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
September 30, 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 November 6, 1995, 7,362,822 shares.
<PAGE>
First Republic Bancorp Inc.
Form 10-Q
September 30, 1995
Index
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet -
September 30, 1995 and December 31, 1994 3
Consolidated Statement of Income - Nine Months
and Quarter Ended September 30, 1995 and 1994 5
Consolidated Statement of Cash Flows -
Nine Months ended September 30, 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 29
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 30
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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
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 14,238,000 $ 16,920,000
Federal funds sold and short term investments 9,000,000 15,500,000
Interest bearing deposits at other financial institutions -- 198,000
Investment securities (net) 141,651,000 129,628,000
Federal Home Loan Bank Stock, at cost 29,923,000 28,527,000
----------- -----------
194,812,000 190,773,000
Loans
Single family (1-4 unit) mortgages 919,917,000 815,010,000
Multifamily (5+ units) mortgages 352,016,000 367,750,000
Commercial real estate mortgages 290,602,000 249,119,000
Commercial business loans 4,177,000 5,621,000
Single family construction 15,772,000 14,227,000
Multifamily/commercial construction 6,537,000 10,658,000
Equity lines of credit 26,870,000 28,137,000
Leases, contracts and other 1,062,000 975,000
Loans held for sale 9,511,000 7,166,000
------------- -------------
1,626,464,000 1,498,663,000
Less
Unearned loan fee income (5,536,000) (6,816,000)
Reserve for possible losses (17,454,000) (14,355,000)
------------- -------------
Net loans 1,603,474,000 1,477,492,000
Accrued interest receivable 12,220,000 10,172,000
Purchased servicing and premium on sale of loans 549,000 793,000
Prepaid expenses and other assets 14,971,000 15,489,000
Premises, equipment and leasehold improvements,
net of accumulated depreciation 4,353,000 4,100,000
Real estate owned (REO) 12,085,000 8,500,000
------------- -------------
$1,842,464,000 $1,707,319,000
============= =============
</TABLE>
3
<PAGE>
FIRST REPUBLIC BANCORP INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Customer deposits
Passbook and MMA accounts $ 162,557,000 $ 138,726,000
Investment certificates 935,375,000 810,107,000
------------- ------------
Total customer deposits 1,097,932,000 948,833,000
Interest payable 13,298,000 12,332,000
Other liabilities 3,349,000 3,511,000
Federal Home Loan Bank advances 556,530,000 570,530,000
Other borrowings 162,000 650,000
------------- -------------
Total senior liabilities 1,671,271,000 1,535,856,000
Senior subordinated debentures 9,974,000 9,978,000
Subordinated debentures 19,594,000 19,699,000
Convertible subordinated debentures 34,500,000 34,500,000
------------- -------------
Total liabilities 1,735,339,000 1,600,033,000
------------- -------------
Stockholders' equity
Common stock 78,000 78,000
Capital in excess of par value 74,894,000 74,745,000
Retained earnings 39,003,000 39,438,000
Deferred compensation -- ESOP (162,000) (650,000)
Treasury shares, at cost (5,513,000) (4,315,000)
Unrealized loss-available for sale securities (1,175,000) (2,010,000)
------------- ------------
Total stockholders' equity 107,125,000 107,286,000
------------- ------------
$1,842,464,000 $1,707,319,000
============== ==============
</TABLE>
4
<PAGE>
FIRST REPUBLIC BANCORP INC.
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
September 30, September 30,
-------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Interest on real estate and other loans $32,890,000 $25,688,000 $ 93,211,000 $73,355,000
Interest on investments 3,200,000 2,436,000 9,095,000 5,870,000
----------- ----------- ----------- -----------
Total interest income 36,090,000 28,124,000 102,306,000 79,225,000
----------- ----------- ----------- -----------
Interest expense:
Interest on thrift accounts 16,424,000 10,708,000 45,052,000 29,148,000
Interest on notes, debentures and other borrowings 10,785,000 8,146,000 32,507,000 21,107,000
----------- ----------- ----------- -----------
Total interest expense 27,209,000 18,854,000 77,559,000 50,255,000
----------- ----------- ----------- -----------
Net interest income 8,881,000 9,270,000 24,747,000 28,970,000
Provision for losses 2,500,000 1,502,000 12,715,000 7,182,000
----------- ----------- ----------- -----------
Net interest income after provision for losses 6,381,000 7,768,000 12,032,000 21,788,000
----------- ----------- ----------- -----------
Non-interest income:
Servicing fees, net 646,000 719,000 2,027,000 1,709,000
Loan and related fees 345,000 309,000 890,000 1,147,000
Gain (loss) on sale of loans 9,000 356,000 (36,000) 482,000
Recovery on investment securities 0 0 141,000 0
Other income 198,000 47,000 231,000 290,000
----------- ----------- ----------- -----------
Total non-interest income 1,198,000 1,431,000 3,253,000 3,628,000
----------- ----------- ----------- -----------
Non-interest expense:
Salaries and related benefits 1,857,000 1,551,000 5,453,000 5,197,000
Occupancy 691,000 625,000 2,015,000 1,841,000
Advertising 345,000 429,000 1,128,000 1,434,000
Professional fees 177,000 129,000 430,000 405,000
FDIC insurance premiums 99,000 476,000 1,159,000 1,332,000
REO costs and losses 720,000 315,000 1,728,000 862,000
Other general and administrative 1,485,000 1,376,000 4,191,000 4,509,000
----------- ----------- ----------- -----------
Total non-interest expense 5,374,000 4,901,000 16,104,000 15,580,000
----------- ----------- ----------- -----------
Income (loss) before income taxes 2,205,000 4,298,000 (819,000) 9,836,000
Provision for (benefit from) income taxes 884,000 1,746,000 (384,000) 4,095,000
----------- ----------- ----------- -----------
Net income (loss) $1,321,000 $2,552,000 $(435,000) $5,741,000
=========== =========== =========== ===========
Net income adjusted for effect of convertible
issue, used for fully diluted EPS $ 1,721,000 $2,951,000 $ -- $6,939,000
=========== =========== =========== ===========
Primary earnings (loss) per share $ 0.17 $ 0.32 $ (0.06) $ 0.71
=========== =========== =========== ===========
Weighted average shares - primary 7,605,648 8,026,378 7,594,484 8,043,858
=========== =========== =========== ===========
Fully diluted earnings (loss) per share $ 0.17 $ 0.28 $ (0.06) $ 0.66
=========== =========== =========== ===========
Weighted average shares - fully diluted 10,129,927 10,551,059 10,127,290 10,574,606
=========== =========== =========== ===========
</TABLE>
5
<PAGE>
FIRST REPUBLIC BANCORP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months ended
-----------------
September 30,
-------------
1995 1994
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<S> <C> <C>
Operating Activities
Net Income (loss) $ (435,000) $ 5,741,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for losses 12,715,000 7,182,000
Provision for depreciation and amortization 3,002,000 1,898,000
Amortization of loan fees (2,894,000) (3,312,000)
Amortization of loan servicing fees 257,000 573,000
Amortization of investment securities discounts (33,000) (5,000)
Amortization of investment securities premiums 202,000 156,000
Loans originated for sale (78,290,000) (82,799,000)
Loans sold into commitments 77,356,000 84,854,000
Decrease in deferred taxes --- 486,000
Net (gains) losses on sale of loans 36,000 (482,000)
Increase in interest receivable (3,109,000) (2,343,000)
Increase in interest payable 966,000 1,702,000
Increase in other assets (1,117,000) (1,879,000)
Decrease in other liabilities (162,000) (3,852,000)
----------- ----------
Net Cash Provided By Operating Activities 8,494,000 7,920,000
Investment Activities
Loans originated (354,833,000) (540,964,000)
Loans purchased (4,181,000) ---
Other loans sold --- 131,408,000
Principal payments on loans 204,770,000 213,929,000
Purchases of investment securities (17,412,000) (48,133,000)
Sale of investment securities 15,000 ---
Repayments of investment securities 9,075,000 8,307,000
Net decrease in short term investments 198,000 295,000
