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Understanding Republic First Bank’s Collapse: An Isolated Incident in the Financial Sector

By Jamie Card, on June 3rd, 2024

The Banking Crisis that first surfaced in March 2023 was not the triggering factor in the ultimate closure of Republic First Bank. However, a review of the events that occurred beginning in March 2023 through its closure in April 2024, are helpful for investors in the financial services sector to recognize why this is clearly a one-off event rather than a pervasive issue within the industry as a whole.

The FDIC published the following: On Friday, April 26, 2024, Republic First Bank dba Republic Bank (“Republic Bank”) was closed by the Pennsylvania Department of Banking and Securities. The Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed. Fulton Bank, National Association (N.A.), Lancaster, PA, assumed substantially all deposit accounts and substantially all the assets. All shares of stock were owned by the holding company, which was not involved in this transaction.

Timeline of Key Events

Clearly, the events of March 2023 were impactful to the Company as it restricted capital markets and increased the scrutiny on the industry as a whole.

However, Republic First Bank was on its path of decline well before the Financial Crisis that occurred in March 2023.  2022 was riddled with in-fighting amongst the C-suite and its Board as well as multiple activist investor campaigns. Through 2022, their results of operations and key efficiency metrics were well below those of peers. Significantly impactful to this was their “long-dated securities portfolio.” The unrealized losses present in their available-for-sale (AFS) investment portfolio were significant in nature and more importantly, their held-to-maturity investment portfolio was almost twice as large as their AFS (the losses of which are not recognized on the balance sheet but significant to the overall value of the Company by investors or prospective buyers). The Company commenced a strategic review process in September 2022 that prioritized finding a new CEO and CFO as well as exploring strategic partnerships or capital opportunities that could help the Company achieve its goals.

Looking back over the year from March 2023 to April 2024, the following key events demonstrate why Republic Bank was an institution plagued by issues isolated to their institution in particular that led to their demise versus the financial services industry as whole.

March 2023

  • Republic First Bancorp, Inc. (the “Company”) entered into a Securities Purchase Agreement with “Castle Creek”, “Castle Creek Co-Investors” and “CPV”, pursuant to which the Company agreed to sell shares of the Company’s common stock, and shares of a new series of Series B convertible preferred stock, and issue to Castle Creek a warrant to purchase 1,300,000 of Series B Preferred Stock or Non-Voting Common Stock in a Private Place ($90.725 million in the aggregate). This was negotiated by the Strategic Review Committee of the Company’s BOD, which was comprised of directors not affiliated with CPV or current or former members management.
  • Mid-March 2023, the Company filed their September 30, 2022 Form 10-Q inclusive of correction of immaterial errors in its Form 10-Qs for March 31, 2022 and June 30, 2022 for ACL on loans. Management disclosed that they identified additional material weaknesses relating to effective internal controls over the measure of the Allowance for Credit Losses (these were in addition to previously disclosed material weaknesses in controls).  This Form 10-Q continued to disclose the status of ongoing lawsuits that commenced in 2022 noting that these could have a material effect on the financial condition or results of operations of the Company.
  • The Company received formal notice from Nasdaq, that they met Filing Requirements for the periods through September 30, 2022, however they were still not in compliance will all listing rules. The noticed indicated that should the Company not present a plan to comply and meet that timeline, the Company’s stock would be suspended from trading and delisted from Nasdaq.

May 2023

  • The Company issued a press release announcing its results of operations and financial condition at and for the period ended March 31, 2023. This press release also noted that the Board of Directors of the Company would suspend the payment of dividends on its 7% Perpetual Non-Cumulative, Convertible Preferred Stock, Series A and to defer payments of interest on its two issuances of outstanding Floating Rate Junior Subordinated Debt Securities Due 2037.
  • The Company disclosed several instances of continued noncompliance with Nasdaq listing requirements.
  • The Company announced its strategy to focus on core services and markets.
  • The Company announced a pause on the search for additional accredited advisors to participate in its capital raise until market conditions stabilize.
  • The Company elected an independent Chairman of the Company’s Board of Directors.
  • An institutional investor converted 255,742 shares of Series A Preferred Stock into 2,131,183 shares of Common Stock. This had no impact on the Company’s total capital.

