Fulton Financial's acquisition of the now defunct Republic First Bancorp in Philadelphia isn't without risk.
Given the in-market nature of the transaction, there is significant branch overlap, not to mention Republic First's $54 million of investment office loans in Metropolitan New York, a market that has seen its share of challenges recently. And Republic First struggled financially in recent years, drawing the ire of activist investors. It was taken over by regulators on Friday with Fulton in Lancaster, Pennsylvania, acquiring substantially all of its assets and deposits.
That said, the upside potential is substantial. The $32.8 billion-asset Fulton is projecting 20% earnings-per-share accretion in 2025 as it taps Republic First's highly liquid investment portfolio to pay down higher-cost wholesale funding while adding tens of thousands of new retail customers and $2.9 billion of loans.
"Integrating and executing is paramount," Fulton Financial Chairman and CEO Curt Myers said Monday on a conference call with analysts. "While on an accelerated timeline, we believe execution risk is manageable."
According to Myers, Fulton "has some history" with Republic First, including due diligence conducted prior to
"That is a really valuable tool if they were actively doing due diligence several months ago," Lynyak, a partner at Dorsey and Whitney in Washington, D.C., added.
Republic First's takeover — which will result in transaction costs of about $30 million — "is squarely in line with our growth strategy to build market share in our existing footprint," Myers said. Indeed, the takeover "nearly doubles our presence across the Greater Philadelphia region. We now have a significantly more extensive network and provide products and services to about 60,000 more consumer customers and 11,000 more business partners across the region," Myers said.
Built into Fulton's accretion estimate is a 40% cost-save target. Myers said that no decisions have been made, though the company would evaluate possible branch closures and staff downsizing over the next 90 days. According to its most recent Federal Deposit Insurance Corp. call report, Republic First, whose bank subsidiary did business as Republic Bank, spent $135.1 million on noninterest expenses in 2023. Fulton aims to push annual operating expenses to $60 million.
Republic First's failure came after investor groups battled for nearly 30 months for control. During that span, two CEOs, Vernon Hill and Harry Madonna, Republic First's founder, were forced out. The company made two unsuccessful attempts to raise capital, which is never easy to accomplish from a position of weakness, Lynyak said. "Any time you say you need to raise capital, nobody wants to give it to you," he said. "There's no really good answer to the question."
The FDIC's decision to shutter Republic First came two months after one investor group, led by New Jersey insurance executive George Norcross and former TD Bank CEO Gregory Braca,
Philip Norcross, George Norcross' brother and a member of the Norcross-Braca group, blamed Republic First's board members for the company's demise. The group plans to continue pursuing litigation against Republic First's directors so they "will be held accountable for the massive losses to shareholders," Philip Norcross wrote in a statement to American Banker.
Republic First's failure, which was the first of 2024 and cost the FDIC Deposit Insurance Fund about $667 million, provided major gains for Fulton, including nearly $4.2 billion in deposits along with $2.9 billion in loans and leases. Fulton's deposits in Philadelphia, which it's
David Bishop, an analyst at Hovde, called Fulton "the logical, if not the most logical choice to acquire Republic First upon failure," in a research note Monday.
In another research note, Casey Haire, who covers Fulton for Jeffries, predicted a smooth integration process, given its proximity to and familiarity with Republic First.
Likewise, Lynyak predicted the liquidation process would present few challenges for the FDIC. "This is going to be an ordinary-course failure," Lynyak said. "It's very similar to the asset-and-liability problems the really big banks [that failed in spring 2023] had, but again it's only a $6 billion bank and the FDIC can do that with their eyes closed."
The conflict involving Republic First may have been notable for its length and harshness, but it was in no way unprecedented. "I've been doing bank regulatory and enforcement work for about 40 years," Lynyak said. "There's a lot of instances in which smaller-sized banks that are owned by families or by groups, they get into a kerfuffle and there's litigation of this sort going back and forth constantly. It's simply just not unusual to have that occur."
Even so, it resulted in millions of dollars in avoidable legal and consulting fees and may have cost the company a chance to avoid failure, according to Driver Management Managing Member Abbott Cooper, who
At that time, the company was likely worth $5 per share, Cooper stated in an email to American Banker. "The value that a bank can get in a sale is not constant," Cooper wrote. "Not only can the sale value decline quickly due to any number of factors, but the pool of willing buyers can also evaporate just as suddenly.
"So many banks think that there will always be buyers willing to pay a premium — that just isn't the case and bank boards should view this as a cautionary tale," Cooper added, who eventually exited his Republic First position, wrote.
Republic First did not disclose its legal expenses in the call reports it filed detailing 2022 and 2023 operations, though it did report spending $13.2 million on consulting and advisory fees.
