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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 14:59:50
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 equipment finance news.com
Johnnie Martinez 15:00:24
On today's episode of The Dig, I'm joined by Rick piermon of password, and I'll let him talk about himself and his background and the role he plays at the company, we can start talking about what's going on in the market today. So Rick take it away. Yeah.
Rick Pierman 15:00:39
So Rick pierman, path forward commercial finance. So what I do? I lead the originations team for all our term lending products that includes equipment finance, our structured finance platform, which includes USDA, SBA lending, along with some conventional acquisition financing as well. So been in the industry now for dating myself, but 30 years, started out of college as an accountant and was able to take that opportunity and join a startup, which is the equipment finance division as it stands today at pathword, and that was called tip capital, through various acquisitions, we are now Part of pathword, but that is my background.
Johnnie Martinez 15:01:34
What are you seeing as the head of your working with password, as far as the state of the equipment, finance market today, and maybe where the most demand is or the stress is right now? As you look around the market,
Rick Pierman 15:01:52
you know it's been very it's robust. I think there's opportunities out there. But what we're really seeing, kind of a change in the marketplace is really, you know, the new private credit entrance. They, you know, historically, when you looked at what you call independent, non, non bank, you know, non captive lessors or finance companies. You know, they didn't have the deep pockets and low cost of capital that some of these private credit entrance have, and they're there. You know, they are formidable, and you know they are you know, have that lower cost of capital. They have the ability to enter into deeper into credits. So we're seeing that what that's also created is additional liquidity in the market. And I think that, you know, you can say it every year, there's rate compression, but you know, there's, we're probably backwards, a little bit different and how, and we'll kind of get into how we're we're setting ourselves up in a more disciplined approach, but there is a lot of yield compression, and so you have to be selective, and you can't be everything to everybody. But what we're seeing kind of what most demand, I think we're seeing a lot of automation. We're seeing a lot of our end users looking to automate some of their legacy processes, and so there's capital investment going into automation. We're also seeing a lot of refinance opportunities right now. We are seeing deals that have been maybe financed, maybe it was an acquisition two three years ago in a higher rate environment, and they're looking to, you know, kind of better position themselves from a cash flow perspective. So they're looking to refi, maybe re amortize their current debt. So those are, those are the two probably areas of growth that we're seeing in our portfolio.
Johnnie Martinez 15:03:50
Gotcha. Well, I do want to touch on the rates in a second. There's one thing I want to want to take time at, just for you to talk about it, since you were touching on it, refinance in the equipment industry, because I don't think it really gets talked about enough. As far as that element to it for lenders, because it is a a market within a market that maybe doesn't get touched on enough and does it get enough coverage and enough people kind of operating in the space? So we can talk about what you guys are doing that regard, and
Rick Pierman 15:04:19
sort of, yeah, you know, I mean, you know, we're looking at at companies. Maybe it be, it might be sponsor backed, you know, companies that have done an acquisition, the looking and and they maybe have, have, are performing. So not only did they, you know, acquire the those investments in a higher rate environment, but they're also performing credits, and so they're able to reduce their, you know, their debt and improve their cash flow by refinancing their their assets.
Johnnie Martinez 15:04:54
Okay, and do you think that, to your point, about it coming out of the higher rates? Do you think that's something that's going to be you already talked about, an opportunity, a trend, you're going to see more companies starting to get in on from the consumer, the customer side, more so
Rick Pierman 15:05:08
than and not to mention, you know, access to, you know, in essence, freeing up some working capital where maybe they have equity in that the equipment. That's going to be another avenue that other people may access, that, you know, what I would call hidden equity in their their assets, that maybe they can refinance and bring some of that working capital into the their organization. Gotcha.
Johnnie Martinez 15:05:34
And the great kind of segue into sort of the a bit of the rate conversation, right? How have the higher interest rates maybe changed borrower behavior and deal structure? As you know, we're starting to see that the rates start to come down, and maybe a little bit of an easier market to be in. Oh, the
Rick Pierman 15:05:52
rates have come down, really, over the past year and and really, you know, we were at such a low rate environment through the covid epidemic, I think historic. We're probably right at about where we were pre covid timeframe. I'd have to, you know, check those numbers, but I think we're there. But what we really dealt with over the past couple of years is higher interest rates, higher inflation. Tariffs now are becoming part of the equation, so all those combined have increased the cost. So I think from a behavior perspective, to hit the cash flow requirements, I think we see a lot of borrowers looking to structure, maybe on a longer tenor, on their transactions. So looking, you know, historically, something that might have been financed on a maybe a 60 month transaction like that might be trying to stretch to 7284 months. But we'll take a look at that and make sure that the underlying collateral will will support that extra amortization.
