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First Republic Reports Record Annual Earnings

Core EPS up 24% and Wealth Management Assets up 33% for the Year

SAN FRANCISCO, Jan. 16, 2014 /PRNewswire/ -- First Republic Bank (NYSE: FRC) today announced financial results for the fourth quarter and the year ended December 31, 2013.

(Logo: http://photos.prnewswire.com/prnh/20130906/MM75721LOGO)

"First Republic had a strong quarter and a terrific year," said Jim Herbert, Chairman and Chief Executive Officer.  "Core diluted EPS increased 24% in 2013.  We're quite pleased with the growth in our banking and wealth management businesses.  Asset quality remains excellent and total equity grew 22%."

2013 Full Year Highlights (1)

Strong Financial Results

  • Net income was $462.1 million, an increase of 15.2%. 
  • Diluted earnings per share ("EPS") were $3.10, up 12.7%. 
  • Core net income rose to $401.4 million, up 31.3%. (2)
  • Core diluted EPS were $2.65, up 23.8%. (2)

Continued Franchise Growth

  • Loan originations were a record $17.8 billion, up 15.4% from a year ago.
  • Loans outstanding totaled $34.3 billion, up 20.2% from a year ago.
  • Deposits were $32.1 billion, up 18.4% from a year ago.
  • Total equity was $4.2 billion, up 22.4% from a year ago.
  • Wealth management assets reached $41.6 billion, up 32.9% from a year ago.

Operating Results

  • Core net interest margin was 3.26% in 2013 and 3.53% in 2012. (2)
  • Nonperforming assets were 14 basis points of total assets at year-end.

Quarterly Financial Highlights

  • Loan originations were $4.1 billion for the quarter.
  • Net income was $115.3 million
  • Diluted EPS were $0.75.
  • Core net income was $103.3 million, up 16.3% from last year's fourth quarter. (2)
  • Core diluted EPS were $0.66, up 8.2% from last year's fourth quarter. (2)
  • Loans outstanding of $34.3 billion, up 4.8% for the quarter.
  • Deposits of $32.1 billion, up 2.5% for the quarter.
  • Wealth management assets were $41.6 billion, up 8.7% from the prior quarter.
  • Core net interest margin was 3.06%, compared to 3.15% for the prior quarter.  The margin decline was predominately due to higher average cash balances compared to the prior quarter. (2)

"Wealth management and business banking both had another very good quarter and continue to be important drivers of success," said Katherine August-deWilde, President and Chief Operating Officer.  "We are actively adding new clients, and all of our markets are performing very well."

Quarterly Cash Dividend Declared

The Bank declared a cash dividend for the fourth quarter of $0.12 per share of common stock, which is payable on February 14, 2014 to shareholders of record as of January 31, 2014. 

Asset Quality

The Bank's credit quality remains very strong.  Nonperforming assets were 14 basis points of total assets. 

Net charge-offs for the year totaled only 5 basis points of average loans.

In the fourth quarter, the Bank recorded a provision for loan losses of $7.8 million.  This provision is related primarily to the continued growth in new loans.  The allowance related to loans originated since our independence totaled $144.5 million, or 0.52% of such loans outstanding. 

Capital Strength

Total equity increased 22.4% from a year ago.  At year-end, the Bank's Tier 1 leverage ratio was 9.19%. 

During the quarter, the Bank issued $200 million of 7.00% Noncumulative Perpetual Preferred Stock, which qualifies as Tier 1 capital. 

Book Value

Book value per common share was $24.63 at December 31, 2013, up 11.4% from a year ago. 

Franchise Development

Composition of Loan Originations

Loan originations totaled $4.1 billion for the quarter.  Nearly half of such originations were attributable to business loans, multifamily and commercial real estate loans and other non-single family lending.  Single family and home equity lines of credit originations were $2.2 billion; 58% of the home loans were for purchases.

Total Assets

Total assets were $42.1 billion, up 2.8% for the quarter.  Loans were $34.3 billion, up 4.8% for the quarter.

Excellent Deposit Growth

Total deposits increased to $32.1 billion, up 2.5% compared to the prior quarter and up 18.4% compared to a year ago.  At December 31, 2013, 96% of deposits were core deposits. (3)

The average contractual rate paid on all deposits declined to 0.25% for the quarter, compared to 0.28% for the prior quarter. 

Continued Expansion of Wealth Management

Total wealth management assets were $41.6 billion, up $3.3 billion, or 8.7% from the prior quarter and up $10.3 billion, or 32.9% for the year.  Such growth in wealth management assets for the year was driven significantly by net new assets obtained from new and existing clients.  Wealth management assets include investment management assets of $21.8 billion, brokerage assets and money market mutual funds of $13.9 billion, and trust and custody assets of $5.9 billion

Wealth management fees earned for the quarter totaled $37.1 million, up 9.7% compared to the prior quarter.  The increased fees reflect the growth in assets under management.

Limited Mortgage Banking Activity

Mortgage banking volume and profitability were down compared to the fourth quarter of last year and the first two quarters of 2013.  The Bank sold $215.8 million of primarily longer-term, fixed rate home loans during the quarter and recorded modest gains of $306,000, or 0.14% of loans sold. 

