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Welcome to Portfolio Perspective: Managing Risk & Seizing Opportunity, a podcast focused on the asset-based lending industry. Join Andrew Pace, Chief Client Experience Officer at Asset Compliant Solutions, as he interviews experts, shares insights, and explores strategies for managing risk, optimizing portfolio performance, and seizing opportunities in an ever-evolving financial landscape. From regulatory changes to technological advances, each episode provides actionable takeaways and deep dives into industry trends. Whether you’re a lender, servicer, or recovery expert, this podcast offers valuable perspectives to enhance your approach and improve outcomes.
When things are more volatile, people look to make decisions. The last thing you can do is just sit there and be paralyzed by it. There better be action that you're considering or willing to take.
Andrew:Welcome back to ACS Portfolio Perspective. I'm your host, Andrew Pace, Chief Client Experience Officer at ACS. Today, I'm joined by Eric Anderson, Chief credit officer at Northland Capital in Saint Cloud, Minnesota. Eric joined Northland in 2008, right at the start of the financial crisis as a credit analyst, and he's been there ever since. Over the past eighteen years, he's helped grow the company from roughly 55,000,000 in annual originations to nearly 500,000,000, and from a 100,000,000 portfolio to more than 1,200,000,000 in assets under management.
Andrew:A lot of that growth runs through a syndicated business he's helped build from the ground up starting in 2014, a business that now moves more than 160,000,000 a year through 10 different funding partners. He holds a degree in actuarial science and statistics and an MBA, and he brings a data first, process first philosophy to everything Northland does. Eric, welcome to ACS Portfolio Perspective.
Erik:Thanks for having me, Andrew.
Andrew:When you agreed to do this show and we spoke at the funding conference a few weeks ago, I was honored that you wanted to participate. So again, thanks for being here. Let's talk about the unconventional path to Northland Capital. So before getting into scale capital portfolio strategy, I wanted to step back and talk about how you actually found your way into this industry. Your path here was anything but linear, and I think it will resonate with anyone who thought they had it all mapped out until real life intervened.
Andrew:So you were a math and actuarial science major who had a clear plan, and then life intervened. Walk us through what happened after graduation and how you ended up as a credit analyst at a community bank.
Erik:Yeah, no, it's funny. My path was anything but clear. Even getting through college, I probably should have spent more time actually thinking about that path, to be honest, but I was having a lot of fun, as I'm sure a lot of people did. But I ended up graduating with a degree, and my path was going to be the actuarial route. So, it's a series of tests that you take, and starting with I sat my junior year in the spring of school, and at the time, I was playing football at Minnesota Duluth, and it was during spring ball, and I don't think I put the time in to study.
Erik:In fact, when I say I don't think, I didn't. And it was more of the drive to run test. So, I sat down for it and I said, Well, that test was pretty hard. I'm sure you'll probably pay attention here a little bit more in my probability class. So, I'm graduating, and then that spring, I sat for the test again.
Erik:This time, I did put in three hundred hours studying for it, and I think I ended up putting a six. I think you needed a seven to pass out a 10. And at the time, I had moved down to St. Cloud from Duluth, which is a really long way. It's two hours further south.
Erik:And I was getting married in July. Just you know, that stage of life where you're just not certain about what you really wanted to do, I was not one of those kids. I had no idea what path I wanted to take. I knew I had a math degree that was probably a plug and play situation, but I had no idea. So, I ended up, now they say pivoting or just applying for jobs.
Erik:And I actually Googled what I could do with a math degree combined with finance, And credit analysts came up. And there was a job posting at a community bank in the West Twin Cities Metro Area, and I ended up applying for that. I'd never taken accounting class, never taken a finance class. I had an economics minor, so there was some kind of economic theory to things I've understood. But I ended up getting hired on at Landmark by the an EVP there who was just a tremendous, tremendous individual.
Erik:And and it kinda cut my teeth in small business. And that was the the best part about it was the first deal I ever saw was a a small business deal. And I remember it was actually a butcher shop, and their specialization was spiral hams. And it was in Coon Rapids, of all places. And I remember specifically, and the EVP asking me, reading the first credit presentation, I thought of the deal, and I think my opinion at the time was I would never do this deal.
Erik:That was the first deal I ever saw in my entire life. So, we started off on the right foot.
Andrew:Right.
Erik:After that, it was, I think, two and a half years there. Just really got to be in banking and commercial lending. I thought my path was going to be in commercial lending just because I enjoyed the competitiveness of it, the gray, so to speak, of lending, and got through a lot of RMA classes, building that work. But I was driving an hour each way for my commute, and my wife Amanda and I wanted to start a family. I know an hour commute doesn't seem like a lot, again, for a lot of people what they navigate, but our situation was that I didn't she was working as well, and we we were transplants in the St.
Erik:Cloud area. So our day care options were limited, and I just knew that I wanted something in St. Cloud in that area. So, I started putting feelers out there, and one day I got a call from Tracy Llewellyn, who is the chief credit officer at Northland Capital in 2008. And she had been talking to one of my friends that I knew in the St.
Erik:Cloud area, and that was an account with, you know, and feelers saying that, you know, they were looking for an analyst at Northland. And so I ended up going in for an interview, and I had never you I think my experience with equipment leasing was entirely more of that high rate play. We had dealt with a couple leasing companies, and that was my impression. I'd never actually truly been in a vendor equipment finance model or ever even knew anything about it. But I had my first interview at Northland and really hit it off with Willis, with Beth, but I wasn't really sold on the idea of the ticket sizes.
Erik:I think I just come from the last deal I did at Landmark was about a $7,000,000 biodiesel plant. The complex credits were far more interesting, and then I was concerned if I got into equipment finance with Northland, it would be all small ticket. I would get bored or some scenario, wouldn't have that, again, that diversity of deals itself. Mhmm. Like, the niche business.
