After a two-year lull, U.S. bank acquisitions of specialty lenders rebounded in 2021 as lenders yearned to deploy excess cash and grow loans.
U.S. banks announced 21 such deals in 2021, up from 13 in 2020 and 16 in 2019, and more than half of 2021's deals involved community bank buyers. For banks big and small, acquiring a niche lender proved an attractive way to put excess cash to work and mitigate muted loan growth.
Large bank deals
Banks with more than $10 billion in total assets announced seven specialty lender acquisitions in 2021. Truist Financial Corp.'s $2 billion acquisition of point-of-sale home improvement lender Service Finance Co. LLC was the largest specialty lender deal announced last year. Analysts welcomed the deployment of Truist's excess cash but questioned the "hefty" price tag.
Large banks increasingly eyed the home improvement lending space last year. Regions Financial Corp. entered the home improvement lending space with its $960 million acquisition of EnerBank USA, a bank that specializes in home improvement lending, and the company is eager to strike another specialty lender deal in the space, management said during an industry conference on Feb. 17.
Regions Financial is an active specialty lender acquirer, striking one such deal in 2020 and another in 2021, in addition to its acquisition of EnerBank. Western Alliance Bancorp. has also acquired two specialty lenders in that time frame.
Community bank deals
Community banks have announced more acquisitions of specialty lenders than banks with above $10 billion in assets in every year from 2018 through 2021. Of the 37 such deals announced by U.S. banks since Jan. 1, 2020, 22 were announced by community banks.
Peoples Bancorp Inc. is the latest community bank to scoop up a specialty lender with its acquisition of Vantage Financial, a provider of equipment financing, that was announced in February. Hovde Group analyst Bryce Rowe applauded Peoples Bancorp for "diversifying sources of revenue and building a higher-yielding loan book" with the acquisition, the analyst wrote in a Feb. 22 note.
The deal marked Peoples Bancorp's second specialty lender acquisition since Jan. 1, 2020.
What drove these acquisitions?
Many institutions turned to specialty lender acquisitions as a way to put surplus cash to work and grow their loan books after loan demand dried up as a result of consumers sitting on the plethora of government stimulus dollars that flowed into the economy.
Total loans declined every quarter from the second quarter of 2020 until the second quarter of 2021 when U.S. banks reported a slight increase in total loans. During that same period, total deposits surged by almost $2 trillion.
As such, U.S. banks' loan-to-deposit ratios tumbled. The aggregate loan-to-deposit ratio for U.S. banks stood at 57.09% in the fourth quarter of 2021, down from 60.95% in the year-ago period and 72.36% in the fourth quarter of 2019.
