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First Republic (FRC) to Post Q3 Earnings: What's in Store?

First Republic's (FRC) Q3 earnings are likely to reflect the impact of muted loan growth and improved asset quality amid a recovering economy.

This story originally appeared on Zacks

First Republic Bank FRC is scheduled to report third-quarter 2021 earnings, before the opening bell, on Oct 13. The company’s revenues and earnings are likely to have improved year over year.

- Zacks

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate on increases in net interest income (NII) and non-interest income. However, rise in expenses and elevated net loan charge-offs were headwinds.

Notably, First Republic has an impressive earnings surprise history. Its earnings surpassed the consensus estimate in all of the trailing four quarters, the average surprise being 13.05%.

First Republic Bank Price and EPS Surprise

First Republic Bank Price and EPS Surprise

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

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

Loan Growth: Per the Fed’s latest data, loan demand, particularly residential real estate loans (nearly 60% of First Republic’s total loan portfolio) and commercial and industrial loans, during the third quarter remained strong on account of recovering of the economy.

The Zacks Consensus Estimate for average interest-earning assets of $158.6 billion indicates a 2.6% sequential improvement.

NII: The steepening of the yield curve (the difference between short and long-term interest rates) is likely to have supported the bank’s net interest margin. Though the yield on the 10-year U.S. Treasury Bond of 1.49% at the end of September was relatively stable on a sequential basis, the figure was up 57 basis points from 0.92% at the end of 2020. Thus, NII is likely to have got some support.

The Zacks Consensus Estimate of $1.04 billion for the quarterly NII suggests a 3.7% rise on a year-over-year basis.

Non-Interest Income: As the economic and business activities resumed, deal making continued at a record pace in the to-be-reported quarter. So, with an increase in global mergers and acquisition volumes, First Republic’s advisory fees are likely to have been positively impacted. Also, as companies kept building liquidity to tide over the pandemic-induced crisis, there was a rise in follow-up equity issuances. This is likely to have boosted the company’s investment advisory fees.

The consensus estimate for investment advisory fees (comprising 60% of total fee income) is pegged at $143 million, calling for a rise of 4.4% sequentially.

However, the consensus estimate for brokerage and investment fees of $17.45 million indicates a marginal dip from the previous quarter’s reported number.

The consensus estimate for total fee income is pegged at $224 million, suggesting a partial decline sequentially.

Expenses: First Republic’s investments in franchise development or digital initiatives, including mobile banking applications and data analytics, might have kept costs elevated during the quarter. These investments might aid the company over the long term but the rising current expense level is curbing bottom-line expansion.

Asset Quality: With the gradual economic improvement amid the coronavirus pandemic, given the vaccine roll-outs, combined with additional market re-openings throughout the quarter, First Republic is likely to have released reserves in the third quarter that it had taken to cover losses from the impact of the pandemic.

The consensus estimate for non-performing assets is pegged at $132 million, which indicates a partial fall from the prior-year period. The Zacks Consensus Estimate for non-performing loans of $132 million also suggests a marginal decline.

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 +0.07%.

Zacks Rank: The company currently carries a Zacks Rank of 3

The Zacks Consensus Estimate for earnings for the to-be-reported quarter has been revised partially downward over the past 30 days. The company’s earnings estimates of $1.83 per share suggest a fall of 1.1% from the year-ago reported figure.

However, the consensus estimate for sales of $1.26 billion indicates an increase of 26.2% from the year-ago reported figure.

Stocks That Warrant a Look

Here are a few bank stocks that you might want to consider as these have the right combination of elements to post earnings beat in their upcoming releases, per our model.

The Earnings ESP for JPMorgan JPM is +1.77% and the stock carries a Zacks Rank #2 (Buy), at present. The company is slated to report third-quarter 2021 results on Oct 13.

Bank of America BAC is scheduled to release third-quarter results on Oct 14. The company currently carries a Zacks Rank #3 and has an Earnings ESP of +0.30%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

U.S. Bancorp USB is scheduled to release earnings on Oct 14. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.93%.

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