First Republic Reports Strong Second Quarter Results

SAN FRANCISCO, July 16, 2015 /PRNewswire/ -- First Republic Bank (NYSE: FRC) today announced financial results for the quarter ended June 30, 2015.

"We are very pleased with second quarter results, which were driven by revenue growth," said CEO Jim Herbert.  "Loans, deposits and assets under management increased nicely.  Costs remained under control, and credit quality was excellent."

Quarterly Highlights

Financial Results

• Core revenues were up 11.7% compared to last year's second quarter. ⁽¹⁾
• Net income was $131.3 million.
• Diluted earnings per share ("EPS") of $0.80, including $0.04 from a one-time special dividend from the FHLB.
• Core net income was $121.1 million. ⁽¹⁾
• Core diluted EPS of $0.73. ⁽¹⁾
• Loan originations totaled $5.8 billion, our highest quarter ever.
• Loans sold totaled $887.2 million, compared to $574.7 million for the prior quarter.
• Core net interest margin was 3.12%. ⁽¹⁾
• Core efficiency ratio was 59.8%. ⁽¹⁾

Continued Financial and Credit Strength

• Tier 1 leverage ratio was 9.76% and Common Equity Tier 1 ratio was 10.71%. ⁽²⁾
• Book value per share was $30.03, up 12.0% from a year ago.
• Nonperforming assets were a low 11 basis points of total assets.
• Net charge-offs were $352,000 for the quarter.

Franchise Development

• Loans outstanding, excluding loans held for sale, totaled $41.1 billion, up 12.7% from a year ago.
• Deposits were $41.9 billion, up 19.6% from a year ago.
• Checking balances represented 60.5% of total deposits.
• Wealth management assets were $57.6 billion, up 18.3% from a year ago.
• Wealth management revenues were $50.4 million, up 18.8% from a year ago.

"This quarter was our best ever loan volume, while wealth management and business banking each continued to make significant contributions," said President Katherine August-deWilde.  "We continue to deepen and expand our relationships with existing clients while winning new business throughout our economically vibrant urban, coastal markets."

Quarterly Cash Dividend Declared

The Bank declared a cash dividend for the second quarter of $0.15 per share of common stock, which is payable on August 13, 2015 to shareholders of record as of July 30, 2015. 

Strong Asset Quality

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

Net charge-offs were only $352,000, while the Bank provided $17.0 million to its allowance for loan losses during the quarter.

Continued Capital Strength

During the second quarter, the Bank issued $100.0 million of 5.70% Noncumulative Perpetual Preferred Stock, which qualifies as Tier 1 capital.

The Bank's Tier 1 leverage ratio was 9.76% and Common Equity Tier 1 ratio was 10.71% at June 30, 2015. ⁽²⁾

Book Value Growth

Book value per common share was $30.03 at June 30, 2015, up 12.0% from a year ago. 

Continued Franchise Development

Total Assets

The average of the last four quarter-end total assets was $49.8 billion.

Loan Originations

Loan originations totaled $5.8 billion for the quarter, a record.  Single family originations were $2.9 billion, of which 49% were for purchases. 

Loans outstanding, excluding loans held for sale, totaled $41.1 billion, up 12.7% compared to a year ago.

Deposit Growth

Total deposits increased to $41.9 billion, up 4.9% for the quarter and up 19.6% compared to a year ago.  At June 30, 2015, checking accounts totaled 60.5% of deposits.

The average contractual rate paid on all deposits declined to 0.15% for the quarter, compared to 0.16% for the prior quarter.

Mortgage Banking Activity

The Bank sold $887.2 million of loans during the quarter and recorded a gain on sale of $3.5 million, compared to loan sales of $1.3 billion and a gain on sale of $14.9 million during the second quarter of last year.  The margin on this quarter's loan sales was 0.39%.

The Bank utilizes loan sales in the ordinary course of business in order to provide a full range of lending options for its clients, while also managing asset growth and interest rate risk.

Loans serviced for investors at quarter-end totaled $10.3 billion, up 4.7% for the quarter and 41.5% from a year ago.  Loan servicing fees, net, for the quarter were $2.9 million, up from $2.0 million a year ago.

Investments

Total investments at June 30, 2015 were $7.8 billion, up 3.6% for the quarter and 44.6% compared to a year ago. 

