First Republic Bank Reports Strong Quarterly Earnings

Significant Growth in Deposits, Loans and Wealth Management

Business Wire

SAN FRANCISCO--(BUSINESS WIRE)--

First Republic Bank (FRC) today announced financial results for the second quarter and six months ended June 30, 2013.

“We had a very good second quarter. Year-over-year core earnings per share increased 28%,” said Jim Herbert, Chairman and Chief Executive Officer. “Deposit and loan growth for the quarter were up 5% and 7%, respectively. Wealth management assets increased by 6% and our credit quality remains strong.”

Quarterly Cash Dividend Declared

The Bank declared a cash dividend for the second quarter of $0.12 per share of common stock, which is payable on August 15, 2013 to shareholders of record as of August 1, 2013.

Quarterly Financial Highlights

  • Net income was $113.7 million for the second quarter of 2013, compared to $97.9 million last year. Diluted earnings per share (“EPS”) were $0.77, compared to $0.60 (which was reduced by a $0.10 per share one-time charge upon redemption of REIT preferred stock).
  • Excluding the impact of purchase accounting, core net income was $97.1 million, up 37% from last year. On this non-GAAP basis, which also excludes the one-time redemption charge in 2012, core diluted EPS for the quarter were $0.64, up 28% year-over-year. (1)
  • The Bank issued $190 million of 5.50% Noncumulative Perpetual Preferred Stock, which qualifies as Tier 1 capital.
  • Nonperforming assets were only 17 basis points of total assets.
  • Loans outstanding were $30.7 billion, up 7% for the quarter and 20% compared to a year ago.
  • Deposits were $28.2 billion, up 5% and 17% compared to a year ago.
  • Wealth management assets were $37.4 billion, up 6% and 61% compared to a year ago.
  • Wealth management fees were $33.1 million, up 12% and 69% compared to the same period last year.
  • Loan originations were $5.3 billion, our highest quarter ever, and were up 34% compared to last year’s second quarter.
  • Loans sold were $945.4 million and pre-tax gains on loan sales were $8.8 million, or 0.93% of loans sold.
  • The core net interest margin was 3.37%, compared to 3.42% for the prior quarter. (1)
  • The core efficiency ratio was 58.9%, compared to 57.3% for the prior quarter. (1)

“Record loan originations and renewed deposit growth were the result of healthy conditions in our markets and the continued execution of our business model,” said Katherine August-deWilde, President and Chief Operating Officer. “Wealth management assets grew substantially, rising $5.7 billion through the first six months of the year.”

Asset Quality

The Bank’s credit quality remains very strong. Nonperforming assets were 17 basis points of total assets.

The Bank recorded a provision for loan losses of $12.7 million. This provision is related primarily to the growth in loans outstanding that have been originated since July 1, 2010. The allowance related to these loans totaled $133.4 million, or 0.58%.

Net charge-offs were $446,000 and $713,000 for the three and six months ended June 30, 2013, respectively (1 basis point, annualized, of average loans for each period).

Capital Strength

The Bank’s Tier 1 leverage ratio was 9.83%, compared to 9.35% at March 31, 2013. In April 2013, the Bank issued $190 million of 5.50% Noncumulative Perpetual Preferred Stock, which qualifies as Tier 1 capital.

Book Value

Book value per share was $23.50, up 13% from a year ago.

Franchise Development

Increased Total Assets

Total assets were $37.3 billion, up 6% for the quarter. Loans increased $5.2 billion, up 7% for the quarter and up 20% compared to a year ago.

Good Deposit Growth

Balances in checking accounts, money market accounts (including passbooks) and certificates of deposit all increased during the quarter. Total deposits were up 5% compared to the prior quarter and increased 17% compared to a year ago. The contractual rate paid on all deposits averaged 0.24% for the quarter, compared to 0.22% for the prior quarter.