Loans serviced for investors totaled $6.0 billion, up 31.0% from a year ago primarily due to the increased level of loan sales in the first half of 2013.  The carrying value of mortgage servicing rights was $29.8 million, or 50 basis points of such loans serviced. 

Income Statement and Key Ratios

Revenue Growth

Total revenues were $371.0 million for the quarter, a 2.5% increase from the prior quarter. Total revenues for 2013 were $1.5 billion, up 9.4% from 2012.

Core revenues were $345.9 million for the quarter, a 4.4% increase from the prior quarter. Core revenues for 2013 were $1.3 billion, up 16.4% from 2012. (2)

Net Interest Income Growth

Net interest income was $314.8 million for the quarter, a 2.1% increase from the prior quarter.  Net interest income for 2013 was $1.2 billion, up 4.4% from 2012.   

Core net interest income was $289.7 million for the quarter, a 4.4% increase from the prior quarter.  Core net interest income for 2013 was $1.1 billion, up 11.5% from 2012. (2)

Net Interest Margin

The Bank's net interest margin was 3.32% for the quarter, compared to 3.50% for the prior quarter.  For 2013, the net interest margin was 3.62%. 

The core net interest margin was 3.06% for the quarter, compared to 3.15% for the prior quarter.  For 2013, the core net interest margin was 3.26%, compared to 3.53% for 2012. (2)

High average cash balances contributed significantly to the decline in core net interest margin.  Increased liquidity in the fourth quarter, in the form of $2.6 billion of average cash, resulted in approximately 7 basis points of the 9 basis point decline in core net interest margin quarter-over-quarter. (2)

Noninterest Income

Noninterest income for the quarter was $56.2 million, up $2.6 million, or a 4.8% increase compared to the prior quarter.  For 2013, noninterest income was $244.4 million

The increase in noninterest income from the prior quarter is primarily due to increases in wealth management fees.

Noninterest Expense and Efficiency Ratio (1)

Effective as of the fourth quarter of 2013, the Bank adopted an amended FASB standard related to accounting for low income housing tax credit investments.  This change results in lower noninterest expense, a better efficiency ratio, increased income tax expense and an increased effective tax rate.  Under this new standard, the amortization expense related to these investments is now included in the provision for income taxes and is no longer included in operating expenses.  We are reporting this way herein and going forward, consistent with the new FASB standard.

Noninterest expense for the quarter was $200.9 million, a 4.8% increase over the prior quarter.  For 2013, noninterest expense was $768.0 million, up 13.4% from 2012. 

The efficiency ratio was 54.2% for the quarter, compared to 53.0% for the prior quarter.  For 2013 and 2012, the efficiency ratio was 52.3% and 50.5%, respectively. 

The core efficiency ratio was 56.9% for the quarter, compared to 56.5% for the prior quarter.  For 2013, the core efficiency ratio was 55.8% versus 56.8% for 2012. (2)

Income Tax Rate (1)

The Bank's effective tax rate for 2013 was 30.4%, compared to 33.0% for 2012.  These effective tax rates reflect the adoption of the amended FASB standard, which does not alter the amount of income taxes actually paid by the Bank.  The decrease in the effective tax rate in 2013 was the result of the steady increase in tax-exempt securities, bank-owned life insurance, tax credit investments and tax-advantaged loans.

(1) On January 15, 2014, the FASB issued an amended accounting standard for low income housing tax credit investments. In accordance with this standard, the Bank has adjusted its financial statements for all prior periods. The adoption of this standard reduced noninterest expense and increased provision for income taxes. See "Noninterest Expense and Efficiency Ratio" and "Income Tax Rate" for further discussion of this change and supplemental schedule "Impact of Low Income Housing Tax Credit Investments Accounting Adjustments" for the impact of the change in accounting to noninterest expense, provision for income taxes, core efficiency ratio, and, to a minor extent, net income, diluted EPS and core diluted EPS.
(2) See non-GAAP reconciliation under section "Use of Non-GAAP Financial Measures."
(3) Core deposits exclude CDs greater than $250,000.

Conference Call Details

First Republic Bank's fourth quarter 2013 earnings conference call is scheduled for January 16, 2014 at 11:00 a.m. PT / 2:00 p.m. ET.  To listen to the live call by telephone, please dial (855) 224-3902 approximately 10 minutes prior to the start time (to allow time for registration) and use conference ID #29111696.  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, 2014, at 12:00 p.m. PT / 3:00 p.m. ET, through January 24, 2014, at 8:59 p.m. PT / 11:59 p.m. ET.  To access the replay, dial (855) 859-2056 (U.S.) and use conference ID #29111696.  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 (NYSE: FRC) is a full-service bank specializing in private banking and private business banking.  The Bank's wealth management affiliates offer trust, investment consulting and advisory services.  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, Palm Beach and New York City.  First Republic offers a complete line of banking products for individuals and businesses, including deposit services, as well as residential, commercial and personal loans.  For more information, visit www.firstrepublic.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Statements in this press release that are not historical facts are hereby identified as "forward-looking statements" for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934.  Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking.  These statements are often, but not always, made through the use of words or phrases such as "anticipates," "believes," "can," "could," "may," "predicts," "potential," "should," "will," "estimates," "plans," "projects," "continuing," "ongoing," "expects," "intends" and similar words or phrases and include statements about economic performance in our markets, growth in our loan originations and wealth management assets, and our projected tax rate.  Accordingly, these statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them.  Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: our ability to compete for banking and wealth management customers; earthquakes and other natural disasters in our markets; changes in interest rates; our ability to maintain high underwriting standards; economic conditions in our markets; conditions in financial markets and economic conditions generally; regulatory restrictions on our operations and current or future legislative or regulatory changes affecting the banking and investment management industries.  For a discussion of these and other risks and uncertainties, see First Republic's FDIC filings, including, but not limited to, the risk factors in First Republic's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.  These filings are available in the Investor Relations section of our website.  All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements.  Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

 

CONSOLIDATED STATEMENT OF INCOME



Three Months
 Ended
December 31,


Three Months
 Ended
September 30,


Twelve Months
 Ended
December 31,

(in thousands, except per share amounts)

2013


2012


2013


2013


2012

Interest income:










Loans

$

307,876



$

294,763



$

303,747



$

1,193,931



$

1,160,522


Investments

43,965



33,278



41,212



159,086



124,040


Cash and cash equivalents

1,637



546



1,091



3,001



2,644


Total interest income

353,478



328,587



346,050



1,356,018



1,287,206












Interest expense:










Deposits

18,049



11,732



18,504



60,817



56,981


Borrowings

20,605



14,521



19,336



71,026



57,205


Total interest expense

38,654



26,253



37,840



131,843



114,186












Net interest income

314,824



302,334



308,210



1,224,175



1,173,020


Provision for loan losses

7,815



17,204



10,023



36,969



63,436


Net interest income after provision for loan losses

307,009



285,130



298,187



1,187,206



1,109,584












Noninterest income:










Investment advisory fees

30,731



16,305



28,766



112,121



59,054


Brokerage and investment fees

3,912



2,904



2,518



11,892



10,682


Trust fees

2,478



2,381



2,552



9,588



8,715


Foreign exchange fee income

3,248



3,147



2,938



13,912



11,504


Deposit fees

4,545



3,746



4,458



18,258



13,994


Gain on sale of loans

306



17,721



1,215



36,290



38,831


Loan servicing fees, net

2,152



217



3,443



7,230



(5,307)


Loan and related fees

1,741



1,829



1,753



7,515



6,291


Income from investments in life insurance

6,756



6,212



5,813



24,365



22,186


Other income

331



1,149



176



3,179



2,784


Total noninterest income

56,200



55,611



53,632



244,350



168,734












Noninterest expense:










Salaries and employee benefits

103,301



88,412



98,880



402,222



339,656


Occupancy

23,306



21,834



22,822



91,120



83,648


Information systems

22,132



19,745



20,496



79,955



72,508


FDIC and other deposit assessments

7,500



6,684



6,849



27,976



24,386


Advertising and marketing

6,994



6,061



5,820



25,459



25,120


Professional fees

7,316



4,854



6,355



22,488



19,848


Amortization of intangibles

6,218



4,927



6,430



26,147



20,472


Other expenses

24,162



24,873



24,023



92,630



91,333


Total noninterest expense

200,929



177,390



191,675



767,997



676,971












Income before provision for income taxes

162,280



163,351



160,144



663,559



601,347


Provision for income taxes

46,981



53,762



48,396



201,489



198,645


Net income before noncontrolling interests

115,299



109,589



111,748



462,070



402,702


Less: Net income from noncontrolling interests









1,538


First Republic Bank net income

115,299



109,589



111,748



462,070



401,164


Dividends on preferred stock

12,800



6,534



10,389



40,671



18,743


Redemption of preferred stock









13,200


Net income available to common shareholders

$

102,499



$

103,055



$

101,359



$

421,399



$

369,221












Basic earnings per common share

$

0.78



$

0.79



$

0.77



$

3.21



$

2.84


Diluted earnings per common share

$

0.75



$

0.76



$

0.74



$

3.10



$

2.75


Dividends per common share

$

0.12



$

0.20



$

0.12



$

0.36



$

0.30












Weighted average shares - basic

131,905



130,614



131,436



131,326



130,051


Weighted average shares - diluted

136,522



134,731



136,133



135,949



134,189


 

CONSOLIDATED BALANCE SHEET



As of

($ in thousands)

December 31,
2013


September 30,
2013


December 31,
2012

ASSETS






Cash and cash equivalents

$

807,885



$

1,934,727



$

602,264


Securities purchased under agreements to resell

100



19,373



30,901


Investment securities available-for-sale

1,571,206



1,221,802



960,433


Investment securities held-to-maturity

3,252,534



2,966,120



2,545,189








Loans:






Single family (1-4 units)

19,869,491



18,880,349



16,672,924


Home equity lines of credit

1,961,476



1,959,032



1,887,604


Multifamily (5+ units)

4,022,457



3,915,097



3,006,946


Commercial real estate

3,430,881



3,318,749



2,909,201


Single family construction

290,314



275,485



234,213


Multifamily/commercial construction

278,456



274,543



171,268


Commercial business

3,582,054



3,202,098



2,600,151


Other secured

397,878



422,651



391,833


Unsecured loans and lines of credit

202,197



271,393



279,515


Stock secured

163,650



120,195



145,460


Total unpaid principal balance

34,198,854



32,639,592



28,299,115


Net unaccreted discount

(220,147)



(242,525)



(332,404)


Net deferred fees and costs

21,841



17,192



20,048


Allowance for loan losses

(153,005)



(145,912)



(129,889)


    Loans, net

33,847,543



32,268,347



27,856,870








Loans held for sale

58,759



60,054



204,631


Investments in life insurance

766,291



759,240



701,672


Tax credit investments

688,870



624,836



480,686


Prepaid expenses and other assets

680,756



655,067



581,162


Premises, equipment and leasehold improvements, net

166,544



162,839



142,201


Goodwill

106,549



106,549



106,549


Other intangible assets

132,745



138,963



158,892


Mortgage servicing rights

29,781



29,870



17,786


Other real estate owned

3,200



3,353




Total Assets

$

42,112,763



$

40,951,140



$

34,389,236








LIABILITIES AND EQUITY






Liabilities:






Deposits:






Noninterest-bearing checking accounts

$

8,859,276



$

8,554,095



$

8,544,472


Interest-bearing checking accounts

7,325,235



6,440,239



5,408,325


Money Market (MM) checking accounts

4,966,626



5,111,552



4,104,791


MM savings and passbooks

7,025,686



7,151,758



6,064,629


Certificates of deposit

3,905,893



4,032,725



2,966,030


Total Deposits

32,082,716



31,290,369



27,088,247








Short-term borrowings





75,000


Long-term debt

5,150,000



5,150,000



3,150,000


Debt related to variable interest entity

43,132



46,999



56,450


Other liabilities

676,868



584,655



619,436


Total Liabilities

37,952,716



37,072,023



30,989,133








Shareholders' Equity:






Preferred stock

889,525



689,525



499,525


Common stock

1,328



1,322



1,313


Additional paid-in capital

2,042,027



2,043,498



2,027,578


Retained earnings

1,213,896



1,127,397



840,311


Accumulated other comprehensive income

13,271



17,375



31,376


Total Shareholders' Equity

4,160,047



3,879,117



3,400,103


Total Liabilities and Shareholders' Equity

$

42,112,763



$

40,951,140



$

34,389,236


 




Three Months
 Ended
December 31,


Three Months
 Ended
September 30,


Twelve Months
 Ended
December 31,


2013


2012


2013


2013


2012

Operating Information










Net income to average assets (4)

1.07

%


1.30

%


1.12

%


1.20

%


1.28

%

Net income available to common shareholders to average common equity (4)

12.51

%


14.18

%


12.69

%


13.50

%


13.48

%

Dividend payout ratio

16.0

%


26.1

%


16.1

%


11.6

%


10.9

%

Efficiency ratio (1), (5)

54.2

%


49.6

%


53.0

%


52.3

%


50.5

%

Efficiency ratio (non-GAAP) (1), (5), (6)

56.9

%


54.4

%


56.5

%


55.8

%


56.8

%











Yields/Rates (4)










Cash and cash equivalents

0.25

%


0.25

%


0.26

%


0.25

%


0.26

%

Investment securities (7), (8)

5.27

%


5.46

%


5.30

%


5.18

%


5.53

%

Loans (7), (9)

3.75

%


4.34

%


3.90

%


3.96

%


4.66

%











Total interest-earning assets

3.70

%


4.35

%


3.90

%


3.98

%


4.61

%











Checking

0.02

%


0.01

%


0.02

%


0.01

%


0.01

%

Money market checking and savings

0.22

%


0.12

%


0.26

%


0.20

%


0.20

%

CDs (9)

1.01

%


1.08

%


1.04

%


1.04

%


1.07

%

Total deposits

0.22

%


0.18

%


0.24

%


0.21

%


0.23

%











Short-term borrowings

0.00

%


0.29

%


0.00

%


0.19

%


0.25

%

Long-term FHLB advances

1.57

%


1.80

%


1.57

%


1.63

%


1.82

%

Other long-term debt (9)

1.84

%


1.85

%


1.79

%


1.79

%


2.47

%

Total borrowings

1.57

%


1.79

%


1.57

%


1.51

%


1.84

%











Total interest-bearing liabilities

0.40

%


0.35

%


0.43

%


0.39

%


0.41

%











Net interest spread

3.30

%


4.00

%


3.47

%


3.59

%


4.20

%











Net interest margin

3.32

%


4.02

%


3.50

%


3.62

%


4.22

%











Net interest margin (non-GAAP) (6)

3.06

%


3.46

%


3.15

%


3.26

%


3.53

%











(4)

For the periods less than a year, ratios are annualized.

(5)  

Efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income.

(6)  

For a reconciliation of these ratios to the equivalent GAAP ratios, see "Use of Non-GAAP Financial Measures."

(7)  

Yield is calculated on a tax-equivalent basis.

(8) 

Includes FHLB stock and securities purchased under agreements to resell

(9)  

Yield/rate includes accretion/amortization of purchase accounting discounts/premiums.

