SAN FRANCISCO--(BUSINESS WIRE)--
Total Revenues Increased 17% for the Year
Wealth Management Revenues Increased 22% for the Year
First Republic Bank (FRC) today announced financial results for the quarter and year ended December 31, 2018.
“Results for 2018 were excellent,” said Jim Herbert, Chairman and CEO. “Organic growth continues to be strong across the franchise. Our client-focused business model is driving our growth and delivering consistent results in all types of economic conditions.”
Full Year Highlights
- Revenues were $3.0 billion, up 16.6%.
- Net income was $853.8 million, up 12.7%.
- Diluted earnings per share of $4.81, up 11.6%.
- Loan originations totaled $32.1 billion, our best year ever.
- Tangible book value per share was $45.26, up 11.9%.
- Efficiency ratio was 63.0%, compared to 62.8% last year.
Continued Capital and Credit Strength
- Common Equity Tier 1 ratio was 10.38%, compared to 10.63% a year ago.
- Nonperforming assets remained very low at 5 basis points of total assets.
- Net charge-offs were only $3.0 million, or less than 1 basis point of average loans.
Continued Franchise Development
- Loans, excluding loans held for sale, totaled $75.9 billion, up 20.7%.
- Deposits were $79.1 billion, up 14.7%.
- Wealth management assets were $126.2 billion, up 18.0%.
- Wealth management revenues were $433.7 million, up 21.7%.
- Compared to last year’s fourth quarter:
- Revenues were $810.8 million, up 16.0%.
- Net interest income was $667.2 million, up 17.3%.
- Net income was $231.4 million, up 19.1%.
- Diluted EPS of $1.29, up 17.3%.
- Loan originations were $8.4 billion, our best fourth quarter ever.
- Loans sold totaled $263.7 million for the quarter.
- Net charge-offs were $1.9 million.
- Net interest margin was 2.98%, compared to 2.94% for the prior quarter. The fourth quarter’s net interest margin included a 2 basis point positive impact from an FHLB special dividend.
- Efficiency ratio was 61.5%, compared to 63.0% for the prior quarter (includes 0.4% positive impact from an FHLB special dividend).
- Wealth management assets were $126.2 billion, down 3.6% from the prior quarter due to market declines.
“First Republic’s differentiated business model continues to perform very well,” said Mike Roffler, Chief Financial Officer. “Loans, deposits and wealth management assets all grew nicely, and client acquisition remains strong. We’re very pleased with revenue growth of 17% and net interest income growth of 16% for the full year 2018. Capital and credit quality remain consistently strong.”
Quarterly Cash Dividend Declared
The Bank declared a cash dividend for the fourth quarter of $0.18 per share of common stock, which is payable on February 14, 2019 to shareholders of record as of January 31, 2019.
Very Strong Asset Quality
Credit quality remains very strong. Nonperforming assets were only 5 basis points of total assets at December 31, 2018.
The Bank had net charge-offs for the quarter of $1.9 million, while adding $25.1 million to its allowance for loan losses due to continued loan growth. During the full year, the Bank had net charge-offs of only $3.0 million, while adding $76.1 million to its allowance for loan losses.
Continued Capital Strength and Access to Capital Markets
The Bank’s Common Equity Tier 1 ratio was 10.38% at December 31, 2018, compared to 10.63% a year ago.
On December 28, 2018, the Bank redeemed all of the outstanding shares of its 7.00% Noncumulative Perpetual Series E Preferred Stock, which totaled $200.0 million.
On December 31, 2018, the Bank traded 2,000,000 new shares of common stock as part of an “at-the-market” equity offering program, in conjunction with the addition of our common stock in the S&P 500 Index prior to the market opening on January 2, 2019. This offering settled on January 3, 2019 and added approximately $170 million to common equity in the first quarter of 2019.
Tangible Book Value Growth
Tangible book value per common share at December 31, 2018 was $45.26, up 11.9% from a year ago.
Continued Franchise Development
Loan originations were $8.4 billion for the quarter, compared to $7.4 billion for the same quarter a year ago, up 12.2%. For 2018, loan originations totaled $32.1 billion, up 16.0% compared to the prior year. The increases for the quarter and year ended December 31, 2018 were primarily due to increases in multifamily and business lending, partially offset by a decline in single family refinance volume.
Loans, excluding loans held for sale, totaled $75.9 billion at December 31, 2018, up 20.7% compared to a year ago, primarily due to increases in single family, business and multifamily loans.
Total deposits increased to $79.1 billion, up 14.7% compared to a year ago.
