No Surprise: 2002 an Off Year for Leasing

Quarterly Performance Figures

The fourth quarter of 2002 saw a slight overall improvement in credit approval ratios, which were up by about 1.2% from the fourth quarter of 2001. The credit approval ratio stood at 74.6% at the close of the fourth quarter of 2001 and jumped to 78.4% at the end of the first quarter of 2002. Credit approval ratios then dropped off precipitously, falling to 73.0% in the second quarter, before increasing to 75.3% and 75.8% in the third quarter and fourth quarters of 2002, respectively. These quarterly fluctuations likely stem from the considerable market uncertainty and instability that the economy as a whole has experienced over the past year.

The Report also found that average losses (charge-offs) as a percentage of receivables increased noticeably from the fourth quarter of 2001, down from 0.7% at the close of 2001 to 0.9% at the end of 2002, a rise of 28.6%. Charge-offs were as low as 0.5% in the first quarter of 2002, but then jumped to 0.8% in the second and third quarters before edging up to 0.9% at the close of 2002. Although a different mix of respondents is used from survey to survey, it should be noted that overall, charge-offs for the past 12 months are quite high. In fact, a comparison of fourth quarter PIRs from recent years shows that charge-offs have not been as high as 0.9% in at least 7 years. In addition, while the 0.5% posted in the first quarter of 2002 was a fairly low rate of charge-off, there have been numerous quarters over the past 7 years with lower percentages.

The number of delinquencies in the fourth quarter of 2002 is reasonably healthy in most categories, although, the percentage of receivables less than 30 days due stood at a 12-month high of 98.1% at the close of 2002, not a particularly strong figure. The 12-month low in this category was 97.2%, which was reported in the first quarter of 2002.

The story is somewhat different when actual delinquencies are reviewed. Accounts that are 31-60 days overdue ended up almost 29% lower over the past year, dropping from 0.9% at the end of the fourth quarter of 2001 to 0.7% at the end of 2002. The 12-month high in this category was 1.0% in the first quarter of 2002 and the 12-month low was 0.6% in the third quarter of 2002. Delinquencies in the 61-90 day range were somewhat similar. After starting the year at the 12-month high of 0.6%, delinquencies in this category dropped 50% to a very healthy 0.4% in the third and fourth quarters of 2002. Accounts more than 90 days past due were 0.8% of gross receivables at the close of the fourth quarter of 2002, considerably less than the 12-month high of 1.2% posted at the close of the first quarter of 2002. After starting 2002 at 1.0%, delinquencies in this category never dropped below 1.0% until the fourth quarter of 2002. Hopefully, this positive year-end result offsets the relatively high number of charge-offs and creates some much-needed momentum for 2003.

Employment Off Slightly

As is the case in other sectors of the economy, employment in the leasing industry was down in 2002. After remaining relatively stable for most of 2002, even in the face of falling net portfolios, the industry was finally forced to make some difficult employment decisions at the end of the year. The Report shows that the responding companies employed 5996 people at the close of 2001. This number increased to a 12-month high of 6022 employees in the first quarter of 2002, dropping slightly to 6005 in the second quarter and recovering to 6017 people in the third quarter of 2002. Unfortunately, by the end of the next quarter 67 fewer employees were reported and employment closed out 2002 at 5950. While this news is disappointing, the overall loss in employment in the industry over the past year was only 0.77%, which is far lower than many other sectors of the economy

The PIR, which is performed on a quarterly basis, tracks the performance of leasing companies in six key areas. The same companies are tracked for each PIR quarterly report in order to provide a reliable trend analysis, although the mix of companies may vary from report to report.

Adam J. Schlagman, Esq., is the Editor-In-Chief of this newsletter.

For the first time in at least 7 years, the equipment leasing industry has failed to recognize net portfolio growth for a calendar year, according to the Equipment Leasing Association's Quarterly Performance Indicators Report (PIR). Although the participants in the survey differ from year to year, it is not an encouraging sign that portfolio growth for the fourth quarter of 2002 decreased 1.7% from the same period in 2001. In line with the weak economic climate, disappointing results were also seen in employment and charge-offs, while new business ended the year up slightly after an otherwise down year.