The following table presents loans sold and gain on sale of loans for the periods indicated:


Three Months
 Ended
December 31,


Three Months
 Ended
September 30,


Twelve Months
 Ended
December 31,

($ in thousands)

2013


2012


2013


2013


2012

Mortgage Loan Sales










Loans sold:










Agency

$

53,296



$

242,073



$

48,509



$

467,049



$

922,475


Non-agency

162,480



429,241



235,658



2,196,439



1,510,905


Total loans sold

$

215,776



$

671,314



$

284,167



$

2,663,488



$

2,433,380












Gain on sale of loans:










Amount

$

306



$

17,721



$

1,215



$

36,290



$

38,831


Gain as a percentage of loans sold

0.14

%


2.64

%


0.43

%


1.36

%


1.60

%

The following table presents loan originations, by product type, for the periods indicated:


Three Months
 Ended
December 31,


Three Months
 Ended
September 30,


Twelve Months
 Ended
December 31,

($ in thousands)

2013


2012


2013


2013


2012

Single family (1-4 units)

$

1,862,710



$

2,260,035



$

2,269,410



$

9,039,956



$

8,603,111


Home equity lines of credit

308,318



322,440



350,452



1,271,646



1,112,655


Multifamily

216,388



413,367



576,604



1,695,073



1,185,727


Commercial real estate

247,825



334,913



366,820



1,156,273



1,044,507


Construction

196,085



117,814



297,878



868,070



496,472


Commercial business

994,361



661,888



871,356



3,042,350



2,190,685


Other loans

230,182



191,535



197,839



768,912



829,784


Total loans originated

$

4,055,869



$

4,301,992



$

4,930,359



$

17,842,280



$

15,462,941


The following table separates our loan portfolio as of December 31, 2013 between loans acquired on July 1, 2010 and loans originated since July 1, 2010:


Composition of Loan Portfolio

($ in thousands)

Loans acquired
on July 1,
2010


Loans originated
since July 1,
2010


Total loans at
December 31,
2013

Single family (1-4 units)

$

3,778,646



$

16,090,845



$

19,869,491


Home equity lines of credit

770,695



1,190,781



1,961,476


Multifamily (5+ units)

474,178



3,548,279



4,022,457


Commercial real estate

857,430



2,573,451



3,430,881


Single family construction

7,159



283,155



290,314


Multifamily/commercial construction

1,151



277,305



278,456


Commercial business

361,339



3,220,715



3,582,054


Other secured

37,734



360,144



397,878


Unsecured loans and lines of credit

41,741



160,456



202,197


Stock secured

4,371



159,279



163,650


Total unpaid principal balance

6,334,444



27,864,410



34,198,854


Net unaccreted discount

(219,650)



(497)



(220,147)


Net deferred fees and costs

(6,644)



28,485



21,841


Allowance for loan losses

(8,551)



(144,454)



(153,005)


Loans, net

$

6,099,599



$

27,747,944



$

33,847,543


 



As of

(in thousands, except per share amounts)

December 31,
2013


September 30,
2013


June 30,
2013


March 31,
2013


December 31,
2012

Book Value










Number of shares of common stock outstanding

132,768



132,179



131,822



131,481



131,273


Book value per common share

$

24.63



$

24.13



$

23.50



$

22.97



$

22.10


Tangible book value per common share

$

22.83



$

22.27



$

21.59



$

21.00



$

20.07












Capital Ratios










Tier 1 leverage ratio

9.19

%


9.18

%


9.83

%


9.36

%


9.33

%

Tier 1 common equity ratio (10)

10.30

%


10.57

%


10.87

%


11.44

%


11.14

%

Tier 1 risk-based capital ratio

13.34

%


13.06

%


13.52

%


13.53

%


13.28

%

Total risk-based capital ratio

13.89

%


13.62

%


14.12

%


14.13

%


13.87

%











(10)

Tier 1 common equity ratio represents common equity less goodwill and intangible assets divided by risk-weighted assets.

 


As of

($ in millions)

December 31,
2013


September 30,
2013


June 30,
2013


March 31,
2013


December 31,
2012

Assets Under Management










First Republic Investment Management

$

21,812



$

20,093



$

19,045



$

18,573



$

17,000












Brokerage and Investment:










Brokerage

12,933



11,905



10,784



10,357



8,810


Money Market Mutual Funds

941



870



929



870



852


Total Brokerage and Investment

13,874



12,775



11,713



11,227



9,662












Trust Company:










Trust

3,013



2,857



2,822



2,326



2,157


Custody

2,879



2,510



2,766



2,520



2,471


Total Trust Company

5,892



5,367



5,588



4,846



4,628


Total Wealth Management Assets

41,578



38,235



36,346



34,646



31,290












Loans serviced for investors

6,000



5,957



6,036



5,433



4,581


Total fee-based assets

$

47,578



$

44,192



$

42,382



$

40,079



$

35,871












 

Asset Quality Information










As of

($ in thousands)

December 31,
2013


September 30,
2013


June 30,
2013


March 31,
2013


December 31,
2012

Nonperforming assets:










Nonaccrual loans

$

54,492



$

51,847



$

62,824



$

49,873



$

49,153


Other real estate owned

3,200



3,353








Total nonperforming assets

$

57,692



$

55,200



$

62,824



$

49,873



$

49,153












Nonperforming assets to total assets

0.14

%


0.13

%


0.17

%


0.14

%


0.14

%











Accruing loans 90 days or more past due

$



$



$



$

5,959



$












Restructured accruing loans

$

19,984



$

19,950



$

18,766



$

18,223



$

12,398


 


