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Community Banks Entering Our Industry - The Implications

February 04, 2014, 07:00 AM

Over the past year or so, there have been numerous announcements about community and regional banks entering the equipment finance industry via de novo startups or “lift-outs” of existing equipment finance teams. While it’s no secret that banks of all sizes are seeking new ways to add earning assets to their portfolios, this causes me to wrestle with a few questions in my mind. For example, what does this mean for the mainstream players – the small- and middle-market independent lessors that capitalized on the fact that banks were traditionally less interested in equipment deals? Now there’s more competition from these banks with low costs of funds (from deposits and Fed Funds). Is there a potential opportunity for independent leasing companies to “partner” with these banks in some way to tackle this competitive market more effectively – expanding into new markets? A few have done so.

So the real question is this: Is the fact that more banks are entering the “space” a good or bad thing for the equipment finance industry?

First let me begin by giving a shameless plug for a recent study, "Community Banks and Equipment Finance – What it Takes to be a Success" published by the Equipment Leasing & Finance Foundation and written by Scott A. Wheeler, President, Wheeler Business Consulting LLC. Scott does a spectacular job in explaining the benefits of the equipment leasing and finance business for community banks as well as current impediments both real and perceived. I won’t attempt to reiterate too much of the study, but it’s worth a read in order to formulate some answers to the above questions. I personally agree with the majority of the conclusions and suggestions in the study.

Besides the above mentioned Wheeler/Foundation study, my opinions expressed herein also come from my actual experiences, starting with being a partner in a small independent leasing company that ultimately sold to a small regional Midwestern bank, Provident Bank out of Cincinnati, Ohio, circa 1997. During the next seven years that followed, our team adjusted to being part of both a regulated institution and a much more traditional bank organization. We were incredibly fortunate that Provident’s senior executive team as well its majority shareholder family understood our business and supported the need for autonomy. In fact, our client messaging often included “we are a leasing company that is owned by a bank as opposed to bank-owned leasing company.” It worked phenomenally well inside and outside the bank. We later had ring-side seats for two more acquisitions by larger and more highly regulated banks. In a warped sort of way, I enjoyed this real life version of a journey through the nine circles of suffering in Dante’s Inferno. I learned a great deal and viewed it as an academic experience. Don’t get me wrong, I don’t enjoy pain, but rather have an insatiable curiosity. These experiences that followed the progression from an independent lessor, to a small bank, to a bigger bank to an even bigger combined bank provided much insight into what works best and for whom.

Enough of the preamble. In this installment of the blog, I will address the question of whether more banks entering the “space” is a good or bad thing for the equipment finance industry? Let me first begin by saying, anything that broadens the exposure to businesses of equipment lease and finance products, is a great thing! The benefits to community banks of engaging in the industry are many, but to name a few they include:

  • Need to generate additional C&I assets
  • Revenue diversification
  • Need to increase income in order to offset costs due to increased regulatory compliance
  • Equipment lease and finance is a higher margin business, IF DONE PROPERLY
  • Desire to remain independent and to protect their turf
  • Equipment leasing provides a more aggressive business generation strategy in the C&I space
  • Leasing portfolios metrics have outperformed C&I lending during this downturn

Here are some facts to consider:

  • There are more than 5,000 community and small regional banks across the U.S.
  • There are roughly 600 member companies in the ELFA.
  • Far fewer than half of the 600 are financial institutions.
  • Less than 20 community banks joined the ELFA over the past three years.
  • Roughly 57% of the $1.28 trillion in annual capital equipment/software investment is financed.
  • Roughly $600 billion of capital equipment/software investment is done via a cash purchase, the leasing industry’s biggest competitor.


If more community banks enter the industry, I believe we will see greater positive exposure of the equipment leasing and finance alternative to cash purchases. This will generate other positive knock-on effects like greater media exposure, greater academic exposure, and greater interest in pursuing careers in the industry by college graduates. The next logical outcome of increased exposure of the industry is a greater acceptance of our financial alternative to cash purchases. So, for every 1% improvement in equipment lease and finance penetration above the 57%, we add roughly $13 billion in annual new business volume. So as opposed to thinking about a shrinking pie, let’s focus on growing the pie!

In the next installment on this topic I will discuss the impacts on small- and middle-market independent lessors. We will explore some possible benefits to lessors as well as discuss the best ways that community banks and lessors can work together for mutual gain. Until then, have a great day!

Robert J. (Bob) Rinaldi
Chief Executive Officer | Commercial Industrial Finance, Inc.
Bob Rinaldi is Chief Executive Officer of Commercial Industrial Finance (“CI Finance”), a national equipment finance company headquartered in Cincinnati, Ohio. CI Finance was acquired in 2015 by CBank, a Cincinnati-based community bank focused on commercial and industrial lending to SMBs. CI Finance specializes in the development and implementation of sales-aid finance programs for manufacturers, vendors and distributors of capital equipment.

Rinaldi was SVP of CSI Leasing, responsible for its organic and inorganic growth strategies. Previously, Rinaldi was Executive Vice President of National City Commercial Capital Company (NC4), now PNC, and President of NC4 Canada. Rinaldi has held positions including Senior Vice President of Provident Bank and Executive Vice President and Principal at Information Leasing Corp.(ILC), later acquired by Provident. As a founding partner of ILC, Rinaldi helped grow the company to the fifth-largest bank-owned leasing company in the United States with annual originations of over $3 billion and $8 billion in assets.

Rinaldi is the immediate Past-Chairman of the Equipment Leasing and Finance Association (ELFA), the premier trade association representing the $1 trillion equipment finance sector. He is also a member of the Equipment Leasing & Finance Foundation’s Research Subcommittee and Development Committee. He is a past Trustee of the Foundation and past Chairman of ELFA’s LeasePAC. Rinaldi was the recipient of the Foundation Research Committee’s 2013 Steven R. LeBarron Award for Principled Research and ELFA’s 2014 David H. Fenig Distinguished Service in Advocacy Award.

Rinaldi can be found on LinkedIn and on his website dedicated to the pioneers of the modern equipment leasing industry as we know it today --
Comments From Our Members

Jeffrey Neese • View APN Profile
Great read! Keep writing Bob!
2.14.2014 @ 9:38 AM
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