First Republic Reports 2021 Results

·19 min read

Net Interest Income Increased 26% Year-Over-Year

Tangible Book Value Per Share Increased 17% Year-Over-Year

SAN FRANCISCO, January 14, 2022--(BUSINESS WIRE)--First Republic Bank (NYSE: FRC) today announced financial results for the quarter and year ended December 31, 2021.

"This was a terrific year for First Republic," said Mike Roffler, Co-CEO (Acting) and President. "Loans, deposits and wealth management assets all grew nicely for both the fourth quarter and the full year. First Republic continues to succeed by executing a client-centric business model focused on exceptional service."

Full Year Highlights

Financial Results

– Revenues were $5.0 billion, up 28.5%.

– Net interest income was $4.1 billion, up 26.1%.

– Net income was $1.5 billion, up 38.9%.

– Diluted earnings per share ("EPS") of $7.68, up 32.2%.

– Loan originations totaled $64.8 billion, our best year ever.

– Tangible book value per share was $67.10, up 17.1%.

– Efficiency ratio was 62.5%, compared to 61.9% last year.

Continued Capital and Credit Strength

– Tier 1 leverage ratio was 8.76%.

– Tier 1 capital raised of $2.8 billion, net.

– Nonperforming assets remained at a low 8 basis points of total assets at year-end.

– Net charge-offs were only $2.1 million, or less than 1 basis point of average loans.

Continued Franchise Growth

– Loans totaled $135.0 billion, up 19.9%.

– Deposits were $156.3 billion, up 36.0%.

– Wealth management assets were $279.4 billion, up 43.7%.

– Wealth management revenues were $760 million, up 44.4%.

Quarterly Highlights

– Compared to last year’s fourth quarter:

– Revenues were $1.4 billion, up 26.4%.

– Net interest income was $1.1 billion, up 25.4%.

– Net income was $400 million, up 35.5%.

– Diluted EPS of $2.02, up 26.3%.

– Loan originations were $16.9 billion, our best quarter ever.

– Net charge-offs were less than $100,000.

– Compared to the prior quarter:

– Net interest margin was 2.68%, compared to 2.65%.

– Efficiency ratio was 63.3%, compared to 61.3%.

– Wealth management assets were up 11.0%.

"Credit quality, liquidity and capital remain strong, and we’re pleased to have raised $2.8 billion in net new Tier 1 capital in 2021," said Olga Tsokova, Chief Financial Officer (Acting) and Chief Accounting Officer. "Net interest income increased 26% and tangible book value per share rose 17% in 2021."

Quarterly Cash Dividend of $0.22 per Share

The Bank declared a cash dividend for the fourth quarter of $0.22 per share of common stock, which is payable on February 10, 2022 to shareholders of record as of January 27, 2022.

Strong Asset Quality

Credit quality remains strong. Nonperforming assets were at a low 8 basis points of total assets at December 31, 2021.

The provision for credit losses for the full year was $59 million, with net loan charge-offs of only $2.1 million. For the quarter, the provision for credit losses was $24 million, which was primarily driven by loan growth.

Continued Book Value Growth and Capital Strength

Book value per common share at December 31, 2021 was $68.34, up 16.6% from a year ago. Tangible book value per common share at December 31, 2021 was $67.10, up 17.1% from a year ago.

The Bank’s Tier 1 leverage ratio was 8.76% at December 31, 2021, compared to 8.55% at September 30, 2021.

During the fourth quarter, the Bank issued $740 million of 4.500% Noncumulative Perpetual Series N Preferred Stock, which qualifies as Tier 1 capital.

Total common stock sold and preferred stock issued, net of preferred stock redeemed, added $2.8 billion of Tier 1 capital in 2021, and contributed to the 35.3% increase in total equity year-over-year.

Continued Franchise Growth

Loan Originations

Loan originations were $16.9 billion for the quarter, up slightly from the same quarter a year ago. For 2021, loan originations totaled $64.8 billion, up 23.0% compared to the prior year. The increase for the year was primarily due to increases in single family lending and capital call lines of credit.

Single family loan originations were 42% of the total loan origination volume for the quarter and 46% for the full year, and had a weighted average loan-to-value ratio of 59% for the full year. In addition, multifamily and commercial real estate loans originated were 14% of total originations for the quarter and 11% for the year, and had a weighted average loan-to-value ratio of 49% for the year.

Loans totaled $135.0 billion at December 31, 2021, up 19.9% compared to a year ago, primarily due to increases in single family, capital call lines of credit, multifamily and stock secured loans, partially offset by a decrease in PPP loans.