Three Months
 Ended
December 31,


Three Months

Ended
September 30,


Twelve Months
 Ended
December 31,

($ in thousands)

2013


2012


2013


2013


2012

Net loan charge-offs to allowance for loan losses

$

722



$

315



$

12,418



$

13,853



$

1,660


Net loan charge-offs to average total loans (4)

0.01

%


0.01

%


0.16

%


0.05

%


0.01

%

 



Average Balance Sheet


Three Months
 Ended
December 31,


Three Months
 Ended
September 30,


Twelve Months
 Ended
December 31,

($ in thousands)

2013


2012


2013


2013


2012

Assets:










Cash and cash equivalents

$

2,590,814



$

880,708



$

1,691,248



$

1,199,650



$

1,022,996


Investment securities (11)

4,696,478



3,513,251



4,350,133



4,322,772



3,243,171


Loans (12)

33,161,682



27,232,372



31,371,115



30,643,493



25,106,210


Total interest-earning assets

40,448,974



31,626,331



37,412,496



36,165,915



29,372,377












Noninterest-earning cash

230,262



232,787



247,206



240,043



205,978


Goodwill and other intangibles

242,297



148,834



248,641



251,942



151,396


Other assets

1,863,580



1,587,601



1,776,161



1,720,385



1,499,592


Total noninterest-earning assets

2,336,139



1,969,222



2,272,008



2,212,370



1,856,966












Total Assets

$

42,785,113



$

33,595,553



$

39,684,504



$

38,378,285



$

31,229,343












Liabilities and Equity:










Checking

$

16,011,898



$

13,351,861



$

14,629,935



$

14,420,567



$

11,515,255


Money market checking and savings

12,814,579



10,095,930



11,884,853



11,443,203



9,691,658


CDs (12)

3,995,699



3,090,586



3,861,458



3,447,556



3,398,532


Total deposits

32,822,176



26,538,377



30,376,246



29,311,326



24,605,445












Short-term borrowings

12



10,804



2,391



402,176



3,262


Long-term FHLB advances

5,150,000



3,150,000



4,822,826



4,253,562



2,992,760


Other long term-debt (12)

45,874



59,257



49,233



50,709



105,535


Total borrowings

5,195,886



3,220,061



4,874,450



4,706,447



3,101,557












Total interest-bearing liabilities

38,018,062



29,758,438



35,250,696



34,017,773



27,707,002












Noninterest-bearing liabilities

685,217



533,589



575,420



571,576



464,605


Preferred equity

830,829



413,112



689,525



666,552



290,675


Common equity

3,251,005



2,890,414



3,168,863



3,122,384



2,738,937


Noncontrolling interests









28,124


Total Liabilities and Equity

$

42,785,113



$

33,595,553



$

39,684,504



$

38,378,285



$

31,229,343












(11)

Includes FHLB stock and securities purchased under agreements to resell.

(12)

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 from the Bank's re-establishment as an independent institution for the periods indicated:


Three Months
 Ended
December 31,


Three Months
 Ended
September 30,


Twelve Months
 Ended
December 31,

($ in thousands)

2013


2012


2013


2013


2012

Accretion/amortization to net interest income:










Loans

$

22,356



$

36,746



$

28,008



$

111,682



$

162,018


Deposits

2,802



4,342



2,619



11,897



22,239


Borrowings









1,942


Total

$

25,158



$

41,088



$

30,627



$

123,579



$

186,199












Noninterest income:










Loan commitments

$



$



$



$



$

255












Amortization to noninterest expense:










Intangible assets

$

4,289



$

4,927



$

4,447



$

18,113



$

20,472


 

Use of Non-GAAP Financial Measures

Our accounting and reporting policies conform to generally accepted accounting principles in the United States ("GAAP") and the prevailing practices in the banking industry.  However, due to the application of purchase accounting from the Bank's re-establishment as an independent institution, management uses certain non-GAAP measures and ratios that exclude the impact of these items to evaluate our performance, including net income, earnings per share, net interest margin and the efficiency ratio. 

Our net income, earnings per share, net interest margin and efficiency ratio were significantly impacted by accretion and amortization of the fair value adjustments recorded in purchase accounting from the Bank's re-establishment as an independent institution.  The accretion and amortization affect our net income, earnings per share and certain operating ratios as we accrete loan discounts to interest income; accrete discounts on loan commitments to noninterest income; 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. 

In December 2012, First Republic purchased substantially all of the assets of Luminous.  The amortization of intangible assets from this transaction is not an adjustment in the calculation of the Bank's non-GAAP measures in 2013.