Erik:But so I I I kinda I I called, you know, Tracy, and I said, well, I I just don't think it's gonna be a fit for me, so we'll we'll just we'll pass on on, you know, maybe stay in touch, but just probably not a fit. So thirty minutes later, she called back, and she she literally said, Willis, we need to call you back. And they really want to get you in again. I think at the time I just said, Wow, maybe this is Everybody wants to be wanted, right? It's a really good feeling and it's a rare thing, to be honest.
Erik:As you go through life, you grind so much, and I think it's more meaningful when out of nowhere people are just like, No, we want you. And I just kinda took it as a sign itself, and I I talked to Amanda and said, you know what? This is where I'm supposed to be. And so we scheduled another interview for for that April. Actually, April I think it was eighteenth of this, my anniversary date.
Erik:May 17 or eighteenth. Came back in, spent a bunch of time with Willis, then now Gabe is co founder. Felt like the place that I needed to be. I think the environment, the culture, how well this was, how leadership was, how laid back I would say the atmosphere was. You know, coming from a stuffy community bank, and it is stuffy.
Erik:Like, it's the things that you see over time. So, I ended up taking a job at Northland, and the best part was, I started my first week I started, we have a weekly Friday meeting, and that's been a staple of Northland for forever, as far as I can remember. As my time and it dates me, I think it's, you we just celebrated our thirtieth year anniversary here about two weeks ago. And that meeting, it's a staff meeting, it's kind of a visibility where are we traveling, which vendors are we meeting with, company updates, functional credit operations, how we do last month, etcetera. Mhmm.
Erik:And at the end of the meeting, Will stands up, and he takes out $40 from his wallet and says, alright. New guy, Eric, you're buying beer. And I think that was the part that cemented for me just the work hard, play hard, the culture that I belonged in. And Since that time, my favorite part about Northland has always been the work hard, play hard culture, but it's allowed me to be my authentic self, where you can just let it fly, But it's, you know, you're accountable to your teammates, the people you work with. You're accountable to the leadership, your shareholders.
Erik:But bottom line, the authenticity, it rules the day in anything that we do here. And I've just fit, and it's allowed me to progress and grow. They've had a lot of trust in me over the time. But you talk about that unconventional path to equipment finance, it was anything but boring. It turns out the process flows, the travel, which I just love, to be honest, to be able to go nationwide and to lend anywhere and to be accountable to our shareholders, to our ownership.
Erik:I just love that environment. It's the freedom of, I would say, well, capitalism, bottom line. But we have the ability with our money to if we wanted to go into, say, technology tomorrow, great. We'd probably get killed, but it's still an option that we have. We have the freedom to do so.
Erik:And I love that piece about equipment finance. The advice that you get on a regular basis just allow for you thought was going to be a pretty rote environment with just the same thing, more conveyor belt factory work. It is anything but. And every deal is different. Every day is different.
Erik:And even if you're in those niche focused industries that we are, everything is different. Sure. Variety is basically the spice of life, and it's been great. So
Andrew:Well, let's go back to that $40 Lewis gave you. So did you go with quantity or quality when you bought that beer?
Erik:At the time, it was like, well, what what do you buy? And me at the time was definitely quantity. It was a lot of light beer.
Andrew:Gotcha. Okay. Just curious. Didn't know, you know, you gotta, you know, you gotta make sure you have enough for everybody there. Right?
Erik:So I think it was a a couple cases of Midgolden Light because at the time, especially the the timing of it all and the the financial crisis, I think we went through quite a bit of it.
Andrew:And and not to mention that eighteen years ago, there's not that many microbreweries and, you know, crafters. I
Erik:think we've all matured with both just the choices we make and then our palates too, right? You can tolerate the IPAs, I still can't, but more of a brown or amper kind of guy.
Andrew:Gotcha. Gotcha. Maybe something we can debate later. Yeah. As we digress.
Andrew:Now that you've been at Northland for eighteen years, working your way from analyst to chief credit officer, what did the early analyst years teach you about the equipment finance business that you still carry with you today?
Erik:I think number one is be accountable to your decisions. This very day, and own those deals that you do and get better from ones that don't turn out. Have have a funny story. For years, I've an ability to remember transactions and deals that I worked on. I used to call it my didactic memory.
Erik:And so I always said didactic for years. And I was up in my my mom and dad's were at the at the cabin here about three years ago, and my sister's an educator, a Spanish teacher, and I go, yeah. My I've had didactic memory when it comes to, like, transactions. And he goes, you know you're using the wrong word. I go, oh, what is it?
Erik:It's eidetic, you idiot. Anyways, go, Well, yeah, it's eidetic that it's photographic. Yeah. Getting back to remembering deals, I think that's the biggest thing over time. I've done thousands of deals, but I've been blessed with the ability to remember transactions.
Erik:I especially remember deals that went sideways. And I think the biggest lesson, and I think I learned this years ago just through sport, and you need to be able to evaluate, certainly, game film or, I think the military calls them after action reports, you need to be able to actually be hard on yourself and have the ability to have thick skin with your peers as well and your peers to be hard on you as well. And decisions you made, should we have done this? What could we have done better? Get to the why.
Erik:Would we make the same decision again tomorrow? We've created a mortality morbidity committee, stole that from the healthcare industry when they have a dead body. How do we get better? What's the cause? What did we miss?
Erik:Could we have done things differently? Structure, asking questions, things like that. So, I think the biggest takeaway and bottom line has always been, can we get better after all these years? And the best part about what we do is we get so many quote unquote, bats that we can constantly get better doing that. So as an analyst, the same thing.
Erik:You evaluate, did I do it the right way? Could I have done better? How was that? And then taking it forward. Can we continue to get better and treating our analyst team the same way?
Erik:Our team lead now, he runs all those M and M's for the M M team and stuff that I get to sit in on. Still, to this day, being close to it reminded me of, Well, I would have done that. Anyway, I still jump in the queue every now and then, probably much the chagrin of Joe, our team leader, because I probably make a rightful mess of things when I do get in, I still like to underwrite and see what our sales reps are dealing with. That's another takeaway from the analyst piece. I always like to be close to our sales reps.
