OF THE SECURITIES EXCHANGE ACT OF
2021
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Page No.
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
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ASSETS | ||||||||
Cash and due from banks | $ | 5,297 | $ | 4,055 | ||||
Interest-earning deposits with banks | 77,640 | 57,702 | ||||||
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Total cash and cash equivalents | 82,937 | 61,757 | ||||||
Time deposits with banks | 8,360 | 9,605 | ||||||
Securities available for sale (amortized cost of $12.0 million and $6.1 million at September 30, 2017 and December 31, 2016, respectively) | 11,878 | 5,880 | ||||||
Net investment in leases and loans: | ||||||||
Net investment in leases and loans, excluding allowance for credit losses | 900,934 | 807,654 | ||||||
Allowance for credit losses | (14,504 | ) | (10,937 | ) | ||||
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Total net investment in leases and loans | 886,430 | 796,717 | ||||||
Intangible assets | 1,181 | — | ||||||
Goodwill | 1,160 | — | ||||||
Property and equipment, net | 4,295 | 3,495 | ||||||
Property tax receivables | 7,416 | 5,296 | ||||||
Other assets | 9,360 | 9,408 | ||||||
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Total assets | $ | 1,013,017 | $ | 892,158 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Deposits | $ | 806,954 | $ | 697,357 | ||||
Other liabilities: | ||||||||
Sales and property taxes payable | 5,604 | 2,586 | ||||||
Accounts payable and accrued expenses | 23,835 | 14,809 | ||||||
Net deferred income tax liability | 10,329 | 15,117 | ||||||
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Total liabilities | 846,722 | 729,869 | ||||||
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Commitments and contingencies (Note 8) | ||||||||
Stockholders’ equity: | ||||||||
Preferred Stock, $0.01 par value; 5,000,000 shares authorized; none issued | — | — | ||||||
Common Stock, $0.01 par value; 75,000,000 shares authorized; 12,530,707 and 12,572,114 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 125 | 126 | ||||||
Additionalpaid-in capital | 83,393 | 83,505 | ||||||
Stock subscription receivable | (2 | ) | (2 | ) | ||||
Accumulated other comprehensive loss | (82 | ) | (138 | ) | ||||
Retained earnings | 82,861 | 78,798 | ||||||
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Total stockholders’ equity | 166,295 | 162,289 | ||||||
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Total liabilities and stockholders’ equity | $ | 1,013,017 | $ | 892,158 | ||||
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| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (Dollars in thousands, exceptper-share data) | ||||||||||||||||
Interest income | $ | 22,363 | $ | 18,803 | $ | 64,461 | $ | 54,521 | ||||||||
Fee income | 3,780 | 3,944 | 11,055 | 11,747 | ||||||||||||
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Interest and fee income | 26,143 | 22,747 | 75,516 | 66,268 | ||||||||||||
Interest expense | 3,000 | 2,055 | 7,952 | 5,604 | ||||||||||||
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Net interest and fee income | 23,143 | 20,692 | 67,564 | 60,664 | ||||||||||||
Provision for credit losses | 5,680 | 3,137 | 13,878 | 8,880 | ||||||||||||
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Net interest and fee income after provision for credit losses | 17,463 | 17,555 | 53,686 | 51,784 | ||||||||||||
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Other income: | ||||||||||||||||
Insurance premiums written and earned | 1,817 | 1,567 | 5,274 | 4,759 | ||||||||||||
Other income | 1,785 | 1,065 | 6,160 | 2,013 | ||||||||||||
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Other income | 3,602 | 2,632 | 11,434 | 6,772 | ||||||||||||
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Other expense: | ||||||||||||||||
Salaries and benefits | 9,302 | 7,817 | 27,763 | 23,829 | ||||||||||||
General and administrative | 6,409 | 4,980 | 22,689 | 14,073 | ||||||||||||
Financing related costs | — | 17 | — | 85 | ||||||||||||
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Other expenses | 15,711 | 12,814 | 50,452 | 37,987 | ||||||||||||
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Income before income taxes | 5,354 | 7,373 | 14,668 | 20,569 | ||||||||||||
Income tax expense | 2,049 | 3,028 | 5,270 | 8,105 | ||||||||||||
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Net income | $ | 3,305 | $ | 4,345 | $ | 9,398 | $ | 12,464 | ||||||||
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Basic earnings per share | $ | 0.26 | $ | 0.35 | $ | 0.75 | $ | 1.00 | ||||||||
Diluted earnings per share | $ | 0.26 | $ | 0.35 | $ | 0.75 | $ | 1.00 | ||||||||
Cash dividends declared per share | $ | 0.14 | $ | 0.14 | $ | 0.42 | $ | 0.42 | ||||||||
-4-
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(Loss)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
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Net income | $ | 3,305 | $ | 4,345 | $ | 9,398 | $ | 12,464 | ||||||||
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Other comprehensive income (loss): | ||||||||||||||||
Increase (decrease) in fair value of securities available for sale | 38 | 28 | 90 | 200 | ||||||||||||
Tax effect | (14 | ) | (11 | ) | (34 | ) | (76 | ) | ||||||||
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Total other comprehensive income (loss) | 24 | 17 | 56 | 124 | ||||||||||||
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Comprehensive income | $ | 3,329 | $ | 4,362 | $ | 9,454 | $ | 12,588 | ||||||||
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| Common Shares | Common Stock Amount | Additional Paid-In Capital | Stock Subscription Receivable | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||
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Balance, December 31, 2015 | 12,410,899 | $ | 124 | $ | 81,703 | $ | (2 | ) | $ | (129 | ) | $ | 68,442 | $ | 150,138 | |||||||||||||
Issuance of common stock | 7,981 | — | 122 | — | — | — | 122 | |||||||||||||||||||||
Repurchase of common stock | (22,673 | ) | — | (330 | ) | — | — | — | (330 | ) | ||||||||||||||||||
Exercise of stock options | 6,880 | — | 71 | — | — | — | 71 | |||||||||||||||||||||
Excess tax benefits from stock-based payment arrangements | — | — | (86 | ) | — | — | — | (86 | ) | |||||||||||||||||||
Restricted stock grant, net of forfeitures | 161,674 | 2 | (2 | ) | — | — | — | — | ||||||||||||||||||||
Stock-based compensation recognized | — | — | 1,414 | — | — | — | 1,414 | |||||||||||||||||||||
Net change in unrealized gain/loss on securities available for sale, net of tax | — | — | — | — | 124 | — | 124 | |||||||||||||||||||||
Net income | — | — | — | — | — | 12,464 | 12,464 | |||||||||||||||||||||
Cash dividends declared | — | — | — | — | — | (5,249 | ) | (5,249 | ) | |||||||||||||||||||
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Balance, September 30, 2016 | 12,564,761 | $ | 126 | $ | 82,892 | $ | (2 | ) | $ | (5 | ) | $ | 75,657 | $ | 158,668 | |||||||||||||
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Balance, December 31, 2016 | 12,572,114 | 126 | 83,505 | (2 | ) | (138 | ) | 78,798 | 162,289 | |||||||||||||||||||
Issuance of common stock | 9,876 | — | 169 | — | — | — | 169 | |||||||||||||||||||||
Repurchase of common stock | (119,672 | ) | (1 | ) | (2,981 | ) | — | — | — | (2,982 | ) | |||||||||||||||||
Exercise of stock options | 39,416 | — | 487 | — | — | — | 487 | |||||||||||||||||||||
Restricted stock grant, net of forfeitures | 28,973 | — | — | — | — | — | — | |||||||||||||||||||||
Stock-based compensation recognized | — | — | 2,213 | — | — | — | 2,213 | |||||||||||||||||||||
Net change in unrealized gain/loss on securities available for sale, net of tax | — | — | — | — | 56 | — | 56 | |||||||||||||||||||||
Net income | — | — | — | — | — | 9,398 | 9,398 | |||||||||||||||||||||
Cash dividends declared | — | — | — | — | — | (5,335 | ) | (5,335 | ) | |||||||||||||||||||
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Balance, September 30, 2017 | 12,530,707 | $ | 125 | $ | 83,393 | $ | (2 | ) | $ | (82 | ) | $ | 82,861 | $ | 166,295 | |||||||||||||
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-6-
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(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
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Cash flows from operating activities: | ||||||||
Net income | $ | 9,398 | $ | 12,464 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 2,155 | 1,360 | ||||||
Stock-based compensation | 2,213 | 1,414 | ||||||
Excess tax (benefits) deficit from stock-based payment arrangements | — | 86 | ||||||
Provision for credit losses | 13,878 | 8,880 | ||||||
Net deferred income taxes | (4,823 | ) | (2,482 | ) | ||||
Amortization of deferred initial direct costs and fees | 8,242 | 6,275 | ||||||
Loss on equipment disposed | 787 | 574 | ||||||
Gain on leases sold | (925 | ) | (198 | ) | ||||
Leases originated for sale | (2,687 | ) | (625 | ) | ||||
Proceeds from sale of leases originated for sale | 2,732 | 627 | ||||||
Effect of changes in other operating items: | ||||||||
Other assets | (2,993 | ) | (962 | ) | ||||
Other liabilities | 11,634 | 898 | ||||||
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Net cash provided by operating activities | 39,611 | 28,311 | ||||||
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Cash flows from investing activities: | ||||||||
Net change in time deposits with banks | 1,245 | (1,739 | ) | |||||
Purchases of equipment for direct financing lease contracts and funds used to originate loans | (457,814 | ) | (366,225 | ) | ||||
Principal collections on leases and loans | 315,021 | 265,450 | ||||||
Proceeds from sale of leases originated for investment | 28,902 | 6,148 | ||||||
Security deposits collected, net of refunds | (348 | ) | (549 | ) | ||||
Proceeds from the sale of equipment | 2,490 | 2,651 | ||||||
Acquisitions of property and equipment | (1,526 | ) | (800 | ) | ||||
Business combinations | (2,500 | ) | — | |||||
Change in restricted interest-earning deposits with banks | — | 216 | ||||||
Purchases of securities available for sale, net | (5,912 | ) | 525 | |||||
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Net cash (used in) investing activities | (120,442 | ) | (94,323 | ) | ||||
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Cash flows from financing activities: | ||||||||
Net change in deposits | 109,597 | 88,980 | ||||||
Issuances of common stock | 169 | 122 | ||||||
Repurchases of common stock | (2,982 | ) | (330 | ) | ||||
Dividends paid | (5,260 | ) | (5,249 | ) | ||||
Exercise of stock options | 487 | 71 | ||||||
Excess tax benefits (deficit) from stock-based payment arrangements | — | (86 | ) | |||||
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Net cash provided by financing activities | 102,011 | 83,508 | ||||||
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Net (decrease) increase in total cash and cash equivalents | 21,180 | 17,496 | ||||||
Total cash and cash equivalents, beginning of period | 61,757 | 60,129 | ||||||
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Total cash and cash equivalents, end of period | $ | 82,937 | $ | 77,625 | ||||
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Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest on deposits and borrowings | $ | 7,142 | $ | 5,201 | ||||
Net cash paid for income taxes | $ | 9,873 | $ | 5,534 | ||||
Leases transferred into held for sale from investment | $ | 28,022 | $ | 5,953 | ||||
dividends paid ($
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-8-
Description
Marlin Business Services Corp. (the “Company”) is
In 2009,
Marlin Business Services Corp. became a bank holding companyas “De-banking”).