At December 31, 2018, checking accounts totaled 59.6% of deposits.
Total investment securities at December 31, 2018 were $16.2 billion, a slight decrease for the quarter and a 12.6% decrease compared to a year ago.
High-quality liquid assets totaled $14.8 billion at December 31, 2018, and represented 15.4% of average total assets.
Mortgage Banking Activity
During the fourth quarter, the Bank sold $263.7 million of loans and recorded a gain on sale of $579,000, compared to loan sales of $969.2 million and a gain of $3.1 million during the fourth quarter of last year. Loan sales for the quarter and year ended December 31, 2018 included $251.9 million of multifamily loans sold through a securitization. For 2018, the Bank sold $1.2 billion of loans and recorded a gain on sale of $5.6 million.
Loans serviced for investors at year-end totaled $11.6 billion, down 7.4% from a year ago.
Continued Expansion of Wealth Management
Wealth management revenues totaled $119.6 million for the quarter, up 15.4% compared to last year’s fourth quarter. For all of 2018, wealth management revenues were $433.7 million, an increase of 21.7% compared to the prior year. Such revenues represented 14.8% of the Bank’s total revenues for the quarter and 14.2% of the Bank’s total revenues for the year, up from 13.6% for 2017.
Total wealth management assets were $126.2 billion at December 31, 2018, down 3.6% for the quarter, but up 18.0% compared to a year ago. The decline in wealth management assets for the quarter was due to market depreciation, partially offset by net new assets from both existing and new clients. The growth in wealth management assets for the year was due to net new assets from both existing and new clients, partially offset by market depreciation.
Wealth management assets included investment management assets of $60.6 billion, brokerage assets and money market mutual funds of $55.4 billion, and trust and custody assets of $10.2 billion.
Income Statement and Key Ratios
Strong Revenue Growth
Total revenues were $810.8 million for the quarter, up 16.0% compared to the fourth quarter a year ago and were $3.0 billion for 2018, up 16.6% compared to the prior year.
Strong Net Interest Income Growth
Net interest income was $667.2 million for the quarter, up 17.3% compared to the fourth quarter a year ago, and was $2.5 billion for 2018, up 16.3% compared to the prior year. The increases in net interest income resulted primarily from growth in average earning assets.
Net Interest Margin
The net interest margin was 2.98% for the fourth quarter, compared to 2.94% for the prior quarter. For 2018, the Bank’s net interest margin was 2.96%, compared to 3.13% for the prior year. The decline in net interest margin compared to the prior year was primarily the result of lower tax-equivalent yields on tax-advantaged investments and tax-exempt loans from the reduction of the federal tax rate for corporations from 35% to 21%.
Noninterest income was $143.5 million for the quarter, up 10.2% compared to the fourth quarter a year ago, and was $543.4 million for 2018, up 18.0% compared to the prior year. The increases were primarily from growth in wealth management revenues.
Noninterest Expense and Efficiency Ratio
Noninterest expense was $498.6 million for the quarter, up 11.9% compared to the fourth quarter a year ago. The increase for the quarter was primarily due to increased salaries and benefits, information systems and other expenses, partially offset by an $8.5 million decrease in FDIC assessments due to the elimination of an FDIC surcharge as of October 1, 2018. For 2018, noninterest expense was $1.9 billion, up 16.9% from the prior year, due to increased salaries and benefits, information systems and other expenses from the continued investments in the expansion of the franchise.
The efficiency ratio was 61.5% for the quarter, compared to 63.7% for the fourth quarter a year ago. For 2018, the efficiency ratio was 63.0%, compared to 62.8% for 2017.
Beginning in 2018, federal tax reform legislation reduced the federal tax rate for corporations from 35% to 21% and changed or limited certain tax deductions.
The Bank’s effective tax rate for the fourth quarter of 2018 was 19.4%, compared to 19.8% for the third quarter of 2018.
The effective tax rate for 2018 was 18.8%, compared to 16.9% for 2017. The increase in 2018 was primarily the result of lower tax benefits from a decrease in both stock option exercises and vesting of stock awards in 2018, partially offset by a one-time revaluation of deferred tax assets in 2017 and the decrease in the corporate federal tax rate in 2018. During 2017, the volume of stock option exercises by Bank employees and directors was elevated in response to tax reform legislation.
Conference Call Details
First Republic Bank’s fourth quarter and full year 2018 earnings conference call is scheduled for January 15, 2019 at 7:00 a.m. PT / 10:00 a.m. ET. To access the event by telephone, please dial (877) 407-0792 approximately 10 minutes prior to the start time (to allow time for registration). International callers should dial +1 (201) 689-8263.
