The founder of the First Republic Bank earned a high salary, just like his relatives

First Republic Bank FRC -5.03%

paid family members of founder James Herbert millions of dollars for work at the lender in recent years, including for advisory services related to interest rates and risk, according to public disclosures the bank made as part of annual filings.

The bank paid Mr. Herbert, who was CEO before taking on the role of executive chairman last year, $17.8 million in 2021, the bank’s disclosures for that year said. Compensation was more than that of CEOs at most banks of a comparable size.

A consulting firm owned by Mr. Herbert’s brother-in-law earned $2.3 million in 2021 for consulting work related to its “investment portfolio, risk management, interest rate and economic outlook and other financial matters,” it said in an annual proxy filing filed last spring. First Republic also paid Mr. Herbert $3.5 million to oversee a loan unit at the bank, the disclosures said. The two family members were paid similar amounts in 2020.

First Republic, which was the country’s 14th largest bank by assets at the end of 2022, has been at the center of contagion fears in the US banking system, with its share price falling more than 90% in the past three weeks. The bank, known for serving high-net-worth individuals, has made an effort to halt a rush of depositors raising money amid concerns that First Republic bears some similarities to the now-failed Silicon Valley Bank.

A key area of ​​focus was the level of interest rate risk the bank took when interest rates were low. A large portfolio of mortgages has lost billions of dollars in value due to rising interest rates.

Asked about the payments made to Mr Herbert’s son and brother-in-law, a spokesman said the bank has a policy on transactions with relatives “and makes such transactions fully public each year”. He said executive compensation in 2021 reflects that the company “outperformed industry peers and the S&P 500 from 2016 to 2021, delivering strong shareholder returns.”

On Wednesday, the bank said that Mr. Herbert and some other top executives would receive zero bonuses in 2023 as part of an effort to “show a sign of commitment to the bank and all its stakeholders”. It said Mr. Herbert also agreed not to receive a salary for the year and to waive a number of previous stock awards.

The bank has funded the consulting work of Mr. Herbert’s brother-in-law, James Healy, since 2010, when Mr. Healy founded the firm of Capra Ibex to advise First Republic. Since then, the company has grown to include numerous other clients and advised JPMorgan Chase‘s

board on issues related to the London whaling scandal, Capra Ibex says on its website.

Mr. Healy was a senior executive at Credit Suisse until 2007, where he oversaw the fixed income business, which outperformed many other major banks during the 2008 financial crisis.

Mr. Healy confirmed his appointment with the bank, but declined to answer further questions.

Mr. Herbert’s son, who was not named in the disclosures, is a senior vice president at the bank and previously worked at Colony Capital and Morgan Stanley and co-founded a mortgage lending startup. Mr Herbert was not involved in wage negotiations for either family member, the disclosures said.

The deals with Mr. Herbert’s relatives stand out among similarly sized banks. While numerous other medium and large banks employ family members of top executives, they typically get paid less, often less than $250,000, according to disclosures.

Mr. Herbert and other executives have sold more than $11 million worth of stock so far this year, The Wall Street Journal previously reported, drawing attention to executive compensation at the bank.

Mr. Herbert’s salary is higher than comparable institutions of about the same size as First Republic, which had $212 billion in assets at the end of 2022. The CEO of Bank of New York Mellon,

with $324 billion in assets, $9.3 million was paid in 2021, the last available year for First Republic. The CEO of Silicon Valley Bank, with $209 billion in assets, received $9.9 million. Mr. Herbert’s salary was closer to that of the CEOs of much larger banks, including US Bancorp, whose CEO earned $19.1 million in 2021, and Citigroup,

whose CEO earned $20.5 million, according to the banks’ annual proxy filings.

Benjamin Bennett, a finance professor at Tulane University who studies executive compensation, said Mr. Herbert’s salary was significant as a percentage of the bank’s income between 2019 and 2021, in total almost 1.5% of the profit in that period.

“At most banks, it’s significantly less than 0.5%,” he said.

Mr. Herbert’s salary in recent years has come largely in the form of a stock and cash bonus based primarily on his ability to meet “certain financial safety and soundness criteria” at the bank and regulatory criteria intended to bank to operate in a “financially secure and sound manner,” bank records say. He received the full bonus for these categories in 2021 and 2020, some of which are in limited supply.

The bank’s profits, deposits and income all grew rapidly during the period of low interest rates, driving up the bank’s share price – another factor in its compensation.

Mr. Herbert founded First Republic in 1985 and sold it to Merrill Lynch in 2007. After Merrill was acquired by Bank of America,

First Republic broke out again as an independent bank in 2010 through an IPO, with Mr. Herbert as CEO.

Write to Eliot Brown at

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