First Republic Reports 2022 Results

Net Interest Income Grew 17% Year-Over-Year

Tangible Book Value Per Share Increased 11% Year-Over-Year

First Republic Bank (NYSE: FRC) today announced financial results for the quarter and year ended December 31, 2022.

“2022 was another terrific year of safe, consistent and organic growth,” said Mike Roffler, Chief Executive Officer and President. “We achieved our highest Net Promoter Score ever, which reflects our unwavering focus on exceptional client service.”

Full Year Highlights

Financial Results

• Revenues were $5.9 billion, up 16.5%.
• Net interest income was $4.8 billion, up 17.5%.
• Net income was $1.7 billion, up 12.7%.
• Diluted earnings per share of $8.25, up 7.4%.
• Loan originations totaled $73.4 billion, our best year ever.
• Book value per share was $75.38, up 10.3%.
• Tangible book value per share was $74.19, up 10.6%. ⁽¹⁾
• Efficiency ratio was 61.7%, compared to 62.5% last year.

Continued Capital and Credit Strength

• Tier 1 leverage ratio was 8.51%.
• Nonperforming assets were a low 5 basis points of total assets.
• Net charge-offs were only $2.9 million, or less than 1 basis point of average loans.

Continued Franchise Growth

• Loans totaled $166.9 billion, up 23.6%.
• Deposits were $176.4 billion, up 12.9%.
• Wealth management assets were $271.2 billion, down 2.9%.
• Wealth management revenues were $877 million, up 15.4%.

Quarterly Highlights

Financial Results

• Compared to last year’s fourth quarter:
  • Revenues were $1.4 billion, up 5.2%.
  • Net interest income was $1.2 billion, up 4.9%.
  • Net income was $386 million, down 3.6%.
  • Diluted earnings per share of $1.88, down 6.9%.
• Loan originations totaled $15.6 billion.
• Net charge-offs were $0.9 million.
• Compared to the prior quarter:
  • Net interest margin was 2.45%, compared to 2.71%.
  • Efficiency ratio was 63.9%, compared to 60.3%.
  • Wealth management assets were up 8.7%

“Revenue and net interest income growth were strong in 2022,” said Neal Holland, Chief Financial Officer. “Credit quality remains excellent, with nonperforming assets near all-time lows. Tangible book value per share increased 11%.”

Quarterly Cash Dividend of $0.27 per Share

The Bank declared a cash dividend for the fourth quarter of $0.27 per share of common stock, which is payable on February 9, 2023 to shareholders of record as of January 26, 2023.

Strong Asset Quality

Credit quality remains strong. Nonperforming assets were at a very low 5 basis points of total assets at December 31, 2022.

The provision for credit losses for the quarter was $30 million, with net loan charge-offs of only $0.9 million for the quarter. For the year, the provision for credit losses was $107 million, with net loan charge-offs of only $2.9 million.

Continued Book Value Growth

Book value per common share at December 31, 2022 was $75.38, up 10.3% from a year ago. Tangible book value per common share at December 31, 2022 was $74.19, up 10.6% from a year ago. ⁽¹⁾

Capital Strength

The Bank’s Tier 1 leverage ratio was 8.51% at December 31, 2022, compared to 8.59% at September 30, 2022.

Continued Franchise Growth

Loan Originations

Loan originations were $15.6 billion for the quarter. This was down 7.5% from the same quarter a year ago. For 2022, loan originations totaled $73.4 billion, up 13.2% compared to the prior year. The decrease for the quarter was primarily due to decreases in capital call lines of credit and single family lending. The increase for the year was primarily due to increases in single family, multifamily and commercial real estate lending.

Single family loan originations were 38% of the total loan origination volume for the quarter and 43% for the year, and had a weighted average loan-to-value ratio of 61% for the year. Multifamily and commercial real estate loans originated were 16% of total originations for both the quarter and the year, and had a weighted average loan-to-value ratio of 51% for the year. In addition, capital call lines of credit originated were 16% of total originations for both the quarter and the year.

Loans totaled $166.9 billion at December 31, 2022, up 23.6% compared to a year ago. The increase was driven by growth in substantially all loan categories, partially offset by lower capital call lines of credit outstanding.

Investments

Total investment securities at December 31, 2022 were $31.7 billion, a slight increase compared to September 30, 2022 and a 23.4% increase compared to a year ago.

High-quality liquid assets, including eligible cash, totaled $26.0 billion at December 31, 2022, and represented 12.6% of quarterly average total assets.

