The Nolan Company recently completed an analysis of a six-year trend in bank productivity and personnel cost. In our evaluation, we expected to see modest increases in personnel costs due to the way some banks apply cost of living index increases by job coupled with the influence of the recession reducing turnover rates during this period; however, that is not all that we found. 

From 2006 through 2012, community banks we researched had average increases of 20% for the fully loaded cost per teller. In each of these examples, fully loaded personnel expenses include salary, bonus, and benefits. We examined the productivity change for tellers over the same period, expressed as monthly transactions per teller, and found that it actually declined by 29%. This was surprising due to the attention given to improving operating performance with downward pressure on fees and lower margins.  We believe this reflects the national trend of reduced counter transactions in branches with customers increasingly opting for electronic bill pay and mobile banking. We also believe that staffing and scheduling may not be managed as closely in some banks, leading to lower productivity.

The platform average trend is similar. The fully loaded personnel cost per associate went up by 26%; while, over the same period, new accounts per staff member decreased by 23%. When we examined this more closely, the cost per deposit account went up by 12% and the cost per thousand dollars of balances went up by 9%. Additionally, the personnel cost for branch administration also went up by 28% over the same period.

The commercial lending operating costs were examined in total to blend the mix between middle market, small business, commercial real estate, and large commercial loans. The personnel expense per lender increased here as well by 17% and productivity, as reflected in the ratio of new loans in millions per commercial lender, went down by 37%.

Consumer lending was evaluated in total, as well, blending all direct and indirect lending for the comparative years. We found that the personnel expenses per lender went up just 4% while the productivity for this line of business, as reflected in new loans per lender, actually improved by 2%. This may be the result of more banks employing a form of credit scoring to lower their costs and improve turnaround.  

Credit operations personnel expenses per analyst increased by 33%, while the productivity, as reflected in the underwriting cost per commercial, consumer, and private banking loan, went down by 8%. This is a partial offset for the personnel cost gains, but much more will have to be done in community banks to this end in the near future.

We also examined all administrative areas – including Audit, Finance, Compliance, Marketing, Human Resources, facilities, Information Technology, CEO and Corporate staff, Security, Legal, and Purchasing – and found a similar trend with personnel expenses per staff member up 2.7%, and the total cost of administration up by 5%, as reflected in the comparison to total bank costs.

The alarming trend is that personnel costs are indeed rising, and many banks are not offsetting these increases with either revenue or productivity gains. What is your six-year trend? And what does it portend for the next six years? It may be time to rethink your processes in a very serious way and develop a much better understanding of the metrics that can be managed within each line area and support function of the bank.