Just one U.S. community bank crossed the $10 billion asset threshold in the second quarter, a much slower pace for the sector compared to the first quarter when nine companies passed that benchmark.
Merchants Bancorp was the lone depository institution to climb above the key asset mark, which can bring increased regulatory scrutiny, and it was not the company's first time crossing it.
The Carmel, Ind.-based bank first surpassed $10 billion in the third quarter of 2021 and remained above the threshold through the fourth quarter of 2021, but its total assets dropped to $9.65 billion in the first quarter of 2022. The company crossed the mark again when it posted $11.09 billion in total assets at the end of the second quarter, up 14.9% from the prior quarter.
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Deals set to push more banks above benchmark
Another three U.S. banks are set to soon cross the threshold as a result of M&A: Houston-based Allegiance Bancshares Inc.; Indiana, Pa.-based First Commonwealth Financial Corp.; and Boston-based Brookline Bancorp Inc.
Allegiance Bancshares is the smallest of those three, with just $6.73 billion in assets in the second quarter. But it will nearly double its size after its merger of equals with Beaumont, Tex.-based CBTX Inc. closes.
Crossing $10 billion in total assets brings growing pains for community banks in the form of lost income as the Durbin amendment kicks in and limits interchange fee income and increased expenses due to more regulation. As such, many banks opt to leap past the threshold with an acquisition that can add economies of scale to help mitigate the headwinds.
"For several years now, as we approach the $10 billion asset threshold, we've been asked how we intended to cross. And our answer was consistent with what most $9 billion banks would say," First Commonwealth President and CEO Thomas Price said on an Aug. 31 call to discuss the company's planned acquisition of Harrisburg, Pa.-based Centric Financial Corp. "We're prepared to cross organically, but we'd prefer to cross the acquisition because of the significant loss of interchange income due to the Durbin amendment."
Approaching the threshold
Eight community banks reported more than $9 billion in total assets in the quarter, putting them right below the $10 billion mark. Park National Corp. was closest to the line with $9.83 billion in total assets at June 30.
HomeStreet Inc.'s total assets grew by 14.3% quarter over quarter, leading one equity analyst to ask when the company expects to pass the threshold.
"It's possible we could break $10 billion in 2024. It could be earlier in the year, it could be later in the year, again depending on growth rates. That's what we are currently anticipating," HomeStreet President and CEO Mark Mason said on a second-quarter earnings call.
Though the company had just $8.59 billion in total assets at June 30, it began preparing to cross $10 billion four years ago, the executive said. The potential loss of interchange revenues is "not that high" for HomeStreet, according to Mason, and the company has the infrastructure in place to deal with vaulting over the benchmark.
"We were preparing to go over $10 billion about four years ago, and we addressed many of the expectations of a $10 billion risk management system back then," Mason said. "And so we don't feel we have that much work to do. But we're dusting off our analysis and doing a gap analysis in order to prepare for it."
