First Republic Bank's stock fell 22% in after-hours trading on Monday despite stronger-than-expected first-quarter profit from the bank, as deposits disappeared amid concerns about regional banks.
San Francisco-based lender First Republic $(FRC)$said that deposits fell 41% in the quarter, though withdrawals have stabilized in April. Executives plan to reduce the bank's workforce by 20% to 25% in the current quarter. Based on the bank's 7,213 full-time employees as of Dec. 31, as disclosed in its annual report, the layoffs could affect up to 1,800 people.
"With the closure of several banks in March, we experienced unprecedented deposit outflows," CFO Neal Holland said in a statement, referring to the failures of Silicon Valley Bank and Signature Bank of New York. "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 company is also considering "strategic options to expedite" progress and reinforce its capital position.
First Republic's first-quarter profit dropped to $269 million, or $1.23 a share, from $401 million, or $2 a share, in the year-ago quarter. The bank was expected to earn 95 cents a share in the latest quarter, according to estimates compiled by FactSet. Revenue fell 13.4% to $1.2 billion, close to the analyst estimate of $1.22 billion.
Deposits dropped by 35.5% to $104.5 billion from a year earlier, and by 40.8% from December 31. The bank said deposit activity began to stabilize beginning the week of March 27.
Total deposits of $102.7 billion as of April 21 are down 1.7% from March 31, "primarily reflecting seasonal client tax payments that occur each April."
The results come after First Republic received a $30 billion deposit infusion from 11 U.S. banks on March 16 and suspended its dividend after a drop in deposits.
Looking ahead, First Republic plans to reduce the size of its balance sheet, cut its reliance on short-term borrowing and "address the challenges it continues to face," the company said.
The bank is also reducing compensation for executive officers, condensing corporate office space and reducing nonessential projects and activities, First Republic said.
As of April 21, First Republic retained about 90% of its total wealth professionals. It expects to retain a portion of the wealth-management assets associated with departing teams.
After Silicon Valley Bank collapsed early last month, First Republic's share price started dropping sharply as well. First Republic's stock has fallen about 87% in 2023, compared with a loss of 18% by the KBW Nasdaq Bank Index and a loss of 3.1% by the Financial Select Sector SPDR exchange-traded fund $(XLF)$.