Areas Financial institution agrees to purchase house enchancment lender EnerBank for $960M

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Diving letter:

  • Birmingham, Alabama-based Regions Bank on Tuesday agreed to pay $ 960 million on the purchase of EnerBankUSA, a Salt Lake City-based home improvement lender, due to close in the fourth quarter.
  • Regions has taken a phased approach to acquisitions over the past few years, targeting non-bank niche financial services firms to strengthen segments of its business. It bought healthcare-focused asset management firm Highland Associates in 2019 and followed suit with equipment financier Ascentium Capital in 2020.
  • “We have carefully evaluated the home improvement loan industry for several years and believe this is the right partner at the right time to help us realize our vision,” said Scott Peters, head of Regions’ consumer banking group, said on Tuesday in a press release.

Dive Insight:

Regions CEO John Turner has long expressed his preference for smaller deals.

“M&A is very disruptive. We have not been particularly impressed by the economics of bank M&A and we believe we have a strategic plan that, if implemented, will deliver superior financial results to our shareholders,” Turner told the Birmingham Business Journal last year. “But we are always looking for ways to develop more skills, grow sales and diversify, and we will do that through mergers and acquisitions outside of the banks.”

The deal with EnerBank would not be the region’s first foray into building finance. The Alabama bank had partnered with point-of-sale home improvement lender GreenSky, but did not renew that contract in 2019. The regions claimed they wanted to focus more on direct relationships with their customers. But Gerry Benjamin, GreenSky’s chief administrative officer, said he suspected otherwise.

“The only thing we can infer from this is that regions assume they can reallocate these assets and get a higher return on a risk-adjusted basis,” Benjamin told American Banker.

The merger with EnerBank would allow the regions to add digital and phone-based point-of-sale credit capabilities to their existing mortgage and home equity investments.

“EnerBank’s platform and skilled financial professionals combined with the reach and experience of Regions’ consumer banking teams will help us deepen relationships with our customers while reaching out to new customers,” said Peters.

The deal would leave EnerBank out of Jackson, Michigan-based energy company CMS Energy. EnerBank’s 450 employees, including CEO Charlie Knadler, would move to Regions. The company would keep its headquarters in Salt Lake City.

“As CMS Energy continues to focus on running a world-class energy company, we believe that EnerBank can reach its full potential as part of Regions Bank,” said Rejji Hayes, EnerBank CEO and CFO of CMS Energy, in a press release .

EnerBank, whose customers are primarily prime and superprime consumers, held approximately $ 2.8 billion in loans as of March 31. It lends loans in all 50 states and has worked with more than 1 million homeowners and 10,000 contractors in its 20-year history, companies said.

“By joining the Regions team, we have a tremendous opportunity to connect more customers with customized home improvement loan options,” said Knadler. “This combination of regions brings together the strengths of two great companies that put customers first.”

A number of banks have tended to acquire strategic lines of business this year to diversify their businesses rather than adopting a bank of similar size. The US bank, for example, agreed to buy MUFG Union Bank’s $ 320 billion portfolio in January. Silicon Valley Bank agreed to buy Boston Private in a $ 900 million deal that same week to bolster its presence in the wealth management business.

Wells Fargo, on the other hand, played the seller. It has considered outsourcing several units to redefine the core of its business. The bank ditched its asset management unit in February for $ 2.1 billion. In December she agreed to sell her student loan portfolio. And last fall, the San Francisco lender considered selling its escrow unit.

EnerBank is an industrial credit company (ILC) – a body that has served as a lightning rod among lawmakers that blew up non-banks for using this structure to provide banking services without being subject to Federal Reserve oversight.

Home Depot was considering buying EnerBank in 2006 – and thereby would have gained access to its ILC charter. But the home improvement retailer abandoned that plan in 2008, much like its counterpart Walmart flirting with an ILC charter that began in 2005 and also ended two years later.