First Republic Reports Strong Third Quarter 2019 Results

First Republic Bank (NYSE: FRC) today announced financial results for the quarter ended September 30, 2019.

“Third quarter results were very strong,” said Jim Herbert, Chairman, CEO & Founder. “Loans, deposits and wealth management assets grew nicely. Our client-focused business model continues to perform very well.”

Quarterly Highlights

Financial Results

• Year-over-year:
  • Revenues were $837.2 million, up 8.9%.
  • Net interest income was $695.0 million, up 9.5%.
  • Net income was $234.8 million, up 10.0%.
  • Diluted earnings per share of $1.31, up 10.1%.
  • Tangible book value per share was $48.84, up 11.0%.
• Loan originations totaled $11.1 billion, our strongest quarter ever.
• Net interest margin was 2.80%, compared to 2.85% last quarter.
• Efficiency ratio was 63.8%, compared to 64.5% last quarter.

Continued Capital and Credit Strength

• Common Equity Tier 1 ratio was 9.91%, compared to 10.47% a year ago.
• Nonperforming assets remained at a low 12 basis points of total assets.
• Net charge-offs were only $4.3 million, or 2 basis points of average loans.

Continued Franchise Development

• Year-over-year:
  • Loans, excluding loans held for sale, totaled $86.3 billion, up 19.3%.
  • Deposits were $85.7 billion, up 14.7%.
  • Wealth management assets were $140.2 billion, up 7.1%.
  • Wealth management revenues were $114.8 million, up 4.7%.

“We’re pleased with year-over-year revenue growth of 9%,” said Mike Roffler, Chief Financial Officer. “Loan volume for the quarter was another record, and credit quality and capital strength remain excellent.”

Quarterly Cash Dividend Declared

The Bank declared a cash dividend for the third quarter of $0.19 per share of common stock, which is payable on November 14, 2019 to shareholders of record as of October 31, 2019.

Very Strong Asset Quality

Credit quality remains strong. Nonperforming assets were only 12 basis points of total assets at September 30, 2019.

The Bank had net charge-offs for the quarter of $4.3 million, while adding $16.7 million to its allowance for loan losses due to continued loan growth.

Continued Capital Strength

The Bank’s Common Equity Tier 1 ratio was 9.91% at September 30, 2019, compared to 10.47% a year ago.

As previously announced, the Bank will redeem its $190.0 million of 5.50% Noncumulative Perpetual Series D Preferred Stock on October 18, 2019.

Tangible Book Value Growth

Tangible book value per common share at September 30, 2019 was $48.84, up 11.0% from a year ago.

Continued Franchise Development

Loan Originations

Loan originations were $11.1 billion for the quarter, up 58.4% compared to the same quarter a year ago, primarily due to increases in single family and business lending.

Loans, excluding loans held for sale, totaled $86.3 billion at September 30, 2019, up 19.3% compared to a year ago, primarily due to increases in single family, multifamily, business, and commercial real estate loans.

Deposit Growth

Total deposits increased to $85.7 billion, up 14.7% compared to a year ago.

At September 30, 2019, checking accounts totaled 58.5% of deposits.

Investments

Total investment securities at September 30, 2019 were $17.4 billion, up 7.7% compared to the prior quarter and up 6.8% compared to a year ago.

High-quality liquid assets, including eligible cash, totaled $13.6 billion at September 30, 2019, and represented 12.7% of average total assets.

Wealth Management

Wealth management revenues totaled $114.8 million for the quarter, up 4.7% compared to last year’s third quarter. Such revenues represented 13.7% of the Bank’s total revenues for the quarter.

Total wealth management assets were $140.2 billion at September 30, 2019, up 1.9% for the quarter and up 7.1% compared to a year ago. The increases in wealth management assets were driven by net new assets from existing and new clients, and market appreciation.

Wealth management assets included investment management assets of $61.2 billion, brokerage assets and money market mutual funds of $67.5 billion, and trust and custody assets of $11.6 billion.

Income Statement and Key Ratios

Revenue Growth

Total revenues were $837.2 million for the quarter, up 8.9% compared to the third quarter a year ago.

Net Interest Income Growth

Net interest income was $695.0 million for the quarter, up 9.5% compared to the third quarter a year ago. The increase in net interest income resulted primarily from growth in average earning assets.

Net Interest Margin

The net interest margin was 2.80% for the third quarter, compared to 2.85% for the prior quarter. The decline was primarily due to a more rapid decrease in the average yield on loans, compared to the offsetting decrease in total funding costs.

Noninterest Income

Noninterest income was $142.2 million for the quarter, up 5.8% compared to the third quarter a year ago. The increase was primarily from growth in brokerage and investment fees and foreign exchange fee income, partially offset by a decline in investment management fees attributable to the departure of wealth managers in the second quarter.

Noninterest Expense and Efficiency Ratio

Noninterest expense was $534.0 million for the quarter, up 10.3% compared to the third quarter a year ago. The increase was primarily due to increased salaries and benefits, occupancy and information systems expenses from the continued investments in the expansion of the franchise.

The efficiency ratio was 63.8% for the quarter, compared to 63.0% for the third quarter a year ago. For the first nine months of 2019, the efficiency ratio was 64.4%.

Income Taxes

The Bank’s effective tax rate for the third quarter of 2019 was 18.0%, compared to 19.8% for the third quarter a year ago. For the first nine months of 2019, the Bank’s effective tax rate was 17.0%, compared to 18.6% a year ago. The decreases were primarily the result of higher excess tax benefits from an increase in stock option exercises by employees.

Conference Call Details

First Republic Bank’s third quarter 2019 earnings conference call is scheduled for October 15, 2019 at 7:00 a.m. PT / 10:00 a.m. ET. To access the event by telephone, please dial (800) 353-6461 and use confirmation code #7297625 approximately 10 minutes prior to the start time (to allow time for registration). International callers should dial +1 (334) 323-0501 and enter 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 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 October 15, 2019, at 11:00 a.m. PT / 2:00 p.m. ET, through October 22, 2019, at 8:59 p.m. PT / 11:59 p.m. ET. To access the replay, dial (888) 203-1112 and use confirmation code #7297625. 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 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, 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.

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; developments and uncertainty related to the future use and availability of reference rates, such as the London Interbank Offered Rate and the 11th District Monthly Weighted Average Cost of Funds Index; the regulatory environment in which we operate, our regulatory compliance and future regulatory requirements; the impact of tax reform legislation; 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 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.