First Republic’s 1Q20 Results Beat Consensus by 8%; Dividend Up 5%

The beat was driven by strong linked-quarter loan growth of 5.3% and a stable net interest margin (NIM), resulting from lower funding costs.

“Results for the first quarter were strong,” said Jim Herbert, Founder, Chairman and CEO of First Republic. “In these very unusual times, our strength and durability, coupled with a time-tested culture of service, enable us to take great care of our colleagues, communities, and clients.”

The efficiency ratio was 65.1%, versus 63.7% in 4Q19, due to seasonal payroll taxes and a credit charge related to CECL (current expected credit losses).

Despite the coronavirus outbreak, 2020 guidance remained essentially unchanged from January with: 1) mid-teens loan growth; 2) a NIM of 2.65%-2.75%; and 3) an efficiency ratio of 63.5%-64.5%.

“FRC reported a quarter that… would have been a strong quarter even pre-COVID-19” cheered Maxim Group’s Michael Diana following the earnings release.

“To drive home the point (and what we expect to be an anomaly), FRC even raised its quarterly dividend by $0.01/share, or 5%, to $0.20/share. In addition, guidance for 2020 was much stronger than we expected.”

As a result, the analyst raised his 2021 EPS estimate to $6, from $5.50, while raising his FRC price target to $120, from $110, based on the higher EPS estimate.

Over the next four quarters, Diana now expects: 1) stock price appreciation of 26% to his $120 price target and, 2) a dividend yield of 0.8%, which should result in an estimated 12-month total return of about 21%.

Overall however the stock has a more cautious Moderate Buy analyst consensus on TipRanks, with a $101 average analyst price target. Shares rose 7% on the earnings report, bringing FRC’s year-to-date loss to 19%. (See First Republic Bank stock analysis on TipRanks).

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