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First Republic (FRC) Misses on Q4 Earnings, Shares Fall 4.1%
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Shares of First Republic Bank fell 4.1%, following fourth-quarter 2017 results. The company registered a negative earnings surprise of 4.3%, reflecting elevated expenses. Earnings per share came in at $1.10, missing the Zacks Consensus Estimate of $1.15. However, the figure improved 6.8% from the year-ago tally.
Despite rising rates, net interest margin disappointed on high deposit costs. Moreover, higher provisions and expenses were a major drag. However, revenues improved from the prior-year quarter. In addition, a considerable rise in loans and deposit balances were recorded. Non-performing assets also declined.
Net income available to common shareholders for the quarter jumped 11.3% year over year to $180 million.
For full-year 2017, net income was $757.7 million or $4.31 per share, up from $673.4 million or $3.93 per share in the prior year. Full-year earnings lagged the Zacks Consensus Estimate of $4.35.
Revenues Escalate, Expenses Flare Up
For 2017, net revenues were $2.6 billion, up 18.1% year over year. The top line missed the Zacks Consensus Estimate of $2.7 billion.
Net revenues in the quarter came in at $699.2 million, up 16.6% year over year. However, the figure missed the Zacks Consensus Estimate of $718.3 million.
First Republic’s net interest income jumped 15.9% year over year to $568.9 million, primarily supported by growth in average earnings assets. Nevertheless, net interest margin was 3.08%, down 8 basis points (bps) year over year.
Non-interest income came in at $130.3 million, up 19.7% year over year. The rise was chiefly driven by higher wealth management revenues (up 30% year over year).
On the other hand, non-interest expenses increased 23.7% year over year to $445.5 million. An increase in salaries and benefits, information systems, and other costs, which came as an outcome of continued investments in the expansion of franchise, led to the spike.
The efficiency ratio was 63.7% compared with 60.1% recorded in the prior-year quarter. It should be noted that a rise in the efficiency ratio indicates deterioration in profitability.
Notably, due to the Tax Reform Act, First Republic recorded a one-time revaluation adjustment of $39.7 million for reduction of deferred tax assets, increasing the provision for income taxes.
Balance Sheet Still Healthy
As of Dec 31, 2017, loans climbed 20.8% year over year to $62.8 billion, while total deposits were up 17.6% to $68.9 billion. Loan originations were $7.4 billion in the reported quarter, down 6.3% year over year, marking the second strongest quarter ever.
First Republic’s total wealth management assets were $107 billion as of Dec 31, 2017, indicating 28% year-over-year growth. 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 the elevated level of assets.
Credit Quality: A Mixed Bag
On a year-over-year basis, total non-performing assets plunged 23.1% year over year to approximately $37.7 million. The non-performing assets to total assets ratio contracted 3 bps to 0.04%.
However, provision for loan losses jumped 61.9% on a year-over-year basis to $17 million in the reported quarter.
Capital Position
As of Dec 31, 2017, the company’s Tier 1 leverage ratio was 8.85%, indicating a decline of 52 bps from the comparable period last year.
Tier 1 capital to risk-weighted assets was 12.22%, down 85 bps year over year. Common equity Tier 1 ratio was 10.63% compared with 10.83% in the year-earlier quarter.
Tangible book value per share increased 14.4% year over year to $40.43.
In Conclusion
First Republic’s performance during the fourth quarter was decent. The company’s efforts to maintain its organic growth momentum, backed by growth in loans and deposits, which aided revenue growth, highlight optimism. Moreover, lower non-performing assets are the other tailwinds. However, higher expenses, and provisions and decline in net interest margin remain concerns.
Among other West banks, Zions Bancorporation (ZION - Free Report) and Bank of Hawaii Corporation (BOH - Free Report) are slated to release fourth-quarter 2017 results on Jan 22, while SVB Financial Group is scheduled to report on Jan 25.