At June 30, 2013, 96% of deposits were core deposits. (2)

Significant Expansion of Wealth Management

Total wealth management assets were $37.4 billion, up $2.1 billion, or 6%, from the prior quarter and up $5.7 billion, or 18%, since year-end. Such growth in assets under management was primarily due to net new assets obtained from clients. Wealth management assets include investment management assets of $19.0 billion, brokerage assets and money market mutual funds of $11.7 billion, and trust and custody assets of $6.6 billion.

Wealth management fees earned for the quarter totaled $33.1 million and were up 12% compared to the prior quarter and 69% compared to last year. The increased fees reflect both growth in assets under management along with fees related to assets of Luminous Capital Holdings, LLC (“Luminous”) purchased in December 2012.

Continued Mortgage Banking Activity

Mortgage banking volume and profitability were good this quarter, although down from an unusually high level during the prior quarter. The Bank sold $945.4 million of primarily longer-term, fixed-rate home loans during the quarter and recorded gains of $8.8 million, or 0.93% of loans sold. Gain on sale of loans contributed $0.04 to diluted EPS for the quarter, compared to $0.11 for the prior quarter.

The carrying value of mortgage servicing rights (“MSRs”) was $28.9 million, or 48 basis points of such loans serviced. Loans serviced for investors totaled $6.0 billion, up 58% from a year ago.

Income Statement and Key Ratio Summary

Revenue Growth

Total revenues were $365.3 million for the quarter, compared to $327.2 million last year, a 12% increase. Total revenues in the prior quarter were $370.3 million, including an elevated level of gain on sale of loans.

Core revenues, excluding the impact of purchase accounting, were $331.8 million for the quarter, compared to $275.1 million last year, a 21% increase. Core revenues in the prior quarter were $336.0 million, including an elevated level of gain on sale of loans. (1)

Net Interest Income Growth

Net interest income was $303.1 million for the quarter, compared to $298.0 million for the prior quarter and $290.6 million last year.

Core net interest income, excluding the impact of purchase accounting, was $269.6 million for the quarter, compared to $263.8 million for the prior quarter and $238.4 million last year, up 2% and 13%, respectively. (1)

Net Interest Margin

The Bank’s net interest margin was 3.79% for the quarter, compared to 3.87% for the prior quarter and 4.27% for the second quarter a year ago.

Core net interest margin, excluding the impact of purchase accounting, was 3.37% for the quarter, compared to 3.42% for the prior quarter and 3.48% for the second quarter a year ago. (1)

Noninterest Income

Noninterest income for the quarter was $62.3 million, up $25.6 million from the second quarter a year ago.

Excluding the gain on sale of loans, noninterest income has increased compared to the prior quarter and the same period last year by 16% and 68%, respectively, primarily due to increases in wealth management fees, foreign exchange fees, deposit fees and net loan servicing fees.

Noninterest Expense and Efficiency Ratio

Noninterest expense for the quarter was $200.1 million, compared to $197.4 million for the prior quarter and $171.6 million for the second quarter a year ago, a 1% increase over the prior quarter and a 17% increase year-over-year.

The Bank’s efficiency ratio was 54.8% for the quarter, compared to 53.3% for the prior quarter and 52.4% for the second quarter a year ago.

The Bank’s core efficiency ratio, excluding the impact of purchase accounting, was 58.9% for the quarter, compared to 57.3% for the prior quarter and 60.5% for the second quarter a year ago. (1)

While noninterest expense has grown due to increased personnel, increased tax credit investments and the cost of growth initiatives, our efficiency ratios have remained relatively stable.

Income Tax Rate

The Bank’s effective tax rate for the six months ended June 30, 2013 was 26.0%, and represents the current estimated tax rate for the full year 2013. By comparison, the effective tax rate was 30.4% for 2012. The decline in the effective tax rate results from the steady increase in tax-exempt securities, bank-owned life insurance, tax credit investments and tax-advantaged loans.

_________

(1) See non-GAAP reconciliation under section “Use of Non-GAAP Financial Measures.”

(2) Core deposits exclude CDs greater than $250,000.

