You know things are bad when an earnings call lasts just 12 minutes, the CFO wasn’t present, and the CEO won’t take questions. That was the case Monday when First Republic Bank reported its first-quarter earnings revealing the massive loss of customer deposits.

“The SVB bank run caused the problem that First Republic is in now, but the structure of their balance sheet and their business model put them in this vulnerable position,” Tim Coffey, an analyst at Janney Montgomery Scott, tells me. 

First Republic reported that customer deposits fell 41% to $104.5 billion in the first quarter of 2023, a worse-than-expected drop. This follows the $30 billion boost in deposits about six weeks ago, prompted by the Fed and provided by some of the biggest banks in the U.S. including, JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., in attempts to stabilize the San Francisco, Calif., lenders’ finances. Like SVB, the vast majority of First Republic’s deposits were uninsured.

What First Republic did right that Wall Street loved (for a while) 

First Republic (NYSE: FRC) was popular with customers. For example, during an earnings call on Jan. 13, the company said its 2022 Net Promoter Score (a metric reflecting customer satisfaction) was the highest ever. FRC was for some time considered a strong-performing stock. The bank went public toward the end of 2010, and shares were priced at about $27. The all-time high closing price for FRC was $221.91 on Nov. 16, 2021.

Before the regional bank upheaval began in March 2023, FRC closed at $123.01 on Feb. 28. The stock price fell to $13.99 on March 31, reached a 52-week low of $4.76 on April 26, and closed at $6.19 on April 27.

Mike Roffler was appointed CFO in 2014, and president in 2021. His work as finance chief was recognized multiple times. For example, in June 2021, he ranked in the top 28% of BuySellSignals Large MCap performers for the past year.

Roffler became acting CEO at First Republic in January 2022, officially taking on the role in March of that year. When he was promoted, Olga Tsokova, the chief accounting officer, served as acting CFO from January 2022 until Neal Holland was hired as CFO in November, previously Union Bank CFO and Deputy CFO of MUFG Americas Holdings. Tsokova was appointed deputy CFO along with the CAO role.

“Mike fully embodies our culture, has a deep knowledge of our business model, and is highly regarded by our stakeholders,” Jim Herbert, who founded the bank in 1985, served as its CEO, and is now executive chairman, said in the company’s announcement in 2022.

First Republic’s specialty is private banking and wealth management, and reports that no sector represents more than 9% of total business deposits. The company has a business model of adding high net-worth clients, Coffey says.

“You lead with the mortgage product, then you do your best to attract their low-cost deposits and their wealth management business,” he explains. Then once you have the personal stuff, you go after nonprofit accounts, and more, he says. “That’s been ingrained in the business for decades, and Mike Roffler was in lockstep with that culture and business model,” Coffey says.

What did First Republic do wrong?

The strategy of offering wealthy borrowers substantial mortgages, usually at low rates, that for a time worked so well, was exquisitely wrong for what appeared in late 2022.

“They put themselves in a risky position by aggressively growing assets in a zero-interest rate environment,” Coffey explains. “Say they’re offering a 3% mortgage, once the Fed Funds rates get to 5% the value of the loans that you aggressively added fall in value,” he says. “They had that brewing already. Between year-end 2019 to year-end 2021, gross loan balances increased $44.1 billion, or 49%.”

First Republic declined to comment. The bank ended last year with almost $27 billion in markdowns on loans and several unrealized losses on Treasuries and other long-dated bonds on the balance sheet. 

“We are working to restructure our balance sheet and reduce our expenses and short-term borrowings,” Holland said in a statement that was included in the earnings report. Only Roffler and Mike Ioanilli, VP and director of investor relations, were on Monday’s earnings call. There was no Q&A session with investors.

“Despite the uncertainty of the past two months and while average account sizes have decreased, we have retained over 97% of client relationships that banked with us at the start of the first quarter,” Roffler said on the call. Investors weren’t persuaded: The bank’s stock price dropped 49% on Tuesday, 30% on Wednesday. 

The Fed hasn’t yet stepped in to take over First Republic, nor have the big banks stepped up again to provide a boost. First Republic was looking to potentially sell $50 billion to $100 billion of assets to big banks, Bloomberg reported. 

I asked Coffey what message the short earnings call provided. “I haven’t seen a bank do that since the great financial crisis,” he says. “It tells investors that there’s a serious situation going on at First Republic that needs to be resolved as soon as possible.”

Have a good weekend. See you on Monday.

