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Jon Winick CEO in 7/24/20 American Banker

Banks sharpen focus on cost-cutting as revenue outlook dims

By Jim Dobbs July 24, 2020, 11:24 a.m. EDT

Banks large and small, resigned to the uncertainty of a coronavirus pandemic that is dimming
hopes for a 2020 economic recovery, are sharpening their collective focus on expenses, looking to
pare down branch networks, cut back consultant fees and reduce costs wherever they can to
offset hits to revenue and the potential for mounting credit losses.

Among the biggest banks, Wells Fargo said this month that it plans to carve out roughly $10
billion from annual costs — nearly a fifth of its expense base — with the effort expected to
involve cutting thousands of jobs, including layers of management, once the worst of the public
health crisis passes. The plan will span years, executives at the $1.9 trillion-asset company said,
though reviews are underway to assess redundant facilities and technology platforms, with jobs
cuts to follow.

“We’re trying to be very careful about making it clear that we are going forward and actively
going to start to take actions to reduce expenses,” President and CEO Charlie Scharf said on the
San Francisco company’s earnings call July 14. “We have layers at the company” that make it
“very, very inefficient. … We have duplicative platforms, duplicative processes across the
company.”

The $54 billion-asset Synovus Financial in Columbus, Ga., said that, while pandemic-related costs
such as bonuses to front-line staffers nudged its costs up modestly in the second quarter, it
expects expenses to fall in the second half of the year as it scales back spending on consultants
and other third-party partners. Like many other banks, it also continues to close branches to rein
in brick-and-mortar costs. The company closed six branches in the first half of 2020 and intends
to close another seven before the end of this year.

Executives said they had launched the cost-control effort before the pandemic. Now cutting
costs is more urgent.

“It’s been 130 days since the declaration of the national emergency on March 13. And the
consequences continue to weigh heavily on individuals, families, businesses, certainly our
economy overall,” Synovus Chairman and CEO Kessel Stelling Jr. said on the company’s July 21
earnings call. “No one knows when normal will return or what it will look like when it finally does.”

The virus continues to spread rapidly over swaths of the country, forcing some local governments
to pause economic reopening plans or even impose new restrictions that could draw out the recession caused by the pandemic. While improved from the spring, unemployment remains
historically high and bankers, based on earning call commentary, are bracing for a prolonged
slowdown that hinder loan growth and interest income this year.

“Anytime it gets difficult to generate revenue — and this could be very difficult — you have to
take a closer look at the expense side,” said Jon Winick, CEO of Clark Street Capital in Chicago.
“It’s not a pretty picture for employment in the banking industry.”

Winick said the social distancing measures necessitated by the pandemic have accelerated an
enduring trend toward digital banking and away from in-person transactions at branches. As
such, he said, he expects branch closings to lead the cost-cutting charge over the rest of 2020
and beyond.

He also said that, with large shares of their staffs working remotely for the first time, banks have
learned to manage a dispersed workforce and are now beginning to look at scaling back-office
space to cut costs.

The $504 billion-asset Truist Financial in Charlotte, N.C., for example, has formed an internal task
force to review its corporate real estate with a goal of eliminating office space it no longer needs.

In addition to fewer branches, increased telecommuting could take hold after this crisis, providing
opportunities to save not just on space but also utilities, furniture and parking.

Already, banks are announcing new plans to close more physical locations.

Five Star Bank in Warsaw, N.Y., is planning to shrink its workforce by 6% and its branch network
by 10% as more customers bank remotely. The $4 billion-asset bank unit of Financial Institutions
said it plans to close six of its 53 branches and consolidate those operations into five existing
offices.

Simmons First National in Pine Bluff, Ark., said in July it is planning to shutter 23 branches and a
loan production office in the fourth quarter after closing 11 branches in June. Combined, the
closings should save the $21.9 billion-asset company more than $9 million a year.

Great Southern Bancorp in Springfield, Mo., said during its earnings call this month that it hired a
consultant to review the $5.6 billion-asset company’s branch network. “We fully understand …
that our industry is evolving, and the traditional banking center is a part of that evolution,” Kelly
Polonus, Great Southern’s marketing director, said on the call.

Several other banking companies disclosed plans to close branches before reporting secondquarter
results, including CB Financial Services in Carmichaels, Pa., Mercantile Bank in Grand
Rapids, Mich., and Nicolet Bankshares in Green Bay, Wis.

The $19.7 billion-asset Atlantic Union Bancshares in Richmond, Va., said it plans to close 14
branches, or about a tenth of its locations, in mid-September. It also intends to reduce its
headcount by about 6% from its March staffing levels, or roughly 125 positions. The latter moves
follow a hiring freeze put in place in March.

“I’ve told our team that the current normal is not the new normal. However, we think the next
normal post-COVID-19 will be different still, and we must adjust now for that coming reality and
not wait for it to arrive,” Atlantic Union CEO John Asbury said during a Thursday earnings call.

When a recovery eventually takes hold and buyers can better assess the credit quality of sellers,
more banks are likely to pursue mergers and acquisitions to further cut costs.

The $83 billion-asset First Horizon National in Memphis, Tenn., for one, said it has no immediate
M&A plans, but Chairman and CEO Bryan Jordan said he expects to see more banks weigh deals similar to First Horizon’s just-completed merger with Iberiabank to improve efficiency and reduce
costs. The First Horizon-Iberia deal is expected to yield $170 million in annual expense savings —
nearly a tenth of the companies’ pre-merger operating costs.

“The efficiencies you get with scale are only going to be more important,” Jordan said in an
interview.

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