M c I n t i r e I n v e s t m e n t I n s t i t u t e

McIntire Investment Institute At the University of Virginia

Long Pitch: First Republic Bank

(NYSE: FRC)

Prepared by Jon Haas| September 15, 2011

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

•  Company Overview •  Stock Analysis •  Thesis Points •  Catalysts •  Risks •  Recommendation •  Q&A

Outline

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Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

FRC is an FDIC-Insured Commercial Bank

Business Overview Provides private and business banking services, private wealth management, brokerage, trust services, and real estate lending Founded in 1985 as First Republic Bancorp California state-chartered bank – no holding structure, does not report to SEC 56 branches in five states 1,681 employees

Ownership 1. Acquired by Merrill Lynch in 2007 2. Regained independence in October 2009 in a buyout led by management, PE shops

3. Owners invest $1.86 bn in equity in July 2010

4. $281 mm IPO in December 2010

5. $431 mm secondary offering in July 2011

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Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

How to Make Bank

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Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

How to Count Stacks

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Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

FRC is Trading Near Its 52-Week Low

Price (9/15/11): $25.12

Market Cap (9/15/11): $3.25 bn

52-week spread: $23.42-$34.75

TBV/Share: 16.71

Trailing P/E: 10.3x

Forward P/E: 9.8x

PEG: 0.94

Total Assets: $23.4 bn

Total Deposits: $19.2 bn

ROATCE: 16.7%

Short Ratio: 4.1

Short % of Float: 19.3%

FRC does not pay dividends

Relative Performance since IPO (12/9/10): FRC: -9.71% KBW Regional Bank Index: -16.44% S&P 500: -3.59%

Source: SNL Financial, Yahoo! Finance, Scottrade

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Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

FRC has Slightly Outperformed Peer Index but Trails S&P 500

Source: Yahoo! Finance

M c I n t i r e I n v e s t m e n t I n s t i t u t e

Investors incorrectly believe that First Republic is just like any other bank and, as such, it will face the same troubles that plague the rest of the financial sector. In addition, investors saw the sale of shares by executives and PE investors as a move to cash out before the business environment worsened.

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Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

Misperception

“I believe that banking institutions are more dangerous to our liberties than standing armies” - Thomas Jefferson

M c I n t i r e I n v e s t m e n t I n s t i t u t e

First Republic is not like any other bank. The firm will take advantage of superior asset quality, expanding operations, a favorable customer base, and strong leadership, causing the stock to outpace the sector and investor’s expectations in an industry-wide recovery.

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“It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country.” - Adam Smith

Theses

Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

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Focusing on High Net Worth Loans Enables FRC to Pursue Growth in Key Demographics

Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

Source: Investor Presentation, 9/8/11

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FRC’s Unique Market Position Creates a Strong Asset Base

Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

Source: SNL Financial. Data as of 9/15/2011

Ticker Institution  NameTARP  Status

Market  Capitalization  

($mm)

Debt/Equity

Net  Loans  ($mm)

Total  Assets  ($mm)

Total  Deposits  ($mm)

Tier  1  Ratio

NPAs  +  90  Days  PD  /  Assets

Reserves/NPAs

ROATCENet  Interest  

MarginEfficiency  Ratio

BPFH Boston  Private  Financial  Holdings,  Inc. Redeemed 492 1.55 4,315 6,037 4,551 12.1% 1.9% 87% NA 3.4% 72.4%CVBF CVB  Financial  Corp. Redeemed 910 1.76 3,437 6,460 4,504 17.3% 1.9% 80% 14.3% 4.3% 48.9%UMBF UMB  Financial  Corporation No 1,505 1.81 4,665 12,771 9,914 11.5% 0.2% 328% 14.1% 2.8% 73.5%FMER FirstMerit  Corporation Redeemed 1,351 0.73 8,804 14,348 11,341 11.5% NA NA 11.3% 3.8% 64.4%BOH Bank  of  Hawaii  Corporation No 1,901 1.91 5,220 13,161 9,979 18.0% 0.5% 233% 14.3% 3.2% 57.5%VLY Valley  National  Bancorp Redeemed 1,914 2.35 9,481 14,470 9,706 11.1% 1.6% 61% 15.3% 3.7% 60.7%SIVB SVB  Financial  Group Redeemed 1,930 0.30 5,896 19,367 16,278 13.6% 0.2% 226% 18.7% 3.1% 66.1%CYN City  National  Corporation Redeemed 2,252 0.41 13,054 22,526 19,265 10.7% 0.8% 184% 12.8% 3.8% 67.6%EWBC East  West  Bancorp,  Inc. Redeemed 2,539 0.86 13,785 21,873 17,136 15.2% 1.1% 91% 14.3% 4.7% 42.2%CBSH Commerce  Bancshares,  Inc. No 3,292 0.65 9,088 19,571 15,657 15.1% 1.0% 114% 14.0% 3.8% 54.0%FNFG First  Niagara  Financial  Group,  Inc. Redeemed 3,170 1.90 16,113 30,890 18,900 12.1% 0.8% 92% 3.0% 3.6% 53.8%WFC Wells  Fargo  &  Company Redeemed 132,999 1.43 763,794 1,259,734 853,635 11.7% 3.3% 53% 18.0% 4.0% 56.2%JPM JPMorgan  Chase  &  Co. Redeemed 131,827 3.73 661,216 2,246,764 1,048,685 12.4% 1.3% 104% 16.9% 2.7% 66.0%

