16 Dec, 2021
Banks see beacon of loan growth, diversity in specialty lender deals
By Shreya Tyagi and Nathaniel Melican
Banks seeking to deploy excess capital and pump up loan growth are acquiring specialty lenders in greater numbers.
The number of deals by U.S. banks to acquire specialty lenders has nearly doubled this year from the 2020 total. Buyers see the purchases as an opportunity to diversify their lending and deploy cash stockpiles that have accumulated following multiple emergency relief efforts during the COVID-19 pandemic.
In the latest two transactions, announced in December, Atlanta-based
The largest of the year's deals came in August, when Charlotte, N.C.-based Truist Bank agreed to acquire Service Finance Co. LLC, a provider of point-of-sale financing solutions for the home improvement industry, for $2 billion.
Banks increasingly have sought to acquire asset generators, including specialty lenders, as they have struggled to grow loans organically. Deposits, meanwhile, have grown at historic rates during the pandemic, leaving balance sheets laden with excess liquidity. The glut of cash and persistently low interest rates, in turn, have pushed net interest margins tighter.
Analysts see recent specialty lender acquisitions as a way to find loan growth in new places.
Acquiring Balboa Capital, which specializes in small business loans, equipment financing, commercial financing, equipment vendor financing and franchise financing, should speed Ameris Bancorp's commercial and industrial lending, Raymond James analyst David Feaster Jr. said in a note.
While Balboa generated originations of roughly $415 million in 2021, Ameris management estimates that the total addressable market for the business is $670 billion annually, leaving "significant opportunity for organic growth and market share gains over time, not to mention opportunities to leverage this expertise and technology across its existing client base," Feaster added.
By channeling excess liquidity into Balboa loans yielding more than 9%, Ameris stands to widen its net interest margin by 15 basis points beyond 2022 estimates, Keefe Bruyette & Woods analyst Brady Gailey said in a note.
Piper Sandler analyst R. Scott Siefers called First Financial's acquisition of Summit Funding Group, the fourth-largest independent equipment financing platform in the U.S., a solid way to put excess capital to work — generating loans yielding 9% or more, paired with "tolerable" losses, historically below 1%.