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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