Deposit Growth and Funding

Total deposits increased to $176.4 billion, up 12.9% compared to a year ago. Deposits were our primary source of funding at December 31, 2022, and represented 92% of our large funding base.

At December 31, 2022, our deposit base consisted of 58.8% checking deposits, 26.9% other liquid deposits including money market checking and money market savings and passbooks, and 14.3% CDs.

Other sources of funding at December 31, 2022 included short-term and long-term FHLB advances, which totaled $14.0 billion.

Deposits had an average rate paid of 99 basis points during the quarter, and average total funding costs were 112 basis points during the quarter.

Wealth Management

Total wealth management assets were $271.2 billion at December 31, 2022, up 8.7% compared to the prior quarter and down 2.9% compared to a year ago. The increase in wealth management assets for the quarter was due to net client inflow and market appreciation. The decrease in wealth management assets for the year was due to market decline, meaningfully offset by net client inflow. Wealth management assets at December 31, 2022 included investment management assets of $112.2 billion, brokerage assets and money market mutual funds of $138.9 billion, and trust and custody assets of $20.1 billion.

Wealth management fees, which consist of investment management, brokerage and investment, insurance, trust and foreign exchange fee income, totaled $210 million for the quarter, up slightly compared to last year’s fourth quarter. For 2022, wealth management fees were $877 million, an increase of 15.4% compared to the prior year. Such revenues represented 14.6% of the Bank’s total revenues for the quarter and 15.0% of the Bank’s total revenues for the year.

Income Statement and Key Ratios

Revenue Growth

Total revenues were $1.4 billion for the quarter, up 5.2% compared to the fourth quarter a year ago and were $5.9 billion for 2022, up 16.5% compared to the prior year.

Net Interest Income Growth

Net interest income was $1.2 billion for the quarter, up 4.9% compared to the fourth quarter a year ago, and was $4.8 billion for 2022, up 17.5% compared to the prior year. The increases in net interest income for the quarter and the year resulted primarily from growth in average interest-earning assets, partially offset by decreases in net interest margin compared to a year ago.

Net Interest Margin

The net interest margin declined to 2.45% in the fourth quarter, from 2.71% in the prior quarter. For 2022, the net interest margin was 2.65%, compared to 2.67% for the prior year. The declines were due to average funding costs increasing more rapidly than the offsetting increases in the average yields on interest-earning assets.

Noninterest Income

Noninterest income was $263 million for the quarter, up 6.4% compared to the fourth quarter a year ago, and was $1.0 billion for 2022, up 12.1% compared to the prior year. The increase for the quarter was primarily driven by higher brokerage and investment fees and higher income from investments in life insurance, partially offset by lower investment management fees. The increase for the year was primarily driven by higher investment management fees and higher brokerage and investment fees.

Noninterest Expense and Efficiency Ratio

Noninterest expense for the quarter remained unchanged compared to the third quarter of 2022. Noninterest expense was $919 million for the quarter, up 6.2% compared to the fourth quarter a year ago, and was $3.6 billion for 2022, up 14.9% compared to the prior year. The increases were primarily due to continued investments in our business expansion, including hiring additional colleagues to support our growth, information systems initiatives and occupancy costs.

The efficiency ratio was 63.9% for the quarter, compared to 63.3% for last year’s fourth quarter. For 2022, the efficiency ratio was 61.7%, compared to 62.5% in 2021.

Income Taxes

The Bank’s effective tax rate for the fourth quarter of 2022 was 20.9%, compared to 16.1% for the fourth quarter a year ago. For 2022, the Bank’s effective tax rate was 22.2%, compared to 19.1% a year ago. The increases were primarily the result of higher research and development tax credits claimed in the prior year and lower excess tax benefits recognized in the current year.

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⁽¹⁾ Represents a non-GAAP financial measure. See reconciliation in “Book Value per Common Share and Tangible Book Value per Common Share” table in this document for additional details.

Conference Call Details

First Republic Bank’s fourth quarter 2022 earnings conference call is scheduled for January 13, 2023 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 7764494 approximately 15 minutes prior to the start time (to allow time for registration). International callers should dial +1 (856) 344-9221 and provide the same confirmation code.

The call will also be broadcast live over the Internet and can be accessed in the Investor Relations section of First Republic’s website at ir.firstrepublic.com/events-calendar. To listen to the live webcast, please visit the site at least 15 minutes prior to the start time to register, download and install any necessary audio software.

