FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended Commission
March 31, 1995 File No. 0-15882
- -------------- ----------------
FIRST REPUBLIC BANCORP INC.
---------------------------
(Exact name of registrant as
specified in its charter)
Delaware 94-2964497
- ---------------- ------------
State or other jurisdiction (IRS Employer
of incorporation or organization Identification No.)
388 Market Street
San Francisco, California 94111
-------------------------------
(Address of principal executive offices) (Zip Code)
(415) 392-1400
--------------
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Common Stock , par value $.01 per share, of First Republic Bancorp
Inc. outstanding at May 10, 1995, 7,331,341 shares.
<PAGE>
First Republic Bancorp Inc.
Form 10-Q
March 31, 1995
Index
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet -
March 31, 1995 and December 31, 1994 3
Consolidated Statement of Income -
Quarter Ended March 31, 1995 and 1994 5
Consolidated Statement of Cash Flows -
Three Months ended March 31, 1995 and 1994 6
Notes to Consolidated Financial
Statements 7
Item 2 - Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION 26
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 3 - Defaults Upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES 28
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2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following interim consolidated financial statements
are unaudited. However, they reflect all adjustments (which
included only normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of
financial position, results of operations and cash flows for the
interim periods presented.
FIRST REPUBLIC BANCORP INC.
CONSOLIDATED BALANCE SHEET
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<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 13,588,000 $ 16,920,000
Federal funds sold and short term investments 10,000,000 15,500,000
Interest bearing deposits at other financial institutions 198,000 198,000
Investment securities (net) 131,533,000 129,628,000
Federal Home Loan Bank Stock, at cost 28,927,000 28,527,000
----------- -----------
184,246,000 190,773,000
Loans
Single family (1-4 unit) mortgages 860,560,000 815,010,000
Multifamily (5+ units) mortgages 365,929,000 367,750,000
Commercial real estate mortgages 265,660,000 250,369,000
Commercial business loans 5,300,000 5,621,000
Multifamily construction 14,497,000 9,408,000
Single family construction 12,214,000 14,227,000
Equity lines of credit 29,271,000 28,137,000
Leases, contracts and other 1,122,000 975,000
Loans held for sale 4,976,000 7,166,000
------------- -------------
1,559,529,000 1,498,663,000
Less
Unearned loan fee income (6,016,000) (6,816,000)
Reserve for possible losses (14,368,000) (14,355,000)
------------- -------------
Net loans 1,539,145,000 1,477,492,000
Accrued interest receivable 10,852,000 10,172,000
Purchased servicing and premium on sale of loans 701,000 793,000
Prepaid expenses and other assets 14,151,000 15,489,000
Premises, equipment and leasehold improvements,
net of accumulated depreciation 4,220,000 4,100,000
Real estate owned (REO) 10,385,000 8,500,000
--------------- --------------
$ 1,763,700,000 $1,707,319,000
=============== ==============
</TABLE>
3
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FIRST REPUBLIC BANCORP INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
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(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Thrift certificates
Passbook and MMA accounts $ 132,277,000 $ 138,726,000
Investment certificates 867,090,000 810,107,000
-------------- -------------
Total thrift certificates 999,367,000 948,833,000
Interest payable 12,124,000 12,332,000
Other liabilities 2,714,000 3,511,000
Federal Home Loan Bank advances 576,530,000 570,530,000
Other borrowings 488,000 650,000
------------- -------------
Total senior liabilities 1,591,223,000 1,535,856,000
Senior subordinated debentures 9,974,000 9,978,000
Subordinated debentures 19,699,000 19,699,000
Convertible subordinated debentures 34,500,000 34,500,000
------------- -------------
Total liabilities 1,655,396,000 1,600,033,000
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Stockholders' equity
Common stock 78,000 78,000
Capital in excess of par value 74,818,000 74,745,000
Retained earnings 40,822,000 39,438,000
Deferred compensation -- ESOP (488,000) (650,000)
Treasury shares, at cost (5,026,000) (4,315,000)
Unrealized loss-available for sale securities (1,900,000) (2,010,000)
----------- ------------
Total stockholders' equity 108,304,000 107,286,000
----------- ------------
$1,763,700,000 $1,707,319,000
============== ==============
</TABLE>
4
<PAGE>
FIRST REPUBLIC BANCORP INC.
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
March 31,
-----------
1995 1994
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<S> <C> <C>
Interest income:
Interest on real estate and other loans $ 28,898,000 $ 23,359,000
Interest on investments 3,058,000 1,574,000
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Total interest income 31,956,000 24,933,000
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Interest expense:
Interest on thrift accounts 13,369,000 8,792,000
Interest on notes, debentures and other borrowings 10,371,000 6,091,000
------------ ------------
Total interest expense 23,740,000 14,883,000
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Net interest income 8,216,000 10,050,000
Provision for losses 1,465,000 5,005,000
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Net interest income after provision for losses 6,751,000 5,045,000
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Non-interest income:
Servicing fees, net 712,000 428,000
Loan and related fees 189,000 493,000
Gain on sale of loans 2,000 574,000
Other income 19,000 15,000
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Total non-interest income 922,000 1,510,000
----------- ------------
Non-interest expense:
Salaries and related benefits 2,027,000 1,929,000
Occupancy 659,000 609,000
Advertising 340,000 580,000
Professional fees 102,000 139,000
FDIC insurance premiums 530,000 428,000
REO costs and losses 413,000 113,000
Other general and administrative 1,267,000 1,616,000
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Total non-interest expense 5,338,000 5,414,000
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Income before income taxes 2,335,000 1,141,000
Provision for income taxes 951,000 481,000
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Net income $1,384,000 $ 660,000
========== ============
Net income adjusted for effect of convertible
issue, used in fully diluted EPS $1,783,000 $ 660,000
========== ============
Primary earnings per share $ 0.18 $ 0.08
========== ============
Weighted average shares - primary 7,589,166 8,077,221
========== ============
Fully diluted earnings per share $ 0.18 $ 0.08
========== ============
Weighted average shares - fully diluted 10,129,792 10,601,441
========== ============
</TABLE>
5
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FIRST REPUBLIC BANCORP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months ended
------------------
March 31,
---------
1995 1994
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<S> <C> <C>
Operating Activities
Net Income $ 1,384,000 $ 660,000
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for losses 1,465,000 5,005,000
Provision for depreciation and amortization 837,000 549,000
Amortization of loan fees (1,003,000) (1,060,000)
Amortization of loan servicing fees 91,000 250,000
Amortization of investment securities discounts (8,000) ---
Amortization of investment securities premiums 66,000 53,000
Loans originated for sale (9,103,000) (62,999,000)
Loans sold into commitments 10,556,000 53,272,000
Increase in deferred taxes --- (645,000)
Net gains on sale of loans (2,000) (574,000)
Increase in interest receivable (1,081,000) (1,304,000)
Decrease in interest payable (208,000) (211,000)
Decrease in other assets 991,000 896,000
Decrease in other liabilities (797,000) (4,283,000)
---------- -----------
Net Cash Provided (Used) By Operating Activities 3,188,000 (10,391,000)
Investment Activities
Loans originated (98,166,000) (165,601,000)
Other loans sold --- 18,288,000
Principal payments on loans 27,519,000 80,494,000
Purchases of investment securities (2,980,000) (5,254,000)
Repayments of investment securities 2,602,000 2,213,000
Net decrease in short term investments --- 196,000
Additions to fixed assets (389,000) (446,000)
Net proceeds from sale of real estate owned 3,502,000 2,506,000
------------ -----------
Net Cash Used by Investing Activities (67,912,000) (67,604,000)
Financing Activities
Net increase (decrease) in passbook and MMA accounts (6,449,000) 632,000
Issuance of investment certificates 139,266,000 115,402,000
Repayments of investment certificates (82,283,000) (58,538,000)
Increase (decrease) in long-term FHLB advances (4,000,000) 35,000,000
Repayments of other long-term borrowings (162,000) (137,000)
Net increase (decrease) in short-term borrowings 10,000,000 (22,380,000)
Decrease in deferred compensation - ESOP 162,000 137,000
Repayment of subordinated debentures (4,000) (7,000)
Issuance of subordinated debentures --- 1,113,000
Proceeds from employee stock purchase plan 37,000 51,000
Proceeds from common stock options exercised 36,000 72,000
Purchase of treasury stock (711,000) (69,000)
---------- -----------
Net Cash Provided by Financing Activities 55,892,000 71,276,000
Decrease in Cash and Cash Equivalents (8,832,000) (6,719,000)
Cash and Cash Equivalents at Beginning of Period 32,420,000 38,786,000
------------ ------------
Cash and Cash Equivalents at End of Period $ 23,588,000 $ 32,067,000
============ ============
</TABLE>
6
<PAGE>
FIRST REPUBLIC BANCORP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements of First Republic Bancorp
Inc. ("First Republic") include its subsidiaries, First Republic
Thrift & Loan ("First Thrift"), and First Republic Savings Bank.
First Republic and its subsidiaries are collectively referred to as
the "Company." All material intercompany transactions and balances
are eliminated in consolidation. Certain reclassifications have
been made to the 1994 financial statements in order for them to
conform with the 1995 presentation.
These interim financial statements should be read in conjunction
with the Company's 1994 Annual Report to Stockholders and Consolidated
Financial Statements and Notes thereto. Results for the
quarter ended March 31, 1995 should not be considered indicative of
results to be expected for the full year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115 "Accounting For
Certain Investments in Debt and Equity Securities" which addresses
the accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments
in debt securities. SFAS No. 115 establishes classification of
investments into three categories: (i) debt securities that the
entity has the positive intent and ability to hold to maturity
would be classified as "held to maturity" and reported at amortized
cost; (ii) debt securities that are held for current resale would
be classified as trading securities and reported at fair value,
with unrealized gains and losses included in operations; and (iii)
debt securities not classified as either securities held to
maturity or trading securities would be classified as securities
available for sale, and reported at fair value, with unrealized
gains and losses excluded from operations and reported as a
separate component of stockholders' equity. At March 31, 1995, the
Company owned $13,760,000 of securities classified as available for
sale, all which were adjustable rate preferred stocks without a
stated maturity. These securities had a market value of
$11,860,000 at March 31, 1995 and, accordingly, the Company's
stockholders' equity has been reduced by $1,900,000.
Effective January 1, 1995, the Company adopted SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by
SFAS No. 118 (collectively referred to as SFAS 114). These
statements address the accounting treatment of certain impaired
loans and amend SFAS No. 5 and SFAS No. 15. However, these statements
do not address the overall adequacy of the allowance for losses.
These statements can only be applied prospectively.
A loan within the scope of SFAS No. 114 is considered impaired
when, based on current information and events, it is probable that
the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement, including scheduled
interest payments. For a loan that has
7
<PAGE>
2. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
been restructured, the contractual terms of the loan agreement
refer to the contractual terms specified by the original loan
agreement, not the contractual terms specified by the restructuring
agreement. Subsequent to the adoption of SFAS No. 114,
a loan restructured at an interest rate equal to or
greater than that of a new loan with comparable risk,
at the time that the contract is modified, is included in the
restructured (accruing) disclosure. These loans may be excluded
from the impairment assessment and may cease to be reported as
impaired loans in the calendar years subsequent to the restructuring
if the loan is not impaired based on the modified terms.
For loans that are included under this statement, the Company makes
an assessment for impairment when and while such loans are on
nonaccrual or the loan has been restructured. The measurement of
impairment may be based on (i) the present value of the expected
future cash flows of the impaired loan discounted at the loan's
original effective interest rate, (ii) the observable market price
of the impaired loan, or (iii) the fair value of the collateral of
a collateral dependent loan. The Company's loans are primarily
real estate secured; therefore the Company primarily bases the
measurement of impaired loans on the fair value of the collateral,
reduced by costs to sell.
If the measurement of the impaired loan is less than the recorded
investment in the loan, impairment is recognized by creating or
adjusting an existing allocation of the allowance for losses.
Cash receipts on impaired loans not performing according to
contractual terms are generally used to reduce the carrying value
of the loan unless the Company believes it will recover the
remaining principal balance of the loan. SFAS No. 114 does not
change the timing of charge-offs of loans to reflect the amount
ultimately expected to be collected. The adoption of SFAS No. 114
had no material impact on the Company's consolidated financial
statements as the Company's existing policies and procedures for
measuring loan impairment are consistent with the methods
prescribed in this standard.
8
<PAGE>
2. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In accordance with SFAS 114, the table below shows the recorded
investment in impaired loans and the related SFAS 114 allowance for
losses at March 31, 1995:
<TABLE>
<CAPTION>
Recorded Related SFAS 114
Investment in Allowance for
Impaired Loans Losses
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<S> <C> <C>
Impaired loans requiring a SFAS 114 allowance:
Single Family $ 132,000 $ 10,000
Multifamily 17,800,000 2,065,000
Commercial Real Estate 3,148,000 290,000
Other 1,541,000 137,000
----------- ----------
$22,621,000 $2,502,000
=========== ==========
Impaired loans not requiring a SFAS 114 allowance:
Single Family $ ---
Multifamily 10,036,000
Commercial Real Estate 1,600,000
Other ---
-----------
$11,636,000
===========
Total $34,257,000
===========
</TABLE>
At March 31, 1995, the recorded investment in impaired loans requiring a
SFAS 114 allowance have been reduced by specific chargeoffs
to the Company's reserve for possible losses of $2,201,400 and the
recorded investment in impaired loans not requiring a SFAS 114
allowance have been written down by specific chargeoffs totaling
$3,614,300.
Total interest income recognized on impaired loans during the first
quarter of 1995 was $229,000, all of which was recorded using the cash
method. The average recorded investment in impaired loans during
the first quarter of 1995 was approximately $38,000,000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
First Republic is a financial services company operating in
California and Nevada as a thrift and loan holding company and as
a mortgage banking company, originating, holding or selling, and
servicing mortgage loans. First Republic owns and operates First
Thrift, a California-chartered, FDIC-insured, thrift and loan
subsidiary, and First Republic Savings Bank (collectively, "the
Thrifts").
9
<PAGE>
GENERAL (Continued)
- -------------------
The Company is primarily engaged in originating residential real
estate secured loans on single family residences and multifamily
properties. The Company's loan portfolio also contains loans
secured by commercial properties. Currently, the Company's
strategy is to emphasize the origination of single family and to
limit the origination of multifamily mortgage loans and commercial
real estate mortgage loans. Lending activities in Las Vegas are
primarily focused on single family and multifamily residential
construction projects and permanent mortgage loans on income
properties. The Company emphasizes its real estate lending
activities in San Francisco, Los Angeles, Las Vegas, and San Diego
because of the proximity of its loan offices and the experience of
executive management with real estate in these areas. In addition
to the Company performing an underwriting analysis on each borrower
and obtaining independent property appraisals, an officer of the
Company generally visits each property or project prior to the loan
closing.
During the first quarter of 1995, the Company continued its focus
on single family lending, but the level of loan originations has
been reduced as a result of higher interest rates and secondary
market conditions have severely limited the amount of loans sold or
originated for sale to investors. Total loans of all types
originated by the Company in 1994 were $784.5 million, and loan
sales were $217.0 million in 1994. For the quarter ended March 31,
1995, the Company originated $107.3 million of loans and loan sales
were $10.6 million, as compared to loan originations of $228.6
million and loan sales of $71.6 million for the quarter ended March
31, 1994. The Company either retains the loans it originates in
its loan portfolio or sells the loans to institutional investors in
the secondary market. The Company has retained the servicing
rights for substantially all loans sold in the secondary market,
thereby generating ongoing servicing fees. The Company's mortgage
servicing portfolio consisted of $828.1 million in loans at March
31, 1995.
The following table presents certain performance ratios and share
data information for the Company for the last three years and the
first quarter of the current and prior years.
<TABLE>
<CAPTION>
At or for the quarter At or for the Year
Ended March 31, Ended December 31,
--------------------- ----------------------------------
1995 1994 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets* 0.32% 0.18% 0.47% 0.97% 1.06%
Return on average equity* 5.11 2.49 6.77 12.65 14.10
Average equity to average assets 6.27 7.37 6.94 7.63 7.51
Leverage ratio 6.27 7.36 6.43 7.65 7.58
Total risk-based capital ratio 15.78 17.68 16.32 17.62 16.90
Net interest margin* 1.95 2.83 2.47 3.25 3.30
Non-interest expense to average assets* 1.14 1.47 1.28 1.33 1.30
Nonaccruing assets to total assets 2.02 1.95 2.41 1.55 1.54
Nonaccruing assets and restructured performing
loans to total assets 3.21 2.72 3.43 2.00 1.81
Net loan chargeoffs to average loans* 0.38 0.32 0.58 0.44 0.74
Reserve for possible losses to total loans 0.92 1.25 0.96 1.01 1.19
Reserve for possible losses to nonaccruing loans 57% 89% 44% 109% 133%
Share Data:
Common shares outstanding 7,385,818 7,729,468 7,444,703 7,718,791 7,716,086
Tangible book value per fully-diluted common share $14.65 $13.67 $14.40 $13.58 $11.94
</TABLE>
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*Three months data is annualized
10
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GENERAL (Continued)
- -------------------
First Thrift's retail deposits and FHLB advances are the Company's
principal source of funds with loan principal repayments, sales of
loans, and the proceeds from debt and equity financings as supplemental
sources. The Company's deposit gathering activities are conducted
in the San Francisco Bay Area, Los Angeles, and San Diego County,
California and in Las Vegas, Nevada.
First Thrift is an approved voluntary member of the Federal Home Loan
Bank of San Francisco (FHLB). First Thrift is currently
approved for approximately 40% of its total assets or
approximately $677 million of FHLB advances at March 31, 1995.
Such advances are collateralized by real estate mortgage loans
and $576.5 million has been advanced at March 31, 1995.
Membership in the FHLB provides First Thrift with an
alternative funding source for its loans.
First Thrift, whose thrift certificates are insured by the FDIC,
operates three branches in San Francisco, a branch in Los Angeles,
a branch in Beverly Hills, and three branches in San Diego County.
As of March 31, 1995, First Thrift had total assets of $1,692,391,000,
tangible shareholder's equity of $125,897,000 and total capital,
consisting of tangible shareholder's equity, subordinated capital
notes and reserves of $149,791,000. At March 31, 1995, First Thrift's
tangible shareholder's equity as a percentage of total assets was
7.44% and its total capital as a percentage of risk adjusted assets
was 13.27%, compared to a risk adjusted capital ratio requirement of
8.0%. Under FDIC regulations, First Thrift calculates its Leverage
Ratio at 7.59%, using Tier 1 capital ( as defined under the FDIC's
risk-based capital definitions) and average total assets for the most
recent quarter.
LIQUIDITY
- ---------
Liquidity refers to the ability to maintain a cash flow adequate to
fund operations and to meet present and future obligations of the
Company either through the sale or maturity of existing assets or by
the acquisition of funds through liability management. The Company
maintains a portion of its assets in a diversified portfolio of
marketable investment securities, which includes U.S. Government
securities and mortgage backed securities. At March 31, 1995, the
investment securities portfolio of $ 131,533,000, plus cash and short
term investments of $23,786,000, amounted to $155,319,000, or 8.8% of
total assets. At March 31, 1995, substantially all of the Company's
investments mature within twelve months or are adjustable rate in
nature. At March 31, 1995, the Company owned no investments of a
trading nature.
Additional sources of liquidity at March 31, 1995 are provided by
borrowings collateralized by investment securities of approximately
$80,000,000 and available unused FHLB advances of approximately
$100,000,000. Management believes that the sources of available
liquidity are adequate to meet the Company's reasonably foreseeable
short-term and long-term demands.
ASSET AND LIABILITY MANAGEMENT
- ------------------------------
Management seeks to manage its asset and liability portfolios to help
reduce any adverse impact on its net interest income caused by
fluctuating interest rates. To achieve this objective, the Company
11
<PAGE>
ASSET AND LIABILITY MANAGEMENT (Continued)
- ------------------------------------------
emphasizes the origination of adjustable interest rate or short-term
fixed rate loans and the matching of adjustable rate asset repricings
with short- and intermediate-term investment certificates and
adjustable rate borrowings. The Company's profitability may be
adversely affected by rapid changes in interest rates. Institutions
with long-term assets (both loans and investments) can experience a
decrease in profitability and in the value of such assets if the
general level of interest rates rises. While substantially all of the
Company's assets are adjustable rate mortgage loans and investments,
at March 31, 1995 approximately 63% of these assets which adjust
within one year were assets based on an interest rate index which
generally lags increases and decreases in market rates (the 11th
District Cost of Funds Index or "COFI"). Additionally, the Company's
loans contain interim caps or limitations to the amount that rates may
increase, which factor contributes to a further lagging of rates
earned on loans. At the end of 1993, the Company maintained a
positive 21% one year cumulative gap in anticipation of the possibility
of rising interest rates. Throughout 1994, the Company continued
to seek opportunities to extend the repricing terms of deposit
liabilities, even though the yield curve was very steep, and short
term interest rates were well below rates for 18 months or longer.
At March 31, 1995, approximately 96% of the Company's interest-earning
assets and 70% of interest-bearing liabilities will reprice within the
next year and the Company's one-year cumulative GAP is positive 21.7%.
Despite the Company's positive repricing position at December 31, 1994
and March 31, 1995, the Company's net interest margin has decreased
in the first quarter of 1995, and is expected to decrease further
in the second quarter and possibly third quarter of 1995
if interest rates increase. Important factors include the
lagging nature of COFI, mortgage loan repricings being
subject to interim limitations on asset repricings, some
restructured loans are earning fixed or subsidized rates, the
Company's strategy to increase its home loans which carry lower
margins, and marginal liability costs presently exceeding the yield
which can be earned initially on new home loans.
The following table summarizes the differences between the Company's
maturing or rate adjusting assets and liabilities, or "GAP" position,
at March 31, 1995. Generally, an excess of maturing or rate adjusting
assets over maturing or rate adjusting liabilities during a given
period, will serve to enhance earnings in a rising rate environment
and inhibit earnings when rates decline. Conversely, when maturing
or rate adjusting liabilities exceed maturing or rate adjusting assets
during a given period, a rising rate environment will inhibit earnings
and declining rates will serve to enhance earnings. See "-Results of
Operations" for a discussion of the reduction in the Company's net
interest spread for the quarter ended March 31, 1995. A portion of
the Company's adjustable loans carry minimum interest rates, or
floors, which became the effective loan yield as rates declined
throughout 1992 and 1993, and most such loans have not yet repriced
upwards in 1995. The following table illustrates projected maturities
or interest rate adjustments based upon the contractual maturities or
adjustment dates at March 31, 1995:
12
<PAGE>
ASSET AND LIABILITY MANAGEMENT (Continued)
- ------------------------------------------
<TABLE>
<CAPTION>
FIRST REPUBLIC BANCORP
ASSET & LIABILITY REPRICING SENSITIVITY
March 31, 1995
(000's)
3 Months 3 to 6 to 1 to 2 to Over Non Interest
ASSETS: Immediate or Less 6 Months 12 Months 2 Years 5 Years 5 Years Sensitive TOTAL
--------- -------- -------- --------- ------ ------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (1) 0 757,811 576,805 152,013 16,418 29,589 26,893 0 1,559.529
Securities 0 126,698 11,092 22,655 0 0 15 0 160,460
Cash & short-term
investments 13,588 10,198 0 0 0 0 0 0 23,786
Non-interest bearing
assets, net 0 0 0 0 0 0 0 19,925 19,925
------ ------- ------- ------- ------ ------ ------ ------ ---------
TOTAL 13,588 894,707 587,897 174,668 16,418 29,589 26,908 19,925 1,763,700
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Passbooks & MMA's (2) 0 111,966 10,672 6,593 3,046 0 0 0 132,277
Investment Certificates:
100K or greater 0 7,251 6,413 17,128 13,359 3,116 0 0 47,267
< 100K 0 160,501 175,466 255,248 175,766 51,239 1,603 0 819,823
FHLB advances - long term 0 165,000 284,170 62,360 0 25,000 40,000 0 576,530
ESOP debt 488 0 0 0 0 0 0 0 488
Other short-term debt 0 0 0 0 0 0 0 0 0
Other liabilities 0 0 0 0 0 0 0 14,838 14,838
Subord debt 0 0 0 0 0 1,266 62,907 0 64,173
Equity 0 0 0 0 0 0 0 108,304 108,304
----- ------- ------- ------- ------- ------ ------- ------- ---------
TOTAL 488 444,718 476,721 341,329 192,171 80,621 104,510 123,142 1,763,700
Repricing Assets
over (under) liab 13,100 449,989 111,176 (166,661) (175,753) (51,032) (77,602) (103,217) 0
Effect of swaps 0 45,000 (20,000) 0 0 0 (25,000) 0 0
------ ------- ------- -------- -------- ------- ------- -------- --------
Hedged gap 13,100 404,989 131,176 (166,661) (175,753) (51,032) (52,602) (103,217) 0
====== ======= ======= ======== ======== ======= ======= ======== ========
Gap as % of
Total assets 0.74% 22.96% 7.44% -9.45% -9.97% -2.89% -2.98% -5.85% 0.00%
====== ======= ======= ======== ======== ======= ======= ======== ========
Cumulative gap 13,100 418,089 549,265 382,264 206,851 155,819 103,217 0 0
====== ======= ======= ======== ======== ======= ======= ======== ========
Cumulative gap 0.74% 23.71% 31.14% 21.69% 11.73% 8.83% 5.85% 0.00% 0.00%
as % of assets ====== ======= ======= ======== ======== ======= ======= ======== ========
</TABLE>
(1) Adjustable rate loans consist principally of real estate secured loans
with a maximum term of 30 years. Such loans are generally adjustable
monthly, semiannually, or annually based upon changes in the One Year
Treasury Constant Maturity Index, the Federal Reserve's Six Month CD
Index, or the FHLB 11th District Cost of Funds Index (COFI), subject
generally to a maximum increase of 2% annually and 5% over the lifetime
of the loan.
(2) Passbook and MMA account maturities and rate adjustments are allocated
based upon management's experience of historical interest rate volatility
and erosion rates. However, all passbook and MMA accounts are
contractually subject to immediate withdrawal.
13
<PAGE>
ASSET AND LIABILITY MANAGEMENT (Continued)
- ------------------------------------------
In evaluating the Company's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the
foregoing table must be considered. For example, although certain
assets and liabilities may have similar maturities or periods to
repricing, they may react differently to changes in market interest
rates. Additionally, the interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in
market rates. Further, certain assets, such as adjustable rate
mortgages and mortgage related investments, have features which
restrict changes in interest rates on a short-term basis and over the
life of the asset. The Company considers the anticipated effects of
these various factors in implementing its interest rate risk
management activities, including the utilization of interest rate
caps.
The Company has entered into interest rate cap transactions in the
aggregate notional principal amount of $1,310,000,000 which terminate
in periods ranging from April 1995 through September 2000. Under the
terms of these transactions, which have been entered into with nine
unrelated commercial or investment banking institutions or their
affiliates, the Company will be reimbursed quarterly for increases in
the three-month London Inter-Bank Offer Rate ("LIBOR") for any quarter
during the term of the applicable transaction in which such rate
exceeds a rate ranging from 9.0% to 13% as established for the
applicable transaction. The interest rate cap transactions are
intended to act as hedges for the interest rate risk created by
restrictions on the maximum yield of certain variable rate loans and
investment securities held by the Company which may, therefore, at
times be exposed to the effect of unrestricted increases in the rates
paid on the liabilities which fund these assets. Additionally,
$37,400,000 of First Thrift's advances with the FHLB contain interest
caps of 12.0% as part of the borrowing agreements.
At March 31, 1995, First Thrift also owned certain shorter-term
interest rate cap contracts purchased in 1994 as protection against
further increases in interest rates during 1995 and 1996. Monthly
repricing caps in the notional principal amount of $150,000,000 carry
a strike rate which increases from 6.75% to 8.92% over the period from
April 1995 to maturity in July 1996 and $50,000,000 of interest rate
caps carry a strike rate of 8% until maturity in December 1996. The
cost of interest rate cap transactions is amortized over their lives
and totalled $430,000 and $240,000 for the quarter ended March 31,
1995 and 1994, respectively. Although these costs reduce current
earnings, the Company believes that the cost is justified by the
protection these interest rate cap transactions provide against
significantly increased interest rates. The effect of these interest
rate cap transactions is not factored into the determination of
interest rate adjustments provided in the table above.
At March 31, 1995, the Company had entered into interest rate swaps
with the FHLB for $45,000,000 and with an investment banking firm for
$20,000,000 to convert the fixed rate on certain long-term FHLB
advances to semi-annual adjustable liabilities. The availability of
long-term FHLB advances, with a weighted average maturity of over 10
years at March 31, 1995, has reduced the Company's dependence upon
retail deposits, which generally have a shorter maturity than the
contractual life of mortgage loans. The Company will continue to
consider the alternative of FHLB advances as an integral part of its
asset and liability management program. The Company is exposed to
market loss if the counterparties to its interest rate cap and swap
agreements fail to perform; however, the Company does not anticipate
such nonperformance.
Since 1990, the Company has utilized FHLB advances as a supplement to
deposit gathering to fund its assets. Until 1994, the average cost
of FHLB advances was lower than the total costs of deposits, in part
because market rates of interest were declining and because such
advances require no deposit insurance
14
<PAGE>
ASSET AND LIABILITY MANAGEMENT (Continued)
- ------------------------------------------
premiums. Also, operational overhead costs are less for FHLB
advances than those associated with deposits. Throughout 1994,
and continuing through March 31, 1995, the cost of FHLB advances
increased more rapidly than the cost of the Company's deposits,
due to rapidly rising short term interest rates. The Company's
advances have interest rates which generally adjust semiannually
and to a lesser extent annually, with repricing points spread
throughout the year. There are no limitations or interim caps on
the amount that the interest rate on FHLB advances may increase.
Thus, at each repricing point, the cost of an FHLB advance fully
reflects market rates. FHLB advances must be collateralized by
the pledging of mortgage loans which are assets of First Thrift.
At March 31, 1995, total FHLB advances outstanding were
$576,530,000. Of this amount, $503,330,000 had an original
maturity of 10 years or more and $40,000,000 had an original
maturity of five years. Also, $23,200,000 had an original
maturity of two years subsequently extended for a period of 8
years to 10 years. The longer term advances provide the Company
with an assured level of funding for its term real estate assets
with longer lives.
First Thrift is subject to the provisions of the California
Industrial Loan Law, which limits the amount of thrift balances
which may be raised to twenty times its shareholder's equity. At
March 31, 1995, based on the amount of thrift certificates
outstanding, First Thrift was required to maintain shareholder's
equity of approximately $47,900,000, compared with actual
shareholder's equity of $125,897,000.
CAPITAL RESOURCES
- -----------------
The Company continues to maintain a strong capital base. At
March 31, 1995 the Company's total capital, including total
stockholders' equity, debentures and reserves was $186,845,000.
Total stockholders' equity at March 31, 1995 has increased by
$1,018,000 since December 31, 1994. This increase is primarily
the result of net income of $1,384,000, offset in part by the
purchase of 68,203 treasury shares at a cost of $711,000. The
Company's unrealized loss on securities available for sale was
reduced by $110,000 based on an increase in the market
value of those assets.
First Republic is not a bank holding company and unlike First
Thrift, is not directly regulated or supervised by the FDIC, the
Federal Reserve Board, or any other bank regulatory agency.
Thus, First Republic is not subject to the risk-based capital or
leverage requirements. If such regulations applied, the Company
calculates that at March 31, 1995 its leverage ratio would have
been 6.27% and, its total risk based capital ratio would have
been 15.78%, as calculated by management assuming, however, all
of the Company's subordinated debentures constitute Tier 2
capital and are not limited to 50% of Tier 1 capital.
During the first quarter of 1995, the Company acquired 68,203 of
treasury shares which completed the repurchase of 406,000 shares of
common stock which had previously been approved for repurchase
by the Board of Directors. In March 1995, the Company's Board
of Directors authorized for repurchase from time to time up to an
additional 250,000 shares of common stock. Repurchases of an
aggregrate total of 111,003 shares of common stock in 1995 brought
total treasury shares repurchased to 463,400 at April 30, 1995.
During the first quarter of 1995, First Republic received from
First Thrift dividends of $400,000 representing approximately 24%
of First Thrift's earnings plus interest payments of $263,000.
Also, First Republic received in May 1995 dividends of $50,000
from First Republic Savings Bank, representing
15
<PAGE>
ASSET AND LIABILITY MANAGEMENT (Continued)
- ------------------------------------------
14% of that subsidiary's earnings for the first quarter of 1995. The
ability of First Republic to receive future dividends and other payments
from the Thrifts depends upon the operating results and capital
levels of the Thrifts, restrictions upon such payments imposed by
creditors of the Thrifts, FDIC regulations and other governmental
regulations governing the Thrifts.
