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First Republic (FRC) Q3 Earnings Beat on Revenue Growth

Driven by top-line growth, First Republic BankFRC delivered a positive earnings surprise of 1.2% in third-quarter 2015. Earnings per share of 82 cents beat the Zacks Consensus Estimate of 81 cents. However, the reported figure compared unfavorably with the prior-year earnings of 86 cents.

Core earnings per share for the quarter came in at 79 cents, up 11.3% year over year. Core measures are non-GAAP financial measures that exclude the positive impact of purchase accounting and certain other one-time items.

Results were aided by higher revenues reflecting increased net interest income. However, the quarter experienced increase in provision for loan losses as well as higher non-interest expenses.

Core net income available to common shareholders was $115.8 million, up nearly 15% from the prior-year quarter.

Performance in Detail

Total revenue ("GAAP") was $468.6 million, increasing 6.3% year over year. However, it missed the Zacks Consensus Estimate of $474.3 million. Core revenues were $459.0 million, up 14.9% year over year.

First Republic's core net interest income increased 18.4% year over year to $379.2 million. Notably, core net interest margin of 3.09% remained stable with the year-ago period.

The company's core non-interest income came in at $79.7 million, almost stable year over year. The quarter witnessed year-over-year growth in several income categories including investment advisory fees, trust fees, income from investments in life insurance, loan and related fees, and brokerage and investment fees.

Non-interest expense scaled up 15.7% year over year to $275.9 million. This rise was primarily related to investments made in infrastructure building for meeting enhanced regulatory standards and supporting business activities that are underway.

Core efficiency ratio was 59.4% compared with 58.7% in the prior-year quarter. An increase in efficiency ratio indicates deterioration in profitability.

As of Sep 30, 2015, excluding loans held for sale, outstanding loans stood at $42.4, up 15.7% year over year and total deposits rose 24.5% to $44.3 billion.

First Republic's total wealth management assets were $58.8 billion as of Sep 30, 2015, up 14.5% year over year. Wealth management assets include investment management assets, brokerage assets, money market mutual funds, trust and custody assets.

Credit Quality

First Republic's credit quality was a mixed bag in the quarter. On a year-over-year basis, total non-performing assets increased 8.7% to $54.5 million. Provision for credit losses increased 7.3% year over year to $14.65 million.

However, non-performing assets to total assets ratio was 0.10%, down 1 basis point year over year. Also, the quarter experienced net recoveries of $39,000 compared to net recoveries of $0.2 million in the prior-year quarter.

Capital Position

First Republic's capital ratios remained strong in the quarter. As of Sep 30, 2015, the company's Tier 1 leverage ratio was 9.38% versus 9.51% as of Sep 30, 2014. Common Equity Tier 1 ratio stood at 10.66%. Tier 1 risk-based capital ratio was 13.14% compared with 13.83% as of Sep 30, 2014.

At the end of the quarter, book value per share was $30.84, reflecting an increase of 12.2% year over year.

Other Developments

In its efforts to strengthen the wealth management business, on Oct 1, 2015, First Republic completed the acquisition of Constellation Wealth Advisors LLC, a leading private wealth manager and advisory firm, through its wholly owned subsidiary, First Republic Investment Management, Inc.

As of Sep 30, 2015, Constellation had assets under management of around $5.9 billion.

Our Viewpoint

First Republic reported strong results for the third quarter. We remain encouraged by the continued revenue growth. We believe a persistent rise in loans and deposits will keep the company's organic growth momentum alive.

Despite the rising expenses, we remain optimistic about the company's prospects. Higher expenses in the recent quarters were triggered by increased compliance and infrastructure investments. These are necessary for First Republic as it headed to a $50 billion plus institution. Notably, as projected by the company, the average of the last four quarter-end total assets exceeded $50 billion in the reported quarter, reaching $52 billion.

However, margin pressure amid a low interest rate environment keeps us apprehensive.

First Republic currently carries a Zacks Rank #3 (Hold).

Other Banks

Zions Bancorporation ZION , Umpqua Holdings Corporation UMPQ and Bank of Hawaii Corporation BOH are slated to report third-quarter results on Oct 19, Oct 21 and Oct 26, respectively.

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FIRST REP BK SF (FRC): Free Stock Analysis Report

ZIONS BANCORP (ZION): Free Stock Analysis Report

BANK OF HAWAII (BOH): Free Stock Analysis Report

UMPQUA HLDGS CP (UMPQ): 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.


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

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