The first post-revenue stock drop shows a 41% drop in deposits

First Republic Bank had a big spin in the first quarter. It’s not done yet.

Deposits fell by nearly $72 billion, or 41%, during a brutal first quarter

First Republic (ticker: FRC ) said it had $104.5 billion in deposits at the end of the first quarter, including $30 billion in deposits it received from major U.S. banks last month as First Republic’s lifeline. According to a company press release.

“If you subtract the $30 billion they got from those big banks they probably lost $100 billion in deposits,” said Morningstar analyst Eric Compton. It’s huge. “

The bank’s chief financial officer, Neil Holland, said the deposit outflow was “unprecedented”.

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The company said layoffs have slowed and is taking steps to right the ship, including “significant reductions” in executive compensation, reductions in corporate office space and layoffs. The First Republic expects to reduce its workforce by approximately 20-25% in the Second.
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It’s a surprising turnaround in fortunes for First Republic, a regional bank that found success by focusing on providing private banking and wealth management services to wealthy clients in coastal urban areas.

Things changed in March following the collapse of Silicon Valley Bank, which sent regional bank stocks into a tailspin and prompted customers at other banks to pull deposits. Morningstar’s Compton said the First Republic was an innocent bystander. Nevertheless, it is mired in crisis, and its stock is far from recovered. As of Monday’s close, the stock is down 87% so far this year.

Its shares rose 12% to close at $16 during the regular session on Monday before the bank reported results, but they slumped in after-hours trading and were recently down 18%.

On Monday, First Republic reported diluted earnings per share of $1.23, down 38.5%. According to FactSet, analysts were expecting EPS of $0.95.

The San Francisco-based bank had $176.4 billion in total deposits at the end of the fourth quarter, making it the 12th largest bank in the U.S. at the time, according to the company’s annual report.

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But a tough first quarter took its toll. First Republic ended the quarter with net income of $269 million, down 33% year over year. Total revenue was $1.2 billion, down 13.4%.

Morningstar’s Compton reports that banks will struggle to turn a profit in the second quarter. “I don’t see how they are profitable in Q2.”

First Republic says the lifeline it received from major US banks helped it weather the storm.

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When the deposit outflow is in hand, you can access other sources of liquidity, such as First Republic Federal Home Loan Bank loans. But this is an expensive solution. Short-term borrowings from the Federal Reserve Bank, securities sold under repurchase agreements and short-term and long-term FHLB advances totaled $106 billion, the bank said. First Republic said it has access to more liquidity, including $13.2 billion worth of cash and cash equivalents.

Total loans rose to $138.1 billion on March 15, according to the bank. Total deposits as of April 21 were $102.7 billion, down 1.7% from the end of the first quarter.

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However, the company’s total interest expense rose from $525 million in the fourth quarter to $974 million at the end of the first quarter. As a result, net interest income decreased 19.4% to $923 million.

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Speaking during the company’s earnings call, CEO Mike Roeffler said the bank’s deposit base has stabilized and First Republic will focus on rebuilding it. “Going forward, uninsured deposits will remain a much smaller portion of total deposits than in the past,” he said.

The company has taken other steps to boost its business. For example, in March, CEO James H. Top executives, including Herbert, II, elected to have their annual bonuses reduced to zero through 2023. Herbert also elected to waive his salary as acting chairman effective March 12.

On April 6, the Board of Directors of the First Republic Suspended Payment of quarterly cash dividend on bank preference shares “as a measure of prudential supervision” Regulatory filings with the Securities and Exchange Commission.

How much these moves help remains to be seen. “How do you find growth when you cut 20-25% of the workforce?” said Morningstar’s Compton. “It’s a very bad situation.”

First Republic’s earnings call lasted about 12 minutes, and the bank’s executives did not take questions from analysts.

First-quarter earnings for other regional banks have been a mixed bag so far. For example, Zions Bancorp (ZION) missed quarterly earnings estimates. The SPDR S&P Regional Bank ETF (KRE) is down 25% so far this year.

Of course, the depository of the First Republic was not the only one under pressure. The regional bank has seen advisers leave its wealth management division since the crisis erupted. In recent weeks, First Republic has decommissioned more than a dozen groups or individual consultants to other firms.

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An advisory group that oversaw $13 billion in assets left on Monday Left to join Cresset Asset ManagementA private wealth management firm based in Chicago.

The full impact of the adviser’s departure was not shown in Monday’s earnings report. Wealth management assets totaled $289.5 billion at the end of the first quarter, an increase of 5.6% year-over-year, First Republic said. Roeffler said on the earnings call that the exiting advisor groups represent less than 20% of total assets, and First Republic expects the advisors to retain a portion of the money they manage.

“We retain almost 90% of our wealth management professionals,” Roeffler said.

Employee retention will be a key figure to look forward to.

“If things don’t go well, do you start losing private bankers or wealth managers?” Compton said. “It seems like it’s already started happening, I don’t know how you solve it.”

Write to Andrew Welsch at [email protected]

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