Press Release FOR IMMEDIATE RELEASE FIRST REPUBLIC REPORTS STRONG SECOND QUARTER RESULTS Achieves Record Loan Volume; Declares Initial Cash Dividend San Francisco, California, July 18, 2012 First Republic Bank ( First Republic or the Bank ) (NYSE: FRC) today announced financial results for the second quarter ended 2012. First Republic reported excellent second quarter results due to strong growth in loans, deposits and wealth management assets, said Jim Herbert, Chairman and CEO of First Republic Bank. Credit quality remained exceptionally good, and we were very successful in expanding the franchise and acquiring new clients. Quarterly Cash Dividend Declared The Bank declared an initial quarterly cash dividend of $0.10 per share. The dividend is payable on August 15, 2012 to shareholders of record on August 1, 2012. Mr. Herbert noted, First Republic is pleased to declare its initial common stock dividend, which reflects the strength of our business and capital position. Financial Highlights - Book value per share increased by 15% year over year to $20.74 per share. - Asset quality remains strong; nonperforming assets remained steady at only 10 basis points of total assets. - Loans outstanding were $25.5 billion at 2012, up 7% for the quarter and 10% since year-end. - Net income was $97.9 million for the second quarter of 2012, compared to $84.8 million for last year s second quarter. Diluted earnings per share ( EPS ) were $0.60 for the second quarter of 2012, after a $0.10 per share one-time charge following the redemption of the Series D preferred stock of First Republic Preferred Capital Corporation ( FRPCC ). - Excluding the impact of purchase accounting, net income for the second quarter of 2012 was $70.9 million, up 31% from last year s second quarter. On this non-gaap basis, and also excluding the one-time FRPCC preferred stock redemption charge, the second quarter diluted EPS were $0.50, up 22% over last year s second quarter. (1) (1) See non-gaap reconciliation under section Use of Non-GAAP Financial Measures. San Francisco Palo Alto Los Angeles Santa Barbara Newport Beach San Diego Portland Boston Greenwich New York 111 PINE STREET, SAN FRANCISCO, CALIFORNIA 94111, TEL (415) 392-1400 www.firstrepublic.com NYSE: FRC
FIRST REPUBLIC BANK PAGE 2 - For the six months ended 2012, net income was $189.7 million, an increase of 9% compared to the same period in 2011, and diluted EPS were $1.27, following the $0.10 per share one-time preferred stock redemption charge. - For the six months ended 2012, excluding the impact of purchase accounting, net income was $139.0 million, an increase of 28% compared to the same period in 2011. On this non-gaap basis, and also excluding the one-time FRPCC preferred stock redemption charge, diluted EPS were $0.99, up 21% compared to 2011. (1) - Loan originations were $4.0 billion for the second quarter of 2012, our highest quarter ever; for the six months ended 2012, loan originations were $7.1 billion. - Deposits were $24.2 billion at 2012, up 4% for the quarter and 8% since yearend. - Wealth management assets were $23.3 billion at 2012, up 6% for the quarter and 14% since year-end. - Net interest margin was 4.27% for the quarter, compared to 4.39% for the prior quarter and 4.67% for last year s second quarter. - Excluding the impact of purchase accounting, the net interest margin was 3.48% for the quarter, compared to 3.64% for the prior quarter and 3.54% for last year s second quarter. (1) - The efficiency ratio was 52.4% for the second quarter of 2012, compared to 52.5% for the prior quarter and 48.9% for last year s second quarter. - Excluding the impact of purchase accounting, the efficiency ratio was 60.5% for the second quarter of 2012, compared to 59.6% for the prior quarter and 59.1% for last year s second quarter. (1) In the second quarter, First Republic delivered strong results across all segments of the franchise private banking, business banking and wealth management, said Katherine AugustdeWilde, President and Chief Operating Officer. In particular, we reported our highest loan volume and wealth management revenue for a single quarter. Business banking also continued to perform well. Asset Quality Remains Very Strong The Bank s credit quality remains strong. At 2012, nonperforming assets were only 10 basis points of total assets. During the second quarter of 2012, the Bank recorded a provision for loan losses of $14.9 million. The Bank s provision for loan losses is related primarily to loans outstanding that have been originated since July 1, 2010. At 2012, the allowance related to these loans totaled $83.7 million, or 0.56% of such loans. Annualized net charge-offs to average loans were 1 basis point for the first half of 2012.
