FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
(Exact name of registrant as specified in its charter)
California
80-0513856
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
111 Pine Street, 2nd Floor, San Francisco, CA
94111
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (415) 392-1400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
FRC
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a
Share of 5.125% Noncumulative Perpetual Series H Preferred Stock
FRC-PrH
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a
Share of 5.50% Noncumulative Perpetual Series I Preferred Stock
FRC-PrI
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a
Share of 4.70% Noncumulative Perpetual Series J Preferred Stock
FRC-PrJ
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a
Share of 4.125% Noncumulative Perpetual Series K Preferred Stock
FRC-PrK
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a
Share of 4.250% Noncumulative Perpetual Series L Preferred Stock
FRC-PrL
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a
Share of 4.000% Noncumulative Perpetual Series M Preferred Stock
FRC-PrM
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a
Share of 4.500% Noncumulative Perpetual Series N Preferred Stock
FRC-PrN
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ‘
No È
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ‘
No È
Indicate by check mark 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 È
No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ‘
No ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer È
Non-accelerated filer ‘
Accelerated filer ‘
Smaller reporting company ‘
Emerging growth company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. È
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect
the correction of an error to previously issued financial statements. ‘
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of
the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ‘
No È
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing price of $144.20 as of June 30,
2022 was approximately $18.1 billion.
The number of shares outstanding of the Bank’s common stock, par value $0.01 per share, as of February 13, 2023 was 186,218,729.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference in parts of the Form 10-K:
Portions of the Bank’s definitive proxy statement for its 2023 annual meeting of shareholders (the “2023 Proxy Statement”) are incorporated in Part III of the
Form 10-K.
The index to Exhibits appears on page 203.
TABLE OF CONTENTS
Glossary of Acronyms and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
Explanatory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
PART I
Information Regarding Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
Our Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
Lending Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
Mortgage Banking Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
Private Wealth Management Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
Information Technology Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
Human Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
Item 1B.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68
Item 4.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69
Item 6.
[Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
Non-GAAP Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72
Critical Accounting Policies and Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73
Current Accounting Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75
Key Factors Affecting Our Business and Financial Statements . . . . . . . . . . . . . . . . .
75
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80
Net Interest Income and Net Interest Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
83
Rate and Volume Variances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86
2
Provision (Reversal of Provision) for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . . .
87
Noninterest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87
Noninterest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90
Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92
Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93
Commercial Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94
Wealth Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
Balance Sheet Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
Asset Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115
Allowance for Credit Losses on Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
116
Allowance for Credit Losses on Unfunded Loan Commitments . . . . . . . . . . . . .
118
Mortgage Banking Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118
Deposit Gathering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
119
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . .
128
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
131
Consolidated Balance Sheets at December 31, 2022 and 2021 . . . . . . . . . . . . . . .
131
Consolidated Statements of Income and Comprehensive Income for the Years
Ended December 31, 2022, 2021 and 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
132
Consolidated Statements of Changes in Shareholders’ Equity for the Years
Ended December 31, 2022, 2021 and 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
133
Consolidated Statements of Cash Flows for the Years Ended December 31,
2022, 2021 and 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
134
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
135
Note 1. Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . .
135
Note 2. Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
143
Note 3. Investment Securities and Allowance for Credit Losses . . . . . . . . . . . . .
143
Note 4. Loans and Allowance for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . . . . .
151
Note 5. Mortgage Banking Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
168
Note 6. Variable Interest Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
168
Note 7. Tax Credit Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
169
Note 8. Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
170
Note 9. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
171
Note 10. Premises, Equipment and Leasehold Improvements . . . . . . . . . . . . . . .
172
Note 11. Goodwill and Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
173
Note 12. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
173
Note 13. Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
174
Note 14. Derivative Financial Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
176
Note 15. Fair Value Measurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
177
3
Note 16. Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
181
Note 17. Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
182
Note 18. Common Stock and Stock Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
184
Note 19. Accumulated Other Comprehensive Income (Loss) . . . . . . . . . . . . . . . .
187
Note 20. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
187
Note 21. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
188
Note 22. Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
190
Note 23. Regulatory Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
190
Note 24. Revenue from Contracts with Customers . . . . . . . . . . . . . . . . . . . . . . . .
191
Note 25. Segment Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
194
Note 26. Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
196
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . .
197
Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . .
201
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
202
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
202
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
202
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections . . . . . . . . . . .
202
PART III
Item 10.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . .
202
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
202
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
202
Item 13.
Certain Relationships and Related Transactions, and Director Independence . . . .
203
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
203
PART IV
Item 15.
Exhibit and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
203
Item 16.
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
206
SIGNATURES
4
GLOSSARY OF ACRONYMS AND TERMS
The following listing provides a reference to common acronyms and terms used throughout this
report:
ACL . . . . . . . . . . . . .
Allowance for Credit Losses
ALM . . . . . . . . . . . .
Asset Liability Management
AML . . . . . . . . . . . .
Anti-Money Laundering
AMLA . . . . . . . . . . .
Anti-Money Laundering Act of 2020
ARM . . . . . . . . . . . .
Adjustable-Rate Mortgage
ASC . . . . . . . . . . . .
Accounting Standards Codification
ASU . . . . . . . . . . . .
Accounting Standards Update
AUA . . . . . . . . . . . .
Assets Under Custody or
Administration
AUM . . . . . . . . . . . .
Assets Under Management
Basel
Committee . . . .
Basel Committee on Banking
Supervision
BHCA . . . . . . . . . . .
Bank Holding Company Act of 1956
Board . . . . . . . . . . .
Board of Directors of the Bank
bp . . . . . . . . . . . . . .
Basis Point
BSA . . . . . . . . . . . . .
The Bank Secrecy Act, as amended
by the USA PATRIOT Act of 2001
CAGR . . . . . . . . . . .
Compounded Annual Growth Rate
CCPA . . . . . . . . . . .
California Consumer Privacy
Protection Act of 2018
CCyB . . . . . . . . . . .
Countercyclical Capital Buffer
CD . . . . . . . . . . . . . .
Certificate of Deposit
CECL . . . . . . . . . . .
Current Expected Credit Losses
CECL Capital
Rule . . . . . . . . . .
Regulatory Capital Rule: Revised
Transition of the Current
Expected Credit Losses
Methodology for Allowances
CET1 . . . . . . . . . . . .
Common Equity Tier 1
CFPB . . . . . . . . . . .
Consumer Financial Protection
Bureau
CFTC . . . . . . . . . . .
Commodity Futures Trading
Commission
CIBCA . . . . . . . . . .
Change in Bank Control Act
CIDI . . . . . . . . . . . .
Covered Insured Depository
Institution
CLTV . . . . . . . . . . . .
Combined LTV
CMT . . . . . . . . . . . .
Constant Maturity Treasury
COFI . . . . . . . . . . . .
11th District Monthly Weighted
Average Cost of Funds Index
COFI Repl Index . .
Freddie Mac’s Enterprise 11th
District COFI Institutional
Replacement Index
Commissioner . . .
Commissioner of the DFPI
COSO . . . . . . . . . . .
Committee of Sponsoring
Organizations of the Treadway
Commission
COVID-19 . . . . . . .
COVID-19 Pandemic
CPRA . . . . . . . . . . .
California Privacy Rights Act
CRA . . . . . . . . . . . .
Community Reinvestment Act
DFPI . . . . . . . . . . . .
California Department of Financial
Protection and Innovation
DFS . . . . . . . . . . . . .
Department of Financial Services
DIF . . . . . . . . . . . . .
FDIC’s Deposit Insurance Fund
Dodd-Frank Act . .
Dodd-Frank Wall Street Reform and
Consumer Protection Act
DOJ . . . . . . . . . . . .
U.S. Department of Justice
DTA . . . . . . . . . . . .
Deferred Tax Asset
DTI . . . . . . . . . . . . .
Debt-to-income
DTL . . . . . . . . . . . . .
Deferred Tax Liability
EFC . . . . . . . . . . . . .
Economic Forecast Committee
EGRRCPA . . . . . . .
Economic Growth, Regulatory
Relief, and Consumer Protection
Act
EPS . . . . . . . . . . . . .
Earnings Per Common Share
ERISA . . . . . . . . . . .
U.S. Employee Retirement Income
Security Act of 1974, as amended
ESPP . . . . . . . . . . .
Employee Stock Purchase Plan
Fannie Mae . . . . . .
Federal National Mortgage
Association
FASB . . . . . . . . . . .
Financial Accounting Standards
Board
FCA . . . . . . . . . . . . .
Financial Conduct Authority
FCRA . . . . . . . . . . .
Fair Credit Reporting Act
FDIA . . . . . . . . . . . .
Federal Deposit Insurance
Corporation Improvement Act of
1991
FDIC . . . . . . . . . . . .
Federal Deposit Insurance
Corporation
Federal COFI . . . .
Federal Cost of Funds Index
Federal Reserve . .
Federal Reserve System
FHLB . . . . . . . . . . .
Federal Home Loan Bank
FINRA . . . . . . . . . . .
Financial Industry Regulatory
Authority
FinTech . . . . . . . . .
Financial Technology
FOMC . . . . . . . . . .
Federal Open Market Committee of
the Federal Reserve System
Freddie Mac . . . . .
Federal Home Loan Mortgage
Corporation
5
FRIM . . . . . . . . . . .
First Republic Investment
Management, Inc.
FRLC . . . . . . . . . . .
First Republic Lending Corporation
FRSC . . . . . . . . . . .
First Republic Securities Company,
LLC
FRTC Delaware . .
First Republic Trust Company of
Delaware LLC
FRTC Wyoming . . .
First Republic Trust Company of
Wyoming LLC
G-SIBs . . . . . . . . . .
Global Systemically Important Banks
GAAP . . . . . . . . . . .
Accounting Principles Generally
Accepted in the United States of
America
GLBA . . . . . . . . . . .
Gramm-Leach-Bliley Act
HELOC . . . . . . . . . .
Home Equity Line of Credit
HQLA . . . . . . . . . . .
High-Quality Liquid Assets
IBA . . . . . . . . . . . . .
ICE Benchmark Administration
ICE . . . . . . . . . . . . .
Intercontinental Exchange
Investment
Advisers Act . . .
Investment Advisers Act of 1940, as
amended
IRC . . . . . . . . . . . . .
Internal Revenue Code of 1986, as
amended
LCR . . . . . . . . . . . . .
Liquidity Coverage Ratio
LGD . . . . . . . . . . . .
Loss Given Default
LIBOR . . . . . . . . . . .
London Interbank Offered Rate
LMI . . . . . . . . . . . . .
Low- and Moderate- Income
LTV . . . . . . . . . . . . .
Loan-to-Value Ratio
MBS . . . . . . . . . . . .
Mortgage-Backed Securities
MSA . . . . . . . . . . . .
Mortgage Servicing Asset
MSR . . . . . . . . . . . .
Mortgage Servicing Right
NAV . . . . . . . . . . . . .
Net Asset Value
NSFR . . . . . . . . . . .
Net Stable Funding Ratio
OCC . . . . . . . . . . . .
Office of the Comptroller of the
Currency
PD . . . . . . . . . . . . . .
Probability of Default
PPP . . . . . . . . . . . . .
SBA’s Paycheck Protection Program
PPPLF . . . . . . . . . . .
PPP Liquidity Facility
PSU . . . . . . . . . . . . .
Performance Share Unit
Repo . . . . . . . . . . . .
Repurchase Agreement in U.S.
Government Securities
RESPA . . . . . . . . . .
Real Estate Settlement Procedures
Act
RSU . . . . . . . . . . . . .
Restricted Stock Unit
RWA . . . . . . . . . . . .
Risk-Weighted Asset
SBA . . . . . . . . . . . . .
U.S. Small Business Administration
SEC . . . . . . . . . . . . .
U.S. Securities and Exchange
Commission
Series F Preferred
Stock . . . . . . . . .
Noncumulative Perpetual Series F
Preferred Stock
Series G Preferred
Stock . . . . . . . . .
Noncumulative Perpetual Series G
Preferred Stock
Series H Preferred
Stock . . . . . . . . .
Noncumulative Perpetual Series H
Preferred Stock
Series I Preferred
Stock . . . . . . . . .
Noncumulative Perpetual Series I
Preferred Stock
Series J Preferred
Stock . . . . . . . . .
Noncumulative Perpetual Series J
Preferred Stock
Series K Preferred
Stock . . . . . . . . .
Noncumulative Perpetual Series K
Preferred Stock
Series L Preferred
Stock . . . . . . . . .
Noncumulative Perpetual Series L
Preferred Stock
Series M Preferred
Stock . . . . . . . . .
Noncumulative Perpetual Series M
Preferred Stock
Series N Preferred
Stock . . . . . . . . .
Noncumulative Perpetual Series N
Preferred Stock
Simplifications
Rule . . . . . . . . . .
Simplifications to the Capital Rule
Pursuant to the Economic Growth
and Regulatory Paperwork
Reduction Act of 1996
SLR . . . . . . . . . . . . .
Supplementary Leverage Ratio
SOFR . . . . . . . . . . .
Secured Overnight Financing Rate
TDR . . . . . . . . . . . . .
Troubled Debt Restructuring
TILA . . . . . . . . . . . .
Truth-in-Lending Act
Trust Company . . .
First Republic Trust Company, a
division of the Bank, First Republic
Trust Company of Delaware LLC,
and First Republic Trust Company
of Wyoming LLC
USD LIBOR . . . . . .
U.S. Dollar LIBOR
VIE . . . . . . . . . . . . . .
Variable Interest Entity
6
EXPLANATORY NOTE
As used throughout this document, the terms “First Republic,” the “Bank,” “we,” “our” and “us”
mean, except as the context indicates otherwise, First Republic Bank, a California-chartered
commercial bank, including all its subsidiaries.
Some amounts presented within this Annual Report on Form 10-K may not recalculate due to
rounding.
PART I
Information Regarding Forward-Looking Statements
This Annual Report contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Statements in this Annual Report that are not historical
facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor
provided by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives,
assumptions or future events or performance are not historical facts and may be forward-looking.
These statements are often, but not always, made through the use of words or phrases such as
“anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimates,”
“plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends,” and similar words or phrases.
Accordingly, these statements are only predictions and involve estimates, known and unknown
risks, assumptions and uncertainties. Our actual results could differ materially from those
expressed or anticipated in such forward-looking statements as a result of risks and uncertainties
more fully described under “Item 1A. Risk Factors.”
Forward-looking statements involving such risks and uncertainties include, but are not limited
to, statements regarding:
•
Projections of loans, assets, deposits, liabilities, revenues, expenses, tax liabilities, net
income, net interest income, net interest margin, capital expenditures, liquidity, dividends,
capital structure, investments or other financial items;
•
Forecasts of future economic conditions generally and in our market areas in particular,
including expectations relating to interest rates and inflation, which may affect our net
interest margin, the ability of borrowers to repay their loans and the value of real property
or other property held as collateral for such loans;
•
Expectations regarding the banking and wealth management industries;
•
Descriptions of plans or objectives of management for future operations, products or
services;
•
Our opportunities for growth and our plans for expansion (including opening new offices);
•
Expectations about the performance of any new offices;
•
Projections about the amount and the value of intangible assets;
•
Future provisions for credit losses on loans and debt securities, as well as for unfunded
loan commitments;
•
Changes in nonperforming assets;
•
Expectations regarding the impact and duration of COVID-19;
7
•
Expectations regarding our executive transitions;
•
Projections about future levels of loan originations or loan repayments;
•
Projections regarding costs, including the impact on our efficiency ratio; and
•
Descriptions of assumptions underlying or relating to any of the foregoing.
Factors that could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to:
•
Economic and market conditions, including volatility in the financial and securities
markets, which may negatively impact the valuation of our investment securities portfolio,
credit losses on our loans and debt securities, and the performance of our wealth
management business;
•
Inflation;
•
Interest rate risk and credit risk;
•
Significant competition to attract and retain banking and wealth management customers,
from both traditional and non-traditional financial services and technology companies;
•
Our ability to recruit and retain key managers, employees and board members;
•
Natural or other disasters, including earthquakes, wildfires, floods, pandemics, other public
health emergencies or acts of terrorism affecting the markets in which we operate;
•
The adverse effects of climate change on our business, clients and counterparties;
•
The negative impacts and disruptions resulting from COVID-19 or any other public health
emergencies, or fear thereof, on our colleagues and clients, the communities we serve and
the domestic and global economy;
•
Our ability to maintain and follow high underwriting standards;
•
Real estate prices generally and in our markets;
•
Our geographic and product concentrations;
•
Demand for our products and services;
•
Developments and uncertainty related to the future use and availability of some reference
rates;
•
The regulatory environment in which we operate, our regulatory compliance and future
regulatory requirements, which may result in costs, fees, penalties, business restrictions,
reputational harm or other adverse consequences;
•
Any changes to liquidity and regulatory capital requirements applicable to us, including
more stringent liquidity requirements and heightened capital requirements applicable if we
become a Category III banking organization under the FDIC’s regulations by reporting
$250 billion or more in total consolidated assets or $75 billion or more in weighted short-
term wholesale funding, nonbank assets or off-balance sheet exposure, based on a four
quarter trailing average;
•
Legislative and regulatory actions affecting us and the financial services industry, such as
the Dodd-Frank Act and changes thereto, which have resulted in and may in the future
result in increased compliance costs, limitations on activities and requirements to hold
additional capital;
•
Changes in federal, state or local tax laws;
8
•
Our ability to avoid litigation and its associated costs and liabilities;
•
Future FDIC special assessments or changes to regular assessments;
•
Fraud, cybersecurity and privacy risks; and
•
Technology preferences of our customers and our ability to successfully execute on
initiatives relating to enhancements of our technology infrastructure, including client-
facing systems and applications.
All forward-looking statements are necessarily only estimates of future results, and there can
be no assurance that actual results will not differ materially from expectations, and, therefore, you
are cautioned not to place undue reliance on such statements. Any forward-looking statements are
qualified in their entirety by reference to the factors discussed throughout this Annual Report and
our other public filings under the Exchange Act. Further, any forward-looking statement speaks only
as of the date on which it is made, and we undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events.
Item 1. Business.
General
Founded in 1985, we are a California-chartered commercial bank and trust company
headquartered in San Francisco with deposits insured by the FDIC. We offer private banking, private
business banking and private wealth management. We specialize in delivering exceptional,
relationship-based service and provide a complete line of products, including residential,
commercial and personal loans, deposit services, and private wealth management, including
investment, brokerage, insurance, trust and foreign exchange services. Services are offered through
preferred banking or wealth management offices primarily in San Francisco, Palo Alto, Los Angeles,
Santa Barbara, Newport Beach and San Diego, California; Portland, Oregon; Boston,
Massachusetts; Palm Beach, Florida; Greenwich, Connecticut; New York, New York; Jackson,
Wyoming; and Bellevue, Washington. We provide our services through 93 offices, of which 84 are
licensed deposit-taking offices and 9 offices offer exclusively lending, wealth management or trust
services. We have been continuously headquartered in San Francisco since our inception. As of
December 31, 2022, we had total assets of $212.6 billion, total deposits of $176.4 billion, total equity
of $17.4 billion and wealth management AUM and AUA of $271.2 billion.
We originate real estate-secured loans and other loans for retention in our loan portfolio. We
also originate mortgage loans for sale to institutional investors or for securitization and sale in the
secondary market.
We have an established record of meeting the credit needs of the communities where we
operate and historically have met our obligations under the CRA. In particular, we lend to support
community development projects, affordable housing programs and non-profit organizations that
help economically disadvantaged individuals and to residents of low- and moderate- income census
tracts, in each case consistent with prudent underwriting practices. We also make investments that
benefit small businesses or low- and moderate- income communities in our footprint, including
investing in low-income housing tax credit funds, small business investment companies, community
development financial institutions and other similar organizations. We also donate to nonprofit
organizations that offer a wide range of programs, including racial equality and educational and
health programs to economically disadvantaged students and families.
9
We also offer a broad array of internally managed investment services and, through an open
architecture model, access to investments managed by unaffiliated investment advisers. Our
wealth management services include a variety of investment strategies and products, online
investment management services, trust and custody services, full service and online brokerage,
financial and estate planning, access to alternative investments (private equity, venture capital,
hedge and real estate funds), socially responsible investing, insurance and foreign exchange. We
offer our wealth management services through FRIM, a federally registered investment adviser with
the SEC. We offer brokerage services through FRSC, a broker-dealer registered with the SEC. We
offer insurance solutions through FRSC and previously, also through FRIM. We provide trust
services through the Trust Company. FRIM, FRSC, FRTC Delaware and FRTC Wyoming are wholly-
owned subsidiaries of the Bank.
We do not engage in proprietary trading or investment banking activities nor do we originate or
trade in derivatives for our own account, and we do not have any current plans to engage in any of
these activities.
We currently operate our business through two business segments: Commercial Banking and
Wealth Management. For segment information, see the information in Part II, “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Business Segments” and Note 25 in Part II, “Item 8. Financial Statements and Supplementary Data.”
Our Business Strategy
Our core business principles and service-based culture have successfully guided our efforts
over the past 37 years. We believe focusing on these principles will enable us to expand our
capabilities for providing value-added services to our urban, coastal client base and generate
steady, long-term growth.
Deliver Superior Client Service. We believe that stable long-term growth and profitability are
the result of building strong client relationships one at a time while maintaining superior credit
discipline. The most effective way to achieve this is through the continued delivery of superior,
carefully coordinated client service without compromising the credit quality of our assets. Our
employees strive to understand our clients’ needs and identify appropriate financial solutions
through our comprehensive suite of products and services. Our client-focused culture has allowed
us to broaden and deepen these relationships over time. In turn, these clients do more business
with us, along with the substantial portion of our new clients coming to us from “word-of-mouth”
referrals from satisfied existing clients. We believe that delivering superior client service
differentiates us from our competition.
Originate High Quality Loans. We focus on originating high-quality loans for existing and new
clients. Our lending activities provide an opportunity for our bankers to also introduce other services
to these clients, which develop into comprehensive relationships as a result of the delivery of
superior client service. This enables us to expand our business in a disciplined manner while
maintaining superior credit quality. Refer to “Lending Activities” below for further discussion.
Grow Deposits. An important aspect of our franchise is the ability to gather deposits, which
provides us with a stable, low-cost source of funding. We focus on growing core deposits by
expanding relationships with existing clients and acquiring new deposit clients, both business and
consumer. Growth in our deposit base reflects our value-added strategy of introducing deposits to
loan clients, wealth management clients, businesses and non-profit organizations. Refer to
“Deposits” below for further discussion.
10
Grow Our Wealth Management Business. We offer integrated investment management,
brokerage, trust, custody, financial planning, insurance and foreign exchange services, which are an
extension of our banking franchise. We expand our wealth management business through our
relationship-based approach. We increase our AUM or AUA by increasing services offered to Bank
clients, acquiring new clients and hiring additional professionals, who bring their clients with them.
We believe that our brand name, superior client service and service culture will enable us to
continue to expand this business. Refer to “Wealth Management” below for further discussion.
Attract, Retain and Develop Diverse Talented Professionals. Attracting and retaining diverse
talented professionals is critical to driving the development of our business and delivering superior
financial performance. We have experienced low turnover across our workforce and intend to
continue hiring and developing professionals who are key to our business objectives, brand, and
culture. We believe our distinct business model, culture, scalable platform, and incentive
compensation structure enable us to attract and retain diverse talent. We remain committed to
empowering our colleagues to reach their full potential so they can take care of our clients and
communities and in turn grow our business.
Lending Activities
Products
We offer a broad range of lending products to meet the needs of our clients. Our loan portfolio
primarily consists of loans secured by single family residences, multifamily buildings and
commercial real estate properties. Our strategy includes lending to borrowers who are
professionals, business executives or entrepreneurs who are buying or refinancing homes in
metropolitan communities, refinancing existing household debt, or investing in their firms, which
creates the opportunity for us to offer related products and services.
We emphasize the origination of single family mortgage loans and originate other real estate
secured loans on a selective basis, including multifamily mortgages, commercial real estate
mortgages and construction loans. We also originate business loans, including capital call lines of
credit, tax-exempt, and other business loans, and from April 2020 to June 2021, PPP loans, until the
program ceased new loan originations. In addition, we originate stock secured loans, other secured
loans and unsecured loans.
Single Family. Our single family loans are secured by single family detached homes,
condominiums, cooperative apartments and two-to-four unit properties. Many of our borrowers
have high liquidity and substantial net worth. Our single family loans include loans that have an
initial interest-only period. Subsequent to the initial interest-only period, these loans fully and evenly
amortize until maturity. Additionally, we offer specific loan programs for first-time homebuyers and
also to borrowers with low to moderate incomes. Our Eagle Community loan program offers special
fixed rates to borrowers in underserved and underrepresented communities. As of December 31,
2022, single family real estate secured loans represented $98.8 billion, or 59% of our total loan
portfolio and had a weighted average LTV at origination of 59%. Our average loan commitment size
was $1 million based on outstanding loans at December 31, 2022. Our relationship managers and
the executive loan approval team carefully review loans as part of our credit approval process to
provide high quality service to each client. Repeat clients or their direct referrals are the most
important source of our loan originations.
11
Home Equity Lines of Credit. We offer HELOCs consisting of loans secured by first or second
deeds of trust on primarily owner-occupied primary residences. The majority of these lines are in a
secured position behind a first mortgage originated by us or in a first-lien position. As of
December 31, 2022, HELOCs were $2.8 billion, or 2% of our total loan portfolio. As of December 31,
2022, the average HELOC commitment size was $577,000, and the weighted average CLTV
including the first residential mortgage, if any, at origination was 49%.
Single Family Construction. Our single family construction loan portfolio includes loans to
individual clients for the construction and ownership of single family homes. These loans are
typically disbursed as construction progresses and can be converted into a permanent mortgage
loan once the property is occupied. As of December 31, 2022, single family construction loans were
$1.2 billion, or 1% of our total loan portfolio. As of December 31, 2022, the average single family
construction loan commitment size was $4 million, and the weighted average LTV at origination
was 55%.
Multifamily. Loans secured by multifamily properties are predominantly for established
buildings in the urban neighborhoods of our markets. The buildings securing our multifamily loans
are, generally, seasoned operating properties with proven occupancy, rental rates and expense
levels. The neighborhoods tend to be densely populated; the properties are close to employment
opportunities; and rent levels are appropriate for the target occupants. Generally, the borrowers are
property owners who are experienced at managing these properties. We typically have recourse
directly against the borrower on these loans due to receiving a personal guaranty from the
borrower. As of December 31, 2022, multifamily loans were $21.6 billion, or 13% of our total loan
portfolio. As of December 31, 2022, the average multifamily mortgage loan commitment size was
$3 million, and the weighted average LTV at origination was 52%.
Commercial Real Estate. We originate commercial real estate loans, primarily to existing
clients. We typically have recourse directly against the borrower on these loans and receive a
personal guaranty from the borrower. We are primarily an urban lender. The real estate securing our
existing commercial real estate loans includes a wide variety of property types, such as mixed-use
residential/commercial, retail properties, office buildings, office/warehouses, hotels, motels and
healthcare facilities. At the time of loan closing, the properties are generally completed and
occupied. As of December 31, 2022, commercial real estate loans were $10.8 billion, or 6% of our
loan portfolio. As of December 31, 2022, the average commercial real estate loan commitment size
was $4 million, and the weighted average LTV at origination was 46%.
Multifamily/Commercial Construction. Our multifamily/commercial construction loan portfolio
includes loans for the construction and ownership of other types of properties other than owner-
occupied single family loans. These loans are typically disbursed as construction progresses and
can be converted into a permanent mortgage loan once the property is occupied. As of
December 31, 2022, multifamily/commercial construction loans were $2.1 billion, or 1% of our loan
portfolio. As of December 31, 2022, the average multifamily/commercial construction loan
commitment size was $8 million, and the weighted average LTV at origination was 54%.
12
Business. Business loans include capital call lines of credit, tax-exempt, other business and PPP
loans. Business loans provide funding for investment opportunities, bridge capital calls from
investors, and meet working capital cash flow requirements and various other financing needs of
our business and non-profit clients. The business loan portfolio is comprised primarily of capital call
lines to private equity and venture capital funds, and loans to independent schools and other
non-profit organizations, which include social service organizations, the performing arts, and
museums. In addition, we provide operating lines of credit and term loans to other business clients
to meet their working capital needs. As of December 31, 2022, business loans and lines of credit
were $18.8 billion, or 11% of total loans outstanding. Of this total, $12.3 billion was in the form of
lines of credit. The utilization rate for these lines of credit was 33.4% at December 31, 2022.
Other Loans. Other loans primarily consist of stock secured loans, which are loans secured by
eligible marketable securities, as well as other secured loans from the professional loan program,
which offer individuals an ability to borrow for capital and partnership requirements. As of
December 31, 2022, stock secured and other secured loans totaled $7.7 billion, or 5% of our loan
portfolio. In addition, other loans include household debt refinance loans, which consist of term
loans and personal lines of credit, which are unsecured loans made to refinance existing household
debt and access additional financing at fixed interest rates. As of December 31, 2022, unsecured
loans totaled $3.0 billion, or 2% of our loan portfolio.
Underwriting
We have developed disciplined underwriting standards that have remained consistent
through varying business cycles. We seek to diversify our loans among market areas, loan types
and industries. Our underwriting standards include a matrix of approval requirements that vary
depending on the size and type of loan and our aggregate exposure to the borrower. The
underwriting process is intended to assess the prospective borrower’s credit standing, the
ability to repay and the value and adequacy of any collateral. To assess the borrower’s ability to
repay, we analyze the borrower’s cash flow, liquidity, credit standing, employment history and
overall financial condition. We evaluate our borrowers who choose adjustable-rate loans at a
rate that exceeds the initial start rate. This allows us to make a determination as to whether the
borrower is able to make higher loan payments in the event that interest rates increase
subsequent to origination. We do not originate loans with “teaser” rates. We do not originate
single family loans with the characteristics typically described as “subprime” or “high cost,”
such as loans made to borrowers with little or no cash reserves and poor or limited credit using
limited income documentation. Over the past two years, the home loans originated by us had a
weighted average credit score of 769. In addition, many of our borrowers have high liquidity and
substantial net worth. We underwrite home loans using full documentation.
The median attributes of clients who have obtained home loans from us over the last two
years are as follows:
Median
Loan Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$900,000
LTV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60%
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$685,000
Credit Score . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
780
Our loan origination policies and consistent underwriting standards have resulted in a low
historical loan loss experience. Since our inception in 1985, we have originated $240.7 billion of
single family residential loans (including HELOCs and single family construction loans) and have
experienced cumulative net loan losses of only $45 million, or 2 bps, in 37 years (including losses on
loans sold).
13
Our loan charge-off experience on all loan types for the last fifteen years is presented in the
following table. Net loan losses include charge-offs against the ACL and beginning in 2009, any
charge-offs recorded as a reduction in unaccreted discounts established in purchase accounting.
Net Loan Charge-offs
($ in millions)
Ratio (1)
Amount
Year ended December 31:
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.00%
$
3
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.00%
$
2
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.00%
$
2
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.01%
$
5
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.00%
$
3
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.00%
$
1
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.00%
$
2
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.01%
$
2
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.01%
$
2
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.05%
$
14
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.01%
$
2
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.03%
$
5
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.09%
$
16
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.48%
$
84
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.08%
$
12
(1)
Represents net loan charge-offs to average loans during each year.
Our net loan charge-off ratio was less than 0.5% of average loans at its highest in 2009, and net
loan charge-offs have averaged 2 bps of average loans outstanding, per year, over the past fifteen
years.
Credit Risk Management
Credit risk management involves a partnership between our relationship managers, business
bankers and our credit approval and credit administration personnel. We conduct weekly loan
meetings, attended by nearly all of our senior management, relationship managers, business
bankers, related loan production staff and credit administration staff, at which credit risk
management is frequently discussed. Since 1986, our compensation program for bankers has
included meaningful credit clawback provisions on all loan originations to encourage our personnel
to avoid and monitor for credit delinquency issues, which we believe leads the relationship
managers and business bankers to focus on high-quality credit consistent with our strategic focus
on asset quality.
We perform regular monitoring and annual reviews of our loan portfolio to identify and evaluate
any deterioration in primary and/or secondary sources of repayment, including evaluations of the
borrower’s financial condition and value of the collateral. Updates to risk grades are made, as
needed, upon completion of reviews. Relationship managers and business bankers are encouraged
to bring potential credit issues to the attention of credit administration personnel in a timely
manner.
14
For loans that are criticized or classified, the Bank’s Special Assets Committee reviews loan
grades, reserves and accrual status on a quarterly or more frequent basis. This review includes an
evaluation of the market conditions, the property’s trends, the borrower and guarantor status, the
level of reserves required and loan accrual status. Additionally, we have an independent, third-party
review performed on our loan grades and our credit administration functions each year. The results
of the third-party review are presented to the Audit Committee of the Board. These asset review
procedures provide management with additional information for assessing and affirming our asset
quality. In addition, for business and personal loans that are not secured by real estate, we perform
frequent evaluations and regular monitoring.
Mortgage Banking Activities
Secondary Market Loan Sales
We have historically and regularly accessed the capital markets to sell into the secondary
markets residential and, to a lesser extent, multifamily and commercial real estate loans that we
originate. We sell loans on a non-recourse basis to provide funds for additional lending and to
manage our asset/liability position.
We transact loan sales through whole loan sales on a flow basis and bulk loan sales. Whole loan
sales generally focus on intermediate-term hybrid ARM loans and longer-term fixed-rate loans and
are typically made to specific investors according to predetermined underwriting standards. We
have historically sold whole loans to Fannie Mae, Freddie Mac and various institutional purchasers
such as investment banks, real estate investment trusts, mortgage conduits and other financial
institutions. In addition, we sold single family loans through a securitization in 2020. Bulk sales
provide an opportunity for us to take advantage of market opportunities for different products and
are done either on an auction basis or negotiated with a single investor.
Loan Servicing
We have historically retained the servicing on substantially all loans sold to institutional
investors, thereby generating ongoing servicing revenues and maintaining client relationships. Loan
servicing activities include collecting and remitting loan payments, accounting for principal and
interest, responding to client inquiries, holding escrow (impound) funds for payment of taxes and
insurance, making inspections as required of the mortgaged property, collecting amounts due from
delinquent mortgagors, supervising foreclosures in the event of unremedied defaults and generally
administering the loans for the investors to whom they have been sold. We believe that the quality
of our loan servicing capability is a factor that permits us to sell our loans in the secondary market.
Our mortgage loan servicing portfolio was $3.5 billion as of December 31, 2022. 31% of total
loans serviced as of December 31, 2022 had outstanding balances greater than $970,800, which is
the maximum conforming loan amount for a single family loan. Of the total loans serviced as of
December 31, 2022, 53% were fixed-rate loans with a weighted average contractual rate of 3.45%,
19% were hybrid ARMs with a weighted average contractual rate of 3.33%, and 29% were
adjustable-rate loans with a weighted average contractual rate of 6.14%. The weighted average
contractual rate of the total loans serviced was 4.20% as of December 31, 2022. The weighted
average servicing fee collected was 0.26% for 2022. Our servicing portfolio is reduced by normal
amortization and prepayment or liquidation of outstanding loans. Many of the existing servicing
programs provide for principal and interest payments to be remitted by us, as servicer, to the
investor, whether or not received from the borrower. Upon ultimate collection, including the sale of
foreclosed property, we are entitled to recover any such advances plus late charges before paying
the investor. We believe our collection and foreclosure procedures comply with all applicable laws
and regulations. We currently have a relatively low number of loans in the process of foreclosure
and have not needed to suspend any of our foreclosure activities.
15
Deposits
As of December 31, 2022, we held $176.4 billion of total deposits, and deposit funding
comprised 92% of total funding liabilities. Total deposits have grown at a CAGR of 21% over the past
five years, as a result of growth in existing client relationships, client referrals, our general
marketing initiatives, growth in services offered to Bank clients, the service skills of our employees,
and other funding sources. Based on the most recent publicly available regulatory filings, as of
December 31, 2022, we were the 12th largest bank in the nation measured by total deposits.
As of December 31, 2022, our deposit base consisted of 59% in checking deposits, 27% in
money market checking, savings and passbook deposits, and 14% in CDs. Our deposit base is also
well-diversified geographically and by client type. As of December 31, 2022, 40% of our total
deposits came from the San Francisco Bay Area, 19% from New York, 9% from Boston, 8% from Los
Angeles, 6% from wealth management sweep programs and 18% from other deposits (which
consist of Preferred Banking and Preferred Banking Office deposits in other locations, as well as
other deposits that are not attributable to any specific deposit location). As of December 31, 2022,
63% of our total deposits were from business clients and 37% of our total deposits were from
consumer clients.
Our deposit base reflects our value-added strategy of introducing deposits to loan clients,
wealth management clients, businesses and non-profit organizations through the following
channels: (1) Preferred Banking deposits, which are placed by clients who enter into deposit
relationships directly with a relationship manager, business banker, preferred banker or wealth
management professional; (2) deposits from Preferred Banking Offices, which are retail locations
that gather deposits and service all of our clients; (3) wealth management sweep deposits, which
primarily consist of deposits swept from clients’ brokerage or other investment accounts; and
(4) other deposits, which primarily consist of brokered deposits, public deposits, third-party broker
dealer sweeps, negotiable CDs, foreign exchange and other deposits that are not attributable to
any specific deposit location. As of December 31, 2022, we held $100.1 billion of deposits associated
with our Preferred Banking activities, $49.6 billion of deposits associated with our Preferred
Banking Offices, $10.2 billion of wealth management deposits generated through our sweep
programs, and $16.6 billion of other deposits.
Preferred Banking is a substantial source of deposits. Preferred Banking is located in our key
markets with specialized personnel that primarily support the clients of our relationship managers,
business bankers and wealth management professionals. Preferred Banking deposits have grown at
a CAGR of 20% in the last five years.
Preferred Banking Offices, which are typically located in dense urban areas or supporting
suburban areas, have also been a strong source of deposit growth in both established and new
locations. Of our existing Preferred Banking Offices, 55% had total deposits over $500 million at
December 31, 2022.
Brokered deposits, public deposits, third-party broker dealer sweeps, negotiable CDs, foreign
exchange and other deposits not attributable to any specific deposit location have also been a
significant source of deposit growth during 2022. The Bank has access to a number of liquidity
resources that can be used as an alternative to funding sources such as FHLB advances. The year-
over-year increase in other deposits is a reflection of the Bank’s funding cost optimization.
16
Private Wealth Management Activities
A primary focus of our general business strategy has been to expand our capabilities for
providing value-added services to a targeted client base. We attract wealth management clients by
hiring additional wealth management professionals and providing superior client service. In
addition, our relationship-based approach allows us to grow existing client relationships, attract
referrals from existing clients and attract banking clients that have been satisfied with our loan
origination products and services and deposit services, which provides us with an opportunity for
our relationship managers to refer other products and services, such as wealth management.
Wealth management AUM and AUA were, in aggregate, $271.2 billion at December 31, 2022.
Investment Management Services. We provide traditional full-service portfolio management
and customized client portfolios through FRIM. When appropriate, our advisors use third-party
investment managers or funds through an open architecture platform. We offer integrated financial
and estate planning services, endowment management services, and management of defined
benefit and defined contribution plans. We also offer Eagle Invest, an online automated investment
management service that offers an alternative to the full-service version of advisory services. AUM
for investment management services were $112.2 billion as of December 31, 2022.
Brokerage and Investment Activities. For full-service brokerage clients, we perform brokerage
and investment activities through FRSC. We employ wealth managers to offer brokerage services
for equity securities, mutual funds, exchange-traded funds, unit investment trusts, alternative
investments, hedging strategies, treasury securities, municipal bonds, other fixed income
securities, money market mutual funds and other shorter-term liquid investments. We also offer
online services for self-directed brokerage accounts for those clients who choose to transact in this
manner. Our online brokerage services allow clients to place orders for equities, mutual funds and
listed options. As of December 31, 2022, AUA for brokerage and investment activities were
$138.9 billion. Such assets were held in brokerage or managed accounts. Customer accounts at
FRSC are cleared on a fully-disclosed basis by FRSC’s clearing firm, Pershing LLC (“Pershing”),
which has custody of FRSC accounts. Pershing is a wholly-owned subsidiary of The Bank of New
York Mellon Corporation and is not affiliated with the Bank.
Insurance Services. We offer insurance solutions through FRSC and previously, also through
FRIM. The following insurance products are offered: life insurance, annuities, disability and long-
term care. Insurance fees consist of initial commissions when a policy is sold and subsequent
commissions each year that a policy is renewed. The Bank does not retain any underwriting risk
from the sale of insurance products.
Trust Company. First Republic Trust Company, a division of the Bank, operates in California,
Oregon, Washington, New York, Massachusetts, Florida and Connecticut and specializes in
personal trust and estate administration activities. In addition, custody services are also provided.
FRTC Delaware, a subsidiary of the Bank, operates in Delaware. FRTC Wyoming, a subsidiary of the
Bank, operates in Wyoming. First Republic Trust Company, FRTC Delaware and FRTC Wyoming
draw new trust clients from our banking and wealth management client base, as well as from
outside of our organization. The Trust Company has gathered $20.1 billion of AUA as of
December 31, 2022.
Foreign Exchange. We earn fees from transacting foreign exchange business on behalf of our
clients. We execute foreign exchange trades with clients and then offset those trades with other
financial institution counterparties, such as major investment banks or large commercial banks. We
do not retain significant foreign exchange risk associated with these transactions, as the trades
with the client and the financial institution counterparty are matched on our books. We do retain
credit risk, both to the client and the counterparty institution, which is evaluated and managed by
us in the normal course of our operations. In addition, we have foreign exchange contracts
associated with client deposits denominated in various foreign currencies.
17
Information Technology Systems
We devote significant resources to maintain modern, efficient, secure and scalable information
technology systems. We outsource most of our processing and services, which allows us to select
the best provider in each market niche, reduce our costs by leveraging the vendors’ economies of
scale and expand our capabilities as needed. We use several different vendors for our main systems
so that we are not tied to a single provider and can upgrade systems individually without significant
disruption. We continue to invest in enhancing our mobile and online banking platform in order to
increase our efficiency and to improve the overall client experience.
We are committed to protecting our clients’ data. We closely monitor information security at
First Republic and in the financial services sector generally for trends and new threats, including
cybersecurity risks. We have initiatives to continuously improve the security and privacy of our
systems and data. To protect against disasters, we have backup data centers on the west and east
coasts and leverage resilient cloud services when available. We have established a committee of the
Board, which oversees our cybersecurity and general technology efforts.
In early 2022, the Bank successfully migrated to a new core banking system. The core
conversion project was the largest technology project that the Bank has undertaken, spanning
several years and requiring strong collaboration across many teams. The new system will further
enable exceptional client service and strengthen the Bank’s regulatory and operational
infrastructure as the Bank continues to grow.
Competition
We face strong competition in gathering deposits, making loans and obtaining client assets for
management or administration by investment management, trust and brokerage operations. We
compete for deposits and loans by seeking to provide a higher level of personal service than is
generally offered by larger and non-bank competitors, by advertising, and by offering competitive
interest rates. We generally do not have a dominant market share of the total deposit gathering or
lending activities in the areas in which we conduct operations.
Our management believes that our most direct competition for deposits comes from
commercial banks, credit unions, money market funds and brokerage firms, nationwide and
regional banks specializing in private banking and service-focused community banks that target the
same clients we do. In addition, our cost of funds fluctuates with market interest rates and may be
affected by higher rates being offered by other financial institutions. During certain interest rate
environments, additional significant competition for deposits may be expected to arise from
corporate and government debt securities and money market mutual funds.
Our competition in making loans comes principally from commercial banks, mortgage
companies, insurance companies and full service brokerage firms, particularly large, nationwide
institutions. Many of the nation’s largest commercial banks and mortgage companies have a
significant number of branch offices in the areas in which we operate. Aggressive pricing policies of
our competitors on new ARMs, intermediate-fixed rate and fixed-rate loans may result in a decrease
in our mortgage loan origination volume and a decrease in the profitability of our loan originations.
We compete for loans principally through the quality of service we provide to borrowers, real estate
brokers and loan agents, while seeking to maintain competitive interest rates, loan fees and other
loan terms.
18
Our competition in wealth management services comes primarily from commercial banks, trust
companies, mutual funds, investment advisory firms, brokerage firms, investment companies,
insurance companies, and other financial services companies, as well as private equity firms,
venture capital firms, hedge funds and other alternative investment strategies, and Internet-based
companies. Competition is especially keen in our principal markets because numerous well-
established and successful investment advisory and brokerage firms exist throughout each of the
markets in which we operate. We compete for wealth management clients through the scope and
quality of products and services offered, level of investment performance, price and client service.
Regulatory restrictions on interstate bank branching and acquisitions and on banks providing a
broader array of financial services, such as securities underwriting and dealing and insurance, have
been reduced or eliminated. The availability of banking and investment advisory services over the
Internet and on mobile devices continues to expand. Changes in laws and regulations governing the
financial services industry cannot be predicted; however, past legislation has served to intensify our
competitive environment.
Human Capital Management
Our success is predicated on our service-centric culture and business model, which is executed
by our employees. We seek to empower our workforce and create an environment where employees
feel engaged, respected and rewarded. To attract, develop and retain top, diverse talent, we strive
to promote an inclusive, safe and healthy workplace, with opportunities for our employees to grow
and develop in their careers. We also offer competitive compensation and benefits programs.
Attracting, Retaining, and Developing Employees
We leverage internal and external resources to attract highly skilled and talented individuals
who can meet the dynamic needs of our business while maintaining our culture and values. We
support the long-term career aspirations of our employees through education, personal and
professional development. As of December 31, 2022, we had 7,213 full-time equivalent employees,
including temporary employees and independent contractors, compared to 6,295 full-time
equivalent employees as of December 31, 2021, an increase of 15%. Our 5-year average voluntary
employee turnover, excluding temporary employees and independent contractors, from 2018-2022,
was 8%.
We believe that internal mobility and professional development opportunities lead to greater
employee engagement. We have implemented several cultural and educational programs designed
to promote opportunities for advancement in keeping with our culture and values. We support the
long-term career aspirations of our employees through education and personal development.
Diversity, Equity & Inclusion (DEI)
Since First Republic was founded in 1985, diversity has been at the core of our business. We
value diversity of perspective, expertise, background and tenure, as well as cultural, sexual
orientation, ethnic and gender identity. We believe that having a diverse team and inclusive culture
creates opportunities to better serve our diverse communities. We are also focused on increasing
education, mentorship, and understanding within our workforce to promote racial equity.
First Republic has always been and remains committed to fostering an inclusive workplace
culture that embraces and encourages diverse perspectives and backgrounds. For example, we
have 10 employee resource groups called Colleague Communities, which offer a place for
colleagues to foster networks and build strong relationships with members who share a common
interest. These networks embrace our values and further our community outreach, education and
professional development efforts.
19
Community Development
We are committed to supporting our communities through our lending and investing activities
as well as through volunteering and giving. As a leading financial institution, we place a focus on
affordable housing and homeownership, financial literacy and education. Our community
engagement strategy is informed by our Community Advisory Board and is aligned with the CRA.
First Republic is proud to have achieved a satisfactory CRA rating for 30 consecutive years.
As part of our commitment to our communities, we committed to taking action to create a
more sustainable future. This includes, among other actions, our efforts to remain carbon neutral
across our Scope 1 and Scope 2 emissions and purchase renewable energy to cover 100% of the
Bank’s electricity needs. Additionally, we maintain a lending policy that restricts lending to many
environmentally sensitive industries.
In 2021, as part of our effort to expand support for extraordinary nonprofit organizations in our
communities, we established the First Republic Foundation. We are committed to responsibly and
strategically deploying resources to provide opportunities for the underserved and
underrepresented in the communities we serve. We provide grants and professional development
opportunities to entrepreneurial nonprofit organizations to seed innovative initiatives in the areas of
education, affordable housing, and arts and culture. The Foundation’s grants are in addition to the
Bank’s long standing philanthropic support through its many community reinvestment activities and
partnerships with nonprofit organizations.
Health, Safety, and Wellness
The Bank is committed to supporting employees’ physical, emotional, and financial wellness by
offering flexible and competitive benefits. Our compensation program is designed to attract and
reward talented individuals who help us execute against our objective to provide extraordinary
service, assist in the achievement of our strategic goals, and create long-term value for our
shareholders. In addition to cash and equity compensation, we also offer comprehensive benefits
for our employees to ensure they and their families have the support they need for financial,
physical, and emotional well-being at every stage in life.
Supervision and Regulation
Described below are the material elements of selected laws and regulations applicable to us
and our subsidiaries. The descriptions are not intended to be complete and are qualified in their
entirety by reference to the full text of the statutes and regulations described. Changes in
applicable laws or regulations, and in their interpretation and application by regulatory agencies
and other governmental authorities, cannot be predicted, and may have a material effect on our
business, results of operations, competitive position or financial condition of the business, or results
of operations or financial condition of our subsidiaries.
Overview
We are subject to extensive federal and state banking laws, regulations and policies that are
intended primarily for the protection of clients, depositors and other consumers, the DIF, and the
banking system as a whole; not for the protection of our other creditors and shareholders. We are
examined, supervised and regulated by the DFPI (our primary regulator as a California state-
chartered bank) and the FDIC (our primary federal prudential regulator) as an insured state bank
without a holding company and that is not a member of the Federal Reserve. We are also subject to
supervision, regulation, examination and enforcement by the CFPB with respect to consumer
20
protection laws and regulations. The statutes enforced by, and regulations and policies of, these
agencies affect most aspects of our business, including prescribing permissible types of loans and
investments, the amount of required reserves, requirements for branch offices, the permissible
scope of our activities and various other requirements. Although we are not a member of the
Federal Reserve, we are subject to certain regulations of the Board of Governors of the Federal
Reserve, such as those dealing with availability of funds and check clearing activities (Regulation
CC), margin lending (Regulations T and U) and establishment of reserves against deposits
(Regulation D). Additionally, our offices in states other than California are subject to limited
supervision and regulation by the applicable state bank regulatory agency. In addition, certain of
our subsidiaries are subject to regulation, supervision and examination by self-regulatory
organizations, such as FINRA and other regulatory authorities, including the SEC and state
regulatory agencies, and our insurance activities are subject to licensing and regulation by state
insurance regulatory agencies.
Our deposits are insured by the FDIC to the fullest extent permissible by law. As an insurer of
deposits, the FDIC issues regulations, conducts examinations, requires the filing of reports and
generally supervises the operations of all institutions to which it provides deposit insurance. The
approval of the FDIC is required for certain transactions in which we may engage, including any
merger or consolidation by us (including the acquisition of another bank), a change in control over
us, or the establishment or relocation of any of our branch offices. In reviewing applications seeking
approval of such transactions, the FDIC may consider, among other things, the competitive effect
and public benefits of the transactions, the capital position, financial and managerial resources and
future prospects of the organizations involved in the transaction, the risks to the stability of the U.S.
banking or financial system, the applicant’s performance record under the CRA (see “—Community
Reinvestment Act and Fair Lending” below) and the effectiveness of the organizations involved in
the transaction in combating money laundering activities. The FDIC also has the power to prohibit
these and other transactions even if approval is not required, and could do so if we have otherwise
failed to comply with all laws and regulations applicable to us.
Proposals to change the laws and regulations governing the banking industry are frequently
introduced in Congress, in the state legislatures and before the various banking regulatory
agencies. Existing and future rulemakings have resulted, and may continue to result, in a significant
cost of compliance.
Changes in banking laws and regulations that have had a material effect on our results of
operations include, among others, the imposition of additional underwriting standards on
mortgages and increased expenses due to heightened regulatory requirements and standards
imposed on larger institutions, including: internal audit standards, enterprise risk management
standards, and enhanced compliance and standards for internal controls relating to AML, the BSA
and other matters. Additional changes to applicable laws or regulations could result in additional
costs and have a material effect on our operations. In particular, changes in Congress as well as
changes in the leadership of the federal financial regulatory agencies in the United States could
result in further changes to banking laws and regulations, although the timing and extent to which
this may occur is presently uncertain. In addition, actions by the current presidential administration
carry the potential to change the regulatory structure under which we operate in ways that may be
difficult to anticipate and with effects that may be hard to predict.
Continued growth of the Bank may subject us to additional regulatory requirements, including
those triggered by progressively larger consolidated asset thresholds, those imposed as a
prudential matter by the FDIC, and those triggered by increased activities in certain areas.
21
California Law
California law governs the licensing and regulation of California commercial banks, including
organizational and capital requirements, fiduciary powers, investment authority, branch offices and
electronic terminals, declaration of dividends, changes of control and mergers, out of state
activities, interstate branching and banking, debt offerings, borrowing limits, limits on loans to one
obligor, liquidation, sale of shares or options in the Bank to its directors, officers, employees and
others, the purchase by the Bank of its own shares, and the issuance of capital notes or debentures.
The DFPI provides protection to consumers and services to businesses engaged in financial
transactions, and is charged with our supervision and regulation.
Under California law, due to an exemption applicable to the Bank, there is no interest rate
limitation on loans originated for personal, family or household purposes. However, for certain types
of secured loans, California law imposes minimum collateral requirements. In addition, there are
certain term and amortization restrictions on loans secured by real property.
Unsecured loans to one person generally may not exceed 15% of the sum of a bank’s capital
stock, ACL on loans and capital notes and debentures, and both secured and unsecured loans to
one person (excluding certain secured lending and letters of credit) at any given time generally may
not exceed 25% of the sum of a bank’s capital stock, ACL on loans and capital notes and
debentures. Except for limitations on the amount of loans to a single borrower, loans secured by
real or personal property may be made to any person without regard to the location or nature of the
collateral. We are required to invest our funds in accordance with limitations under California law
and may only make investments that are permissible investments for banks, subject to any
limitations under any other applicable law.
Under California law, the amount a bank generally may borrow may not exceed its
shareholders’ equity without the consent of the DFPI, except for borrowings from the FHLB and the
Federal Reserve Bank.
In addition to remedies available to the FDIC (which are discussed below), the Commissioner
may take possession of a bank if certain conditions exist such as insufficient shareholders’ equity,
unsafe or unauthorized operations, or violation of law.
Capital Requirements
The Bank is subject to comprehensive capital adequacy requirements of the FDIC to ensure
that the Bank operates in a safe and sound manner, and to protect against losses that may be
incurred by the Bank. The FDIC, along with the other federal banking agencies, have risk-based
capital adequacy rules, regulations and guidance intended to provide a measure of capital
adequacy that reflects the degree of risk associated with a banking organization’s operations that
are reflected on its balance sheet, as well as off-balance sheet activities. The capital adequacy
requirements are set forth in the federal banking agencies capital rules (the “Basel III Capital
Rules”), which implement capital standards established by the Basel Committee, commonly referred
to as the Basel III capital framework (“Basel III”), as well as certain provisions of the Dodd-Frank Act.
Under the Basel III Capital Rules, the Bank is subject to a minimum CET1 capital ratio of 4.5%, a
minimum Tier 1 capital ratio of 6.0% and a minimum total capital ratio of 8.0%. FDIC-supervised
institutions, such as the Bank, are also subject to a Tier 1 leverage ratio of 4.0%.
As a “non-advanced approaches” banking organization under the Basel III Capital Rules, the
Bank is subject to rules that provide for simplified capital requirements relating to the threshold
deductions for MSAs; certain DTAs arising from temporary differences; and investments in the
capital of unconsolidated financial institutions.
22
During 2020, the federal banking agencies adopted the CECL Capital Rule, which provided
banking organizations the option to delay for two years an estimate of CECL’s effect on regulatory
capital, relative to the incurred loss methodology’s effect on regulatory capital until January 2022
and subsequently to phase in the effects through December 2024. The Bank elected to adopt the
CECL Capital Rule and delay the estimated impact of CECL on its regulatory capital.
The Bank is also subject to a “capital conservation buffer” of 2.5% of RWAs under the Basel III
Capital Rules. The capital conservation buffer is designed to absorb losses during periods of
economic stress. Banking institutions with a CET1 capital ratio above the minimum requirement but
below the capital conservation buffer will face constraints on dividends, equity repurchases and
compensation based on the amount of the shortfall and eligible retained income (defined as the
greater of net income for the four calendar quarters preceding the current calendar quarter, net of
any distributions and associated tax effects not already reflected in net income, and the average of
net income for the four calendar quarters preceding the current calendar quarter).
Under the Basel III Capital Rules, the effects of certain accumulated other comprehensive
income or loss items are not excluded from determining regulatory capital ratios; however,
non-advanced approaches banking organizations, including the Bank, were permitted to make a
one-time permanent election to continue to exclude these items. The Bank has elected to exclude
these items in order to avoid significant variations in the level of capital depending upon the impact
of interest rate fluctuations on the fair value of its available-for-sale debt securities portfolio.
The Basel III Capital Rules prescribe a standardized approach for risk weightings that depend
on the nature of the assets, generally ranging from 0% for U.S. government and agency securities,
to 600% for exposures to leveraged investment funds, and result in higher risk weights for certain
securitization exposures. The Simplifications Rule also requires that the Bank assign a 250% risk
weight to the amount of MSRs or temporary difference DTAs not deducted from CET1 capital. In
September 2020, the FDIC also adopted a final rule to apply a 0% risk weight to all PPP covered
loans that are not pledged to the PPPLF. The Bank did not participate in the PPPLF, and therefore,
has applied a 0% risk weight to PPP loans.
In determining the capital levels that we are required to maintain, the federal banking agencies
do not follow GAAP in all respects and have special rules that may have the effect of reducing the
amount of capital they will recognize for purposes of determining our capital adequacy.
In December 2017, the Basel Committee published standards that it described as the
finalization of the Basel III post-crisis regulatory reforms, commonly referred to as “Basel III
end-game” or Basel IV. Among other things, these standards revise the Basel Committee’s
standardized approach for credit risk (including recalibrating risk weights and introducing new
capital requirements for certain “unconditionally cancellable commitments”) and provide a new
standardized approach for operational risk capital. Under the Basel framework, the Basel III
end-game standards will generally be effective on January 1, 2023, with an aggregate output floor
phasing in through January 1, 2028. However, the FDIC and other federal banking agencies have
not yet proposed a rulemaking to implement the Basel III-end game standards into U.S. bank capital
rules. Under the current U.S. Basel III rules, operational risk capital requirements and a capital floor
apply only to advanced approaches institutions, and not to the Bank. The impact of these standards
on the Bank will depend on the manner in which they are implemented by the FDIC.
In connection with the capital requirements, the FDIC has adopted regulations and guidance
that mandate consideration of concentrations of credit risk and risks from non-traditional activities,
as well as an institution’s ability to manage those risks, when determining the adequacy of an
institution’s capital. This evaluation is part of the institution’s regular safety and soundness
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examination. The FDIC’s regulations also require consideration of general market risk, including
interest rate risk (when the interest rate sensitivity of an institution’s assets does not match the
sensitivity of its liabilities or its off-balance sheet position), in the evaluation of a financial
institution’s capital adequacy.
Allowance for Credit Losses
Experience in the banking industry indicates that a portion of our loans may become
delinquent, and that some of these loans may be only partially repaid or may never be repaid at all.
Despite our underwriting criteria, we experience losses for reasons beyond our control, including
general economic conditions. A prolonged period of economic recession or other adverse economic
conditions may result in an increase in nonpayment of loans, a decrease in collateral value and an
increase in our ACL on loans. Additionally, the federal banking agencies periodically review the loan
portfolios and related ACL on loans of banks, including us, and may require banks to increase their
provision for credit losses or to recognize further loan charge-offs based upon their judgments,
which may be different from the underlying calculations of the banks.
In May 2020, the federal banking agencies issued a final interagency policy statement related
to CECL, which aligns interagency guidance with ASC 326, “Financial Instruments—Credit Losses.”
Specifically, the statement (1) updates concepts and practices from prior policy statements issued
in December 2006 and July 2001 that remain relevant under ASC 326; (2) describes the appropriate
CECL methodology, in light of ASC 326, for determining the ACL on financial assets measured at
amortized cost and certain off-balance sheet credit exposures; and (3) describes the estimation of
an ACL on an impaired available-for-sale debt security. The policy statement was effective on
January 1, 2020 when the Bank adopted ASC 326.
COVID-19
Federal, state, and local governments have taken significant steps to address the impact of
COVID-19. The U.S. Government enacted legislation providing emergency assistance, direct
stimulus payments and opportunities for forbearance for certain loans among other forms of relief.
There have also been a number of responsive bank regulatory actions, including mandates requiring
financial institutions to work constructively with borrowers affected by COVID-19. In addition,
states and local authorities adopted temporary bans on evictions and foreclosures, and flexibility
regarding rental payments. Federal moratoriums on evictions and foreclosures that were
implemented during COVID-19 were extended late into 2021. Although many of these programs
have expired, governmental authorities may take additional actions in the future to limit the adverse
impact of COVID-19 on borrowers and tenants.
Prompt Corrective Action and Other Enforcement Mechanisms
The Federal Deposit Insurance Act, as amended by the FDIA, requires the appropriate federal
banking agency to take prompt corrective action to resolve the problems of insured depository
institutions, including those that fall below one or more prescribed minimum capital ratios. The law
requires each federal banking agency to promulgate regulations defining the following five
categories in which an insured depository institution will be placed, based on the level of its capital
ratios: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized.
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Under the prompt corrective action provisions of the FDIA, an insured depository institution
generally will be classified in the applicable category based on the capital measures indicated in the
table below:
Capital Measure
Well-
Capitalized
Adequately
Capitalized
Undercapitalized
Significantly
Undercapitalized
Tier 1 leverage ratio . . . . . . . . . . . . . . . . .
5% or greater
4% or greater
Less than 4%
Less than 3%
CET1 ratio . . . . . . . . . . . . . . . . . . . . . . . . . .
6.5% or greater
4.5% or greater
Less than 4.5%
Less than 3%
Tier 1 risk-based capital ratio . . . . . . . . .
8% or greater
6% or greater
Less than 6%
Less than 4%
Total risk-based capital ratio . . . . . . . . .
10% or greater
8% or greater
Less than 8%
Less than 6%
An institution that is classified as “well-capitalized” based on its capital levels may be classified
as “adequately capitalized,” and an institution that is “adequately capitalized” or “undercapitalized”
based upon its capital levels may be treated as though it were undercapitalized or significantly
undercapitalized, respectively, if the appropriate federal banking agency, after notice and
opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound
practice warrants such treatment. At each successive lower capital category, an insured depository
institution is subject to progressively more restrictive constraints on operations, management and
capital distributions, as the capital category of an institution declines. Failure to meet the capital
requirements could also subject a depository institution to capital raising requirements. Ultimately,
critically undercapitalized institutions (with tangible equity to total assets of 2% or less) are subject
to the appointment of a receiver or conservator.
As of December 31, 2022, the Bank met all capital ratios requirements to be “well-capitalized”
under the prompt corrective action requirements currently in effect.
In addition to measures taken under the prompt corrective action provisions, commercial
banking organizations may be subject to potential enforcement actions by the federal banking
agencies for unsafe or unsound practices in conducting their businesses or for violations of any law,
rule, regulation, condition imposed in writing by the agency or written agreement with the agency.
Enforcement actions may include the issuance of formal and informal agreements, the issuance of
a cease-and-desist order that can be judicially enforced, the issuance of directives to increase
capital, the imposition of civil money penalties, the issuance of removal and prohibition orders
against institution-affiliated parties, the termination of insurance of deposits, the imposition of a
conservator or receiver, and the enforcement of such actions through injunctions or restraining
orders based upon a judicial determination that the agency would be harmed if such equitable relief
was not granted.
Tailoring Rules
In November 2019, the federal banking agencies adopted regulations under the EGRRCPA for
tailoring the applicability of enhanced prudential standards for banking organizations with total
consolidated assets of $100 billion or more (the “Tailoring Rules”). Under the Tailoring Rules, the most
stringent requirements are applied to U.S. G-SIBs as Category I institutions, and the least stringent
requirements are applied to large domestic banking organizations with $100 billion in total
consolidated assets but less than $250 billion in total consolidated assets or less than $75 billion in
weighted short-term wholesale funding, off-balance sheet exposures, nonbank assets or cross-
jurisdictional activities. Under the Tailoring Rules, a standalone bank without a holding company, is
not subject to enhanced capital and liquidity standards like the LCR and NSFR Rules, SLR and CCyB
requirements, or company-run stress testing requirements under the FDIC’s regulations until it meets
the asset thresholds of a Category III banking organization. Therefore, the Bank will not be subject to
such requirements until it reports, based on a four-quarter trailing average, total consolidated assets
of $250 billion or more, or $100 billion in total consolidated assets and $75 billion in nonbank assets,
off-balance sheet exposure, or weighted short-term wholesale funding.
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Nevertheless, we maintain on balance sheet liquidity and a portfolio of HQLA. In addition, in the
normal course of operations, the Bank periodically performs internal capital stress tests as a part of
its overall capital planning process. Continued growth of the Bank that results in the Bank
exceeding the asset thresholds under the Tailoring Rules would result in more stringent capital and
liquidity requirements for the Bank. For example, after meeting the asset threshold(s) for a Category
III banking organization, based on a four-quarter trailing average, the Bank expects to be subject to
SLR, LCR, and NSFR requirements, as implemented under the FDIC’s regulations, and the CCyB
(which is currently set at zero) in addition to the capital conservation buffer. These additional
requirements would result in the Bank having to increase its holdings of HQLA, such as Federal
Reserve Bank balances, U.S. Treasury and agency securities, or other liquidity sources, and increase
the use of long-term debt as a funding source. Increasing our holdings of lower-yielding assets and
our use of higher-cost liabilities could potentially reduce our net interest margin and could limit our
loan and deposit growth and our ability to attract and retain new clients, all of which could
adversely affect our business, results of operations and financial condition.
Safety and Soundness Standards
Guidelines adopted by the federal banking agencies pursuant to the FDIA establish general
safety and soundness standards for depository institutions related to internal controls, vendor
management, information security and cybersecurity, loan underwriting and documentation, and
asset growth. Among other things, the FDIA limits the interest rates paid on deposits by
undercapitalized institutions, restricts the use of brokered deposits, and limits the aggregate
extensions of credit by a depository institution to an executive officer, director, principal
shareholder or related interest. These standards have not limited our operations in any material way
to date.
The federal banking agencies may require an institution to submit an acceptable compliance
plan as well as have the flexibility to pursue other more appropriate or effective courses of action
given the specific circumstances and severity of an institution’s noncompliance with one or more
standards.
The FDIC may terminate deposit insurance upon a finding that the institution has engaged in
unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Climate-Related Risk Management and Environmental Regulation
In recent years, the federal banking agencies have increased their focus on climate-related
risks affecting the operations of banks, the communities they serve and the broader financial
system. Accordingly, the agencies have begun to enhance their supervisory expectations regarding
banks’ climate risk management practices, including by encouraging banks to: ensure that
management of climate-related risk exposures has been incorporated into existing governance
structures; evaluate the potential impact of climate-related risks on the bank’s financial condition,
operations and business objectives as part of its strategic planning process; account for the effects
of climate change in stress testing scenarios and systemic risk assessments; revise expectations for
credit portfolio concentrations based on climate-related factors; consider investments in climate-
related initiatives and lending to communities disproportionately impacted by the effects of climate
change; evaluate the impact of climate change on the bank’s borrowers and consider possible
changes to underwriting criteria to account for climate-related risks to mortgaged properties;
incorporate climate-related financial risk into the bank’s internal reporting, monitoring and
escalation processes; and prepare for the transition risks to the bank associated with the
adjustment to a low-carbon economy and related changes in laws, regulations, governmental
policies, technology, and consumer behavior and expectations.
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On October 21, 2021, the Financial Stability Oversight Council, of which the FDIC is a member,
published a report identifying climate-related financial risks as an “emerging threat” to financial
stability. On March 30, 2022, the FDIC published proposed principles similar to those issued by the
other federal financial agencies for FDIC-supervised banks with $100 billion in total consolidated
assets. As climate-related supervisory guidance is formalized, and relevant risk areas and
corresponding control expectations are further refined, we may be required to incur compliance,
operating, maintenance and remediation costs in order to conform to such requirements.
In addition, states, such as California and New York, are considering taking similar actions on
climate-related financial risks. State and local climate-related legislative and regulatory initiatives
may also require us to expend capital to conform to applicable requirements.
Brokered Deposits
Section 29 of the FDIA and FDIC regulations limit the ability of an insured depository institution,
such as the Bank, to accept, renew or roll over brokered deposits unless the institution is well-
capitalized under the prompt corrective action framework described above, or unless it is
adequately capitalized and obtains a waiver from the FDIC. In addition, less than well-capitalized
banks are subject to restrictions on the interest rates they may pay on deposits. The
characterization of deposits as “brokered” may result in the imposition of higher deposit
assessments on such deposits. The FDIC’s regulations include a limited exception for reciprocal
deposits for FDIC-insured depository institutions that are well rated and well capitalized (or
adequately capitalized and have obtained a waiver from the FDIC as mentioned above). Under the
limited exception, qualified FDIC-insured depository institutions, like the Bank, are able to except
from treatment as “brokered” deposits up to $5 billion or 20 percent of the institution’s total
liabilities in reciprocal deposits (which is defined as deposits received by a financial institution
through a deposit placement network with the same maturity (if any) and in the same aggregate
amount as deposits placed by the institution in other network member banks).
In December 2020, the FDIC amended its brokered deposits rule to clarify and modernize the
FDIC’s regulatory framework, and thereby established a new framework for analyzing a “deposit
broker” and determining whether deposits should be treated as brokered deposits. The final rule
took effect on April 1, 2021 and full compliance was required as of January 1, 2022.
Resolution Plans
Under the FDIC’s “covered insured depository institution” or “CIDI” Rule, an insured depository
institution with $50 billion or more in total assets, such as the Bank, is required to submit periodically
to the FDIC a contingency plan for the resolution of such institution in the event of its failure. The
contingency plan submitted should enable the FDIC, as receiver, to resolve the institution under
applicable receivership provisions of the FDIA in a manner that ensures that depositors receive access
to their insured deposits within one business day of the institution’s failure (two business days if the
failure occurs on a day other than Friday), maximizes the net present value return from the sale or
disposition of its assets and minimizes the amount of any loss to be realized by the institution’s
creditors. If the FDIC determines that a bank’s contingency plan is not credible, the insured depository
institution will have 90 days to submit a revised plan that addresses the deficiencies identified by the
FDIC and discusses revisions made to address such deficiencies.
After a suspension of resolution plan submission due to rulemaking efforts, in January 2021, the
FDIC announced that, given the passage of time from the last resolution plan submissions and the
uncertain economic outlook, the FDIC would resume requiring resolution plan submissions for insured
depository institutions with $100 billion or more in assets, including the Bank, under a modified
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approach. On June 25, 2021, the FDIC issued a policy statement on its modified approach for
resolution plans for insured depository institutions, which describes how the agency will implement
certain aspects of the CIDI Rule with respect to CIDIs with $100 billion or more in total assets. As
instructed by the FDIC, the Bank submitted its resolution plan under the modified approach by
December 2022.
On October 24, 2022, the FDIC and the Federal Reserve issued an advanced notice of proposed
rulemaking seeking comment on whether the agencies should impose Total Loss Absorbing Capacity,
Long-Term Debt, and other resolvability requirements that currently apply to G-SIBs to large banking
organizations. Proposed changes to the CIDI Rule could impact the Bank’s resolution planning
requirements. The prospects and timing for the adoption of a final rule amending the CIDI Rule, as
well as the potential application of any final rule to the Bank, are uncertain at this time.
Premiums for Deposit Insurance and Assessments
Our deposits are insured by the FDIC to the fullest extent permitted by law, and we are subject
to deposit insurance assessments to maintain the DIF. Deposit insurance assessments are based
on average total assets, less average tangible equity. For larger institutions, such as the Bank, the
FDIC uses a performance score and a loss-severity score to calculate an initial assessment rate. In
calculating these scores, the FDIC uses a bank’s capital level and supervisory ratings (its CAMELS
ratings) and certain financial measures to assess an institution’s ability to withstand asset-related
stress and funding-related stress. The FDIC has the ability to make discretionary adjustments to the
total score based upon significant risk factors that are not adequately captured in the calculations.
The FDIC has set the long-range, minimum target reserve ratio at 2.0%. At least semi-annually,
the FDIC will update its loss and income projections for the DIF and, if needed, will increase or
decrease assessment rates, following notice- and- comment rulemaking, if required. The Dodd-
Frank Act increased the minimum for the DIF reserve ratio, the ratio of the amount in the DIF to
insured deposits from 1.15% to 1.35% and required that the ratio reach 1.35% by September 30,
2020. In September 2020, the FDIC adopted a Restoration Plan to restore the DIF reserve ratio to at
least 1.35% within 8 years, since the ratio fell to 1.30% and below the statutory minimum of 1.35% in
the second quarter of 2020. Under the Restoration Plan, the FDIC will maintain the current
schedule of assessment rates since it believes that the ratio will return to 1.35% without further
action before the end of the 8-year period. On October 18, 2022, the FDIC adopted a final rule,
applicable to all insured depository institutions, to increase initial base deposit insurance
assessment rate schedules uniformly by 2 bps beginning the first quarterly assessment period of
2023. The FDIC also concurrently maintained the Designated Reserve Ratio for the DIF at 2% for
2023. According to the FDIC, the growth in insured deposits during the first and second quarters of
2020 caused the DIF reserve ratio to drop below the statutory minimum of 1.35%. The increase in
the assessment rate schedules is intended to increase the likelihood that the DIF reserve ratio will
reach the statutory minimum of 1.35% by the statutory deadline of September 30, 2028.
In February 2021, the FDIC adopted a final rule addressing the temporary deposit insurance
assessment effects resulting from certain optional regulatory capital transition provisions relating
to the implementation of the CECL methodology. The final rule, which became effective on April 1,
2021, removed the double counting of a specified portion of the CECL transitional amount or the
modified CECL transitional amount, as applicable, in the calculation of certain financial measures
that are used to determine assessment rates for large and highly complex insured depository
institutions.
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Anti-Money Laundering, the USA Patriot Act Office of Foreign Assets Control
Regulation, and the National Defense Authorization Act
A major focus of governmental policy on financial institutions is combating money laundering
and terrorist financing. The BSA and its implementing regulations, impose significant compliance
and due diligence obligations on financial institutions, and include criminal and civil penalties for
noncompliance and an expanded extra-territorial reach. Financial institutions are also prohibited
from entering into specified financial transactions and account relationships and must use
enhanced due diligence procedures in their dealings with certain types of high-risk customers and
implement written customer identification and customer due diligence programs. Financial
institutions must also take certain steps to assist government agencies in detecting and preventing
money laundering and to report certain types of suspicious transactions.
In addition, the United States has imposed economic sanctions that affect transactions with
designated foreign countries, nationals and others which are administered by the U.S. Treasury
Department Office of Foreign Assets Control.
In January 2021, the AMLA, which amends the BSA, was enacted. The AMLA is intended to
comprehensively reform and modernize U.S. AML laws. Among other things, the AMLA codifies a
risk-based approach to AML compliance for financial institutions; requires the development of
standards by the U.S. Department of the Treasury for evaluating technology and internal processes
for BSA compliance; and expands enforcement- and investigation-related authority, including a
significant expansion in the available sanctions for certain BSA violations. Many of the statutory
provisions in the AMLA will require additional rulemakings, reports and other measures, and the
impact of the AMLA will depend on, among other things, rulemaking and implementation guidance.
In general, the failure of a financial institution to maintain and implement adequate programs
to combat money laundering and terrorist financing and to prohibit transactions with targets of
sanctions, or to comply with all of the relevant laws or regulations, could have serious legal,
monetary, and reputational consequences for the institution.
Consumer Financial Protection Bureau Supervision
The CFPB is directed to prevent unfair, deceptive and abusive practices and ensure that all
consumers have access to markets for consumer financial products and services, and that such
markets are fair, transparent and competitive. The CFPB has authority under the Dodd-Frank Act to
enforce and issue rules and regulations implementing existing consumer protection laws and is
responsible for all such existing laws and regulations. Depository institutions with assets exceeding
$10 billion (such as us), their affiliates, and other “larger participants” in the markets for consumer
financial services (as determined by the CFPB) are subject to direct supervision by the CFPB,
including any applicable examination, enforcement and reporting requirements the CFPB may
establish.
CFPB rules and the statutes it enforces broadly affect our relationships with consumers. For
example, CFPB’s rules affect nearly every aspect of the lifecycle of a residential mortgage loan.
These rules implement the Dodd-Frank Act amendments to the Equal Credit Opportunity Act, the
TILA and the RESPA. Among other things, the CFPB’s rules require banks to: (i) develop and
implement procedures to ensure compliance with a “reasonable ability-to-repay” test (as discussed
below); (ii) implement disclosures, policies and procedures for originating and servicing mortgages,
including, but not limited to, pre-loan counseling, early intervention with delinquent borrowers and
specific loss mitigation procedures for loans secured by a borrower’s principal residence, and
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mortgage origination disclosures, which integrate existing requirements under TILA and RESPA;
(iii) comply with additional restrictions on mortgage loan originator hiring and compensation; and
(iv) comply with disclosure requirements and standards for appraisals and certain financial
products.
Banking regulators take into account compliance with consumer protection laws when
considering approval of a proposed transaction.
Ability-to-Repay Requirement
Under the TILA, mortgage lenders are required to show that they have verified the borrower’s
ability to repay a residential mortgage loan (which does not include HELOCs). Borrowers who bring
actions within three years of a violation of the ability-to-repay requirement could be entitled to
statutory damages equal to the sum of all financing charges and fees. In addition, a borrower can
assert a violation of the ability-to-repay requirement in a foreclosure proceeding as a matter of
defense by recoupment or setoff against the lender or any assignee of the lender, without time limit.
In addition, CFPB rules establish the underwriting practices that are required by the ability-to-repay
requirement. Lenders of mortgages that meet a “qualified mortgage” standard, however, may have
a safe harbor or a presumption of compliance with the requirement.
Qualified mortgages cannot have negative amortization, interest-only payments, or balloon
payments, terms over 30 years, or points and fees over certain thresholds. Qualified mortgages also
have underwriting requirements that include verification of income, underwriting based on a fully
amortizing payment schedule and the maximum interest rate during the first five years, and DTI
ratio limits. Lenders of qualified mortgages are granted either a safe harbor or a rebuttable
presumption of compliance, depending on whether the qualified mortgage is a “higher priced”
mortgage as compared to the average rates for comparable transactions. The CFPB’s rules also
prohibit prepayment penalties for residential mortgage loans, except for qualified mortgages that
are not higher priced.
On December 10, 2020, the CFPB issued two final rules related to qualified mortgage loans. The
first rule replaces the strict 43 percent DTI threshold for qualified mortgage loans and provides that,
in addition to existing requirements, a loan receives a conclusive presumption that the consumer
had the ability to repay under certain circumstances. The second rule creates a new category of
“seasoned” qualified mortgages for loans that qualify for a safe harbor under the Ability-to-Repay/
Qualified Mortgage Rule. The mandatory compliance date under the first final rule was July 1, 2021,
but subsequently was delayed by the CFPB to October 1, 2022. The second final rule will apply to
covered transactions for which institutions receive an application after the compliance date for the
first final rule.
Incentive Compensation
Guidelines adopted by the federal banking agencies pursuant to the FDIA prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as excessive when
the amounts paid are unreasonable or disproportionate to the services performed by an executive
officer, employee, director or principal shareholder.
Under guidance by the federal banking agencies, which covers all employees who have the
ability to materially affect the risk profile of an organization, either individually or as part of a group,
a banking organization’s incentive compensation arrangements should (i) provide incentives that do
not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks,
(ii) be compatible with effective internal controls and risk management, and (iii) be supported by
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strong corporate governance, including active and effective oversight by the organization’s board of
directors. Any deficiencies in compensation practices that are identified may be incorporated into
the organization’s supervisory ratings, which can affect its ability to make acquisitions or perform
other actions. These three principles are incorporated into the proposed joint compensation
regulations under the Dodd-Frank Act, discussed below. The guidance provides that enforcement
actions may be taken against a banking organization if its incentive compensation arrangements or
related risk-management control or governance processes pose a risk to the organization’s safety
and soundness and the organization is not taking prompt and effective measures to correct the
deficiencies.
The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint
regulations or guidelines for specified regulated entities, such as us, having at least $1 billion in
total assets, to prohibit incentive-based payment arrangements that encourage inappropriate risk-
taking by providing an executive officer, employee, director or principal shareholder with excessive
compensation, fees, or benefits or that could lead to material financial loss to the entity. In addition,
these regulators must establish regulations or guidelines requiring enhanced disclosure to
regulators of incentive-based compensation arrangements. The agencies have not yet finalized
these rules; however, in October of 2022, the SEC adopted a final regulation implementing the
incentive-based recovery (or “clawback”) provisions of the Dodd-Frank Act. The final regulation
directs stock exchanges to require listed companies to implement clawback policies to recover
incentive-based compensation paid to current or former executive officers in the event of material
noncompliance with any financial reporting requirement under the securities laws, and to disclose
their clawback policies and their actions under those policies. Once the stock exchanges publish
requirements pursuant to the regulation, companies, including the Bank, will have 60 days from the
effective date of the listing standards to comply.
The scope and content of the federal banking agencies’ policies on incentive compensation are
continuing to develop and are likely to continue evolving.
Community Reinvestment Act and Fair Lending
We are subject to certain fair lending requirements and reporting obligations under the Home
Mortgage Disclosure Act (HMDA), requiring the bank to maintain, report, and publicly disclose loan-
level information about mortgages. We are also subject to the CRA. The CRA generally requires the
federal banking agencies to evaluate the record of a financial institution in meeting the credit
needs of its local communities, including low- and moderate- income neighborhoods in a safe and
sound manner. In addition to substantive penalties and corrective measures that may be required
for a violation of certain fair lending laws, the federal banking agencies may take compliance with
such laws and CRA into account when regulating and supervising other activities. Federal
regulators are required to provide a written examination report of an institution’s CRA performance
using a four-tiered descriptive rating system. We received a rating of “Satisfactory” in our most
recent CRA examination. These ratings and written examination reports are available to the public.
We are also subject to analogous CRA requirements in certain states in which we have or may
establish branch offices.
On May 5, 2022, the federal banking agencies issued a joint notice of proposed rulemaking to
revise the regulations implementing the CRA. Under the proposed rule, the agencies would evaluate
bank performance across the varied activities they conduct and the communities in which they
operate, and tailor CRA evaluations and data collection based on bank size and type. Further, the
agencies would also emphasize smaller value loans and investments that may have a greater
impact on and be more responsive to the needs of LMI persons, and would update CRA assessment
areas to include activities associated with online and mobile banking, branchless banking, and
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hybrid models. In addition, the proposed rule would establish a metrics-based approach to CRA
evaluations of retail lending and community development financing activities, including through the
establishment of public benchmarks, and would clarify eligible CRA activities, such as affordable
housing, that are focused on LMI, underserved and rural communities. The prospects and timing for
the adoption by the agencies of a final rule are not certain at this time.
Fair lending laws prohibit discrimination in the provision of banking services. The enforcement
of these laws has been an increasing focus for bank regulators. Fair lending laws include the Equal
Credit Opportunity Act (and Regulation B thereunder) and the Fair Housing Act, which outlaw
discrimination in credit transactions and residential real estate transactions on the basis of
prohibited factors including, among others, race, color, national origin, sex, and religion. A lender
may be liable under these laws through administrative enforcement or private civil actions for
policies that result in a disparate treatment of, or have a disparate impact on, a protected class of
applicants or borrowers. If a pattern or practice of lending discrimination is alleged by a regulator,
then that agency may refer the matter to the DOJ for investigation. In December 2012, the DOJ and
CFPB entered into a Memorandum of Understanding under which the agencies have agreed to
share information, coordinate investigations and have generally committed to strengthen their
coordination efforts. In October 2021, the DOJ announced a new initiative to enforce fair lending
requirements and combat redlining.
We are required to have a fair lending program that is of sufficient scope to monitor the
inherent fair lending risk of the institution and that appropriately remediates issues which are
identified.
Permissible Financial Activities
The Bank conducts certain of its activities through wholly-owned subsidiary companies with
activities limited to “bank eligible” activities that are permissible for a bank to conduct directly.
These include securities brokerage, dealing in U.S. government and municipal securities,
investment advisory, insurance agency, trust company, lending, payment processing and certain
other activities. These subsidiaries are subject to regulation and supervision of the FDIC and DFPI
as well as various other state and federal financial regulators. The Bank also invests in small
business investment companies, low income housing tax credit funds and other companies or funds
that engage in lending or investment activities consistent with the CRA and the public welfare
investment powers of FDIC-insured California state chartered banks, subject to the investment
limits specified under applicable banking laws.
Insured state non-member banks, including us, are also permitted to engage through “financial
subsidiaries” in certain activities which have been determined by the Federal Reserve to be financial
in nature or incidental to financial activity. To engage in such activities, the bank must be well-
managed and the bank and its insured depository institution affiliates must each be well-capitalized
and have received at least a “Satisfactory” rating in its most recent CRA examination. The Bank
must also deduct the aggregate amount of its outstanding equity investment in financial
subsidiaries, including retained earnings, from the bank’s capital and assets for purposes of
calculating regulatory capital ratios and must disclose this fact in any published financial
statements. Additionally, the Bank must comply with Sections 23A and 23B of the Federal Reserve
Act, which place quantitative and qualitative limits on transactions with a depository institution’s
affiliates, including restrictions on extensions of credit to affiliates, and comply with certain
financial and operational standards as though the financial subsidiaries were subsidiaries of a
national bank. At the present time, the Bank has no “financial subsidiaries.”
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Volcker Rule
The Dodd-Frank Act prohibits banks and their affiliates from engaging in proprietary trading
and having certain interests in, relationships with or sponsoring hedge funds and private equity
funds, as well as other private funds that are offered within specified exemptions to the Investment
Company Act, known as “covered funds,” subject to certain detailed exemptions. The statutory
provision is commonly called the “Volcker Rule.”
Due to the limited size of our trading assets and liabilities, we have implemented a compliance
program that references requirements of the Volcker Rule and its implementing regulations, but are
not required to report quantitative metrics or otherwise demonstrate compliance with the Volcker
Rule’s implementing regulations on an ongoing basis.
In June 2020, the federal banking agencies approved a final rule implementing the proposed
amendments to the Volcker Rule’s “covered fund” provisions with new exclusions from covered fund
status for certain types of investment vehicles, modifications to the eligibility criteria for certain
existing exclusions, and clarification and modification of other provisions governing banking
entities’ investments in and other transactions and relationships involving covered funds. These
amendments became effective on October 1, 2020. FRIM, an SEC-registered investment adviser
subsidiary of the Bank, advises a number of entities that are deemed to be “covered funds” and
must comply with the Volcker Rule’s “covered fund” provisions in its provision of service and
interactions with such entities. The amendments to the regulations that implement the Volcker
Rule have not thus far had material impact on our business or operations.
Privacy and Cybersecurity
Under federal and state statutes and FDIC and SEC regulations, we are limited in our ability to
disclose certain non-public information about consumers to third parties. These statutes and
regulations require notices to consumers of our privacy policies and practices and, in some
circumstances, allow consumers to prevent disclosure of certain personal information to a third
party. These regulations affect how consumer information is transmitted through diversified
financial companies or conveyed to outside vendors. Changes or additions to these regulations,
including those implementing the GLBA, the FCRA, or the CCPA, for example, may result in
implementation and risk management costs, as well as risk to the Bank. The CCPA, which became
effective on January 1, 2020 and was amended on November 1, 2020 by the California Privacy
Rights Act ballot initiative, gives consumers rights to: request access to personal information we
have collected about them, obtain documentation of whether that information has been sold or
shared with others, seek deletion of their personal information (subject to certain exceptions), opt
out of the sale of their personal information, and not to be discriminated against for exercising
these rights. The CPRA both modified the CCPA substantially through amendments that will take
effect on January 1, 2023, and created the California Privacy Protection Agency, a government
agency with the authority to issue regulations and guidance and to enforce the CCPA. Although the
CPRA expanded the scope of the CCPA, it did not alter the CCPA’s exemption for financial
institutions with respect to personal information that is protected under the GLBA or FCRA, which
means the CCPA will not apply to our practices with respect to personal information of customers
seeking or obtaining products for personal, family, or household purposes. Similar privacy laws have
been and may be adopted by other states where we or our subsidiaries do business or by the federal
government.
In connection with the regulations governing the privacy of consumer financial information, the
federal banking agencies, including the FDIC, have also adopted guidelines for establishing
information security standards and programs to protect such information under the supervision of
the board of directors.
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Cybersecurity is a key operational risk area for banking organizations. Malicious actors
continue to focus on critical infrastructure sectors, including the financial sector, and have sought
to take advantage of the increased reliance by certain institutions on third-party hardware and
software systems. These developments, among others, have resulted in enhanced supervisory
expectations regarding the security and resiliency of banks’ information technology systems and
cyber risk management practices, and their use of third parties in the provision of financial services.
In addition, every state has enacted data breach statutes that require, in some instances,
notifications to individuals or state agencies. With regard to rulemaking activity in this area at the
federal level, in November 2021, the federal banking agencies issued a final rule that imposes upon
banking organizations and their service providers new notification requirements for significant
cybersecurity incidents. Specifically, the final rule requires banking organizations to notify their
primary federal regulator as soon as possible and no later than 36 hours after the discovery of an
incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or
degrade, the banking organization’s ability to deliver services to a material portion of its customer
base, jeopardize the viability of key operations of the banking organization, or pose a threat to the
financial stability of the United States. Banks’ service providers are required under the final rule to
notify any effected bank to or on behalf of which the service provider provides services “as soon as
possible” after determining that it has experienced an incident that materially disrupts or degrades,
or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as
much as four hours. The final rule took effect on April 1, 2022 and banks and their service providers
were required to be in compliance with the requirements of the rule by May 1, 2022. Additional
cybersecurity laws have been proposed and may be adopted by states where we or our subsidiaries
do business or by the federal government.
Restrictions on Dividends and Other Distributions
The power of the board of directors of an insured depository institution to declare a cash
dividend or other distribution with respect to capital is subject to statutory and regulatory
restrictions that limit the amount available for such distribution depending upon earnings, financial
condition and cash needs of the institution, as well as general business conditions. Insured
depository institutions are also prohibited from paying management fees to any controlling persons
or, with certain limited exceptions, making capital distributions, including dividends, if after such
transaction the institution would be less than adequately capitalized.
Under California law, we may not make a distribution to shareholders that exceeds the lesser of
(i) our retained earnings or (ii) our net income for the last three fiscal years, less the amount of any
distributions made during that period. With the Commissioner’s approval, however, we may make a
distribution that does not exceed the greater of (i) our retained earnings, (ii) our net income for our
last fiscal year or (iii) our net income for our current fiscal year. The Commissioner may otherwise
limit our distributions to shareholders if the Commissioner finds that the shareholders’ equity is not
adequate or that such distributions would be unsafe or unsound for us.
The federal banking agencies also have authority to prohibit depository institutions from
engaging in business practices that are considered unsafe or unsound, possibly including payment
of dividends or other payments under certain circumstances even if such payments are not
expressly prohibited by statute.
It is anticipated that our capital planning and risk management will be considered by the FDIC
in evaluating whether proposed payments of dividends or stock repurchases may be an unsafe or
unsound practice.
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Change in Bank Control
Under the CIBCA, a notice must be submitted to the FDIC if any person (including a company),
or group acting in concert, seeks to acquire “control” of us. Control is defined as the power, directly
or indirectly, to direct our management or policies or to vote 25% or more of any class of our
outstanding voting securities. Additionally, a rebuttable presumption of control arises when any
person (including a company), or group acting in concert, seeks to acquire 10% or more, but less
than 25%, of any class of our outstanding voting securities which are publicly traded. When
reviewing a notice under the CIBCA, the FDIC will take into consideration the financial and
managerial resources of the acquirer, the convenience and needs of the communities served by us,
the anti-trust effects of the acquisition and other factors. California law similarly requires prior
approval of the Commissioner of any change in control. Under the BHCA, as amended, any company
that is not an existing bank holding company would be required to obtain prior approval from the
Federal Reserve before it could obtain “control” of us (and thereby become a bank holding
company) within the meaning of the BHCA. Control generally is defined to mean the ownership or
power to vote 25% or more of any class of our voting securities, the ability to control in any manner
the election of a majority of our directors or the ability to exercise a controlling influence over our
management and policies. An existing bank holding company would be required to obtain the
Federal Reserve’s prior approval under the BHCA before acquiring more than 5% of any class of our
voting securities.
