OFFERINGCIRCULAR 11,000,000 Shares

Common Stock

This is an initial public offering of shares of common stock of First Republic Bank, a California state- chartered, non-member bank. We are offering 4,115,000 shares of common stock, and the selling shareholders identified in this offering circular are offering an additional 6,885,000 shares of common stock. We will not receive any of the proceeds from the sale of shares by the selling shareholders. Currently, there is no public market for our common stock. The public offering price is $25.50 per share. Our common stock has been approved for listing on the New York Stock Exchange under the symbol “FRC.”

Investing in our common stock involves risks that are described in the “Risk Factors” section beginning on page 12 of this offering circular. THE OFFER AND SALE OF OUR COMMON STOCK HAS BEEN AUTHORIZED BY A NEGOTIATING PERMIT AND A DEFINITIVE PERMIT ISSUED BY THE CALIFORNIA COMMISSIONER OF FINANCIAL INSTITUTIONS. THESE PERMITS ARE PERMISSIVE ONLY AND DO NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF OUR COMMON STOCK. NONE OF THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE CALIFORNIA DEPARTMENT OF FINANCIAL INSTITUTIONS OR ANY OTHER FEDERAL OR STATE REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SHARES OF OUR COMMON STOCK ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE ENTIRE AMOUNT YOU INVEST.

Per Share Total Public offering price ...... $25.5000 $280,500,000.00 Underwriting discounts ...... $ 1.5937 $ 17,530,700.00 Proceeds, before expenses, to us ...... $23.9063 $ 98,374,424.50 Proceeds, before expenses, to the selling shareholders . . . $23.9063 $164,594,875.50 The underwriters may also exercise their option to purchase up to an additional 610,000 shares of common stock from us, and up to an additional 1,040,000 shares of common stock from the selling shareholders, at the public offering price less the underwriting discount, for 30 days after the date of this offering circular. The shares of common stock sold in this offering will be ready for delivery on or about December 14, 2010.

BofA Merrill Lynch Morgan Stanley J.P. Morgan Barclays Capital Jefferies & Company Keefe, Bruyette & Woods Sandler O’Neill & Partners, L.P. Stifel Nicolaus Weisel

The date of this offering circular is December 8, 2010 TABLE OF CONTENTS

Page Explanatory Note ...... ii Offering Circular Summary ...... 1 The Offering ...... 8 Selected Financial Information ...... 9 Risk Factors ...... 12 Cautionary Note Regarding Forward-Looking Statements ...... 32 Our History and Reestablishment as an Independent Institution ...... 34 Use of Proceeds ...... 35 Dividend Policy ...... 36 Capitalization ...... 37 Dilution ...... 38 Management’s Discussion and Analysis of Financial Condition and Results of Operations ...... 39 Quantitative and Qualitative Disclosures About Market Risk ...... 96 Business ...... 101 Supervision and Regulation ...... 116 Management ...... 128 Executive Compensation ...... 134 Certain Relationships and Related-Person Transactions ...... 168 Security Ownership of Certain Beneficial Owners and Management ...... 170 Description of Capital Stock ...... 173 Shares Eligible for Future Sale ...... 177 Certain Provisions of California Law, the Bank’s Articles of Incorporation and Bylaws and the Shareholders’ Agreement ...... 178 Material U.S. Federal Income Tax Considerations ...... 186 Certain ERISA Considerations ...... 190 Underwriting ...... 192 Validity of Common Stock ...... 198 Independent Registered Public Accounting Firms ...... 198 Authorization for Offering ...... 198 Available Information ...... 198 Index to Financial Statements ...... F-1

You should rely only on the information contained in this offering circular and any supplement or addendum that may be provided to you. Neither we nor the underwriters have authorized anyone to provide you with additional or different information. We and the underwriters are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where such offers and sales are permitted. The information in this offering circular and any supplement or addendum is accurate only as of the dates thereof, regardless of the time of delivery of this offering circular or any such supplement or addendum or the time of any sale of shares of our common stock. Our financial condition, business and prospects may have changed since any such date.

i EXPLANATORY NOTE

As used throughout this offering circular, the terms “First Republic,” the “Bank,” “we,” “our” and “us” mean, as the context requires:

• First Republic Bank, a Nevada-chartered commercial bank (the predecessors of which had been in existence since 1985) before its acquisition in September 2007 by Merrill Lynch Bank & Trust Company, F.S.B. (“MLFSB”), a subsidiary of Merrill Lynch & Co., Inc. (“Merrill Lynch”), together with all subsidiaries then-owned by First Republic Bank;

• The First Republic division within MLFSB following the September 2007 acquisition and the First Republic division within Bank of America, N.A. (“BANA”), a subsidiary of Bank of America Corporation (“Bank of America”), following MLFSB’s merger into BANA, effective as of November 2009, in each case including all subsidiaries acquired by MLFSB as part of the September 2007 acquisition; and

• First Republic Bank, a recently-chartered commercial bank that acquired the First Republic division of BANA effective upon the close of business on June 30, 2010, including all subsidiaries acquired by First Republic Bank in connection with the June 2010 acquisition.

ii OFFERING CIRCULAR SUMMARY

This summary highlights certain material information contained elsewhere in this offering circular. Because this is a summary, it may not contain all of the information that is important to you when deciding whether to invest in our common stock. Therefore, you should carefully read this entire offering circular before investing, including the information under “Risk Factors” beginning on page 12, “Cautionary Note Regarding Forward-Looking Statements” on page 32 and our financial statements and related notes included elsewhere in this offering circular.

Overview

Founded in 1985, we are a California-chartered commercial bank and trust company headquartered in San Francisco with deposits insured by the Federal Deposit Insurance Corporation (“FDIC”). We specialize in providing personalized, relationship-based Preferred Banking, preferred business banking, real estate lending, trust and wealth management services to clients in metropolitan areas throughout the United States. We provide our services through 61 offices, of which 56 are Preferred Banking offices in 8 metropolitan areas and 5 offices offer exclusively lending, wealth management or trust services. As of September 30, 2010, we had total assets of $22.0 billion, total deposits of $19.0 billion, total equity of $2.0 billion and wealth management assets of $17.2 billion. Based on publicly available information, as of September 30, 2010 we were the 44th largest banking organization in the United States measured by total deposits.

First Republic has been profitable consistently for 25 years since its founding in 1985. We believe we have been able to significantly expand and strengthen our franchise without sacrificing the high credit quality of our loan portfolio. Since the end of 2006, just prior to the announcement of our sale to Merrill Lynch, we have grown our loans and deposits at an annual rate of 24% and 22%, respectively. Over the same period since the end of 2006, our average net charge-offs as a percentage of average loans was 0.22% per year. Our nonperforming assets, currently 0.07% of total assets, have not exceeded 2% of total assets for any reporting period in the last 10 years, which is well below banking industry averages. As a result of our strong brand, our focus on deep client relationships and prudent underwriting, we have remained profitable consistently for 25 years, including each of the past three years as well as the nine months ended September 30, 2010, as we went through several changes in ownership.

We believe we have successfully developed our Preferred Banking business by adhering to a set of guiding service principles and a long-term disciplined perspective that emphasizes a consistent focus on originating high quality assets and deep client relationships, developing a strong, stable deposit base and creating a culture of dedicated, responsive and carefully coordinated client service. We adhere to the same principles in our business banking and strive to provide personalized, professional and responsive banking services to businesses as we provide to our private clients. We believe this has allowed us to significantly develop our business by cross-selling products and services to our existing customers and by steadily attracting new customers. We also strive to protect our clients’ financial security and privacy and to assist our communities through socially responsible leadership.

We have maintained an experienced and consistent management team. Mr. James H. Herbert II, founding Chief Executive Officer in February 1985 and currently Chairman and Chief Executive Officer, and Ms. Katherine August-deWilde, our President and Chief Operating Officer who joined in July 1985 as Chief Financial Officer, have overseen the growth and expansion of First Republic for 25 years. This predominately organic growth has resulted in $22 billion in bank assets and $17 billion of wealth management assets today.

From the merger with Merrill Lynch on September 21, 2007 until June 30, 2010, First Republic operated as a separate division of initially Merrill Lynch and, following Merrill Lynch’s acquisition by Bank of America on January 1, 2009, of Bank of America. Throughout these mergers, we maintained our own identity

1 and operated our own client-interactive technology systems and office network. The vast majority of clients experienced no conversion of their accounts. Management at all levels remained intact during this period and directed the 25% and 22% per year rate of growth experienced in total loans and deposits, respectively. Following a management-led buy-out, effective upon the close of business on June 30, 2010, First Republic was reestablished as an independent business entity. From our founding through our changes in ownership, we believe we have maintained the strength of our brand, a strong market presence and a distinct client-service culture.

Our Business

We provide our clients with a diverse suite of financial products that foster long-term relationships, while at the same time maintaining a disciplined underwriting policy. We offer a broad range of lending products to meet the needs of our clients, including residential mortgage loans, commercial real estate loans, residential construction loans and small business loans. We have a history of building long-term client relationships and attracting new clients through what we believe is our superior customer service and our ability to deliver a diverse product offering.

Our primary starting point for new client relationships is the origination of jumbo single family mortgage loans, which we believe enables us to fully understand the client and the credit, as well as demonstrate our dedicated client service and responsiveness. In addition, we offer a full array of traditional checking and deposit services, Internet banking, business lending and cash management services for business accounts, as well as other banking services.

Our Preferred Banking offices are carefully integrated with our Preferred Banking client business and manage 14% of all such deposits. These offices do not use tellers and provide their own differentiated brand of high-touch, sit-down client service and source of stable consumer and small business deposits. Through our private wealth management group, we offer a variety of investment strategies and products, trust and custody services, full service and online brokerage, financial and estate planning, and foreign exchange services, among other products. 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.

Our Competitive Strengths

We believe that our success is attributable to the following competitive strengths:

Attractive Geographical Footprint. We operate our business in primarily coastal, metropolitan areas that contain a disproportionately large share of higher net worth individuals, defined as households with $1 million or more in investable assets. Our primary markets contain only 20% of all U.S. households but contain approximately 53% of U.S. households with at least $1 million of investable assets. In addition, the markets in which we operate have diversified economies that are most responsive to high touch banking, lending and wealth management services. We believe our distinct business model will enable us to continue to expand our high net worth client base in these very attractive markets.

Strong Brand and Reputation in our Markets. We believe our strong brand and market reputation have become key drivers of our growth. We built our brand on what we believe are coordinated and consistent sales and service and a responsive, client-friendly culture that permeates our organization. We have successfully developed our banking business and products through consistent focus on client service, with the majority of our new clients being referred to us by satisfied existing clients. We believe that our brand, our service culture and the customer loyalty we have created have resulted in our ability to significantly and safely grow our client base,

2 effectively cross-sell our services and attract and retain high quality employees. We also believe the strength of our brand allowed us to increase the number of high net worth households we serve from 2007 to 2009 by 35%. At the end of 2009, our overall market share of such households in our six key markets was 4.3%. In our home market of San Francisco, we have achieved a 15.6% penetration of such households.

Superior Credit Quality. We have always focused on originating high quality loans for our clients. We strive to underwrite the client relationship and not just the credit, allowing us to originate higher-quality assets, which we believe generate more predictable and more stable returns on a risk-adjusted basis. From 1985 through September 30, 2010, we have incurred cumulative net losses of only 24 basis points on total loan originations of approximately $62 billion. In our core home lending business, we originate only prime, fully documented loans with conservative loan-to-value ratios (average at origination of 58% as of September 30, 2010), and we have incurred cumulative net losses of only 5 basis points on total originations of $42 billion since 1985, including loans sold to investors. We retain servicing on all loans sold to investors.

In April 2010, Bank of America retained approximately $2.1 billion of loans originated by the First Republic division. This amount included almost all of our nonperforming loans and real estate owned, which totaled $378.4 million at the time. Our nonperforming assets remained under 2% of our total assets at each quarter end during the past five years and were less than 0.10% of total assets at September 30, 2010.

Growing and Stable Core Deposit Base. A significant driver of our franchise is the growth and stability of our checking and savings deposits, which we use to fund our loans and balance sheet. We have not generally accepted brokered deposits. At September 30, 2010, our total deposits were $19.0 billion, 78% of which were core deposits (defined as total deposits excluding certificates of deposit (“CDs”) over $100,000). Since December 31, 1999, we have grown total deposits at a compound annual growth rate of 22.5%, primarily driven by the growth in savings and checking accounts, which have grown at a compound annual rate of 25.2% over the same period. We seek to cross-sell deposit products at loan origination, which provide a basis for expanding our banking relationships and a stable source of funding. Business banking also allows us to raise lower-cost deposits.

High Quality Professionals. We believe that another driver of our growth and a differentiator of our business model is our team of high quality and experienced relationship managers and other sales professionals. We have a team of over 200 client-facing professionals, including relationship managers, preferred bankers, office managers and wealth management professionals. These employees have proven client service skills and deep experience developed in the banking industry. Our relationship managers understand how to evaluate credit and manage our client relationships. Since 1986, our compensation program for our relationship managers has included meaningful, loan-delinquency related clawback provisions. We believe that these programs and our credit culture and policies focus our professionals on high quality credit and align the interest of our client interface team with those of the client and the Bank.

Experienced Leadership and Consistent Management Team. Mr. Herbert founded First Republic as Chief Executive Officer in February 1985, and he and Ms. August-deWilde, who joined as Chief Financial Officer in July 1985, have worked together since. Our management team of 34 senior officers has an average tenure of 12 years with First Republic and an average experience of 28 years in banking or related fields. Specifically, our Chief Credit Officer, Mr. David B. Lichtman, our Chief Financial Officer, Mr. Willis H. Newton, Jr., and our General Counsel, Mr. Edward J. Dobranski, have been with First Republic since 1986, 1988 and 1992, respectively. Despite changes in our ownership structure over the past three years, we have retained every key member of our management team. In addition, a majority of our board of directors have been members for six or more years. These executives and our board of directors have guided us successfully through various industry cycles, economic conditions and ownership structures while we remained consistently profitable for 25 years.

3 Strong Stock Price Performance

First Republic initially became a public company in August 1986. According to Bloomberg, for the 5- and 10-year periods preceding the announcement of its sale to Merrill Lynch, First Republic’s common stock generated total annualized returns of 18.3% and 16.8%, respectively, compared with 6.5% and 8.0% for the S&P 500 for the same periods. On January 29, 2007, First Republic announced its pending sale to Merrill Lynch at $55.00 per share, a 44% premium over the prior day’s closing market price, which premium was not included in the above returns. Additionally, the sale price to Merrill Lynch was equal to 3.6x tangible book value when announced.

Our Business Strategy

Our core business principles and service based culture have successfully guided our efforts over the past 25 years. We believe focusing on these principles will enable us to expand our capabilities for providing value- added services to a targeted high net worth client base and generate steady, long-term growth.

Originate High Quality Relationships. We do not seek growth per se. Rather, we believe that stable long-term growth and profitability are the result of building strong customer relationships one at a time while maintaining superior credit discipline. We remain committed to expanding our business in a disciplined manner. We intend to continue to focus on underwriting and originating high quality loans and expanding our wealth management business in a prudent and disciplined manner. We believe that successfully focusing on these factors will allow us to continue to achieve long-term and profitable expansion within our current markets.

Deliver Superior Client Service. We believe the best way to develop our business is through the continued delivery of superior, carefully coordinated client service without compromising the credit quality of our assets. Our client focused culture has resulted in the vast majority of our new clients coming to us from “word of mouth” referrals from satisfied existing clients. Our employees strive to build deep, long-term relationships with clients and understand their clients’ needs by identifying appropriate financial solutions and coordinating with our banking specialists and wealth management experts to deliver our products and services. We believe that delivering superior client service differentiates us from our competition.

Attract and Retain High Quality Service Professionals. Having successful and high quality service and sales professionals is critical to driving the development of our business and delivering superior financial performance. We have experienced low turnover in our client service personnel and intend to continue hiring and developing professionals who can establish and maintain long-term customer relationships that are the key to our business, brand and culture. We believe our distinct business model, culture, scalable platform and incentive compensation structure enable us to attract and retain high quality service professionals.

Cross-Sell Products and Services. During the first nine months of 2010, we sold an average of 9 products per new home loan, and we intend to continue to cross-sell products and value-added services to future clients. We believe that our brand name, superior client service and service culture will continue to enable us to broaden our client relationships and foster continued growth in the products and services we offer them. We typically attract new loan clients with our mortgage loan products and services, providing an opportunity for our relationship managers to cross-sell other products and services to these clients. In addition, we offer our expertise and targeted service offerings for a variety of small- to medium-sized businesses and non-profit organizations. We believe that enhancing our cross-selling capabilities will enable us to generate higher revenues, increase our deposits and diversify our income stream.

Grow Our Wealth Management Business. We view our wealth management business as an opportunity for continued growth. We intend to continue to expand our wealth management business by hiring additional professionals and using our cross-selling expertise to increase our assets under management. We offer integrated

4 investment advisory, trust and brokerage services, which are an extension of our banking franchise. We believe that our brand name, superior client service and service culture will enable us to expand this business and diversify our income stream.

Grow Core Deposits. Since 1997, when we converted to full-service banking, we have focused on creating and growing a stable, high quality, less expensive core deposit base. Our ability to grow core deposits has enabled us to minimize our reliance on wholesale funding, thereby resulting in a lower cost and more stable funding base. Since December 31, 1999, our checking and savings deposits have grown at a compound annual rate of 25.2% due to the efforts of our relationship managers, office network and Preferred Banking personnel. Our Preferred Banking offices attract and serve individuals who may not need our loan products; we believe our service encourages them to build a full deposit relationship with us and loan and wealth management relationships. Our relationship managers have successfully learned how to offer full deposit products to their loan clients and build long-term relationships. Our business banking is a key source of such deposits and, more recently, we have begun to attract core deposits from our wealth management clients as well.

Our History and Reestablishment as an Independent Institution

The legal predecessor of First Republic Bank was formed in February 1985 and operated from June 1985 until September 1997 as First Republic Bancorp, a publicly-traded (beginning in August 1986), non-bank holding company listed on the New York Stock Exchange (“NYSE”) under the symbol “FRC.” In 1997, First Republic Bancorp merged into its subsidiary, First Republic Bank, which was subsequently listed on the NYSE. Beginning in 1997, First Republic Bank began its emphasis on full service, high net worth banking and the development of an expanded core deposit franchise. In January 2007, we announced an agreement with Merrill Lynch under which we merged with MLFSB in September 2007. Under the terms of the acquisition, we operated as a separate division within MLFSB, and continued to be managed by our existing, original management team. On January 1, 2009, Bank of America purchased Merrill Lynch and thereby acquired MLFSB. On November 2, 2009, MLFSB was merged into BANA, and we thus became a division of BANA. Throughout these mergers, we maintained our own identity, client-based systems and office network, with loans, deposits and other bank products offered to customers under the First Republic Bank brand.

On October 21, 2009, BANA, MLFSB and the current First Republic Bank (then in organization) entered into a purchase and sale agreement (the “Purchase Agreement”) designed to reestablish First Republic as an independent business entity with the same business model, management team and employee base (the “Transaction”). We agreed to purchase certain assets and operations, including the customer relationships, trust department and most of the loans held by, and assume the deposits and most of the other liabilities of, the First Republic division of MLFSB following receipt of certain regulatory approvals.

5 Between announcement of the sale to Merrill Lynch in January 2007 and our reestablishment as an independent institution, we experienced considerable growth and development, as shown in the following table. Without the distractions of troubled loan portfolios experienced by others, we were able to concentrate our efforts on expansion.

At or For the Year At or For the Six Compounded Ended Months Ended Annual ($ in millions) December 31, 2006 June 30, 2010 Growth Rate Financial: Total loans (unpaid principal balance) . . . $8,209 $18,027 25.2% Total deposits ...... $8,921 $17,779 21.8% Operational: Number of deposit offices ...... 43 57 8.4% Number of full-time equivalent employees ...... 1,112 1,454 8.0% Asset Quality: Nonperforming assets to total assets ..... 0.10% 0.09% n/a Net charge-offs (recoveries) to average loans ...... (0.06)% 0.11% n/a

The consummation of the Transaction occurred after the close of business on June 30, 2010, and the current, newly-chartered California non-member bank First Republic Bank began operation on July 1, 2010. Simultaneous with the closing of the acquisition, the current First Republic Bank received a contribution of $1.86 billion in common equity capital in a buy-out led by our management and an investor group co-led by Colony Capital, LLC (“Colony”) and General Atlantic LLC (“General Atlantic”).

Risks Related to Our Business and this Offering

We face a number of risks in operating our businesses, including risks that may prevent us from achieving our business objectives or that may adversely affect our business, results of operations, financial condition or prospects. You should carefully consider each of the risks set forth in “Risk Factors” beginning on page 12 and “Cautionary Note Regarding Forward-Looking Statements” on page 32 before investing in our common stock. Some of the more significant risks include the following:

• We face significant competition to attract and retain banking and wealth management customers. We operate in highly competitive industries and face significant competition for customers from other banks and financial institutions located both within and beyond our principal markets. Our failure to effectively compete for customers or retain current customers could adversely affect our growth and profitability.

• The markets in which we operate are subject to the risk of earthquakes and other natural disasters. A significant number of our properties and real properties currently securing loans made by us, and our borrowers in general, are located in California. California is prone to earthquakes and other natural disasters such as brush and forest fires. A major earthquake, fire or other natural disaster in our California markets could materially adversely affect our business.

• We are subject to interest rate risk. Fluctuations in interest rates may negatively impact our banking business. Short-term interest rates are currently very low by historical standards, reducing our cost of funding and increasing our net interest margin compared to historical averages. We do not believe that this is sustainable and expect our net interest margin to fall toward historical levels when short-term interest rates rise or the yield curve becomes lower or more flat, which will result in less income to us. Fluctuations in interest rates may also adversely affect our borrowers’ ability to repay their loans and the amount of prepayment penalty income we collect.

6 • We have several significant investors whose individual interest may differ from yours. A significant percentage of our common stock is currently held by a few large institutional and individual investors who collectively own approximately 97% of the common stock outstanding. Following the completion of this offering, these investors will collectively own approximately 88% of the common stock outstanding. These investors will have a greater ability than our other shareholders to influence the election of directors and the potential outcome of matters submitted for a vote of our shareholders. The interests of these investors could also conflict with the interests of our other shareholders.

• 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 lending personnel follow those standards, particularly for our single family residence loans. The weakening of these standards for any reason 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 allowance for loan losses, any of which could adversely affect our net income or financial condition.

• Our ability to maintain, attract and retain customer relationships is highly dependent on our reputation. A significant source of new customers has been, and we expect will continue to be, the reputation we maintain and the recommendations of satisfied customers. Damage to our reputation could undermine the confidence of our current and potential clients in our ability to provide financial services. Such damage could also impair the confidence of our counterparties and business partners, and ultimately affect our ability to effect transactions and could adversely affect our business and prospects for future growth.

• Our operations are concentrated geographically in California, particularly San Francisco, and the Northeastern United States, and poor economic conditions in these areas or in the United States generally could adversely affect the demand for our products and our credit quality. Our operations are located primarily in Northern and Southern California, New York and Boston. Our loan portfolio, in particular, is concentrated in California in general and in the San Francisco Bay Area in particular. Local economic conditions in these areas can have a significant impact on the demand for our products and services and the ability of our borrowers to repay their loans. A decline in these conditions or in general economic conditions nationwide could adversely affect our currently performing loans, leading to future delinquencies or defaults and increases in our provisions for loan losses. Further or continued adverse changes in these economic conditions may negatively affect our business.

• As a recently-chartered institution, we are subject to restrictions which may adversely affect our ability to compete effectively and optimize shareholders’ returns. We are a recently established, de novo California-chartered, non-member FDIC-supervised depository institution. Therefore, we are subject to heightened capital requirements and many other business limitations imposed by the FDIC and the California Department of Financial Institutions (the “DFI”) as part of their respective approvals for us to operate a commercial banking and trust business, including close adherence to our plan of business as described to these agencies. Many of our primary competitors are not subject to similar restrictions. Thus, these limitations may adversely affect our future activities.

Our Corporate Information Our principal executive offices are located at 111 Pine Street, 2nd Floor, San Francisco, California 94111. The main telephone number at these offices is (415) 392-1400 and our website address is www.firstrepublic.com. Information contained on our website is not part of or incorporated by reference into this offering circular.

7 THE OFFERING

Securities Offered by Us ...... 4,115,000 shares of common stock, par value $0.01 per share.

Securities Offered by the Selling Shareholders ...... 6,885,000 shares of common stock, par value $0.01 per share.

Shares Currently Outstanding ...... 124,133,334 shares of common stock, as of October 31, 2010.

Shares Outstanding After Completion of this Offering ...... 128,248,334 shares of common stock, assuming the underwriters do not exercise their option to purchase additional shares.

Dividends ...... We currently do not intend to pay any cash dividends on our common stock in the foreseeable future after this offering. We currently intend to retain all of our future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our common stock will be made, subject to applicable law and regulatory approvals, by our board of directors (the “Board”) and will depend upon our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors that the Board deems relevant. The Board may determine not to pay any cash dividends on our common stock at any time in the future. See “Dividend Policy.”

Voting Rights ...... Each holder of our common stock will be entitled to one vote per share held 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 our preferred stock, par value $0.01 per share, none of which is currently outstanding. See “Description of Capital Stock—Common Stock.”

Use of Proceeds ...... We intend to use the proceeds to us generated by this offering, approximately $95.2 million after deducting the underwriters’ discount and estimated offering expenses payable by us, for general corporate purposes, which may include, among other things, funding loans or purchasing investment securities for our portfolio.

We will not receive any proceeds from the sale of common stock by the selling shareholders. See “Use of Proceeds.”

Pre-emptive and Other Rights ...... Purchasers of the shares sold in this offering will not have any pre- emptive rights. Our common stock is not subject to redemption.

Listing ...... Our common stock has been approved for listing on the NYSE under the symbol “FRC.”

Risk Factors ...... Investing in our common stock involves significant risks. See “Risk Factors” beginning on page 12 to read about risk factors you should consider before investing in our common stock.

8 SELECTED FINANCIAL INFORMATION

The following table presents selected financial and other data for us as of the dates and for the periods indicated. The balance sheet and operations data as of and for the year ended December 31, 2009, December 26, 2008 and December 31, 2006 and 2005 have been derived from our audited financial statements. The balance sheet data as of December 28, 2007 has been derived from our audited financial statements. The results of operations for the full year ended December 28, 2007 are unaudited but have been derived from the separate audited carve-out financial statements of the First Republic division of MLFSB as of December 28, 2007 and for the period from September 22, 2007 through December 28, 2007 plus the audited financial statements of the predecessor First Republic Bank for the period from January 1, 2007 through September 21, 2007 included elsewhere in this offering circular.

The financial statements as of and for the year ended December 31, 2009 have been audited by PricewaterhouseCoopers LLP, which is an independent registered public accounting firm. The financial statements as of and for the years ended December 26, 2008 and December 31, 2006 and 2005 and as of December 28, 2007 and for the periods from September 22, 2007 through December 28, 2007 and from January 1, 2007 through September 21, 2007 have been audited by KPMG LLP, which is also an independent registered public accounting firm.

The information presented below under the captions “Selected Operating Ratios,” “Selected Asset Quality Ratios” and “Capital Ratios” is unaudited. The data presented as of and for the three-month period ended September 30, 2010, the six-month period ended June 30, 2010 and the nine-month period ended September 30, 2009 is derived from our unaudited condensed financial statements, which, in the opinion of our management, reflect all adjustments necessary for a fair statement of the results for these interim periods. These adjustments consist of normal recurring adjustments. The results of operations for the three months ended September 30, 2010 and six months ended June 30, 2010 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2010. The selected financial and other data is qualified in its entirety by, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements, including the notes thereto, which are included elsewhere in this offering circular.

The financial statements as of and for the six-month period ended June 30, 2010, the nine-month period ended September 30, 2009 and as of and for the years ended December 31, 2009 and December 26, 2008 and as of December 28, 2007 and for the period from September 22, 2007 through December 28, 2007 were prepared on a historical carve-out basis, the purpose of which is to present fairly the financial position, results of operations and cash flows of the First Republic division of MLFSB and BANA separately from the financial position, results of operations and cash flows of MLFSB and BANA as legal entities. The selected financial data from these historical carve-out financial statements may not necessarily reflect the results of operations or financial position that we would have achieved had we actually operated as a stand-alone entity during the periods presented.

The balance sheet and operations data as of and for the year ended December 28, 2007 combines data from financial statements for two separate periods. The selected financial data for the year ended December 28, 2007 may not necessarily reflect the results of operations or financial position that we would have achieved had we not changed ownership during 2007.

As previously discussed, we were acquired by Merrill Lynch on September 21, 2007, Merrill Lynch was then acquired by Bank of America on January 1, 2009 and we were reestablished as an independent, California- chartered commercial bank on July 1, 2010. As a result of the acquisitions, our balance sheet, results of operations and several key operating metrics were affected by purchase accounting. We have presented certain information in the table below on a non-GAAP basis. We believe these non-GAAP ratios, when taken together with the corresponding ratios calculated in accordance with generally accepted accounting principles (“GAAP”), provide meaningful supplemental information regarding our performance over the past several years. Reconciliations for all non-GAAP measures included in the selected financial data table below are provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Financial Measures” on page 92.

9 As of or As of or As of or for the for the for the Three Six Nine Months Months Months Ended Ended Ended As of or for the Year Ended September 30, June 30, September 30, December 31, December 26, December 28, December 31, December 31, 2010 2010 2009 2009 2008 2007 2006 2005 (Dollars in millions) Selected Financial Data: (1) Interest income ...... $ 264 $ 509 $ 910 $ 1,214 $ 899 $ 759 $ 598 $ 423 Interest expense ...... 27 96 207 258 394 406 307 169 Net interest income ...... 237 413 703 956 505 353 291 254 Provision for credit losses ...... 5 17 39 49 131 10 — 4 Net interest income after provision for credit losses ...... 232 396 664 907 374 343 291 250 Gain on investment securities . . . . — — — — — 20 — — Other noninterest income ...... 19 49 85 116 89 93 87 73 Noninterest income ...... 19 49 85 116 89 113 87 73 Merger-related costs ...... 14 — — — — 51 — — Losses related to investment advisory subsidiary ...... — — — — — 28 — — Amortization of intangibles ...... 6 — — — 42 14 1 — Other noninterest expense ...... 116 217 313 417 400 340 270 217 Noninterest expense ...... 136 217 313 417 442 433 271 217 First Republic Bank net income . . . . 66 129 249 347 10 14 69 61 Selected Operating Ratios: Return on average assets ...... 1.22% 1.33% 1.79% 1.85% 0.06% 0.11% 0.67% 0.73% Return on average common equity . . 13.78% 21.03% 27.72% 28.56% 0.41% 1.23% 11.64% 12.63% Net interest margin ...... 4.54% 4.47% 5.37% 5.40% 3.30% 3.12% 3.15% 3.33% Net interest margin (non-GAAP) (2) ...... 3.31% 3.90% 3.44% 3.55% 3.07% 3.06% n/a n/a Efficiency ratio (3) ...... 53.4% 46.9% 39.7% 38.9% 74.5% 92.9% 71.5% 67.3% Efficiency ratio (non-GAAP) (2), (3) ...... 59.0% 52.1% 58.0% 55.4% 71.4% 77.6% n/a n/a Selected Balance Sheet Data: Total assets ...... $21,954 $19,512 $19,478 $19,941 $19,694 $15,792 $11,635 $9,320 Cash and investment securities ..... 2,985 440 180 182 170 236 2,604 1,791 Loans to Parent company ...... — 958 — — — 2,241 — — Loans Unpaid principal balance ...... 18,445 18,027 19,112 19,452 17,749 11,359 8,209 6,656 Net discount ...... (726) (674) (889) (817) (210) (237) — — Net deferred fees and costs ...... 2 1 (2) (2) 7 1 5 5 Carrying value of loans ...... 17,721 17,354 18,221 18,633 17,546 11,123 8,214 6,661 Allowance for loan losses ...... (5) (14) (39) (45) (177) (61) (51) (40) Loans, net ...... 17,716 17,340 18,182 18,588 17,369 11,062 8,163 6,621 Goodwill and other intangible assets ...... 188 — — — 1,513 1,555 196 73 Deposits ...... 18,965 17,779 16,218 17,182 12,312 11,051 8,921 7,019 FHLB advances and other borrowings ...... 600 130 483 131 1,236 1,956 1,590 1,430 Parent company borrowing ...... —— 1,149 976 3,151 — — — Subordinated notes ...... 69 66 66 66 67 67 64 64 Noncontrolling interests ...... 87 100 100 100 100 100 149 149 Total equity ...... $ 2,021 $ 1,366 $ 1,364 $ 1,396 $ 2,785 $ 2,552 $ 937 $ 733

(1) Our results of operations are affected significantly by purchase accounting discount accretion, premium amortization and amortization of intangibles and, in 2010 and 2007, merger-related costs associated with the Transaction (as defined in “Our History and Reestablishment as an Independent Institution”) and the Merrill Lynch acquisition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” (2) For a reconciliation of each ratio to its equivalent GAAP ratio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Financial Measures” on page 92. (3) Efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income.

10 As of or As of or As of or for the for the for the Three Six Nine Months Months Months Ended Ended Ended As of or for the Year Ended September 30, June 30, September 30, December 31, December 26, December 28, December 31, December 31, 2010 2010 2009 2009 2008 2007 2006 2005 (Dollars in millions) Other Financial Information: Wealth management assets ...... $17,166 $15,343 $14,985 $14,751 $16,019 $16,156 $17,548 $13,876 Loans serviced for others ...... $ 3,670 $ 3,737 $ 4,087 $ 3,999 $ 4,314 $ 4,864 $ 4,980 $ 4,381 Selected Asset Quality Ratios: Nonperforming assets to total assets ..... 0.07% 0.09% 1.20% 1.36% 0.69% 0.35% 0.10% 0.08% Nonperforming assets to loans and REO ...... 0.09% 0.11% 1.28% 1.45% 0.77% 0.50% 0.14% 0.11% Allowance for loan losses to total loans ...... 0.03% 0.08% 0.21% 0.24% 1.01% 0.55% 0.63% 0.60% Allowance for loan losses to nonperforming loans ...... 29% 79% 17% 18% 135% 111% 481% 523% Net charge-offs (recoveries) to average loans ..... 0.00% 0.11% 0.00% 0.03% 0.08% 0.01% (0.06)% (0.02)% Capital Ratios: Tier 1 leverage ratio ...... 8.58% 7.03% 7.17% 7.15% 7.21% 7.26% 6.55% 7.17% Tier 1 risk based capital ratio ...... 13.60% 10.41% 9.28% 9.38% 8.98% 9.53% 9.63% 11.06% Total risk based capital ratio ...... 13.73% 10.71% 9.72% 9.86% 10.54% 10.65% 11.16% 12.83%

11 RISK FACTORS

An investment in our common stock involves a high degree of risk. There are risks, many beyond our control, that could cause our financial condition or results of operations to differ materially from management’s expectations. Some of the risks that may affect us are described below. Before deciding to invest in our common stock, you should carefully consider the risks described below together with all the information contained in this offering circular, including our financial statements and the notes thereto. Any of the risks described below, by itself or together with one or more other factors, may adversely affect our business, results of operations, financial condition, prospects and the market price and liquidity of our common stock, perhaps materially. The risks presented below are not the only risks that we face. Additional risks that we do not presently know or that we currently deem immaterial may also have an adverse effect on our business, results of operations, financial condition, prospects and the market price and liquidity of our common stock. In such a case, you may lose all or part of your original investment. Further, to the extent that any of the information contained in this offering circular 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 forward-looking statements made by us or on our behalf. See “Cautionary Note Regarding Forward-Looking Statements” on page 32.

Risks Related to Our Business

We face significant competition to attract and retain banking customers.

We operate in the highly competitive banking industry and face significant competition for customers from other banks and financial institutions located both within and beyond our principal markets. We compete with commercial banks, savings banks, credit unions, non-bank financial services companies and other financial institutions operating within or near the areas we serve, particularly service-focused community banking institutions that target the same customers 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 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 numerous banking locations, mount extensive promotional and advertising campaigns and be more aggressive than us in competing for loans and deposits. We expect competition to continue to intensify due to the recent consolidation of many financial institutions and the conversion of certain investment banks to bank holding companies. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes, such as the recent repeal of all federal prohibitions on the payment by depository institutions of interest on demand deposit accounts. Additionally, some of our current commercial banking customers 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. Our ability to compete successfully will depend on a number of factors, including, among other things:

• our ability to build and maintain long-term customer relationships while ensuring high ethical standards and safe and sound banking practices;

• the scope, relevance and pricing of products and services offered to meet customer needs and demands;

12 • customer satisfaction with our products and services; and

• industry and general economic trends.

Our failure to perform or weakness in any of these areas could significantly 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, financial condition, results of operations or prospects.

The markets in which we operate are subject to the risk of earthquakes and other natural disasters.

A significant number of our properties, and real properties currently securing loans made by us and our borrowers in general, 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 are concentrated, and the Southern California coastal regions. Approximately 65% of our loans outstanding as of September 30, 2010 were secured by real estate collateral located in these areas. California is also prone to brush and forest fires and other natural disasters. A number of these properties are uninsured from such occurrences. Borrowers are not required to and may not insure for these hazards other than fire damage. In addition to possibly sustaining damage to our premises and disruption of our operations, if there is a major earthquake, flood, fire or other natural disaster, we will face the risk that many of our borrowers may experience uninsured property losses or sustained job interruption or loss that may materially impair their ability to meet the terms of their loan obligations. A major earthquake, flood, fire or other natural disaster in our California markets could materially adversely affect our business, results of operations, financial condition or prospects.

We are subject to interest rate risk.

Fluctuations in interest rates may negatively impact our banking business. One of our primary sources of income from operations is net interest income, which is the difference between the interest income received on interest-earning assets (usually loans and investment securities) and the interest expense incurred in connection with 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. These factors are influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve System (the “FOMC”) and market interest rates.

The cost of our deposits and short-term wholesale borrowings is 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 longer-term interest rates, which are set by the market or, at times 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 pace at which such movements occur. If the interest rates on our interest-bearing liabilities increase at a faster pace 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. Our net interest income and earnings would be similarly affected if the interest rates on our interest-earning assets declined at a faster pace than the interest rates on our interest-bearing liabilities. In particular, short-term interest rates are currently very low by historical standards, with many benchmark rates, such as the federal funds rate and the one- and three- month London Interbank Offered Rates (“LIBOR”) near zero. These low rates have reduced our cost of funding and caused our net interest margin to increase. As long as the yield curve remains steep, our net interest margin and net interest income will remain above their long-term averages. We do not believe that this is sustainable and expect our net interest margin to fall toward historical levels when short-term interest rates rise, which will result in less income to us. As a result, our business, results of operations, financial condition or prospects may be adversely affected, perhaps materially.

13 Furthermore, we intend to acquire gradually a securities portfolio in the future, which will include long- term municipal bonds with fixed interest rates. However, the yields on these bonds do not increase when interest rates rise generally, which would also compress our net interest margin.

We recorded loan discounts of $763.3 million on July 1, 2010 in connection with the Transaction. The majority of these loan discounts are accretable to interest income over the lives of the loans. Changes in interest rates can affect the accretion of these loan discounts. The amount of accretion of loan discounts recorded in any given period is primarily driven by the level of repayments on the loan portfolio that was acquired on July 1, 2010. The extent to which loan repayments increase or decrease during any given period could have a significant impact on the level of net interest income and net income we generate during that time. A decrease in the accretion of loan discounts resulting from any change in interest rates could therefore adversely affect our net interest income, net income or results of operations.

Changes in interest rates can also affect the level of loan refinancing activity, which impacts the amount of prepayment penalty income we receive on loans we hold. Because prepayment penalties are recorded as interest income when received, the extent to which they increase or decrease during any given period could have a significant impact on the level of net interest income and net income we generate during that time. A decrease in our prepayment penalty income resulting from any change in interest rates or as a result of regulatory limitations on our ability to charge prepayment penalties could therefore adversely affect our net interest income, net income or results of operations.

Changes in interest rates can also affect the slope of the yield curve. A decline in the current yield curve or a flatter or inverted yield curve could cause our net interest income and net interest margin to contract, which could have a material adverse effect on our net income and cash flows, as well as the value of our assets. An inverted yield curve may also adversely affect the yield on investment securities by increasing the prepayment risk of any securities purchased at a premium.

An increase in interest rates could also have a negative impact on our results of operation by reducing the ability of borrowers to repay their current loan obligations. These circumstances could not only result in increased loan defaults, foreclosures and charge-offs, but also necessitate further increases to the allowance for loan losses which may materially and adversely affect our business, results of operations, financial condition or prospects.

Prolonged lower interest rates may adversely affect our net income.

Prolonged lower interest rates, particularly medium and longer-term rates, may have an adverse impact on the composition of our earning assets, our net interest margin, our net interest income and our net income. Among other things, a period of prolonged lower rates may cause prepayments to increase as our clients seek to refinance existing home loans. Such an increase in prepayments and refinancing activity would likely result in a decrease in the weighted average yield of our earning assets, an increase in salary and bonus expense as a result of higher loan volume and an increase in provision expense for new loans added to the portfolio. Such an increase in prepayments would likely cause significant variability in our net interest income as we would be required to record the accretion of any remaining, unaccreted discount at the time loans which were acquired in the Transaction are repaid.

We face significant competition to attract and retain wealth management clients and may lose current clients due to account performance, changes in investment strategy or other factors.

We face significant competition to attract and retain wealth management clients primarily from commercial banks, trust companies, mutual funds, investment advisory firms, stock brokers and other financial services companies. We also compete with private equity firms, hedge funds and other alternative investment strategies. Competition is especially keen in our principal markets because numerous well-established and successful investment management firms exist throughout each of the markets in which we operate. Our ability

14 to successfully attract and retain wealth management clients will depend on, among other things, our ability to compete with our competitors’ investment products, level of investment performance, fees, client services, marketing and distribution capabilities. In addition, our ability to retain wealth management clients may be impaired by the fact that investment management contracts are typically non-binding in nature. Most of our clients may withdraw funds from accounts under management at their discretion or close accounts at any time for any reason, including the performance of the investment account, a change in the client’s investment strategy or other factors. If we cannot effectively compete to attract and retain customers, our business, results of operation, financial condition or prospects may be adversely affected.

The profitability of our wealth management business has also come under pressure in the past several years as a result of elevated costs from business investment (including our open architecture platform, which permits our clients to select from both affiliated and unaffiliated money managers, and the addition of key money managers) and, in some cases, poor investment performance. The decline has also come from the incurrence of legal costs and the management of lower-margin assets, such as sub-advisory, brokerage, money market and custody assets. Further increased costs in our wealth management business could materially and adversely affect our business, results of operations, financial condition or prospects.

We have several significant investors whose individual interests may differ from yours.

As a result of the transaction reestablishing First Republic Bank as an independent institution, a significant percentage of our common stock is currently held by a few large institutional and individual investors. These investors collectively own approximately 97% of the common stock outstanding. In particular, entities affiliated with Colony and General Atlantic each own approximately 21.8% of the common stock outstanding. Following the completion of this offering, these institutional and individual investors will collectively own approximately 88% of the common stock outstanding, and entities affiliated with Colony and General Atlantic in particular will each own approximately 19.8% of the common stock outstanding. Although these investors are independent of each other and both Colony and General Atlantic as well as three other larger investors have entered into passivity commitments with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the FDIC or the DFI that limit their ability to influence us either individually or as a group, these investors will have a significant level of influence because of their level of common stock ownership, including a greater ability than you and our other shareholders to influence the election of directors and the potential outcome of matters submitted to a vote of our shareholders (such as mergers, the sale of substantially all of our assets and other extraordinary corporate matters). The interests of these investors could conflict with the interests of our other shareholders, including you, and any future transfer by these investors of their shares of common stock to other investors who have different business objectives could adversely affect our business, results of operations, financial condition, prospects or the market value of our common stock.

In addition, certain of our shareholders have also entered into a shareholders’ agreement (the “Shareholders’ Agreement”) granting certain rights and imposing certain limits on the ability of these investors to freely vote their shares of common stock. In particular, all parties to the Shareholders’ Agreement must vote their shares of common stock to elect certain designated individuals to the Board, including individuals designated by Colony and General Atlantic, and to take all other necessary and desirable actions reasonably within their control to effectuate the terms of the Shareholders’ Agreement. Because parties to the Shareholders’ Agreement currently control approximately 97% of our outstanding common stock and, following the completion of this offering, will control approximately 88% of our outstanding common stock, your ability to influence our management and policies is limited. For additional information concerning the terms of the Shareholders’ Agreement, see “Certain Provisions of California Law, the Bank’s Articles of Incorporation and Bylaws and the Shareholders’ Agreement—Shareholders’ Agreement.”

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 lending personnel follow those standards, particularly

15 for our single family home loans. 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 allowance for loan losses, each of which could adversely affect our net income. As a result, our business, results of operations, financial condition or prospects could be adversely affected.

Our ability to maintain, attract and retain customer relationships is highly dependent on our reputation.

Our customers rely on us to deliver superior, highly personalized financial services with the highest standards of ethics, performance, professionalism and compliance. A significant source of new customers has been, and we expect will continue to be, the reputation we maintain and the recommendations of satisfied customers. Damage to our reputation could undermine the confidence of our current and potential clients in our ability to provide financial services. Such damage could also impair the confidence of our counterparties and business partners, and ultimately affect our ability to effect transactions. Maintenance of our reputation depends not only on our success in maintaining our service-focused culture and controlling and mitigating the various risks described herein, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, client personal information and privacy issues, record-keeping, regulatory investigations and any litigation that may arise from the failure or perceived failure of us to comply with legal and regulatory requirements. 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, financial condition or prospects.

Our operations are concentrated geographically in California, particularly San Francisco, and the Northeastern United States, and poor economic conditions in these areas could adversely affect the demand for our products and our credit quality.

Our operations are located primarily in Northern and Southern California, New York and Boston. Local economic conditions in these areas can have a significant impact on the demand for our products and services, our loans and wealth management business, the ability of borrowers to repay these loans, and the value of the collateral securing these loans. Our loan portfolio, in particular, is concentrated in California in general and the San Francisco Bay Area in particular. As of September 30, 2010, approximately 67% of our loans outstanding were secured by real estate located in California and approximately 48% of our loans outstanding were secured by real estate in and around the San Francisco Bay Area. Over the past three years, the national real estate market experienced a significant decline in value, and the value of California real estate in particular declined significantly more than real estate values in the United States as a whole. This decline has had an adverse impact on some of our borrowers and on the value of the collateral securing many of our loans. This decline may continue to affect borrowers and collateral values, which could adversely affect our currently performing loans, leading to future delinquencies or defaults and increases in our provisions for loan losses. Further or continued adverse changes in these economic conditions may negatively affect our business, results of operations, financial condition or prospects.

As a recently-chartered institution, we are subject to restrictions which may adversely affect our ability to compete effectively and optimize shareholders’ returns.

We are a recently-established, California-chartered, FDIC-supervised depository institution. Therefore, we are subject to heightened capital requirements and many other business limitations imposed by the FDIC for at least the first seven years of our operations. The FDIC and the DFI have also imposed various conditions on their respective approvals for us to operate a commercial banking and trust business as an FDIC-insured, California-chartered institution. These conditions include limitations on our ability to change our executive officers and directors without prior approval and limitations on our ability to materially deviate from, or make a material change to, our business plans as described to the FDIC and DFI as part of the license and insurance application processes. We are also subject to a minimum Tier 1 leverage ratio of at least 8.0% for the first seven years of our operations. The FDIC and the DFI have discretion to determine what constitutes a material deviation

16 or change. This approval requirement limits our ability to adapt quickly to changing market conditions or introduce new products to attract new clients or retain our existing clients. Many of our primary competitors are established institutions and are not subject to similar restrictions. Thus, these limitations on us may adversely affect our loan and deposit growth, ability to attract and retain customers, and, consequently, our business, results of operations, financial condition or prospects. For additional information on restrictions imposed on us as a recently-chartered institution, see “Supervision and Regulation” on page 116.

Our business may be adversely affected by conditions in the financial markets and economic conditions generally.

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. Some elements of the business environment that affect our financial performance include short-term and long-term interest rates, the prevailing yield curve, inflation, monetary supply, fluctuations in the debt and equity capital markets, and the strength of the domestic economy and the local economies in the markets in which we operate. Unfavorable market conditions can result in a deterioration of the credit quality of borrowers, an increase in the number of loan delinquencies, defaults and charge-offs, additional provisions for loan losses, adverse asset values and a reduction in assets under management. 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 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.

Overall, the adverse business environment beginning in September 2008 has had an adverse effect on our business and the credit quality of our loans. Although the economic conditions in the markets in which we operate and the United States as a whole recently may be showing signs of recovery, there can be no assurance that these conditions will continue to improve. These conditions may again decline in the near future. Any unfavorable change in the general business environment in which we operate or in the United States as a whole could adversely affect our business, results of operations, financial condition or prospects.

Our wealth management business may be negatively impacted by changes in economic and market conditions, and clients have and may continue to seek legal remedies for investment performance.

Due to advantageous competitive conditions, we currently expect to expand our investment management business in the future. Our investment management business may be negatively impacted, however, 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 (meaning that performance results can vary greatly within short periods of time) and are directly affected by, among other factors, domestic and foreign economic conditions and general trends in business and finance, all of which are beyond our control. We cannot assure you that broad market performance will be favorable in the future. The recent economic downturn has adversely impacted our investment advisory fee revenues and adversely affected the level of our assets under management. Our assets under management were $16.2 billion as of December 28, 2007 and $17.2 billion as of September 30, 2010. Declines in the financial markets or a lack of sustained growth may result in declines in the performance of the investment management business and the level of assets under management.

The management contracts of the investment advisory subsidiaries generally provide for fees payable for investment management services based on the market value of assets under management. Because most contracts provide for fees based on market values of securities, fluctuations in securities prices may reduce our investment management fees and have an adverse effect on our business, results of operation, financial condition

17 or prospects. Institutional clients tend to be larger than individual clients and therefore institutional investment advisory businesses have concentration risks, are more volatile and may be more susceptible to risk of loss due to performance, either in absolute amount or relative to results of other investment alternatives.

In addition, following periods of volatile market conditions, investment management clients may seek legal remedies for investment performance. We are currently involved in multiple lawsuits against our broker- dealer and investment advisory subsidiaries arising from clients’ investment losses during the recent market downturn. These and other 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 customers. As a result, any such current or future lawsuits could adversely affect our business, results of operations, financial condition or prospects.

Our operations and clients are concentrated in the United States’ largest metropolitan areas, which could be the target of terrorist attacks.

The vast majority of our operations and our clients and 87% of the properties securing our real estate loans outstanding are located in the San Francisco Bay Area and the New York, Los Angeles, and Boston metropolitan areas, which are the sixth, first, second and fifth largest metropolitan areas in the United States, respectively. 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, financial condition or prospects.

The recent repeal of federal prohibitions on payment of interest on demand deposits could increase our interest expense.

All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd- Frank Act”) enacted into law this year. As a result, beginning on July 21, 2011, financial institutions could commence offering interest on demand deposits to compete for clients. We do not yet know what interest rates other institutions may offer. Our interest expense will increase and our net interest margin will decrease if we begin offering interest on demand deposits to attract additional customers or maintain current customers. Consequently, our business, results of operations, financial condition or prospects may be adversely affected, perhaps materially.

We may not be able to manage our growth successfully.

We seek to grow safely and consistently. This requires us to manage several different elements simultaneously. Successful growth requires that we follow adequate loan underwriting standards, balance loan and deposit growth without increasing interest rate risk or compressing our net interest margin, maintain adequate capital at all times, and hire and retain qualified employees. If we do not manage our growth successfully, then our business, results of operations, financial condition or prospects may be adversely affected.

A small number of our customers control a large portion of our total deposits, and a loss of these customers or deposits more generally could force us to fund our business with more expensive and less stable sources of capital.

Over the past three years, our deposits have increased from approximately $8.9 billion as of December 31, 2006 to approximately $17.2 billion as of December 31, 2009 and $19.0 billion as of September 30, 2010. This growth has been driven by several factors, including the recent turmoil in the financial markets that has caused investors to seek safer, more stable investments, such as insured deposits, for their capital. In addition, a small number of our customers currently control a significant portion of our total deposits, with approximately 1% of our deposit accounts holding approximately 34% of our total deposits as of

18 September 30, 2010. Most of these accounts do not have significant restrictions on withdrawal, and these customers can generally withdraw some or all of the funds in their accounts with little or no notice.

We have traditionally obtained funds principally through deposits and borrowings, with the interest rates paid for borrowings typically exceeding the interest rates paid on deposits. An outflow of deposits because customers seek investments with higher yields or greater financial stability, prefer to do business with our competitors, or otherwise 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. The current concentration of our total deposits with a small percentage of our customers also implies that the decision by certain of our customers to withdraw some or all of their deposits could result in a significant outflow of deposits and adversely affect our liquidity. Consequently, the occurrence of any of these events could materially and adversely affect our business, results of operations, financial condition or prospects.

Our loan portfolio is concentrated in single family residential mortgage loans, including non-conforming, adjustable rate, interest-only and jumbo mortgages, and our borrowers may be more likely to default if mortgage credit is not readily available.

As of September 30, 2010, approximately 70% of our loans outstanding are secured by single family residences. Disruptions in capital markets and the deterioration in housing markets and general economic conditions have caused residential real estate lenders to tighten underwriting standards and adjust loan pricing. These actions have reduced the availability of mortgage credit to borrowers and may have contributed to the significant increase in the number of homeowners who became delinquent on their home loans. This reduction in available mortgage credit may continue if capital markets, housing markets and general economic conditions remain weak, and could impair the ability of our customers to repay their loans if they are not able to restructure or refinance their loans when needed. In particular, as of September 30, 2010, approximately 98% of our residential real estate loans outstanding are adjustable rate mortgage loans (“ARMs”), and 64% of those loans are hybrid ARMs that will adjust within one to ten years in the future. Any increase in prevailing market interest rates may result in increased payments for borrowers who have ARMs. Also, as of September 30, 2010, approximately 83% of our residential real estate loans outstanding are jumbo loans (over $729,750 in size), and approximately 94% are interest-only loans for an initial period of up to ten years. The inability of borrowers to refinance their loans, particularly while experiencing increases in the monthly payment on their loan amounts, increases the risk that borrowers will become delinquent and ultimately default on their loans and could, consequently, adversely affect our business, results of operations, financial condition or prospects.

Continuing weakness in the commercial real estate and construction markets could adversely affect our performance.

As of September 30, 2010, commercial real estate loans represented 12% of our loan portfolio, multifamily loans outstanding represented 10% of our loan portfolio, non-single family construction loans represented 0.68% of our loan portfolio and loans secured by undeveloped land represented 0.13% of our loan portfolio. The valuation of these loans, and the valuation of the underlying commercial real estate or undeveloped land, is 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.

19 The borrower’s ability to repay a commercial real estate loan depends on leasing through the life of the loan or the borrower’s successful operation of a business. Weak economic conditions may impair a borrower’s business operations and typically slows the execution of new leases. Such economic conditions may also lead to greater existing lease turnover. As a result of these factors, vacancy rates for retail, office and industrial space are expected to continue to rise in 2010. Increased vacancies could result in rents falling further over the next several quarters. 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, financial condition or prospects 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, will 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, financial condition or prospects may be adversely affected.

We may not be able to sell loans in the secondary market.

Before the disruption in the securitization market that began in 2007, we sold a meaningful portion of the loans that we originated, particularly residential mortgage loans, in the secondary market. Since then, our mortgage sales activity has declined dramatically. If secondary mortgage market conditions do not improve and we cannot increase our loan sales, our loan origination volume will continue to be limited. As a result, our ability to create new relationships and cross-selling opportunities and manage our growth, as well as our revenue from loan sales and servicing, would be limited, and our business, results of operations, financial condition or prospects may be adversely affected.

We have increased our lending to businesses, and these loans expose us to greater risk than mortgages.

In the past several years, we have expanded our lending to businesses and have increased the size of individual commercial loans. As of September 30, 2010, commercial loans outstanding were $883 million, or 4% of total loans outstanding, and the undisbursed loan commitments for commercial loans amounted to an additional $1.1 billion. Commercial loans inherently have more risk of loss than real estate secured loans, in part because commercial loans may be larger or more complex to underwrite than mortgages. We are not as experienced in originating and administering commercial loans as we are with single family and income property real estate secured loans. If a decline in economic conditions or other issues cause difficulties for our business 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, financial condition or prospects.

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 financial condition and results of operations. 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 different assumptions or estimates. These critical accounting policies include the allowance for loan losses, the determination of fair value for financial

20 instruments (such as mortgage servicing rights (“MSRs”)), the valuation of goodwill and other intangible assets, and the accounting for income taxes. Because of the uncertainty of estimates involved in these matters, we may be required to do one or more of the following: significantly increase the allowance for loan losses or sustain loan losses that are significantly higher than the reserve provided, recognize significant impairment on goodwill and other intangible asset balances, or significantly increase our accrued tax liability. Any of these could adversely affect our business, results of operations, financial condition or prospects.

Our discount for credit losses and our allowance for loan losses may be inadequate.

Immediately after the completion of the transaction reestablishing First Republic as an independent institution, we had no allowance for loan losses, as all loans purchased as of July 1, 2010 were recorded at their fair value as a result of the purchase. The fair value discount recorded as a reduction to unpaid principal balance has two components: a credit mark and an interest rate mark. The credit mark is intended to absorb expected future losses in the acquired loan portfolio, as measured as of July 1, 2010, but may be inadequate to do so. Subsequent decreases to expected principal cash flows on the acquired loans, which may reduce the value of the loan, will result in a charge to the provision for loan losses, causing a decrease in our earnings and an increase in our allowance for loan losses.

We have provided for an allowance for loan losses related to new loans originated after July 1, 2010. Our management periodically determines the allowance for loan losses based on available information, including the quality of the loan portfolio, economic conditions, the value of the underlying collateral and the level of nonaccruing loans. Increases in this allowance will result in an expense for the period reducing our reported net income. If, as a result of general economic conditions, a decrease in asset quality or growth in the loan portfolio, our management determines that additional increases in the allowance for loan losses are necessary, we may incur additional expenses which will reduce our net income, and our business, results of operations, financial condition or prospects may be materially and adversely affected.

Although our management has established an allowance for loan losses it believes is adequate to absorb probable and reasonable estimable losses in our loan portfolio, this allowance may not be adequate. In particular, if an earthquake or other natural disaster were to occur in one of our principal markets of if economic conditions in those markets were to deteriorate unexpectedly, additional loan losses not incorporated in the existing allowance for loan losses may occur. Losses in excess of the existing allowance for loan losses will reduce our net income and could adversely affect our business, results of operations, financial condition or prospects, perhaps materially.

In addition, bank regulatory agencies will periodically review our allowance for the loan losses and the value attributed to nonaccrual loans or to real estate acquired through foreclosure. Such regulatory agencies may require us to adjust our determination of the value for these items. These adjustments could adversely affect our business, results of operations, financial condition or prospects.

We may not be able to attract and retain key personnel.

Our Chairman and Chief Executive Officer and our President and Chief Operating Officer each have significant involvement and experience with our operations, having begun work with us when First Republic was originally founded in 1985. As a result, the loss of either our Chairman and Chief Executive Officer or our President and Chief Operating Officer could have an adverse effect on our business, results of operations, financial condition or prospects. We also need to continue to attract and retain senior management and to recruit qualified individuals to succeed existing key personnel to ensure the continued growth and successful operation of our business. In addition, we plan to continue to develop new and expand current locations, products and services. 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 investment advisors to expand. Competition for such personnel can be intense, and we may not be able to hire or retain such personnel. The loss of the services of any senior management personnel or relationship managers, or the inability to recruit and retain

21 qualified personnel in the future, could have an adverse effect on our business, results of operations, financial condition and prospects. Additionally, to attract and retain personnel with appropriate skills and knowledge to support our business, we may offer a variety of benefits which may reduce our earnings or adversely affect our business, results of operations, financial condition or prospects.

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, financial condition, results of operations or prospects, perhaps materially.

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. In addition, our credit risk may 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, financial condition or prospects.

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. Acquisitions involve numerous risks, including:

• The risk that the acquired business will not perform to our expectations;

• Difficulties in integrating the personal culture, 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. There can be no assurance that we will be successful in identifying or completing any future acquisitions, integrating any acquired business into our operations or realizing any projected cost or other benefits associated with any such acquisition.

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. There can be no

22 assurance that we will not be fully liable for the entire cost of any removal and clean-up on an acquired property, that the cost of removal and clean-up will not exceed the value of the property, or that costs could be recovered from any third-party. 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, financial condition or prospects may be adversely affected.

Our operations could be interrupted if our third-party service providers experience difficulty, 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. Specifically, we receive core systems processing, essential web hosting and other Internet systems, deposit processing and other processing services from third-party service providers. If these third-party service providers experience difficulties or terminate their services and we are unable to replace them with other service providers, our operations could be interrupted. If an interruption were to continue for a significant period of time, our business, results of operations, financial condition or prospects could be adversely affected, perhaps materially. 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, financial condition or prospects.

Our internal control systems could fail to detect certain events.

We are subject to certain operational risks, including but not limited to data processing system failures and errors and client or employee fraud. We maintain a system of internal controls to 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, uninsured or in excess of applicable insurance limits, it could have a significant adverse affect on our business, results of operations, financial condition or prospects.

The network and computer systems on which we depend could fail or experience a security breach.

Our computer systems are vulnerable to unforeseen problems. Because we conduct part of 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 damage from fire, power loss, telecommunications failure, physical break-ins or similar catastrophic events. Any damage or failure that causes interruptions in operations could have a material adverse effect on our business, results of operations, financial condition or prospects.

We also rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer 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 customer 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, financial condition or prospects.

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 loan losses, regulatory action, reputational harm or other adverse effects on the operation of our business, results of operations, financial condition or prospects.

23 The value of our goodwill and other intangible assets may decline in the future.

As of September 30, 2010, we had $209.7 million of goodwill and other intangible assets, including MSRs. A significant decline in our expected future cash flows, a significant adverse change in the business climate, slower growth rates or, assuming the completion of this offering, a significant and sustained decline in the price of our common stock, may necessitate our taking charges in the future related to the impairment of our goodwill and other intangible assets. An increase in the rate at which our borrowers prepay their loans could result in a decline in the value of our MSRs, resulting in a charge for the impairment of those rights. 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, financial condition or prospects.

We are subject to liquidity risk.

We require liquidity 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 include a downturn in the geographic markets in which our loans are concentrated, difficult credit markets or adverse regulatory actions against us. Our access to deposits may also be affected by the liquidity needs of our depositors. In particular, a majority of our liabilities on average during the third quarter of 2010 were checking accounts and other liquid 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 historically been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in the future, especially if a large number of our depositors 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, financial condition or prospects.

Our financial statements as of and for the six months ended June 30, 2010, the nine months ended September 30, 2009 and as of and for the years ended December 31, 2009, December 26, 2008 and December 28, 2007 are carve-out financial statements that may not be representative of our future results of operations, future financial condition or future cash flows as an independent company, nor do they reflect what the results of operations, financial condition or cash flows of our business may have been had we actually existed on a stand-alone basis during the periods presented.

Between September 21, 2007 and June 30, 2010, we operated as a separate division of MLFSB and then of BANA. Our financial statements covering that period were prepared on a carve-out basis, the purpose of which is to present fairly the financial condition and results of operations of the First Republic division of MLFSB and BANA separately from the financial condition and the results of operations of MLFSB and BANA as legal entities. The carve-out financial statements have not been reviewed by the Securities and Exchange Commission (“SEC”) and are not intended to, and do not necessarily reflect, the results of operations, financial condition and cash flows that we would have achieved had we actually existed on a stand-alone basis during the periods presented. Reasons for this include:

• Our net loans and interest income during these periods reflect material purchase accounting adjustments, including a loan discount at purchase and subsequent loan discount accretion recognized as income. In addition, the purchase accounting adjustments generated substantial loan discounts which reduced the potential for loan loss provisions in 2009 following the acquisition;

• We did not have a specific amount of stockholders’ equity because we were not a separate legal entity during this period; instead, for the purpose of preparing carve-out financial statements, we were allocated a portion of MLFSB’s or BANA’s stockholders’ equity according to a formula; and

24 • Any funding necessary to support our business was provided by BANA or MLFSB at overnight rates as opposed to market rates.

Had we been an independent company during that period, our results of operations, financial condition and cash flows may have differed materially from those presented in the carve-out financial statements. Moreover, for these reasons, the financial condition, results of operation and cash flows presented in the carve-out financial statements may not be representative of the results of operations, financial condition and cash flows that we will achieve during the periods after July 1, 2010 as an independent company. For additional discussion concerning our carve-out financial statements, see “Summary—Selected Financial Information.”

We may not be able to operate our business as effectively or competitively as we did as a division of BANA.

While we were a division of BANA, various financial, administrative and other resources necessary to the operation and growth of our business were provided to us by BANA and its affiliates. In particular, we had access to low-cost, short-term wholesale funding from BANA (and before that, from MLFSB), which allowed us to expand our balance sheet significantly over the past three years. As an independent institution, we must rely on longer-term sources of funding such as core deposits and term advances from the Federal Home Loan Bank of San Francisco (“FHLB”) to fund our balance sheet growth. If we cannot grow our deposits as quickly as expected, our loan growth will be adversely affected, and if the cost of our deposits and other funding is higher than expected, our net interest income will be adversely affected. As a result, if we are unable to duplicate the resources previously provided by BANA and its affiliates, or if we are unable to finance our balance sheet growth on terms comparable to or better than those we obtained as a division of BANA, our business, results of operations, financial condition or prospects may be adversely affected.

In addition, most of our banking and wealth management customers can withdraw their funds at their discretion and close their accounts for any reason. Some of our current or potential customers may want to be served by a larger financial institution, which could cause customers to transfer all or part of their accounts to larger, competing financial institutions or limit our ability to attract new customers. Similarly, our ability to attract and retain qualified employees may be impaired if some current or potential employees want to work for a larger financial institution. If either the loss of customers or key personnel were to occur, we might not be able to continue our loan and deposit growth as effectively, and our business, results of operations, financial condition or prospects could be adversely affected.

We may take filing positions or follow tax strategies that may be subject to challenge.

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 operation, 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. There can be no assurance that taxing authorities will not change any applicable tax legislation, challenge filing positions or assess taxes and interest charges. If taxing authorities take any of these actions, our business, results of operations, financial condition or prospects could be adversely affected, perhaps materially.

If certain of our subsidiaries fail to qualify as REITs, we will be subject to a higher consolidated effective tax rate.

Two of our subsidiaries, First Republic Preferred Capital Corporation (“FRPCC”) and First Republic Preferred Capital Corporation II (“FRPCC II”), are both operated to qualify as real estate investment trusts (“REITs”) under the Internal Revenue Code. Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which only limited judicial or administrative interpretations exist. If either of these entities fails to meet any of the stock distribution, stock ownership or other

25 requirements necessary to qualify as a REIT, the resulting tax consequences could increase our effective tax rate and materially decrease our net income. Consequently, our business, results of operations, financial condition or prospects could be adversely affected.

Risks Related to the Regulatory Oversight of Our Institution

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 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 FDIC’s Deposit Insurance Fund (the “DIF”), and the banking system as a whole, not our shareholders. We are subject to the regulation and supervision of the FDIC and DFI. The banking laws, regulations and policies applicable to us govern matters ranging from 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 will be subject to regulation, supervision and examination by other regulatory authorities, including the SEC and the Financial Industry Regulatory Authority (“FINRA”).

We are subject to changes in federal and state banking statutes, regulations and governmental policies, or the interpretation or implementation of them. Regulations affecting banks and other financial institutions in particular are undergoing continuous review and frequently change, and the ultimate effect of such changes cannot be predicted. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us or our subsidiaries. Any changes in any federal and state law, as well as regulations and governmental policies could affect us in substantial and unpredictable ways, including ways that may adversely affect our business, results of operations, financial condition or prospects. In addition, 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 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, financial condition or prospects.

Recent legislative and regulatory actions may have a significant adverse effect on our operations.

On July 21, 2010, President Obama signed the Dodd-Frank Act into law. The Dodd-Frank Act will result in sweeping changes in the regulation of financial institutions. The Dodd-Frank Act contains numerous provisions that will affect all banks and bank holding companies, including provisions that, among other things:

• Change the assessment base for federal deposit insurance from the amount of insured deposits to total consolidated assets less tangible capital, eliminate the ceiling on the size of the DIF, and increase the floor of the size of the DIF, which generally will require an increase in the level of assessments for institutions with assets in excess of $10 billion, including us;

• Repeal the federal prohibitions on the payment of interest on demand deposits, thereby generally permitting depository institutions to pay interest on all deposit accounts;

• Centralize responsibility for promulgating regulations under and enforcing federal consumer financial protection laws in a new bureau of consumer financial protection that will have direct supervision and examination authority over banks with more than $10 billion in assets, including us;

26 • Require the FDIC to seek to make its capital requirements for banks countercyclical (meaning the amount of capital an institution is required to maintain increases in times of economic expansion and decreases in times of economic contraction, consistent with the safety and soundness of the institution);

• Impose comprehensive regulation of the over-the-counter derivatives market, which would include certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the institution itself;

• Implement corporate governance revisions, including with regard to executive compensation and proxy access by shareholders, that apply to all public companies, not just financial institutions; and

• Establish new rules and restrictions regarding the origination of mortgages.

Some of these provisions may have the consequence of increasing our expenses, decreasing our revenues and changing the activities in which we choose to engage. Many of these and other provisions in the Dodd-Frank Act remain subject to regulatory rule-making and implementation, the effects of which are not yet known. We may be forced to invest significant management attention and resources to make any necessary changes related to the Dodd-Frank Act and any regulations promulgated thereunder, which may adversely affect our business, results of operations, financial condition or prospects. We cannot predict the specific impact and long-term effects the Dodd-Frank Act and the regulations promulgated thereunder will have on our financial performance, the markets in which we operate and the financial industry more generally.

In addition to changes resulting from the Dodd-Frank Act, recent proposals published by the Basel Committee on Banking Supervision (the “Basel Committee”), if adopted, could lead to significantly higher capital requirements, higher capital charges and more restrictive leverage and liquidity ratios. In July and December 2009, the Basel Committee published proposals relating to, respectively, enhanced capital requirements for market risk and new capital and liquidity risk requirements for banks. On September 12, 2010, the Basel Committee announced an agreement on additional capital reforms that increases required Tier 1 capital and minimum Tier 1 common equity capital and requires banks to maintain an additional capital conservation buffer during times of economic prosperity. While the ultimate implementation of these proposals in the United States is subject to the discretion of the U.S. bank regulators, these proposals, if adopted, could restrict our ability to grow during favorable market conditions or require us to raise additional capital, including through sales of common stock or other securities that may be dilutive to our shareholders. As a result, our business, results of operations, financial condition or prospects could be adversely affected.

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. Under the FDIC’s risk-based assessment system, the assessment rate is based on classification of a depository institution in one of several different risk assessment categories. Such classification is currently based upon the institution’s capital level and upon certain supervisory evaluations of the institution by its primary federal banking regulator. The FDIC may adjust insurance assessment rates under certain circumstances. The Dodd-Frank Act requires the FDIC to revise the base to which such assessment rate is applied and, rather than apply the assessment rate to an institution’s United States deposit balance, instead base assessments on the average total consolidated assets of an insured depository institution during the assessment period, less the average tangible equity of the institution during the assessment period. The FDIC has also requested comments on a proposed rule tying assessment rates of FDIC-insured institutions to the institution’s employee compensation programs.

The exact nature and extent of these recent changes are not yet known, but they could increase the amount of premiums we must pay for FDIC insurance. In addition, higher levels of bank failures in recent years

27 and increases in the statutory deposit insurance limits have increased resolution costs to the FDIC and put pressure on the DIF. In response, the FDIC increased assessment rates on insured institutions, charged a special assessment to all insured institutions as of June 30, 2009 and required banks to prepay three years’ worth of premiums on December 30, 2009 to replenish the DIF. As of September 30, 2010, we had a prepaid insurance asset of $91.4 million. If there are additional financial institution failures, we may be required to pay even higher FDIC premiums than the recently increased levels, or the FDIC may charge additional special assessments. The previously announced increases and any future increases or required prepayments of FDIC insurance premiums may adversely affect our business, results of operations, financial condition or prospects.

The investment management business is highly regulated.

The investment management business is highly regulated, primarily at the federal level. One of our subsidiaries, First Republic Investment Management (“FRIM”), is a registered investment advisor under the Investment Advisers Act of 1940, as amended (“Investment Advisers Act”). We may also provide certain investment management services through the First Republic Trust Company division of the Bank, which will be separately regulated and will not be required to register as an investment advisor. Each subsidiary providing investment management services is subject to fiduciary laws. The Investment Advisers Act imposes numerous obligations on registered investment advisors, including fiduciary, record-keeping, operational and disclosure obligations.

These subsidiaries are also subject to the provisions and regulations of the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”) to the extent they act 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.

Our failure or the failure of our subsidiaries that provide investment management services to comply with applicable laws or regulations could result in fines, suspensions of individual employees, or other sanctions, including revocation of such subsidiary’s registration as an investment advisor. Any such failure could have an adverse effect on our reputation and could adversely affect our business, financial condition, results of operations or prospects.

Risks Related to Our Common Stock

Your shares of common stock will not be an insured deposit.

Shares of our common stock are not bank deposits and are not insured or guaranteed by the FDIC or any other government agency. Your investment will be subject to risk, including those outlined in this section, and you may lose your entire investment.

Because there has been no established public trading market for our common stock, an active trading market in our common stock may not develop or be sustained and our common stock may trade below the public offering price.

Before this offering, the common stock was not listed on any exchange or displayed on any electronic communications network and our shareholders have been subject to transfer restrictions. As a result, there has been no trading activity in the common stock. Our common stock has been approved for listing on the NYSE under the symbol “FRC.” However, a trading market for the common stock may not develop. If an active trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. The public offering price for the shares will be determined through negotiations between us and the underwriters and thus may not be indicative of the market price for the common stock after this offering. Consequently, you may not be able to resell your shares above the public offering price, or at all, and may suffer a loss on your investment.

28 The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our shareholders.

Even if an active trading market develops, the market price of our common stock may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume on our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines significantly, you may be unable to resell your shares of common stock at or above your purchase price, if at all. We cannot assure you that the market price of our common stock will not 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 research reports about us or the financial services industry in general;

• The failure of securities analysts to cover our common stock after this offering;

• Additions or departures of 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;

• 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, financial condition or results of operations. 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.

Securities analysts may not initiate coverage or continue to cover our common stock.

The trading market for our common stock will depend in part on the research and reports that securities analysts publish about us and our business. We do not have any control over these securities analysts, and they may not cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect its market price. If we are covered by securities analysts, and our common stock is the subject of an unfavorable report, the price of our common stock may decline. If one or more of these analysts cease to cover us or fail to publish regular reports on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock to decline.

We do not currently intend to pay dividends on our common stock.

We currently do not intend to pay any cash dividends on our common stock in the foreseeable future following this offering. We intend to retain substantially all our future earnings, if any, to fund the development and growth of our business. Any determination to pay dividends in the future will be at the discretion of the Board and will depend upon our results of operations, financial condition, capital requirements, regulatory and

29 contractual restrictions, our business strategy and other factors the Board deems relevant, and will be subject to bank regulatory limits and possible approval requirements, as discussed below. Accordingly, if you purchase shares in this offering, to realize a gain on your investment, the price of our common stock must appreciate. This may not occur. Investors seeking cash dividends should not purchase our common stock.

Future sales or issuances of our common stock, or other securities convertible into or exercisable or exchangeable for common stock, may result in dilution or adversely affect our stock price.

Following the completion of this offering and listing of our common stock, approximately 10% of all outstanding common stock will become freely transferable, with substantially all other outstanding common stock subject to the lock-up agreements described under “Underwriting.” The market price of our common stock may be adversely affected by the sale of a significant quantity of our outstanding common stock (including any securities convertible into or exercisable or exchangeable for common stock), or the perception that such a sale could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to raise additional capital by selling equity securities in the future at a time and price that we deem appropriate. This risk will increase following the expiration of the lock-up agreements described under “Underwriting.” Pursuant to the lock-up agreements, the selling shareholders and our executive officers and directors may not sell or otherwise dispose of or hedge any shares of our common stock or securities convertible or exercisable into or exchangeable for shares of common stock, subject to certain exceptions, for the 180-day period following the date of this offering circular without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated. Following the completion of this offering, the shares of common stock held by these shareholders and officers will represent approximately 90% of all outstanding common stock.

Additionally, we may issue additional equity securities, or debt securities convertible into or exercisable or exchangeable for equity securities, from time to time to raise additional capital, support growth or to make acquisitions. Further, we expect to issue stock options or other stock grants to retain and motivate our employees and executives. These issuances of securities could 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. Our organizational documents do not provide for pre-emptive rights, so you may not have the ability to participate in future issuances of equity securities by us and may be diluted as a result of such issuances.

Investors in this offering will experience immediate and substantial dilution in the tangible book value of their investment.

We expect the public offering price of our common stock in this offering to be higher than the tangible book value per share of our common stock immediately after this offering. Therefore, if you invest in our common stock in this offering, you will incur an immediate dilution of $11.14 in tangible book value per share from the price you paid. The exercise of outstanding options would result in further dilution in tangible book value per share from the price you paid since the exercise price on all stock options awarded to date has been $15 per share. For a further description of the dilution you will experience immediately after this offering, see “Dilution.”

Fulfilling our public company financial reporting and other regulatory obligations will be expensive and time consuming and may strain our resources.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as implemented by the FDIC, and will be required to implement specific corporate governance practices and adhere to a variety of reporting requirements under the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”), and the related rules and regulations of the FDIC, as well as the rules of the NYSE. In particular, we will be required to file with the FDIC annual, quarterly and current reports with respect to our business and financial condition. Compliance with these requirements will place significant demands on our legal, accounting and finance staff and on our accounting, financial and information systems and will increase our

30 legal and accounting compliance costs as well as our compensation expense as we will be required to hire additional accounting, finance, legal and internal audit staff with the requisite technical knowledge. As a public company we will also need to enhance our investor relations, marketing and corporate communications functions. These additional efforts may strain our resources and divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations or prospects.

Failure to establish and maintain effective internal controls over financial reporting could have an adverse effect on our business and results of operations.

In accordance with Section 404 of Sarbanes-Oxley, our management will be required to conduct an annual assessment of the effectiveness of our internal control over financial reporting and include a report on these internal controls in the annual reports we will file with the FDIC. In addition, we will be required to have our independent registered public accounting firm provide an opinion regarding the effectiveness of our internal controls. We are in the process of reviewing our internal control over financial reporting and are establishing formal policies, processes and practices related to financial reporting and to the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and controls within our organization. If we fail to adequately comply with the requirements of Section 404, we may be subject to adverse regulatory consequences and there could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. This could have a material adverse effect on us and lead to a decline in the price of our common stock.

Our common stock is subordinate to our existing and future indebtedness and preferred stock.

Shares of our common stock are equity interests and do not constitute indebtedness. As such, our common stock ranks junior to all our customer deposits and indebtedness, and other non-equity claims on us, with respect to assets available to satisfy claims. Additionally, holders of common stock are subject to the prior dividend and liquidation rights of the holders of any series of preferred stock we may issue, including any series of preferred stock we may issue in exchange for outstanding shares of preferred stock issued by either of our REIT subsidiaries.

Our management will have broad discretion to use the proceeds to us generated in this offering and may be unable to effectively use the proceeds to earn additional profits.

We intend to use the net proceeds generated by this offering for general corporate purposes and have not designated the amount of net proceeds that we intend to use for any particular purpose. Accordingly, we will have broad discretion regarding the application of the net proceeds to us generated in this offering and could use them for purposes other than those contemplated at the time of the offering. You may not agree with the manner in which we choose to allocate and spend the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that our use of the net proceeds from this offering will not increase our market value or yield a favorable return to us.

We will not receive any of the net proceeds to the selling shareholders from this offering.

Various factors could make a takeover attempt of us more difficult to achieve.

Certain provisions of our organizational documents, in addition to certain federal banking laws and regulations, could make it more difficult for a third-party to acquire us without the consent of the 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 the Board. Additionally, the Shareholders’ Agreement restricts the ability of certain of our shareholders to vote for changes in the Board. The combination of these provisions could effectively inhibit a non-negotiated merger or other business combination, which could adversely impact the value of our common stock.

31 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This offering circular contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this offering circular 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 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 “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “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 that could cause actual results to differ materially from those expressed in them. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of risks and uncertainties more fully described under “Risk Factors,” beginning on page 12 of this offering circular. Forward-looking statements involving such risks and uncertainties include, but are not limited to, statements regarding:

• Projections of loans, assets, deposits, liabilities, revenues, expenses, net income, capital expenditures, liquidity, dividends, capital structure or other financial items;

• The possibility of earthquakes and other natural disasters affecting the markets in which we operate;

• Interest rates and credit risk;

• Descriptions of plans or objectives of management for future operations, products or services;

• Our ability to maintain and follow high underwriting standards;

• Forecasts of future economic conditions generally and in our market areas in particular, which may affect the ability of borrowers to repay their loans and the value of real property or other property held as collateral for such loans;

• Geographic concentration of our operations;

• Our opportunities for growth, our plans for expansion (including opening new offices) and the competition we face in attracting and retaining customers;

• Demand for our products and services;

• Projections about loan premiums or discounts and the amount of intangible assets, as well as related tax entries and amortization of recorded amounts;

• Future provisions for loan losses, increases in nonperforming assets, impairment of investments and our allowance for loan losses;

• The regulatory environment in which we operate, our regulatory compliance and future regulatory requirements, including potential restrictions as a recently-chartered institution;

• Proposed legislative and regulatory action affecting us and the financial services industry;

• Increased costs as a result of being an independent public company;

• Future FDIC special assessments or changes to regular assessments; and

• Descriptions of assumptions underlying or relating to any of the foregoing.

32 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 offering circular. 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.

33 OUR HISTORY AND REESTABLISHMENT AS AN INDEPENDENT INSTITUTION

The legal predecessor of First Republic Bank was formed in February 1985 and operated from June 1985 until September 1997 as First Republic Bancorp, a publicly-traded, non-bank holding company listed on the NYSE under the symbol “FRC.” In 1997, First Republic Bancorp merged into its subsidiary, First Republic Bank, which was subsequently listed on the NYSE. Beginning in 1997, First Republic Bank began its emphasis on full service, high net worth banking and the development of an expanded core deposit franchise. In January 2007, we announced an agreement with Merrill Lynch under which we merged with MLFSB in September 2007. Under the terms of the acquisition, we operated as a separate division within MLFSB, and continued to be managed by our existing, original management team. We also maintained a separate advisory board whose members were members of First Republic Bank’s board of directors immediately before the September 2007 acquisition by MLFSB. On January 1, 2009, Bank of America purchased Merrill Lynch and thereby acquired MLFSB. On November 2, 2009, MLFSB was merged into BANA, and we thereby became a division of BANA. Throughout these mergers, we maintained our own identity, client-based systems and office network, with loans, deposits and other bank products offered to customers under the First Republic Bank brand.

On October 21, 2009, BANA, MLFSB and the current First Republic Bank (then in organization) entered into the Purchase Agreement designed to reestablish First Republic as an independent business entity with the same business model, management team and employee base. We agreed to purchase certain assets and operations, including the customer relationships, trust department and most of the loans held by, and assume the deposits and most of the other liabilities of, the First Republic division of MLFSB following receipt of certain regulatory approvals. Pursuant to the Purchase Agreement, the newly-chartered First Republic Bank also agreed to purchase all the outstanding common stock issued by FRPCC, FRPCC II, FRIM, First Republic Securities Company (“FRSC”) and First Republic Wealth Advisors (“FRWA”), a entity which was subsequently merged into FRIM.

The consummation of the Transaction occurred after the close of business on June 30, 2010, and the current, newly-chartered First Republic Bank began operation on July 1, 2010. Simultaneously with the closing of the Transaction, the current First Republic Bank received a contribution of $1.86 billion in common equity capital in a buy-out led by our management and an investor group co-led by Colony and General Atlantic.

34 USE OF PROCEEDS

We intend to use the proceeds to us generated by this offering, approximately $95.2 million after deducting the underwriters’ discount and estimated offering expenses payable by us, for general corporate purposes, which may include, among other things, funding loans or purchasing investment securities for our portfolio.

We will not receive any proceeds from the sale of common stock by the selling shareholders.

35 DIVIDEND POLICY

We currently do not intend to pay any cash dividends on our common stock in the foreseeable future following this offering. We currently intend to retain all of our future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our common stock will be made, subject to applicable law and regulatory approvals, by the Board and will depend upon our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors that the Board deems relevant. The Board may determine not to pay any cash dividends at any time in the future.

We are subject to bank regulatory requirements that in some situations could affect our ability to pay dividends. The FDIC’s prompt corrective action regulations prohibit institutions such as us from making any “capital distribution,” which includes any transaction that the FDIC determines, by order or regulation, to be “in substance a distribution of capital,” unless the institution will continue to be at least adequately capitalized after the distribution is made. Pursuant to these provisions, it is possible that the FDIC would seek to prohibit the payment of dividends on our capital stock if we failed to maintain a status of at least adequately capitalized. Applicable California banking laws contain similar provisions. If we did pay dividends on our capital stock, those dividends would be payable out of our capital surplus.

36 CAPITALIZATION

The following table sets forth our capitalization and capital ratios as of September 30, 2010 on an actual basis and as adjusted to give effect to (i) the sale of 4,115,000 shares of common stock by us in this offering (assuming the underwriters do not exercise their option to purchase additional shares) at the public offering price of $25.50 per share, after underwriting discounts and estimated offering expenses payable by us and (ii) the application of the estimated proceeds from this offering as described in “Use of Proceeds.” You should read this table in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this offering circular.

As of September 30, 2010 Actual As Adjusted (Dollars in thousands) Capitalization 7.75% Subordinated Notes due 2012 ...... $ 69,026 $ 69,026 Equity First Republic Bank Stockholders’ Equity Common Stock, par value $0.01 per share, 400,000,000 shares authorized, 124,133,334 shares outstanding (1), (2) ...... 1,241 1,282 Additional paid-in capital ...... 1,868,021 1,963,154 Retained earnings ...... 66,395 66,395 Accumulated other comprehensive loss ...... (1,488) (1,488) Total First Republic Bank stockholders’ equity ...... $1,934,169 $2,029,343 Noncontrolling interests Preferred Stock of First Republic Preferred Capital Corporation ...... 77,260 77,260 Preferred Stock of First Republic Preferred Capital Corporation II ...... 9,310 9,310 Total noncontrolling interests ...... $ 86,570 $ 86,570 Total Equity ...... $2,020,739 $2,115,913 Book value per common share ...... $ 15.58 $ 15.82 Capital Ratios Tier 1 leverage ratio ...... 8.58% 9.02% Tier 1 risk-based capital ratio ...... 13.60% 14.29% Total risk-based capital ratio ...... 13.73% 14.42% Tier 1 common risk-based capital ratio ...... 12.96% 13.65% (1) If the underwriters exercise in full their option to purchase additional shares of common stock, (a) an aggregate of 4,725,000 shares of common stock will be issued in the offering, resulting in aggregate net proceeds of approximately $109.8 million at a public offering price of $25.50 per share and (b) our total stockholders’ equity as adjusted will be $2,043,926,000. (2) Excludes shares of common stock reserved for issuance pursuant to our stock option plan. As of September 30, 2010, options to purchase 16,927,273 shares of common stock were authorized under our stock options plan and options on 15,608,282 shares had been granted.

37 DILUTION

If you invest in our common stock, you will suffer dilution to the extent that the public offering price per share of our common stock exceeds the tangible book value per share of our common stock immediately following this offering. Tangible book value per share is equal to our stockholders’ equity less intangible assets, divided by the number of shares of our common stock outstanding. As of September 30, 2010, our tangible book value was $1.75 billion, or $14.07 per share.

After the sale of 4,115,000 shares of common stock in this offering (assuming the underwriters do not exercise their option to purchase additional shares) at the public offering price of $25.50 per share, after the underwriting discount and estimated offering expenses payable by us, our pro forma tangible book value as of September 30, 2010 would be approximately $1.8 billion, or $14.36 per share. This offering will therefore result in an immediate increase in our tangible book value of $0.29 per share to existing shareholders and an immediate dilution of $11.14 per share to investors purchasing shares in this offering, or approximately 43.7% of the public offering price of $25.50 per share. Dilution per share is calculated by subtracting the pro forma tangible book value per share from the public offering price.

The following table illustrates the calculation of the amount of dilution per share that a purchaser of our common stock in this offering will incur given the assumptions above:

Tangible book value per share at September 30, 2010 ...... $14.07 Increase in tangible book value per share attributable to new investors ...... $ 0.29 Pro forma tangible book value after the offering ...... $14.36 Public offering price ...... $25.50 Dilution per share to new investors ...... $11.14

The following table summarizes the total consideration paid to us and the average price paid per share by existing shareholders and investors purchasing common stock in this offering. This information is presented on a pro forma basis as of September 30, 2010, after giving effect to our sale of 4,115,000 shares of common stock in this offering (assuming the underwriters do not exercise their option to purchase additional shares) at the public offering price of $25.50 per share.

Average Shares Purchased/Issued Total Consideration Price per Number Percent Amount Percent Share Shareholders as of September 30, 2010 (1) ...... 124,133,334 96.8% $1,862,040,423 94.7% $15.00 New investors for this offering ...... 4,115,000 3.2% $ 104,932,500 5.3% $25.50 Total ...... 128,248,334 100% $1,966,972,923 100% $15.34

(1) Excludes 16,927,273 shares of common stock reserved for issuance under our stock option plan as of September 30, 2010.

We may choose to raise additional capital even if we believe we have sufficient funds for our current or future operating plans. Our shareholders may experience further dilution to the extent any additional capital is raised through the sale of equity or securities convertible or exchangeable for equity securities. In addition, to the extent that any outstanding options are exercised or other additional options or share awards are made under our stock option plan, there will be further dilution to our shareholders.

38 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 this offering circular. In addition to historical information, this discussion includes certain forward-looking statements regarding events and trends that may affect our future results. Such statements are subject to risks and uncertainties that could cause our actual results to differ materially. See “Cautionary Note Regarding Forward-Looking Statements.” For a more complete discussion of the factors that could affect our future results, see “Risk Factors” beginning on page 12.

We derive our income from three 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 customer deposits and borrowings; (2) earnings from the sale and servicing of real estate secured loans; and (3) fee income from wealth management activities, including investment advisory, trust, brokerage, and foreign exchange and other banking services. We currently operate our business through two business segments: Commercial Banking and Wealth Management.

History

Merrill Lynch Acquisition

On September 21, 2007, the predecessor First Republic Bank was acquired by Merrill Lynch and merged into one of Merrill Lynch’s banking subsidiaries, MLFSB. Under the terms of the acquisition, First Republic Bank operated as a separate division of MLFSB and continued to be managed by First Republic’s existing management team. As a division of MLFSB, First Republic Bank maintained its own marketing identity and office network and operated its own systems, with loans, deposits and other bank products offered to customers under the First Republic brand. We applied purchase accounting in the acquisition by Merrill Lynch, and our assets and liabilities were measured at fair value and goodwill and intangible assets of approximately $1.6 billion were recorded. We also established loan discounts and liability premiums, the majority of which were accreted to our net interest income.

Bank of America Acquisition

On January 1, 2009, Merrill Lynch was acquired by Bank of America. First Republic Bank continued to operate as a separate division of MLFSB until November 2, 2009 when we became a division of BANA. Bank of America applied purchase accounting in the acquisition of Merrill Lynch and our assets and liabilities were recorded at fair value on January 1, 2009. As a result, our goodwill and other intangible assets were reduced to zero; our allowance for loan losses was eliminated; and new fair values on our assets and liabilities were established as of the effective date of the acquisition. The majority of the resulting discounts or premiums were accreted to our net interest income and noninterest income over the lives of the assets and liabilities.

Acquisition of the First Republic Business

After the close of business on June 30, 2010, the current First Republic Bank acquired substantially all of the assets and assumed substantially all of the liabilities of the First Republic division of BANA. Simultaneously with the closing of the Transaction, the current First Republic Bank received a contribution of $1.86 billion to its common equity capital led by management of First Republic Bank and an investor group led by Colony and General Atlantic. In addition, the current First Republic Bank acquired the stock of the following entities: FRIM, FRWA, FRSC, FRPCC and FRPCC II. The assets acquired and liabilities and noncontrolling

39 interests assumed were measured at fair value as a result of the Transaction. Accordingly, goodwill and intangible assets of approximately $194 million were recorded. We also established loan discounts and liability premiums, the majority of which will be accreted to our net interest income.

Key Factors Affecting Our Business and Financial Statements

Interest Rates

Net interest income is our largest source of income and is the difference between the interest income on interest-earning assets (usually loans and investment securities) and the interest expense incurred in connection with 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. These factors are influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as the local economy, competition for loans and deposits, the monetary policy of the FOMC and market interest rates.

The cost of our deposits and short-term wholesale borrowings is 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 longer-term interest rates, which are set by the market, or, at times 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 pace at which such movements occur. Currently, short-term and long- term interest rates are very low by historical standards, with many benchmark rates, such as the federal funds rate and one- and three-month LIBOR, near zero. These low rates have reduced our cost of funding and resulted in our net interest margin increasing during 2009 and the first two quarters of 2010. Since the closing of the Transaction, we have borrowed from the FHLB on a long-term basis and entered into interest rate swaps to reduce our interest rate risk. The impact of these actions is expected to reduce our net interest margin somewhat from the historically high levels of the past year. Further declines in the yield curve or a decline in longer-term yields relative to short-term yields (a flatter yield curve) would have an adverse impact on our net interest margin and net interest income.