Conference Call Details

First Republic Bank’s second quarter 2013 earnings conference call is scheduled for July 17, 2013 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 #99945597. 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 17, 2013, at 12:00 p.m. PT / 3:00 p.m. ET, through July 25, 2013, 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 #99945597. 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 (“First Republic” or the “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, Palm Beach, 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 IndexSM, 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 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
June 30,
Three Months
Ended
March 31,
Six Months
Ended
June 30,
(in thousands, except per share amounts) 2013   2012 2013 2013   2012
Interest income:
Loans $ 294,215 $ 291,040 $ 288,093 $ 582,308 $ 570,714
Investments 38,430 30,265 35,479 73,909 59,124
Cash equivalents 99   822   174   273   1,445  
Total interest income 332,744   322,127   323,746   656,490   631,283  
 
Interest expense:
Deposits 13,254 16,678 11,010 24,264 31,665
Borrowings 16,398   14,852   14,687   31,085   27,753  
Total interest expense 29,652   31,530   25,697   55,349   59,418  
 
Net interest income 303,092 290,597 298,049 601,141 571,865
Provision for loan losses 12,653   14,875   6,478   19,131   29,727  
Net interest income after provision for loan losses 290,439   275,722   291,571   582,010   542,138  
 
Noninterest income:
Investment advisory fees 27,525 14,674 25,099 52,624 27,373
Brokerage and investment fees 3,071 2,667 2,391 5,462 5,432
Trust fees 2,498 2,185 2,060 4,558 3,958
Foreign exchange fee income 4,639 2,639 3,087 7,726 5,060
Deposit fees 4,611 3,445 4,644 9,255 6,726
Gain on sale of loans 8,779 4,754 25,990 34,769 8,563
Loan servicing fees, net 1,299 (704 ) 336 1,635 (2,608 )
Loan and related fees 2,109 1,465 1,912 4,021 2,948
Income from investments in life insurance 5,912 5,618 5,884 11,796 10,989
Other income (loss) 1,807   (104 ) 865   2,672   843  
Total noninterest income 62,250   36,639   72,268   134,518   69,284  
 
Noninterest expense:
Salaries and employee benefits 98,157 81,533 101,884 200,041 164,040
Occupancy 22,904 20,690 22,088 44,992 40,585
Information systems 19,504 17,746 17,823 37,327 33,920
Tax credit investments 11,280 4,521 10,900 22,180 9,771
Amortization of intangibles 6,643 5,170 6,856 13,499 10,458
FDIC and other deposit assessments 6,800 5,902 6,827 13,627 11,302
Advertising and marketing 6,842 7,144 5,803 12,645 13,106
Professional fees 5,104 5,453 3,713 8,817 9,731
Other expenses 22,905   23,396   21,540   44,445   43,397  
Total noninterest expense 200,139   171,555   197,434   397,573   336,310  
 
Income before provision for income taxes 152,550 140,806 166,405 318,955 275,112
Provision for income taxes 38,831   42,274   44,097   82,928   83,909  
Net income before noncontrolling interests 113,719 98,532 122,308 236,027 191,203
Less: Net income from noncontrolling interests   625       1,538  
First Republic Bank net income 113,719 97,907 122,308 236,027 189,665
Dividends on preferred stock 9,706 4,091 7,776 17,482 6,542
Redemption of preferred stock   13,200       13,200  
Net income available to common shareholders $ 104,013   $ 80,616   $ 114,532   $ 218,545   $ 169,923  
 
Basic earnings per common share $ 0.79   $ 0.62   $ 0.88   $ 1.67   $ 1.31  
Diluted earnings per common share $ 0.77   $ 0.60   $ 0.85   $ 1.61   $ 1.27  
Dividends per common share $ 0.12   $   $   $ 0.12   $  
 
Weighted average shares - basic 131,102   129,890   130,846   130,975   129,694  
Weighted average shares - diluted 135,595   134,002   135,252   135,428   133,816  
 

