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First Republic Bank Reports Record Annual and Quarterly Earnings



  First Republic Bank Reports Record Annual and Quarterly Earnings

                     Core EPS Up 28% Year-Over-Year ^(1)

Business Wire

SAN FRANCISCO -- January 16, 2013

First Republic Bank (NYSE: FRC) today announced strong financial results for
the fourth quarter and the year ended December 31, 2012.

“First Republic had a terrific year by every performance measure,” said Jim
Herbert, Chairman and Chief Executive Officer. “Core earnings per share
increased 28% in 2012, while loans, deposits, business banking and wealth
management assets all grew strongly. Credit quality and capital ratios are
strong.”

2012 Full Year Highlights

  * Book value per share increased by 13.5% to $22.08.
  * Tier 1 leverage ratio increased to 9.32%, up from 8.81% a year ago.
  * Asset quality remains very strong; nonperforming assets were only 14 basis
    points of total assets.
  * Net income was a record $402.5 million, an increase of 14%, and diluted
    earnings per share (“EPS”) were $2.76.
  * Excluding the impact of purchase accounting, net income was $307.0
    million, up 38%. ^(1)
  * Excluding the impact of purchase accounting and the one-time charge on
    redemption of preferred stock in the second quarter, core diluted EPS were
    $2.15, up 28%. ^(1)
  * Excluding the impact of purchase accounting, the net interest margin was
    3.53% in 2012 and 2011. ^(1)
  * Loan originations were a record $15.5 billion.
  * Loans outstanding were $28.5 billion at December 31, 2012, up 23%.
  * Deposits were $27.1 billion at December 31, 2012, up 21%.
  * Wealth management assets were $31.7 billion, including $5.9 billion from
    the Luminous Capital Holdings, LLC (“Luminous”) acquisition, up 55%.
  * A dividend on our common stock was initiated in the third quarter of 2012.

Fourth Quarter Highlights

  * Net income was $110.1 million, up 21% from last year’s fourth quarter.
    Diluted EPS were $0.77, up 13% from last year’s fourth quarter.
  * Excluding the impact of purchase accounting, net income was $89.3 million,
    up 51% from last year’s fourth quarter and diluted EPS were $0.61, up 39%
    from last year’s fourth quarter. ^(1)
  * Net interest margin was 4.02%, compared to 4.13% for the prior quarter.
  * Excluding the impact of purchase accounting, the net interest margin was
    3.46%, compared to 3.47% for the prior quarter. ^(1)
  * The efficiency ratio was 51.2%, compared to 52.1% for the prior quarter.
  * Excluding the impact of purchase accounting, the efficiency ratio was
    56.2%, versus 58.6% for the prior quarter. ^(1)
  * Loan originations were $4.3 billion, our highest quarter ever.
  * Loans sold were $671 million for the quarter and pre-tax net gains on
    sales were $17.7 million, compared to sales of $774 million and pre-tax
    gains of $12.5 million for the prior quarter.

“First Republic’s success in 2012 was due to its intense focus on exceptional
client service coupled with disciplined asset underwriting,” said Katherine
August-deWilde, President and Chief Operating Officer. “We’re particularly
pleased with the robust growth of business banking and wealth management
assets, including those acquired in the Luminous transaction.”

Asset Quality Remains Very Strong

The Bank’s credit quality remains strong. At December 31, 2012, nonperforming
loans were only 14 basis points of total assets and the Bank had no other real
estate owned.

During the fourth quarter of 2012, the Bank recorded an additional provision
for loan losses of $17.2 million. This provision is related primarily to the
growth in loans outstanding that have been originated since July 1, 2010. At
December 31, 2012, the allowance related to these loans totaled $114.3
million, or 0.59%.

Net charge-offs were $315,000 for the fourth quarter of 2012 and $1.7 million
(only 1 basis point of average loans) for the year ended December 31, 2012.

