UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Quarterly Period Ended
June 30, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from__________ to__________
Commission file number
000-50448
MARLIN BUSINESS SERVICES CORP.
(Exact name of registrant as specified in its charter)
Pennsylvania
38-3686388
(State
of
incorporation)
(I.R.S.
Employer
Identification
Number)
300 Fellowship Road
,
Mount Laurel
,
NJ
08054
(Address of principal executive offices) (Zip code)
(
888
)
479-9111
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.01 per share
MRLN
NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
☑
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
registrant was required to submit such files.)
Yes
☑
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of "large accelerated filer,” “accelerated filer", “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☑
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of
the Exchange Act
.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes
☐
No
☒
At July 23, 2021,
12,026,456
MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 2021
TABLE OF CONTENTS
Page
No.
................................................................ ................................................................ ...................................... 58
-3-
PART I. Financial Information
Item
1.
Consolidated
Financial
Statements
MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
June 30,
December 31,
2021
2020
(Dollars in thousands, except per-
share data)
ASSETS
Cash and due from banks
$
4,451
$
5,473
Interest-earning deposits with banks
109,801
130,218
114,252
135,691
Time deposits with banks
3,486
5,967
Restricted interest-earning deposits related to consolidated VIEs
3,799
4,719
Investment securities (amortized cost of $
12.4
11.5
June 30, 2021 and December 31, 2020, respectively)
12,580
11,624
Net investment in leases and loans:
308,191
337,159
520,920
532,125
Net investment in leases and loans, excluding allowance for credit losses (includes $
17
.0 million and
$
30.4
829,111
869,284
Allowance for credit losses
(28,757)
(44,228)
800,354
825,056
Intangible assets
5,343
5,678
Operating lease right-of-use assets
7,458
7,623
Property and equipment, net
9,043
8,574
Property tax receivables, net of allowance
9,855
6,854
Other assets
19,269
10,212
$
985,439
$
1,021,998
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
$
697,805
$
729,614
Long-term borrowings related to consolidated VIEs
17,227
30,665
Operating lease liabilities
8,326
8,700
Other liabilities:
7,224
6,316
18,961
27,734
24,817
22,604
774,360
825,633
Commitments and contingencies
Stockholders’ equity:
Preferred Stock, $
0.01
5,000,000
0
0
Common Stock, $
0.01
75,000,000
12,026,473
11,974,530
120
120
77,279
76,323
165
69
133,515
119,853
211,079
196,365
$
985,439
$
1,021,998
The accompanying notes are an integral part of the unaudited consolidated financial statements.
-4-
MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2021
2020
2021
2020
(Dollars in thousands, except per-share data)
Interest income
$
17,678
$
24,248
$
35,966
$
50,713
Fee income
2,313
2,450
4,768
5,216
Interest and fee income
19,991
26,698
40,734
55,929
Interest expense
2,819
5,428
6,082
11,108
Net interest and fee income
17,172
21,270
34,652
44,821
Provision for credit losses
(9,891)
18,806
(12,827)
43,956
Net interest and fee income after provision for credit losses
27,063
2,464
47,479
865
Non-interest income:
0
57
0
2,339
1,943
2,249
3,941
4,531
1,554
1,489
8,128
9,128
3,497
3,795
12,069
15,998
Non-interest expense:
8,461
7,668
16,834
17,187
8,377
5,847
19,623
19,452
0
0
0
6,735
16,838
13,515
36,457
43,374
13,722
(7,256)
23,091
(26,511)
Income tax expense (benefit)
3,466
(1,374)
5,984
(8,808)
$
10,256
$
(5,882)
$
17,107
$
(17,703)
Basic earnings (loss) per share
$
0.85
$
(0.50)
$
1.43
$
(1.50)
Diluted earnings (loss) per share
$
0.84
$
(0.50)
$
1.41
$
(1.50)
The accompanying notes are an integral part of the unaudited consolidated financial statements.
-5-
MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2021
2020
2021
2020
(Dollars in thousands)
Net income (loss)
$
10,256
$
(5,882)
$
17,107
$
(17,703)
Other comprehensive income:
377
88
130
37
(97)
(22)
(34)
(9)
Total other comprehensive income
280
66
96
28
$
10,536
$
(5,816)
$
17,203
$
(17,675)
The accompanying notes are an integral part of the unaudited consolidated financial statements.
-6-
MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(Unaudited)
Accumulated
Common
Additional
Other
Total
Common
Stock
Paid-In
Comprehensive
Retained
Stockholders’
Shares
Amount
Capital
Income (Loss)
Earnings
Equity
(Dollars in thousands)
Balance, December 31, 2020
11,974,530
$
120
$
76,323
$
69
$
119,853
$
196,365
(16,038)
0
(224)
0
0
(224)
50,831
—
—
—
—
—
—
0
583
0
0
583
—
0
0
(184)
0
(184)
—
0
0
0
6,851
6,851
Cash dividends paid ($
0.14
—
0
0
0
(1,689)
(1,689)
Balance, March 31, 2021
12,009,323
120
76,682
(115)
125,015
201,702
(124)
0
(3)
0
0
(3)
17,274
—
—
—
—
—
—
0
600
0
0
600
—
0
0
280
0
280
—
0
0
0
10,256
10,256
Cash dividends paid ($
0.14
—
0
0
0
(1,756)
(1,756)
Balance, June 30, 2021
12,026,473
$
120
$
77,279
$
165
$
133,515
$
211,079
The accompanying notes are an integral part of the unaudited consolidated financial statements.
-7-
MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(Unaudited)
Accumulated
Common
Additional
Other
Total
Common
Stock
Paid-In
Comprehensive
Retained
Stockholders’
Shares
Amount
Capital
Income (Loss)
Earnings
Equity
(Dollars in thousands)
Balance, December 31, 2019
12,113,585
$
121
$
79,665
$
58
$
135,112
$
214,956
(285,593)
(3)
(4,535)
0
0
(4,538)
56,481
1
(1)
0
0
0
—
0
518
0
0
518
—
0
0
(38)
0
(38)
—
0
0
0
(11,821)
(11,821)
(1)
—
0
0
0
(8,877)
(8,877)
Cash dividends paid ($
0.14
—
0
0
0
(1,710)
(1,710)
Balance, March 31, 2020
11,884,473
119
75,647
20
112,704
188,490
14,891
0
120
0
0
120
(1,897)
0
(12)
0
0
(12)
44,780
—
—
—
—
—
—
0
(149)
0
0
(149)
—
0
0
66
0
66
—
0
0
0
(5,882)
(5,882)
Cash dividends paid ($
0.14
—
0
0
0
(1,629)
(1,629)
Balance, June 30, 2020
11,942,247
$
119
$
75,606
$
86
$
105,193
$
181,004
(1) Represents the impact of Accounting Standards Update ("ASU") 2016-13 and related ASUs collectively referred to as "CECL".
The accompanying notes are an integral part of the unaudited consolidated financial statements.
-8-
MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
2021
2020
(Dollars in thousands)
Cash flows from operating activities:
Net income (loss)
$
17,107
$
(17,703)
1,813
2,059
1,183
369
0
6,735
56
(89)
(12,827)
43,956
2,177
(6,047)
5,064
6,393
0
(37)
0
(2,339)
0
(4,820)
0
5,058
425
872
(12,317)
(7,665)
(9,227)
(1,320)
(6,546)
25,422
Cash flows from investing activities:
2,481
2,986
(187,852)
(229,512)
219,357
237,797
0
21,337
2
(129)
1,600
1,151
(1,659)
(1,790)
(1,571)
(37)
728
816
33,086
32,619
Cash flows from financing activities:
(31,809)
63,059
(13,504)
(25,402)
0
(168)
0
120
(227)
(4,550)
(3,359)
(3,349)
(48,899)
29,710
Net (decrease) increase in total cash, cash equivalents and restricted cash
(22,359)
87,751
Total cash, cash equivalents and restricted cash, beginning of period
140,410
130,027
Total cash, cash equivalents and restricted cash, end of period
$
118,051
$
217,778
The accompanying notes are an integral part of the unaudited consolidated financial statements.
-9-
MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
2021
2020
(Dollars in thousands)
Supplemental disclosures of cash flow information:
$
6,023
$
11,368
21,825
1,868
0
19,235
Supplemental disclosures of non cash investing activities:
$
3,194
$
4,106
Reconciliation of Cash, cash equivalents and restricted cash to
the Consolidated Balance Sheets:
Cash and cash equivalents
$
114,252
$
211,706
Restricted interest-earning deposits
3,799
6,072
Cash, cash equivalents and restricted cash at end of period
$
118,051
$
217,778
-10-
MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – The Company
We are a nationwide provider of credit products and services to small businesses and were incorporated in the Commonwealth of
Pennsylvania
2003
. In 2008, we opened Marlin Business Bank (“MBB”), a commercial bank chartered by the State of
Utah
member of the Federal Reserve System, which serves as the Company’s primary funding source through its issuance of Federal
Deposit Insurance Corporation (“FDIC”)-insured deposits. In 2009, Marlin Business Services Corp. became a bank holding company
subject to the Bank Holding Company Act and in 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, Ltd. (“AssuranceOne”).
On April 18, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the
Company, Madeira Holdings, LLC and Madeira Merger Subsidiary, Inc. (“HPS Merger Sub”) pursuant to which all outstanding
shares of the Company’s common stock will, subject to the terms and conditions of the Merger Agreement, be cancelled and
converted into the merger consideration specified in the Merger Agreement in an all cash transaction pursuant to a merger of the
Company with and into HPS Merger Sub, with the Company surviving (the “Merger”). The Company's Board of Directors has
unanimously approved the Merger. The Merger remains subject to, in addition to various other customary closing conditions: approval
by the Company’s shareholders; governmental and regulatory approvals; and completion of MBB’s surrender of its banking licenses
and authority and termination of its FDIC insured deposits (a process we refer to as “De-banking”).
References to the “Company,” “Marlin,” “Registrant,” “we,” “us” and “our” herein refer to Marlin Business Services Corp. and its
wholly-owned subsidiaries, unless the context otherwise requires.
NOTE 2 – Summary of Significant Accounting Policies
Basis of financial statement presentation.
its wholly-owned subsidiaries. Marlin Leasing Corporation (“MLC”) and MBB are managed together as a single business segment and
are aggregated for financial reporting purposes as they exhibit similar economic characteristics, share the same leasing and loan
portfolio and have a single consolidated product offering platform. All intercompany accounts and transactions have been eliminated
in consolidation.
The accompanying unaudited consolidated financial statements present the Company’s financial position at June 30, 2021 and the
results of operations for the three- and six -month periods ended June 30, 2021 and 2020, and cash flows for the six-month periods
ended June 30, 2021 and 2020. In management’s opinion, the unaudited consolidated financial statements contain all adjustments,
which include normal and recurring adjustments, necessary for a fair presentation of the financial position and results of operations for
the interim periods presented. These unaudited consolidated financial statements should be read in conjunction with the consolidated
financial statements and note disclosures included in the Company’s Form 10-K for the year ended December 31, 2020, filed with the
Securities and Exchange Commission (“SEC”) on March 5, 2021. The consolidated results and statements of cash flows for these
interim financial statements are not necessarily indicative of the results of operations or cash flows for the respective full years or any
other period.
Use of Estimates.
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for
income recognition, the residual values of leased equipment, the allowance for credit losses, deferred initial direct costs and fees, late
fee receivables, the fair value of financial instruments, estimated losses from insurance program, and income taxes. Actual results
could differ from those estimates.
Income taxes.
-11-
Our statutory tax rate, which is a combination of federal and state income taxes, was
25.2
% and
25.4
% for the three months ended
June 30, 2021 and June 30, 2020, respectively.
For the six months ended June 30, 2021, our effective tax rate was
25.9
%. For the six months ended June 30, 2020, our effective tax
rate was
33.2
%, driven by a $
3.2
million discrete benefit, resulting from certain provisions in the Coronavirus Aid, Relief, and
Economic Security Act (“CARES Act”) that allow for a remeasurement of our federal net operating losses.
For the three and six-month periods ended June 30, 2021, our effective tax rates were
25.3
% and
25.9
%, respectively.
During the second quarter of 2021, the Company made a $
19.8
current tax receivable balance of $
10.5
filing during the second half of 2021.
The Company’s IRS federal audit for tax years ending December 31, 2013 to 2018 resulting from Joint Committee Review as part of
an IRS refund claim closed in the second quarter of 2021 with no adjustments. The Company remains subject to examination for the
2017 tax year to the present under regular statute of limitations.
Significant Accounting Policies.
There have been no significant changes to our Significant Accounting Policies as described in our
Annual Report on Form 10-K for the year ended December 31, 2020.
Recently Adopted Accounting Standards
.
Credit Losses.
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and related
ASUs collectively referred to as “CECL”.
The Company adopted the guidance in these ASUs, effective January 1, 2020, applying changes resulting from the application of the
new standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in
which the guidance was effective (i.e., modified retrospective approach). See our Annual Report on Form 10-K for the year ended
December 31, 2020 for a detailed discussion of our adoption of this guidance.
Income Taxes
. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes, which removes certain exceptions to the general principles of ASC 740 in order to reduce the cost and complexity of
its application. The amendments also clarify and amend existing guidance to improve consistent application. The ASU is effective for
fiscal years beginning after December 15, 2020, including interim periods within those annual periods. We adopted ASU 2019-12 on
January 1, 2021, and the adoption did not have a material impact on our consolidated financial position or results of operations.
