Republished with full copyright permissions from The San Francisco Press.

The recent closure of Republic First Bancorp, also known as Republic Bank, marks America’s first bank failure of the year. This event has drawn attention to the vulnerabilities that can arise from growth strategies in the banking sector, particularly in the face of changing market conditions such as rising interest rates. The ousting of CEO Vernon Hill, alongside the bank’s troubled history, prompts a critical examination of the decisions that led to its demise.

Republic First Bancorp’s troubled trajectory was not entirely unforeseen. The bank’s founder, Vernon Hill, had a controversial track record that raised red flags long before the recent events. His previous ventures at Commerce Bank and Britain’s Metro Bank were characterized by unorthodox practices, including the controversial hiring of his wife as a branch designer and a penchant for extravagant spending on branch infrastructure.

Hill’s unorthodox approach to management, including his pet-naming strategy and his publicized battles with regulatory authorities, reflected a lack of focus on the fundamental interests of shareholders. His unyielding determination to settle old scores and reclaim market share further compounded the bank’s risk exposure. The decision to mirror the success of Commerce Bank by emulating its branch-centric model ultimately proved to be unsustainable in the modern digital era, exacerbating the bank’s vulnerability to changing market dynamics.

The repercussions of these decisions became evident as Republic First Bancorp struggled to navigate the challenges posed by rising interest rates and the diminishing effectiveness of its branch-based business model. The bank’s heavy investments in fixed-rate securities during the Covid-19 pandemic backfired as interest rates rose, resulting in significant devaluation of its assets. Combined with the evolving consumer behavior that favored digital banking over physical branches, Republic First Bancorp found itself ill-equipped to adapt to the changing landscape.

While the closure of Republic First Bancorp has reverberated within the banking industry, there are broader implications that extend beyond its immediate consequences. The handover of its branches to Fulton Bank signals a significant shift, illustrating the interplay between individual bank failures and the wider industry dynamics.