- First Republic's stock lost most of its value amid last month's banking turmoil.
- Investors anxiously await the bank's quarterly earnings next week, but they're as difficult to guess as the bank's current financial condition.
- They'll also desire a balance-sheet update, particularly a review of the bank's real estate loan portfolio.
First Republic Bank (FRC), the San Francisco-based regional bank near the forefront of last month's global banking turmoil, could report a loss driven by falling net interest income when it reports its first-quarter financial results Monday.
Or it may not.
The uncertainty reflects widely varying projections—in turn reflecting uncertainty about the bank's financial condition—made by 14 analysts who provided first-quarter financial estimates on First Republic to Visible Alpha.
Those analysts provided such a vast range of expected revenue, net income, and per-share earnings guesses, it appears to have skewed the resulting consensus projections. Consequently, investors may not find them all that meaningful.
It seems likely, though, that First Republic will report a decline in net interest income that will push the company's quarterly revenue and earnings to at least the lowest levels since the height of the Covid-19 pandemic.
A Disastrous March
The company's stock plunged in March, losing 89% of its value, when fellow Bay Area lender Silicon Valley Bank and New York-based Signature Bank failed amid investors' concerns about unrealized losses on their balance sheets.
At the time, Moody's Analytics placed the bank on review for a possible credit downgrade. In addition, a research report by Wedbush Securities found that the unrealized losses of First Republic's loans and held-to-maturity securities more than doubled its book value based on generally accepted accounting principles (GAAP).
Of course, the company only would have to record those losses if it sold the related loans and securities. Nevertheless, investors and banking regulators worried those and similar balance-sheet losses signaled potential liquidity and credit problems throughout the banking system.
A run on bank deposits, for instance, could force a bank to sell securities to cover withdrawal requests. First Republic had $176.4 billion in total deposits at the end of the third quarter, compared with $212.6 billion in total assets, including income-producing loans.
Balance Sheet Appraisal
First Republic's shares rose 12.4% Wednesday as quarterly earnings reports from other regional banks showed their deposits stabilizing. But they still remain 89% lower than their value at the beginning of March.
In addition to discerning how higher interest rates have affected the company's earnings, investors Monday will look for an update on the condition of the bank's balance sheet, including its overall loan portfolio.
Real estate mortgages account for 83% of First Republic's $166 billion in loans, with commercial and multi-family housing mortgages composing about a quarter of its real estate portfolio. Rising interest rates have raised concerns that property values could fall in both residential and commercial markets.