First Republic Reports Strong Quarterly Earnings Core EPS of $0.69; Wealth Management Assets up 7.8% for the Quarter

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

%

 

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SOURCE First Republic Bank



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