All You Must Know About the First Republic Bank

First Republic Bank continues to operate independently. On Saturday, the subject was how long that would be the case.

In anticipation that the Federal Deposit Insurance Corporation, an independent government agency that insures bank customers’ deposits, would intervene by day’s end and seize control of the San Francisco-based bank, its deposits, and its assets, shares of First Republic (FRC) fell from $122.50 on March 1 to about $3 per share as of Friday. When consumer runs on Silicon Valley Bank and Signature Bank are abandoned the lenders are unable to fulfill customers’ demands for withdrawals, the FDIC already did this with two other banks of similar size just the previous month.

According to reports in the Wall Street Journal and Bloomberg, JPMorgan Chase and PNC Financial of Pittsburgh are in the midst of making bids to the FDIC in which they would purchase First Republic. All of those parties remained silent in response to the reports.

First Republic said in a statement Friday night that it was “engaging in talks with other parties about our strategic options while striving to serve our customers.”

First Republic’s Lifeline Was Insufficient

The First Republic received a $30 billion lifeline in the form of deposits from a group of the country’s biggest banks, including JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), Citigroup (C), and Truist (TFC), which came together after Treasury Secretary Janet Yellen intervened. This was shortly after the collapses of SVB and Signature in March.

The banks concurred to take the chance and cooperate to maintain the First Republic well-funded in the hopes that it would restore faith in the country’s suddenly shattered financial system.

All of the banks and federal regulators desired to lessen the possibility that clients of other banks would start abruptly withdrawing funds.

Although the cash helped First Republic get through the previous six weeks, the disclosure of significant withdrawals by the end of March in its quarterly financial report on Monday evening raised new questions about the company’s long-term viability.

Large Depositors With Anxiety

According to the financial report, during the first quarter, depositors withdrew nearly 41% of their funds from the bank. The majority of the withdrawals were from accounts that contained more than $250,000, therefore that extra money was not covered by the FDIC.

The bank’s uninsured deposits decreased by $100 billion during the first quarter, which also saw a $102 billion decline in total net deposits, excluding deposits received from other banks.

As of March 31, just 27% of the non-bank deposits were uninsured, compared to 68% of the total deposits as of December 31.

According to the bank’s earnings statement, insured deposits slightly decreased over the quarter but stayed consistent from the conclusion of last month until April 21.

Never do banks have enough cash on hand to meet all incoming deposits. Instead, they accept deposits and then utilize the money to make loans or investments like buying US Treasury bonds.

Therefore, a “run on the bank,” when customers lose faith in a bank and rush to withdraw their money, can cause even an otherwise successful bank to fail.

According to First Republic’s most recent earnings report, even though its first-quarter net income was $269 million, down 33% from a year earlier, it was still successful.

Investors and, finally, authorities were more alarmed by the announcement of the deposit loss.

Even though some of those with more than $250,000 in their First Republic accounts were probably wealthy people, the majority were probably businesses, which frequently require that much money just to cover daily operating expenses. To cover a biweekly payroll, a company with 100 employees may easily require more than $250,000.

Bottom Line

According to First Republic’s annual report, 63% of its total deposits as of December 31 came from business clients, with the remaining deposits coming from consumers.

In 1985, First Republic opened its doors with a single location in San Francisco. It is renowned for serving affluent customers in coastal states.

Its website lists 82 branches, located in eight different states and in affluent areas like Beverly Hills, Brentwood, Santa Monica, and Napa Valley in California, as well as San Francisco, Los Angeles, and Silicon Valley.

Branch locations can be found outside of California in high-income areas such as Jackson, Wyoming; Greenwich, Connecticut; Palm Beach, Florida; and Bellevue, Washington.