PACCAR Financial Corp.
07/31/2024 | Press release | Distributed by Public on 07/31/2024 14:11
Quarterly Report for Quarter Ending June 30, 2024 (Form 10-Q)
10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
☒ |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period endedJune 30, 2024
or
|
☐ |
Transition Report Pursuant to Section 13 Or 15(d) of the Securities Exchange Act of 1934 |
For transition period from __________ to __________
Commission File No. 001-11677
PACCAR FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
|
Washington |
91-6029712 |
|
(State of incorporation) |
(I.R.S. Employer Identification No.) |
|
777 - 106th Ave. N.E., Bellevue, Washington |
98004 |
|
(Address of principal executive offices) |
(Zip code) |
(425) 468-7100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
Series P Medium-Term Notes |
PCAR26 |
The NASDAQ Stock Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
☐ |
Accelerated filer |
☐ |
||
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Non-accelerated filer |
☒ |
Smaller reporting company |
☐ |
||
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Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Common Stock, $100 par value-145,000shares as of July 31, 2024
THE REGISTRANT IS A WHOLLY OWNED SUBSIDIARY OF PACCAR INC AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H)(1)(a) and (b) OF FORM 10-Q AND IS, THEREFORE, FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
PACCAR FINANCIAL CORP.
INDEX
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Page |
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PART I. |
FINANCIAL INFORMATION: |
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ITEM 1. |
FINANCIAL STATEMENTS: |
||
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Statements of Comprehensive Income and Retained Earnings - Three and Six Months Ended June 30, 2024 and 2023 (Unaudited) |
3 |
||
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Balance Sheets - June 30, 2024 (Unaudited) and December 31, 2023 |
4 |
||
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Statements of Cash Flows - Six Months Ended June 30, 2024 and 2023 (Unaudited) |
5 |
||
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Statements of Stockholder's Equity - Three and Six Months Ended June 30, 2024 and 2023 (Unaudited) |
6 |
||
|
Notes to Financial Statements (Unaudited) |
7 |
||
|
ITEM 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS |
19 |
|
|
ITEM 4. |
CONTROLS AND PROCEDURES |
27 |
|
|
PART II. |
OTHER INFORMATION: |
28 |
|
|
ITEM 1. |
LEGAL PROCEEDINGS |
28 |
|
|
ITEM 1A. |
RISK FACTORS |
28 |
|
|
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES |
28 |
|
|
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
28 |
|
|
ITEM 4. |
MINE SAFETY DISCLOSURES |
28 |
|
|
ITEM 5. |
OTHER INFORMATION |
28 |
|
|
ITEM 6. |
EXHIBITS |
28 |
|
|
EXHIBIT INDEX |
29 |
||
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SIGNATURES |
30 |
PACCAR FINANCIAL CORP.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF COMPREHENSIVE INCOME AND RETAINED EARNINGS (Unaudited)
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
June 30 |
June 30 |
|||||||||||||||
|
(Millions of Dollars) |
2024 |
2023 |
2024 |
2023 |
||||||||||||
|
Interest and fee income |
$ |
160.9 |
$ |
112.1 |
$ |
308.0 |
$ |
212.7 |
||||||||
|
Operating lease and rental revenues |
42.4 |
62.0 |
94.7 |
131.9 |
||||||||||||
|
Used truck sales and other revenues |
5.7 |
4.7 |
17.5 |
11.7 |
||||||||||||
|
TOTAL INTEREST AND OTHER REVENUES |
209.0 |
178.8 |
420.2 |
356.3 |
||||||||||||
|
Interest and other borrowing costs |
97.8 |
64.1 |
187.5 |
117.2 |
||||||||||||
|
Depreciation and other rental expenses |
41.5 |
43.5 |
89.1 |
91.7 |
||||||||||||
|
Cost of used truck sales and other expenses |
5.6 |
3.4 |
17.1 |
8.6 |
||||||||||||
|
Selling, general and administrative expenses |
18.0 |
16.0 |
35.2 |
31.6 |
||||||||||||
|
Provision for losses on receivables |
6.1 |
.8 |
13.2 |
1.4 |
||||||||||||
|
TOTAL EXPENSES |
169.0 |
127.8 |
342.1 |
250.5 |
||||||||||||
|
INCOME BEFORE INCOME TAXES |
40.0 |
51.0 |
78.1 |
105.8 |
||||||||||||
|
Income taxes |
10.0 |
12.7 |
18.9 |
26.4 |
||||||||||||
|
NET INCOME |
$ |
30.0 |
$ |
38.3 |
$ |
59.2 |
$ |
79.4 |
||||||||
|
COMPREHENSIVE INCOME |
$ |
29.3 |
$ |
45.0 |
$ |
60.4 |
$ |
77.9 |
||||||||
|
RETAINED EARNINGS AT BEGINNING OF PERIOD |
$ |
1,682.3 |
$ |
1,604.7 |
$ |
1,703.1 |
$ |
1,813.6 |
||||||||
|
RETAINED EARNINGS AT END OF PERIOD |
$ |
1,712.3 |
$ |
1,643.0 |
$ |
1,712.3 |
$ |
1,643.0 |
Earnings per share and dividends per share are not reported because the Company is a wholly owned subsidiary of PACCAR Inc.
See Notes to Financial Statements.
- 3-
PACCAR FINANCIAL CORP.
|
BALANCE SHEETS |
||||||||
|
June 30 |
December 31 |
|||||||
|
2024 |
2023* |
|||||||
|
(Millions of Dollars) |
(Unaudited) |
|||||||
|
ASSETS |
||||||||
|
Cash |
$ |
53.9 |
$ |
175.1 |
||||
|
Finance and other receivables, net of allowance for losses |
9,746.8 |
9,205.4 |
||||||
|
Due from PACCAR and affiliates |
1,777.4 |
1,750.7 |
||||||
|
Equipment on operating leases, net of accumulated depreciation |
559.3 |
528.0 |
||||||
|
Other assets |
358.5 |
337.8 |
||||||
|
TOTAL ASSETS |
$ |
12,495.9 |
$ |
11,997.0 |
||||
|
LIABILITIES |
||||||||
|
Accounts payable, accrued expenses and other |
$ |
663.0 |
$ |
603.1 |
||||
|
Due to PACCAR and affiliates |
49.7 |
58.6 |
||||||
|
Commercial paper |
2,738.8 |
2,842.4 |
||||||
|
Medium-term notes |
6,619.4 |
6,071.7 |
||||||
|
Deferred taxes and other liabilities |
478.0 |
490.0 |
||||||
|
TOTAL LIABILITIES |
10,548.9 |
10,065.8 |
||||||
|
STOCKHOLDER'S EQUITY |
||||||||
|
Preferred stock, par value $100per share, 6% noncumulative and nonvoting, |
31.0 |
31.0 |
||||||
|
Common stock, par value $100per share, 200,000shares authorized, |
14.5 |
14.5 |
||||||
|
Additional paid-in capital |
177.0 |
171.6 |
||||||
|
Retained earnings |
1,712.3 |
1,703.1 |
||||||
|
Accumulated other comprehensive income |
12.2 |
11.0 |
||||||
|
TOTAL STOCKHOLDER'S EQUITY |
1,947.0 |
1,931.2 |
||||||
|
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY |
$ |
12,495.9 |
$ |
11,997.0 |
* The December 31, 2023 balance sheet has been derived from audited financial statements.
See Notes to Financial Statements.
- 4-
PACCAR FINANCIAL CORP.
|
STATEMENTS OF CASH FLOWS (Unaudited) |
||||||||
|
Six Months Ended |
||||||||
|
June 30 |
||||||||
|
(Millions of Dollars) |
2024 |
2023 |
||||||
|
OPERATING ACTIVITIES |
||||||||
|
Net income |
$ |
59.2 |
$ |
79.4 |
||||
|
Items included in net income not affecting cash: |
||||||||
|
Depreciation and amortization |
87.9 |
87.9 |
||||||
|
Provision for losses on receivables |
13.2 |
1.4 |
||||||
|
Deferred taxes |
(2.4 |
) |
9.7 |
|||||
|
Administrative fees for services from PACCAR |
5.4 |
4.8 |
||||||
|
Change in tax-related balances with PACCAR |
1.7 |
7.0 |
||||||
|
Increase in payables and other |
36.1 |
77.1 |
||||||
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
201.1 |
267.3 |
||||||
|
INVESTING ACTIVITIES |
||||||||
|
Finance and other receivables originated |
(1,778.9 |
) |
(1,464.5 |
) |
||||
|
Collections on finance and other receivables |
1,493.5 |
1,277.8 |
||||||
|
Net increase in wholesale receivables |
(298.3 |
) |
(444.4 |
) |
||||
|
Loans to PACCAR and affiliates |
(364.6 |
) |
(180.0 |
) |
||||
|
Collections on loans from PACCAR and affiliates |
290.0 |
325.0 |
||||||
|
Net decrease in other receivables to PACCAR and affiliates |
51.0 |
27.0 |
||||||
|
Acquisitions of equipment for operating leases |
(188.9 |
) |
(28.7 |
) |
||||
|
Proceeds from disposals of equipment |
108.7 |
90.8 |
||||||
|
Other, net |
(21.8 |
) |
(46.4 |
) |
||||
|
NET CASH USED IN INVESTING ACTIVITIES |
(709.3 |
) |
(443.4 |
) |
||||
|
FINANCING ACTIVITIES |
||||||||
|
Net (decrease) increase in short-term commercial paper |
(105.9 |
) |
635.6 |
|||||
|
Proceeds from medium-term notes |
1,442.9 |
796.7 |
||||||
|
Payments of medium-term notes |
(900.0 |
) |
(1,000.0 |
) |
||||
|
Dividends paid |
(50.0 |
) |
(250.0 |
) |
||||
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
387.0 |
182.3 |
||||||
|
NET (DECREASE) INCREASE IN CASH |
(121.2 |
) |
6.2 |
|||||
|
CASH AT BEGINNING OF PERIOD |
175.1 |
48.8 |
||||||
|
CASH AT END OF PERIOD |
$ |
53.9 |
$ |
55.0 |
See Notes to Financial Statements.
