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First Republic Bank Reports Record Annual And Quarterly Earnings

_________

(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 fourth quarter 2012 earnings conference call is scheduled for January 16, 2013 at 11:00 a.m. PST / 2:00 p.m. EST. 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 #85719936. 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 January 16, 2013, at 2:00 p.m. PST / 5:00 p.m. EST, through January 23, 2013, at 8:59 p.m. PST / 11:59 p.m. EST. To access the replay, dial (855) 859-2056 (U.S.) and use conference ID #85719936. 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, 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 December 31,
  Three Months Ended September 30,  

Twelve Months Ended December 31,
(in thousands, except per share amounts) 2012   2011 2012 2012   2011
Interest income:
Interest on loans $ 294,763 $ 288,226 $ 295,045 $ 1,160,522 $ 1,104,504
Interest on investments 33,278 25,338 31,638 124,040 73,178
Interest on cash equivalents 546   1,197   653   2,644   5,275  
Total interest income 328,587   314,761   327,336   1,287,206   1,182,957  
 
Interest expense:
Interest on customer deposits 11,732 17,628 13,584 56,981 83,268
Interest on FHLB advances and other borrowings 14,521 11,035 14,492 55,660 31,671
Interest on subordinated notes   561   439   1,545   2,279  
Total interest expense 26,253   29,224   28,515   114,186   117,218  
 
Net interest income 302,334 285,537 298,821 1,173,020 1,065,739
Provision for loan losses 17,204   16,159   16,505   63,436   52,329  
Net interest income after provision for loan losses 285,130   269,378   282,316   1,109,584   1,013,410  
 
Noninterest income:
Investment advisory fees 16,305 11,897 15,376 59,054 47,030
Brokerage and investment fees 2,904 2,219 2,346 10,682 9,496
Trust fees 2,381 1,729 2,376 8,715 6,737
Foreign exchange fee income 3,147 3,298 3,297 11,504 10,235
Deposit customer fees 3,746 3,169 3,522 13,994 14,368
Loan servicing fees, net 217 (341 ) (2,916 ) (5,307 ) (168 )
Loan and related fees 1,829 1,801 1,514 6,291 4,951
Gain on sale of loans 17,721 335 12,547 38,831 6,417
Income from investments in life insurance 6,212 4,785 4,985 22,186 16,143
Other income 1,149   510   792   2,784   2,721  
Total noninterest income 55,611   29,402   43,839   168,734   117,930  
 
Noninterest expense:
Salaries and related benefits 88,412 74,352 87,204 339,656 275,086
Occupancy 21,834 18,595 21,229 83,648 67,609
Information systems 19,745 16,065 18,843 72,508 57,695
Advertising and marketing 6,061 8,567 5,953 25,120 28,812
FDIC and other deposit assessments 6,684 5,552 6,400 24,386 23,910
Professional fees 4,854 4,711 5,263 19,848 16,359
Amortization of intangibles 4,927 5,444 5,087 20,472 22,723
Tax credit investments 5,754 3,680 5,348 20,873 9,920
Other expenses 24,873   21,035   23,063   91,333   74,494  
Total noninterest expense 183,144   158,001   178,390   697,844   576,608  
 
Income before provision for income taxes 157,597 140,779 147,765 580,474 554,732
Provision for income taxes 47,486   49,016   45,069   176,464   198,039  
Net income before noncontrolling interests 110,111 91,763 102,696 404,010 356,693
Less: Net income from noncontrolling interests   1,072     1,538   4,605  
First Republic Bank net income 110,111 90,691 102,696 402,472 352,088
Dividends on preferred stock 6,534 5,667 18,743
Redemption of preferred stock       13,200    
Net income available to common shareholders $ 103,577   $ 90,691   $ 97,029   $ 370,529   $ 352,088  
 
Basic earnings per common share $ 0.79   $ 0.70   $ 0.75   $ 2.85   $ 2.73  
Diluted earnings per common share $ 0.77   $ 0.68   $ 0.72   $ 2.76   $ 2.65  
Dividends per common share $ 0.20   $   $ 0.10   $ 0.30   $  
 
Weighted average shares - basic 130,614   129,313   130,194   130,051   129,061  
Weighted average shares - diluted 134,731   132,939   134,374   134,189   132,724  
 
 

CONSOLIDATED BALANCE SHEET
 
  As of
($ in thousands) December 31, 2012  

September 30, 2012
 

December 31, 2011

ASSETS
Cash and cash equivalents $ 602,264 $ 877,758 $ 630,780
Securities purchased under agreements to resell 30,901 23,348 4,890
Investment securities available-for-sale 960,433 798,874 722,280
Investment securities held-to-maturity 2,545,189 2,448,888 2,097,198
 
