Greater confidence in longer term growth story
FRC reported a disappointing 4Q17 result with the efficiency ratio above expectations resulting in nervousness around management's capacity to manage costs. However, our recent discussion with the CFO combined with our analysis into the reasons for the high cost growth in 2017 provides us with increasing confidence that 2018 will prove an inflection year. Beyond 2018, FRC will have moved past some bulky IT upgrades, recent growth initiatives should become profitable (or less of a drag) and a moderating pace of loan growth should enable a greater focus on cost containment. A flat or slightly declining efficiency ratio from 2019 will enable a return to mid-teens EPS growth, proving that the structural growth story remains intact. We reiterate our Overweight.First Republic Bank is a commercial bank and trust company. The company conducts its business through two reportable business segments: Commercial Banking and Wealth Management. The principal business activities of the Commercial Banking segment are accepting funds from the general public, originating loans (primarily real estate secured mortgage loans) and investing in investment securities. Wealth Management segment consists of subsidiary First Republic Investment Management, Inc.; the company's money market mutual fund activities through third-party providers and the brokerage activities of First Republic Securities Company, LLC; the Trust Company; and the company's foreign exchange activities.
Formed in 2003 by an established team from Cazenove, one of the most respected investment banks in the UK, Atlantic Equities conducts and publishes fundamental, bottom up research on mid and large cap US companies.
Atlantic provide order execution through a wide range of DMA products and algorithmic trading suites.
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