RESULTS OF OPERATIONS - Quarter Ended March 31, 1995 Compared to
- --------------------- ----------------------------------------
Quarter Ended March 31, 1994
----------------------------
The Company derives its income from three principal areas of
business: (1) net interest income which is the difference between
the interest income the Company receives on interest-earning
portfolio loans and investments and the interest expense it pays
on interest-bearing liabilities such as customer deposits and
borrowings; (2) mortgage banking operations involving the
origination and sale of real estate secured loans; and (3)
servicing fee income which results from the ongoing servicing of
such loans for investors and the servicing of other loans
pursuant to purchased servicing rights.
During the first quarter of 1995, First Republic's total assets
grew to $1,763,700,000 at March 31, 1995 from $1,707,319,000 at
December 31, 1994, primarily as a result of an increase in single
family mortgage loans. The Company's loan originations for the
first quarter of 1995 were $107,269,000, compared to loan
originations for the fourth quarter of 1994 of $160,722,000 and
for the first quarter of 1994 of $228,600,000. The level of loan
originations for the first quarter of 1995 reflects lower levels
of single family and non-single family originations, as compared
to the prior quarter. Single family loan volume was at a higher
level for most of 1994 including the first quarter of 1994.
Single family loans originated in the first quarter of 1995 were
$71,900,000 compared to $196,800,000 in the first quarter of 1994
and $599,100,000 for all of 1994.
Mortgage banking activity resulted in the sale of $10,556,000 of
single family loans to secondary market investors during the
first quarter of 1995, compared with $71,560,000 in the first
quarter of 1994. The Company's portfolio of real estate loans
serviced for secondary market investors decreased to $828,067,000
at March 31, 1995 from $843,144,000 at December 31, 1994, as
prepayments of existing loans serviced exceeded loan sales. The
level of future loan originations, loan sales and loan repayments
is dependent in part on overall credit availability and the
interest rate environment, the recovery in the general economy
and housing industry, and conditions in the secondary loan sale
markets.
Net income of $1,384,000 for the first quarter in 1995 increased
$724,000 from net income of $660,000 in the same quarter of 1994.
Fully diluted earnings per share (EPS) were $0.18 for the first
quarter of 1995, compared to $0.08 for the similar period in
1994. This comparison is not as favorable as it may seem because
the 1994 first quarter was reduced by a $4,000,000 special bad
debt charge, or $0.24 per share, for the January 1994 Northridge
earthquake. First Republic's operating results for the first
quarter ended March 31, 1995 were reduced by (i) the provision of
additional loan loss reserves primarily related to assets
affected in the Northridge earthquake, (ii) the continuing higher
level of non-earning assets due to the earthquake, and (iii)
reduced margins resulting from the rapid interest rate increase
during 1994 and continuing through March 31, 1995.
Total interest income increased to $31,956,000 for the first
quarter of 1995 from $24,933,000 for the
16
<PAGE>
RESULTS OF OPERATIONS - Quarter Ended March 31, 1995 Compared to Quarter
- ----------------------- ------------------------------------------------
Ended March 31, 1994
--------------------
first quarter of 1994. Interest income on real estate and other loans
increased to $28,898,000 for the first quarter of 1995, compared to
$23,359,000 in 1994. The average yield on loans increased to
7.60% in the first quarter of 1995, from 7.43% for the fourth
quarter of 1994, compared to 7.28% for the same quarter of 1994.
Originations of new adjustable rate loans in the last six months
of 1994 and the first three months of 1995 were generally at
initial interest rates which are below market interest rates and
adjustable based on the 11th District COFI index. Many of the
Company's newest ARM loans are scheduled to reprice on a monthly
basis after an initial one-to-three month period. The Company's
yield on loans is affected by market rates, the level of the COFI
index, the effect of an increased percentage of single family
loans earning relatively low initial rates of interest and the
level of nonaccrual loans. The Company's net loans receivable
outstanding increased from $1,498,663,000 at December 31, 1994 to
$1,559,529,000 at March 31, 1995. As a percentage of the
Company's permanent loan portfolio, single family loans increased
to 57% at March 31, 1995 from 48% at March 31, 1994.
Interest income on cash, short-term investments and investment
securities increased as a result of a higher average portfolio
for the quarter earning a higher average rate. Such interest
income was $3,058,000 in the first quarter of 1995 compared to
$1,574,000 in 1994. The average investment position was
$187,960,000 during the first quarter of 1995 and earned 6.71%
compared to an average position of $136,651,000 earning 4.55%
during the first quarter of 1994. To the extent that the
Company's investment portfolio increases as a proportion of total
assets, there could be an adverse effect on the Company's net
interest margin, since rates earned on investments tend to be
lower than rates earned on loans.
Total interest expense for the first quarter has increased to
$23,740,000 in 1995 from $14,883,000 in 1994. Total interest
expense consists of two components - interest expense on deposits
and interest expense on FHLB advances, other borrowings and
debentures. Interest expense on deposits (comprised of passbook
and money market (MMA) accounts and investment certificates),
increased to $13,369,000 in the first quarter of 1995 from
$8,792,000 in the first quarter of 1994. The average rate paid
on deposits was 5.50% for the first quarter of 1995, compared to
5.12% for the fourth quarter of 1994 and 4.51% for
the first quarter of 1994. Interest expense on other
borrowings increased to $10,371,000 in the first quarter of 1995
from $6,091,000 in the first quarter of 1994, as a result of a
higher average rate paid on a higher average level of FHLB
advances. The average rate paid on non-deposit interest-bearing
liabilities increased to 6.55% for 1995's first quarter from
6.00% for 1994's fourth quarter and 4.51% for 1994's first
quarter.
The Company's net interest income was $8,216,000 for the first
quarter of 1995, compared to $10,050,000 for the first quarter of
1994, as a result of earning a lower spread on a higher average
balance of assets. The net interest margin, calculated as net
interest income divided by total average interest earning assets,
was 1.95% for the first quarter of 1995, compared to 2.83% for
the same period of 1994. The decrease in net interest income and
net interest margin resulted from the reduced yields on new
single family adjustable rate loans, the level of nonearning
loans and a continued emphasis on gathering deposits with
maturities of one year or more in the face of increasing interest
rates. The Company's net interest margin has been adversely
impacted as a result of the lagging nature of the 11th District
Cost of Funds Index ("COFI"). Since the beginning of 1994,
short-term market rates of interest have increased 275 basis
points (2.75%), while COFI initially decreased in 1994,
although recent increases
17
<PAGE>
RESULTS OF OPERATIONS - Quarter Ended March 31, 1995 Compared to Quarter
- ----------------------- ------------------------------------------------
Ended March 31, 1994
--------------------
have brought up the index 110 basis points (1.1%). In addition to the COFI
lag impact on net interest margin, the difference between average COFI and
the marginal cost of deposits has been extremely wide. As COFI
increases to a level more consistent with market rates, the
Company's net interest margin will be less adversely impacted.
Also, in the period of low interest rates prior to 1994, the
Company earned a premium rate of interest on some of its mortgage
loans because the interest rate was at a floor, or minimum rate,
which was above market. As rates rise, these loans do not adjust
upwards immediately, but do increase once the floor is no longer
in effect. In 1994 and continuing into 1995, the Company's FHLB
advances have repriced upward more rapidly than the Company's
yield on loans.
Non-interest income for the first quarter of 1995 decreased to
$922,000 from $1,510,000 in the first quarter of 1994, due to a
lower net gain on sale of loans offset by higher net service fee
revenue and increased other income. Service fee revenue, net of
amortized costs on the Company's premium on sale of loans and
purchased mortgage servicing rights, was $712,000 for the first
quarter of 1995 compared to $428,000 for the same period of 1994,
primarily as a result of lower amortization on the Company's
purchased mortgage servicing rights which were fully amortized
prior to September 30, 1994. The average balance of the
servicing portfolio decreased to $832,286,000 for the first
quarter of 1995 compared to $849,652,000 for all of 1994.
Total loans serviced were $828,067,000 at March 31, 1995 and
$843,144,000 at December 31, 1994. The percentage of servicing
fees received depends upon the terms of the loans as originated
and conditions in the secondary market when loans are sold. The
Company receives servicing fees ranging from 0.125% to 1.25% of
the outstanding loan balance which averaged approximately 0.39%
for the first quarter of 1995 compared to 0.36% for all of 1994.
For the first quarter, loan and related fee income decreased to
$189,000 in 1995 from $493,000 in 1994 primarily due to the lower
volume of loan originations. This income category includes
documentation and processing fees which vary with loan volume and
market conditions, late charge income which generally varies with
the size of the loan and servicing portfolios and economic conditions,
and prepayment penalty income which generally varies with loan activity.