CONSOLIDATED BALANCE SHEET

 
As of
($ in thousands) June 30,
2013
  March 31,

2013

  June 30,
2012

ASSETS

Cash and cash equivalents $ 591,738 $ 552,837 $ 800,818
Securities purchased under agreements to resell 163 100 19,330
Investment securities available-for-sale 1,233,830 1,382,138 782,098
Investment securities held-to-maturity 2,793,705 2,624,120 2,323,241
 
Loans:
Single family (1-4 units) 17,728,429 16,654,668 15,192,602
Home equity lines of credit 1,891,849 1,795,775 1,934,143
Multifamily (5+ units) 3,597,809 3,278,219 2,631,934
Commercial real estate 3,127,177 2,932,676 2,719,024
Single family construction 263,718 250,587 209,156
Multifamily/commercial construction 218,271 166,027 129,159
Commercial business 3,045,189 2,608,651 2,036,005
Other secured 424,060 356,688 345,117
Unsecured loans and lines of credit 283,013 246,198 163,942
Stock secured 114,567   151,156   99,346  
Total unpaid principal balance 30,694,082   28,440,645   25,460,428  
Net unaccreted discount (271,028 ) (301,549 ) (410,197 )
Net deferred fees and costs 19,571 18,356 17,780
Allowance for loan losses (148,307 ) (136,100 ) (97,049 )
Loans, net 30,294,318   28,021,352   24,970,962  
 
Loans held for sale 53,284 230,578 63,957
Investments in life insurance 733,958 707,775 620,085
Prepaid expenses and other assets 639,921 650,296 686,096
Tax credit investments 534,554 478,616 419,968
Premises, equipment and leasehold improvements, net 156,446 153,365 128,481
Goodwill 106,549 106,549 24,604
Other intangible assets 145,393 152,036 126,456
Mortgage servicing rights 28,882 23,142 17,415
Other real estate owned     3,490  
Total Assets $ 37,312,741   $ 35,082,904   $ 30,987,001  
 

LIABILITIES AND EQUITY

Liabilities:
Deposits:
Noninterest-bearing checking accounts $ 7,950,212 $ 7,344,677 $ 7,546,456
Interest-bearing checking accounts 6,000,214 6,297,551 3,765,848
Money Market (MM) checking accounts 4,441,635 4,145,038 3,645,809
MM savings and passbooks 6,378,112 6,242,098 5,876,837
Certificates of deposit 3,458,468   2,823,750   3,380,353  
Total deposits 28,228,641   26,853,114   24,215,303  
 
Short-term borrowings 370,000 810,000
Long-term debt 4,350,000 3,450,000 3,214,346
Debt related to variable interest entity 49,126 53,143 53,581
Other liabilities 527,851   398,741   447,158  
Total Liabilities 33,525,618   31,564,998   27,930,388  
 
Shareholders’ Equity:
Preferred stock 689,525 499,525 349,525
Common stock 1,318 1,315 1,305
Additional paid-in capital 2,036,607 2,035,558 2,012,857
Retained earnings 1,041,417 953,284 677,573
Accumulated other comprehensive income 18,256   28,224   15,353  
Total Shareholders’ Equity 3,787,123   3,517,906   3,056,613  
Total Liabilities and Shareholders’ Equity $ 37,312,741   $ 35,082,904   $ 30,987,001  
 
  Three Months
Ended
June 30,
  Three Months
Ended
March 31,
Six Months
Ended
June 30,
($ in thousands) 2013   2012 2013 2013   2012

Operating Information

Loans originated $ 5,310,194 $ 3,963,579 $ 3,545,858 $ 8,856,052 $ 7,120,105
Net income to average assets (3) 1.26 % 1.29 % 1.42 % 1.34 % 1.29 %
Net income available to common shareholders to average common equity (3) 13.53 % 12.07 % 15.59 % 14.54 % 12.95 %
Dividend payout ratio 15.6 % % %

(4)

