First Republic Reports Strong Quarter And Record Annual Net Income

SAN FRANCISCO, Jan. 15, 2015 /PRNewswire/ -- First Republic Bank (NYSE: FRC) today announced financial results for the quarter and year ended December 31, 2014.

"First Republic reported record net income in 2014 due to strong performance across all areas of the enterprise," said Chairman and CEO Jim Herbert.  "Driven by robust revenue growth, core EPS was $0.67 for the quarter and a record $2.83 for the year.  Asset quality remains excellent."

Full Year Highlights

Financial Results

• Core revenues were up 17.1%. ⁽¹⁾
• Net income was $487.0 million.
• Diluted earnings per share ("EPS") of $3.07.
• Core net income was $453.6 million, a record. ⁽¹⁾
• Core diluted EPS of $2.83, a record. ⁽¹⁾
• Loan originations totaled $17.0 billion, second highest year ever.
• Loans sold totaled $4.4 billion, highest ever.
• Core net interest margin was 3.14%, compared to 3.26% for the prior year. ⁽¹⁾
• Core efficiency ratio was 57.6%. ⁽¹⁾

Continued Financial and Credit Strength

• Tier 1 leverage ratio was 9.43%.
• Book value per share was $28.13, up 14.2% from a year ago.
• Nonperforming assets continued to be extremely low at 10 basis points of total assets.
• Net charge-offs for the year were only 1 basis point of average loans.

Franchise Development

• Loans outstanding, excluding loans held for sale, totaled $37.9 billion, up 10.9% from a year ago.
• Deposits were $37.1 billion, up 15.7%. 
• Wealth management assets were $53.4 billion, up 28.4%.
• Wealth management revenues were $172.7 million, up 29.3%.

Quarterly Highlights

Financial Results

• Core revenues were $401.3 million. ⁽¹⁾
• Net income was $115.5 million.
• Diluted EPS of $0.72. 
• Core net income was $108.7 million. ⁽¹⁾
• Core diluted EPS of $0.67. ⁽¹⁾
• Loan originations totaled $4.3 billion.
• Loans sold totaled $991.3 million.
• Core net interest margin was 3.06%, compared to 3.09% for the prior quarter. ⁽¹⁾
• Core efficiency ratio was 59.9%. ⁽¹⁾
• Wealth management assets were $53.4 billion, up 3.9%.
• Total deposits were up $1.5 billion; average checking balances represented 56% of average total deposits.

"Wealth management and business banking performed very well in the fourth quarter and for the full year," said President Katherine August-deWilde.  "We continued to make significant investments for an enhanced regulatory environment, while deepening relationships with existing clients and winning many new clients."

Quarterly Cash Dividend Declared

The Bank declared a cash dividend for the fourth quarter of $0.14 per share of common stock, which is payable on February 12, 2015 to shareholders of record as of January 29, 2015. 

Strong Asset Quality

The Bank's credit quality remains very strong.  Nonperforming assets were 10 basis points of total assets. 

Net charge-offs were only $2.1 million for the year, less than 1 basis point of average loans.

Capital Strength

The Bank's Tier 1 leverage ratio was 9.43% at December 31, 2014.  The Tier 1 common equity ratio was 10.90% at December 31, 2014.

Growing Book Value

Book value per common share was $28.13 at December 31, 2014, up 2.4% for the quarter and up 14.2% from a year ago. 

Franchise Development

Loan Originations

Loan originations totaled $4.3 billion for the quarter.  Single family originations were $2.2 billion, or 52% of total originations.  In addition, over 52% of the quarter's single family originations were for purchases. 

Mortgage Banking Activity

Loan sales volume and profitability for the fourth quarter were up compared to the same period last year.  The Bank sold $991.3 million of primarily intermediate-term, fixed-rate home loans during the quarter and recorded a gain on sale of $4.1 million.  The margin on such loan sales was 0.41%.

For the year ended December 31, 2014, the Bank sold a record $4.4 billion of loans, compared to $2.7 billion for the prior year.  Gain on sale of loans for the year ended December 31, 2014 was $35.5 million, compared to $36.3 million for the prior year.  These loan sales are used in the ordinary course of business to help provide a full range of lending options for our clients, while also managing asset growth and interest rate risk.

Loans serviced for investors at year-end totaled $9.6 billion, up 8.3% for the quarter and 59.8% from a year ago.  Loan servicing fees for the year were $9.7 million, up from $7.2 million during the prior year.

