First Republic’s roster of Boston customers represents a who’s who of the city’s most prominent entrepreneurs and institutions: real estate developer Jon Davis, restaurateur Steve DiFillippo, Urban Grape cofounders TJ and Hadley Douglas, the Institute of Contemporary Art, MassChallenge, and many more.
Since entering the Boston market in 2006, the San Francisco-based bank has built an enviable business catering to developers, entrepreneurs, and other wealthy individuals, lavishing them with exceptional customer service that has engendered fierce loyalty, while also helping to grow their businesses, create jobs, and pump money into the local economy.
“They are such a great bank. I wouldn’t be standing here without them,” said DiFillippo, who owns 11 Davio’s restaurants and has been a customer since 2006.
Other customers echoed the same sentiment, which is kind of extraordinary, considering that First Republic ― as with Silicon Valley Bank ― put itself in a precarious position through poor management of its deposits. Their failings were so egregious they now pose a threat to the stability of the entire banking system.
Local business leaders’, institutions’, and wealthy clients’ unwavering support of the bank also speaks to how much they rely on First Republic. What would happen if it suddenly went away?
Boston wine merchant Urban Grape credits First Republic with helping the small business gain a national footprint by featuring the husband-and-wife-team in a marketing campaign. The bank also hired Urban Grape to be one of the vendors that provides gifts of wine to the bank’s clients.
First Republic “has been so much more than a bank to us,” wrote Hadley Douglas in an e-mail. “All this effort and support for a small business that is just one of their countless clients.”
With only five branches, First Republic is nonetheless one of the largest banks in Massachusetts, more than doubling its deposits here over the past five years, according to data from the Federal Deposit Insurance Corp.
Like SVB, First Republic underestimated how rising interest rates could hurt its bottom line as the Fed kept piling on the increases. Both banks experienced eye-popping growth by pursuing deep-pocketed customers who opened accounts with big cash deposits. While First Republic focused on wealthy homeowners in need of jumbo mortgages, SVB catered to startups and venture capital firms. Deposits help finance banks’ business; the more cash that goes in, the more loans banks can make.
The FDIC only guarantees deposits up to $250,000, but many of SVB’s and First Republic’s customer had balances well above that amount, leaving them with an enormous amount of uninsured deposits. S&P Global Market Intelligence estimated about 94 percent of SVB’s deposits and about 68 percent of First Republic’s were uninsured at the end of 2022. The industry average of US banks with more than $1 billion in assets is about 46 percent.
If too many customers pull their money out at the same time — which happened at both SVB and First Republic — the bank may not have enough cash to accommodate the onslaught. In the case of SVB, the federal government intervened to guarantee all deposits and is in the process of breaking up the bank and selling its assets.
Meanwhile, the country’s biggest banks — including Bank of America, JPMorgan Chase, and State Street — moved to stabilize First Republic by depositing $30 billion to shore up its balance sheet. Despite that extraordinary measure, it faces an uncertain future. Wall Street continues to pummel the bank’s stock, now trading at about $12 a share, down from $121 in January.
Eric Rosengren, former president of the Boston Federal Reserve Bank and now a visiting scholar at MIT, said SVB and First Republic had a successful growth strategy, but “the problem was there wasn’t enough risk management.”
“It looks like several of these what are now midsize banks grew too quickly, and that normally is a red flag,” said Rosengren. “An important issue for supervisors going forward is whether the risk management grew as rapidly as the banks were growing, and did the board of directors and senior management appreciate the risks that they were taking.”
First Republic declined to comment, but some of its best-known Boston customers are loud and clear about where their banking loyalties lie.
DiFillippo got to know First Republic after taking on a home mortgage. He now uses the bank to finance new restaurants and has multiple accounts, both for business and his personal investments. The bankers there know his name, he said, and the service is unparalleled.
DiFillippo said he believes his accounts are safe because he keeps each one under the $250,000 insurance threshold.
“I would just hope that we calm down and support them as a bank,” he said. “Remember where you came from. The bank helped you, now it’s time for you to help the bank. That’s how I look at it. I even bought some stock last week.”
Davis, the developer whose team built the Omni Boston Hotel in the Seaport, was among a couple dozen signatories from the Massachusetts real estate community to a public statement of support on March 16, just as the big banks came to First Republic’s rescue.
Davis has been working with First Republic since 2009, when it was one of the few banks to provide financing to the developer during the throes of the Great Recession. While Davis also does business with other banks, he described his company’s relationship with First Republic as “substantial.” In addition to having checking and money market accounts, it provides financing for properties, such as lines of credit, and investment management services.
“They developed a real expertise in serving the needs of companies like ours ... entrepreneurs who run closely held real estate businesses,” said Davis. “We are rooting for them and praying for them because they have been a great partner.”
Before First Republic’s arrival in the market, Boston Private Bank & Trust had been the go-to bank for the well-to-do. (It was bought by SVB in 2021.) But over the past decade, First Republic gained traction by offering better customer service and attractive jumbo mortgages — bigger-than-normal home loans for those with stellar credit.
As one of the region’s top brokers of multimillion-dollar homes, Tracy Campion has had a front-row seat to First Republic’s rise.
“Their packaging of their loans was attractive to my buyers,” said Campion. “Boston Private was the dominant force in jumbo mortgages, and then First Republic came in, and they became the new dominant force.”
Founded in 1985 by Jim Herbert, First Republic set out to be the Four Seasons of banking. The bank thrives in markets where wealthy customers clustered — California, New York, Massachusetts, and Florida.
Herbert was no stranger to Boston. He’s a Babson College graduate who served on the board of trustees. Herbert even invested in, and later chaired, the board of Gradifi, a Boston startup founded by Babson alum Tim DeMello. It helps employers manage their employees’ student loan debt. First Republic bought Gradifi in 2016, and sold it to E*Trade three years later.
David Chang, who was the Gradifi CEO after First Republic bought it, said the bank’s Boston office employed several hundred people at the time. Herbert would fly from San Francisco to tend to local business and attend Gradifi board meetings. He also met with Harvard Business School professor Boris Groysberg, who sits on the board of First Republic.
“On one of Jim’s many trips to Boston, I shared a car with Jim from the Back Bay to HBS campus,” recalled Chang. “It was very clear that this region is important to him.”
First Republic’s growth coincided with a red hot real estate market and a refinancing boom fueled by an era of ultra-low interest rates. The bank also went on a buying spree, acquiring private wealth management firms that helped swell deposits.
First Republic plowed its deposits into mortgages and other long-term, fixed-rate loans. But when customers suddenly needed their cash back, it became difficult for First Republic to sell these loans without losing money.
So what’s going to happen to First Republic?
“It’s too soon to know,” said Rosengren, the former Fed president. “First Republic has to ask whether their reputation’s been hurt so badly by what’s happened that it affects the viability of their strategy going forward. We’ll see over time, but it’s not clear at this stage.”
Shirley Leung is a Business columnist. She can be reached at firstname.lastname@example.org.