- 5-
PACCAR FINANCIAL CORP.
|
STATEMENTS OF STOCKHOLDER'S EQUITY (Unaudited) |
|||||||||||||||
|
Three Months Ended |
Six Months Ended |
||||||||||||||
|
June 30 |
June 30 |
||||||||||||||
|
(Millions of Dollars) |
2024 |
2023 |
2024 |
2023 |
|||||||||||
|
PREFERRED STOCK, $100par value |
|||||||||||||||
|
Balance at beginning of period |
$ |
31.0 |
$ |
31.0 |
$ |
31.0 |
$ |
31.0 |
|||||||
|
Balance at end of period |
31.0 |
31.0 |
31.0 |
31.0 |
|||||||||||
|
COMMON STOCK, $100par value |
|||||||||||||||
|
Balance at beginning of period |
14.5 |
14.5 |
14.5 |
14.5 |
|||||||||||
|
Balance at end of period |
14.5 |
14.5 |
14.5 |
14.5 |
|||||||||||
|
ADDITIONAL PAID-IN CAPITAL |
|||||||||||||||
|
Balance at beginning of period |
176.3 |
169.0 |
171.6 |
164.6 |
|||||||||||
|
Investments from PACCAR |
.7 |
.4 |
5.4 |
4.8 |
|||||||||||
|
Balance at end of period |
177.0 |
169.4 |
177.0 |
169.4 |
|||||||||||
|
RETAINED EARNINGS |
|||||||||||||||
|
Balance at beginning of period |
1,682.3 |
1,604.7 |
1,703.1 |
1,813.6 |
|||||||||||
|
Net income |
30.0 |
38.3 |
59.2 |
79.4 |
|||||||||||
|
Dividends paid |
(50.0 |
) |
(250.0 |
) |
|||||||||||
|
Balance at end of period |
1,712.3 |
1,643.0 |
1,712.3 |
1,643.0 |
|||||||||||
|
ACCUMULATED OTHER COMPREHENSIVE INCOME |
|||||||||||||||
|
Accumulated unrealized net gain (loss) on derivative contracts: |
|||||||||||||||
|
Balance at beginning of period |
12.9 |
10.2 |
11.0 |
18.4 |
|||||||||||
|
Net unrealized (loss) gain |
(.7 |
) |
6.7 |
1.2 |
(1.5 |
) |
|||||||||
|
Balance at end of period |
12.2 |
16.9 |
12.2 |
16.9 |
|||||||||||
|
TOTAL STOCKHOLDER'S EQUITY |
$ |
1,947.0 |
$ |
1,874.8 |
$ |
1,947.0 |
$ |
1,874.8 |
|||||||
|
See Notes to Financial Statements. |
- 6-
PACCAR FINANCIAL CORP.
|
Notes to Financial Statements (Unaudited) |
(Millions of Dollars) |
NOTE A - Basisof Presentation
PACCAR Financial Corp. (the "Company") is a wholly owned subsidiary of PACCAR Inc ("PACCAR"). The Company primarily provides financing of PACCAR manufactured trucks and related equipment sold by authorized dealers. The Company also finances dealer inventories of transportation equipment and franchises Kenworth and Peterbilt dealerships to engage in full-service and finance leasing. The operations of the Company are fundamentally affected by its relationship with PACCAR.
The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. For further information, refer to the financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
New Accounting Pronouncement:
In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU require entities to disclose certain, specific categories within the rate reconciliation and enhance disclosures regarding income taxes paid and income tax expense. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments in this ASU should be applied on a prospective basis; however, retrospective application is permitted. The implementation of this ASU will result in additional disclosures and will not have an impact on the Company's financial statements.
NOTE B - Finance and Other Receivables
The Company's finance and other receivables include the following:
|
June 30 |
December 31 |
|||||||
|
2024 |
2023 |
|||||||
|
Retail loans |
$ |
5,323.2 |
$ |
5,028.2 |
||||
|
Retail financing leases |
1,720.2 |
1,710.4 |
||||||
|
Dealer wholesale financing |
2,251.6 |
1,953.3 |
||||||
|
Dealer master notes |
462.5 |
509.2 |
||||||
|
Operating lease receivables and other |
53.6 |
65.3 |
||||||
|
9,811.1 |
9,266.4 |
|||||||
|
Less allowance for credit losses: |
||||||||
|
Loans and leases |
(61.8 |
) |
(58.6 |
) |
||||
|
Dealer wholesale financing |
(1.0 |
) |
(1.0 |
) |
||||
|
Operating lease receivables and other |
(1.5 |
) |
(1.4 |
) |
||||
|
$ |
9,746.8 |
$ |
9,205.4 |
Included in Finance and other receivables, net of allowance for credit losses, on the Balance Sheets is accrued interest receivable, net of allowance for credit losses, of $34.0and $31.6as of June 30, 2024 and December 31, 2023, respectively.
- 7-
PACCAR FINANCIAL CORP.
|
Notes to Financial Statements (Unaudited) |
(Millions of Dollars) |
Interest income recognized on finance leases was $23.6and $46.8for the three and six months ended June 30, 2024 respectively, compared to $18.3and $35.4for the same periods in 2023. Recognition of interest income and rental revenue is suspended (put on non-accrual status) when the receivable becomes more than 90 days past the contractual due date or earlier if some other event causes the Company to determine that collection is not probable. Accordingly, no financereceivables more than 90 days past due were accruing interest at June 30, 2024 or December 31, 2023. Recognition is resumed if the receivable becomes current by the payment of all amounts due under the terms of the existing contract and collection of remaining amounts is considered probable (if not contractually modified) or if the customer makes scheduled payments for three months and collection of remaining amounts is considered probable (if contractually modified). Payments received while the finance receivable is on non-accrual status are applied to interest and principal in accordance with the contractual terms.
Allowance for Credit Losses
The Company continuously monitors the payment performance of its finance receivables. For large retail finance customers and dealers with wholesale financing, the Company regularly reviews their financial statements and makes site visits and phone contact as appropriate. If the Company becomes aware of circumstances that could cause those customers or dealers to face financial difficulty, whether or not they are past due, the customers are placed on a watch list.
The Company modifies loans and finance leases in the normal course of its operations. The Company may modify loans and finance leases for commercial reasons or for credit reasons. Modifications for commercial reasons are changes to contract terms for customers that are not considered to be in financial difficulty. Insignificant delays are modifications extending terms up to three months for customers experiencing some short-term financial stress, but not considered to be in financial difficulty. Modifications for credit reasons are changes to contract terms for customers considered to be in financial difficulty. The Company's modifications typically result in granting more time to pay the contractual amounts owed and charging a fee and interest for the term of the modification.
When considering whether to modify customer accounts for credit reasons, the Company evaluates the creditworthiness of the customers and modifies those accounts that the Company considers likely to perform under the modified terms. The Company does not typically grant credit modifications for customers that do not meet minimum underwriting standards since the Company normally repossesses the financed equipment in these circumstances.
On average, commercial and other modifications extended contractual terms by approximately four monthsin 2024 and three months in 2023, and did not have a significant effect on the weighted average term or interest rate of the total portfolio at June 30, 2024 and December 31, 2023.
The Company has developed a systematic methodology for determining the allowance for credit losses for its twoportfolio segments, retail and wholesale. The retail segment consists of retail loans and sales-type finance leases, net of unearned interest. The wholesale segment consists of truck inventory financing loans to dealers that are collateralized by trucks and other collateral. The wholesale segment generally has less risk than the retail segment. Wholesale receivables generally are shorter in duration than retail receivables, and the Company requires periodic reporting of the wholesale dealer's financial condition, conducts periodic audits of the trucks being financed and, in many cases, obtains guarantees or other security such as dealership assets. In determining the allowance for credit losses, retail loans and finance leases are evaluated together since they relate to a similar customer base, their contractual terms require regular payment of principal and interest, generally over 36to 60 months, and they are secured by the same type of collateral. The allowance for credit losses consists of both specific and general reserves.
The Company individually evaluates certain finance receivables for expected credit losses. Finance receivables that are evaluated individually consist of all wholesale accounts and certain large retail accounts with past due balances or otherwise determined to be at a higher risk of loss. In general, finance receivables that are 90 days past due are placed on non-accrual status. Finance receivables on non-accrual status which have been performing for 90 consecutive days are placed on accrual status if it is deemed probable that the Company will collect all principal and interest payments.
Individually evaluated receivables on non-accrual status are generally considered collateral dependent. Large balance retail and all wholesale receivables on non-accrual status are individually evaluated to determine the appropriate reserve for losses. The determination of reserves for large balance receivables on non-accrual status considers the fair value of the associated collateral. When the underlying collateral fair value exceeds the Company's amortized cost basis, no reserve is recorded. Small balance receivables on non-accrual status with similar risk characteristics are evaluated as a separate pool to determine the appropriate reserve for losses using the historical loss information discussed below.
- 8-
PACCAR FINANCIAL CORP.
|
Notes to Financial Statements (Unaudited) |
(Millions of Dollars) |
The Company evaluates finance receivables that are not individually evaluated and share similar risk characteristics on a collective basis and determines the general allowance for credit losses for both retail and wholesale receivables based on historical loss information, using past due account data, current market conditions, and expected changes in future macroeconomic conditions that affect collectability. Historical credit loss information provides relevant information of expected credit losses. The historical data used includes assumptions regarding the likelihood of collecting current and past due accounts, repossession rates, and the recovery rate on the underlying collateral based on used truck values and other pledged collateral or recourse.
The Company has developed a range of loss estimates of its portfolio based on historical experience, taking into account loss frequency and severity in both strong and weak truck market conditions. A projection is made of the range of estimated credit losses inherent in the portfolio from which an amount is determined based on current market conditions and other factors impacting the creditworthiness of the Company's borrowers and their ability to repay. Adjustments to historical loss information are made for changes in forecasted economic conditions that are specific to the industry and market in which the Company conducts business. The Company utilizes economic forecasts from third party sources and determines expected losses based on historical experience under similar market conditions. After determining the appropriate level of the allowance for credit losses, a provision for losses on finance receivables is charged to income as necessary to reflect management's estimate of expected credit losses, net of recoveries, inherent in the portfolio.
In determining the fair value of the collateral, the Company uses a pricing matrix and categorizes the fair value as Level 2 in the hierarchy of fair value measurement. The pricing matrix is reviewed quarterly and updated as appropriate. The pricing matrix considers the make, model and year of the equipment as well as recent sales prices of comparable equipment sold individually, which is the lowest unit of account, through wholesale channels to the Company's dealers (principal market). The fair value of the collateral also considers the overall condition of the equipment.
Accounts are charged off against the allowance for credit losses when, in the judgment of management, they are considered uncollectible, which generally occurs upon repossession of the collateral. Typically the timing between the repossession and charge-off is not significant. In cases where repossession is delayed (e.g., for legal proceedings), the Company records a partial charge-off. The charge-off is determined by comparing the fair value of the collateral, less cost to sell, to the amortized cost basis.
For the following credit quality disclosures, finance receivables are classified into twoportfolio segments, wholesale and retail. The retail portfolio is further segmented into dealer retail and customer retail. The dealer wholesale segment consists of truck inventory financing to PACCAR dealers. The dealer retail segment consists of loans and leases to participating dealers and franchises that use the proceeds to fund customers' acquisition of commercial vehicles and related equipment. The customer retail segment consists of loans and leases directly to customers for the acquisition of commercial vehicles and related equipment. Customer retail receivables are further segregated between fleet and owner/operator classes. The fleet class consists of customer retail accounts operating five or more trucks. All other customer retail accounts are considered owner/operator. These two classes have similar measurement attributes, risk characteristics and common methods to monitor and assess credit risk.
