First Republic Reports Strong Quarterly and Annual Results

First Republic Bank (NYSE:FRC) today announced financial results for the quarter and year ended December 31, 2016.

“Results for the fourth quarter 2016 and full year were very strong and were a record in many respects,” said Jim Herbert, Chairman and CEO. “Asset quality remains excellent. We are also pleased to have completed the acquisition of Gradifi, the leading provider of student debt repayment benefit plans.”

Full Year Highlights

Financial Results

– Revenues for the year were $2.2 billion, up 20.1%.

– Net income was $673.4 million, up 29.0%.

– Diluted earnings per share (“EPS”) of $3.93, up 23.6%.

– Loan originations were a record $25.7 billion for the year.

– Efficiency ratio of 60.5%, compared to 59.5% for the prior year.

Continued Capital and Credit Strength

– Common Equity Tier 1 ratio was 10.75%.

– Total regulatory capital has grown 27.3% from a year ago (23.8% (1) after the redemption of Series A Preferred Stock).

– Tangible book value per share was $35.35, up 17.2% from a year ago.

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

– Net charge-offs were only $1.9 million for the year, less than a basis point of average loans.

Continued Franchise Development

– Loans outstanding, excluding loans held for sale, totaled $52.0 billion, up 17.8% from a year ago.

– Deposits were $58.6 billion, up 22.4% from a year ago.

– Wealth management assets were $83.6 billion, up 15.6% from a year ago.

– Wealth management revenues were $291.3 million, up 25.7% from a year ago.

– Acquired Gradifi, Inc. (“Gradifi”), the leading provider of student debt repayment benefit plans nationwide, in December 2016.

Quarterly Highlights

– Compared to last year’s fourth quarter:

– Revenues were $599.5 million, up 21.1%.

– Net income was $179.1 million, up 27.9%.

– Diluted EPS of $1.03, up 22.6%.

– Loan originations were a record $7.9 billion for the quarter.

– Net interest margin was 3.16% for both the fourth quarter of 2016 and the prior quarter.

– Core net interest margin was 3.08%, compared to 3.11% for the prior quarter. (2)

– Efficiency ratio was 60.1%, compared to 60.5% for the prior quarter.

– Wealth management assets were $83.6 billion, up 4.2% from the prior quarter.

“Revenue growth was strong, and net interest margin remained stable,” said Mike Roffler, Chief Financial Officer. “During the fourth quarter, we were pleased to complete another successful common stock offering, bringing total new capital raised in 2016 to over $1 billion.”

Quarterly Cash Dividend Declared

The Bank declared a cash dividend for the fourth quarter of $0.16 per share of common stock, which is payable on February 9, 2017 to shareholders of record as of January 26, 2017.

Continued Strong Asset Quality

Credit quality remains very strong. Nonperforming assets were 7 basis points of total assets at December 31, 2016.

The Bank had net charge-offs for the quarter of $207,000, while adding $10.5 million to its allowance for loan losses due to continued loan growth. Net charge-offs for the year were $1.9 million. A total of $47.2 million was added to the Bank’s allowance for loan losses during the year.

Continued Capital Strength

Total regulatory capital has grown 27.3% from a year ago (23.8% (1) after the redemption of Series A Preferred Stock).

The Bank’s Common Equity Tier 1 ratio was 10.75% at December 31, 2016, compared to 10.52% last quarter.

During the fourth quarter, the Bank issued and sold approximately 4.0 million new shares of common stock in an underwritten public offering, which added approximately $325 million to common equity.

Tangible Book Value Growth

Tangible book value per common share at December 31, 2016 was $35.35, up 17.2% from a year ago.

Continued Franchise Development

Loan Originations

Loan originations were a record $7.9 billion for the quarter, compared to $4.7 billion for the fourth quarter a year ago. For 2016, loans originations totaled $25.7 billion, compared to $19.7 billion for the prior year.

