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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
March 31, 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
 
Global Select Market
 
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
☑
 
Non-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 April 23, 2021,
12,009,234
 
shares of Registrant’s common
 
stock, $.01 par value, were outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MARLIN BUSINESS SERVICES CORP.
 
AND SUBSIDIARIES
 
Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 2021
 
 
TABLE OF CONTENTS
 
 
Page
 
No.
 
 
 
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2
 
 
 
and
 
 
of
 
 
 
and
 
Res
 
of
 
 
.................................................... 35
 
3
 
 
and
 
 
 
 
 
 
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4
 
 
and
 
 
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…
 
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2
 
 
 
of
 
 
 
and
 
Use
 
of
 
 
................................................................
 
................................... 50
 
3
 
 
 
 
 
................................................................
 
................................................................
 
................. 51
 
4
 
 
 
 
................................................................
 
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............................ 51
 
5
 
 
 
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...................................... 51
 
6
 
 
…….
 
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............................................ 52
 
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................................................................
 
53
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-3-
 
PART
 
I. Financial Information
 
Item
 
1.
 
Consolidated
 
Financial
 
Statements
 
 
MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
 
 
 
March 31,
December 31,
 
2021
2020
(Dollars in thousands, except per-share
 
data)
ASSETS
Cash and due from banks
$
5,244
$
5,473
Interest-earning deposits with banks
 
105,378
130,218
 
Total cash and cash equivalents
110,622
135,691
Time deposits with banks
4,482
5,967
Restricted interest-earning deposits related to consolidated VIEs
4,358
4,719
Investment securities (amortized cost of $
12.6
 
million and $
11.5
 
million at
 
March 31, 2021 and December 31, 2020, respectively)
12,373
11,624
Net investment in leases and loans:
 
Leases
319,092
337,159
 
Loans
517,249
532,125
Net investment in leases and loans, excluding allowance for credit losses (includes $
23.2
 
million and
$
30.4
 
million at March 31, 2021 and December 31, 2020, respectively, related to consolidated VIEs)
836,341
869,284
Allowance for credit losses
(38,912)
(44,228)
 
Total net investment in leases and loans
797,429
825,056
Intangible assets
5,510
5,678
Operating lease right-of-use assets
7,648
7,623
Property and equipment, net
8,603
8,574
Property tax receivables, net of allowance
12,063
6,854
Other assets
9,776
10,212
 
Total assets
$
972,864
$
1,021,998
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
$
678,331
$
729,614
Long-term borrowings related to consolidated VIEs
23,670
30,665
Operating lease liabilities
8,517
8,700
Other liabilities:
 
Sales and property taxes payable
10,916
6,316
 
Accounts payable and accrued expenses
26,086
27,734
 
Net deferred income tax liability
23,642
22,604
 
Total liabilities
771,162
825,633
Commitments and contingencies
Stockholders’ equity:
Preferred Stock, $
0.01
 
par value;
5,000,000
 
shares authorized;
none
 
issued
—
—
Common Stock, $
0.01
 
par value;
75,000,000
 
shares authorized;
12,009,323
 
and
11,974,530
 
shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
120
120
 
Additional paid-in capital
76,682
76,323
 
Accumulated other comprehensive (loss) income
(115)
69
 
Retained earnings
125,015
119,853
 
Total stockholders’ equity
201,702
196,365
 
Total liabilities and stockholders’ equity
$
972,864
$
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 March 31,
 
2021
2020
(Dollars in thousands, except per-share
data)
Interest income
$
18,288
$
26,465
Fee income
2,455
2,766
Interest and fee income
20,743
29,231
Interest expense
3,263
5,680
Net interest and fee income
17,480
23,551
Provision for credit losses
(2,936)
25,150
Net interest and fee income (loss) after provision for credit losses
20,416
(1,599)
Non-interest income:
 
Gain on leases and loans sold
—
 
2,282
 
Insurance premiums written and earned
1,998
2,282
 
Other income
 
6,574
7,639
 
Non-interest income
8,572
12,203
Non-interest expense:
 
Salaries and benefits
8,373
9,519
 
General and administrative
11,246
13,605
 
Goodwill impairment
—
 
6,735
 
Non-interest expense
19,619
29,859
 
Income (loss) before income taxes
9,369
(19,255)
Income tax expense (benefit)
2,518
(7,434)
 
Net income (loss)
$
6,851
$
(11,821)
Basic earnings (loss) per share
$
0.57
$
(1.00)
Diluted earnings (loss)
 
per share
$
0.57
$
(1.00)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 March 31,
2021
2020
(Dollars in thousands)
 
Net income (loss)
$
6,851
$
(11,821)
Other comprehensive income (loss):
 
Decrease in fair value of debt securities available for sale
(246)
(51)
 
Tax effect
62
13
Total other comprehensive
 
loss
(184)
(38)
 
Comprehensive income (loss)
$
6,667
$
(11,859)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2019
12,113,585
121
79,665
58
135,112
$
214,956
 
Repurchase of common stock
(285,593)
(3)
(4,535)
—
—
(4,538)
 
Stock issued in connection with restricted
 
stock and RSUs, net of forfeitures
56,481
1
(1)
—
—
—
 
Stock option compensation recognized
—
—
518
—
—
518
 
Net change in unrealized gain/loss on
 
 
securities available for sale, net of tax
—
—
—
(38)
—
(38)
 
Net loss
—
—
—
—
(11,821)
(11,821)
 
Impact of adoption of new accounting
 
standards
(1)
—
—
—
—
(8,877)
(8,877)
 
Cash dividends paid ($
0.14
 
per share)
—
—
—
—
(1,710)
(1,710)
Balance, March 31, 2020
11,884,473
$
119
$
75,647
$
20
$
112,704
$
188,490
Balance, December 31, 2020
11,974,530
120
76,323
69
119,853
196,365
 
Repurchase of common stock
(16,038)
—
(224)
—
—
(224)
 
Stock issued in connection with restricted
 
stock and RSUs, net of forfeitures
50,831
—
—
—
—
—
 
Stock-based compensation recognized
—
—
583
—
—
583
 
Net change in unrealized gain/loss on
 
 
securities available for sale, net of tax
—
—
—
(184)
—
(184)
 
Net income
—
—
—
—
6,851
6,851
 
Cash dividends paid ($
0.14
 
per share)
—
—
—
—
(1,689)
(1,689)
Balance, March 31, 2021
12,009,323
$
120
$
76,682
$
(115)
$
125,015
$
201,702
(1)
 
Represents the impact of Accounting Standards Update
 
("ASU") 2016-13 and related ASUs collectively referred
 
to as "CECL".
 
See Note 2.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of the unaudited consolidated
 
financial statements.
 
-7-
MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended March 31,
2021
2020
(Dollars in thousands)
Cash flows from operating activities:
 
Net income (loss)
$
6,851
$
(11,821)
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
Depreciation and amortization
877
1,057
 
Stock-based compensation
583
518
 
Impairment of goodwill and intangible assets
—
6,735
 
Change in fair value of equity securities
66
(58)
 
Provision for credit losses
(2,936)
25,150
 
Change in net deferred income tax liability
1,100
(2,107)
 
Amortization of deferred initial direct costs and fees
2,520
3,413
 
Gain on leases sold
—
(2,282)
 
Leases originated for sale
—
(3,693)
 
Proceeds from sale of leases originated for sale
—
3,874
 
Noncash lease expense
166
324
 
Effect of changes in other operating items:
 
Other assets
(4,905)
(12,002)
 
Other liabilities
2,710
1,083
 
Net cash provided by operating activities
7,032
10,191
Cash flows from investing activities:
 
Net change in time deposits with banks
1,485
(737)
 
Purchases of equipment for lease contracts and funds used to originate
 
loans
(85,571)
(156,145)
 
Principal collections on leases and loans
112,667
129,810
 
Proceeds from sale of leases originated for investment
—
21,337
 
Security deposits collected, net of refunds
(14)
(78)
 
Proceeds from the sale of equipment
817
840
 
Acquisitions of property and equipment
(615)
(796)
 
Purchases of investment securities
(1,569)
(19)
 
Principal payments received on investment securities
548
613
 
Net cash provided by (used in) investing activities
 
27,748
(5,175)
Cash flows from financing activities:
 
Net change in deposits
(51,283)
102,864
 
Term securitization repayments
(7,026)
(14,008)
 
Business combinations earn-out consideration payments
—
(132)
 
Repurchases of common stock
(224)
(4,538)
 
Dividends paid
(1,677)
(1,685)
 
Net cash (used in) provided by financing activities
(60,210)
82,501
Net increase in total cash, cash equivalents and restricted cash
(25,430)
87,517
Total cash, cash equivalents
 
and restricted cash, beginning of period
 
140,410
130,027
Total cash, cash equivalents
 
and restricted cash, end of period
$
114,980
$
217,544
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
 
 
 
Three Months Ended March 31,
 
2021
2020
(Dollars in thousands)
Supplemental disclosures of cash flow information:
 
Cash paid for interest on deposits and borrowings
$
3,170
$
5,420
 
Net cash paid for income taxes
903
1,797
 
Leases and loans transferred into held for sale from investment
—
19,235
Supplemental disclosures of non-cash investing activities:
 
Purchase of equipment for lease contracts and loans originated
1,309
3,773
Reconciliation of Cash, cash equivalents and restricted cash to
 
the Consolidated Balance Sheets:
Cash and cash equivalents
$
110,622
$
211,070
Restricted interest-earning deposits
4,358
6,474
Cash, cash equivalents and restricted cash at end of period
$
114,980
$
217,544
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-9-
 
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 in
2003
. In 2008, we opened Marlin Business Bank (“MBB”), a commercial bank chartered
 
by the State of
Utah
 
and a
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”).
 
