Andrew Pace

Welcome back to ACS Portfolio Perspective. I’m your host, Andrew Pace, Chief Client Experience Officer at ACS. Today, I’m joined by Erik Anderson, Chief Credit Officer at Northland Capital in St. Cloud, Minnesota. Erik 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 18 years, he’s helped grow the company from roughly 55 million in annual originations to nearly 500 million, and from 100 million portfolio to more than 1.2 billion in assets under management. 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 million 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. Erik, welcome to ACS Portfolio Perspective. 

Erik Anderson

All right. Thanks for having me, Andrew. 

Andrew Pace

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. 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 Anderson

Yeah. It’s funny, my path was anything but clear. Even getting through college, I probably should’ve 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 in 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. In fact, when I say I don’t think, I didn’t, and it was more of a dry run test. So I sat down for it and said, “Well, that test was pretty hard, so I should probably pay attention here a little bit more in my probability class.” So ended up graduating, and then that spring I sat for the test again. This time I did put in 300 hours studying for it, and I think I ended up with a six. I think you needed a seven to pass out of a ten. 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. And I was getting married in July. That stage of life where you’re just not certain about what you really want 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, they say pivoting or just applying for jobs, and I Googled what I could do with a math degree and combined with finance, and credit analyst 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. And I’d never taken an 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 an EVP there who was just a tremendous individual. And I cut my teeth in small business, and that was the best part about it, was the first deal I ever saw-… was a small business deal, and I remember it. It was actually a butcher shop, and their specialization was spiral hams. 

Andrew Pace

Oh, okay. 

Erik Anderson

And it was in Coon Rapids of all places, and I remember it specifically and the EVP reading the first credit presentation, what I thought of the deal. And I think my opinion at the time was I would never do this deal. That was the first deal I ever saw in my entire life. So we started off on the right foot. 

Andrew Pace

Right. 

Erik Anderson

And 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, build a network. But I was driving an hour each way for my commute, and my wife Amanda and I wanted to start a family. And 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 she was working as well, and we were transplants in the St. Cloud area, so our daycare 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 was 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. Cloud area, and that was an account with feelers saying that they were looking for an analyst at Northland. And so I ended up going in for an interview, and 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 had 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. I think I had just come from the last deal I did at Landmark was about a $7 million 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, I wouldn’t have that, again, that diversity of deals itself. They have their niche business. So I called Tracy and I said, “Well, I just don’t think it’s going to be a fit for me, so we’ll pass on, maybe stay in touch, but just probably not a fit.” So about 30 minutes later… Oh, I’m sorry, go ahead. 

Andrew Pace

I was going to say, so what changed your mind, and what did you find- 

Erik Anderson

Yeah 

Andrew Pace

… when you got there that you hadn’t expected? 

Erik Anderson

So 30 minutes later, she called back and she literally said, “Willis made me call you back, and they really want to get you in again.” And I think at the time I just said, “Wow, everybody wants to be wanted,” right? It’s a really good feeling, and it’s a rare thing, to be honest. As you go through life, you grind so much, and I think it’s more meaningful when out of nowhere people just said, “No, we want you.” And, I just took it as a sign itself and I talked to Amanda and I said, “You know what? Maybe this is where I’m supposed to be.” And so we scheduled in our interview for that April, actually April, I think it was 18th. It is my anniversary date, maybe 17th or 18th but… And came back in, spent a bunch of time with Willis, and then now Gabe, his co-founder, and it felt like the place that I need to be. I think the environment, the culture, how Willis was, how leadership was, how laid back, I would say, the atmosphere was. Coming from a stuffy community bank, and it is stuffy. It’s the things that you see over time. So I ended up taking a job at Northland, and the best part was 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 we just celebrated our 30th year anniversary here about two weeks ago. And that meeting, it’s a staff meeting, it’s kind of visibility, where are we traveling, which vendors are we meeting with, company updates, functional credit operations, how’d we do last month, et cetera. And at the end of the meeting, Willis stands up and he takes out 40 bucks from his wallet and he says, “All right. New guy, Erik, 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, it’s the work hard, play hard culture, but it’s allowed me to be my authentic self. And where you can just let it fly, but you’re accountable to your teammates, the people you work with. You’re accountable to the leadership, your shareholders, but bottom lineAuthenticity, it rules the day in anything that we do here. And I’ve just fit, and it’s allowed me to progress and grow, and 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. I just love that environment. It’s the freedom of, I would say, 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. And I love that piece about equipment finance. And the at-bats that you get on a regular basis just allow for what you thought was going to be a pretty rote environment with just the same thing, more like conveyor belt factory work, it is anything but. And every deal is different. Every day is different. And even if you’re in those niche, focused industries that we are, everything is different. 