Continued Capital Strength

The Bank’s Tier 1 leverage ratio increased at December 31, 2012 to 9.32%,
compared to 8.81% a year ago. The Bank issued $150 million of 5.625%
Noncumulative Perpetual Series C Preferred Stock during the fourth quarter of
2012. During 2012, the Bank raised $500 million of noncumulative perpetual
preferred stock with a weighted average rate of 6.23%.

Strong Book Value Growth

Book value per share was $22.08 at December 31, 2012, up 13.5% during 2012.

Continued Franchise Development

Assets

Total assets at December 31, 2012 were $34.4 billion. During 2012, loans
increased $5.4 billion, of which 57% was in single family loans and related
home equity lines of credit. Investment securities increased $686.1 million in
2012.

Deposit mix continues to improve

At December 31, 2012, checking and savings accounts were 89% of total
deposits, compared to 82% a year ago. The contractual rate paid on all
deposits averaged 0.24% for the fourth quarter of 2012, compared to 0.29% for
the prior quarter, with the reduction in the average rate paid coming both
from an improved deposit mix and reduced rates paid.

At December 31, 2012, 97% of deposits were core deposits. ^(2)

Wealth management expansion

Total wealth management assets were $31.7 billion at December 31, 2012, up 28%
for the quarter and 55% for the year. The increase in wealth management assets
includes $5.9 billion of assets under management from the Luminous asset
purchase; the Bank will begin earning fees on these assets beginning in the
first quarter of 2013. Wealth management assets include investment management
assets of $17.0 billion, brokerage assets and money market mutual funds of
$9.7 billion, and trust and custody assets of $5.0 billion.

Wealth management fees earned, including investment advisory, trust and
brokerage fees, for the fourth quarter of 2012 were up 36%, compared to last
year’s fourth quarter and were up 24% for the full year.

Mortgage banking activity strong

The Bank sold $671 million of primarily fixed rate, longer-term home loans
during the fourth quarter of 2012 and recorded net gains of $17.7 million. By
comparison, during the prior quarter, the Bank sold $774 million of loans and
recorded net gains of $12.5 million. The higher level of gain on sales
resulted from improved pricing on loans sold to an average 2.64% gain. For the
full year, the Bank sold $2.4 billion of loans and recorded net gains of $38.8
million, or 1.60% of loans sold, compared to loan sales of $729 million and
net gains of $6.4 million for 2011.

At December 31, 2012, the carrying value of mortgage servicing rights (“MSRs”)
was $17.8 million, or 39 basis points on such loans serviced.

Loans serviced for investors totaled $4.6 billion at December 31, 2012, up
35%, compared to $3.4 billion at December 31, 2011.

Income Statement and Key Ratio Summary

Strong core revenue growth

Total revenues were $357.9 million for the fourth quarter of 2012, compared to
$342.7 million for the prior quarter and $314.9 million for last year’s fourth
quarter, a 14% increase from a year ago. Total revenues for 2012 were $1.3
billion, up 13% from 2011.

Excluding the impact of purchase accounting, revenues were $316.9 million for
the fourth quarter of 2012, compared to $295.8 million for the prior quarter
and $254.5 million for the fourth quarter of 2011, a 25% increase from a year
ago. On this basis, total revenues for 2012 were $1.2 billion, up 23% from
2011. ^(1)

Net interest income growth

Net interest income was $302.3 million for the fourth quarter of 2012,
compared to $298.8 million for the prior quarter and $285.5 million for the
fourth quarter a year ago. Net interest income for 2012 was $1.2 billion, up
10% from 2011.