Johnnie Martinez 15:07:02
Okay, now that makes a lot of sense. And I think that you know the borrower is looking for that longer tenor is a kind of a great point, also talking about maybe some of the credit or risk trends you guys are seeing in the marketplace as we kind of get into 2026
Rick Pierman 15:07:17
Yeah, you know, we're not really seeing anything systemic at password. I think the portfolio is performing as it should the you know, put any credit organization, we're always looking at our underwriters or portfolio managers, you know, the ability to service the debt, priority number one, and then really doing a good job at collateral management and really, with our our equipment manager, of their asset managers, really making sure that we're doing quarterly, annual reviews on underlying collateral to make sure that they're in line So we don't have, if we have a dip in debt service, we also make sure that we don't have the dip in collateral coverage as well. So I think we're doing, you know, that's been our focus, will continue to be our focus, but we're not seeing anything systemic across the portfolio, gotcha.
Johnnie Martinez 15:08:09
And I think really putting all that together at the opportunities in the marketplace, the credit risk environment, the rate environment. With all that in mind, how is password positioning itself in this current environment to kind of deliver what the borrowers are needing and carve out a better market share?
Rick Pierman 15:08:28
Yeah, you know the, I will say, you know, from we talked about that there's a there's a lot of activity in the marketplace. Yeah, there's yield compression. But at pathward, we're really being selective, right? We're really have transitioned to a treasury led model, as opposed to operating independently across different business lines. We really call them products now. And each product, you know, has ROA requirements. And our treasury department is really kind of focused in discipline, price, pricing to achieve the desired Roa. And you know, it really is tread, you know, up to our Treasury says, Hey, this is our directive this quarter, or, you know, this, this fiscal year, to kind of go out at a certain product, and we will go and attack that market, and we'll be selective. We're not going to waiver. We're going to be maintaining our discipline in our pricing and our structuring.
Johnnie Martinez 15:09:30
So. Gotcha, okay? No, that makes a ton of says, I'm curious you talked about, you know, being that Treasury driven model and taking the different products into the marketplace when you're talking with potential borrowers, right? What does that conversation like? Because you you're coming at it with this sort of different approach of having the model in place. How much is there? Kind of, I don't want to say, negotiation, but effectively, negotiation right? As far as, here's what's going on here, here's the little margins we can change.
Rick Pierman 15:10:00
There's competition in the marketplace. I mean, I don't see that there's a deal that we go to a borrower and they don't have an, you know, a competing quote. So we have to, you know, based on where our treasury leads us. It will lead us into, you know, different markets, different different credit spectrums, and we'll use structure to do that, whether it's, you know, in the sponsor world, whether it's in a emerging market, whether it's in a industry that maybe, you know, has fallen out of favor at a large, traditional bank, we will go after those opportunities to deliver the ROA that Treasury wants the equipment finance group to achieve.
Johnnie Martinez 15:10:45
Okay, now that makes sense and you touched on. It has been fascinating to watch over the past year of just the the industries that have fallen in favor or fallen out of favor with,
Rick Pierman 15:10:58
you know, it's not in favor out of favor, it's, it's really, how do we do it in a controlled environment, making sure that we have the discipline from a credit and, you know, terms and conditions on The underlying, you know, agreement, making sure that we're monitoring, not only the credit and the collateral, and putting ourselves in a position to minimize, you know, exposure to the bank.
Johnnie Martinez 15:11:25
Maybe your your outlook on the entire industry, as far as what's going to be happening this year, maybe what role technology is going to play in that. I know the data center element of it all has been a big part of what's happening in equipment finance over the last year.
Rick Pierman 15:11:39
Yeah, we, you know, we continue to, you know, look to upgrade our technology, though, as we do that, right? You have to take a look at the processes, but it's not easy to change processes and regulate regulated environment. So we also have to make sure that we are properly changing the processes to fit that technology, but do so in a disciplined approach, controlled environment, where we we can satisfy the requirements of, let's say, the OCC but overall, you know, overall, you know, the outlook for equipment finance very positive. It's it's competitive. But you know, in looking at at our pipeline, we have enough to to meet our financial goals, and while achieving that desired ROA that that Treasury would like us to get Gotcha.
