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First Republic Reports Third Quarter 2021 Results

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Net Interest Income Increased 26.7% Year-Over-Year

SAN FRANCISCO, October 13, 2021--(BUSINESS WIRE)--First Republic Bank (NYSE: FRC) today announced financial results for the quarter ended September 30, 2021.

"First Republic had another strong quarter of growth in loans, deposits and wealth management assets," said Jim Herbert, Founder, Chairman and Co-CEO. "Our client-centric business model continues to perform very well across all our segments and markets."

"This was another successful quarter for First Republic," said Hafize Gaye Erkan, Co-CEO and President. "Credit quality remains excellent, further reflecting the safety and stability of First Republic."

Quarterly Highlights

Financial Results

– Year-over-year:

– Revenues were $1.3 billion, up 30.1%.

– Net interest income was $1.1 billion, up 26.7%.

– Net income was $369.7 million, up 26.1%.

– Diluted earnings per share of $1.91, up 18.6%.

– Tangible book value per share was $65.19, up 18.5%.

– Loan originations totaled $15.5 billion, our strongest third quarter ever.

– Net interest margin was 2.65%, compared to 2.68% for the prior quarter.

– Efficiency ratio was 61.3%, compared to 62.0% for the prior quarter.

Continued Capital and Credit Strength

– Tier 1 leverage ratio was 8.55%.

– Nonperforming assets were at a very low 7 basis points of total assets.

– Net charge-offs were only $292,000, or less than 1 basis point of average loans.

Continued Franchise Growth

– Year-over-year:

– Loans totaled $128.4 billion, up 22.5%.

– Deposits were $145.3 billion, up 39.2%.

– Wealth management assets were $251.7 billion, up 49.7%.

– Wealth management revenues were $209.3 million, up 65.1%.

"Revenue and net interest income growth were very strong during the third quarter," said Mike Roffler, Chief Financial Officer. "We’re also pleased to have accessed the capital markets twice during the quarter, raising $1.2 billion."

Quarterly Cash Dividend of $0.22 per Share

The Bank declared a cash dividend for the third quarter of $0.22 per share of common stock, which is payable on November 12, 2021 to shareholders of record as of October 28, 2021.

Strong Asset Quality

Credit quality remains strong. Nonperforming assets were at a very low 7 basis points of total assets at September 30, 2021. The Bank had modest net loan charge-offs of only $292,000 for the quarter.

During the third quarter, the Bank recorded a provision for credit losses of $34.0 million, which was primarily driven by loan growth.

Continued Book Value Growth and Capital Strength

Book value per common share at September 30, 2021 was $66.44, up 17.9% from a year ago. Tangible book value per common share at September 30, 2021 was $65.19, up 18.5% from a year ago.

The Bank’s Tier 1 leverage ratio was 8.55% at September 30, 2021, compared to 8.05% at June 30, 2021.

During the third quarter, the Bank issued $750.0 million of 4.000% Noncumulative Perpetual Series M Preferred Stock, which qualifies as Tier 1 capital.

In addition, the Bank sold 2,300,000 new shares of common stock in an underwritten public offering, which added approximately $443.9 million to common equity.

Total common stock sold and preferred stock issued, net of preferred stock redeemed, added approximately $1.2 billion and $2.1 billion of Tier 1 capital in the third quarter and first nine months of 2021, respectively, and contributed to the 30.5% increase in total equity year-over-year.

Continued Franchise Growth

Loan Originations

Loan originations were $15.5 billion for the quarter, up 26.3% from the same quarter a year ago. This was primarily due to increases in capital call lines of credit and commercial real estate lending.

Single family loan originations were 45% of the total volume for the quarter and had a weighted average loan-to-value ratio of 60%. Multifamily and commercial real estate loans originated were 12% of total originations for the quarter and had a weighted average loan-to-value ratio of 47%.

Loans totaled $128.4 billion at September 30, 2021, up 22.5% compared to a year ago, primarily due to increases in single family, capital call lines of credit and multifamily loans, partially offset by a decrease in loans under the Small Business Administration’s Paycheck Protection Program ("PPP").

Deposit Growth

Total deposits increased to $145.3 billion, up 39.2% compared to a year ago, and had an average rate paid of 6 basis points during the quarter.

At September 30, 2021, checking deposit balances were 68.8% of total deposits.

Investments

Total investment securities at September 30, 2021 were $24.2 billion, a 5.6% increase compared to the prior quarter and a 29.6% increase compared to a year ago.

High-quality liquid assets, including eligible cash, totaled $28.6 billion at September 30, 2021, and represented 16.7% of quarterly average total assets.

Wealth Management

Total wealth management assets were $251.7 billion at September 30, 2021, up 4.5% compared to the prior quarter and up 49.7% compared to a year ago. The increases in wealth management assets were due to net client inflow and market appreciation.

Wealth management revenues totaled $209.3 million for the quarter, up 65.1% compared to last year’s third quarter. Such revenues represented 16.1% of the Bank’s total revenues for the quarter.

Wealth management assets at September 30, 2021 included investment management assets of $101.1 billion, brokerage assets and money market mutual funds of $133.9 billion, and trust and custody assets of $16.8 billion.

Income Statement and Key Ratios

Revenue Growth

Total revenues were $1.3 billion for the quarter, up 30.1% compared to the third quarter a year ago.

Net Interest Income Growth

Net interest income was $1.1 billion for the quarter, up 26.7% compared to the third quarter a year ago. The increase in net interest income resulted primarily from growth in average interest-earning assets, modestly offset by a decrease in net interest margin.

Net Interest Margin

The net interest margin declined to 2.65% in the third quarter, from 2.68% in the prior quarter. The modest decline was primarily due to higher average cash balances during the quarter.

Noninterest Income

Noninterest income was $250.4 million for the quarter, up 46.4% compared to the third quarter a year ago. The increase was primarily driven by higher wealth management fees, partially offset by lower gain on sale of loans. Such gain was elevated in the third quarter a year ago due to realized discounts on previously purchased loans when these loans were sold.

Noninterest Expense and Efficiency Ratio

Noninterest expense was $798.5 million for the quarter, up 31.3% compared to the third quarter a year ago. The increase was primarily due to increased salaries, incentive compensation and benefits, information systems and occupancy costs from the continued investments in the expansion of the franchise, and higher professional fees.

The efficiency ratio was 61.3% for the quarter, compared to 60.7% for the third quarter a year ago. For the first nine months of 2021, the efficiency ratio was 62.2%, compared to 62.0% for the first nine months of 2020.

Income Taxes

The Bank’s effective tax rate for the third quarter of 2021 was 21.4%, compared to 19.6% for the third quarter a year ago. The increase was primarily due to the prior year including a tax refund from an amended tax return.

Conference Call Details

First Republic Bank’s third quarter 2021 earnings conference call is scheduled for October 13, 2021 at 7:00 a.m. PT / 10:00 a.m. ET. To access the event by telephone, please dial (888) 394-8218 and provide confirmation code 9610366 approximately 15 minutes prior to the start time (to allow time for registration). International callers should dial +1 (856) 344-9221 and provide the same confirmation code.

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 ir.firstrepublic.com/events-calendar. To listen to the live webcast, please visit the site at least 15 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 October 13, 2021 at 11:00 a.m. PT / 2:00 p.m. ET through October 20, 2021 at 8:59 p.m. PT / 11:59 p.m. ET. To access the replay, dial (888) 203-1112 and use confirmation code 9610366#. International callers should dial +1 (719) 457-0820 and enter the same confirmation code. 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 ir.firstrepublic.com/events-calendar.

The Bank’s press releases are available after release in the Newsroom and 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, Wyoming. First Republic is a constituent of the S&P 500 Index and KBW Nasdaq Bank Index. For more information, visit firstrepublic.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this press release that are not historical facts are hereby identified as "forward-looking statements" for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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.

Forward-looking statements involving such risks and uncertainties include, but are not limited to, statements regarding: projections of loans, assets, deposits, liabilities, revenues, expenses, tax liabilities, net income, capital expenditures, liquidity, dividends, capital structure, investments or other financial items; expectations regarding the banking and wealth management industries; descriptions of plans or objectives of management for future operations, products or services; forecasts of future economic conditions generally and in our market areas in particular, which may affect the ability of borrowers to repay their loans and the value of real property or other property held as collateral for such loans; our opportunities for growth and our plans for expansion (including opening new offices); expectations about the performance of any new offices; projections about the amount and the value of intangible assets, as well as amortization of recorded amounts; future provisions for credit losses on loans and debt securities, as well as for unfunded loan commitments; changes in nonperforming assets; expectations regarding the impact and duration of COVID-19; projections about future levels of loan originations or loan repayments; projections regarding costs, including the impact on our efficiency ratio; and descriptions of assumptions underlying or relating to any of the foregoing.

