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Wheeler Financial — Building on a Heritage with Small Businesses

Date: Oct 21, 2019 @ 07:00 AM

In March, Pitney Bowes launched Wheeler Financial from Pitney Bowes. The move thrust the longtime company, best known for its postal solutions, beyond its traditional captive financing into third-party financing to meet the needs of small businesses. The company expects $50 million to $70 million in origination volume in 2019 and continues to bolster the Wheeler Financing team — currently roughly 30 members — as it targets six key markets and expands geographically.

Equipment Finance Advisor recently sat with Christopher Johnson, Senior Vice President and President, Pitney Bowes Financial Services, to learn more about the bank’s strategic initiatives to expand its presence in the equipment finance sector. Johnson has been with Pitney Bowes since 2016. He previously served as President of Terex Financial Services and before that he spent 15 years at General Electric, including 11 years at GE Capital.

Equipment Finance Advisor:Wheeler Financial from Pitney Bowes has clearly focused on small and medium-sized businesses. Why is that such a sweet spot for Wheeler Financial?

Photo of Christopher Johnson, Senior Vice President and President, Pitney Bowes Financial Services

Christopher Johnson: When you step back and look at Wheeler Financial, it works because it is part of Pitney Bowes and it draws upon an incredibly deep heritage that we have built up. Pitney Bowes is in its 99th year of operation. During that time, we have been able to build a few things, such as good depth of clients. We have over 750,000 clients domestically inside our small and medium sized business organization. That cuts across a number of sectors of the economy. We have been building that base, and our relationships with those customers span a long time – on average over 10 years. Then you add that, for the better part of 40 years, we have been doing financial services. We have been doing a mix of captive equipment financing as well as some third-party engagements as well. We have built up an experience base with these customers. We understand the various ebbs and flows in credit and payment history.

We have been able to add a third part to this, which is we own and operate the Pitney Bowes Bank Inc. Postage is a currency under U.S. statute. Like any currency, you have to pay in advance. We have obviously been doing a lot of work in capital lending around postage and supplies for the last 22 years. In owning and operating the bank, we have done a lot of depository activities around mail and mail services. We’ve built up a nice set of deposits, which have grown. They are very advantageously priced from a competitive stand-point. When you look at the statistics, what you will see is a really low-cost of capital base; growing deposits; access to the customers, with a very good understanding of these customer credits and experience from financial services, equipment financing loans and leases.

When you put those together, you have a very solid set of fundamentals from which to operate. The types of companies we are dealing with today are growing and they are competing in an ever-more complicated global world. They are looking for sources of capital to facilitate their strategic priorities.

Equipment Finance Advisor: Pitney Bowes has a long history of captive financing. Wheeler Financial, however, is focused on third-party loans and leases. What changes are you making in your organization to accommodate this new focus?

Johnson: Certainly, we have much more experience with captive financing. Wheeler Financial is housed within our banking corporation. There have been things we have needed to develop and the cloud has presented a lot of alternatives in enabling more capabilities. We are building a platform for the future to allow us to maximize efficiencies.

Equipment Finance Advisor: You have mentioned Pitney Bowes Financial Services has outperformed the market in terms of credit performance. What is your credit philosophy at Wheeler Financial?

Johnson: If I look back over the financial crisis going back a decade, we fared fairly well. The overall market saw higher losses than what it had traditionally seen. While Pitney Bowes did experience higher losses in this time, we fared better than the depth of losses in the market. Part of the reason is we focus on a specific sector—the relatively small to lower middle-market type business. There wasn’t as much exposure. Certainly, there were segments affected. The many years of experience with these customers allowed us to understand where we needed to be to maneuver through the cycle. We are leveraging that capability as we think about credit and how we view these companies’ performance going forward.

For Wheeler, there are two parts to credit underwriting. There is our history. The proprietary information and experience that we have with our customers. The second part is credit fundamentals. Underpinning that is an element of collateral and collateral exposure. Our proprietary knowledge is the longstanding experiences with these customers. We have relationships with them. Even when they may face periods of stress, we’ve been able to work with them and move through the credit cycles successfully.