Guidance for Managing Third-Party Risks
The FDIC regulates its supervised institutions’ relationships with and management of third
parties. Interagency guidance of the federal banking agencies requires us to conduct due diligence
and oversight in third-party business relationships and to control risks in the relationship to the
same extent as if the activity were directly performed by the Bank. On July 13, 2021, the FDIC along
with the Federal Reserve and OCC published for comment proposed interagency guidance on
managing risks associated with third-party relationships. The proposed guidance includes a
framework based on sound risk management principles in developing risk management practices
throughout the life cycle of a third-party relationships (e.g., due diligence, contract negotiation,
oversight, ongoing monitoring and termination). The proposed guidance also discusses the
agencies’ supervisory reviews of third-party relationships. In the proposed guidance, the agencies
identify the types of third-party relationships covered, and clarified that the guidance covers
relationships with affiliates and subsidiaries that provide services to the banking organization. On
August 27, 2021, the federal banking agencies issued guidance on expectations for banks in
selecting and entering into relationships with financial technology companies that support critical
aspects of a bank’s operations, such as its information technology infrastructure. The guidance
encourages banks to consider a number of factors when engaging such companies, including their
business experience and qualifications, financial condition, record of legal and regulatory
compliance, risk management plans and practices and internal controls, and operational resilience,
among others.
Cryptocurrency Activities
The financial services industry is undergoing rapid technological changes, with frequent
introductions of new technology-driven products and services including internet services,
cryptocurrencies and payment systems. At present, digital assets and digital asset service providers
and markets are not subject to extensive regulation. On April 7, 2022, the FDIC issued a financial
institution letter requiring its supervised institutions to provide notice and obtain supervisory
feedback prior to engaging in any crypto-related activities. Additionally, on January 3, 2023, the
federal banking agencies issued a joint statement on crypto-asset risks to banking organizations,
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highlighting key risks associated with crypto assets that could affect banks, and reminding banks to
engage in supervisory discussions with their supervisory office regarding proposed and existing
crypto-asset related activities, and ensure that the bank can perform any crypto-related activities in
a safe and sound manner and in compliance with applicable laws and regulations prior to launching
any such activities.
Other Regulatory Matters
Insured depository institutions of our size must undergo a full-scope, on-site examination by
their primary federal banking agency at least once every 12 months. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the appropriate federal
banking agency against each institution or affiliate, as it deems necessary or appropriate. As a
result of our current asset size, our regulators, the FDIC and DFPI, utilize a dedicated exam team
throughout the year, as is consistent with their large bank supervision practices.
Regulations require insured depository institutions to adopt written policies establishing
appropriate limits and standards, consistent with such guidelines adopted by the federal banking
agencies, for extensions of credit secured by real estate or made for purposes of financing
permanent improvements to real estate.
The FDIC has also adopted regulations imposing minimum requirements on us with respect to
appraisals obtained in connection with certain real estate related financial transactions. Appraisals
by state-certified or state-licensed appraisers are required for all such transactions unless an
exemption applies. The more common exceptions relate to smaller transactions and transactions
that are not secured by real estate. Appraisals must comply with the FDIC’s appraisal standards,
and appraisal reports must be issued in writing.
Competition
As a result of the laws and regulations applicable to us, we may be subject to more stringent
regulatory requirements and supervision than smaller institutions and we may be subject to even
more stringent regulatory requirements as a result of continued growth of the Bank. In addition,
FinTech companies and other non-bank competitors may not be subject to banking regulation, or
may be regulated by a national or state agency that does not have the same regulatory priorities or
supervisory requirements as our regulators. These differences in regulation can impair our ability to
compete effectively with competitors that are less regulated and that do not have similar
compliance costs.
Future Legislation
Congress may enact legislation from time to time that affects the regulation of the financial
services industry, and state legislatures may enact legislation from time to time affecting the
regulation of financial institutions chartered by or operating in those states. Federal and state
regulatory agencies also periodically propose and adopt changes to their regulations or change the
manner in which existing regulations are applied. The substance or impact of pending or future
legislation or regulation, or the application thereof, cannot be predicted, although enactment of the
proposed legislation could impact the regulatory structure under which we operate and may
significantly increase our costs, impede the efficiency of our internal business processes, require us
to increase our regulatory capital and modify our business strategy, and limit our ability to pursue
business opportunities in an efficient manner.
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The current presidential administration continues to carry the potential to change the
regulatory structure under which we operate in ways that may be difficult to anticipate and with
effects that may be hard to predict, although we expect that Congress will continue to devote
substantial attention in 2023 to consumer protection matters, through greater oversight of the
CFPB’s and the and the federal banking agencies’ efforts in this area. There have been several
changes in the leadership and senior staffs of the federal banking agencies, the CFPB, CFTC, SEC,
and the Treasury Department. The potential impact of any changes in agency personnel, policies
and priorities on the financial services sector, including the Bank, cannot be predicted at this time.
Of note, the agencies have adopted more aggressive enforcement policies in respect of a range of
regulatory compliance matters. The Bank’s operations, risk management and compliance processes
may be impacted by the withdrawal or modification of certain regulations pursuant to these
procedural processes.
In the interest of stabilizing the economy and providing additional relief in light of COVID-19,
the current administration could impose new or modified COVID-19 programs and restrictions,
including new forbearance initiatives, place added pressure on state governments to impose more
extensive business and personal activity restrictions, and propose related fiscal and tax measures
and/or revise or create new regulatory requirements that would apply to us, impacting our business,
operations and profitability. Congress may also consider additional relief measures in light of the
spread and impact of new variants of the COVID-19 virus.
Available Information
We make available, free of charge through the Investor Relations section of our website, our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, definitive
proxy statements and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act, as soon as reasonably practicable after such reports are filed with or
furnished to the FDIC. The address for our website is firstrepublic.com. The information on our
website is not incorporated by reference into this Form 10-K.
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Item 1A. Risk Factors.
We are subject to a variety of risks, some of which are specific to us and some of which are
inherent to the financial services industry. There are risks, many beyond our control, that could
cause our financial condition, liquidity or results of operations to differ materially from
management’s expectations. Some of the risks that may affect us are described below. Any of the
risks described below, by itself or together with one or more other factors, may materially and
adversely affect our business, results of operations, liquidity or financial condition or the market
price or liquidity of our common stock. Additional risks that we do not presently know or that we
currently deem immaterial may also materially and adversely affect our business, results of
operations, liquidity or financial condition or the market price or liquidity of our common stock.
Further, to the extent that any of the information contained in this Annual Report on Form 10-K
constitutes forward-looking statements, the risk factors below also are cautionary statements
identifying important factors that could cause actual results to differ materially from those
expressed in any such forward-looking statements. See “Information Regarding Forward-Looking
Statements” on page 7.
Risk Factor Summary
Credit Risk
• The markets in which we operate are subject to the risk of earthquakes and other natural
disasters, which could negatively affect real estate property values and our operations.
• We must maintain and follow high underwriting standards to grow safely.
• Our operations and clients are concentrated in the United States’ largest metropolitan areas,
which could be the target of terrorist attacks, which may disrupt our operations and our clients’
businesses and negatively affect real estate property values.
• Our loan portfolio is concentrated in single family residential mortgage loans.
• Weakness in the commercial real estate and construction markets could adversely affect our
performance.
• We have increased our lending to businesses and have expanded our unsecured lending, and
these loans expose us to greater risk than mortgages.
• We may be adversely affected by the soundness of other financial institutions.
• Climate risk could adversely affect our business and clients and damage our reputation.
Market and Interest Rate Risk
• Our business has been and may in the future be adversely affected by conditions in the global
financial markets and economic conditions generally as well as economic conditions in the
markets in which we operate.
• We are subject to interest rate risk and fluctuations in interest rates may negatively impact our
net interest income.
• Our wealth management business has been, and may in the future be, negatively impacted by
changes in economic and market conditions, and clients have sought and may continue to seek
legal remedies for investment performance.
• Downgrades of the U.S. government’s credit rating could have a material adverse effect on our
business, financial condition and liquidity.
• Fiscal challenges facing the U.S. government could negatively impact financial markets, which in
turn could have an adverse effect on our financial position or results of operations.
• Our loan portfolio possesses increased risk due to our level of adjustable-rate loans.
• We may not be able to sell loans in the secondary market, which may adversely impact our ability
to manage our growth.
Business and Strategic Risk
• We face significant competition to attract and retain banking clients.
• We face significant competition to attract and retain wealth management clients.
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• Our ability to maintain, attract and retain client relationships is highly dependent on our reputation
and damage to our reputation could also impair the confidence of our employees, counterparties,
business partners and investors.
• Leadership transitions and our ability to attract and retain key personnel could adversely affect
our business.
• We may not be able to manage our growth successfully.
• We face competition with respect to our deposits. The inability to maintain or grow our deposits
could force us to use more expensive and less stable sources of funding.
• Adverse changes in the ratings for our long-term debt or preferred stock could have a material
adverse effect on our business, financial condition and liquidity and may increase our funding
costs or impair our ability to effectively compete for business and clients.
• We may take actions to maintain client satisfaction that result in losses or reduced earnings.
• We may be adversely affected by risks associated with completed and potential acquisitions.
Operational and Technology Risk
• Our operations have been and could continue to be interrupted to the extent our third-party
service providers experience difficulties, terminate their services or fail to comply with banking
regulations.
• We and our third-party service providers have been, and may in the future be, adversely affected
by disruptions to our respective network and computer systems as a result of denial-of-service
and other cyber attacks, any of which could cause substantial harm.
• We face risks related to the ability of our information technology systems to support our existing
operations and future growth.
• The network and computer systems on which we depend could fail or experience additional
security breaches.
• We are subject to certain operational risks, including fraud by employees and third parties and
data processing system failures and errors.
• We rely on the accuracy and completeness of information about our clients and counterparties.
• The systems and models we employ to analyze, monitor and mitigate risks, as well as for other
business purposes, are inherently limited, may not be effective in all cases and, in any case,
cannot eliminate all risks that we face.
• Failure to properly manage and aggregate data may result in our inability to manage risk and
business needs and inaccurate financial, regulatory and operational reporting.
• Pandemics or other public health emergencies have caused and may in the future cause
substantial disruptions to the domestic and global economy, and the communities we serve,
which may have an adverse effect on our business, financial position and results of operations.
Liquidity Risk
• We are subject to liquidity risk, which could impair our ability to fund various obligations.
Financial Reporting Risk
• Our financial results depend on management’s selection of accounting methods and certain
assumptions and estimates.
• Our ACL on loans, unfunded loan commitments, and held-to-maturity debt securities may be
inadequate.
• If we fail to maintain internal controls over financial reporting, we may not be able to accurately
report our financial results, which could harm our reputation and have a negative effect on the
price of our common stock.
• The value of our goodwill and other intangible assets may decline in the future.
Legal and Regulatory Risk
• The banking industry is highly regulated, and legislative or regulatory actions taken now or in the
future may have a significant adverse effect on our operations.
• The investment management and brokerage businesses are highly regulated.
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• We are subject to stringent capital requirements, which impact our ability to conduct business.
• If we continue to grow and if we report $250 billion or more in total consolidated assets or
$75 billion or more in weighted short-term wholesale funding, nonbank assets or off-balance
sheet exposure, we would become subject to new and more stringent regulatory requirements.
• Differences in regulation can affect our ability to compete effectively.
• Reforms of Fannie Mae and Freddie Mac and the FHLBs could adversely impact us.
• We could be held responsible for environmental liabilities of properties acquired through foreclosure.
• We are subject to legal and litigation risk.
• Tax regulations could be subject to potential legislative, administrative or judicial changes or
interpretations.
• The transition away from LIBOR and other reference rates may adversely affect our business.
• Regulation of incentive compensation under the Dodd-Frank Act may adversely affect our ability
to retain our key employees.
• The ability-to-repay requirement for residential mortgage loans may limit our ability to sell or
securitize certain of our mortgage loans and give borrowers potential claims against us.
• Increases in FDIC insurance premiums may adversely affect our earnings.
• Changes in consumer privacy laws, such as in California, or any non-compliance with such laws, could
adversely affect our business, financial condition and results of operations.
Credit Risk
The markets in which we operate are subject to the risk of earthquakes and other natural
disasters, which could negatively affect real estate property values and our operations.
A significant number of our properties, and real estate properties currently securing loans
made by us and our borrowers, are located in California. California has had and will continue to
have major earthquakes in many areas, including the San Francisco Bay Area, where a significant
portion of the collateral and assets of our borrowers is concentrated, and the Southern California
coastal regions.
Our markets are also prone to drought, wildfires, mudslides, floods, hurricanes and other
natural disasters, the frequency and severity of which have increased in recent years and may be
impacted by climate change. Our properties and the collateral and assets of our borrowers may
not be insured or may be underinsured against such occurrences. Borrowers are not required to
and may not insure for these hazards other than flood, wind and fire damage. In addition to
possibly sustaining damage to our premises and disruption of our operations, if there is a major
natural disaster in California or elsewhere in our markets, we will face the risk that many of our
borrowers may experience uninsured or underinsured property losses or sustained job
interruption or loss that may materially impair their ability to meet the terms of their loan
obligations. In addition, such events may have other adverse impacts on economic conditions in
our markets that are difficult to predict. A major earthquake, drought, wildfire, mudslide, flood,
hurricane or other natural disaster in our California markets or our other markets could materially
and adversely affect our business, results of operations or financial condition.
We must maintain and follow high underwriting standards to grow safely.
Our ability to grow our assets safely depends on maintaining disciplined and prudent
underwriting standards and ensuring that our relationship managers and business bankers follow
those standards. The weakening of these standards for any reason, such as to seek higher yielding
loans, or a lack of discipline or diligence by our employees in underwriting and monitoring loans,
may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we
significantly increase our ACL on loans, each of which could adversely affect our net income. As a
result, our business, results of operations or financial condition could be adversely affected.
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Our operations and clients are concentrated in the United States’ largest metropolitan areas,
which could be the target of terrorist attacks, which may disrupt our operations and our clients’
businesses and negatively affect real estate property values.
The vast majority of our operations and our clients, as well as the properties securing our real
estate loans outstanding are located in the San Francisco Bay Area and the New York City, Los
Angeles, and Boston metropolitan areas. These areas have been and may continue to be the
target of terrorist attacks. A successful, major terrorist attack in one of these areas could severely
disrupt our operations and the ability of our clients to do business with us and cause losses to
loans secured by properties in these areas. Such an attack would therefore adversely affect our
business, results of operations or financial condition.
Our loan portfolio is concentrated in single family residential mortgage loans, including
non-conforming, adjustable-rate, initial interest-only period and jumbo mortgages.
Our single family mortgage loans, represent over half of our total loan portfolio. Single family
mortgage loans primarily consist of hybrid ARMs that will adjust within one to ten years in the
future, as well as loans that are currently adjustable rate. Increases in prevailing market interest
rates result in increased payments for borrowers who have ARMs, which may increase the
possibility of defaults. In addition, a substantial portion of single family mortgage loans have an
initial interest-only period of generally ten years. When an interest-only loan converts to fully-
amortizing status, monthly payments are subject to change and may increase by a substantial
amount. Even without an increase in prevailing market interest rates, borrowers may not be able to
afford the increased monthly payments, which may result in higher loan delinquency levels. In
addition, real estate values may decline and credit standards may tighten in concert with the higher
payment requirements, which may make it difficult for borrowers to sell their homes or refinance
their loans to pay off their mortgage obligations. As a result, interest-only loans are considered to
have an increased risk of delinquency, default and foreclosure compared to conforming loans and
may result in higher levels of realized losses. Furthermore, a substantial portion of our single family
loans consists of jumbo loans. The secondary market for jumbo mortgages has historically been less
liquid compared to conforming loans, which could impact the amount of loans that we sell in the
secondary market. All of these factors related to our single family mortgages could, consequently,
adversely affect our business, results of operations or financial condition.
Weakness in the commercial real estate and construction markets could adversely affect our
performance.
Our loan portfolio includes commercial real estate loans and loans for the construction and
ownership of properties other than owner-occupied single family homes. The factors that impact
the valuation of these loans, and the valuation of the underlying commercial real estate or
undeveloped land, are more complicated than the valuation of single family mortgage loans.
Commercial real estate loans and loans secured by undeveloped land also tend to have shorter
maturities than residential mortgage loans and usually are not fully amortizing, meaning that they
may have a significant principal balance or “balloon” payments due on maturity. In addition,
commercial real estate properties, particularly industrial and warehouse properties, are generally
subject to relatively greater environmental risks than noncommercial properties and to the
corresponding burdens and costs of compliance with environmental laws and regulations. Also,
there may be costs and delays involved in enforcing rights of a property owner against
commercial tenants in default under the terms of their leases. For example, tenants may seek the
protection of bankruptcy laws, which could result in termination of lease contracts.
A borrower’s ability to repay a commercial real estate loan depends on leasing to tenants through
the life of the loan or the borrower’s successful operation of a business. Weak economic conditions may
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impair a borrower’s business operations, typically slow the execution of new leases and could result in
rent volatility and increased vacancies. The combination of these factors could result in further
deterioration in the fundamentals underlying the stability of the commercial real estate market and
result in the deterioration in value of some of our loans. Any such deterioration could adversely affect the
ability of our borrowers to repay the amounts due under their loans. As a result, our business, results of
operations or financial condition may be adversely affected.
In the case of construction loans, borrowers face the additional risks that construction may
take longer or be more expensive than expected, and that when completed, the value of the
property, and therefore rents or sale proceeds, may be less than expected. Any of these
circumstances could significantly impair borrowers’ cash flows and their ability to repay the
amounts due under their loans, and, as a result, our business, results of operations or financial
condition may be adversely affected.
We have increased our lending to businesses and have expanded our unsecured lending, and
these loans expose us to greater risk than mortgages.
In the past several years, we have expanded our lending to businesses, including capital call
lines of credit, tax-exempt, and other business lending. Business loans inherently have more risk of
loss than real estate secured loans, in part because business loans may be larger or more complex
to underwrite than mortgages, the loans or portions thereof often lack real estate collateral, and the
value of any collateral may be severely impacted by the performance of the business. In addition,
our unsecured loans, which include household debt refinance loans consisting of term loans and
personal lines of credit, and other unsecured lines of credit, have also increased over the past
several years. If a decline in economic conditions or other issues cause difficulties for our business
or unsecured borrowers or we fail to evaluate the credit of the loan accurately when we underwrite
the loan, it could result in delinquencies or defaults and a material adverse effect on our business,
results of operations or financial condition.
We may be adversely affected by the soundness of other financial institutions.
As a result of trading, clearing or other relationships, we have exposure to many different
counterparties and routinely execute transactions with counterparties in the financial services
industry, including commercial banks, brokers, dealers and investment banks. Many of these
transactions expose us to credit risk in the event of a default by a counterparty. Even the perceived
lack of creditworthiness of, or questions about, a counterparty may lead to market-wide liquidity
problems and losses or defaults by various institutions. This systemic risk may adversely affect
financial intermediaries, such as clearing agencies, banks and exchanges with which we interact on
a daily basis, or key funding providers. In addition, the criteria for and manner of governmental
support of financial institutions and other economically important sectors remain uncertain and
may change over time. Further, the consolidation of financial services firms and the failures of other
financial institutions has in the past, and may in the future, increase the concentration of, or
otherwise affect the nature of, our counterparty risk. Our credit risk may also be exacerbated when
the collateral we hold cannot be realized upon or is liquidated at prices not sufficient to recover the
full amount of the credit or derivative exposure due to us. Any such losses could have a material
adverse effect on our business, results of operations or financial condition.
Climate risk could adversely affect our business and clients and damage our reputation.
The physical risk of climate change, including the increased frequency and severity of extreme
weather events and natural disasters, could disrupt our operations and those of our third-party
service providers, clients and counterparties, which may cause loan and other losses, increase our
costs and negatively affect our ability to service and interact with our clients. The transition risk of
climate change, including the transition to a less carbon-dependent economy, may also have a
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negative impact on the financial condition or operations of our clients and counterparties, which may
decrease revenues from those clients and counterparties and increase the credit risk associated
with loans and other credit exposures to those clients and counterparties. We have made
commitments to offset certain emissions, purchase renewable energy and restrict lending to certain
environmentally sensitive industries. Our efforts to meet these commitments could strain our
resources, put us at a disadvantage to our competitors, or otherwise adversely affect our business.
Additionally, our reputation may be damaged as a result of our or our clients’ involvement in certain
activities or industries associated with climate change, as well as any decisions we make to continue
or conduct or change our activities in response to considerations relating to climate change. If we
are unable to achieve our objectives or commitments relating to climate change or our response to
climate change is perceived to be ineffective or insufficient, our business and reputation may suffer.
Climate change has also impacted, and may continue to impact, the broader economy, including
through disruptions to supply chains. As a result, our business, results of operations or financial
condition may be adversely affected.
Concerns regarding climate risk have led to, and are expected to lead to further governmental
efforts to mitigate those risks, as well as changes in behavior and preferences by consumers and
businesses. New governmental regulations or guidance relating to climate risk, as well as the
perspectives of regulators, shareholders, employees, clients and other stakeholders, may affect our
product and service offerings. Federal and state banking regulators and supervisory authorities,
shareholders and other stakeholders have increasingly viewed financial institutions such as us as
playing an important role in helping to address risks related to climate change, both directly and
with respect to their clients, which has resulted in increased pressure regarding the disclosure and
management of climate risks and related lending, investment and advisory activities. We may also
become subject to new or heightened regulatory requirements related to climate change, such as
climate-related disclosure requirements and requirements relating to operational resiliency or
stress testing for various climate stress scenarios. Any such new or heightened requirements could
result in increased regulatory compliance or other costs or higher capital requirements. In addition,
we could face increased regulatory, reputational and legal scrutiny as a result of our climate and
other sustainability-related commitments.
The risks associated with, and the perspective of regulators, shareholders, employees, clients
and other stakeholders regarding climate change are continuing to evolve rapidly, which can make
it difficult to assess the ultimate impact on us of climate change-related risks and uncertainties,
and we expect that climate change-related risks will increase over time.
Market and Interest Rate Risk
Our business has been and may in the future be adversely affected by conditions in the global
financial markets and economic conditions generally as well as economic conditions in the
markets in which we operate.
Our financial performance generally, and in particular, the ability of borrowers to pay interest
on and repay the principal of outstanding loans and the value of collateral securing those loans, as
well as demand for loans and other products and services we offer and whose success we rely on to
drive our future growth, is highly dependent on the business environment in the markets in which
we operate and in the United States as a whole. These conditions can change suddenly and
negatively.
Some elements of the business environment that affect our financial performance include
short-term and long-term interest rates, the prevailing yield curve, inflation, consumer spending,
employment levels, home prices, bankruptcies, U.S. fiscal and monetary policies, fluctuations in the
debt and equity capital markets, state and local regulations, and the strength of the domestic
43
economy and the local economies in the markets in which we operate. Our operations are
concentrated geographically in California, particularly the San Francisco Bay Area, and the New
York City and Boston metropolitan areas. Adverse changes in economic conditions in these areas,
including as a result of the unfavorable impacts of state and local regulation or population shifts out
of these areas, can have a significant impact on the demand for our products and services, our
loans and our wealth management business. Unfavorable market conditions can result in, among
other things, a deterioration of the credit quality of borrowers, adverse changes in payment
patterns, an increase in the number of loan delinquencies, defaults and charge-offs, additional
provisions for credit losses, declines in credit usage, adverse asset values and a reduction in AUM or
AUA.
The majority of our loan portfolio is secured by real estate, and is concentrated in California in
general and the San Francisco Bay Area in particular. A decline in real estate values can negatively
impact our ability to recover our investment should the borrower become delinquent. Loans secured
by stock or other collateral may be adversely impacted by a downturn in the economy and other
factors that could reduce the recoverability of our investment. Unsecured loans are dependent on
the solvency of the borrower, which can deteriorate, leaving us with a risk of loss.
Difficult market conditions may impact the process we use to estimate losses inherent in our
credit exposure. The process requires difficult, subjective, and complex judgments, including
forecasts of economic conditions and how these economic predictions might impair the ability of
our borrowers to repay their loans. In difficult market conditions, our usual process may be less
reliable than when market conditions are favorable.
Unfavorable or uncertain economic and market conditions can be caused by declines in
economic growth, business activity or investor or business confidence, limitations on the availability
of or increases in the cost of credit and capital, increases in inflation or interest rates, high
unemployment, natural disasters, state or local government insolvency, or a combination of these or
other factors. Economic slowdown and instability outside of the United States, including as a result
of the current or anticipated impact of military conflicts, such as the conflict between Russia and
Ukraine, terrorism or other geopolitical events, may adversely affect economic and market
conditions in the United States.
Uncertainty about federal fiscal policymaking, the medium and long-term fiscal outlook of the
federal government, future tax rate legislation and employment costs is a concern for businesses,
consumers and investors in the United States. Any unfavorable changes in the general business
environment in which we operate, or in the United States as a whole or abroad, could adversely
affect our business, results of operations or financial condition.
We are subject to interest rate risk and fluctuations in interest rates may negatively impact our
net interest income.
Fluctuations in interest rates may negatively impact our banking business. Our primary source
of income from operations is net interest income, which is the difference between the interest
income received on interest-earning assets (primarily loans and investment securities) and the
interest expense incurred on interest-bearing liabilities (usually deposits and borrowings). The level
of net interest income is primarily a function of the average balance of interest-earning assets, the
average balance of interest-bearing liabilities and the spread between the yield on such assets and
the cost of such liabilities during a given period. These factors are influenced by the volume, pricing
and mix of both interest-earning assets and interest-bearing liabilities which, in turn, may be
impacted by external factors such as the economy, client demand and product preferences,
competition for loans and deposits, the monetary policy of the FOMC and market interest rates.
44
Conditions such as inflation, deflation, recession, unemployment, money supply, or other factors
beyond our control may also affect interest rates. The timing, pace, and methods of monetary
stimulus withdrawal by the FOMC can meaningfully impact the interest rate environment, which
may affect our net interest income and net interest margin.
The rate paid on a portion of our deposits and short-term borrowings may be influenced by
short-term interest rates, the level of which is driven primarily by the FOMC’s monetary policy
actions and levels of liquidity in markets. However, the yields generated by certain loans and
securities may also be driven by medium- and longer-term interest rates, which are set by the
market and at times, influenced by FOMC’s actions. The level of net interest income is therefore
influenced by movements in such interest rates and the pace at which such movements occur. If
the interest rates on our interest-bearing liabilities increase faster than the interest rates on our
interest-earning assets, our net interest income may decline and with it, a decline in our earnings
may occur. Conversely, the yield the Bank earns on assets could fall faster or further than the Bank’s
ability to lower rates paid on deposits or borrowings. Various assets and liabilities may also reset to
different indices, which may not always move in the same direction or to the same degree (basis
risk). Financial instruments with embedded optionality or prepayment risk may further impact net
interest income. As a result, our business, results of operations or financial condition may be
adversely affected, perhaps materially.
In addition, customers may move money from bank deposits into investments, such as equity
markets, federal government and corporate securities, or other investment vehicles that provide
higher rates of return than financial institution deposits. This may cause the Bank to lose some of its
main source of low cost funding. Customers may also continue to move noninterest-bearing
deposits into interest-bearing accounts, thus increasing overall deposit costs. Higher funding costs
may continue to reduce the Bank’s net interest margin and net interest income. For example, given
the significant and rapid increases in interest rates in 2022, we experienced rapid migration of
deposits to higher yielding products and asset classes. A prolonged period of high or increasing
interest rates may cause us to experience an acceleration of deposit migration, which could
adversely affect our liquidity.
Furthermore, our securities portfolio includes long-term municipal bonds with fixed interest
rates. The yields on these bonds do not change with prevailing interest rates. In a rising rate
environment, the prices of such securities would likely decline, which would likely result in
unrealized losses for the Bank. Inversely, in a falling rate environment, we may not realize the full
benefit of price increases for bonds with embedded optionality. However, most of our long-term
municipal bonds are held-to-maturity.
Changes in interest rates can also affect the slope of the yield curve and consequently impact
our net interest margin. In general, a negative parallel shift in the yield curve or prolonged periods
with a flatter or inverted yield curve could cause our net interest income and net interest margin to
contract. Changes in the yield curve may also adversely affect the duration and expected cash flows
of certain callable investment securities or loans by increasing call option exercise or prepayment
risks. We have experienced net interest margin compression and expect to continue to experience
compression while higher interest rates and inflationary pressures persist, which could have a
material adverse effect on our financial results and condition.
An increase in interest rates on loans could also have a negative impact on our results of
operations by reducing the ability of borrowers to make payments under adjustable-rate loan
obligations. These circumstances could not only result in increased loan defaults, foreclosures and
charge-offs, but also necessitate further increases to the ACL, which may materially and adversely
affect our business, results of operations or financial condition. In addition, a decrease in interest
45
rates on loans may result in loans in the servicing portfolio repaying more rapidly, which could result
in decreases in servicing income. Moreover, due to the magnitude and pace of interest rate
increases over the past year, and anticipated interest rate increases in 2023, the mortgage market
may continue to experience challenges, and our loan portfolio may grow at a slower rate than we
have experienced in the past.
Our wealth management business has been, and may in the future be, negatively impacted by
changes in economic and market conditions, and clients have sought and may continue to seek
legal remedies for investment performance.
Our wealth management business has been, and may in the future be negatively impacted by
changes in general economic and market conditions because the performance of such business is
directly affected by conditions in the financial and securities markets.
The financial markets and businesses operating in the securities industry are highly volatile and
are directly affected by, among other factors, domestic and foreign economic conditions, general
trends in business and finance, and changes to the securities laws and regulations, all of which are
beyond our control. We cannot guarantee that broad market performance will be favorable in the
future. Declines in the financial markets or a lack of sustained growth may result in declines in the
performance of our wealth management business and the level of AUM or AUA.
The investment advisory contracts of FRIM, our investment advisory subsidiary, generally
provide for fees payable for investment advisory services based on the market value of AUM.
Because most contracts provide for fees based on the market values of securities, declines in
securities prices may reduce our wealth management fees and have an adverse effect on our
business, results of operations or financial condition.
Market volatility and/or weak economic conditions may further affect investment preferences,
trading activities, and savings patterns, which impact demand for certain products and services
that we provide. In addition, following periods of volatile or declining market conditions, investment
advisory or brokerage clients may seek legal remedies for investment performance. We may be
required to defend against lawsuits involving our broker-dealer and investment management
subsidiaries arising from clients’ investment losses. These types of lawsuits may result in significant
legal expenses or other costs that may not be covered by insurance. We may also face reputational
risks with regard to such suits which could impair our ability to effectively compete to attract and
retain clients. As a result, any such current or future lawsuits could adversely affect our business,
results of operations or financial condition.
Downgrades of the U.S. government’s credit rating could have a material adverse effect on our
business, financial condition and liquidity.
Future uncertainty over U.S. fiscal policy could result in a downgrade or a reduction in the
outlook of the U.S. long-term sovereign credit rating by one or more credit ratings agencies. Any
downgrade, or perceived future downgrade, in the U.S. sovereign credit rating or outlook could
adversely affect global financial markets and economic conditions. Prices of U.S. Treasury
securities and debt securities issued by Fannie Mae, Freddie Mac and other government-sponsored
or government-related entities may be adversely affected by past or future credit rating
downgrades. Further, the FHLBs, Fannie Mae and Freddie Mac may face higher costs of capital that
could reduce their lending and secondary mortgage market activities, respectively, or increase the
cost of any future advances which we may borrow from the Federal Home Loan Bank of San
Francisco. As a member of the Federal Home Loan Bank of San Francisco, we are required to
maintain stock ownership at least equal to 2.7% of outstanding advances. Negative credit rating
actions with respect to U.S. government obligations may have unpredictable impacts on financial
46
markets and economic conditions in the United States and abroad, which could in turn have a
material adverse effect on our business, results of operations, financial condition or liquidity.
Fiscal challenges facing the U.S. government could negatively impact financial markets, which
in turn could have an adverse effect on our financial position or results of operations.
A U.S. government debt default, threatened debt default, or downgrade of the sovereign credit
ratings of the United States by credit rating agencies, could have an adverse impact on financial
markets, interest rates and economic conditions in the United States and worldwide.
U.S. debt ceiling and budget deficit concerns in recent years have increased the possibility of
U.S. government shutdowns, forced federal spending reductions, debt defaults, credit-rating
downgrades and an economic slowdown or recession in the United States. Although U.S.
lawmakers have in the past enacted legislation to raise the federal debt ceiling on multiple
occasions, ratings agencies have in the past lowered or threatened to lower the U.S. long-term
sovereign credit rating.
Political tensions may make it difficult for Congress to agree on any further increases to or
suspensions of the debt ceiling in a timely matter or at all, which may lead to default by the U.S.
government or downgrades of its credit ratings, which could have an adverse effect on our financial
position or results of operations. Specifically, interest rates may rise for many consumer loans,
which would result in increases in payments on consumer loans.
In addition, many of the investment securities held in the Bank’s portfolio are issued by the U.S.
government and government agencies and sponsored entities. As a result of uncertain domestic
political conditions, including potential future federal government shutdowns, the possibility of the
federal government defaulting on its obligations for a period of time due to debt ceiling limitations
or other unresolved political issues, investments in financial instruments issued or guaranteed by
the federal government pose economic and liquidity risks.
In addition to affecting the price and liquidity of U.S. government securities, a government
default or threat of default could disrupt the market for or affect the pricing of Repos, a type of
secured financing transaction used by many financial institutions to manage short-term funding
needs, invest short-term cash balances and manage inventories of government securities.
Overnight rates on Repo transactions are used by the Federal Reserve to calculate SOFR, the
benchmark interest rate that is replacing LIBOR on loans and other financial contracts. A disruption
in the Repo markets could affect interest rates paid on SOFR-benchmarked loans and could have an
adverse impact on overall money markets and the cost of overnight or short-term borrowings, a
funding source for the Bank.
A debt default or further downgrades to the U.S. government’s sovereign credit rating or its
perceived creditworthiness could also adversely affect the ability of the U.S. government to support
the financial stability of Fannie Mae, Freddie Mac and the FHLBs, with which the Bank does
business, obtains financing, engages with for securitizations of mortgages, and in whose securities
the Bank invests.
Our loan portfolio possesses increased risk due to our level of adjustable-rate loans.
Our loan portfolio primarily consists of adjustable-rate loans. Any rise in prevailing market
interest rates has resulted and may continue to result in increased payments for some borrowers
who have adjustable-rate loans, increasing the possibility of defaults. This could have an adverse
effect on our business, results of operations or financial condition. In addition, demand for loans
may continue to be impacted while interest rates remain high or increase further.
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We may not be able to sell loans in the secondary market, which may adversely impact our ability
to manage our growth.
We sell a portion of our loans that we originate in the secondary market. If secondary mortgage
market conditions were to deteriorate in the future and we cannot sell loans at our desired levels,
our loan origination volume may be limited. As a result, our ability to create new relationships and
manage our growth, as well as our revenue from loan sales and servicing, would be limited, and our
business, results of operations or financial condition may be adversely affected.
Business and Strategic Risk
We face significant competition to attract and retain banking clients.
We operate in the highly competitive banking industry and face significant competition for
banking clients from other banks and financial institutions located both within and beyond our
principal markets. We compete with commercial banks, mortgage companies, insurance
companies, credit unions, non-bank financial services companies, money market funds, brokerage
firms and other financial institutions operating within or near the areas we serve, particularly
service-focused community banking institutions that target the same clients we do. We also face
competition for home loans from large, nationwide banks and for deposits from nationwide and
regional banks specializing in private banking. Additionally, we compete with companies that solicit
loans and deposits or offer asset management services in our principal markets or over the Internet.
Many of our non-bank competitors are not subject to the same extensive regulations that
govern our activities and may have greater flexibility in competing for business. Many of our
competitors are also larger and have significantly more resources, greater name recognition and
larger market shares than we do, enabling them to maintain more banking locations, mount
extensive promotional and advertising campaigns, be more aggressive than we are in competing for
loans and deposits, and offer additional products and services. Certain of our similarly sized
competitors may be acquired by larger institutions, thus giving them certain incremental
competitive advantages. We expect competition to continue to intensify due to the continuing
consolidation of many financial institutions. The financial services industry could become even
more competitive as a result of legislative, regulatory and technological changes. Additionally, some
of our current commercial banking clients may seek alternative banking sources as they develop
needs for credit facilities larger than we may be able to accommodate.
In addition, technology has lowered barriers to entry and made it possible for non-banks to offer
products and services traditionally provided by banks, such as automatic transfer and automatic
payment systems. As a result, we compete with other alternative lenders, including “marketplace”
lenders, peer-to- peer lenders, and other FinTech lenders. Our ability to compete successfully will
depend on a number of factors, including, among other things:
•
Our ability to build and maintain long-term client relationships while ensuring safe and
sound banking practices;
•
The scope, relevance and pricing of products and services offered to meet client needs and
demands;
•
The regulatory environment for FinTech lenders as compared to traditional banks;
•
Our ability to attract, retain and develop key personnel;
•
Our ability to respond to rapid technological change;
•
Client satisfaction with our products and services; and
•
Industry and general economic trends.
48
Our failure to perform or weakness in any of these areas could significantly and negatively
impact our competitive position, which could adversely affect our growth and profitability, which, in
turn, could have a material adverse effect on our business, results of operations or financial
condition. See “Item 1. Business—Competition.”
We face significant competition to attract and retain wealth management clients.
We face significant competition to attract and retain wealth management clients primarily
from commercial banks, trust companies, mutual funds, investment advisory firms, brokerage firms,
investment companies, insurance companies, and other financial services companies. We also
compete with private equity firms, venture capital firms, hedge funds and other alternative
investment firms, and Internet-based companies. Competition is especially keen in our principal
markets because numerous well-established and successful investment advisory and brokerage
firms exist throughout each of the markets in which we operate. In addition, the Bank faces
increased competition from firms offering lower-priced investment products and services, including
automated investment management services and index funds. Our ability to successfully attract
and retain wealth management clients will depend on, among other things, our ability to compete
with our competitors’ scope and quality of investment products and services offered, level of
investment performance, price, client services, marketing and distribution capabilities. In addition,
our ability to retain wealth management clients may be impaired by the fact that investment
advisory and brokerage contracts are typically terminable at will. Most of our clients may withdraw
funds from accounts under management or administration at their discretion or close accounts at
any time for any reason, including the performance of the investment account, a change in an
investment strategy, change in investment advisor or any other reason in their discretion. If we
cannot effectively compete to attract and retain clients, our business, results of operations or
financial condition may be adversely affected.
The profitability of our wealth management business could be impacted by investments in
acquiring assets and key personnel and the costs of maintaining and improving a business platform
that can support a substantial asset base. Profitability in this area is also a function of the
incurrence of legal and compliance costs and the management of lower-margin assets, such as
sub-advisory, brokerage, money market and custody assets that support our overall client service
and relationship model. Further increased costs in our wealth management business could
materially and adversely affect our business, results of operations or financial condition.
Our wealth management business is highly dependent on investment managers and wealth
advisors to produce investment returns and to solicit and retain clients. The market for investment
managers and wealth advisors is extremely competitive and is increasingly characterized by
frequent movement of such persons among different firms. In addition, our individual investment
managers and wealth advisors often have regular direct contact with particular clients, which can
lead to a strong client relationship based on the client’s trust in the individual manager or advisor.
The loss of a key investment manager or wealth advisor could jeopardize our relationships with our
clients and lead to the loss of client accounts. Losses of such accounts could materially and
adversely affect our results of operations or financial condition.
Our ability to maintain, attract and retain client relationships is highly dependent on our
reputation and damage to our reputation could also impair the confidence of our employees,
counterparties, business partners and investors.
Our clients rely on us to deliver superior, highly personalized financial services with the highest
standards of ethics, performance, professionalism and compliance. A significant driver of new
clients has been, and we expect will continue to be, the reputation we maintain and the
recommendations of satisfied clients. Damage to our reputation could undermine the confidence of
49
our current and potential clients in our ability to provide financial services. Such damage could also
impair the confidence of our employees, counterparties, business partners and investors, adversely
affect our business, results of operations or financial condition and expose us to litigation and
regulatory action.
Maintenance of our reputation depends not only on our success in maintaining our service-
focused culture and controlling and mitigating our various risk exposures, including those described
in this Annual Report on Form 10-K. In addition, negative public opinion may result from actual or
alleged issues in areas such as potential conflicts of interest, AML, lending and loan servicing
practices, client personal information, cybersecurity and privacy issues, record-keeping,
discriminating or harassing behavior, compensation or sales practices, environmental, social and
governance practices and disclosures, legal and regulatory compliance, and actions taken by
government regulators, community organizations, and social and environmental activists in
response thereto. Adverse or misleading publicity or information distributed on social media
websites or other media, whether or not factually correct, may also harm our reputation, which may
adversely affect our business, results of operations or financial condition.
Maintaining our reputation also depends on our ability to successfully prevent third-parties
from infringing on the “First Republic” brand and associated trademarks. Defense of our reputation
and our trademarks, including through litigation, could result in costs adversely affecting our
business, results of operations or financial condition.
Leadership transitions and our ability to attract and retain key personnel could adversely affect
our business.
Effective March 13, 2022, Mr. James H. Herbert, II, our founding CEO who led First Republic
since it was founded in 1985, transitioned to Executive Chairman and Michael J. Roffler, our former
CFO, transitioned to the position of CEO. Leadership changes may create uncertainty among
investors, employees, business partners and other stakeholders of the Bank concerning an
organization’s future and performance.
Although we have been successful in hiring and promoting experienced professionals on our
management team, we need to continue to develop and retain senior management and have the
ability to attract qualified individuals to succeed existing key personnel to ensure the continued
growth and successful operation of our business.
In addition, because we specialize in providing relationship-based banking and wealth
management services, we need to continue to attract and retain qualified private banking
personnel and wealth managers to expand. Competition for such personnel can be intense, and we
may not be able to hire or retain such personnel. In recent years, the availability of remote working
arrangements has increased and has intensified, and could continue to intensify, competition for
prospective new employees or impair our ability to retain current employees. Our current or future
in-office or remote working arrangements may not meet the needs or expectations of our
employees or may not be perceived as favorable compared to the policies of our competitors. The
loss of the services of any senior management personnel, relationship managers or wealth
managers, or the inability to recruit and retain qualified, diverse personnel in the future, including to
succeed key personnel, could have an adverse effect on our business, results of operations or
financial condition. Additionally, to attract and retain diverse personnel with appropriate skills and
knowledge to support our business or succeed key personnel, we may offer a variety of benefits
which may reduce our earnings or adversely affect our business, results of operations or financial
condition.
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We may not be able to manage our growth successfully.
We seek to grow safely and consistently. Successful and safe growth requires that we follow
adequate loan underwriting standards, balance loan, investment portfolio and deposit growth
without increasing interest rate risk or compressing our net interest margin, maintain satisfactory
regulatory capital at all times, raise capital in advance of growth, scale our operations and systems
to support our growth, employ an effective risk management framework and hire and retain
qualified employees. Growth may place significant demands on our operations and management. If
we do not manage our growth successfully, then our business, results of operations or financial
condition may be adversely affected. New offices that we open in connection with our growth may
not be successful or otherwise satisfy expectations, and any plans to open new offices may change.
We face competition with respect to our deposits. The inability to maintain or grow our deposits
could force us to use more expensive and less stable sources of funding.
Deposits provide us with a stable, low-cost source of funding. We face significant competition
from other financial institutions with respect to deposit accounts. Deposit balances in the financial
system are also partly influenced by factors such as the size of the Federal Reserve balance sheet.
Most deposit accounts do not have significant restrictions on withdrawal, and clients can generally
withdraw some or all of the funds in their accounts with us upon little or no notice.
Given the magnitude and pace of rising interest rates, competition with respect to deposit
pricing has intensified. Our ability to offer competitive pricing on our deposit products is critical to
retaining our deposit base. In 2022, we have needed to offer higher interest rates for deposits, as a
result of which our interest expense has increased and net interest margin compressed. If we need
to offer higher interest rates to maintain current clients or attract new clients, our interest expense
on deposits could continue to increase, perhaps materially, and there is no guarantee that we may
be able to offer high enough interest rates to maintain current clients or attract new clients. An
outflow of deposits because clients seek investments with higher yields or greater financial
stability, prefer to do business with our competitors, or for other reasons could force us to rely more
heavily on borrowings and other sources of funding to fund our business and meet withdrawal
demands, adversely affecting our net interest margin. We may also be forced, as a result of any
outflow of deposits, to rely more heavily on equity to fund our business, resulting in greater dilution
of our existing shareholders. For example, in 2022, due to rising interest rates, we continued to see
a shift in deposit product mix to higher yielding instruments. We expect this trend will continue, and
we may experience higher deposit outflows while high or rising interest rates continue to persist.
The occurrence of any of these events could materially and adversely affect our business, results of
operations or financial condition.
Adverse changes in the ratings for our long-term debt or preferred stock could have a material
adverse effect on our business, financial condition and liquidity and may increase our funding
costs or impair our ability to effectively compete for business and clients.
The major rating agencies regularly evaluate us, and their ratings of us and our long-term debt
and preferred stock are based on a number of factors, including our financial strength and
conditions affecting the financial services industry generally. In general, rating agencies base their
ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset
quality, business mix and level and quality of earnings, and we may not be able to maintain our
current credit ratings and preferred stock ratings. Our ratings remain subject to change at any time,
and it is possible that any rating agency will take action to downgrade us in the future.
The ratings for our debt securities and preferred stock impact our ability to obtain funding.
Reductions in any of the ratings for our debt securities or preferred stock could adversely affect our
51
ability to borrow funds and raise capital. Downgrades in our ratings could trigger additional
collateral or funding obligations, which may adversely impact our liquidity. Therefore, any negative
credit rating actions could have a material adverse effect on our business, results of operations,
financial condition or liquidity.
Furthermore, our clients and counterparties may be sensitive to the risks posed by a downgrade
to our ratings and may terminate their relationships with us, may be less likely to engage in
transactions with us, or may only engage in transactions with us at a substantially higher cost. We
cannot predict the extent to which client relationships or opportunities for future relationships
could be adversely affected due to a downgrade in our ratings. The inability to retain clients or to
effectively compete for new business may have a material and adverse effect on our business,
results of operations or financial condition.
Additionally, the rating agencies may, from time to time, make or may be required to make
substantial changes to their ratings policies and practices. Such changes may, among other things,
adversely affect the ratings of our securities or other securities in which we have an economic
interest.
We may take actions to maintain client satisfaction that result in losses or reduced earnings.
We may find it necessary to take actions or incur expenses in order to maintain client satisfaction
even though we are not required to do so by law. The risk that we will need to take such actions and
incur the resulting losses or reductions in earnings is greater in periods when financial markets and
the broader economy are performing poorly or are particularly volatile. As a result, such actions may
adversely affect our business, results of conditions, or financial condition perhaps materially.
We may be adversely affected by risks associated with completed and potential acquisitions.
We plan to continue to grow our business organically, although, from time to time, we may
consider potential acquisition opportunities that we believe complement our activities and have the
ability to enhance our profitability, including acquisitions of wealth management and related
businesses. Acquisitions involve numerous risks, including:
•
The risk that certain material information was not adequately disclosed during the due
diligence process;
•
The risk that the acquired business accounted for certain items outside of financial
accounting and reporting standards;
•
The risk that the acquired business will not perform to our expectations or that the
synergies or benefits are not as great as expected;
•
Difficulties, inefficiencies or cost overruns in integrating the personnel, operations,
services and products of the acquired business with ours;
•
The diversion of management’s attention from other aspects of our business;
•
Entering geographic and product markets in which we have limited or no direct prior
experience;
•
The potential loss of key employees; and
•
The potential for liabilities and claims arising out of the acquired businesses.
If we were to consider acquisition opportunities, we expect to face significant competition
from numerous other financial services institutions, many of which will have greater financial
resources than we do. Accordingly, attractive acquisition opportunities may not be available.
We may not be successful in identifying or completing any future acquisitions, integrating any
acquired business into our operations or realizing any projected cost savings or other benefits
associated with any such acquisition.
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We must generally satisfy a number of meaningful conditions prior to completing any
acquisition, including, in certain cases, federal and state bank and other regulatory approvals,
which can be difficult to obtain. Bank regulators consider a number of factors when
determining whether to approve a proposed transaction, including the ratings and compliance
history of all institutions involved, the AML and BSA compliance history of all institutions
involved, CRA examination results and the effect of the transaction on financial stability. We
may fail to pursue, evaluate or complete strategic and competitively significant business
opportunities as a result of our inability, or our perceived inability, to obtain required regulatory
approvals in a timely manner or at all.
Operational and Technology Risk
Our operations have been and could continue to be interrupted to the extent our third-party
service providers experience difficulties, terminate their services or fail to comply with banking
regulations.
We depend to a significant extent on a number of relationships with third-party service
providers, including Internet, mobile technology and cloud service providers. Specifically, we receive
core systems processing, essential web hosting and other Internet systems, deposit processing,
wire processing and other processing services from third-party service providers. If these third-party
service providers experience difficulties (including due to cyber attacks or other incidents described
below), do not perform the relevant services properly or terminate their services and we are unable
to replace them with other service providers, our operations could be interrupted. While we conduct
due diligence prior to engaging with third party vendors and perform ongoing monitoring of vendor
controls as part of our vendor management policies and practices, these policies and practices
cannot eliminate this risk. If an interruption were to continue for a significant period of time, our
business, results of operations or financial condition could be adversely affected, perhaps
materially, and we may be subject to regulatory action. Even if we are able to replace them, it may
be at higher cost to us, which could adversely affect our business, results of operations or financial
condition.
We and our third-party service providers have been, and may in the future be, adversely affected
by disruptions to our respective network and computer systems as a result of denial-of-service
and other cyber attacks, any of which could cause substantial harm.
We and our third-party service providers have experienced, and may in the future experience,
disruptions and failures in our respective computer systems and network infrastructure or
otherwise as a result of denial-of-service and other cyber attacks or other security incidents. Like
the financial services industry generally, we are under continuous threat of loss as a common target
of cyber attacks and we routinely experience denial-of-service and other cyber attacks or other
security incidents. Examples of recent matters that could impact our operations or data (including
client data) include two incidents in early 2023 that impacted our third party service providers and
their computer systems (and for which our investigation remains ongoing). This risk has increased
significantly in recent years in part because of the proliferation of new technologies, such as online
and mobile banking to conduct financial transactions, increased interconnectedness of operating
environments, devices and delivery channels, and the increased sophistication of the external
parties behind cyber attacks. In addition, the techniques used in such attacks change frequently,
may not be recognized until launched and can be initiated from a variety of sources. Cyber attacks
at third-party service providers are also becoming increasingly common, and, as a result, risks
relating to cyber attacks on our vendors have been increasing. Some of these vendors supply
essential services to us such as providers of financial information, systems and analytical tools, and
providers of electronic payment and settlement systems. Computer break-ins, whether physical or
electronic, and other disruptions could jeopardize the security of information stored in and
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transmitted through our computer systems and network infrastructure, which may result in
significant liability to us and deter potential clients.
In recent years, federal and state regulators, including the FDIC, SEC, and FINRA, have made
statements concerning cybersecurity risk management, preparedness and resiliency for financial
institutions such as us. These statements range from issues with respect to client account
protections to business continuity, and represent the regulators’ expectations for financial
institutions to have more robust cybersecurity risk management and a preparedness and resiliency
program for themselves and their service providers. A financial institution is also expected to
develop processes to enable recovery of data and business operations and address rebuilding
network capabilities and restoring data if the institution, or its critical service providers, fall victim
to this type of cyber attack. Any cyber incidents, such as those of our third party vendors, could
result, among other things, in increased regulatory scrutiny and adverse regulatory or civil litigation
consequences.
The occurrence of a cyber-threat scenario could cause interruptions in our operations and
result in the incurrence of significant costs, including those related to forensic analysis and legal
counsel, each of which may be required to ascertain the extent of any potential harm to our
customers, or employees, or damage to our information systems and any legal or regulatory
obligations that may result therefrom. The occurrence of a cyber-threat may therefore have a
material adverse effect on our financial condition and results of operations. Risks and exposures
related to cybersecurity attacks are expected to remain high for the foreseeable future due to the
rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of
Internet banking, mobile banking and other technology-based products and services by us and our
clients.
Due to the increasing sophistication of such attacks, we have not been able, and may in the
future not be able, to prevent denial-of-service or other cyber attacks that could compromise our
normal business operations or the normal business operations of our clients, or result in the
unauthorized use or disclosure of clients’ confidential and proprietary information. The occurrence
of any failure, interruption or security breach of network and computer systems resulting from
denial-of-service or other cyber attacks or security incidents, including those described above,
could impact our ability to operate and serve our clients, damage our reputation, result in a loss of
client business, subject us to additional regulatory scrutiny, or expose us to civil litigation and
possible financial liability, any of which could adversely affect our business, results of operations or
financial condition.
We face risks related to the ability of our information technology systems to support our existing
operations and future growth.
We have developed, and are continuously developing, information technology and other
systems and processes to support our business operations. As our business grows, we continue to
invest in and enhance these systems and processes. The financial services industry experiences
rapid technological change with regular introductions of new technology-driven products and
services, and the ability to access and use technology is an increasingly important competitive
factor in the financial services industry. These investments and enhancements entail significant
costs and create risks associated with implementing new systems and integrating them with
existing ones. If not implemented effectively, these changes may result in business interruptions,
client losses, additional costs or damage to our reputation. Any failure in our information
technology systems as a result of such changes could have an adverse effect on our business,
results of operations or financial condition, perhaps materially.
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The network and computer systems on which we depend could fail or experience additional
security breaches.
Our computer systems are vulnerable to unforeseen problems and threat actors, which is
further heightened by our increased use of mobile and cloud technologies. Because we conduct our
business over the Internet and outsource several critical functions to third-parties, our operations
depend on our ability, as well as that of third-party service providers, to protect computer systems
and network infrastructure against cyber attacks, damage from fire, power loss,
telecommunications failure, physical break-ins or similar catastrophic events. From time to time, we
and our third-party service providers experience cyber attacks, such as Distributed Denial of
Service, ransomware or the exploitation of newly found vulnerabilities such as zero-day attacks. Any
damage or failure that causes interruptions to our operations could have a material adverse effect
on our business, results of operations or financial condition.
We also rely heavily on communications and information systems to conduct our business. Any
failure, interruption or breach in security of these systems, including due to hacking or other similar
breaches of information technology security protocols, could result in failures or disruptions in our
client relationship management, general ledger, deposit, loan and other systems. While we have
policies and procedures designed to prevent or limit the effect of the possible failure, interruption or
security breach of our information systems, there can be no assurance that any such failure,
interruption or security breach will not occur or, if it does occur, that it will be adequately
addressed. The occurrence of any failure, interruption or security breach of our information systems
could damage our reputation, result in a loss of client business, subject us to additional regulatory
scrutiny, or expose us to civil litigation and possible financial liability, any of which could adversely
affect our business, results of operations or financial condition.
We are subject to certain operational risks, including fraud by employees and third parties and
data processing system failures and errors.
We rely on business processes and branch activity that largely depend on people and technology,
including access to information technology systems as well as information, applications, payment
systems and other services provided by third parties. We offer workplace flexibility to a portion of our
employees, allowing them to work remotely from their homes some of the time, and technology in
employees’ homes may not be as robust as in our offices and could cause the networks, information
systems, applications, and other tools available to employees to be more limited or less reliable than in
our offices. Remote work practices introduce additional operational risk, including increased
cybersecurity risk. These cyber risks include greater phishing, malware, and other cybersecurity attacks,
vulnerability to disruptions of our information technology infrastructure and telecommunications
systems for remote operations, increased risk of unauthorized dissemination of confidential information,
limited ability to restore the systems in the event of a systems failure or interruption, greater risk of
security breaches resulting in destruction or misuse of information, and potential impairment of our
ability to perform critical functions, including wiring funds, all of which could expose us to risks of data
or financial loss, litigation, liability and reputational damage and could seriously disrupt our operations
and the operations of any impacted clients.
We are also subject to other operational risks related to employee, customer and third-party fraud
or theft and data processing system failures and errors. Fraudulent activities may take many forms,
including online payment transfer fraud, debit card fraud, check fraud, fraud related to ATM machines,
phishing attacks, social engineering, identity theft, account takeover and other dishonest attacks.
Because the nature of the financial services business involves a high volume of transactions, certain
errors may be repeated or compounded before they are discovered and successfully rectified. These
fraudulent activities and system errors may result in financial losses or increased costs to us or our
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clients, disclosure or misuses of our information or our client information, misappropriation of assets,
privacy breaches against our clients, litigation or damage to our reputation.
We maintain a system of internal controls designed to prevent, detect and mitigate against such
occurrences and maintain insurance coverage for such risks. However, should such an event occur that
is not prevented or detected by our internal controls, or is uninsured or in excess of applicable insurance
limits, such an event could result in regulatory actions and have a significant adverse effect on our
business, results of operations or financial condition.
Moreover, we rely on many third-parties in our business operations, including appraisers of the real
property collateral, vendors that supply essential services such as providers of financial information,
systems and analytical tools and providers of electronic payment and settlement systems, and local and
federal government agencies, offices, and courthouses. Since COVID-19, many of these entities
continue to limit the availability of and access to their services. For example, loan originations could be
delayed due to the limited availability of real estate appraisers for the collateral. Loan closings could be
delayed related to reductions in available staff in recording offices or the closing of courthouses in
certain counties, which slows the process for title work, mortgage and UCC filings in those counties. Our
ability to raise equity could be delayed by closures to or reductions in available staff at the California
Secretary of State which slows the process of corporate filings. If the third-party service providers
continue to have limited capacities for a prolonged period or if additional limitations or potential
disruptions in these services materialize, it may negatively affect our operations.
We rely on the accuracy and completeness of information about our clients and counterparties.
In deciding whether to extend credit or enter into other transactions with clients and
counterparties, we may rely on information furnished by or on behalf of clients and counterparties,
including financial statements and other financial information. We may also rely on representations
of clients and counterparties as to the accuracy and completeness of that information and, with
respect to financial statements, on reports of independent auditors. If this information is inaccurate
or incomplete, we may be subject to credit losses, regulatory action, reputational harm or other
adverse effects on the operation of our business, results of operations or financial condition.
The systems and models we employ to analyze, monitor and mitigate risks, as well as for other
business purposes, are inherently limited, may not be effective in all cases and, in any case,
cannot eliminate all risks that we face.
We use various systems and models in analyzing and monitoring several risk categories, as well
as for other business purposes, including determining our ACL. However, these systems and models
are inherently limited because they involve techniques and judgments that cannot anticipate every
economic and financial outcome in the markets in which we operate, nor can they anticipate the
specifics and timing of such outcomes. Further, these systems and models may fail to quantify
accurately the magnitude of the risks we face. Our measurement methodologies rely on many
assumptions and historical analyses and correlations. These assumptions may be incorrect, and the
historical correlations on which we rely may not continue to be relevant. Consequently, the
measurements that we make may not adequately capture or express the true risk profiles of our
businesses or provide accurate data for other business purposes, each of which ultimately could
have a negative impact on our business, financial condition and results of operations. Errors in the
underlying model or model assumptions, or inadequate model assumptions, could result in
unanticipated and adverse consequences to our business or financial condition, including material
losses or noncompliance with regulatory requirements or expectations.
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Failure to properly manage and aggregate data may result in our inability to manage risk and
business needs and inaccurate financial, regulatory and operational reporting.
We rely on our ability to manage, aggregate, interpret and use data in an accurate, timely and
complete manner for effective risk reporting and management. Our policies, programs, processes
and practices govern how data is managed, aggregated, interpreted and used. While we
continuously update our policies, programs, processes and practices, and implement emerging
technologies, our data management and aggregation processes are subject to failure, including
human error or system failure. Failure to manage data effectively and to aggregate data in an
accurate, timely and complete manner may limit our ability to manage current and emerging risk, to
produce accurate financial, regulatory and operational reporting as well as to manage changing
business needs. The failure to establish and maintain effective, efficient and controlled data
management could adversely affect our business, results of operations or financial condition.
Pandemics or other public health emergencies have caused and may in the future cause
substantial disruptions to the domestic and global economy, and the communities we serve,
which may have an adverse effect on our business, financial position and results of operations.
Disruptions caused by pandemics or other public health emergencies, or the fear of a pandemic
or other public health emergency, may cause national, regional and local economies to suffer
lasting disruptions, which could result in decreased consumer spending and demand for lending,
which may materially impact our business. Volatile market conditions and changed consumer
behavior may have a material impact on our lending business, and in particular our real estate
lending business, including through reduced demand for residential, commercial and multifamily
real estate or decreasing property values. Pandemics and other public health emergencies have
resulted in, and could in the future result in, interruptions in the supply chain that adversely affect
many businesses and contribute to higher rates of inflation. Declines in the financial markets may
negatively affect our wealth management business by reducing our wealth management fees,
reducing the level of AUM or AUA or subjecting us to greater litigation risk.
These disruptions may also impair our clients’ ability to repay loans. Further, as a result of
pandemic or health emergency-driven disruptions, clients may seek additional loans that they may
be unable to repay, particularly to the extent businesses are closed and unemployment levels rise.
These circumstances could result in future delinquencies and increases in our provision for credit
losses and provision for unfunded loan commitments.
Additionally, the macroeconomic forecasts used in determining the ACL could change,
resulting in significant changes in the ACL. Declines in market conditions may increase the risk of
default and decrease the value of collateral. Further, our ability to seek repayment for loans may be
limited by government restrictions, such as government-mandated suspensions on evictions,
foreclosures and mortgage payments.
From an operational perspective, pandemics and public health emergencies have in the past
resulted in and could in the future result in the temporary closures of certain of our offices and the
facilities of many of our clients and service providers. Remote working arrangements increase
operational risks, including cybersecurity risks, resulting from increased dependencies on
employees’ home internet systems and their abilities to work remotely, which in turn may also be
impacted by various unrelated events such as power outages or damaged infrastructure that may
occur due to earthquakes, wildfires, hurricanes or other natural disasters. Additionally, although we
maintain business continuity plans, public health crises may impair the availability of key employees
who are necessary to conduct our business. Actions taken by U.S. or other governmental authorities
that are intended to mitigate the effects of a pandemic or other public health emergency, or delays
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in the implementation of prior regulatory measures, may result in regulatory uncertainty and impose
additional restrictions.
For any pandemic or other public health emergency, the effects on our business and financial
condition will depend on, among other things, the duration and severity of the outbreak,
development surrounding new strains of any pathogen, the actions to contain the pathogen or treat
its impact, including the availability and effectiveness of vaccines, and how quickly and to what
extent normal economic and operating conditions can resume. Any pandemic or public health
emergency may heighten or otherwise affect the other risk factors presented herein, which could
materially and adversely affect our business, financial position and results of operations. Additional
risks and uncertainties not currently known to us or that we currently deem to be immaterial also
may materially and adversely affect our business, results of operations or financial condition.
Liquidity Risk
We are subject to liquidity risk, which could impair our ability to fund various obligations.
We require liquidity in the normal course of business to meet our deposit and debt obligations
as they come due. Our access to funding sources in amounts adequate to finance our activities or
on terms that are acceptable to us could be impaired by factors that affect us specifically or the
financial services industry or economy generally. Factors that could detrimentally impact our access
to liquidity sources at a reasonable cost include a downturn in the geographic markets in which our
loans are concentrated, increases in interest rates, volatile credit markets, changes in credit
ratings, or adverse regulatory actions against us. Our access to deposits as a primary funding
source may also be affected by external factors such as the liquidity needs of our depositors and
changes in interest rates and returns on other investment classes, which could result in a
significant outflow of deposits. In particular, a majority of our liabilities on average during 2022
were checking accounts, money market checking and savings deposits, which are payable on
demand or upon several days’ notice, while by comparison, a substantial majority of our assets were
loans, which cannot be called or sold in the same time frame. Although we have been able to
replace maturing deposits and advances historically as necessary, we might not be able to replace
such funds in the future, especially if a large number of our depositors or those depositors with
significant balances of deposits sought to withdraw their accounts, regardless of the reason. A
failure to maintain adequate liquidity could materially and adversely affect our business, results of
operations or financial condition.
Financial Reporting Risk
Our financial results depend on management’s selection of accounting methods and certain
assumptions and estimates.
Our accounting policies and methods are fundamental to how we record and report our results
of operations and financial condition. Our management must exercise judgment in selecting and
applying many of these accounting policies and methods so they comply with GAAP and reflect
management’s judgment of the most appropriate manner to report our financial condition and
results. In some cases, management must select the accounting policy or method to apply from two
or more alternatives, any of which may be reasonable under the circumstances, yet may result in
our reporting materially different results than would have been reported under a different
alternative.
Certain accounting policies are critical to presenting our financial condition and results. They
require management to make difficult, subjective or complex judgments about matters that are
uncertain. Materially different amounts could be reported under different conditions or using
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different assumptions or estimates. Our critical accounting policy and estimate is the ACL on loans.
Because of the uncertainty of estimates involved in this matter, we may be required to significantly
increase the ACL or sustain credit losses that are significantly higher than the reserve provided.
Either of these actions could adversely affect our business, results of operations or financial
condition.
Our ACL on loans, unfunded loan commitments, and held-to-maturity debt securities may be
inadequate.
We record an ACL representing the lifetime expected credit losses on our loans, unfunded loan
commitments, and held-to-maturity debt securities. Our management determines the ACL based
on available information, including the credit quality of the loan and investments portfolio, the types
of loans and investments composing the respective portfolios, current and forecasted economic
conditions, the value of the underlying collateral and the level of nonaccrual assets, where
applicable. Although our management has established an ACL it believes is adequate to absorb
expected credit losses, it is an estimate requiring difficult, subjective and complex judgments about
matters that are uncertain, which may result in an inadequate ACL. If deterioration in the general
economy or in our principal markets occurs, this could result in a decrease in credit quality of our
loans or investments and our ACL may be inadequate. In addition, if an earthquake or other natural
disaster were to occur in one of our principal markets, increases in the ACL may also be necessary
to absorb expected credit losses in our loan and investment portfolio. Such increases in our ACL will
result in additional provision for credit losses, which will reduce our net income, and our business,
results of operations or financial condition may be materially and adversely affected.
The federal banking agencies, as an integral part of their supervisory functions, periodically
review our loan portfolio and related ACL. These regulatory agencies may require us to increase our
provision for credit losses for loans or to recognize further loan charge-offs based upon their
judgments, which may be different from ours. In addition, changes to the accounting standards that
govern financial reporting related to loans may result in unanticipated effects on the timing or
amount of our loan losses. An increase in the ACL required by the federal banking agencies or the
unanticipated recognition of losses on our loans could materially adversely affect our financial
condition and results of operations.
If we fail to maintain internal controls over financial reporting, we may not be able to accurately
report our financial results, which could harm our reputation and have a negative effect on the
price of our common stock.
The Sarbanes-Oxley Act of 2002 requires our management to evaluate the Bank’s disclosure
controls and procedures and its internal control over financial reporting and requires our auditors to
issue a report on our internal control over financial reporting. As we continue to grow, our internal
controls may become more complex and require additional resources to ensure they remain
effective amidst dynamic regulatory and other guidance. Additionally, our SOX program office
provides an independent assessment and testing of our internal controls, policies, and procedures.
Failure to maintain effective controls over financial reporting or implement new or improved
controls may harm our operating results or cause us to fail to meet our reporting obligations. We are
required to disclose, in our Annual Report on Form 10-K, the existence of any “material weaknesses”
in our internal controls. The identification of one or more material weaknesses as of the end of any
given quarter or year could result in increased regulatory scrutiny or litigation risk and could have a
negative impact on our reputation, results of operations or financial condition, as well as the price
of our common stock.
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The value of our goodwill and other intangible assets may decline in the future.
A significant decline in our expected future cash flows, a significant adverse change in the
business climate, slower growth rates, a significant and sustained decline in the price of our
common stock or the poor performance of an acquired business may require us to take charges in
the future related to the impairment of our goodwill and other intangible assets. The loss of several
of our relationship managers to a competitor may also result in a charge against our goodwill and
other intangible assets. If we were to conclude that a future write-down of our goodwill and other
intangible assets is necessary, we would record the appropriate charge, which could have a
material adverse effect on our business, results of operations or financial condition.
Legal and Regulatory Risk
The banking industry is highly regulated, and legislative or regulatory actions taken now or in
the future may have a significant adverse effect on our operations, including increased legal and
compliance costs.
The banking industry is extensively regulated and supervised under both federal and state laws
and regulations that are intended primarily to protect depositors, the public, the DIF, and the
banking and financial systems as a whole, not our shareholders or debtholders. We expect that our
business will remain subject to extensive regulation and supervision and that the level of scrutiny
and the enforcement environment will fluctuate over time, based on numerous factors, including
changes in the United States presidential administration or one or both houses of Congress and
public sentiment regarding financial institutions (which can be influenced by scandals and other
incidents that involve participants in the industry). We are subject to the regulation and supervision
of the FDIC, the DFPI and the CFPB. The banking and other laws, regulations and policies applicable
to us govern matters ranging from public and regulatory reporting, the regulation of certain debt
obligations, changes in the control of us and the maintenance of adequate capital to the general
business operations conducted by us, including permissible types, amounts and terms of loans and
investments, the amount of reserves held against deposits, restrictions on dividends, establishment
of new offices and the maximum interest rate that may be charged by law. In addition, certain of our
subsidiaries are subject to regulation, supervision and examination by other regulatory authorities,
including the SEC and FINRA. See “Item 1. Business—Supervision and Regulation” above for more
information on the laws and regulations applicable to us.
We are subject to changes in federal and state banking statutes, regulations and governmental
policies, and the interpretation or implementation of them. Regulations affecting banks and other
financial institutions in particular undergo continuous review and frequently change and the
ultimate effect of such changes cannot be predicted. Laws, regulations and regulatory guidance
may be modified at any time, including as a result in changes in the presidential administration,
congress or in key personnel at our regulators, and new legislation may be enacted that will affect
us or our subsidiaries. Changes in federal and state laws, as well as regulations and governmental
policies, have resulted in increased compliance costs, and future legal or regulatory changes could
affect us in substantial and unpredictable ways, including by limiting the types of financial services
and products we may offer, increasing our litigation and regulatory costs (including if we fail to
comply appropriately with new or modified legal or regulatory requirements), altering the
investments we make, increasing the ability of non-bank competitors to offer competing products
and services, and other ways that may adversely affect our business, results of operations or
financial condition.
Federal and state banking regulators have broad authority to supervise our banking business
and that of our subsidiaries, including the authority to prohibit activities that represent unsafe or
unsound banking practices or constitute violations of statute, rule, regulation, or administrative
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order. Failure to appropriately comply with any such laws, regulations or regulatory policies could
result in sanctions by regulatory agencies, civil money penalties or damage to our reputation, all of
which could adversely affect our business, results of operations or financial condition. For example,
federal banking agencies have increased their focus on compliance with consumer protection laws
and BSA and AML regulations, and we expect this focus to continue. There have been a number of
significant enforcement actions by regulators, as well as state attorneys general and the
Department of Justice, against banks, broker-dealers and non-bank financial institutions with
respect to consumer compliance, AML and sanctions laws and some have resulted in substantial
penalties, including criminal pleas and/or admissions of wrongdoing. Any such enforcement action
or settlement could have significant consequences for a financial institution, including loss of
customers, reputational harm, increased exposure to civil litigation, restrictions on the ability to
access the capital markets, and the inability to operate certain businesses or offer certain products
for a period of time. We have expended significant resources to enhance, and we continue to
enhance, our compliance programs. These enhancements, as well as any enhancements in other
compliance areas that may be required in the future, will result in incremental professional fees and
personnel costs, may limit our ability to offer competitive products to our clients, may divert
resources from our ongoing business development activities. Notwithstanding our enhancements
to these compliance programs, our compliance programs may not be effective and regulators may
impose additional requirements on us or require us to take additional actions which could increase
our costs, decrease our revenues or net income and reduce or restrict our ability to expand and
effectively compete.
The nature, extent, timing and impact of any future changes to the Dodd-Frank Act and related
regulatory requirements or other laws and regulations impacting our business cannot be predicted.
If further legislation or regulations are implemented or repealed, it may be time-consuming and
expensive for us to alter our internal operations in order to comply with such changes.
As a result of the current regulatory environment and our growth in recent years, we have made
and expect to continue to make substantial investments in our legal, regulatory, audit and
compliance infrastructure. Our expenses associated with our legal, regulatory, audit and
compliance infrastructure have increased and could also be higher than anticipated in the future,
which may adversely impact our results of operations.
The investment management and brokerage businesses are highly regulated.
The investment management and brokerage business are highly regulated, primarily at the
federal level. One of our subsidiaries, FRIM, is a registered investment adviser under the Investment
Advisers Act and FRSC is a registered broker-dealer regulated by the SEC, FINRA and state
regulatory agencies. The Investment Advisers Act imposes numerous obligations on federally
registered investment advisers, including fiduciary, record-keeping, operational and disclosure
obligations.
FRIM is also subject to the provisions and regulations of ERISA to the extent it acts as a
“fiduciary” under ERISA with respect to certain of its clients. ERISA and the applicable provisions of
the federal tax laws impose a number of duties on persons who are fiduciaries under ERISA and
prohibit transactions involving the assets of each ERISA plan that is a client, as well as certain
transactions by the fiduciaries (and certain other related parties) to such plans. FRIM and FRSC are
also both licensed and regulated under state law as insurance agencies. The relationships between
the Bank and its subsidiaries and the private funds advised by FRIM are subject to restrictions and
requirements under the Volcker Rule.
The SEC has adopted rules that are intended to limit conflicts of interest for non-retirement
and retirement accounts, which include establishing a “best interest” standard of conduct for
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broker-dealers when making a recommendation on any securities transaction or investment
strategy to a retail customer and clarify certain aspects of the fiduciary duty that a registered
investment adviser owes to its clients. In addition, the SEC issued a final rule that requires broker-
dealers and investment advisers to provide a standardized summary disclosure to retail customers
describing their relationship with and services offered by the broker dealer or investment adviser.
Certain states are also advancing their own standard of conduct for investment advisers and
broker-dealers. The impact of these new regulations is uncertain and difficult to predict, and could
have varying implications for our business, including, among other things, the products and services
that we are able to provide to our clients, and the new regulations could result in increases in
compliance and other costs.
Our failure or the failure of our subsidiaries that provide investment management services,
brokerage services, or any related regulated services to comply with applicable laws or regulations
could result in civil or criminal monetary penalties, fines or restitution, suspensions of individual
employees, or other sanctions, including revocation of such subsidiary’s registration as an
investment adviser or otherwise. Any such failure could have an adverse effect on our reputation
and could adversely affect our business, results of operations or financial condition.
We are subject to stringent capital requirements, which impact our ability to conduct business.
We are subject to regulatory requirements specifying minimum amounts and types of capital
that we must maintain. See “Item 1. Business—Supervision and Regulation—Capital Requirements”
for additional information. If we fail to meet these minimum capital rules and other regulatory
requirements, we or our subsidiaries may be restricted in the types of activities we may conduct and
we may be prohibited from taking certain capital actions, such as paying dividends and
repurchasing or redeeming capital securities.
Although we meet the capital adequacy requirements of the Basel III Capital Rules, as
implemented in the FDIC’s regulations, including the capital conservation buffer, we may fail to do
so in the future. In addition, these requirements could have a negative impact on our ability to lend,
grow deposit balances, make acquisitions or make capital distributions in the form of increased
dividends or share repurchases. Higher capital levels could also lower our return on equity.
If we continue to grow and if we report $250 billion or more in total consolidated assets or
$75 billion or more in weighted short-term wholesale funding, nonbank assets or off-balance
sheet exposure, we would become subject to new and more stringent regulatory requirements
relating to capital and liquidity.
New and more stringent regulatory requirements will apply to us if we become a Category III
banking institution by having $250 billion or more in total consolidated assets or $75 billion or more in
weighted short-term wholesale funding, nonbank assets or off-balance sheet exposure based on a
trailing four-quarter average. Among other things, we would be subject to enhanced capital and
liquidity requirements including the LCR and NSFR rules. As a result, we would be required to increase
our holdings of HQLA and/or change the composition of our funding, which could adversely affect our
net interest income and net interest margin. Further, we would be subject to the SLR and CCyB, in
addition to the capital conservation buffer, under the Basel III Capital Rules and Dodd-Frank Act
capital stress testing requirements. The capital, liquidity and stress testing requirements that would
apply if we become a Category III institution could result in limitations on our business, as well as
increased compliance costs. Depending on our levels of capital and liquidity, stress test results and
other factors, we may be limited in the types of activities we may conduct and be limited as to how we
utilize our capital, including with respect to dividends. Further, we may be subject to heightened
supervisory expectations, which could result in additional regulatory scrutiny, higher penalties, and
more severe consequences if we are unable to meet those expectations.
62
Differences in regulation can affect our ability to compete effectively.
The content and application of laws and regulations applicable to financial institutions vary
according to the size of the institution, the jurisdictions in which the institution is organized and
operates and other factors. We may be subject to more stringent regulatory requirements and
supervision than smaller institutions. In addition, FinTech companies and other non-bank
competitors may not be subject to banking regulation, or may be regulated by a national or state
agency that does not have the same regulatory priorities or supervisory requirements as our
regulators. These differences in regulation can impair our ability to compete effectively with
competitors that are less regulated and that do not have similar compliance costs.
Reforms of Fannie Mae and Freddie Mac and the FHLBs could reduce demand for residential
mortgage loans, limit our ability to sell residential mortgage loans in the secondary market and
affect our funding sources.
The U.S. Congress may consider reforms to the federal government’s involvement in the
housing market. Reforms could include reducing the scale of Fannie Mae’s and Freddie Mac’s
secondary purchases of residential mortgage loans or winding down these entities entirely. This
could significantly reduce the amount of residential mortgage loans that we can sell in the
secondary market, which would limit the amount of loans we can originate and in turn limit our
ability to create new relationships, manage our growth and earn revenue from loan sales and
servicing. Reforms could also include cutting back or eliminating the FHLB system, which could
remove a significant source of term funding for our lending activities and likewise limit our ability to
originate loans and manage our interest rate risk. Such reforms could also raise interest rates for
residential mortgage loans, thereby reducing demand for our primary lending products, and could
have an adverse effect on our business, results of operations or financial condition.
We could be held responsible for environmental liabilities of properties acquired through
foreclosure.
If we are forced to foreclose on a defaulted mortgage loan to recover our investment, we may
be subject to environmental liabilities related to the underlying real property. Hazardous substances
or wastes, contaminants, pollutants or sources thereof may be discovered on properties during our
ownership or after a sale to a third-party. The amount of environmental liability could exceed the
value of real property. We could be fully liable for the entire cost of any removal and clean-up on an
acquired property. In addition, we may find it difficult or impossible to sell the property before or
after any environmental remediation. As a result, our business, results of operations or financial
condition may be adversely affected.
We are subject to legal and litigation risk, which may adversely impact our operations,
reputation and financial condition.
Because the Bank is extensively regulated by a variety of federal and state agencies, and
because we are subject to a wide range of business, consumer and employment laws and
regulations at the federal, state and local levels, we are at risk of governmental investigations and
lawsuits as well as claims and litigation from private parties. This risk is heightened when we act as
a fiduciary for our clients and may be further heightened during periods when credit, equity or other
financial markets are deteriorating in value or are particularly volatile, or when clients or investors
are experiencing losses. We are from time to time involved in disputes with and claims from clients,
government agencies, vendors, employees and other business parties, and such disputes and
claims may result in litigation or settlements. Such litigation, alone or in the aggregate, may have an
adverse impact on the Bank’s operations, reputation, employee or customer relations, financial
condition or results of operations as a result of the costs of any judgment, the terms of any
settlement and/or the expenses incurred in defending the applicable claim. It is inherently difficult
63
to assess the outcome of such litigation, and there can be no assurance that the Bank will prevail in
any proceeding or litigation.
We estimate our potential liability for pending and threatened claims, and record reserves
when appropriate pursuant to GAAP, by evaluating the facts of particular claims under current
judicial decisions and legislative and regulatory interpretations. This process is inherently subject to
risk, including the risks that a judge or jury could decide a case contrary to our evaluation of the law
or the facts or that a court could change or modify existing law on a particular issue important to
the case. Our earnings will be adversely affected to the extent that our reserves are not adequate.
Tax regulations could be subject to potential legislative, administrative or judicial changes or
interpretations.
Federal income tax treatment of corporations and other federal and state tax provisions are
clarified and/or modified by legislative, administrative or judicial changes or interpretations from
time to time. Any such changes could adversely affect the Bank, either directly, or indirectly as a
result of effects on the Bank’s customers. The U.S. presidential administration may make
substantial changes to fiscal and tax policies that may adversely affect our business.
The amount of income taxes that we are required to pay on our earnings is based on federal
and state legislation and regulations. We provide for current and deferred taxes in our financial
statements based on our results of operations, business activity, legal structure and interpretation
of tax statutes. We may take filing positions or follow tax strategies that are subject to audit and
may be subject to challenge. Our net income may be reduced if a federal, state or local authority
assessed charges for taxes that have not been provided for in our consolidated financial
statements. Taxing authorities could change applicable tax laws, challenge filing positions or
assess taxes and interest charges. If taxing authorities take any of these actions, our business,
results of operations or financial condition could be adversely affected, perhaps materially.
The transition away from LIBOR and other reference rates may adversely affect our business.
Many of our loan products determine the amount of interest by reference to certain reference
rates or indices that have become subject to recent regulatory guidance and reforms, including
reference rates that have been discontinued or are in the process of being discontinued. The United
Kingdom’s FCA, which regulates LIBOR, and the IBA, the FCA-regulated and authorized
administrator of LIBOR, have announced that the most commonly used USD LIBOR settings will
cease to be published or cease to be representative after June 30, 2023. All other LIBOR settings
ceased to be published or to be representative as of December 31, 2021. In March 2022, President
Biden signed the LIBOR Act into law. The LIBOR Act provides a statutory framework to replace USD
LIBOR with a benchmark rate based on SOFR for contracts governed by U.S. law that have no
fallbacks or fallbacks that would require the use of a poll or LIBOR-based rate. As contemplated by
the LIBOR Act, in December 2022, the Board of Governors of the Federal Reserve adopted a rule
which identifies different SOFR-based replacement rates for derivative contracts, for cash
instruments such as floating-rate notes and preferred stock, for consumer loans, for certain
government-sponsored enterprise contracts and for certain asset-backed securities. As the
transition away from LIBOR is ongoing, there continues to be uncertainty as to the ultimate effects
of LIBOR and other reference rate transition, including the effect on the financial markets for
LIBOR-linked financial instruments. In addition, the FHLB of San Francisco ceased calculating and
publishing COFI on January 31, 2022.
If and when reference rates, such as COFI and LIBOR, are no longer available or if they are not
an acceptable market reference rate, we will be required, or we may exercise discretion, to
implement one or more substitute reference rate(s) for the calculation of interest rates under our
64
loan agreements with our borrowers. We ceased offering new loans indexed to COFI in the first half
of 2018 and to LIBOR in the first half of 2019, have transitioned loans indexed to COFI and are
currently implementing a transition plan in place with respect to existing loans indexed to LIBOR. In
lieu of COFI or LIBOR, new loan originations are generally indexed to Prime or a 12-month average
of 1-year CMT.
Although the LIBOR Act includes safe harbors if the SOFR-based replacement rate identified by
the Board of Governors of the Federal Reserve is selected, these safe harbors are untested. As a
result, and despite the enactment of the LIBOR Act, for the most commonly used USD LIBOR
settings, the selection of a successor rate could result in customer disputes or litigation. In addition,
developments related to reference rates could adversely affect our exposure to fluctuations in
interest rates as well as the amounts we receive on, and the values of, the variable rate loans. As
such, any changes to the calculation of the reference rates we use in our loan products, or the
transition to one or more new reference rate(s) could have an adverse effect on our business,
financial condition or results of operations.
Regulation of incentive compensation under the Dodd-Frank Act may adversely affect our ability
to retain our key employees.
Under the Dodd-Frank Act, federal regulators are required to issue regulations relating to
incentive compensation. Regulators have not yet issued these rules. Future regulations may limit
the manner and amount of incentive compensation that banking organizations provide to
employees, and could adversely affect our ability to attract and retain our key employees. If we were
to experience such effects with respect to our employees, our business, results of operations or
financial condition could be adversely affected. We are not able to predict at this time when
regulators will issue incentive compensation rules, and the impact on the Bank will depend on the
final form of any such rules and how they are implemented and applied.
The ability-to-repay requirement for residential mortgage loans may limit our ability to sell or
securitize certain of our mortgage loans and give borrowers potential claims against us.
Under TILA, mortgage lenders are required to show that they have verified the borrower’s
ability to repay a residential mortgage loan (which does not include HELOCs). Borrowers could
possibly claim statutory damages against us for violations of this requirement. Lenders of
mortgages that meet a “qualified mortgage” standard have a safe harbor or a presumption of
compliance with the requirement. Under CFPB rules, qualified mortgages cannot have negative
amortization, interest-only payments, or balloon payments, terms over 30 years, or points and fees
over certain thresholds.
Currently, a majority of the non-conforming mortgage loans that we originate generally have an
initial interest-only period of ten years, subsequent to which these loans fully and evenly amortize
over a period of generally twenty years. Such loans are not “qualified mortgages” under the
standard. If institutional mortgage investors limit their mortgage purchases to “qualified
mortgages,” demand for our non-qualifying mortgages in the secondary market may be significantly
limited in the future. We do not currently intend to discontinue originating interest-only,
non-qualifying mortgages, and we may be liable to borrowers under non-qualifying mortgages for
violations of the ability-to-repay requirement. If demand for our non-qualifying mortgages in the
secondary market declines significantly in the future, it would limit the amount of loans we can
originate and in turn limit our ability to create new relationships, manage our growth and earn
revenue from loan sales and servicing, all of which could materially and adversely affect our
business, results of operations or financial condition.
65
Increases in FDIC insurance premiums may adversely affect our earnings.
Our deposits are insured by the FDIC up to legal limits and, accordingly, we are subject to FDIC
deposit insurance assessments. We generally cannot control the amount of premiums we will be
required to pay for FDIC insurance. See “Item 1. Business—Supervision and Regulation—Premiums
for Deposit Insurance and Assessments” and “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Key Factors Affecting Our Business and Financial
Statements—Regulatory and Supervisory Matters” for additional information. Additional increases
in our assessment rate may be required in the future to achieve the targeted reserve ratio or to
address the impact of future financial institution failures. Increases of FDIC insurance premiums or
special assessments, including increases as a result of any future rulemaking, may adversely affect
our business, results of operations or financial condition.
Changes in consumer privacy laws, such as in California, or any non-compliance with such laws,
could adversely affect our business, financial condition and results of operations.
Several states have enacted consumer privacy laws that impose compliance obligations with
respect to personal information. For example, the CCPA, as amended by the CPRA, imposes
significant requirements on covered companies with respect to consumer data privacy rights. See
“Item 1. Business—Supervision and Regulation—Financial Privacy” for additional information on the
CCPA and the CPRA. Compliance with the CCPA and other state statutes or regulations designed to
protect consumer personal data could potentially require us to implement substantive technology
infrastructure and process changes. Non-compliance with the CCPA or similar laws and regulations
could lead to substantial regulatory imposed fines and penalties, damages from private causes of
action and/or reputational harm. We cannot predict whether any pending or future legislation will
be adopted, or the substance and impact of any legislation on us. Future legislation could result in
substantial costs to us and could have an adverse effect on our business, financial condition and
results of operations.
Risks Related to Our Common Stock
The market price and trading volume of our common stock may be volatile, which could result in
rapid and substantial losses for our shareholders.
The market price of our common stock may be highly volatile and could be subject to wide
fluctuations. In addition, the trading volume of our common stock may fluctuate and cause
significant price variations to occur. If the market price of our common stock declines significantly,
shareholders may be unable to resell their shares of common stock at or above their purchase price,
if at all. The market price of our common stock could fluctuate or decline significantly in the future.
Some, but certainly not all, of the factors that could negatively affect the price of our common
stock, or result in fluctuations in the price or trading volume of our common stock, include:
•
Variations in our quarterly operating results or failure to meet the market’s earnings
expectations;
•
Publication of news and research reports about us or the financial services industry in
general;
•
Departures of or additions to our key personnel;
•
Adverse market reactions to any indebtedness we may incur or securities we may issue in
the future;
•
Actions by our shareholders;
•
The operating and securities price performance of companies that investors consider to be
comparable to us;
66
•
Changes or proposed changes in laws or regulations affecting our business; and
•
Actual or potential litigation and governmental investigations.
In addition, if the market for stocks in our industry, or the stock market in general, experiences
a loss of investor confidence, the trading price of the common stock could decline for reasons
unrelated to our business, results of operations or financial condition. If any of the foregoing occurs,
it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could
be costly to defend and a distraction to management.
We may not continue to pay dividends on our common stock.
Holders of our common stock are only entitled to receive such dividends as our Board may
declare out of funds legally available for payment. We are not required to pay dividends on our
common stock and may reduce or eliminate dividends on our common stock at any time in the
future. This could adversely affect the market price of our common stock. Dividends on our common
stock are also subject to bank regulatory limits and possible approval requirements. In addition, we
cannot declare or pay dividends on our common stock or redeem or repurchase our common stock
for any period for which we have not declared and paid in full dividends on our preferred stock. Our
capital planning and risk management is subject to supervisory review, and, as a result of that
review, our discretion to pay dividends or determine the amount of any dividend could be limited.
Our Board will continue to evaluate the payment of dividends based on our results of operations,
financial condition, capital requirements, regulatory and contractual restrictions, our business
strategy and other factors our Board deems relevant.
Future issuances of equity securities may adversely affect our stock price.
We have historically approached the capital markets opportunistically, making public offerings
of our common stock and preferred stock, from time to time. To the extent practicable, we expect to
continue this approach. In addition, we may issue debt securities convertible into or exercisable or
exchangeable for our equity securities. In each case, we access the capital markets to raise
additional capital, support growth or make acquisitions. Further, we issue stock options and other
stock awards to retain and motivate our employees, executives and directors, and we expect to
continue to do so. These issuances of securities may dilute the voting and economic interests of our
existing shareholders. These issuances or the perception that such issuances may occur could also
adversely affect the market price of our common stock.
Various factors could make a takeover attempt of us more difficult to achieve.
Certain provisions of our organizational documents, in addition to certain federal and state
banking laws and regulations, could make it more difficult for a third-party to acquire us without the
consent of our Board, even if doing so were perceived to be beneficial to our shareholders. These
provisions also make it more difficult to remove our current Board or management or to appoint new
directors, and also regulate the timing and content of shareholder proposals and nominations, and
qualification for service on our Board. These provisions could effectively inhibit a non-negotiated
merger or other business combination, which could adversely impact the value of our common
stock.
67
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Our management believes that our current and planned facilities are adequate for our current
level of operations. Our principal executive offices are at 111 Pine Street, 2nd Floor, San Francisco,
California 94111. As of December 31, 2022, we provided our services through 84 licensed deposit-
taking offices primarily in the following areas: San Francisco, Palo Alto, Los Angeles, Santa Barbara,
Newport Beach and San Diego, California; Portland, Oregon; Boston, Massachusetts; Palm Beach,
Florida; Greenwich, Connecticut; New York, New York; Jackson, Wyoming; and Bellevue,
Washington. We have 9 additional offices that offer exclusively lending, wealth management or
trust services. All of our properties, except for two offices, are leased with terms expiring at dates
ranging from 2023 to 2041, although most of the leases contain options to extend beyond these
dates.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which we or any of our subsidiaries is a
party or to which any of our property is subject. We are subject to ordinary routine litigation
incidental to our business but we believe the results of such matters will not have a material effect
on our business or financial condition.
Item 4. Mine Safety Disclosures.
Not applicable.
68
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
The Bank’s common stock is listed on the New York Stock Exchange under the symbol “FRC.”
As of February 13, 2023, there were fewer than 20 shareholders of record, although the Bank
believes that its shares are held beneficially by approximately 350,000 shareholders.
Common Stock Dividends
The following table presents cash dividends per share of our common stock declared and paid
by the Bank during the periods indicated:
2022
2021
Quarter Ended:
December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.27
$0.22
September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.27
$0.22
June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.27
$0.22
March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.22
$0.20
We paid a cash dividend for the fourth quarter of 2022 of $0.27 per share of common stock on
February 9, 2023 to shareholders of record as of January 26, 2023.
For information on dividend restrictions, refer to “Item 1. Business—Supervision and
Regulation—Restrictions on Dividends and Other Distributions” and “Item 1A. Risk Factors—Risks
Related to Our Common Stock—We may not continue to pay dividends on our common stock.”
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2022 regarding common stock of
First Republic Bank to be issued pursuant to (i) outstanding RSUs or PSUs, and (ii) common stock of
First Republic Bank remaining available for issuance under the 2017 Omnibus Award Plan and the
ESPP. No stock options were outstanding as of December 31, 2022.
Plan Category
Number of Shares
to Be Issued upon
Exercise of
Outstanding
Options, Warrants
and Rights
Weighted
Average Exercise
Price of
Outstanding
Options,
Warrants and
Rights
Number of Shares
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
First Column)
Equity compensation plans approved by
security holders . . . . . . . . . . . . . . . . . . . . . . . . . .
