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In The News
First Republic Bank Reports Second Quarter and Six Month Results; Increases Dividend by 20%
July 20, 2006
First Republic Bank (FRC-NYSE) reports net income available to common stockholders of $15,391,000 for the second quarter of 2006, an increase of 21% compared with the second quarter of 2005. Diluted earnings per share (“EPS”) were $0.57, up 14% compared with the second quarter of 2005.
For the first six months, net income available to common shareholders was $30,741,000 in 2006, an increase of 21% compared with 2005. Diluted EPS for the first six months were $1.15, up 16% compared with the same period in 2005.
“Results for the second quarter of 2006 reflect strong asset growth, primarily driven by robust loan originations; however, changes in the secondary market led to lower gains on the sale of loans and our net interest margin declined due to the flattened yield curve,” said Jim Herbert, President and Chief Executive Officer of First Republic Bank.
Quarterly Cash Dividend Increases 20% to $0.15 per Share
The Bank announced a 20% increase in its quarterly dividend to $0.15 per share of common stock from $0.125 per share. On an annual basis, the dividend would increase to $0.60 per share. The second quarter cash dividend of $0.15 per common share is payable on August 30, 2006 to shareholders of record on August 15, 2006.
Highlights
• The Bank agreed to acquire the parent company of Bank of Walnut Creek, which has approximately $570 million of assets and seven offices in fast growing communities of the San Francisco East Bay.
• The Bank opened trust and wealth management offices in Portland, Oregon and Seattle, Washington.
• Loan originations were $1.55 billion for the second quarter of 2006, up 25% compared with $1.2 billion for the second quarter of 2005; for the first six months, loan originations were $2.6 billion in 2006, up 23% compared with $2.1 billion in 2005.
• Bank assets grew to $10.4 billion, a 23% increase over the past year and an increase of 8% during the second quarter.
• Deposits grew 23% during the past year and 9% for the first six months of 2006. Excluding the sale of approximately $390 million of previously acquired certificates of deposit during the quarter, total deposits declined modestly from March 31, 2006.
• The net interest margin was 3.19% for the quarter, compared with 3.31% for the first quarter of 2006 and 3.35% for the second quarter of 2005.
• The efficiency ratio was 70.1% for the quarter, compared with 67.4% for the second quarter of 2005 and 68.3% for the past 12 months.
• Total Wealth Management assets were $15.6 billion, up 5% for the quarter and up 19% compared with $13.1 billion a year ago.
• Total Bank assets, Wealth Management assets and loans serviced grew to $30.5 billion, up 20% over the last year.
• Total capital at June 30, 2006 was $874.1 million, up 12% in the past year.
Growth in Bank Assets
Total assets of the Bank were $10.4 billion at June 30, 2006, an increase of 8% during the quarter and 23% in the past twelve months. During the second quarter, the Bank’s loan portfolio grew 9% while investments grew 10%. “Our loan originations reached a new record level. Single family loan volume was higher than the prior quarter and originations increased for home equity, construction, commercial real estate, business and personal loans,” said Katherine August-deWilde, Chief Operating Officer. “Our level of originations is unlikely to continue at such a high level.”
The average annualized principal repayment rate on the Bank’s loan portfolio was approximately 18% for the second and first quarters of 2006, compared with 17% for all of 2005.
Asset Quality Remains Strong
The Bank’s credit quality remains very strong. At June 30, 2006, the Bank classified one loan as other real estate owned with a carrying value of $460,000 and had total nonaccrual loans of $9.5 million, collectively only 0.10% of total assets. The Bank did not record a provision for loan losses in the second quarter of 2006. The Bank’s allowance for loan losses was $43.5 million at June 30, 2006, or 0.59% of total loans, compared with $37.7 million, or 0.63% of total loans at June 30, 2005.
The Bank’s single family residential loan portfolio continues to perform well. At June 30, 2006, the single family mortgage loan portfolio of $3.5 billion had a weighted average loan-to-value ratio of approximately 58% at origination and there were only three single family loans past due more than thirty days.
Capital Strength
The Bank continues to exceed regulatory capital guidelines required to be considered well-capitalized. At June 30, 2006, total capital was $874.1 million, consisting of common stockholders’ equity, noncumulative perpetual preferred stock of the Bank and its subsidiaries, subordinated notes and allowance for loan losses. Total capital increased $91.1 million, or 12%, over the past year. The Bank’s ratio of total capital to risk-adjusted assets was 11.61% at June 30, 2006.
