First Republic Reports Strong Quarterly Earnings

Core EPS of $0.69; Wealth Management Assets up 7.8% for the Quarter

Jul 16, 2014, 07:00 ET from First Republic Bank

SAN FRANCISCO, July 16, 2014 /PRNewswire/ -- First Republic Bank (NYSE: FRC) today announced financial results for the quarter ended June 30, 2014.

"We are very pleased with second quarter results.  Asset quality remains excellent and capital is very strong," said Chairman and CEO Jim Herbert.  "As we approach $50 billion in assets, we will incur additional expenses as we build out our infrastructure to meet heightened regulatory standards."

Quarterly Highlights

Financial Results

  • Net income was $120.8 million.
  • Diluted earnings per share ("EPS") were $0.76
  • Core net income was $110.9 million, up 15.7% from second quarter 2013. (1)
  • Core diluted EPS were $0.69, up 7.8%. (1)
  • Loans sold totaled $1.3 billion in the second quarter, compared to $945.4 million for the same period a year ago.
  • Book value per share was $26.82, up 14.1% from a year ago.
  • Core revenues were up 17.2% over the second quarter of last year. (1)
  • Core net interest margin was 3.16%, compared to 3.17% for the prior quarter. (1)

Continued Credit and Financial Strength

  • Nonperforming assets continued to be extremely low at 11 basis points of total assets.
  • Net charge-offs were less than 1 basis point for the quarter.
  • New single family loans originated during the quarter had a weighted average loan-to-value ("LTV") ratio of 61% and borrower average FICO scores of 762.
  • New multifamily and commercial real estate loans originated during the quarter had a weighted average LTV ratio of 51% with very strong debt service coverage ratios.
  • Tier 1 leverage ratio was 9.73%.

Franchise Development

  • Loan originations were $4.7 billion.
  • Loans outstanding totaled $36.7 billion, up 3.9% for the quarter.
  • Deposits were $35.0 billion, up 4.4% for the quarter.
  • Wealth management assets were $48.7 billion, up 7.8% for the quarter and 33.9% from a year ago.

"Wealth management and business banking had a very good quarter, as we continued deepening relationships with our clients," said Katherine August de-Wilde, President of First Republic Bank.  "We are also pleased to have achieved our highest level of loan sales ever in a quarter."

Quarterly Cash Dividend Declared

The Bank declared a cash dividend for the second quarter of $0.14 per share of common stock, which is payable on August 15, 2014 to shareholders of record as of August 1, 2014. 

Strong Asset Quality

The Bank's credit quality remains very strong.  Nonperforming assets were 11 basis points of total assets. 

Net charge-offs were $130,000 for the quarter (under 1 basis point of average loans).

In the second quarter, the Bank recorded a provision for loan losses of $21.8 million.  This provision is related primarily to the continued growth in new loans.  The allowance related to loans originated since our independence on July 1, 2010 totaled $172.8 million, or 0.56% of such loans outstanding. 

Capital Strength

The Bank's Tier 1 leverage ratio was 9.73% at June 30, 2014, compared to 9.85% at March 31, 2014.  The Tier 1 common equity ratio was 10.93% at June 30, 2014.

Growing Book Value

Book value per common share was $26.82 at June 30, 2014, up 2.3% for the quarter and up 14.1% from a year ago. 

Franchise Development

Composition of Loan Originations

Loan originations totaled $4.7 billion for the quarter.  Single family and home equity lines of credit originations were $2.8 billion, or 59% of total originations; 65% of single family home loan originations were for purchases. 

Mortgage Banking Activity

Mortgage banking sales volume and profitability were up compared to the second quarter of last year.  The Bank sold $1.3 billion of primarily intermediate-term, fixed-rate home loans during the quarter and recorded net gains of $14.9 million, or 1.16% of loans sold. 

For the first half of 2014, the Bank sold $1.6 billion of loans, compared to $2.2 billion for the same period last year.  Gains on sale of loans for the first half of 2014 were $17.7 million, compared to $34.8 million for the same period a year ago.

Loans serviced for investors totaled $7.3 billion, up 17.5% from the prior quarter and 20.7% from a year ago primarily due to the increased level of loan sales in 2014.  Net servicing income for the quarter was $2.0 million, compared to $1.3 million for the same quarter last year.  The carrying value of mortgage servicing rights was $36.1 million, or 50 basis points of such loans serviced.

