First Republic Bank, a regional bank in the US, is the third lender to fail in the past two months, following Silicon Valley Bank and Signature Bank.

The bank announced last week that the first quarter saw more than $100 billion in outflows.

After regulators took control of the troubled lender over the weekend, the largest US bank, JPMorgan Chase & Co., announced on Monday that it would purchase the majority of First Republic’s assets, which are based in San Francisco.

James “Jim” Herbert, a community banker in Ohio, established First Republic in 1985. Early priorities for the bank were large loans with competitive interest rates. Bank was purchased by Merrill Lynch in 2007.

Following Merrill’s sale to Bank of America, First Republic was once more listed on the stock market in 2010.

According to bank marketing materials, First Republic’s clients have included Apoorva Mehta, the inventor of Instacart, Chamath Palihapitiya, an investor, and Stephen M. Ross, a developer of real estate.

According to bank papers, which show that schools and non-profits account for 22% of its company loans, First Republic also catered to other members of the community.

Key factors about First Republic Bank’s fall

First Republic claimed in January that its shareholder returns were higher than its competitors, compounding at 19.5% yearly. Additionally, it claimed that its typical single-family home loan borrower had access to $685,000 in cash, which is a lot more than the national average.

High numbers of First Republic’s deposits were uninsured. Due to its business model, it was more exposed than local lenders that served less wealthy clients because US deposit insurance only provided $250,000 per savings account.

Additionally, as the US Federal Reserve increased interest rates, the value of its loan book and investment portfolio decreased, reducing its ability to raise capital.

When the Fed started raising interest rates to combat inflation last year, First Republic began to accumulate paper losses.

According to First Republic’s annual report, gross unrealized losses in the portfolio of investments carried to maturity, primarily government-backed debt, grew to $4.8 billion at the end of December from just $53 million a year earlier.

Investors were also forewarned in First Republic’s annual report that single-family residential mortgage loans made up more than half of its loan book and were challenging to sell.

Jpmorgan deal

Customers of the failing bank would now interact with the enormous financial conglomerate because JPMorgan claimed that as part of the agreement, First Republic’s 84 locations in eight US states would reopen as branches of JPMorgan Chase Bank starting on Monday.

The acquisition of the majority of First Republic’s assets will result in the JPMorgan being even larger. As part of the agreement, it would provide $10.6 billion to the US Federal Deposit Insurance Corp (FDIC).

JPMorgan, led by seasoned Chairman and CEO Jamie Dimon, has also agreed into a loss-share agreement with the FDIC on the single family, residential, and commercial loans it purchased, but it will not accept First Republic’s corporate debt or preferred shares.