The hidden cost of inefficient staffing models
Why rising costs, turnover, and outdated staffing models are limiting what your team can actually achieve.
For years, community banks and credit unions measured growth the straightforward way: more customers, more branches, more staff. The formula made sense when labor was affordable, turnover was manageable, and a full team behind the counter was the only way to deliver full service.
That formula no longer holds.
The numbers tell a clear story. According to the Federal Reserve Bank of Kansas City, the average salary per employee at community banking organizations has reached nearly $101,000. Occupancy and personnel costs together account for roughly 60% of total noninterest expense, according to Raymond James Financial data presented at the 2024 Bank Director Acquire or Be Acquired Conference. And community banks typically operate with efficiency ratios between 65% and 75%, meaning they spend 65 to 75 cents for every dollar of revenue they generate. For context, large national banks achieve ratios closer to 55-65%, with the advantage of scale helping them spread those costs further.
People are the biggest line item on your budget. And the pressure to do more with less is only growing.
Turnover Is Costing More Than You Think
Before an institution can even think about optimizing its staff, it has to keep them. That’s getting harder.
Annual turnover across banks and credit unions has historically averaged around 20%, according to the BalancedComp Salary and Incentive Survey, which draws data from hundreds of financial institutions. For nonofficer positions like tellers and frontline staff, the Crowe Bank Compensation and Benefits Survey found turnover rates climbing as high as 23.5% in recent years. And a 2024 Wipfli report found that employee recruitment and retention was a top concern for nearly half of all credit unions surveyed.
The teller position, in particular, remains one of the most difficult roles to fill and keep filled. These are the people customers interact with most. When they leave, they take institutional knowledge, customer relationships, and team stability with them. And the replacement timeline is not short. Banks with higher turnover rates frequently report taking two months or more to fill open positions, according to Crowe. In the meantime, the work doesn’t stop. It shifts to whoever is left, adding pressure to an already stretched team and, as Crowe’s research notes, often triggering more turnover in the process.
The financial cost compounds quickly. Recruiting, onboarding, and lost productivity during the ramp-up period add up well before a new hire is operating at full capacity. At a fully-burdened cost of $25 to $35 per hour for a personal banker, depending on the market, turnover is an expensive problem even before you factor in the customer experience impact.
The FTE Problem No One Talks About Directly
FTE, or full-time equivalent employees, is one of the most consequential metrics in banking operations. It determines your cost structure, your service capacity, and your ability to grow. Yet many institutions manage it reactively, adding headcount when things get busy and scrambling to reduce it when margins tighten.
The Federal Reserve Bank of Kansas City found that FTE levels at community banking organizations hit a record low in early 2022, even as salary spending reached record highs. Community banks now hold an average of $7.3 million in assets per employee, up from $5.6 million in 2019. That sounds like improved efficiency, but as the Fed noted, assets were growing faster than revenue. Productivity per FTE was not keeping pace with the balance sheet.
This is the FTE paradox community institutions face: fewer people managing more assets, but not necessarily generating more value per person. The efficiency ratio suffers not because you have too many employees, but because the people you have are not set up to operate at their full potential.
What Optimized Staffing Actually Looks Like
Research from branch performance consultants suggests that the optimized workload for a personal banker falls between 5 and 8 face-to-face customer interactions per FTE per day. Above that threshold, quality declines. Below it, you’re paying for capacity you’re not using.
For a traditional branch requiring 15 to 20 employees to open and operate, hitting that target consistently is genuinely difficult. Schedules don’t always align with customer demand. Skilled staff spend time on tasks that don’t require their expertise. And when someone leaves, the remaining team absorbs the gap while a weeks-long hiring process plays out.
According to the American Bankers Association, new freestanding branches open with an average of 6.1 FTEs, with most falling in the 5 to 8 range. Inline branches average closer to 4.8. These are lean starting points that leave very little room for turnover or coverage gaps before service quality suffers.
Efficiency Through Empowerment, Not Elimination
When efficiency ratios come under pressure, the instinct is to cut headcount. For community FIs, that instinct can undermine the very thing that sets them apart: personal, relationship-driven service that larger institutions struggle to replicate.
The more sustainable path is a different question entirely. Not “how do we reduce our FTE count?” but “how do we increase what each FTE can accomplish?”
Technology built specifically for financial institutions, like video banking, smart scheduling, and co-browsing, allows a leaner team to serve more customers across more touchpoints without sacrificing the quality of those interactions. A branch that might have required 20 people can serve its customers effectively with far fewer, when the team is equipped with the right tools.
That shift matters beyond cost control. Staff who are set up to do their jobs well, without being overwhelmed, are more engaged, more effective, and less likely to leave. And customers who receive consistent, capable service stay loyal.
The efficiency challenge in community banking is real. But the answer is not a leaner team. It’s a better-equipped one.