Andrew Pace

Sure. 

Erik Anderson

And variety, they say, is the spice of life, and it’s been great. 

Andrew Pace

Well, let’s go back to that $40 Willis gave you. So did you go with quantity or quality when you bought that beer? 

Erik Anderson

At the time it was like, well, what do you buy? And me at the time was definitely quantity. It was a lot of light beer. 

Andrew Pace

Got you. Okay. Just curious. You’ve got to make sure you have enough for everybody there, right? 

Erik Anderson

I think it was a couple cases of Mic Golden Light because at the time, especially the timing of it all and the financial crisis, I think we went through quite a bit of it. 

Andrew Pace

And not to mention, 18 years ago, there’s not that many microbreweries and craft beer. 

Erik Anderson

Exactly. I think we’ve all matured with both just the choices we make and then our palates, too, right? You can tolerate the IPAs and… I still can’t, but it’s more of a brown or amber kind of guy. 

Andrew Pace

Got you. Maybe something we can debate later. 

Erik Anderson

Yeah. 

Andrew Pace

As we digress. So now that you’ve been at Northland for 18 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 Anderson

I think number one is be accountable to your decisions. This very day, it’s… And own those deals that you do and get better from ones that don’t turn out. I have a funny story. For years, I have an ability to remember transactions and deals that I worked on. I used to call it my didactic memory, and so I always said didactic for years. And I was up in at my mom and dad’s. We were at the cabin here about three years ago, and my sister’s an educator, a Spanish teacher, and I go, “Yeah, I have a didactic memory when it comes to transactions.” And she goes, “You know you’re using the wrong word.” And I go, “Oh, what is it?” “It’s eidetic, you idiot.” So anyways, well, yeah, it’s eidetic then. It’s photographic, yeah. So 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, and 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. Would we make the same decision again tomorrow? And we’ve created a mortality morbidity committee, which, 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? 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, “at bats” that we can constantly get better doing that. So as an analyst, the same thing. You evaluate, did I do it the right way? Could I have done better? How was that? And then taking it forward. And can we continue to get better? And treating our analyst team the same way. Our team lead now, he runs all those M&Ms-for the analyst team and stuff that I get to sit in on. And still to this day, being close to it, it reminded me of like, well, I would’ve done that. And even to this day still, I still jump in the queue every now and then, probably much to the chagrin of Joe, our team lead there, because I probably make a rightful mess of things when I do get in, but 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. Like I said, we’ve got the two parts of credit are 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 and their relationships and the information that they’re bringing on the 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. It’s not to eliminate tension and conflict, because I think both make us better. And everybody’s trying to get to the right decision, and certainly those are the takeaways over time, because 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. And- 

Andrew Pace

Yeah. You’re making a decision based on the facts that you have today- 

Erik Anderson

Yeah 

Andrew Pace

… and you can’t predict the future, so it’s very difficult to predict what may change over time. 

Erik Anderson

So as long as we all understand that, like it’s- 

Andrew Pace

Mm-hmm 

Erik Anderson

… we’ve always felt that our sales rep, we all come to a situation where it’s like, “Here’s the facts, and we’re going to adhere to our fundamentals.” But the reality is neither one of us is right right now, so. 

