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First Republic Reports Second Quarter 2020 Results

First Republic Bank (NYSE: FRC) today announced financial results for the quarter ended June 30, 2020.

“Second quarter results were very strong,” said Jim Herbert, Founder, Chairman and CEO of First Republic. “Loan origination volume was our best ever, while deposits and wealth management assets also grew very nicely. Since its founding 35 years ago, First Republic’s simple, conservative, client-centric business model has delivered consistently strong results.”

Quarterly Highlights

Financial Results

– Year-over-year:

– Revenues were $919.0 million, up 12.2%.

– Net interest income was $787.4 million, up 16.8%.

– Provision for credit losses was $31.1 million, compared to $21.2 million for the second quarter of 2019.

– Net income was $256.8 million, up 15.4%.

– Diluted earnings per share of $1.40, up 12.9%.

– Tangible book value per share was $53.46, up 12.2%.

– Loan originations totaled $11.4 billion (excluding originations under the Small Business Administration’s Paycheck Protection Program (“PPP”)), our best quarter ever.

– Net interest margin was 2.70%, compared to 2.74% for the prior quarter.

– Efficiency ratio was 62.0%, compared to 63.5% for the prior quarter. (1)

Continued Capital and Credit Strength

– Tier 1 leverage ratio was 8.15%.

– Nonperforming assets remained at a low 13 basis points of total assets.

– Net charge-offs were only $1.1 million, or less than 1 basis point of average loans.

Continued Franchise Development

– Year-over-year:

– Loans totaled $97.9 billion, up 19.1% (excluding PPP and for sale loans).

– Deposits were $98.5 billion, up 18.1%.

– Wealth management assets were $155.8 billion, up 13.2%.

– Wealth management revenues were $113.9 million, down 5.3%.

“We’re very pleased with the continued double-digit growth in total revenue, net interest income and earnings per share,” said Mike Roffler, Chief Financial Officer. “Credit quality, capital and liquidity remain strong.”

Quarterly Cash Dividend of $0.20 per Share

The Bank declared a cash dividend for the second quarter of $0.20 per share of common stock, which is payable on August 13, 2020 to shareholders of record as of July 30, 2020. The current quarterly dividend is an increase from the same quarter last year.

Strong Asset Quality

Credit quality remains strong. Nonperforming assets were only 13 basis points of total assets at June 30, 2020. The Bank had modest net loan charge-offs of $1.1 million for the quarter.

During the second quarter, the Bank recorded a provision for credit losses of $31.1 million, which included a provision for credit losses of $43.5 million for loans and held-to-maturity debt securities, offset by a reversal of a prior provision for unfunded loan commitments of $12.4 million. In the second quarter of 2019, the provision for credit losses for loans was $21.2 million. The increase in the provision for credit losses compared to a year ago reflects loan growth, as well as the CECL methodology beginning in 2020, which incorporates a significant change in economic outlook compared to the prior year.

COVID-19

Our response to the pandemic includes: quite successful company-wide remote working arrangements, modified openings and hours in our preferred banking offices, social distancing and other measures to ensure the safety of our colleagues and clients; and community support through corporate contributions for those in need. In addition, we continue to support those of our clients who are experiencing financial challenges by offering loan modifications. We have also provided loans to small businesses under the PPP.

Loan Modifications

Loan modifications to those borrowers experiencing financial challenges as a result of COVID-19 (not classified as troubled debt restructurings) totaled approximately $3.9 billion, and an additional $345 million were in process as of June 30, 2020. Total completed and in process modifications as of June 30, 2020 were 4.3% of total loans.

The Bank has limited exposure to several of the areas most directly impacted by COVID-19, such as the retail, hotel and restaurant industries, which totaled $2.4 billion as of June 30, 2020, only 2.4% of total loans. As of June 30, 2020, the Bank had completed and in process modifications of these portfolios for approximately $650 million, or 27%.

Continued Capital Strength

The Bank’s Tier 1 leverage ratio was 8.15% at June 30, 2020, compared to 8.46% at March 31, 2020.

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

Tangible Book Value Growth

Tangible book value per common share at June 30, 2020 was $53.46, up 12.2% from a year ago.

Continued Franchise Development

Loan Originations and Sales

Loan originations (excluding PPP loans) were $11.4 billion for the quarter, up 23.1% from the same quarter a year ago primarily due to increases in single family and business lending. The Bank also originated $2.0 billion of PPP loans during the quarter.

Single family loan originations were 51% of the total for the quarter (excluding PPP loans) and had a weighted average loan-to-value ratio of 53%. In addition, multifamily and commercial real estate loans originated were 11% of total originations (excluding PPP loans), and had a weighted average loan-to-value ratio of 47%.

Loans, excluding PPP loans and loans held for sale, totaled $97.9 billion at June 30, 2020, up 19.1% compared to a year ago primarily due to increases in single family and multifamily loans.

