Financial Pacific Leasing, the equipment finance subsidiary of Tacoma, Wash.-based Columbia Banking System, saw a surge in net charge-offs in the fourth quarter driven by credit deterioration in its transportation portfolio.
Net charge-offs (NCO) in Q4 landed at 5.39% of Financial Pacific Leasing’s (FinPac) $1.7 billion portfolio, an increase of 225 basis points (bps) year over year and 24 bps quarter over quarter, according to Columbia Banking System’s (CBS) Jan. 24 earnings presentation.
CBS Chief Credit Officer Frank Namdar said on the earnings call that the increase in net charge-offs was “isolated” to the lender’s trucking portfolio, and estimated pressures will ease by the middle of the year.
FinPac charge-offs pushed up NCOs on the bank’s $52.2 billion portfolio to 0.31%, up from 0.25% in Q3, according to the report. Excluding FinPac, NCOs on the bank’s portfolio landed at 0.06%.
“The fourth quarter is a tough barometer for collecting, because of all the holidays that are during that quarter,” Namdar said. “What is encouraging is that it is isolated to the trucking portfolio. To see the light through the data that we have, there is an end in sight, and I do believe it will be halfway through this year.”
CBS did not respond to Equipment Finance News’ request for comment by publication time.
FinPac total delinquencies jumped 53 bps QoQ to 4.74%, and allowance for credit losses inched up 1 bps to 6.65%, according to the earnings presentation.
By the numbers:
- Financial Pacific Leasing’s commercial lease and equipment finance assets remained flat QoQ and YoY at $1.7 billion;
- Average loan and lease size of the quarter inched up to $69,000, up from $66,000 in Q3;
- Average yield was also flat QoQ at 10%.
CBS acquired Federal Way, Wash.-based FinPac as part of its March 2023 acquisition of Umpqua Holdings.
Established in 1975, FinPac is the 45th-largest equipment finance company in the U.S. by managed assets, according to the Monitor 100. FinPac originated $884.1 billion in loans in 2022 and had 228 employees, according to Monitor.
FinPac originates and services equipment leases from $5,000 to $150,000 on an application-only basis, and its commercial division handles leases and equipment financing with “bankable credit” between $100,000 and $15 million, according to its website. FinPac also acts as a servicer of its portfolio.
State of Play
The equipment industry is struggling, with inventories spiking and values dropping as the market experiences tighter financial conditions. Dealers and lenders are both grappling with a drop-off in collateral values.
As EFN reported earlier this month, borrowers are increasingly missing payments, which, combined with declining truck values is pushing the overall loan-to-value ratio higher, causing losses to mount.
That said, CBS’ Namdar is not alone in predicting market conditions will ease: Kit West, business development executive of broker relations at lender C.H. Brown, told EFN earlier this month that 2024 should bring an “uptick of goods moving around” in the sector, and added that he expects the added imports will turn the tide for independent truckers.
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