First Republic Earnings: Our Worries Come True as First Republic Likely No Longer Profitable

First Republic Bank Stock at a Glance

• Fair Value Estimate: $3.00
• Star Rating: 1 star
• Uncertainty Rating: Extreme
• Economic Moat Rating: None

First Republic Bank Earnings Update

No-moat-rated First Republic Bank FRC reported first-quarter results that shed more light on what has transpired for it since the downfall of Silicon Valley, and it isn’t pretty. It appears the bank lost roughly $100 billion in deposits when excluding the $30 billion it received from the group of several large U.S. banks. This means that First Republic lost nearly 60% of its core deposit base.

As we adjust our projections and the probabilities associated with different outcomes, our current $3 fair value estimate may change, but we do not expect it to change materially enough that the shares would look undervalued. We do not see any easy solutions for the bank, and we still see a material probability that there is little left for equityholders once this situation fully plays out.

The earnings call was brief and featured no question-and-answer session. This leaves us with little to work with except the press release. As we rerun the numbers based on the updated balance sheet, we do not believe First Republic will be profitable on a go-forward basis with its current balance sheet. We estimate the bank will likely be losing over $500 million a quarter without some dramatic restructuring.

If we assume the bank executes on its 25% workforce reduction (we assume compensation expense falls 25%), we think quarterly losses may be closer to roughly $400 million. Either way, we expect gradual capital erosion for the time being due to negative income.