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Listen in as Equipment Finance News editors interview the leaders in the industry, on both the lender and dealer sides of the table, to discuss new developments, trends, opportunities and more.
Johnnie Martinez 12:24:24
Getting into the industry itself, but you've been in it for so long, and you've seen so much. What are some of the big changes that you've seen in the special finance, the equipment finance space? I think,
Christopher Murphy III 12:24:53
first off, when you talk about finance industry, we've seen some significant consolidation over the years, you also find new players entering and then leaving, as long as somebody comes in and screws up the market for a period of time in one market or another, and you just gotta be disciplined enough not to respond to them. And then you have some of the things. Players have disappeared. Look at GE was G gorilla, the room on equipment financing like what happened to Citibank was a fun associate structuring business about $300 million you see major problems occur in the industry from time to time, which then cleans out the industry a little bit. You want to be careful to the business doesn't just become a fit business. You were talking about relationships earlier. If your relationship is an invitation to fit and that's it, we don't want to be players. We don't add value there. So we want to be a value added player. And I think what you find is there are some really good value added players who have been at it for a long time and stay here. But you see these companies being traded around. They're all by this company now. Now they're sold over this company. They're put into this private equity group. Capital Flows quickly to where it looks like there's an opportunity. The other thing that. Happens is that margins get tight in the traditional business. People, they go, maybe just go into the equipment, finance business, and there's bigger margins. And I'll do well. Well, the reason the bigger margins are because you better understand the relationship there. Those margins get pushed down over time, depending upon the area that the business plays in, a lot more peripheral players a particular area that would drive that area. They're willing to do things because they've got nothing to lose. They're out there aggressively going ahead, hoping that they get a large scale, attract capital, become a unicorn, and then build it from there. But what often happens is they attract the capital and they hit the wall or the cliff, go off the cliff.
Johnnie Martinez 12:26:34
We've seen some of those in my time of year, but it's especially interesting in this industry, because there's a double element. Finance companies try to do it like get rich quick screen. Then you also have the brokers coming in and try to do the same thing, I can only imagine, for customers and even for you, the bigger bank, trying to figure out the best way for your approach to be as you have to deal with all these different brokers and all these different finance companies just coming in
Christopher Murphy III 12:26:59
and out, we do in and out. We just don't want to use brokers. We want to be correct. We are not an indirect lender. We want to be directly with a customer. That's not even the relationship. If somebody else got the relationship, I'm not getting the value added, and I don't have that
Johnnie Martinez 12:27:11
relationship. Yes, it is one of the things that when I was first introduced to the concept in equipment finance. It blew my mind how they can even operate in this industry. Of Johnny,
Christopher Murphy III 12:27:22
when I was starting the business 50 years ago, it was Ken Cobra finance. It was the associates. It was commercial credit and it was household finance went across a whole panoply of businesses that have now been sold and divided up, parcel down, and they're all gone for offense purposes. And what's that tell you about the difference?
Johnnie Martinez 12:27:42
And one of those things that to the point of the conversation at the very beginning, there's all these companies where they've been passed around, they've been moved around. It's just the big players will end up in part of the cycle, and they just end up all over.