 
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.
 
The unaudited consolidated financial statements include the
 
accounts of the Company and
its wholly-owned subsidiaries. The Company has one reportable segment,
 
which includes the Company’s commercial
 
lending and
leasing products and related services, including equipment loans and
 
leases, property insurance on leased equipment, and working
capital loans. All intercompany accounts and transactions have been
 
eliminated in consolidation.
 
The accompanying unaudited consolidated financial statements present
 
the Company’s financial position
 
at March 31, 2021 and the
results of operations for the three-month periods ended March 31, 2021
 
and 2020,
 
and cash flows for the three-month periods ended
March 31, 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.
 
These unaudited consolidated financial statements require
 
management to make estimates and assumptions that
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.
 
 
Our statutory tax rate, which is a combination of federal and state income tax
 
rates
,
was
25.1
% and
23.9
% for the three months ended
March 31, 2021 and March 31, 2020, respectively.
 
 
For the three months ended March 31, 2021 our effective
 
tax rate was
26.9
% expense and for the three months ended March 31, 2020,
our effective tax rate was
38.6
% benefit, 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.
 
 
The Company is
 
currently under examination
 
by the IRS
 
for tax
 
years ending December
 
31, 2013 to
 
2018 resulting from
 
Joint Committee
Review as part of an IRS refund claim. The Company remains subject to examination for the 2017 tax year to the present under regular
statute of limitations. The Company files state income tax returns in various
 
states which may have different statutes of limitations.
 
 
 
 
-10-
 
 
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.
 
In June 2016, the Financial Accounting Standards Board (“FASB”)
 
issued Accounting Standards Update (“ASU”)
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-11-
 
NOTE 3 – Non-Interest Income
 
The following table summarizes the Company’s
 
non-interest income for the periods presented:
 
Three Months Ended March 31,
(dollars in thousands)
2021
2020
Insurance premiums written and earned
$
1,998
$
2,282
Gain on sale of leases and loans
—
2,282
Other income:
 
Property tax income
5,020
5,504
Servicing income
386
566
Net gain (loss) recognized during the period on equity securities
(66)
58
Non-interest income - other than contracts with customers
7,338
10,692
Other income:
 
Insurance policy fees
772
918
Property tax administrative fees on leases
203
234
ACH payment fees
59
72
Referral fees
10
94
Other
190
193
Non-interest income from contracts with customers
1,234
1,511
Total non-interest income
$
8,572
$
12,203
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-12-
 
NOTE 4 - Investment Securities
 
 
The Company had the following investment securities as of the dates presented:
 
March 31,
December 31,
(Dollars in thousands)
2021
2020
Equity Securities
Mutual fund
$
3,707
$
3,760
Debt Securities, Available
 
for Sale:
Asset-backed securities ("ABS")
5,192
3,719
Municipal securities
 
3,474
 
4,145
 
Total investment securities
$
12,373
$
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 March 31,
2021
2020
(Dollars in thousands)
Net gains and (losses) recognized during the period on equity securities
$
(66)
$
58
Less: Net gains and (losses) recognized during the period
 
on equity securities sold during the period
 
—
—
Unrealized gains and (losses) recognized during the reporting period
 
on equity securities still held at the reporting date
$
(66)
$
58
 
Available for
 
Sale
The following schedule is a summary of available for sale investments as of the
 
dates presented:
 
 
 
March 31, 2021
Gross
 
Gross
Amortized
Unrealized
 
Unrealized
Estimated
Cost
Gains
Losses
Fair Value
(Dollars in thousands)
ABS
$
5,125
$
68
$
—
$
5,192
Municipal securities
3,672
2
(199)
3,474
 
Total Debt Securities, Available
 
for Sale
$
8,797
$
70
$
(199)
$
8,666
December 31, 2020
Gross
 
Gross
Amortized
Unrealized
 
Unrealized
Estimated
Cost
Gains
Losses
Fair Value
(Dollars in thousands)
ABS
$
3,666
$
53
$
—
$
3,719
Municipal securities
4,082
64
(1)
4,145
 
Total Debt Securities, Available
 
for Sale
$
7,748
$
117
$
(1)
$
7,864
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-13-
 
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
no
t recognize any other than temporary impairment to earnings for each of the periods ended
 
March
31, 2021 and March 31, 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 March 31, 2021 and
December 31, 2020:
March 31, 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)
Municipal securities
$
(199)
$
3,348
$
—
$
—
$
(199)
$
3,348
Total available for sale investment
securities
$
(199)
$
3,348
$
—
$
—
$
(199)
$
3,348
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
$
—
$
—
$
(1)
$
141
Total available for sale investment
securities
$
(1)
$
141
$
—
$
—
$
(1)
$
141
 
The following table presents the amortized cost, fair value, and weighted average
 
yield of available for sale investments at March 31,
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 1 to
 
Over 5 to
Over 10
or Less
5 Years
10 Years
Years
Total
(Dollars in thousands)
Amortized Cost:
ABS
$
750
$
1,302
$
1,475
$
1,598
$
5,125
Municipal securities
 
5
 
120
 
—
 
3,547
 
3,672
Total available for sale investments
$
755
$
1,422
$
1,475
$
5,145
$
8,797
Estimated fair value
$
763
$
1,447
$
1,510
$
4,946
$
8,666
Weighted-average
 
yield, GAAP basis
2.31
%
1.84
%
0.81
%
2.15
%
1.89
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-14-
 
NOTE 5 – Net Investment in Leases and Loans
 
 
Net investment in leases and loans consists of the following:
 
 
March 31, 2021
December 31, 2020
(Dollars in thousands)
Minimum lease payments receivable
$
334,294
$
354,298
Estimated residual value of equipment
26,349
26,983
Unearned lease income, net of initial direct costs and fees deferred
(41,179)
(43,737)
Security deposits
(372)
(385)
Total leases
319,092
337,159
Commercial loans, net of origination costs and fees deferred
Working
 
Capital Loans
18,351
20,034
CRA
(1)
1,158
1,091
Equipment loans
(2)
436,814
449,149
CVG
60,926
61,851
Total commercial
 
loans
517,249
532,125
Net investment in leases and loans, excluding allowance
836,341
869,284
Allowance for credit losses
(38,912)
(44,228)
Total net investment
 
in leases and loans
$
797,429
$
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 March 31, 2021, $
24.9
 
million in net investment in leases were pledged as collateral for the Company’s
 
outstanding asset-backed
securitization balance and $
55.2
 
million in net investment in leases were pledged as collateral for the secured borrowing
 
capacity at
the Federal Reserve Discount Window.
 
 
The amount of deferred initial direct costs and origination costs net of fees deferred
 
were $
13.6
 
million and $
14.6
 
million as of March
31, 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 March 31, 2021 and December 31, 2020, $
21.5
 
million and $
21.9
 
million, respectively,
 
of the estimated residual value of
equipment retained on our Consolidated Balance Sheets was related
 
to copiers.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-15-
 
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 March 31, 2021:
 
 
 
Minimum Lease
 
Payments
Net Income
Receivable
(1)
Amortization
(2)
(Dollars in thousands)
Period Ending March 31,
Remainder of 2021
$
105,209
$
18,517
2022
109,389
13,153
2023
68,649
6,463
2024
35,012
2,403
2025
13,032
589
Thereafter
3,003
54
$
334,294
$
41,179
________________________
 
 
 
(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.
 
The lease income recognized was as follows:
 
Three Months Ended March 31,
2021
2020
(Dollars in thousands)
Interest Income
$
6,693
$
9,151
 
As of March 31, 2021 and December 31, 2020,
 
the Company maintained total finance receivables which were on a non-accrual basis
with net investment of $
14.0
 
million and $
14.3
 
million, respectively.
 
As of March 31, 2021, the Company had contracts that had been
modified under its COVID-19 payment deferral program of $
93.8
 
million representing approximately
11.2
% 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 originates 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 $
1.1
 
million and $
1.3
 
million as of
March 31, 2021,
 
and December 31, 2020,
 
respectively, and is recognized
 
within Accounts payable and accrued expenses in the
Consolidated Balance Sheets.
 
