First Republic Bank
) reported fourth-quarter 2013 adjusted earnings of 66 cents per
share, in line with the Zacks Consensus Estimate. However, this
compared favorably with the year-ago earnings of 61 cents.
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Bottom-line improvement was backed by revenue growth, increase in
loan and deposit balances as well as strong capital position.
However, rise in non-interest expenses, and deteriorating
profitability ratios were the headwinds for the quarter.
For 2013, the company's adjusted earnings per share of $2.65 came
in ahead of both the Zacks Consensus Estimate of $2.60 and the
prior-year figure of $2.14. Notably, the company delivered
positive earnings surprises in two of the trailing four quarters.
Including certain one-time items, the company reported net income
of $90.5 million, up 10% from $82.3 million in the prior-year
quarter, while for 2013 it increased 25% year over year to $360.8
Performance in Detail
Total revenues were $345.9 million for the quarter, up 9.2% year
over year. Excluding the impact of purchase accounting, First
Republic's core revenue came in at $371.0 million, up 3.7% from
the prior-year quarter but below the Zacks Consensus Estimate of
For 2013, the company's total revenue stood $1.5 billion, in line
with the Zacks Consensus estimate of $1.5 billion. However, it
was up 9.4% year over year. Further, core revenue came at 1.3
billion, up 16.4 % year over year.
Republic's net interest income increased 4.1% year over year to
$314.8 million. Excluding the impact of purchase accounting, net
interest income was $289.7 million, up 10.9% from the year-ago
quarter. Higher interest income on loans and investments was the
However, core net interest margin fell 40 basis points year over
year to 3.06%. Excluding the impact of purchase accounting,
margin was 3.32%, down 70 basis points (bps) year over year.
The company's non-interest income came in at $56.2 million, up
1.1% year over year. The rise was primarily attributed to a
significant increase in investment advisory fees and loan
Non-interest expenses stood $196.6 million, up 14.0% year over
year. Elevated salaries and employee benefits expense along with
increased expenses related to technology platform primarily led
to this rise.
Core efficiency ratio stood at 56.9% compared with 52.1% in the
prior-year quarter. Excluding the impact of purchase accounting,
the ratio was 54.2% compared with 49.6% in the prior-year
quarter. The increase in efficiency ratio indicates a decline in
First Republic's credit quality was a mixed bag in the quarter
under review. Though the provision for credit losses declined
significantly by 54.5%, total non performing assets increased
4.5% year over year to $57.7 million.
Further, nonperforming assets to total assets ratio equaled
0.14%, up 1% from 0.13% in the year-ago quarter. However, as of
Dec 31, 2013, the ratio of net loan charge-offs to average total
loans stood at 0.01%, in line with the prior-year period.
Asset and Capital Position
During the reported quarter, First Republic's capital ratios
stood at a well-capitalized level. As of Dec 31, 2013, the
company's Tier 1 leverage ratio was 9.19% compared with 9.33% as
of Dec 31, 2012.
The Tier 1 risk-based capital ratio was 13.34% compared with
13.28% as of Dec 31, 2012. Further, book value per share came in
at $24.63, up from $22.10 at the end of the prior-year quarter.
As of Dec 31, 2013 net loans increased 21.5% year over year to
$33.8 billion, while total deposits rose 18.4 % to $32.1 billion.
We expect First Republic's long-term inorganic growth strategy to
continue to gain momentum owing to its strong balance sheet
position. Revenue may get a boost if the company continues to
perform well in its Brokerage and Investment as well as Wealth
Yet, the unsettled economic environment, rising expenses and
stringent regulatory issues remain concerns. First Republic
currently carries a Zacks Rank #3 (Hold).
Among other banks,
State Street Corp.
) is scheduled to report fourth-quarter results on Jan 24, while
Fifth Third Bancorp
) are expected to release results on Jan 23.