First Republic Bank Reports Strong Second Quarter and Six Months Results; Increases Dividend by 25%

SAN FRANCISCO, July 20 /PRNewswire-FirstCall/ -- First Republic Bank reports net income available to common stockholders of $12,746,000 for the second quarter of 2005, an increase of 24% compared with $10,272,000 for the second quarter of 2004. Diluted earnings per share (EPS) were $0.50, up 22% compared with $0.41 for the second quarter of 2004.

For the first six months, net income available to common stockholders was $25,338,000 in 2005, an increase of 30% compared with $19,454,000 in 2004. Diluted EPS for the first six months were $0.99, up 25% compared with $0.79 for the same period in 2004.

"Results for the second quarter of 2005 reflected strong asset growth, continued deposit growth, a high level of loan originations and operating expense levels as expected. Our asset quality remains excellent, our capital position is strong, our net interest income has increased and our efficiency ratio is satisfactory," said Jim Herbert, President and Chief Executive Officer of First Republic Bank.

Quarterly Cash Dividend Increases 25% to $0.125 per Share

The Bank announced a 25% increase in the quarterly dividend to $0.125 per share of common stock from $0.10 per share. On an annual basis, the dividend will increase to $0.50 per share. The second quarter cash dividend of $0.125 per common share is payable on August 30, 2005 to shareholders of record on August 15, 2005.

Financial Highlights -- Total Bank assets grew to $8.44 billion at June 30, 2005, up 24% for the past year. -- The Bank's loan originations were $1.25 billion for the second quarter of 2005, compared with $1.27 billion for the second quarter of 2004. Year-to-date loan originations were $2.13 billion, compared with $2.14 billion for the same period in 2004. -- Total deposits grew at an annualized rate of 19% for the quarter and 22% for the first six months. -- The Bank's net interest margin for the second quarter was 3.35%, comparable with the prior quarter and up 17 basis points from the second quarter of 2004. -- The Bank's efficiency ratio was 67.8% for the quarter, compared with 62.5% for the same period last year. For the past twelve months, this ratio was 67.2%. -- Total wealth management assets were $14.5 billion, up 4% for the quarter and up 22% compared with $11.9 billion a year ago. Growth in Bank Assets

Total assets of the Bank were $8.44 billion at June 30, 2005, an increase of 24% in the past year. Total loans increased in all loan categories. "During the quarter, we deployed the new preferred stock raised in March 2005. We are pleased that the net interest income earned on new loans and investments has fully offset the higher level of preferred stock dividends," said Katherine August-deWilde, Chief Operating Officer.

Asset Quality Remains Strong

The Bank's credit quality remains strong. At June 30, 2005, there were no foreclosed assets. Nonaccruing loans totaled $20.7 million, or 0.24% of total assets, and consisted primarily of three commercial real estate loans. At June 30, 2005, the Bank's allowance for loan losses was $37.7 million, or 0.63% of total loans. For the quarter, the Bank recorded a provision for loan losses of $1,000,000 and net chargeoffs of $96,000.

Continued Deposit Growth

Total deposits grew $283.9 million for the quarter and $609.1 million during the first six months of 2005. The Bank's core liquid accounts, consisting of checking, money market and passbook accounts, were 79% of total deposits at June 30, 2005. Total deposits have grown 27% in the last twelve months.

At June 30, 2005, the balance in business and personal checking accounts was $1.70 billion, or 27% of total deposits. The average balance of deposits in checking accounts was 4% higher in the second quarter of 2005 compared with the prior quarter and 30% higher compared with the second quarter of 2004.

Capital Strength

The Bank continues to exceed regulatory guidelines required to be well-capitalized. At June 30, 2005, total regulatory capital was $783.0 million, consisting of common stockholders' equity, noncumulative perpetual preferred stock of the Bank and its subsidiaries, subordinated notes and allowance for loan losses. Total capital has grown by 18% over the past year. The Bank's ratio of total capital to risk-adjusted assets was 13.27%.

