OceanFirst Financial in Red Bank, New Jersey, was already looking for new ways to curb costs coming into 2023, mindful of inflation and the Federal Reserve's monthslong campaign to
Then, late in the first quarter, runs on deposits quickened the failures of Silicon Valley Bank and
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Against that backdrop, OceanFirst Chairman and CEO Christopher Maher said the bank's efforts to rein in costs are more important than ever.
"Every time you add to that burden, you disadvantage the majority of the banks in the system," Maher said in an interview. "So we see our absolute level of expenses decreasing by the fourth quarter and into next year."
OceanFirst said its first-quarter operating expenses totaled $61.3 million, up about 6% from a year earlier.
The $13.6 billion-asset OceanFirst evaluated all of its internal processes, performed a series of benchmark studies and developed detailed plans to operate more efficiently. Maher didn't delve deeply into specifics but said the efforts would include expanding business lines poised for revenue growth while shrinking others. This could include staff reductions. The bank also intends to increase automation of internal processes and cut spending on outside consultants.
Such cost control initiatives are expected to mount this year, analysts say.
What's more, in the aftermath of the failures, analysts at Piper Sandler said banks are bound to pull back on lending to focus on deposit gathering and minimizing their credit loss risks. This could substantially limit the availability of credit and tilt the economy into a recession.
"Virtually all the banks in our coverage universe … reined in their loan growth guidance" for the current quarter, said Mark Fitzgibbon, Piper Sandler's head of research. "Based upon this dynamic alone, we believe that a credit crunch is building which will surely have negative implications for the economy as a whole."
Maher said banks will inevitably grow more conservative, but he expects OceanFirst and others to continue to actively lend, and he does not anticipate a severe recession.
"There is a little more pessimism today than is warranted," he said.
Still, a slower economy — and lighter lending activity — are likely, and these developments would intersect with margin pressure, necessitating expense reductions to maintain solid profitability. OceanFirst's net interest margin contracted 30 basis points during the first quarter to 3.34%.
Several other banks said during recent first-quarter earnings calls they are planning layoffs or already have scaled back staffing.
The $10 billion-asset Banc of California trimmed its staff by 3% in the first quarter. "This reduction will help us to effectively manage our expense levels, while also enabling us to reallocate some of the cost savings to areas we are investing in, such as our payments processing business," said Jared Wolff, president and CEO of the bank in Santa Ana, California.
Colony Bankcorp in Fitzgerald, Georgia, did not provide a specific percentage decrease, but the $3 billion-asset bank said it scaled back its headcount in the first quarter and plans further cuts.
"From a staffing perspective, we're down significantly" from the start of the year, Chief Accounting Officer Derek Shelnutt said. "We'll continue to see those numbers come down, both from attrition and through reduction in force. We've already implemented some of those reductions in the second quarter, particularly in our mortgage back office."
First Foundation in Dallas was among the most aggressive in the first quarter. The $13.6 billion-asset bank reduced its headcount by roughly 15%. President and CEO Scott Kavanaugh said the cuts were necessary to navigate weaker market conditions.
"We made this decision in the interest of our shareholders to help us weather the current lending environment," he said.
The bank's executive management team also will forgo cash bonuses this year to bolster "aggressive expense management efforts," Kavanaugh said.
