Community banks face such a steep challenge in the next few years, accounting giant KPMG decided to create a position to oversee its efforts to advise them.

John Depman was named national leader of regional and community banking at KPMG. Depman had been in charge of the firm's Philadelphia and Mid-Atlantic banking practices, and he will retain that duty. In his new role Depman will oversee about 2,000 employees nationwide who offer auditing, consulting and tax services to smaller banks.

"Community banks are experiencing a lot of regulatory, data security, risk management and cost-of-compliance issues," said Depman, a 23-year veteran of KPMG who is based in Philadelphia. "There is little margin for error."

The top issue for community banks is how to reinvent the business model, Depman said. Finding new sources of revenue, especially fee income, will be imperative, he said.

"Dodd-Frank has really changed what services they can charge for, and there will be some experimentation as clients try to figure out what is acceptable to the [Consumer Financial Protection Bureau] and what are the right products," Depman said.

The competition that KPMG itself faces for community banks' business is fierce. The Big 4 accounting firms — KPMG, Deloitte, Ernst & Young and PricewaterhouseCoopers — have a lock on the market for auditing the biggest banks. KPMG is the auditor for both Wells Fargo (WFC) and Citigroup (NYSE: C).

Community banking is another matter. KPMG has "a number of banks in the $60 million- to $80 million-asset range" and that its "sweet spot tends to be banks with $1 billion-plus of assets," Depman says. But there are plenty of rival firms pitching auditing and consulting services to community banks. New players, like law firm Schiff Hardin, also keep popping up.

KPMG's current roster of community bank clients includes the $13 billion-asset BancorpSouth (BXS) of Tupelo, Miss., and the $8.4 billion-asset National Penn Bancshares (NPBC) of Boyertown, Pa.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.