Erik:I've always said we've got the two parts of credit. You've got the quantitative side, which we're able to do on the app only, and by pulling reports. But because of proximity and how we go to market, the qualitative piece is a challenge. So, there's quantitative and qualitative, and we are entirely reliant on our sales reps, their relationships, and the information that they're bringing on a qualitative basis to us. So, the tighter relationship that I can have, and more fundamentally understand where our business is coming from, it certainly assists with the qualitative, but then also the relationships between, certainly, credit and sales, it just makes us that much better.
Erik:It's not to eliminate tension and conflict, because I think both make us better. And everybody's trying to get the right decision. And, you know, certainly, those are the takeaways over time. That's number one, when you're an analyst, you make a decision today, you're not 100% right on that decision. You won't know for two years.
Andrew:Yeah. You're making a decision based on the facts that you have today. You can't predict the future, so it's very difficult to predict what may change over time.
Erik:So, as long as we all understand that, we've always felt that our sales rep, we all come to a situation where it's like, These are the facts, and we're going to adhere to our fundamentals. But the reality is neither one of us is right right now.
Andrew:Yeah, right. But if you have a process, and you have systems in place, and you have the data, and you stand by the decision based on those things. 100%. So what strikes me about your story is that it's not just about longevity, it's more about evolution. As Northland grew, you identified a constraint that threatened to slow growth, and instead of accepting it, you helped design a solution that fundamentally changed the business, which brings us to syndication.
Andrew:So back in 2014, you saw your sales team was competing with one hand tied behind their back, and obviously bigger players could offer things maybe Northland couldn't. Can you walk us through how you identified that gap and why syndication was the answer?
Erik:Yeah. For years, Northland had always sold. We sold in pools. It was more balance sheet management, and we had these great relationships for years. That very thing, I always felt our sales reps and we as an organization, and I felt that from day one, that we could compete with anybody in entire US.
Erik:I've always just always had that feeling. I'd love to be in the room at least. Just get me in the room, and we'll see. I might not win, but let me compete. And I've always felt that about Northland as a whole.
Erik:I think we had more constraints. As independents, they constantly go through this, we had great relationships. We tons of opportunity. But were a little What are our limiting factors? Certainly, of funds was one of the limiting factors.
Erik:The second one was certainly app only thresholds. Our risk tolerance as an organization, our size, both things were such that they were lower on the app only side, and then pricing, were higher than we wanted to be on, certainly in the commercial space. So, we had started back up. We talked about being able to sell to other banks, and we didn't have any real point for the sale itself. We had always left that to our sales reps if they got the deal in.
Erik:We had a couple of banking relationships where they could talk to them and broker the transaction. And we had always had this thought process too where, man, we're turning down so many deals. What if we could get all our turndowns done? And I think the what we changed in in '14 was, number one, we consolidated all of our syndication efforts or all of our sale efforts into one place, and I took on that responsibility. And then number two, we said, Well, what if we went up the credit spectrum?
Erik:And we started going after better credits with better pricing, better app only, more capacity, and maybe any some asset types that we weren't comfortable with. Like, for example, semi trucks. We're not a huge fan of semi trucks, but for mostly because that's, again, our just where we sit. We don't like, the the types of credits that we do, it's just always been a we didn't have to pay luck, and you can attest to this. Like, we're once you get burned a few times on rebuilds and getting them back and you lose 80%, it it's enough to make you reticent to to go back and to keep doing it.
Erik:Right? So so we consolidated. We we we started really moving all the syndications through me, and we built our process internally. So we were able to match. That was the other problem we had where our process, if we're gonna broker it, it was just all disjointed from our true outflow.
Erik:And we knew that if we were gonna be successful, we needed to make the syndication process aligned with our internal process so that it didn't matter, or as far as the sales rep was concerned, the process flows that we used were all the same. So with doc packages, we were billing and collecting. Everything was all the same except for, and our sales reps did just a tremendous job of this. They just need to manage customer expectations a little bit better, and a little differently, not better, differently. So, we could take down a deal in less than an hour if we were underwriting ourselves, but with the one off syndication model that we had, we needed to source that and then say, All right, for this trailer, we've got this over at, for example, Wells Fargo.
Erik:Their turnaround is gonna be four to eight hours. So let's manage the expectation with our dealers, but then it allows us for the higher app only threshold and a better price point that we can just where we're managing our own capital. So we did that over time. We tweaked it. And I think the first year that we signed up with Wells was the first one we signed up on the one off relationships that we had.
Erik:They said, Well, we need to do 5,000,000, because 5,000,000 was meaningful for them to do business. And so we did everything, but I think that first year we made like $6,700,000 something So like we made the number.
Andrew:And then after
Erik:that, it was kind of off and running. So the whole thought process was develop relationships, which is going back to this core Northland stuff, right? Relationships first, develop those relationships, and then over time just grow them. And the best part that we had going for, well, me professionally and Northland, we had an individual by the name of Chuck Sell. Chuck was a longtime sales manager at TCF and in Norwest prior to that.
Erik:Chuck was instrumental, number one, in getting Wells on board because he brought We had sold to Wells for a long time, but then the other relationship there, he knew so many people, industry contacts. And what Chuck did for me, we kind of talked about earlier with network, right? So, I always equate it to this is like a Jerry Maguire reference here today, but it's the scene where Jerry Maguire takes Cuba Good Engineer through the the Super Draft. Yeah. The draft.
Erik:You know, it was draft. Okay. Yep. And and that was I went to my first funding conference, and, you know, Chuck Sell did that for me. And he introduced me to his entire network he had at the Funding Conference, and it was just the most awesome thing for my career.
Erik:And what it allowed for, I mean, number one was, again, legitimacy, to actually know what it got me to a place in equipment finance where I just felt so good and were to the point. Because networking's hard. If you're young in the industry, it's hard to find opportunities because there's a cost to send you wherever the company needs to send you, or to network, or to meet people of your age, or a peer group. And takes special circumstances to get there. And I was fortunate enough to have that at the time, and it just kind of all grew from there.