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 Months
 Ended
December 31,


Three Months
 Ended
September 30,


Twelve Months
 Ended
December 31,

(in thousands, except per share amounts)

2013


2012


2013


2013


2012

Non-GAAP earnings










Net income

$

115,299



$

109,589



$

111,748



$

462,070



$

401,164


Accretion/amortization added to net interest income

(25,158)



(41,088)



(30,627)



(123,579)



(186,199)


Accretion added to noninterest income









(255)


Amortization of intangible assets

4,289



4,927



4,447



18,113



20,472


Add back tax impact of the above items

8,869



15,368



11,127



44,823



70,542


Non-GAAP net income

103,299



88,796



96,695



401,427



305,724


Dividends on preferred stock

(12,800)



(6,534)



(10,389)



(40,671)



(18,743)


Redemption of FRPCC preferred stock









(13,200)


Impact of FRPCC preferred stock redemption









13,200


Non-GAAP net income available to common shareholders

$

90,499



$

82,262



$

86,306



$

360,756



$

286,981












GAAP earnings per common share – diluted

$

0.75



$

0.76



$

0.74



$

3.10



$

2.75


Impact of purchase accounting, net of tax

(0.09)



(0.15)



(0.11)



(0.45)



(0.71)


Impact of FRPCC preferred stock redemption









0.10


Non-GAAP earnings per common share – diluted

$

0.66



$

0.61



$

0.63



$

2.65



$

2.14












Weighted average diluted common shares outstanding

136,522



134,731



136,133



135,949



134,189


 


Three Months
 Ended
December 31,


Three Months
 Ended
September 30,


Twelve Months
 Ended
December 31,

($ in thousands)

2013


2012


2013


2013


2012

Average yield on loans










Interest income on loans

$

307,876



$

294,763



$

303,747



$

1,193,931



$

1,160,522


Add: Tax-equivalent adjustment on loans

6,013



3,448



5,459



19,816



10,825


Interest income on loans (tax-equivalent basis)

313,889



298,211



309,206



1,213,747



1,171,347


Less: Accretion

(22,356)



(36,746)



(28,008)



(111,682)



(162,018)


Non-GAAP interest income on loans (tax-equivalent basis)

$

291,533



$

261,465



$

281,198



$

1,102,065



$

1,009,329












Average loans

$

33,161,682



$

27,232,372



$

31,371,115



$

30,643,493



$

25,106,210


Add: Average unaccreted loan discounts

234,580



358,084



261,121



277,231



418,583


Average loans (non-GAAP)

$

33,396,262



$

27,590,456



$

31,632,236



$

30,920,724



$

25,524,793












Average yield on loans – reported

3.75

%


4.34

%


3.90

%


3.96

%


4.66

%











Average contractual yield on loans (non-GAAP)

3.46

%


3.76

%


3.52

%


3.56

%


3.95

%

 


Three Months
 Ended
December 31,


Three Months
 Ended
September 30,


Twelve Months
 Ended
December 31,

($ in thousands)

2013


2012


2013


2013


2012

Average cost of deposits










Interest expense on deposits

$

18,049



$

11,732



$

18,504



$

60,817



$

56,981


Add: Amortization of CD premiums

2,802



4,342



2,619



11,897



22,239


Non-GAAP interest expense on deposits

$

20,851



$

16,074



$

21,123



$

72,714



$

79,220












Average deposits

$

32,822,176



$

26,538,377



$

30,376,246



$

29,311,326



$

24,605,445


Less: Average unamortized CD premiums

(8,863)



(21,278)



(11,400)



(12,958)



(28,888)


Average deposits (non-GAAP)

$

32,813,313



$

26,517,099



$

30,364,846



$

29,298,368



$

24,576,557












Average cost of deposits – reported

0.22

%


0.18

%


0.24

%


0.21

%


0.23

%











Average contractual cost of deposits (non-GAAP)

0.25

%


0.24

%


0.28

%


0.25

%


0.32

%

 


Three Months
 Ended
December 31,


Three Months
 Ended
September 30,


Twelve Months
 Ended
December 31,

($ in thousands)

2013


2012


2013


2013


2012

Net interest margin










Net interest income

$

314,824



$

302,334



$

308,210



$

1,224,175



$

1,173,020


Add: Tax-equivalent adjustment

23,919



18,121



21,955



84,830



66,114


Net interest income (tax-equivalent basis)

338,743



320,455



330,165



1,309,005



1,239,134


Less: Accretion/amortization

(25,158)



(41,088)



(30,627)



(123,579)



(186,199)


Non-GAAP net interest income (tax-equivalent basis)

$

313,585



$

279,367



$

299,538



$

1,185,426



$

1,052,935












Average interest-earning assets

$

40,448,974



$

31,626,331



$

37,412,496



$

36,165,915



$

29,372,377


Add: Average unaccreted loan discounts

234,580



358,084



261,121



277,231



418,583


Average interest-earning assets (non-GAAP)

$

40,683,554



$

31,984,415



$

37,673,617



$

36,443,146



$

29,790,960












Net interest margin – reported

3.32

%


4.02

%


3.50

%


3.62

%


4.22

%











Net interest margin (non-GAAP)

3.06

%


3.46

%


3.15

%


3.26

%


3.53

%

 



Three Months
 Ended
December 31,


Three Months
 Ended
September 30,


Twelve Months
 Ended
December 31,

($ in thousands)

2013


2012


2013


2013


2012

Efficiency ratio (1)










Net interest income

$

314,824



$

302,334



$

308,210



$

1,224,175



$

1,173,020


Less: Accretion/amortization

(25,158)



(41,088)



(30,627)



(123,579)



(186,199)


Net interest income (non-GAAP)