See “Risk Factors—We are subject to interest rate risk” on page 13 and “Quantitative and Qualitative Disclosures About Market Risk” on page 96.

Purchase Accounting Accretion and Amortization

In connection with the Merrill Lynch and Bank of America acquisitions and the Transaction, our assets and liabilities were measured at fair value. We recorded discounts on loans and unfunded loan commitments and premiums on deposits and borrowings which were accreted to net interest income and noninterest income over the lives of the related loans and liabilities.

In addition, in connection with the Merrill Lynch acquisition, we recorded intangible assets of $261 million and goodwill of $1.3 billion. Intangible assets associated with core deposit and wealth management customer relationships were amortized on an accelerated basis over a period of ten years or less in 2008 and 2007.

In connection with the Bank of America acquisition on January 1, 2009, loan discounts of $1.1 billion were recorded on our balance sheet as a reduction to the amounts outstanding from customers. The portion of the loan discount that is accreted to interest income is being recognized using methods that approximate the interest method over the estimated lives of the loans. In addition, we established a liability for unfunded commitments of $133.3 million for loans for which we were committed to advance additional funds at the date of acquisition. These discounts were being accreted to income over the life of the loan commitment. In addition, as the

40 commitment is drawn by the borrower, a portion of the unamortized unfunded commitment discount was reclassified on the balance sheet as a loan discount and then accreted into interest income.

In connection with the Transaction on July 1, 2010, loan discounts of $763 million were recorded on our balance sheet as a reduction to the amounts outstanding from customers. The majority of the loan discount that is accreted to interest income is being recognized over the contractual lives of the loans. We established a premium on CDs of approximately $137 million which is amortized to interest expense over the life of the CDs. In addition, we recorded intangible assets of $169.6 million and goodwill of $24.6 million. Intangible assets associated with core deposit and wealth management customer relationships are amortized on an accelerated basis over a period of ten years or less.

The following table presents the significant balance sheet items that were impacted by purchase accounting at the dates indicated:

September 30, December 31, December 26, ($ in thousands) 2010 2009 2008 Assets: Total loans (unpaid principal balance) .... $18,444,923 $19,452,198 $17,748,520 Purchase accounting discount ...... (726,561) (817,442) (210,601) Total ...... $17,718,362 $18,634,756 $17,537,919 Liabilities: CDs ...... $ 6,028,669 $ 5,925,718 $ 4,530,190 Purchase accounting premium ...... 115,606 — 364 Total ...... $ 6,144,275 $ 5,925,718 $ 4,530,554 Subordinated notes ...... $ 63,770 $ 63,770 $ 63,770 Purchase accounting premium ...... 5,256 2,127 2,912 Total ...... $ 69,026 $ 65,897 $ 66,682 Liability for unfunded commitments ...... $ 8,859 $ 67,111 $ —

The following table presents purchase accounting discount accretion and premium amortization plus the amortization of intangible assets included in our income statement for the periods indicated:

Three Six Nine Three Nine Months Months Months Months Months Ended Ended Ended Ended Ended September 30, June 30, September 30, September 30, September 30, ($ in thousands) 2010 2010 2010 (1) 2009 2009 Accretion/amortization to interest income: Loans ...... $36,000 $37,695 $73,695 $63,016 $196,125 Deposits ...... 21,520 — 21,520 — — Borrowings ...... 646 475 1,121 7,895 30,588 Total ...... $58,166 $38,170 $96,336 $70,911 $226,713 Accretion to noninterest income: Unfunded commitments ...... $ — $ 8,220 $ 8,220 $ 7,083 $ 21,283 Amortization to noninterest expense: Intangible assets ...... $ 6,230 $ — $ 6,230 $ — $ —

(1) Amounts for the nine months ended September 30, 2010 combine the Successor and Predecessor III periods in 2010.

41 The decrease in purchase accounting accretion for the nine-month period ended September 30, 2010 is primarily the result of a cumulative adjustment to interest income on loans of $72.8 million of previously recorded loan discount accretion on single family mortgage loans and home equity lines of credit (“HELOCs”). In 2009 and through June 30, 2010, the accretion of the loan discount for single family mortgage loans and HELOCs was accounted for as a pool which includes an estimate of prepayments. During the first six months of 2010, it was determined that the single family and HELOC loan pools were not repaying as fast as initially projected and that an adjustment to reduce the cumulative accretion recorded in 2009 and the three months ended March 31, 2010 was necessary. In addition, the accretion of loan discounts in the three months ended September 30, 2010 was lower than the prior year accretion primarily because the initial discount recorded on July 1, 2010 is less than the initial loan discount recorded in the Bank of America acquisition. This difference was due to different market conditions at the time of each acquisition.

The following table presents purchase accounting discount accretion and premium amortization included in our income statement for 2009, 2008 and 2007, plus the amortization of intangible assets for 2008 and 2007, when we were a division of BANA and MLFSB:

($ in thousands) 2009 2008 2007 Accretion/amortization to interest income: Loans ...... $260,165 $28,388 $ 3,572 Deposits ...... — 1,029 2,042 Borrowings ...... 33,102 4,358 1,194 Total ...... $293,267 $33,775 $ 6,808 Accretion to noninterest income: Unfunded commitments ...... $ 26,641 $ — $ — Amortization to noninterest expense: Intangible assets ...... $ — $42,271 $13,527

For additional information on our opening balance sheet on July 1, 2010 after completion of the Transaction and the purchase accounting adjustments related to the Transaction, see our Consolidated Balance Sheet as of July 1, 2010 and the notes thereto included elsewhere in this offering circular.

Dodd-Frank Legislation

As described further under “Supervision and Regulation” beginning on page 116, the Dodd-Frank Act is complex, and many aspects of it are subject to rulemaking that will take effect over several years. Further, many of its provisions are applicable only to financial institutions that are larger or more systemically significant than we are. However, we currently believe that there are two primary areas of focus for us: the repeal of the prohibition on paying interest on demand deposits and restrictions on mortgages.

As of September 30, 2010, we had $5.1 billion of deposits in checking accounts. The prohibition on depository institutions from paying interest on demand deposits, such as checking accounts, will be repealed effective July 1, 2011. We do not yet know if our competitors will pay interest on business checking accounts or what market rates will be, and we therefore cannot estimate the impact of the repeal at this time to our interest expense on deposits. If we need to offer interest on checking accounts to maintain current clients or attract new clients, our interest expense will increase, perhaps materially. Furthermore, if we fail to offer interest in a sufficient amount to keep these demand deposits, our core deposits may be reduced, which would require us to retain capital in other ways or risk slowing our future asset growth.

The Dodd-Frank Act imposes additional underwriting standards on mortgages and restricts so-called “high-cost mortgages.” Because of these restrictions, it may become impractical or impermissible for us to continue to originate certain mortgages with prepayment penalties. This may cause our fee income from

42 prepayment penalties to decrease over time as mortgages with prepayment penalties run off. For 2009 and the first nine months of 2010, our revenue from prepayment penalties was $5.1 million and $5.7 million, respectively.

We are reviewing the impact to us of the Dodd-Frank Act’s restrictions on certain deposit fees. Our deposit fee income is primarily from value-added fees or monthly service and not from overdraft or similar charges. Therefore, we believe that our deposit fee income will not be materially affected by these restrictions.

Format of Presentation

The effects of purchase accounting for the Merrill Lynch and Bank of America acquisition and the Transaction have had a significant impact on the comparability of our historical financial statements for the years ended 2007, 2008 and 2009 and the three and nine months ended September 30, 2010. Prior to the 2007 Merrill Lynch acquisition, our financial statements were prepared using the historical basis of accounting for First Republic Bank (“Predecessor I”). The financial statements for the period from September 22, 2007 through December 26, 2008 were prepared using the basis of accounting established in the Merrill Lynch acquisition (“Predecessor II”). The financial statements for the year ended December 31, 2009, the six months ended June 30, 2010 and nine months ended September 30, 2009 were prepared using the basis of accounting established in the Bank of America acquisition (“Predecessor III”). The financial statements for the three months ended September 30, 2010 were prepared using the basis of accounting established in the Transaction (“Successor”).

The following discussion is presented on the combined basis of the Predecessor I and Predecessor II periods for 2007 and the Successor and Predecessor III periods for 2010. We believe that the discussion on a combined basis is more meaningful as it allows the results of operations for an entire period to be analyzed to the comparable periods.

Results of Operations—Three and Nine Months Ended September 30, 2010 and September 30, 2009

Overview

Net income was $66.4 million and $80.7 million for the three months ended September 30, 2010 and 2009, a decrease of $14.3 million, or 18%. Net income for the three months ended September 30, 2010 increased $5.8 million, or 10% from $60.5 million for the three months ended June 30, 2010. Net income for the Commercial Banking segment was $67.0 million and $80.4 million for the three months ended September 30, 2010 and 2009, respectively, a decrease of $13.4 million, or 17%. The Wealth Management segment had a net loss of $627,000 for the three months ended September 30, 2010 and net income of $305,000 for the three months ended September 30, 2009.

Net income for the nine months ended September 30, 2010 and 2009 was $195.2 million and $249.2 million, respectively, a decrease of $53.9 million, or 22%. Net income for the Commercial Banking segment was $195.7 million and $248.8 million for the nine months ended September 30, 2010 and 2009, respectively, a decrease of $53.1 million, or 21%. The Wealth Management segment had a net loss of $459,000 for the nine months ended September 30, 2010 and net income of $400,000 for the nine months ended September 30, 2009.

Our total assets were $22.0 billion at September 30, 2010, compared to $19.5 billion at June 30, 2010 and $19.9 billion at December 31, 2009. The increase in total assets from December 31, 2009 was primarily due to increased cash balances as a result of growth in deposits, new fixed rate FHLB advances borrowed during the quarter ended September 30, 2010 and issuance of common stock on July 1, 2010 as part of the Transaction, which was partially offset by the retention of approximately $2.1 billion of loans by BANA in April 2010. The loans were transferred from our balance sheet at their carrying value as we were operating as a division of BANA. Excluding the loans retained by BANA, loans outstanding increased approximately $1.1 billion from

43 December 31, 2009, primarily due to growth in single family mortgage loans. Loan origination volume was $4.2 billion for both the nine months ended September 30, 2010 and 2009. In addition, investment securities increased $521 million from December 31, 2009 as we began deploying excess cash by purchasing investments during the quarter ended September 30, 2010.

The carrying value of our single family mortgage loans, including HELOCs, was $12.6 billion and represented 71% of total loans at September 30, 2010. At September 30, 2010, total deposits increased to $19.0 billion, an increase of $1.8 billion, or 14% annualized, compared to December 31, 2009.

Net Interest Income

Net interest income was $236.2 million for the three months ended September 30, 2010, a decrease of $5.4 million, or 2%, compared with $241.6 million for the three months ended September 30, 2009. Included in net interest income for these periods are the effects of purchase accounting due to the Bank of America acquisition and the Transaction. The Bank of America acquisition and the Transaction resulted in fair value adjustments being recorded to loans, deposits and borrowings, which are then recognized over the lives of those loans, deposits and borrowings. The amount of the purchase accounting accretion and amortization included in the above amounts was $58.2 million and $70.9 million during the three months ended September 30, 2010 and 2009, respectively.

Average interest-earning assets for the third quarter of 2010 increased 15% compared with the third quarter of 2009 and 12% compared with the prior quarter. The average yield decreased 164 basis points to 5.08% compared to the prior year. Average interest bearing liabilities increased 11% and the average rate decreased 82 basis points compared with the third quarter of 2009. The impact of these changes to the net interest margin for the third quarter of 2010 was a decrease of 84 basis points to 4.54%, compared with 5.38% for the third quarter of 2009. The net interest margin is calculated as annualized net interest income divided by total average interest earning assets and includes the impact of purchase accounting.

Management also evaluates the net interest margin based upon the contractual rates earned and paid on our assets and liabilities (the “contractual net interest margin,” a non-GAAP measure), which excludes the impact of purchase accounting. The contractual net interest margin was 3.31% and 3.61% for the three months ended September 30, 2010 and 2009, respectively. For a reconciliation of these ratios to the equivalent GAAP ratio, see “—Use of Non-GAAP Financial Measures” on page 92. The decrease in the contractual net interest margin for the quarter ended September 30, 2010 compared to the prior year is primarily the result of higher cash balances earning very low market interest rates, which is partially offset by declining funding costs.

Net interest income for the three months ended September 30, 2010 increased $38.1 million, or 19%, from $198.2 million for the three months ended June 30, 2010. The amount of purchase accounting accretion and amortization increased $44.1 million from $14.1 million for the three months ended June 30, 2010. Average interest earning assets for the third quarter of 2010 increased 12% compared to $18.5 billion for the second quarter of 2010 primarily due to higher cash balances. The average yield decreased 20 basis points compared to 5.28% for the prior quarter. Average interest bearing liabilities increased 8% compared to $17.9 billion for the prior quarter and the average rate decreased 45 basis points compared to 1.02% for the prior quarter. The net interest margin for the second quarter of 2010 was 4.29%. The contractual net interest margin was 3.84% for the three months ended June 30, 2010.

Net interest income was $649.5 million for the nine months ended September 30, 2010, a decrease of $53.7 million, or 8%, compared with $703.2 million for the nine months ended September 30, 2009. The amount of the purchase accounting accretion and amortization included in the above amounts was $96.3 million and $226.7 million for the nine months ended September 30, 2010 and 2009, respectively. The decrease in purchase accounting accretion is primarily due to the cumulative adjustment to single family mortgage loans and HELOCs in the first half of 2010 discussed above and lower accretion on FHLB advances that matured in 2009.

44 Average interest-earning assets for the nine months ended September 30, 2010 increased 11% compared with the nine months ended September 30, 2009 and the average yield decreased 162 basis points. In comparison, the average balance of our interest bearing liabilities increased 10% and the average rate paid decreased 74 basis points. The impact of these changes to the net interest margin for the nine months ended September 30, 2010 was a decrease of 91 basis points to 4.46%, compared with 5.37% for the nine months ended September 30, 2009.

The contractual net interest margin was 3.66% and 3.44% for the nine months ended September 30, 2010 and 2009, respectively. The increase in contractual net interest margin for the nine months ended September 30, 2010 compared to the prior year was primarily the result of the interest rate environment—a steep yield curve in which funding costs declined to very low levels and declined more than asset yields. For the nine months ended September 30, 2010, the average one-month LIBOR rate was 178 basis points less than the average five-year U.S. Treasury rate. Due to the steep yield curve and general market conditions, our cost of funding decreased more than the interest rates on loans. As long as the yield curve remains steep, our net interest margin and net interest income will remain above their long-term averages. However, there can be no assurance that this trend will continue, and if short-term interest rates rise significantly from their current very low levels or the yield curve otherwise flattens, our net interest margin may decrease, perhaps materially.

45 The following tables present the distribution of average assets, liabilities and equity, interest income and resulting yields on average interest earning asset balances, and interest expense and rates on average interest bearing-liabilities for the three and nine-month periods ended September 30, 2010 and 2009 and the six-month periods ended June 30, 2010 and 2009. Nonaccrual loans are included in the calculation of the average loan balances, and interest on nonaccrual loans is included only to the extent recognized on a cash basis.

Three Months Ended September 30, 2010 2009 Average Yields/ Average Yields/ ($ in thousands) Balance Interest Rates Balance Interest Rates Assets: Investment securities (1), (2) ...... $ 299,848 $ 1,939 4.05% $ 62,637 $ 158 1.01% Cash equivalents ...... 2,871,154 1,713 0.24% 11,452 24 0.84% Loans ...... 17,532,619 260,176 5.89% 18,002,348 301,941 6.75% Total interest-earning assets ...... 20,703,621 263,828 5.08% 18,076,437 302,123 6.72% Noninterest-earning assets ...... 867,662 920,278 Total Assets ...... $21,571,283 $263,828 $18,996,715 $302,123

Liabilities and Equity: Checking accounts ...... $ 4,910,205 $ 751 0.06% $ 4,494,156 $ 1,274 0.11% Other liquid deposits ...... 7,649,015 12,080 0.63% 5,128,912 16,446 1.29% CDs ...... 6,159,855 10,555 0.68% 5,827,646 35,721 2.47% Total deposits ...... 18,719,075 23,386 0.50% 15,450,714 53,441 1.39% FHLB advances ...... 542,816 3,481 2.54% 852,842 1,351 0.64% Subordinated notes ...... 69,342 589 3.40% 66,191 1,038 6.31% Debt related to variable interest entity ...... 31,035 132 1.70% — — — Parent company borrowing ...... ——— 1,055,363 4,698 1.74% Total borrowings ...... 643,193 4,202 2.60% 1,974,396 7,087 1.42% Total interest-bearing liabilities ...... 19,362,268 27,588 0.57% 17,425,110 60,528 1.39% Noninterest-bearing other liabilities ...... 211,522 241,761 Equity before noncontrolling interests ...... 1,910,923 1,230,254 Noncontrolling interests ...... 86,570 99,590 Total Liabilities and Equity ...... $21,571,283 $18,996,715 Net interest spread (3) ...... 4.51% 5.33% Net interest income and net interest margin (4) . . $236,240 4.54% $241,595 5.38% Adjusted net interest income and contractual net interest margin (non-GAAP) (5) ...... $178,074 3.31% $170,684 3.61%

(1) Includes FHLB stock. (2) In order to calculate the yield on tax-advantaged investment securities on a tax equivalent basis, reported interest income was increased by $1.1 million in 2010. (3) Net interest spread represents the average yield on interest-earning assets less the average rate on interest- bearing liabilities. (4) Net interest margin is computed by dividing net interest income by total average interest-earning assets. (5) For a reconciliation of these ratios to the equivalent GAAP ratios, see “—Use of Non-GAAP Financial Measures” on page 92.

46 Six Months Ended June 30, 2010 2009 Average Yields/ Average Yields/ ($ in thousands) Balance Interest Rates Balance Interest Rates Assets: Cash equivalents and investments (1) ...... $ 64,867 $ 189 0.59% $ 72,494 $ 401 1.10% Parent company lending ...... 534,963 4,830 1.80% — — — Loans ...... 18,024,928 503,819 5.64% 17,060,294 607,295 7.08% Total interest-earning assets ...... 18,624,758 508,838 5.51% 17,132,788 607,696 7.06% Noninterest-earning assets ...... 978,225 795,589 Total Assets ...... $19,602,983 $508,838 $17,928,377 $607,696

Liabilities and Equity: Checking accounts ...... $ 4,722,585 $ 1,579 0.07% $ 3,856,184 $ 1,837 0.09% Other liquid deposits ...... 6,873,501 26,714 0.78% 4,282,398 36,207 1.68% CDs ...... 5,962,190 62,046 2.10% 5,252,285 84,259 3.19% Total deposits ...... 17,558,276 90,339 1.04% 13,390,867 122,303 1.82% FHLB advances ...... 130,465 222 0.34% 1,180,033 4,562 0.77% Debt related to variable interest entity ...... 181 — — — — — Parent company borrowing ...... 346,312 2,956 1.70% 1,826,551 17,164 1.82% Subordinated notes ...... 65,700 2,082 6.39% 64,347 2,109 6.52% Total borrowings ...... 542,658 5,260 1.94% 3,070,931 23,835 1.51% Total interest-bearing liabilities ...... 18,100,934 95,599 1.06% 16,461,798 146,138 1.76% Noninterest-bearing other liabilities ...... 167,168 211,587 Equity before noncontrolling interests ...... 1,235,291 1,155,402 Noncontrolling interests ...... 99,590 99,590 Total Liabilities and Equity ...... $19,602,983 $17,928,377 Net interest spread (2) ...... 4.45% 5.30% Net interest income and net interest margin (3) . . . $413,239 4.47% $461,558 5.36% Adjusted net interest income and net interest margin (non-GAAP) (4) ...... $375,069 3.90% $305,756 3.35%

(1) Includes FHLB stock. (2) Net interest spread represents the average yield on interest-earning assets less the average rate on interest- bearing liabilities. (3) Net interest margin is computed by dividing net interest income by total average interest-earning assets. (4) For a reconciliation of these ratios to the equivalent GAAP ratios, see “—Use of Non-GAAP Financial Measures” on page 92.

47 Nine Months Ended September 30, 2010 (1) 2009 Average Yields/ Average Yields/ ($ in thousands) Balance Interest Rates Balance Interest Rates Assets: Investment securities (2), (3) ...... $ 137,888 $ 2,096 3.09% $ 61,704 $ 509 1.10% Cash equivalents ...... 973,734 1,745 0.24% 11,317 74 0.87% Parent company lending ...... 354,682 4,830 1.80% — — — Loans ...... 17,859,022 763,995 5.68% 17,372,272 909,236 6.97% Total interest-earning assets ...... 19,325,326 772,666 5.32% 17,445,293 909,819 6.94% Noninterest-earning assets ...... 940,966 836,635 Total Assets ...... $20,266,292 $772,666 $18,281,928 $909,819

Liabilities and Equity: Checking accounts ...... $ 4,785,813 $ 2,330 0.07% $ 4,067,406 $ 3,111 0.10% Other liquid deposits ...... 7,134,847 38,794 0.73% 4,562,541 52,653 1.54% CDs ...... 6,028,802 72,601 1.61% 5,442,692 119,980 2.93% Total deposits ...... 17,949,462 113,725 0.85% 14,072,639 175,744 1.66% FHLB advances ...... 269,426 3,703 1.84% 1,071,754 5,913 0.73% Subordinated notes ...... 66,927 2,671 5.32% 64,957 3,147 6.45% Debt related to variable interest entity ...... 10,579 132 1.66% — — — Parent company borrowing ...... 229,605 2,956 1.70% 1,571,338 21,862 1.80% Total borrowings ...... 576,537 9,462 2.18% 2,708,049 30,922 1.49% Total interest-bearing liabilities ...... 18,525,999 123,187 0.89% 16,780,688 206,666 1.63% Noninterest-bearing other liabilities ...... 182,115 221,477 Equity before noncontrolling interests ...... 1,462,976 1,180,173 Noncontrolling interests ...... 95,202 99,590 Total Liabilities and Equity ...... $20,266,292 $18,281,928 Net interest spread (4) ...... 4.43% 5.31% Net interest income and net interest margin (5) . . . $649,479 4.46% $703,153 5.37% Adjusted net interest income and contractual net interest margin (non-GAAP) (6) ...... $553,143 3.66% $476,440 3.44%

(1) Average balances, interest income and average yields and rates for the nine months ended September 30, 2010 combine the Successor and Predecessor III periods in 2010. (2) Includes FHLB stock. (3) In order to calculate the yield on tax-advantaged investment securities on a tax equivalent basis, reported interest income was increased by $1.1 million in 2010. (4) Net interest spread represents the average yield on interest-earning assets less the average rate on interest- bearing liabilities. (5) Net interest margin is computed by dividing net interest income by total average interest-earning assets. (6) For a reconciliation of these ratios to the equivalent GAAP ratios, see “—Use of Non-GAAP Financial Measures” on page 92.

Interest Income

Interest income on loans decreased $41.8 million, or 14%, to $260.2 million for the third quarter of 2010 from $301.9 million for the third quarter of 2009. The accretion of loan discounts decreased $27.0 million, or 43%, to $36.0 million for the third quarter of 2010 from $63.0 million in the third quarter of 2009. The quarter

48 ended September 30, 2009 includes approximately $29 million of interest income associated with $2.1 billion of loans that were retained by BANA in the Transaction. The average yield on loans for the third quarter of 2010 decreased 86 basis points from 6.75% for the third quarter of 2009 due to both lower interest rates and less loan discount accretion.

Interest income on loans increased $21.3 million, or 9%, for the third quarter of 2010 compared to $238.9 million for the three months ended June 30, 2010. The accretion of loan discounts increased $22.2 million from $13.8 million for the second quarter of 2010. The average yield on loans increased 38 basis points from 5.51% for the second quarter of 2010 primarily due to higher loan discount accretion partially offset by lower interest rates.

Interest income on loans decreased $145.2 million, or 16% to $764.0 million for the nine months ended September 30, 2010 from $909.2 million for the nine months ended September 30, 2009. In April 2010, $2.1 billion of loans were retained by BANA, and we no longer earned interest income on these assets from and after the date of transfer. The accretion of loan discounts declined to $73.7 million during the nine months ended September 30, 2010 compared to $196.1 million for the nine months ended September 30, 2009. The average yield on loans for the nine months ended September 30, 2010 decreased 129 basis points from 6.97% for the first nine months of 2009 due to both lower interest rates and less loan discount accretion.

To date, average loan yields have declined more slowly than have average rates on our interest-bearing liabilities. Our yield on loans is affected by market rates, the level of adjustable rate loan indices, interest rate floors and caps, repayment of loans with higher fixed rates, the level of loans held for sale, portfolio mix and the level of nonaccrual loans. Our weighted average contractual loan rate was 4.77% at September 30, 2010, 4.97% at December 31, 2009 and 5.02% at September 30, 2009. For ARMs, the yield is also affected by the timing of changes in the loan rates, which generally lag market rate changes. Of our total loan portfolio, including loans held for sale, 35% were adjustable rate loans that reprice in six months or less, both at September 30, 2010 and September 30, 2009. Loan yields are also affected by the proportion of single family loans in our loan portfolio, because single family loans generally earn interest rates that are lower than rates for other types of loans. For the third quarter of 2010 and the same period in 2009, the average balance for single family loans, excluding HELOCs, in our loan portfolio was 52% of average interest earning assets. Average loan balances for the nine months ended September 30, 2010 were $17.9 billion, compared to $17.4 billion for the same period in 2009, an increase of $486.8 million, or 3%. The increase in average loan balances from 2009 was primarily due to increases in the single family loan portfolio offset by the transfer of retained loans to BANA in April 2010.

Interest income on investments increased $1.8 million to $1.9 million for the third quarter of 2010 from $158,000 for the third quarter of 2009. Interest income on investments increased $1.6 million to $2.1 million for the nine months ended September 30, 2010 from $509,000 for the nine months ended September 30, 2009. The increase is due to the purchases of new investments during the quarter ended September 30, 2010 as the average balance increased to $299.8 million. While we were part of BANA, we did not maintain a significant investment securities portfolio.

Interest income on cash equivalents increased to $1.7 million for the third quarter of 2010 from $24,000 for the third quarter of 2009. Interest income on cash equivalents increased to $1.7 million for the nine months ended September 30, 2010 from $74,000 for the nine months ended September 30, 2009. The increase is due to increased cash balances as a result the issuance of common stock on July 1, 2010 as part of the Transaction and deposit growth.

Interest Expense

Total interest expense consists primarily of four components: interest expense on customer deposits, interest expense on FHLB advances, interest expense on borrowings from MLFSB or BANA (“Parent company

49 borrowings”) for periods prior to June 30, 2010 and interest expense on subordinated notes. Total interest expense for the third quarter of 2010 decreased by $32.9 million, or 54%, to $27.6 million from $60.5 million for the third quarter of 2009. This decline was the result of an 82 basis point decline in the average cost of liabilities to 0.57% for the three months ended September 30, 2010 from 1.39% for the three months ended September 30, 2009, while average interest-bearing liabilities increased by $1.9 billion, or 11%, to $19.4 billion for the third quarter of 2010 from $17.4 billion for the third quarter of 2009. Interest expense is reduced by the amortization of fair value adjustments established in purchase accounting. The amount of purchase accounting amortization included as a reduction of interest expense was $22.2 million and $7.9 million during the three months ended September 30, 2010 and 2009, respectively. The average cost of total interest-bearing liabilities decreased as a result of the continuing decline in market rates of interest.

Interest expense for the three months ended September 30, 2010 decreased $18.1 million, or 40%, from $45.7 million for the three months ended June 30, 2010. The reduction in interest expense was primarily the result of an increase in purchase accounting amortization to $22.2 million for the quarter compared with $238,000 in the second quarter of 2010, offset by increased interest expense related to new FHLB advances. The average cost of liabilities decreased 45 basis points from 1.02% for the prior quarter while average interest- bearing liabilities increased by $1.4 billion, or 8%, from $17.9 billion.

Total interest expense for the nine months ended September 30, 2010 and 2009 was $123.2 million and $206.7 million, respectively. The amount of purchase accounting amortization included as a reduction of interest expense was $22.6 million and $30.6 million for the nine months ended September 30, 2010 and 2009, respectively. The average cost of total interest-bearing liabilities for the nine months ended September 30, 2010 and 2009 was 0.89% and 1.63%, respectively.

Interest expense on deposits, consisting of checking accounts, money market and passbook accounts and CDs, decreased $30.1 million, or 56% to $23.4 million for the third quarter of 2010 from $53.4 million for the third quarter of 2009. Interest expense on deposits for the quarter ended September 30, 2010 was reduced $21.5 million by the amortization of premiums on CDs. The average cost of deposits decreased 89 basis points to 0.50% for the three months ended September 30, 2010 from 1.39% for the three months ended September 30, 2009 while average deposit balances increased 21% to $18.7 billion for the third quarter of 2010 from $15.5 billion for the third quarter of 2009. The decline in the cost of deposits was primarily due to decreasing market rates, which have continued to decline and remain at very low levels.

Interest expense on deposits for the three months ended September 30, 2010 decreased $21.2 million, or 48%, from $44.6 million for the three months ended June 30, 2010. The average cost of deposits decreased 51 basis points from 1.01% for the prior quarter. Average deposit balances increased 5% from $17.7 billion for the prior quarter.

Interest expense on deposits was $113.7 million and $175.7 million for the nine months ended September 30, 2010 and 2009, respectively. The decline in interest expense for the nine months ended September 30, 2010 was the result of lower deposit costs and increased purchase accounting amortization, which was partially offset by higher average deposit balances. Average deposits increased to $17.9 billion for the nine months ended September 30, 2010 from $14.1 billion for the same period in 2009, or an increase of approximately $3.9 billion. The average cost of deposits for the nine months ended September 30, 2010 and 2009 was 0.85% and 1.66%, respectively.

Average lower-rate checking account balances decreased slightly to 27% of average total deposits for the nine months ended September 30, 2010, compared with 29% for the same period in 2009. Total average other liquid accounts, consisting of money market and passbook accounts, were 40% of average total deposits for the nine months ended September 30, 2010 and 32% for the same period in 2009. CDs were 33% of average total deposits for the nine months ended September 30, 2010 and 39% for the same period in 2009, and the average rate on these deposits decreased 132 basis points from 2.93% to 1.61%. The average rate for the nine months

50 ended September 30, 2010 was 2.10%, excluding the impact of the CD premium amortization discussed above. At September 30, 2010, because of the continued decline in market rates, the weighted average rate on total deposits was 0.88%, down 32 basis points compared with 1.20% at September 30, 2009. At September 30, 2010, our total deposits were $19.0 billion, compared with $17.2 billion at December 31, 2009 and $16.2 billion at September 30, 2009. We will continue to emphasize growth in our core deposit base to fund a significant percentage of future asset growth, although there can be no assurance we will be successful. If we are not successful, we may need to use other sources of funding, such as FHLB advances which are higher in cost.

While we were a division of MLFSB and BANA, we were not able to borrow from the FHLB. On July 1, 2010, we reestablished our membership with the FHLB of San Francisco. During the quarter ended September 30, 2010, we borrowed $600 million of fixed rate long-term advances with a weighted average interest rate of 2.61%. In addition, we repaid floating rate advances of $130.8 million. Interest expense on FHLB advances increased $2.3 million, or 167%, to $3.6 million for the third quarter of 2010, from $1.4 million for the third quarter of 2009, due primarily to an increase in the average cost of advances by 190 basis points to 2.54% compared to 0.64% in the third quarter of 2009.

For the nine months ended September 30, 2010 and 2009, interest expense on FHLB advances was $3.8 million and $5.9 million, respectively. The decline was primarily due to a decline in the average balance of FHLB advances to $269.4 million for the nine months ended September 30, 2010, compared to $1.1 billion for the nine months ended September 30, 2009 offset by an increase in the average cost by 111 basis points.

Our total outstanding FHLB advances were $600 million at September 30, 2010, $130.5 million at December 31, 2009 and $482.8 million at September 30, 2009. The weighted average contractual rate paid on our FHLB advances was 2.61% at September 30, 2010, a decrease of 120 basis points compared with 3.81% at September 30, 2009.

Prior to July 1, 2010, interest expense on Parent company borrowings was recognized at one-month LIBOR plus 1.50% based on the average balance during each month. Interest on Parent company borrowings was $4.7 million for the third quarter of 2009. For the nine months ended September 30, 2010 and 2009, interest expense on Parent company borrowings was $3.0 million and $21.9 million, respectively. The decrease in Parent company borrowing expense was due to declining average balances as deposits grew faster than assets, which reduced our reliance on Parent company funding. In addition, the loans that BANA retained as part of the Transaction eliminated the need for any Parent company funding after April 2010.

Interest expense on subordinated notes includes interest payments and amortization of purchase accounting adjustments. The average cost of subordinated notes was 5.32% for the nine months ended September 30, 2010 and 6.45% for the nine months ended September 30, 2009. At September 30, 2010, December 31, 2009 and September 30, 2009, the weighted average contractual rate paid on outstanding subordinated notes was 7.75%.

51 Noninterest Income

The following table presents noninterest income for the three and nine months ended September 30, 2010 and 2009 and the six months ended June 30, 2010.

Three Months Nine Months Three Months Nine Months Ended Six Months Ended Ended Ended September 30, Ended June 30, September 30, September 30, September 30, ($ in thousands) 2010 2010 2010 (1) 2009 2009 Noninterest income: Investment advisory fees ...... $ 8,339 $16,442 $24,781 $ 6,788 $20,297 Brokerage and investment fees ...... 2,149 4,681 6,830 2,913 11,845 Trust fees ...... 1,249 2,226 3,475 1,221 4,009 Deposit customer fees ...... 3,671 7,236 10,907 3,191 9,109 Loan servicing fees, net ...... (863) 2,749 1,886 1,048 (1,105) Loan and related fees ...... 715 1,831 2,546 1,044 3,213 Gain on sale of loans ...... 1,033 1,290 2,323 1,415 4,030 Income from investments in life insurance ...... 838 1,388 2,226 2,150 6,854 Accretion of discount on unfunded commitments .....— 8,220 8,220 7,083 21,283 Other income ...... 1,897 3,395 5,292 1,960 5,124 Total noninterest income . . $19,028 $49,458 $68,486 $28,813 $84,659

(1) Amounts for the nine months ended September 30, 2010 combine the Successor and Predecessor III periods in 2010.

Noninterest income for the three months ended September 30, 2010 decreased $9.8 million, or 34%, to $19.0 million from $28.8 million for the third quarter of 2009. The decrease in noninterest income was due to lower accretion of discount on unfunded commitments, lower brokerage and investment fees, declines in net loan servicing fees, lower income from bank-owned life insurance investments and lower gain on sale of loans. These decreases were partially offset by higher deposit fees and investment advisory fees.

Noninterest income for the three months ended September 30, 2010 decreased $6.1 million, or 24%, from $25.1 million for the second quarter of 2010. The decrease in noninterest income was due to lower accretion of discount on unfunded commitments, lower brokerage and investment fees, declines in net loan servicing fees and lower gain on sale of loans. These decreases were partially offset by higher income from bank- owned life insurance investments.

Noninterest income for the nine months ended September 30, 2010 and 2009 was $68.5 million and $84.7 million, respectively, a decrease of $16.2 million, or 19%. The decrease was due to lower accretion of discount on unfunded commitments, lower brokerage and investment fees, lower gain on sale of loans and lower income from bank-owned life insurance investments. These decreases were partially offset by higher investment advisory fees, increased net loan servicing fees and higher deposit fees.

Investment Advisory Fees. Investment advisory fees were $8.3 million for the third quarter of 2010, a 23% increase from $6.8 million for the third quarter of 2009. Investment advisory fees for the nine months ended September 30, 2010 were $24.8 million, a 22% increase from $20.3 million for the nine months ended September 30, 2009. The increases for both periods were primarily due to an increase in average assets under management as a result of new clients and increased activity in the equity markets over the past 12 months. Investment advisory fees vary with the amount of assets managed by our investment advisory subsidiaries and the type of account chosen by the client. Generally, these investment advisors earn higher fees for managing

52 equity securities than for managing a fixed income or convertible securities portfolio. The future level of these fees will depend on the level and mix of assets under management, conditions in the equity markets and our ability to attract new clients.

Brokerage and Investment Fees. Brokerage fees were $2.1 million for the third quarter of 2010, a 26% decrease from $2.9 million for the third quarter of 2009. Brokerage fees for the nine months ended September 30, 2010 were $6.8 million, a 42% decrease from $11.8 million for the nine months ended September 30, 2009. The decline in brokerage fees for both periods was primarily due to continued declining fee margins on money mutual market fund investments due to the very low levels of market interest rates.

Trust Fees. Trust fees were $1.2 million for both the third quarter of 2010 and the third quarter of 2009. Trust fees for the nine months ended September 30, 2010 were $3.5 million, a 13% decrease from $4.0 million for the nine months ended September 30, 2009. The decline in trust fees for the nine months ended September 30, 2010 as compared to the same period in 2009 is primarily due to lower transaction volume and reduced fee margins due to a change in the mix of assets under custody or administration, in particular, a shift towards shorter-term investments such as money market instruments and U.S. treasuries.

Deposit Customer Fees. We earn fees from our clients for deposit services. Deposit customer fees were $3.7 million for the third quarter of 2010, a 15% increase from $3.2 million for the third quarter of 2009. Deposit customer fees for the nine months ended September 30, 2010 were $10.9 million, a 20% increase from $9.1 million for the nine months ended September 30, 2009. The increase in both periods was due to a higher level of account activity and increased deposit balances, primarily checking accounts. These fees vary with the level of account activity and have generally increased as our deposit activities have grown.

Loan Servicing Fees, Net. We derive net loan servicing fees from the amount of loans serviced, the fee charged for servicing loans (expressed as a percent of loans serviced), the amortization rate of MSRs and the amount of provisions for, or recovery of, the MSR valuation allowance. Net loan servicing fees were $(863,000) for the third quarter of 2010 compared to $1.0 million for the third quarter of 2009. Net loan servicing fees were $1.9 million for the nine months ended September 30, 2010 compared to $(1.1) million for the nine months ended September 30, 2009. The decrease in net loan servicing fees for the third quarter of 2010 was primarily due to impairment recorded on MSRs during the third quarter of 2010 due to declining mortgage interest rates. During 2009 and the first six months of 2010, we accounted for MSRs under the fair value method. As a result of the Transaction, we elected to account for MSR using the amortized cost method. Under this method, we recorded amortization of MSRs of $2.1 million during the third quarter of 2010. In addition, due to declining mortgage interest rates and higher prepayment speeds in the servicing portfolio, we recorded an impairment provision of $1.3 million. For the quarter ended September 30, 2009, we recorded changes in the fair value of MSRs of $(1.7) million. If loan repayments continue at a high level, we may be required to record additional impairment provisions.

Contractual servicing fees were $2.5 million for the third quarter of 2010, an 8% decrease from $2.7 million for the third quarter of 2009. Contractual servicing fees were $7.6 million for the nine months ended September 30, 2010, a 7% decrease from $8.2 million for the nine months ended September 30, 2009. The amount of contractual servicing fees depends upon the terms of the loans at origination, the interest rate environment and conditions in the secondary market when the loans are sold, as well as the rate of loan payoffs. The decrease in contractual servicing fees was driven by the decline in loans serviced for others as loan payoffs in the servicing portfolio exceeded new additions. The average balance of loans serviced declined 11% to $3.7 billion for the third quarter of 2010 from $4.1 billion for the third quarter of 2009. Weighted average servicing fees collected as a percentage of loans serviced was approximately 0.27% and 0.26% annualized for the third quarter of 2010 and 2009, respectively.

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, and prepayment penalties and payoff fees that

53 vary with loan repayment activity and market conditions such as the general level of longer-term interest rates. Loan and related fee income was $715,000 for the third quarter of 2010, a 32% decrease from $1.0 million for the third quarter of 2009. These fees totaled $2.5 million for the nine months ended September 30, 2010, a 21% decrease from $3.2 million for the nine months ended September 30, 2009. We collected prepayment penalty fees of $2.7 million and $1.4 million for third quarter of 2010 and 2009, respectively and $5.7 million and $3.8 million for the nine months ended September 30, 2010 and 2009, respectively; such fees related to both loans in our loan portfolio (recorded as interest income) and to loans serviced for investors (recorded as loan fee income). The Dodd-Frank Act imposes additional underwriting standards on mortgages and restricts so-called “high cost mortgages.” Because of these restrictions, it may become impractical or impermissible for us to continue to originate certain mortgages with prepayment penalties. This may cause our fee income from prepayment penalties to decrease over time as mortgages with prepayment penalties run off over time.

Gain on Sale of Loans. The net gain on the sale of $200 million in aggregate principal balance of loans was $1.0 million, or approximately 52 basis points on the loans sold, for the third quarter of 2010. In comparison, the net gain on sale of loans was $1.4 million on loan sales of $106.1 million, or 133 basis points on loans sold, for the third quarter of 2009. For the nine months ended September 30, 2010 and 2009, the net gain on sale of loans was $2.3 million and $4.0 million, or 68 and 97 basis points on loans sold, respectively. Our loan sale activity in 2010 and 2009 has primarily been the sale of conforming loans to the Federal National Mortgage Association (“Fannie Mae”). The decrease in gain on sale of loans was due to lower margins on whole loan sales. Net gain on sales of loans fluctuates with the amount of loans sold, the type of loans sold and market conditions such as the current interest rate environment. The amount of loans that we sell depends upon conditions in the mortgage origination, loan securitization and secondary loan sales markets.

Income from Investments in Life Insurance. Income from investments in bank-owned life insurance was $838,000 for the third quarter of 2010, a 61% decrease from $2.2 million for the third quarter of 2009. Income from bank-owned life insurance for the nine months ended September 30, 2010 was $2.2 million, a 68% decrease from $6.9 million for the nine months ended September 30, 2009. The decrease resulted from the retention of the majority of these investments by BANA at their carrying value in March 2010 in connection with the Transaction. During the quarter ended September 30, 2010, we purchased $375 million of bank-owned life insurance from multiple carriers. The income on these investments helps to offset the cost of providing employee benefits. Our portfolio of these tax-advantaged investments was $378.4 million at September 30, 2010 compared to $202.7 million at December 31, 2009.

Accretion of Discount on Unfunded Commitments. Accretion of discount on unfunded commitments was zero for the third quarter of 2010 compared to $7.1 million for the third quarter of 2009. The accretion of discount on unfunded commitments was $8.2 million for the nine months ended September 30, 2010, a 61% decrease from $21.3 million for the nine months ended September 30, 2009. As part of the Transaction, we established new discounts on unfunded commitments. The new discounts primarily relate to construction loan commitments which will be funded over the construction period. These discounts are not amortized until the loan is funded. The decrease in accretion for both periods in 2010 was primarily due to commitments expiring and reduced accretion as commitments became funded loans, which resulted in the discount being reclassified as loan discount as well as the transfer of a portion of unfunded commitments that were retained by BANA in April 2010.

Other income. Other income primarily includes fees we earn from transacting foreign exchange business on behalf of our customers. Foreign exchange fee income was $1.5 million for both the third quarter of 2010 and the third quarter of 2009. Foreign exchange fee income was $4.2 million for the nine months ended September 30, 2010, a 2% increase from $4.1 million for the nine months ended September 30, 2009. We execute trades with customers and then offset that foreign exchange trade to another financial institution counterparty, such as a major investment bank or a large commercial bank. We do not retain any foreign exchange risk associated with these transactions as the trades are matched between the customer and counterparty bank. We do retain credit risk, both to the customer and the counterparty institution, which is evaluated and managed by us in the normal course of our operations.

54 Noninterest Expense

The following table presents noninterest expense for the three and nine months ended September 30, 2010 and 2009 and the six months ended June 30, 2010.

Three Months Six Months Nine Months Three Months Nine Months Ended Ended Ended Ended Ended September 30, June 30, September 30, September 30, September 30, ($ in thousands) 2010 2010 2010 (1) 2009 2009 Noninterest expense: Salaries and related benefits ...... $ 59,016 $112,196 $171,212 $53,113 $154,671 Occupancy ...... 15,186 29,404 44,590 11,008 40,498 Information systems ...... 9,147 19,124 28,271 8,645 26,725 Advertising and marketing ...... 5,872 6,610 12,482 3,172 12,615 Professional fees ...... 5,774 5,673 11,447 1,505 5,538 FDIC and other deposit assessments ...... 8,205 19,159 27,364 9,391 33,601 Amortization of intangibles ...... 6,230 — 6,230 — — Divestiture-related expenses ...... 13,768 — 13,768 — — Other expenses ...... 13,005 24,798 37,803 12,187 39,414 Total noninterest expense .... $136,203 $216,964 $353,167 $99,021 $313,062

(1) Amounts for the nine months ended September 30, 2010 combine the Successor and Predecessor III periods in 2010.

Our noninterest expense consists primarily of salary, occupancy and other expenses related to conducting and expanding our operations. Noninterest expense increased by $37.2 million or 38% to $136.2 million for the three months ended September 30, 2010 from $99.0 million for the three months ended September 30, 2009. Included in noninterest expense for the quarter ended September 30, 2010 are $13.8 million of costs associated with the divestiture of the Bank from BANA that are nonrecurring expenses and $6.2 million of amortization of intangible assets resulting from the Transaction. Our operating efficiency ratio, the ratio of noninterest expenses to the sum of net interest income and noninterest income, was 53.4% for the third quarter of 2010, compared with 36.6% for the third quarter of 2009. The efficiency ratio is significantly affected by purchase accounting and divestiture-related expenses. Management believes that evaluating the efficiency ratio without the impact of interest income accretion and interest expense amortization, the accretion of discount on unfunded loan commitments to noninterest income, amortization of intangibles to noninterest expense and divestiture costs provides a more meaningful measure of our operating efficiency. Excluding the accretion of loan discounts and unfunded commitments, amortization of liability premiums, intangible amortization and divestiture costs, the adjusted efficiency ratio was 59.0% and 51.5% for the three months ended September 30, 2010 and 2009. For a reconciliation of these ratios to the equivalent GAAP financial ratio, see “Use of Non-GAAP Financial Measures” on page 92.

Noninterest expense for the three months ended September 30, 2010 increased by $22.1 million, or 19%, from $114.1 million for the three months ended June 30, 2010. The increase in noninterest expense was primarily due to the costs associated with the divestiture from BANA, amortization of intangible assets and higher stock option expense. The efficiency ratio for the three months ended June 30, 2010 was 51.1%. Excluding the accretion of loan discounts and unfunded commitments and amortization of liability premiums, the adjusted efficiency ratio was 56.0% for the three months ended June 30, 2010.

Noninterest expense increased by $40.1 million or 13% to $353.2 million for the nine months ended September 30, 2010, from $313.1 million for the nine months ended September 30, 2009. The increase for the nine months ended September 30, 2010 as compared to the prior year was due to the costs associated with the divestiture from BANA, amortization of intangible assets, higher salaries and benefits, including stock option

55 expense, partially offset by lower FDIC deposit assessments. Our operating efficiency ratio for the nine months ended September 30, 2010 and September 30, 2009 was 49.2% and 39.7%, respectively. Excluding the accretion of loan discounts and unfunded commitments, amortization of liability premiums, intangible amortization and divestiture costs, the adjusted efficiency ratio was 54.3% and 58.0% for the nine months ended September 30, 2010 and 2009, respectively.

Salaries and Related Benefits. Salaries and related benefits is the largest component of noninterest expense and includes the cost of incentive compensation, benefit plans, health insurance and payroll taxes, which have collectively increased in each of the past several years as we employed more personnel through hirings to support our growth. These expenses were $59.0 million for the third quarter of 2010, an 11% increase from $53.1 million for the third quarter of 2009. Salaries and benefits were $171.2 million for the nine months ended September 30, 2010, an 11% increase from $154.7 million for the nine months ended September 30, 2009. The increase for both periods was primarily the result of new personnel to support loan growth, deposit growth and wealth management activities and higher incentive compensation related to continued expansion of our franchise. In addition, we granted stock options to employees during the quarter ended September 30, 2010 which resulted in $8.1 million of stock option expense which was higher than the expense recorded in prior periods. Upon the consummation of the offering contemplated by this offering circular, certain stock options will become fully vested. If this event were to occur in the 4th quarter of 2010, the Bank will record stock option expense of approximately $17.0 million for that period. At September 30, 2010, we had 1,455 full-time equivalent employees, a 12% increase in full-time equivalent employees since September 30, 2009.

Occupancy. Occupancy costs were $15.2 million for the third quarter of 2010, a 38% increase from $11.0 million for the third quarter of 2009. Occupancy costs were $44.6 million for the nine months ended September 30, 2010, a 10% increase from $40.5 million for the nine months ended September 30, 2009. The level of occupancy costs varies with the number of Preferred Banking offices and the number of employees and will increase as new offices open.

Information Systems. These expenses include payments to vendors who provide software and services on an outsourced basis, costs related to supporting and developing internet-based activities and the cost of telecommunications for ATMs, office activities and internal networks. Expenses for information systems were $9.1 million for the third quarter of 2010, a 6% increase from $8.6 million for the third quarter of 2009. Information systems costs were $28.3 million for the nine months ended September 30, 2010, a 6% increase from $26.7 million for the nine months ended September 30, 2009.

Advertising and Marketing. We advertise in various forms of media, including newspapers and radio primarily to support deposit growth in our Preferred Banking offices. Advertising and marketing expenses were $5.9 million for the third quarter of 2010, an 85% increase from $3.2 million for the third quarter of 2009. The increase in advertising and marketing costs during the quarter was the result of additional advertising in connection with the Transaction. These costs were $12.5 million for the nine months ended September 30, 2010, a 1% decrease from $12.6 million for the nine months ended September 30, 2009.

Professional Fees. Professional fees include legal services required to complete transactions, resolve legal matters or delinquent loans, and the cost of loan review professionals, accountants and other consultants. These expenses were $5.8 million for the third quarter of 2010, a 284% increase from $1.5 million for the third quarter of 2009. Professional fees were $11.4 million for the nine months ended September 30, 2010, a 107% increase from $5.5 million for the nine months ended September 30, 2009. Since the completion of the Transaction, we have incurred additional professional fees to comply with the corporate governance and financial reporting requirements of being an independent company, including outsourcing of loan review and a portion of some internal audit functions. We also have completed audits of carve-out financial statements for 2007 through 2009 and our opening balance sheet.

FDIC and Other Deposit Assessments. FDIC and other deposit assessments were $8.2 million for the third quarter of 2010, a 13% decrease from $9.4 million in the third quarter of 2009. FDIC and other deposit

56 assessments were $27.4 million for the nine months ended September 30, 2010, a 19% decrease from $33.6 million for the nine months ended September 30, 2009. The decrease for the three months ended September 30, 2010 was due to lower assessment rates offset by growth in deposit balances. The decrease for the nine months ended September 30, 2010 as compared to the prior year was driven by the $8.8 million special assessment in 2009, offset by growth in deposit balances. We may be subject to increased FDIC assessments in the future as an independent entity or due to the FDIC requiring additional assessments to increase the DIF, which may be material.

Amortization of Intangibles. In connection with the Transaction, we established intangible assets associated with core deposits, wealth management customer relationship and tradename. The core deposit and customer relationship intangible are amortized on an accelerated basis over a period not to exceed 10 years. The tradename is considered to be an indefinite life intangible asset. Amortization expense for the third quarter of 2010 was $6.2 million.

Divestiture-related Expenses. In connection with the Transaction, we incurred certain costs in order to reestablish our independence, including legal and professional fees, implementation costs associated with certain back office technology systems and other related costs. These costs are not expected to be recurring in future periods. These costs totaled $13.8 million for the third quarter of 2010.

Other Expenses. These expenses vary in proportion with customer transaction volume, the number of corporate locations and employees, and inflation. These expenses include costs related to loan originations, customer service, communications, supplies, hiring and other operations. Other expenses were $13.0 million for the third quarter of 2010, a 7% increase from $12.2 million for the third quarter of 2009. These expenses were $37.8 million for the nine months ended September 30, 2010, a 4% decrease from $39.4 million from the nine months ended September 30, 2009.

Provision for Income Taxes

The provision for income taxes varies due to the amount of income for financial statement and tax purposes, the availability of tax-advantaged income and tax credits and the rates charged by federal and state authorities. Our effective tax rate for the third quarter of 2010 was 41.0%, compared to 42.0% for the third quarter of 2009. The effective tax rate for the nine months ended September 30, 2010 and 2009 was 42.0% for both periods.

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 attracting funds from the general public, originating loans (primarily real estate secured mortgage loans) and investing in investment securities. The primary sources of revenue for this segment are: (1) interest earned on loans and investment securities, (2) gains on sales of loans, (3) fees earned in connection with loan and client services and (4) income earned on loans serviced for investors. Principal expenses for this segment are interest incurred on interest- bearing liabilities, including deposits and borrowings, and general and administrative costs.

Our Wealth Management segment consists of FRIM and FRWA (prior to its merger into FRIM during the third quarter of 2010), as well as the operations of First Republic Trust Company, our foreign exchange activities, our money market mutual fund activities and the brokerage activities of First Republic Securities Company (the latter two activities collectively, “Investment and Brokerage”). The Wealth Management segment’s primary sources of revenue are fees earned for the management or administration of clients’ assets as well as commissions and trading revenues generated from the execution of client-related brokerage and investment activities. The Wealth Management segment’s principal expenses are personnel-related costs and other general and administrative expenses.

57 The following tables present the operating results of the Bank’s two reportable segments, as well as reconciling items, for the three months ended September 30, 2010 and 2009, the six months ended June 30, 2010, the nine months ended September 30, 2009, and the combined operating results for the Successor and Predecessor III periods for the nine months ended September 30, 2010. For complete segment information, see Note 11 to the September 30, 2010 Financial Statements in this offering circular.

Three Months Ended September 30, 2010 Commercial Wealth Reconciling ($ in thousands) Banking Management Items Total Net interest income ...... $232,505 $ 3,735 $ — $236,240 Provision for credit losses ...... 4,500 — — 4,500 Noninterest income ...... 5,530 14,073 (575) 19,028 Noninterest expense ...... 117,879 18,899 (575) 136,203 Income (loss) before provision for income taxes ...... 115,656 (1,091) — 114,565 Provision (benefit) for income taxes ...... 47,436 (464) — 46,972 Net income (loss) before noncontrolling interests ...... 68,220 (627) — 67,593 Less: Net income from noncontrolling interests ...... 1,198 — — 1,198 First Republic Bank net income (loss) ...... $ 67,022 $ (627) $ — $ 66,395

Six Months Ended June 30, 2010 Commercial Wealth Reconciling ($ in thousands) Banking Management Items Total Net interest income ...... $407,924 $ 5,315 $ — $413,239 Provision for credit losses ...... 17,352 — — 17,352 Noninterest income ...... 22,727 27,360 (629) 49,458 Noninterest expense ...... 185,210 32,383 (629) 216,964 Income before provision for income taxes ...... 228,089 292 — 228,381 Provision for income taxes ...... 97,014 124 — 97,138 Net income before noncontrolling interests ...... 131,075 168 — 131,243 Less: Net income from noncontrolling interests ...... 2,396 — — 2,396 First Republic Bank net income ...... $128,679 $ 168 $ — $128,847

Combined Successor / Predecessor III Periods Nine Months Ended September 30, 2010 Commercial Wealth Reconciling ($ in thousands) Banking Management Items Total Net interest income ...... $640,429 $ 9,050 $ — $649,479 Provision for credit losses ...... 21,852 — — 21,852 Noninterest income ...... 28,257 41,433 (1,204) 68,486 Noninterest expense ...... 303,089 51,282 (1,204) 353,167 Income (loss) before provision for income taxes ...... 343,745 (799) — 342,946 Provision (benefit) for income taxes ...... 144,450 (340) — 144,110 Net income (loss) before noncontrolling interests ...... 199,295 (459) — 198,836 Less: Net income from noncontrolling interests ...... 3,594 — — 3,594 First Republic Bank net income (loss) ...... $195,701 $ (459) $ — $195,242

58 Three Months Ended September 30, 2009 Commercial Wealth Reconciling ($ in thousands) Banking Management Items Total Net interest income ...... $240,726 $ 869 $ — $241,595 Provision for credit losses ...... 30,081 — — 30,081 Noninterest income ...... 16,148 12,918 (253) 28,813 Noninterest expense ...... 86,018 13,256 (253) 99,021 Income before provision for income taxes ...... 140,775 531 — 141,306 Provision for income taxes ...... 59,164 226 — 59,390 Net income before noncontrolling interests ...... 81,611 305 — 81,916 Less: Net income from noncontrolling interests ...... 1,198 — — 1,198 First Republic Bank net income ...... $ 80,413 $ 305 $ — $ 80,718

Nine Months Ended September 30, 2009 Commercial Wealth Reconciling ($ in thousands) Banking Management Items Total Net interest income ...... $701,638 $ 1,515 $ — $703,153 Provision for credit losses ...... 38,838 — — 38,838 Noninterest income ...... 44,175 41,925 (1,441) 84,659 Noninterest expense ...... 271,758 42,745 (1,441) 313,062 Income before provision for income taxes ...... 435,217 695 — 435,912 Provision for income taxes ...... 182,824 295 — 183,119 Net income before noncontrolling interests ...... 252,393 400 — 252,793 Less: Net income from noncontrolling interests ...... 3,621 — — 3,621 First Republic Bank net income ...... $248,772 $ 400 $ — $249,172

Commercial Banking

Net interest income for Commercial Banking was $232.5 million for the third quarter of 2010, a 3% decrease from $240.7 million for the third quarter of 2009. Commercial Banking net interest income was $640.4 million for the nine months ended September 30, 2010, a 9% decrease from $701.6 million for the nine months ended September 30, 2009. The decline in net interest income for the nine months ended September 30, 2010 is primarily due to cumulative adjustments to reduce accretion of loan discounts on single family mortgage loans and HELOCs by approximately $72.8 million, which was partially offset by growth in average earning assets.

Noninterest income for Commercial Banking was $5.5 million for the third quarter of 2010, a 66% decrease from $16.1 million for third quarter of 2009, which was due to lower accretion of discount on unfunded commitments, lower gain on sale of loans, lower income from bank-owned life insurance as the investments were transferred to BANA in March 2010 and lower net servicing fees. These decreases were partially offset by higher deposit fees. Noninterest income for Commercial Banking was $28.3 million for the nine months ended September 30, 2010, a 36% decrease from $44.2 million for the nine months ended September 2009. The decrease was due to lower income from bank owned life insurance, lower accretion of discount on unfunded commitments and lower gain on sale of loans, which was partially offset by higher deposit fees and net loan servicing fees.

Noninterest expense for Commercial Banking was $117.9 million for the third quarter of 2010, a 37% increase from $86.0 million for the third quarter of 2009. Noninterest expense for Commercial Banking was $303.1 million for the nine months ended September 30, 2010, a 12% increase from $271.8 million for the nine months ended September 30, 2009. The increase is primarily due to increased stock option expense, amortization of newly created intangible assets and divestiture-related expenses.

59 Wealth Management

Net interest income for Wealth Management was $3.7 million for the third quarter of 2010 compared to $869,000 for the third quarter of 2009. Net interest income for Wealth Management was $9.1 million for the nine months ended September 30, 2010 compared to $1.5 million for the nine months ended September 30, 2009. The increase is primarily due to increased deposits from Wealth Management clients that are deposited with the Bank.

Noninterest income for Wealth Management was $14.1 million for the third quarter of 2010, a 9% increase from $12.9 million for the third quarter of 2009. Noninterest income for Wealth Management was $41.4 million for the nine months ended September 30, 2010, a 1% decrease from $41.9 million for the nine months ended September 30, 2009. The growth in Wealth Management noninterest income for the current quarter was primarily driven by increased assets under management and the addition of new clients.

Noninterest expense for Wealth Management was $18.9 million for the third quarter of 2010, a 43% increase from $13.3 million for the third quarter of 2009. Noninterest expense for Wealth Management was $51.3 million for the nine months ended September 30, 2010, a 20% increase from $42.7 million for the nine months ended September 30, 2009. The increase in noninterest expense for both periods in Wealth Management was due to the continued addition of wealth management professionals as we continued to expand our client base and grow this segment. In addition, the quarter ended September 30, 2010 includes amortization of intangibles that were established on July 1, 2010.

Assets under management or administration in Wealth Management have increased by approximately 15% compared with a year ago due to new client additions and greater activity in the equity markets. The following table presents the assets under management or administration by the entities comprising Wealth Management at the end of each of the last five quarterly periods.

2010 2009 ($ in millions) Sept. 30, June 30, March 31, Dec. 31, Sept. 30, First Republic Investment Management ...... $ 4,841 $ 4,448 $ 4,626 $ 4,496 $ 4,623 Investment and Brokerage ...... 6,802 6,056 5,942 5,786 5,880 Trust Company ...... 4,621 3,967 3,729 3,630 3,689 First Republic Wealth Advisors ...... 902 872 926 839 793 Total ...... $17,166 $15,343 $15,223 $14,751 $14,985

The following table presents estimates regarding the changes during the nine months ended September 30, 2010 in assets under management or administration for the entities in Wealth Management. Assets under management increase when clients open new accounts or add to the balance in existing accounts by depositing additional funds. Closed accounts and funds withdrawn by clients reduce the assets under management. The portion of the net change that cannot be attributed to the deposit or withdrawal of funds is reported in market appreciation or depreciation.

First Republic Investment Investment and Trust First Republic ($ in millions) Management Brokerage Company Wealth Advisors Segment Total Beginning balance, December 31, 2009 ...... $4,496 $ 5,786 $ 3,630 $839 $ 14,751 Activity for the period: New accounts and deposits . . 845 8,254 3,594 141 12,834 Closed accounts and withdrawals ...... (523) (7,775) (3,319) (81) (11,698) Market change, net ...... 23 537 716 3 1,279 Net change ...... 345 1,016 991 63 2,415 Ending balance, September 30, 2010 . . . $4,841 $ 6,802 $ 4,621 $902 $ 17,166

60 Deposits and withdrawals in Investment and Brokerage include money market mutual fund sweep accounts in which excess funds above a target balance in the client’s checking account held at the Bank are deposited. On days when the funds in the client’s checking account are less than the target balance, funds are withdrawn from the money market account and returned to the client’s checking account.

Investment Advisory Services. We provide traditional portfolio management and customized client portfolios through FRIM and, prior to its merger, FRWA. Total investment advisory fees earned for these services were $8.3 million and $24.8 million for the three and nine months ended September 30, 2010, respectively, compared with $6.8 million and $20.3 million for the same periods in 2009. The increase was primarily due to increases in average assets under management at FRIM and FRWA.

FRIM had total assets under management of $4.8 billion at September 30, 2010 compared to $4.6 billion at September 30, 2009. Total fees earned for these services were $7.2 million and $21.4 million for the three and nine months ended September 30, 2010, respectively, compared with $6.1 million and $18.3 million for the same periods in 2009.

FRWA employed experienced investment advisors who worked with our relationship managers to generate new assets under management using an open architecture platform. At September 30, 2010, there were approximately $902 million of total assets on this platform compared to $793 million at September 30, 2009. Investment advisory fees earned by FRWA were $1.2 million and $728,000 for the three months ended September 30, 2010 and 2009, respectively. Investment advisory fees were $3.4 million and $2.0 million for the nine months ended September 30, 2010 and 2009, respectively. The increases in investment advisory fees for FRWA were primarily due to increases in average assets under management.

We merged FRWA with FRIM at the end of the third quarter of 2010.

Investment and Brokerage Activities. We perform short-term investment and brokerage activities for clients. We employ specialists to acquire treasury securities, municipal bonds, money market mutual funds and other shorter-term liquidity investments at the request of clients or their financial advisors. These specialists can also execute transactions for a full array of longer-term equity and fixed income securities. At September 30, 2010, we held approximately $6.8 billion of client assets in brokerage accounts through FRSC and in third-party money market mutual funds, compared to $5.9 billion at September 30, 2009. Total fees earned for these services were $2.1 million and $6.8 million for the three and nine months ended September 30, 2010, respectively, compared with $2.9 million and $11.8 million for the same periods in 2009. The decline in fees is primarily due to very low fee margins on money market mutual fund products.

Trust Company. First Republic Trust Company operates in California, Nevada, Oregon, Massachusetts, Connecticut and New York and specializes in personal trusts and custody accounts. The Trust Company draws new trust clients from our Preferred Banking and Wealth Management client base as well as from outside First Republic. At September 30, 2010, assets under custody or administration were $4.6 billion compared to $3.7 billion at September 30, 2009. Total trust fees earned were $1.2 million for both the third quarter of 2010 and 2009. Trust fees were $3.5 million and $4.0 million for the nine months ended September 30, 2010 and 2009, respectively. The decline in trust fees for both periods is primarily due to lower transaction volume and reduced fee margins due to a change in the mix of assets under custody or administration.

Results of Operations—Years Ended December 31, 2009, December 26, 2008 and December 28, 2007

Overview

At December 31, 2009, loans outstanding were $19.5 billion, an increase of $1.7 billion, or 10%, from $17.7 billion for the year ended December 26, 2008. In 2009, total deposits grew 40% to $17.2 billion, wealth management assets under management or administration decreased $1.3 billion, or 8%, to $14.8 billion. Net income was $346.6 million in 2009, compared to $10.0 million in 2008 and $13.7 million in 2007.

61 Net income for the Commercial Banking segment was $345.0 million in 2009, compared to $12.1 million in 2008 and $26.4 million in 2007. Net income for the Wealth Management segment was $1.6 million in 2009, compared to a net loss of $2.1 million in 2008 and a net loss of $12.8 million in 2007.

During 2009, net interest margin, as measured based on contractual interest rates, increased to 3.55%, compared with 3.07% in 2008 and 3.06% in 2007. The net interest margin, including the impact of purchase accounting accretion, was 5.40% in 2009, 3.30% in 2008 and 3.12% in 2007. We benefited from exceptionally low short-term interest rates as interest rates on deposit accounts declined significantly more than loan rates during 2009. In addition, during 2009, our Parent company provided any necessary funding, in excess of deposits, for operations at short-term rates, which declined throughout 2009.

Our total assets were $19.9 billion at December 31, 2009 and $19.7 billion at December 26, 2008, compared with $15.8 billion at December 28, 2007. In 2009, the growth in loans outstanding was offset by the elimination of $1.5 billion of goodwill and other intangible assets and an increase in loan discounts, both related to the Bank of America acquisition. Our single family mortgage loans, including HELOCs, were $11.8 billion and represented 64% of total loans at December 31, 2009. Loan origination volume decreased to $5.3 billion in 2009, compared with $9.7 billion in 2008, a decline of 45%, and $6.8 billion in 2007. The increase in 2008 from 2007 was primarily due to an increase in the number of relationship managers, continued client demand for home purchases and the dislocation of many competitors in the market place during uncertain economic times. In 2008, our loan portfolio and total assets grew significantly because substantially all loans originated were retained due to the decline of the secondary market for loans. In 2009, loan origination volume was our third highest annual total as we continued to add customers in a competitive environment, but the demand for loans from customers was less in 2009 than 2008.

During 2009, total deposits increased significantly to $17.2 billion, an increase of $4.9 billion, or 40%. Balances in business and personal checking accounts increased significantly to $5.5 billion, an increase of $2.2 billion, or 67%, as we continued to emphasize building banking relationships by opening checking and other transaction deposit accounts.

Net Interest Income

Our net interest income increased to $956.9 million in 2009 from $504.8 million in 2008 and $353.4 million in 2007, an increase of 90% in 2009 and 43% in 2008. The increase in net interest income was due primarily to the growth in total interest-earning assets and increased accretion and amortization of purchase accounting adjustments due to the Bank of America and Merrill Lynch acquisitions. These acquisitions resulted in fair value adjustments being recorded to loans, deposits and borrowings, which are then recognized over the lives of those assets and liabilities. The amount of net interest income from the accretion of loan discounts and amortization of liability premiums was $293.3 million, $33.8 million, and $6.8 million in 2009, 2008 and 2007, or 31%, 7%, and 2% of total net interest income, respectively. Effective with the closing of the Transaction on July 1, 2010, fair value adjustments for loans and deposits were recorded that will be recognized in the income statement over the life of the loans and deposits. These amounts will have a significant impact on our income statement in future periods.

Our average interest-earning assets grew 16% in 2009, while our average interest-bearing liabilities grew 17% during the period. In 2009, the average yield on interest-earning assets, including accretion of loan discounts, increased 98 basis points to 6.86% while the average rate on interest-bearing liabilities decreased 120 basis points to 1.52%, reflecting a steep yield curve, which resulted in above average net interest margin and higher net interest income as rates paid on deposit accounts declined more than loan rates. Average interest- earning assets grew by 30% in 2008 compared to 2007, while average interest-bearing liabilities grew by 26% during the period. The average yield on interest-earning assets decreased 56 basis points to 5.88%, while the average rate on interest-bearing liabilities decreased 81 basis points to 2.72%, as short-term interest rates declined at a faster rate.

62 The net interest margin was 5.40% in 2009, compared with 3.30% in 2008 and 3.12% in 2007. The net interest margin was affected by the purchase accounting accretion and amortization described above. The contractual net interest margin was 3.55% in 2009, compared with 3.07% in 2008 and 3.06% in 2007. For a reconciliation of these ratios to the equivalent GAAP ratios, see “—Use of Non-GAAP Financial Measures” on page 92. The increase in the contractual net interest margin was primarily the result of the interest rate environment in 2009, including a steep yield curve in which funding costs declined to very low levels while asset yields declined at a slower pace. In addition, our short-term funding needs were met by the Parent company. Our funding costs continued to decline in 2009 given the decrease in one-month LIBOR.

63 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 for each of the last three years. Nonaccrual loans are included in the calculation of the average loan balances, and interest on nonaccrual loans is included only to the extent recognized on a cash basis. The average yields on investment securities have been adjusted to reflect income from tax-exempt securities on a taxable- equivalent basis.

December 31, 2009 December 26, 2008 December 28, 2007 Average Yields/ Average Yields/ Average Yields/ ($ in thousands) Balance Interest Rates Balance Interest Rates Balance Interest Rates Assets: Cash equivalents ...... $ 12,065 $ 84 0.70% $ 7,089 $ 288 4.06% $ 11,977 $ 599 5.00% Investment securities (1), (2) ..... 61,937 545 0.88% 83,982 5,078 6.05% 1,998,936 106,567 5.33% Parent company lending ...... ——— 688,610 31,546 4.58% 356,716 23,964 6.72% Loans ...... 17,638,041 1,214,759 6.89% 14,512,406 862,219 5.94% 9,433,597 628,743 6.66% Total interest- earning assets . . . 17,712,043 1,215,388 6.86% 15,292,087 899,131 5.88% 11,801,226 759,873 6.44% Noninterest-earning assets ...... 812,356 1,996,877 1,123,560 Total Assets ...... $18,524,399 $1,215,388 $17,288,964 $899,131 $12,924,786 $759,873 Liabilities and Equity: Checking accounts . . . . . $ 4,382,483 $ 4,644 0.11% $ 3,052,395 $ 3,403 0.11% $ 2,613,076 $ 4,607 0.18% Other liquid deposits .... 4,859,849 67,523 1.39% 5,294,303 144,138 2.72% 4,707,949 194,584 4.13% CDs ...... 5,527,828 151,797 2.75% 3,323,482 125,495 3.78% 2,497,581 119,893 4.80% Total deposits ..... 14,770,160 223,964 1.52% 11,670,180 273,036 2.34% 9,818,606 319,084 3.25% FHLB advances and other borrowings ..... 888,946 6,368 0.72% 1,492,534 66,431 4.45% 1,636,858 82,546 5.04% Parent company borrowing ...... 1,299,720 23,927 1.84% 1,288,705 50,679 3.93% — — — Subordinated notes ..... 65,215 4,184 6.42% 67,074 4,138 6.17% 63,882 4,819 7.54% Total borrowings . . 2,253,881 34,479 1.53% 2,848,313 121,248 4.26% 1,700,740 87,365 5.14% Total interest- bearing liabilities ...... 17,024,041 258,443 1.52% 14,518,493 394,284 2.72% 11,519,346 406,449 3.53% Noninterest-bearing other liabilities ...... 203,610 182,529 156,824 Equity before noncontrolling interests ...... 1,197,158 2,488,352 1,108,534 Noncontrolling interests ...... 99,590 99,590 140,082 Total Liabilities and Equity ...... $18,524,399 $17,288,964 $12,924,786 Net interest spread (3) . . 5.34% 3.16% 2.91% Net interest income and net interest margin (4) ...... $ 956,945 5.40% $504,847 3.30% $353,424 3.12% Adjusted net interest income and contractual net interest margin (non-GAAP) (5) . . . . . $ 663,678 3.55% $471,072 3.07% $346,616 3.06%

64 (1) Includes FHLB stock. (2) In order to calculate the yield on tax-advantaged investment securities on a tax equivalent basis, reported interest income was increased by $14.7 million in 2007. (3) Net interest spread represents the average yield on interest-earning assets less the average rate on interest-bearing liabilities. (4) Net interest margin is computed by dividing net interest income by total average interest-earning assets. (5) For a reconciliation of these ratios to the equivalent GAAP ratios, see “—Use of Non-GAAP Financial Measures” on page 92.

Interest Income

Interest income on loans grew to $1.2 billion in 2009 from $862.2 million in 2008 and $628.7 million in 2007, an increase of 41% during 2009 and 37% during 2008. The results for 2009 reflected a 22% increase in average balances for loans. In addition, included in the interest income on loans is loan discount accretion of $260.2 million, $28.4 million, and $3.6 million in 2009, 2008 and 2007, respectively. The increase in loan discount accretion in 2009, compared to 2008 was primarily due to a more significant purchase accounting discount recorded in the Bank of America acquisition, which was based upon market conditions at January 1, 2009. The increase in loan discount accretion in 2008 is the result of a full year of discount accretion from the Merrill acquisition, compared to discount accretion in 2007 for the period September 21, 2007 through December 28, 2007. Average loan balances increased to $17.6 billion in 2009 from $14.5 billion for 2008 and $9.4 billion for 2007, an increase of 22% during 2009 and 54% during 2008. The average yield on loans was 6.89% in 2009, compared to 5.94% in 2008 and 6.66% in 2007, an increase of 95 basis points during 2009 and a decrease of 72 basis points during 2008.

Our contractual yield on loans is affected by market rates, the level of adjustable rate loan indices, interest rate floors and caps, repayment of loans with higher fixed rates, the level of loans held for sale, portfolio mix and the level of nonaccrual loans. At December 31, 2009, our weighted average contractual loan rate was 4.97%, compared to 5.27% at December 26, 2008. For ARMs, the yield is affected by the timing of changes in the loan rates, which generally lag behind market rate changes. Of the total loan portfolio, including loans held for sale, 35% were adjustable rate loans that reprice in six months or less, compared with 36% at December 26, 2008. The proportion of single family loans in our loan portfolio also affects our loan yields, because single family loans generally earn interest rates that are lower than rates for other types of loans. For 2009, the average balance for single family loans, excluding HELOCs, in our permanent loan portfolio increased to 52% of the total average balance of our permanent loan portfolio from 47% for 2008. The carrying value of loans, including loans held for sale, was $18.6 billion at December 31, 2009, an increase of $1.1 billion, or 6%, compared with $17.5 billion at December 26, 2008.

Interest income on cash equivalents and investments includes income earned on cash and short-term investments, investment securities and FHLB stock. As a result of the acquisition of First Republic Bank by Merrill Lynch, the investment portfolio was liquidated during 2007 and early 2008, which significantly reduced interest income from investments in 2008 and 2009. In 2009, the investment position was primarily FHLB stock, which paid very low dividends compared to prior years. Interest income on investments decreased to $545,000 in 2009, from $5.1 million in 2008 and $106.6 million in 2007, a decrease of 89% during 2009 and 95% during 2008. The average balances in our investment portfolio was $61.9 million in 2009, $84.0 million in 2008, and $2.0 billion in 2007, a decrease of 26% during 2009 and a decrease of 96% during 2008. The average yield on cash equivalents decreased 336 basis points to 0.70% from 4.06% in 2008 and 94 basis points from 5.00% in 2007. The interest rates earned on cash and investments generally reflected average market rates. Average cash and investments in 2009 and 2008 were less than 1% of total average interest-earning assets, compared with 17% in 2007. At December 31, 2009, the carrying value of cash, investment securities and FHLB stock was $241.2 million compared with $229.0 million at December 26, 2008.

Interest Expense

Total interest expense consists of four components: interest expense on customer deposits, FHLB advances, borrowings from the Parent company and subordinated notes. Total interest expense decreased to

65 $258.4 million in 2009, from $394.3 million in 2008 and $406.4 million in 2007, a decrease of $135.8 million, or 34%, during 2009 and $12.2 million, or 3%, during 2008. Average interest-bearing liabilities increased to $17.0 billion in 2009 from $14.5 billion in 2008 and $11.5 billion in 2007, an increase of $2.5 billion, or 17%, during 2009 and $3.0 billion, or 26% during 2008. The average cost of total interest-bearing liabilities decreased to 1.52% in 2009, compared with 2.72% in 2008 and 3.53% in 2007.

Interest expense on deposits, consisting of checking accounts, money market and passbook accounts and CDs, was $224.0 million in 2009, compared with $273.0 million in 2008 and $319.1 million in 2007, a decrease of $49.1 million, or 18%, during 2009 and $46.0 million, or 14%, during 2008. Average deposit balances were $14.8 billion in 2009, compared with $11.7 billion for 2008 and $9.8 billion in 2007. Our average deposits increased 27% during 2009 and 19% during 2008, and the average rate paid on deposits decreased 82 basis points during 2009 and 91 basis points during 2008. The average rate on deposits decreased primarily due to lower rates paid on deposits as market rates declined to very low levels. At December 31, 2009, the weighted average contractual rate paid on deposits was 1.12%, a decrease of 99 basis points compared with 2.11% at December 26, 2008. The Eleventh District Cost of Funds Index (“COFI”) decreased 93 basis points over the same period. The average rate paid on deposits declined to 1.52% for 2009, from 2.34% for 2008 and 3.25% in 2007. Average checking account balances comprised 30% of average total deposits for 2009, compared with 26% for 2008 and 27% for 2007. Total average other liquid accounts, consisting of money market and passbook accounts, decreased in 2009 to 33% of total average deposits from 45% in 2008, while CD accounts increased in 2009 to 37% of total average deposits from 28% in 2008. We increased our CD accounts during 2009, which were our primary source of longer-term fixed rate funding, to better match the duration of certain loans in the single family loan portfolio. At December 31, 2009, our total deposits were $17.2 billion, compared with $12.3 billion at December 26, 2008, an increase of 40%.

Our deposits have grown at compound annual growth rates of 25% for the past 5 years and 23% for the past 10 years. Our deposit growth over the past five years was attributable to an increased emphasis on Preferred Banking and business banking, an increased focus on deposit-gathering activities, the continued expansion of the Preferred Banking office network and the introduction of new banking products and services. Our newer offices have allowed additional deposits to be raised in existing markets at competitive terms, although extensive competition for new deposits affects the cost of incremental deposit funds.

Prior to the Merrill Lynch acquisition, First Republic Bank was a member of the FHLB of San Francisco and used FHLB advances as an alternative source of term funds and as a short-term funding source for loans held for sale. First Republic Bank obtained FHLB advances with longer maturities and with rates fixed for longer periods. We did not utilize FHLB advances while we were a division of MLFSB and BANA. Interest expense on FHLB advances decreased to $6.4 million in 2009, compared with $66.4 million in 2008 and $77.8 million in 2007, a decrease of 90% during 2009 and 15% during 2008, as average balances continued to decline as advances matured and were replaced by Parent company funding as necessary. In connection with the Merrill Lynch and Bank of America acquisitions, FHLB advances were also recorded at fair value and the interest expense recorded is based upon the prevailing interest rates for wholesale funding at the date of acquisition. The amortization of premiums from purchase accounting adjustments reduced interest expense on FHLB advances by $32.3 million, $3.6 million and $977,000 for the year ended 2009, 2008, and 2007, respectively. Our average balance for FHLB borrowings decreased to $888.9 million in 2009, from $1.5 billion in both 2008 and in 2007, a decrease of 40% during 2009. The average rate paid on these liabilities decreased 373 basis points in 2009 to 0.72% and decreased 60 basis points in 2008 to 4.45% compared with 5.05% in 2007. Average FHLB advances as a proportion of total average interest-bearing liabilities were 5% for 2009, 10% for 2008, and 13% for 2007.

Our adjustable FHLB advances bear interest rates that change at a frequency ranging from daily to semiannually. Because there are no limitations on the amount that the interest rate on adjustable FHLB advances may increase or decrease at each repricing point, the cost of an adjustable FHLB advance fully reflects market rates. At December 31, 2009, all of the FHLB advances outstanding had interest rates that adjust within six months. The cost of maturing or adjustable FHLB advances may increase or decrease more rapidly than the cost

66 of our deposits during periods when interest rates change rapidly. Our total outstanding FHLB advances were $130.5 million at December 31, 2009, compared with $1.2 billion at December 26, 2008. The weighted average contractual rate paid on our FHLB advances was 0.49% at December 31, 2009 and 4.71% at December 26, 2008, a decrease of 422 basis points over the past year. The interest rates paid on FHLB advances fluctuate with changes in market rates and have decreased significantly due to the steep yield curve and the maturity of higher rate fixed rate advances. We will continue to emphasize growth in deposits to fund a significant percentage of future asset growth, although there can be no assurance of the level of future deposits. Any additional funding necessary to fund asset growth may partially come from FHLB advances.

We must collateralize FHLB advances by pledging mortgage loans and investments. We pledge more assets than required by our current level of borrowings in order to maintain additional borrowing capacity. Although we may substitute other loans for such pledged loans, we are restricted in our ability to sell or otherwise pledge these loans without substituting collateral or prepaying a portion of the FHLB advances. At December 31, 2009, we had pledged $3.3 billion of loans to the FHLB, against which we had borrowed $130.5 million.

We were a division of MLFSB from September 21, 2007 through November 2, 2009, and from November 2, 2009 through June 30, 2010, we were a division of BANA. As a division of MLFSB and BANA, we were allocated equity capital equal to approximately 7.0% of our ending tangible assets on a monthly basis plus an amount equal to goodwill and other intangibles. Equity capital consisted of Parent company investment and noncontrolling interests. Noncontrolling interests represent perpetual preferred stock issued by FRPCC and FRPCC II and held by non-affiliates in the amount of $99.6 million. After the allocation of equity capital, any remaining amount of funding (or lending) required was borrowed from (or loaned to) the Parent. The interest rate charged (earned) on these Parent company borrowings (loans) was equal to one-month LIBOR plus 1.50% and the expense (income) was calculated on a monthly basis based on the average borrowing (or lending) during the month. Interest expense recorded on Parent company borrowing was $23.9 million in 2009 and $50.7 million in 2008. The amount of interest income earned when we were lending to the Parent is included as interest on loans to the Parent company. During 2008 and 2007, we recorded interest income on lending to the Parent company of $31.5 million and $24.0 million, respectively.

Interest expense on subordinated notes includes interest payments and amortization of purchase accounting premiums on our long-term, capital-related subordinated instruments that bear fixed rates. The average cost of all outstanding subordinated instruments was 6.42% for 2009, 6.17% for 2008 and 7.54% for 2007. At December 31, 2009 and December 26, 2008, the weighted average contractual rate paid on outstanding subordinated notes was 7.75%.

67 Rate and Volume Variances

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 with the preceding year. If significant, the change in interest income or interest expense due to both volume and rate has been prorated between the volume and the rate variances based on the dollar amount of each variance.

2009 vs. 2008 2008 vs. 2007 ($ in thousands) Volume Rate Total Volume Rate Total Increase (decrease) in interest income: Cash equivalents ...... $ 189 $ (393) $ (204) $ (210) $ (101) $ (311) Investment securities ...... (1,838) (2,695) (4,533) (115,718) 14,229 (101,489) Parent company lending ...... (15,773) (15,773) (31,546) 18,693 (11,111) 7,582 Loans ...... 202,358 150,182 352,540 311,234 (77,758) 233,476 Total increase (decrease) . . . 184,936 131,321 316,257 213,999 (74,741) 139,258 Increase (decrease) in interest expense: Checking accounts ...... 1,420 (179) 1,241 718 (1,922) (1,204) Other liquid deposits ...... (11,334) (65,281) (76,615) 22,778 (73,224) (50,446) CDs ...... 71,537 (45,235) 26,302 35,602 (30,000) 5,602 FHLB advances and other borrowings ...... (24,267) (35,796) (60,063) (6,919) (9,196) (16,115) Parent company borrowing ...... 432 (27,184) (26,752) 25,340 25,339 50,679 Subordinated notes ...... (117) 163 46 233 (914) (681) Total increase (decrease) . . . 37,671 (173,512) (135,841) 77,752 (89,917) (12,165) Increase in net interest income ...... $147,265 $ 304,833 $ 452,098 $ 136,247 $ 15,176 $ 151,423

Noninterest income

The following table presents noninterest income for 2009, 2008 and 2007.

($ in thousands) 2009 2008 2007 Noninterest income: Investment advisory fees ...... $ 27,888 $35,257 $ 40,517 Brokerage and investment fees ...... 14,827 18,787 11,498 Trust fees ...... 5,139 5,620 4,618 Deposit customer fees ...... 12,509 11,023 10,169 Loan servicing fees, net ...... 627 (775) 4,006 Loan and related fees ...... 4,207 4,071 3,535 Gain (loss) on sale of loans ...... 5,536 (1,454) 7,166 Gain on investment securities ...... — 28 20,253 Income from investments in life insurance ...... 9,904 9,157 7,877 Accretion of discount on unfunded commitments . . 26,641 — — Other income ...... 8,295 7,578 3,242 Total noninterest income ...... $115,573 $89,292 $112,881

68 Noninterest income was $115.6 million for 2009, compared with $89.3 million for 2008 and $112.9 million in 2007, an increase of 29% in 2009 and a decrease of 21% in 2008. The increase in 2009 was primarily due to the impact of purchase accounting as $26.6 million of the discount on unfunded commitments was accreted to income in 2009, higher gain on sale of loans and servicing fees, and higher deposit fees due to growth in customer accounts. These increases were partially offset by a decline in investment advisory and other wealth management fees due to market conditions over the past two years. The decrease in 2008 from 2007 was primarily due to a one-time gain on the sale of our investment portfolio and a higher gain on sale of loans in 2007, as well as lower investment advisory fees in 2008 offset by higher brokerage and investment fees and trust fees.

Investment Advisory Fees. Investment advisory fees were $27.9 million in 2009, $35.3 million in 2008 and $40.5 million in 2007, a decrease of $7.4 million, or 21%, in 2009 and $5.3 million, or 13%, in 2008. Investment advisory fees vary with the amount of assets managed by our investment advisory subsidiaries and the type of account chosen by the client. Generally, these investment advisors earn higher fees for managing equity securities than for managing a fixed income portfolio. Investment advisory fees decreased due to market conditions and the net outflow of funds. In addition, during 2007, we sold an investment advisory subsidiary, which had contributed $3.8 million of advisory fees during the first six months of 2007. During 2009 and 2008, we continued to add new clients, which offset some of the market declines and customer activity. The future level of these fees depends on the level and mix of assets under management, conditions in the equity markets and our ability to attract new clients.

Brokerage and Investment Fees. Brokerage and investment fees were $14.8 million in 2009, $18.8 million in 2008 and $11.5 million in 2007, a decrease of $4.0 million, or 21% in 2009 and an increase of $7.3 million, or 63%, in 2008. The decrease in 2009 was driven largely by very low margins on money market mutual funds due to very low market interest rates. The future level of these fees depends on the level and mix of assets under management, conditions in the equity market and our ability to attract new clients.

Trust Fees. Trust fees were $5.1 million in 2009, $5.6 million in 2008 and $4.6 million in 2007, a decrease of $481,000, or 9%, in 2009 and an increase of $1.0 million, or 22% in 2008. The change in trust fees in 2009 and 2008 was primarily based on the level of transaction volumes, changes in the average assets under custody or administration and the mix of assets under custody or administration. The future level of these fees depends on the level and mix of assets under custody or administration.

Deposit Customer Fees. We earn fees from our clients for deposit services, which vary with the level of account activity. Deposit customer fees increased to $12.5 million for 2009 from $11.0 million for 2008 and $10.2 million for 2007, an increase of $1.5 million, or 13%, in 2009 and $854,000, or 8%, in 2008. These fees have increased during the last few years as our deposit activities have grown.

Loan Servicing Fees, Net. Net loan servicing fees are derived from the amount of loans serviced, the fee earned from servicing such loans (expressed as a percent of loans serviced), the amortization rate of MSRs and the amount of provisions for, or recovery of, the MSR valuation allowance. In 2009, as a result of the Bank of America acquisition, we elected to account for MSRs at fair value, consistent with the Bank of America policy, with changes in fair value recognized in the income statement during 2009. The changes in fair value of MSRs recorded in the income statement are included in net loan servicing fees. Loan servicing fee revenues, net of changes in fair value or amortization expense and provisions, were $627,000 in 2009, $(775,000) in 2008 and $4.0 million in 2007. Contractual servicing fees were $10.9 million in 2009, $11.8 million in 2008 and $13.3 million in 2007, a decrease of 8% in 2009 and 12% in 2008. The amount of contractual servicing fees depends upon the terms of the loans at origination, the interest rate environment and conditions in the secondary market when the loans are sold. The decrease in contractual servicing fees was driven by the decline in loans serviced for others as loan payoffs in the servicing portfolio exceeded new additions. This was caused by fewer loans being sold into the secondary market in 2008 and 2009 due to market conditions. We received servicing fees generally ranging from 0.25% to 0.375% and averaging 0.26% for both 2009 and 2008 and 0.27% for 2007. At December 31, 2009 and December 26, 2008, approximately 94% of the servicing portfolio was secured by single family residences, compared to 93% at December 28, 2007.

69 The amount of net loan servicing fees that we record is affected by the repayment of loans in the servicing portfolio. In 2009, the overall annualized repayment speeds experienced on loans serviced were 18%, compared with repayments of 15% in both 2008 and in 2007. In 2008 and 2007, we stratified loans into groups with similar characteristics and performed quarterly assessments of impairment based on the fair value of MSRs for each stratum. Amortization expense of $10.9 million was recorded for 2008, compared with $9.3 million for 2007. In addition to amortization, we recorded provisions for impairment of $1.6 million in 2008 due to temporary declines in the fair value of MSRs. Loans serviced declined to $4.0 billion at December 31, 2009 from $4.3 billion and $4.9 billion at December 26, 2008 and December 28, 2007, respectively, a decrease of 7% in 2009 and 11% in 2008, as the amount of loan sales was less than repayments due to the lack of a secondary market for non-conforming loan products.

Loan and Related Fees. Loan and related fee income was $4.2 million in 2009, $4.1 million in 2008 and $3.5 million in 2007, an increase of 3% in 2009 and 15% in 2008. This category includes late charge income that increases with growth in the average loan and servicing portfolios, loan related processing fees that vary with market conditions and loan origination volumes and prepayment penalty and payoff fees that vary with loan repayment activity and market conditions such as the general level of longer-term interest rates. We collected prepayment penalty fees of $5.1 million in 2009, $4.0 million in 2008 and $3.3 million in 2007, an increase of 28% in 2009 and 19% in 2008; such fees related to both loans in our loan portfolio (recorded as interest income) and to loans serviced for investors (recorded as loan fee income). The Dodd-Frank Act imposes additional underwriting standards on mortgages and restricts so-called “high-cost mortgages.” Because of these restrictions, it may become impractical or impermissible for us to continue to originate certain mortgages with prepayment penalties. This may cause our fee income from prepayment penalties to decrease as mortgages with prepayment penalties run off over time.

Gain (Loss) on Sale of Loans. The net gain on the sale of $515.7 million of loans was $5.5 million or approximately 107 basis points on the loans sold in 2009, compared with net losses of $1.5 million on loan sales of $309.1 million in 2008 and net gains of $7.2 million in 2007 on loan sales of $787.7 million. The net gain on sales of loans fluctuates with the amount of loans sold, the type of loans sold and market conditions. The amount of loans that we sell depends upon conditions in the mortgage origination, loan securitization and secondary loan sales markets. Our loan sales during the past two years were primarily whole loan sales of conforming loans sold to specific investors according to predetermined underwriting standards (“flow sales”). The increase in gain on loan sales was due to higher volume of conforming loan sales to Fannie Mae in 2009. The secondary market for hybrid ARMs had very little activity in 2009 and 2008 due to a lack of liquidity for non-conforming loans.

Gain on Investment Securities. As a result of the Merrill Lynch acquisition, we sold our investment securities portfolio during 2007 and recorded $20.4 million in net gains on the sale of investment securities. Consequently, we had no significant gains or losses on the sales of investment securities in 2008 or 2009.

Income from Investments in Life Insurance. Income from bank-owned life insurance was $9.9 million in 2009, $9.2 million in 2008 and $7.9 million in 2007. The increase in both periods was primarily the result of death benefits received. As part of the Transaction, the majority of the bank-owned life insurance remained with BANA.

Accretion of Discount on Unfunded Commitments. We recorded accretion of purchase accounting discounts on unfunded loan commitments during 2009 of $26.6 million as the discount is accreted to income over the life of the commitment.

Other Income. We earn fees from transacting foreign exchange business on behalf of our customers. We earned $6.9 million on foreign exchange business in 2009, compared to $5.7 million and $2.7 million in 2008 and 2007, respectively, an increase of 21% in 2009 and 115% in 2008. The increases in foreign exchange fees were primarily driven by increased volume of activity. We do not retain any foreign exchange risk associated with these transactions as the trades are matched between the customer and counterparty bank. We execute a trade with a customer and simultaneously offset that foreign exchange trade with a financial institution counterparty, such as a major investment bank or a large commercial bank. We do retain credit risk, both to the customer and the counterparty institution, which we evaluate in the normal course of our operations.

