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Why Is First Republic Bank (FRC) Up 6.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for First Republic Bank (FRC - Free Report) . Shares have added about 6.1% 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 drivers.

First Republic’s Q1 Earnings Beat, Revenues & Costs Rise

First Republic delivered an earnings surprise of 16.2% in first-quarter 2021 on solid top-line strength. Earnings per share of $1.79 surpassed the Zacks Consensus Estimate of $1.54. Additionally, the bottom line climbed 53.1% from the year-ago quarter.

Results were supported by an increase in net interest income (NII) and non-interest income. Moreover, the company’s balance-sheet position was strong during the quarter. However, higher expense was the offsetting factor.
Net income available to common shareholders jumped 13.2% year on year to $316.3 million.

Revenues Increase, Expenses Flare Up

Total revenues were $1.1 billion during the March-end quarter, up 23.8% year over year. The figure also surpassed the Zacks Consensus Estimate of $1.08 billion.

NII jumped 24.8% year over year to $938.8 million, primarily supported by growth in average interest-earning assets. Net interest margin contracted 6 basis points from the prior-year quarter to 2.67%. The fall was majorly attributed to higher average cash balances during the quarter.

Non-interest income was $195.9 million, up 19.4% year on year. This rise mainly resulted from elevated wealth management fees and higher income from life insurance investments.

Non-interest expenses for the reported quarter flared up 23.8% year on year to $720.4 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 first-quarter efficiency ratio of 63.5% remained flat year over year.

Healthy Balance Sheet

As of Mar 31, 2021, net loans climbed 5% sequentially to $117.5 billion, while total deposits were up 11.3% to $127.9 billion. Loan originations, including PPP loans, came in at $15.7 billion, down 6% quarter on quarter.

First Republic’s total wealth management assets were $218.9 billion as of Mar 31, 2021, marking a 12.6% sequential rise. This increase was primarily 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: A Mixed Bag

During the January-March period, credit metrics were a mixed bag. On a year-over-year basis, total non-performing assets increased partially to $174.2 million. Also, the non-performing assets to total assets ratio was 0.11%, up from the year-ago quarter’s 0.10%. Net loan charge-offs were $0.5 million, up substantially year over year.

Nonetheless, provision for loan losses witnessed a reversal of $14.6 million due to significant improvement in economic prospects since the end of 2020, and major revival of regular, steady loan payments on Covid-19 loan modifications.

Capital Position

As of Mar 31, 2021, the company’s Tier 1 leverage ratio was 8.32%, reflecting a contraction of 14 basis points from the prior-year quarter. Tier 1 capital to risk-weighted assets was 11.60%, up from 11.14%. Common equity Tier 1 capital to risk-weighted assets ratio was 9.64% compared with the prior year’s 9.87%.Tangible book value per share increased 14.5% to $59.98.

Outlook 2021

The company expects loan growth to be in the mid-teens range.

NIM is anticipated to be in the range of 2.65-2.75%. The company expects NIM to be influenced by higher cash levels as a result of current economic conditions and government stimulus.

Management expects efficiency ratio between 62% and 64%, as it continues to invest in business and regulatory infrastructure.

Further, effective tax rate is anticipated to be between 20% and 21%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 6.67% due to these changes.

VGM Scores

At this time, First Republic Bank has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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. It comes with little surprise First Republic Bank has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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