$

289,666



$

261,246



$

277,583



$

1,100,596



$

986,821












Noninterest income

$

56,200



$

55,611



$

53,632



$

244,350



$

168,734


Less: Accretion of discounts on loan commitments









(255)


Noninterest income (non-GAAP)

$

56,200



$

55,611



$

53,632



$

244,350



$

168,479












Total revenue

$

371,024



$

357,945



$

361,842



$

1,468,525



$

1,341,754












Total revenue (non-GAAP)

$

345,866



$

316,857



$

331,215



$

1,344,946



$

1,155,300












Noninterest expense

$

200,929



$

177,390



$

191,675



$

767,997



$

676,971


Less:  Intangible amortization

(4,289)



(4,927)



(4,447)



(18,113)



(20,472)


Noninterest expense (non-GAAP)

$

196,640



$

172,463



$

187,228



$

749,884



$

656,499












Efficiency ratio

54.2

%


49.6

%


53.0

%


52.3

%


50.5

%











Efficiency ratio (non-GAAP)

56.9

%


54.4

%


56.5

%


55.8

%


56.8

%

 

Supplemental Schedule


The following table presents the impact of the Bank's adoption of an amended accounting standard related to low income housing tax credit investments issued by the FASB on January 15, 2014 and its retroactive application for the periods indicated:


Impact of Low Income Housing Tax Credit Investments Accounting Adjustments


Three Months Ended


Three Months Ended


Three Months Ended


Three Months Ended


Six Months Ended


Twelve Months Ended

($ in thousands, except per share amounts)

Sept. 30,
2010


Dec. 31,
2010


Mar. 31,
2011


Jun. 30,
2011


Sept. 30,
2011


Dec. 31,
2011


Mar. 31,
2012


Jun. 30,
2012


Sept. 30,
2012


Dec. 31,
2012


Mar. 31,
2013


Jun. 30,
2013


Sept. 30,
2013


Dec. 31,
2010


Dec. 31,
2011


Dec. 31,
2012

Noninterest expense
































As previously reported

$       136,203


$       143,033


$      134,989


$      138,829


$        144,789


$      158,001


$      164,755


$      171,555


$      178,390


$      183,144


$      197,434


$      200,139


$        203,647


$      279,236


$       576,608


$        697,844

As reported under new guidance

$       136,061


$       140,767


$      133,385


$      137,355


$        141,627


$      154,321


$      159,505


$      167,034


$      173,042


$      177,390


$      186,534


$      188,859


$        191,675


$      276,828


$       566,688


$        676,971

































Provision for income taxes
































As previously reported

$        46,972


$         49,535


$       52,895


$        46,142


$         49,986


$        49,016


$        41,635


$       42,274


$       45,069


$        47,486


$        44,097


$        38,831


$         36,189


$        96,507


$       198,039


$       176,464

As reported under new guidance

$        47,193


$         51,155


$       54,497


$        47,395


$         52,152


$        51,615


$        46,495


$       47,442


$       50,946


$        53,762


$        54,752


$        51,360


$         48,396


$        98,348


$       205,659


$       198,645

































Net income
































As previously reported

$        66,395


$        75,967


$       88,772


$       84,832


$        87,793


$       90,691


$        91,758


$       97,907


$      102,696


$      110,111


$      122,308


$       113,719


$        111,983


$       142,362


$       352,088


$       402,472

As reported under new guidance

$        66,316


$        76,613


$       88,774


$       85,053


$        88,789


$       91,772


$        92,148


$       97,260


$      102,167


$      109,589


$      122,553


$       112,470


$        111,748


$       142,929


$       354,388


$       401,164

































Diluted EPS
































As previously reported

$            0.53


$            0.60


$            0.67


$            0.64


$            0.66


$           0.68


$            0.67


$            0.60


$            0.72


$            0.77


$            0.85


$            0.77


$             0.75


$             1.12


$             2.65


$             2.76

As reported under new guidance

$            0.53


$            0.60


$            0.67


$            0.64


$            0.67


$           0.69


$            0.67


$            0.60


$            0.72


$            0.76


$            0.85


$            0.76


$             0.74


$             1.13


$             2.67


$             2.75

































Diluted EPS (non-GAAP)
































As previously reported

$            0.35


$            0.35


$             0.41


$             0.41


$            0.42


$           0.44


$            0.49


$            0.50


$            0.54


$            0.61


$            0.72


$            0.64


$             0.64


$             0.71


$             1.68


$             2.15

As reported under new guidance

$            0.35


$            0.36


$             0.41


$             0.41


$            0.42


$           0.45


$            0.49


$            0.49


$            0.54


$            0.61


$            0.72


$            0.64


$             0.63


$             0.71


$             1.70


$             2.14

































Efficiency ratio (non-GAAP)
































As previously reported

59.0 %


59.4 %


58.7 %


59.1 %


58.8 %


59.9 %


59.6 %


60.5 %


58.6 %


56.2 %


57.3 %


58.9 %


60.1 %


59.2 %


59.2 %


58.6 %

As reported under new guidance

58.9 %


58.3 %


57.9 %


58.5 %


57.5 %


58.5 %


57.6 %


58.8 %


56.8 %


54.4 %


54.1 %


55.5 %


56.5 %


58.6 %


58.1 %


56.8 %

 

SOURCE First Republic Bank

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