FRC - First Republic Reports Third Quarter 2022 Results

Year-Over-Year Net Interest Income Rose 21%
Tangible Book Value Per Share Increased 11%

First Republic Bank (NYSE: FRC) today announced financial results for the quarter ended September 30, 2022.

“First Republic had another quarter of strong results,” said Mike Roffler, Chief Executive Officer and President. “Loans were up very nicely, and, importantly, credit quality remains excellent. This quarter’s results demonstrate the durability of our client-focused business model and service culture.”

Quarterly Highlights

Financial Results

– Year-over-year:

– Revenues were $1.5 billion, up 16.9%.

– Net interest income was $1.3 billion, up 20.6%.

– Net income was $445 million, up 20.5%.

– Diluted earnings per share of $2.21, up 15.7%.

– Tangible book value per share was $72.54, up 11.3%.

– Loan originations totaled $18.0 billion, our second best quarter ever.

– Net interest margin was 2.71%, compared to 2.80% for the prior quarter.

– Efficiency ratio was 60.3%, compared to 60.5% for the prior quarter.

Continued Capital and Credit Strength

– Tier 1 leverage ratio was 8.59%.

– Nonperforming assets were a low 6 basis points of total assets.

– Net charge-offs for the quarter were only $1 million, or less than 1 basis point of average loans.

Continued Franchise Growth

– Year-over-year:

– Loans totaled $158.8 billion, up 23.7%.

– Deposits were $172.4 billion, up 18.6%.

– Wealth management assets were $249.5 billion, down 0.9%.

– Wealth management revenues were $214 million, up 2.4%.

“Revenue and net interest income growth were strong during the third quarter,” said Olga Tsokova, Chief Financial Officer (Acting) and Chief Accounting Officer. “We’re pleased to have accessed the equity capital markets during the quarter, and we continue to maintain a very strong capital position.”

Quarterly Cash Dividend of $0.27 per Share

The Bank declared a cash dividend for the third quarter of $0.27 per share of common stock, which is payable on November 10, 2022 to shareholders of record as of October 27, 2022.

Strong Asset Quality

Credit quality remains very strong. Nonperforming assets were at a very low 6 basis points of total assets at September 30, 2022.

The provision for credit losses for the quarter was $36 million, which was primarily driven by loan growth. The Bank had modest net loan charge-offs of only $1 million for the quarter. For the first nine months of 2022, the provision for credit losses was $77 million, with net loan charge-offs of only $2 million.

Continued Book Value Growth

Book value per common share at September 30, 2022 was $73.74, up 11.0% from a year ago. Tangible book value per common share at September 30, 2022 was $72.54, up 11.3% from a year ago.

Capital Strength

The Bank’s Tier 1 leverage ratio was 8.59% at both September 30, 2022 and June 30, 2022.

During the third quarter, the Bank sold 2,587,500 new shares of common stock in an underwritten public offering, which added $402 million to common equity.

Continued Franchise Growth

Loan Originations

Loan originations were $18.0 billion for the quarter, our second best quarter ever. This was up 16.4% from the same quarter a year ago, primarily due to an increase in multifamily lending.

Single family loan originations were 39% of the total loan origination volume for the quarter and had a weighted average loan-to-value ratio of 63%. Multifamily and commercial real estate loans originated were 21% of total originations and had a weighted average loan-to-value ratio of 51%. In addition, capital call lines of credit originated were 18% of total originations.

Loans totaled $158.8 billion at September 30, 2022, up 23.7% compared to a year ago. Our loan growth was primarily due to increases in single family, multifamily, commercial real estate, stock secured and other business loans.

Investments

Total investment securities at September 30, 2022 were $31.6 billion, a slight increase compared to the prior quarter and a 30.7% increase compared to a year ago.

High-quality liquid assets, including eligible cash, totaled $27.5 billion at September 30, 2022, and represented 13.7% of quarterly average total assets.

Deposit Growth and Funding

Total deposits increased to $172.4 billion, up 18.6% compared to a year ago. Deposits were our primary source of funding at September 30, 2022, and represented 93% of our funding base.

At September 30, 2022, our deposit base consisted of 64.2% of checking deposits, 26.6% of other liquid deposits including money market checking and money marketing savings and passbooks, and 9.2% of CDs.

Other sources of funding at September 30, 2022 included short-term and long-term FHLB advances, which totaled $11.0 billion, up 42.9% compared to a year ago.

Deposits had an average rate paid of 41 basis points during the quarter, and average total funding costs were 55 basis points during the quarter.

Wealth Management

Total wealth management assets were $249.5 billion at September 30, 2022, up slightly compared to the prior quarter and down slightly compared to a year ago. The variances in wealth management assets were driven by net client inflow, partially offset by market decline. Wealth management assets at September 30, 2022 included investment management assets of $100.1 billion, brokerage assets and money market mutual funds of $130.2 billion, and trust and custody assets of $19.2 billion.

