FRC will report first-quarter 2023 profits before the opening bell on Apr 24.
After SVB failed in March 2023, FRC worried about the sustainability of uninsured deposits and unrealized losses in its securities holdings that could be booked in a fire sale.
First Republic received more liquidity from the Fed and JPMorgan Chase & Co. to address the issue. In case of a deposit flight, it bolstered the bank’s finances with almost $70 billion in leftover operational cash. First Republic acquired $30 billion in uninsured deposits from 11 national banks, demonstrating confidence.
The company’s first-quarter 2023 revenues and profitability are expected to fall.
Net interest income (NII) and non-interest income increased in the latest quarter, helping the company beat the Zacks Consensus Estimate. However, rising expenses and credit loss reserves offset.
First Republic consistently beats earnings expectations. In the past four quarters, it outperformed the consensus expectation by 3.71%.
First Republic Bank Price/EPS Surprise
First Republic Bank quote-eps-surprise
These factors may have affected First Republic’s first-quarter performance:
Loan Growth: Most loan categories slowed in the first quarter as the lending climate worsened. The Fed reported lower residential, commercial, and consumer credit growth. This certainly reduced loan demand in the to-be-reported quarter from the fourth quarter of 2022.
FRC’s lending activities may have been hampered by poor loan growth as demand cools due to higher rates and an uncertain economy.
The Zacks Consensus Estimate for average interest-earning assets is $201.8 billion, up 2.5% from the previous quarter.
NII: Federal Reserve raised rates by 50 basis points in the to-be-reported quarter and 25 bps in the prior quarter. 4.75–5% was the highest policy rate since 2008. Rate hikes have hampered the company’s NII and asset yield gains.
In March, yield curve inversion and higher funding costs certainly hurt the bank’s net interest margin.
The consensus for NII is $990 million, reflecting a 15.7% sequential decline. NII will be $1.1 billion.
Non-Interest Income: The bank’s relationship banking concept emphasizes individualized wealth management services. It has also expanded its investment management services. These measures should help the organization onboard customers.
After SVB’s closure and a weakening economy, FRC may have lost customers during the quarter.
Recession fears have hampered market performance. The quarter’s weak equities markets and limited deal-making activity are estimated to have hurt FRC’s wealth management revenues and assets. The average investment management fee forecast is $153 million, up 8.5% sequentially.
The consensus brokerage and investment fee forecast is $29.11 million, up slightly from the previous quarter.
Client transactions should increase foreign exchange fee income. The consensus forecast is $25.33 million, up 1.32% from last quarter.
This should boost overall non-interest income to $265 million sequentially. We estimate $248.9 million.
Expenses: First Republic’s efforts in franchise development, regulatory infrastructure, and digital activities, including recruiting, may have raised costs in the quarter, limiting bottom-line growth. Expenses will be $977.1 million.
Asset Quality: The Federal Reserve’s faster rate hikes, yield curve inversion, and banking sector uncertainty after SVB’s collapse have raised concerns about a recession and loan losses. Thus, increased reserve built during the quarter is projected to have weighed on FRC’s bottom-line growth.
Quantitative Model Predictions
Our proven methodology does not foresee a First Republic earnings beat this time. A positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) boost the probability of an earnings beat, but not here.
Our Earnings ESP Filter finds the best stocks to buy or sell before they report.
- First Republic Earnings ESP: -6.77%.
- First Republic has a Zacks Rank #4 (Sell).
Last month, the Zacks Consensus Estimate for first-quarter earnings fell 23.4% to 72 cents per share. It also predicts a 64% drop from the year before.
Revenues fell 18.9% to $1.13 billion, according to the consensus projection.
Our model predicts earnings beats for Independent Bank IBCP and QCR Holdings QCRH.
Independent Bank has a Zacks Rank #3 and a +1.40% Earnings ESP. IBCP will release first-quarter 2023 results on April 27. View today’s Zacks #1 Rank stocks here.
Zacks Rank #3 QCR Holdings has an Earnings ESP of +4.62%. QCRH reports first-quarter 2023 results on April 26.
Zacks Earnings Calendar tracks earnings announcements.