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First Republic Reports Strong Third Quarter 2018 Results

October 12, 2018

SAN FRANCISCO--(BUSINESS WIRE)--Oct 12, 2018--First Republic Bank (NYSE: FRC) today announced financial results for the quarter ended September 30, 2018.

“First Republic had a terrific quarter,” said Jim Herbert, Chairman and CEO. “Growth and new client acquisition across the franchise remain very strong. Credit quality remains excellent.”

Quarterly Highlights

Financial Results

Year-over-year: Revenues were $768.8 million, up 14.7%.Net income was $213.5 million, up 6.8%.Diluted earnings per share of $1.19, up 4.4%.Loan originations totaled $7.0 billion.Tangible book value per share was $44.00, up 13.1%. Net interest margin was 2.94%, compared to 2.95% last quarter. Efficiency ratio was 63.0%, compared to 63.5% last quarter.

Continued Capital and Credit Strength

Common Equity Tier 1 ratio was 10.47%, compared to 10.58% a year ago. Nonperforming assets remained very low at 4 basis points of total assets. Net charge-offs were only $185,000, or less than 1 basis point of average loans.

Continued Franchise Development

Year-over-year: Loans, excluding loans held for sale, totaled $72.3 billion, up 21.6%.Deposits were $74.8 billion, up 14.2%.Wealth management assets were $131.0 billion, up 29.2%.Wealth management revenues were $109.7 million, up 24.0%.

“Total revenues and net interest income both increased 15% compared to a year ago,” said Mike Roffler, Chief Financial Officer. “We are pleased that the efficiency ratio remained stable, while we continue to invest in the franchise.”

Quarterly Cash Dividend Declared

The Bank declared a cash dividend for the third quarter of $0.18 per share of common stock, which is payable on November 8, 2018 to shareholders of record as of October 25, 2018.

Very Strong Asset Quality

Credit quality remains very strong. Nonperforming assets were only 4 basis points of total assets at September 30, 2018.

The Bank had net charge-offs for the quarter of $185,000, while adding $18.6 million to its allowance for loan losses due to continued loan growth.

Continued Capital Strength and Access to Capital Markets

The Bank’s Common Equity Tier 1 ratio was 10.47% at September 30, 2018, compared to 10.58% a year ago.

During the third quarter, the Bank issued and sold 2,000,000 new shares of common stock in an underwritten public offering, which added $200.6 million to common equity.

As previously indicated, the Bank currently expects to redeem its $200.0 million of 7.00% Noncumulative Perpetual Series E Preferred Stock when such stock becomes redeemable at the Bank’s option on or after December 28, 2018, subject to all applicable regulatory approvals.

Tangible Book Value Growth

Tangible book value per common share at September 30, 2018 was $44.00, up 13.1% from a year ago.

Continued Franchise Development

Loan Originations

Loan originations were $7.0 billion for the quarter, down 3.0% from last year’s third quarter, largely due to a decline in single family refinance volume.

Loans, excluding loans held for sale, totaled $72.3 billion at September 30, 2018, up 21.6% compared to a year ago, primarily due to increases in single family, business and multifamily loans.

Deposit Growth

Total deposits increased to $74.8 billion, up 14.2% compared to a year ago.

At September 30, 2018, checking accounts totaled 60.0% of deposits.

Investments

Total investment securities at September 30, 2018 were $16.3 billion, down 1% for the quarter and down 6.9% compared to a year ago.

High-quality liquid assets totaled $15.0 billion at September 30, 2018, and represented 16.2% of average total assets. High-quality liquid assets now include $5.0 billion of municipal securities that qualify under the amended definition of high-quality liquid assets from a recent FDIC rule.

Mortgage Banking Activity

During the third quarter, the Bank sold $92.1 million of loans and recorded a gain on sale of $303,000, compared to loan sales of $822.4 million and a gain of $2.0 million during the third quarter of last year.

Loans serviced for investors at quarter-end totaled $11.7 billion, down 3.1% from a year ago.

Continued Expansion of Wealth Management

Wealth management revenues totaled $109.7 million for the quarter, up 24.0% compared to last year’s third quarter. Such revenues represented 14.3% of the Bank’s total revenues for the quarter.

Total wealth management assets were $131.0 billion at September 30, 2018, up 8.1% for the quarter and up 29.2% compared to a year ago. The growth in wealth management assets was primarily due to net new assets from both existing and new clients.

Wealth management assets included investment management assets of $62.5 billion, brokerage assets and money market mutual funds of $58.0 billion, and trust and custody assets of $10.5 billion.

Income Statement and Key Ratios

Strong Revenue Growth

Total revenues were $768.8 million for the quarter, up 14.7% compared to the third quarter a year ago.

Strong Net Interest Income Growth

Net interest income was $634.5 million for the quarter, up 15.2% compared to the third 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 2.94% for the third quarter, compared to 2.95% for the prior quarter.

Noninterest Income

Noninterest income was $134.4 million for the quarter, up 12.6% compared to the third quarter a year ago. The increase was primarily from growth in wealth management revenues.

Noninterest Expense and Efficiency Ratio

Noninterest expense was $484.0 million for the quarter, up 15.7% compared to the third quarter a year ago. The increase was primarily due to increased salaries and benefits and information systems costs from the continued investments in the expansion of the franchise.

The efficiency ratio was 63.0% for the quarter, compared to 62.4% for the third quarter a year ago.

Income Taxes

Beginning in 2018, federal tax reform legislation reduces the federal tax rate for corporations from 35% to 21% and changes or limits certain tax deductions.

The Bank’s effective tax rate for the third quarter of 2018 was 19.8%, compared to 16.8% for the second quarter of 2018 and 17.3% for the third quarter of 2017. The increase compared to the prior quarter was primarily the result of lower tax benefits from the decreased vesting of stock awards. The increase compared to the third quarter of 2017 was primarily the result of lower tax benefits from a decrease in both stock option exercises and vesting of stock awards, partially offset by a decrease in the corporate federal tax rate.

Conference Call Details

First Republic Bank’s third quarter 2018 earnings conference call is scheduled for October 12, 2018 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 October 12, 2018, at 10:00 a.m. PT / 1:00 p.m. ET, through October 17, 2018, at 8:59 p.m. PT / 11:59 p.m. ET. To access the replay, dial (844) 512-2921 and use conference ID #13683358. 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, with a solid commitment to responsiveness and action. 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 later in 2018, Jackson, Wyoming. First Republic offers a complete line of banking products for individuals and businesses, including deposit services, as well as residential, commercial and personal loans. 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. 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 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; the regulatory environment in which we operate, our regulatory compliance and future regulatory requirements; the impact of tax reform legislation; the phase-in of capital requirements under the Basel III framework, and 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. 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.

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