Additions to fixed assets (1,053,000) (767,000)
Net proceeds from sale of real estate owned 11,804,000 7,417,000
------------ ------------
Net Cash Used by Investing Activities (151,617,000) (228,508,000)
Financing Activities
Net increase in passbook and MMA accounts 23,831,000 9,927,000
Issuance of investment certificates 328,402,000 305,467,000
Repayments of investment certificates (203,134,000) (164,769,000)
Increase (decrease) in long-term FHLB advances (44,000,000) 87,000,000
Repayments of other long-term borrowings (488,000) (412,000)
Net increase (decrease) in short-term borrowings 30,000,000 (22,380,000)
Decrease in deferred compensation - ESOP 488,000 412,000
Repayments of subordinated debentures (109,000) (25,000)
Issuance of subordinated debentures --- 2,965,000
Proceeds from employee stock purchase plan 65,000 98,000
Proceeds from common stock options exercised 84,000 264,000
Purchase of treasury stock (1,198,000) (631,000)
----------- ------------
Net Cash Provided by Financing Activities 133,941,000 217,916,000
Decrease in Cash and Cash Equivalents (9,182,000) (2,672,000)
Cash and Cash Equivalents at Beginning of Period 32,420,000 38,786,000
------------ ------------
Cash and Cash Equivalents at End of Period $ 23,238,000 $ 36,114,000
============ ============
</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 and nine months ended September 30, 1995 should not be
considered indicative of results to be expected for the full year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In May 1995, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights, an Amendment of FASB Statement No. 65." SFAS No. 122
requires that the rights to service mortgage loans for others be
recognized as a separate asset, however those servicing rights are
acquired. The total cost of originating or purchasing mortgage
loans should be allocated between the loan and the servicing rights
based on their relative fair values. The statement also requires
the assessment of all capitalized mortgage servicing rights for
impairment to be based on current fair value of those rights. The
Company is currently studying the possible implementation of SFAS
No. 122 for the year ended December 31, 1995. The impact of SFAS
No. 122 on the Company's financial position is expected to be
immaterial and the impact of SFAS No. 122 on the Company's results
of operations will be to increase reported earnings by an amount
which will vary with the level of loans sold and other factors.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 applies to all transactions
in which an entity acquires goods or services by issuing
equity instruments such as common stock, except for employee stock
ownership plans. SFAS No. 123 establishes a new method of
accounting for stock-based compensation arrangements with employees
which is fair value based. The Statement encourages (but does not
require) employers to adopt the new method in place of the
provisions of Accounting Principles Board Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees. Companies may continue to
apply the accounting provisions of APB 25 in determining net
income; however, they must apply the disclosure requirements of
SFAS 123. If the Company adopts the fair value based method of
SFAS No. 123, a higher compensation cost would result for fixed
stock option plans and a different compensation cost will result
for the Company's contingent or variable stock option plans. The
recognition provisions and disclosure requirements of SFAS 123 are
effective January 1, 1996, but may be applied immediately.
Although it is unlikely that the Company will adopt the recognition
provisions of SFAS 123, this determination has not yet been made.
7
<PAGE>
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, a Nevada-chartered,
FDIC-insured thrift and loan subsidiary (collectively, the
"Thrifts"). First Thrift and First Republic Savings Bank are
members of the FDIC's Bank Insurance Fund ("BIF"), not the Savings
Association Insurance Fund ("SAIF").
The Company is primarily engaged in originating residential real
estate secured loans on single family residences. The Company's
loan portfolio also contains loans secured by commercial properties
and multifamily properties. Currently, the Company's strategy in
California is to emphasize the origination of single family loans
and to limit the origination of multifamily 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
closing of new loans.
During the first nine months of 1995, the Company continued its
focus on single family lending, but the level of loan originations
has been reduced from the prior year as a result of average
interest rates being higher and secondary market conditions
severely limiting 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 nine months ended September 30, 1995, the Company
originated $433.1 million of loans and loan sales were $77.4
million, as compared to loan originations of $623.8 million and
loan sales of $216.3 million for the nine months ended September
30, 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 $821.4 million in loans at
September 30, 1995.
8
<PAGE>
GENERAL (Continued)
- -------------------
The following table presents certain performance ratios and share
data information for the Company for the last three years and the
first nine months of the current and prior years.
<TABLE>
<CAPTION>
At or for the nine months At or for the Year
Ended September 30, Ended December 31,
------------------------- -----------------------------------
1995 1994 1994 1993 1992
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets* (0.03)% 0.50% 0.47 0.97% 1.06%
Return on average equity* (0.54) 7.12 6.77 12.65 14.10
Average equity to average assets 6.06 7.08 6.94 7.63 7.51
Leverage ratio 5.88 6.91 6.43 7.65 7.58
Total risk-based capital ratio 15.14 16.52 16.32 17.62 16.90
Net interest margin* 1.90 2.57 2.47 3.25 3.30
Non-interest expense to average assets* 1.08 1.29 1.28 1.33 1.30
Nonaccruing assets to total assets 2.73 2.98 2.41 1.55 1.54
Nonaccruing assets and performing restructured
loans to total assets 3.60 3.62 3.43 2.00 1.81
Net loan chargeoffs to average loans* 0.82 0.56 0.58 0.44 0.74
Reserve for possible losses to total loans 1.07 1.00 0.96 1.01 1.19
Reserve for possible losses to nonaccruing loans 46% 34% 44% 109% 133%
Share Data:
Common shares outstanding 7,350,446 7,713,030 7,444,703 7,718,791 7,716,086
Tangible book value per fully-diluted common share $14.56 $14.29 $14.40 $13.58 $11.94
</TABLE>
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*Nine months data is annualized
First Thrift's retail deposits and FHLB advances are the Company's
principal source of funds with loan principal repayments, sales of
loans, the retail deposits of First Republic Savings Bank, 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 $703 million
of FHLB advances at September 30, 1995. Such advances are collateralized
by real estate mortgage loans and $556.5 million has been advanced
at September 30, 1995. Membership in the FHLB provides First
Thrift with an alternative funding source for its loans.
First Thrift, whose deposits are insured by the FDIC BIF, operates
three branches in San Francisco, a recently opened branch in San
Rafael in Marin County north of San Francisco, a branch in Los
Angeles, a branch in Beverly Hills, and three branches in San Diego
County. First Thrift is approved for an additional branch in San
Francisco which is expected to open in November 1995. As of September
30, 1995, First Thrift had total assets of $1,758,141,000, tangible
shareholder's equity of $125,945,000 and total capital (consisting of
tangible shareholder's equity, subordinated capital notes and
reserves) of $152,668,000. At September 30, 1995, First Thrift's
tangible shareholder's equity as a percentage of total assets was
7.16% and its total capital as a percentage of risk adjusted assets
was 12.77%, compared to a risk adjusted capital ratio requirement of
8.0%. Under FDIC regulations, First Thrift calculates its Leverage
Ratio at 7.24%, using Tier 1 capital (as defined under the FDIC's
risk-based capital definitions) and average total assets for the most
recent quarter.