Loans outstanding, excluding loans held for sale, totaled $52.0 billion at December 31, 2016, up 4.3% for the quarter and up 17.8% compared to a year ago.

Deposit Growth

Total deposits increased to $58.6 billion, up 6.4% for the quarter and up 22.4% compared to a year ago.

At December 31, 2016, checking accounts totaled 63.7% of deposits.

The average rate paid on deposits was 15 basis points for both the fourth quarter and the prior quarter.

Investments

Total investment securities at December 31, 2016 were $15.2 billion, up 18.4% for the quarter and up 45.0% compared to a year ago.

The growth in investments reflected the completion of increasing our level of high-quality liquid assets to 12.7% of average total assets for the fourth quarter. High-quality liquid assets totaled $9.0 billion at December 31, 2016, up 34.5% for the quarter and up 55.5% compared to a year ago.

Mortgage Banking Activity

During the fourth quarter, the Bank sold $801.0 million of loans and recorded a gain on sale of $818,000. For the year ended December 31, 2016, the Bank sold $3.1 billion of loans and recorded a gain on sale of $4.8 million.

Loans serviced for investors at year-end totaled $11.7 billion, up 10.7% from a year ago. Net loan servicing fees for the year were $13.5 million.

Continued Expansion of Wealth Management

Wealth management revenues totaled $79.8 million for the quarter, up 18.8% compared to last year’s fourth quarter. For the year ended December 31, 2016, wealth management revenues were $291.3 million, an increase of 25.7% compared to the prior year. Such revenues represented 13% of total revenues for both the quarter and the year. Wealth management revenues for 2016 include the full benefit of the Constellation Wealth Advisors acquisition on October 1, 2015.

Total wealth management assets were $83.6 billion at December 31, 2016, up 4.2% for the quarter and up 15.6% compared to a year ago. The growth in wealth management assets was primarily due to net new assets from both existing and new clients.

Wealth management assets included investment management assets of $41.2 billion, brokerage assets and money market mutual funds of $34.3 billion, and trust and custody assets of $8.2 billion.

Gradifi Acquisition

To further expand First Republic’s franchise, the Bank completed the acquisition of Gradifi, the leading provider of student debt repayment benefit plans nationwide. Gradifi is now a wholly-owned subsidiary of the Bank.

Income Statement and Key Ratios

Highlights

Strong Revenue Growth

Total revenues were $599.5 million for the quarter, up 21.1% compared to the fourth quarter a year ago and $2.2 billion for 2016, up 20.1% compared to the prior year.

Continued Net Interest Income Growth

Net interest income was $490.6 million for the quarter, up 21.2% compared to the fourth quarter a year ago and $1.8 billion for 2016, up 19.8% compared to the prior year. The increase in net interest income resulted primarily from growth in average earning assets.

Net Interest Margin

For 2016, the Bank’s net interest margin was 3.20%, compared to 3.21% for the prior year. The net interest margin was 3.16% for both the fourth quarter of 2016 and the prior quarter.

The core net interest margin was 3.14% for 2016, compared to 3.09% for the prior year. The core net interest margin was 3.08% for the quarter, compared to 3.11% for the prior quarter. (2)

Noninterest Income

Noninterest income was $108.8 million for the quarter, up 20.7% compared to the fourth quarter a year ago. Noninterest income was $394.8 million for 2016, up 21.5% compared to the prior year. The increases were primarily from increased wealth management revenues.

Efficiency Ratio

The Bank’s efficiency ratio was 60.1% for the quarter, compared to 60.5% for the prior quarter and 60.8% for the fourth quarter a year ago. For all of 2016, the efficiency ratio was 60.5%, compared to 59.5% for 2015.

Noninterest expense was $360.2 million for the quarter, up 19.7% from the fourth quarter of last year. For 2016, noninterest expense was $1.3 billion, up 22.0% from the prior year. The increases were primarily due to increased salaries and benefits from the continued investments in the expansion of the franchise and regulatory compliance activities, along with growth across all areas of the Bank.