The strong increase in contractual net interest income was primarily due to
increases in the average balances of loans and investment securities as well
as lower deposit costs. Excluding the impact of purchase accounting, net
interest income (core net interest income) was $261.2 million for the fourth
quarter of 2012, compared to $252.2 million for the prior quarter and $225.2
million for the fourth quarter of 2011, up 4% over the prior quarter and up
16% from a year ago. On this basis, net interest income for the full year 2012
was $986.8 million, up 20% from 2011. ^(1)

Net interest margin

The Bank’s net interest margin was 4.02% for the fourth quarter of 2012,
compared to 4.13% for the third quarter of 2012 and 4.53% for the fourth
quarter a year ago. For the year ended December 31, 2012, the net interest
margin was 4.22%.

Excluding the impact of purchase accounting, net interest margin (core net
interest margin) was 3.46% for the fourth quarter of 2012, compared to 3.47%
for the prior quarter and 3.55% for the fourth quarter a year ago. For the
year ended December 31, 2012, the core net interest margin was 3.53%, the same
as 2011. ^(1)

The core net interest margin remained stable compared to the prior quarter as
lower deposit costs largely offset declines in contractual loan yields.

Noninterest income

Noninterest income for the fourth quarter of 2012 was $55.6 million, up 27%
from the prior quarter and up 89% from the fourth quarter a year ago. For the
year ended December 31, 2012, noninterest income was $168.7 million, up 43%
from 2011.

Noninterest expense

Noninterest expense for the fourth quarter of 2012 was $183.1 million,
compared to $178.4 million for the prior quarter and $158.0 million for the
fourth quarter a year ago, a 3% increase over the prior quarter and a 16%
increase year-over-year. For the year ended December 31, 2012, noninterest
expense was $697.8 million, up 21% from 2011.

Noninterest expense has grown primarily due to an increase in personnel to
support loan, deposit and wealth management growth, increased occupancy costs
as the Bank added both corporate office space and deposit offices, increased
costs related to investments in technology and increased expenses related to
tax credit investments.

Efficiency ratio

The Bank’s efficiency ratio was 51.2% for the fourth quarter of 2012, compared
to 52.1% for the third quarter of 2012 and 50.2% for the fourth quarter a year
ago. For the year ended December 31, 2012 and 2011, the efficiency ratio was
52.0% and 48.7%, respectively.

Excluding the impact of purchase accounting, the Bank’s efficiency ratio was
56.2% for the fourth quarter of 2012, compared to 58.6% for the third quarter
of 2012 and 59.9% for the fourth quarter a year ago. For the year ended
December 31, 2012, the efficiency ratio was 58.6% versus 59.2% during 2011.
^(1)

Income tax rate

The Bank’s effective tax rate for 2012 was 30.4%, compared to 35.7% for 2011.
The decrease in the effective tax rate in 2012 was the result of a higher
level of tax-exempt securities, bank-owned life insurance, tax credit
investments and tax-advantaged loans.

_________

^(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
                 Three Months                Months        Twelve Months
                 Ended                       Ended         Ended
                 December 31,                September     December 31,
                                             30,
(in thousands,
except per       2012          2011          2012          2012            2011
share amounts)
Interest
income:
Interest on      $ 294,763     $ 288,226     $ 295,045     $ 1,160,522     $ 1,104,504
loans
Interest on      33,278        25,338        31,638        124,040         73,178
investments
Interest on
cash             546           1,197         653           2,644           5,275        
equivalents
Total interest   328,587       314,761       327,336       1,287,206       1,182,957    
income
                                                                            
Interest
expense:
Interest on
customer         11,732        17,628        13,584        56,981          83,268
deposits
Interest on
FHLB advances    14,521        11,035        14,492        55,660          31,671
and other
borrowings
Interest on
subordinated     —             561           439           1,545           2,279        
notes
Total interest   26,253        29,224        28,515        114,186         117,218      
expense
                                                                            
Net interest     302,334       285,537       298,821       1,173,020       1,065,739
income
Provision for    17,204        16,159        16,505        63,436          52,329       
loan losses
Net interest
income after     285,130       269,378       282,316       1,109,584       1,013,410    
provision for
loan losses
                                                                            
