In naming co-CEO, First Republic signals succession plan

First Republic Bank has signaled a long-awaited succession plan by naming its president as co-CEO and also extending the contract of longtime Chief Executive James Herbert through 2022.

Hafize Gaye Erkan, who joined First Republic in 2014 and is currently the company's president, becomes co-CEO effective immediately, the firm said.

Herbert, whose contract was extended for a fourth time in 2019, will serve as executive chairman after Dec. 31, 2022, according to the company. His term as chairman of the board was also extended by one year through Dec. 31, 2029.

Herbert, 75, founded First Republic in 1985 and has been its chairman and CEO since. The San Francisco bank has generally been quiet about its succession plans over the years, but analysts said Tuesday's announcement likely cements Erkan’s status as Herbert’s eventual successor.

“This announcement likely signals the board’s intentions to eventually name Ms. Erkan as sole CEO,” Andrew Liesch, an analyst with Piper Sandler, wrote in a note to investors. “We have long since thought this would be the case and is well deserved. We think she will make an excellent choice to lead the bank when Mr. Herbert decides to retire.”

Erkan joined First Republic seven years ago as its chief investment officer. She was named chief deposit officer in 2016 and promoted to president of the bank a year later.

Originally from Turkey, Erkan has a Ph.D. in operations research and financial engineering from Princeton University, and she has previously been named one of American Banker’s Most Powerful Women in Banking.

The company also announced its second-quarter results on Tuesday, saying that strong loan growth, particularly in single-family and business lending, drove net income of $373.1 million, a 45% increase from a year earlier.

Total loans rose by 22.7% to $123.1 billion. Loan originations of $16.8 billion represented the bank's highest quarterly volume ever.

First Republic's net interest income rose by 27.5% to $1 billion, and its net interest margin contracted by 2 basis points to 2.68%, the company said.

Noninterest income increased by 72% to $226.6 million, driven by wealth management fees, loan servicing fees and income from investments in life insurance.

Earnings per share of $1.95 came in 22 cents higher than the mean estimate of analysts surveyed by FactSet Research Systems.