First Republic (FRC) fourth quarter earnings and revenue beat, costs rise
Bank of the First RepublicFRC’s Q4 2021 earnings per share of $2.02 beat Zacks’ consensus estimate of $1.91. In addition, net income improved by 26.3% compared to the prior year quarter.
The results were supported by an increase in net interest income (NII) and non-interest income. In addition, the company’s balance sheet position was strong during the quarter. However, higher expenses and high net loan write-offs were the offsetting factors.
Net income available to common shareholders jumped 31.9% year-over-year to $368 million.
For 2021, net income was $1.38 billion or $7.68 per share, up from $1 billion or $5.81 per share a year earlier. Annual earnings per share also topped Zacks’ consensus estimate of $5.56.
Income increases, expenses increase
Total revenue was $1.37 billion in the December quarter, up 26.9% year over year. The figure also topped Zacks’ consensus estimate of $1.34 billion.
For 2021, total revenue was $5.03 billion, up 28.5% year over year. Revenue also exceeded Zacks’ consensus estimate of $5.01 billion.
NII jumped 25.4% year-over-year to $1.1 billion, driven primarily by growth in average interest-earning assets, offset by a lower net interest margin. Net interest margin declined to 2.68% from significantly higher average cash balances of 2.73% in the prior year quarter.
Non-interest revenue was $247 million, up 31.6% year over year. This increase is mainly due to the increase in wealth management fees and income from life insurance investments.
Non-interest expense for the reported quarter rose 29.9% year-over-year to $866 million. Continued investments in franchise expansion, including additional hiring, to support growth and information system initiatives drove the increase.
The fourth quarter efficiency ratio of 63.3% was up from 61.6% in the prior year quarter. A higher ratio indicates lower profitability.
Healthy balance sheet
As of December 31, 2021, net loans increased 5.1% sequentially to $134.3 billion, while total deposits increased 7.6% to $156.3 billion. Loan originations were $16.9 billion for the quarter, up 9.3% quarter over quarter.
First Republic’s total wealth management assets were $279.4 billion as of December 31, 2021, marking a sequential increase of 11%. The increase was mainly driven by market appreciation and net customer inflow.
Notably, wealth management assets included investment management assets, brokerage assets, money market mutual funds, and trust and custodial assets.
Improve credit quality
During the October-December period, the credit indicators were correct. Year-over-year, total non-performing assets decreased 24.5% to $139 million. Additionally, the ratio of non-performing assets to total assets was 0.08%, down from 0.13% in the prior year quarter. A provision for credit losses of $24 million was recorded, compared to $35 million in the fourth quarter of 2020.
However, net loan write-offs were $0.1 million versus net recoveries of $0.6 million in the fourth quarter of 2020.
Decent capital position
As of December 31, 2021, the company’s Tier 1 debt ratio was 8.76%, compared to 8.14% as of December 31, 2020. The tangible book value per share increased by 17.1% year-on-year. the other to reach $67.10.
Tier 1 capital to risk-weighted assets was 9.65%, compared to 9.67% in the fourth quarter of 2020.
Our point of view
First Republic’s balance sheet position is strong and growth prospects look promising, driven by steady loan growth. We believe a strong capital position will help it pursue organic moves as well as strategic acquisitions in the near future.
However, the rising cost of investments in expanding franchises could hurt its short-term results. In addition, the low net interest margin on higher average cash balances is of concern as it may hamper interest income growth to some extent.
First Republic Bank price, consensus and EPS surprise
First Republic Bank-consensus-eps-surprise-chart price | Quote from the Bank of the First Republic
The First Republic currently wears a Zacks Rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We now look forward to the publication of the results of American bank usb, Citizen Financial CFG and Comedica Inc. CMA. USB, CFG and CMA are expected to release their quarterly results on January 19.
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