Expansion of Wealth Management

Wealth management revenues totaled $42.5 million for the quarter, up 9.6% compared to the prior quarter and up 28.3% compared to last year's second quarter.

Total wealth management assets were $48.7 billion, up 7.8% for the quarter and up $7.1 billion, or 17.1%, since year-end.  This growth in wealth management assets since year-end was primarily due to net new assets obtained from new and existing clients.  Wealth management assets include investment management assets of $25.1 billion, brokerage assets and money market mutual funds of $17.2 billion, and trust and custody assets of $6.3 billion.

Excellent Deposit Results

Total deposits increased to $35.0 billion, up 4.4% for the quarter and up 24.1% compared to a year ago.  At June 30, 2014, 53% of deposits were checking accounts.

The average contractual rate paid on all deposits declined to 0.19% for the quarter, compared to 0.21% for the prior quarter.

Income Statement and Key Ratios

Quarterly Highlights

Revenue Growth

Total revenues were $410.1 million, a 7.4% increase from the prior quarter and a 12.2% increase over the second quarter last year.

Core revenues were $388.8 million, a 7.3% increase from the prior quarter and a 17.2% increase over the second quarter last year. (1)

Net Interest Income Growth

Net interest income was $333.2 million, a 3.9% increase from the prior quarter and a 9.9% increase over the second quarter last year.  

Core net interest income was $312.0 million, up 3.6% from the prior quarter and up 15.7% over the second quarter last year. (1) 

Net Interest Margin

The Bank's net interest margin was 3.38%, compared to 3.37% for the prior quarter.   

The core net interest margin was 3.16%, compared to 3.17% for the prior quarter. (1)

Noninterest Income

Noninterest income was $76.8 million, a 25.9% increase compared to the prior quarter primarily due to an increase in gain on sale of loans.  Noninterest income increased 23.4% over the second quarter last year, primarily due to increases in investment advisory fees and gain on sale of loans.

Noninterest Expense and Efficiency Ratio 

Noninterest expense was $222.7 million, a 2.4% increase over the prior quarter and a 17.9% increase from the second quarter a year ago.  The increase in noninterest expense from the prior quarter is attributable to substantially increased professional fees due to regulatory compliance activities, higher advertising and higher information systems costs.

The Bank's efficiency ratio was 54.3%, compared to 57.0% for the prior quarter and 51.7% for the second quarter a year ago. 

The Bank's core efficiency ratio was 56.3%, compared to 58.9% for the prior quarter and 55.5% for the second quarter a year ago. (1)

Year-to-Date Highlights

Revenues

Total revenues for the first six months of the year were $791.8 million, a 7.6% increase from the same period last year.

Core revenues were $751.0 million, a 12.4% increase from last year. (1)

Net Interest Income

Net interest income was $653.9 million, an 8.8% increase from last year.  

Core net interest income was $613.1 million, up 15.0% from last year. (1) 

Noninterest Income

Noninterest income was $137.9 million, a 2.5% increase compared to last year.  Noninterest income increased due to increases in investment advisory fees of $16.9 million and loan servicing fees of $2.4 million, partially offset by a decrease in gain on sale of loans of $17.1 million.

Noninterest Expense and Efficiency Ratio 

Noninterest expense was $440.2 million, a 17.3% increase over last year.  The increase in noninterest expense is primarily attributable to increased costs related to regulatory compliance, including salaries, professional fees and higher information systems costs.

The Bank's efficiency ratio was 55.6%, compared to 51.0% last year. 

The Bank's core efficiency ratio was up to 57.5%, compared to 54.8% last year. (1)

Income Tax Rate

The Bank's effective tax rate for the six months ended June 30, 2014 was 27.0% and represents the current estimated tax rate for the full year 2014.  By comparison, the effective tax rate was 30.4% for 2013.  The decrease in the effective tax rate results from the steady increase in tax-exempt securities, bank-owned life insurance, tax credit investments and tax-advantaged loans.

(1)  "Core" measures are non-GAAP financial measures that exclude the impact of purchase accounting.  See non-GAAP reconciliation under section "Use of Non-GAAP Financial Measures."