During the second quarter of 2017, the Company identified that the sale of certain leases had been reported as cash flows from operating activities that should have been presented as investing activities. In addition, the Company also identified that the deferral of certain expenses associated with the cost of originating leases had been reported as an adjustment to operating cash flow rather than as an investing activity.
The accompanying unaudited condensed consolidated financial statements present
-8-
Goodwill
Currently, the Company does not have any intangible assets with indefinite useful lives.
Intangible assets that are not deemed to have an indefinite useful life are amortized over their estimated useful lives. The carrying amounts of intangible assets are regularly reviewed for indicators of impairment in accordance with applicable accounting guidance. Impairment is recognized only if the carrying amount of the intangible asset is in excess of its undiscounted projected cash flows. Impairment is measured as the difference between the carrying amountfederal and the estimated fair value of the asset.
Other income.Otherstate income includes various administrative transaction fees, insurance policy fees, fees received from referral of leases to third partiestaxes,
limitations.
10-K for the year ended December 31,2020.
In September 2017, the FASBAdopted Accounting Standards Update2017-13,Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.The Accounting Standards Codification is amended as described in paragraphs 2–20 of the guidance.
Stock-Based Compensation.
Other Income. In February 2017, the FASB issued ASU2017-05,Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic610-20): Clarifying the Scope of Asset Derecognition Guidance and
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Accounting for Partial Sales of Nonfinancial Assets. The amendments in this ASU clarify that a financial asset is within the scope of Subtopic610-20 if it meets the definition of an in substance nonfinancial asset. The amendments define the term in substance nonfinancial asset, in part, as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. If substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty are in substance nonfinancial assets within the scope of Subtopic610-20. The amendments in this ASU also clarify that nonfinancial assets within the scope of Subtopic610-20 may include nonfinancial assets transferred within a legal entityand amend existing guidance to a counterparty.improve
Revenue Recognition. In May 2014, the FASB issued ASU2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The ASU’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this ASU specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This ASU is effective, as a result of ASU2015-14, for annual reporting periods beginning after December 15, 2017,2020, including interim periods
Recently Adopted Accounting Standards.
In March 2016, the FASB issued ASU2016-09, Compensation – Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting.This ASU, which was adopted by the Company on January 1, 2017, simplifies the accounting for several aspects of share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The changes which impacted the Company included a requirement that all excess tax benefits and deficiencies that pertain to share-based payment arrangements be recognized within income tax expense line instead of additional paid in capital. The Company elected to adopt these changes on a prospective basis. Additionally, the ASU no longer requires a presentation of excess tax benefits and deficiencies related to the vesting and exercise of share-based compensation as both an operating outflow and financing inflow on the statement of cash flows. Adoption of this ASUadoption did not have a material impact on our
operations.
AvailableNon-Interest Income
-10-
| September 30, 2017 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
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Securities Available for Sale | ||||||||||||||||
Asset-backed securities (“ABS”) | $ | 6,059 | $ | 7 | $ | (35 | ) | $ | 6,031 | |||||||
Municipal securities | $ | 2,420 | $ | — | $ | (2 | ) | $ | 2,418 | |||||||
Mutual fund | $ | 3,534 | $ | — | $ | (105 | ) | $ | 3,429 | |||||||
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Total securities available for sale | $ | 12,013 | $ | 7 | $ | (142 | ) | $ | 11,878 | |||||||
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| December 31, 2016 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
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Securities Available for Sale | ||||||||||||||||
ABS | $ | — | $ | — | $ | — | $ | — | ||||||||
Municipal securities | $ | 2,625 | $ | — | $ | (97 | ) | $ | 2,528 | |||||||
Mutual fund | $ | 3,479 | $ | — | $ | (127 | ) | $ | 3,352 | |||||||
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Total securities available for sale | $ | 6,104 | $ | — | $ | (224 | ) | $ | 5,880 | |||||||
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The following tables present the aggregate amount of
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| September 30, 2017 | ||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
| Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
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Securities Available for Sale: | ||||||||||||||||||||||||
ABS | $ | (35 | ) | $ | 4,015 | $ | — | $ | — | $ | (35 | ) | $ | 4,015 | ||||||||||
Municipal securities | $ | (2 | ) | $ | 2,418 | $ | — | $ | — | $ | (2 | ) | $ | 2,418 | ||||||||||
Mutual fund | $ | — | $ | — | $ | (105 | ) | $ | 3,429 | $ | (105 | ) | $ | 3,429 | ||||||||||
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Total debt securities available for sale | $ | (37 | ) | $ | 6,433 | $ | (105 | ) | $ | 3,429 | $ | (142 | ) | $ | 9,862 | |||||||||
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| December 31, 2016 | ||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
| Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
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Securities Available for Sale: | ||||||||||||||||||||||||
ABS | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Municipal securities | $ | (97 | ) | $ | 2,528 | $ | — | $ | — | $ | (97 | ) | $ | 2,528 | ||||||||||
Mutual fund | $ | — | $ | — | $ | (127 | ) | $ | 3,352 | $ | (127 | ) | $ | 3,352 | ||||||||||
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Total debt securities available for sale | $ | (97 | ) | $ | 2,528 | $ | (127 | ) | $ | 3,352 | $ | (224 | ) | $ | 5,880 | |||||||||
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The following table presents the amortized cost, fair value, and weighted average yield of investments:
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| 1 Year or Less | After 1 Year through 5 Years | After 5 Years through 10 Years | After 10 Years | Total | ||||||||||||||||
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Amortized Cost: | ||||||||||||||||||||
Available for Sale: | ||||||||||||||||||||
ABS | $ | — | $ | 4,043 | $ | 1,014 | $ | 1,002 | $ | 6,059 | ||||||||||
Municipal securities | $ | — | $ | 20 | $ | 1,442 | $ | 958 | $ | 2,420 | ||||||||||
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Total debt securities available for sale | $ | — | $ | 4,063 | $ | 2,456 | $ | 1,960 | $ | 8,479 | ||||||||||
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Estimated fair value | $ | — | $ | 4,054 | $ | 2,449 | $ | 1,909 | $ | 8,412 | ||||||||||
Weighted-average yield, GAAP basis | — | 1.96 | % | 2.40 | % | 1.97 | % | 2.09 | % | |||||||||||
OTTI
The Company evaluates all investment securities in an unrealized loss position for OTTI on at least a quarterly basis. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. The OTTI assessment is a subjective process requiring the use of judgments and assumptions. During the securities-level assessments, consideration is given to $
According to accounting guidance for debt securities in an unrealized loss position, the Company is required to assess whether it has the intent to sell the debt security or more likely than not will be required to sell the debt security before the anticipated recovery. If either of these conditions is met the Company must recognize an other than temporary impairment with the entire unrealized loss being recorded through earnings. For debt securities in an unrealized loss position not meeting these conditions, the Company assesses whether the impairment of a security is other than temporary. If the impairment is deemed to be other than temporary, the Company must separate the other than temporary impairment into two components: the amount representing the credit loss and the amount related to all other factors, such as changes in interest rates. The credit loss represents the portion of the amortized book value in excess of the net present value of the projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. The credit loss component of the other than temporary impairment is recorded through earnings, whereas the amount relating to factors other than credit losses is recorded in other comprehensive income, net of taxes. The Company did not recognize any OTTI in earnings related to its investment securities for the three-and-nine months ended September 30, 2017 and September 30, 2016.
-13-
$
| September 30, 2017 | December 31, 2016 | |||||||
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Minimum lease payments receivable | $ | 957,406 | $ | 867,806 | ||||
Estimated residual value of equipment | 26,839 | 26,790 | ||||||
Unearned lease income, net of initial direct costs and fees deferred | (127,376 | ) | (115,158 | ) | ||||
Security deposits | (1,145 | ) | (1,493 | ) | ||||
Commercial loans, net of origination costs and fees deferred | ||||||||
Funding Stream | 26,410 | 19,870 | ||||||
Other(1) | 18,800 | 9,839 | ||||||
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Total commercial loans | 45,210 | 29,709 | ||||||
Allowance for credit losses | (14,504 | ) | (10,937 | ) | ||||
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| $ | 886,430 | $ | 796,717 | |||||
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In the third quarter
Initial directorigination costs net of fees deferred
Minimum
-14-
| Minimum Lease Payments Receivable | Income Amortization | |||||||
| (Dollars in thousands) | ||||||||
Period Ending December 31, | ||||||||
2017 | $ | 103,097 | $ | 19,437 | ||||
2018 | 352,442 | 56,185 | ||||||
2019 | 246,046 | 31,253 | ||||||
2020 | 151,821 | 14,570 | ||||||
2021 | 78,673 | 5,099 | ||||||
Thereafter | 25,327 | 832 | ||||||
|
|
|
| |||||
| $ | 957,406 | $ | 127,376 | |||||
|
|
|
| |||||
-15-
In accordance
| Three Months Ended September 30, | Nine Months Ended September 30, | Year Ended December 31, | ||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2016 | ||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Allowance for credit losses, beginning of period | $ | 12,559 | $ | 9,430 | $ | 10,937 | $ | 8,413 | $ | 8,413 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Charge-offs | (4,368 | ) | (3,062 | ) | (12,111 | ) | (9,060 | ) | (12,387 | ) | ||||||||||||||
Recoveries | 633 | 568 | 1,800 | 1,840 | 2,497 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net charge-offs | (3,735 | ) | (2,494 | ) | (10,311 | ) | (7,220 | ) | (9,890 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Provision for credit losses | 5,680 | 3,137 | 13,878 | 8,880 | 12,414 | |||||||||||||||||||
|
|
|
|
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|
|
|
|
| |||||||||||||||
Allowance for credit losses, end of period | (1 | ) | $ | 14,504 | $ | 10,073 | $ | 14,504 | $ | 10,073 | $ | 10,937 | ||||||||||||
|
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|
|
|
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|
| |||||||||||||||
Annualized net charge-offs to average total finance receivables | (2 | ) | 1.73 | % | 1.36 | % | 1.65 | % | 1.36 | % | 1.37 | % | ||||||||||||
Allowance for credit losses to total finance receivables, end of period | (2 | ) | 1.64 | % | 1.33 | % | 1.64 | % | 1.33 | % | 1.38 | % | ||||||||||||
Average total finance receivables | (2 | ) | $ | 862,718 | $ | 732,346 | $ | 831,718 | $ | 705,879 | $ | 720,060 | ||||||||||||
Total finance receivables, end of period | (2 | ) | $ | 883,778 | $ | 756,144 | $ | 883,778 | $ | 756,144 | $ | 793,285 | ||||||||||||
Delinquencies greater than 60 days past due | $ | 6,157 | $ | 3,885 | $ | 6,157 | $ | 3,885 | $ | 4,137 | ||||||||||||||
Delinquencies greater than 60 days past due | (3 | ) | 0.61 | % | 0.45 | % | 0.61 | % | 0.45 | % | 0.46 | % | ||||||||||||
Allowance for credit losses to delinquent accounts greater than 60 days past due | (3 | ) | 235.57 | % | 259.28 | % | 235.57 | % | 259.28 | % | 264.37 | % | ||||||||||||
Non-accrual leases and loans, end of period | $ | 2,950 | $ | 2,022 | $ | 2,950 | $ | 2,022 | $ | 2,242 | ||||||||||||||
Renegotiated leases and loans, end of period | (4 | ) | $ | 2,543 | $ | 350 | $ | 2,543 | $ | 350 | $ | 769 | ||||||||||||
of its portfolio, the
Company primarily reviews the current delinquency of the-16-
Funding Stream loans
Net charge-offs for the three-month period ended At September 30, 2017
As a result of the HKF acquisition on January 4, 2017, the Company recorded goodwill of $1.2 million as of September 30, 2017, which represents the excess purchase price over the Company’s fair value of the assets acquired. The recorded goodwill is not amortizable but is deductible for tax purposes. The purchase price allocation was finalized in the third quarter of 2017 and no changes made to the preliminary valuations were recorded. Impairment testing will be performed in the fourth quarter of each year and more frequently as warranted in accordance with the applicable accounting guidance. There was no impairment recorded during the nine-month period ended September 30, 2017.