As of March 31, 2021 and December 31, 2020,
 
the portfolio of leases and loans serviced for others was
approximately $
199
 
million and $
230
 
million, respectively.
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-16-
 
 
Three Months Ended March 31,
2021
2020
(Dollars in thousands)
Sales of leases and loans
 
$
—
$
22,929
Gain on sale of leases and loans
—
2,282
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-17-
 
NOTE 6 – Allowance for Credit Losses
 
 
Effective January 1, 2020, we
 
adopted
ASU 2016-13 and related ASUs collectively referred to as CECL
,
 
which replaced
 
the probable,
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, 20
 
20 for a detailed discussion of our adoption of
this guidance.
 
The following tables summarize activity in the allowance for credit losses
:
 
Three Months Ended March 31, 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
$
—
$
44,228
 
Charge-offs
(3,711)
(535)
(762)
—
(5,008)
 
Recoveries
1,360
130
43
—
1,533
Net charge-offs
(2,351)
(405)
(719)
—
(3,475)
Realized cashflows from Residual Income
1,095
—
—
—
1,095
 
Provision for credit losses
(3,076)
209
(69)
—
(2,936)
Allowance for credit losses, end of period
$
28,852
$
1,010
$
9,050
$
—
$
38,912
Net investment in leases and loans, before allowance
$
746,395
$
18,351
$
70,437
$
1,158
$
836,341
 
Three Months Ended March 31, 2020
(Dollars in thousands)
Equipment
Finance
Working
Capital
Loans
CVG
CRA
Total
Allowance for credit losses, December 31, 2019
$
18,334
$
1,899
$
1,462
$
—
$
21,695
 
Adoption of ASU 2016-13 (CECL)
(1)
9,264
(3)
2,647
—
11,908
Allowance for credit losses, January 1, 2020
$
27,598
$
1,896
$
4,109
$
—
$
33,603
 
Charge-offs
(6,490)
(1,279)
(729)
—
(8,498)
 
Recoveries
525
38
89
—
652
 
Net charge-offs
(5,965)
(1,241)
(640)
—
(7,846)
 
Realized cashflows from Residual Income
1,153
—
—
—
1,153
 
Provision for credit losses
14,988
6,545
3,617
—
25,150
Allowance for credit losses, end of period
$
37,774
$
7,200
$
7,086
$
—
$
52,060
Net investment in leases and loans, before allowance
$
877,199
$
59,012
$
84,515
$
1,410
$
1,022,136
__________________
 
(1)
 
The Company adopted ASU 2016-13,
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.
 
 
 
 
 
 
-18-
 
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 March 31, 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 Equipment
 
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 back to the pre-
COVID 12-month forecast period and 12-month straight line reversion
 
period as uncertainty of the duration and level of
impact of the COVID-19 virus on the macroeconomic environment
 
and Company’s portfolio, including
 
uncertainty about the
forecasted impact of COVID-19,
 
was reduced.
 
The provision impact from improving economic forecasts was partially offset
by the reversion to a 12-month forecast, additional provision for new originations,
 
continued residual performance, and better
than expected net charge-offs, contributing
 
to first quarter provision benefit for Equipment Finance of $
3.1
 
million.
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.
 
 
 
 
 
 
 
 
 
 
 
 
-19-
 
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 first 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 $
0.2
 
million for the three months ended
March 31, 2021, bringing the total provision associated with Working
 
Capital to $
0.2
 
million for the three months ended
March 31, 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.
 
During the first quarter, 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 $
0.7
 
million reduction in qualitative reserve
ending the period at $
5.7
 
million of total CVG qualitative adjustments for COVID-19 related risks.
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- months ended March 31, 2021, the Company has recognized
 
a provision benefit of $
2.9
 
million, driven primarily by
improving economic forecasts and portfolio performance, partially offset
 
by the reversion to a 12-month forecast period. The COVID-
19 pandemic, business shutdowns and impacts to our customers, are still ongoing,
 
and the extent of the effects of the pandemic on our
portfolio depends on future developments, which remain uncertain
 
and are difficult to predict.
 
Further, the Company instituted a Loan
modification payment deferral program, as discussed further below,
 
to give payment relief to customers during this period.
 
As of
March 31, 2021,
 
the ultimate performance of loans modified under that program remains uncertain, due
 
to the timing of the modified
loans resuming payment.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-20-
 
Our reserve as of March 31, 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.
Loan Modification Program:
 
In response to COVID-19, starting in mid-March 2020, the Company
 
instituted a 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. In 2020, the COVID-19
 
deferral program ended, however, the
 
Company continues
to consider modifications in select cases.
 
The below table outlines certain data on the modified population with details
 
of count and net investment balance, with all information
as of March 31, 2021.
 
 
Equipment
Working
(Dollars in thousands)
Finance
CVG
Capital
Total
Modified leases and loans receivable
3,808
372
176
4,356
Resolved
 
(payoff, chargeoff)
(1)
877
81
315
1,273
Total Program, number
 
of contracts
4,685
453
491
5,629
Current Quarter Population Changes:
Q1 - New modification
$
28
$
150
$
—
$
178
Q1 - Extended modification
994
3,773
—
4,767
Previously Modified
69,649
16,249
3,004
88,902
Total Modifications,
 
Net investment receivable
$
70,671
$
20,172
$
3,004
$
93,847
% of total segment receivables
9.5
%
28.6
%
16.3
%
11.2
%
Deferral Status:
Out of deferral
$
69,605
$
14,820
$
3,004
$
87,429
In deferral period
 
1,066
5,352
—
6,418
Total Modifications,
 
Net investment receivable
(2)
$
70,671
$
20,172
$
3,004
$
93,847
Modifications 30+ Days Delinquent:
Modified Contracts, not TDR
$
1,751
$
293
$
143
$
2,187
TDR and Extended Modifications
22
1,056
—
1,078
 
 
 
 
 
 
-21-
 
_________________
(1)
 
Total resolved
 
modifications include
230
 
contracts charged off where $
5.7
 
million credit loss was realized, and
1,043
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 March
31, 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 modified on or before
September 30, 2020, were not considered TDRs. As of March 31, 2021,
 
the Company had $
11.4
 
million of active contracts designated
as TDRs.
 
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 presented
 
in the
below delinquency table and the non-accrual information for March
 
31, 2021 based on their status with respect to the modified
 
terms.
See Loan Modification section above for delinquency data specific
 
to the modified portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-22-
 
Portfolio by Origination Year as of
 
March 31, 2021
Total
2021
2020
2019
2018
2017
Prior
Receivables
(Dollars in thousands)
Equipment Finance
30-59
$
112
$
767
$
1,517
$
748
$
406
$
155
$
3,705
60-89
—
360
940
421
346
191
2,258
90+
—
358
735
511
245
148
1,997
Total Past Due
112
1,485
3,192
1,680
997
494
7,960
Current
65,850
241,243
246,179
118,356
53,855
12,952
738,435
Total
65,962
242,728
249,371
120,036
54,852
13,446
746,395
Working Capital
30-59
—
3
96
—
—
—
99
60-89
—
39
31
—
—
—
70
90+
—
—
39
—
—
—
39
Total Past Due
—
42
166
—
—
—
208
Current
7,647
7,950
2,546
—
—
—
18,143
Total
7,647
7,992
2,712
—
—
—
18,351
CVG
30-59
—
—
705
17
9
59
790
60-89
—
172
542
152
14
—
880
90+
—
—
51
53
—
11
115
Total Past Due
—
172
1,298
222
23
70
1,785
Current
6,612
16,485
27,792
11,937
4,618
1,208
68,652
Total
6,612
16,657
29,090
12,159
4,641
1,278
70,437
CRA
Total Past Due
—
—
—
—
—
—
—
Current
1,158
—
—
—
—
—
1,158
Total
1,158
—
—
—
—
—
1,158
Net investment in leases
and loans, before allowance
$
81,379
$
267,377
$
281,173
$
132,195
$
59,493
$
14,724
$
836,341
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-23-
 
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
—
—
—
—
606
60-89
—
135
—
—
—
—
135
Total Past Due
125
616
—
—
—
—
741
Current
12,741
6,528
24
—
—
—
19,293
Total
12,866
7,144
24
—
—
—
20,034
CVG
30-59
591
1,039
173
29
21
—
1,853
60-89
—
69
33
—
68
—
170
90+
—
340
179
5
11
—
535
Total Past Due
591
1,448
385
34
100
—
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
—
—
—
—
—
—
—
Current
1,091
—
—
—
—
—
1,091
Total
1,091
—
—
—
—
—
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 March 31, 2021 and December 31, 2020,
there were
no
 
finance receivables past due 90 days or more and still accruing.
 
 
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.
 
The loan is removed from non-accrual status once sufficient payments
 
are made to bring the loan current and reviewed by
management. At March 31, 2021 and December 31, 2020, there were
no
 
Working
 
Capital Loans past due 30 days or more and still
accruing.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-24-
 
 
The following tables provide information about non-accrual leases and loans:
 
March 31,
December 31,
(Dollars in thousands)
2021
2020
Equipment Finance
$
5,254
$
5,543
Working
 
Capital Loans
344
932
CVG
8,415
7,814
Total
 
Non-Accrual
$
14,013
$
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
 
million goodwill balance was less than the carrying amount and recognized
impairment equal to the $
6.7
 
million balance in the March 31, 2020 Consolidated Statements of
 
Operations.
 