Mean 22,006 1.49 116,836 283,690 156,889 13.3% 1.2% 137.7% 13.9% 3.6% 60.3%Median 1,930 1.55 9,088 19,367 15,657 13.3% 1.2% 142.3% 13.9% 3.6% 59.2%

FRC First  Republic  Bank No 3,246 0.50 19,709 23,798 19,940 14.4% 0.1% 110% 16.7% 4.5% 45.4%

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First Republic has an Expanding Presence in Key Geographies

Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

New York San Francisco and CA

First Republic bank location. Not depicted: Boston, MA, Stamford, CT and Portland, OR locations

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First Republic has an Expanding Presence in Key Geographies

Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

Total Assets

Source: Investor Presentation 9/8/11

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Dedicated Leadership and Committed Investors will Guide Long-Term Growth

Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

Pine Eagle LLC

Other Investors

Institutional Ownership

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Catalysts

Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

Value Correction

Continued outperformance of peers, industry

Improving economics conditions in credit, housing markets

Increased penetration of growing HNW HH demographic

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Risks

Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

Company Risks •  Departure of key executives

•  Failure to penetrate new markets

•  Shift in target demographics

Industry Risks •  Worsening credit markets

•  Regulatory interference

•  Disruptions in housing market

Continued turmoil in the financial sector will affect First Republic

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FRC is Undervalued Relative to Industry

Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

Source: Capital IQ, SNL Financial. Data as of 9/15/2011

Ticker Institution  NameMarket  

Capitalization  ($mm)

Total  Assets  ($mm)

P/TBV P/E  (ttm)

BPFH Boston  Private  Financial  Holdings,  Inc. 492 6,037 NA NMCVBF CVB  Financial  Corp. 910 6,460 1.47x 13.8xUMBF UMB  Financial  Corporation 1,505 12,771 1.81x 15.2xFMER FirstMerit  Corporation 1,351 14,348 1.25x 11.9xBOH Bank  of  Hawaii  Corporation 1,901 13,161 1.96x 12.0xVLY Valley  National  Bancorp 1,914 14,470 1.95x 13.1xSIVB SVB  Financial  Group 1,930 19,367 1.34x 12.5xCYN City  National  Corporation 2,252 22,526 1.47x 14.3xEWBC East  West  Bancorp,  Inc. 2,539 21,873 1.46x 13.6xCBSH Commerce  Bancshares,  Inc. 3,292 19,571 1.65x 13.4xFNFG First  Niagara  Financial  Group,  Inc. 3,170 30,890 1.47x 15.1xWFC Wells  Fargo  &  Company 132,999 1,259,734 1.46x 9.8xJPM JPMorgan  Chase  &  Co. 131,827 2,246,764 1.07x 7.2x

Mean 22,006 283,690 1.53x 12.7xMedian 1,930 19,367 1.47x 13.3x

FRC First  Republic  Bank 3,246 23,798 1.50x 10.3x

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DCF Analysis Implies a 29% Premium over Market Value

Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

*Data as of 9/15/2011

First Republic Bank (FRC) - DCF ValuationSeptember 13, 2011 FYE  December  31,

2011 2012 2013 2014 2015Net  Income  Avail  to  Common 302,889$                 318,251                     298,016                     272,747                     284,174                    Less:  Increase  in  BVE 61,574                           100,056                     98,981                           97,142                           94,427                          Add:  OCI (2,679)                           -­‐                                       -­‐                                       -­‐                                       -­‐                                      Cash  Flow  to  Equity 238,637$                 218,195                     199,035                     175,604                     189,746                    Terminal  Growth 4,300,910.47  Discount  Factor 0.3 1.3 2.3 3.3 4.3Discounted  Cash  Flows  to  Equity 234,191$                 201,061$                 172,211$                 142,665$                 3,425,658$        

Implied  Equity  Value 4,175,787$        Shares Outstanding 129,213 Terminal GrowthImplied Share Price 32.32$ 32.32$ 1.0% 1.5% 2.0% 2.5% 3.0%

5.5%  33.24  36.66  41.06  46.92  55.126.0%  30.08  32.78  36.14  40.47  46.24

WACC 6.5%  27.50  29.67 $ 32.32  35.63  39.89Cost of Capital 6.5% 7.0%  25.34  27.12  29.26  31.87  35.13Terminal Growth Rate 2.0% 7.5%  23.52  25.00  26.75  28.86  31.43

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MII should Initiate a Long Position in FRC at 3%

Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A

First Republic is not like any other bank. The firm will take advantage of superior asset quality, expanding operations, a favorable customer base, and strong leadership, causing the stock to outpace the sector and investor’s expectations in an industry-wide recovery.

“It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country.” - Adam Smith

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Q&A

Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A