Major U.S. banks invested in AI and automation while pulling back on headcount as cost reductions remained a priority during the third quarter.

Bank of America, BNY Mellon, Citibank, Citizens Bank, Fifth Third, and JPMorgan Chase, all reported higher tech spend year over year. 

The $1.9 trillion BNY Mellon, for one, invested in automation and AI to increase efficiency and drive innovation, Chief Executive Robin Vince said during the bank’s Q3 earnings call last month.  

The bank’s investment in AI supports findings in a recent report from consulting firm Gartner that 61% of banking executives are increasing investments in AI or plan to do so in the next 12 months. 

Similarly, $2.4 trillion Bank of America identified potential AI applications within customer support, employee effectiveness and coding during Q3, according to its earnings report.

“We have an advantage in [AI]. We’ve been applying it for a number of years,” Chief Executive Brian Moynihan said during Bank of America’s recent earnings call.  

Q3 non-interest expenses: 

Shrinking workforce 

Several banks reduced headcount during Q3 to cut costs, including Fifth Third, PNC, and Wells Fargo. 

“Expense management at Fifth Third is a continuous process and not a program,” Chief Executive Timothy Spence said during Fifth Third Bank’s earnings call last month. “Since March of this year, full-time equivalent employee headcount is down 3.5%.” 

The $554 billion PNC reduced headcount 3.6% YoY to 58,967 and $1.6 trillion Wells Fargo cut headcount 5% YoY to 227,000, according to the banks’ earnings supplements. 

Headcount: 

Efficiency ratio 

While headcount shrunk, investment in automation and tech ticked up and so did some banks’ efficiency ratios. 

Efficiency ratio is a calculation of how much a bank spent as a percentage of how much revenue was brought in, according to the Federal Financial Institutions Examination Council’s website.

Efficiency Ratio:

In Q3, $1.7 trillion Citibank posted an efficiency ratio of 68.9%, up 1.8 percentage points YoY, while Fifth Third reported an efficiency ratio of 55%, up 1.3 percentage points YoY. PNC, which is trimming its workforce to invest funds into its tech stacks, posted a rising efficiency ratio at 62% compared to 59% in Q3 2022. 

Wells Fargo, on the other hand, saw the greatest drop in efficiency ratio — to 63% in Q3 from 73% in Q3 2022, according to the company’s Q3 earnings report.  

“You can see the impact of our efficiency initiatives is through lower headcount, which has declined for nine consecutive quarters and was down 6% from a year ago,” Chief Financial Officer Mike Santomassimo said during the bank’s earnings call last week.