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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