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Low Rates, Provisions to Mar First Republic (FRC) Q2 Earnings

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Zacks Equity Research
·5 min read
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First Republic Bank FRC is scheduled to report second-quarter 2020 earnings, before the opening bell, on Jul 14. While its revenues are expected to have improved year over year, earnings are likely to have declined.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate on increases in NII and non-interest income. However, rise in expenses served as a headwind.

Notably, First Republic has a decent earnings surprise history. Its earnings surpassed the consensus estimate in three of the trailing four quarters, the average positive surprise being 11.9%.

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 does not have 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 -2.72%.

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

The Zacks Consensus Estimate for earnings for the to-be-reported quarter has been revised slightly downward over the past 30 days. The company’s earnings estimates of $1.21 per share suggest a decline of 2.4% from the year-ago reported figure.

However, the consensus estimate for sales of $918.8 million indicates an increase of 12.1% from the year-ago reported figure.

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

Loan Growth: The company is likely to have witnessed a rise in loans in the quarter, as lower interest rates might have boosted demand for mortgage loans. Also, per Fed’s latest data, pickup in commercial & industrial during the quarter might have lent support.

Muted Net Interest Income (NII): The Fed slashed interest rates to near zero this March in order to shield the U.S. economy from the coronavirus outbreak-related mayhem. This is likely to have substantially hurt net interest margin and net interest income. However, low deposit costs might have been offsetting factors for margins.

Per the Fed’s latest data, a decent lending scenario, particularly in commercial real estate loans front, might have provided some support to the company’s interest income. Also, the Zacks Consensus Estimate for average interest-earning assets of $118.4 billion for the quarter indicates a 4.3% sequential improvement.

The Zacks Consensus Estimate for NII of $762 million suggests a 1.3% rise on a year-over-year basis.

Decline in Non-Interest Income: The consensus estimate for investment management fees (comprising more than 60% of total fee income) is pegged at $90 million, suggesting a fall of 9% sequentially.

Further, the consensus estimate for brokerage and investment fees of $14 million indicates a 9.7% decline from the previous quarter’s reported number.

Total fee revenues are expected to have declined in the quarter. The consensus estimate for fee revenues is pegged at $151 million, suggesting a 7.9% decline sequentially.

Soft Growth in Expenses: First Republic’s investments in franchise development or digital initiatives, including mobile banking applications and data analytics, might have kept costs elevated in the quarter. However, a slight fall in costs from branch closures, and declines in marketing and travel-related expenses might have been witnessed during the quarter.

Worsening Asset Quality: First Republic is likely to have recorded a substantial increase in provision for credit losses, as it is expected to have built reserves to combat the coronavirus outbreak-induced economic slowdown.

Stocks That Warrant a Look

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

Comerica Incorporated CMA is expected to release quarterly results soon. The company currently has an Earnings ESP of +6.90% and 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 Bank of America Corporation BAC is +31.66% and it carries a Zacks Rank of 3 currently. The company is expected to report quarterly numbers in the coming days.

Bank of Hawaii Corporation BOH is likely to report quarterly earnings soon. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +0.73%.

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Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>

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Comerica Incorporated (CMA) : Free Stock Analysis Report
Bank of America Corporation (BAC) : Free Stock Analysis Report
First Republic Bank (FRC) : Free Stock Analysis Report
Bank of Hawaii Corporation (BOH) : Free Stock Analysis Report
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