4,077,209 (1) $
—
4,307,854 (2)
Equity compensation plans not approved by
security holders . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,077,209
$
—
4,307,854
(1)
Includes 3,333,832 outstanding RSUs and 743,377 outstanding PSUs, which do not have an exercise price.
(2)
The number of shares remaining available for future issuance consists of 324,733 shares reserved for future purchase under the Bank’s
ESPP and 3,983,121 shares reserved for future awards under our stock award plan, the Bank’s 2017 Omnibus Award Plan.
See Note 18 in “Item 8. Financial Statements and Supplementary Data” for information on our
2017 Omnibus Award Plan and ESPP.
69
Performance Graph
The following graph compares, for the period from December 31, 2017 through December 31,
2022, the cumulative shareholder return (change in the stock price plus reinvested dividends) and
the total CAGR for the common stock of First Republic Bank with the cumulative return and the
CAGR for the (i) Standard and Poor’s 500 (“S&P 500”) Index and (ii) KBW Bank Index. The
performance reflected below assumes that $100 was invested in our common stock and each of the
indices listed below at their closing prices on December 31, 2017. The performance of our common
stock reflected below is not indicative of our future performance.
250
200
150
100
50
12/31/2017
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
S&P 500
Total Return Performance
Value
FRC
KBW Bank Index
146
157
109
Cumulative Return as of December 31,
5-year
CAGR
2017
2018
2019
2020
2021
2022
First Republic Bank (“FRC”) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100
$101
$138
$173
$245
$146
8%
S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100
$ 96
$126
$149
$191
$157
9%
KBW Bank Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100
$ 82
$112
$100
$139
$109
2%
Recent Sales of Unregistered Securities
During the quarter ended December 31, 2022, we sold 63,115 shares of common stock to
eligible employees under the ESPP for aggregate cash consideration of $6 million. These sales were
exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”),
pursuant to Section (3)(a)(2) thereof because the sales involved securities issued by a bank.
During the quarter ended December 31, 2022, we granted 45,743 RSUs, net of forfeitures, that
are time vesting. In addition, we granted 15,369 RSUs, net of forfeitures, that vest over time,
provided certain performance criteria are achieved. These awards (both time-vesting and
performance-vesting) were granted to certain officers and employees, and had an aggregate grant
date fair value of $8 million. We did not receive any cash consideration in connection with these
grants. These grants were exempt from registration under the Securities Act, pursuant to Section
(3)(a)(2) thereof because the grants involved securities issued by a bank.
Purchases of Equity Securities By the Issuer and Affiliated Purchasers
We did not repurchase any of our common stock during the fourth quarter of 2022.
Item 6.
[Reserved]
70
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Introduction
The discussion of our results of operations for the past three fiscal years that follows should be
read in conjunction with our financial statements and related notes thereto presented elsewhere in
our Annual Report on Form 10-K. For a discussion of the changes in our results of operations for the
year ended December 31, 2021 compared to the year ended December 31, 2020, refer to Part II,
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in
our Annual Report on Form 10-K for the year ended December 31, 2021. In addition to historical
information, this discussion includes certain forward-looking statements regarding events and
trends that may affect our future results. Refer to “Information Regarding Forward-Looking
Statements” on page 7. For a more complete discussion of the factors that could affect our future
results, see “Item 1A. Risk Factors.”
We earn our income from the following principal areas: (1) net interest income, which is our
largest source of income, and constitutes the difference between the interest income that we
receive from interest-earning assets, such as loans and investment securities, and the interest
expense that we pay on interest-bearing liabilities, such as deposits and borrowings; (2) fee
income from wealth management activities, including investment management, brokerage,
insurance, trust and foreign exchange; (3) fees for deposit services; (4) loan and related fees,
including late charge income, loan-related processing fees, prepayment penalties and
miscellaneous income on sold loans, and payoff fees; and (5) income from investments in life
insurance. We currently operate our business through two business segments: Commercial
Banking and Wealth Management.
Averages presented are daily averages unless otherwise indicated.
Non-GAAP Financial Measures
Our management uses and believes that investors benefit from using certain non-GAAP
measures of our financial performance, which include tangible book value per common share,
return on average tangible common shareholders’ equity, and net interest income on a fully taxable-
equivalent basis. Management believes that tangible book value per common share and return on
average tangible common shareholders’ equity are useful additional measures to evaluate our
performance and capital position without the impact of goodwill and other intangible assets and
preferred stock. In addition, to facilitate relevant comparisons of net interest income from taxable
and tax-exempt interest-earning assets, when calculating yields and net interest margin, we adjust
interest income on tax-exempt securities and tax-advantaged loans so such amounts are fully
equivalent to interest income on taxable sources. We believe that these non-GAAP financial
measures, when taken together with the corresponding GAAP financial measures, provide
meaningful supplemental information that is not otherwise required by GAAP or other applicable
requirements. These non-GAAP financial measures should be considered in addition to, not as a
substitute for, financial measures prepared in accordance with GAAP. A reconciliation of each
non-GAAP financial measure to the most comparable GAAP financial measure is presented in
relevant tables under “—Liquidity and Capital Resources—Return on Average Common
Shareholders’ Equity and Return on Average Tangible Common Shareholders’ Equity,” “—Liquidity
and Capital Resources—Book Value per Common Share and Tangible Book Value per Common
Share,” and “Results of Operations—Years Ended December 31, 2022, 2021 and 2020—Net Interest
Income and Net Interest Margin.”
71
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
Selected Financial Data
The following table presents our selected financial data and ratios at the dates or for the
periods indicated:
As of or for the Year Ended
December 31,
($ in millions, except per share amounts)
2022
2021
2020
Selected Financial Data:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,722
$
4,385
$
3,853
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
888
271
591
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,834
4,114
3,262
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107
59
157
Net interest income after provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . .
4,727
4,055
3,105
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,031
920
655
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,617
3,147
2,426
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,665
1,478
1,064
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
158
99
59
Net income available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,507
$
1,379
$
1,005
Selected Ratios:
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8.32
$
7.78
$
5.85
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8.25
$
7.68
$
5.81
Return on average assets (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.85%
0.89%
0.82%
Return on average common shareholders’ equity (2) . . . . . . . . . . . . . . . . . . . . . . . .
11.60%
12.24%
10.59%
Return on average tangible common shareholders’ equity (3) . . . . . . . . . . . . . . . .
11.80%
12.49%
10.86%
Average equity to average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.50%
8.28%
8.31%
Dividends per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.03
$
0.86
$
0.79
Dividend payout ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.5%
11.2%
13.6%
Book value per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
75.38
$
68.34
$
58.61
Tangible book value per common share (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
74.19
$
67.10
$
57.30
Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.65%
2.67%
2.72%
Efficiency ratio (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61.7%
62.5%
61.9%
Selected Asset Quality Ratios:
Nonperforming assets to total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.05%
0.08%
0.13%
Allowance for loan credit losses to total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.47%
0.51%
0.56%
Allowance for loan credit losses to nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . .
720%
500%
345%
Net loan charge-offs to average total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.00%
0.00%
0.00%
Capital Ratios:
Tier 1 leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.51%
8.76%
8.14%
CET1 ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.17%
9.65%
9.67%
Tier 1 risk-based capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.56%
12.56%
11.18%
Total risk-based capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.60%
13.72%
12.55%
(1)
Return on average assets is the ratio of net income to average assets.
(2)
Return on average common shareholders’ equity is the ratio of net income available to common shareholders to average common
shareholders’ equity.
(3)
Refer to table in “—Liquidity and Capital Resources—Return on Average Common Shareholders’ Equity and Return on Average Tangible
Common Shareholders’ Equity” for a reconciliation of this non-GAAP financial measure to the most comparable GAAP measure.
(4)
Refer to table in “—Liquidity and Capital Resources—Book Value per Common Share and Tangible Book Value per Common Share” for a
reconciliation of this non-GAAP financial measure to the most comparable GAAP measure.
(5)
Efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on
our financial statements, which have been prepared in accordance with GAAP. The preparation of
these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis,
we evaluate our estimates, including those related to ACL on loans. We base these estimates on our
historical experience and on various other assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. We consider the significant
accounting policy below to be a critical accounting policy and estimate because of the significance
to our financial condition and results of operations and the difficult and subjective judgments,
assumptions and estimates involved. Actual results may differ from these estimates under different
assumptions or conditions.
Allowance for Credit Losses on Loans
The Bank estimates its ACL using quantitative models, expert judgment, qualitative factors and
individual assessments to determine the expected credit losses over the life of its loans. Loans with
similar risk characteristics within each class are pooled when developing the allowance, and loans
that do not share similar risk characteristics are individually assessed. For a complete description of
the accounting policies for determining the Bank’s ACL on loans, see Note 1 and Note 4 in “Item 8.
Financial Statements and Supplementary Data.”
Estimated loss amounts determined by the Bank’s quantitative models are based on the
macroeconomic forecast scenario, contractual maturity dates, prepayment (or repayment)
projections and, in most cases, loan specific risk characteristics over a reasonable and supportable
period and a reversion period, after which the Bank reverts to its historical loss rate for the
remaining life of the loan. The models also account for prepayments during the life of the loan.
For residential real estate, income property, and tax-exempt business loans, expected credit
losses are determined by PD/LGD models. For other business, other secured and certain unsecured
loans, expected credit losses are determined by loss rate models. The Bank’s ACL measured using
these quantitative models is sensitive to various factors, but the most impactful are the residential
home price indices, commercial real estate price indices, apartment price indices, unemployment
rates, and interest rates.
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The ACL determined by the quantitative models and associated qualitative reserve represents
the largest portion of the Bank’s total ACL on loans. To illustrate the impact of changes in these key
variables to the Bank’s ACL, the Bank performed a hypothetical sensitivity analysis that forecasted
pessimistic trends in these variables over the two-year reasonable and supportable period. The
following table presents the key variables used in estimating the Bank’s ACL on loans for the period
ended December 31, 2022 and the more pessimistic forecasted variables in the hypothetical
sensitivity analysis.
December 31, 2022 ACL
Macroeconomic Forecast
Hypothetical Pessimistic
Macroeconomic Forecast
Key ACL variables
Year 1
Year 2
Year 1
Year 2
Home price index growth (decline) . . . . . . . . . . . . . . . . . . .
(1.5)%
0.5%
(14.1)%
2.2%
Commercial real estate price index growth (decline) . . .
(0.7)%
2.1%
(15.8)%
(3.8)%
Apartment price index growth (decline) . . . . . . . . . . . . . . .
5.5%
0.3%
(2.4)%
6.8%
Unemployment rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3%
4.1%
7.7%
6.6%
3-year CMT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.77%
3.31%
3.28%
2.54%
The impact of this hypothetical pessimistic forecast would result in a net increase of
$66 million, or approximately 8%, in the Bank’s total ACL on loans as of December 31, 2022,
primarily driven by a $99 million increase in ACL from the quantitative models, partially offset by a
$33 million decrease in the qualitative reserve.
The hypothetical analysis is intended to illustrate the impact of adverse changes in the
macroeconomic environment and is not intended to reflect the full nature and extent of potential
future change in the ACL or even what the ACL would be under these adverse economic
circumstances. It is difficult to estimate how potential changes in any one of the quantitative inputs
or qualitative factors might affect the overall ACL and the Bank’s current assessments may not
reflect the potential future impact of changes to those inputs or factors.
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Current Accounting Developments
The following ASUs have been issued by the FASB, but were not yet effective as of
December 31, 2022:
ASU 2022-02—Financial Instruments—Credit Losses (ASC 326): Troubled Debt
Restructurings and Vintage Disclosures
The amendments eliminate the accounting
guidance on TDRs for entities that have adopted
CECL and require enhanced disclosures about
certain loan modifications made to borrowers
experiencing financial difficulty.
Under the amendments, entities should apply the
existing accounting guidance for loan refinancing
and restructuring to determine whether a
modification results in a new loan or a
continuation of an existing loan, rather than
applying the accounting guidance for TDRs. For
modifications in the form of interest rate
reductions, principal forgiveness, other-than-
insignificant payment delays or term extensions
made to borrowers experiencing financial
difficulty, enhanced disclosures include
information about the type and magnitude of
modifications and the degree of their success in
mitigating potential credit losses in the
12-months following the modification.
Additionally, the amendments require entities to
present current-period gross write-offs by year of
origination in their vintage disclosures.
The Bank adopted this guidance effective
January 1, 2023.
The amendments related to TDRs were
adopted using a modified retrospective
approach with a de minimis adjustment to its
consolidated balance sheet effective
January 1, 2023.
The amendments requiring enhanced
disclosures about certain loan modifications
made to borrowers experiencing financial
difficulty and current-period gross write-offs by
year of origination were adopted prospectively.
These disclosures will be included in the notes
to the consolidated financial statements
beginning in the first quarter of 2023.
Key Factors Affecting Our Business and Financial Statements
Business Environment
During 2022, macroeconomic conditions, including ongoing volatility in the capital markets,
prolonged yield curve inversion, continued significant and rapid increases in interest rates and
ongoing inflationary pressures, strong competition for deposits, along with geopolitical concerns,
such as the war in Ukraine, created uncertainty and volatility in the global economy and in our
market areas. In response to these pressures, the Federal Reserve increased interest rates during
2022 at a faster pace than any time in recent history. In 2022, interest rates for mortgage loans
reached their highest point in over a decade. As a result of these interest rate increases, we
experienced migration of deposits to higher yielding products and asset classes.
The economic outlook remains uncertain, reflecting concerns about inflation, further interest
rate increases, continued inverted yield curve, supply chain disruptions, geopolitical conflict,
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potential recession and COVID-19 developments. We continue to closely monitor economic
conditions, and the potential impacts of substantially higher future interest rates, prolonged yield
curve inversion and other economic conditions on our cost of funding, our ACL, and on demand for
our products and services. A prolonged period of high or increasing interest rates may cause us to
experience an acceleration of deposit migration, which could adversely affect our liquidity and
result in further compression of net interest margin.
We expect the macroeconomic conditions to continue to remain challenging, which could
affect our business, including, among other things, by impacting inflation, the magnitude and pace
of interest rate increases, the demand for our products and services, and changes in regulation. Any
of these factors, among others, could have adverse impacts on our operations and profitability in
future periods.
See Part I, “Item 1A. Risk Factors” for additional discussion of risks we face in our business.
Interest Rates
Net interest income is our largest source of income and is the difference between the interest
income on interest-earning assets, such as loans and investment securities, and the interest
expense incurred on interest-bearing liabilities, such as deposits and borrowings. The level of net
interest income is driven by the volume, pricing and mix of interest-earning assets and interest-
bearing liabilities which, in turn, is impacted by external factors such as local economic conditions,
competition for loans and deposits, the monetary policy of the FOMC, market liquidity and interest
rates, or other factors.
The rates paid on our interest-bearing deposits and short-term borrowings are largely based on
short-term interest rates, the level of which is driven primarily by the FOMC’s actions. However, the
yields generated by our loans and securities are typically driven by short-term and longer-term
interest rates, which are set by the market, or, at times influenced by the FOMC’s actions, and
generally vary from day to day. The level of net interest income is therefore influenced by
movements in such interest rates and the magnitude or pace at which such movements occur.
Changes in the yield curve, or prolonged periods of flat or inverted yield curve, could have an
adverse impact on our net interest margin, net interest income, or both. The FOMC’s actions have
meaningfully influenced the interest-rate environment, which continues to impact our net interest
margin.
For additional information, see Part I, “Item 1A. Risk Factors—Market and Interest Rate Risk—
We are subject to interest rate risk and fluctuations in interest rates may negatively impact our net
interest income” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk—
Interest Rate Risk Management” in this Form 10-K.
Regulatory and Supervisory Matters
Our results of operations are affected by the regulatory environment and requirements
imposed on us by regulators. The extensive regulation and supervision that govern our business
continue to evolve as the legal and regulatory framework changes and as our business grows. As
described under Part I, “Item 1. Business—Supervision and Regulation—Capital Requirements,” we
are subject to regulatory requirements specifying minimum amounts and types of capital that we
must maintain. In addition, although we are not yet subject to the LCR or NSFR, we nevertheless
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maintain on-balance sheet liquidity and a portfolio of HQLA. It is possible that, as a result of
continued growth of the Bank, we will become subject to more stringent capital and liquidity
requirements. If we continue to grow and if we report $250 billion or more in total consolidated
assets or $75 billion or more in weighted short-term wholesale funding, nonbank assets or
off-balance sheet exposure, based on a trailing four-quarter average, we will be a Category III
banking organization under the FDIC’s regulations and subject to enhanced capital and liquidity
requirements under the Basel III Capital Rules and the LCR and NSFR rules. As a result of becoming
subject to the LCR and NSFR rules, we would be required to increase our holdings of HQLA and/or
change the composition of our funding, which could adversely affect our net interest income and
net interest margin. Further, if we become a Category III banking organization, we will be subject to
heightened capital requirements, including the SLR and CCyB, in addition to the capital
conservation buffer.
As described in under Part I, “Item 1. Business—Supervision and Regulation—Premiums for
Deposit Insurance and Assessments,” our deposits are insured by the FDIC to the fullest extent
permitted by law, and we are subject to deposit insurance assessments to maintain the DIF. In
October 2022, the FDIC approved a final rule applicable to all insured depository institutions to
increase initial base deposit insurance assessment rate schedules uniformly by 2 bps, beginning in
the first quarterly assessment period of 2023. The new assessment rate schedules will remain in
effect unless and until the reserve ratio of the DIF meets or exceeds 2% in order to support growth
in the DIF. Progressively lower assessment rate schedules will take effect when the reserve ratio
reaches 2%, and again when it reaches 2.5%. The increase in the deposit insurance assessment
rate will result in an increase in the Bank’s FDIC assessment expense beginning in the first quarter
of 2023.
In addition to these regulatory and supervisory matters, our results of operations may be
affected by other legislative developments or reforms, including the potential impact of recent tax
legislation, and additional disclosure, risk management or other requirements implemented by our
regulators or other governmental authorities. The adoption, details and timing of any such changes
are uncertain, and the impact of any changes or developments cannot be predicted.
Financial Highlights
Assets
•
Our total assets were $212.6 billion at December 31, 2022 and $181.1 billion at December 31,
2021, a 17% increase. Asset growth was driven primarily by growth in loans and investments,
partially offset by a decrease in cash.
Investments
•
At December 31, 2022, total investment securities were $31.7 billion, a 23% increase compared
to $25.7 billion at December 31, 2021. Total investment securities represented 15% of total
assets at December 31, 2022, compared to 14% of total assets at December 31, 2021. The
increase in investment securities was primarily due to purchases of agency commercial MBS
and municipal securities, partially offset by paydowns and calls. For additional discussion
regarding our investment portfolio, see “—Balance Sheet Analysis—Investments.”
•
Our holdings of assets that are considered HQLA, including eligible cash, totaled $26.0 billion
at December 31, 2022, compared to $30.4 billion at December 31, 2021. At December 31, 2022,
HQLA represented 13% of average total assets for the fourth quarter of 2022.
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Loans
•
At December 31, 2022, loans were $166.9 billion, an increase of 24% compared to $135.0 billion
at December 31, 2021. Loans increased as a result of growth primarily in single family,
multifamily, commercial real estate, stock secured and other business loans, partially offset by
a decrease in capital call lines of credit. For additional discussion regarding our loan portfolio,
see “—Balance Sheet Analysis—Loan Portfolio.”
•
Average loan balances in 2022 were $150.2 billion, an increase of 22% compared to
$123.1 billion in 2021.
•
Our single family mortgage loans, including HELOCs, were $101.5 billion and represented 61%
of total loans at December 31, 2022, compared to $79.4 billion, or 59% of total loans at
December 31, 2021.
•
Loan origination volume was $73.4 billion in 2022, compared to $64.8 billion in 2021 and
$52.7 billion in 2020, an increase of 13% in 2022 and an increase of 23% in 2021. Loan
originations increased in 2022 primarily due to increases in single family, multifamily and
commercial real estate lending.
Deposits and Funding
•
Total deposits were $176.4 billion at December 31, 2022, an increase of 13% compared to
$156.3 billion at December 31, 2021. Deposits were our primary source of funding and
represented 92% of our funding base at December 31, 2022, compared to 97% at December 31,
2021. Deposits increased as a result of referrals from existing clients, new deposit clients, and
usage of other deposit funding channels. We continue to emphasize building banking
relationships through checking and other transaction deposit accounts. See “—Balance Sheet
Analysis—Deposit Gathering” for additional information.
•
Average deposit balances were $164.8 billion in 2022, an increase of 18% compared to
$139.2 billion in 2021.
•
The following table presents percentages of our deposit base, which consist of checking
deposits, other liquid deposits including money market checking and money market savings
and passbooks, and CDs. As of December 31, 2022, the percentage of checking deposits
declined from a year ago, while other liquid deposits and CDs increased from a year ago. The
changes in deposit mix were the result of rising interest rates.
December 31,
Checking, Other Liquid Deposits and CDs as a % of Total
2022
2021
Checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59%
72%
Other liquid deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
23
CDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
•
Total deposits had an average rate paid of 0.40% in 2022, compared to 0.07% in 2021. The
increase in average rate reflects the shift in our deposit mix to higher yielding products. In the
fourth quarter of 2022, average CD balances increased 114% from the prior quarter and
increased 40% in 2022. In the fourth quarter of 2022, average total checking deposit balances
decreased 8% from the prior quarter and increased 18% in 2022. The average interest rate paid
on CDs was 2.69% for the fourth quarter of 2022, compared to 1.26% for the third quarter of
2022. The average interest rate paid on total checking deposits was 0.20% for the fourth
quarter of 2022, compared to 0.09% for the third quarter of 2022. We expect this trend to
continue while interest rates remain high or increase further.
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•
The following table presents percentages of our business and consumer deposits:
December 31,
Business and Consumer Deposits as a % of Total Deposits
2022
2021
Business deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63%
60%
Consumer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37
40
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
•
Other sources of funding at December 31, 2022 included short-term FHLB advances of
$6.7 billion and long-term FHLB advances of $7.3 billion, compared to long-term FHLB advances
of $3.7 billion at December 31, 2021. See “—Balance Sheet Analysis—Borrowings” for
additional information.
•
Average total funding costs (total deposits and borrowings) were 0.51% in 2022, compared to
0.18% in 2021.
Capital, Book Value per Common Share and Tangible Book Value per Common Share
•
Our Tier 1 leverage ratio at December 31, 2022 was 8.51%. Our capital ratios exceeded all
applicable regulatory requirements at December 31, 2022 for well-capitalized institutions. See
“— Liquidity and Capital Resources—Regulatory Capital Components and Ratios” for further
discussion of capital ratios and our capital requirements.
•
Book value per common share was $75.38 at December 31, 2022, a 10% increase from
December 31, 2021.
•
Tangible book value per common share was $74.19 at December 31, 2022, an 11% increase from
December 31, 2021.
Capital Markets Activity
•
In August 2022, we sold 2,587,500 shares of common stock in an underwritten public
offering. Net proceeds, after underwriting discounts and expenses, were $402 million.
•
In February 2023, we sold 2,875,000 shares of common stock in an underwritten public
offering. Net proceeds, after underwriting discounts and estimated expenses, were
$397 million.
Dividends
•
Cash dividends paid in 2022 were $1.03 per share of common stock, compared to $0.86 in 2021
and $0.79 in 2020.
•
On January 13, 2023, we declared a cash dividend for the fourth quarter of 2022 of $0.27 per
share, which was paid on February 9, 2023 to shareholders of record as of January 26, 2023.
Any future payment of dividends will be subject to ongoing regulatory oversight and Board
approval.
Wealth Management Assets
•
Wealth management AUM and AUA decreased 3% to $271.2 billion at December 31, 2022, from
$279.4 billion at December 31, 2021. The decrease in AUM and AUA was driven by market
decline, partially offset by net client inflow. See “—Business Segments” for additional
information.
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Effective Tax Rate
•
The Bank’s effective tax rate for 2022, 2021 and 2020 was 22.2%, 19.1% and 20.2%,
respectively. See “—Results of Operations—Years Ended December 31, 2022, 2021 and 2020—
Provision for Income Taxes” for additional information.
Results of Operations—Years Ended December 31, 2022, 2021 and 2020
Overview
Net income was $1.7 billion in 2022, compared to $1.5 billion in 2021 and $1.1 billion in 2020, an
increase of 13% in 2022 and an increase of 39% in 2021. The increase in 2022 was primarily due to
higher net interest income and higher noninterest income, partially offset by higher noninterest
expense and higher provision for income taxes. Diluted EPS were $8.25 in 2022, compared to $7.68
in 2021 and $5.81 in 2020, an increase of 7% in 2022 and an increase of 32% in 2021.
Net income for the Commercial Banking segment was $1.4 billion in 2022, compared to
$1.3 billion in 2021 and $1.0 billion in 2020, an increase of 8% in 2022 and an increase of 33% in
2021. The Wealth Management segment’s net income was $292 million in 2022, compared to
$202 million in 2021 and $103 million in 2020, an increase of 45% in 2022 and an increase of 96% in
2021. For a discussion of segment results, see “—Business Segments.”
Net Interest Income and Net Interest Margin
Net interest income was $4.8 billion in 2022, compared to $4.1 billion in 2021 and $3.3 billion in
2020, an increase of 17% in 2022 and an increase of 26% in 2021.
Net interest margin represents net interest income on a fully taxable-equivalent basis divided
by total average interest-earning assets. Net interest margin was 2.65% in 2022, compared to 2.67%
in 2021 and 2.72% in 2020. The decrease in 2022 was primarily due to average funding costs
increasing more rapidly than the offsetting increases in the average yields on interest-earning
assets. We expect this trend to continue while interest rates remain high or increase further.
On an average basis, interest-earning assets and interest-bearing liabilities increased 18% and
17% in 2022, respectively, and increased 28% and 13% in 2021, respectively. Average noninterest-
bearing checking deposit balances, a significant source of our funding, increased 18% in 2022 and
increased 58% in 2021.
Yields/Rates (Fully Taxable-Equivalent Basis)
The following table presents the distribution of average assets, liabilities and equity, interest
income and resulting yields on average interest-earning assets, and interest expense and rates on
average interest-bearing liabilities on a fully taxable-equivalent basis. Nonaccrual loans are
included in the average balances of loans and in the calculation of average loan yields.
80
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
Year Ended December 31,
2022
2021
2020
($ in millions)
Average
Balance
Interest
Income/
Expense (1) Yields/
Rates
Average
Balance
Interest
Income/
Expense (1) Yields/
Rates
Average
Balance
Interest
Income/
Expense (1) Yields/
Rates
Assets:
Interest-bearing deposits with banks . . . . . . . . . . $
6,095 $
67
1.10%
$ 12,876 $
17 0.13%
$
4,018 $
8 0.19%
Investment securities:
U.S. Government-sponsored agency
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
153
3
1.92%
98
2 1.56%
193
5 2.56%
Agency residential and commercial MBS . . . . .
10,251
220
2.14%
6,125
117 1.91%
6,348
160 2.51%
Other residential and commercial MBS . . . . . .
21
0
2.72%
29
1 2.00%
26
1 2.29%
Tax-exempt municipal securities . . . . . . . . . . . .
16,855
653
3.87%
13,704
549 4.01%
11,329
486 4.29%
Taxable municipal securities . . . . . . . . . . . . . . . .
1,759
54
3.09%
1,510
45 2.98%
738
25 3.32%
Other investment securities . . . . . . . . . . . . . . . .
1,434
41
2.87%
1,157
32 2.80%
52
1 2.77%
Total investment securities . . . . . . . . . . . . . . .
30,473
971
3.19%
22,623
746 3.30%
18,686
678 3.62%
Loans:
Residential real estate . . . . . . . . . . . . . . . . . . . . .
92,061
2,660
2.89%
72,679
2,048 2.82%
56,628
1,703 3.01%
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,453
656
3.50%
14,735
539 3.61%
13,093
489 3.68%
Commercial real estate . . . . . . . . . . . . . . . . . . . .
9,399
368
3.86%
8,260
321 3.83%
7,752
313 3.97%
Multifamily/commercial construction . . . . . . . .
2,026
103
5.03%
2,067
105 4.99%
1,935
95 4.82%
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,366
750
4.03%
16,033
520 3.20%
12,846
465 3.56%
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
147
11
7.65%
1,418
51 3.58%
1,432
33 2.26%
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,785
283
2.85%
7,938
169 2.10%
6,842
173 2.48%
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150,237
4,831
3.20%
123,130
3,753 3.03%
100,528
3,271 3.23%
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
260
13
5.13%
266
19 7.14%
442
24 5.40%
Total interest-earning assets . . . . . . . . . . . . .
187,065
5,882
3.13%
158,895
4,535 2.84%
123,674
3,981 3.20%
Noninterest-earning assets:
Noninterest-earning cash . . . . . . . . . . . . . . . . . .
455
404
439
Goodwill and other intangibles . . . . . . . . . . . . . .
220
225
231
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,895
6,671
5,104
Total noninterest-earning assets . . . . . . . . . .
8,570
7,300
5,774
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $195,635
$166,195
$129,448
Liabilities and Shareholders’ Equity:
Deposits:
Interest-bearing checking . . . . . . . . . . . . . . . . . . $ 40,732
88
0.21%
$ 33,977
6 0.02%
$ 24,143
16 0.07%
Money market checking . . . . . . . . . . . . . . . . . . . .
22,114
217
0.98%
20,662
25 0.12%
14,848
56 0.38%
Money market savings and passbooks . . . . . . .
18,668
165
0.89%
15,308
25 0.17%
10,659
32 0.30%
CDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,119
184
1.66%
7,926
39 0.49%
11,754
172 1.46%
Total interest-bearing deposits (2) . . . . . . . . . .
92,633
654
0.71%
77,873
95 0.12%
61,404
276 0.45%
Borrowings:
Federal funds purchased . . . . . . . . . . . . . . . .
245
7 2.74%
0
0 0.09%
83
1 1.37%
Short-term FHLB advances . . . . . . . . . . . . . .
4,193
108 2.58%
0
0 0.15%
228
4 1.57%
Long-term FHLB advances . . . . . . . . . . . . . . .
4,785
67 1.39%
8,609
115 1.34%
14,330
250 1.74%
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
670
16 2.32%
997
24 2.42%
938
23 2.44%
Subordinated notes . . . . . . . . . . . . . . . . . . . . .
779
36 4.68%
779
37 4.68%
778
37 4.68%
Total borrowings . . . . . . . . . . . . . . . . . . . . . . . .
10,672
234
2.19%
10,385
176 1.70%
16,357
315 1.92%
Total interest-bearing liabilities (3) . . . . . . . . .
103,305
888
0.86%
88,258
271 0.31%
77,761
591 0.76%
Noninterest-bearing checking . . . . . . . . . . . . . . . .
72,135
61,325
38,796
Other noninterest-bearing liabilities . . . . . . . . . . .
3,566
2,847
2,131
Total noninterest-bearing liabilities . . . . . . . .
75,701
64,172
40,927
Preferred shareholders’ equity . . . . . . . . . . . . . . . .
3,633
2,502
1,268
Common shareholders’ equity . . . . . . . . . . . . . . . .
12,996
11,263
9,492
Total Liabilities and Shareholders’ Equity . . . . $195,635
$166,195
$129,448
Net interest spread (4) . . . . . . . . . . . . . . . . . . . . . . . .
2.27%
2.53%
2.44%
Net interest income (fully taxable-equivalent
basis) and net interest margin (5) . . . . . . . . . . . . .
$
4,994
2.65%
$
4,264 2.67%
$
3,390 2.72%
Reconciliation of tax-equivalent net interest
income to reported net interest income: (6)
Municipal securities tax-equivalent
adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(132)
(122)
(101)
Business loans tax-equivalent adjustment . . . . . .
(28)
(28)
(27)
Net interest income, as reported . . . . . . . . . . . . . .
$
4,834
$
4,114
$
3,262
Supplemental information:
Total deposits (interest-bearing and
noninterest-bearing) . . . . . . . . . . . . . . . . . . . . . . . $164,768 $
654
0.40%
$139,198 $
95 0.07%
$100,200 $
276 0.28%
Total deposits (interest-bearing and
noninterest-bearing) and borrowings . . . . . . . . $175,440 $
888
0.51%
$149,583 $
271 0.18%
$116,557 $
591 0.51%
(continued on following page)
81
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
(continued from previous page)
Note: Certain prior period amounts have been reclassified to conform to the current period presentation.
(1)
Interest income on tax-exempt securities and loans has been adjusted to the fully taxable-equivalent basis using the statutory federal
income tax rate in effect for each respective period presented.
(2)
Refer to supplemental information in this table for average balances, interest expense and rates for total deposits (interest-bearing and
noninterest-bearing).
(3)
Refer to supplemental information in this table for average balances, interest expense and rates for total deposits (interest-bearing and
noninterest-bearing) and borrowings.
(4)
Net interest spread represents the average yield on interest-earning assets less the average rate on interest-bearing liabilities.
(5)
Net interest margin represents net interest income on a fully taxable-equivalent basis divided by total average interest-earning assets.
(6)
Fully taxable-equivalent net interest income is considered a non-GAAP financial measure, and is reconciled to GAAP net interest income in
this table.
Interest Income
The following table presents interest income and fully taxable-equivalent interest income:
Year Ended December 31,
% Change
($ in millions)
2022
2021
2020
2022 vs.
2021
2021 vs.
2020
Interest income:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,803
$3,725
$3,245
29%
15%
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
839
624
576
34%
8%
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67
17
8
293%
126%
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
19
24
(30)%
(21)%
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,722
$4,385
$3,853
30%
14%
Fully taxable-equivalent interest income: (2)
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,831
$3,753
$3,271
29%
15%
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
971
$
746
$
678
30%
10%
(1)
Represents dividends on FHLB stock.
(2)
Refer to the table in “—Net Interest Income and Net Interest Margin—Yields/Rates (Fully Taxable-Equivalent Basis)” for a reconciliation of
the fully taxable-equivalent net interest income non-GAAP financial measure to the most comparable GAAP measure.
Total interest income consists of interest income on loans and investments, interest income on
cash and cash equivalents, and FHLB stock dividends. The increase in interest income in 2022 was the
result of an increase of 18% in average interest-earning assets, which were $187.1 billion, compared to
$158.9 billion in 2021, and an increase in the average yield on interest-earning assets to 3.13% from
2.84% in 2021.
Loans
Interest income on loans increased in 2022 due to continued loan growth and an increase in the
average yield as a result of increases in interest rates. Average loan balances increased 22% in both
2022 and 2021. The average yield on loans was 3.20% in 2022, compared to 3.03% in 2021 and 3.23% in
2020. The average yield on loans varies based on the volume, mix and pricing of the loan portfolio.
Interest income on loans included prepayment penalty fees of $20 million, $29 million and
$19 million in 2022, 2021 and 2020, respectively. The decrease in 2022 was primarily due to lower
prepayments on multifamily and single family loans.
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FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
Our yield on loans is affected by a number of factors: market interest rates, the level of
adjustable-rate loan indices, interest rate floors and caps, the repayment rate of loans, portfolio mix
and the level of nonaccrual loans. Our weighted average contractual loan rate (on a fully taxable-
equivalent basis) was 3.70% at December 31, 2022, compared to 2.97% at December 31, 2021. For
ARM loans, the yield is also affected by the timing of changes in the loan rates, which generally lag
market rate changes. At December 31, 2022, 21% of our total loans were adjustable-rate or mature
within one year, compared to 26% at December 31, 2021.
Investments
Interest income on investments increased in 2022 primarily due to higher average investment
balances, partially offset by a decrease in the average yield. Average investment balances increased
35% in 2022 and increased 21% in 2021. The increase in 2022 was primarily due to investment
purchases, partially offset by paydowns and calls. The average yield on investment securities was
3.19% in 2022, compared to 3.30% in 2021 and 3.62% in 2020. The yield decline in 2022 was
primarily due to purchases of lower yielding tax-exempt municipal securities, the timing of such
purchases, as well as the increase in the cost of funds in 2022, which reduces the average yield on
municipal securities.
Interest Expense
The following table presents interest expense:
Year Ended December 31,
% Change
($ in millions)
2022
2021
2020
2022 vs.
2021
2021 vs.
2020
Interest expense:
Deposits:
Interest-bearing checking . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
88
$
6
$
16
NM
(63)%
Money market checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
217
25
56
772%
(55)%
Money market savings and passbooks . . . . . . . . . . . . . . . .
165
25
32
555%
(22)%
CDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
184
39
172
377%
(78)%
Total interest expense on deposits . . . . . . . . . . . . . . . .
654
95
276
590%
(66)%
Borrowings:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
—
1
NM
NM
Short-term FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . .
108
—
4
NM
NM
Long-term FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . .
67
115
250
(42)%
(54)%
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
24
23
(36)%
6%
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
37
37
0%
0%
Total interest expense on borrowings . . . . . . . . . . . . .
234
176
315
33%
(44)%
Total interest expense . . . . . . . . . . . . . . . . . . . . . . .
$ 888
$ 271
$ 591
228%
(54)%
Note: Variances that are not meaningful (NM) are not presented in the table above.
Total interest expense consists of interest expense on deposits and borrowings. The increase in
interest expense in 2022 was the result of an increase in the average cost of interest-bearing
liabilities to 0.86% in 2022 from 0.31% in 2021 and an increase of 17% in average interest-bearing
liabilities.
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FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
Deposits
Interest expense on deposits increased in 2022 due to increases in both average rates paid and
average balances. The average interest rate paid on deposits was 0.71% for 2022, 0.12% for 2021
and 0.45% for 2020. The average interest rates paid on deposits were impacted by the level of the
federal funds rate, which averaged 1.88% for 2022, compared to 0.25% for 2021 and 0.54% for 2020.
The federal funds rate was 4.50% and 0.25% as of December 31, 2022 and 2021, respectively.
Interest-bearing checking. Interest expense on checking deposits increased in 2022 due to
increases in both average rates paid and average balances. The average interest rate paid on
interest-bearing checking deposits was 0.21% for 2022, compared to 0.02% for 2021 and 0.07% for
2020. Average interest-bearing checking deposit balances increased 20% in 2022 and increased
41% in 2021.
Total checking (interest-bearing and non-interest bearing). Interest expense on total checking
deposits increased in 2022 due to increases in both average rates paid and average balances. The
average interest rate paid on total checking deposits was 0.08% for 2022, compared to 0.01% for
2021 and 0.03% for 2020. Average total checking deposit balances increased 18% in 2022 and
increased 51% in 2021.
Money market checking. Interest expense on money market checking deposits increased in
2022 due to increases in both average rates paid and average balances. The average interest rate
paid on money market checking deposits was 0.98% for 2022, compared to 0.12% for 2021 and
0.38% for 2020. Average money market checking deposit balances increased 7% in 2022 and
increased 39% in 2021.
Money market savings and passbooks. Interest expense on money market savings and
passbooks deposits increased in 2022 due to increases in both average rates paid and average
balances. The average interest rate paid on money market savings and passbooks deposits was
0.89% for 2022, compared to 0.17% for 2021 and 0.30% for 2020. Average money market savings
and passbooks deposit balances increased 22% in 2022 and increased 44% in 2021.
CDs. Interest expense on CDs increased in 2022 due to increases in both average rates paid
and average balances. The average interest rate paid on CDs was 1.66% for 2022, compared to
0.49% for 2021 and 1.46% for 2020. Average CD balances increased 40% in 2022 and decreased
33% in 2021.
Average total deposit balances increased 18% in 2022 and increased 39% in 2021. The
following table presents average deposit balances by deposit type as a percentage of average total
deposits:
Year Ended December 31,
Average Deposits by Type as a % of Average Total Deposits
2022
2021
2020
Checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69%
68%
63%
Money market checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13%
15%
15%
Money market savings and passbooks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11%
11%
10%
CDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7%
6%
12%
84
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
At December 31, 2022, our total deposits were $176.4 billion, compared to $156.3 billion at
December 31, 2021, an increase of 13%, and the weighted average contractual rate paid on total
deposits was 1.29% and 0.05% for 2022 and 2021, respectively. We will continue to focus on growth
in our core deposit base to fund a significant percentage of our future asset growth. Refer to “—
Financial Highlights—Deposits and Funding” for additional discussion of our deposit funding. In
addition to deposits, we may use other sources of funding, such as federal funds purchased, FHLB
advances, unsecured term senior notes or unsecured term subordinated notes, which are generally
higher in cost.
Borrowings
Interest expense on borrowings increased in 2022 primarily due to an increase in average short-
term FHLB advances, partially offset by a decrease in average long-term FHLB advances.
Interest expense on short-term FHLB advances increased in 2022 due to higher average
balances, which increased 100% in 2022 and decreased 100% in 2021. The average cost of short-
term FHLB advances was 2.58%, 0.15% and 1.57% for 2022, 2021 and 2020, respectively.
Interest expense on long-term FHLB advances decreased in 2022 due to a decrease in the
average balance, partially offset by an increase in the average cost of long-term FHLB advances.
Average long-term FHLB advances decreased 44% in 2022 and decreased 40% in 2021. Average
long-term FHLB advances as a proportion of total average interest-bearing liabilities were 5%, 10%
and 18% in 2022, 2021 and 2020, respectively. The average cost of long-term FHLB advances was
1.39%, 1.34% and 1.74% for 2022, 2021 and 2020, respectively.
85
FIRST REPUBLIC BANK
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Rate and Volume Variances (Fully Taxable-Equivalent Basis)
Net interest income is affected by changes in both volume and interest rates. Volume changes
are caused by increases or decreases during the year in the level of average interest-earning assets
and average interest-bearing liabilities. Rate changes result from increases or decreases in the
yields earned on assets or the rates paid on liabilities. The following table presents for each of the
last two years a summary of the changes in interest income and interest expense resulting from
changes in the volume of average asset and liability balances and changes in the average yields or
rates compared to the preceding year, on a fully taxable-equivalent basis. Unallocated changes in
interest income or interest expense due to both volume and rate changes (such as for changes in
investment or borrowing types) have been allocated proportionally between the volume and the rate
variances. For comparability, certain prior period amounts have been adjusted to conform to the
current period presentation.
2022 vs. 2021
2021 vs. 2020
($ in millions)
Volume
Rate
Total
Volume
Rate
Total
Increase (decrease) in interest income:
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . .
$
(45)
$
95
$
50
$
13
$
(4)
$
9
Investment securities:
U.S. Government-sponsored agency securities . . . . . . .
1
0
1
(2)
(1)
(3)
Agency residential and commercial MBS . . . . . . . . . . . .
86
17
103
(5)
(38)
(43)
Other residential and commercial MBS . . . . . . . . . . . . . .
0
(1)
(1)
—
—
—
Tax-exempt municipal securities . . . . . . . . . . . . . . . . . . . .
123
(19)
104
97
(34)
63
Taxable municipal securities . . . . . . . . . . . . . . . . . . . . . . .
7
2
9
23
(3)
20
Other investment securities . . . . . . . . . . . . . . . . . . . . . . . .
8
1
9
31
0
31
Loans:
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
559
53
612
459
(114)
345
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
132
(15)
117
59
(9)
50
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45
2
47
19
(11)
8
Multifamily/commercial construction . . . . . . . . . . . . . . .
(2)
0
(2)
7
3
10
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84
146
230
106
(51)
55
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(95)
55
(40)
(1)
19
18
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45
69
114
25
(29)
(4)
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
(5)
(6)
(12)
7
(5)
Total increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . .
947
400
1,347
819
(265)
554
Increase (decrease) in interest expense:
Deposits:
Interest-bearing checking . . . . . . . . . . . . . . . . . . . . . . . . . .
4
78
82
6
(16)
(10)
Money market checking . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
189
192
20
(51)
(31)
Money market savings and passbooks . . . . . . . . . . . . . . .
10
130
140
12
(19)
(7)
CDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
119
145
(49)
(84)
(133)
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
3
7
0
(1)
(1)
Short-term FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . .
58
50
108
0
(4)
(4)
Long-term FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . .
(53)
5
(48)
(84)
(51)
(135)
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7)
(1)
(8)
1
0
1
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
0
(1)
—
—
—
Total increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . .
44
573
617
(94)
(226)
(320)
Increase (decrease) in net interest income . . . . . . .
$
903
$(173)
$
730
$
913
$ (39)
$ 874
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Provision (Reversal of Provision) for Credit Losses
The following table presents information related to the provision (reversal of provision) for
credit losses:
Year Ended December 31,
% Change
($ in millions)
2022
2021
2020
2022 vs.
2021
2021 vs.
2020
Provision (reversal of provision) for credit losses:
Debt securities held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2
$
2
$
2
0%
0%
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93
61
143
53%
(58)%
Unfunded loan commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
(4)
12
NM
NM
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 107
$
59
$ 157
81%
(62)%
Note: Variances that are not meaningful (NM) are not presented in the table above.
The increase in the provision for credit losses in 2022 was primarily driven by loan growth and a
change in economic conditions and outlook, partially offset by the decrease in ACL for capital call
lines of credit due to the declines in balances and expected utilization. The macroeconomic
forecasts, historical loss rates, and historical prepayment (or repayment) speeds used in
determining the ACL, under different conditions or using different assumptions or estimates, could
result in significantly different changes in the ACL. It is difficult to estimate how potential changes
in specific factors might affect the overall ACL and current results may not reflect the potential
future impact of macroeconomic forecast changes.
Noninterest Income
The following table presents noninterest income:
Year Ended December 31,
% Change
($ in millions)
2022
2021
2020
2022 vs.
2021
2021 vs.
2020
Noninterest income:
Investment management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
612
$554
$ 395
10%
40%
Brokerage and investment fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118
74
51
59%
47%
Insurance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
19
12
13%
62%
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28
25
19
13%
27%
Foreign exchange fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
88
50
11%
77%
Deposit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28
27
24
5%
13%
Loan and related fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
33
28
17%
20%
Income from investments in life insurance . . . . . . . . . . . . . . . . . . . .
82
85
53
(3)%
58%
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
15
23
(66)%
(34)%
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,031
$920
$ 655
12%
41%
The increase in 2022 was primarily driven by higher investment management fees and higher
brokerage and investment fees.
Wealth Management Fees
Wealth management fees consist of fees earned for the management or administration of
clients’ assets, as well as commissions and trading revenues generated from the execution of
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client-related brokerage and investment activities, revenue earned from selling life insurance and
annuity policies and fees earned for assisting clients with foreign exchange transactions. For
additional information on the AUM and AUA for the entities comprising the Wealth Management
segment, see “—Business Segments.”
Investment management fees. We provide traditional portfolio management and customized
client portfolios through FRIM. We earn fee income from the management of equity securities, fixed
income securities, balanced portfolios, and alternative investments for our clients. The increase in
investment management fees in 2022 was primarily driven by growth in AUM. Investment
management fees vary with the amount of assets managed and the type of services and
investments chosen, which are impacted by market conditions. Generally, higher fees are earned
for managing equity securities than for managing a fixed income portfolio. In addition, since our
investment management fees are generally based on AUM levels as of the beginning of a quarterly
period, the timing of fluctuation in AUM levels also impacts the level of fees. Changes in FRIM’s
AUM during 2022, 2021 and 2020 are presented in the following table:
Year Ended December 31,
($ in millions)
2022
2021
2020
FRIM AUM:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$109,130
$ 83,596
$66,029
Net client flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,189
11,109
9,941
Market appreciation (decline) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,143)
14,425
7,626
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$112,176
$109,130
$83,596
The future level of investment management fees depends on the level and mix of AUM, type of
services and investments, market conditions and our ability to attract new clients.
Brokerage and investment fees. We perform brokerage and investment activities for clients
through FRSC. We offer brokerage services for equity securities, mutual funds, exchange-traded
funds, unit investment trusts, alternative investments, hedging strategies, treasury securities,
municipal bonds, other fixed income securities, money market mutual funds and other shorter-term
liquid investments. The increase in brokerage and investment fees in 2022 was primarily due to
higher fees from money market mutual funds as a result of rising interest rates. Changes in client
assets in brokerage accounts through FRSC and in third-party money market mutual funds during
2022, 2021 and 2020 are presented in the following table:
Year Ended December 31,
($ in millions)
2022
2021
2020
Brokerage AUA:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$128,258
$ 88,059
$68,807
Net client flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,495
22,615
9,395
Market appreciation (decline) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(19,909)
17,584
9,857
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$130,844
$128,258
$88,059
Money market mutual funds AUA:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23,673
$
9,003
$ 4,268
Net client flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,573)
14,670
4,735
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8,100
$ 23,673
$ 9,003
Brokerage and investment fees are based on the volume and type of transaction activity,
conditions in the securities markets, level of money market mutual fund balances and rates, and our
ability to attract new clients, and will vary in the future based on these factors.
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Insurance fees. We earn revenue from selling life insurance and annuity policies to our clients
through FRSC and previously, also through FRIM. Insurance fees consist of initial commissions
when a policy is sold and subsequent commissions each year that a policy is renewed. Such fees
vary based on the level of sales of insurance and annuity products and our ability to attract new
clients. There is no underwriting risk for the Bank from the sale of insurance products.
Trust fees. The Trust Company specializes in personal trusts and custody services and operates
in California, Oregon, Washington, New York, Massachusetts, Delaware, Florida, Wyoming and
Connecticut. The Trust Company draws new trust clients from our banking and wealth
management client base, as well as from outside of our organization. Changes in AUA during 2022,
2021 and 2020 are presented in the following table:
Year Ended December 31,
($ in millions)
2022
2021
2020
Trust AUA:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,695
$ 9,910
$ 7,121
Net client flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,463
2,280
2,002
Market appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160
1,505
787
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,318
$13,695
$ 9,910
Custody AUA:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,687
$ 3,889
$ 4,818
Net client flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65
147
(1,021)
Market appreciation (decline) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(946)
651
92
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,806
$ 4,687
$ 3,889
Trust fees are primarily based on the level and mix of AUA and will vary in the future based on
these factors.
Foreign exchange fee income. Foreign exchange fee income represents fees we earn from
transacting foreign exchange business on behalf of our clients. The increase in foreign exchange
fee income in 2022 was primarily driven by higher transaction volume from both existing and new
clients.
We execute foreign exchange trades with clients and then offset those trades with other
financial institution counterparties, such as major investment banks or large commercial banks. We
do not retain significant foreign exchange risk associated with these transactions, as the trades
with the client and the financial institution counterparty are matched on our books. We do retain
credit risk, both to the client and the counterparty institution, which is evaluated and managed by
us in the normal course of our operations. In addition, we have foreign exchange contracts
associated with client deposits denominated in various foreign currencies.
Other Noninterest Income
Loan and related fees. Loan and related fee income includes: late charge income, which
generally increases with growth in the average loan and servicing portfolios; loan related
processing or commitment fees that vary with market conditions and origination volumes;
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prepayment penalties and miscellaneous income on sold loans; and payoff fees that vary with loan
repayment activity and market conditions such as the general level of longer-term interest rates.
Income from investments in life insurance. Income from investments in life insurance reflects
the adjustments in carrying value of the underlying investments to their cash surrender value,
including life insurance investments related to the Bank’s Deferred Compensation Plan. In addition
to purchases of additional investments, changes in cash surrender cash due to market appreciation
or decline also impacts the level of income. 2022 included a decrease in the cash surrender value of
$16 million for certain life insurance investments related to the Banks’ Deferred Compensation Plan,
compared to an increase in the cash surrender value of $5 million in 2021. The decrease in income
in 2022 was offset by a corresponding decrease in the deferred compensation expense (included in
salaries and employee benefits), and the increase in income in 2021 was offset by a corresponding
increase in deferred compensation expense.
The book value of this portfolio of tax-exempt investments was $3.4 billion and $2.7 billion at
December 31, 2022 and 2021, respectively. The increase was primarily due to additional purchases
of investments in life insurance.
Other income, net. Other income, net includes net loan servicing fees, gain (loss) on investment
securities, gain on sale of loans and other operating income. The following table presents the main
components of net other income:
Year Ended December 31,
($ in millions)
2022
2021
2020
Other income, net:
Loan servicing fees, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5
$
4
$
(1)
Gain (loss) on investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6)
1
4
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1
17
Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
9
3
Total other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5
$
15
$
23
Noninterest Expense
The following table presents noninterest expense:
Year Ended December 31,
% Change
($ in millions)
2022
2021
2020
2022 vs.
2021
2021 vs.
2020
Noninterest expense:
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,235
$2,003
$1,495
12%
34%
Information systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
468
362
299
29%
21%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
285
254
221
12%
15%
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108
101
66
7%
51%
Advertising and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
64
43
10%
49%
FDIC assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
52
44
27%
18%
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
384
311
258
23%
21%
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,617
$3,147
$2,426
15%
30%
The increase in noninterest expense in 2022 was primarily due to continued investments in our
business expansion, including hiring additional colleagues to support our growth, information
systems initiatives and occupancy costs.
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Noninterest expense was reduced by certain general and administrative costs that have been
capitalized, which primarily were compensation costs directly related to loan originations. We
capitalized loan origination costs of $342 million in 2022, compared to $302 million in 2021 and
$239 million in 2020. The amount of capitalized costs varies directly with the volume of loan
originations and the costs incurred to make new loans. The capitalized costs are reported as net
deferred loan fees and costs (within loans) on our balance sheet and are amortized to interest
income over the contractual life of the loans.
Our efficiency ratio, the ratio of noninterest expense to the sum of net interest income and
noninterest income, was 61.7% in 2022, compared to 62.5% in 2021 and 61.9% in 2020.
Salaries and employee benefits. Salaries and employee benefits is the largest component of
noninterest expense and includes the cost of salaries, incentive compensation, share-based
compensation, benefit plans, health insurance and payroll taxes, which have collectively increased
as we hired additional personnel to support our growth and our enhanced regulatory infrastructure.
The increase in salaries and employee benefit expenses in 2022 was attributed to the continued
expansion of the franchise resulting in the addition of new personnel to support higher levels of
lending, deposit growth and expansion of wealth management; and higher incentive compensation,
which also varies based on our business activity. This increase was partially offset by a decrease in
deferred compensation expense. At December 31, 2022, we had 7,213 full-time equivalent
employees, including temporary employees and independent contractors, compared to 6,295 full-
time equivalent employees at December 31, 2021, a 15% increase.
Information systems. These expenses include payments to vendors that provide software and
services on an outsourced basis, costs related to supporting and developing digital platforms and
the costs associated with telecommunications for ATMs, office activities and internal networks.
The increase in information systems expenses in 2022 was primarily due to continued technology
initiatives to upgrade our systems, enhance the client experience and support our growth, as well
as increased expenses related to our new core banking system.
Occupancy. Occupancy costs increased in 2022 primarily due to expanding our office space in
existing markets for new employees, increased rental costs in certain locations and rental costs for
additional banking office locations. We expect the level of occupancy costs to vary with the number
of offices and our staffing levels.
Professional fees. Professional fees include legal services required to complete certain
transactions, resolve legal matters or delinquent loans, and the cost of loan review professionals,
co-sourced internal audit, external auditors and other consultants, including consulting services
dedicated to technology initiatives. The increase in professional fees in 2022 was primarily due to
an increase in consulting services supporting various technology initiatives.
Advertising and marketing. We advertise in various forms of media, including digital media,
newspapers, radio, and television, primarily to support growth in our Preferred Banking offices and
for advertising and marketing initiatives. Advertising and marketing expenses vary based on the
number of marketing initiatives, level of advertising costs and costs associated with holding client
events to support our growth. The increase in 2022 was primarily due to an increase in costs
associated with holding client events to support our growth and advertising costs, partially offset by
decreases in deposit-related promotions.
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FDIC assessments. FDIC assessments increased in 2022 primarily due to growth in the
assessment base as a result of the growth in average total assets and an increase in the
assessment rate.
Other expenses. Other expenses include costs related to lending and deposit activities, client
service, hiring, training, insurance, charitable contributions, prepayment penalties on FHLB
advances and other costs related to expanding operations. The increases in travel and
entertainment and recruiting costs in 2022 was the result of increased activity, including as a result
of the lessening of COVID-19 related restrictions, compared to 2021. Other operating expenses
include employee event costs, postage, cash management, and other miscellaneous expenses, as
well as amortization of intangibles. The following table presents the main components of other
expenses:
Year Ended December 31,
($ in millions)
2022
2021
2020
Other expenses:
Deposit client related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 65
$ 47
$ 40
Travel and entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
18
11
Recruiting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
17
9
Custody and clearing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
17
18
Loan related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
25
21
Subscriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
19
19
Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
15
5
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
16
13
Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
14
12
Prepayment penalties on FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
32
27
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
124
91
83
Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$384
$311
$258
Included in insurance expense are costs related to a parametric earthquake insurance policy
(the “Policy”). Pursuant to this Policy, if we incur a loss the insurer is required to pay us up to: (i)
$75 million upon the occurrence of an earthquake during the Policy’s term that measures at least
7.0 on the moment magnitude scale with a depth of 60 miles or less and has an epicenter within an
85-mile radius of 111 Pine Street in San Francisco, California (our headquarters); and/or (ii)
$30 million upon the occurrence of an earthquake during the Policy’s term that measures at least
7.5 on the moment magnitude scale with a depth of 60 miles or less and has an epicenter within an
85-mile radius of 1888 Century Park East, Los Angeles, California (our Los Angeles office). The
Policy’s term is scheduled to end on December 30, 2023.
Provision for Income Taxes
The provision for income taxes varies from statutory rates due to the amount of income for
financial statement and tax purposes and the rates charged by federal and state authorities.
The Bank’s effective tax rate varies based on the level of tax credit investments, tax-exempt
securities, tax-advantaged loans, investments in life insurance and the amount of excess tax
benefits from exercise or vesting of share-based awards. The increase in the effective tax rate in
2022 was primarily the result of higher research and development tax credits claimed in the prior
year and lower excess tax benefits recognized in the current year.
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The following table presents additional information about the effective tax rate:
Year Ended December 31,
Effective Tax Rate
2022
2021
2020
Effective tax rate, prior to excess tax benefits—stock awards and other
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.9%
22.3%
21.5%
Excess tax benefits—stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.5)
(2.1)
(1.3)
Research and development tax credit adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
(0.2)
(1.1)
—
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.2%
19.1%
20.2%
The number of stock options exercised or stock awards vested impact the amount of excess tax
benefits recorded as a reduction in provision for income taxes. See Note 18 in “Item 8. Financial
Statements and Supplementary Data” for additional information regarding excess tax benefits
recognized for stock options and other stock awards.
Business Segments
We currently conduct our business through two reportable business segments: Commercial
Banking and Wealth Management.
The principal business activities of the Commercial Banking segment are gathering deposits
(retail deposit gathering and private banking activities), originating and servicing loans (primarily
real estate secured mortgage loans) and investing in investment securities. The primary sources of
revenue for this segment are: interest earned on loans and investment securities, fees earned in
connection with loan and deposit services, and income from investments in life insurance. Principal
expenses for this segment are interest incurred on interest-bearing liabilities, including deposits
and borrowings, general and administrative costs and provision for credit losses.
The principal business activities of the Wealth Management segment are (i) the investment
management activities of FRIM, which manages investments for individuals and institutions in
equity securities, fixed income securities, balanced portfolios, and alternative investments; (ii) our
money market mutual fund activities through third-party providers and the brokerage activities of
FRSC (these two activities collectively, “Brokerage and Investment”); (iii) sales of life insurance
policies and annuity contracts through FRSC and previously, also through FRIM; (iv) trust and
custody services provided by the Trust Company; and (v) our foreign exchange activities conducted
on behalf of clients. The primary sources of revenue for this segment are investment management
fees, brokerage and investment fees, insurance fees, trust fees and foreign exchange fee income. In
addition, the Wealth Management segment earns a deposit earnings credit for client deposit
accounts that are maintained at the Bank, including sweep deposit accounts. The Wealth
Management segment’s principal expenses are personnel-related costs and other general and
administrative expenses. For complete segment information, see Note 25 in “Item 8. Financial
Statements and Supplementary Data.”
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Commercial Banking
The following table presents the operating results of the Bank’s Commercial Banking segment:
Year Ended December 31,
% Change
($ in millions)
2022
2021
2020
2022 vs.
2021
2021 vs.
2020
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,452
$3,921
$3,141
14%
25%
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107
59
157
81%
(62)%
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150
154
124
(2)%
24%
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,763
2,469
1,916
12%
29%
Income before provision for income taxes . . . . . . . . . . . . . . . . . . . .
1,732
1,547
1,192
12%
30%
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
359
271
231
32%
17%
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,373
$1,276
$
961
8%
33%
Net interest income for Commercial Banking increased in 2022 primarily due to growth in
average interest-earning assets, partially offset by a decrease in net interest margin.
The increase in the provision for credit losses in 2022 was primarily driven by loan growth and a
change in economic conditions and outlook, partially offset by the decrease in ACL for capital call
lines of credit due to the declines in balances and expected utilization. The macroeconomic
forecasts, historical loss rates, and historical prepayment (or repayment) speeds used in
determining the ACL, under different conditions or using different assumptions or estimates, could
result in significantly different changes in the ACL. It is difficult to estimate how potential changes
in specific factors might affect the overall ACL and current results may not reflect the potential
future impact of macroeconomic forecast changes.
Noninterest income for Commercial Banking decreased in 2022 primarily due to lower income
from investments in life insurance, which reflects a decrease in the cash surrender value from a
market decline in certain life insurance investments.
Noninterest expense for Commercial Banking increased in 2022 primarily due to continued
investments in our business expansion, including hiring additional colleagues to support our
growth, information systems initiatives and occupancy costs.
Provision for income taxes for Commercial Banking increased in 2022 primarily due to an
increase in pre-tax income, higher research and development tax credits claimed in the prior year
and lower excess tax benefits recognized in the current year.
94
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Wealth Management
The following table presents the operating results of the Bank’s Wealth Management segment:
Year Ended December 31,
% Change
($ in millions)
2022
2021
2020
2022 vs.
2021
2021 vs.
2020
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 382
$ 193
$ 121
98%
59%
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
896
813
571
10%
43%
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
869
725
550
20%
32%
Income before provision for income taxes . . . . . . . . . . . . . . . . . . . .
409
281
142
46%
98%
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
117
79
39
49%
103%
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 292
$ 202
$ 103
45%
96%
Net interest income for Wealth Management is earned from Wealth Management client
deposits with the Bank, for which Wealth Management earns a deposit earnings credit and fees for
Wealth Management sweep deposit accounts. The deposit earnings credit and fees vary based on
the amounts, allocated credit rates, and type of Wealth Management client deposits. Net interest
income increased in 2022 primarily as a result of growth in Wealth Management client deposits,
including sweet deposit accounts, as well as a result of credit rate changes.
Wealth Management client deposits totaled $22.4 billion and $20.2 billion at December 31,
2022 and 2021, respectively, including sweep deposits. Wealth Management client deposits,
including sweep accounts, averaged $21.5 billion, $18.5 billion and $11.8 billion in 2022, 2021 and
2020, respectively. As noted above, Wealth Management is allocated a deposit earnings credit and
fees as net interest income, which is included in the Wealth Management results. Net interest
income as a percentage of the average deposits generated by Wealth Management represented
1.78% in 2022, compared to 1.04% in 2021 and 1.03% in 2020.
The allocated earnings credit represents only a portion of the total net interest income
generated by these deposits for the Bank. The Bank’s holistic approach to generating a full
relationship with our clients is reflected in the total impact that these Wealth Management
deposits have to the Bank’s overall net interest income. The Bank’s consolidated net interest margin
was 2.65% in 2022, 2.67% in 2021 and 2.72% in 2020. Using this overall net interest margin and the
average Wealth Management deposits for each year, the Wealth Management deposits, on a
consolidated basis, contributed net interest income of approximately $569 million in 2022,
$493 million in 2021 and $322 million in 2020.
Noninterest income for Wealth Management increased in 2022 primarily due to increases in
investment management fees due to growth in AUM, brokerage and investment fees primarily due
to higher fees from money market mutual funds as a result of rising interest rates, and foreign
exchange fee income primarily driven by higher transaction volume from both existing and new
clients. For additional information, see “—Results of Operations—Years Ended December 31, 2022,
2021 and 2020—Noninterest income—Wealth Management Fees.”
Noninterest expense for Wealth Management increased in 2022 primarily due to higher salaries
and employee benefits, which reflect the overall growth in our business and the addition of new
wealth managers, as well as the level of incentive compensation, which also varies based on our
business activity.
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Provision for income taxes for Wealth Management increased in 2022 primarily due to higher
pre-tax income.
AUM and AUA, in aggregate, decreased 3% compared to December 31, 2021 due to market
decline, meaningfully offset by net client inflow. Our Wealth Management strategy is focused on
both managing investment portfolios for our clients and keeping custody of such assets in
brokerage accounts at FRSC. By providing multiple services, we are able to better develop a full
Wealth Management and banking relationship, as well as the ability to gather deposits, including
sweep accounts. As described above, client deposits from Wealth Management generate net
interest income for the Bank. Certain Wealth Management client assets that are held or managed
by different areas within our Wealth Management business generate multiple revenue streams for
the Bank. As a result of having these client assets served by different areas with multiple revenue
streams, such assets are included in more than one type of Wealth Management asset category in
the following table.
The following table presents the AUM and AUA by the entities comprising our Wealth
Management segment:
December 31,
($ in millions)
2022
2021
First Republic Investment Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$112,176
$109,130
Brokerage and investment:
Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
130,844
128,258
Money market mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,100
23,673
Total brokerage and investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
138,944
151,931
Trust Company:
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,318
13,695
Custody . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,806
4,687
Total Trust Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,124
18,382
Total AUM and AUA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$271,244
$279,443
The following table presents changes in AUM and AUA for our Wealth Management segment.
Net client flow includes adding to the balance in existing accounts by the depositing of additional
funds and the opening of new accounts, offset by the closing of accounts or the withdrawing of
funds. The portion of the net change that cannot be attributed to the deposit or withdrawal of funds
is reported in market appreciation (decline). For additional discussion of the changes in AUM and
AUA for First Republic Investment Management, brokerage and investment, and the Trust Company
for 2022, 2021 and 2020, refer to “—Results of Operations—Years Ended December 31, 2022, 2021
and 2020—Noninterest Income—Wealth Management Fees.”
Year Ended December 31,
($ in millions)
2022
2021
2020
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$279,443
$194,457
$151,043
Net client flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,639
50,821
25,051
Market appreciation (decline) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35,838)
34,165
18,363
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$271,244
$279,443
$194,457
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The following table presents a distribution of FRIM’s AUM by type of investment:
% of AUM
December 31,
Investment Type
2022
2021
Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53%
61%
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
25
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
5
Alternative investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
The following table presents fee income as a percentage of average AUM and AUA for Wealth
Management:
Year Ended December 31,
2022
2021
2020
First Republic Investment Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.58%
0.57%
0.56%
Brokerage and investment:
Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.07%
0.07%
0.06%
Money market mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.25%
0.02%
0.13%
Total brokerage and investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.08%
0.06%
0.06%
Trust Company:
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.16%
0.18%
0.19%
Custody . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.10%
0.09%
0.10%
Total Trust Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.15%
0.15%
0.16%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.29%
0.28%
0.29%
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FIRST REPUBLIC BANK
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Balance Sheet Analysis
Investments
The following table presents the investment portfolio:
December 31,
($ in millions)
2022
2021
Debt securities available-for-sale:
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,160
$ 1,829
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
15
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,130
1,490
Securities of U.S. states and political subdivisions—taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
47
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,347
$ 3,381
Debt securities held-to-maturity:
U.S. Government-sponsored agency securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
165
$
100
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,003
1,380
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
9
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,331
2,719
Securities of U.S. states and political subdivisions:
Tax-exempt municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,644
15,011
Tax-exempt nonprofit debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69
72
Taxable municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,726
1,632
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,413
1,378
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,359
22,301
Less: Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11)
(9)
Debt securities held-to-maturity, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$28,348
$22,292
Equity securities (fair value):
Mutual funds and marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24
$
28
The total combined investment securities portfolio (consisting of available-for-sale,
held-to-maturity and equity securities, excluding any ACL) represented 15% and 14% of total assets
at December 31, 2022 and 2021, respectively.
The weighted average duration of the available-for-sale portfolio was 4.4 and 3.9 years at
December 31, 2022 and 2021, respectively. The weighted average duration of the held-to-maturity
portfolio was 10.8 and 10.6 years at December 31, 2022 and 2021, respectively.
At December 31, 2022, the tax-exempt and taxable municipal securities had an average credit
rating of AA and the portfolio was well-diversified with an average issuer position of approximately
$39 million. The tax-exempt nonprofit debentures are securities issued through state and local
agencies where we have a banking relationship with nonprofit entities. The debentures are
reviewed, approved and monitored by our business banking group, similar to business loans.
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The following table presents the remaining contractual principal maturities of debt securities
and contractual yields calculated on a taxable-equivalent basis at December 31, 2022. The
weighted average yield is calculated using the amortized cost of debt securities. Actual maturities
for certain U.S. Treasury securities, U.S. Government agency securities, U.S. Government-sponsored
agency securities and municipal securities may occur earlier than their stated contractual
maturities because the note issuers may have the right to call outstanding amounts ahead of their
contractual maturities. In addition, the remaining contractual principal maturities for MBS do not
consider prepayments. Expected remaining maturities for MBS can differ from contractual
maturities because borrowers have the right to prepay obligations, with or without penalties, prior
to contractual maturity. Interest income on tax-exempt securities has been adjusted to the fully
taxable-equivalent basis using the statutory federal income tax rate.
Contractual Principal—Remaining Maturity
Within 1 Year
After 1 Through
5 Years
After 5 Through
10 Years
After 10 Years
($ in millions)
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Available-for-sale:
Agency residential MBS . . . . $ 2,160 2.27%
$
—
—%
$
0 2.06%
$
—
—%
$ 2,160 2.27%
Other residential MBS . . . . .
10 5.80%
—
—%
—
—%
—
—%
10 5.80%
Agency commercial MBS . . .
1,130 4.07%
—
—%
30 4.71%
937 4.31%
163 2.68%
Securities of U.S. states and
political subdivisions—
taxable . . . . . . . . . . . . . . . . .
47 5.78%
—
—%
—
—%
—
—%
47 5.78%
Total carrying value of
available-for-sale debt
securities . . . . . . . . . . . . . $ 3,347
$
—
$
30
$
937
$ 2,380
Held-to-maturity:
U.S. Government-sponsored
agency securities . . . . . . . . $
165 2.05%
$
—
—%
$
65 2.75%
$
50 1.57%
$
50 1.61%
Agency residential MBS . . . .
2,003 2.34%
—
—%
3 2.72%
—
—%
2,000 2.34%
Other residential MBS . . . . .
8 2.61%
—
—%
—
—%
—
—%
8 2.61%
Agency commercial MBS . . .
5,331 2.36%
—
—%
—
—%
—
—%
5,331 2.36%
Securities of U.S. states and
political subdivisions:
Tax-exempt municipal
securities (1) . . . . . . . . . . .
17,644 3.97%
340 5.95%
371 4.82%
116 5.81%
16,817 3.90%
Tax-exempt nonprofit
debentures (1) . . . . . . . . .
69 5.13%
—
—%
—
—%
—
—%
69 5.13%
Taxable municipal
securities . . . . . . . . . . . . .
1,726 3.06%
—
—%
—
—%
—
—%
1,726 3.06%
Corporate debt securities . .
1,413 2.89%
—
—%
—
—%
—
—%
1,413 2.89%
Total carrying value of
held-to-maturity debt
securities . . . . . . . . . . . . . $28,359
$
340
$
439
$
166
$27,414
Estimated fair value of
held-to-maturity debt
securities . . . . . . . . . . . . . $23,587
$
345
$
444
$
167
$22,632
(1)
Weighted average yield on tax-exempt municipal securities and tax-exempt nonprofit debentures has been adjusted to the fully taxable-
equivalent basis using the statutory federal income tax rate.
99
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
Allowance for Credit Losses on Debt Securities
As of December 31, 2022, no ACL was recognized on available-for-sale debt securities.
As of December 31, 2022, the ACL on held-to-maturity debt securities totaled $11 million and
consisted primarily of the ACL on securities of U.S. states and political subdivisions (including
tax-exempt municipal securities and taxable municipal securities) and corporate debt securities.
The ACL on these securities is determined by expert judgment, which is based on historical ratings-
based average probabilities of default and industry average LGD to determine expected credit
losses over the life of the securities. No ACL is recognized on held-to-maturity U.S. Government-
sponsored agency securities, agency residential MBS and agency commercial MBS due to the
explicit or implicit guarantee by the Federal Government.
Loan Portfolio
The following table presents the Bank’s loan portfolio and ACL:
December 31,
($ in millions)
2022
2021
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 98,768
$ 76,793
Home equity lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,775
2,584
Single family construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,217
993
Total residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102,760
80,370
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,588
15,966
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,830
8,531
Multifamily/commercial construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,139
1,927
Total income property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,557
26,424
Business
Capital call lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,988
10,999
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,713
3,680
Other business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,072
3,961
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
545
Total business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,793
19,185
Other
Stock secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,553
3,435
Other secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,191
2,457
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,014
3,085
Total other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,758
8,977
Total loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
166,868
134,956
Less: Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(784)
(694)
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$166,084
$134,262
100
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
The following table presents an analysis of our loan portfolio at December 31, 2022, by major
geographic location:
($ in millions)
San
Francisco
Bay Area
New York
Metro
Area
Los
Angeles
Area
Boston
Area
Other
California
Areas
Other
Total
%
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . $ 35,006 $ 18,969 $20,488 $ 8,937 $
4,344 $11,024 $ 98,768
59%
Home equity lines of credit . . . . . . . . .
1,057
369
624
298
100
327
2,775
2
Single family construction . . . . . . . . . .
246
304
319
52
55
241
1,217
1
Total residential real estate . . . . . . .
36,309
19,642
21,431
9,287
4,499
11,592
102,760
62
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . . .
7,372
3,213
5,500
1,166
2,447
1,890
21,588
13
Commercial real estate . . . . . . . . . . . . .
3,861
1,766
3,021
357
778
1,047
10,830
6
Multifamily/commercial
construction . . . . . . . . . . . . . . . . . . . .
365
152
1,123
117
83
299
2,139
1
Total income property . . . . . . . . . . . .
11,598
5,131
9,644
1,640
3,308
3,236
34,557
20
Business
Capital call lines of credit . . . . . . . . . . .
3,200
3,766
837
560
90
1,535
9,988
6
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . .
1,061
709
908
381
306
348
3,713
2
Other business . . . . . . . . . . . . . . . . . . . .
1,716
766
848
385
271
1,086
5,072
3
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
2
6
1
—
1
20
—
Total business . . . . . . . . . . . . . . . . . . .
5,987
5,243
2,599
1,327
667
2,970
18,793
11
Other
Stock secured . . . . . . . . . . . . . . . . . . . . .
747
646
754
300
233
1,873
4,553
3
Other secured . . . . . . . . . . . . . . . . . . . . .
563
1,208
108
388
11
913
3,191
2
Unsecured . . . . . . . . . . . . . . . . . . . . . . . .
862
670
529
238
159
556
3,014
2
Total other . . . . . . . . . . . . . . . . . . . . . .
2,172
2,524
1,391
926
403
3,342
10,758
7
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,066 $ 32,540 $35,065 $13,180 $
8,877 $21,140 $166,868 100%
% by location at December 31, 2022 . .
34%
19%
21%
8%
5%
13%
100%
% by location at December 31, 2021 . . .
36%
20%
20%
8%
5%
11%
100%
101
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
At December 31, 2022 and 2021, 52% and 51%, respectively, of total loans were secured by real
estate properties located in California. Future economic or political conditions, natural disasters
(including the increasing prevalence or intensity of natural disasters as a result of the effects of
climate change), disruptions and instability caused by COVID-19 or other developments in California
could adversely affect the value of real estate secured mortgage loans.
The following table presents the maturity distribution (based on unpaid principal balance) of
our loan portfolio as of December 31, 2022. The maturity dates were determined based on the
remaining scheduled principal repayment dates, without consideration of prepayments.
($ in millions)
1 Year or
Less
>1 Through
5 Years
>5 Through
15 Years
>15
Years
Total
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
129
$
300
$
1,396
$ 96,493
$ 98,318
Home equity lines of credit . . . . . . . . . . . . . . . . . . . . . .
76
150
80
2,418
2,724
Single family construction . . . . . . . . . . . . . . . . . . . . . . .
589
633
—
—
1,222
Total residential real estate . . . . . . . . . . . . . . . . . . .
794
1,083
1,476
98,911
102,264
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
170
2,860
17,267
1,269
21,566
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . .
394
2,605
7,699
136
10,834
Multifamily/commercial construction . . . . . . . . . . . .
1,150
912
91
—
2,153
Total income property . . . . . . . . . . . . . . . . . . . . . . . .
1,714
6,377
25,057
1,405
34,553
Business
Capital call lines of credit . . . . . . . . . . . . . . . . . . . . . . .
9,281
717
—
—
9,998
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
39
375
3,299
3,715
Other business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,325
1,488
2,080
185
5,078
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
19
—
—
20
Total business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,609
2,263
2,455
3,484
18,811
Other
Stock secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,885
651
11
—
4,547
Other secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64
2,553
573
—
3,190
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
593
599
1,817
—
3,009
Total other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,542
3,803
2,401
—
10,746
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,659
$
13,526
$
31,389
$103,800
$166,374
102
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
The following table presents the distribution (based on unpaid principal balance) of our loan
portfolio outstanding as of December 31, 2022 that are due after one year between fixed and
adjustable interest rates:
($ in millions)
Fixed
Adjustable
Total
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 92,528
$
5,661
$ 98,189
Home equity lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
2,646
2,648
Single family construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
633
—
633
Total residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93,163
8,307
101,470
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,512
1,884
21,396
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,325
1,115
10,440
Multifamily/commercial construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
633
370
1,003
Total income property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,470
3,369
32,839
Business
Capital call lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
705
717
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,552
161
3,713
Other business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,565
1,188
3,753
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
—
19
Total business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,148
2,054
8,202
Other
Stock secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150
512
662
Other secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
158
2,968
3,126
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,299
117
2,416
Total other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,607
3,597
6,204
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$131,388
$
17,327
$148,715
103
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
The Bank’s loan portfolio includes: (1) adjustable-rate loans tied to Prime, LIBOR, COFI Repl
Index (which is based on Federal COFI plus/minus a spread adjustment equal to the five-year
historical median spread between COFI and Federal COFI), and other reference rates, including a
12-month average of 1-year CMT, which are currently adjustable; (2) hybrid-rate loans, for which the
initial rate is fixed for a period from one year to as many as ten years, and thereafter the rate
becomes adjustable; and (3) fixed-rate loans, for which the interest rate does not change through
the life of the loan. The following table presents our loan portfolio at December 31, 2022, by rate
type:
($ in millions)
Adjustable Rate
Hybrid
Rate
Fixed
Rate
Total
Prime
LIBOR
COFI Repl
Index (1)
Other
Total
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . $
310 $2,373 $
1,759 $
169 $ 4,611 $61,957 $32,200 $ 98,768
Home equity lines of credit . . . . . . . . .
2,774
—
—
—
2,774
1
—
2,775
Single family construction . . . . . . . . .
—
—
—
—
—
—
1,217
1,217
Total residential real estate . . . . . .
3,084
2,373
1,759
169
7,385
61,958
33,417
102,760
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . .
168
403
1,052
91
1,714
8,957
10,917
21,588
Commercial real estate . . . . . . . . . . . .
371
475
212
63
1,121
2,655
7,054
10,830
Multifamily/commercial
construction . . . . . . . . . . . . . . . . . . .
834
—
—
28
862
8
1,269
2,139
Total income property . . . . . . . . . . .
1,373
878
1,264
182
3,697
11,620
19,240
34,557
Business
Capital call lines of credit . . . . . . . . . .
9,284
201
—
249
9,734
234
20
9,988
Tax-exempt . . . . . . . . . . . . . . . . . . . . . .
105
144
—
—
249
456
3,008
3,713
Other business . . . . . . . . . . . . . . . . . . .
1,821
158
5
221
2,205
279
2,588
5,072
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
20
20
Total business . . . . . . . . . . . . . . . . . .
11,210
503
5
470
12,188
969
5,636
18,793
Other
Stock secured . . . . . . . . . . . . . . . . . . . .
1,379
318
—
2,569
4,266
—
287
4,553
Other secured . . . . . . . . . . . . . . . . . . . .
1,342
895
—
754
2,991
4
196
3,191
Unsecured . . . . . . . . . . . . . . . . . . . . . . .
629
—
—
8
637
1
2,376
3,014
Total other . . . . . . . . . . . . . . . . . . . . .
3,350
1,213
—
3,331
7,894
5
2,859
10,758
Total . . . . . . . . . . . . . . . . . . . . . . . . $19,017 $4,967 $
3,028 $4,152 $31,164 $74,552 $61,152 $166,868
% by rate type at December 31, 2022 . .
11%
3%
2%
2%
18%
45%
37%
100%
% by rate type at December 31, 2021 . .
14%
5%
3%
2%
24%
44%
32%
100%
(1)
As a result of the discontinuation of COFI, the Bank transitioned loans formerly indexed to COFI to the COFI Repl Index in February 2022.
104
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
At December 31, 2022, included in the hybrid-rate and fixed-rate loan portfolios are $4.0 billion,
or 2% of the total loan portfolio, that either (1) mature within one year or (2) are within one year of
adjusting from the initial fixed-rate period.
LIBOR Transition
Many of our loan products determine the amount of interest by reference to certain benchmark
rates or indices. The FHLB of San Francisco ceased calculating and publishing COFI on January 31,
2022. Additionally, in March 2021, the FCA announced the dates that panel bank submissions for all
LIBOR settings will cease, after which the respective LIBOR settings will no longer be provided by
any administrator, including the cessation of the one-week and two-month USD LIBOR tenors after
December 31, 2021 and all other USD LIBOR tenors after June 30, 2023. In March 2022, President
Biden signed the LIBOR Act into law. The LIBOR Act provides a statutory framework to replace USD
LIBOR with a benchmark rate based on SOFR for contracts governed by U.S. law that have no
fallbacks or fallbacks that would require the use of a poll or LIBOR-based rate. As contemplated by
the LIBOR Act, in December 2022, the Board of Governors of the Federal Reserve adopted a rule
which identifies different SOFR-based replacement rates for derivative contracts, for cash
instruments such as floating-rate notes and preferred stock, for consumer loans, for certain
government-sponsored enterprise contracts and for certain asset-backed securities. The Bank
ceased offering new loans indexed to COFI in the first half of 2018 and to LIBOR in the first half of
2019. In lieu of COFI or LIBOR, new loan originations are generally indexed to Prime or a 12-month
average of 1-year CMT. As the replacement index for COFI, the Bank selected COFI Repl Index and
in February 2022, the Bank transitioned outstanding loans indexed to COFI to this new index. In July
2023, the Bank will transition outstanding loans indexed to USD LIBOR to Consumer Spread-
Adjusted Term SOFR or Institutional Spread-Adjusted Term SOFR, as applicable. Consumer and
Institutional Spread-Adjusted Term SOFR are based on term SOFR plus a spread adjustment equal
to the five-year historical median spread between LIBOR and SOFR. For Consumer Spread-Adjusted
Term SOFR, a portion of the spread adjustment will be phased in over the course of one year.
Residential real estate
Residential real estate includes single family, HELOCs and single family construction loans.
Single Family
Our single family loans include loans that have an initial interest-only period. Subsequent to the
initial interest-only period, these loans fully and evenly amortize until maturity. Underwriting
standards for all such loans require substantial borrower net worth, substantial post-loan liquidity,
excellent credit scores and significant down payments. As part of our underwriting standards, we
verify the ability of the borrowers to repay our loans. The following table presents our single family
loan portfolio that fully and evenly amortizes until maturity following an initial interest-only period of
generally ten years:
December 31,
2022
2021
($ in millions)
Unpaid
Principal
Balance
% of Total
Single
Family
Unpaid
Principal
Balance
% of Total
Single
Family
Interest-only single family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$57,943
59%
$46,620
61%
105
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
At December 31, 2022, interest-only home loans had a weighted average LTV of 56%, based on
appraised value at the time of origination, and had credit scores averaging 765 at origination. At
December 31, 2022, interest-only home loans with an LTV at origination of more than 80%
comprised less than 1% of the unpaid principal balance of our single family loan portfolio.
The following table presents the years in which amortization begins for single family loans:
December 31, 2022
($ in millions)
Unpaid Principal
Balance
Currently amortizing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
40,375
Amortization period starts in:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
496
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
546
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
742
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,823
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,598
2028 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51,738
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
98,318
The following table presents LTV information at origination for all single family loans:
December 31, 2022
($ in millions)
Unpaid
Principal
Balance
% of Total
LTV at Origination
Less than or equal to 60% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$49,544
50.4%
Greater than 60% to 70% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,902
30.4
Greater than 70% to 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,365
18.7
Greater than 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
507
0.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$98,318
100.0%
We do not originate single family loans with the characteristics generally described as
“subprime” or “high cost.” Subprime loans are typically made to borrowers with little or no cash
reserves and poor or limited credit. Often, subprime loans are underwritten using limited
documentation. Over the past two years, the single family loans originated by us had a weighted
average credit score of 769, and all of our home loans were underwritten using full documentation.
Home Equity Lines of Credit
Our single family HELOC product requires the payment of interest each month on the
outstanding balance. During the first ten years of the loan term, principal amounts may be repaid or
drawn at the borrower’s option; thereafter, the unpaid principal balance fully and evenly amortizes
over a period of fifteen years. We underwrite HELOCs based on the same standards as single family
home loans. As a result, our delinquency and loss experience on HELOCs has been similar to the
experience for single family loans.
106
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
For HELOCs that are in second lien position, the LTVs in the table below are presented on a
CLTV basis, including the total HELOC commitment and any balance on a first residential
mortgage. As of December 31, 2022, 39% of HELOCs are in first lien position, and 50% of HELOCs
are in second lien position behind a first residential mortgage originated by us, including loans
subsequently sold to investors, based on total commitment.
The following table presents CLTV information at origination for HELOCs:
December 31, 2022
($ in millions)
Unpaid
Principal
Balance
Total
Commitment
% of Unpaid
Principal
Balance
CLTV at Origination
Less than or equal to 60% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,961 $
7,854
72.0%
Greater than 60% to 70% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
570
1,880
20.9
Greater than 70% to 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
179
422
6.6
Greater than 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
15
0.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,724 $
10,171
100.0%
The following table presents the years in which amortization begins for HELOCs:
December 31, 2022
($ in millions)
Unpaid Principal
Balance
Total
Commitment
Currently amortizing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
66 $
68
Amortization period starts in:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
141
419
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
170
503
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
143
532
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
199
740
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
186
761
2028 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,819
7,148
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,724 $
10,171
Single Family Construction
Our single family construction loan portfolio includes loans to individual clients for the
construction and ownership of single family homes. These loans are typically disbursed as
construction progresses and can be converted into a permanent mortgage loan once the property is
occupied. At December 31, 2022 and 2021, the unpaid principal balance of single family
construction loans was $1.2 billion and $996 million, respectively, and the total commitment was
$3.0 billion and $2.0 billion, respectively.
Income property
Income property includes multifamily, commercial real estate and multifamily/commercial
construction loans.
107
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
Multifamily
The following table presents multifamily loans and multifamily loans (excluding lines of credit),
for which interest-only payments may be made for a period of up to ten years, depending upon the
borrower, specific underwriting criteria and terms of the loans:
Unpaid Principal Balance
December 31,
($ in millions)
2022
2021
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
21,566 $
15,960
Multifamily—interest-only (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
11,738 $
7,518
(1)
Excludes lines of credit.
At December 31, 2022, interest-only multifamily loans (excluding lines of credit) had a weighted
average LTV of 52% based on the appraised value at the time of origination.
Additionally, certain multifamily lines of credit allow for interest-only payments for an initial
period. The following table presents interest-only lines of credit secured by the equity in multifamily
real estate:
December 31,
2022
2021
($ in millions)
Unpaid
Principal
Balance
Total
Commitment
% of Total
Multifamily
Unpaid
Principal
Balance
Total
Commitment
% of Total
Multifamily
Multifamily lines of
credit—interest-only . . . . . . . . . . . . . . . . $
848 $
1,408
3.9%
$
432 $
827
2.7%
At December 31, 2022, interest-only multifamily lines of credit had a weighted average LTV of
55% based on the appraised value at the time of origination.
Commercial Real Estate
The following table presents commercial real estate loans and commercial real estate loans
(excluding lines of credit) for which interest-only payments may be made for a period of up to ten
years, depending upon the borrower, specific underwriting criteria and terms of the loans:
Unpaid Principal Balance
December 31,
($ in millions)
2022
2021
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
10,834
$
8,537
Commercial real estate—interest-only (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,200
$
2,886
(1)
Excludes lines of credit.
108
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
At December 31, 2022, interest-only commercial real estate loans (excluding lines of credit) that
allow for interest-only payments had a weighted average LTV of 45% based on the appraised value
at the time of origination.
Additionally, certain commercial real estate lines of credit allow for interest-only payments for
an initial period. The following table presents interest-only lines of credit secured by the equity in
commercial real estate:
December 31,
2022
2021
($ in millions)
Unpaid
Principal
Balance
Total
Commitment
% of Total
Commercial
Real Estate
Unpaid
Principal
Balance
Total
Commitment
% of Total
Commercial
Real Estate
Commercial real estate lines of
credit—interest-only . . . . . . . . .
$
541
$
1,008
5.0%
$
442
$
939
5.2%
At December 31, 2022, interest-only commercial real estate lines of credit had a weighted
average LTV of 43% based on the appraised value at the time of origination.
Multifamily/Commercial Construction
Our multifamily/commercial construction loan portfolio includes loans for the construction and
ownership of other types of properties other than owner-occupied single family homes. These loans
are typically disbursed as construction progresses and can be converted into a permanent
mortgage loan once the property is occupied. At December 31, 2022 and 2021, the unpaid principal
balance of multifamily/commercial construction loans was $2.2 billion and $1.9 billion, respectively,
and the total commitment was $4.0 billion and $3.4 billion, respectively.
Business
Business loans include capital call lines of credit, tax-exempt, other business and PPP loans.
Business loans provide funding for investment opportunities, bridge capital calls from investors, and
meet working capital cash flow requirements and various other financing needs of our business and
non-profit clients.
The business loan portfolio is comprised primarily of capital call lines to private equity and
venture capital funds, and loans to independent schools and other non-profit organizations, which
include social service organizations, the performing arts, and museums. In addition, we provide
operating lines of credit and term loans to other business clients to meet their working capital
needs.
109
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
The following table presents our business loan portfolio by type:
December 31,
2022
2021
($ in millions)
Amortized
Cost
Total
Commitment
% of
Amortized
Cost
Amortized
Cost
Total
Commitment
% of
Amortized
Cost
Private Equity/Venture Capital Funds . . . $ 10,664 $
31,648
57%
$ 11,657 $
27,244
61%
Schools/Non-Profit Organizations . . . . . .
4,197
5,518
22
4,053
5,244
21
Investment Firms . . . . . . . . . . . . . . . . . . . . .
638
1,478
3
425
1,229
2
Real Estate Related Entities . . . . . . . . . . .
937
1,329
5
792
1,130
4
Professional Service Firms . . . . . . . . . . . . .
385
764
2
369
689
2
Aviation/Marine . . . . . . . . . . . . . . . . . . . . . .
617
625
3
454
475
2
Vineyards/Wine . . . . . . . . . . . . . . . . . . . . . .
162
253
1
143
235
1
Clubs and Membership Organizations . .
144
213
1
114
160
1
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,029
1,565
6
633
1,140
3
Total excluding PPP . . . . . . . . . . . . . . . .
18,773
43,393
100
18,640
37,546
97
PPP (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
20
—
545
555
3
Total including PPP . . . . . . . . . . . . . $ 18,793 $
43,413
100%
$ 19,185 $
38,101
100%
(1)
Total commitment related to PPP excludes net deferred fees unamortized balance of $10 million for December 31, 2021.
The following table presents our business lines of credit by type:
December 31,
2022
2021
($ in millions)
Unpaid
Principal
Balance
Total
Commitment
Utilization
Percentage
Unpaid
Principal
Balance
Total
Commitment
Utilization
Percentage
Private Equity/Venture Capital Funds . . . $10,406 $
31,378
33.2%
$11,620 $
27,200
42.7%
Schools/Non-Profit Organizations . . . . . .
535
1,855
28.8%
631
1,820
34.7%
Investment Firms . . . . . . . . . . . . . . . . . . . . .
459
1,298
35.4%
266
1,070
24.9%
Real Estate Related Entities . . . . . . . . . . .
232
623
37.2%
276
613
45.0%
Professional Service Firms . . . . . . . . . . . . .
225
605
37.2%
238
559
42.6%
Vineyards/Wine . . . . . . . . . . . . . . . . . . . . . .
62
153
40.5%
45
137
32.8%
Clubs and Membership Organizations . .
