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First Republic (FRC) Q4 Earnings to Benefit From Loan Growth

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First Republic Bank (FRC - Free Report) is scheduled to report fourth-quarter and 2021 earnings, before the opening bell, on Jan 14. The company’s revenues and earnings are likely to have improved year over year.

In the last-reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate on increases in net interest income (NII) and non-interest income. However, a rise in expenses and elevated provisions were headwinds.

First Republic has an impressive earnings surprise history. Its earnings surpassed the consensus estimate in all the trailing four quarters, the average surprise being 9.98%.

First Republic Bank Price, Consensus and EPS Surprise

First Republic Bank Price, Consensus and EPS Surprise

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

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

Loan Growth: Per the Fed’s latest data, loan demand, particularly residential real estate loans (nearly 72% of First Republic’s total loan portfolio, as of Sep 30, 2021) and commercial and industrial loans remained strong in October and November, courtesy of economic recovery.

Earlier this month, First Republic announced certain preliminary, unaudited financial information for fourth-quarter 2021 and full-year 2021. Per the information, First Republic's total loan growth was 20% and 5% from the prior-year period and the end of third-quarter 2021, respectively.

NII: The steepening of the yield curve (the difference between short and long-term interest rates) is likely to have supported the bank’s net interest margin (NIM). The yield on the 10-year U.S. Treasury Bond of 1.52% at the end of December was relatively higher on a sequential basis, up 4 basis points from 1.48% at the end of September. Thus, NII is likely to have got some support.
The Zacks Consensus Estimate for average interest-earning assets of $169.7 billion indicates a 4% sequential improvement.

Per the preliminary, unaudited financial information, total deposits of the company advanced 36% from 2020-end and 7.5% from third quarter-end.
The Zacks Consensus Estimate of $1.09 billion for the quarterly NII suggests a 4.1% rise on a sequential basis.

For 2021, management expects NIM to be in the range of 2.65-2.75%. The company projects NIM to be influenced by higher cash levels as a result of current economic conditions and government stimulus.

Non-Interest Income: As the economic and business activities resumed, deal-making continued at a frenzied pace in the to-be-reported quarter. So, with an increase in global mergers and acquisition volumes, First Republic’s fee income is likely to have been positively impacted. Also, as companies kept building liquidity to tide over the pandemic-induced crisis, there was a rise in follow-up equity issuances. This is likely to have boosted the company’s investment advisory fees.

The consensus estimate for investment advisory fees (comprising 60% of total fee income) is pegged at $151 million, calling for a rise of 2% sequentially.

However, the consensus estimate for brokerage and investment fees of $21.8 million indicates a 3.7% dip from the previous quarter’s reported number.

The consensus estimate for total fee income is pegged at $248 million, suggesting a partial decline sequentially.

Expenses: First Republic’s investments in franchise development or digital initiatives, including mobile banking applications and data analytics, might have kept costs elevated during the quarter. These investments might aid the company over the long term but the rising current expense level is curbing bottom-line expansion.

For 2021, management expects expense growth to be proportionate to its revenue growth as it continues to invest in the franchise to deliver efficient client service. Management expects an efficiency ratio between 62% and 64% as it continues to invest in the business and regulatory infrastructure.

Asset Quality: With the gradual economic improvement amid the coronavirus pandemic, given the vaccine rollouts, combined with additional market re-openings throughout the quarter, First Republic is likely to have released reserves in the fourth quarter that it had taken to cover losses from the impact of the pandemic.

The consensus estimate for non-performing assets and non-performing loans was pegged at $127 million each, which was stable sequentially.

The bank projects net charge-offs to be $0.1 million for the fourth quarter and $2 million for 2021 or less than 1 basis point of average loans for 2021. Also, nonperforming assets are anticipated to be 8 basis points of total assets at 2021-end.

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 has 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 +3.29%.

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

The Zacks Consensus Estimate for fourth-quarter earnings has been revised 2.1% upward over the past week to $1.95. Moreover, it suggests a rise of 21.9% from the year-ago reported figure.

Moreover, the consensus estimate for revenues of $1.34 billion indicates an increase of 24.4% from the year-ago reported figure.

Other Stocks That Warrant a Look

Fifth Third Bancorp (FITB - Free Report) , Citizens Financial Group, Inc. (CFG - Free Report) and Huntington Bancshares Incorporated (HBAN - Free Report) are a few other stocks that you might want to consider as these have the right combination of elements to post earnings beat in their upcoming releases, per our model.

The Earnings ESP for Fifth Third is +0.27% and the stock carries a Zacks Rank #3, at present. FITB is slated to report fourth-quarter 2021 results on Jan 20.

The Zacks Consensus Estimate for Fifth Third’s fourth-quarter earnings has remained stable over the past 30 days.

Citizens Financial is scheduled to release fourth-quarter results on Jan 19. CFG currently carries a Zacks Rank #3 and has an Earnings ESP of +0.12%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Citizens Financial’s fourth-quarter earnings has remained stable over the past 30 days.

Huntington Bancshares is scheduled to release earnings on Jan 21. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.20%.

The Zacks Consensus Estimate for HBAN’s fourth-quarter earnings has been revised 2.1% downward over the past 30 days.