SNL Financial: Banks approaching $10b threshold with caution
Four years of Dodd-Frank Act implementation have made banks within striking distance of $10 billion in assets very choosy about when and how they will cross that threshold.
One company nearing the $10 billion mark is Itasca, Ill.-based First Midwest Bancorp Inc. President and CEO Michael Scudder told SNL that the bank, which had $9.10 billion in assets as of Sept. 30, 2014, has a great deal of flexibility in determining when it will cross $10 billion.
The bank is now closer to $9.5 billion in assets, given that the acquisition of Matteson, Ill.-based Great Lakes Financial Resources Inc. closed in December 2014. Still, Scudder said First Midwest has enough liquidity to shift its balance sheet from lower-yielding securities into higher-yielding loans. The bank had a loan-to-deposit ratio of 85.60% at the end of the third quarter in 2014, and Scudder believes it can increase to between 90% and 95% at its current rate.
“Absent what I would call a larger strategic acquisition, I don’t see us crossing the $10 billion threshold in 2015,” he said.
The timing of an acquisition that would push a bank above $10 billion in assets is a delicate matter. Opportunities are unpredictable, and Scudder said banks must be in a position to take advantage of them when they do arise. Banks with more than $10 billion in assets by the year-end assessment deadline are hit with the cap on interchange income in July of the following year. Based on when a deal closes, it could send a bank above $10 billion many quarters before management anticipates, or allow it to rapidly gain scale while delaying the Durbin impact. The Durbin amendment will cost First Midwest between $7 million and $9 million pretax annually, assuming the bank takes no action to mitigate it. But Scudder thinks the bank can still hit $15 billion in assets in the next several years given its current growth rate.
“Obviously, to the extent we can time [an acquisition] so it doesn’t cross over a calendar year in terms of flexibility … we would certainly do that,” he said. “But we would not forgo an opportunity just to make that timing happen — that would be the tail wagging the dog, in my view.”
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