Intangible assets
The following table presents details of the Company’s
 
intangible assets as of March 31, 2021:
 
 
Gross Carrying
Accumulated
Net
Useful Life
Amount
Amortization
Value
(Dollars in thousands)
Vendor
 
relationships
11
years
$
7,290
$
1,804
$
5,486
Corporate trade name
7
years
60
36
24
 
Total
$
7,350
$
1,840
$
5,510
 
The Company’s intangible
 
assets consist of definite-lived intangible assets in connection with the January 2017
 
acquisition of Horizon
Keystone Financial and the September 2018 acquisition of Fleet Financing
 
Resources. The Company has
no
 
indefinite-lived intangible
assets.
 
 
There was
no
 
impairment of these assets in the first quarter of 2021.
 
Amortization related to the Company’s
 
definite lived intangible
assets was $
0.2
 
million and $
0.2
 
million for the three-month periods ended March 31, 2021 and March 31, 2020,
 
respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-25-
 
The Company expects the amortization expense for the next five years
 
will be as follows:
Amortization
(Dollars in thousands)
Expense
Remainder of 2021
$
503
2022
671
2023
671
2024
663
2025
663
 
 
NOTE 8 – Other Assets
 
Other assets are comprised of the following:
 
 
March 31,
December 31,
 
2021
2020
(Dollars in thousands)
Accrued fees receivable
$
2,609
$
2,928
Prepaid expenses
2,824
2,790
Federal Reserve Bank Stock
1,711
1,711
Other
 
2,632
2,783
$
9,776
$
10,212
 
 
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 March 31, 2021,
 
money market deposit accounts totaled $
52.5
 
million.
 
As of March 31, 2021, the scheduled maturities of certificates of deposits are as follows:
 
 
Scheduled
Dollars in thousands
Maturities
Period Ending December 31,
Remainder of 2021
$
212,240
2022
210,075
2023
117,717
2024
56,814
2025
29,087
Total
$
625,933
 
Certificates of deposits issued by MBB are time deposits and are generally issued
 
in denominations of $
250,000
 
or less. The MMDA
Product is also issued to customers in amounts less than $
250,000
. The FDIC insures deposits up to $
250,000
 
per depositor. The
weighted average all-in interest rate of deposits at March 31, 2021 was
1.60
%.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-26-
 
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:
 
 
 
 
March 31,
December 31,
 
2021
2020
 
(Dollars in thousands)
Term securitization
 
2018-1
$
23,774
$
30,800
Unamortized debt issuance costs
(104)
(135)
$
23,670
$
30,665
 
On July 27, 2018, the Company completed a $
201.7
 
million asset-backed term securitization. Each tranche of the term note
securitization has a fixed term, fixed interest rate and fixed principal amount.
 
At March 31, 2021,
 
outstanding term securitizations
amounted to $
23.8
 
million and are collateralized by $
24.9
 
million of minimum lease and loan payments receivable and $
4.4
 
million of
restricted interest-earning deposits.
The July 27, 2018 term note securitization is summarized below:
 
Outstanding Balance as of
Notes
Final
Original
 
March 31,
December 31,
Originally
 
Maturity
 
Coupon
 
2021
2020
Issued
Date
Rate
(Dollars in thousands)
2018 — 1
 
Class A-1
 
$
—
$
—
$
77,400
July, 2019
2.55
%
 
Class A-2
 
—
—
55,700
October, 2020
3.05
 
Class A-3
 
—
—
36,910
April, 2023
3.36
 
Class B
2,534
9,560
10,400
May, 2023
3.54
 
Class C
11,390
11,390
11,390
June, 2023
3.70
 
Class D
5,470
5,470
5,470
July, 2023
3.99
 
Class E
4,380
4,380
4,380
May, 2025
5.02
Total Term
 
Note Securitizations
$
23,774
$
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.
 
(2)
The weighted average coupon rate of the 2018-1 term note securitization
 
will approximate
3.99
% over the remaining term of the
borrowing.
 
 
 
 
 
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. As of March 31, 2021 and December 31,
2020, there were
no
 
balances outstanding on this line of credit.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-27-
 
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 $
49.7
 
million in unused, secured borrowing capacity at the Federal Reserve Discount
 
Window,
 
based on
$
55.2
 
million of net investment in leases pledged at March 31, 2021.
 
 
Maturities
 
Based on current expected cashflows of leases underlying our term note
 
securitization, principal and interest payments are estimated
as of March 31, 2021 as follows:
 
Principal
Interest
(Dollars in thousands)
Period Ending December 31,
Remainder of 2021
15,191
524
2022
8,583
159
$
23,774
$
683
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-28-
 
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.
 
 
Recurring Fair Value
 
Measurements
 
The Company’s balances measured
 
at fair value on a recurring basis include the following as of March 31, 2021
 
and December 31,
2020:
 
March 31, 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
$
—
$
5,192
$
—
$
—
$
3,719
$
—
Municipal securities
—
3,474
—
—
4,145
—
Mutual fund
3,707
—
—
3,760
—
—
 
At this time, the Company has not elected to report any assets and liabilities
 
using the fair value option. There have been
no
 
transfers
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 intangible assets for
impairment, and the Company’s
 
remeasurement of contingent consideration and assessment of the
 
carrying amount of its servicing
liability.
 
 
For the three months ended March 31, 2021,
 
there were no significant amounts recognized in the Consolidated Statements of
Operations in connection with non-recurring fair value measurements.
 
For the three months ended March 31, 2020, the Company recognized
 
$
6.7
 
million for the impairment of goodwill as discussed further
in 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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-29-
 
March 31, 2021
December 31, 2020
Carrying
Fair
Carrying
Fair
Amount
Value
Amount
Value
(Dollars in thousands)
Financial Assets
Cash and cash equivalents
$
110,622
$
110,622
$
135,691
$
135,691
Time deposits with banks
4,482
4,504
5,967
6,003
Restricted interest-earning deposits with banks
4,358
4,358
4,719
4,719
Loans, net of allowance
490,516
507,612
500,768
507,362
Federal Reserve Bank Stock
1,711
1,711
1,711
1,711
Financial Liabilities
 
Deposits
$
678,331
$
687,928
$
729,614
$
742,882
 
Long-term borrowings
23,670
24,025
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-30-
 
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 March 31,
2021
2020
(Dollars in thousands,
 
except per-share data)
Basic EPS
Net income (loss)
$
6,851
$
(11,821)
Less: net income allocated to participating securities
(85)
—
 
Net income (loss) allocated to common stock
$
6,766
$
(11,821)
Weighted average
 
common shares outstanding
 
11,982,476
12,014,396
Less: Unvested restricted stock awards considered participating securities
(148,061)
(138,249)
Adjusted weighted average common shares used in computing basic EPS
11,834,415
11,876,147
Basic earnings (loss) per share
$
0.57
$
(1.00)
Diluted EPS
Net income (loss) allocated to common stock
$
6,766
$
(11,821)
Adjusted weighted average common shares used in computing basic EPS
11,834,415
11,876,147
Add: Effect of dilutive stock-based compensation
 
awards
 
34,803
—
 
Adjusted weighted average common shares used in computing diluted EPS
11,869,218
11,876,147
Diluted earnings (loss) per share
$
0.57
$
(1.00)
 
For each of the three-month periods ended March 31, 2021 and March
 
31, 2020,
 
outstanding stock based compensation awards in the
amount of
199,193
 
and
359,035
, respectively, were considered
 
antidilutive and therefore were not considered in the computation of
potential common shares for purposes of diluted EPS.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-31-
 
NOTE 13 – Stockholders’ Equity
 
Share Repurchases
During the three-month period ended March 31, 2021, the Company
 
did
no
t purchase any shares of its common stock under a 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 March 31, 2020, the Company purchased
264,470
 
shares of its common stock in the open market under 2019
Repurchase Plan at an average cost of $
16.09
 
per share.
 
At March 31, 2021, the Company had $
4.7
 
million of remaining authorizations under the 2019 Repurchase Plan.
 
Pursuant to the
Agreement and Plan of Merger dated as of April 18, 2021 by and
 
among the Company, Madeira Holdings,
 
LLC and Madeira Merger
Subsidiary, Inc., the
 
Company may not repurchase shares of common stock (pursuant to the 201
 
9
 
Repurchase Plan or otherwise)
without prior written consent of Madeira Holdings, LLC. See Note 14
 
“Subsequent Events” for additional discussion regarding the
proposed merger transaction.
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) and the Company’s 2019
 
Equity Compensation Plan (approved by the Company’s
shareholders on May 30, 2019) may have shares withheld to cover income
 
taxes. During the three-month periods
 
ended March 31,
2021 and March 31, 2020, there were
16,038
 
shares and
21,123
 
shares repurchased to cover income tax withholding under the 2014
Equity Compensation Plan and the 2019 Equity Compensation Plan
 
at an average cost of $
14.01
 
per share and $
13.38
 
per share,
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
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
10
% in order to maintain “well-capitalized” status 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-32-
 
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 March 31, 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 March 31, 2021 was $
152.9
 
million, which met all capital requirements to which MBB is subject and
qualified MBB for “well-capitalized” status. At March 31, 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.
 