In terms of the technical part of the underwriting fundamentals, I don’t know it is vastly different than other institutions. We stay disciplined around a company having a few years of operating history, and making sure we understand their business plan and their goals and objectives. We look at some credit ratios. We factor all that in with our proprietary experience. It is a score-based philosophy with a cash-flow underpinning, but it is also tied to what our experience has provided us. And we can look at that over a period of time, which helps us be successful from a credit point of view. There are areas where we have collateral and we believe in solid principles of diversification of exposure. We are focused sectors where we believe we have knowledge. Our targets are small and medium sized businesses with two to three years of operating history. Most of our customers have much longer than that. So, we are able to pull from our 750,000-customer base. We look for positive cash flow and EBITDA performance.

We focus on six sectors: healthcare; manufacturing and industrial; wholesale and retail trade; business and special services; technology; and construction.

Equipment Finance Advisor: During the second-quarter earnings conference call, it was stated Wheeler Financial has originations in its pipeline, up five-fold from the launch. And at Pitney Bowes Investor Day, in late May, the origination volume was targeted at $50 million to $70 million for 2019. What is driving this growth?

Johnson: We’re committed to our 2019 outlook that we have provided to the street and we’re working our way through that.

It is clear there are fewer and fewer institutions investing, and less and less capital being invested, into small businesses in the U.S. Personally, I think it is a problem. I think it is going to create economic challenges and employment issues for the country. As I engage with business leaders out in the market. I talk with them about their biggest challenge. They want certainty and they need policies that will be supportive of the business environment. They need access to capital so they can deal with the issues around efficiencies and investing for growth.

I think our traction in the market — our entry into the market — is founded on the idea the market is less available to small businesses than it is to large cap companies. I think this is our core heritage: We are really committed to the small business market. Some of the deals we have been able to do is because we are reacting to help these companies while we are also staying disciplined to doing good deals.

Equipment Finance Advisor: What is the current size of the Wheeler Financial team and do you expect that to increase?

Johnson: We are in the neighborhood of 30 people. We are committed to growing it. There are opportunities for expansion, which I’m excited about. We are building out a front-end sales force. We are actively covering 18 markets with feet on the street. We’ve got infrastructure spanning out across Utah, Arizona and the Northeast. We are still hiring.

Equipment Finance Advisor: Any concerns about the rumblings about a recession?

Johnson: The economy is mixed. There are positive signs; there are signs that show some softening. I don’t think softening equals recession. If you look at the statistics, they are still positive. There is still growth in the market. The U.S. is still strong and there is no better market in the world today. Services has remained robust; manufacturing had a slowing, while it is still showing growth. You see some mixed signals. Things like PMI being lower than 50, that index is a measure of confidence. When I talk to business people in the market, especially small businesses, they need certainty in terms of policy because they are making decisions for the long term.

It is hard for small business owners on Main Street. I don’t expect it to get better overnight. It hasn’t improved over the last 10 years. We are taking a stand. It is the right thing to do from the stand-point of our economy; but I also think it is an attractive thing to do from a shareholder perspective and creation of value point of view as well.

Mike Dickinson
Editor | Equipment Finance Advisor
Mike Dickinson is Editor of Equipment Finance Advisor. Dickinson has more than 30 years of experience as an Editor and Reporter. He spent 20-plus years at the Rochester Business Journal in Rochester, NY, including 18 years as Managing Editor. He also covered Eastman Kodak, technology, optics and telecommunications, among other areas. His writing and reporting on Eastman Kodak won 1st Place – 2012 National Newspaper Association Best Business Story and the Gold Award – 2012 Alliance of Area Business Publishers for Breaking-news coverage. He also won the Silver Award – 2001 Alliance of Area Business Publishers Best Coverage of Local Breaking News – Global Crossing. Prior to working in the business news arena, Dickinson was a reporter for the daily newspapers in Syracuse, NY, and Batavia, NY. Dickinson holds a Bachelor’s Degree in Mass Communications/Journalism from St. Bonaventure University.
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