It has been about a month since the last earnings report for First Republic Bank (FRC). Shares have added about 2.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is First Republic Bank due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
First Republic Q3 Earnings Lag Estimates, Costs Rise
First Republic Bank's 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 figure.
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 September-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).
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 July-September 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, 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 Sep 30, 2017.
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.
Management expects net interest margin to be 2.85-2.95% in fourth-quarter 2018. The efficiency ratio is anticipated to be 63-64% in 2018. Effective tax rate for full-year 2018 is estimated to be around 19%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
At this time, First Republic Bank has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
First Republic Bank has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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