First Republic Reports Strong Second Quarter 2017 Results

SAN FRANCISCO--(BUSINESS WIRE)--First Republic Bank (NYSE: FRC) today announced financial results for the quarter ended June 30, 2017.

“First Republic had a very good quarter, driven by strong growth of loans, deposits and wealth management assets,” said Jim Herbert, Chairman and CEO. “Credit quality remains excellent, and the Bank continues to be well-capitalized.”

Quarterly Highlights

Financial Results

– Year-over-year:

– Revenues were $641.3 million, up 19.9%.

– Net interest income was $532.0 million, up 20.5%.

– Net income was $186.6 million, up 13.1%.

– Diluted earnings per share of $1.06, up 9.3%.

– Tangible book value per share was $37.83, up 16.3%.

– Loan originations totaled $7.3 billion, our second best quarter ever.

– Net interest margin was 3.16%, compared to 3.13% for the prior quarter.

– Efficiency ratio was 61.9%.

Continued Capital and Credit Strength

– Total regulatory capital has grown 27.4% from a year ago.

– Common Equity Tier 1 ratio was 10.72%, compared to 10.74% a year ago.

– Nonperforming assets remained very low at 6 basis points of total assets.

– Net charge-offs were less than 1 basis point of average loans.

– Provision for loan losses totaled $23.9 million for the quarter, reflecting strong loan growth.

Continued Franchise Development

– Year-over-year:

– Loans, excluding loans held for sale, totaled $57.8 billion, up 21.3%.

– Deposits were $63.3 billion, up 23.7%.

– Wealth management assets were $95.4 billion, up 25.9%.

– Wealth management revenues were $86.3 million, up 22.2%.

“We’re very pleased with the 20% year-over-year increase in net interest income for the quarter and the 16% increase in tangible book value per share,” said Mike Roffler, Chief Financial Officer. “We continued to successfully access the capital markets and raised both debt and equity on attractive terms during the quarter.”

Quarterly Cash Dividend Declared

The Bank declared a cash dividend for the second quarter of $0.17 per share of common stock, which is payable on August 10, 2017 to shareholders of record as of July 27, 2017.

Very Strong Asset Quality

Credit quality remains very strong. Nonperforming assets were only 6 basis points of total assets at June 30, 2017.

The Bank had net charge-offs for the quarter of only $609,000, while adding $23.9 million to its allowance for loan losses. The provision for loan losses was entirely due to loan growth, including an increase in the utilization rate of business lines of credit to 37% at quarter-end, compared to 29% last quarter-end.

Continued Capital Strength and Access to Capital Markets

Total regulatory capital has grown 27.4% from a year ago.

The Bank’s Common Equity Tier 1 ratio was 10.72% at June 30, 2017, compared to 10.74% a year ago.

During the second quarter, the Bank issued $200.0 million of 5.125% Noncumulative Perpetual Series H Preferred Stock, which qualifies as Tier 1 capital, and redeemed the $150.0 million 6.20% Noncumulative Perpetual Series B Preferred Stock.

During the second quarter, the Bank completed a public offering of $500.0 million of 2.50%, fixed-rate, 5-year term, unsecured senior notes.

Tangible Book Value Growth

Tangible book value per common share at June 30, 2017 was $37.83, up 16.3% from a year ago.

Continued Franchise Development

Strong Loan Originations

Loan originations were $7.3 billion for the quarter, our second best quarter for loan volume. Loan originations were up 12.1% compared to the second quarter a year ago primarily due to increases in single family, construction and business loans.

Loans, excluding loans held for sale, totaled $57.8 billion at June 30, 2017, up 11.1% for the first six months of 2017 and up 21.3% compared to a year ago.

Deposit Growth

Total deposits increased to $63.3 billion, up 8.0% for the first six months of 2017 and up 23.7% compared to a year ago.

At June 30, 2017, checking accounts totaled 63.4% of deposits.

The average rate paid on deposits was 0.18% during the quarter, compared to 0.15% for the prior quarter and 0.13% for the second quarter a year ago.

Investments

Total investment securities at June 30, 2017 were $16.9 billion, up 11.4% for the first six months of 2017 and up 45.6% compared to a year ago.