FIRST REPUBLIC BANK PAGE 3 Capital Strength The Bank s Tier 1 leverage and total risk-based capital ratios at 2012 were 9.55% and 14.17%, respectively. These ratios reflect the issuance by the Bank of $150.0 million of 6.20% Noncumulative Perpetual Series B Preferred Stock and the redemption of the Series D preferred stock of FRPCC during the second quarter of 2012, which resulted in a net increase in Tier 1 capital of $85.2 million. The Bank continues to exceed all current regulatory guidelines for well-capitalized institutions. Strong Book Value Growth Book value per share was $20.74 at 2012, up 15% from a year ago. Continued Franchise Development and Growth Assets Total assets at 2012 were $31.0 billion. During the first six months of 2012, loans increased $2.4 billion and investment securities had a net increase of $285.9 million. This asset expansion was funded primarily by deposit growth of $1.8 billion and a $1.0 billion increase in intermediate-term, fixed-rate Federal Home Loan Bank ( FHLB ) advances. Loans outstanding were $25.5 billion at 2012, up 7% for the quarter and 10% since year-end. Deposit mix continues to improve Total deposits were $24.2 billion at 2012, up 4% for the quarter and 8% since yearend. At 2012, checking and savings accounts were 86% of total deposits, compared to 82% at year-end. Such accounts increased 13% since year-end, from $18.5 billion to $20.8 billion. The contractual rate paid on all deposits averaged 0.38% during the second quarter of 2012, compared to 0.40% for the first quarter of 2012 and 0.73% during the second quarter a year ago, with the reduction in the average rate paid coming both from an improved deposit mix and lower market rates of interest. At 2012, 96% of deposits were core deposits (excluding CDs greater than $250,000 and any brokered deposits). Wealth management expansion Total wealth management assets were $23.3 billion at 2012, up 6% for the quarter and 14% since year-end. Fees earned on wealth management assets, including investment advisory,
FIRST REPUBLIC BANK PAGE 4 trust and brokerage fees, were up 25% in the second quarter of 2012 compared to last year s second quarter. The Bank offers investment management services for individuals, endowments, businesses and 401(k) plans through First Republic Investment Management. At 2012, clients had $9.9 billion of assets under management, up 11% for the quarter and 25% since year-end. Client assets held at First Republic Securities Company and in money market mutual funds were $8.4 billion at 2012, flat compared to the prior quarter and up 8% since year-end. The Bank also offers personal trust and custody services through First Republic Trust Company. At 2012, First Republic Trust Company administered $4.9 billion of trust and custody assets, up 6% for the quarter and 7% since year-end. Mortgage banking and servicing activity The Bank sold $436 million of longer-term, fixed-rate home loans during the second quarter of 2012 and recorded net gains of $4.8 million. By comparison, during the second quarter a year ago, the Bank sold $266 million of loans and recorded net gains of $427,000. The higher level of gain on sales was driven primarily by improving secondary market conditions for the Bank s single family loans. Loans serviced for investors totaled $3.8 billion at 2012, compared to $3.9 billion at 2011. Net loan servicing fees were $(704,000) for the second quarter of 2012, compared to $805,000 for the second quarter a year ago. The decrease was due to continued rapid loan prepayments that have resulted in an elevated amount of impairment charges on mortgage servicing rights. At 2012, the carrying value of mortgage servicing rights was $17.4 million, or 46 basis points of such loans serviced. Income Statement and Key Ratio Summary Strong revenue growth Total revenues were $327.2 million for the second quarter of 2012, compared to $313.9 million for the first quarter of 2012 and $284.0 million for the second quarter a year ago, a 15% increase from a year ago. Excluding the impact of purchase accounting, revenues were $275.1 million for the second quarter of 2012, compared to $225.0 million for the second quarter of 2011, a 22% increase from a year ago. On this basis, revenues were up 3% over the prior quarter. (1) Net interest income growth Net interest income was $290.6 million for the second quarter of 2012, compared to $281.3 million for the first quarter of 2012 and $256.8 million for the second quarter a year ago. Excluding the impact of purchase accounting, net interest income (contractual net interest income) was $238.4 million for the second quarter of 2012, compared to $198.0 million for the
