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Regions (RF) Ups Homeowner Lending Ability With EnerBank Buyout

Regions Financial Corporation’s RF subsidiary, Regions Bank, has completed the previously-announced deal to acquire the specialized home improvement lender, EnerBank USA, from its parent, CMS Energy Corporation CMS.

Estimated transaction proceeds (including customary adjustments at closing) for CMS Energy are $1 billion.

In the past few years, the demand for mortgage and refinancing options due to higher home prices as well as new alternatives to finance home upgrades has increased. Hence, the acquisition is a strategic fit for Regions Financial and will help the company to leverage on EnerBank’s platform to offer a comprehensive suite of financing options to homeowners, thereby, fortifying its presence in the homeowners lending space.

EnerBank offers prime and super-prime home improvement point-of-sale loans via a national network of contractors. It has a countrywide footprint. The company has served more than one million homeowners since its inception. The firm has more than 10,000 contractors through mobile, online, and phone-based point-of-sale lending options.

Over time, the EnerBank USA name will merge with the Regions Bank brand and its employees will join the latter as part of the Consumer Banking Group.

Scott Peters, senior executive vice president and head of the Consumer Banking Group for Regions Bank, noted, “The addition of EnerBank’s exceptional team and leading-edge technology will help Regions deliver even greater value to customers who are seeking convenient, competitive solutions for efficiently financing home improvement needs.”

When the deal was announced in June, Regions Financial estimated the buyout to be accretive to 2022 earnings per share (including Purchase Accounting Adjustments or PAA and “no foregone share repurchases”) in low-single-digit percentage, and 5% accretive to earnings over the medium term.

Our Take

EnerBank’s platform consummates Regions Financial’s recent investments in mortgage and home equity lending services. Over the years, the company has been investing in products, services and omni-channel originations central to mortgage lending, mortgage servicing and home equity lending. This has significantly boosted its market share.

The acquisition of Enerbank is likely to expand the bank’s strategy of acquiring businesses, which help reinforce customer relationships by serving more of their needs via new channels, products and capabilities. Some of the recent deals, including the acquisition of equipment finance lender, Ascentium Capital LLC, in April 2020, and the August 2019 acquisition of Highland Associates — a leading institutional investment firm, are steps in the same direction.

Regions Financial continues to explore opportunities for bolt-on acquisitions, primarily in mortgage servicing rights and adding capabilities in the wealth management unit. In line with this, the company is currently working on a digital advisory solution, which is likely to be deployed in late 2021 or early 2022. As it is committed to diversifying its revenue streams and meeting customer needs via diverse services, we believe that such endeavors will support the company’s growth prospects in the long term.

Shares of Regions Financial have gained 7.3%, outperforming 5.1% growth of the industry it belongs to.

Zacks Investment Research
Zacks Investment Research

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Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Similar Expansion Efforts by Other Banks

At present, banks have resorted to mergers and acquisitions to dodge the heightened costs of investments in technology and counter lower rates.

Recently, Southern Missouri Bancorp Inc. SMBC announced that it will acquire Fortune Financial Corporation in a stock and cash transaction worth $30 million.

Last month, in an effort to diversify revenues, Valley National Bancorp VLY signed a deal to acquire Bank Leumi Le-Israel B.M.’s U.S. banking arm — Bank Leumi USA — for $1.15 billion.

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Regions Financial Corporation (RF) : Free Stock Analysis Report

CMS Energy Corporation (CMS) : Free Stock Analysis Report

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Southern Missouri Bancorp, Inc. (SMBC) : Free Stock Analysis Report

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