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Survey of Equipment Finance Activity
Like many other sectors of the economy, the equipment leasing and finance industry is still in the process of evaluating the severity of the financial storm weathered over the past few years. As a result, the question was never really if business volume would be off, but more accurately, by how much. The answer, a lot.
The Equipment Leasing and Finance Association (“ELFA”) recently released its 2010 Survey of Equipment Finance Activity (“SEFA”), which shows that new business volume among a sample of the ELFA member companies declined 30.3% in 2009, in contrast with a 2.2% decline in 2008. Pre-tax income and net income, in dollar terms, declined by 55.7% and 54.4%, respectively. Decreases in revenues and total headcount were only 13.8% and 5.8%, respectively.
For the first time in the past 10 years of the SEFA, weighted average return on equity (“ROE”) was in the single digits at 5.2%, a decline from 11% in 2008. Return on assets (“ROA”) declined by half, falling to 0.6% from 1.2% during the year-earlier period.
Independent equipment finance organizations had the largest decline in new business volume with a rate of 46.3%, while new business volume for banks and captives declined by 26.1% and 20.9%, respectively. From an asset perspective, new business volume by equipment type declined for all categories, with transportation and construction equipment hardest hit and computer equipment investment close behind. Similar trends were seen in equipment investment by end-user industry with construction, utilities, and services showing the sharpest declines.
Other Key Findings
Portfolio Performance. Equipment finance organizations report average charge-offs of 1.6% of the average net lease receivables balance, up from 0.7% in 2008. Receivables over 90 days rose to 1.4% from 1.0% the prior year.
Margins. Average pre-tax yield decreased to 7.15% from 7.29% in 2008. Average cost of funds were lower at 3.30%, down from 4.21% in 2008. Pre-tax spreads increased to an average of 3.85% from 3.08% in 2008.
Lease Applications Processed. Total number of applications submitted (1.87 million) is down from 2008 (1.96 million), with the number of applications approved (66.9%) also declining when compared with the previous year (72.5%).
Workforce. Total number of full-time equivalent (“FTE”) employees declined in all types of equipment finance organizations. Headcount of Independents fell 9.7%, while Bank and Captive FTEs declined 5.3% and 3.8% respectively.
Better Times Ahead
“Fortunately, it appears the worst is behind us,” noted ELFA President Woody Sutton. “More recent data collected during the past two quarters suggests a gradually improving U.S. economy extends to the equipment leasing and finance sector.” The remaining question, is: How long is this going to take? Only time will tell.
The SEFA is the broadest compendium of industry data, comprising a representative cross-section of equipment lease and loan origination by product, structure, and origination. It provides a baseline and benchmark for companies operating in the equipment finance space through a voluntary survey of ELFA member companies. In the 2010 SEFA project, results were compiled from surveys sent to 341 eligible ELFA members, of which 100 companies representing 106 entities submitted 2009 U.S. domestic lease and loan data.
PricewaterhouseCoopers LLP managed the SEFA for the ELFA. It is available for purchase at www.elfaonline.org/.
Like many other sectors of the economy, the equipment leasing and finance industry is still in the process of evaluating the severity of the financial storm weathered over the past few years. As a result, the question was never really if business volume would be off, but more accurately, by how much. The answer, a lot.
The Equipment Leasing and Finance Association (“ELFA”) recently released its 2010 Survey of Equipment Finance Activity (“SEFA”), which shows that new business volume among a sample of the ELFA member companies declined 30.3% in 2009, in contrast with a 2.2% decline in 2008. Pre-tax income and net income, in dollar terms, declined by 55.7% and 54.4%, respectively. Decreases in revenues and total headcount were only 13.8% and 5.8%, respectively.
For the first time in the past 10 years of the SEFA, weighted average return on equity (“ROE”) was in the single digits at 5.2%, a decline from 11% in 2008. Return on assets (“ROA”) declined by half, falling to 0.6% from 1.2% during the year-earlier period.
Independent equipment finance organizations had the largest decline in new business volume with a rate of 46.3%, while new business volume for banks and captives declined by 26.1% and 20.9%, respectively. From an asset perspective, new business volume by equipment type declined for all categories, with transportation and construction equipment hardest hit and computer equipment investment close behind. Similar trends were seen in equipment investment by end-user industry with construction, utilities, and services showing the sharpest declines.
Other Key Findings
Portfolio Performance. Equipment finance organizations report average charge-offs of 1.6% of the average net lease receivables balance, up from 0.7% in 2008. Receivables over 90 days rose to 1.4% from 1.0% the prior year.
Margins. Average pre-tax yield decreased to 7.15% from 7.29% in 2008. Average cost of funds were lower at 3.30%, down from 4.21% in 2008. Pre-tax spreads increased to an average of 3.85% from 3.08% in 2008.
Lease Applications Processed. Total number of applications submitted (1.87 million) is down from 2008 (1.96 million), with the number of applications approved (66.9%) also declining when compared with the previous year (72.5%).
Workforce. Total number of full-time equivalent (“FTE”) employees declined in all types of equipment finance organizations. Headcount of Independents fell 9.7%, while Bank and Captive FTEs declined 5.3% and 3.8% respectively.
Better Times Ahead
“Fortunately, it appears the worst is behind us,” noted ELFA President Woody Sutton. “More recent data collected during the past two quarters suggests a gradually improving U.S. economy extends to the equipment leasing and finance sector.” The remaining question, is: How long is this going to take? Only time will tell.
The SEFA is the broadest compendium of industry data, comprising a representative cross-section of equipment lease and loan origination by product, structure, and origination. It provides a baseline and benchmark for companies operating in the equipment finance space through a voluntary survey of ELFA member companies. In the 2010 SEFA project, results were compiled from surveys sent to 341 eligible ELFA members, of which 100 companies representing 106 entities submitted 2009 U.S. domestic lease and loan data.
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