Noninterest
income:
Investment       16,305        11,897        15,376        59,054          47,030
advisory fees
Brokerage and
investment       2,904         2,219         2,346         10,682          9,496
fees
Trust fees       2,381         1,729         2,376         8,715           6,737
Foreign
exchange fee     3,147         3,298         3,297         11,504          10,235
income
Deposit          3,746         3,169         3,522         13,994          14,368
customer fees
Loan servicing   217           (341      )   (2,916    )   (5,307      )   (168        )
fees, net
Loan and         1,829         1,801         1,514         6,291           4,951
related fees
Gain on sale     17,721        335           12,547        38,831          6,417
of loans
Income from
investments in   6,212         4,785         4,985         22,186          16,143
life insurance
Other income     1,149         510           792           2,784           2,721        
Total
noninterest      55,611        29,402        43,839        168,734         117,930      
income
                                                                            
Noninterest
expense:
Salaries and
related          88,412        74,352        87,204        339,656         275,086
benefits
Occupancy        21,834        18,595        21,229        83,648          67,609
Information      19,745        16,065        18,843        72,508          57,695
systems
Advertising      6,061         8,567         5,953         25,120          28,812
and marketing
FDIC and other
deposit          6,684         5,552         6,400         24,386          23,910
assessments
Professional     4,854         4,711         5,263         19,848          16,359
fees
Amortization     4,927         5,444         5,087         20,472          22,723
of intangibles
Tax credit       5,754         3,680         5,348         20,873          9,920
investments
Other expenses   24,873        21,035        23,063        91,333          74,494       
Total
noninterest      183,144       158,001       178,390       697,844         576,608      
expense
                                                                            
Income before
provision for    157,597       140,779       147,765       580,474         554,732
income taxes
Provision for    47,486        49,016        45,069        176,464         198,039      
income taxes
Net income
before           110,111       91,763        102,696       404,010         356,693
noncontrolling
interests
Less: Net
income from      —             1,072         —             1,538           4,605        
noncontrolling
interests
First Republic
Bank net         110,111       90,691        102,696       402,472         352,088
income
Dividends on
preferred        6,534         —             5,667         18,743          —
stock
Redemption of
preferred        —             —             —             13,200          —            
stock
Net income
available to     $ 103,577     $ 90,691      $ 97,029      $ 370,529       $ 352,088    
common
shareholders
                                                                            
Basic earnings
per common       $ 0.79        $ 0.70        $ 0.75        $ 2.85          $ 2.73       
share
Diluted
earnings per     $ 0.77        $ 0.68        $ 0.72        $ 2.76          $ 2.65       
common share
Dividends per    $ 0.20        $ —           $ 0.10        $ 0.30          $ —          
common share
                                                                            
Weighted
average shares   130,614       129,313       130,194       130,051         129,061      
- basic
Weighted
average shares   134,731       132,939       134,374       134,189         132,724      
- diluted
 

 
CONSOLIDATED BALANCE SHEET
 
                              As of
($ in thousands)              December 31,     September 30,    December 31,
                              2012             2012             2011
ASSETS
Cash and cash equivalents     $ 602,264        $ 877,758        $ 630,780
Securities purchased under    30,901           23,348           4,890
agreements to resell
Investment securities         960,433          798,874          722,280
available-for-sale
Investment securities         2,545,189        2,448,888        2,097,198
held-to-maturity
                                                                 