9
<PAGE>
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 September 30, 1995, the
investment securities portfolio of $141,651,000, plus cash and short
term investments of $23,238,000, amounted to $164,889,000, or 8.9% of
total assets. At September 30, 1995, substantially all of the
Company's investments mature within twelve months or are adjustable
rate in nature. At September 30, 1995, the Company owned no
investments of a trading nature.
Additional sources of liquidity at September 30, 1995 are provided by
borrowings collateralized by investment securities of approximately
$110,000,000 and available unused FHLB advances of approximately
$145,000,000. 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
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 September 30, 1995 approximately 66% 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 rate increase caps or limitations which can
contribute 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
interest rates for 18 months or longer. At September 30, 1995,
approximately 96% of the Company's interest-earning assets and 82% of
interest-bearing liabilities will reprice within the next year and the
Company's one-year cumulative GAP is positive 17.9%. Despite the
Company's positive repricing position at December 31, 1994 and
throughout 1995, the Company's net interest margin decreased in the
first and second quarters of 1995 but has increased slightly in the
third quarter. Important factors include the cost of the Company's
FHLB advances, mortgage loan repricings being subject to interim
limitations on asset repricings, most restructured loans are paying
subsidized rates, the Company's strategy to
10
<PAGE>
ASSET AND LIABILITY MANAGEMENT (Continued)
- -----------------------------------------
increase its home loans which carry lower margins, the lagging
nature of COFI, and, until recently, marginal liability costs exceeding
the yield which can be earned initially on new home loans.
If interest rates remain near the current level and actual loan
repayment rates are similar to projected repayment rates,
the Company's most recent interest rate risk model
indicates that further improvement in the Company's net interest
margin is expected for the fourth quarter of 1995.
The following table summarizes the differences between the Company's
maturing or rate adjusting assets and liabilities, or "GAP" position,
at September 30, 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 and nine months ended
September 30, 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 approximately
$209,888,000 of such loans remain at these minimum interest rates and
have not yet repriced upwards as of September 30, 1995. The following
table illustrates projected maturities or interest rate adjustments
based upon the contractual maturities or adjustment dates at September
30, 1995:
11
<PAGE>
<TABLE>
<CAPTION>
FIRST REPUBLIC BANCORP
ASSET & LIABILITY REPRICING SENSITIVITY
September 30, 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) 0 836,520 609,761 102,413 11,292 36,168 30,310 0 1,626.464
Securities 0 146,258 10,810 14,506 0 0 0 0 171,574
Cash & short-term
investments 14,238 9,000 0 0 0 0 0 0 23,238
Non-interest bearing
assets, net 0 0 0 0 0 0 0 21,188 21,188
------ ------- ------- ------- ------ ------ ------ ------ ---------
TOTAL 14,238 991,778 620,571 116,919 11,292 36,168 30,310 21,188 1,842,464
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Passbooks & MMA's (2) 0 137,582 14,079 7,360 3,536 0 0 0 162,557
Investment Certificates:
100K or greater 0 14,966 12,468 15,951 7,928 2,869 0 0 54,182
< 100K 0 184,870 207,155 285,715 155,974 47,377 102 0 881,193
FHLB advances-long term 0 155,000 288,530 35,000 0 8,000 40,000 0 526,530
FHLB advances-short-term 0 30,000 0 0 0 0 0 0 30,000
ESOP debt 162 0 0 0 0 0 0 0 162
Other liabilities 0 0 0 0 0 0 0 16,647 16,647
Subord debt 0 0 0 0 0 1,537 62,531 0 64,068
Equity 0 0 0 0 0 0 0 107,125 107,125
--- ------- ------- ------- ------- ------ ------- ------- ---------
TOTAL 162 522,418 522,232 344,026 167,438 59,783 102,633 123,772 1,842,464
Repricing Assets
over (under) liab 14,076 469,360 98,339 (227,107) (156,146) (23,615) (72,323) (102,584) 0
Effect of swaps 0 25,000 0 0 0 0 (25,000) 0 0
------ ------- ------ -------- -------- ------- ------- -------- --------- -
Hedged gap 14,076 444,360 98,339 (227,107) (156,146) (23,615) (47,323) (102,584) 0
====== ======= ====== ======== ======== ======= ======= ======== =========
Gap as % of
Total assets 0.76% 24.12% 5.34% -12.33% -8.47% -1.28% -2.57% -5.57% 0.00%
====== ======= ====== ======== ======== ======= ======= ======== =========
Cumulative gap 14,076 458,436 556,775 329,668 173,522 149,907 102,584 0 0
====== ======= ======= ======== ======== ======= ======= ======== =========
Cumulative gap 0.76% 24.88% 30.22% 17.89% 9.42% 8.14% 5.57% 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.
12
<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 $1,215,000,000 which terminate
in periods ranging from November 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 September 30,
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
totaled $1,278,000 and $841,000 for the nine months ended September
30, 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 September 30, 1995, the Company had entered into interest rate
swaps with the FHLB in the notional principal amount of $25,000,000
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
September 30, 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. FHLB advances require no
deposit insurance premiums and operational overhead costs are less
than for deposits. FHLB advances must be collateralized by the
pledging of mortgage loans which are assets of First Thrift. At
September 30, 1995, total FHLB advances outstanding were $556,530,000.
13
<PAGE>
ASSET AND LIABILITY MANAGEMENT (Continued)
- ------------------------------------------
Of this amount, $503,330,000 had an original maturity of 10 years
or more and $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
September 30, 1995, based on the amount of deposits outstanding,
First Thrift was required to maintain minimum shareholder's equity
of approximately $52,300,000, compared with actual shareholder's
equity of $125,945,000.
CAPITAL RESOURCES
- -----------------
The Company continues to maintain a strong capital base. At
September 30, 1995 the Company's total capital, including total
stockholders' equity, debentures and reserves was $188,647,000.
Total stockholders' equity at September 30, 1995 has decreased by
$161,000 since December 31, 1994. This decrease results from the
net loss of $435,000 for the first nine months of 1995 and the
purchase of 111,003 treasury shares at a cost of $1,198,000. There
was an increase of $835,000 in the market value of the Company's
portfolio of adjustable rate perpetual preferred stocks, which are
classified as securities available for sale because they carry no
stated maturity.
First Republic is not a bank holding company, and unlike First
Thrift and First Republic Savings Bank, is not directly regulated
or supervised by the FDIC, nor is it regulated by 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 September 30, 1995 its leverage ratio would have been
5.88%, and its total risk based capital ratio would have been
15.1%, 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 53,603
treasury shares which completed the repurchase of 406,000 shares of
common stock previously 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 additional
57,400 shares of common stock in March and April 1995 brought total
treasury shares repurchased to 463,400 at September 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 for the first quarter. First Republic
received no dividends from First Thrift during the second or third
quarter. First Republic also received interest payments of
$790,000 from First Thrift for the nine months ended September 30,
1995. Also, First Republic has received dividends of $116,000 from
First Republic Savings Bank, representing 14% of that subsidiary's
earnings for the first six months of 1995; dividends of $66,000 for
the third quarter will be paid in November. 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.
