Republic First leaders at odds over bank's next strategic move

After one of the most contentious proxy battles in recent memory, Republic First may go on the auction block. But its stakeholders aren't all on board with the idea.

The $5.8 billion-asset Philadelphia-based company announced last week that it was initiating a strategic review "in light of inquiries by multiple parties expressing interest in one or more potential strategic transactions."

Abbott Cooper, founder and managing member of Driver Management in New York, led one of the two investor groups that challenged former chairman and CEO Vernon Hill. Cooper said Republic First, which operates 34 branches in New York, metropolitan and Southern New Jersey, "has a really attractive footprint and its credit is pristine."

Cooper, whose group owns more than 391,000 Republic First shares, said he was delighted by last week's announcement.  But leaders of the other investor group were less pleased with news of Republic First's strategic review, stating in a letter that "a distressed fire sale" of the company is unlikely to attract a worthwhile offer. 

"We believe that a financially attractive proposal from a strategic acquirer is unlikely given the financial position of the company and continue to believe a strategic proposal along the lines we have laid in out in prior communications is the better alternative to pursue for the benefit of the shareholders," George Norcross, Philip Norcross and Gregory Braca wrote Friday in a letter to Republic First's board. 

The Norcross-Braca group urged the board to appoint Braca, former president and CEO of TD Bank's U.S. subsidiary, as CEO of Republic First to "fix its business model," describing him as "one of the leading bankers in the country today who is intimately familiar" with the bank's markets in Philadelphia, New York and New Jersey. 

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George Norcross is a prominent New Jersey insurance executive. Philip, his brother, is managing shareholder and CEO at the Parker McKay law firm in Mt. Laurel, New Jersey. The Norcross-Braca group owns 675,000 shares of Republic First stock, about 9.9% of the company.

Securities portfolio could be stumbling block

In their letter, Braca and the Norcross brothers singled out Republic First's securities portfolio as a likely Achilles heel, given the decline in value of banks' long-term investments, many of which were acquired during the COVID pandemic, as interest rates have risen. 

According to a report released in June by the Federal Reserve Bank of Kansas City, 90% of community banks reported unrealized securities losses after the end of the first quarter. Losses in Republic First's $2.7 billion securities portfolio could be as high as $200 million, according to the Norcross-Braca group. 

Cooper, however, said securities issues would matter less if Republic First's suitors included "a much larger bank" with the balance-sheet capacity to absorb available-for-sale securities losses.  

There is no question banks have shown interest in buying into Philadelphia, and Republic First is one of the largest remaining community banks in the market. In July, the $25.3 billion-asset Fulton Financial in Lancaster, Pennsylvania, paid $142 million in cash and stock for the $940 million-asset Prudential Bank, which operated 10 Philadelphia-area branches. Similarly, the $20.7 billion-asset WSFS Financial Corp. in Wilmington, Delaware, completed a $976 million all-stock deal for $5.4 million-asset Bryn Mawr Trust, one of Philadelphia's oldest banks, in January. 

In a regulatory filing Thursday, Republic First disclosed that its board has established a strategic review committee. The company has also hired the New York-based investment banking firm Keefe, Bruyette & Woods to help evaluate possible transactions, as well as alternative strategies.  

A spokesman did not respond to a request for comment. 

Hill, who stepped down in July after 17 tumultuous months as Republic First's CEO, did not respond to a request for comment. 

Republic First had appointed Hill as chairman in December 2016. Hill's retail-oriented strategy, which involved significantly expanding the company's physical footprint at a time when most competitors were downsizing their branch networks, succeeded in gathering deposits, which more than tripled between 2017 and June 30. 

But critics, beginning with Cooper and Driver in November 2021, claimed Republic First wasn't profitable enough to support the costs associated with an expanding branch network. Cooper urged the company to consider strategic alternatives, starting with replacing Hill. A second activist investor group, the Norcross-Braca alliance, declared its opposition to Hill in February. 

Initially, Hill seemed secure since he could count on support from three colleagues on the company's eight-member board. However, the death of director Theodore Flocco in May broke the deadlock and led to Hill's eventual departure — though not without two months of bitter wrangling in the courts and media. Hill's fate was sealed after a federal appeals court reversed a district court judge's decision to appoint a prominent Philadelphia attorney as Republic First's custodian, paving the way for Republic First to appoint a successor to Flocco. The company appointed founder and former chairman and CEO Harry Madonna to replace Hill and serve as interim CEO.

A sale would settle several thorny problems for Republic First. 

During the long-running proxy fight, the company failed to file its annual report for 2021 or quarterly reports for the operating periods ending March 31 and June 30, imperiling its listing on Nasdaq. Republic First has also yet to hold an annual meeting for 2022.