The Company sells whole loans and loan participations in the
secondary market under several specific programs. Loan sales
were $10,556,000 for the first quarter of 1995 and $71,560,000
for the first quarter of 1994. During the period of relatively
low interest rates and the popularity of fixed rate loan
refinancings, which occurred until about April 1994, the focus of
the Company's mortgage banking activities was to enter into
formal commitments and informal agreements with institutional
investors to originate on a direct flow basis single family
mortgages which are priced and underwritten to conform to
previously agreed upon criteria prior to loan funding and are
delivered to the investor shortly after funding. Also, the
Company has historically identified, from time-to-time, secondary
market sources which have particular needs which can be filled
primarily with adjustable rate single family loans held in its
portfolio.
The amount of loans sold is dependent upon conditions in both the
mortgage origination and secondary loan sales markets, and the
level of gains will fluctuate. The Company computes a gain or
loss on sale at the time of sale by comparing sales price with
carrying value and by calculating a capitalized premium,
18
<PAGE>
RESULTS OF OPERATIONS - Quarter Ended March 31, 1995 Compared to Quarter
- ----------------------- ------------------------------------------------
Ended March 31, 1994
--------------------
if any. A premium results when the interest rate on the loan, adjusted
for a normal service fee, exceeds the pass-through yield to the
buyer. The sale of loans resulted in net gains of $2,000 for the
first quarter of 1995, compared to net gains of $574,000 for the
same period of 1994. As a result of the increases in mortgage
interest rates since the second quarter of 1994, the Company's
originations have been primarily adjustable rate mortgages for
the Company's balance sheet. Additionally, the mix of such
lending reflected reduced refinance activity by borrowers and
increased home loan purchase activity in the Company's markets.
Subject to a change in market conditions and other factors, the
Company expects a continued low in the future level of loan
sales, resulting in minimal gains on the sale of loans.
Non-interest expense totalled $5,338,000 for the first quarter of
1995, compared to $5,414,000 for the same period in 1994. The
Company's non-interest expense for the first quarter of 1995
included $413,000 related to results of operating REO properties
and losses on disposition or changes in value of REO properties
compared to $113,000 in the first quarter of 1994.
Since mid-1994, the Company has implemented a number of cost
control measures resulting in a decrease in the dollar amount of
costs to manage a larger balance sheet and expanded operations
for the first quarter of 1995 compared to the first quarter of
1994. As a percentage of total assets, recurring general and
administrative expenses, excluding REO related costs, declined to
1.14% for the first quarter of 1995, compared to 1.24% for the
fourth quarter of 1994, and 1.28% for all of 1994.
The decline in this ratio in 1995 results from asset
growth and successful cost control measures begun
during the second quarter of 1994.
19
<PAGE>
RESULTS OF OPERATIONS - Quarter Ended March 31, 1995 Compared to Quarter
- ----------------------- ------------------------------------------------
Ended March 31, 1994
--------------------
The following table presents for the first quarter of 1995 and
1994, the distribution of consolidated average assets,
liabilities, and stockholders' equity as well as the total dollar
amounts of interest income, average interest-earning assets and
the resultant yields, and the dollar amounts of interest expense,
average interest-bearing liabilities, and rates paid. Nonaccrual
loans are included in the calculation of the average balances of
loans and interest not accrued is excluded. The yield on short-
term investments has been adjusted upward to reflect the effects
of certain income thereon which is exempt from federal income
tax, assuming an effective rate of 35% for 1994 and for 1995.
<TABLE>
<CAPTION>
Quarter Ended March 31,
------------------------------------------------------------------------
1995 1994
-------------------------------- --------------------------------
Average Yields/ Average Yields/
Balance Interest Rates Balance Interest Rates
------- -------- ------- ------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing deposits with other institutions $ 198 $ 3 6.06% $ 442 $ 5 4.52%
Short-term investments 27,720 429 6.19 30,718 252 3.28
Investment securities 160,042 2,720 6.80 107,491 1,320 4.91
Loans 1,520,872 28,898 7.60 1,283,636 23,359 7.28
--------- ------ ---- --------- ------ ----
Total earning assets 1,708,832 32,050 7.50 1,422,287 24,936 7.01
------ ------
Non interest-earning assets 18,766 15,556
--------- ---------
Total average assets $1,727,598 $1,437,843
========= =========
Liabilities and Stockholders' Equity:
Passbooks & MMA's $ 135,587 $ 1,633 4.82% $ 116,169 $ 838 2.89%
Investment certificates 836,966 11,736 5.61 663,390 7,954 4.80
--------- ------ --------- -------
Total thrift certificates 972,553 13,369 5.50 779,559 8,792 4.51
Other borrowings 568,928 8,928 6.28 478,831 4,706 3.93
Subordinated debentures 64,176 1,443 8.99 61,710 1,385 8.98
--------- ------ --------- ------
Total interest-bearing liabilities 1,605,657 23,740 5.91 1,320,100 14,883 4.51
------ ------
Non interest-bearing liabilities 13,575 11,736
Stockholders' equity 108,366 106,007
--------- ---------
Total average liabilities and stockholders' equity $1,727,598 $1,437,843
========= =========
Net interest spread 1.59% 2.50%
Net interest income and net interest margin $ 8,310 1.95% $10,053 2.83%
======= ======
</TABLE>
The Company's balance sheet at March 31, 1995 is generally
comparable to that at December 31, 1994. Total assets have
increased $56,381,000 to $1,763,700,000. Loans held for sale
decreased $2,190,000 and other loans in the Company's portfolio
increased $63,056,000, including an increase of $45,550,000 in
single family mortgages. Funds were raised primarily by higher
deposits of $50,534,000. The Company's reserve for possible
losses was $14,368,000 at March 31, 1995, and there were eight
foreclosed real estate properties resulting in other real estate
owned with a value of $10,385,000.
20
<PAGE>
RESULTS OF OPERATIONS - Quarter Ended March 31, 1995 Compared to Quarter
- ----------------------- ------------------------------------------------
Ended March 31, 1994
--------------------
ASSET QUALITY AND PROVISION FOR POSSIBLE LOSSES
- -----------------------------------------------
The level of the Company's provision for losses and reserve for
losses are related to the size and composition of the loan
portfolio and conditions affecting the real estate markets in
which the Company conducts lending activities. The following
table sets forth by category the total loan portfolio of the
Company at the dates indicated. As indicated below, the Company
has increased the dollar amount and relative percentage of its
loans secured by single family residences.
<TABLE>
<CAPTION>
March 31, December31,
-----------------------------
1995 1994 1993
------------ ----------- ------------
<S> <C> <C> <C>
Loans:
Single family (1-4 units) $863,447,000 $820,078,000 $577,276,000
Multifamily (5+ units) 365,929,000 367,750,000 387,757,000
Commercial real estate 265,660,000 250,369,000 229,914,000
Multifamily construction 14,497,000 9,408,000 5,707,000
Single family construction 12,214,000 14,227,000 14,512,000
Home equity credit lines 29,271,000 28,137,000 31,213,000
------------- ------------- -------------
Real estate mortgages subtotal 1,551,018,000 1,489,969,000 1,246,379,000
Commercial business and other 8,511,000 8,694,000 9,679,000
------------- ------------- -------------
Total loans 1,559,529,000 1,498,663,000 1,256,058,000
Unearned fee income (6,016,000) (6,816,000) (9,406,000)
Reserve for possible losses (14,368,000) (14,355,000) (12,657,000)
------------- ------------- -------------
Loans, net $1,539,145,000 $1,477,492,000 $1,233,995,000
============= ============= =============
</TABLE>
The following table presents an analysis of the Company's loan
portfolio at March 31, 1995 by property type and geographic location:
<TABLE>
<CAPTION>
San Francisco Los Angeles San Diego Other CA Las Vegas Percent
$ in thousands Bay Area County County Areas Nevada Other Total By Type
------------- ----------- --------- -------- --------- ------- --------- -------
Property Type:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Single family (1-4 units)(1) $596,583 $204,872 $12,273 $57,278 $ 9,639 $12,073 $ 892,718 57.2%
Multifamily (5+ units) 150,900 85,518 449 22,661 106,400 --- 365,928 23.5%
Commercial real estate 190,153 32,302 1,085 9,518 28,938 3,664 265,660 17.0%
Construction loans --- --- --- --- 26,712 --- 26,712 1.7%
Commercial business and other 348 4,312 2,195 1,320 187 149 8,511 0.6%
------- ------- ------ ------ ------- ------ --------- -----
Total $937,984 $327,004 $16,002 $90,777 $171,876 $15,886 $1,559,529 100.0%
======= ======= ====== ====== ======= ====== ========= =====
Percent by location 60.2% 21.0% 1.0% 5.8% 11.0% 1.0% 100.0%
</TABLE>
(1) Includes equity lines of credit secured by single family
residences and single family loans held for sale.