14
<PAGE>
RESULTS OF OPERATIONS - Quarter Ended September 30, 1995 Compared
- ----------------------- -----------------------------------------
to Quarter Ended September 30, 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 third quarter of 1995, First Republic's total assets grew
to $1,842,464,000 at September 30, 1995 from $1,817,145,000 at June
30, 1995, primarily as a result of an increase in single family
mortgage loans. The Company's loan originations for the third quarter
of 1995 were $154,567,000, compared to $171,287,000 for the second
quarter of 1995 and $172,209,000 for the third quarter of 1994. The
level of single family loans originated in the third quarter of 1995
was comparable to those originated in the second quarter of 1995,
while there was a reduction in multifamily and construction lending
from the prior quarter. Single family loan volume was at a higher
level for most of 1994, including the third quarter of 1994. Single
family loans originated in the third quarter of 1995 were $107,800,000
compared to $139,400,000 in the third quarter of 1994 and $599,100,000
for all of 1994.
Mortgage banking activity resulted in the sale of $41,979,000 of
single family loans to secondary market investors during the third
quarter of 1995, compared with $25,071,000 in the third quarter of
1994. The Company's portfolio of real estate loans serviced for
secondary market investors decreased to $821,419,000 at September 30,
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.
The Company reported net income of $1,321,000 for the third quarter
of 1995 as compared to net income of $2,552,000 in the same quarter
of 1994. Fully diluted earnings per share was $0.17 for the third
quarter of 1995, compared to $0.28 for the similar period in 1994.
First Republic's operating results for the quarter ended September 30,
1995 were reduced by (i) the level of provision for loan losses (ii)
the continuing level of non-earning assets due, in part, to the
Northridge earthquake, and (iii) lower margins compared to a year ago
as a result of the rapid increase in market rates of interest in 1994.
Total interest income increased to $36,090,000 for the third quarter
of 1995 from $28,124,000 for the third quarter of 1994. Interest
income on real estate and other loans increased to $32,890,000 for the
third quarter of 1995, compared to $25,688,000 in 1994. The average
yield on loans increased to 8.16% in the third quarter of 1995 from
7.93% for the second quarter of 1995 and was 7.35% for the third
quarter of 1994. Originations of new adjustable rate loans in the
last nine months of 1994 and the first six 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 adjustable rate
loan indexes, 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 $1,626,464,000
at September 30, 1995. As a percentage of the Company's permanent loan
15
<PAGE>
RESULTS OF OPERATIONS- Quarter Ended September 30, 1995 Compared
- ---------------------- -----------------------------------------
to Quarter Ended September 30, 1994 (Continued)
-----------------------------------------------
portfolio, loans secured by single family residences increased
to 59% at September 30, 1995 from 53% at September 30, 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
$3,200,000 in the third quarter of 1995 compared to $2,436,000 in the
same period of 1994. The average investment position was $188,242,000
during the third quarter of 1995 and earned 7.00% compared to an
average position of $186,653,000 earning 5.23% during the third
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 third quarter has increased to
$27,209,000 in 1995 from $18,854,000 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 certificates of deposit), increased to $16,424,000 in the
third quarter of 1995 from $10,708,000 in the third quarter of 1994.
The average rate paid on deposits was 6.10% for the third quarter of
1995, compared to 5.97% for the second quarter of 1995 and 4.83% for
the third quarter of 1994. Interest expense on other borrowings
increased to $10,785,000 in the third quarter of 1995 from $8,146,000
in the third 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 all non-deposit interest-bearing liabilities has increased
more rapidly than the average rate paid on deposits and was 6.93% for
1995's third quarter compared to 7.13% for 1995's second quarter and
5.51% for 1994's third quarter. The average rate paid on the
Company's other borrowings and FHLB advances, excluding longer term
debentures, was 6.70% for the third quarter of 1995, compared to 6.92%
for the second quarter of 1995, 5.10% for the third quarter of 1994
and 4.40 % for the second quarter of 1994; thus the average rate paid
on these liabilities, primarily FHLB advances, increased 230 basis
points (2.30%) from the second quarter of 1994 to the third quarter
of 1995.
The Company's net interest income was $8,881,000 for the third quarter
of 1995, compared to $9,270,000 for the third 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 1.99% for the
third quarter of 1995, compared to 2.34% for the same period of 1994.
The decrease in net interest income and net interest margin resulted
primarily from the cost of treasury based adjustable rate FHLB
advances exceeding the yield earned on certain treasury-based
adjustable rate single family mortgage loans originated in the lower
interest rate environment of 1994 and 1993. Other effects include the
reduced yields on new single family adjustable rate loans and the
level of nonearning loans.
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. Most of the Company's adjustable mortgage loans have
16
<PAGE>
RESULTS OF OPERATIONS- Quarter Ended September 30, 1995 Compared
- ---------------------- -----------------------------------------
to Quarter Ended September 30, 1994 (Continued)
-----------------------------------------------
interim rate increase limitations. This adverse trend was
reversed somewhat during the third quarter of 1995, as the weighted
average cost of the Company's FHLB advances decreased as a result of
the decline in market rates; if interest rates stabilize at their
current level, such FHLB average cost should decrease further by
approximately 15 basis points (0.15%) by December 31, 1995.
The Company's net interest margin has also been adversely impacted as
a result of the lagging nature of the 11th District Cost of Funds
Index ("COFI"). From early 1994 to early 1995, short-term market
rates of interest increased 350 basis points (3.50%) while COFI
initially decreased and entered 1995 up only 50 basis points (0.50%).
During the first nine months of 1995, short term market rates declined
but at September 30, 1995 were still approximately 200 basis points
(2.0%) above the early 1994 level; however, COFI increased to
approximately 5.1% at June 30, 1995 and September 30, 1995, up 75
basis points (0.75%) since early 1995 and 125 basis points (1.25%)
since early 1994. The average cost of the Company's deposits
increased approximately 159 basis points (1.59%) during this time
period, from 4.51% for the first quarter of 1994 to 6.10% for the
third quarter of 1995.
In addition to the COFI lag impact on net interest margin, the
difference between average COFI and the marginal cost of deposits has
been wide. 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 may increase once the floor is no longer in effect.
Non-interest income for the third quarter of 1995 decreased to
$1,198,000 from $1,431,000 in the third quarter of 1994, primarily due
to a lower gain on sale of loans. Service fee revenue, net of
amortized costs on the Company's premium on sale of loans and
purchased mortgage servicing rights, was $646,000 for the third
quarter of 1995 compared to $719,000 for the same period of 1994,
primarily due to a lower average balance of mortgage servicing rights.
The average balance of the servicing portfolio decreased to
$827,203,000 for the first nine months of 1995 compared to
$849,652,000 for all of 1994. Total loans serviced were $821,419,000
at September 30, 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, on the outstanding
loan balances serviced, which averaged approximately 0.37% for the
first nine months of 1995 compared to 0.36% for all of 1994.
For the third quarter, loan and related fee income was $345,000 in
1995 as compared to $309,000 in 1994. 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
and market conditions.