Andrew Pace

Yeah. Right. But if you have process and you have systems in place and you have the data, right, and you stand by the decision based on those things. 

Erik Anderson

100%. 

Andrew Pace

So what strikes me about your story is that it’s not just about longevity, it’s more about evolution. And 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. 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 Anderson

Yeah. For years, Northland had always sold, right? We’d sold in pools, it was more balance sheet management, and we had these great relationships for years, and 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 the entire US. I’ve 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 just let me compete. And I’ve always felt that about Northland as a whole. I think we had more constraints, and as independents, they constantly go through this, but we had great relationships. We had tons of opportunity, but where were we a little– what are our limiting factors? And certainly cost of funds was one of the limiting factors, and the second one was certainly app-only thresholds. Our risk tolerance as an organization, our size, both things were such that we just, they were lower on the app-only side, and then pricing, we 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, 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 like, man, we’re turning down so many deals. What if we could get all our turndowns done? And I think what we changed 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? And we started going after better credits with better pricing, better app-only, more capacity, and maybe in 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, just where we sit. The types of credits that we do, it’s just always been a, we didn’t have any luck. And you can attest to this, once you getBurned a few times on rebuilds and getting them back, and you lose 70, 80%. It’s enough to make you reticent to go back in to keep doing it. So we consolidated. 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 going to broker it, it was just all disjointed from our true app flow. And we knew that if we were going to 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. Their turnaround is going to be four to eight hours. So let’s manage the expectation with our dealers.” But then it allows us for that higher AP only threshold and a better price point that 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. And they said, “Well, we need to do $5 million.” Because $5 million was meaningful for them to do business. Mm-hmm. And so we did everything, but I think that first year we made like $6.7 million, something like that. So we made the number. And then after that, it was kind of off and running. So the whole thought process was develop relationships, which goes back to this core Northland stuff. 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 the longtime sales manager at TCF and Norwest prior to that. And Chuck was instrumental, number one, in getting Wells on board, because we had sold to Wells for a long time, but then he had the relationship there. He knew so many people, industry contacts. And what Chuck did for me, we kind of talked about earlier with network. So I always equate it to, this is the second Jerry Maguire reference here today, but it’s the scene where Jerry Maguire takes Cuba Gooding Jr. through the- The draft. Yeah, the draft. Yeah. It was the draft. Okay. Yeah. And that was, I went to my first funding conference, and 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. And what it allowed for, number one, was, again, legitimacy to actually know what– It got me to a place in equipment finance where it felt so good and were to the point. Because networking’s hard. If you’re young in the industry, it is hard to find opportunities because there’s a cost to send you wherever the company needs to send you in order to network or to meet people of your age or a peer group. And it takes some 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. So it grew from the first year of selling $5 million to $10 million, to us selling $20 million. There were legitimate numbers where we were, I think I thought at the time, it 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. Mm-hmm. But it turned out much better than I ever anticipated in that once we got going, we brought on, I think TCF, we brought on Sumitomo Mitsui. We brought on, at the time, God, Bell. 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 we had to fit our platform. They liked the business that we were originating. But number two, we had to have enough volume ourselves that it was meaningful in actually forming the relationship. And that was always the top of mind for us when we start talking to another funding 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. And if the expectation is much higher, then we’re probably not a fit right now becauseYou want to be able to really lean into your best partners and those that you do business with and because 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 yeah. So 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 our business. And the best part about it was we got to say “yes” more often. And we would 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, where all the same deals ourselves, these customers, and it just allowed us to scale, and 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&I of the commercial equipment construction, environmental, which just a tremendous growth engine for us. And yeah, bottom line, goes back to 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 under the same rules. Otherwise, it’s one of those scenarios where it’s going to be very frustrating. So, and our sales reps have taken a run with it. And the company as a whole, we’ve adapted, we’ve kept tweaking, we’ve kept trying to improve the process of how we originate. And on top of that, it’s things we’ve been able 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 to just to be a part of it and to actually see these things grow from the infant stages to now where it’s a meaningful rev gen, where we’re not just doing one million in annual fee income, we’re doing several and it’s a really cool thing to see. Yeah, it’s my baby truly at Northland and it’s like funding conference last week when we, or two weeks ago when we sideshow. That’s by far my favorite week of the year. And I love everything about it. It’s the energy, the people you see, and the prep work that goes into it. And now these days it’s been fun to see Joe Tuholsky, who is now leading our syndication business, like him take off himself with that same network plus, right? He’s found peers, in the group itself where now he does his thing- … and it’s awesome to see a part of our business, where we build and nurture younger talent there too and develop into it. So it’s tons of ancillary benefits throughout, that I’ve seen visually from the company where it’s 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, it’s been fun. Sorry, I’m getting a lot long-winded on. 

Andrew Pace

No, that’s- 

Erik Anderson

Yeah 

Andrew Pace

… 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 ’08, ironically, happened to be the same week Lehman Brothers collapsed. 

Erik Anderson

Yeah. 

Andrew Pace

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 Anderson

It’s been interesting. When I joined in ’08, I was broke. I had not $1 in the market. I just got out of college. Well, it was probably the poor with my money anyways, but regardless, I was in a unique perspective. I didn’t have any kids, and 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 more opportunity or going to create opportunities for us if we’re in the right position. And, the wild part about all of it, it’s for whatever reason, when things are more volatile, I think that’s just my personality 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, 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, and 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 peace time when things get dull and you start dealing with a lot of the more community decisions or community-based, I think when you get into volatility, people look to you to make decisions. And I think that part of it lends more to my personality. They always say there’s wartime generals, there’s peacetime, right? There’s always times where I’m not sure I was built for peace, and it’s a weird thing, and it’s probably more of a Lim fact for me personally. I guess I’ve always had the– and this stems from my own genetics, my pops is this way. 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 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 are willing to take. And I think bottom line, that’s the difference in, quote unquote, when things are going really well, it’s just like, well, there are the actions that you don’t want to mess it up. And there’s a dichotomy there, and it’s been a challenge. Candidly, it’s a challenge for me. Again, we’re a mature organization, and there’s times, as 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? 

Andrew Pace

Yeah. 

Erik Anderson

But that’s really the- 

Andrew Pace

Go break some stuff. 

Erik Anderson

Yeah. Go break some stuff. And I never do that, but that’s the other side of it, and you have to be able to balance it. And to be honest, you talk about a career challenge, that’s been my challenge. That’s where I’ve needed to grow over time and I continually need to grow. It’s just like anything, I need to be better there, too. But it’s been a– talk about that volatility, ’08, ’20. 

Andrew Pace

COVID, yeah. 

Erik Anderson

Yeah. COVID was just that. You go through those things. It’s funny when you look back on it. COVID was six years ago at this point, and it’s incredible the things that we went through and needed to laugh at a lot of it, 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. There were long-term trends that we had talked about for a long time, but COVID forced us decisions that like, “No, we’ve talked about that forever. We’re doing it tomorrow. We’re doing that tomorrow.” 

Andrew Pace

Right. 

Erik Anderson

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. That was my favorite part about COVID was legitimately, it put us to an inflection point where all those things we’d been talking about for a long time, we just made happen. And it’s incredible. Even at that time, we were 20 years plus in business. But it’s amazing when you have those really raw moments where it’s like, no, it’s okay to trust the things that we’ve been talking about for a while and just making them happen. The catalyst is what is missing a lot of times. So yeah. 

Andrew Pace

Yeah. I think COVID presented an unusual opportunity for Northland, right? You had mentioned prior to our session today that one of the large competitors stepped back from the segments you guys were in. 

Erik Anderson

Yeah. 