7.4 % %
Efficiency ratio (5) 54.8 % 52.4 % 53.3 % 54.0 % 52.5 %
Efficiency ratio (non-GAAP) (5), (6) 58.9 % 60.5 % 57.3 % 58.1 % 60.1 %
 

Yields/Rates (3)

Cash and cash equivalents 0.22 % 0.26 % 0.23 % 0.23 % 0.27 %
Investment securities (7), (8) 5.08 % 5.54 % 5.07 % 5.08 % 5.58 %
Loans (7), (9) 4.02 % 4.83 % 4.11 % 4.07 % 4.86 %
 
Total interest-earning assets 4.14 % 4.71 % 4.19 % 4.16 % 4.76 %
 
Checking 0.01 % 0.02 % 0.01 % 0.01 % 0.02 %
Money market checking and savings 0.19 % 0.29 % 0.11 % 0.15 % 0.25 %
CDs (9) 1.06 % 1.09 % 1.09 % 1.07 % 1.07 %
Total deposits 0.20 % 0.28 % 0.17 % 0.18 % 0.27 %
 
Short-term borrowings 0.17 % % 0.21 % 0.19 % 0.00 %
Long-term FHLB advances 1.65 % 1.80 % 1.79 % 1.72 % 1.85 %
Other long-term debt (9) 1.79 % 2.58 % 1.73 % 1.76 % 2.60 %
Total borrowings 1.40 % 1.83 % 1.47 % 1.43 % 1.88 %
 
Total interest-bearing liabilities 0.37 % 0.47 % 0.34 % 0.36 % 0.46 %
 
Net interest spread 3.77 % 4.24 % 3.85 % 3.80 % 4.30 %
 
Net interest margin 3.79 % 4.27 % 3.87 % 3.83 % 4.32 %
 
Core net interest margin (non-GAAP) (6) 3.37 % 3.48 % 3.42 % 3.39 % 3.56 %
 

(3)

Ratios are annualized.

(4)

The fourth quarter of 2012 dividend of $0.10 per share was declared and paid in December 2012, which resulted in no dividend payment during the first quarter of 2013.

(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 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
June 30,
  Three Months
Ended
March 31,
  Six Months
Ended
June 30,
($ in thousands) 2013   2012 2013 2013   2012

Mortgage Loan Sales

Loans sold:
Agency $ 199,963 $ 191,878 $ 165,281 $ 365,244 $ 308,118
Non-agency 745,442   243,908   1,052,859   1,798,301   679,718  
Total loans sold $ 945,405   $ 435,786   $ 1,218,140   $ 2,163,545   $ 987,836  
 
Gain on sale of loans:
Amount $ 8,779 $ 4,754 $ 25,990 $ 34,769 $ 8,563
Gain as a percentage of loans sold 0.93 % 1.09 % 2.13 % 1.61 % 0.87 %
 

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

  Three Months
Ended
June 30,
  Three Months
Ended
March 31,
  Six Months
Ended
June 30,
($ in thousands) 2013   2012 2013 2013   2012
Single family (1-4 units) $ 2,845,928 $ 2,318,492 $ 2,061,908 $ 4,907,836 $ 3,933,739
Home equity lines of credit 353,087 290,988 259,789 612,876 538,411
Multifamily/commercial real estate 857,160 493,119 586,549 1,443,709 938,748
Commercial business 804,288 451,958 372,345 1,176,633 977,992
Construction 268,871 162,713 105,236 374,107 232,450
Other loans 180,860   246,309   160,031   340,891   498,765
Total loans originated $ 5,310,194   $ 3,963,579   $ 3,545,858   $ 8,856,052   $ 7,120,105
 