The Company sells whole loans and loan participations in the secondary
market under several specific programs. Loan sales were $41,979,000
for the third quarter of 1995 and $25,071,000 for the third quarter
of 1994. Most of the loans sold in the third quarter of 1995 carried
fixed rates for initial periods of 5 to 7 years before becoming
adjustable. During the period of relatively low interest rates and
the popularity of 15 year and 30 year fixed rate loan refinancings,
which occurred until the second quarter of 1994, the focus of the Company's
mortgage banking activities was to enter into formal commitments
17
<PAGE>
RESULTS OF OPERATIONS- Quarter Ended September 30, 1995 Compared
- ---------------------- -----------------------------------------
to Quarter Ended September 30, 1994 (Continued)
-----------------------------------------------
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, 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 $9,000 for the third quarter of 1995,
compared to net gains of $356,000 for the same period of 1994. As a
result of the higher level of 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 future changes in interest rates,
market conditions and other factors, the Company expects a relatively
low level of loan sales to continue, resulting in minimal gains on the
sale of loans.
Non-interest expense totaled $5,374,000 for the third quarter of 1995,
compared to $4,901,000 for the same period in 1994. Because the
Company's subsidiaries are insured by the FDIC's Bank Insurance Fund
("BIF"), the premiums charged for the third quarter of 1995 were
reduced from $0.23 per $100 of deposits (23 basis points) to $0.04 per
$100 of deposits (4 basis points), which reduced the FDIC premium
expense from $476,000 in the third quarter of 1994 to $99,000 in the
third quarter of 1995. Additionally, a refund from the FDIC to reduce
the premium charged for the month of June 1995 from the higher level
to the lower level was received and $146,000 of such refund is
included in the other income for the quarter ended September 30, 1995.
The Company's non-interest expense for the third quarter of 1995
included $720,000 related to results of operating REO properties and
losses on disposition or changes in value of REO properties compared
to $315,000 in the third quarter of 1994; during the third quarter of
1995, the Company reduced by $400,000 the carrying value of certain
land in the San Francisco Bay Area held as REO.
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 second quarter of 1994. As a
percentage of total assets, recurring general and administrative
expenses, excluding REO related costs, declined to 1.02% for the third
quarter of 1995, compared to 1.08% for the second quarter of 1995,
1.14% for the first quarter of 1995, 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.
18
<PAGE>
RESULTS OF OPERATIONS- Nine Months Ended September 30, 1995 Compared
- ---------------------- ---------------------------------------------
to Nine Months Ended September 30, 1994
---------------------------------------
The following comments are made regarding the results of operations
for the nine months ended September 30, 1995 compared to the nine
months ended September 30, 1994. The trend in income and expense
items is generally consistent with the comparison of the third quarter
of 1995 with the same quarter of 1994. Total interest income and
interest expense have increased on a year-to-date basis, as a result
of an increased average balance sheet and increased yields earned on
assets and rates paid on liabilities, as presented in the following
table. Net interest income has decreased due to the increased level
of assets earning a lower interest rate spread, as the average rates
paid on liabilities has increased more than the average yields earned
on loans.
The decline in net income for the nine month period from $5,741,000
in 1994 to a net loss of $435,000 in 1995, is primarily due to the
higher level of provisions for losses made in 1995 and to the lower
level of net interest income in 1995. During the second quarter of
1995, the Company used approximately $6,400,000 of its previously
established reserves to reduce the carrying value of specific assets
and provided $8,750,000 for additional loan losses. Approximately 75%
of such second quarter writedowns related to multifamily properties
located in Los Angeles County which were adversely affected by the
Northridge earthquake.
Non-interest income was $3,253,000 for the first nine months of 1995
as compared to $3,628,000 for the same period in 1994. Increases in
net servicing fees were offset, primarily by a decrease in loan and
related fees, net losses on sale of loans of $36,000 in 1995 compared
to net gains on sale of loans of $482,000 in the same period in 1994,
and a $177,000 non-recurring refund from the Thrift Guaranty
Corporation received in the second quarter in 1994. Non-interest
expense increased from $15,580,000 in 1994 to $16,104,000 in 1995.
An increase in REO related costs to $1,728,000 for the nine months
ended September 30, 1995 from $862,000 in the same period 1994 was
offset by a decline in general and administrative expenses, including
advertising expense and FDIC premiums. As a percentage of average
assets, noninterest expenses decreased to 1.08% for the first nine
months of 1995 from 1.29% for the first nine months of 1994.
The following table presents for the first nine months 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 on
nonaccrual loans is included only to the extent recognized on a cash
basis. 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%.
19
<PAGE>
RESULTS OF OPERATIONS- Nine Months Ended September 30, 1995 Compared
- ---------------------- ---------------------------------------------
to Nine Months Ended September 30, 1994 (Continued)
---------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------------------------------
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 $ 1,311 $ 51 5.19% $ 731 $ 28 5.11%
Short-term investments 20,211 960 6.33 36,261 1,142 4.20
Investment securities 164,106 8,379 6.81 119,721 4,713 5.25
Loans 1,573,032 93,211 7.90 1,346,642 73,355 7.26
--------- ------- --------- ------
Total earning assets 1,758,660 102,601 7.78 1,503,355 79,238 7.03
------- ------
Non interest-earning assets 18,639 13,863
--------- ---------
Total average assets $1,777,299 $1,517,218
========= =========
Liabilities and Stockholders' Equity:
Passbooks & MMA's $ 141,065 $ 5,210 4.92% $118,875 $ 2,970 3.33%
Investment certificates 883,360 39,842 6.01 716,079 26,178 4.87
--------- ------ -------- ------
Total thrift certificates 1,024,425 45,052 5.86 834,954 29,148 4.65
Other borrowings 566,431 28,185 6.63 501,410 16,893 4.49
Subordinated debentures 64,136 4,322 8.99 62,598 4,215 8.98
--------- ------ --------- ------
Total interest-bearing liabilities 1,654,992 77,559 6.25 1,398,962 50,256 4.79
------ ------
Non interest-bearing liabilities 14,564 10,790
Stockholders' equity 107,743 107,466
--------- ---------
Total average liabilities and stockholders' equity $1,777,299 $1,517,218
========= =========
Net interest spread 1.53% 2.24%
Net interest income and net interest margin $ 25,042 1.90% $ 28,982 2.57%
======= =======
</TABLE>
The Company's balance sheet at September 30, 1995 is generally
comparable to that at December 31, 1994. Total assets have increased
$135,145,000 to $1,842,464,000. Loans held for sale increased
$2,345,000 and other loans in the Company's portfolio increased
$125,456,000, including an increase of $104,907,000 in single family
mortgages. Funds were raised primarily by retail deposits which
increased $149,099,000. The Company's reserve for possible losses was
$17,454,000 at September 30, 1995, and there were nine foreclosed real
estate properties resulting in other real estate owned with a value
of $12,085,000.
ASSET QUALITY AND PROVISION FOR POSSIBLE LOSSES
- -----------------------------------------------
The levels of the Company's provision for losses and reserve for
losses are related to the size and composition of the loan portfolio,
general economic conditions, 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 primarily the dollar amount and proportion of its loans
secured by single family residences in 1994 and the first nine months
of 1995. An amount equal to 95% of all net loan growth since December
31, 1993 is represented by growth in single family home loans.
