Subscribe
Share
Share
Embed
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
Hello and welcome to the dig. Join equipment finance news editors as they connect with leaders in the equipment finance industry on both the lender and dealer sides of the table to discuss new developments, market analysis, trends, tips and more. I am Johnny Martinez, the second deputy editor of Equipment Finance News, the one news source for both dealers and lenders. Find us at equipmentfinancenews.com
Johnnie Martinez
I'm Johnny Martinez, the second deputy editor of Equipment Finance News, and on today's episode of The Dig, I am joined by Andrea Short, President & CEO of First Source Corporation, and CEO of First Source Bank.
Johnnie Martinez
How would you describe the overall state of the financial services market as you step into the CEO role of the corporation, really the leadership of the entire company? Yeah.
Andrea Short
So I would say, overall, the state of the market, I think it's an exciting time. It's an exciting time to be in banking, because there's just so much change. So change is coming at us continually, faster and faster. You know, it seems like every day, maybe, maybe it's not quite every day, but just change is just happening, and so it gives us so many opportunities to help serve our clients, to help grow our business. It just, I think that all those changes can help make us better, and the competition that's out there focuses, or forces us to focus on getting better and looking at how we're doing things. So I would say that overall, I'd say it's an exciting time to step into this role. Obviously, also with change, it's maybe a little there's there's a lot going on that can be a scary part of it too, right, making sure you're making the right decisions. But I've got a great team that's helping with that, so I think that I'm not as scared as I am excited. There's still the uncertainty out there that probably, as I read through your questions, uncertainty is probably an answer on a couple of your questions. So we, you know, the uncertainties really been there for 1215, months. We thought once the election happened, uncertainty would go away. And that's not what we saw, right? And so I think the geopolitical, the tariffs, you know, the economic, that's the other piece of the current environment that you're stepping into, but and that creates maybe a little bit of higher level of focus on some of the different risk areas. But for the most part, I think it's the exciting time to step into this role.
Johnnie Martinez
Okay, no, that makes a ton of sense. And definitely you touched on the uncertainty element, but also the excitement of it all. And when you're stepping into the role in such a long standing bank, a bank that has had the sort of the history it's had, what elements of you know, first source, long standing culture, its history, are sort of essential to preserve. And where do you see the room for modernization, really, to make it something of its own under your leadership?
Andrea Short
Yeah, yeah. So, couple things there. One, I think that the long standing culture, we have, a strong long standing culture. I've been part of that culture. I've been at the bank for 27 years, and so really being groomed to continue to move up and to move into this role for you know, for a decade, maybe I became CFO in 2013 so i The our long standing culture is ingrained in me, and so the things like customer service, building, you know, customer service, focusing on our clients, living our mission, our mission, to help our clients achieve security, build wealth, realize their dreams. Those things are things that are long standing that I don't see changing, building relationships with clients. That's what we're about. We're a relationship bank, and so I don't see that changing. We manage risks. We tend to be maybe more on the conservative, conservative side as we manage those risks, but we are, you. Focused on managing risk. We're focused on community engagement, being leaders in the communities that we serve. Those are those long standing culture items that I don't think, that I don't see changing the modernization probably is revolves more around serving our clients in the manner they want to be served. Now, our specialty finance group has been national for, you know, decades, 50 years, 4550 years. Our core bank is more you know, Northern Indiana, Southwest Michigan. But we need to serve our clients in the manner they want to be served, whether that be in person, or it be digital, whether it be via your computer, whether it be via your phone, right? Everybody wants to do everything on their phone nowadays. So it's that modernization, I think, is continuing to improve our technology so that we can continue to serve clients in that manner and however they want to be served. I think that's the biggest modernization, is the technology piece. Okay?
