DIRECT FINANCING LEASE RECEIVABLES

We lease revenue earning equipment to customers for periods typically ranging from three to seven years for trucks and tractors and up to ten years for trailers. The majority of our leases are classified as operating leases. However, some of our revenue earning equipment leases are classified as direct financing leases and, to a lesser extent, sales-type leases. The net investment in direct financing and sales-type leases consisted of:



	June 30, 2013			December 31, 2012
	(In thousands)
Total minimum lease payments receivable	$	598,606		629,919
Less: Executory costs	(190,090		)	(201,777	)
Minimum lease payments receivable	408,516			428,142
Less: Allowance for uncollectibles	(538		)	(703	)
Net minimum lease payments receivable	407,978			427,439
Unguaranteed residuals	56,955			60,764
Less: Unearned income	(90,434		)	(96,280	)
Net investment in direct financing and sales-type leases	374,499			391,923
Current portion	(73,449		)	(76,395	)
Non-current portion	$	301,050		315,528

Our direct financing lease customers operate in a wide variety of industries, and we have no significant customer concentrations in any one industry. We assess credit risk for all of our customers including those who lease equipment under direct financing leases upon signing of a full service lease contract. The credit risk assessment is only updated under certain circumstances. Credit risk is assessed using an internally developed model, which is updated monthly, that incorporates credit scores from third party providers and our own custom risk ratings. The external credit scores are developed based on the customer’s historical payment patterns and an overall assessment of the likelihood of delinquent payments. Our internal ratings are weighted based on the industry in which the customer operates, company size, years in business, and other credit-related financial indicators. Any one of the following factors may result in a customer being classified as high risk: i) the customer has a history of late payments; ii) the customer has open lawsuits, liens or judgments; iii) the customer has been in business less than 3 years; and iv) the customer operates in an industry with low barriers to entry. For those customers who are designated as high risk, we typically require deposits to be paid in advance in order to mitigate our credit risk. Additionally, our receivables are collateralized by the vehicle’s fair value, which further mitigates our credit risk.

The following table presents the credit risk profile by creditworthiness category of our direct financing lease receivables:



	June 30, 2013		December 31, 2012
	(In thousands)
Very low risk to low risk	$	156,596	193,123
Moderate risk	184,990		177,400
Moderately high risk to high risk	66,930		57,619
	$	408,516	428,142

The following table is a rollforward of the allowance for credit losses on direct financing lease receivables for the six months ended June 30, 2013 and 2012:



	2013			2012
	(In thousands)
Balance at January 1	$	703		903
(Credited) charged to earnings	(22		)	746
Deductions	(143		)	(911	)
Balance at June 30	$	538		738