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        171,268          151,632          122,885
construction
Commercial business loans     2,600,151        2,236,039        1,656,795
Other secured                 391,833          374,820          260,598
Unsecured loans and lines     279,515          216,380          132,973
of credit
Stock secured                 145,460          122,543          103,208       
Total unpaid principal        28,299,115       26,822,602       22,819,469    
balance
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           701,672          695,240          585,956
insurance
Tax credit investments        484,548          475,352          330,447
Prepaid expenses and other    575,741          534,463          548,395
assets
Premises, equipment and       142,201          133,344          118,365
leasehold improvements, net
Goodwill and other            265,441          145,973          159,178
intangible assets
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           $ 8,544,472      $ 8,371,083      $ 6,115,571
accounts
Interest-bearing checking     5,408,325        4,151,311        3,675,813
accounts
Money Market (MM) checking    4,104,791        3,948,693        3,139,448
accounts
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      56,450           61,221           63,259
interest entity
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             31,376           26,732           1,186         
comprehensive income
Total First Republic Bank     3,398,544        3,162,402        2,517,762
shareholders’ equity
Noncontrolling interests      —                —                77,260        
Total Equity                  3,398,544        3,162,402        2,595,022     
Total Liabilities and         $ 34,387,677     $ 32,576,170     $ 27,791,801  
Equity
 

 
                   Three Months                    Three Months    Twelve Months
                   Ended                           Ended           Ended
                   December 31,                    September 30,   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     1.30        %   1.30        %   1.27        %   1.29         %   1.39         %
^(3)
Net income
available to
common
shareholders
to average
common equity      14.27       %   14.49       %   13.89       %   13.54        %   15.04        %
^(3)
Dividend payout    26.0        %   —               13.8        %   10.9         %   —
ratio
Efficiency ratio   51.2        %   50.2        %   52.1        %   52.0         %   48.7         %
^(4)
Efficiency ratio
(non-GAAP) ^(4),   56.2        %   59.9        %   58.6        %   58.6         %   59.2         %
(5)
                                                                                     
Yields/Rates 
^(3)
Cash and cash      0.25        %   0.26        %   0.25        %   0.26         %   0.26         %
equivalents
Securities
purchased under    0.15        %   0.08        %   0.13        %   0.13         %   0.05         %
agreements to
resell
Investment         5.50        %   5.52        %   5.54        %   5.56         %   5.67         %
securities ^(6)
Loans ^(6)         4.34        %   5.31        %   4.54        %   4.66         %   5.57         %
Total
interest-earning   4.35        %   4.98        %   4.50        %   4.61         %   5.12         %
assets
                                                                                     
Checking           0.01        %   0.03        %   0.01        %   0.01         %   0.04         %
Money market
checking and       0.12        %   0.25        %   0.17        %   0.20         %   0.38         %
savings
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   0.35        %   0.47        %   0.40        %   0.41         %   0.52         %
liabilities
                                                                                     
Net interest       4.00        %   4.51        %   4.10        %   4.20         %   4.60         %
spread
                                                                                     
Net interest       4.02        %   4.53        %   4.13        %   4.22         %   4.63         %
margin
                                                                                     
Net interest
margin             3.46        %   3.55        %   3.47        %   3.53         %   3.53         %
(non-GAAP) ^ (5)
                                                                                     
^(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
             Three Months               Months        Twelve Months
             Ended                      Ended         Ended
             December 31,               September     December 31,
                                        30,
($ in        2012          2011         2012          2012            2011
thousands)
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        $ 671,314     $ 52,137     $ 774,230     $ 2,433,380     $ 728,669  
loans sold
                                                                       
Gain on
sale of
loans:
Amount       $ 17,721      $ 335        $ 12,547      $ 38,831        $ 6,417
Gain as a
percentage   2.64      %   0.64     %   1.62      %   1.60        %   0.88      %
of loans
sold
 