Erik:So, it grew from the first year of selling $5,000,000 to $10,000,000 to selling $20,000,000 to there were legitimate numbers where we were I think I thought at the time, was like, man, wouldn't that be cool if we ever did a million dollars in fee income in one single year? Because it felt like that was legitimizing what we were doing. Mhmm. Little did I mean, it turned out much better than I ever anticipated in that once we got going, I think we brought on TCF, we brought on Sumitomo Mitsui, We brought on, at the time, Bell. It was just I think every year we bring sources, but the biggest challenge for us was always going to be you had to be meaningful or intentional about who you were going to do business with because, number one, you had to fit or you had to fit our platform, and they liked the business that we were originating.
Erik:But number two, we had to have enough volume ourselves that it was meaningful in actually forming the relationship. And that was always the It's always top of mind for us when we start talking to another funny relationship is, What's a meaningful number to you? Because we don't want it to start off where it's the two way partnership that we look for. If the expectation is much higher, then we're probably not a fit right now. You want to be able to really lean into your best partners those that you do business with.
Erik:Again, they're there for you, and you expect them to be there for you, but also that's just how relationships work, right? They have to be two ways or two sided. So, yes, over time it's kind of grown to where we got to 2020 and COVID was a huge takeoff point for us as an organization. And the number one thing I think that syndication brought us overall was I didn't realize the impact it would have on a better business. And the best part about it was we got to say yes more often.
Andrew:And
Erik:we get transactions done, and we effectively used our balance sheet on deals where we grew both on balance sheet as well as what we were selling as well. We're in all the same deals ourselves, these customers. It just allowed us to scale, that was the benefit. So, we saw volume numbers go. We had a hire on our sales team that pushed into certainly on the C and I of the commercial equipment construction, environmental, which is just a tremendous growth engine for us.
Erik:Yeah, I mean, bottom line, because like what you said originally, what syndication allowed for us, it gave our sales reps a tool in the toolbox and put them on a more equal playing field with, again, the large banks in The US to who we were competing with. Because our asset classes, we're going against the biggest of the bigs, because it's core business stuff. It's hard assets. It's desirable equipment. And you have to be able to play more and under the same rules.
Erik:Otherwise, it's one of those scenarios where it's going to be very frustrating. And our sales reps have taken and run with it. And the company as a whole, we've adapted. We've kept tweaking. We've kept trying to improve the process, how we originate.
Erik:And on top of that, it's things we build to stand by, and that's on the servicing component, and it's hold up our end of the bargain. So it's been really fun just to be a part of it and to actually see these things grow from, you know, the infant stages to now where it's a meaningful rev gen, where we're not just doing $1,000,000 in annual fee income, we're doing several. And it's a really cool thing to see. Yeah, I mean, it's my baby truly at North Wing. It's a funding conference last week or two weeks ago when we decided, that's by far my favorite week of the year.
Erik:And I just I love everything about it. It's the energy, the people you see, and, like, the the prep work that goes into it. And now now these days, it's it's been fun to see, you know, Joe Tuchalski, who's now leading our our syndication business, him take off himself with that same network plus. Right? He's found peers in the group itself, where now he does his thing.
Erik:And that's been it's awesome to see a part of our business where he'd be able to nurture younger talent there too and develop into it. So it's, I mean, tons of ancillary benefits throughout that I've seen visually from the company, whereas the growth, and obviously growth trumps all when it comes to what you're able to do with certainly career paths or within your organization. But yeah, that's the fun. It's starting to get a lot of long winded up.
Andrew:No, that's awesome. That's what makes this podcast series going down those rabbit holes. Growth stories are powerful, but they rarely happen in straight lines. What makes your perspective particularly valuable is that you have lived through multiple credit cycles from the same seat. Joining Northland in 'eight, ironically, happened to be the same week Lehman Brothers collapsed.
Andrew:Yeah. You've described actually being excited by the volatility while others were scared. What does that tell you about yourself, and how has that orientation shaped your approach to credit?
Erik:You know, it's been interesting. When I joined in 'eight, I was broke. I had not $1 in the market. I just got out of college. Well, I was probably the poor with my money anyways, but regardless.
Erik:I mean, I was in a unique perspective. I didn't have any kids, just young and dumb. And to see our chief credit who had kids to certainly more invested and then on ownership of the portfolio itself, it was a stressful time. But I guess I've always viewed that volatility as certainly opportunity they're going to create opportunities for us if we're in the right position. The other wild part about all of it, it's whatever reason, when things are more volatile, I think that's just my personality.
Erik:And as a steward of our portfolio, and I do say steward, I'm more of a protector personality than anything. I have such respect for the position I have and decisions I make. I understand the weight of my decisions, and mostly I understand who I'm protecting. And that's Northland as a whole. That's my coworkers.
Erik:That's our shareholders, that's Willis, the first and foremost. I understand the weight there, but when it comes to volatility and actually pushing forward decisions, I think I've always been in that scenario where I'm also built for growth. Decisions that you have to make in order to get there, the volatility I think the other part I like about the volatility is rather than talking around decisions in peacetime when things kind of get dull and you start dealing with a lot of the more community decisions or community based, I think when you get into volatility, you know, people look to to you to make decisions. And I think that part of it is I think it it lends more to my personality. They always say there's wartime generals, there's peace time.
Erik:Right? And there's always times where I'm not sure I was built for peace, which is a weird thing. And it's probably more of a limb fact for me to sleep. I just I guess I've always had to and this stems from my own genetics. My pops is this way.
Erik:And that's why I think the continuous improvement is such a thing for me. There's always something you can be doing to be better on a daily basis. And it just so happens when you get into the volatility and uncertainty, the last thing you can do is just sit there and be paralyzed by it. So there better be action that you're considering or willing to take. And I think bottom line, that's the difference in, so call it, when things are going really well, it's just like, well, are the actions that you don't want to mess it up?