The changes in the carrying amount of goodwill for the nine-month period ended September 30, 2017 are as follows:
| (Dollars in thousands) | Total Company | |||
Balance at December 31, 2016 | $ | — | ||
Acquisition of HKF on January 4, 2017 | 1,160 | |||
|
| |||
Balance at September 30, 2017 | $ | 1,160 | ||
|
| |||
Intangible assets
The Company had no intangible assets at December 31, 2016.
During
-17-
(Dollars in thousands) Description | Useful Life | Cost | Accumulated Amortization | Net Value | ||||||||||
Lender relationships | 3 years | $ | 360 | $ | 90 | $ | 270 | |||||||
Vendor relationships | 11 years | 920 | 63 | 857 | ||||||||||
Corporate trade name | 7 years | 60 | 6 | 54 | ||||||||||
|
|
|
|
|
| |||||||||
| $ | 1,340 | $ | 159 | $ | 1,181 | |||||||||
|
|
|
|
|
| |||||||||
| (Dollars in thousands) | ||||
2018 | $ | 212 | ||
2019 | 212 | |||
2020 | 92 | |||
2021 | 92 | |||
2022 | 92 | |||
| September 30, 2017 | December 31, 2016 | |||||||
| (Dollars in thousands) | ||||||||
Accrued fees receivable | $ | 3,002 | $ | 2,762 | ||||
Prepaid expenses | 1,461 | 2,201 | ||||||
Federal Reserve Bank Stock | 1,711 | 1,711 | ||||||
Other | 3,186 | 2,734 | ||||||
|
|
|
| |||||
| $ | 9,360 | $ | 9,408 | |||||
|
|
|
| |||||
NOTE 8 – Commitments and Contingencies
MBB is a member bank
-18-
The Company is involved in legal proceedings, which include claims, litigation and suits arising in the ordinary course of business. In the opinion of management, these actions will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
Banking institutions are subject to periodic reviews and examinations from banking regulators. In the first quarter of 2017, one of MBB’s regulatory agencies communicated preliminary findings in connection with the timing of certain aspects of payment application process in effect prior to February 2016 related to the assessment of late fees. The Company believes that the resolution of this matter will require the Company to pay restitution to customers. The Company estimated such restitution at $4.2 million, which was expensed and related liability was recorded in the first quarter of 2017. However, the ultimate resolution of this matter could be materially different from the current estimate, including with respect to the timing, the exact amount of any required restitution or the possible imposition of any fines and penalties.
As of September 30, 2017, the Company leases all eight of its office locations including its executive offices in Mt. Laurel, New Jersey, and its offices in or near Atlanta, Georgia; Salt Lake City, Utah; Portsmouth, New Hampshire; Highlands Ranch, Colorado; Denver, Colorado; Plymouth, Michigan; and Philadelphia, Pennsylvania. These lease commitments are accounted for as operating leases. The Company has entered into several capital leases to finance corporate property and equipment.
-19-
The following is a schedule of future minimum lease payments for capital and operating leases as of September 30, 2017:
| Future Minimum Lease Payment Obligations | ||||||||||||
Period Ending December 31, | Capital Leases | Operating Leases | Total | |||||||||
| (Dollars in thousands) | ||||||||||||
2017 | $ | 28 | $ | 405 | $ | 433 | ||||||
2018 | 112 | 1,489 | 1,601 | |||||||||
2019 | 112 | 1,447 | 1,559 | |||||||||
2020 | 112 | 686 | 798 | |||||||||
2021 | 65 | — | 65 | |||||||||
|
|
|
|
|
| |||||||
Total minimum lease payments | $ | 429 | $ | 4,027 | $ | 4,456 | ||||||
|
|
|
| |||||||||
Less: amount representing interest | (18 | ) | ||||||||||
|
| |||||||||||
Present value of minimum lease payments | $ | 411 | ||||||||||
|
| |||||||||||
Rent expense was $0.8 million for each of the nine-month periods ended September 30, 2017 and September 30, 2016.
1,711
| Scheduled Maturities | ||||
| (Dollars in thousands) | ||||
Period Ending December 31, | ||||
2017 | $ | 84,627 | ||
2018 | 307,583 | |||
2019 | 197,288 | |||
2020 | 95,197 | |||
2021 | 60,400 | |||
Thereafter | 24,918 | |||
|
| |||
Total | $ | 770,013 | ||
|
| |||
-20-
See Note 14 –
The Fair Value Measurements and Disclosures Topic of the FASB ASC establishes a framework for measuring fair value and requires certain disclosures about fair value measurements. Its provisions do not apply to fair value measurements for purposes of lease classification and measurement, which is addressed in the Leases Topic of the FASB ASC.
The three levels are defined as follows:
The Company characterizes active markets as those where transaction volumes are sufficient to provide objective pricing information, such as an exchange traded price. Inactive markets are typically characterized by low transaction volumes, and price quotations that vary substantially among market participants or are not based on current information.
The Company’s balances measured
at fair value on a recurring basis include the following as of September 30,| September 30, 2017 | December 31, 2016 | |||||||||||||||
| Fair Value Measurements Using | Fair Value Measurements Using | |||||||||||||||
| Level 1 | Level 2 | Level 1 | Level 2 | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Assets | ||||||||||||||||
ABS | $ | — | $ | 6,030 | $ | — | $ | — | ||||||||
Municipal securities | — | 2,418 | — | 2,528 | ||||||||||||
Mutual fund | 3,430 | — | 3,352 | — | ||||||||||||
2020:
Disclosures about the Fair Value of Financial Instruments
The Financial Instruments Topichierarchy for any of the FASB ASC requires the disclosure of the estimatedperiods
-21-
The fair values shown below have been derived, in part, by management’s assumptions, the estimated amount and timing .
-22-
The following summarizes the carrying amount and estimated fair
value of the Company’s other financialinstruments,| September 30, 2017 | December 31, 2016 | |||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Financial Assets | ||||||||||||||||
Cash and cash equivalents | $ | 82,937 | $ | 82,937 | $ | 61,757 | $ | 61,757 | ||||||||
Time deposits with banks | 8,360 | 8,339 | 9,605 | 9,614 | ||||||||||||
Loans, net of allowance | 44,129 | 44,279 | 28,949 | 29,128 | ||||||||||||
Financial Liabilities | ||||||||||||||||
Deposits | $ | 806,954 | $ | 802,762 | $ | 697,357 | $ | 694,721 | ||||||||
The paragraphs which follow describe2020
Cashinstruments, as
The carrying amounts of note disclosures in
Time Deposits with Banks
Fair value of time deposits is estimated by discounting cash flows of current rates paid by market participants for similar time deposits of the same or similar remaining maturities. This fair value measurement is classified as Level 2.
Securities Available for Sale
Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon various sources of market pricing. Securities are classified within the fair value hierarchy after giving consideration to the activity level in the market for the security type and the observability of the inputs used to determine the fair value. When available, the Company uses quoted prices in active markets and classifies such instruments within Level 1 of the fair value hierarchy. Level 1 securities include mutual funds. When instruments are traded in secondary markets and quoted market prices do not exist for such securities, the Company relies on prices obtained from third-party pricing vendors and classifies these instruments within Level 2 of the fair value hierarchy. The third-party vendors use a variety of methods when pricing securities that incorporate relevant market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. Level 2 securities include ABS and municipal bonds.
-23-
Loans
The loan balances are comprised of three types of loans. Loans made as a member bank in anon-profit, multi-financial institution CDFI serve as a catalyst for community development by offering financing for affordable, quality housing tolow- and moderate-income residents. Such loans help MBB satisfy its obligations under the Community Reinvestment Act of 1977. The fair value of these loans approximates the carrying amount at September 30, 2017 and December 31, 2016 as it is based on recent comparable sales transactions with consideration of current market rates. This fair value measurement is classified as Level 2. The Company also invests in a small business loan product tailored to the small business market. Fair value for these loans is estimated by discounting cash flows at an imputed market rate for similar loan products with similar characteristics. This fair value measurement is classified as Level 2. The Company invests in loans to our customers in the franchise finance channel. These loans may be secured by equipment being acquired, blanket liens on personal property, or specific equipment already owned by the customer. The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans would be made to borrowers with similar credit, collateral, and for the same remaining maturities. This fair value measurement is classified as Level 2.
Deposits
Deposit liabilities with no defined maturity such as MMDA deposits have a fair value equal to the amount payable on demand at the reporting date (i.e., their carrying amount). Fair value for certificates of deposits is estimated by discounting cash flows at current rates paid by the Company for similar certificates of deposit of the same or similar remaining maturities. This fair value measurement is classified as Level 2.
-24-
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (Dollars in thousands, exceptper-share data) | ||||||||||||||||
Basic EPS | ||||||||||||||||
Net income | $ | 3,305 | $ | 4,345 | $ | 9,398 | $ | 12,464 | ||||||||
Less: net income allocated to participating securities | (80 | ) | (136 | ) | (241 | ) | (366 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income allocated to common stock | $ | 3,225 | $ | 4,209 | $ | 9,157 | $ | 12,098 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares outstanding | 12,527,182 | 12,543,818 | 12,551,334 | 12,507,898 | ||||||||||||
Less: Unvested restricted stock awards considered participating securities | (306,801 | ) | (397,091 | ) | (325,759 | ) | (373,081 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Adjusted weighted average common shares used in computing basic EPS | 12,220,381 | 12,146,727 | 12,225,575 | 12,134,817 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Basic EPS | $ | 0.26 | $ | 0.35 | $ | 0.75 | $ | 1.00 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted EPS | ||||||||||||||||
Net income allocated to common stock | $ | 3,225 | $ | 4,209 | $ | 9,157 | $ | 12,098 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Adjusted weighted average common shares used in computing basic EPS | 12,220,381 | 12,146,727 | 12,225,575 | 12,134,817 | ||||||||||||
Add: Effect of dilutive stock options | 37,541 | 10,629 | 29,260 | 8,025 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Adjusted weighted average common shares used in computing diluted EPS | 12,257,922 | 12,157,356 | 12,254,835 | 12,142,842 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted EPS | $ | 0.26 | $ | 0.35 | $ | 0.75 | $ | 1.00 | ||||||||
|
|
|
|
|
|
|
| |||||||||
-25-
For the nine-month periods ended September 30, 20172021 and September
Stockholders’ Equity
On July 29, 2014,
Pursuant
to the-26-
The Company and MBB operate under the Basel III capital adequacy standards.
