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First Republic Bank Reports Record Earnings

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 for the nine months ended September 30, 2012 were impacted following the redemption of the First Republic Preferred Capital Corporation (“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 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, or a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated:

  Three Months   Three Months   Nine Months
Ended Ended Ended
September 30, June 30, September 30,
(in thousands, except per share amounts) 2012   2011 2012 2012   2011
Non-GAAP earnings
Net income $ 102,696 $ 87,793 $ 97,907 $ 292,361 $ 261,397
Accretion / amortization added to net interest income (46,651 ) (62,326 ) (52,169 ) (145,111 ) (181,801 )
Discounts recognized in gain on sale of loans (3,827 )
Accretion added to noninterest income (171 ) (143 ) (15 ) (255 ) (1,363 )
Amortization of intangible assets 5,087 5,602 5,170 15,545 17,279
Add back tax impact of the above items 17,737   24,169   19,981   55,174   72,128  
Non-GAAP net income 78,698 55,095 70,874 217,714 163,813
Dividends on preferred stock (5,667 ) (4,091 ) (12,209 )
Redemption of FRPCC preferred stock (13,200 ) (13,200 )
Impact of FRPCC preferred stock redemption     13,200   13,200    
Non-GAAP net income available to common stockholders $ 73,031   $ 55,095   $ 66,783   $ 205,505   $ 163,813  
 
GAAP earnings per common share - diluted $ 0.72 $ 0.66 $ 0.60 $ 1.99 $ 1.97
Impact of purchase accounting, net of tax (0.18 ) (0.24 ) (0.20 ) (0.56 ) (0.74 )
Impact of FRPCC preferred stock redemption     0.10   0.10    
Non-GAAP earnings per common share - diluted $ 0.54   $ 0.42   $ 0.50   $ 1.53   $ 1.23  
 
Weighted average diluted common shares outstanding 134,374   132,437   134,002   134,004   132,683  
 
  Three Months   Three Months   Nine Months
Ended Ended Ended
September 30, June 30, September 30,
($ in thousands) 2012   2011 2012 2012   2011
Net interest margin
Net interest income $ 298,821 $ 268,906 $ 290,597 $ 870,686 $ 780,202
Add: Tax-equivalent adjustment 17,007   10,612   15,943   47,993   26,733  
Net interest income (tax-equivalent basis) 315,828 279,518 306,540 918,679 806,935
Less: Accretion / amortization (46,651 ) (62,326 ) (52,169 ) (145,111 ) (181,801 )
Non-GAAP net interest income (tax-equivalent basis) $ 269,177   $ 217,192   $ 254,371   $ 773,568   $ 625,134  
 
Average interest-earning assets $ 30,345,379 $ 24,729,641 $ 28,594,134 $ 28,615,575 $ 23,119,763
Add: Average unamortized loan discounts 396,197   574,706   439,947   438,897   618,049  
Average interest-earning assets (non-GAAP) $ 30,741,576   $ 25,304,347   $ 29,034,081   $ 29,054,472   $ 23,737,812  
 
Net interest margin – reported 4.13 % 4.48 % 4.27 % 4.26 % 4.63 %
Net interest margin (non-GAAP) 3.47 % 3.41 % 3.48 % 3.53 % 3.49 %
 
  Three Months   Three Months   Nine Months
Ended Ended Ended
September 30, June 30, September 30,
($ in thousands) 2012   2011 2012 2012   2011
Efficiency ratio
Net interest income $ 298,821 $ 268,906 $ 290,597 $ 870,686 $ 780,202
Less: Accretion / amortization (46,651 ) (62,326 ) (52,169 ) (145,111 ) (181,801 )
Net interest income (non-GAAP) $ 252,170   $ 206,580   $ 238,428   $ 725,575   $ 598,401  
 
Noninterest income $ 43,839 $ 30,265 $ 36,639 $ 113,123 $ 88,528
Less: Accretion of discounts on loan commitments (171 ) (143 ) (15 ) (255 ) (1,363 )
Discounts recognized in gain on sale of loans         (3,827 )
Noninterest income (non-GAAP) $ 43,668   $ 30,122   $ 36,624   $ 112,868   $ 83,338  
 
Total revenue $ 342,660 $ 299,171 $ 327,236 $ 983,809 $ 868,730
Total revenue (non-GAAP) $ 295,838 $ 236,702 $ 275,052 $ 838,443 $ 681,739
 
Noninterest expense $ 178,390 $ 144,789 $ 171,555 $ 514,700 $ 418,607
Less: Intangible amortization (5,087 ) (5,602 ) (5,170 ) (15,545 ) (17,279 )
Noninterest expense (non-GAAP) $ 173,303   $ 139,187   $ 166,385   $ 499,155   $ 401,328  
 
Efficiency ratio 52.1 % 48.4 % 52.4 % 52.3 % 48.2 %
Efficiency ratio (non-GAAP) 58.6 % 58.8 % 60.5 % 59.5 % 58.9 %
 




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