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First Republic (FRC) Q1 Earnings Beat, Deposits Fall 40%
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First Republic Bank’s first-quarter 2023 earnings per share of $1.23 surpassed the Zacks Consensus Estimate of 72 cents. However, the bottom line declined 38.5% from the year-ago quarter.Our estimate for earnings was $1.17.
Results have been supported by a rise in non-interest income and a fall in expenses. The company’s capital position weakened in the quarter. Yet, elevated provision for credit losses and a decline in deposits were the offsetting factors.
Net income available to common shareholders decreased 37% year over year to $229 million.Our estimate for the same was $603.7 million.
Revenues & Expenses Decline
Total revenues were $1.21 billion in the first quarter, down 13.4% year over year. The figure surpassed the Zacks Consensus Estimate of $1.13 billion. Our estimate for the same was $1.33 billion.
The net interest income (NII) declined 19.4% year over year to $923 million. Our estimate for the same was $1.08 billion. The net interest margin declined to 1.77% from 2.45% due to higher funding costs.
Non-interest income was $286 million, up 13.9% year over year. The rise mainly resulted from higher brokerage and investment fees, as well as from higher income from investments in life insurance, partially offset by a fall in investment management fees.Our estimate for the same was $248.9 million.
Non-interest expenses declined 1.6% year over year to $852 million. A fall in salaries and employee benefits reduced total expenses. Our estimate for the same was $977.1 million.
The first-quarter efficiency ratio of 70.4% increased from 63.9% in the prior-year quarter. A higher ratio indicates a decrease in profitability.
Decent Balance Sheet
As of Mar 31, 2023, loans climbed 3.9% sequentially to $173.3 billion, while total deposits were down 40% to $104.5 billion. Loan originations were $11.43 billion in the quarter, down 7.5% year over year.
Also, First Republic’s total wealth management assets were $289.5 billion as of Mar 31, 2023, marking a year-over-year rise of 5.5%.
Credit Quality: A Mixed Bag
Net loan recoveries were $0.2 million compared with net recoveries of $0.3 million in first-quarter 2022. Also, the provision for credit losses of $16 million was recorded compared with $10 million in first-quarter 2022.
Nonetheless, on a year-over-year basis, total non-performing assets declined 6.4% to $131 million. Also, the non-performing assets to total assets ratio was 0.06%, down from 0.08%.
Capital Position Weakens
As of Mar 31, 2023, the company’s Tier 1 leverage ratio was 8.25% compared with 8.70% as of Mar 31, 2022. Also, Tier 1 capital to risk-weighted assets was 11.67%, down from 12.25% in first-quarter 2022.
Book value per share increased 10.4% to $76.97.
Conclusion
In the wake of the recent bank failures, the company witnessed acute stress on its business, with significant deposit outflows. In a bid to navigate any liquidity crunch, it suspended its dividends. Moreover, increasing funding costs due to an unfavorable deposit mix will likely continue putting the net interest margin under pressure in the near term.
Following these developments, FRC aims to restructure and reduce its balance sheet by increasing insured deposits, reducing borrowings from the Federal Reserve Bank, and decreasing loan balances to correspond with the reduced dependence on uninsured deposits. Through these actions, FRC will also reduce its reliance on short-term borrowings.
This aside, it is also taking steps to cut costs through significant reductions to executive officer compensation, reducing corporate office space, and non-essential projects and activities. In the second quarter, the company expects to reduce the workforce by 20-25%.
First Republic Bank Price, Consensus and EPS Surprise
U.S. Bancorp’s (USB - Free Report) first-quarter 2023 earnings per share (excluding merger and integration-related charges) of $1.16 handily beat the Zacks Consensus Estimate of $1.13 per share and improved 17.2% from the prior-year quarter.
USB’s results benefited from an increase in NII, supported by higher interest rates. However, a decline in non-interest income (largely on lower mortgage banking income) and higher expenses were concerning. Also, USB’s credit quality deteriorated in the reported quarter.
Citizens Financial Group (CFG - Free Report) reported first-quarter 2023 earnings per share of $1, missing the Zacks Consensus Estimate of $1.11. Nonetheless, the bottom line rose from 93 cents in the year-ago quarter.
CFG’s results reflected NII growth on a rise in interest-earning assets. However, an escalation in expenses, lower non-interest income and a rise in provisions were dampeners.