70 Noninterest expense

The following table presents noninterest expense for 2009, 2008 and 2007.

($ in thousands) 2009 2008 2007 Noninterest expense: Salaries and related benefits ...... $207,870 $201,787 $173,600 Occupancy ...... 53,890 57,319 45,341 Amortization of intangibles ...... — 42,271 13,527 Information systems ...... 35,750 33,604 32,854 Advertising and marketing ...... 17,335 19,683 16,067 Professional fees ...... 7,919 19,854 9,606 FDIC and other deposit assessments ...... 43,448 12,937 7,614 Losses related to investment advisory subsidiary ...... —— 27,951 Merger-related costs ...... —— 50,833 Other expenses ...... 51,066 54,983 55,689 Total noninterest expense ...... $417,278 $442,438 $433,082

Our noninterest expense consists primarily of salary, occupancy and other expenses related to conducting and expanding our operations. Noninterest expense decreased to $417.3 million in 2009 from $442.4 million in 2008 and $433.1 million in 2007, a decrease of 6% in 2009 and an increase of 2% in 2008.

Noninterest expense was reduced by certain general and administrative costs, primarily compensation costs directly related to loan originations, which have been capitalized in accordance with Accounting Standards Codification (“ASC”) 310-20, “Nonrefundable Fees and Other Costs.” We had capitalized loan origination costs of $22.6 million in 2009, $44.4 million in 2008 and $31.4 million in 2007, a decrease of 49% in 2009 and an increase of 41% in 2008. 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 on our combined balance sheet and are amortized to interest income over the contractual life of the loans. At December 31, 2009, net deferred loan fees were $2.0 million, compared with net deferred loan costs of $7.3 million at December 26, 2008. Due to the acquisitions by Merrill Lynch in 2007 and Bank of America in 2009, the net deferred fees and costs were eliminated in the application of purchase accounting, and the amounts recorded on the balance sheet at the end of 2009 and 2008 reflect net unamortized deferred fees and costs on new originations from each acquisition date to the end of the period.

Salaries and Related Benefits. Salaries and related benefits are the largest component of noninterest expense and include the cost of incentive compensation, benefit plans, health insurance and payroll taxes, which have collectively increased in each of the past three years as we have hired more employees and have grown by expanding our client base. Salaries and related benefit expenses increased to $207.9 million in 2009 from $201.8 million in 2008 and $173.6 million in 2007, an increase of $6.1 million, or 3%, in 2009 and $28.2 million, or 16%, in 2008. Salary expense has increased as a result of new personnel to support the higher levels of total assets, loan origination and deposit growth and wealth management activities, and higher incentive compensation related to continued expansion of our franchise. At December 31, 2009, we had 1,366 full-time equivalent employees, a 2% increase from 1,345 at December 26, 2008.

Occupancy. Occupancy costs, consisting primarily of rent and depreciation, were $53.9 million in 2009, $57.3 million in 2008 and $45.3 million in 2007, a decrease of $3.4 million, or 6%, in 2009 and an increase of $12.0 million, or 26%, in 2008. These costs had been increasing prior to 2009 from our prior expansion of the corporate offices and other facilities in all of our primary markets and the geographical expansions in Boston, Greenwich, Portland (Oregon), Seattle and New York. The level of occupancy costs varies with the number of Preferred Banking offices and the number of people and will increase as we open new offices.

71 Amortization of Intangibles. Noninterest expense in 2008 included $42.3 million of intangible asset amortization from the Merrill Lynch acquisition, while 2009 did not include any intangible amortization as Bank of America did not record any intangible assets for our business as part of applying push-down accounting. In 2007, total intangible amortization expense was $13.5 million, which includes approximately 3 months of intangible amortization totaling $11.8 million from the Merrill Lynch acquisition and $1.7 million of intangible amortization recorded by us for our acquisitions of prior entities.

Information Systems. Information systems expenses were $35.8 million in 2009, $33.6 million in 2008 and $32.9 million in 2007, an increase of $2.1 million, or 6%, in 2009 and $750,000, or 2%, in 2008. These expenses include payments to vendors that provide software and services on an outsourced basis, costs related to supporting and developing internet-based activities and the cost of telecommunications for ATMs, office activities and internal networks. The cost of information systems has remained relatively consistent over the past several years. However, we believe that our technology spending enhances the efficiency of our employees and enables us to provide outstanding personal service to its clients. We expect these costs to increase following the Transaction as we invest in additional capabilities needed to be more efficient and operate on a stand-alone basis.

Advertising and Marketing. Advertising and marketing expense was $17.3 million in 2009, $19.7 million in 2008 and $16.1 million in 2007, a decrease of $2.3 million, or 12%, in 2009 and an increase of $3.6 million, or 23%, in 2008. The decrease in 2009 was primarily due to being part of the Bank of America organization and a reduction in our independent advertising. We place newspaper advertisements primarily to support deposit growth in our Preferred Banking offices. We have continued advertising, marketing and having promotions to acquire checking and other transaction accounts and to expand wealth management activities.

Professional Fees. Professional fees include fees paid to external auditors, loan review professionals and other consultants as well as legal services required to complete transactions, resolve legal matters or delinquent loans. Such expenses were $7.9 million in 2009, $19.9 million in 2008 and $9.6 million in 2007, a decrease of $11.9 million, or 60%, in 2009 and an increase of $10.2 million, or 107%, in 2008. The higher level of professional fees in 2008 was driven by record loan origination volume and compliance-related projects.

FDIC and Other Deposit Assessments. During 2009, FDIC and other assessments were $43.4 million, an increase of $30.5 million, or 236%, over 2008, due to deposit growth, increased insurance rates and the special assessment of $8.8 million during the second quarter of 2009. In 2008 and 2007, FDIC assessments were $12.9 million and $7.6 million, respectively, an increase of $5.3 million, or 70%, in 2008, which was driven by increased deposit balances and higher insurance rates. We may be subject to increased FDIC assessments in the future as a result of being an independent entity or due to the FDIC requiring additional assessments to increase the Deposit Insurance Fund, these increases may be material and may have a material effect on our net income.

Losses Related to Investment Advisory Subsidiary. During 2007, one of our investment advisory subsidiaries was advised of the termination of one of its largest and oldest relationships and of the probable termination of assets managed under a mutual fund sub-advisory contract. Collectively, these two relationships represented approximately $2.0 billion of assets under management and approximately 50% of this subsidiary’s investment advisory fees. We completed a valuation analysis and recognized a non-cash impairment charge to reduce goodwill by $15.7 million in 2007. In addition, we sold this subsidiary to its principal officers and recognized a loss of $12.2 million and a tax benefit of $11.7 million. The total noninterest expense associated with the goodwill impairment and loss on sale was $28.0 million in 2007.

Merger-Related Costs. These charges represent costs associated with an acquisition and do not represent ongoing costs of our operations. In 2007, we recorded $50.8 million of merger-related expenses associated with the Merrill Lynch acquisition. Merger-related expenses include $33.7 million for the cost of stock based compensation that had accelerated vesting and $17.1 million for transaction costs (including legal, accounting and investment banking fees).

72 Other Expenses. These expenses include costs related to loan originations, customer service, communications, supplies, hiring and other operations. Other general and administrative expenses were $51.1 million in 2009, $55.0 million in 2008 and $55.7 million in 2007, a decrease of $3.9 million, or 7%, in 2009 and a decrease of $706,000, or 1%, in 2008. Expenses in this category primarily vary in proportion with transaction volume, the number of corporate locations and employees, and inflation. A financial institution’s operating efficiency may be measured by comparing its ratio of operational expenses to the sum of net interest income and noninterest income. For 2009, the Bank’s operating efficiency ratio was 38.9%, compared with 74.5% for 2008 and 92.9% for 2007. In 2009, the Bank’s operating expenses grew less than net interest income and recurring fee income compared with 2008, resulting in an improvement in the operating efficiency ratio. The 2009 operating efficiency ratio was lower than previous years, primarily as a result of the growth of net interest income arising from increasing loan balances and a low rate environment. The efficiency ratio described above was significantly affected by purchase accounting and, in 2007, various merger related items associated with the Merrill Lynch acquisition and the loss on the sale of an investment advisory subsidiary. Management believes that evaluating the efficiency ratio without the impact of interest income accretion and interest expense amortization, the accretion of unfunded loan commitments to noninterest income, the amortization of intangible assets to noninterest expenses and certain 2007 items provides a more meaningful measure of our efficiency. Excluding these items, the adjusted efficiency ratio was 55.4% in 2009, 71.4% in 2008, and 77.6% in 2007. For a reconciliation of these ratios to the equivalent GAAP ratio, see “—Use of Non-GAAP Financial Measures” on page 92. The improved efficiency ratio was primarily due to the growth of earning assets with the benefit of a very low interest rate environment in 2009. Provision for Income Taxes The provision for income taxes varies due to the amount of income for financial statement and tax purposes, the investments in tax-advantaged securities and tax credit funds and the rates charged by federal and state authorities. The 2009 provision for income taxes of $254.3 million represents an effective tax rate of 42.0%, compared with $5.7 million or 28.0% for 2008 and $2.2 million or 9.8% for 2007. The increase in the effective tax rate in 2009 is primarily due to variances in pre-tax income in relation to the amount of tax-advantaged investments in bank-owned life insurance. In 2007, our effective tax rate was affected by non-deductible merger expenses associated with the Merrill Lynch acquisition which was offset by higher levels of tax-advantaged investments. Subsequent to the Merrill Lynch acquisition, certain tax advantaged investments (municipal securities and tax credit investments) were either sold or transferred to Merrill Lynch entities. Business Segments For a general description of our business segments, see the section entitled “Business” on page 101. The following tables present the operating results of the Bank’s two reportable segments, as well as reconciling items to combined totals, for 2009, 2008 and 2007. 2009 Commercial Wealth Reconciling Total ($ in thousands) Banking Management Items Combined Net interest income ...... $956,868 $ 77 $ — $956,945 Provision for credit losses ...... 49,462 — — 49,462 Noninterest income ...... 57,426 59,914 (1,767) 115,573 Noninterest expense ...... 361,878 57,167 (1,767) 417,278 Income before provision for income taxes ...... 602,954 2,824 — 605,778 Provision for income taxes ...... 253,116 1,200 — 254,316 Net income before noncontrolling interests ...... 349,838 1,624 — 351,462 Less: Net income from noncontrolling interests ...... 4,819 — — 4,819 First Republic Bank net income ...... $345,019 $ 1,624 $ — $346,643

73 2008 Commercial Wealth Reconciling Total ($ in thousands) Banking Management Items Combined Net interest income ...... $504,597 $ 250 $ — $504,847 Provision for credit losses ...... 131,175 — — 131,175 Noninterest income ...... 22,227 69,203 (2,138) 89,292 Noninterest expense ...... 371,481 73,095 (2,138) 442,438 Income (loss) before provision for income taxes ...... 24,168 (3,642) — 20,526 Provision (benefit) for income taxes ...... 7,281 (1,548) — 5,733 Net income (loss) before noncontrolling interests ...... 16,887 (2,094) — 14,793 Less: Net income from noncontrolling interests ...... 4,793 — — 4,793 First Republic Bank net income (loss) ...... $ 12,094 $ (2,094) $ — $ 10,000

2007 Commercial Wealth Reconciling Total ($ in thousands) Banking Management Items Combined Net interest income ...... $353,286 $ 138 $ — $353,424 Provision for credit losses ...... 10,467 — — 10,467 Noninterest income ...... 51,801 64,444 (3,364) 112,881 Noninterest expense ...... 349,647 86,799 (3,364) 433,082 Income (loss) before provision for income taxes ...... 44,973 (22,217) — 22,756 Provision (benefit) for income taxes ...... 11,662 (9,442) — 2,220 Net income (loss) before noncontrolling interests ...... 33,311 (12,775) — 20,536 Less: Net income from noncontrolling interests ...... 6,868 — — 6,868 First Republic Bank net income (loss) ...... $ 26,443 $(12,775) $ — $ 13,668

Commercial Banking

Net interest income for the Commercial Banking segment was $956.9 million for 2009, compared with $504.6 million for 2008 and $353.3 million in 2007, an increase of 90% in 2009 and 43% in 2008. The increase in 2009 was primarily due to higher levels of average interest-earning assets and higher loan discount accretion. The increase in 2008 was primarily due to higher levels of average interest-earning assets.

Noninterest income for the Commercial Banking segment was $57.4 million for 2009, compared with $22.2 million for 2008 and $51.8 million in 2007, an increase of 158% in 2009 and a decrease of 57% in 2008. The increase in 2009 was primarily due to the impact of purchase accounting as $26.6 million of the discount on unfunded commitments was accreted to income in 2009, higher gain on sale of loans, higher servicing fees and higher deposit fees. The decrease in 2008 was primarily due to 2007 results including $20.4 million of investment securities gains resulting from the liquidation of our investment portfolio after the Merrill Lynch acquisition and a higher gain on sale of loans when the secondary market was more active.

Noninterest expense for the Commercial Banking segment was $361.9 million in 2009, compared with $371.5 million in 2008 and $349.7 million in 2007, a decrease of 3% in 2009 and an increase of 6% in 2008. The decrease in 2009 was primarily due to a decline in intangible amortization as a result of the Bank of America acquisition, which was partially offset by higher FDIC assessments due to the special assessment and growth in deposits.

Wealth Management

Noninterest income for our Wealth Management segment decreased 13% to $59.9 million in 2009 from $69.2 million in 2008 and increased 7% in 2008 from $64.4 million in 2007. Fees and other revenues have

74 decreased as assets under management declined in 2009 due to market conditions, which were partially offset by marketing efforts to obtain new client assets and the hiring of additional experienced wealth advisors who added clients and client assets.

Noninterest expense for Wealth Management was $57.2 million in 2009, compared with $73.1 million in 2008 and $86.8 million in 2007, a decrease of 22% in 2009 and 16% in 2008. The decline in expenses in 2008 was partially driven by decreased assets under management and lower amortization of intangible assets. In 2007, expenses for the Wealth Management segment included a $28.0 million loss on the sale of an investment advisory subsidiary, which included a goodwill impairment. Excluding the loss related to the investment advisory subsidiary, noninterest expenses for Wealth Management were $58.8 million. In addition, amortization of intangible assets was $5.0 million and $1.3 million in 2008 and 2007, respectively. The Wealth Management segment did not have any intangible asset amortization in 2009 as no such intangible assets were pushed down in the purchase accounting adjustments made by Bank of America. Each of our Wealth Management entities has the capacity to manage additional assets with the current level of fixed costs.

Assets under management or administration in the Wealth Management segment, in aggregate, declined 8% during 2009 compared to 2008. The following table presents the assets under management or administration by the entities comprising our Wealth Management segment at the end of each of the last three years.

December 31, December 26, December 28, ($ in millions) 2009 2008 2007 First Republic Investment Management ...... $ 4,496 $ 4,434 $ 5,902 Investment and Brokerage ...... 5,786 7,000 5,478 Trust Company ...... 3,630 3,967 4,055 First Republic Wealth Advisors ...... 839 618 721 Total ...... $14,751 $16,019 $16,156

The following table provides an estimate of the change during 2008 and 2009 in assets under management or administration for the entities in our Wealth Management segment. Assets under management increase when clients open new accounts or add to the balance in existing accounts by depositing additional funds. Closed accounts and funds withdrawn by clients reduce the assets under management. The portion of the net change that cannot be attributed to the deposit or withdrawal of funds is reported in market appreciation or depreciation.

First Republic First Republic Investment Investment and Trust Wealth Segment ($ in millions) Management Brokerage Company Advisors Total Beginning balance, December 28, 2007 . . . . . $ 5,902 $ 5,478 $ 4,055 $ 721 $ 16,156 Activity for the period: New accounts and deposits ...... 1,439 18,593 3,244 200 23,476 Closed accounts and withdrawals ...... (1,293) (16,562) (2,176) (71) (20,102) Market change, net ...... (1,614) (509) (1,156) (232) (3,511) Net change ...... (1,468) 1,522 (88) (103) (137) Ending balance, December 26, 2008...... 4,434 7,000 3,967 618 16,019 Activity for the period: New accounts and deposits ...... 938 14,243 1,913 157 17,251 Closed accounts and withdrawals ...... (1,258) (15,912) (2,739) (63) (19,972) Market change, net ...... 382 455 489 127 1,453 Net change ...... 62 (1,214) (337) 221 (1,268) Ending balance, December 31, 2009 ...... $ 4,496 $ 5,786 $ 3,630 $ 839 $ 14,751

75 Deposits and withdrawals in Investment and Brokerage include activity in money market mutual fund sweep accounts in which excess funds above a target balance in the client’s checking account held at the Bank are deposited. On days when the funds in the client’s checking account are less than the target balance, funds are withdrawn from the money market account and returned to the client’s checking account.

Investment Advisory Services. We provide traditional portfolio management and customized client portfolios through FRIM and, prior to its merger, FRWA. Total investment advisory fees earned for 2009 were $27.9 million, or 21% lower than 2008. This decrease in revenues was primarily the result of a decline in average assets under management at FRIM due to market conditions. Total investment advisory fees earned for 2008 were 13% lower than 2007. This decrease was also driven by a decline in average assets under management due to market conditions, as well as the sale of an investment advisory subsidiary in June 2007 that had contributed $3.8 million of investment advisory fees during 2007.

FRIM earns fee income from the management of equity and fixed income investments for its clients. Assets under management were $4.5 billion at December 31, 2009, a 1% increase compared with $4.4 billion at December 26, 2008. In 2008, assets under management declined from $5.9 billion to $4.4 billion, or 25%. Investment advisory fees earned by FRIM were $25.1 million in 2009, a decrease of 23% from $32.8 million in 2008; such fees were $34.7 million in 2007.

FRWA employed experienced investment advisors to work with our relationship managers to generate new assets under management using an open architecture platform. At December 31, 2009, there were $839 million of total assets on this platform, up from $618 million at December 26, 2008, an increase of 36%. Investment advisory fees earned by FRWA were $2.8 million in 2009, an increase of 13% from $2.5 million in 2008 and an increase of 22% from $2.1 million in 2007. The increase in fees for FRWA were primarily driven by increases in assets under management due to the addition of new clients. We merged FRWA with FRIM during the third quarter of 2010 to obtain operational and branding efficiencies.

During 2007, one of our investment advisory subsidiaries was advised of the termination of one of its largest and oldest relationships and of the probable termination of assets managed under a mutual fund sub-advisory contract. Collectively, these two relationships represented approximately $2.0 billion of assets under management and approximately 50% of this subsidiary’s investment advisory fees. We completed a valuation analysis and recognized a non-cash impairment charge to reduce goodwill by $15.7 million in 2007. In addition, we sold this subsidiary to its principal officers and recognized a loss of $12.2 million and a tax benefit of $11.7 million. Investment advisory fees included in our 2007 combined financial statements related to this subsidiary were $3.8 million.

Investment and Brokerage Activities. We perform short-term investment and brokerage activities for clients. We employ specialists to acquire treasury securities, municipal bonds, money market mutual funds and other shorter-term liquidity investments at the request of clients or their financial advisors. These specialists can also execute transactions for a full array of longer-term equity and fixed income securities. At December 31, 2009, we held $5.8 billion of client assets in brokerage accounts through First Republic Securities Company and in third-party money market mutual funds; such assets decreased 17% compared to 2008. Total fees earned for these services were $14.8 million in 2009, compared with $18.8 million in 2008 and $11.5 million in 2007, a decrease of 21% and an increase of 63%, respectively. The decrease in fees in 2009 was attributable to very low margins on money market mutual funds as a result of the current interest rate environment. The increase in fees in 2008 compared to 2007 was primarily driven by growth in assets under management, an increase in customers and a higher level of trading activity.

Trust Company. First Republic Trust Company operates in California, Nevada, Oregon, Massachusetts, Connecticut and New York and specializes in personal trusts and custody accounts. The Trust Company draws new trust clients from our Preferred Banking and wealth management client base as well as from outside of our organization. At December 31, 2009, assets under management or administration were $3.6 billion, a decrease of

76 8% for the year. Total trust fees earned were $5.1 million in 2009, compared with $5.6 million in 2008 and $4.6 million in 2007. The change in trust fees in 2009 and 2008 was primarily driven by changes in average assets under management and administration.

Balance Sheet Analysis

Investments

The following table presents the investment portfolio at the end of each of the periods indicated:

September 30, June 30, December 31, ($ in thousands) 2010 2010 2009 Available for sale: U.S. Treasury and federal agencies ...... $ 89,028 $ — $ — Other residential mortgage-backed securities ...... — 3,333 3,183 Total ...... $ 89,028 $3,333 $3,183 Held-to-maturity U.S. States and political subdivisions ...... $431,128 $ — $ — Other residential mortgage-backed securities ...... 3,712 255 — Total ...... $434,840 $ 255 $ —

We began purchasing additional investment securities during the third quarter of 2010. The investment securities as of September 30, 2010 consist primarily of U.S. Treasury and federal agencies for collateral purposes and municipal securities for yield enhancement.

Loan Portfolio

During 2009, originations of single family mortgage loans, including HELOCs, exceeded sales and repayments, resulting in a net increase in loans secured by single family homes of approximately $1.8 billion (unpaid principal balance). Over the last three years, we have generally increased the outstanding balance of commercial real estate mortgages, multifamily loans and other loan types in our loan portfolio. The mix of loans at September 30, 2010 compared to December 31, 2009 is affected by the loans retained by BANA as part of the Transaction. The loans retained were concentrated in commercial real estate and multifamily. In addition, during the nine months ended September 30, 2010, a significant portion of our new loan originations were single family mortgage loans.

77 The following table presents our loan portfolio and loans held for sale by category at the end of the most recent quarter and each of the last five years:

Sept. 30, June 30, Dec. 31, Dec. 26, Dec. 28, Dec. 31, Dec. 31, ($ in millions) 2010 2010 2009 2008 2007 2006 2005 Unpaid principal balance: Single family (1-4 units) ...... $11,195 $10,904 $10,487 $ 8,895 $ 5,236 $3,421 $3,061 Home equity credit lines ...... 1,744 1,719 1,830 1,671 1,025 929 775 Commercial real estate ...... 2,148 2,076 2,970 2,835 1,840 1,424 1,053 Multifamily (5+ units) ...... 1,859 1,830 2,129 1,917 1,195 878 701 Multifamily/commercial construction ...... 126 163 262 174 141 119 84 Single family construction ...... 167 182 242 400 320 294 165 Total real estate mortgages ..... 17,239 16,874 17,920 15,892 9,757 7,065 5,839 Commercial business loans ...... 883 846 1,087 1,221 1,053 704 441 Other secured ...... 166 180 203 242 185 106 106 Unsecured loans and lines of credit . . . 126 102 173 320 255 253 175 Stock secured ...... 31 25 69 74 82 59 95 Lease financing ...... — — — — 27 22 — Total other loans ...... 1,206 1,153 1,532 1,857 1,602 1,144 817 Total unpaid principal balance ...... 18,445 18,027 19,452 17,749 11,359 8,209 6,656 Net unaccreted discount ...... (726) (674) (817) (210) (237) — — Net deferred fees and costs ...... 2 1 (2) 7 1 5 5 Carrying value ...... 17,721 17,354 18,633 17,546 11,123 8,214 6,661 Allowance for loan losses ...... (5) (14) (45) (177) (61) (51) (40) Loans, net ...... 17,716 17,340 18,588 17,369 11,062 8,163 6,621 Single family loans held for sale ...... 139 28 15 4 6 79 376 Total ...... $17,855 $17,368 $18,603 $17,373 $11,068 $8,242 $6,997

The following table presents an analysis of the unpaid principal balance of loans that were retained by BANA by property type and major geographic location at March 31, 2010. Such loans were secured by properties and made to borrowers in all of our markets, with 59% of the loans retained by BANA secured by commercial real estate and multifamily properties. In addition, BANA retained approximately 84% of our loans that were secured by properties or made to borrowers in Nevada. We are currently in discussions with BANA to purchase, at market terms, up to $170 million of performing loans which are primarily secured by real estate in the retained portfolio.

March 31, 2010 San New York Los Other Francisco Metro Angeles San Diego Boston California ($ in millions) Bay Area Area Area Area Area Areas Nevada Other Total % Single family and HELOCs ...... $165 $ 67 $106 $ 37 $13 $11 $ 87 $ 70 $ 556 26% Commercial real estate . . . 431 98 83 17 5 50 195 19 898 42% Multifamily ...... 87 9 25 45 — 26 127 33 352 17% Commercial business . . . . 49 60 18 1 6 — — 12 146 7% Construction ...... 49 28 28 8 — 10 — — 123 6% Stock and other secured . . 6 8 2 — — 1 1 3 21 1% Unsecured ...... 3 24 3 — — — 1 1 32 1% Total ...... $790 $294 $265 $108 $24 $98 $411 $138 $2,128 100% % by location ...... 37% 14% 13% 5% 1% 5% 19% 6% 100%

78 The following table presents an analysis of the unpaid principal balance of our loan portfolio at September 30, 2010 and December 31, 2009, excluding single family loans held for sale, by property type and major geographic location.

September 30, 2010 San New York Los Other Francisco Metro Angeles San Diego Boston California ($ in millions) Bay Area Area Area Area Area Areas Other Total % Single family and HELOCs .... $5,975 $2,730 $1,928 $394 $745 $252 $ 915 $12,939 70% Commercial real estate ...... 1,349 72 293 130 15 91 198 2,148 12% Multifamily ...... 1,355 80 115 208 17 22 62 1,859 10% Commercial business ...... 494 201 84 30 11 6 57 883 4% Construction ...... 130 38 66 40 4 — 15 293 2% Stock and other secured ...... 75 61 18 — 12 — 31 197 1% Unsecured ...... 42 54 13 1 7 — 9 126 1% Total ...... $9,420 $3,236 $2,517 $803 $811 $371 $1,287 $18,445 100% % by location ...... 51% 18% 14% 4% 4% 2% 7% 100%

December 31, 2009 San New York Los Other Francisco Metro Angeles San Diego Boston California ($ in millions) Bay Area Area Area Area Area Areas Other Total % Single family and HELOCs . . . $5,513 $2,529 $1,901 $410 $694 $253 $1,017 $12,317 63% Commercial real estate ...... 1,716 162 401 139 21 128 403 2,970 15% Multifamily ...... 1,376 87 131 249 15 49 222 2,129 11% Commercial business ...... 514 318 102 32 13 6 102 1,087 6% Construction ...... 219 84 104 55 4 15 23 504 3% Stock and other secured ...... 94 100 21 — 19 2 36 272 1% Unsecured ...... 74 58 16 2 8 — 15 173 1% Total ...... $9,506 $3,338 $2,676 $887 $774 $453 $1,818 $19,452 100% % by location ...... 49% 17% 14% 5% 4% 2% 9% 100%

At September 30, 2010 and December 31, 2009, approximately 67% and 65% (based on unpaid principal balance), respectively, were secured by real estate properties located in California. Future economic, political or other developments in California could adversely affect the value of the loans secured by real estate.

We do not currently originate single family home loans containing provisions for the negative amortization of principal; however, a limited amount of such loans exist in our loan portfolio. At September 30, 2010 and December 31, 2009, loans with the potential for negative amortization based on contractual balances were only $12.0 million, or 0.07% of the total loan portfolio and $18.0 million, or 0.09% of the total loan portfolio, respectively. None of our loans had increases in principal balance and there was no interest that has been added to the principal of such negative amortization loans at September 30, 2010 or December 31, 2009.

For over 16 years, we have offered loan products with an initial period of interest-only payments. Underwriting standards for all loans have required substantial borrower net worth, substantial post-loan liquidity, excellent FICO scores and significant down payments. Approximately $10.4 billion and $9.8 billion of loans as of September 30, 2010 and December 31, 2009, respectively, or 94% of our single family loan portfolio (based on unpaid principal balances), allowed interest-only payments for varying periods. At September 30, 2010, these interest-only loans had an average loan-to-value ratio (“LTV”) of approximately 58%, based on appraised value at the time of origination and FICO scores averaging 760 at origination. Less than 1% of our interest-only home loans had an LTV at origination of more than 80%.

79 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 loans originated by us had a weighted average credit score of 764, and all of our home loans were underwritten using full documentation. Our sales of whole loan pools have always been executed in the Prime market.

Our single family HELOC product requires the payment of interest each month on the outstanding balance. During the first 10 years of the loan term, principal amounts may be repaid or drawn at the borrower’s option. We underwrite HELOCs to 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.

Multifamily. At September 30, 2010 and December 31, 2009, the unpaid principal balance of multifamily loans was $1.9 billion and $2.1 billion, respectively. Included in this portfolio were $490.4 million and $651.4 million of loans for which interest-only payments may be made for a period of up to 10 years, depending upon the borrower, specific underwriting criteria and terms of the loans. For multifamily loans that allow for interest-only payments, the average LTV ratio was 62% and 63% based on the appraised value at the time of origination and the contractual balance outstanding at September 30, 2010 and December 31, 2009, respectively. Additionally, at September 30, 2010 and December 31, 2009, we had committed to lend $115.3 million and $146.6 million, respectively, under lines of credit secured by the equity in multifamily real estate. The unpaid principal balance at September 30, 2010 and December 31, 2009 was $70.6 million and $90.8 million, respectively, representing 4% of the portfolio at September 30, 2010 and December 31, 2009; these lines of credit also allow for interest-only payments for an initial period.

Commercial Real Estate. At September 30, 2010 and December 31, 2009, the unpaid principal balance of commercial real estate loans was $2.1 billion and $3.0 billion, respectively. Included in this portfolio were $399.1 million and $734.6 million of loans for which interest-only payments may be made for a period of up to 10 years, depending upon the borrower, specific underwriting criteria and terms of the loans. For commercial real estate loans that allow for interest-only payments, the average LTV ratio was 59% and 61% based on the appraised value at the time of origination and the contractual balance outstanding at September 30, 2010 and December 31, 2009, respectively. Additionally, at September 30, 2010 and December 31, 2009, we had committed to lend $159.6 million and $203.1 million, respectively, under lines of credit secured by equity in commercial real estate. The unpaid principal balance at September 30, 2010 and December 31, 2009 was $89.4 million and $110.3 million, respectively, representing 4% of the portfolio at September 30, 2010 and December 31, 2009; these lines of credit also allow for interest-only payments for an initial period.

The following table presents the maturity distribution of our real estate construction loans and other non-mortgage loans as of December 31, 2009. The maturity dates were determined based on the remaining scheduled principal repayment dates.

>1 Through ($ in thousands) 1 Year or Less 5 Years >5 Years Total Maturity distribution: Commercial business ...... $ 525,729 $310,966 $250,040 $1,086,735 Real estate construction ...... 367,246 127,258 9,774 504,278 Stock secured ...... 64,165 1,052 4,000 69,217 Other secured ...... 88,485 75,129 39,157 202,771 Unsecured ...... 146,560 12,087 14,791 173,438 Total ...... $1,192,185 $526,492 $317,762 $2,036,439

80 The following table presents the distribution of our real estate construction loans and other non-mortgage loans outstanding that are due after one year between fixed and variable interest rates. ($ in thousands) Fixed Adjustable Total Maturity distribution: Commercial business ...... $271,430 $289,576 $561,006 Real estate construction ...... 75,917 61,115 137,032 Stock secured ...... — 5,052 5,052 Other secured ...... 93,734 20,552 114,286 Unsecured ...... 1,107 25,771 26,878 Total ...... $442,188 $402,066 $844,254

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, primarily for our existing clients. At December 31, 2009, approximately 39% of our total loans were adjustable-rate or mature within one year. 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, 2009, we have originated approximately $57.5 billion of loans, of which approximately $13.8 billion have been sold to investors. In 2009, our loan originations totaled $5.3 billion, compared with $9.7 billion in 2008 and $6.8 billion in 2007, a decrease of 45% during 2009 and an increase of 42% during 2008. Total originations for both the nine months ended September 30, 2010 and 2009 were $4.2 billion. The volume and type of loan originations depends on the level of interest rates, the number of personnel involved in lending, the demand for home loans in our markets and other economic conditions. We focus on originating a limited number of loans by market, property type and location. The majority of our mortgage loans are secured by properties located in close proximity to one of our offices. The following table presents loan originations, by product type, for each of the past three years and the first nine months of 2010: Nine Months Ended ($ in thousands) September 30, 2010 2009 2008 2007 Single family mortgages ...... $2,751,979 $3,352,828 $4,419,733 $2,644,489 HELOCs ...... 372,184 654,133 1,147,199 675,555 Multifamily/commercial real estate mortgages ..... 380,394 639,076 2,070,393 1,407,810 Commercial business loans ...... 446,346 338,808 1,024,017 1,113,434 Construction ...... 131,386 195,046 431,342 466,266 Other loans ...... 139,606 131,910 598,671 529,653 Total loans originated ...... $4,221,895 $5,311,801 $9,691,355 $6,837,207

Due to low interest rates available to borrowers, we experienced a high level of single family lending from refinancing activities (“refinance loans”) and an increase in single family purchase loans in our primary markets. Further, during 2008, we benefited from the economic environment that caused competitors in the home loan market to reduce lending and become internally focused during the difficult economic conditions. The following table presents purchase loans and refinance loans as a percentage of total single family mortgage originations (excluding HELOCs) for each of the past three years and the first nine months of 2010: Nine Months Ended September 30, 2010 2009 2008 2007 Purchase loans ...... 44% 35% 52% 57% Refinance loans ...... 56% 65% 48% 43% Total ...... 100% 100% 100% 100%

81 We have approved a limited group of third-party appraisers to appraise all of the properties on which we make loans and require two appraisals for larger single family loans. Our practice is to seldom exceed an 80% LTV on single family loans, including HELOCs. LTV ratios generally decline as the size of the loan increases. At origination, we generally do not exceed 75% LTV ratios for multifamily loans and 70% LTV ratios for commercial real estate loans. At September 30, 2010, the approximate weighted average LTV ratios on loans at origination were 58% on single family loans, 60% on multifamily loans, 55% on commercial real estate loans and 60% on construction loans. These original LTVs change over time as property values fluctuate.

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 and, in recent years, our loan sales have declined dramatically. We have retained in our loan portfolio both ARMs and intermediate fixed rate loans. If interest rates rise, payments on ARMs increase, which may be financially burdensome to some borrowers. Subject to market conditions, our ARMs generally provide for a life cap that is 5% to 6% above the initial interest rate, thereby protecting borrowers from unlimited interest rate increases. As part of our standard underwriting policy, 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 more than 90 days 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 significant interest rate concessions are placed on nonaccrual status until collectability improves and a satisfactory payment history is established, generally by the receipt of at least six consecutive payments.

Our collection policies are highly focused with respect to both our portfolio loans and loans serviced for others. We have policies requiring rapid notification of delinquency and the prompt initiation of collection actions. Our policy is to attempt to resolve problem assets quickly, including the aggressive pursuit of foreclosure or other workout procedures 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 foreclosures and have not needed to suspend any of our foreclosure activities.

82 The following table presents the dollar amount of nonaccrual loans, real estate owned (“REO”), restructured performing loans and accruing single family loans over 90 days past due, at the end of the dates indicated.

Sept. 30, Mar. 31, Dec. 31, Dec. 26, Dec. 28, Dec. 31, ($ in thousands) 2010 2010 2009 2008 2007 2006 2005 Nonaccrual loans Single family mortgages . . . . . $ 5,109 $ 49,107 $ 62,953 $ 17,031 $ 8,366 $ 8,366 $ 6,839 HELOCs ...... 415 23,866 13,055 5,350 2,850 — — Commercial real estate ...... 4,213 92,509 92,740 28,830 1,717 1,796 762 Multifamily mortgages ...... 2,146 73,908 24,800 6,484——— Single family construction ....— 10,991 12,456 1,050——— Multifamily/commercial construction ...... 2,621 62,986 26,856 24,714 689 — — Commercial business ...... 911 13,250 10,263 44,525 41,297 568 — Other ...... 50 8,126 6,025 3,000 31 20 — Total nonaccrual loans ...... 15,465 334,743 249,148 130,984 54,950 10,750 7,601 REO ...... 667 43,635 21,462 5,000 396 443 — Total nonperforming assets . . . 16,132 378,378 270,610 135,984 55,346 11,193 7,601 Restructured performing loans ..... 1,484 — 1,450 1,659 — — 16,272 Total nonperforming and restructured assets ...... $17,616 $378,378 $272,060 $137,643 $55,346 $11,193 $23,873 Accruing loans 90 days or more past due ...... $ 5,059 $ 6,263 $ 11,262 $ 5,687 $19,672 $ — $ 5,857 Percent of total assets Nonperforming assets ...... 0.07% 1.90% 1.36% 0.69% 0.35% 0.10% 0.08% Nonperforming and restructured assets ...... 0.08% 1.90% 1.36% 0.70% 0.35% 0.10% 0.26%

See Note 5 to the December 31, 2009 Combined Financial Statements elsewhere in this offering circular for information related to interest income on nonaccrual loans during the years ended 2009, 2008 and the periods from September 22, 2007 to December 28, 2007 and January 1, 2007 to September 21, 2007.

At December 31, 2009, our nonperforming assets were approximately 1.36% of total assets, compared to 0.69% at December 26, 2008. The increase in nonperforming assets was primarily concentrated in the commercial real estate and construction portfolios. A significant portion of the credits which experienced difficulties are located in the Las Vegas, Nevada and San Francisco East Bay markets and were impacted by the downturn in the economy and the deterioration of the housing markets.

As part of the Transaction, nearly all of the nonperforming assets at December 31, 2009 were retained by BANA. The percentage of nonperforming assets to total assets at December 31, 2009 was 1.36%. The majority of these assets were retained by BANA. The percentage of nonperforming assets to total assets, excluding these assets retained by BANA was 0.07% at December 31, 2009. At March 31, 2010, our nonperforming assets totaled $378.4 million, or 1.90% of total assets. At September 30, 2010, our nonperforming assets totaled $16.1 million, or 0.07% of total assets. The decrease in nonperforming assets at September 30, 2010 was primarily due to the assets retained by BANA as part of the Transaction.

From time to time, a single family loan becomes delinquent. However, we do not classify a single family loan over 90 days past due as a nonaccrual loan if the loan is well-secured and in the process of collection and we do not expect to lose any principal or interest. At September 30, 2010 and December 31, 2009, total loans

83 that had payments over 90 days past due and still accruing were $5.1 million and $11.3 million, respectively. At December 26, 2008, accruing loans that had payments over 90 days past due totaled $5.7 million.

The future level of nonperforming assets depends upon the performance of borrowers under loan terms and the timing of the sale of future REO properties and general economic conditions.

Allowance for Loan Losses

We establish an allowance for the inherent risk of probable losses, based upon established criteria, including the type of loan, loan characteristics, our and the industry’s historical loss experience, and economic trends. Our allowance for loan losses is maintained at a level estimated by management to be adequate to provide for losses that can be reasonably anticipated based upon specific conditions at the time as determined by management, including past loss experience, the results of our ongoing loan grading process, the amount of past due and nonperforming loans, legal requirements, recommendations or requirements of regulatory authorities, current and expected economic conditions, and other factors. Many of these factors are subjective and cannot be reduced to a mathematical formula. Actual losses in any year may exceed allowance amounts.

The following table presents an analysis of our allowance for loan losses, including provisions for loan losses, charge-offs and recoveries, for the periods indicated.

Dec. 31, Dec. 26, Dec. 28, Dec. 31, ($ in thousands) 2009 2008 2007 2006 2005 Allowance for loan losses: Balance at beginning of period ...... $ 176,679 $ 60,914 $ 51,706 $ 39,731 $ 35,674 Purchase accounting adjustment (1) ...... (176,679)(1) — — 7,619 — Provision charged to expense ...... 49,462 131,175 10,467 — 4,000 Charge-offs: Home equity credit lines ...... — (416) — — — Commercial real estate ...... (2,273) — — — — Multifamily/commercial construction . . . — (9,400) — — — Commercial business ...... (1,531) (2,088) (980) (162) (191) Other loans ...... (1,289) (357) (541) (300) (25) Total charge-offs ...... (5,093) (12,261) (1,521) (462) (216) Recoveries: Multifamily ...... — — 313 334 75 Commercial real estate ...... 1 126 146 4,246 346 Commercial business ...... 453 94 59 2 3 Other loans ...... 180 181 111 236 724 Total recoveries ...... 634 401 629 4,818 1,148 Net loan (charge-offs) recoveries ...... (4,459) (11,860) (892) 4,356 932 Reclassification to other liabilities ...... — (3,550) (367) — (875) Balance at end of period ...... $ 45,003 $ 176,679 $ 60,914 $ 51,706 $ 39,731 Average total loans for the period ...... $17,623,345 $14,456,638 $ 9,327,475 $7,261,889 $5,948,755 Total loans at period end ...... $18,632,781 $17,545,238 $11,122,635 $8,209,198 $6,656,334 Ratios Net charge-offs (recoveries) to average total loans ...... 0.03% 0.08% 0.01% (0.06)% (0.02)% Allowance for loan losses to: Total loans ...... 0.24% 1.01% 0.55% 0.63% 0.60% Nonaccruing loans ...... 18.1% 134.9% 110.9% 481.0% 523.0%

(1) On January 1, 2009, the Bank’s allowance for loan losses became part of the loan carrying value due to purchase accounting adjustments.

84 See Note 4 to the September 30, 2010 Financial Statements for activity related to the allowance for loan losses for the three months ended September 30, 2010, the six months ended June 30, 2010 and the three and nine months ended September 30, 2009.

Our allowance for loan losses methodology, including allocation to specific loans and between the loan portfolio categories, requires management’s consideration of a number of factors, including past loss experience, our underwriting process, the results of our ongoing loan grading process, the amount of past due and nonperforming loans, legal requirements, trends within the banking industry, industry data for loan products in which we have limited experience, current economic conditions, and other factors. The amount of the allowance is also affected by the size and composition of the loan portfolio. Based on this assessment, the allowance and allocation is adjusted each quarter. The allowance reflects management’s best estimate of the losses that are inherent in the loan portfolio at the balance sheet date. The following table presents management’s historical allocation of the allowance for loan losses by loan category to specific loans in those categories as a result of our loan review process at year end for each of the last five years:

Dec. 31, Dec. 26, Dec. 28, Dec. 31, ($ in thousands) 2009 2008 2007 2006 2005 Allocation of allowance for loan losses: Single family mortgages and HELOCs ...... $ 1,980 $ 23,424 $ 3,722 $ 2,676 $ 2,141 Income property ...... 26,503 43,429 12,954 13,978 11,471 Construction ...... 7,958 23,316 6,273 6,547 4,781 Commercial business and other ...... 8,562 73,856 34,714 25,834 17,919 Unallocated ...... — 12,654 3,251 2,671 3,419 Total ...... $45,003 $176,679 $60,914 $51,706 $39,731

In 2009, we recorded net charge-offs of $4.5 million, compared to net charge-offs of $11.9 million and $892,000 in 2008 and 2007, respectively. Net-charge offs as a percentage of average total loans were 0.03% in 2009 compared to 0.08% and 0.01% in 2008 and 2007, respectively.

As a result of purchase accounting adjustments recorded on January 1, 2009, our allowance for loan losses was reduced to zero in accordance with ASC 805. During 2009, we reduced loan discounts by $79.6 million representing charge-offs, based on the contractual amount outstanding, which are not included in the allowance for loan losses rollforward above. The total charge-offs of principal balances owed by customers, including those recorded to the allowance for loan losses and recorded as a reduction of loan discounts, were $84.7 million in 2009. All of the 2008 and 2007 net charge-offs were recorded against the allowance for loan losses. The increase in total net charge-offs to principal balance during 2009 was the result of the economic conditions in our markets, specifically the downturn in the housing and construction markets with a focus in Nevada and the far East Bay region of San Francisco. In addition, $47.6 million of the charge-offs were associated with one business loan relationship. In 2009, net loan charge-offs as a percentage of average loans were 0.48%, of which 0.03% represented charge-offs to the allowance for loan losses and 0.45% represented charge-offs recorded as a reduction in unaccreted discount established in purchase accounting. Our net charge-off ratio to average loans was 0.08% and 0.01% in 2008 and 2007, respectively. We believe that our charge-off ratio continues to be well below the national average for U.S. banks.

At December 31, 2009, the allowance for loan losses was 0.24% of our total loan portfolio, compared with 1.01% at December 26, 2008. As previously discussed, on January 1, 2009, our allowance for loan losses was reduced to zero in accordance with the accounting for business combinations arising from the acquisition by Bank of America. We recorded a loan discount of $1.1 billion, which was approximately 6% of total loans, in connection with recording the loans at fair value on January 1, 2009. The portion of the loan discount that is accretable is being recognized in income using methods that approximate the interest method over the life of the loans.

85 Management will continue to evaluate the loan portfolio, including the level of single family home loans and non-real estate secured loans and assess economic conditions, in order to determine future allowance levels and the amount of loan loss provisions. We review the adequacy of our allowance for loan losses on a quarterly basis. Management monitors closely all past due and restructured loans in assessing the adequacy of its allowance for loan losses. In addition, we follow procedures for reviewing and grading all income property loans in excess of $500,000 and all commercial business loans in excess of $250,000 in our portfolio annually. Based predominately upon the review and grading process, we determine the appropriate level of the allowance in response to its assessment of the probable risk of loss inherent in our loan portfolio. Management will make additional loan loss provisions when the results of its problem loan assessment methodology or overall allowance adequacy test indicate additional provisions are required.

The review of problem loans is an ongoing process during which management may determine that additional charge-offs are required or additional loans should be placed on nonaccrual status. During 2009, due to further deterioration in certain loan portfolios (primarily commercial real estate and construction), management recorded a provision for loan losses of $49.5 million. During 2008 and 2007, we recorded provisions for credit losses of $131.2 million (consisting of provisions for loan losses of $130.9 million and $250,000 of provisions for unfunded commitments) and $10.5 million (consisting of provisions for loan losses of $10.1 million and $367,000 of provisions for unfunded commitments), respectively. The increased level of provisions recognized in 2008 was primarily due to the deteriorating economic conditions in our Nevada, New York and far East Bay loan portfolios along with general economic conditions that impacted many borrowers.

As part of the Transaction, the allowance for loan losses was reduced to zero in accordance with the accounting for business combinations. During the third quarter of 2010, we recorded a provision for loan losses of $4.5 million and a provision for unfunded commitments of $500,000. There were no charge-offs or recoveries recorded to the allowance for loan losses. At September 30, 2010, our allowance for loan losses was 0.03% of total loans, 0.37% of loans outstanding that were originated since July 1, 2010, and 29% of nonaccrual loans.

For the nine months ended September 30, 2010, we recorded a provision for loan losses of $21.9 million, charge-offs of $9.8 million and recoveries of $441,000. In addition, in April 2010, $39.2 million of the allowance for loan losses was transferred to BANA in connection with the retained loan conversion. The loans were transferred at carrying value, less any allowance for loan losses, as we were operating as a division of BANA. For the nine months ended September 30, 2009, we recorded a provision for loan losses of $38.8 million, no charge-offs and recoveries of $336,000.

In connection with the Transaction, certain loans were considered to be within the scope of ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” These loans were recorded at fair value on July 1, 2010. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference (“credit mark”). The credit mark is not accreted to income and absorbs future credit losses in the loan portfolio that was acquired. The total unpaid principal balance of loans that were in the scope of ASC 310-30 at July 1, 2010 was $251.4 million, which were recorded at a fair value of $219.4 million. At September 30, 2010, the remaining unpaid principal balance recorded for loans within the scope of ASC 310-30 was $250.3 million and the carrying value was $219.7 million.

The total unpaid principal balance of loans that were in the scope of ASC 310-30 at the date of the Bank of America acquisition on January 1, 2009 was $515.6 million, which were recorded at a fair value of $452.4 million. At December 31, 2009, the remaining unpaid principal balance recorded for loans within the scope of ASC 310-30 was $414.2 million and had a carrying value of $374.8 million.

86 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. A historical focus of our loan sales activities has been to enter into formal commitments and informal agreements with institutional investors. Under these arrangements, we originate, on a direct flow basis, single family mortgages that are priced and underwritten to conform to previously agreed criteria before 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. In addition, since 2000, we have periodically sold loans in underwritten, agency-rated securitizations. We last completed such a securitization in 2002.

The amount of loans sold depends upon conditions in both the mortgage origination and secondary loan sales markets. During 2010, 2009 and 2008, the number of sales to the secondary market has remained low compared to historical activity due to less liquidity in the marketplace for hybrid ARMs. Our loan sales in 2010 and 2009 have primarily been sales of conforming loans to Fannie Mae. In the third quarter of 2010, loan sales were $200.0 million and the net gain on sale was $1.0 million, or 0.52% of loans sold. In comparison, loan sales for the quarter ended June 30, 2010 were $81.4 million and the net gain on sale was $673,000, or 0.83% of loans sold, and loan sales for the third quarter of 2009 were $106.1 million and the net gain on sale was $1.4 million, or 1.33% of loans sold. The level of future loan originations, loan sales and loan repayments depends 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. The amount of gain or loss on the sale of loans is primarily driven by market conditions and changes in interest rates, as well as our pricing and asset liability management strategies.

We retain MSRs on substantially all loans that we sell to institutional investors and to Fannie Mae. We service loans to provide continuous direct client service and to generate recurring fee income. Mortgage loans serviced for investors decreased to $3.7 billion at September 30, 2010 from $4.0 billion at December 31, 2009 primarily because loan sales have been lower during the past two years due to secondary market conditions. Approximately 94% of our loans serviced for investors are secured by single family residences at September 30, 2010 and December 31, 2009, respectively.

MSRs are recognized as separate assets on our balance sheet. Beginning on July 1, 2010, we elected to account for mortgage servicing rights at amortized cost. During 2009 and the first six months of 2010, we recorded MSRs at estimated fair value with changes in the fair value recognized in the income statement. At September 30, 2010, MSRs were $21.7 million (59 basis points of loans serviced), compared with MSRs of $23.4 million (63 basis points of loans serviced) at June 30, 2010 and $24.5 million (61 basis points of loans serviced) at December 31, 2009. For the quarter ended September 30, 2010, a valuation allowance of $1.3 million was established as a result of declining mortgage interest rates and increased payoffs in the servicing portfolio.

If actual repayments of loans serviced are lower than our estimate of future repayments, we could reduce the amortization of MSRs, which would increase our expected level of future earnings. If actual repayments on loans serviced are higher than our estimates of future repayments, we may be required to reduce the fair value of MSRs through the establishment of a valuation allowance, thereby decreasing our expected level of current and future earnings. The annualized repayment rate of total loans serviced was approximately 25% for the third quarter of 2010, 17% for the prior quarter and 19% for the third quarter of 2009.

Deposit Gathering

We obtain funds from depositors by offering consumer and business checking, money market or passbook accounts and term CDs. At September 30, 2010 and December 31, 2009, our total deposits were $19.0 billion and $17.2 billion, respectively. Deposits increased 10% at September 30, 2010 as compared to December 31, 2009, and 17% compared to September 30, 2009. Deposits increased 40% in 2009 from $12.3

87 billion at December 26, 2008. Our accounts are federally insured by the FDIC up to the legal maximum. We advertise in newspapers to attract deposits and perform a limited direct telephone solicitation of potential institutional depositors such as credit unions, small commercial banks and pension plans. The following table presents the balances and average cost at the following dates.

September 30, 2010 December 31, 2009 December 26, 2008 December 28, 2007 Weighted Weighted Weighted Weighted ($ in thousands) Amount Ave. Cost Amount Ave. Cost Amount Ave. Cost Amount Ave. Cost Checking ...... $ 5,124,952 0.05% $ 5,508,194 0.11% $ 3,296,999 0.06% $ 3,073,361 0.14% Money Market (MM) checking accounts ...... 2,665,983 0.36% 1,819,869 0.86% 1,507,513 1.58% 1,694,407 3.65% MM savings and passbooks ...... 5,029,553 0.50% 3,928,703 1.13% 2,976,688 2.30% 3,269,764 4.44% CDs ...... 6,144,275 2.11% 5,925,718 2.14% 4,530,554 3.66% 3,013,319 4.86% Total ...... $18,964,763 0.88% $17,182,484 1.12% $12,311,754 2.11% $11,050,851 3.24%

Our total deposits grew 40% during 2009 due to an increase in new clients, effective cross-selling of services to existing clients among the Bank and its subsidiaries and a steady increase in client referrals. The deposit growth has occurred across all regions of our deposit operations. The following table presents deposits by region. Our retail locations that gather deposits are designated as “Preferred Banking offices.”

September 30, December 31, December 26, ($ in thousands) 2010 2009 2008 Preferred banking office deposits Northern California ...... $ 5,757,544 $ 5,401,683 $ 4,031,206 Southern California ...... 1,741,189 1,755,249 1,407,831 Metropolitan New York ...... 1,162,733 1,049,189 690,413 Boston ...... 255,543 209,524 115,395 Subtotal ...... 8,917,009 8,415,645 6,244,845 Preferred banking deposits Northern California ...... 3,616,333 3,035,127 2,029,923 Metropolitan New York ...... 2,056,889 2,245,978 1,432,163 Southern California ...... 1,578,089 1,497,722 1,254,907 Boston ...... 1,286,124 1,099,924 1,138,431 Subtotal ...... 8,537,435 7,878,751 5,855,424 Other deposits ...... 1,510,319 888,088 211,485 Total deposits ...... $18,964,763 $17,182,484 $12,311,754

Overall deposits in our Preferred Banking offices grew 35% during 2009 and 6% during the first nine months of 2010. Deposits in Preferred Banking offices which have been open for more than two years grew 37% during 2009. This deposit growth has resulted from our general marketing initiative, the cross-selling of products and the sales and service skills of individual employees. Growth has been distributed among personal and business checking accounts, money market and passbook savings accounts and CDs.

Preferred banking deposits grew 35% during 2009 from 2008 and 8% during the first nine months of 2010. Generally, Preferred Banking deposits are placed by clients who are introduced to First Republic through lending activities or who entered into deposit relationships directly with a relationship manager or preferred banker. Other deposits consisted primarily of institutional and operational deposits not attributable to any specific deposit location.

88 We fund a portion of our assets with CDs that have balances of $100,000 or more and that have maturities generally in excess of six months. At September 30, 2010 and December 31, 2009, our CDs of $100,000 or more totaled $4.2 billion and $4.0 billion, respectively. The following table presents the maturities of our CDs of $100,000 or more and greater than $250,000 in size at December 31, 2009.

Greater than or equal to Greater than ($ in thousands) $100,000 $250,000 Remaining maturity: Three months or less ...... $ 860,451 $ 415,627 Over three through six months ...... 929,878 455,097 Over six through twelve months ...... 751,989 333,474 Over twelve months ...... 1,494,550 606,917 Total ...... $4,036,868 $1,811,115 Percent of total deposits ...... 23% 11%

At September 30, 2010 and December 31, 2009, the average remaining maturity of all CDs was approximately 15.0 months and 12.2 months, respectively. The average CD amount per account was approximately $85,000 and $83,000 at September 30, 2010 and December 31, 2009, respectively.

We have acquired term CDs from a source that was deemed to be a broker. The total amount of these deposits was approximately $350.5 million and $303.5 million at September 30, 2010 and December 31, 2009, respectively. We no longer acquire deposits from this source.

Other Funding

Historically, we used term FHLB advances as an additional funding source until we were acquired by Merrill Lynch in 2007. At acquisition in September 2007, we had $2.1 billion of advances borrowed from the FHLB. Since then, the assumed FHLB advances were repaid upon maturity, and either MLFSB or BANA has provided short-term funding to support loan growth. Our outstanding FHLB advances were $130.5 million at December 31, 2009 and $1.2 billion at December 26, 2008. The decline during 2009 was the result of maturities of advances. FHLB advances must be collateralized by our mortgage loans and investment securities. Historically, the longer-term advances provide us with a stable funding source of intermediate fixed rate and adjustable rate borrowings for assets with longer lives.

On July 1, 2010, we became a member of the FHLB of San Francisco. During the quarter ended September 30, 2010, we borrowed $600 million of fixed rate longer-term advances with a weighted average cost of 2.61% to help manage interest rate risk. In addition, we repaid $130.8 million of short-term variable rate advances. At September 30, 2010, we had outstanding FHLB advances of $600 million and available borrowing capacity of $5.9 billion. See “Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk Management.”

Since September 21, 2007, until we became an independent company, we received funding from MLFSB or BANA in order to fund our operations. At December 31, 2009 and December 26, 2008, advances from the Parent company totaled $976.1 million and $3.2 billion, respectively. Our reliance on this funding decreased in 2009 as we increased customer deposits.

89 Prior to our acquisition by Merrill Lynch, we used short-term borrowings to fund loans originated by us prior to their sale or securitization in the secondary market. The following table presents certain information with respect to our short-term borrowings at year end for each of the last three years.

($ in thousands) Dec. 31, 2009 Dec. 26, 2008 Dec. 28, 2007 Short-term borrowings: FHLB advances ...... $ — $1,103,500 $ 216,500 Parent company borrowing ...... 976,090 3,151,268 — Total outstanding ...... $ 976,090 $4,254,768 $ 216,500 Maximum amount outstanding at any month-end during the year ...... $4,188,321 $4,904,842 $1,089,500 Average amount outstanding during the year ...... $2,054,040 $2,650,706 $ 526,991 Average rate for the year ...... 2.98% 4.39% 5.03%

We have no short-term borrowings at September 30, 2010.

Contractual Obligations

The following table presents the maturity distribution of our significant contractual obligations at December 31, 2009. Customer deposit obligations categorized as “not determined” include noninterest-bearing demand accounts, negotiable order of withdrawal (“NOW”) checking accounts, money market demand accounts (“MMDA”) checking accounts, money market savings accounts and passbook accounts.

Less Than Not ($ in thousands) 1 Year 1 to 2 Years 2 to 5 Years > 5 Years Determined Total Customer deposits ...... $3,761,414 $1,595,809 $563,454 $ 5,041 $11,256,766 $17,182,484 FHLB advances ...... —— 130,501 — — 130,501 Parent company borrowing .... 976,090 — — — — 976,090 Subordinated notes ...... —— 65,897 — — 65,897 Operating leases, net of sublease income ...... $ 24,245 $ 21,453 $ 63,928 $73,972 $ — $ 183,598

See Notes 8, 10, 11, 12 and 17 to the December 31, 2009 Combined Financial Statements for additional information regarding our contractual obligations.

Liquidity

Liquidity refers to our ability to maintain cash flow that is adequate to fund operations and meet present and future financial obligations through either the sale or maturity of existing assets or by obtaining additional funding through liability management. Management believes that the sources of available liquidity are adequate to meet all reasonably foreseeable short-term and intermediate-term demands.

Our loan portfolio is repayable in monthly installments over terms ranging primarily from six months to thirty years; however, market experience is that many longer-term real estate mortgage loans and investments are likely to prepay prior to their final maturity. Our deposits generally mature over shorter periods than our assets, requiring us to renew deposits or incur new liabilities at current interest rates. As part of our long-term strategy, we have more flexibility in setting rates to obtain deposits and other liabilities if a portion of our interest-earning assets have interest rates that adjust frequently.

The source of funds to finance the $5.3 billion of loans originated in 2009 included loan principal repayments of $3.0 billion, the sale of $515.7 million of loans, and a net increase in deposits of $4.9 billion. We also generated funds from earnings and used excess funds to reduce FHLB advances by $1.1 billion during 2009. During the first nine months of 2010, we originated $4.2 billion of loans, which were funded by loan repayments of $2.6 billion, the sale of $341.8 million of loans, and a net increase in deposits of $1.8 billion.

90 We sell single family mortgage loans in the secondary market directly to a variety of investors and, in the past, have sold single family mortgage loans in underwritten loan securitizations, using real estate mortgage investment conduits (“REMICs”). We originate single family mortgages in part to attract new clients for other banking and wealth management services. Selling mortgages allows us to originate more loans without growing our balance sheet loan portfolio. The loans sold are performing loans and meet all underwriting standards as generally required by us and the secondary market. We have not sold any nonperforming or delinquent loans. During 2010, 2009 and 2008, the amount of loan sales to the secondary market has declined due to less liquidity in the marketplace for hybrid ARMs and in 2008, our Parent company wanted to retain more high quality assets on the balance sheet.

In connection with loan sales, we retain substantially all the loan servicing in order to maintain the primary contact with our clients. We do not provide any financial or performance guarantees to the investors who purchase our loans and do not have any recourse obligations 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; however, we have not been required to make any significant loan repurchases or incur any other significant costs subsequent to the sale of loans under such representations and warranties. At September 30, 2010 and December 31, 2009, we had an outstanding balance of $3.7 billion and $4.0 billion, respectively, of loans sold to investors and serviced by us.

Capital Resources

On July 1, 2010, in connection with the Transaction, we issued 124,133,334 shares of common stock for $1.86 billion. At September 30, 2010, our total equity was $2.0 billion, which included $1.9 billion of common stockholders’ equity and $86.6 million of preferred stock of our two REIT subsidiaries. At December 31, 2009, our total equity was $1.4 billion, which included $1.3 billion of equity allocated from BANA and $99.6 million of preferred stock of our two REIT subsidiaries.

We were a division of MLFSB from September 21, 2007 through November 2, 2009. From November 2, 2009 through June 30, 2010, we were a division of BANA. As a division of MLFSB and BANA, we were allocated equity capital equal to approximately 7.0% of our ending tangible assets on a monthly basis plus an amount equal to any goodwill and other intangible assets. Equity capital consisted of Parent company investment and noncontrolling interests. Noncontrolling interests represent perpetual preferred stock issued by FRPCC and FRPCC II and held by non-affiliates in the amount of $99.6 million.

The Bank maintains two REIT subsidiaries, FRPCC and FRPCC II, for the purpose of raising regulatory capital. At September 30, 2010 and December 31, 2009, FRPCC had total assets of $457.5 million and $296.6 million, respectively, comprised primarily of single family mortgage loans originated by the Bank, and had issued and outstanding perpetual, exchangeable noncumulative preferred stock with a liquidation preference of $115.0 million. At September 30, 2010 and December 31, 2009, we owned a total of $25.4 million of FRPCC’s preferred stock; this amount and the related dividends are eliminated in our financial statements. At September 30, 2010 and December 31, 2009, FRPCC II had total assets of $1.1 billion, comprised primarily of multifamily and commercial real estate secured loans and cash, and had issued and outstanding perpetual, exchangeable noncumulative preferred stock with a liquidation preference of $10.0 million. Under banking regulations, the Bank included the preferred stock issued by FRPCC and FRPCC II in its Tier 1 capital, subject to certain limitations, or Tier 2 capital. The Bank reports the preferred stock issues as noncontrolling interests in its balance sheet under GAAP. The preferred stock dividends paid by the REIT subsidiaries are tax-deductible and the Bank reports these dividends as income attributable to noncontrolling interests in its statement of income under GAAP. If FRPCC or FRPCC II does not pay dividends on their preferred stock, they will generally be prohibited from paying dividends to the Bank as their common shareholder.

At September 30, 2010, our Tier 2 capital included $4.5 million of the allowance for loan losses, $500,000 of the reserve for unfunded commitments and a portion of the $69.0 million of subordinated notes maturing in 2012. At December 31, 2009, our Tier 2 capital included $45.0 million of the allowance for loan

91 losses and a portion of the $65.9 million of subordinated notes maturing in 2012. The Bank has issued its subordinated notes in amounts, and with a scheduled maturity date that we believe will allow us to repay all of our subordinated notes in accordance with the terms. Our ability to meet our reasonably foreseeable obligations, including the payment of our obligations on our notes and preferred stock, is dependent upon cash flow from operations and applicable government regulations.

At September 30, 2010, our leverage ratio was 8.58%, our Tier 1 risk based capital ratio was 13.60% and our total risk based capital ratio was 13.73%. As a condition of being a newly chartered institution, we are required to maintain a leverage ratio of at least 8.00% for a period of 7 years beginning July 1, 2010. Our capital ratios exceeded applicable regulatory requirements. The following table presents our capital ratios at September 30, 2010 and the standards for both well-capitalized depository institutions and minimum capital requirements:

Minimum Actual Capital Well Capital Requirement Capitalized ($ in thousands) Amount Ratio Ratio Ratio Leverage ...... $1,834,253 8.58% 4.00% 5.00% Tier 1 Risk-Based ...... 1,834,253 13.60% 4.00% 6.00% Total Risk-Based ...... 1,852,007 13.73% 8.00% 10.00%

Current Accounting Developments

The following accounting pronouncements were issued by the Financial Accounting Standards Board (“FASB”) but are not yet effective.

• In January 2010, the FASB issued ASC 820-10, “Fair Value Measurements and Disclosures- Overall.” ASC 820-10 requires additional disclosures about transfers into and out of Level 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation, including the requirement to provide fair value measurement disclosures for each class of assets and liabilities, and about inputs and valuation techniques used to measure fair value. The additional Level 3 disclosures are effective for fiscal years beginning after December 15, 2010. Adoption of the Level 3 disclosures is not expected to have a significant impact on our financial condition, results of operations or cash flows.

• In July 2010, the FASB issued amendments to ASC 310-10, “Receivables-Overall.” The amendments significantly increase disclosures about the credit quality of loans and the allowance for credit losses to give financial statement users greater transparency about entities’ credit risk exposures. The amendments require an entity to disaggregate existing and provide new disclosures for the allowance for credit losses, impaired loans and troubled debt restructurings. For public entities, the disclosures required as of the balance sheet date are effective for interim or annual reporting periods ending on or after December 15, 2010, and the disclosures required for activity during the period are effective for interim or annual reporting periods beginning on or after December 15, 2010. For nonpublic entities, all disclosures are effective for annual reporting periods ending on or after December 15, 2011. We are evaluating the impact of adoption of the new guidance on our disclosures in the financial statements.

Use of Non-GAAP Financial Measures

Our accounting and reporting policies conform to GAAP in the United States and the prevailing practices in the banking industry. However, due to certain items recorded in connection with the Merrill Lynch and Bank of America acquisitions and the Transaction, certain non-GAAP ratios were used by management to evaluate our performance.

92 As a result of the Merrill Lynch acquisition, we recorded $50.8 million of merger-related costs, including $33.7 million for the cost of stock-based compensation that had accelerated vesting and $17.1 million for transaction costs. We also recorded gains on the sale of our investment securities of $20.4 million as we liquidated the investment portfolio. In addition, we incurred a loss of $28.0 million due to the impairment of goodwill and the sale of an investment advisory subsidiary. In connection with the reestablishment of First Republic as an independent institution, we recorded $13.8 million of divestiture-related costs. We do not view any of these actions as indicative of our ongoing operating results.

In addition, our net interest margin and efficiency ratio were significantly impacted by accretion and amortization of the fair value adjustments recorded in purchase accounting in the Merrill Lynch acquisition in September 2007 and then when Bank of America acquired Merrill Lynch in January 2009 and the Transaction on July 1, 2010. The subsequent accretion and amortization impacted our operating ratios as we accreted loan discounts to interest income; unfunded commitments to noninterest income; amortized premiums on liabilities such as FHLB advances, subordinated debt and CDs to interest expense; and amortized intangible assets created in the Merrill Lynch acquisition and the Transaction to noninterest expense. In addition, the 2007 and 2010 efficiency ratio was significantly impacted by the non-recurring items in our results of operations discussed above.

A reconciliation of net interest margin and the efficiency ratio is presented below:

Three Months Ended Nine Months Ended Year Ended Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30, Dec. 31, Dec. 26, Dec. 28, Net interest margin 2010 2009 2010 2010 2009 2009 2008 2007 ($ in thousands) Net interest income ...... $236,240 $241,595 $198,153 $649,479 $ 703,153 $ 956,945 $504,847 $353,424 Less: Accretion / amortization ...... (58,166) (70,911) (14,066) (96,336) (226,713) (293,267) (33,775) (6,808) Adjusted net interest income (non-GAAP) . . . $178,074 $170,684 $184,087 $553,143 $ 476,440 $ 663,678 $471,072 $346,616 ($ in millions) Average interest-earning assets ...... $ 20,704 $ 18,076 $ 18,524 $ 19,325 $ 17,445 $ 17,712 $ 15,292 $ 11,801 Add: Purchase accounting adjustments ...... 746 957 698 772 1,030 1,002 73 1 Adjusted average earning assets ...... $ 21,450 $ 19,033 $ 19,222 $ 20,097 $ 18,475 $ 18,714 $ 15,365 $ 11,802 Net interest margin— reported ...... 4.54% 5.38% 4.29% 4.46% 5.37% 5.40% 3.30% 3.12% Adjusted net interest margin (non-GAAP) . . . 3.31% 3.61% 3.84% 3.66% 3.44% 3.55% 3.07% 3.06%

93 Three Months Ended Nine Months Ended Year Ended Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30, Dec. 31, Dec. 26, Dec. 28, Efficiency ratio 2010 2009 2010 2010 2009 2009 2008 2007 ($ in thousands) Net interest income ...... $236,240 $241,595 $198,153 $649,479 $ 703,153 $ 956,945 $504,847 $353,424 Less: Accretion / amortization ...... (58,166) (70,911) (14,066) (96,336) (226,713) (293,267) (33,775) (6,808) Adjusted net interest income (non-GAAP) ...... $178,074 $170,684 $184,087 553,143 $ 476,440 $ 663,678 $471,072 $346,616 Noninterest income ...... $ 19,028 $ 28,813 $ 25,141 $ 68,486 $ 84,659 $ 115,573 $ 89,292 $112,881 Less: Accretion of unfunded loan commitments ...... — (7,083) (5,290) (8,220) (21,283) (26,641) — (20,428) Adjusted noninterest income (non-GAAP) ...... $ 19,028 $ 21,730 $ 19,851 $ 60,266 $ 63,376 $ 88,932 $ 89,292 $ 92,453 Total revenue ...... $255,268 $270,408 $223,294 $717,965 $ 787,812 $1,072,518 $594,139 $466,305 Total revenue (non-GAAP) . . . $197,102 $192,414 $203,938 $613,409 $ 539,816 $ 752,610 $560,364 $439,069 Noninterest expense ...... $136,203 $ 99,021 $114,112 $353,167 $ 313,062 $ 417,278 $442,438 $433,082 Less: Merger related costs .... ——————— (50,833) Loss related to investment advisory subsidiary .... ——————— (27,951) Divestiture-related costs ...... (13,768) — — (13,768) — — — — Intangible amortization . . . (6,230) — — (6,230) — — (42,271) (13,527) Adjusted noninterest expense (non-GAAP) ...... $116,205 $ 99,021 $114,112 $333,169 $ 313,062 $ 417,278 $400,167 $340,771 Efficiency ratio ...... 53.4% 36.6% 51.1% 49.2% 39.7% 38.9% 74.5% 92.9% Efficiency ratio (non-GAAP) ...... 59.0% 51.5% 56.0% 54.3% 58.0% 55.4% 71.4% 77.6%

We believe these non-GAAP ratios, when taken together with the corresponding GAAP ratios, provide meaningful supplemental information regarding our performance by excluding certain items as shown above. Our management uses, and believes that investors benefit from referring to, these non-GAAP ratios in assessing our operating results and related trends, when planning, forecasting and analyzing future periods. However, these non-GAAP ratios should be considered in addition to, not as a substitute for or preferable to, ratios prepared in accordance with GAAP.

Critical Accounting Policies and the Impact of Accounting 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 accounting principles generally accepted in the United States. 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 disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to allowance for loan losses, credit risks, estimated loan lives, interest rate risk, investments, intangible assets, income taxes, contingencies, litigation and other operational risks. 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. Actual results may differ from these estimates under different assumptions or conditions.

94 Allowance for Loan Losses

We consider the accounting policy for allowance for loan losses to be a critical accounting policy because it is a complex process involving difficult and subjective judgments, assumptions and estimates. The allowance for loan losses is an estimate that can change under different assumptions and conditions. We estimate credit losses resulting from the inability of our clients to make required payments. If the financial condition of our borrowers were to deteriorate, resulting in an impairment of their ability to make payments, or the value of collateral securing mortgage loans were to decline, an increase in the allowance may be required. A significant decline in the credit quality of our loan portfolio requiring an increase in our allowance for loan losses would have a material adverse effect on our financial condition, results of operations and cash flows.

Life of Loans and Repayment Speed

Other significant estimates required in the preparation of our financial statements include the life of loans or the rate of principal repayment of loans and loans sold to investors. The life of a loan affects the amortization of deferred loan origination fees and costs, the accretion of loan discounts recorded in purchase accounting and the valuation of MSRs. An increase in the prepayment speed requires us to accelerate the recognition of deferred loan origination fees and costs and loan discounts established on July 1, 2010 in connection with the Transaction while a decrease in the prepayment speed requires us to recognize these amounts over a longer period. In addition, from January 1, 2009 through June 30, 2010, if our projected prepayments utilized to recognize accretion of loan discounts are different than actual prepayments, or projected prepayment speeds are adjusted, we were required to record a cumulative adjustment to increase or decrease our net interest income for the differences between projected and actual prepayments. When loans serviced for others prepay more rapidly than projected, we may be required to record an impairment provision on our MSRs or a reduction in the fair value of MSRs.

In 2007, 2008 and beginning on July 1, 2010, we performed quarterly assessments of the fair value of MSRs and provided for impairment allowances whenever the fair value of a specific group of loans fell below its net book value. Beginning on January 1, 2009 and continuing through June 30, 2010, as a result of the Bank of America acquisition, we elected to account for MSRs at fair value, consistent with the Bank of America policy, with changes in fair value recorded in our income statement for that period. Due to the number and significance of the estimates and assumptions required in accounting for these financial instruments and the volatility in interest rates and the mortgage markets, future revisions of these estimates are anticipated.

Accounting for Business Combinations

We also consider accounting for business combinations to be a critical accounting policy. Our assets and liabilities were remeasured in connection with the Merrill Lynch acquisition on September 21, 2007, on January 1, 2009 in connection with the Bank of America acquisition, and on July 1, 2010 in connection with the Transaction. At each acquisition date, our assets and liabilities were recorded at their estimated fair values. The most significant estimate of fair value recorded in the acquisitions was reflected in loans held on the balance sheet. On January 1, 2009 and July 1, 2010, following the guidance in ASC 805-10, “Business Combinations,” the allowance for loan losses became part of the carrying value of the loans. The majority of the resulting loan discount established at the date of acquisition is accreted into income over the lives of the loans (consistent with the guidance in ASC 310-20, “Nonrefundable Fees and Other Costs”).

95 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk Management Framework

We seek to measure and manage the potential impact of changes in interest rates on our net interest income, known as interest rate risk. Interest rate risk occurs when interest-earning assets and interest-bearing liabilities mature or reprice at different times, on a different basis or in unequal amounts. The Board approves policies and limits governing the management of interest rate risk, also known as asset liability management (“ALM”), at least annually. Our Asset/Liability Committee (“ALCO”) and Investment Committee further establish risk management guidelines and procedures with the broader policies and limits established by the Board. Compliance with these policies and limits is reported to the Board on an ongoing basis and decisions relating to the management of interest rate risk are made as needed. We utilize a variety of interest rate risk management tools including repricing gap analysis and net interest income simulation.

Typically, we have managed interest rate risk by originating and retaining adjustable rate loans and hybrid ARM loans with initial short or intermediate term fixed rates and match funding these assets with liquid deposit accounts, short and intermediate term CDs and fixed and adjustable rate FHLB advances. As an active and ongoing part of our ALM strategy, we have regularly sold most of our long-term fixed rate single family mortgage loan originations and a portion of our single family hybrid ARM loan originations into the secondary market through ongoing, or “flow,” transactions. We have also historically sold a portion of our single family adjustable rate and hybrid ARM loan originations in bulk loan transactions or securitizations. Aggregate loan sales in 2009 were $515.7 million, compared with $309.1 million in 2008 and $787.7 million in 2007. Loan sales for the nine months ended September 30, 2010 were $341.8 million compared to $414.8 million for the nine months ended September 30, 2009. During 2010, 2009 and 2008, the secondary loan market for non-agency loans was very illiquid due to economic conditions and, as a result, we have retained on our balance sheet nearly all single family hybrid ARM loans originated during that time.

Since the closing of the Transaction, we have borrowed from the FHLB on a long-term basis and entered into interest rate swaps to reduce our interest rate risk. The impact of these actions is expected to reduce our net interest margin somewhat from the historically high levels of the past year. Further declines in the yield curve or a decline in longer-term yields relative to short-term yields (a flatter yield curve) would have an adverse impact on our net interest margin and net interest income.

Historical Interest Rate Risk Management

Over the last three years, since we became a division of MLFSB and BANA, interest rates have declined and the yield curve has steepened significantly. From September 21, 2007 to September 30, 2010, short-term interest rates dropped approximately 450 basis points while longer-term rates, such as 10-year treasuries, dropped by approximately 200 basis points. This decline in short-term interest rates and the steepening of the yield curve has led to an increase in our net interest margin, as deposit and other funding costs tied to the short-end of the yield curve have declined faster than loan yields. Additionally, between September 21, 2007 and June 30, 2010, any funding needs for First Republic for loan growth and operations beyond that supplied by deposits were provided by our Parent company on an overnight basis. Overall asset and liability management, including any extension of liabilities to better match fund hybrid ARM originations such as those made by First Republic, were generally handled by our Parent company during that period, and any such liabilities (and their associated interest expense) were not reflected in our balance sheet or in our net interest margin.

Our net interest margin is also affected by the mix of earning assets and costing deposits, primarily deposits. At September 30, 2010 and at fiscal year ends 2009, 2008 and 2007, loans and investment securities with remaining fixed rate terms greater than one year comprised 55%, 60%, 60% and 45% of total earning assets respectively. Among remaining earning assets with reset periods of less than one year, those that reprice at least quarterly to market rate indices, such as Prime or LIBOR, totaled 34%, 28%, 28% and 42% of earning assets for

96 the same respective period ends. Those earning assets with lagging indices, such as COFI and the 12-month Treasury Average (“MTA”) totaled 11%, 12%, 12% and 13% of earning assets for the same respective period ends.

The changes in rates paid on money market savings, money market checking and passbook deposit accounts generally move with changes in short-term market rates. At September 30, 2010 and at fiscal year ends 2009, 2008 and 2007, money market savings, money market checking and passbook deposit accounts comprised 41%, 33%, 36% and 45% of total deposits, respectively. Total checking deposits includes both noninterest- bearing accounts and NOW accounts, which bear only a nominal interest rate that has tended not to fluctuate much with changes in interest rates historically. Total checking deposits comprised 27%, 32%, 27% and 28% of total deposits for the same respective period ends. CDs comprised 32%, 35%, 37% and 27% of total deposits for the same respective period ends. CDs had a weighted average remaining maturity of 15.0 months at September 30, 2010.

We may also from time to time enter into various types of interest rate exchange agreements such as interest rate swaps, caps or floors to better match the interest rate sensitivity of assets and liabilities so that changes in interest rates do not have a significant negative impact on net income, net interest margin and cash flows. At fiscal year ends 2009, 2008 and 2007, however, we had not entered into any such interest rate exchange agreements. During the quarter ended September 30, 2010, we entered into interest rate swaps with a notional amount of $500 million to effectively fix the interest rate paid on a portion of our variable rate deposit liabilities.

In addition to the mix and pricing of earning assets and costing liabilities, our net interest margin is also affected by factors such as competition, conditions in loan markets, general interest rate trends including the steepness of the yield curve, repayment rates, the cost of FHLB advances and the level of our nonaccrual assets. Our net interest margin is also affected by its overall business model, in which we offer single family home mortgages as our primary loan product and which generally carry lower margins.

There is also interest rate risk inherent in the estimated fair value of our MSRs. Movements in interest rates affect the servicing fees from MSRs, which are recorded in noninterest income as opposed to net interest income. In a decreasing interest rate environment, fixed rate loans in the servicing portfolio tend to repay more rapidly, which reduces current and future servicing income and generally reduces the value of MSRs. In an increasing interest rate environment, prepayments tend to decrease, which increases expected future servicing income and enhances the fair value of MSRs.

Evaluation of Current Interest Rate Risk

We utilize repricing and maturity gap analysis and earnings simulations to measure and evaluate our potential exposure to changes in interest rates. Based on the results of such analyses, we may decide to make changes in our asset-liability mix, to draw down advances with the FHLB, or to enter into interest rate exchange agreements to better protect ourselves against potential adverse effects from changes in interest rates.

Gap Analysis. Management measures and evaluates the potential effects of interest rate movements on earnings through an interest rate sensitivity “gap” analysis. The repricing and maturity gap measures the extent to which our assets and liabilities reprice or mature at different times, including the impact of any existing interest rate exchange agreements. The gap analysis reflects contractual repricings and maturities of principal cash flows, adjusted for items such as estimated prepayments on loans and investments, the estimated impact of adjustable rate loans at or beneath their contractual floors, and repricing sensitivity of deposits. The Board has established limits on the permitted amount of cumulative gap expressed as a percentage of total assets.

As of December 31, 2009, and prior to the Transaction, we had a negative two-year cumulative gap of approximately 18% of total assets. A negative cumulative gap generally indicates that a bank is liability sensitive, meaning its liabilities will reprice faster than its assets given a change in interest rates. Our negative two-year cumulative gap at December 31, 2009 was attributable in large part to our inability to implement certain ALM

97 strategies due to being part of BANA (and MLFSB) such as drawing fixed rate advances from the FHLB to match fund or otherwise hedge our intermediate fixed rate loans. Also contributing to our negative two-year cumulative gap was the continuing maturity of existing FHLB advances as well as demand for hybrid ARMs with initial intermediate fixed rate terms.

As of September 30, 2010, our two-year cumulative gap was a positive 1.6% of total assets, indicating we had achieved an asset-liability position that was approximately neutral to changes in interest rates. The following table presents the interest rate gap analysis of our assets and liabilities at September 30, 2010.

12 Months >5 Years and Not ($ in millions) or Less >1 to 2 Years >2 to 5 Years Rate Sensitive Total Repricing and Maturing Term Assets: Cash and investments ...... $2,324 $ 15 $ — $ 646 $ 2,985 Loans, net (1), (2) ...... 7,403 2,192 6,368 1,892 17,855 Other assets ...... 28 — 376 710 1,114 Total assets ...... 9,755 2,207 6,744 3,248 21,954 Liabilities and Equity: Checking (3) ...... 1,595 — — 3,530 5,125 Other liquid deposits (3) ...... 4,916 — 500 2,280 7,696 CDs ...... 2,959 2,085 985 115 6,144 FHLB advances ...... — — 200 400 600 Subordinated notes ...... — 64 — 5 69 Other liabilities ...... — — — 299 299 Equity before noncontrolling interests . . — — — 1,934 1,934 Noncontrolling interests ...... — — — 87 87 Total liabilities and equity ...... 9,470 2,149 1,685 8,650 21,954 Repricing gap-positive (negative) ...... $ 285 $ 58 $5,059 $(5,402) Cumulative repricing gap: Dollar amount ...... $ 285 $ 343 $5,402 Percent of total assets ...... 1.3% 1.6% 24.6% (1) Adjustable rate loans consist principally of real estate secured loans with a maximum term of 30 years. Such loans are generally adjustable monthly, semiannually, or annually based upon changes in the LIBOR, Prime rate, COFI, CMT, or the 12-MAT, subject generally to a maximum increase of 2% annually and over the lifetime of the loan. (2) Includes loans held for sale. (3) All checking, passbook and MMA accounts are contractually subject to immediate adjustment or withdrawal. Noninterest-bearing demand deposits are classified as not rate sensitive and NOW checking deposits are observed to have stable, longer-lived balances.

We reduced our two-year cumulative gap following the Transaction by entering into a series of longer- term fixed-rate advances with the FHLB and by entering into two interest rate swaps which effectively fixed the interest rate paid on a portion of our variable rate liabilities. Although we believe we have reduced our current exposure to changes in interest rates through these actions, we may decide to take further action depending on subsequent growth rates and mix of loans and deposits, additional loan repayments and purchases of investment securities and other assets.

The gap results presented could vary substantially if different assumptions were to be used or if actual experience were to differ from the assumptions used in the preparation of the gap analysis. Furthermore, the gap analysis provides a static view of interest rate risk exposure at a specific point in time and offers only an approximate estimate of the relative sensitivity of assets and liabilities to changes in market rates, the impact of

98 certain optionalities embedded in our balance sheet such as contractual caps and floors, and trends in asset and liability growth. Accordingly, we combine the use of gap analysis with the use of an earnings simulation model that provides a dynamic assessment of interest rate sensitivity.

Net Interest Income Simulation. We use a simulation model to measure and evaluate potential changes in our net interest income resulting from various hypothetical interest rate scenarios at least quarterly. Our earnings 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 of changes in interest rates, (2) shifts or rotations in the yield curve, (3) repricing characteristics for market rate sensitive instruments on and off the balance sheet, (4) differing sensitivities of financial instruments due to differing underlying rate indices, (5) varying loan prepayment speeds for different interest rate scenarios, (6) the effect of interest rate floors, periodic loan caps and life time loan caps, and (7) overall growth rates and product mix of assets and liabilities. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate ALM strategies.

Potential changes to our net interest income between a flat rate scenario and a hypothetical rising and declining rate scenarios, measured over a two-year period beginning September 30, 2010, are presented in the following table. The projections assume both (a) parallel shifts upward and downward of the yield curve of 100 and 200 basis points occurring immediately and (b) parallel shifts upward and downward of the yield curve in even increments over the first twelve months, followed by rates held constant thereafter. We would note that in a downward parallel shift of the yield curve, interest rates at the short-end of the yield curve are not modeled to decline any further than 0%.

Estimated Increase (Decrease) in Net Interest Income Twelve months ending Twelve months ending Change in Market Interest Rates September 30, 2011 September 30, 2012 + 200 basis points immediately ...... 2.2% 1.9% + 100 basis points immediately ...... 0.4% 0.2% – 100 basis points immediately ...... -1.9% -3.8% – 200 basis points immediately ...... -3.2% -6.1% + 200 basis points over next 12 months ...... -0.6% 0.3% + 100 basis points over next 12 months ...... -0.5% -0.4% – 100 basis points over next 12 months ...... -0.3% -2.1% – 200 basis points over next 12 months ...... -0.9% -3.7%

The simulation results indicate a mildly asset sensitive position over the next two years, as we benefit in a hypothetical rising rate environment from recent actual increases in longer-term fixed-rate funding and interest rate swaps. We also benefit in such a hypothetical scenario from certain adjustable rate loans, currently at or beneath their contractual floors, which would begin to reprice upward given an increase in interest rates. In a hypothetical declining rate environment in which interest rates drop even lower than their historic lows, we experience a reduction in net interest income as variable funding sources, such as money market savings and checking deposits, reach natural floors while average yields on interest-earning assets continue to decline.

The results of this earnings simulation analysis are purely 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 that projected, our net interest income might vary significantly. Non-parallel yield curve shifts or changes in interest rate spreads would also cause our net interest income to be different from that projected. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities reprice faster than expected or faster than our assets reprice. Actual results could differ from those projected if we grow assets and liabilities faster or slower than estimated, or otherwise changes its

99 mix of products. Actual results could also differ from those projected if we experience substantially different repayment speeds in our loan portfolio than those assumed in the simulation model. Furthermore, the results do not take into account the impact of changes in loan prepayment rates on loan discount accretion. If prepayment rates were to increase on our loans, we would recognize any remaining loan discounts into interest income. This would result in a current period offset to declining net interest income caused by higher coupon loans prepaying.

Finally, these simulation results do not contemplate all the actions that we may undertake in response to changes in interest rates, such as changes to our loan, investment, deposit, funding or hedging strategies.

100 BUSINESS General Founded in 1985, we are a California-chartered, FDIC-insured commercial bank and trust company headquartered in San Francisco. We specialize in providing personalized, relationship-based Preferred Banking, preferred business banking, real estate lending, trust and wealth management services to clients in metropolitan areas throughout the United States. As of September 30, 2010, we had total assets of $22.0 billion, total deposits of $19.0 billion, total equity of $2.0 billion and wealth management assets of $17.2 billion. Based on publicly available information, as of September 30, 2010 we were the 44th largest banking organization in the United States measured by total deposits. First Republic has been profitable consistently for 25 years since its founding in 1985. We believe we have been able to significantly expand and strengthen our franchise without sacrificing the high credit quality of our loan portfolio. Since the end of 2006, just prior to the announcement of our sale to Merrill Lynch, we have grown our loans and deposits at an annual rate of 24% and 22%, respectively. Over the same period since the end of 2006, our average net charge-offs as a percentage of average loans was 0.22% per year. Our nonperforming assets, currently 0.07% of total assets, have not exceeded 2% of total assets for any reporting period in the last 10 years, which is well below banking industry averages. As a result of our strong brand, our focus on deep client relationships and prudent underwriting, we have remained profitable consistently for 25 years, including each of the past three years as well as the nine months ended September 30, 2010, as we went through several changes in ownership. We believe we have successfully developed our Preferred Banking business by adhering to a set of guiding service principles and a long-term disciplined perspective that emphasizes a consistent focus on originating high quality assets and deep client relationships, developing a strong, stable deposit base and creating a culture of dedicated, responsive and carefully coordinated client service. We adhere to the same principles in our business banking and strive to provide personalized, professional and responsive banking services to businesses as we provide to our private clients. We believe this has allowed us to significantly develop our business by cross-selling products and services to our existing customers and by steadily attracting new customers. We also strive to protect our clients’ financial security and privacy and to assist our communities through socially responsible leadership. We have maintained an experienced and consistent management team. Mr. James H. Herbert II, founding Chief Executive Officer in February 1985 and currently Chairman and Chief Executive Officer, and Ms. Katherine August-deWilde, our President and Chief Operating Officer who joined in July 1985 as Chief Financial Officer, have overseen the growth and expansion of First Republic for 25 years. This predominately organic growth has resulted in $22 billion in bank assets and $17 billion of wealth management assets today. From the merger with Merrill Lynch on September 21, 2007 until June 30, 2010, First Republic operated as a separate division of initially Merrill Lynch and, following Merrill Lynch’s acquisition by Bank of America on January 1, 2009, of Bank of America. Throughout these mergers, we maintained our own identity and operated our own client-interactive technology systems and office network. The vast majority of clients experienced no conversion of their accounts. Management at all levels remained intact during this period and directed the 25% and 22% per year rate of growth experienced in total loans and deposits, respectively. Following a management-led buy-out, effective upon the close of business on June 30, 2010, First Republic was reestablished as an independent business entity. From our founding through our changes in ownership, we believe we have maintained the strength of our brand, a strong market presence and a distinct client-service culture. We provide our services through 61 offices, of which 56 are Preferred Banking offices in 8 metropolitan areas: San Francisco, Los Angeles, Santa Barbara, Newport Beach, San Diego, New York City, Boston and Portland (Oregon), with an additional 5 offices in Santa Barbara, Honolulu, Seattle, Salem (New Hampshire) and Las Vegas that offer exclusively lending, wealth management or trust services. Over 71% of our loans outstanding are in California as of September 30, 2010, and we have been continuously headquartered in San Francisco since inception in 1985.

101 We originate real estate-secured loans and other loans for retention in our loan portfolio, and historically have originated 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 Community Reinvestment Act (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 consistently with prudent underwriting practices. We also donate to organizations in our communities that serve small businesses or low- and moderate-income communities or individuals that offer educational and health programs to economically disadvantaged students and families.

We also offer a broad array of internally managed investment products and, through an open architecture model, access to investments managed by unaffiliated advisors. Our wealth management services include a variety of investment strategies and products, 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 and foreign exchange. We offer our wealth management services through FRIM. We also offer brokerage services through FRSC.

We provide trust services through the First Republic Trust Company division of the Bank, which had approximately $4.6 billion in assets under administration or management as of September 30, 2010.

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.

Our Competitive Strengths

We believe that our success is attributable to the following competitive strengths:

Attractive Geographical Footprint. We operate our business in primarily coastal, metropolitan areas that contain a disproportionately large share of higher net worth individuals, defined as households with $1 million or more in investable assets. Our primary markets contain only 20% of all U.S. households but contain approximately 53% of U.S. households with at least $1 million of investable assets. In addition, the markets in which we operate have diversified economies that are most responsive to high touch banking, lending and wealth management services. We believe our distinct business model will enable us to continue to expand our high net worth client base in these very attractive markets.

Strong Brand and Reputation in our Markets. We believe our strong brand and market reputation have become key drivers of our growth. We built our brand on what we believe are coordinated and consistent sales and service and a responsive, client friendly culture that permeates our organization. We have successfully developed our banking business and products through consistent focus on client service, with the majority of our new clients being referred to us by satisfied existing clients. We believe that our brand, our service culture and the customer loyalty we have created have resulted in our ability to significantly and safely grow our client base, effectively cross-sell our services and attract and retain high quality employees. We also believe the strength of our brand allowed us to increase the number of high net worth households we serve from 2007 to 2009 by 35%. At the end of 2009, our overall market share of such households in our six key markets was 4.3%. In our home market of San Francisco, we have achieved a 15.6% penetration of such households.

Superior Credit Quality. We have always focused on originating high quality loans for our clients. We strive to underwrite the client relationship and not just the credit, allowing us to originate higher-quality assets, which we believe generate more predictable and more stable returns on a risk-adjusted basis. From 1985 through September 30, 2010, we have incurred cumulative net losses of only 24 basis points on total loan originations of

102 approximately $62 billion. In our core home lending business, we originate only prime, fully documented loans with conservative loan-to-value ratios (average at origination of 58% as of September 30, 2010), and we have incurred cumulative net losses of only 5 basis points on total originations of $42 billion since 1985, including loans sold to investors. We retain servicing on all loans sold to investors.

In April 2010, Bank of America retained approximately $2.1 billion of loans originated by the First Republic division. This amount included almost all of our nonperforming loans and real estate owned, which totaled $378.4 million at the time. Our nonperforming assets remained under 2% of our total assets at each quarter end during the past five years and were less than 0.10% of total assets at September 30, 2010.