These standards require a minimum for Tier 1The
-27-
CECL Capital Transition.
| Actual | Minimum Capital Requirement | Well-Capitalized Capital Requirement | ||||||||||||||||||||||
| Ratio | Amount | Ratio(1) | Amount | Ratio | Amount | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Tier 1 Leverage Capital | ||||||||||||||||||||||||
Marlin Business Services Corp. | 16.24 | % | $ | 164,209 | 4 | % | $ | 40,453 | 5 | % | $ | 50,566 | ||||||||||||
Marlin Business Bank | 13.64 | % | $ | 131,060 | 5 | % | $ | 48,055 | 5 | % | $ | 48,055 | ||||||||||||
Common Equity Tier 1 Risk-Based Capital | ||||||||||||||||||||||||
Marlin Business Services Corp. | 17.64 | % | $ | 164,209 | 4.5 | % | $ | 41,880 | 6.5 | % | $ | 60,494 | ||||||||||||
Marlin Business Bank | 14.38 | % | $ | 131,060 | 6.5 | % | $ | 59,236 | 6.5 | % | $ | 59,236 | ||||||||||||
Tier 1 Risk-based Capital | ||||||||||||||||||||||||
Marlin Business Services Corp. | 17.64 | % | $ | 164,209 | 6 | % | $ | 55,841 | 8 | % | $ | 74,454 | ||||||||||||
Marlin Business Bank | 14.38 | % | $ | 131,060 | 8 | % | $ | 72,906 | 8 | % | $ | 72,906 | ||||||||||||
Total Risk-based Capital | ||||||||||||||||||||||||
Marlin Business Services Corp. | 18.90 | % | $ | 175,878 | 8 | % | $ | 74,454 | 10 | % | $ | 93,068 | ||||||||||||
Marlin Business Bank | 15.64 | % | $ | 142,489 | 15 | % | $ | 136,700 | 10 | %(1) | $ | 91,133 | ||||||||||||
2021.
-28-
Pursuant to the FDIC Agreement entered into in conjunction with the opening of MBB, MBB must keep its total risk-based capital ratio above 15%.
regulations.
NOTE 13 – Stock-Based Compensation
Under As mentioned
Total stock-based compensation expense was $0.7 million and $0.4 million for the three-month periods ended September 30, 2017 and September 30, 2016, respectively. Total stock-based compensation expense was $2.2 million and $1.4 million for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively. Excess tax benefits from stock-based payment arrangements was $0.4 million for the nine-month period ended September 30, 2017. An excess tax deficit from stock-based payment arrangements increased cash provided by operating activities and decreased cash provided by financing activities by $0.1 million for the nine-month period ended September 30, 2016.
Stock Options
Option awards are generally granted with an exercise price equalRepurchases at Bank Holding Companies.
There were no stock options and 115,883 stock options granted during the three-month and nine-month periods ended September 30, 2017, respectively. There were no stock options granted during the three-month and nine-month periods ended September 30, 2016. The fair value of stock options granted during the nine-month period ended September 30, 2017 was $6.56 and was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:
-29-
| ||||
| ||||
| ||||
| ||||
The expected life for options is estimated based on their vesting and contractual terms and was determined by applying the simplified method as defined by the SEC’s Staff Accounting Bulletin No. 107 (“SAB 107”). The risk-free interest rate reflected the yield onzero-coupon Treasury securities with a term approximating the expected life of the stock options. The expected volatility was determined using historical volatilities based on historical stock prices.
-30-
A summary of option activity for the nine-month period ended September 30, 2017 follows:
Options | Number of Shares | Weighted Average Exercise Price Per Share | ||||||
Outstanding, December 31, 2016 | 41,640 | $ | 12.37 | |||||
Granted | 115,883 | 25.75 | ||||||
Exercised | (39,416 | ) | 12.37 | |||||
Forfeited | (6,022 | ) | 20.82 | |||||
Expired | — | — | ||||||
|
| |||||||
Outstanding, September 30, 2017 | 112,085 | 25.75 | ||||||
|
| |||||||
The Company recognized $0.1 million of compensation expense related to options during both of the three and nine-month periods ended September 30, 2017. The Company did not recognize compensation expense related to options during both of the three and nine-month periods ended September 30, 2016.
There were no stock options exercised during the three-month period ended September 30, 2017. There were 3,425 stock options exercised during the three-month periods ended September 30, 2016. The total pretax intrinsic values of stock options exercised were less than $0.1 million for the three-month period ended September 30, 2016.
The total pretax intrinsic values of stock options exercised were $0.4 million and $0.1 million for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively.
The following table summarizes information about the stock options outstanding and exercisable as of September 30, 2017:
Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||
| Weighted | Weighted | Aggregate | Weighted | Weighted | Aggregate | |||||||||||||||||||||||
| Average | Average | Intrinsic | Average | Average | Intrinsic | |||||||||||||||||||||||
| Range of | Number | Remaining | Exercise | Value | Number | Remaining | Exercise | Value | ||||||||||||||||||||
Exercise Prices | Outstanding | Life (Years) | Price | (In thousands) | Exercisable | Life (Years) | Price | (In thousands) | ||||||||||||||||||||
$25.75 | 112,085 | 6.5 | $ | 25.75 | $ | 336 | — | — | $ | — | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
| 112,085 | 6.5 | $ | 25.75 | $ | 336 | — | — | $ | — | $ | — | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $28.75 as of September 30, 2017, which would have been received by the option holders had all option holders exercised their options as of that date.
As of September 30, 2017, the total future compensation cost related tonon-vested stock options not yet recognized in the Consolidated Statements of Operations was $0.6 million.
-31-
Restricted Stock Awards
The Company’s restricted stock awards provide that, during the applicable vesting periods, the shares awarded may not, be soldwithout the prior written consent of Madeira Holdings, LLC, declare or transferred bypay
The vesting of certain restricted shares may be accelerated to a minimum of three years based on achievement of various individual performance measures. Acceleration of expense for awards based on individual performance factors occurs when the achievement of the performance criteria is determined.
Of the total restricted stock awards granted during the nine-month period ended September 30, 2017, no shares may be subject to accelerated vesting based on individual performance factors; no shares have vesting contingent upon performance factors. Vesting was accelerated in 2016 and 2017 on certain awards based on the achievement of certain performance criteria determined annually, as described below.
The Company also issues restricted stock tonon-employee independent directors. These shares generally vest in seven years from the grant date or six months following the director’s termination from Board of Directors service.
The following table summarizes the activity of thenon-vested restricted stock during the nine-month period ended September 30, 2017:
| Weighted | ||||||||
| Average | ||||||||
| Grant-Date | ||||||||
Non-vested restricted stock | Shares | Fair Value | ||||||
Outstanding at December 31, 2016 | 396,518 | $ | 16.07 | |||||
Granted | 43,208 | 25.36 | ||||||
Vested | (119,952 | ) | 16.14 | |||||
Forfeited | (14,235 | ) | 16.39 | |||||
|
| |||||||
Outstanding at September 30, 2017 | 305,539 | 17.34 | ||||||
|
| |||||||
During the three-month periods ended September 30, 2017 and September 30, 2016, the Company granted restricted stock awards with grant-date fair values totaling $0.3 million and $0.4, respectively. During the nine-month periods ended September 30, 2017 and September 30, 2016, the Company granted restricted stock awards with grant-date fair values totaling $1.1 million and $2.8 million, respectively.
As vesting occurs, or is deemed likely to occur, compensation expense is recognized over the requisite service period and additionalpaid-in capital is increased. The Company recognized $0.3 million of compensation expense related to restricted stock for both three-month periods ended September 30, 2017 and September 30, 2016. The Company recognized $1.5 million and $1.4 million of compensation expense related to restricted stock for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively.
Of the $1.5 million total compensation expense related to restricted stock for the nine-month period ended September 30, 2017, approximately $0.5 million related to accelerated vesting during the first quarter of 2017, based on achievement of certain performance criteria determined annually. Of the $1.4 million total compensation expense related to restricted stock for the nine-month period ended September 30, 2016, approximately $0.4 million related to accelerated vesting during the first quarter of 2016, which was also based on the achievement of certain performance criteria determined annually.
As of September 30, 2017, there was $3.6 million of unrecognized compensation cost related tonon-vested restricted stock
compensation
-32-
scheduled to be recognized over a weighted average period of 3.7 years. In the event individual performance targets are achieved, $0.7 million of the unrecognized compensation cost would accelerate to be recognized over a weighted average period of 0.9 years. In addition, certain of the awards granted may result in the issuance of 30,513 additional shares of stock if achievement of certain targets is greater than 100%. The expense related to the additional shares awarded will be dependent on the Company’s stock price when the achievement level is determined.
The fair value of shares that vested during the three-month periods ended September 30, 2017 and September 30, 2016 was $0.3 million and $0.1 million, respectively. The fair value of shares that vested during the nine-month periods ended September 30, 2017 and September 30, 2016 was $2.9 million and $0.9 million, respectively.
Restricted Stock Units
Restricted stock units (“RSUs”) are granted with vesting conditions based on fulfillment of a service condition (generally three to four years from the grant date), and may also require achievement of certain operating performance criteria or achievement of certain market-based targets associated with the Company’s stock price. The market based target measurement period begins one year from the grant date and ends three years from the grant date. Expense for equity based awards with market and service conditions is recognized over the service period based on the grant-date fair value of the award.
The following tables summarize restricted stock unit activity for the nine-month period ended September 30, 2017:
Performance-based & market-based RSUs | Number of RSUs | Weighted Average Grant-Date Fair Value | ||||||
Outstanding at December 31, 2016 | 120,000 | $ | 9.47 | |||||
Granted | 71,032 | 23.65 | ||||||
Forfeited | (7,934 | ) | 13.44 | |||||
Converted | — | — | ||||||
Cancelled due tonon-achievement of market condition | — | — | ||||||
|
| |||||||
Outstanding at September 30, 2017 | 183,098 | 14.80 | ||||||
|
| |||||||
Service-based RSUs | ||||||||
Outstanding at December 31, 2016 | — | $ | — | |||||
Granted | 29,504 | 25.75 | ||||||
Forfeited | (967 | ) | 25.75 | |||||
Converted | — | — | ||||||
|
| |||||||
Outstanding at September 30, 2017 | 28,537 | 25.75 | ||||||
|
| |||||||
The weighted average grant-date fair value of RSUs with market based vesting conditions granted during the nine-month period ended September 30, 2017 was $13.32 per unit. The weighted average grant date fair value of these market based RSUs was estimated using a Monte Carlo simulation valuation model with the following assumptions:
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| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
Grant date stock price | $ | 25.75 | — | |||||
Risk-free interest rate | 1.72 | % | — | |||||
Expected volatility | 33.42 | % | — | |||||
Dividend yield | — | — | ||||||
The risk free interest rate reflected the yield on zero coupon Treasury securities with a term approximating the expected life of the RSUs. The expected volatility was based on historical volatility of the Company’s common stock. Dividend yield was assumed at zero as the grant assumes dividends distributed during the performance period are reinvested. When valuing the grant, we have assumed a dividend yield of zero, which is mathematically equivalent to reinvestingregular quarterly cash dividends in the issuing entity.