-12-
NOTE 3 – Non-Interest Income
The following table summarizes non-interest income for the periods presented:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2021
2020
2021
2020
Insurance premiums written and earned
$
1,943
$
2,249
$
3,941
$
4,531
Gain on sale of leases and loans
0
57
0
2,339
Other income:
Property tax (loss) income
20
(380)
5,040
5,124
Servicing income
307
489
693
1,055
Net gains recognized during the period on equity securities
10
31
(56)
89
Non-interest income - other than from contracts with customers
2,280
2,446
9,618
13,138
Other income:
Insurance policy fees
747
873
1,519
1,791
Property tax administrative fees on leases
206
236
409
470
ACH payment fees
63
36
122
108
Referral fees
21
14
31
108
Other
180
190
370
383
Non-interest income from contracts with customers
1,217
1,349
2,451
2,860
Total non-interest income
$
3,497
$
3,795
$
12,069
$
15,998
-13-
NOTE 4 - Investment Securities
The Company had the following investment securities as of the dates presented:
June 30,
December 31,
(Dollars in thousands)
2021
2020
Equity Securities
Mutual fund
$
3,730
$
3,760
Debt Securities, Available for Sale:
Asset-backed securities ("ABS")
4,974
3,719
Municipal securities
3,876
4,145
$
12,580
$
11,624
The following schedule summarizes changes in fair value of equity securities and the portion of unrealized gains and losses for each
period presented:
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in thousands)
2021
2020
2021
2020
Net gains (losses) recognized during the period on equity securities
$
10
$
31
$
(56)
$
89
Less: Net gains recognized during the period
0
0
0
0
Unrealized gains recognized during the reporting period
$
10
$
31
$
(56)
$
89
-14-
Available for Sale
The following schedule is a summary of available for sale investments as of the dates presented:
June 30, 2021
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
Cost
Gains
Losses
Fair Value
(Dollars in thousands)
ABS
$
4,933
$
42
$
(1)
$
4,974
Municipal securities
3,672
205
(1)
3,876
$
8,605
$
247
$
(2)
$
8,850
December 31, 2020
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
Cost
Gains
Losses
Fair Value
(Dollars in thousands)
ABS
$
3,666
$
53
$
0
$
3,719
Municipal securities
4,082
64
(1)
4,145
$
7,748
$
117
$
(1)
$
7,864
The Company evaluates its available for sale securities in an unrealized loss position for other than temporary impairment on at least a
quarterly basis. The Company did not recognize any other than temporary impairment to earnings for each of the periods ended June
30, 2021 and June 30, 2020.
The following tables present the aggregate amount of unrealized losses on available for sale securities in the Company’s investment
securities classified according to the amount of time those securities have been in a continuous loss position as of June 30, 2021 and
December 31, 2020:
June 30, 2021
Less than 12 months
12 months or longer
Total
Gross
Gross
Gross
Unrealized
Fair
Unrealized
Fair
Unrealized
Fair
Losses
Value
Losses
Value
Losses
Value
(Dollars in thousands)
ABS
$
(1)
$
1,588
$
0
$
0
$
(1)
$
1,588
Municipal securities
(1)
71
0
0
(1)
71
Total available for sale investment
securities
$
(2)
$
1,659
$
0
$
0
$
(2)
$
1,659
December 31, 2020
Less than 12 months
12 months or longer
Total
Gross
Gross
Gross
Unrealized
Fair
Unrealized
Fair
Unrealized
Fair
Losses
Value
Losses
Value
Losses
Value
(Dollars in thousands)
Municipal securities
$
(1)
$
141
$
0
$
0
$
(1)
$
141
Total available for sale investment
securities
$
(1)
$
141
$
0
$
0
$
(1)
$
141
-15-
The following table presents the amortized cost, fair value, and weighted average yield of available for sale investments at June 30,
2021, based on estimated average life. Receipt of cash flows may differ from those estimated maturities because borrowers may have
the right to call or prepay obligations with or without penalties:
Distribution of Maturities
1 Year
Over 10
or Less
5 Years
10 Years
Years
Total
(Dollars in thousands)
Amortized Cost:
ABS
$
1,480
$
204
$
1,660
$
1,589
$
4,933
Municipal securities
5
253
3,342
72
3,672
Total available for sale investments
$
1,485
$
457
$
5,002
$
1,661
$
8,605
Estimated fair value
$
1,501
$
463
$
5,086
$
1,659
$
8,709
Weighted-average yield, GAAP basis
2.26%
1.79%
1.84%
1.81%
1.90%
-16-
NOTE 5 – Net Investment in Leases and Loans
Net investment in leases and loans consists of the following:
June 30, 2021
December 31, 2020
(Dollars in thousands)
Minimum lease payments receivable
$
322,598
$
354,298
Estimated residual value of equipment
25,544
26,983
Unearned lease income, net of initial direct costs and fees deferred
(39,564)
(43,737)
Security deposits
(387)
(385)
Total leases
308,191
337,159
Commercial loans, net of origination costs and fees deferred
Working Capital Loans
24,688
20,034
CRA
(1)
1,164
1,091
Equipment loans
(2)
432,681
449,149
CVG
62,387
61,851
Total commercial loans
520,920
532,125
Net investment in leases and loans, excluding allowance
829,111
869,284
Allowance for credit losses
(28,757)
(44,228)
Total net investment in leases and loans
$
800,354
$
825,056
________________________
(1)
CRA loans are comprised of loans originated under a line of credit to satisfy its obligations under the Community Reinvestment Act of 1977
(“CRA”).
(2)
Equipment loans are comprised of Equipment Finance Agreements, Installment Purchase Agreements and other loans.
In response to COVID-19, starting in mid-March 2020, the Company instituted a payment deferral contract modification program in
order to assist our small-business customers. See Note 6, “Allowance for Credit Losses” for discussion of that program.
At June 30, 2021, $
18.1
securitization balance and $
55.3
the Federal Reserve Discount Window.
The amount of deferred initial direct costs and origination costs net of fees deferred were $
13.6
14.6
30, 2021 and December 31, 2020, respectively. Initial direct costs are netted in unearned income and are amortized to income using
the effective interest method. Origination costs are netted in commercial loans and are amortized to income using the effective interest
method. At June 30, 2021 and December 31, 2020, $
21.1
21.9
equipment retained on our Consolidated Balance Sheets was related to copiers.
-17-
Maturities of lease receivables under lease contracts and the amortization of unearned lease income, including initial direct costs and
fees deferred, were as follows as of June 30, 2021:
Minimum Lease
Payments
Net Income
Receivable
(1)
Amortization
(2)
(Dollars in thousands)
Period Ending December 31,
Remainder of 2021
$
69,625
$
13,567
2022
115,706
14,628
2023
75,251
7,429
2024
40,201
2,983
2025
16,815
865
Thereafter
5,000
92
$
322,598
$
39,564
________________________
(1)
Represents the undiscounted cash flows of the lease payments receivable.
(2)
Represents the difference between the undiscounted cash flows and the discounted cash flows.
-18-
The lease income recognized was as follows:
Three Months Ended June 30,
Six Months Ended June 30,
2021
2020
2021
2020
(Dollars in thousands)
Interest Income
$
6,309
$
8,469
$
13,003
$
17,620
As of June 30, 2021 and December 31, 2020, the Company maintained total finance receivables which were on a non-accrual basis
with net investment of $
13.1
14.3
modified under its COVID-19 payment deferral program of $
80.6
9.72
% of the Company’s total
net investment. See Note 6 “Allowance for Credit Losses” for additional discussion of loan modifications due to COVID-19.
Portfolio Sales
The Company has historically originated certain lease and loans for sale to third parties, based on their underwriting criteria and
specifications. In addition, the Company may periodically enter into agreements to sell certain leases and loans that were originated
for investment to third parties.
For agreements that qualify as a sale where the Company has continuing involvement through servicing, the Company recognizes a
servicing liability at its initial fair value, and then amortizes the liability over the expected servicing period based on the effective yield
method, within Other income in the Consolidated Statements of Operations. The Company’s sale agreements typically do not contain
a stated servicing fee, so the initial value recognized as a servicing liability is a reduction of the proceeds received and is based on an
estimate of the fair value attributable to that obligation. The Company’s servicing liability was $
0.9
1.3
June 30, 2021, and December 31, 2020, respectively, and is recognized within Accounts payable and accrued expenses in the
Consolidated Balance Sheets. As of June 30, 2021 and December 31, 2020, the portfolio of leases and loans serviced for others was
$
172
230
In addition, the Company may have continuing involvement in contracts sold through any recourse obligations that may include
customary representations and warranties or specific recourse provisions.
The following table summarizes information related to portfolio sales for the periods presented:
Three Months Ended June 30,
Six Months Ended June 30,
2021
2020
2021
2020
(Dollars in thousands)
Sales of leases and loans
$
0
$
1,127
$
0
$
24,056
Gain on sale of leases and loans
0
57
0
2,339
-19-
NOTE 6 – Allowance for Credit Losses
Effective January 1, 2020, we
ASU 2016-13 and related ASUs collectively referred to as CECL
,
incurred loss model with a measurement of expected credit losses for the contractual term of the Company’s current portfolio of loans
and leases. See our Annual Report on Form 10-K for the year ended December 31, 2020 for a detailed discussion of our adoption of
this guidance
.
The following tables summarize activity in the allowance for credit losses
:
Three Months Ended June 30, 2021
(Dollars in thousands)
Equipment
Finance
Working
Capital
Loans
CVG
CRA
Total
Allowance for credit losses, beginning of period
$
28,852
$
1,010
$
9,049
$
0
$
38,911
(2,425)
(16)
(399)
0
(2,840)
1,300
144
180
0
1,624
Net charge-offs
(1,125)
128
(219)
0
(1,216)
Realized cashflows from Residual Income
953
0
0
0
953
(8,961)
(135)
(795)
0
(9,891)
Allowance for credit losses, end of period
$
19,719
$
1,003
$
8,035
$
0
$
28,757
Net investment in leases and loans, before allowance
$
732,152
$
24,688
$
71,107
$
1,164
$
829,111
Three Months Ended June 30, 2020
(Dollars in thousands)
Equipment
Finance
Working
Capital
Loans
CVG
CRA &
PPP
Total
Allowance for credit losses, beginning of period
$
37,774
$
7,200
$
7,086
$
0
$
52,060
(7,724)
(686)
(904)
0
(9,314)
729
17
74
0
820
(6,995)
(669)
(830)
0
(8,494)
Realized cashflows from Residual Income
1,272
0
0
0
1,272
16,499
1,431
876
0
18,806
Allowance for credit losses, end of period
$
48,550
$
7,962
$
7,132
$
0
$
63,644
Net investment in leases and loans, before allowance
$
846,057
$
42,078
$
81,449
$
5,095
$
974,679
-20-
Six Months Ended June 30, 2021
(Dollars in thousands)
Equipment
Finance
Working
Capital
Loans
CVG
CRA
Total
Allowance for credit losses, beginning of period
$
33,184
$
1,206
$
9,838
$
0
$
44,228
(6,149)
(550)
(1,149)
0
(7,848)
2,660
273
223
0
3,156
Net charge-offs
(3,489)
(277)
(926)
0
(4,692)
Realized cashflows from Residual Income
2,048
0
0
0
2,048
(12,024)
74
(877)
0
(12,827)
Allowance for credit losses, end of period
$
19,719
$
1,003
$
8,035
$
0
$
28,757
Net investment in leases and loans, before allowance
$
732,152
$
24,688
$
71,107
$
1,164
$
829,111
Six Months Ended June 30, 2020
(Dollars in thousands)
Equipment
Finance
Working
Capital
Loans
CVG
CRA &
PPP
Total
Allowance for credit losses, December 31, 2019
$
18,334
$
1,899
$
1,462
$
0
$
21,695
Adoption of ASU 2016-13 (CECL)
(1)
9,264
(3)
2,647
0
11,908
Allowance for credit losses, beginning of period
$
27,598
$
1,896
$
4,109
$
0
$
33,603
(14,214)
(1,965)
(1,633)
0
(17,812)
1,254
55
163
0
1,472
(12,960)
(1,910)
(1,470)
0
(16,340)
Realized cashflows from Residual Income
2,425
0
0
0
2,425
31,487
7,976
4,493
0
43,956
Allowance for credit losses, end of period
$
48,550
$
7,962
$
7,132
$
0
$
63,644
Net investment in leases and loans, before allowance
$
846,057
$
42,078
$
81,449
$
5,095
$
974,679
__________________
(1)
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments
, which changed our accounting policy and estimated allowance, effective January 1, 2020. See further
discussion in Note 2, “Summary of Significant Accounting Policies”, and below.
-21-
Estimate of Current Expected Credit Losses (CECL)
The Company uses a vintage loss model as the approach to estimate and measure its expected credit losses for all portfolio segments
and for all pools, primarily because the timing of the losses realized has been consistent across historical vintages, such that the
company is able to develop a predictable and reliable loss curve for each separate portfolio segment. The vintage model assigns loans
to vintages by origination date, measures our historical average actual loss and recovery experience within that vintage, develops a
loss curve based on the averages of all vintages, and predicts (or forecasts) the remaining expected net losses of the current portfolio
by applying the expected net loss rates to the remaining life of each open vintage.
Additional detail specific to the measurement of each portfolio segment as of June 30, 2021, is summarized below.
Equipment Finance:
Equipment Finance consists of Equipment Finance Agreements, Installment Purchase Agreements and other leases and loans.
The risk characteristics referenced to develop pools of Equipme nt Finance leases and loans are based on internally developed
credit score ratings, which is a measurement that combines many risk characteristics, including loan size, external credit
scores, existence of a guarantee, and various characteristics of the borrower’s business. In addition, the Company separately
measured a pool of true leases so that any future cashflows from residuals could be used to partially offset the allowance for
that pool.
The Company’s measurement of Equipment Finance pools is based on its own historical loss experience. The Company
analyzed the correlation of its own loss data from 2004 to 2019 against various economic variables in order to determine an
approach for reasonable and supportable forecast. The Company then selected certain economic variables to reference for its
forecast about the future, specifically the unemployment rate and growth in business bankruptcy. The Company’s
methodology reverts from the forecast data to its own loss data adjusted for the long-term average of the referenced economic
variables, on a straight-line basis.
At each reporting date, the Company considers current conditions, including changes in portfolio composition or the business
environment, when determining the appropriate measurement of current expected credit losses for the remaining life of its
portfolio. As of the January 1, 2020 adoption date, the Company utilized a 12-month forecast period and 12-month straight-
line reversion period, based on its initial assessment of the appropriate timing.
However, starting with the March 31, 2020 measurement, the Company adjusted its model to reference a 6-month forecast
period and 12-month straight line reversion period. The change in the length of the reasonable and supportable forecast was
based on observed market volatility in March 2020. During the first quarter of 2021, the Company reverted to the pre-
COVID 12-month forecast period and 12-month straight line reversion period and continued using this forecast in the second
quarter of 2021as uncertainty in the macroeconomic environment has lessened and the Company’s portfolio has stabilized
with low net charge-offs and delinquencies . The continued positive economic forecast resulted in provision benefits for
Equipment Finance of $
9.0
12.0
compared to provisions of $
16.5
31.5
pandemic.
Working Capital:
The risk characteristics referenced to develop pools of Working Capital loans is based on origination channel, separately
considering an estimation of loss for direct-sourced loans versus loans that were sourced from a broker. The Company’s
historical relationship with its direct-sourced customers typically results in a lower level of credit risk than loans sourced
from brokers where the Company has no prior credit relationship with the customer.
The Company’s measurement of Working Capital pools is based on its own historical loss experience. The Company’s
Working Capital loans typically range from 6 – 12 months of duration. For this portfolio segment, due to the short contract
duration, the Company did not define a standard methodology to adjust its loss estimate based on a forecast of economic
conditions. However, the Company will continually assess through a qualitative adjustment whether there are changes in
conditions and the environment that will impact the performance of these loans that should be considered for qualitative
adjustment.