47
115
40.9%
30
75
40.0%
Aviation/Marine . . . . . . . . . . . . . . . . . . . . . .
33
41
80.5%
23
43
53.5%
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
345
878
39.3%
311
816
38.1%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,344 $
36,946
33.4%
$13,440 $
32,333
41.6%
Included within business lines of credit are capital call lines of credit, which are credit facilities
that enable private equity and venture capital funds to bridge the timing between funding
investments and receiving funds from limited partner capital calls. As of December 31, 2022, the
unpaid principal balance and total commitment for capital call lines of credit was $10.0 billion and
$30.5 billion, respectively, resulting in a utilization rate for these lines of credit of 32.8% at
December 31, 2022.
110
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
The following table presents our business term loans by type:
Unpaid Principal Balance
December 31,
($ in millions)
2022
2021
Schools/Non-profit Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,663 $
3,424
Real Estate Related Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
706
517
Aviation/Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
584
432
Private Equity/Venture Capital Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
270
44
Investment Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
180
159
Professional Service Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
159
130
Vineyards/Wine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
98
Clubs and Membership Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
85
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
687
324
Total excluding PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,447
5,213
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
555
Total including PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6,467 $
5,768
Other
The following table presents other loans which include stock secured, other secured and
unsecured loans:
December 31,
2022
2021
($ in millions)
Unpaid
Principal
Balance
Total
Commitment
Unpaid
Principal
Balance
Total
Commitment
Stock secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,547
$
12,336
$ 3,430
$
9,273
Other secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,190
7,063
2,456
5,053
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,009
4,428
3,080
4,347
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,746
$
23,827
$ 8,966
$
18,673
Stock Secured
Stock secured loans consist of loans that allow clients to borrow money against eligible
marketable securities for a wide range of purposes, including, but not limited to: home renovations,
business opportunities and general liquidity.
Other Secured
Other secured loans primarily consist of professional loan program loans, including term loans
and lines of credit, which offer individuals an ability to borrow for capital and partnership
requirements. Such loans had an unpaid principal balance of $3.1 billion and $2.3 billion at
December 31, 2022 and 2021, respectively, and total commitments of $6.8 billion and $4.8 billion,
respectively.
111
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
Unsecured
Unsecured loans primarily consist of household debt refinance loans, including term loans and
personal lines of credit, which are made to refinance existing household debt and access additional
financing at fixed interest rates. Such loans had an unpaid principal balance of $2.2 billion and
$2.1 billion at December 31, 2022 and 2021, respectively, and total commitments of $2.7 billion and
$2.5 billion at December 31, 2022 and 2021, respectively.
In addition, unsecured loans include other unsecured lines of credit, which are originated to
meet the non-mortgage needs of our clients. Such loans generally have a shorter term to maturity,
are adjustable with the prime rate and are subject to annual or more frequent review.
Lines of Credit
The following table presents the utilization percentages for lines of credit by type:
December 31,
Utilization Percentage
2022
2021
Home equity lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26.3%
27.5%
Single family construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41.0%
50.1%
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60.2%
52.4%
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53.9%
47.0%
Multifamily/commercial construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50.6%
54.9%
Capital call lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32.8%
41.8%
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40.2%
62.2%
Other business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.6%
36.4%
Stock secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36.0%
36.8%
Other secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42.1%
44.8%
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47.7%
47.0%
Loan Originations
Our strategy is to originate relationship-based loans. While we emphasize loans secured by
single family residences, we also selectively originate multifamily mortgages, commercial real
estate mortgages and other loans, including business loans. We focus on originating specific loan
types in our primary markets. The majority of our mortgage loans are secured by properties located
in close proximity to one of our offices. Some single family loans are originated for sale in the
secondary market. From the inception of our predecessor institution in mid-1985 through
December 31, 2022, we have originated $457.9 billion of loans, of which $36.1 billion have been sold
to investors.
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Loan originations include newly originated loans, newly originated lines of credit (based on
total commitment), refinanced loans and increases in loan commitment amounts resulting from
loan modifications. The following table presents loan originations:
Year Ended December 31,
($ in millions)
2022
2021
2020
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,907
$29,575
$23,986
Home equity lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,640
2,440
1,905
Single family construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,579
968
639
Total residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,126
32,983
26,530
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,278
4,815
3,701
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,402
2,094
1,414
Multifamily/commercial construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,731
1,129
1,301
Total income property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,411
8,038
6,416
Business
Capital call lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,825
12,871
9,448
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
555
590
919
Other business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,304
2,729
2,549
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
725
1,982
Total business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,684
16,915
14,898
Other
Stock secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,818
3,205
2,467
Other secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,883
2,130
1,375
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,475
1,539
998
Total other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,176
6,874
4,840
Total loans originated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$73,397
$64,810
$52,684
Total loan originations were $73.4 billion in 2022, compared to $64.8 billion in 2021, and
$52.7 billion in 2020, an increase of 13% in 2022 and an increase of 23% in 2021. Loan originations
increased in 2022 primarily due to increases in single family, multifamily and commercial real estate
lending. The volume and type of loan originations depend on the level of interest rates, the demand
for loans in our markets and other economic conditions. Due to the magnitude and pace of interest
rate increases over 2022, and anticipated continued interest rate increases in 2023, our
loan portfolio may grow at a slower rate than we have experienced in the past.
The following table presents the weighted average LTVs for new loans secured by real estate
originated during each of the periods indicated based on the appraised value at the time of origination.
The single family loan category also includes loans originated and subsequently sold to investors.
Year Ended December 31,
LTVs for New Originations
2022
2021
2020
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61%
59%
56%
Home equity lines of credit (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49%
50%
49%
Single family construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54%
55%
58%
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53%
51%
51%
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46%
45%
46%
Multifamily/commercial construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55%
54%
53%
(1)
Presented on a CLTV basis, including the first residential mortgage and a second lien, where applicable.
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The weighted average LTVs in all categories have remained consistent and conservative over
the periods and are indicative of the high quality of the Bank’s underwriting standards.
The following table presents the weighted average borrower’s credit scores for home loans
originated during each of the periods indicated. The single family loan category also includes loans
originated and subsequently sold to investors.
Year Ended December 31,
Weighted Average Credit Scores
2022
2021
2020
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
770
769
771
Home equity lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
770
773
770
The following table presents purchase loans and refinance loans as a percentage of total single
family mortgage originations (excluding HELOCs) for each of the periods indicated:
Year Ended December 31,
Purchase and Refinance Composition
2022
2021
2020
Purchase loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54%
45%
34%
Refinance loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
55
66
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
100%
Portfolio LTVs
We have approved a limited group of third-party appraisers to appraise all of the properties on
which we make loans. Certain larger single family loans require two appraisals (with the lower value
used for underwriting purposes). Our practice is to seldom exceed an 80% LTV on single family
loans and an 80% CLTV on HELOCs. LTV ratios generally decline as the size of the loan increases.
At origination, we generally do not exceed a 75% LTV on multifamily loans and a 70% LTV on
commercial real estate loans.
The following table presents the weighted average LTVs based on the appraised value at the
time of origination for our entire portfolio of loans secured by real estate at the dates indicated:
December 31,
Portfolio LTVs
2022
2021
Single family (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59%
58%
Home equity lines of credit (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49%
50%
Single family construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55%
56%
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52%
51%
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46%
46%
Multifamily/commercial construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54%
54%
(1)
Includes any loans held for sale, when applicable.
(2)
Presented on a CLTV basis, including the first residential mortgage and a second lien, where applicable.
We either retain originated home loans in our loan portfolio or sell the loans in whole loan or
loan participation arrangements, either in the secondary market or in loan securitizations. Loan
sales are highly dependent upon market conditions. We have retained in our loan portfolio both
ARMs and intermediate-fixed rate loans. As interest rates rise, payments on ARMs increase, which
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may be financially burdensome to some borrowers and could increase the risk of default. Our ARMs
provide for a life cap above the initial interest rate, thereby protecting borrowers from unlimited
interest rate increases. As part of our standard underwriting guidelines, borrowers undergo a
qualification process for an ARM loan assuming an interest rate that is higher than the initial rate.
Asset Quality
We place an asset on nonaccrual status when any installment of principal or interest is 90 days
or more past due (except for single family loans that are well secured and in the process of
collection) or when management determines the ultimate collection of all contractually due
principal or interest to be unlikely. Restructured loans for which we grant payment or interest rate
concessions because of a borrower’s financial difficulties (i.e., TDRs) are placed on nonaccrual
status until collectibility improves and a satisfactory payment history is established, generally by the
receipt of at least six consecutive timely payments.
Our collection policies are highly focused with respect to both our portfolio loans and loans
serviced for others. We have policies requiring prompt notification of delinquency and initiation of
corrective measures. Our practice is to attempt to resolve problem assets quickly, including (as
appropriate) collections, modifications, pursuit of foreclosure, or the sale of such problem assets as
rapidly as possible at prices available in the prevailing market. For certain properties, we may make
repairs and engage management companies in order to reach stabilized levels of occupancy prior to
asset disposition. We believe our collection and foreclosure procedures comply with all applicable
laws and regulations. We currently have a low level of loans in foreclosure.
Nonaccrual and Other Information
The following table presents total nonaccrual loans, other real estate owned, the ratio of
nonperforming assets to total assets, accruing loans 90 days or more past due and restructured
accruing loans:
December 31,
($ in millions)
2022
2021
Nonperforming assets:
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
109
$
139
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
109
$
139
Nonperforming assets to total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.05%
0.08%
Accruing loans 90 days or more past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
—
Restructured accruing loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
12
$
13
See Note 4 in “Item 8. Financial Statements and Supplementary Data” for information related
to interest income on nonaccrual loans for the years ended December 31, 2022, 2021, and 2020.
Of the loans on nonaccrual status, $58 million were current at December 31, 2022, compared to
$52 million at December 31, 2021.
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The future level of nonperforming assets depends upon a number of factors, including the
performance of borrowers under loan terms, the timing of the sale of future other real estate owned
properties and economic conditions nationally and in our primary markets.
Allowance for Credit Losses on Loans
The Bank estimates its ACL on loans using quantitative models, expert judgment, qualitative
factors and individual assessments. The Bank’s estimate incorporates individual loan and/or
property level characteristics, macroeconomic forecasts and historical loss rates to determine
expected credit losses over the life of its loans. Loans with similar risk characteristics within each
class are pooled when developing the allowance, and loans that do not share similar risk
characteristics are individually assessed.
For a complete description of the accounting policies for determining the Bank’s ACL on loans,
see Note 1 and Note 4 in “Item 8. Financial Statements and Supplementary Data.” In addition, see
Note 4 in “Item 8. Financial Statements and Supplementary Data” for information related to
changes in the ACL for loans for the years ended December 31, 2022, 2021, and 2020. For further
discussion of the Bank’s ACL on loans, see “—Critical Accounting Policies and Estimates—
Allowance for Credit Losses on Loans.”
The following table presents our net loan charge-offs, ACL on loans, average total loans, total
loans and total nonaccrual loans, as well as ratios related to these measures:
At or for the Year
Ended December 31,
($ in millions)
2022
2021
Net loan charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3
$
2
Allowance for credit losses on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
784
$
694
Average total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 150,218
$123,106
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 166,868
$134,956
Total nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
109
$
139
Ratios:
Net loan charge-offs to average total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.00%
0.00%
Nonaccrual loans to total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.07%
0.10%
Allowance for credit losses on loans to:
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.47%
0.51%
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
720.5%
500.5%
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The following table presents net loan charge-offs (recoveries) to average loans outstanding:
Year Ended December 31,
2022
2021
2020
($ in millions)
Net loan
charge-offs
(recoveries)
Average
Balance
%
Net loan
charge-offs
(recoveries)
Average
Balance
%
Net loan
charge-offs
(recoveries)
Average
Balance
%
Single family . . . . . . $
2 $ 88,256 0.00%
$
1 $ 69,330
0.00%
$
2 $ 53,135 0.00%
Home equity lines
of credit . . . . . . . .
1
2,689 0.04%
—
2,437
0.00%
—
2,481 0.00%
Single family
construction . . . .
—
1,097 0.00%
—
888
0.00%
—
743 0.00%
Multifamily . . . . . . .
—
18,453 0.00%
—
14,735
0.00%
—
13,092 0.00%
Commercial real
estate . . . . . . . . . .
—
9,399 0.00%
—
8,260
0.00%
—
7,752 0.00%
Multifamily/
commercial
construction . . . .
—
2,026 0.00%
—
2,067
0.00%
—
1,935 0.00%
Capital call lines of
credit . . . . . . . . . .
—
10,403 0.00%
—
8,947
0.00%
—
6,619 0.00%
Tax-exempt . . . . . .
—
3,641 0.00%
—
3,533
0.00%
—
3,195 0.00%
Other business . . .
—
4,322 0.00%
(1)
3,553 (0.03)%
—
3,032 0.00%
PPP . . . . . . . . . . . . . .
—
147 0.00%
—
1,418
0.00%
—
1,432 0.00%
Stock secured . . . .
—
3,998 0.00%
—
2,872
0.00%
—
2,079 0.00%
Other secured . . . .
—
2,777 0.00%
—
2,043
0.00%
—
1,635 0.00%
Unsecured . . . . . . .
—
3,010 0.00%
2
3,023
0.07%
—
3,128 0.00%
Total . . . . . . . . . . . $
3 $150,218 0.00% $
2 $123,106
0.00%
$
2 $100,258 0.00%
The following table presents the allocation of the ACL on loans:
December 31,
2022
2021
2020
($ in millions)
Allowance
for Credit
Losses
% of Loan
Portfolio
Allowance
for Credit
Losses
% of Loan
Portfolio
Allowance
for Credit
Losses
% of Loan
Portfolio
Single family . . . . . . . . . . . . . . . . . . . . . . . . .
$
203
59%
$
157
57%
$
137
54%
Home equity lines of credit . . . . . . . . . . . .
5
2
4
2
8
2
Single family construction . . . . . . . . . . . .
8
1
5
1
4
1
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . .
187
13
121
12
121
12
Commercial real estate . . . . . . . . . . . . . . .
96
6
82
6
71
7
Multifamily/commercial construction . .
25
1
24
1
36
2
Capital call lines of credit . . . . . . . . . . . . .
61
6
123
8
90
7
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . .
51
2
47
3
40
3
Other business . . . . . . . . . . . . . . . . . . . . . .
99
3
78
3
68
3
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
2
Stock secured . . . . . . . . . . . . . . . . . . . . . . .
—
3
—
3
—
2
Other secured . . . . . . . . . . . . . . . . . . . . . . .
10
2
8
2
8
2
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . .
39
2
45
2
52
3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
784
100%
$
694
100%
$
635
100%
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FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
Allowance for Credit Losses on Unfunded Loan Commitments
The Bank also records an ACL on unfunded loan commitments, which is based on the same
assumptions as funded loans and also considers the probability of funding. For a complete
description of the accounting policies for determining the Bank’s ACL on unfunded loan
commitments, see Note 1 and Note 4 in “Item 8. Financial Statements and Supplementary Data.” In
addition, see Note 4 in “Item 8. Financial Statements and Supplementary Data” for information
related to changes in the ACL on unfunded loan commitments for the years ended December 31,
2022, 2021, and 2020.
Mortgage Banking Activities
In addition to originating loans for our own portfolio, we conduct mortgage banking activities.
We have sold whole loans and participations in loans in the secondary market and in loan
securitizations. We originate, on a direct flow basis, single family mortgages that are priced and
underwritten to conform to previously agreed-upon criteria prior to loan funding and are delivered
to the investor shortly after funding. We have also identified secondary market sources that seek to
acquire loans of the type we originate for our loan portfolio.
The level of loan originations, loan sales and gain on loan sales depend upon market conditions
and the interest rate environment, as well as our pricing and ALM strategies. The level of future loan
originations, loan sales and gain on loan sales will depend on overall credit availability, the interest
rate environment, the strength of the general economy, local real estate markets and the housing
industry, and conditions in the secondary loan sale market.
In connection with loan sales, we retain all the loan servicing in order to maintain the primary
contact with our clients and to generate recurring fee income. We retain MSRs on loans that we sell
to institutional investors and governmental agencies. We generally do not provide any financial or
performance guarantees to the investors who purchase our loans and the purchasers do not have
any recourse to the Bank on the loans that we have sold. In accordance with secondary market
standards, we make customary representations and warranties related to the origination and
documentation of sold loans. We have not been required to make any significant loan repurchases
or incur any other significant costs subsequent to the sale of loans for any breach of these
customary representations and warranties.
As of December 31, 2022, the Bank has an obligation to reimburse Freddie Mac for losses up to
$30 million, or 12% of the multifamily loans securitized in 2018. As of December 31, 2022, the
weighted average LTV of those loans was 54% based on the appraised value at the time of
origination. There was no liability for estimated losses related to this reimbursement obligation at
December 31, 2022, and the Bank has experienced no cumulative losses on the loans within this
securitization through December 31, 2022. The remaining unpaid principal balance of multifamily
loans securitized was $43 million at December 31, 2022, compared to $71 million at December 31,
2021 and $252 million at the time of securitization in 2018.
In connection with single family loans securitized in 2020, the Bank retained a 5% interest in the
investment securities issued in the securitization, which consist of senior and subordinated tranches
and an interest-only strip. The carrying value of the securities was $8 million as of December 31,
2022, compared to $10 million as of December 31, 2021. There have been no cumulative losses on the
loans within the securitization through December 31, 2022. The remaining unpaid principal balance
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of single family loans securitized was $164 million at December 31, 2022, compared to $195 million at
December 31, 2021 and $300 million at the time of securitization in 2020.
Mortgage loans serviced for investors decreased to $3.5 billion at December 31, 2022, from
$4.7 billion at December 31, 2021, due to repayments in the servicing portfolio exceeding loan sales
over the past twelve months. The average servicing portfolio was $4.0 billion in 2022, a decrease of
32% compared to $5.8 billion in 2021, and a decrease in 2021 of 31% compared to $8.4 billion in
2020. The overall repayment speed experienced on loans serviced was 26% in 2022, compared to
35% in 2021, and 31% in 2020. At December 31, 2022, MSRs were $11 million (33 bps of loans
serviced), compared to $16 million (35 bps of loans serviced) at December 31, 2021.
Our loan origination policies and consistent underwriting standards have resulted in a low
historical loan loss experience on single family loans sold in the secondary market. Since our
inception in 1985, we have experienced cumulative net loan losses of only $10 million on single
family loans sold. At December 31, 2022, single family loans serviced for investors that are 90 days
or more past due were $5 million, or 14 bps of such loans serviced.
Deposit Gathering
We obtain funds from depositors by offering consumer and business checking, money market
and passbook accounts, and term CDs. Our accounts are federally insured by the FDIC up to the
maximum limit. At December 31, 2022, our total deposits were $176.4 billion, a 13% increase from
$156.3 billion at December 31, 2021, as we continued to expand relationships with existing clients
and acquire new deposit clients, both business and consumer. However, our total deposits grew at
a slower rate in 2022 than 2021. Refer to “—Financial Highlights—Deposits and Funding” for
additional discussion of our deposit funding. Estimated uninsured deposits totaled $119.5 billion
and $116.7 billion as of December 31, 2022 and 2021, respectively. Estimates of uninsured deposits
are based on the methodologies and assumptions used in our Consolidated Reports of Condition
and Income (“Call Report”) filings.
The following table presents the balances and average contractual cost of deposits:
December 31,
2022
2021
($ in millions)
Amount
Weighted
Average
Cost
Amount
Weighted
Average
Cost
Noninterest-bearing checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 62,579
—%
$ 70,840
—%
Interest-bearing checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,178
0.70%
41,248
0.01%
Money market checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,805
2.64%
20,303
0.10%
Money market savings and passbooks . . . . . . . . . . . . . . . . . . . . . . . .
21,663
2.34%
16,573
0.15%
CDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,212
3.15%
7,357
0.41%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$176,437
1.29%
$156,321
0.05%
Total deposits included $5.3 billion of brokered deposits at December 31, 2022, compared to
$851 million at December 31, 2021. The weighted average contractual rate paid on brokered
deposits was 3.81% and 0.02% at December 31, 2022 and 2021, respectively.
Our deposit base consists of: (1) Preferred Banking deposits, which are placed by clients who
enter into deposit relationships directly with a relationship manager, business banker, preferred
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banker or wealth management professional; (2) deposits from Preferred Banking Offices, which are
retail locations that gather deposits and service all of our clients; (3) wealth management sweep
deposits, which primarily consist of deposits swept from clients’ brokerage or other investment
accounts; and (4) other deposits, which primarily consist of brokered deposits, public deposits,
third-party broker dealer sweeps, negotiable CDs, foreign exchange and other deposits that are not
attributable to any specific deposit location.
The following table presents deposits by channel, and by region in which the accounts are
domiciled:
December 31,
($ in millions)
2022
2021
Preferred Banking:
San Francisco Bay Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 44,026
$ 41,464
New York Metro Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,117
26,059
Boston Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,776
13,378
Los Angeles Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,147
9,102
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,048
7,489
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100,114
97,492
Preferred Banking Offices:
San Francisco Bay Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,921
25,523
New York Metro Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,087
7,556
Los Angeles Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,821
4,126
Boston Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,971
3,021
Other (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,799
5,958
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,599
46,184
Wealth management sweep . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,150
10,540
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,574
2,105
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$176,437
$156,321
(1)
Consists of deposits domiciled in San Diego, California; Portland, Oregon; Bellevue, Washington; and the Palm Beach, Florida region.
(2)
Consists of deposits domiciled in San Diego, California; Portland, Oregon; Bellevue, Washington; Jackson, Wyoming; and the Palm Beach,
Florida region.
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The following table presents business and consumer deposits:
December 31,
($ in millions)
2022
2021
Business deposits:
Checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 74,112
$ 74,709
Money market checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,440
11,542
Money market savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,420
5,232
CDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,931
1,568
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
110,903
93,051
Percentage of total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63%
60%
Consumer deposits:
Checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,644
37,379
Money market checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,365
8,762
Money market savings and passbooks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,244
11,341
CDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,281
5,788
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65,534
63,270
Percentage of total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37%
40%
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$176,437
$156,321
At December 31, 2022, the weighted average contractual rate paid on CDs was 3.15%, and the
weighted average remaining maturity of CDs was 3.0 months. The contractual maturities and
weighted average contractual rate of our CDs were as follows:
December 31, 2022
($ in millions)
Amount
Rate
CDs maturing in:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24,496
3.15%
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
596
3.27%
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75
1.83%
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
0.70%
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
0.91%
2028 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
1.44%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25,212
3.15%
We fund a portion of our assets with CDs that have balances greater than the FDIC insurance
limit of $250,000. At December 31, 2022, our CDs having balances greater than the FDIC insurance
limit by account totaled $12.0 billion, and the maturities of such CDs are presented in the following
table:
($ in millions)
December 31, 2022
Remaining maturity:
Three months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9,535
Over three through six months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,329
Over six through twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
938
Over twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
205
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
12,007
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Borrowings
Our other sources of funding include both short-term and long-term borrowings. Short-term
borrowings, which include federal funds purchased and short-term FHLB advances, have an original
maturity of one year or less. Long-term debt, which includes long-term FHLB advances, senior notes
and subordinated notes, has an original maturity in excess of one year. The level and mix of short-
term and long-term borrowings vary based on funding needs and market conditions. The following
table presents the carrying values and weighted average contractual rates of short-term
borrowings and long-term debt:
Carrying Value
Rate
December 31,
December 31,
($ in millions)
2022
2021
2022
2021
Short-term borrowings:
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,700
$
0
4.40%
—%
Long-term debt:
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,300
$3,700
2.35%
0.95%
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
500
998
1.91%
2.21%
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
779
779
4.50%
4.50%
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,579
$5,477
2.52%
1.69%
The increases in short-term and long-term borrowings were driven primarily by new FHLB
advances, which were utilized as additional sources of funding in 2022. In addition, the 2.500%
Senior Notes due 2022 with a principal balance of $500 million were redeemed in the second
quarter of 2022, and, therefore, were no longer outstanding as of December 31, 2022.
As of December 31, 2022, the weighted average remaining maturity of long-term FHLB
advances was 1.4 years.
See Note 13 in “Item 8. Financial Statements and Supplementary Data” for further discussion of
borrowings. In addition, refer to Note 26 in “Item 8. Financial Statements and Supplementary Data”
for information regarding the Bank’s redemption of its 1.912% Senior Fixed-to-Floating Rate Notes
due 2024 with an outstanding principal balance of $500 million on February 12, 2023.
At December 31, 2022, we had $55.2 billion of unused, available borrowing capacity at the
FHLB supported by pledged loans. In addition, we had $6.7 billion of unused, available borrowing
capacity at the Federal Reserve Bank discount window collateralized by pledged investment
securities. This unused, available borrowing capacity at the FHLB and the Federal Reserve Bank
discount window equaled 29% of total assets.
Liquidity and Capital Resources
Liquidity refers to our capacity to meet our cash and collateral obligations and to manage both
expected and unexpected cash flows without adversely impacting the operations or financial health
of the Bank. Our traditional funding sources consist primarily of deposits, borrowings and equity.
Other sources of liquidity consist of liquid assets such as cash and cash equivalents, as well as
marketable, highly liquid securities and loans.
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Liquidity Risk Management
We engage in various activities to manage our liquidity risk, including maintaining a diversified
set of funding sources and holding sufficient liquid assets to meet our cash flow and funding needs.
Liquidity and funding-related risk policies and limits are established within our Liquidity Risk
Management Policy, which is approved by the Board at least annually. Liquidity risk is actively
monitored and managed by the Treasury department, Chief Financial Officer and senior
management through the Bank Enterprise Risk Management Committee, with independent
oversight provided by the Board through the Directors’ Enterprise Risk Management Committee. In
addition, we maintain a contingency funding plan and perform scenario-based stress-testing to
ensure resilience in case of expected and unexpected future events.
Sources of Liquidity
Refer to “—Balance Sheet Analysis—Deposit Gathering” and “—Balance Sheet Analysis—
Borrowings” for further discussion of the composition of deposit and borrowing sources. In addition,
we issue preferred stock and common stock as funding sources, which are also components of
regulatory capital. Refer to “—Regulatory Capital Components and Ratios,” as well as Notes 17 and
18 in “Item 8. Financial Statements and Supplementary Data” for additional discussion of the Bank’s
preferred and common stock.
As discussed in Part I, “Item 1A. Risk Factors—We are subject to liquidity risk, which could
impair our ability to fund various obligations,” our access to funding sources in amounts adequate
to finance our activities or on terms that are acceptable to us could be impaired by factors that
affect us specifically or the financial services industry or economy generally. Management believes
that the sources of available liquidity are well-diversified and adequate to meet all reasonably
foreseeable short-term and long-term demands.
HQLA
At December 31, 2022, assets that are considered HQLA, including eligible cash, were
$26.0 billion, or 13% of average total assets for the fourth quarter of 2022. HQLA include
$11.3 billion of municipal securities.
Cash Requirements
Our short-term liquidity requirements primarily relate to operating expenses, financing of
short-term assets, and payments relating to ongoing commitments and obligations due within
one year. Our long-term liquidity requirements primarily relate to loan originations, investment
purchases, the funding of long-term assets, and the meeting of ongoing commitments and
obligations due in excess of one year. For additional discussion, see “—Commitments and
Contractual Obligations.”
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Cash Flows
The following table presents the Bank’s net cash provided by or used for operating, investing
and financing activities, as well as cash balances for the periods indicated:
At or for the Year Ended December 31,
% Change
($ in millions)
2022
2021
2020
2022 vs.
2021
2021 vs.
2020
Net cash provided by operating activities . . . . . . . . . .
$
252
$
1,204
$
531
79%
127%
Net cash used for investing activities . . . . . . . . . . . . . .
$
(38,805)
$ (29,143)
$
(21,855)
(33)%
33%
Net cash provided by financing activities . . . . . . . . . .
$
29,889
$
35,791
$
24,719
(16)%
45%
Cash and cash equivalents at the end of period . . . . .
$
4,283
$
12,947
$
5,095
(67)%
154%
Net cash used for investing activities consisted primarily of loan originations and purchases
of investment securities. The increase in investing outflows in 2022, compared to 2021, was
primarily attributable to growth in loan originations. Net cash provided by financing activities
consisted primarily of growth in deposits and proceeds from borrowings. Lower cash financing
inflows in 2022, compared to 2021, was primarily the result of lower growth in deposits, offset
by an increase in short-term and long-term FHLB advances. For additional information about
the Bank’s sources and uses of cash, refer to the Consolidated Statements of Cash Flows in
“Item 8. Financial Statements and Supplementary Data.”
Commitments and Contractual Obligations
In the ordinary course of business, we enter into transactions that involve financial instruments
with off-balance sheet risks to meet the financing needs of our clients. These financial instruments
include commitments to disburse additional funds on existing loans and lines of credit and
commitments issued under standby letters of credit. Such instruments involve elements of credit
risk and interest rate risk. Since these commitments may expire without being drawn, the total
commitment amounts do not necessarily represent future cash requirements. See Note 16 in “Item
8. Financial Statements and Supplementary Data” for additional information regarding the Bank’s
lending commitments.
In addition to the commitments described above, the Bank enters into other contractual
obligations in the ordinary course of business. Certain of these obligations, such as deposits, FHLB
advances, senior notes, subordinated notes, unfunded commitments on tax credit investments and
other investments, and lease liabilities are recorded as liabilities in the consolidated financial
statements.
As discussed in Note 16 in “Item 8. Financial Statements and Supplementary Data,” in
connection with the securitization of loans with Freddie Mac, the Bank has an obligation to
reimburse Freddie Mac for losses up to $30 million, or 12% of the multifamily loans securitized. At
December 31, 2022, there was no liability for estimated losses related to this reimbursement
obligation.
The following table presents information regarding our significant contractual obligations at
December 31, 2022, and expected timing of payments for these obligations. Deposit obligations
categorized as “indeterminate maturity” include all deposits other than CDs. Our deposit and
borrowing obligations in the following table exclude contractual interest. Lease liabilities represent
undiscounted lease payments over the lease term and exclude leases signed but not yet
commenced.
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Contractual Payments by Period
($ in millions)
Less Than
1 Year
1 to 3
Years
>3 to 5
Years
> 5
Years
Indeterminate
Maturity
Total
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 24,496
$
671
$
43
$
2
$
151,225
$ 176,437
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9,225
$ 4,375
$ 400
$
—
$
—
$
14,000
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
500
$
—
$
—
$
—
$
—
$
500
Subordinated notes . . . . . . . . . . . . . . . . . . . . . .
$
—
$
—
$
—
$ 800
$
—
$
800
Unfunded commitments—tax credit and
other investments . . . . . . . . . . . . . . . . . . . . . .
$
272
$
400
$
27
$
69
$
—
$
768
Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$
184
$
360
$ 320
$ 967
$
—
$
1,831
See Notes 7, 9, 12, 13 and 26 in “Item 8. Financial Statements and Supplementary Data” for
additional information regarding tax credit investments, leases, deposits and borrowings presented
in the table above.
Regulatory Capital Components and Ratios
The following table presents the Bank’s components of regulatory capital, average assets, and
RWAs, as defined by regulatory capital rules:
December 31,
($ in millions)
2022
2021
Regulatory Capital Components
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,446
$ 15,898
CECL Capital Rule retained earnings adjustments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43
58
CET1 capital adjustments and deductions:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,633)
(3,633)
Goodwill and other intangible assets, net of DTLs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(185)
(194)
DTAs that arise from tax credit carryforwards, net of DTLs . . . . . . . . . . . . . . . . . . . . . . .
(82)
(115)
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
331
31
CET1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,920
12,045
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,633
3,633
Additional Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,633
3,633
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,553
15,678
Tier 2 capital instruments—subordinated notes (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
779
779
Qualifying ACL (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
831
727
CECL Capital Rule ACL adjustments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(45)
(60)
Tier 2 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,565
1,446
Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,118
$ 17,124
Assets
Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$206,328
$178,911
CECL Capital Rule average assets adjustments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43
58
Average assets after adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$206,371
$178,969
RWAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$151,781
$124,825
CECL Capital Rule DTAs adjustments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4)
(5)
RWAs after adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$151,777
$124,820
(1)
Beginning in 2020, amounts reflect the Bank’s election to delay the estimated impact of the CECL ACL methodology on its regulatory
capital, average assets and RWAs over a five-year transition period ending December 31, 2024.
(2)
Subordinated notes mature in 2046 and 2047.
(3)
Includes the ACL on loans, held-to-maturity debt securities and unfunded loan commitments.
125
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
At December 31, 2022 and 2021, the Bank’s noncumulative perpetual preferred stock was 21%
and 23% of Tier 1 capital, respectively.
We may, from time to time, issue additional common stock, preferred stock, or other forms of
capital or debt instruments depending on market conditions and subject to any required regulatory
approvals. During 2022, the Bank sold 2,587,500 new shares of common stock in an underwritten
public offering, which added $402 million to common equity. Refer to Note 26 in “Item 8. Financial
Statements and Supplementary Data” for information regarding the Bank’s underwritten public
offering of 2,875,000 new shares of common stock in February 2023, which added $397 million to
common equity.
A “capital conservation buffer” of 2.5% of RWAs is also required under the Basel III Capital
Rules. The capital conservation buffer is designed to absorb losses during periods of economic
stress. Banking institutions with a CET1 capital ratio above the minimum requirement but below the
capital conservation buffer will face constraints on dividends, equity repurchases and
compensation based on the amount of the shortfall and “eligible retained income” (that is, the
greater of net income for the four calendar quarters preceding the current calendar quarter, net of
any distributions and associated tax effects not already reflected in net income, and the average of
net income for the four calendar quarters preceding the current calendar quarter).
Our capital ratios exceeded all applicable regulatory requirements at December 31, 2022 for
well-capitalized institutions, and our capital conservation buffer exceeded the minimum
requirement of 2.5%. The following table presents our capital ratios and regulatory requirements:
Regulatory Requirements
December 31,
Well-
Capitalized
Ratio
Minimum
Capital
Ratio
Minimum
Capital
Conservation
Buffer (2)
Capital Ratios (1)
2022
2021
Tier 1 leverage ratio (Tier 1 capital to average assets) . . . . . .
8.51%
8.76%
5.00%
4.00%
—%
CET1 capital to RWAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.17%
9.65%
6.50%
4.50%
2.50%
Tier 1 capital to RWAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.56% 12.56%
8.00%
6.00%
2.50%
Total capital to RWAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.60% 13.72%
10.00%
8.00%
2.50%
(1)
Beginning in 2020, ratios reflect the Bank’s election to delay the estimated impact of the CECL ACL methodology over a five-year
transition period ending December 31, 2024.
(2)
As of December 31, 2022, our capital conservation buffer was 4.60%, which exceeded the minimum requirement of 2.5% required to be
held by banking institutions.
126
FIRST REPUBLIC BANK
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
Return on Average Common Shareholders’ Equity and Return on Average Tangible
Common Shareholders’ Equity
The following table presents the components of return on average common shareholders’
equity and return on average tangible common shareholders’ equity:
Return on Average Common Shareholders’ Equity and Return on Average Tangible
Common Shareholders’ Equity (1)
Year Ended December 31,
2022
2021
2020
($ in millions)
Average common shareholders’ equity (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,996
$ 11,263
$
9,492
Less: Average goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . . . . . .
(220)
(225)
(231)
Average tangible common shareholders’ equity (b) . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,776
$ 11,038
$
9,261
Net income available to common shareholders (c) . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,507
$
1,379
$
1,005
Return on average common shareholders’ equity (c) / (a) . . . . . . . . . . . . . . . . . . .
11.60%
12.24%
10.59%
Return on average tangible common shareholders’ equity (c) / (b) . . . . . . . . . . .
11.80%
12.49%
10.86%
(1)
Return on average tangible common shareholders’ equity is considered a non-GAAP financial measure, and is reconciled to GAAP return
on average common shareholders’ equity in this table.
Book Value per Common Share and Tangible Book Value per Common Share
The following table presents the components of book value per common share and tangible
book value per common share:
December 31,
Book Value per Common Share and Tangible Book Value per Common Share (1)
2022
2021
(in millions, except per share amounts)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,446
$15,898
Less: Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,633)
(3,633)
Total common shareholders’ equity (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,813
12,265
Less: Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(218)
(222)
Total tangible common shareholders’ equity (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,595
$12,043
Number of shares of common stock outstanding (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
183
179
Book value per common share (a) / (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 75.38
$ 68.34
Tangible book value per common share (b) / (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 74.19
$ 67.10
(1)
Tangible book value per common share is considered a non-GAAP financial measure, and is reconciled to GAAP book value per common
share in this table.
127
FIRST REPUBLIC BANK
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk Management
We seek to measure and manage the potential impact of changes in interest rates on our net
interest income and net interest margin, known as interest rate risk. Interest rate risk is primarily
driven by assets and liabilities that mature or reset at different times, on a different basis, in
unequal amounts, or which may have different embedded optionality. The Bank’s Board approves
policies and limits governing the management of interest rate risk at least annually. Our ALM and
Investment Committees further establish risk management guidelines and procedures within the
broader policies and limits established by the Bank’s Board. Compliance with these policies and
limits is reported to the Bank’s Board on an ongoing basis and decisions on the management of
interest rate risk are made as needed. We utilize a variety of interest rate risk management tools to
evaluate our interest rate risk.
We may manage interest rate risk by altering the mix of loans, such as adjustable-rate loans,
hybrid ARMs, or fixed-rate loans, which we originate or elect to retain. We may also change the
composition and characteristics of our investment portfolio. We may also vary the degree to which
we utilize different funding sources, such as checking and savings accounts, CDs with various
maturity terms, laddered maturity fixed-rate FHLB advances and unsecured, term, fixed-rate senior
notes, fixed-to-floating rate senior notes and fixed-rate subordinated notes. We may also utilize
short-term borrowings to fund short-term assets or bridge temporary funding needs.
In addition to the volume, mix and pricing of interest-earning assets and interest-bearing
liabilities, our net interest income and net interest margin may also be affected by factors such as
changes in federal, state or local regulations, competition, market conditions, levels of loan sales
and repayment rates, levels of cash held on the balance sheet, overall growth of assets and
liabilities, general interest rate trends, including movements in interest rates and the shape of the
yield curve, basis risk, level and cost of wholesale funding, market rates of new capital or debt
offerings and any nonaccrual loans. Our net interest margin may also be affected by our overall
business model or strategy. See “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Key Factors Affecting Our Business and Financial
Statements—Interest Rates” for discussion of the FOMC’s actions.
Balance Sheet Overview
Our net interest income and net interest margin may be affected by the mix of interest-earning
assets and interest-bearing liabilities. The Bank has earning assets with reset periods or maturity of
less than one year totaling $40.5 billion, or 20% of total earning assets at December 31, 2022. Of
these earning assets, the Bank has loans which are currently adjustable and reprice with indices or
mature within one year totaling $35.1 billion, or 21% of the total loan portfolio at December 31,
2022. The loan portfolio that reprices at least quarterly to market rate indices, such as Prime or
LIBOR, totaled $24.4 billion, or 15% of the total loan portfolio at December 31, 2022. The loan
portfolio with lagging indices, such as the COFI Repl Index or CMT, totaled $6.7 billion, or 4% of the
total loan portfolio at December 31, 2022. Additionally, the loan portfolio that either (1) matures
within one year or (2) is within one year of adjusting from the initial fixed-rate period totaled
$4.0 billion, or 2% of the total loan portfolio at December 31, 2022. In addition, at December 31,
2022, the Bank held $3.8 billion in cash and $1.6 billion in investment securities (collectively, 15% of
total cash and investment securities), that reprice to market rates at least quarterly or are currently
projected to be called or mature in less than one year.
128
FIRST REPUBLIC BANK
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Total checking deposits were $103.8 billion, or 59% of total deposits at December 31, 2022.
Total checking deposits include both noninterest-bearing checking accounts and interest-bearing
checking accounts, but exclude money market checking accounts. The rates paid on money market
savings, money market checking and passbook deposit accounts generally move directionally with
changes in short-term prevailing interest rates and may be subject to competitive pricing pressure.
Money market savings, money market checking and passbook deposit accounts together totaled
$47.5 billion, or 27% of total deposits at December 31, 2022. CDs were $25.2 billion, or 14% of total
deposits and had a weighted average remaining maturity of 3.0 months at December 31, 2022.
We utilize long-term FHLB advances as a source of fixed-rate, term funding to help manage our
overall interest rate risk. Such advances totaled $7.3 billion at December 31, 2022 and had a
weighted average remaining maturity of 1.4 years. We may also utilize short-term borrowings to
fund short-term assets or bridge temporary funding needs. Such borrowings totaled $6.7 billion at
December 31, 2022. In addition, the Bank has also issued unsecured, term, fixed-to-floating rate
senior notes and fixed-rate subordinated notes. At December 31, 2022, the senior notes had a
carrying value of $500 million and the subordinated notes had a carrying value of $779 million. The
maturity dates and optional redemption dates for the senior and subordinated notes are discussed
in Note 13 in “Item 8. Financial Statements and Supplementary Data.” In addition, refer to Note 26
in “Item 8. Financial Statements and Supplementary Data” for information regarding the Bank’s
redemption of its 1.912% Senior Fixed-to-Floating Rate Notes due 2024 with an outstanding
principal balance of $500 million on February 12, 2023.
Net Interest Income Simulation
In addition to evaluating our current balance sheet, we also perform simulations to measure
and evaluate our potential net interest income exposure to changes in interest rates. Based on the
results of such analyses, we may make changes to our asset/liability mix, to draw down short or
long-term advances with the FHLB, to issue long-term senior notes or long-term subordinated
notes, to sell or securitize loans, to enter into interest rate exchange agreements or to otherwise
seek to better protect ourselves against potential adverse effects from changes in interest rates.
We use a simulation model to measure and evaluate our net interest income risk exposure. We
run various hypothetical interest rate scenarios at least quarterly and compare these results against
a scenario with no changes in interest rates. Our net interest income simulation model incorporates
various assumptions, which management believes to be reasonable but which may have a
significant impact on results, such as: (1) the timing, direction and magnitude of changes in interest
rates, (2) the yield curve evolution and shape, (3) repricing and maturing characteristics, other than
contractual, for market rate sensitive instruments, (4) non-interest bearing checking deposit
balance behavior and the possibility of shifts in preference between non-interest bearing and
interest-bearing products or non-deposit alternatives, (5) varying sensitivities of financial
instruments due to differing underlying rate indices or relevant spreads, (6) loan prepayment speeds
for different interest rate and market scenarios, (7) the effect of interest rate floors, periodic loan
caps and lifetime loan caps, (8) the levels of cash held on our balance sheet and (9) overall growth,
product mix and repayment rates of assets and liabilities. Because of limitations inherent in any
approach used to measure interest rate risk, simulation results are not intended as a precise
forecast of the actual effect of a change in market interest rates on our results, but rather to better
understand the direction, timing and magnitude of interest rate risk exposure and plan and execute
the appropriate ALM strategies.
129
FIRST REPUBLIC BANK
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Potential changes to our net interest income in hypothetical rising and declining rate scenarios,
measured over a two-year period beginning December 31, 2022, are presented in the following
table. The projections assume both (a) instantaneous parallel shifts upward of 100 and 200 bps and
instantaneous parallel shifts downward of the yield curve of 100 and 200 bps occurring immediately
(“Shock”) and (b) gradual parallel shifts upward and downward of the yield curve in even increments
over the first twelve months, followed by rates being held constant thereafter (“Ramp”).
Estimated Increase (Decrease) in Net
Interest Income
Change in Market Interest Rates
Twelve Months
Ending
December 31, 2023
Twelve Months
Ending
December 31, 2024
Shock:
+200 bps immediately . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6.0)%
(10.3)%
+100 bps immediately . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3.1)%
(5.0)%
-100 bps immediately . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.1%
4.8%
-200 bps immediately . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.7%
7.8%
Ramp:
+200 bps over next 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.5)%
(9.0)%
+100 bps over next 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.8)%
(4.4)%
-100 bps over next 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1%
4.0%
-200 bps over next 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.3%
6.5%
The Bank’s net interest income sensitivity position is a combined result of the existing balance
sheet and future growth projections as of December 31, 2022 and indicates that liabilities are
expected to overall reprice or roll off at a pace marginally faster than that of assets over the course
of the next 24 months. This would generally be beneficial to net interest income in hypothetical
parallel falling rate environments.
With respect to deposit balances, we model non-interest bearing and interest-bearing checking
balances, which exclude money market checking, to gradually trend below the current level of 59%
of total deposits over the two-year horizon.
The results of this earnings simulation analysis are hypothetical, and a variety of factors might
cause actual results to differ substantially from what is depicted. For example, if the timing and
magnitude of interest rate changes differ from our projections or theoretical scenarios, our net
interest income might vary significantly. Non-parallel yield curve shifts, such as a steepening,
flattening, or inversion of the yield curve or changes in interest rate spreads, would also cause our
net interest income to be different from that depicted. Actual results could also differ from those
projected if we grow assets and liabilities faster or slower than estimated, if we experience a net
outflow of deposit liabilities, if the size, frequency, or timing of actual cash flows differ from
contractual cash flows, or if our mix of assets and liabilities otherwise changes materially. Actual
results could also differ from those projected if we experience repayment speeds in our loan
portfolio substantially different from those assumed in the simulation model.
Finally, these simulation results do not contemplate all the actions that we may undertake in
response to potential or actual changes in interest rates, such as changes to our loan, investment,
deposit, funding, or hedging strategies.
We may decide to take further action depending on subsequent interest rate and economic
developments, the growth rates and mix of loans and deposits, the future level of loan repayments,
purchases of investment securities, and changes in other assets.
130
FIRST REPUBLIC BANK
CONSOLIDATED BALANCE SHEETS
Item 8. Financial Statements and Supplementary Data
December 31,
(in millions, except share amounts)
2022
2021
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,283
$ 12,947
Debt securities available-for-sale (amortized cost of $3,817 and $3,425, respectively,
and no allowance for credit losses at each respective period-end) . . . . . . . . . . . . . . . . . .
3,347
3,381
Debt securities held-to-maturity, net of allowance for credit losses of $11 and $9,
respectively (fair value of $23,587 and $23,422, respectively) . . . . . . . . . . . . . . . . . . . . . . .
28,348
22,292
Equity securities (fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
28
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
166,868
134,956
Less: Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(784)
(694)
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
166,084
134,262
Investments in life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,435
2,650
Tax credit investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,383
1,220
Premises, equipment and leasehold improvements, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
483
454
Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
218
222
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,034
3,631
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$212,639
$181,087
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest-bearing checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 62,579
$ 70,840
Interest-bearing checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,178
41,248
Money market checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,805
20,303
Money market savings and passbooks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,663
16,573
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,212
7,357
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
176,437
156,321
Short-term FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,700
—
Long-term FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,300
3,700
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
500
998
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
779
779
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,477
3,391
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
195,193
165,189
Shareholders’ Equity:
Preferred stock, $0.01 par value per share; authorized 25,000,000 shares; issued and
outstanding 3,632,500 shares at each respective period-end . . . . . . . . . . . . . . . . . . . .
3,633
3,633
Common stock, $0.01 par value per share; authorized 400,000,000 shares; issued and
outstanding 183,249,572 shares and 179,473,451 shares, respectively . . . . . . . . . . . . .
2
2
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,256
5,725
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,886
6,569
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(331)
(31)
Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,446
15,898
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$212,639
$181,087
See accompanying notes to consolidated financial statements.
131
FIRST REPUBLIC BANK
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Year Ended December 31,
($ in millions, except per share amounts)
2022
2021
2020
Interest income:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,803
$3,725
$3,245
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
839
624
576
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67
17
24
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
19
8
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,722
4,385
3,853
Interest expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
654
95
276
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
234
176
315
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
888
271
591
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,834
4,114
3,262
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107
59
157
Net interest income after provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,727
4,055
3,105
Noninterest income:
Investment management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
612
554
395
Brokerage and investment fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118
74
51
Insurance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
19
12
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28
25
19
Foreign exchange fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
88
50
Deposit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28
27
24
Loan and related fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
33
28
Income from investments in life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82
85
53
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
15
23
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,031
920
655
Noninterest expense:
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,235
2,003
1,495
Information systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
468
362
299
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
285
254
221
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108
101
66
Advertising and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
64
43
FDIC assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
52
44
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
384
311
258
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,617
3,147
2,426
Income before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,141
1,828
1,334
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
476
350
270
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,665
1,478
1,064
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
158
99
59
Net income available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,507
$1,379
$1,005
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,665
$1,478
$1,064
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on debt securities available-for-sale . . . . . . . . . . . . . . . . .
(300)
(54)
19
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(1)
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(300)
(54)
18
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,365
$1,424
$1,082
Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8.32
$ 7.78
$ 5.85
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8.25
$ 7.68
$ 5.81
See accompanying notes to consolidated financial statements.
132
FIRST REPUBLIC BANK
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in millions, except share
amounts)
Common
Stock Shares
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Balance at December 31, 2019
168,620,708 $
1,145 $
2 $
4,215 $
4,485 $
5 $
9,852
Cumulative adjustments from
adoption of new accounting
guidance . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
(5)
—
(5)
Balance at January 1, 2020
168,620,708
1,145
2
4,215
4,480
5
9,847
Net income . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
1,064
—
1,064
Other comprehensive income . . . . .
—
—
—
—
—
18
18
Issuance of preferred stock, net . . . .
—
500
—
(8)
—
—
492
Redemption of preferred stock . . . .
—
(100)
—
—
—
—
(100)
Issuance of common stock, net . . . .
4,225,000
—
—
516
—
—
516
Stock compensation expense . . . . . .
—
—
—
149
—
—
149
Net issuance of common stock
under stock plans . . . . . . . . . . . . . .
1,278,154
—
—
(37)
—
—
(37)
Dividends on preferred stock
(see Note 17) . . . . . . . . . . . . . . . . . . .
—
—
—
—
(59)
—
(59)
Dividends on common stock
($0.79/share) . . . . . . . . . . . . . . . . . . .
—
—
—
—
(139)
—
(139)
Balance at December 31, 2020
174,123,862
1,545
2
4,835
5,346
23
11,751
Net income . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
1,478
—
1,478
Other comprehensive loss . . . . . . . . .
—
—
—
—
—
(54)
(54)
Issuance of preferred stock, net . . . .
—
2,238
—
(48)
—
—
2,190
Redemption of preferred stock . . . .
—
(150)
—
—
—
—
(150)
Issuance of common stock, net . . . .
4,312,500
—
—
775
—
—
775
Stock compensation expense . . . . . .
—
—
—
240
—
—
240
Net issuance of common stock
under stock plans . . . . . . . . . . . . . .
1,037,089
—
—
(77)
—
—
(77)
Dividends on preferred stock
(see Note 17) . . . . . . . . . . . . . . . . . . .
—
—
—
—
(99)
—
(99)
Dividends on common stock
($0.86/share) . . . . . . . . . . . . . . . . . .
—
—
—
—
(156)
—
(156)
Balance at December 31, 2021
179,473,451
3,633
2
5,725
6,569
(31)
15,898
Net income . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
1,665
—
1,665
Other comprehensive loss . . . . . . . . .
—
—
—
—
—
(300)
(300)
Issuance of common stock, net . . . .
2,587,500
—
—
402
—
—
402
Stock compensation expense . . . . . .
—
—
—
199
—
—
199
Net issuance of common stock
under stock plans . . . . . . . . . . . . . .
1,188,621
—
—
(70)
—
—
(70)
Dividends on preferred stock
(see Note 17) . . . . . . . . . . . . . . . . . . .
—
—
—
—
(158)
—
(158)
Dividends on common stock
($1.03/share) . . . . . . . . . . . . . . . . . . .
—
—
—
—
(190)
—
(190)
Balance at December 31, 2022
183,249,572 $
3,633 $
2 $
6,256 $
7,886 $
(331) $
17,446
See accompanying notes to consolidated financial statements.
133
FIRST REPUBLIC BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
($ in millions)
2022
2021
2020
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,665
$
1,478
$
1,064
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107
59
157
Depreciation, amortization and accretion, net . . . . . . . . . . . . . . . . . . . . . . . . .
192
184
166
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
(79)
(71)
Noncash cost of stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
199
240
149
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
36
(9)
Loans originated or purchased for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(920)
(1,180)
(1,170)
Proceeds from sales and principal repayments of loans held for sale . . . . . . .
5
81
317
Net change in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(642)
(57)
(57)
Net change in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(381)
442
(15)
Net Cash Provided by Operating Activities . . . . . . . . . . . . . . . . . . . . . . . . . .
252
1,204
531
Investing Activities:
Loan originations, net of principal collections . . . . . . . . . . . . . . . . . . . . . . . . . . .
(31,884)
(22,302)
(21,983)
Loans purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(53)
(97)
(759)
Loans sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
954
Purchases of debt securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(1,107)
(388)
Proceeds from sales and paydowns of debt securities available-for-sale . . . .
520
663
618
Purchases of debt securities held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,212)
(7,848)
(2,517)
Proceeds from sales, calls and paydowns of debt securities
held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,174
2,149
3,108
Purchases of FHLB stock and other investments . . . . . . . . . . . . . . . . . . . . . . . . .
(518)
(12)
(127)
Proceeds from FHLB stock redemptions and other investments . . . . . . . . . . .
248
244
140
Purchases of investments in life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(718)
(518)
(583)
Net change in tax credit and other investments . . . . . . . . . . . . . . . . . . . . . . . . . .
(175)
(132)
(169)
Additions to premises, equipment and leasehold improvements, net . . . . . . .
(197)
(198)
(149)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
15
—
Net Cash Used for Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(38,805)
(29,143)
(21,855)
Financing Activities:
Net change in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,105
41,394
24,795
Net change in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,700
—
(800)
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,600
—
6,955
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(500)
(8,055)
(6,900)
Net proceeds from issuance of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2,190
492
Net proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
402
775
516
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(150)
(100)
Proceeds from ESPP and stock options exercised . . . . . . . . . . . . . . . . . . . . . . . .
34
29
24
Payments of employee taxes withheld from share-based awards . . . . . . . . . .
(104)
(106)
(62)
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(158)
(99)
(59)
Dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(190)
(155)
(139)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(32)
(3)
Net Cash Provided by Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,889
35,791
24,719
Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
(8,664)
7,852
3,395
Cash and Cash Equivalents at the Beginning of Period . . . . . . . . . . . . . . . . . . . . .
12,947
5,095
1,700
Cash and Cash Equivalents at the End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,283
$ 12,947
$
5,095
Supplemental Disclosure of Cash Flow Items:
Cash paid:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
802
$
272
$
615
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
304
$
255
$
157
Non-cash activities:
Transfer of loans to (from) held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
(1)
$
964
Transfer of loans held for sale to debt securities . . . . . . . . . . . . . . . . . . . . . . .
$
917
$
1,118
$
837
See accompanying notes to consolidated financial statements.
134
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Basis of Presentation and Organization
First Republic Bank (“First Republic” or the “Bank”) is a California-chartered commercial bank
and trust company headquartered in San Francisco with deposits insured by the FDIC. First
Republic has operated for 37 years and the current legal entity has been operating since July 1,
2010. Our consolidated financial statements include First Republic and the following wholly-owned
subsidiaries: FRIM, FRSC, FRTC Delaware, FRTC Wyoming and FRLC. All significant intercompany
balances and transactions have been eliminated.
Nature of Operations
First Republic and its subsidiaries offer private banking, private business banking and private
wealth management. First Republic specializes in delivering exceptional, relationship-based service
and provides a complete line of products, including residential, commercial and personal loans,
deposit services, and private wealth management, including investment, brokerage, insurance, trust
and foreign exchange services. Services are offered through preferred banking or wealth
management offices primarily in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport
Beach and San Diego, California; Portland, Oregon; Boston, Massachusetts; Palm Beach, Florida;
Greenwich, Connecticut; New York, New York; Jackson, Wyoming; and Bellevue, Washington.
First Republic originates real estate secured loans and other loans. Real estate secured loans
are secured by single family residences, multifamily buildings, and commercial real estate
properties and include loans to construct such properties. A substantial majority of the real estate
loans that First Republic originates are secured by properties located close to one of its offices.
First Republic originates business loans, loans secured by securities and other types of collateral
and personal unsecured loans primarily to meet the non-mortgage needs of First Republic’s clients.
Most of these loans are also made to borrowers in the geographic areas served by the Bank’s
offices.
First Republic offers its clients various wealth management services. First Republic provides
investment management services through FRIM, which earns fee income from the management of
equity securities, fixed income securities, balanced portfolios, and alternative investments for its
clients. The Trust Company provides trust and custody services. FRSC is a registered broker-dealer
that performs brokerage and investment activities for clients. The Bank offers insurance solutions
through FRSC and previously, also through FRIM. The Bank also offers money market mutual funds
to clients through third-party providers and conducts foreign exchange activities on behalf of
clients.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period
presentation.
135
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Standards Adopted in 2022
During the year ended December 31, 2022, the Bank adopted the following ASUs issued by the
FASB:
ASU 2020-04—Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting and subsequent related ASUs
Under ASC 848, entities can elect not to apply certain modification accounting requirements to
contracts affected by reference rate reform if 1) the contract references LIBOR or another reference
rate expected to be discontinued, 2) the modified terms either directly replace or have the potential
to replace the rate expected to be discontinued, and 3) any contemporaneous changes either
change or have the potential to change the amount and timing of cash flows solely related to the
replacement of the reference rate. Contract modifications meeting such criteria can be accounted
for as a continuation of the existing contract. The optional relief under ASC 848 was initially
available for contracts modified through December 31, 2022. Due to the intended cessation of
commonly used tenors of USD LIBOR in 2023, subsequent guidance was issued in December 2022
to defer the expiration of the optional relief to December 31, 2024.
The Bank initially adopted this guidance effective January 1, 2022, and subsequently effective
December 21, 2022. This guidance was adopted prospectively with no impact to the Bank’s
consolidated financial statements. As a result, all eligible loan contract modifications made prior to
December 31, 2024 are accounted for as continuations of the existing loan contracts.
The Bank previously had loans that determined the amount of interest by reference to COFI,
which the FHLB of San Francisco ceased calculating and publishing on January 31, 2022. In
February 2022, the Bank transitioned outstanding loans indexed to COFI to COFI Repl Index, which
is based on Federal COFI plus/minus a spread adjustment equal to the five-year historical median
spread between COFI and Federal COFI.
The Bank has loans that reference certain tenors of USD LIBOR, which will cease to be
published or cease to be representative after June 30, 2023. In July 2023, the Bank will transition
outstanding loans indexed to USD LIBOR to Consumer Spread-Adjusted Term SOFR or Institutional
Spread-Adjusted Term SOFR, as applicable. Consumer and Institutional Spread-Adjusted Term
SOFR are based on term Secured Overnight Financing Rate plus a spread adjustment equal to the
five-year historical median spread between LIBOR and SOFR. For Consumer Spread-Adjusted Term
SOFR, a portion of the spread adjustment will be phased in over the course of one year.
Debt Securities
Debt securities that the Bank may not hold until maturity are classified as securities
available-for-sale and reported at fair value. Unrealized losses resulting from credit losses on
available-for-sale debt securities are recognized in earnings as a provision for credit losses.
Unrealized losses that do not result from credit losses are excluded from earnings and reported as
accumulated other comprehensive income, net of applicable taxes, which is included in equity.
Debt securities that the Bank has the intent and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost, excluding interest receivable. Interest receivable is
separated from other components of amortized cost and presented within “Other assets” on the
consolidated balance sheets.
136
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Premiums and discounts are amortized or accreted over the contractual life of the security as
an adjustment to the yield using the interest method. Premiums on callable debt securities are
amortized to the earliest call date. For certain types of securities, prepayments are considered in
determining the effective yield of the individual security. Unrealized and realized gains and losses
on investment securities are determined based on the cost basis of securities specifically identified.
A debt security is considered past due if the required principal and interest payment has not
been received as of the day after such payment was due. Debt securities are placed on nonaccrual
status when there has been a missed payment of principal or interest, or earlier, if management
determines that full collection of principal or interest is not expected. The Bank may return a debt
security to accrual status when its principal and interest payments are current, a satisfactory
payment history is established, and the Bank expects repayment of the remaining contractual
principal and interest. The Bank promptly charges off balances of debt securities that are deemed
uncollectible.
When a debt security is placed on nonaccrual status, the Bank reverses interest receivable
against interest income. Since the nonaccrual policy results in a timely reversal of interest
receivable, the Bank does not record an ACL on interest receivable.
Allowance for Credit Losses on Investments in Debt Securities
The Bank evaluates available-for-sale debt securities that experienced a decline in fair value
below amortized cost for credit impairment. The Bank recognizes a credit impairment if the Bank
has the intent to sell the security, or it is more likely than not that the Bank will be required to sell
the security before recovery of its amortized cost. If the Bank does not intend to nor would be
required to sell the security prior to recovery of the amortized cost, the Bank evaluates whether a
credit loss has occurred through its impairment framework, which includes both qualitative and
quantitative factors. Factors that the Bank considers include explicit or implicit guarantees by the
Federal Government, external credit ratings, the extent of the loss, credit subordination, and
industry, geographical, economic, political, or other factors that are relevant to the collectibility of
the debt security. After considering these factors, if the present value of expected cash flows,
discounted at the security’s effective yield, is lower than the security’s amortized cost, an ACL is
recognized.
The ACL on held-to-maturity debt securities is based on the security’s amortized cost,
excluding interest receivable, and represents the portion of the amortized cost that the Bank does
not expect to collect over the life of the security. The ACL on held-to-maturity debt securities is
initially recognized upon acquisition of the securities, and subsequently remeasured on a recurring
basis.
Refer to Note 3, “Investment Securities and Allowance for Credit Losses,” for additional
discussion of the ACL on available-for-sale and held-to-maturity debt securities.
Loans
Loans are reported at amortized cost, which consists of their outstanding principal balances
net of any charge-offs, unamortized deferred fees and costs on originated loans and any premiums
or discounts on purchased loans, excluding interest receivable. Interest receivable is separated
from other components of amortized cost and presented within “Other assets” on the consolidated
balance sheets.
137
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loan origination fees and direct loan origination costs are deferred and amortized as a yield
adjustment over the contractual life of each loan using a level yield or straight-line methodology,
depending upon the type of loan. Certain commitment fees are amortized into noninterest income
over the commitment period using a straight-line methodology.
A loan is considered past due if the required principal and interest payment has not been
received as of the day after such payment was due. Loans are placed on nonaccrual status when
principal or interest payments are 90 days or more past due, except for single family loans that are
well secured and in the process of collection, or earlier when management determines that
collection of principal or interest is unlikely. The Bank may return a loan to accrual status when
principal and interest payments are current, a satisfactory payment history is established and
collectibility improves or the loan otherwise becomes well secured and is in the process of
collection. The Bank promptly charges off loan balances that are deemed uncollectible.
When a loan is placed on nonaccrual status, the Bank reverses interest receivable against
interest income and accounts for the loan on the cash or cost recovery method, until it qualifies for
return to accrual status. Since the nonaccrual policy results in a timely reversal of interest
receivable, the Bank does not record an ACL on interest receivable.
Loan modifications that provide concessions to borrowers in financial difficulty are reported as
TDRs. The Bank generally grants concessions in TDRs by reducing the interest rate or deferring
payments. TDRs are generally reported as nonaccrual loans until at least six consecutive payments
are received and the loan meets the Bank’s other criteria for returning to accrual status.
Allowance for Credit Losses on Loans and Unfunded Loan Commitments
The ACL on loans is measured on the loan’s amortized cost basis, excluding interest receivable,
and represents the portion of the amortized cost that the Bank does not expect to collect over the
life of the loan. The ACL is initially recognized upon origination or purchase of the loans, and
subsequently remeasured on a recurring basis.
The Bank also records an ACL on unfunded loan commitments, which is based on the same
assumptions as funded loans and also considers the probability of funding. The ACL is recognized
as a liability, and credit loss expense is recorded as provision for unfunded loan commitments within
provision for credit losses in the consolidated statements of income. Upon funding of the loan, any
related ACL previously recorded on the unfunded amount is reversed and an ACL is subsequently
recognized on the outstanding loan.
Refer to Note 4, “Loans and Allowance for Credit Losses,” for additional discussion of the ACL
on loans and unfunded loan commitments.
Investments in Life Insurance
The Bank initially records investments in life insurance at cost and subsequently adjusts the
carrying value of the investment quarterly to its cash surrender value. The Bank recognizes the
resulting income or loss in noninterest income.
Tax Credit Investments
The initial cost of the Bank’s low income housing tax credit (“tax credit”) investments is
amortized over the life of the investment using a proportional amortization method. Under the
proportional amortization method, amortization expense recognized each period is based on the
amount of tax credits and other tax benefits for the period as a percentage of expected total tax
credits and other tax benefits of the investment. Amortization expense is presented as a component
138
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of provision for income taxes on the consolidated statements of income. Tax credit investments are
evaluated on a quarterly basis to determine if it is more likely than not that the carrying amount of
the tax credit investments will not be realized through the future recognition of tax credits and
other tax benefits. If it is more likely than not that future tax credits and other tax benefits will not
be realized, an impairment loss is recorded.
Equity Securities
Marketable equity securities are measured at fair value with changes in fair value recognized in
noninterest income. Any dividends received are recognized in interest income.
Nonmarketable equity securities do not have readily determinable fair values. These securities
are accounted for under the proportional amortization method (refer to “—Tax credit Investments”
above), equity method, cost method, or measurement alternative. With exception of tax credit
investments, all nonmarketable equity securities are presented within “Other assets” on the
consolidated balance sheets.
Equity method is applied when the Bank has the ability to exert significant influence over the
investee. These investments are recorded at cost and adjusted for the Bank’s share of the investee’s
earnings and losses, less any impairment. Cost method is applied to FHLB stock, which is recorded
at cost and subsequently adjusted for any impairment. Measurement alternative method is applied
to all remaining nonmarketable equity securities. These securities are recorded at cost less
impairment, adjusted for observable price changes of the same or similar securities of the same
issuer. All realized and unrealized gains and losses from nonmarketable equity securities, including
impairment losses, are recognized in noninterest income.
Selling and Servicing Loans
The Bank sells loans on a non-recourse basis to generate servicing income, to provide funds for
additional lending and for ALM purposes. Loans that are sold include loans originated for sale to
investors under commitments executed prior to origination, existing loans that are sold through
bulk sales and loans sold through securitizations. The Bank recognizes a sale only when
consideration is received and control is transferred to the buyer.
The Bank retains MSRs on substantially all loans sold. MSRs are initially measured at fair value
at the date of transfer and recorded as a component of the gain or loss on sale of loans within
“Other noninterest income” on the consolidated statements of income. MSRs are subsequently
reported at the lower of amortized cost or fair value and are presented within “Other assets” on the
consolidated balance sheets. MSRs are amortized in proportion to and over the period of estimated
net servicing income, with amortization presented in “Other noninterest income” on the
consolidated statements of income.
At least quarterly, the Bank evaluates MSRs for potential impairment based on their current fair
value, actual prepayment experience and other market factors. For this evaluation, the Bank
stratifies the loans serviced by the year they are sold, by product type (fixed, hybrid or adjustable)
and interest rate coupon range. Hybrid loans are further stratified by their initial fixed-rate period. If
the fair value of MSRs for a stratum is less than the amortized cost, the Bank records a provision for
a valuation allowance. Subsequently, the Bank adjusts the valuation allowance for changes in fair
value to the extent that fair value does not exceed the amortized cost. If the Bank determines that a
portion of the valuation allowance is unrecoverable, the Bank records a direct write-down by
reducing both the amortized cost of MSRs for a stratum and the related valuation allowance.
139
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Premises, Equipment and Leasehold Improvements
Premises, equipment and leasehold improvements are recorded at cost, less accumulated
depreciation and amortization. Depreciation and amortization are calculated on a straight-line
basis over the estimated useful lives of the assets, which generally range from three to ten years, or
the lease term, if the term is less than ten years.
Goodwill and Intangible Assets
The Bank records the cost of acquisitions based on the estimated fair values of the assets
acquired and liabilities and noncontrolling interests assumed at the acquisition date. Goodwill
represents the excess of the purchase price over the fair value of the net assets acquired.
The Bank evaluates goodwill for impairment annually and on an interim basis if events or
changes in circumstances indicate that its implied fair value is less than the carrying amount. Such
an event or circumstance may include an adverse change in the business climate or market, a legal
factor, an action by the regulators, introduction of or an increase in competition, or a loss of key
personnel. The Bank has the option to first perform a qualitative assessment to determine whether
it is more likely than not that the fair value of the reporting unit is less than its carrying amount
before applying the goodwill impairment test. The qualitative factors considered include, but are
not limited to, industry and market conditions and trends, the Bank’s financial performance and any
Bank-specific events relevant to the assessment. If the assessment of qualitative factors indicates
that it is not more likely than not that impairment exists, no further testing is performed. If there is
an indication that impairment exists, a quantitative test is performed to determine whether the fair
value of each reporting unit, including goodwill, is less than the carrying amount of the reporting
unit. If the fair value of the reporting unit is less than its carrying amount, goodwill is considered
impaired and an impairment loss is recognized for the amount by which the reporting unit’s carrying
amount exceeds its fair value, including any deferred tax adjustment for tax deductible goodwill.
Intangible assets with finite lives are amortized on an accelerated basis over their useful lives,
and are evaluated for impairment whenever circumstances indicate that the carrying amount may
not be recoverable. Intangible assets with indefinite lives are evaluated for impairment annually,
and on an interim basis if events or changes in circumstances indicate that their fair value is less
than the carrying amount. For all intangible assets, an impairment loss is recognized if the
determined fair value is less than the carrying amount.
Leases
The Bank determines at inception if an arrangement contains a lease. Lease liabilities are
recognized upon commencement based on the present value of lease payments over the lease
term, discounted using the Bank’s incremental borrowing rate at the commencement date. Lease
renewal options are included when measuring the lease liability if the Bank is reasonably certain to
exercise the option during the lease term. Corresponding lease assets are recognized at the liability
amount adjusted for any direct incremental costs, prepaid lease payments and lease incentives
received. Additionally, the Bank combines non-lease components with lease components in the
measurement of its lease assets and liabilities. The lease assets and lease liabilities recognized on
the Bank’s consolidated balance sheets are operating leases. Operating lease expense for lease
payments is recognized on a straight-line basis over the lease term. Some of the Bank’s lease
arrangements include rental payments that adjust periodically for inflation. These and other
variable lease payments not included in the straight-line lease expense are expensed as incurred.
140
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Software and Cloud Computing Arrangements
Software is recorded at cost, less accumulated amortization. Software includes purchased
software, capitalized implementation costs, and capitalized development costs associated with
internally developed software. Amortization is calculated on a straight-line basis over the estimated
useful life of the software, which ranges from three to ten years. Software is included in “Premises,
equipment and leasehold improvements, net” in the consolidated balance sheets.
Cloud computing arrangements include software as a service, platform as a service,
infrastructure as a service, and other similar arrangements. Certain implementation costs for cloud
computing arrangements are capitalized, and amortized on a straight-line basis over the term of the
arrangement. Capitalized implementation costs for cloud computing arrangements are included in
“Other assets” in the consolidated balance sheets.
Income Taxes
DTAs and DTLs are recognized for the future tax consequences of differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. DTAs and DTLs are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The Bank
records a valuation allowance, if any, to reduce DTAs to the amount that is more likely than not to
be realized.
An uncertain tax position that meets the “more likely than not” recognition threshold is
measured to determine the amount of benefits to recognize. The uncertain tax position is measured
as the largest amount of benefit that is greater than 50% likely of being realized upon settlement.
Tax benefits not meeting the Bank’s realization criteria represent unrecognized tax benefits.
Interest and penalties are recognized as a component of provision for income taxes.
The Bank files a consolidated U.S. tax return and separate state and local tax returns.
Share-Based Compensation
The Bank’s share-based awards, including RSUs and PSUs, are valued at their grant date fair
value, which is generally the closing market price of its common stock at the date of grant.
Compensation expense is recognized over the requisite service period, which is the service period
required in order for the awards to vest. The requisite service period is generally the vesting period
of the awards. For awards with performance conditions, the amount of compensation expense the
Bank recognizes over the requisite service period is based on the actual or estimated achievement
of the performance condition. The Bank accounts for forfeitures of stock awards in the period they
occur.
Investment Management, Brokerage and Investment, Insurance, Trust, and Deposit Fees
Investment management fees, brokerage and investment fees, and trust fees are generally
based upon the market value of AUM or AUA or the volume of transactions and are recorded on the
accrual basis over the period in which the service is provided or the underlying transactions occur.
Insurance fees are based on the value and type of the policies sold and are recognized once the
policy is in effect and upon annual renewal. Deposit fees are based on average account balances,
type of account and transactions and are recognized over the period that services are provided. See
Note 24, “Revenue from Contracts with Customers” for further discussion.
141
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
The Bank uses fair value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. Fair value represents the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value is based on an exit price notion that maximizes the
use of observable input and minimizes the use of unobservable inputs. Certain assets and liabilities
are recorded at fair value on a recurring basis. Additionally, the Bank may be required to record
other assets at fair value on a nonrecurring basis, which typically involve application of
lower-of-cost-or-market accounting or adjustments of individual assets including impairments.
The Bank groups its assets and liabilities at fair value in three levels, based on the markets in
which the assets and liabilities are traded and the reliability of the assumptions used to determine
fair value. These levels are:
•
Level 1—Valuation is based on quoted prices for identical instruments traded in active
markets.
•
Level 2—Valuation is based on quoted prices for similar instruments in active markets,
quoted prices for identical or similar instruments in markets that are not active and model-
based valuation techniques for which all significant assumptions are observable in the
market.
•
Level 3—Valuation is generated from model-based techniques that use significant
assumptions not observable in the market. These unobservable assumptions reflect
estimates of assumptions that market participants would use in pricing the asset or
liability. Valuation techniques include use of option pricing models, discounted cash flow
models and similar techniques.
Refer to Note 15, “Fair Value Measurements,” for additional discussion of the valuation
methodologies used in estimating the fair value of assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosure of contingent assets and liabilities. Actual results could differ from
these estimates. Material estimates subject to change include those related to ACL, fair value
measurements, and income taxes.
142
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from the Federal Reserve Bank
and commercial banks, and short-term investments such as federal funds sold or U.S. Treasury Bills
with original maturity dates of 90 days or less.
The following table presents information related to cash and cash equivalents:
December 31,
($ in millions)
2022
2021
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
485
$
368
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,798
12,579
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,283
$12,947
Note 3. Investment Securities and Allowance for Credit Losses
The following table presents information related to available-for-sale debt securities:
Available-for-sale
($ in millions)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
Losses
Fair
Value
At December 31, 2022
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,584
$
1
$
(425)
$
—
$2,160
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
—
(1)
—
10
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . .
1,175
—
(45)
—
1,130
Securities of U.S. states and political subdivisions—
taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
—
—
—
47
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,817
$
1
$
(471)
$
—
$3,347
At December 31, 2021
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,878
$
2
$
(51)
$
—
$1,829
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
—
—
—
15
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . .
1,485
6
(1)
—
1,490
Securities of U.S. states and political subdivisions—
taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
—
—
—
47
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,425
$
8
$
(52)
$
—
$3,381
143
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents information related to held-to-maturity debt securities:
Held-to-maturity
($ in millions)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Allowance
for Credit
Losses
Amortized
Cost, Net of
Allowance
At December 31, 2022
U.S. Government-sponsored agency
securities . . . . . . . . . . . . . . . . . . . . . . .
$
165
$
—
$
(27)
$
138
$
—
$
165
Agency residential MBS . . . . . . . . . . . .
2,003
—
(250)
1,753
—
2,003
Other residential MBS . . . . . . . . . . . . .
8
—
(1)
7
—
8
Agency commercial MBS . . . . . . . . . . .
5,331
—
(668)
4,663
—
5,331
Securities of U.S. states and political
subdivisions:
Tax-exempt municipal securities . .
17,644
65
(2,944)
14,765
(9)
17,635
Tax-exempt nonprofit
debentures . . . . . . . . . . . . . . . . . . .
69
—
—
69
—
69
Taxable municipal securities . . . . . .
1,726
2
(493)
1,235
(1)
1,725
Corporate debt securities . . . . . . . . . .
1,413
—
(456)
957
(1)
1,412
Total . . . . . . . . . . . . . . . . . . . . . . . . .
$ 28,359
$
67
$
(4,839)
$ 23,587
$
(11)
$
28,348
At December 31, 2021
U.S. Government-sponsored agency
securities . . . . . . . . . . . . . . . . . . . . . . .
$
100
$
—
$
(3)
$
97
$
—
$
100
Agency residential MBS . . . . . . . . . . . .
1,380
13
(15)
1,378
—
1,380
Other residential MBS . . . . . . . . . . . . .
9
—
—
9
—
9
Agency commercial MBS . . . . . . . . . . .
2,719
35
(12)
2,742
—
2,719
Securities of U.S. states and political
subdivisions:
Tax-exempt municipal securities . .
15,011
997
(21)
15,987
(8)
15,003
Tax-exempt nonprofit
debentures . . . . . . . . . . . . . . . . . . .
72
1
—
73
—
72
Taxable municipal securities . . . . . .
1,632
66
(1)
1,697
(1)
1,631
Corporate debt securities . . . . . . . . . .
1,378
62
(1)
1,439
—
1,378
Total . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,301
$
1,174
$
(53)
$ 23,422
$
(9)
$
22,292
The following table presents information related to equity securities measured at fair value:
December 31,
($ in millions)
2022
2021
Equity securities (fair value):
Mutual funds and marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24
$ 28
The components of amortized cost for debt securities exclude interest receivable since the
Bank elected to present interest receivable within other assets on the consolidated balance sheets.
The following table presents interest receivable on debt securities:
December 31,
($ in millions)
2022
2021
Interest receivable on debt securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6
$
4
Interest receivable on debt securities held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 215
$ 177
144
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Quality
The Bank uses external ratings from third party rating agencies, such as Standard & Poor’s
(“S&P”) and Moody’s Investors Service (“Moody’s”), to determine the credit quality of each security
at purchase and to monitor the credit quality of securities in the portfolio on an ongoing basis. For
certain securities that do not have an external rating at the security level, an implied external rating
is used. This includes securities explicitly or implicitly guaranteed by the Federal Government,
securities that are pre-refunded by the issuer or securities that are rated at only the issuer level. For
tax-exempt nonprofit debentures and certain tax-exempt municipal securities that do not have an
external or implied external rating, the security is internally graded and subsequently translated to a
corresponding external rating. Rating changes and creditworthiness of all securities are reviewed at
least on a quarterly basis. The ratings are described below, with the S&P rating first and the
corresponding Moody’s rating indicated parenthetically.
The credit quality indicators for the securities in the held-to-maturity portfolio range from the
highest credit rating of AAA (Aaa) to BB (Ba), which reflect the strong overall credit quality of the
investment portfolio. The following are descriptions of each credit quality indicator:
•
AAA (Aaa) rated securities are considered to be of the highest quality, and reflect the
lowest level of credit risk of an obligor.
•
AA (Aa) rated securities vary slightly from the AAA (Aaa) rated securities, but are still
considered to be of very high quality, and reflect very low credit risk of an obligor.
•
A (A) rated securities reflect low credit risk of an obligor, given the likelihood that such an
obligor will be more impacted by an adverse economic environment than an AA (Aa) rated
obligor.
•
BBB (Baa) rated securities reflect moderate credit risk of an obligor, given that such an
obligor is assumed to be more susceptible to an adverse economic environment than an A
(A) rated obligor.
•
BB (Ba) rated securities reflect slightly more than moderate credit risk of an obligor, given
that economic uncertainties may result in deterioration of the obligor’s ability to meet
commitments in the future.
The following tables present the amortized cost of debt securities held-to-maturity by credit
quality indicator:
Held-to-maturity
($ in millions)
AAA (Aaa)
AA (Aa)
A (A)
BBB (Baa)
BB (Ba)
Total
At December 31, 2022
U.S. Government-sponsored agency securities . . . .
$
—
$
165
$ —
$
—
$
—
$
165
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . .
—
2,003
—
—
—
2,003
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . .
8
—
—
—
—
8
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . .
—
5,331
—
—
—
5,331
Securities of U.S. states and political subdivisions:
Tax-exempt municipal securities . . . . . . . . . . . . . .
5,001
12,492
151
—
—
17,644
Tax-exempt nonprofit debentures . . . . . . . . . . . . .
—
—
—
46
23
69
Taxable municipal securities . . . . . . . . . . . . . . . . . .
618
1,108
—
—
—
1,726
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . .
551
862
—
—
—
1,413
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,178
$21,961
$151
$
46
$
23
$28,359
145
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Held-to-maturity
($ in millions)
AAA (Aaa)
AA (Aa)
A (A)
BBB (Baa)
Total
At December 31, 2021
U.S. Government-sponsored agency securities . . . . . . . . . . . .
$
—
$
100
$ —
$
—
$
100
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,380
—
—
1,380
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
—
—
—
9
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2,719
—
—
2,719
Securities of U.S. states and political subdivisions:
Tax-exempt municipal securities . . . . . . . . . . . . . . . . . . . . . . .
4,201
10,585
225
—
15,011
Tax-exempt nonprofit debentures . . . . . . . . . . . . . . . . . . . . .
—
—
—
72
72
Taxable municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . .
562
1,070
—
—
1,632
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
525
853
—
—
1,378
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,297
$16,707
$225
$
72
$22,301
The carrying value of held-to-maturity debt securities that were internally rated and translated
to a corresponding external grade, all of which were tax-exempt nonprofit debentures, was
$69 million and $72 million at December 31, 2022 and 2021, respectively.
Aging and Nonaccrual
As of both December 31, 2022 and 2021, there were no debt securities past due or on
nonaccrual status.
Allowance for Credit Losses
Debt Securities Available-for-Sale
The following table presents gross unrealized losses and fair value of available-for-sale debt
securities by length of time that individual securities in each category had been in a continuous loss
position:
Available-for-sale
Less than 12 months
12 months or more
Total
($ in millions)
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Total
Number of
Securities
At December 31, 2022
Agency residential MBS . . . . . . . . . . .
$
(425)
$2,100
$
—
$ —
$
(425)
$2,100
1,100
Other residential MBS . . . . . . . . . . . .
(1)
10
—
—
(1)
10
9
Agency commercial MBS . . . . . . . . . .
(45)
1,130
—
—
(45)
1,130
42
Total . . . . . . . . . . . . . . . . . . . . . . . .
$
(471)
$3,240
$
—
$ —
$
(471)
$3,240
1,151
At December 31, 2021
Agency residential MBS . . . . . . . . . . .
$
(26)
$1,113
$
(25)
$627
$
(51)
$1,740
555
Agency commercial MBS . . . . . . . . . .
(1)
863
—
—
(1)
863
12
Total . . . . . . . . . . . . . . . . . . . . . . . .
$
(27)
$1,976
$
(25)
$627
$
(52)
$2,603
567
146
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For available-for-sale debt securities that experienced a decline in fair value below amortized
cost, the Bank concluded that it does not intend to nor would it be required to sell any of the
securities prior to recovery of the amortized cost. Due to their explicit or implicit guarantee by the
Federal Government, the Bank’s agency residential MBS and agency commercial MBS have no
expected credit losses. Therefore, no ACL was recognized on available-for-sale debt securities as of
both December 31, 2022 and 2021.
Debt Securities Held-to-Maturity
The Bank’s held-to-maturity U.S. Government-sponsored agency securities, agency residential
MBS and agency commercial MBS are considered to not have expected credit losses due to the
explicit or implicit guarantee by the Federal Government. Therefore, no ACL has been recognized on
these securities.
Held-to-maturity debt securities with similar risk characteristics are pooled when developing
the ACL. The Bank’s ACL on its held-to-maturity securities of U.S. states and political subdivisions
(including tax-exempt municipal securities, tax-exempt nonprofit debentures and taxable municipal
securities) and corporate debt securities is determined by expert judgment, which is based on
historical ratings-based average probabilities of default and industry average LGD to determine
expected credit losses over the life of the securities.
The following table presents the activity in the ACL on held-to-maturity debt securities:
Allowance for Credit Losses
Held-to-maturity
($ in millions)
Balance at
Beginning
of Period
Provision
Balance at
End of
Period
At or for the Year Ended December 31, 2022
Securities of U.S. states and political subdivisions:
Tax-exempt municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8
$
1
$
9
Taxable municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
—
1
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1
1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9
$
2
$
11
At or for the Year Ended December 31, 2021
Securities of U.S. states and political subdivisions:
Tax-exempt municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7
$
1
$
8
Taxable municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1
1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7
$
2
$
9
At or for the Year Ended December 31, 2020 (1)
Securities of U.S. states and political subdivisions:
Tax-exempt municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5
$
2
$
7
(1)
The beginning balance represents the CECL transition adjustment, which increased the ACL by $5 million upon adoption of CECL.
147
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Disclosures
The Bank pledges investment securities at the Federal Reserve Bank to maintain the ability to
borrow at the discount window, or at a correspondent bank as collateral to secure trust funds and
public deposits. At December 31, 2022, the carrying value of investment securities pledged was
$9.14 billion, of which $9.12 billion was unencumbered and available to support additional
borrowings.
During the year ended December 31, 2020, the Bank sold tax-exempt municipal securities from
the held-to-maturity portfolio with a carrying value of $32 million. The sale of the securities was in
response to evidence of deterioration in creditworthiness of a specific issuer as a result of potential
liabilities related to impacts of wildfire.
The following table presents proceeds received from sales of investment securities:
Year Ended December 31,
($ in millions)
2022
2021
2020
Sales proceeds:
Debt securities available-for-sale: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
—
$
71
Debt securities held-to-maturity: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
—
$
35
The following table presents gains and losses on investment securities:
Year Ended December 31,
($ in millions)
2022
2021
2020
Debt securities held-to-maturity:
Gross realized gains on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
—
$
3
Equity securities (fair value):
Net change in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6)
1
1
Total gain (loss) on investment securities (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(6)
$
1
$
4
(1) Included in other income, net on the consolidated statements of income and comprehensive income.
The following table presents interest income on investment securities:
Year Ended December 31,
($ in millions)
2022
2021
2020
Interest income on tax-exempt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 520
$ 428
$ 385
Interest income on taxable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
319
196
191
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 839
$ 624
$ 576
148
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contractual Maturities
The following tables present contractual maturities of debt securities available-for-sale and
held-to-maturity. Actual maturities for certain U.S. Government agency securities, U.S.
Government-sponsored agency securities and municipal securities may occur earlier than their
stated contractual maturities because the note issuers may have the right to call outstanding
amounts ahead of their contractual maturities. In addition, the remaining contractual principal
maturities for MBS do not consider prepayments. Expected remaining maturities for MBS can differ
from contractual maturities because borrowers have the right to prepay their mortgage obligations,
with or without penalties, prior to contractual maturity.
Available-for-sale
($ in millions)
Amount
Within 1
Year
After 1
Through 5
Years
After 5
Through
10 Years
After 10
Years
At December 31, 2022
Amortized cost:
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,584 $
— $
0 $
— $ 2,584
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
—
—
—
11
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,175
—
30
964
181
Securities of U.S. states and political subdivisions— taxable . . . . .
47
—
—
—
47
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,817 $
— $
30 $
964 $ 2,823
Fair value:
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,160 $
— $
0 $
— $ 2,160
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
—
—
—
10
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,130
—
30
937
163
Securities of U.S. states and political subdivisions— taxable . . . . .
47
—
—
—
47
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,347 $
— $
30 $
937 $ 2,380
At December 31, 2021
Amortized cost:
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,878 $
— $
1 $
— $ 1,877
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
—
—
—
15
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,485
—
82
1,144
259
Securities of U.S. states and political subdivisions— taxable . . . . .
47
—
—
—
47
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,425 $
— $
83 $ 1,144 $ 2,198
Fair value:
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,829 $
— $
1 $
— $ 1,828
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
—
—
—
15
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,490
—
82
1,144
264
Securities of U.S. states and political subdivisions— taxable . . . . .
47
—
—
—
47
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,381 $
— $
83 $ 1,144 $ 2,154
149
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Held-to-maturity
($ in millions)
Amount
Within 1
Year
After 1
Through 5
Years
After 5
Through
10 Years
After 10
Years
At December 31, 2022
Amortized cost, net of allowance:
U.S. Government-sponsored agency securities . . . . . . . . . .
$
165
$
—
$
65
$
50
$
50
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,003
—
3
—
2,000
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
—
—
—
8
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,331
—
—
—
5,331
Securities of U.S. states and political subdivisions:
Tax-exempt municipal securities . . . . . . . . . . . . . . . . . . . . .
17,635
340
371
116
16,808
Tax-exempt nonprofit debentures . . . . . . . . . . . . . . . . . . . .
69
—
—
—
69
Taxable municipal securities . . . . . . . . . . . . . . . . . . . . . . . .
1,725
—
—
—
1,725
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,412
—
—
—
1,412
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$28,348
$
340
$
439
$
166
$27,403
At December 31, 2021
Amortized cost, net of allowance:
U.S. Government-sponsored agency securities . . . . . . . . . .
$
100
$
—
$
—
$
—
$
100
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,380
—
3
—
1,377
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
—
—
—
9
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,719
—
109
—
2,610
Securities of U.S. states and political subdivisions:
Tax-exempt municipal securities . . . . . . . . . . . . . . . . . . . . .
15,003
262
647
106
13,988
Tax-exempt nonprofit debentures . . . . . . . . . . . . . . . . . . . .
72
—
—
—
72
Taxable municipal securities . . . . . . . . . . . . . . . . . . . . . . . .
1,631
—
—
—
1,631
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,378
—
—
—
1,378
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,292
$
262
$
759
$
106
$21,165
150
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Loans and Allowance for Credit Losses
Loan Profile
The Bank’s portfolio segments consist of residential real estate, income property, business and
other loans. Each segment is further disaggregated by classes. The following table presents loans
held for investment by portfolio segment and class, and the ACL:
December 31,
($ in millions)
2022
2021
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 98,768
$ 76,793
Home equity lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,775
2,584
Single family construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,217
993
Total residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102,760
80,370
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,588
15,966
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,830
8,531
Multifamily/commercial construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,139
1,927
Total income property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,557
26,424
Business
Capital call lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,988
10,999
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,713
3,680
Other business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,072
3,961
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
545
Total business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,793
19,185
Other
Stock secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,553
3,435
Other secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,191
2,457
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,014
3,085
Total other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,758
8,977
Total loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
166,868
134,956
Less: Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(784)
(694)
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$166,084
$134,262
Real estate loans are secured by single family, multifamily and commercial real estate
properties and generally mature over periods of up to thirty years. At December 31, 2022 and 2021,
52% and 51%, respectively, of the total loan portfolio was secured by California real estate. At
December 31, 2022 and 2021, 59% and 61%, respectively, of single family mortgages fully and evenly
amortize until maturity following an initial interest-only period of generally ten years.
As of December 31, 2022, the Bank had pledged $101.0 billion of loans to secure borrowings of
$14.0 billion from the FHLB, although only $20.2 billion of collateral was required in connection with
the outstanding FHLB advances.
151
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of amortized cost for loans exclude interest receivable since the Bank elected
to present interest receivable within other assets on the consolidated balance sheets. The following
table presents interest receivable on loans held for investment:
December 31,
($ in millions)
2022
2021
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 485
$ 319
Aging and Nonaccrual
The following tables present an aging analysis of loans:
($ in millions)
30-59
Days Past
Due
60-89
Days Past
Due
90 Days or
More Past
Due
Total Past
Due
Current
Total
Loans
At December 31, 2022
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8 $
7 $
38 $
53 $ 98,715 $ 98,768
Home equity lines of credit . . . . . . . . . . . . . . .
1
—
5
6
2,769
2,775
Single family construction . . . . . . . . . . . . . . . .
12
—
—
12
1,205
1,217
Total residential real estate . . . . . . . . . . . .
21
7
43
71
102,689
102,760
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
21,588
21,588
Commercial real estate . . . . . . . . . . . . . . . . . .
—
—
—
—
10,830
10,830
Multifamily/commercial construction . . . . .
2
1
—
3
2,136
2,139
Total income property . . . . . . . . . . . . . . . . .
2
1
—
3
34,554
34,557
Business
Capital call lines of credit . . . . . . . . . . . . . . . .
—
—
—
—
9,988
9,988
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
3,713
3,713
Other business . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
5,072
5,072
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
20
20
Total business . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
18,793
18,793
Other
Stock secured . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
4,553
4,553
Other secured . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
3,191
3,191
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
—
—
1
3,013
3,014
Total other . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
—
—
1
10,757
10,758
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24 $
8 $
43 $
75 $166,793 $166,868
152
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions)
30-59
Days Past
Due
60-89
Days Past
Due
90 Days or
More Past
Due
Total Past
Due
Current
Total
Loans
At December 31, 2021
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9 $
10 $
48 $
67 $ 76,726 $ 76,793
Home equity lines of credit . . . . . . . . . . . . . . .