There were no RSUs granted during the three-month period ended September 30, 2017. During the three-month period ended September 30, 2016, the Company granted RSUs with grant-date fair values totaling $1.1 million. During the nine-month periods ended September 30, 2017 and September 30, 2016, the Company granted RSUs with grant-date fair values totaling $2.4 million and $1.1 million, respectively. The Company recognized $0.3 million and less than $0.1 million of compensation expense relatedan amount not to RSUs for the three-month periods ended September 30, 2017 and September 30, 2016, respectively. The Company recognized $0.6 million and less than $0.1 million of compensation expense related to RSUs for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively. As of September 30, 2017, there was $2.8 million of unrecognized compensation cost related to RSUs scheduled to be recognized over a weighted average period of 2.4 years based on the most probable performance assumptions. In the event maximum performance targets are achieved, an additional $1.5 million of compensation cost would be recognized over a weighted average period of 2.3 years and may result in the conversion of 57,098 additional units into shares of common stock.
exceed $
As previously disclosed in
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20162020 filed withFORWARD-LOOKING STATEMENTS “expects,“expects,” “plans,” “may,” “may“may affect,” “may “if”“if” and similar words and phrases that constitute “forward-looking“forward-(b)(c) our(c)(d) our ability to obtain external deposits or financing; (d)(e) our understanding of our competition; and (e) (f)
Overview
Our leases are fixed-rate transactions with terms generally ranging from 36 to 60 months. At September 30, 2017, our lease portfolio consisted of 90,070 accounts with an average original term of 48 months and average original transaction size of approximately $16,000.
MBB offers a flexible loan program called Funding Stream. Funding Stream is tailored to the small business market to provide customers a convenient, hassle free alternative to traditional lenders and access to capital to help grow their businesses. As of September 30, 2017, the Company had approximately $26.4 million, not including the allowance for credit losses allocated to loans of $1.1 million, of small business loans on the balance sheet. Generally, these loans range from $5,000 to $150,000, have flexible 6 to 24 month terms, and have automated daily, weekly, and monthly payback. Small business owners can apply online, in ten minutes or less, onwww.Fundingstream.com. Approved borrowers can receive funds in as little as two days.
At September 30, 2017, we had $1,013.0 million in total assets. Our assets are substantially comprised of our net investment in leases and loans which totaled $886.4 million at September 30, 2017.
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Our revenue consists of interest and fees from our leases and loans and, to a lesser extent, income from our property insurance program and other fee income. Our expenses consist of interest expense and other expenses, which include salaries and benefits and other general and administrative expenses. As a credit lender, our earnings are also impacted by credit losses. For the quarter ended September 30, 2017, our annualized net credit losses were 1.73% of our average total finance receivables. We establish reserves for credit losses which require us to estimate inherent losses in our portfolio as of the reporting date. In the third quarter of 2017 we booked an additional reserve for credit losses of $0.5 million based on our assessment of our lease portfolio’s exposure to those geographic areas most impacted by Hurricane Harvey and Hurricane Irma in August 2017 and September 2017, respectively.
Our leases are classified under U.S. GAAP as direct financing leases, and we recognize interest income over the term of the lease. Direct financing leases transfer substantially all of the benefits and risks of ownership to the equipment lessee. Our net investment in direct finance leases is included in our consolidated financial statements in “net investment in leases and loans.” Net investment in direct financing leases consists of the sum of total minimum lease payments receivable and the estimated residual value of leased equipment, less unearned lease income. Unearned lease income consists of the excess of the total future minimum lease payments receivable plus the estimated residual value expected to be realized at the end of the lease term plus deferred net initial direct costs and fees less the cost of the related equipment. Approximately 70% of our lease portfolio at September 30, 2017 amortizes over the lease term to a $1 residual value. For the remainder of the portfolio, we must estimate end of term residual values for the leased assets. Failure to correctly estimate residual values could result in losses being realized on the disposition of the equipment at the end of the lease term.
We fund
our business primarily through the issuance of fixed and variable-rate FDIC-insureddeposits and money market demandthe Merger Agreement in an all cash transaction pursuant to
a merger of the Company with and into HPS Merger Sub,with theOn January 13, 2009, Marlin Business Services Corp. became a bank holding company and is subject2020. Working
Critical Accounting Policies
Goodwill and Intangible Assets. The Company tests for impairment of goodwill at least annually and more frequently as circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows$1.4 million for the testing of goodwill for impairment using both qualitative and quantitative factors. Impairment of goodwill is recognized only if the carrying amount of the Company, including goodwill, exceeds the fair value of the Company. The amount of the impairment loss would be equal to the excess carrying value of the goodwill over the implied fair value of the Company goodwill.
Currently, the Company does not have any intangible assets with indefinite useful lives.
Intangible assets that are not deemed to have an indefinite useful life are amortized over their estimated useful lives. The carrying amounts of definite lived intangible assets are regularly reviewed for indicators of impairment in accordance with applicable accounting guidance. Impairment is recognized only if the carrying amount of the intangible asset is in excess of its undiscounted projected cash flows. The impairment is measured as the difference between the carrying amount and the estimated fair value of the asset.
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There have been no other significant changes to our Critical Accounting Policies as described in our 2016 Annual Report on Form10-K.
RECENTLY ISSUED ACCOUNTING STANDARDS
Information on recently issued accounting pronouncements and the expected impact on our financial statements is provided in Note 2, Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements.
RECENTLY ADOPTED ACCOUNTING STANDARDS
Information on recently adopted accounting pronouncements and the expected impact on our financial statements is provided in Note 2, Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Comparison of the Three-Month Periods Ended September 30, 2017 and September 30, 2016
Net income. Net income of $3.3 million was reported for the three-month period ended September 30, 2017, resulting in diluted EPS of $0.26, compared to net income of $4.3 million and diluted EPS of $0.35 for the three-month period ended September 30, 2016. During the quarter ended September 30, 2017, the Company increased its credit reserves and insurance reserves for estimated inherent losses by an additional $0.5 million and $0.4 million, respectively, based on its initial assessments of exposure to geographic areas significantly impacted by Hurricane Harvey and Hurricane Irma. The impact of this increase in reserves was a reduction of approximately $0.6 million in net income and $0.05 in net income per diluted share for the quarter ended September 30, 2017.
Return on average assets was 1.31% for the three-month period ended September 30, 2017, compared to a return of 2.05% for the three-month period ended September 30, 2016. Return on average equity was 8.01% for the three-month period ended September 30, 2017, compared to a return of 11.10% for the three-month period ended September 30, 2016.
2020.
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During the three months ended September 30, 2017, we generated 7,447 new leases with equipment cost of $133.6 million, compared to 6,606 new leases with equipment cost of $117.9 million generated27.1% for the three months ended September 30, 2016. Approval rates remained constant at 56% for each of the quarters ended September 30, 2017 and ended September 30, 2016.
For the three-month
primarily due to the $6.7million goodwill impairment that was
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| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Average Balance(1) | Interest | Average Yields/ Rates(2) | Average Balance(1) | Interest | Average Yields/ Rates(2) | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Interest-earning deposits with banks | $ | 91,962 | $ | 240 | 1.04 | % | $ | 78,907 | $ | 48 | 0.25 | % | ||||||||||||
Time Deposits | 8,360 | 25 | 1.20 | 9,107 | 28 | 1.21 | ||||||||||||||||||
Restricted interest-earning deposits with banks | — | — | — | 18 | — | 0.11 | ||||||||||||||||||
Securities available for sale | 10,624 | 44 | 1.67 | 6,120 | 34 | 2.22 | ||||||||||||||||||
Net investment in leases(3) | 820,151 | 19,550 | 9.53 | 713,413 | 17,361 | 9.73 | ||||||||||||||||||
Loans receivable(3) | 42,567 | 2,504 | 23.53 | 18,933 | 1,332 | 28.13 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total interest-earning assets | 973,664 | 22,363 | 9.18 | 826,498 | 18,803 | 9.10 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Non-interest-earning assets: | ||||||||||||||||||||||||
Cash and due from banks | 2,830 | 2,532 | ||||||||||||||||||||||
Intangible assets | 1,216 | — | ||||||||||||||||||||||
Goodwill | 1,160 | — | ||||||||||||||||||||||
Property and equipment, net | 4,437 | 3,718 | ||||||||||||||||||||||
Property tax receivables | 9,503 | 5,356 | ||||||||||||||||||||||
Other assets(4) | 13,530 | 11,284 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Totalnon-interest-earning assets | 32,676 | 22,890 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total assets | $ | 1,006,340 | $ | 849,388 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Certificate of Deposits(5) | $ | 765,873 | $ | 2,866 | 1.50 | % | 610,912 | $ | 1,971 | 1.29 | % | |||||||||||||
Money Market Deposits(5) | 40,334 | 134 | 1.33 | 52,027 | 84 | 0.64 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total interest-bearing liabilities | 806,207 | 3,000 | 1.49 | 662,939 | 2,055 | 1.24 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Non-interest-bearing liabilities: | ||||||||||||||||||||||||
Sales and property taxes payable | 6,125 | 5,882 | ||||||||||||||||||||||
Accounts payable and accrued expenses | 16,092 | 8,144 | ||||||||||||||||||||||
Net deferred income tax liability | 12,892 | 15,907 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Totalnon-interest-bearing liabilities | 35,109 | 29,933 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total liabilities | 841,316 | 692,872 | ||||||||||||||||||||||
Stockholders’ equity | 165,024 | 156,516 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,006,340 | $ | 849,388 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Net interest income | $ | 19,363 | $ | 16,748 | ||||||||||||||||||||
Interest rate spread(6) | 7.69 | % | 7.86 | % | ||||||||||||||||||||
Net interest margin(7) | 7.95 | % | 8.11 | % | ||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 120.77 | % | 124.67 | % | ||||||||||||||||||||
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| Three Months Ended September 30, 2017 Compared To Three Months Ended September 30, 2016 | ||||||||||||
| Increase (Decrease) Due To: | ||||||||||||
| Volume(1) | Rate(1) | Total | ||||||||||
| (Dollars in thousands) | ||||||||||||
Interest income: | ||||||||||||
Interest-earning deposits with banks | $ | 9 | $ | 183 | $ | 192 | ||||||
Time Deposits | (2 | ) | (1 | ) | (3 | ) | ||||||
Securities available for sale | 20 | (10 | ) | 10 | ||||||||
Net investment in leases | 2,551 | (362 | ) | 2,189 | ||||||||
Loans receivable | 1,422 | (250 | ) | 1,172 | ||||||||
Total interest income | 3,378 | 182 | 3,560 | |||||||||
Interest expense: | ||||||||||||
Certificate of Deposits | 549 | 346 | 895 | |||||||||
Money Market Deposits | (23 | ) | 73 | 50 | ||||||||
Total interest expense | 490 | 455 | 945 | |||||||||
Net interest income | 2,934 | (319 | ) | 2,615 | ||||||||
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Nine Months Ended September 30, 2021 Compared To
| Three Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| (Dollars in thousands) | ||||||||
Interest income | $ | 22,363 | $ | 18,803 | ||||
Fee income | 3,780 | 3,944 | ||||||
|
|
|
| |||||
Interest and fee income | 26,143 | 22,747 | ||||||
Interest expense | 3,000 | 2,055 | ||||||
|
|
|
| |||||
Net interest and fee income | $ | 23,143 | $ | 20,692 | ||||
|
|
|
| |||||
Average total finance receivables(1) | $ | 862,718 | $ | 732,346 | ||||
Annualized percent of average total finance receivables: | ||||||||
Interest income | 10.37 | % | 10.27 | % | ||||
Fee income | 1.75 | 2.15 | ||||||
|
|
|
| |||||
Interest and fee income | 12.12 | 12.42 | ||||||
Interest expense | 1.39 | 1.12 | ||||||
|
|
|
| |||||
Net interest and fee margin | 10.73 | % | 11.30 | % | ||||
|
|
|
| |||||
2020.