During the second quarter, the Bank sold approximately $300 million of single family loans through its own securitization.

Deposit Growth

Total deposits increased to $98.5 billion, up 18.1% compared to a year ago, and had an average cost of 30 basis points during the quarter.

At June 30, 2020, checking deposit balances were 62.3% of total deposits.

Investments

Total investment securities at June 30, 2020 were $19.1 billion, an 18.1% increase compared to a year ago.

High-quality liquid assets, including eligible cash, totaled $16.9 billion at June 30, 2020, and represented 13.4% of quarterly average total assets.

Wealth Management

Total wealth management assets were $155.8 billion at June 30, 2020, up 13.0% for the quarter and up 13.2% compared to a year ago. The increases in wealth management assets were due to market appreciation and net client inflow.

Wealth management revenues totaled $113.9 million for the quarter, down 5.3% compared to last year’s second quarter primarily due to the market decline in the prior quarter. Such revenues represented 12.4% of the Bank’s total revenues for the quarter.

Wealth management assets at June 30, 2020 included investment management assets of $68.1 billion, brokerage assets and money market mutual funds of $76.1 billion, and trust and custody assets of $11.6 billion.

Income Statement and Key Ratios

Revenue Growth

Total revenues were $919.0 million for the quarter, up 12.2% compared to the second quarter a year ago.

Net Interest Income Growth

Net interest income was $787.4 million for the quarter, up 16.8% compared to the second quarter a year ago. The increase in net interest income resulted primarily from growth in average interest-earning assets, partially offset by a decrease in net interest margin.

Net Interest Margin

The net interest margin was 2.70% for the second quarter, compared to 2.74% for the prior quarter. The modest decline was primarily due to average yields on earning assets declining slightly more than the offsetting decrease in average funding costs.

Noninterest Income

Noninterest income was $131.6 million for the quarter, down 9.5% compared to the second quarter a year ago. The decrease was primarily the result of lower investment management fees due to a market decline in the prior quarter and lower loan servicing fees due to a valuation allowance established on mortgage servicing rights from accelerated repayments of loans in the servicing portfolio.

Noninterest Expense and Efficiency Ratio

Noninterest expense was $569.5 million for the quarter, up 7.7% compared to the second quarter a year ago. The increase was primarily due to higher staffing levels and resultant higher salaries and benefits from the continued investments in the expansion of the franchise, offset by lower travel, advertising and marketing.

The efficiency ratio was 62.0% for the quarter, compared to 64.5% for the second quarter a year ago.

Income Taxes

The Bank’s effective tax rate for the second quarter of 2020 was 19.4%, compared to 19.5% for the prior quarter, and 17.4% for the second quarter a year ago. For the first six months of 2020, the Bank’s effective tax rate was 19.4%.

_____

(1)

The provision for unfunded loan commitments is included in the provision for credit losses for 2020 periods. The efficiency ratio for the quarter ended March 31, 2020 has been updated to conform to this change in presentation.

Conference Call Details

First Republic Bank’s second quarter 2020 earnings conference call is scheduled for July 14, 2020 at 7:00 a.m. PT / 10:00 a.m. ET. To access the event by telephone, please dial (800) 949-2175 and use confirmation code 3743466# approximately 15 minutes prior to the start time (to allow time for registration). International callers should dial +1 (720) 543-0197 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 July 14, 2020, at 11:00 a.m. PT / 2:00 p.m. ET, through July 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 3743466#. 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, 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); 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 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; 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, Quarterly Reports on Form 10-Q 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.

CONSOLIDATED STATEMENTS OF INCOME

 

Quarter Ended
June 30,

Quarter Ended
March 31,

Six Months Ended
June 30,

(in thousands, except per share amounts)

2020

2019

2020

2020

2019

Interest income:

Loans

$

791,286

$

741,328

$

796,652

$

1,587,938

$

1,441,416

Investments

146,515

134,044

148,569

295,084

267,809

Other

5,059

4,813

6,960

12,019

9,988

Cash and cash equivalents

564

5,547

3,940

4,504

13,536

Total interest income

943,424

885,732

956,121

1,899,545

1,732,749

Interest expense:

Deposits

72,480

129,188

118,845

191,325

236,935

Borrowings

83,532

82,518

85,144

168,676

146,750

Total interest expense

156,012

211,706

203,989

360,001

383,685

Net interest income

787,412

674,026

752,132

1,539,544

1,349,064

Provision for credit losses

31,117

21,200

62,370

93,487

35,400

Net interest income after provision for credit losses

756,295

652,826

689,762

1,446,057

1,313,664

Noninterest income:

Investment management fees

85,083

93,720

99,296

184,379

178,644

Brokerage and investment fees

12,406

8,287

15,826

28,232

15,946

Insurance fees

1,713

3,696

2,157

3,870

5,810

Trust fees

4,599

4,227

4,976

9,575

8,116

Foreign exchange fee income

10,105

10,345

12,184

22,289

18,976

Deposit fees

5,248

6,579

6,597

11,845

12,899

Loan and related fees

7,456

4,296

6,114

13,570

8,303

Loan servicing fees, net

(4,445)

3,425

1,652

(2,793)

7,213

Gain (loss) on sale of loans

(1,147)

(15)

1,925

778

344

Gain (loss) on investment securities

1,529

(1,063)

2,628

4,157

(1,212)

Income from investments in life insurance

7,800

10,049

8,160

15,960

19,384

Other income

1,222

1,804

2,529

3,751

3,245

Total noninterest income

131,569

145,350

164,044

295,613

277,668

Noninterest expense:

Salaries and employee benefits

344,204

297,524

361,204

705,408

610,777

Information systems

74,037

70,277

70,715

144,752

137,447

Occupancy

54,941

47,587

53,641

108,582

91,482

Professional fees

15,517

16,435

13,117

28,634

28,116

Advertising and marketing

8,621

16,700

11,843

20,464

32,434

FDIC assessments

11,275

9,196

10,185

21,460

18,099

Other expenses

60,863

71,135

61,312

122,175

135,311

Total noninterest expense

569,458

528,854

582,017

1,151,475

1,053,666

Income before provision for income taxes

318,406

269,322

271,789

590,195

537,666

Provision for income taxes

61,638

46,758

53,103

114,741

88,511

Net income

256,768

222,564

218,686

475,454

449,155

Dividends on preferred stock

14,817

12,788

13,020

27,837

25,575

Net income available to common shareholders

$

241,951

$

209,776

$

205,666

$

447,617

$

423,580

Basic earnings per common share

$

1.41

$

1.25

$

1.20

$

2.61

$

2.53

Diluted earnings per common share

$

1.40

$

1.24

$

1.20

$

2.60

$

2.50

Weighted average shares—basic

171,627

167,685

170,835

171,231

167,400

Weighted average shares—diluted

172,659

169,572

172,039

172,343

169,503

CONSOLIDATED BALANCE SHEETS

 

As of

($ in thousands)

June 30,
2020

March 31,
2020

December 31,
2019 (1)

June 30,
2019 (1)

ASSETS

Cash and cash equivalents

$

3,099,170

$

3,949,378

$

1,699,557

$

2,220,073

Debt securities available-for-sale

1,576,956

1,243,798

1,282,169

1,438,061

Debt securities held-to-maturity

17,513,211

17,534,920

17,147,633

14,721,568

Less: Allowance for credit losses

(5,383)

(5,087)

Debt securities held-to-maturity, net

17,507,828

17,529,833

17,147,633

14,721,568

Equity securities (fair value)

21,104

19,575

19,586

19,529

Loans: (1)

Single family (1-4 units)

52,435,246

49,063,193

47,985,651

41,758,981

Home equity lines of credit

2,419,359

2,703,919

2,501,432

2,587,554

Single family construction

733,909

779,239

761,589

702,928

Multifamily (5+ units)

13,187,857

12,823,392

12,353,359

11,160,686

Commercial real estate

7,793,137

7,715,266

7,449,058

7,166,368

Multifamily/commercial construction

1,966,292

1,839,445

1,695,954

1,611,794

Capital call lines of credit

6,173,992

7,512,231

5,570,322

5,660,887

Tax-exempt

3,186,066

3,087,751

3,042,193

3,035,959

Other business

3,179,023

3,094,922

3,034,301

2,989,664

PPP

2,092,307

Stock secured

1,924,107

1,919,971

1,897,511

1,514,855

Other secured

1,702,535

1,531,705

1,433,399

1,235,588

Unsecured

3,221,405

3,214,028

3,072,062

2,812,357

Total loans

100,015,235

95,285,062

90,796,831

82,237,621

Allowance for credit losses

(583,997)

(541,906)

(496,104)

(473,095)

Loans, net

99,431,238

94,743,156

90,300,727

81,764,526

Loans held for sale

313,655

354,873

23,304

12,502

Investments in life insurance

1,468,712

1,460,909

1,434,642

1,412,883

Tax credit investments

1,105,853

1,106,693

1,100,509

1,054,192

Premises, equipment and leasehold improvements, net

388,256

392,953

386,841

348,609

Goodwill and other intangible assets

230,975

232,985

235,269

267,490

Other real estate owned

1,071

1,071

Other assets

3,159,069

2,879,705

2,633,397

2,440,203

Total Assets

$

128,303,887

$

123,914,929

$

116,263,634

$

105,699,636

LIABILITIES AND EQUITY

Liabilities:

Deposits:

Noninterest-bearing checking

$

37,586,940

$

36,920,635

$

33,124,265

$

32,023,125

Interest-bearing checking

23,833,458

20,941,790

19,696,859

16,649,251

Money market checking

14,639,069

12,636,674

12,790,707

10,874,671

Money market savings and passbooks

10,236,015

9,052,690

10,586,355

9,921,688

Certificates of deposit

12,238,479

14,140,550

13,935,060

13,962,348

Total Deposits

98,533,961

93,692,339

90,133,246

83,431,083

Short-term borrowings

5,000

800,000

Long-term FHLB advances

15,405,000

16,250,000

12,200,000

9,800,000

Senior notes

995,109

994,742

497,719

497,269

Subordinated notes

778,096

777,990

777,885

777,678

Other liabilities

2,010,793

1,840,093

2,003,677

1,973,963

Total Liabilities

117,727,959

113,555,164

106,412,527

96,479,993

Shareholders’ Equity:

Preferred stock

1,145,000

1,145,000

1,145,000

940,000

Common stock

1,721

1,714

1,686

1,682

Additional paid-in capital

4,543,051

4,543,650

4,214,915

4,186,304

Retained earnings

4,858,965

4,652,089

4,484,375

4,091,636

Accumulated other comprehensive income

27,191

17,312

5,131

21

Total Shareholders’ Equity

10,575,928

10,359,765

9,851,107

9,219,643

Total Liabilities and Shareholders’ Equity

$

128,303,887

$

123,914,929

$

116,263,634

$

105,699,636

____________

(1) For comparability, the Bank has adjusted certain prior period loan amounts to conform to the current period presentation under the Current Expected Credit Losses (“CECL”) methodology.

Quarter Ended June 30,

Quarter Ended March 31,

2020

2019 (4)

2020

Average Balances, Yields and Rates

Average
Balance

Interest Income/
Expense (1)

Yields/
Rates (2)

Average
Balance

Interest Income/
Expense (1)

Yields/
Rates (2)

Average
Balance

Interest Income/
Expense (1)

Yields/
Rates (2)

($ in thousands)

Assets:

Cash and cash equivalents

$

2,789,666

$

564

0.08

%

$

1,091,353

$

5,547

2.04

%

$

1,853,579

$

3,940

0.85

%

Investment securities:

U.S. Government-sponsored agency securities

214,835

1,367

2.55

%

1,031,797

7,675

2.98

%

307,449

2,207

2.87

%

Mortgage-backed securities:

Agency residential and commercial MBS

6,615,707

42,661

2.58

%

6,669,868

47,724

2.86

%

6,746,664

47,186

2.80

%

Other residential and commercial MBS

27,499

182

2.65

%

4,523

43

3.78

%

3,834

32

3.33

%

Municipal securities

11,949,615

126,906

4.25

%

8,497,645

96,980

4.57

%

11,358,749

122,542

4.32

%

Other investment securities (3)

43,800

309

2.83

%

19,332

127

2.63

%

43,783

320

2.92

%

Total investment securities

18,851,456

171,425

3.64

%

16,223,165

152,549

3.76

%

18,460,479

172,287

3.73

%

Loans: (4)

Residential real estate (5)

53,737,207

404,691

3.01

%

42,856,354

357,475

3.34

%

51,300,013

404,982

3.16

%

Multifamily (6)

12,887,676

120,657

3.70

%

11,004,251

109,548

3.94

%

12,565,723

118,944

3.74

%

Commercial real estate

7,718,257

77,635

3.98

%

6,948,173

74,002

4.21

%

7,574,573

78,609

4.11

%

Multifamily/commercial construction

2,632,682

29,468

4.43

%

2,287,098

28,672

4.96

%

2,550,647

30,285

4.70

%

Business (7)

14,690,412

123,325

3.32

%

11,410,239

131,658

4.57

%

12,390,386

122,971

3.93

%

Other (8)

6,658,487

42,116

2.50

%

5,346,380

46,581

3.45

%

6,453,056

47,572

2.92

%

Total loans

98,324,721

797,892

3.23

%

79,852,495

747,936

3.73

%

92,834,398

803,363

3.44

%

FHLB stock

491,938

5,059

4.14

%

331,218

4,813

5.83

%

406,974

6,960

6.88

%

Total interest-earning assets

120,457,781

974,940

3.22

%

97,498,231

910,845

3.72

%

113,555,430

986,550

3.46

%

Noninterest-earning cash

425,440

345,174

443,255

Goodwill and other intangibles

231,934

269,404

234,078

Other assets

4,905,493

4,312,290

4,721,313

Total noninterest-earning assets

5,562,867

4,926,868

5,398,646

Total Assets

$

126,020,648

$

102,425,099

$

118,954,076

Liabilities and Equity:

Deposits:

Checking

$

58,978,081

3,127

0.02

%

$

45,813,205

6,946

0.06

%

$

53,863,519

8,432

0.06

%

Money market checking and savings

24,133,700

15,224

0.25

%

19,323,615

51,536

1.07

%

22,475,109

44,869

0.80

%

CDs

12,721,452

54,129

1.71

%

12,799,189

70,706

2.22

%

14,185,945

65,544

1.86

%

Total deposits

95,833,233

72,480

0.30

%

77,936,009

129,188

0.66

%

90,524,573

118,845

0.53

%

Borrowings:

Short-term borrowings

2,747

0

0.04

%

2,875,590

18,282

2.55

%

1,231,827

4,700

1.53

%

Long-term FHLB advances

15,868,682

68,391

1.73

%

9,132,967

49,601

2.18

%

13,420,604

66,566

1.99

%

Senior notes (9)

994,905

6,034

2.43

%

835,544

5,534

2.65

%

765,308

4,773

2.49

%

Subordinated notes (9)

778,044

9,107

4.68

%

777,628

9,101

4.68

%

777,938

9,105

4.68

%

Total borrowings

17,644,378

83,532

1.90

%

13,621,729

82,518

2.43

%

16,195,677

85,144

2.11

%

Total interest-bearing liabilities

113,477,611

156,012

0.55

%

91,557,738

211,706

0.93

%

106,720,250

203,989

0.77

%

Noninterest-bearing liabilities

2,067,585

1,733,674

2,030,107

Preferred equity

1,145,000

940,000

1,145,000

Common equity

9,330,452

8,193,687

9,058,719

Total Liabilities and Equity

$

126,020,648

$

102,425,099

$

118,954,076

Net interest spread (10)

2.67

%

2.79

%

2.69

%

Net interest income (fully taxable-equivalent basis) and net interest margin (11)

$

818,928

2.70

%

$

699,139

2.85

%

$

782,561

2.74

%

Reconciliation of tax-equivalent net interest income to reported net interest income:

Tax-equivalent adjustment

(31,516)

(25,113)

(30,429)

Net interest income, as reported

$

787,412

$

674,026

$

752,132

Six Months Ended June 30,

2020

2019 (4)

Average Balances, Yields and Rates

Average
Balance

Interest Income/
Expense (1)

Yields/
Rates (2)

Average
Balance

Interest Income/
Expense (1)

Yields/
Rates (2)

($ in thousands)

Assets:

Cash and cash equivalents

$

2,321,623

$

4,504

0.39

%

$

1,267,228

$

13,536

2.15

%

Investment securities:

U.S. Government-sponsored agency securities

261,142

3,574

2.74

%

1,038,310

15,452

2.98

%

Mortgage-backed securities:

Agency residential and commercial MBS

6,681,185

89,846

2.69

%

6,761,842

97,343

2.88

%

Other residential and commercial MBS

15,667

214

2.73

%

4,525

88

3.91

%

Municipal securities

11,654,183

249,935

4.29

%

8,340,025

191,481

4.59

%

Other investment securities (3)

43,791

629

2.87

%

19,161

247

2.58

%

Total investment securities

18,655,968

344,198

3.69

%

16,163,863

304,611

3.77

%

Loans: (4)

Residential real estate (5)

52,518,610

809,674

3.08

%

41,920,005

699,259

3.34

%

Multifamily (6)

12,726,699

239,601

3.72

%

10,770,882

209,249

3.86

%

Commercial real estate

7,646,415

156,244

4.04

%

6,825,897

145,949

4.25

%

Multifamily/commercial construction

2,591,664

59,753

4.56

%

2,282,720

56,916

4.96

%

Business (7)

13,540,399

246,357

3.60

%

11,046,209

252,702

4.55

%

Other (8)

6,555,772

89,687

2.71

%

5,218,077

90,528

3.45

%

Total loans

95,579,559

1,601,316

3.33

%

78,063,790

1,454,603

3.72

%

FHLB stock

449,455

12,019

5.38

%

305,157

9,988

6.60

%

Total interest-earning assets

117,006,605

1,962,037

3.34

%

95,800,038

1,782,738

3.71

%

Noninterest-earning cash

434,348

345,205

Goodwill and other intangibles

233,006

270,879

Other assets

4,813,403

4,254,502

Total noninterest-earning assets

5,480,757

4,870,586

Total Assets

$

122,487,362

$

100,670,624

Liabilities and Equity:

Deposits:

Checking

$

56,420,801

11,559

0.04

%

$

46,162,715

13,040

0.06

%

Money market checking and savings

23,304,404

60,094

0.52

%

19,296,363

93,854

0.98

%

CDs

13,453,699

119,672

1.79

%

12,095,546

130,041

2.17

%

Total deposits

93,178,904

191,325

0.41

%

77,554,624

236,935

0.62

%

Borrowings:

Short-term borrowings

617,287

4,700

1.53

%

1,921,431

24,312

2.55

%

Long-term FHLB advances

14,644,643

134,957

1.85

%

8,820,165

92,768

2.12

%

Senior notes (9)

880,106

10,807

2.46

%

865,930

11,468

2.65

%

Subordinated notes (9)

777,991

18,212

4.68

%

777,578

18,202

4.68

%

Total borrowings

16,920,027

168,676

2.00

%

12,385,104

146,750

2.39

%

Total interest-bearing liabilities

110,098,931

360,001

0.66

%

89,939,728

383,685

0.86

%

Noninterest-bearing liabilities

2,048,845

1,649,443

Preferred equity

1,145,000

940,000

Common equity

9,194,586

8,141,453

Total Liabilities and Equity

$

122,487,362

$

100,670,624

Net interest spread (10)

2.68

%

2.85

%

Net interest income (fully taxable-equivalent basis) and net interest margin (11)

$

1,602,036

2.72

%

$

1,399,053

2.91

%

Reconciliation of tax-equivalent net interest income to reported net interest income:

Tax-equivalent adjustment

(62,492)

(49,989)

Net interest income, as reported

$

1,539,544

$

1,349,064

____________

(1) Interest income is presented on a fully taxable-equivalent basis.

(2) Yields/rates are annualized.

(3) Includes corporate debt securities, mutual funds and marketable equity securities.

(4) For comparability, the Bank has adjusted certain prior period loan amounts to conform to the current period presentation under CECL.

(5) Includes single family, home equity lines of credit, and single family construction loans. Also includes single family loans held for sale.

(6) Includes multifamily loans held for sale.

(7) Includes capital call lines of credit, tax-exempt, other business, and PPP loans.

(8) Includes stock secured, other secured and unsecured loans.

(9) Average balances include unamortized issuance discounts and costs. Interest expense includes amortization of issuance discounts and costs.

(10) Net interest spread represents the average yield on interest-earning assets less the average rate on interest-bearing liabilities.

(11) Net interest margin represents net interest income on a fully taxable-equivalent basis divided by total average interest-earning assets.

Quarter Ended
June 30,

Quarter Ended
March 31,

Six Months Ended
June 30,

Operating Information

2020

2019

2020

2020

2019

($ in thousands, except per share amounts)

Net income to average assets (1)

0.82

%

0.87

%

0.74

%

0.78

%

0.90

%

Net income available to common shareholders to average common equity (1)

10.43

%

10.27

%

9.13

%

9.79

%

10.49

%

Net income available to common shareholders to average tangible common equity (1)

10.70

%

10.62

%

9.37

%

10.04

%

10.85

%

Dividends per common share

$

0.20

$

0.19

$

0.19

$

0.39

$

0.37

Dividend payout ratio

14.3

%

15.4

%

15.9

%

15.0

%

14.8

%

Efficiency ratio (2), (3)

62.0

%

64.5

%

63.5

%

62.7

%

64.8

%

Net loan charge-offs

$

1,098

$

1,226

$

202

$

1,300

$

1,353

Net loan charge-offs to average total loans (1)

0.00

%

0.01

%

0.00

%

0.00

%

0.00

%

Allowance for loan credit losses to:

Total loans

0.58

%

0.58

%

0.57

%

0.58

%

0.58

%

Nonaccrual loans

354.1

%

326.3

%

432.1

%

354.1

%

326.3

%

__________

(1) Ratios are annualized.

(2) Efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income.

(3) The provision for unfunded loan commitments is included in the provision for credit losses for 2020 periods. For 2019 periods, the provision for unfunded loan commitments is included in other noninterest expense. The efficiency ratio for the quarter ended March 31, 2020 has been updated to conform to this change in presentation.

Quarter Ended
June 30,

Quarter Ended
March 31,

Six Months Ended
June 30,

Effective Tax Rate

2020

2019

2020

2020

2019

Effective tax rate, prior to excess tax benefits

22.5

%

20.9

%

21.3

%

21.9

%

21.4

%

Excess tax benefits—stock options

(1.0)

(1.3)

(1.5)

(1.3)

(3.8)

Excess tax benefits—other stock awards

(2.1)

(2.2)

(0.3)

(1.2)

(1.1)

Total excess tax benefits

(3.1)

(3.5)

(1.8)

(2.5)

(4.9)

Effective tax rate

19.4

%

17.4

%

19.5

%

19.4

%

16.5

%

Quarter Ended
June 30,

Quarter Ended
March 31,

Six Months Ended
June 30,

Provision for Credit Losses

2020

2019

2020

2020

2019

($ in thousands)

Debt securities held-to-maturity

$

296

$

$

418

$

714

$

Loans

43,189

21,200

47,679

90,868

35,400

Unfunded loan commitments (1)

(12,368)

14,273

1,905

Total provision

$

31,117

$

21,200

$

62,370

$

93,487

$

35,400

__________

(1) The provision for unfunded loan commitments is included in the provision for credit losses for 2020 periods. For 2019 periods, the provision for unfunded loan commitments is included in other noninterest expense, which is not presented in this table.