20
<PAGE>
ASSET QUALITY AND PROVISION FOR POSSIBLE LOSSES (Continued)
- -----------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
-------------------------------
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Loans:
Single family (1-4 units) $927,352,000 $820,078,000 $577,276,000
Multifamily (5+ units) 352,016,000 367,750,000 387,757,000
Commercial real estate 290,602,000 249,119,000 229,914,000
Multifamily/commercial construction 6,537,000 10,658,000 5,707,000
Single family construction 15,772,000 14,227,000 14,512,000
Home equity credit lines 26,870,000 28,137,000 31,213,000
------------- ------------- -------------
Real estate mortgages subtotal 1,619,149,000 1,489,969,000 1,246,379,000
Commercial business and other 7,315,000 8,694,000 9,679,000
------------- ------------- -------------
Total loans 1,626,464,000 1,498,663,000 1,256,058,000
Unearned fee income (5,536,000) (6,816,000) (9,406,000)
Reserve for possible losses (17,454,000) (14,355,000) (12,657,000)
------------- ------------- -------------
Loans, net $1,603,474,000 $1,477,492,000 $1,233,995,000
============= ============= =============
</TABLE>
The following table presents an analysis of the Company's loan
portfolio at September 30, 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
--------- -------- ------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property Type:
Single family (1-4 units)(1) $620,914 $223,720 $21,032 $ 60,772 $ 11,073 $16,711 $ 954,222 58.6%
Multifamily (5+ units) 148,909 74,613 447 21,562 106,485 --- 352,016 21.6%
Commercial real estate 208,003 32,446 1,078 9,374 36,968 2,733 290,602 17.9%
Construction loans 2,660 610 --- --- 19,039 --- 22,309 1.4%
Business loans --- 3,302 2,109 842 --- --- 6,253 0.4%
CD backed loans/other 360 223 29 324 126 --- 1,062 0.1%
-------- -------- ------- ------- -------- ------- ---------- -----
Total $980,846 $334,914 $24,695 $92,874 $173,691 $19,444 $1,626,464 100.0%
======== ======== ======= ======= ======== ======= ========== =====
Percent by location 60.3% 20.6% 1.5% 5.7% 10.7% 1.2% 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 any installment
of principal or interest is 90 days or more past due (except for loans
which are judged by management to be well secured and in the process
of collection, generally applicable to single family loans), or when
management determines the ultimate collection of all contractually due
principal or interest to be unlikely. Additionally, loans
restructured to defer or waive amounts due are placed on nonaccrual
status and generally will continue in this status until a satisfactory
payment history is achieved (generally at least six payments).
21
<PAGE>
ASSET QUALITY AND PROVISION FOR POSSIBLE LOSSES (Continued)
- -----------------------------------------------------------
The following table presents nonaccruing loans and investments, REO,
performing restructured loans and accruing single family loans over
90 days past due at the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31,
--------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Nonaccruing Loans:
Single family $ --- $ --- $ ---
Multifamily 28,010,000 29,049,000 6,740,000
Commercial real estate 9,962,000 3,400,000 4,862,000
Other 175,000 174,000 16,000
---------- ---------- ----------
Total nonaccruing loans 38,147,000 32,623,000 11,618,000
Real estate owned ("REO") 12,084,000 8,500,000 9,961,000
Nonaccruing investments --- --- 361,000
---------- ---------- ----------
Total nonaccruing assets 50,231,000 41,123,000 21,940,000
Performing restructured loans 16,008,000 17,489,000 6,342,000
---------- ---------- ----------
Total nonaccruing assets and performing restructured loans $66,239,000 $58,612,000 $28,282,000
========== ========== ==========
Accruing single family loans more than 90 days past due $ 2,899,000 $ 2,587,000 $ 1,390,000
Percent of Total Assets:
Nonaccruing assets 2.73% 2.41% 1.55%
Nonaccruing assets and performing restructured loans 3.60% 3.43% 2.00%
Ratio of reserve for possible losses to nonaccruing loans 46% 44% 109%
</TABLE>
At September 30, 1995, the dollar amount of the Company's nonaccruing
assets after chargeoffs was $50,231,000, compared to $41,123,000 at
December 31, 1994. At September 30, 1995, almost 50% of nonaccruing
assets, or approximately $21,607,000 of loans and $2,903,000 of REO,
were adversely impacted by the Northridge earthquake.
On January 17, 1994, the Northridge earthquake struck the Los Angeles
area, causing significant damage to the freeway system and real estate
values 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 from lower rental revenues and higher
vacancies. Certain of these multifamily properties have failed to
return to pre-earthquake occupancy levels and values. Management has
deemed the chargeoff of portions of these loans to be appropriate.
Certain earthquake affected loans have been returned to nonaccrual
status because of uncertainty about their ultimate collectability,
even though the loans may have been paying for as much as 12 months.
Such loans will be reviewed over the next six months for operating
status and satisfactory payment history. Additionally, certain loans
in Northern California which have been placed on nonaccrual status
because of changes in the borrower's condition, the property's status
or the loan's terms. As a result, the amount of nonaccrual loans and
REO at June 30, 1995 and September 30, 1995 was higher than at
December 31, 1994, as more fully discussed below.
During the second and third quarters of 1995, the Company continued
to work with certain of its borrowers whose properties have been
adversely impacted by the Los Angeles earthquake. First Republic has
assisted its borrowers by modifying the terms of loans, including
deferral or capitalization of interest payments, reduction of the rate
of interest to be collected, and the waiver of principal and interest
in certain cases. The Company has also assisted many of its borrowers
in the application for federal, state, and local disaster relief
funds, and has deferred the collection of payments on certain
nonaccruing loans until the disaster relief process is concluded.
Although the receipt of such funds has sometimes been denied or
delayed, several of its borrowers are now receiving such assistance
and are completing related
22
<PAGE>
ASSET QUALITY AND PROVISION FOR POSSIBLE LOSSES (Continued)
- -----------------------------------------------------------
repairs. At September 30, 1995, management believes that
the remaining multifamily assets continuing to be directly
impacted by the earthquake represented approximately 2.6% of
the Company's total assets. The Company has experienced increased
delinquencies, additional loan loss provisions and higher partial loan
chargeoffs as a result of this substantial natural disaster.
The following table summarizes the changes in the Company's nonaccrual
loans during the third quarter of 1995. Nonaccrual loans are
segmented by major geographical region and activity.
CHANGE IN NONACCRUAL
LOANS BY REGION
<TABLE>
<CAPTION>
Los Angeles Northern
County California Nevada Total
------------ ----------- --------- ------------
<S> <C> <C> <C> <C>
Balance June 30, 1995 $ 24,199,000 $14,417,000 $ 4,000 $ 38,620,000
Additions to nonaccrual loans:
New nonaccrual loans 414,000 2,144,000 3,489,000 6,047,000
Performing restructured loans
returned to nonaccrual status 320,000 --- --- 320,000
Deductions from nonaccrual loans:
Chargeoffs to reserves (1,071,000) (1,209,000) (3,000) (2,283,000)
Transfer to foreclosed assets (1,011,000) (3,009,000) --- (4,020,000)
Transfer to performing status (296,000) --- --- (296,000)
Cash proceeds received (126,000) (115,000) --- (241,000)
----------- ----------- ---------- -----------
Balance September 30, 1995 $ 22,429,000 $ 12,228,000 $ 3,490,000 $ 38,147,000
=========== =========== ========== ===========
</TABLE>
Additions to nonaccrual loans during the third quarter of 1995 were
primarily related to one apartment loan in Las Vegas, Nevada
($3,489,000) and four loans secured by income properties in Northern
California ($2,144,000), all of which were less than three payments
past due at June 30, 1995 and no additional payments were received.
