David Neaves is CFO of Lendmark Financial Services, a household credit provider based in Lawrenceville, Georgia that offers personal loans, automobile loans and retail merchant sales finance services through more than 350 branches in 19 states. As CFO, Neaves shares how he helps shepherd a financial services company through these challenging times.
For a consumer finance company that doesn’t take in deposits, how do you fund your loans? Is liability management challenging these days?
For funding, we look to the capital markets and we have a number of national and international banking partners that provide short-term warehouse lines. We also do term financing through the asset-backed securities market.
Early on in the pandemic we overbuilt capacity, especially on our warehouse lines and bank relationships, in case there would be any kind of recession-based cycle in which we would need to have significant amounts of liquidity available. This allowed some of the early issues to play themselves out.
By mid-March, the liquidity market got very tight and our investors got concerned about potential credit losses in our consumer portfolio. But because we set ourselves up well, we were able to let them know that we would not have to access new forms of liquidity for at least nine months.
We were also able to stay within the limits in terms of credit losses because we were able to tailor our solutions to individual circumstances, such as deferring payments until someone received their unemployment check.
At the end of October, we were able to go back to the markets and complete financing at very attractive rates. We also completed a deal for a five-year term loan – the first time we were able to do that. So we’ve done quite well in our liquidity management during this time.
What are your biggest challenges as a CFO in the banking industry right now?
It’s important to distinguish ourselves from others in the financial services industry — we really are different from a bank. Over 90 percent of our customers already have a checking account with a bank, but they come to us because they don’t think their bank can meet their immediate needs for credit if their dishwasher goes out or they need to replace their roof. We can help them find a solution that fits within their budget and is affordable. But to be successful, we really have to do more than provide money — we need to work alongside our customers to help solve a problem and be there for them throughout the life cycle of the loan. The challenge is communicating the value of this niche to investors, regulators and lawmakers.
When we first started talking to potential debt investors and bankers in 2013, we had to distinguish who Lendmark was and how we did business, because there’s a natural tendency to look at the consumer finance model like it’s similar to the payday lending or title lender model. So we walked investors through how we do things differently — we fully amortize loans so there’s no balloon payment and we cap our APR at 36 percent. We were also able to show investors the value of how we build customer relationships by having them meet with our representatives in our branches.
For regulators, we’ve spent a lot of time in state exams explaining our model and why we shouldn’t be grouped with either banks or payday lenders — we’re a unique segment. I think they get it, but we also need to make sure lawmakers understand, both on the state and federal levels. When they are thinking about banking laws or consumer protection laws, they need to understand how our model serves the needs of blue collar America.
As CFO, how do you play a role in the company’s growth strategy?
Particularly because we are in the financial services business, we have a lot of people within the company that have a financial or numbers background. So I interact with a lot of my peers, both on the operations and credit side, as well as internally with the CEO, looking at opportunities for growth.
My role is to make sure any expansion plans make sense from a financial allocation of resources perspective — can we enter new business lines? Does a particular capital investment make sense considering other priorities?
While Covid-19 has certainly been a challenge for us, it has also allowed us to accelerate some initiatives, such as launching enhanced functionality on our digital app. Existing customers concerned about coming into the branch due to the pandemic now have the ability to close additional loans remotely, and while new customers still need to come in to sign, they can do many things on the app first to limit their time at the branch. Coming out of this, we’ll be a much stronger company having enhanced what we can do for both customers and employees.
