First Republic Bank Grows Earnings, At A Cost

First Republic Bank FRC shares declined 4 percent following the company reporting its Q3 2016 results, with the EPS missing expectations due to higher expenses.

Barclays’ Matthew J. Keating maintained an Overweight rating on the company, while lowering the price target from $84 to $81.

“On a more positive note, its balance sheet growth remained healthy and its lending pipeline strengthened on a linked quarter basis,” Keating mentioned.

First Republic Bank now expects high-teens loan growth, following mid-teens growth in Q2 2016.

Growth At A Cost

However, the analyst noted that the improved growth profile has come at a cost, since expenses increased at an annualized 22 percent rate in Q3 2016.

The company now expects its efficiency ratio to continue to be in the low 60s, as compared to its previous guidance for the efficiency ratio to remain at the high end of its 57-61 percent guidance in the near term.

EPS Miss

“However, even after the quarter’s core EPS miss and our increased expense forecast, we remain attracted to FRC’s comparatively healthy long-term growth prospects. We think midteens EPS growth in 2017 will allow it to maintain its historical valuation premium,” Keating stated.

First Republic Bank reported its EPS for Q3 2016 at $1, slight ahead of the consensus forecast of $0.99, benefiting from a lower tax rate and including $0.7 million in net securities losses.

“To reflect our increased expense forecast, we lower our 2016 and 2017E EPS by $0.08 and $0.15 to $3.90 and $4.50, respectively,” the analyst added.

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