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 firstrepublic.com. To listen to the live webcast, please visit the site at least 10 minutes prior to the start time to register, download and install any necessary audio software.
For those unable to join the live presentation, a replay of the call will be available beginning January 15, 2019, at 10:00 a.m. PT / 1:00 p.m. ET, through January 22, 2019, at 8:59 p.m. PT / 11:59 p.m. ET. To access the replay, dial (844) 512-2921 and use conference ID #13685747. International callers should dial +1 (412) 317-6671 and enter the same conference ID number. A replay of the webcast also will be available for 90 days following, accessible in the Investor Relations section of First Republic Bank’s website at firstrepublic.com.
The Bank’s press releases are available after release in the Investor Relations section of First Republic Bank’s website at firstrepublic.com.
About First Republic Bank
Founded in 1985, First Republic and its subsidiaries offer private banking, private business banking and private wealth management, including investment, trust and brokerage services. First Republic specializes in delivering exceptional, relationship-based service and offers a complete line of products, including residential, commercial and personal loans, deposit services, and wealth management. Services are offered through preferred banking or wealth management offices primarily in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach and San Diego, California; Portland, Oregon; Boston, Massachusetts; Palm Beach, Florida; Greenwich, Connecticut; New York, New York; and Jackson Hole, Wyoming. First Republic is a constituent of the S&P 500 Index and KBW Nasdaq Bank Index. For more information, visit firstrepublic.com.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this press release that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimates,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. 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: significant competition to attract and retain banking and wealth management customers, from both traditional and non-traditional financial services and technology companies; our ability to recruit and retain key managers, employees and board members; the possibility of earthquakes, fires and other natural disasters affecting the markets in which we operate; interest rate risk and credit risk; our ability to maintain and follow high underwriting standards; economic and market conditions, including those affecting the valuation of our investment securities portfolio, which could result in other-than-temporary impairment if the general economy deteriorates, credit ratings decline, the financial condition of issuers deteriorates, interest rates increase or the liquidity for securities is limited; real estate prices generally and in our markets; our geographic and product concentrations; demand for our products and services; the regulatory environment in which we operate, our regulatory compliance and future regulatory requirements; the impact of tax reform legislation; the phase-in of capital requirements under the Basel III framework, and any future changes to regulatory capital requirements; legislative and regulatory actions affecting us and the financial services industry, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), including increased compliance costs, limitations on activities and requirements to hold additional capital, as well as changes to the Dodd-Frank Act pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act; our ability to avoid litigation and its associated costs and liabilities; the impact of new accounting standards; future Federal Deposit Insurance Corporation (“FDIC”) special assessments or changes to regular assessments; fraud, cybersecurity and privacy risks; and custom technology preferences of our customers and our ability to successfully execute on initiatives relating to enhancements of our technology infrastructure, including client-facing systems and applications. 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 any subsequent reports filed by First Republic with the FDIC. 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. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout our public filings. 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 STATEMENTS OF INCOME
|(in thousands, except per share amounts)||2018||2017||2018||2018||2017|
|Cash and cash equivalents||6,703||2,863||6,896||23,197||11,850|
|Total interest income||828,655||662,801||780,038||3,031,606||2,451,618|
|Total interest expense||161,452||93,940||145,584||530,498||300,155|
|Net interest income||667,203||568,861||634,454||2,501,108||2,151,463|
|Provision for loan losses||25,089||17,042||18,633||76,092||60,181|
