Smaller Banks Entering Equipment Leasing

Worried that customers will finance their fire trucks and backhoes somewhere else, community banks are buying equipment leasing companies and starting their own.

In the past two weeks, two community banks have an-nounced deals to buy leasing companies. Bankers, analysts, and leasing experts say they expect more as smaller banks try to match what larger ones and nonbank lenders can offer business customers.

"If we did not have this service they would go elsewhere," said Donald J. Donafede, vice president of the Pennsylvania State Bank's five-month-old leasing division in Camp Hill.

Banks pull in higher interest rates on leases than on typical business loans, and leasing can retain business that might otherwise be lost.

"Everyone is doing it," said David J. McCarthy, president of Keystone Financial Leasing Corp. in Exton, Pa. "You have banks from $100 million of assets on up."

Experts say the ability to offer leasing is becoming more important as companies avoid outright purchase of computers and other state-of-the-art equipment that quickly becomes obsolete. The Department of Commerce projects that 30.9% of equipment invested in by businesses this year will be leased, up from 29.9% last year.

But as the need for leasing grows, the number of leasing companies-now estimated at about 2,000 industrial finance companies, banks, and independent leasing firms-is diminishing through consolidation.

And representatives of two trade groups said banks have become the most active buyers of leasing companies in the past two years.

"There a just a lot of companies that seem to be for sale," said Alison Feinstein, a spokeswoman for the 250-member Eastern Association of Equipment Lessors in Harrison, N.Y.

"More and more of the buyers are small community banks," said Bruce Kropschot, president of Kropschot Financial Services, a Stuart, Fla., firm that arranges the sale of equipment leasing firms.

Triangle Bancorp of Raleigh, N.C., didn't have to look far for its entry into the leasing business. The $1.5 billion-asset company said this week that it would buy Coastal Leasing Corp., Greenville, N.C. Terms of the deal weren't disclosed.

"We're seeing a lot of banks being very aggressive in the leasing business," said Michael S. Patterson, chairman and chief executive officer of Triangle. "They are coming after our customers with direct mail programs, which tells me they think it's a very profitable piece of their business."

Mr. Patterson said Triangle expects yields of 13% to 15% on leases, compared with about 9.5% to 10% on typical commercial loans.

But unlike commercial loans, leases doesn't require collateral. The bank would own the equipment.

"There is certainly some risk in the leasing company," Mr. Patterson said. "We think the revenue growth will offset that risk."

Also last week, Patriot Bank Corp. of Pottstown, Pa., said it had a deal to buy First Nations Capital Corp., a private Reading, Pa., leasing firm. Patriot, which converted to a commercial bank this year, wanted to establish itself better in the commercial lending market.

Another Pennsylvania bank company, Progress Financial Corp. in Blue Bell, has bought two leasing companies since 1994 and is in the market for a third.

"We specialize in lending to business," said W. Kirk Wycoff, president and chief of the $440 million-asset company. "All of our business customers lease equipment. It's a smart cross-sale for the bank."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER