Fulton raises US$250m for Republic Bank takeover
Fulton Financial raised US$250m from a stock sale on Monday to help smooth its purchase of the failed Republic First Bank from the US Federal Deposit Insurance Corporation.
Piper Sandler and Bank of America priced the sale of 16.7m shares or about 10% of the Pennsylvania-based community bank at US$15.00, a 4% discount to last sale. The banks wall-crossed investors over the weekend to help shore up demand, a syndicate banker said.
In a strong market reaction to the acquisition and financing, Fulton shares surged 7.6% to US$16.80 in Monday's session.
The equity offering was not a requirement of the Republic acquisition, but was instead aimed at strengthening Fulton's balance sheet, Fulton CFO Beth Chivinski told analysts in a conference call.
Fulton agreed to buy US$6bn of assets (including US$2.9bn of loans and US$2bn of securities) and assume US$5.4bn of liabilities (including US$4bn of deposits) from Philadelphia-based Republic First Bank, better known as Republic Bank.
On the Friday before the offering, the FDIC seized Republic to protect depositors before auctioning the bank. The bank regulator said it expected the failure to cost its Deposit Insurance Fund US$667m, largely reflecting payments to Fulton to cover the negative asset value of Republic's balance sheet.
Republic is the fourth regional bank failure of note since March last year and followed the collapse last month of a deal to shore up the bank’s balance sheet.
Yet Republic is significantly smaller than the US$200bn-plus of assets held by SVB Financial and US$100bn-plus of assets of Signature Bank prior to their failures last year.
All these banks faced the similar problem of unrealised losses on bonds due to quickly rising interest rates and pressure caused by outflows of uninsured deposits.
Fulton expects the acquisition doubled its presence in Philadelphia, leaving it with US$8.6bn of deposits and improve its liquidity profile by reducing its loan-to-deposit ratio to 92% from 99%.
The bank is also modelling earnings accretion of 20% and expects to quickly earn back the modest initial dilution of its tangible book value per share (from US$12.37 to US$11.99).
Fulton also plans to sell Republic’s US$2bn securities portfolio to reduce assumed debt.
The acquired loan portfolio comprises 45% commercial real estate loans, 33% residential loans, 19% commercial loans and 3% consumer and home equity loans.