The allowance for credit losses is summarized as follows:
|
2024 |
||||||||||||||||||||
|
Dealer |
Customer |
|||||||||||||||||||
|
Wholesale |
Retail |
Retail |
Other* |
Total |
||||||||||||||||
|
Balance at January 1 |
$ |
1.0 |
$ |
1.7 |
$ |
56.9 |
$ |
1.4 |
$ |
61.0 |
||||||||||
|
Provision for losses |
(.6 |
) |
13.7 |
.1 |
13.2 |
|||||||||||||||
|
Charge-offs |
(10.1 |
) |
(10.1 |
) |
||||||||||||||||
|
Recoveries |
.2 |
.2 |
||||||||||||||||||
|
Balance at June 30 |
$ |
1.0 |
$ |
1.1 |
$ |
60.7 |
$ |
1.5 |
$ |
64.3 |
- 9-
PACCAR FINANCIAL CORP.
|
Notes to Financial Statements (Unaudited) |
(Millions of Dollars) |
|
2023 |
||||||||||||||||||||
|
Dealer |
Customer |
|||||||||||||||||||
|
Wholesale |
Retail |
Retail |
Other* |
Total |
||||||||||||||||
|
Balance at January 1 |
$ |
1.0 |
$ |
1.8 |
$ |
57.9 |
$ |
1.0 |
$ |
61.7 |
||||||||||
|
Provision for losses |
(.1 |
) |
(.1 |
) |
1.6 |
1.4 |
||||||||||||||
|
Charge-offs |
(2.6 |
) |
(2.6 |
) |
||||||||||||||||
|
Recoveries |
.7 |
.1 |
.8 |
|||||||||||||||||
|
Balance at June 30 |
$ |
.9 |
$ |
1.7 |
$ |
57.6 |
$ |
1.1 |
$ |
61.3 |
*Operating lease and other trade receivables.
Credit Quality
The Company's customers are principally concentrated in the transportation industry in the United States. The Company's portfolio assets are diversified over a large number of customers and dealers with no single customer or dealer balances representing over 10% of the total portfolio assets as of June 30, 2024 or December 31, 2023. The Company retains as collateral a security interest in the related equipment.
At the inception of each contract, the Company considers the credit risk based on a variety of credit quality factors including prior payment experience, customer financial information, credit-rating agency ratings, loan-to-value ratios and other internal metrics. On an ongoing basis, the Company monitors credit quality based on past due status and collection experience as there is a meaningful correlation between the past due status of customers and the risk of loss.
The Company has three credit quality indicators: performing, watch and at-risk. Performing accounts pay in accordance with the contractual terms and are not considered high-risk. Watch accounts include accounts 31 to 90 days past due and large accounts that are performing but are considered to be high-risk. Watch accounts are not collateral dependent. At-risk accounts are generally collateral dependent, including accounts over 90 days past due and other accounts on non-accrual status.
- 10-
PACCAR FINANCIAL CORP.
|
Notes to Financial Statements (Unaudited) |
(Millions of Dollars) |
The tables below summarize the amortized cost basis of the Company's finance receivables within each credit quality indicator by year of origination and portfolio class and current period gross charge-offs of the Company's finance receivables by year of origination and portfolio class.
|
At June 30, 2024 |
Revolving Loans |
2024 |
2023 |
2022 |
2021 |
2020 |
Prior |
Total |
||||||||||||||||||||||||
|
Amortized cost: |
||||||||||||||||||||||||||||||||
|
Dealer: |
||||||||||||||||||||||||||||||||
|
Wholesale: |
||||||||||||||||||||||||||||||||
|
Performing |
$ |
2,247.8 |
$ |
2,247.8 |
||||||||||||||||||||||||||||
|
Watch |
3.8 |
3.8 |
||||||||||||||||||||||||||||||
|
$ |
2,251.6 |
$ |
2,251.6 |
|||||||||||||||||||||||||||||
|
Retail: |
||||||||||||||||||||||||||||||||
|
Performing |
$ |
202.4 |
$ |
279.1 |
$ |
649.4 |
$ |
424.3 |
$ |
212.8 |
$ |
114.8 |
$ |
182.7 |
$ |
2,065.5 |
||||||||||||||||
|
$ |
202.4 |
$ |
279.1 |
$ |
649.4 |
$ |
424.3 |
$ |
212.8 |
$ |
114.8 |
$ |
182.7 |
$ |
2,065.5 |
|||||||||||||||||
|
Total dealer |
$ |
2,454.0 |
$ |
279.1 |
$ |
649.4 |
$ |
424.3 |
$ |
212.8 |
$ |
114.8 |
$ |
182.7 |
$ |
4,317.1 |
||||||||||||||||
|
Customer retail: |
||||||||||||||||||||||||||||||||
|
Fleet: |
||||||||||||||||||||||||||||||||
|
Performing |
$ |
1,066.9 |
$ |
1,741.6 |
$ |
1,024.6 |
$ |
547.4 |
$ |
309.5 |
$ |
87.3 |
$ |
4,777.3 |
||||||||||||||||||
|
Watch |
1.3 |
6.7 |
6.1 |
4.8 |
.9 |
1.1 |
20.9 |
|||||||||||||||||||||||||
|
At-risk |
53.7 |
36.5 |
20.4 |
4.2 |
.4 |
115.2 |
||||||||||||||||||||||||||
|
$ |
1,068.2 |
$ |
1,802.0 |
$ |
1,067.2 |
$ |
572.6 |
$ |
314.6 |
$ |
88.8 |
$ |
4,913.4 |
|||||||||||||||||||
|
Owner/operator: |
||||||||||||||||||||||||||||||||
|
Performing |
$ |
116.9 |
$ |
131.5 |
$ |
114.4 |
$ |
98.2 |
$ |
43.3 |
$ |
13.2 |
$ |
517.5 |
||||||||||||||||||
|
Watch |
1.1 |
.6 |
1.5 |
1.5 |
.7 |
.2 |
5.6 |
|||||||||||||||||||||||||
|
At-risk |
.8 |
1.4 |
.8 |
.7 |
.2 |
3.9 |
||||||||||||||||||||||||||
|
$ |
118.0 |
$ |
132.9 |
$ |
117.3 |
$ |
100.5 |
$ |
44.7 |
$ |
13.6 |
$ |
527.0 |
|||||||||||||||||||
|
Total customer retail |
$ |
1,186.2 |
$ |
1,934.9 |
$ |
1,184.5 |
$ |
673.1 |
$ |
359.3 |
$ |
102.4 |
$ |
5,440.4 |
||||||||||||||||||
|
Total |
$ |
2,454.0 |
$ |
1,465.3 |
$ |
2,584.3 |
$ |
1,608.8 |
$ |
885.9 |
$ |
474.1 |
$ |
285.1 |
$ |
9,757.5 |
|
At June 30, 2024 |
Revolving Loans |
2024 |
2023 |
2022 |
2021 |
2020 |
Prior |
Total |
||||||||||||||||||||||
|
Gross charge-offs: |
||||||||||||||||||||||||||||||
|
Customer retail: |
||||||||||||||||||||||||||||||
|
Fleet |
$ |
.1 |
$ |
.9 |
$ |
2.1 |
$ |
.6 |
$ |
.8 |
$ |
3.6 |
$ |
8.1 |
||||||||||||||||
|
Owner/operator |
.6 |
.7 |
.2 |
.2 |
.3 |
2.0 |
||||||||||||||||||||||||
|
Total |
$ |
.1 |
$ |
1.5 |
$ |
2.8 |
$ |
.8 |
$ |
1.0 |
$ |
3.9 |
$ |
10.1 |
- 11-
PACCAR FINANCIAL CORP.
|
Notes to Financial Statements (Unaudited) |
(Millions of Dollars) |
|
At December 31, 2023 |
Revolving Loans |
2023 |
2022 |
2021 |
2020 |
2019 |
Prior |
Total |
||||||||||||||||||||||||
|
Amortized cost: |
||||||||||||||||||||||||||||||||
|
Dealer: |
||||||||||||||||||||||||||||||||
|
Wholesale: |
||||||||||||||||||||||||||||||||
|
Performing |
$ |
1,951.4 |
$ |
1,951.4 |
||||||||||||||||||||||||||||
|
Watch |
1.9 |
1.9 |
||||||||||||||||||||||||||||||
|
$ |
1,953.3 |
$ |
1,953.3 |
|||||||||||||||||||||||||||||
|
Retail: |
||||||||||||||||||||||||||||||||
|
Performing |
$ |
280.7 |
$ |
677.3 |
$ |
467.2 |
$ |
267.6 |
$ |
135.2 |
$ |
146.3 |
$ |
106.6 |
$ |
2,080.9 |
||||||||||||||||
|
$ |
280.7 |
$ |
677.3 |
$ |
467.2 |
$ |
267.6 |
$ |
135.2 |
$ |
146.3 |
$ |
106.6 |
$ |
2,080.9 |
|||||||||||||||||
|
Total dealer |
$ |
2,234.0 |
$ |
677.3 |
$ |
467.2 |
$ |
267.6 |
$ |
135.2 |
$ |
146.3 |
$ |
106.6 |
$ |
4,034.2 |
||||||||||||||||
|
Customer retail: |
||||||||||||||||||||||||||||||||
|
Fleet: |
||||||||||||||||||||||||||||||||
|
Performing |
$ |
1,967.2 |
$ |
1,244.9 |
$ |
725.3 |
$ |
453.3 |
$ |
151.5 |
$ |
38.9 |
$ |
4,581.1 |
||||||||||||||||||
|
Watch |
24.2 |
16.6 |
3.3 |
2.0 |
.5 |
.9 |
47.5 |
|||||||||||||||||||||||||
|
At-risk |
2.4 |
4.0 |
4.5 |
2.0 |
.6 |
.1 |
13.6 |
|||||||||||||||||||||||||
|
$ |
1,993.8 |
$ |
1,265.5 |
$ |
733.1 |
$ |
457.3 |
$ |
152.6 |
$ |
39.9 |
$ |
4,642.2 |
|||||||||||||||||||
|
Owner/operator: |
||||||||||||||||||||||||||||||||
|
Performing |
$ |
151.8 |
$ |
140.5 |
$ |
130.5 |
$ |
66.3 |
$ |
24.5 |
$ |
4.0 |
$ |
517.6 |
||||||||||||||||||
|
Watch |
.9 |
1.9 |
1.1 |
.5 |
.2 |
4.6 |
||||||||||||||||||||||||||
|
At-risk |
.6 |
.8 |
.8 |
.2 |
.1 |
2.5 |
||||||||||||||||||||||||||
|
$ |
153.3 |
$ |
143.2 |
$ |
132.4 |
$ |
67.0 |
$ |
24.8 |
$ |
4.0 |
$ |
524.7 |
|||||||||||||||||||
|
Total customer retail |
$ |
2,147.1 |
$ |
1,408.7 |
$ |
865.5 |
$ |
524.3 |
$ |
177.4 |
$ |
43.9 |
$ |
5,166.9 |
||||||||||||||||||
|
Total |
$ |
2,234.0 |
$ |
2,824.4 |
$ |
1,875.9 |
$ |
1,133.1 |
$ |
659.5 |
$ |
323.7 |
$ |
150.5 |
$ |
9,201.1 |
|
At June 30, 2023 |
Revolving Loans |
2023 |
2022 |
2021 |
2020 |
2019 |
Prior |
Total |
||||||||||||||||
|
Gross charge-offs: |
||||||||||||||||||||||||
|
Customer retail: |
||||||||||||||||||||||||
|
Fleet |
$ |
1.6 |
$ |
.1 |
$ |
1.7 |
||||||||||||||||||
|
Owner/operator |
.4 |
.4 |
$ |
.1 |
.9 |
|||||||||||||||||||
|
Total |
$ |
2.0 |
$ |
.5 |
$ |
.1 |
$ |
2.6 |
The tables below summarize the amortized cost basis of the Company's finance receivables by aging category. In determining past due status, the Company considers the entire contractual account balance past due when any installment is over 30 days past due. Substantially all customer accounts that were greater than 30 days past due prior to credit modification became current upon modification for aging purposes.