Growing and Stable Core Deposit Base. A significant driver of our franchise is the growth and stability of our checking and savings deposits, which we use to fund our loans and balance sheet. We have not generally accepted brokered deposits. At September 30, 2010, our total deposits were $19.0 billion, 78% of which were core deposits (defined as total deposits excluding CDs over $100,000). Since December 31, 1999, we have grown total deposits at a compound annual growth rate of 22.5%, primarily driven by the growth in savings and checking accounts, which have grown at a compound annual rate of 25.2% over the same period. We seek to cross-sell deposit products at loan origination, which provide a basis for expanding our banking relationships and a stable source of funding. Business banking also allows us to raise lower-cost deposits.

High Quality Professionals. We believe that another driver of our growth and a differentiator of our business model is our team of high quality and experienced relationship managers and other sales professionals. We have a team of over 200 client-facing professionals, including relationship managers, preferred bankers, office managers and wealth management professionals. These employees have proven client service skills and deep experience developed in the banking industry. Our relationship managers understand how to evaluate credit and manage our client relationships. Since 1986, our compensation program for our relationship managers has included meaningful, loan-delinquency related clawback provisions. We believe that these programs and our credit culture and policies focus our professionals on high quality credit and align the interest of our client interface team with those of the client and the Bank.

Experienced Leadership and Consistent Management Team. Mr. Herbert founded First Republic as Chief Executive Officer in February 1985, and he and Ms. August-deWilde, who joined as Chief Financial Officer in 1985, have worked together since. Our management team of 34 senior officers has an average tenure of 12 years with First Republic and an average experience of 28 years in banking or related fields. Specifically, our Chief Credit Officer, Mr. David B. Lichtman, our Chief Financial Officer, Mr. Willis H. Newton, Jr., and our General Counsel, Mr. Edward J. Dobranski, have been with First Republic since 1986, 1988 and 1992, respectively. Despite changes in our ownership structure over the past three years, we have retained every key member of our management team. In addition, a majority of our board of directors have been members for six or more years. These executives and our board of directors have guided us successfully through various industry cycles, economic conditions and ownership structures while we remained consistently profitable for 25 years.

Our Business Strategy

Our core business principles and service based culture have successfully guided our efforts over the past 25 years. We believe focusing on these principles will enable us to expand our capabilities for providing value- added services to a targeted high net worth client base and generate steady, long-term growth.

Originate High Quality Relationships. We do not seek growth per se. Rather, we believe that stable long-term growth and profitability are the result of building strong customer relationships one at a time while maintaining superior credit discipline. We remain committed to expanding our business in a disciplined manner. We intend to continue to focus on underwriting and originating high quality loans and expanding our wealth management business in a prudent and disciplined manner. We believe that successfully focusing on these factors will allow us to continue to achieve long-term and profitable expansion within our current markets.

103 Deliver Superior Client Service. We believe the best way to develop our business is through the continued delivery of superior, carefully coordinated client service without compromising the credit quality of our assets. Our client focused culture has resulted in the vast majority of our new clients coming to us from “word of mouth” referrals from satisfied existing clients. Our employees strive to build deep, long-term relationships with clients and understand their clients’ needs by identifying appropriate financial solutions and coordinating with our banking specialists and wealth management experts to deliver our products and services. We believe that delivering superior client service differentiates us from our competition.

Attract and Retain High Quality Service Professionals. Having successful and high quality service and sales professionals is critical to driving the development of our business and delivering superior financial performance. We have experienced low turnover in our client service personnel and intend to continue hiring and developing professionals who can establish and maintain long-term customer relationships that are the key to our business, brand and culture. We believe our distinct business model, culture, scalable platform and incentive compensation structure enable us to attract and retain high quality service professionals.

Cross-Sell Products and Services. During the first nine months of 2010, we sold an average of 9 products per new home loan, and we intend to continue to cross-sell products and value-added services to future clients. We believe that our brand name, superior client service and service culture will continue to enable us to broaden our client relationships and foster continued growth in the products and services we offer them. We typically attract new loan clients with our mortgage loan products and services, providing an opportunity for our relationship managers to cross-sell other products and services to these clients. In addition, we offer our expertise and targeted service offerings for a variety of small- to medium-sized businesses and non-profit organizations. We believe that enhancing our cross-selling capabilities will enable us to generate higher revenues, increase our deposits and diversify our income stream.

Grow Our Wealth Management Business. We view our wealth management business as an opportunity for continued growth. We intend to continue to expand our wealth management business by hiring additional professionals and using our cross-selling expertise to increase our assets under management. We offer integrated investment advisory, trust and brokerage services, which are an extension of our banking franchise. We believe that our brand name, superior client service and service culture will enable us to expand this business and diversify our income stream.

Grow Core Deposits. Since 1997, when we converted to full-service banking, we have focused on creating and growing a stable, high quality, less expensive core deposit base. Our ability to grow core deposits has enabled us to minimize our reliance on wholesale funding, thereby resulting in a lower cost and more stable funding base. Since December 31, 1999, our checking and savings deposits have grown at a compound annual rate of 25.2% due to the efforts of our relationship managers, office network and Preferred Banking personnel. Our Preferred Banking offices attract and serve individuals who may not need our loan products; we believe our service encourages them to build a full deposit relationship with us and loan and wealth management relationships. Our relationship managers have successfully learned how to offer full deposit products to their loan clients and build long-term relationships. Our business banking is a key source of such deposits and, more recently, we have begun to attract core deposits from our wealth management clients as well.

Market Penetration

In 2010, we completed our fourth biennial market sizing and penetration study in collaboration with Capgemini Consulting (“Capgemini”), authors of the annual World Wealth Report. In the course of this analysis, we and Capgemini estimated the number of high net worth households served by us as well as market penetration in our key markets. Capgemini defines high net worth households as those households with at least $1 million of investable assets, excluding the value of a household’s primary residence.

We operate in six key high net worth markets: New York, Los Angeles (which includes Santa Barbara and Newport Beach), San Francisco, Boston, San Diego and Portland (Oregon). Despite the economic turmoil

104 over the past two years, these markets have recovered relatively well with an even higher concentration and average wealth level of high net worth households than U.S. averages. Our six key markets contain only 20% of all U.S. households but contain approximately 53% of the high net worth U.S. households (up from 48% two years earlier).

From 2007 through 2009, we successfully increased the total number of high net worth household clients we serve by over 11,000, or 35%. Our penetration of high net worth households in our key markets has increased in each of the four studies performed since 2003. First Republic serves 4.3% of all high net worth households in our markets at the end of 2009, as shown in the chart to the right below. In our home market of San Francisco where we have been operating for 25 years, we have achieved a 15.6% penetration of high net worth households.

% of Total U.S. HHs / U.S. HNW HHs FRB Penetration of HNW HHs in Its Markets (%)

6.0%

100%

20% 24 M of U.S. 5.0% HHs 4.3% 75% 1011 K 53% of HNW 4.0% HHs 3.5% 3.2% 3.0% 3.0% 50%

95 M 2.0%

25% 905 K

1.0%

0% 0.0% Total U.S. HHs +$1M HHs 2003 2005 2007 2009 Rest of U.S. FRB Markets

Percentage of total U.S. households (“HH”) and U.S. First Republic’s penetration of high net worth high net worth households (“HNW HH”) in First households in its key markets Republic’s markets

Source: Capgemini Consulting Studies

Deposits

An important aspect of our business franchise is the ability to gather deposits. As of September 30, 2010, we held $19.0 billion of total deposits. We have grown deposits at a compounded annual growth rate of 22.5% since December 31, 1999, and 21.9% since June 30, 2007, the date of our last public filing prior to our acquisition by Merrill Lynch. Based on publicly available information, as of September 30, 2010 we were the 44th largest banking organization in the United States measured by total deposits. The following graph shows our deposits as of year end for each of the past five years and as of September 30, 2010.

105 Deposits as of Year End for Each of the Past Five Years and as of September 30, 2010

Compounded Annual Growth Rate of 23% $20,000 $18,965

$18,000 $17,182

$16,000

$14,000 $12,312 $12,000 $11,051

$10,000 $8,921

$8,000

($ in millions) in ($ $7,019

$6,000

$4,000

$2,000

$0 12/31/05 12/31/06 12/28/07 12/26/08 12/31/09 9/30/10

As of September 30, 2010, our deposit base consists of $5.1 billion, or 27%, of checking deposits, $7.7 billion, or 41%, of other liquid deposits such as money market checking, savings and passbook deposits, and $6.1 billion, or 32%, of CDs. We have maintained a largely similar deposit mix historically. Of our total deposits for 2007, 2008 and 2009, checking deposits represented between 27% and 32% of total deposits, other liquid deposits represented between 33% and 45% and CDs represented between 27% and 37%. The graph below shows our checking deposits, CDs and other liquid deposits as a percentage of our total deposits, in each case as of September 30, 2010.

Checking Deposits, CDs and Other Liquid Deposits as a Percentage of Total Deposits

Checking CDs Deposits $6.1 billion $5.1 billion 32% 27%

Other Liquid Deposits $7.7 billion 41%

106 Our deposit base reflects our strategy of cross-selling deposits to loan clients, businesses and non-profit organizations through two primary channels: Preferred Banking offices (or branches), which are our retail locations that gather deposits, and deposits placed by clients who enter into deposit relationships directly with a relationship manager or preferred banker, which we refer to as Preferred Banking. We currently have 56 licensed deposit-taking offices in our office system. As of September 30, 2010, we held $8.9 billion of deposits associated with our Preferred Banking offices and $9.0 billion of deposits associated with our Preferred Banking.

Our Preferred Banking offices have been a strong source of deposit growth in both established and new locations. Our Preferred Banking offices are typically located in dense urban areas or supporting suburban areas and with a small footprint of approximately 3,500 square feet on average. Of our existing offices, nearly one third have total deposits over $200 million at September 30, 2010. Our offices that have been opened two years or more have grown total deposits at a compounded annual growth rate of 23.3% over the last 2 years.

Our Preferred Banking business also generates substantial deposits. We have ten Preferred Banking hub offices located in our key markets that primarily support the clients of our relationship managers. Our office system also supports these Preferred Banking clients with approximately 14% of office deposits attributed to clients of our relationship managers. Deposits associated with our Preferred Banking channel have grown at a compounded annual growth rate of 21.1% since December 31, 2004.

Our deposit base is also well diversified geographically and by client type. As of September 30, 2010, 49% of our total deposits came from Northern California, 17% from New York, 18% from Southern California, 8% from Boston and 8% from other regions. As of September 30, 2010, 55% of our checking and other liquid deposits came from consumer clients and 45% from business and non-profit clients.

Lending Activities

Products

We offer a broad range of lending products to meet the needs of our clients, including residential mortgage loans, commercial real estate loans, residential construction loans and small business loans. Our loan portfolio consists primarily of loans secured by single family residences, multifamily buildings and commercial real estate properties and commercial construction loans. Our strategy is to emphasize the origination of single family mortgage loans and to originate on a selective basis multifamily mortgages, commercial real estate mortgages, construction loans and other loans. We also originate personal loans, business loans and Eagle One lines of credit, which are smaller lines of credit to businesses.

Our strategy includes lending to borrowers who are successful professionals, business executives or entrepreneurs and who are buying or refinancing homes in metropolitan communities, thereby creating the opportunity to cross-sell other products and services. In 2009, our average product penetration for each new home loan client was 9.1 products. In the nine months ended September 30, 2010, we sold on average 9.0 products per new loan client.

107 The following table presents an analysis of the unpaid principal balance of our loan portfolio at September 30, 2010, excluding single family loans held for sale, by property type and major geographic location.

San New York Los San Other Francisco Metro Angeles Diego Boston California ($ in millions) Bay Area Area Area Area Area Areas Other Total % Single Family and HELOCs ...... $5,975 $2,730 $1,928 $394 $745 $252 $ 915 $12,939 70% Commercial real estate ..... 1,349 72 293 130 15 91 198 2,148 12% Multifamily ...... 1,355 80 115 208 17 22 62 1,859 10% Commercial business ...... 494 201 84 30 11 6 57 883 4% Construction ...... 130 38 66 40 4 — 15 293 2% Stock and other secured . . . . 75 61 18 — 12 — 31 197 1% Unsecured ...... 42 54 13 1 7 — 9 126 1% Total ...... $9,420 $3,236 $2,517 $803 $811 $371 $1,287 $18,445 100% % by location ...... 51% 18% 14% 4% 4% 2% 7% 100%

Single Family Residential. As of September 30, 2010, the outstanding balance (contractual amount) of single family real estate secured loans, including home equity loans, represented $12.9 billion, or 70%, of our loan portfolio, and interest-only, single family real estate loans outstanding represented $12.1 billion, or 66%, of our loan portfolio. Many of our borrowers have high liquidity and substantial net worth and are not first-time homebuyers. Additionally, we offer specific loan programs for first-time homebuyers and borrowers with low-to-moderate incomes. Our single family loans are secured by single family detached homes, condominiums, cooperative apartments and two-to-four unit properties.

Due to our larger than average loan size ($1.0 million at December 31, 2009), the number of single family loans originated by us is relatively small (approximately 3,900 for the year ended December 31, 2009), allowing our relationship managers and the executive management team to carefully underwrite and provide high quality service for each loan. Repeat clients or their direct referrals are the most important source of our loan originations.

We offer HELOCs consisting of loans secured by first or second deeds of trust on primarily owner- occupied primary residences. Most of these lines are in a secured position behind a first mortgage loan originated by us. As of September 30, 2010, the outstanding balance due under HELOCs was $1.7 billion, or 9% of our total loan portfolio, and the unused remaining balance was $1.9 billion. As of September 30, 2010, the average balance outstanding on HELOCs in our loan portfolio was approximately $270,000 with an average commitment size of approximately $561,000. Generally, these loans bear interest rates that vary with the prime rate. These lines have a 25-year maturity with interest-only payments for the first ten years and are fully-amortizing for the last 15 years.

Commercial Real Estate. The total amount of commercial real estate loans outstanding on September 30, 2010, was $2.1 billion, or 12% of our loan portfolio. Since 1986, we have originated 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 have originated a nominal amount of commercial real estate construction loans. The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as office buildings, smaller shopping centers, owner-user office/warehouses, residential hotels, motels, mixed-use residential/commercial and retail properties. At the time of loan closing, the properties are generally completed and occupied. For our commercial real estate loan portfolio as of September 30, 2010, the average commercial real estate loan size was approximately $1.8 million, and the weighted average LTV at origination was approximately 55%.

Multifamily. As of September 30, 2010, the outstanding balance of loans secured by multifamily properties totaled $1.9 billion, or 10% of our total loan portfolio. The loans are predominantly for established

108 buildings in the urban neighborhoods of San Francisco, Los Angeles and New York. 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. Typically, the borrowers are property owners who are experienced at managing these properties. We typically have recourse directly against the borrower on these loans and receive a personal guaranty from the borrower. For our multifamily loan portfolio as of September 30, 2010, the average multifamily mortgage loan size was approximately $1.6 million, and the weighted average LTV at origination was approximately 60%.

Commercial Business, Stock and Other Secured. As of September 30, 2010, we had outstanding business loans, stock secured loans, and loans secured by other collateral of $883 million, $31 million, and $166 million, respectively, or 4%, 0.2% and 0.9%, respectively, of total loans outstanding. There were additional undisbursed commitments of $1.1 billion related to these categories of loans. The business loan portfolio is comprised primarily of operating lines of credit to professionals and professional service firms, capital call lines to private equity and venture capital funds, and term loans to enable business clients to acquire capital equipment. Since 2004, we have originated smaller lines of credit to businesses and consumers, generally in amounts of up to $250,000. These “Eagle One” loans are made to meet the capital needs of small businesses. Such loans are either revolving lines of credit or generally 36-month term loans and are adjustable based on the prime rate and are personally guaranteed by the customer. As of September 30, 2010, we had outstanding Eagle One loans and lines of credit of $45 million and had undisbursed commitments of $66 million.

Construction. Our construction loan portfolio includes loans to individual clients for the construction and ownership of single family homes in our California and New York markets and, to a lesser extent, to construct other types of properties. These loans are typically disbursed as construction progresses, carry interest rates that vary with the prime rate and can be converted into a permanent mortgage loan once the property is occupied. As of September 30, 2010, the outstanding balance for this category of construction loans was $293 million, or 2% of total loans outstanding. We had undisbursed commitments of $160.1 million related to the entire construction loan portfolio. The average loan size for all construction loans was approximately $1.6 million, and the weighted average LTV at origination was approximately 60%.

Unsecured. Since 1997 we have originated unsecured loans and lines of credit. These loans are made primarily to meet the non-mortgage needs for our existing 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. As of September 30, 2010, we had outstanding unsecured loans and lines of credit of $126 million, or less than 1% of total loans outstanding, and had undisbursed commitments of $243 million.

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. All of our loans are sourced by our personnel and are fully documented. We have established an executive loan committee structure with multiple approvals required for larger loans or relationships. Our executive loan committee is led by the Executive Vice President and Chief Credit Officer and includes our Chairman and Chief Executive Officer, President and Chief Operating Officer, Senior Vice President and Deputy Chief Credit Officer, Regional Managing Directors in New York, Los Angeles and the San Francisco East Bay regions and other senior credit officers. Appropriate members of the executive loan committee and various other credit underwriting officers approve all loan originations. In addition, larger loans and relationships are approved by a committee of the Board, and the largest loans and relationships are approved by the entire Board prior to funding. Substantially all underlying properties are visited by the originating relationship manager, and, for larger loans, an additional visit is generally made by one of the members of the executive loan committee or designee prior to loan closing. Substantially all of the real estate loans that we originate are secured by properties located within 30 miles of one of our offices.

109 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 764. All of our home loans were underwritten using full documentation. Our sales of whole loan pools have always been executed in the Prime market. The average attributes of clients who have obtained home loans from us in 2009 and for the first nine months of 2010 are as follows:

First Nine 2009 Months 2010 Loan Size ...... $ 854,000 $ 924,000 LTV ...... 53% 57% Post Loan Liquidity ...... $3.1 million $3.3 million Net Worth ...... $9.9 million $9.9 million FICO Score ...... 759 762 Ratio of Housing Costs to Income ...... 21% 23% Ratio of All Debt Service to Income ...... 30% 31% Years in Current Employment ...... 9 8

We use third-party appraisers to appraise the properties on which we make loans. We choose these appraisers from a small group of qualified individuals for specific types of properties and specific geographic areas. At the discretion of the executive loan committee, two appraisals may be required, depending upon the loan amount and the LTV. In these instances, we use the lower of the two appraised values for underwriting purposes. Because we focus on loans secured by a limited number of property types located in specific geographic areas, management obtains current information about the collateral values in those geographic areas. For single family loans, our general policy is not to exceed an LTV of 80% unless the borrower obtains mortgage insurance or there are strong compensating factors. The LTV generally declines as the amount of the loan increases. As of September 30, 2010, the average LTV for our single family residential loans at origination was approximately 58%. For multifamily and commercial real estate loans, our policies are to obtain an appraisal on each loan and, generally, to not exceed an LTV of 75% and 70%, respectively.

110 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 $41.6 billion of single family residential loans (including HELOCs) and have experienced cumulative net loan losses of only $20.3 million, or 5 basis points, in 25 years, including losses on loans sold. For 2009 and 2010, net loan losses include charge-offs against the allowance for loan losses and charge-offs recorded as a reduction in unaccreted discounts established in purchase accounting. Our loan charge-off experience for the last ten years is presented in the following graph.

Historical Loan Charge-Off Experience 2.00%

1.75%

1.50%

1.25%

1.00%

0.75% 0.48% 0.50% o (%) Ra  o Charge-O ff Net 0.25% (1) 0.10% 0.08% 0.12% 0.02% 0.01% 0.01% 0.01% 0.00% (0.01%) (0.02%) (0.06%) (0.25%) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 9 months Ended Net September Charge-Offs 30, 2010 (Recoveries) ($ in Millions): ($0.2) $0.8 $0.5 $4.3 $0.7 ($0.9) ($4.4) $0.9 $11.9 $84.7 $15.6

Net Charge-Offs / Avg. Loans (1) Calculated on annualized basis.

Our charge-off experience has been very limited in seven of the past ten years, was less than 0.5% at our highest in 2009 and charge-offs have averaged 13 basis points of average loans outstanding, per year, over the past decade.

Credit Risk Management

Credit risk management involves a partnership between our relationship managers and our credit approval, credit administration and collections personnel. We conduct weekly loan meetings, attended by nearly all of our relationship managers, related loan production staff and credit administration staff, or more than 200 employees, at which asset quality and delinquencies are reviewed. Our compensation program for our relationship managers has included meaningful clawback provisions since 1986 on all loan originations to encourage our personnel to avoid and monitor for credit delinquency issues, which we believe leads the relationship manager to focus on high quality credit consistent with our strategic focus on asset quality.

We apply our collection policies uniformly to both our portfolio loans and loans serviced for others. It is our policy to discuss each loan that has one or more past due payments at our weekly meeting with all lending personnel. Our policies requiring rapid notification of delinquency and prompt initiation of collection actions. Relationship managers, credit administration personnel and senior management proactively support collection activities in order to maximize accountability and efficiency.

111 In accordance with our procedures, we perform annual asset reviews of our larger multifamily and commercial real estate loans. As part of these asset review procedures, we analyze recent financial statements of the property and/or borrower to determine the current level of occupancy, revenues and expenses and to investigate any deterioration in the value of the real estate collateral or in the borrower’s financial condition. Upon completion, we update the grade assigned to each loan. Relationship managers are encouraged to bring potential credit issues to the attention of credit administration personnel. We maintain a list of loans that receive additional attention if we believe there may be a potential credit risk.

Loans that are downgraded or classified undergo a detailed quarterly or more frequent review by a special asset committee. 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. Management reviews these reports and presents them to the Audit Committee of the Board. These asset review procedures provide management with additional information for assessing 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 Loan Sales

We have historically and regularly accessed the capital markets to sell residential and, to a lesser extent, multifamily and commercial real estate loans that we originate into the secondary markets. We sell loans on a non-recourse basis to provide funds for additional lending, to manage our asset/liability position and to generate servicing income. Secondary marketing has allowed us to make loans to clients during periods when deposit flows decline and when clients prefer loans with characteristics that we choose not to retain in our loan portfolio.

We transact loan sales through three primary channels: whole loan sales on a flow basis, bulk loan sales and REMIC securitizations. 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 the Fannie Mae, the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and various institutional purchasers such as investment banks, mortgage conduits and other financial institutions.

Bulk sales provide an opportunity for us to take advantage of market opportunities for different products and are generally done on an auction basis; occasionally we will negotiate a bulk sale with a single investor. REMIC securitizations allow us to access the capital markets in a rated structure by issuing bonds and other securities that are collateralized by loans we originate. We have not securitized any loans since 2002.

In 2009, we sold approximately $516 million of loans, or approximately 10% of the loans that we originated during the year. Approximately 93% of loans sold, by face amount, were sold through whole loan sales programs, and substantially all of such sales in 2009 were 15-year and 30-year fixed rate conforming loans sold to Fannie Mae and Freddie Mac. In 2008, we sold a total of $309.1 million of loans, or 3% of 2008 originations, and in 2007, we sold $787.7 million of loans, or 12% of 2007 originations.

Loan Servicing

We have 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, making inspections as required of the mortgaged property, collecting amounts due from delinquent mortgagors, supervising foreclosures in the event of unremedied defaults

112 and generally administering the loans for the investors to whom they have been sold. Management believes 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 $3.7 billion as of September 30, 2010. Approximately 53% of total loans serviced as of September 30, 2010 had outstanding balances greater than $729,750, which is the maximum conforming loan amount for a single family loan. Of the total loans serviced as of September 30, 2010, approximately 66% were fixed or hybrid ARMs with a weighted average contractual rate of 5.50%; adjustable rate loans had a weighted average contractual rate of 2.47%. When we collect monthly mortgage payments, we retain the servicing fees, ranging generally from 0.25% to 0.375% per annum on the declining principal balances of the loans. The weighted average servicing fee collected was 0.26% for the nine months ended September 30, 2010. 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 foreclosures and have not needed to suspend any of our foreclosure activities.

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 higher net-worth client base. Historically, these clients have been satisfied with our mortgage loan origination products and services and deposit services, providing an opportunity for our relationship managers to introduce or cross-sell other products and services.

Investment Advisory Services. We provide traditional portfolio management and customized client portfolios through our subsidiary, FRIM. Our other investment advisor subsidiary, FRWA, merged into FRIM on September 30, 2010. When appropriate and desired by a client, our advisors use outside managers through an open architecture platform. We intend to continue to maintain an open architecture platform with respect to our investment advisory accounts following the merger of FRWA into FRIM. Assets under management were $5.7 billion as of September 30, 2010.

Investment and Brokerage Activities. We perform short-term investment and brokerage activities for clients. We employ specialists to acquire treasury securities, municipal bonds, money market mutual funds and other shorter-term liquidity investments at the request of clients or their financial advisors. These specialists can also execute transactions for a full array of longer-term equity and fixed income securities. As of September 30, 2010, approximately $6.8 billion of these assets were held in brokerage or other managed accounts. All brokerage transactions we conduct are cleared by Pershing LLC.

Trust Company. First Republic Trust Company, a department of First Republic, specializes in personal trusts. It operates in California, Nevada and New York and has gathered $4.6 billion of assets under custody, trust and administration as of September 30, 2010. We attract new trust clients from our deposit and loan client base, as well as from direct new relationships.

Foreign Exchange. We earn fees from transacting foreign exchange business on behalf of our customers. We execute a trade with the customer and offset that foreign exchange trade to a counterparty bank. We do not retain any foreign exchange risks associated with these transactions as the trades are matched off between the customer and counterparty bank. We do retain credit risk, both to the customer and the counterparty institution, which is evaluated and managed by us in the normal course of our operations.

113 Information Technology Systems

We devote significant resources to maintain modern, efficient 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 core systems so that we are not tied to a single provider and can upgrade systems individually without significant disruption or cost. Throughout our changes in ownership over the past three years, we have maintained independent client-facing systems, such as our deposit, lending, trust, brokerage and investment management systems. We are also currently executing several initiatives to enhance our online and ATM services as well as 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. We are working on several initiatives to 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.

Competition

We face strong competition in gathering deposits, making real estate-secured loans and obtaining client assets for management by investment advisory, trust or brokerage operations. We compete for deposits and loans by advertising, by offering competitive interest rates and by seeking to provide a higher level of personal service than is generally offered by larger competitors. 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, savings and loan associations, credit unions, money market funds and brokerage firms, particularly nationwide and regional banks specializing in preferred banking and service-focused community banks that target the same customers we do. In addition, our cost of funds fluctuates with market interest rates and has been 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 savings and loan associations, mortgage companies, commercial banks, insurance companies and full service brokerage firms, particularly large, nationwide institutions. Many of the nation’s largest mortgage companies and commercial banks 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, especially during a period of declining mortgage loan originations, have in the past resulted 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 maintaining competitive interest rates, loan fees and other loan terms.

Our competition in wealth management services comes primarily from commercial banks, trust companies, mutual funds, investment advisory firms, stock brokers and other financial services companies, as well as private equity firms, hedge funds and other alternative investment strategies. Competition is especially keen in our principal markets because numerous well-established and successful investment management firms exist throughout each of the markets in which we operate. We compete for wealth management clients through the scope of products offered, level of investment performance, fees and client service.

Subject to certain restrictions, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and the California Interstate Banking and Branching Act of 1995 authorize interstate bank mergers, interstate bank acquisitions and the expansion of bank operations in multiple states, thereby increasing the number of competitors within California. The Dodd-Frank Act also gave national and state banks the ability to establish new

114 branches in states other than those where the bank currently operates to the same extent as a bank chartered within that state, further increasing the number of banks able to compete in the markets in which we operate. The Gramm-Leach-Bliley Act allowed banks and their affiliates to provide a broader array of financial services that may affect competition. The availability of banking services over the Internet 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.

Employees

As of September 30, 2010, we had approximately 1,455 full-time equivalent employees. Our management believes that its relations with employees are satisfactory. We are not a party to any collective bargaining agreements.

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. We provide our services through 56 Preferred Banking offices in eight metropolitan areas: San Francisco, Los Angeles, Santa Barbara, Newport Beach, San Diego, New York City, Boston and Portland (Oregon), with an additional five offices in Santa Barbara, Honolulu, Seattle, Salem (New Hampshire) and Las Vegas that provide lending, wealth management or trust services. All of our properties except for one Preferred Banking office are leased with terms expiring at dates ranging from 2010 – 2023, although certain of the leases contain options to extend beyond these dates.

Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we or any of our subsidiaries is a party or to which any of our property is subject, and the results of such matters will not have a material effect on our business or financial condition.

115 SUPERVISION AND REGULATION

The following discussion is only intended to summarize some of the significant statutes and regulations that affect us and the banking industry, and therefore is not a comprehensive survey of the field. These summaries are qualified in their entirety by reference to the particular statute or regulation that is referenced or described.

Bank Regulation and Supervision

We are subject to extensive federal and state banking laws, regulations, and policies that are intended primarily for the protection of depositors, 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 DFI and the FDIC as an insured state bank without a holding company and that is not a member of the Federal Reserve System. The statutes enforced by, and regulations and policies of, these agencies affect most aspects of our business, including by 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 bank of the Federal Reserve System, we are subject to certain regulations of the Federal Reserve, such as those dealing with check clearing activities (Regulation C), establishment of reserves against deposits (Regulation D), Truth-in-Lending (Regulation Z), Truth-in-Savings (Regulation DD) and Equal Credit Opportunity (Regulation B). Additionally, our offices in states other than California are subject to more limited supervision and regulation by the respective state bank regulators.

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. In addition, because we are a state non-member bank, the FDIC is also our primary federal regulator. Accordingly, the approval of the FDIC is required for certain transactions in which we may engage, including any merger or consolidation involving us, a change in control over us, or the establishment or relocation of any of our branch offices.

Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies. Most recently, on July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act implements far-reaching changes across the financial regulatory landscape, including provisions that, among other things, will:

• Create a new council tasked with identifying and monitoring systemic risk in the financial system;

• Impose a ban on proprietary trading and sponsorship of, and investment in, hedge funds and private equity funds by insured depository institutions and their holding companies and affiliates;

• Centralize responsibility for consumer financial protection by creating a new agency, the Bureau of Consumer Financial Protection, responsible for implementing, examining and enforcing compliance with federal consumer financial protection laws;

• Restrict the preemption of select state laws by federal banking law applicable to national banks and disallow subsidiaries and affiliates of national banks from availing themselves of such preemption;

• Apply the same leverage and risk-based capital requirements to most bank holding companies (“BHCs”) that apply to insured depository institutions;

• Require the FDIC to make its capital requirements for insured depository institutions countercyclical, so that capital requirements increase in times of economic expansion and decrease in times of economic contraction;

116 • Require BHCs and banks to be both well-capitalized and well-managed in order to acquire banks located outside their home state and require any BHC electing to be treated as a financial holding company to be both well-managed and well-capitalized;

• Change the assessment base for federal deposit insurance from the amount of insured deposits held by the depository institution to the depository institution’s average total consolidated assets less tangible equity, eliminate the ceiling on the size of the DIF and increase the floor of the size of the DIF;

• Impose comprehensive regulation of the over-the-counter derivatives market, which would include certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the institution itself;

• Implement corporate governance revisions, including with regard to executive compensation and proxy access by shareholders, that apply to all public companies, not just financial institutions;

• Make permanent the $250,000 limit for federal deposit insurance and increase the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000 and provide unlimited federal deposit insurance until January 1, 2013 for noninterest-bearing demand transaction accounts at all insured depository institutions;

• Eliminate all remaining restrictions on interstate banking by authorizing national and state banks to establish de novo branches in any state that would permit a bank chartered in that state to open a branch at that location; and

• Repeal the federal prohibitions on the payment of interest on demand deposits, effective July 21, 2011, thereby permitting depository institutions to pay interest on business transaction and other accounts.

Some of the provisions of the Dodd-Frank Act applicable to us are described in more detail below. Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall impact of the Dodd-Frank Act on the financial services industry generally and us in particular.

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, purchase by the Bank of its own shares, and the issuance of capital notes or debentures. The DFI is charged with our supervision and regulation.

Under California law, we may engage in the general banking business, including but not limited to accepting deposits, making secured and unsecured loans, purchasing and holding real property for our own use, and issuing, advising and confirming letters of credit.

Under California law, there is no interest rate limitation on loans. However, for certain types of secured loans, California law imposes minimum collateral requirements. There are certain term and amortization restrictions on loans secured by real property. We are required to invest our funds as limited by California law and in investments that are legal investments for banks, subject to any limitation under general law. Unsecured loans to one person generally may not exceed 15% of the sum of a bank’s capital stock, allowance for loan losses

117 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, allowance for loan losses 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.

Under California law, the amount a bank generally may borrow may not exceed its stockholders’ equity without the consent of the DFI.

In addition to remedies available to the FDIC, the Commissioner of the DFI (“Commissioner”) may take possession of a bank if certain conditions exist such as insufficient stockholders’ equity, unsafe or unauthorized operations, or violation of law.

On February 11, 2010 the DFI conditionally approved our request to organize and conduct a commercial banking and trust business as a California-chartered institution, and on May 28, 2010 the FDIC conditionally approved our applications for deposit insurance, trust powers and consent to purchase the assets and liabilities of the First Republic division of BANA. These conditional approvals imposed several conditions, including:

• We may not change our executive officers or directors without the Commissioner’s prior approval during the first three years after July 1, 2010.

• During the first seven years after July 1, 2010, we may not change our executive officers or directors, including by materially changing their respective duties and responsibilities, without providing prior notice to the FDIC, which may object to any such changes.

• We must maintain a Tier 1 leverage ratio of at least 8.0% throughout the first seven years after July 1, 2010.

• We may not materially deviate from our approved business plan during the first seven years after July 1, 2010 without the FDIC’s prior written approval (and the Commissioner’s prior written approval if the deviation occurs during the first three years after July 1, 2010), including (i) by offering any new or significantly altered products or services, (ii) any degradation of our borrowers’ credit quality or characteristics or (iii) using funding strategies other than those contained in the business plan.

• We must notify the FDIC of any material deviation from our financial projections during the first seven years after July 1, 2010 and must notify the Commissioner of any such deviation during the first three after July 1, 2010.

Capital Standards

The federal banking agencies have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization’s operations both for transactions reported on the balance sheet as assets and for transactions, such as letters of credit and recourse arrangements, that are recorded as off-balance-sheet items. Under these guidelines, assets are assigned to one of several risk categories, and nominal dollar amounts of assets and credit equivalent amounts of off-balance-sheet items are multiplied by the risk adjustment percentage for that category, which range from 0% for assets with low credit risk, such as certain U.S. government securities, to 1250% for assets with relatively higher credit risk, such as certain investments that are either unrated or have ratings lower than BB.

In determining the capital level 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.

118 A banking organization’s risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-weighted assets and off-balance-sheet items. The regulators measure risk-weighted assets and off-balance-sheet items against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common stockholders’ equity capital, noncumulative perpetual preferred stock and limited amounts of minority interests in certain subsidiaries, less goodwill and certain other intangible assets and other adjustments. Net unrealized losses on available-for-sale equity securities with readily determinable fair value must be deducted in determining Tier 1 capital. For Tier 1 capital purposes, deferred tax assets that can only be realized if an institution earns sufficient taxable income in the future are limited to the amount that the institution is expected to realize within one year or 10% of Tier 1 capital, whichever is less. Tier 2 capital may consist of a limited amount of the allowance for loan losses, cumulative perpetual preferred stock, long-term preferred stock and other types of preferred stock not qualifying as Tier 1 capital, term subordinated debt and certain other instruments with some characteristics of equity, and net unrealized holding gains on equity securities subject to certain limits. The elements included in Tier 2 capital are subject to certain other requirements and limitations of the federal banking agencies. The federal banking agencies require a minimum ratio of qualifying total capital to risk-weighted assets and off-balance-sheet items of 8%, and a minimum ratio of Tier 1 capital to risk-weighted assets and off-balance-sheet items of 4%.

The federal banking agencies, including the FDIC, have adopted regulations to address the capital treatment of recourse obligations, residual interests and direct credit substitutes in asset securitizations that expose banks primarily to credit risk. Capital requirements for positions in securitization transactions are varied according to their relative risk exposures, while limited use is permitted of credit ratings from rating agencies, a banking organization’s qualifying internal risk rating system or qualifying software. The regulations require a bank to deduct from Tier 1 capital, and from assets, all credit-enhancing interest-only strips, whether retained or purchased, that exceed 25% of Tier 1 capital. Additionally, a bank must maintain dollar-for-dollar risk-based capital for any remaining credit-enhancing interest-only strips and any residual interests that do not qualify for a ratings-based approach. The regulation specifically reserves the right to modify any risk-weight, credit conversion factor or credit equivalent amount, on a case-by-case basis, to take into account any novel transactions that do not fit well into the currently defined categories. At September 30, 2010, we did not own any credit-enhancing interest-only strips.

FDIC rules also provide that a qualifying institution that sells small business loans and leases with recourse must hold capital only against the amount of recourse retained. In general, a qualifying institution is one that is well-capitalized under the FDIC’s prompt corrective action rules. The amount of recourse that can receive the preferential capital treatment cannot exceed 15% of the institution’s total risk-based capital.

In addition to the risk-based guidelines, the federal banking agencies require banking organizations to maintain a minimum amount of Tier 1 capital to adjusted average total assets. This ratio is referred to as the Tier 1 leverage ratio. The minimum Tier 1 leverage ratio is 4% for all but the strongest institutions.

In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the federal banking regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. In particular, federal banking agencies generally require newly-formed banking organizations to maintain higher capital ratios for a time following the organization’s initial formation. Consequently, the FDIC has required that we maintain a Tier 1 leverage ratio of at least 8% for the first seven years of our existence.

The FDIC has adopted regulations 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 examination. The FDIC has also adopted regulations requiring 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.

119 The federal banking agencies’ risk-based capital guidelines are based upon the 1988 capital accord (“Basel I”) of the Basel Committee. The Basel Committee is a committee of central banks and bank supervisors and regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. In 2004, the Basel Committee published a new capital accord (“Basel II”) to replace Basel I. Basel II provides two approaches for setting capital standards for credit risk—an internal ratings-based approach tailored to individual institutions’ circumstances and a standardized approach that bases risk weightings on external credit assessments to a much greater extent than permitted in existing risk-based capital guidelines. Basel II also would set capital requirements for operational risk and refine the existing capital requirements for market risk exposures.

A definitive final rule for implementing the advanced approaches of Basel II in the United States, which applies only to certain large or internationally active banking organizations, or “core banks” —defined as those with consolidated total assets of $250 billion or more or consolidated on-balance-sheet foreign exposures of $10 billion or more—became effective as of April 1, 2008. Other U.S. banking organizations may elect to adopt the requirements of this rule if they meet applicable qualification requirements, but they are not required to apply them. The rule also allows a banking organization’s primary federal supervisor to determine that the application of the rule would not be appropriate in light of the bank’s asset size, level of complexity, risk profile, or scope of operations. We are not required to comply with the advanced approaches of Basel II.

In July 2008, the federal banking agencies issued a proposed rule that would give banking organizations that do not use the advanced approaches of Basel II the option to implement a new risk-based capital framework. This framework would adopt the standardized approach of Basel II for credit risk, the basic indicator approach of Basel II for operational risk and related disclosure requirements. While this proposed rule generally parallels the relevant approaches under Basel II, it diverges where U.S. markets have unique characteristics and risk profiles, most notably with respect to risk-weighting residential mortgage exposures. Comments on the proposed rule were due to the agencies by October 27, 2008, but a definitive final rule has not been issued. The proposed rule, if adopted, would replace the agencies’ earlier proposed amendments to existing risk-based capital guidelines to make them more risk sensitive (formerly referred to as the “Basel I-A” approach).

On September 3, 2009, the U.S. Department of the Treasury (the “Treasury”) issued a policy statement (the “Treasury Policy Statement”) entitled “Principles for Reforming the U.S. and International Regulatory Capital Framework for Banking Firms.” The Treasury Policy Statement was developed in consultation with the U.S. bank regulatory agencies and contemplates changes to the existing regulatory capital regime that would involve substantial revisions to, if not replacement of, major parts of the Basel I and Basel II capital frameworks and affect all regulated banking organizations and other systemically important institutions. The Treasury Policy Statement calls for, among other things, higher and stronger capital requirements for all banking firms. The Treasury Policy Statement suggested that changes to the regulatory capital framework be phased in over a period of several years. The recommended schedule provides for a comprehensive international agreement by December 31, 2010, with the implementation of reforms by December 31, 2012, although it does remain possible that U.S. bank regulatory agencies could officially adopt, or informally implement, new capital standards at an earlier date.

On December 17, 2009, the Basel Committee issued a set of proposals (the “Capital Proposals”) that would significantly revise the definitions of Tier 1 capital and Tier 2 capital, with the most significant changes being to Tier 1 capital. Most notably, the Capital Proposals would disqualify certain structured capital instruments, such as trust preferred securities, from Tier 1 capital status. The Capital Proposals would also re-emphasize that common equity is the predominant component of Tier 1 capital by adding a minimum common equity to risk-weighted assets ratio and requiring that goodwill, general intangibles and certain other items that currently must be deducted from Tier 1 capital instead be deducted from common equity as a component of Tier 1 capital. The Capital Proposals also leave open the possibility that the Basel Committee will recommend changes to the minimum Tier 1 capital and total risk-based capital ratios of 4% and 8%, respectively.

120 Concurrently with the release of the Capital Proposals, the Basel Committee also released a set of proposals related to liquidity risk exposure (the “Liquidity Proposals,” and together with the Capital Proposals, the “2009 Basel Committee Proposals”). The Liquidity Proposals have three key elements, including the implementation of (i) a “liquidity coverage ratio” designed to ensure that a bank maintains an adequate level of unencumbered, high-quality assets sufficient to meet the bank’s liquidity needs over a 30-day time horizon under an acute liquidity stress scenario, (ii) a “net stable funding ratio” designed to promote more medium and long- term funding of the assets and activities of banks over a one-year time horizon, and (iii) a set of monitoring tools that the Basel Committee indicates should be considered as the minimum types of information that banks should report to supervisors and that supervisors should use in monitoring the liquidity risk profiles of supervised entities.

On July 16, 2010, the Basel Committee issued, as part of the Capital Proposals, an additional proposal to implement a requirement for an additional minimum Tier 1 regulatory capital buffer that would be triggered by regulatory authorities during periods of excessive aggregate credit growth that suggests that systemic risks in the international banking system are increasing. Under normal conditions, this buffer would be set to zero, with increases in the buffer being announced 12 months in advance of the increase taking effect.

On July 26, 2010, the Basel Committee announced that it had reached “broad agreement” on the 2009 Basel Committee Proposals and published a set of “amendments” to the 2009 Basel Committee Proposals. Among other changes, these amendments require MSRs, deferred tax assets arising from time differences and limited investments in common shares issued by unconsolidated financial institutions be deducted from Tier 1 common equity only to the extent any single item exceeds 10% of Tier 1 common equity and all such items, in the aggregate, exceed 15% of Tier 1 common equity. The amendments did not address the deductions for goodwill or other intangibles required to be deducted under the Capital Proposals.

One September 12, 2010, the Group of Governors and Heads of Supervisors of the Basel Committee on Banking Supervision, the oversight body of the Basel Committee, published its “calibrated” capital standards for major banking institutions (“Basel III”). Under these standards when fully phased-in on January 1, 2019, banking institutions will be required to maintain heightened Tier 1 common equity, Tier 1 capital and total capital ratios, as well as maintaining a “capital conservation buffer.” The Tier 1 common equity and Tier 1 capital ratio requirements will be phased-in incrementally between January 1, 2013 and January 1, 2015; the deductions from common equity made in calculating Tier 1 common equity (for example, for mortgage servicing assets, deferred tax assets and investments in unconsolidated financial institutions) will be phased-in incrementally over a four- year period commencing on January 1, 2014; and the capital conservation buffer will be phased-in incrementally between January 1, 2016 and January 1, 2019. The Basel Committee also announced that a “countercyclical buffer” of 0% to 2.5% of common equity or other fully loss-absorbing capital “will be implemented according to national circumstances” as an “extension” of the conservation buffer. The release does not address the Basel Committee’s two liquidity measures initially proposed in December 2009 and amended in July 2010—the liquidity coverage ratio and net stable funding ratio—other than to state that the liquidity coverage ratio will be introduced on January 1, 2015 and the net stable funding ratio will be significantly revised and “move[d] to a minimum standard by January 1, 2018.” The final package of Basel III reforms will be considered in November 2010 by the leaders of The Group of Twenty, and then will be subject to individual adoption by member nations, including the United States.

Ultimate implementation of the 2009 Basel Committee Proposals, as amended, and Basel III in the United Sates will be subject to the discretion of the U.S. bank regulators and the regulations and guidelines adopted by such agencies may, of course, differ from the proposals of the Basel Committee.

On July 21, 2010, the Dodd-Frank Act adopted amendments to the capital requirements applicable to financial institutions and certain other entities covered under the act. In particular, the Dodd-Frank Act applies to BHCs and certain other companies the capital requirements previously applicable only to depository institutions. As a result, restricted core capital elements, such as trust preferred securities, can no longer be included in the

121 consolidated Tier 1 capital of most BHCs, subject in many cases to a three year phase-in period. As a bank without a bank holding company, this change did not result in any adjustment to our capital ratios as presented above. Generally, however, restricted core capital elements, including preferred stock issued by our REIT subsidiaries, are limited to 25% of total Tier 1 capital; amounts of restricted core capital elements in excess of these limited generally may be included in Tier 2 capital.

From time to time, the FDIC or the Federal Financial Institutions Examination Council (“FFIEC”) proposes changes and amendments to, and issues interpretations of, risk-based capital guidelines and related reporting instructions. Such proposals or interpretations could, if implemented in the future, affect our reported capital ratios and net risk-weighted assets. Failure to comply with capital guidelines can result in limits on a depository institution’s activities and other restrictions and adverse consequences.

Prompt Corrective Action and Other Enforcement Mechanisms

The Federal Deposit Insurance Act, as amended by the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), requires each 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.

Under the prompt corrective action provisions of FDICIA, an insured depository institution generally will be classified in the following categories based on the capital measures indicated:

“Well-capitalized” “Adequately capitalized” Tier 1 leverage ratio of 5%, Tier 1 leverage ratio of 4%, Tier 1 risk-based capital of 6%, Tier 1 risk-based capital of 4%, and Total risk-based capital of 10%, and Total risk-based capital of 8%. Not subject to a written agreement, order, capital directive or prompt corrective action directive requiring a specific capital level.

“Undercapitalized” “Significantly undercapitalized” Tier 1 leverage ratio less than 4%, Tier 1 leverage ratio less than 3%, Tier 1 risk-based capital less than 4%, or Tier 1 risk-based capital less than 3%, or Total risk-based capital less than 8%. Total risk-based capital less than 6%.

“Critically undercapitalized” Tangible equity to total assets less than 2%.

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 in the next lower capital category 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 more restrictions.

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

122 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.

Safety and Soundness Standards

FDICIA also implemented certain specific restrictions on transactions and required federal banking regulators to adopt overall safety and soundness standards for depository institutions related to internal controls, loan underwriting and documentation, and asset growth. Among other things, FDICIA 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.

The federal banking agencies may require an institution to submit to 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.

Premiums for Deposit Insurance and Assessments

Our deposits are insured, subject to applicable limits, by the FDIC and we are subject to deposit insurance assessments to maintain the DIF. The FDIC uses a risk-based assessment system that imposes insurance premiums based upon a risk matrix that takes into account a bank’s capital level and supervisory rating (“CAMELS rating”). The risk matrix utilizes four risk categories which are distinguished by capital levels and supervisory ratings.

In December 2008, the FDIC issued a final rule that raised the then current assessment rates uniformly by seven basis points for the first quarter of 2009 assessment, which resulted in annualized assessment rates for institutions in the highest risk category (“Risk Category 1 institutions”) ranging from 12 to 14 basis points. In February 2009, the FDIC issued final rules to amend the DIF restoration plan, change the risk-based assessment system and set assessment rates for Risk Category 1 institutions beginning in the second quarter of 2009. For Risk Category 1 institutions that do not have long-term debt issuer ratings, the FDIC determines the initial base assessment rate using a financial ratios method, which multiplies each of six financial ratios and a weighted average of CAMELS component ratings by a pricing multiplier. For Risk Category 1 institutions that have long- term debt issuer ratings, the FDIC determines the initial base assessment rate using a combination of weighted- average CAMELS component ratings, long-term debt issuer ratings (converted to numbers and averaged) and the financial ratios method assessment rate (as defined), each equally weighted. The initial base assessment rates for Risk Category 1 institutions range from 12 to 16 basis points, on an annualized basis. After the effect of potential base-rate adjustments, total base assessment rates range from 7 to 24 basis points. The potential adjustments to a Risk Category 1 institution’s initial base assessment rate, include (i) a potential decrease of up to five basis points for long-term unsecured debt, including senior and subordinated debt and (ii) a potential increase of up to eight basis points for secured liabilities in excess of 25% of domestic deposits.

In April 2010, the FDIC issued a notice of proposed rulemaking to revise the deposit insurance assessment system for large institutions. In its notice, the FDIC proposed to create a two scorecard system, one for most institutions that have more than $10 billion in assets and another for “highly complex” institutions that have over $50 billion in assets and are fully owned by a parent with over $500 billion in assets. Each scorecard would have a performance score and a loss-severity score that would be combined to produce a total score, which would be translated into an initial assessment rate. In calculating these scores, the FDIC would continue to utilize CAMELS ratings, would introduce certain new financial measures, and would eliminate the use of risk categories and long-term debt issuer ratings. In determining the initial base assessment rate, the FDIC would have the ability to adjust each component of the scorecard where necessary, based upon quantitative or qualitative

123 measures not adequately captured in the scorecard, to produce accurate relative risk rankings. For large institutions, the initial base assessment rate would range from 10 to 50 basis points on an annualized basis (basis points representing cents per $100 of assessable deposits). The proposed rule would allow for adjustments to an institution’s initial base assessment rate as a result of certain long-term unsecured debt (-5 to zero basis points), certain secured liabilities (zero to 25 basis points) and brokered deposits (zero to 10 basis points). After the effect of potential base-rate adjustments, the total base assessment rate could range from 5 to 85 basis points on an annualized basis.

In November 2009, the FDIC issued a rule that required all insured depository institutions, with limited exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC also adopted a uniform three basis point increase in assessment rates effective on January 1, 2011. As part of our reestablishment as an independent institution, we purchased from BANA that part of the FDIC assessments prepaid by BANA associated with the deposits assumed as part of the transaction.

The Dodd-Frank Act requires the FDIC to revise the deposit insurance assessment system to base assessments on the average total consolidated assets of insured depository institutions during the assessment period, less the average tangible equity of the institution during the assessment period. Currently, only deposits payable in the United States are included in determining the premium paid by an institution. The Dodd-Frank Act also eliminates the ceiling on the size of the DIF and increases the floor of the size of the DIF, which will require a general increase in the level of assessments for institutions, including us, with assets in excess of $10 billion. It remains to be seen whether the changes proposed in the FDIC’s April 2010 notice of proposed rulemaking, described above, will be retained by the FDIC after implementing the requirements of the Dodd-Frank Act.

Under the Federal Deposit Insurance Act, as amended (“FDIA”), 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.

Community Reinvestment Act and Fair Lending Developments

We are subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations. We are also be 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 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. These ratings are available to the public.

Permissible Financial Activities

Under the Gramm-Leach-Bliley Act (the “GLB Act”), insured state non-member banks, including us, are 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.

124 Financial Privacy Legislation

The GLB Act also prohibits depository institutions from disclosing non-public personal information about a consumer to unaffiliated third-parties, unless the institution satisfies various disclosure requirements and the consumer has not elected to opt-out of the disclosure, or unless an exception applies, and requires the federal banking agencies to adopt regulations governing the privacy of consumer financial information. We are subject to the FDIC’s regulations implementing the GLB Act.

The regulations impose three main requirements established by the GLB Act. First, a banking organization must provide initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal information about customers to nonaffiliated third-parties and affiliates. Second, banking organizations must provide annual notices of their privacy policies to their current customers. Third, banking organizations must provide a reasonable method for consumers to “opt-out” of disclosures to nonaffiliated third-parties.

In connection with the regulations governing the privacy of consumer financial information, the federal banking agencies, including the FDIC, adopted guidelines for establishing information security standards for such information. The guidelines require banking organizations to establish an information security program to: (i) identify and assess the risks that may threaten customer information, (ii) develop a written plan containing policies and procedures to manage and control these risks, (iii) implement and test the plan, and (iv) adjust the plan on a continuing basis to account for changes in technology, the sensitivity of customer information, and internal or external threats. The guidelines also outline the responsibilities of directors of banking organizations in overseeing the protection of customer information. The guidelines also address response programs for unauthorized access for customer information and customer notice.

USA PATRIOT Act of 2001

Title III of the USA PATRIOT Act is the International Money Laundering Abatement and Anti- Terrorist Financing Act of 2001. Title III includes numerous provisions for fighting international money laundering and blocking terrorist access to the U.S. financial system. The goal of Title III is to prevent the U.S. financial system and the U.S. clearing mechanisms from being used by parties suspected of terrorism, terrorist financing and money laundering.

The provisions of Title III that affect banking organizations are generally amendments to the Bank Secrecy Act. The USA PATRIOT Act requires certain additional due diligence and recordkeeping practices. Some requirements take effect without the issuance of regulations. Other provisions have been implemented through regulations promulgated by the Treasury, in consultation with the Federal Reserve and other federal financial institutions regulators.

The USA PATRIOT Act requires various regulations relating to anti-money laundering and financial transparency laws, including:

• Due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons;

• Standards for verifying customer identification at account opening;

• Rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; and

• Reporting to Treasury’s Financial Crimes Enforcement Network for transactions exceeding $10,000, and filing of suspicious activities reports if a customer is suspected of violating U.S. laws and regulations.

125 In May 2003, the Treasury issued final regulations requiring institutions to incorporate into their written anti-money laundering compliance programs a customer identification program implementing reasonable procedures for verifying the identity of any person seeking to open an account, to the extent reasonable and practicable; maintaining records of the information used to verify the person’s identity; and determining whether the person appears on any list of known or suspected terrorists or terrorist organizations. Account is defined as a formal banking or business relationship established to provide ongoing services, dealings or other financial transactions. We have adopted policies and procedures to comply with these regulations.

Restrictions on Dividends and Other Distributions

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 stockholders’ equity is not adequate or that such distributions would be unsafe or unsound for us.

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. FDICIA prohibits insured depository institutions 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.

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.

Change in Bank Control

Under the Change in Bank Control Act (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 of any class of our outstanding voting securities and either no other person will hold a greater percentage of that class of voting shares following the acquisition or we are a public company. 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 Bank Holding Company Act of 1956, as amended (the “BHCA”), any company would be required to obtain prior approval from the Federal Reserve before it could obtain “control” of us (and thereby become a BHC) 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 exercise of a controlling influence over our management and policies. An existing BHC 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.

Other Regulatory Matters

FDICIA requires insured depository institutions with the amount of total assets held by us to 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.

126 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 federal banking agencies have also adopted regulations imposing minimum requirements with respect to appraisals obtained in connection with “real estate related financial transactions” entered into by federally regulated financial institutions. A federally related transaction is any real estate related financial transaction for which an appraisal is required. An appraisal must be conducted by either state-certified or state- licensed appraisers for all such transactions unless an exemption applies. The more common exceptions relate to (i) transactions valued at $250,000 or less, (ii) business loans valued at $1 million or less and not dependent upon real estate as the primary source of repayment, and (iii) transactions that are not secured by real estate. Appraisals performed in connection with federally related transactions must also comply with the agencies’ appraisal standards and appraisal reports must be issued in writing.

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.

127 MANAGEMENT

Directors and Executive Officers

The following table sets forth certain information about our directors and executive officers:

Name Age Position James H. Herbert, II (5) ...... 66 Chairman and Founding Chief Executive Officer Katherine August-deWilde (5), (6) ...... 62 President, Chief Operating Officer and Director Thomas J. Barrack, Jr. (2), (3), (5), (6) . . . . . 63 Director Frank J. Fahrenkopf, Jr. (1), (3), (4) ...... 71 Director William E. Ford (1), (2), (3), (5), (6) ...... 49 Director L. Martin Gibbs (2), (3), (7) ...... 72 Director Sandra R. Hernández (1) ...... 52 Director Pamela J. Joyner (2), (4), (5) ...... 52 Director Jody S. Lindell (1), (4), (6) ...... 59 Director George G.C. Parker (1), (2), (3), (4), (6) . . . . 71 Director Edward J. Dobranski (6) ...... 60 Executive Vice President, General Counsel and Secretary David B. Lichtman ...... 47 Executive Vice President and Chief Credit Officer Willis H. Newton, Jr...... 61 Executive Vice President and Chief Financial Officer (1) Member, Audit Committee (2) Member, Compensation Committee (3) Member, Corporate Governance and Nominating Committee (4) Member, Directors Loan Committee (5) Member, Investment Committee (6) Member, Directors Trust Committee (7) Lead Outside Director

Directors

Each member of the Board, except Mr. Ford and Dr. Hernández, was a director of First Republic Bank before its acquisition by Merrill Lynch in 2007. Mr. Barrack and Mr. Ford represent Colony and General Atlantic, respectively, on the Board pursuant to the terms of the Shareholders’ Agreement described under “Certain Provisions of California Law, the Bank’s Articles of Incorporation and Bylaws and Shareholders’ Agreement—Shareholders’ Agreement.” A brief description of the background of each director is presented below.

James H. Herbert, II, Chairman and Founding Chief Executive Officer (Director & Founding Chief Executive Officer since 1985). From 1980 to 1985, Mr. Herbert was the founding President, Chief Executive Officer and a director of San Francisco Bancorp, a publicly-traded, multistate, industrial loan holding company. Mr. Herbert was the founding Chief Executive Officer and Director of First Republic Bank in February 1985. Mr. Herbert is a trustee of San Francisco Ballet Association (Chair and Co-Chair 2002–2008), director of Lincoln Center for the Performing Arts, New York, Joyce Theater Association New York, San Francisco Film Society and The BASIC Fund. Mr. Herbert is a graduate of Babson College, B.S., 1966, New York University, M.B.A., 1969 and Harvard Business School’s Presidents’ Seminar, 2003.

Katherine August-deWilde, President, Chief Operating Officer and Director (Director since 1988). Ms. August-deWilde has been a First Republic executive since 1985. Previously, she was Senior Vice President and Chief Financial Officer at PMI Group. She is a member of the Stanford Center on Longevity’s Advisory Council, Stanford University’s Michelle R. Clayman Institute for Gender Research and a trustee of the Boys & Girls Clubs of San Francisco. Ms. August-deWilde is a graduate of Goucher College, A.B., 1969 and Stanford University, M.B.A., 1975.

128 Thomas J. Barrack, Jr., Director (Director from 2001 to 2007). Mr. Barrack, is the Founder, Chairman, and Chief Executive Officer of Colony Capital, LLC. Mr. Barrack is also a director of Colony Financial, Inc. and Accor SA and served as a director of Continental Airlines, Inc. from 1994 until 2007. Prior to the formation of Colony Capital, LLC, Mr. Barrack was a principal with the Robert M. Bass Group (“RMBG”), the principal investment vehicle of the Fort Worth, Texas investor Robert M. Bass. Prior to joining RMBG, Mr. Barrack served as President of Oxford Development Ventures, Inc. and as a Senior Vice President of E.F. Hutton & Co. in New York. Prior to his tenure at Oxford, Mr. Barrack also served in the Reagan administration as Deputy Undersecretary of the Department of the Interior. In 1976, Mr. Barrack began his real estate investment career as President of Dunn International Corporation. He practiced international finance law until 1976. Mr. Barrack is a graduate of the University of Southern California, B.A., 1969 and the University of San Diego, J.D., 1972.

Frank J. Fahrenkopf, Jr., Director (Director since 1985). Mr. Fahrenkopf is President and CEO of the American Gaming Association. Mr. Fahrenkopf is also of counsel in the Washington, D.C. law firm of Hogan Lovells LLP and is Co-Chairman of the Commission on Presidential Debates. From 1983 to 1989, he was Chairman of the Republican National Committee. Mr. Fahrenkopf is currently a director of Gabelli Dividend and Income Trust, Gabelli Equity Trust, Gabelli Utility Trust, Gabelli Global Multimedia Trust, and Gabelli Global Gold, Natural Resources and Income Trust. Mr. Fahrenkopf is a graduate of University of Nevada, Reno, B.A., 1962 and University of California, Berkeley, L.L.B., 1965.

William E. Ford, Director (Director since 2010). Mr. Ford is Chief Executive Officer of General Atlantic LLC. He joined the firm in 1991 and is chair of the firm’s Executive Committee and is a member of the Investment and Portfolio Committees. Prior to joining General Atlantic LLC, Mr. Ford worked at Morgan Stanley & Co. as an investment banker. Mr. Ford serves on the board of directors of several current portfolio companies of General Atlantic, including Markit and GETCO. He formerly served on the boards of a number of other General Atlantic portfolio companies, including NYSE Euronext, E*Trade, Priceline, NYMEX Holdings, Inc., SSA Global Technologies and Computershare Limited. Since 2001, Mr. Ford has served as a Trustee of Amherst College and chairs the Investment Committee, which oversees the College’s endowment. He is also a member of the board of trustees of The Rockefeller University, the New Museum of Contemporary Art and The Collegiate School. Mr. Ford is a graduate of Amherst College, B.A., 1983 and Stanford University, M.B.A., 1987.

L. Martin Gibbs, Director (Director since 1985). Mr. Gibbs is currently an investor, who retired from his law practice on January 1, 2010. He previously represented First Republic from its inception through the end of 2009 and was a partner in the law firm of White & Case LLP, where he had a broad-based corporate legal practice with substantial experience in mergers and acquisitions, securitizations, real estate, private equity and banking transactions. Mr. Gibbs is also a Trustee of the Seaport Museum, New York. He graduated from Brown University with an A.B. degree in 1959 and Columbia Law School with a J.D. degree in 1962.

Sandra R. Hernández, M.D., Director (Director since 2010). Dr. Hernández is Chief Executive Officer of the San Francisco Foundation. Under her leadership, the foundation has grown to $1 billion and disbursed grants of approximately $900 million. Dr. Hernández practices at San Francisco General Hospital’s AIDS clinic and is a director of Blue Shield of California, a director of Lucille Packard Children’s Hospital and former director of Public Health, San Francisco. Dr. Hernández is a graduate of Yale University, B.A. Tufts University, M.D. and Harvard University’s John F. Kennedy School of Government.

Pamela J. Joyner, Director (Director since 2004). Ms. Joyner is a founding partner of Avid Partners L.L.C., strategic marketing consultant to alternative investment managers. Previously, Ms. Joyner led units at Bowman Capital Management, L.L.C. and was a senior executive at Capital Guardian Trust Company. She is a Trustee Emeritus of Dartmouth College, a member of the President’s Committee on the Arts and Humanities, was a Co-Chair of the San Francisco Ballet Association (2005–2008) and is a trustee of the California HealthCare Foundation. Ms. Joyner is a graduate of Dartmouth College, B.A., 1979 and Harvard University, M.B.A., 1984 with an M.A. Honorary Degree, 2001, from Dartmouth College.

129 Jody S. Lindell, Director (Director since 2003). Ms. Lindell is President and Chief Executive Officer of S.G. Management Inc., an asset management company. Ms. Lindell has also served as a director, and a member of both audit and compensation committees, of PDL BioPharma since March of 2009 and The Cooper Companies since March of 2006. Until August 2000, Ms. Lindell was a partner with KPMG LLP where she served as Partner-In-Charge of the Industrial Markets and Healthcare and Life Sciences practices for the Western Area of the United States. Ms. Lindell is a graduate of Stanford University, B.A., 1973 and M.B.A., 1975 and is a Certified Public Accountant (inactive).

George G.C. Parker, Director (Director since 2003). Mr. Parker is the Dean Witter Distinguished Professor of Finance, Emeritus, at the Stanford Graduate School of Business, a director of the Stanford Sloan Master’s Program, and a director of the Finance and Accounting for Non-financial Executives Program at Stanford University. Mr. Parker also served as the Faculty Chairman of the Advisory Panel on Investment Responsibility for the Board of Trustees of Stanford University from 2003 to 2008. He also serves as a director of iShares Mutual Funds, Tejon Ranch Company, Colony Financial, Inc. (a public REIT), Netgear, Inc. and Threshold Pharmaceuticals and was a director of Continental Airlines from 1996 to 2009. Mr. Parker is a graduate of Haverford College, B.A., 1960 and Stanford University, M.B.A. and Ph.D., 1967.

Terms of Directors and Composition of the Board of Directors

The Board currently has ten members and is not divided into different classes of directors. Each of our directors serve for annual terms.

The Board has adopted corporate governance guidelines that contain criteria for determining whether a director is deemed independent. Our guidelines are consistent with and conform to the criteria for determining independence established by the NYSE. Under these guidelines, in order to be independent, a director must not:

• Have a material relationship with the Bank (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Bank) as affirmatively determined by the Board;

• Be an employee, or have an immediate family member who is an executive officer, of the Bank, until three years after the end of the employment or executive officer relationship;

• Be, or have an immediate family member who is, employed as an executive officer of another company where any of the Bank’s present executive officers serve on that company’s compensation committee, until three years after the end of such employment or service relationship;

• Be affiliated with or employed by, or have an immediate family member who is affiliated with or employed in a professional capacity by, a present or former internal or external auditor of the Bank or of an affiliate of the Bank, until three years after the end of either the affiliation or the employment with the auditor or the auditing relationship;

• Receive, or have an immediate family member who receives, more than $120,000 per year in direct compensation from the Bank, other than director or committee fees and pension or other forms of deferred compensation for prior service (provided that such compensation is not contingent in any way on continued service), until three years after he or she ceases to receive more than $120,000 per year in compensation; or

• Be an executive officer or an employee, or have an immediate family member who is an executive officer, of a company that makes payments to, or receives payments from, the Bank for property or services in an amount which, in any single fiscal year during the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues.

130 The Board has determined that the following directors are independent: Mr. Barrack, Mr. Fahrenkopf, Mr. Ford, Mr. Gibbs, Dr. Hernández, Ms. Joyner, Ms. Lindell and Mr. Parker. Mr. Herbert and Ms. August- deWilde are current executive officers of the Bank.

Committees of the Board

Audit Committee. The Audit Committee was formed in early 2010 as part of the organization of the recently-chartered First Republic Bank. The responsibilities of the Audit Committee include recommending to the Board a firm of independent certified public accountants to conduct the annual audit of our consolidated financial statements, reviewing with such accounting firm the scope and results of the annual audit, reviewing the performance by such independent accountants of professional services in addition to those which are audit related, and evaluating reports by the internal and independent auditors regarding the adequacy of our systems of internal controls. We have engaged KPMG LLP as our independent auditors. Deloitte & Touche LLP has been engaged to perform an independent credit review of our loan portfolio. The oversight for the services provided by each firm is performed by the Audit Committee. The members of the Audit Committee, all of whom are independent directors and are financially literate as those terms are defined in the NYSE listing standards that are applicable to the Bank, are Ms. Lindell (Chair) and Messrs. Fahrenkopf, Ford and Parker. The Board has determined that Ms. Lindell and Mr. Parker are audit committee financial experts, as that term is defined in Item 407(d) of Regulation S-K under the Exchange Act.

Compensation Committee. The Compensation Committee was formed in early 2010 as part of the organization of the recently-chartered First Republic Bank. The primary responsibilities of the Compensation Committee are to establish and review the compensation, both direct and indirect, to be paid to our directors and executive officers, to review and submit to the Board its recommendations with respect to executive compensation plans, and to establish and review periodically our policies relating to executive perquisites. The members of the Compensation Committee, all of whom are independent directors as that term is defined in the NYSE listing standards that are applicable to the Bank, are Ms. Joyner (Chair) and Messrs. Barrack, Ford, Gibbs and Parker.

Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee was formed in early 2010 as part of the organization of the recently-chartered First Republic Bank. The Corporate Governance and Nominating Committee is responsible for recommending to the Board individuals to serve as our directors and on the various committees of the Board. In making such recommendations, the Corporate Governance and Nominating Committee considers such factors as it deems appropriate. These factors may include judgment, skill, diversity, experience with businesses and other organizations comparable to us, the interplay of the candidate’s experience with the experience of other members of the Board, and the extent to which the candidate would be a desirable addition to the Board and any committees. The Corporate Governance and Nominating Committee will also consider nominees for election as directors made by stockholders and mailed to the general counsel. Additionally, the Corporate Governance and Nominating Committee is responsible for considering and recommending to the Board other actions relating to corporate governance matters. Mr. Fahrenkopf (Chair) and Messrs. Barrack, Ford and Gibbs and Ms. Joyner, all of whom are independent directors as that term is defined in the NYSE listing standards that are applicable to the Bank, serve as its members.

Directors Loan Committee. The Directors Loan Committee was formed in early 2010 as part of the organization of the recently-chartered First Republic Bank. The Directors Loan Committee is responsible for reviewing all new loans made by the Bank that exceed certain limits set forth in the Board approved loan policy. The Directors Loan Committee is comprised of four current directors of the Bank and three former directors of First Republic. The members of the Directors Loan Committee are Mr. James J. Baumberger, Mr. James P. Conn, Mr. Fahrenkopf, Ms. Joyner, Ms. Lindell, Mr. Parker and Mr. Roger O. Walther. The Directors Loan Committee will not have a chairperson.

131 Investment Committee. The Investment Committee was formed in early 2010 as part of the organization of the recently-chartered First Republic Bank. The Investment Committee is responsible for monitoring the Bank’s investment portfolio and recommending investment policies which, while striving to maximize portfolio performance, will keep the management of the portfolio within the bounds of good banking practices and satisfy the liquidity and legal requirements to which the Bank is subject. The Investment Committee is comprised of five current directors of the Bank and one former director of First Republic. The members of the Investment Committee are Ms. Joyner (Chair), Ms. August-deWilde, Mr. Barrack, Mr. Conn, Mr. Ford and Mr. Herbert.

Directors Trust Committee. The Directors Trust Committee was formed in early 2010 as part of the organization of the recently-chartered First Republic Bank. The Directors Trust Committee is responsible for overseeing the Bank’s trust and wealth management business by, among other things, monitoring the value of fiduciary assets and recommending investment policies and procedures relating to fiduciary and managed assets held by the Bank. The Directors Trust Committee is comprised of five directors and two non-director members of the Bank’s management team. The members of the Directors Trust Committee are Mr. Parker (Chair), Ms. August-deWilde, Mr. Barrack, Mr. Ford, Ms. Lindell, Mr. Edward J. Dobranski and Mr. Robert L. Thornton.

Director Compensation

Following the acquisition of First Republic in 2007 by Merrill Lynch, we operated as a division of MLFSB and did not have a separate board of directors. However, we did maintain a separate Advisory Board. In 2009, each non-employee member of the Advisory Board received an annual retainer of $50,000 per year, paid on a quarterly basis, and fees for meetings attended.

In 2010, following the transaction reestablishing First Republic as an independent entity and the election of the Board, the following compensation policies for non-employee directors were approved by the Board:

• An annual retainer for all non-employee directors of $50,000, paid on a quarterly basis;

• Annual retainers, paid quarterly, of $12,500 for the Chair of the Audit Committee and $10,000 for the Chairs of all other committees;

• For all non-employee directors, a fee of $3,000 for each regularly scheduled meeting of the Board and $1,500 for telephonic meetings attended;

• For members of committees, a fee of $2,000 per regularly scheduled committee meeting attended and $1,000 for telephonic meetings which last one hour or less; and

• Members of the Board are reimbursed for their out-of-pocket expenses incurred in connection with attendance at Board or committee meetings in accordance with established policy.

In lieu of paying higher directors’ fees in cash to our non-employee directors, to closely match their long-term interests with those of other shareholders, and to properly compensate directors for the responsibilities and risks they undertake from a legal, business and regulatory perspective, as a board member of a large, FDIC- insured public bank, we intend from time to time to grant stock options or shares of restricted stock to non-employee directors. Mr. Barrack and Mr. Ford do not receive cash or equity compensation from us for their service on the Board.

In connection with the reestablishment of First Republic Bank as an independent entity, the Bank granted to each non-employee director (other than Messrs. Barrack and Ford) an option to purchase 15,000 shares of the Bank’s common stock at an exercise price of $15 per share (the amount paid per share by all investors on the date of the transaction reestablishing First Republic Bank as an independent entity). Such options vest over a four-year period based upon the director’s continued service during such period.

132 On September 14, 2010, L. Martin Gibbs was appointed as lead independent director by the Board and will receive an annual retainer of $20,000 for serving in this capacity.

Officers

In addition to the employee directors listed above, the backgrounds of our executive officers are presented below.

Edward J. Dobranski, Executive Vice President, General Counsel and Secretary. Mr. Dobranski joined First Republic in 1992. Prior to that, Mr. Dobranski practiced banking, real estate and corporate law through positions held with the federal government, in private practice and as corporate counsel. Mr. Dobranski is a graduate of Coe College, B.A., 1972 and Creighton University, J.D., 1975.

David B. Lichtman, Executive Vice President and Chief Credit Officer. Mr. Lichtman has been employed by First Republic since 1986, holding positions in various phases of lending operations, and has held his current position since 1994. Mr. Lichtman is a graduate of Vassar College, B.A., 1985 and University of California, Berkeley, M.B.A., 1990.

Willis H. Newton, Jr., Executive Vice President and Chief Financial Officer. Mr. Newton joined First Republic in 1988 and has held his current position since then. From 1985 to August 1988, he was Vice President and Controller of Homestead Financial Corporation. Mr. Newton is a graduate of Dartmouth College, B.A., 1971 and Stanford University, M.B.A., 1976 and is a Certified Public Accountant (inactive).

Compensation Committee Interlocks and Insider Participation

During 2009, when we operated as a division of BANA, we did not have a compensation committee or similar committee. In 2010, following the transaction reestablishing First Republic Bank as an independent institution, the Board formed a compensation committee consisting of Ms. Joyner and Messrs. Barrack, Ford, Gibbs and Parker. During 2010, no member of the Compensation Committee was an employee, officer, or former officer of us. None of our executive officers has served in 2009 or 2010 on the board of directors or compensation committee (or other committee serving an equivalent function) of any entity that had an executive officer serving as a member of the Board or Compensation Committee. As described under “Certain Relationships and Related-Person Transactions” on page 168, some Compensation Committee members had banking or financial services transactions in the ordinary course of business with us or our subsidiaries.

133 EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction

The compensation disclosure tables and associated narrative discussions which follow this Compensation Disclosure and Analysis provide information regarding compensation earned for the 2009 fiscal year by our Chairman and Chief Executive Officer, our Executive Vice President and Chief Financial Officer, and the three other highest paid executive officers of the Bank (together, our “named executive officers”). Compensation for the 2009 fiscal year was earned while we operated as a division of MLFSB and BANA and was based on employment agreements and the compensation policies of MLFSB and BANA. During 2009, we did not have a separate independent board of directors or compensation committee. The compensation of our Chairman and Chief Executive Officer, President and Chief Operating Officer, and General Counsel, was set, in each case, by separate, three-year employment agreements negotiated with Merrill Lynch in May 2007 with respect to Mr. Herbert and Ms. August-deWilde and a separate two-year agreement negotiated in May 2008 with respect to Mr. Dobranski. Compensation decisions for our other named executive officers were made by our Chairman and Chief Executive Officer and President and Chief Operating Officer as the senior officers responsible for the First Republic division of MLFSB and BANA. These employment agreements are no longer in effect, and the compensation policies of MLFSB and BANA are no longer applicable to the compensation of the named executive officers or other employees of the Bank.

Following the Transaction, the Compensation Committee has been and will continue to be responsible for establishing our compensation philosophy and programs and for determining appropriate payments and awards to our named executive officers. The Compensation Committee is responsible for reviewing and administering our policies governing compensation for our executive management team (our Chairman and Chief Executive Officer, President and Chief Operating Officer, Executive Vice President and Chief Financial Officer, and any other officer who will be required to file beneficial ownership reports with respect to our stock under Section 16 of the Exchange Act following the completion of this offering), in some cases, subject to approval or ratification by the Board. Five members of the Board sit on the Compensation Committee, all of whom are independent directors as defined in the corporate governance listing standards of the NYSE. The Compensation Committee’s function is more fully described in its charter which has been approved by the Board.

The first part of this Compensation Discussion and Analysis describes the compensation decisions and objectives in place for 2009 applicable to the compensation tables which follow this Compensation Discussion and Analysis. The second part of this Compensation Discussion and Analysis describes our compensation decisions and objectives following the Transaction and the completion of this offering which will be applicable to the named executive officers for the remainder of 2010 and on a going forward basis.

Overview of 2009 Compensation

Base Salary

During 2009, base salaries for Mr. Herbert and Ms. August-deWilde were set by employment agreements negotiated with Merrill Lynch in early 2007, and the base salary for Mr. Dobranski was set in his 2008 employment agreement. The base salaries for 2009 of Willis H. Newton, Jr., our Executive Vice President and Chief Financial Officer, and David B. Lichtman, our Executive Vice President and Chief Credit Officer, were set by our Chairman and Chief Executive Officer and President and Chief Operating Officer. Base salaries for Messrs. Newton and Lichtman were intended to be comparable to similarly situated employees in the financial services industry and relatively consistent with prior years.

134 Annual Incentives

For 2009, Mr. Herbert and Ms. August-deWilde were entitled to guaranteed bonuses pursuant to the terms of their May 2007 employment agreements with Merrill Lynch. For 2009, Mr. Dobranski was entitled to a guaranteed bonus pursuant to his 2008 employment agreement. These bonus payments were set by their 2007 employment agreements and were not based on performance measures or goals. These guaranteed 2009 bonuses were $5,310,000 for Mr. Herbert, $4,564,000 for Ms. August-deWilde and $500,000 for Mr. Dobranski.

Under their 2007 employment agreements during 2009, Bank of America paid $2,655,000 and $913,000 of the bonus payments for Mr. Herbert and Ms. August-deWilde, respectively, in restricted stock units of Bank of America common stock granted in February 2010 and valued based on the average market price of Bank of America common stock for the 10 trading days prior to the date of grant.

In November 2007, Messrs. Newton, Lichtman and Dobranski received a time-vested cash retention bonus from MLFSB reflecting the loss in grant date value of the grant of restricted stock each executive had received following First Republic’s 2007 acquisition by Merrill Lynch resulting from Merrill Lynch’s delay in making such grant and the drop in the stock price of Merrill Lynch. Each executive received a cash payment retention bonus of $9 per restricted share that each executive received from Merrill Lynch. The retention bonus was payable evenly over six quarters, commencing March 2008 with the final payment in June 2009. In order to qualify for each payment, the executive was required to be an employee of First Republic at the time of such payment. The retention bonus payments received by Messrs. Newton, Lichtman and Dobranski during 2009 were $74,988 each for Messrs. Newton and Lichtman and $18,000 for Mr. Dobranski. In addition, pursuant to their employment agreements with MLFSB, Mr. Herbert received cash retention bonuses of $1,125,000 in each of 2009 and 2010, and Ms. August-deWilde received cash retention bonuses of $375,000 in each of 2009 and 2010.

In addition to the retention bonuses described above, Mr. Lichtman was entitled to an annual incentive opportunity pursuant to an incentive compensation plan established by the First Republic division of MLFSB and BANA and Messrs. Newton and Dobranski were entitled to discretionary bonuses under the terms of Mr. Newton’s incentive plan and Mr. Dobranski’s employment agreement as described below. The discretionary portion of Mr. Dobranski’s bonus was $600,000. Mr. Newton had a bonus potential of $1,500,000 with the actual payout dependent on a subjective performance review conducted by our Chairman and Chief Executive Officer and President and Chief Operating Officer. Mr. Lichtman had a bonus potential of $1,200,000 with the actual payout dependent on the achievement of subjective and certain objective performance measures as described below.

Mr. Dobranski’s 2009 discretionary bonus amount was determined pursuant to the terms of his employment agreement at the discretion of our Chairman and Chief Executive Officer. There were no pre-determined subjective or objective performance measures. Among the factors considered by our Chairman and Chief Executive Officer was the financial performance of the Bank, Mr. Dobranski’s key role in preparing and staffing his department for eventual growth after the Transaction and providing overall leadership to the Bank, although none of these factors was dispositive or individually weighted. Based on these factors, Mr. Dobranski was awarded a $600,000 discretionary bonus for 2009.

Mr. Newton’s 2009 discretionary bonus amount was also determined pursuant to the terms of a written incentive compensation plan at the discretion of our Chairman and Chief Executive Officer and our President and Chief Operating Officer. There were no pre-determined subjective or objective performance measures. Among the performance factors considered were our financial performance, including our return on equity, asset quality, return on assets, and efficiency ratio. In addition, Mr. Newton’s role in the Transaction process and his key role in strengthening the finance and accounting team for their role after the Transaction were considered, although none of these factors was dispositive or individually weighted. Based on these factors, Mr. Newton was awarded a discretionary bonus of $1,500,000.

135 Mr. Lichtman’s written incentive compensation plan included subjective performance measures with a bonus potential of $200,000 and objective performance measures with a bonus potential of $1,000,000. The following subjective performance measures were considered by our Chairman and Chief Executive Officer and President and Chief Operating Officer: integration of credit approval operations and new employees; coordination of process among relationship managers, business bankers and regional and area managers; improvement of effort and flexibility of the credit function; and senior executive leadership role.

Mr. Lichtman’s 2009 incentive compensation plan also included certain objective performance measures with respect to First Republic, including measures relating to the level of nonperforming assets, which was weighted at 70%; increasing our cross-selling to customers, which was weighted at 10%; and increasing checking accounts, which was weighted at 20%. The threshold bonus payable under these measures was $60,000 and the maximum amount payable was $1,000,000.

Our Chairman and Chief Executive Officer and President and Chief Operating Officer reviewed the subjective performance measures and determined that Mr. Lichtman was entitled to the full target level payout of $200,000 for the subjective portion of the incentive plan. For the objective measures, asset quality performance was at mid-level, and cross-selling success and the checking account goal performance were each at the highest level, for a combined payout under the performance measures of $825,000 and a total incentive compensation payout for 2009 of $1,025,000.

Restricted Stock Units

As discussed above, Mr. Herbert and Ms. August-deWilde received a portion of their guaranteed bonus for 2009 in the form of Bank of America restricted stock units, pursuant to the terms of the May 2007 employment agreements. Also, in February 2009, Mr. Dobranski was granted by Bank of America an award of Bank of America restricted stock units with a market value of $125,000 pursuant to the terms of his employment agreement negotiated in 2008. In addition, our Chairman and Chief Executive Officer and President and Chief Operating Officer determined that Messrs. Newton and Lichtman should be included among First Republic employees who would receive a Bank of America restricted stock unit award from Bank of America; each was awarded restricted stock units with a market value of $200,000, also granted in February 2009. The decision to award Bank of America restricted stock units to Messrs. Newton and Lichtman was based on a desire to align compensation with shareholder return and reward these executives for contributing to the growth of the First Republic franchise.

The decision to use restricted stock units as a means of equity award was based on the compensation policies of MLFSB and BANA then in effect. The restricted stock units were valued based on the closing price of Bank of America common stock on the date of the grant. The restricted stock units vest one-third each on the first, second and third anniversary dates of the grant. The restricted stock units are settled in shares of Bank of America common stock issued by Bank of America on a one-for-one basis. Prior to vesting, any dividends paid on Bank of America common stock will also be paid by Bank of America to holders of restricted stock units. As a result of the Transaction, these restricted stock units are now vested and will continue to be paid out by Bank of America according to their original vesting schedule.

Effect of the Transaction on Executive Compensation

The following changes occurred with respect to the compensation arrangements of the named executive officers as a result of the Transaction:

• Notwithstanding future termination of employment, Bank of America restricted stock units held by the named executive officers continue to vest according to their original vesting schedule, subject to compliance by the named executive officers with certain covenants.

136 • Mr. Herbert and Ms. August-deWilde earned a prorated incentive cash bonus for service for the first six months of 2010 of $2,655,000 and $2,282,000, respectively which was consistent with 50% of their 2009 guaranteed bonus amount.

• Shares of Bank of America restricted stock held by each named executive officer, and a portion of the Bank of America restricted stock units held by Mr. Herbert and Ms. August-deWilde, immediately vested and were paid out in cash by Bank of America as follows by named executive officer and amount of cash received: Mr. Herbert ($250,624); Mr. Newton ($437,799); Ms. August- deWilde ($809,741); Mr. Lichtman ($395,675); and Mr. Dobranski ($307,335).

• The named executive officers received cash payments in 2010 for unused vacation, and for Ms. August-deWilde, Mr. Newton and Mr. Dobranski, cash payments for unused sabbatical time.

• Mr. Herbert and Ms. August-deWilde each entered into new employment agreements with us, which become effective upon the closing of the Transaction, as described in “ —Compensation Discussion and Analysis—Overview of Compensation for July 2010 Forward—Employment Agreements.”

• Employment agreements of Mr. Herbert, Ms. August-deWilde and Mr. Dobranski with the First Republic division of MLFSB and BANA ceased to be in effect.

• Following the Transaction, each named executive officer received from us grants of stock options, as described in “ —Compensation Discussion and Analysis—Overview of Compensation for July 2010 Forward—Long-Term Incentives.”

Except as described above, the named executive officers did not receive any change in control payments or accelerated vesting of equity awards or other benefits as a result of the Transaction.

Overview of Compensation for July 2010 Forward

The following Compensation Discussion and Analysis describes the material elements of our anticipated compensation programs following the completion of this offering.

Pay Levels and Benchmarking

In making determinations regarding executive compensation, the Compensation Committee expects to engage the services of a compensation consultant. For 2010, the Compensation Committee has retained Steven Hall & Partners (“SH&P”) to assist in a review of competitive compensation levels, including base salary, annual incentive (bonus) compensation, total cash compensation, long-term incentives, and other compensation. SH&P and affiliates do not provide any other services to the Bank and its affiliates. SH&P summarizes certain data for the Compensation Committee and collects similar data on other companies. The data reflects compensation practices at companies that we, with input from SH&P consider to be key competitors, with similar service offerings and includes banks comparable in total assets and managed assets (the “Peer Group”). The data provided also includes a summary of financial performance for us and the Peer Group. This Peer Group (the members of which are listed below) will be periodically reviewed and updated by the Compensation Committee.

• Northern Trust Corporation • City National Corporation • Comerica Incorporated • Commerce Bancshares, Inc. • Marshall & Ilsley Corporation • TCF Financial Corporation • Zions Bancorporation • Cullen/Frost Bankers, Inc.

137 • Discover Financial Services • NYSE Euronext • CME Group Inc. • BancorpSouth, Inc. • Visa Inc. • CapitalSource Inc. • First Horizon National Corporation • Whitney Holding Corporation • BOK Financial Corporation • Wilmington Trust Corporation • IntercontinentalExchange, Inc. • NASDAQ OMX Group, Inc. • People’s United Financial, Inc.

Prior to the Transaction, the Bank filed the Peer Group compensation data and the proposed employment agreements of our Chairman and Chief Executive Officer and our President and Chief Operating Officer with the FDIC. Recommendations from the FDIC were incorporated into the final employment agreements which were reviewed as part of the regulatory approval of the Transaction.

Pay levels and adjustments for named executive officers will be determined by the Compensation Committee after considering the pay levels among the Peer Group as well as other factors including individual efforts and our performance against business plans approved by the Board. As part of the market benchmarking process, the Compensation Committee will regularly consider our financial performance in comparison with the companies in the Peer Group. The Compensation Committee generally will target total compensation at above average levels for above average performance, primarily with respect to total shareholder return and other return measures. The Compensation Committee also will focus on maintaining an above average share of compensation at risk through the use of performance-based compensation.

The Compensation Committee is responsible for evaluating performance of the named executive officers and determining compensation levels. The full Board will review the Compensation Committee’s recommendations regarding the annual salary, bonus and other compensation matters for the executives. The Chairman and Chief Executive Officer and, as appropriate, other members of management, will generally attend Compensation Committee meetings to discuss individual and Bank performance goals and outcomes as well as desired compensation approaches for the Bank. However, only Compensation Committee members are allowed to vote on decisions made regarding executive compensation.

The Compensation Committee expects to meet with the Chairman and Chief Executive Officer and President and Chief Operating Officer to discuss their own compensation packages, but ultimately decisions regarding these packages will be made solely based upon the Compensation Committee’s deliberations with input from its compensation consultant, subject to the provisions of their employment agreements with us (for additional information, see “ —Compensation Discussion and Analysis—Overview of Compensation for July 2010 Forward—Employment Agreements”). Decisions regarding other named executive officers will be made by the Compensation Committee after considering recommendations from the Chairman and Chief Executive Officer, as well as input from our compensation consultant.

Compensation Philosophy & Objectives

Our compensation philosophy is based on the belief that executive compensation should closely reflect the achievement of results as measured by key indicators of our performance, including both short-term and long-term measures, and the development and implementation of effective strategic business plans approved by the Board annually. Incentive compensation programs have been developed to motivate and reward named executive officers for their contribution to our performance and the creation of value for shareholders through the use of financial measures of performance in our incentive compensation plans.

138 The compensation plan for named executive officers is based upon the following goals and policies:

• A significant portion of executive compensation should be incentive compensation that is directly linked to our safety and to our annual performance, which supports achievement of both our short- term and long-term financial safety and performance goals;

• Incentive compensation should be based on the measures of our performance that are most meaningfully related to the creation of value for shareholders, including the level of earnings, return on equity, return on assets, asset quality, efficiency and regulatory status;

• Compensation programs should support our long-term strategic goals and objectives;

• Compensation programs should incentivize and reward individuals for outstanding contributions to our success, including performance under difficult economic circumstances; and

• Compensation programs should encourage safety and soundness and not encourage excess risk taking.

We utilize three main components of compensation:

• Base Salary—fixed pay established at levels that are comparable to salaries for executive officers performing similar duties for financial institutions of comparable size;

• Annual Incentives—variable pay that is designed to reward attainment of specified performance goals, with award opportunities generally expressed as a percentage of a total established pool or a percentage of a predetermined target; and

• Long-Term Incentives—performance-based stock options are designed to induce named executive officers to remain with us and to provide them with long-term incentives for sustained high levels of performance.

In addition, we provide certain benefits and perquisites to executives; each component is discussed below in greater detail. We believe that the use of relatively few, straightforward compensation components promotes the effectiveness and transparency of our executive compensation program and enables us to be competitive in the banking industry. No formula or specific weighting or relationships are used with regard to the allocation of various compensation components. Under the Bank’s compensation philosophy, the mix of base salary, annual incentive and long-term incentive varies with an executive’s responsibilities and position. For the named executive officers, who set the overall strategy of our business and have the greatest ability to influence that strategy, a majority of compensation should be performance-based with the greatest compensation opportunities weighted toward long-term objectives. The compensation mix for Mr. Herbert and Ms. August-deWilde is substantially set by their employment agreements which continue through December 31, 2014, as negotiated with investors and reviewed by the FDIC prior to the closing of the Transaction.

In 2010, the federal banking agencies jointly adopted new guidance relating to incentive compensation policies at insured depository institutions. In general, the guidance is principles-based and requires insured depository institutions to seek to assure that their incentive compensation policies do not encourage undue risk taking by management officials and other employees. The Compensation Committee intends to give due regard to the principles of this guidance in developing and administering our compensation program for our named executive officers and other employees.

139 Base Salary

Salaries for named executive officers are established based on competitive pay levels for similar positions, as well as Bank and individual performance. Because our compensation philosophy places emphasis on incentive compensation, base salaries are intended to be comparable to median salaries for similarly situated executives within the Peer Group. The Compensation Committee will review base salaries every two years or earlier if the salary of any named executive officer falls significantly below the 50th percentile of the Peer Group.

The table below sets forth the 2009 and 2010 (for the period prior to the Transaction) annual base salaries for our named executive officers:

2010 Base Salary prior 2009 Base to June 30, Current Base Title Salary 2010 Salary James H. Herbert, II, Chairman and Chief Executive Officer ...... $ 690,000 $ 690,000 $ 750,000 Katherine August-deWilde, President and Chief Operating Officer ...... $ 436,000 $ 436,000 $ 750,000 Willis H. Newton, Jr., Executive Vice President and Chief Financial Officer ...... $ 325,000 $ 325,000 $ 325,000 David B. Lichtman, Executive Vice President and Chief Credit Officer . . . . . $ 350,000 $ 350,000 $ 350,000 Edward J. Dobranski, Executive Vice President and General Counsel ...... $ 300,000 $ 300,000 $ 300,000

Through June 30, 2010, the base salaries for Mr. Herbert and Ms. August-deWilde were $690,000 and $436,000, respectively, and had, in each case, remained in effect at that level since 2004 and 2006, respectively. In the employment agreements between us and Mr. Herbert and Ms. August-deWilde, which became effective at the time of the Transaction on July 1, 2010, the annual base salary of each of Mr. Herbert and Ms. August- deWilde was increased to $750,000 pursuant to the terms of their employment agreements. For additional information, see “ —Compensation Discussion and Analysis—Overview of Compensation for July 2010 Forward—Employment Agreements.” Other than Mr. Herbert and Ms. August-deWilde, the annual base salaries of each of our named executive officers remained unchanged after the Transaction.