-22-
At each reporting date, the Company considers current conditions, including changes in portfolio composition or the business
environment, when determining the appropriate measurement of current expected credit losses for the remaining life of its
portfolio. As of the January 1, 2020 adoption date, there was no qualitative adjustment to the Working Capital portfolio.
However, starting with its March 31, 2020 measurement, driven by the elevated risk of credit loss driven by market
conditions due to COVID-19, the Company developed alternate scenarios for credit loss based on an analysis of the
characteristics of its portfolio, considering different timing and magnitudes of potential exposures.
During the second quarter, the Company updated its expectation for credit losses for the Working Capital segment based on
the favorable actual portfolio performance during the quarter and a revised forecast based on its current assessment of risks in
the portfolio. Based on that analysis, the Company recognized a provision benefit of $
0.1
June 30, 2021, bringing the total provision associated with Working Capital to $
0.1
2021.
Commercial Vehicle Group (CVG):
Transportation-related equipment leases and loans are analyzed as a single pool, as the Company did not consider any risk
characteristics to be significant enough to warrant disaggregating this population.
The Company’s measurement of CVG is based on a combination of its own historical loss experience and industry loss data
from an external source. The Company has limited history of this product, and therefore the Company determined it was
appropriate to develop an estimate based on a combination of internal and industry data. Due to the Company’s limited
history of performance of this segment, and the limited size of the portfolio, the Company did not develop a standard
methodology to adjust its loss estimate based on a forecast of economic conditions. However, the Company will continually
assess through a qualitative adjustment whether there are changes in conditions and the environment that will impact the
performance of these loans that should be considered for qualitative adjustment.
At each reporting date, the Company considers current conditions, including changes in portfolio composition or the business
environment, when determining the appropriate measurement for the remaining life of the current portfolio. As of the
January 1, 2020 adoption date, there were no qualitative adjustment to the CVG portfolio. However, starting with the March
31, 2020 measurement, driven by the elevated risk of credit loss driven by market conditions due to COVID-19, the
Company developed alternate scenarios for expected credit loss for this segment, considering different timing and
magnitudes of potential exposures.
Beginning in the first quarter of 2021, the Company updated its expectation for credit losses for the CVG segment, including
separately assessing the elevated risks of a population of motor coach industry contracts that are facing prolonged impacts
from COVID-19. While the segment continues to evidence negative impacts from COVID-19 as seen in the segment’s
delinquency and modification balances, it is also experiencing positive indicators such as paydown of balance. These factors,
including no further significant reduction in collateral values contributed to a $
1.0
ending the period at $
4.7
Community Reinvestment Act (CRA) Loans:
CRA loans are comprised of loans originated under a line of credit to satisfy the Company’s obligations under the CRA. The
Company does not measure an allowance specific to this population because the exposure to credit loss is nominal.
For the three and six- months ended June 30, 2021, the Company recognized provision benefits of $
9.9
12.8
respectively, driven primarily by improving economic forecasts and portfolio performance.
Our reserve as of June 30, 2021, and the qualitative and economic adjustments discussed above, were calculated referencing our
historical loss experience, including loss experience through the 2008 economic cycle, and our adjustments to that experience based
on our judgements about the extent of the impact of the COVID-19 pandemic. Those judgements include certain expectations for the
extent and timing of impacts from COVID-19 on unemployment rates and business bankruptcies and are based on our current
expectations of the performance of our portfolio in the current environment. We may recognize credit losses in excess of our reserve
or revise our estimate of credit losses in the future, and such amounts may be significant, based on (i) the actual performance of our
portfolio, including the performance of the modified portfolio, (ii) any further changes in the economic environment, or (iii) other
developments or unforeseen circumstances that impact our portfolio .
-23-
Loan Modification Program:
In response to COVID-19, starting in mid-March 2020, the Company instituted a Loan modification payment deferral program in
order to assist its small-business customers that requested relief and were current under their existing agreement. The payment
deferral program allows for up to 6 months of fully deferred or reduced payments.
The below table outlines certain data on the modified population with details of count and net investment balance, with all information
as of June 30, 2021.
Equipment
Working
(Dollars in thousands)
Finance
CVG
Capital
Total
Modified leases and loans receivable
3,484
334
106
3,924
Resolved (payoff, chargeoff)
(1)
1,198
119
385
1,702
Total Program, number of contracts
4,682
453
491
5,626
Current Quarter Population Changes:
Q2 - New modification
$
76
$
0
$
0
$
76
Q2 - Extended modification
279
2,810
0
3,089
Previously Modified
61,354
14,939
1,097
77,390
Total Modifications, Net investment receivable
$
61,709
$
17,749
$
1,097
$
80,555
% of total segment receivables
8.40%
25.00%
4.40%
9.72%
Deferral Status:
Out of deferral
$
61,299
$
12,059
$
1,097
$
74,455
In deferral period
410
5,690
0
6,100
Total Modifications, Net investment receivable
(2)
$
61,709
$
17,749
$
1,097
$
80,555
Modifications 30+ Days Delinquent:
Modified Contracts, not TDR
$
1,341
$
143
$
21
$
1,505
_________________
(1)
Total resolved modifications include
278
6.6
1,424
contracts that paid in full.
(2)
Out of the deferral period represents the month in which the contract returns to its regular contract schedule for the entire
month. For loans in deferral period, the deferral may either be full, with zero payment owed during the deferral period, or
partial, with reduced payments during deferral that are primarily
25
%-
50
% of schedule, or the deferral period payment may
be a nominal amount. In all cases, information is presented with respect to the contracts’ current deferral terms as of June 30,
2021.
TDRs are restructurings of leases and loans in which, due to the borrower's financial difficulties, a lender grants a concession that it
would not otherwise consider for borrowers of similar credit quality. In accordance with the interagency guidance as updated in April
2020, that the FASB concurred with, loans modified under the Company’s payment deferral program are not considered TDRs. As of
June 30, 2021 the Company had $
11.0
-24-
Credit Quality
At origination, the Company utilizes an internally developed credit score ratings as part of its underwriting assessment and pricing
decisions for new contracts. The internal credit score is a measurement that combines many risk characteristics, including loan size,
external credit scores, existence of a guarantee, and various characteristics of the borrower’s business. The internal credit score is
used to create pools of loans for analysis in the Company’s Equipment Finance portfolio segment, as discussed further above. We
believe this segmentation allows our loss modeling to properly reflect changes in portfolio mix driven by sales activity and
adjustments to underwriting standards. However, this score is not updated after origination date for analyzing the Company’s
provision.
On an ongoing basis, to monitor the credit quality of its portfolio, the Company primarily reviews the current delinquency of the
portfolio and delinquency migration to monitor risk and default trends . We believe that delinquency is the best factor to use to monitor
the credit quality of our portfolio on an ongoing basis because it reflects the current condition of the portfolio, and is a good predictor
of near term charge-offs and can help with identifying trends and emerging risks to the portfolio.
The following tables provide information about delinquent leases and loans in the Company’s portfolio based on the contract’s status
as-of the dates presented. In particular, contracts that are part of the Loan Modification Program discussed above are present ed in the
below delinquency table and the non-accrual information for June 30, 2021 based on their status with respect to the modified terms.
See Loan Modification section above for delinquency data specific to the modified portfolio.
-25-
Portfolio by Origination Year as of June 30, 2021
Total
2021
2020
2019
2018
2017
Prior
Receivables
(Dollars in thousands)
Equipment Finance
30-59
$
340
$
647
$
970
$
394
$
196
$
181
$
2,728
60-89
59
192
785
310
232
69
1,647
90+
11
537
533
582
86
65
1,814
Total Past Due
410
1,376
2,288
1,286
514
315
6,189
Current
138,289
218,463
219,060
99,756
42,834
7,561
725,963
Total
138,699
219,839
221,348
101,042
43,348
7,876
732,152
Working Capital
30-59
0
0
4
0
0
0
4
60-89
0
2
0
0
0
0
2
90+
0
32
18
0
0
0
50
Total Past Due
0
34
22
0
0
0
56
Current
19,440
4,358
834
0
0
0
24,632
Total
19,440
4,392
856
0
0
0
24,688
CVG
30-59
0
0
38
9
16
0
63
60-89
45
167
53
79
0
52
396
90+
0
0
0
66
0
0
66
Total Past Due
45
167
91
154
16
52
525
Current
15,398
15,236
25,767
10,201
3,327
653
70,582
Total
15,443
15,403
25,858
10,355
3,343
705
71,107
CRA
Total Past Due
0
0
0
0
0
0
0
Current
1,164
0
0
0
0
0
1,164
Total
1,164
0
0
0
0
0
1,164
Net investment in leases
and loans, before allowance
$
174,746
$
239,634
$
248,062
$
111,397
$
46,691
$
8,581
$
829,111
-26-
Portfolio by Origination Year as of December 31, 2020
Total
2020
2019
2018
2017
2016
Prior
Receivables
(Dollars in thousands)
Equipment Finance
30-59
$
1,162
$
1,526
$
1,349
$
690
$
292
$
14
$
5,033
60-89
367
1,111
463
532
130
6
2,609
90+
503
1,370
804
377
199
16
3,269
Total Past Due
2,032
4,007
2,616
1,599
621
36
10,911
Current
265,036
276,140
138,142
65,722
18,805
1,615
765,460
Total
267,068
280,147
140,758
67,321
19,426
1,651
776,371
Working Capital
30-59
125
481
0
0
0
0
606
60-89
0
135
0
0
0
0
135
90+
0
0
0
0
0
0
0
Total Past Due
125
616
0
0
0
0
741
Current
12,741
6,528
24
0
0
0
19,293
Total
12,866
7,144
24
0
0
0
20,034
CVG
30-59
591
1,039
173
29
21
0
1,853
60-89
0
69
33
0
68
0
170
90+
0
340
179
5
11
0
535
Total Past Due
591
1,448
385
34
100
0
2,558
Current
17,065
30,805
13,733
5,938
1,659
30
69,230
Total
17,656
32,253
14,118
5,972
1,759
30
71,788
CRA
Total Past Due
0
0
0
0
0
0
0
Current
1,091
0
0
0
0
0
1,091
Total
1,091
0
0
0
0
0
1,091
Net investment in leases
and loans, before allowance
$
298,681
$
319,544
$
154,900
$
73,293
$
21,185
$
1,681
$
869,284
Net investments in Equipment Finance and CVG leases and loans are generally charged-off when they are contractually past due for
120 days or more. Income recognition is discontinued 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. At June 30, 2021 and December 31, 2020,
there were
0
-27-
Working Capital Loans are generally placed in non-accrual status when they are 30 days past due and generally charged-off at 60 days
past due. Both Equipment Finance and Working Capital loans are considered for non-accrual status if and when they are modified and
classified as a troubled debt restructuring. The loan is removed from non-accrual status once sufficient payments are made to bring the
loan current and reviewed by management. At June 30, 2021 and December 31, 2020, there were
0
30 days or more and still accruing.
The following tables provide information about non-accrual leases and loans:
June 30,
December 31,
(Dollars in thousands)
2021
2020
Equipment Finance
$
4,334
$
5,543
Working Capital Loans
114
932
CVG
8,686
7,814
Total Non-Accrual
$
13,134
$
14,289
NOTE 7 - Goodwill and Intangible Assets
Goodwill
In the first quarter of 2020, driven by negative events that impacted the Company related to the COVID-19 economic shutdown, the
Company concluded that the implied fair value of its $
6.7
impairment equal to the $
6.7
Intangible assets
The following table presents details of the Company’s intangible assets as of June 30, 2021:
(Dollars in thousands)
Gross Carrying
Accumulated
Net
Useful Life
Amount
Amortization
Value
Vendor relationships
11
years
$
7,290
$
1,969
$
5,321
Corporate trade name
7
years
60
38
22
$
7,350
$
2,007
$
5,343
The Company’s intangible assets consist of definite-lived assets in connection with the January 2017 acquisition of Horizon Keystone
Financial, and definite-lived intangible assets in connection with the September 2018 acquisition of Fleet Financing Resources. The
Company has
0
There was
0
definite lived intangible assets was $
0.3
0.4
respectively.
-28-
The Company expects the amortization expense for the next five years will be as follows:
Amortization
(Dollars in thousands)
Expense
Remainder of 2021
$
336
2022
671
2023
671
2024
663
2025
663
NOTE 8 – Other Assets
Other assets are comprised of the following:
June 30,
December 31,
2021
2020
(Dollars in thousands)
Accrued fees receivable
$
2,392
$
2,928
Prepaid expenses
2,623
2,790
Income taxes receivable
(1)
10,545
0
Federal Reserve Bank Stock
1,711
1,711
Other
1,998
2,783
$
19,269
$
10,212
__________________
(1)
See Note 2 –
Summary of Significant Accounting Policies
, for discussion of the Provision for income taxes.
NOTE 9 – Deposits
MBB serves as the Company’s primary funding source. MBB issues fixed-rate FDIC-insured certificates of deposit raised nationally
through various brokered deposit relationships and fixed-rate FDIC-insured deposits received from direct sources. MBB offers FDIC-
insured money market deposit accounts (the “MMDA Product”) through participation in a partner bank’s insured savings account
product. This brokered deposit product has a variable rate, no maturity date and is offered to the clients of the partner bank and
recorded as a single deposit account at MBB. As of June 30, 2021, money market deposit accounts totaled $
52.9
As of June 30, 2021, the scheduled maturities of certificates of deposits are as follows:
Scheduled
Dollars in thousands
Maturities
Period Ending December 31,
Remainder of 2021
$
230,762
2022
210,474
2023
117,717
2024
56,813
2025
29,087
Total
$
644,853
Certificates of deposits issued by MBB are time deposits and are generally issued in denominations of $
250,000
Product is also issued to customers in amounts less than $
250,000
. The FDIC insures deposits up to $
250,000
weighted average all-in interest rate of deposits at June 30, 2021 was
1.32
%.
-29-
NOTE 10 – Debt and Financing Arrangements
Long-term Borrowings
Borrowings with an original maturity date of one year or more are classified as long-term borrowings. The Company’s term note
securitizations are classified as long-term borrowings.
The balance of long-term borrowings consisted of the following:
June 30,
December 31,
2021
2020
(Dollars in thousands)
Term securitization 2018-1
$
17,295
$
30,800
Unamortized debt issuance costs
(68)
(135)
$
17,227
$
30,665
Long-term Borrowings
On July 27, 2018, the Company completed a $
201.7
securitization has a fixed term, fixed interest rate and fixed principal amount. At June 30, 2021, outstanding term securitizations
amounted to $
17.3
18.1
3.8
restricted interest-earning deposits. The Company’s term note securitizations are classified as long-term borrowings.
