First Republic Bank’s Deposit Exodus
First Republic Bank, a San Francisco-based lender, has seen a significant decline in deposits over the past few months. This has caused analysts to become more bearish on the bank than ever before.
Deposit Decline
First Republic Bank has seen a sharp decline in deposits since the start of the year. In the first quarter of 2023, deposits fell by $2.5 billion, or 6.3%, to $37.2 billion. This is the largest quarterly decline in deposits since the bank went public in 2010.
The decline in deposits is due to a number of factors. First, the bank has been hit hard by the pandemic, as many of its customers have been affected by job losses and other economic hardships. Second, the bank has been facing increased competition from other banks, which have been offering higher interest rates on deposits. Finally, the bank has been reducing its reliance on deposits, as it has been focusing more on other sources of funding, such as loans and securities.
Analysts’ Reactions
Analysts have reacted negatively to the decline in deposits. Many have downgraded their ratings on the bank, citing the deposit decline as a major concern.
Analysts have also expressed concern about the bank’s ability to attract new deposits. They note that the bank’s current deposit rates are not competitive with other banks, and that the bank may need to raise rates in order to attract new deposits.
Impact on Profitability
The decline in deposits has had a negative impact on the bank’s profitability. The bank’s net interest margin (NIM) has fallen from 2.3% in the fourth quarter of 2022 to 1.9% in the first quarter of 2023. This is the lowest NIM the bank has seen since the fourth quarter of 2020.
The decline in NIM has been driven by the decline in deposits, as well as the bank’s increased reliance on other sources of funding. The bank has also seen a decrease in its loan-to-deposit ratio, which has fallen from 91.3% in the fourth quarter of 2022 to 87.2% in the first quarter of 2023.
Share Price Performance
The decline in deposits has had a negative impact on the bank’s share price. The stock has fallen from a high of $97.90 in the fourth quarter of 2022 to a low of $76.50 in the first quarter of 2023. This is the lowest the stock has been since the fourth quarter of 2020.
Outlook
Analysts remain bearish on the bank, citing the deposit decline as a major concern. They note that the bank may need to raise deposit rates in order to attract new deposits, and that the bank’s profitability could suffer if it is unable to do so.
The bank has taken steps to address the deposit decline, such as reducing its reliance on deposits and focusing more on other sources of funding. However, it remains to be seen if these measures will be enough to turn the tide.
In the meantime, analysts will continue to monitor the bank’s deposit levels and share price performance. If the bank is unable to attract new deposits, its profitability and share price could suffer.