US banks trimming head count to keep expenses under control

A number of banks have turned to layoffs to rein in costs amid tough market conditions.

In the second quarter, the banking industry posted a 0.5% quarter-over-quarter increase in full-time employees (FTEs), but several banks posted substantial sequential declines as they looked to ring-fence expenses and bring performance metrics in line with peers.

Expense saver

When companies look to cut expenses, head count is one of the first places they turn.

Among banks with more than $5 billion in assets, PacWest Bancorp posted the largest sequential decline in FTEs at 19.9%. The company was already working on a plan to reduce expenses, but that plan was sped up after it was caught in the crosshairs of the March bank failures and laid out a way to shrink to health.

"We absolutely need to accelerate the expense reduction plan. We had already started that. We've been looking at head count," President and CEO Paul Taylor said in April during the company's first-quarter earnings call.

The company has since announced a reverse merger with Banc of California Inc., and expense savings along with balance sheet reductions at the combined entity are a part of the deal rationale.

First Foundation Inc. also turned to layoffs as part of its strategy to rein in expenses. The Dallas-based company reduced staff in the first quarter through layoffs in January and March, and its head count further declined in the second quarter, down 8.6% sequentially — the sixth-largest drop among banks with more than $5 billion in assets.

"It's not something we wanted to do, but it's something that we needed to do in order to navigate our way through this situation. But it should be impactful," Vice Chairman, President and CEO Scott Kavanaugh said on the company's second-quarter earnings call.

The reductions, and the decision by the company's executives to forgo their 2023 bonuses, will help the company "weather the current lending environment," Kavanaugh said on the company's prior earnings call.

Strategic transformations lead to layoffs

A number of banks working on strategic transformations to improve their performance metrics saw large quarter-over-quarter and year-over-year declines in head count.

Philadelphia-based Republic First Bancorp Inc. is charting a new path under a new CEO after grappling with boardroom drama and multiple investor activism campaigns throughout 2022. Right-sizing costs is part of the company's plan to bring its profitability metrics more in line with peers, President and CEO Tom Geisel told S&P Global Market Intelligence in March.

Since then, the company announced it is exiting the mortgage origination business and reducing lending staff in New York. Republic First posted the second-largest sequential drop in FTEs among banks with more than $5 billion in assets at 15%.

Dallas-based Texas Capital Bancshares Inc. is also working through a strategic transformation to improve its performance. The bank reported a 7.3% decline in FTEs quarter over quarter, but that metric was up 2.2% year over year.

On the company's first-quarter earnings call, President and CEO Robert Holmes said the company ran a disciplined process over the last two years that led to "an outcome, not a predetermined reduction target" and made cuts as part of its transformation efforts.

"We don't talk about it in terms of percent reduction in head count because that implies a one-time save, and our transformation is permanent improvement in the operating efficiency," Holmes said. "This part of the transformation is meaningfully complete now and we have a permanently improved operating discipline."

Largest banks

All but five of the 20 largest US banks posted quarter-over-quarter declines in head count, though most of those declines were small. Conversely, all but six of the 20 largest US banks posted year-over-year increases in head count.

First Citizens BancShares Inc. saw the largest sequential decline among the 20 largest banks at 4.8%, also placing it as 10th on the list of banks above $5 billion in assets with the largest head count declines.

The company is currently working through a plan to save $650 million to $780 million in expenses by the end of 2024, and is "slightly ahead of the schedule" after back-office reductions in the quarter, executives said on the company's second-quarter earnings call Aug. 3.

First Citizens posted one of the largest year-over-year increases in head count thanks to its acquisition of Silicon Valley Bridge Bank NA, in which it retained all employees from the businesses it acquired, according to the March 27 deal call.