FRC - First Republic Reports First Quarter 2020 Results

First Republic Bank (NYSE: FRC) today announced financial results for the quarter ended March 31, 2020.

“Results for the first quarter were strong,” said Jim Herbert, Founder, Chairman and CEO of First Republic. “In these very unusual times, our strength and durability, coupled with a time-tested culture of service, enable us to take great care of our colleagues, communities, and clients.”

Quarterly Highlights

Financial Results

– Year-over year:

– Revenues were $916.2 million, up 13.5%.

– Net interest income was $752.1 million, up 11.4%.

– Provision for credit losses and unfunded loan commitments was $62.4 million, compared to $14.0 million for the first quarter of 2019.

– Net income was $218.7 million, down 3.5%.

– Diluted earnings per share of $1.20, down 4.8%.

– Tangible book value per share was $52.40, up 11.9%.

– Loan originations totaled $10.3 billion.

– Net interest margin was 2.74%, compared to 2.73% for the prior quarter.

– Efficiency ratio was 65.1%, compared to 65.0% for the first quarter of 2019.

Continued Capital and Credit Strength

– Tier 1 leverage ratio was 8.46%, compared to 8.39% for the prior quarter.

– Increased quarterly dividend to $0.20 per share in April 2020.

– Nonperforming assets remained at a low 10 basis points of total assets.

– Net charge-offs were only $202,000, or less than 1 basis point of average loans.

Continued Franchise Development

– Year-over-year:

– Loans, excluding loans held for sale, totaled $95.3 billion, up 23.3%.

– Deposits were $93.7 billion, up 14.8%.

– Wealth management assets were $137.9 billion, down 1.4%.

– Wealth management revenues were $134.4 million, up 25.4%.

“Credit quality, capital strength and liquidity remained strong,” said Mike Roffler, Chief Financial Officer. “Loans and deposits grew nicely and we’re pleased with 11.4% growth in net interest income and a stable net interest margin.”

Recent Developments

The COVID-19 pandemic has caused substantial disruptions to the global economy and the communities we serve. In response to the pandemic, we have implemented our contingency plans, which include company-wide remote working arrangements, modified hours in our preferred banking offices, and promoting social distancing. In addition, we are focused on supporting our clients who may be experiencing a financial hardship due to COVID-19, including deferrals as needed and participation in the Small Business Administration’s Paycheck Protection Program.

We are closely monitoring the rapid developments and uncertainties regarding the pandemic. We remain confident in our long-term underlying strength and stability, and our ability to navigate these challenging conditions.

Quarterly Cash Dividend of $0.20 per Share

The Bank announced an increase of $0.01 in its quarterly cash dividend to $0.20 per share of common stock. This first quarter dividend is payable on May 14, 2020 to shareholders of record as of April 30, 2020.

Strong Asset Quality

Credit quality remains strong. Nonperforming assets were only 10 basis points of total assets at March 31, 2020. The Bank had net loan charge-offs of $202,000 for the quarter.

Beginning in the first quarter, the Bank fully adopted the Current Expected Credit Losses (“CECL”) methodology under Accounting Standards Codification (“ASC”) 326, in which the allowance for credit losses reflects expected credit losses over the life of loans and held-to-maturity debt securities, and incorporates macroeconomic forecasts as well as historical loss rates. The allowance for expected credit losses at the end of the first quarter incorporates a change in the economic forecast late in the first quarter of 2020, to reflect the pandemic conditions, as compared to our initial adoption of CECL.

During the first quarter, the Bank recorded a total provision for credit losses and unfunded loan commitments of $62.4 million, which included a provision for credit losses of $48.1 million for loans and held-to-maturity debt securities, and an additional provision of $14.3 million included in noninterest expense for unfunded loan commitments. In the first quarter of 2019, the total provision for loans and unfunded loan commitments was $14.0 million.

Continued Capital Strength and Access to Capital Markets

The Bank’s Tier 1 leverage ratio was 8.46% at March 31, 2020, compared to 8.39% at December 31, 2019.

During the first quarter, the Bank sold 2,500,000 new shares of common stock in an underwritten public offering, which added approximately $290.6 million to common equity. This common stock and the Tier 1 qualified preferred stock issued in the fourth quarter of 2019, net of preferred stock redeemed in the fourth quarter of 2019, added $483.1 million of Tier 1 capital in the last six months.