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First Republic (FRC) Q1 Earnings Beat, Deposits Fall 40%
First Republic Bank’s first-quarter 2023 earnings per share of $1.23 surpassed the Zacks Consensus Estimate of 72 cents. However, the bottom line declined 38.5% from the year-ago quarter.Our estimate for earnings was $1.17.
Results have been supported by a rise in non-interest income and a fall in expenses. The company’s capital position weakened in the quarter. Yet, elevated provision for credit losses and a decline in deposits were the offsetting factors.
Net income available to common shareholders decreased 37% year over year to $229 million.Our estimate for the same was $603.7 million.
Revenues & Expenses Decline
Total revenues were $1.21 billion in the first quarter, down 13.4% year over year. The figure surpassed the Zacks Consensus Estimate of $1.13 billion. Our estimate for the same was $1.33 billion.
The net interest income (NII) declined 19.4% year over year to $923 million. Our estimate for the same was $1.08 billion. The net interest margin declined to 1.77% from 2.45% due to higher funding costs.
Non-interest income was $286 million, up 13.9% year over year. The rise mainly resulted from higher brokerage and investment fees, as well as from higher income from investments in life insurance, partially offset by a fall in investment management fees.Our estimate for the same was $248.9 million.
Non-interest expenses declined 1.6% year over year to $852 million. A fall in salaries and employee benefits reduced total expenses. Our estimate for the same was $977.1 million.
The first-quarter efficiency ratio of 70.4% increased from 63.9% in the prior-year quarter. A higher ratio indicates a decrease in profitability.
Decent Balance Sheet
As of Mar 31, 2023, loans climbed 3.9% sequentially to $173.3 billion, while total deposits were down 40% to $104.5 billion. Loan originations were $11.43 billion in the quarter, down 7.5% year over year.
Also, First Republic’s total wealth management assets were $289.5 billion as of Mar 31, 2023, marking a year-over-year rise of 5.5%.
Credit Quality: A Mixed Bag
Net loan recoveries were $0.2 million compared with net recoveries of $0.3 million in first-quarter 2022. Also, the provision for credit losses of $16 million was recorded compared with $10 million in first-quarter 2022.
Nonetheless, on a year-over-year basis, total non-performing assets declined 6.4% to $131 million. Also, the non-performing assets to total assets ratio was 0.06%, down from 0.08%.
Capital Position Weakens
As of Mar 31, 2023, the company’s Tier 1 leverage ratio was 8.25% compared with 8.70% as of Mar 31, 2022. Also, Tier 1 capital to risk-weighted assets was 11.67%, down from 12.25% in first-quarter 2022.
Book value per share increased 10.4% to $76.97.
Conclusion
In the wake of the recent bank failures, the company witnessed acute stress on its business, with significant deposit outflows. In a bid to navigate any liquidity crunch, it suspended its dividends. Moreover, increasing funding costs due to an unfavorable deposit mix will likely continue putting the net interest margin under pressure in the near term.
Following these developments, FRC aims to restructure and reduce its balance sheet by increasing insured deposits, reducing borrowings from the Federal Reserve Bank, and decreasing loan balances to correspond with the reduced dependence on uninsured deposits. Through these actions, FRC will also reduce its reliance on short-term borrowings.
This aside, it is also taking steps to cut costs through significant reductions to executive officer compensation, reducing corporate office space, and non-essential projects and activities. In the second quarter, the company expects to reduce the workforce by 20-25%.
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.
Performance of Other Banks
U.S. Bancorp’s (USB - Free Report) first-quarter 2023 earnings per share (excluding merger and integration-related charges) of $1.16 handily beat the Zacks Consensus Estimate of $1.13 per share and improved 17.2% from the prior-year quarter.
USB’s results benefited from an increase in NII, supported by higher interest rates. However, a decline in non-interest income (largely on lower mortgage banking income) and higher expenses were concerning. Also, USB’s credit quality deteriorated in the reported quarter.
Citizens Financial Group (CFG - Free Report) reported first-quarter 2023 earnings per share of $1, missing the Zacks Consensus Estimate of $1.11. Nonetheless, the bottom line rose from 93 cents in the year-ago quarter.
CFG’s results reflected NII growth on a rise in interest-earning assets. However, an escalation in expenses, lower non-interest income and a rise in provisions were dampeners.