First Republic Heading Towards $50B Assets: Time to Hold? - Analyst Blog

On Dec 3, 2014, we issued an updated research report on First Republic Bank (FRC). Shares of this California-based major bank gained nearly 3% year to date. We believe the stock performance has been aided by organic growth of the company as it is trending towards a $50 billion plus institution.

In second-quarter 2014, it became known fact that First Republic expects consolidated assets for the trailing four quarters to average at least $50 billion by the end of 2015. The company has remained focused on its perceived goal and has been diligently taking necessary measures. As of Sep 30, 2014, the company had total assets of $46.7 billion, up from $46.2 billion as of Jun 30, 2014.

Notably, as an institution with at least $50 billion assets is required to operate in a stricter regulatory environment, the company is currently making related progress in the infrastructure platform. The company remains committed to fortify on-balance sheet liquidity and will continue to increase its high-quality liquid assets ('HQLA') portfolio, to comply with regulatory requirement.
 
Though entry into a competitive market with larger players will pose a challenge for the company, we believe that it is well positioned to counter this and will have adequate room for further growth. This is due to First Republic's strong capital position, simpler business model and non-engagement in additional businesses as compared to most large banking institutions.

Nevertheless, we remain cautious owing to escalating costs. The increased compliance standards require First Republic to make infrastructure investments in several areas in the coming quarters. Though the company anticipates such increased costs to be offset by cost containment initiatives that began in third-quarter 2014, we believe higher expenses might limit top-line growth. Adding to the concerns, the prolonged low interest rate environment has kept the company's net interest margin under pressure.

Over the past 30 days, the Zacks Consensus Estimate remained stable at $3.07 per share and $3.06 per share for 2014 and 2015, respectively.

First Republic currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some better-ranked stocks in the West banks space include Bridge Capital Holdings (BBNK), Preferred Bank (PFBC) and Western Alliance Bancorp (WAL). All these stocks hold a Zacks Rank #1 (Strong Buy).