Andrew Pace

How did you stay positioned to take advantage of those moments without overextending? 

Erik Anderson

As opposed to 2008, I think all the work that we had put in, number one, from the markets we were developing, and it was the decision we made, I think, in 2008, and I was not a part of it at all outside of it was our chief credit at the time. It was Jerry Baker, it was Willis Kleinjan, Gabe Jarnot, 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 of the economy or recession-resistant kind of businesses. Agriculture had always been a big part of our business, and going forward, that’s what really, really helped us come out of ’08 as quickly as we did. But it helped us maintain profitability through everything, and 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. We are in niche markets, and we’re not going to deviate, or we’re not going to do 180s onto the business that we’re trying to originate. So we kept that discipline and then when COVID came, in addition to that discipline, we had the syndication network built out where now the volume wasn’t a thing. We are 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, 10 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 the data side. 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 good data quality? Because making sure 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 to be like rocket fuel for us. And I’ll never forget that scale piece. It was June of 2020. We just had, I think, our first company 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 was an outdoor facility just for our… We have an annual picnic in June for all the families. And so we had a get together, and I was talking to Willis after and I said, “Coming out of COVID, based on our core businesses…” Because all we’d been just watching it daily, more apps, more apps. Everything was fine. 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 Pace

Essential. Yeah, essential. 

Erik Anderson

Essential. 

Andrew Pace

Yep, that’s right. 

Erik Anderson

Essential industries. 

Andrew Pace

Yep. 

Erik Anderson

And every segment that we were in business in was an essential industry, and that helped. But then also, every business we were 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 Willis said, he looked at me with a really serious face and he said, “Just make sure the wheels are pointed in the right direction.” 

Andrew Pace

Right. Yeah. 

Erik Anderson

“Just make sure we’re sound.” 

Andrew Pace

Yep. So now, fast-forward 18 years, elevated rates, tariff uncertainty, a complicated macro economic picture. What are you seeing in your portfolio and your origination pipeline right now, and how is that shaping your credit posture? 

Erik Anderson

So it’s been interesting because we do so much agriculture, we had the luxury, the… Not the luxury, I would say not even the advantage. We got to go through a recession in ’14 to ’18. So, we’re in a couple counter-cyclical industries such as agriculture, where we’ve been through some downturns there as well. So we have the ’08 to ’20, but we got hit in our egg portfolio previously. So, that’s where diversification has been such a big thing for us. So lately, the past year and a half, agriculture’s been tough. And not just agriculture. Agriculture’s a pretty broad industry, right? People just say, “Ag, it is what it is.” And we’re present company included, 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. It’s like dairy. It’s an incredibly broad industry. Beef cattle. It’s huge. 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 are made in good times. That’s just is what it is. But we have always taken the stance where we need to stay disciplined with how we underwrite, but not cavalier. And we’ve been fortunate to have a really experienced analyst team where we’ve got, I think one has been at Northland for 20-plus years. Next one’s 13-plus years. I’ve been here 18-plus years. Another one just celebrated, I think, year nine. And then we hired a 20-year-plus analyst here, in Tina Valgat, who is in Detroit area. We have extremely experienced analyst team, and on top of that, we don’t auto decision. So we score, but we don’t auto decision. And we’ve done a few things on the transportation side where we’ve tweaked our cutoff a little bit, which deemed as acceptable. But for the most part, we’re trying to maintain the same posture, the same underwriting discipline that our vendors have come to expect from us. And with that, with all the things that are happening with tariffs, with… What is it, Tuesday today, and can imagine what happened today, right? It’s the constant onslaught. And I think that’s the other p– We’ve always taken that approach, too, where just that same discipline, like today is not going to make or break. And Willis has always had this philosophy, too, with Northland, and when it comes down to it, you live to play another day. 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. Like 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 is a huge, it’s directly correlated with a lot of the credits that we work with. So we’re going to see some higher delinquencies, we’re going to see some higher charge-offs. Same thing, like we just, it’s understand the markets. But lately, again, 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. But I think just by virtue of as diversified as we are, and that’s… I said a lot of number ones that we are fundamentally the things that we are, let’s say our North Stars are… Well, diversification across the board is above all else for us. Diversified in industry, diversified 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. 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 30 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 and a half percent CASR and just go about our business. Some years are good, some years are not as good. But bottom line, it’s been adhering to that same steady growth. And 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. Because those working capital margins are so thin with transportation that it’s going to take a little bit of time before it all catches up. But it’s kind of how we’ve kind of maintained and- 

