First Republic plans to reduce its workforce between 20% and 25% this quarter following "unprecedented" deposit outflows in the wake of Silicon Valley Bank's collapse last month, the company said in a regulatory filing on Monday.
First Republic Bank lost more than 40% of its deposits—equivalent to about $70 billion—in the first three months of the year. But the San Francisco-based bank is still clinging to profitability and said its deposits have stabilized in the Monday release.
The bank's stock plunged before the opening bell Tuesday, with fears swirling that it could be the third bank to fail after the collapse of Silicon Valley Bank and Signature Bank.
The company had 7,213 employees at the end of last year, implying a reduction of up to 1,800 employees. The bank also revealed the extent of the damage from deposit outflows and banking-sector volatility tied to the implosion of Silicon Valley Bank, which was abruptly shut down by regulators after a bank run.
Net income at First Republic dropped 33% to $269 million, and diluted earnings per share were down 28.5% to $1.23. First Republic had about $213 billion in assets and $176 billion in deposits as of the end of last year. As of March 31, the bank held about $104 billion worth of deposits, including $30 billion provided by larger financial institutions.
The company reported it was withdrawing all previous financial guidance and did not take any questions from analysts on its earnings call. First Republic CEO Michael Roffler said on the call that while average account size has fallen, the bank has retained over 97% of client relationships.
Founded by Jim Herbert in 1985, First Republic specializes in high-touch service and wealth management, focused on a high-net-worth clientele. But those customers were perhaps most prone to move their money to “too big to fail banks” amid concerns about regional banks and whether uninsured deposits would be guaranteed.
First Republic said deposit outflows remained stable through April, dropping only around 1.7% from March 27 to April 21. Amid larger concerns about the health of the commercial real estate sector, Roffler said the bank’s commercial real estate portfolio makes up only 6% of its total loans.
Deposit outflows at First Republic were followed by a number of credit rating downgrades for the Bay Area’s third-largest bank.
Although the company was buoyed by a number of agreements from the government and larger financial institutions to backstop its loss of deposits, its share price is still down nearly 90% from January.
In Monday's filing, First Republic said that it expects to eliminate between 20% and 25% of its workforce among other actions, including slashing executive pay, condensing corporate offices and exploring other strategic options to reinforce its capital position.
Top executives eliminated their annual bonuses, and Herbert, the company’s executive chairman, waived his salary. More pertinently to shareholders, the company’s board of directors suspended its quarterly dividend on April 6, according to a filing.
Roffler said the bank is focusing on increasing its insured deposit base by bringing in new business from companies, individuals and nonprofits. Moving forward, he said uninsured deposits will make up a much smaller percentage and the bank is focused on reducing the size of its balance sheet and reliance on short-term borrowing.
The company said it is pursuing “strategic options to expedite its progress.”
First Republic has also seen a number of departures from wealth management advisors amid some of the challenges the bank has faced internally. The company reported that those departures were responsible for less than 20% of its total wealth management assets and that it has retained nearly 90% of its wealth management staff.
Its total wealth management assets were up 5.6% from the end of last year to $289.5 billion.
The Associated Press contributed additional reporting.