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Fee Income Growth to Aid First Republic (FRC) Q4 Earnings

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Zacks Equity Research
·4 min read
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First Republic Bank FRC is scheduled to report fourth-quarter 2020 earnings, before the opening bell, on Jan 14. The company’s revenues and earnings are expected to have improved year over year.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate on higher net interest income (NII) and fee income. However, rise in expenses and elevated provisions acted as headwinds.

Notably, First Republic has an impressive earnings surprise history. Its earnings surpassed the consensus estimate in each of the trailing four quarters, the positive surprise being 18.5%, on average.

First Republic Bank Price and EPS Surprise

First Republic Bank Price and EPS Surprise
First Republic Bank Price and EPS Surprise

First Republic Bank price-eps-surprise | First Republic Bank Quote

Now let’s take a look at what our quantitative model predicts for the to-be-reported quarter:

Our proven model shows that First Republic has the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP for First Republic is +0.50%.

Zacks Rank: The company currently carries a Zacks Rank of 2 (Buy).

The Zacks Consensus Estimate of $1.52 for earnings for the to-be-reported quarter has been revised slightly upward over the past 30 days. It suggests a rise of 9.4% from the year-ago reported figure.

Also, the consensus estimate for sales of $1.03 billion indicates an increase of 16.8% from the year-ago reported figure.

Here are the factors that are likely to have influenced First Republic’s fourth-quarter results:

Muted Loan Growth: Per Fed’s latest data, lending scenario, particularly residential real estate loans portfolio (70% of the company’s total loan portfolio as of Sep 30, 2020), during the fourth quarter remained dim on account of economic slowdown due to the coronavirus scare.

NII Growth: The Zacks Consensus Estimate for average interest-earning assets of $130 billion for the quarter indicates a 19.8% year-over-year improvement. However, muted lending scenario and record low rates might have affected the company’s interest income.

The Zacks Consensus Estimate for NII of $856 million suggests 18.9% rise on a year-over-year basis.

Rise in Non-Interest Income: Continued strength in equity markets led to rise in asset prices, thereby supporting the company’s investment management fees (comprising more than 65% of total fee income). The consensus estimate for the same is pegged at $103 million, suggesting a rise of 6.2% from prior-year quarter.

Also, the quarter saw significant market volatility on vaccine breakthroughs and the Presidential elections. This, along with higher client activity, is likely to have supported trading revenues. The consensus estimate for brokerage and investment fees of $13.2 million indicates 6.3% growth from the year-ago quarter’s reported number.

Overall, fee revenues are expected to have climbed in the quarter. The consensus estimate for the same is pegged at $164 million, suggesting a 4.5% rise year over year.

Rise in Expenses: First Republic’s investments in opening new offices to enhance community presence or digital initiatives might have kept costs elevated in the quarter. Further, the company continues to invest in developing infrastructure and risk management practices.

Other Stocks That Warrant a Look

Here are some other stocks you may want to consider, as according to our model these too have the right combination of elements to post an earnings beat this quarter.

PNC Financial PNC is slated to report quarterly results on Jan 15. The company has an Earnings ESP of +2.54% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Citigroup C is +1.29% and it carries a Zacks Rank of 3, at present. The company is scheduled to report quarterly numbers on Jan 15.

Bank of America BAC is slated to report quarterly earnings on Jan 19. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +4.88%.

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Bank of America Corporation (BAC) : Free Stock Analysis Report
 
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The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report
 
First Republic Bank (FRC) : Free Stock Analysis Report
 
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