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Why Is First Republic Bank (FRC) Up 3% Since Last Earnings Report?

It has been about a month since the last earnings report for First Republic Bank (FRC). Shares have added about 3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is First Republic Bank due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

First Republic Q2 Earnings Beat on Higher Revenues

First Republic delivered an earnings surprise of 14.04% in second-quarter 2021 on solid top-line strength. Earnings per share of $1.95 surpassed the Zacks Consensus Estimate of $1.71. Additionally, the bottom line climbed 45.3% from the year-ago quarter.

Results were supported by an increase in NII and non-interest income. The company’s balance-sheet position was robust during the quarter. However, higher expenses and elevated net loan charge-offs were offsetting factors.
Net income available to common shareholders jumped 44% year on year to $349.5 million.

Revenues Increase, Expenses Flare Up

Total revenues came in at $1.2 billion during the June-end quarter, up 34% year over year. The reported figure also outpaced the Zacks Consensus Estimate of $1.19 billion.

The NII jumped 27.5% year over year to $1 billion, primarily supported by growth in average interest-earning assets. NIM marginally increased compared with the prior-year quarter, to 2.68%.

Non-interest income was $226.6 million, up a whopping 72% year on year. This upswing mainly resulted from solid wealth management fees and higher income from life insurance investments.

Non-interest expenses for the reported quarter flared up 34% year on year to $762.8 million. Rise in salaries and benefits and information systems costs from continued investments in the expansion of the franchises as well as higher professional fees led to this uptick.

The second-quarter efficiency ratio of 62% remained flat, year over year.

Healthy Balance Sheet

As of Jun 30, 2021, net loans climbed 4% sequentially to $122.5 billion, while total deposits were up 5% to $134.6 billion. Loan originations, including Paycheck Protection Program loans, came in at $16.8 billion, up 25% quarter on quarter.

First Republic’s total wealth management assets were $240.9 billion as of Jun 30, 2021, marking a 10% sequential rise. This increase was chiefly aided by market appreciation and net client inflow.

Notably, wealth management assets included investment management assets, brokerage assets, money market mutual funds, and trust and custody assets.

Credit Quality Improves

During the April-June period, credit metrics were a mixed bag but stayed robust. On a year-over-year basis, total non-performing assets decreased 20% to $132.8 million. Also, provision for loan losses stood at $16.1 million due to loan growth, down 48% from the year-ago quarter. Moreover, the non-performing assets to total assets ratio was 0.08%, down from the year-ago quarter’s 0.13%.

However, net loan charge-offs were $1.2 million, up 11% year over year. Its net charge-offs were less than 1 basis point of average loans.

Capital Position

As of Jun 30, 2021, the company’s Tier 1 leverage ratio was 8.05%, reflecting a contraction of 123 basis points from the prior-year quarter. Tier 1 capital to risk-weighted assets was 11.38%, up from 11.04% in the year-ago quarter. Common equity Tier 1 capital to risk-weighted assets ratio was 9.51% compared with the prior year’s 9.8%.

Tangible book value per share increased 15.5% to $61.72.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, First Republic Bank has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been 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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