RankingBanking 25 - Flipbook - Page 14
12
holding company and CEO of 1st Source Bank,
says the vertical lending niches all rely on fossil
fuels, leaving the loan book susceptible to a spike
2025 Average Loans By Type
in oil prices — something the 1st Source team
calls “clumping risk.”
Source: 1st Source Corp.
“The specialty finance group is what differentiates them. It’s a higher-yielding business than
the banking business,” says Damon DelMonte,
4%
managing director at Keefe, Bruyette & Woods.
2%
But the loan book, which has been known to
suffer short-term losses in the past, “can make
18%
10%
investors a little nervous because a lot of it isn’t in
their market and is in sectors that might be more
18%
exposed to changes in the economy.”
As travel plummeted during the pandemic, for
example, some loans for tourist buses in New York
14%
City soured. Another time, a client got into trouble
with a helicopter purchase, creating a workout
situation for the bank.
17%
17%
Right now, Murphy says, some of 1st Source’s
auto rental clients are seeing declining revenues
Commercial
Commercial real estate
Aircraft
Construction equipment
Auto and light truck
Residential real estate
Medium and heavy duty truck
Consumer
in the face of growing competition from rideshare
companies like Uber Technologies and changing
customer behaviors. “The good news is that car
values have held up,” he says. “If you can convince
your customer to [sell some of its fleet] you can
manage the risks.” If not, 1st Source might eventually look to repossessions.
Another potential concern is the impact of
abrupt changes in federal renewables policy under
President Donald Trump on the solar business.
At first glance, the $500 million solar loan book
looks similar to the other specialty finance lines
higher than the community bank business. In
— almost like a hedge on its fossil fuel-based
2024, yields on 1st Source’s overall loan book
specialties. But the characteristics are different
stood at 6.84% while its net interest margin was
enough — the loans are usually backed by power
3.64%. Both are higher than the typical bank.
repurchase agreements, not hard collateral —
There’s a reason for that: The risks of lending
that it’s considered separate from those business-
for things like an $8 million construction crane
es in-house. “If and when [federal] renewable
or an asphalt plant are higher and different
energy credits go away, the business will probably
than a typical commercial loan. Andrea Short, a
slow,” Short says. “But there will still be demand
two-year board member who is president of the
for this type of financing for years to come.”
