First Republic Reports Strong First Quarter 2016 Results

SAN FRANCISCO, April 14, 2016 /PRNewswire/ -- First Republic Bank (NYSE: FRC) today announced financial results for the quarter ended March 31, 2016.

"We're quite pleased with first quarter results," said Jim Herbert, Chairman and CEO.  "Earnings, loans, deposits and wealth management assets all grew nicely.  Credit quality and capital levels remain very strong."

Quarterly Highlights

Financial Results ⁽¹⁾

• Compared to last year's first quarter:
  • Revenues were $519.6 million, up 22.8%.
  • Net income was $148.9 million, up 28.4%.
  • Diluted earnings per share ("EPS") of $0.88, up 23.9%.
• Loan originations totaled $4.8 billion, our highest first quarter ever.
• Loans sold totaled $477.7 million.
• Core net interest margin was 3.14%, compared to 3.02% for the prior quarter. ⁽²⁾
• Efficiency ratio was 61.4%.

Continued Financial and Credit Strength

• Tier 1 leverage ratio was 9.38%.
• Common Equity Tier 1 ratio was 10.61%.
• Tangible book value per share was $31.05, up 11.0% from a year ago.
• Nonperforming assets were low at 10 basis points of total assets.
• Credit quality remains very strong, with net recoveries of $29,000 for the quarter.

Franchise Development

• Loans outstanding, excluding loans held for sale, totaled $45.4 billion, up 16.2% from a year ago.
• Deposits were $50.9 billion, up 27.5% from a year ago.
• Checking balances represented 64.0% of total deposits.
• Wealth management assets were $73.4 billion, up 30.3% from a year ago.
• Wealth management revenues were $68.9 million, up 31.4% from a year ago.

"Revenues grew 23% from a year ago and were driven by strong performance across all lines of business," said Chief Financial Officer Mike Roffler.  "Net interest margin improved and our efficiency ratio remains stable."

Increased Quarterly Cash Dividend to $0.16 per Share

The Bank today announced an increase in its quarterly cash dividend for the first quarter to $0.16 per share of common stock, which is payable on May 12, 2016 to shareholders of record as of April 28, 2016. 

Strong Asset Quality

Credit quality remains very strong.  Nonperforming assets were 10 basis points of total assets at March 31, 2016. 

The Bank had net recoveries for the quarter of $29,000, while adding $4.5 million to its allowance for loan losses due to continued loan growth.

Continued Capital Strength

During the first quarter, the Bank issued $150.0 million of 5.50% Noncumulative Perpetual Preferred Stock, which qualifies as Tier 1 capital. 

The Bank's Tier 1 leverage ratio was 9.38% and Common Equity Tier 1 ratio was 10.61% at March 31, 2016.  Total equity has grown 17.9% from a year ago.

Tangible Book Value Growth

Tangible book value per common share was $31.05 at March 31, 2016, up 11.0% from a year ago.

Continued Franchise Development

Loan Originations

Loan originations totaled $4.8 billion for the quarter, compared to $4.2 billion for the first quarter a year ago, up 13.0%.

Loans outstanding, excluding loans held for sale, totaled $45.4 billion at March 31, 2016, up 2.9% for the quarter and up 16.2% compared to a year ago.

Deposit Growth

Total deposits increased to $50.9 billion, up 6.4% for the quarter and up 27.5% compared to a year ago.  At March 31, 2016, checking accounts totaled 64.0% of deposits.  The Bank is almost entirely deposit-funded, with deposits representing 91% of total liabilities at March 31, 2016.

The average rate paid on deposits was 0.13% for the first quarter, compared to 0.14% for the prior quarter.

Investments

Total investments at March 31, 2016 were $11.4 billion, up 9.0% for the quarter and up 52.0% compared to a year ago. 

High-quality liquid assets, from a regulatory perspective, totaled $7.0 billion at March 31, 2016, up 20.4% for the quarter and up 53.1% compared to a year ago.  Such assets represent 11.2% of total assets at March 31, 2016.

Mortgage Banking Activity

During the first quarter, the Bank sold $477.7 million of loans and recorded a gain on sale of $1.4 million, compared to loan sales of $574.7 million and a gain on sale of $1.8 million during the first quarter of last year.

Loans serviced for investors at quarter-end totaled $10.7 billion, up 1.2% for the quarter and up 8.3% from a year ago.  Net loan servicing fees for the quarter were $3.7 million, up 16.1% from $3.2 million a year ago.

Continued Expansion of Wealth Management

Wealth management revenues totaled $68.9 million for the quarter, up 31.4% compared to last year's first quarter.  Such revenues represent 13% of total revenues.

