First Republic Bank
) reported its third quarter 2012 adjusted earnings of 54 cents
per share, substantially lagging the Zacks Consensus Estimate of
71 cents. However, results surpassed the earnings per share of 42
cents reported in the prior-year quarter.
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First Republic's results reflected growth in its top line.
Further, an increase in its loans and deposits were the positives
for the quarter. However, increasing expenses remained a cause of
Taking into consideration the impact of purchase accounting, the
company reported net income of $102.7 million or 72 cents per
share in the quarter, compared with $87.8 million or 66 cents per
share in the prior-year quarter.
First Republic's total revenue of $342.7 million in the reported
quarter increased 15% from the prior-year quarter. Moreover, it
surpassed the Zacks Consensus Estimate of $337.0 million.
Quarter in Detail
First Republic's net interest income hiked 11% compared with the
prior-year quarter to $298.8 million. Excluding the impact of
purchase accounting, net interest income (contractual net
interest income) stood at $252.2 million for the third quarter of
2012, up 22% compared with the prior-year quarter. The increase
in contractual net interest income was mainly attributable to
improvement in the average balances of loans and investment
securities along with lower deposit costs.
However, net interest margin fell 35 basis points (bps) year over
year to 4.13%.
Net loans surged 27% compared with the prior-year quarter, mainly
as a result of hike in single family loans, single family
construction loans, commercial business loans,
multifamily/commercial construction loans, unsecured loans and
lines of credit and other unsecured loans. Average deposits
increased 18% from the prior-year quarter, mainly due to
non-interest bearing and interest bearing checking accounts.
First Republic's non-interest income came in at $43.8 million, up
45% year over year. The hike was attributable to increases in
fees of investment advisory, trust and foreign exchange as well
as gain on sale of loans, partially mitigated by a drop in net
loan servicing fees.
Non-interest expenses totaled $178.4 million, up 23% year over
year. The increase was attributable to increased number of
employees, occupancy costs, costs associated with investments in
technology and tax credit investments.
First Republic's efficiency ratio declined to 52.1% from 48.5% in
the prior-year quarter. The increase in efficiency ratio
indicates a decline in profitability.
First Republic's credit quality deteriorated in the quarter under
review. Net charge-offs increased substantially on a sequential
basis and 29.7% year over year to $0.6 million.
Nonperforming assets to total assets ratio equaled 0.13% in the
reported quarter, rising from 0.10% in the prior quarter and
0.12% in the year-ago quarter.
The ratio of net loan charge-offs to average total loans on an
annualized basis was 0.01% as of September 30, 2012, in line with
the prior-year quarter.
During the reported quarter, First Republic's capital levels
remained stable. As of September 30, 2012, the company's leverage
ratio was 9.33% compared with 8.95% as of September 30. 2011.
Moreover, the Tier 1 risk-based capital ratio dropped 24 bps to
13.57%. However, the estimated Tier 1 common equity ratio moved
down 138 bps to 11.98% as of September 30, 2012.
Concurrent with the earnings release, the bank has declared a
quarterly cash dividend on its common shares of 10 cents per
share. The dividend will be paid on November 15, 2012 to
shareholders of record as on November 1, 2012.
Going forward, we believe First Republic's continued stability
and strength of our earnings, including mortgage banking results,
could drive growth over the next cycle. Moreover, its top-line
growth remains a positive. Further, the company's record of
regular dividend payment reflects its strong capital position.
Yet, the unsettled economic environment, low interest rate and
stringent regulatory issues are the matters of concern.
First Republic currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. One of its peers,
) retains a Zacks #2 Rank (a short-term Buy rating).