Annual Incentives

Under their employment agreements, Mr. Herbert and Ms. August-deWilde are each entitled to an annual cash bonus opportunity equal to 0.5% of our pre-tax profit each fiscal year (prorated for 2010 from the date of the Transaction), subject to their continued employment. Under their agreements, the amount of the annual bonus opportunity to which the executive will be entitled will be based upon (a) satisfaction of certain safety and soundness criteria relating to the quarterly average of nonperforming assets to total assets and our composite FDIC regulatory rating under the FDIC’s CAMELS rating system and (b) the attainment of specified levels of after-tax annual return on average tangible assets and average tangible equity. The Compensation Committee regards the performance measures relating to after-tax annual return on average tangible assets and average tangible equity as important financial benchmarks for measuring our performance. The performance measure relating to the ratio of nonperforming loans to total assets is included in order to emphasize asset quality. The performance measure relating to our FDIC regulatory rating is intended to emphasize the general operation of the Bank in a safe and sound manner. The Compensation Committee believes that this mix of safety and performance measures appropriately balances incentives for growth, financial performance and risk management for our Chairman and Chief Executive Officer and President and Chief Operating Officer. Once the bonus opportunity is determined, the weightings of the corporate performance measures under each employment agreement is as follows: (1) average of quarterly nonperforming assets to total assets—30%; (2) composite FDIC CAMELS rating (at time of bonus payout)—30%; (3) annual after-tax return on average tangible assets—20%; and (4) annual after-tax return on average tangible equity—20%. For each of these performance measures, each employment agreement provides for threshold and higher levels of performance. If the threshold level of performance is achieved, Mr. Herbert and Ms. August-deWilde will each receive 25% of the calculated award

140 (except for the regulatory rating criteria in which case 100% of the calculated award will be earned) with increasing percentages being earned upon further criteria being attained, up to 100% of the calculated award being earned if the highest performance criteria are attained. For additional information see “ —Compensation Discussion and Analysis—Overview of Compensation for July 2010 Forward—Employment Agreements.”

In December 2009, Messrs. Newton, Lichtman and Dobranski each negotiated incentive compensation plans with our Chairman and Chief Executive Officer and President and Chief Operating Officer with respect to their duties at First Republic for the 2010 fiscal year. These plans were assumed and continued by the Bank following the Transaction. On April 26, 2010, the Compensation Committee reviewed these incentive compensation plans and adopted them as plans of the Bank. One of the key considerations of the Compensation Committee in adopting the plans was that, as of the anticipated closing date of the Transaction, these plans would have been in place through about one-half of the year and each of the relevant named executive officers had a reasonable expectation that his plan would operate for the balance of 2010 under these plans. The Compensation Committee also determined that each plan was generally consistent with our overall compensation philosophy because it links the relevant named executive officer’s compensation to our performance and is also individually tailored for each named executive officer to reward results in the areas where he can influence results. In addition, the Compensation Committee noted that each plan promotes our safety and soundness by reducing bonuses in a year when there are asset quality problems or poor deposit growth. For each of the relevant named executive officers, the amount of bonuses earned in 2010 will be reduced by 10% if we do not achieve certain targets relating to return on equity, levels of nonperforming loans and non-CD deposit growth.

Mr. Newton’s target bonus for 2010 is $775,000 which is guaranteed for 2010, subject to the possible 10% performance reduction described above. Mr. Newton’s performance goals for 2010 include: (1) preparing us to become a public reporting company with the ability to prepare required financial statements; (2) ensuring our accounting and reporting functions meet applicable deadlines; (3) properly supervising the Bank’s accounting and finance functions; (4) ensuring development of a chart of accounts which allows for an understanding and management of costs; and (5) assisting us to obtain an investment grade rating.

Mr. Lichtman’s bonus potential for 2010 is $750,000. Mr. Lichtman’s incentive compensation plan includes subjective performance measures with a payout of $100,000 and objective performance measures with a payout of $650,000. The incentive compensation plan includes the following unweighted subjective measures of Mr. Lichtman’s performance in the following areas: (1) keeping credit quality high by avoiding large, complex or unusual transactions; (2) ensuring a smooth and quick credit approval process; (3) playing a senior executive role in conflict resolution; (4) improving the effort and flexibility of the credit function; and (5) enhancing and expanding credit training and real estate training and business banking. The achievement of these performance measures will be evaluated by the President and Chief Operating Officer, who will make a determination and advise the Compensation Committee.

Mr. Lichtman’s incentive compensation plan also includes certain objective performance measures with a bonus potential of $650,000. These objective performance measures include minimizing the total value of all nonaccrual loans, REO, restructured performing loans, accruing single family loans over 90 days past due for balance sheet and sold loans, which is weighted at 70%; increasing our cross-selling to customers, which is weighted at 10%; and increasing checking accounts, which is weighted at 20%. The threshold bonus payable under these objective performance measures is $50,000 and the maximum amount payable is $650,000.

Mr. Dobranski’s bonus potential for 2010 is $650,000. His actual bonus will depend on the subjective, unweighted performance evaluation by our Chairman and Chief Executive Officer, who will make a determination and advise the Compensation Committee, in the following areas: (1) successful completion of the Transaction; (2) establishing a fully independent legal department function; (3) establishing all regulatory liaisons and completing all appropriate filings in a timely manner; (4) establishing our ability to operate as an independent legal entity in all markets; (5) preparing us to be governed as if we were a public company; and (6) establishing strong structure and personnel for the Bank’s compliance with the CRA.

141 Under our existing annual incentive compensation program, which we refer to as our cash bonus plan, the Bank will continue to provide our officers (other than our Chairman and Chief Executive Officer and President and Chief Operating Officer) with annual variable pay incentives in the form of individual incentive plans designed to reward attainment of specified performance goals, with award opportunities generally expressed as a percentage of a total established pool or a percentage of a predetermined target. Performance goals may be designed to link the relevant officer’s compensation to our performance and also individually tailored for each officer to reward results in the areas where that officer can influence results. Our Compensation Committee has the authority to administer the cash bonus plan with respect to our named executive officers in its discretion, including the authority to determine eligibility, the terms and conditions of each annual individual incentive plan, and the attainment of performance goals.

Long-Term Incentives

Long-term incentives are used to retain and motivate named executive officers to improve long-term results and ultimately our book value and stock performance. Beginning in July 2010, we began to use stock options with service and performance-based vesting criteria as our primary long-term incentive vehicle for our named executive officers.

Stock options were granted on July 1, 2010 to all named executive officers. These stock options have a ten-year term and consisted of the following three types of awards:

• Time-vested options, intended as a one-time award in connection with the Transaction, which will vest monthly over four years based on the continued employment of the relevant named executive officer, which are referred to as “service options”;

• Performance-vested options which will vest based on our financial and operational performance over four performance years and also require continued employment of the relevant named executive officer, which are referred to as “performance options”; and

• For the Chairman and Chief Executive Officer and President and Chief Operating Officer, performance options which will vest based on the return on investment in the Bank by the investors contributing capital to the Bank in connection with the Transaction (the “Initial Investors”), which are referred to as “super-performance options.”

All stock options were issued with exercise prices equal to the fair market value of our common stock on the date of grant (determined by the Board to be $15 per share, the amount paid per share by the Initial Investors on the date of the Transaction) and will only have value if our stock price increases.

Mr. Herbert and Ms. August-deWilde each were granted options to purchase 4,937,121 shares of our common stock at an exercise price of $15 per share in July 2010. This award was divided into service options to purchase 1,410,606 shares, performance options to purchase 2,821,212 shares and super-performance options to purchase 705,303 shares. The number of shares and type of options granted were determined under the terms of the employment agreement with each of Mr. Herbert and Ms. August-deWilde. For additional information regarding such options, see “ —Post-Transaction Compensation Arrangements—Employment Agreements” on page 161.

Also upon completion of the Transaction, service options and performance options were granted to Messrs. Newton, Lichtman, and Dobranski, covering 100,000, 165,000 and 140,000 shares, respectively. The grants to Messrs. Newton and Lichtman consisted of 20% service options and 80% performance options and the grant to Mr. Dobranski consisted of 25% service options and 75% performance options. The exercise price was $15 per share. The percentage of service options awarded was generally based on the contributions of each individual in 2009 and 2010 towards the completion of the Transaction. The service options vest ratably over

142 four years. The performance options vest ratably over four performance years in amounts pre-determined by the attainment of performance goals. Vesting of the performance-based options also requires the continued employment of the named executive officers. The performance goal categories for these options are return on average tangible common equity, percentage of non-CD deposit growth and level of average nonperforming assets. The options are subject to accelerated vesting in certain events, including in certain terminations following a change in control and certain terminations of service. See “ —Post-Transaction Compensation Arrangements—Stock Option Plan” on page 165.

The Compensation Committee expects to continue to award performance-based stock options based on our operational performance or other metrics as long-term incentives to the named executive officers and to other key employees. At this time, the Compensation Committee does not plan to award service options beyond those awarded upon completion of the Transaction, as described above.

Prior stock compensation gains are not generally considered in setting future compensation levels, although we do consider the number of stock option grants that have previously been awarded when considering future grants of equity awards.

Retirement

401(k) Plan

All employees of the Bank who have been employed by the Bank for more than six months, including each of the named executive officers, are eligible to participate in the Bank’s 401(k) Plan. U.S. Treasury Regulations establish an annual limit on the amount of any voluntary employee contributions to a 401(k) plan (which, for 2009, was $16,500 plus $5,500 if the employee is 50 years old or more). The amount of the match under the BANA 401(k) Plan was a maximum of $2,000 for 2009.

Life Insurance Death Benefits

Since 2004, we have been a party to an Endorsement Method Split-Dollar Agreement (the “Insurance Plan”) with each of the named executive officers. Pursuant to these agreements, we agree to maintain a life insurance policy and pay to the named executive officer’s designated beneficiary a portion of the proceeds payable upon the death of the named executive officer. For 2010, the death benefit payable to each named executive officer’s beneficiary was $2,700,000 in the case of Mr. Herbert, $2,900,000 in the case of Ms. August-deWilde, $2,500,000 in the case of Mr. Newton, $2,700,000 in the case of Mr. Lichtman and $1,250,000 in the case of Mr. Dobranski. The agreement to pay a portion of the death benefit will terminate at age 70 in the case of Mr. Herbert, Ms. August-deWilde and Mr. Newton, and at age 65 in the case of Mr. Lichtman and Mr. Dobranski. For a short period following termination of employment, each named executive officer will have the option to purchase the underlying life insurance policy from us. Initially, the named executive officers were entitled to a reduced death benefit if his or her employment was terminated for any other reason prior to age 65. As a result of the acquisition of First Republic by MLFSB in 2007, we prepaid all premiums to the insurance carrier and each named executive officer became fully vested in benefits under the insurance plan; substantially all the premiums would be repaid by the named executive officer upon purchase of the policy.

Supplemental Executive Retirement Plan (“SERP”)

In 2004, we adopted a SERP covering the named executive officers. The purpose of the SERP is to provide supplemental retirement funds, which can be used by each named executive officer to purchase the life insurance policy under the Insurance Plan from us at its estimated cash surrender value. Initially, if the named executive officer remained employed by us until he or she reached age 65 (or if he or she became disabled prior to age 65), the named executive officer would be entitled to a lump sum payment approximately equal to

143 $1,700,000 in the case of Mr. Herbert, $1,600,000 in the case of Ms. August-deWilde, $1,400,000 in the case of Mr. Newton, $900,000 in the case of Mr. Lichtman and $410,000 in the case of Mr. Dobranski. The retirement benefit would be payable to Mr. Herbert, Ms. August-deWilde and Mr. Newton at age 70, and to Mr. Dobranski and Mr. Lichtman at age 65. As a result of the acquisition of First Republic by MLFSB in 2007, each named executive officer became fully vested in these SERP benefits even if his or her employment were terminated prior to age 65.

Perquisites

Our policy is to provide competitive compensation and benefit plans and to offer perquisites to our named executive officers which represent a very modest portion of their total compensation and which are usual and customary for similar corporate entities. In 2009 and 2010, the perquisites provided to each named executive officer included a leased automobile or an auto allowance, use of corporate aircraft for personal purposes, daytime parking near corporate headquarters, financial planning and tax return preparation services and club membership dues.

Employment Agreements

In connection with the Transaction, we entered into employment agreements effective June 30, 2010 with Mr. Herbert and Ms. August-deWilde. These employment agreements were approved by the Compensation Committee and the Board on April 26, 2010 and May 6, 2010, respectively. These employment agreements were also reviewed by the FDIC as part of its review and regulatory approval of the Transaction. While these employment agreements were the product of arm’s-length negotiation between the Initial Investors and the executives, the Compensation Committee and the Board also concluded that these agreements will promote and are consistent with our philosophy on executive compensation.

The Compensation Committee and the Board believe that these employment agreements will promote the retention of these two key executive officers of the Bank by providing an attractive overall compensation package, allowing Mr. Herbert and Ms. August-deWilde to share in our long-term success and providing stability of employment resulting from a guaranteed base salary and change in control provisions. Our philosophy regarding post-employment benefits, including following a change in control, is described in “ —Compensation Discussion and Analysis—Overview of Compensation for July 2010 Forward—Policy on Post-Employment and Change in Control Benefits.” In addition, the Compensation Committee determined that these two named executive officers are best situated to influence our future success, for the benefit of our shareholders, employees and customers. As a result, these employment agreements provide for a mix of annual and long-term incentives designed to motivate and reward these named executive officers for our performance. These incentives are designed to provide annual cash bonuses and stock options designed to provide long-term incentives to maximize shareholder value. As architects and promoters of our strong workplace culture, these named executive officers were given contractual provisions designed to encourage and empower them to continue to promote this culture.

As a part of our compensation philosophy, the employment agreements are also designed to encourage Mr. Herbert and Ms. August-deWilde to maintain our safety and soundness. Incentives to maintain our safety and soundness include the overall balance of equity compensation being weighted more heavily toward long-term performance goals (approximately 70 percent) than time vesting (approximately 30 percent). In addition, each employment agreement contains a provision for a personal equity investment by the named executive officers of approximately $6.1 million each, which investment was made at the closing of the Transaction. Under their employment agreements, the amount of the annual cash bonus opportunity to which Mr. Herbert and Ms. August-deWilde will be entitled will be based upon (a) satisfaction by us of certain safety and soundness criteria relating to the quarterly average of nonperforming assets to total assets and our composite FDIC regulatory rating under the FDIC’s CAMELS rating system and (b) the attainment by us of specified levels of after-tax annual return on average tangible assets and average tangible common equity. The vesting of a portion of the performance options awarded under the agreements is also conditioned upon the maintenance of certain levels of nonperforming assets to total assets of the Bank.

144 The Compensation Committee regards the performance measures relating to after-tax annual return on average tangible assets and average tangible common equity as important financial benchmarks for measuring our performance. The performance measure relating to the ratio of nonperforming loans to total assets is included in order to emphasize asset quality. The performance measure relating to our FDIC regulatory rating is intended to emphasize the general operation of the Bank in a safe and sound manner. The Compensation Committee believes that this mix of performance measures appropriately balances incentives for growth, financial performance and risk management for our top executives. The weightings of the corporate performance measures under their employment agreements are as follows: (1) average of quarterly nonperforming assets to total assets —30%; (2) composite FDIC CAMELS rating (at time of bonus payout)—30%; (3) annual after-tax return on average tangible assets—20%; and (4) annual after-tax return on average tangible common equity—20%. For each of these performance measures, the employment agreements provide for threshold and higher levels of performance. If the threshold level of performance is achieved, Mr. Herbert and Ms. August-deWilde will each receive 25% of the calculated award (except for the regulatory rating criteria in which case 100% of the calculated award will be earned) with increasing percentages being earned upon further criteria being attained, up to 100% of the calculated award being earned if the highest performance criteria are attained. As a result of these provisions, the Compensation Committee believes that the employment agreements motivate these named executive officers to maintain our safety and soundness and do not encourage the maximization of short-term gains at the expense of our long-term stability.

A description of the material terms of these employment agreements is included in “ —Post-Transaction Compensation Arrangements—Employment Agreements” on page 161.

Policy on Post-Employment and Change in Control Benefits

Due to continuing consolidation in the financial services industry and for competitive and fairness reasons, we believe it is important to protect our named executive officers in the event of certain terminations of employment or a change in control of the Bank. We believe that the interests of the shareholders will be best served if the interests of our senior management are aligned with them. The occurrence or potential occurrence of a change in control would create uncertainty regarding the continued employment of our named executive officers and providing employment protection should eliminate, or at least significantly reduce, any potential reluctance of our executives to pursue potential transactions that may be in the best interests of our shareholders. As a result, the stock option award agreements with all named executive officers provide for the accelerated vesting of options in the event of a change in control. In addition, our employment agreements and stock option award agreements with our Chairman and Chief Executive Officer and President and Chief Operating Officer provide for the accelerated vesting of certain options upon a change in control, and accelerated vesting of certain options and separation pay in the event of termination of service in certain circumstances. We do not provide tax gross-ups for any excise tax that may be triggered by payments made in connection with a change in control. A description of the material terms of the post-termination and change in control benefits payable under these employment agreements is included in “ —Post-Transaction Compensation Arrangements” on page 161.

Stock Ownership Guidelines

The Bank has not adopted stock ownership guidelines for named executive officers or any policies prohibiting named executive officers from holding Bank securities in margin accounts or pledging Bank securities as collateral for loans.

Clawback Policy

Awards under the Bank’s Stock Option Plan are subject to certain clawback and forfeiture provisions which can be triggered by fraud or conduct contributing to any financial statement restatements or other irregularities and by violations of non-solicitation or non-competition agreements or other actions adverse to the Bank. We do not have any other plans, policies or agreements that specifically require recoupment of awards if

145 performance measures are not achieved. However, under Section 304 of Sarbanes-Oxley, following completion of this offering, if the Bank is required to restate its financial statements due to material noncompliance with any financial reporting requirements as a result of misconduct, the Chairman and Chief Executive Officer and Executive Vice President and Chief Financial Officer must reimburse the Bank for (1) any bonus or other incentive-based or equity-based compensation received during the 12 months following the first public issuance of the non-complying document, and (2) any profits realized from the sale of securities of the Bank during those 12 months.

Accounting and Tax Consequences

In making decisions about executive compensation, we take into account certain tax and accounting considerations. For example, we consider Sections 409A and 280G of the Code. Section 409A, which governs the form and time of payment of deferred compensation, imposes additional significant taxes and penalties on a recipient of deferred compensation that does not comply with Section 409A. Section 280G also imposes additional significant taxes on recipients of payments or benefits in connection with a change in control that exceed certain limits, and we or our successor could lose a deduction on the amounts subject to the additional tax.

As a private company, Section 162(m) of the Code does not currently apply to our compensation. After the consummation of this offering, however, Section 162(m) will limit the deductibility of the annual compensation of our named executive officers (other than our Chief Financial Officer) to $1 million per individual unless the compensation plan and awards meet certain requirements. We intend to rely on transitional relief that is available under Section 162(m) that exempts compensation paid under a plan that existed while we are private. This transitional relief will be available to us until the earliest to occur of: (1) the expiration of the plan; (2) the material modification of the plan; (3) the issuance of all available shares and other compensation that has been allocated under the plan; and (4) the first meeting of shareholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the offering occurs (i.e., the first meeting of shareholders after December 31, 2013, assuming that the offering made hereby is completed in 2010). While we will consider the implications of Section 162(m) and the limits of deductibility on compensation in excess of $1 million as we design our compensation program going forward, we consider it important to retain the flexibility to design a compensation program that is in the best long-term interests of us and our shareholders, particularly as we transition from a private company to a public company. As a result, we have not adopted a policy requiring that all compensation be deductible and our Compensation Committee may conclude that paying compensation at levels that are not deductible under Section 162(m) is nevertheless in the best long-term interests of us and our shareholders.

In making decisions about executive compensation, we also consider how various elements of compensation will affect our financial reporting. For example, we consider the impact of FASB Accounting Standards Codification Topic 718, “ —Compensation—Stock Compensation,” which requires us to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards.

Executive Compensation Tables

The following tables set forth compensation information for our named executive officers and should be read in conjunction with the associated narratives and the Compensation Discussion and Analysis. As previously stated, during the year 2009, First Republic operated as a division of MLFSB until it was merged into BANA in late 2009. The data shown in the following table with respect to stock awards reflect awards under plans of Bank of America and Merrill Lynch and do not reflect awards relating to the equity securities of the Bank. In the Transaction, none of the stock or option awards were converted into equity or equity awards of the Bank.

146 2009 Summary Compensation Table

The following table sets forth the compensation earned by our named executive officers for services rendered to First Republic in all capacities in 2009.

Non-Equity Stock Incentive Plan All Other Name and Principal Position Salary Bonus (1) Awards (2) Compensation Compensation (3) Total James H. Herbert, II ...... $690,000 $3,780,000 $2,405,000 $ — $226,124 $7,101,124 Chairman and Chief Executive Officer Willis H. Newton, Jr...... 325,000 1,574,988 200,000 — 28,789 2,126,777 Executive Vice President and Chief Financial Officer Katherine August-deWilde ...... 436,000 4,026,000 813,000 — 106,628 5,381,628 President and Chief Operating Officer David B. Lichtman ...... 350,000 74,988 200,000 1,025,000 16,204 1,666,192 Executive Vice President and Chief Credit Officer Edward J. Dobranski ...... 300,000 1,118,000 125,000 — 12,191 1,555,191 Executive Vice President and General Counsel

(1) Includes the following: • The cash portion of 2009 guaranteed bonuses paid by the Bank as follows: $2,655,000 for Mr. Herbert, $3,651,000 for Ms. August-deWilde and $500,000 for Mr. Dobranski; • Discretionary cash bonuses paid by the Bank as follows: $1,500,000 for Mr. Newton and $600,000 for Mr. Dobranski; and • Aggregate cash retention bonuses as follows: $1,125,000 for Mr. Herbert, $74,988 for Mr. Newton and Mr. Lichtman, $375,000 for Ms. August-deWilde and $18,000 for Mr. Dobranski. (2) Amounts shown reflect our estimate of the grant date fair value recognized by Bank of America for financial statement reporting purposes in accordance with FASB ASC Topic 718 and consist of Bank of America restricted stock units. We believe that Bank of America generally calculates the grant date fair value of restricted stock units based on the closing price of its common stock on the applicable grant date. The amount calculated is based on Bank of America’s reported closing share price of $5.57 on February 13, 2009 multiplied by the number of restricted stock units. These restricted stock units are settled in shares of Bank of America common stock issued by Bank of America on a one-for-one basis. The restricted stock units are also entitled to receive from Bank of America any cash dividends paid to holders of Bank of America common shares. Cash dividends with respect to unvested restricted share units are included in the “All Other Compensation” column of the Summary Compensation Table. The restricted stock units have no voting rights. For Mr. Herbert and Ms. August-deWilde, amounts represent the portion of their 2008 bonus paid in Bank of America restricted stock units granted in February 2008. We expect to include the portion of Mr. Herbert’s and Ms. August-deWilde’s 2009 bonus paid in Bank of America restricted stock units in the “Stock Awards” column of our 2010 Summary Compensation Table. (3) All Other Compensation includes the following: • Estimated dollar value of the benefit from the Split-Dollar Life insurance premiums paid by the Bank equal to $13,508 for Mr. Herbert, $6,701 for Mr. Newton, $8,605 for Ms. August-deWilde, $2,276 for Mr. Lichtman, and $3,073 for Mr. Dobranski; • Automobile costs for leased vehicles, auto allowances and/or parking paid by the Bank as follows: $21,976 for Mr. Herbert, ($17,476 for auto and $4,500 for parking), $8,700 for Mr. Newton ($4,200 for

147 auto and $4,500 for parking), $8,772 for Ms. August-deWilde ($4,272 for auto and $4,500 for parking), $7,500 for Mr. Lichtman ($3,000 for auto and $4,500 for parking), and $4,200 for Mr. Dobranski for parking paid by the Bank; • Aggregate incremental cost to us of personal use of corporate aircraft as follows: $136,766 for Mr. Herbert and $48,806 for Ms. August-deWilde; • Tax return preparation and financial planning services paid by the Bank as follows: $20,070 for Mr. Herbert, $5,950 for Mr. Newton and $25,796 for Ms. August-deWilde; • Club dues paid by the Bank as follows: $4,350 for Mr. Herbert, $710 for Ms. August-deWilde and $1,540 for Mr. Lichtman; • Restricted stock unit and restricted stock dividends paid by Bank of America as follows: $20,596 for Mr. Herbert, $2,140 for Mr. Newton, $8,472 for Ms. August-deWilde, $2,078 for Mr. Lichtman and $1,043 for Mr. Dobranski; • Excess group term life insurance premiums paid by the Bank as follows: $6,858 for Mr. Herbert, $3,298 for Mr. Newton, $3,467 for Ms. August-deWilde, $810 for Mr. Lichtman and $1,876 for Mr. Dobranski; and • Contributions by the Bank of $2,000 to the 401(k) Plan for each of Mr. Herbert, Ms. August-deWilde, Mr. Lichtman and Mr. Dobranski.

2009 Grants of Plan-Based Awards

The following table contains information concerning awards of restricted stock units made to each of the named executive officers under the Bank of America plans during fiscal year 2009 and non-equity incentive awards granted to Mr. Lichtman, all of which were granted on February 13, 2009.

Estimated Future Payouts Under All Other Stock Awards: Grant Date Fair Value Non-Equity Incentive Plan Awards Number of Shares of of Stock and Option Name Threshold Target Maximum Stock or Units (1) Awards (2) James H. Herbert, II ...... $ —$ —$ — 431,778(3) $2,405,000 Willis H. Newton, Jr...... $ —$ —$ — 35,907 $ 200,000 Katherine August-deWilde ...... $ —$ —$ — 145,961(3) $ 813,000 David B. Lichtman ...... $50,000 $1,000,000 $1,200,000 35,907 $ 200,000 Edward J. Dobranski ...... $ —$ —$ — 22,442 $ 125,000 (1) Consists of Bank of America restricted stock units. These restricted stock units vest one-third each on February 13, 2010, 2011 and 2012 and are settled in shares of Bank of America common stock issued by Bank of America on a one-for-one basis. The restricted stock units are also entitled to receive from Bank of America any cash dividends paid to holders of Bank of America common shares. The restricted stock units have no voting rights. As a result of the Transaction, restricted stock units received under Bank of America plans are now vested and will continue to be paid out according to their original vesting schedule. (2) Amounts shown reflect our estimate of the grant date fair value recognized by Bank of America for financial statement reporting purposes in accordance with FASB ASC Topic 718. We believe that Bank of America generally calculates the grant date fair value of restricted stock units based on the closing price of its common stock on the applicable grant date. The amount calculated is based on Bank of America’s reported closing share price of $5.57 on February 13, 2009 multiplied by the number of restricted stock units. (3) Represents the amount of the named executive officer’s 2008 bonus which was paid in Bank of America restricted stock units which were granted on February 13, 2009. In 2010, Mr. Herbert and Ms. August- deWilde were granted 178,188 and 61,262 Bank of America restricted stock units, respectively, in partial payment of their 2009 bonuses when the Bank of America closing share price was $14.90 per share. We expect to include these restricted stock units in our 2010 Grants of Plan-Based Awards Table.

148 Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table

Employment Agreements

Prior to the Transaction, Mr. Herbert, our Chairman and Chief Executive Officer, and Ms. August- deWilde, our President and Chief Operating Officer, served under three-year employment agreements with MLFSB and BANA, which were entered into in early 2007. These agreements entitled Mr. Herbert and Ms. August-deWilde to annual base salaries of $690,000 and $436,000 respectively, and guaranteed 2009 bonuses of $5,310,000 and $4,564,000, respectively. At the option of MLFSB and BANA, a portion of these guaranteed bonuses could be paid in Bank of America restricted share units. For 2009, $2,655,000 and $913,000 of the guaranteed 2009 bonuses for Mr. Herbert and Ms. August-deWilde, respectively, were paid in Bank of America restricted share units which were granted on February 12, 2010. $2,405,000 and $813,000 of the 2008 bonuses of Mr. Herbert and Ms. August-deWilde, respectively, were paid in Bank of America restricted share units which were granted on February 13, 2009. In addition, pursuant to their employment agreements with MLFSB entered into in 2007, Mr. Herbert received cash retention bonuses of $1,125,000 in each of 2009 and 2010, and Ms. August-deWilde received cash retention bonuses of $375,000 in each of 2009 and 2010. Cash bonuses are generally included in the Summary Compensation Table for the year in which they were earned while stock-based awards are included in the Summary Compensation Table and Grants of Plan-Based Awards Table for the year in which they were granted. As a result, we include the cash portion of each executive’s 2009 bonus and the Bank of America restricted stock units granted during 2009 in the Summary Compensation Table and include the restricted stock units granted during 2009 in the Grants of Plan-Based Awards Table. We expect to include the Bank of America restricted stock units granted to each executive during 2010 as partial payment of their 2009 bonuses in the Bank’s 2010 Summary Compensation Table and 2010 Grants of Plan Based Awards Table. The cash retention bonus paid in 2010 for each of these named executive officers will also be included in the 2010 Summary Compensation Table. In connection with the Transaction, these employment agreements were terminated and the Bank entered into new employment agreements effective June 30, 2010 with Mr. Herbert and Ms. August-deWilde. See “ —Post-Transaction Compensation Arrangements—Employment Agreements” on page 161 for a description of these agreements.

In May 2008, we entered into an employment agreement with Mr. Dobranski. After the Transaction, this employment agreement is no longer in effect. Under this agreement, Mr. Dobranski served as our Executive Vice President and General Counsel and was also responsible for our Operational and Risk Management group. Mr. Dobranski was entitled to an annual salary of $300,000, a guaranteed bonus of $500,000 for each of 2009 and 2010 and a discretionary bonus for 2009 with a target amount of $600,000. Mr. Dobranski was also entitled to a 2009 grant of Bank of America restricted stock units with a grant date market value of $125,000. This employment agreement provided for post-employment payments in a variety of circumstances. See “ —Potential Payments upon Termination or Change in Control—Potential Payments upon Termination or Change in Control at December 31, 2009” on page 152 for a description of these provisions.

149 2009 Outstanding Equity Awards at Fiscal Year-End

The following table shows outstanding equity awards held by the named executive officers as of December 31, 2009. All such outstanding equity awards at year-end 2009 were awarded under plans of Merrill Lynch or Bank of America and represent awards with respect to the equity securities of Bank of America rather than the Bank. During 2010, the named executive officers were granted equity awards with respect to the Bank which are not included in the table below as they were not outstanding at December 31, 2009. See “ —Compensation Discussion and Analysis— Overview of Compensation for July 2010 Forward—Long-Term Incentives” on page 142 for a description of these awards.

Option Awards Stock Awards Equity Incentive Equity Plan Incentive Awards: Plan Market or Equity Awards: Payout Incentive Number of Value of Plan Unearned Unearned Awards: Number of Market Shares, Shares, Number of Number of Number of Shares or Value of Units or Units or Securities Securities Securities Units of Shares or Other Other Underlying Underlying Underlying Stock Units of Rights Rights Unexercised Unexercised Unexercised Option Option That Stock That That That Options Options Unearned Exercise Expiration Have Not Have Not Have Not Have Not Name Exercisable Unexercisable Options Price Date (1) Vested Vested (2) Vested Vested James H. Herbert, II ...... — — — $— — 514,904(3) $7,754,454 — $— Willis H. Newton, Jr...... — — — $— — 49,709(4) $ 748,618 — $— Katherine August-deWilde ...... — — — $ — — 211,794(5) $3,189,618 — $— David B. Lichtman ...... — — — $— — 48,381(6) $ 728,618 — $— Edward J. Dobranski ...... 2,534 — — $38.10 1/2/14 32,131(7) $ 483,893 — $— 37,890 — — $52.85 1/27/15

(1) Options will remain exercisable until the expiration date listed. (2) Reflects the reported closing market price of Bank of America common stock of $15.06 on December 31, 2009. (3) Includes 25,838 Bank of America restricted share units which vest ratably on January 31, 2010, 2011 and 2012; 431,778 Bank of America restricted share units which vest ratably on February 13, 2010, 2011 and 2012; and 57,288 shares of Bank of America restricted stock which vest on January 31, 2010. (4) Includes 35,907 Bank of America restricted share units which vest ratably on February 13, 2010, 2011 and 2012; 6,641 Bank of America restricted share units which vest ratably on July 31, 2010, 2011 and 2012; and 7,161 shares of Bank of America restricted stock which vest ratably on September 30, 2010 and 2011. (5) Includes 8,545 Bank of America restricted share units which vest ratably on January 31, 2010, 2011 and 2012; 145,961 Bank of America restricted share units which vest ratably on February 13, 2010, 2011 and 2012; 34,373 shares of Bank of America restricted stock which vest on January 31, 2010; and 22,915 shares of Bank of America restricted stock which vest ratably on January 31, 2011 and 2012. (6) Includes 35,907 Bank of America restricted share units which vest ratably on February 13, 2010, 2011 and 2012; 5,313 Bank of America restricted stock units which vest ratably on July 31, 2010, 2011 and 2012; and 7,161 shares of Bank of America restricted stock which vest ratably on January 31, 2011 and 2012. Excludes 25,192 Bank of America restricted share units held by Mr. Lichtman’s spouse, who is also an employee of the Bank. (7) Includes 22,442 Bank of America restricted share units which vest ratably on February 13, 2010, 2011 and 2012; 7,970 Bank of America restricted stock units which vest ratably on July 31, 2010, 2011 and 2012; and 1,719 shares of Bank of America restricted stock which vest ratably on September 30, 2010 and 2011.

150 2009 Option Exercises and Stock Vested

The following table sets forth information concerning value realized upon vesting of restricted stock during our 2009 fiscal year by each of the named executive officers. In all cases, value realized is based upon the market price on the date of exercise or vesting. There were no stock options exercised at any time during 2009. All such equity awards which vested during 2009 were awarded under plans of Merrill Lynch or Bank of America and do not represent awards with respect to the equity securities of the Bank.

Stock Number of Shares Acquired Name on Vesting Value Realized on Vesting (1) James H. Herbert, II ...... 8,613 $56,674 Willis H. Newton, Jr...... 5,795 $94,509 Katherine August-deWilde ...... 2,850 $18,753 David B. Lichtman (2) ...... 5,353 $87,738 Edward J. Dobranski ...... 3,517 $55,256

(1) Based on the reported closing market price of Bank of America common stock on the date of vesting. (2) Excludes 3,179 shares which vested in 2009 for Mr. Lichtman’s spouse, who is also a Bank employee.

2009 Pension Benefits

The following table shows the actuarial present value of the accumulated retirement benefits payable upon normal retirement age (estimated at age 65) to each of the named executive officers, computed as of December 31, 2009. The amounts disclosed are based upon benefits provided to the named executive officers under the SERP.

Number of Years Present Value of Payments Credited Accumulated During Last Name Plan Name Service Benefits Fiscal Year James H. Herbert, II ...... Supplemental Executive — $1,384,693 $— Retirement Benefit Willis H. Newton, Jr...... Supplemental Executive — $ 926,299 $— Retirement Benefit Katherine August-deWilde ...... Supplemental Executive — $1,162,220 $— Retirement Benefit David B. Lichtman ...... Supplemental Executive — $ 416,128 $— Retirement Benefit Edward J. Dobranski ...... Supplemental Executive — $ 318,981 $— Retirement Benefit

Beginning in 2004, each executive is eligible for benefits provided under the SERP, which specifies a Full Benefits Date (based on attainment of a certain age), and a Payment Date, ranging from 0 to 5 years from the Full Benefits Date. As a result of the acquisition of First Republic by MLFSB in 2007, the named executive officers became eligible for full benefits and continue as of December 31, 2009, to be eligible for Full Benefits under the agreements. The amount above represents the Full Benefit that would be payable to each executive as of December 31, 2009, present valued from the Payment Date using the December 2009 Applicable Federal Rates.

151 2009 Nonqualified Deferred Compensation Plan

As reflected in the following table, Messrs. Newton and Dobranski previously participated in our nonqualified deferred compensation plan but withdrew their entire balance in January 2009 pursuant to a one-time election to withdraw their balances due to changes in the federal tax rules. There were no contributions to the nonqualified deferred compensation plan by any named executive officer during 2009.

Aggregate Aggregate Earnings Withdrawals/ Aggregate Balance Name in Last FY (1) Distributions at Last FYE James H. Herbert, II ...... ——— Willis H. Newton, Jr...... $4,100 $1,215,420 — Katherine August-deWilde ...... ——— David B. Lichtman ...... ——— Edward J. Dobranski ...... $ 250 $ 73,651 — (1) Interest is earned at the prime rate prime minus 50 basis points, based on the prime rate at the beginning of the year. For 2009, this rate was 2.75 percent, based on the prime rate of 3.25% at December 16, 2008. These amounts are not included in the Summary Compensation Table for Messrs. Newton and Lichtman because they were not earned at above-market or preferential rates.

Potential Payments upon Termination or Change in Control

The first part of this section provides a narrative discussion and tables which show post-employment payments to each named executive officer assuming each individual named executive officer had ended his or her employment with the First Republic division of Bank of America on December 31, 2009. The benefits payable to each named executive officer, as described below, were based on the plans and arrangements in place at that time. As First Republic was a division of BANA at that time, many of these plans and arrangements have been replaced, revised or are no longer in effect as a result of the Transaction. The second part of this section provides a summary discussion of our plans and arrangements with termination and change in control provisions after the Transaction.

Potential Payments upon Termination or Change in Control at December 31, 2009

Employment Agreements

Under their former employment agreements with MLFSB and BANA, if Mr. Herbert or Ms. August- deWilde terminated employment due to disability, termination by us without cause or termination by the named executive officer with good reason, he or she was entitled to the continued vesting of the restricted shares of Merrill Lynch stock granted by Merrill Lynch to both named executive officers as a sign-on stock award. Termination by the named executive officer with good reason included a resignation following a sale of the Bank. Except for a termination in the event of death, Mr. Herbert’s agreement provided that the sign-on stock award would fully vest and become exercisable on January 31, 2010. Under Ms. August-deWilde’s agreement, three-fifths of the sign-on stock award would vest on January 31, 2010 with the remaining award vesting in equal amounts on January 31, 2011 and January 31, 2012. For both named executive officers, in the event of death, the sign-on stock award would have immediately vested in full.

In addition, upon termination by us without cause or by Mr. Herbert or Ms. August-deWilde with good reason, each named executive officer was entitled to the aggregate amount of all unpaid salary payments through January 1, 2010 as well as a cash payment of any unpaid guaranteed bonuses for 2009 and the remaining cash retention bonus due in 2010. Further, any unvested equity component of a prior guaranteed bonus award would have continued to vest in accordance with its vesting schedule.

152 If their employment had been terminated due to death or disability, we would have paid the named executive officer his or her annual salary through the date of death or disability and a pro rata portion of the guaranteed bonus award for the relevant year.

After termination of service, the named executive officers would have remained subject to confidentiality, non-competition and non-solicitation obligations. The named executive officers were prohibited from using or disclosing our confidential information after termination of service. They were also prohibited from contacting any of our customers for purposes of soliciting their business for 120 days following any termination of their employment. For up to 120 days following any termination in their employment for any reason, the named executive officers could not:

• Hold a 5% or greater ownership interest in a competing enterprise;

• Associate with a competing enterprise, or in connection with such association, manager or supervise any personnel engaged in activities substantially similar to the named executive officer’s activities at the Bank or the activities managed or supervised by the named executive officer at the Bank;

• Attempt to solicit any client to transact business with a competing enterprise or to refrain from doing business with us; or

• Attempt to recruit our employees.

In connection with the Transaction, these employment agreements were terminated and we entered into new employment agreements with Mr. Herbert and Ms. August-deWilde. See “ —Post-Transaction Compensation Arrangements—Employment Agreements” on page 161 and “ —Potential Payments upon Termination or Change in Control—Post-Transaction Termination and Change in Control Provisions” below for a description of these employment agreements.

Under Mr. Dobranski’s employment agreement, if his employment was terminated due to death or disability or voluntarily by Mr. Dobranski for good reason or by us other than for cause, then Mr. Dobranski was entitled to his remaining $500,000 special bonus payment which was paid in June 2010. If Mr. Dobranski voluntarily terminated his employment except for good reason, he was required to repay all special bonuses received within 12 months of the date of such termination ($500,000 at December 31, 2009), prorated on a monthly basis from the date of payment to the date of such termination. Mr. Dobranski’s employment agreement terminated upon the Transaction.

Under the incentive compensation plans of Mr. Newton and Mr. Lichtman, in the event of termination due to death, disability or retirement, or termination by the Bank without cause each of these named executive officers would have received a pro-rated bonus payment based on the amounts described above and the number of months employed in 2009 prior to the termination.

SERP

Upon termination of employment, each of our named executive officers will be entitled to a lump sum payment under our SERP. The lump sum payment is approximately equal to $1,700,000 in the case of Mr. Herbert, $1,600,000 in the case of Ms. August-deWilde, $1,400,000 in the case of Mr. Newton, $900,000 in the case of Mr. Lichtman and $410,000 in the case of Mr. Dobranski. The retirement benefit will be payable to Mr. Herbert, Ms. August-deWilde and Mr. Newton at age 70, and it will be payable to Mr. Dobranski and Mr. Lichtman at age 65. As a result of the acquisition of First Republic by MLFSB in 2007, each named executive officer became fully vested in these SERP benefits even if his or her employment is terminated prior to age 65. The SERP remains in effect after the Transaction. For a short period after termination for any reason, the named executive officer will have the option to purchase the underlying life insurance policy from the Bank at an amount equivalent to the Bank’s carrying value.

153 Insurance Plan

At December 31, 2009, the death benefit payable to each named executive officer’s beneficiary under our Insurance Plan was $2,700,000 in the case of Mr. Herbert, $2,900,000 in the case of Ms. August-deWilde, $2,500,000 in the case of Mr. Newton, $2,700,000 in the case of Mr. Lichtman and $1,250,000 in the case of Mr. Dobranski. The agreement to pay a portion of the death benefit will terminate at age 70 in the case of Mr. Herbert, Ms. August-deWilde and Mr. Newton, and at age 65 in the case of Mr. Lichtman and Mr. Dobranski. For a short period after termination of employment for any reason, each named executive officer will have the option to purchase the underlying life insurance policy from us at an amount equivalent to our carrying value.

Restricted Stock and Restricted Stock Units

As in effect on December 31, 2009, under the Bank of America Key Associate Stock Plan, Bank of America restricted stock units granted to the named executive officers under that plan became immediately earned and payable upon termination due to death. Restricted stock units also became immediately earned as of the date of disability and were payable in accordance with their original vesting schedule. If employment was terminated by Bank of America without cause (as defined in the award agreements, including due to a workforce reduction or our divestiture), then the restricted stock units continued to become earned and payable according to their original vesting schedule, subject to the requirement that the named executive officer enter into an agreement and release and comply with certain covenants described below. If the named executive officer voluntarily terminated his or her employment and his or her age plus years of service equaled at least 60, then the restricted stock units continued to become earned and payable according to their original vesting schedule, provided that the named executive officer complied with certain covenants described below and did not work for specified competitors of Bank of America or Merrill Lynch. In all other cases, termination of employment resulted in the forfeiture of the restricted stock units. Covenants with which the named executive officer was required to comply included provisions relating to non-solicitation, non-disparagement, confidentiality, proprietary information and covenants to cooperate in regulatory or litigation proceedings.

At December 31, 2009, Mr. Herbert and Ms. August-deWilde held restricted stock units, some of which were originally granted as Merrill Lynch restricted stock units and were subsequently converted to Bank of America restricted stock units, but continued to be governed by the terms of the Merrill Lynch Employee Stock Compensation Plan. If either Mr. Herbert’s or Ms. August-deWilde’s employment terminated due to retirement or disability, these Bank of America restricted stock units would have continued to vest according to their original vesting schedule. In the event of termination of employment due to death, or, after a change in control, without cause by Bank of America or for good reason by the named executive officer, these Bank of America restricted stock units would have vested immediately. The merger of Merrill Lynch and Bank of America was considered a change in control under this plan; therefore, upon a termination of employment by Bank of America of Mr. Herbert or Ms. August-deWilde without cause or termination of employment by either named executive officer for good reason, the restricted stock units would have been paid out in cash based on the trading price of Bank of America common stock on the day of such termination of employment.

At December 31, 2009, each named executive officer held shares of restricted stock, some of which were originally granted as shares of Merrill Lynch restricted stock and were subsequently converted to shares of Bank of America restricted stock, but continued to be governed by the terms of the Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers. In the event of termination of employment of any named executive officer due to retirement or disability, these shares of restricted stock would have continued to vest according to their original vesting schedule, so long as the named executive officer did not engage in activities deemed competitive by the Bank of America compensation committee. In the event of termination of employment due to death, or, after a change in control, without cause by Bank of America or for good reason by the named executive officer, these shares of Bank of America restricted stock would have vested immediately.

154 The merger of Merrill Lynch and Bank of America was considered a change in control under this plan; therefore, upon a termination of employment by Bank of America without cause or termination of employment by a named executive officer for good reason, the shares of restricted stock would have been paid out in cash at $31.72 per share.

Merrill Lynch Severance Program

During 2009, our named executive officers except for Mr. Herbert and Ms. August-deWilde were eligible to participate in the Merrill Lynch Severance Program. Participants in the program were eligible for severance benefits if their employment was terminated due to a restructuring or a reduction in force. Each named executive officer was eligible for salary continuation equal to three weeks for each fully completed year of service, with a maximum of 54 weeks of salary continuation. This salary continuation was payable in the form of a mix of continuation of active employee status, salary continuation and a lump sum severance payment. Participants were also entitled to payment for accrued but unused vacation days. Benefits, such as medical, dental and vision coverage, continued throughout the active employment status period and salary continuation period. Participants at least 50 years of age with at least five years of service were also eligible for retiree medical coverage. Receipt of these severance benefits was subject to certain terms and conditions, including that the participant worked through the date designated by Merrill Lynch, entered into a release agreement, and there were no circumstances at the time that could have caused the participant’s immediate discharge for misconduct. We have agreed to generally honor for our officers and employees the terms of the Merrill Lynch Severance Program through July 2011.

Other

In all cases of termination of employment, the named executive officer or the estate of the deceased named executive officer would have been entitled to all earned and unpaid salary and unused vacation or leave time and payment of all unreimbursed business expenses. Named executive officers may also have qualified for continued coverage under welfare benefit plans, including medical, dental and vision on the same terms generally available to all of our full time employees. There were no employment agreements or arrangements whereby named executive officers would have received tax gross-up payments in the event of termination.

155 Summary Tables of Potential Payments Upon Various Termination Events

The tables below reflect the amount of compensation to each of our named executive officers as of December 31, 2009 under their agreements and arrangements then in effect in the event of termination of such executive’s employment. Named executive officers were not entitled to any payments upon termination by the Bank for cause except benefits and payments which had already accrued at the time of such termination.

Termination Change in following a Change in Voluntary Termination Control (Single Control (Double Payment Retirement Termination Death Disability Without Cause (1) Trigger) (2) Trigger) James H. Herbert, II Severance (3) ...... $ — $ —$ 5,310,000 $ 5,310,000 $ 6,435,000 $ — $ 6,435,000 Restricted Stock (4), (5) .... 6,891,697 — 6,891,697 6,891,697 8,708,872 8,708,872 8,708,872 SERP (6) ...... 1,384,693 1,384,693 — 1,384,693 1,384,693 1,384,693 1,384,693 Insurance Plan (7) ...... —— 2,700,000 — — — — Total ...... $8,276,390 $1,384,693 $14,901,697 $13,586,390 $16,528,565 $10,093,565 $16,528,565 Willis H. Newton, Jr. Severance (8) ...... $1,500,000 $ — $ 1,500,000 $ 1,500,000 $ 1,837,500 $ — $ 1,837,500 Restricted Stock (4), (9) .... 748,618 — 748,618 748,618 978,558 540,759 978,558 SERP (6) ...... 926,229 681,113 — 926,229 926,229 926,229 926,229 Insurance Plan (7) ...... —— 2,500,000 — — — — Total ...... $3,174,847 $ 681,113 $ 4,748,618 $ 3,174,847 $ 3,742,287 $ 1,466,988 $ 3,742,287 Katherine August-deWilde Severance (3) ...... $ — $ —$ 4,564,000 $ 4,564,000 $ 4,939,000 $ — $ 4,939,000 Restricted Stock (4), (10) . . . 2,325,860 — 2,326,860 2,326,860 4,144,036 4,144,036 4,144,036 SERP (6) ...... 1,162,220 906,063 — 1,162,220 1,162,220 1,162,220 1,162,220 Insurance Plan (7) ...... —— 2,900,000 — — — — Total ...... $3,489,080 $ 906,063 $ 9,790,860 $ 8,053,080 $10,245,256 $ 5,306,256 $10,245,256 David B. Lichtman Severance (8) ...... $1,025,000 $ — $ 1,025,000 $ 1,025,000 $ 1,388,462 $ — $ 1,388,462 Restricted Stock (4), (11) . . . 728,618 — 728,618 728,618 728,618 540,759 936,434 SERP (6) ...... 416,128 186,226 — 416,128 416,128 416,128 416,128 Insurance Plan (7) ...... —— 2,700,000 — — — — Total ...... $2,169,746 $ 186,226 $ 4,453,618 $ 2,169,746 $ 2,533,208 $ 980,887 $ 2,741,024 Edward J. Dobranski Severance (12) ...... $ — $ —$ 500,000 $ 500,000 $ 794,231 $ — $ 794,231 Restricted Stock (4), (13) . . . 483,893 — 483,893 483,893 483,893 337,977 645,312 SERP (6) ...... 318,981 186,057 — 318,981 318,981 318,981 318,981 Insurance Plan (7) ...... —— 1,250,000 — — — — Total ...... $ 802,874 $ 186,057 $ 2,233,893 $ 1,302,874 $ 1,597,105 $ 656,958 $ 1,758,524

(1) Under the Bank of America Key Associate Stock Plan, termination without cause included a workforce reduction or divestiture of First Republic; under the Merrill Lynch Employee Stock Compensation Plan and Long-Term Compensation Plan for Managers and Producers, after the Merrill Lynch merger, termination by Bank of America without cause or termination by the named executive officer for good reason, would have triggered termination benefits under these plans. This column also includes termination benefits for termination by the named executive officer for good reason under the Merrill Lynch Employee Stock Compensation Plan and Long-Term Compensation Plan for Managers and Producers, and for Mr. Herbert and Ms. August-deWilde, under the terms of their employment agreements. (2) For purposes of the Bank of America Key Associate Stock Plan, this column represents accelerated vesting in the event that First Republic had been divested by Bank of America but does not represent other change in control scenarios. As a result of the Merrill Lynch merger with Bank of America, the first trigger for change in control termination provisions had been triggered under the Merrill Lynch Employee Stock Compensation Plan and Long-Term Compensation Plan for Managers and Producers. (3) Represents unpaid 2009 guaranteed bonus, and in cases of termination by Bank of America without cause, termination by the named executive officer with good reason and termination following a change in control, also includes unpaid 2010 retention bonus. (4) Includes, depending on the type of termination: (a) Bank of America restricted stock units and shares of Bank of America restricted stock. which would vested or been paid out by Bank of America in cash upon termination; and (b) Bank of America restricted stock units and shares of Bank of America restricted stock that would have vested and been paid out immediately or would have continued to vest according to their original vesting schedule, notwithstanding, in relevant cases, future termination of employment, subject, in some cases to compliance with restrictive covenants. Please see the narrative discussion which precedes this table for a detailed description of these provisions under the various equity plans. Amounts for restricted stock units or shares of restricted stock which would have continued to vest have not been adjusted for present value or on an actuarial basis. Value reflected in the table includes all unvested restricted stock and restricted stock units as of December 31, 2009 using closing price of Bank of America common stock of $15.06 on December 31, 2009,

156 multiplied by the number of restricted stock units and shares of restricted stock. In the event of termination by Bank of America without cause or by the executive for good reason, in each case after a change in control (double trigger), shares of restricted stock granted under the Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers will be valued at $31.72 per share. (5) Includes 431,778 Bank of America restricted share units granted under the Bank of America Key Associate Stock Plan, 25,838 Bank of America restricted share units granted under the Merrill Lynch Employee Stock Compensation Plan and 57,288 shares of Bank of America restricted stock granted under the Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers. Bank of America restricted share units granted under the Bank of America Key Associate Stock Plan would continue to vest according to their original vesting schedule, subject to continued compliance with restrictive covenants, upon a termination without cause, upon a change in control or upon termination following a change in control. Bank of America restricted share units granted under the Merrill Lynch Employee Stock Compensation Plan would continue to vest according to their original vesting schedule, subject to continued compliance with restrictive covenants, upon a termination due to retirement, death or disability, and would be paid out in cash upon a termination without cause, upon a change in control or upon termination following a change in control. Shares of Bank of America restricted stock granted under Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers were not subject to accelerated vesting due to termination of employment due to retirement, death or disability at December 31, 2009. (6) Represents value of death benefit upon termination under the Insurance Plan. (7) Represents the estimated present value of fully vested future payments executive would have been entitled to as a result of termination under the Bank’s SERP. (8) Represents unpaid 2009 bonuses, and in cases of termination without cause and termination following a change in control, also includes severance under the Merrill Lynch Severance Program. (9) Includes 35,907 Bank of America restricted share units granted under the Bank of America Key Associate Stock Plan and 13,802 shares of Bank of America restricted stock granted under the Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers. Bank of America restricted share units granted under the Bank of America Key Associate Stock Plan would continue to vest according to their original schedule, subject to continued compliance with restrictive covenants, upon a termination without cause or following a change in control, including upon termination following a change in control. Shares of Bank of America restricted stock granted under the Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers (i) would continue to vest according to their original schedule, subject to continued compliance with restrictive covenants, upon a termination due to retirement or disability, (ii) would have vested immediately upon a termination due to death and (iii) would have been paid out in cash upon a termination without cause or upon a termination following a change in control. (10) Includes 145,961 Bank of America restricted share units granted under the Bank of America Key Associate Stock Plan, 8,545 Bank of America restricted share units granted under the Merrill Lynch Employee Stock Compensation Plan and 57,288 shares of Bank of America restricted stock granted under the Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers. Bank of America restricted share units granted under the Bank of America Key Associate Stock Plan would continue to vest according to their original vesting schedule, subject to continued compliance with restrictive covenants, upon a termination without cause, upon a change in control or upon termination following a change in control. Bank of America restricted share units granted under the Merrill Lynch Employee Stock Compensation Plan would continue to vest according to their original vesting schedule, subject to continued compliance with restrictive covenants, upon a termination due to retirement, death or disability, and would be paid out in cash upon a termination without cause, upon a change in control or upon termination following a change in control. Shares of Bank of America restricted stock granted under Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers were not subject to accelerated vesting due to termination of employment due to retirement, death or disability at December 31, 2009. (11) Includes 35,907 Bank of America restricted share units granted under the Bank of America Key Associate Stock Plan and 12,474 shares of Bank of America restricted stock granted under the Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers. Bank of America restricted share units granted under the Bank of America Key Associate Stock Plan would continue to vest according to their original schedule, subject to continued compliance with restrictive covenants, upon a termination without cause or following a change in control, including upon termination following a change in control. Shares of Bank of America restricted stock granted under the Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers (i) would continue to vest according to their original schedule, subject to continued compliance with restrictive covenants, upon a termination due to retirement or disability, (ii) would have vested immediately upon a termination due to death and (iii) would have been paid out in cash upon a termination of service following a change in control. (12) Represents unpaid 2010 special retention bonus, and in cases of termination without cause and termination following a change in control, also includes severance under the Merrill Lynch Severance Program. If Mr. Dobranski had voluntarily terminated employment with the Bank, except for good reason, at December 31, 2009, under the terms of his employment agreement he would have been required to repay $250,000 of his 2009 special retention bonus. The amount of this required repayment is not reflected in the table. (13) Includes 22,442 Bank of America restricted share units granted under the Bank of America Key Associate Stock Plan and 9,689 shares of Bank of America restricted stock granted under the Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers. Bank of America restricted share units granted under the Bank of America Key Associate Stock Plan would continue to vest according to their original schedule, subject to continued compliance with restrictive covenants, upon a termination without cause or following a change in control, including upon termination following a change in control. Shares of Bank of America restricted stock granted under the Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers (i) would continue to vest according to their original schedule, subject to continued compliance with restrictive covenants, upon a termination due to retirement or disability, (ii) would have vested immediately upon a termination due to death and (iii) would have been paid out in cash upon a termination of service following a change in control.

157 Post-Transaction Termination and Change in Control Provisions

This section describes the arrangements in place, following the Transaction, between us and our named executive officers providing for benefits after a termination of employment or a change-in-control with respect to us. As a result of the Transaction, several changes occurred with respect to the officers’ entitlements under their agreements with Bank of America or Bank of America’s plans, including the following:

• The termination provisions of the employment agreements of Mr. Herbert and Ms. August-deWilde have been replaced by new employment agreements with the Bank;

• Mr. Herbert and Ms. August-deWilde each earned an incentive bonus, paid in cash, of $2,655,000 and $2,282,000, respectively which represented 50% of their 2009 guaranteed bonus for service for the first six months of 2010.

• Mr. Dobranski’s employment agreement with BANA has been terminated;

• Notwithstanding future termination of employment, Bank of America restricted stock units held by the named executive officers continue to vest according to their original vesting schedule, subject to compliance by the named executive officers with certain covenants described in “ —Potential Payments upon Termination or Change in Control—Potential Payments upon Termination or Change in Control at December 31, 2009—Restricted Stock and Restricted Stock Units.” The restricted stock units will be paid in shares of Bank of America common stock issued by Bank of America and the Bank has no obligations under these awards;

• Shares of Bank of America restricted stock (but not restricted stock units) held by each named executive officer immediately vested as follows by named executive officer and number of shares: Mr. Herbert (17,225); Mr. Newton (13,802); Ms. August-deWilde (28,611); Mr. Lichtman (12,474); and Mr. Dobranski (9,689); and

• The provisions of the Merrill Lynch Severance Program and Disability Plan are no longer applicable to us although we have agreed to generally honor for our officers and employees the terms of the Merrill Lynch Severance Program through July 2011.

Employment Agreements

Under their employment agreements with us effective as of the completion of this Transaction, if Mr. Herbert or Ms. August-deWilde terminates employment with us due to death or disability, or for good reason, or if either is terminated by us without cause, at any time during the term of their respective employment agreements, and without regard to whether a change in control has occurred, he or she will be entitled to an annual bonus of 0.5% of our pretax profits for each completed fiscal quarter in the year of termination of employment, and 0.5% of our pretax profits for the quarter in which such termination occurred, prorated for the number of days in the quarter in which he or she was employed by us prior to such termination. In addition, Mr. Herbert and Ms. August-deWilde will each be entitled to severance pay equal to two times the sum of:

• The named executive officer’s annual salary; and

• 0.5% of our budgeted pre-tax profits for the year in which such termination occurs.

Both named executive officers will also be entitled to continued participation in our welfare benefit plans for a period of two years.

In addition, pursuant to the terms of their stock option award agreements, upon termination due to death or disability or by us without cause or by Mr. Herbert or Ms. August-deWilde for good reason, 100% of the unvested service options and performance options held by the named executive officer will become vested and

158 exercisable, except that upon termination by Ms. August-deWilde for good reason based solely upon a failure to be appointed successor Chief Executive Officer, 100% of the unvested service options but only 50% of the performance options held by Ms. August-deWilde will become vested and exercisable. Upon any termination of employment, the super-performance options will terminate and expire on the date of termination if they have not already vested. Upon termination for any reason other than death, disability, termination by us without cause or termination by Mr. Herbert or Ms. August-deWilde for good reason, vested options will remain exercisable for 12 months following termination and unvested options will generally terminate and expire upon the date of termination. However, upon termination for any reason, these named executive officers will have the opportunity to vest in the unvested performance options for the performance year in which the termination occurred (and any other prior performance year), subject to the achievement of the performance targets for the year of termination (and cumulative average performance targets for prior years), with the number of performance options that vest for the performance year in which the termination occurred pro-rated based on the number of full months these named executive officers were employed during that year. Options that vest on this basis remain exercisable for 12 months following the vesting date. Service options and performance options become 100% vested upon a change in control. Upon an initial public offering of our common stock, including the consummation of this offering, service options will also become 100% vested, and any unvested performance options will convert to monthly service-based vesting (with vesting of the performance options upon the public offering equal to 1/48 of the performance options for each month between the grant date and the public offering less any performance options that actually vested based upon performance prior to the initial public offering).

Under their agreements, a change in control generally means any of the following events:

• Subject to certain exceptions, the acquisition by any person or group of 33% or more of the voting securities of the Bank;

• Members of the Board at the date of the Transaction or directors nominated by a majority of those directors cease to constitute at least a majority of the members of the Board; or

• A reorganization, merger or consolidation, or sale or other disposition of all or substantially all of our assets unless, (1) the beneficial owners of our common stock prior to the transaction own more than 50% of the surviving entity; and (2) our directors prior to the transaction constitute more than a majority of the members of the board of directors of the surviving entity.

Mr. Herbert and Ms. August-deWilde may terminate their employment with us for “good reason” in the following situations:

• Relocation without the named executive officer’s consent outside of San Francisco;

• Material diminution of title, authority or reporting relationship;

• Reduction in annual salary or cash bonus opportunity;

• A change in control with respect to the Bank, provided that the named executive officer, if requested, will remain employed for up to three months following the change in control;

• We fail to perform our material obligations under the employment agreement; or

• For Ms. August-deWilde, failure to be appointed successor Chief Executive Officer.

We may terminate the employment of Mr. Herbert or Ms. August-deWilde “for cause” in the following situations:

• Failure by the named executive officer, other than for reasons of death or disability, to substantially perform his or her duties or failure to carry out the reasonable instructions of the Board;

159 • Material, continuing and uncorrected breach by the named executive officer of the rules or regulations of any regulatory authority of the Bank;

• Gross misconduct;

• Failure to comply with the material terms of his or her employment agreement after notice and an opportunity to cure;

• Conviction or plea of nolo contendere to any fraudulent act or criminal offense;

• Failure by the named executive officer to maintain any necessary license necessary to perform their duties with the Bank; or

• Being disqualified by the SEC or FDIC from serving as an officer or director of an insured depository institution or public company.

After termination of employment, Mr. Herbert and Ms. August-deWilde will remain subject to confidentiality, non-competition and non-solicitation obligations. The named executive officers are prohibited from using or disclosing our confidential information for 120 days after termination of employment. They are also prohibited from contacting any of our customers for purposes of soliciting their business for 14 days after termination of employment, or five business days after we publicly announce such termination. Upon termination of employment, the named executive officers are required to return all confidential information to us. For up to 12 months following a change in control in which the named executive officers have disposed of all equity securities in the Bank and the named executive officer’s employment with us is terminated, Mr. Herbert and Ms. August-deWilde may not:

• Hold a 10% or greater ownership interest in a competing enterprise;

• Associate with a competing enterprise, or in connection with such association, manage or supervise any personnel engaged in activities substantially similar to the named executive officer’s activities at the Bank or the activities managed or supervised by the named executive officer at the Bank;

• Attempt to solicit any client to transact business with a competing enterprise or to refrain from doing business with us; or

• Attempt to recruit our employees.

2010 Stock Option Awards

Except for Mr. Herbert and Ms. August-deWilde, whose termination and acceleration provisions are discussed above, performance options awarded to our named executive officers in 2010 will terminate and expire if not vested at the time of termination of their service and our named executive officers will not be eligible for catch-up payments for previous performance periods following their termination of employment. In the event of termination due to death or disability, the named executive officers will have six months following termination to exercise their vested options. In the event of termination by us without cause, the named executive officers will have three months to exercise their vested options. These options also contain provisions which would result in the options fully vesting upon the occurrence of certain change in control transactions where the named executive officer is terminated without cause. In the event of termination by us for cause, all outstanding options will be terminated and cancelled. “Cause” is defined by the Stock Option Plan to mean (1) continued neglect of duties to the Bank; (2) conduct that is injurious to the Bank; (3) commission of a felony or any crime involving fraud or dishonesty; (4) failure to follow the lawful instructions of the Board or direct supervisors; or (5) violation of the rules, regulations, procedures or instructions relating to the conduct of officers of the Bank.

160 Post-Transaction Compensation Arrangements

Employment Agreements

Effective upon the closing of the Transaction on June 30, 2010, we entered into employment agreements with Mr. Herbert, our Chairman and Chief Executive Officer, and Ms. August-deWilde, our President and Chief Operating Officer. The material terms of these agreements are largely identical and are summarized below:

• Term: The agreements have a term from June 30, 2010 until December 31, 2014 with automatic one year renewals, unless either the named executive officer or the Bank provides 120 days advance notice of non-renewal to the other party.

• Title: Mr. Herbert is appointed Chairman and Chief Executive Officer and Ms. August-deWilde is appointed President and Chief Operating Officer.

• Board Election: Each named executive officer will serve as a member of the Board.

• Base Salary: Each named executive officer is entitled to a base salary of $750,000 per annum, subject to periodic review and possible increase.

• Annual Cash Bonus: Mr. Herbert and Ms. August-deWilde are each entitled to an annual cash bonus opportunity equal to 0.5% of our pretax profit each fiscal year (prorated for 2010 from June 30, 2010), subject to the continued employment of the named executive officer with us. Pretax profit consists of our net income before tax and before bonuses paid to Mr. Herbert and Ms. August deWilde, excluding all extraordinary or non-recurring items, including the initial expenses of the Transaction and future business combinations. Under their agreements, the amount of the annual bonus opportunity to which the executive will be entitled will be based upon (a) satisfaction by us of certain safety and soundness criteria relating to the quarterly average of nonperforming assets to total assets and our composite FDIC regulatory rating under the FDIC’s CAMELS rating system and (b) the attainment by us of specified levels of after-tax annual return on average tangible assets and average tangible equity. The weightings of the corporate performance measures under their employment agreements are as follows: (1) average of quarterly nonperforming assets to total assets—30%; (2) composite FDIC CAMELS rating (at time of bonus payout)—30%; (3) annual after-tax return on average tangible assets—20%; and (4) annual after-tax return on average tangible equity—20%. For each of these performance measures, their agreements provide for threshold and higher levels of performance. If the threshold level of performance is achieved, the officer will receive 25% of the target award (except for the regulatory rating criteria in which case 100% of the target award will be earned) with increasing percentages being earned upon further criteria being attained, up to 100% of the target award being earned if the highest performance criteria are attained.

• Stock Option Grant: Mr. Herbert and Ms. August-deWilde were each granted an option to purchase 4,937,121 shares of our common stock at an exercise price of $15 per share pursuant to the Stock Option Plan. This award was divided into service options to purchase 1,410,606 Shares, and performance options to purchase 3,526,515 Shares. The options expire on the tenth anniversary of the date of grant.

• Service Options: 2.0833% of the service options vest and become exercisable on the last day of each month following the grant. Pursuant to the terms of these agreements, all of the remaining unvested service options will become vested and exercisable upon the consummation of the offering made by this offering circular.

• Performance Options: Mr. Herbert and Ms. August-deWilde were each awarded an option to purchase a total of 2,821,212 shares of the Bank’s common stock which will vest and become

161 exercisable based on our performance. Options to purchase 705,303 shares of common stock will vest and become exercisable at the end of four consecutive calendar years, commencing December 31, 2010, upon the achievement of specified performance goals based on our operations. These performance measures include achieving certain specified targets for return on average tangible common equity, deposit growth and level of nonperforming assets. If we do not achieve a performance goal the previous performance year, the performance options which did not vest in that year due to the performance goal not being met will vest and become exercisable the following year if the Compensation Committee determines that we have achieved the cumulative average of such performance goal for the current and previous performance year. Pursuant to the terms of these agreements, upon the consummation of the offering made by this offering circular, the performance vesting provisions will convert into time vesting options. 2.0833% of the performance options based on our performance will vest and become exercisable for each full month elapsed from the grant date of the option to the date of the offering made hereby. Thereafter, 2.0833% of the performance options based on our performance will vest and become exercisable each calendar month the named executive officer remains an employee of us until the options have fully vested or otherwise expired or been accelerated pursuant to the terms of the agreements.

• Super-Performance Options: Options to purchase 705,303 shares of common stock will vest based upon the Initial Investors receiving a specified return on or prior to the second anniversary of the grant of two times on their initial investment in the Bank in connection with the Transaction and certain further investments in the Bank by the Initial Investors. The necessary specified returns are increased on the second and third anniversary of the option grant (to 2.5 times and 2.85 times, respectively). Following consummation of the offering made hereby, the Initial Investors will be deemed to have received proceeds equal to the average of the closing prices of a share of our common stock over any period of 30 consecutive trading days with respect to all of the shares of common stock then held by the Initial Investor and this could result in the vesting of the super-performance options depending on the future price of our common stock.

• Acceleration: The options are subject to accelerated vesting in certain events, including a change in control and certain terminations of service.

• Shareholders’ Agreement: The shares of our common stock received by Mr. Herbert and Ms. August-deWilde upon the exercise of options will be subject to the Shareholders’ Agreement. The Shareholders’ Agreement subjects the shares of common stock to certain transfer restrictions and provides that each executive may not own more than 9.9% of our outstanding common stock. The Shareholders’ Agreement also provides executives with demand registration rights and piggyback registration rights, including with respect to the offering made by this offering circular. Upon the consummation of the offering made hereby, the transfer restrictions under the Shareholders’ Agreement will lapse. The remaining provisions will remain in place for 25 years, unless terminated earlier by consent of the parties to the Shareholders’ Agreement. For a further description of the Shareholders’ Agreement please see “Certain Provisions of California Law, the Bank’s Articles of Incorporation and Bylaws and the Shareholders’ Agreement—Shareholders’ Agreement” beginning on page 182.

• Initial Investment: Mr. Herbert and Ms. August-deWilde were each given the right to purchase approximately $6.1 million in shares of the Bank’s common stock in the Transaction through use of their personal funds and each officer made such an investment at the time of the Transaction.

• Employee Benefit Plans: Each named executive officer is entitled to participate in our welfare benefit plans consistent with past practice.

162 • Retirement: The agreements provide that we assume all obligations under the SERP and the Split- Dollar Agreement. For a description of retirement benefits, see the narrative to the 2009 Pension Benefits table on page 151 and “Potential Payments upon Termination or Change in Control— Potential Payments upon Termination or Change in Control at December 31, 2009” on page 152.

• Other Benefits: The agreements entitle each named executive officer to minimum paid vacation days on an annual basis, reimbursement of business expenses and indemnification and directors and officers liability insurance.

Under their employment agreements, if Mr. Herbert or Ms. August-deWilde terminates employment due to death or disability, or for good reason, or if either is terminated by us without cause, at any time during the term of their respective employment agreements, and without regard to whether a change in control has occurred, he or she will be entitled to an annual bonus of 0.5% of our pretax profits for each completed fiscal quarter prior to such termination, and 0.5% of our pretax profits for the quarter in which such termination occurred, prorated for the number of days in the quarter in which the executive was employed by us prior to such termination. In addition, Mr. Herbert and Ms. August-deWilde will each be entitled to severance pay equal to two times the sum of:

• The named executive officer’s annual salary; and

• 0.5% of our budgeted pre-tax profits for the year in which such termination occurs.

Both of these named executive officers will also be entitled to continued participation in our welfare benefit plans for a period of two years.

In addition, pursuant to the terms of their stock option award agreements, upon termination due to death or disability or by us without cause or by Mr. Herbert or Ms. August-deWilde for good reason, 100% of the unvested service options and performance options held by the named executive officer will become vested and exercisable, except that upon termination by the President and Chief Operating Officer for good reason based solely upon a failure to be appointed successor Chief Executive Officer, 100% of the unvested service options but only 50% of the performance options held by the President and Chief Operating Officer will become vested and exercisable. Upon any termination of employment, the super-performance options will terminate and expire on the date of termination if they have not already vested. Upon termination for any reason other than death, disability, termination by us without cause or termination by these named executive officers without good reason, vested options will remain exercisable for 12 months and unvested options will generally terminate and expire upon the date of termination. However, upon termination for any reason, these named executive officers will have the opportunity to vest in the unvested performance options for the performance year in which the termination occurred (and any other prior performance year), subject to the achievement of the performance targets for the year of termination (and cumulative average performance targets for prior years), with the number of performance options that vest for the performance year in which the termination occurred pro-rated based on the number of full months these named executive officers were employed during that year. Options that vest on this basis remain exercisable for 12 months following the vesting date. Service options and performance options become 100% vested upon a change in control. Upon an initial public offering of our common stock, including the consummation of this offering, service options will also become 100% vested, and any unvested performance options will convert to monthly service-based vesting (with accelerated vesting of the performance options upon the public offering equal to 1/48 of the performance options for each month between the grant date and the public offering less any performance options that actually vested based upon performance prior to the initial public offering).

Under these employment agreements, a change in control generally means any of the following events:

• Subject to certain exceptions, the acquisition by any person or group of 33% or more of the voting securities of the Bank;

163 • Members of the Board at the date of the Transaction or directors nominated by a majority of those directors cease to constitute at least a majority of the members of the Board; and

• A reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Bank unless, (1) the beneficial owners of our common stock prior to the transaction own more than 50% of the surviving entity; and (2) our directors prior to the transaction constitute more than a majority of the members of the board of directors of the surviving entity.

Either named executive officer may terminate their employment with us for “good reason” in the following situations:

• Relocation without the named executive officer’s consent outside of San Francisco;

• Material diminution of title, authority, reporting relationship;

• Reduction in annual salary or cash bonus opportunity;

• A change in control, provided that the named executive officer, if requested must remain employed for up to three months following the change in control;

• We fail to perform our material obligations under the employment agreement; or

• For Ms. August-deWilde, failure to be appointed successor Chief Executive Officer.

We may terminate the employment of either named executive officer for cause in the following situations:

• Failure by the named executive officer, other than for reasons of death or disability, to substantially perform their duties or failure to carry out the reasonable instructions of the Board;

• Material, continuing and uncorrected breach by the executive of the rules or regulations of any regulatory authority of the Bank;

• Gross misconduct;

• Failure to comply with the material terms of their employment agreement after notice and an opportunity to cure;

• Conviction or plea of nolo contendere to any fraudulent act or criminal offense;

• Failure by the named executive officer to maintain any necessary license necessary to perform their duties with the Bank; or

• Being disqualified by the SEC or FDIC from serving as an officer or director of an insured depository institution or public company.

After termination of service, Mr. Herbert and Ms. August-deWilde will remain subject to confidentiality, non-competition and non-solicitation obligations. The executives are prohibited from using or disclosing our confidential information for 120 days after termination of service. They are also prohibited from contacting any of our customers for purposes of soliciting their business for 14 days after termination of employment, or five business days after we publicly announce such termination. Upon termination, the

164 executives are required to return all confidential information to us. For up to 12 months following a change in control in which the named executive officer has disposed of all his or her equity securities in the Bank and the named executive officer’s service with us is terminated, the named executive officer may not:

• Hold a 10% or greater ownership interest in a competing enterprise;

• Associate with a competing enterprise, or in connection with such association, manager or supervise any personnel engaged in activities substantially similar to the named executive officer’s activities at the Bank or the activities managed or supervised by the executive at the Bank;

• Attempt to solicit any client to transaction business with a competing enterprise or to refrain from doing business with us; or

• Attempt to recruit our employees.

Stock Option Plan

Following the Transaction, we may award equity compensation to named executive officers and other key personnel, including our other officers, employees, consultants and advisors under the Stock Option Plan. This plan was effective June 30, 2010 and expires by its terms on June 30, 2020. The plan provides for the issuance of a maximum of 16,927,273 shares of common stock pursuant to awards under the plan. Only shares of common stock which are used in settlement of awards are counted against the maximum issuance number and if an award expires or is cancelled, terminated or forfeited or paid in cash, the shares of common stock covered by such award will again become eligible for issuance. Shares of common stock may be issued by us or purchased in the open market or in privately-negotiated transactions. The Compensation Committee is authorized to make adjustments to awards under the plan to reflect changes in our capital structure, such as stock splits and dividends, recapitalizations, mergers, spin-offs, and other similar transactions, including replacing outstanding awards with substitute awards and adjusting the maximum number of shares of common stock subject to the plan.

The purpose of the plan is to provide a means through which we may attract and retain key personnel and whereby our directors, officers, employees, consultants and advisors can acquire and maintain an equity interest in us or be paid incentive compensation, including incentive compensation measured by reference to the value of our common stock. These awards are intended to strengthen a participant’s commitment to our welfare and align a participant’s interests with those of our shareholders.

Under the Stock Option Plan, the Compensation Committee may award incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. The plan is administered by the Compensation Committee and the Compensation Committee is responsible for selecting participants in the plan, determining the award and the terms of such award, and to take other actions to generally interpret and administer the plan and awards granted thereunder. The Compensation Committee may delegate its power and authority to grant awards under the plan, including to one or more of our officers. The Board is also given authority to make awards under the plan and to take any other action delegated to the Compensation Committee under the plan.

All awards under the Stock Option Plan are made pursuant to an award agreement. The Compensation Committee or the terms of an award agreement may accelerate the exercisability of an option or a stock appreciation right or the vesting of a restricted stock or restricted stock unit award due to a change in control of the Bank or the death, disability, retirement or other termination of service of a participant. The following is a summary description of the types of awards which are authorized under the plan:

Stock Options

All options granted under the plan will be nonqualified stock options unless the applicable award agreement expressly states that the option is intended to be an incentive stock option. Incentive stock options

165 may be granted only to persons eligible to receive incentive stock options under the Code. No option may be treated as an incentive stock option unless the plan has been properly approved by our shareholders in compliance with the relevant provisions of the Code. All other options awarded under the plan will be nonqualified stock options. The plan sets forth the following provisions generally applicable to stock options awarded under the plan:

• Exercise Price: The exercise price per share of common stock for each option may not less than the fair market value on the date of grant (110% of fair market price for incentive stock options granted to participants holding more than 10% of the voting power of the Bank).

• Vesting and Expiration: The Compensation Committee may determine the vesting schedule and expiration dates for option awards; provided that the expiration date may not exceed 10 years (five years for incentive stock options granted to participants holding more than 10% of the voting power of the Bank).

• Method of Exercise: The plan provides for a variety of methods to exercise options and submit payment to us. These include payment in cash or shares of common stock, net exercise and broker- assisted cashless exercise. The permitted methods of exercise and payment are set forth in the award agreements.

Stock Appreciation Rights

Stock appreciation rights may be granted with a strike price of not less than the fair market value of the shares of common stock on the date of grant. The vesting and expiration schedule will be determined by the Compensation Committee, provided that if the stock appreciation right is granted in tandem with an option award, the vesting and expiration schedule will match that of the options. Upon exercise of a stock appreciation right, we will issue to the participant an amount of shares of common stock with a fair market value equal to the number of shares of common stock underlying the stock appreciation right, multiplied by the excess of the fair market value of the common stock on the date of exercise over the strike price. Unless otherwise set forth in an award agreement, the Compensation Committee will have the right to substitute nonqualified stock options for stock appreciation right awards so long as the substituted award is an economic equivalent and subject to other conditions.

Restricted Stock and Restricted Stock Units

Restricted stock and restricted stock unit awards may be granted with such terms as are determined by the Compensation Committee. Restricted stock unit awards are unfunded and unsecured obligations of the Bank. After the restricted period lapses, restricted stock unit awards will be settled in shares of common stock on a one for one basis, although unless the award agreement states otherwise, the Compensation Committee may settle the restricted stock unit awards in cash or a mix of shares of common stock and cash and may defer delivery of the shares of common stock beyond the restricted period.

Other Stock-Based Awards

The Compensation Committee may also issue unrestricted shares of common stock, rights to receive grants of awards at a future date or other awards denominated in shares of common stock under the plan, either alone or in tandem with other awards.

Award agreements under the Stock Option Plan may provide for dividend or dividend equivalent rights for any award. Except as otherwise set forth in an award agreement, participants will not be entitled to the privileges of ownership in respect of the shares of common stock underlying the award until such shares of common stock have been issued and delivered to the participant. Awards under plan are also subject to certain

166 clawback and forfeiture provisions which can be triggered by fraud or conduct contributing to any financial statements or other irregularities and by violations of non-solicitation or non-competition agreements or other actions adverse to us. Participants may be required to become parties to the Shareholders’ Agreement as a condition to receiving shares of common stock.

Awards under the Stock Option Plan are subject to various regulatory provisions. If our capital falls below minimum applicable requirements, the FDIC may direct us to require the participants to either exercise or forfeit their stock rights.

Award of Performance Options

In July, 2010, we entered into Stock Option Agreements whereby performance options were granted to Messrs. Newton, Lichtman and Dobranski, covering 100,000, 165,000 and 140,000 shares, respectively. The exercise price was $15 per share. The grants to Messrs. Newton and Lichtman consisted of 20% service options and 80% performance options and the grant to Mr. Dobranski consisted of 25% service options and 75% performance options. The service options vest ratably over four years. The performance options vest ratably over four performance years in amounts predetermined by the attainment of performance goals. Vesting of the performance options also requires the continued employment of the named executive officers. The performance goal categories for these options are return on average tangible common equity, percentage of non-CD deposit growth and level of average nonperforming assets. Except for Mr. Herbert and Ms. August-deWilde, whose termination and acceleration provisions are discussed in “ —Post-Transaction Compensation Arrangements— Employment Agreements,” performance options awarded to our named executive officers in 2010 will terminate and expire if not vested at the time of termination of their service and our named executive officers will not be eligible for catch-up payments for previous performance periods following their termination of employment. In the event of termination due to death or disability, the named executive officers will have six months following termination to exercise their vested options. In the event of termination by us without cause, the named executive officers will have three months to exercise their vested options. These options also contain provisions which would result in the options fully vesting upon the occurrence of certain change in control transactions where the executive is terminated without cause. In the event of termination by us for cause, all outstanding options will be terminated and cancelled. All unexercised options will expire 10 years after the date of grant.

The shares of our common stock received by the named executive officers upon the exercise of these options will be subject to the Shareholders’ Agreement. The Shareholders’ Agreement subjects the shares of common stock to certain transfer restrictions and provides that the executives may not own more than 9.9% of our outstanding common stock. The Shareholders’ Agreement also provides the named executive officers with demand registration rights and piggyback registration rights, including with respect to the offering made by this offering circular. Upon the consummation of the offering made hereby, the transfer restrictions under the Shareholders’ Agreement will lapse. The remaining provisions will remain in place for 25 years, unless terminated earlier by consent of the parties to the Shareholders’ Agreement. For a further description of the Shareholders’ Agreement please see “Certain Provisions of California Law, the Bank’s Articles of Incorporation and Bylaws and the Shareholders’ Agreement—Shareholders’ Agreement” beginning on page 182.

167 CERTAIN RELATIONSHIPS AND RELATED-PERSON TRANSACTIONS

Certain of our directors and executive officers and their immediate family members are or were customers of, or have or had transactions with, us in the ordinary course of business. These transactions include deposit accounts, wealth management accounts, brokerage accounts and loans. Additional transactions are expected to occur in the future. Any outstanding loans to directors, executive officers and their immediate family members, and any transactions involving other financial products and services provided by us to such persons were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral (where applicable), as those prevailing at the time for comparable transactions with persons not related to us, and did not involve more than normal risk of collection or present other unfavorable features. Additionally, the spouse of Mr. Lichtman is a non-executive employee of First Republic primarily engaged in deposit gathering and leadership functions and received compensation in 2009 of approximately $814,000.

Policies and Procedures for Review, Approval or Ratification of Related-Person Transactions

The Board has adopted a written related-person transactions policy. We regularly monitor our business dealings and those of our directors and officers to determine whether any existing or proposed transactions would constitute a related-person transaction requiring approval under this policy. In addition, our Code of Ethics and Corporate Conduct requires any employee, officer or director who is aware of a conflict of interest or is concerned that a conflict of interest might develop to discuss the matter promptly with a manager or our general counsel. Our directors and executive officers are also instructed and periodically reminded of their obligation to inform our general counsel of any potential related-person transactions and are required to complete a questionnaire on an annual basis designed to elicit information regarding any such related-person transactions.

Any potential related-person transactions that are brought to our attention are analyzed by our general counsel, in consultation with management and with outside counsel, as appropriate, to determine whether the transaction or relationship is, in fact, a related-person transaction requiring compliance with this policy. If a transaction is determined to be a related-person transaction requiring compliance with this policy, the management and our general counsel, in consultation with outside counsel, will determine, in their view, whether the related-person transaction should be permitted, modified to avoid any potential conflict of interest or terminated, or whether some other action should be taken. Such action is then referred to the Corporate Governance and Nominating Committee (as used in this Section, the “Committee”) for review and final determination as it deems appropriate at its next meeting (or earlier, if appropriate).

At each of its meetings, the Committee will be provided with the details of each new, existing or proposed related-person transaction, including the terms of the transaction, the business purpose of the transaction and the benefits to the Bank and to the relevant related person. In determining whether to approve a related-person transaction, the Committee will consider, among other factors, the following:

• Whether the terms of the related-person transaction are fair to the Bank and on terms at least as favorable as would apply if the transaction did not involve a related person;

• Whether there are demonstrable business reasons for the Bank to enter into the related-person transaction;

• Whether the related-person transaction would impair the independence of an otherwise independent director under applicable stock exchange rules or applicable law;

• Whether the related-person transaction would present an improper conflict of interest for any director or executive officer of the Bank, taking into account (i) the size of the transaction, (ii) the overall financial position of the director, executive officer or related person, (iii) the direct or

168 indirect nature of the director’s, executive officer’s or related person’s interest in the transaction and (iv) the ongoing nature of any proposed relationship; and

• Any other factors the Committee deems relevant.

Any member of the Committee who has an interest in the transaction under discussion will abstain from voting on the approval of the related-person transaction, but may, if so requested by the chairperson of the Committee, participate in some or all of the Committee’s discussions of the related-person transaction.

169 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows, as of October 31, 2010 and after the completion of this offering (assuming the underwriters do not exercise the option to purchase additional shares of common stock), the percentage of outstanding shares of common stock that are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) by, and, if applicable, the number of shares of common stock that will be sold by, (i) our directors and executive officers, (ii) any shareholder who holds 5% or more of our common stock and (iii) each selling shareholder participating in this offering. All information related to the selling shareholders and shareholders owning 5% or more of our common stock is based solely upon information furnished to us by such shareholders. Common Stock As of October 31, 2010 After Completion of This Offering Percentage of Number of Percentage of Number of Outstanding Shares to Number of Outstanding Name and Address of Beneficial Owner Shares Shares be Sold Shares Shares ColFin FRB Investor, LLC (6) ...... 27,066,430 21.8% 1,668,441 25,397,989 19.8% 2450 Broadway, 6th Floor Santa Monica, CA 90404 General Atlantic LLC (1) ...... 27,066,430 21.8% 1,668,441 25,397,989 19.8% Three Pickwick Plaza Greenwich, CT 06830 Wellington Management Company, LLP (2) ...... 11,294,812 9.1% 696,240 10,598,572 8.3% 75 State Street Boston, MA 02109 Pine Eagle 1, LLC (3) ...... 5,612,472 4.5% 224,499 5,387,973 4.2% One Maritime Plaza, Suite 1400 San Francisco, CA 94111 Pine Eagle 2, LLC (3) ...... 3,741,648 3.0% 149,666 3,591,982 2.8% One Maritime Plaza, Suite 1400 San Francisco, CA 94111 Pine Eagle 3, LLC (3) ...... 1,870,824 1.5% 74,833 1,795,991 1.4% One Maritime Plaza, Suite 1400 San Francisco, CA 94111 Maria de Lourdes Hernandez Velasco (4) ...... 3,741,648 3.0% 227,752 3,513,896 2.7% Attn: Pedro Verea Hernandez 1155 René-Lévesque Blvd. West, 40th Floor Montréal, QC H3B 3V2, Canada Roberta Hernandez Velasco (4) ...... 3,741,648 3.0% 227,752 3,513,896 2.7% Attn: Pedro Verea Hernandez 1155 René-Lévesque Blvd. West, 40th Floor Montréal, QC H3B 3V2, Canada Andrea Hernandez Velasco (4) ...... 3,741,648 3.0% 227,752 3,513,896 2.7% Attn: Pedro Verea Hernandez 1155 René-Lévesque Blvd. West, 40th Floor Montréal, QC H3B 3V2, Canada GI Partners Fund III L.P. (5) ...... 6,934,513 5.6% 427,460 6,507,053 5.1% 2180 Sand Hill Road, Suite 210 Menlo Park, CA 94025 GI Partners Fund III-A L.P. (5) ...... 181,706 0.1% 11,200 170,506 0.1% 2180 Sand Hill Road, Suite 210 Menlo Park, CA 94025 GI Partners Fund III-B L.P. (5) ...... 1,265,072 1.0% 77,982 1,187,090 0.9% 2180 Sand Hill Road, Suite 210 Menlo Park, CA 94025 Directors and Executive Officers Thomas J. Barrack, Jr. (6), (8) ...... 27,066,430 21.8% 1,668,441 25,397,989 19.8% William E. Ford (1), (8) ...... 27,066,430 21.8% 1,668,441 25,397,989 19.8% James H. Herbert, II (7), (9), (10) ...... 615,724 0.5% 0 2,202,655 1.7% Katherine E. August-deWilde (7), (9), (11) ...... 583,725 0.5% 0 2,170,656 1.6% Willis H. Newton, Jr. (7) ...... 66,666 —% 0 66,666 —% Pamela J. Joyner (8), (12) ...... 49,999 —% 0 49,999 —% Edward J. Dobranski (7) ...... 33,333 —% 0 33,333 —% David B. Lichtman (7) ...... 33,333 —% 0 33,333 —% Frank J. Fahrenkopf, Jr. (8) ...... 16,666 —% 0 16,666 —% Jody S. Lindell (8) ...... 16,666 —% 0 16,666 —% George G.C. Parker (8) ...... 13,333 —% 0 13,333 —% L. Martin Gibbs (8) ...... 6,666 —% 0 6,666 —% Sandra R. Hernández (8) ...... 0 —% 0 0 —% All Executive Officers and Directors as a group (composed of 13 individuals) (9) ...... 55,568,971 44.6% 3,336,882 55,405,951 42.0%

170 Common Stock

As of October 31, 2010 After Completion of This Offering Percentage of Number of Percentage of Number of Outstanding Shares to Number of Outstanding Name and Address of Beneficial Owner Shares Shares be Sold Shares Shares Other Selling Shareholders First Opportunity Fund, Inc...... 558,729 0.5% 34,441 524,288 0.4% 123 Investor LLC ...... 4,864,143 3.9% 299,839 4,564,304 3.6% The Eli & Edythe Broad Foundation ...... 2,993,319 2.4% 184,516 2,808,803 2.2% The Broad Art Foundation ...... 598,664 0.5% 36,903 561,761 0.4% Juggernaut Fund, L.P...... 1,520,633 1.2% 93,735 1,426,898 1.1% Windmill Master Fund L.P...... 3,041,267 2.5% 187,471 2,853,796 2.2% SOAM Capital Partners, L.P. (Sandler O’Neill Asset Management, LLC) (13) ...... 380,158 0.3% 23,435 356,723 0.3% Malta Hedge Fund, L.P. (Sandler O’Neill Asset Management, LLC) (13) ...... 38,776 —% 2,390 36,386 —% Malta Hedge Fund II, L.P. (Sandler O’Neill Asset Management, LLC) (13) ...... 223,533 0.2% 13,779 209,754 0.2% Malta Offshore, Ltd. (Sandler O’Neill Asset Management, LLC) (13) ...... 76,792 0.1% 4,733 72,059 0.1% Malta Partners, L.P. (Sandler O’Neill Asset Management, LLC) (13) ...... 10,644 —% 656 9,988 —% Malta MLC Fund, L.P. (Sandler O’Neill Asset Management, LLC) (13) ...... 167,270 0.1% 10,311 156,959 0.1% Malta MLC Offshore, Ltd. (Sandler O’Neill Asset Management, LLC) (13) ...... 38,016 —% 2,343 35,673 —% Malta Titan Fund, L.P. (Sandler O’Neill Asset Management, LLC) (13) ...... 585,444 0.5% 36,088 549,356 0.4% Football II LLC ...... 374,165 0.3% 23,065 351,100 0.3% FRB Holdings I, LLC ...... 444,333 0.4% 27,389 416,944 0.3% FRB Holdings II, LLC ...... 444,333 0.4% 27,389 416,944 0.3% FRB Holdings III, LLC ...... 444,668 0.4% 27,411 417,257 0.3% Calera Capital Partners IV, L.P...... 3,612,935 2.9% 72,259 3,540,676 2.8% Calera Capital Partners IV Side-By-Side, L.P...... 128,713 0.1% 2,574 126,139 0.1% Sequoia Capital U.S. Growth Fund IV, L.P. (14) ...... 1,496,659 1.2% 92,255 1,404,404 1.1% Total ...... 22,043,194 17.8% 1,202,982 20,840,212 16.2%

(1) As of October 31, 2010, General Atlantic was beneficial owner of 21.8% of the outstanding shares of the Bank’s common stock which was held directly in the following amounts and by the following entities: 25,757,172 shares by General Atlantic Partners 87, L.P. (“GAP LP”), 41,006 shares by GAPCO GmbH & Co. KG (“GAPCO KG”), 40,654 shares by GAP Coinvestments CDA, L.P. (“GAPCO CDA”), 1,005,058 shares by GAP Coinvestments III, LLC (“GAPCO III”) and 222,540 shares by GAP Coinvestments IV, LLC (“GAPCO IV”). General Atlantic is the general partner of General Atlantic GenPar, L.P. (“GA GenPar”) and GAPCO CDA. GA GenPar is the general partner of GAP LP. GAPCO Management GmbH (“GAPCO Management”) is the general partner of GAPCO KG. The managing members of GAPCO III and GAPCO IV are Managing Directors of General Atlantic. In addition, the Managing Directors of General Atlantic make voting and investment decisions with respect to GAPCO Management and GAPCO KG. There are 29 Managing Directors of General Atlantic. Mr. Ford is Chief Executive Officer and a Managing Director of General Atlantic, Executive Managing Member of each of GAPCO III and GAPCO IV and a Managing Director of GAPCO Management. GAP LP, GAPCO KG, GAPCO CDA, GAPCO III and GAPCO IV (collectively, the “GA Group”) are a “group” within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934, as amended. Mr. Ford disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address of Mr. Ford and the GA Group is c/o General Atlantic Service Company, LLC, 3 Pickwick Plaza, Greenwich, CT 06830. The number of shares to be sold by General Atlantic LLC is the aggregate of 1,587,736 shares, 2,527 shares, 2,506 shares, 61,954 shares and 13,718 shares of common stock to be sold by GAP LP, GAPCO KG, GAPCO CDA, GAPCO III and GAPCO IV, respectively. (2) Wellington Management Company, LLP (“Wellington Management”) is an investment adviser registered under the Investment Advisers Act. Wellington Management, in such capacity, may be deemed to share beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) over the shares held by its client accounts. The number of shares to be sold by Wellington Management Company, LLP is the aggregate of 308,024 shares, 101,252 shares, 182,333 shares, 56,857 shares and 47,774 shares of common stock to be sold by Bay Pond Partners, L.P., Bay Pond Investors (Bermuda), L.P., Ithan Creek Master Investors (Cayman), L.P., Wolf Creek Partners, L.P. and Wolf Creek Investors (Bermuda), L.P., respectively. (3) Pine Eagle 1, LLC (“Pine Eagle 1”), Pine Eagle 2, LLC (“Pine Eagle 2”) and Pine Eagle 3, LLC (“Pine Eagle 3”) are affiliates. Accordingly, each of Pine Eagle 1, Pine Eagle 2 and Pine Eagle 3 may be deemed to have beneficial ownership of the shares held by Pine Eagle 1, Pine Eagle 2 and Pine Eagle 3, in which case each entity may be deemed to have beneficial ownership of approximately 9.0% of the shares outstanding as of October 31, 2010. (4) Each of the three investing members of the Hernandez family holds her shares of common stock through her respective Canadian limited partnership beneficially owned by an individual trust created under the laws of Mexico of which each will be the grantor and primary beneficiary. If each such family member is deemed to share beneficial ownership with the others, she would hold approximately 9.0% of the outstanding shares of common stock. Each of the three investing members of the Hernandez family is unrelated to Dr. Hernández, a member of the Board. (5) GI Partners Fund III L.P., GI Partners Fund III-A L.P. and GI Partners Fund III-B L.P. (each a “GI Partners Fund Entity”) are affiliates. Accordingly, each GI Partners Fund Entity may be deemed to have beneficial ownership of the shares held by each GI Partners Entity, in which case each entity may be deemed to have beneficial ownership of approximately 6.8% of the shares outstanding as of October 31, 2010.

