Republic First fails; Fulton Bank acquires assets, branches

Republic First Bank was shuttered by its state regulator and taken over by the Federal Deposit Insurance Corp. on Friday, ending the Philadelphia-based bank’s yearslong struggle to maintain adequate capital amid a bitter proxy war with investor groups.

Fulton Bank in Lancaster, Pennsylvania, will assume substantially all of Republic First’s $6 billion of assets and $4 billion of deposits, according to a statement from the FDIC.

Republic First’s 32 branches, which are spread across Pennsylvania, New Jersey and New York, will open for business on Monday morning — or Saturday morning for locations that normally operate on the weekend — as Fulton Bank branches, the agency announced. 

Republic First’s parent company, Republic First Bancshares, has been dealing with internal strife since late 2021, when a group of activist investors sought to force a sale of the bank, citing concerns about decisions made by then-CEO Vernon Hill. 

Problems for the bank compounded just six weeks later when a second investor group called for Hill’s ouster. The embattled executive eventually succumbed to the pressure — following the death of a key ally — and lost his chairmanship of the bank’s board in May 2022. Hill ultimately resigned from his post as CEO two months later.

The bank attempted to raise $125 million in additional capital from investors last year — an effort that launched on the same day that Silicon Valley Bank failed — but the deal fell apart only months later.

A subsequent capital infusion came together last fall amid reports that the FDIC was seeking a buyer for the troubled bank. But that capital raise also ultimately fell apart. 

Before it failed, the bank’s regulatory capital was barely positive, and its equity was more than wiped out when counting its $425 million in “unrealized” losses from its bond investments, according to regulatory data. 

Brian Graham, a partner at Klaros Group, said the bank had been insolvent for at least a year and a half, but regulators seemed to have tried to give Republic First time to pursue a sale or investment.

“Once those efforts proved to be fruitless, it was inevitable that the regulators would say, ‘Enough already,’ and shut this thing down, as they probably should have a while ago,” Graham said.

Republic First’s underwater bond troubles mirrored those at First Republic Bank and Silicon Valley Bank, which both notoriously collapsed last spring, Graham said. He added that based on unrealized losses, dozens of banks across the country are insolvent or nearly there.

“This dynamic is not limited to Republic First,” Graham said. “It’s playing out in a whole bunch of other bank balance sheets, even as we speak. This disconnect between the economic reality of how much capital a bank really has and the stated regulatory capital level … s troubling.”

Graham added that banks with an outsized amount of unrealized losses aren’t an appealing investment target.

“Banks that are insolvent, unless they get bailed out by some magical shift in interest rates, it’s just a matter of time,” Graham said.

As is customary in a bank failure, the FDIC was appointed receiver for Republic First after its failure. The sale to Fulton Bank will result in a $667 million loss for the Deposit Insurance Fund.

In its announcement, the agency said the sale to Fulton Bank would be the least costly outcome for the fund.

Republic Bank’s demise is the first of this year. The last bank to fail was Citizens Bank in Sac City, Iowa, in November 2023.

Catherine Leffert contributed to this story.