 
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 March
 
31, 2021.
 
Minimum Capital
Well-Capitalized Capital
Actual
Requirement
Requirement
Ratio
Amount
Ratio
Amount
Ratio
Amount
(Dollars in thousands)
Tier 1 Leverage Capital
 
Marlin Business Services Corp.
20.68%
$
206,512
4.00%
$
39,945
5.00%
$
49,931
 
Marlin Business Bank
16.84%
$
152,855
4.00%
$
36,316
5.00%
$
45,395
Common Equity Tier 1 Risk-Based Capital
 
Marlin Business Services Corp.
23.79%
$
206,512
4.50%
$
39,068
6.50%
$
56,432
 
Marlin Business Bank
19.00%
$
152,855
4.50%
$
36,203
6.50%
$
52,294
Tier 1 Risk-based Capital
 
Marlin Business Services Corp.
23.79%
$
206,512
6.00%
$
52,091
8.00%
$
69,454
 
Marlin Business Bank
19.00%
$
152,855
6.00%
$
48,271
8.00%
$
64,361
Total
 
Risk-based Capital
 
Marlin Business Services Corp.
25.08%
$
217,711
8.00%
$
69,454
10.00%
$
86,818
 
Marlin Business Bank
20.29%
$
163,253
8.00%
$
64,361
10.00%
$
80,452
 
 
 
 
 
 
-33-
 
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;
 
•
 
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
20.29
% at March 31, 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 commensurate
 
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 Agreement and Plan of Merger dated as of April
 
18, 2021 by and among the Company,
 
Madeira Holdings, LLC and
Madeira Merger Subsidiary,
 
Inc., 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
 
per quarter. See Note 14
“Subsequent Events” for additional discussion regarding the proposed merger
 
transaction.
 
 
 
 
 
 
 
 
 
 
 
-34-
 
NOTE 14 – Subsequent Events
 
 
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. (the “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 the HPS Merger Sub, with the Company
 
surviving (the “Merger”).
 
The Company's Board of Directors has
unanimously approved 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
 
the 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”).
 
The Company declared a dividend of $
0.14
 
per share on April 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
May 20, 2021
 
to shareholders of record on the close of
business on
May 10, 2021
. It represents the Company’s
thirty-ninth
 
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.
 
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.
 
 
 
 
 
 
 
 
-35-
 
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 our proposed merger
with a subsidiary of funds managed by HPS Investment Partners, LLC (the
 
“HPS Merger Sub”), including the timing thereof and the
costs to be incurred in connection with MBB’s
 
surrender of its banking licenses and authority and termination
 
of its FDIC insured
deposits (a process we refer to as “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 the
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-36-
 
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
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.
 
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 the 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 the HPS Merger Sub,
with the Company surviving (the “Merger”).
 
The Company's Board of Directors has unanimously approved 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.
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.
 
E
XECUTIVE
S
UMMARY
 
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.
 
To this end, we initiated
 
a loan modification
 
program in response to
the pandemic that allowed for up to six months of deferred payments
 
.
 
Although the pace of modifications has slowed substantially
during the first quarter,
 
we continue offering extensions in select cases as part of our loss mitigation strategies.
 
See Note 6 –
Allowance for Credit Losses for information and data about our loan modifications
 
.
In addition, 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 see economic conditions improve, 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
anticipate officially re-opening our offices in the second quarter
 
of 2021 for select departments while offering our employees
 
the
choice of returning to the office or continuing to work
 
remotely for the foreseeable future.
Our first quarter results of net income of $6.9 million, or $0.57 earnings
 
per share, are highlighted by solid credit quality,
 
improving
origination volume trends and strong earnings, and although our
 
first quarter origination volume remains well below pre-pandemic
levels, originations grew sequentially during each month of the quarter
 
.
Portfolio trends and performance.
During the three months ended March 31, 2021, we generated 3,687
 
new Equipment Finance leases and loans with equipment costs of
$75.3 million, compared to 5,863 new Equipment Finance leases and loans
 
with equipment costs of $127.7 million generated for the
three months ended March 31, 2020.
 
Working Capital loan
 
originations were $8.4 million during the three-month period ended March
31, 2021, compared to $23.9 million for the three-month period ended
 
March 31, 2020.
Overall, our average net investment in total finance receivables for the
 
three-month period ended March 31, 2021 decreased 17.4% to
$833.5 million, compared to $1,008.8 million for the three-month period
 
ended March 31, 2020.
 
Equipment Finance receivables delinquent over 30 days were 1.16%
 
at March 31, 2021, down 66 basis points from 1.82% at March
31, 2020. Working
 
Capital receivables over 15 days delinquent were 1.47% at March 31, 2021,
 
down 108 basis points from 2.55% at
March 31, 2020. Annualized total net charge-offs
 
for the first quarter of 2021 were 1.67% of average total finance receivables as
compared to 3.11% for the same period in 2020
 
.
 
 
 
 
 
-37-
 
For the three-months ended March 31, 2021 we recognized a provision
 
benefit of $2.9 million as compared to a provision net expense
of $25.2 million for the same period in 2020. The provision release in the
 
first 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 4.65% at March 31, 2021 compared with 5.09% at March
31, 2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-38-
 
F
INANCE
R
ECEIVABLES
 
AND
A
SSET
Q
UALITY
 
 
The following table summarizes certain portfolio statistics for the periods
 
presented:
Three Months Ended
Year Ended
March 31,
December 31,
 
2021
2020
2020
(Dollars in thousands)
Finance receivables:
End of period
(1)
$
836,341
$
1,022,135
$
825,056
Average for the period
(1)
$
833,474
$
1,008,823
$
945,599
Origination Volume
$
83,766
$
157,391
$
367,128
Assets Sold
$
—
$
22,929
$
28,342
Allowance for credit losses :
End of period
$
38,912
$
52,060
$
44,228
As a % of end of period receivables
(1)
4.65%
5.09%
5.09%
Loans modified, in payment deferral:
End of period
$
93,847
$
19,518
$
111,209
As a % of end of period receivables
(1)
11.22%
1.91%
12.80%
Delinquencies, end of period:
(2)
Equipment Finance and CVG:
Greater than 60 days past due, $
$
5,203
$
10,156
$
6,717
Greater than 60 days past due, %
0.62%
1.05%
0.77%
Working
 
Capital:
 
Greater than 30 days past due, $
$
193
$
673
$
741
Greater than 30 days past due, %
1.05%
1.14%
3.69%
Other Renegotiated leases and loans, end of period
(3)
$
822
$
3,095
$
922
Annualized net charge-offs
 
 
to average total finance receivables
(1)
1.67%
 
3.11%
 
3.43%
__________________
(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, as discussed further below.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-39-
 
R
ESULTS
 
OF
O
PERATIONS
 
 
Comparison of the Three-Month Periods Ended March
 
31, 2021 and March 31, 2020
 
 
Net income.
 
Net income of $6.9 million was reported for the three-month period
 
ended March 31, 2021, resulting in diluted EPS per share of
$0.57,
 
compared to net loss of $11.8 million and diluted Loss per Share
 
of $1.00 for the three-month period ended March 31, 2020.
 
This $18.7 million increase in Net income was primarily driven by:
-
 
$28.1 million decrease in Provision for credit losses, driven primarily
 
by an improvement in economic conditions during the
past 12 months
;
 
 
-
 
$6.1 million decrease in net interest and fee income driven primarily
 
by a decline in the size of our finance receivable
portfolio;
 
-
 
$2.3 million decrease in gains on lease and loans sold due to a decrease in assets sold resulting
 
from disruptions in the capital
markets during this current economic environment;
 
-
 
$3.5 million decrease in Salaries and benefits, and General and administrative
 
expenses
 
driven primarily by lower
Commissions, Incentives and the Company’s
 
cost reduction measures;
 
-
 
$6.7 million Goodwill impairment recorded in 2020;
 
-
 
$10.0 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 three-
month periods ended March 31, 2021 and March 31, 2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-40-
 
Three Months Ended March 31,
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
$
115,151
$
17
0.06
%
$
100,582
$
327
1.30
%
Time Deposits
5,325
18
1.37
13,507
63
1.88
Restricted interest-earning deposits with banks
4,870
—
—
8,033
9
0.44
Securities available for sale
11,236
48
1.70
10,778
58
2.14
Net investment in leases
(3)
784,787
16,339
8.33
904,548
20,269
8.96
Loans receivable
(3)
48,687
1,866
15.33
104,275
5,739
22.02
 
Total
 
interest-earning assets
970,056
18,288
7.54
1,141,723
26,465
9.27
Non-interest-earning assets:
Cash and due from banks
5,819
5,470
Allowance for loan and lease losses
(43,993)
(29,325)
Intangible assets
5,620
7,392
Goodwill
—
6,663
Operating lease right-of-use assets
7,559
8,776
Property and equipment, net
8,738
8,094
Property tax receivables
8,033
8,886
Other assets
(4)
27,740
31,136
 
Total
 
non-interest-earning assets
19,516
47,092
 
Total
 
assets
$
989,572
$
1,188,815
Interest-bearing liabilities:
Certificate of Deposits
(5)
$
648,030
$
2,933
1.81
%
814,178
$
4,856
2.39
%
Money Market Deposits
(5)
53,320
37
0.28
24,322
85
1.40
Long-term borrowings
(5)
27,313
293
4.29
69,751
739
4.24
 
Total
 
interest-bearing liabilities
728,663
3,263
1.79
908,251
5,680
2.51
Non-interest-bearing liabilities:
Sales and property taxes payable
7,226
5,890
Operating lease liabilities
8,559
9,644
Accounts payable and accrued expenses
24,758
27,726
Net deferred income tax liability
23,043
29,468
 
Total
 
non-interest-bearing liabilities
63,586
72,728
 
Total
 
liabilities
792,249
980,979
Stockholders’ equity
197,323
207,836
 
Total
 
liabilities and stockholders’ equity
$
989,572
$
1,188,815
Net interest income
$
15,025
$
20,785
Interest rate spread
(6)
5.75
%
6.76
%
Net interest margin
(7)
6.20
%
7.28
%
Ratio of average interest-earning assets to
 
average interest-bearing liabilities
133.13
%
125.71
%
__________________
(1)
Average balances were calculated using average daily balances.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-41-
 
(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.
 
