Republic First Bancorp (FRBK) May Be Ready for Fresh Start

It has not been an easy stretch for Philadelphia bank Republic First Bancorp (FRBK) as they have seen their stock collapse more than 50% since the market-wide rally began in March of 2009. Other small regional banks and financial institutions have seen their businesses and stocks improve greatly over this stretch, but Republic continues to lag. So, it is not surprising that the company has recently introduced new executives at top management positions of chief risk officer and president/COO in an effort to turn things around. Just today, they announced another piece of their plan to “transition Republic First Bank into the Philadelphia area’s premier retail bank,” said CEO Harry Madonna. The company confirmed they commenced an underwritten public offering of up to $30 million of common stock.

In the press release, the company claims they will use the newly raised capital “for general corporate purposes, including implementing the bank’s retail and rebranding strategies, and improving its branches and adding branch locations.”  Clearly, this offering would be highly dilutive to current shareholders as the current market cap is a shade under $30 million after the stock’s horrendous performance. FRBK is trading down only 13 cents, or less than 5%, on the news, which is a bit surprising as it may double the shares outstanding if it draws enough interest. Judging by the latest data from Thomson Financial, it may be difficult to get some institutions interested in this offering. The percentage change in institutional shares held fell nearly 55% in just the last quarter as some have clearly given up on this poor performer.

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At Ockham, we have recently upgraded FRBK to “fairly valued” from “overvalued” because the price had declined so far that we believe it may be oversold. However, we are never pleased by such a large dilution, particularly in a stock that has been beaten down so far, as it may represent a last resort for raising capital. There are two ways to see this sort of a turnaround effort. For optimists, they are finally taking the drastic steps necessary to go in the right direction, or pessimistically, things have gotten so bad at FRBK that they need to just try and start fresh. To be fair, we have not done a deep enough look into their balance sheet to know what the answer is, but clearly, the market doesn’t believe the stated book value per share of $6.11. We would err on the side of caution for this stock as dilution may lead to further downward pressure before things realistically get better.