It's safe to say that bankers are sick and tired of cost-cutting.
They have had little recourse except to chop expenses after years of rock-bottom interest rates cut into revenue and profits. Efficiency ratios improved across the board in the third quarter from a year earlier, underscoring the point.
Look for more of the same news over the next few weeks, when banks report fourth-quarter results starting with JPMorgan Chase and Wells Fargo on Wednesday.
But many bankers are ready to move past expense cuts and start putting money back into their businesses.
"Our mental attitude is, you can't be a successful bank by just trying to save on expenses," Michael Devlin, chief executive of the $1.1 billion-asset Cape Bancorp in Cape May Court House, N.J., said in an interview. "It was an important tool during the downturn, but the board and management has decided we need to get beyond that type of thing."
Plenty of banks are already doing this, as consulting firms like KPMG have stressed the importance of investing in technology rather than incessantly cutting costs. The $38 billion-asset First Niagara Financial Group, in Buffalo, N.Y., is spending up to $250 million to upgrade its technology and make other improvements to its systems through 2018.
Some institutions are boosting spending, not only to improve technology for existing business, but also to expand into entirely new areas, such as payments, said David Brasfield, U.S. region director at banking-software company Temenos.
"They're looking at new technology and how they can get ahead of the curve," Brasfield said.
However, the era of cost-cutting is far from over.
Figures reported last quarter show how fervently banks have been attacking costs. Banks with more than $10 billion in assets were the most efficient, with the group's average efficiency ratio falling 258 basis points to 60.8% at Sept. 30.
But some have not met their stated goals.
The $187 billion-asset BB&T in Winston-Salem, N.C., had said it wanted to reduce its efficiency ratio to 56% by the end of 2014. However, the ratio stood at 59.7% at Sept. 30, and the persistence of certain costs has frustrated BB&T's CEO, Kelly King.
"We just want to dislodge ourselves a little bit from being so exact" in estimating future efficiency ratios, King said during an Oct. 16 conference call.
The $4.2 billion-asset Hanmi Financial in Los Angeles also expects to continue an expense-cutting program through the end of the first quarter, CEO C.G. Kum said during a Nov. 7 conference call. The program has included closing branches, eliminating staff, selling an insurance subsidiary and converting to a new computer system.
"We continue to make progress on our ongoing initiatives to increase operating efficiency and reduce expenses," Kum said.
Other banks are juggling the needs to cut costs and beef up lending teams. The $2.4 billion-asset Seacoast Banking Corp. of Florida in Stuart wants to lower its efficiency ratio from its current level in the mid-80s, to the mid-to-high 60s. But there is a need to add new customers in the growing areas of Seacoast's market, and not lose those customers to competitors, CEO Dennis Hudson said during an Oct. 28 conference call.
"We are working hard, not just looking at expense cuts, but it's an important period right now for us to be investing for the growth that is now occurring in our markets," Hudson said.
Expanding a bank's customer base typically means hiring new loan officers, which Kessel Stelling, chairman and CEO at the $27 billion-asset Synovus Financial in Columbus, Ga., is doing.
"We know there will be some pressure on the expense side," Stelling said during an Oct. 21 conference call. "Those types of expenses are the ones you want to incur, because they certainly have a revenue lift. We are in the market for high-performance bankers [and] that will continue into 2015."
Bumps in the road continue to plague banks, especially repeated costs tied to litigation and investigations. The $183 billion-asset SunTrust Banks in Atlanta said last week that it will record a $145 million provision in the fourth quarter related to legal expenses.
Some analysts believe, however, that banks are getting near the end of elevated legal expenses.
"While litigation and problem-asset-servicing costs remain high, we believe the apex of these expenses are in the rearview mirror," Jeffery Harte, an analyst at Sandler O'Neill, wrote in a Jan. 2 report.
Even when legal costs diminish, banks will continue to be faced with the pressure of competing with rivals, adding deposits and loans, and expanding into new markets when historic bases of strength grow weaker, Cape Bancorp's Devlin said.
"You can't stand still," Devlin said. "You have to expand the franchise."