What happened

Shares of First Republic (FRCB) have fallen more than 13% as of 12:02 p.m. ET today for no obvious reason, although I'm guessing it's related to the massive sell-off at SVB Financial (SIVB.Q), the parent company of Silicon Valley Bank.

So what

Shares of SVB Financial have tanked more than 41%, as of this writing, since the bank announced that it had sold its entire available-for-sale bond book, taking a $1.8 billion loss. SVB also announced its plans to raise $2.25 billion of fresh capital through common stock, a private placement, and preferred stock.

SVB had to take these actions because it's dealing with heavy deposit runoff that looks to have intensified in recent months. Management had put too many of its excess deposits early in the pandemic into bonds that ended up being too long in duration. The Federal Reserve's rapid interest rate hikes and quantitative tightening, which is pulling liquidity out of the economy, has caught many bankers by surprise.

While they run different models, I do think many investors view SVB and First Republic similarly because both cater to niche high-net-worth individuals. On its last earnings call, First Republic reported seeing deposit outflows and margin compression, so many may be worried that problems at SVB could be affecting First Republic.

At the end of 2022, First Republic had unrealized losses of $471 million in its available-for-sale bond book and more than $4.8 billion of unrealized losses in its held-to-maturity bond book, so while there is exposure, it's certainly not as bad as what SVB is dealing with.

Now what

I've generally been bullish on First Republic, which has been a great performer over the years. But then again, I used to be bullish on SVB, which was also a strong performer. 

Right now, many banks are really in unchartered waters when it comes to deposit outflows. While the situation seems more manageable at First Republic, the bank could very well be dealing with heightened deposit outflows.

Considering the bank was already facing margin compression this year, I'd wait to see how this quarter shakes out before investing.