|
Dealer |
Customer Retail |
|||||||||||||||||||
|
Owner/ |
||||||||||||||||||||
|
At June 30, 2024 |
Wholesale |
Retail |
Fleet |
Operator |
Total |
|||||||||||||||
|
Current and up to 30 days past due |
$ |
2,251.6 |
$ |
2,065.5 |
$ |
4,853.9 |
$ |
518.7 |
$ |
9,689.7 |
||||||||||
|
31 - 60 days past due |
22.4 |
5.4 |
27.8 |
|||||||||||||||||
|
Greater than 60 days past due |
37.1 |
2.9 |
40.0 |
|||||||||||||||||
|
$ |
2,251.6 |
$ |
2,065.5 |
$ |
4,913.4 |
$ |
527.0 |
$ |
9,757.5 |
- 12-
PACCAR FINANCIAL CORP.
|
Notes to Financial Statements (Unaudited) |
(Millions of Dollars) |
|
Dealer |
Customer Retail |
|||||||||||||||||||
|
Owner/ |
||||||||||||||||||||
|
At December 31, 2023 |
Wholesale |
Retail |
Fleet |
Operator |
Total |
|||||||||||||||
|
Current and up to 30 days past due |
$ |
1,953.3 |
$ |
2,080.9 |
$ |
4,589.2 |
$ |
518.2 |
$ |
9,141.6 |
||||||||||
|
31 - 60 days past due |
45.3 |
4.8 |
50.1 |
|||||||||||||||||
|
Greater than 60 days past due |
7.7 |
1.7 |
9.4 |
|||||||||||||||||
|
$ |
1,953.3 |
$ |
2,080.9 |
$ |
4,642.2 |
$ |
524.7 |
$ |
9,201.1 |
The amortized cost basis of finance receivables that are on non-accrual status was as follows:
|
Dealer |
Customer Retail |
||||||||||||||
|
Owner/ |
|||||||||||||||
|
At June 30, 2024 |
Wholesale |
Retail |
Fleet |
Operator |
Total |
||||||||||
|
Amortized cost basis with a specific reserve |
$ |
110.7 |
$ |
2.8 |
$ |
113.5 |
|||||||||
|
Amortized cost basis with no specific reserve |
4.6 |
1.1 |
5.7 |
||||||||||||
|
$ |
115.3 |
$ |
3.9 |
$ |
119.2 |
|
Dealer |
Customer Retail |
||||||||||||||
|
Owner/ |
|||||||||||||||
|
At December 31, 2023 |
Wholesale |
Retail |
Fleet |
Operator |
Total |
||||||||||
|
Amortized cost basis with a specific reserve |
$ |
8.2 |
$ |
1.8 |
$ |
10.0 |
|||||||||
|
Amortized cost basis with no specific reserve |
5.3 |
.8 |
6.1 |
||||||||||||
|
$ |
13.5 |
$ |
2.6 |
$ |
16.1 |
Interest income recognized on a cash basis for finance receivables that are on non-accrual status was as follows:
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
June 30 |
June 30 |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Fleet |
$ |
.6 |
$ |
.1 |
$ |
1.0 |
$ |
.2 |
||||||||
|
Owner/operator |
.1 |
.1 |
||||||||||||||
|
$ |
.6 |
$ |
.1 |
$ |
1.1 |
$ |
.3 |
Customers Experiencing Financial Difficulty
The Company modified $72.4and $.8of finance receivables for customers experiencing financial difficulty during the first half of 2024 and 2023, respectively. The modifications provided term extensions and granted customers additional time to pay. Other than insignificant term extensions to fleet customers in financial difficulty were $72.0for both the three and six months ended June 30, 2024, or 1.0% of retail portfolio, and added a weighted-average of six months to the life of the modified contracts. The Company provided only insignificant term extensions for the same periods in 2023. The effect on the allowance for credit losses from such modifications was not significant for the three and six months ended June 30, 2024 and 2023.
There were $.8finance receivables modified with customers experiencing financial difficulty during the previous twelve months that had a payment default for both the three and six months ended June 30, 2024.
There were nil and $.1finance receivables modified with customers experiencing financial difficulty during the previous twelve months that had a payment default in the three and six months ended June 30, 2023, respectively.
Repossessions
When the Company determines that a customer is not likely to meet its contractual commitments, the Company repossesses the vehicles which serve as collateral for the loans, finance leases and equipment under operating lease. The Company records the
- 13-
PACCAR FINANCIAL CORP.
|
Notes to Financial Statements (Unaudited) |
(Millions of Dollars) |
vehicles as used truck inventory included in Other assets on the Balance Sheets. The balance of repossessed units was $19.1at June 30, 2024 and $18.3at December 31, 2023.
Proceeds from sales of repossessed assets were $12.8and $5.1for the six months ended June 30, 2024 and 2023, respectively. These amounts are included in Proceeds from disposals of equipment on the Statements of Cash Flows. Write-downs of repossessed equipment under operating leases are recorded as impairments and included in Depreciation and other rental expenses on the Statements of Comprehensive Income and Retained Earnings.
NOTE C - Transactions with PACCAR and Affiliates
The Company and PACCAR are parties to a Support Agreement that obligates PACCAR to provide, when required, financial assistance to the Company to ensure that the Company maintains a ratio of earnings to fixed charges (as defined in the Support Agreement) of at least 1.25to 1 for any fiscal year. The required ratio for the six months ended June 30, 2024 and full year 2023 was met without assistance. The Support Agreement also requires PACCAR to own, directly or indirectly, all outstanding voting stock of the Company.
Periodically, the Company makes loans to, borrows from and has intercompany transactions with PACCAR. In addition, the Company periodically loans funds to certain foreign finance and leasing affiliates of PACCAR. These affiliates have Support Agreements with PACCAR, similar to the Company's Support Agreement with PACCAR. The foreign affiliates operate in the United Kingdom, the Netherlands, Mexico, Canada, Australia and Brasil. Loans to these foreign affiliates during 2024 and 2023 were denominated in United States dollars. The foreign affiliates primarily provide financing and leasing of PACCAR manufactured trucks and related equipment sold through the DAF, Kenworth and Peterbilt independent dealer networks in Europe, Mexico, Canada, Australia and Brasil. The Company will not make loans to the foreign affiliates in excess of the equivalent of $1,100.0U.S. dollars, unless the amount in excess of such limit is guaranteed by PACCAR. The Company periodically reviews the funding alternatives for these affiliates, and these limits may be revised in the future.
Amounts outstanding at June 30, 2024 and December 31, 2023, including balances with foreign finance affiliates operating in the United Kingdom, the Netherlands, Mexico, Canada, Australia and Brasil, are summarized below:
|
June 30 |
December 31 |
|||||||
|
2024 |
2023 |
|||||||
|
Due from PACCAR and affiliates |
||||||||
|
Loans due from PACCAR |
$ |
1,082.6 |
$ |
1,016.0 |
||||
|
Loans due from foreign finance affiliates |
673.0 |
716.0 |
||||||
|
Receivables |
21.8 |
18.7 |
||||||
|
$ |
1,777.4 |
$ |
1,750.7 |
|||||
|
Due to PACCAR and affiliates |
||||||||
|
Tax-related payable due to PACCAR |
$ |
3.6 |
$ |
1.9 |
||||
|
Payables |
46.1 |
56.7 |
||||||
|
$ |
49.7 |
$ |
58.6 |
The Company is included in the consolidated federal income tax return of PACCAR. The tax-related payable due to PACCAR represents the related tax provision to be settled with PACCAR.
PACCAR charges the Company for certain administrative services it provides. These costs were charged to the Company based upon the Company's specific use of the services and PACCAR's cost.
The Company's principal office is located in the corporate headquarters building of PACCAR (owned by PACCAR). The Company also leases office space from fivefacilities leased by PACCAR. Lease payments for the use of these facilities are included in the above-mentioned administrative services charged by PACCAR.
The Company's employees and PACCAR employees are covered by a defined benefit pension plan sponsored by PACCAR. The assets and liabilities of the plan are reflected on the balance sheet of PACCAR. PACCAR contributes to the plan and allocates the expenses to the Company based principally on the number of eligible plan participants. Expenses for the defined benefit pension plan are included in Selling, general and administrative expenses.
- 14-
PACCAR FINANCIAL CORP.
|
Notes to Financial Statements (Unaudited) |
(Millions of Dollars) |
The Company's employees and PACCAR employees are also covered by a defined contribution plan sponsored by PACCAR. Expenses incurred by the Company for the defined contribution plan benefits are based on the actual contribution made on behalf of the participating employees and are included in Selling, general and administrative expenses.
NOTE D - Stockholder's Equity
Preferred Stock
The Company's Articles of Incorporation provide that the 6% noncumulative, nonvoting preferred stock (100% owned by PACCAR) is redeemable only at the option of the Company's Board of Directors.
Comprehensive Income
The components of comprehensive income are as follows:
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
June 30 |
June 30 |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Net income |
$ |
30.0 |
$ |
38.3 |
$ |
59.2 |
$ |
79.4 |
||||||||
|
Other comprehensive (loss) income |
||||||||||||||||
|
Derivative contracts (decrease) increase |
(.7 |
) |
6.7 |
1.2 |
(1.5 |
) |
||||||||||
|
Total comprehensive income |
$ |
29.3 |
$ |
45.0 |
$ |
60.4 |
$ |
77.9 |
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) (AOCI) of $12.2and $11.0at June 30, 2024 and December 31, 2023, respectively, is comprised of the unrealized net gain (loss) on derivative contracts, net of taxes. Changes in and reclassifications out of AOCI during the periods are as follows:
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
June 30 |
June 30 |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Balance at beginning of period |
$ |
12.9 |
$ |
10.2 |
$ |
11.0 |
$ |
18.4 |
||||||||
|
Amounts recorded in AOCI |
||||||||||||||||
|
Unrealized gain (loss) on derivative contracts |
1.8 |
10.9 |
6.6 |
2.3 |
||||||||||||
|
Income tax effect |
(.4 |
) |
(2.7 |
) |
(1.6 |
) |
(.6 |
) |
||||||||
|
Amounts reclassified out of AOCI |
||||||||||||||||
|
Interest and other borrowing costs |
(2.7 |
) |
(2.0 |
) |
(5.0 |
) |
(4.3 |
) |
||||||||
|
Income tax effect |
.6 |
.5 |
1.2 |
1.1 |
||||||||||||
|
Net other comprehensive (loss) income |
(.7 |
) |
6.7 |
1.2 |
(1.5 |
) |
||||||||||
|
Balance at end of period |
$ |
12.2 |
$ |
16.9 |
$ |
12.2 |
$ |
16.9 |
NOTE E - Fair Value Measurements
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs to valuation techniques used to measure fair value are either observable or unobservable. These inputs have been categorized into the fair value hierarchy described below:
Level 1 - Valuations are based on quoted prices that the Company has the ability to obtain in actively traded markets for identical assets or liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market or exchange traded market, valuation of these instruments does not require a significant degree of judgment.