FIRST REPUBLIC BANK PAGE 5 second quarter of 2011, up 20% from a year ago. (1) The increase in contractual net interest income was primarily due to increases in the average balances of loans and investment securities and lower deposit costs. Net interest margin The Bank s net interest margin was 4.27% for the second quarter of 2012, compared to 4.39% for the first quarter of 2012 and 4.67% for the second quarter a year ago. Excluding the impact of purchase accounting, net interest margin (contractual net interest margin) was 3.48% for the second quarter of 2012, compared to 3.64% for the first quarter of 2012 and 3.54% for the second quarter a year ago. (1) The decrease in the contractual net interest margin compared to the prior quarter is due to declines in contractual loan yields due to lower interest rates, higher average cash balances, and higher average long-term borrowings from the FHLB. Noninterest income Noninterest income for the second quarter of 2012 was $36.6 million, compared to $32.6 million for the first quarter of 2012 and $27.2 million for the second quarter a year ago. The increase compared to last year s second quarter was primarily due to increases in investment advisory, brokerage and trust fees, gain on sale of loans and income from investments in life insurance, partially offset by a decline in net loan servicing fees. Noninterest expense Noninterest expense for the second quarter of 2012 was $171.6 million, compared to $164.8 million for the first quarter of 2012 and $138.8 million for the second quarter a year ago, a 24% increase year over year. Noninterest expense has grown primarily due to an increase in personnel to support loan, deposit and wealth management growth, increased occupancy costs as the Bank added both office space and deposit offices and invested in technology. Efficiency ratio The Bank s efficiency ratio was 52.4% for the second quarter of 2012, compared to 52.5% for the first quarter of 2012 and 48.9% for the second quarter a year ago. For the six months ended 2012 and 2011, the efficiency ratio was 52.5% and 48.1%, respectively. Excluding the impact of purchase accounting, the Bank s efficiency ratio was 60.5% for the second quarter of 2012, compared to 59.6% for the first quarter of 2012 and 59.1% for the second quarter a year ago. For the six months ended 2012 and 2011, the efficiency ratio was 60.1% and 58.9%, respectively. (1) Income tax rate declines The Bank provides for income taxes based on an estimate of earnings and tax preference items for each calendar year. The Bank s effective tax rate for the six months ended 2012 was 30.5% and represents the current estimated tax rate for the full year 2012. As a result, the
FIRST REPUBLIC BANK PAGE 6 effective tax rate for the second quarter of 2012 decreased to 30.0%, compared to 31.0% for the prior quarter. This decrease in the effective tax rate results from a higher level of tax-exempt securities, bank-owned life insurance, tax credit investments and tax-advantaged loans. Conference Call Details First Republic Bank s second quarter 2012 earnings conference call is scheduled for July 18, 2012 at 11:00 a.m. PDT / 2:00 p.m. EDT. To listen to the live call by telephone, please dial (877) 407-3982 approximately 10 minutes prior to the start time (to allow time for registration) and use conference ID #396823. International callers should dial (201) 493-6780. 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 18, 2012, at 2:00 p.m. PDT / 5:00 p.m. EDT, through July 25, 2012, at 8:59 p.m. PDT / 11:59 p.m. EDT. To access the replay, dial (877) 870-5176 (U.S.) and use conference ID #396823. International callers should dial (858) 384-5517 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 and its subsidiaries provide private banking, private business banking and private wealth management. Founded in 1985, First Republic specializes in exceptional, relationship-based service offered through preferred banking or wealth management offices primarily in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland, Boston, Greenwich and New York City. First Republic offers a complete line of banking products for individuals and businesses, including deposit services, as well as residential, commercial and personal loans. First Republic is a component of the S&P Total Market Index, the Wilshire 5000 Total Market Index SM, the Russell 1000, Russell 3000 and Russell Global indices and six Dow Jones indices. More information is available on the Bank s website at www.firstrepublic.com. Forward-Looking Statements This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this press release that are not historical facts are hereby identified as forward-looking statements for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as anticipates, believes, can, could, may, predicts, potential, should, will, estimates, plans, projects, continuing, ongoing, expects, intends and similar words or phrases and include statements about economic performance in our markets, growth in our loan originations and wealth management assets, and our projected tax rate. Accordingly, these statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Factors that could cause actual
FIRST REPUBLIC BANK PAGE 7 results to differ from those discussed in the forward-looking statements include, but are not limited to: our ability to compete for banking and wealth management customers; earthquakes and other natural disasters in our markets; changes in interest rates; our ability to maintain high underwriting standards; economic conditions in our markets; and conditions in financial markets and economic conditions generally; regulatory restrictions on our operations and current or future legislative or regulatory changes affecting the banking and investment management industries. For a discussion of these and other risks and uncertainties, see First Republic s FDIC filings, including, but not limited to, the risk factors in First Republic s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. These filings are available in the Investor Relations section of our website. All forwardlooking 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.
