First Republic Putting Some Worries To Rest

There aren’t many truly unique business models in banking, but First Republic (FRC) comes pretty close. Specializing in high net worth (or NHW) clients, First Republic combines a “regular” bank focused largely on jumbo mortgages with a fast-growing business bank focused on private equity, venture capital, and non-profit organizations (including private schools) and a fast-growing asset and wealth management business. First Republic is consistent across its businesses in using a “high-touch” service model that prioritizes outstanding customer service, and the concentration of HNW households means that First Republic doesn’t need many branches to operate its business.

The only downside is that First Republic’s qualities are well-known on the Street. Second-quarter results were pretty solid across the board, but the shares already price in mid-teens long-term earnings growth and meaningful improvements in returns on capital. Accordingly, while this is definitely a name I’d look to reconsider on a pullback, the risk/reward balance doesn’t look so interesting to me now.

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First Republic Putting Some Worries To Rest