Net Interest Income Grows

Net interest income increased to $62,208,000 for the second quarter of 2005, up 8% compared with $57,704,000 for the prior quarter and up 27% compared with the second quarter of 2004. This increase is due to a higher average level of loans and investments earning a higher net interest margin. The Bank's net interest margin was 3.35% for the second quarter of 2005, the same as in the prior quarter and up 11 basis points compared with 3.24% for the year 2004.

Noninterest Expense and Operating Efficiency

The Bank's total noninterest expense was $53,391,000 in the second quarter of 2005, an increase of 6% compared with the prior quarter and 34% compared with the second quarter of 2004. Noninterest expense has grown due to salary increases, costs of additional investment management personnel acquired in September 2004, additional costs of hiring new personnel to support loan and deposit growth and increased occupancy costs.

Professional fees related to compliance with the requirements of the Sarbanes-Oxley legislation continued at an elevated level. Professional expenses also included $1.2 million of uninsured costs related to the settlement of litigation in the second quarter of 2005 that, after taxes, reduced earnings per share for the quarter by $0.03.

The Bank's operating efficiency ratio, or recurring noninterest expense as a percentage of net interest income and recurring noninterest income, was 67.8% for the second quarter of 2005, compared with 68.1% for the prior quarter and 65.8% for all of 2004.

Wealth Management

Assets managed or administered by Trainer Wortham, Froley Revy, Starbuck Tisdale, First Republic Trust Company and First Republic Securities Company totaled $14.48 billion at June 30, 2005, an increase of $2.56 billion, or 22%, compared with $11.92 billion as of June 30, 2004. Total fees from these wealth management activities increased 16% to $11,591,000 for the second quarter of 2005 from $10,020,000 for the same quarter last year.

Assets managed by the Bank's investment advisory companies, Trainer Wortham, Froley Revy, and Starbuck Tisdale, totaled $10.19 billion at June 30, 2005, compared with $9.56 billion at June 30, 2004. Included in the assets managed by these entities are substantially all of the Bank's investment securities, which were approximately $1.35 billion at June 30, 2005 and which increased by approximately $410 million in the second quarter of 2005; fees earned for managing these investments are eliminated in consolidation. Total investment advisory fees increased 13% to $9,780,000 for the second quarter of 2005, up from $8,675,000 for the second quarter of 2004.

The Bank offers personal trust services to its private banking clients through First Republic Trust Company. At June 30, 2005, the Trust Company was administering $2.26 billion of trust and custody assets, a 78% increase compared with a year ago.

The Bank offers money market mutual funds and conducts its clients' brokerage activities through First Republic Securities Company, LLC, a broker-dealer subsidiary. Customer assets in money market and brokerage accounts were $2.03 billion at June 30, 2005, an 86% increase compared with a year ago.

Mortgage Banking

The Bank sold $345.6 million of loans during the second quarter of 2005 and recorded net gains of $1,582,000, compared with sales of $287.5 million during the same quarter in 2004 and net losses of $501,000. The net gains on loan sales for the second quarter of 2005 resulted from strong market conditions for the sale of monthly adjustable mortgage loans.

Total loans serviced for investors were $3.9 billion at June 30, 2005, compared with $3.2 billion at June 30, 2004, a 20% increase. Net loan servicing fees were $929,000 for the quarter, compared with net loan servicing fees of $1,244,000 for the second quarter of 2004. At June 30, 2005, the carrying value of mortgage servicing rights ("MSRs") was $22.6 million, or 58 basis points of loans serviced.

Loan Repayment Rates Increase

For the second quarter of 2005, the average annualized principal repayment rate on the Bank's loan portfolio was approximately 19%, compared with 15% for the prior quarter and 17% for all of 2004. Mortgage loan prepayment rates are impacted by the general level of, and changes in, interest rates. The recent flattening of the yield curve has increased demand for fixed rate home loans and caused some borrowers to refinance existing ARM loans.

The average annualized prepayment rate for loans serviced for investors was approximately 19% for the second quarter of 2005, compared with 15% for the prior quarter and 17% for all of 2004. An increase in actual and projected prepayments resulted in an increase in the amortization of MSRs, which reduced net loan servicing fees for the second quarter of 2005.

About First Republic

First Republic Bank is a NYSE-traded private bank and wealth management firm. The Bank and its subsidiaries specialize in providing personalized, relationship-based wealth management services, including private banking, private business banking, investment management, trust, brokerage and real estate lending.

As of June 30, 2005, the Bank and its subsidiaries had total Bank assets and other managed assets of $25.5 billion. First Republic Bank provides access to its services online and through preferred banking offices in seven major metropolitan areas: San Francisco, Los Angeles, Orange County, San Diego, Santa Barbara, Las Vegas and New York City. More information is available on the Bank's web site at http://www.firstrepublic.com/ .

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in this document that are not historical facts. The words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or words of similar meaning, or future or conditional verbs, such as "will," "would," "should," "could," or "may," are generally intended to identify forward-looking statements. These forward-looking statements reflect our current views and assumptions and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from the results discussed in these forward-looking statements for the reasons, among others, discussed under the heading "Risk Factors" in the Bank's Annual Report on Form 10-K for the 2004 fiscal year and under the heading "Information Regarding Forward-Looking Statements," in the Bank's Quarterly Report on Form 10-Q for the period ended March 31, 2005. These factors include: credit, market, operational, liquidity, interest rate and other risks; changes in general business and economic conditions or government fiscal and monetary policies that may significantly affect our earnings, including inflation; business and legal risks that may be uninsured or inadequately insured; the risk that volatility in our mortgage banking business could adversely affect our earnings; the geographic concentration of our loan portfolio could adversely affect our financial condition; competition from other financial services companies in our markets that could adversely affect our ability to achieve our financial goals; and changes in the regulation and supervision of the Bank that could adversely affect our business. Given these factors, you should not place undue reliance on the forward-looking statements. Forward-looking statements speak only as of the date they are made and may not be updated to reflect changes that may occur after the date they are made.

Additional information, including the Bank's most recent filings on Forms 10-K and 10-Q, is available on the Bank's web site at http://www.firstrepublic.com/.

Conference Call Details

First Republic Bank's second quarter 2005 earnings conference call is scheduled for July 20, 2005 at 12:00 p.m. PDT. Investors may listen to the conference call live on the Bank's web site at http://www.firstrepublic.com/. It may be necessary to download audio software to hear the conference call. To do so, investors should click on the Earnings Conference Call link and follow directions. A replay of the web cast will be available on First Republic Bank's web site for 30 days. A replay of the conference call will also be available for two weeks by calling 888-203-1112 for domestic participants and 719-457-0820 for international participants. The pass code number is 7946654. The Bank's press releases are available after release on the Bank's web site at http://www.firstrepublic.com/.