Wealth management fees, which consist of investment management, brokerage and investment, insurance, trust and foreign exchange fee income, totaled $214 million for the quarter, up 2.4% compared to last year’s third quarter. Such revenues represented 14.1% of the Bank’s total revenues for the quarter.

Investment management fees were $142 million for the quarter, down 4.6% compared to $149 million a year ago. The decrease was primarily driven by the level and mix of wealth management assets, which was impacted by adverse market conditions.

Income Statement and Key Ratios

Revenue Growth

Total revenues were $1.5 billion for the quarter, up 16.9% compared to the third quarter a year ago.

Net Interest Income Growth

Net interest income was $1.3 billion for the quarter, up 20.6% compared to the third quarter a year ago. The increase in net interest income for the quarter resulted primarily from growth in average interest-earning assets and the increase in net interest margin compared to a year ago.

Net Interest Margin

The net interest margin declined to 2.71% in the third quarter, from 2.80% in the prior quarter. The decline was due to average funding costs increasing more rapidly than the offsetting increase in the average yields on interest-earning assets.

Noninterest Income

Noninterest income was $254 million for the quarter, up 1.8% compared to the third quarter a year ago. The increase was primarily driven by higher brokerage and investment fees, partially offset by lower investment management fees.

Noninterest Expense and Efficiency Ratio

Noninterest expense was $919 million for the quarter, up 15.1% compared to the third quarter a year ago, primarily due to continued investments in our business expansion, including hiring additional colleagues to support our growth and information systems initiatives, as well as higher travel and entertainment expense due to an increase in events held in person.

The efficiency ratio was 60.3% for the quarter, compared to 61.3% for last year’s third quarter. For the first nine months of 2022, the efficiency ratio was 60.9%, compared to 62.2% for the first nine months of 2021.

Income Taxes

The Bank’s effective tax rate for the third quarter of 2022 was 21.6%, compared to 21.4% for the third quarter a year ago. The slight increase was primarily the result of lower excess tax benefits upon vesting of stock awards, partially offset by a tax refund from an amended tax return.

For the first nine months of 2022, the Bank’s effective tax rate was 22.6%, compared to 20.2% a year ago. The increase was primarily the result of lower excess tax benefits upon vesting of stock awards.

Conference Call Details

First Republic Bank’s third quarter 2022 earnings conference call is scheduled for October 14, 2022 at 7:00 a.m. PT / 10:00 a.m. ET. To access the event by telephone, please dial (888) 204-4368 and provide confirmation code 2879019 approximately 15 minutes prior to the start time (to allow time for registration). International callers should dial +1 (856) 344-9299 and provide 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 ir.firstrepublic.com/events-calendar . 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 for the live presentation, a replay of the webcast will be available for 90 days following, accessible in the Investor Relations section of First Republic Bank’s website at ir.firstrepublic.com/events-calendar .

The Bank’s press releases are available after release in the Newsroom and 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. First Republic specializes in delivering exceptional, relationship-based service and provides a complete line of products, including residential, commercial and personal loans, deposit services, and private wealth management, including investment, brokerage, insurance, trust and foreign exchange services. 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; Jackson, Wyoming; and Bellevue, Washington. 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; future provisions for credit losses on loans and debt securities, as well as for unfunded loan commitments; changes in nonperforming assets; expectations regarding the impact and duration of the COVID-19 pandemic (collectively referred to as “COVID-19” herein); expectations regarding our executive transitions; 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; natural or other disasters, including earthquakes, wildfires, pandemics or acts of terrorism affecting the markets in which we operate; the adverse effects of climate change on our business, clients and counterparties; the negative impacts and disruptions resulting from COVID-19 on our colleagues and clients, 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; inflation; 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; the regulatory environment in which we operate, our regulatory compliance and future regulatory requirements, which may result in costs, fees, penalties, business restrictions, reputational harm or other adverse consequences; 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; changes in federal, state or local tax laws; 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.

Non-GAAP Financial Measures

Our management uses and believes that investors benefit from using certain non-GAAP measures of our financial performance, which include tangible book value per common share, return on average tangible common shareholders’ equity, and net interest income on a fully taxable-equivalent basis. Management believes that tangible book value per common share and return on average tangible common shareholders’ equity are useful additional measures to evaluate our performance and capital position without the impact of goodwill and other intangible assets and preferred stock. In addition, to facilitate relevant comparisons of net interest income from taxable and tax-exempt interest-earning assets, when calculating yields and net interest margin, we adjust interest income on tax-exempt securities and tax-advantaged loans so such amounts are fully equivalent to interest income on taxable sources. We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information that is not otherwise required by GAAP or other applicable requirements. These non-GAAP financial measures should be considered in addition to, not as a substitute for, financial measures prepared in accordance with GAAP. A reconciliation of the non-GAAP calculation of the financial measure to the most comparable GAAP financial measure is presented in relevant tables in this document.

Explanatory Note

Some amounts presented within this document may not recalculate due to rounding.