First Republic Bank
) witnessed a steep fall owing to expense worries, following its
second-quarter 2014 earnings release. The company reported adjusted
earnings per share of 69 cents, missing the Zacks Consensus
Estimate of 76 cents. However, it was up from 64 cents earned in
the prior-year quarter.
Lower-than-expected results were mainly due to higher interest and
non-interest expenses and rise in the provision for loan losses,
partly offset by increase in revenues. Credit quality and capital
position were mixed bags.
Including certain one-time items, the company reported net income
of $120.8 million, up 7.4% from the prior-year quarter. Net income
available to common shareholders was $106.9 million, up 4.1% from
the prior-year quarter.
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 #3 (Hold).
Among other Western banks,
BBCN Bancorp, Inc.
) is scheduled to report results on Jul 21, while
SVB Financial Group
City National Corporation
) are expected to report on Jul 24.
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