First Republic's 2Q profits surge on record loan originations

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First Republic Bank in San Francisco rode strong demand for business loans to record loan originations and double-digit profit growth in the second quarter.

The $93.9 billion-asset company said Friday that it originated $9.4 billion of loans in the quarter that ended June 30, up 29% from the same period last year, due largely to an 82% jump in business-loan originations and a 43% increase in multifamily loans.

The surge of new loan activity combined with strong gains in wealth management revenues to boost net income by 12.4% year over year to $209.8 million. Earnings per share came in at $1.22, 5 cents above the mean estimate of analysts polled by FactSet Research Systems.

The bank reported strong loan growth in all of its loan categories except for home equity loans, which dipped slightly year over year. Total loans, excluding those held for sale, increased 19.7% to $69.1 billion. Its portfolio of single-family mortgages, by far the bank’s largest loan category, climbed nearly 18% year over year to $34.3 billion.

Total revenues, the combination of net interest income and noninterest income, increased 16% year over year to $744.1 million. Net interest income rose 16.5% to $592 million, thanks to strong loan growth and a 12-basis-point increase in loan yields, to 3.47%, while noninterest income climbed 21.1% to $132.4 million, primarily due to double-digit increases in both wealth management assets under management and wealth management fees.

The revenue gains more than offset rising expenses. Interest expenses climbed 82% year over year to $122.7 million due primarily to higher deposit costs tied to rising interest rates, while noninterest expenses increased 22.5% to $472.6 million, largely due to higher costs for salaries and benefits.

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