Community banks are geared up to spend more on technology next year, according to a study conducted in September by U.S. audit and advisory firm KPMG.
In the survey of 105 bank executives at institutions with $5 billion or less in assets, 60 percent said they would increase capital spending over the next year with information technology (50 percent), new products or services (34 percent), and acquisition of a business (23 percent) the top areas of investment.
Mobile banking and payments (26 percent) and cloud technology (23 percent) were identified as the most important IT-related projects for community banks in the next year.
"Mobile banking is clearly a channel in which community banks are investing, as its utilization by consumers continues to become more mainstream," said John Depman, national leader of Regional and Community Banking for KPMG, in a statement. "Community banks also are examining cloud technology as a means to increase efficiency and reduce IT costs."
Fifty-one percent of community banking leaders said they were slightly concerned or not concerned at all that their bank may be vulnerable to a cyberattack, while 14 percent were extremely concerned and 33 percent were moderately concerned.
"Recent cyberattacks were highly publicized, but the majority of community banking executives report they are not overly concerned about this threat," said Depman. "Banks of all sizes should ensure their security systems and various processes are regularly updated to guard against this threat, which presents significant financial and reputational risks."
Among non-IT concerns, almost half the community bankers (47 percent) said regulatory and legislative pressures are the most significant barrier to growth over the next year, and 35 percent said regulatory compliance costs were having the greatest negative impact on financial performance. About 37 percent of respondents said their community bank would need to raise more capital to meet Basel III and Dodd-Frank capital requirements, while 34 percent said they would not and 29 percent said they had not completed the analysis yet.
There should be a lot of small-bank mergers in the coming year, if this survey is a true indication: 57 percent of the respondents said it was likely their bank would be involved in a merger or acquisition in the next two years as a buyer (42 percent) or seller (15 percent). For banks with M&A as part of their growth strategy, 47 percent said they would target a bank with $500 million to $3 billion in assets, while 16 percent said a target bank would be in the $250 million to $500 million asset range and 9 percent said a target bank would have less than $250 million in assets. Of the 74 percent of executives that indicated their community bank had a significant amount of cash on its balance sheet, 37 percent said they planned to deploy it by making an acquisition.
Asked about opportunities for revenue growth, community bank executives identified asset and wealth management (40 percent), cross-selling services (30 percent), and business model restructuring (23 percent) as the areas they believe will be the biggest drivers of their bank's revenue growth in the next one to three years.
Thirty-one percent of community banking leaders said the customer segment that presents the greatest growth opportunity for their bank was consumers — ages 50 to 65 — nearing retirement.
"With an aging population, community bank executives are bolstering their asset and wealth management capabilities as customers nearing retirement need these services," said Depman. "These customers also are more likely to visit the branch and meet with a banker to discuss their portfolio management and investment options."