The term note securitization is summarized below:
Outstanding Balance as of
Notes
Final
Original
June 30,
December 31,
Originally
Maturity
Coupon
2021
2020
Issued
Date
Rate
(Dollars in thousands)
2018 — 1
$
0
$
0
$
77,400
July, 2019
2.55
%
0
0
55,700
October, 2020
3.05
0
0
36,910
April, 2023
3.36
0
9,560
10,400
May, 2023
3.54
7,445
11,390
11,390
June, 2023
3.70
5,470
5,470
5,470
July, 2023
3.99
4,380
4,380
4,380
May, 2025
5.02
Total Term Note Securitizations
$
17,295
$
30,800
$
201,650
3.05
%
(1)(2)
__________________
(1)
Represents the original weighted average initial coupon rate for all tranches of the securitization. In addition to this coupon
interest, term note securitizations have other transaction costs which are amortized over the life of the borrowings as additional
interest expense.
The weighted average coupon rate of the 2018-1 term note securitization will approximate
4.13
% over the remaining term of the
borrowing.
-30-
Based on current expected cashflows of leases underlying our term note securitization, principal and interest payments are estimated
as of June 30, 2021 as follows:
Principal
Interest
(Dollars in thousands)
Period Ending December 31,
Remainder of 2021
$
8,713
$
293
2022
8,582
$
159
$
17,295
$
452
Federal Funds Line of Credit with Correspondent Bank
MBB has established a federal funds line of credit with a correspondent bank. This line allows for both selling and purchasing of
federal funds. The amount that can be drawn against the line is limited to $
25.0
there were
0
Federal Reserve Discount Window
In addition, MBB has received approval to borrow from the Federal Reserve Discount Window based on the amount of assets MBB
chooses to pledge. MBB had $
49.8
$
55.3
-31-
NOTE 11 – Fair Value Measurements and Disclosures about the Fair Value of Financial Instruments
Fair Value Measurements
Fair value is defined in GAAP as the price that would be received to sell an asset or the price that would be paid to transfer a liability
on the measurement date. GAAP focuses on the exit price in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants. A three-level valuation hierarchy is required for disclosure of fair value
measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The fair value
hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its
entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.
The Company’s balances measured at fair value on a recurring basis include the following as of June 30, 2021 and December 31,
2020:
June 30, 2021
December 31, 2020
Fair Value Measurements Using
Fair Value Measurements Using
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
(Dollars in thousands)
Assets
ABS
$
0
$
4,974
$
0
$
0
$
3,719
$
0
Municipal securities
0
3,876
0
0
4,145
0
Mutual fund
3,730
0
0
3,760
0
0
At this time, the Company has not elected to report any assets and liabilities using the fair value option. There have been
0
between Level 1 and Level 2 of the fair value hierarchy for any of the periods presented.
Non-Recurring Measurements
Non-recurring fair value measurements include assets and liabilities that are periodically remeasured or assessed for impairment using
Fair value measurements. Non-recurring measurements include the Company’s evaluation of goodwill and residual assets for
impairment, and the Company’s remeasurement of contingent consideration and assessment of the carrying amount of its servicing
liability.
For the six months ended June 30, 2021, there were no significant amounts recognized in the Consolidated Statements of Operations
in connection with non-recurring fair value measurements.
For the six months ended June 30, 2020, the Company recognized $
6.7
Note 7 -
Goodwill and Intangible Assets
.
Fair Value of Other Financial Instruments
The following summarizes the carrying amount and estimated fair value of the Company’s other financial instruments, including those
not measured at fair value on a recurring basis:
-32-
June 30, 2021
December 31, 2020
Carrying
Fair
Carrying
Fair
Amount
Value
Amount
Value
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
114,252
$
114,252
$
135,691
$
135,691
Time deposits with banks
3,486
3,501
5,967
6,003
Restricted interest-earning deposits with banks
3,799
3,799
4,719
4,719
Loans, net of allowance
500,366
508,461
500,768
507,362
Federal Reserve Bank Stock
1,711
1,711
1,711
1,711
Financial Liabilities
$
697,805
$
706,171
$
729,614
$
742,882
17,227
17,485
30,665
31,114
There have been no significant changes in the methods and assumptions used in estimating the fair values of financial instruments, as
outlined in our consolidated financial statements and note disclosures in the Company’s Form 10-K for the year ended December 31,
2020.
-33-
NOTE 12 – Earnings Per Share
The Company’s restricted stock awards are paid non-forfeitable common stock dividends and thus meet the criteria of participating
securities. Accordingly, earnings per share (“EPS”) has been calculated using the two-class method, under which earnings are
allocated to both common stock and participating securities.
Basic EPS has been computed by dividing net income or loss allocated to common stock by the weighted average common shares
used in computing basic EPS. For the computation of basic EPS, all shares of restricted stock have been deducted from the weighted
average shares outstanding.
Diluted EPS has been computed by dividing net income or loss allocated to common stock by the weighted average number of
common shares used in computing basic EPS, further adjusted by including the dilutive impact of the exercise or conversion of
common stock equivalents, such as stock options, into shares of common stock as if those securities were exercised or converted.
The following table provides net income and shares used in computing basic and diluted EPS:
Three Months Ended June 30,
Six Months Ended June 30,
2021
2020
2021
2020
(Dollars in thousands, except per-share data)
Basic EPS
Net income (loss)
$
10,256
$
(5,882)
$
17,107
$
(17,703)
Less: net income allocated to participating securities
(128)
0
(212)
0
Net income (loss) allocated to common stock
$
10,128
$
(5,882)
$
16,895
$
(17,703)
Weighted average common shares outstanding
12,014,487
11,893,235
11,998,570
11,953,815
Less: Unvested restricted stock awards considered participating
securities
(149,961)
(132,756)
(149,016)
(135,502)
Adjusted weighted average common shares used in computing
basic EPS
11,864,526
11,760,479
11,849,554
11,818,313
Basic EPS
$
0.85
$
(0.50)
$
1.43
$
(1.50)
Diluted EPS
Net income (loss) allocated to common stock
$
10,128
$
(5,882)
$
16,895
$
(17,703)
Adjusted weighted average common shares used in computing
basic EPS
11,864,526
11,760,479
11,849,554
11,818,313
Add: Effect of dilutive stock-based compensation awards
151,519
0
108,091
0
Adjusted weighted average common shares used in computing
diluted EPS
12,016,045
11,760,479
11,957,645
11,818,313
Diluted EPS
$
0.84
$
(0.50)
$
1.41
$
(1.50)
For the three-month periods ended June 30, 2021 and June 30, 2020, weighted average outstanding stock-based compensation awards
in the amount of
113,237
289,635
, respectively, were considered antidilutive and therefore were not considered in the
computation of potential common shares for purposes of diluted EPS.
For the six-month periods ended June 30, 2021 and June 30, 2020, weighted average outstanding stock-based compensation awards in
the amount of
169,673
297,057
, respectively, were considered antidilutive and therefore were not considered in the computation
of potential common shares for purposes of diluted EPS.
-34-
NOTE 13 – Stockholders’ Equity
Share Repurchases
During the three and six-month periods ended June 30, 2021, the Company did
0
t purchase any shares of its common stock under the
stock repurchase plan approved by the Company’s Board of Directors on August 1, 2019 (the “2019 Repurchase Plan”).
During the three-month period ended June 30, 2020, the Company did
0
t purchase any shares of its common stock under the 2019
Repurchase Plan. During the six-month period ended June 30, 2020, the Company purchased
264,470
under the 2019 Repurchase Plan at an average cost of $
16.09
At June 30, 2021, the Company had $
4.7
Agreement, the Company may not repurchase shares of common stock (pursuant to the 2019 Repurchase Plan or otherwise) without
the prior written consent of Madeira Holdings, LLC.
In addition to the repurchases described above, participants in the Company’s 2014 Equity Compensation Plan (approved by the
Company’s shareholders on June 3, 2014) (the “2014 Plan”) and the Company’s 2019 Equity Compensation Plan (approved by the
Company’s shareholders on May 30, 2019) (as amended by the First Amendment approved by the Company’s shareholders on June 2,
2021, the “2019 Plan”) may have shares withheld to cover income taxes. During the three-month periods ended June 30, 2021 and
June 30, 2020, there were
124
1,897
Plan at an average cost of $
20.04
6.50
June 30, 2020, there were
16,162
23,020
under the 2014 Plan and the 2019 Plan at average per-share costs of $
14.05
12.81
, respectively.
Regulatory Capital Requirements
Through its issuance of FDIC-insured deposits, MBB serves as the Company’s primary funding source. Over time, MBB may offer
other products and services to the Company’s customer base. MBB operates as a Utah state-chartered, Federal Reserve member
commercial bank, insured by the FDIC. As a state-chartered Federal Reserve member bank, MBB is supervised by both the Federal
Reserve Bank of San Francisco and the Utah Department of Financial Institutions.
The Company and MBB are subject to capital adequacy regulations issued jointly by the federal bank regulatory agencies. These risk-
based capital and leverage guidelines make regulatory capital requirements more sensitive to differences in risk profiles among
banking organizations and consider off -balance sheet exposures in determining capital adequacy. The federal bank regulatory agencies
and/or the U.S. Congress may determine to increase capital requirements in the future due to the current economic environment.
Under the capital adequacy regulation, at least half of a banking organization’s total capital is required to be "Tier 1 Capital" as
defined in the regulations, comprised of common equity, retained earnings and a limited amount of non-cumulative perpetual
preferred stock. The remaining capital, "Tier 2 Capital," as defined in the regulations, may consist of other preferred stock, a limited
amount of term subordinated debt or a limited amount of the reserve for possible credit losses. The regulations establish minimum
leverage ratios for banking organizations, which are calculated by dividing Tier 1 Capital by total average assets. Recognizing that the
risk-based capital standards principally address credit risk rather than interest rate, liquidity, operational or other risks, many banking
organizations are expected to maintain capital in excess of the minimum standards.
The Company and MBB operate under the Basel III capital adequacy standards. These standards require a minimum for Tier 1
leverage ratio of
4
%, minimum Tier 1 risk-based ratio of
6
%, and a total risk-based capital ratio of
8
%. The Basel III capital adequacy
standards established a new common equity Tier 1 risk-based capital ratio with a required
4.5
% minimum (
6.5
% to be considered
well-capitalized). The Company is required to have a level of regulatory capital in excess of the regulatory minimum and to have a
capital buffer above
2.5
%. 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.
CMLA Agreement.
On March 25, 2020, MBB received notice from the FDIC that it had approved MBB’s request to rescind certain
nonstandard conditions in the FDIC’s order granting federal deposit insurance issued on March 20, 2007. Furthermore, effective
March 26, 2020, the FDIC, the Company and certain of the Company’s subsidiaries terminated the Capital Maintenance and Liquidity
Agreement (the “CMLA Agreement”) and the Parent Company Agreement, each entered into by and among the Company, certain of
-35-
its subsidiaries and the FDIC in conjunction with the opening of MBB. As a result of these actions, MBB is no longer required
pursuant to the CMLA Agreement to maintain a total risk-based capital ratio above
15
%. Rather, MBB must continue to maintain a
total risk-based capital ratio above
8
% to be considered adequately capitalized and above
10
% to be considered well-capitalized as
defined by banking regulations, while the Company must continue to maintain a total risk-based capital ratio as discussed in the
immediately preceding paragraph. The additional capital released by the termination of the CMLA Agreement is held at MBB and is
subject to the restrictions outlined in Title 12 part 208 of the Code of Federal Regulations (12 CFR 208.5), which places limitations on
bank dividends, including restricting dividends for any year to the earnings from the current and prior two calendar years less the
amount of cumulative dividends paid over that period. Any dividends declared above that amount and any return of permanent capital
would require prior approval of the Federal Reserve Board of Governors. As of June 30, 2021, MBB has the capacity under 12 CFR
208.5 to pay dividends to the Company without explicit approval from the Federal Reserve Board of Governors.
MBB’s Tier 1 Capital balance at June 30, 2021 was $
161.3
qualified MBB for “well-capitalized” status. At June 30, 2021, the Company also exceeded its regulatory capital requirements and was
considered “well-capitalized” as defined by federal banking regulations and as required by the FDIC Agreement.
CECL Capital Transition.
The Company adopted CECL, or a new measurement methodology for the allowance estimate, on January
1, 2020, as discussed further in Note 2—Summary of Significant Accounting Policies. Rules governing the Company’s regulatory
capital requirements give entities the option of delaying for two years the estimated impact of CECL on regulatory capital, followed
by a three-year transition period to phase out the aggregate amount of capital benefit, or a five-year transition in total. The Company
has elected to avail itself of the five-year transition. For measurements of regulatory capital in 2020 and 2021, under the two year
delay the Company shall prepare: (i) a measurement of its estimated allowance for credit losses under CECL, as reported in its balance
sheets; and (ii) a measurement of its estimated allowance under the historical incurred loss methodology, as prescribed by the
regulatory calculation. Any amount of provisions under CECL that is in excess of the incurred estimate will be an adjustment the
Company’s capital during the two-year delay. The three-year transition, starting in 2022, will phase in that adjustment straight -line,
such that
25
% of the transitional amounts will be included in the first year, and an additional
25
% over each of the next two years,
such that we will have phased in
75
% of the adjustment during year three. At the beginning of year 6 (2025) the Company will have
completely reflected the effects of CECL in its regulatory capital.
-36-
The following table sets forth the Tier 1 leverage ratio, common equity Tier 1 risk-based capital ratio, Tier 1 risk-based capital ratio
and total risk-based capital ratio for Marlin Business Services Corp. and MBB at June 30, 2021.
Minimum Capital
Well-Capitalized Capital
Actual
Requirement
Requirement
Ratio
Amount
Ratio
Amount
Ratio
Amount
(Dollars in thousands)
Tier 1 Leverage Capital
22.16%
$
213,238
4.00%
$
38,488
5.00%
$
48,110
18.22%
$
161,289
4.00%
$
35,410
5.00%
$
44,262
Common Equity Tier 1 Risk-Based Capital
24.41%
$
213,238
4.50%
$
39,307
6.50%
$
56,776
19.89%
$
161,289
4.50%
$
36,499
6.50%
$
52,721
Tier 1 Risk-based Capital
24.41%
$
213,238
6.00%
$
52,409
8.00%
$
69,879
19.89%
$
161,289
6.00%
$
48,665
8.00%
$
64,887
Total Risk-based Capital
25.69%
$
224,377
8.00%
$
69,879
10.00%
$
87,348
21.16%
$
171,649
8.00%
$
64,887
10.00%
$
81,109
Prompt Corrective Action
. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires the federal
regulators to take prompt corrective action against any undercapitalized institution. Five capital categories have been established
under federal banking regulations: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. Well-capitalized institutions significantly exceed the required minimum level for each relevant capital
measure. Adequately capitalized institutions include depository institutions that meet but do not significantly exceed the required
minimum level for each relevant capital measure. Undercapitalized institutions consist of those that fail to meet the required minimum
level for one or more relevant capital measures. Significantly undercapitalized characterizes depository institutions with capital levels
significantly below the minimum requirements for any relevant capital measure. Critically undercapitalized refers to depository
institutions with minimal capital and at serious risk for government seizure.
