Event:
FRC reported 2Q22 EPS of $2.16, exceeding our estimate of $2.07 and consensus of $2.09 due to higher net interest income and higher fee income, partially offset by a higher provision expense and higher operating expenses. Its pretax pre-provision income of $636 million was $54 million above our forecast.
Bottom line:
A fantastic quarter. Revenue materially exceeded expectations with not only a wider NIM and larger balance sheet, but also higher fee-based revenue, including wealth management. Despite potential headwinds, loan origination volume was a record and loan balances increased 23% y/y. With positive revisions likely, we expect FRC shares to respond well to 2Q results.
Key positives:
NII was higher than our forecast due to a larger balance sheet and a 10 bp wider NIM. Fee income rose 4.8% sequentially and was above our estimate, driven by higher brokerage and investment fees as well as higher investment management fees. Loan growth of 7.2% exceeded our estimate with strong growth in single-family and multifamily loans. Net charge-offs of $1.3M were better than our estimate of $1.8M net charge-offs.
Key negatives:
The provision was higher than expected as a result of the stronger than expected loan growth. Operating expenses were above our forecast due to higher than expected other expenses, partially offset by lower salaries and employee benefits expenses. Deposit balances increased 2.2% from the prior quarter, but missed our projection of 3.4% growth. An AOCI hit led to a negative $0.50 impact to its tangible book value.
