Northwest Bank's top executive says the bank is considering making another deal to offset the cost of hitting the "consequential milestone" of $10 billion in assets.
In his annual letter to shareholders, William J. Wagner, Northwest's chairman, CEO, noted the bank currently has assets of $9.6 billion. The Pennsylvania-based bank moved closer to the $10 billion mark by acquiring 18 First Niagara Bank branches in the Buffalo Niagara region, as well as Lorain National Bank in Ohio.
Northwest has "added the manpower and sophistication necessary to meet the regulatory expectations of a $10 billion bank," Wagner said.
Why so much attention on that number? Once Northwest reaches $10 billion in assets, Wagner estimates the bank will lose $8 million in annual interchange income, due to the Durbin amendment of the Dodd-Frank Act. The amendment limits the fees banks of that asset size can charge to retailers to process payments by customers who use debit cards. Northwest also expects its annual regulatory burden will increase by $3 million.
The bank estimates the total after-tax reduction in income for the bank will be about $7 million, or 7 cents per share.
"With that, we are hopeful that Northwest will be able to secure the acquisition of another bank of sufficient size and earnings power so that the additional earnings from the acquisition offset the $7 million lost by crossing the $10 billion threshold," Wagner wrote.
The date for determining whether a bank is subject to the Durbin amendment is the end of each calendar year. Wagner said "it seems doubtful at this time that we will be able to secure such an acquisition and close the deal by the end of 2017. It is also doubtful that organic growth will take us over the [$10 billion] threshold by that date."
As a result, Wagner said it appeared the bank won't feel the impact of the Durbin amendment until 2019 at the earliest. He also said Northwest is hopeful the Trump administration and Congress "will seek meaningful regulatory relief for our industry, which includes the elimination of the Durbin amendment and the revision of certain sections of the Dodd-Frank Act, including those related to the capital stress testing requirements of a $10 billion bank."
Northwest in 2016 recorded net income of about $50 million, or 49 cents per diluted share.
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