The following table separates our loan portfolio as of June 30, 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
June 30,
2013
Single family (1-4 units) $ 4,427,853 $ 13,300,576 $ 17,728,429
Home equity lines of credit 879,722 1,012,127 1,891,849
Multifamily (5+ units) 659,308 2,938,501 3,597,809
Commercial real estate 1,028,410 2,098,767 3,127,177
Single family construction 7,106 256,612 263,718
Multifamily/commercial construction 1,140 217,131 218,271
Commercial business 444,549 2,600,640 3,045,189
Other secured 44,683 379,377 424,060
Unsecured loans and lines of credit 43,055 239,958 283,013
Stock secured 9,255   105,312   114,567  
Total unpaid principal balance 7,545,081   23,149,001   30,694,082  
Net unaccreted discount (270,395 ) (633 ) (271,028 )
Net deferred fees and costs (7,530 ) 27,101 19,571
Allowance for loan losses (14,867 ) (133,440 ) (148,307 )
Loans, net $ 7,252,289   $ 23,042,029   $ 30,294,318  
 
  As of
(in thousands, except per share amounts) June 30,
2013
 

March 31,
2013

  December 31,
2012
  June 30,
2012

Book Value

Number of shares of common stock outstanding 131,822   131,481   131,273   130,532  
Book value per common share $ 23.50   $ 22.96   $ 22.08   $ 20.74  
Tangible book value per common share $ 21.59   $ 20.99   $ 20.06   $ 19.58  
 

Capital Ratios

Tier 1 leverage ratio 9.83 % 9.35 % 9.32 % 9.55 %
Tier 1 common equity ratio (10) 10.87 % 11.43 % 11.13 % 12.03 %
Tier 1 risk-based capital ratio 13.52 % 13.52 % 13.27 % 13.68 %
Total risk-based capital ratio 14.12 % 14.13 % 13.86 % 14.17 %
 

(10)

Tier 1 common equity ratio represents common equity less goodwill and intangible assets divided by risk-weighted assets.
 
  As of
($ in millions) June 30,
2013
 

March 31,
2013

  December 31,
2012
  June 30,
2012

Assets Under Management

First Republic Investment Management $ 19,045 $ 18,573 $ 17,000 $ 9,918
 
Brokerage and Investment:
Brokerage 10,784 10,357 8,810 7,663
Money Market Mutual Funds 929   870   852   779
Total Brokerage and Investment 11,713   11,227   9,662   8,442
 
Trust Company:
Trust 2,822 2,326 2,157 2,196
Custody 3,803   3,148   2,863   2,734
Total Trust Company 6,625   5,474   5,020   4,930
Total Wealth Management Assets 37,383   35,274   31,682   23,290
 
Loans serviced for investors 6,036   5,433   4,581   3,827
Total fee-based assets $ 43,419   $ 40,707   $ 36,263   $ 27,117
 

Asset Quality Information

       
As of
($ in thousands) June 30,
2013
March 31,
2013
December 31,
2012
June 30,
2012
Nonperforming assets:
Nonaccrual loans $ 62,824 $ 49,873 $ 49,153 $ 28,595
Other real estate owned       3,490  
Total nonperforming assets $ 62,824   $ 49,873   $ 49,153   $ 32,085  
 
Nonperforming assets to total assets 0.17 % 0.14 % 0.14 % 0.10 %
 
Accruing loans 90 days or more past due $ $ 5,959 $ $
 
Restructured accruing loans $ 18,766 $ 18,223 $ 12,398 $ 7,978
 
  Three Months
Ended
June 30,
  Three Months
Ended
March 31,
  Six Months
Ended
June 30,
($ in thousands) 2013   2012 2013 2013   2012
Net loan charge-offs to allowance for loan losses $ 446 $ 244 $ 267 $ 713 $ 791
Net loan charge-offs to average total loans (annualized) 0.01 % 0.00 % 0.00 % 0.01 % 0.01 %
 
