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Northwest to cross $10B in assets with bid for Donegal Financial Services

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Northwest to cross $10B in assets with bid for Donegal Financial Services

The Durbin Amendment is the "last hurdle" for Northwest Bancshares Inc. as it prepares to cross $10 billion in assets, CFO William Harvey Jr. said on a deal call.

Northwest Bancshares announced it will acquire Donegal Financial Services Corp. in a cash-and-stock transaction for about $85 million. The buyer, which was already at $9.5 billion in assets, was poised to organically grow to above $10 billion in assets in 2019 anyway, the executive said. Crossing that threshold subjects the bank to the Dodd-Frank Act's Durbin Amendment, which reduces the amount of income a bank collects from debit interchange fees.

Northwest has been preparing to cross the threshold for about seven years by investing in audit, compliance and risk management, Harvey said. The bid for Donegal Financial, which has $577 million in assets and is the parent company of Union Community Bank, was an opportunity to "get enough additional income from the transaction to offset what we will lose as a result of Durbin," Chairman and CEO William Wagner said on the call.

In crossing the threshold, management anticipates that Northwest will lose $8 million to $9 million in interchange revenue before taxes, or about $6 million after taxes, Harvey said. As a result, management expects $5 million of net income accretion in 2020 and $2 million in 2021, he said. Northwest specifically chose a closing date in 2019 so that Durbin would not affect the bank until the following year.

"Durbin won't affect us until July of 2020," Harvey said. "It essentially gives us two full years from today to both grow our balance sheet and our earnings before this effective date."

Donegal Financial is jointly owned by Donegal Group Inc. and Donegal Mutual Insurance Co.