To The Moon

History of First Republic Bank (FRC) taken from the following source: https://www.companieshistory.com/first-republic-bank/

First Republic Bank history, company profile (overview) and corporate video

   First Republic Bank is a full-service bank and wealth management company, headquartered in San Francisco, California, United States. It offers personal banking, business banking, and private wealth management.

HISTORY

   First Republic Bank was founded in 1985 by Jim Herbert.

   In 1986, First Republic went public on the NASDAQ Stock Exchange.

   In 1992, First Republic was listed on the New York Stock Exchange (NYSE).

   In 1994, First Republic acquired Silver State Thrift & Loan and converted it to First Republic Savings Bank.

   In 2003, the company acquired the money management firm Starbuck, Tisdale & Associates.

   In 2006, First Republic merged with Bank of Walnut Creek.

   In 2007, First Republic was acquired by Merrill Lynch.

   In 2009, First Republic became part of Bank of America, after Merrill Lynch and its subsidiaries were acquired by Bank of America.

   In 2015, First Republic acquired Constellation Wealth Partners.

   In 2020, First Republic Trust Company of Wyoming was formed.

SUBSIDIARIES

• First Republic Investment Management, Inc;

• First Republic Securities Company, LLC;

• First Republic Trust Company;

• First Republic Trust Company of Delaware LLC;

• First Republic Trust Company of Wyoming LLC.

   With more than 5,000 employees and over 80 offices, First Republic Bank is considered one of the largest banks in the U.S. According to Forbes, it is considered one of the Largest Public Companies in the World.

Industry:

Regional Banks

Tags:

America's Largest Companies, Bank of America, First Republic Bank, Jim Herbert, Merrill Lynch, Regional Banks

Let us take a look at FRC in greater details.

(Most of the charts are taken from QuickFS and FinViz)

Overview of FRC bank

Stock price of FRC took a dump since the banking crisis started over the weekend

Overview of FRC with most ratios looking good except the recent price action

FRC being downgrade in March 2023

Key statistics of FRC

As per the above, we can see that FRC has been averaging 2.8% in NIM.

From Investopedia:Net interest margin (NIM) is a measurement comparing the net interest income a financial firm generates from credit products like loans and mortgages, with the outgoing interest it pays holders of savings accounts and certificates of deposit (CDs).

The P/E looks attractive at 3.8 with a growing dividend payout for the last 10 years. On top of this, its EPS grew steadily from $3.10 in 2013 to $8.25 in 2022, a heavy growth.

Without marking the net change in investment/bond value, the books of FRC would look good.

income summary of FRC

In the last 10 years, net interest income grew from $1,187M (2013) to $4,729M (2022). The Net Income grew from $664M (2013) to $1,665M (2022). Shares have been diluted from 138M (2013) to 183M (2022).

Balance Sheet summary of FRC

Observations from the balance sheet:

• Cash and equivalents have been growing rapidly since 2012. It reached a peak of $12.947B in 2021 but dipped to $4.283B in 2022.

• Net loans reached a record $166B in 2022, a 5x growth compared to $28B in 2012.

• Total assets reached $212B in 2022 and total liabilities reached $195B in 2022. This implies a net asset of $17B.

• Retained earnings have been growing from $840M (2012) to $7,886M (2022).

Cash flow statement of FRC

Observations:

• We should have concerns that the cash from operations have not been consistent over the last 10 years with 2022 having $252M, the lowest in the last 10 years.

• Cash from investing has been increasing and reached $38B in 2022.

My investing muse

Screenshot from CNN news article dated 17 Mar 2023

In the article above, a consortium of banks came in to “rescue” FRC. This is a rescue package from the banking sector, to save one of their own and hopefully contain the contagion of fear that is disrupting the banking sector.

Bank of America cost/gains 2022-2021

Bank of America is part of the consortium with the rescue package. Looking at the amount of gross unrealized gains of $113B as of the end of 31 Dec 2022, I do have concerns if the banks have overextended to set up the rescue package. Is this brave front sufficient to stamp out the fear in the market?

1D UVXY chart (an ETF based on VIX - CBOE Fear index)

From the chart above, there is still some fear in the market.

Moody's cuts outlook on U.S. banking system to negative, citing 'rapidly deteriorating operating environment' Source: https://cnbc.com/2023/03/14/moodys-cuts-outlook-on-us-banking-system-to-negative-citing-rapidly-deteriorating-operating-environment.html

Over the weekend, the government put in a plan to try to prevent contagion by salvaging SVB and SBNY. It did not help when Credit Suisse needed a $54B bailout from SNB. It is not a surprise if the general public expressed concerns.

With the US government guaranteeing the safety of the deposits, this looks to be a wrong move as some consider this as the nationalizing of the banking sector with Shark Tank investor Mr Wonderful (Mr O’Leary) being particularly vocal.

A bank like any business operates with risk. No one can guarantee business profitability. It seems inappropriate when the government provides 100% assurance for deposits. Morally, it is respectable but economically, it is almost naive. This can be a black hole created by the government, eventually, let down by bankers who mismanage, take riskier decisions and be less discipline with bank funds. This is foolish and no wonder people are concerned. At the current rate, the US will not need enemies with the government acting with such irresponsibility.

Capitalism without supervision is a disaster waiting to happen. Excessive government intervention will push a sector closer towards nationalism. A limit and criteria must be set to protect the stakeholders - especially taxpayers.

This is trending in the wrong direction. It feels like applying a bandaid when surgery is needed. Let us review our financial assets and look for some diversification.

@TigerStars