For those unable to join for the live presentation, a replay of the webcast will be available for 90 days following, accessible in the Investor Relations section of First Republic Bank’s website at ir.firstrepublic.com/events-calendar.

The Bank’s press releases are available after release in the Newsroom and Investor Relations section of First Republic Bank’s website at firstrepublic.com.

About First Republic Bank

Founded in 1985, First Republic and its subsidiaries offer private banking, private business banking and private wealth management. First Republic specializes in delivering exceptional, relationship-based service and provides a complete line of products, including residential, commercial and personal loans, deposit services, and private wealth management, including investment, brokerage, insurance, trust and foreign exchange services. Services are offered through preferred banking or wealth management offices primarily in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach and San Diego, California; Portland, Oregon; Boston, Massachusetts; Palm Beach, Florida; Greenwich, Connecticut; New York, New York; Jackson, Wyoming; and Bellevue, Washington. First Republic is a constituent of the S&P 500 Index and KBW Nasdaq Bank Index. For more information, visit firstrepublic.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this press release that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimates,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Accordingly, these statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them.

Forward-looking statements involving such risks and uncertainties include, but are not limited to, statements regarding: projections of loans, assets, deposits, liabilities, revenues, expenses, tax liabilities, net income, net interest income, net interest margin, capital expenditures, liquidity, dividends, capital structure, investments or other financial items; forecasts of future economic conditions generally and in our market areas in particular, including expectations relating to interest rates and inflation, which may affect our net interest margin, the ability of borrowers to repay their loans and the value of real property or other property held as collateral for such loans; expectations regarding the banking and wealth management industries; descriptions of plans or objectives of management for future operations, products or services; our opportunities for growth and our plans for expansion (including opening new offices); expectations about the performance of any new offices; projections about the amount and the value of intangible assets; future provisions for credit losses on loans and debt securities, as well as for unfunded loan commitments; changes in nonperforming assets; expectations regarding the impact and duration of the COVID-19 pandemic (collectively referred to as “COVID-19” herein); expectations regarding our executive transitions; projections about future levels of loan originations or loan repayments; projections regarding costs, including the impact on our efficiency ratio; and descriptions of assumptions underlying or relating to any of the foregoing.

Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: economic and market conditions, including volatility in the financial and securities markets, which may negatively impact the valuation of our investment securities portfolio, credit losses on our loans and debt securities, and the performance of our wealth management business; inflation; interest rate risk and credit risk; significant competition to attract and retain banking and wealth management customers, from both traditional and non-traditional financial services and technology companies; our ability to recruit and retain key managers, employees and board members; natural or other disasters, including earthquakes, wildfires, pandemics or acts of terrorism affecting the markets in which we operate; the adverse effects of climate change on our business, clients and counterparties; the negative impacts and disruptions resulting from COVID-19 on our colleagues and clients, the communities we serve and the domestic and global economy, which may have an adverse effect on our business, financial position and results of operations; our ability to maintain and follow high underwriting standards; real estate prices generally and in our markets; our geographic and product concentrations; demand for our products and services; developments and uncertainty related to the future use and availability of some reference rates; the regulatory environment in which we operate, our regulatory compliance and future regulatory requirements, which may result in costs, fees, penalties, business restrictions, reputational harm or other adverse consequences; any changes to liquidity and regulatory capital requirements applicable to us, including more stringent liquidity requirements and heightened capital requirements applicable if we become a Category III banking organization under the FDIC’s regulations by reporting $250 billion or more in total consolidated assets or $75 billion or more in weighted short-term wholesale funding, nonbank assets or off-balance sheet exposure, based on a four quarter trailing average; legislative and regulatory actions affecting us and the financial services industry, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), including increased compliance costs, limitations on activities and requirements to hold additional capital, as well as changes to the Dodd-Frank Act pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act; changes in federal, state or local tax laws; our ability to avoid litigation and its associated costs and liabilities; future Federal Deposit Insurance Corporation (“FDIC”) special assessments or changes to regular assessments; fraud, cybersecurity and privacy risks; and custom technology preferences of our customers and our ability to successfully execute on initiatives relating to enhancements of our technology infrastructure, including client-facing systems and applications. For a discussion of these and other risks and uncertainties, see First Republic’s FDIC filings, including, but not limited to, the risk factors in First Republic’s Annual Report on Form 10-K and any subsequent reports filed by First Republic with the FDIC. These filings are available in the Investor Relations section of our website.

All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout our public filings under the Exchange Act. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Measures

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

Explanatory Note

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