Erik:And there's a dichotomy there, and it's been a challenge. I mean, it's a challenge for me. Again, we're a mature organization, and there's times where, in every organization should, we're tremendously successful. And it's those times where you start looking around going, What if I just started some shit today? You know?
Erik:But I mean, that's really the
Andrew:Go break some stuff.
Erik:Yeah. Go break some stuff. And never do that, but that's the other side of it. You have to be able to balance it. And to be honest, you talk about a career challenge.
Erik:That's been my challenge. That's where I've needed to grow over time and continue to need to grow. It's just, like anything, I I need to be better there too. And that's but it's been talk about that volatility. O eight, twenty.
Andrew:COVID. Yeah.
Erik:Yeah. I mean, COVID was just that. I mean, you go through those things. It's funny when look back at it. Mean, COVID was six years ago at this point, and it's incredible, the things we went through, and you had to laugh at a lot of it.
Erik:But then also, there were so many things that we did as an organization that made us better, that set us up for the next five years. Mean, were long term trends that we had talked about for a long time, but COVID forced us decisions that, like, no, we talked about that forever, we're doing it tomorrow. We're doing that Right. And I think that's organizationally, but I also like the volatility too is the things you know are right as an organization that your leadership teams have talked about for years, it's like, Yeah, we should really do that. We should really do that.
Erik:That was my favorite part about COVID, was legitimately it put us to an inflection point where all those things we've been talking about for a long time, we just made happen. And it's incredible. Mean, even at that time, we were twenty years plus in business, but it's amazing when you have those really raw moments where it's No, it's like, okay to trust the things that we've been talking about for a while and just making them happen. Some say the catalyst is what is missing a lot of times. Yeah.
Andrew:Think COVID presented an unusual opportunity for Northland, right? You had mentioned prior to our session today that when a large competitor stepped back from the site that you guys were in, how did you stay positioned to take advantage of those moments without overextending?
Erik:I think we were, as opposed to 2,008, I think all the work that we had put in, number one from the markets we were developing, and it was a decision we made, I think, in 2008. And I was not a part of it at all outside of, like, was our chief credit at the time. Was Jerry Baker. It was Wills Klinejon, Gabe Jornet, all of our leadership group. After 2008, it was that never again mentality where it's like, No, we're going to be in food, fuel, and waste recycling, core consumer staples or staples de commie or recession resistant kind of businesses.
Erik:Agriculture had always been a big part of our business. Going forward, that's what really, really helped us come out of 'eight as quickly as we did. But it helped us maintain profitability through everything. That's such a huge thing for us. And I think that was the moment where we decided as an organization, we are going to just adhere and be principled and disciplined with the markets that we're in.
Erik:We are in niche markets, and we're not going to deviate, or we're not gonna do one eighties onto the business that we're we're trying to originate. So we we kept that discipline, then when COVID came, in addition to that discipline, we had the, you know, the syndication network built out where now volume wasn't a thing. We were able to scale because of the fundamental processes, relationships we had built When we were in highly bankable segments, when banks take a step back and that little bit of business that they lose was a lot for us. And we were just really well positioned because of the work we had put in the five, ten years prior to that. And I think it's a reminder that as we continue to try to scale and do business, fundamentally, we need to stick again to making sure our process, we're disciplined on data side.
Erik:We've had the same discussions with, as AI becomes more just adopted and it's just this Russian wave, where we need to be prepared is, are we fundamentally having the the good data quality? Because making sure we we go back to the fundamentals of how we're doing business Core, because when it's our opportunity to step through, it's going be like rocket fuel for us. Mhmm. And I'll never forget that scale piece. It was June 2020.
Erik:We just had, I think, our first company kind of get together. First time that we had an outdoor picnic for the organization. First time we'd all been back together at the office, It's an outdoor facility just for our we have an annual picnic in June for all the families. We had to all get together, and I was talking to Willis after, and I said, Coming out of COVID, based on our core businesses, because all we've been just watching it daily, more apps, more apps. Everything is fine.
Erik:We're all in these core businesses that were all considered, whatever it was, exempt from the stay at home or the lockdown because there what was the I forget the was it necessary or required?
Andrew:Essential, essential.
Erik:Essential industries. And every segment that we were in business in was an essential industry, and that helped. But then also, every business we're in, that's where capital was flowing to. So, we were chatting thereafter, and I said, When we come out of this, this will be rocket fuel for us. And the only thing Will said, he looked at me with a really serious face, he said, Just make sure the wheels are pointing in the right direction.
Andrew:So now, fast forward eighteen years, elevated rates, tariff uncertainty, you know, a complicated, you know, macroeconomic picture. What are you seeing in your portfolio and your origination pipeline right now, and how is that shaping your credit posture?
Erik:So it's been interesting because we do so much agriculture. We had the luxury, not the luxury, the, I would say, not even the advantage. We got to go through a recession in 'fourteen to 'eighteen. So we're in a couple of contrasecical industries, such as agriculture, where we've been through some downturns there as well. So, have the 'eight to 'twenty, but we got hit in our ag portfolio previously.
Erik:So, that's where diversification has been such a big thing for us. So, lately, the past year and a half, agriculture has been tough. And not just agriculture. Agriculture is a pretty broad industry, right? People just say, Ag, it is what it is, and we're present company included.
Erik:I do the same thing. But if all you do is lend into agriculture, which are where we get our money and the farm credits of the world, agriculture is a very broad space. So, you've got the protein complex, you've got tree nut, fresh market, fruit, vegetable, corn and beans, grains, dairy. It's an incredibly broad industry. Beef cattle, it's huge.
Erik:So, we've always taken the approach through the ups and the downs to be incredibly disciplined, but be far more, I would say, wary of where we've let loose in times past. So, that means, obviously, bad loans remain in good times. That's just what it is. But we've always taken the stance where we need to stay disciplined with how we underwrite, but not cavalier. And we've been fortunate to a really experienced analyst team where we've got, I think, one has been at Northland for twenty plus years.
