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The Equipment Leasing and Finance Association's (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity for the $600 billion equipment finance sector, showed overall new business volume for March decreased 10.3 percent when compared to March 2007.
The MLFI-25 also showed 2008 originations increased significantly from February ($5.4 billion) to $7.0 billion in March. However, the increase was anticipated due to the quarter-ending cyclicality of the equipment finance business.
Portfolio quality declined in March. Receivables aging in the past due category over 30 days (3.3 percent) have shown an increase in each of the last 6 months. March charge-offs increased over the previous month (from .72 percent to .83 percent), reaching their highest levels since January 2006. Credit approval ratios (73.6 percent) declined when compared to February 2008 (75.5 percent). Total headcount remained flat in March compared to the previous month.
"The MLFI-25 indicates credit approval rates are down and delinquencies are up slightly after a period of exemplary performance and we are now seeing slower volume which indicates caution," said David Merrill, President, Fifth Third Leasing Company, located in Cincinnati, OH. Fifth Third Leasing Company is the newest participant in the MLFI-25. "The downturn is not widespread, however. Trucking, construction related sectors and rail have been most affected," said Merrill.
"Clearly the deterioration of the housing sector and credit crisis have had some effect on corporate capital investment appetite and balance sheets," said Kenneth E. Bentsen, Jr. President of the ELFA. "Overall credit quality over the last two plus years has been extraordinary and some back up should be expected. And it is likely that the commercial finance sector is feeling the effects of the credit crunch putting downward pressure on new originations."
MLFI-25 Methodology
ELFA produces the MLFI-25 report to help member organizations achieve competitive advantage by providing them with leading-edge research and benchmarking information which supports strategic business decision making. The report is also a barometer of the trends in U.S. capital equipment investment.
Five components are included in the MLFI-25 survey: new business volume (originations); aging of receivables; charge-offs; credit approval ratios (approved vs. submitted) and headcount for the equipment finance business.
The MLFI-25 provides metrics reflecting monthly commercial equipment lease and loan activity as reported by participating ELFA member equipment finance companies representing a cross section of the equipment finance sector including small ticket, middle market, large ticket, bank, captive and independent leasing and finance companies. Based on hard survey data, the responses mirror the economic activity of the broader equipment finance sector, which contributes to the representation of current business conditions nationally.
The MLFI-25 complements other relevant economic indices, including the monthly durable goods report produced by the U.S. Department of Commerce, which reflects new orders for manufactured durable goods and the Institute for Supply Management Index, which reports economic activity in the manufacturing sector. Along with the MLFI-25, which reflects levels of equipment financed, these reports provide a complete picture that describes the use of productive assets in the U.S. economy: equipment produced, acquired and financed.
This month, the ELFA introduces new MLFI metrics and a new participant, adding pre-tax yield, cost of funds and pre-tax spread data as well as welcoming Fifth Third Bank to the MLFI-25 fold. While data for 26 companies is collected monthly, only aggregated two-year results reflecting the same 25 companies will be reported for the entire index.
Results of each MLFI-25 are posted on the ELFA website and in ELT, the Magazine of Equipment Leasing and Finance. To access ELFA's comprehensive industry information, please visit http://www.elfaonline.org/ind/research/
Media Only: Charts and graphs are available for the media upon request; please contact Diane Zyats at dzyats@elfaonline.org
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