Conference Call Details

First Republic Bank's second quarter 2014 earnings conference call is scheduled for July 16, 2014 at 11:00 a.m. PT / 2:00 p.m. ET.  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 #64597321.  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 July 16, 2014, at 2:00 p.m. PT / 5:00 p.m. ET, through July 24, 2014, at 8:59 p.m. PT / 11:59 p.m. ET.  To access the replay, dial (855) 859-2056 (U.S.) and use conference ID #64597321.  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

Founded in 1985, First Republic and its subsidiaries offer private banking, private business banking and private wealth management, including investment, trust and brokerage services.  First Republic specializes in delivering exceptional, relationship-based service, with a solid commitment to responsiveness and action.  Services are offered through preferred banking or wealth management offices primarily in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland, Boston, Palm Beach, 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.  For more information, visit 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; 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  June 30,

Three Months Ended March 31,

Six Months Ended  June 30,

(in thousands, except per share amounts)

2014

2013

2014

2014

2013

Interest income:

Loans

$

318,711

$

294,215

$

307,687

$

626,398

$

582,308

Investments

50,811

38,430

48,844

99,655

73,909

Cash and cash equivalents

781

99

780

1,561

273

Total interest income

370,303

332,744

357,311

727,614

656,490

Interest expense:

Deposits

14,818

13,254

15,231

30,049

24,264

Borrowings

22,272

16,398

21,377

43,649

31,085

Total interest expense

37,090

29,652

36,608

73,698

55,349

Net interest income

333,213

303,092

320,703

653,916

601,141

Provision for loan losses

21,800

12,653

7,095

28,895

19,131

Net interest income after provision for loan losses

311,413

290,439

313,608

625,021

582,010

Noninterest income:

Investment advisory fees

36,197

27,525

33,308

69,505

52,624

Brokerage and investment fees

3,393

3,071

3,005

6,398

5,462

Trust fees

2,860

2,498

2,419

5,279

4,558

Foreign exchange fee income

5,052

4,639

3,507

8,559

7,726

Deposit fees

4,637

4,611

4,544

9,181

9,255

Gain on sale of loans

14,850

8,779

2,845

17,695

34,769

Loan servicing fees, net

2,008

1,299

1,996

4,004

1,635

Loan and related fees

1,695

2,109

1,908

3,603

4,021

Income from investments in life insurance

6,424

5,912

6,975

13,399

11,796

Other income (loss)

(278)

1,807

505

227

2,672

Total noninterest income

76,838

62,250

61,012

137,850

134,518

Noninterest expense:

Salaries and employee benefits

117,191

98,157

120,585

237,776

200,041

Occupancy

23,438

22,904

24,105

47,543

44,992

Information systems

23,161

19,504

21,421

44,582

37,327

FDIC and other deposit assessments

7,650

6,800

7,444

15,094

13,627

Professional fees

10,816

5,104

7,216

18,032

8,817

Advertising and marketing

8,001

6,842

6,014

14,015

12,645

Amortization of intangibles

5,792

6,643

6,004

11,796

13,499

Other expenses

26,679

22,905

24,702

51,381

44,445

Total noninterest expense

222,728

188,859

217,491

440,219

375,393

Income before provision for income taxes

165,523

163,830

157,129

322,652

341,135

Provision for income taxes

44,691

51,360

42,425

87,116

106,112

Net income

120,832

112,470

114,704

235,536

235,023

Dividends on preferred stock

13,889

9,706

13,889

27,778

17,482

Net income available to common shareholders

$

106,943

$

102,764

$

100,815

$

207,758

$

217,541

Basic earnings per common share

$

0.78

$

0.78

$

0.76

$

1.54

$

1.66

Diluted earnings per common share

$

0.76

$

0.76

$

0.73

$

1.49

$

1.61

Dividends per common share

$

0.14

$

0.12

$

0.12

$

0.26

$

0.12

Weighted average shares—basic

137,279

131,102

132,880

135,091

130,975

Weighted average shares—diluted

141,473

135,595

137,295

139,392

135,428

 

CONSOLIDATED BALANCE SHEET

As of

($ in thousands)

June 30,  2014

March 31,  2014

June 30,  2013

ASSETS

Cash and cash equivalents

$

1,751,017

$

1,762,222

$

591,738

Securities purchased under agreements to resell

100

28,889

163

Investment securities available-for-sale

1,991,826

1,639,760

1,233,830

Investment securities held-to-maturity

3,380,479

3,337,518

2,793,705

Loans:

Single family (1-4 units)

20,545,900

19,967,016

17,728,429

Home equity lines of credit

2,055,352

1,979,494

1,891,849

Multifamily (5+ units)

4,366,068

4,231,518

3,597,809

Commercial real estate

3,582,174

3,526,209

3,127,177

Single family construction

348,322

319,904

263,718

Multifamily/commercial construction

363,416

322,505

218,271

Commercial business

4,150,075

3,593,142

3,045,189

Other secured

528,775

427,913

424,060

Unsecured loans and lines of credit

232,800

205,644

283,013

Stock secured

256,106

200,884

114,567

Total unpaid principal balance

36,428,988

34,774,229

30,694,082

Net unaccreted discount

(182,866)

(202,481)

(271,028)

Net deferred fees and costs

29,640

24,331

19,571

Allowance for loan losses

(181,311)

(159,641)

(148,307)

Loans, net

36,094,451

34,436,438

30,294,318

Loans held for sale

236,467

505,445

53,284

Investments in life insurance

878,935

772,216

733,958

Tax credit investments

756,655

742,682

531,930

Prepaid expenses and other assets

708,327

689,397

643,100

Premises, equipment and leasehold improvements, net

162,742

164,507

156,446

Goodwill

106,549

106,549

106,549

Other intangible assets

120,949

126,741

145,393

Mortgage servicing rights

36,079

30,333

28,882

Other real estate owned

4,767

3,200

Total Assets

$

46,229,343

$

44,345,897

$

37,313,296

LIABILITIES AND EQUITY

Liabilities:

Deposits:

Noninterest-bearing checking accounts

$

11,285,200

$

9,367,439

$

7,950,212

Interest-bearing checking accounts

7,416,578

7,773,825

6,000,214

Money Market (MM) checking accounts

5,282,809

5,194,631

4,441,635

MM savings and passbooks

7,460,048

7,617,688

6,378,112

Certificates of deposit

3,589,844

3,614,355

3,458,468

Total Deposits

35,034,479

33,567,938

28,228,641

Short-term borrowings

370,000

Long-term FHLB advances

5,550,000

5,650,000

4,350,000

Senior notes

399,460

Debt related to variable interest entities

37,126

41,743

49,126

Other liabilities

618,219

592,181

527,851

Total Liabilities

41,639,284

39,851,862

33,525,618

Shareholders' Equity:

Preferred stock

889,525

889,525

689,525

Common stock

1,380

1,375

1,318

Additional paid-in capital

2,296,647

2,289,799

2,036,607

Retained earnings

1,386,235

1,298,667

1,041,972

Accumulated other comprehensive income

16,272

14,669

18,256

Total Shareholders' Equity

4,590,059

4,494,035

3,787,678

Total Liabilities and Shareholders' Equity

$

46,229,343

$

44,345,897

$

37,313,296

Three Months Ended  June 30,

Three Months Ended March 31,

Six Months Ended  June 30,

2014

2013

2014

2014

2013

Operating Information

Net income to average assets (2)

1.08

%

1.25

%

1.07

%

1.08

%

1.34

%

Net income available to common shareholders to average common equity (2)

11.67

%

13.36

%

12.11

%

11.88

%

14.46

%

Dividend payout ratio

18.5

%

15.8

%

16.3

%

17.4

%

7.5

%

Efficiency ratio (3)

54.3

%

51.7

%

57.0

%

55.6

%

51.0

%

Efficiency ratio (non-GAAP) (1), (3)

56.3

%

55.5

%

58.9

%

57.5

%

54.8

%

Yields/Rates (2)

Cash and cash equivalents

0.25

%

0.22

%

0.25

%

0.25

%

0.23

%

Investment securities (4), (5)

5.19

%

5.08

%

5.17

%

5.17

%

5.08

%

Loans (4), (6)

3.62

%

4.02

%

3.65

%

3.64

%

4.07

%

Total interest-earning assets

3.73

%

4.14

%

3.74

%

3.73

%

4.16

%

Checking

0.01

%

0.01

%

0.02

%

0.01

%

0.01

%

Money market checking and savings

0.15

%

0.19

%

0.16

%

0.15

%

0.15

%

CDs (6)

