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4 Western Bank Stock Picks

2. First Republic Bank

Shares of First Republic Bank (FRC - Get Report) of San Francisco closed at $32.31 Tuesday, returning 6% year-to-date, following a 5% return during 2011.

After being acquired by Bank of America (BAC) as part of that company's purchase of Merrill Lynch in January 2009, First Republic was sold in July 2010 to an investor group that included Colony Financial (CLNY) and General Atlantic LLC, and was led by First Republic's original management team. First Republic completed a public offering of common shares in December of 2010.

First Republic has been the strongest earner among the four banks listed here, with ROA ranging between 1.28% and 1.42% and ROE ranging from 13.08% to 15.12% over the past five quarters, according to Thomson Reuters Bank Insight.

The bank had $30.1 billion in total assets as of June 30, with offices in California, Oregon, Connecticut, Massachusetts and New York, focusing on private banking. "They have a very big client acquisition strategy," says Coffey, "with a bunch of relationship managers marketing products to high net worth individuals, leading with mortgage product."

Although "their footprint is in coastal areas, 35% of their business comes from the San Francisco/Silicon Valley area," the analyst says, "and with venture capital directed toward Silicon Valley companies, and with M&A and a functioning IPO market," there are many newly affluent potential customers for First Republic to target.

The bank reported second-quarter net income available to common stockholders of $80.6 million, or 60 cents a share, declining from $89.3 million, or 67 cents a share, in the first quarter, and $84.8 million, or 64 cents a share, in the second quarter of 2011. The earnings decline in the most recent quarter mainly reflected $13.2 million, or 10 cents a share, in charges related to the redemption of $60 million in Series D preferred stock of First Republic Preferred Capital Corp.

First Republic said that "excluding the impact of purchase accounting, net income for the second quarter of 2012 was $70.9 million, up 31% from last year's second quarter."

After the bank reported its second-quarter results in July, Coffey said that "net Interest Income and non-interest income were both near the highest estimates on the Street, at $301 million and $37 million, respectively," and that "NII of $290.6 million, a 3% increase from the previous quarter, resulted from a 7% sequential increase in gross loans to $25 billion," while "non-interest income, including gain on sales of mortgages, increased 12% to $36.6 million due to a 25% increase in gain on sale and a 13% increase in wealth management fees."

First Republic's shares trade for 1.7 times their reported June 30 tangible book value of $19.58, and for 11 times the consensus 2013 EPS estimate of $2.88. The consensus 2012 EPS estimate is $2.69.

Coffey rates the bank "outperform," with a price target of $39, and estimates First Republic will earn $2.76 a share for all of 2012, followed by 2013 EPS of $3.28.

FRC Chart FRC data by YCharts

Interested in more on First Republic Bank? See TheStreet Ratings' report card for this stock.

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