2
—
19
21
2,563
2,584
Single family construction . . . . . . . . . . . . . . . .
—
—
—
—
993
993
Total residential real estate . . . . . . . . . . . .
11
10
67
88
80,282
80,370
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
2
2
15,964
15,966
Commercial real estate . . . . . . . . . . . . . . . . . .
—
1
5
6
8,525
8,531
Multifamily/commercial construction . . . . .
—
—
—
—
1,927
1,927
Total income property . . . . . . . . . . . . . . . . .
—
1
7
8
26,416
26,424
Business
Capital call lines of credit . . . . . . . . . . . . . . . .
—
—
—
—
10,999
10,999
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
3,680
3,680
Other business . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
3,961
3,961
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
14
—
15
530
545
Total business . . . . . . . . . . . . . . . . . . . . . . . .
1
14
—
15
19,170
19,185
Other
Stock secured . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
3,435
3,435
Other secured . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
2,457
2,457
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
3,085
3,085
Total other . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
8,977
8,977
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
12 $
25 $
74 $
111 $134,845 $134,956
The table below presents information on loans 90 days or more past due and accruing and
loans on nonaccrual status:
December 31,
2022
2021
Nonaccrual
Nonaccrual
($ in millions)
90 Days or
More Past Due
and Accruing
Total
Total
Without an
Allowance
90 Days or
More Past Due
and Accruing
Total
Total
Without an
Allowance
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $ 91 $
79 $
— $ 92 $
76
Home equity lines of credit . . . . . . . . . . . . . .
—
14
13
—
26
24
Total residential real estate . . . . . . . . . . . .
—
105
92
—
118
100
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
2
2
Commercial real estate . . . . . . . . . . . . . . . . .
—
—
—
—
7
7
Multifamily/commercial construction . . . . .
—
—
—
—
9
9
Total income property . . . . . . . . . . . . . . . . .
—
—
—
—
18
18
Business
Other business . . . . . . . . . . . . . . . . . . . . . . . . .
—
1
1
—
1
1
Other
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
3
1
—
2
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $109 $
94 $
— $139 $
119
153
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The interest income related to nonaccrual loans is presented in the following table:
Year Ended
December 31,
($ in millions)
2022
2021
2020
Interest income recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
$ —
$ —
Interest income under original terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4
$
4
$
5
Credit Quality
The Bank’s primary credit quality indicator for loans is its internal loan risk grades. The Bank
maintains a loan risk grading system that takes into consideration regulatory guidelines and
incorporates a number of considerations, such as a borrower’s financial condition, adequacy of
collateral, and other factors that may impact a borrower’s ability to repay the loan. The Bank’s
internal loan grades apply to all loans and are as follows:
Pass—These loans are performing substantially as agreed, with no current identified material
weakness in repayment ability. Any credit or collateral exceptions existing with respect to the loan
should be minimal and immaterial, in the process of correction, and not such that they could
subsequently impair credit quality and introduce risk of collection.
Special Mention—These loans have potential weaknesses and deserve management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the
repayment prospects for the loan or of the Bank’s credit position at some future date. However,
these loans do not expose the Bank to sufficient risk to warrant adverse classification.
Substandard—These loans are inadequately protected by the current worth and paying
capacity of the obligor or of the collateral pledged, if any. These loans have a well-defined weakness
that jeopardizes the liquidation of the debt.
Doubtful—These loans have weaknesses that make collection or liquidation in full highly
improbable. The possibility of some loss is extremely high, but because of certain important and
reasonable specific pending factors that may work to the advantage and strengthening of the loan,
its classification as a loss is deferred until a more exact status may be determined.
The majority of the Bank’s loan portfolio is secured by real estate. A decline in real estate values
can negatively impact our ability to recover our investment should the borrower become delinquent.
We safeguard against this risk by rarely exceeding an LTV ratio of 80% with respect to real estate
lending.
We perform regular monitoring and annual reviews of our loan portfolio to identify and evaluate
any deterioration in primary and/or secondary sources of repayment, including evaluations of the
borrower’s financial condition and value of the collateral. Annual reviews of residential real estate
and other loans include an analysis of payment history, collateral value and credit scores. Annual
reviews of our larger income property and business loans include analysis of financial statements of
the property and/or borrower to determine the current ability to repay outstanding obligations.
Updates to risk grades are made, as needed, upon completion of reviews.
For loans that are criticized or classified, the Bank’s Special Assets Committee reviews loan
grades, reserves and accrual status on a quarterly or more frequent basis. This review includes an
evaluation of the market conditions, the property’s trends, the borrower and guarantor status, the
level of reserves required and loan accrual status.
154
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additionally, we have an independent, third-party review performed on our loan grades and our
credit administration functions each year. The results of the third-party review are presented to the
Audit Committee of the Board. These asset review procedures provide management with additional
information for assessing and affirming our asset quality.
Other Real Estate Owned and Residential Mortgage Loans in the Process of Foreclosure
As of both December 31, 2022 and 2021, the Bank did not have any residential real estate
owned (acquired through foreclosure).
The carrying value of residential mortgage loans in the process of foreclosure was $8 million
and $6 million at December 31, 2022 and 2021, respectively.
Vintage
The following tables present loan balances by credit quality indicator and vintage year of
origination or the year of modification if such modifications meet the criteria to be considered a
new loan under ASC 310-20, “Nonrefundable Fees and Other Costs.” For revolving lines of credit
that converted to term loans, if the conversion involved a credit decision, such loans are included in
the origination year in which the credit decision was made. If revolving lines of credit converted to
term loans without a credit decision, such lines of credit are included in the “Revolving lines of
credit converted to term” column in the following tables.
155
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions)
2022
2021
2020
2019
2018
Prior
Revolving
lines of
credit
Revolving
lines of
credit
converted
to term
Total
At December 31, 2022
Residential real estate
Single family:
Pass . . . . . . . . . . . . . . .
$31,392
$27,032
$17,994
$8,612
$3,783
$9,791
$
—
$
—
$ 98,604
Special mention . . . .
—
—
6
5
9
32
—
—
52
Substandard . . . . . . .
1
11
1
1
6
92
—
—
112
31,393
27,043
18,001
8,618
3,798
9,915
—
—
98,768
Home equity lines of
credit:
Pass . . . . . . . . . . . . . . .
—
—
—
—
—
—
2,704
54
2,758
Special mention . . . .
—
—
—
—
—
—
1
—
1
Substandard . . . . . . .
—
—
—
—
—
—
7
9
16
—
—
—
—
—
—
2,712
63
2,775
Single family
construction:
Pass . . . . . . . . . . . . . . .
407
418
246
91
31
9
—
—
1,202
Special mention . . . .
—
2
—
—
—
2
—
—
4
Substandard . . . . . . .
—
—
—
11
—
—
—
—
11
407
420
246
102
31
11
—
—
1,217
Total residential
real estate . . . . .
31,800
27,463
18,247
8,720
3,829
9,926
2,712
63
102,760
Income property
Multifamily:
Pass . . . . . . . . . . . . . . .
7,940
4,493
3,207
1,988
1,267
2,128
460
—
21,483
Special mention . . . .
60
—
—
—
—
17
—
—
77
Substandard . . . . . . .
—
—
—
6
—
22
—
—
28
8,000
4,493
3,207
1,994
1,267
2,167
460
—
21,588
Commercial real estate:
Pass . . . . . . . . . . . . . . .
3,485
2,004
1,329
1,047
782
1,841
242
—
10,730
Special mention . . . .
14
—
—
—
20
26
10
—
70
Substandard . . . . . . .
—
2
5
4
—
19
—
—
30
3,499
2,006
1,334
1,051
802
1,886
252
—
10,830
Multifamily/commercial
construction:
Pass . . . . . . . . . . . . . . .
632
649
520
220
94
—
18
—
2,133
Special mention . . . .
1
—
—
3
1
—
—
—
5
Substandard . . . . . . .
—
1
—
—
—
—
—
—
1
633
650
520
223
95
—
18
—
2,139
Total income
property . . . . . . .
12,132
7,149
5,061
3,268
2,164
4,053
730
—
34,557
(continued on following page)
156
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued from previous page)
($ in millions)
2022
2021
2020
2019
2018
Prior
Revolving
lines of
credit
Revolving
lines of
credit
converted
to term
Total
At December 31, 2022
Business
Capital call lines of
credit:
Pass . . . . . . . . . . . . .
13
—
—
—
—
—
9,975
—
9,988
Tax-exempt:
Pass . . . . . . . . . . . . .
268
673
1,029
120
198
1,357
—
—
3,645
Special mention . .
—
4
6
—
—
53
—
—
63
Substandard . . . . .
—
—
—
—
—
5
—
—
5
268
677
1,035
120
198
1,415
—
—
3,713
Other business:
Pass . . . . . . . . . . . . .
1,491
894
555
235
232
261
1,374
—
5,042
Special mention . .
2
2
—
—
4
4
—
—
12
Substandard . . . . .
—
—
—
1
—
14
3
—
18
1,493
896
555
236
236
279
1,377
—
5,072
PPP:
Pass . . . . . . . . . . . . .
1
16
3
—
—
—
—
—
20
Total business . .
1,775
1,589
1,593
356
434
1,694
11,352
—
18,793
Other
Stock secured:
Pass . . . . . . . . . . . . .
148
3
20
1
—
—
4,381
—
4,553
Other secured:
Pass . . . . . . . . . . . . .
188
256
152
111
39
52
2,373
19
3,190
Substandard . . . . .
—
1
—
—
—
—
—
—
1
188
257
152
111
39
52
2,373
19
3,191
Unsecured:
Pass . . . . . . . . . . . . .
150
131
241
367
342
426
1,198
147
3,002
Special mention . .
—
2
—
—
—
—
3
—
5
Substandard . . . . .
—
1
1
1
1
2
—
—
6
Doubtful . . . . . . . . .
—
—
—
—
—
1
—
—
1
150
134
242
368
343
429
1,201
147
3,014
Total other . . . . .
486
394
414
480
382
481
7,955
166
10,758
Total . . . . . . . .
$46,193
$36,595
$25,315
$12,824
$6,809
$16,154
$
22,749
$
229
$166,868
157
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions)
2021
2020
2019
2018
2017
Prior
Revolving
lines of
credit
Revolving
lines of
credit
converted
to term
Total
At December 31, 2021
Residential real estate
Single family:
Pass . . . . . . . . . . . . . . . .
$28,679
$20,002
$10,107
$4,672
$5,178
$7,949
$
—
$
—
$76,587
Special mention . . . . . .
—
3
12
13
23
39
—
—
90
Substandard . . . . . . . . .
7
1
1
6
26
75
—
—
116
28,686
20,006
10,120
4,691
5,227
8,063
—
—
76,793
Home equity lines of credit:
Pass . . . . . . . . . . . . . . . .
—
—
—
—
—
—
2,489
57
2,546
Special mention . . . . . .
—
—
—
—
—
—
7
1
8
Substandard . . . . . . . . .
—
—
—
—
—
—
16
14
30
—
—
—
—
—
—
2,512
72
2,584
Single family construction:
Pass . . . . . . . . . . . . . . . .
376
275
217
92
31
2
—
—
993
Total residential real
estate . . . . . . . . . . .
29,062
20,281
10,337
4,783
5,258
8,065
2,512
72
80,370
Income property
Multifamily:
Pass . . . . . . . . . . . . . . . .
4,803
3,567
2,412
1,647
1,243
1,854
330
—
15,856
Special mention . . . . . .
—
—
30
—
1
—
—
—
31
Substandard . . . . . . . . .
35
—
8
14
—
22
—
—
79
4,838
3,567
2,450
1,661
1,244
1,876
330
—
15,966
Commercial real estate:
Pass . . . . . . . . . . . . . . . .
2,096
1,498
1,147
924
671
1,711
251
—
8,298
Special mention . . . . . .
2
5
14
26
16
66
—
—
129
Substandard . . . . . . . . .
20
1
39
5
18
19
2
—
104
2,118
1,504
1,200
955
705
1,796
253
—
8,531
Multifamily/commercial
construction:
Pass . . . . . . . . . . . . . . . .
449
725
507
178
23
8
9
—
1,899
Special mention . . . . . .
19
—
—
—
—
—
—
—
19
Substandard . . . . . . . . .
—
—
—
9
—
—
—
—
9
468
725
507
187
23
8
9
—
1,927
Total income
property . . . . . . . . .
7,424
5,796
4,157
2,803
1,972
3,680
592
—
26,424
(continued on following page)
158
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued from previous page)
($ in millions)
2021
2020
2019
2018
2017
Prior
Revolving
lines of
credit
Revolving
lines of
credit
converted
to term
Total
At December 31, 2021
Business
Capital call lines of credit:
Pass . . . . . . . . . . . . . . . .
—
—
3
—
—
—
10,996
—
10,999
Tax-exempt:
Pass . . . . . . . . . . . . . . . .
626
990
164
223
371
1,290
—
—
3,664
Special mention . . . . .
—
6
7
—
—
3
—
—
16
626
996
171
223
371
1,293
—
—
3,680
Other business:
Pass . . . . . . . . . . . . . . . .
849
739
355
307
123
271
1,277
—
3,921
Special mention . . . . .
2
2
2
—
11
11
3
—
31
Substandard . . . . . . . .
—
—
3
—
2
4
—
—
9
851
741
360
307
136
286
1,280
—
3,961
PPP:
Pass . . . . . . . . . . . . . . . .
462
83
—
—
—
—
—
—
545
Total business . . . . .
1,939
1,820
534
530
507
1,579
12,276
—
19,185
Other
Stock secured:
Pass . . . . . . . . . . . . . . . .
2
20
1
3
—
—
3,409
—
3,435
Other secured:
Pass . . . . . . . . . . . . . . . .
225
197
173
100
35
49
1,641
36
2,456
Substandard . . . . . . . .
—
—
1
—
—
—
—
—
1
225
197
174
100
35
49
1,641
36
2,457
Unsecured:
Pass . . . . . . . . . . . . . . . .
333
356
491
456
285
261
891
—
3,073
Substandard . . . . . . . .
1
1
1
3
2
2
1
—
11
Doubtful . . . . . . . . . . . .
—
—
—
—
—
—
1
—
1
334
357
492
459
287
263
893
—
3,085
Total other . . . . . . . .
561
574
667
562
322
312
5,943
36
8,977
Total . . . . . . . . . . . .
$38,986
$28,471
$15,695
$8,678
$8,059
$13,636
$
21,323
$
108
$134,956
The following table presents revolving lines of credit that converted to term loans without an
additional credit decision:
Year Ended December 31,
($ in millions)
2022
2021
2020
Residential real estate
Home equity lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24
$
32
$
19
Other
Other secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
28
14
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
148
—
—
Total other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
188
28
14
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 212
$
60
$
33
159
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Credit Losses on Loans
The Bank estimates its ACL using quantitative models, expert judgment, qualitative factors and
individual assessments. The Bank’s estimate incorporates individual loan and/or property level
characteristics, macroeconomic forecasts and historical loss rates to determine expected credit
losses over the life of its loans. Loans with similar risk characteristics within each class are pooled
when developing the allowance, and loans that do not share similar risk characteristics are
individually assessed. As of December 31, 2022, the total ACL on loans was $784 million, and
$752 million was the portion of the ACL attributable to loans with similar risk characteristics,
compared to a total ACL on loans of $694 million as of December 31, 2021, of which $653 million
was attributable to loans with similar risk characteristics. The following is a discussion of the
models, expert judgment, qualitative factors and individual assessments the Bank uses to
determine its ACL.
Quantitative Models
For residential real estate, income property, and tax-exempt business loans, expected credit
losses are determined by PD/LGD models. For other business, other secured and certain unsecured
loans, expected credit losses are determined by loss rate models. Prior to the fourth quarter of 2022,
the expected credit losses for other business loans were determined by a PD/LGD model.
The quantitative models incorporate forward-looking macroeconomic information over a
reasonable and supportable period of two years, and a reversion period of one year, after which the
Bank reverts to its historical loss rate for the remaining life of the loan. These models also account
for prepayments (or repayments) during the life of the loan. The Bank currently uses a single
macroeconomic scenario in estimating expected credit losses. On a quarterly or more frequent
basis, the Bank’s EFC discusses and approves the macroeconomic forecast scenario used for these
models and determines whether any changes to the reasonable and supportable period, as well as
reversion period, are necessary.
During the reasonable and supportable period, the quantitative models determine estimated
loss amounts based on the macroeconomic forecast scenario, contractual maturity dates,
prepayment (or repayment) projections and, in most cases, loan specific risk characteristics.
Prepayment (or repayment) projections are either developed based on historical experience or
modeled using the macroeconomic forecast scenario, contractual maturity dates, and loan specific
risk characteristics. Macroeconomic forecasts include various factors, but the most impactful to
our loan portfolios are residential home price indices, commercial real estate price indices,
apartment price indices, unemployment rates, and interest rates, which impact prepayment (or
repayment) estimates. The macroeconomic forecast scenario selected by the EFC as of
December 31, 2022 forecasts a depreciation in residential real estate, modest appreciation in
apartment and commercial real estate prices, and higher interest rates during the reasonable and
supportable period. Compared to the scenario as of December 31, 2021, the current scenario
forecasts a slow down in residential and commercial real estate price growth and a higher interest
rate environment due to the continued tightening of monetary policy.
160
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For PD/LGD models, loan specific risk characteristics include LTV and credit scores for
residential real estate, LTV and debt service coverage ratios for income property loans and
tax-exempt business loans. PD/LGD models estimate the likelihood that a loan will default and
measure the loss the Bank would incur if that loan defaults. Estimated losses are calculated using
the product of PD and LGD to produce a loss rate. For other business, other secured and certain
unsecured loans, the loss rate models use the relationship between historical losses, historical
macroeconomic factors, and forward-looking macroeconomic information to determine an
expected loss rate.
Subsequent to the reasonable and supportable period, the Bank reverts to its historical loss
rate and historical prepayment (or repayment) speed on a straight-line basis over the reversion
period of one year.
After the reversion period, the Bank’s historical loss rate and historical prepayment (or
repayment) speed are used to estimate expected credit losses for the remaining life of the loan.
These rates are based on the average net charge-offs and average prepayment (or repayment)
speeds, respectively, over a 12-year historical period. The historical period used by the Bank is
reviewed at least annually.
Expert Judgment
For capital call lines of credit and the majority of unsecured loans, expected credit losses are
determined by expert judgment. The Bank uses expert judgment to estimate credit losses for these
loan types because a quantitative model would not appropriately reflect the specific loan
characteristics or other factors that could result in loan losses, specifically, idiosyncratic risks or
risks related to newer loan products, not already reflected in the historical loss experience.
Expected loan losses are based on credit attributes specific to each loan type. For capital call lines
of credit, such attributes used to estimate a lifetime loss rate include loan commitment size and
expected line utilization. For unsecured loans, such attributes include external publicly available
credit metrics for similar products.
Qualitative Factors
The Bank also maintains a portion of the overall allowance that is comprised of adjustments to
historical loss information resulting from asset-specific risk characteristics and current economic
conditions. These adjustments are developed using a systematic methodology and are based on
loss rates derived using a more adverse macroeconomic forecast scenario than the scenario used
for the quantitative models and the Bank’s historical loss rates, as well as qualitative factors that
are not reflected in the quantitative models or expert judgment, but are likely to impact the
measurement of estimated credit losses. The qualitative factors are evaluated on a portfolio by
portfolio basis and are intended to address considerations including, but not limited to: the nature
and volume of the Bank’s loan portfolio changes, the existence and effects of credit concentrations,
problem loan trends, lending policies and procedures, and other external factors, such as
competition and the legal and regulatory environment.
161
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Individually Assessed Stock Secured Loans
The Bank applies the collateral maintenance practical expedient to estimate credit losses on its
stock secured loan portfolio. Since the underlying collateral is required to be continually adjusted to
maintain a fair value greater than or equal to the loan’s amortized cost, no expected credit losses
are recognized unless the fair value of the collateral is less than the amortized cost of the loan.
Expected credit losses are measured at the individual loan level on the excess of amortized cost
over the fair value of the collateral.
Other Individually Assessed Loans
Loans that do not share similar risk characteristics with the other loans in their class are not
pooled, but are individually assessed. The following discussion describes these individually
assessed loans.
Collateral Dependent Loans: The Bank considers loans (1) for which the repayment is expected
to be provided substantially through the operation or sale of collateral and the borrower is
experiencing financial difficulty, or (2) where foreclosure is probable to be collateral dependent.
Expected credit losses are measured at the individual loan level. If the fair value of the collateral, net
of selling costs, is less than the loan’s amortized cost, the Bank recognizes expected credit losses in
the amount of the difference. At December 31, 2022, the Bank’s collateral dependent loans were
fully collateralized and primarily secured by residential real estate.
TDR Loans: The Bank grants concessions in TDRs when a borrower is experiencing financial
difficulties. TDR loans that are collateral dependent follow the assessment described under
“Collateral Dependent Loans” above. For TDR loans that are not collateral dependent, expected
credit losses are measured at the individual loan level and are based on expected future cash flows.
If the present value of expected future cash flows, discounted at the loan’s effective interest rate, is
less than the loan’s amortized cost, the Bank recognizes expected credit losses in the amount of the
difference.
Criticized or Classified Loans: For criticized or classified loans (that are not collateral
dependent or TDRs), expected credit losses are also individually assessed based on consideration of
individual risk characteristics that affect the collectability of the loan but are not reflected in the
quantitative model.
PPP Loans
Loans originated by the Bank under the PPP are 100% guaranteed by the SBA. Due to this
explicit guarantee, PPP loans are considered not to have any expected credit losses. Therefore, no
ACL has been recognized on these loans.
162
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Provision (Reversal of Provision) for Credit Losses and Changes in the Allowance for Credit
Losses
The following table presents information related to the provision (reversal of provision) for
credit losses:
Year Ended December 31,
($ in millions)
2022
2021
2020
Provision (reversal of provision) for credit losses:
Debt securities held-to-maturity (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2
$
2
$
2
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93
61
143
Unfunded loan commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
(4)
12
Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 107
$
59
$ 157
(1)
Refer to Note 3, “Investment Securities and Allowance for Credit Losses,” for disclosures of the ACL on held-to-maturity debt securities.
The following tables present the changes in the ACL on loans:
At or for the Year Ended December 31, 2022
($ in millions)
Balance at
Beginning of
Period
Provision
(Reversal of
provision)
Charge-offs
Recoveries
Balance at
End of Period
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
157
$
48
$
(2)
$
—
$
203
Home equity lines of credit . . . . . . . . . . . . . .
4
2
(1)
—
5
Single family construction . . . . . . . . . . . . . . .
5
3
—
—
8
Total residential real estate . . . . . . . . . . . .
166
53
(3)
—
216
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . .
121
66
—
—
187
Commercial real estate . . . . . . . . . . . . . . . . .
82
14
—
—
96
Multifamily/commercial construction . . . .
24
1
—
—
25
Total income property . . . . . . . . . . . . . . . .
227
81
—
—
308
Business
Capital call lines of credit . . . . . . . . . . . . . . .
123
(62)
—
—
61
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
4
—
—
51
Other business . . . . . . . . . . . . . . . . . . . . . . . . .
78
21
—
—
99
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
Total business . . . . . . . . . . . . . . . . . . . . . . .
248
(37)
—
—
211
Other
Stock secured . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
Other secured . . . . . . . . . . . . . . . . . . . . . . . . .
8
2
—
—
10
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45
(6)
(1)
1
39
Total other . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
(4)
(1)
1
49
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
694
$
93
$
(4)
$
1
$
784
163
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At or for the Year Ended December 31, 2021
($ in millions)
Balance at
Beginning of
Period
Provision
(Reversal of
provision)
Charge-offs
Recoveries
Balance at
End of Period
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
137
$
21
$
(1)
$
—
$
157
Home equity lines of credit . . . . . . . . . . . . . .
8
(4)
—
—
4
Single family construction . . . . . . . . . . . . . . .
4
1
—
—
5
Total residential real estate . . . . . . . . . . . .
149
18
(1)
—
166
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . .
121
—
—
—
121
Commercial real estate . . . . . . . . . . . . . . . . .
71
11
—
—
82
Multifamily/commercial construction . . . .
36
(12)
—
—
24
Total income property . . . . . . . . . . . . . . . .
228
(1)
—
—
227
Business
Capital call lines of credit . . . . . . . . . . . . . . .
90
33
—
—
123
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
7
—
—
47
Other business . . . . . . . . . . . . . . . . . . . . . . . . .
68
9
—
1
78
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
Total business . . . . . . . . . . . . . . . . . . . . . . .
198
49
—
1
248
Other
Stock secured . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
Other secured . . . . . . . . . . . . . . . . . . . . . . . . .
8
—
—
—
8
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52
(5)
(2)
—
45
Total other . . . . . . . . . . . . . . . . . . . . . . . . . . .
60
(5)
(2)
—
53
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
635
$
61
$
(3)
$
1
$
694
164
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At or for the Year Ended December 31, 2020
($ in millions)
Balance at
Beginning of
Period (1)
Provision
(Reversal of
provision)
Charge-offs
Recoveries
Balance at
End of Period
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
102
$
37
$
(2)
$
—
$
137
Home equity lines of credit . . . . . . . . . . . . . .
9
(1)
—
—
8
Single family construction . . . . . . . . . . . . . . .
5
(1)
(1)
1
4
Total residential real estate . . . . . . . . . . . .
116
35
(3)
1
149
Income property
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . .
111
10
—
—
121
Commercial real estate . . . . . . . . . . . . . . . . .
55
16
—
—
71
Multifamily/commercial construction . . . .
24
12
—
—
36
Total income property . . . . . . . . . . . . . . . .
190
38
—
—
228
Business
Capital call lines of credit . . . . . . . . . . . . . . .
67
23
—
—
90
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
10
—
—
40
Other business . . . . . . . . . . . . . . . . . . . . . . . . .
56
12
—
—
68
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
Total business . . . . . . . . . . . . . . . . . . . . . . .
153
45
—
—
198
Other
Stock secured . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
Other secured . . . . . . . . . . . . . . . . . . . . . . . . .
3
5
—
—
8
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
20
(1)
1
52
Total other . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
25
(1)
1
60
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
494
$
143
$
(4)
$
2
$
635
(1)
Includes the CECL transition adjustment, which decreased the total ACL on loans by $2 million upon adoption of CECL.
As of December 31, 2022, the total ACL on loans was $784 million, compared to $694 million as
of December 31, 2021. The increase in the total ACL on loans as of December 31, 2022 was primarily
due to loan growth and a change in economic conditions and outlook, partially offset by the
decrease in ACL on capital call lines of credit due to the declines in balances and expected
utilization.
165
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Credit Losses on Unfunded Loan Commitments
To estimate the ACL on unfunded loan commitments, the Bank determines the probability of
funding based on historical utilization statistics for unfunded loan commitments. Expected credit
losses are determined based on the dollar amounts expected to fund, and the loss rates that are
calculated using the same assumptions as the associated funded balance. The loss rate represents
expected credit losses over the life of the loans. The ACL on unfunded loan commitments increased
during the year ended December 31, 2022 primarily due to an increase in unfunded commitments.
The following table presents the changes in the ACL on unfunded loan commitments:
At or for the Year Ended December 31,
($ in millions)
2022
2021
2020
Balance at beginning of period (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24
$
28
$
16
Provision (reversal of provision) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
(4)
12
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
36
$
24
$
28
(1)
For the year ended December 31, 2020, the beginning balance includes the CECL transition adjustment, which increased the ACL by
$4 million upon adoption of CECL.
Troubled Debt Restructurings
The following table presents loans modified in TDRs:
At December 31, 2022
At December 31, 2021
($ in millions)
Restructured
- Nonaccrual
Restructured
- Accruing
Total
Restructured
- Nonaccrual
Restructured
- Accruing
Total
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . .
$
29
$
6
$ 35
$
39
$
8
$ 47
Home equity lines of credit . . . . . . . . . .
4
—
4
11
—
11
Total residential real estate . . . . . . .
33
6
39
50
8
58
Income property
Commercial real estate . . . . . . . . . . . . .
—
6
6
1
5
6
Business
Other business . . . . . . . . . . . . . . . . . . . .
1
—
1
1
—
1
Other
Unsecured . . . . . . . . . . . . . . . . . . . . . . . .
1
—
1
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
35
$
12
$ 47
$
52
$
13
$ 65
166
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the years ended December 31, 2022, 2021, and 2020, TDRs were primarily modified
through extensions of the maturity date, payment deferrals, repayment plans and interest rate
reductions. The following table presents loans modified in TDRs during the periods indicated:
Year Ended
December 31,
($ in millions)
2022
2021
2020
Residential real estate
Single family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9
$
6
$ 43
Home equity lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
1
12
Total residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
7
55
Income property
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
1
Multifamily/commercial construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
58
Total income property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
59
Business
Other business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
5
Other
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12
$
7
$119
No loans defaulted that were modified during the twelve months ended December 31, 2022.
TDRs that were modified during the twelve months ended December 31, 2021 and 2020, for which
there was a subsequent payment default totaled $1 million and $66 million, respectively. These
TDRs consisted of single family loans and multifamily/commercial construction loans. The ACL on
these loans was individually assessed at the loan level and was based on the collateral dependent
methodology.
167
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Mortgage Banking Activities
The Bank retains the MSRs on substantially all loans sold. The following table presents
information related to loans serviced for others, MSRs, and net loan servicing fees:
At or for the Year Ended
December 31,
($ in millions)
2022
2021
2020
Loans serviced for others:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,677
$ 7,094
$ 9,298
Loans sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
80
1,238
Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,171)
(2,497)
(3,045)
Loans purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(51)
—
(397)
Loans repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
—
—
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,459
$ 4,677
$ 7,094
MSRs:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
16
$
26
$
42
Additions due to new loans sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1
8
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5)
(9)
(13)
Provision for valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(2)
(9)
Reductions due to purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(2)
Balance at end of period (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
11
$
16
$
26
Loan servicing fees, net:
Contractually specified servicing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
10
$
15
$
21
MSR amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5)
(9)
(13)
MSR net provision for valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(2)
(9)
Total (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5
$
4
$
(1)
(1)
Included in other assets on the consolidated balance sheets.
(2)
Included in other income, net on the consolidated statements of income and comprehensive income.
Refer to Note 11, “Goodwill and Intangible Assets,” for disclosures of the gross carrying value,
accumulated amortization, valuation allowance and carrying value of MSRs.
Note 6. Variable Interest Entities
The Bank’s involvement with VIEs includes its interests in tax credit investments, other
investments and securitizations. The Bank consolidates a VIE when it is the primary beneficiary. The
Bank is the primary beneficiary if it has a controlling financial interest, which includes both the
power to direct the activities that most significantly impact the VIE and a variable interest that
could potentially be significant to the VIE. The discussion below provides information about our
variable interests. Since the Bank is not the primary beneficiary of any of its VIEs, it does not
consolidate these interests.
The Bank has a variable interest in a securitization trust related to its retention of a 5% interest
in the investment securities issued in a securitization of single family loans. The retained
investments consist of senior and subordinated tranches and an interest-only strip, and are
classified as either available-for-sale or held-to-maturity debt securities.
168
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank has variable interests in low-income housing tax credit funds that are designed to
generate a return primarily through the realization of federal tax credits. These investments are
typically limited partnerships in which the general partner, other than the Bank, holds the power
over significant activities of the VIE.
The Bank has variable interests in other investments, which are accounted for under the equity
method.
In addition, the Bank has a variable interest related to its reimbursement obligation to Freddie
Mac for certain losses from the securitization of multifamily loans.
All assets and liabilities recorded associated with transactions with VIEs are not consolidated.
The following table summarizes the assets and liabilities recorded on the consolidated balance
sheets associated with transactions with VIEs:
Unconsolidated VIEs
December 31,
($ in millions)
2022
2021
Assets:
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8
$
10
Tax credit investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,383
1,220
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
117
77
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,508
1,307
Liabilities:
Unfunded commitments—tax credit investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
715
540
Unfunded commitments—other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
18
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
768
558
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
740
$
749
The Bank’s exposure to loss with respect to VIEs that are not consolidated includes the Bank’s
investment in these assets of $1.5 billion and $1.3 billion at December 31, 2022 and 2021,
respectively. The Bank’s exposure to loss related to the reimbursement obligation is 12% of the
multifamily loans securitized in 2018, or $30 million at both December 31, 2022 and 2021.
Note 7. Tax Credit Investments
The Bank invests in low income housing tax credit funds that are designed to generate a return
primarily through the realization of federal tax credits and tax losses from partnerships.
The following table presents the balances of the Bank’s tax credit investments and related
unfunded commitments:
December 31,
($ in millions)
2022
2021
Tax credit investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,383
$1,220
Unfunded commitments—tax credit investments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
715
$
540
(1)
Unfunded commitments—tax credit investments are included in other liabilities on the consolidated balance sheets.
169
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unfunded commitments related to tax credit investments are estimated to be funded as
follows:
($ in millions)
December 31,
2022
Unfunded commitments—tax credit investments:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
256
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
281
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
2028 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
715
The following table presents other information related to the Bank’s tax credit investments:
Year Ended December 31,
($ in millions)
2022
2021
2020
Tax credits and other tax benefits recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 207
$ 207
$ 187
Tax credit amortization expense included in provision for income taxes . . . . . . . . . . . .
$ 172
$ 174
$ 156
The Bank did not recognize any impairment losses on tax credit investments during 2022, 2021
or 2020.
Note 8. Other Assets
Other assets are summarized in the table below:
December 31,
($ in millions)
2022
2021
Lease assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,440
$1,332
DTAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
666
561
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
708
501
FHLB stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
379
115
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,841
1,122
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,034
$3,631
Dividend income on FHLB stock was $13 million in 2022, compared to $19 million in 2021 and
$24 million in 2020.
Refer to Note 9, “Leases,” for further discussion on lease assets.
170
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Leases
The Bank primarily leases corporate, preferred banking and wealth management offices, as
well as equipment, with remaining lease terms ranging from 1 year to 19 years. The majority of our
office leases include one or more options to extend the lease term, primarily up to 5 years at a time.
From time to time, the Bank may also enter into subleases with third parties for certain leased real
estate properties.
The following tables present information related to leases:
December 31,
($ in millions)
2022
2021
Supplemental balance sheet information:
Lease assets (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,440
$
1,332
Lease liabilities (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,552
$
1,405
Weighted average remaining lease term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.9 years
11.4 years
Weighted average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4%
2.2%
(1)
Lease assets are included in other assets and lease liabilities are included in other liabilities on the consolidated balance sheets.
Year Ended
December 31,
($ in millions)
2022
2021
2020
Components of net lease cost:
Operating lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$184
$164
$131
Less: sublease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6)
(1)
(1)
Net lease cost (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$178
$163
$130
(1)
Included in occupancy expense on the consolidated statements of income and comprehensive income.
Year Ended
December 31,
($ in millions)
2022
2021
2020
Supplemental cash flow information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$143
$135
$119
Non-cash activity related to lease assets:
Lease assets obtained from new operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . .
$256
$513
$274
171
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the future maturities of lease liabilities:
($ in millions)
December 31,
2022 (1)
Lease liabilities maturing in:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
184
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
186
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
174
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
165
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
155
2028 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
967
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,831
Less: imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(233)
Less: tenant improvement receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(46)
Total lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,552
(1)
Excludes $376 million of undiscounted minimum lease payments for leases signed but not yet commenced. These leases will commence at
various dates from 2023 through 2025 with lease terms ranging from 3 to 21 years.
Note 10. Premises, Equipment and Leasehold Improvements
Premises, equipment and leasehold improvements are summarized in the table below:
December 31, 2022
December 31, 2021
($ in millions)
Cost
Accumulated
Depreciation
and
Amortization
Carrying
Value
Cost
Accumulated
Depreciation
and
Amortization
Carrying
Value
Land, buildings and improvements . . . . . . .
$
4
$
(2)
$
2
$
4
$
(2)
$
2
Furniture and equipment . . . . . . . . . . . . . . . .
335
(243)
92
303
(208)
95
Leasehold improvements . . . . . . . . . . . . . . .
452
(268)
184
403
(235)
168
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
563
(358)
205
462
(273)
189
Premises, equipment and
leasehold improvements, net . . . . . . . .
$1,354
$
(871)
$
483
$1,172
$
(718)
$
454
Depreciation and amortization expense was $165 million in 2022, $145 million in 2021 and
$125 million in 2020.
Refer to Note 9, “Leases,” for further discussion on future minimum lease payments under the
Bank’s operating leases.
172
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Goodwill and Intangible Assets
The following table presents the Bank’s intangible assets (excluding MSRs) and goodwill:
December 31,
2022
2021
($ in millions)
Gross
Carrying
Value
Accumulated
Amortization
Carrying
Value
Gross
Carrying
Value
Accumulated
Amortization
Carrying
Value
Intangible assets:
Customer relationship and core
deposit intangibles . . . . . . . . . . . . . . .
$
221
$
(218)
$
3
$
221
$
(214)
$
7
Trade name . . . . . . . . . . . . . . . . . . . . . . . .
43
—
43
43
—
43
Intangible assets . . . . . . . . . . . . . . . . . . .
$
264
$
(218)
46
$
264
$
(214)
50
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
172
172
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
218
$
222
The following table presents the Bank’s MSRs:
December 31,
2022
2021
($ in millions)
Gross
Carrying
Value
Accumulated
Amortization
Valuation
Allowance
Carrying
Value
Gross
Carrying
Value
Accumulated
Amortization
Valuation
Allowance
Carrying
Value
MSRs . . . . . . . . .
$
129
$
(118)
$
—
$
11
$
131
$
(115)
$
—
$
16
Refer to Note 5, “Mortgage Banking Activities,” for further information about MSRs.
Note 12. Deposits
Total deposits were $176.4 billion at December 31, 2022, and were comprised of noninterest-
bearing deposits of $62.6 billion and interest-bearing deposits of $113.9 billion. At December 31,
2021, total deposits were $156.3 billion, and consisted of noninterest-bearing deposits of
$70.8 billion and interest-bearing deposits of $85.5 billion. Total deposits included $5.3 billion of
brokered deposits at December 31, 2022, compared to $851 million at December 31, 2021. The
weighted average contractual rate paid on brokered deposits was 3.81% and 0.02% at
December 31, 2022 and 2021, respectively.
At December 31, 2022, the annual contractual maturities of the Bank’s CDs were as follows:
($ in millions)
December 31,
2022
CDs maturing in:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24,496
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
596
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
2027
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
2028 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
25,212
At December 31, 2022, CDs that met or exceeded the FDIC insurance limit of $250,000 totaled
$15.2 billion.
173
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents interest expense on deposits:
Year Ended
December 31,
($ in millions)
2022
2021
2020
Interest-bearing checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 88
$
6
$ 16
Money market checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
217
25
56
Money market savings and passbooks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
165
25
32
CDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
184
39
172
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$654
$ 95
$276
Note 13. Borrowings
The Bank uses FHLB advances primarily as a funding source for long-term debt, and, in certain
cases, for short-term borrowings. Other sources of funding include federal funds purchased, senior
notes and subordinated notes. Short-term borrowings have an original maturity of one year or less.
Long-term debt has an original maturity in excess of one year. The following table presents the
carrying values, interest expense and components of short-term borrowings and long-term debt:
Carrying Value
Interest Expense
December 31,
Year Ended December 31,
($ in millions)
2022
2021
2022
2021
2020
Short-term borrowings:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
—
$
7
$
—
$
1
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,700
—
108
—
4
Total (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,700
—
115
—
5
Long-term debt:
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,300
3,700
67
115
250
Senior notes (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
500
998
16
24
23
Subordinated notes (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
779
779
36
37
37
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,579
5,477
119
176
310
Total borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,279
$5,477
$ 234
$ 176
$
315
(1)
At December 31, 2022, the weighted average interest rate of our short-term borrowings, which consisted of short-term FHLB advances,
was 4.40% At December 31, 2021, the Bank had no short-term borrowings.
(2)
Carrying value represents the principal balance, net of unamortized issuance discounts and deferred issuance costs. Interest expense
includes amortization of issuance discounts and deferred issuance costs, which are amortized over the contractual or estimated life using
a level yield methodology.
174
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FHLB Advances
FHLB advances may be either adjustable-rate in nature or fixed for a specific term. At
December 31, 2022, the Bank had $6.7 billion of short-term FHLB advances. At December 31, 2022,
all of the long-term FHLB advances were fixed-rate for a specific term. At December 31, 2022, the
contractual maturities and weighted average contractual rates of long-term FHLB advances were
as follows:
December 31, 2022
($ in millions)
Amount
Rate
FHLB advances maturing in:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,525
1.80%
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,375
3.18%
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,000
1.59%
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
400
0.65%
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—%
2028 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,300
2.35%
The Bank had no prepaid FHLB advances for the year ended December 31, 2022, compared to
$8.1 billion for the year ended December 31, 2021 and $5.8 billion for the year ended December 31,
2020. Prepayment penalties for FHLB advances, which are included in other noninterest expense,
totaled $32 million and $27 million for the years ended December 31, 2021 and 2020, respectively.
In connection with outstanding FHLB advances, at December 31, 2022 and 2021, the Bank
owned FHLB stock of $379 million and $115 million, respectively. At both December 31, 2022 and
2021, the Bank was required to own FHLB stock at least equal to 2.7% of outstanding FHLB
advances.
Senior Notes and Subordinated Notes
The following table presents the principal balances, carrying values, coupon rates, optional
redemption dates and maturity dates of the Bank’s unsecured, term, fixed-to-floating rate senior
notes, and fixed-rate subordinated notes as of December 31, 2022. The 2.500% Senior Notes due
2022 with a principal balance of $500 million were redeemed in the second quarter of 2022, and,
therefore, were no longer outstanding as of December 31, 2022.
December 31, 2022
($ in millions)
Principal
Balance
Carrying
Value (1)
Rate
Optional
Redemption
Date (2)
Maturity Date (3)
Senior notes:
Fixed-to-floating rate, issued
February 2020 . . . . . . . . . . . . . . . . .
$
500
$
500
1.912% (4) February 12, 2023
February 12, 2024
Subordinated notes:
Fixed-rate, issued August 2016 . . . .
$
400
$
389
4.375%
February 1, 2046
August 1, 2046
Fixed-rate, issued February 2017 . . .
$
400
$
390
4.625%
August 13, 2046
February 13, 2047
(1)
Principal balance, net of unamortized issuance discounts and deferred issuance costs.
(2)
The Bank has the option to redeem these notes prior to their maturity at the dates specified.
(3)
Unless previously redeemed, the notes will mature at the dates specified.
(4)
Interest is paid at a fixed rate of 1.912% per annum from February 12, 2020 through February 12, 2023, and is paid based on a floating rate
of compounded SOFR plus 0.620% beginning February 12, 2023.
175
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Refer to Note 26, “Subsequent Events” for information regarding the Bank’s redemption of its
1.912% Senior Fixed-to-Floating Rate Notes due 2024 with an outstanding principal balance of
$500 million on February 12, 2023.
Available Borrowing Capacity
Our unused, available borrowing capacity at the FHLB and the Federal Reserve Bank discount
window at December 31, 2022 was $55.2 billion and $6.7 billion, respectively. This available
borrowing capacity is supported by pledged loans at the FHLB and investment securities at the
Federal Reserve Bank.
Note 14. Derivative Financial Instruments
The Bank has freestanding derivative assets and liabilities and currently does not have any
derivatives designated as hedging instruments. The Bank recognizes all derivatives on the balance
sheet at fair value, with changes in fair value recognized in earnings. The Bank has elected to
present its derivative assets and derivative liabilities on a gross basis on its balance sheet. The Bank
does not conduct proprietary trading activities in derivative instruments for its own account.
The Bank has derivative assets and liabilities consisting of foreign exchange contracts
executed with clients. In these transactions, the Bank offsets the client exposure with another
financial institution counterparty, such as a major investment bank or a large commercial bank. The
Bank does not retain significant foreign exchange risk. The Bank does retain credit risk, both to the
client and the financial institution counterparty, which is evaluated and managed by the Bank in the
normal course of its operations. In addition, the Bank has foreign exchange contracts associated
with client deposits denominated in various foreign currencies. Management does not currently
anticipate non-performance by any of the counterparties.
The amounts presented in the following table include foreign exchange contracts with both the
client and the financial institution counterparties:
December 31,
2022
2021
Fair Value
Fair Value
($ in millions)
Notional or
Contractual
Amount
Derivative
Assets (1)
Derivative
Liabilities (1)
Notional or
Contractual
Amount
Derivative
Assets (1)
Derivative
Liabilities (1)
Foreign exchange contracts . . . . . . . . .
$
7,149
$
95
$
76
$
5,505
$
37
$
31
(1)
Derivative assets are included in other assets and derivative liabilities are included in other liabilities on the consolidated balance sheets.
The credit risk associated with these derivative instruments is the risk of non-performance by
the counterparties to the contracts. The Bank’s counterparty credit exposure is equal to the amount
reported as a derivative asset on the Bank’s balance sheet. To mitigate this risk, the Bank enters
into master netting and bilateral collateral agreements with certain counterparties. These
agreements allow the Bank to settle its derivative contracts with such counterparties on a net basis
and to offset the net derivative exposure against the related collateral in the event of default.
176
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents additional information related to the Bank’s foreign exchange
derivative contracts:
Total
Contracts Not
Subject to
Master Netting
Arrangements
Contracts Subject to Master Netting Arrangements
Gross
Amounts
Recognized
Gross
Amounts
Recognized
Gross
Amounts
Recognized
Gross
Amounts
Offset
on the
Balance
Sheet
Net
Amounts
Presented
on the
Balance
Sheet
Gross Amounts Not
Offset on the Balance
Sheet
($ in millions)
Derivative
Amount
Cash
Collateral (1)
Net
Amount
December 31, 2022
Derivative assets:
Foreign exchange
contracts . . . . . . . . . . . $
95 $
45 $
50 $
— $
50 $
50 $
— $
—
Derivative liabilities:
Foreign exchange
contracts . . . . . . . . . . . $
76 $
25 $
51 $
— $
51 $
50 $
1 $
—
December 31, 2021
Derivative assets:
Foreign exchange
contracts . . . . . . . . . . . $
37 $
8 $
29 $
— $
29 $
10 $
17 $
2
Derivative liabilities:
Foreign exchange
contracts . . . . . . . . . . . $
31 $
21 $
10 $
— $
10 $
10 $
— $
—
(1)
Collateral presented in the table above is limited to the amount required to settle the net derivative position and does not include any
excess collateral.
Note 15. Fair Value Measurements
Refer to Note 1, “Summary of Significant Accounting Policies,” for additional information about
assets and liabilities measured at fair value.
Recurring Fair Value Measurements
The following is a description of valuation methodologies used for assets and liabilities
recorded at fair value on a recurring basis.
Available-for-sale debt securities: For most debt securities, the Bank uses quoted prices
obtained through third-party valuation sources. Valuation techniques are generally based on
observable market inputs appropriate for the type of security being measured. In some instances,
prices are obtained from dealer quotes. The fair value of tax-exempt nonprofit debentures and
certain municipal securities is determined using estimated future cash flows or other model-based
valuation methods using inputs similar to market pricing, adjusted for liquidity risk. For level 3
taxable municipal securities, the Bank estimates the fair value using discounted expected future
cash flows and applies a liquidity risk yield premium to account for liquidity considerations since the
bond is not publicly traded. The weighted average liquidity risk yield premium, which is a significant
unobservable input, was 50 bps as of both December 31, 2022 and 2021. An unfavorable change in
the general business and credit environments could cause an increase in the
177
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
liquidity risk yield premium, resulting in a decrease in the fair value of the investment. In addition,
the Bank’s management considers interest rate reset frequency, spread to index, market yield
curves and the underlying bond rating at the time of valuation.
Equity securities measured at fair value: The Bank’s mutual funds and marketable equity
securities are valued using quoted market prices from the active exchange on which the securities
are traded. Mutual funds are valued using the NAV per share using quoted market prices.
Derivatives: Derivative assets and liabilities consist of foreign exchange contracts. The Bank
uses current market prices to determine the fair value of foreign exchange contracts.
The following tables present the balances of assets and liabilities measured at fair value on a
recurring basis:
($ in millions)
Level 1
Level 2
Level 3
Total
December 31, 2022
Assets:
Debt securities available-for-sale:
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$2,160
$
—
$2,160
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
10
—
10
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,130
—
1,130
Securities of U.S. states and political subdivisions—taxable . . . . . . . . . . . .
—
—
47
47
Equity securities (fair value):
Mutual funds and marketable equity securities . . . . . . . . . . . . . . . . . . . . . . .
24
—
—
24
Derivative assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
95
—
95
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24
$3,395
$
47
$3,466
Liabilities:
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
76
$
—
$
76
December 31, 2021
Assets:
Debt securities available-for-sale:
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$1,829
$
—
$1,829
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
15
—
15
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,490
—
1,490
Securities of U.S. states and political subdivisions—taxable . . . . . . . . . . . .
—
—
47
47
Equity securities (fair value):
Mutual funds and marketable equity securities . . . . . . . . . . . . . . . . . . . . . . .
28
—
—
28
Derivative assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
37
—
37
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
28
$3,371
$
47
$3,446
Liabilities:
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
31
$
—
$
31
There were no transfers in or out of Level 3 assets measured at fair value on a recurring basis in
the years ended December 31, 2022, 2021 and 2020.
178
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nonrecurring Fair Value Measurements
The following is a description of valuation methodologies used in estimating the fair value of
assets measured at fair value on a nonrecurring basis.
Loans: The fair value of loans with nonrecurring fair value adjustments is generally based on
the fair value of the underlying collateral, primarily real estate, adjusted for certain factors such as
estimated costs to sell and current market conditions.
MSRs: The fair value of MSRs is based on a present value calculation of expected future cash
flows, with assumptions regarding prepayments, discount rates, cost to service, escrow account
earnings, contractual servicing fees and ancillary income.
The following table presents the assets measured at fair value on a nonrecurring basis that
were held on the balance sheet:
($ in millions)
Level 1
Level 2
Level 3
Total
December 31, 2022
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
—
$
9
$
9
December 31, 2021
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
—
$
8
$
8
MSRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
11
11
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
—
$
19
$ 19
The following table presents net losses related to nonrecurring fair value measurements. The
net losses relate to assets held on the balance sheet at each respective period end.
Year Ended December 31,
($ in millions)
2022
2021
2020
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(1)
$
(1)
$
(2)
MSRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(2)
(9)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(1)
$
(3)
$
(11)
179
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
The following tables present the carrying values, estimated fair values and the levels in the fair
value hierarchy of financial instruments, excluding those measured at fair value on a recurring
basis:
December 31, 2022
Carrying
Value
Fair Value
($ in millions)
Total
Level 1
Level 2
Level 3
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,283
$
4,283
$4,283
$
—
$
—
Debt securities held-to-maturity, net: (1)
U.S. Government-sponsored agency securities . . . . . . . .
165
138
—
138
—
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,003
1,753
—
1,753
—
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
7
—
7
—
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,331
4,663
—
4,663
—
Securities of U.S. states and political subdivisions:
Tax-exempt municipal securities . . . . . . . . . . . . . . . . . .
17,635
14,765
—
14,743
22
Tax-exempt nonprofit debentures . . . . . . . . . . . . . . . . .
69
69
—
—
69
Taxable municipal securities . . . . . . . . . . . . . . . . . . . . . .
1,725
1,235
—
1,235
—
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,412
957
—
957
—
Loans, net: (1)
Real estate secured mortgages . . . . . . . . . . . . . . . . . . . . . .
136,793
117,520
—
84,347
33,173
Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,291
26,405
—
—
26,405
Other assets:
MSRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
26
—
—
26
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
379
379
—
—
379
Liabilities:
Deposits:
CDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 25,212
$ 25,202
$
—
$
—
$25,202
Short-term FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,700
6,704
—
6,704
—
Long-term FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,300
7,050
—
7,050
—
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
500
498
—
498
—
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
779
621
—
621
—
(1)
Carrying value is presented net of ACL.
180
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
Carrying
Value
Fair Value
($ in millions)
Total
Level 1
Level 2
Level 3
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,947
$ 12,947
$12,947
$
—
$
—
Debt securities held-to-maturity, net: (1)
U.S. Government-sponsored agency securities . . . . . . .
100
97
—
97
—
Agency residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,380
1,378
—
1,378
—
Other residential MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
9
—
9
—
Agency commercial MBS . . . . . . . . . . . . . . . . . . . . . . . . . .
2,719
2,742
—
2,742
—
Securities of U.S. states and political subdivisions:
Tax-exempt municipal securities . . . . . . . . . . . . . . . . .
15,003
15,987
—
15,959
28
Tax-exempt nonprofit debentures . . . . . . . . . . . . . . . .
72
73
—
—
73
Taxable municipal securities . . . . . . . . . . . . . . . . . . . . .
1,631
1,697
—
1,697
—
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . .
1,378
1,439
—
1,439
—
Loans, net: (1)
Real estate secured mortgages . . . . . . . . . . . . . . . . . . . .
106,401
103,269
—
74,708
28,561
Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,861
26,000
—
—
26,000
Other assets:
MSRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
20
—
—
20
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115
115
—
—
115
Liabilities:
Deposits:
CDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7,357
$
7,376
$
—
$
—
$ 7,376
Long-term FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,700
3,687
—
3,687
—
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
998
1,007
—
1,007
—
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
779
983
—
983
—
(1)
Carrying value is presented net of ACL.
Note 16. Commitments and Contingencies
In the ordinary course of business, the Bank enters into transactions that involve financial
instruments with off-balance sheet risks to meet the financing needs of the Bank’s clients. These
financial instruments include commitments to disburse additional funds on existing loans and lines
of credit and commitments issued under standby letters of credit. Such instruments involve
elements of credit risk and interest rate risk. These financial instruments are subject to the same
underwriting standards as on-balance sheet instruments. The Bank generally requires collateral or
other security to support instruments with credit risk. The maximum credit risk for such
commitments will generally be lower than the contractual amount because a significant portion of
these commitments is not expected to be fully used or will expire without being used by the client.
The Bank’s commitments to disburse additional funds on existing loans and lines of credit are
legally binding lending commitments, which are available for funding as long as there is no violation
of any of several credit or other established conditions. Standby letters of credit are conditional
lending commitments issued by the Bank to guarantee the performance of a client to a third party.
Commitments to disburse additional funds and standby letters of credit generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since these
commitments may expire without being drawn, the total commitment amounts do not necessarily
represent future cash requirements. At December 31, 2022 and 2021, the Bank had
181
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
commitments to disburse additional funds on existing loans and lines of credit of $49.8 billion and
$38.5 billion, respectively, and had undisbursed standby letters of credit of $1.2 billion and
$1.1 billion, respectively.
In connection with the securitization of loans with Freddie Mac, the Bank has an obligation to
reimburse Freddie Mac for losses up to $30 million, or 12%, of the multifamily loans securitized.
There was no liability for estimated losses related to this reimbursement obligation at December 31,
2022 and 2021, and the Bank has experienced no cumulative losses through December 31, 2022.
The remaining unpaid principal balance of multifamily loans securitized was $43 million and
$71 million at December 31, 2022 and 2021, respectively.
The Bank has been named as a defendant in legal actions arising in the ordinary course of
business, none of which, in the opinion of management, are material.
Note 17. Preferred Stock
At December 31, 2022, the Bank was authorized to issue 25,000,000 shares of preferred stock,
par value $0.01 per share, of which 3,632,500 shares were issued and outstanding. Each share of
preferred stock has a liquidation preference of $1,000. The following table presents the authorized,
issued and outstanding shares and carrying value for each series of the Bank’s preferred stock:
December 31,
2022
2021
(in millions, except share amounts)
Dividend
Rate
Shares
Authorized
Shares
Issued and
Outstanding
Carrying
Value
Shares
Authorized
Shares
Issued and
Outstanding
Carrying
Value
Series H Preferred Stock . . . . . . . . .
5.125%
200,000
200,000 $
200
200,000
200,000 $
200
Series I Preferred Stock . . . . . . . . . .
5.50%
300,000
300,000
300
300,000
300,000
300
Series J Preferred Stock . . . . . . . . .
4.70%
400,000
395,000
395
400,000
395,000
395
Series K Preferred Stock . . . . . . . . .
4.125%
500,000
500,000
500
500,000
500,000
500
Series L Preferred Stock . . . . . . . . .
4.250%
747,500
747,500
748
747,500
747,500
748
Series M Preferred Stock . . . . . . . . .
4.000%
750,000
750,000
750
750,000
750,000
750
Series N Preferred Stock . . . . . . . . .
4.500%
747,500
740,000
740
747,500
740,000
740
Total . . . . . . . . . . . . . . . . . . . . . . .
3,632,500 $ 3,633
3,632,500 $ 3,633
The Bank’s preferred stock activity for 2020 through 2022 was as follows:
On September 16, 2020, the Series K Preferred Stock was issued. Net proceeds, after
underwriting discounts and expenses, were $492 million. The public offering consisted of
20,000,000 depositary shares, each representing a 1/40th interest in a share of the Series K
Preferred Stock, at a public offering price of $25.00 per depositary share. The Series K Preferred
Stock is redeemable at the option of the Bank, subject to all applicable regulatory approvals, on or
after October 30, 2025.
On October 9, 2020 (the “Series F Redemption Date”), the Bank redeemed all of the
outstanding shares of its Series F Preferred Stock. All 4,000,000 depositary shares, representing a
1/40th interest in the Series F Preferred Stock, were redeemed at a redemption price of $25.00 per
share, representing an aggregate amount of $100 million plus all accrued and unpaid dividends as
of the Series F Redemption Date.
182
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 9, 2021, the Series L Preferred Stock was issued. Net proceeds, after underwriting
discounts and expenses, were $733 million. The public offering consisted of 29,900,000 depositary
shares, each representing a 1/40th interest in a share of the Series L Preferred Stock, at a public
offering price of $25.00 per depositary share. Dividends on the Series L Preferred Stock commenced
on April 30, 2021. The Series L Preferred Stock is redeemable at the option of the Bank, subject to
all applicable regulatory approvals, on or after March 30, 2026.
On March 30, 2021 (the “Series G Redemption Date”), the Bank redeemed all of the outstanding
shares of its Series G Preferred Stock. All 6,000,000 depositary shares, representing a 1/40th
interest in the Series G Preferred Stock, were redeemed at a redemption price of $25.00 per share,
representing an aggregate amount of $150 million plus all accrued and unpaid dividends as of the
Series G Redemption Date.
On July 21, 2021, the Series M Preferred Stock was issued. Net proceeds, after underwriting
discounts and expenses, were $736 million. The public offering consisted of 30,000,000 depositary
shares, each representing a 1/40th interest in a share of the Series M Preferred Stock, at a public
offering price of $25.00 per depositary share. Dividends on the Series M Preferred Stock
commenced on October 30, 2021. The Series M Preferred Stock is redeemable at the option of the
Bank, subject to all applicable regulatory approvals, on or after August 30, 2026.
On November 29, 2021, the Series N Preferred Stock was issued. Net proceeds, after
underwriting discounts and estimated expenses, were approximately $721 million. The public
offering consisted of 29,600,000 depositary shares, each representing a 1/40th interest in a share
of the Series N Preferred Stock, at a public offering price of $25.00 per depositary share. Dividends
on the Series N Preferred Stock commenced on January 30, 2022. The Series N Preferred Stock is
redeemable at the option of the Bank, subject to all applicable regulatory approvals, on or after
December 31, 2026.
Dividends on each series of preferred stock are payable quarterly in arrears when, as and if
declared by the Board (or a duly authorized committee of the Board). If declared, dividends on the
Series H Preferred Stock and Series I Preferred Stock are paid each March 30, June 30,
September 30 and December 30. Additionally, dividends on the Series J Preferred Stock, Series K
Preferred Stock, Series L Preferred Stock, Series M Preferred Stock and Series N Preferred Stock
are paid each January 30, April 30, July 30 and October 30.
The following table presents dividends on the Bank’s preferred stock:
Year Ended December 31,
2022
2021
2020
(in millions, except per share amounts)
Total
Per Share
Total
Per Share
Total
Per Share
Series F Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
$
—
$ —
$
—
$
4
$
44.35
Series G Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
2
$
13.75
8
$
55.00
Series H Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
$
51.25
10
$
51.25
10
$
51.25
Series I Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
$
55.00
16
$
55.00
17
$
55.00
Series J Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
$
47.00
19
$
47.00
17
$
42.45
Series K Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
$
41.25
21
$
41.25
3
$
5.04
Series L Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
$
42.50
23
$
30.81
—
$
—
Series M Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
$
40.00
8
$
11.00
—
$
—
Series N Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
$
41.38
—
$
—
—
$
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$158
$ 99
$ 59
183
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18. Common Stock and Stock Plans
Common Stock
At December 31, 2022, the Bank was authorized to issue 400,000,000 shares of common stock,
par value $0.01 per share. At December 31, 2022 and 2021, the Bank had 183,249,572 and
179,473,451 shares issued and outstanding, respectively. During 2022, the Bank sold 2,587,500
shares of common stock in underwritten offerings, which added $402 million to common equity.
Refer to Note 26, “Subsequent Events,” for information regarding the Bank’s offering of 2,875,000
new shares of common stock in February 2023.
First Republic Bank Employee Stock Purchase Plan
Under the Bank’s ESPP, the Bank is authorized to sell 2,000,000 shares of common stock to its
full-time and part-time employees who are regularly employed for 20 hours or more per week. For
2022, 2021 and 2020 employees could purchase shares of the Bank’s common stock at 85% of the
closing price of the common stock on the New York Stock Exchange on the date of purchase or the
nearest prior trading day, subject to an annual limitation of common stock valued at $25,000. A
total of 1,675,267 shares have been sold to employees under the ESPP since its inception in 2011,
and 324,733 shares remained authorized for future issuance at December 31, 2022. In 2022, a total
of 260,390 shares were sold to employees, compared to 181,227 in 2021 and 255,833 in 2020. For
2022, 2021 and 2020, compensation expense for the ESPP was $6 million, $5 million and $4 million,
respectively.
First Republic Bank 2017 Omnibus Award Plan
In May 2022, the Bank amended the 2017 Omnibus Award Plan to increase the number of
shares reserved for issuance by an additional 3,500,000 shares. Stock awards outstanding were not
affected by the amendment, and the terms of the award plan prior to the amendment will remain
effective for such awards.
Under the Bank’s 2017 Omnibus Award Plan, the Bank is authorized to grant shares of common
stock in the form of stock options, stock appreciation rights, shares of restricted stock, RSUs or
PSUs to its employees, officers and directors under the 2017 Omnibus Award Plan. Upon
termination of service, unvested awards are generally forfeited. At December 31, 2022, the Bank
had 3,983,121 shares reserved for future stock award grants.
184
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Units
The Bank grants RSUs to certain of its employees, officers and directors. Upon vesting, one share of
common stock is issued from the Bank’s authorized shares for each RSU. The number of shares of
common stock issued at the time of vesting is generally net of shares withheld to pay taxes due upon
vesting. Participants are entitled to dividends and voting rights only upon vesting.
RSUs have time-based vesting requirements (“Time RSUs”) or both time-based and performance-
based vesting requirements (“Performance RSUs”). RSUs vest evenly over periods ranging from one year
to five years from the date of grant. Performance RSUs vest over these periods, provided that certain
performance criteria are met, based on performance periods that are specified for each grant. The
following table presents information related to Performance RSUs and Time RSUs:
Performance RSUs
Time RSUs
Number
of
Awards
Weighted
Average
Grant
Date Fair
Value
Weighted
Average
Remaining
Contractual
Number
of
Awards
Weighted
Average
Grant
Date Fair
Value
Weighted
Average
Remaining
Contractual
Nonvested awards as of December 31, 2019 . . . . . . . . 2,596,064 $
102.09
367,009 $
94.17
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,226,021 $
108.47
269,554 $
112.06
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(863,413) $
95.02
(172,558) $
88.12
Canceled or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
(26,408) $
106.02
(950) $
109.79
Nonvested awards as of December 31, 2020 . . . . . . . . 2,932,264 $
106.80
3.3 years 463,055 $
106.81
1.8 years
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,108,831 $
189.13
217,005 $
173.29
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(945,086) $
103.89
(203,631) $
105.26
Canceled or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
(76,303) $
131.43
(4,923) $
120.54
Nonvested awards as of December 31, 2021 . . . . . . . . 3,019,706 $
137.32
3.2 years 471,506 $
137.93
1.5 years
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,157,374 $
146.59
232,657 $
156.13
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,035,657) $
124.38
(260,051) $
127.40
Canceled or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
(247,626) $
140.43
(4,077) $
136.07
Nonvested awards as of December 31, 2022 . . . . . . . . 2,893,797 $
145.39
3.2 years 440,035 $
153.79
1.7 years
The total fair value of Performance RSUs that vested in 2022, 2021 and 2020 was $146 million,
$184 million and $100 million, respectively. The total fair value of Time RSUs that vested in 2022,
2021 and 2020 was $42 million, $37 million and $18 million, respectively. No cash consideration was
received in connection with the vesting of these awards.
185
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance Share Units
The Bank grants PSUs to certain of its employees and officers. Upon vesting, one share of
common stock is issued from the Bank’s authorized shares for each PSU. The number of shares of
common stock issued at the time of vesting is generally net of shares withheld to pay taxes due
upon vesting. Participants are entitled to dividends and voting rights only upon vesting. Certain
PSUs vest in full after three years, while other PSUs vest evenly over periods ranging from three
years to five years from the date of grant, provided that certain performance criteria are met, based
on performance periods that are specified for each grant. The following table presents information
related to PSUs:
Number
of
Awards
Weighted
Average Grant
Date Fair Value
Weighted Average
Remaining
Contractual Term
Nonvested awards as of December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . .
988,742
$
99.45
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
309,250
$
105.69
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(272,585)
$
88.88
Canceled or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Nonvested awards as of December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . .
1,025,407
$
104.14
2.0 years
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
247,400
$
195.18
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(250,582)
$
91.93
Canceled or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Nonvested awards as of December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . .
1,022,225
$
129.17
1.6 years
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
193,077
$
161.77
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(370,775)
$
111.12
Canceled or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(101,150)
$
128.44
Nonvested awards as of December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . .
743,377
$
146.74
1.3 years
The total fair value of PSUs that vested during 2022, 2021 and 2020 was $47 million, $46 million
and $30 million, respectively. No cash consideration was received in connection with the vesting of
these awards.
Compensation Expense
The following tables present information regarding share-based compensation expense:
Year Ended December 31,
2022
2021
2020
($ in millions)
Expense
Recognized
Related Tax
Benefit
Expense
Recognized
Related Tax
Benefit
Expense
Recognized
Related Tax
Benefit
RSUs . . . . . . . . . . . . . . . . . . . . . . . .
$
158
$
44
$
176
$
49
$
108
$
31
PSUs . . . . . . . . . . . . . . . . . . . . . . . .
35
2
59
8
37
7
Total . . . . . . . . . . . . . . . . . . . . . .
$
193
$
46
$
235
$
57
$
145
$
38
At December 31, 2022
($ in millions)
Unrecognized
Expense
Weighted Average
Expected Recognition
Period
RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
377
3.1 years
PSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43
1.7 years
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
420
186
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Excess Tax Benefits
Excess tax benefits from exercise or vesting of share-based awards are included as a reduction
in provision for income taxes in the period in which the exercise or vesting occurs. The following
table presents excess tax benefits recognized, by award type:
Year Ended December 31,
2022
2021
2020
($ in millions)
Number
of Awards
Exercised
or Vested
Related
Excess
Tax
Benefit
Number
of Awards
Exercised
or Vested
Related
Excess
Tax
Benefit
Number
of Awards
Exercised
or Vested
Related
Excess
Tax
Benefit
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
$
—
17,850
$
1
301,903
$
8
RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,295,708
9
1,148,717
30
1,035,971
7
PSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
370,775
2
250,582
7
272,585
2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,666,483
$
11
1,417,149
$
38
1,610,459
$
17
At December 31, 2022 and 2021, there were no stock options outstanding. At December 31,
2020, there were 17,850 stock options outstanding. The intrinsic value of all options exercised was
$0 million in 2022, compared to $3 million in 2021 and $28 million in 2020. Stock option exercises
are satisfied by issuing shares from the Bank’s authorized shares. The number of shares of common
stock issued from stock option exercises are generally net of shares withheld to pay the exercise
price or taxes due upon the exercise.
Note 19. Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in the components of accumulated other
comprehensive income (loss), which relate to debt securities available-for-sale:
At or for the Year Ended
December 31,
($ in millions)
2022
2021
2020
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (31)
$ 23
$
5
Net unrealized gain (loss) on debt securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . .
(426)
(77)
27
Related tax effect (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126
23
(8)
Amortization of unrealized gain on debt securities transferred from available-for-sale to
held-to-maturity (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(1)
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(300)
(54)
18
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(331)
$ (31)
$ 23
(1)
Included in provision for income taxes on the consolidated statements of income and comprehensive income.
(2)
Included in interest income on investments on the consolidated statements of income and comprehensive income.
Note 20. Employee Benefit Plans
The Bank’s 401(k) Plan is a qualified defined contribution plan under section 401(k) of the IRC.
Generally, full-time and part-time employees who are regularly employed for 20 hours or more per
week are automatically enrolled in the Bank’s 401(k) Plan upon their date of hire. The 401(k) Plan
assets are invested by plan participants in a family of investment funds. Eligible employees may
contribute up to 50% of their pre-tax and post-tax eligible compensation as defined in the 401(k)
187
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plan, subject to certain IRC limitations. Under the 401(k) Plan, the Bank makes matching
contributions every pay period up to a maximum of 4% of the participant’s eligible compensation,
and the matching contributions vest immediately. The Bank’s contributions to the 401(k) Plan were
$41 million, $35 million and $30 million for 2022, 2021 and 2020, respectively.
The Bank has a Deferred Compensation Plan under which eligible employees may defer receipt
of a portion of salary or incentive compensation. The Deferred Compensation Plan allows its
participants to invest their deferred compensation in a wide array of investment vehicles within the
plan. Deferred amounts will be distributed to employees in accordance with their elections. At
December 31, 2022 and 2021, the deferred compensation liability was $142 million and $118 million,
respectively.
Since inception, the Bank has not offered any other employee benefit plans and, at
December 31, 2022, has no requirement to accrue additional expenses for any pension or other
post-employment benefits.
Note 21. Income Taxes
The following table presents the components of the Bank’s provision for income taxes:
Year Ended December 31,
($ in millions)
2022
2021
2020
Federal:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
74
$
59
$
43
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
(42)
(58)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97
17
(15)
State:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
210
185
145
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)
(26)
(16)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
207
159
129
Tax credit investment amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
172
174
156
Total provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 476
$ 350
$ 270
The following table presents a reconciliation between the effective tax rate and the federal
statutory rate:
Year Ended December 31,
Effective Tax Rate
2022
2021
2020
Statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.0%
21.0%
21.0%
State taxes, net of federal benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.1
8.2
8.3
Tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5.3)
(5.8)
(6.7)
Investments in life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.8)
(1.0)
(0.8)
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9.4)
(10.5)
(13.2)
Tax credit investment amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.0
9.5
11.7
Excess tax benefits—stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.5)
(2.1)
(1.3)
FDIC assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.7
0.6
0.7
Research and development tax credit adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.2)
(1.1)
—
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.6
0.3
0.5
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.2%
19.1%
20.2%
188
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the tax effects of temporary differences that give rise to our DTAs
and DTLs:
December 31,
($ in millions)
2022
2021
DTAs:
Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
483
$
440
Excess tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
171
219
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
245
215
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
170
164
Stock award expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
43
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48
42
Loan discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
14
State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
27
Amortization of research and development expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42
—
Unrealized losses on debt securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
139
13
Other DTAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
11
Gross DTAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,385
1,188
DTLs:
Lease assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(445)
(409)
Deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(246)
(194)
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21)
(15)
MSRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2)
(5)
Other DTLs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5)
(4)
Gross DTLs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(719)
(627)
Net DTAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
666
$
561
Gross DTAs represent recoverable taxes. At December 31, 2022, the Bank had excess tax credit
carryforwards of $171 million, which expire in varying amounts between 2040 and 2042. At
December 31, 2022 and 2021, management believes a valuation allowance is not needed because it
is more likely than not that DTAs will be realized based on our history of earnings and our ability to
implement tax planning strategies.
At December 31, 2022 and 2021, the Bank had accrued net current taxes receivable of
$17 million and 1 million, respectively.
The table below presents a reconciliation of the beginning and ending amount of unrecognized
tax benefits:
At or for the Year Ended
December 31,
($ in millions)
2022
2021
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
11
$
0
Additions:
Tax positions related to the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
2
Tax positions related to prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
9
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
17
$
11
If recognized, the entire amount of unrecognized tax benefits at December 31, 2022 would
favorably affect the Bank’s consolidated effective tax rate.
189
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022, 2021 and 2020, the amount of interest and penalties
(recorded in provision for income taxes) was insignificant.
The Bank continues to monitor the progress of ongoing income tax controversies and the
impact, if any, of the expected tolling of the statute of limitations in various taxing jurisdictions. The
Bank’s tax returns for the years ended December 31, 2013 through 2021 remain subject to
examination by the Internal Revenue Service, the California Franchise Tax Board or various other
state taxing authorities. The Bank does not currently believe there is a reasonable possibility of any
significant change to our total unrecognized tax benefits within the next twelve months.
Note 22. Earnings Per Common Share
The following table presents a reconciliation of the income and share amounts used in the
basic and diluted EPS computations. Stock awards that are anti-dilutive are not included in the
calculation of diluted EPS.
Year Ended December 31,
(in millions, except per share amounts)
2022
2021
2020
Basic EPS:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,665
$1,478
$1,064
Less: Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
158
99
59
Net income available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,507
$1,379
$1,005
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
181
177
172
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8.32
$ 7.78
$ 5.85
Diluted EPS:
Net income available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,507
$1,379
$1,005
Weighted average shares:
Common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
181
177
172
Dilutive effect of RSUs and PSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
3
1
Weighted average diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . .
183
180
173
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8.25
$ 7.68
$ 5.81
Note 23. Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by the FDIC.
Failure to meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material effect
on the Bank’s consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet
items as calculated under regulatory capital requirements. The Bank’s capital amounts and
classification will also be subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
The Bank’s capital ratios exceeded all applicable regulatory requirements at December 31,
2022 and 2021 for well-capitalized institutions. The following table presents the Bank’s regulatory
capital information and regulatory requirements:
190
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Regulatory Requirements
December 31,
Well-
Capitalized
Ratio
Minimum
Capital
Ratio
Minimum
Capital
Conservation
Buffer (1)
($ in millions)
2022
2021
Capital Ratios (2)
Tier 1 leverage ratio (Tier 1 capital to average
assets) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.51%
8.76%
5.00%
4.00%
—%
CET1 capital to RWAs . . . . . . . . . . . . . . . . . . . . . .
9.17%
9.65%
6.50%
4.50%
2.50%
Tier 1 capital to RWAs . . . . . . . . . . . . . . . . . . . . . .
11.56%
12.56%
8.00%
6.00%
2.50%
Total capital to RWAs . . . . . . . . . . . . . . . . . . . . . .
12.60%
13.72%
10.00%
8.00%
2.50%
Regulatory Capital (2), (3)
CET1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,920
$ 12,045
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,553
$ 15,678
Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,118
$ 17,124
Assets (2), (3)
Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$206,371
$178,969
RWAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$151,777
$124,820
(1)
As of December 31, 2022, our capital conservation buffer was 4.60%, which exceeded the minimum requirement of 2.5% required to be
held by banking institutions.
(2)
Beginning in 2020, ratios and amounts reflect the Bank’s election to delay the estimated impact of the CECL allowance methodology on its
regulatory capital, average assets and RWAs over a five-year transition period ending December 31, 2024.
(3)
As defined by regulatory capital rules.
The Bank’s ability to declare a cash dividend or other distribution with respect to capital is
subject to federal and state statutory and regulatory restrictions and possible approval
requirements based upon earnings, financial condition, cash needs and general business
conditions. Federal and state banking agencies also have authority to prohibit the Bank from
engaging in business practices that are considered unsafe or unsound, possibly including the
payment of dividends or other distributions with respect to capital. In addition, the Bank cannot
declare or pay dividends on common stock or redeem or repurchase common stock for any period
for which dividends on preferred stock have not been declared and paid in full.
Note 24. Revenue from Contracts with Customers
Revenue Recognition
The following table presents revenue from contracts with customers, disaggregated by revenue
stream, as well as other noninterest income:
Year Ended December 31,
($ in millions)
2022
2021
2020
Noninterest income:
Revenue from contracts with customers:
Investment management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
612
$ 554
$ 395
Brokerage and investment fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
106
64
47
Insurance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
19
12
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28
25
19
Deposit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28
27
24
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
7
6
Total revenue from contracts with customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
802
696
503
Other sources of noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
229
224
152
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,031
$ 920
$ 655
191
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank earns revenues from contracts with customers primarily for performing investment
management, brokerage, sales of insurance and annuity policies, trust and deposit services. Most of
the Bank’s contracts with customers are open-ended, and the Bank provides services on an ongoing
basis for an unspecified contract term. For these ongoing services, the fees are variable, since they
are dependent on factors such as the value of underlying AUM, AUA or volume of transactions. The
Bank recognizes revenue over the period services are provided to customers and when the
uncertainties that determine the amount of revenue are resolved, and the actual fees are known or
can be estimated. For certain services that are provided at a specific point in time, the Bank
recognizes revenue in full at the time such services are provided. Each of the Bank’s revenue
streams are described in additional detail below.
Investment Management Fees
The Bank performs investment management services for its clients through FRIM, who acts as
the client’s investment adviser, performing traditional portfolio management, and in some cases,
brokerage services through FRSC. FRIM also acts as an adviser to alternative investment funds.
Investment management fees are variable, since they are based on AUM, which are subject to
changes in market conditions and asset inflows and outflows. Investment management fees are
recognized over the period services are provided, and when actual AUM values are known or can be
estimated. For traditional portfolio management services, AUM is known at the end of each quarter,
and alternative investments’ AUM can be estimated each quarter.
Brokerage and Investment Fees
The Bank performs brokerage services for its clients through FRSC. Brokerage fees consist of
transaction fees earned from trade execution and distribution fees from mutual funds or money
market mutual funds. Brokerage transaction fees are fixed and determinable, based on security
type and trade volume, and are recognized upon trade execution. Distribution fees from mutual
funds or money market mutual funds are variable, since they are based on the underlying fund’s
value, which is subject to market conditions, fund performance and amounts invested by clients.
Distribution fees are recognized over the period that services are provided, and when the fund
values are known or can be estimated at the end of each quarter.
Insurance Fees
The Bank earns revenue from selling insurance policies and annuity contracts to its clients
through FRSC and previously, also through FRIM. Insurance fees consist of initial commissions
when a policy is sold and subsequent commissions each year that a policy is renewed. Both initial
and renewal fees are variable, since they are determined by the value and type of each annuity or
insurance policy sold and subsequently renewed. Initial commissions are recognized when the
policy is in effect, and renewal commissions are recognized upon renewal of the policy.
Trust Fees
The Bank performs trust and custody services for its clients through the Trust Company. The
Trust Company holds cash, securities and other assets in trust or custody accounts for its
customers, and manages the day to day administration of the accounts. Trust and custody fees are
variable, since they are based upon AUA, which are subject to changes in market conditions and
asset inflows and outflows. Trust fees are recognized over the period services are provided, and
when actual AUA values are known or can be estimated.
192
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deposit Fees
The Bank performs deposit account services for its deposit clients. Deposit account fees are
variable, since they are based on average account balances, type of account and transactions.
Deposit account fees are recognized over the period that services are provided, and when the
average account balances and transactions are known. Average account balances are known at the
end of a monthly account cycle and transactions are known as they occur. In addition, other
deposit-related fees consist of ATM fees from non-Bank cardholders, which is a fixed amount
recognized at the time of the transaction, and interchange fees from debit card transactions, which
are variable and recognized at the time of the transaction. Interchange fees are a percentage of the
dollar value of the debit cardholder’s transaction.
Other Income
Other income primarily includes revenue earned from ancillary services the Bank and its
subsidiaries provide to customers.
Principal versus Agent
For brokerage services, FRSC utilizes a third-party clearing broker to execute and settle trades.
FRSC is a principal in this relationship and, therefore, brokerage revenue is recognized as the gross
amount of consideration, and payments to the clearing broker are recorded as an expense. For
trustee services, the Bank utilizes a third-party custodian to provide custody over trust assets. The
Trust Company is the principal in this relationship, therefore, trustee services revenue is recognized
as the gross amount of consideration from the customer, and payments to the custodian are
recorded as an expense.
Contract Balances and Receivables
The Bank records contract liabilities, or deferred revenue, when payments from customers are
received or due in advance of providing services to customers. The Bank generally receives
payments for its services during the period or at the time services are provided and, therefore, does
not have deferred revenue balances at period end.
Receivables from contracts with customers were $23 million and $22 million at December 31,
2022 and 2021, respectively, and consist primarily of investment management, brokerage and trust
receivables, which are included in other assets on the consolidated balance sheets.
Contract Acquisition Costs
The Bank pays its employees incentive compensation in the form of commissions, which are
considered incremental and recoverable costs to obtain the contract. The Bank utilizes the
practical expedient not to capitalize such costs as the amortization period of the asset is less than
12 months, and therefore expenses the commissions as incurred. These costs are recorded in
salaries and employee benefits expense in the consolidated income statements.
193
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 25. Segment Reporting
ASC 280-10, “Segment Reporting,” requires that a public business enterprise report certain
financial and descriptive information about its reportable operating segments on the basis that is
used internally for evaluating segment performance and deciding how to allocate resources to
segments. The Bank’s two reportable segments are Commercial Banking and Wealth Management.
The principal business activities of the Commercial Banking segment are gathering deposits
(retail deposit gathering and private banking activities), originating and servicing loans (primarily
real estate secured mortgage loans) and investing in investment securities. The primary sources of
revenue for this segment are: interest earned on loans and investment securities, fees earned in
connection with loan and deposit services, and income from investments in life insurance. Principal
expenses for this segment are interest incurred on interest-bearing liabilities, including deposits
and borrowings, general and administrative costs and provision for credit losses.
The principal business activities of the Wealth Management segment are (i) the investment
management activities of FRIM, which manages investments for individuals and institutions in
equity securities, fixed income securities, balanced portfolios, and alternative investments; (ii) our
money market mutual fund activities through third-party providers and the brokerage activities of
FRSC (these two activities collectively, “Brokerage and Investment”); (iii) sales of life insurance
policies and annuity contracts through FRSC and previously, also through FRIM; (iv) trust and
custody services provided by the Trust Company; and (v) our foreign exchange activities conducted
on behalf of clients. The primary sources of revenue for this segment are investment management
fees, brokerage and investment fees, insurance fees, trust fees and foreign exchange fee income. In
addition, the Wealth Management segment earns a deposit earnings credit for client deposit
accounts that are maintained at the Bank, including sweep deposit accounts. The Wealth
Management segment’s principal expenses are personnel-related costs and other general and
administrative expenses.
Provision for income taxes for the segments is presented based on the segment’s contribution
to total consolidated provision for income taxes. Tax preference items are allocated to the segment
responsible for the related investments resulting in the tax preference item.
The reconciling items for revenues include fees for managing the Bank’s investment portfolio by
FRIM and intercompany management fees related to the training and licensing of the Bank’s licensed
representatives by FRSC. The reconciling items for assets include subsidiary funds on deposit with the
Bank and any intercompany receivable that is reimbursed at least on a quarterly basis.
194
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the operating results of the Bank’s two reportable segments, as
well as any reconciling items:
($ in millions)
Commercial
Banking
Wealth
Management
Reconciling
Items
Consolidated
Total
Year Ended December 31, 2022
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4,452 $
382 $
— $
4,834
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107
—
—
107
Noninterest income:
Noninterest income from contracts with customers (1) . . . .
28
789
(15)
802
Other noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122
107
—
229
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150
896
(15)
1,031
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,763
869
(15)
3,617
Income before provision for income taxes . . . . . . . . . . . . . . . . .
1,732
409
—
2,141
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
359
117
—
476
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,373 $
292 $
— $
1,665
Year Ended December 31, 2021
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,921 $
193 $
— $
4,114
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
—
—
59
Noninterest income:
Noninterest income from contracts with customers (1) . . . .
26
717
(47)
696
Other noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
128
96
—
224
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
154
813
(47)
920
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,469
725
(47)
3,147
Income before provision for income taxes . . . . . . . . . . . . . . . . .
1,547
281
—
1,828
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
271
79
—
350
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,276 $
202 $
— $
1,478
Year Ended December 31, 2020
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,141 $
121 $
— $
3,262
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157
—
—
157
Noninterest income:
Noninterest income from contracts with customers (1) . . . .
25
518
(40)
503
Other noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99
53
—
152
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
124
571
(40)
655
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,916
550
(40)
2,426
Income before provision for income taxes . . . . . . . . . . . . . . . . .
1,192
142
—
1,334
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
231
39
—
270
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
961 $
103 $
— $
1,064
(1)
The Commercial Banking segment consists of noninterest income from contracts with customers related to deposit fees and the Wealth
Management segment consists of investment management, brokerage and investment, insurance and trust fees.
195
FIRST REPUBLIC BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the goodwill and total assets of the Bank’s two reportable
segments, as well as any reconciling items:
($ in millions)
Commercial
Banking
Wealth
Management
Reconciling
Items
Consolidated
Total
At December 31, 2022
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
25
$
147
$
—
$
172
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
211,636
$
1,948
$
(945)
$
212,639
At December 31, 2021
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
25
$
147
$
—
$
172
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
180,447
$
1,191
$
(551)
$
181,087
Note 26. Subsequent Events
The Bank evaluated the effects of events that have occurred subsequent to the year ended
December 31, 2022.
On February 12, 2023, the Bank redeemed its 1.912% Senior Fixed-to-Floating Rate Notes due
2024 (the “Notes”) with an outstanding principal balance of $500 million. The Notes were redeemed
at a redemption price equal to the sum of 100% of the aggregate principal amount of the Notes and
any accrued and unpaid interest to, but excluding, February 12, 2023.
In February 2023, we offered and sold an aggregate of 2,875,000 new shares of common stock
in an underwritten public offering. Net proceeds based on the public offering price, after
underwriting discounts and estimated expenses, were $397 million.
196
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
First Republic Bank:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of First Republic Bank and subsidiaries
(the Bank) as of December 31, 2022 and 2021, the related consolidated statements of income and
comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2022, and the related notes (collectively, the consolidated
financial statements). We also have audited the Bank’s internal control over financial reporting as of
December 31, 2022, based on criteria established in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Bank as of December 31, 2022 and 2021, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31,
2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the
Bank maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2022 based on criteria established in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Bank’s management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Bank’s
consolidated financial statements and an opinion on the Bank’s internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud, and whether
effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
(continued on following page)
197
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(continued from previous page)
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of
the consolidated financial statements that was communicated or required to be communicated to
the Audit Committee and that: (1) relates to accounts or disclosures that are material to the
consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
Assessment of the Allowance for Credit Losses on Loans that Share Similar Risk
Characteristics
As discussed in Note 4 to the consolidated financial statements, the Bank’s total allowance for
credit losses for loans as of December 31, 2022 was $784 million. Of this amount, $752 million
is related to expected credit losses for those loan pools that share similar risk characteristics
(the collective ACLL). The Bank estimated the collective ACLL using a current expected credit
losses methodology which utilizes probability of default (“PD”) and loss given default (“LGD”)
models and loss rate models (collectively, the “quantitative models”), expert judgment, and
qualitative factors. The PD and LGD models use a single macroeconomic scenario which
incorporates forward-looking macroeconomic information and loan specific risk characteristics
over a reasonable and supportable period. These models calculate estimated losses using the
product of PD and LGD to produce a loss rate. The loss rate models use the relationship
between historical losses, historical macroeconomic variables, and forward-looking
macroeconomic information over a reasonable and supportable period to produce a loss rate.
The quantitative models also incorporate projections of prepayment (or repayment) speeds over
the reasonable and supportable period. After the reasonable and supportable period, the Bank
(continued on following page)
198
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(continued from previous page)
reverts on a straight-line basis over a reversion period to its historical loss rate and historical
prepayment (or repayment) speed for the remaining life of the loans. The historical loss rate and
historical prepayment (or repayment) speed are based on the average net charge-offs and
average prepayment (or repayment) speeds, respectively, over a twelve-year historical period
for all loans. In addition, a portion of the collective ACLL is determined by expert judgment.
Expert judgment is based on credit attributes specific to certain loan types and reflect the
specific loan characteristics or other factors, specifically idiosyncratic risks, that could result in
estimated credit losses. The Bank also includes adjustments to the collective ACLL based on
qualitative factors not reflected in the quantitative models or expert judgment but are likely to
cause estimated credit losses. Qualitative factors are developed using a systematic
methodology and are comprised of adjustments to historical loss information for asset-specific
risk characteristics and current economic conditions.
We identified the assessment of the collective ACLL as a critical audit matter. A high degree of
audit effort, including specialized skills and knowledge, and subjective and complex auditor
judgment was involved in the assessment of the collective ACLL due to significant
measurement uncertainty. Specifically, the assessment encompassed the evaluation of the
collective ACLL methodology, including (1) the quantitative models, and their key assumptions:
historical period used to calculate loss rates, loan pools that share similar risk characteristics,
prepayment (repayment) speeds, the selection of the single macroeconomic scenario and
relevant variables, the reasonable and supportable forecast periods, and the reversion periods,
(2) the expert judgment together with the credit attributes specific to a certain loan type that
they are based on, and (3) the qualitative factors related to the nature and volume of the loan
portfolio changes and the existence and effects of credit concentrations, and the degree to
which such factors impacted each portfolio. Further, the assessment encompassed the
evaluation of the conceptual soundness and performance of the quantitative models, and their
key assumptions. In addition, auditor judgment was required to evaluate the sufficiency of audit
evidence obtained over the collective ACLL.
The following are the primary procedures we performed to address this critical audit matter.
We evaluated the design and tested the operating effectiveness of certain internal controls
related to the Bank’s measurement of the collective ACLL estimate, including controls over the:
•
development of the collective ACLL methodology
•
continued use and appropriateness of changes made to the quantitative models
•
identification and determination of key assumptions used in the quantitative models
•
performance monitoring of the quantitative models and their key assumptions
•
continued use and appropriateness of changes made to the expert judgment together with
the credit attributes specific to a certain loan type
•
determination of the qualitative factors related to the nature and volume of the loan
portfolio changes and the existence and effects of credit concentrations, and the degree
to which these qualitative factors impacted each portfolio.
We evaluated the Bank’s process to develop the collective ACLL estimate by testing certain
sources of data, factors, and assumptions that the Bank used, and considered the relevance
(continued on following page)
199
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(continued from previous page)
and reliability of such data, factors, and assumptions. In addition, we involved credit risk
professionals with specialized skills and knowledge, who assisted in:
•
evaluating the Bank’s collective ACLL methodology for compliance with U.S. generally
accepted accounting principles
•
evaluating judgments made by the Bank relative to the assessment and performance
testing of the quantitative models, and their key assumptions, by comparing them to
relevant Bank-specific metrics and trends and the applicable industry and regulatory
practices
•
assessing the conceptual soundness and performance testing of the quantitative models,
and their key assumptions, by inspecting the model documentation to determine whether
the models are suitable for their intended use
•
evaluating the Bank’s selection of a single macroeconomic forecast scenario, including the
underlying variables, by comparing them to the Bank’s business environment, relevant
industry practices, and publicly available forecasts
•
evaluating the lengths of the historical periods, reversion periods and reasonable and
supportable forecast periods by comparing them to specific portfolio risk characteristics
and trends
•
evaluating and challenging the expert judgment, together with the credit attributes
specific to a certain loan type that it is based on, by inspecting underlying documentation,
comparing underlying methodology to the applicable industry practices and to relevant
Bank-specific metrics and trends
•
determining whether the loan pools are segmented by similar risk characteristics by
comparing to the Bank’s business environment and internal metrics, and relevant industry
practices
•
evaluating the systematic methodology used to develop the qualitative factors and the
effect of those factors on the collective ACLL compared with relevant credit risk factors
and consistency with credit trends and identified limitations of the underlying quantitative
models.
We also assessed the sufficiency of the audit evidence obtained related to the collective ACLL
by evaluating the:
•
cumulative results of the audit procedures
•
qualitative aspects of the Bank’s accounting practices
•
potential bias in the accounting estimates.
/s/ KPMG LLP
We have served as the Bank’s auditor since 2010.