1.08

%

1.06

%

1.06

%

1.07

%

1.07

%

Total deposits

0.17

%

0.20

%

0.19

%

0.18

%

0.18

%

Short-term borrowings

0.00

%

0.17

%

%

0.00

%

0.19

%

Long-term FHLB advances

1.56

%

1.65

%

1.56

%

1.56

%

1.72

%

Senior notes (7)

2.58

%

%

%

2.57

%

%

Debt related to variable interest entities

1.65

%

1.79

%

1.80

%

1.73

%

1.76

%

Total borrowings

1.57

%

1.40

%

1.56

%

1.56

%

1.43

%

Total interest-bearing liabilities

0.37

%

0.37

%

0.39

%

0.38

%

0.36

%

Net interest spread

3.36

%

3.77

%

3.35

%

3.35

%

3.80

%

Net interest margin

3.38

%

3.79

%

3.37

%

3.38

%

3.83

%

Net interest margin (non-GAAP) (1)

3.16

%

3.37

%

3.17

%

3.16

%

3.39

%

(2)

Ratios are annualized.

(3)

Efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income.

 (4)

Yield is calculated on a tax-equivalent basis.

(5)

Includes FHLB stock and securities purchased under agreements to resell.

(6)

Yield/rate includes accretion/amortization of purchase accounting discounts/premiums.

(7)

Rate includes amortization of issuance costs.

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

Three Months Ended  June 30,

Three Months Ended March 31,

Six Months Ended  June 30,

($ in thousands)

2014

2013

2014

2014

2013

Mortgage Loan Sales

Loans sold:

Agency

$

30,478

$

199,963

$

30,565

$

61,043

$

365,244

Non-agency

1,244,621

745,442

315,635

1,560,256

1,798,301

Total loans sold

$

1,275,099

$

945,405

$

346,200

$

1,621,299

$

2,163,545

Gain on sale of loans:

Amount

$

14,850

$

8,779

$

2,845

$

17,695

$

34,769

Gain as a percentage of loans sold

1.16

%

0.93

%

0.82

%

1.09

%

1.61

%

 

The following table presents loan originations, by product type, for the periods indicated:

Three Months Ended  June 30,

Three Months Ended March 31,

Six Months Ended  June 30,

($ in thousands)

2014

2013

2014

2014

2013

Single family (1-4 units)

$

2,349,203

$

2,845,928

$

1,446,212

$

3,795,415

$

4,907,836

Home equity lines of credit

414,356

353,087

326,717

741,073

612,876

Multifamily (5+ units)

342,038

470,052

386,998

729,036

902,081

Commercial real estate

187,233

387,108

226,588

413,821

541,628

Construction

276,200

268,871

151,282

427,482

374,107

Commercial business

914,805

804,288

469,953

1,384,758

1,176,633

Other loans

212,364

180,860

213,748

426,112

340,891

Total loans originated

$

4,696,199

$

5,310,194

$

3,221,498

$

7,917,697

$

8,856,052

 

The following table separates our loan portfolio as of June 30, 2014 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 June 30, 2014

Single family (1-4 units)

$

3,321,854

$

17,224,046

$

20,545,900

Home equity lines of credit

678,454

1,376,898

2,055,352

Multifamily (5+ units)

410,335

3,955,733

4,366,068

Commercial real estate

747,299

2,834,875

3,582,174

Single family construction

5,263

343,059

348,322

Multifamily/commercial construction

1,151

362,265

363,416

Commercial business

344,710

3,805,365

4,150,075

Other secured

35,454

493,321

528,775

Unsecured loans and lines of credit

40,817

191,983

232,800

Stock secured

4,551

251,555

256,106

Total unpaid principal balance

5,589,888

30,839,100

36,428,988

Net unaccreted discount

(182,479)

(387)

(182,866)

Net deferred fees and costs

(5,960)

35,600

29,640

Allowance for loan losses

(8,503)

(172,808)

(181,311)

Loans, net

$

5,392,946

$

30,701,505

$

36,094,451

 

As of

(in thousands, except per share amounts)

