Leasing Industry Closes 2003 with Positive Signs

After three consecutive quarters of failing to show any portfolio growth, the equipment leasing industry came through at year's end to close 2003 with only a slight net loss in portfolio size. According to the Equipment Leasing Association's Quarterly Performance Indicators Report (PIR), total net portfolio growth decreased by a total of only 0.4% in 2003. While 2003 marked the second consecutive year in which the leasing industry failed to recognize any net portfolio growth for a calendar year, based on how 2003 was shaping up after the third quarter, the modest overall drop-off was not such bad news. In fact, 2003 was not as bad a year for the leasing industry as one might have expected given the many challenges that have been presented over the past few years. New business volume and credit approvals were up, and charge-offs and actual delinquencies were down. Employment remains a concern, but overall, it appears that the leasing industry is weathering the storm.

Total net portfolio at the end of the fourth quarter of 2002 was $64 billion, which then dropped to $63.4 billion in the first quarter of 2003. Portfolio growth then fell to $62.7 billion at mid-year before falling to the 12-month low of $62.4 billion in the third quarter of 2003. Fortunately, portfolio growth recovered in the fourth quarter of 2003 to close out the year at $63.7 billion, a 0.4% decrease from 2002. It is of some concern that this is the second overall decrease in portfolio growth in consecutive years, and that similar to 2002, the industry experienced no portfolio growth over a period of three quarters in 2003. Typically, there is a decrease in portfolio growth in the first quarter of a new year following a sharp increase in year-end activity; but in both 2003 and 2002 there were no quick rebounds from the first quarter drop-off. In both of the last 2 years, the rebound did not occur until year-end and at that, the recovery was incomplete, leaving the industry with negative annual growth.

Total new business volume, however, was a much more encouraging category, which increased by a total of 3.4% during 2003. New business volume stood at $11.5 billion at the close of the fourth quarter of 2002, and then plunged by 26% to $8.5 billion in the first quarter of 2003. New business volume then jumped back up to $10.8 billion in the second quarter of 2003 and stayed reasonably stable through the third quarter falling off to $10.7 billion. Another healthy increase came in the fourth quarter, which saw new business volume rise to $11.9 billion, a strong gain of 11.2% from the third quarter.

Quarterly Performance Figures

The fourth quarter of 2003 saw a decent overall improvement in credit approval ratios, which were up by 120 basis points from the fourth quarter of 2002. The credit approval ratio stood at 75.9% at the close of the fourth quarter of 2002 and jumped to 77.2% at the end of the first quarter of 2003. Credit approval ratios then dropped off to 75.9% in the second quarter, before increasing to 76.6% and 77.1% in the third quarter and fourth quarters of 2003, respectively.

The most recent PIR also showed some encouraging results in the category of average losses (charge-offs) as a percentage of receivables. The responding companies reported that their charge-offs were as low as 0.5% in the first, third and fourth quarters of 2004. In the fourth quarter of 2002 and the second quarter of 2003, charge-offs rose to 0.7%, but overall these results are quite good. Although a different mix of respondents is used from survey to survey, it should be noted that looking at other year-end PIRs, one would have to go back to the second quarter of 1998 to find charge-offs under 0.5%. By contrast, charge-offs for the last 3 years saw only two other quarters as low as 0.5% and six quarters that were greater than the 12-month high of 0.7% reported in 2003.

The number of delinquencies in the fourth quarter of 2003 is also particularly healthy in most categories. In fact, the percentage of receivables less than 30 days increased by 60 basis points from the fourth quarter of 2002 to the fourth quarter of 2003, increasing from 97.9% to 98.5%. The 12-month low in this category was 97.2%, which was reported in the third quarter of 2003.