Loans:
Single family (1-4 units) 16,672,924 16,018,135 13,538,218
Home equity lines of credit 1,887,604 1,887,444 1,878,969
Commercial real estate 2,909,201 2,813,805 2,504,791
Multifamily (5+ units) 3,006,946 2,767,405 2,437,169
Single family construction 234,213 234,399 183,863
Multifamily/commercial construction 171,268 151,632 122,885
Commercial business loans 2,600,151 2,236,039 1,656,795
Other secured 391,833 374,820 260,598
Unsecured loans and lines of credit 279,515 216,380 132,973
Stock secured 145,460   122,543   103,208  
Total unpaid principal balance 28,299,115   26,822,602   22,819,469  
Net unaccreted discount (332,404 ) (368,893 ) (493,895 )
Net deferred fees and costs 20,048 19,723 10,020
Allowance for loan losses (129,889 ) (113,000 ) (68,113 )
Loans, net 27,856,870   26,360,432   22,267,481  
 
Loans held for sale 204,631 63,469 305,881
Investments in life insurance 701,672 695,240 585,956
Tax credit investments 484,548 475,352 330,447
Prepaid expenses and other assets 575,741 534,463 548,395
Premises, equipment and leasehold improvements, net 142,201 133,344 118,365
Goodwill and other intangible assets 265,441 145,973 159,178
Mortgage servicing rights 17,786 16,387 17,269
Other real estate owned   2,642   3,681  
Total Assets $ 34,387,677   $ 32,576,170   $ 27,791,801  
 

LIABILITIES AND EQUITY
Liabilities:
Customer deposits:
Noninterest-bearing accounts $ 8,544,472 $ 8,371,083 $ 6,115,571
Interest-bearing checking accounts 5,408,325 4,151,311 3,675,813
Money Market (MM) checking accounts 4,104,791 3,948,693 3,139,448
MM savings and passbooks 6,064,629 6,031,228 5,520,558
Certificates of deposit 2,966,030   3,201,763   4,007,869  
Total customer deposits 27,088,247   25,704,078   22,459,259  
 
FHLB advances 3,225,000 3,150,000 2,200,000
Subordinated notes 65,711
Debt related to variable interest entity 56,450 61,221 63,259
Other liabilities 619,436   498,469   408,550  
Total Liabilities 30,989,133   29,413,768   25,196,779  
 
Equity:
First Republic Bank shareholders’ equity:
Preferred stock 499,525 349,525
Common stock 1,313 1,309 1,294
Additional paid-in capital 2,027,578 2,023,338 2,020,832
Retained earnings 838,752 761,498 494,450
Accumulated other comprehensive income 31,376   26,732   1,186  
Total First Republic Bank shareholders’ equity 3,398,544 3,162,402 2,517,762
Noncontrolling interests     77,260  
Total Equity 3,398,544   3,162,402   2,595,022  
Total Liabilities and Equity $ 34,387,677   $ 32,576,170   $ 27,791,801  
 
 
 

Three Months Ended December 31,
 

Three Months Ended September 30,
 

Twelve Months Ended December 31,
($ in thousands) 2012   2011 2012 2012   2011

Operating Information
Loans originated $ 4,301,992 $ 3,312,813 $ 4,040,844 $ 15,462,941 $ 10,239,273
Net income to average assets (3) 1.30 % 1.30 % 1.27 % 1.29 % 1.39 %
Net income available to common shareholders
to average common equity (3) 14.27 % 14.49 % 13.89 % 13.54 % 15.04 %
Dividend payout ratio 26.0 % 13.8 % 10.9 %
Efficiency ratio (4) 51.2 % 50.2 % 52.1 % 52.0 % 48.7 %
Efficiency ratio (non-GAAP) (4), (5) 56.2 % 59.9 % 58.6 % 58.6 % 59.2 %
 

Yields/Rates (3)
Cash and cash equivalents 0.25 % 0.26 % 0.25 % 0.26 % 0.26 %
Securities purchased under agreements to resell 0.15 % 0.08 % 0.13 % 0.13 % 0.05 %
Investment securities (6) 5.50 % 5.52 % 5.54 % 5.56 % 5.67 %
Loans (6) 4.34 % 5.31 % 4.54 % 4.66 % 5.57 %
Total interest-earning assets 4.35 % 4.98 % 4.50 % 4.61 % 5.12 %
 