June 30, 2014

March 31,

2014

December 31,

 2013

September 30,

 2013

June 30,  2013

Book Value

Number of shares of common stock outstanding

137,977

137,521

132,768

132,179

131,822

Book value per common share

$

26.82

$

26.21

$

24.63

$

24.13

$

23.50

Tangible book value per common share

$

25.17

$

24.51

$

22.83

$

22.27

$

21.59

Capital Ratios

Tier 1 leverage ratio

9.73

%

9.85

%

9.19

%

9.18

%

9.83

%

Tier 1 common equity ratio (8)

10.93

%

11.12

%

10.30

%

10.57

%

10.87

%

Tier 1 risk-based capital ratio

13.74

%

14.07

%

13.34

%

13.06

%

13.52

%

Total risk-based capital ratio

14.35

%

14.64

%

13.89

%

13.62

%

14.12

%

(8)

Tier 1 common equity ratio represents common equity less goodwill and intangible assets divided by risk-weighted assets.

 

As of

($ in millions)

June 30,  2014

March 31,  2014

December 31,  2013

September 30,  2013

June 30,  2013

Assets Under Management

First Republic Investment Management

$

25,132

$

23,286

$

21,812

$

20,093

$

19,045

Brokerage and Investment:

Brokerage

16,152

14,474

12,933

11,905

10,784

Money Market Mutual Funds

1,092

1,224

941

870

929

Total Brokerage and Investment

17,244

15,698

13,874

12,775

11,713

Trust Company:

Trust

3,149

3,173

3,013

2,857

2,822

Custody

3,143

2,985

2,879

2,510

2,766

Total Trust Company

6,292

6,158

5,892

5,367

5,588

    Total Wealth Management Assets

48,668

45,142

41,578

38,235

36,346

Loans serviced for investors

7,283

6,198

6,000

5,957

6,036

Total fee-based assets

$

55,951

$

51,340

$

47,578

$

44,192

$

42,382

 

Asset Quality Information

As of

($ in thousands)

June 30,  2014

March 31,  2014

December 31,  2013

September 30,  2013

June 30,  2013

Nonperforming assets:

Nonaccrual loans

$

47,373

$

52,109

$

54,492

$

51,847

$

62,824

Other real estate owned

4,767

3,200

3,200

3,353

    Total nonperforming assets

$

52,140

$

55,309

$

57,692

$

55,200

$

62,824

Nonperforming assets to total assets

0.11

%

0.12

%

0.14

%

0.13

%

0.17

%

Accruing loans 90 days or more past due

$

$

$

$

$

Restructured accruing loans

$

18,453

$

18,278

$

19,984

$

19,950

$

18,766

 

Three Months Ended  June 30,

Three Months Ended March 31,

Six Months Ended  June 30,

($ in thousands)

2014

2013

2014

2014

2013

Net loan charge-offs to allowance for loan losses

$

130

$

446

$

459

$

589

$

713

Net loan charge-offs to average total loans (2)

0.001

%

0.006

%

0.005

%

0.003

%

0.005

%

Average Balance Sheet

Three Months Ended  June 30,

Three Months Ended March 31,

Six Months Ended  June 30,

($ in thousands)

2014

2013

2014

2014

2013

Assets:

Cash and cash equivalents

$

1,229,510

$

178,482

$

1,245,562

$

1,237,491

$

242,666

Investment securities (9)

5,456,367

4,225,274

5,283,388

5,370,356

4,118,915

Loans (10)

35,792,956

29,541,707

34,479,799

35,140,005

28,993,689

Total interest-earning assets

42,478,833

33,945,463

41,008,749

41,747,852

33,355,270

Noninterest-earning cash

227,488

240,514

218,288

222,914

241,373

Goodwill and other intangibles

230,303

255,162

236,210

233,240

258,523

Other assets

2,004,251

1,645,124

1,904,425

1,954,614

1,619,249

Total noninterest-earning assets

2,462,042

2,140,800

2,358,923

2,410,768

2,119,145

Total Assets

$

44,940,875

$

36,086,263

$

43,367,672

$

44,158,620

$

35,474,415

Liabilities and Equity:

Checking

$

17,767,019

$

13,769,665

$

16,564,715

$

17,169,188

$

13,505,295

Money market checking and savings

12,714,426

10,415,283

12,670,094

12,692,382

10,521,665

CDs (10)

