Smaller banks take a turn swinging the ax

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Small and midsize banks, much like their larger competitors, are cutting jobs to address margin pressure and to get ahead of a slowing economy.

Headcount at banks with $10 billion or less in assets fell by 2% in the first half of this year, with a net loss of 9,100 jobs, according to data compiled by the Federal Deposit Insurance Corp. The view is that more jobs could be shed in coming months.

“In the environment that we’re in," cutting costs is "the only lever we can pull, in some respects, to help the bottom line,” Kevin Cummings, chairman and CEO of Investors Bancorp in Short Hills, N.J., said in a recent interview. “We’ve had a sense of urgency. We’ve been focused on it significantly.”

The $26.7 billion-asset Investors, for instance, eliminated its assistant branch manager position from its retail branches during the third quarter. While many of those managers were promoted to fill vacant branch manager posts and others were transferred to administrative positions, the effort still took 40 people off the payroll.

“You try to do this as humanely as possible, but you also have to manage for the earnings of the company,” Cummings said, adding that the cuts will start to boost the bottom line this quarter.

Cost cutting “is an ongoing process,” he added. “It’s not a one and done … and we’re not alone. Almost all the banks are trying very hard to manage costs more effectively.”

While bigger banks garner more headlines with large headcount reductions, smaller lenders are also making cuts, often by eliminating a handful of positions. Others are in the process of evaluating where to pare back, industry experts said.

“The banks already have been looking to rightsize their branch networks and staffing and reinvest savings in technology,” said Kevin Fitzsimmons, an analyst at D.A. Davidson. “It’s a very difficult rate and yield curve environment, so you’re seeing even more scrutiny of expenses.”

First Foundation in Irvine, Calif., Sterling Bancorp in Montebello, N.Y., and HomeStreet in Seattle are among the other small banks that have disclosed job cuts in recent weeks.

At the $6.8 billion-asset HomeStreet, headcount is down 40% from a year earlier. While roughly 700 job cuts were tied to the June sale of its home loan centers, the company is trimming elsewhere. The number of full-time equivalent employees fell by more than 7% during the third quarter, and more layoffs are likely.

“We expect further reductions as we execute on the suggested changes in our operations being made by our efficiency consultants,” HomeStreet President and CEO Mark Mason said during the company’s recent earnings call.

HomeStreet is, among other cost-cutting endeavors, eliminating layers of management, consolidating jobs with similar functions and generally adjusting staffing down to reflect a slower growth plan.

The timing of future expense reductions will vary depending upon the nature of the expense, although a meaningful amount is expected to be realized in early 2020,” Mason said. “We expect these expense savings to be primarily centered in continued decreases in salaries over the near term.”

HomeStreet isn’t the only bank looking to slash salary expense.

Overall salary and employee benefits expenses and banks with $10 billion or less in assets fell by 0.4% in the first half of this year, to $11.5 billion. Though some of the decline reflects a fewer banks due to consolidation, cost cutting is also a key factor.

Midsize banks have also been cost-conscious.

The $30 billion-asset Sterling said it is trimming headcount and costs in its branches as part of an effort to boost profitability and generate savings to reinvest in technology, risk management and commercial lending.

Sterling has closed a tenth of its branches in recent months, and it reduced net employment by 131 full-time positions during the third quarter, executives said during a third-quarter earnings call.

The company expects to close at least eight more branches next year, while cutting more jobs.

“We continue to aggressively reduce our financial center network and staffing,” Sterling President and CEO Jack Kopnisky said during the earnings call.

Other banks are more willing to get rid of a position after an employee leaves.

“We're keeping controls on our costs and making sure that any hires we [make] are substantiated and justified,” John Michel, chief financial officer at First Foundation, said during his company’s quarterly call.

Compensation and benefits costs at First Foundation fell modestly in the third quarter from a year earlier even though revenue increased by 4%.

There are also instances where companies are redistributing duties after top officers step down, generating substantial savings on compensation and, potentially, executive recruiting.

Western Alliance Bancorp. in Phoenix said on Nov. 1 that it would not hire a replacement for James Haught, who recently resigned as president and chief operating officer. Those duties were largely divided between Kenneth Vecchione, the $26.3 billion-asset company’s CEO, and Tim Booth, a division president who was named COO.

To be sure, not all small and midsize banks are cutting jobs.

Some bankers on a recent panel at the American Bankers Association’s annual conference said they were still having staffing challenges, given low unemployment in their markets.

The pace of future cuts will be contingent on the strength of the economy and the status of credit quality, industry observers said.

“For now, though, credit quality and macro conditions overall are still generally good,” said Brad Milsaps, an analyst at Sandler O’Neill.

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