First Republic Bank 's FRC third-quarter 2018 earnings per share came in at $1.19, missing the Zacks Consensus Estimate of $1.20. However, the reported figure inched up 1.7% from the year-ago tally.
Shares of First Republic appreciated 2.5% post its third-quarter earnings release. Revenues improved from the prior-year quarter, backed by considerable rise in loans and deposit balances, and wealth management assets. However, despite rising rates, net interest margin disappointed on high deposit costs. Higher expenses and non-performing assets remained downsides.
Net income available to common shareholders for the reported quarter jumped 5.8% year over year to $196.4 million.
Revenues Increase, Expenses Flare Up
Net revenues in the Sep-end quarter came in at $768.8 million, up 14.7% year over year. Also, the reported figure surpassed the Zacks Consensus Estimate of $766 million.
First Republic's net interest income jumped 15.2% year over year to $634.5 million, primarily supported by growth in average earnings assets. Nevertheless, net interest margin was 2.94%, down 15 basis points (bps) year over year.
Non-interest income came in at $134.4 million, up 12.6% year over year. The upswing was chiefly driven by higher wealth management revenues.
On the other hand, non-interest expenses flared up 15.7% year over year to $484 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% compared with 62.4% 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 Sep 30, 2018, loans climbed to $72.3 billion, up 4.6% sequentially, while total deposits increased 2.7% from the previous-quarter end to $74.8 billion. Loan originations came in at $7 billion in the Jul-Sep quarter, down 24.8% from the previous-quarter level, mainly due to a decline in originations across all segments of loan portfolio.
First Republic's total wealth management assets were $131 billion as of Sep 30, 2018, marking 8.1% growth from the last 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 led to this elevated level.
Credit Quality Deteriorates
Provision for loan losses surged 84.2% on a year-over-year basis to $18.6 million in the quarter under review.
In addition, on a year-over-year basis, total non-performing assets increased 12.3% year over year to approximately $42.6 million. Nonetheless, the non-performing assets to total assets ratio remained stable at 0.04%.
As of Sep 30, 2018, the company's Tier 1 leverage ratio was 8.94%, indicating an expansion of 16 bps from the comparable period last year.
Tier 1 capital to risk-weighted assets was 12.14%, down from 12.27% witnessed in the prior-year quarter. Common equity Tier 1 ratio was 10.47% compared with 10.58% in the year-earlier quarter.
Tangible book value per share climbed 13.1% year over year to $44.
First Republic's third-quarter results highlighted robust financials. The company's efforts to maintain its organic growth momentum through new client acquisitions were backed by improvement in loans and deposits which boosted revenue performance. Nevertheless, investment in franchises resulted in elevated expenditure which may impede bottom-line growth in the quarters ahead. Also, the company's shrinking net interest margin remains another key concern.
First Republic Bank Price, Consensus and EPS Surprise
First Republic Bank price-consensus-eps-surprise-chart | 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 third-quarter 2018 results on Oct 22, while SVB Financial Group SIVB is scheduled to report its quarterly numbers on Oct 25.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free reportFirst Republic Bank (FRC): Free Stock Analysis ReportZions Bancorporation (ZION): Free Stock Analysis ReportBank of Hawaii Corporation (BOH): Free Stock Analysis ReportSVB Financial Group (SIVB): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research