Johnnie Martinez
No, that makes a ton of sense, and we hear about that so often in this position, talking about whether it's the overall bank, the overall financial service side, but even the specialty finance side. But you know, with, with all that in mind, with, with what you industry, and then where the bank is, so which macro forces, things like interest rate, credit quality, government regulation, are most shaping, sort of your outlook for the next year, two years, as you're kind of taking over as the leader of
Andrea Short
the bank. Yeah, so I'd say a see it, CEO. I can't let go of any of the macro forces, right? They're all they're all a piece of it. And if you don't consider at least, you know, you got to consider all of them, and so do we have a bigger focus on them? I would say right now it's probably, you know, less focus on regulation. Where we are today, you know, we're seeing less regulation. We're seeing easement of some regulation. So our focus isn't on regulation as much, although we do realize that it seems with a change, and if there's a change in the White House in a couple years, then regulation that pendulum could shift back and forth. So let's focus on regulation. I would say today more focused on interest rate risk and interest rates and then credit quality. Can't ever forget about credit quality, right? Kelly's healer banking. You know, we like to say we want pristine credit quality. I don't know that. You know we pristine is pretty hard to achieve, but credit is the big risk for banks, right credit and liquidity, and then today, in the interest rate environment and the uncertainty there, I think that's really our other focus. And how do we balance that interest rate environment between the deposit side and the loan side?
Johnnie Martinez
Where are you really seeing that credit quality kind of differences start to emerge, whether it's, you know, where are things holding firm, or where you may be seeing signs of stress as we're, you know, especially getting in sort of the year end business cycle, yeah.
Andrea Short
So I think that all of our areas, whether it be our Community Bank or the various divisions in the specialty finance group have different credit cycles. Some of that helps balance it out. We generally tend to have the community bank its cycle is different than some of the specialty finance areas. I would say overall today, our most pressure is in the outer rental division. And really what we're seeing there is more of a cyclical correction. So, you know, we have all the rental clients are over fleeted, and there's a is a correction going on in that market. So that's probably where we're seeing most of the stress and credit is you could, you can look in our 10 cues and see where our loan non performing loans are. It's pretty evident just from the numbers even, but that being said, equipment values are holding. And so I think that that is really helping to mitigate that, that credit risk. So we're working closely with our borrowers. That's one of our things is we have strong capital. We have strong reserves, and that allows us to work with our with our clients, through times that are tough and so helping them deeply, helping them run their business makes. Decisions on locations, that type of thing that helps mitigate that credit risk
Johnnie Martinez
catching you sort of touched on it there in terms of working with clients in these tougher times for their companies, whether it be fleeting or other issues they're facing. So what lessons from prior cycles are sort of guarding these maybe early decisions as CEO, especially given how long you've been with the bank, you're a lot more familiar with it than maybe someone who was coming in outside with you,
Andrea Short
right, right? And I came up on the finance side, right? So I'm obviously a little prone to focus on the numbers, right? But I think that our long term, our approach, really those, those early lessons, what we are, what we've learned from prior cycles, is to work with our clients to try to get ahead of those issues. So I think that the strong reserves, the strong capital, those are two guiding principles that we've learned from the past. You know that those are kind of table stakes for the bank, just part of who we are. So I think that's definitely what we will keep. I don't know that I'm making, well, I would say I'm not making significant changes, right? Since I've been through the bank, I've been president of the bank for five and a half years, and then and CEO of the bank for a while, and President of the holding company. So it's been been in those leadership roles, paying attention to those things. So I think it's more building relationships with our client, paying attention to their knowing their business, so we can help them through the credit cycles that are coming or that they're going through, and then just continuing to monitor probably collateral values and staying on top of that.
Johnnie Martinez
Gotcha Well, kind of getting back to the customer, the borrower, right? How are the borrowers adapting in the you know, we're seeing rates starting to come down, but they're still relatively high. And how are they sort of adapting to the environment as it kind of sustains and, you know, what does that kind of mean for the overall loan growth in the marketplace,
Andrea Short
yeah, I found it, like, higher for longer. I was like, well, that's probably today's word, right? Where we're looking at today, like, you know, six, seven weeks ago, we thought they were coming down a little bit faster, right? And, I mean, still higher than they were several years ago. But overall, you know what's going to happen with rates, who I don't know, if we really know, there's lots of predictions out there, but I say overall, with with that rate, insert rate uncertainty, economic uncertainty. What we are seeing from our clients is that they are just they're holding back on capex to the extent they can. So they're they're guarding their cash. They're managing their managing that cash and managing then their loan balances more closely than they might be when rates are lower. So I think we are seeing a somewhat reduced demand for loans as they are watching that capex expenditures Now that being said, a good portion of our equipment business is also runs into replacement cycles, right? Cars get old, you know, you can, you can have an airplane with, you know, in our air those, those stay around for a long time, right, especially if they may get a new engine, but the body's staying around a long time. But, you know, cars, construction equipment, they're pleading up and down based on contracts one, right? They bid out a contract, get a new road. Road contract, they need to get more equipment. So I think that while we're seeing more cautiousness around the capex, there's also just a need as part of their general running their business. And so that continues to have, we've continued to have demand from that, right?
