Element Financial reported financial results for the three and nine month periods ending September 30, 2013 showing strong growth in earnings and increased origination volumes in the company’s commercial finance business vertical offsetting the industry-wide third quarter seasonality of the fleet management vertical. U.S.-based volumes accounted for 23% of new business in Q3 versus 16% in the previous period and adjusted operating income increased 30% over the previous period.

“The mix of business that we booked in Q3 shows the strength and potential of the U.S.-based origination team that we acquired late last year,” said Steven Hudson, Element’s chairman and CEO. “By removing the funding caps that had previously constrained their growth, this team is now tapping into a deep reservoir of high quality new business opportunities,” added Hudson.

Across all segments, new originations grew to $410.4 million for the three-month period versus $397.9 million in the previous period. Element Finance accounted for $260.5 million or 63%, Element Capital accounted for $91.6 million or 22% of the new business volume and Element Fleet originated $58.3 million or 14% of the period’s new business volume.

The order book in the fleet industry is mainly driven by the replacement of existing vehicles that fleet operators take out of service before warranties expire. Just as the weak 2009 order book set the stage for 2013, the improved industry outlook for 2014 is built on the strength of an improved 2010 order book.

“In addition to the macro effect of this replacement cycle, fleet operators will also seek to reduce their total cost of ownership by deferring the scheduled replacement of certain vehicles to pick up the first run of a new model year,” noted Hudson. “This behavior, which typically results in lowering Q3 volumes in favor of subsequent quarters, was amplified this quarter due to a delay in the production of some of the more popular models of cars and light trucks ordered by our fleet customers. Volumes have rebounded in Q4 as a result of this order migration with originations expected to double over the previous period,” added Hudson.

Element’s Aviation Finance business had a solid quarter with more than $91 million of new originations booked during the period. In late October, this team signed Letters of Intent for financing civil aviation assets valued at more than $400 million at the 2013 National Business Association (NBAA) Convention and Exhibition in Las Vegas. In addition, the company announced that it has entered into an agreement to acquire a $250 million portfolio of finance assets secured by individual helicopters operated by a diversified base of customers across a variety of industries in the U.S. The transaction, which is expected to close by December 31, 2013, strengthens Element’s position as a leader in the North American helicopter finance market. “The purchase of this helicopter portfolio adds to the already strong outlook for this business unit for the fourth quarter and well into 2014 with a pipeline of prospective transactions that now exceeds $2 billion,” added Hudson.

Financial revenue for the quarter increased to $46.4 million versus $34.0 million in the previous quarter generating net financial income of $31.8 million for the quarter versus $24.7 million in the previous quarter. Adjusted operating expenses were $13.5 million for the quarter versus $10.3 million in the previous quarter resulting in adjusted operating income before income taxes of $18.4 million for the current quarter versus $14.5 million for the previous quarter. After tax adjusted operating income was $13.6 million or $0.09 per share for the current period versus $10.5 million or $0.08 per share for the previous quarter. Total assets increased to $2.7 billion at the end of the quarter versus $2.5 billion at the end of the previous quarter and book value per share increased to $5.72 versus $5.67 reported at the end of the previous period.

The company’s adjusted operating expense ratio continued to decline falling from 2.65% of average portfolio assets reported in the previous period to 2.49% in the third quarter. “We succeeded in taking costs out of our acquired businesses in the third quarter as we continue to drive toward our target operating expense ratio of 2%,” noted Mr. Hudson. “Transformational acquisitions are expected to significantly accelerate our achievement of this target, but can also add to operating costs in the short run as we engage resources in the hunt for these transactions.”

Finance receivables increased to $2.25 billion at the end of September 2013 versus $2.14 billion reported as at June 30, 2013. Average finance receivables for the quarter were $2.16 billion versus $1.54 billion for the previous quarter. Delinquencies represented 0.38% of total finance receivables as at September 30, 2013 compared to 0.15% as at June 30, 2013 and 0.28% as at March 31, 2013. This variance from quarter to quarter is expected to normalize as collection policies and practices are standardized with the further integration of Element’s acquired fleet portfolios. Element’s financial leverage ratio increased to 1.93:1 as at September 30, 2013 from 1.75:1 at the June 30, 2013 well below the Company’s target. At the end of the period, the Company had 155.4 million shares outstanding.

The company said it expects to originate new business in the fourth quarter of 2013 of more than $600 million, an increase of nearly 50% over total originations for the third quarter with increases in all segments.

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