FIRST REPUBLIC BANK PAGE 8 CONSOLIDATED STATEMENT OF INCOME Six Months (in thousands, except per share amounts) 2012 2011 2012 2012 2011 Interest income: Interest on loans $ 291,040 $ 268,768 $ 279,674 $ 570,714 $ 537,508 Interest on investments 30,265 15,890 28,859 59,124 27,878 Interest on cash equivalents 822 1,276 623 1,445 2,469 Total interest income 322,127 285,934 309,156 631,283 567,855 Interest expense: Interest on customer deposits 16,678 22,313 14,987 31,665 44,067 Interest on FHLB advances and other borrowings 14,302 6,246 12,345 26,647 11,341 Interest on subordinated notes 550 573 556 1,106 1,151 Total interest expense 31,530 29,132 27,888 59,418 56,559 Net interest income 290,597 256,802 281,268 571,865 511,296 Provision for loan losses 14,875 13,026 14,852 29,727 20,639 Net interest income after provision for loan losses 275,722 243,776 266,416 542,138 490,657 Noninterest income: Investment advisory fees 14,674 11,814 12,699 27,373 22,470 Brokerage and investment fees 2,667 2,155 2,765 5,432 4,501 Trust fees 2,185 1,694 1,773 3,958 3,420 Foreign exchange fee income 2,639 2,152 2,421 5,060 4,247 Deposit customer fees 3,445 3,771 3,281 6,726 7,413 Loan servicing fees, net (704) 805 (1,904) (2,608) 573 Loan and related fees 1,465 833 1,483 2,948 1,649 Gain on sale of loans 4,754 427 3,809 8,563 4,781 Income from investments in life insurance 5,618 4,092 5,371 10,989 7,822 Other income (loss) (104) (546) 947 843 1,387 Total noninterest income 36,639 27,197 32,645 69,284 58,263 Noninterest expense: Salaries and related benefits 81,533 68,733 82,507 164,040 132,954 Occupancy 20,690 15,912 19,895 40,585 31,926 Information systems 17,746 14,212 16,174 33,920 26,725 Advertising and marketing 7,144 7,053 5,962 13,106 13,362 FDIC and other deposit assessments 5,902 4,497 5,400 11,302 13,197 Professional fees 5,453 3,010 4,278 9,731 7,443 Amortization of intangibles 5,170 5,760 5,288 10,458 11,677 Tax credit investments 4,521 1,474 5,250 9,771 3,078 Other expenses 23,396 18,178 20,001 43,397 33,456 Total noninterest expense 171,555 138,829 164,755 336,310 273,818 Income before provision for income taxes 140,806 132,144 134,306 275,112 275,102 Provision for income taxes 42,274 46,142 41,635 83,909 99,037 Net income before noncontrolling interests 98,532 86,002 92,671 191,203 176,065 Less: Net income from noncontrolling interests 625 1,170 913 1,538 2,461 First Republic Bank net income 97,907 84,832 91,758 189,665 173,604 Dividends on preferred stock 4,091-2,451 6,542 - Redemption of preferred stock 13,200 - - 13,200 - Net income available to common stockholders $ 80,616 $ 84,832 $ 89,307 $ 169,923 $ 173,604 Basic earnings per common share $ 0.62 $ 0.66 $ 0.69 $ 1.31 $ 1.35 Diluted earnings per common share $ 0.60 $ 0.64 $ 0.67 $ 1.27 $ 1.31 Weighted average shares - basic 129,890 128,858 129,498 129,694 128,858 Weighted average shares - diluted 134,002 133,091 133,621 133,816 132,848
FIRST REPUBLIC BANK PAGE 9 CONSOLIDATED BALANCE SHEET As of ($ in thousands) 2012 2012 December 31, 2011 2011 ASSETS Cash and cash equivalents $ 800,818 $ 1,429,286 $ 630,780 $ 790,767 Securities purchased under agreements to resell 19,330 12,973 4,890 8,267 Investment securities available-for-sale 782,098 682,835 722,280 563,008 Investment securities held-to-maturity 2,323,241 2,209,463 2,097,198 1,430,655 Loans: Single family (1-4 units) 15,192,602 14,175,779 13,538,218 12,124,085 Home equity lines of credit 1,934,143 1,826,061 1,878,969 1,781,041 Commercial real estate 2,719,024 2,629,595 2,504,791 2,312,605 Multifamily (5+ units) 2,631,934 2,569,780 2,437,169 2,121,549 Single family construction 209,156 198,240 183,863 182,977 