First Republic Bank in San Francisco plans to open as many as six branches and lease an unspecified amount additional office space for its lending teams in New York over the next 15 months, Chairman and CEO James Herbert said Tuesday.
The $116.3 billion-asset bank is also looking to bulk up in states where many of its affluent customers have retired or have second homes, including Florida and Wyoming, Herbert said on the First Republic's fourth-quarter earnings call. It opened a branch in Palm Beach Gardens, Fla., Monday, its third in the Sunshine State, and recently opened a trust office in Jackson, Wyo., to go along with a branch it added there in late 2018.
The de novo plans align with First Republic's strategy of targeting markets with high concentrations of high-net-worth households. That extends to tailoring expansion to match migration away from higher-tax states such as California and New York, to states such as Florida and Wyoming that do not have a state income tax.
Though the trend “is not a flood by number of households,” those migrating tend to possess high levels of wealth, “so I think the amount of dollars being shifted from the tax states to the lower-tax states is increasing reasonably rapidly,” Herbert said.
For the fourth quarter, the company reported net income of $246.3 million, up 6.4% from the fourth quarter of 2018. Its earnings per share of $1.39 topped consensus expectations by 12 cents, according to Tim Coffey, an analyst at Janney Montgomery Scott.
For all of 2019, earnings totaled $930.3 million, up 9% over 2018.
Strong loan growth and a lower than anticipated provision for loan losses bolstered First Republic’s fourth-quarter bottom line. Credit quality remained strong with the company reporting a 0.12% ratio of nonperforming assets total assets. It also reported net recoveries of $1.1 million for the quarter.
Looking ahead at 2020, Chief Financial Officer Michael Roffler predicted full-year loan growth “in the mid-teens,” as well as a net interest margin ranging from 2.65% to 2.75%. The net interest margin for the fourth quarter was 2.73%, down from 2.80% a year earlier.
Coffey projected 2020 loan growth “in the 15% range.” First Republic ended 2019 with loans of $90.8 billion, up 19.7% year over year. Deposits rose 14% to $90.1 billion.
Herbert called First Republic’s 2019 results “terrific by all measures.”
Speaking of the bank's growth plans, he said First Republic intends to locate four new branches plus some of the new office space in Manhattan’s affluent new Hudson Yards neighborhood, to go along with another branch Manhattan branch it opened on Canal Street in May.
While First Republic has shown a willingness to align its branch network with population shifts, it’s unlikely the 34-year-old bank will enter any new markets in the near future. At a recent investor day presentation, Chief Operating Officer Jason Bender noted that its share of high-net-worth households in the markets it's in amounts to a little more than 4%.
“There’s so much opportunity in the markets we’re in now, we could keep doing this for years and years,” Bender said.
