(Reuters) - Fulton Financial (NASDAQ:FULT)'s shares jumped on Monday after it bought the deposits and assets of Republic First from the Federal Deposit Insurance Corporation, in what is the first U.S. bank failure of 2024.
Regional banks have been struggling to retain deposits as customers seek the safety of larger 'too-big-to-fail' rivals, while higher interest rates have also diminished the value of their loan books due to increased unrealized losses.
Republic Bank's troubles included low liquidity, not filing annual reports detailing year-end financials with the U.S. SEC and being targeted by multiple activist investors since 2021.
The beleaguered lender, which had about $6 billion and $4 billion in total assets and deposits, respectively, was closed on Friday by the Pennsylvania Department of Banking and Securities. The FDIC was appointed its receiver.
The FDIC estimated the cost to the Deposit Insurance Fund related to the failure of Republic Bank would be $667 million.
Investors have been worried about a possible contagion in the sector since three prominent lenders - Silicon Valley Bank, First Republic and Signature Bank (OTC:SBNY) - collapsed in early 2023.
The failures reverberated across the global financial system, triggered a broad sell-off in banking stocks and invited tough regulatory scrutiny.
In February, Republic First disclosed that an investor group consisting of veteran businessman George Norcross, high-profile attorney Philip Norcross and former TD Bank executive Gregory Braca had terminated its planned $35 million funding in the troubled lender.
Regulators had reportedly been discussing a sale of the bank before the capital infusion deal was signed.
The Philadelphia-based bank cut jobs last year to reduce costs and exited its mortgage origination business. Its shares were delisted from the Nasdaq in August and now trade over the counter.
Fulton expects the deal will double its presence in the Philadelphia market. The lender's management is scheduled to hold an investor conference later in the day to discuss the deal.
Analysts at Jefferies said they expect the integration to be smooth and boost the bank's liquidity, even though this is the largest deal Fulton has undertaken post the global financial crisis.
Fulton's stock was last trading 11% higher at $17.31 before the bell in light volume. Through previous close, it had a market capitalization of $2.53 billion.
The KBW Regional Banking Index, a gauge of investor sentiment towards the broader industry, is down 10.5% so far this year.