Consolidated Statement of Income and Comprehensive Income Three Months Six Months Ended June 30, Ended June 30, ($ in thousands except per share amounts) 2005 2004 2005 2004 Interest income: Interest on real estate and other loans $85,350 $59,702 $162,142 $116,270 Interest on investments 14,102 8,940 24,838 16,936 Total interest income 99,452 68,642 186,980 133,206 Interest expense: Interest on customer deposits 27,727 12,770 50,179 25,784 Interest on FHLB advances and other borrowings 8,249 5,465 14,353 9,836 Interest on subordinated notes 1,268 1,268 2,536 2,536 Total interest expense 37,244 19,503 67,068 38,156 Net interest income 62,208 49,139 119,912 95,050 Provision for loan losses 1,000 2,000 2,000 3,000 Net interest income after provision for loan losses 61,208 47,139 117,912 92,050 Noninterest income: Investment advisory fees 9,780 8,675 20,004 17,006 Trust fees 1,016 721 1,832 1,376 Brokerage fees 795 624 1,609 1,939 Loan and related fees 1,722 1,414 2,671 2,450 Loan servicing fees, net 929 1,244 2,023 2,135 Deposit customer fees 1,093 914 2,112 1,741 Gain (loss) on sale of loans 1,582 (501) 3,992 97 Loss on sale of investment securities (23) (188) (308) (167) Income from investments in life insurance 887 865 1,849 1,939 Other income 245 41 247 150 Total noninterest income 18,026 13,809 36,031 28,666 Noninterest expense: Salaries and related benefits 27,501 19,120 53,970 40,844 Occupancy 8,053 6,511 15,847 12,980 Information systems 3,268 2,667 6,218 5,306 Advertising and marketing 3,399 2,468 6,611 4,493 Professional fees 2,658 1,389 4,290 2,296 Travel expenses 1,268 1,067 2,454 2,018 Insurance 821 1,128 1,778 2,141 Other expenses 6,423 5,418 12,359 10,759 Total noninterest expense 53,391 39,768 103,527 80,837 Income before minority interest and income taxes 25,843 21,180 50,416 39,879 Minority interest expense 3,270 3,272 6,541 6,546 Income before income taxes 22,573 17,908 43,875 33,333 Provision for income taxes 7,957 6,547 15,466 12,101 Net income 14,616 11,361 28,409 21,232 Dividends on preferred stock 1,870 1,089 3,071 1,778 Net income available to common stockholders $12,746 $10,272 $25,338 $19,454 Other comprehensive income (loss), net of tax Net income $14,616 $11,361 $28,409 $21,232 Unrealized gain (loss) on cash flow hedges (69) 672 (41) 550 Unrealized net gain (loss) on securities (84) (1,284) (478) 136 Loss on securities included in net income 14 120 179 107 Comprehensive income $14,477 $10,869 $28,069 $22,025 Earnings per common share - basic* $0.53 $0.45 $1.05 $0.85 Earnings per common share - diluted* $0.50 $0.41 $0.99 $0.79 Dividends declared per common share* $0.125 $0.083 $0.225 $0.17 Weighted average shares - basic* 24,236,466 22,988,454 24,057,158 22,912,104 Weighted average shares - diluted* 25,776,460 24,918,589 25,654,402 24,722,610 *Share and per share amounts for 2004 have been adjusted to reflect the March 1, 2005 three-for-two common stock split CONSOLIDATED BALANCE SHEET As of June 30, ($ in thousands except per share amounts) 2005 2004 Assets Cash and cash equivalents $119,496 $74,739 Investment securities available-for-sale 958,920 666,828 Investment securities held-to-maturity 431,999 217,560 Total investments securities 1,390,919 884,388 Loans: Single family mortgages 2,835,656 2,378,738 Home equity lines of credit 735,003 604,824 Commercial mortgages 988,591 761,654 Multifamily mortgages 602,366 506,324 Commercial business loans 291,090 197,340 Construction loans 219,649 197,009 Stock secured loans 81,732 67,386 Other secured loans 97,835 61,539 Unsecured loans and lines 151,198 119,791 Net deferred loan costs 3,968 4,212 Allowance for loan losses (37,746) (33,939) Loans, net 5,969,342 4,864,878 Loans held for sale 502,544 637,060 Investments in life insurance 100,108 95,157 FHLB stock 66,411 61,750 Goodwill 71,001 62,970 Other real estate owned -- -- Other assets 221,765 144,036 Total Assets $8,441,586 $6,824,978 Liabilities and Stockholders' Equity Noninterest-bearing demand accounts $860,851 $644,455 NOW checking 842,817 697,404 MMA and passbook 3,227,459 2,672,816 Certificates of deposit 1,282,574 881,920 Total customer deposits 6,213,701 4,896,595 FHLB advances 1,413,000 1,266,000 Interest payable 7,620 5,502 Other liabilities 61,962 26,545 Subordinated notes 63,770 63,770 