The Company places an asset on nonaccrual status when one of the
following events occurs: any installment of principal or interest
is over 90 days past due (except for single family loans which
are judged by management to be well secured and in the process of
collection), management determines the ultimate collection of
principal or interest to be unlikely, or the Company takes
possession of the collateral. Additionally, loans modified to
defer or waive interest equal to more than four payments are
placed on nonaccrual status and generally will continue in this
status until at least six payments have been received.
21
<PAGE>
RESULTS OF OPERATIONS - Quarter Ended March 31, 1995 Compared to Quarter
- ----------------------- ------------------------------------------------
Ended March 31, 1994
--------------------
The following table presents nonaccruing loans and investments,
REO, restructured performing loans and accruing single family
loans over 90 days past due at the dates indicated.
NONACCRUING ASSETS AND OTHER LOANS
<TABLE>
<CAPTION>
March 31, December 31,
--------------------------
1995 1994 1993
---------- ----------- -----------
Nonaccruing Loans
<S> <C> <C> <C>
Single family $ 132,000 $ --- $ ---
Multifamily 19,894,000 29,049,000 6,740,000
Commercial real estate 3,577,000 3,400,000 4,862,000
Other 1,617,000 174,000 16,000
---------- ---------- ----------
Nonaccruing loans 25,220,000 32,623,000 11,618,000
Real estate owned ("REO") 10,385,000 8,500,000 9,961,000
Nonaccruing investments --- --- 361,000
---------- ---------- ----------
Total nonaccruing assets 35,605,000 41,123,000 21,940,000
Restructured performing loans 20,950,000 17,489,000 6,342,000
---------- ---------- ----------
Total nonaccruing assets and restructured performing loans $56,555,000 $58,612,000 $28,282,000
========== ========== ==========
Accruing single family loans more than 90 days past due $ 1,782,000 $ 2,587,000 $ 1,390,000
Percent of Total Assets:
Nonaccruing assets 2.02% 2.41% 1.55%
Nonaccruing assets and restructured performing loans 3.21% 3.43% 2.00%
Ratio of reserve for possible losses to nonaccruing loans 57% 44% 109%
</TABLE>
On January 17, 1994, the Northridge earthquake struck the Los
Angeles area, causing significant damage to the freeway system
and real estate throughout the area. The Company's loans secured
by low to moderate income multifamily properties were primarily
affected by this event, either by direct property damage, loss of
tenants, or economic difficulties resulting form lower rental
revenues. The 37+ unit multifamily loan portfolio in Los Angeles
County, which was mostly affected by the earthquake, represented
less than 4% of the Company's total assets at March 31,
1995. First Republic promptly identified and began working with
those borrowers to assist them, including applying for disaster
relief funds and modifying the terms of loans. Such loan
modifications generally have deferred the timing of payments,
reduced the rate of interest collected or, in some cases, the
Company lowered the principal balance or foreclosed on the
property. The Company has experienced increased loan
delinquencies and additional loan loss provisions as a result of
this natural disaster.
At March 31, 1995, the dollar amount of the Company's nonaccruing
assets was $35,604,000 compared to $41,123,000 at December 31,
1994 and $48,845,000 at September 30, 1994. At March 31, 1995,
almost 70% of nonaccruing assets, or approximately $24,545,000
of loans and REO, were adversely impacted by the earthquake.
At March 31, 1995, restructured performing loans totalled
$20,950,000, 79% of which were restructured as a result
of the earthquake. Nonaccruing assets and restructured loans
at March 31, 1995 have been reduced by chargeoffs of $915,000 during
the first quarter of 1995 and $6,008,000 prior to 1995. At
March 31, 1995, the Company's nonaccrual loans included
$10,712,000 of loans which had been restructured by the
forgiveness of interest or the capitalization of interest
equivalent to more than four months. Additionally, there were
$4,084,000 of modified loans placed on nonaccrual at March 31,
1995 because the borrowers have been unable to perform under
the terms of forbearance agreements. As a result of the terms of
these restructurings, although the Company has received or
expects to receive monthly payments on some of these loans, such
loans will generally continue to be reported as nonaccrual loans
until at least six payments have been received.
22
<PAGE>
RESULTS OF OPERATIONS - Quarter Ended March 31, 1995 Compared to Quarter
- ----------------------- ------------------------------------------------
Ended March 31, 1994
--------------------
During the first quarter of 1995, the Company received payments on loans
included in the nonaccrual category, which resulted in the recognition of
approximately $164,000 of interest income.
As of March 31, 1995, the Company has granted forbearance as to
principal and interest payments, generally amounting to two to
four months of payments, on $12,955,000 of earthquake
affected loans. These loans will be placed on nonaccrual status
if the borrowers become unable to perform under the terms of
these forbearance agreements. If losses result from the
inability of borrowers to comply with these agreements, such
losses of principal or forbearance interest will be charged to
the Company's reserves.
In addition to forebearance agreements, the Company has modified the terms of
$29,592,000 of primarily multifamily loans as a result of this natural
disaster. Under these modifications, the Company has agreed to
capitalize interest payments, extend loan maturity, reduce the
contractual interest rate or waive amounts due. If the terms of
the loans, after such modifications, are below those generally
available in the current market or if any principal or
contractually due interest is forgiven, then such loan
modifications are classified as restructured loans. As of March 31,
1995, $16,577,000 of these modified loans are reported as
restructured performing loans. In the event that the Company's
borrowers are unable to meet their obligations under modified or
restructured loans and a loss is incurred, the Company will
charge its reserve. Additional forbearance agreements or loan
modifications, including loan restructurings, are expected to be
entered into with the Company's borrowers in the second quarter
of 1995 and, possibly, future quarters.
During the first quarter of 1995, five loans totalling $6,973,000
were transferred to REO and two REO properties with a book value
totalling $4,040,000 were sold. At March 31, 1995, the Company
held as REO properties six apartment buildings, one parcel of
land and one single family residential property. The Company's
policy is to attempt to resolve problem assets quickly, including
the aggressive pursuit of foreclosure or other workout
procedures. It has been the Company's general policy to sell
such problem assets when acquired as rapidly as possible at
prices available in the prevailing market. For certain
properties, including those acquired as a result of the
Northridge earthquake, the Company has made repairs and engaged
management companies to reach stabilized levels of occupancy
prior to asset disposition.
At the time each loan is originated, the Company establishes a
reserve for the inherent risk of potential future losses, based
on established criteria, including the type of loan and loan-to-
value or cash flow-to-debt service ratios. Management believes
that such policy enables the Company's reserves to increase
commensurate with growth in the size of the Company's loan
portfolio. In the underwriting of purchased loans, management
considers the inherent risk of loss in determining the price to
be paid. When loans are purchased, a portion of the discount is
designated as a reserve for possible losses to reflect the
inherent credit losses which could be reasonably expected to
occur in the future and is thereafter unavailable to be amortized
as an increase in interest income.
The Company's reserve for possible losses is maintained at a
level estimated by management to be adequate to provide for
losses that can be reasonably anticipated based upon specific
conditions as determined by management, past loss experience, the
results of the Company's ongoing loan grading
23
<PAGE>
RESULTS OF OPERATIONS - Quarter Ended March 31, 1995 Compared to Quarter
- ----------------------- ------------------------------------------------
Ended March 31, 1994
--------------------
process, the amount of past due and nonperforming loans, observations of
auditors, legal requirements, recommendations or requirements of regulatory
authorities, prevailing economic conditions and other factors.
These factors are essentially judgmental and may not be reduced
to a mathematical formula.
Since inception through March 31, 1995, the Company has
experienced a relatively low level of losses on its single family
loans in each of its geographic market areas. As of March 31,
1995, the Company has not experienced any losses on its portfolio
of real estate secured loans, including construction loans,
located in the Las Vegas market. Collectively, these two
categories represented 68% of the Company's total loans at March
31, 1995.
As a percentage of nonaccruing loans, the reserve for possible
losses was 44% at December 31, 1994 and 57% at March 31, 1995.
Management's continuing evaluation of the loan portfolio and
assessment of economic conditions will dictate future reserve
levels.
