James Herbert knows the lifestyles of the rich and famous like the back of his hand. As chief executive officer of First Republic Bancorp, he's financed his share of California's glitterati.

During the past 12 years, First Republic has built a solid reputation in California and Nevada as a top-notch relationship lender for jumbo mortgages to the wealthy and for construction loans to developers.

Included in First Republic's customer base are some of the richest and best-known residents of California, such as actors Michael Douglas and Dennis Franz, who are pictured and quoted in the company's 1996 annual report.

The $2.2 billion-asset thrift company is best known throughout its two- state market for delivering highly personalized lending services to its customers. And it has neither wanted nor needed to do more.

"We have been very focused from the beginning," Mr. Herbert said. "We have tried to do a few things well. We're very cautious about introducing new products."

But that's no longer enough in the modern banking environment, the thrift has discovered. With merger mania reshaping the California banking landscape, many First Republic customers who used other banks for certain deposit and investment services are calling on First Republic to meet these needs as well. That's posed a problem for the thrift, which didn't-or couldn't-offer these products under its past structure.

Now, the upscale lender is undergoing a transformation to a commercial bank that will give it the ability to offer full private banking services to its posh clientele-without ever abandoning its core principles and becoming a business lender.

The bank has already merged its Nevada and California subsidiaries and bought almost 20% of a well-regarded investment advisory firm. It plans to adopt a commercial banking charter next month.

"We're following our customers' request to be able to bank in a full- service way with us," said Mr. Herbert, who is leading the charge, along with his determined chief operating officer, Katherine August-deWilde. "The issue has been: Are you a bank, or a thrift and loan?"

The problem that First Republic has encountered is not one that was anticipated by Mr. Herbert and other senior officials after they founded the company in 1985 from the remnants of a sold predecessor.

At that time, Mr. Herbert believed that the key to success for the new thrift lay primarily in jumbo and other nonconforming mortgage loans, those which cannot be sold on the secondary market because of their size or other credit conditions.

This is a market where "quality of service mattered, as opposed to price," he said, noting that the loans are often complex.

In addition, First Republic planned to finance small office buildings and home construction. These were niches that Mr. Herbert and many of the First Republic management team had targeted when they worked at the thrift's predecessor, San Francisco Bancorp.

Over the years, First Republic's lending philosophy and strategy have served it well as it has grown significantly. Since the end of 1993, the thrift's assets are up 60%.

And its focus on customer service, emphasis on customer privacy, and desire for a low profile-Mr. Herbert was highly reluctant to grant this interview-have played well among its clientele, particularly the wealthy.

First Republic specializes in helping first-time homebuyers, regardless of wealth or loan amount. "We'll hold someone's hand through that process," he said.

He stresses that it's not just high-end mortgage lending. Seventeen percent of its nonconforming lending is actually to low- and moderate- income borrowers, who officials say receive the same service-including the privacy and discretion more typical of private banking-as the wealthy.

Though not as familiar to the general public, First Republic's reputation among its borrowers and professionals has enabled the publicity- shy institution and its executives to avoid costly advertising campaigns for loans and rely instead on satisfied customers and referrals. That accounts for about 70% of its business.

The thrift generally assigns a team of lenders to each borrower so that the customer can always find a thrift official familiar with his or her credit. And Mr. Herbert touts the thrift's lack of turnover among its experienced lenders, which is often a sore spot for small-business borrowers at larger institutions.

The company has also installed a network of 75 videophones at each of its 13 branches in California and in Las Vegas, as well as on loan officers' desks and at offices of many of the real estate brokers and other professionals the thrift uses for referrals.

"We have a franchise with our customers," Mr. Herbert said. "You have to work to keep it, but it has developed into a service franchise."

But with the rampant consolidation, First Republic officials have found their customers clamoring for checking accounts and investment advice.

Under its current industrial loan charter, the thrift is barred by state law from offering checking accounts. And it lacks any trust department or other option for offering investment services to its highbrow clientele. That meant it was missing opportunities to increase its customer base-and income-by providing more products to its 25,000 to 30,000 existing deposit and mortgage customers.

Last year, officials decided to take some action to respond to customer demand. During the summer of 1996, First Republic began to develop plans to formally convert the institution to a commercial bank charter. In October, the company merged its two subsidiaries under the Nevada charter in an effort to cut costs and simplify operations.

Meanwhile, First Republic, like the others, "is not immune to concern about whether it can compete and deliver services," Mr. Herbert said.

So in January 1997, the company hired Montgomery Securities to find the best, and quickest, way for the thrift to benefit shareholders while also helping customers through an expanded range of products.

In particular, the thrift wanted to be able to offer investment services to its elite clients-one of its largest product voids. Officials asked Montgomery to determine whether First Republic was better off doing it alone or should sell to or merge with an institution offering a stronger product menu.

In late May, however, First Republic changed direction, saying it would no longer consider an outright sale. About four weeks later, it announced it would buy 19.9% of New York-based Trainer, Wortham & Co., the nation's oldest independent investment advisory firm.

With the $7 million deal, which includes an option for First Republic to buy the firm if the partnership works, the thrift now has investment services for its customers.

Mission accomplished.

"We're a sales and service organization that is in the banking business. We go where the customer takes us," Mr. Herbert said. "They want to bank here completely."

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