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First Republic (FRC) Shares Up 1.29% on Q1 Earnings Beat


Shares of First Republic Bank FRC rose 1.29%, following the first-quarter 2018 results. The company registered a positive earnings surprise of 1.29%, reflecting higher revenues. Earnings per share came in at $1.13, outpacing the Zacks Consensus Estimate of $1.06. Moreover, the figure improved 11.9% from the year-ago tally.

Revenues improved from the prior-year quarter. In addition, a considerable rise in loans and deposit balances was recorded. Non-performing assets also declined. However, despite rising rates, net interest margin disappointed on high deposit costs. In addition, higher provisions and expenses were undermining factors.

Net income available to common shareholders for the quarter jumped 15.7% year over year to $186.9 million.

Revenues Escalate, Expenses Flare Up

Net revenues in the quarter came in at $720.9 million, up 19.9% year over year. However, the figure missed the Zacks Consensus Estimate of $723.2 million.

First Republic’s net interest income jumped 17.6% year over year to $587.8 million, primarily supported by growth in average earnings assets. Nevertheless, net interest margin was 2.97%, down 16 basis points (bps) year over year.

Non-interest income came in at $133.1 million, up 31.1% year over year. The rise was chiefly driven by higher wealth management revenues (up 27.6% year over year).

On the other hand, non-interest expenses increased 22% year over year to $461.6 million. An increase in salaries and benefits, information systems, and other costs, which came as the outcome of continued investments in the expansion of franchise, primarily led to this spike.

The efficiency ratio was 64% compared with 63% recorded in the prior-year quarter. It should be noted that a rise in the efficiency ratio indicates deterioration in profitability.

Balance Sheet Still Healthy

As of Mar 31, 2018, loans climbed 21% year over year to $65.2 billion, while total deposits were up 16.4% to $71.3 billion. Loan originations were $7.3 billion in the reported quarter, up 29.9% year over year, mainly due to elevated business lending, multifamily and construction loans.

First Republic’s total wealth management assets were $113 billion as of Mar 31, 2018, indicating 25.4% year-over-year growth. Wealth management assets included investment management assets, brokerage assets, money market mutual funds, and trust and custody assets. Notably, net new assets from existing and new clients, along with market appreciation, led to the elevated level of assets.

Credit Quality: A Mixed Bag

On a year-over-year basis, total non-performing assets decreased 5.4% year over year to approximately $48.9 million. The non-performing assets to total assets ratio shrunk 2 bps to 0.05%.

However, provision for loan losses jumped 42.9% on a year-over-year basis to $13 million in the reported quarter.

Capital Position

As of Mar 31, 2018, the company’s Tier 1 leverage ratio was 8.64%, indicating a contraction of 58 bps from the comparable period last year.

Tier 1 capital to risk-weighted assets was 11.8%, down from 12.94% in the prior-year quarter.

Common equity Tier 1 ratio was 10.47% compared with 11.15% in the year-earlier quarter.

Tangible book value per share increased 11.6% year over year to $41.46.

Dividend Update

First Republic announced a quarterly cash dividend of 18 cents per share of common stock, up around 5.9% from the prior payout. The new dividend will be paid on May 10 to shareholders of record as of Apr 26, 2018.

In Conclusion

First Republic reported an impressive first quarter. The company’s efforts to maintain its organic growth momentum, backed by improvement in loans and deposits, which boosted revenue performance, highlight optimism. Furthermore, lower non-performing assets are other tailwinds. However, higher expenses, and provisions, and decline in net interest margin remain concerns.

First Republic Bank Price, Consensus and EPS Surprise

First Republic Bank Price, Consensus and EPS Surprise | First Republic Bank Quote

First Republic currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other West banks, Zions Bancorporation ZION and Bank of Hawaii Corporation BOH are slated to release first-quarter 2018 results on Apr 23, while SVB Financial Group SIVB is scheduled to report on Apr 26.

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