San Francisco, California
February 28, 2023
200
FIRST REPUBLIC BANK
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of First Republic Bank and subsidiaries (the Bank) is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934. The Bank’s internal control over financial
reporting is designed by, or under the supervision of the Bank’s principal executive and principal
financial officers and effected by the Bank’s board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting
principles. The Bank’s internal control over financial reporting includes those policies and
procedures that:
(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of the assets of the Bank;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the Bank are being made only in accordance with
authorizations of management and directors of the Bank; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Bank’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
The Bank’s management assessed the effectiveness of the Bank’s internal control over financial
reporting as of December 31, 2022, using the criteria for effective internal control over financial
reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in Internal Control—Integrated Framework (2013). Based on this assessment,
management concluded that, as of December 31, 2022, the Bank’s internal control over financial
reporting was effective.
KPMG LLP, the independent registered public accounting firm that audited the Bank’s consolidated
financial statements as of December 31, 2022 included in this Annual Report on Form 10-K, issued
an audit report on the Bank’s internal control over financial reporting. KPMG’s audit report appears
on page 197.
201
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by SEC rules, we carried out an evaluation of the effectiveness of the design and
operation of our “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e)
under the Securities Exchange Act as of the end of the period covered by this report. Our
management, including our principal executive officer and principal financial officer, supervised
and participated in the evaluation. Based on that evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and procedures, as of
December 31, 2022, were effective.
Management’s Report on Internal Control Over Financial Reporting
See “Item 8. Financial Statements and Supplementary Data.”
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during the quarter ended
December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B. Other Information.
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
This information is incorporated by reference to the Bank’s 2023 Proxy Statement that will be
filed with the FDIC pursuant to Regulation 14A not later than 120 days after the end of the Bank’s
fiscal year.
Item 11. Executive Compensation.
This information is incorporated by reference to the Bank’s 2023 Proxy Statement that will be
filed with the FDIC pursuant to Regulation 14A not later than 120 days after the end of the Bank’s
fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The information is incorporated by reference to the Bank’s 2023 Proxy Statement that will be
filed with the FDIC pursuant to Regulation 14A not later than 120 days after the end of the Bank’s
fiscal year.
202
Item 13. Certain Relationships and Related Transactions, and Director Independence.
This information is incorporated by reference to the Bank’s 2023 Proxy Statement that will be
filed with the FDIC pursuant to Regulation 14A not later than 120 days after the end of the Bank’s
fiscal year.
Item 14. Principal Accountant Fees and Services.
This information is incorporated by reference to the Bank’s 2023 Proxy Statement that will be
filed with the FDIC pursuant to Regulation 14A not later than 120 days after the end of the Bank’s
fiscal year.
PART IV
Item 15. Exhibit and Financial Statement Schedules.
(1)
Financial Statements:
See “Item 8. Financial Statements and Supplementary Data.”
(2)
Financial Statement Schedules:
Financial Statement schedules are omitted either because they are not required or are not
applicable, or because the required information is shown in the Financial Statements or
notes thereto.
(3)
Exhibits:
The exhibits to this Annual Report on Form 10-K listed below have been included with, or
incorporated into, the copy of this report filed with the Federal Deposit Insurance
Corporation and on our website. Copies of individual exhibits will be furnished to
shareholders upon written request to First Republic Bank.
Exhibit
No.
Description
3.1
Restated Articles of Incorporation of First Republic Bank, incorporated by reference to Exhibit 3.1 of
Form 8-K filed on June 8, 2021.
3.2
Certificate of Determination for the Bank’s 4.000% Noncumulative Perpetual Series M Preferred
Stock, par value $0.01 per share, incorporated by reference to Exhibit 3.1 of Form 8-K filed on July 21,
2021.
3.3
Certificate of Determination for the Bank’s 4.500% Noncumulative Perpetual Series N Preferred
Stock, par value $0.01 per share, incorporated by reference to Exhibit 3.1 of Form 8-K filed on
November 29, 2021.
3.4
Amended and Restated Bylaws of First Republic Bank, effective as of January 29, 2021, incorporated
by reference to Exhibit 3.1 of Form 8-K filed on February 1, 2021.
4.1
Specimen stock certificate of First Republic Bank’s common stock, incorporated by reference to
Exhibit 4.1 of Amendment No. 2 to the Bank’s Registration Statement on Form 10 filed on December 7,
2010.
4.2
Fiscal and Agency Paying Agreement, dated August 1, 2016, between the Bank and The Bank of New
York Mellon Trust Company, N.A., incorporated by reference to Exhibit 4.1 of Form 8-K filed on
August 1, 2016.
4.3
Form of Note (included in Exhibit 4.2).
203
Exhibit
No.
Description
4.4
Fiscal and Agency Paying Agreement, dated February 13, 2017, between the Bank and The Bank of
New York Mellon Trust Company, N.A., incorporated by reference to Exhibit 4.1 of Form 8-K filed on
February 13, 2017.
4.5
Form of Note (included in Exhibit 4.4).
4.6
Deposit Agreement, dated June 7, 2017, by and among the Bank, Computershare Inc., Computershare
Trust Company, N.A. and the holders from time to time of the Depositary Receipts described therein,
incorporated by reference to Exhibit 4.1 of Form 8-K filed on June 7, 2017.
4.7
Form of Depositary Receipt (included in Exhibit 4.6).
4.8
Deposit Agreement, dated June 12, 2018, by and among the Bank, Computershare Inc.,
Computershare Trust Company, N.A. and the holders from time to time of the Depositary Receipts
described therein, incorporated by reference to Exhibit 4.1 of Form 8-K filed on June 12, 2018.
4.9
Form of Depositary Receipt (included in Exhibit 4.8).
4.10
Deposit Agreement, dated December 3, 2019, by and among the Bank, Computershare Inc.,
Computershare Trust Company, N.A. and the holders from time to time of the Depositary Receipts
described therein, incorporated by reference to Exhibit 4.1 of Form 8-K filed on December 3, 2019.
4.11
Form of Depositary Receipt (included in Exhibit 4.10).
4.12
Deposit Agreement, dated September 16, 2020, by and among the Bank, Computershare Inc.,
Computershare Trust Company, N.A. and the holders from time to time of the Depositary Receipts
described therein, incorporated by reference to Exhibit 4.1 of Form 8-K filed on September 16, 2020.
4.13
Form of Depositary Receipt (included in Exhibit 4.12).
4.14
Deposit Agreement, dated February 9, 2021, by and among the Bank, Computershare Inc.,
Computershare Trust Company, N.A. and the holders from time to time of the Depositary Receipts
described therein, incorporated by reference to Exhibit 4.1 of Form 8-K filed on February 9, 2021.
4.15
Form of Depositary Receipt (included in Exhibit 4.14).
4.16
Deposit Agreement, dated July 21, 2021, by and among the Bank, Computershare Inc., Computershare
Trust Company, N.A. and the holders from time to time of the Depositary Receipts described therein,
incorporated by reference to Exhibit 4.1 of Form 8-K filed on July 21, 2021.
4.17
Form of Depositary Receipt (included in Exhibit 4.16).
4.18
Deposit Agreement, dated November 29, 2021, by and among the Bank, Computershare Inc.,
Computershare Trust Company, N.A. and the holders from time to time of the Depositary Receipts
described therein, incorporated by reference to Exhibit 4.1 of Form 8-K filed on November 29, 2021.
4.19
Form of Depositary Receipt (included in Exhibit 4.18).
4.20
Other instruments defining the rights of debt holders. The registrant hereby agrees to furnish to the
FDIC, upon request, copies of instruments defining the rights of holders of long-term debt of the
registrant and its consolidated subsidiaries; currently no issuance of debt of the registrant exceeds
10% of the assets of the registrant and its subsidiaries on a consolidated basis.
4.21
Description of Securities.
10.1
Employment Agreement, dated June 15, 2010, between First Republic Bank and James H. Herbert, II,
incorporated by reference to Exhibit 10.1 of Form 10-Q filed on May 8, 2012. (1)
10.2
(i) Amendment No. 1, dated February 23, 2012, to the Employment Agreement, dated June 15, 2010,
between James H. Herbert, II and the Bank, and (ii) the Restricted Stock Agreement, dated as of
February 27, 2012, between James H. Herbert, II and the Bank, attached as Attachment A thereto,
incorporated by reference to Exhibit 10.3 of Form 10-Q filed on May 8, 2012. (1)
204
Exhibit
No.
Description
10.3
Employment Agreement Amendment No. 2, effective February 25, 2014, to the Employment
Agreement, dated June 15, 2010, as amended effective February 27, 2012, between James H. Herbert,
II and the Bank, incorporated by reference to Exhibit 10.6 of Form 10-K filed on February 28, 2014. (1)
10.4
Employment Agreement Amendment No. 3, effective December 1, 2015, to the Employment
Agreement, dated June 15, 2010, as amended effective February 27, 2012 and February 25, 2014,
between James H. Herbert, II and the Bank, incorporated by reference to Exhibit 10.1 of Form 8-K filed
on December 2, 2015. (1)
10.5
Employment Agreement Amendment No. 4, effective May 10, 2017, to the Employment Agreement
dated June 15, 2010, as amended effective February 27, 2012, February 25, 2014 and December 1,
2015, between James H. Herbert, II and the Bank, incorporated by reference to Exhibit 10.1 of Form
8-K filed on May 12, 2017. (1)
10.6
Employment Agreement Amendment No. 5, effective February 13, 2019, to the Employment
Agreement dated June 15, 2010, as amended effective February 27, 2012, February 25, 2014,
December 1, 2015 and May 10, 2017, between James H. Herbert, II and the Bank, incorporated by
reference to Exhibit 10.1 of Form 8-K filed on February 19, 2019. (1)
10.7
Employment Agreement Amendment No. 6, effective February 24, 2021, to the Employment
Agreement dated June 15, 2010, as amended effective February 27, 2012, February 25, 2014,
December 1, 2015, May 10, 2017 and February 13, 2019, between James H. Herbert, II and the Bank,
incorporated by reference to Exhibit 10.7 of Form 10-K filed on February 26, 2021. (1)
10.8
Employment Agreement Amendment No. 7, effective July 12, 2021, to the Employment Agreement
dated June 15, 2010, as amended effective February 27, 2012, February 25, 2014, December 1, 2015,
May 10, 2017, February 13, 2019 and February 24, 2021 between James H. Herbert, II and the Bank,
incorporated by reference to Exhibit 10.1 of Form 8-K filed on July 12, 2021. (1)
10.9
Employment Agreement Amendment No. 8, effective December 10, 2021, as clarified on January 10,
2022, to the Employment Agreement dated June 15, 2010, as amended effective February 27, 2012,
February 25, 2014, December 1, 2015, May 10, 2017, February 13, 2019, February 24, 2021 and July 12,
2021 between James H. Herbert, II and the Bank, incorporated by reference to Exhibit 10.9 of Form
10-K filed on February 28, 2022. (1)
10.10
Employment Agreement Amendment No. 9, effective March 13, 2022, to the Employment Agreement
dated June 14, 2010, as amended effective February 27, 2012, February 25, 2014, December 1, 2015,
May 10, 2017, February 13, 2019, February 24, 2021, July 12, 2021 and December 10, 2021, between
James H. Herbert, II and the Bank, incorporated by reference to Exhibit 10.1 of Form 8-K filed on
March 14, 2022. (1)
10.11
Offer Letter, dated as of August 1, 2022, between the Bank and Susie Cranston, incorporated by
reference to Exhibit 10.1 of the Bank’s Current Report on Form 8-K filed on August 4, 2022. (1)
10.12
Offer Letter, dated as of August 19, 2022, between the Bank and Neal Holland, incorporated by
reference to Exhibit 10.1 of the Bank’s Current Report on Form 8-K filed on August 23, 2022. (1)
10.13
Advances and Security Agreement, dated as of July 1, 2010, between the Federal Home Loan Bank of
San Francisco and First Republic Bank, incorporated by reference to Exhibit 10.6 of the Bank’s
Registration Statement on Form 10 filed on November 10, 2010.
10.14
Form of Director and Officer Indemnification Agreement, incorporated by reference to Exhibit 10.7 of
the Bank’s Registration Statement on Form 10 filed on November 10, 2010. (1)
10.15
Form of Supplemental Executive Retirement Plan, incorporated by reference to Exhibit 10.13 of the
Bank’s Registration Statement on Form 10 filed on November 10, 2010. (1)
10.16
Form of Endorsement Method Split-Dollar Agreement, incorporated by reference to Exhibit 10.14 of
the Bank’s Registration Statement on Form 10 filed on November 10, 2010. (1)
10.17
First Republic Bank Survivor Benefit Plan Agreement, filed herewith. (1)
205
Exhibit
No.
Description
10.18
First Republic Bank 2017 Omnibus Award Plan, incorporated by reference to Annex B of the Bank’s
Definitive Proxy Statement for the 2017 Annual Meeting of Shareholders on Schedule 14A filed on
March 27, 2017. (1)
10.19
First Republic Bank 2017 Omnibus Award Plan, as amended and restated effective May 12, 2020,
incorporated by reference to Annex A of the Bank’s Definitive Proxy Statement for the 2020 Annual
Meeting of Shareholders on Schedule 14A filed on April 1, 2020. (1)
10.20
First Republic Bank 2017 Omnibus Award Plan, as amended and restated effective May 17, 2022,
incorporated by reference to Annex B of the Bank’s Definitive Proxy Statement for the 2022 Annual
Meeting of Shareholders on Schedule 14A filed on April 7, 2022. (1)
10.21
Amendment, dated as of November 17, 2021, to the First Republic Bank 2017 Omnibus Award Plan,
incorporated by reference to Exhibit 10.18 of Form 10-K filed on February 28, 2022 (1)
10.22
Form of Performance Share Unit Agreement—Performance Vesting under the 2017 Omnibus Award
Plan, incorporated by reference to Exhibit 10.1 of Form 10-Q filed on May 9, 2018. (1)
10.23
Form of Performance Share Unit Agreement—Performance Vesting under the 2017 Omnibus Award
Plan, incorporated by reference to Exhibit 10.2 of Form 10-Q filed on August 8, 2018. (1)
10.24
Form of Restricted Stock Unit Agreement—Time Vesting under the 2017 Omnibus Award Plan,
incorporated by reference to Exhibit 10.1 of Form 10-Q filed on May 8, 2020. (1)
10.25
Form of Performance Share Unit Agreement—Performance Vesting under the 2017 Omnibus Award
Plan, incorporated by reference to Exhibit 10.1 of Form 10-Q filed on November 6, 2020. (1)
10.26
Form of Performance Share Unit Agreement—Performance Vesting under the 2017 Omnibus Award
Plan, incorporated by reference to Exhibit 10.2 of Form 10-Q filed on November 6, 2020. (1)
10.27
Form of Restricted Stock Unit Agreement—Time Vesting under the 2017 Omnibus Award Plan,
incorporated by reference to Exhibit 10.29 of Form 10-K filed on February 26, 2021. (1)
10.28
Form of Restricted Stock Unit Agreement—Time Vesting under the 2017 Omnibus Award Plan,
incorporated by reference to Exhibit 10.2 of Form 10-Q filed on May 7, 2021. (1)
10.29
Form of Restricted Stock Unit Agreement—Time Vesting under the 2017 Omnibus Award Plan,
incorporated by reference to Exhibit 10.3 of Form 10-Q filed on May 9, 2022. (1)
10.30
First Republic Bank Deferred Compensation Plan, as amended effective July 1, 2018, incorporated by
reference to Exhibit 10.36 of Form 10-K filed on February 28, 2019. (1)
10.31
First Republic Bank 2021 Annual Executive Incentive Plan, incorporated by reference to Exhibit 10.3 of
Form 10-Q filed on May 7, 2021. (1)
21
Subsidiaries of First Republic Bank.
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(1)
This exhibit is a management contract or a compensatory plan or arrangement.
Item 16. Form 10-K Summary.
None.
206
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Bank has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST REPUBLIC BANK
By:
/s/ NEAL HOLLAND
(Neal Holland)
Executive Vice President and Chief
Financial Officer
February 28, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Bank and in the capacities and on the dates
indicated.
Signatures
Title
Date
/s/ MICHAEL J. ROFFLER
(Michael J. Roffler)
Chief Executive Officer, President
and Director
(Principal Executive Officer)
February 28, 2023
/s/ NEAL HOLLAND
(Neal Holland)
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
February 28, 2023
/s/ OLGA TSOKOVA
(Olga Tsokova)
Executive Vice President, Deputy
Chief Financial Officer and Chief
Accounting Officer
(Principal Accounting Officer)
February 28, 2023
/s/ JAMES H. HERBERT, II
(James H. Herbert, II)
Executive Chairman and Director
February 28, 2023
/s/ KATHERINE AUGUST-DEWILDE
(Katherine August-deWilde)
Vice Chair and Director
February 28, 2023
/s/ THOMAS J. BARRACK, JR.
(Thomas J. Barrack, Jr.)
Director
February 28, 2023
/s/ FRANK J. FAHRENKOPF, JR.
(Frank J. Fahrenkopf, Jr.)
Director
February 28, 2023
/s/ BORIS GROYSBERG
(Boris Groysberg)
Director
February 28, 2023
/s/ SANDRA R. HERNÁNDEZ
(Sandra R. Hernández)
Director
February 28, 2023
/s/ PAMELA J. JOYNER
(Pamela J. Joyner)
Director
February 28, 2023
/s/ SHILLA KIM-PARKER
(Shilla Kim-Parker)
Director
February 28, 2023
/s/ REYNOLD LEVY
(Reynold Levy)
Director
February 28, 2023
/s/ ALBERT FREDERICK OSTERLOH, IV
(Albert Frederick Osterloh, IV)
Director
February 28, 2023
/s/ GEORGE G.C. PARKER
(George G.C. Parker)
Director
February 28, 2023
207
Exhibit 4.21
FIRST REPUBLIC BANK
DESCRIPTION OF SECURITIES REGISTERED PURSUANT TO
SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
The following description summarizes the material terms of each class of securities of First Republic
Bank (the “Bank”) that is registered under Section 12 of the Securities Exchange Act, as amended. For a
complete description, you should refer to the Bank’s Restated Articles of Incorporation (the “Articles”),
Amended and Restated Bylaws (the “Bylaws”) and certificates of determination, each of which are
incorporated by reference as exhibits to this Annual Report on Form 10-K, as well as any applicable
provisions of relevant law.
DESCRIPTION OF COMMON STOCK
General
The Articles authorize the Bank to issue a total of 425,000,000 shares of capital stock, of which the Bank is
authorized to issue 400,000,000 shares of common stock, par value $0.01 per share (“Common Stock”), and
25,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”).
Voting
Each holder of Common Stock is entitled to one vote per share and is entitled to vote on all matters on
which shareholders generally are entitled to vote, except as otherwise required by law and subject to the rights and
preferences of the holders of any outstanding series of Preferred Stock. Holders of Common Stock are not entitled,
however, to vote on any amendment to the Articles that relates solely to the terms of one or more outstanding series
of Preferred Stock if the holders of such series are entitled, either separately or together with the holders of one or
more other such series, to vote on such amendment pursuant to the Articles or the California General Corporation
Law (the “CGCL”). Other than elections to office, any shareholder entitled to vote on a matter may vote part of the
shares such shareholder is entitled to vote in favor of the matter and refrain from voting the remaining shares or
vote them against the matter. If a shareholder fails to specify the number of shares such shareholder is voting
affirmatively, however, it is conclusively presumed that the shareholder is voting affirmatively with respect to all
shares such shareholder is entitled to vote. The Articles do not allow shareholders to cumulate votes in the election
of directors.
Dividends and Other Distributions
Subject to the rights and preferences of the holders of any outstanding series of Preferred Stock, dividends
may be declared and paid on the Common Stock at the discretion of the Board of Directors (the “Board”) from any
lawfully available funds. Holders of the Common Stock are also entitled to share ratably in the Bank’s assets legally
available for distribution to its shareholders in the event of its liquidation, winding up or dissolution, after payment
of or adequate provision for all of its known debts and liabilities. These rights are subject to the preferential rights of
any other class or series of the Bank’s stock.
2
Pre-emptive and Other Rights
The Articles do not grant any pre-emptive rights to the Bank’s shareholders. There are no sinking fund,
conversion or redemption provisions applicable to the Common Stock.
Transfer Restrictions
All shares of Common Stock currently outstanding were offered and sold pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the “Securities Act”), and other exemptions provided by
the laws of the United States and other jurisdictions where such securities are offered and sold. Shares of Common
Stock may only be transferred or sold in compliance with all applicable state, federal and foreign securities laws.
Ownership Limitations
Federal and state banking laws prevent any holder of the Bank’s capital stock from acquiring “control” of
the Bank, as defined under applicable statutes and regulations, without obtaining the prior approval of the Federal
Reserve, the FDIC or the California Department of Financial Protection and Innovation, as applicable.
Listing and Trading
The Common Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “FRC.”
Book Entry, Delivery and Form
The Depository Trust Company (“DTC”) acts as securities depositary for the Common Stock. The
Common Stock is registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be
requested by an authorized representative of DTC.
DTC has advised the Bank that it is a limited-purpose trust company organized under the New York
Banking Law, a “banking organization” within the meaning of New York Banking Law, a member of the Federal
Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a
“clearing agency” registered under the provisions of Section 17A of the Exchange Act. DTC holds securities that its
participants (“Direct Participants”) deposit with DTC. DTC also facilitates the settlement among Direct Participants
of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers
and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is a wholly owned subsidiary of The
Depositary Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities
Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC
is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both
U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear
through or maintain a custodial relationship with a Direct Participant, either directly or through intermediaries
(“Indirect Participants”). The rules applicable to DTC and its Direct and Indirect Participants are on file with the
SEC. More information about DTC can be found at www.dtcc.com and http://www.dtc.org.
Purchases of shares of Common Stock under the DTC system must be made by or through Direct
Participants, which will receive a credit for the shares of Common Stock on DTC’s records. The ownership interest
of each actual purchaser of shares of Common Stock (the “beneficial owner”) is in turn recorded on the Direct and
3
Indirect Participants’ records. Beneficial owners will not receive written confirmation from DTC of their purchase.
Beneficial owners are, however, expected to receive written confirmations providing details of the transaction, as
well as periodic statements of their holdings, from the Direct or Indirect Participant through which the beneficial
owner entered into the transaction. Transfers of ownership interest in the Common Stock are accomplished by
entries made on the books of Direct and Indirect Participants acting on behalf of beneficial owners. Beneficial
owners will not receive certificates representing their ownership interest in the Common Stock, except in the event
that use of the book-entry system for the Common Stock is discontinued. Conveyance of notices and other
communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to beneficial owners are governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
To facilitate subsequent transfers, the shares of Common Stock deposited by Direct Participants with DTC
are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by
an authorized representative of DTC. The deposit of Common Stock with DTC and its registration in the name of
Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the
actual beneficial owners of the Common Stock. DTC’s records reflect only the identity of the Direct Participants to
whose accounts are credited, which may or may not be the beneficial owners. The Direct and Indirect Participants
will remain responsible for keeping account of their holdings on behalf of their customers.
In those instances where a vote is required, neither DTC nor Cede & Co. (nor any other DTC nominee) will
consent or vote with respect to the Common Stock unless authorized by a Direct Participant. Under its usual
procedures, DTC mails an omnibus proxy to the Bank as soon as possible after the record date. The omnibus proxy
assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Common Stock
is credited on the record date, which accounts are identified in a listing attached to the omnibus proxy.
Distributions and dividend payments on the Common Stock will be made to Cede & Co., or such other
nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct
Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the Bank or the
Bank’s agent on the payable date in accordance with their respective holdings shown on DTC’s records. Payments
by Direct or Indirect Participants to beneficial owners are governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street
name,” and are the responsibility of such Direct or Indirect Participant and not of DTC (nor its nominee), the Bank
or any agent of the Bank, subject to any statutory or regulatory requirements as may be in effect from time to time.
Payment of distributions and dividends to Cede & Co. (or such other DTC nominee) is the responsibility of the Bank
or the Bank’s agent, disbursement of such payments to Direct Participants are the responsibility of DTC, and
disbursement of such payments to the beneficial owners are the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary with respect to the Common Stock at
any time by giving reasonable notice to the Bank or the Bank’s agent. Additionally, the Bank may decide to
discontinue the book-entry only system of transfers with respect to the Common Stock. Under such circumstances, if
a successor depositary is not obtained, the Bank will print and deliver certificates in fully registered form for the
Common Stock.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from
sources that the Bank believes to be reliable, but the Bank takes no responsibility for the accuracy thereof.
4
Transfer Agent
Computershare Inc. and Computershare Trust Company, N.A., collectively, act as registrar and transfer
agent for the Common Stock. Registration of transfers of shares of the Common Stock will be effected without
charge but only upon payment of any tax or other governmental charges that may be imposed in connection with any
transfer or exchange.
Certain Provisions of California Law and of the Articles and Bylaws
Amendment of Articles of Incorporation and Bylaws
Under California law, a California corporation cannot amend its articles of incorporation unless the
amendment is approved by the Board and, except for certain limited matters as prescribed by law, by the affirmative
vote of a majority of the outstanding shares entitled to vote, either before or after the approval by the Board, and in
matters affecting a particular class of shares, by the affirmative vote of holders of a majority of the outstanding
shares of that class. The Articles specify that amendments of certain provisions require the affirmative vote of two-
thirds of the outstanding shares entitled to vote. Additionally, under California law, a California bank cannot amend
its articles of incorporation unless the amendment is approved by the California Commissioner of Financial
Protection and Innovation (the “Commissioner”).
Under California law, the Board or the shareholders may adopt, amend or repeal the Bylaws with the
affirmative vote of a majority of the directors then in office or the affirmative vote of the holders of a majority of the
Bank’s shares entitled to be cast; provided, however, that Bylaws specifying a fixed number of directors, or the
maximum or minimum number of directors, or changing from a fixed to a variable Board or vice versa, may only be
adopted by the vote of a majority of the outstanding shares. Under California law, a bank may not amend the articles
of incorporation or its bylaws so as to reduce the number of directors below five.
Power to Authorize and Issue Additional Shares of Common Stock and Preferred Stock
The Board, with approval by an affirmative vote of a majority of the outstanding shares entitled to vote, and
in some cases, the approval by an affirmative vote of a majority of the outstanding shares of certain classes, has the
authority to amend the Articles to increase or decrease the aggregate number of shares of stock or the number of
shares of authorized stock of any class or series that the Bank has the authority to issue. The Board can cause the
Bank to issue additional authorized shares without shareholder approval, unless shareholder approval is required by
applicable law or by the rules of the NYSE. Although the Bank has no present intention of doing so, the Bank could
issue a class or series of stock that could delay, defer or prevent a transaction or a change in control of the Bank that
might involve a premium price for holders of Common Stock or otherwise be in their best interest.
Restrictions on the Bank’s Sale of Its Securities
Under California law, a California bank may not offer or sell its own securities unless the Commissioner
has issued a permit authorizing the sale, with certain limited exceptions. For a permit to be issued, the Commissioner
must find that the proposed sale is “fair, just, and equitable.”
Meetings of Shareholders
Under the Bylaws, with respect to annual meetings of shareholders, nominations of persons for election as
directors and the proposal of business to be considered may be made: (i) pursuant to the Bank’s notice of meeting;
5
(ii) by the Board; or (iii) by any shareholder entitled to vote at the meeting who has complied with the advance
notice procedures in the Bylaws; or (iv) by any eligible shareholder who has satisfied the requirements of the proxy
access provisions in the Bylaws.
Special meetings of shareholders may be called at any time by the Board or the Bank’s Chairman, if any,
President, if any, or shareholders entitled to cast at least one-tenth of the votes which all shareholders are entitled to
cast at an annual or special meeting of shareholders. Only business specified in the notice of a special meeting of
shareholders may be conducted at the meeting. Nominations of persons for election as directors at a special meeting
at which directors are to be elected may be made: (i) by the Board; or (ii) by any shareholder entitled to vote at the
meeting who has complied with the advance notice procedures in the Bylaws.
Board of Directors
Under the Bylaws, the number of directors will not be less than nine nor more than fifteen. Under the
Bylaws, the exact number of directors is fixed, from time to time, by the approval of the Board. No person may
serve as a director if that person is not qualified to serve as a director under applicable banking laws or regulations
or if that person’s service as a director is opposed in writing by any bank regulatory official having jurisdiction over
the Bank.
The Board is not divided into different classes of directors. At each annual meeting of shareholders, in an
uncontested election, each nominee receiving the affirmative vote of the majority of the shares present or
represented and voting (and a majority of shares required to constitute a quorum) will be elected as a director and, in
a contested election, the nominees receiving the highest number of votes will be elected as directors.
Supermajority Voting for Fundamental Transactions
The Articles require the approval of two-thirds of the outstanding shares of Common Stock entitled to vote
to approve a merger or consolidation with or into any other corporation or a sale or lease of all or a substantial part
of the Bank’s assets to any other corporation, person or other entity, unless such transaction was previously approved
by the Board or is with a majority-owned subsidiary of the Bank.
Removal of Directors
Any or all of the directors may be removed without cause if such removal is approved by a majority of the
outstanding Common Stock, except that no director may be removed (unless the entire Board is removed) when the
votes cast against removal, or not consenting in writing to removal, would be sufficient to elect such director if
voted cumulatively at an election in which the same total number of votes were cast and the entire number of
directors authorized at the most recent election were then being elected.
Limitation of Liability and Indemnification
California law permits the Bank to include in the Articles a provision limiting the liability of the Bank’s
directors to the Bank and the Bank’s shareholders for money damages, except for liability resulting from: (i) acts or
omissions that involve intentional misconduct or a knowing and culpable violation of law; (ii) acts or omissions that
a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the
absence of good faith on the part of the director; (iii) any transaction from which a director derived an improper
personal benefit;(iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation or its
shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of
6
performing a director’s duties, of a risk of serious injury to the corporation or its shareholders; (v) acts or omissions
that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the
corporation or its shareholders; (vi) acts arising from an interested director transaction listed under Section 310 of
the CGCL; or (vii) acts arising from the approval of specific corporate action listed under Section 316 of the CGCL.
The Articles and Bylaws contain provisions which eliminate directors’ liability to the fullest extent
permitted by California law. Under California law and the Bylaws, the Bank is authorized to obtain and have
obtained directors’ and officers’ liability insurance.
California law grants the Bank the power to indemnify any person who was or is a party or is threatened to
be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in
its favor) by reason of the fact that the person is or was an agent of the corporation (including but not limited to a
director, officer or employee) against expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person
reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the person was unlawful. California law permits the Bank to advance
expenses incurred in defending any proceeding prior to its final disposition upon receipt of an undertaking by or on
behalf of the agent to repay that amount if it is determined ultimately that the agent is not entitled to be indemnified.
California law does not allow the Bank to indemnify the Bank’s agents for: (i) any claim, issue or matter as
to which the person has been adjudged to be liable to the corporation in the performance of that person’s duty to the
corporation and its shareholders, unless and only to the extent that the court in which the proceeding is or was
pending will determine upon application that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for expenses and then only to the extent that the court determines; (ii) any amounts
paid in settling or otherwise disposing of a pending action without court approval; and (iii) any expenses incurred in
defending a pending action which is settled or otherwise disposed of without court approval.
The Articles and Bylaws state that the Bank will, to the fullest extent permitted by California law, provide
indemnification to the Bank’s agents against losses if they acted in good faith and in a manner they reasonably
believed to be in the best interests of the corporation and, in the case of a criminal proceeding, if they had no
reasonable cause to believe their conduct was unlawful. Except in the case of expenses incurred in a successful
defense, indemnification requires that the person to be indemnified is determined to have met the necessary standard
of conduct by (i) a majority of a quorum of directors who are not parties to the proceeding, (ii) if such a quorum is
unobtainable, by independent legal counsel in a written opinion, (iii) approval of shareholders as set forth in Section
153 of the CGCL or (iv) the court in which the proceeding is or was pending. Under federal banking law, the Bank
may not indemnify the Bank’s agents against liability or legal expenses with regard to certain administrative
proceedings or civil actions brought by the FDIC. The Bank have entered into agreements with the Bank’s directors
indemnifying them to the fullest extent permitted by law and all applicable limitations imposed by the FDIC and the
California Department of Financial Protection and Innovation.
DESCRIPTION OF DEPOSITARY SHARES
General
The Articles permit the Board to issue one or more series of Preferred Stock, fix the number of shares and
determine the rights, preferences, privileges and restrictions of any such series of Preferred Stock. There are
7
currently seven series of Preferred Stock issued and outstanding: (1) a series of 200,000 shares of 5.125%
Noncumulative Perpetual Series H Preferred Stock (“Series H Preferred Stock”), represented by 8,000,000
depositary shares, each representing a 1/40th interest in a share of Series H Preferred Stock (the “Series H
Depositary Shares”); (2) a series of 300,000 shares of 5.50% Noncumulative Perpetual Series I Preferred Stock
(“Series I Preferred Stock”), represented by 12,000,000 depositary shares, each representing a 1/40th interest in a
share of Series I Preferred Stock (the “Series I Depositary Shares”); (3) a series of 395,000 shares of 4.70%
Noncumulative Perpetual Series J Preferred Stock (“Series J Preferred Stock”), represented by 15,800,000
depositary shares, each representing a 1/40th interest in a share of Series J Preferred Stock (the “Series J Depositary
Shares”); (4) a series of 500,000 shares of 4.125% Noncumulative Perpetual Series K Preferred Stock (“Series K
Preferred Stock”), represented by 20,000,000 depositary shares, each representing a 1/40th interest in a share of
Series K Preferred Stock (the “Series K Depositary Shares”); (5) a series of 747,500 shares of 4.250%
Noncumulative Perpetual Series L Preferred Stock (“Series L Preferred Stock”), represented by 29,900,000
depositary shares, each representing a 1/40th interest in a share of Series L Preferred Stock (the “Series L Depositary
Shares”); (6) a series of 750,000 shares of 4.000% Noncumulative Perpetual Series M Preferred Stock (“Series M
Preferred Stock”), represented by 30,000,000 depositary shares, each representing a 1/40th interest in a share of
Series M Preferred Stock (the “Series M Depositary Shares”); and (7) a series of 740,000 shares of 4.500%
Noncumulative Perpetual Series N Preferred Stock (“Series N Preferred Stock”), represented by 29,600,000
depositary shares, each representing a 1/40th interest in a share of Series N Preferred Stock (the “Series N
Depositary Shares”).
Each series of Preferred Stock is fully paid and nonassessable. Computershare Inc. and Computershare
Trust Company, N.A., collectively, act as the sole holder (the “depositary”) of each series of Preferred Stock. The
holders of the Series H Depositary Shares, Series I Depositary Shares, Series J Depositary Shares, Series K
Depositary Shares, Series L Depositary Shares, Series M Depositary Shares and Series N Depositary Shares will be
required to exercise their proportional rights in the corresponding shares of Preferred Stock through the depositary.
Computershare Inc. and Computershare Trust Company, N.A., collectively, are the transfer agent,
registrar and dividends disbursing agent for each series of Preferred Stock.
DESCRIPTION OF DEPOSITARY SHARES, each representing a 1/40th interest in a share of Series H
Preferred Stock
Ranking
The Series H Preferred Stock ranks senior to the Common Stock and any other class or series of Preferred
Stock that by its terms ranks junior to the Series H Preferred Stock, and at least equally with the Series I Preferred
Stock, Series J Preferred Stock, Series K Preferred Stock, Series L Preferred Stock, Series M Preferred Stock and
Series N Preferred Stock and with all future series of Preferred Stock that the Bank may issue (except for any senior
stock that may be issued with the requisite consent of the holders of the Series H Preferred Stock and all other Series
H Parity Stock (as defined below)), with respect to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up.
Dividends
Holders of Series H Preferred Stock are entitled to receive, when and as declared by the Board (or a duly
authorized committee thereof), out of funds legally available for the payment of distributions, cash dividends that
8
are noncumulative and payable quarterly, at the rate of 5.125% of the liquidation preference per annum (equivalent
to $51.25 per annum per share of Series H Preferred Stock). Dividends on the Series H Preferred Stock, if declared,
are payable quarterly on the 30th day of each March, June, September and December, or, if any such date is not a
business day, the immediately preceding business day. A dividend period means each period commencing on (and
including) a dividend payment date and continuing to (but excluding) the next succeeding dividend payment date,
except that the first dividend period for the initial issuance of shares of Series H Preferred Stock commenced upon
(and includes) the date of original issuance of those shares. If additional shares of Series H Preferred Stock are
issued at a future date, the first dividend period for such shares will commence upon (and include) the later of the
date of original issuance of Series H Preferred Stock and the first day of the quarterly period in which such later date
of issue occurs. That dividend and any dividend payable on the Series H Preferred Stock for any other partial
dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. The Bank will
pay dividends to holders of record of Series H Preferred Stock as they appear in the Bank’s share records at the close
of business on the applicable record date designated by the Board for the payment of dividends that is not more than
60 nor less than 10 days prior to such dividend payment date; provided, however, that if the date fixed for
redemption of any Series H Preferred Stock occurs after a dividend is authorized and declared but before it is paid,
such dividend shall be paid as part of the redemption price to the person to whom the redemption price is paid.
No dividends on the Series H Preferred Stock will be declared or be paid or set aside for payment at any
time when the terms and provisions of any of the Bank’s agreements, including any agreement relating to its
indebtedness, prohibits such declaration, payment or setting aside for payment or provides that such declaration,
payment or setting aside for payment would constitute a breach of or a default under such agreement, or if such
authorization or payment is restricted or prohibited by law.
Dividends are not cumulative. If the Bank fails to declare a dividend for any dividend payment date, then
that dividend will not accumulate and be payable, the holders of the Series H Preferred Stock will have no right to
receive a dividend related to that dividend period, and the Bank will have no obligation to pay a dividend for the
related dividend period or to pay any interest, whether or not dividends on the Series H Preferred Stock are declared
for any future dividend period. If the Bank fails to pay or set aside for payment scheduled dividends (whether or not
declared) with respect to any six dividend periods (whether or not consecutive), holders of Series H Preferred Stock
are entitled to vote for the election of two directors, as described below under “-Voting Rights.”
Full dividends will not be declared or paid or set apart for payment on any Preferred Stock ranking on
parity with the Series H Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up (“Series H Parity Stock”) or any other shares of capital stock that rank junior to the Series
H Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation, dissolution or winding up
(“Series H Junior Stock”) during any dividend period unless dividends on the Series H Preferred Stock for that
dividend period are declared and paid in full. When such cash dividends are not paid in full, or a sum sufficient for
the full payment is not set aside, dividends upon shares of Series H Preferred Stock and dividends on other Series H
Parity Stock payable during the dividend period will be declared pro rata so that the amount of dividends payable
per share on the Series H Preferred Stock and any other Series H Parity Stock will in all cases bear to each other the
same ratio that full dividends for the then-current dividend period on the shares of Series H Preferred Stock and full
dividends, including required or permitted accumulations, if any, on shares of the other Series H Parity Stock, bear
to each other. If full dividends on the Series H Preferred Stock have not been declared and paid or set aside for
payment for a dividend period, the following restrictions will apply for that dividend period:
•
no dividend or distribution, other than in shares of Series H Junior Stock, may be declared, set aside for
payment or paid on any shares of stock of any class or series of Series H Junior Stock;
9
•
the Bank may not redeem, purchase or otherwise acquire any Series H Junior Stock, and no monies may be
paid to or made available for a sinking fund for the redemption of any Series H Junior Stock, except by
conversion into or exchange for Series H Junior Stock, or by the tendering of Series H Junior Stock in
payment for the exercise of options under the Bank’s stock option plans then in effect; and
•
the Bank may not redeem, purchase or otherwise acquire any shares of the Series H Preferred Stock other
than pursuant to pro rata offers to purchase or exchange, or a concurrent redemption of all of, the
outstanding shares of Series H Preferred Stock.
There can be no assurances that any dividends on the Series H Preferred Stock will be declared or, if
declared, what the amounts of dividends will be or whether these dividends, if declared for any dividend period, will
continue for any future dividend period. The declaration and payment of future dividends on the Series H Preferred
Stock will be subject to business conditions, regulatory considerations, the Bank’s earnings and financial condition
and the judgment of the Board.
See “Item 1. Business—Supervision and Regulation—Restrictions on Dividends and Other Distributions”
in this Annual Report on Form 10-K for bank regulatory restrictions on the Bank’s ability to pay dividends on the
Bank’s capital stock.
Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution or winding up of First Republic Bank, the
holders of the outstanding shares of Series H Preferred Stock are entitled to be paid out of the assets of First
Republic Bank legally available for distribution to the Bank’s shareholders, before any distribution of assets is made
to holders of Common Stock or any other Series H Junior Stock, a liquidating distribution in the amount of a
liquidation preference of $1,000 per share, plus the sum of any declared and unpaid dividends for dividend periods
prior to the dividend period in which the liquidation distribution is made and declared and unpaid dividends for the
then current dividend period in which the liquidation distribution is made to the date of such liquidation distribution.
After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series H
Preferred Stock will have no right or claim to any of the Bank’s remaining assets.
Distributions will be made only to the extent that the Bank’s assets that are available after satisfaction of all
liabilities to depositors, and creditors and subject to the rights of any securities ranking senior to the Series H
Preferred Stock. If the Bank’s remaining assets are not sufficient to pay the full liquidating distributions to the
holders of all outstanding Series H Preferred Stock and all Series H Parity Stock, then the Bank will distribute the
Bank’s assets to those holders pro rata in proportion to the full liquidating distributions to which they would
otherwise have received.
For purposes of the liquidation rights, neither the sale, conveyance, lease, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all of the Bank’s property or business, nor the
consolidation or merger by the Bank with or into any other entity or by another entity with or into the Bank will
constitute a liquidation, dissolution or winding up of the Bank. If the Bank enters into any merger or consolidation
transaction with or into any other entity and the Bank is not the surviving entity in such transaction, the Series H
Preferred Stock may be converted into shares of the surviving or successor corporation or the direct or indirect
parent of the surviving or successor corporation having terms identical to the terms of the Series H Preferred Stock
set forth herein.
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Conversion Rights
The Series H Preferred Stock is not convertible into or exchangeable for any other of the Bank’s property,
interests or securities.
Redemption Rights
Optional Redemption
The Series H Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar
provisions. However, the Series H Preferred Stock may be redeemed on or after June 30, 2022, with not less than 30
days’ and not more than 60 days’ notice (“Series H Optional Redemption”). On that date or any date thereafter, the
Bank may redeem the Series H Preferred Stock from time to time, in whole or in part, at the Bank’s option, for cash,
subject to the approval of the appropriate federal banking agency (and any state banking agency, as may be required
by law), at the cash redemption price provided below. Dividends will not accrue on those shares of Series H
Preferred Stock on and after the redemption date. Neither the holders of Series H Preferred Stock nor the holders of
the Series H Depositary Shares have the right to require the redemption or repurchase of the Series H Preferred
Stock.
Redemption Following a Regulatory Capital Event
The Bank may redeem the Series H Preferred Stock, in whole but not in part, for cash, at any time within
90 days following a Series H Regulatory Capital Treatment Event, at the Bank’s option, subject to the approval of
the appropriate federal banking agency, at the cash redemption price provided below (“Series H Regulatory Event
Redemption”). A “Series H Regulatory Capital Treatment Event” means the Bank’s good faith determination that, as
a result of (i) any amendment to, or change in, the laws or regulations of the United States or any political
subdivision of or in the United States that is enacted or becomes effective after the initial issuance of the Series H
Preferred Stock; (ii) any proposed change in those laws or regulations that is announced after the initial issuance of
the Series H Preferred Stock; or (iii) any official administrative decision or judicial decision or administrative action
or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial
issuance of the Series H Preferred Stock, there is more than an insubstantial risk that the Bank will not be entitled to
treat the full liquidation value of the Series H Preferred Stock then outstanding as “Tier 1 Capital” (or its equivalent)
for purposes of the capital adequacy guidelines of the FDIC (or, as and if applicable, the capital adequacy guidelines
or regulations of any successor appropriate federal banking agency), as then in effect and applicable, for as long as
any share of Series H Preferred Stock is outstanding. Dividends will not accrue on those shares of Series H Preferred
Stock on and after the redemption date.
Redemption Price
The redemption price for any redemption of Series H Preferred Stock, whether a Series H Optional
Redemption or Series H Regulatory Event Redemption, will be equal to $1,000 per share of Series H Preferred
Stock (equivalent to $25 per Series H Depositary Share) plus the sum of any declared and unpaid dividends for prior
dividend periods and accrued but unpaid and undeclared dividends for the then-current dividend period to, but
excluding, the date of redemption.
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Redemption Procedures
If the Bank elects to redeem any shares of Series H Preferred Stock, the Bank will provide notice by first
class mail, postage prepaid, addressed to the holders of record of the shares of Series H Preferred Stock to be
redeemed, mailed not less than 30 days and not more than 60 days before the date fixed for redemption thereof
(provided, however, that if the shares of Series H Preferred Stock or the Series H Depositary Shares are held in
book-entry form through DTC, the Bank may give this notice in any manner permitted by DTC). Any notice mailed
or otherwise given as provided in this paragraph will be conclusively presumed to have been duly given, whether or
not the holder receives this notice, and failure duly to give this notice by mail or otherwise, or any defect in this
notice or in the mailing or provision of this notice, to any holder of shares of Series H Preferred Stock designated for
redemption will not affect the redemption of any other shares of Series H Preferred Stock. Each notice of
redemption shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series H Preferred Stock are to be redeemed, the number of shares of Series H
Preferred Stock to be redeemed; and
•
the manner in which holders of Series H Preferred Stock called for redemption may obtain payment of the
redemption price in respect to those shares.
If notice of redemption of any shares of Series H Preferred Stock has been given and if the funds necessary
for such redemption have been set aside by the Bank in trust for the benefit of the holders of any shares of Series H
Preferred Stock so called for redemption, then from and after the redemption date such shares of Series H Preferred
Stock will no longer be deemed outstanding, and all rights of the holders of such shares will terminate, except the
right to receive the redemption price, without interest.
In the case of any redemption of only part of the Series H Preferred Stock at the time outstanding, the
shares of Series H Preferred Stock to be redeemed will be selected either pro rata or by lot. Subject to the provisions
hereof, the Board will have the full power and authority to prescribe the terms and conditions upon which shares of
Series H Preferred Stock may be redeemed from time to time.
The Series H Preferred Stock has no stated maturity and will not be subject to any sinking fund or
mandatory redemption provisions.
Regulatory Restrictions on Redemption Rights
Under current risk-based capital regulations, a bank insured by the FDIC may not redeem shares of
Preferred Stock included as Tier 1 capital without the prior approval of the FDIC. Any redemption of the Series H
Preferred Stock is subject to the Bank’s receipt of any required prior approval by the FDIC and the Commissioner
and to the satisfaction of any conditions in the capital guidelines or regulations of the FDIC applicable to such
redemption. Ordinarily, the FDIC would not permit such a redemption unless the FDIC determines that the bank’s
condition and circumstances warrant the reduction of a source of permanent capital.
Voting Rights
Registered owners of Series H Preferred Stock will not have any voting rights, except as set forth below or
as otherwise required by law.
12
On any matter in which the Series H Preferred Stock is entitled to vote as a class with holders of any other
shares upon which like voting rights have been conferred and are exercisable, including any action by written
consent, each share of Series H Preferred Stock are entitled to one vote. As more fully described under “-Description
of the Depositary Shares,” the depositary, as holder of all Series H Preferred Stock, will grant 1/40th of a vote per
depositary share to the registered owner of each Series H Depositary Share so that each Series H Depositary Share is
entitled to exercise its proportionate voting rights.
If at any time the full amount of dividends on the Series H Preferred Stock have not been paid or set aside
for payment (whether or not declared) for any six dividend periods (whether or not consecutive), holders of the
Series H Depositary Shares voting as a single class together with holders of any other stock, including the Series I
Preferred Stock, Series J Preferred Stock, Series K Preferred Stock, Series L Preferred Stock, Series M Preferred
Stock and Series N Preferred Stock that ranks on a parity with the Series H Preferred Stock as to payment of
dividends and that has voting rights equivalent to those described in this paragraph (“Series H Voting Parity Stock”),
are entitled to elect the Preferred Stock Directors at any annual meeting of shareholders or any special meeting of
the holders of Series H Preferred Stock and any Series H Voting Parity Stock, and the holders of the Common Stock
are entitled to vote for the election of the remaining number of directors authorized by the Articles or Bylaws. The
Board will at no time have more than two Preferred Stock Directors.
If, at any time after the right to elect directors is vested in the Series H Preferred Stock, the holders of the
Series H Preferred Stock and any Series H Voting Parity Stock call a special meeting of shareholders for the election
of directors, and at the time the special meeting is called, the election of the Preferred Stock Directors to the Board
would cause the number of directors to exceed the maximum number authorized under the Articles or Bylaws, then
the holders of Series H Preferred Stock and any Series H Voting Parity Stock, voting as a single class, shall be
entitled to elect the Preferred Stock Directors and the Common Stock shall be entitled to elect the remaining number
of authorized directors, the terms of office of all persons who were directors immediately prior to the special
meeting shall terminate, and the directors elected by the holders of the Bank’s Series H Preferred Stock and any
Series H Voting Parity Stock and the directors elected by the holders of the Common Stock shall constitute the
directors of the Bank until the next annual meeting.
The Preferred Stock Directors elected at any such special meeting will hold office until the next annual
meeting of the Bank’s shareholders unless they have been previously terminated as described below. Except as
otherwise provided for by applicable law, any Preferred Stock Director may be removed only by the vote of the
holders of record of the outstanding Series H Preferred Stock entitled to vote (voting together as a single class with
holders of any Series H Voting Parity Stock). As long as the right to elect Preferred Stock Directors is continuing,(i)
any vacancy in the office of any Preferred Stock Director may be filled by the vote of the holders of record of the
outstanding Series H Preferred Stock entitled to vote (voting together as a single class with holders of any Series H
Voting Parity Stock), and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the
vote of the holders of the outstanding Series H Preferred Stock entitled to vote (voting together as a single class with
holders of any Series H Voting Parity Stock) at the same meeting at which such removal shall be voted. Until the
time that any such vacancy is filled at a shareholder meeting as provided above, a successor shall be elected by the
Board to serve until the next such shareholder meeting upon the nomination of the then remaining Preferred Stock
Director.
Whenever all dividends on the Series H Preferred Stock and any other stock upon which like voting rights
have been conferred and are exercisable have been paid in full for four consecutive dividend periods (or otherwise
for at least one year), then the right of the holders of Series H Preferred Stock to elect the Preferred Stock Directors
will cease (but subject always to the same provisions for the vesting of these voting rights in the case of any similar
13
non-payment of dividends in respect of future dividend periods), and if no other shareholders have like voting rights
that are then exercisable, the terms of office of all Preferred Stock Directors will immediately terminate.
The Bank cannot take any of the following actions without the affirmative vote or written consent of
holders of at least two-thirds of the outstanding shares of Series H Preferred Stock:
•
create any class or series of shares that ranks, as to dividends or distribution of assets, senior to the Series H
Preferred Stock; or
•
alter or change the provisions of the Articles, the Certificate of Determination governing the Series H
Preferred Stock or the Bylaws so as to adversely affect the voting powers, preferences or special rights of
the holders of the Series H Preferred Stock;
provided, however, that with respect to the occurrence of any event listed in the second bullet point above,
so long as any shares of Series H Preferred Stock remain outstanding with the terms thereof unchanged or new
shares of the surviving corporation or entity are issued with the identical terms as the Series H Preferred Stock, in
each case taking into account that upon the occurrence of this event the Bank may not be the surviving entity, the
occurrence of any such event shall not, except as provided by law, be deemed to adversely affect any right,
preference, privilege or voting power of the Series H Preferred Stock or the holders thereof, and provided, further,
that any increase in the amount of the Bank’s authorized Common Stock or Preferred Stock or the creation or
issuance of any other P Series H arity Stock or Series H Junior Stock and any change to the number of directors or
number of classes of directors shall not be deemed to adversely affect such rights, preferences, privileges or voting
powers.
Under California law, in addition to any required approval by its board of directors or its voting
shareholders, an amendment to the articles of incorporation of a California corporation also must be approved by the
affirmative vote of a majority of the outstanding shares of a class of shares, whether or not such class is entitled to a
vote by the articles of incorporation, if the amendment proposes to: (i) increase or decrease the aggregate number of
authorized shares of such class; (ii) effect an exchange, reclassification, or cancellation of all or part of the shares of
such class; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class into the
shares of such class; (iv) change the rights, preferences, privileges or restrictions of the shares of such class; (v)
create a new class of shares having rights, preferences or privileges prior to the shares of such class, or increase the
rights, preferences or privileges or the number of authorized shares of any class having rights, preferences or
privileges prior to the shares of such class; (vi) in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions or authorize the board to do so; or (vii) cancel or
otherwise affect dividends on the shares of such class which have accrued but have not been paid.
The holders of Series H Preferred Stock will have no voting rights if the Bank redeems all outstanding
Series H Preferred Stock (or call for redemption all outstanding Series H Preferred Stock and deposit sufficient
funds in a trust to effect the redemption) on or before the time the act occurs that would otherwise require a vote.
Regulatory Risk of Voting Rights
Although the Bank does not believe that any series of its Preferred Stock is considered “voting securities”
for purposes of the BHCA, if one or more series were to become a class of “voting securities,” whether because the
Bank has missed six dividend payments and, as a result, holders of the Preferred Stock have the right to elect
directors, or for other reasons, a “company” (as that term is defined for purposes of the BHCA) that owns or controls
25% or more of such class, or less than 25% if it otherwise exercises any “controlling influence” over the Bank
14
(including by holding 25% or more or, in some cases, one-third or more of the Bank’s total equity), may then be
subject to regulation as a bank holding company in accordance with the BHCA. In addition, if one or more series of
Preferred Stock becomes a class of “voting securities”:
•
any bank holding company may be required to obtain the prior approval of the Federal Reserve to acquire
or retain more than 5% of such series of Preferred Stock;
•
any person (or group of persons acting in concert) other than a bank holding company may be required to
obtain the approval of the FDIC under the CIBCA to acquire or retain 10% or more such series of Preferred
Stock; and
•
any person may be required to obtain the prior approval of the Commissioner before acquiring “control” of
the Bank, as defined in California statutes and regulations.
Holders of Preferred Stock should consult their own counsel with regard to regulatory implications.
Description of Series H Depositary Shares
General
The Series H Preferred Stock are deposited with the depositary, under a deposit agreement. Each Series H
Depositary Share will represent a 1/40th fractional ownership interest in a share of Series H Preferred Stock. Subject
to the terms of the deposit agreement, each holder of a Series H Depositary Share is entitled to all the rights and
preferences of a 1/40th fractional ownership interest in a share of Series H Preferred Stock (including dividend,
voting, redemption and liquidation rights and preferences). Immediately following the Bank’s issuance of the Series
H Preferred Stock, the Bank will deposit the Series H Preferred Stock with the depositary, which upon the Bank’s
instructions will issue and deliver the Series H Depositary Shares to DTC for credit to the accounts of such
participants of DTC and in such amounts as Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley &
Co. LLC, UBS Securities LLC and Wells Fargo Securities, LLC shall specify.
Listing
The Series H Preferred Depositary Shares are listed on the NYSE under the symbol “FRC-PrH.”
Dividends
Each dividend payable on a Series H Depositary Share is in an amount equal to 1/40th of the dividend
declared and payable on each share of Series H Preferred Stock.
The depositary will distribute all cash dividends paid on the Series H Preferred Stock to the record holders
of the Series H Depositary Shares in proportion to the number of Series H Depositary Shares held by the holders.
The depositary will distribute only such amount, however, as can be distributed without attributing to any holder of
Series H Depositary Shares a fraction of one cent, and any balance not so distributable will be held by the depositary
(without liability for interest thereon) and will be added to and be treated as part of the next sum received by the
depositary for distribution to record holders of Series H Depositary Shares then outstanding.
If a dividend is other than in cash and it is feasible for the depositary to distribute the property it receives,
the depositary, upon written instructions from the Bank, will distribute the property to the record holders of the
Series H Depositary Shares . If such a distribution is not feasible and the Bank so directs, the depositary will sell on
behalf of the holders of Series H Depositary Shares the property and distribute the net proceeds from the sale to the
holders of the Series H Depositary Shares in proportion to the number of Series H Depositary Shares held by the
15
holders.
Record dates for the payment of dividends and other matters relating to the Series H Depositary Shares will
be the same as the corresponding record dates for the Series H Preferred Stock.
The amounts distributed to holders of Series H Depositary Shares will be reduced by any amounts required
to be withheld by the depositary or by the Bank on account of taxes or other governmental charges. The depositary
may refuse to make any payment or distribution, or any transfer, exchange or withdrawal of any Series H Depositary
Shares or the Series H Preferred Stock until such taxes or other governmental charges are paid. To the extent that the
depositary determines that amounts are required to be withheld in relation to the distribution of any property
pursuant to the deposit agreement, the depositary may, in certain circumstances, sell all or a portion of such property
to pay such taxes and distribute the balance of the net proceeds (after the deduction of such taxes) to the holder of
the Series H Depositary Shares in proportion to the number of Series H Depositary Shares held by the holder.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Bank’s affairs, the holders of the Series H
Depositary Shares are entitled to 1/40th of the liquidation preference accorded each share of Series H Preferred
Stock.
If the Bank consolidates or merges with or into any other entity or the Bank sells, leases, transfers or
conveys all or substantially all of the Bank’s property or business, the Bank will not be deemed to have liquidated,
dissolved or wound up. In the event of the Bank’s liquidation, dissolution or winding up, a holder of Series H
Depositary Shares will receive the fraction of the liquidation preference accorded each share of underlying Series H
Preferred Stock represented by the Series H Depositary Shares.
Redemption
Whenever the Bank redeems any of the Series H Preferred Stock held by the depositary, the depositary will
redeem as of the same redemption date, from the proceeds received by the depositary resulting from the redemption
of the Series H Preferred Stock held by the depositary, the number of Series H Depositary Shares representing the
redeemed Series H Preferred Stock. A notice of the redemption furnished by the Bank will be mailed by the
depositary by first class mail, postage prepaid, not less than 30 nor more than 60 days before the date fixed for
redemption thereof, addressed to the respective holders of record of the Series H Depositary Shares to be redeemed
at their respective addresses as they appear on the share transfer records of the depositary (provided, however, that if
the Series H Depositary Shares are held in book-entry form through DTC, the Bank may give this notice in any
manner permitted by DTC). A failure to give such notice or any defect in the notice or in the Bank’s mailing will not
affect the validity of the proceedings for the redemption of any shares of Series H Preferred Stock or Series H
Depositary Shares except as to the holder to whom notice was defective or not given. Each notice shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series H Preferred Stock are to be redeemed, the number of shares of Series H
Preferred Stock to be redeemed (and the corresponding number of Series H Depositary Shares ); and
•
the place or places where the depositary receipts evidencing the Series H Depositary Shares are to be
surrendered for payment of the redemption price.
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If the Bank redeems fewer than all of the outstanding shares of Series H Preferred Stock, the depositary
will select the corresponding number of Series H Depositary Shares to be redeemed pro rata or by lot. In any such
case, Series H Depositary Shares will be redeemed only in increments of 40 Series H Depositary Shares and any
integral multiple thereof, and the notice mailed to such holder shall also specify the number of Series H Depositary
Shares to be redeemed from such holder.
The holders of Series H Depositary Shares at the close of business on a dividend record date are entitled to
receive the dividend payable with respect to the Series H Depositary Shares evidenced by such Series H Depositary
Shares on the corresponding dividend payment date notwithstanding the redemption of the Series H Depositary
Shares between such dividend record date and the corresponding dividend payment date or the Bank’s default in the
payment of the dividend due. Except as provided above, the Bank will make no payment or allowance for unpaid
dividends on the Series H Preferred Stock or Series H Depositary Shares to be redeemed.
Voting
Because each Series H Depositary Share represents a 1/40th ownership interest in a share of Series H
Preferred Stock, holders of depositary receipts are entitled to vote 1/40th of a vote per Series H Depositary Share
under those limited circumstances in which holders of the Series H Preferred Stock are entitled to vote, as described
above.
When the depositary receives notice of any meeting at which the holders of the Series H Preferred Stock
are entitled to vote, the depositary will mail the information contained in the notice to the record holders of the
Series H Depositary Shares relating to the Series H Preferred Stock. Each record holder of the Series H Depositary
Shares on the record date, which will be the same date as the record date for the Series H Preferred Stock, may
instruct the depositary to vote the amount of the Series H Preferred Stock represented by the holder’s Series H
Depositary Shares. To the extent possible, the depositary will vote the amount of the Series H Preferred Stock
represented by Series H Depositary Shares in accordance with the instructions it receives. The Bank will agree to
take all reasonable actions that the depositary determines are necessary to enable the depositary to vote as instructed.
If the depositary does not receive specific instructions from the holders of any Series H Depositary Shares
representing the Series H Preferred Stock, it will abstain from voting with respect to such shares (but shall appear at
the meeting with respect to such shares unless directed to the contrary).
Withdrawal of Series H Preferred Stock
Upon surrender of Series H Depositary Shares at the principal office of the depositary, upon payment of
any unpaid amount due the depositary, and subject to the terms of the deposit agreement, the owner of the Series H
Depositary Shares evidenced thereby is entitled to delivery of the number of shares of Series H Preferred Stock and
all money and other property, if any, represented by such Series H Depositary Shares. Only whole shares of Series H
Preferred Stock may be withdrawn. If the Series H Depositary Shares surrendered by the holder in connection with
withdrawal exceed the number of Series H Depositary Shares that represent the number of whole shares of Series H
Preferred Stock to be withdrawn, the depositary will deliver to that holder at the same time a new depositary receipt
evidencing the excess number of Series H Depositary Shares. Holders of Series H Preferred Stock thus withdrawn
will not thereafter be entitled to deposit such shares under the deposit agreement or to receive Series H Depositary
Shares therefor.
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Miscellaneous
The depositary will forward to the holders of Series H Depositary Shares any reports and communications
from the Bank with respect to the underlying Series H Preferred Stock. Neither the Bank nor the depositary will be
liable if any law or any circumstances beyond their control prevent or delay them from performing their obligations
under the deposit agreement. The obligations of the Bank and a depositary under the deposit agreement will be
limited to performing their duties without bad faith, gross negligence or willful misconduct. Neither the Bank nor a
depositary must prosecute or defend any legal proceeding with respect to any Series H Depositary Shares or the
underlying Series H Preferred Stock unless they are furnished with satisfactory indemnity. Both the Bank and the
depositary may rely on the written advice of counsel or accountants, or information provided by holders of Series H
Depositary Shares or other persons they believe in good faith to be competent, and on documents they believe in
good faith to be genuine and signed by a proper party. In the event a depositary receives conflicting claims, requests
or instructions from the Bank and any holders of Series H Depositary Shares, the depositary are entitled to act on the
claims, requests or instructions received from the Bank.
Book Entry, Delivery and Form
DTC acts as securities depositary for the Series H Depositary Shares. The Series H Depositary Shares are
registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an
authorized representative of DTC.
DTC has advised the Bank that it is a limited-purpose trust company organized under the New York
Banking Law, a “banking organization” within the meaning of New York Banking Law, a member of the Federal
Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a
“clearing agency” registered under the provisions of Section 17A of the Exchange Act. DTC holds securities that its
Direct Participants deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of
sales and other securities transactions in deposited securities through electronic computerized book-entry transfers
and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of DTCC.
DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing
Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries.
Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers,
banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a
Direct Participant, either directly or through Indirect Participants. The rules applicable to DTC and its Direct and
Indirect Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com.
Purchases of Series H Depositary Shares under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Series H Depositary Shares on DTC’s records. The ownership
interest of the beneficial owner is in turn recorded on the Direct and Indirect Participants’ records. Beneficial owners
will not receive written confirmation from DTC of their purchase. Beneficial owners are, however, expected to
receive written confirmations providing details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the beneficial owner entered into the transaction. Transfers of
ownership interest in the Series H Depositary Shares are accomplished by entries made on the books of Direct and
Indirect Participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interest in the Series H Depositary Shares, except in the event that use of the book-
entry system for the Series H Depositary Shares is discontinued. Conveyance of notices and other communications
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by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect
Participants to beneficial owners are governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
To facilitate subsequent transfers, the Series H Depositary Shares deposited by Direct Participants with
DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested
by an authorized representative of DTC. The deposit of Series H Depositary Shares with DTC and its registration in
the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no
knowledge of the actual beneficial owners of the Series H Depositary Shares; DTC’s records reflect only the identity
of the Direct Participants to whose accounts are credited, which may or may not be the beneficial owners. The
Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their
customers.
In those instances where a vote is required, neither DTC nor Cede & Co. (nor any other DTC nominee) will
consent or vote with respect to the Series H Depositary Shares unless authorized by a Direct Participant. Under its
usual procedures, DTC mails an omnibus proxy to the Bank as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series H
Depositary Shares are credited on the record date, which accounts are identified in a listing attached to the omnibus
proxy.
Redemption proceeds, distributions and dividend payments on the Series H Depositary Shares will be made
to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice
is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the
Bank or the Bank’s agent on the payable date in accordance with their respective holdings shown on DTC’s records.
Payments by Direct or Indirect Participants to beneficial owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in
“street name,” and are the responsibility of such Direct or Indirect Participant and not of DTC (nor its nominee), the
Bank or any agent of the Bank, subject to any statutory or regulatory requirements as may be in effect from time to
time. Payment of redemption proceeds, distributions and dividends to Cede & Co. (or such other DTC nominee) is
the responsibility of the Bank or the Bank’s agent, disbursement of such payments to Direct Participants are the
responsibility of DTC, and disbursement of such payments to the beneficial owners are the responsibility of Direct
and Indirect Participants.
DTC may discontinue providing its services as securities depositary with respect to the Series H Depositary
Shares at any time by giving reasonable notice to the Bank or the Bank’s agent. Additionally, the Bank may decide
to discontinue the book-entry only system of transfers with respect to the Series H Depositary Shares. Under such
circumstances, if a successor depository is not obtained, the Bank will print and deliver certificates in fully
registered form for the Series H Depositary Shares.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from
sources that the Bank believes to be reliable, but the Bank takes no responsibility for the accuracy thereof.
Transfer Restrictions
The Series H Depositary Shares were offered and sold pursuant to an exemption from registration under the
Securities Act of 1933, as amended, and other exemptions provided by the laws of the United States and other
jurisdictions where such securities are offered and sold. The Series H Depositary Shares may only be transferred or
sold in compliance with all applicable state, federal and foreign securities laws.
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DESCRIPTION OF DEPOSITARY SHARES, each representing a 1/40th interest in a share of Series I
Preferred Stock
Ranking
The Series I Preferred Stock ranks senior to the Common Stock and any other class or series of Preferred
Stock that by its terms ranks junior to the Series I Preferred Stock, and at least equally with the Series H Preferred
Stock, Series J Preferred Stock, Series K Preferred Stock, Series L Preferred Stock, Series M Preferred Stock and
Series N Preferred Stock and with all future series of Preferred Stock that the Bank may issue (except for any senior
stock that may be issued with the requisite consent of the holders of the Series I Preferred Stock and all other Series
I Parity Stock (as defined below)), with respect to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up.
Dividends
Holders of Series I Preferred Stock are entitled to receive, when and as declared by the Board (or a duly
authorized committee thereof), out of funds legally available for the payment of distributions, cash dividends that
are noncumulative and payable quarterly, at the rate of 5.50% of the liquidation preference per annum (equivalent to
$55.00 per annum per share of Series I Preferred Stock). Dividends on the Series I Preferred Stock, if declared, are
payable quarterly on the 30th day of each March, June, September and December, or, if any such date is not a
business day, the immediately preceding business day. A dividend period means each period commencing on (and
including) a dividend payment date and continuing to (but excluding) the next succeeding dividend payment date,
except that the first dividend period for the initial issuance of shares of Series I Preferred Stock commenced upon
(and includes) the date of original issuance of those shares. If additional shares of Series I Preferred Stock are issued
at a future date, the first dividend period for such shares will commence upon (and include) the later of the date of
original issuance of Series I Preferred Stock and the first day of the quarterly period in which such later date of issue
occurs. That dividend and any dividend payable on the Series I Preferred Stock for any other partial dividend period
will be computed on the basis of a 360-day year consisting of twelve 30-day months. The Bank will pay dividends to
holders of record of Series I Preferred Stock as they appear in the Bank’s share records at the close of business on
the applicable record date designated by the Board for the payment of dividends that is not more than 60 nor less
than 10 days prior to such dividend payment date; provided, however, that if the date fixed for redemption of any
Series I Preferred Stock occurs after a dividend is authorized and declared but before it is paid, such dividend shall
be paid as part of the redemption price to the person to whom the redemption price is paid.
No dividends on the Series I Preferred Stock will be declared or be paid or set aside for payment at any
time when the terms and provisions of any of the Bank’s agreements, including any agreement relating to its
indebtedness, prohibits such declaration, payment or setting aside for payment or provides that such declaration,
payment or setting aside for payment would constitute a breach of or a default under such agreement, or if such
authorization or payment is restricted or prohibited by law.
Dividends are not cumulative. If the Bank fails to declare a dividend for any dividend payment date, then
that dividend will not accumulate and be payable, the holders of the Series I Preferred Stock will have no right to
receive a dividend related to that dividend period, and the Bank will have no obligation to pay a dividend for the
related dividend period or to pay any interest, whether or not dividends on the Series I Preferred Stock are declared
for any future dividend period. If the Bank fails to pay or set aside for payment scheduled dividends (whether or not
declared) with respect to any six dividend periods (whether or not consecutive), holders of Series I Preferred Stock
are entitled to vote for the election of two directors, as described below under “-Voting Rights.”
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Full dividends will not be declared or paid or set apart for payment on any Preferred Stock ranking on
parity with the Series I Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up (“Series I Parity Stock”) or any other shares of capital stock that rank junior to the Series I
Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation, dissolution or winding up
(“Series I Junior Stock”) during any dividend period unless dividends on the Series I Preferred Stock for that
dividend period are declared and paid in full. When such cash dividends are not paid in full, or a sum sufficient for
the full payment is not set aside, dividends upon shares of Series I Preferred Stock and dividends on other Series I
Parity Stock payable during the dividend period will be declared pro rata so that the amount of dividends payable
per share on the Series I Preferred Stock and any other Series I Parity Stock will in all cases bear to each other the
same ratio that full dividends for the then-current dividend period on the shares of Series I Preferred Stock and full
dividends, including required or permitted accumulations, if any, on shares of the other Series I Parity Stock, bear to
each other. If full dividends on the Series I Preferred Stock have not been declared and paid or set aside for payment
for a dividend period, the following restrictions will apply for that dividend period:
•
no dividend or distribution, other than in shares of Series I Junior Stock, may be declared, set aside for
payment or paid on any shares of stock of any class or series of Series I Junior Stock;
•
the Bank may not redeem, purchase or otherwise acquire any Series I Junior Stock, and no monies may be
paid to or made available for a sinking fund for the redemption of any Series I Junior Stock, except by
conversion into or exchange for Series I Junior Stock, or by the tendering of Series I Junior Stock in
payment for the exercise of options under the Bank’s stock option plans then in effect; and
•
the Bank may not redeem, purchase or otherwise acquire any shares of the Series I Preferred Stock other
than pursuant to pro rata offers to purchase or exchange, or a concurrent redemption of all of, the
outstanding shares of Series I Preferred Stock.
There can be no assurances that any dividends on the Series I Preferred Stock will be declared or, if
declared, what the amounts of dividends will be or whether these dividends, if declared for any dividend period, will
continue for any future dividend period. The declaration and payment of future dividends on the Series I Preferred
Stock will be subject to business conditions, regulatory considerations, the Bank’s earnings and financial condition
and the judgment of the Board.
See “Item 1. Business—Supervision and Regulation—Restrictions on Dividends and Other Distributions”
in this Annual Report on Form 10-K for bank regulatory restrictions on the Bank’s ability to pay dividends on the
Bank’s capital stock.
Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution or winding up of First Republic Bank, the
holders of the outstanding shares of Series I Preferred Stock are entitled to be paid out of the assets of First Republic
Bank legally available for distribution to the Bank’s shareholders, before any distribution of assets is made to
holders of Common Stock or any other Series I Junior Stock, a liquidating distribution in the amount of a liquidation
preference of $1,000 per share, plus the sum of any declared and unpaid dividends for dividend periods prior to the
dividend period in which the liquidation distribution is made and declared and unpaid dividends for the then current
dividend period in which the liquidation distribution is made to the date of such liquidation distribution. After
payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series I
Preferred Stock will have no right or claim to any of the Bank’s remaining assets.
21
Distributions will be made only to the extent that the Bank’s assets that are available after satisfaction of all
liabilities to depositors, and creditors and subject to the rights of any securities ranking senior to the Series I
Preferred Stock. If the Bank’s remaining assets are not sufficient to pay the full liquidating distributions to the
holders of all outstanding Series I Preferred Stock and all Series I Parity Stock, then the Bank will distribute the
Bank’s assets to those holders pro rata in proportion to the full liquidating distributions to which they would
otherwise have received.
For purposes of the liquidation rights, neither the sale, conveyance, lease, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all of the Bank’s property or business, nor the
consolidation or merger by the Bank with or into any other entity or by another entity with or into the Bank will
constitute a liquidation, dissolution or winding up of the Bank. If the Bank enters into any merger or consolidation
transaction with or into any other entity and the Bank is not the surviving entity in such transaction, the Series I
Preferred Stock may be converted into shares of the surviving or successor corporation or the direct or indirect
parent of the surviving or successor corporation having terms identical to the terms of the Series I Preferred Stock
set forth herein.
Conversion Rights
The Series I Preferred Stock is not convertible into or exchangeable for any other of the Bank’s property,
interests or securities.
Redemption Rights
Optional Redemption
The Series I Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar
provisions. However, the Series I Preferred Stock may be redeemed on or after June 30, 2023, with not less than 30
days’ and not more than 60 days’ notice (“Series I Optional Redemption”). On that date or any date thereafter, the
Bank may redeem the Series I Preferred Stock from time to time, in whole or in part, at the Bank’s option, for cash,
subject to the approval of the appropriate federal banking agency (and any state banking agency, as may be required
by law), at the cash redemption price provided below. Dividends will not accrue on those shares of Series I Preferred
Stock on and after the redemption date. Neither the holders of Series I Preferred Stock nor the holders of the Series I
Depositary Shares have the right to require the redemption or repurchase of the Series I Preferred Stock.
Redemption Following a Regulatory Capital Event
The Bank may redeem the Series I Preferred Stock, in whole but not in part, for cash, at any time within 90
days following a Series I Regulatory Capital Treatment Event, at the Bank’s option, subject to the approval of the
appropriate federal banking agency, at the cash redemption price provided below (“Series I Regulatory Event
Redemption”). A “Series I Regulatory Capital Treatment Event” means the Bank’s good faith determination that, as
a result of (i) any amendment to, or change in, the laws or regulations of the United States or any political
subdivision of or in the United States that is enacted or becomes effective after the initial issuance of the Series I
Preferred Stock; (ii) any proposed change in those laws or regulations that is announced after the initial issuance of
the Series I Preferred Stock; or (iii) any official administrative decision or judicial decision or administrative action
or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial
issuance of the Series I Preferred Stock, there is more than an insubstantial risk that the Bank will not be entitled to
treat the full liquidation value of the Series I Preferred Stock then outstanding as “Tier 1 Capital” (or its equivalent)
for purposes of the capital adequacy guidelines of the FDIC (or, as and if applicable, the capital adequacy guidelines
22
or regulations of any successor appropriate federal banking agency), as then in effect and applicable, for as long as
any share of Series I Preferred Stock is outstanding. Dividends will not accrue on those shares of Series I Preferred
Stock on and after the redemption date.
Redemption Price
The redemption price for any redemption of Series I Preferred Stock, whether a Series I Optional
Redemption or Series I Regulatory Event Redemption, will be equal to $1,000 per share of Series I Preferred Stock
(equivalent to $25 per Series I Depositary Share) plus the sum of any declared and unpaid dividends for prior
dividend periods and accrued but unpaid and undeclared dividends for the then-current dividend period to, but
excluding, the date of redemption.
Redemption Procedures
If the Bank elects to redeem any shares of Series I Preferred Stock, the Bank will provide notice by first
class mail, postage prepaid, addressed to the holders of record of the shares of Series I Preferred Stock to be
redeemed, mailed not less than 30 days and not more than 60 days before the date fixed for redemption thereof
(provided, however, that if the shares of Series I Preferred Stock or the Series I Depositary Shares are held in book-
entry form through DTC, the Bank may give this notice in any manner permitted by DTC). Any notice mailed or
otherwise given as provided in this paragraph will be conclusively presumed to have been duly given, whether or not
the holder receives this notice, and failure duly to give this notice by mail or otherwise, or any defect in this notice
or in the mailing or provision of this notice, to any holder of shares of Series I Preferred Stock designated for
redemption will not affect the redemption of any other shares of Series I Preferred Stock. Each notice of redemption
shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series I Preferred Stock are to be redeemed, the number of shares of Series I
Preferred Stock to be redeemed; and
•
the manner in which holders of Series I Preferred Stock called for redemption may obtain payment of the
redemption price in respect to those shares.
If notice of redemption of any shares of Series I Preferred Stock has been given and if the funds necessary
for such redemption have been set aside by the Bank in trust for the benefit of the holders of any shares of Series I
Preferred Stock so called for redemption, then from and after the redemption date such shares of Series I Preferred
Stock will no longer be deemed outstanding, and all rights of the holders of such shares will terminate, except the
right to receive the redemption price, without interest.
In the case of any redemption of only part of the Series I Preferred Stock at the time outstanding, the shares
of Series I Preferred Stock to be redeemed will be selected either pro rata or by lot. Subject to the provisions hereof,
the Board will have the full power and authority to prescribe the terms and conditions upon which shares of Series I
Preferred Stock may be redeemed from time to time.
The Series I Preferred Stock has no stated maturity and will not be subject to any sinking fund or
mandatory redemption provisions.
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Regulatory Restrictions on Redemption Rights
Under current risk-based capital regulations, a bank insured by the FDIC may not redeem shares of
Preferred Stock included as Tier 1 capital without the prior approval of the FDIC. Any redemption of the Series I
Preferred Stock is subject to the Bank’s receipt of any required prior approval by the FDIC and the Commissioner
and to the satisfaction of any conditions in the capital guidelines or regulations of the FDIC applicable to such
redemption. Ordinarily, the FDIC would not permit such a redemption unless the FDIC determines that the bank’s
condition and circumstances warrant the reduction of a source of permanent capital.
Voting Rights
Registered owners of Series I Preferred Stock will not have any voting rights, except as set forth below or
as otherwise required by law.
On any matter in which the Series I Preferred Stock is entitled to vote as a class with holders of any other
shares upon which like voting rights have been conferred and are exercisable, including any action by written
consent, each share of Series I Preferred Stock are entitled to one vote. As more fully described under “-Description
of the Depositary Shares,” the depositary, as holder of all Series I Preferred Stock, will grant 1/40th of a vote per
depositary share to the registered owner of each Series I Depositary Share so that each Series I Depositary Share is
entitled to exercise its proportionate voting rights.
If at any time the full amount of dividends on the Series I Preferred Stock have not been paid or set aside
for payment (whether or not declared) for any six dividend periods (whether or not consecutive), holders of the
Series I Depositary Shares voting as a single class together with holders of any other stock, including the Series H
Preferred Stock, Series J Preferred Stock, Series K Preferred Stock, Series L Preferred Stock, Series M Preferred
Stock and Series N Preferred Stock, that ranks on a parity with the Series I Preferred Stock as to payment of
dividends and that has voting rights equivalent to those described in this paragraph (“Series I Voting Parity Stock”),
are entitled to elect the Preferred Stock Directors at any annual meeting of shareholders or any special meeting of
the holders of Series I Preferred Stock and any Series I Voting Parity Stock, and the holders of the Common Stock
are entitled to vote for the election of the remaining number of directors authorized by the Articles or Bylaws. The
Board will at no time have more than two Preferred Stock Directors.
If, at any time after the right to elect directors is vested in the Series I Preferred Stock, the holders of the
Series I Preferred Stock and any Series I Voting Parity Stock call a special meeting of shareholders for the election
of directors, and at the time the special meeting is called, the election of the Preferred Stock Directors to the Board
would cause the number of directors to exceed the maximum number authorized under the Articles or Bylaws, then
the holders of Series I Preferred Stock and any Series I Voting Parity Stock, voting as a single class, shall be entitled
to elect the Preferred Stock Directors and the Common Stock shall be entitled to elect the remaining number of
authorized directors, the terms of office of all persons who were directors immediately prior to the special meeting
shall terminate, and the directors elected by the holders of the Bank’s Series I Preferred Stock and any Series I
Voting Parity Stock and the directors elected by the holders of the Common Stock shall constitute the directors of
the Bank until the next annual meeting.
The Preferred Stock Directors elected at any such special meeting will hold office until the next annual
meeting of the Bank’s shareholders unless they have been previously terminated as described below. Except as
otherwise provided for by applicable law, any Preferred Stock Director may be removed only by the vote of the
holders of record of the outstanding Series I Preferred Stock entitled to vote (voting together as a single class with
holders of any Series I Voting Parity Stock). As long as the right to elect Preferred Stock Directors is continuing,(i)
24
any vacancy in the office of any Preferred Stock Director may be filled by the vote of the holders of record of the
outstanding Series I Preferred Stock entitled to vote (voting together as a single class with holders of any Series I
Voting Parity Stock), and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the
vote of the holders of the outstanding Series I Preferred Stock entitled to vote (voting together as a single class with
holders of any Series I Voting Parity Stock) at the same meeting at which such removal shall be voted. Until the time
that any such vacancy is filled at a shareholder meeting as provided above, a successor shall be elected by the Board
to serve until the next such shareholder meeting upon the nomination of the then remaining Preferred Stock Director.
Whenever all dividends on the Series I Preferred Stock and any other stock upon which like voting rights
have been conferred and are exercisable have been paid in full for four consecutive dividend periods (or otherwise
for at least one year), then the right of the holders of Series I Preferred Stock to elect the Preferred Stock Directors
will cease (but subject always to the same provisions for the vesting of these voting rights in the case of any similar
non-payment of dividends in respect of future dividend periods), and if no other shareholders have like voting rights
that are then exercisable, the terms of office of all Preferred Stock Directors will immediately terminate.
The Bank cannot take any of the following actions without the affirmative vote or written consent of
holders of at least two-thirds of the outstanding shares of Series I Preferred Stock:
•
create any class or series of shares that ranks, as to dividends or distribution of assets, senior to the Series I
Preferred Stock; or
•
alter or change the provisions of the Articles, the Certificate of Determination governing the Series I
Preferred Stock or the Bylaws so as to adversely affect the voting powers, preferences or special rights of
the holders of the Series I Preferred Stock;
provided, however, that with respect to the occurrence of any event listed in the second bullet point above,
so long as any shares of Series I Preferred Stock remain outstanding with the terms thereof unchanged or new shares
of the surviving corporation or entity are issued with the identical terms as the Series I Preferred Stock, in each case
taking into account that upon the occurrence of this event the Bank may not be the surviving entity, the occurrence
of any such event shall not, except as provided by law, be deemed to adversely affect any right, preference, privilege
or voting power of the Series I Preferred Stock or the holders thereof, and provided, further, that any increase in the
amount of the Bank’s authorized Common Stock or Preferred Stock or the creation or issuance of any other P Series
I arity Stock or Series I Junior Stock and any change to the number of directors or number of classes of directors
shall not be deemed to adversely affect such rights, preferences, privileges or voting powers.
Under California law, in addition to any required approval by its board of directors or its voting
shareholders, an amendment to the articles of incorporation of a California corporation also must be approved by the
affirmative vote of a majority of the outstanding shares of a class of shares, whether or not such class is entitled to a
vote by the articles of incorporation, if the amendment proposes to: (i) increase or decrease the aggregate number of
authorized shares of such class; (ii) effect an exchange, reclassification, or cancellation of all or part of the shares of
such class; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class into the
shares of such class; (iv) change the rights, preferences, privileges or restrictions of the shares of such class; (v)
create a new class of shares having rights, preferences or privileges prior to the shares of such class, or increase the
rights, preferences or privileges or the number of authorized shares of any class having rights, preferences or
privileges prior to the shares of such class; (vi) in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions or authorize the board to do so; or (vii) cancel or
otherwise affect dividends on the shares of such class which have accrued but have not been paid.
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The holders of Series I Preferred Stock will have no voting rights if the Bank redeems all outstanding
Series I Preferred Stock (or call for redemption all outstanding Series I Preferred Stock and deposit sufficient funds
in a trust to effect the redemption) on or before the time the act occurs that would otherwise require a vote.
Regulatory Risk of Voting Rights
Although the Bank does not believe that any series of its Preferred Stock is considered “voting securities”
for purposes of the BHCA, if one or more series were to become a class of “voting securities,” whether because the
Bank has missed six dividend payments and, as a result, holders of the Preferred Stock have the right to elect
directors, or for other reasons, a “company” (as that term is defined for purposes of the BHCA) that owns or controls
25% or more of such class, or less than 25% if it otherwise exercises any “controlling influence” over the Bank
(including by holding 25% or more or, in some cases, one-third or more of the Bank’s total equity), may then be
subject to regulation as a bank holding company in accordance with the BHCA. In addition, if one or more series of
Preferred Stock becomes a class of “voting securities”:
•
any bank holding company may be required to obtain the prior approval of the Federal Reserve to acquire
or retain more than 5% of such series of Preferred Stock;
•
any person (or group of persons acting in concert) other than a bank holding company may be required to
obtain the approval of the FDIC under the CIBCA to acquire or retain 10% or more such series of Preferred
Stock; and
•
any person may be required to obtain the prior approval of the Commissioner before acquiring “control” of
the Bank, as defined in California statutes and regulations.
Holders of Preferred Stock should consult their own counsel with regard to regulatory implications.
Description of Series I Depositary Shares
General
The Series I Preferred Stock are deposited with the depositary, under a deposit agreement. Each Series I
Depositary Share will represent a 1/40th fractional ownership interest in a share of Series I Preferred Stock. Subject
to the terms of the deposit agreement, each holder of a Series I Depositary Share is entitled to all the rights and
preferences of a 1/40th fractional ownership interest in a share of Series I Preferred Stock (including dividend,
voting, redemption and liquidation rights and preferences). Immediately following the Bank’s issuance of the Series
I Preferred Stock, the Bank will deposit the Series I Preferred Stock with the depositary, which upon the Bank’s
instructions will issue and deliver the Series I Depositary Shares to DTC for credit to the accounts of such
participants of DTC and in such amounts as Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley &
Co. LLC and Wells Fargo Securities, LLC shall specify.
Listing
The Series I Preferred Depositary Shares are listed on the NYSE under the symbol “FRC-PrI.”
Dividends
Each dividend payable on a Series I Depositary Share is in an amount equal to 1/40th of the dividend
declared and payable on each share of Series I Preferred Stock.
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The depositary will distribute all cash dividends paid on the Series I Preferred Stock to the record holders
of the Series I Depositary Shares in proportion to the number of Series I Depositary Shares held by the holders. The
depositary will distribute only such amount, however, as can be distributed without attributing to any holder of
Series I Depositary Shares a fraction of one cent, and any balance not so distributable will be held by the depositary
(without liability for interest thereon) and will be added to and be treated as part of the next sum received by the
depositary for distribution to record holders of Series I Depositary Shares then outstanding.
If a dividend is other than in cash and it is feasible for the depositary to distribute the property it receives,
the depositary, upon written instructions from the Bank, will distribute the property to the record holders of the
Series I Depositary Shares. If such a distribution is not feasible and the Bank so directs, the depositary will sell on
behalf of the holders of Series I Depositary Shares the property and distribute the net proceeds from the sale to the
holders of the Series I Depositary Shares in proportion to the number of Series I Depositary Shares held by the
holders.
Record dates for the payment of dividends and other matters relating to the Series I Depositary Shares will
be the same as the corresponding record dates for the Series I Preferred Stock.
The amounts distributed to holders of Series I Depositary Shares will be reduced by any amounts required
to be withheld by the depositary or by the Bank on account of taxes or other governmental charges. The depositary
may refuse to make any payment or distribution, or any transfer, exchange or withdrawal of any Series I Depositary
Shares or the Series I Preferred Stock until such taxes or other governmental charges are paid. To the extent that the
depositary determines that amounts are required to be withheld in relation to the distribution of any property
pursuant to the deposit agreement, the depositary may, in certain circumstances, sell all or a portion of such property
to pay such taxes and distribute the balance of the net proceeds (after the deduction of such taxes) to the holder of
the Series I Depositary Shares in proportion to the number of Series I Depositary Shares held by the holder.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Bank’s affairs, the holders of the Series I
Depositary Shares are entitled to 1/40th of the liquidation preference accorded each share of Series I Preferred
Stock.
If the Bank consolidates or merges with or into any other entity or the Bank sells, leases, transfers or
conveys all or substantially all of the Bank’s property or business, the Bank will not be deemed to have liquidated,
dissolved or wound up. In the event of the Bank’s liquidation, dissolution or winding up, a holder of Series I
Depositary Shares will receive the fraction of the liquidation preference accorded each share of underlying Series I
Preferred Stock represented by the Series I Depositary Shares.
Redemption
Whenever the Bank redeems any of the Series I Preferred Stock held by the depositary, the depositary will
redeem as of the same redemption date, from the proceeds received by the depositary resulting from the redemption
of the Series I Preferred Stock held by the depositary, the number of Series I Depositary Shares representing the
redeemed Series I Preferred Stock. A notice of the redemption furnished by the Bank will be mailed by the
depositary by first class mail, postage prepaid, not less than 30 nor more than 60 days before the date fixed for
redemption thereof, addressed to the respective holders of record of the Series I Depositary Shares to be redeemed at
their respective addresses as they appear on the share transfer records of the depositary (provided, however, that if
the Series I Depositary Shares are held in book-entry form through DTC, the Bank may give this notice in any
27
manner permitted by DTC). A failure to give such notice or any defect in the notice or in the Bank’s mailing will not
affect the validity of the proceedings for the redemption of any shares of Series I Preferred Stock or Series I
Depositary Shares except as to the holder to whom notice was defective or not given. Each notice shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series I Preferred Stock are to be redeemed, the number of shares of Series I
Preferred Stock to be redeemed (and the corresponding number of Series I Depositary Shares ); and
•
the place or places where the depositary receipts evidencing the Series I Depositary Shares are to be
surrendered for payment of the redemption price.
If the Bank redeems fewer than all of the outstanding shares of Series I Preferred Stock, the depositary will
select the corresponding number of Series I Depositary Shares to be redeemed pro rata or by lot. In any such case,
Series I Depositary Shares will be redeemed only in increments of 40 Series I Depositary Shares and any integral
multiple thereof, and the notice mailed to such holder shall also specify the number of Series I Depositary Shares to
be redeemed from such holder.
The holders of Series I Depositary Shares at the close of business on a dividend record date are entitled to
receive the dividend payable with respect to the Series I Depositary Shares evidenced by such Series I Depositary
Shares on the corresponding dividend payment date notwithstanding the redemption of the Series I Depositary
Shares between such dividend record date and the corresponding dividend payment date or the Bank’s default in the
payment of the dividend due. Except as provided above, the Bank will make no payment or allowance for unpaid
dividends on the Series I Preferred Stock or Series I Depositary Shares to be redeemed.
Voting
Because each Series I Depositary Share represents a 1/40th ownership interest in a share of Series I
Preferred Stock, holders of depositary receipts are entitled to vote 1/40th of a vote per Series I Depositary Share
under those limited circumstances in which holders of the Series I Preferred Stock are entitled to vote, as described
above.
When the depositary receives notice of any meeting at which the holders of the Series I Preferred Stock are
entitled to vote, the depositary will mail the information contained in the notice to the record holders of the Series I
Depositary Shares relating to the Series I Preferred Stock. Each record holder of the Series I Depositary Shares on
the record date, which will be the same date as the record date for the Series I Preferred Stock, may instruct the
depositary to vote the amount of the Series I Preferred Stock represented by the holder’s Series I Depositary Shares.
To the extent possible, the depositary will vote the amount of the Series I Preferred Stock represented by Series I
Depositary Shares in accordance with the instructions it receives. The Bank will agree to take all reasonable actions
that the depositary determines are necessary to enable the depositary to vote as instructed. If the depositary does not
receive specific instructions from the holders of any Series I Depositary Shares representing the Series I Preferred
Stock, it will abstain from voting with respect to such shares (but shall appear at the meeting with respect to such
shares unless directed to the contrary).
Withdrawal of Series I Preferred Stock
Upon surrender of Series I Depositary Shares at the principal office of the depositary, upon payment of any
unpaid amount due the depositary, and subject to the terms of the deposit agreement, the owner of the Series I
Depositary Shares evidenced thereby is entitled to delivery of the number of shares of Series I Preferred Stock and
28
all money and other property, if any, represented by such Series I Depositary Shares. Only whole shares of Series I
Preferred Stock may be withdrawn. If the Series I Depositary Shares surrendered by the holder in connection with
withdrawal exceed the number of Series I Depositary Shares that represent the number of whole shares of Series I
Preferred Stock to be withdrawn, the depositary will deliver to that holder at the same time a new depositary receipt
evidencing the excess number of Series I Depositary Shares. Holders of Series I Preferred Stock thus withdrawn will
not thereafter be entitled to deposit such shares under the deposit agreement or to receive Series I Depositary Shares
therefor.
