No worries … yet: Why N.J.’s regional banking execs feel optimistic that First Republic-like run won’t take place

New York City, USA - July 27, 2018: Facade of a bank branch of First Republic Bank on the street with people around in Manhattan, New York City, USA

There’s no denying that the banking sector has been on edge. And, after the sudden stock market plunge of regional bank First Republic, it looks like a cliff edge for institutions in the spotlight.

Tension is heightened as banks start to release more earnings reports that detail what their financial picture has been amid the sector’s turmoil. And central in that is finding out whether fears that customers were fleeing small banks for their bigger brethren were based in reality.

San Francisco-based First Republic’s late April dip was spurred on by a first-quarter earnings release that disclosed about half of its $176 billion in deposits were pulled out by customers. That sent the bank’s stock into a nosedive, only paused in moments by trading halts and talk of asset selloffs.

On the whole, early Federal Reserve data suggested that large banks appeared to gain deposits at the expense of smaller ones, but not to a degree that concerned industry commentators. But the biggest potential beneficiaries and the most ill-fated of the banking sector’s woes are yet undetermined.

As for how well New Jersey’s regional banks have preserved their own deposit bases — and how far afield they are from the colossal downturns of a bank such as First Republic — that’s something that only time, and earning reports, will reveal.

For Citizens Bank, which took on a slice of the New Jersey banking landscape with last year’s acquisition of Investors Bank, first-quarter earnings were only slightly below market estimates. The bank’s deposits were down from the quarter prior, but remained mostly intact.

Rebecca O’Connell. (File photos)

Rebecca O’Connell, the New York City metro market executive for Citizens, said its position remains strong as a diversified, relationship-driven bank that follows “disciplined capital allocations.”

“We had a solid performance on the back of a strong (fourth quarter of 2022),” she said. “Our client base remained stable.”

To the extent that clients have moved money around, O’Connell said, it’s not always happening to restart with competitor banks, but, instead, to diversify financial portfolios during a period of uncertainty.

There are those who feel it’s in their best interest to move banks. And regional banks are vying for those possible new customers.

“We’re seeing some potential benefit and opportunity to (bring in) additional clients and add value to them through this turmoil,” O’Connell said.

Mike Affuso.

Mike Affuso, CEO of the New Jersey Bankers Association, said that — as far as it’s been able to tell — there hasn’t been a massive runoff among New Jersey’s smaller banks.

“There was certainly talk and some anxiety that smaller bank customers would move toward larger institutions,” he said. “I don’t think that fear has manifested itself. But I’m going to know more over the coming weeks, as more earnings reports come out.”

Like everyone else, he’s waiting for more earnings calls to better substantiate that. It’s mostly just speculation until then.

From a strictly anecdotal perspective, as head of a trade group with an ear to the concerns of the state’s many-sized banks, Affuso said he’s detecting far less stress than there was a month ago.

“I don’t want to say it’s at all resolved,” he said. “But it’s moving in the right direction.”

Even with these fast-moving events in the banking sector, and the possibility of a recession always in play, New Jersey banks feel good about prospects for financial services in the Garden State.

“There’s tremendous opportunity in this region and in New Jersey specifically,” O’Connell said. “I personally remain very optimistic — as does the bank — about the opportunity in front of us.”