Erik:Next one's, you know, thirteen plus years. I've been here eighteen plus years. Another one just celebrated, I think, year nine. And then we hired a twenty year plus analyst here in Tina Balogat, who's in Detroit area. We have extremely experienced analyst team that, and on top of that, we don't auto decision.
Erik:So we score, but we don't auto decision. And know, we we've done a few things on the transportation side where we've tweaked, you know, our our cutoff a little bit, which which deemed as acceptable. But for the most part, we're we're trying to maintain the same posture, the same underwriting discipline that our vendors have come to expect from us. With that, with all the things that are happening with tariffs, I mean, it was a Tuesday today, and can't imagine what happened today. Right?
Erik:It's it's a constant onslaught. Mhmm. And I think that's the other we've always taken that approach too, where just that same discipline, like like, today is not going to make or break. And, you know, Willis has always had this philosophy too with with Northland. It's when it comes down to it, you live to play another day.
Erik:And we've always been deal doers, but it's maintaining the discipline of understanding where the industry is, where our markets are at. And then, I think what's been essential to us in all the volatility is that discipline we've had in our niche markets, where we understand what's going on. If our, again, A transport of our grain hopper business starts running tight because insurance costs are higher, well, we know that grain wasn't moving last summer, and that has a huge It's directly correlated with a lot of the credits that we work with. So we're gonna see some higher higher delinquencies. We're gonna see some higher charge offs.
Erik:Same thing. Like, we just it's understand the markets. But lately, I mean, it's again, we're we're still in those same markets where nothing is obsolescent. We don't have to worry about that component. Obviously, there's always change, and you always need to be on top of that change.
Erik:But I think just by virtue of as diversified as we are, and that's I said a lot of number ones that we number of our Fundamental piece that we reach our, say our north stars are, well, diversification across the board is above all else for us. Diversify the industry, diversify by asset types, dollar sizes that you're lending. You just avoid concentrations in every single piece of your portfolio. Who we're getting funded by, our own capital stack. We're diversified geographically by vendor team, by vendors.
Erik:We just make that a staple of how we go to market, and it's really served us well, especially in times of volatility like now. It's allowed us that steady growth rate over the past thirty years to again, we don't have a lot of years where we were 20 plus percent. If you look back at our average, we're just a steady 10.5% CAGR and just go about our business. Good years, years are good, some years are not as good. But bottom line, it's been adhering to that same steady growth.
Erik:I think that's the more volatility you have and the constant news cycle, things you hear, whether it's oil prices, yeah, we're going to have adverse effects on our portfolio from certainly the price of diesel, because we do a lot of transportation and more of the commodities. But we won't see that effect for five to six months, I think. Mean, it's because our working capital margins are so thin with transportation that it's gonna take a little bit of time before it catches up. But it's kind of how we've maintained That's through all of great.
Andrew:Thank you. Thank you. Last segment, I'd like to dive into a little bit about the credit culture, extreme ownership, and you touched on a little bit learning from every loss. Process discipline matters, but at the end of the day, credit decisions are made by people, and what sets Northland apart is not how you underwrite, but how your team shows up every day. You described the ideal analyst as somebody who will own their decisions without fear, no hedging, no blame shifting.
Andrew:You referenced Jocko Wilnick's extreme ownership philosophy. How do you hire for that, and how do you build it into a team culture?
Erik:That's a great question. I think two things we I think hiring for fit, certainly on our analyst team, has been, number one, do they fit a culture for the organization? But number two, do they fit your team culture? And I think diversity of thought is such a huge thing for us. Like, I don't need another one of me on the team because I've got certain tendencies, and I've got a risk appetite that I don't if we had a team full of mes, I'd shudder to think what it would look like.
Erik:Same thing with we've got so many different personalities that we've hired, and we've been big on predictive index for the personality types and of that assessment. I think every single one that we have is a different personality type. And that's been super helpful, number one, in personalities and jiving with our team. Number two, I think that self confidence and just the willingness to fail and get back up and resiliency, it's a hard trait to find, but I think we've had luck with, I would say, military and athletes. Because I think you get that team based approach, that resiliency.
Erik:I mean, they've handled failure consistently. And it's always been my favorite to have. I mean, it's I was one myself on on the athlete side. But, you know, my brother was, you know, twenty three years in the military and an athlete, both. Sister was an athlete.
Erik:Half our analyst team is athlete military. We have military Brian Anderson, an Iraq war vet. Vince? Vince, military.
Andrew:Yeah.
Erik:1% Marine Corps. That ability to deal with failure and not be consumed by it, but then also once you have failure, to not be affected by it outside of to look at it objectively. And that fostering of that culture is difficult because where we're accountable to in our decisions, it leads up to the very top. And I think the best part about Northland as well, sets that tone on loss and on credits. He always says, I've never fired an analyst for losing me money.
Erik:But the reality is, it's not just the words. It's him sitting in the collection, meaning him sitting in M and M's and saying, Don't lend it. And if we're not lending it, and we're not losing, and we're not aggressive enough. But it stems from that, and it bleeds into My management style is very hands off. I like to empower people to make decisions, and then learn from mistakes.
Erik:And I think you need to give people that rope, but making sure on the upfront that they're people that you trust personality wise that have those qualities. And then lastly, the quality that, candidly, I think you need the most is you come to work for the people next to you versus your own selfish reasons, right? And that's a hard thing to define, but fostering that and what we've done organizationally just on our credit team is we would always do happy hours on Fridays. It was our time to when we were in the office, it was usually started about 03:00 where we were cracking beers, still working away on the underwrite, and then our sales reps liked to joke that we're the, We need to go talk to the credit team after 03:00 on Fridays. A little looser with the old decisioning.
Andrew:Right. They'll prove everything.
