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First Republic Bank Reports Record Annual And Quarterly Earnings

Our net income, earnings per share, net interest margin and efficiency ratio were 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 twelve months ended December 31, 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, and 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 Ended December 31,

 

Three Months Ended September 30,

 

Twelve Months Ended December 31,

(in thousands, except per share amounts) 2012   2011 2012 2012   2011
Non-GAAP earnings
Net income $ 110,111 $ 90,691 $ 102,696 $ 402,472 $ 352,088
Accretion / amortization added to net interest income (41,088 ) (60,355 ) (46,651 ) (186,199 ) (242,156 )
Discounts recognized in gain on sale of loans (3,827 )
Accretion added to noninterest income (109 ) (171 ) (255 ) (1,472 )
Amortization of intangible assets 4,927 5,444 5,087 20,472 22,723
Add back tax impact of the above items 15,368   23,384   17,737   70,542   95,512  
Non-GAAP net income 89,318 59,055 78,698 307,032 222,868
Dividends on preferred stock (6,534 ) (5,667 ) (18,743 )
Redemption of FRPCC preferred stock (13,200 )
Impact of FRPCC preferred stock redemption       13,200    
Non-GAAP net income available to common shareholders $ 82,784   $ 59,055   $ 73,031   $ 288,289   $ 222,868  
 
GAAP earnings per common share - diluted $ 0.77 $ 0.68 $ 0.72 $ 2.76 $ 2.65
Impact of purchase accounting, net of tax (0.16 ) (0.24 ) (0.18 ) (0.71 ) (0.97 )
Impact of FRPCC preferred stock redemption       0.10    
Non-GAAP earnings per common share - diluted $ 0.61   $ 0.44   $ 0.54   $ 2.15   $ 1.68  
 
Weighted average diluted common shares outstanding 134,731   132,939   134,374   134,189   132,724  
 
 
 

Three Months Ended December 31,

 

Three Months Ended September 30,

 

Twelve Months Ended December 31,

($ in thousands) 2012   2011 2012 2012   2011
Net interest margin
Net interest income $ 302,334 $ 285,537 $ 298,821 $ 1,173,020 $ 1,065,739
Add: Tax-equivalent adjustment 18,121   13,231   17,007   66,114   39,964  
Net interest income (tax-equivalent basis) 320,455 298,768 315,828 1,239,134 1,105,703
Less: Accretion / amortization (41,088 ) (60,355 ) (46,651 ) (186,199 ) (242,156 )
Non-GAAP net interest income (tax-equivalent basis) $ 279,367   $ 238,413   $ 269,177   $ 1,052,935   $ 863,547  
 
Average interest-earning assets $ 31,626,331 $ 26,153,562 $ 30,345,379 $ 29,372,377 $ 23,884,446
Add: Average unamortized loan discounts 358,084   528,104   396,197   418,583   595,378  
Average interest-earning assets (non-GAAP) $ 31,984,415   $ 26,681,666   $ 30,741,576   $ 29,790,960   $ 24,479,824  
 
Net interest margin – reported 4.02 % 4.53 % 4.13 % 4.22 % 4.63 %
Net interest margin (non-GAAP) 3.46 % 3.55 % 3.47 % 3.53 % 3.53 %
 
 
 

Three Months Ended December 31,

 

Three Months Ended September 30,

 

Twelve Months Ended December 31,

($ in thousands) 2012   2011 2012 2012   2011
Efficiency ratio
Net interest income $ 302,334 $ 285,537 $ 298,821 $ 1,173,020 $ 1,065,739
Less: Accretion / amortization (41,088 ) (60,355 ) (46,651 ) (186,199 ) (242,156 )
Net interest income (non-GAAP) $ 261,246   $ 225,182   $ 252,170   $ 986,821   $ 823,583  
 
Noninterest income $ 55,611 $ 29,402 $ 43,839 $ 168,734 $ 117,930
Less: Accretion of discounts on loan commitments (109 ) (171 ) (255 ) (1,472 )
Discounts recognized in gain on sale of loans         (3,827 )
Noninterest income (non-GAAP) $ 55,611   $ 29,293   $ 43,668   $ 168,479   $ 112,631  
 
Total revenue $ 357,945 $ 314,939 $ 342,660 $ 1,341,754 $ 1,183,669
Total revenue (non-GAAP) $ 316,857 $ 254,475 $ 295,838 $ 1,155,300 $ 936,214
 
Noninterest expense $ 183,144 $ 158,001 $ 178,390 $ 697,844 $ 576,608
Less: Intangible amortization (4,927 ) (5,444 ) (5,087 ) (20,472 ) (22,723 )
Noninterest expense (non-GAAP) $ 178,217   $ 152,557   $ 173,303   $ 677,372   $ 553,885  
 
Efficiency ratio 51.2 % 50.2 % 52.1 % 52.0 % 48.7 %
Efficiency ratio (non-GAAP) 56.2 % 59.9 % 58.6 % 58.6 % 59.2 %
 




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