Our holdings of assets that are considered high-quality liquid assets, including eligible cash, totaled $4.1 billion at June 30, 2015.

Expansion of Wealth Management

Wealth management revenues totaled $50.4 million for the quarter, up 18.8% compared to last year's second quarter. 

Total wealth management assets were $57.6 billion, up 2.1% for the quarter and up 18.3% compared to a year ago.  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 $29.0 billion, brokerage assets and money market mutual funds of $21.6 billion, and trust and custody assets of $7.0 billion.

To further expand wealth management, First Republic Investment Management, Inc., a wholly-owned subsidiary of the Bank, has agreed to purchase the assets of Constellation Wealth Advisors.  The transaction is expected to close in the third quarter of 2015, subject to the satisfaction of customary closing conditions.

Income Statement and Key Ratios

Quarterly Highlights

Strong Core Revenue Growth

Total revenues were $455.3 million for the quarter, an 11.0% increase from the second quarter of last year.

Core revenues were $434.2 million for the quarter, an 11.7% increase from the second quarter of last year. ⁽¹⁾

Continued Core Net Interest Income Growth

Net interest income was $375.1 million for the quarter, a 12.6% increase from the second quarter of last year.   

Core net interest income was $353.9 million for the quarter, a 13.5% increase from the second quarter of last year. ⁽¹⁾

Core Net Interest Margin

The Bank's net interest margin was 3.30% for the quarter, compared to 3.21% for the prior quarter. 

The core net interest margin was 3.12% for the quarter, compared to 3.09% for the prior quarter. ⁽¹⁾  The modest increase was primarily the result of lower average cash balances, which were invested in loans and investment securities.

Strong Noninterest Income Growth

Noninterest income, excluding gain on sale of loans, increased 23.8% compared to the second quarter of last year, primarily due to increases in investment advisory fees, gain on investment securities, income from investments in life insurance, loan and related fees, and brokerage and investment fees.

Steady Core Efficiency Ratio

Noninterest expense for the quarter was $263.1 million, an 18.1% increase from the second quarter of last year.  The increase was primarily due to increased salaries, professional fees, information systems and occupancy costs.  The year-over-year increase in these expenses was significantly attributable to the Bank's ongoing investments in infrastructure build-out to address enhanced regulatory standards.

The Bank's efficiency ratio was 57.8% for the quarter, compared to 60.5% for the prior quarter and 54.3% for the second quarter a year ago.   

The Bank's core efficiency ratio was 59.8% for the quarter, compared to 61.5% for the prior quarter and 56.3% for the second quarter a year ago. ⁽¹⁾  The improvement in the efficiency ratio compared to the prior quarter was predominantly the result of higher seasonal payroll taxes in the first quarter.

Income Tax Rate

The Bank's effective tax rate for the six months ended June 30, 2015 was 25.2% and represents the current estimated tax rate for the full year 2015.  By comparison, the effective tax rate was 27.3% for 2014.  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.

Adoption of Accounting Guidance

During the quarter ended March 31, 2015, the Bank adopted new accounting guidance issued by the FASB that requires debt issuance costs to be presented within borrowings, rather than other assets, on the balance sheet.  This accounting change resulted in revisions to the June 30, 2014 balance sheet by reducing prepaid expenses and other assets as well as senior notes each by approximately $3 million.

_________

⁽¹⁾ "Core" measures are non-GAAP financial measures that exclude the impact of purchase accounting and also the one-time special dividend from the FHLB received in the second quarter of 2015.  See non-GAAP reconciliation under section "Use of Non-GAAP Financial Measures."

⁽²⁾ Represents the ratio under Basel III fully phased-in. See "Capital Ratios" table for additional information.

Conference Call Details

First Republic Bank's second quarter 2015 earnings conference call is scheduled for July 16, 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 #72609271.  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, 2015, at 10:00 a.m. PT / 1:00 p.m. ET, through July 23, 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 #72609271.  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 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 or 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, including any requirements that become applicable as we become a U.S. bank with a four-quarter average of total consolidated assets of at least $50 billion; any increased compliance costs; 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.  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.

In addition, in the second quarter of 2015, the Bank received a one-time special dividend of $9.1 million from the FHLB.  Management has also excluded the positive impact of this item from the following non-GAAP measures and ratios: net income, earnings per share, net interest income, net interest margin and efficiency ratio.

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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