A limited amount of loans secured by properties in Los Angeles County
which were impacted by the earthquake became new nonaccrual loans
($414,000) or were returned to nonaccrual status ($320,000) as a
result of developments in the third quarter, including cessation of
payments, indications that future payments would not be received or
the increased possibility of foreclosure.
Deductions from nonaccrual loans during the third quarter of 1995
resulted from chargeoffs to the Company's allowance for possible
losses, actual foreclosures upon properties and the transfer of three
loans from nonaccrual to performing status as the result of the
borrower attaining a satisfactory payment history. Also, cash
proceeds of $241,000 received during the third quarter of 1995 were
used to reduce the carrying basis of nonaccrual loans. Chargeoffs on
nonaccrual loans occur when the Company determines that the collateral
value is reduced to other than temporary levels. Chargeoffs recorded
in the third quarter of 1995 related both to loans which were on
nonaccrual status at June 30, 1995 and to loans which were placed on
nonaccrual status during the third quarter. While the future
collateral value of these properties may change, the Company recorded
chargeoffs to reduce the carrying basis of its nonaccrual loans to the
estimated current collateral value, net of selling costs (See
"Impaired Loans").
--------------
23
<PAGE>
ASSET QUALITY AND PROVISION FOR POSSIBLE LOSSES (Continued)
- -----------------------------------------------------------
Chargeoffs were $1,071,000 for loans secured by properties
impacted by the earthquake, $1,209,000 for loans secured by
properties in Northern California.
As of September 30, 1995, the amounts reported for REO,
nonaccruing loans, and performing restructured loans have been
reduced by previous chargeoffs of $1,931,000, $8,303,000 and
$1,580,000, respectively.
At September 30, 1995, the Company's nonaccrual loans included
$18,616,000 of loans which had been restructured, 75% as a result
of the earthquake, including waiver or deferral of interest
equivalent to more than four months or the forgiveness of
principal in certain cases. As a result of the terms of these
restructurings, such loans will be reported as nonaccrual loans
until a satisfactory payment history is achieved and the Company
believes its recorded investment in the loans is secure. During
the third quarter of 1995, the Company received payments on these
loans, which resulted in an average annualized yield of
approximately 7.0% on the recorded investment in these loans.
The Company has granted forbearance as to principal and interest
payments, generally amounting to two to four months of payments,
on $9,458,000 of earthquake affected loans; at September 30,
1995, the Company has received twelve or more payments of
forborne amounts on most of these loans, in addition to other
contractually due amounts. 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.
As of September 30, 1995, $16,008,000 of modified loans are
reported as performing restructured loans. Additional loan
modifications, including loan restructurings, were completed in
the third quarter of 1995 and additional modifications may be
entered into with the Company's borrowers in future quarters.
For regulatory reporting purposes, the Company has reported two
performing restructured loans totaling $8,459,000 as nonaccrual
loans as of September 30, 1995. For each of these loans, the
Company has been receiving monthly payments at a below market
rate subsequent to an adequate cure period and a recent appraisal
indicates that the fair value of the collateral exceeds the
Company's recorded investment in the loan. The Company may
complete a formal loan modification with one of these borrowers
during the fourth quarter of 1995 to conform loan terms with the
existing payment plan.
During the third quarter of 1995, six loans totaling $4,021,000
after partial chargeoff were transferred to REO. Six REO
properties with a remaining June 30, 1995 book value totaling
$4,323,000 were sold and the Company recovered proceeds in excess
of the written down basis of these properties by approximately
15%. At September 30, 1995, the Company held as REO properties
seven apartment buildings, one partially completed single family
construction project and one parcel of land. The Company's
policy is to attempt to resolve problem assets reasonably
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 promptly 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.
24
<PAGE>
ASSET QUALITY AND PROVISION FOR POSSIBLE LOSSES (Continued)
- -----------------------------------------------------------
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 any 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 at the time as determined by management, including
past loss experience, the results of the Company's ongoing loan
grading process, the amount of past due and nonperforming loans,
observations of auditors, legal requirements, recommendations or
requirements of regulatory authorities, current and expected
economic conditions and other factors.
Since inception through September 30, 1995, the Company has
experienced a relatively low level of losses on its single family
loans in each of its geographic market areas. The Company's
cumulative single family loan loss experience is 0.06% on all
loans originated. As of September 30, 1995, the Company has not
experienced any losses on its permanent loan portfolio secured by
real estate located in the Las Vegas market. Collectively, these
two categories represented 67% of the Company's total loans at
September 30, 1995.
As a percentage of nonaccruing loans, the reserve for possible
losses was 44% at December 31, 1994 and 46% at September 30,
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 and
restructured loans in assessing the adequacy of its total
reserves. In addition, the Company follows procedures for
reviewing and grading all of the larger income property loans in
its portfolio on a periodic basis. Based predominately upon that
continuous review and grading process, 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 will provide additional reserves when the
results of its problem loan assessment methodology or overall
reserve adequacy test indicate additional reserves are required.
The review of problem loans is an ongoing process, during which
management may determine that additional chargeoffs are required
or additional loans should be placed on nonaccrual status.
Although substantially all nonaccrual loans and loans that were
adversely affected by the earthquake have been reduced to their
currently estimated collateral fair value (net of selling costs)
at September 30, 1995, there can be no assurance that additional
reserves or chargeoffs will not be required in the event that the
properties securing the Company's existing problem loans fail to
maintain their values or that new problem loans arise.
25
<PAGE>
ASSET QUALITY AND PROVISION FOR POSSIBLE LOSSES (Continued)
- -----------------------------------------------------------
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>
Nine Months Ended Year Ended
September 30, December 31,
------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Reserve for Possible Losses:
Balance beginning of period $ 14,355,000 $ 12,657,000 $ 12,686,000
Provision charged to expense 12,715,000 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 (7,413,000) (7,177,000) (3,367,000)
Commercial real estate (2,070,000) (695,000) (1,547,000)
Commercial business and other loans (637,000) (79,000) (76,000)
Recoveries on originated loans:
Single family 3,000 11,000 ---
Multifamily 490,000 119,000 ---
Commercial real estate 17,000 --- 92,000
Commercial business and other loans 12,000 15,000 43,000
Acquired loans:
Chargeoffs (14,000) (47,000) ---
Recoveries 6,000 7,000 5,000
-------------- -------------- --------------
Total chargeoffs, net of recoveries (9,616,000) (8,056,000) (5,059,000)
-------------- -------------- --------------
Balance end of period $ 17,454,000 $ 14,355,000 $ 12,657,000
============== ============== ==============
Average loans for the period $1,573,032,000 $1,379,640,000 $1,154,680,000
Total loans at period end 1,626,464,000 1,498,663,000 1,233,995,000
Ratios of reserve for possible losses to:
Total loans 1.07% 0.96% 1.01%
Nonaccruing loans 46% 44% 109%
Nonaccruing assets and performing restructured loans 26% 24% 45%
Net chargeoffs to average loans 0.82%* 0.58% 0.44%
</TABLE>
- ---------------
*Annualized
For the first nine months of 1995, chargeoffs net of recoveries
totaled $9,616,000, including chargeoffs of $1,453,000 recorded
during the quarter ended March 31, 1995, $6,421,000 during the
quarter ended June 30, 1995 (including $5,287,000 related to
nonaccrual loans at June 30, 1995 or nonaccrual loans which
became REO during the second quarter) and $2,256,000 during the
quarter ended September 30, 1995.
