New regulations stifle growth, bolster M&A activity, bank execs say.

• Position: MARKETING NEWS

NEW REGULATORY REQUIREMENTS ARE NOT ONLY STIFLING FINANCIAL PERFORMANCE, but they are also driving mergers and acquisitions, according to a recent survey by KPMG LLP, New York, the audit, tax and advisory firm.

In the 2012 KPMG Community Banking Outlook Survey, 47 percent of respondents identified regulatory and legislative pressures as the most significant barrier to growth over the next year, while 35 percent said regulatory compliance costs were having the greatest negative impact on financial performance. Additionally, 27 percent said that bank management's top initiative in the next two years will be navigating significant changes in the regulatory environment.

According to the survey, "regulatory changes" (38 percent) was selected as the most important driver impacting mergers and acquisitions. Fifty-seven 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.

"The significant interest in acquisitions is not a surprise because it's one of the options community banks have to stay competitive and grow," says John Depman, national leader of Regional and Community Banking for KPMG. "A successfully executed deal can provide access to new...