 
 
 
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 March 31, 2021 Compared To
Three Months Ended March 31, 2020
Increase (Decrease) Due To:
 
Volume
(1)
Rate
(1)
Total
(Dollars in thousands)
Interest income:
Interest-earning deposits with banks
$
41
$
(351)
$
(310)
Time Deposits
(31)
(14)
(45)
Restricted interest-earning deposits with banks
(3)
(6)
(9)
Securities available for sale
2
(12)
(10)
Net investment in leases
(2,560)
(1,370)
(3,930)
Loans receivable
(2,468)
(1,405)
(3,873)
 
Total
 
interest income
(3,648)
(4,529)
(8,177)
Interest expense:
Certificate of Deposits
(881)
(1,042)
(1,923)
Money Market Deposits
53
(101)
(48)
Long-term borrowings
(455)
9
(446)
 
Total
 
interest expense
(992)
(1,425)
(2,417)
Net interest income
(2,891)
(2,869)
(5,760)
 
__________________
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-42-
 
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 March
 
31, 2021 and March 31, 2020.
 
Three Months Ended March 31,
 
2021
2020
(Dollars in thousands)
Interest income
 
$
18,288
$
26,465
Fee income
 
2,455
2,766
 
Interest and fee income
 
20,743
29,231
Interest expense
 
3,263
5,680
 
Net interest and fee income
 
$
17,480
$
23,551
Average total
 
finance receivables
(1)
$
833,474
$
1,008,823
Annualized percent of average total finance receivables:
Interest income
 
8.78
%
10.49
%
Fee income
 
1.18
1.10
 
Interest and fee income
 
9.96
11.59
Interest expense
 
1.57
2.25
 
Net interest and fee margin
 
8.39
%
9.34
%
 
__________________
 
 
(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 $6.1 million, or 25.8%, to $17.5
 
million for the three months ended March 31, 2021 from $23.6
million for the three months ended March 31, 2020.
 
The annualized net interest and fee margin decreased 95 basis points to 8.39%
 
in
the three-month period ended March 31, 2021 from 9.34% for the
 
corresponding period in 2020.
 
 
Interest income, net of amortized initial direct costs and fees, was $18.3
 
million and $26.5 million for the three-month periods ended
March 31, 2021 and March 31, 2020,
 
respectively. Average
 
total finance receivables decreased $175.3 million, or 17.4%, to $833.5
million at March 31, 2021 from $1,008.8 million at March 31, 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 171 basis points to 8.78% from 10.49% in the prior year quarter
 
.
 
The weighted average implicit interest rate on new
finance receivables originated decreased 299 basis points to 9.46%
 
for the three-month period ended March 31, 2021 compared to
12.45% for the three-month period ended March 31, 2020.
 
That decrease was primarily driven by a decrease of 531 basis points for
Working
 
Capital originations for the three-month period ended March 31, 2021 compared
 
to the corresponding period in 2020 as a
result of declining interest rates during the economic disruption caused by
 
the COVID-19 pandemic.
 
 
Fee income was $2.5 million and $2.8 million for the three-month periods
 
ended March 31, 2021 and March 31, 2020,
 
respectively,
and included approximately $1.6 million and $2.1 million in late fee income
 
for the three-month periods ended March 31, 2021 and
March 31, 2020,
 
respectively. Late fees
 
remained the largest component of fee income at 0.63% as an annualized
 
percentage of
average total finance receivables for the three-month period ended
 
March 31, 2021,
 
compared to 0.86% for the three-month period
ended March 31, 2020.
 
 
Interest expense decreased $2.4 million to $3.3 million for the three-month
 
period ended March 31, 2021 from $5.7 million for the
corresponding period in 2020,
 
primarily due to a decrease of $1.9 million on lower deposit balance
 
s
 
as well as a decrease of $0.4
million due to the continuing reduction of long-term debt.
 
Interest expense, as an annualized percentage of average total finance
receivables, decreased 68 basis points to 1.57% for the three-month period
 
ended March 31, 2021,
 
from 2.25% for the corresponding
period in 2020.
 
The average balance of deposits was $701.3 million and $838.5 million for the three
 
-month periods ended March 31,
2021 and March 31, 2020,
 
respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-43-
 
For the three-month period ended March 31, 2021,
 
average term securitization borrowings outstanding were $27.3 million at a
weighted average coupon of 4.29%. For the three-month period ended
 
March 31, 2020,
 
average term securitization borrowings
outstanding were $69.8 million at a weighted average coupon of 4.24%.
 
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 March 31,
2021,
 
brokered certificates of deposit represented approximately 54% of
 
total deposits, while approximately 38%
 
of total deposits
were obtained from direct channels, and 8% were in the brokered
 
MMDA Product.
 
 
 
Gain on Sale of Leases and Loans.
 
There were no asset sales for the three-month period ended March 31, 2021
 
as we retained all of
our origination volume on our balance sheet. There were $22.9 million of
 
asset sales for the three-month period ended March 31, 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 slowing 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 slightly to $ 2.0 million for the three-month
 
period
ended March 31, 2021,
 
compared to $ 2.3 million for the three-month period ended March 31, 2020.
 
 
Other income.
 
Other income was $ 6.6 million and $ 7.6 million for the three-month periods
 
ended March 31, 2021 and March 31,
2020,
 
respectively. The decrease in other
 
income was primarily driven by lower servicing income, and lower insurance
 
policy and
other miscellaneous fees.
 
 
Salaries and benefits expense
. Salaries and benefits expense decreased $1.1 million, or 12.0%, to
 
$8.4 million for the three-month
period ended March 31, 2021 from $9.5 million for the corresponding period
 
in 2020 as a result of our efforts to tighten our expense
base in response to the COVID-19 pandemic by reducing our work force by
 
approximately 80 employees.
 
 
General and administrative expense.
 
The following table summarizes General and administrative expense:
Three Months Ended March 31,
 
2021
2020
(Dollars in thousands)
Property tax
$
5,601
$
6,012
Occupancy and depreciation
1,066
1,320
Professional fees
893
1,219
Information technology
1,053
986
Marketing
218
502
Other servicing expenses
320
274
Other G&A
2,095
3,292
 
Total
$
11,246
$
13,605
 
General and administrative expense decreased $2.3 million, or 17.3%,
 
to $11.2 million for the three months ended March
 
31, 2021
from $13.6 million for the corresponding period in 2020 as a result of our
 
cost reduction initiatives. General and administrative
expense as an annualized percentage of average total finance receivables
 
was 5.40% for the three-month period ended March 31,
2021,
 
compared to 5.39% for the three-month period ended March 31, 2020
 
.
 
 
 
 
 
 
 
-44-
 
Goodwill impairment.
 
In the first quarter of 2020, driven by negative events related to the COVID-19
 
economic shutdown, we
analyzed goodwill for impairment.
 
We concluded
 
that the implied fair value of goodwill was less than its carrying amount, and
recognized impairment equal to the entire $6.7 million balance in the three-months
 
ended March 31, 2020.
 
Provision for income taxes.
Income tax expense of $2.5 million was recorded for the three-month period ended
 
March 31, 2021,
compared to a benefit of $7.4 million for the three-month period ended
 
March 31, 2020.
 
For the three-month period ended March 31,
2020, the income tax benefit included a $3.2 million discrete benefit,
 
related to remeasuring our federal net operating losses, driven by
certain provisions in the CARES Act. For the three months ended March
 
31, 2021 our effective tax rate was 26.9%
 
and for the three
months ended March 31, 2020, our effective tax rate was 38.6% driven
 
by the aforementioned benefit.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-45-
 
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
 
facilities
 
(all
 
of
 
which
 
have
 
since
 
been
 
repaid
 
in
 
full);
 
 
•
 
 
financing
 
of
 
leases
 
through
 
term
 
note
 
securitizations;
 
and
 
 
•
 
sale
 
of
 
leases
 
and
 
loans
 
through
 
our
 
ca
pital
 
markets
 
capabilities.
 