Miscellaneous
The depositary will forward to the holders of Series I Depositary Shares any reports and communications
from the Bank with respect to the underlying Series I Preferred Stock. Neither the Bank nor the depositary will be
liable if any law or any circumstances beyond their control prevent or delay them from performing their obligations
under the deposit agreement. The obligations of the Bank and a depositary under the deposit agreement will be
limited to performing their duties without bad faith, gross negligence or willful misconduct. Neither the Bank nor a
depositary must prosecute or defend any legal proceeding with respect to any Series I Depositary Shares or the
underlying Series I Preferred Stock unless they are furnished with satisfactory indemnity. Both the Bank and the
depositary may rely on the written advice of counsel or accountants, or information provided by holders of Series I
Depositary Shares or other persons they believe in good faith to be competent, and on documents they believe in
good faith to be genuine and signed by a proper party. In the event a depositary receives conflicting claims, requests
or instructions from the Bank and any holders of Series I Depositary Shares, the depositary are entitled to act on the
claims, requests or instructions received from the Bank.
Book Entry, Delivery and Form
DTC acts as securities depositary for the Series I Depositary Shares. The Series I Depositary Shares are
registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an
authorized representative of DTC.
DTC has advised the Bank that it is a limited-purpose trust company organized under the New York
Banking Law, a “banking organization” within the meaning of New York Banking Law, a member of the Federal
Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a
“clearing agency” registered under the provisions of Section 17A of the Exchange Act. DTC holds securities that its
Direct Participants deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of
sales and other securities transactions in deposited securities through electronic computerized book-entry transfers
and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of DTCC.
DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing
Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries.
Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers,
banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a
Direct Participant, either directly or through Indirect Participants. The rules applicable to DTC and its Direct and
Indirect Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com.
Purchases of Series I Depositary Shares under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Series I Depositary Shares on DTC’s records. The ownership interest
29
of the beneficial owner is in turn recorded on the Direct and Indirect Participants’ records. Beneficial owners will
not receive written confirmation from DTC of their purchase. Beneficial owners are, however, expected to receive
written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the
Direct or Indirect Participant through which the beneficial owner entered into the transaction. Transfers of
ownership interest in the Series I Depositary Shares are accomplished by entries made on the books of Direct and
Indirect Participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interest in the Series I Depositary Shares, except in the event that use of the book-entry
system for the Series I Depositary Shares is discontinued. Conveyance of notices and other communications by DTC
to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect
Participants to beneficial owners are governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
To facilitate subsequent transfers, the Series I Depositary Shares deposited by Direct Participants with DTC
are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by
an authorized representative of DTC. The deposit of Series I Depositary Shares with DTC and its registration in the
name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no
knowledge of the actual beneficial owners of the Series I Depositary Shares; DTC’s records reflect only the identity
of the Direct Participants to whose accounts are credited, which may or may not be the beneficial owners. The
Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their
customers.
In those instances where a vote is required, neither DTC nor Cede & Co. (nor any other DTC nominee) will
consent or vote with respect to the Series I Depositary Shares unless authorized by a Direct Participant. Under its
usual procedures, DTC mails an omnibus proxy to the Bank as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series I
Depositary Shares are credited on the record date, which accounts are identified in a listing attached to the omnibus
proxy.
Redemption proceeds, distributions and dividend payments on the Series I Depositary Shares will be made
to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice
is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the
Bank or the Bank’s agent on the payable date in accordance with their respective holdings shown on DTC’s records.
Payments by Direct or Indirect Participants to beneficial owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in
“street name,” and are the responsibility of such Direct or Indirect Participant and not of DTC (nor its nominee), the
Bank or any agent of the Bank, subject to any statutory or regulatory requirements as may be in effect from time to
time. Payment of redemption proceeds, distributions and dividends to Cede & Co. (or such other DTC nominee) is
the responsibility of the Bank or the Bank’s agent, disbursement of such payments to Direct Participants are the
responsibility of DTC, and disbursement of such payments to the beneficial owners are the responsibility of Direct
and Indirect Participants.
DTC may discontinue providing its services as securities depositary with respect to the Series I Depositary
Shares at any time by giving reasonable notice to the Bank or the Bank’s agent. Additionally, the Bank may decide
to discontinue the book-entry only system of transfers with respect to the Series I Depositary Shares. Under such
circumstances, if a successor depository is not obtained, the Bank will print and deliver certificates in fully
registered form for the Series I Depositary Shares.
30
The information in this section concerning DTC and DTC’s book-entry system has been obtained from
sources that the Bank believes to be reliable, but the Bank takes no responsibility for the accuracy thereof.
Transfer Restrictions
The Series I Depositary Shares were offered and sold pursuant to an exemption from registration under the
Securities Act of 1933, as amended, and other exemptions provided by the laws of the United States and other
jurisdictions where such securities are offered and sold. The Series I Depositary Shares may only be transferred or
sold in compliance with all applicable state, federal and foreign securities laws.
DESCRIPTION OF DEPOSITARY SHARES, each representing a 1/40th interest in a share of Series J
Preferred Stock
Ranking
The Series J Preferred Stock ranks senior to the Common Stock and any other class or series of Preferred
Stock that by its terms ranks junior to the Series J Preferred Stock, and at least equally with the Series H Preferred
Stock, Series I Preferred Stock, Series K Preferred Stock, Series L Preferred Stock, Series M Preferred Stock and
Series N Preferred Stock and with all future series of Preferred Stock that the Bank may issue (except for any senior
stock that may be issued with the requisite consent of the holders of the Series J Preferred Stock and all other Series
J Parity Stock (as defined below)), with respect to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up.
Dividends
Holders of Series J Preferred Stock are entitled to receive, when and as declared by the Board (or a duly
authorized committee thereof), out of funds legally available for the payment of distributions, cash dividends that
are noncumulative and payable quarterly, at the rate of 4.70% of the liquidation preference per annum (equivalent to
$47.00 per annum per share of Series J Preferred Stock). Dividends on the Series J Preferred Stock, if declared, are
payable quarterly on the 30th day of each January, April, July and October, or, if any such date is not a business day,
the immediately preceding business day. A dividend period means each period commencing on (and including) a
dividend payment date and continuing to (but excluding) the next succeeding dividend payment date, except that the
first dividend period for the initial issuance of shares of Series J Preferred Stock commenced upon (and includes) the
date of original issuance of those shares. If additional shares of Series J Preferred Stock are issued at a future date,
the first dividend period for such shares will commence upon (and include) the later of the date of original issuance
of Series J Preferred Stock and the first day of the quarterly period in which such later date of issue occurs. That
dividend and any dividend payable on the Series J Preferred Stock for any other partial dividend period will be
computed on the basis of a 360-day year consisting of twelve 30-day months. The Bank will pay dividends to
holders of record of Series J Preferred Stock as they appear in the Bank’s share records at the close of business on
the applicable record date designated by the Board for the payment of dividends that is not more than 60 nor less
than 10 days prior to such dividend payment date; provided, however, that if the date fixed for redemption of any
Series J Preferred Stock occurs after a dividend is authorized and declared but before it is paid, such dividend shall
be paid as part of the redemption price to the person to whom the redemption price is paid.
No dividends on the Series J Preferred Stock will be declared or be paid or set aside for payment at any
time when the terms and provisions of any of the Bank’s agreements, including any agreement relating to its
indebtedness, prohibits such declaration, payment or setting aside for payment or provides that such declaration,
31
payment or setting aside for payment would constitute a breach of or a default under such agreement, or if such
authorization or payment is restricted or prohibited by law.
Dividends are not cumulative. If the Bank fails to declare a dividend for any dividend payment date, then
that dividend will not accumulate and be payable, the holders of the Series J Preferred Stock will have no right to
receive a dividend related to that dividend period, and the Bank will have no obligation to pay a dividend for the
related dividend period or to pay any interest, whether or not dividends on the Series J Preferred Stock are declared
for any future dividend period. If the Bank fails to pay or set aside for payment scheduled dividends (whether or not
declared) with respect to any six dividend periods (whether or not consecutive), holders of Series J Preferred Stock
are entitled to vote for the election of two directors, as described below under “-Voting Rights.”
Full dividends will not be declared or paid or set apart for payment on any Preferred Stock ranking on
parity with the Series J Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up (“Series J Parity Stock”) or any other shares of capital stock that rank junior to the Series J
Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation, dissolution or winding up
(“Series J Junior Stock”) during any dividend period unless dividends on the Series J Preferred Stock for that
dividend period are declared and paid in full. When such cash dividends are not paid in full, or a sum sufficient for
the full payment is not set aside, dividends upon shares of Series J Preferred Stock and dividends on other Series J
Parity Stock payable during the dividend period will be declared pro rata so that the amount of dividends payable
per share on the Series J Preferred Stock and any other Series J Parity Stock will in all cases bear to each other the
same ratio that full dividends for the then-current dividend period on the shares of Series J Preferred Stock and full
dividends, including required or permitted accumulations, if any, on shares of the other Series J Parity Stock, bear to
each other. If full dividends on the Series J Preferred Stock have not been declared and paid or set aside for payment
for a dividend period, the following restrictions will apply for that dividend period:
•
no dividend or distribution, other than in shares of Series J Junior Stock, may be declared, set aside for
payment or paid on any shares of stock of any class or series of Series J Junior Stock;
•
the Bank may not redeem, purchase or otherwise acquire any Series J Junior Stock, and no monies may be
paid to or made available for a sinking fund for the redemption of any Series J Junior Stock, except by
conversion into or exchange for Series J Junior Stock, or by the tendering of Series J Junior Stock in
payment for the exercise of options under the Bank’s stock option plans then in effect; and
•
the Bank may not redeem, purchase or otherwise acquire any shares of the Series J Preferred Stock other
than pursuant to pro rata offers to purchase or exchange, or a concurrent redemption of all of, the
outstanding shares of Series J Preferred Stock.
There can be no assurances that any dividends on the Series J Preferred Stock will be declared or, if
declared, what the amounts of dividends will be or whether these dividends, if declared for any dividend period, will
continue for any future dividend period. The declaration and payment of future dividends on the Series J Preferred
Stock will be subject to business conditions, regulatory considerations, the Bank’s earnings and financial condition
and the judgment of the Board.
See “Item 1. Business—Supervision and Regulation—Restrictions on Dividends and Other Distributions”
in this Annual Report on Form 10-K for bank regulatory restrictions on the Bank’s ability to pay dividends on the
Bank’s capital stock.
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Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution or winding up of First Republic Bank, the
holders of the outstanding shares of Series J Preferred Stock are entitled to be paid out of the assets of First Republic
Bank legally available for distribution to the Bank’s shareholders, before any distribution of assets is made to
holders of Common Stock or any other Series J Junior Stock, a liquidating distribution in the amount of a liquidation
preference of $1,000 per share, plus the sum of any declared and unpaid dividends for dividend periods prior to the
dividend period in which the liquidation distribution is made and declared and unpaid dividends for the then current
dividend period in which the liquidation distribution is made to the date of such liquidation distribution. After
payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series J
Preferred Stock will have no right or claim to any of the Bank’s remaining assets.
Distributions will be made only to the extent that the Bank’s assets that are available after satisfaction of all
liabilities to depositors, and creditors and subject to the rights of any securities ranking senior to the Series J
Preferred Stock. If the Bank’s remaining assets are not sufficient to pay the full liquidating distributions to the
holders of all outstanding Series J Preferred Stock and all Series J Parity Stock, then the Bank will distribute the
Bank’s assets to those holders pro rata in proportion to the full liquidating distributions to which they would
otherwise have received.
For purposes of the liquidation rights, neither the sale, conveyance, lease, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all of the Bank’s property or business, nor the
consolidation or merger by the Bank with or into any other entity or by another entity with or into the Bank will
constitute a liquidation, dissolution or winding up of the Bank. If the Bank enters into any merger or consolidation
transaction with or into any other entity and the Bank is not the surviving entity in such transaction, the Series J
Preferred Stock may be converted into shares of the surviving or successor corporation or the direct or indirect
parent of the surviving or successor corporation having terms identical to the terms of the Series J Preferred Stock
set forth herein.
Conversion Rights
The Series J Preferred Stock is not convertible into or exchangeable for any other of the Bank’s property,
interests or securities.
Redemption Rights
Optional Redemption
The Series J Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar
provisions. However, the Series J Preferred Stock may be redeemed on or after December 31, 2024, with not less
than 30 days’ and not more than 60 days’ notice (“Series J Optional Redemption”). On that date or any date
thereafter, the Bank may redeem the Series J Preferred Stock from time to time, in whole or in part, at the Bank’s
option, for cash, subject to the approval of the appropriate federal banking agency (and any state banking agency, as
may be required by law), at the cash redemption price provided below. Dividends will not accrue on those shares of
Series J Preferred Stock on and after the redemption date. Neither the holders of Series J Preferred Stock nor the
holders of the Series J Depositary Shares have the right to require the redemption or repurchase of the Series J
Preferred Stock.
33
Redemption Following a Regulatory Capital Event
The Bank may redeem the Series J Preferred Stock, in whole but not in part, for cash, at any time within 90
days following a Series J Regulatory Capital Treatment Event, at the Bank’s option, subject to the approval of the
appropriate federal banking agency, at the cash redemption price provided below (“Series J Regulatory Event
Redemption”). A “Series J Regulatory Capital Treatment Event” means the Bank’s good faith determination that, as
a result of (i) any amendment to, or change in, the laws or regulations of the United States or any political
subdivision of or in the United States that is enacted or becomes effective after the initial issuance of the Series J
Preferred Stock; (ii) any proposed change in those laws or regulations that is announced after the initial issuance of
the Series J Preferred Stock; or (iii) any official administrative decision or judicial decision or administrative action
or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial
issuance of the Series J Preferred Stock, there is more than an insubstantial risk that the Bank will not be entitled to
treat the full liquidation value of the Series J Preferred Stock then outstanding as “Tier 1 Capital” (or its equivalent)
for purposes of the capital adequacy guidelines of the FDIC (or, as and if applicable, the capital adequacy guidelines
or regulations of any successor appropriate federal banking agency), as then in effect and applicable, for as long as
any share of Series J Preferred Stock is outstanding. Dividends will not accrue on those shares of Series J Preferred
Stock on and after the redemption date.
Redemption Price
The redemption price for any redemption of Series J Preferred Stock, whether a Series J Optional
Redemption or Series J Regulatory Event Redemption, will be equal to $1,000 per share of Series J Preferred Stock
(equivalent to $25 per Series J Depositary Share) plus the sum of any declared and unpaid dividends for prior
dividend periods and accrued but unpaid and undeclared dividends for the then-current dividend period to, but
excluding, the date of redemption.
Redemption Procedures
If the Bank elects to redeem any shares of Series J Preferred Stock, the Bank will provide notice by first
class mail, postage prepaid, addressed to the holders of record of the shares of Series J Preferred Stock to be
redeemed, mailed not less than 30 days and not more than 60 days before the date fixed for redemption thereof
(provided, however, that if the shares of Series J Preferred Stock or the Series J Depositary Shares are held in book-
entry form through DTC, the Bank may give this notice in any manner permitted by DTC). Any notice mailed or
otherwise given as provided in this paragraph will be conclusively presumed to have been duly given, whether or not
the holder receives this notice, and failure duly to give this notice by mail or otherwise, or any defect in this notice
or in the mailing or provision of this notice, to any holder of shares of Series J Preferred Stock designated for
redemption will not affect the redemption of any other shares of Series J Preferred Stock. Each notice of redemption
shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series J Preferred Stock are to be redeemed, the number of shares of Series J
Preferred Stock to be redeemed; and
•
the manner in which holders of Series J Preferred Stock called for redemption may obtain payment of the
redemption price in respect to those shares.
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If notice of redemption of any shares of Series J Preferred Stock has been given and if the funds necessary
for such redemption have been set aside by the Bank in trust for the benefit of the holders of any shares of Series J
Preferred Stock so called for redemption, then from and after the redemption date such shares of Series J Preferred
Stock will no longer be deemed outstanding, and all rights of the holders of such shares will terminate, except the
right to receive the redemption price, without interest.
In the case of any redemption of only part of the Series J Preferred Stock at the time outstanding, the shares
of Series J Preferred Stock to be redeemed will be selected either pro rata or by lot. Subject to the provisions hereof,
the Board will have the full power and authority to prescribe the terms and conditions upon which shares of Series J
Preferred Stock may be redeemed from time to time.
The Series J Preferred Stock has no stated maturity and will not be subject to any sinking fund or
mandatory redemption provisions.
Regulatory Restrictions on Redemption Rights
Under current risk-based capital regulations, a bank insured by the FDIC may not redeem shares of
Preferred Stock included as Tier 1 capital without the prior approval of the FDIC. Any redemption of the Series J
Preferred Stock is subject to the Bank’s receipt of any required prior approval by the FDIC and the Commissioner
and to the satisfaction of any conditions in the capital guidelines or regulations of the FDIC applicable to such
redemption. Ordinarily, the FDIC would not permit such a redemption unless the FDIC determines that the bank’s
condition and circumstances warrant the reduction of a source of permanent capital.
Voting Rights
Registered owners of Series J Preferred Stock will not have any voting rights, except as set forth below or
as otherwise required by law.
On any matter in which the Series J Preferred Stock is entitled to vote as a class with holders of any other
shares upon which like voting rights have been conferred and are exercisable, including any action by written
consent, each share of Series J Preferred Stock are entitled to one vote. As more fully described under “-Description
of the Depositary Shares,” the depositary, as holder of all Series J Preferred Stock, will grant 1/40th of a vote per
depositary share to the registered owner of each Series J Depositary Share so that each Series J Depositary Share is
entitled to exercise its proportionate voting rights.
If at any time the full amount of dividends on the Series J Preferred Stock have not been paid or set aside
for payment (whether or not declared) for any six dividend periods (whether or not consecutive), holders of the
Series J Depositary Shares voting as a single class together with holders of any other stock, including the Series H
Preferred Stock, Series I Preferred Stock, Series K Preferred Stock, Series L Preferred Stock, Series M Preferred
Stock and Series N Preferred Stock, that ranks on a parity with the Series J Preferred Stock as to payment of
dividends and that has voting rights equivalent to those described in this paragraph (“Series J Voting Parity Stock”),
are entitled to elect the Preferred Stock Directors at any annual meeting of shareholders or any special meeting of
the holders of Series J Preferred Stock and any Series J Voting Parity Stock, and the holders of the Common Stock
are entitled to vote for the election of the remaining number of directors authorized by the Articles or Bylaws. The
Board will at no time have more than two Preferred Stock Directors.
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If, at any time after the right to elect directors is vested in the Series J Preferred Stock, the holders of the
Series J Preferred Stock and any Series J Voting Parity Stock call a special meeting of shareholders for the election
of directors, and at the time the special meeting is called, the election of the Preferred Stock Directors to the Board
would cause the number of directors to exceed the maximum number authorized under the Articles or Bylaws, then
the holders of Series J Preferred Stock and any Series J Voting Parity Stock, voting as a single class, shall be entitled
to elect the Preferred Stock Directors and the Common Stock shall be entitled to elect the remaining number of
authorized directors, the terms of office of all persons who were directors immediately prior to the special meeting
shall terminate, and the directors elected by the holders of the Bank’s Series J Preferred Stock and any Series J
Voting Parity Stock and the directors elected by the holders of the Common Stock shall constitute the directors of
the Bank until the next annual meeting.
The Preferred Stock Directors elected at any such special meeting will hold office until the next annual
meeting of the Bank’s shareholders unless they have been previously terminated as described below. Except as
otherwise provided for by applicable law, any Preferred Stock Director may be removed only by the vote of the
holders of record of the outstanding Series J Preferred Stock entitled to vote (voting together as a single class with
holders of any Series J Voting Parity Stock). As long as the right to elect Preferred Stock Directors is continuing,(i)
any vacancy in the office of any Preferred Stock Director may be filled by the vote of the holders of record of the
outstanding Series J Preferred Stock entitled to vote (voting together as a single class with holders of any Series J
Voting Parity Stock), and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the
vote of the holders of the outstanding Series J Preferred Stock entitled to vote (voting together as a single class with
holders of any Series J Voting Parity Stock) at the same meeting at which such removal shall be voted. Until the time
that any such vacancy is filled at a shareholder meeting as provided above, a successor shall be elected by the Board
to serve until the next such shareholder meeting upon the nomination of the then remaining Preferred Stock Director.
Whenever all dividends on the Series J Preferred Stock and any other stock upon which like voting rights
have been conferred and are exercisable have been paid in full for four consecutive dividend periods (or otherwise
for at least one year), then the right of the holders of Series J Preferred Stock to elect the Preferred Stock Directors
will cease (but subject always to the same provisions for the vesting of these voting rights in the case of any similar
non-payment of dividends in respect of future dividend periods), and if no other shareholders have like voting rights
that are then exercisable, the terms of office of all Preferred Stock Directors will immediately terminate.
The Bank cannot take any of the following actions without the affirmative vote or written consent of
holders of at least two-thirds of the outstanding shares of Series J Preferred Stock:
•
create any class or series of shares that ranks, as to dividends or distribution of assets, senior to the Series J
Preferred Stock; or
•
alter or change the provisions of the Articles, the Certificate of Determination governing the Series J
Preferred Stock or the Bylaws so as to adversely affect the voting powers, preferences or special rights of
the holders of the Series J Preferred Stock;
provided, however, that with respect to the occurrence of any event listed in the second bullet point above,
so long as any shares of Series J Preferred Stock remain outstanding with the terms thereof unchanged or new shares
of the surviving corporation or entity are issued with the identical terms as the Series J Preferred Stock, in each case
taking into account that upon the occurrence of this event the Bank may not be the surviving entity, the occurrence
of any such event shall not, except as provided by law, be deemed to adversely affect any right, preference, privilege
or voting power of the Series J Preferred Stock or the holders thereof, and provided, further, that any increase in the
amount of the Bank’s authorized Common Stock or Preferred Stock or the creation or issuance of any other P Series
36
J arity Stock or Series J Junior Stock and any change to the number of directors or number of classes of directors
shall not be deemed to adversely affect such rights, preferences, privileges or voting powers.
Under California law, in addition to any required approval by its board of directors or its voting
shareholders, an amendment to the articles of incorporation of a California corporation also must be approved by the
affirmative vote of a majority of the outstanding shares of a class of shares, whether or not such class is entitled to a
vote by the articles of incorporation, if the amendment proposes to: (i) increase or decrease the aggregate number of
authorized shares of such class; (ii) effect an exchange, reclassification, or cancellation of all or part of the shares of
such class; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class into the
shares of such class; (iv) change the rights, preferences, privileges or restrictions of the shares of such class; (v)
create a new class of shares having rights, preferences or privileges prior to the shares of such class, or increase the
rights, preferences or privileges or the number of authorized shares of any class having rights, preferences or
privileges prior to the shares of such class; (vi) in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions or authorize the board to do so; or (vii) cancel or
otherwise affect dividends on the shares of such class which have accrued but have not been paid.
The holders of Series J Preferred Stock will have no voting rights if the Bank redeems all outstanding
Series J Preferred Stock (or call for redemption all outstanding Series J Preferred Stock and deposit sufficient funds
in a trust to effect the redemption) on or before the time the act occurs that would otherwise require a vote.
Regulatory Risk of Voting Rights
Although the Bank does not believe that any series of its Preferred Stock is considered “voting securities”
for purposes of the BHCA, if one or more series were to become a class of “voting securities,” whether because the
Bank has missed six dividend payments and, as a result, holders of the Preferred Stock have the right to elect
directors, or for other reasons, a “company” (as that term is defined for purposes of the BHCA) that owns or controls
25% or more of such class, or less than 25% if it otherwise exercises any “controlling influence” over the Bank
(including by holding 25% or more or, in some cases, one-third or more of the Bank’s total equity), may then be
subject to regulation as a bank holding company in accordance with the BHCA. In addition, if one or more series of
Preferred Stock becomes a class of “voting securities”:
•
any bank holding company may be required to obtain the prior approval of the Federal Reserve to acquire
or retain more than 5% of such series of Preferred Stock;
•
any person (or group of persons acting in concert) other than a bank holding company may be required to
obtain the approval of the FDIC under the CIBCA to acquire or retain 10% or more such series of Preferred
Stock; and
•
any person may be required to obtain the prior approval of the Commissioner before acquiring “control” of
the Bank, as defined in California statutes and regulations.
Holders of Preferred Stock should consult their own counsel with regard to regulatory implications.
Description of Series J Depositary Shares
General
The Series J Preferred Stock are deposited with the depositary, under a deposit agreement. Each Series J
Depositary Share will represent a 1/40th fractional ownership interest in a share of Series J Preferred Stock. Subject
to the terms of the deposit agreement, each holder of a Series J Depositary Share is entitled to all the rights and
37
preferences of a 1/40th fractional ownership interest in a share of Series J Preferred Stock (including dividend,
voting, redemption and liquidation rights and preferences). Immediately following the Bank’s issuance of the Series
J Preferred Stock, the Bank will deposit the Series J Preferred Stock with the depositary, which upon the Bank’s
instructions will issue and deliver the Series J Depositary Shares to DTC for credit to the accounts of such
participants of DTC and in such amounts as BofA Securities, Inc., J.P. Morgan Securities LLC, Morgan Stanley &
Co. LLC, UBS Securities LLC and Wells Fargo Securities, LLC shall specify.
Listing
The Series J Preferred Depositary Shares are listed on the NYSE under the symbol “FRC-PrJ.”
Dividends
Each dividend payable on a Series J Depositary Share is in an amount equal to 1/40th of the dividend
declared and payable on each share of Series J Preferred Stock.
The depositary will distribute all cash dividends paid on the Series J Preferred Stock to the record holders
of the Series J Depositary Shares in proportion to the number of Series J Depositary Shares held by the holders. The
depositary will distribute only such amount, however, as can be distributed without attributing to any holder of
Series J Depositary Shares a fraction of one cent, and any balance not so distributable will be held by the depositary
(without liability for interest thereon) and will be added to and be treated as part of the next sum received by the
depositary for distribution to record holders of Series J Depositary Shares then outstanding.
If a dividend is other than in cash and it is feasible for the depositary to distribute the property it receives,
the depositary, upon written instructions from the Bank, will distribute the property to the record holders of the
Series J Depositary Shares. If such a distribution is not feasible and the Bank so directs, the depositary will sell on
behalf of the holders of Series J Depositary Shares the property and distribute the net proceeds from the sale to the
holders of the Series J Depositary Shares in proportion to the number of Series J Depositary Shares held by the
holders.
Record dates for the payment of dividends and other matters relating to the Series J Depositary Shares will
be the same as the corresponding record dates for the Series J Preferred Stock.
The amounts distributed to holders of Series J Depositary Shares will be reduced by any amounts required
to be withheld by the depositary or by the Bank on account of taxes or other governmental charges. The depositary
may refuse to make any payment or distribution, or any transfer, exchange or withdrawal of any Series J Depositary
Shares or the Series J Preferred Stock until such taxes or other governmental charges are paid. To the extent that the
depositary determines that amounts are required to be withheld in relation to the distribution of any property
pursuant to the deposit agreement, the depositary may, in certain circumstances, sell all or a portion of such property
to pay such taxes and distribute the balance of the net proceeds (after the deduction of such taxes) to the holder of
the Series J Depositary Shares in proportion to the number of Series J Depositary Shares held by the holder.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Bank’s affairs, the holders of the Series J
Depositary Shares are entitled to 1/40th of the liquidation preference accorded each share of Series J Preferred
Stock.
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If the Bank consolidates or merges with or into any other entity or the Bank sells, leases, transfers or
conveys all or substantially all of the Bank’s property or business, the Bank will not be deemed to have liquidated,
dissolved or wound up. In the event of the Bank’s liquidation, dissolution or winding up, a holder of Series J
Depositary Shares will receive the fraction of the liquidation preference accorded each share of underlying Series J
Preferred Stock represented by the Series J Depositary Shares.
Redemption
Whenever the Bank redeems any of the Series J Preferred Stock held by the depositary, the depositary will
redeem as of the same redemption date, from the proceeds received by the depositary resulting from the redemption
of the Series J Preferred Stock held by the depositary, the number of Series J Depositary Shares representing the
redeemed Series J Preferred Stock. A notice of the redemption furnished by the Bank will be mailed by the
depositary by first class mail, postage prepaid, not less than 30 nor more than 60 days before the date fixed for
redemption thereof, addressed to the respective holders of record of the Series J Depositary Shares to be redeemed at
their respective addresses as they appear on the share transfer records of the depositary (provided, however, that if
the Series J Depositary Shares are held in book-entry form through DTC, the Bank may give this notice in any
manner permitted by DTC). A failure to give such notice or any defect in the notice or in the Bank’s mailing will not
affect the validity of the proceedings for the redemption of any shares of Series J Preferred Stock or Series J
Depositary Shares except as to the holder to whom notice was defective or not given. Each notice shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series J Preferred Stock are to be redeemed, the number of shares of Series J
Preferred Stock to be redeemed (and the corresponding number of Series J Depositary Shares ); and
•
the place or places where the depositary receipts evidencing the Series J Depositary Shares are to be
surrendered for payment of the redemption price.
If the Bank redeems fewer than all of the outstanding shares of Series J Preferred Stock, the depositary will
select the corresponding number of Series J Depositary Shares to be redeemed pro rata or by lot. In any such case,
Series J Depositary Shares will be redeemed only in increments of 40 Series J Depositary Shares and any integral
multiple thereof, and the notice mailed to such holder shall also specify the number of Series J Depositary Shares to
be redeemed from such holder.
The holders of Series J Depositary Shares at the close of business on a dividend record date are entitled to
receive the dividend payable with respect to the Series J Depositary Shares evidenced by such Series J Depositary
Shares on the corresponding dividend payment date notwithstanding the redemption of the Series J Depositary
Shares between such dividend record date and the corresponding dividend payment date or the Bank’s default in the
payment of the dividend due. Except as provided above, the Bank will make no payment or allowance for unpaid
dividends on the Series J Preferred Stock or Series J Depositary Shares to be redeemed.
Voting
Because each Series J Depositary Share represents a 1/40th ownership interest in a share of Series J
Preferred Stock, holders of depositary receipts are entitled to vote 1/40th of a vote per Series J Depositary Share
under those limited circumstances in which holders of the Series J Preferred Stock are entitled to vote, as described
above.
39
When the depositary receives notice of any meeting at which the holders of the Series J Preferred Stock are
entitled to vote, the depositary will mail the information contained in the notice to the record holders of the Series J
Depositary Shares relating to the Series J Preferred Stock. Each record holder of the Series J Depositary Shares on
the record date, which will be the same date as the record date for the Series J Preferred Stock, may instruct the
depositary to vote the amount of the Series J Preferred Stock represented by the holder’s Series J Depositary Shares.
To the extent possible, the depositary will vote the amount of the Series J Preferred Stock represented by Series J
Depositary Shares in accordance with the instructions it receives. The Bank will agree to take all reasonable actions
that the depositary determines are necessary to enable the depositary to vote as instructed. If the depositary does not
receive specific instructions from the holders of any Series J Depositary Shares representing the Series J Preferred
Stock, it will abstain from voting with respect to such shares (but shall appear at the meeting with respect to such
shares unless directed to the contrary).
Withdrawal of Series J Preferred Stock
Upon surrender of Series J Depositary Shares at the principal office of the depositary, upon payment of any
unpaid amount due the depositary, and subject to the terms of the deposit agreement, the owner of the Series J
Depositary Shares evidenced thereby is entitled to delivery of the number of shares of Series J Preferred Stock and
all money and other property, if any, represented by such Series J Depositary Shares. Only whole shares of Series J
Preferred Stock may be withdrawn. If the Series J Depositary Shares surrendered by the holder in connection with
withdrawal exceed the number of Series J Depositary Shares that represent the number of whole shares of Series J
Preferred Stock to be withdrawn, the depositary will deliver to that holder at the same time a new depositary receipt
evidencing the excess number of Series J Depositary Shares. Holders of Series J Preferred Stock thus withdrawn
will not thereafter be entitled to deposit such shares under the deposit agreement or to receive Series J Depositary
Shares therefor.
Miscellaneous
The depositary will forward to the holders of Series J Depositary Shares any reports and communications
from the Bank with respect to the underlying Series J Preferred Stock. Neither the Bank nor the depositary will be
liable if any law or any circumstances beyond their control prevent or delay them from performing their obligations
under the deposit agreement. The obligations of the Bank and a depositary under the deposit agreement will be
limited to performing their duties without bad faith, gross negligence or willful misconduct. Neither the Bank nor a
depositary must prosecute or defend any legal proceeding with respect to any Series J Depositary Shares or the
underlying Series J Preferred Stock unless they are furnished with satisfactory indemnity. Both the Bank and the
depositary may rely on the written advice of counsel or accountants, or information provided by holders of Series J
Depositary Shares or other persons they believe in good faith to be competent, and on documents they believe in
good faith to be genuine and signed by a proper party. In the event a depositary receives conflicting claims, requests
or instructions from the Bank and any holders of Series J Depositary Shares, the depositary are entitled to act on the
claims, requests or instructions received from the Bank.
Book Entry, Delivery and Form
DTC acts as securities depositary for the Series J Depositary Shares. The Series J Depositary Shares are
registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an
authorized representative of DTC.
DTC has advised the Bank that it is a limited-purpose trust company organized under the New York
Banking Law, a “banking organization” within the meaning of New York Banking Law, a member of the Federal
40
Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a
“clearing agency” registered under the provisions of Section 17A of the Exchange Act. DTC holds securities that its
Direct Participants deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of
sales and other securities transactions in deposited securities through electronic computerized book-entry transfers
and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of DTCC.
DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing
Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries.
Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers,
banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a
Direct Participant, either directly or through Indirect Participants. The rules applicable to DTC and its Direct and
Indirect Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com.
Purchases of Series J Depositary Shares under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Series J Depositary Shares on DTC’s records. The ownership interest
of the beneficial owner is in turn recorded on the Direct and Indirect Participants’ records. Beneficial owners will
not receive written confirmation from DTC of their purchase. Beneficial owners are, however, expected to receive
written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the
Direct or Indirect Participant through which the beneficial owner entered into the transaction. Transfers of
ownership interest in the Series J Depositary Shares are accomplished by entries made on the books of Direct and
Indirect Participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interest in the Series J Depositary Shares, except in the event that use of the book-entry
system for the Series J Depositary Shares is discontinued. Conveyance of notices and other communications by DTC
to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect
Participants to beneficial owners are governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
To facilitate subsequent transfers, the Series J Depositary Shares deposited by Direct Participants with DTC
are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by
an authorized representative of DTC. The deposit of Series J Depositary Shares with DTC and its registration in the
name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no
knowledge of the actual beneficial owners of the Series J Depositary Shares; DTC’s records reflect only the identity
of the Direct Participants to whose accounts are credited, which may or may not be the beneficial owners. The
Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their
customers.
In those instances where a vote is required, neither DTC nor Cede & Co. (nor any other DTC nominee) will
consent or vote with respect to the Series J Depositary Shares unless authorized by a Direct Participant. Under its
usual procedures, DTC mails an omnibus proxy to the Bank as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series J
Depositary Shares are credited on the record date, which accounts are identified in a listing attached to the omnibus
proxy.
Redemption proceeds, distributions and dividend payments on the Series J Depositary Shares will be made
to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice
is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the
41
Bank or the Bank’s agent on the payable date in accordance with their respective holdings shown on DTC’s records.
Payments by Direct or Indirect Participants to beneficial owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in
“street name,” and are the responsibility of such Direct or Indirect Participant and not of DTC (nor its nominee), the
Bank or any agent of the Bank, subject to any statutory or regulatory requirements as may be in effect from time to
time. Payment of redemption proceeds, distributions and dividends to Cede & Co. (or such other DTC nominee) is
the responsibility of the Bank or the Bank’s agent, disbursement of such payments to Direct Participants are the
responsibility of DTC, and disbursement of such payments to the beneficial owners are the responsibility of Direct
and Indirect Participants.
DTC may discontinue providing its services as securities depositary with respect to the Series J Depositary
Shares at any time by giving reasonable notice to the Bank or the Bank’s agent. Additionally, the Bank may decide
to discontinue the book-entry only system of transfers with respect to the Series J Depositary Shares. Under such
circumstances, if a successor depository is not obtained, the Bank will print and deliver certificates in fully
registered form for the Series J Depositary Shares.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from
sources that the Bank believes to be reliable, but the Bank takes no responsibility for the accuracy thereof.
Transfer Restrictions
The Series J Depositary Shares were offered and sold pursuant to an exemption from registration under the
Securities Act of 1933, as amended, and other exemptions provided by the laws of the United States and other
jurisdictions where such securities are offered and sold. The Series J Depositary Shares may only be transferred or
sold in compliance with all applicable state, federal and foreign securities laws.
DESCRIPTION OF DEPOSITARY SHARES, each representing a 1/40th interest in a share of Series K
Preferred Stock
Ranking
The Series K Preferred Stock ranks senior to the Common Stock and any other class or series of Preferred
Stock that by its terms ranks junior to the Series K Preferred Stock, and at least equally with the Series H Preferred
Stock, Series I Preferred Stock, Series J Preferred Stock, Series L Preferred Stock, Series M Preferred Stock and
Series N Preferred Stock and with all future series of Preferred Stock that the Bank may issue (except for any senior
stock that may be issued with the requisite consent of the holders of the Series K Preferred Stock and all other Series
K Parity Stock (as defined below)), with respect to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up.
Dividends
Holders of Series K Preferred Stock are entitled to receive, when and as declared by the Board (or a duly
authorized committee thereof), out of funds legally available for the payment of distributions, cash dividends that
are noncumulative and payable quarterly, at the rate of 4.125% of the liquidation preference per annum (equivalent
to $41.25 per annum per share of Series K Preferred Stock). Dividends on the Series K Preferred Stock, if declared,
are payable quarterly on the 30th day of each January, April, July and October, or, if any such date is not a business
day, the immediately preceding business day. A dividend period means each period commencing on (and including)
42
a dividend payment date and continuing to (but excluding) the next succeeding dividend payment date, except that
the first dividend period for the initial issuance of shares of Series K Preferred Stock commenced upon (and
includes) the date of original issuance of those shares. If additional shares of Series K Preferred Stock are issued at a
future date, the first dividend period for such shares will commence upon (and include) the later of the date of
original issuance of Series K Preferred Stock and the first day of the quarterly period in which such later date of
issue occurs. That dividend and any dividend payable on the Series K Preferred Stock for any other partial dividend
period will be computed on the basis of a 360-day year consisting of twelve 30-day months. The Bank will pay
dividends to holders of record of Series K Preferred Stock as they appear in the Bank’s share records at the close of
business on the applicable record date designated by the Board for the payment of dividends that is not more than 60
nor less than 10 days prior to such dividend payment date; provided, however, that if the date fixed for redemption
of any Series K Preferred Stock occurs after a dividend is authorized and declared but before it is paid, such
dividend shall be paid as part of the redemption price to the person to whom the redemption price is paid.
No dividends on the Series K Preferred Stock will be declared or be paid or set aside for payment at any
time when the terms and provisions of any of the Bank’s agreements, including any agreement relating to its
indebtedness, prohibits such declaration, payment or setting aside for payment or provides that such declaration,
payment or setting aside for payment would constitute a breach of or a default under such agreement, or if such
authorization or payment is restricted or prohibited by law.
Dividends are not cumulative. If the Bank fails to declare a dividend for any dividend payment date, then
that dividend will not accumulate and be payable, the holders of the Series K Preferred Stock will have no right to
receive a dividend related to that dividend period, and the Bank will have no obligation to pay a dividend for the
related dividend period or to pay any interest, whether or not dividends on the Series K Preferred Stock are declared
for any future dividend period. If the Bank fails to pay or set aside for payment scheduled dividends (whether or not
declared) with respect to any six dividend periods (whether or not consecutive), holders of Series K Preferred Stock
are entitled to vote for the election of two directors, as described below under “-Voting Rights.”
Full dividends will not be declared or paid or set apart for payment on any Preferred Stock ranking on
parity with the Series K Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up (“Series K Parity Stock”) or any other shares of capital stock that rank junior to the Series
K Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation, dissolution or winding up
(“Series K Junior Stock”) during any dividend period unless dividends on the Series K Preferred Stock for that
dividend period are declared and paid in full. When such cash dividends are not paid in full, or a sum sufficient for
the full payment is not set aside, dividends upon shares of Series K Preferred Stock and dividends on other Series K
Parity Stock payable during the dividend period will be declared pro rata so that the amount of dividends payable
per share on the Series K Preferred Stock and any other Series K Parity Stock will in all cases bear to each other the
same ratio that full dividends for the then-current dividend period on the shares of Series K Preferred Stock and full
dividends, including required or permitted accumulations, if any, on shares of the other Series K Parity Stock, bear
to each other. If full dividends on the Series K Preferred Stock have not been declared and paid or set aside for
payment for a dividend period, the following restrictions will apply for that dividend period:
•
no dividend or distribution, other than in shares of Series K Junior Stock, may be declared, set aside for
payment or paid on any shares of stock of any class or series of Series K Junior Stock;
•
the Bank may not redeem, purchase or otherwise acquire any Series K Junior Stock, and no monies may be
paid to or made available for a sinking fund for the redemption of any Series K Junior Stock, except by
conversion into or exchange for Series K Junior Stock, or by the tendering of Series K Junior Stock in
payment for the exercise of options under the Bank’s stock option plans then in effect; and
43
•
the Bank may not redeem, purchase or otherwise acquire any shares of the Series K Preferred Stock other
than pursuant to pro rata offers to purchase or exchange, or a concurrent redemption of all of, the
outstanding shares of Series K Preferred Stock.
There can be no assurances that any dividends on the Series K Preferred Stock will be declared or, if
declared, what the amounts of dividends will be or whether these dividends, if declared for any dividend period, will
continue for any future dividend period. The declaration and payment of future dividends on the Series K Preferred
Stock will be subject to business conditions, regulatory considerations, the Bank’s earnings and financial condition
and the judgment of the Board.
See “Item 1. Business—Supervision and Regulation—Restrictions on Dividends and Other Distributions”
in this Annual Report on Form 10-K for bank regulatory restrictions on the Bank’s ability to pay dividends on the
Bank’s capital stock.
Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution or winding up of First Republic Bank, the
holders of the outstanding shares of Series K Preferred Stock are entitled to be paid out of the assets of First
Republic Bank legally available for distribution to the Bank’s shareholders, before any distribution of assets is made
to holders of Common Stock or any other Series K Junior Stock, a liquidating distribution in the amount of a
liquidation preference of $1,000 per share, plus the sum of any declared and unpaid dividends for dividend periods
prior to the dividend period in which the liquidation distribution is made and declared and unpaid dividends for the
then current dividend period in which the liquidation distribution is made to the date of such liquidation distribution.
After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series K
Preferred Stock will have no right or claim to any of the Bank’s remaining assets.
Distributions will be made only to the extent that the Bank’s assets that are available after satisfaction of all
liabilities to depositors, and creditors and subject to the rights of any securities ranking senior to the Series K
Preferred Stock. If the Bank’s remaining assets are not sufficient to pay the full liquidating distributions to the
holders of all outstanding Series K Preferred Stock and all Series K Parity Stock, then the Bank will distribute the
Bank’s assets to those holders pro rata in proportion to the full liquidating distributions to which they would
otherwise have received.
For purposes of the liquidation rights, neither the sale, conveyance, lease, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all of the Bank’s property or business, nor the
consolidation or merger by the Bank with or into any other entity or by another entity with or into the Bank will
constitute a liquidation, dissolution or winding up of the Bank. If the Bank enters into any merger or consolidation
transaction with or into any other entity and the Bank is not the surviving entity in such transaction, the Series K
Preferred Stock may be converted into shares of the surviving or successor corporation or the direct or indirect
parent of the surviving or successor corporation having terms identical to the terms of the Series K Preferred Stock
set forth herein.
Conversion Rights
The Series K Preferred Stock is not convertible into or exchangeable for any other of the Bank’s property,
interests or securities.
44
Redemption Rights
Optional Redemption
The Series K Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar
provisions. However, the Series K Preferred Stock may be redeemed on or after October 30, 2025, with not less than
30 days’ and not more than 60 days’ notice (“Series K Optional Redemption”). On that date or any date thereafter,
the Bank may redeem the Series K Preferred Stock from time to time, in whole or in part, at the Bank’s option, for
cash, subject to the approval of the appropriate federal banking agency (and any state banking agency, as may be
required by law), at the cash redemption price provided below. Dividends will not accrue on those shares of Series K
Preferred Stock on and after the redemption date. Neither the holders of Series K Preferred Stock nor the holders of
the Series K Depositary Shares have the right to require the redemption or repurchase of the Series K Preferred
Stock.
Redemption Following a Regulatory Capital Event
The Bank may redeem the Series K Preferred Stock, in whole but not in part, for cash, at any time within
90 days following a Series K Regulatory Capital Treatment Event, at the Bank’s option, subject to the approval of
the appropriate federal banking agency, at the cash redemption price provided below (“Series K Regulatory Event
Redemption”). A “Series K Regulatory Capital Treatment Event” means the Bank’s good faith determination that, as
a result of (i) any amendment to, or change in, the laws or regulations of the United States or any political
subdivision of or in the United States that is enacted or becomes effective after the initial issuance of the Series K
Preferred Stock; (ii) any proposed change in those laws or regulations that is announced after the initial issuance of
the Series K Preferred Stock; or (iii) any official administrative decision or judicial decision or administrative action
or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial
issuance of the Series K Preferred Stock, there is more than an insubstantial risk that the Bank will not be entitled to
treat the full liquidation value of the Series K Preferred Stock then outstanding as “Tier 1 Capital” (or its equivalent)
for purposes of the capital adequacy guidelines of the FDIC (or, as and if applicable, the capital adequacy guidelines
or regulations of any successor appropriate federal banking agency), as then in effect and applicable, for as long as
any share of Series K Preferred Stock is outstanding. Dividends will not accrue on those shares of Series K Preferred
Stock on and after the redemption date.
Redemption Price
The redemption price for any redemption of Series K Preferred Stock, whether a Series K Optional
Redemption or Series K Regulatory Event Redemption, will be equal to $1,000 per share of Series K Preferred
Stock (equivalent to $25 per Series K Depositary Share) plus the sum of any declared and unpaid dividends for prior
dividend periods and accrued but unpaid and undeclared dividends for the then-current dividend period to, but
excluding, the date of redemption.
Redemption Procedures
If the Bank elects to redeem any shares of Series K Preferred Stock, the Bank will provide notice by first
class mail, postage prepaid, addressed to the holders of record of the shares of Series K Preferred Stock to be
redeemed, mailed not less than 30 days and not more than 60 days before the date fixed for redemption thereof
(provided, however, that if the shares of Series K Preferred Stock or the Series K Depositary Shares are held in
book-entry form through DTC, the Bank may give this notice in any manner permitted by DTC). Any notice mailed
or otherwise given as provided in this paragraph will be conclusively presumed to have been duly given, whether or
45
not the holder receives this notice, and failure duly to give this notice by mail or otherwise, or any defect in this
notice or in the mailing or provision of this notice, to any holder of shares of Series K Preferred Stock designated for
redemption will not affect the redemption of any other shares of Series K Preferred Stock. Each notice of
redemption shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series K Preferred Stock are to be redeemed, the number of shares of Series K
Preferred Stock to be redeemed; and
•
the manner in which holders of Series K Preferred Stock called for redemption may obtain payment of the
redemption price in respect to those shares.
If notice of redemption of any shares of Series K Preferred Stock has been given and if the funds necessary
for such redemption have been set aside by the Bank in trust for the benefit of the holders of any shares of Series K
Preferred Stock so called for redemption, then from and after the redemption date such shares of Series K Preferred
Stock will no longer be deemed outstanding, and all rights of the holders of such shares will terminate, except the
right to receive the redemption price, without interest.
In the case of any redemption of only part of the Series K Preferred Stock at the time outstanding, the
shares of Series K Preferred Stock to be redeemed will be selected either pro rata or by lot. Subject to the provisions
hereof, the Board will have the full power and authority to prescribe the terms and conditions upon which shares of
Series K Preferred Stock may be redeemed from time to time.
The Series K Preferred Stock has no stated maturity and will not be subject to any sinking fund or
mandatory redemption provisions.
Regulatory Restrictions on Redemption Rights
Under current risk-based capital regulations, a bank insured by the FDIC may not redeem shares of
Preferred Stock included as Tier 1 capital without the prior approval of the FDIC. Any redemption of the Series K
Preferred Stock is subject to the Bank’s receipt of any required prior approval by the FDIC and the Commissioner
and to the satisfaction of any conditions in the capital guidelines or regulations of the FDIC applicable to such
redemption. Ordinarily, the FDIC would not permit such a redemption unless the FDIC determines that the bank’s
condition and circumstances warrant the reduction of a source of permanent capital.
Voting Rights
Registered owners of Series K Preferred Stock will not have any voting rights, except as set forth below or
as otherwise required by law.
On any matter in which the Series K Preferred Stock is entitled to vote as a class with holders of any other
shares upon which like voting rights have been conferred and are exercisable, including any action by written
consent, each share of Series K Preferred Stock are entitled to one vote. As more fully described under “-Description
of Series K Depositary Shares,” the depositary, as holder of all Series K Preferred Stock, will grant 1/40th of a vote
per depositary share to the registered owner of each Series K Depositary Share so that each Series K Depositary
Share is entitled to exercise its proportionate voting rights.
46
If at any time the full amount of dividends on the Series K Preferred Stock have not been paid or set aside
for payment (whether or not declared) for any six dividend periods (whether or not consecutive), holders of the
Series K Depositary Shares voting as a single class together with holders of any other stock, including the Series H
Preferred Stock, Series I Preferred Stock, Series J Preferred Stock, Series L Preferred Stock, Series M Preferred
Stock and Series N Preferred Stock that ranks on a parity with the Series K Preferred Stock as to payment of
dividends and that has voting rights equivalent to those described in this paragraph (“Series K Voting Parity Stock”),
are entitled to elect the Preferred Stock Directors at any annual meeting of shareholders or any special meeting of
the holders of Series K Preferred Stock and any Series K Voting Parity Stock, and the holders of the Common Stock
are entitled to vote for the election of the remaining number of directors authorized by the Articles or Bylaws. The
Board will at no time have more than two Preferred Stock Directors.
If, at any time after the right to elect directors is vested in the Series K Preferred Stock, the holders of the
Series K Preferred Stock and any Series K Voting Parity Stock call a special meeting of shareholders for the election
of directors, and at the time the special meeting is called, the election of the Preferred Stock Directors to the Board
would cause the number of directors to exceed the maximum number authorized under the Articles or Bylaws, then
the holders of Series K Preferred Stock and any Series K Voting Parity Stock, voting as a single class, shall be
entitled to elect the Preferred Stock Directors and the Common Stock shall be entitled to elect the remaining number
of authorized directors, the terms of office of all persons who were directors immediately prior to the special
meeting shall terminate, and the directors elected by the holders of the Bank’s Series K Preferred Stock and any
Series K Voting Parity Stock and the directors elected by the holders of the Common Stock shall constitute the
directors of the Bank until the next annual meeting.
The Preferred Stock Directors elected at any such special meeting will hold office until the next annual
meeting of the Bank’s shareholders unless they have been previously terminated as described below. Except as
otherwise provided for by applicable law, any Preferred Stock Director may be removed only by the vote of the
holders of record of the outstanding Series K Preferred Stock entitled to vote (voting together as a single class with
holders of any Series K Voting Parity Stock). As long as the right to elect Preferred Stock Directors is continuing,(i)
any vacancy in the office of any Preferred Stock Director may be filled by the vote of the holders of record of the
outstanding Series K Preferred Stock entitled to vote (voting together as a single class with holders of any Series K
Voting Parity Stock), and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the
vote of the holders of the outstanding Series K Preferred Stock entitled to vote (voting together as a single class with
holders of any Series K Voting Parity Stock) at the same meeting at which such removal shall be voted. Until the
time that any such vacancy is filled at a shareholder meeting as provided above, a successor shall be elected by the
Board to serve until the next such shareholder meeting upon the nomination of the then remaining Preferred Stock
Director.
Whenever all dividends on the Series K Preferred Stock and any other stock upon which like voting rights
have been conferred and are exercisable have been paid in full for four consecutive dividend periods (or otherwise
for at least one year), then the right of the holders of Series K Preferred Stock to elect the Preferred Stock Directors
will cease (but subject always to the same provisions for the vesting of these voting rights in the case of any similar
non-payment of dividends in respect of future dividend periods), and if no other shareholders have like voting rights
that are then exercisable, the terms of office of all Preferred Stock Directors will immediately terminate.
The Bank cannot take any of the following actions without the affirmative vote of holders of at least two-
thirds of the outstanding shares of Series K Preferred Stock:
47
•
create any class or series of shares that ranks, as to dividends or distribution of assets, senior to the Series K
Preferred Stock; or
•
alter or change the provisions of the Articles, the Certificate of Determination governing the Series K
Preferred Stock or the Bylaws so as to adversely affect the voting powers, preferences or special rights of
the holders of the Series K Preferred Stock;
provided, however, that with respect to the occurrence of any event listed in the second bullet point above,
so long as any shares of Series K Preferred Stock remain outstanding with the terms thereof unchanged or new
shares of the surviving corporation or entity are issued with the identical terms as the Series K Preferred Stock, in
each case taking into account that upon the occurrence of this event the Bank may not be the surviving entity, the
occurrence of any such event shall not be deemed to adversely affect any right, preference, privilege or voting power
of the Series K Preferred Stock or the holders thereof, and provided, further, that any increase in the amount of the
Bank’s authorized Common Stock or Preferred Stock or the creation or issuance of any other Series K Parity Stock
or Series K Junior Stock and any change to the number of directors or number of classes of directors shall not,
except as provided by law, be deemed to adversely affect such rights, preferences, privileges or voting powers.
Under California law, in addition to any required approval by its board of directors or its voting
shareholders, an amendment to the articles of incorporation of a California corporation also must be approved by the
affirmative vote of a majority of the outstanding shares of a class of shares, whether or not such class is entitled to a
vote by the articles of incorporation, if the amendment proposes to: (i) increase or decrease the aggregate number of
authorized shares of such class; (ii) effect an exchange, reclassification, or cancellation of all or part of the shares of
such class; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class into the
shares of such class; (iv) change the rights, preferences, privileges or restrictions of the shares of such class; (v)
create a new class of shares having rights, preferences or privileges prior to the shares of such class, or increase the
rights, preferences or privileges or the number of authorized shares of any class having rights, preferences or
privileges prior to the shares of such class; (vi) in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions or authorize the board to do so; or (vii) cancel or
otherwise affect dividends on the shares of such class which have accrued but have not been paid.
The holders of Series K Preferred Stock will have no voting rights if the Bank redeems all outstanding
Series K Preferred Stock (or call for redemption all outstanding Series K Preferred Stock and deposit sufficient
funds in a trust to effect the redemption) on or before the time the act occurs that would otherwise require a vote.
Regulatory Risk of Voting Rights
Although the Bank does not believe that any series of its Preferred Stock is considered “voting securities”
for purposes of the BHCA, if one or more series were to become a class of “voting securities,” whether because the
Bank has missed six dividend payments and, as a result, holders of the Preferred Stock have the right to elect
directors, or for other reasons, a “company” (as that term is defined for purposes of the BHCA) that owns or controls
25% or more of such class, or less than 25% if it otherwise exercises any “controlling influence” over the Bank
(including by holding 25% or more or, in some cases, one-third or more of the Bank’s total equity), may then be
subject to regulation as a bank holding company in accordance with the BHCA. In addition, if one or more series of
Preferred Stock becomes a class of “voting securities”:
•
any bank holding company may be required to obtain the prior approval of the Federal Reserve to acquire
or retain more than 5% of such series of Preferred Stock;
•
any person (or group of persons acting in concert) other than a bank holding company may be required to
48
obtain the approval of the FDIC under the CIBCA to acquire or retain 10% or more such series of Preferred
Stock; and
•
any person may be required to obtain the prior approval of the Commissioner before acquiring “control” of
the Bank, as defined in California statutes and regulations.
Holders of Preferred Stock should consult their own counsel with regard to regulatory implications.
Description of Series K Depositary Shares
General
The Series K Preferred Stock are deposited with the depositary, under a deposit agreement. Each Series K
Depositary Share will represent a 1/40th fractional ownership interest in a share of Series K Preferred Stock. Subject
to the terms of the deposit agreement, each holder of a Series K Depositary Share is entitled to all the rights and
preferences of a 1/40th fractional ownership interest in a share of Series K Preferred Stock (including dividend,
voting, redemption and liquidation rights and preferences). Immediately following the Bank’s issuance of the Series
K Preferred Stock, the Bank will deposit the Series K Preferred Stock with the depositary, which upon the Bank’s
instructions will issue and deliver the Series K Depositary Shares to DTC for credit to the accounts of such
participants of DTC and in such amounts as BofA Securities, Inc., J.P. Morgan Securities LLC, Morgan Stanley &
Co. LLC, UBS Securities LLC and Wells Fargo Securities, LLC shall specify.
Listing
The Series K Preferred Depositary Shares are listed on the NYSE under the symbol “FRC-PrK.”
Dividends
Each dividend payable on a Series K Depositary Share is in an amount equal to 1/40th of the dividend
declared and payable on each share of Series K Preferred Stock.
The depositary will distribute all cash dividends paid on the Series K Preferred Stock to the record holders
of the Series K Depositary Shares in proportion to the number of Series K Depositary Shares held by the holders.
The depositary will distribute only such amount, however, as can be distributed without attributing to any holder of
Series K Depositary Shares a fraction of one cent, and any balance not so distributable will be held by the depositary
(without liability for interest thereon) and will be added to and be treated as part of the next sum received by the
depositary for distribution to record holders of Series K Depositary Shares then outstanding.
If a dividend is other than in cash and it is feasible for the depositary to distribute the property it receives,
the depositary, upon written instructions from the Bank, will distribute the property to the record holders of the
Series K Depositary Shares . If such a distribution is not feasible and the Bank so directs, the depositary will sell on
behalf of the holders of Series K Depositary Shares the property and distribute the net proceeds from the sale to the
holders of the Series K Depositary Shares in proportion to the number of Series K Depositary Shares held by the
holders.
Record dates for the payment of dividends and other matters relating to the Series K Depositary Shares will
be the same as the corresponding record dates for the Series K Preferred Stock.
49
The amounts distributed to holders of Series K Depositary Shares will be reduced by any amounts required
to be withheld by the depositary or by the Bank on account of taxes or other governmental charges. The depositary
may refuse to make any payment or distribution, or any transfer, exchange or withdrawal of any Series K Depositary
Shares or the Series K Preferred Stock until such taxes or other governmental charges are paid. To the extent that the
depositary determines that amounts are required to be withheld in relation to the distribution of any property
pursuant to the deposit agreement, the depositary may, in certain circumstances, sell all or a portion of such property
to pay such taxes and distribute the balance of the net proceeds (after the deduction of such taxes) to the holder of
the Series K Depositary Shares in proportion to the number of Series K Depositary Shares held by the holder.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Bank’s affairs, the holders of the Series K
Depositary Shares are entitled to 1/40th of the liquidation preference accorded each share of Series K Preferred
Stock.
If the Bank consolidates or merges with or into any other entity or the Bank sells, leases, transfers or
conveys all or substantially all of the Bank’s property or business, the Bank will not be deemed to have liquidated,
dissolved or wound up. In the event of the Bank’s liquidation, dissolution or winding up, a holder of Series K
Depositary Shares will receive the fraction of the liquidation preference accorded each share of underlying Series K
Preferred Stock represented by the Series K Depositary Shares.
Redemption
Whenever the Bank redeems any of the Series K Preferred Stock held by the depositary, the depositary will
redeem as of the same redemption date, from the proceeds received by the depositary resulting from the redemption
of the Series K Preferred Stock held by the depositary, the number of Series K Depositary Shares representing the
redeemed Series K Preferred Stock. A notice of the redemption furnished by the Bank will be mailed by the
depositary by first class mail, postage prepaid, not less than 30 nor more than 60 days before the date fixed for
redemption thereof, addressed to the respective holders of record of the Series K Depositary Shares to be redeemed
at their respective addresses as they appear on the share transfer records of the depositary (provided, however, that if
the Series K Depositary Shares are held in book-entry form through DTC, the Bank may give this notice in any
manner permitted by DTC). A failure to give such notice or any defect in the notice or in the Bank’s mailing will not
affect the validity of the proceedings for the redemption of any shares of Series K Preferred Stock or Series K
Depositary Shares except as to the holder to whom notice was defective or not given. Each notice shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series K Preferred Stock are to be redeemed, the number of shares of Series K
Preferred Stock to be redeemed (and the corresponding number of Series K Depositary Shares ); and
•
the place or places where the depositary receipts evidencing the Series K Depositary Shares are to be
surrendered for payment of the redemption price.
If the Bank redeems fewer than all of the outstanding shares of Series K Preferred Stock, the depositary
will select the corresponding number of Series K Depositary Shares to be redeemed pro rata or by lot. In any such
case, Series K Depositary Shares will be redeemed only in increments of 40 Series K Depositary Shares and any
integral multiple thereof, and the notice mailed to such holder shall also specify the number of Series K Depositary
Shares to be redeemed from such holder.
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The holders of Series K Depositary Shares at the close of business on a dividend record date are entitled to
receive the dividend payable with respect to the Series K Depositary Shares evidenced by such Series K Depositary
Shares on the corresponding dividend payment date notwithstanding the redemption of the Series K Depositary
Shares between such dividend record date and the corresponding dividend payment date or the Bank’s default in the
payment of the dividend due. Except as provided above, the Bank will make no payment or allowance for unpaid
dividends on the Series K Preferred Stock or Series K Depositary Shares to be redeemed.
Voting
Because each Series K Depositary Share represents a 1/40th ownership interest in a share of Series K
Preferred Stock, holders of depositary receipts are entitled to vote 1/40th of a vote per Series K Depositary Share
under those limited circumstances in which holders of the Series K Preferred Stock are entitled to vote, as described
above.
When the depositary receives notice of any meeting at which the holders of the Series K Preferred Stock
are entitled to vote, the depositary will mail the information contained in the notice to the record holders of the
Series K Depositary Shares relating to the Series K Preferred Stock. Each record holder of the Series K Depositary
Shares on the record date, which will be the same date as the record date for the Series K Preferred Stock, may
instruct the depositary to vote the amount of the Series K Preferred Stock represented by the holder’s Series K
Depositary Shares. To the extent possible, the depositary will vote the amount of the Series K Preferred Stock
represented by Series K Depositary Shares in accordance with the instructions it receives. The Bank will agree to
take all reasonable actions that the depositary determines are necessary to enable the depositary to vote as instructed.
If the depositary does not receive specific instructions from the holders of any Series K Depositary Shares
representing the Series K Preferred Stock, it will abstain from voting with respect to such shares (but shall appear at
the meeting with respect to such shares unless directed to the contrary).
Withdrawal of Series K Preferred Stock
Upon surrender of Series K Depositary Shares at the principal office of the depositary, upon payment of
any unpaid amount due the depositary, and subject to the terms of the deposit agreement, the owner of the Series K
Depositary Shares evidenced thereby is entitled to delivery of the number of shares of Series K Preferred Stock and
all money and other property, if any, represented by such Series K Depositary Shares. Only whole shares of Series K
Preferred Stock may be withdrawn. If the Series K Depositary Shares surrendered by the holder in connection with
withdrawal exceed the number of Series K Depositary Shares that represent the number of whole shares of Series K
Preferred Stock to be withdrawn, the depositary will deliver to that holder at the same time a new depositary receipt
evidencing the excess number of Series K Depositary Shares. Holders of Series K Preferred Stock thus withdrawn
will not thereafter be entitled to deposit such shares under the deposit agreement or to receive Series K Depositary
Shares therefor.
Miscellaneous
The depositary will forward to the holders of Series K Depositary Shares any reports and communications
from the Bank with respect to the underlying Series K Preferred Stock. Neither the Bank nor the depositary will be
liable if any law or any circumstances beyond their control prevent or delay them from performing their obligations
under the deposit agreement. The obligations of the Bank and a depositary under the deposit agreement will be
limited to performing their duties without bad faith, gross negligence or willful misconduct. Neither the Bank nor a
depositary must prosecute or defend any legal proceeding with respect to any Series K Depositary Shares or the
underlying Series K Preferred Stock unless they are furnished with satisfactory indemnity. Both the Bank and the
51
depositary may rely on the written advice of counsel or accountants, or information provided by holders of Series K
Depositary Shares or other persons they believe in good faith to be competent, and on documents they believe in
good faith to be genuine and signed by a proper party. In the event a depositary receives conflicting claims, requests
or instructions from the Bank and any holders of Series K Depositary Shares, the depositary are entitled to act on the
claims, requests or instructions received from the Bank.
Book Entry, Delivery and Form
DTC acts as securities depositary for the Series K Depositary Shares. The Series K Depositary Shares are
registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an
authorized representative of DTC.
DTC has advised the Bank that it is a limited-purpose trust company organized under the New York
Banking Law, a “banking organization” within the meaning of New York Banking Law, a member of the Federal
Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a
“clearing agency” registered under the provisions of Section 17A of the Exchange Act. DTC holds securities that its
Direct Participants deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of
sales and other securities transactions in deposited securities through electronic computerized book-entry transfers
and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of DTCC.
DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing
Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries.
Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers,
banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a
Direct Participant, either directly or through Indirect Participants. The rules applicable to DTC and its Direct and
Indirect Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com.
Purchases of Series K Depositary Shares under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Series K Depositary Shares on DTC’s records. The ownership
interest of the beneficial owner is in turn recorded on the Direct and Indirect Participants’ records. Beneficial owners
will not receive written confirmation from DTC of their purchase. Beneficial owners are, however, expected to
receive written confirmations providing details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the beneficial owner entered into the transaction. Transfers of
ownership interest in the Series K Depositary Shares are accomplished by entries made on the books of Direct and
Indirect Participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interest in the Series K Depositary Shares, except in the event that use of the book-
entry system for the Series K Depositary Shares is discontinued. Conveyance of notices and other communications
by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect
Participants to beneficial owners are governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
To facilitate subsequent transfers, the Series K Depositary Shares deposited by Direct Participants with
DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested
by an authorized representative of DTC. The deposit of Series K Depositary Shares with DTC and its registration in
the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no
knowledge of the actual beneficial owners of the Series K Depositary Shares; DTC’s records reflect only the identity
52
of the Direct Participants to whose accounts are credited, which may or may not be the beneficial owners. The
Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their
customers.
In those instances where a vote is required, neither DTC nor Cede & Co. (nor any other DTC nominee) will
consent or vote with respect to the Series K Depositary Shares unless authorized by a Direct Participant. Under its
usual procedures, DTC mails an omnibus proxy to the Bank as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series K
Depositary Shares are credited on the record date, which accounts are identified in a listing attached to the omnibus
proxy.
Redemption proceeds, distributions and dividend payments on the Series K Depositary Shares will be made
to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice
is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the
Bank or the Bank’s agent on the payable date in accordance with their respective holdings shown on DTC’s records.
Payments by Direct or Indirect Participants to beneficial owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in
“street name,” and are the responsibility of such Direct or Indirect Participant and not of DTC (nor its nominee), the
Bank or any agent of the Bank, subject to any statutory or regulatory requirements as may be in effect from time to
time. Payment of redemption proceeds, distributions and dividends to Cede & Co. (or such other DTC nominee) is
the responsibility of the Bank or the Bank’s agent, disbursement of such payments to Direct Participants are the
responsibility of DTC, and disbursement of such payments to the beneficial owners are the responsibility of Direct
and Indirect Participants.
DTC may discontinue providing its services as securities depositary with respect to the Series K Depositary
Shares at any time by giving reasonable notice to the Bank or the Bank’s agent. Additionally, the Bank may decide
to discontinue the book-entry only system of transfers with respect to the Series K Depositary Shares. Under such
circumstances, if a successor depository is not obtained, the Bank will print and deliver certificates in fully
registered form for the Series K Depositary Shares.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from
sources that the Bank believes to be reliable, but the Bank takes no responsibility for the accuracy thereof.
Transfer Restrictions
The Series K Depositary Shares were offered and sold pursuant to an exemption from registration under the
Securities Act of 1933, as amended, and other exemptions provided by the laws of the United States and other
jurisdictions where such securities are offered and sold. The Series K Depositary Shares may only be transferred or
sold in compliance with all applicable state, federal and foreign securities laws.
DESCRIPTION OF DEPOSITARY SHARES, each representing a 1/40th interest in a share of Series L
Preferred Stock
Ranking
The Series L Preferred Stock ranks senior to the Common Stock and any other class or series of Preferred
Stock that by its terms ranks junior to the Series L Preferred Stock, and at least equally with the Series H Preferred
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Stock, Series I Preferred Stock, Series J Preferred Stock, Series K Preferred Stock, Series M Preferred Stock and
Series N Preferred Stock and with all future series of Preferred Stock that the Bank may issue (except for any senior
stock that may be issued with the requisite consent of the holders of the Series L Preferred Stock and all other Series
L Parity Stock (as defined below)), with respect to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up.
Dividends
Holders of Series L Preferred Stock are entitled to receive, when, as and if declared by the Board (or a duly
authorized committee thereof), out of funds legally available for the payment of distributions, cash dividends that
are noncumulative and payable quarterly, at the rate of 4.250% of the liquidation preference per annum (equivalent
to $42.50 per annum per share of Series L Preferred Stock). Dividends on the Series L Preferred Stock, if declared,
are payable quarterly on the 30th day of each January, April, July and October or, if any such date is not a business
day, the immediately preceding business day. A dividend period means each period commencing on (and including)
a dividend payment date and continuing to (but excluding) the next succeeding dividend payment date, except that
the first dividend period for the initial issuance of shares of Series L Preferred Stock commenced upon (and
includes) the date of original issuance of those shares. If additional shares of Series L Preferred Stock are issued at a
future date, the first dividend period for such shares will commence upon (and include) the later of the date of
original issuance of Series L Preferred Stock and the first day of the quarterly period in which such later date of
issue occurs. That dividend and any dividend payable on the Series L Preferred Stock for any other partial dividend
period will be computed on the basis of a 360-day year consisting of twelve 30-day months. The Bank will pay
dividends to holders of record of Series L Preferred Stock as they appear in the Bank’s share records at the close of
business on the applicable record date designated by the Board for the payment of dividends that is not more than 60
nor less than 10 days prior to such dividend payment date; provided, however, that if the date fixed for redemption
of any Series L Preferred Stock occurs after a dividend is authorized and declared but before it is paid, such dividend
shall be paid as part of the redemption price to the person to whom the redemption price is paid.
No dividends on the Series L Preferred Stock will be declared or be paid or set aside for payment at any
time when the terms and provisions of any of the Bank’s agreements, including any agreement relating to its
indebtedness, prohibits such declaration, payment or setting aside for payment or provides that such declaration,
payment or setting aside for payment would constitute a breach of or a default under such agreement, or if such
authorization or payment is restricted or prohibited by law.
Dividends are not cumulative. If the Bank fails to declare a dividend for any dividend payment date, then
that dividend will not accumulate and be payable, the holders of the Series L Preferred Stock will have no right to
receive a dividend related to that dividend period, and the Bank will have no obligation to pay a dividend for the
related dividend period or to pay any interest, whether or not dividends on the Series L Preferred Stock are declared
for any future dividend period. If the Bank fails to pay or set aside for payment scheduled dividends (whether or not
declared) with respect to any six dividend periods (whether or not consecutive), holders of Series L Preferred Stock
are entitled to vote for the election of two directors, as described below under “—Voting Rights.”
Full dividends will not be declared or paid or set apart for payment on any Preferred Stock ranking on
parity with the Series L Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up (“Series L Parity Stock”) or any other shares of capital stock that rank junior to the Series
L Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation, dissolution or winding up
(“Series L Junior Stock”) during any dividend period unless dividends on the Series L Preferred Stock for that
dividend period are declared and paid in full. When such cash dividends are not paid in full, or a sum sufficient for
54
the full payment is not set aside, dividends upon shares of Series L Preferred Stock and dividends on other Series L
Parity Stock payable during the dividend period will be declared pro rata so that the amount of dividends payable
per share on the Series L Preferred Stock and any other Series L Parity Stock will in all cases bear to each other the
same ratio that full dividends for the then-current dividend period on the shares of Series L Preferred Stock and full
dividends, including required or permitted accumulations, if any, on shares of the other Series L Parity Stock, bear to
each other. If full dividends on the Series L Preferred Stock have not been declared and paid or set aside for payment
for a dividend period, the following restrictions will apply for that dividend period:
•
no dividend or distribution, other than in shares of Series L Junior Stock, may be declared, set aside for
payment or paid on any shares of stock of any class or series of Series L Junior Stock;
•
the Bank may not redeem, purchase or otherwise acquire any Series L Junior Stock, and no monies may be
paid to or made available for a sinking fund for the redemption of any Series L Junior Stock, except by
conversion into or exchange for Series L Junior Stock, or by the tendering of Series L Junior Stock in
payment for the exercise of options under the Bank’s stock option plans then in effect; and
•
the Bank may not redeem, purchase or otherwise acquire any shares of the Series L Preferred Stock other
than pursuant to pro rata offers to purchase or exchange, or a concurrent redemption of all of, the
outstanding shares of Series L Preferred Stock.
There can be no assurances that any dividends on the Series L Preferred Stock will be declared or, if
declared, what the amounts of dividends will be or whether these dividends, if declared for any dividend period, will
continue for any future dividend period. The declaration and payment of future dividends on the Series L Preferred
Stock will be subject to business conditions, regulatory considerations, the Bank’s earnings and financial condition
and the judgment of the Board.
See “Item 1. Business—Supervision and Regulation—Restrictions on Dividends and Other Distributions”
in this Annual Report on Form 10-K for bank regulatory restrictions on the Bank’s ability to pay dividends on the
Bank’s capital stock.
Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution or winding up of First Republic Bank, the
holders of the outstanding shares of Series L Preferred Stock are entitled to be paid out of the assets of First
Republic Bank legally available for distribution to the Bank’s shareholders, before any distribution of assets is made
to holders of Common Stock or any other Series L Junior Stock, a liquidating distribution in the amount of a
liquidation preference of $1,000 per share, plus the sum of any declared and unpaid dividends for dividend periods
prior to the dividend period in which the liquidation distribution is made and declared and unpaid dividends for the
then current dividend period in which the liquidation distribution is made to the date of such liquidation distribution.
After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series L
Preferred Stock will have no right or claim to any of the Bank’s remaining assets.
Distributions will be made only to the extent that the Bank’s assets that are available after satisfaction of all
liabilities to the Bank’s depositors and creditors and subject to the rights of any securities ranking senior to the
Series L Preferred Stock, if any. If the Bank’s remaining assets are not sufficient to pay the full liquidating
distributions to the holders of all outstanding Series L Preferred Stock and all Series L Parity Stock, then the Bank
will distribute the Bank’s assets to those holders pro rata in proportion to the full liquidating distributions to which
they would otherwise have received.
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For purposes of the liquidation rights, neither the sale, conveyance, lease, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all of the Bank’s property or business, nor the
consolidation or merger by the Bank with or into any other entity or by another entity with or into the Bank will
constitute a liquidation, dissolution or winding up of the Bank. If the Bank enters into any merger or consolidation
transaction with or into any other entity and the Bank is not the surviving entity in such transaction, the Series L
Preferred Stock may be converted into shares of the surviving or successor corporation or the direct or indirect
parent of the surviving or successor corporation having terms identical to the terms of the Series L Preferred Stock
set forth herein.
Conversion Rights
The Series L Preferred Stock is not convertible into or exchangeable for any other of the Bank’s property,
interests or securities.
Redemption Rights
Optional Redemption
The Series L Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar
provisions. However, the Series L Preferred Stock may be redeemed on or after March 30, 2026, upon not less than
30 days’ and not more than 60 days’ notice (“Series L Optional Redemption”). On that date or any date thereafter,
the Bank may redeem the Series L Preferred Stock from time to time, in whole or in part, at the Bank’s option, for
cash, subject to the approval of the appropriate federal banking agency (and any state banking agency), as may be
required by law, at the cash redemption price provided below. Dividends will not accrue on those shares of Series L
Preferred Stock on and after the redemption date. Neither the holders of Series L Preferred Stock nor the holders of
the Series L Depositary Shares have the right to require the redemption or repurchase of the Series L Preferred
Stock.
Redemption Following a Regulatory Capital Event
The Bank may redeem the Series L Preferred Stock, in whole but not in part, for cash, at any time within 90
days following a Series L Regulatory Capital Treatment Event, at the Bank’s option, subject to the approval of the
appropriate federal banking agency, at the cash redemption price provided below (“Series L Regulatory Event
Redemption”). A “Series L Regulatory Capital Treatment Event” means the Bank’s good faith determination that, as
a result of (i) any amendment to, or change in, the laws or regulations of the United States or any political
subdivision of or in the United States that is enacted or becomes effective after the initial issuance of the Series L
Preferred Stock; (ii) any proposed change in those laws or regulations that is announced after the initial issuance of
the Series L Preferred Stock; or (iii) any official administrative decision or judicial decision or administrative action
or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial
issuance of the Series L Preferred Stock, there is more than an insubstantial risk that the Bank will not be entitled to
treat the full liquidation value of the Series L Preferred Stock then outstanding as “Tier 1 Capital” (or its equivalent)
for purposes of the capital adequacy guidelines of the FDIC (or, as and if applicable, the capital adequacy guidelines
or regulations of any successor appropriate federal banking agency), as then in effect and applicable, for as long as
any share of Series L Preferred Stock is outstanding. Dividends will not accrue on those shares of Series L Preferred
Stock on and after the redemption date.
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Redemption Price
The redemption price for any redemption of Series L Preferred Stock, whether a Series L Optional
Redemption or Series L Regulatory Event Redemption, will be equal to $1,000 per share of Series L Preferred Stock
(equivalent to $25 per Series L Depositary Share) plus the sum of any declared and unpaid dividends for prior
dividend periods and accrued but unpaid and undeclared dividends for the then-current dividend period to, but
excluding, the date of redemption.
Redemption Procedures
If the Bank elects to redeem any shares of Series L Preferred Stock, the Bank will provide notice by first
class mail, postage prepaid, addressed to the holders of record of the shares of Series L Preferred Stock to be
redeemed, mailed not less than 30 days and not more than 60 days before the date fixed for redemption thereof
(provided, however, that if the shares of Series L Preferred Stock or the Series L Depositary Shares are held in book-
entry form through DTC, the Bank may give this notice in any manner permitted by DTC). Any notice mailed or
otherwise given as provided in this paragraph will be conclusively presumed to have been duly given, whether or not
the holder receives this notice, and failure duly to give this notice by mail or otherwise, or any defect in this notice
or in the mailing or provision of this notice, to any holder of shares of Series L Preferred Stock designated for
redemption will not affect the redemption of any other shares of Series L Preferred Stock. Each notice of redemption
shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series L Preferred Stock are to be redeemed, the number of shares of Series L
Preferred Stock to be redeemed; and
•
the manner in which holders of Series L Preferred Stock called for redemption may obtain payment of the
redemption price in respect to those shares.
If notice of redemption of any shares of Series L Preferred Stock has been given and if the funds necessary
for such redemption have been set aside by the Bank in trust for the benefit of the holders of any shares of Series L
Preferred Stock so called for redemption, then from and after the redemption date such shares of Series L Preferred
Stock will no longer be deemed outstanding, and all rights of the holders of such shares will terminate, except the
right to receive the redemption price, without interest.
In the case of any redemption of only part of the Series L Preferred Stock at the time outstanding, the shares
of Series L Preferred Stock to be redeemed will be selected either pro rata or by lot. Subject to the provisions hereof,
the Board will have the full power and authority to prescribe the terms and conditions upon which shares of Series L
Preferred Stock may be redeemed from time to time.
The Series L Preferred Stock has no stated maturity and will not be subject to any sinking fund or
mandatory redemption provisions.
Regulatory Restrictions on Redemption Rights
Under current risk-based capital regulations, a bank insured by the FDIC may not redeem shares of
Preferred Stock included as Tier 1 capital without the prior approval of the FDIC. Any redemption of the Series L
Preferred Stock is subject to the Bank’s receipt of any required prior approval by the FDIC and the Commissioner
and to the satisfaction of any conditions in the capital guidelines or regulations of the FDIC applicable to such
57
redemption. Ordinarily, the FDIC would not permit such a redemption unless the FDIC determines that the bank’s
condition and circumstances warrant the reduction of a source of permanent capital.
Voting Rights
Registered owners of Series L Preferred Stock will not have any voting rights, except as set forth below or
as otherwise required by law.
On any matter in which the Series L Preferred Stock is entitled to vote as a class with holders of any other
shares upon which like voting rights have been conferred and are exercisable, including any action by written
consent, each share of Series L Preferred Stock will be entitled to one vote. As more fully described under
“Description of Series L Depositary Shares,” the depositary, as holder of all Series L Preferred Stock, will grant
1/40th of a vote per depositary share to the registered owner of each Series L Depositary Share so that each Series L
Depositary Share is entitled to exercise its proportionate voting rights.
If at any time the full amount of dividends on the Series L Preferred Stock have not been paid or set aside
for payment (whether or not declared) for any six dividend periods (whether or not consecutive), holders of the
Series L Depositary Shares voting as a single class together with holders of any other stock, including the Series H
Preferred Stock, Series I Preferred Stock, Series J Preferred Stock, Series K Preferred Stock, Series M Preferred
Stock and Series N Preferred Stock that ranks on a parity with the Series L Preferred Stock as to payment of
dividends and that has voting rights equivalent to those described in this paragraph (“Series L Voting Parity Stock”),
are entitled to elect the Preferred Stock Directors at any annual meeting of shareholders or any special meeting of
the holders of Series L Preferred Stock and any Series L Voting Parity Stock, and the holders of the Common Stock
are entitled to vote for the election of the remaining number of directors authorized by the Articles or Bylaws. The
Board will at no time have more than two Preferred Stock Directors.
If, at any time after the right to elect directors is vested in the Series L Preferred Stock, the holders of the
Series L Preferred Stock and any Series L Voting Parity Stock call a special meeting of shareholders for the election
of directors, and at the time the special meeting is called, the election of the Preferred Stock Directors to the Board
would cause the number of directors to exceed the maximum number authorized under the Articles or Bylaws, then
the holders of Series L Preferred Stock and any Series L Voting Parity Stock, voting as a single class, shall be
entitled to elect the Preferred Stock Directors and the Common Stock shall be entitled to elect the remaining number
of authorized directors, the terms of office of all persons who were directors immediately prior to the special
meeting shall terminate, and the directors elected by the holders of the Bank’s Series L Preferred Stock and any
Series L Voting Parity Stock and the directors elected by the holders of the Common Stock shall constitute the
directors of the Bank until the next annual meeting.
The Preferred Stock Directors elected at any such special meeting will hold office until the next annual
meeting of the Bank’s shareholders unless they have been previously terminated as described below. Except as
otherwise provided for by applicable law, any Preferred Stock Director may be removed only by the vote of the
holders of record of the outstanding Series L Preferred Stock entitled to vote (voting together as a single class with
holders of any Series L Voting Parity Stock). As long as the right to elect Preferred Stock Directors is continuing, (i)
any vacancy in the office of any Preferred Stock Director may be filled by the vote of the holders of record of the
outstanding Series L Preferred Stock entitled to vote (voting together as a single class with holders of any Series L
Voting Parity Stock), and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the
vote of the holders of the outstanding Series L Preferred Stock entitled to vote (voting together as a single class with
holders of any Series L Voting Parity Stock) at the same meeting at which such removal shall be voted. Until the
58
time that any such vacancy is filled at a shareholder meeting as provided above, a successor shall be elected by the
Board to serve until the next such shareholder meeting upon the nomination of the then remaining Preferred Stock
Director.
Whenever all dividends on the Series L Preferred Stock and any other stock upon which like voting rights
have been conferred and are exercisable have been paid in full for four consecutive dividend periods (or otherwise
for at least one year), then the right of the holders of Series L Preferred Stock to elect the Preferred Stock Directors
will cease (but subject always to the same provisions for the vesting of these voting rights in the case of any similar
non-payment of dividends in respect of future dividend periods), and if no other shareholders have like voting rights
that are then exercisable, the terms of office of all Preferred Stock Directors will immediately terminate.
The Bank cannot take any of the following actions without the affirmative vote of holders of at least two-
thirds of the outstanding shares of Series L Preferred Stock:
•
create any class or series of shares that ranks, as to dividends or distribution of assets, senior to the Series L
Preferred Stock; or
•
alter or change the provisions of the Articles, the Certificate of Determination governing the Series L
Preferred Stock or the Bylaws so as to adversely affect the voting powers, preferences or special rights of
the holders of the Series L Preferred Stock;
provided, however, that with respect to the occurrence of any event listed in the second bullet point above,
so long as any shares of Series L Preferred Stock remain outstanding with the terms thereof unchanged or new
shares of the surviving corporation or entity are issued with the identical terms as the Series L Preferred Stock, in
each case taking into account that upon the occurrence of this event the Bank may not be the surviving entity, the
occurrence of any such event shall not be deemed to adversely affect any right, preference, privilege or voting power
of the Series L Preferred Stock or the holders thereof, and provided, further, that any increase in the amount of the
Bank’s authorized Common Stock or Preferred Stock or the creation or issuance of any other Series L Parity Stock
or Series L Junior Stock and any change to the number of directors or number of classes of directors shall not,
except as provided by law, be deemed to adversely affect such rights, preferences, privileges or voting powers.
Under California law, in addition to any required approval by its board of directors or its voting
shareholders, an amendment to the articles of incorporation of a California corporation also must be approved by the
affirmative vote of a majority of the outstanding shares of a class of shares, whether or not such class is entitled to a
vote by the articles of incorporation, if the amendment proposes to: (i) increase or decrease the aggregate number of
authorized shares of such class; (ii) effect an exchange, reclassification, or cancellation of all or part of the shares of
such class; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class into the
shares of such class; (iv) change the rights, preferences, privileges or restrictions of the shares of such class; (v)
create a new class of shares having rights, preferences or privileges prior to the shares of such class, or increase the
rights, preferences or privileges or the number of authorized shares of any class having rights, preferences or
privileges prior to the shares of such class; (vi) in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions or authorize the board to do so; or (vii) cancel or
otherwise affect dividends on the shares of such class which have accrued but have not been paid.
The holders of Series L Preferred Stock will have no voting rights if the Bank redeems all outstanding
Series L Preferred Stock (or call for redemption all outstanding Series L Preferred Stock and deposit sufficient funds
in a trust to effect the redemption) on or before the time the act occurs that would otherwise require a vote.
59
Regulatory Risk of Voting Rights
Although the Bank does not believe that any series of its Preferred Stock is considered “voting securities”
for purposes of the BHCA, if one or more series were to become a class of “voting securities,” whether because the
Bank has missed six dividend payments and, as a result, holders of the Preferred Stock have the right to elect
directors, or for other reasons, a “company” (as that term is defined for purposes of the BHCA) that owns or controls
25% or more of such class, or less than 25% if it otherwise exercises any “controlling influence” over the Bank
(including by holding 25% or more or, in some cases, one-third or more of the Bank’s total equity), may then be
subject to regulation as a bank holding company in accordance with the BHCA. In addition, if one or more series of
its Preferred Stock becomes a class of “voting securities”:
•
any bank holding company may be required to obtain the prior approval of the Federal Reserve to acquire
or retain more than 5% of such series of Preferred Stock;
•
any person (or group of persons acting in concert) other than a bank holding company may be required to
obtain the approval of the FDIC under the CIBCA to acquire or retain 10% or more of such series of
Preferred Stock; and
•
any person may be required to obtain the prior approval of the Commissioner before acquiring “control” of
the Bank, as defined in California statutes and regulations.
Holders of the Preferred Stock should consult their own counsel with regard to regulatory implications.
Description of Series L Depositary Shares
General
The Series L Preferred Stock are deposited with the depositary, under a deposit agreement. Each Series L
Depositary Share will represent a 1/40th fractional ownership interest in a share of Series L Preferred Stock. Subject
to the terms of the deposit agreement, each holder of a Series L Depositary Share is entitled to all the rights and
preferences of a 1/40th fractional ownership interest in a share of Series L Preferred Stock (including dividend,
voting, redemption and liquidation rights and preferences). Immediately following the Bank’s issuance of the Series
L Preferred Stock, the Bank will deposit the Series L Preferred Stock with the depositary, which upon the Bank’s
instructions will issue and deliver the Series L Depositary Shares to DTC for credit to the accounts of such
participants of DTC and in such amounts as BofA Securities, Inc., J.P. Morgan Securities LLC, Morgan Stanley &
Co. LLC, UBS Securities LLC and Wells Fargo Securities, LLC shall specify.
Listing
The Series L Preferred Depositary Shares are listed on the NYSE under the symbol “FRC-PrL.”
Dividends
Each dividend payable on a Series L Depositary Share will be in an amount equal to 1/40th of the dividend
declared and payable on each share of Series L Preferred Stock.
The depositary will distribute all cash dividends paid on the Series L Preferred Stock to the record holders
of the Series L Depositary Shares in proportion to the number of Series L Depositary Shares held by the holders. The
depositary will distribute only such amount, however, as can be distributed without attributing to any holder of
Series L Depositary Shares a fraction of one cent, and any balance not so distributable will be held by the depositary
60
(without liability for interest thereon) and will be added to and be treated as part of the next sum received by the
depositary for distribution to record holders of Series L Depositary Shares then outstanding.
If a dividend is other than in cash and it is feasible for the depositary to distribute the property it receives,
the depositary, upon written instructions from the Bank, will distribute the property to the record holders of the
Series L Depositary Shares. If such a distribution is not feasible and the Bank so directs, the depositary will sell on
behalf of the holders of Series L Depositary Shares the property and distribute the net proceeds from the sale to the
holders of the Series L Depositary Shares in proportion to the number of Series L Depositary Shares held by the
holders.
Record dates for the payment of dividends and other matters relating to the Series L Depositary Shares will
be the same as the corresponding record dates for the Series L Preferred Stock.
The amounts distributed to holders of Series L Depositary Shares will be reduced by any amounts required
to be withheld by the depositary or by the Bank on account of taxes or other governmental charges. The depositary
may refuse to make any payment or distribution, or any transfer, exchange or withdrawal of any Series L Depositary
Shares or the Series L Preferred Stock until such taxes or other governmental charges are paid. To the extent that the
depositary determines that amounts are required to be withheld in relation to the distribution of any property
pursuant to the deposit agreement, the depositary may, in certain circumstances, sell all or a portion of such property
to pay such taxes and distribute the balance of the net proceeds (after the deduction of such taxes) to the holder of
the Series L Depositary Shares in proportion to the number of Series L Depositary Shares held by the holder.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Bank’s affairs, the holders of the Series L
Depositary Shares are entitled to 1/40th of the liquidation preference accorded each share of Series L Preferred
Stock.
If the Bank consolidates or merges with or into any other entity or the Bank sells, leases, transfers or
conveys all or substantially all of the Bank’s property or business, the Bank will not be deemed to have liquidated,
dissolved or wound up. In the event of the Bank’s liquidation, dissolution or winding up, a holder of Series L
Depositary Shares will receive the fraction of the liquidation preference accorded each share of underlying Series L
Preferred Stock represented by the Series L Depositary Shares.
Redemption
Whenever the Bank redeems any of the Series L Preferred Stock held by the depositary, the depositary will
redeem as of the same redemption date, from the proceeds received by the depositary resulting from the redemption
of the Series L Preferred Stock held by the depositary, the number of Series L Depositary Shares representing the
redeemed Series L Preferred Stock. A notice of the redemption furnished by the Bank will be mailed by the
depositary by first class mail, postage prepaid, not less than 30 nor more than 60 days before the date fixed for
redemption thereof, addressed to the respective holders of record of the Series L Depositary Shares to be redeemed
at their respective addresses as they appear on the share transfer records of the depositary (provided, however, that if
the Series L Depositary Shares are held in book-entry form through DTC, the Bank may give this notice in any
manner permitted by DTC). A failure to give such notice or any defect in the notice or in the Bank’s mailing will not
affect the validity of the proceedings for the redemption of any shares of Series L Preferred Stock or Series L
Depositary Shares except as to the holder to whom notice was defective or not given. Each notice shall state:
61
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series L Preferred Stock are to be redeemed, the number of shares of Series L
Preferred Stock to be redeemed (and the corresponding number of Series L Depositary Shares); and
•
the place or places where the depositary receipts evidencing the Series L Depositary Shares are to be
surrendered for payment of the redemption price.
