FRC - First Republic Reports Strong First Quarter 2019 Results

First Republic Bank (NYSE: FRC) today announced financial results for the quarter ended March 31, 2019.

“Loans, deposits and wealth management assets have all grown nicely compared to a year ago,” said Jim Herbert, Chairman, CEO & Founder. “We are delivering exceptional, differentiated client service, which is reflected in continued strong household acquisition across the franchise.”

Quarterly Highlights

Financial Results

– Year-over-year:

– Revenues were $807.4 million, up 12.0%.

– Net interest income was $675.0 million, up 14.8%.

– Net income was $226.6 million, up 13.8%.

– Diluted earnings per share of $1.26, up 11.5%.

– Tangible book value per share was $46.81, up 12.9%.

– Loan originations totaled $6.7 billion.

– Net interest margin was 2.97%, compared to 2.98% for the prior quarter.

– Efficiency ratio was 65.0%.

Continued Capital and Credit Strength

– Common Equity Tier 1 ratio was 10.54%, compared to 10.47% a year ago.

– Increased quarterly dividend to $0.19 per share in April 2019.

– Nonperforming assets remained very low at 5 basis points of total assets.

– Net charge-offs were only $127,000, or less than 1 basis point of average loans.

Continued Franchise Development

– Year-over-year:

– Loans, excluding loans held for sale, totaled $77.3 billion, up 18.5%.

– Deposits were $81.6 billion, up 14.5%.

– Wealth management assets were $139.9 billion, up 23.8%.

– Wealth management revenues were $107.2 million, up 7.7%.

“We are pleased to have exceeded $100 billion in total bank assets through organic growth driven by exceptional client service,” said Mike Roffler, Chief Financial Officer. “Credit quality and capital strength remain excellent.”

Increased Quarterly Cash Dividend to $0.19 per Share

The Bank announced an increase in its quarterly cash dividend to $0.19 per share of common stock. This first quarter dividend is payable on May 9, 2019 to shareholders of record as of April 25, 2019.

Very Strong Asset Quality

Credit quality remains very strong. Nonperforming assets were only 5 basis points of total assets at March 31, 2019.

The Bank had net charge-offs for the quarter of $127,000, while adding $14.2 million to its allowance for loan losses.

Continued Capital Strength and Access to Capital Markets

The Bank’s Common Equity Tier 1 ratio was 10.54% at March 31, 2019, compared to 10.47% a year ago.

During the first quarter, the Bank issued 2,000,000 shares of common stock in an “at-the-market” offering, which added $170.6 million to common equity.

Tangible Book Value Growth

Tangible book value per common share at March 31, 2019 was $46.81, up 12.9% from a year ago.

Continued Franchise Development

Loan Originations

Loan originations were $6.7 billion for the quarter, compared to $7.3 billion for the same quarter a year ago.

Loans, excluding loans held for sale, totaled $77.3 billion at March 31, 2019, up 18.5% compared to a year ago primarily due to increases in single family, multifamily and business loans.

Deposit Growth

Total deposits increased to $81.6 billion, up 14.5% compared to a year ago.

At March 31, 2019, checking accounts totaled 59.2% of deposits.

Investments

Total investment securities at March 31, 2019 were $16.1 billion, a 2.7% decrease compared to a year ago.

High-quality liquid assets, including eligible cash, totaled $15.3 billion at March 31, 2019, and represented 15.5% of average total assets.

Mortgage Banking Activity

During the first quarter, the Bank sold $180.6 million of loans and recorded a gain on sale of $359,000, compared to loan sales of $161.4 million and a gain of $689,000 during the first quarter of last year.

Loans serviced for investors at quarter-end totaled $11.3 billion, down 7.1% from a year ago.

Continued Expansion of Wealth Management

Wealth management revenues totaled $107.2 million for the quarter, up 7.7% compared to last year’s first quarter. Such revenues represented 13.3% of the Bank’s total revenues for the quarter.

Total wealth management assets were $139.9 billion at March 31, 2019, up 10.8% for the quarter and up 23.8% compared to a year ago. The increases in wealth management assets both for the quarter and year were driven by market appreciation and net new assets from existing and new clients.

Wealth management assets included investment management assets of $66.7 billion, brokerage assets and money market mutual funds of $62.2 billion, and trust and custody assets of $11.0 billion.

Income Statement and Key Ratios

Strong Revenue Growth

Total revenues were $807.4 million for the quarter, up 12.0% compared to the first quarter a year ago.

Strong Net Interest Income Growth

Net interest income was $675.0 million for the quarter, up 14.8% compared to the first 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 2.97% for the first quarter, compared to 2.98% for the prior quarter.

Noninterest Income

Noninterest income was $132.3 million for the quarter, slightly down compared to the first quarter a year ago. The first quarter of 2018 included a $10.7 million gain on sale of investment securities as part of a portfolio repositioning.

Noninterest Expense

Noninterest expense was $524.8 million for the quarter, up 13.7% compared to the first quarter a year ago. The increase was primarily due to increased salaries and benefits, information systems and other expenses from the continued investments in the expansion of the franchise, partially offset by a decrease in FDIC assessments due to the elimination of an FDIC surcharge.

Efficiency Ratio

The efficiency ratio was 65.0% for the quarter, compared to 64.0% for the first quarter a year ago. The efficiency ratio remained very stable compared to last year. Excluding the $10.7 million gain on sale of investment securities as part of a portfolio repositioning, the efficiency ratio would have been 65.0% in the first quarter of 2018.

Income Taxes

The Bank’s effective tax rate for the first quarter of 2019 was 15.6%, compared to 19.4% for the prior quarter, and 19.2% for the first quarter a year ago. The decreases were primarily the result of higher tax benefits from an increase in stock option exercises by employees.

Conference Call Details

First Republic Bank’s first quarter 2019 earnings conference call is scheduled for April 12, 2019 at 7:00 a.m. PT / 10:00 a.m. ET. To access the event by telephone, please dial (877) 407-0792 approximately 10 minutes prior to the start time (to allow time for registration). International callers should dial +1 (201) 689-8263.

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 April 12, 2019, at 10:00 a.m. PT / 1:00 p.m. ET, through April 19, 2019, at 8:59 p.m. PT / 11:59 p.m. ET. To access the replay, dial (844) 512-2921 and use conference ID #13689082. International callers should dial +1 (412) 317-6671 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 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.