 
Deposits issued by MBB represent our primary funding source for new originations,
 
primarily through the issuance of FDIC insured
deposits.
 
 
MBB also offers an FDIC-insured MMDA Product as another
 
source of deposit funding. This product is offered through participation
in a partner bank’s insured savings
 
account product to clients of that bank.
 
It is a brokered account with a variable interest rate,
recorded as a single deposit account at MBB. Over time, MBB may offer
 
other products and services to the Company’s
 
customer base.
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 January 28, 2021.
 
The quarterly dividend was paid on February 18, 2021 to shareholders
of record on the close of business on February 8, 2021, which resulted in
 
a dividend payment of approximately $1.7 million. It
represented the Company’s thirty
 
-eighth consecutive quarterly cash dividend.
 
 
At March 31, 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 $110.6 million. This amount excludes
 
additional liquidity that
may be provided by the issuance of insured deposits through MBB.
 
Our debt to equity ratio was 3.48 to 1 at March 31, 2021 and 3.87 to 1 at
 
December 31, 2020.
 
Net cash provided by investing activities was $27.7 million for the
 
three-month period ended March 31, 2021, compared to net cash
used in investing activities of $5.2 million for the three-month period ended
 
March 31, 2020.
 
The increase in cash from investing
activities is primarily due to a decrease of $70.6 million for purchases
 
of equipment for lease contracts partially offset by reductions
 
of
$21.3 million in proceeds from sales of leases originated for investment
 
and $17.1 million in principal collections on leases
 
and loans.
The decrease in purchases of equipment was driven by lower origination
 
volumes for the three months ended March 31, 2021
compared to the corresponding period of 2020, and the reduction in
 
proceeds from sales was driven by the absence of asset sales in the
first quarter of 2021.
 
Net cash used financing activities was $60.2 million for the three-month
 
period ended March 31, 2021,
 
compared to net cash provided
by financing activities of $82.5 million for the three-month period
 
ended March 31, 2020. The decrease in cash flows from financing
activities is primarily due to a decrease of $154.1 million in the net change
 
deposits partially offset by a decrease of $7.0 million of
term securitization repayments. Financing activities also include transactions
 
related to the Company’s payment of
 
dividends.
 
 
Net cash provided by operating activities was $7.0 million for the three-month
 
period ended March 31, 2021, compared to net cash
provided by operating activities of $10.2 million for the three-month period
 
ended March 31, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-46-
 
 
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 March 31, 2021 totaled $110.6 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 March 31, 2021 and December 31, 2020 totaled $4.5 million and $6.0
million, respectively.
 
Restricted Interest-Earning Deposits with Banks
. As of March 31, 2021 and December 31, 2020,
 
we had $4.4 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 $23.7 million at March 31,
 
2021 and $30.7 million at December 31, 2020.
 
Information pertaining to our borrowing facilities is as follows:
 
For the Three Months Ended March 31, 2021
As of March 31, 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
27,313
4.29
%
23,774
3.99
%
—
$
25,000
$
28,279
$
27,313
4.29
%
$
23,774
3.99
%
$
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 March 31, 2021, MBB had $49.7 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-47-
 
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 $49.7 million in unused, secured borrowing
 
capacity at the Federal Reserve Discount Window,
 
based on
$55.2 million of net investment in leases pledged at March 31, 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 March 31, 2021 and December 31, 2020 outstanding term securitizations amounted
 
to $23.8 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 dividend
payments and numerous other aspects of operations.
 
These regulations generally have been adopted to protect depositors and
creditors rather than shareholders.
 
 
At March 31, 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 March 31, 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 March 31, 2021
 
On
 
April
 
18,
 
2021,
 
the
 
Company
 
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 Company's Board of Directors
has unanimously approved 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 Company declared a dividend of 0.14 per share on April 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 May 20, 2021 to shareholders of record on the close of
 
 
 
 
 
 
 
 
 
-48-
 
business on May 10, 2021.
 
It represents the Company’s thirty
 
-ninth 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.
 
 
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.
 
 
 
 
 
 
-49-
 
Item
 
3.
 
Quantitative
 
and
 
Qualitative
 
Disclos
ures
 
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 first 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.
 
 
 
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.
 
 
 
 
 
 
-50-
 
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 combination
 
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 negatively
 
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.
 
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 March 31, 2021.
 
As of March 31, 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.
 
 
 
 
 
 
 
 
 
-51-
 
Pursuant to the 2014 Equity Compensation Plan and the 2019 Equity
 
Compensation Plan, participants may have shares withheld to
cover income taxes. There were 16,038 shares repurchased to cover income
 
tax withholding in connection with the shares granted
under the 2014 Equity Compensation Plan and 2019 Equity Compensation
 
Plan during the three-month period ended March 31, 2021,
at an average cost of $14.01 per share.
 
Item
 
3.
 
Defaults
 
Upon
 
Senior
 
Securities
 
 
 
None.
 
Item
 
4.
 
Mine
 
Safety
 
Disclosures
 
None.
 
Item
 
5.
 
Other
 
Information
 
 
 
None
 
 
 
 
-52-
 
 
Item
 
6.
 
 
Exhibits
 
 
 
Exhibit
 
Number
 
Description
 
2.1
 
 
(1)
 
 
3.1
 
(2)
3.2
 
(3)
3.3
 
(4)
31.1
 
 
 
(Filed herewith)
 
31.2
 
 
 
(Filed herewith)
32.1
 
 
 
 
 
 
(Furnished herewith)
 
101
 
Financial
 
statements
 
from
 
the
 
Quarterly
 
Report
 
on
 
Form
 
10
-
Q
 
of
 
Marlin
 
Business
 
Services
 
Corp.
 
for
 
the
 
period
 
ended
 
March 31, 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.
 
 
 
 
 
 
 
 
 
-53-
 
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:
 
April 30, 2021
 
 
 
 
 
 
Exhibit 31.1
CERTIFICATION
 
REQUIRED BY RULE 13a-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 
CERTIFICATION
 
OF CHIEF EXECUTIVE OFFICER
 
 
I, Jeff Hilzinger, certify
 
that:
 
 
1.
 
I
 
have
 
reviewed
 
this
 
quarterly
 
report
 
on
 
Form
 
10
-
Q
 
of
 
Marlin
 
Business
 
Services
 
Corp.;
 
 
 
2.
 
Based
 
on
 
my
 
knowledge,
 
this
 
report
 
does
 
not
 
contain
 
any
 
untrue
 
statement
 
of
 
a
 
material
 
fact
 
or
 
omit
 
to
 
state
 
a
 
material
 
fact
 
necessary to make the statements made, in light of the
 
circumstances under which such statements were made, not
 
misleading
with respect to the periods covered by this report;
 
 
3.
 
Based
 
on
 
my
 
knowledge,
 
the
 
financial
 
statements,
 
and
 
other
 
financial
 
information
 
included
 
in
 
this
 
report,
 
fairly
 
pre
sent
 
in
 
all
 
material
 
respects
 
the
 
financial
 
condition,
 
results
 
of
 
operations
 
and
 
cash
 
flows
 
of
 
the
 
registrant
 
as
 
of,
 
and
 
for,
 
the
 
periods
presented in this report;
 
 
4.
 
The
 
registran
t’s
 
other
 
certifying
 
officer(s)
 
and
 
I
 
are
 
responsible
 
for
 
establishing
 
and
 
maintaining
 
disclosure
 
controls
 
and
 
procedures
 
(as
 
defined
 
in
 
Exchange
 
Act
 
Rules 13a-15(e)
 
and
 
15d-15(e))
 
and
 
internal
 
control
 
over
 
financial
 
reporting
 
(as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
 
and have:
 
 
a)
 
Designed such disclosure
 
controls and procedures,
 
or caused such disclosure
 
controls and procedures
 
to be designed
under
 
our
 
supervision,
 
to
 
ensure
 
that
 
material
 
information
 
relating
 
to
 
the
 
registrant,
 
including
 
its
 
consolidated
subsidiaries, is made
 
known to us
 
by others within
 
those entities, particularly
 
during the periods
 
in which this report
is being prepared;
 
 
b)
 
Designed such internal control over
 
financial reporting, or caused such
 
internal control over financial reporting
 
to be
designed under
 
our supervision,
 
to provide
 
reasonable assurance
 
regarding the
 
reliability of
 
financial reporting
 
and
the
 
preparation
 
of
 
financial
 
statements
 
for
 
external
 
purposes
 
in
 
accordance
 
with
 
generally
 
accepted
 
accounting
principles;
 
c)
 
Evaluated
 
the
 
effectiveness
 
of
 
the
 
registrant’s
 
disclosure
 
controls
 
and
 
procedures
 
and
 
presented
 
in
 
this
 
report
 
our
conclusions about the effectiveness
 
of the disclosure controls
 
and procedures as of
 
the end of the periods
 
covered by
this report based on such evaluation; and
 
d)
 
Disclosed in
 
this report
 
any change
 
in the
 
registrant’s
 
internal control
 
over financial
 
reporting that
 
occurred during
the registrant’s
 
most recent
 
fiscal quarter
 
(the registrant’s
 
fourth
 
fiscal quarter
 
in the
 
case of
 
an annual
 
report) that
has
 
materially
 
affected,
 
or
 
is
 
reasonably
 
likely
 
to
 
materially
 
affect,
 
the
 
registrant’s
 
internal
 
control
 
over
 
financial
reporting; and
 
5.
 
