-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fe3KHYNge5T+oIqtmXPkYwXVJR4W5ej1+T/o9Ska71c1kKyvuXYquqHTKT2pN+5F Ge4MF9FsLg81Jh/OCu9dLg== 0000770975-95-000026.txt : 19951119 0000770975-95-000026.hdr.sgml : 19951119 ACCESSION NUMBER: 0000770975-95-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST REPUBLIC BANCORP INC CENTRAL INDEX KEY: 0000770975 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 942964497 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09837 FILM NUMBER: 95590362 BUSINESS ADDRESS: STREET 1: 388 MARKET ST STREET 2: SEOND FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4153921400 10-Q 1 10-Q 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. First Republic Bancorp Inc. Form 10-Q September 30, 1995 Index
PAGE ---- 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
2 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
September 30, December 31, 1995 1994 ------------- ------------ (Unaudited) 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 ============= =============
3 FIRST REPUBLIC BANCORP INC. CONSOLIDATED BALANCE SHEET
September 30, December 31, 1995 1994 ------------- ------------ (Unaudited) 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 ============== ==============
4 FIRST REPUBLIC BANCORP INC. CONSOLIDATED STATEMENT OF INCOME (unaudited)
QUARTER ENDED NINE MONTHS ENDED September 30, September 30, -------------------------- -------------------------- 1995 1994 1995 1994 ----------- ----------- ----------- ----------- 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 =========== =========== =========== ===========
5 FIRST REPUBLIC BANCORP INC. CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Nine Months ended ----------------- September 30, ------------- 1995 1994 ------------- ----------- 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 ============ ============
6 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 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 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.
At or for the nine months At or for the Year Ended September 30, Ended December 31, ------------------------- ----------------------------------- 1995 1994 1994 1993 1992 ------- ------- ------ ------ ------ 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
- ------------------------------- *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 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 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
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 --------- -------- -------- --------- ------- ------- ------- --------- --------- 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 ====== ======= ======= ======== ======== ======= ======= ======== =========
(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 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 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 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 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 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 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 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 RESULTS OF OPERATIONS- Nine Months Ended September 30, 1995 Compared - ---------------------- --------------------------------------------- to Nine Months Ended September 30, 1994 (Continued) ---------------------------------------------------
Nine Months Ended September 30, ----------------------------------------------------------------------- 1995 1994 --------------------------------- -------------------------------- Average Yields/ Average Yields/ Balance Interest Rates Balance Interest Rates --------- -------- ------- --------- -------- ------- (In thousands) 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% ======= =======
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 ASSET QUALITY AND PROVISION FOR POSSIBLE LOSSES (Continued) - -----------------------------------------------------------
September 30, December 31, ------------------------------- 1995 1994 1993 ------------- ------------ ------------ 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 ============= ============= =============
The following table presents an analysis of the Company's loan portfolio at September 30, 1995 by property type and geographic location:
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: 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%
(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 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.
September 30, December 31, -------------------------------- 1995 1994 1993 ----------- ----------- ----------- 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%
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 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
Los Angeles Northern County California Nevada Total ------------ ----------- --------- ------------ 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 =========== =========== ========== ===========
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 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 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 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.
Nine Months Ended Year Ended September 30, December 31, ------------------------ 1995 1994 1993 ------ ------ ------ 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%
- --------------- *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 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 IMPAIRED LOANS (Continued) - --------------------------
Related Recorded SFAS No. 114 Investment in Allowance for Impaired Loans Losses -------------- ------------- 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 ==============
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 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 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 EX-11 2 EXHIBIT 11 FIRST REPUBLIC BANCORP INC. STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
Quarter Ended Nine Months Ended September 30, September 30, ------------------------- -------------------------- 1995 1994 1995 1994 ----------- ---------- ---------- ---------- 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 ========== ========== ========== ==========
- -------------- (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 EX-27 3 ARTICLE 9
9 Registrant is not a Bank or Savings and Loan Holding Company. 0000770975 FIRST REPUBLIC BANCORP INC. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 14,238 0 9,000 0 12,585 158,989 158,121 1,626,464 17,454 1,842,464 1,097,932 30,000 16,647 590,760 74,972 0 0 32,153 1,842,464 93,211 9,095 0 102,306 45,052 77,559 24,747 12,715 141 16,104 (819) (819) 0 0 (435) (0.06) (0.06) 1.90 38,147 2,899 16,008 0 14,355 10,144 528 17,454 550 0 16,904
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