chw q2 and thotsqtr shud be reported soon and expect shud be fine. overall economy and industry conditions obviously softening (so originations will prob slow) but credit metrics for equipment finance (and business loans in general) still look ok – commentary below. biggest question will be funding markets, and chw ability to maintain good spread in future. funding mkt seems better than it was in June, but still shaky. chw not much exposure to real estate which is sector big question marks surround imo. inflation leading indicators maybe peaked which wud be good. us 10 yr peaked at 3.5% , now 2.65%. us high yield bonds had best month (in july 2022) at +5.2% since october 2011. july had biggest inflow into high yield bonds in 21 months. high yield credit spreads peaked in june (at 6%) and have rolled over (to <5% now) - still elevated but nowhere near peaks of 2009, 2011, 2016 and 2020. 1h/22 still largest decline in high yield issuance on record, but mkt def stabilizing in july and some recovery.
chw stock has correlated highly to cdn bank index etf xfn (in bear market, everything seems to correlate highly together to the downside) and smaller cap cdn market pretty dead. provided maintain good underwriting standards and continue diversify funding sources (w/private equity deal announced early this year), shud ride this out and come out stronger than some peers imo. still like this bizness.
PMI: “smallest rise in the price of goods leaving the factory gate seen for nearly one and a half years... rate of inflation cooling sharply to add to signs that inflation has peaked"
ELFA - “The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross section of the $900 billion equipment finance sector, showed their overall new business volume for June was $10.3 billion, down 1 percent year-over-year from new business volume in June 2021. Volume was up 10 percent from $9.4 billion in May. Year-to-date, cumulative new business volume was up 6 percent compared to 2021. Receivables over 30 days were 1.5 percent, down from 1.6 percent the previous month and down from 1.8 percent in the same period in 2021. Charge-offs were 0.15 percent, up from 0.12 percent the previous month and down from 0.22 percent in the year-earlier period. Credit approvals totaled 78.1 percent, up from 76.8 percent in May. Total headcount for equipment finance companies was down 3.5 percent year-over-year. Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) in July is 46.1, a decrease from 50.9 in June.”
regions financial (rf-nyse) - own ascentium capital, bought in early 2020 when had $2 billion in equipment loans/leases and originations of $1.5 billion in 2019. had 460 employees in 2020 (chw ~500). partnering with nearly 4,000 manufacturers, dealers and distributors to finance essential-use equipment for small business customers. production (originations) for the first half of 2022 is up 31 percent year-over-year with pipelines remaining strong.
north mill equipment finance (smaller but similar biz to chw in using third party brokers) - “North Mill Equipment Finance LLC reported an all-time high in funding volume for the second quarter of 2022. Funded volume surged to $147 million, up 34% from the first quarter of 2022 and up 108% from the second quarter of 2021. Additionally, the company set a new monthly record as funded volume for June reached $55 million, eclipsing last March’s originations high of $49 million. “A significant contributor to NMEF’s increased volume has been its success in forging deeper, more meaningful relationships with key referral agents, ensuring that deal flow within NMEF’s credit and pricing windows is maximized,” said David Lee, Chairman and CEO. “Evidence of this success is that NMEF was able to more than double its funded volume this quarter from the same quarter in 2021 while processing the same number of applications in both quarters, basically doubling its book to look ratio without sacrificing yields nor credit quality, as evidenced by a weighted average FICO of 722.”
jp morgan – “We've never seen business credit be better ever like in our lifetimes. And that's the current environment. The future environment, which is not that far off, involves rates going up, maybe more than people think because of inflation, maybe elation, maybe soft -- there might be a soft landing.”
wells fargo – “While we're monitoring risks related to continued high inflation, increasing interest rates, and the slowing economy, which will impact our customers, consumers and businesses have been resilient so far. When looking at simple averages across our entire portfolio, consumer deposit balances per account increased from first quarter and a year ago and remained above pre-pandemic levels. Overall, our consumer deposit customers' health indicators, including cash flow, payroll, and overdraft trends are not showing elevated risk concerns.”
onemain financial (big lender to non-prime customers , small dollars, not equipment finance and w/much higher realized rates and writeoffs than chw ) – “demand for our loan products remain strong. Originations in the quarter were above seasonal pre-pandemic levels, as healthy demand for our core personal loan product, was bolstered by our expanded products and channels, including smaller dollar loans and partnerships at the point of purchase. The strong originations in the quarter led to excellent managed receivables growth of 11% year-over-year. This is another sign that our customers feel good about their financial prospects. Our experience is that when demand is robust, it means that customers are feeling good about their finances. The credit performance of our portfolio continues to track within expectations. Our 30 to 89 delinquency was 2.25%, down from 2.43% in the fourth quarter and up from the historical low 1.57% in the first quarter of 2021, which, as you know, was positively impacted by federal stimulus programs. 90-plus delinquency was 2.21%, up seasonally as anticipated from 2.0% in the fourth quarter. Recoveries remained strong at $67 million in the quarter or 1.4% of average receivables, well above our historical levels of about 90 basis points. We continue to see strong underlying performance in our recoveries. However, this first quarter was further enhanced by a sale of charge-off receivables. Net charge-offs were $262 million or 5.6% compared to a historically low 4.7% in the first quarter of 2021. We remain confident in our full year 2022 guidance for net charge-offs of 5.6% to 6.0%.”