On Sep 12, we initiated our coverage on regional bank,
First Republic Bank
) at Neutral, based on its strong second-quarter results.
However, an unsettled economy, persistent low interest rate
environment and stringent regulations are matters of concern.
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Why Neutral Stance?
In the second quarter of 2013, First Republic marginally beat the
Zacks Consensus Estimate with respect to higher net interest and
non-interest income. An increase in loans and deposits was also a
positive for the company. However, higher non-interest expenses
were the downside.
First Republic's ability to grow core deposits has helped in
reducing its dependence on wholesale funding, thereby resulting
in a less expensive and more stable funding base. Further, the
company continues to build capital, leading to a better financial
position that will help in fulfilling stringent capital
However, the company's increased efficiency ratio and significant
exposure in California, particularly San Francisco and the
Northeastern United States remain plausible concerns. In
addition, First Republic's profitability remains subject to
stringent regulations. Further, due to the low interest rate
environment, First Republic is expected to continue experiencing
pressure on its net interest margin, which will be more than
offset by a solid balance sheet, continuous growth in loans and
rise in interest rates.
Other Stocks to Consider
First Republic currently carries a Zacks Rank #3 (Hold). Other
stocks in the sector that are performing well include
SVB Financial Group
BofI Holding, Inc.
). All of these carry a Zacks Rank #1 (Strong Buy).