Level 2 - Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
- 15-
PACCAR FINANCIAL CORP.
|
Notes to Financial Statements (Unaudited) |
(Millions of Dollars) |
Level 3 - Valuations are based on model-based techniques for which some or all of the assumptions are obtained from indirect market information that is significant to the overall fair value measurement and which require a significant degree of management judgment.
Assets and Liabilities Subject to Non-recurring and Recurring Fair Value Measurement
Impaired loans and used trucks held for sale are measured on a non-recurring basis. Derivative contracts are measured on a recurring basis. The Company's assets and liabilities subject to fair value measurements are as follows:
|
June 30 |
December 31 |
|||||||
|
Level 2 |
2024 |
2023 |
||||||
|
Assets: |
||||||||
|
Impaired loans, net of specific reserves (2024 - $5.5) |
$ |
28.9 |
||||||
|
Used trucks held for sale |
23.9 |
$ |
29.7 |
|||||
|
Derivative contracts |
4.6 |
1.2 |
||||||
|
Liabilities: |
||||||||
|
Derivative contracts |
$ |
4.3 |
$ |
5.2 |
The Company uses the following methods and assumptions to measure fair value for assets and liabilities subject to non-recurring and recurring fair value measurements:
Impaired Loans:Impaired loans that are individually evaluated are generally considered collateral dependent. Accordingly, the evaluation of individual reserves on such loans considers the fair value of the associated collateral (estimated sales proceeds less the costs to sell).
Used Trucks Held for Sale:The carrying amount of used trucks held for sale is written down as necessary to reflect the fair value less costs to sell. The Company determines the fair value of used trucks from a pricing matrix, which is based on the market approach. The significant observable inputs into the valuation model are recent sales prices of comparable units sold individually, which is the lowest unit of account, and the condition of the vehicles. Used truck impairments related to units held at June 30, 2024 and 2023 were $3.4and $.9during the first six months of 2024 and 2023,respectively. These assets, which are shown in the above table when they are written down to fair value less costs to sell, are categorized as Level 2 and are included in Other assets on the Balance Sheets.
Derivative Financial Instruments:The Company's derivative financial instruments consist of interest-rate swaps and are carried at fair value. These derivative contracts are traded over the counter and their fair value is determined using industry standard valuation models, which are based on the income approach (i.e., discounted cash flows). The significant observable inputs into the valuation models include interest rates, yield curves and credit default swap spreads. These contracts are categorized as Level 2 and are included in Other assets and Accounts payable, accrued expenses and other on the Balance Sheets.
Fair Value Disclosure of Other Financial Instruments
For financial instruments that are not recognized at fair value, the Company uses the following methods and assumptions to determine the fair value. These instruments are categorized as Level 2, except cash which is categorized as Level 1 and fixed rate loans which are categorized as Level 3.
Cash:Carrying amounts approximate fair value.
Net Receivables:For floating rate loans, dealer wholesale financing and operating lease and other trade receivables, carrying values approximate fair values. For fixed rate loans, fair values are estimated using the income approach by discounting cash flows to their present value based on assumptions regarding credit and liquidity risks to approximate current rates for comparable loans. Finance lease receivables and related allowance for credit losses have been excluded from the accompanying table.
Commercial Paper and Medium-Term Notes:The carrying amounts of the Company's commercial paper and variable medium-term notes approximate fair value. For fixed rate debt, fair values are estimated using the income approach by discounting cash flows to their present value based on current rates for comparable debt.
- 16-
PACCAR FINANCIAL CORP.
|
Notes to Financial Statements (Unaudited) |
(Millions of Dollars) |
The Company's estimate of fair value for fixed rate loans and debt that are not carried at fair value was as follows:
|
June 30, 2024 |
December 31, 2023 |
|||||||||||||||
|
Carrying |
Fair |
Carrying |
Fair |
|||||||||||||
|
Amount |
Value |
Amount |
Value |
|||||||||||||
|
Assets: |
||||||||||||||||
|
Due from PACCAR |
$ |
997.6 |
$ |
976.4 |
$ |
956.0 |
$ |
941.7 |
||||||||
|
Due from foreign finance affiliates |
592.0 |
572.8 |
559.0 |
536.5 |
||||||||||||
|
Fixed rate loans |
5,542.0 |
5,522.2 |
5,380.4 |
5,324.4 |
||||||||||||
|
Liabilities: |
||||||||||||||||
|
Fixed rate debt |
$ |
6,635.4 |
$ |
6,555.8 |
$ |
6,084.5 |
$ |
6,005.8 |
NOTE F - Derivative Financial Instruments
As part of its risk management strategy, the Company enters into derivative contracts to hedge against interest-rate risk. Certain derivative instruments designated as either cash flow hedges or fair value hedges are subject to hedge accounting. Derivative instruments that are not subject to hedge accounting are held as derivatives not designated as hedged instruments. The Company's policies prohibit the use of derivatives for speculation or trading. At the inception of each hedge relationship, the Company documents its risk management objectives, procedures and accounting treatment.
All of the Company's interest-rate contracts are transacted under International Swaps and Derivatives Association (ISDA) master agreements. Each agreement permits the net settlement of amounts owed in the event of default and certain other termination events. For derivative financial instruments, the Company has elected not to offset derivative positions in the balance sheet with the same counterparty under the same agreements and is not required to post or receive collateral. Exposure limits and minimum credit ratings are used to minimize the risks of counterparty default. The Company's maximum exposure to potential default of its derivative counterparties is limited to the asset position of its derivative portfolio. The asset position of the Company's derivative portfolio was $4.6at June 30, 2024.
The Company assesses hedges at inception and on an ongoing basis to determine if the designated derivatives are highly effective in offsetting changes in fair values or cash flows of the hedged items. Hedge accounting is discontinued prospectively when the Company determines that a derivative financial instrument has ceased to be a highly effective hedge. Cash flows from derivative instruments are included in operating activities in the Statements of Cash Flows.
Interest-rate contracts involve the exchange of fixed for floating rate or floating for fixed rate interest payments based on the contractual notional amounts in a single currency. The Company is exposed to interest-rate risk caused by market volatility as a result of its borrowing activities. The objective of these contracts is to mitigate the fluctuations on earnings, cash flows and fair value of borrowings. Net amounts paid or received are reflected as adjustments to interest expense.
At June 30, 2024, the notional amount of these contracts totaled $591.6with amounts expiring over the next 9.7years. Notional maturities for all interest-rate contracts are nilfor the remainder of 2024, $80.0for 2025, $30.0for 2026, $86.1for 2027, $8.5for 2028 and $387.0thereafter.
The following table presents the balance sheet classification, fair value and gross and net amounts of derivative financial instruments:
|
June 30, 2024 |
December 31, 2023 |
|||||||||||||||
|
Interest-rate contracts: |
Assets |
Liabilities |
Assets |
Liabilities |
||||||||||||
|
Other assets |
$ |
4.6 |
$ |
1.2 |
||||||||||||
|
Accounts payable, accrued expenses and other |
$ |
4.3 |
$ |
5.2 |
||||||||||||
|
Gross amounts recognized in Balance Sheets |
4.6 |
4.3 |
1.2 |
5.2 |
||||||||||||
|
Less amounts not offset in financial instruments |
(2.3 |
) |
(2.3 |
) |
(.4 |
) |
(.4 |
) |
||||||||
|
Pro forma net amount |
$ |
2.3 |
$ |
2.0 |
$ |
.8 |
$ |
4.8 |
- 17-
PACCAR FINANCIAL CORP.
|
Notes to Financial Statements (Unaudited) |
(Millions of Dollars) |
Cash Flow Hedges
Certain of the Company's interest-rate contracts have been designated as cash flow hedges. Changes in the fair value of derivatives designated as cash flow hedges are recorded in AOCI. The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows is 9.7years.
Amounts in AOCI are reclassified into net income in the same period in which the hedged transaction affects earnings and are presented in the same income statement line as the earnings effect of the hedged transaction. The amount of gain recorded in AOCI at June 30, 2024 that is estimated to be reclassified to interest expense in the following 12 months if interest rates remain unchanged is approximately $8.0, net of taxes. The fixed interest earned on finance receivables will offset the amount recognized in interest expense, resulting in a stable interest margin consistent with the Company's interest-rate risk management strategy.
Fair Value Hedges
Changes in the fair value of derivatives designated as fair value hedges are recorded in earnings together with the changes in fair value of the hedged item attributable to the risk being hedged. The following table presents the amounts recorded on the Balance Sheets related to cumulative basis adjustments for fair value hedges:
|
June 30 |
December 31 |
|||||||
|
2024 |
2023 |
|||||||
|
Medium-term notes: |
||||||||
|
Carrying amount of the hedged liabilities |
$ |
425.6 |
$ |
76.4 |
||||
|
Cumulative basis adjustment included in the carrying amount |
(4.4 |
) |
(3.6 |
) |
The above table excludes the cumulative basis adjustments on discontinued hedge relationships of $(6.4) and $(10.3) as of June 30, 2024 and December 31, 2023, respectively.
The following table presents the amount of expense (income) on cash flow and fair value hedges recognized in Interest and other borrowing costs on the Statements of Comprehensive Income and Retained Earnings:
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
June 30 |
June 30 |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Loss (gain) on fair value hedges |
||||||||||||||||
|
Derivatives |
$ |
5.6 |
$ |
.4 |
$ |
2.4 |
$ |
(13.5 |
) |
|||||||
|
Hedged items |
(3.7 |
) |
1.6 |
1.4 |
16.7 |
|||||||||||
|
Gain on cash flow hedges |
||||||||||||||||
|
Reclassified from AOCI into income |
(2.7 |
) |
(2.0 |
) |
(5.0 |
) |
(4.3 |
) |
||||||||
|
$ |
(.8 |
) |
$ |
(1.2 |
) |
$ |
(1.1 |
) |
NOTE G - Income Taxes
The Company's effective income tax rate for the second quarter and first half of 2024 was 25.0% and 24.2% respectively, compared to 24.9% and 25.0% for the same periods of 2023, reflecting changes in the state tax expense during 2024 as compared to 2023.