Checking 0.01 % 0.03 % 0.01 % 0.01 % 0.04 %
Money market checking and savings 0.12 % 0.25 % 0.17 % 0.20 % 0.38 %
CDs 1.08 % 1.00 % 1.09 % 1.07 % 0.93 %
Total deposits 0.18 % 0.31 % 0.21 % 0.23 % 0.40 %
FHLB advances 1.79 % 2.03 % 1.80 % 1.82 % 2.08 %
Other borrowings 1.85 % 2.47 % 2.49 % 2.47 % 2.74 %
Total borrowings 1.79 % 2.06 % 1.82 % 1.84 % 2.12 %
Total interest-bearing liabilities 0.35 % 0.47 % 0.40 % 0.41 % 0.52 %
 
Net interest spread 4.00 % 4.51 % 4.10 % 4.20 % 4.60 %
 
Net interest margin 4.02 % 4.53 % 4.13 % 4.22 % 4.63 %
 
Net interest margin (non-GAAP) (5) 3.46 % 3.55 % 3.47 % 3.53 % 3.53 %
 
(3) For the periods less than a year, ratios are annualized.
(4) Efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income.
(5) For a reconciliation of these ratios to the equivalent GAAP ratios, see “Use of Non-GAAP Financial Measures.”
(6) Yield is calculated on a tax-equivalent basis.
 

The following table presents loans sold and gain on sale of loans for the periods indicated:
 
 

Three Months Ended December 31,
 

Three Months Ended September 30,
 

Twelve Months Ended December 31,
($ in thousands) 2012   2011 2012 2012   2011

Mortgage Loan Sales
Loans sold:
Agency $ 242,073 $ 48,540 $ 372,284 $ 922,475 $ 248,215
Non-agency 429,241   3,597   401,946   1,510,905   480,454  
Total loans sold $ 671,314   $ 52,137   $ 774,230   $ 2,433,380   $ 728,669  
 
Gain on sale of loans:
Amount $ 17,721 $ 335 $ 12,547 $ 38,831 $ 6,417
Gain as a percentage of loans sold 2.64 % 0.64 % 1.62 % 1.60 % 0.88 %
 

The following table separates our loan portfolio as of December 31, 2012 between loans acquired on July 1, 2010 and loans originated since July 1, 2010:
 
Composition of Loan Portfolio
($ in thousands)

Loans acquired on July 1, 2010
 

Loans originated since July 1, 2010
 

Total loans at December 31, 2012
Single family (1-4 units) $ 5,228,937 $ 11,443,987 $ 16,672,924
Home equity lines of credit 1,027,786 859,818 1,887,604
Commercial real estate 1,225,796 1,683,405 2,909,201
Multifamily (5+ units) 800,231 2,206,715 3,006,946
Single family construction 15,722 218,491 234,213
Multifamily/commercial construction 12,810 158,458 171,268
Commercial business loans 495,859 2,104,292 2,600,151
Other secured 59,790 332,043 391,833
Unsecured loans and lines of credit 49,551 229,964 279,515
Stock secured 11,719   133,741   145,460  
Total unpaid principal balance 8,928,201   19,370,914   28,299,115  
Net unaccreted discount (331,709 ) (695 ) (332,404 )
Net deferred fees and costs (7,799 ) 27,847 20,048
Allowance for loan losses (15,570 ) (114,319 ) (129,889 )
Loans, net $ 8,573,123   $ 19,283,747   $ 27,856,870  
 
 
  As of
(in thousands, except per share amounts)

December 31, 2012
 

September 30, 2012
 

December 31, 2011

Book Value
Number of shares of common stock outstanding 131,273   130,950   129,372  
Book value per common share $ 22.08   $ 21.48   $ 19.46  
Tangible book value per common share $ 20.06   $ 20.37   $ 18.23  
 

Capital Ratios
Tier 1 leverage ratio 9.32 % 9.33 % 8.81 %
Tier 1 common equity ratio (7) 11.13 % 11.98 % 12.84 %
Tier 1 risk-based capital ratio 13.27 % 13.57 % 13.25 %
Total risk-based capital ratio 13.86 % 14.12 % 13.65 %
 
(7) Tier 1 common equity ratio represents common equity less goodwill and intangible assets divided by risk-weighted assets.
 