Christopher Murphy III 12:27:54
It was dinosaur. Get back to the synapses of my brain. I brought them up with 20 more names and don't exist
Johnnie Martinez 12:27:59
sitting. Don't exist anymore, right? Obviously, the importance of relationships, but the importance of what you guys have done at first source and being this long term player in the space, I think
Christopher Murphy III 12:28:09
we've learned. We've got some verticals that were a mistake, environmental equipment, otherwise known as trash trucks. I know we still do 100 different approaches than we were doing for a while. We got into financing process that turned out to be a mistake, because it was more reliant on brokers than it was on relationships. And of course, covid killed that. We've looked at pieces of the business that were fine per period, and then we look at and say, this doesn't really fit where we need to go long term. We don't sell it off. We work it out with our customers, and we keep the good customers over the longer term, even though we don't have that as a vertical anymore, we cheat the relationship. I'll give you an example of one relationship when 911 happened, we were the third largest financer of private use aircraft in America, and we were financing larger aircraft in the freight industry, and we got hurt really, really badly, bad. We were able to work it out over the next few years with our customers. We had one customer who couldn't pass for 10 years, but we just kept them in the business. At the end of 10 years, he made us everything back, still a good customer of ours, and we were strong enough of working through that period without the regulators coming down and telling us how to do it. So having strong capital reserves is really critical. So you know, when I look going forward, is making sure that we are in this where both Andrea and Kevin come in, as well as Brett Bowers, our Chief Financial Officer, making sure we have the right strength in our balance sheet to withstand hard hits in the economy, whether they're black swan events or otherwise, because they will come
Johnnie Martinez 12:29:39
attracts and you've talked about so many of these challenges you guys have faced and that you've been able to help navigate. Be curious if there's any other challenges that you think you guys encountered and the lessons you've learned. Obviously, you talked about a bit with what happened with 911 and the private aircraft company, but just in general, the lessons you've learned and had big in the future leaders to carry
Christopher Murphy III 12:29:58
forward. I think the other thing is being careful that you don't let activists on one side or another push you in places you shouldn't. We finance fossil fuel using fossil fuels gonna be around for a long time. We can't abandon those industries. Can't abandon those customers. So when we got people who said, Well, you gotta do on electric and you shouldn't be doing any fossil fuel financing. That's foolish. People rely on fossil fuels. People rely on cars. They rely on trucks. They rely on delivery stuff. We need to be there for our clients. We also need to be helping enough fossil fuel. We need to be helping bring about electricity and electrical vehicles. If we have the infrastructure that's gonna be able to support them long term, there's a tendency for activists to drive part one direction or another, and we need to stay balanced and not let somebody push us from fear. And I think that's one of the most important jobs that I have, and that my senior management team has. The other job that I tell my new CEO was to say no, you got to say no, because we just can't do everything that everybody wants. Doing. We can't do it with the speed that people want to do it. We have to embrace technology. But we know where technology should replace us as people. So it's using technology to enhance what we do, not to replace what we do.
Johnnie Martinez 12:31:12
Guess it that makes a ton of sense. I mean, interesting to see how it plays out going forward, as we've been kind of going through the reflective side of this with all your time in this leadership role at the bank and kind of taking this role into the executive chairman side, how has your perspective maybe changed, as far as being in a leadership role at a bank and leading through the social finance equipment space, I'm curious if you could give your younger self advice on how to best navigate this.
Christopher Murphy III 12:31:40
Know that whenever you do or say, you're going to be wrong. None of us can predict the future. Have people on your board and people you work with that think dramatically differently than you do, argue respectively with them and learn from them. It makes me go into place that I wouldn't go I've got people that work here that I argue with all the time, but I give them the authority to make the final decision when I learned from them, then hopefully they're learning from me. No matter what you think the future is, it will be different. The only thing I know is that we will be wrong, knowing that, make sure you thought about the risk management side. How are you going to handle the downside? How are you mitigating risk? We don't avoid risk. We need to manage risk. So what are we doing to manage that risk? Surround yourself with people who've got basic human values of integrity, honesty, that you're not looking at a bunch of veneers. What you see is what you get. I don't care if they're brilliant or not. What I care about is, are they honest? Wisdom comes from knowing thyself. It's important to help develop wisdom over time, not just knowledge. So you surround yourself with people that are better than you, that will teach you, that will hold you accountable, and you hold them accountable. Always give people a second chance. If somebody's made a bad decision, learn the lesson, but the other person gets the benefit of the lesson you just paid for. Make sure they learn the lesson, and then you get the benefit of that lesson going forward, develop programming that assures that people master the skills for which they are responsible, and give them the tools to do that. But don't respond to every flashy new idea in the marketplace. Just be careful. There. Go at it carefully. So rigorous, cost control outstanding client service are very, very important elements of making it work over the longer term,
Johnnie Martinez 12:33:28
diversity in thought and diversity in the sort of the board of who you surround yourself with. Every lender wants to diversify its portfolio to help manage risk, but you won't have diversity at the top to manage the collective think that comes in develops its own risk.
Christopher Murphy III 12:33:45
Well, there's no lender ever makes it bad. Look, it just happens when you're doing analysis. Be substantive. Ask the questions. Curiosity is an important element. I want all of our people to hear you're curious. You learn two more
Johnnie Martinez 12:33:57
questions for me, the last one reflective on the bank, and as you step into this role of executive chairman and Andrea short and Kevin Murphy step up into their new leadership roles, where do you see the banks headed with the people that you've been to for so long to step into this new role?
