After struggling for some time under the weight of high interest rates, Republic First Bancorp was shut down by the Federal Deposit Insurance Corporation (FDIC) last Friday and finally found another regional bank willing to take over: Pennsylvania's Fulton Financial Corp (FULT.O).

The bank is the first FDIC-insured institution to fail in the U.S. this year. The last bank to fail was Citizens Bank in Sac City, Iowa, in November. In a strong economy, only four to five banks fail each year on average. The banking industry is often seen as a barometer of the overall economy, and a bank failure could set off a chain reaction in the financial world.

The Federal Deposit Insurance Corporation (FDIC), which was appointed as the receiver, said on Friday that Fulton Bank, a unit of Fulton Financial Corp., will assume nearly all of its deposits and purchase all of its assets "to protect depositors." Republic First Bank's 32 branches in New Jersey, Pennsylvania and New York will reopen as Fulton Bank branches on Saturday or Monday.

Republic First was founded in 1988 and is smaller than several mid-sized banks that failed last year. As of January 31, 2024, its total assets were about $6 billion and total deposits were $4 billion. The FDIC estimates that its failure will cause losses to the deposit insurance fund of $667 million. Fulton said in a statement that in addition to deposits, Republic First Bank also has about $1.3 billion in borrowings and other liabilities.

The FDIC had been seeking a buyer for Republic First until 2023 but paused the process after the bank reached an agreement with investors to inject $35 million in cash. The agreement, intended to reassure shareholders about the bank's financial stability, fell apart earlier this year, and the FDIC subsequently restarted the sale process.

Fulton said the deal nearly doubles its presence in the Philadelphia market, with total company deposits of about $8.6 billion. “We are excited to double our presence in the region with this transaction,” said Curt Myers, Fulton chairman and CEO.

Market analysts said that as the Federal Reserve keeps interest rates at high levels for a longer period of time, the value of some bank assets has been weakened, including Republic First Bank. In addition, the downturn in the commercial real estate market, especially the office building market, has also made people worry that depositors may flee these financial institutions.

These economic conditions have heightened financial risks for regional and community banks like Republic First, which have large exposure to commercial real estate loans. As real estate values ​​decline, it becomes difficult to refinance loans, leaving the bank in a precarious financial position. In addition, the pandemic has had a disparate impact on various industries and has had a broader impact on the economy, creating a difficult operating environment for the bank.

However, Feddie Strickland, a bank analyst at Janney Montgomery Scott, said the collapse of Republic First Bank was likely an isolated incident and that the overall banking industry is stable. "I think the smaller banks are in good shape," Strickland said. "The bankruptcies we saw last year were really banks that had some specialization in their business. I think diversification is important."

Strickland called Fulton Bank, which took over Republic First's deposits, "a most boring bank" and called the commercial bank "prudent" and "well run." "Depositors should feel comfortable with Fulton," he added.

Steven Kelly, deputy director of research at the Yale School of Management’s Financial Stability Program, said: “In a sense, regulators are able to wind down a weak bank and sell it to a much more stable bank, which is what is supposed to happen... This helps preserve the value of the deposit franchise, thereby avoiding unrealized losses and bank runs.