios used in this press release, or a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated:

		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
Non-GAAP earnings
Net income		$	97,907			$	84,832			$	91,758			$	189,665			$	173,604
Accretion / amortization added to net interest income			(52,169	)			(58,787	)			(46,291	)			(98,460	)			(119,475	)
Discounts recognized in gain on sale of loans			-				-				-				-				(3,827	)
Accretion added to noninterest income			(15	)			(166	)			(69	)			(84	)			(1,220	)
Amortization of intangible assets			5,170				5,760				5,288				10,458				11,677
Add back tax impact of the above items			19,981				22,607				17,456				37,437				47,959
Non-GAAP net income			70,874				54,246				68,142				139,016				108,718
Dividends on preferred stock			(4,091	)			-				(2,451	)			(6,542	)			-
Redemption of preferred stock			(13,200	)			-				-				(13,200	)			-
Impact of preferred stock redemption			13,200				-				-				13,200				-
Non-GAAP net income available to common stockholders		$	66,783			$	54,246			$	65,691			$	132,474			$	108,718
GAAP earnings per common share - diluted		$	0.60			$	0.64			$	0.67			$	1.27			$	1.31
Impact of purchase accounting, net of tax			(0.20	)			(0.23	)			(0.18	)			(0.38	)			(0.49	)
Impact of preferred stock redemption			0.10				-				-				0.10				-
Non-GAAP earnings per common share - diluted		$	0.50			$	0.41			$	0.49			$	0.99			$	0.82
Weighted average diluted common shares outstanding			134,002				133,091				133,621				133,816				132,848

		Three Months Ended June 30,								Three Months Ended March 31,				Six Months Ended June 30,
($ in thousands)			2012				2011				2012				2012				2011
Net interest margin
Net interest income		$	290,597			$	256,802			$	281,268			$	571,865			$	511,296
Add: Tax-equivalent adjustment			15,943				8,756				15,043				30,986				16,121
Net interest income (tax-equivalent basis)			306,540				265,558				296,311				602,851				527,417
Less: Accretion / amortization			(52,169	)			(58,787	)			(46,291	)			(98,460	)			(119,475	)
Non-GAAP net interest income (tax-equivalent basis)		$	254,371			$	206,771			$	250,020			$	504,391			$	407,942
Average interest-earning assets		$	28,594,134			$	22,628,398			$	26,888,203			$	27,741,169			$	22,301,481
Add: Average unamortized loan discounts			439,947				617,512				481,015				460,481				640,080
Adjusted average interest-earning assets		$	29,034,081			$	23,245,910			$	27,369,218			$	28,201,650			$	22,941,561
Net interest margin – reported			4.27	%			4.67	%			4.39	%			4.32	%			4.72	%
Adjusted net interest margin (non-GAAP)			3.48	%			3.54	%			3.64	%			3.56	%			3.54	%

		Three Months Ended June 30,								Three Months Ended March 31,				Six Months Ended June 30,
($ in thousands)			2012				2011				2012				2012				2011
Efficiency ratio
Net interest income		$	290,597			$	256,802			$	281,268			$	571,865			$	511,296
Less: Accretion / amortization			(52,169	)			(58,787	)			(46,291	)			(98,460	)			(119,475	)
Adjusted net interest income (non-GAAP)		$	238,428			$	198,015			$	234,977			$	473,405			$	391,821
Noninterest income		$	36,639			$	27,197			$	32,645			$	69,284			$	58,263
Less: Accretion of discounts on loan commitments			(15	)			(166	)			(69	)			(84	)			(1,220	)
Discounts recognized in gain on sale of loans			-				-				-				-				(3,827	)
Adjusted noninterest income (non-GAAP)		$	36,624			$	27,031			$	32,576			$	69,200			$	53,216
Total revenue		$	327,236			$	283,999			$	313,913			$	641,149			$	569,559
Total revenue (non-GAAP)		$	275,052			$	225,046			$	267,553			$	542,605			$	445,037
Noninterest expense		$	171,555			$	138,829			$	164,755			$	336,310			$	273,818
Less: Intangible amortization			(5,170	)			(5,760	)			(5,288	)			(10,458	)			(11,677	)
Adjusted noninterest expense (non-GAAP)		$	166,385			$	133,069			$	159,467			$	325,852			$	262,141
Efficiency ratio			52.4	%			48.9	%			52.5	%			52.5	%			48.1	%
Efficiency ratio (non-GAAP)			60.5	%			59.1	%			59.6	%			60.1	%			58.9	%

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