Multifamily/commercial construction 129,159 110,193 122,885 85,751 Commercial business loans 2,036,005 1,799,668 1,656,795 1,286,026 Other secured 171,579 192,619 169,502 151,084 Unsecured loans and lines of credit 337,480 300,038 224,069 145,857 Stock secured 99,346 79,005 103,208 82,150 Total unpaid principal balance 25,460,428 23,880,978 22,819,469 20,273,125 Net unaccreted discount (410,197) (455,885) (493,895) (590,460) Net deferred fees and costs 17,780 13,456 10,020 5,604 Allowance for loan losses (97,049) (82,418) (68,113) (38,200) Loans, net 24,970,962 23,356,131 22,267,481 19,650,069 Loans held for sale 63,957 53,184 305,881 59,358 Investments in life insurance 620,085 591,397 585,956 432,496 Tax credit investments 419,968 389,000 330,447 166,589 Prepaid expenses and other assets 686,096 695,575 548,395 395,183 Premises, equipment and leasehold improvements, net 128,481 123,439 118,365 106,478 Goodwill 24,604 24,604 24,604 24,604 Other intangible assets 126,456 129,286 134,574 145,620 Mortgage servicing rights 17,415 17,466 17,269 21,725 Other real estate owned 3,490 4,348 3,681 2,954 Total Assets $ 30,987,001 $ 29,718,987 $ 27,791,801 $ 23,797,773 LIABILITIES AND EQUITY Liabilities: Customer deposits: Noninterest-bearing accounts $ 7,546,456 $ 6,275,752 $ 6,115,571 $ 3,936,714 Interest-bearing checking accounts 3,765,848 3,793,085 3,675,813 2,602,362 Money Market (MM) checking accounts 3,645,809 3,583,467 3,139,448 3,196,680 MM savings and passbooks 5,876,837 6,030,096 5,520,558 5,178,516 Certificates of deposit 3,380,353 3,572,561 4,007,869 5,025,576 Total customer deposits 24,215,303 23,254,961 22,459,259 19,939,848 FHLB advances 3,150,000 3,050,000 2,200,000 1,100,000 Subordinated notes 64,346 65,032 65,711 67,054 Debt related to variable interest entity 53,581 60,030 63,259 22,763 Other liabilities 447,158 425,491 408,550 267,992 Total Liabilities 27,930,388 26,855,514 25,196,779 21,397,657 Equity: First Republic Bank stockholders equity Preferred stock 349,525 199,525 - - Common stock 1,305 1,302 1,294 1,289 Additional paid-in capital 2,012,857 2,019,194 2,020,832 2,008,280 Retained earnings 677,573 583,757 494,450 315,966 Accumulated other comprehensive income (loss) 15,353 12,895 1,186 (2,679) Total First Republic Bank stockholders equity 3,056,613 2,816,673 2,517,762 2,322,856 Noncontrolling interests - 46,800 77,260 77,260 Total Equity 3,056,613 2,863,473 2,595,022 2,400,116 Total Liabilities and Equity $ 30,987,001 $ 29,718,987 $ 27,791,801 $ 23,797,773
FIRST REPUBLIC BANK PAGE 10 ($ in thousands) 2012 2011 2012 2012 2011 Operating Information Loans originated $ 3,963,579 $ 2,443,159 $ 3,156,526 $ 7,120,105 $ 4,298,379 Loans sold $ 435,786 $ 266,242 $ 552,050 $ 987,836 $ 505,039 Net income to average assets (2) 1.29% 1.42% 1.29% 1.29% 1.48% Net income available to common stockholders to average common equity (2) 12.07% 14.83% 13.86% 12.95% 15.57% Efficiency ratio (3) 52.4% 48.9% 52.5% 52.5% 48.1% Efficiency ratio (non-gaap) (3), (4) 60.5% 59.1% 59.6% 60.1% 58.9% Yields/Rates (2) Six Months Cash and cash equivalents 0.26% 0.28% 0.27% 0.27% 0.25% Securities purchased under agreements to resell 0.13% 0.03% 0.09% 0.11% 0.05% Investment securities (5) 5.57% 5.81% 5.65% 5.61% 6.00% Loans (5) 4.83% 5.61% 4.88% 4.86% 5.69% Total interest-earning assets 4.71% 5.19% 4.81% 4.76% 5.23% Checking 0.02% 0.05% 0.02% 0.02% 0.05% Money market checking and savings 0.29% 0.45% 0.21% 0.25% 0.46% CDs 1.09% 0.92% 1.04% 1.07% 0.88% Total deposits 0.28% 0.44% 0.26% 0.27% 0.44% FHLB advances 1.80% 2.41% 1.92% 1.85% 2.47% Other borrowings 2.58% 2.90% 2.62% 2.60% 2.81% Total borrowings 1.83% 2.45% 1.95% 1.88% 2.50% Total interest-bearing