These are tough times for banks, especially community banks.
That's the general refrain heard from many bank executives these days, as they confront a combination of economic and regulatory factors that are squeezing profits and tarnishing their image.
Margins are narrower, as extremely low short-term interest rates mean banks can't make as much money from taking in deposits and loaning it out.
Expenses are up because of enhanced oversight and compliance with new rules, which also limit how much banks can collect in fees. They also have to hold more capital in reserve.
"People are underestimating the impact of the recent regulatory environment on banks," said Rene Jones, chief financial officer at M&T Bank Corp., Buffalo's largest bank.
"The underlying trends in the bank are very strong. But there have been a significant amount of head winds for all banks."
Most banks are not suffering or losing money. They've managed to boost recent profits, but a big part of that has been from one-time gains or from setting aside less for loan losses or even releasing reserves.
Otherwise, banks are working that much harder to manage their balance sheets, tighten up on all other spending and generate new commercial loans in a sluggish economy where loan demand still remains somewhat slack.
"The industry, as well as the general economy, has certainly been through some economic shocks," said Beth Mooney, CEO of Cleveland-based KeyCorp. "Our stock valuation looks like we're an industry in crisis because of the sell-off in financials."
And executives don't expect it to get much better anytime soon -- not the best news for a regional banking center like Buffalo where 24,000 people work in the industry.
"It will be tough sledding for a while," said John R. Koelmel, CEO of Buffalo's First Niagara Financial Group. "If there's ever a time to keep one's eye on the longer term, this is it, because I see this being a real rough ride for the industry for the next couple of years. There isn't a whole lot anyone can load up into their gun to make hay."
The struggles of the banking industry aren't likely to win much sympathy, as banks have been blamed for causing the financial crisis and recession.
But banks are a key part of the economy, providing the capital needed for business and consumer spending needed to drive an economic recovery.
Yet bankers warn that the constraints they face will trickle down to customers, as they are forced to rein in lending, raise prices or reduce services.
"There's significant head winds out there," said David Nasca, CEO of Hamburg-based Evans Bancorp. "It's going to be a challenge going forward."
After years of go-go profits -- and accompanying compensation for executives -- the banking industry has seen a reversal of fortune over the past four years. Skyrocketing losses on mortgage and other loans, failures and forced mergers at major firms, and government bailouts of some of the world's biggest banks shook the industry to its core. While banks are generally back in the black, profits aren't what they were.
Adding to the financial losses are losses of reputation. Banks have been denounced for the lax or predatory lending practices that led to the financial meltdown.
They've been blasted for their aggressive foreclosures and failure to modify enough loans to keep borrowers in their homes. They've been criticized for not lending money to small businesses and consumers. And their much-vaunted lobbying machine has been weakened, as shown by their inability to water down recent laws and regulations.
That's a public relations nightmare for the entire industry, even though local bankers say that most of the problems were limited to a handful of the biggest companies, not the thousands of community banks.
"They look at all of us in a dramatically different way," Koelmel said. "Everyone seems determined to tie our hand and blame banks for everything."
A new federal agency, the Consumer Financial Protection Bureau, has vast authority to investigate a broad range of activities and companies, and to write and enforce stronger rules to protect the public. It just announced it will look at overdraft fees.
And newly confident state attorneys general are leading the charge in probing other practices. For example, the $26 billion national mortgage settlement was driven by states.
The result is sharply higher legal and compliance expenses for banks. Critics of the industry argue that the new requirements and burdens are good after years of lax enforcement, but many executives at smaller banks say it's excessive, especially for them.
Meanwhile, banks are being squeezed by lower revenues. New rules restrict how much banks can charge for overdraft fees on ATM withdrawals or debit payments.
The crackdown was long overdue, consumer advocates say.
The Federal Reserve, at the direction of Congress, has also capped how much banks can charge merchants for processing debit card transactions, cutting those fees nearly in half. Merchants had long protested what they called the banks' unreasonably high rates, and the Fed concluded the fees were far in excess of the costs banks incurred.
And when it comes to basic banking, the banks are battling to maintain the spread on their net interest income from taking deposits and making loans -- the core, traditional business of most banks. Record low interest rates -- below inflation -- and heavy competition are preventing banks from earning much more on loans than they're paying on deposits.
"That's going to be a difficult environment for folks to operate in," Nasca said. "An interest-rate environment that's low and somewhat flat is the worst in the world for banks."
That's already been a problem for a couple of years, since the Fed brought short-term rates as low as they can go in late 2008. But the Fed indicated last August that it plans to keep it that way for at least two more years, or until the economy recovers.
"For the Fed to come out and acknowledge we'll keep bouncing along the bottom until mid-2013, we are relatively throwing in the towel," Koelmel said.
Investors expected banks would struggle with lower revenues, and they have pummeled bank stocks, starting in August and September.
"The extent of legislation, regulation, the magnitude of political dysfunction, the Fed's moves and the overall economic malaise is just a huge weight on the industry," Koelmel said. "Investors are convinced that the industry can't make money."
So for now, many banks are lying low, riding out the turmoil and focusing on what they can control, such as reining in other expenses, managing their capital and slugging it out with each other for new customers and loans. And they're tightening their strategy, zeroing in on what they do best.
"This is banking the hard way, but it's also a time to have a clear strategy and a clear focus," Mooney said. "It's a time to stay true to your strategy."
"I think 2012 is going to be a tough year," said Salvatore Marranca, CEO of Cattaraugus County Bank in Little Valley, and chairman of the Independent Community Bankers of America. "It's time to tighten up the hatches, battening down and riding out the storm. It's not a time for taking risks."