The results are even better when actual delinquencies are reviewed. Accounts that are 31-60 days overdue ended up almost 20 basis points lower over the past year, dropping from 0.8% at the end of the fourth quarter of 2002 to 0.6% at the end of 2003, the 12-month low in this category. The 12-month high in this category was 1.3% in the third quarter of 2003. Delinquencies in the 61-90 day range were somewhat similar. After starting the year at 0.4%, delinquencies in this category remained at this level until the second quarter of 2003 when they increased slightly to 0.5%. Accounts in this category then increase to the 12-month high of 0.8% before ending 2003 at the 12-month low of a very healthy 0.3%. Accounts more than 90 days past due were 0.7% of gross receivables at the close of the fourth quarter of 2003, considerably less than the 12-month high of 1.4% posted at the close of the first quarter of 2003. After starting 2002 at 0.9%, delinquencies in this category then increased to 1.4% in the second quarter and then dropped steadily for the next three quarters. It is hoped that this positive year-end result creates some much-needed momentum for 2004.

Employment Numbers Down

Much has been made of the jobless recovery of the economy in general and it would appear that the leasing industry is experiencing a similar trend. As is the case in other sectors of the economy, employment in the leasing industry was down in 2003. After remaining relatively stable through the first quarter of 2003, the industry's employment figures then dropped off. The report shows that the responding companies employed 6032 people at the close of 2002. This number decreased slightly to 5971 at the end of the first quarter of 2003 before falling to the 12-month low of 5553 employees in the second quarter of 2003. Employment then increased slightly to 5589 in the third quarter and dropped slightly to end the year at 5571 employees. A net loss of 7.6% over the course of the year.

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. The participants in this report were ADP Credit Corporation, AmSouth Leasing Corporation, Caterpillar Financial Services Corporation, Computer Sales International, Inc., De Lage Landen Financial Services, Farm Credit Leasing Services Corporation, First American Equipment Finance, Fleet Capital Leasing, GreatAmerica Leasing, Hitachi Credit America Corporation, John Deere Credit Corporation, JP Morgan Leasing Inc., Key Equipment Finance, LaSalle National Leasing Corporation, Siemens Financial, U.S. Bancorp Leasing & Financial, Verizon Credit, Inc, and Wells Fargo Equipment Finance.

After three consecutive quarters of failing to show any portfolio growth, the equipment leasing industry came through at year's end to close 2003 with only a slight net loss in portfolio size. According to the Equipment Leasing Association's Quarterly Performance Indicators Report (PIR), total net portfolio growth decreased by a total of only 0.4% in 2003. While 2003 marked the second consecutive year in which the leasing industry failed to recognize any net portfolio growth for a calendar year, based on how 2003 was shaping up after the third quarter, the modest overall drop-off was not such bad news. In fact, 2003 was not as bad a year for the leasing industry as one might have expected given the many challenges that have been presented over the past few years. New business volume and credit approvals were up, and charge-offs and actual delinquencies were down. Employment remains a concern, but overall, it appears that the leasing industry is weathering the storm.

Total net portfolio at the end of the fourth quarter of 2002 was $64 billion, which then dropped to $63.4 billion in the first quarter of 2003. Portfolio growth then fell to $62.7 billion at mid-year before falling to the 12-month low of $62.4 billion in the third quarter of 2003. Fortunately, portfolio growth recovered in the fourth quarter of 2003 to close out the year at $63.7 billion, a 0.4% decrease from 2002. It is of some concern that this is the second overall decrease in portfolio growth in consecutive years, and that similar to 2002, the industry experienced no portfolio growth over a period of three quarters in 2003. Typically, there is a decrease in portfolio growth in the first quarter of a new year following a sharp increase in year-end activity; but in both 2003 and 2002 there were no quick rebounds from the first quarter drop-off. In both of the last 2 years, the rebound did not occur until year-end and at that, the recovery was incomplete, leaving the industry with negative annual growth.

Total new business volume, however, was a much more encouraging category, which increased by a total of 3.4% during 2003. New business volume stood at $11.5 billion at the close of the fourth quarter of 2002, and then plunged by 26% to $8.5 billion in the first quarter of 2003. New business volume then jumped back up to $10.8 billion in the second quarter of 2003 and stayed reasonably stable through the third quarter falling off to $10.7 billion. Another healthy increase came in the fourth quarter, which saw new business volume rise to $11.9 billion, a strong gain of 11.2% from the third quarter.