Fee income was $3.82020,
Fee income also included approximately $2.3 million and $2.4$5.6 million in late fee income for
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Fee income, as an annualized percentage of average total finance receivables, decreased 40 basis points to 1.75% for the three-month period ended September 30, 2017 from 2.15% for the corresponding period in 2016. Late fees remained the largest component of fee income at 1.07%
Interest expense increased $0.9 million to $3.0 million, or 1.49% as an annualized percentage of average deposits, for the three-month period ended September 30, 2017, from $2.1 million, or 1.24% as an annualized percentage of average deposits, for the three-month period ended September 30, 2016. The increase wasin 2020, primarily due to an increase ina decrease
There were no borrowings outstanding for each of
2020, average term securitization borrowings
Insurance premiums written
Other income. Other income was $1.8 million and $1.1 million for the three-month periods ended September 30, 2017 and September 30, 2016, respectively. Other income primarily includes various administrative transaction fees and fees received from referral of leases to third parties, and gain on sale of leases and servicing fee income, recognized as earned. Selected major components of other income for the three-month period ended September 30, 2017 included $0.5 million of referral income, $0.5 million of insurance policy fees, and $0.5 million gain on the sale of leases and servicing fee income. In comparison, selected major components of other income for the three-month period ended September 30, 2016 included $0.1 million of referral income, $0.4 million of insurance policy fees, and $0.2 million gain on the sale of leases and servicing fee income.
Salaries and benefits expense.Salaries and benefits expense increased $1.5 million, or 19.2%, to $9.3 million for the three-month period ended September 30, 2017 from $7.8 million for the corresponding period in 2016. The increase was primarily due to an increase in total personnel and increased compensation related to increased origination volume. Salaries and benefits expense, as an annualized percentage of average total finance receivables, was 4.31% for the three-month period ended September 30, 2017 compared with 4.27% for the corresponding period in 2016. Total personnel increased to 331 at September 30, 2017 from 318 at September 30, 2016.
General and administrative expense.General and administrative expense increased $1.4 million, or 28.0%, to $6.4 million for the three months ended September 30, 2017 from $5.0 million for the corresponding period in 2016. General and administrative expense as an annualized
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percentage of average total finance receivables was 2.97% for the three-month period ended September 30, 2017, compared to 2.72% for the three-month period ended September 30, 2016. Selected major components of general and administrative expense for the three-month period ended September 30, 2017 included $0.9 million of premises and occupancy expense, $0.4 million of audit and tax compliance expense, $0.8 million of data processing expense, $0.4 million of marketing expense, $0.2 million of amortization expense, $0.1 million of legal fee expense, and $0.8 million of insurance-related expenses which include $0.4 million related to Hurricane Harvey and Hurricane Irma. In prior quarters, insurance-related expenses were recognized net in “Insurance premiums written and earned”. In comparison, selected major components of general and administrative expense for the three-month period ended September 30, 2016 included $0.8 million of premises and occupancy expense, $0.3 million of audit and tax compliance expense, $0.6 million of data processing expense, and $0.5 million of marketing expense, and $0.3 million of insurance-related expenses which were recognized net in “Insurance premiums written and earned” in prior quarters.
Financing-related costs.Financing-related costs primarily represent bank commitment fees paid to our financing sources on the unused portion of loan facilities.
Provision for credit losses.The provision for credit losses increased $2.6 million, or 83.9%, to $5.7 million for the three-month period ended September 30, 2017 from $3.1 million for the corresponding period in 2016. Lease portfolio losses tend to follow patterns based on the mix of origination vintages comprising the portfolio. The anticipated credit losses from the inception of a particular lease origination vintage tocharge-off generally follow a pattern of lower losses for the first few months, followed by increased losses in subsequent months, then lower losses during the later periods of the lease term. Therefore, the seasoning, or mix of origination vintages, of the portfolio affects the timing and amount of anticipated probable and estimable credit losses.
The increase in our provision for credit losses resulted from increased delinquency and charge-offs and to a lesser extent growth in the portfolio, and an additional $0.5 million for estimated inherent losses from the areas hardest hit by Hurricane Harvey and Hurricane Irma. This additional reserve is an estimate based on information currently available which includes information obtained from contacting affected customers.
Net charge-offs were $3.7 million for the three-month period ended September 30, 2017, compared to $2.5 million for the corresponding period in 2016. The increase incharge-off rate is primarily due to the ongoing seasoning of the portfolio as reflected in the mix of origination vintages and the mix of credit profiles. Net charge-offs as an annualized percentage of average total finance receivables increased to 1.73% during the three-month period ended September 30, 2017, from 1.36% for the corresponding period in 2016. The allowance for credit losses increased to approximately $14.5 million at September 30, 2017, an increase of $3.6 million from $10.9 million at December 31, 2016.
Additional information regarding asset quality is included herein in the section “Finance Receivables and Asset Quality.”
Provision for income taxes.Income tax expense of $2.0 million and $3.0 million was recorded for the three-month periods ended September 30, 2017 and September 30, 2016, respectively. Our effective tax rate, which is a combination of federal and state income tax rates, was approximately 38.3% and 41.1% for the three-month periods ended September 30, 2017 and September 30, 2016, respectively.
Comparison of the Nine-Month Periods Ended September 30, 2017 and September 30, 2016
Net income. Net income of $9.4 million was reportedsales for the nine-month period ended September 30, 2017, resulting in diluted EPS
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Return on average assets was 1.31% for the nine-month period ended September 30, 2017, compared to a return of 2.04% for the nine-month period ended September 30, 2016. Return on average equity was 7.66% for the nine-month period ended September 30, 2017, compared to a return of 10.84% for the nine-month period ended September 30, 2016.
Overall, our average net investment in total finance receivables for the nine-month period ended September 30, 2017 increased 17.8% to $831.7 million, compared to $705.9$5.9 million for the nine-month period ended
During the nine months ended September 30, 2017, we generated 22,336 new leases with equipment cost of $407.0 million,2021, compared to 19,603 new leases with equipment cost of $333.7 million generated for the nine months ended September 30, 2016. Approval rates declined by 3% to 56% for the nine-month period ended September 30, 2017, compared to 59% for the nine-month period ended September 30, 2016.
For the nine-month period ended September 30, 2017 compared to the nine-month period ended September 30, 2016, net interest and fee income increased $6.9 million, or 11.4%, primarily due to a $10.0 million increase in interest income, partially offset by a $2.4 million increase in interest expense. The provision for credit losses increased $5.0 million, or 56.2%, to $13.9$6.6 million for the nine-month period
Average balances and net interest margin.The following table summarizes the Company’s average balances, interest income, interest expense and average yields and rates on major categories of interest-earning assets and interest-bearing liabilities for the nine-month periods ended September 30, 2017 and September 30, 2016.
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| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Average Balance(1) | Interest | Average Yields/ Rates(2) | Average Balance(1) | Interest | Average Yields/ Rates(2) | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Interest-earning deposits with banks | $ | 80,639 | $ | 446 | 0.73 | % | $ | 71,323 | $ | 137 | 0.26 | % | ||||||||||||
Time Deposits | 8,773 | 79 | 1.21 | 8,662 | 78 | 1.21 | ||||||||||||||||||
Restricted interest-earning deposits with banks | — | — | — | 82 | — | 0.08 | ||||||||||||||||||
Securities available for sale | 7,805 | 113 | 1.94 | 6,232 | 104 | 2.24 | ||||||||||||||||||
Net investment in leases(3) | 794,316 | 57,080 | 9.58 | 692,085 | 51,250 | 9.87 | ||||||||||||||||||
Loans receivable(3) | 37,401 | 6,743 | 24.04 | 13,794 | 2,952 | 28.53 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total interest-earning assets | 928,934 | 64,461 | 9.25 | 792,178 | 54,521 | 9.17 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Non-interest-earning assets: | ||||||||||||||||||||||||
Cash and due from banks | 1,968 | 2,805 | ||||||||||||||||||||||
Intangible assets | 585 | — | ||||||||||||||||||||||
Goodwill | 553 | — | ||||||||||||||||||||||
Property and equipment, net | 3,905 | 3,777 | ||||||||||||||||||||||
Property tax receivables | 8,580 | 3,711 | ||||||||||||||||||||||
Other assets(4) | 14,942 | 11,662 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Totalnon-interest-earning assets | 30,533 | 21,955 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total assets | $ | 959,467 | $ | 814,133 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Certificate of Deposits(5) | $ | 717,422 | $ | 7,566 | 1.41 | % | 580,631 | $ | 5,386 | 1.24 | % | |||||||||||||
Money Market Deposits(5) | 46,716 | 386 | 1.10 | 52,168 | 218 | 0.56 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total interest-bearing liabilities | 764,138 | 7,952 | 1.39 | 632,799 | 5,604 | 1.18 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Non-interest-bearing liabilities: | ||||||||||||||||||||||||
Sales and property taxes payable | 5,333 | 5,192 | ||||||||||||||||||||||
Accounts payable and accrued expenses | 12,058 | 6,002 | ||||||||||||||||||||||
Net deferred income tax liability | 14,327 | 16,833 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Totalnon-interest-bearing liabilities | 31,718 | 28,027 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total liabilities | 795,856 | 660,826 | ||||||||||||||||||||||
Stockholders’ equity | 163,611 | 153,307 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 959,467 | $ | 814,133 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Net interest income | $ | 56,509 | $ | 48,917 | ||||||||||||||||||||
Interest rate spread(6) | 7.86 | % | 7.99 | % | ||||||||||||||||||||
Net interest margin(7) | 8.09 | % | 8.21 | % | ||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 121.57 | % | 125.19 | % | ||||||||||||||||||||
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The following table presents the components of the changes in net interest income by volume and rate.
| Nine Months Ended September 30, 2017 Compared To Nine Months Ended September 30, 2016 | ||||||||||||
| Increase (Decrease) Due To: | ||||||||||||
| Volume(1) | Rate(1) | Total | ||||||||||
| (Dollars in thousands) | ||||||||||||
Interest income: | ||||||||||||
Interest-earning deposits with banks | $ | 20 | $ | 289 | $ | 309 | ||||||
Time Deposits | 1 | — | 1 | |||||||||
Securities available for sale | 24 | (15 | ) | 9 | ||||||||
Net investment in leases | 7,384 | (1,554 | ) | 5,830 | ||||||||
Loans receivable | 4,323 | (532 | ) | 3,791 | ||||||||
Total interest income | 9,486 | 454 | 9,940 | |||||||||
Interest expense: | ||||||||||||
Certificate of Deposits | 1,379 | 801 | 2,180 | |||||||||
Money Market Deposits | (25 | ) | 193 | 168 | ||||||||
Total interest expense | 1,274 | 1,074 | 2,348 | |||||||||
Net interest income | 8,331 | (739 | ) | 7,592 | ||||||||
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Net interest and fee margin.The following table summarizes the Company’s net interest and fee income as an annualized percentage of average total finance receivables for the nine-month periods ended September 30, 2017 and 2016.
