Back to top

Image: Shutterstock

Higher Fee Income to Aid First Republic's (FRC) Q2 Earnings

Read MoreHide Full Article

First Republic Bank  (FRC - Free Report) is scheduled to report second-quarter 2021 earnings, before the opening bell, on Jul 13. The company’s revenues and earnings are expected to have improved year over year in the quarter to be reported.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate on higher net interest income (NII) and non-interest income. However, rise in expenses was a headwind.

Notably, First Republic has a decent earnings surprise history. Its earnings surpassed the consensus estimate in all the trailing four quarters, the average being 13.71%.

First Republic Bank Price and EPS Surprise

First Republic Bank Price and EPS Surprise

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

Here are the factors that are likely to impact First Republic’s second-quarter results:

Soft Loan Growth:  Per the Fed’s latest  data, loan demand, particularly residential real-estate loans (nearly 70% of First Republic’s total loan portfolio) during the second quarter, remained weak.

Muted Net Interest Income (NII):  Low interest rate environment along with weak loan demand is likely to have hurt First Republic’s NII and net interest margin (NIM) in the to-be-reported quarter. The flattening of the yield curve is likely to have weighed on NIM as well.

The Zacks Consensus Estimate for NII of $988 million suggests a 5.2% rise on a sequential basis.

The Zacks Consensus Estimate for the June quarter’s average interest-earning assets of $151.5 billion indicates a 3.7% sequential improvement.

Increase in Non-Interest Income: The momentum that started in the second half of last year has been normalizing so far as trading volumes in certain fixed-income and equity products begin to drop along with easing of market volatility. The consensus estimate for brokerage and investment fees of $15 million implies a 3.4% rise from the previous quarter’s reported number.

Echoing the trend witnessed since the second half of 2020, global merger and acquisition activities continued at a rapid pace in the second quarter 2021. This was driven by lower rates, cash reserves and robust economic growth expectations. Thus, this is likely to have boosted First Republic’s investment advisory fees.

The consensus estimate for investment advisory fees (comprising more than 61% of total fee income) is pegged at $124 million, suggesting a rise of 4.2% sequentially.

The consensus estimate for total fee revenues is pegged at $197 million, suggesting a marginal increase, sequentially.

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 to-be-reported quarter.

Improving Asset Quality:  With the economy on the mend following the subsidence of the coronavirus pandemic, First Republic is likely to have released reserves in the second quarter in a bid to compensate for the losses stemming from the pandemic adversities.

The consensus estimate for non-performing assets is pegged at $170 million, hinting at a 2.2% fall from the prior quarter’s actuals. Likewise, the Zacks Consensus Estimate for non-performing loans of $168 million suggests a 2.9% sequential decline.

What Our Model Predicts

Our proven model shows that First Republic has the right combination of the two key ingredients — a 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:  First Republic has an Earnings ESP of +1.47%.

Zacks Rank:  First Republic currently carries a Zacks Rank of 3

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has been revised marginally upward over the past 30 days. The company’s earnings projection of $1.72 per share suggests a rise of 22.9% from the year-ago reported figure.

Moreover, the consensus estimate for sales of $1.19 billion indicates an increase of 29.3% from the year-ago quarter’s reported figure.

Other Banks That Warrant a Look

Here are some other major banks worth considering as according to our model, these too have the right combination of elements to beat on earnings this time around.

PNC Financial Services Group (PNC - Free Report) has an Earnings ESP of +6.26% and a Zacks Rank of 3 at present. The company is scheduled to report quarterly numbers on Jul 14. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wells Fargo & Company (WFC - Free Report) is slated to report quarterly earnings on Jul 14. The company currently has a Zacks Rank of 3 and an Earnings ESP of +1.19%.

U.S. Bancorp (USB - Free Report) is slated to report quarterly earnings on Jul 15. The company has a Zacks Rank of 3 at present and an Earnings ESP of +0.74%.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>