First Republic Bank (NYSE:FRC) spooked investors by revealing the extent to which its business was impacted by the concerns about its liquidity following the collapse of Silicon Valley Bank and Signature Bank. FRC indicated that customers pulled out about $100 billion in deposits last month. The bank now intends to “meaningfully” reduce its expenses through various initiatives, including layoffs in the range of 20% to 25% in Q2 2023. Shares plunged about 20% in Tuesday’s pre-market trading.
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The bank disclosed that it held $173.5 billion in deposits as of March 9, 2023. It then experienced “unprecedented” deposit outflows following the collapse of Silicon Valley Bank on March 10. As of March 31, the company held deposits worth $104.5 billion. This reflects deposit outflows of nearly $100 billion, excluding the $30 billion infused by megabanks, including JPMorgan Chase (NYSE:JPM), to keep First Republic afloat.
Overall, the company’s deposits fell about 41% in the first quarter compared to the end of 2022. The drop in the deposits and other updates overshadowed the company’s Q1 earnings beat. Nonetheless, revenue fell 13.4% year-over-year to $1.2 billion in the quarter, while EPS declined 38.5% to $1.23.
CFO Neal Holland stated that the bank is working to restructure and reduce the size of its balance sheet and bring down its expenses. First Republic also wants to pull back its reliance on short-term borrowings. Aside from layoffs, the bank also intends to lower its costs by significantly reducing executive compensation, shrinking its corporate office space, and eliminating non-essential projects and activities.
Meanwhile, the bank said that deposits began to stabilize from the week starting March 27, 2023, and have remained stable, with total deposits standing at $102.7 billion as of April 21, 2023, down only 1.7% compared to the end of first quarter. The bank attributed this decline to seasonal client tax payments that occur every April.
Is FRC Stock a Buy, Sell or Hold?
Wall Street is sidelined on FRC stock, with a Hold consensus rating based on two Buys, 11 Holds, and one Sell. The average price target of $67.88 suggests 324.3% upside, given that the stock has plunged nearly 87% year-to-date.