Erik:But the reality is if we're going to demand these things from us, that accountability, that ownership, and to be accountable for decisions, then there has to be, you know, that moment on Fridays where we had a long week. Like, it's not an easy job. You need the right you need, I would say, tougher people, mentally tough people, but then have the willingness to not the willingness, but the the the opportunity to really let off some steam, so to speak, on, say, a Friday afternoon and say, god, this is a week from hell. And it's kind of carried forward through COVID, where now what used to be that face to face meeting now is a Friday Teams meeting that starts up at 03:00, we're still cracking beers. We're on a Teams call.
Erik:We're still working away. But you start getting into people's lives, the trust that gets built, the trust in each other, and also the desire to go to bat for each other. That's number one above all else. Good organizations and good cultures have a way to foster that in those relationships that employees have. But then, I think that's the added special sauce of the extra work you put in, and it's not just about yourself.
Erik:It's how can you do more to help the person on your right and the person on your left. I that's why I always say that to athletes that no one's bigger than the game itself. That was just drilled into me at a young age from my dad. That's the approach that I've taken as a leader too, is not one of us is bigger than the game, and that's me as well. Mostly, not at all.
Erik:The game is the organization, even when you get into taking the same approach when you get into the likes of, say, funding conferences at the EFA or whoever you're competing with, that's the same thing. That one person that you're ever going to talk to is going be bigger than the game itself. And that's the approach that when you try to hire is you find people that are super confident, but then the humility that goes with that. We've been very blessed with the people we've had and we've found. Again, they haven't all worked out.
Erik:I think we've had two or three in my time that didn't work out. Solid analysts, but other circumstance. But we've been able to maintain that core group for a while. And on top of that, mean, candidly, we ask a ton of them. We ask them to be analysts.
Erik:We ask them to be you know, put their sales head on on the syndication side because all syndications run through our credit team. And that's gonna put their the relationship hat on with those relationships they have with funding sources. And on occasion, we're going ask them to put their buy hat on too, and look at this deal that's coming in, and see if we can source some deals too. So, we ask a lot of our analyst team, but they're the right people to ask of. I'm very blessed that way.
Erik:But I think that's the key fundamental. If there was the team that I'd want to build, that's the rest of my career, regardless, tomorrow, whatever happens, it cut off and we go somewhere else. That's the dynamics that I'd move forward with. I wouldn't be just an analyst team. You could say whatever team you want, and that's what makes our North End as a whole.
Erik:You want to take a global view or a macro view of us, of our personalities, that's the best part. We are across the board with personalities, and it's fostered into you take care of each other. From the very top, that's Wallace from the start. That's Jerry Baker. That's Gabe.
Erik:Brian Eshman. Our leadership, Beth McLean. And it's Foster Donta. We hired an admin or an operations specialist here yesterday. That's the standard and the expectation, and it's not lip service either, because it's rarely anything that we actually talk about.
Erik:It's just the way that we do business, and it's hard to describe. Yeah, I I got a long winded answer.
Andrew:That's okay. That's great stuff. There's a lot there, and I'll tell you, I mean, met for the first time, was it Marco right?
Erik:Yeah, October. Yep.
Andrew:Yeah, so we haven't known each other for a year, but I feel like I've known you for fifteen years, and same Beth, Vince, Brian, Vaughn. People in your organization are just wonderful, wonderful people, and I enjoy I've been to your office a few times. I've seen the fridge, so I know how much beer is packed in there. Haven't been there for Friday happy hours. Maybe next time I'll plan a visit and try with you guys for Friday afternoon, but no, just what you guys are doing over there.
Andrew:It's just wonderful, and when you have wonderful people, great people down to earth, great people. It's easy to wanna be around people like you guys. And like I said, I go to conferences, I look forward to seeing you and Beth, because you guys are always present and you're there. So it's awesome. So thank you for sharing.
Andrew:So before I let you go, we got to tackle one final debate, and given where we both live, where you grew up, and where you currently live now, hardship is kind of a way of life, right? So me being from Buffalo, you being from Northern Minnesota, and now in St. Cloud. So let me ask it this way. Would you rather deal with negative forty, fifty degree temperatures or seven feet of snow?
Andrew:One are you taking and why?
Erik:So I guess the question is duration. Anybody can do one snowfall or one day of 40 below. But the question is, know full well, there are some winters that are worse than others. So think it goes back to the first question, what I would rather take. I would rather have a cold ass winter where it never got above 30 below than multiple, multiple, multiple snowfalls where I'm constantly shoveling out.
Erik:And I think the bottom line for me is, like this stage of life with young kids, well, now teenage kids, but I think it's time. The time it takes when you have a hard snowfall, a big one, I think that's entirely a function, where you just get tired of spending time shoveling or snow blowing. I would rather have to just endure. Give me the pain and give me the cold.
Andrew:On the water. Yeah.
Erik:And it's funny, that's being from, we'll call it of the north and of the elements. Think I heard this from Gabe years ago. There's no such thing as bad weather. It's just bad gear. True.
Erik:And I think that applies to probably snowfall too. It's like, do you have the gear to clean up in a fast manner or not? So I imagine if I was in Buffalo, and I opened up my door, and it was all snow, literally packed past the door, time I'd invest in where you put your money, and probably be a significant snow removal service or better gear?
Andrew:Well, I could tell you, you get that much snow, which I did in one day. And where I live, I live in the Lake Effect area, and I higher elevations, and we got seven feet in less than twenty four hours. That's so crazy. It's thundering and lightning. It settles, so it doesn't look like seven feet, you know, when it's all said and done, but that's how much snow we got.
Andrew:And it just turns into ice and slush at the very bottom. But yeah, it can wear on you. Mean, you get a couple of those a year, maybe not seven, that's kind of the extreme, but three, four, or five feet of snow in a day. Yeah. I mean, you're just getting hit, or you die by death by a thousand cuts.
Andrew:I'll get four, five, six inches a day- Exactly. A day. And I'll just wake up, okay, shovel another six inches, But then after a week or two, you look and you're like, Holy cow. Where did all the snow come from? Right?
Erik:Yeah.