171 (6) Mr. Barrack’s ownership percentages include shares held by ColFin FRB Investor, LLC, an affiliate of Colony Capital, LLC. Mr. Barrack is the Chief Executive Officer of ColFin FRB Investor, LLC and Colony Capital, LLC and may be deemed to have indirect beneficial ownership of the shares held by ColFin FRB Investor, LLC through ultimate control over the entities that own ColFin FRB Investor, LLC. Mr. Barrack disclaims beneficial ownership of the common stock listed except to the extent of his pecuniary interest therein. (7) Executive Officer (8) Director (9) Totals displayed for Mr. Herbert and Ms. August-deWilde and for executive officers and directors as a group as of October 31, 2010 include 176,325 shares of common stock subject to stock options owned by each of them that are currently vested or that will vest within 60 days. Totals displayed for Mr. Herbert and Ms. August-deWilde and for executive officers and directors as a group after completion of this offering include an additional 1,586,931 shares of common stock subject to stock options owned by each of them that will vest upon completion of this offering. Totals displayed do not include shares of common stock subject to unvested stock options held by certain of our directors and executive officers in the following quantities: 4,760,796 options to purchase shares of common stock currently held by Mr. Herbert and Ms. August-deWilde and 3,173,865 options held by each of them that will remain unvested after completion of this offering, 15,000 options to purchase shares of common stock held by Mr. Fahrenkopf, 15,000 options to purchase shares of common stock held by Mr. Gibbs, 15,000 options to purchase shares of common stock held by Ms. Joyner, 15,000 options to purchase shares of common stock held by Ms. Lindell, 15,000 options to purchase shares of common stock held by Mr. Parker, 15,000 options to purchase shares of common stock held by Dr. Hernández, 140,000 options to purchase shares of common stock held by Mr. Dobranski, 165,000 options to purchase shares of common stock held by Mr. Lichtman and 100,000 options to purchase shares of common stock held by Mr. Newton, in each case as of August 31, 2010. (10) Totals displayed include 100,000 shares of common stock held a family partnership of which Mr. Herbert is a partner, 66,667 shares of common stock held by Mr. Herbert’s wife and 31,999 shares of common stock held by Mr. Herbert’s children, all of which are attributable to Mr. Herbert. (11) Totals displayed include 33,333 shares of common stock held by Ms. August-deWilde’s husband and 20,000 shares of common stock held by Ms. August-deWilde’s children, all of which are attributable to Ms. August-deWilde. (12) Totals displayed include 16,666 shares of common stock held by Ms. Joyner’s husband which are attributable to Ms. Joyner. (13) Each of these funds is managed by Sandler O’Neill Asset Management, LLC or one of its affiliates. Tony Maltese is the managing member of Sandler O’Neill Asset Management, LLC and as such shares voting and dispositive power over the shares held by the funds. Mr. Maltese disclaims beneficial ownership over the shares held by these funds except to the extent of his pecuniary interest therein. (14) Totals displayed include 62,261 shares held and 3,838 shares to be sold in the offering by Sequoia Capital USGF Principals Fund IV, L.P.

172 DESCRIPTION OF CAPITAL STOCK

The following description summarizes the material terms of our capital stock. Because it is only a summary, it may not contain all the information that is important to you. For a complete description, you should refer to our Articles, Amended and Restated Bylaws (the “Bylaws”), certificates of determination and any applicable provisions of relevant law.

General

The Articles authorize us to issue a total of 425,000,000 shares of capital stock, of which we are authorized to issue 400,000,000 shares of common stock, par value $0.01 per share, and 25,000,000 shares of preferred stock. As of October 31, 2010, there were 124,133,334 shares of common stock outstanding and held by approximately 150 record holders.

Common Stock

Voting. Each holder of our common stock will be entitled to one vote per share held 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 our preferred stock. Holders of common stock are not entitled, however, to make 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. 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. Shareholders are not entitled to cumulate votes effective upon our listing on NYSE.

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 our common stock from any lawfully available funds.

Pre-emptive Rights. Our Articles do not grant any pre-emptive rights to our shareholders. There are no sinking fund or redemption provisions applicable to our common stock.

Preferred Stock

The Articles permit the Board to issue one or more series of preferred stock and fix the number of shares of and determine the rights, preferences, privileges and restrictions of any such series of preferred stock. The Board has designated and reserved for issuance 55,000 shares of 10.5% Noncumulative Series M Preferred Stock (“Series M Preferred Stock”), 60,000 shares of 7.25% Noncumulative Perpetual Series N Preferred Stock (“Series N Preferred Stock”), 250 shares of 10% Noncumulative Series O Preferred Stock (“Series O Preferred Stock”) and 10,000 shares of 8.75% Noncumulative Perpetual Series P Preferred Stock (“Series P Preferred Stock” and, collectively with the Series M Preferred Stock, Series N Preferred Stock and Series O Preferred Stock, “REIT Exchangeable Preferred Stock”). No shares of preferred stock are currently outstanding, and shares of any series of REIT Exchangeable Preferred Stock will only be issued, if ever, in an automatic exchange for shares of preferred stock issued by FRPCC and FRPCC II upon the occurrence of one of the following events: (i) we become “undercapitalized” under regulations established pursuant to the FDIA, (ii) the FDIC or the Commissioner directs in writing that an exchange occur because it anticipates we may in the near term become undercapitalized or (iii) we are placed into bankruptcy, reorganization, conservatorship or receivership.

173 Each series of REIT Exchangeable Preferred Stock, if issued, will be entitled to receive noncumulative cash dividends when and as declared by the Board on an annual, semiannual or quarterly basis depending on the particular series. None of the REIT Exchangeable Preferred Stock have any pre-emptive rights, are subject to a sinking fund, or are convertible into or exchangeable or exercisable for any of our other securities. Each series of REIT Exchangeable Preferred Stock, except the Series O Preferred Stock is redeemable at our option; we are required to pay a redemption premium if we redeem the Series M Preferred Stock prior to certain specified dates.

Each series of REIT Exchangeable Preferred Stock ranks senior to our common stock and equal to each other series of REIT Exchangeable Preferred Stock as to dividends and rights upon liquidation. Each series of REIT Exchangeable Preferred Stock has a liquidation preference of $1,000 per share. If shares of any series of REIT Exchangeable Preferred Stock are ever outstanding (other than shares of the Series O Preferred Stock), the consent of holders of at least 67% of the outstanding shares of any such series will be required to (i) create any class or series of shares that ranks, as to dividends and distributions upon liquidation, senior to such series of REIT Exchangeable Preferred Stock or (ii) alter or change provisions of our Articles so as to adversely affect the voting powers, preferences or special rights of the holders of such series of REIT Exchangeable Preferred Stock. Also, under certain circumstances where we have failed to pay dividends on our preferred stock, holders of all series of REIT Exchangeable Preferred Stock (other than shares of the Series O Preferred Stock), voting as a single class, will be entitled to elect two directors to serve on the Board. Unlike any future holders of our other series of REIT Exchangeable Preferred Stock, any future holders of our Series O Preferred Stock will not have any voting rights except as required by law.

Transfer Restrictions

The 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 were offered and sold. Shares of our 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 DFI, as applicable.

Listing and Trading

The common stock, Series M Preferred Stock, Series N Preferred Stock, Series O Preferred Stock and Series P Preferred Stock currently are not listed on any securities exchange or displayed on any electronic communications network.

Our common stock has been approved for listing on the NYSE under the symbol “FRC.”

Book Entry, Delivery and Form

The Depository Trust Company (“DTC”) will act as securities depositary for the common stock. We will issue one or more fully registered global securities certificates in the name of Cede & Co., DTC’s partnership nominee, or such other name as may be requested by an authorized representative of DTC. These certificates will represent the total aggregate number of shares of common stock. We will deposit these certificates with DTC or a custodian appointed by DTC. We will not issue certificates to you for our common stock, unless DTC’s services are discontinued as described below.

174 Title to book-entry interests in our common stock will pass by book-entry registration of the transfer within the records of DTC in accordance with its procedures. Book-entry interests in the securities may be transferred within DTC in accordance with procedures established for these purposes by DTC.

Each person owning a beneficial interest in our common stock must rely on the procedures of DTC and the participant through which such person owns its interest to exercise its rights as a holder of our common stock.

DTC has advised us 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 Securities Exchange Act. DTC holds securities that its participants, referred to as Direct Participants, deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Direct Participants’ accounts, thereby eliminating 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 indirectly, referred to as 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 www.dtc.org.

You, as the actual owner of the common stock, are the “beneficial owner.” Your beneficial ownership interest will be recorded on the Direct and Indirect Participants’ records.

To facilitate subsequent transfers, the global securities certificates representing our common stock that are 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 the global securities certificates with DTC and their 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 Securities. 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 the beneficial owners.

The laws of some states may require that specified purchasers of securities take physical delivery of the common stock in definitive form. These laws may impair the ability to transfer beneficial interests in the global certificates representing the common stock.

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 will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

We will send redemption notices to DTC. If less than all of the common stock is being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

We understand that, under DTC’s existing practices, in the event that we request any action of holders, or an owner of a beneficial interest in a global security desires to take any action which a holder is entitled to take

175 under our Amended and Restated Articles of Incorporation, DTC would authorize the Direct Participants holding the relevant shares to take such action, and those Direct Participants and any Indirect Participants would authorize beneficial owners owning through those Direct and Indirect Participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them.

In those instances where a vote is required, neither DTC nor Cede & Co. itself will consent or vote with respect to the common stock. Under its usual procedures, DTC would mail an omnibus proxy to us 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 are credited on the record date, which are identified in a listing attached to the omnibus proxy.

Redemption proceeds, 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 us or our agent on the payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to beneficial owners will be 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 will be the responsibility of such Participant and not of DTC (nor its nominee), us or any agent of ours, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of dividends to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of us or our agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the beneficial owners will be 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 us or our agent. Additionally, we 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, we will print and deliver certificates in fully registered form for the common stock. If DTC notifies us that it is unwilling to continue as securities depositary, or if it is unable to continue or ceases to be a clearing agency registered under the Exchange Act and a successor depositary is not appointed by us within 90 days after receiving such notice or becoming aware that DTC is no longer so registered, we will issue the common stock in definitive form, at our expense, upon registration of transfer of, or in exchange for, such global security.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof.

Transfer Agent

Mellon Investor Services LLC will act as registrar and transfer agent for the shares of common stock. Registration of transfers of shares of the common stock will be effected without charge by or on our behalf but only upon payment of any tax or other governmental charges that may be imposed in connection with any transfer or exchange.

176 SHARES ELIGIBLE FOR FUTURE SALE

We cannot make any prediction as to the effect, if any, that sales of our common stock or the availability of common stock for sale will have on the market price of our common stock. The market price of our common stock could decline because of the sale of a large number of shares of our common stock of the perception that such sales could occur. These factors could also make it more difficult to raise funds through offerings of common stock.

We will have 128,248,334 shares of common stock outstanding after completion of this offering (128,858,334 shares if the underwriters exercise in full their option to purchase additional shares) and 15,608,282 shares of common stock issuable upon the exercise of outstanding options. Approximately 3.2 million of these options will vest upon completion of this offering. All shares of our common stock sold in the offering will be freely tradable without restriction except as described below.

Taking into account the lock-up agreements described below, and assuming the underwriters do not release any parties from these agreements, the following shares will be eligible for sale in the public market at the following times, assuming the successful completion of this offering:

• Beginning on the effective date of this offering, the shares of common stock sold in this offering and the other shares of common stock not subject to lock-up agreements, or approximately 13.2 million shares, will be immediately available for sale in the public market; and

• Beginning 180 days after the date of this offering circular, the expiration date for the lock-up agreements, approximately an additional 115.1 million shares of common stock will be eligible for sale.

The selling shareholders and our executive officers and directors, who will own in the aggregate approximately 115.1 million shares of our outstanding common stock after the offering, have entered into lock-up agreements under which they have agreed, for 180 days after the date of this offering circular, not to sell or transfer any shares of common stock without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated. For additional information on the lock-up agreements, see “Underwriting—No Sales of Similar Securities.” As a result of these contractual restrictions, shares of our common stock subject to lock-up agreements will not be eligible for sale until these agreements expire or are waived by the underwriters.

177 CERTAIN PROVISIONS OF CALIFORNIA LAW, THE BANK’S ARTICLES OF INCORPORATION AND BYLAWS AND THE SHAREHOLDERS’ AGREEMENT

The following is a summary of the provisions of California law applicable to the Bank, our Amended and Restated Articles of Incorporation (the “Articles”), our Amended and Restated Bylaws (the “Bylaws”) and a Shareholders’ Agreement between the Bank and certain holders of its common stock. For more detail, you should refer to California law, including the California General Corporate Law (the “CGCL”) and the California Financial Code (the “CFC”), the Articles and Bylaws and the Shareholders’ Agreement.

Amendment of Articles of Incorporation and Bylaws

Amendment of Articles of Incorporation

Under California law, a California corporation cannot amend its articles of incorporation unless the amendment is approved by the board of directors and by the affirmative vote of a majority of the outstanding shares entitled to vote, either before or after the approval by the board of directors. An amendment 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.

Under California law, a California bank cannot amend its articles of incorporation unless the amendment is approved by the Commissioner. If the amendment is not made pursuant to a merger agreement or certificate of ownership that was approved by the Commissioner then, after the amendment becomes effective, a copy of the certificate of amendment (or other instrument certified by the Secretary of State) must be filed with the Commissioner. If the amendment is set forth in a merger agreement or certificate of ownership, then the amendment becomes effective when the merger becomes effective.

Under California law, the affirmative vote of a majority of the outstanding shares of common stock is required to amend, alter or repeal (including by merger, consolidation or otherwise) any provision of the Articles that adversely affects the rights, preferences or privileges of that class of stock. The Articles require the affirmative vote of two-thirds of the outstanding shares of common stock entitled to vote in order to amend or repeal provisions of the Articles prohibiting shareholder action by written consent without a meeting, limiting the liability of the Bank’s directors, permitting indemnity to be provided to agents of the Bank, eliminating the ability of shareholders to cumulate votes and authorizing the Board to adopt and amend the Bylaws.

Amendment of Bylaws

Under California law, the Board or the shareholders may adopt, amend or repeal the Bank’s 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, after the issuance of shares, Bylaws specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board of directors or vice versa, may only be adopted by the vote or written consent 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.

178 Power to Reclassify Shares of Stock

Prior to the issuance of shares of each class or series of which the rights, preferences, privileges and restrictions, or the number of shares constituting any series or the designation of the series, are not set forth in the Articles, the Board is required by California law to execute and file an officer’s certificate setting forth (i) a copy of the board resolution fixing the rights, preferences, privileges and restrictions of such class or series, and the number of shares constituting such series or the designation of such series; (ii) the number of shares of such class or series; and (iii) that none of the shares of the class or series has been issued. By following this procedure, the Board could authorize the issuance of shares of common stock or preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of common stock or otherwise be in their best interest.

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 us to issue additional authorized shares without shareholder approval, unless shareholder approval is required by applicable law or, if our shares are listed in the future, the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. Although we have no present intention of doing so, we 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. For a permit to be issued, the Commissioner must find that the proposed sale is “fair, just, and equitable.” This provision exempts certain stock splits, sales to a person who has been approved by the Commissioner to acquire control of the bank and certain offers (but not sales) that are restricted to a limited number of offerees who have a preexisting relationship with the bank or could otherwise be reasonably assumed to have the capacity to protect their interests with respect to the transaction.

Meetings of Shareholders

Under our Bylaws, annual meetings of shareholders are to be held each year at such precise date and time and at such place as fixed by the resolution of the Board. Special meetings of shareholders may be called at any time by the Board or our Chairman, President 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. Special meetings of the shareholders may be held at any date, time and place as will be specified in the notice to shareholders.

Our Bylaws provide that written notice of each meeting be given by the Board to each shareholder entitled to vote not less than 10 nor more than 60 days before such meeting. In the case of a special meeting, the notice must state the general nature of the business to be transacted and no other business will be transacted at such meeting. In the case of an annual meeting, the notice must state those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholders.

In the case of an annual meeting, nominations of persons for election as directors and any proposed business to be must be made (i) pursuant to the notice of meeting delivered by the Bank, (ii) by or at the direction of the Board or (iii) by any shareholder who was a shareholder of record at the time of giving notice, who is entitled to vote at the annual meeting and who has complied with the notice procedures set forth in the Bylaws.

179 Board of Directors

Under our Bylaws, the number of directors will not be less than nine nor more than eleven. Under our 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 us. Except for a vacancy created by the removal of a director, vacancies on the Board may be filled by approval of the Board or, if not filled by the Board, by shareholder vote. If the number of directors then in office is less than a quorum, vacancies may be filled by the unanimous written consent of the directors then in office, the affirmative vote of a majority of the remaining directors at a meeting held pursuant to notice requirements, or by a sole remaining director.

The Board is not divided into different classes of directors. Consequently, at each annual meeting of shareholders, the holders entitled to cast a majority of the votes entitled to be cast in the election of directors will be able to elect all of the directors that are subject to election at a given meeting, unless cumulative voting is used. Under the Articles, upon listing of the shares of our common stock on the NYSE, holders of shares of common stock will not have the right to cumulative voting in the election of 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, sale of control or sale of substantially all of our assets if such transaction was not previously approved by the Board or transactions involving any of the Bank’s majority-owned subsidiaries.

Inability of Shareholders to Act by Written Consent

Unless otherwise prohibited by a corporation’s articles of incorporation, California law permits shareholder action to be taken in lieu of a meeting if a consent in writing, setting forth the action to be taken, is signed by the holders of outstanding shares of common stock having not less than the minimum number of votes that would be necessary to authorize and take such action at a meeting at which all shares entitled to vote thereon were present and voted, except that unanimous written consent is required for the election of directors. The Articles and Bylaws prohibit our shareholders from taking action by written consent in lieu of a meeting as to any matter.

Removal and Resignation of Directors

Upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board, any director may resign effective immediately unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.

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 (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the most recent election were then being elected. With certain limited exceptions, vacancies occurring in the Board by reason of the removal of directors may be filled only by the shareholders.

180 Records and Reports

Under California law, a California corporation must provide an annual report to shareholders unless the corporation (i) has fewer than 100 shareholders and (ii) expressly waives the requirement of an annual report in its bylaws. Our Bylaws expressly waive the requirement of an annual report for as long as the number of shareholders is fewer than 100. However, California law requires, and our Bylaws specify, that we will keep a copy of each annual financial statement, quarterly or other periodic income statement, and accompanying balance sheets prepared by it, and that these documents shall be exhibited, or copies provided, to any shareholder on demand. So long as no annual report for the last fiscal year has been sent to the shareholders, we will deliver or mail, upon written request made more than 120 days after the close of the fiscal year, a balance sheet as of the end of that fiscal year and an income statement and statement of changes in financial condition for that fiscal year.

California law requires, and our Bylaws specify, that a shareholder or shareholders holding at least 5% of our outstanding shares may request in writing an income statement for the most recent three-month, six-month or nine-month period of the current fiscal year and a balance sheet of the corporation as of the end of that period. If these documents are not already prepared, our Chief Financial Officer shall cause them to be prepared and shall deliver or mail them to the requesting shareholders within 30 days of the request.

Limitation of Liability and Indemnification

California law permits us to include in the Articles a provision limiting the liability of our directors to us and our 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 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 our Bylaws, we are authorized to obtain and have obtained directors’ and officers’ liability insurance.

Section 317(b) of the CGCL grants us 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, 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. Section 317(a) of the CGCL defines “agent” as “any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation.” California law permits us 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.

Section 317(c) of the CGCL does not allow us to indemnify our 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

181 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.

Section 317(d) of the CGCL provides that to the extent that an agent of a corporation has been successful on the merits in defense of any related proceeding or in defense of any claim, issue, or matter therein, the agent will be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.

The Articles and Bylaws state that we will, to the fullest extent permitted by California law, provide indemnification to our 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, we may not indemnify our agents against liability or legal expenses with regard to certain administrative proceedings or civil actions brought by the FDIC. We have entered into agreements with our directors indemnifying them to the fullest extent permitted by law and all applicable limitations imposed by the FDIC and the Department.

Certain directors (the “Fund Directors”) have rights to indemnification provided by their employers (the “Fund Indemnitors”). Under our Bylaws, it will (i) act as indemnitor of first resort for the Fund Directors, (ii) be required to advance expenses incurred in defending a proceeding against the Fund Directors to the same extent as for other directors, without regard to any rights a Fund Director has against the Fund Indemnitors and (iii) waive any claims against the Fund Indemnitors for contribution, subrogation or other recovery.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

Shareholders’ Agreement

We and certain investors are parties to a Shareholders’ Agreement that establishes various rights among those investors and limits those investors’ ability to freely vote or transfer their shares of common stock. All parties to the Shareholders’ Agreement must vote their shares of common stock, and take all other necessary and desirable actions reasonably within their control, to effectuate the terms of the Shareholders’ Agreement and ensure our organizational documents do not, at any time, conflict with the Shareholders’ Agreement. The Shareholders’ Agreement will terminate upon the expiration of a period of 25 years after June 30, 2010 or earlier upon the consent of holders representing 90% of the shares of common stock subject to the Shareholders’ Agreement.

182 Voting Restrictions

Pursuant to the Shareholders’ Agreement, the Board consists of ten directors comprised of (i) one representative designated by Colony, (ii) one representative designated collectively by General Atlantic, (iii) our Chief Executive Officer, (iv) another member of our senior management, currently the President and Chief Operating Officer, and (iv) six independent directors. If either Colony or General Atlantic or their respective Permitted Transferees (as defined in the Shareholders’ Agreement) ceases to own at least 25% of the number of shares of common stock such entity held as of June 30, 2010, then Colony or General Atlantic or their respective Permitted Transferees, as the case may be, will lose its right to designate a director to the Board.

Board of Directors

The Shareholders’ Agreement specifies that all committees must include the directors designated by Colony and General Atlantic if they so choose (subject, in the case of the Audit Committee, to FDIC regulations and any other applicable law). Additionally, any committee on which the directors designated by Colony and General Atlantic serve must have at least five members or, if only one member elects to be a member of a committee, four members. The Shareholders’ Agreement also specifies that the Board will have a corporate governance and nominating committee for the purpose of nominating experienced independent directors to serve on the Board. The corporate governance and nominating committee will have five members comprised of three independent directors and the directors designated by Colony and General Atlantic. Colony and General Atlantic may also request to designate directors to the Board or similar managing body of any subsidiary of the Bank, other than FRPCC, FRPCC II or any similar subsidiary formed in the future primarily to finance loans.

Transfer Restrictions

Until the second anniversary of the completion of the transaction establishing the Bank as an independent institution on June 30, 2010, no shareholder subject to the Shareholders’ Agreement may sell, transfer or otherwise dispose of its shares of common stock without the Board’s prior approval other than (i) to us, (ii) subject to the ownership restrictions imposed by the Shareholders’ Agreement, to any other party to the Shareholders’ Agreement or to a Permitted Transferee (as defined in the Shareholders’ Agreement) of such other party, (iii) upon providing five business days written notice to us, to a Permitted Transferee of the shareholder or (iv) pursuant to a registered underwritten public offering for cash or underwritten offering for cash exempt from registration under Section 3(a)(2) of the Securities Act (a “Public Offering”) or, following our initial Public Offering, pursuant to a registered offering or public distribution in compliance with any applicable U.S. federal and state securities laws.

After prior notice to us and the other shareholders party to the Shareholders’ Agreement and consultation with the Board, and subject to the right of first offer described below, any shareholder may dispose of its shares of common stock to such extent as is necessary or advisable to avoid or resolve any regulatory burdens placed on such shareholder or its affiliates which would not exist absent such investor’s ownership of common stock.

The Shareholders’ Agreement grants each party thereto a right of first offer with respect to certain transfers of shares held by other parties following the second anniversary of completion of the transaction establishing First Republic as an independent institution. Pursuant to the right of first offer, any party seeking to transfer any shares of common stock subject to the Shareholders’ Agreement must offer those shares to the other parties to the Shareholders’ Agreement before selling the shares to a third-party. The right of first offer does not apply with respect to transfers (i) to us, (ii) to Permitted Transferees, (iii) pursuant to a Public Offering or, following our initial Public Offering, pursuant to a registered offering or public distribution in compliance with any applicable U.S. federal and state securities laws or (iv) pursuant to the exercise of the tag-along or drag-along rights described below.

After June 30, 2012, one or more parties to the Shareholders’ Agreement collectively owning at least a majority of the shares of common stock covered by the Shareholders’ Agreement (“Requisite Investors”)

183 transferring at least 50% of the then issued and outstanding common stock to any unaffiliated third-party purchaser who is not a Permitted Transferee in one or a series of transactions may require all other parties to the Shareholders’ Agreement to transfer all or some of their shares subject to the Shareholders’ Agreement to the purchaser. Any such transaction could result in a change in control of the Bank.

All transfer restrictions imposed by the Shareholders’ Agreement terminate following the earlier of (i) a Public Offering by us with aggregate gross proceeds of $200 million or more, including the gross proceeds received in any prior Public Offering, and (ii) the time when 10% or more of the shares of common stock are listed or traded on a national securities exchange (the earlier of clauses (i) and (ii), a “Qualified Public Offering”).

We expect that this offering will satisfy all the requirements of a Qualified Public Offering and thereafter cause transfer restrictions to terminate.

Pre-Emptive Rights

Prior to the occurrence of a Qualified Public Offering, the Shareholders’ Agreement grants each party thereto the right to purchase, on a pro rata basis, any Equity Securities (as defined below) issued by us or any of our subsidiaries, other than Equity Securities issued in certain exempt transactions, such as pursuant to the exercise of a convertible, exchangeable or exercisable security or instrument.

As defined in the Shareholders’ Agreement, “Equity Securities” means all forms of equity securities in the Bank or any parent, subsidiary or successor entity of the Bank, all securities convertible into or exchangeable or exercisable for such equity securities, and all warrants, options or other rights to purchase or acquire from the Bank or any parent, subsidiary or successor entity of the Bank such equity securities, or securities convertible into or exchangeable or exercisable for such equity securities, including common stock and preferred stock, but excluding shares of trust preferred securities, preferred Equity Securities issued by FRPCC, FRPCC II or any future subsidiary of the Bank formed primarily to provide financing for loans, and debt securities with no equity features and not convertible into or exchangeable or exercisable for equity securities.

We expect that this offering will be a Qualified Public Offering and thereafter cause the pre-emptive rights to terminate.

Registration Rights

Parties to the Shareholders’ Agreement will be entitled to certain registration rights that give them the benefit of rights to effect or participate in broadly distributed public offerings of the shares. If the Bank has not completed a Qualified Public Offering by June 30, 2012, Requisite Investors may cause us to file a registration statement, or, if registration is not required in reliance on Section 3(a)(2) of the Securities Act, make such other regulatory filings as may be necessary, to permit the offer and sale of such shares in a Qualified Public Offering. Additionally, if, at any time, we file a registration statement covering any Equity Securities, then we must provide prior notice of the registration statement to all parties to the Shareholders’ Agreement, each of whom may then request and, subject to certain exceptions and customary cutbacks based on the advice of the underwriters, have their shares included in such registration statement. At any time beginning 180 days after our initial underwritten public offering, we will also, upon the written demand of Requisite Investors, prepare and file a registration statement covering the Equity Securities held by such Requisite Investors which are requested to be registered in the written demand, subject to certain exceptions and customary cutbacks based on the advice of the underwriters. All cutbacks contained in the Shareholders’ Agreement specify that parties to the Shareholders’ Agreement are given priority to include their Equity Securities in any offering conducted by us pursuant to the Shareholders’ Agreements over any other persons, except in certain cases where we are registering Equity Securities for our own account, seeking to include Equity Securities in any such offering.

As of October 31, 2010, 120,000,041 shares of common stock were subject to the registration rights specified in the Shareholders’ Agreement.

184 Ownership Limitations

The Shareholders’ Agreement restricts the percentage beneficial ownership of outstanding common stock that any party thereto may hold. Pursuant to the Shareholders’ Agreement, unless agreed to by the applicable shareholder and the Board, (i) each of Colony and General Atlantic, together with their respective affiliates and Permitted Transferees, may not own more than 24.9% of the outstanding common stock, and (ii) each of the other parties to the Shareholders’ Agreement, together with its respective affiliates and Permitted Transferees, may not own more than 9.9% of the outstanding common stock.

Management Limitations on Certain Investors

Colony, General Atlantic, Wellington Management Company, LLP, the Pine Eagle entities and GI Partners have each entered into commitments with the Federal Reserve, the FDIC and the DFI not to take certain actions in connection with their respective participation as a shareholder of the Bank that would be inconsistent with their roles as passive investors. In particular, each of the listed entities has agreed that it will not, without prior approval from the applicable regulator, engage in certain activities which include (i) exercising or attempting to exercise a controlling influence over the management or policies of the Bank or its subsidiaries, (ii) having or seeking to have more than one representative each serve on the Board or the board of directors of any of our subsidiaries, (iii) permitting any representative serving on the Board or the board of directors of any of our subsidiaries to serve as chairman of such board, chairman of any committee of such board or serve on any committee where such representative occupies more than 25% of the seats on such committee, (iv) propose a director or slate of directors in opposition to those proposed by management or the Board, (v) solicit or participate in the solicitation of proxies with respect to any matter presented to our shareholders or the shareholders of any of our subsidiaries, (vi) dispose or threaten to dispose of equity interests of the Bank or any of its subsidiaries in any manner as a condition or inducement of specific action or non-action by the Bank or any of its subsidiaries, (vii) owning or controlling equity interests in the Bank that would cause its combined voting and non-voting equity interests in the Bank to equal or exceed 33% of the Bank’s total equity capital, (viii) owning, controlling or holding with the power to vote securities representing 25% or more of any class of voting securities issued by the Bank, (ix) taking certain other enumerated actions designed to influence, or increase its influence over, the Bank or (x) act in concert with each other to exercise control of the Bank.

185 MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

IRS Circular 230 Notice: To ensure compliance with Internal Revenue Service Circular 230, prospective investors are hereby notified that: (a) any discussion of U.S. federal tax issues contained or referred to in this offering circular or any document referred to herein is not intended or written to be used, and cannot be used by prospective investors for the purpose of avoiding penalties that may be imposed on them under the Internal Revenue Code; (b) such discussion is written for use in connection with the promotion or marketing of the transactions or matters addressed herein; and (c) prospective investors should seek advice based on their particular circumstances from an independent tax advisor.

This section summarizes certain material U.S. federal income tax consequences of the acquisition, ownership and disposition of our shares by a non-U.S. holder. You are a non-U.S. holder if you are, for U.S. federal income tax purposes:

• A nonresident alien individual,

• A foreign corporation, or

• An estate or trust that in either case is not subject to U.S. federal income tax on a net income basis on income or gain from our shares.

This section does not consider the specific facts and circumstances that may be relevant to a particular non-U.S. holder and does not address the treatment of a non-U.S. holder under the laws of any state, local or foreign taxing jurisdiction. This section is based on the tax laws of the United States, including the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed regulations, and administrative and judicial interpretations, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.

If a partnership holds shares of our common stock, the United States federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. A partner in a partnership holding our shares should consult its tax advisor with regard to the United States federal income tax treatment of an investment in our shares.

You should consult a tax advisor regarding the United States federal tax consequences of acquiring, holding and disposing of our shares in your particular circumstances, as well as any tax consequences that may arise under the laws of any state, local or foreign taxing jurisdiction.

Dividends

Except as described below, if you are a non-U.S. holder of our shares, dividends paid to you are subject to withholding of U.S. federal income tax at a 30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate. Even if you are eligible for a lower treaty rate, we and other payors will generally be required to withhold at a 30% rate (rather than the lower treaty rate) on dividend payments made to you, unless you have furnished to us or another payor:

• A valid Internal Revenue Service Form W-8BEN or an acceptable substitute form upon which you certify, under penalties of perjury, your status as a non-United States person and your entitlement to the lower treaty rate with respect to such payments, or

• In the case of payments made outside the United States to an offshore account (generally, an account maintained by you at an office or branch of a bank or other financial institution at any location outside the United States), other documentary evidence establishing your entitlement to the lower treaty rate in accordance with United States Treasury regulations.

186 If you are eligible for a reduced rate of U.S. withholding tax under a tax treaty, you may obtain a refund of any amounts withheld in excess of that rate by timely filing a refund claim with the Internal Revenue Service.

If dividends paid to you are “effectively connected” with your conduct of a trade or business within the United States, and, if required by a tax treaty, the dividends are attributable to a permanent establishment that you maintain in the United States, we and other payors generally are not required to withhold tax from the dividends, provided that you have furnished to us or another payor a valid Internal Revenue Service Form W-8ECI or an acceptable substitute form upon which you represent, under penalties of perjury, that:

• You are a non-United States person, and

• The dividends are effectively connected with your conduct of a trade or business within the United States and are includible in your gross income.

“Effectively connected” dividends are taxed at rates applicable to United States citizens, resident aliens and domestic United States corporations.

If you are a corporate non-U.S. holder, “effectively connected” dividends that you receive may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.

Gain on Disposition of Shares

If you are a non-U.S. holder, you generally will not be subject to U.S. federal income tax on gain that you recognize on a disposition of shares of our common stock unless:

• The gain is “effectively connected” with your conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment that you maintain in the United States, if that is required by an applicable income tax treaty as a condition to subjecting you to United States taxation on a net income basis,

• You are an individual, you hold our shares as a capital asset, you are present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist, or

• We are or have been a “U.S. real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period preceding such disposition and your holding period for such shares of our common stock, and (i) you beneficially own, or have owned, more than 5% of the total fair value of our common stock at any time during the shorter of the five- year period preceding such disposition and your holding period for such shares of our common stock or (ii) our common stock ceases to be regularly traded on an established securities market prior to the beginning of the calendar year in which the sale or disposition occurs.

If you are a non-U.S. holder described in the first bullet point immediately above, you will be subject to tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates. If you are an individual non-U.S. holder described in the second bullet point immediately above, you will be subject to a tax at a 30% gross rate, subject to any reduction or reduced rate under an applicable income tax treaty, on the net gain derived from the sale, which may be offset by U.S. source capital losses. “Effectively connected” gains of a corporate non-U.S. holder may also be subject, under certain circumstances, to an additional “branch profits tax” at a 30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.

We have not been, are not and do not anticipate becoming, a U.S. real property holding corporation for U.S. federal income tax purposes.

187 Withholdable Payments to Foreign Financial Entities and Other Foreign Entities

Under recently enacted legislation, a 30% withholding tax will be imposed on certain payments that are made after December 31, 2012 to certain foreign financial institutions, investment funds and other non-United States persons that fail to comply with information reporting requirements in respect of their direct and indirect U.S. shareholders. Such payments would include dividends and the gross proceeds from the sale or other disposition of our shares.

Backup Withholding and Information Reporting

If you are a non-U.S. holder, you are generally exempt from backup withholding and information reporting requirements with respect to:

• Dividend payments, and

• The payment of the proceeds from the sale of shares effected at a United States office of a broker,

as long as the income associated with such payments is otherwise exempt from U.S. federal income tax, and:

• The payor or broker does not have actual knowledge or reason to know that you are a United States person and you have furnished to the payor or broker:

• A valid Internal Revenue Service Form W-8BEN or an acceptable substitute form upon which you certify, under penalties of perjury, that you are (or, in the case of a non-U.S. holder that is a partnership or an estate or trust, such forms certifying that each partner in the partnership or beneficiary of the estate or trust is) a non-United States person, or

• Other documentation upon which it may rely to treat the payments as made to a non-United States person in accordance with United States Treasury regulations, or

• You otherwise establish an exemption.

Payment of the proceeds from the sale of shares effected at a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, a sale of shares that is effected at a foreign office of a broker will be subject to information reporting and backup withholding if:

• The proceeds are transferred to an account maintained by you in the United States,

• The payment of proceeds or the confirmation of the sale is mailed to you at a United States address, or

• The sale has some other specified connection with the United States as provided in United States Treasury regulations, unless the broker does not have actual knowledge or reason to know that you are a United States person and the documentation requirements described above are met or you otherwise establish an exemption.

In addition, a sale of our shares will be subject to information reporting if it is effected at a foreign office of a broker that is:

• A United States person,

188 • A controlled foreign corporation for United States tax purposes,

• A foreign person 50% or more of whose gross income is effectively connected with the conduct of a United States trade or business for a specified three-year period, or

• A foreign partnership, if at any time during its tax year:

• One or more of its partners are “United States persons”, as defined in United States Treasury regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership, or

• Such foreign partnership is engaged in the conduct of a United States trade or business, unless the broker does not have actual knowledge or reason to know that you are a United States person and the documentation requirements described above are met or you otherwise establish an exemption. Backup withholding will apply if the sale is subject to information reporting and the broker has actual knowledge that you are a United States person.

You generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed your income tax liability by timely filing a refund claim with the Internal Revenue Service.

189 CERTAIN ERISA CONSIDERATIONS

A fiduciary of a pension, profit-sharing or other employee benefit plan subject to ERISA (each, a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing an investment in our common stock. Among other factors, the fiduciary should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the Plan, and whether the investment would involve a prohibited transaction under ERISA or the Code.

Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well as individual retirement accounts, Keogh plans any other plans that are subject to Section 4975 of the Code (also “Plans”), from engaging in certain transactions involving “plan assets” with persons who are “parties in interest” under ERISA or “disqualified persons” under the Code with respect to the Plan. A violation of these prohibited transaction rules may result in excise tax or other liabilities under ERISA or the Code for those persons, unless exemptive relief is available under an applicable statutory, regulatory or administrative exemption. Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA) and non-U.S. plans (as described in Section 4(b)(4) of ERISA) (“Non-ERISA Arrangements”) are not subject to the requirements of Section 406 of ERISA or Section 4975 of the Code but may be subject to similar provisions under applicable federal, state, local, non-U.S. or other laws (“Similar Laws”).

The acquisition of common stock by a Plan or any entity whose underlying assets include “plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) with respect to which we or certain of our affiliates is or becomes a party in interest or disqualified person may result in a prohibited transaction under ERISA or Section 4975 of the Code, unless the common stock is acquired pursuant to an applicable exemption. The U.S. Department of Labor has issued five prohibited transaction class exemptions, or “PTCEs”, that may provide exemptive relief if required for direct or indirect prohibited transactions that may arise from the purchase or holding of common stock. These exemptions are PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers), PTCE 90-1 (for certain transactions involving insurance company pooled separate accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 95-60 (for transactions involving certain insurance company general accounts), and PTCE 96-23 (for transactions managed by in-house asset managers). In addition, ERISA Section 408(b)(17) and Section 4975(d)(20) of the Code provide an exemption for the purchase and sale of securities offered hereby, provided that neither the issuer of securities offered hereby nor any of its affiliates have or exercise any discretionary authority or control or render any investment advice with respect to the assets of any Plan involved in the transaction, and provided further that the Plan pays no more and receives no less than “adequate consideration” in connection with the transaction (the “service provider exemption”). There can be no assurance that all of the conditions of any such exemptions will be satisfied.

Any purchaser or holder of our common stock or any interest therein will be deemed to have represented by its purchase and holding of such common stock offered hereby that it either (1) is not a Plan, a Plan Asset Entity or a Non-ERISA Arrangement and is not purchasing the shares of common stock on behalf of or with the assets of any Plan, a Plan Asset Entity or Non-ERISA Arrangement or (2) the purchase and holding of the common stock will not constitute a non-exempt prohibited transaction or a similar violation under any applicable Similar Laws.

Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is important that fiduciaries or other persons considering purchasing shares of our common stock on behalf of or with the assets of any Plan, a Plan Asset Entity or Non-ERISA Arrangement consult with their counsel regarding the availability of exemptive relief under any of the PTCEs listed above, the service provider exemption or the potential consequences of any purchase or holding under Similar Laws, as applicable. Purchasers of common stock have exclusive responsibility for ensuring that their purchase and holding of common stock do not violate the fiduciary or prohibited transaction rules of ERISA or the Code or any

190 similar provisions of Similar Laws. The sale of any shares of common stock to a Plan, Plan Asset Entity or Non-ERISA Arrangement is in no respect a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to investments by any such Plans, Plan Asset Entities or Non-ERISA Arrangements generally or any particular Plan, Plan Asset Entity or Non-ERISA Arrangement or that such investment is appropriate for such Plans, Plan Asset Entities or Non-ERISA Arrangements generally or any particular Plan, Plan Asset Entity or Non-ERISA Arrangement.

191 UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in a purchase agreement among us, the selling shareholders and the underwriters, we and the selling shareholders have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us and the selling shareholders, the number of shares of common stock set forth opposite its name below.

Number of Underwriter Shares Merrill Lynch, Pierce, Fenner & Smith Incorporated ...... 4,950,000 Morgan Stanley & Co. Incorporated ...... 2,750,000 J.P. Morgan Securities LLC ...... 1,100,000 Barclays Capital Inc...... 440,000 Jefferies & Company, Inc...... 440,000 Keefe Bruyette & Woods, Inc...... 440,000 Sandler O’Neill & Partners, L.P...... 440,000 Stifel, Nicolaus & Company, Incorporated ...... 440,000 Total ...... 11,000,000

Subject to the terms and conditions set forth in the purchase agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the purchase agreement if any of these shares are purchased. If an underwriter defaults, the purchase agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the purchase agreement may be terminated.

We and the selling shareholders have agreed to indemnify the underwriters against certain liabilities or to contribute to payments the underwriters may be required to make in respect of those liabilities.

The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to the conditions contained in the purchase agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Commissions and Discounts

The representatives have advised us and the selling shareholders that the underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this offering circular and to dealers at that price less a concession not in excess of $0.95 per share. After the initial offering, the public offering price, concession or any other term of the offering may be changed.

Prior to this offering, there has been no public market for the common stock. The public offering price will be negotiated among the Bank and the representatives. Among the factors to be considered in determining the public offering price of the common stock, in addition to prevailing market conditions, will be the Bank’s historical performance, estimates of the Bank’s business potential and prospects and the consideration of these factors in relation to the market valuation of companies in related businesses.

192 The following table shows the public offering price, underwriting discount and proceeds before expenses to us and the selling shareholders. The information assumes either no exercise or full exercise by the underwriters of their overallotment option.

Per Share Without Option With Option Public offering price ...... $25.5000 $280,500,000.00 $322,575,000.00 Underwriting discount ...... $ 1.5937 $ 17,530,700.00 $ 20,160,305.00 Proceeds, before expenses, to us ...... $23.9063 $ 98,374,424.50 $112,957,267.50 Proceeds, before expenses, to the selling shareholders ...... $23.9063 $164,594,875.50 $189,457,427.50

The expenses of the offering, not including the underwriting discount, are estimated at $3.2 million and are payable by us.

Overallotment Option

We and the selling shareholders have granted an option to the underwriters, exercisable for 30 days after the date of this offering circular, to purchase up to 1,650,000 additional shares at the public offering price, less the underwriting discount. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the purchase agreement, to purchase a number of additional shares proportionate to that underwriter’s initial amount reflected in the above table.

No Sales of Similar Securities

We, the selling shareholders and our executive officers and directors have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for, or repayable with common stock, for 180 days after the date of this offering circular without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly:

• Offer, pledge, sell or contract to sell any common stock,

• Sell any option or contract to purchase any common stock,

• Purchase any option or contract to sell any common stock,

• Grant any option, right or warrant for the sale of any common stock,

• Lend or otherwise dispose of or transfer any common stock,

• Request or demand that we file a registration statement related to the common stock, or

• Enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.

This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition. In the event that either (x) during the last 17 days of the lock-up period referred to above, we issue an earnings release or material news or a material event relating to us occurs or (y) prior to the expiration of the lock-up period, we announce that we will release earnings results or become aware that material news or a

193 material event will occur during the 16-day period beginning on the last day of the lock-up period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

New York Stock Exchange Listing

Our common stock has been approved for listing on the NYSE. In order to meet the requirements for listing on that exchange, the underwriters have undertaken to sell a minimum number of shares to a minimum number of beneficial owners as required by that exchange.

Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations among us, the selling shareholders and the representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are:

• The valuation multiples of publicly-traded companies that the representatives believe to be comparable to us,

• Our financial information,

• The history of, and the prospects for, our company and the industry in which we compete,

• An assessment of our management, our past and present operations, and the prospects for, and timing of, our future revenues,

• The present state of our development and

• The above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.

The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.

Price Stabilization, Short Positions and Penalty Bids

Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.

In connection with the offering, the underwriters may purchase and sell our common stock in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ overallotment option described above. The underwriters may close out any covered short position by either exercising their overallotment option or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the overallotment option. “Naked” short sales are sales in excess of the overallotment option. The underwriters must close out any naked short position by purchasing shares in the open

194 market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of common stock made by the underwriters in the open market prior to the completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. The underwriters may conduct these transactions on the NYSE, in the over-the-counter market or otherwise.

Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Electronic Offer, Sale and Distribution of Shares

In connection with the offering, certain of the underwriters or securities dealers may distribute offering circulars by electronic means, such as e-mail. In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated may facilitate Internet distribution for this offering to certain of its Internet subscription customers. Merrill Lynch, Pierce, Fenner & Smith Incorporated may allocate a limited number of shares for sale to its online brokerage customers. An electronic offering circular is available on the Internet web site maintained by Merrill Lynch, Pierce, Fenner & Smith Incorporated. Other than the offering circular in electronic format, the information on the Merrill Lynch, Pierce, Fenner & Smith Incorporated web site is not part of this offering circular.

Other Relationships

Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.

In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

In addition, in the ordinary course of business, certain of the underwriters in this offering purchase mortgages, including mortgages originated by the Bank. Under certain circumstances disputes could arise based on the representations and warranties made in, and the terms and conditions of, these transactions, and whether any repurchases from the foregoing disputes are required. There are currently no such disputes or requests outstanding for repurchase.

195 Notice to Prospective Investors in the EEA

In relation to each Member State of the European Economic Area (the “EEA”) which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any of our shares of common stock which are the subject of the offering contemplated by this offering circular (the “Shares”) may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

(c) by the Managers to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated for any such offer; or

(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Shares shall result in a requirement for the publication by us or any Manager of an offering circular pursuant to Article 3 of the Prospectus Directive.

Any person making or intending to make any offer of securities within the EEA should only do so in circumstances in which no obligation arises for us or any of the underwriters to produce an offering circular for such offer. Neither we nor the underwriters have authorized, nor do they authorize, the making of any offer of securities through any financial intermediary, other than offers made by the underwriters which constitute the final offering of securities contemplated in this offering circular.

For the purposes of this provision, the expression an “offer to the public” in relation to any Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase any Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

Each person in a Relevant Member State who receives any communication in respect of, or who acquires any securities under, the offer of securities contemplated by this offering circular will be deemed to have represented, warranted and agreed to and with us and each underwriter that:

(a) it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive; and

(b) in the case of any securities acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the securities acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than “qualified investors” (as defined in the Prospectus Directive), or in circumstances in which the prior consent of the representatives has been given to the offer or resale; or (ii) where securities have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those securities to it is not treated under the Prospectus Directive as having been made to such persons.

196 The applicable provisions of the United Kingdom’s Financial Services and Markets Act 2000 must be complied with in respect of anything done in relation to shares of common stock in, from or otherwise involving the United Kingdom.

In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) or (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”), (ii) who are high net worth bodies corporate, unincorporated associations and partnerships and trustees of high value trusts as described in Article 49(2)(a) to (d) of the Order or (iii) any other person to whom this offering circular and such other documents or materials may otherwise lawfully be communicated in accordance with the Order (all such persons being referred to as “relevant persons”). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.

Notice to Prospective Investors in Switzerland

This document as well as any other material relating to the securities which are the subject of the offering contemplated by this offering circular (the “Shares”) does not constitute an issue prospectus pursuant to Articles 652a and/or 1156 of the Swiss Code of Obligations. The Shares will not be listed on the SIX Swiss Exchange and, therefore, the documents relating to the Shares, including, but not limited to, this document, do not claim to comply with the disclosure standards of the listing rules of the SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange. The Shares are being offered in Switzerland by way of a private placement, i.e. to a small number of selected investors only, without any public offer and only to investors who do not purchase the Shares with the intention to distribute them to the public. The investors will be individually approached by the Issuer from time to time. This document as well as any other material relating to the Shares is personal and confidential and does not constitute an offer to any other person. This document may only be used by those investors to whom it has been handed out in connection with the offering described herein and may neither directly nor indirectly be distributed or made available to other persons without express consent of the Issuer. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in (or from) Switzerland.

Notice to Prospective Investors in the Dubai International Financial Centre

This offering memorandum relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This offering memorandum is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this offering memorandum nor taken steps to verify the information set forth herein and has no responsibility for the offering memorandum. The securities to which this offering memorandum relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this offering memorandum you should consult an authorized financial advisor.

197 VALIDITY OF COMMON STOCK

The validity of the common stock sold in this offering will be passed upon for us by Sullivan & Cromwell LLP and for the underwriters by Sidley Austin LLP, New York, New York. From time to time, Sullivan & Cromwell LLP and Sidley Austin LLP provide legal services to us and our subsidiaries.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

The combined financial statements of us and our subsidiaries as of and for the year ended December 31, 2009 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as indicated in their report with respect thereto and included herein.

The combined balance sheet as of December 26, 2008 and December 28, 2007 of First Republic Bank (the Bank), and the related combined statements of income, changes in equity and comprehensive income, and cash flows for the year ended December 26, 2008, the period from September 22, 2007 to December 28, 2007 (the Predecessor II period), and the period from January 1, 2007 to September 21, 2007 (the Predecessor I period), have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, included herein.

AUTHORIZATION FOR OFFERING

Our common stock is being offered and sold pursuant to a negotiating permit and a definitive permit issued by the Commissioner. These permits are permissive only, do not constitute a recommendation or endorsement of the shares of common stock offered hereby and do not contain standards as to the net worth or other qualifications of purchasers of our common stock. The shares being offered and sold pursuant to this offering circular are exempt from qualifications with the California Commissioner of Corporations under the California Corporate Securities Law of 1968, as amended, and are exempt from registration from the SEC under Section 3(a)(2) of the Securities Act.

AVAILABLE INFORMATION

We currently are not required to file reports with the SEC or the FDIC or to deliver an annual report to holders of the common stock pursuant to the Exchange Act.

We have filed a registration statement with the FDIC to register our common stock under Section 12(b) of the Exchange Act. Upon completion of this offering, we will be subject to the reporting and other requirements of the Exchange Act. In accordance with Sections 12, 13 and 14 of the Exchange Act and as a bank that is not a member of the Federal Reserve System, we will file certain reports, proxy materials, information statements and other information with the FDIC, copies of which can be inspected and copied at the public reference facilities maintained by the FDIC, at the Public Reference Section, Room F-6043, 550 17th Street, N.W., Washington, DC 20429. Requests for copies may be made by telephone at (202) 898-8913 or by fax at (202) 898-3909.

Certain financial information filed by us with the FDIC is also available electronically at the FDIC’s website at http://www.fdic.gov. We also maintain a website containing additional information about us at http://www.firstrepublic.com. None of the information about us maintained on the FDIC’s website or our website is incorporated into this offering circular by reference.

198 FIRST REPUBLIC BANK

TABLE OF CONTENTS

Annual Combined Financial Statements Reports of Independent Registered Public Accounting Firms ...... F-2 Combined Statements of Income for the years ended December 31, 2009 and December 26, 2008 and for the periods from September 22, 2007 to December 28, 2007 and January 1, 2007 to September 21, 2007 ...... F-4 Combined Balance Sheets as of December 31, 2009, December 26, 2008 and December 28, 2007 . . . F-5 Combined Statements of Changes in Equity and Comprehensive Income for the years ended December 31, 2009 and December 26, 2008 and for the periods from September 22, 2007 to December 28, 2007 and January 1, 2007 to September 21, 2007 ...... F-6 Combined Statements of Cash Flows for the years ended December 31, 2009 and December 26, 2008 and for the periods from September 22, 2007 to December 28, 2007 and January 1, 2007 to September 21, 2007 ...... F-9 Notes to Combined Financial Statements as of December 31, 2009, December 26, 2008 and December 28, 2007 and for the years ended December 31, 2009 and December 26, 2008 and for the periods from September 22, 2007 to December 28, 2007 and January 1, 2007 to September 21, 2007 ...... F-10 Interim Financial Statements Unaudited Balance Sheets as of September 30, 2010 and December 31, 2009 ...... F-52 Unaudited Statements of Income for the three months ended September 30, 2010, six months ended June 30, 2010 and three and nine months ended September 30, 2009 ...... F-53 Unaudited Statements of Changes in Equity and Comprehensive Income for the three months ended September 30, 2010, six months ended June 30, 2010 and nine months ended September 30, 2009 ...... F-54 Unaudited Statements of Cash Flows for the three months ended September 30, 2010, six months ended June 30, 2010 and nine months ended September 30, 2009 ...... F-55 Notes to Financial Statements as of September 30, 2010 and for the three months ended September 30, 2010, six months ended June 30, 2010 and three and nine months ended September 30, 2009 ...... F-56 Opening Consolidated Balance Sheet Report of Independent Registered Public Accounting Firm ...... F-82 Consolidated Balance Sheet as of July 1, 2010 ...... F-83 Notes to Consolidated Balance Sheet as of July 1, 2010 ...... F-84

F-1 Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of First Republic Bank:

In our opinion, the accompanying combined balance sheet and the related combined statement of income, combined statement of changes in equity and comprehensive income and combined statement of cash flows present fairly, in all material respects, the financial position of First Republic Bank (the “Bank”), a carve-out business of Bank of America, N.A., a wholly owned subsidiary of Bank of America Corporation at December 31, 2009, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP San Francisco, California September 14, 2010

F-2 Report of Independent Registered Public Accounting Firm

The Board of Directors First Republic Bank:

We have audited the accompanying combined balance sheet of First Republic Bank (the Bank) as of December 26, 2008 and December 28, 2007, and the related combined statements of income, changes in equity and comprehensive income, and cash flows for the year ended December 26, 2008, the period from September 22, 2007 to December 28, 2007 (the Predecessor II period), and the period from January 1, 2007 to September 21, 2007 (the Predecessor I period). These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Bank is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Republic Bank as of December 26, 2008 and December 28, 2007, and the results of its operations and its cash flows for the year ended December 26, 2008, the period from September 22, 2007 to December 28, 2007 (the Predecessor II period), and the period from January 1, 2007 to September 21, 2007 (the Predecessor I period) in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP San Francisco, California September 14, 2010

F-3 FIRST REPUBLIC BANK COMBINED STATEMENTS OF INCOME

Successor Predecessor II Predecessor I For the Period For the Period Year Ended Year Ended from Sept. 22, from Jan. 1, December 31, December 26, 2007 to 2007 to ($ in thousands) 2009 2008 Dec. 28, 2007 Sept. 21, 2007 Interest income: Interest on real estate and other loans ...... $1,214,759 $862,219 $190,336 $438,407 Interest on investments ...... 545 5,078 15,475 91,092 Interest on cash equivalents ...... 84 288 27 572 Interest on loans to Parent company ...... — 31,546 23,964 — Total interest income ...... 1,215,388 899,131 229,802 530,071 Interest expense: Interest on customer deposits ...... 223,964 273,036 92,839 226,245 Interest on FHLB advances and other borrowings .... 6,368 66,431 25,631 56,915 Interest on subordinated notes ...... 4,184 4,138 1,142 3,677 Interest on funding from Parent company ...... 23,927 50,679 — — Total interest expense ...... 258,443 394,284 119,612 286,837 Net interest income ...... 956,945 504,847 110,190 243,234 Provision for credit losses ...... 49,462 131,175 2,400 8,067 Net interest income after provision for credit losses ...... 907,483 373,672 107,790 235,167 Noninterest income: Investment advisory fees ...... 27,888 35,257 11,122 29,395 Brokerage and investment fees ...... 14,827 18,787 3,413 8,085 Trust fees ...... 5,139 5,620 1,327 3,291 Deposit customer fees ...... 12,509 11,023 2,845 7,324 Loan servicing fees, net ...... 627 (775) 261 3,745 Loan and related fees ...... 4,207 4,071 841 2,694 Gain (loss) on sale of loans ...... 5,536 (1,454) 301 6,865 Gain (loss) on investment securities ...... — 28 20,428 (175) Income from investments in life insurance ...... 9,904 9,157 2,158 5,719 Accretion of discount on unfunded commitments .... 26,641 — — — Other income ...... 8,295 7,578 1,526 1,716 Total noninterest income ...... 115,573 89,292 44,222 68,659 Noninterest expense: Salaries and related benefits ...... 207,870 201,787 53,134 120,466 Occupancy ...... 53,890 57,319 12,383 32,958 Amortization of intangibles ...... — 42,271 11,818 1,709 Information systems ...... 35,750 33,604 8,474 24,380 Advertising and marketing ...... 17,335 19,683 4,416 11,651 Professional fees ...... 7,919 19,854 1,472 8,134 FDIC and other deposit assessments ...... 43,448 12,937 2,089 5,525 Losses related to investment advisory subsidiary .....——— 27,951 Merger-related costs ...... ——— 50,833 Other expenses ...... 51,066 54,983 14,626 41,063 Total noninterest expense ...... 417,278 442,438 108,412 324,670 Income (loss) before provision for income taxes ...... 605,778 20,526 43,600 (20,844) Provision (benefit) for income taxes ...... 254,316 5,733 16,156 (13,936) Net income (loss) before noncontrolling interests ...... 351,462 14,793 27,444 (6,908) Less: Net income from noncontrolling interests ...... 4,819 4,793 1,631 5,237 First Republic Bank Net Income (Loss) ...... $ 346,643 $ 10,000 $ 25,813 $ (12,145)

See accompanying notes to combined financial statements.

F-4 FIRST REPUBLIC BANK COMBINED BALANCE SHEETS

Successor Predecessor II December 31, December 26, December 28, ($ in thousands) 2009 2008 2007 ASSETS Cash and cash equivalents ...... $ 178,553 $ 169,572 $ 194,220 Parent company lending ...... —— 2,241,339 Investment securities trading ...... —— 17,534 Investment securities available-for-sale ...... 3,183 — 24,460 Loans ...... 18,632,781 17,545,238 11,122,635 Less: Allowance for loan losses ...... (45,003) (176,679) (60,914) Loans, net ...... 18,587,778 17,368,559 11,061,721 Loans held for sale ...... 14,540 4,325 5,816 Mortgage servicing rights measured at fair value ...... 24,544 — — Mortgage servicing rights measured at amortized cost ...... — 23,307 34,586 Goodwill ...... — 1,305,780 1,305,780 Other intangible assets ...... — 206,911 249,182 Investments in life insurance ...... 202,691 194,665 187,022 Prepaid expenses and other assets ...... 366,700 200,912 326,673 Premises, equipment and leasehold improvements, net ...... 92,240 98,689 93,526 Deferred tax assets ...... 448,859 116,191 50,038 Other real estate owned ...... 21,462 5,000 396 Total Assets ...... $19,940,550 $19,693,911 $15,792,293 LIABILITIES AND EQUITY Liabilities: Customer deposits: Non-interest bearing accounts ...... $ 2,665,675 $ 1,887,269 $ 1,741,156 NOW checking accounts ...... 2,842,519 1,409,730 1,332,205 Money Market (MM) checking accounts ...... 1,819,869 1,507,513 1,694,407 MM savings and passbooks ...... 3,928,703 2,976,688 3,269,764 Certificates of deposit ...... 5,925,718 4,530,554 3,013,319 Total customer deposits ...... 17,182,484 12,311,754 11,050,851 Parent company borrowing ...... 976,090 3,151,268 — Federal Home Loan Bank advances ...... 130,501 1,236,257 1,956,338 Subordinated notes ...... 65,897 66,682 67,459 Other liabilities ...... 189,671 142,572 165,995 Total Liabilities ...... 18,544,643 16,908,533 13,240,643 Equity: Parent company investment ...... 1,296,248 2,685,788 2,451,985 Accumulated other comprehensive income, net ...... 69 — 75 Total equity before noncontrolling interests ...... 1,296,317 2,685,788 2,452,060 Noncontrolling interests ...... 99,590 99,590 99,590 Total equity ...... 1,395,907 2,785,378 2,551,650 Total Liabilities and Equity ...... $19,940,550 $19,693,911 $15,792,293

See accompanying notes to combined financial statements.

F-5 FIRST REPUBLIC BANK COMBINED STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE INCOME Accumulated Total Equity Capital in Parent Other Before Preferred Common Excess of Par Retained Company Comprehensive Noncontrolling Noncontrolling Total ($ in thousands) Stock Stock Value Earnings Investment Income Interests Interests Equity Predecessor I Balance at December 31, 2006 ...... $115,000 $310 $335,196 $337,801 $— $ (122) $788,185 $148,590 $936,775 FIN 48 cumulative effect adjustment ...... ——— (3,426) — — (3,426) — (3,426) EITF 06-2 cumulative effect adjustment, net of taxes ...... ——— (2,436) — — (2,436) — (2,436) Stock compensation expense ...... —— 41,064 — — — 41,064 — 41,064 Excess tax benefits on stock compensation .....—— 8,114 — — — 8,114 — 8,114 Exercise of options on 178,455 shares of common stock ...... — 2 2,263 — — — 2,265 — 2,265 Issuance/conversion of 343,530 shares of common stock for subsidiary’s preferred stock ...... — 4 6,996 — — — 7,000 (7,000) — Common stock shares forfeited or withheld for taxes, net of issuances ...... —— (1,778) — — — (1,778) — (1,778) Dividends on preferred stock ...... ——— (5,424) — — (5,424) — (5,424) Dividends on common stock ...... — — 35 (15,125) — — (15,090) — (15,090) F-6 Comprehensive income (loss): Net income (loss) ...... ——— (12,145) — — (12,145) 5,237 (6,908) Other comprehensive income (loss), net of tax: Net unrealized loss on securities available for sale (net of taxes of $19,460) ...... ————— (26,873) (26,873) — (26,873) Loss on investment securities included in net income (net of taxes of $74) ...... — — — — — 101 101 — 101 Total comprehensive income (loss) ...... (38,917) 5,237 (33,680) Dividends to noncontrolling interests ...... ——————— (5,237) (5,237) Balance at September 21, 2007 ...... 115,000 316 391,890 299,245 — (26,894) 779,557 141,590 921,147

(continued on following page) See accompanying notes to combined financial statements. FIRST REPUBLIC BANK COMBINED STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE INCOME

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Accumulated Total Equity Capital in Parent Other Before Preferred Common Excess of Par Retained Company Comprehensive Noncontrolling Noncontrolling Total ($ in thousands) Stock Stock Value Earnings Investment Income Interests Interests Equity Balance at September 21, 2007 ...... 115,000 316 391,890 299,245 — (26,894) 779,557 141,590 921,147 Predecessor II Purchase Accounting Adjustments ...... (115,000) (316) (391,890) (299,245) 1,936,606 26,894 1,157,049 — 1,157,049 Capitalization after purchase accounting adjustments ...... — — — — 1,936,606 — 1,936,606 141,590 2,078,196 Redemption of subsidiary’s preferred stock . . . — — — — — — — (42,000) (42,000) Capital contributions/distributions ...... ———— 519,413 — 519,413 — 519,413 Capital contributions/distributions associated with income taxes ...... ———— (29,847) — (29,847) — (29,847) Comprehensive income: Net income ...... ———— 25,813 — 25,813 1,631 27,444 Other comprehensive income, net of tax:

F-7 Net unrealized gain on securities available-for-sale (net of taxes of $50) ...... — — — — — 75 75 — 75 Total comprehensive income ...... 25,888 1,631 27,519 Dividends to noncontrolling interests ...... ——————— (1,631) (1,631) Balance at December 28, 2007 ...... — — — — 2,451,985 75 2,452,060 99,590 2,551,650 Capital contributions/distributions ...... ———— 169,371 — 169,371 — 169,371 Capital contributions/distributions associated with income taxes ...... ———— 54,432 — 54,432 — 54,432 Comprehensive income: Net income ...... ———— 10,000 — 10,000 4,793 14,793 Other comprehensive income, net of tax: Net unrealized loss on securities available-for-sale (net of taxes of $39) ...... ————— (59) (59) — (59) Gain on investment securities included in net income (net of taxes of $12) ...... ————— (16) (16) — (16) Total comprehensive income ...... 9,925 4,793 14,718 Dividends to noncontrolling interests ...... ——————— (4,793) (4,793) Balance at December 26, 2008 ...... — — — — 2,685,788 — 2,685,788 99,590 2,785,378

(continued on following page) See accompanying notes to combined financial statements. FIRST REPUBLIC BANK COMBINED STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE INCOME

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Accumulated Total Equity Capital in Parent Other Before Preferred Common Excess of Par Retained Company Comprehensive Noncontrolling Noncontrolling Total ($ in thousands) Stock Stock Value Earnings Investment Income Interests Interests Equity Balance at December 26, 2008 ...... — — — — 2,685,788 — 2,685,788 99,590 2,785,378 Successor Purchase Accounting Adjustments ...... ———— (1,531,651) — (1,531,651) — (1,531,651) Capitalization after purchase accounting adjustments ...... — — — — 1,154,137 — 1,154,137 99,590 1,253,727 Capital contributions/distributions ...... ———— (198,918) — (198,918) — (198,918) Capital contributions/distributions associated with income taxes ...... ———— (5,614) — (5,614) — (5,614) Comprehensive income: Net income ...... ———— 346,643 — 346,643 4,819 351,462 Other comprehensive income, net of tax: F-8 Net unrealized gain on securities available-for-sale (net of taxes of $45) . . . . — — — — — 69 69 — 69 Total comprehensive income ...... 346,712 4,819 351,531 Dividends to noncontrolling interests ...... ——————— (4,819) (4,819) Balance at December 31, 2009 ...... $— $— $— $— $ 1,296,248 $69 $ 1,296,317 $99,590 $ 1,395,907

See accompanying notes to combined financial statements. FIRST REPUBLIC BANK COMBINED STATEMENTS OF CASH FLOWS Successor Predecessor II Predecessor I For the Period For the Period Year Ended Year Ended from Sept. 22, from Jan. 1, December 31, December 26, 2007 to 2007 to ($ in the thousands) 2009 2008 Dec. 28, 2007 Sept. 21, 2007 Operating Activities: Net income (loss) before noncontrolling interests ...... $ 351,462 $ 14,793 $ 27,444 $ (6,908) Adjustments to reconcile net income (loss) to net cash provided by operating activities Provisions for credit losses ...... 49,462 131,175 2,400 8,067 Accretion of loan discounts ...... (260,165) (28,388) (3,572) — Depreciation and amortization ...... (39,715) 14,413 982 22,394 Amortization of intangible assets ...... — 42,271 11,818 1,709 Amortization of net loan fees ...... (2,921) (2,595) (169) (1,531) Amortization of mortgage servicing rights ...... — 10,895 3,250 6,066 Provision for mortgage servicing rights in excess of fair value, net ...... — 1,640 — — Changes in fair value of mortgage servicing rights ...... 10,236 — — — Net change in loans held for sale ...... (10,745) (680) (1,172) 73,162 Provision for loans held for sale in excess of fair value, net ...... — — — 18 Provision (reversal of provision) for deferred taxes ...... 142,166 (68,765) 42,884 (44,225) Net (gains) losses on sale of loans ...... (5,536) 1,454 (301) (6,865) Net losses on real estate owned ...... 2,000 — — — Proceeds from sales of trading securities ...... — 60 820,583 — Net losses on trading securities ...... —— 3,113 — Net (gains) losses on available-for-sale securities ...... — (28) (23,541) 175 Losses related to investment advisory subsidiary ...... ——— 27,951 Losses on non-marketable equity investments ...... ——— 2,958 Loss on sale of premises, equipment and leasehold improvements, net ...... 142 9 161 34 Noncash cost of benefit plans and stock plans ...... ——— 41,064 Excess tax benefits on stock compensation ...... ——— (1,673) (Increase) decrease in other assets ...... (171,339) 118,834 70,556 (89,841) Increase (decrease) in other liabilities ...... (26,633) (24,520) (108,618) 150,718 Net Cash Provided by Operating Activities ...... 38,414 210,568 845,818 183,273 Investing Activities: Loan originations, net of principal collections ...... (1,864,701) (6,449,273) (1,085,560) (2,238,391) Loans purchased ...... (3,643) (37,660) — (158,393) Loans sold ...... 63,219 78,115 21,798 313,583 Purchases of securities available-for-sale ...... (4,673) — — (360,000) Proceeds from sales/calls/maturity of securities available-for-sale ...... 1,913 623 1,239,232 569,097 Purchases of securities held-to-maturity ...... ——— (27,550) Proceeds from calls/maturity of securities held-to-maturity ...... ——— 7,771 Purchases of FHLB stock ...... ——— (38,081) Proceeds from redemptions of FHLB stock ...... — 40,249 6,102 35,382 Proceeds from investments in life insurance ...... 1,789 794 — — Payments related to investment advisory interests ...... ——— (368) Purchases of non-marketable equity investments ...... ——— (16,468) Additions to premises, equipment and leasehold improvements, net ...... (14,618) (25,077) (8,238) (27,599) Proceeds from sales of premises, equipment and leasehold improvements ...... — — 20 (1,154) Proceeds from sales of other real estate owned ...... 100 — — — Decrease (increase) in Parent company lending ...... — 2,241,339 (2,241,339) — Net Cash Used for Investing Activities ...... (1,820,614) (4,150,890) (2,067,985) (1,942,171) Financing Activities: Net change in deposits ...... 4,869,957 1,261,896 1,069,394 1,056,588 (Decrease) increase in FHLB advances and other borrowings ...... (1,103,500) (716,500) (300,000) 659,669 (Decrease) increase in Parent company borrowing ...... (1,765,925) 3,151,268 — — Repurchase/redemptions of noncontrolling interest in subsidiaries ...... —— (42,000) — Capital (distributions) contributions ...... (204,532) 223,803 489,566 — Dividends to noncontrolling interests ...... (4,819) (4,793) (1,631) (5,237) Proceeds from employee stock purchases ...... — — — 316 Proceeds from common stock options exercised ...... ——— 2,265 Excess tax benefit on stock compensation ...... ——— 1,673 Payment of cash dividends on preferred stock ...... ——— (5,424) Payment of cash dividends on common stock ...... ——— (15,090) Net Cash Provided by Financing Activities ...... 1,791,181 3,915,674 1,215,329 1,694,760 Increase (Decrease) in Cash and Cash Equivalents ...... 8,981 (24,648) (6,838) (64,138) Cash and Cash Equivalents at the Beginning of Period ...... 169,572 194,220 201,058 265,196 Cash and Cash Equivalents at the End of Period ...... $ 178,553 $ 169,572 $ 194,220 $ 201,058 Supplemental Disclosure of Cash Flow Items Cash paid during period: Interest ...... $ 314,378 $ 395,100 $ 135,333 $ 263,085 Income Taxes ...... $ 121,543 $ 8,620 $ — $ 15,067 Transfer of loans to held for sale ...... $ 29,114 $ 38,765 $ 6 $ 302,523 Transfer of securities to Parent company ...... $ — $ 41,214 $ 6,468 $ — Issuance of common stock for subsidiary’s preferred stock ...... $ — $ — $ — $ 7,000 Transfers of repossessed assets from loans to other assets ...... $ 20,702 $ 5,000 $ — $ —

See accompanying notes to combined financial statements.

F-9 FIRST REPUBLIC BANK NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2009

Note 1. Summary of Significant Accounting Policies

Basis of Presentation and Organization

First Republic Bank operated for over ten years as an FDIC-insured, non-member bank chartered by the State of Nevada (and prior to that as two predecessor depository institutions chartered by the State of California and the State of Nevada, respectively, operating under a single, publicly-traded, non-bank holding company which was subsequently merged into its bank subsidiary). On September 21, 2007, First Republic Bank was acquired by Merrill Lynch & Co. (“Merrill Lynch”) and merged into one of Merrill Lynch’s banking subsidiaries, Merrill Lynch Bank & Trust Company, F.S.B. (“MLFSB”). Under the terms of the acquisition, First Republic Bank operated as a separate division within MLFSB and continued to be managed by First Republic Bank’s existing management team. As a division of MLFSB, First Republic Bank maintained its own marketing identity and branch network, with loans, deposits, and other bank products offered to customers under the First Republic Bank brand. On January 1, 2009, Bank of America Corporation (“Bank of America”), the holding company of Bank of America, N.A. (“BANA”), purchased Merrill Lynch and thereby acquired MLFSB. On November 2, 2009, MLFSB was merged into BANA, and First Republic Bank thereby became a division of BANA. As used herein, “First Republic” or the “Bank” means, as the context requires:

• First Republic Bank, a Nevada-chartered commercial bank in existence from 1985 until acquired in September 2007 by MLFSB, a banking subsidiary of Merrill Lynch;

• the First Republic Bank division within MLFSB following the September 2007 acquisition;

• the First Republic Bank division within BANA following MLFSB’s merger into BANA, effective as of November 2009; and

• as described in Note 2, “Recent Developments,” First Republic Bank, a California-chartered commercial bank that acquired the First Republic Bank division of BANA effective upon the close of business on June 30, 2010.

MLFSB and BANA are collectively referred to as the “Parent” in the combined financial statements. The acquisitions of First Republic by Merrill Lynch and Bank of America were accounted for as a business combination. See Note 9, “Goodwill and Intangible Assets” and Note 3, “Purchase Accounting Allocation” for more information. The Merrill Lynch acquisition was accounted for under Statement of Financial Accounting Standard (“FAS”) 141, “Business Combinations,” which was effective at the time of the acquisition. The Bank of America acquisition was accounted for under FAS 141R, “Business Combinations,” which became effective January 1, 2009.

As a result of the acquisitions discussed above, the accompanying combined financial statements are presented to show the financial results of the Bank for the period after the Bank of America acquisition (Successor), the period after the Merrill Lynch acquisition and before the Bank of America acquisition (Predecessor II) and the period prior to the Merrill Lynch acquisition (Predecessor I). These periods relate to the accounting periods preceding and succeeding the push-down of Bank of America and Merrill Lynch’s basis, respectively. The Predecessor and Successor periods have been separated by vertical lines on the face of the combined financial statements to highlight the fact that the financial information has been prepared under different historical cost bases of accounting. The accounting policies followed by the Bank in the preparation of its combined financial statements for the Successor period are materially consistent with those of the Predecessor periods, except for the accounting for mortgage servicing rights and the accounting for the Bank of America acquisition. As a result of the Bank of America acquisition, the Bank changed its fiscal year from the last Friday

F-10 in December to the last calendar day of the year; the Bank’s activities after its 2008 fiscal year end through December 31, 2008 are included in the Statement of Income for 2009. This change caused five additional days of activity to be recorded in 2009, resulting in approximately $4.6 million of additional net income in 2009.

First Republic’s combined financial statements include the carve-out accounts of the First Republic Bank division of MLFSB and BANA and the majority or wholly owned subsidiaries First Republic Investment Management (“FRIM”), First Republic Wealth Advisors (“FRWA”), First Republic Securities Company (“FRSC”), First Republic Preferred Capital Corporation (“FRPCC”), and First Republic Preferred Capital Corporation II (“FRPCC II”), in each case using the historical basis of accounting for the results of operations, assets and liabilities of the respective businesses and also include purchase accounting adjustments for the Merrill Lynch and Bank of America acquisitions. The purpose of the carve-out financial statements is to present fairly the results of operations, financial condition and cash flow of the First Republic Bank division of MLFSB and BANA separately from the results of operations, financial condition and cash flows of MLFSB and BANA as legal entities. The financial statements may not necessarily reflect the results of operations, financial condition and cash flows that the Bank would have achieved had the Bank actually existed on a stand-alone basis during the periods presented. All significant intercompany balances and transactions among the division and entities included in the combined financial statements have been eliminated.

FRPCC and FRPCC II have outstanding preferred stock, which is reported as noncontrolling interests in First Republic’s combined balance sheet. The dividends on these preferred stock issues are reported as net income from noncontrolling interests in First Republic’s combined statement of income, which is deducted from First Republic’s combined net income. The preferred stock dividends paid by FRPCC and FRPCC II are deductible for income tax purposes as long as each of FRPCC and FRPCC II, respectively, continues to qualify as a real estate investment trust (a “REIT”).

Nature of Operations

The Bank and its subsidiaries specialize in providing personalized, relationship-based services, including private banking, private business banking, real estate lending and wealth management services, including trust services. The Bank provides its services through preferred banking, lending and wealth management offices in nine major metropolitan areas: San Francisco, Los Angeles, Santa Barbara, Newport Beach, San Diego, New York City, Boston, Portland and Las Vegas.

First Republic originates real estate secured loans and other loans for retention in its loan portfolio. Real estate secured loans are secured by single family residences, multifamily buildings and commercial real estate properties and loans to construct such properties. Most of the real estate loans that First Republic originates are secured by properties located close to one of its offices in the San Francisco Bay area, the Los Angeles area, San Diego, Boston or the New York City area. 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.

First Republic offers its clients various wealth management services. First Republic provides investment advisory services through FRIM and FRWA. FRIM earns fee income from the management of equity and fixed income investments for its clients. FRWA earns fee income from providing advisory services to high net worth clients. First Republic Trust Company, a division of First Republic, provides trust services. FRSC is a registered introducing broker-dealer performing short-term investment and brokerage activities for clients. The Bank also conducts foreign exchange activities on behalf of customers.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets

F-11 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates subject to change include, but are not limited to: the allowance for loan losses; mortgage servicing rights; purchase accounting; goodwill and related identifiable intangible assets; and deferred income taxes.

Investment Securities

The Bank follows Accounting Standards Codification (“ASC”) 320, “Investments—Debt and Equity Securities,” which addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Debt securities that the Bank has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and reported at amortized cost. Debt securities that the Bank might not hold until maturity and marketable equity securities are classified as securities available-for-sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as accumulated other comprehensive income, which is included in equity. At the end of 2007, the Bank had trading securities, which were in process of being liquidated following the Merrill Lynch acquisition. Trading securities are carried at fair value with realized and unrealized gains and losses recorded in the income statement.

Premiums and discounts are amortized or accreted over the contractual life of the security as an adjustment to the yield using the interest method. Unrealized and realized gains and losses on investment securities are computed based on the cost basis of securities specifically identified. At December 31, 2009 and December 26, 2008, the Bank did not own trading securities.

The Bank conducts other-than-temporary impairment (“OTTI”) analysis on a quarterly basis. The initial indicator of OTTI for both debt and equity securities is a decline in market value below the amount recorded for an investment and the severity and duration of the decline.

For a debt security for which there has been a decline in the fair value below amortized cost basis, the Bank recognizes OTTI if the Bank (1) has the intent to sell the security, (2) it is more likely than not that the Bank will be required to sell the security before recovery of its amortized cost basis, or (3) the Bank does do not expect to recover the entire amortized cost basis of the security.

Estimating recovery of the amortized cost basis of a debt security is based upon an assessment of the cash flows expected to be collected. If the present value of the cash flows expected to be collected is less than the amortized cost, OTTI is considered to have occurred.

If the Bank intends to sell the security, or if it is more likely than not that the Bank will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference between the amortized cost basis and fair value of the security. For debt securities that are considered other-than- temporarily impaired that the Bank does not intend to sell or it is more likely than not that the Bank will not be required to sell before recovery, the OTTI write-down is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in other comprehensive income. The measurement of the credit loss component is equal to the difference between the debt security’s cost basis and the present value of its expected future cash flows discounted at the security’s effective yield.

Loans

Loans are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans and premiums or discounts on purchased loans. On September 21, 2007 and on January 1, 2009, loans were re-measured at fair value in connection with the Merrill Lynch and Bank of America acquisitions, respectively. The allowance for loan losses at September 21, 2007 was

F-12 carried over by the Bank as part of the Merrill Lynch acquisition. As a result of the Bank of America acquisition, the allowance for loan losses was reduced to $0 in accordance with the guidance in ASC 805, “Business Combinations.” Loan discounts were recorded in connection with both acquisitions and are included in the basis of the loans.

Interest income from loans is recognized in the month earned. Loan origination fees and direct loan origination costs are deferred and amortized as a yield adjustment over the contractual lives of the loans using a level yield methodology. Loan discounts established in purchase accounting are amortized as a yield adjustment over the estimated lives of the loans using a level yield methodology based on the contractually required payments receivable in accordance with ASC 310-20, “Nonrefundable Fees and Costs.”

Loans are placed on nonaccrual status when principal or interest payments are more than 90 days 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. When a loan is placed on nonaccrual status, the Bank reverses accrued unpaid 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. 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.

Allowance for Loan Losses

During 2008, and the periods from September 22, 2007 to December 28, 2007 and January 1, 2007 to September 21, 2007, the Bank provided for loan losses by charging earnings in such amounts as were required to establish an allowance for loan losses at a level that was appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan portfolio. The Bank reviews and adjusts the allowance quarterly. It is the Bank’s policy to promptly charge off balances that are deemed uncollectible. In 2009, the Bank evaluated any allowance for loan losses that would be required on the loans recorded at fair value on January 1, 2009 in connection with the Bank of America acquisition by comparing estimates of losses as compared to the remaining loan discounts established in purchase accounting. In addition, the Bank provided for any loan losses associated with 2009 originations based upon our assessment of credit losses inherent in the portfolio.

The principal sources of guidance on accounting for impairment in a loan portfolio are ASC 450, “Contingencies,” and ASC 310-10-35, “Receivables—Subsequent Measurement.” Under the provisions of ASC 310-10-35, a loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Bank measures impairment of a loan that is collateral dependent based on the fair value of the underlying collateral, net of selling costs. For a loan that is not collateral dependent, the Bank measures impairment using the present value of expected future cash flows, discounted at the instrument’s effective interest rate. If the fair value of the collateral or the present value of expected future cash flows is less than the recorded investment in the loan, the Bank recognizes impairment by recording a charge-off or creating a valuation allowance.

All other loans, including individually evaluated loans determined not to be impaired under ASC 310-10-35, are included in a group of loans that are evaluated for estimated losses under ASC 450. For these non-impaired loans, the Bank segments its portfolio into groups that have similar risk characteristics. For each group, credit losses inherent in the portfolio are estimated based on the Bank and industry historical loss experience, adjusted for changes in trends, conditions and other relevant factors that affect the repayment of the loans as of the evaluation date.

The Bank also maintains an unallocated reserve to provide for probable losses that have been incurred as of the reporting date, but not reflected in the allocated allowance. The unallocated allowance addresses qualitative factors consistent with the Bank’s analysis of the level of risks inherent in the loan portfolio. The

F-13 unallocated allowance includes the risk of losses attributable to national or local economic or industry trends, the Bank’s lending management and staff, problem loan trends, concentrations of credit, other factors, and imprecision in the analysis process.

Loans Accounted for Under ASC 310-30

Loans acquired with evidence of credit deterioration for which it is probable at purchase that the Bank will be unable to collect all contractually required payments are accounted for under ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” Certain loans acquired in connection with the Bank of America acquisition on January 1, 2009 were in the scope of ASC 310-30. Evidence of credit quality deterioration as of the purchase date may include statistics such as past due status, refreshed borrower credit scores and refreshed loan-to-value (“LTV”) ratio. ASC 310-30 requires that acquired credit-impaired loans be recorded at fair value and prohibits carryover of the related allowance for loan losses.

The initial fair values for loans within the scope of ASC 310-30 are determined by discounting both principal and interest cash flows expected to be collected using an observable discount rate for similar instruments with adjustments that management believes a market participant would consider in determining fair value. The Bank estimates the cash flows expected to be collected at acquisition using internal credit risk, interest rate and prepayment risk models that incorporate management’s best estimate of key assumptions, such as default rates, loss severity and payment speeds.

Under ASC 310-30, the excess of cash flows at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan in situations where there is a reasonable expectation about the timing and amount of cash flows to be collected. The difference between contractually required payments at acquisition and cash flows expected to be collected, considering the impact of prepayments, is referred to as the nonaccretable difference. Subsequent decreases to expected principal cash flows will result in a charge to provision for credit losses and a corresponding increase to the allowance for loan losses. Subsequent increases in expected principal cash flows will result in recovery of any previously recorded allowance for loan losses, to the extent applicable, and a reclassification from nonaccretable difference to accretable yield for any remaining increase, which will result in an increase in interest income over the remaining life of the loan or pool of loans. There were no loans within the scope of ASC 310-30 at December 26, 2008 or December 28, 2007.

Other Real Estate Owned

Real estate acquired through foreclosure is recorded at the lower of cost or fair value less costs to sell upon transfer of the loans to foreclosed assets. Subsequent declines in value are recorded through an expense to the income statement. The Bank records costs related to holding real estate as expenses when incurred.

Investments in Life Insurance

The Bank initially records investments in bank-owned 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.

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 asset/liability management 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 classifies loans as held for sale when the Bank has the intent to

F-14 sell, is waiting on a pre-approved investor purchase or is negotiating with a specific investor for the sale of specific loans that meet selected criteria. Loans held for sale include net deferred loan fees or costs and are carried at the lower of aggregate cost or fair value.

The Bank recognizes a sale only when consideration is received and control is transferred to the buyer. The Bank retains the mortgage servicing rights (“MSRs”) on substantially all loans sold. The Bank has one class of servicing rights: for loans sold that are secured by real estate. MSRs and other retained interests in loans sold are initially measured at fair value at the date of transfer.

To determine the fair value of MSRs, the Bank uses a valuation model that calculates the present value of estimated future net servicing income. The Bank uses assumptions in the valuation model that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual service fees and ancillary income.

For 2008, and the periods from September 22, 2007 to December 28, 2007 and January 1, 2007 to September 21, 2007, MSRs are reported at the lower of amortized cost or fair value. MSRs were amortized in proportion to and over the period of estimated net servicing income. To calculate the initial fair value of MSRs and, subsequently, to measure impairment, the Bank stratified MSRs based on one or more of the predominant risk characteristics of the underlying loans. The Bank evaluated impairment of MSRs for a stratum periodically based on their current fair value, actual prepayment experience and other market factors. If the fair value of MSRs for a stratum was less than the amortized cost, the Bank recorded a provision for a valuation allowance. Subsequently, the Bank adjusted the valuation allowance for changes in fair value to the extent that fair value did not exceed the amortized cost. The Bank evaluated at least quarterly the recoverability of the valuation allowance on MSRs. If the Bank determined that a portion of the valuation allowance was unrecoverable, primarily due to loan prepayments, the Bank recorded a direct write-down by reducing both the amortized cost of MSRs for a stratum and the related valuation allowance.

For 2009, as a result of the Bank of America acquisition, the Bank elected to report MSRs at fair value with changes in fair value recognized in the income statement. Fair value is determined in a manner consistent with the process described above.

Goodwill and Other Identifiable Intangible Assets

As a result of the acquisitions by Merrill Lynch and Bank of America, the Bank applied push-down accounting to allocate the cost of each acquisition to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Merrill Lynch acquisition was accounted for under FAS 141 while the Bank of America acquisition was accounted for under FAS 141R. Goodwill represents the excess of the cost over the fair value of the net assets of the Bank. In addition, the Bank evaluated whether both identifiable and unidentifiable assets should be recorded in connection with the acquisitions. See Note 3, “Purchase Accounting Allocation” for details on the purchase accounting allocation for the Merrill Lynch and Bank of America acquisitions.

In accordance with ASC 350-20, “Goodwill,” the Bank evaluates goodwill for impairment annually during the third quarter 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 tests goodwill by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired and no further analysis is required. If the fair value of the reporting unit is less than its carrying amount, the Bank compares the implied fair value of goodwill to its carrying amount. If the implied fair value of goodwill is less than its carrying amount, goodwill is considered impaired and an impairment loss is recognized. The Bank would measure the impairment loss as the amount by which the carrying amount of goodwill exceeds its implied fair value.

F-15 Identifiable intangible assets related to core deposits, wealth management, customer relationships and trade name/trademark are reported as other intangible assets. Core deposits and wealth management customer relationships are amortized over their useful lives not to exceed ten years. The trade name/trademark are considered to have an indefinite useful life. The Bank evaluates these intangible assets for impairment whenever circumstances indicate that the carrying amount may not be recoverable, in accordance with ASC 360-10, “Impairment or Disposal of Long-Lived Assets.” If the carrying amount is not recoverable and exceeds fair value, an impairment loss is recognized.

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.

Income Taxes

The Bank was included in Bank of America’s (2009) and Merrill Lynch’s (2008 and 2007) consolidated U.S. and certain state and local tax returns. For purposes of these financial statements, income taxes have been estimated as if the Bank were filing a separate consolidated U.S. tax return and separate state and local returns. Current income taxes payable or receivable similarly reflect the Bank’s tax attributes as if it were a stand alone entity. The difference between the amount payable or receivable to the Parent and the Bank’s stand alone tax liability as if the Bank filed separate consolidated federal and state tax returns was recorded as an equity contribution or distribution.

Deferred tax assets and liabilities 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. Deferred tax assets and liabilities 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 to reduce deferred tax assets to the amount that is believed more likely than not to be realized. Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. The Bank will continue to evaluate the reliability of the deferred tax assets by assessing the need for an amount of the valuation allowance.

A tax position that meets the “more likely than not” recognition threshold is measured to determine the amount of benefits to recognize. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. Interest and penalties are recognized as a component of income tax expense.

Statement of Cash Flows

For the purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and short-term investments such as federal funds sold with original maturity dates of less than ninety days.

Derivative Instruments and Hedging Activities

The Bank follows ASC 815, “Derivatives and Hedging,” for the accounting and reporting of derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. On the date that the Bank enters into a derivative contract, the Bank designates the derivative contract as either a hedge of the

F-16 fair value of a recognized asset or liability (“fair value” hedge), a hedge of the variability of cash flows related to a recognized asset or liability (“cash flow” hedge) or a contract that does not qualify for hedge accounting (“freestanding derivative”). The Bank records all derivatives at fair value as either other assets or other liabilities, depending on the rights or obligations under the contracts. The Bank accounts for changes in fair value of a derivative based on the designation, which is determined by its intended use. During the years ended December 31, 2009, December 26, 2008 and the periods from September 22, 2007 to December 28, 2007 and January 1, 2007 to September 21, 2007, there were no derivative instruments in a fair value or cash flow hedging relationship.

The Bank has freestanding derivative assets and liabilities, which consist of foreign exchange contracts executed with customers in which the Bank offsets the customer exposure to another financial institution counterparty. The Bank does not retain foreign exchange risk. The Bank uses current market prices to determine the fair value of these contracts.

The Bank originates certain mortgage loans with the intention of selling these loans to investors. The Bank enters into commitments to originate the loans whereby the interest rate on the loan paid by the borrower is set prior to funding (“interest rate lock commitments”). Such interest rate lock commitments are accounted for as freestanding derivative instruments that do not qualify as hedges. However, the interest rate exposure is economically hedged by the forward loan sale commitment to the investor. The change in fair value of these freestanding derivatives is recognized in earnings. When the Bank funds the loan to the borrower, the Bank records the carrying value of the interest rate lock commitment at the funding date as an adjustment to the carrying value of the loan held for sale.

The Bank does not conduct proprietary trading activities in derivative instruments for its own accounts.

Share Based Compensation

Beginning on September 22, 2007, certain employees of the Bank participated in Merrill Lynch stock plans and upon acquisition by Bank of America on January 1, 2009, began participating in Bank of America stock plans. The stock awards related to these employees and any resulting liability or cost is the responsibility of Merrill Lynch or Bank of America. The Bank was charged for these expenses by the Parent, which are reflected in the Statement of Income.

Investment Advisory, Brokerage and Investment and Trust Fees

Investment advisory fees, brokerage and investment fees, and trust fees are generally based upon the market value of assets under management or administration or the volume of transactions and are recorded on the accrual basis over the period in which the service is provided.