Quarter Ended
June 30, 2020

Six Months Ended
June 30, 2020

Allowance for Credit Losses

Debt Securities
Held-to-Maturity

Loans

Unfunded Loan
Commitments (2)

Total

Debt Securities
Held-to-Maturity

Loans

Unfunded Loan
Commitments (2)

Total

($ in thousands)

Balance at beginning of period (1)

$

5,087

$

541,906

$

29,970

$

576,963

$

4,669

$

494,429

$

15,697

$

514,795

Provision for credit losses

296

43,189

(12,368)

31,117

714

90,868

1,905

93,487

Net charge-offs

(1,098)

(1,098)

(1,300)

(1,300)

Balance at end of period

$

5,383

$

583,997

$

17,602

$

606,982

$

5,383

$

583,997

$

17,602

$

606,982

__________

(1) For the six months ended June 30, 2020, represents the balance after the cumulative effect adjustment from the adoption of CECL.

(2) The allowance for credit losses on unfunded loan commitments is included in other liabilities.

Quarter Ended
June 30,

Quarter Ended
March 31,

Six Months Ended
June 30,

Mortgage Loan Sales

2020

2019

2020

2020

2019

($ in thousands)

Loans sold:

Flow sales:

Agency

$

10,810

$

14,533

$

25,774

$

36,584

$

26,212

Non-agency

14,503

31,870

31,870

31,334

Total flow sales

10,810

29,036

57,644

68,454

57,546

Bulk sales:

Non-agency

437,669

437,669

152,119

Securitizations

300,116

300,116

Total loans sold

$

310,926

$

29,036

$

495,313

$

806,239

$

209,665

Gain (loss) on sale of loans:

Amount

$

(1,147)

$

(15)

$

1,925

$

778

$

344

Gain (loss) as a percentage of loans sold

(0.37)

%

(0.05)

%

0.39

%

0.10

%

0.16

%

Quarter Ended
June 30,

Quarter Ended
March 31,

Six Months Ended
June 30,

Loan Originations

2020

2019 (1)

2020

2020

2019 (1)

($ in thousands)

Single family (1-4 units)

$

5,875,184

$

4,067,326

$

3,519,336

$

9,394,520

$

6,257,221

Home equity lines of credit

457,737

356,589

395,508

853,245

708,727

Single family construction

119,318

155,431

109,162

228,480

279,700

Multifamily (5+ units)

946,820

812,638

781,303

1,728,123

1,395,581

Commercial real estate

330,683

519,244

451,858

782,541

765,772

Multifamily/commercial construction

131,414

318,015

620,921

752,335

448,128

Capital call lines of credit

1,405,347

1,423,451

2,385,229

3,790,576

3,126,174

Tax-exempt

184,054

101,920

100,019

284,073

186,345

Other business

914,257

424,180

619,779

1,534,036

680,179

PPP

1,981,797

1,981,797

Stock secured

519,416

468,741

592,560

1,111,976

675,454

Other secured

358,730

355,421

413,824

772,554

622,170

Unsecured

203,270

296,373

322,888

526,158

630,681

Total loans originated

$

13,428,027

$

9,299,329

$

10,312,387

$

23,740,414

$

15,776,132

__________

(1) For comparability, the Bank has adjusted certain prior period amounts to conform to the current period presentation under CECL.

As of

Asset Quality Information

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

($ in thousands)

Nonperforming assets:

Nonaccrual loans

$

164,930

$

125,418

$

143,181

$

136,928

$

144,993

Other real estate owned

1,071

1,071

Total nonperforming assets

$

166,001

$

126,489

$

143,181

$

136,928

$

144,993

Nonperforming assets to total assets

0.13

%

0.10

%

0.12

%

0.12

%

0.14

%

Accruing loans 90 days or more past due

$

3,764

$

$

$

$

Restructured accruing loans

$

11,501

$

13,418

$

13,287

$

14,964

$

12,176

As of June 30, 2020

Completed

In Process (2)

Loan Modifications (1)

Unpaid Principal
Balance

LTV

Average Loan
Size

Number of
Loans

Unpaid Principal
Balance

LTV

Average Loan
Size

Number of
Loans

($ in millions)

Single family (1-4 units)

$

1,741

59

%

$

1.0

1,787

$

230

64

%

$

1.3

175

Home equity lines of credit

78

56

%

0.4

178

26

59

%

0.6

56

Single family construction

17

49

%

1.9

9

%

Multifamily (5+ units)

554

51

%

3.0

183

4

53

%

0.7

5

Commercial real estate

1,038

48

%

3.7

283

58

54

%

4.2

14

Multifamily/commercial construction

52

44

%

5.2

10

4

29

%

3.9

1

Capital call lines of credit

n/a

n/a

Tax-exempt

72

n/a

18.0

4

12

n/a

6.1

2

Other business

210

n/a

1.3

157

4

n/a

0.3

14

Stock secured

n/a

n/a

Other secured

6

n/a

0.4

13

n/a

Unsecured (3)

136

n/a

0.1

999

7

n/a

0.4

19

Total

$

3,904

$

345

__________

(1) COVID-19 loan modifications are not classified as troubled debt restructurings.

