First Republic (NYSE: FRC) has been in the news a lot lately because investors view the bank as having similar (although certainly not the same) qualities as SVB Financial and Signature Bank, which both collapsed and were taken over by the Federal Deposit Insurance Corp. (FDIC) earlier this month.
In fact, media outlets reported that First Republic saw as much as $70 billion of deposit outflows at one point, although the company appears to be hanging in there for the time being.
With the turmoil in the sector and at the bank, shares of First Republic have plunged, and the bank’s future remains in question. Before all of this upheaval, First Republic was a very strong-performing stock. If you had invested $5,000 in the bank toward the end of 2010 around the time when the bank went public, here’s how much you would have today.
A long history of excellence
First Republic was founded in 1985 by veteran banker Jim Herbert. At the time the bank was one of the smallest in the U.S., and only had an enterprise value of $8.8 million. The company went public the following year, and in 1997 converted from a savings and loan company into a Nevada state bank. After a number of successful acquisitions, First Republic was sold to Merrill Lynch for $1.8 billion in a part stock, part cash transaction.
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During the Great Recession, Merrill got caught up in the subprime mortgage crisis and the firm had to sell to Bank of America in early 2009 to avoid bankruptcy. In 2010, Bank of America decided to sell First Republic back to Herbert, who is still the executive chairman of the bank today, and a group of private investors including Colony Capital and General Atlantic for roughly $1 billion. Toward the very end of 2010 First Republic went public, raising roughly $280 million in the offering. Shares were priced at about $27.
The company would go on to do quite well over the next decade, focusing on serving high-net-worth families in cities located in coastal regions of the country like its home base in San Francisco, as well as Los Angeles, and San Diego, and other wealthy cities such as New York, Boston, and Palm Beach, Florida.
The bank’s high-touch model enabled it to provide and build a reputation for having some of the best customer service in the industry. In 2022 First Republic had a net promoter score (NPS) of 87 — the measures looks at how likely a customer is to recommend a product or service (in this case First Republic) to their friends. For some perspective, the average NPS in the banking industry in 2022 was 31.
Unfortunately, First Republic was not well positioned for the rapidly rising interest rate environment that has unfolded during the past year. The bank had a big portfolio of mortgages yielding less than 3% and billions of dollars in unrealized losses on its bond investments.
Not only did First Republic operate in a lot of markets similar to SVB’s, a distinct negative for the bank, but First Republic also had a lot of uninsured deposits. As the bank runs at SVB and Signature were playing out, First Republic customers panicked and began pulling out their funds. The bank has survived the crippling run thanks to cash injections by some of the nation’s biggest banks, but it remains in a precarious position and faces some real earnings challenges.
If you’d invested $5,000 in First Republic in 2010…
Up until recently, First Republic was a very solid stock. The shares, priced at about $27 when the bank went public in 2010, had risen to nearly $290 in November 2021 as financial markets boomed. Even as recently as early March, the shares traded at about $123.
But since the collapse of SVB and Signature and the loss of $70 billion in deposits or more, the shares have come crashing down. The stock now trades at about $14, a decline of about 48% since the bank went public at the end of 2010.
That means $5,000 invested around the initial public offering would be worth just $2,400 now, despite the shares being worth considerably more only a month ago. The bank is certainly still battling, but it’s in a tight spot with many big challenges ahead of it.
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