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Muted Interest Income to Mar First Republic (FRC) Q3 Earnings

Zacks Equity Research

First Republic Bank FRC is scheduled to report third-quarter 2019 earnings, before the opening bell on Oct 15. Its revenues and earnings are expected to grow year over year.

The company’s second-quarter earnings lagged the Zacks Consensus Estimate on higher expenses and provisions. However, strong capital position and rise in revenues were tailwinds.

Notably, First Republic has a decent earnings surprise history. Its earnings surpassed the consensus estimate in two of the trailing four quarters, the average beat being 1.2%. 

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: The Earnings ESP for First Republic is -0.65%.

Zacks Rank: The company currently carries a Zacks Rank of 3, which increases the predictive power of ESP. But we need to have positive Earnings ESP to be sure of an earnings beat.

Though estimates for the to-be-reported quarter have been revised slightly downward over the past 30 days, the Zacks Consensus Estimate for earnings of $1.21 suggests growth of 1.7% from the year-ago reported figure.

Also, the consensus estimate for sales of $837.5 million indicates an increase of 8.9%. 

Here are the factors influencing First Republic’s third-quarter results:

Loan Growth: First Republic is likely to to have witnessed rise in loans in the third quarter as lower interest rates might have boosted demand for mortgage loans. Also, management expects mid-teens loan growth for 2019 on the back of strong pipeline and client activity.

Muted Net Interest Income: Fed’s interest rate cuts along with flattening of the yield curve has likely hurt First Republic’s net interest margin. However, loan growth might have provided some support to the company’s interest income.

Investment Management Fees to Decline: During the quarter, some concerns like continued uncertainty related to Brexit and the U.S.-China trade war along with expectations of global economic slowdown resulted in lower market volatility. This ultimately led to a decline in overall client activity.

Also, a final outflow of around $4 billion in assets is anticipated due to departure of certain wealth managers in the second quarter. Thus, overall investment management fees might have witnessed a fall.

Higher Expenses: First Republic’s investments in franchise development or digital initiatives, including mobile banking applications and data analytics likely kept costs elevated in the quarter.

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.

Wells Fargo & Company WFC is scheduled to release results on Oct 15. It has an Earnings ESP of +5.79% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

M&T Bank Corporation MTB is scheduled to release results on Oct 17. The company, which carries a Zacks Rank of 3, has an Earnings ESP of +0.72%.

Earnings ESP for BancorpSouth Bank BXS is +2.61% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Oct 21.

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