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First Republic (FRC) Q4 Earnings Top Estimates, Revenues Lag

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First Republic Bank’s fourth-quarter 2022 earnings per share of $1.88 surpassed the Zacks Consensus Estimate of $1.82. However, the bottom line declined 6.9% from the year-ago quarter.

Results have been supported by a rise in net interest income (NII) and non-interest income. The company’s capital position was decent in the quarter. Yet, higher expenses and elevated provision for credit losses were the offsetting factors.

Net income available to common shareholders decreased 6% year over year to $346 million.

In 2022, earnings per share of $8.25 increased 7.4% year over year and beat the consensus estimate of $8.19. Net income available to common shareholders was $1.51 billion, up 9.3%.

Revenues Up, Expenses Rise Y/Y

Total revenues were $1.44 billion in the December quarter, up 5.2% year over year. The figure missed the Zacks Consensus Estimate of $1.45 billion. The same for 2022 jumped 16.5% to $5.9 billion, beating the consensus mark of $5.87 billion.

The NII rose 4.8% year over year to $1.17 billion, primarily supported by growth in average interest-earning assets. The net interest margin increased to 2.45% from 2.71%.

Non-interest income was $263 million, up 6.5% year over year. The rise mainly resulted from higher brokerage and investment fees as well as from higher income from investments in life insurance, partially offset by a fall in investment management fees.

Non-interest expenses remained unchanged from the third quarter of 2022 at $919 million. On a year-over-year basis, the figure flared up 6.1%. Continued investments in business expansion, including additional hiring to support growth, information system initiatives and occupancy costs, resulted in the uptick.

The fourth-quarter efficiency ratio of 63.9% increased from 63.3% in the prior-year quarter. A higher ratio indicates a decrease in profitability.

Robust Balance Sheet

As of Dec 31, 2022, net loans climbed 5.1% sequentially to $166.08 billion, while total deposits were up 2.4% to $176.43 billion. Loan originations were $15.62 billion in the quarter, down 7.5% year over year.

Also, First Republic’s total wealth management assets were $271.24 billion as of Dec 31, 2022, marking a decrease of 2.9% year over year. The fall was primarily due to market decline, meaningfully offset by net client inflow.

Credit Quality: A Mixed Bag

Net loan charge-offs were $0.9 million, up from net charge-offs of $0.1 million in fourth-quarter 2021. Also, the provision for credit losses of $30 million was recorded, primarily driven by loan growth compared with $24 million in fourth-quarter 2021.

Nonetheless, on a year-over-year basis, total non-performing assets declined 21.6% to $109 million. Also, the non-performing assets to total assets ratio was 0.05%, down from 0.08%.

Decent Capital Position

As of Dec 31, 2022, the company’s Tier 1 leverage ratio was 8.51% compared with 8.76% as of Dec 31, 2021. Tangible book value per share increased 10.6% to $74.19.

However, Tier 1 capital to risk-weighted assets was 11.34%, down from 12.56% in fourth-quarter 2021.

Our Viewpoint

First Republic's balance sheet position has been decent, and its prospects look promising, driven by consistent loan growth. 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 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 Banks

Signature Bank (SBNY - Free Report) is slated to report fourth-quarter 2022 results on Jan 17.

The Zacks Consensus Estimate for SBNY’s fourth-quarter earnings of $4.93 indicates a 13.6% rise from the prior-year quarter’s reported figure.

Citizens Financial Group (CFG - Free Report) is slated to report fourth-quarter 2022 results on Jan 17.

The Zacks Consensus Estimate for Citizens Financial’s fourth-quarter earnings of $1.30 implies an increase of 3.2% with the prior-year quarter’s reported number.

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