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First Republic (FRC) Q3 Earnings Beat, Revenues & Costs Rise
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First Republic Bank delivered a positive earnings surprise of 16.7% in third-quarter 2020 aided by solid top-line strength. Earnings per share of $1.61 surpassed the Zacks Consensus Estimate of $1.38. Additionally, the bottom line climbed 22.9% from the year-ago quarter.
Results were supported by an increase in net interest income (NII) and fee income. Moreover, the company’s balance-sheet position was strong during the quarter. However, higher expenses and elevated provisions were offsetting factors.
Net income available to common shareholders jumped 25.3% year over year to $278.3 million.
Revenues Rise, Costs Increase
Total revenues were $1 billion, up 19.6% year over year. The figure surpassed the Zacks Consensus Estimate of $956.5 million.
NII jumped 19.5% year over year to $830.3 million, primarily supported by growth in average earning assets and decline in interest costs. It was partly mitigated by lower net interest margin, which declined to 2.71% from 2.80%.
Non-interest income was $171 million, up 20.2% year over year. This rise mainly resulted from elevated gain on sale of loans, higher investment management fees and income from investments in life insurance.
Non-interest expenses for the reported quarter flared up 13.9% year over year to $608.2 million. Rise in salaries and benefits, information systems expenses and continued investments in the expansion of the franchises led to the uptick.
The efficiency ratio was 60.7% compared with the 63.8% recorded in the prior-year quarter. It should be noted that a fall in the efficiency ratio indicates higher profitability.
Impressive Balance Sheet Position
As of Sep 30, 2020, net loans climbed 4.8% sequentially to $104.2 billion, while total deposits were up 6% to $104.4 billion. Loan originations, including PPP loans, came in at $12.2 billion, up 11.6% sequentially.
First Republic’s total wealth management assets were $168.2 billion as of Sep 30, 2020, marking an 8% sequential rise. This increase was primarily supported by market appreciation and net client inflow.
Wealth management assets included investment management assets of $74.7 billion, brokerage assets and money market mutual funds of $81.2 billion along with trust and custody assets of $12.3 billion.
Credit Quality: A Mixed Bag
During the reported quarter, credit metrics were a mixed bag. On a year-over-year basis, total non-performing assets increased 20% to $164.2 million. Also, provision for loan losses was up 70.8% to $28.5 million.
Yet, non-performing assets to total assets ratio was 0.12%, stable year over year. Also, net loan charge-offs were $1.67 million, down 61.1%.
Capital Position
As of Sep 30, 2020, the company’s Tier 1 leverage ratio was 8.38%, reflecting a contraction of 12 basis points from the prior-year quarter. Tier 1 capital to risk-weighted assets was 11.5%, up from 11.05%. Common equity Tier 1 capital to risk-weighted assets ratio was 9.78% compared with the prior year’s 9.91%.
Tangible book value per share increased 12.6% to $55.00.
Our Viewpoint
While First Republic has been able to sustain its organic growth momentum, reflected by rising revenues along with higher loans and deposits, escalating costs on investments in digital initiatives might hurt its bottom line in the near term. Moreover, decline in net interest margin on lower interest rates is concerning as it is likely to impede interest income growth to some extent. Nevertheless, rise in average earning assets is a tailwind.
First Republic Bank Price, Consensus and EPS Surprise
Among other mega banks, Bank of America Corporation (BAC - Free Report) , Wells Fargo (WFC - Free Report) and Goldman (GS - Free Report) are scheduled to report quarterly numbers on Oct 14.
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First Republic (FRC) Q3 Earnings Beat, Revenues & Costs Rise
First Republic Bank delivered a positive earnings surprise of 16.7% in third-quarter 2020 aided by solid top-line strength. Earnings per share of $1.61 surpassed the Zacks Consensus Estimate of $1.38. Additionally, the bottom line climbed 22.9% from the year-ago quarter.
Results were supported by an increase in net interest income (NII) and fee income. Moreover, the company’s balance-sheet position was strong during the quarter. However, higher expenses and elevated provisions were offsetting factors.
Net income available to common shareholders jumped 25.3% year over year to $278.3 million.
Revenues Rise, Costs Increase
Total revenues were $1 billion, up 19.6% year over year. The figure surpassed the Zacks Consensus Estimate of $956.5 million.
NII jumped 19.5% year over year to $830.3 million, primarily supported by growth in average earning assets and decline in interest costs. It was partly mitigated by lower net interest margin, which declined to 2.71% from 2.80%.
Non-interest income was $171 million, up 20.2% year over year. This rise mainly resulted from elevated gain on sale of loans, higher investment management fees and income from investments in life insurance.
Non-interest expenses for the reported quarter flared up 13.9% year over year to $608.2 million. Rise in salaries and benefits, information systems expenses and continued investments in the expansion of the franchises led to the uptick.
The efficiency ratio was 60.7% compared with the 63.8% recorded in the prior-year quarter. It should be noted that a fall in the efficiency ratio indicates higher profitability.
Impressive Balance Sheet Position
As of Sep 30, 2020, net loans climbed 4.8% sequentially to $104.2 billion, while total deposits were up 6% to $104.4 billion. Loan originations, including PPP loans, came in at $12.2 billion, up 11.6% sequentially.
First Republic’s total wealth management assets were $168.2 billion as of Sep 30, 2020, marking an 8% sequential rise. This increase was primarily supported by market appreciation and net client inflow.
Wealth management assets included investment management assets of $74.7 billion, brokerage assets and money market mutual funds of $81.2 billion along with trust and custody assets of $12.3 billion.
Credit Quality: A Mixed Bag
During the reported quarter, credit metrics were a mixed bag. On a year-over-year basis, total non-performing assets increased 20% to $164.2 million. Also, provision for loan losses was up 70.8% to $28.5 million.
Yet, non-performing assets to total assets ratio was 0.12%, stable year over year. Also, net loan charge-offs were $1.67 million, down 61.1%.
Capital Position
As of Sep 30, 2020, the company’s Tier 1 leverage ratio was 8.38%, reflecting a contraction of 12 basis points from the prior-year quarter. Tier 1 capital to risk-weighted assets was 11.5%, up from 11.05%. Common equity Tier 1 capital to risk-weighted assets ratio was 9.78% compared with the prior year’s 9.91%.
Tangible book value per share increased 12.6% to $55.00.
Our Viewpoint
While First Republic has been able to sustain its organic growth momentum, reflected by rising revenues along with higher loans and deposits, escalating costs on investments in digital initiatives might hurt its bottom line in the near term. Moreover, decline in net interest margin on lower interest rates is concerning as it is likely to impede interest income growth to some extent. Nevertheless, rise in average earning assets is a tailwind.
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 mega banks, Bank of America Corporation (BAC - Free Report) , Wells Fargo (WFC - Free Report) and Goldman (GS - Free Report) are scheduled to report quarterly numbers on Oct 14.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot stocks we're targeting >>