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New Survey Identifies Trends in Regulations, M&A, IT Spending For Community Banks

A new study by KPMG found that regulations are stifling organic growth and driving mergers and acquisitions among community banks.

Community banks are struggling to grow under the heavy weight of regulations and compliance costs, driving a great deal of the mergers and acquisitions among smaller banks, a study released today found. The 2012 KPMG Community Banking Outlook Survey, conducted by the audit and advisory firm KPMG LLP, surveyed 105 senior executives in community baking, and 47 percent of those executives said regulations are their chief obstacle to growth over the next year.

More than a third (35 percent) of the executives surveyed cited costs associated with compliance as the the biggest blow to their financial performance. Specifically, the new capital requirements by regulations such as Dodd-Frank and Basel III were identified most often as the regulations that rate causing the most damage to community banks. KPMG found that 34 percent of the executives said they would have to raise new capital to meet compliance, while another 29 percent were still doing the analyzing if they would need to do so.

With regulations serving as such a costly barrier to organic growth, banks have to look towards mergers and acquisitions to find new avenues for growth. "Regulatory changes" was the most often cited driver of economic growth among those surveyed by KPMG (38 percent). The survey found that 57 percent of the executives said they thought it likely that their bank would be involved in a merger or acquisition in the next five years.

[See Related: How Mobile Is Changing Community Banks]

The study also inquired about the size of possible acquisitions by the banks surveyed. Almost half (47 percent) said they would look for a bank with $500 million-$3 billion in assets; 16 percent they would target one with $250-$500 million in assets; and nine percent said they would prefer an acquisition of an institution with less than $250 million in assets. KPMG's survey found that 74 percent of the respondents said they had a significant amount of cash on their balance sheets, and 37 percent of those said they planned on using that cash for an acquisition.

Community bakers also identified some of the areas where they are seeing potential for organic growth. Asset and wealth management got the most votes with 40 percent of the respondents identifying it as the biggest driver of growth over the next one to three years, followed by cross-selling services with 30 percent of the vote and business model restructuring with 23 percent.

"With an aging population community bank executives are bolstering their asset and wealth management services as customer nearing retirement need these services," John Depman, the national leader of regional and community banking for KPMG, said in a statement.

IT spending was expected to see the most growth over the next year, with 50 percent of the respondents saying they expected to increase capital spending in that area. The most important IT-related initiatives fell under mobile banking and payments (26 percent of respondents), followed closely by cloud technology (with 23 percent of the vote). However, community banks didn't show a great deal of concern over cyber fraud, with only 14 percent of respondents saying it was a major concern, and 51 percent saying they were slightly concerned or not concerned at all about it.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

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byurcan100
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byurcan100,
User Rank: Apprentice
11/12/2012 | 9:33:57 PM
re: New Survey Identifies Trends in Regulations, M&A, IT Spending For Community Banks
interesting
ABInsight
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ABInsight,
User Rank: Apprentice
11/6/2012 | 7:02:18 PM
re: New Survey Identifies Trends in Regulations, M&A, IT Spending For Community Banks
51% of FI's surveyed not concerned about cyber fraud......-Wow!

Losses could continue for community banks using traditional fraud/security technologies, here's an article published just this week highlighting the gaps in current offerings -http://krebsonsecurity.com/201....
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