Net Investment in Leases

12 Months Ended

Dec. 31, 2011

Net Investment in Leases [Abstract]

Net Investment in Leases

C. Net Investment in Leases

At December 31, 2011, future minimum payments due on our lease receivables are as follows:

Year Ending December 31,
2012	$	93,213
2013		58,066
2014		32,218
2015		13,563
2016		3,439
Total	$	200,499

At December 31, 2010, the weighted-average remaining life of the leases in our portfolio is approximately 31 months and the weighted-average implicit rate of interest is approximately 26.9%.

Allowance for Loan Losses and Credit Quality of Loans

In 2010, the FASB issued ASU 2010-20 “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” requiring us to provide detailed disclosures about the nature of credit risk inherent in our financing receivables, how we analyze that risk in estimating its allowance for credit losses, and the changes in the allowance for credit losses.

We segregate our lease portfolio between TimePayment Corp. and Leasecomm Corp. to perform the calculation and analysis of the allowance for loan losses. Each company consists of a single portfolio segment — microticket equipment. Leases of microticket equipment are made to businesses and individuals and are generally secured by assets of the business or a personal guarantee. Repayment is expected from the cash flows of the business or individual. A weakened economy, and resultant decreased consumer spending, may have an effect on the credit quality in this segment.

Activity in the allowance for credit losses for the years ended December 31, 2011, 2010 and 2009 was as follows:

	2011			2010			2009
Allowance for Credit Losses:
Beginning Balance	$	13,132		$	13,856		$	11,722
Charge-offs		(23,163	)		(28,435	)		(24,181	)
Recoveries		4,961			4,563			4,276
Provision		18,250			23,148			22,039
Ending Balance	$	13,180		$	13,132		$	13,856

The following table reconciles the activity in the allowance for credit losses by portfolio segment at December 31, 2011 and 2010:

	2011 Leasecomm			2011 TimePayment			2011 Total			2010 LeaseComm			2010 TimePayment			2010 Total
	Microticket equipment			Microticket equipment						Microticket equipment			Microticket equipment
Allowance for Credit Losses:
Beginning Balance	$	231		$	12,901		$	13,132		$	381		$	13,475		$	13,856
Charge-Offs		(726	)		(22,437	)		(23,163	)		(1,123	)		(27,312	)		(28,435	)
Recoveries		1,221			3,740			4,961			1,264			3,299			4,563
Provisions		(564	)		18,814			18,250			(291	)		23,439			23,148
Ending Balance	$	162		$	13,018		$	13,180		$	231		$	12,901		$	13,132
Ending Balance: Individually evaluated for impairment		—			—			—			—			—			—
Ending Balance: Collectively evaluated for impairment		162			13,018			13,180			231			12,901			13,132
Ending Balance: contracts acquired with deteriorated credit quality		—			—			—			—			—			—
Financing Receivables:
Ending Balance		376			161,410			161,786			531			151,134			151,665
Ending Balance: Individually evaluated for impairment		—			—			—			—			—			—
Ending Balance: Collectively evaluated for impairment		376			161,410			161,786	(1)		531			151,134			151,665	(1)
Ending Balance: contracts acquired with deteriorated credit quality		—			—			—			—			—			—

(1) Total financing receivables include net investment in leases. For purposes of asset quality and allowance calculations, the allowance for credit losses is excluded.

Each period the provision for credit losses in the income statement results from the combination of an estimate by Management of credit losses that occurred during the current period and the ongoing adjustment of prior estimates of losses occurring in prior periods.

To serve as a basis for making this provision, we maintain an internally developed proprietary scoring model that considers several factors including the lessee’s bureau reported credit score at lease inception. We also consider other relevant factors including general economic trends, trends in delinquencies and credit losses, static pool analysis of our portfolio, trends in recoveries made on charged off accounts, and other relevant factors which might affect the performance of our portfolio. The combination of historical experience, credit scores, delinquency levels, trends in credit losses, and the review of current factors provide the basis for our analysis of the adequacy of the allowance for credit losses.