Johnnie Martinez 15:12:34
I'm curious. You already talked about what it means, sort of, to an extent, for for you guys. But what role do you think AI and automation are going to play in the wider equipment finance space? Obviously, the regulatory environment is going to shape maybe what you guys are doing, but yeah, everyone's going to be interested in what's going on. And the borrower side of is me like, well, what are you doing in this regard, and how is going to work
Rick Pierman 15:12:53
for us, you know? We do. We do look at it, you know, we, I would say, from my perspective, you know, we have services and and tools out there that are using kind of AI more from a sales prospecting perspective, nothing you know from a you know, the underwriting side of things currently, but the bank takes a look at how can we operate more efficiently? Can we use AI to do that? And we're taking a cautious approach. Again, regulatory environment. We're out there some of it. Yeah, we may use third parties eventually, or we're looking at building it in house. So it's all part of our growth plans. Is to incorporate AI, but do it in a controlled manner.
Johnnie Martinez 15:13:45
What piece of advice would you give to someone who's kind of just getting started in the industry, given everything you've done in your career up until this point, and given the current state
Rick Pierman 15:13:54
of the market, you know, always take a look at furthering your career. So diversify yourself. You know, diversify yourself in in your skill set, meeting learn new disciplines, whether that's you know, I'm going to work a few years, and on the accounting finance side, I may go into the credit side, I may go operationally, sales, all that. There's a lot of disciplines to learn and become more well rounded and Grow
Johnnie Martinez 15:14:24
family thing, because I've heard a few times from especially some of the long time executives in the industry, as far as the ability to be cross trained, right, the ability. To have all that understanding.
Rick Pierman 15:14:34
And your organization may not have, you know, a formal plan, but you know, as they're growing, they're going to need, you know, have needs to expand and take that initiative yourself and look to find a, you know, mentor, mentors within the organization. That's what I did. I was blessed with several of them over the years, and they kind of steered me. They were industry veterans, and I relied on them. And to tell you the truth, still rely on them. So I will say, you know, do that also really get involved in the industry. Don't touch big title, get a broader view. Attend the association events, get involved. I think that's critical. I, you know, not only are my some of my mentors, you know, people who I've worked with or worked for, they're also industry within the industry. You know, they even though we're, we're, you know, competitors in this space, we really are also partners. You know, we do? You know, we partner with other banks all the time, and whether that's through syndications, knowledge transfer, all that, you know, we speak to each other, we attend these conferences and get involved that's going to help your career growth as well.
Johnnie Martinez 15:15:58
That you know for sure, that makes a ton of sense, as someone who's been covering the industry for a few years now, and we have our own event for equipment finance news. Equipment finance connect, as well as going to the wider industry events. It is fascinating just how candid people will be at these events and able to sort of share everything they're seeing in the market and what they've learned. And it's very, very welcoming industry that I don't you know. Another element that gets talked about a lot by the people in it maybe doesn't get talked about a lot to the people outside of it. Yeah, absolutely okay. And just one last question for me, is there anything else you think readers of, equipment, finance, news or listeners of the dig podcast should know about what path word is doing. Maybe a key takeaway from everything we've talked about today, as far as what's happening in the industry and your background that they should know as they get further into their 2026 activities. You know,
Rick Pierman 15:16:55
at PATH word, it's really the industry is so diverse and maintaining that discipline that we've transitioned to. It didn't mean that we had to to eliminate and stop doing business. We just tried. You know, you have to transition. You have to adjust, adapt, and that's what we do at PATH word, and that's been our motto. And we're financial inclusion for all is really, you know, the mission of the bank, and we take that to heart in the industries and the opportunities that we go after.
Johnnie Martinez 15:17:30
Fascinating stuff. I thank you for joining us so much on today's episode of the the dig Rick and you know, I hope to talk with you again soon and for our listeners to learn more about what you guys are doing going forward and keeping an eye on everything going on at pathward.
Rick Pierman 15:17:44
All right. Great. Thank you, Johnny. Appreciate it.
Johnnie Martinez 15:17:52
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