2. First Republic Bank
First Republic Bank
(FRC - Get Report)
of San Francisco closed at $33.31 Wednesday, returning 10% year-to-date, following a 5% return during 2011.
The shares trade for 1.6 times tangible book value, and for 11.2 times the consensus 2013 EPS estimate of $2.97. The consensus 2014 EPS estimate is also $2.97.
Based on a quarterly payout of 10 cents, the shares have a dividend yield of 1.20%. First Republic also accelerated the payment of its fourth quarter dividend in order to avoid a possibly higher tax rate next year. The fourth-quarter dividend will be paid on Dec. 28 to shareholders of record as of Dec. 17.
After being acquired by Bank of America (as part of that company's purchase of Merrill Lynch in January 2009, First Republic was sold in July 2010 for $1.86 billion to an investor group that included Colony Financial 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 is among the small and mid-cap banks covered by Credit Suisse that Clark thinks "could potentially sell in the next 12-18 months."
First Republic Bank had $32.6 billion in assets as of Sept. 30, with offices in California, Oregon, Connecticut, Massachusetts and New York, focusing on private banking and jumbo mortgage lending. The bank in November agreed to acquire Luminous Capital of Los Angeles, for undisclosed terms.
Luminous Capital is an investment advisor with $5.5 billion in assets under management. First Republic said that "the six partners of the firm will sign long-term employment contracts as part of the transaction," which is expected to close by the end of the year.
The bank's total loans grew by 27% year-over-year, to $26.3 billion as of Sept. 30.
Third-quarter earnings available to common stockholders were $97.0 million, or 72 cents a share, increasing from $87.8 million, or 66 cents a share, in the third quarter of 2011. The company said that "excluding the impact of purchase accounting, net income for the third quarter of 2012 was $78.7 million, up 43% from last year's third quarter," and that "on this non-GAAP basis, the third quarter diluted EPS were $0.54, up 29% year over year."
Third-quarter net interest income was $298.8 million, increasing 3% sequentially, and 11% year-over-year. Excluding accretion and amortization of fair value adjustments recorded in purchase accounting, the third-quarter net interest margin was 3.47%, expanding from 3.41% the previous quarter, but narrowing from 3.49% a year earlier.
Clark's price target for First Republic is $42, and he estimates the bank will earn three dollars a share in 2013, with EPS increasing to $3.10 in 2014.
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