Andrew Pace

Yeah 

Erik Anderson

… through all of it. 

Andrew Pace

That’s great. 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. You referenced Jocko Willink’s Extreme Ownership philosophy. How do you hire for that, and how do you build it into a team culture? 

Erik Anderson

That’s a great question. I think the two things we– I think hiring for fit, certainly on our analyst team, has been number one, do they fit the 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 if we had a team full of me’s, I’d shudder to think what it would look like. 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 that assessment. And 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. They’ve handled failure consistently. And it’s always been my favorite to hire, I was one myself on the athlete side, but my brother was 23 years in the military and an athlete both. Sister was an athlete. Half our analyst team is athlete military. We have military Brian Anderson, who’s an Iraq war vet. 

Andrew Pace

Vince? 

Erik Anderson

Vince, military. 

Andrew Pace

Yeah. 

Erik Anderson

Yep. 100% 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 who we’re accountable to in our decisions, it leads up to the very top. And I think the best part about Northman as well is it sets that tone on loss and on credits, and he always says, “I’ve never fired an analyst for losing me money.” But the reality is it’s not just the words, it’s him sitting in a collection meeting, him sitting at M&M’s and saying, “Got to lend it, and if we’re not lending it, then we’re not losing, then 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 I said, and learn from mistakes, and I think you need to give people that rope, but making sure upfront that they’re people that you trust personality-wise, that have those qualities. And then I think lastly, the quality that, candidly, I think you need the most is do 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. 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 3:00 where we were cracking beers, still working away on the underwrite. And then our sales reps like to joke that we need to go talk to the credit team after 3:00 on Fridays. It gets a little looser with the old decisioning, but- 

Andrew Pace

Right. They’ll approve everything. 

Erik Anderson

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 that moment on Fridays where we had a long week. It’s not an easy job. You need the right, I would say tougher people, mentally tough people, but then have the willingness to, not the willingness, but the opportunity to really let off some steam, so to speak, on a, say, a Friday afternoon and say, “God, this was a week from hell.” And it’s carried forward through COVID, where now what used to be that face-to-face meeting now it’s a Friday teams meeting that starts up at 3:00. And we’re still cracking beers. We’re on a Teams call. 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, that’s good organizations and good cultures have a way to foster that. Again, 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, it’s how can you do more to help the person on your right and the person on your left. And I think that’s why I always say that to athletes, that no one’s bigger than the game itself, and that was just drilled into me at a young age from my dad, and 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. The game is the organization and even when you get into taking the same approach, when you get into the likes of say funding conferences of the FA or whoever you’re competing with, that’s the same thing. Not one person that you’re ever going to talk to is going to be bigger than the game itself. And that’s the approach then when you try to hire is you find people that are super confident, but then the humility that goes with that. And we’ve been very blessed with the people we’ve had, and we’ve found, and again, they haven’t all worked out. 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, mechanically, we ask a ton of them. We ask them to be analysts. We ask them to put their sales hat on, on the syndication side, because all the syndications run through our credit team. And that’s going to put their relationship hat on with continue to foment those relationships they have with funding sources. And on the occasion, we’re going to 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, and it’s been very blessed that way. 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, I get cut off and we go somewhere else, that’s the dynamics that I’d move forward with. And it wouldn’t be just, again, the analyst team, you could say whatever team you want and that’s what makes our Northland as a whole. 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, we take care of each other, and it’s from the very top. That’s Willis from the start. That’s Jerry Baker. That’s Gabe, Brian Eschmann, our leadership, Beth McLean. And it’s fostered down to, we hired an admin or an operations specialist here yesterday. Well, that’s the standard and the expectation, and it’s not lip service either because it’s rarely anything that we actually talk about. It’s just the way that we do business, and it’s hard to describe. So yeah, I gave out a long-winded answer. 