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It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
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First Republic (FRC) Misses on Q4 Earnings, Shares Fall 4.1%
Shares of First Republic Bank fell 4.1%, following fourth-quarter 2017 results. The company registered a negative earnings surprise of 4.3%, reflecting elevated expenses. Earnings per share came in at $1.10, missing the Zacks Consensus Estimate of $1.15. However, the figure improved 6.8% from the year-ago tally.
Despite rising rates, net interest margin disappointed on high deposit costs. Moreover, higher provisions and expenses were a major drag. However, revenues improved from the prior-year quarter. In addition, a considerable rise in loans and deposit balances were recorded. Non-performing assets also declined.
Net income available to common shareholders for the quarter jumped 11.3% year over year to $180 million.
For full-year 2017, net income was $757.7 million or $4.31 per share, up from $673.4 million or $3.93 per share in the prior year. Full-year earnings lagged the Zacks Consensus Estimate of $4.35.
Revenues Escalate, Expenses Flare Up
For 2017, net revenues were $2.6 billion, up 18.1% year over year. The top line missed the Zacks Consensus Estimate of $2.7 billion.
Net revenues in the quarter came in at $699.2 million, up 16.6% year over year. However, the figure missed the Zacks Consensus Estimate of $718.3 million.
First Republic’s net interest income jumped 15.9% year over year to $568.9 million, primarily supported by growth in average earnings assets. Nevertheless, net interest margin was 3.08%, down 8 basis points (bps) year over year.
Non-interest income came in at $130.3 million, up 19.7% year over year. The rise was chiefly driven by higher wealth management revenues (up 30% year over year).
On the other hand, non-interest expenses increased 23.7% year over year to $445.5 million. An increase in salaries and benefits, information systems, and other costs, which came as an outcome of continued investments in the expansion of franchise, led to the spike.
The efficiency ratio was 63.7% compared with 60.1% recorded in the prior-year quarter. It should be noted that a rise in the efficiency ratio indicates deterioration in profitability.
Notably, due to the Tax Reform Act, First Republic recorded a one-time revaluation adjustment of $39.7 million for reduction of deferred tax assets, increasing the provision for income taxes.
Balance Sheet Still Healthy
As of Dec 31, 2017, loans climbed 20.8% year over year to $62.8 billion, while total deposits were up 17.6% to $68.9 billion. Loan originations were $7.4 billion in the reported quarter, down 6.3% year over year, marking the second strongest quarter ever.
First Republic’s total wealth management assets were $107 billion as of Dec 31, 2017, indicating 28% year-over-year growth. 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 the elevated level of assets.
Credit Quality: A Mixed Bag
On a year-over-year basis, total non-performing assets plunged 23.1% year over year to approximately $37.7 million. The non-performing assets to total assets ratio contracted 3 bps to 0.04%.
However, provision for loan losses jumped 61.9% on a year-over-year basis to $17 million in the reported quarter.
Capital Position
As of Dec 31, 2017, the company’s Tier 1 leverage ratio was 8.85%, indicating a decline of 52 bps from the comparable period last year.
Tier 1 capital to risk-weighted assets was 12.22%, down 85 bps year over year.
Common equity Tier 1 ratio was 10.63% compared with 10.83% in the year-earlier quarter.
Tangible book value per share increased 14.4% year over year to $40.43.
In Conclusion
First Republic’s performance during the fourth quarter was decent. The company’s efforts to maintain its organic growth momentum, backed by growth in loans and deposits, which aided revenue growth, highlight optimism. Moreover, lower non-performing assets are the other tailwinds. However, higher expenses, and provisions and decline in net interest margin remain concerns.
FIRST REPUBLIC BANK Price and EPS Surprise
FIRST REPUBLIC BANK Price 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 - Free Report) and Bank of Hawaii Corporation (BOH - Free Report) are slated to release fourth-quarter 2017 results on Jan 22, while SVB Financial Group is scheduled to report on Jan 25.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>