(4) Leases

The Company leases its rental equipment on either short-term operating leases through master lease agreements, long-term non-cancelable operating leases, or finance leases. The following table summarizes the components of lease revenue (in thousands):


	Three Months Ended March 31,
	2020		2019
Lease revenue - operating leases	$	60,399	$	69,197
Interest income on finance leases		11,623		11,390
Other revenue		2,217		2,805
Interest income on financing receivable		677		-
Total lease revenue	$	74,916	$	83,392

Net investment in finance leases

The following table represents the components of the Company’s net investment in finance leases (in thousands):



	March 31,		December 31,
	2020		2019
Gross finance lease receivables (1)	$	783,471	$	806,019
Unearned income (2)		(228,420)		(238,651)
Net investment in finance leases		555,051		567,368
Allowance for credit losses		(45)		-
Net investment in finance leases, net of allowance for credit losses	$	555,006	$	567,368

(1)At the inception of the lease, the Company records the total minimum lease payments, executory costs, if any, and unguaranteed residual value as gross finance lease receivables. The gross finance lease receivables are reduced as customer payments are received. There was $74.3 million of unguaranteed residual value at March 31, 2020 and December 31, 2019, respectively, included in gross finance lease receivables. There were no executory costs included in gross finance lease receivables as of March 31, 2020 and December 31, 2019.

(2)The difference between the gross finance lease receivables and the cost of the equipment or carrying amount at the lease inception is recorded as unearned income. Unearned income, together with initial direct costs, are amortized to income over the lease term so as to produce a constant periodic rate of return. There were no unamortized initial direct costs as of March 31, 2020 and December 31, 2019.

(3)One major customer represented 65% of the Company’s finance lease portfolio as of March 31, 2020 and December 31, 2019. No other customer represented more than 10% of the Company’s finance lease portfolio in each of those periods.

Contractual maturities of the Company's gross finance lease receivables subsequent to March 31, 2020 for the years ending March 31 are as follows (in thousands):


2021	$	116,727
2022		109,491
2023		105,485
2024		85,857
2025		60,034
2026 and thereafter		305,877
	$	783,471

Financing receivable

During 2019, the Company purchased containers and leased back the containers to the seller-lessees through finance leaseback arrangements. As control of the equipment was retained by the customers, the Company concluded that sale-leaseback accounting was not applicable and treated the arrangements as financing transactions. The Company recorded a financing receivable in the amount paid for the containers. Payments made by the seller-lessee are recorded as a reduction to the financing receivable and as interest income, calculated using the effective interest method.

The following table summarizes the components of the Company’s financing receivable (in thousands):


	March 31,		December 31,
	2020		2019
Gross financing receivable	$	43,957	$	45,530
Unearned income		(10,434)		(11,111)
		33,523		34,419
Allowance for credit losses		(1)		-
Total financing receivable	$	33,522	$	34,419
Amounts due within one year (1)		3,783		3,726
Amounts due beyond one year (2)		29,739		30,693
Total financing receivable	$	33,522	$	34,419

(1)Included in prepaid expenses and other current assets in the consolidated balance sheets.

(2)Included in financing receivable in the consolidated balance sheets.

Credit quality information

In order to estimate the allowance for losses contained in net investment in finance leases and financing receivable, the Company reviews the credit worthiness of its customers on an ongoing basis. The review includes monitoring credit quality indicators, historical credit loss activity, current market and economic conditions, and reasonable and supportable forecasts.

The Company uses the following definitions for risk ratings:

Tier 1— These customers are typically large international shipping lines that have been in business for many years and have world-class operating capabilities and significant financial resources. In most cases, the Company has had a long commercial relationship with these customers and currently maintains regular communication with them at several levels of management, which provides the Company with insight into the customer's current operating and financial performance. In the Company's view, these customers have the greatest ability to withstand cyclical down turns and would likely have greater access to needed capital than lower-rated customers. The Company views the risk of default for Tier 1 customers to range from minimal to moderate.

Tier 2— These customers are typically either smaller shipping lines or freight forwarders with less operating scale or with a high degree of financial leverage, and accordingly the Company views these customers as subject to higher volatility in financial performance over the business cycle. The Company generally expects these customers to have less access to capital markets or other sources of financing during cyclical down turns. The Company views the risk of default for Tier 2 customers as moderate.

Tier 3— Customers in this category exhibit volatility in payments on a regular basis.

As of March 31, 2020 and December 31, 2019, based on the most recent analysis performed, the risk category of the Company’s net investment in finance leases and financing receivable, based on year of origination is as follows (in thousands):


March 31, 2020	2020		2019		2018		2017		2016		Prior		Total
Net investment in finance leases
Tier 1	$	2,880	$	59,580	$	248,821	$	171,092	$	7,200	$	1,654	$	491,227
Tier 2		2,012		31,521		14,473		7,092		2,320		6,406		63,824
Tier 3		-		-		-		-		-		-		-
Total net investment in finance leases	$	4,892	$	91,101	$	263,294	$	178,184	$	9,520	$	8,060	$	555,051

Financing receivable
Tier 1	$	-	$	32,830	$	-	$	-	$	-	$	-	$	32,830
Tier 2		-		693		-		-		-		-		693
Tier 3		-		-		-		-		-		-		-
Total financing receivable	$	-	$	33,523	$	-	$	-	$	-	$	-	$	33,523



	Net investment in		Financing
December 31, 2019	finance leases		receivable
Tier 1	$	502,265	$	33,694
Tier 2		65,103		725
Tier 3		-		-
	$	567,368	$	34,419