The Bank has not and does not engage in common stock buybacks.

Tangible Book Value Growth

Tangible book value per common share at March 31, 2020 was $52.40, up 11.9% from a year ago.

Continued Franchise Development

Loan Originations

Loan originations were $10.3 billion for the quarter, up 59.2% from the same quarter a year ago primarily due to increases in single family, business, multifamily/commercial construction and stock secured lending. Single family loan originations were 34% of the total for the quarter, and had a weighted average loan-to-value ratio of 57%. Multifamily and commercial real estate loans originated during the quarter, 12% of the total, had a weighted average loan-to-value ratio of 52%.

Loans, excluding loans held for sale, totaled $95.3 billion at March 31, 2020, up 23.3% compared to a year ago primarily due to increases in single family, multifamily and commercial real estate loans, along with an increase in capital call lines of credit outstanding.

Deposit Growth

Total deposits increased to $93.7 billion, up 14.8% compared to a year ago.

At March 31, 2020, checking deposit balances were 61.8% of total deposits.

Investments

Total investment securities at March 31, 2020 were $18.8 billion, a 16.9% increase compared to a year ago.

High-quality liquid assets, including eligible cash, totaled $17.6 billion at March 31, 2020, and represented 14.8% of average total assets.

Wealth Management

Wealth management revenues totaled $134.4 million for the quarter, up 25.4% compared to last year’s first quarter. Such revenues represented 14.7% of the Bank’s total revenues for the quarter.

Total wealth management assets were $137.9 billion at March 31, 2020, down 8.7% for the quarter and down 1.4% compared to a year ago. The decrease in wealth management assets for the quarter was primarily due to market decline, partially offset by net new assets from existing and new clients.

Wealth management assets included investment management assets of $60.1 billion, brokerage assets and money market mutual funds of $67.1 billion, and trust and custody assets of $10.7 billion.

Income Statement and Key Ratios

Revenue Growth

Total revenues were $916.2 million for the quarter, up 13.5% compared to the first quarter a year ago.

Net Interest Income Growth

Net interest income was $752.1 million for the quarter, up 11.4% compared to the first quarter a year ago. The increase in net interest income resulted primarily from growth in average interest-earning assets.

Net Interest Margin

The net interest margin was 2.74% for the first quarter, compared to 2.73% for the prior quarter.

Noninterest Income

Noninterest income was $164.0 million for the quarter, up 24.0% compared to the first quarter a year ago. The increase was primarily from growth in wealth management fees and a gain on investment securities for the quarter.

Noninterest Expense and Efficiency Ratio

Noninterest expense was $596.3 million for the quarter, up 13.6% compared to the first quarter a year ago. The increase was primarily due to increased salaries and benefits and occupancy expenses from the continued investments in the expansion of the franchise, along with an increase in the provision for unfunded loan commitments.

The efficiency ratio was 65.1% for the quarter, compared to 65.0% for the first quarter a year ago.

Income Taxes

The Bank’s effective tax rate for the first quarter of 2020 was 19.5%, compared to 20.3% for the prior quarter, and 15.6% for the first quarter a year ago. The increase from a year ago was primarily the result of lower tax benefits due to a decrease in stock options exercised by employees.

Conference Call Details

First Republic Bank’s first quarter 2020 earnings conference call is scheduled for April 14, 2020 at 7:00 a.m. PT / 10:00 a.m. ET. To access the event by telephone, please dial (800) 458-4148 and use confirmation code 1291711# approximately 15 minutes prior to the start time (to allow time for registration). International callers should dial +1 (720) 543-0206 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 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 April 14, 2020, at 11:00 a.m. PT / 2:00 p.m. ET, through April 21, 2020, at 8:59 p.m. PT / 11:59 p.m. ET. To access the replay, dial (888) 203-1112 and use confirmation code 1291711#. 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.

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; changes in nonperforming assets; expectations regarding the impact 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; the possibility of earthquakes, fires and other natural disasters affecting the markets in which we operate; the negative impacts and disruptions resulting from the COVID-19 pandemic on our colleagues, 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.