Parent company investment, borrowing and lending

As a division of MLFSB and BANA, the Bank was allocated equity capital equal to approximately 7.0% of its ending tangible assets on a monthly basis plus an amount equal to goodwill and other intangibles. Equity capital consists of Parent company investment and noncontrolling interests. After the allocation of equity capital, any remaining amount of funding (or lending) required is borrowed from (or loaned to) the Parent.

F-17 Recent Accounting Pronouncements

During the year ended December 31, 2009, the following accounting pronouncements were adopted by the Bank:

• In June 2009, the Financial Accounting Standards Board (“FASB”) issued ASC 105, “Generally Accepted Accounting Principles.” ASC 105 approved the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standards have been superseded and all other accounting literature not included in the Codification is considered nonauthoritative. The Codification is effective for interim or annual periods ending after September 15, 2009. The adoption of ASC 105 did not impact the Bank’s financial condition, results of operations or cash flows. The Bank has updated references to accounting pronouncements to conform to the Codification.

• In December 2007, the FASB issued ASC 805-10, “Business Combinations—Overall,” which significantly changes the financial accounting and reporting for business combinations. ASC 805-10 requires, for example: (i) assets and liabilities to be measured at fair value as of the acquisition date, (ii) liabilities related to contingent consideration to be remeasured at fair value in each subsequent reporting period with changes reflected in earnings and not goodwill and (iii) all acquisition-related costs to be expensed as incurred by the acquirer. Bank of America applied ASC 805-10 to its January 1, 2009 acquisition of the Bank, the effects of which are included in the Bank’s financial statements. See Note 3, “Purchase Accounting Allocation.”

• In April 2009, the FASB issued ASC 805-20, “Business Combinations—Identifiable Assets and Liabilities, and Any Noncontrolling Interests” to require assets acquired and liabilities assumed in a business combination that arise from contingencies to be recognized at fair value on the acquisition date if fair value can be determined during the measurement period. If fair value cannot be determined, companies should typically account for the acquired contingencies using existing guidance. This guidance is effective for new acquisitions consummated on or after January 1, 2009. Bank of America applied this guidance to its January 1, 2009 acquisition of the Bank. The adoption of ASC 805-20 did not have an impact on the Bank’s financial position, results of operations or cash flows.

• In December 2007, the FASB issued ASC 810-10, “Consolidation-Overall,” which became effective January 1, 2009. ASC 810-10 requires that noncontrolling interests in subsidiaries be classified as a separate component of equity in the combined financial statements. Following adoption, the Bank presents noncontrolling interests in subsidiaries as a separate component of equity in the combined balance sheets, and the net income attributable to noncontrolling interests separately on the combined statements of income. The preferred stock issued by FRPCC and FRPCC II are considered noncontrolling interests in the combined financial statements. The expanded presentation and disclosure requirements of ASC 810-10 have been applied for the current period and retrospectively for prior periods presented.

• In April 2009, the FASB issued ASC 320-10-35, “Investments—Debt and Equity Securities— Subsequent Measurement” to amend the OTTI guidance for debt securities. The “intent and ability” indicator for recognizing OTTI was modified, and the trigger used to assess the collectibility of cash flows changed from “probable that the investor will be unable to collect all amounts due” to “the entity does not expect to recover the entire amortized cost basis of the security.” The new guidance changes the total amount recognized in earnings when there are credit losses associated with an impaired debt security and management asserts that is does not have the intent to sell the security and it is more likely than not that it will not have to sell the security before recovery of its cost basis. In those situations, impairment shall be separated into (a) the amount representing a

F-18 credit loss and (b) the amount related to other factors. The amount of impairment related to credit losses shall be recognized in earnings. The new guidance is effective for interim and annual reporting periods ending after June 15, 2009, and became effective for the Bank in 2009. Adoption of the new guidance did not have an impact on the Bank’s financial condition, results of operations or cash flows.

• In April 2009, the FASB issued ASC 820-10, “Fair Value Measurements and Disclosures— Overall” to provide additional guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and for identifying transactions that are not orderly. Several factors are identified that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for an asset or liability. If the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity, transactions or quoted prices may not be determinative of fair value (for example, there may be increased instances of transactions that are not orderly), further analysis of the transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value. The new guidance is effective for interim and annual reporting periods ending after June 15, 2009, and became effective for the Bank in 2009. Adoption of the new guidance did not have an impact on the Bank’s financial condition, results of operations or cash flows.

• In May 2009, the FASB issued ASC 855, “Subsequent Events.” ASC 855 defines subsequent events as events or transactions that occur after the balance sheet date, but before the financial statements are issued or available to be issued. Under ASC 855, subsequent events are categorized as two types: recognized or nonrecognized. ASC 855 provides authoritative guidance for accounting for and disclosure of subsequent events. Nonpublic entities are required to disclose the date through which an entity has evaluated subsequent events and whether that date is when the financial statements were issued or available to be issued. The new guidance is effective for interim and annual reporting periods ending after June 15, 2009, and became effective for the Bank in 2009. Adoption of ASC 855 did not have a significant impact on the Bank’s financial condition, results of operations or cash flows.

• Effective January 1, 2009, the Bank adopted the expanded disclosure requirements for derivative instruments and hedging activities under ASC 815-10-50, “Derivatives and Hedging—Disclosures.” The expanded disclosures address how derivative instruments are used, how derivatives and the related hedged items are accounted for, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. In addition, companies are required to disclose the fair values of derivative instruments and their gains and losses in a tabular format. Adoption of the new guidance did not have an impact on the Bank’s financial condition, results of operations or cash flows.

Note 2. Recent Developments

On October 21, 2009, Bank of America announced that it had entered into a definitive agreement to sell substantially all of First Republic’s assets and liabilities (the “Transaction”) to a number of investors, led by First Republic’s existing management, and including investment funds managed by Colony Capital, LLC and General Atlantic LLC (collectively, the “Purchasers”). The Transaction was completed after the close of business on June 30, 2010. Following the completion of the Transaction, the Bank began operation as a California-chartered, FDIC-insured, non-member bank under the name “First Republic Bank.”

Pursuant to the purchase agreement executed in connection with the Transaction, BANA retained approximately $2.0 billion of loans and approximately $42 million of real estate owned that were selected by the Purchasers as of October 21, 2009. These loans and real estate owned were transferred to BANA’s operating systems in April 2010. Additionally, approximately $500 million of assets related to bank-owned life insurance,

F-19 deferred tax assets and other assets and the deposits in Las Vegas, Nevada were transferred to BANA in April 2010 and the Las Vegas branch closed on April 30, 2010. The assets, liabilities and resulting income and expense retained by BANA are included in the combined financial statements through the date they were transferred to BANA as these assets and liabilities reflect the historical business operations of the Bank. The following table presents the book value of the assets, liabilities and noncontrolling interests acquired from BANA as of July 1, 2010.

($ in thousands) Assets: Cash and cash equivalents ...... $ 435,916 Investment securities ...... 4,331 Loans, net ...... 17,394,431 Loans held for sale ...... 27,732 Mortgage servicing rights ...... 13,100 Other assets ...... 384,259 Total ...... $18,259,769 Liabilities and Equity: Customer deposits ...... $17,778,797 Federal Home Loan Bank advances ...... 130,416 Other liabilities ...... 185,458 Subordinated notes ...... 65,508 Noncontrolling interests ...... 99,590 Total ...... $18,259,769

The Bank is in process of completing the fair value analysis in order to record the acquired assets, liabilities and noncontrolling interests at fair value in accordance with ASC 805.

Note 3. Purchase Accounting Allocation

Bank of America Acquisition (Successor)

On January 1, 2009, Bank of America purchased Merrill Lynch and thereby acquired MLFSB, of which First Republic was then a division. On November 2, 2009, MLFSB was merged into BANA, and the Bank thereby became a division of BANA.

F-20 As part of the acquisition, certain fair value adjustments to the assets and liabilities of First Republic were recorded as shown in the table below as a result of applying push-down accounting. As a result of its acquisition, Bank of America management determined that no goodwill or other intangible assets should be recorded at First Republic on January 1, 2009. All previously recorded goodwill or other intangible assets were reduced to $0 when Bank of America applied its push-down accounting to First Republic.

Purchase Carrying Value at Accounting Estimated Fair Value at ($ in thousands) January 1, 2009 Adjustments January 1, 2009 Assets: Cash and cash equivalents ...... $ 169,572 $ — $ 169,572 Loans, net ...... 17,368,559 (739,771) 16,628,788 Loans held for sale ...... 4,325 — 4,325 Mortgage servicing rights ...... 23,307 6,935 30,242 Other intangible assets ...... 206,911 (206,911) — Other assets ...... 615,457 461,995 1,077,452 Goodwill ...... 1,305,780 (1,305,780) — Total ...... $19,693,911 $(1,783,532) $17,910,379 Liabilities and Equity: Customer deposits ...... $12,311,754 $ (364) $12,311,390 Federal Home Loan Bank advances ...... 1,236,257 30,062 1,266,319 Other liabilities ...... 142,572 127,625 270,197 Subordinated notes ...... 66,682 — 66,682 Parent company borrowing ...... 3,151,268 (409,204) 2,742,064 Equity before noncontrolling interests ...... 2,685,788 (1,531,651) 1,154,137 Noncontrolling interests ...... 99,590 — 99,590 Total ...... $19,693,911 $(1,783,532) $17,910,379

F-21 Merrill Lynch & Co. Acquisition (Predecessor II)

On September 21, 2007, Merrill Lynch purchased First Republic and First Republic became a division of MLFSB. As part of the acquisition, certain fair value adjustments to the assets and liabilities of First Republic were recorded as shown in the table below as a result of applying push-down accounting. Goodwill was recorded for the excess of the cost over the fair value of the net assets of the Bank. In addition, the Bank recorded certain intangible assets associated with the core deposits, wealth management customer revenues and trademark/trade name of First Republic.

Purchase Carrying Value at Accounting Estimated Fair Value at ($ in thousands) September 21, 2007 Adjustments September 21, 2007 Assets: Cash and cash equivalents ...... $ 201,058 $ — $ 201,058 Investment securities ...... 2,091,857 (4,163) 2,087,694 Loans, net ...... 10,238,122 (242,590) 9,995,532 Loans held for sale ...... 4,718 (27) 4,691 Mortgage servicing rights ...... 27,202 10,332 37,534 Other intangible assets ...... 10,355 250,645 261,000 Other assets ...... 760,611 9,305 769,916 Goodwill ...... 160,565 1,145,215 1,305,780 Total ...... $13,494,488 $1,168,717 $14,663,205 Liabilities and Equity: Customer deposits ...... $ 9,978,996 $ 3,448 $ 9,982,444 Federal Home Loan Bank advances and other borrowings ...... 2,250,000 7,315 2,257,315 Other liabilities ...... 280,575 (3,001) 277,574 Subordinated notes ...... 63,770 3,906 67,676 Equity before noncontrolling interests ...... 779,557 1,157,049 1,936,606 Noncontrolling interests ...... 141,590 — 141,590 Total ...... $13,494,488 $1,168,717 $14,663,205

Merger Related Expenses

Merger related expenses associated with the Merrill Lynch acquisition are recorded in the combined statement of income in the period from January 1, 2007 to September 21, 2007. These charges represent costs associated with the acquisition and do not represent ongoing costs of the Bank. Merger related expenses consist primarily of $33.7 million for the cost of stock based compensation that had accelerated vesting and $17.1 million for transaction costs (including legal, accounting and investment banking fees).

F-22 Note 4. Investment Securities

The Bank’s investment securities were classified as either available-for-sale or trading at December 31, 2009 and December 28, 2007. The Bank did not own any securities at December 26, 2008. The following tables present information related to available-for-sale securities:

Successor December 31, 2009 Gross Gross unrealized unrealized ($ in thousands) Cost gains losses Fair value Other residential mortgage-backed securities (“MBS”) ...... $3,069 $114 $— $3,183

Predecessor II December 28, 2007 Gross Gross unrealized unrealized ($ in thousands) Cost gains losses Fair value U.S. Treasury and federal agencies ...... $10,569 $ 93 $ — $10,662 Residential agency MBS ...... 9,557 37 (20) 9,574 Other debt securities ...... 4,209 15 — 4,224 Total ...... $24,335 $145 $(20) $24,460

As a result of the Merrill Lynch acquisition, on September 22, 2007, the Bank reclassified held-to-maturity securities with a fair value of $816.3 million to available-for-sale or trading. At December 28, 2007, approximately $20.1 million of investment securities were pledged at the Federal Reserve Bank of San Francisco or a correspondent bank as collateral to secure trust funds and public deposits.

The following table presents gross unrealized losses and fair value of available-for-sale securities:

Predecessor II December 28, 2007 Less than 12 months 12 months or more Total Gross Gross Gross unrealized unrealized unrealized ($ in thousands) losses Fair value losses Fair value losses Fair value Residential agency MBS ...... $(20) $5,997 $— $— $(20) $5,997

Sales of Investment Securities

The following table presents gross realized gains and losses from sales of securities available-for-sale:

Predecessor II Predecessor I Year Ended September 22 – December 26, December 28, January 1 – September 21, ($ in thousands) 2008 2007 2007 Gross realized gains ...... $28 $24,516 $ 1 Gross realized losses ...... — (475) (132) Net realized gains (losses) ...... $28 $24,041 $(131)

There were no sales of securities in 2009.

For the period from September 22, 2007 through December 28, 2007, the Bank recognized $500 thousand of OTTI on available-for-sale securities that was recorded in earnings.

F-23 The following table presents interest and dividend income on investments:

Successor Predecessor II Predecessor I Year Ended Year Ended For the Period from For the Period from December 31, December 26, Sept. 22, 2007 to Jan. 1, 2007 to ($ in thousands) 2009 2008 Dec. 28, 2007 Sept. 21, 2007 Interest on taxable securities ...... $420 $ 184 $ 9,479 $58,790 Interest on tax-exempt securities ...... —— 4,119 23,284 Dividend income on investment securities and FHLB stock ...... 125 4,894 1,877 9,018 Total ...... $545 $5,078 $15,475 $91,092

The following table presents contractual maturities of available-for-sale debt securities:

Successor Predecessor II December 31, 2009 December 28, 2007 Estimated Fair Estimated Fair ($ in thousands) Amortized Cost Value Amortized Cost Value Due in one year or less ...... $ — $ — $ 9,093 $ 9,152 Due after one year through five years ...... —— 1,476 1,510 Due after five years through ten years ...... ———— Due after ten years ...... —— 4,209 4,224 Subtotal ...... —— 14,778 14,886 MBS ...... 3,069 3,183 9,557 9,574 Total ...... $3,069 $3,183 $24,335 $24,460

Note 5. Loans

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, 2009, approximately 65% of the total loan portfolio was secured by California real estate, compared to 62% at December 26, 2008 and 60% at December 28, 2007. At December 31, 2009 and December 26, 2008, 95% of single family and home equity lines of credit contain an interest-only payment feature compared to 93% at December 28, 2007, respectively. These loans generally have an initial interest-only term of ten years.

F-24 The following tables present the major categories of loans outstanding, including those subject to ASC 310-30. The loans are presented with the contractual balance, any purchase accounting adjustments and net deferred fees and costs:

Successor December 31, 2009 Net Deferred Net Unaccreted Fees and ($ in thousands) Principal Discount Costs Total Types of Loans: Single family (1-4 units) ...... $10,487,061 $(363,921) $ 2,660 $10,125,800 Home equity credit lines ...... 1,830,043 (121,773) 1,506 1,709,776 Commercial real estate ...... 2,969,713 (141,288) (1,592) 2,826,833 Multifamily (5+ units) mtgs ...... 2,128,942 (69,366) (2,004) 2,057,572 Multifamily/commercial construction ...... 262,420 (15,646) (162) 246,612 Single family construction ...... 241,858 (898) (36) 240,924 Total real estate mortgages ...... 17,920,037 (712,892) 372 17,207,517 Commercial business loans ...... 1,086,735 (71,531) (2,364) 1,012,840 Other secured ...... 202,771 (13,012) — 189,759 Unsecured loans and lines of credit ...... 173,438 (17,200) 17 156,255 Stock secured ...... 69,217 (2,807) — 66,410 Total other loans ...... 1,532,161 (104,550) (2,347) 1,425,264 Total loans ...... $19,452,198 $(817,442) $(1,975) 18,632,781 Less: Allowance for loan losses ...... (45,003) Loans, net ...... 18,587,778 Real estate loans held for sale ...... 14,540 Total ...... $18,602,318

Predecessor II December 26, 2008 Net Deferred Net Unaccreted Fees and ($ in thousands) Principal Discount Costs Total Types of Loans: Single family (1-4 units) ...... $ 8,895,395 $(163,571) $16,647 $ 8,748,471 Home equity credit lines ...... 1,671,221 (18,743) (8) 1,652,470 Commercial real estate ...... 2,835,378 (14,762) (3,844) 2,816,772 Multifamily (5+ units) mtgs ...... 1,916,801 (9,825) (2,299) 1,904,677 Multifamily/commercial construction ...... 173,482 (309) (1) 173,172 Single family construction ...... 400,175 (789) (14) 399,372 Total real estate mortgages ...... 15,892,452 (207,999) 10,481 15,694,934 Commercial business loans ...... 1,220,435 (2,408) (3,202) 1,214,825 Other secured ...... 241,995 (162) — 241,833 Unsecured loans and lines of credit ...... 319,701 (18) 40 319,723 Stock secured ...... 73,921 (14) — 73,907 Lease financing ...... 16 — — 16 Total other loans ...... 1,856,068 (2,602) (3,162) 1,850,304 Total loans ...... $17,748,520 $(210,601) $ 7,319 17,545,238 Less: Allowance for loan losses ...... (176,679) Loans, net ...... 17,368,559 Real estate loans held for sale ...... 4,325 Total ...... $17,372,884

F-25 Predecessor II December 28, 2007 Net Deferred Net Unaccreted Fees and ($ in thousands) Principal Discount Costs Total Types of Loans: Single family (1-4 units) ...... $ 5,236,172 $(179,108) $2,250 $ 5,059,314 Home equity credit lines ...... 1,024,747 (23,730) (2) 1,001,015 Commercial real estate ...... 1,839,569 (18,525) (949) 1,820,095 Multifamily (5+ units) mtgs ...... 1,194,698 (11,652) (170) 1,182,876 Multifamily/commercial construction ...... 141,500 (268) (13) 141,219 Single family construction ...... 320,333 (2,504) (13) 317,816 Total real estate mortgages ...... 9,757,019 (235,787) 1,103 9,522,335 Commercial business loans ...... 1,052,500 (840) (553) 1,051,107 Other secured ...... 185,205 (155) — 185,050 Unsecured loans and lines of credit ...... 254,557 801 18 255,376 Stock secured ...... 82,303 (587) — 81,716 Lease financing ...... 27,051 — — 27,051 Total other loans ...... 1,601,616 (781) (535) 1,600,300 Total loans ...... $11,358,635 $(236,568) $ 568 11,122,635 Less: Allowance for loan losses ...... (60,914) Loans, net ...... 11,061,721 Real estate loans held for sale ...... 5,816 Total ...... $11,067,537

The Bank had pledged $3.3 billion, $3.1 billion and $3.3 billion of loans to secure borrowings from the Federal Home Loan Bank of San Francisco (the “FHLB”) as of December 31, 2009, December 26, 2008, and December 28, 2007, respectively.

At December 31, 2009 and January 1, 2009, loans within the scope of ASC 310-30 had an unpaid principal balance of $414.2 million and $515.6 million, respectively, and a carrying value of $374.8 million and $452.4 million, respectively. There were no loans within the scope of ASC 310-30 at December 26, 2008 or December 28, 2007. The following table provides details on the credit impaired loans acquired:

Successor ($ in thousands) At January 1, 2009 Contractually required payments, including interest ...... $594,679 Nonaccretable difference ...... (59,908) Cash flows expected to be collected ...... $534,771 Accretable yield ...... (82,403) Fair value of loans acquired ...... $452,368

F-26 The change in accretable yield and allowance for loan losses related to credit impaired loans is presented in the following table:

Successor At or for the Year Ended December 31, ($ in thousands) 2009 Balance, beginning of year ...... $ 82,403 Additions ...... — Disposals ...... (123) Accretion ...... (20,539) Increase in expected cash flows ...... 37,576 Balance, end of year ...... $ 99,317 Allowance, beginning of year ...... $ — Provision ...... 11,807 Chargeoffs ...... (5,093) Balance, end of year ...... $ 6,714

At December 31, 2009, December 26, 2008 and December 28, 2007, loans over 90 days past due and accruing were $11.3 million, $5.7 million and $19.7 million, respectively.

Nonaccrual loans and the related interest income information are presented as follows:

Successor Predecessor II Predecessor I At Dec. 28, 2007 At Sept. 21, 2007 At or for the At or for the or for the period or for the period Year Ended Year Ended Sept. 22 – Jan. 1 – ($ in thousands) Dec. 31, 2009 Dec. 26, 2008 Dec. 28, 2007 Sept. 21, 2007 Nonaccrual loans: Balance at period end ...... $ 249,148 $ 130,984 $ 54,950 $ 50,289 Actual interest income recognized . . . . $ — $ — $ 174 $ 130 Interest income under original terms . . . $ 6,534 $ 2,353 $ 1,270 $ 372 Total loans at period end ...... $18,632,781 $17,545,238 $11,122,635 $10,297,234 Nonperforming loans to total loans ...... 1.34% 0.75% 0.49% 0.49%

The Bank restructures loans generally because of the borrower’s financial difficulties, by granting concessions to reduce the interest rate, to waive or defer payments or, in some cases, to reduce the principal balance of the loan. Loans that are partially charged off and loans that have been modified in troubled debt restructurings are 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 or restructured performing status. As of December 31, 2009 and December 28, 2007, balances related to troubled debt restructurings included in the above table were $109.5 million and $3.2 million, respectively. There were no troubled debt restructurings as of December 26, 2008 or September 21, 2007.

F-27 The following table presents an analysis of the changes in the allowance for loan losses for the periods indicated:

Successor Predecessor II Predecessor I At Dec. 28, At Sept. 21, 2007 or for 2007 or for At or for the At or for the the period the period Year Ended Year Ended Sept. 22 – Jan. 1 – ($ in thousands) Dec. 31, 2009 Dec. 26, 2008 Dec. 28, 2007 Sept. 21, 2007 Allowance for loan losses: Balance at beginning of period ...... $ 176,679 $ 60,914 $ 59,112 $ 51,706 Purchase accounting adjustment (1) ..... (176,679)(1) — — — Provision charged to expense ...... 49,462 131,175 2,400 8,067 Chargeoffs: Home equity credit lines ...... — (416) — — Commercial real estate ...... (2,273) — — — Multifamily/commercial construction ...... — (9,400) — — Commercial business ...... (1,531) (2,088) (359) (621) Other loans ...... (1,289) (357) (322) (219) Total chargeoffs ...... (5,093) (12,261) (681) (840) Recoveries: Multifamily ...... — — — 313 Commercial real estate ...... 1 126 — 146 Commercial business ...... 453 94 34 25 Other loans ...... 180 181 49 62 Total recoveries ...... 634 401 83 546 Net loan chargeoffs ...... (4,459) (11,860) (598) (294) Reclassification to other liabilities ...... — (3,550) — (367) Balance at end of period ...... $ 45,003 $ 176,679 $ 60,914 $ 59,112 Average total loans for the period ...... $17,623,345 $14,456,638 $10,831,549 $ 8,833,602 Total loans at period end ...... $18,632,781 $17,545,238 $11,122,635 $10,297,234 Ratios: Net chargeoffs to average total loans (annualized) ...... 0.03% 0.08% 0.02% 0.00% Allowance for loan losses to: Total loans ...... 0.24% 1.01% 0.55% 0.57% Nonaccruing loans ...... 18.1% 134.9% 110.9% 117.5% (1) On January 1, 2009, the Bank’s allowance for loan losses became part of the loan carrying value due to purchase accounting adjustments.

The Bank’s allowance for loan losses became part of the loan carrying value due to purchase accounting adjustments recorded in 2009 as a result of the Bank of America acquisition. See Note 3, “Purchase Accounting Allocation.” ASC 310-30 requires impaired loans acquired in a business combination to be recorded at fair value and prohibits the carryover of the allowance for loan losses. The net purchase accounting discount was determined by discounting cash flows expected to be collected using an observable discount rate for similar instruments. Subsequent decreases to expected principal cash flows result in a charge to provision for credit losses.

Impaired loans, which were nonperforming at December 31, 2009 (excluding loans accounted for under ASC 310-30), were $158.9 million with a related allowance for loan losses of $28.2 million. Total impaired loans

F-28 were $102.3 million at December 26, 2008 and $49.8 million at December 28, 2007 with a related allowance for loan losses of $36.6 million and $9.8 million, respectively. The Bank recognized interest income from impaired loans of $1 thousand in 2009, none for 2008, $174 thousand for September 22 through December 28, 2007 and $121 thousand for January 1 through September 21, 2007, which were recognized using the cash received method. The average recorded investment in impaired loans was approximately $113.0 million for 2009, $71.5 million for 2008 and $33.6 million for 2007.

Note 6. Mortgage Banking Activity

The recorded value of MSRs is amortized in proportion to, and over the period of, estimated net servicing income for the year ended December 26, 2008 and for the periods from September 22, 2007 to December 28, 2007 and January 1, 2007 to September 21, 2007. In 2009, MSRs are recorded at fair value with changes in fair value recognized in the income statement. To value MSRs, the Bank stratifies loans sold each year by property type, loan index for ARMs and interest rate for loans fixed for more than three years.

The following table presents information on the level of loans originated, loans sold and gain on sale of loans for the periods indicated:

Successor Predecessor II Predecessor I For the For the Year Ended Year Ended September 22 – January 1 – December 31, December 26, December 28, September 21, ($ in thousands) 2009 2008 2007 2007 Loans originated ...... $5,311,801 $9,691,355 $1,933,306 $4,903,901 Loans sold: Flow sales ...... $ 479,855 $ 123,002 $ 35,890 $ 180,053 Bulk sales ...... 35,821 186,120 — 571,759 Total loans sold ...... $ 515,676 $ 309,122 $ 35,890 $ 751,812 Gain (loss) on sale of loans: Amount ...... $ 5,536 $ (1,454) $ 301 $ 6,865 Percentage of loans sold ...... 1.07% (0.47)% 0.84% 0.91%

F-29 The following table presents changes in the portfolio of loans serviced for others and changes in the book value of the Bank’s MSRs and valuation statistics for the periods indicated:

Successor Predecessor II Predecessor I At Dec. 28, 2007 At Sept. 21, 2007 At or for the At or for the or for the period or for the period Year Ended Year Ended Sept. 22 – Jan. 1 – ($ in thousands) Dec. 31, 2009 Dec. 26, 2008 Dec. 28, 2007 Sept. 21, 2007 Loans serviced for others: Beginning balance ...... $4,313,659 $4,863,870 $5,016,818 $4,979,693 Loans sold ...... 515,676 309,122 35,890 751,812 Repayments ...... (829,854) (858,491) (185,910) (559,035) Loans repurchased ...... — (842) (2,928) (155,652) Ending balance ...... $3,999,481 $4,313,659 $4,863,870 $5,016,818 MSRs: Beginning balance ...... $ 23,307 $ 34,586 $ 27,202 $ 28,445 Purchase accounting adjustment .... 6,935 — 10,332 — Additions due to new loans sold .... 4,538 1,259 317 5,968 Changes in fair value: Due to changes in valuation model inputs or assumptions ...... (4,639) — — — Other changes in fair value .... (5,597) — — — Total changes in fair value ...... (10,236) — — — Amortization expense ...... — (10,895) (3,250) (6,066) Provision for valuation allowance . . . — (1,640) — — Reductions due to repurchases . . . . . — (3) (15) (1,145) Ending balance ...... $ 24,544 $ 23,307 $ 34,586 $ 27,202 Estimated fair value of MSRs ...... $ 24,544 $ 30,242 $ 37,021 $ 39,300 MSRs as a percent of total loans serviced ..... 0.61% 0.54% 0.71% 0.54% Weighted average servicing fee collected for the period ...... 0.26% 0.26% 0.26% 0.27% MSRs as a multiple of weighted average servicing fee ...... 2.35x 2.07x 2.74x 2.01x

The following table presents changes in the valuation allowance for the periods indicated:

Successor Predecessor II Predecessor I At Sept. 21, At Dec. 28, 2007 2007 or for the At or for the At or for the or for the period period Year Ended Year Ended Sept. 22 – Jan. 1 – ($ in thousands) Dec. 31, 2009 Dec. 26, 2008 Dec. 28, 2007 Sept. 21, 2007 Valuation allowance: Beginning balance ...... $ 18 $ — $ 42 $50 Provision ...... — 1,640 — — Reduction due to permanent impairment . . . — (1,622) — (8) Reversal due to purchase accounting adjustment ...... (18) — (42) — Ending balance ...... $ — $ 18 $ — $42

F-30 The following table presents servicing fees for the periods indicated:

Successor Predecessor II Predecessor I For the Year For the Year Ended Ended September 22 – January 1 – December 31, December 26, December 28, September 21, ($ in thousands) 2009 2008 2007 2007 Contractually specified servicing fees ...... $10,863 $11,759 $3,511 $9,810 Late charges & ancillary fees ...... $ 300 $ 886 $ 70 $ 877

The following table presents the Bank’s key assumptions used in measuring the fair value of MSRs as of December 31, 2009, December 26, 2008 and December 28, 2007 and the pre-tax sensitivity of the fair values to an immediate 10% and 20% adverse change in these assumptions:

Successor Predecessor II December 31, December 26, December 28, ($ in thousands) 2009 2008 2007 Fair value of MSRs ...... $24,544 $30,242 $37,021 Weighted average prepayment speed (CPR) ...... 19.08% 19.00% 23.06% Impact on fair value of 10% adverse change ...... $ (1,661) $ (1,568) $ (1,488) Impact on fair value of 20% adverse change ...... $ (3,186) $ (2,995) $ (2,131) Weighted average discount rate ...... 13.61% 14.93% 15.00% Impact on fair value of 10% adverse change ...... $ (937) $ (1,166) $ (1,359) Impact on fair value of 20% adverse change ...... $ (1,805) $ (2,241) $ (2,618)

The sensitivity analysis above is hypothetical and should be used with caution. In particular, the effect of a variation in a particular assumption on the fair value of MSRs is calculated independent of changes in any other assumption; in practice, changes in one factor may result in changes in another factor, which may magnify or counteract the sensitivities. Further changes in fair value based on a single variation in assumptions generally cannot be extrapolated because the relationship of the change in a single assumption to the change in fair value may not be linear.

Note 7. Prepaid Expenses and Other Assets

The Bank’s prepaid expenses and other assets consisted of the following:

Successor Predecessor II December 31, December 26, December 28, ($ in thousands) 2009 2008 2007 Prepaid FDIC insurance assessment ...... $118,349 $ — $ — Interest receivable ...... 77,599 68,872 54,282 Mutual fund settlement receivable ...... 70,126 21,439 51,510 FHLB Stock, at cost ...... 59,420 59,420 95,173 Foreign exchange derivatives ...... 12,747 6,032 2,962 Receivable from Parent ...... —— 71,786 Other assets ...... 21,166 29,295 37,765 Other prepaid expenses ...... 7,293 15,854 13,195 Total ...... $366,700 $200,912 $326,673

F-31 Note 8. Premises, Equipment and Leasehold Improvements

Premises, equipment and leasehold improvements are summarized below:

Successor Predecessor II December 31, December 26, December 28, ($ in thousands) 2009 2008 2007 Land, buildings and improvements ...... $ 966 $ 900 $ 1,010 Furniture, equipment and software ...... 29,408 36,400 27,269 Leasehold improvements ...... 76,135 81,606 69,495 Construction-in-progress ...... 6,126 4,818 — Total ...... $112,635 $123,724 $97,774 Less: accumulated depreciation and amortization ...... (20,395) (25,035) (4,248) Premises, equipment and leasehold improvements, net ...... $ 92,240 $ 98,689 $93,526

Depreciation and amortization expense was $20.4 million, $20.7 million, $4.2 million and $10.7 million in 2009, 2008, September 22, 2007 to December 28, 2007 and January 1, 2007 to September 21, 2007, respectively. Rent and related occupancy expense, net of sublease income, was $23.3 million in 2009, $28.0 million in 2008, $6.3 million for the period from September 22 through December 28, 2007, and $17.3 million for the period from January 1, 2007 through September 21, 2007.

Future minimum rental payments required under operating leases, net of sublease income, including the Bank’s office facilities that have initial or remaining noncancelable terms in excess of one year were as follows:

Successor ($ in thousands) December 31, 2009 Operating leases: 2010 ...... $ 24,245 2011 ...... 21,453 2012 ...... 22,182 2013 ...... 20,958 2014 ...... 20,788 Thereafter ...... 73,972 Total ...... $183,598

Note 9. Goodwill and Intangible Assets

The gross carrying value of intangible assets and accumulated amortization was:

Predecessor II December 26, 2008 December 28, 2007 Gross Gross Carrying Accumulated Carrying Accumulated ($ in thousands) Value Amortization Value Amortization Amortized intangible assets: MSRs ...... $ 37,470 $(14,145) $ 37,836 $ (3,250) Core deposit intangibles ...... 194,400 (47,777) 194,400 (10,468) Customer relationship intangibles ...... 38,700 (6,312) 38,700 (1,350) Total amortized intangibles ...... $ 270,570 $(68,234) $ 270,936 $(15,068) Goodwill ...... $1,305,780 $1,305,780 Trade name ...... $ 27,900 $ 27,900

There was no goodwill or other intangible assets as of December 31, 2009.

F-32 The following table presents the changes in goodwill for the periods indicated.

Commercial Wealth Total ($ in thousands) Banking Management Combined Predecessor I Balance at December 31, 2006 ...... $ 110,902 $ 72,538 $ 183,440 Deferred payments ...... — 1,690 1,690 Impairment charge ...... — (15,700) (15,700) Reduction due to sale of subsidiary ...... — (9,729) (9,729) Other ...... 864 — 864 Balance at September 21, 2007 ...... 111,766 48,799 160,565 Predecessor II Reversal due to Merrill Lynch acquisition ...... (111,766) (48,799) (160,565) Additions due to Merrill Lynch acquisition ...... 1,252,865 52,915 1,305,780 Balance at December 28, 2007 and December 26, 2008 ...... 1,252,865 52,915 1,305,780 Successor Reversal due to Bank of America acquisition ...... (1,252,865) (52,915) (1,305,780) Balance as of December 31, 2009 ...... $ — $ — $ —

The Bank is required to test goodwill for impairment at least annually at the reporting unit level. The Bank did not recognize any impairment in 2008 or 2007 based on the results of the annual tests.

During the first quarter of 2007, one of the Bank’s investment advisory subsidiaries had been advised of the termination of one of its largest and longest in tenure relationships and of the probable termination of assets managed under a subadvisory contract. Collectively, these two relationships represented approximately $2.0 billion of assets under management and approximately 50% of this subsidiary’s investment advisory fees at the time. In light of these events, the Bank performed a valuation analysis in the first quarter of 2007 and, as a result, recorded a $15.7 million non-cash impairment charge in the first quarter of 2007 to reduce the carrying value of the goodwill attributed to the purchase of this subsidiary. On June 28, 2007, the Bank sold this subsidiary to its principal officers and recorded a loss on sale of subsidiary of $12.2 million and a related tax benefit of $11.7 million. The operating results of this subsidiary are included in the wealth management segment through the closing date in 2007.

Note 10. Customer Deposits

Demand deposit checking accounts for business clients did not bear interest at December 31, 2009, December 26, 2008 and December 28, 2007. Negotiable Order of Withdrawal (“NOW”) checking accounts provide unlimited check writing to consumer clients and bear a minimum balance interest rate of 0.05% at December 31, 2009, December 26, 2008 and December 28, 2007. Passbook and money market accounts that have no contractual maturity paid interest compounded daily at rates ranging from 0.10% to 1.29% per annum at December 31, 2009, 0.10% to 3.20% per annum at December 26, 2008 and 0.10% to 4.88% at December 28, 2007.

F-33 Certificates of deposit bear interest at varying rates based on money market conditions, generally ranging from 0.20% to 2.47% at December 31, 2009, 1.49% to 3.20% at December 26, 2008 and 3.92% to 4.74% at December 28, 2007. At December 31, 2009, the annual contractual maturities of the Bank’s certificates of deposit were as follows:

Successor ($ in thousands) December 31, 2009 Certificates of deposit: 2010 ...... $3,761,414 2011 ...... 1,595,809 2012 ...... 272,312 2013 ...... 110,260 2014 ...... 180,882 Thereafter ...... 5,041 Total ...... $5,925,718

At December 31, 2009, December 26, 2008 and December 28, 2007 certificates of deposit of $100 thousand or more totaled $4.0 billion, $2.9 billion and $1.9 billion respectively. At December 31, 2009, certificates of deposit over $250 thousand totaled $1.8 billion.

The following table presents interest expense on customer deposits for the periods indicated:

Successor Predecessor II Predecessor I Year Ended Year Ended September 22- January 1 – December 31, December 26, December 28, September 21, ($ in thousands) 2009 2008 2007 2007 NOW checking ...... $ 4,644 $ 3,403 $ 1,200 $ 3,407 Money market checking accounts ...... 19,501 44,895 17,663 44,283 Money market savings and passbooks ...... 48,022 99,243 38,204 94,434 Certificates of deposit ...... 151,797 125,495 35,772 84,121 $223,964 $273,036 $92,839 $226,245

Note 11. Federal Home Loan Bank Advances

Prior to the Merrill Lynch acquisition, the Bank was an approved member of the FHLB. FHLB advances are either adjustable rate in nature or fixed for a specific term. Amounts presented below represent contractual amounts due under the borrowing arrangements. Purchase accounting adjustments are amortized and recorded as a reduction to interest expense over the contractual life of the advance using a level yield methodology. The following table presents information related to FHLB advances:

Successor Predecessor II December 31, December 26, December 28, 2009 2008 2007 ($ in thousands) Amount Rate Amount Rate Amount Rate Advances maturing in: Less than one year ...... $ — — $1,103,500 4.89% $ 216,500 4.90% 1 to 2 years ...... ———— 1,603,500 4.91% 2 to 3 years ...... 60,000 0.66% — — — — 3 to 4 years ...... 70,000 0.35% 60,000 3.25% — — 4 to 5 years ...... —— 70,000 3.09% 60,000 5.44% Thereafter ...... ———— 70,000 4.64% Subtotal ...... 130,000 0.49% 1,233,500 4.71% 1,950,000 4.92% Purchase accounting adjustment ...... 501 2,757 6,338 Total ...... $130,501 0.49% $1,236,257 4.70% $1,956,338 4.90%

F-34 The Bank is required to own FHLB stock at least equal to 4.7% of outstanding FHLB advances. The Bank records FHLB stock at cost. The Bank owned FHLB stock of $59.4 million at December 31, 2009 and December 26, 2008 and $95.2 million at December 28, 2007.

Note 12. Subordinated Notes

The carrying value of the Bank’s subordinated notes is as follows:

Successor Predecessor II December 31, December 26, December 28, ($ in thousands) 2009 2008 2007 Outstanding amount ...... $63,770 $63,770 $63,770 Purchase accounting adjustment ...... 2,127 2,912 3,689 Total carrying value ...... $65,897 $66,682 $67,459

These notes carry a contractual interest rate of 7.75% and mature on September 15, 2012. Purchase accounting adjustments are amortized and recorded as a reduction to interest expense over the contractual life of the subordinated notes using a level yield methodology.

Note 13. Noncontrolling Interests

The Bank formed FRPCC, which is an SEC registrant, in April 1999 and FRPCC II in September 2001, each of which is a REIT for federal income tax purposes. Each REIT has issued preferred stock, which the Bank reports as noncontrolling interests within total equity in the Bank’s combined balance sheet. The Bank records dividends paid to other owners of the REITs’ preferred stock as noncontrolling interests on the statement of income. Under banking regulations, the REITs’ preferred stock is treated as Tier 1 Capital subject to a cap of 25% of the Bank’s total Tier 1 Capital, with any excess amount treated as Tier 2 Capital. Under certain adverse or regulatory circumstances, each series of the REITs’ preferred stock is exchangeable into preferred stock issued by the Bank at the direction of regulators.

FRPCC completed a $55.0 million initial private offering of 10.50% noncumulative perpetual exchangeable Series A preferred stock (“Series A Preferred Stock”) in June 1999 and a $7.0 million private placement of 5.7% noncumulative perpetual exchangeable Series C preferred stock (“Series C Preferred Stock”) in June 2001. In June 2007, the Series C Preferred Stock was converted at the option of the holder into 343,530 shares of the Bank’s common stock at a conversion price of $20.38 per share. If declared, dividends on the Series A Preferred Stock are payable semiannually.

FRPCC completed a $42.0 million public offering of 8.875% noncumulative perpetual exchangeable Series B preferred stock (“FRPCC Series B Preferred Stock”) in January 2002 and a $60.0 million public offering of 7.25% noncumulative perpetual exchangeable Series D preferred stock (“Series D Preferred Stock”) in June 2003. The FRPCC Series B Preferred Stock and the Series D Preferred Stock have a liquidation value of $25 per share, and, if declared, dividends are payable quarterly on the liquidation value. On November 19, 2007, the FRPCC Series B Preferred Stock was redeemed at a total redemption price of $42.5 million, which represented $25 per share plus accrued and unpaid dividends to the redemption date at a rate of $0.296 per share of all the issued and outstanding shares of FRPCC Series B Preferred Stock. The Series D Preferred Stock is traded on the Nasdaq National Market under the symbols “FRCCO.” At December 31, 2009, FRPCC had total assets of approximately $296.6 million, consisting primarily of single family mortgage loans.

In August 2003, FRPCC II completed a $10.0 million private placement of 8.75% noncumulative perpetual exchangeable Series B preferred stock (“FRPCC II Series B Preferred Stock”). The FRPCC II Series B Preferred Stock has a liquidation value of $25 per share and, if declared, dividends are payable quarterly. At December 31, 2009, FRPCC II had total assets of approximately $1.1 billion, consisting primarily of multifamily and commercial real estate mortgage loans and cash equivalents.

F-35 At December 31, 2009, Bank of America owned $25.4 million of FRPCC’s Series A Preferred Stock, which reduces the outstanding balance of noncontrolling interests presented in the combined financial statements. There were no purchases of any of FRPCC’s Series A Preferred Stock during 2009, 2008 or 2007 by the Parent or the Bank. The Bank reduces noncontrolling interests for the total amount purchased. Dividends paid to the holders of the REITs’ preferred stock, excluding the Bank, were $8.4 million in 2009, $8.3 million 2008 and $11.8 million in 2007. The dividends paid on the REITs’ preferred stock reduce the Bank’s taxable income by the amount of the dividends.

Dividends on FRPCC’s common stock were $121 thousand in 2009, $4.4 million for 2008 and $5.9 million for 2007. Dividends on FRPCC II’s common stock were $47.4 million for 2009, $56.8 million for 2008 and $61.2 million for 2007. The dividends paid to the Parent for 2009, 2008 and 2007 were treated as consent dividends by the Parent under Section 565 of the Internal Revenue Code. The consent dividends accounted for 100% of the Parent’s federal taxable income from FRPCC and FRPCC II.

Note 14. Derivative Financial Instruments

Management has historically used derivative instruments, including interest rate swaps and caps, as part of its interest rate risk management strategy. In accordance with ASC 815, “Derivatives and Hedging,” the Bank recognizes all derivatives on the balance sheet at fair value. The Bank accounts for changes in the fair value of a derivative depending on the intended use of the derivative and its resulting designation under specified criteria. The Bank did not have any interest rate swaps or caps used as part of its interest rate risk management strategy during 2009, 2008 or 2007.

Derivative assets and liabilities consist of foreign exchange contracts executed with customers; the Bank offsets the customer exposure to another financial institution counterparty represented by major investment banks and large commercial banks. The Bank does not retain foreign exchange risk. The amounts presented in the table below include the foreign exchange contracts with both the customers and the financial institution counterparties. The Bank uses current market prices to determine the fair value of these contracts.

The Bank also creates derivative instruments when it enters into interest rate lock commitments for single family mortgage loans that will be sold to investors. The Bank’s interest rate risk exposure to these commitments is not significant as these derivatives are economically hedged with forward commitments to sell the loans to investors.

The total notional or contractual amounts and fair values for derivatives were:

Successor December 31, 2009 Notional or Fair value contractual Liability ($ in thousands)amount Asset derivatives (1) derivatives (2) Foreign exchange contracts ...... $428,326 $12,747 $11,458 Interest rate contracts with borrowers ...... 18,003 — 318 Forward loan sale commitments ...... 32,505 658 — Total ...... $478,834 $13,405 $11,776

F-36 Predecessor II December 26, 2008 December 28, 2007 Notional or Fair value Notional or Fair value contractual Asset Liability contractual Asset Liability ($ in thousands) amount derivatives (1) derivatives (2) amount derivatives (1) derivatives (2) Foreign exchange contracts . . . $114,583 $6,032 $5,892 $175,914 $2,962 $2,817 Interest rate contracts with borrowers ...... 15,627 49 — 1,867 — 5 Forward loan sale commitments ...... 19,951 — 87 7,753 53 — Total ...... $150,161 $6,081 $5,979 $185,534 $3,015 $2,822

(1) Included in prepaid expenses and other assets on the balance sheet (2) Included in other liabilities on the balance sheet

The credit risk associated with these derivative instruments is the risk of non-performance by the counterparty to the contracts. Management does not anticipate non-performance by any of the counterparties.

Note 15. Income Taxes

At December 31, 2009, December 26, 2008 and December 28, 2007, the amount of current taxes payable, which is included in other liabilities, was $15.3 million, $14.5 million and $13.8 million, respectively. Current taxes payable were recorded based on the Bank’s tax allocation arrangement with the Parent and then adjusted to reflect current taxes payable determined on a separate company stand alone basis. The adjustments to reflect income taxes on a separate company stand alone basis were recorded as either capital contributions or capital distributions.

The following table presents the components of the Bank’s provision for income taxes for each of the periods indicated:

Successor Predecessor II Predecessor I For the Year For the Year Ended Ended Dec. 26, Sept. 22 - Jan. 1 - ($ in thousands) Dec. 31, 2009 2008 Dec. 28, 2007 Sept. 21, 2007 Federal: Current ...... $ 81,675 $ 56,183 $(27,105) $ 20,992 Deferred ...... 101,868 (51,905) 39,351 (32,837) Subtotal ...... 183,543 4,278 12,246 (11,845) State: Current ...... 30,475 18,315 377 9,297 Deferred ...... 40,298 (16,860) 3,533 (11,388) Subtotal ...... 70,773 1,455 3,910 (2,091) Total income tax expense (benefit) ...... $254,316 $ 5,733 $ 16,156 $(13,936)

F-37 The following table presents a reconciliation between the effective income tax rate and the federal statutory rate for the periods indicated:

Successor Predecessor II Predecessor I For the Year For the Year Ended Ended Sept. 22 – Jan. 1 – Dec. 31, 2009 Dec. 26, 2008 Dec. 28, 2007 Sept. 21, 2007 Expected statutory rate ...... 35.0% 35.0% 35.0% 35.0% State taxes, net of federal benefits ...... 7.5% 4.7% 6.9% 5.2% Tax-exempt income ...... 0.0% 0.0% (2.8)% 33.0% Bank owned life insurance ...... (0.6)% (15.5)% (1.7)% 9.6% Tax credits ...... 0.0% 0.0% 0.0% 11.9% Dividends received deduction ...... 0.0% (0.4)% (0.4)% 6.7% Non-deductible expenses ...... 0.0% 0.0% 0.0% (28.8)% Other, net ...... 0.1% 4.2% 0.0% (5.7)% Effective tax range ...... 42.0% 28.0% 37.0% 66.9%

The effective income tax rate decreased in 2008 and then increased in 2009 mainly due to the variance in pre-tax income in relation to the amount of tax advantaged investments in municipal securities, bank owned life insurance and tax credit investments.

The following table presents the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities for the periods indicated:

Successor Predecessor II December 31, December 26, December 28, ($ in thousands) 2009 2008 2007 Deferred tax assets: Allowance for loan losses ...... $ 19,156 $ 74,962 $ 25,789 Accrued compensation ...... 13,573 10,460 7,389 Loan discount ...... 376,678 89,295 99,484 Restricted stock ...... 11,842 8,252 1,016 Depreciation ...... 4,640 4,626 4,637 Capital loss carryforward ...... 6,808 6,790 9,840 Tax credits and NOLs ...... 3,331 3,331 8,127 Other: state taxes ...... 11,308 7,092 — Other deferred tax assets ...... 8,897 15,673 18,885 Total gross deferred tax assets ...... 456,233 220,481 175,167 Less: valuation allowance ...... (807) (807) (807) Net deferred tax assets ...... $455,426 $ 219,674 $ 174,360 Deferred tax liabilities: FHLB stock dividend income ...... $ (5,848) $ (5,781) $ (6,905) Mortgage servicing rights ...... (378) (4,912) (8,910) Other intangible assets ...... — (87,740) (105,260) Other deferred tax liabilities ...... (341) (5,050) (3,247) Total gross deferred tax liabilities ...... (6,567) (103,483) (124,322) Net deferred tax assets ...... $448,859 $ 116,191 $ 50,038

The net deferred tax asset represents recoverable taxes. The Bank believes a valuation allowance of $807 thousand is needed for 2009, 2008 and 2007 related to the realization of a capital loss carryforward.

F-38 Management believes it is more likely than not that the remaining deferred tax assets will be realized based on projected future income, including income that may be generated as a result of certain tax planning strategies, together with tax effects of the deferred tax liabilities.

The Bank is under income tax examinations by the State of California for tax years 2000 to 2002 and by the State of New York for tax years 2005 to September 21, 2007. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the periods indicated below were as follows:

Successor Predecessor II Predecessor I For the Year For the Year Ended Ended Sept. 22 – Jan. 1 – ($ in thousands) Dec. 31, 2009 Dec. 26, 2008 Dec. 28, 2007 Sept. 21, 2007 Balance at beginning of period ...... $8,349 $8,349 $8,239 $8,239 Additions based on tax positions related to the current year ...... — — 110 — Reductions for tax positions of prior years ...... ———— Balance at end of period ...... $8,349 $8,349 $8,349 $8,239

As the Bank has previously reported, the California Franchise Tax Board issued in December 2003 an announcement challenging the tax treatment of certain dividend deductions involving REITs. As a result of such announcement, the Bank has not recognized any California income tax benefits from 2003 to 2009 of a type that had been recognized in 2002 and part of 2001 related to one of the Bank’s REIT subsidiaries. The State of California has commenced an audit of the Bank’s tax returns for the years 2000 to 2002. The Bank intends to defend aggressively its claims for the California tax benefits taken in 2002 and part of 2001 and as yet unrecorded tax benefits available for subsequent years. The California audit is currently in the protest stage. At December 31, 2009, the Bank’s total exposure on this position upon an unfavorable outcome was $9.1 million, net of federal tax benefits; such amount will increase over time as a result of continuing interest and penalties.

During the fourth quarter of 2006, the Internal Revenue Service began an examination of the Bank’s 2004 federal consolidated income tax return. The audit concluded in March 2008 and no changes were made to the originally filed return. During the second quarter of 2009, the State of New York began an examination of the Bank’s 2005 to September 21, 2007 state income tax returns. The audit was concluded in August 2010 with an estimated preliminary liability less than $50 thousand.

The Bank recognized approximately $504 thousand, $497 thousand, $290 thousand and $846 thousand of interest and penalties (recorded in the income tax expense line) related to uncertain tax positions during the periods ended December 31, 2009, December 26, 2008, December 28, 2007 and September 21, 2007, respectively. The Bank has accrued current taxes payable of approximately $15.3 million, $14.5 million, $13.8 million and $13.3 million related to uncertain tax positions as of December 31, 2009, December 26, 2008, December 28, 2007 and September 21, 2007, respectively. All tax liabilities in existence before June 30, 2010 remain with Bank of America as part of the Transaction.

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. Considering these facts, 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 16. Equity and Parent company borrowing

The Bank was a division of MLFSB from September 21, 2007 through November 2, 2009. From November 2, 2009 until June 30, 2010, the Bank was a division of BANA. As a division of MLFSB and BANA, the Bank was allocated equity capital equal to approximately 7.0% of its ending tangible assets on a monthly

F-39 basis plus an amount equal to goodwill and other intangibles. Equity capital consists of Parent company investment and noncontrolling interests, which represent perpetual preferred stock issued by FRPCC and FRPCC II in the amount of $99.6 million. After the allocation of equity capital, any remaining amount of funding (or lending) required is borrowed from (or loaned to) the Parent. The interest rate charged (earned) on these Parent company borrowings (loans) is equal to 1-month LIBOR plus 1.50% and the expense (income) is calculated on a monthly basis based on the average borrowing (or lending) during the month.

Following the completion of the Transaction described in Note 2, the Bank became an independent commercial bank and is subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation (“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 combined 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 accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Utilizing the 7% equity capital allocation from the Parent, the Bank’s capital amounts and ratios are presented in the following table for the prior three balance sheet dates:

Minimum for Capital Minimum to Be Well Actual Adequacy Purposes Capitalized Amount Ratio Amount Ratio Amount Ratio ($ in thousands) Successor December 31, 2009 Total capital to risk-weighted assets ...... $1,467,200 9.86% $1,190,091 8.00% $1,487,614 10.00% Tier 1 capital to risk-weighted assets ...... 1,395,838 9.38% 595,046 4.00% 892,568 6.00% Tier 1 capital to average assets ...... 1,395,838 7.15% 780,519 4.00% 975,649 5.00% Predecessor II December 26, 2008 Total capital to risk-weighted assets ...... $1,495,004 10.54% $1,134,357 8.00% $1,417,946 10.00% Tier 1 capital to risk-weighted assets ...... 1,272,687 8.98% 567,178 4.00% 850,768 6.00% Tier 1 capital to average assets ...... 1,272,687 7.21% 706,032 4.00% 882,540 5.00% Predecessor II December 28, 2007 Total capital to risk-weighted assets ...... $1,113,523 10.65% $ 836,493 8.00% $1,045,617 10.00% Tier 1 capital to risk-weighted assets ...... 996,563 9.53% 418,247 4.00% 627,370 6.00% Tier 1 capital to average assets ...... 996,563 7.26% 549,272 4.00% 686,590 5.00%

The Parent allocated certain costs to the Bank as part of the Parent’s internal accounting process in 2009 and 2008. The amount of costs allocated in the Bank’s Statement of Income was approximately $4.3 million in 2009 and $9.8 million in 2008. There were no allocations of costs from the Parent during the period September 22, 2007 to December 28, 2007.

Note 17. Commitments and Contingencies

At December 31, 2009, December 26, 2008 and December 28, 2007, the Bank had conditional commitments to originate loans of $155.1 million, $359.4 million and $509.8 million, respectively, and to disburse additional funds on existing loans and lines of credit of $3.7 billion, $4.2 billion and $3.8 billion, respectively. In addition, the Bank had undisbursed standby letters of credit of $182.0 million, $189.6 million and $154.9 million at December 31, 2009, December 26, 2008 and December 28, 2007, respectively. The Bank’s

F-40 commitments to originate loans are agreements to lend to a client as long as there is no violation of any of several credit or other established conditions. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn, the total commitment amounts do not necessarily represent future cash requirements.

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, is material.

Note 18. Stock Compensation Plans

Prior to the Merrill Lynch acquisition, the Bank followed ASC 718, “Compensation – Stock Compensation,” in accounting for its stock compensation plans. Pursuant to ASC 718, the Bank measured the compensation cost of stock options as well as restricted stock based on the fair value of the options or shares at the grant date and recognized compensation expense over their remaining requisite service periods. As a result of the Merrill Lynch acquisition, all outstanding stock awards became fully vested on September 21, 2007 and resulted in the acceleration of all compensation costs associated with these awards to the period from January 1, 2007 to September 21, 2007 due to the change in control provisions of the plans. All outstanding stock awards were either settled at September 21, 2007 or were converted into an equivalent number of stock options based upon the conversion factors in the Merrill Lynch acquisition.

Fixed Stock Options

The Bank had granted fixed stock options under both the 1998 Stock Option Plan and the Amended and Restated Employee Stock Option Plan (the “Stock Option Plans”). Under the Stock Option Plans, options to purchase 1,791,591 shares had been granted to employees, officers and directors at December 31, 2006, of which 1,731,816 shares were exercisable. Under the Bank’s stock option agreements, the exercise price of each option equals or exceeds the market price of the Bank’s common stock at the grant date. Generally, stock options vest over a period of up to five years from the grant date and have a maximum contractual life of ten years.

The following table presents a summary of the Bank’s fixed stock option activity for the period from January 1, 2007 to September 21, 2007:

Weighted Average Weighted Remaining Average Contractual Aggregate Shares Exercise Price Term Intrinsic Value Fixed Options: Outstanding at December 31, 2006...... 1,791,591 $12.03 Exercised ...... (178,455) 12.66 Forfeited ...... (150) 22.54 Outstanding and exercisable at September 21, 2007 ..... 1,612,986 $11.95 1.8 years $19,279,000

During the period from January 1, 2007 to September 21, 2007, there were no options granted, and the total intrinsic value of options exercised was $7.3 million. As a result of the acquisition, the Bank recognized approximately $108 thousand of compensation expense associated with the accelerated vesting of stock options. The outstanding options at the acquisition date were converted into Merrill Lynch stock options based on the terms of the acquisition.

For options exercised during the period from January 1, 2007 to September 21, 2007, the Bank received cash of $2.3 million and realized excess tax benefits for the tax deductions of $2.2 million.

F-41 Employee Stock Purchase Plan

Under the Amended and Restated Employee Stock Purchase Plan (the “Purchase Plan”), the Bank was authorized to sell an aggregate total of 954,810 shares of common stock to its full-time employees, nearly all of whom are eligible to participate. Generally, employees are eligible to participate in the Purchase Plan after one year of employment. Beginning in 2006, under the terms of the Purchase Plan, employees can purchase shares of the Bank’s common stock at 95% of the closing price on the last day of each semimonthly payroll period, subject to an annual limitation of common stock valued at $25 thousand. Under the Purchase Plan, the Bank sold 6,322 shares to employees during the period from January 1, 2007 to September 21, 2007. The Bank does not recognize any compensation cost for the Purchase Plan since it meets the criteria under ASC 718 for the plan to be considered noncompensatory.

Restricted Stock Plans

Under the Bank’s 2000 Restricted Stock Plan, the Bank was authorized to issue an aggregate total of 191,250 shares of restricted stock to certain officers, all of which were awarded in 2000. The shares were restricted as to the vesting of the shares. The restrictions lapse over a seven-year period beginning on December 31, 2002. The Bank was recognizing the cost of these restricted shares at $13.86 per share over the eight-year period from the grant date until final vesting on December 31, 2008. Additionally, the Bank was recognizing over this period the cost of a related cash payment of $5.86 per share to these officers, which represents the estimated tax benefits to the Bank at the grant date.

Under the Bank’s 2003 Restricted Stock Plan, the Bank was authorized to issue an aggregate 2,112,500 shares of restricted stock to eligible employees, officers and directors. The shares are restricted only as to the vesting of the shares. The restrictions on the shares generally lapse over five or seven year periods. Restricted shares awarded to certain executive officers contain both service and performance conditions, and the performance condition was considered probable of achievement. Therefore, related compensation costs were recognized over the requisite service period.

The following table presents a summary of the activity for the Bank’s restricted stock plans for the period from January 1, 2007 to September 21, 2007:

Restricted Stock: Shares Weighted Average Fair Value Nonvested at December 31, 2006 ...... 1,286,489 $32.55 Granted ...... 105,300 44.80 Vested ...... (1,387,589) 33.46 Forfeited ...... (4,200) 36.53 Nonvested at September 21, 2007 ...... — $ —

As a result of the Merrill Lynch acquisition, all shares of restricted stock became vested, resulting in the recognition of approximately $33.6 million of accelerated compensation costs. The total grant date fair value of shares vested was $46.4 million during the period from January 1, 2007 to September 21, 2007. The shares of restricted stock were converted to Merrill Lynch stock based on the terms of the acquisition.

In connection with the restricted stock plans, the Bank generally is entitled to an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted shares. Such incremental tax deduction is recorded as an increase in stockholders’ equity when such shares vest.

F-42 Merrill Lynch/Bank of America Stock Awards

Beginning on September 22, 2007, certain employees of the Bank participated in Merrill Lynch stock plans and upon acquisition by Bank of America on January 1, 2009, began participating in Bank of America stock plans. The Bank was charged for the share based compensation in its Statement of Income for awards made to Bank employees under these plans. The total share based compensation expense charged to the Bank by the Parent was $8.4 million in 2009, $17.5 million in 2008, and $2.5 million for the period from September 22, 2007 through December 28, 2007.

Note 19. Employee Benefit Plans

The Bank’s Cash or Deferred Plan (the “401k Plan”) is a qualified plan under section 401(k) of the Internal Revenue Code of 1986, as amended. Prior to the Merrill Lynch acquisition, under the 401k Plan, the Bank matched, with contributions from net income, up to 5% of each participant’s compensation subject to certain limitations. The Bank’s contributions to the 401k Plan were $1.2 million and $3.3 million for September 22, 2007 to December 28, 2007 and January 1, 2007 to September 21, 2007, respectively. At December 31, 2009, 2008 and 2007, total assets in the Bank’s 401k Plan were approximately $51.8 million, $44.4 million and $74.8 million, respectively. The 401k assets are invested by plan participants in a family of investment funds. As a result of the Merrill Lynch acquisition, and then on January 1, 2009, the Bank of America acquisition date, employees of the Bank participate in the plans of the Parent. There were no contributions to the Bank’s 401k Plan subsequent to December 31, 2007. The Bank recorded in its income statement the impact of matching contributions to the Merrill Lynch and Bank of America 401k Plan allocated by the Parent in the amount of $2.4 million and $2.5 million for the years ended December 31, 2009 and December 26, 2008, respectively.

The Bank established an Employee Stock Ownership Plan (“ESOP”) in 1985 that enables eligible employees to own common stock of the Bank. The Bank did not contribute to the ESOP during the period from January 1, 2007 to September 21, 2007. Shares in the ESOP were converted from Bank common stock to Merrill Lynch common stock at the merger date of September 21, 2007 and later to Bank of America common stock on January 1, 2009. Employees may make withdrawals from their ESOP accounts under certain circumstances, upon reaching a minimum age or following a minimum number of years of service. At December 31, 2009, all shares of Bank of America common stock held by the ESOP were distributed to participants. At December 31, 2008, the ESOP held 51,232 shares of Merrill Lynch common stock allocated to participants, which had a fair value of approximately $596 thousand. At December 31, 2007, the ESOP held 101,065 shares of Merrill Lynch common stock allocated to participants, which had a fair value of approximately $5.4 million.

In 1998, the Bank adopted a Deferred Compensation Plan under which eligible officers and employees may defer receipt of compensation earned in future years until a later time, as elected by the participants. The deferred amounts earn interest at a market rate set each year. Amounts may be deferred for a period of from one year until retirement, at which time distributions may be made in installments for up to ten years. Any deferred amounts will be paid to the participant immediately upon death, disability, or the termination of employment for any reason other than retirement. At December 28, 2007, the aggregate amount deferred in all participants’ accounts was $5.7 million. During the period from January 1, 2007 to September 21, 2007, total compensation payments of $1.1 million were deferred into cash balances.

Effective January 1, 2006, participants in the Deferred Compensation Plan also have the option to transfer their deferred compensation into a family of investment funds. On the date of receipt of the deferred compensation as elected by the participants, the participants are entitled to the balance in each of their respective investment fund account, including any return on investments. During the period from January 1, 2007 to September 21, 2007, total compensation payments of $672 thousand were deferred into the family of investment funds. Subsequent to the Merrill Lynch acquisition, the Bank did not have a Deferred Compensation Plan.

F-43 In addition, in 1998, the Bank’s stockholders approved the Deferred Equity Unit Plan (the “DEU Plan”), under which eligible employees, officers and outside directors may defer receipt of compensation earned in 1999 and future years until a later time, as elected by the participants. The deferred amounts were converted into Deferred Equity Units (“DEUs”) payable in shares of the Bank’s common stock at a later date. The number of DEUs awarded to a participant was determined by dividing the amount of compensation deferred by the market price of the common stock at the time the compensation was payable; dividends payable on DEUs were reinvested into additional DEUs at the date of payment. Deferral elections and distributions under the DEU Plan were generally the same as described above for the Deferred Compensation Plan except that DEUs were settled in shares of common stock, or cash under certain circumstances. The DEU Plan also provides that unvested shares of restricted stock and shares to be received under nonqualified stock options held by outside directors and employees may be converted into DEUs.

Under the DEU Plan, eligible employees and directors deferred total compensation payments of $198 thousand and acquired 3,715 DEUs during the period from January 1, 2007 to September 21, 2007. As of September 21, 2007, there were 318,715 units outstanding under the DEU Plan, which were paid out as a result of the Merrill Lynch acquisition in an amount of $17.5 million, which was recorded as part of the purchase price. The DEU plan was discontinued as a result of the Merrill Lynch acquisition.

During 2004, the Bank implemented a Supplemental Executive Retirement Plan (“SERP”), with five of its executives. The SERP provides for cash payments to the signatories at predetermined future dates beginning in 2014. As a result of the Merrill Lynch acquisition, the SERP liability was increased to reflect full vesting of the benefit due to the change in control. The SERP liability was increased by $2.2 million to $3.5 million at September 21, 2007. The SERP liability was $4.0 million, $3.8 million and $3.5 million at December 31, 2009, December 26, 2008 and December 28, 2007, respectively.

Generally, employees are eligible to participate in the Bank’s 401k Plan and ESOP after six months of full-time employment and in the Purchase Plan and both deferred plans after one year of full-time employment. Since inception, the Bank has not offered any other employee benefit plans and, at December 31, 2009, has no requirement to accrue additional expenses for any pension or other post-employment benefits.

Note 20. Fair Values of Assets and Liabilities

The Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale, MSRs, and derivative instruments are recorded at fair value on a recurring basis. Additionally, from time to time, the Bank may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and real estate owned. These nonrecurring fair value adjustments typically involve application of the lower-of-cost-or market accounting or write-downs of individual assets.

Fair Value Hierarchy

Under ASC 820, “Fair Value Measurements and Disclosures,” 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 upon 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.

F-44 Under ASC 820, the Bank bases its fair values on 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. It is the Bank’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy of ASC 820.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not recorded at fair value. Although management uses its best judgment in estimating fair value, there are inherent weaknesses in any estimates that are made at a discrete point in time based on relevant market data, information about the financial instruments and other factors. Estimates of fair value of instruments without quoted market prices are subjective in nature and involve various assumptions and estimates that are matters of judgment. Changes in the assumptions used could significantly affect these estimates. The Bank has not adjusted fair values to reflect changes in market conditions subsequent to December 31, 2009, December 26, 2008 and December 28, 2007; therefore, estimates presented herein are not necessarily indicative of amounts that could be realized in a current transaction.

The estimated fair values presented neither include nor give effect to the values associated with the Bank’s existing client relationships, lending and deposit office networks, or certain tax implications related to the realization of unrealized gains or losses. The fair value summary does not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities.

Methods and assumptions used to estimate the fair value of each major classification of financial instruments were:

Cash and cash equivalents: The current carrying amount approximates estimated fair value.

Investment securities: For securities classified as available-for-sale, the Bank used current market prices, quotations or analysis of estimated future cash flows to determine fair value.

Loans: The carrying amount of loans is net of unamortized deferred loan fees or costs, unamortized premiums or discounts and the allowance for loan losses. To estimate fair value of the Bank’s loans, which are primarily adjustable rate and intermediate fixed rate real estate secured mortgages, the Bank segments each loan collateral type into categories based on fixed or adjustable interest rate terms (index, margin, current rate and time to next adjustment), maturity, estimated credit risk and accrual status.

The Bank bases the fair value of single family, multifamily and commercial real estate mortgages primarily upon prices of loans with similar terms obtained by or quoted to the Bank, adjusted for differences in loan characteristics and market conditions. The Bank estimates the fair value of other loans based on the current interest rates at which similar loans would be made to borrowers with similar credit characteristics in the Bank’s lending activities. Assumptions regarding liquidity risk and credit risk are judgmentally determined using available internal and market information.

For the fair value of nonaccrual loans and certain other loans, the Bank considers the individual characteristics of the loans, including delinquency status and the results of the Bank’s internal loan grading process.

Loans held for sale: The carrying amount of loans held for sale reflects the lower of cost or market, including net deferred loan fees and costs. The fair value of loans held for sale was derived from quoted market prices of loans with similar terms or actual prices at which loans were committed for sale.

MSRs: The fair value of MSRs related to loans originated and sold by the Bank is based on a present value calculation of expected future cash flows, with assumptions regarding prepayments, discount rates and investment rates adjusted for market conditions.

F-45 FHLB stock: FHLB stock has no trading market, is required as part of membership and is redeemable at par; therefore, its fair value is presented at cost.

Investments in life insurance: The carrying amount of investments in life insurance reflects the total cash surrender value of each policy, which approximates fair value.

Other real estate owned: Other real estate owned includes foreclosed properties securing mortgage loans. Other real estate owned is adjusted to fair value less costs to sell upon transfer of the loans to foreclosed assets. Subsequently, other real estate owned is carried at the lower of carrying value or fair value less costs to sell. Fair value is generally based upon independent market prices or appraised values of the collateral, and accordingly, the Bank classifies other real estate owned as Level 3.

Customer deposits: The fair value of deposits with no stated term such as demand deposit accounts, NOW accounts, money market accounts and passbook accounts is the carrying amount reported on the combined balance sheet. The intangible value of long-term relationships with depositors is not taken into account in estimating the fair values disclosed. Management believes that the Bank’s non-term accounts, as a continuing source of less costly funds, provide significant additional value to the Bank that is not reflected in the assigned value. The fair value of deposits with a stated maturity is based on the present value of contractual cash flows discounted by the replacement rates for securities with similar remaining maturities.

FHLB advances: The estimated fair value of longer-term FHLB advances represents the present value of cash flows discounted using the FHLB’s fixed rate cost of funds curve for advances of the same type and with the same characteristics.

Subordinated notes: The fair value is based on current market prices for traded issues.

Commitments to extend credit: The majority of the Bank’s commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally unassignable by either the Bank or the borrower, they have value only to the Bank and the borrower. The estimated fair value of the Bank’s commitments to extend credit, including letters of credit, approximates the recorded deferred fee amounts and was not material at December 31, 2009, December 26, 2008 and December 28, 2007.

Derivative financial instruments: Derivative assets and liabilities consist of foreign exchange contracts executed with customers which the Bank offsets the customer exposure to another financial institution counterparty. The Bank does not retain foreign exchange risk. The Bank uses current market prices to determine the fair value of these contracts. The estimated fair values of other derivative assets or liabilities that are created from interest rate lock commitments and forward loan sale commitments are estimated using analysis based on current market prices.

F-46 The following table presents the estimated fair values of financial instruments for the periods indicated:

Successor Predecessor II December 31, 2009 December 26, 2008 December 28, 2007 Carrying Fair Carrying Fair Carrying Fair ($ in thousands) Amount Value Amount Value Amount Value Assets: Cash and cash equivalents . . $ 178,553 $ 178,553 $ 169,572 $ 169,572 $ 194,220 $ 194,220 Investment securities trading ...... ———— 17,534 17,534 Investment securities available for sale ...... 3,183 3,183 — — 24,460 24,460 Loans, net ...... 18,587,778 18,461,023 17,368,559 16,542,080 11,061,721 11,036,321 Loans held for sale ...... 14,540 14,540 4,325 4,325 5,816 5,816 Mortgage servicing rights . . 24,544 24,544 23,307 30,242 34,586 37,021 FHLB Stock ...... 59,420 59,420 59,420 59,420 95,173 95,173 Investments in life insurance ...... 202,691 202,691 194,665 194,665 187,022 187,022 Derivative assets ...... 13,405 13,405 6,081 6,081 3,015 3,015 Liabilities: Customer deposits ...... 17,182,484 17,231,905 12,311,754 12,330,015 11,050,851 11,051,084 Federal Home Loan Bank advances ...... 130,501 130,842 1,236,257 1,258,560 1,956,338 1,962,519 Subordinated notes ...... 65,897 70,139 66,682 59,183 67,459 66,839 Derivative liabilities ...... 11,776 11,776 5,979 5,979 2,822 2,822

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis.

Successor Fair Value Measurements on a Recurring Basis December 31, 2009 ($ in thousands) Level 1 Level 2 Level 3 Total Assets: Investment securities available-for-sale: Other residential MBS ...... $— $ 3,183 $ — $ 3,183 Derivative assets ...... — 13,405 — 13,405 Mortgage servicing rights ...... —— 24,544 24,544 Total ...... $— $16,588 $24,544 $41,132

Liabilities: Derivative liabilities ...... $— $11,776 $ — $11,776

Predecessor II Fair Value Measurements on a Recurring Basis December 26, 2008 ($ in thousands) Level 1 Level 2 Level 3 Total Assets: Derivative assets ...... $— $6,081 $— $6,081 Liabilities: Derivative liabilities ...... $— $5,979 $— $5,979

F-47 Predecessor II Fair Value Measurements on a Recurring Basis December 28, 2007 ($ in thousands) Level 1 Level 2 Level 3 Total Assets: Trading securities ...... $ — $17,534 $— $17,534 Investment securities available-for-sale: U.S. Treasury and federal agencies ...... 10,662 — — 10,662 Residential agency MBS ...... — 9,574 — 9,574 Other debt securities ...... — 4,224 — 4,224 Derivative assets ...... — 3,015 — 3,015 Total ...... $10,662 $34,347 $— $45,009 Liabilities: Derivative liabilities ...... $ — $ 2,822 $— $ 2,822 There were no transfers in or out of Levels 1 and 2 for the year ended December 31, 2009, December 26, 2008 and December 28, 2007. The changes in Level 3 MSRs measured at fair value on a recurring basis are summarized as follows: At or for the Year Ended ($ in thousands) Dec. 31, 2009 Beginning balance ...... $30,242 Total gains or losses (realized/unrealized) included in earnings ...... (4,639) Purchase, issuances, and settlements ...... (1,059) Ending balance ...... $24,544

The Bank may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments for fair value usually result from application of lower-of-cost-or market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis in 2009, 2008 and 2007 that were still held in the balance sheet at each respective year end, the following tables provide the fair value hierarchy and the carrying value of the related individual assets or portfolios at year end. Successor Fair Value Measurements on a Non-recurring Basis At or for the Year Ended December 31, 2009 Gains ($ in thousands) Level 1 Level 2 Level 3 Total (Losses) Assets: Impaired loans ...... $— $— $17,437 $17,437 $ (8,337) Other real estate owned ...... —— 6,101 6,101 (3,922) Total ...... $— $— $23,538 $23,538 $(12,259)

Predecessor II Fair Value Measurements on a Non-recurring Basis At or for the Year Ended December 26, 2008 Gains ($ in thousands) Level 1 Level 2 Level 3 Total (Losses) Assets: Mortgage servicing rights ...... $— $— $23,307 $23,307 $(1,622) Other real estate owned ...... —— 5,000 5,000 (2,219) Total ...... $— $— $28,307 $28,307 $(3,841)

F-48 Note 21. Segments

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 following tables present the operating results, goodwill and total assets of the Bank’s two reportable segments, as well as any reconciling items to combined totals, for the periods indicated:

Successor At or for the Year Ended December 31, 2009 Commercial Wealth Reconciling Total ($ in thousands) Banking Management Items Combined Net interest income ...... $ 956,868 $ 77 $ — $ 956,945 Provision for credit losses ...... 49,462 — — 49,462 Noninterest income ...... 57,426 59,914 (1,767) 115,573 Noninterest expense ...... 361,878 57,167 (1,767) 417,278 Income before provision for income taxes ...... 602,954 2,824 605,778 Provision for income taxes ...... 253,116 1,200 — 254,316 Net income before noncontrolling interests ...... 349,838 1,624 — 351,462 Less: Net income from noncontrolling interests ...... 4,819 — — 4,819 First Republic Bank Net Income ...... $ 345,019 $ 1,624 $ — $ 346,643 Goodwill ...... $ — $ — $ — $ — Total Assets ...... $19,933,882 $23,466 $(16,798) $19,940,550

Predecessor II At or for the Year Ended December 26, 2008 Commercial Wealth Reconciling Total Banking Management Items Combined ($ in thousands) Net interest income ...... $ 504,597 $ 250 $ — $ 504,847 Provision for credit losses ...... 131,175 — — 131,175 Noninterest income ...... 22,227 69,203 (2,138) 89,292 Noninterest expense ...... 371,481 73,095 (2,138) 442,438 Income (loss) before provision for income taxes ...... 24,168 (3,642) — 20,526 Provision (benefit) for income taxes ...... 7,281 (1,548) — 5,733 Net income (loss) before noncontrolling interests ...... 16,887 (2,094) — 14,793 Less: Net income from noncontrolling interests ...... 4,793 — — 4,793 First Republic Bank Net Income (Loss) ...... $ 12,094 $ (2,094) $ — $ 10,000 Goodwill ...... $ 1,252,865 $ 52,915 $ — $ 1,305,780 Total Assets ...... $19,602,536 $110,882 $(19,507) $19,693,911

F-49 Predecessor II September 22 to December 28, 2007 Commercial Wealth Reconciling Total Banking Management Items Combined ($ in thousands) Net interest income ...... $ 110,154 $ 36 $ — $ 110,190 Provision for credit losses ...... 2,400 — — 2,400 Noninterest income ...... 26,700 18,125 (603) 44,222 Noninterest expense ...... 92,404 16,611 (603) 108,412 Income before provision for income taxes ...... 42,050 1,550 — 43,600 Provision for income taxes ...... 15,497 659 — 16,156 Net income before noncontrolling interests ...... 26,553 891 — 27,444 Less: Net income from noncontrolling interests ...... 1,631 — — 1,631 First Republic Bank Net Income ...... $ 24,922 $ 891 $ — $ 25,813 Goodwill ...... $ 1,252,865 $52,915 $ — $ 1,305,780 Total Assets ...... $15,746,787 $59,375 $(13,869) $15,792,293

Predecessor I January 1 to September 21, 2007 Commercial Wealth Reconciling Total Banking Management Items Combined ($ in thousands) Net interest income ...... $ 243,132 $ 102 $ — $ 243,234 Provision for credit losses ...... 8,067 — — 8,067 Noninterest income ...... 25,101 46,319 (2,761) 68,659 Noninterest expense ...... 257,243 70,188 (2,761) 324,670 Income (loss) before provision for income taxes ...... 2,923 (23,767) — (20,844) Provision (benefit) for income taxes ...... (3,835) (10,101) — (13,936) Net income (loss) before noncontrolling interests ...... 6,758 (13,666) — (6,908) Less: Net income from noncontrolling interests ...... 5,237 — — 5,237 First Republic Bank Net Income (Loss) ...... $ 1,521 $(13,666) $ — $ (12,145) Goodwill ...... $ 111,766 $ 48,799 $ — $ 160,565 Total Assets ...... $13,487,863 $ 18,409 $(11,784) $13,494,488

The commercial banking segment represents most of the operations of the Bank, including real estate secured lending, retail deposit gathering, private banking activities, mortgage sales and servicing, and managing the capital, liquidity and interest rate risk.

The wealth management segment consists of the investment management activities of FRIM, which manages assets for individuals, and institutions in convertible securities, equities, fixed income and balanced accounts. In addition, the wealth management segment also includes First Republic Trust Company, a division of the Bank that offers personal trust services; FRWA, which offers advisory services to high net worth clients; the Bank’s mutual fund activities; the brokerage activities of FRSC; and the Bank’s foreign exchange activities conducted on behalf of customers.

The reconciling items for revenues include intercompany business referral fees. 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.

F-50 Note 22. Subsequent Events

The Bank evaluated the effects of subsequent events that have occurred subsequent to the year ended December 31, 2009, and through September 14, 2010, which is the date our financial statements were available to be issued. Refer to Note 2, “Recent Developments,” for a discussion of the transaction to sell First Republic, which closed after the close of business on June 30, 2010.

F-51 The following interim financial statements as of September 30, 2010 and for the three months ended September 30, 2010, six months ended June 30, 2010 and three and nine months ended September 30, 2009 are unaudited. However, the financial statements reflect all adjustments (which include only normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. FIRST REPUBLIC BANK BALANCE SHEETS (Unaudited) Successor Predecessor III September 30, December 31, ($ in thousands) 2010 2009 ASSETS Cash and cash equivalents ...... $ 2,461,276 $ 178,553 Investment securities available-for-sale ...... 89,028 3,183 Investment securities held-to-maturity ...... 434,840 — Loans ...... 17,720,006 18,632,781 Less: Allowance for loan losses ...... (4,500) (45,003) Loans, net ...... 17,715,506 18,587,778 Loans held for sale ...... 139,330 14,540 Mortgage servicing rights measured at amortized cost ...... 21,677 — Mortgage servicing rights measured at fair value ...... — 24,544 Investments in life insurance ...... 378,448 202,691 Prepaid expenses and other assets ...... 354,243 366,700 Goodwill ...... 24,604 — Other intangible assets ...... 163,370 — Premises, equipment and leasehold improvements, net ...... 98,315 92,240 Deferred tax assets ...... 72,764 448,859 Other real estate owned ...... 667 21,462 Total Assets ...... $21,954,068 $19,940,550 LIABILITIES AND EQUITY Liabilities: Customer deposits: Non-interest bearing accounts ...... $ 2,707,234 $ 2,665,675 NOW checking accounts ...... 2,417,718 2,842,519 Money Market (MM) checking accounts ...... 2,665,983 1,819,869 MM savings and passbooks ...... 5,029,553 3,928,703 Certificates of deposit ...... 6,144,275 5,925,718 Total customer deposits ...... 18,964,763 17,182,484 Federal Home Loan Bank (FHLB) advances ...... 600,000 130,501 Subordinated notes ...... 69,026 65,897 Debt related to variable interest entity ...... 25,528 — Parent company borrowing ...... — 976,090 Other liabilities ...... 274,012 189,671 Total Liabilities ...... 19,933,329 18,544,643 Equity: First Republic Bank stockholders’ equity: ...... Common stock, $0.01 par value per share; 400,000,000 shares authorized; 124,133,334 shares issued and outstanding ...... 1,241 — Additional paid-in capital ...... 1,868,021 — Retained earnings ...... 66,395 — Parent company investment...... — 1,296,248 Accumulated other comprehensive income (loss), net ...... (1,488) 69 Total equity before noncontrolling interests ...... 1,934,169 1,296,317 Noncontrolling interests ...... 86,570 99,590 Total Equity ...... 2,020,739 1,395,907 Total Liabilities and Equity ...... $21,954,068 $19,940,550

See accompanying notes to financial statements.

F-52 FIRST REPUBLIC BANK STATEMENTS OF INCOME (Unaudited)

Successor Predecessor III Three Months Three Months Six Months Nine Months Ended Ended Ended Ended ($ in thousands) Sept. 30, 2010 Sept. 30, 2009 June 30, 2010 Sept. 30, 2009 Interest income: Interest on real estate and other loans ...... $260,176 $301,941 $503,819 $909,236 Interest on investments ...... 1,939 158 157 509 Interest on cash equivalents ...... 1,713 24 32 74 Interest on loan to Parent company ...... —— 4,830 — Total interest income ...... 263,828 302,123 508,838 909,819 Interest expense: Interest on customer deposits ...... 23,386 53,441 90,339 175,744 Interest on FHLB advances and other borrowings ...... 3,613 1,351 222 5,913 Interest on subordinated notes ...... 589 1,038 2,082 3,147 Interest on funding from Parent company ...... — 4,698 2,956 21,862 Total interest expense ...... 27,588 60,528 95,599 206,666 Net interest income ...... 236,240 241,595 413,239 703,153 Provision for credit losses ...... 4,500 30,081 17,352 38,838 Net interest income after provision for credit losses ...... 231,740 211,514 395,887 664,315 Noninterest income: Investment advisory fees ...... 8,339 6,788 16,442 20,297 Brokerage and investment fees ...... 2,149 2,913 4,681 11,845 Trust fees ...... 1,249 1,221 2,226 4,009 Deposit customer fees ...... 3,671 3,191 7,236 9,109 Loan servicing fees, net ...... (863) 1,048 2,749 (1,105) Loan and related fees ...... 715 1,044 1,831 3,213 Gain on sale of loans ...... 1,033 1,415 1,290 4,030 Income from investments in life insurance ...... 838 2,150 1,388 6,854 Accretion of discount on unfunded commitments ...... — 7,083 8,220 21,283 Other income ...... 1,897 1,960 3,395 5,124 Total noninterest income ...... 19,028 28,813 49,458 84,659 Noninterest expense: Salaries and related benefits ...... 59,016 53,113 112,196 154,671 Occupancy ...... 15,186 11,008 29,404 40,498 Information systems ...... 9,147 8,645 19,124 26,725 Advertising and marketing ...... 5,872 3,172 6,610 12,615 Professional fees ...... 5,774 1,505 5,673 5,538 FDIC and other deposit assessments ...... 8,205 9,391 19,159 33,601 Amortization of intangibles ...... 6,230 — — — Divestiture-related expenses ...... 13,768 — — — Other expenses ...... 13,005 12,187 24,798 39,414 Total noninterest expense ...... 136,203 99,021 216,964 313,062 Income before provision for income taxes ...... 114,565 141,306 228,381 435,912 Provision for income taxes ...... 46,972 59,390 97,138 183,119 Net income before noncontrolling interests ...... 67,593 81,916 131,243 252,793 Less: Net income from noncontrolling interests ...... 1,198 1,198 2,396 3,621 First Republic Bank Net Income ...... $ 66,395 $ 80,718 $128,847 $249,172 Basic earnings per common share ...... $ 0.53 n/a n/a n/a Diluted earnings per common share ...... $ 0.53 n/a n/a n/a

See accompanying notes to financial statements.

F-53 FIRST REPUBLIC BANK STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE INCOME (Unaudited)

Accumulated Total Equity Additional Parent Other Before Common Paid- in Retained Company Comprehensive Noncontrolling Noncontrolling Total ($ in thousands) Stock Capital Earnings Investment Income (Loss) Interest Interests Equity Predecessor II Balance at December 26, 2008 ..... $ — $ — $ — $ 2,685,788 $ — $ 2,685,788 $ 99,590 $ 2,785,378 Predecessor III Purchase Accounting Adjustments . . . — — — (1,531,651) — (1,531,651) — (1,531,651) Capitalization after purchase accounting adjustments ...... — — — 1,154,137 — 1,154,137 99,590 1,253,727 Capital distributions ...... ——— (158,899) — (158,899) — (158,899) Capital contributions associated with income taxes ...... ——— 19,457 — 19,457 — 19,457 Comprehensive income: Net income ...... ——— 249,172 — 249,172 3,621 252,793 Other comprehensive income, net of tax: ...... ———————— Net unrealized gain on securities available-for-sale (net of taxes of $53) ...... — — — — 80 80 — 80 Total comprehensive income . . . 249,252 3,621 252,873 Dividends to noncontrolling interests ...... —————— (3,621) (3,621) Balance at September 30, 2009 .... $ — $ — $ — $ 1,263,867 $ 80 $ 1,263,947 $ 99,590 $ 1,363,537 Balance at December 31, 2009 ..... $ — $ — $ — $ 1,296,248 $ 69 $ 1,296,317 $ 99,590 $ 1,395,907 Capital distributions ...... ——— (163,046) — (163,046) — (163,046) Change in capital allocation for net assets retained by Parent company ...... ——— (53,736) — (53,736) — (53,736) Capital contributions associated with income taxes ...... ——— 57,917 — 57,917 — 57,917 Comprehensive income: Net income ...... ——— 128,847 — 128,847 2,396 131,243 Other comprehensive income, net of tax: ...... ———————— Net unrealized gain on securities available-for-sale (net of taxes of $86) ...... — — — — 110 110 — 110 Total comprehensive income . . . 128,957 2,396 131,353 Dividends to noncontrolling interests ...... —————— (2,396) (2,396) Balance at June 30, 2010 ...... — — — 1,266,230 179 1,266,409 99,590 1,365,999 Successor Purchase Accounting Adjustments . . . — — — (1,266,230) (179) (1,266,409) (13,020) (1,279,429) Issuance of common stock ...... 1,241 1,859,921 — — — 1,861,162 — 1,861,162 Stock option compensation expense ...... — 8,100 — — — 8,100 — 8,100 Comprehensive income: Net income ...... —— 66,395 — — 66,395 1,198 67,593 Other comprehensive income, net of tax: ...... ———————— Net unrealized gain on securities available-for-sale (net of taxes of $11) ...... — — — — 15 15 — 15 Net unrealized losses on cash flow hedges (net of taxes of $1,111) ...... ———— (1,503) (1,503) — (1,503) Total comprehensive income . . . 64,907 1,198 66,105 Dividends to noncontrolling interests ...... —————— (1,198) (1,198) Balance at September 30, 2010 .... $1,241 $1,868,021 $66,395 $ — $(1,488) $ 1,934,169 $ 86,570 $ 2,020,739

See accompanying notes to financial statements.

F-54 FIRST REPUBLIC BANK STATEMENTS OF CASH FLOWS (Unaudited)

Successor Predecessor III Three Months Six Months Nine Months Ended Ended Ended ($ in thousands) Sept. 30, 2010 June 30, 2010 Sept. 30, 2009 Operating Activities: Net income before noncontrolling interests ...... $ 67,593 $ 131,243 $ 252,793 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses ...... 4,500 17,352 38,838 Accretion of loan discounts ...... (36,000) (37,695) (196,125) Depreciation and amortization ...... (10,049) 1,580 (36,892) Amortization of net loan fees ...... (50) (2,821) (1,900) Amortization of mortgage servicing rights ...... 2,050 — — Provision for mortgage servicing rights in excess of fair value, net ...... 1,288 — — Changes in fair value of mortgage servicing rights ...... — 2,327 9,270 Net change in loans held for sale ...... (112,290) (13,547) (12,151) Provision (reversal of provision) for deferred taxes ...... (8,141) 48,915 97,115 Net gains on sale of loans ...... (1,033) (1,290) (4,030) Net losses (gains) on real estate owned ...... (6) 583 2,000 Loss on sale of premises, equipment and leasehold improvements, net ...... 13 — 142 Noncash cost of stock plans ...... 8,100 — — (Increase) decrease in other assets ...... (5,408) 47,773 (83,709) Increase (decrease) in other liabilities ...... 60,439 (21,722) (32,669) Net Cash (Used for) Provided by Operating Activities ...... (28,994) 172,698 32,682 Investing Activities: Loan originations, net of principal collections ...... (464,730) (715,368) (1,470,083) Loans purchased ...... (3,591) (1,661) (2,280) Loans sold ...... 46,910 16,800 41,832 Decrease in Parent company lending ...... — 669,034 — Purchases of securities available-for-sale ...... (192,243) — (4,673) Proceeds from sales/calls/maturity of securities available-for-sale ...... 103,250 55 1,892 Purchases of securities held-to-maturity ...... (431,416) (1,017) — Proceeds from sales/calls/maturity of securities held-to-maturity ...... 56 11 — Purchases of FHLB stock ...... (3,200) — — Proceeds from redemptions of FHLB stock ...... — 2,209 — Purchases of investments in life insurance ...... (375,000) — — Proceeds from investments in life insurance ...... — 1,404 1,789 Purchases of nonmarketable equity investments ...... (12,963) — — Additions to premises, equipment and leasehold improvements, net ...... (6,478) (13,864) (11,059) Proceeds from sales of premises, equipment and leasehold improvements ...... — 380 — Proceeds from sales of other real estate owned ...... 936 4,152 — Net Cash Used for Investing Activities ...... (1,338,469) (37,865) (1,442,582) Financing Activities: Net increase in deposits ...... 1,070,838 598,666 3,906,492 Proceeds from issuance of FHLB advances ...... 600,000 — — Repayment of FHLB advances ...... (130,823) — (753,500) Decrease in Parent company borrowing ...... — (368,611) (1,592,671) Decrease in debt related to variable interest entity ...... (7,156) — — Issuance of common stock ...... 1,861,162 — — Capital distributions ...... — (105,129) (139,442) Dividends to noncontrolling interests ...... (1,198) (2,396) (3,621) Net Cash Provided by Financing Activities ...... 3,392,823 122,530 1,417,258 Increase in Cash and Cash Equivalents ...... 2,025,360 257,363 7,358 Cash and Cash Equivalents at the Beginning of Period ...... 435,916 178,553 169,572 Cash and Cash Equivalents at the End of Period ...... $ 2,461,276 $ 435,916 $ 176,930 Supplemental Disclosure of Cash Flow Items Cash paid during period: Interest ...... $ 50,629 $ 96,810 $ 257,827 Income taxes ...... $ — $ — $ 69,986 Transfer of loans to held for sale ...... $ 46,910 $ 13,346 $ 8,695 Transfers of repossessed assets from loans to other assets ...... $ 730 $ 24,004 $ 5,895

See accompanying notes to financial statements.

F-55 FIRST REPUBLIC BANK NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2010

Note 1. Summary of Significant Accounting Policies

Basis of Presentation and Organization

First Republic Bank (the “Bank” or “First Republic”) operated for over ten years as an FDIC-insured, non-member bank chartered by the State of Nevada (and prior to that as two predecessor depository institutions chartered by the State of California and the State of Nevada, respectively, operating under a single, publicly traded, non-bank holding company which was subsequently merged into its bank subsidiary). On September 21, 2007, First Republic Bank was acquired by Merrill Lynch & Co. (“Merrill Lynch”) and merged into one of Merrill Lynch’s banking subsidiaries, Merrill Lynch Bank & Trust Company, F.S.B. (“MLFSB”). Under the terms of the acquisition, First Republic Bank operated as a separate division within MLFSB and continued to be managed by First Republic Bank’s existing management team. As a division of MLFSB, First Republic Bank maintained its own marketing identity and branch network, with loans, deposits, and other bank products offered to customers under the First Republic Bank brand. On January 1, 2009, Bank of America Corporation (“Bank of America”), the holding company of Bank of America, N.A. (“BANA”), purchased Merrill Lynch and thereby acquired MLFSB. On November 2, 2009, MLFSB was merged into BANA, and First Republic Bank thereby became a division of BANA. MLFSB and BANA are referred to as the “Parent” in the financial statements. As used herein “First Republic” or the “Bank” means, as the context requires:

• First Republic Bank, a Nevada-chartered commercial bank in existence from 1985 until acquired in September 2007 by MLFSB, a banking subsidiary of Merrill Lynch;

• the First Republic Bank division within MLFSB following the September 2007 acquisition;

• the First Republic Bank division within BANA following MLFSB’s merger into BANA, effective as of November 2009 and;

• as described in Note 2, “Business Combinations,” First Republic Bank, a California-chartered commercial bank that acquired the First Republic Bank division of BANA effective upon the close of business on June 30, 2010.