Andrew Pace

That’s okay. That’s great stuff. There’s a lot there, and I’ll tell you, we met for the first time, was it Marco, right? 

Erik Anderson

Yeah, October, yeah. 

Andrew Pace

Yeah. So, we haven’t known each other for a year, but I feel like I’ve known you for 15 years. And same, Beth, Vince, Brian, Vaughn, the people in your organization are just 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. Try to meet with you guys for a Friday afternoon. But no, what you guys are doing over there, it’s just wonderful. And when you have great people, down to earth, great people, it’s easy to want to be around people like you guys. And like I said, I go to conferences, I look forward to seeing you and Beth and, because you guys are always present and you’re there. So it’s awesome. So thank you for sharing. 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? 

Erik Anderson

Yeah. 

Andrew Pace

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 40, 50-degree temperatures or seven feet of snow? Which one are you taking and why? 

Erik Anderson

So I guess the question is duration. So anybody can endure one snowfall or one day of 40 below. But the question is, you know full well, there are some winters that are worse than others. 

Erik Anderson

So I 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 snowfalls where I’m constantly shoveling out. And I think the bottom line for me is, 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 and a big one, I think that’s entirely a function where you just get tired of spending time shoveling or snowblowing. I would rather have to just endure. Give me the pain, and give me the cold. 

Andrew Pace

One to one. 

Erik Anderson

Yeah. And it’s funny, us being from, we’ll call it of the north and of the elements, I think I heard this from Gabe years ago, there’s no such thing as bad weather. It’s just bad gear. But I think that applies probably to snowfall too. Do you have the gear to clean up in a fast manner or not? So imagine if I was in Buffalo and I opened up my door and it was all snow, literally packed past the door. Time to invest in where you put your money and probably be a significant either snow removal service or better gear. 

Andrew Pace

Well, I can tell you, you get that much snow, which I did in one day. Where I live, I live in the lake-effect area, and at higher elevations, and we got seven feet in less than 24 hours. 

Erik Anderson

That’s so crazy. 

Andrew Pace

It was thundering and lightning. It settled, so it doesn’t look like seven feet, when it’s all said and done, but that’s how much snow we got, and it just turns into ice and slush at the very bottom. But, yeah, it can wear on you. You get a couple of those a year, maybe not seven, that’s kind of the extreme, but three, four, five feet of snow in a day. Yeah. You’re just getting hit. Or you die by death by a thousand cuts. I’ll get four, five, six inches a day. 

Erik Anderson

Exactly. A day. 

Andrew Pace

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 Anderson

Yeah. 

Andrew Pace

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- … ice hockey. Minnesota, Buffalo, big hockey communities. I was playing football in the snow. I was playing basketball in the snow. I didn’t play hockey. 

Erik Anderson

Yeah. 

Andrew Pace

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 with the backboard on my garage. 

Erik Anderson

Yep. 

Andrew Pace

If I wanted to get better. Otherwise, I’m laying in bed and just shooting free throws- 

Erik Anderson

100% 

Andrew Pace

… and try to almost hit the ceiling, right? That was how we grew up. But yeah, you can always bundle up. I get it. We would have some January, Februaries in Buffalo, we would get intense cold. Negative with the wind chills would be 20, 30 below. Schools would get 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. And we’re running from the cold to get to the heat. And then you talk about people that live in Phoenix, they’re running from the heat to get to the cold. 

Erik Anderson

Yeah. 