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| (Dollars in thousands) | ||||||||
Interest income | $ | 64,461 | $ | 54,521 | ||||
Fee income | 11,055 | 11,747 | ||||||
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Interest and fee income | 75,516 | 66,268 | ||||||
Interest expense | 7,952 | 5,604 | ||||||
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Net interest and fee income | $ | 67,564 | $ | 60,664 | ||||
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Average total finance receivables(1) | $ | 831,718 | $ | 705,879 | ||||
Percent of average total finance receivables: | ||||||||
Interest income | 10.31 | % | 10.30 | % | ||||
Fee income | 1.77 | 2.22 | ||||||
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Interest and fee income | 12.08 | 12.52 | ||||||
Interest expense | 1.27 | 1.06 | ||||||
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Net interest and fee margin | 10.81 | % | 11.46 | % | ||||
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Net interest and fee income increased $6.9 million, or 11.4%, to $67.6 million for the nine-month period ended September 30, 2017 from $60.7 million for the nine-month period ended September 30, 2016. The annualized net interest and fee margin decreased 65 basis points to 10.81% in the nine-month period ended September 30, 2017 from 11.46% for the corresponding period in 2016.
Interest income, net of amortized initial direct costs and fees, increased $10.0 million, or 18.3%, to $64.5 million for the nine-month period ended September 30, 2017 from $54.5 million for the nine-month period ended September 30, 2016. The increase in interestOther income was principally due to an increase in average yield of one basis point partially offset by a 17.8% increase in average total finance receivables, which increased $125.8 million to $831.7 million for the nine-months ended September 30, 2017 from $705.9 million for the nine-months ended September 30, 2016. The increase in average total finance receivables was primarily due to origination volume continuing to exceed lease repayments. The average yield on the portfolio increased, due to higher yields on the new leases compared to the yields on the leases repaying. The weighted average implicit interest rate on new finance receivables originated increased 40 basis points to 12.13% for the nine-month period ended September 30, 2017, compared to 11.73% for the nine-month period ended September 30, 2016.
Fee income decreased $0.6 million to $11.1 million for the nine-month period ended September 30, 2017, compared to $11.7 million for the nine-month period ended September 30, 2016. Fee income included approximately $2.7 million of net residual income for the nine-month period ended September 30, 2017 and $3.2 million for the nine-month period ended September 30, 2016.
Fee income also included approximately $6.6 million in late fee income for the nine-month period ended September 30, 2017, which decreased 5.7% from $7.0 million for the nine-month period ended September 30, 2016.
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Fee income, as an annualized percentage of average total finance receivables, decreased 45 basis points to 1.77% for the nine-month period ended September 30, 2017 from 2.22% for the nine-month period ended September 30, 2016. Late fees remained the largest component of fee income at 1.06% as an annualized percentage of average total finance receivables for the nine-month period ended September 30, 2017, compared to 1.31% for the nine-month period ended September 30, 2016. As an annualized percentage of average total finance receivables, net residual income was 0.44% for the nine-month period ended September 30, 2017, compared to 0.61% for the nine-month period ended September 30, 2016.
Interest expense increased $2.4 million to $8.0 million, or 1.39% as an annualized percentage of average deposits, for the nine-month period ended September 30, 2017, from $5.6 million, or 1.18% as an annualized percentage of average deposits, for the nine-month period ended September 30, 2016. The increase was primarily due to an increase in the rate paid on interest bearing liabilities and to a lesser degree, the increase in the average balances of interest bearing liabilities. Interest expense, as an annualized percentage of average total finance receivables, increased 21 basis points to 1.27% for the nine-month period ended September 30, 2017, from 1.06% for the corresponding period in 2016. The average balance of deposits was $764.1$9.8 million and $632.8 $11.2
There were no borrowings outstanding for each
Our wholly-owned subsidiary, MBB, serves as our primary funding source. MBB raises fixed-ratepayroll
Insurance premiums written and earned.Insurance premiums written and earned increased $0.5 millionbenefits
Other income. Other income was $6.2 million and $2.0 million for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively. Other income primarily includes various administrative transaction fees and fees received from referral of leases to third parties, and gain on sale of leases and servicing fee income, recognized as earned. Selected major components of other income for the nine-month period ended September 30, 2017 included $2.2 million of referral income, $1.4 million of insurance policy fees, and $1.5 million gain on the sale of leases and servicing fee income. In comparison, selected major components of other income for the nine-month period ended September 30, 2016 included $0.4 million of referral income, $0.4 million of insurance policy fees, and $0.3 million gain on the sale of leases and servicing fee income.
Salaries and benefits expense.Salaries and benefits expense increased $4.0 million, or 16.8%, to $27.8 million for the nine-month period ended September 30, 2017 from $23.8 $25.7
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Total personnel increased to 331 at September 30, 2017 from 318 at September 30, 2016.
Financing-related costs.Financing-related costs primarily represent bank commitment fees paid to our financing sources on the unused portion of loan facilities. There were no financing-related costs for the nine-month period ended September 30, 2017, compared to $0.1 million for the corresponding period in 2016..
Provision for credit losses.The provision for credit losses increased $5.0 million, or 56.2%, to $13.9 million for the nine-month period ended September 30, 2017 from $8.9 million for the corresponding period in 2016. Lease portfolio losses tend to follow patterns based on the mix of origination vintages comprising the portfolio. The anticipated credit losses from the inception of a particular lease origination vintage tocharge-off generally follow a pattern of lower losses for the first few months, followed by increased losses in subsequent months, then lower losses during the later periods of the lease term. Therefore, the seasoning, or mix of origination vintages, of the portfolio affects the timing and amount of anticipated probable and estimable credit losses.
The increase in our provision for credit losses resulted from increased delinquency and charge-offs and to a lesser extent growth in the portfolio, and an additional $0.5 million for estimated inherent losses from the areas hardest hit by Hurricane Harvey and Hurricane Irma. This additional reserve is an estimate based on information currently available which includes information obtained from contacting affected customers.
Net charge-offs were $10.3 million for the nine-month period ended September 30, 2017, compared to $7.2 million for the corresponding period in 2016. The increase incharge-off rate is primarily due to the ongoing seasoning of the portfolio as reflected in the mix of origination vintages and the mix of credit profiles. Net charge-offs as an annualized percentage of average total finance receivables increased to 1.65% during the nine-month period ended September 30, 2017, from 1.36% for the corresponding period in 2016. The allowance for credit losses increased to approximately $14.5 million at September 30, 2017, an increase of $3.6 million from $10.9 million at December 31, 2016.
Additional information regarding asset quality is included herein in the section “Finance Receivables and Asset Quality.”
2020.
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FINANCE RECEIVABLES AND ASSET QUALITY
Our net investment in leases and loans increased $89.7 million, or 11.3%, to $886.4 million at September 30, 2017 from $796.7 million at December 31, 2016. We continue to monitor our credit underwriting guidelines in response to current economic conditions, and we continue to develop our sales organization to increase originations.
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The chart which follows provides our asset quality statistics for each of thethree-and nine-month periods ended September 30, 2017 and September 30, 2016, and the year ended December 31, 2016:
| Three Months Ended | Nine Months Ended | Year Ended | ||||||||||||||||||||||
| September 30, | September 30, | December 31, | ||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2016 | ||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Allowance for credit losses, beginning of period | $ | 12,559 | $ | 9,430 | $ | 10,937 | $ | 8,413 | $ | 8,413 | ||||||||||||||
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Charge-offs | (4,368 | ) | (3,062 | ) | (12,111 | ) | (9,060 | ) | (12,387 | ) | ||||||||||||||
Recoveries | 633 | 568 | 1,800 | 1,840 | 2,497 | |||||||||||||||||||
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Net charge-offs | (3,735 | ) | (2,494 | ) | (10,311 | ) | (7,220 | ) | (9,890 | ) | ||||||||||||||
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Provision for credit losses | 5,680 | 3,137 | 13,878 | 8,880 | 12,414 | |||||||||||||||||||
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Allowance for credit losses, end of period | (1 | ) | $ | 14,504 | $ | 10,073 | $ | 14,504 | $ | 10,073 | $ | 10,937 | ||||||||||||
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Annualized net charge-offs to average total finance receivables | (2 | ) | 1.73 | % | 1.36 | % | 1.65 | % | 1.36 | % | 1.37 | % | ||||||||||||
Allowance for credit losses to total finance receivables, end of period | (2 | ) | 1.64 | % | 1.33 | % | 1.64 | % | 1.33 | % | 1.38 | % | ||||||||||||
Average total finance receivables | (2 | ) | $ | 862,718 | $ | 732,346 | $ | 831,718 | $ | 705,879 | $ | 720,060 | ||||||||||||
Total finance receivables, end of period | (2 | ) | $ | 883,778 | $ | 756,144 | $ | 883,778 | $ | 756,144 | $ | 793,285 | ||||||||||||
Delinquencies greater than 60 days past due | $ | 6,157 | $ | 3,885 | $ | 6,157 | $ | 3,885 | $ | 4,137 | ||||||||||||||
Delinquencies greater than 60 days past due | (3 | ) | 0.61 | % | 0.45 | % | 0.61 | % | 0.45 | % | 0.46 | % | ||||||||||||
Allowance for credit losses to delinquent accounts greater than 60 days past due | (3 | ) | 235.57 | % | 259.28 | % | 235.57 | % | 259.28 | % | 264.37 | % | ||||||||||||
Non-accrual leases and loans, end of period | $ | 2,950 | $ | 2,022 | $ | 2,950 | $ | 2,022 | $ | 2,242 | ||||||||||||||
Renegotiated leases and loans, end of period | (4 | ) | $ | 2,543 | $ | 350 | $ | 2,543 | $ | 350 | $ | 769 | ||||||||||||
Accruing leases and loans past due 90 days or more | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Interest income included onnon-accrual leases and loans | (5 | ) | $ | 37 | $ | 21 | $ | 198 | $ | 111 | $ | 207 | ||||||||||||
Interest income excluded onnon-accrual leases and loans | (6 | ) | $ | 35 | $ | 23 | $ | 48 | $ | 40 | $ | 53 | ||||||||||||
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Net investments in finance receivables are generallycharged-off when they are contractually past due for 120 days or more. Income recognition is discontinued on leases or loans when a default on monthly payment exists for a period of 90 days or more. Income recognition resumes when a lease or loan becomes less than 90 days delinquent.