The
 
registrant’s
 
other
 
certifying
 
officer(s)
 
and
 
I
 
have
 
disclosed,
 
based
 
o
n
 
our
 
most
 
recent
 
evaluation
 
of
 
internal
 
control
 
over
 
financial
 
reporting,
 
to
 
the
 
registrant’s
 
auditors
 
and
 
the
 
audit
 
committee
 
of
 
the
 
registrant’s
 
board
 
of
 
directors
 
(or
 
persons
performing the equivalent functions):
 
 
a)
 
All
 
significant
 
deficiencies
 
and
 
material
 
weaknesses
 
in
 
the
 
design
 
or
 
operation
 
of
 
internal
 
control
 
over
 
financial
reporting
 
which
 
are reasonably
 
likely to
 
adversely affect
 
the registrant’s
 
ability to
 
record, process,
 
summarize
 
and
report financial information; and
 
 
b)
 
Any fraud, whether
 
or not material, that
 
involves management or
 
other employees who
 
have a significant role
 
in the
registrant’s internal control
 
over financial reporting.
 
 
Date: April 30, 2021
 
/s/
 
Jeff
 
Hilzinger
 
 
 
 
 
 
 
 
 
 
 
Jeff
 
Hilzinger
 
 
 
 
 
 
 
 
 
 
Chief
 
Executive
 
Officer
 
 
 
 
 
 
 
 
 
 
Principal Executive Officer
 
 
 
 
 
 
 
Exhibit 31.2
 
 
CERTIFICATION
 
REQUIRED BY RULE 13a-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 
CERTIFICATION
 
OF CHIEF FINANCIAL OFFICER
 
 
I, Michael R. Bogansky,
 
certify that:
 
 
1.
 
I
 
have
 
reviewed
 
this
 
quarterly
 
report
 
on
 
Form
 
10
-
Q
 
of
 
Marlin
 
Business
 
Services
 
Corp.;
 
 
2.
 
Based
 
on
 
my
 
knowledge,
 
this
 
report
 
does
 
not
 
contain
 
any
 
untrue
 
statement
 
of
 
a
 
material
 
fact
 
or
 
omit
 
to
 
state
 
a
 
material
 
fact
 
necessary to make the statements made, in light of the
 
circumstances under which such statements were made,
 
not misleading
with respect to the periods covered by this report;
 
 
3.
 
Based
 
on
 
my
 
knowledge,
 
the
 
financial
 
statements,
 
and
 
other
 
financial
 
information
 
included
 
in
 
this
 
report,
 
fa
irly
 
present
 
in
 
all
 
material
 
respects
 
the
 
financial
 
condition,
 
results
 
of
 
operations
 
and
 
cash
 
flows
 
of
 
the
 
registrant
 
as
 
of,
 
and
 
for,
 
the
 
periods
presented in this report;
 
 
4.
 
The
 
r
egistrant’s
 
other
 
certifying
 
officer(s)
 
and
 
I
 
are
 
responsible
 
for
 
establishing
 
and
 
maintaining
 
disclosure
 
controls
 
and
 
procedures
 
(as
 
defined
 
in
 
Exchange
 
Act
 
Rules 13a-15(e)
 
and
 
15d-15(e))
 
and
 
internal
 
control
 
over
 
financial
 
reporting
 
(as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
 
and have:
 
 
a)
 
Designed such disclosure
 
controls and procedures,
 
or caused such disclosure
 
controls and procedures
 
to be designed
under
 
our
 
supervision,
 
to
 
ensure
 
that
 
material
 
information
 
relating
 
to
 
the
 
registrant,
 
including
 
its
 
consolidated
subsidiaries, is made
 
known to us
 
by others within
 
those entities, particularly
 
during the periods
 
in which this report
is being prepared;
 
 
b)
 
Designed such internal control over
 
financial reporting, or caused such
 
internal control over financial reporting
 
to be
designed under
 
our supervision,
 
to provide
 
reasonable assurance
 
regarding the
 
reliability of
 
financial reporting
 
and
the
 
preparation
 
of
 
financial
 
statements
 
for
 
external
 
purposes
 
in
 
accordance
 
with
 
generally
 
accepted
 
accounting
principles;
 
c)
 
Evaluated
 
the
 
effectiveness
 
of
 
the
 
registrant’s
 
disclosure
 
controls
 
and
 
procedures
 
and
 
presented
 
in
 
this
 
report
 
our
conclusions about the effectiveness
 
of the disclosure controls
 
and procedures as of
 
the end of the periods
 
covered by
this report based on such evaluation; and
 
d)
 
Disclosed in
 
this report
 
any change
 
in the
 
registrant’s
 
internal control
 
over financial
 
reporting that
 
occurred during
the registrant’s
 
most recent
 
fiscal quarter
 
(the registrant’s
 
fourth
 
fiscal quarter
 
in the
 
case of
 
an annual
 
report) that
has
 
materially
 
affected,
 
or
 
is
 
reasonably
 
likely
 
to
 
materially
 
affect,
 
the
 
registrant’s
 
internal
 
control
 
over
 
financial
reporting; and
 
5.
 
The
 
registrant’s
 
other
 
certifying
 
officer(s)
 
and
 
I
 
have
 
disclosed,
 
based
 
on
 
our
 
most
 
recent
 
evaluation
 
of
 
internal
 
control
 
over
 
financial
 
reporting,
 
to
 
the
 
registrant’s
 
auditors
 
and
 
the
 
audit
 
committee
 
of
 
the
 
registrant’s
 
board
 
of
 
directors
 
(or
 
persons
performing the equivalent functions):
 
 
a)
 
All
 
significant
 
deficiencies
 
and
 
material
 
weaknesses
 
in
 
the
 
design
 
or
 
operation
 
of
 
internal
 
control
 
over
 
financial
reporting
 
which
 
are reasonably
 
likely to
 
adversely affect
 
the registrant’s
 
ability to
 
record, process,
 
summarize
 
and
report financial information; and
 
 
b)
 
Any fraud, whether
 
or not material, that
 
involves management or
 
other employees who
 
have a significant role
 
in the
registrant’s internal control
 
over financial reporting.
 
 
Date: April 30, 2021
 
 
 
 
 
 
 
 
 
/s/
 
Michael
 
R.
 
Bogansky
 
 
 
 
 
 
 
 
 
 
 
Michael
 
R.
 
Bogansky
 
 
 
 
 
 
 
 
 
 
Chief
 
Financial
 
Officer
 
and
 
Senior
 
Vice
 
President
 
Principal Financial Officer
 
 
 
 
 
 
 
 
Exhibit 32.1
 
 
CERTIFICATION
 
PURSUANT TO
 
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with
 
the accompanying Quarterly
 
Report on Form 10-Q
 
of Marlin Business
 
Services Corp. for
 
the quarter ended
 
March
31, 2021
 
(the “Quarterly
 
Report”), Jeff
 
Hilzinger,
 
as Chief
 
Executive
 
Officer,
 
and Michael
 
R. Bogansky,
 
Chief Financial
 
Officer
 
of
the
 
Company,
 
each
 
hereby
 
certifies,
 
that
 
pursuant
 
to
 
18
 
U.S.C.
 
Section 1350,
 
as
 
adopted
 
pursuant
 
to
 
Section 906
 
of
 
the
 
Sarbanes-
Oxley Act of 2002, that, to the best of his knowledge:
 
 
(1)
 
The
 
Quarterly
 
Report
 
fully
 
complies
 
with
 
the
 
requirements
 
of
 
Section
 
13(a)
 
of
 
the
 
Securities
 
Exchange
 
Act
 
of
 
1934;
 
and
 
 
 
(2)
 
The
 
information
 
contained
 
in
 
the
 
Quarterly
 
Report
 
fairly
 
presents,
 
in
 
all
 
material
 
respects,
 
the
 
financial
 
condition
 
and
 
results
 
of operations of Marlin Business Services Corp.
 
 
Date:
 
April 30, 2021
 
/s/
 
Jeff
 
Hilzinger
 
 
 
 
 
 
 
 
Jeff
 
Hilzinger
 
 
 
 
 
 
 
Chief
 
Executive
 
Officer
 
 
 
 
 
 
 
(Principal
 
Executive
 
Officer)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
/s/
 
Michael
 
R.
 
Bogansky
 
 
 
 
 
 
 
Michael
 
R.
 
Bogansky
 
 
 
 
 
 
 
Chief
 
Financial
 
Officer
 
&
 
Senior
 
Vice
 
President
 
 
 
 
 
 
 
(Principal
 
Financial
 
Off
icer)