liabilities 0.47% 0.55% 0.44% 0.46% 0.54% Net interest spread 4.24% 4.64% 4.37% 4.30% 4.69% Net interest margin 4.27% 4.67% 4.39% 4.32% 4.72% Net interest margin (non-gaap) (4) 3.48% 3.54% 3.64% 3.56% 3.54% (2) Ratios are annualized. (3) Efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income. (4) For a reconciliation of these ratios to the equivalent GAAP ratios, see Use of Non-GAAP Financial Measures. (5) Yield is calculated on a tax-equivalent basis. The following table separates our loan portfolio as of 2012 between loans acquired on July 1, 2010 and loans originated since July 1, 2010: Composition of Loan Portfolio Loans acquired Loans originated Total loans at on July 1, since July 1, ($ in thousands) 2010 2010 2012 Single family (1-4 units) $ 6,173,298 $ 9,019,304 $ 15,192,602 Home equity lines of credit 1,195,775 738,368 1,934,143 Commercial real estate 1,532,012 1,187,012 2,719,024 Multifamily (5+ units) 990,690 1,641,244 2,631,934 Single family construction 20,549 188,607 209,156 Multifamily/commercial construction 12,811 116,348 129,159 Commercial business loans 556,578 1,479,427 2,036,005 Other secured 52,067 119,512 171,579 Unsecured loans and lines of credit 57,452 280,028 337,480 Stock secured 12,748 86,598 99,346 Total unpaid principal balance 10,603,980 14,856,448 25,460,428 Net unaccreted discount (409,439) (758) (410,197) Net deferred fees and costs (7,836) 25,616 17,780 Allowance for loan losses (13,389) (83,660) (97,049) Loans, net $ 10,173,316 $ 14,797,646 $ 24,970,962
FIRST REPUBLIC BANK PAGE 11 As of December 31, (in thousands, except per share amounts) 2012 2012 2011 2011 Book Value Number of shares of common stock outstanding 130,532 130,236 129,372 128,858 Book value per common share $ 20.74 $ 20.10 $ 19.46 $ 18.03 Tangible book value per common share $ 19.58 $ 18.91 $ 18.23 $ 16.71 Capital Ratios Tier 1 leverage ratio 9.55% 9.48% 8.81% 9.38% Tier 1 common equity ratio (6) 12.03% 12.73% 12.84% 13.90% Tier 1 risk-based capital ratio 13.68% 14.01% 13.25% 14.39% Total risk-based capital ratio 14.17% 14.47% 13.65% 14.74% (6) Tier 1 common equity ratio represents common equity less goodwill and intangible assets divided by risk-weighted assets. As of December 31, ($ in millions) 2012 2012 2011 2011 Assets Under Management (7) First Republic Investment Management $ 9,918 $ 8,955 $ 7,940 $ 7,879 Brokerage and Investment: Brokerage 7,663 7,777 6,806 6,862 Money Market Mutual Funds 779 666 1,037 646 Total Brokerage and Investment 8,442 8,443 7,843 7,508 Trust Company: Trust 2,196 2,089 1,963 1,898 Custody 2,734 2,565 2,641 2,351 Total Trust Company 4,930 4,654 4,604 4,249 Total Wealth Management Assets 23,290 22,052 20,387 19,636 Loans serviced for investors 3,827 3,651 3,381 3,877 Total fee-based assets $ 27,117 $ 25,703 $ 23,768 $ 23,513 (7) Assets under management are presented excluding sweep deposits. As of December 31, ($ in thousands) 2012 2012 2011 2011 Asset Quality Information Nonperforming assets: Nonaccrual loans $ 28,595 $ 27,480 $ 26,373 $ 26,740 Other real estate owned 3,490 4,348 3,681 2,954 Total nonperforming assets $ 32,085 $ 31,828 $ 30,054 $ 29,694 Nonperforming assets to total assets 0.10% 0.11% 0.11% 0.12% Restructured performing loans $ 7,978 $ 5,783 $ 6,674 $ 5,159