 
  As of
($ in millions)

December 31, 2012
 

September 30, 2012
 

December 31, 2011

Assets Under Management
First Republic Investment Management $ 17,000 $ 10,782 $ 7,940
 
Brokerage and Investment:
Brokerage 8,810 8,499 6,806
Money Market Mutual Funds 852 658 1,037
Total Brokerage and Investment 9,662 9,157 7,843
 
Trust Company:
Trust 2,157 2,053 1,963
Custody 2,863 2,841 2,641
Total Trust Company 5,020 4,894 4,604
Total Wealth Management Assets 31,682 24,833 20,387
 
Loans serviced for investors 4,581 4,276 3,381
Total fee-based assets $ 36,263 $ 29,109 $ 23,768
 
 

Asset Quality Information
     
As of
($ in thousands)

December 31, 2012

September 30, 2012

December 31, 2011
Nonperforming assets:
Nonaccrual loans $ 49,153 $ 38,892 $ 26,373
Other real estate owned   2,642   3,681  
Total nonperforming assets $ 49,153   $ 41,534   $ 30,054  
 
Nonperforming assets to total assets 0.14 % 0.13 % 0.11 %
 
Accruing loans 90 days or more past due $ $ 970 $
 
Restructured accruing loans $ 12,398 $ 12,277 $ 6,674
 
 
 

Three Months Ended December 31,
  Three Months Ended September 30,  

Twelve Months Ended December 31,
($ in thousands) 2012   2011 2012 2012   2011
Net loan charge-offs to allowance for loan losses $ 315 $ 1,350 $ 554 $ 1,660 $ 3,025
Net loan charge-offs to average total loans (3) 0.01 % 0.03 % 0.01 % 0.01 % 0.02 %
 
 
  Average Balance Sheet

Three Months Ended December 31,
  Three Months Ended September 30,  

Twelve Months Ended December 31,
($ in thousands) 2012   2011 2012 2012   2011
Assets:
Cash equivalents $ 880,708 $ 1,820,229 $ 1,049,210 $ 1,022,996 $ 2,038,407
Securities purchased under agreements to resell 26,047 4,912 13,139 19,504 6,425
Investment securities (8) 3,487,204 2,671,429 3,302,354 3,223,667 1,909,515
Loans (9) 27,232,372   21,656,992   25,980,676   25,106,210   19,930,099
Total interest-earning assets 31,626,331 26,153,562 30,345,379 29,372,377 23,884,446
Noninterest-earning assets 1,967,146   1,621,175   1,877,610   1,854,268   1,429,815
Total Assets $ 33,593,477   $ 27,774,737   $ 32,222,989   $ 31,226,645   $ 25,314,261
 
Liabilities and Equity:
Checking $ 13,351,861 $ 9,198,227 $ 12,140,060 $ 11,515,255 $ 7,313,369
Money market checking and savings 10,095,930 8,881,723 9,928,506 9,691,658 8,610,827
CDs (9) 3,090,586   4,502,482   3,281,567   3,398,532   5,087,128
Total deposits 26,538,377 22,582,432 25,350,133 24,605,445 21,011,324
FHLB advances 3,160,696 2,102,174 3,150,000 2,995,995 1,500,274
Subordinated notes (9) 66,039 54,309 45,985 67,036
Debt related to variable interest entity 59,365   71,105   56,701   59,577   35,397
Total borrowings 3,220,061   2,239,318   3,261,010   3,101,557   1,602,707
Total interest-bearing liabilities 29,758,438 24,821,750 28,611,143 27,707,002 22,614,031
Noninterest-bearing liabilities 533,589 392,236 483,522 464,605 277,929
Common equity 2,888,338 2,483,491 2,778,799 2,736,239 2,341,751
Preferred equity 413,112 349,525 290,675
Noncontrolling interests   77,260     28,124   80,550
Total Liabilities and Equity $ 33,593,477   $ 27,774,737   $ 32,222,989   $ 31,226,645   $ 25,314,261
 
(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 December 31,
 

Three Months Ended September 30,
 

Twelve Months Ended December 31,
($ in thousands) 2012   2011 2012 2012   2011
Accretion/amortization to net interest income:
Loans $ 36,746 $ 48,936 $ 41,351 $ 162,018 $ 184,921
Deposits 4,342 10,744 4,724 22,239 54,572
Borrowings 675 576 1,942 2,663
Total $ 41,088 $ 60,355 $ 46,651 $ 186,199 $ 242,156
 
Noninterest income:
Gain on sale of loans $ $ $ $ $ 3,827
Loan commitments 109 171 255 1,472
Total $ $ 109 $ 171 $ 255 $ 5,299
 
Amortization to noninterest expense:
Intangible assets $ 4,927 $ 5,444 $ 5,087 $ 20,472 $ 22,723
 

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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