As we begin to parse Q1 Call Report data, First Republic’s filing stands out. The failure of SVB on March 10 had a significant impact on First Republic. Faced with severe deposit runoff, management borrowed a large amount of funds to stabilize the bank. Despite best efforts, First Republic failed on May 1. In between, however, the bank filed its Q1 Call Report, providing some fascinating data.
Through 2022, First Republic’s deposits tracked loan growth closely. In Q1 2023, however, the bank lost 41% of its deposit base, falling from $176bn to $104bn. Of the roughly $72bn deposits that left, 95% were uninsured. Reciprocal deposits, which can often provide full insurance coverage to depositors, only increased from $3.9bn to $7.4bn.
To cover liquidity, the bank turned to borrowed funding. Borrowed funding jumped 489%, from $19bn to $110bn, almost entirely consisting of funding with less than one year duration. The high-cost funding had a large impact on margin, with net interest income falling 24% quarter over quarter.
Across the rest of the banking sector, we have seen meaningful but addressable deposit outflows and increased but reasonable borrowing. First Republic stands out as a stark exception.
Best,
Paolo and the ModernFi Team
Sources: Based on a great report from our friends at Visbanking. 2022 data from the FDIC Bank Data API and 2023 data from the FFIEC Data Repository.
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