Republic First Bancorp, a Philadelphia-based bank, has been taken over by regulators due to financial instability and subsequently sold to Fulton Financial, a regional financial institution. The bank’s stocks plummeted by 60% before the takeover, indicating severe distress in its financial standing.

The Pennsylvania state regulator closed Republic First Bancorp on Friday, and the bank was auctioned off under the supervision of the Federal Deposit Insurance Corp. (FDIC), as reported by The Wall Street Journal. The bank's downfall echoed the fate of three other regional banks that failed in the previous year, suffering from losses on bonds triggered by rising interest rates and a significant outflow of uninsured deposits.

Fulton Financial, headquartered in Lancaster, Pennsylvania, has roughly $28 billion in assets and operates approximately 200 locations across multiple states. This acquisition will considerably expand Fulton's presence in the Philadelphia market without surpassing the $50 billion asset threshold that invites increased regulatory attention.

In a statement, Fulton Financial underscored the strategic importance of the deal: "This will nearly double our size in the Philadelphia market, and we are committed to ensuring a smooth transition for all Republic First branches, which will reopen as Fulton branches according to their regular schedules."

Republic First encountered severe financial difficulties last year, which almost led to its seizure. However, a temporary reprieve was granted when the bank announced a potential deal with investors to bolster its balance sheet. The collapse of the investor deal in March renewed the urgency for the FDIC to proceed with the sale.

With around $6 billion in assets at the end of 2023, Republic First operated under the name Republic Bank, with branches in Pennsylvania, New Jersey, and New York. Despite interest from midsize banks in the region, larger financial institutions like PNC Financial Services Group and Citizens Financial were not enticed by the bank's relatively small market footprint.

The FDIC estimates the cost to its insurance fund due to the bank's failure to be approximately $667 million. This follows significant charges taken by the nation's largest banks to replenish the insurance fund after last year’s bank failures.

While the transfer to Fulton Financial is purported to prevent a broader crisis of confidence, regional banks continue to face financial pressures. Rising interest rates over the past two years have increased the cost of interest on deposits and squeezed profits. Moreover, regional banks may struggle with the costs of stricter regulatory requirements and technological advancements, especially compared to larger banks like JPMorgan Chase. Concerns are also heightened by the fact that some banks have substantial loan exposures to commercial real estate sectors facing market pressures.

Republic First's struggles were evident for months, with half of its deposits being uninsured and its total equity standing at $96 million at the end of 2023, excluding $262 million of unrealized bond losses. The bank had been embroiled in a proxy fight with an investor group and had terminated a financial agreement due to failure to meet regulatory filing and shareholder meeting requirements.

Wall Street Journal Article