Sheryl Estrada
sheryl.estrada@fortune.com

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Big deal

A new analysis by S&P Global Market Intelligence forecasts that 13.4% of the S&P 500 (67 companies) will increase their regular dividends at their next announcements. The consumer staples sector is predicted to post a higher share of companies with expected dividend hikes than any other sector in the index (34%). In second place, 20.7% of the materials sector S&P 500 constituents are predicted to announce dividend increases, followed by the financials sector (19.4%), according to the report. During the pandemic, S&P 500 companies took advantage of near-zero interest rates to keep financing costs manageable, Ryan Boyd, Market Intelligence head of business development for the Americas, said in a statement. Despite a slowing economy and higher borrowing costs, dividends for the group should remain resilient, according to Boyd.

Going deeper

Here are a few Fortune weekend reads:

"Charlie Javice, who sold her startup Frank for $175 million and is accused of fraud, is running out of money," by Luisa Beltran

"‘I mean, how dumb was I?’ Legendary investor Peter Lynch says these are the top mistakes he’s made—and what he looks for in a company," by Will Daniel

"How one employer’s response to a candidate’s rejection was such a company culture ‘green flag’ that it convinced the job seeker to change her mind," by Orianna Rosa Royle

"Logging longer workouts boosts longevity. Experts explain how much to aim for, and tips to do it safely," by Kells McPhillips

Leaderboard

Here's a list of some notable moves this week:

Sherry Gao was named CFO at Argosy Capital Group, Inc., a lower middle market private investment firm. Gao joins Argosy from Centre Lane Partners, where she was CFO. Before Centre Lane, she was CFO at MatlinPatterson. At Argosy, Gao succeeds Sarah Roth as CFO. Roth was promoted to CEO in January 2022.

Michael Schwindle was named as CFO at Vera Bradley, effective May 8. John Enwright, current CFO, will be stepping down from his position as a result of the reorganization. Schwindle is a retail industry veteran. Since early 2020, he has served as CFO for accessory and jewelry retailer Claire’s. Previously, he held CFO roles at specialty retailers Fleet Farm, Payless ShoeSource, Harry & David, and Musician’s Friend, as well as other key financial roles at Home Depot and Limited Brands. 

Uzi Sasson was named CFO and COO at Meta Materials Inc. (Nasdaq: MMAT), a developer of functional materials and nanocomposites, effective April 20. Sasson replaces current CFO and COO Ken Rice, who is retiring. Before joining Meta Materials, Sasson served as CFO of Katena Computing Technologies, Inc., and EVP and CFO for Eat Just, Inc., a plant-based food technology company. He also served as the CFO and COO of IXYS Corporation before being promoted to president and CEO.

Jeff Farrow was named CFO and chief strategy officer at Tarsus Pharmaceuticals, Inc. (Nasdaq: TARS), a clinical-stage biopharmaceutical company, effective immediately. Farrow succeeds Leo Greenstein, who is leaving Tarsus to pursue other professional interests. Most recently, Farrow served as CFO at Global Blood Therapeutics, Inc. 

Kevin Rhodes was named EVP and CFO at Extreme Networks, Inc. (Nasdaq: EXTR), a cloud networking company, effective May 30. Before Extreme, Rhodes was EVP and CFO at Duck Creek Technologies, a global vertical SaaS provider. Before that, he held CFO roles at Finvi, Markforged, and Brightcove.

Teresa Chia was named CFO at Vertafore, an insurance technology company. Before joining Vertafore, Chia was a senior partner and managing director at White Mountains Insurance Group. Before that, Chia was a private equity investor at Permira Advisors, focusing on investments in the global technology and consumer verticals.

Robert Fraass was named CFO at Servotronics, Inc. (NYSE American: SVT), a designer and manufacturer of servo-control components, effective May 1, He replaces Lisa F. Bencel, who will be leaving the company later in May to pursue other interests. Fraass most recently comes from Stark Technologies Group, Inc. where he served as SVP of finance, corporate controller, and treasurer. He also held executive finance roles at PostProcess Technologies, Ivoclar Vivadent, Integer, and Integrys Energy Services.

Overheard

"Our data shows that flexibility at work is now non-negotiable, and often as important as pay, with many willing to leave their job if it isn’t offered, even in the context of declining job security and rising cost of living."

—Sander van 't Noordende, CEO of Randstad, wrote in a Fortune opinion piece discussing the value of extending flexibility to all workers.