  Average Balance Sheet
Three Months
Ended
June 30,
  Three Months
Ended
March 31,
  Six Months
Ended
June 30,
($ in thousands) 2013   2012 2013 2013   2012
Assets:
Cash equivalents $ 178,482 $ 1,251,267 $ 307,562 $ 242,666 $ 1,081,671
Investment securities (11) 4,225,274 3,160,349 4,011,375 4,118,915 3,070,089
Loans (12) 29,541,707   24,182,518   28,439,583   28,993,689   23,589,409
Total interest-earning assets 33,945,463 28,594,134 32,758,520 33,355,270 27,741,169
 
Noninterest-earning cash 240,514 205,898 242,241 241,373 203,679
Goodwill and other intangibles 255,162 151,908 261,921 258,523 154,181
Other assets 1,643,333   1,479,776   1,591,525   1,617,572   1,427,548
Total noninterest-earning assets 2,139,009 1,837,582 2,095,687 2,117,468 1,785,408
         
Total Assets $ 36,084,472   $ 30,431,716   $ 34,854,207   $ 35,472,738   $ 29,526,577
 
Liabilities and Equity:
Checking $ 13,769,665 $ 10,792,468 $ 13,237,987 $ 13,505,295 $ 10,271,026
Money market checking and savings 10,415,283 9,480,389 10,629,230 10,521,665 9,367,574
CDs (12) 3,022,355   3,467,158   2,894,059   2,958,561   3,613,322
Total deposits 27,207,303   23,740,015   26,761,276   26,985,521   23,251,922
 
Short-term borrowings 787,637 832,200 809,795 1,099
Long-term FHLB advances 3,847,802 3,139,011 3,165,556 3,508,564 2,833,791
Other long term-debt (12) 52,443   124,530   55,406   53,917   126,160
Total borrowings 4,687,882   3,263,541   4,053,162   4,372,276   2,961,050
 
Total interest-bearing liabilities 31,895,185 27,003,556 30,814,438 31,357,797 26,212,972
 
Noninterest-bearing liabilities 462,694 447,526 561,572 511,860 420,172
Preferred equity 642,437 247,657 499,525 571,376 197,772
Common equity 3,084,156 2,686,401 2,978,672 3,031,705 2,639,103
Noncontrolling interests   46,576       56,558
Total Liabilities and Equity $ 36,084,472   $ 30,431,716   $ 34,854,207   $ 35,472,738   $ 29,526,577
 
(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
June 30,
  Three Months
Ended
March 31,
  Six Months
Ended
June 30,
($ in thousands) 2013   2012 2013 2013   2012
Accretion/amortization to net interest income:
Loans $ 30,484 $ 45,768 $ 30,834 $ 61,318 $ 83,921
Deposits 3,036 5,715 3,440 6,476 13,173
Borrowings   686       1,366
Total $ 33,520   $ 52,169   $ 34,274   $ 67,794   $ 98,460
 
Noninterest income:
Loan commitments $   $ 15   $   $   $ 84
 
Amortization to noninterest expense:
Intangible assets $ 4,608   $ 5,170   $ 4,769   $ 9,377   $ 10,458
 

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 three and six months ended June 30, 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 completed the purchase of 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
June 30,
  Three Months
Ended
March 31,
  Six Months
Ended
June 30,
(in thousands, except per share amounts) 2013   2012 2013 2013   2012
Non-GAAP earnings
Net income $ 113,719 $ 97,907 $ 122,308 $ 236,027 $ 189,665
Accretion / amortization added to net interest income (33,520 ) (52,169 ) (34,274 ) (67,794 ) (98,460 )
Accretion added to noninterest income (15 ) (84 )
Amortization of intangible assets 4,608 5,170 4,769 9,377 10,458
Add back tax impact of the above items 12,287   19,981   12,540   24,827   37,437  
Non-GAAP net income 97,094 70,874 105,343 202,437 139,016
Dividends on preferred stock (9,706 ) (4,091 ) (7,776 ) (17,482 ) (6,542 )
Redemption of FRPCC preferred stock (13,200 ) (13,200 )
Impact of FRPCC preferred stock redemption   13,200       13,200  
Non-GAAP net income available to common shareholders $ 87,388   $ 66,783   $ 97,567   $ 184,955   $ 132,474  
 
