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First Republic (FRC) Q2 Earnings Beat Estimates, Costs Rise


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First Republic Bank 's FRC second-quarter 2018 earnings per share came in at $1.20, outpacing the Zacks Consensus Estimate of $1.15. Moreover, the reported figure climbed 13.2% from the year-ago tally.

Revenues improved from the prior-year quarter. In addition, a considerable rise in loans and deposit balances was recorded. However, despite rising rates, net interest margin disappointed on high deposit costs. Further, higher expenses and non-performing assets were undermining factors.

Net income available to common shareholders for the quarter jumped 14.7% year over year to $197.6 million.

Revenues Increase, Expenses Flare Up

Net revenues in the quarter came in at $744.1 million, up 16% year over year. Also, the reported figure surpassed the Zacks Consensus Estimate of $734 million.

First Republic's net interest income jumped 15% year over year to $611.7 million, primarily supported by growth in average earnings assets. Nevertheless, net interest margin was 2.95%, down 21 basis points (bps) year over year.

Non-interest income came in at $132.4 million, up 21.1% year over year. The upswing was chiefly driven by higher wealth management revenues and gain on sale of loans.

On the other hand, non-interest expenses flared up 19% year over year to $472.6 million. An increase in salaries and benefits, information systems, and other costs, which came in as the outcome of continued investments in the expansion of franchise, primarily led to this spike.

The efficiency ratio was 63.5% compared with 61.9% recorded in the prior-year quarter. It should be noted that a rise in the efficiency ratio indicates deterioration in profitability.

Healthy Balance Sheet

As of Jun 30, 2018, loans climbed to $69.2 billion, up 6.1% sequentially, while total deposits increased 2.1% from the previous-quarter end to $72.8 billion. Loan originations came in at $9.4 billion in the reported quarter, up 27.6% from the prior-quarter level, mainly due to elevated business lending and single family loans.

First Republic's total wealth management assets were $121.1 billion as of Jun 30, 2018, an upsurge of 7.2% from the previous quarter. 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 this elevated level.

Credit Quality: A Mixed Bag

Provision for loan losses declined 19.1% on a year-over-year basis to $19.4 million in the April-June quarter. The non-performing assets to total assets ratio shrunk 1 basis point to 0.05%.

However, on a year-over-year basis, total non-performing assets increased 12.4% year over year to approximately $50.9 million.

Capital Position

As of Jun 30, 2018, the company's Tier 1 leverage ratio was 8.83%, indicating a contraction of 16 bps from the comparable period last year.

Tier 1 capital to risk-weighted assets was 11.9%, down from 12.49% in the prior-year quarter. Common equity Tier 1 ratio was 10.18% compared with 10.72% in the year-earlier quarter.

Tangible book value per share increased 11.4% year over year to $42.15.

Conclusion

First Republic put up an impressive performance in the second quarter. The company's efforts to maintain its organic growth momentum were backed by improvement in loans and deposits which boosted revenue performance. Nonetheless, mounting expenses and non-performing assets might hurt bottom-line growth in the quarters ahead. Also, its shrinking net interest margin remains another key concern.

First Republic Bank Price, Consensus and EPS Surprise

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



First Republic 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, Zions Bancorporation ZION and Bank of Hawaii Corporation BOH are slated to release second-quarter 2018 results on Jul 23, while SVB Financial Group SIVB is scheduled to report on Jul 26.

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Zions Bancorporation (ZION): Free Stock Analysis Report

Bank of Hawaii Corporation (BOH): Free Stock Analysis Report

SVB Financial Group (SIVB): Free Stock Analysis Report

First Republic Bank (FRC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: ZION , BOH , SIVB , FRC



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