If the Bank redeems fewer than all of the outstanding shares of Series L Preferred Stock, the depositary will
select the corresponding number of Series L Depositary Shares to be redeemed pro rata or by lot. In any such case,
Series L Depositary Shares will be redeemed only in increments of 40 Series L Depositary Shares and any integral
multiple thereof, and the notice mailed to such holder shall also specify the number of Series L Depositary Shares to
be redeemed from such holder.
The holders of Series L Depositary Shares at the close of business on a dividend record date are entitled to
receive the dividend payable with respect to the Series L Depositary Shares evidenced by such Series L Depositary
Shares on the corresponding dividend payment date notwithstanding the redemption of the Series L Depositary
Shares between such dividend record date and the corresponding dividend payment date or the Bank’s default in the
payment of the dividend due. Except as provided above, the Bank will make no payment or allowance for unpaid
dividends on the Series L Preferred Stock or Series L Depositary Shares to be redeemed.
Voting
Because each Series L Depositary Share represents a 1/40th ownership interest in a share of Series L
Preferred Stock, holders of depositary receipts are entitled to vote 1/40th of a vote per Series L Depositary Share
under those limited circumstances in which holders of the Series L Preferred Stock are entitled to vote, as described
above.
When the depositary receives notice of any meeting at which the holders of the Series L Preferred Stock are
entitled to vote, the depositary will mail the information contained in the notice to the record holders of the Series L
Depositary Shares relating to the Series L Preferred Stock. Each record holder of the Series L Depositary Shares on
the record date, which will be the same date as the record date for the Series L Preferred Stock, may instruct the
depositary to vote the amount of the Series L Preferred Stock represented by the holder’s Series L Depositary
Shares. To the extent possible, the depositary will vote the amount of the Series L Preferred Stock represented by
Series L Depositary Shares in accordance with the instructions it receives. The Bank will agree to take all reasonable
actions that the depositary determines are necessary to enable the depositary to vote as instructed. If the depositary
does not receive specific instructions from the holders of any Series L Depositary Shares representing the Series L
Preferred Stock, it will abstain from voting with respect to such shares (but shall appear at the meeting with respect
to such shares unless directed to the contrary).
Withdrawal of Series L Preferred Stock
Upon surrender of Series L Depositary Shares at the principal office of the depositary, upon payment of any
unpaid amount due the depositary, and subject to the terms of the deposit agreement, the owner of the Series L
Depositary Shares evidenced thereby is entitled to delivery of the number of shares of Series L Preferred Stock and
all money and other property, if any, represented by such Series L Depositary Shares. Only whole shares of Series L
Preferred Stock may be withdrawn. If the Series L Depositary Shares surrendered by the holder in connection with
withdrawal exceed the number of Series L Depositary Shares that represent the number of whole shares of Series L
Preferred Stock to be withdrawn, the depositary will deliver to that holder at the same time a new depositary receipt
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evidencing the excess number of Series L Depositary Shares. Holders of Series L Preferred Stock thus withdrawn
will not thereafter be entitled to deposit such shares under the deposit agreement or to receive Series L Depositary
Shares therefor.
Miscellaneous
The depositary will forward to the holders of Series L Depositary Shares any reports and communications
from the Bank with respect to the underlying Series L Preferred Stock. Neither the Bank nor the depositary will be
liable if any law or any circumstances beyond their control prevent or delay them from performing their obligations
under the deposit agreement. The obligations of the Bank and a depositary under the deposit agreement will be
limited to performing their duties without bad faith, gross negligence or willful misconduct. Neither the Bank nor a
depositary must prosecute or defend any legal proceeding with respect to any Series L Depositary Shares or the
underlying Series L Preferred Stock unless they are furnished with satisfactory indemnity. Both the Bank and the
depositary may rely on the written advice of counsel or accountants, or information provided by holders of Series L
Depositary Shares or other persons they believe in good faith to be competent, and on documents they believe in
good faith to be genuine and signed by a proper party. In the event a depositary receives conflicting claims, requests
or instructions from the Bank and any holders of Series L Depositary Shares, the depositary are entitled to act on the
claims, requests or instructions received from the Bank.
Book Entry, Delivery and Form
DTC acts as securities depositary for the Series L Depositary Shares. The Series L Depositary Shares are
registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an
authorized representative of DTC.
DTC has advised the Bank that it is a limited-purpose trust company organized under the New York
Banking Law, a “banking organization” within the meaning of New York Banking Law, a member of the Federal
Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a
“clearing agency” registered under the provisions of Section 17A of the Exchange Act. DTC holds securities that its
Direct Participants deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of
sales and other securities transactions in deposited securities through electronic computerized book-entry transfers
and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of DTCC.
DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing
Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries.
Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers,
banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a
Direct Participant, either directly or through Indirect Participants. The rules applicable to DTC and its Direct and
Indirect Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com.
Purchases of Series L Depositary Shares under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Series L Depositary Shares on DTC’s records. The ownership interest
of each beneficial owner is in turn recorded on the Direct and Indirect Participants’ records. Beneficial owners will
not receive written confirmation from DTC of their purchase. Beneficial owners are, however, expected to receive
written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the
Direct or Indirect Participant through which the beneficial owner entered into the transaction. Transfers of
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ownership interest in the Series L Depositary Shares are accomplished by entries made on the books of Direct and
Indirect Participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interest in the Series L Depositary Shares, except in the event that use of the book-entry
system for the Series L Depositary Shares is discontinued. Conveyance of notices and other communications by
DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect
Participants to beneficial owners are governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
To facilitate subsequent transfers, the Series L Depositary Shares deposited by Direct Participants with
DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested
by an authorized representative of DTC. The deposit of Series L Depositary Shares with DTC and its registration in
the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no
knowledge of the actual beneficial owners of the Series L Depositary Shares; DTC’s records reflect only the identity
of the Direct Participants to whose accounts are credited, which may or may not be the beneficial owners. The
Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their
customers.
In those instances where a vote is required, neither DTC nor Cede & Co. (nor any other DTC nominee) will
consent or vote with respect to the Series L Depositary Shares unless authorized by a Direct Participant. Under its
usual procedures, DTC mails an omnibus proxy to the Bank as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series L
Depositary Shares are credited on the record date, which accounts are identified in a listing attached to the omnibus
proxy.
Redemption proceeds, distributions and dividend payments on the Series L Depositary Shares will be made
to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice
is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the
Bank or the Bank’s agent on the payable date in accordance with their respective holdings shown on DTC’s records.
Payments by Direct or Indirect Participants to beneficial owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in
“street name,” and are the responsibility of such Direct or Indirect Participant and not of DTC (nor its nominee), the
Bank or any agent of the Bank, subject to any statutory or regulatory requirements as may be in effect from time to
time. Payment of redemption proceeds, distributions and dividends to Cede & Co. (or such other DTC nominee) is
the responsibility of the Bank or the Bank’s agent, disbursement of such payments to Direct Participants are the
responsibility of DTC, and disbursement of such payments to the beneficial owners are the responsibility of Direct
and Indirect Participants.
DTC may discontinue providing its services as securities depositary with respect to the Series L Depositary
Shares at any time by giving reasonable notice to the Bank or the Bank’s agent. Additionally, the Bank may decide
to discontinue the book-entry only system of transfers with respect to the Series L Depositary Shares. Under such
circumstances, if a successor depository is not obtained, the Bank will print and deliver certificates in fully
registered form for the Series L Depositary Shares.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from
sources that the Bank believes to be reliable, but the Bank takes no responsibility for the accuracy thereof.
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Transfer Restrictions
The Series L Depositary Shares were offered and sold pursuant to an exemption from registration under the
Securities Act of 1933, as amended, and other exemptions provided by the laws of the United States and other
jurisdictions where such securities are offered and sold. The Series L Depositary Shares may only be transferred or
sold in compliance with all applicable state, federal and foreign securities laws.
DESCRIPTION OF DEPOSITARY SHARES, each representing a 1/40th interest in a share of Series M
Preferred Stock
Ranking
The Series M Preferred Stock ranks senior to the Common Stock and any other class or series of Preferred
Stock that by its terms ranks junior to the Series M Preferred Stock, and at least equally with the Series H Preferred
Stock, Series I Preferred Stock, Series J Preferred Stock, Series K Preferred Stock, Series L Preferred Stock and
Series N Preferred Stock and with all future series of Preferred Stock that the Bank may issue (except for any senior
stock that may be issued with the requisite consent of the holders of the Series M Preferred Stock and all other
Series M Parity Stock (as defined below)), with respect to payment of dividends or amounts upon the Bank’s
liquidation, dissolution or winding up.
Dividends
Holders of Series M Preferred Stock are entitled to receive, when, as and if declared by the Board (or a
duly authorized committee thereof), out of funds legally available for the payment of distributions, cash dividends
that are noncumulative and payable quarterly, at the rate of 4.000% of the liquidation preference per annum
(equivalent to $40.00 per annum per share of Series M Preferred Stock). Dividends on the Series M Preferred Stock,
if declared, are payable quarterly on the 30th day of each January, April, July and October or, if any such date is not
a business day, the immediately preceding business day. A dividend period means each period commencing on (and
including) a dividend payment date and continuing to (but excluding) the next succeeding dividend payment date,
except that the first dividend period for the initial issuance of shares of Series M Preferred Stock commenced upon
(and includes) the date of original issuance of those shares. If additional shares of Series M Preferred Stock are
issued at a future date, the first dividend period for such shares will commence upon (and include) the later of the
date of original issuance of Series M Preferred Stock and the first day of the quarterly period in which such later
date of issue occurs. That dividend and any dividend payable on the Series M Preferred Stock for any other partial
dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. The Bank will
pay dividends to holders of record of Series M Preferred Stock as they appear in the Bank’s share records at the
close of business on the applicable record date designated by the Board for the payment of dividends that is not
more than 60 nor less than 10 days prior to such dividend payment date; provided, however, that if the date fixed for
redemption of any Series M Preferred Stock occurs after a dividend is authorized and declared but before it is paid,
such dividend shall be paid as part of the redemption price to the person to whom the redemption price is paid.
No dividends on the Series M Preferred Stock will be declared or be paid or set aside for payment at any
time when the terms and provisions of any of the Bank’s agreements, including any agreement relating to its
indebtedness, prohibits such declaration, payment or setting aside for payment or provides that such declaration,
payment or setting aside for payment would constitute a breach of or a default under such agreement, or if such
authorization or payment is restricted or prohibited by law.
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Dividends are not cumulative. If the Bank fails to declare a dividend for any dividend payment date, then
that dividend will not accumulate and be payable, the holders of the Series M Preferred Stock will have no right to
receive a dividend related to that dividend period, and the Bank will have no obligation to pay a dividend for the
related dividend period or to pay any interest, whether or not dividends on the Series M Preferred Stock are declared
for any future dividend period. If the Bank fails to pay or set aside for payment scheduled dividends (whether or not
declared) with respect to any six dividend periods (whether or not consecutive), holders of Series M Preferred Stock
are entitled to vote for the election of two directors, as described below under “—Voting Rights.”
Full dividends will not be declared or paid or set apart for payment on any Preferred Stock ranking on
parity with the Series M Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up (“Series M Parity Stock”) or any other shares of capital stock that rank junior to the Series
M Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation, dissolution or winding up
(“Series M Junior Stock”) during any dividend period unless dividends on the Series M Preferred Stock for that
dividend period are declared and paid in full. When such cash dividends are not paid in full, or a sum sufficient for
the full payment is not set aside, dividends upon shares of Series M Preferred Stock and dividends on other Series M
Parity Stock payable during the dividend period will be declared pro rata so that the amount of dividends payable
per share on the Series M Preferred Stock and any other Series M Parity Stock will in all cases bear to each other the
same ratio that full dividends for the then-current dividend period on the shares of Series M Preferred Stock and full
dividends, including required or permitted accumulations, if any, on shares of the other Series M Parity Stock, bear
to each other. If full dividends on the Series M Preferred Stock have not been declared and paid or set aside for
payment for a dividend period, the following restrictions will apply for that dividend period:
•
no dividend or distribution, other than in shares of Series M Junior Stock, may be declared, set aside for
payment or paid on any shares of stock of any class or series of Series M Junior Stock;
•
the Bank may not redeem, purchase or otherwise acquire any Series M Junior Stock, and no monies may be
paid to or made available for a sinking fund for the redemption of any Series M Junior Stock, except by
conversion into or exchange for Series M Junior Stock, or by the tendering of Series M Junior Stock in
payment for the exercise of options under the Bank’s stock option plans then in effect; and
•
the Bank may not redeem, purchase or otherwise acquire any shares of the Series M Preferred Stock other
than pursuant to pro rata offers to purchase or exchange, or a concurrent redemption of all of, the
outstanding shares of Series M Preferred Stock.
There can be no assurances that any dividends on the Series M Preferred Stock will be declared or, if
declared, what the amounts of dividends will be or whether these dividends, if declared for any dividend period, will
continue for any future dividend period. The declaration and payment of future dividends on the Series M Preferred
Stock will be subject to business conditions, regulatory considerations, the Bank’s earnings and financial condition
and the judgment of the Board.
See “Item 1. Business—Supervision and Regulation—Restrictions on Dividends and Other Distributions”
in this Annual Report on Form 10-K for bank regulatory restrictions on the Bank’s ability to pay dividends on the
Bank’s capital stock.
Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution or winding up of First Republic Bank, the
holders of the outstanding shares of Series M Preferred Stock are entitled to be paid out of the assets of First
Republic Bank legally available for distribution to the Bank’s shareholders, before any distribution of assets is made
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to holders of Common Stock or any other Series M Junior Stock, a liquidating distribution in the amount of a
liquidation preference of $1,000 per share, plus the sum of any declared and unpaid dividends for dividend periods
prior to the dividend period in which the liquidation distribution is made and declared and unpaid dividends for the
then current dividend period in which the liquidation distribution is made to the date of such liquidation distribution.
After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series M
Preferred Stock will have no right or claim to any of the Bank’s remaining assets.
Distributions will be made only to the extent that the Bank’s assets that are available after satisfaction of all
liabilities to the Bank’s depositors and creditors and subject to the rights of any securities ranking senior to the
Series M Preferred Stock, if any. If the Bank’s remaining assets are not sufficient to pay the full liquidating
distributions to the holders of all outstanding Series M Preferred Stock and all Series M Parity Stock, then the Bank
will distribute the Bank’s assets to those holders pro rata in proportion to the full liquidating distributions to which
they would otherwise have received.
For purposes of the liquidation rights, neither the sale, conveyance, lease, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all of the Bank’s property or business, nor the
consolidation or merger by the Bank with or into any other entity or by another entity with or into the Bank will
constitute a liquidation, dissolution or winding up of the Bank. If the Bank enters into any merger or consolidation
transaction with or into any other entity and the Bank is not the surviving entity in such transaction, the Series M
Preferred Stock may be converted into shares of the surviving or successor corporation or the direct or indirect
parent of the surviving or successor corporation having terms identical to the terms of the Series M Preferred Stock
set forth herein.
Conversion Rights
The Series M Preferred Stock is not convertible into or exchangeable for any other of the Bank’s property,
interests or securities.
Redemption Rights
Optional Redemption
The Series M Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar
provisions. However, the Series M Preferred Stock may be redeemed on or after August 30, 2026, upon not less than
30 days’ and not more than 60 days’ notice (“Series M Optional Redemption”). On that date or any date thereafter,
the Bank may redeem the Series M Preferred Stock from time to time, in whole or in part, at the Bank’s option, for
cash, subject to the approval of the appropriate federal banking agency (and any state banking agency), as may be
required by law, at the cash redemption price provided below. Dividends will not accrue on those shares of Series M
Preferred Stock on and after the redemption date. Neither the holders of Series M Preferred Stock nor the holders of
the Series M Depositary Shares have the right to require the redemption or repurchase of the Series M Preferred
Stock.
Redemption Following a Regulatory Capital Event
The Bank may redeem the Series M Preferred Stock, in whole but not in part, for cash, at any time within
90 days following a Series M Regulatory Capital Treatment Event, at the Bank’s option, subject to the approval of
the appropriate federal banking agency, at the cash redemption price provided below (“Series M Regulatory Event
Redemption”). A “Series M Regulatory Capital Treatment Event” means the Bank’s good faith determination that, as
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a result of (i) any amendment to, or change in, the laws or regulations of the United States or any political
subdivision of or in the United States that is enacted or becomes effective after the initial issuance of the Series M
Preferred Stock; (ii) any proposed change in those laws or regulations that is announced after the initial issuance of
the Series M Preferred Stock; or (iii) any official administrative decision or judicial decision or administrative action
or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial
issuance of the Series M Preferred Stock, there is more than an insubstantial risk that the Bank will not be entitled to
treat the full liquidation value of the Series M Preferred Stock then outstanding as “Tier 1 Capital” (or its equivalent)
for purposes of the capital adequacy guidelines of the FDIC (or, as and if applicable, the capital adequacy guidelines
or regulations of any successor appropriate federal banking agency), as then in effect and applicable, for as long as
any share of Series M Preferred Stock is outstanding. Dividends will not accrue on those shares of Series M
Preferred Stock on and after the redemption date.
Redemption Price
The redemption price for any redemption of Series M Preferred Stock, whether a Series M Optional
Redemption or Series M Regulatory Event Redemption, will be equal to $1,000 per share of Series M Preferred
Stock (equivalent to $25 per Series M Depositary Share) plus the sum of any declared and unpaid dividends for prior
dividend periods and accrued but unpaid and undeclared dividends for the then-current dividend period to, but
excluding, the date of redemption.
Redemption Procedures
If the Bank elects to redeem any shares of Series M Preferred Stock, the Bank will provide notice by first
class mail, postage prepaid, addressed to the holders of record of the shares of Series M Preferred Stock to be
redeemed, mailed not less than 30 days and not more than 60 days before the date fixed for redemption thereof
(provided, however, that if the shares of Series M Preferred Stock or the Series M Depositary Shares are held in
book-entry form through DTC, the Bank may give this notice in any manner permitted by DTC). Any notice mailed
or otherwise given as provided in this paragraph will be conclusively presumed to have been duly given, whether or
not the holder receives this notice, and failure duly to give this notice by mail or otherwise, or any defect in this
notice or in the mailing or provision of this notice, to any holder of shares of Series M Preferred Stock designated
for redemption will not affect the redemption of any other shares of Series M Preferred Stock. Each notice of
redemption shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series M Preferred Stock are to be redeemed, the number of shares of Series M
Preferred Stock to be redeemed; and
•
the manner in which holders of Series M Preferred Stock called for redemption may obtain payment of the
redemption price in respect to those shares.
If notice of redemption of any shares of Series M Preferred Stock has been given and if the funds necessary
for such redemption have been set aside by the Bank in trust for the benefit of the holders of any shares of Series M
Preferred Stock so called for redemption, then from and after the redemption date such shares of Series M Preferred
Stock will no longer be deemed outstanding, and all rights of the holders of such shares will terminate, except the
right to receive the redemption price, without interest.
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In the case of any redemption of only part of the Series M Preferred Stock at the time outstanding, the
shares of Series M Preferred Stock to be redeemed will be selected either pro rata or by lot. Subject to the provisions
hereof, the Board will have the full power and authority to prescribe the terms and conditions upon which shares of
Series M Preferred Stock may be redeemed from time to time.
The Series M Preferred Stock has no stated maturity and will not be subject to any sinking fund or
mandatory redemption provisions.
Regulatory Restrictions on Redemption Rights
Under current risk-based capital regulations, a bank insured by the FDIC may not redeem shares of
Preferred Stock included as Tier 1 capital without the prior approval of the FDIC. Any redemption of the Series M
Preferred Stock is subject to the Bank’s receipt of any required prior approval by the FDIC and the Commissioner
and to the satisfaction of any conditions in the capital guidelines or regulations of the FDIC applicable to such
redemption. Ordinarily, the FDIC would not permit such a redemption unless the FDIC determines that the bank’s
condition and circumstances warrant the reduction of a source of permanent capital.
Voting Rights
Registered owners of Series M Preferred Stock will not have any voting rights, except as set forth below or
as otherwise required by law.
On any matter in which the Series M Preferred Stock is entitled to vote as a class with holders of any other
shares upon which like voting rights have been conferred and are exercisable, including any action by written
consent, each share of Series M Preferred Stock will be entitled to one vote. As more fully described under
“Description of Series M Depositary Shares,” the depositary, as holder of all Series M Preferred Stock, will grant
1/40th of a vote per depositary share to the registered owner of each Series M Depositary Share so that each Series
M Depositary Share is entitled to exercise its proportionate voting rights.
If at any time the full amount of dividends on the Series M Preferred Stock have not been paid or set aside
for payment (whether or not declared) for any six dividend periods (whether or not consecutive), holders of the
Series M Depositary Shares voting as a single class together with holders of any other stock, including the Series H
Preferred Stock, Series I Preferred Stock, Series J Preferred Stock, Series K Preferred Stock, Series L Preferred
Stock and Series N Preferred Stock that ranks on a parity with the Series M Preferred Stock as to payment of
dividends and that has voting rights equivalent to those described in this paragraph (“Series M Voting Parity Stock”),
are entitled to elect the Preferred Stock Directors at any annual meeting of shareholders or any special meeting of
the holders of Series M Preferred Stock and any Series M Voting Parity Stock, and the holders of the Common Stock
are entitled to vote for the election of the remaining number of directors authorized by the Articles or Bylaws. The
Board will at no time have more than two Preferred Stock Directors.
If, at any time after the right to elect directors is vested in the Series M Preferred Stock, the holders of the
Series M Preferred Stock and any Series M Voting Parity Stock call a special meeting of shareholders for the
election of directors, and at the time the special meeting is called, the election of the Preferred Stock Directors to the
Board would cause the number of directors to exceed the maximum number authorized under the Articles or
Bylaws, then the holders of Series M Preferred Stock and any Series M Voting Parity Stock, voting as a single class,
shall be entitled to elect the Preferred Stock Directors and the Common Stock shall be entitled to elect the remaining
number of authorized directors, the terms of office of all persons who were directors immediately prior to the special
meeting shall terminate, and the directors elected by the holders of the Bank’s Series M Preferred Stock and any
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Series M Voting Parity Stock and the directors elected by the holders of the Common Stock shall constitute the
directors of the Bank until the next annual meeting.
The Preferred Stock Directors elected at any such special meeting will hold office until the next annual
meeting of the Bank’s shareholders unless they have been previously terminated as described below. Except as
otherwise provided for by applicable law, any Preferred Stock Director may be removed only by the vote of the
holders of record of the outstanding Series M Preferred Stock entitled to vote (voting together as a single class with
holders of any Series M Voting Parity Stock). As long as the right to elect Preferred Stock Directors is continuing, (i)
any vacancy in the office of any Preferred Stock Director may be filled by the vote of the holders of record of the
outstanding Series M Preferred Stock entitled to vote (voting together as a single class with holders of any Series M
Voting Parity Stock), and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the
vote of the holders of the outstanding Series M Preferred Stock entitled to vote (voting together as a single class
with holders of any Series M Voting Parity Stock) at the same meeting at which such removal shall be voted. Until
the time that any such vacancy is filled at a shareholder meeting as provided above, a successor shall be elected by
the Board to serve until the next such shareholder meeting upon the nomination of the then remaining Preferred
Stock Director.
Whenever all dividends on the Series M Preferred Stock and any other stock upon which like voting rights
have been conferred and are exercisable have been paid in full for four consecutive dividend periods (or otherwise
for at least one year), then the right of the holders of Series M Preferred Stock to elect the Preferred Stock Directors
will cease (but subject always to the same provisions for the vesting of these voting rights in the case of any similar
non-payment of dividends in respect of future dividend periods), and if no other shareholders have like voting rights
that are then exercisable, the terms of office of all Preferred Stock Directors will immediately terminate.
The Bank cannot take any of the following actions without the affirmative vote of holders of at least two-
thirds of the outstanding shares of Series M Preferred Stock:
•
create any class or series of shares that ranks, as to dividends or distribution of assets, senior to the Series
M Preferred Stock; or
•
alter or change the provisions of the Articles, the Certificate of Determination governing the Series M
Preferred Stock or the Bylaws so as to adversely affect the voting powers, preferences or special rights of
the holders of the Series M Preferred Stock;
provided, however, that with respect to the occurrence of any event listed in the second bullet point above,
so long as any shares of Series M Preferred Stock remain outstanding with the terms thereof unchanged or new
shares of the surviving corporation or entity are issued with the identical terms as the Series M Preferred Stock, in
each case taking into account that upon the occurrence of this event the Bank may not be the surviving entity, the
occurrence of any such event shall not be deemed to adversely affect any right, preference, privilege or voting power
of the Series M Preferred Stock or the holders thereof, and provided, further, that any increase in the amount of the
Bank’s authorized Common Stock or Preferred Stock or the creation or issuance of any other Series M Parity Stock
or Series M Junior Stock and any change to the number of directors or number of classes of directors shall not,
except as provided by law, be deemed to adversely affect such rights, preferences, privileges or voting powers.
Under California law, in addition to any required approval by its board of directors or its voting
shareholders, an amendment to the articles of incorporation of a California corporation also must be approved by the
affirmative vote of a majority of the outstanding shares of a class of shares, whether or not such class is entitled to a
vote by the articles of incorporation, if the amendment proposes to: (i) increase or decrease the aggregate number of
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authorized shares of such class; (ii) effect an exchange, reclassification, or cancellation of all or part of the shares of
such class; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class into the
shares of such class; (iv) change the rights, preferences, privileges or restrictions of the shares of such class; (v)
create a new class of shares having rights, preferences or privileges prior to the shares of such class, or increase the
rights, preferences or privileges or the number of authorized shares of any class having rights, preferences or
privileges prior to the shares of such class; (vi) in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions or authorize the board to do so; or (vii) cancel or
otherwise affect dividends on the shares of such class which have accrued but have not been paid.
The holders of Series M Preferred Stock will have no voting rights if the Bank redeems all outstanding
Series M Preferred Stock (or call for redemption all outstanding Series M Preferred Stock and deposit sufficient
funds in a trust to effect the redemption) on or before the time the act occurs that would otherwise require a vote.
Regulatory Risk of Voting Rights
Although the Bank does not believe that any series of its Preferred Stock is considered “voting securities”
for purposes of the BHCA, if one or more series were to become a class of “voting securities,” whether because the
Bank has missed six dividend payments and, as a result, holders of the Preferred Stock have the right to elect
directors, or for other reasons, a “company” (as that term is defined for purposes of the BHCA) that owns or controls
25% or more of such class, or less than 25% if it otherwise exercises any “controlling influence” over the Bank
(including by holding 25% or more or, in some cases, one-third or more of the Bank’s total equity), may then be
subject to regulation as a bank holding company in accordance with the BHCA. In addition, if one or more series of
its Preferred Stock becomes a class of “voting securities”:
•
any bank holding company may be required to obtain the prior approval of the Federal Reserve to acquire
or retain more than 5% of such series of Preferred Stock;
•
any person (or group of persons acting in concert) other than a bank holding company may be required to
obtain the approval of the FDIC under the CIBCA to acquire or retain 10% or more of such series of
Preferred Stock; and
•
any person may be required to obtain the prior approval of the Commissioner before acquiring “control” of
the Bank, as defined in California statutes and regulations.
Holders of the Preferred Stock should consult their own counsel with regard to regulatory implications.
Description of Series M Depositary Shares
General
The Series M Preferred Stock are deposited with the depositary, under a deposit agreement. Each Series M
Depositary Share will represent a 1/40th fractional ownership interest in a share of Series M Preferred Stock.
Subject to the terms of the deposit agreement, each holder of a Series M Depositary Share is entitled to all the rights
and preferences of a 1/40th fractional ownership interest in a share of Series M Preferred Stock (including dividend,
voting, redemption and liquidation rights and preferences). Immediately following the Bank’s issuance of the Series
M Preferred Stock, the Bank will deposit the Series M Preferred Stock with the depositary, which upon the Bank’s
instructions will issue and deliver the Series M Depositary Shares to DTC for credit to the accounts of such
participants of DTC and in such amounts as BofA Securities, Inc., J.P. Morgan Securities LLC, Morgan Stanley &
Co. LLC, UBS Securities LLC and Wells Fargo Securities, LLC shall specify.
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Listing
The Series M Preferred Depositary Shares are listed on the NYSE under the symbol “FRC-PrM.”
Dividends
Each dividend payable on a Series M Depositary Share will be in an amount equal to 1/40th of the dividend
declared and payable on each share of Series M Preferred Stock.
The depositary will distribute all cash dividends paid on the Series M Preferred Stock to the record holders
of the Series M Depositary Shares in proportion to the number of Series M Depositary Shares held by the holders.
The depositary will distribute only such amount, however, as can be distributed without attributing to any holder of
Series M Depositary Shares a fraction of one cent, and any balance not so distributable will be held by the
depositary (without liability for interest thereon) and will be added to and be treated as part of the next sum received
by the depositary for distribution to record holders of Series M Depositary Shares then outstanding.
If a dividend is other than in cash and it is feasible for the depositary to distribute the property it receives,
the depositary, upon written instructions from the Bank, will distribute the property to the record holders of the
Series M Depositary Shares. If such a distribution is not feasible and the Bank so directs, the depositary will sell on
behalf of the holders of Series M Depositary Shares the property and distribute the net proceeds from the sale to the
holders of the Series M Depositary Shares in proportion to the number of Series M Depositary Shares held by the
holders.
Record dates for the payment of dividends and other matters relating to the Series M Depositary Shares will
be the same as the corresponding record dates for the Series M Preferred Stock.
The amounts distributed to holders of Series M Depositary Shares will be reduced by any amounts required
to be withheld by the depositary or by the Bank on account of taxes or other governmental charges. The depositary
may refuse to make any payment or distribution, or any transfer, exchange or withdrawal of any Series M
Depositary Shares or the Series M Preferred Stock until such taxes or other governmental charges are paid. To the
extent that the depositary determines that amounts are required to be withheld in relation to the distribution of any
property pursuant to the deposit agreement, the depositary may, in certain circumstances, sell all or a portion of such
property to pay such taxes and distribute the balance of the net proceeds (after the deduction of such taxes) to the
holder of the Series M Depositary Shares in proportion to the number of Series M Depositary Shares held by the
holder.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Bank’s affairs, the holders of the Series M
Depositary Shares are entitled to 1/40th of the liquidation preference accorded each share of Series M Preferred
Stock.
If the Bank consolidates or merges with or into any other entity or the Bank sells, leases, transfers or
conveys all or substantially all of the Bank’s property or business, the Bank will not be deemed to have liquidated,
dissolved or wound up. In the event of the Bank’s liquidation, dissolution or winding up, a holder of Series M
Depositary Shares will receive the fraction of the liquidation preference accorded each share of underlying Series M
Preferred Stock represented by the Series M Depositary Shares.
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Redemption
Whenever the Bank redeems any of the Series M Preferred Stock held by the depositary, the depositary will
redeem as of the same redemption date, from the proceeds received by the depositary resulting from the redemption
of the Series M Preferred Stock held by the depositary, the number of Series M Depositary Shares representing the
redeemed Series M Preferred Stock. A notice of the redemption furnished by the Bank will be mailed by the
depositary by first class mail, postage prepaid, not less than 30 nor more than 60 days before the date fixed for
redemption thereof, addressed to the respective holders of record of the Series M Depositary Shares to be redeemed
at their respective addresses as they appear on the share transfer records of the depositary (provided, however, that if
the Series M Depositary Shares are held in book-entry form through DTC, the Bank may give this notice in any
manner permitted by DTC). A failure to give such notice or any defect in the notice or in the Bank’s mailing will not
affect the validity of the proceedings for the redemption of any shares of Series M Preferred Stock or Series M
Depositary Shares except as to the holder to whom notice was defective or not given. Each notice shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series M Preferred Stock are to be redeemed, the number of shares of Series M
Preferred Stock to be redeemed (and the corresponding number of Series M Depositary Shares); and
•
the place or places where the depositary receipts evidencing the Series M Depositary Shares are to be
surrendered for payment of the redemption price.
If the Bank redeems fewer than all of the outstanding shares of Series M Preferred Stock, the depositary
will select the corresponding number of Series M Depositary Shares to be redeemed pro rata or by lot. In any such
case, Series M Depositary Shares will be redeemed only in increments of 40 Series M Depositary Shares and any
integral multiple thereof, and the notice mailed to such holder shall also specify the number of Series M Depositary
Shares to be redeemed from such holder.
The holders of Series M Depositary Shares at the close of business on a dividend record date are entitled to
receive the dividend payable with respect to the Series M Depositary Shares evidenced by such Series M Depositary
Shares on the corresponding dividend payment date notwithstanding the redemption of the Series M Depositary
Shares between such dividend record date and the corresponding dividend payment date or the Bank’s default in the
payment of the dividend due. Except as provided above, the Bank will make no payment or allowance for unpaid
dividends on the Series M Preferred Stock or Series M Depositary Shares to be redeemed.
Voting
Because each Series M Depositary Share represents a 1/40th ownership interest in a share of Series M
Preferred Stock, holders of depositary receipts are entitled to vote 1/40th of a vote per Series M Depositary Share
under those limited circumstances in which holders of the Series M Preferred Stock are entitled to vote, as described
above.
When the depositary receives notice of any meeting at which the holders of the Series M Preferred Stock
are entitled to vote, the depositary will mail the information contained in the notice to the record holders of the
Series M Depositary Shares relating to the Series M Preferred Stock. Each record holder of the Series M Depositary
Shares on the record date, which will be the same date as the record date for the Series M Preferred Stock, may
instruct the depositary to vote the amount of the Series M Preferred Stock represented by the holder’s Series M
Depositary Shares. To the extent possible, the depositary will vote the amount of the Series M Preferred Stock
represented by Series M Depositary Shares in accordance with the instructions it receives. The Bank will agree to
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take all reasonable actions that the depositary determines are necessary to enable the depositary to vote as instructed.
If the depositary does not receive specific instructions from the holders of any Series M Depositary Shares
representing the Series M Preferred Stock, it will abstain from voting with respect to such shares (but shall appear at
the meeting with respect to such shares unless directed to the contrary).
Withdrawal of Series M Preferred Stock
Upon surrender of Series M Depositary Shares at the principal office of the depositary, upon payment of
any unpaid amount due the depositary, and subject to the terms of the deposit agreement, the owner of the Series M
Depositary Shares evidenced thereby is entitled to delivery of the number of shares of Series M Preferred Stock and
all money and other property, if any, represented by such Series M Depositary Shares. Only whole shares of Series
M Preferred Stock may be withdrawn. If the Series M Depositary Shares surrendered by the holder in connection
with withdrawal exceed the number of Series M Depositary Shares that represent the number of whole shares of
Series M Preferred Stock to be withdrawn, the depositary will deliver to that holder at the same time a new
depositary receipt evidencing the excess number of Series M Depositary Shares. Holders of Series M Preferred
Stock thus withdrawn will not thereafter be entitled to deposit such shares under the deposit agreement or to receive
Series M Depositary Shares therefor.
Miscellaneous
The depositary will forward to the holders of Series M Depositary Shares any reports and communications
from the Bank with respect to the underlying Series M Preferred Stock. Neither the Bank nor the depositary will be
liable if any law or any circumstances beyond their control prevent or delay them from performing their obligations
under the deposit agreement. The obligations of the Bank and a depositary under the deposit agreement will be
limited to performing their duties without bad faith, gross negligence or willful misconduct. Neither the Bank nor a
depositary must prosecute or defend any legal proceeding with respect to any Series M Depositary Shares or the
underlying Series M Preferred Stock unless they are furnished with satisfactory indemnity. Both the Bank and the
depositary may rely on the written advice of counsel or accountants, or information provided by holders of Series M
Depositary Shares or other persons they believe in good faith to be competent, and on documents they believe in
good faith to be genuine and signed by a proper party. In the event a depositary receives conflicting claims, requests
or instructions from the Bank and any holders of Series M Depositary Shares, the depositary are entitled to act on
the claims, requests or instructions received from the Bank.
Book Entry, Delivery and Form
DTC acts as securities depositary for the Series M Depositary Shares. The Series M Depositary Shares are
registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an
authorized representative of DTC.
DTC has advised the Bank that it is a limited-purpose trust company organized under the New York
Banking Law, a “banking organization” within the meaning of New York Banking Law, a member of the Federal
Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a
“clearing agency” registered under the provisions of Section 17A of the Exchange Act. DTC holds securities that its
Direct Participants deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of
sales and other securities transactions in deposited securities through electronic computerized book-entry transfers
and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of DTCC.
74
DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing
Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries.
Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers,
banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a
Direct Participant, either directly or through Indirect Participants. The rules applicable to DTC and its Direct and
Indirect Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com.
Purchases of Series M Depositary Shares under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Series M Depositary Shares on DTC’s records. The ownership
interest of each beneficial owner is in turn recorded on the Direct and Indirect Participants’ records. Beneficial
owners will not receive written confirmation from DTC of their purchase. Beneficial owners are, however, expected
to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the beneficial owner entered into the transaction. Transfers of
ownership interest in the Series M Depositary Shares are accomplished by entries made on the books of Direct and
Indirect Participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interest in the Series M Depositary Shares, except in the event that use of the book-
entry system for the Series M Depositary Shares is discontinued. Conveyance of notices and other communications
by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect
Participants to beneficial owners are governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
To facilitate subsequent transfers, the Series M Depositary Shares deposited by Direct Participants with
DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested
by an authorized representative of DTC. The deposit of Series M Depositary Shares with DTC and its registration in
the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no
knowledge of the actual beneficial owners of the Series M Depositary Shares; DTC’s records reflect only the
identity of the Direct Participants to whose accounts are credited, which may or may not be the beneficial owners.
The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their
customers.
In those instances where a vote is required, neither DTC nor Cede & Co. (nor any other DTC nominee) will
consent or vote with respect to the Series M Depositary Shares unless authorized by a Direct Participant. Under its
usual procedures, DTC mails an omnibus proxy to the Bank as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series M
Depositary Shares are credited on the record date, which accounts are identified in a listing attached to the omnibus
proxy.
Redemption proceeds, distributions and dividend payments on the Series M Depositary Shares will be
made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s
practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information
from the Bank or the Bank’s agent on the payable date in accordance with their respective holdings shown on DTC’s
records. Payments by Direct or Indirect Participants to beneficial owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in
“street name,” and are the responsibility of such Direct or Indirect Participant and not of DTC (nor its nominee), the
Bank or any agent of the Bank, subject to any statutory or regulatory requirements as may be in effect from time to
time. Payment of redemption proceeds, distributions and dividends to Cede & Co. (or such other DTC nominee) is
the responsibility of the Bank or the Bank’s agent, disbursement of such payments to Direct Participants are the
75
responsibility of DTC, and disbursement of such payments to the beneficial owners are the responsibility of Direct
and Indirect Participants.
DTC may discontinue providing its services as securities depositary with respect to the Series M
Depositary Shares at any time by giving reasonable notice to the Bank or the Bank’s agent. Additionally, the Bank
may decide to discontinue the book-entry only system of transfers with respect to the Series M Depositary Shares.
Under such circumstances, if a successor depository is not obtained, the Bank will print and deliver certificates in
fully registered form for the Series M Depositary Shares.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from
sources that the Bank believes to be reliable, but the Bank takes no responsibility for the accuracy thereof.
Transfer Restrictions
The Series M Depositary Shares were offered and sold pursuant to an exemption from registration under
the Securities Act of 1933, as amended, and other exemptions provided by the laws of the United States and other
jurisdictions where such securities are offered and sold. The Series M Depositary Shares may only be transferred or
sold in compliance with all applicable state, federal and foreign securities laws.
DESCRIPTION OF DEPOSITARY SHARES, each representing a 1/40th interest in a share of Series N
Preferred Stock
Ranking
The Series N Preferred Stock ranks senior to the Common Stock and any other class or series of Preferred
Stock that by its terms ranks junior to the Series N Preferred Stock, and at least equally with the Series H Preferred
Stock, Series I Preferred Stock, Series J Preferred Stock, Series K Preferred Stock, Series L Preferred Stock and
Series M Preferred Stock and with all future series of Preferred Stock that the Bank may issue (except for any senior
stock that may be issued with the requisite consent of the holders of the Series N Preferred Stock and all other Series
N Parity Stock (as defined below)), with respect to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up.
Dividends
Holders of Series N Preferred Stock are entitled to receive, when, as and if declared by the Board (or a duly
authorized committee thereof), out of funds legally available for the payment of distributions, cash dividends that
are noncumulative and payable quarterly, at the rate of 4.500% of the liquidation preference per annum (equivalent
to $45.00 per annum per share of Series N Preferred Stock). Dividends on the Series N Preferred Stock, if declared,
are payable quarterly on the 30th day of each January, April, July and October or, if any such date is not a business
day, the immediately preceding business day. A dividend period means each period commencing on (and including)
a dividend payment date and continuing to (but excluding) the next succeeding dividend payment date, except that
the first dividend period for the initial issuance of shares of Series N Preferred Stock commenced upon (and
includes) the date of original issuance of those shares. If additional shares of Series N Preferred Stock are issued at a
future date, the first dividend period for such shares will commence upon (and include) the later of the date of
original issuance of Series N Preferred Stock and the first day of the quarterly period in which such later date of
issue occurs. If declared, the first dividend on the Series N Preferred Stock, and thus the Series N Depositary Shares,
will be paid on January 30, 2022, and will be for less than a full quarter. That dividend and any dividend payable on
76
the Series N Preferred Stock for any other partial dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. The Bank will pay dividends to holders of record of Series N Preferred Stock as
they appear in the Bank’s share records at the close of business on the applicable record date designated by the
Board for the payment of dividends that is not more than 60 nor less than 10 days prior to such dividend payment
date; provided, however, that if the date fixed for redemption of any Series N Preferred Stock occurs after a dividend
is authorized and declared but before it is paid, such dividend shall be paid as part of the redemption price to the
person to whom the redemption price is paid.
No dividends on the Series N Preferred Stock will be declared or be paid or set aside for payment at any
time when the terms and provisions of any of the Bank’s agreements, including any agreement relating to its
indebtedness, prohibits such declaration, payment or setting aside for payment or provides that such declaration,
payment or setting aside for payment would constitute a breach of or a default under such agreement, or if such
authorization or payment is restricted or prohibited by law.
Dividends are not cumulative. If the Bank fails to declare a dividend for any dividend payment date, then
that dividend will not accumulate and be payable, the holders of the Series N Preferred Stock will have no right to
receive a dividend related to that dividend period, and the Bank will have no obligation to pay a dividend for the
related dividend period or to pay any interest, whether or not dividends on the Series N Preferred Stock are declared
for any future dividend period. If the Bank fails to pay or set aside for payment scheduled dividends (whether or not
declared) with respect to any six dividend periods (whether or not consecutive), holders of Series N Preferred Stock
are entitled to vote for the election of two directors, as described below under “—Voting Rights.”
Full dividends will not be declared or paid or set apart for payment on any Preferred Stock ranking on
parity with the Series N Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation,
dissolution or winding up (“Series N Parity Stock”) or any other shares of capital stock that rank junior to the Series
N Preferred Stock as to payment of dividends or amounts upon the Bank’s liquidation, dissolution or winding up
(“Series N Junior Stock”) during any dividend period unless dividends on the Series N Preferred Stock for that
dividend period are declared and paid in full. When such cash dividends are not paid in full, or a sum sufficient for
the full payment is not set aside, dividends upon shares of Series N Preferred Stock and dividends on other Series N
Parity Stock payable during the dividend period will be declared pro rata so that the amount of dividends payable
per share on the Series N Preferred Stock and any other Series N Parity Stock will in all cases bear to each other the
same ratio that full dividends for the then-current dividend period on the shares of Series N Preferred Stock and full
dividends, including required or permitted accumulations, if any, on shares of the other Series N Parity Stock, bear
to each other. If full dividends on the Series N Preferred Stock have not been declared and paid or set aside for
payment for a dividend period, the following restrictions will apply for that dividend period:
•
no dividend or distribution, other than in shares of Series N Junior Stock, may be declared, set aside for
payment or paid on any shares of stock of any class or series of Series N Junior Stock;
•
the Bank may not redeem, purchase or otherwise acquire any Series N Junior Stock, and no monies may be
paid to or made available for a sinking fund for the redemption of any Series N Junior Stock, except by
conversion into or exchange for Series N Junior Stock, or by the tendering of Series N Junior Stock in
payment for the exercise of options under the Bank’s stock option plans then in effect; and
•
the Bank may not redeem, purchase or otherwise acquire any shares of the Series N Preferred Stock other
than pursuant to pro rata offers to purchase or exchange, or a concurrent redemption of all of, the
outstanding shares of Series N Preferred Stock.
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There can be no assurances that any dividends on the Series N Preferred Stock will be declared or, if
declared, what the amounts of dividends will be or whether these dividends, if declared for any dividend period, will
continue for any future dividend period. The declaration and payment of future dividends on the Series N Preferred
Stock will be subject to business conditions, regulatory considerations, the Bank’s earnings and financial condition
and the judgment of the Board.
See “Item 1. Business—Supervision and Regulation—Restrictions on Dividends and Other Distributions”
in this Annual Report on Form 10-K for bank regulatory restrictions on the Bank’s ability to pay dividends on the
Bank’s capital stock.
Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution or winding up of First Republic Bank, the
holders of the outstanding shares of Series N Preferred Stock are entitled to be paid out of the assets of First
Republic Bank legally available for distribution to the Bank’s shareholders, before any distribution of assets is made
to holders of Common Stock or any other Series N Junior Stock, a liquidating distribution in the amount of a
liquidation preference of $1,000 per share, plus the sum of any declared and unpaid dividends for dividend periods
prior to the dividend period in which the liquidation distribution is made and declared and unpaid dividends for the
then current dividend period in which the liquidation distribution is made to the date of such liquidation distribution.
After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series N
Preferred Stock will have no right or claim to any of the Bank’s remaining assets.
Distributions will be made only to the extent that the Bank’s assets that are available after satisfaction of all
liabilities to the Bank’s depositors and creditors and subject to the rights of any securities ranking senior to the
Series N Preferred Stock, if any. If the Bank’s remaining assets are not sufficient to pay the full liquidating
distributions to the holders of all outstanding Series N Preferred Stock and all Series N Parity Stock, then the Bank
will distribute the Bank’s assets to those holders pro rata in proportion to the full liquidating distributions to which
they would otherwise have received.
For purposes of the liquidation rights, neither the sale, conveyance, lease, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all of the Bank’s property or business, nor the
consolidation or merger by the Bank with or into any other entity or by another entity with or into the Bank will
constitute a liquidation, dissolution or winding up of the Bank. If the Bank enters into any merger or consolidation
transaction with or into any other entity and the Bank is not the surviving entity in such transaction, the Series N
Preferred Stock may be converted into shares of the surviving or successor corporation or the direct or indirect
parent of the surviving or successor corporation having terms identical to the terms of the Series N Preferred Stock
set forth herein.
Conversion Rights
The Series N Preferred Stock is not convertible into or exchangeable for any other of the Bank’s property,
interests or securities.
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Redemption Rights
Optional Redemption
The Series N Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar
provisions. However, the Series N Preferred Stock may be redeemed on or after December 31, 2026, upon not less
than 30 days’ and not more than 60 days’ notice (“Series N Optional Redemption”). On that date or any date
thereafter, the Bank may redeem the Series N Preferred Stock from time to time, in whole or in part, at the Bank’s
option, for cash, subject to the approval of the appropriate federal banking agency (and any state banking agency), as
may be required by law, at the cash redemption price provided below. Dividends will not accrue on those shares of
Series N Preferred Stock on and after the redemption date. Neither the holders of Series N Preferred Stock nor the
holders of the Series N Depositary Shares have the right to require the redemption or repurchase of the Series N
Preferred Stock.
Redemption Following a Regulatory Capital Event
The Bank may redeem the Series N Preferred Stock, in whole but not in part, for cash, at any time within
90 days following a Series N Regulatory Capital Treatment Event, at the Bank’s option, subject to the approval of
the appropriate federal banking agency, at the cash redemption price provided below (“Series N Regulatory Event
Redemption”). A “Series N Regulatory Capital Treatment Event” means the Bank’s good faith determination that, as
a result of (i) any amendment to, or change in, the laws or regulations of the United States or any political
subdivision of or in the United States that is enacted or becomes effective after the initial issuance of the Series N
Preferred Stock; (ii) any proposed change in those laws or regulations that is announced after the initial issuance of
the Series N Preferred Stock; or (iii) any official administrative decision or judicial decision or administrative action
or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial
issuance of the Series N Preferred Stock, there is more than an insubstantial risk that the Bank will not be entitled to
treat the full liquidation value of the Series N Preferred Stock then outstanding as “Tier 1 Capital” (or its equivalent)
for purposes of the capital adequacy guidelines of the FDIC (or, as and if applicable, the capital adequacy guidelines
or regulations of any successor appropriate federal banking agency), as then in effect and applicable, for as long as
any share of Series N Preferred Stock is outstanding. Dividends will not accrue on those shares of Series N Preferred
Stock on and after the redemption date.
Redemption Price
The redemption price for any redemption of Series N Preferred Stock, whether a Series N Optional
Redemption or Series N Regulatory Event Redemption, will be equal to $1,000 per share of Series N Preferred
Stock (equivalent to $25 per Series N Depositary Share) plus the sum of any declared and unpaid dividends for prior
dividend periods and accrued but unpaid and undeclared dividends for the then-current dividend period to, but
excluding, the date of redemption.
Redemption Procedures
If the Bank elects to redeem any shares of Series N Preferred Stock, the Bank will provide notice by first
class mail, postage prepaid, addressed to the holders of record of the shares of Series N Preferred Stock to be
redeemed, mailed not less than 30 days and not more than 60 days before the date fixed for redemption thereof
(provided, however, that if the shares of Series N Preferred Stock or the Series N Depositary Shares are held in
book-entry form through DTC, the Bank may give this notice in any manner permitted by DTC). Any notice mailed
or otherwise given as provided in this paragraph will be conclusively presumed to have been duly given, whether or
79
not the holder receives this notice, and failure duly to give this notice by mail or otherwise, or any defect in this
notice or in the mailing or provision of this notice, to any holder of shares of Series N Preferred Stock designated for
redemption will not affect the redemption of any other shares of Series N Preferred Stock. Each notice of
redemption shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series N Preferred Stock are to be redeemed, the number of shares of Series N
Preferred Stock to be redeemed; and
•
the manner in which holders of Series N Preferred Stock called for redemption may obtain payment of the
redemption price in respect to those shares.
If notice of redemption of any shares of Series N Preferred Stock has been given and if the funds necessary
for such redemption have been set aside by the Bank in trust for the benefit of the holders of any shares of Series N
Preferred Stock so called for redemption, then from and after the redemption date such shares of Series N Preferred
Stock will no longer be deemed outstanding, and all rights of the holders of such shares will terminate, except the
right to receive the redemption price, without interest.
In the case of any redemption of only part of the Series N Preferred Stock at the time outstanding, the
shares of Series N Preferred Stock to be redeemed will be selected either pro rata or by lot. Subject to the provisions
hereof, the Board will have the full power and authority to prescribe the terms and conditions upon which shares of
Series N Preferred Stock may be redeemed from time to time.
The Series N Preferred Stock has no stated maturity and will not be subject to any sinking fund or
mandatory redemption provisions.
Regulatory Restrictions on Redemption Rights
Under current risk-based capital regulations, a bank insured by the FDIC may not redeem shares of
Preferred Stock included as Tier 1 capital without the prior approval of the FDIC. Any redemption of the Series N
Preferred Stock is subject to the Bank’s receipt of any required prior approval by the FDIC and the Commissioner
and to the satisfaction of any conditions in the capital guidelines or regulations of the FDIC applicable to such
redemption. Ordinarily, the FDIC would not permit such a redemption unless the FDIC determines that the bank’s
condition and circumstances warrant the reduction of a source of permanent capital.
Voting Rights
Registered owners of Series N Preferred Stock will not have any voting rights, except as set forth below or
as otherwise required by law.
On any matter in which the Series N Preferred Stock is entitled to vote as a class with holders of any other
shares upon which like voting rights have been conferred and are exercisable, including any action by written
consent, each share of Series N Preferred Stock will be entitled to one vote. As more fully described under
“Description of Series N Depositary Shares,” the depositary, as holder of all Series N Preferred Stock, will grant
1/40th of a vote per depositary share to the registered owner of each Series N Depositary Share so that each Series N
Depositary Share is entitled to exercise its proportionate voting rights.
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If at any time the full amount of dividends on the Series N Preferred Stock have not been paid or set aside
for payment (whether or not declared) for any six dividend periods (whether or not consecutive), holders of the
Series N Depositary Shares voting as a single class together with holders of any other stock, including the Series H
Preferred Stock, Series I Preferred Stock, Series J Preferred Stock, Series K Preferred Stock, Series L Preferred
Stock and Series M Preferred Stock that ranks on a parity with the Series N Preferred Stock as to payment of
dividends and that has voting rights equivalent to those described in this paragraph (“Series N Voting Parity Stock”),
are entitled to elect the Preferred Stock Directors at any annual meeting of shareholders or any special meeting of
the holders of Series N Preferred Stock and any Series N Voting Parity Stock, and the holders of the Common Stock
are entitled to vote for the election of the remaining number of directors authorized by the Articles or Bylaws. The
Board will at no time have more than two Preferred Stock Directors.
If, at any time after the right to elect directors is vested in the Series N Preferred Stock, the holders of the
Series N Preferred Stock and any Series N Voting Parity Stock call a special meeting of shareholders for the election
of directors, and at the time the special meeting is called, the election of the Preferred Stock Directors to the Board
would cause the number of directors to exceed the maximum number authorized under the Articles or Bylaws, then
the holders of Series N Preferred Stock and any Series N Voting Parity Stock, voting as a single class, shall be
entitled to elect the Preferred Stock Directors and the Common Stock shall be entitled to elect the remaining number
of authorized directors, the terms of office of all persons who were directors immediately prior to the special
meeting shall terminate, and the directors elected by the holders of the Bank’s Series N Preferred Stock and any
Series N Voting Parity Stock and the directors elected by the holders of the Common Stock shall constitute the
directors of the Bank until the next annual meeting.
The Preferred Stock Directors elected at any such special meeting will hold office until the next annual
meeting of the Bank’s shareholders unless they have been previously terminated as described below. Except as
otherwise provided for by applicable law, any Preferred Stock Director may be removed only by the vote of the
holders of record of the outstanding Series N Preferred Stock entitled to vote (voting together as a single class with
holders of any Series N Voting Parity Stock). As long as the right to elect Preferred Stock Directors is continuing, (i)
any vacancy in the office of any Preferred Stock Director may be filled by the vote of the holders of record of the
outstanding Series N Preferred Stock entitled to vote (voting together as a single class with holders of any Series N
Voting Parity Stock), and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the
vote of the holders of the outstanding Series N Preferred Stock entitled to vote (voting together as a single class with
holders of any Series N Voting Parity Stock) at the same meeting at which such removal shall be voted. Until the
time that any such vacancy is filled at a shareholder meeting as provided above, a successor shall be elected by the
Board to serve until the next such shareholder meeting upon the nomination of the then remaining Preferred Stock
Director.
Whenever all dividends on the Series N Preferred Stock and any other stock upon which like voting rights
have been conferred and are exercisable have been paid in full for four consecutive dividend periods (or otherwise
for at least one year), then the right of the holders of Series N Preferred Stock to elect the Preferred Stock Directors
will cease (but subject always to the same provisions for the vesting of these voting rights in the case of any similar
non-payment of dividends in respect of future dividend periods), and if no other shareholders have like voting rights
that are then exercisable, the terms of office of all Preferred Stock Directors will immediately terminate.
The Bank cannot take any of the following actions without the affirmative vote of holders of at least two-
thirds of the outstanding shares of Series N Preferred Stock:
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•
create any class or series of shares that ranks, as to dividends or distribution of assets, senior to the Series N
Preferred Stock; or
•
alter or change the provisions of the Articles, the Certificate of Determination governing the Series N
Preferred Stock or the Bylaws so as to adversely affect the voting powers, preferences or special rights of
the holders of the Series N Preferred Stock;
provided, however, that with respect to the occurrence of any event listed in the second bullet point above,
so long as any shares of Series N Preferred Stock remain outstanding with the terms thereof unchanged or new
shares of the surviving corporation or entity are issued with the identical terms as the Series N Preferred Stock, in
each case taking into account that upon the occurrence of this event the Bank may not be the surviving entity, the
occurrence of any such event shall not be deemed to adversely affect any right, preference, privilege or voting power
of the Series N Preferred Stock or the holders thereof, and provided, further, that any increase in the amount of the
Bank’s authorized Common Stock or Preferred Stock or the creation or issuance of any other Series N Parity Stock
or Series N Junior Stock and any change to the number of directors or number of classes of directors shall not,
except as provided by law, be deemed to adversely affect such rights, preferences, privileges or voting powers.
Under California law, in addition to any required approval by its board of directors or its voting
shareholders, an amendment to the articles of incorporation of a California corporation also must be approved by the
affirmative vote of a majority of the outstanding shares of a class of shares, whether or not such class is entitled to a
vote by the articles of incorporation, if the amendment proposes to: (i) increase or decrease the aggregate number of
authorized shares of such class; (ii) effect an exchange, reclassification, or cancellation of all or part of the shares of
such class; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class into the
shares of such class; (iv) change the rights, preferences, privileges or restrictions of the shares of such class; (v)
create a new class of shares having rights, preferences or privileges prior to the shares of such class, or increase the
rights, preferences or privileges or the number of authorized shares of any class having rights, preferences or
privileges prior to the shares of such class; (vi) in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions or authorize the board to do so; or (vii) cancel or
otherwise affect dividends on the shares of such class which have accrued but have not been paid.
The holders of Series N Preferred Stock will have no voting rights if the Bank redeems all outstanding
Series N Preferred Stock (or call for redemption all outstanding Series N Preferred Stock and deposit sufficient
funds in a trust to effect the redemption) on or before the time the act occurs that would otherwise require a vote.
Regulatory Risk of Voting Rights
Although the Bank does not believe that any series of its Preferred Stock is considered “voting securities”
for purposes of the BHCA, if one or more series were to become a class of “voting securities,” whether because the
Bank has missed six dividend payments and, as a result, holders of the Preferred Stock have the right to elect
directors, or for other reasons, a “company” (as that term is defined for purposes of the BHCA) that owns or controls
25% or more of such class, or less than 25% if it otherwise exercises any “controlling influence” over the Bank
(including by holding 25% or more or, in some cases, one-third or more of the Bank’s total equity), may then be
subject to regulation as a bank holding company in accordance with the BHCA. In addition, if one or more series of
its Preferred Stock becomes a class of “voting securities”:
•
any bank holding company may be required to obtain the prior approval of the Federal Reserve to acquire
or retain more than 5% of such series of Preferred Stock;
•
any person (or group of persons acting in concert) other than a bank holding company may be required to
82
obtain the approval of the FDIC under the CIBCA to acquire or retain 10% or more of such series of
Preferred Stock; and
•
any person may be required to obtain the prior approval of the Commissioner before acquiring “control” of
the Bank, as defined in California statutes and regulations.
Holders of the Preferred Stock should consult their own counsel with regard to regulatory implications.
Description of Series N Depositary Shares
General
The Series N Preferred Stock are deposited with the depositary, under a deposit agreement. Each Series N
Depositary Share will represent a 1/40th fractional ownership interest in a share of Series N Preferred Stock. Subject
to the terms of the deposit agreement, each holder of a Series N Depositary Share is entitled to all the rights and
preferences of a 1/40th fractional ownership interest in a share of Series N Preferred Stock (including dividend,
voting, redemption and liquidation rights and preferences). Immediately following the Bank’s issuance of the Series
N Preferred Stock, the Bank will deposit the Series N Preferred Stock with the depositary, which upon the Bank’s
instructions will issue and deliver the Series N Depositary Shares to DTC for credit to the accounts of such
participants of DTC and in such amounts as BofA Securities, Inc., J.P. Morgan Securities LLC, Morgan Stanley &
Co. LLC, UBS Securities LLC and Wells Fargo Securities, LLC shall specify.
Listing
The Series N Preferred Depositary Shares are listed on the NYSE under the symbol “FRC-PrN.”
Dividends
Each dividend payable on a Series N Depositary Share will be in an amount equal to 1/40th of the dividend
declared and payable on each share of Series N Preferred Stock.
The depositary will distribute all cash dividends paid on the Series N Preferred Stock to the record holders
of the Series N Depositary Shares in proportion to the number of Series N Depositary Shares held by the holders.
The depositary will distribute only such amount, however, as can be distributed without attributing to any holder of
Series N Depositary Shares a fraction of one cent, and any balance not so distributable will be held by the depositary
(without liability for interest thereon) and will be added to and be treated as part of the next sum received by the
depositary for distribution to record holders of Series N Depositary Shares then outstanding.
If a dividend is other than in cash and it is feasible for the depositary to distribute the property it receives,
the depositary, upon written instructions from the Bank, will distribute the property to the record holders of the
Series N Depositary Shares. If such a distribution is not feasible and the Bank so directs, the depositary will sell on
behalf of the holders of Series N Depositary Shares the property and distribute the net proceeds from the sale to the
holders of the Series N Depositary Shares in proportion to the number of Series N Depositary Shares held by the
holders.
Record dates for the payment of dividends and other matters relating to the Series N Depositary Shares will
be the same as the corresponding record dates for the Series N Preferred Stock.
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The amounts distributed to holders of Series N Depositary Shares will be reduced by any amounts required
to be withheld by the depositary or by the Bank on account of taxes or other governmental charges. The depositary
may refuse to make any payment or distribution, or any transfer, exchange or withdrawal of any Series N Depositary
Shares or the Series N Preferred Stock until such taxes or other governmental charges are paid. To the extent that the
depositary determines that amounts are required to be withheld in relation to the distribution of any property
pursuant to the deposit agreement, the depositary may, in certain circumstances, sell all or a portion of such property
to pay such taxes and distribute the balance of the net proceeds (after the deduction of such taxes) to the holder of
the Series N Depositary Shares in proportion to the number of Series N Depositary Shares held by the holder.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Bank’s affairs, the holders of the Series N
Depositary Shares are entitled to 1/40th of the liquidation preference accorded each share of Series N Preferred
Stock.
If the Bank consolidates or merges with or into any other entity or the Bank sells, leases, transfers or
conveys all or substantially all of the Bank’s property or business, the Bank will not be deemed to have liquidated,
dissolved or wound up. In the event of the Bank’s liquidation, dissolution or winding up, a holder of Series N
Depositary Shares will receive the fraction of the liquidation preference accorded each share of underlying Series N
Preferred Stock represented by the Series N Depositary Shares.
Redemption
Whenever the Bank redeems any of the Series N Preferred Stock held by the depositary, the depositary will
redeem as of the same redemption date, from the proceeds received by the depositary resulting from the redemption
of the Series N Preferred Stock held by the depositary, the number of Series N Depositary Shares representing the
redeemed Series N Preferred Stock. A notice of the redemption furnished by the Bank will be mailed by the
depositary by first class mail, postage prepaid, not less than 30 nor more than 60 days before the date fixed for
redemption thereof, addressed to the respective holders of record of the Series N Depositary Shares to be redeemed
at their respective addresses as they appear on the share transfer records of the depositary (provided, however, that if
the Series N Depositary Shares are held in book-entry form through DTC, the Bank may give this notice in any
manner permitted by DTC). A failure to give such notice or any defect in the notice or in the Bank’s mailing will not
affect the validity of the proceedings for the redemption of any shares of Series N Preferred Stock or Series N
Depositary Shares except as to the holder to whom notice was defective or not given. Each notice shall state:
•
the redemption date;
•
the redemption price;
•
if fewer than all shares of Series N Preferred Stock are to be redeemed, the number of shares of Series N
Preferred Stock to be redeemed (and the corresponding number of Series N Depositary Shares); and
•
the place or places where the depositary receipts evidencing the Series N Depositary Shares are to be
surrendered for payment of the redemption price.
If the Bank redeems fewer than all of the outstanding shares of Series N Preferred Stock, the depositary
will select the corresponding number of Series N Depositary Shares to be redeemed pro rata or by lot. In any such
case, Series N Depositary Shares will be redeemed only in increments of 40 Series N Depositary Shares and any
integral multiple thereof, and the notice mailed to such holder shall also specify the number of Series N Depositary
Shares to be redeemed from such holder.
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The holders of Series N Depositary Shares at the close of business on a dividend record date are entitled to
receive the dividend payable with respect to the Series N Depositary Shares evidenced by such Series N Depositary
Shares on the corresponding dividend payment date notwithstanding the redemption of the Series N Depositary
Shares between such dividend record date and the corresponding dividend payment date or the Bank’s default in the
payment of the dividend due. Except as provided above, the Bank will make no payment or allowance for unpaid
dividends on the Series N Preferred Stock or Series N Depositary Shares to be redeemed.
Voting
Because each Series N Depositary Share represents a 1/40th ownership interest in a share of Series N
Preferred Stock, holders of depositary receipts are entitled to vote 1/40th of a vote per Series N Depositary Share
under those limited circumstances in which holders of the Series N Preferred Stock are entitled to vote, as described
above.
When the depositary receives notice of any meeting at which the holders of the Series N Preferred Stock
are entitled to vote, the depositary will mail the information contained in the notice to the record holders of the
Series N Depositary Shares relating to the Series N Preferred Stock. Each record holder of the Series N Depositary
Shares on the record date, which will be the same date as the record date for the Series N Preferred Stock, may
instruct the depositary to vote the amount of the Series N Preferred Stock represented by the holder’s Series N
Depositary Shares. To the extent possible, the depositary will vote the amount of the Series N Preferred Stock
represented by Series N Depositary Shares in accordance with the instructions it receives. The Bank will agree to
take all reasonable actions that the depositary determines are necessary to enable the depositary to vote as instructed.
If the depositary does not receive specific instructions from the holders of any Series N Depositary Shares
representing the Series N Preferred Stock, it will abstain from voting with respect to such shares (but shall appear at
the meeting with respect to such shares unless directed to the contrary).
Withdrawal of Series N Preferred Stock
Upon surrender of Series N Depositary Shares at the principal office of the depositary, upon payment of
any unpaid amount due the depositary, and subject to the terms of the deposit agreement, the owner of the Series N
Depositary Shares evidenced thereby is entitled to delivery of the number of shares of Series N Preferred Stock and
all money and other property, if any, represented by such Series N Depositary Shares. Only whole shares of Series N
Preferred Stock may be withdrawn. If the Series N Depositary Shares surrendered by the holder in connection with
withdrawal exceed the number of Series N Depositary Shares that represent the number of whole shares of Series N
Preferred Stock to be withdrawn, the depositary will deliver to that holder at the same time a new depositary receipt
evidencing the excess number of Series N Depositary Shares. Holders of Series N Preferred Stock thus withdrawn
will not thereafter be entitled to deposit such shares under the deposit agreement or to receive Series N Depositary
Shares therefor.
Miscellaneous
The depositary will forward to the holders of Series N Depositary Shares any reports and communications
from the Bank with respect to the underlying Series N Preferred Stock. Neither the Bank nor the depositary will be
liable if any law or any circumstances beyond their control prevent or delay them from performing their obligations
under the deposit agreement. The obligations of the Bank and a depositary under the deposit agreement will be
limited to performing their duties without bad faith, gross negligence or willful misconduct. Neither the Bank nor a
depositary must prosecute or defend any legal proceeding with respect to any Series N Depositary Shares or the
underlying Series N Preferred Stock unless they are furnished with satisfactory indemnity. Both the Bank and the
85
depositary may rely on the written advice of counsel or accountants, or information provided by holders of Series N
Depositary Shares or other persons they believe in good faith to be competent, and on documents they believe in
good faith to be genuine and signed by a proper party. In the event a depositary receives conflicting claims, requests
or instructions from the Bank and any holders of Series N Depositary Shares, the depositary are entitled to act on the
claims, requests or instructions received from the Bank.
Book Entry, Delivery and Form
DTC acts as securities depositary for the Series N Depositary Shares. The Series N Depositary Shares are
registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an
authorized representative of DTC.
DTC has advised the Bank that it is a limited-purpose trust company organized under the New York
Banking Law, a “banking organization” within the meaning of New York Banking Law, a member of the Federal
Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a
“clearing agency” registered under the provisions of Section 17A of the Exchange Act. DTC holds securities that its
Direct Participants deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of
sales and other securities transactions in deposited securities through electronic computerized book-entry transfers
and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of DTCC.
DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing
Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries.
Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers,
banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a
Direct Participant, either directly or through Indirect Participants. The rules applicable to DTC and its Direct and
Indirect Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com.
Purchases of Series N Depositary Shares under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Series N Depositary Shares on DTC’s records. The ownership
interest of each beneficial owner is in turn recorded on the Direct and Indirect Participants’ records. Beneficial
owners will not receive written confirmation from DTC of their purchase. Beneficial owners are, however, expected
to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the beneficial owner entered into the transaction. Transfers of
ownership interest in the Series N Depositary Shares are accomplished by entries made on the books of Direct and
Indirect Participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interest in the Series N Depositary Shares, except in the event that use of the book-
entry system for the Series N Depositary Shares is discontinued. Conveyance of notices and other communications
by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect
Participants to beneficial owners are governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
To facilitate subsequent transfers, the Series N Depositary Shares deposited by Direct Participants with
DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested
by an authorized representative of DTC. The deposit of Series N Depositary Shares with DTC and its registration in
the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no
knowledge of the actual beneficial owners of the Series N Depositary Shares; DTC’s records reflect only the identity
86
of the Direct Participants to whose accounts are credited, which may or may not be the beneficial owners. The
Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their
customers.
In those instances where a vote is required, neither DTC nor Cede & Co. (nor any other DTC nominee) will
consent or vote with respect to the Series N Depositary Shares unless authorized by a Direct Participant. Under its
usual procedures, DTC mails an omnibus proxy to the Bank as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series N
Depositary Shares are credited on the record date, which accounts are identified in a listing attached to the omnibus
proxy.
Redemption proceeds, distributions and dividend payments on the Series N Depositary Shares will be made
to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice
is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the
Bank or the Bank’s agent on the payable date in accordance with their respective holdings shown on DTC’s records.
Payments by Direct or Indirect Participants to beneficial owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in
“street name,” and are the responsibility of such Direct or Indirect Participant and not of DTC (nor its nominee), the
Bank or any agent of the Bank, subject to any statutory or regulatory requirements as may be in effect from time to
time. Payment of redemption proceeds, distributions and dividends to Cede & Co. (or such other DTC nominee) is
the responsibility of the Bank or the Bank’s agent, disbursement of such payments to Direct Participants are the
responsibility of DTC, and disbursement of such payments to the beneficial owners are the responsibility of Direct
and Indirect Participants.
DTC may discontinue providing its services as securities depositary with respect to the Series N Depositary
Shares at any time by giving reasonable notice to the Bank or the Bank’s agent. Additionally, the Bank may decide
to discontinue the book-entry only system of transfers with respect to the Series N Depositary Shares. Under such
circumstances, if a successor depository is not obtained, the Bank will print and deliver certificates in fully
registered form for the Series N Depositary Shares.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from
sources that the Bank believes to be reliable, but the Bank takes no responsibility for the accuracy thereof.
Transfer Restrictions
The Series N Depositary Shares were offered and sold pursuant to an exemption from registration under the
Securities Act of 1933, as amended, and other exemptions provided by the laws of the United States and other
jurisdictions where such securities are offered and sold. The Series N Depositary Shares may only be transferred or
sold in compliance with all applicable state, federal and foreign securities laws.
1
SURVIVOR BENEFIT PLAN
ESTABLISHMENT AND PURPOSE (ARTICLE I)
First Republic Bank (the “Bank”) adopts the First Republic Bank Survivor Benefit Plan (the “Plan”), effective
September 15, 2020, subject to Board of Directors (“Board”) approval. The purpose of the Plan is to attract, retain
and reward highly qualified Employees by providing a Participant’s designated Beneficiary(ies) with a death benefit
in the event of such Participant's death while employed with the Bank or, in the case of Disability, prior to attaining
age sixty-five (65).
The Plan is intended to be an Employee Welfare Benefit Plan under the definition provided in ERISA Section 3(1),
and shall be operated and interpreted consistent with that intent.
DEFINITIONS (ARTICLE II)
2.1
Beneficiary(ies). Beneficiary(ies) means the surviving natural person(s), estate, or trust designated by the
Participant that will receive the Survivor Benefit following the Participant’s death. The Participant may
designate his or her Beneficiary(ies) at the time and in the manner prescribed by the Plan Administrator. If
no Beneficiary is designated, or if a designated Beneficiary does not survive the Participant, payment will
be made to the remaining Beneficiaries or, if none, to the Participant’s spouse, or if the Participant is not
married at the time of death, to the Participant’s estate. A former spouse shall not be entitled to a payment
from the Plan unless the Participant designates such person as a Beneficiary following dissolution of the
marriage.
2.2
Claimant. Claimant means a Participant or Beneficiary filing a claim under Article VIII of this Plan.
2.3
Code. Code means the Internal Revenue Code of 1986, as amended from time to time.
2.4
Committee. Committee means the committee appointed by the Board of Directors of the Bank (or the
appropriate committee of such board) to administer the Plan. If no designation is made, the Chief Executive
Officer of the Bank or his or her delegate shall have and exercise the powers of the Committee.
2.5
Bank. Bank means First Republic Bank.
2.6
Disability or Disabled. Disability or Disabled means or refers to a Participant's separation from service
from the Bank due to the inability to engage in any substantial gainful activity with the Bank by reason of
any medically determinable physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than twelve (12) months or is receiving income
replacement benefits for a period of not less than three (3) months under an accident and health plan
covering the Bank’s employees.
2.7
Effective Date. Effective Date means the date the Plan becomes effective. Such date is September 15,
2020.
2.8
Employee. Employee means a common-law employee of the Bank.
2.9
ERISA. ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to
time.
2.10
Participant. Participant means an Employee who has received notification from an officer of the Bank of
his or her eligibility to have his or her designated Beneficiary(ies) receive benefits under the Plan under
Article III.
Exhibit 10.17
2
2.11
Plan. The term Plan means the “First Republic Bank Survivor Benefit Plan" as documented herein and as
may be amended from time to time hereafter.
2.12
Survivor Benefit. Survivor Benefit means the payment to be made by the Bank to a deceased Participant's
designated Beneficiary(ies) of One Hundred Thousand Dollars ($100,000) in accordance with provisions in
Article IV.
2.13
Termination of Employment. Termination of Employment means the separation from active employment
with the Bank except due to death or Disability, including, without limitation, a voluntary or involuntary
termination of employment, or retirement, determined in the sole but reasonable discretion of the Bank.
ELIGIBILITY AND PARTICIPATION (ARTICLE III)
3.1
Eligibility and Participation. An Employee becomes a Participant upon the issuance of a Bank-owned life
insurance policy issued in the year 2020 and owned by First Republic Bank, insuring the life of the
Participant. The Participant shall be required to execute any and all consent forms, applications, and other
documents required by the Bank for Participation.
3.2
Duration. Regardless of whether any life insurance policy(ies) which insure such Participant's life remain
in force, are reduced in amount, or are transferred to another owner by the Bank, a Participant remains a
Participant under this Plan until the earlier of: (i) the Participant's death; (ii) the Participant's Termination of
Employment; or (iii) in the event of Disability, the Participant's attainment of age sixty-five (65).
Participation in the Plan ceases, and no benefit is due under the Plan, after a Participant incurs a
Termination of Employment, or with respect to any Disabled Participant, upon his or her attainment of age
sixty-five (65).
SURVIVOR BENEFIT (ARTICLE IV)
4.1
Except as provided below regarding forfeiture, in the event of either: (i) a Participant’s death which occurs
prior to such Participant's Termination of Employment; or (ii) with respect to a Participant who becomes
Disabled while employed with the Bank, such Disabled Participant's death prior to the attainment of age
sixty-five (65), the designated Beneficiary(ies) of such Participant shall receive a Survivor Benefit as
defined in Section 2.12.
4.2
Payment will be made in a single lump sum within sixty (60) days following receipt by the Bank of a
certified death certificate issued by the state in which the Participant's death occurred or as otherwise
approved by such state. The amount of the Survivor Benefit shall be reported as ordinary income to the
Beneficiary(ies) for Federal (and State, if applicable) income tax purposes.
4.3
Forfeiture. The Survivor Benefit shall be forfeited in its entirety in the event that a Participant commits
suicide during the two-year contestability period following the issue date of the life insurance policy on
such Participant's life, or in the event that the issuing life insurance Company otherwise successfully
contests payment of the death benefit under the terms of the policy.
3
ADMINSTRATION (ARTICLE V)
5.1
Plan Administration. This Plan shall be administered by the Committee which shall have discretionary
authority to make, amend, interpret and enforce all appropriate rules and regulations for the administration
of this Plan and to utilize its discretion to decide or resolve any and all questions, including but not limited
to eligibility for benefits and interpretations of this Plan and its terms, as may arise in connection with the
Plan. Claims for benefits shall be filed with the Committee and resolved in accordance with the claims
procedures in Article VIII.
5.2
Withholding. The Bank shall have the right to withhold from any payment due under the Plan (or with
respect to any amounts credited to the Plan) any taxes required by law to be withheld in respect of such
payment (or credit). To the extent withholdings are required prior to the time when payments are due under
the Plan, the Bank may withhold from other compensation payable to the Participant.
5.3
Indemnification. The Bank shall indemnify and hold harmless each Employee, officer, director, agent or
organization, to whom or to which are delegated duties, responsibilities, and authority under the Plan or
otherwise with respect to administration of the Plan, including, without limitation, the Committee and its
agents, against all claims, liabilities, fines and penalties, and all expenses reasonably incurred by or
imposed upon him or it (including but not limited to reasonable attorney fees) which arise as a result of his
or its actions or failure to act in connection with the operation and administration of the Plan to the extent
lawfully allowable and to the extent that such claim, liability, fine, penalty, or expense is not paid for by
liability insurance purchased or paid for by the Bank. Notwithstanding the foregoing, the Bank shall not
indemnify any person or organization if his or its actions or failure to act are due to gross negligence or
willful misconduct or for any such amount incurred through any settlement or compromise of any action
unless the Bank consents in writing to such settlement or compromise.
5.4
Delegation of Authority. In the administration of this Plan, the Committee may, from time to time, employ
agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with
legal counsel who shall be legal counsel to the Bank.
5.5
Binding Decisions or Actions. The decision or action of the Committee in respect of any question arising
out of or in connection with the administration, interpretation and application of the Plan and the rules and
regulations thereunder shall be final and conclusive and binding upon all persons having any interest in the
Plan.
AMENDMENT AND TERMINATION (ARTICLE VI)
6.1
Amendment and Termination. The Bank may at any time and from time to time amend the Plan or may
terminate the Plan at any time. Such amendment or termination shall be by written notice to the
Participant(s).
FUNDING (ARTICLE VII)
7.1
General Assets. Benefits payable under the terms of the Plan will be paid from the general funds of the
Bank.
7.2
Participant's Right to Life Insurance Policy Values or Proceeds, or Other Assets. The life insurance policy
or policies insuring the life of the Participant, the purchase of which such Participant consented to as a
condition precedent to participation in this Plan, will be owned by and payable to the Bank. No Participant,
spouse or Beneficiary shall have any right, title or interest whatever to such life insurance policy, the death
benefit payable under the terms of such policy, or in any other assets of the Bank.
4
7.3
No Relationship Created. Nothing contained in this Plan, and no action taken pursuant to its provisions,
shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Bank and
any Employee, spouse, or Beneficiary.
CLAIMS (ARTICLE VIII)
8.1
Filing a Claim. Any controversy or claim arising out of or relating to the Plan shall be filed in writing with
the Committee which shall make all determinations concerning such claim. Any claim filed with the
Committee and any decision by the Committee denying such claim shall be in writing and shall be
delivered to the Participant or Beneficiary filing the claim (the “Claimant”).
(a)
In General. Notice of a denial of benefits will be provided within 90 days of the Committee’s
receipt of the Claimant's claim for benefits. If the Committee determines that it needs additional
time to review the claim, the Committee will provide the Claimant with a notice of the extension
before the end of the initial 90-day period. The extension will not be more than 90 days from the
end of the initial 90-day period and the notice of extension will explain the special circumstances
that require the extension and the date by which the Committee expects to make a decision.
(b)
Contents of Notice. If a claim for benefits is completely or partially denied, notice of such denial
shall be in writing and shall set forth the reasons for denial in plain language. The notice shall: (i)
cite the pertinent provisions of the Plan document, and (ii) explain, where appropriate, how the
Claimant can perfect the claim, including a description of any additional material or information
necessary to complete the claim and why such material or information is necessary. The claim
denial also shall include an explanation of the claims review procedures and the time limits
applicable to such procedures, including a statement of the Claimant’s right to bring a civil action
under Section 502(a) of ERISA following an adverse decision on review.
8.2
Appeal of Denied Claims. A Claimant whose claim has been completely or partially denied shall be entitled
to appeal the claim denial by filing a written appeal with a special committee appointed by the Board of
Directors designated to hear such appeals (the “Appeals Committee”). No more than one member of the
Committee may be a member of the Appeals Committee. A Claimant who timely requests a review of the
denied claim (or his or her authorized representative) may review, upon request and free of charge, copies
of all documents, records and other information relevant to the denial and may submit written comments,
documents, records and other information relevant to the claim to the Appeals Committee. All written
comments, documents, records, and other information shall be considered “relevant” if the information: (i)
was relied upon in making a benefits determination, (ii) was submitted, considered or generated in the
course of making a benefits decision regardless of whether it was relied upon to make the decision, or (iii)
demonstrates compliance with administrative processes and safeguards established for making benefit
decisions. The Appeals Committee may, in its sole discretion and if it deems appropriate or necessary,
decide to hold a hearing with respect to the claim appeal.
(a)
In General. Appeal of a denied benefits claim must be filed in writing with the Appeals
Committee no later than 60 days after receipt of the written notification of such claim denial. The
Appeals Committee shall make its decision regarding the merits of the denied claim within 60
days following receipt of the appeal (or within 120 days after such receipt, in a case where there
are special circumstances requiring extension of time for reviewing the appealed claim). If an
extension of time for reviewing the appeal is required because of special circumstances, written
notice of the extension shall be furnished to the Claimant prior to the commencement of the
extension. The notice will indicate the special circumstances requiring the extension of time and
the date by which the Appeals Committee expects to render the determination on review. The
review will take into account comments, documents, records and other information submitted by
the Claimant relating to the claim without regard to whether such information was submitted or
considered in the initial benefit determination.
5
(b)
Contents of Notice. If a benefits claim is completely or partially denied on review, notice of such
denial shall be in writing and shall set forth the reasons for denial in plain language. The decision
on review shall set forth: (i) the specific reason or reasons for the denial, (ii) specific references to
the pertinent Plan provisions on which the denial is based, (iii) a statement that the Claimant is
entitled to receive, upon request and free of charge, reasonable access to and copies of all
documents, records, or other information relevant (as defined above) to the Claimant’s claim, and
(iv) a statement describing any voluntary appeal procedures offered by the plan and a statement of
the Claimant’s right to bring an action under Section 502(a) of ERISA.
8.3
Legal Action. A Claimant may not bring any legal action, including commencement of any arbitration,
relating to a claim for benefits under the Plan unless and until the Claimant has followed the claims
procedures under the Plan and exhausted his or her administrative remedies under such claims procedures.
If a Participant or Beneficiary prevails in a legal proceeding brought under the Plan to enforce the rights of
such Participant or any other similarly situated Participant or Beneficiary, in whole or in part, the Bank
shall reimburse such Participant or Beneficiary for all legal costs, expenses, attorneys’ fees and such other
liabilities incurred as a result of such proceedings.
GENERAL PROVISIONS (ARTICLE IX)
9.1
Assignment. No interest of any Participant, spouse or Beneficiary under this Plan and no benefit payable
hereunder shall be assigned as security for a loan, and any such purported assignment shall be null, void
and of no effect, nor shall any such interest or any such benefit be subject in any manner, either voluntarily
or involuntarily, to anticipation, sale, transfer, assignment or encumbrance by or through any Participant,
spouse or Beneficiary.
The Bank may assign any or all of its liabilities under this Plan in connection with any restructuring,
recapitalization, sale of assets or other similar transactions without the consent of the Participant.
9.2
No Legal or Equitable Rights or Interest. No Participant or other person shall have any legal or equitable
rights or interest in this Plan that are not expressly granted in this Plan. Participation in this Plan does not
give any person any right to be retained in the service of the Bank. The right and power of the Bank to
dismiss or discharge an Employee is expressly reserved. The Bank makes no representations or warranties
as to the tax consequences to a Participant or a Participant’s Beneficiaries resulting from the Participant’s
participation in the Plan.
9.3
No Employment Contract. Nothing contained herein shall be construed to constitute a contract of
employment between an Employee and the Bank.
9.4
Notice. Any notice or filing required or permitted to be delivered to the Committee under this Plan shall be
delivered in writing, in person, or through such electronic means as is established by the Committee. Notice
shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification. Written transmission shall be sent by certified mail
to:
First Republic Bank
Michael J. Roffler
111 Pine Street
San Francisco, CA 94111
Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in
writing or hand-delivered, or sent by mail to the last known address of the Participant.
9.5
Headings. The headings of Sections are included solely for convenience of reference, and if there is any
conflict between such headings and the text of this Plan, the text shall control.
6
9.6
Invalid or Unenforceable Provisions. If any provision of this Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provisions hereof and the Committee may elect
in its sole discretion to construe such invalid or unenforceable provisions in a manner that conforms to
applicable law or as if such provisions, to the extent invalid or unenforceable, had not been included.
9.7
Lost Participants or Beneficiaries. Any Participant or Beneficiary who is entitled to a benefit from the Plan
has the duty to keep the Committee advised of his or her current mailing address. If benefit payments are
returned to the Plan or are not presented for payment after a reasonable amount of time, the Committee
shall presume that the payee is missing. The Committee, after making such efforts as in its discretion it
deems reasonable and appropriate to locate the payee, shall stop payment on any uncashed checks and may
discontinue making future payments until contact with the payee is restored.
9.8
Facility of Payment to a Minor. If a distribution is to be made to a minor, or to a person who is otherwise
incompetent, then the Committee may, in its discretion, make such distribution: (i) to the legal guardian, or
if none, to a parent of a minor payee with whom the payee maintains his or her residence, or (ii) to the
conservator or committee or, if none, to the person having custody of an incompetent payee. Any such
distribution shall fully discharge the Committee, the Bank, and the Plan from further liability on account
thereof.
9.9
Governing Law. To the extent not preempted by ERISA, the laws of the State of California shall govern the
construction and administration of the Plan.
IN WITNESS WHEREOF, the undersigned executed this Plan as of the 24th day of August 2020 to be
effective as of the Effective Date.
First Republic Bank
By: /s/ Michael J. Roffler
Michael J. Roffler, Executive Vice President and Chief Financial Officer
7
First Republic Bank
Survivor Benefit Plan
Acceptance and Election to Participate Form
Participant:
The Participant acknowledges receipt of a copy of the First Republic Bank Survivor Benefit Plan dated
September 15, 2020, (the “Plan”), accepts and agrees to the terms of the Plan, and is completing this form
as required by Article 3.1 of the Plan.
Article 4.1 of the Plan gives the Participant the right to designate beneficiaries of the Survivor Benefit
defined in Article 2.12 of the Plan as “Survivor Benefit means the payment to be made by the Bank to a
deceased Participant’s Beneficiary(ies) of $100,000 in accordance with provisions in Article IV”;
A. The Participant’s Survivor Benefit amount is $100,000.
B. The Participant acknowledges his/her understanding of his/her responsibility to:
1)
Complete the Participant’s Designation of Beneficiary Form and return it via
DocuSign and sent to the Bank’s Human Resources team; such form is attached
and made a part hereof.
2)
Periodically review the information provided on the Participant’s
Designation of Beneficiary Form and provide the Bank
with updates of his/her beneficiary(s) and/or beneficiary(s) address(es) if
this information changes.
3)
Report the income related to the Participant’s Survivor Benefit
as required by the Code.
Signed at
Date Signed:
(City, State)
By Participant:
By First Republic Bank:
_________________________________________ /s/ Michael J. Roffler
Michael J. Roffler,
Executive Vice President and Chief Financial Officer
8
First Republic Bank
Survivor Benefit Plan
Participant’s Designation of Beneficiary Form
Participant:
Pursuant to Article 2.1 of the First Republic Bank Survivor Benefit Plan dated September 15, 2020, and my
Acceptance and Election to Participate Form, the Plan Participant may designate his or her beneficiary(ies) that will
receive the Survivor Benefit prescribed by the Plan. As a Participant under the Plan, I hereby designate the
beneficiary(ies) listed below to receive any benefits under the Plan that may be due upon my death. This designation
shall replace and revoke any prior designation of beneficiary(ies) made by me under the Plan.
Primary Beneficiary(ies) (Must total 100%):
1. Full Name:
Date of Birth:
Percentage of Proceeds:
%
Social Security Number:
Address:
2. Full Name:
Date of Birth:
Percentage of Proceeds:
%
Social Security Number:
Address:
*If more than one beneficiary is named above, the beneficiaries will share equally in any benefits, unless you have
otherwise provided above. Further, if you have named more than one beneficiary and one or more of the beneficiaries
is deceased at the time of your death, any remaining beneficiary(ies) will share equally, unless you have provided
otherwise above. If no primary beneficiary survives you, then the contingent beneficiary designated below will receive
any benefits due upon your death. In the event you have no designated beneficiary upon your death, any benefits due
will be paid to your estate. In the event that you are naming a beneficiary that is not a person, please provide pertinent
information regarding the designation.
Contingent Beneficiary(ies) (if the Primary Beneficiary(ies) is deceased. Must total 100%):
1. Full Name:
Date of Birth:
Percentage of Proceeds:
%
Social Security Number:
Address:
2. Full Name:
Date of Birth:
Percentage of Proceeds:
%
Social Security Number:
Address:
Signed at
Date Signed:
(City, State)
By Participant:
By First Republic Bank:
________________________________________ /s/ Michael J. Roffler
Michael J. Roffler,
Executive Vice President and Chief Financial Officer
Exhibit 21
FIRST REPUBLIC BANK
SUBSIDIARIES
The following is a list of the subsidiaries of First Republic Bank as of December 31, 2022:
Subsidiary (1)
State of Incorporation or Organization
First Republic Lending Corporation
Nevada
First Republic Investment Management, Inc.
New York
First Republic Securities Company, LLC
Nevada
First Republic Trust Company of Delaware LLC
Delaware
First Republic Trust Company of Wyoming LLC
Wyoming
(1)
Excluded from the above list are subsidiaries which in the aggregate do not constitute a significant subsidiary.
Exhibit 31.1
Certification of Principal Executive Officer
Pursuant to §302 of The Sarbanes-Oxley Act of 2002
I, Michael J. Roffler, certify that:
1.
I have reviewed this annual report on Form 10-K of First Republic Bank;
2.
Based on my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;
3.
Based on my knowledge, the financial statements, and other financial information included
in this annual report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
annual report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant, and we have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this
annual report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this annual report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this annual
report based on such evaluation; and
(d)
Disclosed in this annual report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of the annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
Date: February 28, 2023
/s/ Michael J. Roffler
Name: Michael J. Roffler
Title:
Chief Executive Officer and President
Exhibit 31.2
Certification of Principal Financial Officer
Pursuant to §302 of The Sarbanes-Oxley Act of 2002
I, Neal Holland, certify that:
1.
I have reviewed this annual report on Form 10-K of First Republic Bank;
2.
Based on my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;
3.
Based on my knowledge, the financial statements, and other financial information included
in this annual report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
annual report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant, and we have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this
annual report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this annual report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this annual
report based on such evaluation; and
(d)
Disclosed in this annual report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of the annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
Date: February 28, 2023
/s/ Neal Holland
Name: Neal Holland
Title:
Executive Vice President and
Chief Financial Officer
Exhibit 32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002
The undersigned, the Principal Executive Officer of First Republic Bank (the “Company”), hereby
certifies on the date hereof, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K for the year ended December 31,
2022 (the “Form 10-K”), filed concurrently herewith by the Company, fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that
the information contained in the Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: February 28, 2023
/s/ Michael J. Roffler
Name: Michael J. Roffler
Title:
Chief Executive Officer and President
Exhibit 32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002
The undersigned, the Principal Financial Officer of First Republic Bank (the “Company”), hereby
certifies on the date hereof, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K for the year ended December 31,
2022 (the “Form 10-K”), filed concurrently herewith by the Company, fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that
the information contained in the Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: February 28, 2023
/s/ Neal Holland
Name: Neal Holland
Title:
Executive Vice President and
Chief Financial Officer