We assign internal risk ratings for all lessees and determine the credit worthiness of each lease based upon this internally developed proprietary scoring model. The Leasecomm portfolio is evaluated in total with a reserve of 50% of the outstanding amount greater than 90 days plus 25% of the amount outstanding from 1 to 89 days. The scoring model generates one of nine acceptable risk ratings based upon the credit worthiness of each lease or it rejects the lease application. The scores are assigned at lease inception and these scores are maintained over the lease term regardless of payment performance. To facilitate review and reporting, management aggregates these nine scores into one of three categories with similar risk profiles and delinquency characteristics identified as Gold, Silver or Bronze.

• Leases assigned a gold rating represent those transactions which exhibit the best risk rating based on our internal credit scores. They are considered of sufficient quality to preclude an otherwise adverse rating. Gold rated leases are typically represented by lessees with high bureau reported credit scores for personal guarantors at lease inception or are supported by established businesses for those transactions which are not personally guaranteed by the lessee.

• Leases assigned a silver rating fall in the middle range of the nine acceptable scores generated by the scoring model. These transactions possess a reasonable amount of risk based on their profile and may exhibit vulnerability to deterioration if adverse factors are encountered. These accounts typically demonstrate adequate coverage but warrant a higher level of monitoring by management to ensure that weaknesses do not advance.

• A bronze rating applies to leases at the lower end of the nine acceptable scores generated by the scoring model whereby the lessee may have difficulty meeting the lease obligation if adverse factors are encountered. Bronze rated transactions typically have lower reported credit scores at lease inception and will typically have other less desirable credit attributes.

The following table presents the aged analysis of past due financing receivables by our internally developed proprietary scoring model in leases as of December 31, 2011:

Age Analysis of Past Due Financing Receivables

As of December 31, 2011

	Current			31 to 60 days Past Due			61 to 90 days Past Due			Over 90 Days Past Due			Total			Over 90 Days Accruing
Leasecomm:	$	172		$	11		$	8		$	185		$	376		$	185
TimePayment Corp.
Gold		49,000			1,867			658			1,968			53,493			1,968
Silver		81,185			3,070			2,642			13,475			100,372			13,475
Bronze		5,190			320			228			1,807			7,545			1,807
TimePayment Corp. subtotal		135,375			5,257			3,528			17,250			161,410			17,250
Total	$	135,547		$	5,268		$	3,536		$	17,435		$	161,786		$	17,435
Percent of Total Financing Receivables		83.8	%		3.3	%		2.2	%		10.8	%		100.0	%

Age Analysis of Past Due Financing Receivables

As of December 31, 2010

	Current			31 to 60 days Past Due			61 to 90 days Past Due			Over 90 Days Past Due			Total			Over 90 Days Accruing
LeaseComm:	$	230		$	13		$	14		$	274		$	531		$	274
TimePayment Corp.
Gold		42,786			1,401			418			1,714			46,319			1,714
Silver		77,758			3,171			2,849			13,668			97,446			13,668
Bronze		4,542			317			339			2,171			7,369			2,171
TimePayment Corp. subtotal		125,086			4,889			3,606			17,553			151,134			17,553
Total	$	125,316		$	4,902		$	3,620		$	17,827		$	151,665		$	17,827
Percent of Total Financing Receivables		82.6	%		3.2	%		2.4	%		11.8	%		100.0	%

A summary of the changes in estimated residual value is as follows:

	Year Ended December 31,
	2011			2010			2009
Estimated residual value, beginning	$	21,832		$	19,014		$	15,257
Lease originations		8,279			8,765			8,747
Terminations		(6,824	)		(5,947	)		(4,990	)
Estimated residual value, ending	$	23,287		$	21,832		$	19,014

Originations represent the residual value capitalized upon origination of leases and terminations represent the residual value deducted upon the termination of a lease that (i) is bought out during or at the end of the lease term, (ii) has completed its original lease term and converted to an extended rental contract, (iii) has been charged off by us, or (iv) has been returned to us and recorded as inventory.