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; natural or other disasters, including earthquakes, wildfires, pandemics or acts of terrorism affecting the markets in which we operate; the negative impacts and disruptions resulting from COVID-19 on our colleagues and clients, the communities we serve and the domestic and global economy, which may have an adverse effect on our business, financial position and results of operations; 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 and credit losses on our loans and debt securities; real estate prices generally and in our markets; our geographic and product concentrations; demand for our products and services; developments and uncertainty related to the future use and availability of some reference rates, such as the London Interbank Offered Rate and the 11th District Monthly Weighted Average Cost of Funds Index, as well as other alternative reference rates; the regulatory environment in which we operate, our regulatory compliance and future regulatory requirements; 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; 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 under the Exchange Act. 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.

Non-GAAP Financial Measures

Our management uses and believes that investors benefit from using certain non-GAAP measures of our financial performance, which include tangible book value per common share, return on average tangible common shareholders’ equity, and net interest income on a fully taxable-equivalent basis. Management believes that tangible book value per common share and return on average tangible common shareholders’ equity are useful additional measures to evaluate our performance and capital position without the impact of goodwill and other intangible assets and preferred stock. In addition, to facilitate relevant comparisons of net interest income from taxable and tax-exempt interest-earning assets, when calculating yields and net interest margin, we adjust interest income on tax-exempt securities and tax-advantaged loans so such amounts are fully equivalent to interest income on taxable sources. We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information that is not otherwise required by GAAP or other applicable requirements. These non-GAAP financial measures should be considered in addition to, not as a substitute for, financial measures prepared in accordance with GAAP. A reconciliation of the non-GAAP calculation of the financial measure to the most comparable GAAP financial measure is presented in relevant tables in this document.

CONSOLIDATED STATEMENTS OF INCOME

Quarter Ended
September 30,

Quarter Ended
June 30,

Nine Months Ended
September 30,

(in thousands, except per share amounts)

2021

2020

2021

2021

2020

Interest income:

Loans

$

946,846

$

811,708

$

912,885

$

2,732,901

$

2,399,646

Investments

161,017

142,971

156,947

458,675

438,055

Other

4,677

6,116

5,103

14,969

18,135

Cash and cash equivalents

5,131

1,181

3,070

11,095

5,685

Total interest income

1,117,671

961,976

1,078,005

3,217,640

2,861,521

Interest expense:

Deposits

22,410

54,355

24,096

74,077

245,680

Borrowings

42,977

77,341

50,044

148,632

246,017

Total interest expense

65,387

131,696

74,140

222,709

491,697

Net interest income

1,052,284

830,280

1,003,865

2,994,931

2,369,824

Provision for credit losses

34,025

28,538

16,143

35,560

122,025

Net interest income after provision for credit

losses

1,018,259

801,742

987,722

2,959,371

2,247,799

Noninterest income:

Investment management fees

148,491

96,638

136,516

404,049

281,017

Brokerage and investment fees

22,644

10,796

17,574

54,782

39,028

Insurance fees

5,918

2,216

2,668

11,660

6,086

Trust fees

6,231

4,543

6,245

18,207

14,118

Foreign exchange fee income

26,032

12,575

20,612

63,811

34,864

Deposit fees

6,849

5,753

6,618

19,636

17,598

Loan and related fees

8,336

7,171

8,877

24,698

20,741

Loan servicing fees, net

548

144

1,057

3,093

(2,649

)

Gain on sale of loans

140

13,797

58

507

14,575

Gain (loss) on investment securities

2,139

(405

)

1,329

4,123

3,752

Income from investments in life insurance

20,328

20,546

21,457

58,334

36,506

Other income (loss)

2,702

(2,791

)

3,597

9,917

960

Total noninterest income

250,358

170,983

226,608

672,817

466,596

Noninterest expense:

Salaries and employee benefits

514,499

373,225

481,503

1,459,406

1,078,633

Information systems

90,941

74,549

88,980

263,437

219,301

Occupancy

66,953

55,543

63,526

188,028

164,125

Professional fees

27,911

19,845

25,475

74,640

48,479

Advertising and marketing

13,620

8,909

16,560

42,813

29,373

FDIC assessments

13,368

11,003

13,254

38,522

32,463

Other expenses

71,239

65,136

73,467

214,846

187,311

Total noninterest expense

798,531

608,210

762,765

2,281,692

1,759,685

Income before provision for income taxes

470,086

364,515

451,565

1,350,496

954,710

Provision for income taxes

100,399

71,378

78,459

272,870

186,119

Net income

369,687

293,137

373,106

1,077,626

768,591

Dividends on preferred stock

24,427

14,816

23,655

66,607

42,653

Net income available to common shareholders

$

345,260

$

278,321

$

349,451

$

1,011,019

$

725,938

Basic earnings per common share

$

1.94

$

1.62

$

1.98

$

5.73

$

4.23

Diluted earnings per common share

$

1.91

$

1.61

$

1.95

$

5.66

$

4.21

Weighted average shares—basic

178,065

172,142

176,419

176,446

171,537

Weighted average shares—diluted

180,420

172,932

178,864

178,757

172,514

CONSOLIDATED BALANCE SHEETS

As of

($ in thousands)

September 30,
2021

June 30,
2021

December 31,
2020

September 30,
2020

ASSETS

Cash and cash equivalents

$

12,279,447

$

7,876,952

$

5,094,754

$

3,691,149

Debt securities available-for-sale

2,960,571

2,634,983

1,906,315

1,711,202

Debt securities held-to-maturity, net

21,192,537

20,236,298

16,603,310

16,923,706

Equity securities (fair value)

31,682

29,550

20,566

20,478

Loans:

Single family

73,490,788

69,908,787

61,370,246

56,628,359

Home equity lines of credit

2,429,152

2,441,034

2,449,533

2,431,991

Single family construction

984,835

877,548

787,854

739,091

Multifamily

15,416,780

14,803,219

13,768,957

13,392,531

Commercial real estate

8,486,124

8,234,934

8,018,158

7,781,797

Multifamily/commercial construction

2,064,107

2,060,980

2,024,420

2,038,949

Capital call lines of credit

9,088,424

8,127,473

8,149,946

6,203,877

Tax-exempt

3,577,586

3,566,385

3,365,572

3,276,705

Other business

3,553,875

3,656,598

3,340,048

2,982,532

PPP

876,487

1,374,765

1,841,376

2,091,102

Stock secured

3,120,176

2,965,857

2,518,338

2,311,754

Other secured

2,261,224

2,051,617

1,818,550

1,780,652

Unsecured

3,025,536

3,047,981

3,113,267

3,102,311

Total loans

128,375,094

123,117,178

112,566,265

104,761,651

Allowance for credit losses

(668,186

)

(636,910

)

(635,019

)

(604,747

)

Loans, net

127,706,908

122,480,268

111,931,246

104,156,904

Loans held for sale

3,782

3,169

20,679

33,655

Investments in life insurance

2,627,940

2,597,637

2,061,362

1,949,360

Tax credit investments

1,180,690

1,224,114

1,131,905

1,099,713

Premises, equipment and leasehold improvements, net

430,675

418,725

403,482

390,241

Goodwill and other intangible assets

223,183

224,497

227,512

229,185

Other assets

3,933,088

3,920,541

3,101,003

3,020,178

Total Assets

$

172,570,503

$

161,646,734

$

142,502,134

$

133,225,771

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:

Deposits:

Noninterest-bearing checking

$

65,833,005

$

59,449,158

$

46,281,112

$

41,538,676

Interest-bearing checking

34,089,265

32,165,327

30,603,221

26,081,189

Money market checking

21,860,807

20,373,535

16,778,884

15,868,769

Money market savings and passbooks

15,946,902

14,747,597

12,584,522

11,419,289

Certificates of deposit

7,596,366

7,921,218

8,681,061

9,495,453

Total Deposits

145,326,345

134,656,835

114,928,800

104,403,376

Short-term borrowings

5,000

Long-term FHLB advances

7,700,000

9,000,000

11,755,000

13,505,000

Senior notes

997,722

997,193

996,145

995,626

Subordinated notes

778,648

778,535

778,313

778,204

Other liabilities

2,965,994

2,939,444

2,293,230

2,193,956

...