The Company is included in the consolidated federal income tax return of PACCAR. Federal income taxes for the Company are determined on a separate return basis. State income taxes, where the Company files combined tax returns with PACCAR, are determined on a blended statutory rate, which is substantially the same as the rate computed on a separate return basis.
- 18-
PACCAR FINANCIAL CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Millions of Dollars)
Results of Operations
|
Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
|
June 30 |
June 30 |
|||||||||||||||||||||||
|
2024 |
2023 |
% Change |
2024 |
2023 |
% Change |
|||||||||||||||||||
|
New business volume by product: |
||||||||||||||||||||||||
|
Retail loans and finance leases |
$ |
828.5 |
$ |
825.7 |
$ |
1,426.9 |
$ |
1,344.1 |
6 |
|||||||||||||||
|
Equipment on operating leases |
140.5 |
23.4 |
500 |
178.2 |
45.6 |
291 |
||||||||||||||||||
|
Dealer master notes |
53.9 |
79.8 |
(32 |
) |
115.3 |
116.0 |
(1 |
) |
||||||||||||||||
|
$ |
1,022.9 |
$ |
928.9 |
10 |
$ |
1,720.4 |
$ |
1,505.7 |
14 |
|||||||||||||||
|
New loan and lease unit volume: |
||||||||||||||||||||||||
|
Retail loans and finance leases |
5,300 |
6,000 |
(12 |
) |
9,500 |
9,600 |
(1 |
) |
||||||||||||||||
|
Equipment on operating leases |
800 |
300 |
167 |
1,000 |
500 |
100 |
||||||||||||||||||
|
6,100 |
6,300 |
(3 |
) |
10,500 |
10,100 |
4 |
||||||||||||||||||
|
Average earning assets by product: |
||||||||||||||||||||||||
|
Retail loans and finance leases |
$ |
6,927.6 |
$ |
6,132.7 |
13 |
$ |
6,843.4 |
$ |
6,077.4 |
13 |
||||||||||||||
|
Dealer wholesale financing |
2,268.0 |
1,427.8 |
59 |
2,111.9 |
1,285.6 |
64 |
||||||||||||||||||
|
Dealer master notes |
470.7 |
337.5 |
39 |
466.3 |
335.4 |
39 |
||||||||||||||||||
|
Average finance receivables |
9,666.3 |
7,898.0 |
22 |
9,421.5 |
7,698.4 |
22 |
||||||||||||||||||
|
Equipment on operating leases |
633.9 |
842.6 |
(25 |
) |
627.3 |
871.9 |
(28 |
) |
||||||||||||||||
|
$ |
10,300.2 |
$ |
8,740.6 |
18 |
$ |
10,048.8 |
$ |
8,570.3 |
17 |
|||||||||||||||
|
Revenue by product: |
||||||||||||||||||||||||
|
Retail loans and finance leases |
$ |
121.4 |
$ |
90.7 |
34 |
$ |
236.1 |
$ |
175.3 |
35 |
||||||||||||||
|
Equipment on operating leases |
42.4 |
62.0 |
(32 |
) |
94.7 |
131.9 |
(28 |
) |
||||||||||||||||
|
Dealer wholesale financing |
32.9 |
17.4 |
89 |
59.0 |
29.8 |
98 |
||||||||||||||||||
|
Dealer master notes |
6.6 |
4.0 |
65 |
12.9 |
7.6 |
70 |
||||||||||||||||||
|
Used truck sales and other revenues |
5.7 |
4.7 |
21 |
17.5 |
11.7 |
50 |
||||||||||||||||||
|
209.0 |
178.8 |
17 |
420.2 |
356.3 |
18 |
|||||||||||||||||||
|
Income before income taxes |
$ |
40.0 |
$ |
51.0 |
(22 |
) |
$ |
78.1 |
$ |
105.8 |
(26 |
) |
New Business Volume
New business volume in the second quarter increased to $1,022.9 in 2024 from $928.9 in 2023, and in the first half, increased to $1,720.4 in 2024 from $1,505.7 in 2023. New business volume from retail loans and finance leases of $828.5 in the second quarter of 2024 was comparable to $825.7 in the second quarter of 2023, and for the first half, new business volume of retail loans and finance leases increased to $1,426.9 in 2024 from $1,344.1 in 2023 due to higher finance market share, higher retail sales of PACCAR trucks and a higher amount financed per truck. Equipment on operating leases new business volume increased to $140.5 and $178.2 in the second quarter and first half of 2024, respectively, from $23.4 and $45.6 in the second quarter and first half of 2023, respectively, primarily driven by an increased demand from one large fleet customer. Dealer master notes new business volume decreased to $53.9 in the second quarter of 2024 from $79.8 in the second quarter of 2023 due to decreased finance volume from dealers. Dealer master notes new business volume of $115.3 in the first half of 2024 was comparable to $116.0 in the same period of 2023.
Market share of new PACCAR truck sales increased to 22.7% and 19.9% in the second quarter and first half of 2024, respectively, from 20.3% and 18.5% in the second quarter and first half of 2023, respectively.
Revenues
The Company's revenues increased to $209.0 and $420.2 in the second quarter and first half of 2024, respectively, from $178.8 and $356.3 in the second quarter and first half of 2023, respectively, primarily driven by higher portfolio yields and higher average retail loan and wholesale portfolio balances, partially offset by lower average operating lease portfolio.
Income Before Income Taxes
The Company's income before income taxes was $40.0 for the second quarter of 2024 compared to $51.0 for the second quarter of 2023. The decrease in income before income taxes in 2024 was primarily the result of lower operating lease margin of $17.6,
- 19-
PACCAR FINANCIAL CORP.
reflecting lower results from returned lease assets, and a higher provision for losses of $5.3, partially offset by higher finance margin of $15.1.
The Company's income before income taxes was $78.1 for the first half of 2024 compared to $105.8 for the first half of 2023. The decrease in income before income taxes in 2024 was primarily the result of lower operating lease margin of $34.6 and a higher provision for losses of $11.8, partially offset by higher finance margin of $25.0.
Included in Other assets on the Company's Balance Sheets are used trucks held for sale, net of impairments, of $132.5 at June 30, 2024 and $145.5 at December 31, 2023. These trucks are primarily units returned from matured operating leases in the ordinary course of business, and also include trucks acquired from repossessions or through acquisitions of used trucks in trades related to new truck sales.
In the second quarter, the Company recognized losses on used trucks, excluding repossessions, of $5.6 in 2024 compared to gains of $6.1 in 2023, including losses on multiple unit transactions of $3.7 in 2024 compared to $.1 in 2023. Used truck losses related to repossessions, which are recognized as credit losses, were $1.2 and $.1 in 2024 and 2023, respectively.
In the first half, the Company recognized losses on used trucks, excluding repossessions, of $10.2 in 2024 compared to gains of $14.9 in 2023, including losses on multiple unit transactions of $9.4 in 2024 compared to $.2 in 2023. Used truck losses related to repossessions, which are recognized as credit losses, were $4.0 and $.1 in 2024 and 2023, respectively.
Revenue and Expenses
The major factors for the changes in interest and fee income, interest and other borrowing costs and finance margin between the three months ended June 30, 2024 and 2023 are outlined in the table below:
|
Interest and |
||||||||||||
|
Interest and |
Other Borrowing |
Finance |
||||||||||
|
Fee Income |
Costs |
Margin |
||||||||||
|
Three Months Ended June 30, 2023 |
$ |
112.1 |
$ |
64.1 |
$ |
48.0 |
||||||
|
Increase (decrease) |
||||||||||||
|
Average finance receivables |
25.8 |
25.8 |
||||||||||
|
Average receivables from PACCAR and affiliates |
(.4 |
) |
(.4 |
) |
||||||||
|
Average debt balances |
15.0 |
(15.0 |
) |
|||||||||
|
Yields |
23.4 |
23.4 |
||||||||||
|
Borrowing rates |
18.7 |
(18.7 |
) |
|||||||||
|
Total increase |
48.8 |
33.7 |
15.1 |
|||||||||
|
Three Months Ended June 30, 2024 |
$ |
160.9 |
$ |
97.8 |
$ |
63.1 |
•
Average finance receivables increased $1,768.3 in the second quarter of 2024, primarily due to higher dealer wholesale financing and a larger retail loan and finance lease portfolio, which increased interest and fee income by $25.8.
•
Average receivables from PACCAR and affiliates decreased $40.0 in the second quarter of 2024 as a result of collections exceeding new loans to affiliated companies, which decreased interest and fee income by $.4.
•
Average debt balances increased $1,438.0 in the second quarter of 2024, reflecting higher funding requirements for the portfolio and affiliated companies, increasing interest and other borrowing costs by $15.0. The average debt balances reflect funding for the average earning asset portfolio, including retail loans, finance leases, wholesale financing and equipment on operating leases.
•
Yields increased $23.4 due to higher yields on receivables from customers and PACCAR and affiliates. Yields on customer finance receivables were 5.9% and 5.0% in the second quarter of 2024 and 2023, respectively. Yields on receivables from PACCAR and affiliates were 4.2% in the second quarter of 2024 compared to 3.0% in the second quarter of 2023.
•
Average borrowing rates in the second quarter of 2024 were 4.2% compared to 3.3% in the second quarter of 2023 due to higher debt market interest rates, resulting in an increase of $18.7 in interest and other borrowing costs.
- 20-
PACCAR FINANCIAL CORP.
The major factors for the changes in interest and fee income, interest and other borrowing costs and finance margin between the six months ended June 30, 2024 and 2023 are outlined in the table below:
|
Interest and |
||||||||||||
|
Interest and |
Other Borrowing |
Finance |
||||||||||
|
Fee Income |
Costs |
Margin |
||||||||||
|
Six Months Ended June 30, 2023 |
$ |
212.7 |
$ |
117.2 |
$ |
95.5 |
||||||
|
Increase (decrease) |
||||||||||||
|
Average finance receivables |
49.4 |
49.4 |
||||||||||
|
Average receivables from PACCAR and affiliates |
(1.8 |
) |
(1.8 |
) |
||||||||
|
Average debt balances |
27.3 |
(27.3 |
) |
|||||||||
|
Yields |
47.7 |
47.7 |
||||||||||
|
Borrowing rates |
43.0 |
(43.0 |
) |
|||||||||
|
Total increase |
95.3 |
70.3 |
25.0 |
|||||||||
|
Six Months Ended June 30, 2024 |
$ |
308.0 |
$ |
187.5 |
$ |
120.5 |
•
Average finance receivables increased $1,723.1 in the first half of 2024, primarily due to higher dealer wholesale financing and a larger retail loan and finance lease portfolio, which increased interest and fee income by $49.4.
•
Average receivables from PACCAR and affiliates decreased $88.9 in the first half of 2024 as a result of collections exceeding new loans to affiliated companies, which decreased interest and fee income by $1.8.
•
Average debt balances increased $1,329.9 in the first half of 2024, reflecting higher funding requirements for the portfolio and affiliated companies, increasing interest and other borrowing costs by $27.3. The average debt balances reflect funding for the average earning asset portfolio, including retail loans, finance leases, wholesale financing and equipment on operating leases.
