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First Republic (FRC) Q2 Earnings & Revenues Beat Estimates
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First Republic Bank’s second-quarter 2022 earnings per share of $2.16 have surpassed the Zacks Consensus Estimate of $2.05. Additionally, the bottom line improved 10.8% from the year-ago quarter.
Results have been supported by an increase in net interest income (“NII”) and non-interest income. The company’s capital position was strong in the quarter. Yet, higher expenses and elevated provision for credit losses were the offsetting factors.
Net income available to common shareholders jumped 12% year over year to $392 million.
Revenues, Expenses Flare Up
Total revenues were $1.51 billion in the June-end quarter, up 22.6% year over year. The figure outpaced the Zacks Consensus Estimate of $1.46.
The NII jumped 24.1% year over year to $1.2 billion, primarily supported by growth in average interest-earning assets. The net interest margin increased to 2.80% from the prior-year quarter’s 2.68%.
Non-interest income was $263 million, up 16% year over year. The rise mainly resulted from higher wealth management fees, partially offset by a fall in income from investments in life insurance.
Non-interest expenses for the reported quarter flared up 19.7% year over year to $913 million. Continued investments in business expansion, including additional hiring to support growth and information system initiatives, resulted in the uptick.
The second-quarter efficiency ratio of 60.5% was down from 62% in the prior-year quarter. A lower ratio indicates an increase in profitability.
Decent Balance Sheet
As of Jun 30, 2022, net loans climbed 7.2% sequentially to $151.5 billion, while total deposits were up 2.2% to $165.6 billion. Loan originations were $22 billion for the quarter, up 31.1% year over year.
However, First Republic’s total wealth management assets were $246.8 billion as of Jun 30, 2022, marking a 10% sequential fall. The decrease was primarily due to market depreciation.
Wealth management assets included investment management assets, brokerage assets, money market mutual funds, and trust and custody assets.
Deteriorated Credit Quality
In the second quarter, credit metrics deteriorated. Net loan charge-offs were $1.3 million, up from net charge-offs of $1.2 million in second-quarter 2021. Also, the provision for credit losses of $31 million was recorded compared with $16 million in second-quarter 2021.
On a year-over-year basis, total non-performing assets rose 3% to $137 million. Nonetheless, the non-performing assets to total assets ratio was 0.07%, down from the year-ago quarter’s 0.08%.
Strong Capital Position
As of Jun 30, 2022, the company’s Tier 1 leverage ratio was 8.59% compared with 8.05% as of Jun 30, 2021. Tangible book value per share increased 13.1% year over year to $69.81.
Tier 1 capital to risk-weighted assets was 11.75%, up from 11.38% in second-quarter 2021.
Our Viewpoint
First Republic's balance sheet position has been decent and its growth prospects look promising, driven by consistent growth in loans. We believe that a strong capital position will help it pursue organic moves and strategic acquisitions in the near future.
However, rising costs on investments in business expansion might hurt its bottom line in the near term.
First Republic Bank Price, Consensus and EPS Surprise
Image: Shutterstock
First Republic (FRC) Q2 Earnings & Revenues Beat Estimates
First Republic Bank’s second-quarter 2022 earnings per share of $2.16 have surpassed the Zacks Consensus Estimate of $2.05. Additionally, the bottom line improved 10.8% from the year-ago quarter.
Results have been supported by an increase in net interest income (“NII”) and non-interest income. The company’s capital position was strong in the quarter. Yet, higher expenses and elevated provision for credit losses were the offsetting factors.
Net income available to common shareholders jumped 12% year over year to $392 million.
Revenues, Expenses Flare Up
Total revenues were $1.51 billion in the June-end quarter, up 22.6% year over year. The figure outpaced the Zacks Consensus Estimate of $1.46.
The NII jumped 24.1% year over year to $1.2 billion, primarily supported by growth in average interest-earning assets. The net interest margin increased to 2.80% from the prior-year quarter’s 2.68%.
Non-interest income was $263 million, up 16% year over year. The rise mainly resulted from higher wealth management fees, partially offset by a fall in income from investments in life insurance.
Non-interest expenses for the reported quarter flared up 19.7% year over year to $913 million. Continued investments in business expansion, including additional hiring to support growth and information system initiatives, resulted in the uptick.
The second-quarter efficiency ratio of 60.5% was down from 62% in the prior-year quarter. A lower ratio indicates an increase in profitability.
Decent Balance Sheet
As of Jun 30, 2022, net loans climbed 7.2% sequentially to $151.5 billion, while total deposits were up 2.2% to $165.6 billion. Loan originations were $22 billion for the quarter, up 31.1% year over year.
However, First Republic’s total wealth management assets were $246.8 billion as of Jun 30, 2022, marking a 10% sequential fall. The decrease was primarily due to market depreciation.
Wealth management assets included investment management assets, brokerage assets, money market mutual funds, and trust and custody assets.
Deteriorated Credit Quality
In the second quarter, credit metrics deteriorated. Net loan charge-offs were $1.3 million, up from net charge-offs of $1.2 million in second-quarter 2021. Also, the provision for credit losses of $31 million was recorded compared with $16 million in second-quarter 2021.
On a year-over-year basis, total non-performing assets rose 3% to $137 million. Nonetheless, the non-performing assets to total assets ratio was 0.07%, down from the year-ago quarter’s 0.08%.
Strong Capital Position
As of Jun 30, 2022, the company’s Tier 1 leverage ratio was 8.59% compared with 8.05% as of Jun 30, 2021. Tangible book value per share increased 13.1% year over year to $69.81.
Tier 1 capital to risk-weighted assets was 11.75%, up from 11.38% in second-quarter 2021.
Our Viewpoint
First Republic's balance sheet position has been decent and its growth prospects look promising, driven by consistent growth in loans. We believe that a strong capital position will help it pursue organic moves and strategic acquisitions in the near future.
However, rising costs on investments in business expansion might hurt its bottom line in the near term.
First Republic Bank Price, Consensus and EPS Surprise
First Republic Bank price-consensus-eps-surprise-chart | First Republic Bank Quote
First Republic currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Release Dates of Other Stocks
Fifth Third Bancorp (FITB - Free Report) is slated to report second-quarter 2022 results on Jul 21.
The Zacks Consensus Estimate for Fifth Third’s second-quarter earnings of 88 cents indicates a 6.4% decline from the prior-year quarter.
Citizens Financial Group (CFG - Free Report) is slated to report second-quarter 2022 results on Jul 19.
The Zacks Consensus Estimate for Citizens Financial’s second-quarter earnings of $1.02 indicates a 30.1% decline from the prior-year quarter.