Total net portfolio at the end of the fourth quarter of 2001 was $58.6 billion, which then dropped to $55.7 billion in the first and second quarters of 2002. Portfolio growth then fell to the 12-month low of $54.4 billion in the third quarter of 2002 before rebounding to end the year at $57.6 billion. The industry's 1.7% decrease over the past 12 months marked not only the first overall decrease in portfolio growth in recent years, but the past year also presented another unusual statistic: the first time there has been no portfolio growth over a period of three quarters. Typically there is a decrease in portfolio growth in the first quarter of a new year following the flurry of year-end activity, but this year there was no quick rebound from the first quarter drop-off. In 2002, the rebound did not occur until year-end and at that, the recovery was incomplete, leaving the industry with negative annual growth.

While total new business volume increased by 1.6 % during 2002, the ride over the past fourth quarters was quite erratic. New business volume stood at $6.4 billion at the close of the fourth quarter of 2001, and then nose-dived to $3.4 billion in the first quarter of 2002, a fall off of 46.9%. New business volume then edged up to $4.5 billion in the second and third quarters of 2002. The big jump came in the fourth quarter, which saw new business volume rise to $6.5 billion, an impressive gain of 44.4% that counterbalanced the big first quarter drop-off.

Quarterly Performance Figures

The fourth quarter of 2002 saw a slight overall improvement in credit approval ratios, which were up by about 1.2% from the fourth quarter of 2001. The credit approval ratio stood at 74.6% at the close of the fourth quarter of 2001 and jumped to 78.4% at the end of the first quarter of 2002. Credit approval ratios then dropped off precipitously, falling to 73.0% in the second quarter, before increasing to 75.3% and 75.8% in the third quarter and fourth quarters of 2002, respectively. These quarterly fluctuations likely stem from the considerable market uncertainty and instability that the economy as a whole has experienced over the past year.

The Report also found that average losses (charge-offs) as a percentage of receivables increased noticeably from the fourth quarter of 2001, down from 0.7% at the close of 2001 to 0.9% at the end of 2002, a rise of 28.6%. Charge-offs were as low as 0.5% in the first quarter of 2002, but then jumped to 0.8% in the second and third quarters before edging up to 0.9% at the close of 2002. Although a different mix of respondents is used from survey to survey, it should be noted that overall, charge-offs for the past 12 months are quite high. In fact, a comparison of fourth quarter PIRs from recent years shows that charge-offs have not been as high as 0.9% in at least 7 years. In addition, while the 0.5% posted in the first quarter of 2002 was a fairly low rate of charge-off, there have been numerous quarters over the past 7 years with lower percentages.

The number of delinquencies in the fourth quarter of 2002 is reasonably healthy in most categories, although, the percentage of receivables less than 30 days due stood at a 12-month high of 98.1% at the close of 2002, not a particularly strong figure. The 12-month low in this category was 97.2%, which was reported in the first quarter of 2002.

The story is somewhat different when actual delinquencies are reviewed. Accounts that are 31-60 days overdue ended up almost 29% lower over the past year, dropping from 0.9% at the end of the fourth quarter of 2001 to 0.7% at the end of 2002. The 12-month high in this category was 1.0% in the first quarter of 2002 and the 12-month low was 0.6% in the third quarter of 2002. Delinquencies in the 61-90 day range were somewhat similar. After starting the year at the 12-month high of 0.6%, delinquencies in this category dropped 50% to a very healthy 0.4% in the third and fourth quarters of 2002. Accounts more than 90 days past due were 0.8% of gross receivables at the close of the fourth quarter of 2002, considerably less than the 12-month high of 1.2% posted at the close of the first quarter of 2002. After starting 2002 at 1.0%, delinquencies in this category never dropped below 1.0% until the fourth quarter of 2002. Hopefully, this positive year-end result offsets the relatively high number of charge-offs and creates some much-needed momentum for 2003.

Employment Off Slightly

As is the case in other sectors of the economy, employment in the leasing industry was down in 2002. After remaining relatively stable for most of 2002, even in the face of falling net portfolios, the industry was finally forced to make some difficult employment decisions at the end of the year. The Report shows that the responding companies employed 5996 people at the close of 2001. This number increased to a 12-month high of 6022 employees in the first quarter of 2002, dropping slightly to 6005 in the second quarter and recovering to 6017 people in the third quarter of 2002. Unfortunately, by the end of the next quarter 67 fewer employees were reported and employment closed out 2002 at 5950. While this news is disappointing, the overall loss in employment in the industry over the past year was only 0.77%, which is far lower than many other sectors of the economy

The PIR, which is performed on a quarterly basis, tracks the performance of leasing companies in six key areas. The same companies are tracked for each PIR quarterly report in order to provide a reliable trend analysis, although the mix of companies may vary from report to report.

Adam J. Schlagman, Esq., is the Editor-In-Chief of this newsletter.