3,574,414

3,022,355

3,705,391

3,639,541

2,958,561

Total deposits

34,055,859

27,207,303

32,940,200

33,501,111

26,985,521

Short-term borrowings

11

787,637

6

809,795

Long-term FHLB advances

5,587,363

3,847,802

5,517,778

5,552,762

3,508,564

Senior notes (11)

61,455

30,897

Debt related to variable interest entities

41,502

52,443

42,592

42,045

53,917

Total borrowings

5,690,331

4,687,882

5,560,370

5,625,710

4,372,276

Total interest-bearing liabilities

39,746,190

31,895,185

38,500,570

39,126,821

31,357,797

Noninterest-bearing liabilities

630,185

462,694

602,576

616,457

511,860

Preferred equity

889,525

642,437

889,525

889,525

571,376

Common equity

3,674,975

3,085,947

3,375,001

3,525,817

3,033,382

Total Liabilities and Equity

$

44,940,875

$

36,086,263

$

43,367,672

$

44,158,620

$

35,474,415

 

(9)

Includes FHLB stock and securities purchased under agreements to resell.

(10)

Average balances are presented net of purchase accounting discounts or premiums.

(11)

Average balances include unamortized issuance costs.

Purchase Accounting Accretion and Amortization

The following table presents the impact of purchase accounting from the Bank's re-establishment as an independent institution for the periods indicated:

Three Months Ended  June 30,

Three Months Ended March 31,

Six Months Ended  June 30,

($ in thousands)

2014

2013

2014

2014

2013

Accretion/amortization to net interest income:

Loans

$

19,614

$

30,484

$

17,615

$

37,229

$

61,318

Deposits

1,648

3,036

1,923

3,571

6,476

Total

$

21,262

$

33,520

$

19,538

$

40,800

$

67,794

Amortization to noninterest expense:

Intangible assets

$

3,968

$

4,608

$

4,127

$

8,095

$

9,377

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 from the Bank's re-establishment as an independent institution, 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. 

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 from the Bank's re-establishment as an independent institution.  The accretion and amortization affect our net income, earnings per share and certain operating ratios as we accrete loan discounts to interest income; amortize premiums on liabilities such as CDs to interest expense; and amortize intangible assets to noninterest expense.

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.  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  June 30,

Three Months Ended March 31,

Six Months Ended  June 30,

(in thousands, except per share amounts)

2014

2013

2014

2014

2013

Non-GAAP earnings

Net income

$

120,832

$

112,470

$

114,704

$

235,536

$

235,023

Accretion/amortization added to net interest income

(21,262)

(33,520)

(19,538)

(40,800)

(67,794)

Amortization of intangible assets

3,968

4,608

4,127

8,095

9,377

Add back tax impact of the above items

7,350

12,287

6,550

13,900

24,827

Non-GAAP net income

110,888

95,845

105,843

216,731

201,433

Dividends on preferred stock

(13,889)

(9,706)

(13,889)

(27,778)

(17,482)

Non-GAAP net income available to common shareholders

$

96,999

$

86,139

$

91,954

$

188,953

$

183,951

GAAP earnings per common share—diluted

$

0.76

$

0.76

$

0.73

$

1.49

$

1.61

Impact of purchase accounting, net of tax

(0.07)

(0.12)

(0.06)

(0.13)

(0.25)

Non-GAAP earnings per common share—diluted

$

0.69

$

0.64

$

0.67

$

1.36

$

1.36

Weighted average diluted common shares outstanding

141,473

135,595

137,295

139,392

135,428

 

Three Months Ended  June 30,

Three Months Ended March 31,

Six Months Ended  June 30,

($ in thousands)

2014

2013

2014

2014

2013

Yield on average loans

Interest income on loans

$

318,711

$

294,215

$

307,687

$

626,398

$

582,308

Add: Tax-equivalent adjustment on loans

7,028

4,377

6,519

13,547

8,344

Interest income on loans (tax-equivalent basis)

325,739

298,592

314,206

639,945

590,652

Less: Accretion

(19,614)

(30,484)

(17,615)

(37,229)

(61,318)

Non-GAAP interest income on loans (tax-equivalent basis)

$

306,125

$

268,108

$

296,591

$

602,716

$

529,334

Average loans

$

35,792,956

$

29,541,707

$

34,479,799

$

35,140,005

$

28,993,689

Add: Average unaccreted loan discounts

196,082

291,302

214,055

205,019

307,098

Average loans (non-GAAP)

