In this installment of our series of executive interviews, Charlie Perer sits with Ken Pardue to understand his plans to grow Triumph, the pace of change in the ABL business and state of the market, among other things.
Charlie Perer: Thank you for your time Ken. To begin, can you please briefly talk about your background?
Ken Pardue: Sure, Charlie, it would be my pleasure. I’ve been in asset-based lending for the better part of 30 years. I started my career as a CPA at Arthur Andersen and upon transitioning to lending I received my credit training in ABL at Security Pacific Business Credit. First, as an associate working on the front end of deals prior to issuing a proposal letter, and then as an underwriter taking deals through credit approval and closing. I got into originations when, as an underwriter, I sourced and closed our office's first new deal after being acquired by Bank of America and never looked back.
Perer: You recently joined Triumph Commercial Finance with goal of scaling its existing ABL group to include a national presence. Why join now and what excites you most about this new challenge?
Pardue: I am very excited about joining Triumph Commercial Finance, a division of TBK Bank. TBK Bank is a young bank that already has a national presence in many of our lines of businesses, including ABL. Our ABL group was started in 2012 with a focus on the lower middle market. Today, our ABL strategy is to build on that success and broaden our target range. I believe we can become a go-to lender for deals ranging from $5 million to $50 million.
I was fortunate to be part of the leadership team that successfully did this at another institution and recognize when I am joining at a seminal time in a bank’s growth. That time is now for Triumph as TBK Bank is committed to this end of the market and incredibly nimble as it pertains to delegating responsibility to division managers. I have the support to expand the origination team strategically, building on the geographic success of TBK Bank's other specialty lending businesses. Lastly, we already have the underwriting and portfolio infrastructure in place to accommodate our growth so we are poised to scale.
Perer: Is it necessary to have a national reach and has it become table stakes as part of building a respected bank-ABL group?
Pardue: As I mentioned, the great thing about our ABL group is that we already have a critical mass of borrowers and portfolio throughout the U.S. I don't think having a national presence by itself garners respect. I've been very fortunate in my career to have worked for some of the best in the industry who emphasized to me that controlled growth with good credit discipline will prevail cycle to cycle. It takes a lot of closing fees to make up for a loss. To that end, our BDOs need to represent us well, tell our story to the market, quickly parse through a deal, and surface and mitigate risk. This will earn them credibility both in the market as well as within Triumph.
Perer: Speaking of competition, does the market need yet another ABL platform?
Pardue: Who said competition? What the market never needs is a competitor that does unnatural things like bending on both price and structure to win mandates. We've all seen that happen many times in the past cycles, and it never ends well. Pressure to grow for growth's sake causes people to lose focus. As part of a larger, disciplined organization, we will expand on our own terms.
Perer: Tell us about the Triumph platform and what makes it unique. Where is your whitespace to build your brand?
Pardue: As I mentioned, TBK Bank recently celebrated its tenth anniversary, but our roots go back to a real estate development company that started nearly 15 years ago. Specialty lending, which includes ABL, is a big part of our platform, with a strong focus on transportation. With 80% of the goods in the U.S. moved by truck, TBK Bank is a market leader serving this critical industry.
The bank's subsidiary, Triumph Business Capital, is the largest transportation factoring business in the U.S. We also have a robust transportation equipment finance business and insurance agency. My initial focus will be to help the ABL group better align with our specialty lending counterparts. For example, we would love to provide the working capital facility where our equipment finance colleagues already have an existing relationship. ABL will also be a solution when borrowers move up the credit spectrum from factoring. It makes total sense to leverage off of our existing success.
Perer: Do you think the broader trend of regional and community banks forming specialty finance groups is here to stay or is it part of a cycle?
Pardue: I personally think that maintaining separate specialty lending groups is a phenomenon that is here to stay. Senior bank leaders have come to realize that the credit skills required to source, underwrite and manage collaterally focused transactions are very different and distinct from the skills necessary to manage a C&I book. I once heard a banking leader say that he didn’t want BDOs with credit skills. He wanted BDOs that could knock on doors. Obviously, an originator needs to have an active presence in the markets they cover. However, I believe a BDO without credit skills is a recipe for disaster.
Perer: Can you talk about the state of the lower end of the ABL market in terms of competition and consolidation?
Pardue: Competition in the lower and middle ends of the ABL market is as fierce as it ever has been. Since the shutdown occurred in March of 2020, people have said COVID was going push the economy over the edge. Thankfully, that never really happened. COVID certainly caused disruption and impacted certain sectors such as hospitality. However, I don't think that it crippled the economy as most people feared. A lot of ABL borrowers received PPP money that boosted their liquidity and correspondingly reduced borrowings. As a result, I believe the current economic conditions are resulting in fewer companies being pressured by their existing lender to refinance. This, in turn, puts additional pressure on ABL groups to grow when some of those traditional source channels are not there. This trend is going to continue for the foreseeable future, unfortunately.
Perer: Speaking of change, how has the ABL business changed for good this past cycle?
Pardue: That is a good question, Charlie. There was a wide belief that the largest companies in the world were the best. I've been fortunate to work for some of the largest and best companies. With that comes working with world-class people and learning world-class processes. The downside is that now it also comes with world-class bureaucracy. I am not trying to cast stones, but some great organizations have restructured and cut staff because of some ratio. Fortunately for groups like Triumph and some of our competitors, both team members and borrowers realize that smaller, more nimble organizations are an alternative to some of the larger institutions.
Perer: You have successfully done this before for other banks. What are some prior lessons you have learned that you plan to incorporate at Triumph?
Pardue: First and foremost, it starts with the people. If you can lay out a plan on how folks can expand their referral base and how it will benefit them, people will buy-in and drive success. You cannot keep naysayers around because negativity breeds dissension. If you provide the resources and support to help people succeed, I believe it will happen. Lastly, be ready to change course as necessary. Plans may need to be adjusted along the way. Don't get bogged down.
Perer: What are the advantages and disadvantages of having separate teams sell ABL and factoring as most bank specialty finance groups have them split into two team?
Pardue: Charlie, I only see advantages. While there may be some minor overlap, ABL BDOs and factoring BDOs call on different referral sources. Additionally, the analysis is quite different. However, it is imperative that ABL and factoring BDOs from the same organization maintain a coordinated calling effort so that deals can quickly and seamlessly refer deals to each other. It is essential to do what's right for the customer and the institution.
Perer: Lastly, tell us something you are worried about that the rest of the market has yet to figure out.
Pardue: Charlie, there are a lot of people smarter than me thinking about these types of things. I'm not so sure that the Fed will be able to keep inflation at bay. I worry that borrowers may have a hard time passing increased costs along to their customers, impacting both their cash flows and liquidity.
Comments