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
                            Loans acquired   Loans originated   Total loans at
($ in thousands)            on July 1,       since July 1,      December 31,
                            2010             2010               2012
Single family (1-4 units)   $  5,228,937     $  11,443,987      $ 16,672,924
Home equity lines of        1,027,786        859,818            1,887,604
credit
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               15,722           218,491            234,213
construction
Multifamily/commercial      12,810           158,458            171,268
construction
Commercial business loans   495,859          2,104,292          2,600,151
Other secured               59,790           332,043            391,833
Unsecured loans and lines   49,551           229,964            279,515
of credit
Stock secured               11,719           133,741            145,460       
Total unpaid principal      8,928,201        19,370,914         28,299,115    
balance
Net unaccreted discount     (331,709     )   (695           )   (332,404     )
Net deferred fees and       (7,799       )   27,847             20,048
costs
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      December 31,        September 30,      December 31,
per share amounts)         2012                2012               2011
Book Value
Number of shares of
common stock               131,273             130,950            129,372    
outstanding
Book value per common      $   22.08           $    21.48         $  19.46   
share
Tangible book value        $   20.06           $    20.37         $  18.23   
per common share
                                                                   
Capital Ratios
Tier 1 leverage ratio      9.32        %       9.33         %     8.81      %
Tier 1 common equity       11.13       %       11.98        %     12.84     %
ratio ^(7)
Tier 1 risk-based          13.27       %       13.57        %     13.25     %
capital ratio
Total risk-based           13.86       %       14.12        %     13.65     %
capital ratio
                                                                   
^(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,   September 30,   December 31,
                                   2012           2012            2011
Assets Under Management
First Republic Investment          $   17,000     $    10,782     $   7,940
Management
                                                                   
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,   September 30,   December 31,
                                   2012           2012            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      0.14       %   0.13       %    0.11       %
assets
                                                                   
Accruing loans 90 days or more     $  —           $  970          $  —
past due
                                                                   
Restructured accruing loans        $  12,398      $  12,277       $  6,674
 

 
                   Three Months          Three Months    Twelve Months
                   Ended                 Ended           Ended
                   December 31,          September 30,   December 31,
($ in thousands)   2012      2011        2012            2012        2011
Net loan
charge-offs to     $ 315     $ 1,350     $   554         $ 1,660     $ 3,025
allowance for
loan losses
Net loan
charge-offs to     0.01  %   0.03    %   0.01      %     0.01    %   0.02    %
average total
loans ^(3)
 

 
                      Average Balance Sheet
                      Three Months                      Three Months     Twelve Months
                      Ended                             Ended            Ended
                      December 31,                      September 30,    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       26,047           4,912            13,139           19,504           6,425
agreements to
resell
Investment            3,487,204        2,671,429        3,302,354        3,223,667        1,909,515
securities ^(8)
Loans ^(9)            27,232,372       21,656,992       25,980,676       25,106,210       19,930,099
Total
interest-earning      31,626,331       26,153,562       30,345,379       29,372,377       23,884,446
assets
Noninterest-earning   1,967,146        1,621,175        1,877,610        1,854,268        1,429,815
assets
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          10,095,930       8,881,723        9,928,506        9,691,658        8,610,827
savings
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    —                66,039           54,309           45,985           67,036
^(9)
Debt related to
variable interest     59,365           71,105           56,701           59,577           35,397
entity
Total borrowings      3,220,061        2,239,318        3,261,010        3,101,557        1,602,707
Total
interest-bearing      29,758,438       24,821,750       28,611,143       27,707,002       22,614,031
liabilities
Noninterest-bearing   533,589          392,236          483,522          464,605          277,929
liabilities
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        —                77,260           —                28,124           80,550
interests
Total Liabilities     $ 33,593,477     $ 27,774,737     $ 32,222,989     $ 31,226,645     $ 25,314,261
and Equity
                                                                                           
^(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
                         Three Months          Months      Twelve Months
                         Ended                 Ended       Ended
                         December 31,          September   December 31,
                                               30,
($ 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.

