First Republic Bank (FRC) reported fourth-quarter 2014 core earnings per share of 67 cents, missing the Zacks Consensus Estimate of 72 cents. Core earnings exclude the impact of purchase accounting. However, the reported figure came a penny above the prior-year core earnings of 66 cents per share.
GAAP earnings per share for the quarter came in at 72 cents compared with the prior-year quarter figure of 75 cents per share.
Results were mainly affected by higher non-interest expenses and a rise in the provision for loan losses. However, continued growth in revenues, assets, and a strong capital position were among the positives.
Core net income available to common shareholders was $94.8 million, up 4.8% from the prior-year quarter.
For the year ended 2014, core earnings per share came in at $2.83, missing the Zacks Consensus Estimate of $3.06. However, it compared favorably with the prior-year figure of $2.65 per share.
Performance in Detail
Core revenue in the fourth quarter was $401.3 million, up 16.0% year over year. However, it lagged the Zacks Consensus Estimate of $428.0 million.
Core revenues for the year ended 2014 stood at $1.6 billion, up 17.1% year over year, while it was in line with the Zacks Consensus Estimate.
First Republic’s core net interest income in fourth quarter increased 1.6% year over year to $325.5 million. However, core net interest margin fell 3 basis points (bps) year over year to 3.06%.
The company’s non-interest income for the quarter came in at $75.8 million, up 34.9% year over year. The rise was primarily driven by higher investment advisory fees, gain on sale of loans and foreign exchange fees.
Non-interest expense for the quarter was $244.2 million, up 2.4% year over year. An increase in salaries and expenses in information systems primarily led to this rise.
Core efficiency ratio was 59.9% compared with 58.7% in the prior-year quarter. A rise in efficiency ratio indicates deterioration in profitability.
As of Dec 31, 2014, net loans increased 11.1% year over year to $37.6 billion, while total deposits rose 15.7% to $37.1 billion.
First Republic’s total wealth management assets were $53.4 billion as of Dec 31, 2014, increasing from $41.6 billion as of Dec 31, 2013. Wealth management assets include investment management assets, brokerage assets, money market mutual funds, trust and custody assets.
Credit Quality
First Republic’s credit quality improved partially in the quarter. On a year-over-year basis, total nonperforming assets declined 20.3% to $46.0 million. Further, nonperforming assets to total assets ratio was 0.10%, down from 0.14% in the year-ago quarter.
As of Dec 31, 2014, the ratio of net loan recoveries to average total loans was 0.02%, compared with net loan charge offs to average total loans of 0.05% in the prior-year period. However, provision for credit losses increased to $14.1 million compared to $7.8 million in the prior quarter.
Capital Position
First Republic’s capital ratios improved during the quarter. As of Dec 31, 2014, the company’s Tier 1 leverage ratio was 9.43% versus 9.19% as of Dec 31, 2013.
Tier 1 risk-based capital ratio was 13.55% compared with 13.34% as of Dec 31, 2013. Further, book value per share increased 14.2% year over to $28.13.
Our Viewpoint
Despite the rising expenses that impacted results, we remain optimistic about the company’s future prospects. The increase in expenses in the recent quarters comes on the back of higher compliance and infrastructure investments, which are necessary, as First Republic is heading towards assets of over $50 billion by end of 2015. Notably as of Dec 31, 2014, total assets stood at $48.3 billion.
We also remain encouraged by the continued growth in revenues. We expect rise in loans and deposits to keep First Republic’s organic growth momentum going. However, we remain cautious owing to sluggish economic recovery and margin pressure in a persistently low interest rate environment.
First Republic currently carries a Zacks Rank #3 (Hold).
Other Banks
Among other West banks, SVB Financial Group (SIVB) is slated to report results on Jan, 22, while both Zions Bancorporation (ZION) and Bank of Hawaii Corporation (BOH) are scheduled to report on Jan 26.
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