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First Republic (FRC) Q3 Earnings Beat on Higher Revenues

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First Republic Bank FRC delivered an earnings surprise of 4.4% in third-quarter 2021 on solid top-line strength. Earnings per share of $1.91 surpassed the Zacks Consensus Estimate of $1.83. Additionally, the bottom line improved 18.6% from the year-ago quarter.

Results were supported by an increase in net interest income (NII) and non-interest income. Moreover, the company’s balance-sheet position was strong during the quarter. However, higher expenses and elevated provisions were offsetting factors.

Net income available to common shareholders jumped 24.1% year on year to $345.3 million.

Revenues Increase, Expenses Flare Up

Total revenues came in at $1.3 billion during the September-end quarter, up 30.1% year over year. The figure also surpassed the Zacks Consensus Estimate of $1.27 billion.

The NII jumped 26.7% year over year to $1.1 billion, primarily supported by growth in average interest-earning assets. Net interest margin dipped to 2.65% compared with the prior-year quarter on higher average cash balances.

Non-interest income was $250.4 million, up 46.4% year on year. This rise mainly resulted from higher wealth management fees, partially offset by lower gain on sale of loans.

Non-interest expenses for the reported quarter flared up 31.3% year on year to $798.5 million. Rise in salaries, incentive compensation and benefits and information systems costs from continued investments in the expansion of the franchises, as well as higher professional fees resulted in this uptick.

The third-quarter efficiency ratio of 61.3%, up 60 bps, year over year.

Healthy Balance Sheet

As of Sep 30, 2021, net loans climbed 4.3% sequentially to $127.7 billion, while total deposits were up 7.9% to $145.3 billion. Loan originations, including PPP loans, came in at $15.5 billion, down 7% quarter on quarter.

First Republic’s total wealth management assets were $251.7 billion as of Sep 30, 2021, marking a 4.5% sequential rise. This increase was primarily aided by market appreciation and net client inflow.

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

Improving Credit Quality

During the July-September period, credit metrics were robust. On a year-over-year basis, total non-performing assets decreased 4.1% to $127.4 million. Also, the non-performing assets to total assets ratio was 0.07%, down from the year-ago quarter’s 0.12%. Net loan charge-offs were $0.3 million, down 83% year over year.

Nevertheless, provision for credit losses of $34 million was recorded, primarily driven by loan growth.

Capital Position

As of Sep 30, 2021, the company’s Tier 1 leverage ratio was 8.55%, compared to 8.38% at Sep 30, 2020. Tier 1 capital to risk-weighted assets was 11.99%, up from 11.5%. Tangible book value per share increased 18.5% to $65.19.

Common equity Tier 1 capital to risk-weighted assets ratio was 9.61% compared with the prior year’s 9.78%.

Our Viewpoint

While First Republic has been able to sustain its organic growth momentum, highlighted by higher loans and deposits, rising costs on investments in digital initiatives might hurt its bottom line in the near term. Moreover, low net interest margin on higher average cash balances is a concern as it might impede interest income growth to some extent. Nevertheless, rise in average earnings assets is a tailwind.

First Republic Bank Price, Consensus and EPS Surprise

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.

Among other banks, U.S. Bancorp USB and Citigroup C are slated to report quarterly results on Oct 14, while Northern Trust Corporation NTRS will announce on Oct 20.

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