First Republic Bank
) declined 14.9% owing to expense worries, following its
second-quarter 2014 earnings release on last Wednesday. The company
reported core earnings per share of 69 cents, which excluded the
impact of purchase accounting. GAAP earnings per share for the
quarter was 76 cents, in line with both the Zacks Consensus
Estimate and the prior-year quarter figure.
Results were mainly benefited by increase in revenues, offset by
higher non-interest expenses and rise in the provision for loan
losses. Credit quality and capital position were mixed bags.
Excluding certain one-time items, net income available to common
shareholders was $97.0 million, up 12.6% from the prior-year
Performance in Detail
Total revenue was $410.1 million, up 12.2% year over year.
Excluding the impact of purchase accounting, First Republic's core
revenue came in at $388.8 million, up 17.2% year over year but
below the Zacks Consensus Estimate of $404.0 million.
First Republic's net interest income increased 9.9% year over year
to $333.2 million. Excluding the impact of purchase accounting, net
interest income was $312.0 million, up 15.7% from the year-ago
However, core net interest margin fell 21 basis points (bps) year
over year to 3.16%. Excluding the impact of purchase accounting,
margin was 3.38%, down 41 bps year over year.
The company's non-interest income came in at $76.8 million, up
23.4% year over year. The rise was primarily owing to an increase
in investment advisory fees and gains on sale of loans.
Non-interest expense was $222.7 million, up 17.9% year over year.
An increase in salaries and employee benefits, expenses related to
technology platform and professional fees primarily led to this
Core efficiency ratio was 56.3% as compared with 55.5% in the
prior-year quarter. Excluding the impact of purchase accounting,
the ratio was 54.3% as against 51.7% in the prior-year quarter. An
increase in efficiency ratio indicates decline in profitability.
First Republic's credit quality was mixed in the quarter. On a
year-over-year basis, provision for credit losses increased 72.3%
to $21.8 million and total nonperforming assets declined 17.0 % to
$52.1 million. Further, nonperforming assets to total assets ratio
was 0.11%, down from 0.17% in the year-ago quarter. As of Jun 30,
2014, the ratio of net loan charge-offs to average total loans was
0.001%, down from 0.006% the prior-year period.
Asset and Capital Position
First Republic's capital ratios were a mixed bag too. As of Jun 30,
2014, the company's Tier 1 leverage ratio was 9.73% versus 9.83% as
of Jun 30, 2013.
Tier 1 risk-based capital ratio was 13.74% compared with 13.52% as
of Jun 30, 2013. Further, book value per share came in at $26.82,
up from $21.59 at the end of the prior-year quarter.
Net loans increased 19.1% year over year to $36.1 billion as of Jun
30, 2014, while total deposits rose 24.1 % to $35.0 billion.
We expect rise in loans and deposits to keep First Republic's
organic growth momentum running. However, higher interest and
non-interest expenses remain causes of concern. An unsettled
economic environment and stringent regulations are other
First Republic currently carries a Zacks Rank #5 (Strong Sell).
Among other West banks,
) reported in-line earnings of 58 cents per share.
Central Pacific Financial Corp.
) is scheduled to report on Jul 24.
Bank of Commerce Holdings
) is slated to report on Jul 30.
(We are reissuing this article to correct a mistake. The
original article, issued on July 17, 2014, should no longer be
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