When Mike Roffler took over as chief executive of First Republic Bank
Roffler told analysts Wednesday that he’ll be executing on the same strategy that kicked up $17.8 billion in new loan originations during the first quarter, up 13.3% from the same period the year before. The strong loan growth came largely on the back of the bank’s single-family mortgage business.
“My transition to the CEO role does not represent a strategic shift in our direction,” said Roffler, who succeeded First Republic founder and longtime Chief Executive James Herbert.
First Republic will continue to invest in growth ideas, Roffler said. He noted that the company recently opened
But about half of the loan growth during the first quarter came from First Republic’s bread-and-butter mortgage business. Now the question is whether that growth will continue, given that interest rates are heading up faster than company executives previously expected.
“On the last call, in January, we assumed three Fed hikes,” Olga Tsokova, First Republic’s acting chief financial officer, said Wednesday during the company’s earnings call. “This time, we've seen seven Fed hikes going forward.”
Increased mortgage refinancings by borrowers hoping to lock in last-minute low rates — as the Federal Reserve embarked on a plan to raise borrowing costs to subdue rising inflation — helped the cause at First Republic.
About 58% of mortgage originations in the quarter were refinances, which “was a little bit higher than normal,” Chief Banking Officer Michael Selfridge said during the call.
Historically, when the Fed has begun to tighten monetary policy, refinancings at First Republic have dropped to as low as 40% of originations. But Selfridge said the company’s business of writing loans to customers looking to purchase a home “was quite strong despite limited inventory.”
The loan growth helped propel First Republic to $401 million in net income during the quarter, up about 20% year over year.
Executives kept noninterest expenses flat from the previous quarter at $866 million, which helped First Republic to record net income of $2.00 per share, beating the $1.90 consensus estimate.
Investors responded by pushing up the company’s shares more than 6% in midday trading Wednesday.
In addition to the increase in loans and the company’s flat expenses during the quarter, Brian Foran, an analyst at Autonomous Research, pointed to a 23% year-over-year increase in revenue and 26% growth in deposits as positive signs.
“The bank is clearly in an enviable position,” Foran wrote in a note to clients.