FIRST REPUBLIC BANK PAGE 12 Average Balance Sheet Six Months ($ in thousands) 2012 2011 2012 2012 2011 Assets: Cash equivalents $ 1,251,267 $ 1,826,348 $ 912,075 $ 1,081,671 $ 1,952,824 Securities purchased under agreements to resell 17,810 11,849 21,018 19,414 7,421 Investment securities (8) 3,142,539 1,630,533 2,958,810 3,050,675 1,408,535 Loans (9) 24,182,518 19,159,668 22,996,300 23,589,409 18,932,701 Total interest-earning assets 28,594,134 22,628,398 26,888,203 27,741,169 22,301,481 Noninterest-earning assets 1,837,582 1,329,315 1,733,236 1,785,408 1,311,318 Total Assets $ 30,431,716 $ 23,957,713 $ 28,621,439 $ 29,526,577 $ 23,612,799 Liabilities and Equity: Checking $ 10,792,468 $ 6,566,733 $ 9,749,583 $ 10,271,026 $ 6,307,848 Money market checking and savings 9,480,389 8,433,182 9,254,760 9,367,574 8,302,151 CDs (9) 3,467,158 5,246,008 3,759,487 3,613,322 5,451,389 Total deposits 23,740,015 20,245,923 22,763,830 23,251,922 20,061,388 FHLB advances 3,139,011 1,027,472 2,530,769 2,834,890 913,260 Subordinated notes (9) 64,680 67,377 65,363 65,022 67,706 Debt related to variable interest entity 59,850 23,044 62,425 61,138 23,969 Total borrowings 3,263,541 1,117,893 2,658,557 2,961,050 1,004,935 Total interest-bearing liabilities 27,003,556 21,363,816 25,422,387 26,212,972 21,066,323 Noninterest-bearing liabilities 447,526 218,013 392,820 420,172 214,231 Common equity 2,686,401 2,294,634 2,591,806 2,639,103 2,248,350 Preferred equity 247,657-147,887 197,772 - Noncontrolling interests 46,576 81,250 66,539 56,558 83,895 Total Liabilities and Equity $ 30,431,716 $ 23,957,713 $ 28,621,439 $ 29,526,577 $ 23,612,799 (8) Includes FHLB stock. (9) Average balances are presented net of purchase accounting discounts or premiums. Purchase Accounting Accretion and Amortization The following table presents the impact of purchase accounting for the periods indicated: Six Months ($ in thousands) 2012 2011 2012 2012 2011 Accretion/amortization to net interest income: Loans $ 45,768 $ 43,773 $ 38,153 $ 83,921 $ 87,082 Deposits 5,715 14,351 7,458 13,173 31,073 Borrowings 686 663 680 1,366 1,320 Total $ 52,169 $ 58,787 $ 46,291 $ 98,460 $ 119,475 Noninterest income: Gain on sale of loans $ - $ - $ - $ - $ 3,827 Loan commitments 15 166 69 84 1,220 Total $ 15 $ 166 $ 69 $ 84 $ 5,047 Amortization to noninterest expense: Intangible assets $ 5,170 $ 5,760 $ 5,288 $ 10,458 $ 11,677
FIRST REPUBLIC BANK PAGE 13 Use of Non-GAAP Financial Measures Our accounting and reporting policies conform to generally accepted accounting principles in the United States ( GAAP ) and the prevailing practices in the banking industry. However, due to the application of purchase accounting, management uses certain non-gaap measures and ratios that exclude the impact of these items to evaluate our performance, including net income, earnings per share, net interest margin and the efficiency ratio. Our net income, earnings per share, net interest margin and efficiency ratio are significantly impacted by accretion and amortization of the fair value adjustments recorded in purchase accounting. The accretion and amortization affect our net income, earnings per share and certain operating ratios as we accrete loan discounts to interest income; accrete discounts on loan commitments to noninterest income; recognize discounts established in purchase accounting on the sale of loans, which increase gain on sale of loans; amortize premiums on liabilities such as CDs and subordinated notes to interest expense; and amortize intangible assets to noninterest expense. In addition, earnings per share was impacted following the redemption of the FRPCC Series D preferred stock in the second quarter of 2012 due to the $13.2 million difference between the liquidation preference and the carrying value established in purchase accounting. We believe these non-gaap measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding our performance. Our management uses, and believes that investors benefit from referring to, these non-gaap measures and ratios in assessing our current 