Christopher Murphy III 12:34:14
Well, I suspect it'll be a lot of what we've done. They will widen our scope and our horizon a bit. I will spend more time with clients, thanking them for their business. I'll spend more time with our people, understanding their needs and helping Kevin and Andrea develop people in their respective areas. Think about the intentional decisions she needs to make as we grow the businesses, what geographic growth should we be taking? Where does it go? I'm not going to be involved much more in the strategic side, down the executional side, so I'll be thinking three, 510, years down the road, what do we need to do to make sure we're still relevant, we're still growing. Most of our growth has been organic. You will find that we've acquired other people. But my wealth comes because the company is worth more, not because it's bigger, and I get paid. Most people in the banking business, their income is linear to the size of the bank. That causes people to go out and acquire businesses so they're bigger and they get paid for but it doesn't help shareholders. In my case, we use discounted cash flow analysis. If somebody's been growing at 3% a year in a market, we're not going to lay out 40% of their workforce. It's a relationship business, so we use reasonable assumptions, and we end up being the second bidder in an awful lot of things, but we're glad we didn't get because you make it on the buy side. We want to get good people, and we want to get it to the right place. Most of our growth, almost all of it, is organic. It's one customer at a time. The key is to be patient. Just keep growing and be patient. And when it's time to take your foot off the gas pedal, get it off the gas pedal, andapply the brake. There's nothing wrong with that. Our objective financially, we want to perform in the bottom part of the top third. We don't want to be. At the top of the top third. If we perform in the bottom to the middle of the top third every year, after five to seven years, we're in the top five.
Johnnie Martinez 12:36:07
No, that makes a ton of sense. And I think one of the fascinating parts better you talked about now in the chairman role, being part of that three, 510, year planning is with that in mind, what do you think are the biggest opportunities moving forward, especially in the specialty finance space that people should
Christopher Murphy III 12:36:24
be watching. We're looking at problems with a possible recession and an economy that will back off, which will cause values to drop. How do you prepare your customer for that? Do you de fleet something now, or do you wait? Where are the areas that are likely to get funded and what's not going to be funded from? Funded from the federal level. What's going to happen with infrastructure is that infrastructure going to be paid for federally or locally, and what happens to the financing capability in the United States, it being a reserve currency and relative to its deficits? So for me, is looking down saying what's likely to happen sooner or later with this deficit, the inability to finance and run growth as a country, sooner or later, you got to pay the piper, and what did that look like? And how do you prepare for that scale and capability? There are probably verticals that we will get into that we're not in now, that we would look to develop a better approach to but we need to understand solar is an example. We spent three to five years studying solar before we got into it, and today, we do solar primarily in the Midwest and the Northeast. Each state is different. We understand the state laws. We understand how to go about it. We're an all in one site for small to mid size solar, and we're not doing the big stuff. We find a niche that we can be in, where we can add value, where we understand it, and then we work that area.
Johnnie Martinez 12:37:35
Okay, fascinating. Would that all make sense? Is there anything the audience of equipment, Finance News. So equipment dealers, lenders, fleet managers. There anyone else here should know about your career and your time? One of the things
Christopher Murphy III 12:37:46
that I tell our people, I don't need to be listed and bigger this year than last year. That's not where we're competing. We're competing to be good, not bigger, not more volume. We're competing to good, be good and have good bottom line overall. So there's a tendency as a test faster, and a lot of us have a tendency to want to beat ourselves on our chest and tell everybody how good we are. I think it's making sure we're looking at the right metrics that are for us, not for the world. And I think that's the important thing as we go forward. Fascinating.
Johnnie Martinez 12:38:15
Well, thank you so much for joining me on today's episode of the day.
Johnnie Martinez 12:38:23
Thank you for joining us for the dig where we aim to take the industry and you to better results. This podcast is a production of equipment finance news. Visit equipment finance news.com to learn more about our lender directory and about our annual event, equipment finance Connect. Equipment finance Connect is where lenders and dealers come together to network and connect around financing opportunities. We hope you will join us for next month's episode of The Dig. You Oh.
Transcribed by https://otter.ai