Andrew Pace

We have heaters for our pools, whereas folks in Phoenix and those warmer climates, some of them have chillers just because they have to cool the pool temperatures. 

Erik Anderson

Yeah. 

Andrew Pace

Otherwise, it’d be like taking a bath. That’s not fun. 

Erik Anderson

No. 

Andrew Pace

Yeah, I would rather bundle up and just deal with the cold temps. But I think out of all those, if you add rain, I hate rain. I’d rather it snow seven feet than have it rain. 

Erik Anderson

For sure. Yeah. 

Andrew Pace

So. 

Erik Anderson

We had the– Well, yesterday, I think we got close to three inches of rain. 

Andrew Pace

Ugh. 

Erik Anderson

And it was, like, 39 degrees. So, God, I remember, I think the worst possible scenario is high 30s, low 40s 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 have never been so cold in my entire life. And it was rainfall, and I think I fumbled maybe six, seven times. But that is the one scenario. Rain is the absolute worst. Play in the snow, can play in frozen fields, but rain, it just sucks. 

Andrew Pace

It does. 

Erik Anderson

You’ve got to bring out your umbrella. What do you do? I can fish in the rain. That’s one thing I can do. I can fish in the rain. 

Andrew Pace

There you go. Yeah. There are some things you can do. It’s very annoying. 

Erik Anderson

Oh, yeah. 

Andrew Pace

You’re miserable, you’re wet. Again, it’s about gear, right? I love that. I’m going to steal that from you. 

Erik Anderson

No, I stole it from somebody else, so 

Andrew Pace

Well, we seem to both agree, so I guess it’s not really a debate. But it does, I would say, I think the weather where we grew up, it becomes part of our identity, right? 

Erik Anderson

100%. 

Andrew Pace

Kind of like our football teams. I can have you on in a year or two, and we can, for another podcast, and 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 Anderson

Well, it’s funny. I would rather be in your situation any day of the week where you have stability at the quarterback position. 

Andrew Pace

Yeah. 

Erik Anderson

And I love watching your guy play, man. There’s something about that. I’m not a huge pro sports fan overall. I grew up college sports. I love high school sports, but the college piece, professionally, I just like watching good players play. And fortunately, for the Vikings, I think we’ve had our share of good players, like Jefferson as a receiver. But for me, I just really 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 downs, too, that’s the best part. It’s not always going to be great, but man, you always are going to believe that we’ve got a chance. 

Andrew Pace

Right. There’s no question. Last year, we had several games where we were practically on life support. I think the first game of the year, I 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 to 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. Same thing, we had the same situation against the Bengals later in the year, where, again, we were almost left for dead. Very, very small chance of winning that game. 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 get sacked and he fumbles the ball and next thing we’re winning with a 21-point turnaround, and the rest is history. So yeah, you got to have the horse. We have the horse, he doesn’t have the weapons. 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. 

Erik Anderson

Yeah. 

Andrew Pace

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 complementary pieces that we have. But now we got the stud, so there’s really no excuses, and so I guess we’ll see. But yeah, I tell you- 

Erik Anderson

That’s why I love football so much that way, because it’s just such a great team game because you just need it all. 

Andrew Pace

Right. 

Erik Anderson

You can’t be deficient, and you just have to be good across the board at every position. And, again, that’s why I love it so much because no matter if you have the stud of all studs, like you have the quarterback position, you still need players all around. 

Andrew Pace

Yeah. 

Erik Anderson

And on top of that, you need a salty defense. 

Andrew Pace

Yeah. 

Erik Anderson

It’s such a great… That’s my favorite part. You need it all. 

Andrew Pace

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. How’s that? 

Erik Anderson

Yeah. Wouldn’t that be great? 

Andrew Pace

Right? 

Erik Anderson

Yeah. 

Andrew Pace

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. And 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 Erik across our industry think about credit risk and long-term growth. Until next time, thank you for listening.