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First Republic's (FRC) Q1 Earnings Beat, Revenues Increase

Zacks Equity Research

First Republic Bank FRC delivered a positive earnings surprise of 3.3% in first-quarter 2019, reflecting higher revenues. Earnings per share came in at $1.26, outpacing the Zacks Consensus Estimate of $1.22. Moreover, the bottom line improved 11.5% from the year-ago figure.

The company’s performance was supported by top-line strength. In addition, a considerable rise in loans and deposit balances was recorded. Strong capital position was another tailwind. However, higher provisions and expenses were the key undermining factors.

Net income available to common shareholders for the reported quarter jumped 14.4% year over year to $213.8 million.

Revenues and Expenses Increase

Net revenues in the quarter came in at $807.4 million, up 12% year over year. However, the figure lagged the Zacks Consensus Estimate of $814 million.

First Republic’s net interest income jumped 14.8% to $675 million, primarily supported by growth in average earnings assets. Nevertheless, net interest margin was 2.97%, stable year over year.

Non-interest income came in at $132.3 million, down marginally year over year. Prior-year quarter results had included a gain on investment securities, excluding which, higher investment management revenues were offset by lower brokerage fees.

Non-interest expenses for the reported quarter were up 13.7% year over year to $524.8 million. An increase in salaries and benefits, information systems and other costs, which was the outcome of continued investments in the expansion of franchise, led to the upsurge.

The efficiency ratio was 65% compared with 64% recorded in the prior-year quarter. It should be noted that a rise in the efficiency ratio indicates lower profitability.

Balance Sheet Remains Healthy

As of Mar 31, 2019, net loans climbed 1.8% sequentially to $76.8 billion, while total deposits were up 3.2% to $81.6 billion. However, loan originations were $6.7 billion in the reported quarter, down 19.7% sequentially, mainly due to fall in almost all types of lending including single family, multifamily and home equity lines of credit.

First Republic’s total wealth management assets were $139.9 billion as of Mar 31, 2019, indicating 10.8% sequential rise. 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 higher level of assets.

Credit Quality: A Concern?

On a year-over-year basis, total non-performing assets increased 4.5% to approximately $51.1 million. The non-performing assets to total assets ratio remained stable at 0.05%.

Further, provision for loan losses jumped 9.2% on a year-over-year basis to $14.2 million in the quarter.

Capital Position

As of Mar 31, 2019, the company’s Tier 1 leverage ratio was 8.84%, indicating a rise of 20 basis points from the in the prior-year quarter.

Tier 1 capital to risk-weighted assets was 11.82%, up from 11.80%.

Common equity Tier 1 ratio was 10.54% compared with 10.47% a year ago.

Tangible book value per share increased 12.9% to $46.81.

Dividend Hike

First Republic’s board of directors raised quarterly common stock dividend to 19 cents per share, reflecting 5.6% hike from the previous payout. The dividend will be paid on May 9 to shareholders on record as of Apr 25, 2019.

Our Viewpoint

First-quarter results of First Republic look decent. The company was able to sustain its organic growth momentum, reflected by higher loans and deposits. Further, capital position improved during the quarter. Nonetheless, higher expenses and provisions, and decline in fee income remain concerns.

First Republic Bank Price, Consensus and EPS Surprise

 

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

 

First Republic Bank 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, East West Bancorp EWBC, Zions Bancorp ZION and SVB Financial Group SIVB are slated to release first-quarter 2019 results on Apr 18, Apr 22 and Apr 25, respectively.

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