Deposit Growth

Total deposits increased to $156.3 billion, up 36.0% compared to a year ago, and had an average rate paid of 5 basis points during the quarter.

At December 31, 2021, checking deposit balances were 71.7% of total deposits.

Investments

Total investment securities at December 31, 2021 were $25.7 billion, a 6.3% increase compared to the prior quarter and a 38.7% increase compared to a year ago.

High-quality liquid assets, including eligible cash, totaled $30.4 billion at December 31, 2021, and represented 17.0% of quarterly average total assets.

Wealth Management

Total wealth management assets were $279.4 billion at December 31, 2021, up 11.0% compared to the prior quarter and up 43.7% compared to a year ago. The increases in wealth management assets were due to net client inflow and market appreciation.

Wealth management revenues totaled $207 million for the quarter, up 37.1% compared to last year’s fourth quarter. For 2021, wealth management revenues were $760 million, an increase of 44.4% compared to the prior year. Such revenues represented 15.2% of the Bank’s total revenues for the quarter and 15.1% of the Bank’s total revenues for the year.

Wealth management assets at December 31, 2021 included investment management assets of $109.1 billion, brokerage assets and money market mutual funds of $151.9 billion, and trust and custody assets of $18.4 billion.

Income Statement and Key Ratios

Revenue Growth

Total revenues were $1.4 billion for the quarter, up 26.4% compared to the fourth quarter a year ago, and were $5.0 billion for 2021, up 28.5% compared to the prior year.

Net Interest Income Growth

Net interest income was $1.1 billion for the quarter, up 25.4% compared to the fourth quarter a year ago, and was $4.1 billion for 2021, up 26.1% compared to the prior year. The increases in net interest income resulted primarily from growth in average interest-earning assets, modestly offset by decreases in net interest margin.

Net Interest Margin

The net interest margin increased to 2.68% in the fourth quarter, from 2.65% in the prior quarter. For 2021, the net interest margin was 2.67%, compared to 2.72% for the prior year. The increase for the quarter was primarily due to reduced interest expense that resulted from prepaid FHLB advances in the fourth quarter of 2021. The decline for the year was primarily due to significantly higher average cash balances during the year.

Noninterest Income

Noninterest income was $247 million for the quarter, up 31.6% compared to the fourth quarter a year ago, and was $920 million for 2021, up 40.6% compared to the prior year. The increases were primarily driven by higher wealth management fees and income from investments in life insurance.

Noninterest Expense and Efficiency Ratio

Noninterest expense was $866 million for the quarter, up 29.9% compared to the fourth quarter a year ago, and was $3.1 billion for 2021, up 29.7% compared to the prior year, primarily due to continued investments in the expansion of the franchise, including hiring additional colleagues to support our growth and information systems initiatives.

The efficiency ratio was 63.3% for the quarter, compared to 61.6% for the fourth quarter a year ago. The increase was primarily due to higher compensation costs. For 2021, the efficiency ratio was 62.5%, compared to 61.9% for 2020.

Income Taxes

The Bank’s effective tax rate for the fourth quarter of 2021 was 16.1%, compared to 22.1% for the fourth quarter a year ago. The effective tax rate for 2021 was 19.1%, compared to 20.2% for 2020. The decreases were primarily due to research and development tax credits from prior years’ amended tax returns filed in the fourth quarter of 2021.

Conference Call Details

First Republic Bank’s fourth quarter 2021 earnings conference call is scheduled for January 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 3634481 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 call will be available beginning January 14, 2022 at 11:00 a.m. PT / 2:00 p.m. ET through January 21, 2022 at 8:59 p.m. PT / 11:59 p.m. ET. To access the replay, dial (888) 203-1112 and use confirmation code 3634481#. 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 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, 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 COVID-19; 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 including in connection with the search for our next chief executive officer; 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; 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 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.

CONSOLIDATED STATEMENTS OF INCOME

Quarter Ended
December 31,

Quarter Ended
September 30,

Year Ended
December 31,

(in millions, except per share amounts)

2021

2020

2021

2021

2020

Interest income:

Loans

$

992

$

845

$

947

$

3,725

$

3,245

Investments

165

138

161

624

576

Other

4

6

5

19

24

Cash and cash equivalents

6

2

5

17

8

Total interest income

1,167

991

1,118

4,385

3,853

Interest expense:

Deposits

20

30

22

95

276

Borrowings

27

68

44

176

315

Total interest expense

47

98

66

271

591

Net interest income

1,120

893

1,052

4,114

3,262

Provision for credit losses

24

35

34

59

157

Net interest income after provision for credit losses

1,096

858

1,018

4,055

3,105

Noninterest income:

Investment management fees

150

114

149

554

395

Brokerage and investment fees

19

11

23

74

51

Insurance fees

7

6

6

19

12

Trust fees

7

5

6

25

19

Foreign exchange fee income

24

15

26

88

50

Deposit fees

7

6

7

27

24

Loan and related fees

9

7

8

33

28

Gain (loss) on investment securities

(3

)

2

1

4

Income from investments in life insurance

27

18

20

85

53

Other income

6

4

14

19

Total noninterest income

247

188

251

920

655

Noninterest expense:

Salaries and employee benefits

544

416

514

2,003

1,495

Information systems

99

79

91

362

299

Occupancy

66

57

67

254

221

Professional fees

27

18

27

101

66

Advertising and marketing

21

14

14

64

43

FDIC assessments

13

12

14

52

44

Other expenses

96

71

71

311

258

Total noninterest expense

866

667

798

3,147

2,426

Income before provision for income taxes

477

379

471

1,828

1,334

Provision for income taxes

77

84

101

350

270

Net income

400

295

370

1,478

1,064

Dividends on preferred stock

32

16

25

99

59

Net income available to common shareholders

$

368

$

279

$

345

$

1,379

$

1,005

Basic earnings per common share

$

2.05

$

1.61

$

1.94

$

7.78

$

5.85

Diluted earnings per common share

$

2.02

$

1.60

$

1.91

$

7.68

$

5.81

Weighted average shares—basic

179

173

178

177

172

Weighted average shares—diluted

182

175

180

180

173

CONSOLIDATED BALANCE SHEETS

As of

($ in millions)

December 31,
2021

September 30,
2021

December 31,
2020

ASSETS

Cash and cash equivalents

$

12,947

$

12,279

$

5,095

Debt securities available-for-sale

3,381

2,961

1,906

Debt securities held-to-maturity, net

22,292

21,192

16,603

Equity securities (fair value)

28

32

21

Loans:

Single family

76,793

73,491

61,370

Home equity lines of credit

2,584

2,429

2,450

Single family construction

993

985

788

Multifamily

15,966

15,417

13,769

Commercial real estate

8,531

8,486

8,018

Multifamily/commercial construction

1,927

2,064

2,024

Capital call lines of credit

10,999

9,088

8,150

Tax-exempt

3,680

3,578

3,366

Other business

3,961

3,554

3,340

PPP

545

876

1,841

Stock secured

3,435

3,120

2,518

Other secured

2,457

2,261

1,819

Unsecured

3,085

3,026

3,113

Total loans

134,956

128,375

112,566

Allowance for credit losses

(694

)

(668

)

(635

)

Loans, net

134,262

127,707

111,931

Loans held for sale

1

4

21

Investments in life insurance

2,650

2,628

2,061

Tax credit investments

1,220

1,181

1,132

Premises, equipment and leasehold improvements, net

454

431

403

Goodwill and other intangible assets

222

223

228

Other assets

3,630

3,933

3,101

Total Assets

$

181,087

$

172,571

$

142,502

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:

Deposits:

Noninterest-bearing checking

$

70,840

$

65,833

$

46,281

Interest-bearing checking

41,248

34,089

30,603

Money market checking

20,303

21,861

16,779

Money market savings and passbooks

16,573

15,947

12,585

Certificates of deposit

7,357

7,596

8,681

Total Deposits

156,321

145,326

114,929

Long-term FHLB advances

3,700

7,700

11,755

Senior notes

998

998

996

Subordinated notes

779

779

778

Other liabilities

3,391

2,966

2,293

Total Liabilities

165,189

157,769

130,751

Shareholders’ Equity:

Preferred stock

3,633

2,893

1,545

Common stock

2

2

2

Additional paid-in capital

5,725

5,685

4,835

Retained earnings

6,569

6,242

5,346

Accumulated other comprehensive income (loss)

(31

)

(20

)

23

Total Shareholders’ Equity

15,898

14,802

11,751

Total Liabilities and Shareholders’ Equity

$

181,087

$

172,571

$

142,502

Quarter Ended December 31,

Quarter Ended September 30,

2021

2020

2021

Average Balances, Yields and Rates

Average
Balance

Interest
Income/
Expense (1)

Yield/
Rates (2)

Average
Balance

Interest
Income/
Expense (1)

Yield/
Rates...

Average
Balance

Interest
Income/
Expense (1)

Yield/
Rates (2)

($ in millions)

Assets:

Interest-bearing deposits with banks

$

15,342

...