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
               Three Months               Months        Twelve Months
               Ended                      Ended         Ended
               December 31,               September     December 31,
                                          30,
(in
thousands,
except per     2012          2011         2012          2012          2011
share
amounts)
Non-GAAP
earnings
Net income     $ 110,111     $ 90,691     $ 102,696     $ 402,472     $ 352,088
Accretion /
amortization
added to net   (41,088   )   (60,355  )   (46,651   )   (186,199  )   (242,156  )
interest
income
Discounts
recognized
in gain on     —             —            —             —             (3,827    )
sale of
loans
Accretion
added to       —             (109     )   (171      )   (255      )   (1,472    )
noninterest
income
Amortization
of             4,927         5,444        5,087         20,472        22,723
intangible
assets
Add back tax
impact of      15,368        23,384       17,737        70,542        95,512     
the above
items
Non-GAAP net   89,318        59,055       78,698        307,032       222,868
income
Dividends on
preferred      (6,534    )   —            (5,667    )   (18,743   )   —
stock
Redemption
of FRPCC       —             —            —             (13,200   )   —
preferred
stock
Impact of
FRPCC
preferred      —             —            —             13,200        —          
stock
redemption
Non-GAAP net
income
available to   $ 82,784      $ 59,055     $ 73,031      $ 288,289     $ 222,868  
common
shareholders
                                                                       
GAAP
earnings per   $ 0.77        $ 0.68       $ 0.72        $ 2.76        $ 2.65
common share
- diluted
Impact of
purchase       (0.16     )   (0.24    )   (0.18     )   (0.71     )   (0.97     )
accounting,
net of tax
Impact of
FRPCC
preferred      —             —            —             0.10          —          
stock
redemption
Non-GAAP
earnings per   $ 0.61        $ 0.44       $ 0.54        $ 2.15        $ 1.68     
common share
- diluted
                                                                       
Weighted
average
diluted        134,731       132,939      134,374       134,189       132,724    
common
shares
outstanding
 

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

 
                                           Three
               Three Months                Months        Twelve Months
               Ended                       Ended         Ended
               December 31,                September     December 31,
                                           30,
($ in          2012          2011          2012          2012            2011
thousands)
Efficiency
ratio
Net interest   $ 302,334     $ 285,537     $ 298,821     $ 1,173,020     $ 1,065,739
income
Less:
Accretion /    (41,088   )   (60,355   )   (46,651   )   (186,199    )   (242,156    )
amortization
Net interest
income         $ 261,246     $ 225,182     $ 252,170     $ 986,821       $ 823,583    
(non-GAAP)
                                                                          
Noninterest    $ 55,611      $ 29,402      $ 43,839      $ 168,734       $ 117,930
income
Less:
Accretion of
discounts on   —             (109      )   (171      )   (255        )   (1,472      )
loan
commitments
Discounts
recognized
in gain on     —             —             —             —               (3,827      )
sale of
loans
Noninterest
income         $ 55,611      $ 29,293      $ 43,668      $ 168,479       $ 112,631    
(non-GAAP)
                                                                          
Total          $ 357,945     $ 314,939     $ 342,660     $ 1,341,754     $ 1,183,669
revenue
Total
revenue        $ 316,857     $ 254,475     $ 295,838     $ 1,155,300     $ 936,214
(non-GAAP)
                                                                          
Noninterest    $ 183,144     $ 158,001     $ 178,390     $ 697,844       $ 576,608
expense
Less:
Intangible     (4,927    )   (5,444    )   (5,087    )   (20,472     )   (22,723     )
amortization
Noninterest
expense        $ 178,217     $ 152,557     $ 173,303     $ 677,372       $ 553,885    
(non-GAAP)
                                                                          
Efficiency     51.2      %   50.2      %   52.1      %   52.0        %   48.7        %
ratio
Efficiency
ratio          56.2      %   59.9      %   58.6      %   58.6        %   59.2        %
(non-GAAP)
 

Contact:

Investor Contact:
Addo Communications
Andrew Greenebaum, 310-829-5400
andrewg@addocommunications.com
Lasse Glassen, 310-829-5400
lasseg@addocommunications.com
or
Media Contact:
Blue Marlin Partners
Greg Berardi, 415-239-7826
greg@bluemarlinpartners.com
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