Funding Stream loans are generally placed in non-accrual status when they are 30 days past due. The loan is removed from non-accrual status once sufficient payments are made to bring the loan current and reviewed by management.
In the third quarter of 2017 we booked additional reserves for estimated inherent credit losses of $0.5 million based on our assessment of information available at the time on our lease portfolio’s exposure to those geographic areas most impacted by Hurricane Harvey and Hurricane Irma in August 2017 and September 2017, respectively. Marlin estimates that it has approximately $60.2 million in net investment in leases outstanding in the areas most affected by Hurricane Harvey and Hurricane Irma. The additional Hurricane Harvey and Hurricane Irma reserve is the primary cause of the increase in the allowance for credit losses as a percentage of total finance receivables to increase to 1.64% at September 30, 2017 from 1.38% at December 31, 2016.
Net charge-offs for the three months ended September 30, 2017 were $3.7 million (1.73% of average total finance receivables on an annualized basis), compared to $3.4 million (1.65% of average total finance receivables on an annualized basis) for the three months ended June 30, 2017 and $2.5 million (1.36% of average total finance receivables on an annualized basis) for the three months ended September 30, 2016. Lease portfolio losses tend to follow patterns based on the mix of origination vintages comprising the portfolio. The timing of credit losses from the inception of a particular lease origination vintage tocharge-off generally follows a pattern of lower losses for the first few months, followed by increased losses in subsequent months, then lower losses during the later periods of the lease term. Therefore, the seasoning, or mix of origination vintages, of the portfolio affects the timing and amount of charge-offs.
Net charge-offs for the nine-month period ended September 30, 2017 were $10.3 million (1.65% of average total finance receivables on an annualized basis), compared to $7.2 million (1.36% of average total finance receivables on an annualized basis) for the nine-month period ended September 30, 2016. The increase incharge-off rate is partially due to the ongoing seasoning of the portfolio as reflected in the mix of origination vintages and the mix of credit profiles, as discussed above.
Delinquent accounts 60 days or more past due (as a percentage of minimum lease payments receivable for leases and as a percentage of principal outstanding for loans) were 0.61% at September 30, 2017 and 0.46% at December 31, 2016, compared to 0.45% at September 30, 2016.
In accordance with the Contingencies and Receivables Topics of the FASB ASC, we maintain an allowance for credit losses at an amount sufficient to absorb losses inherent in our existing lease and loan portfolios as of the reporting dates based on our projection of probable net credit losses. The factors and trends discussed above were included in the Company’s analysis to determine its allowance for credit losses. (See “Critical Accounting Policies.”)
RESIDUAL PERFORMANCE
Our leases offer our end user customers the option to own the equipment at lease expiration. As of September 30, 2017, approximately 70% of our leases were one dollar purchase option leases, 29% were fair market value leases and less than 1% were fixed purchase option leases, the latter of which typically contain anend-of-term purchase option equal to 10% of the original equipment cost. As of September 30, 2017, there were $26.8 million of residual assets retained on our Consolidated Balance Sheet, of which $22.7 million, or 84.4%, were related to copiers. As of December 31, 2016, there were $26.8 million of residual assets retained on our Consolidated Balance Sheet, of which $22.5 million, or 83.8%, were related to copiers. No other group of equipment represented more than 10% of equipment residuals as of September 30, 2017 and December 31, 2016. Improvements in technology and other market changes, particularly in copiers, could adversely impact our ability to realize the recorded residual values of this equipment.
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Fee income included approximately $0.9 million and $1.1 million of net residual income for the three-month periods ended September 30, 2017 and September 30, 2016, respectively. Fee income included approximately $2.7 million and $3.2 million of net residual income for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively. Net residual income includes income from lease renewals and gains and losses on the realization of residual values of leased equipment disposed at the end of term as further described below.
Our leases generally include renewal provisions and many leases continue beyond their initial contractual term. Based on the Company’s experience, the amount of ultimate realization of the residual value tends to relate more to the customer’s election at the end of the lease term to enter into a renewal period, purchase the leased equipment or return the leased equipment than it does to the equipment type. We consider renewal income a component of residual performance. Renewal income net of depreciation totaled approximately $1.2 million and $1.3 million for the three-month periods ended September 30, 2017 and September 30, 2016, respectively. Renewal income net of depreciation totaled approximately $3.5 million and $3.8 million for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively.
For the three months ended September 30, 2017 and September 30, 2016, the net loss on residual values disposed at end of term totaled $0.2 million and $0.2 million, respectively. For the nine months ended September 30, 2017, the net loss on residual values disposed at end of term totaled $0.8 million, compared to a net loss of $0.6 million2021 our effective
LIQUIDITYoperating losses.
MBB also offers an FDIC-insured MMDA Product
On January 13, 2009, Marlin Business Services Corp. became a bank holding company and is subject to the Bank Holding Company Act and supervised by the Federal Reserve Bank of Philadelphia. On September 15, 2010, the Federal Reserve Bank of Philadelphia confirmed the effectiveness of Marlin Business Services Corp.’s election to become a financial holding company (while remaining a bank holding company) pursuant to Sections 4(k) and (l) of the Bank Holding Company Act and Section 225.82 of the Federal Reserve Board’s Regulation Y. Such election permits Marlin Business Services Corp. to engage in activities that are financial in nature or incidental to a financial activity, including the maintenance and expansion of our reinsurance activities conducted through our wholly-owned subsidiary, AssuranceOne.
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The CompanyWe declared
of our investment securities.
Additional liquidity is provided by or used by our cash flow from operations.
detail in the notes to the Consolidated Financial
Statements.2020.
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| For the Nine Months Ended September 30, 2017 | As of September 30, 2017 | |||||||||||||||||||||||||||
| Maximum Facility Amount | Maximum Month End Amount Outstanding | Average Amount Outstanding | Weighted Average Rate(2) | Amount Outstanding | Weighted Average Rate(2) | Unused Capacity(1) | ||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||
Federal funds purchased | $ | 25,000 | $ | — | $ | — | — | % | $ | — | — | % | $ | 25,000 | ||||||||||||||
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| $ | 25,000 | $ | — | — | % | $ | — | — | % | $ | 25,000 | |||||||||||||||||
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Term NoteSecuritizations
On January 13, 2009, we became a bank holding company by order of the Federal Reserve Board and
MBB is also subject to comprehensive federal and state regulations dealing
There are a number of restrictions on bank holding companies that are designed to minimize potential loss to depositors and the FDIC insurance funds. If an FDIC-insured depository subsidiary is “undercapitalized,” the bank holding company is required to ensure (subject to certain limits) the subsidiary’s compliance with the terms of any capital restoration plan filed with its appropriate banking agency. Also, a bank holding company is required to serve as a source of financial strength to its depository institution subsidiaries and to commit resources to support such institutions in circumstances where it might not do so absent such policy. Under the Bank Holding Company Act, the Federal Reserve Board has the authority to require a bank holding company to terminate any activity or to relinquish control of anon-bank subsidiary upon the Federal Reserve Board’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of a depository institution subsidiary of the bank holding company.
Capital Adequacy. The Company and MBB operate under the Basel III capital adequacy standards adopted by the federal bank regulatory agencies effective on January 1, 2015. Under the risk-based capital requirements applicable to them, bank holding companies must maintain a ratio of total capital to risk-weighted assets (including the asset equivalent of certainoff-balance sheet activities such as acceptances and letters of credit) of not less than 8% (10% in order to be considered “well-capitalized”). The requirements include a 6% minimum Tier 1 risk-based ratio (8% to be considered well-capitalized). Tier 1 Capital consists of common stock, related surplus, retained earnings, qualifying perpetual preferred stock and minority interests in the equity accounts of certain consolidated subsidiaries, after deducting goodwill and certain other intangibles. The remainder of total capital (“Tier 2 Capital”) may consist of certain perpetual debt securities, mandatory convertible debt securities, hybrid capital instruments and limited amounts of subordinated debt, qualifying preferred stock, allowance for credit losses on loans and leases, allowance for credit losses onoff-balance-sheet credit exposures and unrealized gains on equity securities.
The capital standards require a minimum Tier 1 leverage ratio of 4%. The capital requirements also require a common equity Tier 1 risk-based capital ratio with a required minimum of 4.5% (6.5% to be considered well-capitalized). The Federal Reserve Board’s guidelines also provide that bank holding companies experiencing internal growth or making acquisitions may be expected to maintain capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the guidelines indicate that the Federal Reserve Board will continue to consider a “tangible tier 1 leverage ratio” (i.e., after deducting all intangibles) in evaluating proposals for expansion or new activities. MBB is subject to similar capital standards.
The Company is required to have a level of regulatory capital in excess of the regulatory minimum and to have a capital buffer above 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. If a banking organization does not maintain capital above the minimum plus the capital conservation buffer it may be subject to restrictions on dividends, share buybacks, and certain discretionary payments such as bonus payments.
Pursuant
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Information on Stock Repurchases
2021
As previously disclosed in
Contractual Obligations
Inacquiror’s assumption of those deposits, MBB has agreed
| Contractual Obligations as of September 30, 2017 | ||||||||||||||||||||||||
Period Ending December 31, | Certificates of Deposits(1) | Contractual Interest Payments(2) | Operating Leases | Leased Facilities | Capital Leases | Total | ||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
2017 | $ | 84,627 | $ | 2,687 | $ | 9 | $ | 396 | $ | 28 | $ | 87,747 | ||||||||||||
2018 | 307,583 | 8,073 | 35 | 1,454 | 112 | 317,257 | ||||||||||||||||||
2019 | 197,288 | 4,634 | 35 | 1,412 | 112 | 203,481 | ||||||||||||||||||
2020 | 95,197 | 2,276 | 8 | 678 | 112 | 98,271 | ||||||||||||||||||
2021 | 60,400 | 990 | — | — | 65 | 61,455 | ||||||||||||||||||
Thereafter | 24,918 | 229 | — | — | — | 25,147 | ||||||||||||||||||
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Total | $ | 770,013 | $ | 18,889 | $ | 87 | $ | 3,940 | $ | 429 | $ | 793,358 | ||||||||||||
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There were nooff-balance sheet arrangements requiring disclosure at September 30, 2017.
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OfficerOfficer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the by this report.Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures as of the end of the period covered SEC’sCompany’sCompany's third fiscal quarterof 20172021 that have materially affected, or are reasonably likelyto
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In addition2019 Repurchase
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(1)Previously filed with the SEC as an exhibit to the Registrant’s Annual Report on Form10-K for the fiscal year ended December 31, 2007 filed on March 5, 2008, and incorporated by reference herein.(2)Previously filed with the SEC as an exhibit to the Registrant’s Current Report on Form8-K filed on October 20, 2016, and incorporated by reference herein.(3)Previously filed with the SEC as an exhibit to the Registrant’s Current Report on Form 8-K filed on October 13, 2017, and incorporated by reference herein.-63-
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