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Republic First Bank Seized With $1.7B Of CRE Loans On Its Books

Republic First Bank, which had $1.7B in commercial real estate and construction loans on its books, was taken over by regulators and sold this weekend.

A Manhattan branch of Republic Bank (Republic First Bank) in 2017.

The Philadelphia-based bank was shut down by the Pennsylvania Department of Banking and Securities on Friday, the first regional bank failure this year. It had $6B in total assets.

Fulton Financial bought its deposits and assets over the weekend in a regulator-engineered deal, Reuters reported. Fulton took the reins on $2.9B in loans total.

All 32 Republic First Bank branches in New Jersey, Pennsylvania and New York reopened as branches of Fulton Bank on Saturday, according to the Federal Deposit Insurance Corp., doubling Fulton’s presence in the Philadelphia market.

Republic First had bled $42M over the first quarter of 2024, according to the last earnings call held.

Last year’s cascade of regional bank failures was linked to commercial real estate, and losses from loans to property have dragged down bank balance sheets of all sizes. Republic First did not escape those issues and had been moving away from lending to the industry for the last few years.

A restructuring led to the firm planning to “originate fewer commercial real estate loans in an effort to reduce our credit concentrations in that particular category,” the bank said in its annual report filed in 2022 for the year ended 2021, which is the last annual report it publicly filed.

The bank was delisted from NASDAQ last year following a few years of failure to file annual and other financial statements.

Commercial real estate made up less than 30% of Republic First’s portfolio at the end of Q1 2023, according to a July presentation to investors outlining how the bank would reposition and reduce its balance sheet.

It had $895M of CRE loans on its books, plus $304M in construction and land development loans and $570M of owner-occupied real estate loans.  

The investor presentation also laid bare the drama happening internally. Stakeholders had long accused the firm of focusing on expansion at the cost of its shareholders, embroiling the bank in a proxy battle. Republic First has had three CEOs in the last three years, and the presentation repeatedly referred to mistakes made by previous leadership, including “specializing in jumbo mortgage products with aggressive rates, which had higher risk and lower risk-adjusted rates of return than other asset classes.”

Loans for residential made up $992M of its loan portfolio midway through last year. 

The FDIC seizure was not unexpected. An auditor flagged material weaknesses in bank controls in 2022, and the FDIC had initiated proceedings to take the bank over late last year.

Executives at Republic First had tried to negotiate an injection of $35M to prevent failure, which stalled action by the FDIC, but that funding fell through, according to The Wall Street Journal.

Feddie Strickland, a bank analyst at Janney Montgomery Scott, told The New York Times that the bank’s failure is not necessarily indicative of pressure across small, regional banks.

“I think small banks are in good shape,” Strickland said. “Some of the failures we saw last year were really banks with a certain specialization. I think there’s an importance of being diversified.”

The cost of the bank’s closure to the FDIC's insurance fund will amount to about $667M, its site shows.