Total wealth management assets were $73.4 billion at March 31, 2016, up 1.6% for the quarter and up 30.3% compared to a year ago. 

The growth in wealth management assets for the quarter was primarily due to net new assets from both existing and new clients.  Wealth management assets include investment management assets of $36.9 billion, brokerage assets and money market mutual funds of $29.2 billion, and trust and custody assets of $7.3 billion.

Income Statement and Key Ratios

Highlights

Strong Revenue Growth

Total revenues were $519.6 million for the quarter, up 22.8% compared to last year's first quarter.

Continued Net Interest Income Growth

Net interest income was $424.3 million for the quarter, up 21.9% compared to last year's first quarter, resulting primarily from growth in average earning assets.

Core Net Interest Margin

The Bank's net interest margin was 3.20% for the first quarter, compared to 3.10% for the prior quarter. 

The core net interest margin was 3.14% for the quarter, compared to 3.02% for the prior quarter.  The increase from the prior quarter was due to lower average cash balances, which were invested in loans and securities, and a 3 basis point increase in average contractual loan yields. ⁽²⁾

Noninterest Income

Noninterest income was $95.3 million for the quarter, up 27.1% compared to the first quarter a year ago, which was primarily from increased wealth management revenues.

Efficiency Ratio

Noninterest expense was $319.2 million for the quarter, up 24.8% from the first quarter of last year.

The Bank's efficiency ratio was 61.4% for the quarter, compared to 60.8% for the prior quarter and 60.5% for the first quarter a year ago.

Income Tax Rate

The Bank's effective tax rate for 2016 is expected to be 24.0%, compared to 24.4% for 2015.  The decrease in the effective tax rate results from the steady increase in tax credit investments, tax-exempt securities, tax-advantaged loans and bank-owned life insurance.

_________

⁽¹⁾ Beginning in 2016, due to the diminishing impact of purchase accounting, we will no longer present the following non-GAAP ("core") financial measures: net income, earnings per share, revenues, cost of average deposits, and efficiency ratio.  See "Use of Non-GAAP Financial Measures" for additional information. 
⁽²⁾ Core net interest margin is a non-GAAP financial measure that excludes the positive impact of purchase accounting.  See non-GAAP reconciliation under section "Use of Non-GAAP Financial Measures."

Conference Call Details

First Republic Bank's first quarter 2016 earnings conference call is scheduled for April 14, 2016 at 7:00 a.m. PT / 10:00 a.m. ET.  To access the event by telephone, please dial (855) 224-3902 approximately 10 minutes prior to the start time (to allow time for registration) and use conference ID #75260974.  International callers should dial (734) 823-3244 and enter the same conference ID number.  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 10 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 join the live presentation, a replay will be available beginning April 14, 2016, at 10:00 a.m. PT / 1:00 p.m. ET, through April 21, 2016, at 8:59 p.m. PT / 11:59 p.m. ET.  To access the replay, dial (855) 859-2056 and use conference ID #75260974.  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, as amended.  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, our progress in preparing for, and our compliance with, any enhanced regulatory requirements, 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 materially from those discussed in the forward-looking statements include, but are not limited to: our ability to deal with significant competition for banking and wealth management customers; our projections for certain financial items; expectations concerning the bank and wealth management industries; earthquakes and other natural disasters in our markets; interest rate and credit risk; our plans or objectives for future operations, products or services; our ability to maintain and follow high underwriting standards; economic conditions generally and in our markets; our geographic concentration; our opportunities for growth; our future provisions for loan losses; our regulatory compliance and future regulatory requirements; the phase-in of the Basel III Capital Rules; and new accounting standards.  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.  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.

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.  Due to the application of purchase accounting from the Bank's re-establishment as an independent institution, management has historically used certain non-GAAP (i.e., core) measures and ratios that exclude the impact of these items to evaluate our performance, including net income, earnings per share, revenues, yield on average loans, cost of average deposits, net interest margin and the efficiency ratio.  However, because of the diminishing impact of purchase accounting, beginning in the first quarter of 2016, only the yield on average loans and net interest margin will be presented on a non-GAAP basis.  

The accretion and amortization of the fair value adjustments recorded in purchase accounting from the Bank's re-establishment as an independent institution affect our net interest margin and yield on average loans as we accrete loan discounts to interest income and amortize premiums on CDs to interest expense.  

We believe these two non-GAAP measures, when taken together with the corresponding GAAP measures, 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 should be considered in addition to, and not as a substitute for or preferable to, the measurements prepared in accordance with GAAP.  In the tables below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP financial measures, or a reconciliation of the non-GAAP calculation of the financial measure:

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SOURCE First Republic Bank

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