•
Yields increased $47.7 due to higher yields on receivables from customers and PACCAR and affiliates. Yields on customer finance receivables were 5.8% and 4.9% in the first half of 2024 and 2023, respectively. Yields on receivables from PACCAR and affiliates were 4.2% in the first half of 2024 compared to 2.9% in the first half of 2023.
•
Average borrowing rates in the first half of 2024 were 4.2% compared to 3.0% in the first half of 2023 due to higher debt market interest rates, resulting in an increase of $43.0 in interest and other borrowing costs.
The major factors for the changes in operating lease and rental revenues, depreciation and other rental expenses and operating lease margin between the three months ended June 30, 2024 and 2023 are outlined in the table below:
|
Operating Lease |
Depreciation |
|||||||||||
|
and Rental |
and Other |
Operating |
||||||||||
|
Revenues |
Rental Expenses |
Lease Margin |
||||||||||
|
Three Months Ended June 30, 2023 |
$ |
62.0 |
$ |
43.5 |
$ |
18.5 |
||||||
|
(Decrease) increase |
||||||||||||
|
Operating lease impairments |
4.7 |
(4.7 |
) |
|||||||||
|
Results on returned lease assets |
5.2 |
(5.2 |
) |
|||||||||
|
Average operating lease assets |
(20.4 |
) |
(18.0 |
) |
(2.4 |
) |
||||||
|
Revenue and cost per asset |
.8 |
6.1 |
(5.3 |
) |
||||||||
|
Total decrease |
(19.6 |
) |
(2.0 |
) |
(17.6 |
) |
||||||
|
Three Months Ended June 30, 2024 |
$ |
42.4 |
$ |
41.5 |
$ |
.9 |
•
Operating lease impairments increased in 2024 due to lower used truck market prices.
•
Results on returned lease assets increased depreciation and other rental expenses by $5.2, primarily due to losses on sales of returned lease units in 2024 as compared to gains in 2023.
•
Average operating lease assets decreased in 2024 due to the volume of expiring leases exceeding new business volume for leased vehicles.
•
Revenue per asset increased by $.8 primarily due to higher lease rates, reflecting higher average truck value financed and higher market rates. Cost per asset increased by $6.1 primarily due to higher depreciation.
- 21-
PACCAR FINANCIAL CORP.
The major factors for the changes in operating lease and rental revenues, depreciation and other rental expenses and operating lease margin between the six months ended June 30, 2024 and 2023 are outlined in the table below:
|
Operating Lease |
Depreciation |
|||||||||||
|
and Rental |
and Other |
Operating |
||||||||||
|
Revenues |
Rental Expenses |
Lease Margin |
||||||||||
|
Six Months Ended June 30, 2023 |
$ |
131.9 |
$ |
91.7 |
$ |
40.2 |
||||||
|
(Decrease) increase |
||||||||||||
|
Operating lease impairments |
7.6 |
(7.6 |
) |
|||||||||
|
Results on returned lease assets |
15.0 |
(15.0 |
) |
|||||||||
|
Average operating lease assets |
(53.2 |
) |
(45.7 |
) |
(7.5 |
) |
||||||
|
Revenue and cost per asset |
16.0 |
20.5 |
(4.5 |
) |
||||||||
|
Total (decrease) |
(37.2 |
) |
(2.6 |
) |
(34.6 |
) |
||||||
|
Six Months Ended June 30, 2024 |
$ |
94.7 |
$ |
89.1 |
$ |
5.6 |
•
Operating lease impairments increased in 2024 due to lower used truck market prices.
•
Results on returned lease assets increased depreciation and other rental expenses by $15.0, primarily due to losses on sales of returned lease units in 2024 as compared to gains in 2023.
•
Average operating lease assets decreased in 2024 due to the volume of expiring leases exceeding new business volume for leased vehicles.
•
Revenue per asset increased by $16.0 primarily due to higher lease rates, reflecting higher average truck value financed and higher market rates. Cost per asset increased by $20.5 primarily due to higher depreciation.
Used truck sales and other revenues and cost of used truck sales and other expenses are summarized below for the second quarter and first half of 2024 compared to the second quarter and first half of 2023:
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
June 30 |
June 30 |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Used truck sales |
$ |
2.7 |
$ |
1.9 |
$ |
11.4 |
$ |
6.1 |
||||||||
|
Insurance, franchise and other revenues |
3.0 |
2.8 |
6.1 |
5.6 |
||||||||||||
|
Used truck sales and other revenues |
5.7 |
4.7 |
17.5 |
11.7 |
||||||||||||
|
Cost of used truck sales |
3.6 |
2.2 |
13.7 |
6.6 |
||||||||||||
|
Insurance, franchise and other expenses |
2.0 |
1.2 |
3.4 |
2.0 |
||||||||||||
|
Cost of used truck sales and other expenses |
5.6 |
3.4 |
17.1 |
8.6 |
||||||||||||
|
Results from used trucks and other |
$ |
.1 |
$ |
1.3 |
$ |
.4 |
$ |
3.1 |
Results from used trucks and other in the second quarter and first half of 2024 decreased by $1.2 and $2.7 from the second quarter and first half of 2023, respectively, primarily due to lower results from the sale of used trucks received on trade driven by lower used truck market prices.
SG&A
The Company's selling, general and administrative expenses (SG&A) increased in the second quarter to $18.0 in 2024 from $16.0 in 2023, and increased for the first half to $35.2 in 2024 from $31.6 in 2023. The increase in both periods was primarily due to higher personnel and related expenses. As an annualized percentage of average earning assets, the Company's SG&A was .7% for the second quarter and the first half of 2024 and 2023.
- 22-
PACCAR FINANCIAL CORP.
Allowance for Credit Losses
The following table summarizes information on the Company's allowance for credit losses on receivables and asset portfolio and presents related ratios:
|
Six Months Ended |
Year Ended |
Six Months Ended |
||||||||||
|
June 30 |
December 31 |
June 30 |
||||||||||
|
2024 |
2023 |
2023 |
||||||||||
|
Balance at beginning of period |
$ |
61.0 |
$ |
61.7 |
$ |
61.7 |
||||||
|
Provision for losses |
13.2 |
8.1 |
1.4 |
|||||||||
|
Charge-offs |
(10.1 |
) |
(9.8 |
) |
(2.6 |
) |
||||||
|
Recoveries |
.2 |
1.0 |
.8 |
|||||||||
|
Balance at end of period |
$ |
64.3 |
$ |
61.0 |
$ |
61.3 |
||||||
|
Ratios: |
||||||||||||
|
Charge-offs, net of recoveries ($9.9 in 2024) to |
||||||||||||
|
average total portfolio ($9,666.3 in 2024) |
||||||||||||
|
annualized at June 30, 2024 |
.21 |
% |
.11 |
% |
.05 |
% |
||||||
|
Allowance for credit losses ($64.3 in 2024) to period-end |
||||||||||||
|
total portfolio ($9,811.1 in 2024) |
.66 |
% |
.66 |
% |
.75 |
% |
||||||
|
Period-end retail loan and lease receivables past |
||||||||||||
|
due over 30 days ($67.8 in 2024) to period-end |
||||||||||||
|
retail loan and lease receivables ($7,043.4 in 2024) |
.96 |
% |
.88 |
% |
.19 |
% |
The provision for losses on receivables was $13.2 for the first half of 2024 compared to $1.4 for the first half of 2023, primarily due to higher charge-offs, portfolio growth and higher past due balances in 2024.
Charge-offs, net of recoveries, were $9.9 in the first half of 2024 compared to $1.8 in the first half of 2023 due to higher credit losses in 2024, including two large fleet customers as well as higher average loss severity from lower used truck market values.
Retail loan and lease receivables past due over 30 days at June 30, 2024 was .96%, compared to .88% at December 31, 2023 and .19% at June 30, 2023. The increase from June 30, 2023 was primarily due to one large fleet customer becoming past due. The Company continues to focus on maintaining low past due balances.
The estimation methods and factors considered for determining the allowance during the periods included in this filing have been consistently applied. See "Note B - Finance and Other Receivables" for additional discussion regarding the Allowance for Credit Losses.
Modifications
The Company modifies loans and finance leases in the normal course of its operations. The Company may modify loans and finance leases for commercial reasons or for credit reasons. Modifications for commercial reasons are changes to contract terms for customers that are not considered to be in financial difficulty. Insignificant delays are modifications extending terms up to three months for customers experiencing some short-term financial stress, but not considered to be in financial difficulty. Modifications for credit reasons are changes to contract terms for customers considered to be in financial difficulty. The Company's modifications typically result in granting more time to pay the contractual amounts owed and charging a fee and interest for the term of the modification. When considering whether to modify customer accounts for credit reasons, the Company evaluates the creditworthiness of the customers and modifies those accounts that the Company considers likely to perform under the modified terms.
- 23-
PACCAR FINANCIAL CORP.
The post-modification balances of accounts modified during the six months ended June 30, 2024 and 2023 are summarized below:
|
Six Months Ended |
Six Months Ended |
|||||||||||||||
|
June 30, 2024 |
June 30, 2023 |
|||||||||||||||
|
Amortized |
% of Total |
Amortized |
% of Total |
|||||||||||||
|
Cost Basis |
Portfolio* |
Cost Basis |
Portfolio* |
|||||||||||||
|
Commercial |
$ |
202.7 |
4.1 |
% |
$ |
68.1 |
1.7 |
% |
||||||||
|
Insignificant delay |
43.6 |
.9 |
% |
35.5 |
.9 |
% |
||||||||||
|
Credit |
72.4 |
1.5 |
% |
.8 |
||||||||||||
|
$ |
318.7 |
6.5 |
% |
$ |
104.4 |
2.6 |
% |
* Amortized cost basis immediately after modification as a percentage of period-end portfolio, on an annualized basis.
Modification activity increased to $318.7 in the first half of 2024 from $104.4 in the first half of 2023. The increase in Commercial modifications primarily reflects higher volumes of end-of-term refinancing. The increase in Insignificant Delay modifications reflects an increase in customers requesting payment relief for up to three months. The increase in Credit modifications is primarily due to granting more time to pay for one large fleet customer.
When the Company modifies a 30+ days past due account, the customer is then generally considered current under the revised contractual terms. The Company modified $7.9 of accounts during the second quarter of 2024, $2.7 of accounts during the fourth quarter of 2023 and $.6 of accounts in the second quarter of 2023 that were 30+ days past due and became current at the time of modification. Had the accounts not been modified and had they continued to not make payments, the pro forma percentage of retail loan and lease accounts 30+ days past due would have been as follows:
|
June 30 |
December 31 |
June 30 |
||||||||||
|
2024 |
2023 |
2023 |
||||||||||
|
Pro forma percentage of retail loan and lease accounts 30+ days past due |
1.07 |
% |
.91 |
% |
.20 |
% |
Modifications of accounts in prior quarters that were 30+ days past due at the time of modification are included in past dues if they were not performing under the modified terms at June 30, 2024, December 31, 2023 and June 30, 2023. The effect on the allowance for credit losses from such modifications was not significant at June 30, 2024, December 31, 2023 and June 30, 2023.
