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First Republic (FRC) Q4 Earnings & Revenues Beat, Costs Rise

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First Republic Bank’s FRC fourth-quarter 2021 earnings per share of $2.02 have surpassed the Zacks Consensus Estimate of $1.91. Additionally, the bottom line improved 26.3% 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 in the quarter. However, higher expenses and elevated net loan charge-offs were the offsetting factors.

Net income available to common shareholders jumped 31.9% year over year to $368 million.

For 2021, net income was $1.38 billion or $7.68 per share, up from the prior year’s $1 billion or $5.81 per share. Yearly earnings per share also outpaced the Zacks Consensus Estimate of $5.56.

Revenues Increase, Expenses Flare Up

Total revenues were $1.37 billion in the December-end quarter, up 26.9% year over year. The figure also surpassed the Zacks Consensus Estimate of $1.34 billion.

For 2021, total revenues were $5.03 billion, up 28.5% year over year. The top line also outpaced the Zacks Consensus Estimate of $5.01 billion.

The NII jumped 25.4% year over year to $1.1 billion, primarily supported by growth in average interest-earning assets, offset by a lower net interest margin. Net interest margin declined to 2.68% from the prior-year quarter’s 2.73% significantly higher average cash balances.

Non-interest income was $247 million, up 31.6% year over year. The rise mainly resulted from higher wealth management fees andincome from investments in life insurance.

Non-interest expenses for the reported quarter flared up 29.9% year over year to $866 million. Continued investments in the franchise expansion, including additional hiring, to support growth and information system initiatives resulted in the uptick.

The fourth-quarter efficiency ratio of 63.3%, was up from 61.6%, in the prior-year quarter. A higher ratio indicates a decline in profitability.

Healthy Balance Sheet

As of Dec 31, 2021, net loans climbed 5.1% sequentially to $134.3 billion, while total deposits were up 7.6% to $156.3 billion. Loan originations were $16.9 billion for the quarter, up 9.3% quarter over quarter.

First Republic’s total wealth management assets were $279.4 billion as of Dec 31, 2021, marking an 11% sequential rise. The 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

In the October-December period, credit metrics were decent. On a year-over-year basis, total non-performing assets decreased 24.5% to $139 million. Also, the non-performing assets to total assets ratio was 0.08%, down from the year-ago quarter’s 0.13%. Provision for credit losses of $24 million was recorded, down from $35 million in fourth-quarter 2020.

However, net loan charge-offs were $0.1 million against net recoveries of $0.6 million in fourth-quarter 2020.

Capital Position Decent

As of Dec 31, 2021, the company’s Tier 1 leverage ratio was 8.76%compared with 8.14% as of Dec 31, 2020. Tangible book value per share increased 17.1% year over year to $67.10.

Tier 1 capital to risk-weighted assets was 9.65%, down from 9.67% in fourth-quarter 2020.

Our Viewpoint

First Republic's balance sheet position has been solid and growth prospects look promising, driven by consistent growth in loans.We believe that a strong capital position will help it pursue organic moves as well as strategic acquisitions in the near future.

However, rising costs on investments in franchise expansion might hurt its bottom line in the near term. Moreover, low net interest margin on higher average cash balances is concerning as it might impede interest income growth to some extent.

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.

We now look forward to the earnings releases of U.S. Bancorp USB, Citizens Financial CFG and Comerica Inc. CMA. USB, CFG and CMA are slated to report quarterly results on Jan 19.


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