Book value per common share was $18.63 at June 30, 2006, up 14% from a year ago.
Deposit Trends
Total deposits have grown $1.4 billion during the past twelve months, or 23%. In April 2006, the Bank sold approximately $390 million of certificates of deposit that were temporarily acquired in the prior quarter and did not recognize any gain or loss on the sale. Excluding this sale, deposits declined modestly during the second quarter of 2006. Deposits have grown 9% for the first six months of 2006.
At June 30, 2006, balances in business and personal checking accounts were $2.09 billion, or 27% of total deposits. The average balance of checking accounts for the second quarter of 2006 was comparable with the prior quarter and 21% higher than the second quarter of 2005.
Net Interest Income Grows
Net interest income increased to $71,917,000 for the second quarter of 2006, up 2% compared with $70,803,000 for the prior quarter and up 16% compared with $62,208,000 for the second quarter of 2005. This increase in the second quarter was primarily due to a higher average level of loans and investments. Because the Bank’s deposits did not grow proportionately, the Bank funded its asset growth with higher cost, short-term adjustable rate FHLB borrowings. As a result, the Bank’s net interest margin was 3.19% for the second quarter of 2006, compared with 3.31% for the prior quarter and 3.33% for all of 2005.
Loans Sold and Serviced
The Bank sold $192.7 million of single family home loans during the second quarter of 2006 and recorded net gains of only $222,000, compared with sales of $345.6 million and net gains of $1,582,000 for the second quarter of 2005. The decrease in gain on loan sales was due to a lower volume of loans sold, competitive pricing on investor loans and weaker secondary market conditions.
Total loans serviced for investors were $4.5 billion at June 30, 2006, compared with $3.9 billion a year ago, a 17% increase. The carrying value of mortgage servicing rights (“MSRs”) was $26.2 million, or 58 basis points on loans serviced, at June 30, 2006 and $22.6 million, or 58 basis points, at June 30, 2005.
Net loan servicing fees were $1,006,000 for the second quarter of 2006 compared with $450,000 for the first quarter and $929,000 for the second quarter of 2005. The net increase resulted from higher average loans serviced, offset in part by higher amortization of MSRs related to adjustable rate loans. MSRs on investor-owned adjustable-rate mortgages prepaid at a 34% rate during the second quarter of 2006, up from 29% a year ago. The prepayment rate on fixed rate loans sold to investors has slowed down.
On average, the annualized prepayment rates on all loans serviced for investors was 17% for the second quarter of 2006, compared with 16% for the prior quarter and 18% for all of 2005.
Wealth Management Grows
Assets managed or administered by the Bank's investment advisors, Trainer, Wortham & Company Incorporated, Froley, Revy Investment Company, and Starbuck, Tisdale & Associates, First Republic Trust Company, First Republic Securities Company and First Republic Wealth Advisors, totaled $15.6 billion at June 30, 2006, an increase of 19% compared with $13.1 billion a year ago. Total fees from these wealth management activities increased 10% to $12,748,000 for the second quarter of 2006, compared with $11,591,000 for the second quarter of 2005.
The Bank offers personal trust services through First Republic Trust Company. At June 30, 2006, the Trust Company administered $3.0 billion of trust and custody assets, a 34% increase from a year ago.
The Bank offers money market mutual funds and conducts its clients’ brokerage activities through First Republic Securities Company, a broker-dealer subsidiary. Clients’ assets were $3.6 billion at June 30, 2006, an 80% increase compared with a year ago.
First Republic Wealth Advisors continued to bring in assets for other entities in the Bank’s wealth management segment during the quarter. At June 30, 2006, there were $171.0 million of assets administered under an open architecture platform that was first offered by First Republic Wealth Advisors in 2005.
Noninterest Expense and Operating Efficiency
The Bank’s total noninterest expense was $64,214,000 for the second quarter of 2006, an increase of 4% compared with the prior quarter and an increase of 20% compared with the second quarter of 2005. Noninterest expense has grown due to the high level of loan originations, growth in deposits, costs of additional wealth management personnel, recent geographic expansion and increased occupancy costs – all related to the expansion of the Bank’s franchise. In particular, the second quarter of 2006 represented the first full quarter of costs related to the hiring of personnel and the opening of offices in Boston, Portland and Seattle while, during the quarter, there were limited revenues related to these activities.