Under certain circumstances, a well-capitalized, adequately capitalized or undercapitalized institution may be treated as if the
institution were in the next lower capital category. A depository institution is generally prohibited from making capital distributions,
including paying dividends, or paying management fees to a holding company if the institution would thereafter be undercapitalized.
Institutions that are adequately capitalized but not well-capitalized cannot accept, renew or roll over brokered deposits except with a
waiver from the FDIC and are subject to restrictions on the interest rates that can be paid on such deposits. Undercapitalized
institutions may not accept, renew or roll over brokered deposits.
The federal bank regulatory agencies are permitted or, in certain cases, required to take certain actions with respect to institutions
falling within one of the three undercapitalized categories. Depending on the level of an institution’s capital, the agency’s corrective
powers include, among other things:
•
prohibiting
the
payment
of
principal
and
interest
on
subordinated
debt;
•
prohibiting
the
holding
company
from
makin
g
distributions
without
prior
regulatory
approval;
•
placing
limits
on
asset
growth
and
restrictions
on
activities;
•
placing
additional
restrictions
on
transactions
with
affiliates;
•
restricting
the
interest
rate
the
institution
may
pay
on
deposits;
-37-
•
prohibiting
the
institution
from
accepting
deposits
from
correspondent
banks;
and
•
in
the
most
sev
ere
cases,
appointing
a
conservator
or
receiver
for
the
institution.
A banking institution that is undercapitalized is required to submit a capital restoration plan, and such a plan will not be accepted
unless, among other things, the banking institution’s holding company guarantees the plan up to a certain specified amount. Any such
guarantee from a depository institution’s holding company is entitled to a priority of payment in bankruptcy.
MBB’s total risk-based capital ratio of
21.16
% at June 30, 2021 exceeded the threshold for “well capitalized” status under the
applicable laws and regulations.
Dividends
. The Federal Reserve Board has issued policy statements requiring insured banks and bank holding companies to have an
established assessment process for maintaining capital commensur ate with their overall risk profile. Such assessment process may
affect the ability of the organizations to pay dividends. Although generally organizations may pay dividends only out of current
operating earnings, dividends may be paid if the distribution is prudent relative to the organization’s financial position and risk profile,
after consideration of current and prospective economic conditions. As mentioned above, MBB’s ability to pay dividends to the
Company is subject to various regulatory requirements, including Title 12 part 208 of the Code of Federal Regulations (12 CFR
208.5), which places limitations on bank dividends. Furthermore, as a bank holding company, the Company’s ability to pay dividends
to its shareholders is also subject to various regulatory requirements, including Supervisory Letter SR 09-4,
Applying Supervisory
Guidance and Regulations on the Payment of Dividends, Stock Redemptions and Stock Repurchases at Bank Holding Companies.
Pursuant to the Merger Agreement, the Company may not, without the prior written consent of Madeira Holdings, LLC, declare or pay
any dividends, other than the Company’s regular quarterly cash dividends in an amount not to exceed $
0.14
NOTE 14 – Subsequent Events
The Company declared a dividend of $
0.14
dividend payment of approximately $
1.7
August 19, 2021
business on
August 9, 2021
. It represents the Company’s
fortieth
dividends will be subject to satisfaction of regulatory requirements applicable to bank holding companies and approval by the
Company’s Board of Directors.
In addition, pursuant to the Merger Agreement, the Company may not, without the prior written consent of Madeira Holdings, LLC,
declare or pay any future dividends other than the Company’s regular quarterly cash dividend in an amount not to exceed $
0.14
quarter.
-38-
Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
Consolidated Financial Statements and the related notes thereto in our Form 10-K for the year ended December 31, 2020 filed with
the SEC.
This discussion contains certain statements of a forward-looking nature that involve risks and uncertainties.
F
ORWARD
-L
OOKING
S
TATEMENTS
Certain statements in this document may include the words or phrases “can be,” “expects,” “plans,” “may,” “may affect,” “may
depend,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “if” and similar words and phrases that constitute “forward-
looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “1933 Act”), and Section 21E
of the Securities Exchange Act of 1934, as amended (the “1934 Act”). Investors are cautioned not to place undue reliance on these
forward-looking statements. Forward-looking statements are subject to various known and unknown risks and uncertainties and the
Company cautions that any forward-looking information provided by or on its behalf is not a guarantee of future performance.
Statements regarding the following subjects are forward-looking by their nature: (a) our expectations related to the proposed Merger,
including the timing thereof and the costs to be incurred in connection with the De-banking; (b) our business strategy; (c) our
projected operating results; (d) our ability to obtain external deposits or financing; (e) our understanding of our competition; and (f)
industry and market trends. The Company’s actual results could differ materially from those anticipated by such forward-looking
statements due to a number of factors, some of which are beyond the Company’s control, including, without limitation:
◾
our ability to complete our proposed merger with HPS Merger Sub, including to complete the De-banking within the timeline
required under the merger agreement, if at all, and to obtain the requisite shareholder approval for the proposed merger;
◾
availability, terms and deployment of funding and capital;
◾
changes in our industry, interest rates, the regulatory environment or the general economy resulting in changes to our
business strategy;
◾
the degree and nature of our competition;
◾
availability and retention of qualified personnel;
◾
general volatility of the capital markets;
◾
the effects of the COVID-19 pandemic; and
◾
the factors set forth in the section captioned “Risk Factors” in Item 1 of our Form 10-K for the year ended December 31,
2020 and in Part II—Item 1A of this Form 10-Q.
Forward-looking statements apply only as of the date made and the Company is not required to update forward-looking statements for
subsequent or unanticipated events or circumstances.
For any forward-looking statements contained in any document, we claim the
protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. As
used herein, the terms “Company,” “Marlin,” “Registrant,” “we,” “us” or “our” refer to Marlin Business Services Corp. and its
subsidiaries.
O
VERVIEW
Founded in 1997, we are a nationwide provider of credit products and services to small and mid-sized businesses. The products and
services we provide to our customers include loans and leases for the acquisition of commercial equipment (including Commercial
Vehicle Group (“CVG”) assets) and working capital loans. In May 2000, we established AssuranceOne, Ltd., a Bermuda-based,
wholly-owned captive insurance subsidiary (“Assurance One”), which enables us to reinsure the property insurance coverage for the
equipment financed by Marlin Leasing Corporation (“MLC”) and Marlin Business Bank (“MBB”) for our small business customers.
In 2008, we opened MBB, a commercial bank chartered by the State of Utah and a member of the Federal Reserve System. MBB
serves as the Company’s primary funding source through its issuance of Federal Deposit Insurance Corporation (“FDIC”)-insured
deposits. In January 2017, we completed the acquisition of Horizon Keystone Financial, an equipment leasing company which
identifies and sources lease and loan contracts for investor partners for a fee, and in September 2018, we completed the acquisition of
Fleet Financing Resources , a company specializing in the leasing and financing of both new and used commercial vehicles, with an
emphasis on livery equipment and other types of commercial vehicles used by small businesses.
We access our end user customers primarily through origination sources consisting of independent commercial equipment dealers,
various national account programs, through direct solicitation of our end user customers and through relationships with select lease
and loan brokers. We use both a telephonic direct sales model and, for strategic larger accounts, outside sales executives to market to
-39-
our origination sources and end user customers. Through these origination sources, we are able to cost-effectively access end user
customers while also helping our origination sources obtain financing for their customers.
We fund our business primarily through the issuance of fixed and variable-rate FDIC-insured deposits and money market demand
accounts raised nationally by MBB, sales of pools of leases or loans, as well as, from time to time, fixed-rate asset backed
securitization transactions.
E
XECUTIVE
S
UMMARY
Proposed Acquisition by a Subsidiary of Funds Managed by HPS Investment Partners, LLC.
On April 18, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the
Company, Madeira Holdings, LLC and HPS Merger Sub pursuant to which all outstanding shares of the Company’s common stock
will, subject to the terms and conditions of the Merger Agreement, be cancelled and converted into the merger consideration specified
in the Merger Agreement in an all cash transaction pursuant to a merger of the Company with and into HPS Merger Sub, with the
Company surviving (the “Merger”). The Company's Board of Directors has unanimously approved the Merger. The Merger remains
subject to, in addition to various other customary closing conditions: approval by the Company’s shareholders; governmental and
regulatory approvals; and completion of the De-banking.
We continue to operate the business and are focused on taking necessary actions to ensure we meet all closing conditions, including
completion of De-banking.
See “Part I—Item 1A. Risk Factors—Risks Related to Our Strategies—"We may fail to consummate the proposed Merger Agreement,
and uncertainties related to the consummation of the transaction may have a material adverse effect on our business, financial position,
results of operations and cash flows, and negatively impact the price of our Common stock." in this Form 10-Q.
Business Update
In 2020, we faced unprecedented operating challenges and macro -economic uncertainty from the COVID-19 pandemic. Our initial
focus from the beginning of the COVID-19 crisis in the first quarter of 2020 was working with existing customers to protect the value
of our portfolio and limiting the erosion of shareholder capital.
Early in response to the onset of the pandemic, we temporarily tightened underwriting standards for areas of elevated risk and we
continue to update such risk assessments based on current conditions. As we have seen economic conditions improve and continued
excellent portfolio performance, our underwriting criteria and standards have been updated accordingly.
Most of our employees continue to work remotely but we have not experienced any significant interruption to our operations. We
began to return some of our employees back to the workplace in May 2021 based upon business needs and employee interest. We
currently intend to implement a hybrid approach to our return to the office beginning in September 2021; however, we will continually
re-evaluate our return to office approach as we monitor the recent increase in COVID-19 cases across the country.
Our second quarter results of net income of $10.3 million, or $0.85 earnings per share, were primarily driven by a large provision for
credit losses benefit due to continued positive portfolio performance coupled with an improved economic forecast. While our
origination volume grew 20% sequentially during the second quarter of 2021, it remained 52% below the same period in 2019 prior to
the pandemic.
Portfolio Trends and Performance
During the three months ended June 30, 2021, we generated 4,023 new Equipment Finance leases and loans with equipment costs of
$86.0 million, compared to 3,178 new Equipment Finance leases and loans with equipment costs of $64.6 million generated for the
three months ended June 30, 2020. Working Capital loan originations were $14.5 million during the three-month period ended June
30, 2021, compared to $0.8 million for the three-month period ended June 30, 2020.
Overall, our average net investment in total finance receivables for the three-month period ended June 30, 2021 decreased 16.7% to
$815.8 million, compared to $979.3 million for the three-month period ended June 30, 2020, which has caused a corresponding
reduction in interest and fee income.
Equipment Finance receivables delinquent over 30 days were 0.82 % at June 30, 2021, down 308 basis points from 3.90% at June 30,
2020 and down 77 basis points from 1.59% at December 31, 2020 . Working Capital receivables over 15 days delinquent were 0.36%
-40-
at June 30, 2021, down 402 basis points from 4.38% at June 30, 2020 and down 464 basis point from 5.00% at December 31, 2020.
Annualized total net charge-offs for the second quarter of 2021 were 0.60% of average total finance receivables as compared to 3.47%
for the same period in 2020.
For the three-months ended June 30, 2021 we recognized a provision benefit of $9.9 million as compared to a provision net expense of
$18.8 million for the same period in 2020. The provision benefit in the second quarter of 2021 was primarily due to positive changes
in the outlook of macroeconomic assumptions to which the reserve is correlated as well as positive trends in portfolio performance.
Allowance for credit losses as a percentage of total finance receivables was 3.47% at June 30, 2021 compared with 5.09% at June 30,
2020.
-41-
F
INANCE
R
ECEIVABLES AND
A
SSET
Q
UALITY
The following table summarizes certain portfolio statistics for the periods presented:
June 30,
March 31,
December 31,
June 30,
2021
2021
2020
2020
(Dollars in thousands)
Finance receivables:
End of period
$
829,111
$
836,341
$
869,284
(1)
$
974,679
(1)
Average for the quarter
(1)
815,761
833,474
945,599
979,313
Origination Volume - three months
(5)
100,864
83,766
84,057
65,419
Origination Volume - six months, through June. 30
184,630
—
—
222,810
Assets Sold - three months
—
—
—
1,127
Assets Sold - nine months, through June. 30
—
—
—
24,056
Leases and Loans Modified:
(3)
Payment deferral program
(2)
End of period
$
80,554
$
93,847
111,209
133,817
As a % of end of period receivables
(1)
9.7%
11.2%
12.8%
13.7%
Other Restructured leases and loans, end of period
$
600
$
822
$
922
$
1,751
Allowance for credit losses :
End of period
$
28,757
$
38,912
$
44,228
$
63,644
As a % of end of period receivables
(1)
3.47%
4.65%
5.09%
6.53%
Annualized net charge-offs
(1)
0.60%
1.67%
3.43%
3.47%
Delinquencies, end of period:
(3)(4)
Equipment Finance and CVG:
Greater than 60 days past due, $
$
3,899
$
5,203
$
6,717
$
23,353
Greater than 60 days past due, %
0.37%
0.62%
0.77%
2.52%
Working Capital:
Greater than 30 days past due, $
$
56
$
193
$
741
$
1,130
Greater than 30 days past due, %
0.23%
1.05%
3.69%
2.68%
__________________
(1)
For purposes of asset quality and allowance calculations, the effects of (i) the allowance for credit losses and (ii) initial direct costs and fees
deferred are excluded.
(2)
Contracts that are part of our Payment-deferral modification program, that allows for either full or partial payment deferral, will appear in our
Delinquency and Non-Accrual measures based on their performance against their modified terms.
(3)
No renegotiated leases or loans met the definition of a Troubled Debt Restructuring for any period presented, including our payment deferral
modifications.
(4)
Calculated as a percentage of net investment in leases and loans.
(5)
Amount of originations for the three and six months ended June 30, 2020 presented above exclude $4.2 million, of loans originated under the
Paycheck Protection Program (PPP). In the third quarter of 2020, the Company sold the PPP portfolio and has no continuing involvement with
those receivables.