Portfolio
The Company's portfolio is concentrated with customers in the heavy- and medium-duty truck transportation industry. The portfolio is comprised of retail loans and leases, dealer wholesale financing and dealer master notes as follows:
|
June 30 |
December 31 |
June 30 |
||||||||||||||||||||||
|
2024 |
2023 |
2023 |
||||||||||||||||||||||
|
Retail loans |
$ |
5,323.2 |
54 |
% |
$ |
5,028.2 |
54 |
% |
$ |
4,709.0 |
57 |
% |
||||||||||||
|
Retail leases |
1,720.2 |
18 |
% |
1,710.4 |
18 |
% |
1,555.9 |
19 |
% |
|||||||||||||||
|
Dealer wholesale financing |
2,251.6 |
23 |
% |
1,953.3 |
21 |
% |
1,537.6 |
19 |
% |
|||||||||||||||
|
Dealer master notes |
462.5 |
5 |
% |
509.2 |
6 |
% |
345.6 |
4 |
% |
|||||||||||||||
|
Operating lease receivables and other |
53.6 |
65.3 |
1 |
% |
47.1 |
1 |
% |
|||||||||||||||||
|
Total portfolio |
$ |
9,811.1 |
100 |
% |
$ |
9,266.4 |
100 |
% |
$ |
8,195.2 |
100 |
% |
Retail loans increased to $5,323.2 at June 30, 2024 from $5,028.2 at December 31, 2023, reflecting new business volume exceeding collections.
Retail leases increased to $1,720.2 at June 30, 2024 from $1,710.4 at December 31, 2023, reflecting new business volume exceeding
collections.
Dealer wholesale financing balances increased to $2,251.6 at June 30, 2024 from $1,953.3 at December 31, 2023 due to higher dealer new truck inventory and a higher average amount financed.
Dealer master notes were $462.5 at June 30, 2024 compared to $509.2 at December 31, 2023. Dealers may pay the loans early or make additional draws up to specified balances of the contracts and/or vehicles pledged to the Company. As of June 30, 2024, the
- 24-
PACCAR FINANCIAL CORP.
underlying pledged contracts and/or vehicles were $616.6, of which the dealers have $149.8 as potential additional borrowing capacity.
Income Taxes
The Company's effective income tax rate for the second quarter and first half of 2024 was 25.0% and 24.2%, respectively, compared to 24.9% and 25.0% for the same periods of 2023, reflecting changes in the state tax expense during 2024 as compared to 2023.
The Company is included in the consolidated federal income tax return of PACCAR. Federal income taxes for the Company are determined on a separate return basis. State income taxes, where the Company files combined tax returns with PACCAR, are determined on a blended statutory rate, which is substantially the same as the rate computed on a separate return basis.
The Company's deferred income tax benefit for the first half of 2024 was $2.4 compared to a provision of $9.7 for the first half of 2023. The Company's net deferred tax liability decreased to $474.3 at June 30, 2024 from $476.3 at December 31, 2023, primarily due to lower benefits from accelerated depreciation. Deferred taxes are impacted by new business volume and the accelerated depreciation deduction rate under U.S. federal and state tax law. The difference in the timing of depreciation for financial statement and income tax purposes does not impact operating results and is not expected to have a significant impact on liquidity in 2024.
Company Outlook
Truck Industry Class 8 retail sales in the U.S. in 2024 are expected to be 210,000-240,000 units compared to 266,800 in 2023. Average earning assets in 2024 are expected to increase 11-13% compared to 2023 due to strong new business volume and dealer wholesale financing. Current high levels of freight tonnage, freight rates and fleet utilization are contributing to customers' profitability and cash flow. If current freight transportation conditions decline due to weaker economic conditions, then past due accounts, truck repossessions and credit losses would likely increase from the current low levels and new business volume would likely decline. See the Forward-Looking Statements section of Management's Discussion and Analysis for factors that may affect this outlook.
Funding and Liquidity
The Company's debt ratings at June 30, 2024 are as follows:
|
Standard |
||||
|
and Poor's |
Moody's |
|||
|
Commercial paper |
A-1 |
P-1 |
||
|
Senior unsecured debt |
A+ |
A1 |
A decrease in these credit ratings could negatively impact the Company's ability to access capital markets at competitive interest rates and the Company's ability to maintain liquidity and financial stability.
The Company periodically registers debt securities under the Securities Act of 1933 for offering to the public. In November 2021, the Company filed a shelf registration statement to issue medium-term notes. The shelf registration statement expires in November 2024 and does not limit the principal amount of debt securities that may be issued during the period.
The Company participates with PACCAR and certain other PACCAR affiliates in committed bank facilities of $4,000.0 at June 30, 2024, which increased $1,000.0 during the second quarter of 2024. Of these committed bank facilities, $1,500.0 expires in June 2025, $1,250.0 expires in June 2027 and $1,250.0 expires in June 2029. PACCAR and the Company intend to extend or replace these credit facilities on or before expiration. This extension or replacement could include similar borrowing capacity or upsizing the facility.
Of the $4,000.0 credit facilities, $3,088.0 is available for use by the Company and/or PACCAR and other non-U.S. PACCAR financial subsidiaries. The remaining $912.0 is allocated to PACCAR and other non-U.S. PACCAR financial subsidiaries. These credit facilities are maintained primarily to provide backup liquidity for the Company's commercial paper and maturing medium-term notes. The Company is liable only for its own borrowings under these credit facilities. There were no borrowings under these credit facilities for the six months ended June 30, 2024.
The Company issues commercial paper and medium-term notes to fund its financing and leasing operations. The total principal amounts of commercial paper and medium-term notes outstanding for the Company as of June 30, 2024 were $2,746.0 and $6,650.0, respectively.
- 25-
PACCAR FINANCIAL CORP.
The Company believes its current investment grade credit ratings of A+/A1, committed bank facilities, collections on existing loans and leases and its ability to borrow from PACCAR, if necessary, will continue to provide it with sufficient resources and access to capital markets at competitive interest rates to maintain its liquidity and financial stability. In the event of a decrease in the Company's credit ratings or a disruption in the financial markets, the Company may not be able to refinance its maturing debt in the financial markets. In such circumstances, the Company would be exposed to liquidity risk to the degree that the timing of debt maturities differs from the timing of receivable collections from customers. The Company believes its various sources of liquidity, including committed bank facilities, would continue to provide it with sufficient funding resources to service its maturing debt obligations.
Other information on liquidity, sources of capital, and contractual cash commitments as presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report") continues to be relevant.
Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements relating to future results of operations or financial position and any other statement that does not relate to any historical or current fact. Such statements are based on currently available operating, financial and other information and are subject to risks and uncertainties that may affect actual results. Risks and uncertainties include, but are not limited to: national and local economic, political and industry conditions; changes in the levels of new business volume due to unit fluctuations in new PACCAR truck sales or reduced market share; changes in competitive factors; changes affecting the profitability of truck owners and operators; price changes impacting equipment costs and residual values; changes in interest rates and other operating costs; insufficient liquidity in the capital markets and availability of other funding sources; cybersecurity risks to the Company's information technology systems; pandemics; climate-related risks; global conflicts; litigation involving the Company or affiliated entities; and legislation and governmental regulation.
- 26-
PACCAR FINANCIAL CORP.
ITEM 3is omitted pursuant to Form 10-Q General Instructions (H)(2)(c).
ITEM 4. CONTROLSAND PROCEDURES
The Company's management, with the participation of the Principal Executive Officer and Principal Financial Officer, conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.
During the second quarter of 2024, the Company implemented a new loan and lease system to better support its operations and continued growth. The implementation resulted in changes to certain business processes and procedures, and the Company updated its internal controls over financial reporting, as necessary, to accommodate these modifications. There have been no other changes in the Company's internal control over financial reporting that occurred during the second quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
- 27-
PACCAR FINANCIAL CORP.
PART II - OTHER INFORMATION
ITEM 1. LEGALPROCEEDINGS
The Company is a party to various routine legal proceedings incidental to its business involving the collection of accounts and other matters. The Company does not consider such matters to be material with respect to the business or financial condition of the Company as a whole.
ITEM 1A. RISK FACTORS
For information regarding risk factors, refer to Part I, Item 1A as presented in the 2023 Annual Report on Form 10-K. There have been no material changes in the Company's risk factors during the six months ended June 30, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None of the Company's directors or officers adopted, modifiedor terminateda Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company's quarter ended June 30, 2024, as such terms are defined under Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS
Any exhibits filed herewith are listed in the accompanying index to exhibits.
- 28-
PACCAR FINANCIAL CORP.
EXHIBITINDEX
Exhibits (in order of assigned index numbers)
|
Exhibit Number |
Exhibit Description |
Form |
Date of First Filing |
Exhibit Number |
File Number |
||||||
|
(3) |
Articles of incorporation and by-laws: |
||||||||||
|
(i) |
Restated Articles of Incorporation of the Company, as amended |
10-K |
February 26, 2015 |
3(i) |
001-11677 |
||||||
|
(ii) |
10-Q |
August 7, 2014 |
3(c) |
001-11677 |
|||||||
|
(4) |
Instruments defining the rights of security holders, including indentures: |
||||||||||
|
(a) |
S-3 |
November 20, 2009 |
4.1 |
333-163273 |
|||||||
|
(b) |
S-3 |
November 2, 2018 |
333-228141 |
||||||||
|
(c) |
S-3 |
November 1, 2021 |
333-260663 |
||||||||
|
(d) |
10-K |
February 21, 2024 |
4(d) |
001-11677 |
|||||||
|
(10) |
Material contracts: |
||||||||||
|
(a) |
Support Agreement between the Company and PACCAR dated as of June 19, 1989. (P) |
S-3 |
June 23, 1989 |
28.1 |
33-29434 |
||||||
|
(31) |
Rule 13a-14(a)/15d-14(a) Certifications: |
||||||||||
|
(a) |
Certification of Principal Executive Officer* |
||||||||||
|
(b) |
Certification of Principal Financial Officer* |
||||||||||
|
(32) |
Section 1350 Certifications: |
||||||||||
|
(a) |
Certification pursuant to rule 13a-14(b) and section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. section 1350)* |
||||||||||
|
(101.INS) |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document* |
||||||||||
|
(101.SCH) |
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Document* |
||||||||||
|
(104) |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)* |
____________
* filed herewith
- 29-
PACCAR FINANCIAL CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
PACCAR Financial Corp. |
|||
|
(Registrant) |
|||
|
Date |
July 31, 2024 |
/s/ Craig R. Gryniewicz |
|
|
Craig R. Gryniewicz |
|||
|
President |
|||
|
(Authorized Officer) |
|||
|
/s/ Shannon L. Farrar |
|||
|
Shannon L. Farrar |
|||
|
Controller |
|||
|
(Chief Accounting Officer) |
- 30-