Allow Me to Introduce Myself: Investors Bank Jumps into Equipment Finance
by Phil Neuffer May/June 2018
Although it does not have a long history in the C&I space, Investors Bank is betting big on equipment finance, adding industry veteran Ken Walters to lead a new group. Walters and his team are focused on building a national leader and providing solutions.
Ken Walters, Managing Director/Group Leader, Equipment Finance, Investors Bank
If you’re reading this, you’re probably at least tangentially involved with the equipment finance industry. While Investors Bank might not be an entity you are overly familiar with, the Short Hills, NJ-based bank is out to change that. Founded in 1926, the bank certainly has some history, just not in equipment finance and leasing. In 2017, Investors reported roughly $20.1 billion in total loans, but only 8.1% were of the C&I persuasion. The bank has, instead, focused on real estate loans, including commercial real estate and residential mortgage loans.
In February, Investors announced it would no longer focus primarily on these types of transactions and launched an equipment finance group. To lead the new division, the bank brought in Ken Walters, who previously served as managing director and business leader of EverBank Business Capital.
In Walters, Investors Bank gave itself a real leg up, as the veteran has helped lead and build equipment finance companies at EverBank and Emigrant Bank. Starting from scratch with such an experienced leader certainly made things easier for Investors. But why did the management at Investors decide that equipment finance was for them?
The answer is clear. As Walters explains, the bank was looking to diversify its product offerings. Mark Noto, Investors’ head of C&I lending, was a real champion for this new endeavor. But new products weren’t the only thing that made entering the market attractive.
“Adding an equipment finance group also provides greater options and flexibilities for our customer base, and the bank had been exploring the possibility of entering the equipment finance space,” Walters says.
Some Assembly Required
With an appetite for an entrance into the industry, Investors received assistance from an acquisition made by an entirely separate financial institution. In August 2016, EverBank Financial was bought by Teachers Insurance and Annuity Association of America (TIAA) and less than a year later, the transaction was completed. After the sale, Walters was in an odd position, with his group on the chopping block. Luckily, he was allowed to quietly explore alternatives. His fortune doubled when a colleague at EverBank pointed him in Investors’ direction, specifically to CEO Kevin Cummings, COO Domenick Cama, Chief Lending Officer Richard Spengler and Noto.
The attraction on Investors’ side was clear. They would be gaining Walters, who had not only launched equipment finance companies before but also had experience in other aspects of the financial sector, particularly from his time in the private equity space with CIT and Emigrant Bank.
“I think that private equity background was a great education for me in terms of learning how middle-market companies function. Having sat on the board of a number of companies, I was actively involved in helping those management teams set strategy and figure out how to improve profitability,” Walter says.
However, Walters humbly contends Investors’ interest wasn’t based on acquiring his experience. He is quick to point out the team and portfolio he brought with him were major factors, if not the deciding ones.
“I think the real attraction for Investors Bank was the fact that I’ve got a great team,” Walters says, noting many of his colleagues have been with him for more than 20 years. “We have a $350 million portfolio that Investors went in and did diligence on. I think they liked it both from a risk and return perspective. It allowed them to really get in the business and hit the ground running.”
While Investors was intrigued for a number of reasons, Walters also felt drawn to the bank. Even if there wasn’t an established platform, he had done the building part before and Investors provided a strong balance sheet from a well-capitalized organization with the scale of a larger regional bank. That would allow Walters and his team to continue going after the deals they were best at. Additionally, Walters was pleasantly surprised to find a community-focused mindset, noting part of his early training included work at a soup kitchen, while even Cummings and Cama make time to visit customers, a practice Walters calls “refreshing.”
Large Transactions, Small Team
Once the group was ready and staffed, it was time to create a strategy. For Walters, the makeup of his team and the bank’s backing meant going after larger transactions, which he defines as deals above the $3 million threshold, with an average transaction size falling between $7 million and $10 million.
“We try to focus on larger transactions because we put the same amount of effort into underwriting a $1 million deal as we do on a $10 million deal. So we really try to focus on deals that are $3 million and above,” Walter says. “We want to be a profitable business for the bank, so we focus on keeping our operating leverage attractive by targeting larger transactions. We have a lean team of experienced professionals, and we do enough business each year that we keep our operating costs as a percent of our revenue at a nice low level.”
At EverBank, Walters and his team did not specialize when it came to asset type, and this generalist approach has continued at Investors. This doesn’t mean Investors might find more concentration in some asset classes, but it does mean, unlike its specific transaction size range, the types of assets Investors will finance will be widespread. Despite this, Walters says about half of the current portfolio is in transportation, but even that can be divided up into rail, marine and trucking.
“We either focus on solid, marketable assets that we can potentially take back and remarket if need be, or we’ll also look at critical use equipment for a company we think has got enough scale and importance that it’s not likely to liquidate in a distressed situation,” Walters says. “It’s more likely to restructure, and if we do that under a tax lease that company will have to make a decision if they want to keep our equipment and reaffirm our lease or return that equipment to us in a 60-day period.”
Walters also notes Investors will do true tax leasing in order to take residual positions, noting a respectable track record when it comes to upside realization at the end of such leases.
It’s easy for Walters to be so confident in his strategy because it is in line with what he has done in previous years but also because of the familiarly of the team behind him. Coming over from EverBank to aid in this new endeavor is long-time partner Sandra Rowland, who is the team’s credit leader, as well as Ed Burns, manager of the capital markets group, and Julie Pannullo, who heads operations. The team also includes Mike Fuoti, director of new business development, and new operations analysts Dan Infante and Graham Davis.
While each member of the team has a different title, Walters assigns one title to all of them: solution provider. It’s not just enough to provide a deal, but the team strives to provide the best deal for each customer’s particular situation.
Just before Monitor spoke with him, Walters was putting together a proposal for a company with net operating losses. Investors suggested a sale-leaseback structure so the company could take advantage of equipment it already owned and get a lower lease rate than just a pure loan financing. Going that extra mile is why Investors will also go after what Walters calls “credits that have a little story to them.”
“We have a set meeting to prescreen deals every week with senior management so we can be responsive. If we’re going to say ‘no,’ we want to say ‘no’ very quickly, and if we say ‘yes,’ we don’t want any negative surprises. We want to make sure we can deliver on what we work on.” Walters says. “We’ve got a pretty wide credit box, which does include some single B credits where we need to roll-up our sleeves and understand the credit and structure the transaction in such a way that we use the collateral to protect the bank and make sure it’s a safe loan.”
The solutions Walters and his team hope to provide include mixing in other products the bank has to offer. This means cross-selling techniques are already becoming an important part of the business. Walters has spent a good amount of time visiting with other offices and divisions to see how they can work together to best serve customers. An early example involved a New Jersey-based company which needed an armored-car vault service and cash management solutions.
Banking on $1B
Walters does not mince words when it comes to his goals for the new group.
“My goals are to do between $150 million and $200 million in new business this year. Longer term, I’d like to grow the group to more than $1 billion in assets over a five-year time frame,” Walters says. “We really want to become a leading player in the equipment space here in the New York/New Jersey market.”
To push toward those goals, Walters says building out a direct sales force and expanding into key markets nationally is a priority, adding he hopes to bring in at least two people this year. This plan is spurred by optimism in the equipment finance market as a whole. Walters believes corporate tax cuts will boost capital investment, and if and when an infrastructure bill is passed, capital expenditure spending will heat up even more.
If it all comes together as Walters plans, nobody will be wondering who Investors Bank is anymore.
Global economic and political changes are affecting equipment leasing and finance markets in diverse geographies. In our interconnected economy, it pays to understand what is happening globally and to look at emerging opportunities.