-42-
R
ESULTS OF
O
PERATIONS
Comparison of the Three-Month Periods Ended June 30, 2021 and June 30, 2020
Net income.
Net income of $10.3 million was reported for the three-month period ended June 30, 2021 , resulting in diluted EPS per share of $0.84,
compared to net loss of $5.9 million and diluted loss per share of $0.50 for the three-month period ended June 30, 2020. This $16.2
million increase in Net income was primarily driven by:
-
$28.7 million decrease in Provision for credit losses, driven primarily by an improvement in economic conditions during the
past 12 months
;
-
$4.1 million decrease in net interest and fee income driven primarily by a decline in the size of our finance receivable
portfolio;
-
$2.6 million decrease in interest expense due to a decline in the deposit balance and rates, as well as continuing reduction of
long-term debt;
-
$3.3 million increase in general and administrative, driven primarily by expenses connected with the Merger Agreement.
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 three-
month periods ended June 30, 2021 and June 30, 2020.
-43-
Three Months Ended June 30,
2021
2020
(Dollars in thousands)
Average
Average
Average
Yields/
Average
Yields/
Balance
(1)
Interest
Rates
(2)
Balance
(1)
Interest
Rates
(2)
Interest-earning assets:
Interest-earning deposits with banks
$
94,492
$
12
0.05
%
$
218,748
$
31
0.06
%
Time Deposits
4,209
10
0.99
12,248
60
1.97
Restricted interest-earning deposits with banks
4,506
—
—
7,046
—
0.01
Securities available for sale
12,435
46
1.46
10,481
52
1.98
Net investment in leases
(3)
768,815
15,682
8.16
885,482
19,236
8.69
Loans receivable
(3)
46,946
1,928
16.43
93,832
4,868
20.75
931,403
17,678
7.59
1,227,837
24,248
7.90
Non-interest-earning assets:
Cash and due from banks
6,834
5,655
Allowance for loan and lease losses
(39,975)
(50,963)
Intangible assets
5,453
7,192
Operating lease right-of-use assets
7,583
8,530
Property and equipment, net
8,853
8,488
Property tax receivables
10,776
9,975
Other assets
(4)
23,998
34,303
23,522
23,180
$
954,925
$
1,251,017
Interest-bearing liabilities:
Certificate of Deposits
(5)
$
633,920
$
2,533
1.60
%
891,141
$
4,741
2.13
%
Money Market Deposits
(5)
53,037
40
0.30
52,765
73
0.56
Long-term borrowings
(5)
20,674
246
4.76
56,957
614
4.30
707,631
2,819
1.59
1,000,863
5,428
2.17
Non-interest-bearing liabilities:
Sales and property taxes payable
9,561
7,075
Operating lease liabilities
8,451
9,403
Accounts payable and accrued expenses
4,919
17,587
Net deferred income tax liability
23,551
26,576
46,482
60,641
754,113
1,061,504
Stockholders’ equity
200,812
189,513
$
954,925
$
1,251,017
Net interest income
$
14,851
$
18,820
Interest rate spread
(6)
5.99
%
5.73
%
Net interest margin
(7)
6.38
%
6.13
%
Ratio of average interest-earning assets to
131.62
%
122.68
%
__________________
(1)
Average balances were calculated using average daily balances.
(2)
Annualized.
-44-
(3)
Average balances of leases and loans include non-accrual leases and loans, and are presented net of unearned income. The average balances of
leases and loans do not include the effects of (i) the allowance for credit losses and (ii) initial direct costs and fees deferred.
(4)
Includes operating leases.
(5)
Includes effect of transaction costs. Amortization of transaction costs is on a straight-line basis, resulting in an increased average rate whenever
average portfolio balances are at reduced levels.
(6)
Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities.
(7)
Net interest margin represents net interest income as an annualized percentage of average interest-earning assets.
Changes due to volume and rate.
The following table presents the components of the changes in net interest income by volume and
rate.
Three Months Ended June 30, 2021 Compared To
Three Months Ended June 30, 2020
Increase (Decrease) Due To:
Volume
(1)
Rate
(1)
Total
(Dollars in thousands)
Interest income:
Interest-earning deposits with banks
$
(16)
$
(2)
$
(18)
Time Deposits
(28)
(22)
(50)
Securities available for sale
9
(15)
(6)
Net investment in leases
(2,424)
(1,132)
(3,556)
Loans receivable
(2,075)
(865)
(2,940)
(5,652)
(918)
(6,570)
Interest expense:
Certificate of Deposits
(1,186)
(1,022)
(2,208)
Money Market Deposits
—
(34)
(34)
Long-term borrowings
(426)
59
(367)
(1,369)
(1,240)
(2,609)
Net interest income
(4,697)
736
(3,961)
__________________
(1)
Changes due to volume and rate are calculated independently for each line item presented rather than presenting vertical subtotals for the
individual volume and rate columns.
Changes attributable to changes in volume represent changes in average balances multiplied by the
prior period’s average rates. Changes attributable to changes in rate represent changes in average rates multiplied by the prior year’s
average balances. Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to
volume and the change due to rate.
-45-
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 three-month periods ended June 30, 2021 and June 30, 2020.
Three Months Ended June 30,
2021
2020
(Dollars in thousands)
Interest income
$
17,678
$
24,248
Fee income
2,313
2,450
19,991
26,698
Interest expense
2,819
5,428
$
17,172
$
21,270
Average total finance receivables
(1)
$
815,761
$
979,313
Annualized percent of average total finance receivables:
Interest income
8.67
%
9.90
%
Fee income
1.13
1.00
9.80
10.90
Interest expense
1.38
2.22
8.42
%
8.68
%
__________________
(1)
Total finance receivables include net investment in leases and loans. For the calculations above, the effects of (i) the allowance for credit losses
and (ii) initial direct costs and fees deferred are excluded.
Net interest and fee income decreased $4.1 million, or 19.2%, to $17.2 million for the three months ended June 30, 2021 from $21.3
million for the three months ended June 30, 2020. The annualized net interest and fee margin decreased 26 basis points to 8.42% in the
three-month period ended June 30, 2021 from 8.68% for the corresponding period in 2020.
Interest income, net of amortized initial direct costs and fees, was $17.7 million and $24.2 million for the three-month periods ended
June 30, 2021 and June 30, 2020, respectively. Average total finance receivables decreased $163.5 million, or 16.7%, to $815.8
million at June 30, 2021 from $979.3 million at June 30, 2020. The decrease in average total finance receivables was primarily due to
lower origination volume along with the customary loan repayments and charge-offs. The average yield on the portfolio decreased 123
basis points to 8.67% from 9.90% in the same quarter one year ago. Higher yielding working capital portfolio made up a smaller
percentage of the total portfolio during the second quarter of 2021 compared to the same period one year ago. The weighted average
implicit interest rate on new finance receivables originated increased 92 basis points to 10.08% for the three-month period ended June
30, 2021 compared to 9.16% for the three-month period ended June 30, 2020 . That increase was primarily driven by a shift in the mix
of originations as higher-yield Working Capital originations comprised 14.4% of our originations for the three months ended June 30,
2021, compared to 1.3% in 2020. As the economy continues to recover from the impacts of the COVID-19 pandemic the company is
looking to grow originations. During the second quarter of 2021, the company originated $100.5 million of total originations
compared to $65.4 million in the same period one year ago. Additionally, equipment finance approval percentage in the second
quarter of 2021 was 49% which was up 12 basis points compared to the second quarter of 2020.
Fee income was $2.3 million and $2.5 million for the three-month periods ended June 30, 2021 and June 30, 2020, respectively, and
included approximately $1.3 million and $1.8 million in late fee income for the three-month periods ended June 30, 2021 and June 30,
2020, respectively. Late fees remained the largest component of fee income at 0.62% as an annualized percentage of average total
finance receivables for the three-month period ended June 30, 2021 , compared to 0.72% for the three-month period ended June 30,
2020. Fee income also included approximately $1.1 million and $0.7 million of early buyout income for the three-month periods
ended June 30, 2021 and June 30, 2020, respectively. Early buyout income is driven by customer behavior, increased levels of this
activity and related income have been recorded during the course of the pandemic.
-46-
Interest expense decreased $2.6 million to $2.8 million for the three-month period ended June 30, 2021 from $5.4 million for the
corresponding period in 2020, primarily due to a decrease of $2.2 million on lower deposit balances and rates. Additionally, there was
a decrease of $0.3 million due to the continuing reduction of long-term debt . Interest expense, as an annualized percentage of average
total finance receivables, decreased 84 basis points to 1.38% for the three -month period ended June 30, 2021, from 2.22% for the
corresponding period in 2020. The average balance of deposits was $687.0 million and $943.9 million for the three-month periods
ended June 30, 2021 and June 30, 2020, respectively.
For the three-month period ended June 30, 2021, average term securitization borrowings outstanding were $20.7 million at a weighted
average coupon of 4.76%. For the three-month period ended June 30, 2020 , average term securitization borrowings outstanding were
$57.0 million at a weighted average coupon of 4.3%.
Our wholly-owned subsidiary, MBB, serves as our primary funding source. MBB raises fixed-rate and variable -rate FDIC-insured
deposits via the brokered certificates of deposit market, on a direct basis, and through the brokered MMDA Product. At June 30, 2021,
brokered certificates of deposit represented approximately 62% of total deposits, while approximately 31% of total deposits were
obtained from direct channels, and 7% were in the brokered MMDA Product.
Gain on Sale of Leases and Loans.
There were no asset sales for the three-month period ended June 30, 2021 as we retained all of
our origination volume on our balance sheet. There were $1.1 million of asset sales for the three-month period ended June 30, 2020
for a $0.1 million gain on sale of lease and loans.
Our sales execution decisions, including the timing, volume and frequency of such sales, depend on many factors including our
origination volumes, the characteristics of our contracts versus market requirements, our current assessment of our balance sheet
composition and capital levels, and current market conditions, among other factors. There can be no assurance that we can execute
sales based on our prior experience or on terms that are acceptable to us.
Insurance premiums written and earned.
Insurance premiums written declined to $1.9 million for the three-month period ended June
30, 2021, compared to $2.2 million for the three-month period ended June 30, 2020 as the overall portfolio contracted.
Other income.
respectively.
Salaries and benefits expense.
Three Months Ended June 30,
2021
2020
(Dollars in thousands)
Salary, benefits and payroll taxes
$
6,202
$
6,868
Incentive compensation
1,919
806
Commissions
340
(6)
$
8,461
$
7,668
Salaries and benefits expense.
period ended June 30, 2021 from $7.7 million for the corresponding period in 2020 primarily due to equity-based compensation which
was adjusted to lower target levels in the corresponding period in 2020 and due to higher commission and bonus in the 2021 period
driven by increased origination volume.
-47-
General and administrative expense.
Three Months Ended June 30,
2021
2020
(Dollars in thousands)
Occupancy and depreciation
$
1,036
$
1,415
Professional fees
3,471
865
Information technology
1,226
995
Marketing
301
206
Other G&A
2,343
2,366
$
8,377
$
5,847
General and administrative expense increased $2.5 million, or 43.3%, to $8.3 million for the three months ended June 30, 2021 from
$5.8 million for the corresponding period in 2020 primarily due to an increase in professional fees of $2.6 million connected with the
Merger Agreement. General and administrative expense as an annualized percentage of average total finance receivables was 4.11%
for the three-month period ended June 30, 2021, compared to 2.39% for the three-month period ended June 30, 2020.
Provision for income taxes.
Income tax expense of $3.5 million was recorded for the three-month period ended June 30, 2021,
compared to a benefit of $1.4 million for the three-month period ended June 30, 2020. Our effective tax rate was 25.3% for the three-
month period ended June 30, 2021, as compared to an effective tax rate of 18.9% for the three-month period ended June 30, 2020
which was driven by an interim reporting limitation on the amount of tax benefits that can be recognized under Accounting Standards
Codification (“ASC”) 740,
Income Taxes
.
-48-
Comparison of the Six-Month Periods Ended June 30, 2021 and June 30, 2020
Net income/loss.
Net income of $17.1 million was reported for the six-month period ended June 30, 2021, resulting in diluted EPS of $1.41, compared
to net loss of $17.7 million and diluted loss per share of $1.50 for the six-month period ended June 30, 2020. This $34.8 million
increase in Net income was primarily driven by:
-
$56.8 million decrease in Provision for credit losses, primarily driven primarily by an improvement in economic conditions
during the past 12 months
;
-
$15.2 million decrease in interest and fee income driven primarily by a decline in the size of our finance receivable portfolio;
-
$5.0 million decrease in interest expense due to a decline in the deposit balance and rates, as well as continuing reduction of
long-term debt;
-
$3.9 million decrease in gain on leases and loans sold;
-
6.9 million decrease in Non-interest expense due to the primarily due to the $6.7 million goodwill impairment that was
recorded in the first quarter of 2020;
-
$14.8 million increase in Income tax expense.
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 six-
month periods ended June 30, 2021 and June 30, 2020.
-49-
Six Months Ended June 30,
2021
2020
(Dollars in thousands)
Average
Average
Average
Yields/
Average
Yields/
Balance
(1)
Interest
Rates
(2)
Balance
(1)
Interest
Rates
(2)
Interest-earning assets:
Interest-earning deposits with banks
$
104,821
$
29
0.06
%
$
159,665
$
358
0.45
%
Time Deposits
4,767
29
1.20
12,878
124
1.92
Restricted interest-earning deposits with banks
4,688
—
—
7,540
9
0.24
Securities available for sale
11,836
93
1.58
10,629
110
2.06
Net investment in leases
(3)
776,801
32,020
8.24
895,015
39,505
8.83
Loans receivable
(3)
47,816
3,794
15.87
99,053
10,607
21.42
950,729
35,966
7.57
1,184,780
50,713
8.56
Non-interest-earning assets:
Cash and due from banks
6,327
5,563
Allowance for loan and lease losses
(41,984)
(40,144)
Intangible assets
5,537
7,292
Goodwill
—
3,332
Operating lease right-of-use assets
7,571
8,653
Property and equipment, net
8,796
8,291
Property tax receivables
9,404
9,430
Other assets
(4)
25,868
32,719
21,519
35,136
$
972,248
$
1,219,916
Interest-bearing liabilities:
Certificate of Deposits
(5)
$
640,975
$
5,466
1.71
%
$
852,659
$
9,597
2.25
%
Money Market Deposits
(5)
53,179
77
0.29
38,544
158
0.82
Long-term borrowings
(5)
23,993
539
4.49
63,354
1,352
4.27
718,147
6,082
1.70
954,557
11,107
2.33
Non-interest-bearing liabilities:
Sales and property taxes payable
8,394
6,482
Operating lease liabilities
8,505
9,524
Accounts payable and accrued expenses
14,838
22,657
Net deferred income tax liability
23,297
28,022
55,034
66,685
773,181
1,021,242
Stockholders’ equity
199,067
198,674
$
972,248
$
1,219,916
Net interest income
$
29,875
$
39,606
Interest rate spread
(6)
5.86
%
6.23
%
Net interest margin
(7)
6.28
%
6.69
%
Ratio of average interest-earning assets to
132.39
%
124.12
%
-50-
_________________
(1)
Average balances were calculated using average daily balances.