Andrew:I agree. At this stage of my life, when you have kids, young kids, they love being out in the snow for a little bit. Or if you're involved in snow sports like skiing, snowmobiling, hockey, Minnesota, Buffalo, big hockey communities. I was playing football in the snow. I was playing basketball in the snow.
Andrew:I didn't play hockey. I grew up in a big family. It was an expensive sport, just couldn't afford it. So I played sports that were cheap, and I'd have to shovel the driveway and play basketball- I can't. With the backboard on my garage If I wanted to get better, otherwise I'm laying in bed and just shooting free throws-
Erik:to 100 try to
Andrew:almost hit the ceiling, right? Was kind of how we grew up, but yeah, you can always bundle up. I get it. Would have some February's, January, February's in Buffalo, we would get intense cold. Negative with the wind chills would be twenty, thirty below.
Andrew:Schools would be closed. You'd have to put heat tape around your exposed pipes to make sure water doesn't freeze, things like that, but to have that for extended periods of time. Where we live, we joke because we travel a lot, you and I, and we get to go to warmer climates when it's cold in our hometowns, we're running from the cold to get to the heat. And then you talk about people that live in, like, Phoenix, they're running from the heat to get to the cold. Yeah.
Andrew:You know, we have we have heaters for our pools, whereas, you know, folks in Phoenix and those warmer climates, some of them have chillers just because they have to keep the they have to cool the cool temperatures. Yeah. Otherwise, it'd be like taking a bath. That's not fun. So, yeah, I would rather bundle up and just deal with the cold temps.
Andrew:But I think out of all those, if you add rain, I hate rain. Rather it snow seven feet than have it rain. Really, Yeah,
Erik:like we had the Well, I think we got close to three inches of rain, and it was like 39 degrees. How do I remember I think the worst possible scenario is high thirties, low forties rainfall. And you talk about playing in elements. Again, I still remember I was in seventh grade, and I was playing quarterback, and my hands had never been so cold in my entire life. And it was rainfall, and I think I fumbled maybe six, seven times.
Erik:But that is the one scenario. Rain is the absolute worst. I can play in the snow, can play in frozen fields, but rain is It just sucks. It does. You gotta bring out an umbrella,
Andrew:there's
Erik:I mean, what do you do? I can fish in the rain. That's one thing I can do. I can fish in the rain.
Andrew:There you go. I mean, yeah. I mean, there are some things you can do. It's just, it's very annoying, and it's a misery. You're miserable, you're wet.
Andrew:Again, it's about gear, right? I love that. I'm going to steal that from you. I stole it from somebody else. Well, we seem to both agree, so I guess it's not really a debate, but, you know, yeah.
Andrew:I mean, but it does, you know, we I would say, I mean, I think it's, you know, the weather where we grew up, it it, you know, becomes part of our identity. Right?
Erik:A 100%. Like, I
Andrew:Kinda like our football teams. We can I can have you on in a year or two, and and we can for another podcast, and we can debate we can debate which football team's more cursed, the Vikings or the Bills, And hopefully, maybe the next time I have you on, both our teams may hopefully, we'll have a Super Bowl, and we can maybe not debate that?
Erik:It's funny. I would rather be in your situation any day of the week where you have stability at the quarterback position, and I love watching your guy play, man. There's something about that that's I'm not a huge pro sports fan overall. I grew up college sports. I grew up above high school sports, but the college piece, professionally, I just like watching good players play.
Erik:Fortunately, for the Vikings, I think we've had our share of good plays like Rick Jefferson as a receiver, but for me, I just regularly watch good quarterback play. And I'm super jealous of what you guys have had here. Now, again, it takes a lot of lean years before you get there. Hopefully, the Vikings will eventually get there, but man, watching your guy play, it's fun. And through the ups and the downs too.
Erik:That's the best part. It's not always gonna be great, but man, always are gonna believe that we've got a chance.
Andrew:Right. There's no question. Last year, we had several games where, I mean, we were practically on life support. I mean, I think first game of the year, believe we had less than a one or 2% chance of winning against the Ravens, and we found a way to come back. I think a lot of that had do with the way the Ravens played so conservatively in the second half, but it was also Allen's just willing the team, putting them on his shoulders, just Same thing, we had the same situation against the Bengals later in the year, where again, we were almost left for dead.
Andrew:Very, very small chance of winning that game, but the percentages were low, and we found a way to win because Cincinnati didn't have a running game, and they were just throwing the ball, and incomplete passes stop the clock, or if you intercept, or you have a quarterback at Sac and he fumbles the ball, and next thing you know, we're winning. We had 21 turnaround, the rest is history. So yeah, you gotta have the horse. We have the horse. He doesn't have the weapons.
Andrew:If you put Allen on your team, you guys probably win four Super Bowls in a row if he's your quarterback, because you guys have everything else. We have a bunch of number two and number three receivers on our team, at least. Now we got a stud, and I'm very happy with the other complement to pieces that we have. But now we got the stud, so there's really no excuses. So I guess we'll we'll see.
Andrew:Yeah. Just I love football so
Erik:much that way because it's it's just such a great team game because you just need it all. Like, it's you can't be deficient in and you just have to be good across the board in every position. And and that's again, it's it's the that's why I love it so much because it's no matter if you have the stud of all studs, like, at the quarterback position, you still need players all around, and you need and on top of that, you need a salty defense. And I guess it's just it's such a great just I that's my favorite part. Like, it's just you need it all.
Andrew:Yeah, 100%. So maybe in two or three years, or when we have you back on the show in a couple of years, if not sooner, we can debate which city threw a better Super Bowl parade.
Erik:How's that? Yeah, wouldn't that be great? Yeah.
Andrew:All right. Well, thank you so much for joining me today and sharing your journey, your perspective, and the lessons you've learned along the way. To our listeners, thank you for spending time with us on the ACS Portfolio Perspective. If you've enjoyed today's conversation, please subscribe, share the episode, and join us next time as we continue exploring how leaders like Eric across our industry think about credit risk and long term growth. Until next time, thank you for listening.