Equipment finance industry regained volume in 2010, survey shows

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Following declines in new business volume in 2008 and 2009, the equipment finance industry began to regain volume in 2010, according to the 2011 Survey of Equipment Finance Activity released on Wednesday, July 13, by the Equipment Leasing and Finance Association.

The survey reported an overall 3.9 percent increase in volume in 2010, compared to a significant 30.3 percent decline reported in 2009 and a 2.2 percent decline reported in 2008. The SEFA, which is based on responses from 108 ELFA member companies, covers key statistical, financial and operations information for the $521 billion equipment finance industry.

“Through 2010, the equipment finance industry showed gradual but steady growth,” said William G. Sutton, ELFA president and chief executive officer. “Although uncertainty about the broader economy continues, more recent data collected in the first two quarters of 2011 suggests the trend toward an improved equipment finance industry is continuing.”

Key findings for 2010 as reported in the 2011 SEFA include:
• New business volume varied by respondent. Although total new business volume increased by a moderate 3.9 percent, just less than half of the survey respondents experienced an increase in volume between 2009 and 2010.
o By market segment: All market segments showed growth in volume, except for the small-ticket segment, which saw a contraction in volume.
o By organization type: Captive equipment finance organizations saw the strongest increase in new business volume (11.3 percent). Independents saw their volume grow by 5.2 percent, reversing their significant 46.3 percent decrease in volume reported in the 2010 SEFA. Banks saw a slight decline (0.9 percent) in volume.
• From an asset perspective, agriculture, trucks/trailers and medical imaging/electronic devices saw increases in new business volume, while construction, energy and printing saw decreases. The categories with the biggest increases in new business volume were state and local government; mining/oil and gas extraction; federal government; agriculture, forestry and fishing; and arts/entertainment/recreation.
• Pre-tax income and net income regained healthy margins. Though revenues decreased slightly in dollar terms by 0.5 percent, pre-tax income reached 29.2 percent of adjusted revenue, and net income was 21 percent of adjusted revenues, levels last seen in 2007 and 2006.
• ROA and ROE were up. Financial measures such as return on average assets (ROA) returned to levels last seen in 2006, while return on average equity (ROE) showed a robust leap to 22.1 percent. Note that the average ROE reported by the survey between 2001 and 2009 never rose above 15 percent.
• Total headcount decreased moderately by 3.3 percent.
• Delinquencies and full-year losses (charge-offs) declined following overall economic trends hinting of economic recovery.
• There were continued signs of improved business conditions. In 2010, cost of funds continued to drop for the third year, and though pre-tax spreads declined in 2010 compared to 2009, they were stronger than spreads were between 2005 and 2008. While overall headcount decreased, employment did grow in the business development, credit approval and syndication areas, while positions in the account services area declined. Efforts in asset remarketing are also a focus, with sharp increases in staffing levels.