Johnnie Martinez
Yeah, when you, when you were talking, you said, you know, especially to the extent they can hold back on capex, that's the first thing I thought of my head, is like, yeah, the the the specialty finance group for dealing with the equipment industry there, there's only so much give you can have in that great because of the the, you know, especially the essential use nature of a lot of those industries you guys serve,
Andrea Short
yeah, yeah, because they do. They just, you know, the auto rentals, they, you know, they're only using cars so long. And the construction equipment is really, you know, a lot of that is driven by the by the contracts and what business that they have,
Johnnie Martinez
some, okay. With that in mind, really across the entire bank, but especially in the specialty finance group. What business clients do you see having the strongest growth engines that we had into 2026
Andrea Short
I'd probably say across the entire bank. Probably the strongest area for growth in 26 is potentially in our solar division, or renewable energy, I call it Renewable Energy Division, and and some of that's driven by tax law changes that are coming at the end of 2020 26 with elimination of some of the solar credits. And so people are trying to get projects to a state of in process, so they still qualify for those tax credits. So I think that that solar area, as a percentage growth basis, that's that's one of our areas for the for the largest percentage growth, and that we'll continue to see some growth. We're not a huge commercial real estate bank, but we certainly have our share of commercial real estate. I think we'll continue to see growth there. And then in the specialty finance area, probably construction equipment, you know, the auto rental still, I think they're still going through their correction, and so we won't see as much growth there. Airplane is aircraft is stable, Truck. Truck is probably another area where we won't see. Maybe that's in another one of your questions where I had that, where we talk about demand and moderating demand, I think that truck is not a is an area where we won't see. We see much more moderate demand there, not as much business there as as construction. So construction is especially finance area. Bank Overall, I'd say solar. Gotcha.
Johnnie Martinez
Yeah, we can do a few questions, especially finance group, but they're sort of one other question. I want to ask about the larger sort of bank operations, and sort of touched on it with the solar aspect, right? What sort of regulatory or policy developments are most likely to influence or are currently influencing, sort of your priorities as we start heading into the new year?
Andrea Short
Yeah. So if we call tax law, regulation or policy, that's, that's probably then, I would say the solar division from, from that aspect, it used to be this time of year with bonus depreciation. Another, you know, tax driven regulation or law, and that would have a, probably a bigger impact on our business as it was expiring. Now today, it's permanent, right? It's permanent, at least in our under our current, current administration. And so does that stay long term? Permanent? You know, only time will tell. That's why I always say yes, permanent. I always put the quotes around permanent because you've just it's permanent until the law changes, right? But so I do think in a lot of years, as bonus depreciation would be getting close to expiring, we would see more demand there, not as much this year, from that aspect, just given that the it is currently considered permanent. So those would be, I don't really see a lot of regulation from, you know, from the Federal Reserve, or from, you know, the other bank governing bodies that are having big impacts on us, as those regulations, for the most part, are being maybe lessened versus tightened. I don't know if it counts. It's probably, we probably get into this later, but like the other area of a development that's influencing our priorities is just the AI and what's happening in AI. And so I guess I'll hold that a little bit for some of your later questions, but that's probably one of my bigger things I see out there that are impacting us.
Johnnie Martinez
Okay, no, that definitely makes sense. And yeah, I know as part of our coverage, and since we're going to start talking, especially about the social finance group, no big part of our coverage over my entire time here with publication has been sort of what's happening with section 71 of the Dodd Frank Act, and so that's been very much a pendulum swing over the last few years,
Andrea Short
right, right? Well, and it's a balance, right? We've got to balance how much, how much resources do we allocate to it? Because it might be out there and having time to get ready and and roll that out, versus it's not coming or it's going to change, and how do you then determine how you balance resources? So we were working on it some we really. Pulled back. We're monitoring what's going on with it, but we don't, you know, we don't want to waste the resources working on something that's going to be totally different when it's fully when it final rules come out. Okay?