The Bank’s operating efficiency ratio, or recurring noninterest expense as a percentage of net interest income and recurring noninterest income, was 70.1% for the second quarter of 2006, compared with 67.4% for the second quarter of 2005. For the most recent four quarters, the Bank’s efficiency ratio was 68.3%.
Income Tax Rate
The Bank provides for income taxes based on an estimate of earnings and tax preference items. The effective tax rate for 2006 is estimated at 28.9%, based on the amount of tax credits expected and the expected amount of tax exempt income related to investments in municipal securities, bank-owned life insurance contracts and securities that qualify for the federal dividends received deduction. The decrease in the projected tax rate from the first quarter of 2006 was mainly due to a change in estimates and an increase in the purchase of securities qualifying for the federal dividends received deduction. The decrease in the tax rate from second quarter of 2005 was primarily due to increases in all categories of tax-advantaged investments described above, as well as California net interest deductions for enterprise zone loans.
Acquisition of the Bank of Walnut Creek
On May 22, 2006, the Bank announced a definitive merger agreement to acquire BWC Financial Corp. and its wholly owned subsidiary, Bank of Walnut Creek. The Bank will issue 0.97 shares of common stock for each outstanding share of BWC Financial Corp. The transaction will expand the Bank’s reach into several rapidly growing communities. “Employees of First Republic and Bank of Walnut Creek have already made a lot of progress towards the successful integration of our two institutions,” said Katherine August-deWilde. “Our cultures and approach to client service are very similar.”
The transaction is expected to close in the fourth quarter of 2006, subject to regulatory approvals and approval by the shareholders of BWC Financial Corp.
About First Republic Bank
First Republic Bank is a NYSE-traded, private bank and wealth management firm. The Bank and its subsidiaries specialize in providing personalized, relationship-based wealth management services, including private banking, private business banking, investment management, trust, brokerage and real estate lending. As of June 30, 2006, the Bank and its subsidiaries had total Bank assets and other managed assets of $30.5 billion. First Republic Bank provides access to its services online and through preferred banking or trust offices in ten major metropolitan areas: San Francisco, Los Angeles, Santa Barbara, Newport Beach, San Diego, Las Vegas, Portland, Seattle, Boston and New York City. More information is available on the Bank’s website at www.firstrepublic.com.
Forward-Looking Statements and Additional Information
This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in this document that are not historical facts. The words “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” or words of similar meaning, or future or conditional verbs, such as “will,” “would,” “should,” “could,” or “may,” are generally intended to identify forward-looking statements. These forward-looking statements reflect our current views and assumptions and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from the results discussed in these forward-looking statements for the reasons, among others, discussed under the heading “Risk Factors” in the Bank’s Annual Report on Form 10-K for the 2005 fiscal year and under the heading “Information Regarding Forward-Looking Statements” in the Bank’s Quarterly Report on Form 10-Q for the period ended March 31, 2006. These factors include: credit, market, operational, liquidity, interest rate and other risks; changes in general business and economic conditions or government fiscal and monetary policies that may significantly affect our earnings, including inflation; business and legal risks that may be uninsured or inadequately insured; the risk that volatility in our mortgage banking business could adversely affect our earnings; the geographic concentration of our loan portfolio that could adversely affect our financial condition; competition from other financial services companies in our markets that could adversely affect our ability to achieve our financial goals; and changes in the regulation and supervision of the Bank that could adversely affect our business. Given these factors, you should not place undue reliance on the forward-looking statements. Forward-looking statements speak only as of the date they are made and may not be updated to reflect changes that may occur after the date they are made.
Additional information, including the Bank’s most recent filings on Forms 10-K and Form 10-Q, is available on the Bank’s website at www.firstrepublic.com.
Conference Call Details
First Republic Bank’s second quarter 2006 earnings conference call is scheduled for July 20, 2006 at 11:00 AM PDT. Investors may listen to the conference call live on the Bank’s website at www.firstrepublic.com. It may be necessary to download audio software to hear the conference call. To do so, investors should click on the Earnings Conference Call link and follow directions. A replay of the webcast will be available on First Republic Bank’s website for 30 days. A replay of the conference call will also be available for two weeks by calling (888) 203-1112 for domestic participants and (719) 457-0820 for international participants. The pass code number is 2298654. The Bank’s press releases are available after release on the Bank’s website at www.firstrepublic.com
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Contact:
- Greg Berardi
- Blue Marlin Partners
- (415) 239-7826
- greg@bluemarlinpartners.com
