It's all about deposit rates for First Republic Bank, which was one of the hardest-hit banks in the March rout and the stock price remains on life support.
Analysts forecast deposits would fall to somewhere in the range of $135-$145B at quarter end but they were at $104.5B including the $30B from large US banks and fell to $102.7B to April 21. The company said deposits were at $173.5 billion on March 9, so it was a swift drop.
Neal Holland, Chief Financial Officer of First Republic said, “With the closure of several banks in March, we experienced unprecedented deposit outflows. We moved swiftly and leveraged our high- quality loan and securities portfolios to secure additional liquidity. We are working to restructure our balance sheet and reduce our expenses and short-term borrowings.”
The numbers will be important for overall regional banks and there was a short squeeze of +12% in shares of FRC before the report but I don't think these numbers will have a lasting impact on broader financial markets, no matter what earnings say.
In terms of earnings, they were at 1.23 vs 0.85 expected and revenues were at $1.209B compared to 1.148B, which were both beats but the deposit number is key so far and shares were down 2.6% on the kneejerk.
Here is the key passage of the earnings release:
On March 16, 2023, First Republic received uninsured deposits totaling $30 billion from a group of America’s largest banks. This support for First Republic allowed the Bank to reduce its short-term borrowings. At that time, daily deposit outflows had slowed considerably.
Deposit activity began to stabilize beginning the week of March 27, 2023, and has remained stable through Friday, April 21, 2023. Total deposits were $102.7 billion as of April 21, 2023, down only 1.7% from March 31, 2023, primarily reflecting seasonal client tax payments that occur each April.
In response to the unprecedented deposit outflows, the Bank enhanced its financial position through access to additional liquidity from the Federal Reserve Bank, the Federal Home Loan Bank and JP Morgan Chase & Co. Total borrowings peaked on March 15, 2023, at $138.1 billion. At that time, the Bank had $34.0 billion of cash on its balance sheet. Total borrowings totaled $104.0 billion, and cash and cash equivalents totaled $10.0 billion as of April 21, 2023. This includes $25.5 billion of long-term advances with the Federal Home Loan Bank, compared to $7.3 billion as of December 31, 2022.
As a result of the recent events, the Bank is taking actions to strengthen its business and restructure its balance sheet. These actions include efforts to increase insured deposits, reduce borrowings from the Federal Reserve Bank, and decrease loan balances to correspond with the reduced reliance on uninsured deposits. Through these actions, the Bank intends to reduce the size of its balance sheet, reduce its reliance on short-term borrowings, and address the challenges it continues to face. Refer to the Forward-Looking Statements below.
The Bank is also taking steps to reduce expenses, including significant reductions to executive officer compensation, condensing corporate office space, and reducing non-essential projects and activities. The Bank also expects to reduce its workforce by approximately 20-25% in the second quarter.
In addition to these actions, the Bank is pursuing strategic options to expedite its progress while reinforcing its capital position.
