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First Republic (FRC) Rides on Organic Growth Moves: Time to Buy?

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First Republic Bank FRC has been growing through considerable top-line strength on growth in loans and deposit balances. Moreover, the bank’s decent debt level is a tailwind. However, escalating expenses might impede bottom-line growth.

The company has been witnessing upward estimate revisions, reflecting analysts’ optimism about its growth prospects.

Looking at its fundamentals, First Republic has demonstrated impressive top-line strength in the past few years. The bank’s net interest income (NII) has exhibited a five-year compound annual growth rate (CAGR) (2016-2020) of 15.8%. During the same time period, its non-interest income reflected growth of 13.4%, with support from a steady rise in investment management fees (accounting for 61% of fee income as of Mar 31, 2021).

First Republic recorded notable growth in loan balances on increased loan origination volumes, with a three-year CAGR (2018-2020) of 29.4%. Additionally, the company’s total deposits have witnessed a CAGR of 12.9% during the same time span. Therefore, a rising trend in loans and deposits is anticipated to continue with economic recovery.

As of Mar 31, 2021, the company had total debt worth $12.3 billion, while its cash and cash equivalents and due from banks totaled $8.9 billion. Further, the time-interest-earned ratio of 6.2 has been increasing steadily for the past several quarters. Thus, given the favorable factors and record of earnings growth, First Republic has a lesser likelihood of default in interest payment and debt repayment if the economic situation worsens.

Nonetheless, total expenses have flared up, witnessing a CAGR of 34.7%, over the last five years (2016-2020). Remarkably, cost savings from completed build-out of systems and processes required for crossing $50 billion in total assets are being invested into digital initiatives, including mobile banking applications and data analytics. As such, operating costs are likely to remain elevated in the near term.

Stocks to Consider

NorthrimBanCorp, Inc. NRIM has been witnessing upward estimate revisions for the past 30 days.

Flushing Financial Corporation FFIC has been recording upward movement in estimates for the past 30 days.

Artisan Partners Asset Management Inc. APAM has been witnessing upward estimate revisions for the past 30 days.

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First Republic Bank (FRC) : Free Stock Analysis Report
Northrim BanCorp Inc (NRIM) : Free Stock Analysis Report
Flushing Financial Corporation (FFIC) : Free Stock Analysis Report
Artisan Partners Asset Management Inc. (APAM) : Free Stock Analysis Report
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