Total liabilities 7,760,053 6,258,412 Minority interest in subsidiaries 148,590 148,590 Preferred stock 115,000 65,000 Common stockholders' equity 417,943 352,976 Total stockholders' equity 532,943 417,976 Total Liabilities and Stockholders' Equity $8,441,586 $6,824,978 Number of shares of common stock outstanding* 25,493,962 23,926,468 Book value per common share* $16.39 $14.75 Tangible book value per common share* $13.53 $12.12 Capital Ratios Leverage ratio 7.56% 7.13% Tier 1 risk-based capital ratio 11.35% 10.56% Total risk-based capital ratio 13.27% 13.51% *Share and per share amounts for 2004 have been adjusted to reflect the March 1, 2005 three-for-two common stock split. Three Months Six Months Ended June 30, Ended June 30, 2005 2004 2005 2004 ($ in thousands) Operating Information Loan Origination Volume $1,245,103 $1,265,052 $2,126,032 $2,144,733 Loans Sold or Securitized $345,563 $287,505 $754,820 $551,239 Average Bank Assets per Full-time Bank Employee $11,697 $10,402 $11,449 $10,177 Average Bank Assets and Other Assets under Management per Full-time Employee $30,951 $28,822 $30,936 $28,475 Net Income to Average Bank Assets (A) 0.73% 0.69% 0.73% 0.67% Net Income Available to Common Stockholders to Average Common Equity(A) 12.37% 11.76% 12.53% 11.31% Efficiency Ratio (A) 67.8% 62.5% 67.9% 65.3% Yields/Rates (A) Investments 5.37% 4.24% 5.33% 4.17% Loans 5.31% 4.46% 5.17% 4.53% Total interest- earning assets 5.32% 4.43% 5.19% 4.48% Customer deposits 1.82% 1.06% 1.70% 1.10% Borrowings 3.21% 2.32% 3.15% 2.47% Total interest- bearing liabilities 2.05% 1.31% 1.92% 1.34% Net interest spread 3.27% 3.12% 3.27% 3.14% Net interest margin 3.35% 3.18% 3.35% 3.20% (A) Data is annualized. As of June 30, 2005 2004 ($ in thousands) Assets Under Management/Administration Investment assets under management - Trainer Wortham $5,205,914 $4,284,038 Investment assets under management - Froley Revy 3,882,545 4,254,057 Investment assets under management - Starbuck Tisdale 1,101,770 1,020,510 Assets administered by First Republic Trust Company 2,255,527 1,265,078 Assets in brokerage accounts and money market mutual funds 2,034,751 1,091,843 Total wealth management assets 14,480,507 11,915,526 Loans serviced for investors 3,877,317 3,231,854 Less: Bank investments managed (1,348,711) (827,640) Total fee-based assets $17,009,113 $14,319,740 Asset Quality Information Nonperforming assets: Nonaccrual loans $20,654 $14,406 REO -- -- Total nonperforming assets $20,654 $14,406 Nonperforming assets to total assets 0.24% 0.21% Accruing single family loans past due 90 days or more $6,839 $-- Performing restructured loans $-- $-- Average Balance Sheet Three Months Six Months Ended June 30, Ended June 30, 2005 2004 2005 2004 ($ in thousands) Assets Interest-earning deposits with other institutions $3,318 $2,853 $2,895 $3,125 Short-term investments 19,706 2,230 15,676 4,726 Investment securities 1,189,327 930,933 1,068,322 880,198 Subtotal 1,212,351 936,016 1,086,893 888,049 Loans 5,808,478 4,973,536 5,658,749 4,779,093 Loans held for sale 589,492 346,275 593,927 321,058 Total interest-earning assets 7,610,321 6,255,827 7,339,569 5,988,200 Noninterest-earning assets 415,463 339,840 407,622 335,458 Total average assets $8,025,784 $6,595,667 $7,747,191 $6,323,658 Liabilities and Stockholders' Equity Customer deposits: Noninterest-bearing demand checking $814,343 $596,385 786,039 $553,057 NOW checking 896,181 714,996 892,334 702,123 MMA and passbook 3,167,348 2,689,784 3,129,949 2,650,059 Certificates of deposit 1,218,651 822,462 1,145,136 822,122 Total customer deposits 6,096,523 4,823,627 5,953,458 4,727,361 FHLB advances and other borrowings 1,123,324 1,104,425 1,015,616 940,375 Subordinated notes 63,770 63,770 63,770 63,770 Total borrowings 1,187,094 1,168,195 1,079,386 1,004,145 Total interest-bearing liabilities 7,283,617 5,991,822 7,032,844 5,731,506 Noninterest-bearing liabilities 66,365 40,749 67,162 46,363 Minority interest in subsidiaries 148,590 148,619 148,590 148,676 Stockholders' equity: Preferred stock 115,000 65,000 94,005 53,214 Common stockholders' equity 412,212 349,477 404,590 343,899 Total stockholders' equity 527,212 414,477 498,595 397,113 Total average liabilities and stockholders' equity $8,025,784 $6,595,667 $7,747,191 $6,323,658