(2) Loan modifications requested by borrowers that have not yet been completed.

(3) Unsecured loan modifications completed and in process include $135 million and $2 million, respectively, of household debt refinance loans.

As of June 30, 2020

Loan Industry Information

Unpaid Principal
Balance

LTV

Average Loan
Size

Number of
Loans

Personal
Guarantee %

($ in millions)

Retail

$

1,772

50

%

$

2.7

674

76

%

Hotel

431

48

%

6.8

66

74

%

Restaurant (1)

224

51

%

1.1

215

94

%

Total (2)

$

2,427

__________

(1) Approximately 70% of loans to restaurants are real estate secured.

(2) Amounts in the table above exclude $43 million of loans for hotels and $135 million of loans for restaurants under the PPP.

As of

Loan Servicing Portfolio

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

($ in millions)

Loans serviced for investors

$

8,316

$

9,203

$

9,298

$

10,080

$

10,746

As of

Common Shares, Book Value per Common Share and Tangible Book Value per Common Share

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

(in thousands, except per share amounts)

Number of shares of common stock outstanding

172,094

171,395

168,621

168,450

168,176

Book value per common share

$

54.80

$

53.76

$

51.63

$

50.41

$

49.23

Tangible book value per common share

$

53.46

$

52.40

$

50.24

$

48.84

$

47.64

As of

Capital Ratios

June 30,
2020 (1),(2)

March 31,
2020 (2)

December 31,
2019

September 30,
2019

June 30,
2019

Tier 1 leverage ratio (Tier 1 capital to average assets)

8.15

%

8.46

%

8.39

%

8.50

%

8.69

%

Common Equity Tier 1 capital to risk-weighted assets

9.80

%

9.87

%

9.86

%

9.91

%

10.19

%

Tier 1 capital to risk-weighted assets

11.04

%

11.14

%

11.21

%

11.05

%

11.39

%

Total capital to risk-weighted assets

12.49

%

12.62

%

12.73

%

12.61

%

13.02

%

Regulatory Capital (3)

($ in thousands)

Common Equity Tier 1 capital

$

9,103,771

$

8,887,905

$

8,371,192

$

8,124,179

$

7,934,602

Tier 1 capital

$

10,248,771

$

10,032,905

$

9,516,192

$

9,064,179

$

8,874,602

Total capital

$

11,604,141

$

11,365,654

$

10,802,209

$

10,340,902

$

10,138,375

Assets (3)

($ in thousands)

Average assets

$

125,690,830

$

118,626,842

$

113,403,507

$

106,659,003

$

102,097,363

Risk-weighted assets

$

92,870,859

$

90,072,400

$

84,885,943

$

81,994,651

$

77,889,111

__________

(1) Ratios and amounts as of June 30, 2020 are preliminary.

(2) In accordance with the CECL Interim Final Rule, the Bank elected to delay the estimated impact of CECL on its regulatory capital and risk-weighted assets over a five-year transition period ending December 31, 2024. Ratios and amounts for 2020 periods have been adjusted to exclude the following impacts attributed to the adoption of CECL: decreases in retained earnings, increases in allowance for credit losses on loans, held-to-maturity debt securities and unfunded loan commitments, decreases in average assets, and increases in risk-weighted assets.

(3) As defined by regulatory capital rules.

As of

Wealth Management Assets

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

($ in millions)

First Republic Investment Management

$

68,124

$

60,056

$

66,029

$

61,204

$

61,192

Brokerage and investment:

Brokerage

70,178

60,189

68,807

63,053

61,583

Money market mutual funds

5,933

6,893

4,268

4,402

3,312

Total brokerage and investment

76,111

67,082

73,075

67,455

64,895

Trust Company:

Trust

7,905

7,288

7,121

6,366

6,319

Custody

3,646

3,461

4,818

5,210

5,225

Total Trust Company

11,551

10,749

11,939

11,576

11,544

Total Wealth Management Assets

$

155,786

$

137,887

$

151,043

$

140,235

$

137,631

Contacts:

Investors:
Andrew Greenebaum / Lasse Glassen
Addo Investor Relations
agreenebaum@addoir.com
lglassen@addoir.com
(310) 829-5400

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