Regions Financial has made clear that it wants to ramp up in consumer and small-business lending, and a big part of its strategy is teaming up with alternative lenders.
The $126 billion-asset company recently announced a
For over a year now, the company has also made point-of-sale loans at Home Depot stores through a partnership with the alternative lender GreenSky — with great success. That partnership fueled much of Regions' consumer loan growth in the first quarter and helped drive overall gains in revenue, profits and net interest income even as the company wrestled with rising delinquencies among its loans to oil and gas companies.
John Owen, Regions' head of regional banking, said he doesn't view alternative lenders as threats, but rather as allies that can help the company diversify its loan portfolio while at the same time accelerating their own growth plans. Consumer behavior is changing radically, and Regions has made a conscious decision to change with it, he said.
"From a strategy standpoint, we've backed up and said, We are going to reach our customers where they want to bank, when they want to bank and how they want to bank," Owen said in an interview after Regions' first-quarter earnings call Friday.
The jury is still out on the long-term viability of partnerships where banks essentially use online lenders' technology to originate loans. Regions' executives said on Friday's call that the Fundation relationship is too new to have generated any meaningful loan volume, and a similar arrangement between JPMorgan Chase and OnDeck Capital has been up and running for less than two weeks.
But Regions' executives said they see tremendous promise in point-of-sale lending through partnerships with the likes of GreenSky.
GreenSky offers point-of-sale loans at Home Depot stores nationwide for home improvement projects that might be too large for a consumer to charge on a credit card, or for people who do not want to pay credit card rates. Loans are generally between $8,000 and $10,000 and carry interest rates of 8% to 10%, Owen said.
Though Regions makes online loans in tandem with Fundation, the banking company is not widely seen as an online lender, so driving traffic to its website "is a challenge," Owen said. GreenSky, on the other hand, has relationships with roughly 1,000 Home Depot stores, where consumers are actively shopping and may need financing for construction of a new deck or the installation of new doors and windows.
Regions didn't break out the GreenSky loans in its quarterly results, but said those loans accounted for the bulk of the volume increase in the category of indirect consumer lending. Balances in that portfolio totaled $599 million at March 31, up nearly 15% from three months earlier and 153% year over year. Regions Chairman and Chief Executive Grayson Hall said during the call that point-of-sale lending has exceeded expectations and was a big reason why total consumer loans increased 5% from a year earlier, to $30.5 billion.
Consumer loans make up about 30% of Regions' total loan portfolio.
The company reported strong growth in other consumer categories as well, including mortgage, automobile and credit card lending. Overall, Regions reported a $257 million profit in the quarter, up 18% year over year, as total revenue increased 6.5%.
Chris Marinac, head of research at FIG Partners in Atlanta, said that, while low energy prices are hurting many of Regions' commercial loan customers, so far they are helping consumers.
"Consumer is where it's at right now," he said. "The consumer is showing a lot of resiliency."
Marinac and other analysts said they are concerned that delinquencies on home and car loans could tick up in energy-dependent markets if problems in the energy sector persist, but Owen said that, so far, Regions "has not seen contagion in any of our coastal markets" like Texas and Louisiana.
"In Texas, we're still seeing growth, it's just slower growth," Owen said.
Regions' shares rose 3.07% Friday to close at $8.74 a share.