June 2023

  • The Company announced that it is taking additional steps to enhance operational efficiency within its Retail Banking Division.
  • The same institutional investor converted 511,483 shares of Series A Preferred Stock into 4,262,358 shares of Common Stock. This had no impact on the Company’s total capital.
  • Nasdaq granted additional extended filing deadlines for the Company’s 2022 annual meeting and 2022 audited financial statements.
  • The Company appointed a new EVP/General Counsel.
  • The Company announced its 2022 annual meeting date and record date.

July 2023

  • The Company announced the termination of the Securities Purchase Agreement announced in March 2023 with Castle Creek.
  • Nasdaq granted additional extended filing deadlines for the Company’s 2022 audited financial statements.
  • The Company appointed a new EVP/Chief People Officer.

August 2023

  • The Company continues to violate filing requirements of Nasdaq.
  • Nasdaq delisted the Company and suspended the trading of its stock. The Company anticipates that its stock will commence trading on OTC Pink marketplace and OTC Expert Market.
September 2023
  • The Company continues to engage in active discussions with other parties, including Norcross-Braca Group, to assess potential strategic opportunities for the Company that may include a capital raise or other transaction. (Norcross-Braca Group has suspended all litigation against the Company while the parties continue to focus on these ongoing discussions.)
  • The Company announced that it will delay its 2022 annual meeting.
  • The Company entered a non-binding Letter of Intent with the Norcross-Braca Group with respect to a potential investment in the Company.

October 2023

  • The Company entered into a Securities Purchase Agreement with the Norcross-Braca Group to make a $35 million investment in the Company, subject to regulatory approval and other conditions.

November 2023

  • Under the terms of the Securities Purchase Agreement, the Company agreed to sell shares of the Company’s common stock, par value $0.01 per share, at a purchase price of $0.05 per share and shares of a newly issued series of Series B convertible perpetual preferred stock, par value $0.01 per share, at a purchase price of $50,00 per share. The Purchasers agreed, in the aggregate, to purchase $435,750 worth of Common Stock and $34,564,250 worth of Series B Preferred Stock.  The Purchasers will also receive, in the aggregate, warrants to purchase 105,000 shares of Series B Preferred Stock, which shall be exercisable any time following the occurrence of a Triggering Event (as defined), but no later than seven years after the Warrant is issued, at an exercise price equal to $0.01 per share, upon the occurrence of certain events.

January 2024

  • The Company filed a preliminary proxy statement with the SEC in connection with a special meeting of shareholders related to matters required in connection with the previously announced Securities Purchase Agreement.

February 2024

  • The Company dismissed their independent public accounting Firm (that issued their 2021 independent audit report but never issued their 2022 independent audit report) and engaged a new independent public accounting Firm to audit their 2022, 2023 and 2024 financial statements.
  • The Company reported that the Purchasers elected to terminate the Securities Purchase Agreement and that the transaction will not be consummated. The Company noted in this same filing that their strategic plan had been designed to be executed even without this investment, that the bank is adequately capitalized, that they have a strong deposit base and ample liquidity.

The key indicators, from this snapshot of time alone, as it relates to the Company pointing to the fact that this was truly a one off and not a pervasive industry issue, include:

  • It is not completely unusual in nature for a Company to miss a mandatory filing deadline – things happen. However, is it unusual and infrequent in nature, for a Company to continually miss mandatory filing requirements.
  • For a Company to be unable to produce and an independent accountant to be unable to opine on the financial statements of a public company, there must be significant accounting and reporting deficiencies. Accounting and reporting deficiencies occur even with the best people in place and the best controls in place, however, it is unusual to get to the point where financial statements are not produced or unable to be audited.
  • Complex securities agreements whereby prospective investors are significant benefactors are a key sign of a troubled institution.

Given the fact that the PA Department of Banking and Securities successfully took possession of the Bank, appointed the FDIC as receiver and a purchase and assumption agreement with a well-established-reputable bank to acquire the deposits and substantially all the assets of the Bank were executed before the end of April 2024, seems to indicate that the regulators were properly monitoring and regulating this institution. Although it was a negative outcome for the Bank, the regulatory oversight seemed to work in this case.

If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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Written By

Jamie Card April 2020
Jamie Card
Industry Leader, Financial Services

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