The Equipment Leasing and Finance Association's (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity for the $650 billion equipment finance sector, showed overall new business volume for May increased 6.5 percent when compared to the same period 2007.
The MLFI-25 reflects levels of equipment financed and 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 these reports provide a complete picture that describes the use of productive assets in the U.S. economy: equipment produced, acquired and financed.
According to the May data, originations month-to-month remained flat, stabilizing at $7.2 billion. Respondents' portfolio performance improved: receivables in the less-than-30 day category were 97.0 percent in May, up slightly from the prior month. Charge-offs were almost flat when compared to the prior month, increasing one basis point to .78 percent.
Credit approval ratios (76.2 percent) increased 2.3 percent when compared to the prior month (73.9 percent). Total headcount has been relatively stable (showing only a slight decrease) since February 2008.
"Those expecting to see evidence of an overall slowdown in commercial equipment finance activity (or a significant decline in portfolio performance) as a result of the mortgage crisis, rising energy and food prices or a general economic slowdown may be surprised by this report," said William Verhelle, Chief Executive Officer, First American Equipment Finance, Fairport, NY. "Only in specific segments such as trucking, real estate and among some small businesses is there evidence of significant increased delinquencies and reduced new equipment financing activity. There does not yet appear to be an overall slowdown in the pace at which businesses are financing new capital equipment, nor is there a material deterioration in the portfolio performance of existing capital equipment receivables due to commercial lenders," said Verhelle.
"It's possible that businesses are financing more capital equipment acquisitions to preserve cash, thereby accounting for the continued strong level of equipment loan originations. But many expected a more significant increase in charge-offs and over 30 day receivables," Verhelle said. First American Equipment Finance is a participant in ELFA's MLFI-25.
"Demand in the equipment finance sector appears to be picking up after an initial decline in the first quarter and credit quality shows little deterioration; business volume and portfolio quality are holding their own," said Kenneth E. Bentsen, Jr., ELFA President. "So far, we seem to be weathering the storm," said Bentsen.
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.
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/
Participants in the ELFA MLFI-25:
- ADP Credit Corporation
- Bank of America
- Bank of the West
- Canon Financial Services
- Caterpillar Financial Services Corporation
- De Lage Landen Financial Services
- Fifth Third Bank
- First American Equipment Finance
- Hitachi Credit America
- HP Financial Services
- Irwin Financial
- John Deere Credit Corporation
- Key Equipment Finance
- Marlin Leasing Corporation
- National City Commercial Corp.
- RBS Asset Finance
- Regions Equipment Finance
- Siemens Financial Services
- US Bancorp
- US Express Leasing
- Verizon Capital Corp
- Volvo Financial Services
- Wells Fargo Equipment Finance