IMPAIRED LOANS
- --------------
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 No. 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.
26
<PAGE>
IMPAIRED LOANS (Continued)
- --------------------------
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 been
restructured subsequent to the January 1, 1995 adoption of SFAS
No. 114 by the Company, the relevant contractual terms 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
restructured loan may be excluded from the impairment assessment
and may cease to be reported as an impaired loan in the calendar
years subsequent to the restructuring if the loan is not impaired
based on the modified terms.
For loans that are impaired within the meaning of SFAS No. 114,
the Company makes an assessment of impairment when and while such
loans are on nonaccrual or the loans have 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.
In accordance with the disclosures guidelines of SFAS No. 114,
the following table shows the recorded investment in impaired
loans and any related SFAS No. 114 allowance for losses at
September 30, 1995. An impaired loan has a specific amount of
the Company's reserves (allowance for losses) assigned to it
whenever the collateral's fair value, net of selling costs, is
less than the Company's recorded investment in the loan, after
amounts charged off to reserves are deducted. Generally,
impaired loans not requiring a special allowance under SFAS No.
114 have already been written down or have a net collateral fair
value which exceeds the loan balance.
27
<PAGE>
IMPAIRED LOANS (Continued)
- --------------------------
<TABLE>
<CAPTION>
Related
Recorded SFAS No. 114
Investment in Allowance for
Impaired Loans Losses
-------------- -------------
<S> <C> <C>
Impaired loans requiring a SFAS No. 114 allowance:
Single Family $ --- $ ---
Multifamily --- ---
Commercial Real Estate 1,165,000 274,000
Other 175,000 45,000
-------------- -------------
1,340,000 $ 319,000
-------------- -------------
Impaired loans not requiring a SFAS No. 114 allowance:
Single Family ---
Multifamily 37,185,000
Commercial Real Estate 15,629,000
Other ---
--------------
52,814,000
--------------
Total $54,154,000
==============
</TABLE>
The $52,814,000 of loans reported as impaired loans not requiring
a SFAS No. 114 allowance are classified in this manner because,
as of September 30, 1995, the recorded investment in these loans
have been reduced to their collateral fair value, net of selling
costs, by $9,543,000 of specific chargeoffs to the Company's
reserves. At September 30, 1995, the Company has designated
$231,000 of its reserves to protect against contingent
liabilities on certain of these loans, while the ultimate amount
of payment, if any, is being contested.
At September 30, 1995, the recorded investment in impaired loans
requiring a SFAS No. 114 allowance had been reduced in 1994 by
specific chargeoffs to the Company's reserve for possible losses
of $340,000.
Total interest income recognized on loans designated as impaired
for the third quarter and the nine months ended September 30,
1995 was $409,000 and $1,210,000, respectively, all of which was
recorded using the cash received method. The average recorded
investment in impaired loans during the third quarter of 1995 was
approximately $54,000,000.
28
<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
---------------------------------------------------
Not Applicable
Item 5. Other Information
-----------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibit 11 Statement of Computation of Earnings Per Share.
B. On October 20, 1995, the Company filed a Form 8-K relating to
Item 5 therein, covering the registrant's release
on October 19, 1995 to the business community of its earnings
for the quarter and nine months ended September 30, 1995.
29
<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: November 13, 1995 /s/JAMES H. HERBERT, II
-----------------------
JAMES H. HERBERT, II
President and Chief
Executive Officer
Date: November 13, 1995 /s/WILLIS H. NEWTON, JR.
------------------------
WILLIS H. NEWTON, JR.
Sr. Vice President and
Chief Financial Officer
(Principal Financial
Officer)
30
EXHIBIT 11
FIRST REPUBLIC BANCORP INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
1995 1994 1995 1994
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary:
Net income (loss) available to common stock $ 1,321,000 $2,552,000 $ (435,000) $5,741,000
Effect of convertible subordinated debentures,
net of taxes (1) 400,000 399,000 1,198,000 1,198,000
----------- ---------- ---------- ----------
Adjusted net income (loss) for fully diluted calculation (1) $ 1,721,000 $2,951,000 $763,000 (2) $6,939,000
=========== ========== ========== ==========
Weighted average shares outstanding,
beginning of period including treasury shares 7,807,662 7,759,158 7,797,100 7,743,965
Effect of stock options exercised during period 910 6,951 4,464 9,247
Weighted average shares of stock purchased by employees 468 521 4,343 4,347
Weighted average shares of dilutive stock
options under treasury stock method 260,008 320,556 223,326 330,386
Weighted average shares of treasury stock (463,400) (60,808) (434,749) (44,087)
----------- ---------- ---------- ----------
Adjusted shares outstanding - primary 7,605,648 8,026,378 7,594,484 8,043,858
=========== ========== ========== ==========
Net income (loss) per common share - primary $ 0.17 $ 0.32 $ (0.06) (2) $ 0.71
=========== ========== ========== ==========
Fully Diluted:
Adjusted shares - primary, from above 7,605,648 8,026,378 7,594,484 8,043,858
Weighted average shares issuable upon conversion
of convertible subordinated debentures (1) 2,524,210 2,524,210 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 69 471 8,596 6,538
---------- ---------- ---------- ----------
Adjusted shares outstanding - fully diluted 10,129,927 10,551,059 10,127,290 10,574,606
========== ========== ========== ==========
Net income (loss) per share - fully diluted (1) $ 0.17 $ 0.28 $ (0.06)(2) $ 0.66
========== ========== ========== ==========
</TABLE>
- --------------
(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.
(2) For the first nine months of 1995, consideration of the
conversion of the Company's convertible subordinated
debentures in the fully diluted calculation would result in
a higher earnings per share amount than the primary
calculation which results in a loss per share (the
convertible subordinated debentures are antidilutive).
Therefore, the primary loss per share is reported as the
fully diluted loss per share for this period.
31
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 14,238
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,585
<INVESTMENTS-CARRYING> 158,989
<INVESTMENTS-MARKET> 158,121
<LOANS> 1,626,464
<ALLOWANCE> 17,454
<TOTAL-ASSETS> 1,842,464
<DEPOSITS> 1,097,932
<SHORT-TERM> 30,000
<LIABILITIES-OTHER> 16,647
<LONG-TERM> 590,760
<COMMON> 74,972
0
0
<OTHER-SE> 32,153
<TOTAL-LIABILITIES-AND-EQUITY> 1,842,464
<INTEREST-LOAN> 93,211
<INTEREST-INVEST> 9,095
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 102,306
<INTEREST-DEPOSIT> 45,052
<INTEREST-EXPENSE> 77,559
<INTEREST-INCOME-NET> 24,747
<LOAN-LOSSES> 12,715
<SECURITIES-GAINS> 141
<EXPENSE-OTHER> 16,104
<INCOME-PRETAX> (819)
<INCOME-PRE-EXTRAORDINARY> (819)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (435)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
<YIELD-ACTUAL> 1.90
<LOANS-NON> 38,147
<LOANS-PAST> 2,899
<LOANS-TROUBLED> 16,008
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,355
<CHARGE-OFFS> 10,144
<RECOVERIES> 528
<ALLOWANCE-CLOSE> 17,454
<ALLOWANCE-DOMESTIC> 550
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 16,904
</TABLE>