(2)
Annualized.
(3)
Average balances of leases and loans include non-accrual leases and loans, and are presented net of unearned income. The average balances of leases and
loans do not include the effects of (i) the allowance for credit losses and (ii) initial direct costs and fees deferred.
(4)
Includes operating leases.
(5)
Includes effect of transaction costs. Amortization of transaction costs is on a straight-line basis, resulting in an increased average rate whenever average
portfolio balances are at reduced levels.
(6)
Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities.
(7)
Net interest margin represents net interest income as an annualized percentage of average interest-earning assets.
The following table presents the components of the changes in net interest income by volume and rate.
Six Months Ended June 30, 2021 Compared To
Six Months Ended June 30, 2020
Increase (Decrease) Due To:
Volume
(1)
Rate
(1)
Total
(Dollars in thousands)
Interest income:
Interest-earning deposits with banks
$
(93)
$
(236)
$
(329)
Time Deposits
(60)
(35)
(95)
Restricted interest-earning deposits with banks
(2)
(7)
(9)
Securities available for sale
11
(28)
(17)
Net investment in leases
(4,983)
(2,501)
(7,484)
Loans receivable
(4,540)
(2,273)
(6,813)
(9,280)
(5,467)
(14,747)
Interest expense:
Certificate of Deposits
(2,090)
(2,041)
(4,131)
Money Market Deposits
46
(127)
(81)
Long-term borrowings
(881)
67
(814)
(2,394)
(2,632)
(5,026)
Net interest income
(7,460)
(2,261)
(9,721)
__________________
(1)
Changes due to volume and rate are calculated independently for each line item presented rather than presenting vertical subtotals for the individual
volume and rate columns.
Changes attributable to changes in volume represent changes in average balances multiplied by the prior period’s average
rates. Changes attributable to changes in rate represent changes in average rates multiplied by the prior year’s average balances. Changes attributable to
the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate.
-51-
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 six-month periods ended June 30, 2021 and 2020.
Six Months Ended June 30,
2021
2020
(Dollars in thousands)
Interest income
$
35,966
$
50,713
Fee income
4,768
5,216
40,734
55,929
Interest expense
6,082
11,108
$
34,652
$
44,821
Average total finance receivables
(1)
$
824,617
$
994,068
Percent of average total finance receivables:
Interest income
8.72
%
10.20
%
Fee income
1.16
1.05
9.88
11.25
Interest expense
1.48
2.23
8.40
%
9.02
%
__________________
(1)
Total finance receivables include net investment in leases and loans. For the calculations above, the effects of (i) the allowance for credit losses and (ii)
initial direct costs and fees deferred are excluded.
Net interest and fee income decreased $10.1 million, or 22.5%, to $34.7 million for the six-month period ended June 30, 2021 from
$44.8 million for the six-month period ended June 30, 2020. The annualized net interest and fee margin decreased 62 basis points to
8.40% in the six-month period ended June 30, 2021 from 9.02% for the corresponding period in 2020.
Interest income, net of amortized initial direct costs and fees, decreased $14.7 million, or 29.0%, to $36.0 million for the six-month
period ended June 30, 2021 from $50.7 million for the six-month period ended June 30, 2020. The decrease in interest income was
principally due to a decrease in average yield of 148 basis points and by a 17.1% decrease in average total finance receivables, which
decreased $169.5 million to $824.6 million for the six-months ended June 30, 2021 from $994.1 million for the six-months ended June
30, 2020. The decrease in average total finance receivables was primarily due to lower origination volume along with the customary
loan repayments and charge-offs. The weighted average implicit interest rate on new finance receivables originated decreased 166
basis points to 9.80% for the six-month period ended June 30, 2021, compared to 11.46% for the six-month period ended June 30,
2020. That decrease was primarily driven by a shift in the mix of originations as higher-yield Working Capital originations comprised
9% of our originations for the six months ended June 30, 2021, compared to 13% in 2020. During the first half of 2021, the company
originated $184.2 million of total originations compared to $217.0 million in the same period one year ago. Of the $217 million total
originations in the first half of 2020, $157.4 million was attributed to the first quarter (pre-pandemic) 2020 originations. Additionally,
equipment finance approval percentage in the first half of 2021 was 47% which was up 5 basis points compared to the same period
one year ago.
Fee income was $4.8 million and $5.2 for the six-month periods ended June 30, 2021 and June 30, 2020, respectively, and included
approximately $22.9 million and $3.9 million in late fee income for the six-month periods ended June 30, 2021 and June 30, 2020,
respectively. Late fees remained the largest component of fee income at 0.69 % as an annualized percentage of average total finance
receivables for the six-month period ended June 30, 2021, compared to 0.78% for the six-month period ended June 30, 2020. Fee
income also included approximately $1.9 million and $1.3 million of early buyout income for the six-month periods ended June 30,
2021 and June 30, 2020, respectively. Early buyout income is driven by customer behavior, increased levels of this activity and
related income have been recorded during the course of the pandemic.
-52-
Interest expense decreased $5.0 million to $6.1 million for the six-month period ended June 30, 2021 from $11.1 for the corresponding
period in 2020, primarily due to a decrease of $4.1 million on lower deposit balances and rates, as well as a decrease of $0.7 million
due to the continuing reduction of long-term debt. Interest expense, as an annualized percentage of average total finance receivables,
decreased 75 basis points to 1.48% for the six-month period ended June 30, 2021, from 2.23% for the corresponding period in 2020.
The average balance of deposits was $694.2 million and $891.2 million for the six-month periods ended June 30, 2021 and June 30,
2020, respectively.
For the six-month period ended June 30, 2021, average term securitization borrowings outstanding were $24.0 million at a weighted
average coupon of 4.49%. For the six-month period ended June 30, 2020 , average term securitization borrowings outstanding were
$63.4 million at a weighted average coupon of 4.27%
Our wholly-owned subsidiary, MBB, serves as our primary funding source. MBB raises fixed-rate and variable -rate FDIC-insured
deposits via the brokered certificates of deposit market, on a direct basis, and through the brokered MMDA Product. At June 30, 2021,
brokered certificates of deposit represented approximately 62% of total deposits, while approximately 31% of total deposits were
obtained from direct channels, and 7% were in the brokered MMDA Product.
Gain on Sale of Leases and Loans.
There were no asset sales for the six-month period ended June 30, 2021 as we retained all of our
origination volume on our balance sheet. There were $24.1 million of asset sales for the six-month period ended June 30, 2020 for a
$2.3 million gain on sale of lease and loans.
Our sales execution decisions, including the timing, volume and frequency of such sales, depend on many factors including our
origination volumes, the characteristics of our contracts versus market requirements, our current assessment of our balance sheet
composition and capital levels, and current market conditions, among other factors. In the current economy resulting from the
COVID-19 pandemic, we may have difficulty accessing the capital market and may find decreased interest and ability of
counterparties to purchase our contracts, or we may be unable to negotiate terms acceptable to us.
Insurance premiums written and earned.
Insurance premiums written declined to $3.9 million for the six-month period ended June
30, 2021, compared to $2.2 million for the six-month period ended June 30, 2020 as the overall portfolio contracted.
Other income.
respectively.
Salaries and benefits expense.
Six Months Ended June 30,
2021
2020
(Dollars in thousands)
Salary, benefits and payroll taxes
$
12,590
$
14,423
Incentive compensation
3,668
1,711
Commissions
576
1,053
$
16,834
$
17,187
Total salaries and benefits expense remained relatively consistent at $16.8 million six-month period ended June 30, 2021 compared to
$17.2 million for the corresponding period in 2020. In 2020, in response to COVID-19, we reduced our workforce resulting in a lower
expense base. Late 2020 and into 2021, the Company began expanding the workforce as the economy recovered. As of June 2021,
the headcount was 264 as compared to 276 as of June 2020. Our salary, benefits and payroll tax expense was $1.8 million lower for
the six-months ended June 30, 2021 than for the same period of 2020, primarily driven by higher average headcount during the first
six months of 2020 and severance recorded associated with the workforce reduction.
Incentive compensation increased $2.0 million, primarily due to equity -based compensation which was adjusted to lower target levels
in the corresponding period in 2020 and lower bonus on COVID related impacts on company performance. Commissions decreased
$0.5 million primarily driven by a 15% decrease in origination volume over the 6 month-periods.
-53-
General and administrative expense.
Six Months Ended June 30,
2021
2020
(Dollars in thousands)
Property taxes
$
6,104
$
6,026
Occupancy and depreciation
2,102
2,735
Professional fees
4,364
2,084
Information technology
2,279
1,981
Marketing
519
708
FDIC Insurance
500
639
Other G&A
3,755
5,279
$
19,623
$
19,452
General and administrative expense remained consistent at $19.6 million for the six-months ended June 30, 2021 from $19.5 million
from the same period in 2020. Professional fees increased by $2.3 million primarily due to fees connected with the Merger
Agreement.
Goodwill impairment.
In the first quarter of 2020, driven by negative events related to the COVID-19 economic shutdown, our
market capitalization falling below book value and other related impacts, we analyzed goodwill for impairment. We concluded that
the implied fair value of goodwill was less than it’s carrying amount, and recognized impairment equal to the entire $6.7 million
balance in the six-months ended June 30, 2020.
Provision for income taxes.
Income tax expense of $6.0 million was recorded for the six-month period ended June 30, 2021,
compared to an income tax benefit of $8.8 million for the six-month period ended June 30, 2020.
For the six months ended June 30, 2021 our effective tax rate was 25.9% and for the six months ended June 30, 2020, our effective tax
rate was 33.2%, driven by a $3.2 million discrete benefit, resulting from certain provisions in the Coronavirus Aid, Relief, and
Economic Security Act (“CARES Act”) that allow for a remeasurement of our federal net operating losses.
-54-
L
IQUIDITY AND
C
APITAL
R
ESOURCES
Our business requires a substantial amount of liquidity and capital to operate and grow. Our primary liquidity need is to fund new
originations; however, we also utilize liquidity for our financing needs (including our deposits and long term deposits), to fund
infrastructure and technology investment, to pay dividends and to pay administrative and other non-interest expenses.
As a result of the uncertainties surrounding the actual and potential impacts of COVID-19 on our business and financial condition, in
the first quarter of 2020 we raised additional liquidity through the issuance of FDIC-insured deposits and we increased our borrowing
capacity at the Federal Reserve Discount Window.
We are dependent upon the availability of financing from a variety of funding sources to satisfy these liquidity needs. Historically, we
have relied upon five principal types of external funding sources for our operations:
•
FDIC-insured deposits issued by our wholly-owned subsidiary, MBB;
•
borrowings
under
various
bank
facilities;
•
financing
of
leases
and
loans
in
various
warehouse
facil
ities
(all
of
which
have
since
been
repaid
in
full);
•
financing
of
leases
through
term
note
securitizations;
and
•
sale
of
leases
and
loans
through
our
capital
markets
capabilities.
Deposits issued by MBB represent our primary funding source for new originations, primarily through the issuance of FDIC insured
deposits. We are currently executing our De-banking process, after which time our primary sources of liquidity will transition to
third-party bank and securitization financing as opposed to FDIC-insured deposits. We currently expect that this transition will occur
during the fourth quarter of 2021.
MBB is a Utah state-chartered, Federal Reserve member commercial bank. As such, MBB is supervised by both the Federal Reserve
Bank of San Francisco and the Utah Department of Financial Institutions.
We declared a dividend of $0.14 per share on April 29, 2021. The quarterly dividend was paid on May 20, 2021 to shareholders of
record on the close of business on May 10, 2021, which resulted in a dividend payment of approximately $1.7 million. It represented
the Company’s thirty-ninth consecutive quarterly cash dividend.
At June 30, 2021, we had approximately $25.0 million of available borrowing capacity from a federal funds line of credit with a
correspondent bank in addition to available cash and cash equivalents of $114.3 million. This amount excludes additional liquidity that
may be provided by the issuance of insured deposits through MBB.
Our debt to equity ratio was 3.39 to 1 at June 30, 2021 and 3.87 to 1 at December 31, 2020.
Net cash provided by investing activities was $33.1 million for the six-month period ended June 30, 2021, compared to $32.6 million
for the six-month period ended June 30, 2020. The nominal increase in cash from investing activities is primarily due to a reduction of
$21.3 million in proceeds from sales of leases originated for investment offset by the differences in purchases of equipment for lease
contracts and principal collections on leases and loans during the six-month periods ended June 30, 2021 and 2020.
Net cash used in financing activities was $48.9 million for the six-month period ended June 30, 2021, compared to net cash provided
by financing activities of $29.7 million for the six-month period ended June 30, 2020. The decrease in cash flows from financing
activities is primarily due to a decrease of $94.9 million in deposits partially offset by a decrease of $11.9 million of term
securitization repayments and a decrease of $4.3 million in repurchases of common stock. Financing activities also include
transactions related to the Company’s payment of dividends.
Net cash used in operating activities was $6.5 million for the six-month period ended June 30, 2021, compared to net cash provided by
operating activities of $25.4 million for the six-month period ended June 30, 2020. Adjustments to reconcile net income or loss to net
cash provided by operating activities including goodwill impairment, provision for credit losses, changes in deferred income tax
liability and leases originated for sale and proceeds thereof are discussed in detail in the notes to the Consolidated Financial
Statements.
-55-
We expect cash from operations, additional borrowings on existing and future credit facilities and funds from deposits issued through
brokers, direct deposit sources, and the MMDA Product to be adequate to support our operations and projected growth for the next 12
months and the foreseeable future.
Total Cash and Cash Equivalents.
Our objective is to maintain an adequate level of cash, investing any free cash in leases and loans.
We primarily fund our originations and growth using FDIC-insured deposits issued through MBB. Total cash and cash equivalents
available as of June 30, 2021 totaled $114.3 million, compared to $135.7 million at December 31, 2020.
Time Deposits with Banks.
Time deposits with banks are primarily composed of FDIC-insured certificates of deposits that have
original maturity dates of greater than 90 days. Generally, the certificates of deposits have the ability to redeem early, however, early
redemption penalties may be incurred. Total time deposits as of June 30, 2021 and December 31, 2020 totaled $3.5 million and $6.0
million, respectively.
