Equipment finance surge shows no signs of letup
Equipment finance is becoming increasingly popular.
Total new-business volume between October and February rose by 11.5% from a year earlier, surpassing $43 billion over that five-month period, according to data from the Equipment Leasing and Finance Association. Year-over-year volume jumped by 31% in February alone.
Recently enacted tax reform, along with continued economic momentum, seems to be the main reason for the increase, said Ralph Petta, the association's president and CEO. Demand is coming from "large and small" businesses, Petta added.
At the same time, the rising interest rate environment has made equipment finance more appealing for lenders. Such loans typically have an average term of three to seven years, which is helpful at a time when banks prefer shorter-duration loans, industry experts said.
Investors Bancorp in Short Hills, N.J., is the latest bank to jump into the business after buying a $350 million portfolio from EverBank and hiring the team that booked the loans. The goal is to triple the amount of equipment loans and leases over the next five years or less.
“We want to keep the losses at or near zero," said Kenneth Walters, who leads the team. "We want to be a very profitable group within the bank.”
Investors joins several other banks that are aggressively targeting equipment finance.
Peapack Gladstone Capital, a unit of Peapack Gladstone Financial in Bedminster, N.J., originated $152 million in equipment loans and leases in 2017, its first year in business.
The equipment finance portfolio at Arvest Equipment Finance, a unit of Arvest Bank in Fayetteville, Ark., increased by 6% last year, reaching $249 million. Arvest Equipment Finance also surpassed $100 million in annual originations for the first time since its creation in 2007, said Eric Bunnell, the unit's president.
At Arvest, the average lease size is approximately $125,000, according to Bunnell. Investors’ team, by contrast, goes after much larger deals.
Investors' team is national in scope and will target large borrowers that typically need $5 million to $15 million in financing, Walters said. While the group wants to add lenders in new markets, it will also aim to leverage the strength of Investors' brand in New Jersey and New York.
“We’ve done deals as large as $30 million and we could do larger, but we'd typically look to syndicate portions of those deals depending on the credit quality," Walters said. “We’re putting a lot of focus on trying to leverage the relationships the bank has in-market. ... We’ve already been out to meet all of the commercial bankers and even our retail branch people to figure out how to leverage the relationships they have.”
Walters said he and his team have received strong support from President and CEO Kevin Cummings on down since joining Investors in February.
"We’ve only been here for a month and Kevin has already come out on a customer visit to one of our main customers we brought over with the portfolio," Walters said. "He spent literally three hours at lunch with the owners of the company. He really connected with them. ... They had a great conversation."
For the bank, adding the team should help add earning assets at a time when other path to growth are impeded by an informal order tied to Bank Secrecy Act and anti-money-laundering compliance. Investors has already scrapped a planned bank acquisition after being hit with the order.
Walters and Sondra Rowland, the team's chief credit officer, started the business from scratch at EverBank. Plans to build it into a national platform were derailed when EverBank sold itself to TIAA.
“The time at EverBank was a very good period for us," Walters said. "We built something from nothing."
Investors' new team is already screening deals with the company's senior credit staff, who ultimately sign off on the loans. “We’re actively open for business and we’ve got a growing pipeline,” Walters said.
Arvest is also looking to make more loans, with a strategy of building stronger ties to equipment vendors, particularly smaller businesses that can't offer financing on their own, Bunnell said. About $19 million of the group's $107 million in 2017 originations involved vendors.
Beyond adding to equipment finance volume, most of the customers that come from vendors are new to the bank, creating cross-sell opportunities, Bunnell said.
A recent $25,000 lease transaction eventually turned into a more than $1 million commercial real estate loan for the bank, he said.
“They can’t all be like that, but that’s the [dynamic] we’re trying to achieve,” Bunnell said.