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Analyst Blog

Shares of First Republic Bank (FRC - Analyst Report) have recorded a year-to-date return of 54.9%. The strong price appreciation benefited from organic growth and considerable capital deployment activities. However, we are not so optimistic about these positives translating into further price appreciation down the road as the company’s top line will be under pressure.

After observing First Republic’s fundamentals following its third-quarter 2013 earnings release, it seems that keeping the company’s shares in your portfolio would not be a bad idea. However, we discourage further addition of First Republic’s shares to your portfolio.   

Reasons behind View

Though First Republic’s third-quarter 2013 operating earnings per share of 64 cents missed the Zacks Consensus Estimate by a penny, it was higher than 54 cents earned in the prior-year quarter.

Despite the overall sluggish economic environment, First Republic recorded growth in deposits and loans so far in 2013. Given this trend, both loan and deposit balances will expectedly rise further when economic improvement gathers momentum.

We also appreciate the company’s ability to increase net interest income (NII) amid the low interest rate environment.

However, First Republic’s top-line growth will likely be sluggish in the next few quarters owing to rising expenses and net interest margin (NIM) contraction. NIM declined 23 basis points year over year to 3.30% in the first nine months of 2013. Moreover, with implementation of new banking regulations, there will be pressure on fee income.

Over the last 30 days, the Zacks Consensus Estimate for 2013 and 2014 remained unchanged at $2.61 and $2.84 per share, respectively. Hence, First Republic now carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked financial stocks include BofI Holding, Inc. (BOFI - Snapshot Report), Preferred Bank (PFBC - Snapshot Report) and TriCo Bancshares (TCBK - Snapshot Report). All these have a Zacks Rank #1 (Strong Buy).

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