A month has gone by since the last earnings report for First Republic Bank . Shares have added about 5% in that time frame, underperforming 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 drivers.
First Republic Bank's Q4 Earnings & Revenues Beat Estimates
First Republic Bank registered a positive earnings surprise of 4% in fourth-quarter 2018, reflecting higher revenues. Earnings per share came in at $1.29, outpacing the Zacks Consensus Estimate of $1.24. Moreover, the figure improved 17.3% from the year-ago tally.
Top-line strength positively drove the company’s performance. In addition, a considerable rise in loans and deposit balances was recorded. However, despite rising rates, net interest margin disappointed on high deposit costs. In addition, higher provisions and expenses were undermining factors.
Net income available to common shareholders for the reported quarter jumped 19.6% year over year to $215.2 million.
For full-year 2018, net income was $853.8 million or $4.81 per share, up from $757.7 million or $4.31 per share in the prior year. Full-year earnings also outpaced the Zacks Consensus Estimate of $4.75.
Revenues Escalate, Expenses Flare Up
For 2018, net revenues were $3 billion, up 16.6% year over year. The top line was almost in line with the Zacks Consensus Estimate of $3.02 billion.
Net revenues in the quarter came in at $810.8 million, up 16% year over year. Furthermore, the figure readily surpassed the Zacks Consensus Estimate of $790.3 million.
First Republic Bank’s net interest income jumped 17.3% year over year to $667.2 million, primarily supported by growth in average earnings assets. Nevertheless, net interest margin was 2.98%, down 10 basis points (bps) year over year.
Non-interest income came in at $143.5 million, up 10.2% year over year. The rise was chiefly driven by higher wealth management revenues (up 15.4% year over year).
On the other hand, non-interest expenses were up 11.9% year over year to $498.6 million. An increase in salaries and benefits, information systems, occupancy and other costs, which came as the outcome of continued investments in the expansion of franchise, primarily led to this spike.
The efficiency ratio was 61.5% compared with 63.7% recorded in the prior-year quarter. It should be noted that a fall in the efficiency ratio indicates improvement in profitability.
Balance Sheet Still Healthy
As of Dec 31, 2018, net loans climbed 4.9% sequentially to $75.9 billion, while total deposits were up 5.7% to $79.1 billion. Loan originations were $8.4 billion in the reported quarter, up 20% sequentially, mainly due to rise in almost all types of lending including single family and multifamily, partly offset by home equity lines of credit.
First Republic Bank’s total wealth management assets were $126.2 billion as of Dec 31, 2018, indicating 3.6% sequential decline. 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 were offset by market depreciation which led to the lower level of assets.
Credit Quality: A Concern?
On a year-over-year basis, total non-performing assets increased 23% year over year to approximately $46.5 million. The non-performing assets to total assets ratio expanded 1 bps to 0.05%.
Further, provision for loan losses jumped 47.6% on a year-over-year basis to $25.1 million in the Dec-end quarter.
Capital Position
As of Dec 31, 2018, the company’s Tier 1 leverage ratio was 8.68%, indicating a contraction of 17 bps from the comparable period last year.
Tier 1 capital to risk-weighted assets was 11.7%, down from 12.22% in the prior-year quarter.
Common equity Tier 1 ratio was 10.38% compared with 10.63% in the year-earlier quarter.
Tangible book value per share increased 11.9% year over year to $45.26.
Outlook
Management expects net interest margin to be 2.85-2.95% in 2019. For 2019, loan growth is likely to be in the mid-teens. Management continues to expect the efficiency ratio to be in the range of 63-64% in 2019. Further, tax rate is anticipated to be between 19% and 20% in 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, First Republic Bank has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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Why Is First Republic Bank (FRC) Up 5% Since Last Earnings Report?
A month has gone by since the last earnings report for First Republic Bank . Shares have added about 5% in that time frame, underperforming 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 drivers.
First Republic Bank's Q4 Earnings & Revenues Beat Estimates
First Republic Bank registered a positive earnings surprise of 4% in fourth-quarter 2018, reflecting higher revenues. Earnings per share came in at $1.29, outpacing the Zacks Consensus Estimate of $1.24. Moreover, the figure improved 17.3% from the year-ago tally.
Top-line strength positively drove the company’s performance. In addition, a considerable rise in loans and deposit balances was recorded. However, despite rising rates, net interest margin disappointed on high deposit costs. In addition, higher provisions and expenses were undermining factors.
Net income available to common shareholders for the reported quarter jumped 19.6% year over year to $215.2 million.
For full-year 2018, net income was $853.8 million or $4.81 per share, up from $757.7 million or $4.31 per share in the prior year. Full-year earnings also outpaced the Zacks Consensus Estimate of $4.75.
Revenues Escalate, Expenses Flare Up
For 2018, net revenues were $3 billion, up 16.6% year over year. The top line was almost in line with the Zacks Consensus Estimate of $3.02 billion.
Net revenues in the quarter came in at $810.8 million, up 16% year over year. Furthermore, the figure readily surpassed the Zacks Consensus Estimate of $790.3 million.
First Republic Bank’s net interest income jumped 17.3% year over year to $667.2 million, primarily supported by growth in average earnings assets. Nevertheless, net interest margin was 2.98%, down 10 basis points (bps) year over year.
Non-interest income came in at $143.5 million, up 10.2% year over year. The rise was chiefly driven by higher wealth management revenues (up 15.4% year over year).
On the other hand, non-interest expenses were up 11.9% year over year to $498.6 million. An increase in salaries and benefits, information systems, occupancy and other costs, which came as the outcome of continued investments in the expansion of franchise, primarily led to this spike.
The efficiency ratio was 61.5% compared with 63.7% recorded in the prior-year quarter. It should be noted that a fall in the efficiency ratio indicates improvement in profitability.
Balance Sheet Still Healthy
As of Dec 31, 2018, net loans climbed 4.9% sequentially to $75.9 billion, while total deposits were up 5.7% to $79.1 billion. Loan originations were $8.4 billion in the reported quarter, up 20% sequentially, mainly due to rise in almost all types of lending including single family and multifamily, partly offset by home equity lines of credit.
First Republic Bank’s total wealth management assets were $126.2 billion as of Dec 31, 2018, indicating 3.6% sequential decline. 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 were offset by market depreciation which led to the lower level of assets.
Credit Quality: A Concern?
On a year-over-year basis, total non-performing assets increased 23% year over year to approximately $46.5 million. The non-performing assets to total assets ratio expanded 1 bps to 0.05%.
Further, provision for loan losses jumped 47.6% on a year-over-year basis to $25.1 million in the Dec-end quarter.
Capital Position
As of Dec 31, 2018, the company’s Tier 1 leverage ratio was 8.68%, indicating a contraction of 17 bps from the comparable period last year.
Tier 1 capital to risk-weighted assets was 11.7%, down from 12.22% in the prior-year quarter.
Common equity Tier 1 ratio was 10.38% compared with 10.63% in the year-earlier quarter.
Tangible book value per share increased 11.9% year over year to $45.26.
Outlook
Management expects net interest margin to be 2.85-2.95% in 2019. For 2019, loan growth is likely to be in the mid-teens. Management continues to expect the efficiency ratio to be in the range of 63-64% in 2019. Further, tax rate is anticipated to be between 19% and 20% in 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, First Republic Bank has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, First Republic Bank has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.