Johnnie Martinez
And getting into the specialty finance group, you've been with the bank overall for many years now. And so when you're already have sort of an idea of the importance of it, but how central is the specialty finance group to your long term growth strategy for the bank of the corporation,
Andrea Short
especially finance is, it's really part of our DNA. It's, it's part of we have been involved in specialty finance for, you know, almost a century, one way or another. Potentially, if you go back to the Ian Morris, you know, and the associates relationship, which I know Chris Murphy, talked through those things with you, and went through the history. But when you go back there, there was a piece of that, somehow it was related to the bank over the all those years. And then we the bank broke off totally separate for the last time in 1971 and in by 1976 we had developed, we were entering into the specialty finance area with the auto rental and so when I look at the specialty finance and the role it's played in the bank, I think it's a key, it's a key part of the bank. It makes up, you know, a significant over 50, slightly over 50% of our loans and lease is outstanding. So it's, it's definitely part of our long term growth strategy. It's a business that we've been in for a long time and will continue to serve. We do see competitors sometimes come and go, sometimes come and stay, right? But it's something that we're committed to for the long term. Okay?
Johnnie Martinez
And you already touched on some of this in the last sense, but I think it's getting maybe a little more granular on it. Right? What differentiates the specialty clients group at first source to maybe some of the other lenders in the aircraft, the construction, the trucking and even the fleet space?
Andrea Short
Yeah, I'd probably say three, three things differentiates. One is, is that expertise? It's the because we know, we know the industries. We know the equipment we have. Our sales officers you know, have been working in the industry for years. They know their construction equipment, right? They know different model planes. They know what we want to loan on what we don't. So I think just that expertise of knowing the industries, knowing the equipment is is a differentiator, because we've been in it so long along that comes with an experienced team and experienced value stream that goes all the way from from the sales officer that we talk about expertise, but it also goes through then our credit department and our loan operations, when they are papering the Deal and getting the collateral secured, they all levels, have that experience of working with the equipment and the different specialty finance areas, and I think that that helps differentiate us. And then just the relationship building. We have relationships that we've been in with clients, you know, for 40 years, for 35 years, but it's building those relationships with those clients that we are here. We've been doing this for a long time. We're here to meet your needs. We're here to stay, and I think those are probably our key differentiating factors.
Johnnie Martinez
Okay, and you already touched on this a little bit earlier. You know, when you when you look at the the core markets that the specialty finance group serves, where is the demand? Maybe the strongest today, and where is it maybe a little more moderating, or potentially even weaker?
Andrea Short
Yeah, I'd say strong business construction equipment, you know, and it's the replacement, it's the new contracts, it's the road building. So strongest is definitely in the construction equipment. Moderating. Probably the most moderating we see is in the truck that happens to be our medium, heavy duty truck over the road trucks and trailers, that happens to be our smallest portfolio. And and really has been our smallest portfolio as long as I remember so but I would say that's where we're seeing the most moderation, a little bit just from demand, and then just from looking at credits there and what we're what we're willing to. To make loans on in that industry. So that's probably where we're seeing the most moderation.
Johnnie Martinez
Just last thing on on my end. You know, as you sort of talked today, we talked about so many different topics, conversations, so many things happening in the industry on the wider financial service side, but even getting the special finance group. But is there anything else you think readers of equipment finance news or listeners to the dig podcasts, so especially equipment dealers and other equipment lenders should know about what you're doing, taking over, really, the bank as a whole?
Andrea Short
Yeah, I think that we are here where we've been here. We've been in this industry for 50 years. We are going to continue to be here. We know your business, and we want to help you operate your business better. We want to help you be more successful in the long run. And so however we can do that, that's what we're here for.
Johnnie Martinez
Okay, fantastic. It's been great talking with you. We were able to get different things and have this robust conversation about, you know yourself and the bank and everything that's going on in the industry. Fascinating.
Johnnie Martinez
Well, thank you so much for joining me on today's episode of the day.
Johnnie Martinez
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
Transcribed by https://otter.ai