Investments

Total investments at December 31, 2014 were $6.6 billion, up 37.6% compared to a year ago.  As of December 31, 2014, investments that are high-quality liquid assets, from a regulatory perspective, totaled $3.1 billion.

Expansion of Wealth Management

Wealth management revenues totaled $46.8 million for the quarter, up 4.7% compared to the prior quarter and up 26.2% compared to last year's fourth quarter. 

Wealth management revenues were $172.7 million for the year, an increase of 29.3% compared to the prior year.

Total wealth management assets were $53.4 billion, up 3.9% for the quarter and up 28.4% for the year.  The growth in wealth management assets was primarily due to net new assets from both existing and new clients.  Wealth management assets include investment management assets of $27.5 billion, brokerage assets and money market mutual funds of $19.7 billion, and trust and custody assets of $6.2 billion.

Deposit Results

Total deposits increased to $37.1 billion, up 4.3% for the quarter and up 15.7% for the year.  At December 31, 2014, 58% of deposits were checking accounts.

The average contractual rate paid on all deposits declined to 0.17% for the quarter, compared to 0.19% for the prior quarter.

Income Statement and Key Ratios

Highlights

Strong Core Revenue Growth

Total revenues were $416.7 million for the quarter and $1.6 billion for 2014.

Core revenues were $401.3 million for the quarter, a 16.0% increase from the fourth quarter of last year. ⁽¹⁾

Core revenues were $1.6 billion for 2014, up 17.1% from 2013. ⁽¹⁾

Continued Net Interest Income Growth

Net interest income was $340.9 million for the quarter and $1.3 billion for the year. 

Core net interest income was $325.5 million for the quarter, up 1.6% from the prior quarter. ⁽¹⁾

Core net interest income for 2014 was $1.3 billion, up 14.4% from 2013. ⁽¹⁾

Net Interest Margin

The Bank's net interest margin was 3.21% for the quarter and 3.32% for the year.  

The core net interest margin was 3.06% for the quarter, compared to 3.09% for the prior quarter.  For 2014, the core net interest margin was 3.14%, compared to 3.26% for 2013. ⁽¹⁾  The decrease was primarily the result of a decrease in contractual loan yields.

Strong Noninterest Income Growth

Noninterest income for the quarter was $75.8 million, up 34.9% from the fourth quarter of 2013.  Noninterest income was $318.4 million for 2014, up 30.3% from 2013.  The quarter's increase compared to last year's fourth quarter was primarily due to increases in investment advisory fees, gain on sale of loans and foreign exchange fees.  The increase for the full year was primarily due to increases in investment advisory fees, gain on investments and foreign exchange fees.

Noninterest income represented 20.2% of total core revenues for the year, up from 18.2% for the prior year.

Noninterest Expense and Efficiency Ratio

Noninterest expense for the quarter was $244.2 million, a 2.4% increase over the prior quarter.  For 2014, noninterest expense was $922.7 million, up 20.1% from 2013.  The increase in noninterest expense from the prior quarter was primarily due to increased salaries and information systems costs and the increase from the prior year was primarily due to increased salaries, professional fees and information systems costs.  These increases were primarily attributable to the Bank's investments in compliance and related infrastructure build-out to address enhanced regulatory standards as the Bank prepares to grow past $50 billion in total assets.

The Bank's efficiency ratio was 58.6% for the quarter and 56.0% for 2014.   

The Bank's core efficiency ratio was 59.9% for the quarter, compared to 55.4% (58.7% excluding gain on sales of investment securities) for the prior quarter.  For 2014, the Bank's core efficiency ratio was 57.6%, compared to 55.8% for 2013. ⁽¹⁾

Income Tax Rate

The Bank's effective tax rate for 2014 was 27.3%, compared to 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 fourth quarter 2014 earnings conference call is scheduled for January 15, 2015 at 7:00 a.m. PT / 10:00 a.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 #57294250.  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 15, 2015, at 10:30 a.m. PT / 1:30 p.m. ET, through January 22, 2015, 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 #57294250.  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, our progress in preparing for 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 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.

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, yield on average loans, cost of average deposits, net interest margin and the efficiency ratio. 

Our net income, earnings per share, yield on average loans, cost of average deposits, 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; recognize discounts established in purchase accounting on the sale of loans, which increase gain on sale of loans; amortize premiums on 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:

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SOURCE First Republic Bank

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