On Mar 4, 2014, we issued an updated research report on First Republic Bank (FRC). This West bank recently reported in-line fourth-quarter 2013 results. Results were aided by top-line growth and lower provision for credit losses, which were partially offset by higher operating expenses. Though the company shows stability in its fundamentals, we remain cautious due to the macroeconomic headwinds across the industry.
First Republic reported fourth-quarter 2013 earnings of 66 cents per share, in line with the Zacks Consensus Estimate. However, this was higher than the earnings of 61 cents posted in the year-ago quarter.
First Republic’s performance in 2013 was not remarkable but it was decent as evident from its earnings history. In 2013, the company posted in-line earnings in 2 quarters, delivered a positive earnings surprise in 1 quarter and missed in the remaining quarter.
First Republic’s consistent efforts toward successfully executing its organic growth strategy are commendable. Total deposits have grown at a 5-year CAGR of 13% (2009-2013), while loan originations increased at a 4-year CAGR (2010-2013) of 29%.
Further, amid a still low interest rate environment, First Republic achieved growth in its net interest income (NII). NII improved 4% year over year to $1.22 billion in 2013.
First Republic has adequate positives to improve its operating efficiencies in the long run. However, we believe mounting expenses and the stringent regulatory landscape may pose threats to the company’s financials in the near term. Further, the recent downgrade of the company’s outlook to ‘Negative’ from ‘Stable’ by Moody's Investors Service, the ratings arm of Moody's Corporation (MCO), has dampened investors’ confidence in the stock.
The mixed opinion of analysts is evident from the movement of the Zacks Consensus Estimate over the past 60 days. The Estimate for 2014 declined 1.4% to $2.82 per share. For 2015, it advanced nearly 1% to $3.30 per share.
First Republic currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Stocks that are worth considering in the sector include Central Valley Community Bancorp (CVCY) and Preferred Bank (PFBC). Both these stocks hold a Zacks Rank #1 (Strong Buy).
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