$

35,989,038

$

29,833,009

$

34,693,854

$

35,345,024

$

29,300,787

Yield on average loans—reported (4)

3.62

%

4.02

%

3.65

%

3.64

%

4.07

%

Contractual yield on average loans (non-GAAP) (4)

3.39

%

3.58

%

3.42

%

3.40

%

3.61

%

 

Three Months Ended  June 30,

Three Months Ended March 31,

Six Months Ended  June 30,

($ in thousands)

2014

2013

2014

2014

2013

Cost of average deposits

Interest expense on deposits

$

14,818

$

13,254

$

15,231

$

30,049

$

24,264

Add: Amortization of CD premiums

1,648

3,036

1,923

3,571

6,476

Non-GAAP interest expense on deposits

$

16,466

$

16,290

$

17,154

$

33,620

$

30,740

Average deposits

$

34,055,859

$

27,207,303

$

32,940,200

$

33,501,111

$

26,985,521

Less: Average unamortized CD premiums

(4,555)

(14,223)

(6,371)

(5,458)

(15,832)

Average deposits (non-GAAP)

$

34,051,304

$

27,193,080

$

32,933,829

$

33,495,653

$

26,969,689

Cost of average deposits—reported

0.17

%

0.20

%

0.19

%

0.18

%

0.18

%

Contractual cost of average deposits (non-GAAP)

0.19

%

0.24

%

0.21

%

0.20

%

0.23

%

 

Three Months Ended  June 30,

Three Months Ended March 31,

Six Months Ended  June 30,

($ in thousands)

2014

2013

2014

2014

2013

Net interest margin

Net interest income

$

333,213

$

303,092

$

320,703

$

653,916

$

601,141

Add: Tax-equivalent adjustment

26,994

19,629

25,853

52,847

38,956

Net interest income (tax-equivalent basis)

360,207

322,721

346,556

706,763

640,097

Less: Accretion/amortization

(21,262)

(33,520)

(19,538)

(40,800)

(67,794)

Non-GAAP net interest income (tax-equivalent basis)

$

338,945

$

289,201

$

327,018

$

665,963

$

572,303

Average interest-earning assets

$

42,478,833

$

33,945,463

$

41,008,749

$

41,747,852

$

33,355,270

Add: Average unaccreted loan discounts

196,082

291,302

214,055

205,019

307,098

Average interest-earning assets (non-GAAP)

$

42,674,915

$

34,236,765

$

41,222,804

$

41,952,871

$

33,662,368

Net interest margin—reported

3.38

%

3.79

%

3.37

%

3.38

%

3.83

%

Net interest margin (non-GAAP)

3.16

%

3.37

%

3.17

%

3.16

%

3.39

%

 

Three Months Ended June 30,

Three Months Ended March 31,

Six Months Ended June 30,

($ in thousands)

2014

2013

2014

2014

2013

Efficiency ratio

Net interest income

$

333,213

$

303,092

$

320,703

$

653,916

$

601,141

Less: Accretion/amortization

(21,262)

(33,520)

(19,538)

(40,800)

(67,794)

Net interest income (non-GAAP)

$

311,951

$

269,572

$

301,165

$

613,116

$

533,347

Noninterest income

$

76,838

$

62,250

$

61,012

$

137,850

$

134,518

Total revenue

$

410,051

$

365,342

$

381,715

$

791,766

$

735,659

Total revenue (non-GAAP)

$

388,789

$

331,822

$

362,177

$

750,966

$

667,865

Noninterest expense

$

222,728

$

188,859

$

217,491

$

440,219

$

375,393

Less: Intangible amortization

(3,968)

(4,608)

(4,127)

(8,095)

(9,377)

Noninterest expense (non-GAAP)

$

218,760

$

184,251

$

213,364

$

432,124

$

366,016

Efficiency ratio

54.3

%

51.7

%

57.0

%

55.6

%

51.0

%

Efficiency ratio (non-GAAP)

56.3

%

55.5

%

58.9

%

57.5

%

54.8

%

 

Logo - http://photos.prnewswire.com/prnh/20130906/MM75721LOGO

SOURCE First Republic Bank



RELATED LINKS

http://www.firstrepublic.com