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Bank Failure Watch 2024: Republic First

On Friday, April 26th 2024, Fulton Bank N.A. assumed “substantially all” deposits of Republic First Bank, a Philadelphia based bank with approximately $4 billion in deposits and $6 billion in total assets. While smaller than the noteworthy banking collapses of spring 2023 – this development signals ongoing concerns within regional banking.

The bank operated 32 branches, all of which will reopen Monday, April 29th 2024 as Fulton Bank branches. The estimated impact to the Deposit Insurance Fund (DIF) by this failure is $667 million. 

While many news outlets and experts have identified contributing factors to this failure, there’s one thing most are missing: when banks specialize in one area (as is often done for them to be competitive) they are at a higher risk of failure. This is because their loan portfolio and/or deposit base isn’t diverse enough to cover a systemic issue in their sector of specialization. Specialization seems to be a contributing factor to the Republic First failure, as the bank was heavily invested in retail jumbo mortgages – and reported declining value of this portfolio to investors last year. 

Regional Bank Challenges

There are a variety of factors at play impacting regional banks, who because of their smaller deposit base can feel the brunt of banking industry shifts and changes. 

One of the largest issues for these banks is the interest rate environment. Higher rates mean that while banks are earning more money on new loans, they are also paying higher rates for the deposits that fund those loans. Additionally, older loans with lower rates do not generate as much income, so banks must shore up their deposit base even further as a result.

Secondarily, many regional banks have significant commercial real estate (CRE) investment with sizable non-performing loan portfolios – these are CRE assets that do not generate income. Banks with $1 – $4.9 billion of assets have roughly $957 million of non-performing CRE non-owner loans, and banks with $5 – $49 billion of assets have over $1.8 billion of non-performing CRE non-owner loans. 

In basic terms, this means smaller banks have significant amounts of “bad” commercial real estate loans that are not home mortgages. These banks will be forced to sell these CRE assets (often at a loss) to recoup expenses and are often not made whole on their original loan. 

Lastly, retail depositors are leaving smaller regional banks in significant numbers – and these deposits provide the most stability to these banks. These vital deposits are often also the lowest cost deposits for banks. 

What Depositors Need to Know  

In our 2023 Depositor Priorities Survey we reported that over 55% of survey respondents reported concerns about the future when it comes to bank safety and soundness – and it’s clear they have reason to be concerned. Federal Reserve Chair Jerome Powell agrees – stating “there will be bank failures” in front of The Senate Banking Committee in March

As a depositor, it’s vital that you assess and understand your bank’s safety and soundness, particularly if you hold substantial sums in a single bank. It’s important to remember, in the event of a bank failure deposits will only be covered up to $250,000 per tax ID per institution

If you’re concerned about the safety of your deposits, we can help.  Contact Ampersand to get started.

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