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, 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 used in this press release, or a reconciliation of the non-gaap calculation of the financial measure for the periods indicated: Six Months (in thousands, except per share amounts) 2012 2011 2012 2012 2011 Non-GAAP earnings Net income $ 97,907 $ 84,832 $ 91,758 $ 189,665 $ 173,604 Accretion / amortization added to net interest income (52,169) (58,787) (46,291) (98,460) (119,475) Discounts recognized in gain on sale of loans - - - - (3,827) Accretion added to noninterest income (15) (166) (69) (84) (1,220) Amortization of intangible assets 5,170 5,760 5,288 10,458 11,677 Add back tax impact of the above items 19,981 22,607 17,456 37,437 47,959 Non-GAAP net income 70,874 54,246 68,142 139,016 108,718 Dividends on preferred stock (4,091) - (2,451) (6,542) - Redemption of preferred stock (13,200) - - (13,200) - Impact of preferred stock redemption 13,200 - - 13,200 - Non-GAAP net income available to common stockholders $ 66,783 $ 54,246 $ 65,691 $ 132,474 $ 108,718 GAAP earnings per common share - diluted $ 0.60 $ 0.64 $ 0.67 $ 1.27 $ 1.31 Impact of purchase accounting, net of tax (0.20) (0.23) (0.18) (0.38) (0.49) Impact of preferred stock redemption 0.10 - - 0.10 - Non-GAAP earnings per common share - diluted $ 0.50 $ 0.41 $ 0.49 $ 0.99 $ 0.82 Weighted average diluted common shares outstanding 134,002 133,091 133,621 133,816 132,848
FIRST REPUBLIC BANK PAGE 14 Six Months ($ in thousands) 2012 2011 2012 2012 2011 Net interest margin Net interest income $ 290,597 $ 256,802 $ 281,268 $ 571,865 $ 511,296 Add: Tax-equivalent adjustment 15,943 8,756 15,043 30,986 16,121 Net interest income (tax-equivalent basis) 306,540 265,558 296,311 602,851 527,417 Less: Accretion / amortization (52,169) (58,787) (46,291) (98,460) (119,475) Non-GAAP net interest income (tax-equivalent basis) $ 254,371 $ 206,771 $ 250,020 $ 504,391 $ 407,942 Average interest-earning assets $ 28,594,134 $ 22,628,398 $ 26,888,203 $ 27,741,169 $ 22,301,481 Add: Average unamortized loan discounts 439,947 617,512 481,015 460,481 640,080 Adjusted average interest-earning assets $ 29,034,081 $ 23,245,910 $ 27,369,218 $ 28,201,650 $ 22,941,561 Net interest margin reported 4.27% 4.67% 4.39% 4.32% 4.72% Adjusted net interest margin (non-gaap) 3.48% 3.54% 3.64% 3.56% 3.54% Six Months ($ in thousands) 2012 2011 2012 2012 2011 Efficiency ratio Net interest income $ 290,597 $ 256,802 $ 281,268 $ 571,865 $ 511,296 Less: Accretion / amortization (52,169) (58,787) (46,291) (98,460) (119,475) Adjusted net interest income (non-gaap) $ 238,428 $ 198,015 $ 234,977 $ 473,405 $ 391,821 Noninterest income $ 36,639 $ 27,197 $ 32,645 $ 69,284 $ 58,263 Less: Accretion of discounts on loan commitments (15) (166) (69) (84) (1,220) Discounts recognized in gain on sale of loans - - - - (3,827) Adjusted noninterest income (non-gaap) $ 36,624 $ 27,031 $ 32,576 $ 69,200 $ 53,216 Total revenue $ 327,236 $ 283,999 $ 313,913 $ 641,149 $ 569,559 Total revenue (non-gaap) $ 275,052 $ 225,046 $ 267,553 $ 542,605 $ 445,037 Noninterest expense $ 171,555 $ 138,829 $ 164,755 $ 336,310 $ 273,818 Less: Intangible amortization (5,170) (5,760) (5,288) (10,458) (11,677) Adjusted noninterest expense (non-gaap) $ 166,385 $ 133,069 $ 159,467 $ 325,852 $ 262,141 Efficiency ratio 52.4% 48.9% 52.5% 52.5% 48.1% Efficiency ratio (non-gaap) 60.5% 59.1% 59.6% 60.1% 58.9% Investor Contact: Media Contact: Andrew Greenebaum / Lasse Glassen Greg Berardi Addo Communications Blue Marlin Partners andrewg@addocommunications.com greg@bluemarlinpartners.com lasseg@addocommunications.com (415) 239-7826 (310) 829-5400 # # # # # #