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Why Is First Republic Bank (FRC) Up 5.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for First Republic Bank (FRC - Free Report) . Shares have added about 5.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is First Republic Bank due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

First Republic Q3 Earnings Beat Estimates, Costs Rise

First Republic Bank’s third-quarter 2019 earnings per share of $1.31 surpassed the Zacks Consensus Estimate of $1.21. Also, the bottom line jumped 10.1% from the year-ago quarter.

Results were supported by increase in NII and non-interest income. Moreover, the company’s balance sheet position remained strong in the quarter. However, rise in expenses was a headwind.

Net income available to common shareholders grew 13% year over year to $222.1 million.

Revenues Climb, Expenses Escalate

Net revenues were $837.2 million, up 8.9% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $830.6 million.

NII jumped 9.5% year over year to $695 million, primarily supported by growth in average earning assets. Net interest margin was 2.80%, down from 2.85%.

Non-interest income was $142.2 million, up 5.8% year over year. The rise was backed by higher brokerage and investment fees, and foreign exchange fee income, partially offset by lower investment management fees.

Non-interest expenses for the reported quarter were up 10.3% year over year to $534 million. An increase in salaries and benefits, occupancy and information systems expenses from the continued investments in the expansion of the franchises led to the rise.

The efficiency ratio was 63.8% compared with 63% recorded in the prior-year quarter. It should be noted that rise in the efficiency ratio indicates lower profitability.

Healthy Balance Sheet

As of Sep 30, 2019, net loans climbed 5% sequentially to $85.8 billion while total deposits were up 2.7% to $85.7 billion. Loan originations were $11.1 billion, up 18% from the prior quarter.

First Republic’s total wealth management assets were $140.2 billion as of Sep 30, 2019, indicating 1.9% sequential rise. This increase resulted from net new assets from existing and new clients, and market appreciation.

Notably, wealth management assets included investment management assets, brokerage assets, money market mutual funds, and trust and custody assets.

Credit Quality: A Mixed Bag

On a year-over-year basis, total non-performing assets increased significantly to approximately $136.9 million. The non-performing assets to total assets ratio was 0.12%, up from 0.04% in the year-ago quarter.

However, provision for loan losses decreased 10.3% on a year-over-year basis to $16.7 million.

Capital Position

As of Sep 30, 2019, the company’s Tier 1 leverage ratio was 8.5%, indicating fall of 41 basis points from the prior-year quarter. Tier 1 capital to risk-weighted assets was 11.05%, down from 12.14%. Common equity Tier 1 capital to risk-weighted assets ratio was 9.91% compared with 10.47% a year ago.

Tangible book value per share increased 11% year over year to $48.84.

Outlook

The company anticipates net interest margin to be about 2.75% in the fourth-quarter 2019 and approximately 2.82% in 2019.

Management expects efficiency ratio to be 64.5% in 2019.

Further, tax rate is anticipated to be between 20% and 21% in the fourth-quarter 2019. For 2019, effective tax rate is expected to be about 18%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, First Republic Bank has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, First Republic Bank has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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