First Republic Bank (FRC, Financial) continued its streak of +20% loan growth – well above the banking industry. First Republic’s differentiated high-touch strategy with clients is in stark contrast to the Company’s low-touch, internet-obsessed competitors. First Republic’s culture has been an important driver of its growth over the years, so it is not a surprise that the stock reacted negatively to executive turnover during the quarter. However, much of the leadership that made the Company successful over the past several decades continues to be intact. As interest rates have skyrocketed – at least relative to 2020’s lows – we would expect the Company’s mortgage refinance business to slow, but home purchases to pick up as First Republic has seen during the past couple periods of rising rates. Furthermore, we are optimistic that a more normalized monetary policy environment, vis-à-vis the Federal Reserve’s unwinding of its $9 trillion balance sheet, could finally allow for healthier rates of return on actual loans.
From David Rolfe (Trades, Portfolio)'s Wedgewood Partners first-quarter 2022 letter.
