Huntington Asset Finance has established a highly respected position as one of the top equipment finance and asset-based lenders in the U.S. The success of Huntington’s Asset Finance platform is the result of focusing on changing customer demands while simultaneously balancing the need to meet the bank’s targeted metrics. In the following interview, Michael DiCecco, Executive Managing Director of Asset Finance, provides his insights into what is driving borrower demand and how the current economic environment is impacting both the asset-based lending and equipment finance sectors of commercial finance.
Michael Toglia: Please tell our readers the scope of your leadership role within Huntington Bank.
Michael DiCecco: I lead Huntington’s Asset Finance group of businesses encompassing five primary business lines: the Equipment Finance group of businesses, which is the largest portion of Asset Finance, as well as our Asset-based Lending, Inventory Finance, Lender Finance and Public Capital businesses. We are market leaders in just about everything we do, and we are very proud of our growth in equipment finance, which is built around these key businesses. First is our bank partnership model, which we launched in 2001 when we started Huntington Equipment Finance, and the second largest piece of equipment finance is our vendor finance business, which came to us through the TCF acquisition. Prior to the acquisition of TCF, we did not have vendor finance in our platform, so the merger with TCF was very strategic for our Equipment Finance business. We also have vertical expertise in railcar, business aviation, and renewable energy within the equipment finance business. A few years ago, we also purchased Macquarie Equipment Finance, which is now Huntington Technology Finance, the largest bank-owned technology finance business in the country. Combined, our Equipment Finance capabilities provide solutions to organizations from small businesses to Fortune 100 companies on a national basis. Our goal is to partner with them and provide our expertise to unlock value for their businesses with unparalleled service.
Toglia: You are also responsible for the asset-based lending and lender finance units in Huntington. Please tell us about those groups.
DiCecco: Asset-based lending is a very well-established business within the ABL market and a top-10 domestic asset-based lending group. We have a strong group of colleagues with most of them having been together for over 30 years. We operate nationally and have vertical expertise within ABL around the metals, retail, healthcare, manufacturing, and automotive sectors. A core common theme across all of asset finance, whether it be an industry vertical or an asset class, is that we provide asset-finance platforms with well-rounded expertise that we can deliver to the market in a differentiated manner. Inventory finance was the second business that came over with the TCF acquisition.
We also have Lender Finance, which we started in 2010 to provide backup wholesale warehouse lines to specialty lenders and lessors. Some of clients are in asset-based lending, healthcare, and equipment finance sectors. All markets we have deep institutional knowledge in across Asset Finance and the bank. We really lead all the facilities we manage within Lender Finance, so it is not a participation strategy as much as it is a lead lender strategy. Most of our customers have been with us for several years, and each year we add five or six more to our portfolio.
The last piece of our Asset Finance Group is Public Capital, which lends to municipalities. We take care of all the credit needs for municipal customers. It's mostly a regional business, although we do also play nationally. It's anything from general obligation bonds to equipment financing needs. We serve the borrowing needs of school districts, cities, counties, and states in this group.
Toglia: Let’s begin by focusing on the equipment finance industry. According to the Equipment Leasing and Finance Association (ELFA) and the Equipment Leasing & Finance Foundation, we have seen some declines in industry confidence this year, yet new business volume is up nearly 8 percent (through May). How do you think 2022 will shake out for the equipment finance industry?
DiCecco: I believe the fundamentals are strong right now. Demand is high; our customers want to invest in automation to address many issues such as the labor shortage, wage inflation and supply chain issues. They're investing in automation to achieve efficiency, and equipment finance is a strong provider of capital for automation. I believe that new business volume of about 8 percent year-over-year is quite strong. Yes, it was up about 13 percent in 2021, but a few years ago, we would have been begging for 8 percent growth year-over-year.
As for industry confidence, I believe it’s waning because of the dark clouds hanging over the economy and discussions of a potential recession. There are all kinds of predictions, whether you buy into them or not, but I think generally there's a 25 to 35 percent confidence factor in a recession hitting in 2023 or late 2022. It's what's on the horizon that is impacting confidence versus what's going on in business today, because demand is still quite strong. I think the results would be even better right now if supply chain was not holding back deliveries.
Toglia: Asset-based lending is often considered countercyclical, with asset-based lending demand increasing during challenging times. How do you see demand for the ABL product product shaking out this year?
DiCecco: I agree that asset-based lending is countercyclical, and we are very bullish on asset-based lending. We’ve seen strong growth within that business over the past 18 months. It all starts with having a good team in place and clients are choosing us as their asset-based lending source. There are also some headwinds in the market that are driving some traditional cash flow customers into an asset-based structure as you would expect. If the market economy continues to contract, I believe our asset-based lending group will see the benefits of that contraction. We have a very strong platform to serve this market and support not only our existing customers, but also expand our presence nationally in asset-based lending. For example, the challenges with supply chain disruption in the automotive sector pushes the supplier base into an asset-based lending structure. So having a significant presence in Detroit and an expertise around automotive is a huge benefit for us.
Toglia: Today in we have rising inflation, a tight labor market, rising interest rates, rising gas and fuel prices, and the Russia-Ukraine war. With all this disruption in the market, what are your team members hearing cross the banking platform in both the asset-based lending and equipment finance businesses?
DiCecco: Our customers are still pleased with the core fundamentals today as they are largely experiencing relatively strong demand. Their challenges are what the surveys are telling us – problems getting parts due to the supply-chain issues that they are trying to manage. Wage inflation is also a concern, as is the lack of labor. But they are still generally optimistic about future opportunities. They would certainly like to get equipment in sooner so that they could automate and take some of the pressure off the challenges they're facing around these wage and labor shortages, as well as improving customer experience and taking care of the demand side a bit better. But everyone is looking out and saying, "Could this change? Could it change in 2023? What would that change look like if we do head into a recession?"
It's like any other time, Mike, we are at a transformational point, so people have their eyes on current events and opportunities, but they also are looking down the road at some headwinds they could face and determining how to protect their business and their customers from those events. As a bank, we provide solutions including refinancing existing equipment on balance sheets and providing fixed rate financing – which takes interest rate risk volatility off our customers’ minds. Certainly, we have hedging products at the bank to help them manage that as well, but we’re always looking for ways to help them be more efficient as margins increasingly come under pressure. The good news is that our customer base has done a good job up until now of managing margins.
Toglia: Would you say they are prepared?
DiCecco: I think they are better prepared than they used to be. I think having come through such good, strong times that they also have had some time to think this through and actually consider how they're going to manage their liquidity. Everyone's concerned, but they are a little bit smarter maybe than they've been in the past. We tend to all talk about cash flow impacts during recessionary times. It's really balance sheets and liquidity that get companies through tough times and our customers’ balance sheets and liquidity are strong.
Toglia: What are your biggest concerns as we enter the second half of 2022? And what are you looking forward to the most?
DiCecco: I'll start with what I'm looking forward to most. It really is around our customers being able to transform their businesses. They have some very good plans related to automation, and they're optimistic about how that will help them not only in the short term but over the long term. As we continue to help customers finance the equipment to automate their plants, it will be amazing to see some of them transform from less automated workflows to much more automated and customer-friendly processes. That’s exciting.
For asset-based lending, I think the sky's the limit if you have a strong value proposition as we do at Huntington, which will lead to a new set of customers we can help.