When the biggest bearish argument you can come up with is "I'm not sure how long the bank can continue to grow earnings at a double-digit clip", you know you're looking at a pretty good bank. Such is the case with First Republic (FRC), and I continue to believe this high net worth-focused lender as a long run of exceptional growth ahead of it, as the company continues to benefit from a strong networking effect and very strong underwriting.
Valuation is difficult. By conventional approaches, First Republic looks quite expensive, but then this is not a conventional bank. While metrics like ROTCE can help separate winners and losers when growth rates are similar, First Republic's growth is well beyond "exceptional" and conventional metrics just don't work as well here. Bank investors have historically been willing to pay robust premiums for banks with outsized revenue, earnings, and tangible book growth, and I believe First Republic is well-placed to continue doing just that.
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