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It has been about a month since the last earnings report for First Republic Bank (FRC). Shares have lost about 12.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is First Republic Bank due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
First Republic Q1 Earnings Beat Estimates, Revenues Rise
First Republic’s first-quarter 2022 earnings per share of $2 have surpassed the Zacks Consensus Estimate of $1.90. Additionally, the bottom line improved 11.7% from the year-ago quarter.
Results were supported by an increase in NII and non-interest income. The company’s capital position was strong in the quarter. Higher expenses and elevated provision for credit losses were the offsetting factors.
Net income available to common shareholders jumped 15.2% year over year to $364 million.
Revenues, Expenses Flare Up
Total revenues were $1.40 billion in the March-end quarter, up 23% year over year. The figure missed the Zacks Consensus Estimate by 0.44%.
The NII jumped 21.9% year over year to $1.15 billion, primarily supported by growth in average interest-earning assets. Net interest margin increased marginally to 2.68% from the prior-year quarter’s 2.67%.
Non-interest income was $251 million, up 28.1% year over year. The rise mainly resulted from higher wealth management fees, brokerage and investment fees, and foreign exchange fee income.
Non-interest expenses for the reported quarter flared up 20.2% year over year to $866 million. Continued investments in business expansion, including additional hiring to support growth and information system initiatives, resulted in the uptick.
The first-quarter efficiency ratio of 62% was down from 63.5% in the prior-year quarter. A lower ratio indicates an increase in profitability.
Decent Balance Sheet
As of Mar 31, 2022, net loans climbed 4.7% sequentially to $140.6 billion, while total deposits were up 3.7% to $162.1 billion. Loan originations were $17.8 billion for the quarter, up 5.5% sequentially.
First Republic’s total wealth management assets were $274.2 billion as of Mar 31, 2022, marking a 1.9% sequential fall. The decrease was primarily due to market depreciation, significantly offset by net client inflow.
Wealth management assets included investment management assets, brokerage assets, money market mutual funds, and trust and custody assets.
Improving Credit Quality
In the January-March period, credit metrics were decent. On a year-over-year basis, total non-performing assets decreased 19.5% to $140 million. The non-performing assets to total assets ratio was 0.08%, down from the year-ago quarter’s 0.11%. Net loan recoveries were $0.3 million against net charge-off of $0.5 million in first-quarter 2021.
However, provision for credit losses of $10 million was recorded against reversal of $15 million in first-quarter 2021.
Strong Capital Position
As of Mar 31, 2022, the company’s Tier 1 leverage ratio was 8.70% compared with 8.32% as of Mar 31, 2021. Tangible book value per share increased 14.2% year over year to $68.47.
Tier 1 capital to risk-weighted assets was 12.25%, up from 11.6% in first-quarter 2021.
Management expects loan growth in the mid-teens range. NIM is anticipated at the midpoint of the 2.65-2.75% range.
The efficiency ratio is projected between 62% and 64%.
Further, the effective tax rate is anticipated between 21% and 22%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
At this time, First Republic Bank has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, First Republic Bank has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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