Banking

First Republic in no hurry to find next CEO after key departures

Executives at First Republic Bank sought to assure investors of the company’s stability in the midst of recent management turnover, even as it posted double-digit earnings growth.

In the last month, the $181 billion-asset bank’s founder and CEO Jim Herbert has begun a six-month medical leave, while Hafize Gaye Erkan, Herbert’s co-CEO and widely presumed successor, resigned from the company. On Wednesday, the company disclosed that Chief Operating Officer Jason Bender had resigned immediately for personal reasons related to a family tragedy.

In early January, First Republic announced plans to initiate a search for its next CEO. President and acting co-CEO Mike Roffler said Friday that the company’s board is more concerned with finding the right fit for the job than finding its next leader quickly.

First Republic’s net income was up 35.5% from the fourth quarter of 2020, driven by strong growth in net interest income and wealth management revenue, as well as pristine credit quality.

Bloomberg

Executives at the San Francisco company also said that no other executives have departed beyond those that have been announced, and that the recent departures have not dimmed morale at First Republic.

“Morale is strong, and the opportunities ahead of us are terrific, and clients are very engaged, and it’s very active right now,” Roffler said during the company’s quarterly earnings call.

Erkan’s departure was the latest twist in a yearslong succession saga. Herbert has been First Republic’s only CEO since he founded the bank in 1985, though Erkan emerged in recent years as the likely pick to succeed him. Previously at Goldman Sachs, Erkan joined First Republic in 2014 as part of its executive management team. She was named president in 2017, joined the bank’s board in 2019 and was named co-CEO in July of last year.

First Republic’s management team provided scant details Friday about either Erkan’s departure or the company’s plans to find a new CEO. Erkan “resigned to pursue other opportunities,” Roffler said in response to an analyst’s question about “whether her resignation was tied to some action from the company” that would entitle her to severance.

First Republic has hired the executive recruiting firm Korn Ferry to search for its next CEO, but Roffler said the company’s board does not have a hard deadline to find that person. Some analysts have speculated that Roffler could be a candidate for the position.

First Republic’s fourth quarter earnings got a boost from strong growth in net interest income and wealth management revenue, as well as pristine credit quality, though some analysts were disappointed with the company’s higher spending.

Noninterest expenses rose 29% to $866 million, driven largely by higher compensation costs and more spending on information systems. Expenses included a one-time executive compensation charge, which Roffler said was unrelated to Erkan’s departure.

Total revenue grew 26% from the same quarter a year earlier to $1.4 billion. Net income increased 35.5% from the fourth quarter of 2020 to $400 million. Earnings per share of $2.02 were 10 cents higher than the mean estimate of analysts surveyed by FactSet Research Systems.

Still, shares in First Republic were down 5.2% in midday trading Friday to $190.29.

Brian Foran, an analyst at Autonomous Research, said in a note to investors that First Republic’s stock price has lagged a bit this year because of the high-level departures. He noted that the company’s business model has always prioritized investing for growth, but added: “Still, we suspect some modest disappointment with the high expenses.”

First Republic’s net interest income rose 25% to $1.1 billion in the fourth quarter. Net interest margin contracted 5 basis points from the year-ago quarter to 2.68%.

Noninterest income increased 31% to $247 million, driven by growth in investment management and brokerage and investment fees.

Fourth quarter net charge-offs totaled $64,000. Nonperforming assets totaled just 0.08% of total assets, compared with 0.13% a year earlier.

Total deposits increased 36% to $156.3 billion. Checking account deposits made up nearly 72% of total deposits, which executives said should help keep funding costs in check when interest rates start to rise.



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