Why has First Republic Bank (FRC) fallen 12.9% since the last earnings report?
IIt has been about a month since the last earnings report from First Republic Bank (FRC) was released. Stocks lost about 12.9% during this period, underperforming the S&P 500.
Will the recent negative trend continue until its next earnings release, or is First Republic Bank set for a breakout? Before we dive into the recent reaction from investors and analysts, let’s take a look at its latest earnings report to better understand the important catalysts.
First Republic profits exceed estimates, revenues rise
First Republic’s first-quarter 2022 earnings per share of $2 beat Zacks’ consensus estimate of $1.90. In addition, net income improved by 11.7% compared to the prior year quarter.
Results were supported by an increase in NII and non-interest income. The company’s capital position was strong during the quarter. Higher expenses and a high provision for credit losses were the offsetting factors.
Net income available to common shareholders jumped 15.2% year-over-year to $364 million.
Income and expenses increase
Total revenue was $1.40 billion in the end-March quarter, up 23% year-over-year. The figure missed Zacks’ consensus estimate by 0.44%.
The NII jumped 21.9% year-over-year to $1.15 billion, mainly supported by growth in average interest-bearing assets. Net interest margin increased slightly to 2.68% from 2.67% in the prior year quarter.
Non-interest revenue was $251 million, up 28.1% year over year. The increase is mainly due to higher wealth management fees, brokerage and investment fees and foreign exchange commission income.
Non-interest expense for the reported quarter rose 20.2% year-over-year to $866 million. Continued investment in business expansion, including additional hiring to support growth and information system initiatives, drove the increase.
The efficiency ratio of 62% in the first quarter was down from 63.5% in the prior year quarter. A lower ratio indicates an increase in profitability.
Decent track record
As of March 31, 2022, net loans increased 4.7% sequentially to $140.6 billion, while total deposits increased 3.7% to $162.1 billion. Loan originations were $17.8 billion for the quarter, up 5.5% sequentially.
First Republic’s total wealth management assets were $274.2 billion as of March 31, 2022, marking a sequential decline of 1.9%. The decline is mainly due to market depreciation, largely offset by the net influx of customers.
Wealth management assets included investment management assets, brokerage assets, money market mutual funds, and trust and custodial assets.
Improve credit quality
During the January-March period, the credit indicators were correct. Year-over-year, total non-performing assets decreased 19.5% to $140 million. The ratio of non-performing assets to total assets was 0.08%, down from 0.11% in the prior year quarter. Net loan recoveries were $0.3 million compared to a net charge of $0.5 million in the first quarter of 2021.
However, a provision for credit losses of $10 million was recorded against a reversal of $15 million in the first quarter of 2021.
Solid financial situation
As of March 31, 2022, the Company’s Tier 1 debt ratio was 8.70%, compared to 8.32% as of March 31, 2021. Tangible book value per share increased 14.2% year over year. on the other to reach $68.47.
Tier 1 capital to risk-weighted assets was 12.25%, compared to 11.6% in the first quarter of 2021.
Management expects loan growth in the mid-teens range. NIM is expected at the midpoint of the 2.65-2.75% range.
The efficiency rate is projected between 62% and 64%.
In addition, the effective tax rate is expected to be between 21% and 22%.
How have the estimates changed since then?
It turns out that the revision of the estimates has tended to increase over the past month.
Right now, First Republic Bank has an average growth score of C, but its Momentum score fares a little better with a B. Tracing a somewhat similar path, the stock has been assigned a rating of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the title has an overall VGM score of C. If you’re not focused on a strategy, this score is the one you should be interested in.
Estimates have been trending higher for the stock overall, and the magnitude of these revisions looks promising. Notably, First Republic Bank has a Zacks rank of #3 (Hold). We expect the title to return online in the coming months.
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