|Net interest income after provision for loan losses||642,114||551,819||615,821||2,425,016||2,091,282|
|Investment management fees||91,937||82,358||88,560||341,539||282,868|
|Brokerage and investment fees||8,097||6,832||7,207||31,867||26,666|
|Foreign exchange fee income||10,223||8,198||8,439||35,606||27,691|
|Loan and related fees||3,871||3,101||4,091||15,713||13,012|
|Loan servicing fees, net||3,446||3,932||3,151||13,302||13,800|
|Gain on sale of loans||579||3,065||303||5,616||9,233|
|Gain (loss) on investment securities, net||(1,313||)||—||(1,655||)||5,202||(833||)|
|Income from investments in life insurance||9,973||9,836||11,608||40,670||37,874|
|Total noninterest income||143,547||130,297||134,375||543,445||460,461|
|Salaries and employee benefits||281,021||250,076||279,248||1,109,228||930,908|
|Advertising and marketing||19,888||17,173||13,527||60,463||48,398|
|Total noninterest expense||498,582||445,543||483,999||1,916,719||1,639,541|
|Income before provision for income taxes||287,079||236,573||266,197||1,051,742||912,202|
|Provision for income taxes||55,661||42,296||52,651||197,914||154,542|
|Dividends on preferred stock||16,228||14,272||17,112||57,725||58,040|
|Net income available to common shareholders||$||215,190||$||180,005||$||196,434||$||796,103||$||699,620|
|Basic earnings per common share||$||1.31||$||1.12||$||1.20||$||4.89||$||4.44|
|Diluted earnings per common share||$||1.29||$||1.10||$||1.19||$||4.81||$||4.31|
|Weighted average shares—basic||164,804||160,371||163,048||162,948||157,624|
|Weighted average shares—diluted||167,100||164,197||165,498||165,612||162,340|
CONSOLIDATED BALANCE SHEETS
|($ in thousands)|| December 31, |
| September 30, |
| December 31, |
|Cash and cash equivalents||$||2,811,159||$||3,013,645||$||2,297,021|
|Investment securities available-for-sale||1,779,116||2,000,271||2,418,088|
|Investment securities held-to-maturity||14,436,973||14,294,769||16,157,945|
|Equity securities (fair value)||18,719||19,121||—|
|Single family (1-4 units)||37,955,252||36,213,714||31,508,468|
|Home equity lines of credit||2,542,713||2,543,652||2,735,612|
|Multifamily (5+ units)||10,357,839||9,779,693||8,640,233|
|Commercial real estate||6,677,440||6,459,654||6,083,152|
|Single family construction||645,924||654,643||591,066|
|Allowance for loan losses||(439,048||)||(415,825||)||(365,932||)|
|Loans held for sale||98,985||274,181||87,695|
|Investments in life insurance||1,376,579||1,361,473||1,330,652|
|Tax credit investments||1,057,541||1,074,834||1,107,546|
|Prepaid expenses and other assets||1,538,971||1,483,892||1,254,720|
|Premises, equipment and leasehold improvements, net||332,483||324,052||296,197|
|Goodwill and other intangible assets||273,974||277,625||290,221|
|Mortgage servicing rights||54,470||57,687||66,139|
LIABILITIES AND EQUITY
|Money market checking||10,317,436||9,708,305||9,251,504|
|Money market savings and passbooks||10,245,107||8,961,311||8,752,396|
|Certificates of deposit||11,377,515||11,254,268||7,234,794|
|Long-term FHLB advances||8,700,000||9,600,000||8,300,000|
|Additional paid-in capital||4,024,306||4,000,146||3,778,913|
|Accumulated other comprehensive loss||(19,383||)||(21,405||)||(3,840||)|
|Total Shareholders’ Equity||8,677,777||8,666,687||7,818,301|
|Total Liabilities and Shareholders’ Equity||$||99,205,204||$||96,094,222||$||87,780,507|
|Quarter Ended December 31,||Quarter Ended September 30,|
Average Balances, Yields
|($ in thousands)|
|Cash and cash equivalents||$||1,275,293||$||6,702||2.09||%||$||983,289||$||2,863||1.16||%||$||1,490,468||$||6,896||1.84||%|
U.S. Treasury and other U.S. Government agency securities
U.S. Government-sponsored agency securities
Agency residential and commercial MBS
Other residential and commercial MBS
Municipal securities (3)
|Other investment securities (4)||18,955||120||2.54||%||20,387||116||2.29||%||19,669||115||2.34||%|
Total investment securities
|Residential real estate||39,587,922||325,318||3.28||%||33,550,612||254,200||3.03||%||37,929,270||306,521||3.23||%|
|Commercial real estate||6,612,822||70,319||4.16||%||5,938,936||61,489||4.05||%||6,369,984||67,360||4.14||%|
|FHLB stock (5)||293,331||10,122||13.69||%||282,150||4,842||6.81||%||298,880||5,237||6.95||%|
Total interest-earning assets
|Goodwill and other intangibles||275,645||292,505||279,523|
Total noninterest-earning assets
Liabilities and Equity:
Money market checking and savings
|Long-term FHLB advances||9,201,630||46,365||2.00||%||8,159,783||31,390||1.53||%||9,681,793||46,872||1.92||%|
|Senior notes (6)||896,223||5,931||2.65||%||894,519||5,919||2.65||%||895,791||5,928||2.65||%|
|Subordinated notes (6)||777,427||9,099||4.68||%||777,038||9,095||4.68||%||777,328||9,098||4.68||%|
Total interest-bearing liabilities
Total Liabilities and Equity