High-quality liquid assets, including eligible cash, represented 12.8% of average total assets for the second quarter of 2017 and totaled $9.9 billion at June 30, 2017.

Mortgage Banking Activity

During the second quarter, the Bank sold $439.8 million of loans and recorded a gain on sale of $841,000, compared to loan sales of $920.8 million and a gain of $822,000 during the second quarter of last year.

Loans serviced for investors at quarter-end totaled $11.8 billion, up 6.6% from a year ago. Net loan servicing fees for the quarter were $3.6 million, up 1.9% from a year ago.

Continued Expansion of Wealth Management

Wealth management revenues totaled $86.3 million for the quarter, up 22.2% compared to last year’s second quarter. Such revenues represented 13.5% of the Bank’s total revenues for the quarter.

Total wealth management assets were $95.4 billion at June 30, 2017, up 14.2% for the first six months of 2017 and up 25.9% compared to a year ago. The growth in wealth management assets was due to both net new assets from existing and new clients and market appreciation.

Wealth management assets included investment management assets of $47.5 billion, brokerage assets and money market mutual funds of $39.1 billion, and trust and custody assets of $8.8 billion.

Income Statement and Key Ratios

Highlights

Strong Revenue Growth

Total revenues were $641.3 million for the quarter, up 19.9% compared to the second quarter a year ago.

Continued Net Interest Income Growth

Net interest income was $532.0 million for the quarter, up 20.5% compared to the second quarter a year ago. The increase in net interest income resulted primarily from growth in average earning assets.

Net Interest Margin

The Bank’s net interest margin was 3.16% for the second quarter, compared to 3.13% for the prior quarter.

Noninterest Income

Noninterest income was $109.4 million for the quarter, up 17.0% compared to the second quarter a year ago. The increase was primarily from growth in wealth management revenues.

Noninterest Expense and Efficiency Ratio

Noninterest expense was $397.1 million for the quarter, up 24.1% from the second quarter of last year. The efficiency ratio was 61.9% for the quarter, compared to 63.0% for the prior quarter and 59.8% for the second quarter a year ago.

The increase in noninterest expense from the second quarter of last year was primarily due to increased salaries and benefits, information systems and occupancy costs from the continued investments in the expansion of the franchise.

Income Tax Rate

The Bank’s effective tax rate for the second quarter of 2017 was 15.3%, compared to 17.2% for the prior quarter. The decrease in the effective tax rate resulted from increased tax benefits from vesting of share-based awards.

Conference Call Details

First Republic Bank’s second quarter 2017 earnings conference call is scheduled for July 14, 2017 at 7:00 a.m. PT / 10:00 a.m. ET. To access the event by telephone, please dial (855) 224-3902 approximately 10 minutes prior to the start time (to allow time for registration) and use conference ID #39414733. International callers should dial (734) 823-3244 and enter the same conference ID number.

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 July 14, 2017, at 10:30 a.m. PT / 1:30 p.m. ET, through July 21, 2017, at 8:59 p.m. PT / 11:59 p.m. ET. To access the replay, dial (855) 859-2056 and use conference ID #39414733. International callers should dial (404) 537-3406 and enter the same conference ID number. A replay of the webcast also will be available for 90 days following the call, 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, with a solid commitment to responsiveness and action. 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; and New York, New York. First Republic offers a complete line of banking products for individuals and businesses, including deposit services, as well as residential, commercial and personal loans. For more information, visit 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. 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, our progress in preparing for, and our compliance with, any enhanced regulatory requirements, 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: significant competition to attract and retain banking and wealth management customers, from both traditional and nontraditional financial services and technology companies; our ability to recruit and retain key managers, employees and board members; the possibility of earthquakes 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 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 phase-in of the final capital rules regarding the Basel III framework, changes to the definitions and components of regulatory capital and a new approach for risk-weighted assets; legislative and regulatory actions affecting us and the financial services industry, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, including increased compliance costs, limitations on activities and requirements to hold additional capital; our ability to avoid litigation and its associated costs and liabilities; the impact of new accounting standards; future 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. 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.