Income Tax Rate

The Bank’s effective tax rate for the fourth quarter of 2016 was 21.7%, compared to 15.0% for the prior quarter. The increase in the effective tax rate was primarily due to lower tax benefits from exercised stock options.

The effective tax rate for 2016 was 18.6%, compared to 24.4% in 2015. The decrease in 2016 was due to the adoption of Accounting Standards Codification 718, “Compensation—Stock Compensation,” along with higher levels of income associated with tax-advantaged investments.

__________

(1) Regulatory capital growth excluding the $199.5 million 6.70% Series A Preferred Stock, which will be redeemed on January 30, 2017.

(2) Core net interest margin is a non-GAAP financial measure that excludes the positive impact of purchase accounting and also the special FHLB dividends received in the fourth quarter of 2016 and in the second quarter of 2015. See non-GAAP reconciliation under section “Use of Non-GAAP Financial Measures.”

Conference Call Details

First Republic Bank’s fourth quarter and full year 2016 earnings conference call is scheduled for January 13, 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 #44886677. 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 January 13, 2017, at 10:00 a.m. PT / 1:00 p.m. ET, through January 20, 2017, at 8:59 p.m. PT / 11:59 p.m. ET. To access the replay, dial (855) 859-2056 and use conference ID #44886677. 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, 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 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, San Diego, Portland, Boston, New York City, Greenwich and Palm Beach. First Republic offers a complete line of banking and wealth management services for individuals and businesses. 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 materially from those discussed in the forward-looking statements include, but are not limited to: our ability to deal with significant competition for banking and wealth management customers; our projections for certain financial items; expectations concerning the bank and wealth management industries; our ability to recruit and retain key managers, employees and board members; earthquakes and other natural disasters in our markets; interest rate and credit risk; our plans or objectives for future operations, products or services; our ability to maintain and follow high underwriting standards; economic conditions generally and in our markets; economic and market conditions affecting the valuation of our investment securities portfolio; real estate prices generally and in our markets; our geographic and product concentrations; our opportunities for growth; expectations about the performance of any new offices; demand for our products and services; projections about loan premiums and discounts; our future provisions for loan losses; projections about future levels of loan originations or loan repayments; projections regarding costs; our regulatory compliance and future regulatory requirements; the phase-in of the Basel III Capital Rules; legislative and regulatory actions affecting us and the financial services industry; our ability to avoid litigation and its associated costs and liabilities; new accounting standards; future FDIC special assessments or changes to regular assessments; fraud, cybersecurity and privacy risks; and our ability to successfully execute on initiatives relating to enhancements of our technology. 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.

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. Due to the application of purchase accounting from the Bank’s re-establishment as an independent institution, management has historically used certain non-GAAP (i.e., core) measures and ratios that excluded the impact of these net positive purchase accounting items to evaluate our performance, including net income, earnings per share, revenues, yield on average loans, cost of average deposits, net interest margin and the efficiency ratio. However, due to the diminishing impact of these positive purchase accounting items since the beginning of 2016, only the yield on average loans and net interest margin are presented on a non-GAAP, or core, basis.

The accretion and amortization of the fair value adjustments recorded in purchase accounting from the Bank’s re-establishment as an independent institution affect our net interest margin and yield on average loans as we accrete loan discounts to interest income and amortize premiums on CDs to interest expense.

In addition, in the fourth quarter of 2016 and in the second quarter of 2015, the Bank received special dividends from the FHLB of $5.9 million and $9.1 million, respectively. Management has also excluded the positive impact of these items from the non-GAAP net interest margin.

We believe these two non-GAAP measures, when taken together with the corresponding GAAP measures, 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. However, these non-GAAP measures should be considered in addition to, and not as a substitute for or preferable to, the measurements prepared in accordance with GAAP. In the tables below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP financial measures, or a reconciliation of the non-GAAP calculation of the financial measure:

View source version on businesswire.com: http://www.businesswire.com/news/home/20170113005104/en/