Regions Financial in Birmingham, Ala., has agreed to buy EnerBank USA, a home improvement lender based in Salt Lake City.
The $153 billion-asset Regions said in a press release Tuesday that it will pay $960 million for the $3.1 billion-asset industrial loan company. The deal is expected to close in the fourth quarter.
EnerBank has served more than a million homeowners and 10,000 contractors through mobile, online and phone-based point-of-sale lending options. It had 450 employees and $2.8 billion of loan balances on March 31.
The acquisition comes roughly two years after Regions exited its relationship with point-of-sale home improvement lender GreenSky. At the time, Regions said it hoped to pursue more direct relationships with borrowers.
The deal, nicknamed Project Eclipse, is the latest niche acquisition for Regions, which bought equipment finance lender Ascentium Capital last year and institutional investment firm Highland Associates in 2019.
“We have thoughtfully evaluated the home improvement point-of-sale lending space for a number of years, and we believe this is the right partner at the right time to deliver on our vision,” Scott Peters, head of the consumer banking group at Regions Bank, said in the release.
“EnerBank’s platform and skilled financial professionals, combined with the reach and experience of Regions’ consumer banking teams, will help us deepen relationships with clients while reaching new customers with convenient home improvement lending options,” Peters added.
Charlie Knadler, Enerbank’s president and CEO, and his team will join Regions’ consumer banking group, reporting to Peters. EnerBank will keep its headquarters.
Home Depot applied to acquire EnerBank in 2006, but ended up withdrawing its application two years later amid opposition to retailers owning industrial loan companies.
“The deal is small enough that it should only be 1%-2% dilutive to tangible book value per share, including CECL double-count and forgone share repurchases,” Stephen Scouten, an analyst at Piper Sandler, wrote in a note to clients.
“High level, this deal fits Regions’ bolt-on M&A strategy aimed at expanding the bank’s product suite while also offering attractive growth opportunities,” Stephen Scouten, an analyst at Piper Sandler, wrote in a note to clients. “We think that this deal is a better use of capital than share repurchases, as it builds franchise value, will add 10 to 15 basis points to the core net interest margin … and offer an attractive outlet for excess liquidity.”
“We think the price paid is slightly high due to TBV dilution, but it is still worthy of solid incremental returns on capital,” Chris Marinac, an analyst at Janney Montgomery Scott, wrote in his client note.
Marinac noted that loans, as a percentage of earning assets, at Regions had fallen from 75% at the end of 2019 to 62% on March 31. “Investors must recognize that Regions is deploying excess cash and liquidity with the acquisition,” he added.
Stephens and Sullivan & Cromwell advised Regions. Goldman Sachs and Skadden, Arps, Slate, Meagher & Flom advised CMS Energy, which is selling EnerBank.