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Will Higher Fee Income Aid First Republic (FRC) Q3 Earnings?

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First Republic Bank (FRC - Free Report) is scheduled to report third-quarter 2020 earnings, before the opening bell, on Oct 13. The company’s revenues and earnings are expected to have improved year over year.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate on higher net interest income (NII). However, rise in expenses, decline in fee income and elevated provisions acted as headwinds.

Notably, First Republic has an impressive earnings surprise history. Its earnings surpassed the consensus estimate in each of the trailing four quarters, the average positive surprise being 16.4%.

 

First Republic Bank Price and EPS Surprise

First Republic Bank Price and EPS Surprise

First Republic Bank price-eps-surprise | First Republic Bank Quote

 

Now let’s take a look at what our quantitative model predicts for the to-be-reported quarter:

Our proven model shows that First Republic does not have the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP for First Republic is -0.32%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

The Zacks Consensus Estimate of $1.38 for earnings for the to-be-reported quarter has been revised slightly upward over the past 30 days. It suggests a rise of 5.3% from the year-ago reported figure.

However, the consensus estimate for sales of $956.9 million indicates an increase of 14.3% from the year-ago reported figure.

Here are the factors that are likely to have influenced First Republic’s third-quarter results:

Loan Growth: Per Fed’s latest data, pickup in real estate loans, which made up about 79% of the company’s total loan portfolio as of Jun 30, 2020, might have lent support during the quarter. Record low rates likely boosted demand for such loans.

NII Growth: A decent lending scenario, particularly in real estate loans front, might have provided some support to the company’s interest income. Also, the Zacks Consensus Estimate for average interest-earning assets of $123.4 billion for the quarter indicates a 20.9% year-over-year improvement.

Also, low deposit costs might have offset margins. However, the Fed continued to keep interest rates at near zero level in order to shield the U.S. economy from the coronavirus outbreak-related mayhem. This is likely to have substantially hurt net interest margin and NII.

The Zacks Consensus Estimate for NII of $795 million suggests a 14.4% rise on a year-over-year basis.

Rise in Non-Interest Income: Continued strength in equity markets led to rise in asset prices, thereby supporting the company’s investment management fees (comprising more than 65% of total fee income). The consensus estimate for the same is pegged at $96 million, suggesting a rise of 14.3% from prior-year quarter.

Also, the quarter saw significant market volatility along with higher client activity. Thus, the consensus estimate for brokerage and investment fees of $13 million indicates 2.6% growth from the year-ago quarter’s reported number.

Overall, fee revenues are expected to have climbed in the quarter. The consensus estimate for the same is pegged at $156 million, suggesting a 9.9% rise year over year.

Soft Rise in Expenses: First Republic’s investments in franchise development or digital initiatives, including mobile banking applications and data analytics, might have kept costs elevated in the quarter. However, a slight fall in costs from branch closures, and decline in marketing and travel-related expenses might have been witnessed during the quarter.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

BancorpSouth Bank (BXS - Free Report) is set to release quarterly results on Oct 19. The company currently has an Earnings ESP of +9.18% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Bank of America Corporation (BAC - Free Report) is +9.22% and it carries a Zacks Rank of 3 currently. The company is slated to report quarterly numbers on Oct 14.

Comerica Incorporated (CMA - Free Report) is scheduled to report quarterly earnings on Oct 20. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +5.42%.

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