Business models matter in banking, and First Republic (FRC) is different in all the right ways. Underpinned by a focus on high-net-worth individuals and disciplined underwriting (low LTVs, long-term customer relationships, et al), First Republic has not only continued to produce far below average credit losses, but also strong spread lending growth in a time of effectively zero rates and weak loan demand.
If you bought in with my April piece on First Republic, you're sitting on a roughly 30% gain that is not only ahead of the banking sector, but comfortably ahead of the S&P 500 as well. With that outperformance, the "easy" undervaluation is gone, but I continue to be impressed by First Republic's loan pipeline growth and the company's methodical approach to gaining share in a still under-penetrated metro-centered HNW market. First Republic's model doesn't require a lot of branches, and its customers tend to come back again and again (to grow their businesses). I don't find the valuation as compelling now as before, but the prospective total return is still in the double-digits (barely), and I wouldn't be in a hurry to sell out of this position.
Keep reading the article here:
First Republic's Differentiated Model Continues To Stand Out During Challenging Times
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