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What's to Expect From First Republic's (FRC) Q2 Earnings?

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First Republic Bank (FRC - Free Report) is scheduled to report second-quarter 2022 earnings, before the opening bell, on Jul 14. The company’s quarterly 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 provision for credit losses were the offsetting factors.

First Republic has an impressive earnings surprise history. Its earnings surpassed the consensus estimate in the trailing four quarters, the average surprise being 7.4%.

First Republic Bank Price and EPS Surprise


First Republic Bank Price and EPS Surprise

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

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

Loan Growth: Ongoing economic expansion is expected to have supported the lending environment in the quarter under review. Amid this, the demand for loans is anticipated to have improved. Per the Fed’s latest data, loan demand, particularly residential real estate loans (comprising a major portion of First Republic’s total loan portfolio), consumer loans, and commercial and industrial loans, showed improvements in April and May from the first-quarter end.

The company is expected to have seen a rise in loans, backed by a favorable macro-economic backdrop. An uptick in single-family and multi-family lending is expected to have driven loan originations. This might have strengthened its balance sheet position.

NII: In the second quarter, the Fed hiked interest rates by 50 basis points (bps) in May and by another 75 bps in June. With this, the level of the policy rate reached 1.5-1.75%, the highest since just before the March 2020 pandemic. With this, the front end of the yield curve flattened in the June-end quarter. This is likely to have hindered the bank’s net interest margin (NIM).

Nonetheless, the company’s cost of the deposit has remained low and is expected to have been beneficial in the second quarter, thereby alleviating NII pressure.

Also, the Zacks Consensus Estimate for average interest-earning assets of $177.6 billion indicates a 3% sequential improvement. This is likely to have aided NII, which is pegged at $1.19 billion for the quarter, suggesting a 4.7% rise on a sequential basis.

Non-Interest Income:  The bank has a robust wealth management practice, with a focus on personalized customer service experience through its relationship banking model. It has also been expanding its investment management service offering to clients. These efforts are expected to have aided the company in onboarding new customers, thereby increasing wealth management assets.

Geopolitical tensions arising from Russia’s invasion of Ukraine dampened the market performance. Weaker equity markets are expected to have affected FRC’s wealth management business and revenues. The consensus estimate for investment advisory fees (comprising 65% of the total fee income) is pegged at $162 million, implying a fall of 1.8% sequentially.

Nonetheless, the consensus estimate for brokerage and investment fees of $24.6 million indicates a 2.5% increase from the previous quarter’s reported number.

Lower transaction volume from clients is expected to have hampered foreign exchange fee income. The consensus estimate for the same is pegged at $24.3 million, indicating a 5.8% increase from the previous quarter’s reported number.

With this, overall fee income is expected to see a 2.4% sequential rise to $257 million.

Expenses: First Republic’s investments in franchise development or digital initiatives, including mobile banking applications and data analytics, are anticipated to have kept costs elevated in the quarter. The investments are expected to aid the company over the long term, but the rising current expense level has been curbing the bottom-line expansion.

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 +0.80%.

Zacks Rank: The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for second-quarter earnings has been revised marginally upward over the past month to $2.08. Also, it suggests a rise of 6.7% from the year-ago reported figure.

Moreover, the consensus estimate for revenues of $1.46 billion indicates an increase of 19% from the year-ago reported figure.

Other Stocks That Warrant a Look

JPMorgan Chase & Co. (JPM - Free Report) and Truist Financial (TFC - Free Report) are a few other stocks that you might want to consider, as these too have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

The Earnings ESP for JPMorgan is +3.88% and the company carries a Zacks Rank #3 at present. JPM is slated to report second-quarter 2022 results on Jul 14.

The Zacks Consensus Estimate for JPM’s second-quarter earnings has moved marginally north over the past week.

Truist Financial is scheduled to release second-quarter results on Jul 19. TFC currently has a Zacks Rank #3 and an Earnings ESP of +1.80%.

The Zacks Consensus Estimate for TFC’s second-quarter earnings has moved south over the past week.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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