The adequacy of the Company's total reserves is reviewed
quarterly. Management closely monitors all past due loans, in
assessing the adequacy of its total reserves. In addition, the
Company has instituted procedures for reviewing and grading of
all the larger income property loans in its portfolio on at least
an annual basis. Based upon that continuing review and grading
process, among other factors, the Company will determine
appropriate levels of total reserves in response to its
assessment of the potential risk of loss inherent in its loan
portfolio. Management currently anticipates that it will
continue to provide additional reserves so long as, in its
judgement, any additional adverse effects of the Northridge
earthquake on its assets arise. Although the amount of loans
that were adversely affected by the earthquake and remain
unresolved at March 31, 1995 has been reduced, there is no
assurance that the ultimate resolution of the remaining loans
can be concluded without additional reserves in 1995.
24
<PAGE>
RESULTS OF OPERATIONS - Quarter Ended March 31, 1995 Compared to Quarter
- ----------------------- ------------------------------------------------
Ended March 31, 1994
--------------------
The following table provides certain information with respect to
the Company's reserve position and provisions for losses as well
as chargeoff and recovery activity for the periods indicated.
<TABLE>
<CAPTION>
Quarter Ended Year Ended
March 31, December 31,
-----------------------------
1995 1994 1993
------------- ------------ ------------
Reserve for Possible Losses:
<S> <C> <C> <C>
Balance beginning of period $ 14,355,000 $ 12,657,000 $ 12,686,000
Provision charged to expense 1,465,000 9,720,000 4,806,000
Reserve from purchased loans --- 34,000 200,000
Reserve of First Republic Savings Bank at acquisition --- --- 24,000
Chargeoffs on originated loans:
Single family (10,000) (210,000) (209,000)
Multifamily (1,255,000) (7,177,000) (3,367,000)
Commercial real estate (180,000) (695,000) (1,547,000)
Commercial business and other loans (8,000) (79,000) (76,000)
Recoveries on originated loans:
Single family --- 11,000 ---
Multifamily --- 119,000 ---
Commercial real estate --- --- 92,000
Commercial business and other loans --- 15,000 43,000
Acquired loans:
Chargeoffs --- (47,000) ---
Recoveries 1,000 7,000 5,000
------------- ------------- -------------
Total chargeoffs, net of recoveries (1,452,000) (8,056,000) (5,059,000)
------------- ------------- -------------
Balance end of period $ 14,368,000 $ 14,355,000 $ 12,657,000
============= ============= =============
Average loans for the period $1,520,872,000 $1,379,640,000 $1,154,680,000
Total loans at period end 1,559,529,000 1,498,663,000 1,233,995,000
Ratios of reserve for possible losses to:
Total loans 0.92% 0.96% 1.01%
Nonaccruing loans 57% 44% 109%
Nonaccruing assets and restructured performing loans 25% 24% 45%
Net chargeoffs to average loans 0.38%* 0.58% 0.44%
</TABLE>
- ---------------------
*Annualized
25
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not Applicable
Item 2. Changes in Securities
---------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's annual meeting of stockholders was held on May 4, 1995.
At the annual meeting, the stockholders aproved the following
actions:
(i) Ms. Katherine August-deWilde, Mr. L. Martin Gibss and Mr. John
F. Mangan were elected as directors of the Company with terms
expiring in 1998. For each of the three numinees, the vote was
approximately 6,295,000 shares for, no shares against and approx-
imately 16,000 shares withheld. The remaining directors of the
Company and the years in which their respective terms expire are
as follows: Mr. Richard Cox-Johnson - 1996; Mr. Kenneth W.
Dougherty - 1996; Mr. Frank J. Fahrenkopf, Jr. - 1996; Mr. James H.
Herbert, II - 1997; Mr. James F. Joy - 1997; Mr. Barrant Merrill -
1997; Mr. Roger O. Walther - 1997.
(ii) A proposal to approve the grant of performance based contingent
stock options for an aggregate of 350,000 shares of the Company's
Common Stock to the Company's Management was approved. The vote
was: 6,009,224 shares for; 275,608 shares against; 26,093 shares
abstain.
(iii) The selection of the firm of KPMG Peat Marwick as independent
auditors to examine the financial statements of the Company for the
1995 fiscal year was ratified. The vote was: 6,289,438 shares for;
15,633 shares against; 5,854 shares abstain.
Item 5. Other Information
-----------------
Not Applicable
26
<PAGE>
PART II - OTHER INFORMATION (Continued)
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibit 11 Statement of Computation of Earnings
Per Share.
B. On April 21, 1995, the Company filed a Form 8-K
relating to Item 5 therein, covering the
registrant's release to the business community
of its earnings for the quarter ended March 31,
1995.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST REPUBLIC BANCORP INC.
Date: May 12, 1995 /s/JAMES H. HERBERT, II
------------------------------
JAMES H. HERBERT, II
President and Chief Executive Officer
Date: May 12, 1995 /s/WILLIS H. NEWTON, JR.
------------------------------
WILLIS H. NEWTON, JR.
Sr. Vice President and
Chief Financial Officer
(Principal Financial Officer)
28
<PAGE>
EXHIBIT 11
FIRST REPUBLIC BANCORP INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-------------------------
1995 1994
---------- ----------
Primary:
<S> <C> <C>
Net income available to common stock $ 1,384,000 $ 660,000
Effect of convertible subordinated debentures,
net of taxes (1) 399,000 399,000
---------- ----------
Adjusted net income for fully diluted calculation (1) $ 1,783,000 $1,059,000
=========== ==========
Weighted average shares outstanding,
beginning of period including treasury shares 7,797,100 7,743,965
Effect of stock options exercised during period 1,827 3,114
Weighted average shares of stock purchased by employees 2,713 1,896
Weighted average shares of dilutive stock
options under treasury stock method 174,677 356,519
Weighted average shares of treasury stock (387,151) (28,273)
----------- -----------
Adjusted shares outstanding - primary 7,589,166 8,077,221
=========== ===========
Net income per common share - primary $ 0.18 $ 0.08
=========== ===========
Fully Diluted:
Adjusted shares - primary, from above 7,589,166 8,077,221
Weighted average shares issuable upon conversion
of convertible subordinated debentures (1) 2,524,210 2,524,210
Additional weighted average shares of dilutive
stock options converted at period-end
stock price under the treasury stock method 16,416 10
----------- -----------
Adjusted shares outstanding - fully diluted 10,129,792 10,601,441
=========== ===========
Net income per share - fully diluted (1) $ 0.18 $ 0.08
=========== ===========
</TABLE>
Per share amounts and numbers of shares have been adjusted to reflect the
effect of the 3% stock dividend paid to stockholders of record on February 18,
1994.
(1) Due to the existence of convertible subordinated debentures, the fully-
diluted calculation includes the number of shares which would be
outstanding if all such debentures were converted and adjusts reported
net income for the effect of interest expense on the debentures, net of
taxes. For the first quarter of 1994, the convertible subordinated
debentures are anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Registrant is not a Bank or Savings and Loan Holding Company.
</LEGEND>
<CIK> 0000770975
<NAME> FIRST REPUBLIC BANCORP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 13,588
<INT-BEARING-DEPOSITS> 198
<FED-FUNDS-SOLD> 10,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,860
<INVESTMENTS-CARRYING> 148,600
<INVESTMENTS-MARKET> 147,183
<LOANS> 1,559,529
<ALLOWANCE> 14,368
<TOTAL-ASSETS> 1,763,700
<DEPOSITS> 999,367
<SHORT-TERM> 10,000
<LIABILITIES-OTHER> 14,838
<LONG-TERM> 631,191
<COMMON> 74,896
0
0
<OTHER-SE> 33,408
<TOTAL-LIABILITIES-AND-EQUITY> 1,763,700
<INTEREST-LOAN> 28,898
<INTEREST-INVEST> 3,058
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 31,956
<INTEREST-DEPOSIT> 13,369
<INTEREST-EXPENSE> 23,740
<INTEREST-INCOME-NET> 8,216
<LOAN-LOSSES> 1,465
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,338
<INCOME-PRETAX> 2,335
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,384
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
<YIELD-ACTUAL> 1.95
<LOANS-NON> 25,220
<LOANS-PAST> 1,782
<LOANS-TROUBLED> 20,950
<LOANS-PROBLEM> 11,500
<ALLOWANCE-OPEN> 14,355
<CHARGE-OFFS> 1,453
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 14,368
<ALLOWANCE-DOMESTIC> 3,800
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,568
</TABLE>