Restricted Interest-Earning Deposits with Banks
. As of June 30, 2021 and December 31, 2020, we had $3.8 million and $4.7 million,
respectively, of cash that was classified as restricted interest-earning deposits with banks. Restricted interest-earning deposits with
banks consist primarily of various trust accounts related to our secured debt facilities. Therefore, these balances generally decline as
the term securitization borrowings are repaid.
Borrowings.
Our primary borrowing relationship requires the pledging of eligible lease and loan receivables to secure amounts
advanced. Our secured borrowings amounted to $17.2 million at June 30, 2021 and $30.7million at December 31, 2020. Information
pertaining to our borrowing facilities is as follows:
For the Six Months Ended June 30, 2021
As of June 30, 2021
Maximum
Maximum
Month End
Average
Weighted
Weighted
Facility
Amount
Amount
Average
Amount
Average
Unused
Amount
Outstanding
Outstanding
Rate
(3)
Outstanding
Rate
(2)
Capacity
(1)
(Dollars in thousands)
Federal funds purchased
$
25,000
$
—
$
—
—
%
$
—
—
%
$
25,000
Term note securitizations
(4)
—
28,279
23,993
4.49
%
17,295
4.13
%
—
$
25,000
$
28,279
$
23,993
4.49
%
$
17,295
4.13
%
$
25,000
__________________
(1)
Does
not
include
MBB’s
access
to
the
Federal
Reserve
Discount
Window,
which
is
based
on
the
amount
of
assets
MBB
chooses
to
pledge.
Based on assets pledged at June 30, 2021, MBB had $49.8 million in unused, secured borrowing capacity at the Federal Reserve Discount
Window. Additional liquidity that may be provided by the issuance of insured deposits is also excluded from this table.
(2)
Does
not
include
transaction
costs.
(3)
Includes
transaction
costs.
(4)
Our
term
note
securitizations
are
one
-
time
fundings
that
pay
down
over
time
without
any
ability
for
us
to
draw
down
additional
amounts.
-56-
Federal Funds Line of Credit with Correspondent Bank
MBB has established a federal funds line of credit with a correspondent bank. This line allows for both selling and purchasing of
federal funds. The amount that can be drawn against the line is limited to $25.0 million.
Federal Reserve Discount Window
In addition, MBB has received approval to borrow from the Federal Reserve Discount Window based on the amount of assets MBB
chooses to pledge. MBB had $49.8 million in unused, secured borrowing capacity at the Federal Reserve Discount Window, based on
$55.3 million of net investment in leases pledged at June 30, 2021.
Term Note Securitizations
On July 27, 2018 we completed a $201.7 million asset-backed term securitization. It provides the company with fixed-cost borrowing
with the objective of diversifying its funding sources and is recorded in long-term borrowings in the Consolidated Balance Sheet.
In connection with this securitization transaction, we transferred leases to our bankruptcy remote special purpose wholly-owned
subsidiary (“SPE”) and issued term debt collateralized by such commercial leases to institutional investors in a private securities
offering. The SPE is considered variable interest entity (“VIE”) under U.S. GAAP. We continue to service the assets of our VIE and
retain equity and/or residual interests. Accordingly, assets and related debt of the VIE is included in the accompanying Consolidated
Balance Sheets. At June 30, 2021 and December 31, 2020 outstanding term securitizations amounted to $17.3 million and $30.8
million, respectively and the Company was in compliance with terms of the term note securitization agreement. See Note 10 – Debt
and Financing Arrangements in the accompanying Consolidated Financial Statements for detailed information regarding of our term
note securitization
Bank Capital and Regulatory Oversight
We are subject to regulation under the Bank Holding Company Act and we and all of our subsidiaries may be subject to examination
by the Federal Reserve Board and the Federal Reserve Bank even if not otherwise regulated by the Federal Reserve Board. We and
MBB are also subject to comprehensive federal and state regulations dealing with a wide variety of subjects, including minimum
capital standards, reserve requirements, terms on which a bank may engage in transactions with its affiliates, restrictions as to divide nd
payments and numerous other aspects of operations. These regulations generally have been adopted to protect depositors and
creditors rather than shareholders.
At June 30, 2021, Marlin Business Service Corp and MBB’s Tier 1 leverage ratio, common equity Tier 1 risk-based ratio, Tier 1 risk-
based capital ratio and total risk-based capital ratios exceeded the requirements for well-capitalized status.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Executive Summary” for discussion
of updates to our capital requirements driven by the termination of the CMLA Agreement and driven by our election to utilize the five-
year transition related to the adoption of the CECL accounting standard. In addition, see Note 13—Stockholders’ Equity in the Notes
to Consolidated Financial Statements for additional information regarding these ratios and our levels at June 30, 2021.
Information on Stock Repurchases
Information on Stock Repurchases is provided in “Part II. Other Information, Item 2, Unregistered Sales of Equity Securities and Use
of Proceeds” herein.
Items Subsequent to June 30, 2021
The Company declared a dividend of 0.14 per share on July 29, 2021. The quarterly dividend, which is expected to result in a dividend
payment of approximately 1.7 million, is scheduled to be paid on August 19, 2021 to shareholders of record on the close of business
on August 9, 2021. It represents the Company’s fortieth consecutive quarterly cash dividend. The payment of future dividends will be
subject to satisfaction of regulatory requirements applicable to bank holding companies and approval by the Company’s Board of
Directors.
-57-
In addition, pursuant to the Merger Agreement, the Company may not, without the prior written consent of Madeira Holdings, LLC,
declare or pay any future dividends other than the Company’s regular quarterly cash dividend in an amount not to exceed $0.14 per
quarter.
MARKET INTEREST RATE RISK AND SENSITIVITY
Market risk is the risk of losses arising from changes in values of financial instruments. We engage in transactions in the normal
course of business that expose us to market risks. We attempt to mitigate such risks through prudent management practices and
strategies such as attempting to match the expected cash flows of our assets and liabilities.
We are exposed to market risks associated with changes in interest rates and our earnings may fluctuate with changes in interest rates.
The lease and loan assets we originate are almost entirely fixed-rate. Accordingly, we generally seek to finance these assets primarily
with fixed interest certificates of deposit issued by MBB, and to a lesser extent through the variable rate MMDA Product at MBB.
C
RITICAL
A
CCOUNTING
P
OLICIES
There have been no significant changes to our Critical Accounting Policies as described in our Form 10-K for the year ended
December 31, 2020.
R
ECENTLY
I
SSUED
A
CCOUNTING
S
TANDARDS
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.
R
ECENTLY
A
DOPTED
A
CCOUNTING
S
TANDARDS
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.
-58-
Item
3.
Quantitative
and
Qualitative
Disclosures
About
Market
Risk
The information appearing in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Market Interest Rate Risk and Sensitivity” under Item 2 of Part I of this Form 10-Q is incorporated herein by reference.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the
effectiveness of our disclosure controls and procedures as of the end of the period covered 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
by this report are designed and operating effectively to provide reasonable assurance that the information required to be disclosed by
us in reports filed under the 1934 Act is (i) recorded, processed, summarized and reported within the time periods specified in the
SEC's rules and forms and (ii) accumulated and communicated to our management, including the CEO and CFO, as appropriate to
allow timely decisions regarding disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection with management’s
evaluation that occurred during the Company's second fiscal quarter of 2021 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
PART II. Other Information
Item
1.
Legal
Proceedings
We are party to various legal proceedings, which include claims and litigation arising in the ordinary course of business. In the
opinion of management, these actions will not have a material impact on our business, financial condition, results of operations or
cash flows.
Following the announcement on April 18, 2021 of the proposed Merger, four complaints were filed against us and each member of our
Board of Directors, two of which were filed in the United States District Court for the Southern District of New Yo rk, one of which
was filed in the United States District Court for the Eastern District of New York and one of which was filed in the United States
District Court for the District of New Jersey. The complaints assert, among other things, claims under Section 14(a) and Section 20(a)
of the 1934 Act, and Rule 14a-9 promulgated thereunder, for allegedly causing a materially incomplete and misleading preliminary
proxy statement to be filed with the SEC and disseminated to the Company’s shareholders. Among other remedies, the complaints
seek to enjoin the defendants from proceeding with, consummating or closing the Merger unless and until the allegedly materially
incomplete and misleading information is disclosed to Company shareholders. If these cases are not resolved, the lawsuit(s) could
prevent or delay completion of the Merger and result in costs to the Company. While the Company believes that the Complaints are
without merit, due to the inherent uncertainties of litigation, and because these actions are at a preliminary stage, we cannot accurately
predict the ultimate outcome of these matters at this time. See “Part I—Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Executive Summary” in this Form 10-Q for more information regarding the proposed Merger.
-59-
Item
1A.
Risk
Factors
There have been no material changes in the risk factors disclosed in the Company’s Form 10-K for the year ended December 31, 2020,
other than as discussed below.
We may fail to consummate the proposed Merger, and uncertainties related to the consummation of the Merger may have a
material adverse effect on our business, financial position, results of operations and cash flows, and negatively impact the price of
our Common stock.
As previously discussed, on April 18, 2021, we entered into the Merger Agreement, pursuant to which all outstanding shares of the
Company’s common stock will, subject to the terms and conditions of the Merger Agreement, be cancelled and converted into the
merger consideration specified in the Merger Agreement in an all cash transaction pursuant to the Merger.
The Merger is subject to, in addition to various other customary closing conditions: approval by the Company’s shareholders; antitrust
clearance and other governmental and regulatory approvals; and completion of the De-banking.
The Merger Agreement includes customary representations and warranties of the parties. We have also made certain additional
covenants in the Merger Agreement, including (a) covenants regarding the operation of our business and that of our subsidiaries
pending the closing of the Merger, and (b) a customary non-solicitation covenant prohibiting us from soliciting, providing non-public
information in response to, or entering into discussions or negotiations with respect to, proposals relating to alternative business
combination transactions, except as permitted under the Merger Agreement. The Merger Agreement provides that, upon termination
of the Merger Agreement under certain specified circumstances, including the acceptance of a Superior Proposal (as defined in the
Merger Agreement) for an alternative business combinati on transaction, we will be required to pay a termination fee of approximately
$10.3 million.
There is no assurance that the Merger will occur on the terms and timeline as set forth in the Merger Agreement and currently
contemplated, or at all. Potential risks and uncertainties include, but are not limited to:
• The Merger Agreement generally requires that we operate our business in the ordinary course pending consummation of
the proposed Merger and restricts us, without Madeira Holdings, LLC’s consent, from taking certain specified actions until the Merger
is completed. These restrictions may affect our ability to execute our business strategies and attain our financial and other goals which
could negatively impact our business and results of operations.
• The efforts to satisfy the closing conditions of the proposed Merger, including the De-banking and shareholder and
regulatory approval processes, may place a significant burden on management and internal resources, and the Merger whether or not
consummated, may result in a diversion of management’s attention from our day-to-day operations and result in a disruption of our
operations. Any significant diversion of management attention away from our ongoing business and any difficulties encountered in the
Merger
process
could
negative
ly
impact
our
business
and
results
of
operations.
• We could be subject to litigation related to the proposed Merger, which could result in significant costs and expenses. In
addition to potential litigation-related expenses, we have incurred and will continue to incur other costs, expenses and fees for
professional services and other transaction costs in connection with the proposed Merger, and many of these fees and costs are payable
regardless
of
whether
or
not
the
proposed
Merger
is
consummated.
• The Merger Agreement contains certain termination provisions. If the proposed Merger is not completed or the Merger
Agreement is terminated, the price of our common stock may decline , including to the extent that the current market price of our
common stock reflects an assumption that the Merger will be consummated without unexpected delays.
All of the foregoing could materially and adversely affect our business, financial position, results of operations and cash flows.
-60-
Item
2.
Unregistered
Sales
of
Equity
Securities
and
Use
of
Proceeds
Information on Stock Repurchases
On August 1, 2019, the Company’s Board of Directors approved a stock repurchase plan (the “2019 Repurchase Plan”) under which
the Company is authorized to repurchase up to $10 million in value of its outstanding shares of common stock. This authority may be
exercised from time to time and in such amounts as market conditions warrant. Any shares purchased under this plan are returned to
the status of authorized but unissued shares of common stock. The repurchases may be made on the open market, in block trades or
otherwise. The stock repurchase program does not obligate the Company to acquire any particular amount of common stock, and it
may be suspended at any time at the Company's discretion. The repurchases are funded using the Company’s working capital.
The Company did not repurchase any of its common stock during the three months ended June 30, 2021. As of June 30, 2021, the
Company had $4.7 million remaining in the 2019 Repurchase Plan. Pursuant to the Merger Agreement, the Company may not
repurchase shares of common stock (pursuant to the 2019 Repurchase Plan or otherwise) without the prior written consent of Madeira
Holdings, LLC.
Pursuant to the 2014 Plan and the 2019 Plan, participants may have shares withheld to cover income taxes. During the three-month
period ended June 30, 2021, there were 124 shares repurchased to cover income tax withholding under the 2014 Plan and the 2019
Plan at an average cost of $20.04 per share.
Item
3.
Defaults
Upon
Senior
Securities
None.
Item
4.
Mine
Safety
Disclosures
None.
Item
5.
Other
Information
None
-61-
Item
6.
Exhibits
Exhibit
Number
Description
2.1
(1)
3.1
(2)
3.2
(3)
3.3
(4)
10.1
31.1
31.2
32.1
101
Financial
statements
from
the
Quarterly
Report
on
Form
10
-
Q
of
Marlin
Business
Services
Corp.
for
the
period
ended
June
30, 2021, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the
Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the
Consolidated Statements of Cash Flows and (vi) the Notes to Unaudited Consolidated Financial Statements. (Submitted
electronically with this report)
__________________
(1)
Previo
usly filed with the SEC as an exhibit to the Registrant’s Current Report on Form 8-K filed on April 20, 2021, and incorporated by
reference herein.
(2)
Previo
usly filed with the SEC as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 filed
on March 5, 2008, 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 20, 2016, and incorporated by
reference herein.
(4)
Previously filed with the SEC as an exhibit to the Registrant’s Current Report on Form 8-K filed on April 24, 2020, and incorporated by
reference herein.
-62-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MARLIN BUSINESS SERVICES CORP.
(Registrant)
By: /s/ Jeff Hilzinger
Chief Executive Officer
Jeff
Hilzinger
(Principal Executive Officer)
By:
/s/ Michael R. Bogansky
Michael R. Bogansky
Chief Financial Officer & Senior Vice
President
(Principal
Financial
Officer)
Date: July 30, 2021