Quarterly Performance Figures

The fourth quarter of 2003 saw a decent overall improvement in credit approval ratios, which were up by 120 basis points from the fourth quarter of 2002. The credit approval ratio stood at 75.9% at the close of the fourth quarter of 2002 and jumped to 77.2% at the end of the first quarter of 2003. Credit approval ratios then dropped off to 75.9% in the second quarter, before increasing to 76.6% and 77.1% in the third quarter and fourth quarters of 2003, respectively.

The most recent PIR also showed some encouraging results in the category of average losses (charge-offs) as a percentage of receivables. The responding companies reported that their charge-offs were as low as 0.5% in the first, third and fourth quarters of 2004. In the fourth quarter of 2002 and the second quarter of 2003, charge-offs rose to 0.7%, but overall these results are quite good. Although a different mix of respondents is used from survey to survey, it should be noted that looking at other year-end PIRs, one would have to go back to the second quarter of 1998 to find charge-offs under 0.5%. By contrast, charge-offs for the last 3 years saw only two other quarters as low as 0.5% and six quarters that were greater than the 12-month high of 0.7% reported in 2003.

The number of delinquencies in the fourth quarter of 2003 is also particularly healthy in most categories. In fact, the percentage of receivables less than 30 days increased by 60 basis points from the fourth quarter of 2002 to the fourth quarter of 2003, increasing from 97.9% to 98.5%. The 12-month low in this category was 97.2%, which was reported in the third quarter of 2003.

The results are even better when actual delinquencies are reviewed. Accounts that are 31-60 days overdue ended up almost 20 basis points lower over the past year, dropping from 0.8% at the end of the fourth quarter of 2002 to 0.6% at the end of 2003, the 12-month low in this category. The 12-month high in this category was 1.3% in the third quarter of 2003. Delinquencies in the 61-90 day range were somewhat similar. After starting the year at 0.4%, delinquencies in this category remained at this level until the second quarter of 2003 when they increased slightly to 0.5%. Accounts in this category then increase to the 12-month high of 0.8% before ending 2003 at the 12-month low of a very healthy 0.3%. Accounts more than 90 days past due were 0.7% of gross receivables at the close of the fourth quarter of 2003, considerably less than the 12-month high of 1.4% posted at the close of the first quarter of 2003. After starting 2002 at 0.9%, delinquencies in this category then increased to 1.4% in the second quarter and then dropped steadily for the next three quarters. It is hoped that this positive year-end result creates some much-needed momentum for 2004.

Employment Numbers Down

Much has been made of the jobless recovery of the economy in general and it would appear that the leasing industry is experiencing a similar trend. As is the case in other sectors of the economy, employment in the leasing industry was down in 2003. After remaining relatively stable through the first quarter of 2003, the industry's employment figures then dropped off. The report shows that the responding companies employed 6032 people at the close of 2002. This number decreased slightly to 5971 at the end of the first quarter of 2003 before falling to the 12-month low of 5553 employees in the second quarter of 2003. Employment then increased slightly to 5589 in the third quarter and dropped slightly to end the year at 5571 employees. A net loss of 7.6% over the course of the year.

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. The participants in this report were ADP Credit Corporation, AmSouth Leasing Corporation, Caterpillar Financial Services Corporation, Computer Sales International, Inc., De Lage Landen Financial Services, Farm Credit Leasing Services Corporation, First American Equipment Finance, Fleet Capital Leasing, GreatAmerica Leasing, Hitachi Credit America Corporation, John Deere Credit Corporation, JP Morgan Leasing Inc., Key Equipment Finance, LaSalle National Leasing Corporation, Siemens Financial, U.S. Bancorp Leasing & Financial, Verizon Credit, Inc, and Wells Fargo Equipment Finance.