On October 21, 2009, Bank of America announced that it had entered into a definitive agreement to sell substantially all of First Republic’s assets and liabilities (the “Transaction”) to a number of investors, led by First Republic’s existing management, and including investment funds managed by Colony Capital, LLC and General Atlantic, LLC. The Transaction was completed after the close of business on June 30, 2010 and the Bank opened as a California chartered, FDIC-insured commercial bank and trust company on July 1, 2010. See Note 2 for further information on the acquisition.

As a result of the acquisitions discussed above, the accompanying financial statements are presented to show the financial results of the Bank for the period after the Transaction (Successor) (as of and for the quarter ended September 30, 2010), the period after the Bank of America acquisition (Predecessor III) and the period after the Merrill Lynch acquisition and before the Bank of America acquisition (Predecessor II). These periods relate to the accounting periods preceding and succeeding the push-down of Bank of America and Merrill Lynch’s basis, respectively. The period prior to the Merrill Lynch acquisition is Predecessor I. The Predecessor and Successor periods have been separated by vertical lines on the face of the financial statements to highlight the fact that the financial information has been prepared under different historical cost bases of accounting. The accounting policies followed by the Bank in the preparation of its financial statements for the Successor period

F-56 are materially consistent with those of the Predecessor III period, except for the accounting for mortgage servicing rights (“MSRs”). (See Note 5 for further information on mortgage servicing rights). As a result of the Bank of America acquisition, the Bank changed its fiscal year from the last Friday in December to the last calendar day of the year; the Bank’s activities after its 2008 fiscal year end through December 31, 2008 are included in the Statement of Income for the nine-month period ended September 30, 2009. This change caused five additional days of activity to be recorded in 2009, resulting in approximately $4.6 million of additional net income in 2009.

First Republic’s consolidated financial statements as of and for the three months ended September 30, 2010 includes the accounts of First Republic Bank and the majority or wholly owned subsidiaries First Republic Investment Management, Inc. (“FRIM”), First Republic Wealth Advisors (“FRWA”), First Republic Securities Company (“FRSC”), First Republic Preferred Capital Corporation (“FRPCC”), and First Republic Preferred Capital Corporation II (“FRPCC II”). FRWA was merged into FRIM on September 30, 2010. All significant intercompany balances and transactions have been eliminated.

First Republic’s combined financial statements as of December 31, 2009, for the six months ended June 30, 2010 and the three and nine months ended September 30, 2009 include the carve-out accounts of the First Republic Bank division of MLFSB and BANA and the majority or wholly owned subsidiaries FRIM, FRWA, FRSC, FRPCC, and FRPCC II, in each case using the historical basis of accounting for the results of operations, assets and liabilities of the respective businesses and also include the purchase accounting impact for the Bank of America acquisition. The purpose of the carve-out financial statements is to present fairly the results of operations, financial condition and cash flows of the First Republic Bank division of MLFSB and BANA separately from the results of operations, financial condition and cash flows of MLFSB and BANA as a legal entity for the periods prior to July 1, 2010. The financial statements for the periods prior to July 1, 2010 may not necessarily reflect the results of operations, financial condition and cash flows that the Bank would have achieved had the Bank actually existed on a stand-alone basis during the periods presented. All significant intercompany balances and transactions among the division and entities included in our consolidated financial statements have been eliminated.

FRPCC and FRPCC II have outstanding preferred stock, which is reported as noncontrolling interests in First Republic’s balance sheet and is eligible for treatment as Tier 1 capital under regulatory guidelines. The dividends on these preferred stock issues are reported as net income from noncontrolling interests in First Republic’s statement of income, which is deducted from First Republic’s consolidated net income. The preferred stock dividends paid by FRPCC and FRPCC II are deductible for income tax purposes as long as each of FRPCC and FRPCC II, respectively continues to qualify as a real estate investment trust (a “REIT”).

These interim financial statements should be read in conjunction with First Republic’s 2009 combined Financial Statements and Notes thereto. Certain reclassifications have been made to the 2009 financial statements in order for them to conform to the 2010 presentation. Results for the three months ended September 30, 2010 and six months ended June 30, 2010 should not be considered indicative of results to be expected for the full year.

Nature of Operations

The Bank and its subsidiaries specialize in providing personalized, relationship-based services, including private banking, private business banking, real estate lending and wealth management services, including trust services. The Bank provides its services through preferred banking, lending and wealth management offices in eight major metropolitan areas: San Francisco, Los Angeles, Santa Barbara, Newport Beach, San Diego, New York City, Boston and Portland (Oregon).

First Republic originates real estate secured loans and other loans for retention in its loan portfolio. Real estate secured loans are secured by single family residences, multifamily buildings and commercial real estate

F-57 properties and loans to construct such properties. Most of the real estate loans that First Republic originates are secured by properties located close to one of its offices in the San Francisco Bay area, the Los Angeles area, San Diego, Boston or the New York City area. 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.

First Republic offers its clients various wealth management services. First Republic provides investment advisory services through FRIM and FRWA. FRIM earns fee income from the management of equity and fixed income investments for its clients. FRWA earns fee income from providing advisory services to high net worth clients. First Republic Trust Company, a division of First Republic, provides trust services. FRWA was merged into FRIM on September 30, 2010. FRSC is a registered broker-dealer performing short-term investment and brokerage activities for clients. The Bank also conducts foreign exchange activities on behalf of customers.

Supplemental Cash Flow Information

Pursuant to the terms of the Transaction, the following assets and liabilities were transferred to BANA resulting in a reduction to the assets, liabilities and Parent company investment as follows during the six months ended June 30, 2010. The net change in Parent company lending of $1.6 billion during the six months ended June 30, 2010 shown in the table below is primarily related to the Bank’s equity allocation process described in the annual financial statements.

($ in thousands) Assets: Parent company lending ...... $(1,626,981) Loans, net ...... 1,962,301 Investments in life insurance ...... 201,678 FHLB Stock ...... 32,211 Other real estate owned ...... 40,146 Other assets ...... 54,967 Total ...... $ 664,322 Liabilities and Equity: Parent company borrowing ...... $ 607,479 Other liabilities ...... 3,107 Parent company investment ...... 53,736 Total ...... $ 664,322

Earnings Per Share

The Bank computes earnings per share by dividing net income by the average number of common shares outstanding during the year. The Bank computes diluted earnings per common share by dividing net income by the average number of common shares outstanding during the year, plus the effect of common stock equivalents (stock options) that are dilutive.

F-58 The following table presents a reconciliation of the income and share amounts used in the basic and diluted earnings per share computations for the three months ended September 30, 2010.

Three Months Ended September 30, (in thousands, except per share amounts) 2010 Basic EPS: Net income available to common stockholders ...... $ 66,395 Shares issued and outstanding ...... 124,133 Net income per share—basic ...... $ 0.53 Diluted EPS: Net income available to common stockholders ...... $ 66,395 Weighted average shares: Common shares outstanding ...... 124,133 Dilutive stock options under the treasury stock method ...... 1,725 Adjusted weighted average common shares outstanding ...... 125,858 Net income per share—diluted ...... $ 0.53

Mortgage Servicing Rights

The Bank retains the mortgage servicing rights on substantially all loans sold. The Bank has one class of servicing rights: for loans sold that are secured by real estate. MSRs and other retained interests in loans sold are initially measured at fair value at the date of transfer.

MSRs are reported at the lower of amortized cost or fair value effective July 1, 2010. MSRs are amortized in proportion to and over the period of estimated net servicing income. To calculate the initial fair value of MSRs and, subsequently, to measure impairment, the Bank stratifies MSRs based on one or more of the predominant risk characteristics of the underlying loans. The Bank evaluates impairment of MSRs for a stratum periodically based on their current fair value, actual prepayment experience and other market factors. 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. The Bank evaluates at least quarterly the recoverability of the valuation allowance on MSRs. If the Bank determines that a portion of the valuation allowance is unrecoverable, primarily due to loan prepayments, the Bank records a direct write-down by reducing both the amortized cost of MSRs for a stratum and the related valuation allowance.

For 2009 and the six months ended June 30, 2010, as a result of the Bank of America acquisition, the Bank elected to report MSRs at fair value with changes in fair value recognized in the income statement.

Accounting Standards Adopted in 2010

• On January 1, 2010, the Bank adopted Accounting Standards Codification (“ASC”) 860, “Transfers and Servicing.” ASC 860 represents a revision to former Financial Accounting Standards Board (“FASB”) Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” ASC 860 expands required disclosures about transfers of financial assets and a transferor’s continuing involvement with transferred assets. It also removes the concept of “qualifying special-purpose entity” from U.S. generally accepted accounting principles (“GAAP”). Adoption of the new guidance did not have a material effect on the Bank’s financial condition, results of operations or cash flows.

F-59 • On January 1, 2010, the Bank adopted ASC 810-10, “Consolidations-Overall,” which codified FASB Statement No. 167, “Amendments to FASB Interpretation No. 46(R)” and updated former FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities.” The revised guidance requires, among other things, that an entity perform both a quantitative and qualitative analysis to determine if it is the primary beneficiary of a variable interest entity (“VIE”) and therefore required to consolidate the VIE. The qualitative analysis includes determining whether an entity has the power to direct the most significant activities of the VIE. The amended guidance also requires consideration of related party relationships in the determination of the primary beneficiary of a VIE and enhanced disclosures about an enterprise’s involvement with a VIE. The adoption of ASC 810-10 did not have an impact on the Bank’s financial position, results of operations or cash flows on the date this guidance became effective.

The Bank’s involvement with VIEs is limited to its mortgage servicing activities and interests purchased in securitizations. The Bank sells loans on a non-recourse basis and in most cases, retains the mortgage servicing rights. For nearly all of the Bank’s servicing activities, the only interest in the VIE is the mortgage servicing rights associated with performing our required servicing functions. The servicing fee is not considered a variable interest.

The Bank has variable interests in several VIEs related to First Republic real estate mortgage investment conduits (“REMICs”) that were formed in 2000 through 2002. The Bank has purchased various tranches of these securitizations. During 2010, the Bank purchased securities in one of the REMICs and, as a result, became the primary beneficiary of that securitization, which resulted in consolidation of the REMIC. The Bank also holds significant variable interests in two other REMICs sponsored by the Bank.

The following table summarizes the assets and liabilities recorded on the Bank’s balance sheet associated with transactions with VIEs as of September 30, 2010:

VIEs that we do not VIEs that we ($ in thousands) consolidate consolidate Total Investment securities held-to-maturity ...... $ 3,712 $ — $ 3,712 Loans ...... — 32,303 32,303 Mortgage servicing rights ...... 21,677 — 21,677 Total Assets ...... 25,389 32,303 57,692 Liabilities—Debt ...... — 25,528 25,528 Net assets ...... $25,389 $ 6,775 $32,164

The Bank’s exposure to loss with respect to the consolidated VIE is limited to the investment in the securities purchased of approximately $6.8 million. The debt holders of the REMICs have no recourse to the Bank.

• In February 2010, the FASB issued amendments to ASC 855, “Subsequent Events,” to remove the requirement for Securities and Exchange Commission (“SEC”) filers to disclose the date through which an entity evaluated subsequent events. Previously, in May 2009, the FASB issued ASC 855, which provided general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption of the amendments to ASC 855, which became effective upon issuance in February 2010, did not impact the Bank’s financial condition, results of operations or cash flows.

• In January 2010, the FASB issued ASC 820-10, “Fair Value Measurements and Disclosures- Overall.” ASC 820-10 requires additional disclosures about transfers into and out of Level 1 and 2

F-60 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation, including the requirement to provide fair value measurement disclosures for each class of assets and liabilities, and about inputs and valuation techniques used to measure fair value. ASC 820-10 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. The Level 3 disclosures are effective for fiscal years beginning after December 15, 2010. The Bank adopted the Level 1 and Level 2 disclosures regarding transfers, which did not have an impact on the Bank’s financial condition, results of operations or cash flows. Adoption of the Level 3 disclosures is not expected to have a significant impact on the Bank’s financial condition, results of operations or cash flows.

• In April 2010, the FASB issued amendments to ASC 310-30, “Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality” and ASC 310-40, “Troubled Debt Restructurings by Creditors.” Under the amendments, a modification of a loan that is part of a pool accounted for under ASC 310-30 should not result in removal of the loan from the pool. In addition, a modification of a loan that is accounted for within a pool under ASC 310-30 is not considered a troubled debt restructuring. ASC 310-30 is effective for any modifications of a loan accounted for within a pool in the first interim or annual reporting period ending after July 15, 2010, and will be applied prospectively. The adoption of the amendments to ASC 310-30 and ASC 310-40 did not have a significant impact on the Bank’s financial condition, results of operations or cash flows.

Recent Accounting Pronouncement

The following pronouncement has been issued by the FASB, but is not yet effective:

• In July 2010, the FASB issued amendments to ASC 310-10, “Receivables-Overall.” The amendments significantly increase disclosures about the credit quality of loans and the allowance for credit losses to give financial statement users greater transparency about entities’ credit risk exposures. The amendments require an entity to disaggregate existing and provide new disclosures for the allowance for credit losses, impaired loans and troubled debt restructurings. For public entities, the disclosures required as of the balance sheet date are effective for interim or annual reporting periods ending on or after December 15, 2010, and the disclosures required for activity during the period are effective for interim or annual reporting periods beginning on or after December 15, 2010. For nonpublic entities, all disclosures are effective for annual reporting periods ending on or after December 15, 2011. The Bank is evaluating the impact of adoption of the new guidance on its disclosures in the financial statements.

F-61 Note 2. Business Combinations

The Bank acquired the assets and assumed liabilities of First Republic Bank, which was operating as a division of BANA. The Bank also acquired the common stock of FRIM, FRWA, FRSC, FRPCC and FRPCC II as part of the acquisition.

The purchase price was allocated to the acquired assets and liabilities based on their estimated fair values at July 1, 2010 as summarized in the following table.

Purchase Carrying Value Accounting Fair Value at ($ in thousands) at July 1, 2010 Adjustments July 1, 2010 Assets: Cash and cash equivalents ...... $ 435,916 $ — $ 435,916 Investment securities ...... 3,588 (26) 3,562 Loans, net ...... 17,427,857 (163,741) 17,264,116 Loans held for sale ...... 27,732 — 27,732 Mortgage servicing rights ...... 13,100 10,271 23,371 Goodwill ...... — 24,604 24,604 Other intangible assets ...... — 169,600 169,600 Deferred tax assets ...... — 63,734 63,734 Other assets ...... 384,195 30 384,225 Total ...... $18,292,388 $ 104,472 $18,396,860 Liabilities and Equity: Customer deposits ...... $17,778,797 $ 137,229 $17,916,026 Federal Home Loan Bank advances ...... 130,416 407 130,823 Subordinated notes ...... 65,508 4,164 69,672 Other liabilities ...... 218,077 (24,308) 193,769 Noncontrolling interests ...... 99,590 (13,020) 86,570 Total ...... $18,292,388 $ 104,472 $18,396,860

The following summarizes the purchase price and goodwill resulting from the acquisition.

($ in thousands) Fair value of assets acquired ...... $18,372,256 Fair value of liabilities assumed ...... 18,310,290 Net assets acquired ...... $ 61,966 Purchase price—fair value of noncontrolling interests ...... $ 86,570 Goodwill resulting from the acquisition ...... $ 24,604

As part of the acquisition, the Bank incurred divestiture-related costs associated with the transition to a stand-alone bank while we were a division of BANA. As part of the Transaction, the investors agreed to reimburse BANA for these costs incurred prior to June 30, 2010. The total amount of divestiture-related costs that are included in the carrying value of assets acquired that were not capitalized after July 1, 2010 was $8.8 million. The total costs related to the divestiture of $13.8 million were recognized in the Bank’s income statement during the quarter ended September 30, 2010.

F-62 Note 3. Investment Securities

The following table presents information related to available-for-sale and held-to-maturity securities at September 30, 2010:

Successor September 30, 2010 Gross Gross Unrealized Unrealized ($ in thousands) Amortized Cost Gains Losses Fair Value Available-for-sale: U.S. Treasury and federal agencies ...... $ 89,002 $ 30 $ (4) $ 89,028 Held-to-maturity: U.S. States and political subdivisions ...... $431,128 $6,121 $(587) $436,662 Other residential mortgage-backed securities (“MBS”) ...... 3,712 36 (21) 3,727 Total ...... $434,840 $6,157 $(608) $440,389

At September 30, 2010, approximately $89.0 million of investment securities were pledged at the Federal Reserve Bank of San Francisco or a correspondent bank as collateral to secure trust funds and public deposits.

The following table presents information related to available-for-sale securities at December 31, 2009:

Predecessor III December 31, 2009 Gross Gross Unrealized Unrealized ($ in thousands) Amortized Cost Gains Losses Fair Value Other residential MBS ...... $3,069 $114 $— $3,183

No securities were sold during the first nine months of 2010 or 2009.

The following table presents gross unrealized losses and fair value of available-for-sale and held-to-maturity securities at September 30, 2010:

Successor September 30, 2010 Less than 12 months 12 months or more Total Gross Gross Gross Unrealized Unrealized Unrealized ($ in thousands) Losses Fair Value Losses Fair Value Losses Fair Value Available-for-sale: U.S. Treasury and federal agencies ...... $ (4) $44,993 $— $— $ (4) $44,993 Total ...... $ (4) $44,993 $— $— $ (4) $44,993 Held-to-maturity: U.S. States and political subdivisions ..... $(587) $71,951 $— $— $(587) $71,951 Other residential MBS ...... (21) 3,269 — — (21) 3,269 Total ...... $(608) $75,220 $— $— $(608) $75,220

F-63 The following table presents contractual maturities of available-for-sale securities and held-to-maturity securities at September 30, 2010 and available-for-sale securities at December 31, 2009:

Successor Predecessor III September 30, 2010 December 31, 2009 Estimated Fair Estimated Fair ($ in thousands) Amortized Cost Value Amortized Cost Value Available-for-sale: Due in one year or less ...... $ 29,998 $ 29,997 $ — $ — Due after one year through five years ..... 59,004 59,031 — — Due after five years through ten years ....———— Due after ten years ...... ———— Subtotal ...... 89,002 89,028 — — Other residential MBS ...... —— 3,069 3,183 Total ...... $ 89,002 $ 89,028 $3,069 $3,183 Held-to-maturity: Due in one year or less ...... $ — $ — $— $— Due after one year through five years .....———— Due after five years through ten years ....———— Due after ten years ...... 431,128 436,662 — — Subtotal ...... 431,128 436,662 — — Other residential MBS ...... 3,712 3,727 — — Total ...... $434,840 $440,389 $ — $ —

Note 4. Loans

Loan Profile

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 September 30, 2010, approximately 67% of the total loan portfolio was secured by California real estate, compared to 65% at December 31, 2009. At September 30, 2010, 94% of single family and home equity lines of credit contain an interest-only payment feature, compared to 95% at December 31, 2009. These loans generally have an initial interest-only term of ten years.

F-64 The following tables present the major categories of loans outstanding, including those subject to ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” The loans are presented with the contractual balance, any purchase accounting adjustments and net deferred fees and costs: Successor September 30, 2010 Net Unaccreted Net Deferred Fees ($ in thousands) Principal Discount and Costs Total Types of Loans: Single family (1-4 units) ...... $11,195,085 $(333,103) $2,040 $10,864,022 Home equity credit lines ...... 1,743,803 (30,503) 564 1,713,864 Commercial real estate ...... 2,147,625 (186,629) (470) 1,960,526 Multifamily (5+ units) mtgs ...... 1,858,842 (84,278) (329) 1,774,235 Multifamily/commercial construction ...... 126,079 (7,357) (114) 118,608 Single family construction ...... 167,322 (7,042) (252) 160,028 Total real estate mortgages ...... 17,238,756 (648,912) 1,439 16,591,283 Commercial business loans ...... 882,715 (58,232) 240 824,723 Other secured ...... 166,344 (11,354) (47) 154,943 Unsecured loans and lines of credit ...... 126,069 (7,990) (21) 118,058 Stock secured ...... 31,039 (73) 33 30,999 Total other loans ...... 1,206,167 (77,649) 205 1,128,723 Total loans ...... $18,444,923 $(726,561) $1,644 17,720,006 Less: Allowance for loan losses ...... (4,500) Loans, net ...... 17,715,506 Real estate loans held for sale ...... 139,330 Total ...... $17,854,836

Predecessor III December 31, 2009 Net Unaccreted Net Deferred Fees ($ in thousands) Principal Discount and Costs Total Types of Loans: Single family (1-4 units) ...... $10,487,061 $(363,921) $ 2,660 $10,125,800 Home equity credit lines ...... 1,830,043 (121,773) 1,506 1,709,776 Commercial real estate ...... 2,969,713 (141,288) (1,592) 2,826,833 Multifamily (5+ units) mtgs ...... 2,128,942 (69,366) (2,004) 2,057,572 Multifamily/commercial construction ...... 262,420 (15,646) (162) 246,612 Single family construction ...... 241,858 (898) (36) 240,924 Total real estate mortgages ...... 17,920,037 (712,892) 372 17,207,517 Commercial business loans ...... 1,086,735 (71,531) (2,364) 1,012,840 Other secured ...... 202,771 (13,012) — 189,759 Unsecured loans and lines of credit ...... 173,438 (17,200) 17 156,255 Stock secured ...... 69,217 (2,807) — 66,410 Total other loans ...... 1,532,161 (104,550) (2,347) 1,425,264 Total loans ...... $19,452,198 $(817,442) $(1,975) 18,632,781 Less: Allowance for loan losses ...... (45,003) Loans, net ...... 18,587,778 Real estate loans held for sale ...... 14,540 Total ...... $18,602,318

F-65 The Bank had pledged $12.5 billion and $3.3 billion of loans to secure borrowings from the Federal Home Loan Bank of San Francisco (the “FHLB”) as of September 30, 2010 and December 31, 2009, respectively.

Loans Accounted for Under ASC 310-30

As a result of the Transaction, the Bank identified loans at July 1, 2010 that were within the scope of ASC 310-30. The following table presents the details on credit impaired loans as of July 1, 2010:

Successor ($ in thousands) At July 1, 2010 Contractually required payments, including interest ...... $279,360 Nonaccretable difference ...... (29,540) Cash flows expected to be collected ...... $249,820 Accretable yield ...... (30,374) Fair value of loans acquired ...... $219,446

At July 1, 2010 and September 30, 2010, loans within the scope of ASC 310-30 had an unpaid principal balance of $251.4 million and $250.3 million, respectively, and a carrying value of $219.4 million and $219.7 million, respectively. At December 31, 2009, loans within the scope of ASC 310-30 had an unpaid principal balance of $414.2 million and a carrying value of $374.8 million.

The Bank recorded reductions to the nonaccretable difference of $1.1 million and $2.5 million for the three months ended September 30, 2010 and 2009, respectively, $508,000 for the six months ended June 30, 2010 and $46.9 million for the nine months ended September 30, 2009. These reductions were primarily the result of loan resolutions and write-downs.

The change in accretable yield and allowance for loan losses related to credit impaired loans is presented in the following tables:

Successor Predecessor III Three Months Three Months Six Months Nine Months Ended Sept. 30, Ended Sept. 30, Ended Ended ($ in thousands) 2010 2009 June 30, 2010 Sept. 30, 2009 Accretable yield: Balance at beginning of period ...... $ 71,104 $ 71,491 $ 99,317 $ 82,403 Purchase accounting adjustment (1) ..... (71,104) — — — Transfer to BANA ...... —— (25,463) — Balance at July 1, 2010 ...... 30,374 — — — Accretion ...... (3,593) (4,881) (7,809) (15,793) Increase in expected cash flows ...... — 33,754 5,059 33,754 Disposals ...... — (14) — (14) Balance at end of period ...... $ 26,781 $100,350 $ 71,104 $100,350

Three Months Three Months Six Months Nine Months Ended Sept. 30, Ended Sept. 30, Ended June 30, Ended Sept. 30, ($ in thousands) 2010 2009 2010 2009 Allowance: Balance at beginning of period ...... $ — $ 3,347 $ 6,714 $ — Provision ...... — 1,922 1,750 5,269 Chargeoffs ...... —— (4,041) — Transfer to BANA ...... — (4,423) — Balance at end of period ...... $ — $ 5,269 $ — $ 5,269

(1) On July 1, 2010, the accretable yield related to the Predecessor III acquisition was eliminated due to new purchase accounting adjustments for the Successor acquisition.

F-66 At September 30, 2010 and December 31, 2009, loans over 90 days past due and accruing were $5.1 million and $11.3 million, respectively.

Nonaccrual loans are presented in the following table for the periods indicated:

Successor Predecessor III September 30, December 31, September 30, ($ in thousands) 2010 2009 2009 Nonaccrual loans at period end ...... $ 15,465 $ 249,148 $ 225,444 Total loans at period end ...... $17,720,006 $18,632,781 $18,221,374 Nonperforming loans to total loans ...... 0.09% 1.34% 1.24%

The interest income related to nonaccrual loans is presented in the following table for the periods indicated:

Successor Predecessor III Three Months Three Months Six Months Nine Months Ended Ended Ended Ended ($ in thousands) Sept. 30, 2010 Sept. 30, 2009 June 30, 2010 Sept. 30, 2009 Actual interest income recognized ...... $— $ — $— $ — Interest income under original terms ...... $323 $3,277 $466 $10,204

The Bank restructures loans generally because of the borrower’s financial difficulties, by granting concessions to reduce the interest rate, to waive or defer payments or, in some cases, to reduce the principal balance of the loan. Loans that are partially charged off and loans that have been modified in troubled debt restructurings are 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 or restructured performing status. As of September 30, 2010 and December 31, 2009, troubled debt restructurings were $8.9 million and $109.5 million, respectively.

In April 2010, as part of the agreement to sell First Republic, loans with an unpaid principal balance of $2.1 billion and a carrying value of $2.0 billion were transferred to BANA’s servicing system as BANA is retaining ownership of these loans. These loans included impaired loans under ASC 310-30 with an unpaid principal balance of $100.0 million and a carrying value of $88.2 million.

F-67 The following table presents an analysis of the changes in the allowance for loan losses for the periods indicated:

Successor Predecessor III Three Months Three Months Six Months Nine Months Ended Ended Ended Ended ($ in thousands) Sept. 30, 2010 Sept. 30, 2009 June 30, 2010 Sept. 30, 2009 Allowance for loan losses: Balance at beginning of period ...... $ 13,795 $ 8,854 $ 45,003 $ 176,679 Purchase accounting adjustment (1)(2) ..... (13,795) — — (176,679) Transfer to BANA (3) ...... —— (39,164) — Provision charged to expense ...... 4,500 30,081 17,352 38,838 Chargeoffs: Commercial real estate ...... —— (4,798) — Multifamily ...... —— (748) — Commercial business ...... —— (3,747) — Other loans ...... —— (544) — Total chargeoffs ...... —— (9,837) — Recoveries: Commercial real estate ...... — — 102 — Commercial business ...... — 150 135 193 Single family mortgages ...... — — 62 — Other loans ...... — 89 142 143 Total recoveries ...... — 239 441 336 Net loan (chargeoffs) recoveries ...... — 239 (9,396) 336 Balance at end of period ...... $ 4,500 $ 39,174 $ 13,795 $ 39,174 Average total loans for the period ...... $17,468,020 $17,990,571 $18,008,755 $17,358,494 Total loans at period end ...... $17,720,006 $18,221,374 $17,353,819 $18,221,374 Ratios: Net chargeoffs (recoveries) to average total loans (annualized) ...... 0.00% (0.01)% 0.11% 0.00% Allowance for loan losses to: Total loans ...... 0.03% 0.21% 0.08% 0.21% Nonaccruing loans ...... 29.1% 17.4% 78.8% 17.4% (1) On July 1, 2010, the Bank’s allowance for loan losses became part of the loan carrying value due to purchase accounting adjustments recorded for the Successor acquisition. (2) On January 1, 2009, the Bank’s allowance for loan losses became part of the loan carrying value due to purchase accounting adjustments recorded for the Predecessor III acquisition. (3) The allowance for loan losses related to a portion of the Bank’s loan portfolio transferred to BANA in April 2010 in connection with the Transaction.

The Bank’s allowance for loan losses that existed at June 30, 2010 and January 1, 2009 became part of the loan carrying value due to purchase accounting adjustments. ASC 310-30 requires impaired loans acquired in a business combination to be recorded at fair value and prohibits the carryover of the allowance for loan losses.

The Bank did not have any impaired loans at September 30, 2010, excluding those within the scope of ASC 310-30 that were acquired on July 1, 2010. Total impaired loans were $158.9 million at December 31, 2009 with a related allowance for loan losses of $28.2 million. The Bank did not recognize any interest income from impaired loans during the six months ended June 30, 2010 and the three and nine months ended September 30, 2009. The average recorded investment in impaired loans was approximately $142.1 million for the six months ended June 30, 2010 and $128.7 million and $98.9 million for the three and nine months ended September 30, 2009, respectively.

F-68 Note 5. Mortgage Banking Activity

Prior to July 1, 2010, First Republic measured MSRs at fair value with changes in fair value recognized in the income statement. On July 1, 2010, the Bank adopted the amortized cost method of accounting for MSRs. To value MSRs, the Bank stratifies loans sold each year by property type, loan index for adjustable rate mortgages (“ARMs”) and interest rate for loans fixed for more than three years. Approximately 94% of the loans serviced for others by First Republic at September 30, 2010 are secured by single family residences.

The following table presents information on the level of loans originated, loans sold and gain on sale of loans for each of the past five quarters:

Successor Predecessor III For the Quarter Ended For the Quarter Ended ($ in thousands)Sept. 30, 2010 June 30, 2010 Mar. 31, 2010 Dec. 31, 2009 Sept. 30, 2009 Loans originated ...... $1,835,573 $1,384,406 $1,001,916 $1,111,640 $1,337,303 Loans sold: Flow sales ...... $ 200,018 $ 81,419 $ 60,392 $ 95,010 $ 76,210 Bulk sales ...... ——— 5,895 29,925 Total loans sold ...... $ 200,018 $ 81,419 60,392 $ 100,905 $ 106,135 Gain on sale of loans: Amount ...... $ 1,033 $ 673 $ 617 $ 1,506 $ 1,415 Percentage of loans sold ...... 0.52% 0.83% 1.02% 1.49% 1.33%

Changes in the portfolio of loans serviced for others, activity associated with First Republic’s MSRs and quarterly valuation statistics at each quarter-end or for each of the past five quarters were as follows:

Successor Predecessor III At or for the Quarter Ended At or for the Quarter Ended ($ in thousands)Sept. 30, 2010 June 30, 2010 Mar. 31, 2010 Dec. 31, 2009 Sept. 30, 2009 Loan serviced for others: Beginning balance ...... $3,737,046 $3,869,097 $3,999,481 $4,086,843 $4,199,264 Loans sold ...... 200,018 81,419 60,392 100,905 106,136 Repayments ...... (267,383) (180,043) (190,776) (188,267) (218,557) Consolidation of VIE ...... — (33,427) — — — Ending balance ...... $3,669,681 $3,737,046 $3,869,097 $3,999,481 $4,086,843 MSRs: Beginning balance ...... $ 23,371 $ 24,695 $ 24,544 $ 24,630 $ 25,339 Additions due to new loans sold .... 1,669 617 536 880 950 Amortization expense ...... (2,050) — — — — Provision for valuation allowance . . (1,288) — — — — Reductions due to repurchases ..... (25) — — — — Changes in fair value: Due to changes in valuation model inputs or assumptions ...... — (941) 654 700 (459) Other changes in fair value ....— (1,000) (1,039) (1,666) (1,200) Total changes in fair value ...... — (1,941) (385) (966) (1,659) Ending balance ...... $ 21,677 $ 23,371 $ 24,695 $ 24,544 $ 24,630 Estimated fair value of MSRs ...... $ 25,821 $ 23,371 $ 24,695 $ 24,544 $ 24,630 MSRs as a percent of total loans serviced .... 0.59% 0.63% 0.64% 0.61% 0.60% Weighted average servicing fee collected for the period ...... 0.27% 0.26% 0.26% 0.27% 0.26% MSRs as a multiple of weighted average servicing fee ...... 2.22 x 2.38 x 2.45 x 2.30 x 2.30 x

F-69 The following table presents changes in the valuation allowance for the three months ended September 30, 2010:

($ in thousands) Successor Valuation allowance: Beginning balance ...... $ — Provision ...... 1,288 Ending balance ...... $1,288

The following table presents servicing fees for the periods indicated:

Successor Predecessor III Three Months Three Months Six Months Nine Months Ended Ended Ended Ended ($ in thousands) Sept. 30, 2010 Sept. 30, 2009 June 30, 2010 Sept. 30, 2009 Contractually specified servicing fees ...... $2,476 $2,706 $5,076 $8,164 Late charges & ancillary fees, net of costs ...... $ (77) $ (10) $ (74) $ 268

The following table presents the Bank’s key assumptions used in measuring the fair value of MSRs as of September 30, 2010 and the pre-tax sensitivity of the fair values to an immediate 10% and 20% adverse change in these assumptions.

Successor ($ in thousands) Fair value of MSRs ...... $25,821 Weighted average prepayment speed (CPR) ...... 15.00% Impact on fair value of 10% adverse change ...... $ (1,563) Impact on fair value of 20% adverse change ...... $ (2,990) Weighted average discount rate ...... 13.69% Impact on fair value of 10% adverse change ...... $ (1,029) Impact on fair value of 20% adverse change ...... $ (1,979)

Note 6. Goodwill and Intangible Assets

The gross carrying value of intangible assets and accumulated amortization at September 30, 2010 is presented in the following table:

Successor September 30, 2010 Gross Accumulated ($ in thousands) Carrying Value Amortization Amortized intangible assets: MSRs ...... $ 25,015 $(2,050) Core deposit intangibles ...... 87,550 (4,305) Customer relationship intangibles ...... 39,150 (1,925) Total amortized intangibles ...... $151,715 $(8,280) Goodwill ...... $ 24,604 Trade name ...... $ 42,900

There was no goodwill or other intangible assets as of December 31, 2009.

F-70 The following table presents the changes in goodwill during 2010 by business segment:

Commercial Wealth ($ in thousands) Banking Management Total Predecessor III Balance at December 31, 2009 ...... $ — $— $ — Successor Additions due to Successor acquisition ...... 24,604 — 24,604 Balance at September 30, 2010 ...... $24,604 $— $24,604

The following table presents the estimated future amortization for intangible assets as of September 30, 2010:

Successor Customer Core deposit relationship ($ in thousands) MSRs intangibles intangibles October 1-December 31, 2010 ...... $2,168 $ 4,197 $1,877 2011 ...... 6,828 15,701 7,021 2012 ...... 3,804 13,965 6,245 2013 ...... 2,485 12,228 5,468 2014 ...... 1,598 10,492 4,692 2015 ...... 1,198 8,755 3,915

Note 7. Derivative Financial Instruments

Management uses derivative instruments, including interest rate swaps and caps, as part of its interest rate risk management strategy. In accordance with ASC 815, “Derivatives and Hedging,” the Bank recognizes all derivatives on the balance sheet at fair value. The Bank accounts for changes in the fair value of a derivative depending on the intended use of the derivative and its resulting designation under specified criteria.

During the quarter ended September 30, 2010, the Bank entered into $500 million of interest rate swaps to convert floating-rate deposits to fixed rates as a cash flow hedge. Prior to June 30, 2010, the Bank did not use any interest rate swaps as part of its interest risk management strategy. The Bank records the effective portion of the change in the fair value initially in accumulated other comprehensive income (“AOCI”) and subsequently in interest expense on deposits when the hedged item affects earnings. The ineffective portion of the change in the fair value of a cash flow hedge, if any, is recognized in earnings. The Bank assesses hedge effectiveness using regression analysis, both at inception of the hedging relationship and on an ongoing basis. There was no ineffectiveness for the cash flow hedging relationship for the quarter ended September 30, 2010. For the quarter ended September 30, 2010, the Bank recognized losses (pre-tax) in AOCI of $2,839,000 and reclassified losses (pre-tax) from AOCI into interest expense on deposits of $225,000 (effective portion). During the next twelve months, the Bank estimates that $2,522,000 will be reclassified as an increase to interest expense.

Derivative assets and liabilities also consist of foreign exchange contracts executed with customers; the Bank offsets the customer exposure to another financial institution counterparty represented by major investment banks and large commercial banks. The Bank does not retain foreign exchange risk. The amounts presented in the table below include the foreign exchange contracts with both the customers and the financial institution counterparties. The Bank uses current market prices to determine the fair value of these contracts.

The Bank also creates derivative instruments when it enters into interest rate lock commitments for single family mortgage loans that will be sold to investors. The Bank’s interest rate risk exposure to these commitments is not significant as these derivatives are economically hedged with forward commitments to sell the loans to investors.

F-71 The total notional or contractual amounts and fair values for derivatives were:

Successor Predecessor III September 30, 2010 December 31, 2009

Notional or Fair value Notional or Fair value contractual Asset Liability contractual Asset Liability ($ in thousands) amount derivatives (1) derivatives (2) amount derivatives (1) derivatives (2) Qualifying hedge contracts: Interest rate contracts . . . $500,000 $ — $ 2,614 $ — $ — $ — Total ...... $ — $ 2,614 $ — $ — Derivatives not designated as hedging instruments: Foreign exchange contracts ...... $419,832 $17,979 $16,730 $428,326 $12,747 $11,458 Interest rate contracts with borrowers ...... $132,069 112 99 $ 18,003 — 318 Forward loan sale commitments ...... $271,130 135 148 $ 32,505 658 — Total ...... $18,226 $16,977 $13,405 $11,776

(1) Included in prepaid expenses and other assets on the balance sheet (2) Included in other liabilities on the balance sheet

The credit risk associated with these derivative instruments is the risk of non-performance by the counterparty to the contracts. Management does not anticipate non-performance by any of the counterparties.

Note 8. Common Stockholder’s Equity

As of September 30, 2010, the Bank was authorized to issue 400,000,000 shares of common stock, par value $0.01 per share. On July 1, 2010, the Bank issued 124,133,334 shares at a price of $15.00 per share.

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 accounting practices. The Bank’s capital amounts and classification will also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total Capital and Tier 1 Capital to risk-weighted assets and of Tier 1 Capital to average assets (“Tier 1 Leverage Ratio”). In addition, as a newly chartered institution, the Bank is required to maintain a Tier 1 Leverage Ratio no less than 8% of average assets. Management believes, as of September 30, 2010, that the Bank meets all capital adequacy requirements to which it is subject.

F-72 The following table presents the actual capital amounts and ratios of the Bank at September 30, 2010:

Minimum for Capital Minimum to Be Well Actual Adequacy Purposes Capitalized ($ in thousands) Amount Ratio Amount Ratio Amount Ratio Successor September 30, 2010 Total capital to risk-weighted assets ...... $1,852,007 13.73% $1,079,117 8.00% $1,348,896 10.00% Tier 1 capital to risk-weighted assets ...... 1,834,253 13.60% 539,558 4.00% 809,338 6.00% Tier 1 capital to average assets ...... 1,834,253 8.58% 855,332 4.00% 1,069,165 5.00%

Note 9. Stock Compensation Plans

The Bank follows ASC 718, “Compensation—Stock Compensation,” in accounting for its stock compensation plan. Pursuant to ASC 718, the Bank measured the compensation cost of stock options on the fair value of the options at the grant date and recognizes compensation expense over their requisite service periods.

Under the 2010 Stock Option Plan (“the Stock Option Plan”), the Bank is authorized to grant 16,927,273 shares of common stock. As of September 30, 2010, the Bank has granted stock options to purchase 15,608,282 shares to employees, officers and directors under the Stock Option Plan. Under the Bank’s stock option agreements, the exercise price of each option equals the market price of the Bank’s common stock at the grant date. Generally, stock options vest over a period of up to four years from the grant date and have a maximum contractual life of ten years.

The Bank has granted options that have time vesting requirements, performance vesting criteria and market vesting conditions. The following table summarizes the number of options granted, the exercise price and the fair value by each vesting criteria at September 30, 2010:

Number of Options Exercise Fair Outstanding Price Value Time ...... 3,236,962 $15.00 $5.24 to $ 5.76 Performance ...... 10,960,714 $15.00 $5.65 to $ 5.76 Market condition ...... 1,410,606 $15.00 $ 5.99

Of the time vested options, approximately 2.8 million options vest on a monthly basis in equal amounts over a term of 48 months. The remaining time options vest 25% per annum over four years. Performance options vest 25% per annum over four years provided that certain criteria, including return on equity, nonperforming asset ratios and growth in non-certificates of deposit accounts, are achieved. The measurement of the performance criteria occurs at the calendar year-end with vesting generally on June 30 of the following year. Certain time and performance options have accelerated vesting provisions or could change the type of option upon the occurrence of certain events. The options with a market condition will become exercisable based upon achieving a return on investment to the initial investors in the Bank based upon a multiple of the initial investment at certain dates in the future.

The following table presents the assumptions used to value the time and performance stock options using a Black-Scholes option valuation model:

Time Performance Expected volatility ...... 35% 35% Expected dividends (yield) ...... —— Expected dividends ...... —— Expected term (in years) ...... 5.34 - 6.25 6.05 - 6.25 Risk-free interest rate ...... 1.91% - 2.19% 2.13% - 2.19%

F-73 The market condition options were modeled using a simulation model of the stock price over multiple scenarios.

The Bank recorded stock option expense of $8.1 million during the quarter ended September 30, 2010. The unrecognized compensation cost related to stock options granted at September 30, 2010 is $80.0 million. The cost is expected to be recognized over approximately 3.75 years.

Note 10. Fair Value Disclosures

The Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale and derivative instruments are recorded at fair value on a recurring basis. Additionally, from time to time, the Bank may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment, MSRs and real estate owned. These nonrecurring fair value adjustments typically involve application of the lower-of-cost-or market accounting or write-downs of individual assets.

Fair Value Hierarchy

Under ASC 820, “Fair Value Measurements and Disclosures,” 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 upon 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.

Under ASC 820, the Bank bases its fair values on 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. It is the Bank’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy of ASC 820.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not recorded at fair value. Although management uses its best judgment in estimating fair value, there are inherent weaknesses in any estimates that are made at a discrete point in time based on relevant market data, information about the financial instruments and other factors. Estimates of fair value of instruments without quoted market prices are subjective in nature and involve various assumptions and estimates that are matters of judgment. Changes in the assumptions used could significantly affect these estimates. The Bank has not adjusted fair values to reflect changes in market conditions subsequent to September 30, 2010 and December 31, 2009; therefore, estimates presented herein are not necessarily indicative of amounts that could be realized in a current transaction.

The estimated fair values presented neither include nor give effect to the values associated with the Bank’s existing client relationships, lending and deposit office networks, or certain tax implications related to the realization of unrealized gains or losses. The fair value summary does not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities.

F-74 Methods and assumptions used to estimate the fair value of each major classification of financial instruments were:

Cash and cash equivalents: The current carrying amount approximates estimated fair value.

Investment securities: For securities classified as available-for-sale, the Bank used current market prices, quotations or analysis of estimated future cash flows to determine fair value.

Loans: The carrying amount of loans is net of unamortized deferred loan fees or costs, unamortized premiums or discounts and the allowance for loan losses. To estimate fair value of the Bank’s loans, which are primarily adjustable rate and intermediate fixed rate real estate secured mortgages, the Bank segments each loan collateral type into categories based on fixed or adjustable interest rate terms (index, margin, current rate and time to next adjustment), maturity, estimated credit risk and accrual status.

The Bank bases the fair value of single family, multifamily and commercial real estate mortgages primarily upon prices of loans with similar terms obtained by or quoted to the Bank, adjusted for differences in loan characteristics and market conditions. The Bank estimates the fair value of other loans based on the current interest rates at which similar loans would be made to borrowers with similar credit characteristics in the Bank’s lending activities. Assumptions regarding liquidity risk and credit risk are judgmentally determined using available internal and market information.

For the fair value of nonaccrual loans and certain other loans, the Bank considers the individual characteristics of the loans, including delinquency status and the results of the Bank’s internal loan grading process.

Loans held for sale: The carrying amount of loans held for sale reflects the lower of cost or market, including net deferred loan fees and costs. The fair value of loans held for sale was derived from quoted market prices of loans with similar terms or actual prices at which loans were committed for sale.

MSRs: The fair value of MSRs related to loans originated and sold by the Bank is based on a present value calculation of expected future cash flows, with assumptions regarding prepayments, discount rates and investment rates adjusted for market conditions.

FHLB stock: FHLB stock has no trading market, is required as part of membership and is redeemable at par; therefore, its fair value is presented at cost.

Investments in life insurance: The carrying amount of investments in life insurance reflects the total cash surrender value of each policy, which approximates fair value.

Other real estate owned: Other real estate owned includes foreclosed properties securing mortgage loans. Other real estate owned is adjusted to fair value less costs to sell upon transfer of the loans to foreclosed assets. Subsequently, other real estate owned is carried at the lower of carrying value or fair value less costs to sell. Fair value is generally based upon independent market prices or appraised values of the collateral, and accordingly, we classify other real estate owned as Level 3.

Customer deposits: The fair value of deposits with no stated term such as demand deposit accounts, NOW accounts, money market accounts and passbook accounts is the carrying amount reported on the balance sheet. The intangible value of long-term relationships with depositors is not taken into account in estimating the fair values disclosed. Management believes that the Bank’s non-term accounts, as a continuing source of less costly funds, provide significant additional value to the Bank that is not reflected in the assigned value. The fair value of deposits with a stated maturity is based on the present value of contractual cash flows discounted by the replacement rates for deposits with similar remaining maturities.

F-75 FHLB advances: The estimated fair value of longer-term FHLB advances represents the present value of cash flows discounted using the FHLB’s fixed rate cost of funds curve for advances of the same type and with the same characteristics.

Subordinated notes: The fair value is based on current market prices for traded issues.

Debt related to variable interest entity: The fair value is based on current market prices or quotations.

Commitments to extend credit: The majority of the Bank’s commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally unassignable by either the Bank or the borrower, they have value only to the Bank and the borrower. The estimated fair value of the Bank’s commitments to extend credit, including letters of credit, approximates the recorded deferred fee amounts and was not material at September 30, 2010 or December 31, 2009.

Derivative financial instruments: Derivative assets and liabilities consist of interest rate swaps, foreign exchange contracts, interest rate lock commitments and forward loan sale commitments. The Bank uses current market information such as the current yield curve to determine the fair value of interest rate swaps. The Bank uses current market prices to determine the fair value of foreign exchange contracts. The estimated fair values of other derivative assets or liabilities that are created from interest rate lock commitments and forward loan sale commitments are estimated using analysis based on current market prices.

The following represents quarterly required disclosures of the estimated fair value of financial instruments.

Successor Predecessor III September 30, 2010 December 31, 2009 Carrying Carrying ($ in thousands) Amount Fair Value Amount Fair Value Assets: Cash and cash equivalents ...... $ 2,461,276 $ 2,461,276 $ 178,553 $ 178,553 Investment securities available-for-sale ...... 89,028 89,028 3,183 3,183 Investment securities held-to-maturity ...... 434,840 440,389 — — Loans, net ...... 17,715,506 17,825,984 18,587,778 18,461,023 Loans held for sale ...... 139,330 139,330 14,540 14,540 Mortgage servicing rights ...... 21,677 25,821 24,544 24,544 FHLB Stock ...... 28,200 28,200 59,420 59,420 Investments in life insurance ...... 378,448 378,448 202,691 202,691 Derivative assets ...... 18,226 18,226 13,405 13,405 Liabilities: Customer deposits ...... 18,964,763 19,002,417 17,182,484 17,231,905 Federal Home Loan Bank advances ...... 600,000 621,829 130,501 130,842 Subordinated notes ...... 69,026 68,967 65,897 70,139 Debt related to variable interest entity ...... 25,528 24,062 — — Derivative liabilities ...... 19,591 19,591 11,776 11,776

F-76 The tables below present the balances of assets and liabilities measured at fair value on a recurring basis:

Successor Fair Value Measurements on a Recurring Basis September 30, 2010 ($ in thousands) Level 1 Level 2 Level 3 Total Assets: Investment securities available-for-sale: U.S. Treasury and federal agencies ...... $89,028 $ — $ — $ 89,028 Derivative assets ...... — 18,226 — 18,226 Total ...... $89,028 $18,226 $ — $107,254 Liabilities: Derivative liabilities ...... $ — $19,591 $ — $ 19,591

Predecessor III Fair Value Measurements on a Recurring Basis December 31, 2009 ($ in thousands) Level 1 Level 2 Level 3 Total Assets: Investment securities available-for-sale: Other residential mortgage backed securities ...... $ — $ 3,183 $ — $ 3,183 Derivative assets ...... — 13,405 — 13,405 Mortgage servicing rights ...... —— 24,544 24,544 Total ...... $ — $16,588 $24,544 $ 41,132 Liabilities: Derivative liabilities ...... $ — $11,776 $ — $ 11,776

There were no transfers in or out of Levels 1 and 2 for during the first nine months of 2010 or 2009.

The changes in Level 3 MSRs measured at fair value on a recurring basis are summarized as follows:

Predecessor III Three Months Six Months Nine Months ($ in thousands) Ended Sept. 30, 2009 Ended June 30, 2010 Ended Sept. 30, 2009 Beginning balance ...... $25,339 $24,544 $30,242 Total gains or losses (realized/unrealized) included in earnings ...... (459) (287) (5,339) Purchases, issuances, and settlements ...... (250) (886) (273) Ending Balance ...... $24,630 $23,371 $24,630

F-77 The Bank may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments for fair value usually result from application of lower-of-cost-or market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at September 30, 2010 and December 31, 2009, the following table provides the fair value hierarchy and the carrying value of the related individual assets or portfolios at period end.

Successor Fair Value Measurements on a Non-recurring Basis September 30, 2010 ($ in thousands) Level 1 Level 2 Level 3 Total Assets: Mortgage servicing rights ...... $— $— $ 8,506 $ 8,506 Total ...... $— $— $ 8,506 $ 8,506

Predecessor III Fair Value Measurements on a Recurring Basis December 31, 2009 ($ in thousands) Level 1 Level 2 Level 3 Total Assets: Impaired loans ...... $— $— $17,437 $17,437 Real estate owned ...... —— 6,101 6,101 Total ...... $— $— $23,538 $23,538

The following table presents gains (losses) related to nonrecurring fair value measurements for the periods indicated:

Successor Predecessor III Three Months Three Months Six Months Nine Months Ended Ended Ended Ended ($ in thousands) Sept. 30, 2010 Sept. 30, 2009 June 30, 2010 Sept. 30, 2009 Assets: Impaired loans ...... $ — $(748) $ — $(3,548) Mortgage servicing rights ...... (1,288) — — — Real estate owned ...... —— (278) (2,000) Total ...... $(1,288) $(748) $(278) $(5,548)

F-78 Note 11. Segments

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 following tables presents the operating results for the three months ended September 30, 2010, six months ended June 30, 2010 and three and nine months ended September 30, 2009, and goodwill and total assets of the Bank’s two reportable segments at September 30, 2010 and 2009, as well as any reconciling items.

Successor At or for the Three Months Ended September 30, 2010 Commercial Wealth ($ in thousands) Banking Management Reconciling Items Total Net interest income ...... $ 232,505 $ 3,735 $ — $ 236,240 Provision for credit losses ...... 4,500 — — 4,500 Noninterest income ...... 5,530 14,073 (575) 19,028 Noninterest expense ...... 117,879 18,899 (575) 136,203 Income (loss) before provision for income taxes . . . 115,656 (1,091) — 114,565 Provision (benefit) for income taxes ...... 47,436 (464) — 46,972 Net income (loss) before noncontrolling interests . . 68,220 (627) — 67,593 Less: Net income from noncontrolling interests .... 1,198 — — 1,198 First Republic Bank Net Income (Loss) ...... $ 67,022 $ (627) $ $ 66,395 Goodwill ...... $ 24,604 $ — $ — $ 24,604 Total Assets ...... $21,872,042 $94,198 $(12,172) $21,954,068

Predecessor III At or for the Three Months Ended September 30, 2009 Commercial Wealth ($ in thousands) Banking Management Reconciling Items Total Net interest income ...... $ 240,726 $ 869 $ — $ 241,595 Provision for credit losses ...... 30,081 — — 30,081 Noninterest income ...... 16,148 12,918 (253) 28,813 Noninterest expense ...... 86,018 13,256 (253) 99,021 Income before provision for income taxes ...... 140,775 531 — 141,306 Provision for income taxes ...... 59,164 226 — 59,390 Net income before noncontrolling interests ...... 81,611 305 — 81,916 Less: Net income from noncontrolling interests .... 1,198 — — 1,198 First Republic Bank Net Income ...... $ 80,413 $ 305 $ — $ 80,718 Goodwill ...... $ — $ — $ — $ — Total Assets ...... $19,477,203 $21,144 $(20,396) $19,477,951

F-79 Predecessor III At or for the Six Months Ended June 30, 2010 Commercial Wealth ($ in thousands) Banking Management Reconciling Items Total Net interest income ...... $ 407,924 $ 5,315 — $ 413,239 Provision for credit losses ...... 17,352 — — 17,352 Noninterest income ...... 22,727 27,360 (629) 49,458 Noninterest expense ...... 185,210 32,383 (629) 216,964 Income before provision for income taxes ...... 228,089 292 — 228,381 Provision for income taxes ...... 97,014 124 — 97,138 Net income before noncontrolling interests ...... 131,075 168 — 131,243 Less: Net income from noncontrolling interests .... 2,396 — — 2,396 First Republic Bank Net Income ...... $ 128,679 $ 168 $ — $ 128,847 Goodwill ...... $ — $ — $ — $ — Total Assets ...... $19,455,510 $61,723 $(5,561) $19,511,672

Predecessor III At or for the Nine Months Ended September 30, 2009 Commercial Wealth ($ in thousands) Banking Management Reconciling Items Total Net interest income ...... $ 701,638 $ 1,515 $ — $ 703,153 Provision for credit losses ...... 38,838 — — 38,838 Noninterest income ...... 44,175 41,925 (1,441) 84,659 Noninterest expense ...... 271,758 42,745 (1,441) 313,062 Income before provision for income taxes ...... 435,217 695 — 435,912 Provision for income taxes ...... 182,824 295 — 183,119 Net income before noncontrolling interests ...... 252,393 400 — 252,793 Less: Net income from noncontrolling interests .... 3,621 — — 3,621 First Republic Bank Net Income ...... $ 248,772 $ 400 $ — $ 249,172 Goodwill ...... $ — $ — $ — $ — Total Assets ...... $19,477,203 $21,144 $(20,396) $19,477,951

The commercial banking segment represents most of the operations of the Bank, including real estate secured lending, retail deposit gathering, private banking activities, mortgage sales and servicing, and managing the capital, liquidity and interest rate risk.

The wealth management segment consists of the investment management activities of FRIM, which manages assets for individuals and institutions in equities, fixed income and balanced accounts. In addition, the wealth management segment also includes First Republic Trust Company, a division of the Bank that offers personal trust services; FRWA, which offers advisory services to high net worth clients; the Bank’s mutual fund activities; the brokerage activities of FRSC; and the Bank’s foreign exchange activities conducted on behalf of customers. FRWA was merged into FRIM on September 30, 2010.

The reconciling items for revenues include intercompany business referral fees. 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.

F-80 Note 12. Concentrations

At September 30, 2010, approximately 1% of our deposit accounts hold approximately 34% of our total deposits, compared to 35% at December 31, 2009.

Note 13. Subsequent Events

The Bank evaluated the effects of subsequent events that have occurred subsequent to the quarter ended September 30, 2010, and through November 8, 2010, which is the date the financial statements were available to be issued.

F-81 Report of Independent Registered Public Accounting Firm

The Board of Directors First Republic Bank:

We have audited the accompanying consolidated balance sheet of First Republic Bank (the Bank) as of July 1, 2010. This consolidated balance sheet is the responsibility of the Bank’s management. Our responsibility is to express an opinion on this consolidated balance sheet based on our audit.

We conducted our audit in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. The Bank is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control over financial reporting. Accordingly, we express no such opinion. An audit of the balance sheet also includes examining, on a test basis, evidence supporting the amounts and disclosures in that balance sheet, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated balance sheet referred to above presents fairly, in all material respects, the financial position of the Bank as of July 1, 2010, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP San Francisco, California October 29, 2010

F-82 FIRST REPUBLIC BANK CONSOLIDATED BALANCE SHEET

($ in thousands) July 1, 2010 ASSETS Cash and cash equivalents ...... $ 2,297,920 Investment securities held-to-maturity ...... 3,562 Loans, net ...... 17,264,116 Loans held for sale ...... 27,732 Mortgage servicing rights ...... 23,371 Goodwill ...... 24,604 Other intangible assets ...... 169,600 Prepaid expenses and other assets ...... 277,294 Premises, equipment and leasehold improvements ...... 97,197 Deferred tax assets ...... 67,406 Other real estate owned ...... 930 Total Assets ...... $20,253,732 LIABILITIES AND EQUITY Liabilities: Customer deposits: Non-interest bearing accounts ...... $ 2,485,052 NOW checking accounts ...... 2,108,723 Money Market (MM) checking accounts ...... 2,557,304 MM savings and passbooks ...... 4,630,745 Certificates of deposit ...... 6,134,202 Total customer deposits ...... 17,916,026 Federal Home Loan Bank advances ...... 130,823 Subordinated notes ...... 69,672 Debt related to variable interest entity ...... 32,684 Other liabilities ...... 161,963 Total Liabilities ...... 18,311,168 Equity: First Republic Bank stockholders’ equity: Common stock, $0.01 par value per share; 400,000,000 shares authorized; 124,133,334 shares issued and outstanding ...... 1,241 Additional paid-in capital ...... 1,859,921 Retained earnings ...... (5,168) Total First Republic Bank stockholders’ equity ...... 1,855,994 Noncontrolling interests ...... 86,570 Total Equity ...... 1,942,564 Total Liabilities and Equity ...... $20,253,732

See accompanying notes to consolidated balance sheet.

F-83 FIRST REPUBLIC BANK NOTES TO CONSOLIDATED BALANCE SHEET

Note 1. Summary of Significant Accounting Policies

Basis of Presentation and Organization

First Republic Bank (“First Republic” or the “Bank”) operated for over ten years as an FDIC-insured, non-member state bank chartered by the State of Nevada (and prior to that as two predecessor depository institutions charted by the State of California and State of Nevada, respectively, operating under a single, publicly traded, non-bank holding company which was subsequently merged into its bank subsidiary). On September 21, 2007, First Republic was acquired by Merrill Lynch & Co. (“Merrill Lynch”) and merged into one of Merrill Lynch’s banking subsidiaries, Merrill Lynch Bank & Trust Company, F.S.B. (“MLFSB”). Under the terms of the acquisition, First Republic operated as a separate division within MLFSB and continued to be managed by the Bank’s existing management team. On January 1, 2009, Bank of America Corporation (“Bank of America”), the holding company of Bank of America, N.A. (“BANA”), purchased Merrill Lynch and thereby acquired MLFSB. On November 2, 2009, MLFSB was merged into BANA, and First Republic Bank thereby became a division of BANA.

On October 21, 2009, Bank of America announced that it had entered into a definitive agreement to sell substantially all of First Republic’s assets and liabilities (the “Transaction”) to a number of investors, led by First Republic’s existing management, and including investment funds managed by Colony Capital, LLC and General Atlantic, LLC. The Transaction was completed after the close of business on June 30, 2010 and the Bank opened as a California chartered, FDIC-insured commercial bank and trust company on July 1, 2010. See Note 2 for further information on the acquisition.

First Republic’s consolidated balance sheet includes the accounts of First Republic Bank and the majority or wholly owned subsidiaries First Republic Investment Management, Inc. (“FRIM”), First Republic Wealth Advisors (“FRWA”), First Republic Securities Company (“FRSC”), First Republic Preferred Capital Corporation (“FRPCC”), and First Republic Preferred Capital Corporation II (“FRPCC II”). FRWA was merged into FRIM on September 30, 2010. All significant intercompany balances and transactions have been eliminated.

FRPCC and FRPCC II have outstanding preferred stock, which is reported as noncontrolling interests in First Republic’s consolidated balance sheet.

Nature of Operations

The Bank and its subsidiaries specialize in providing personalized, relationship-based services, including private banking, private business banking, real estate lending and wealth management services, including trust services. The Bank provides its services through preferred banking, lending and wealth management offices in eight major metropolitan areas: San Francisco, Los Angeles, Santa Barbara, Newport Beach, San Diego, New York City, Boston and Portland.

First Republic originates real estate secured loans and other loans for retention in its loan portfolio. Real estate secured loans are secured by single family residences, multifamily buildings and commercial real estate properties and loans to construct such properties. Most of the real estate loans that First Republic originates are secured by properties located close to one of its offices in the San Francisco Bay area, the Los Angeles area, San Diego, Boston or the New York City area. 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.

First Republic offers its clients various wealth management services. First Republic provides investment advisory services through FRIM and FRWA. FRIM earns fee income from the management of equity and fixed

F-84 income investments for its clients. FRWA earns fee income from providing advisory services to high net worth clients. First Republic Trust Company, a division of First Republic, provides trust services. FRSC is a registered broker-dealer performing short-term investment and brokerage activities for clients. The Bank also conducts foreign exchange activities on behalf of customers.

Use of Estimates

The preparation of the consolidated balance sheet in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates. Material estimates subject to change include, but are not limited to: mortgage servicing rights; purchase accounting; goodwill and related identifiable intangible assets; and deferred income taxes.

Investment Securities

The Bank follows Accounting Standards Codification (“ASC”) 320, “Investments—Debt and Equity Securities,” which addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Debt securities that the Bank has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and reported at amortized cost. Debt securities that the Bank might not hold until maturity and marketable equity securities are classified as securities available-for-sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as accumulated other comprehensive income in stockholders’ equity.

Loans

Loans are reported at their outstanding principal balance net of any purchase accounting adjustments required to present the loans at fair value as of July 1, 2010. As a result of the acquisition, the Bank does not have an allowance for loan losses in accordance with the guidance in ASC 805, “Business Combinations.” Loan discounts were recorded in connection with the acquisition and are included in the basis of the loans.

Loans are placed on nonaccrual status when principal or interest payments are more than 90 days 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. When a loan is placed on nonaccrual status, the Bank reverses accrued unpaid 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. 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.

Loans Accounted for Under ASC 310-30

Loans acquired with evidence of credit deterioration for which it is probable at purchase that the Bank will be unable to collect all contractually required payments are accounted for under ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” Evidence of credit quality deterioration as of the purchase date may include statistics such as past due status, refreshed borrower credit scores and refreshed loan-to-value (“LTV”) ratio. ASC 310-30 requires that acquired credit-impaired loans be recorded at fair value and prohibits carryover of the related allowance for loan losses.

The initial fair values for loans are determined by discounting both principal and interest cash flows expected to be collected using an observable discount rate for similar instruments with adjustments that management believes a market participant would consider in determining fair value. The Bank estimates the cash flows expected to be collected at acquisition using internal credit risk, interest rate and prepayment risk models that incorporate management’s best estimate of key assumptions, such as default rates, loss severity and payment speeds.

F-85 Under ASC 310-30, the excess of cash flows at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan in situations where there is a reasonable expectation about the timing and amount of cash flows to be collected. The difference between contractually required payments at acquisition and cash flows expected to be collected, considering the impact of prepayments, is referred to as the nonaccretable difference. Subsequent decreases to expected principal cash flows will result in a charge to provision for credit losses and a corresponding increase to the allowance for loan losses. Subsequent increases in expected principal cash flows will result in recovery of any previously recorded allowance for loan losses, to the extent applicable, and a reclassification from nonaccretable difference to accretable yield for any remaining increase, which will result in an increase in interest income over the remaining life of the loan or pool of loans.

Other Real Estate Owned

Real estate acquired through foreclosure is recorded at the lower of cost or fair value less costs to sell upon transfer of the loans to foreclosed assets.

Selling and Servicing Loans

The Bank sells loans on a non-recourse basis to generate servicing income and to provide funds for additional lending. 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 classifies loans as held for sale when the Bank has the intent to sell, is waiting on a pre-approved investor purchase or is negotiating with a specific investor for the sale of specific loans that meet selected criteria. Loans held for sale are carried at fair value on July 1, 2010.

The Bank recognizes a sale only when consideration is received and control is transferred to the buyer. The Bank retains the mortgage servicing rights (“MSRs”) on substantially all loans sold. The Bank has one class of servicing rights: loans sold that are secured by real estate. MSRs are initially measured at fair value at the date of transfer.

To determine the fair value of MSRs, the Bank uses a valuation model that calculates the present value of estimated future net servicing income. The Bank uses assumptions in the valuation model that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual service fees and ancillary income. Subsequent to July 1, 2010, MSRs are reported at the lower of amortized cost or fair value.

Goodwill and Other Identifiable Intangible Assets

The Bank recorded the cost of the acquisition to the assets acquired and liabilities and noncontrolling interests assumed based on their estimated fair values at the acquisition date. Goodwill represents the excess of the cost over the fair value of the net assets acquired. In addition, the Bank evaluated whether both identifiable and unidentifiable assets should be recorded in connection with the acquisition. See Note 2 for further information on the acquisition.

Identifiable intangible assets related to core deposits, wealth management, customer relationships and trade name / trademark are reported as other intangible assets. Core deposits and wealth management customer relationships are amortized over their useful lives not to exceed ten years. The trade name/trademark is considered to have an indefinite useful life.

Premises, Equipment and Leasehold Improvements

Premises, equipment and leasehold improvements are recorded at carrying value, which approximates fair value on July 1, 2010.

F-86 Income Taxes

Deferred tax assets and liabilities 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. Deferred tax assets and liabilities 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.

Deferred tax assets are recognized for deductible temporary differences and tax credit carryforwards. A valuation allowance is established to reduce the deferred tax asset if it is more likely than not that the related tax benefits will not be realized.

Derivative Instruments and Hedging Activities

The Bank follows ASC 815, “Derivatives and Hedging,” for the accounting and reporting of derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. On the date that the Bank enters into a derivative contract, the Bank designates the derivative contract as either a hedge of the fair value of a recognized asset or liability (“fair value” hedge), a hedge of the variability of cash flows related to a recognized asset or liability (“cash flow” hedge) or a contract that does not qualify for hedge accounting (“freestanding derivative”). The Bank records all derivatives at fair value as either other assets or other liabilities, depending on the rights or obligations under the contracts. The Bank accounts for changes in fair value of a derivative based on the designation, which is determined by its intended use.

The Bank has freestanding derivative assets and liabilities, which consist of foreign exchange contracts executed with customers in which the Bank offsets the customer exposure to another financial institution counterparty. The Bank does not retain foreign exchange risk. The Bank uses current market prices to determine the fair value of these contracts.

The Bank originates certain mortgage loans with the intention of selling these loans to investors. The Bank enters into commitments to originate the loans whereby the interest rate on the loan paid by the borrower is set prior to funding (“interest rate lock commitments”). Such interest rate lock commitments are accounted for as freestanding derivative instruments that do not qualify as hedges. However, the interest rate exposure is economically hedged by the forward loan sale commitment to the investor. The change in fair value of these freestanding derivatives is recognized in earnings. When the Bank funds the loan to the borrower, the Bank records the carrying value of the interest rate lock commitment at the funding date as an adjustment to the carrying value of the loan held for sale.

The Bank does not conduct proprietary trading activities in derivative instruments for its own accounts.

Share Based Compensation

Share based compensation is provided through grants of stock options. The Bank measures the cost of the stock options based on the fair value of the awards at the grant date. The cost is recognized in the income statement over the requisite service period.

Note 2. Business Combinations

The Bank acquired the assets and assumed liabilities of First Republic Bank, which was operating as a division of BANA. In addition, the Bank acquired the common stock of FRIM, FRWA, FRSC, FRPCC and FRPCC II as part of the acquisition.

Methods and assumptions used to estimate the fair value of each major classification of assets and liabilities were:

Cash and cash equivalents: The current carrying amount approximates estimated fair value.

F-87 Investment securities: First Republic used current market prices, quotations or analysis of estimated future cash flows to determine fair value.

Loans: To estimate fair value of First Republic’s loans, which are primarily adjustable rate and intermediate fixed rate real estate secured mortgages, First Republic segments each loan collateral type into categories based on fixed or adjustable interest rate terms (index, margin, current rate and time to next adjustment), maturity, estimated credit risk and accrual status.

First Republic bases the fair value of single family, multifamily and commercial real estate mortgages primarily upon prices of loans with similar terms obtained by or quoted to First Republic, adjusted for differences in loan characteristics and market conditions. First Republic estimates the fair value of other loans based on the current interest rates at which similar loans would be made to borrowers with similar credit characteristics in First Republic’s lending activities. Assumptions regarding liquidity risk and credit risk are judgmentally determined using available internal and market information.

For the fair value of nonaccrual loans and certain other loans, First Republic considers the individual characteristics of the loans, including delinquency status and the results of First Republic’s internal loan grading process.

Loans held for sale: The fair value of loans held for sale was derived from quoted market prices of loans with similar terms or actual prices at which loans were committed for sale.

MSRs: The fair value of MSRs related to loans originated and sold by First Republic is based on a present value calculation of expected future cash flows, with assumptions regarding prepayments, discount rates and investment rates adjusted for market conditions.

Customer deposits: The fair value of deposits with no stated term such as demand deposit accounts, NOW accounts, MMA accounts and passbook accounts is the carrying amount. The fair value of deposits with a stated maturity is based on the present value of contractual cash flows discounted by the replacement rates for deposits with similar remaining maturities.

FHLB advances: The estimated fair value of longer-term FHLB advances represents the present value of cash flows discounted using the FHLB’s fixed rate cost of funds curve for advances of the same type and with the same characteristics.

Subordinated notes: The fair value is based on current market prices for traded issues.

Noncontrolling interests: The fair value is based on current market prices for traded issues. For issues without readily available market prices, the fair value is based upon the present value of cash flows discounted using current rates for similar type instruments.

F-88 The purchase price was allocated to the acquired assets and liabilities based on their estimated fair values at July 1, 2010 as summarized in the following table.

Carrying Purchase Value at Accounting Fair Value at ($ in thousands) July 1, 2010 Adjustments July 1, 2010 Assets: Cash and cash equivalents ...... $ 435,916 $ — $ 435,916 Investment securities ...... 3,588 (26) 3,562 Loans, net ...... 17,427,857 (163,741) 17,264,116 Loans held for sale ...... 27,732 — 27,732 Mortgage servicing rights ...... 13,100 10,271 23,371 Goodwill ...... — 24,604 24,604 Other intangible assets ...... — 169,600 169,600 Deferred tax assets ...... — 63,734 63,734 Other assets ...... 384,195 30 384,225 Total ...... $18,292,388 $ 104,472 $18,396,860 Liabilities and Equity: Customer deposits ...... $17,778,797 $ 137,229 $17,916,026 Federal Home Loan Bank advances ...... 130,416 407 130,823 Subordinated notes ...... 65,508 4,164 69,672 Other liabilities ...... 218,077 (24,308) 193,769 Noncontrolling interests ...... 99,590 (13,020) 86,570 Total ...... $18,292,388 $ 104,472 $18,396,860

The following summarizes the purchase price and goodwill resulting from the acquisition.

($ in thousands) Fair value of assets acquired ...... $18,372,256 Fair value of liabilities assumed ...... 18,310,290 Net assets acquired ...... $ 61,966 Purchase price—fair value of noncontrolling interests ...... $ 86,570 Goodwill resulting from the acquisition ...... $ 24,604

As part of the acquisition, the Bank incurred divestiture-related costs associated with the transition to a stand-alone bank while we were a division of BANA. As part of the Transaction, the investors agreed to reimburse BANA for these costs incurred prior to June 30, 2010. The total amount of divestiture-related costs that are included in the carrying value of assets acquired that were not capitalized was $8.8 million. These costs, net of income taxes, were recognized in the Bank’s income statement as of July 1, 2010 and result in negative retained earnings of $5.2 million on the July 1, 2010 balance sheet.

Note 3. Investment Securities

The Bank’s investment securities are classified as held-to-maturity (“HTM”) at July 1, 2010. These securities are private residential mortgage backed securities with contractual maturities in excess of ten years.

Note 4. Loans

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 July 1, 2010, approximately 67% of loans outstanding was secured by California real estate. At July 1, 2010, 94% of single family and home equity lines of credit contain an interest-only payment feature.

F-89 The following table presents the major categories of loans outstanding, including those subject to ASC 310-30. The loans are presented with the contractual balance, net of any purchase accounting adjustments.

Net Unaccreted ($ in thousands) Principal Discount Total Types of Loans: Single family (1-4 units) ...... $10,904,427 $(346,816) $10,557,611 Home equity credit lines ...... 1,718,805 (32,049) 1,686,756 Commercial real estate ...... 2,076,411 (194,212) 1,882,199 Multifamily (5+ units) mtgs ...... 1,830,358 (85,826) 1,744,532 Multifamily/commercial construction ...... 162,765 (9,775) 152,990 Single family construction ...... 182,045 (9,595) 172,450 Total real estate mortgages ...... 16,874,811 (678,273) 16,196,538 Commercial business loans ...... 845,681 (62,665) 783,016 Other secured ...... 179,578 (13,234) 166,344 Unsecured loans and lines of credit ...... 102,001 (9,023) 92,978 Stock secured ...... 25,367 (127) 25,240 Total other loans ...... 1,152,627 (85,049) 1,067,578 Total loans ...... $18,027,438 $(763,322) 17,264,116 Real estate loans held for sale ...... 27,732 Total ...... $17,291,848

The Bank has pledged $11.8 billion of loans to secure borrowings from the Federal Home Loan Bank of San Francisco (“FHLB”) as of July 1, 2010.

At July 1, 2010, loans within the scope of ASC 310-30 had an unpaid principal balance of $251.4 million. The following table provides details on the credit impaired loans acquired at July 1, 2010:

($ in thousands) Contractually required payments, including interest ...... $279,360 Nonaccretable difference ...... (29,540) Cash flows expected to be collected ...... $249,820 Accretable yield ...... (30,374) Fair value of loans acquired ...... $219,446

At July 1, 2010, there were no loans over 90 days past due and accruing. Nonaccrual loans totaled $15.0 million at July 1, 2010, which was 0.09% of loans.

The Bank restructures loans generally because of the borrower’s financial difficulties, by granting concessions to reduce the interest rate, to waive or defer payments or, in some cases, to reduce the principal balance of the loan. Loans that are partially charged off and loans that have been modified in troubled debt restructurings are 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 or restructured performing status. As of July 1, 2010, balances related to troubled debt restructurings included in nonaccrual loans was $12.4 million.

F-90 Note 5. Mortgage Banking Activity

The following table presents the portfolio of loans serviced for others and the fair value of the Bank’s MSRs and valuation statistics as of July 1, 2010:

($ in thousands) Loans serviced for others ...... $3,737,046 Fair value of MSRs ...... $ 23,371 MSRs as a percent of total loans serviced ...... 0.63% Weighted average servicing fee ...... 0.26% MSRs as a multiple of weighted average servicing fee ...... 2.38x

The following table presents the Bank’s key assumptions used in measuring the fair value of MSRs as of July 1, 2010 and the pre-tax sensitivity of the fair values to an immediate 10% and 20% adverse change in these assumptions:

($ in thousands) Fair value of MSRs ...... $23,371 Weighted average prepayment speed (CPR) ...... 18.00% Impact on fair value of 10% adverse change ...... $ (1,604) Impact on fair value of 20% adverse change ...... $ (3,065) Weighted average discount rate ...... 13.84% Impact on fair value of 10% adverse change ...... $ (869) Impact on fair value of 20% adverse change ...... $ (1,675)

The sensitivity analysis above is hypothetical and should be used with caution. In particular, the effect of a variation in a particular assumption on the fair value of MSRs is calculated independent of changes in any other assumption; in practice, changes in one factor may result in changes in another factor, which may magnify or counteract the sensitivities. Further changes in fair value based on a single variation in assumptions generally cannot be extrapolated because the relationship of the change in a single assumption to the change in fair value may not be linear.

The Bank’s involvement with variable interest entities (“VIEs”) is limited to its mortgage servicing activities and interests purchased in securitizations. The Bank sells loans on a non-recourse basis and in most cases, retains the mortgage servicing rights. For nearly all of the Bank’s servicing activities, the only interest in the VIE is the mortgage servicing rights associated with performing our required servicing functions. The servicing fee is not considered a variable interest.

The Bank has variable interests in several VIEs related to First Republic real estate mortgage investment conduits (“REMICs”) that were formed in 2000 through 2002. The Bank has purchased various tranches of these securitizations. The Bank owns securities in one of the REMICs and, as a result, is the primary beneficiary of that securitization, which results in consolidation of the REMIC. The Bank also holds significant variable interests in two other REMICs sponsored by the Bank.

F-91 The following table summarizes the assets and liabilities recorded on the Bank’s balance sheet associated with transactions with VIEs as of July 1, 2010:

VIEs that we do VIEs that we ($ in thousands) not consolidate consolidate Total Investment securities held-to-maturity ...... $ 3,562 $ — $ 3,562 Loans ...... — 33,427 33,427 Mortgage servicing rights ...... 23,371 — 23,371 Total Assets ...... 26,933 33,427 60,360 Liabilities—Debt ...... — 32,684 32,684 Net assets ...... $26,933 $ 743 $27,676

The Bank’s exposure to loss with respect to the consolidated VIE is limited to the investment in the securities purchased. The debt holders of the REMIC have no recourse to the Bank.

Note 6. Prepaid Expenses and Other Assets

The Bank’s prepaid expenses and other assets consisted of the following:

($ in thousands) Prepaid FDIC insurance assessment ...... $ 99,200 Interest receivable ...... 69,707 Mutual fund settlement receivable ...... 30,769 Federal Home Loan Bank Stock, at cost ...... 25,000 Foreign exchange derivatives ...... 21,868 Other assets ...... 20,021 Other prepaid expenses ...... 10,729 Total ...... $277,294

Note 7. Premises, Equipment and Leasehold Improvements

Premises, equipment and leasehold improvements are summarized below at July 1, 2010:

($ in thousands) Land, buildings and improvements ...... $ 1,108 Furniture, equipment and software ...... 21,822 Leasehold improvements ...... 64,728 Construction-in-progress ...... 9,539 Total ...... $97,197

Future minimum rental payments required under operating leases, net of sublease income, including the Bank’s office facilities, that have initial or remaining noncancelable terms in excess of one year were as follows at July 1, 2010:

($ in thousands) Operating leases: 7/1/2010 – 12/31/2010 ...... $ 13,282 2011 ...... 26,173 2012 ...... 25,002 2013 ...... 24,775 2014 ...... 24,320 Thereafter ...... 90,082 Total ...... $203,634

F-92 Note 8. Goodwill and Intangible Assets

The gross carrying value of intangible assets at July 1, 2010 was:

($ in thousands) Amortized intangible assets: Mortgage servicing rights ...... $ 23,371 Core deposit intangibles ...... 87,550 Customer relationship intangibles ...... 39,150 Total amortized intangibles ...... $150,071 Goodwill ...... $ 24,604 Trade name ...... $ 42,900

The entire amount of goodwill has been allocated to the commercial banking segment.

Note 9. Customer Deposits

At July 1, 2010, the contractual maturities of the Bank’s certificates of deposit were as follows:

($ in thousands) Certificates of deposit: 7/1/2010 – 12/31/2010 ...... $1,622,513 2011 ...... 2,642,925 2012 ...... 1,032,145 2013 ...... 284,867 2014 ...... 193,857 Thereafter ...... 220,768 Subtotal ...... 5,997,075 Purchase accounting adjustment ...... 137,127 Total ...... $6,134,202

At July 1, 2010, certificates of deposit of $100,000 or more (based on contractual balances) totaled $4.2 billion. At July 1, 2010, certificates of deposit over $250,000 (based on contractual balances) totaled $1.8 billion.

Note 10. Federal Home Loan Bank Advances

The Bank is an approved member of the FHLB. FHLB advances are adjustable rate at July 1, 2010. The carrying value of the Bank’s FHLB advances are as follows at July 1, 2010:

($ in thousands) Amount Rate Advances maturing in: 7/1/2010 – 12/31/2010 ...... $ — — 2011 ...... —— 2012 ...... 60,000 0.59% 2013 ...... 70,000 0.42% 2014 ...... — Thereafter ...... — Subtotal ...... 130,000 0.50% Purchase accounting adjustment ...... 823 Total ...... $130,823 0.50%

On July 12, 2010, the Bank repaid the FHLB advances at their July 1, 2010 carrying amount.

F-93 The Bank is required to own FHLB stock at least equal to 4.7% of outstanding FHLB advances. The Bank owned FHLB stock of $25.0 million at July 1, 2010, which is recorded at cost.

Note 11. Subordinated Notes

The carrying value of the Bank’s subordinated notes is as follows at July 1, 2010:

($ in thousands) Outstanding amount ...... $63,770 Purchase accounting adjustment ...... 5,902 Total carrying value ...... $69,672

These notes carry a contractual interest rate of 7.75% and mature on September 15, 2012. Purchase accounting adjustments are amortized and recorded as a reduction to interest expense over the contractual life of the subordinated notes using a level yield methodology.

Note 12. Noncontrolling Interests

The Bank formed FRPCC, which is an SEC registrant, in April 1999 and FRPCC II in September 2001, each of which is a real estate investment trust (“REIT”) for federal income tax purposes. Each REIT has issued preferred stock, which the Bank reports as noncontrolling interests within total equity in the Bank’s consolidated balance sheet. The Bank records dividends paid to other owners of the REITs’ preferred stock as noncontrolling interests on the statement of income. Under banking regulations, the REITs’ preferred stock is treated as Tier 1 Capital up to 25% of total Tier 1 Capital, and any excess amount is treated as Tier 2 Capital. Under certain adverse or regulatory circumstances, each series of the REITs’ preferred stock is exchangeable into preferred stock of the Bank at the direction of regulators.

FRPCC completed a $55.0 million initial private offering of 10.50% noncumulative perpetual exchangeable Series A preferred stock (“Series A Preferred Stock”) in June 1999. If declared, dividends on the Series A Preferred Stock are payable semiannually. FRPCC completed a $60.0 million public offering of 7.25% noncumulative perpetual exchangeable Series D preferred stock (“Series D Preferred Stock”) in June 2003. The Series D Preferred Stock has a liquidation value of $25 per share, and, if declared, dividends are payable quarterly on the liquidation value. The Series D Preferred Stock is traded on the Nasdaq National Market under the symbols “FRCCO.” At July 1, 2010, FRPCC had total assets of approximately $299 million, consisting primarily of single family mortgage loans.

In August 2003, FRPCC II completed a $10.0 million private placement of 8.75% noncumulative perpetual exchangeable Series B preferred stock (“FRPCC II Series B” Preferred Stock). The FRPCC II Series B Preferred Stock has a liquidation value of $25 per share and, if declared, dividends are payable quarterly. At July 1, 2010, FRPCC II had total assets of approximately $1.1 billion, consisting primarily of multifamily and commercial real estate mortgage loans and cash equivalents.

The carrying value of the REITs’ preferred stock is as follows at July 1, 2010:

Par Carrying Premium ($ in thousands) Value Value (Discount) Series A—FRPCC ...... $29,590 $30,460 $ 870 Series D—FRPCC ...... 60,000 46,800 (13,200) Series B—FRPCC II ...... 10,000 9,310 (690) Total ...... $99,590 $86,570 $(13,020)

At July 1, 2010, the Bank owned $25.4 million of FRPCC’s Series A Preferred Stock, which reduces the outstanding balance of noncontrolling interests for the total amount purchased.

F-94 Note 13. Derivative Financial Instruments

Management uses derivative instruments, including interest rate swaps and caps, as part of its interest rate risk management strategy. In accordance with ASC No. 815, “Derivatives and Hedging,” the Bank recognizes all derivatives on the balance sheet at fair value. The Bank did not have any interest rate swaps or caps used as part of its interest rate risk management strategy at July 1, 2010.

Derivative assets and liabilities consist of foreign exchange contracts executed with customers; the Bank offsets the customer exposure to another financial institution counterparty represented by major investment banks and large commercial banks. The Bank does not retain foreign exchange risk. The amounts presented in the table below include the foreign exchange contracts with both the customers and the financial institution counterparties. The Bank uses current market prices to determine the fair value of these contracts.

The Bank also creates derivative instruments when it enters into interest rate lock commitments for single family mortgage loans that will be sold to investors. The Bank’s interest rate risk exposure to these commitments is not significant as these derivatives are economically hedged with forward commitments to sell the loans to investors.

The total notional or contractual amounts and fair values for derivatives at July 1, 2010 are presented below:

Notional or Fair value contractual Asset Liability ($ in thousands) amount derivatives (1) derivatives (2) Foreign exchange contracts ...... $417,759 $21,868 $20,627 Interest rate contracts with borrowers ...... $ 52,546 396 — Forward loan sale commitments ...... $ 80,174 — 735 Total ...... $22,264 $21,362

(1) Included in prepaid expenses and other assets on the balance sheet (2) Included in other liabilities on the balance sheet

The credit risk associated with these derivative instruments is the risk of non-performance by the counterparty to the contracts. Management does not anticipate non-performance by any of the counterparties.

Note 14. Income Taxes

The following table presents the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at July 1, 2010:

($ in thousands) Deferred tax assets: Certificates of deposit ...... $ 58,322 Loan discount ...... 20,657 Subordinated notes ...... 2,858 Other ...... 6,297 Total deferred tax assets: ...... 88,134 Deferred tax liabilities: Intangible assets ...... (20,728) Total deferred tax liabilities: ...... (20,728) Net deferred tax assets ...... $ 67,406

F-95 The Bank has determined that a valuation allowance is not required for any of the deferred tax assets since it is more likely than not that these assets will be realized principally through future taxable income.

Under the terms of the Transaction, all tax liabilities of the Bank and its subsidiaries related to periods prior to June 30, 2010, including those liabilities associated with uncertain tax positions, remained with Bank of America.

Note 15. Preferred Stock

As of July 1, 2010, the Bank was authorized to issue 25,000,000 shares of preferred stock. The Bank has designated and reserved for issuance 55,000 shares of 10.5% Noncumulative Series M Preferred Stock (“Series M Preferred Stock), 60,000 shares of 7.25% Noncumulative Perpetual Series N Preferred Stock (“Series N Preferred Stock”), 250 shares of 10% Noncumulative Series O Preferred Stock (“Series O Preferred Stock”), and 10,000 shares of 8.75% Noncumulative Perpetual Series P Preferred Stock (“Series P Preferred Stock” and, collectively with the Series M Preferred Stock, Series N Preferred Stock and Series O Preferred Stock, “REIT Exchangeable Preferred Stock”). No shares of preferred stock are currently outstanding, and shares of any series of REIT Exchangeable Preferred Stock will only be issued, if ever, in an automatic exchange for shares of preferred stock issued by FRPCC and FRPCC II upon the occurrence of one of the following events: (i) the Bank becomes “undercapitalized” under regulations established pursuant to the FDIA, (ii) the Federal Deposit Insurance Corporation (“FDIC”) or the Department of Financial Institutions directs in writing that an exchange occur because it anticipates that the Bank may in the near term become undercapitalized or (iii) the Bank is placed into bankruptcy, reorganization, conservatorship or receivership.

Note 16. Common Stockholder’s Equity

As of July 1, 2010, the Bank was authorized to issue 400,000,000 shares of common stock, par value $0.01 per share. On July 1, 2010, the Bank issued 124,133,334 shares at a price of $15.00 per share.

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 accounting practices. The Bank’s capital amounts and classification will also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total Capital and Tier 1 Capital to risk-weighted assets and of Tier 1 Capital to average assets (“Tier 1 Leverage Ratio”). In addition, as a newly chartered institution, the Bank is required to maintain a higher Tier 1 Leverage Ratio at 8% of average assets. Management believes, as of July 1, 2010, that the Bank meets all capital adequacy requirements to which it is subject.

The following table presents the actual capital amounts and ratios of the Bank at July 1, 2010:

Minimum for Capital Minimum to Be Well Actual Adequacy Purposes Capitalized ($ in thousands) Amount Ratio Amount Ratio Amount Ratio Total capital to risk-weighted assets ...... $1,771,531 13.76% $1,029,832 8.00% $1,287,290 10.00% Tier 1 capital to risk-weighted assets ...... 1,746,023 13.56% 514,916 4.00% 772,374 6.00% Tier 1 capital to adjusted total assets ...... 1,746,023 8.71% 802,288 4.00% 1,002,860 5.00%

F-96 Note 17. Commitments and Contingencies

At July 1, 2010, the Bank had conditional commitments to originate loans of $304.8 million and to disburse additional funds on existing loans and lines of credit of $3.4 billion. In addition, the Bank had undisbursed standby letters of credit of $177.3 million at July 1, 2010. The Bank’s commitments to originate loans are agreements to lend to a client as long as there is no violation of any of several credit or other established conditions. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn, the total commitment amounts do not necessarily represent future cash requirements.

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, is material.

Note 18. Stock Compensation Plans

The Bank follows ASC 718, “Compensation—Stock Compensation,” in accounting for its stock compensation plan. Pursuant to ASC 718, the Bank measured the compensation cost of stock options on the fair value of the options at the grant date and recognizes compensation expense over their requisite service periods.

Under the 2010 Stock Option Plan (the “Stock Option Plan”), the Bank is authorized to grant 16,927,273 shares of common stock. On July 1, 2010, the Bank granted stock options to purchase 15,386,545 shares to employees, officers and directors under the Stock Option Plan. Under the Bank’s stock option agreements, the exercise price of each option equals the market price of the Bank’s common stock at the grant date. Generally, stock options vest over a period of up to four years from the grant date and have a maximum contractual life of ten years.

The Bank has granted options that have time vesting requirements, performance vesting criteria and market vesting conditions. The following table summarizes the number of options granted, the exercise price and the fair value by each vesting criteria:

Number of Options Exercise Outstanding Price Fair Value Time ...... 3,116,962 $15.00 $5.24 to $ 5.76 Performance ...... 10,858,977 $15.00 $5.65 to $ 5.76 Market condition ...... 1,410,606 $15.00 $ 5.99

Of the time vested options, approximately 2.8 million vest on a monthly basis in equal amounts over a term of 48 months. The remaining time options vest 25% per annum over four years. Performance options vest 25% per annum over four years provided that certain criteria, including return on equity, nonperforming asset ratios and growth in non-certificates of deposit accounts, are achieved. The measurement of the performance criteria occurs at the calendar year-end with vesting generally on June 30 of the following year. Certain time and performance options have accelerated vesting provisions or could change the type of option upon the occurrence of certain events. The options with a market condition will become exercisable based upon achieving a return on investment to the initial investors in the Bank based upon a multiple of the initial investment at certain dates in the future.

The following table presents the assumptions used to value the time and performance stock options at July 1, 2010 using a Black-Scholes option valuation model:

Time Performance Expected volatility ...... 35% 35% Expected dividends (yield) ...... —— Expected dividends ...... —— Expected term (in years) ...... 5.34 – 6.25 6.05 – 6.25 Risk-free interest rate ...... 1.91% – 2.19% 2.13% – 2.19%

F-97 The market condition options were modeled using a simulation model of the stock price over multiple scenarios.

The unrecognized compensation cost related to stock options granted at July 1, 2010 is $86.9 million. The cost is expected to be recognized over approximately four years.

Note 19. Segments

ASC 280-10, “Segment Reporting,” requires that a public business enterprise reports 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 following table presents the goodwill and total assets of the Bank’s two reportable segments, as well as any reconciling items to consolidated totals, as of July 1, 2010:

Commercial Wealth Reconciling Total ($ in thousands) Banking Management Items Consolidated Goodwill ...... $ 24,604 $ — $— $ 24,604 Total Assets ...... $20,152,859 $100,873 $— $20,253,732

The commercial banking segment represents the operations of the Bank, including real estate secured lending, retail deposit gathering, private banking activities, mortgage sales and servicing, and managing the capital, liquidity and interest rate risk.

The wealth management segment consists of the investment management activities of FRIM, which manages assets for individuals and institutions in equities, fixed income and balanced accounts. In addition, the wealth management segment also includes First Republic Trust Company, a division of the Bank that offers personal trust services; FRWA, which offers advisory services to high net worth clients; the Bank’s mutual fund activities; the brokerage activities of FRSC; and the Bank’s foreign exchange activities conducted on behalf of customers. The Bank merged FRWA into FRIM on September 30, 2010.

The reconciling items for assets include subsidiary funds on deposit with the Bank and any intercompany receivable that is reimbursed on a quarterly basis.

Note 20. Subsequent Events

The Bank evaluated the effects of subsequent events that have occurred subsequent to July 1, 2010, and through October 29, 2010, which is the date our financial statements were available to be issued.

F-98 11,000,000 Shares

Common Stock

OFFERINGCIRCULAR

BofA Merrill Lynch Morgan Stanley J.P. Morgan Barclays Capital Jefferies & Company Keefe, Bruyette & Woods Sandler O’Neill & Partners, L.P. Stifel Nicolaus Weisel

December 8, 2010