GAAP earnings per common share-diluted $ 0.77 $ 0.60 $ 0.85 $ 1.61 $ 1.27
Impact of purchase accounting, net of tax (0.13 ) (0.20 ) (0.13 ) (0.24 ) (0.38 )
Impact of FRPCC preferred stock redemption   0.10       0.10  
Non-GAAP earnings per common share-diluted $ 0.64   $ 0.50   $ 0.72   $ 1.37   $ 0.99  
 
Weighted average diluted common shares outstanding 135,595   134,002   135,252   135,428   133,816  
 
  Three Months
Ended
June 30,
  Three Months
Ended
March 31,
  Six Months
Ended
June 30,
($ in thousands) 2013   2012 2013 2013   2012
Net interest margin
Net interest income $ 303,092 $ 290,597 $ 298,049 $ 601,141 $ 571,865
Add: Tax-equivalent adjustment 19,629   15,943   19,327   38,956   30,986  
Net interest income (tax-equivalent basis) 322,721 306,540 317,376 640,097 602,851
Less: Accretion / amortization (33,520 ) (52,169 ) (34,274 ) (67,794 ) (98,460 )
Non-GAAP net interest income (tax-equivalent basis) $ 289,201   $ 254,371   $ 283,102   $ 572,303   $ 504,391  
 
Average interest-earning assets $ 33,945,463 $ 28,594,134 $ 32,758,520 $ 33,355,270 $ 27,741,169
Add: Average unamortized loan discounts 291,302   439,947   323,068   307,098   460,481  
Average interest-earning assets (non-GAAP) $ 34,236,765   $ 29,034,081   $ 33,081,588   $ 33,662,368   $ 28,201,650  
 
Net interest margin–reported 3.79 % 4.27 % 3.87 % 3.83 % 4.32 %
 
Net interest margin (non-GAAP) 3.37 % 3.48 % 3.42 % 3.39 % 3.56 %
Three Months
Ended
June 30,
  Three Months
Ended
March 31,
  Six Months
Ended
June 30,
($ in thousands) 2013   2012 2013 2013   2012
Efficiency ratio
Net interest income $ 303,092 $ 290,597 $ 298,049 $ 601,141 $ 571,865
Less: Accretion / amortization (33,520 ) (52,169 ) (34,274 ) (67,794 ) (98,460 )
Net interest income (non-GAAP) $ 269,572   $ 238,428   $ 263,775   $ 533,347   $ 473,405  
 
Noninterest income $ 62,250 $ 36,639 $ 72,268 $ 134,518 $ 69,284
Less: Accretion of discounts on loan commitments   (15 )     (84 )
Noninterest income (non-GAAP) $ 62,250   $ 36,624   $ 72,268   $ 134,518   $ 69,200  
 
Total revenue $ 365,342 $ 327,236 $ 370,317 $ 735,659 $ 641,149
 
Total revenue (non-GAAP) $ 331,822 $ 275,052 $ 336,043 $ 667,865 $ 542,605
 
Noninterest expense $ 200,139 $ 171,555 $ 197,434 $ 397,573 $ 336,310
Less: Intangible amortization (4,608 ) (5,170 ) (4,769 ) (9,377 ) (10,458 )
Noninterest expense (non-GAAP) $ 195,531   $ 166,385   $ 192,665   $ 388,196   $ 325,852  
 
Efficiency ratio 54.8 % 52.4 % 53.3 % 54.0 % 52.5 %
 
Efficiency ratio (non-GAAP) 58.9 % 60.5 % 57.3 % 58.1 % 60.1 %

Contact:
Addo Communications
Andrew Greenebaum, 310-829-5400 (Investors)
andrewg@addocommunications.com
Lasse Glassen, 310-829-5400 (Investors)
lasseg@addocommunications.com
or
Blue Marlin Partners
Greg Berardi, 415-239-7826 (Media)
greg@bluemarlinpartners.com
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