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(888)
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| March 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (Dollars in thousands, except per-share data) | ||||||||
ASSETS | ||||||||
Cash and due from banks | $ | 5,261 | $ | 4,701 | ||||
Interest-earning deposits with banks | 205,809 | 118,395 | ||||||
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| |||||
Total cash and cash equivalents | 211,070 | 123,096 | ||||||
Time deposits with banks | 13,664 | 12,927 | ||||||
Restricted interest-earning deposits (includes $6.5 million and $6.9 million at March 31, 2020 and December 31, 2019, respectively related to consolidated VIEs) | 6,474 | 6,931 | ||||||
Investment securities (amortized cost of $10.6 million and $11.1 million at March 31, 2020 and December 31, 2019, respectively) | 10,480 | 11,076 | ||||||
Net investment in leases and loans: | ||||||||
Leases | 407,148 | 426,608 | ||||||
Loans | 614,988 | 601,607 | ||||||
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| |||||
Net investment in leases and loans, excluding allowance for credit losses (includes $62.0 million and $76.1 million at March 31, 2020 and December 31, 2019, respectively, related to consolidated VIEs) | 1,022,136 | 1,028,215 | ||||||
Allowance for credit losses | (52,060 | ) | (21,695 | ) | ||||
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Total net investment in leases and loans | 970,076 | 1,006,520 | ||||||
Intangible assets | 7,261 | 7,461 | ||||||
Goodwill | — | 6,735 | ||||||
Operating leaseright-of-use assets | 8,618 | 8,863 | ||||||
Property and equipment, net | 8,138 | 7,888 | ||||||
Property tax receivables, net of allowance | 10,291 | 5,493 | ||||||
Other assets | 17,465 | 10,453 | ||||||
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Total assets | $ | 1,263,537 | $ | 1,207,443 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Deposits | $ | 941,996 | $ | 839,132 | ||||
Long-term borrowings related to consolidated VIEs | 62,193 | 76,091 | ||||||
Operating lease liabilities | 9,487 | 9,730 | ||||||
Other liabilities: | ||||||||
Sales and property taxes payable | 7,267 | 2,678 | ||||||
Accounts payable and accrued expenses | 28,427 | 34,028 | ||||||
Net deferred income tax liability | 25,677 | 30,828 | ||||||
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Total liabilities | 1,075,047 | 992,487 | ||||||
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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; 11,884,473 and 12,113,585 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively | 119 | 121 | ||||||
Additionalpaid-in capital | 75,647 | 79,665 | ||||||
Accumulated other comprehensive income (loss) | 20 | 58 | ||||||
Retained earnings | 112,704 | 135,112 | ||||||
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Total stockholders’ equity | 188,490 | 214,956 | ||||||
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Total liabilities and stockholders’ equity | $ | 1,263,537 | $ | 1,207,443 | ||||
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-3-
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| (Dollars in thousands, except per-share data) | ||||||||
Interest income | $ | 26,465 | $ | 25,883 | ||||
Fee income | 2,766 | 4,042 | ||||||
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Interest and fee income | 29,231 | 29,925 | ||||||
Interest expense | 5,680 | 5,962 | ||||||
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| |||||
Net interest and fee income | 23,551 | 23,963 | ||||||
Provision for credit losses | 25,150 | 5,363 | ||||||
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Net interest and fee income after provision for credit losses | (1,599 | ) | 18,600 | |||||
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Non-interest income: | ||||||||
Gain on leases and loans sold | 2,282 | 3,612 | ||||||
Insurance premiums written and earned | 2,282 | 2,132 | ||||||
Other income | 7,639 | 7,204 | ||||||
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Non-interest income | 12,203 | 12,948 | ||||||
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Non-interest expense: | ||||||||
Salaries and benefits | 9,519 | 11,451 | ||||||
General and administrative | 13,605 | 13,354 | ||||||
Goodwill impairment | 6,735 | — | ||||||
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Non-interest expense | 29,859 | 24,805 | ||||||
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(Loss) income before income taxes | (19,255 | ) | 6,743 | |||||
Income tax (benefit) expense | (7,434 | ) | 1,602 | |||||
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Net (loss) income | $ | (11,821 | ) | $ | 5,141 | |||
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Basic (loss) earnings per share | $ | (1.00 | ) | $ | 0.42 | |||
Diluted (loss) earnings per share | $ | (1.00 | ) | $ | 0.41 | |||
-4-
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| (Dollars in thousands) | ||||||||
Net (loss) income | $ | (11,821 | ) | $ | 5,141 | |||
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Other comprehensive income (loss): | ||||||||
(Decrease) increase in fair value of debt securities available for sale | (51 | ) | 54 | |||||
Tax effect | 13 | (14 | ) | |||||
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Total other comprehensive (loss) income | (38 | ) | 40 | |||||
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Comprehensive (loss) income | $ | (11,859 | ) | $ | 5,181 | |||
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-5-
| Common Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Stockholders’ Equity | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Balance, December 31, 2018 | 12,367,724 | 124 | 83,496 | (44 | ) | 114,935 | $ | 198,511 | ||||||||||||||||
Repurchase of common stock | (48,857 | ) | (1 | ) | (1,144 | ) | — | — | (1,145 | ) | ||||||||||||||
Stock issued in connection with restricted stock and RSUs, net of forfeitures | 30,209 | — | — | — | — | — | ||||||||||||||||||
Stock-based compensation recognized | — | — | 861 | — | — | 861 | ||||||||||||||||||
Net change in unrealized gain/loss on securities available for sale, net of tax | — | — | — | 40 | — | 40 | ||||||||||||||||||
Net income | — | — | — | — | 5,141 | 5,141 | ||||||||||||||||||
Cash dividends paid ($0.14 per share) | — | — | — | — | (1,758 | ) | (1,758 | ) | ||||||||||||||||
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Balance, March 31, 2019 | 12,349,076 | $ | 123 | $ | 83,213 | $ | (4 | ) | $ | 118,318 | $ | 201,650 | ||||||||||||
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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-based 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 | ) | ||||||||||||||||
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Balance, March 31, 2020 | 11,884,473 | $ | 119 | $ | 75,647 | $ | 20 | $ | 112,704 | $ | 188,490 | |||||||||||||
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-6-
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| (Dollars in thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | (11,821 | ) | $ | 5,141 | |||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,057 | 1,209 | ||||||
Stock-based compensation | 518 | 861 | ||||||
Goodwill impairment | 6,735 | — | ||||||
Change in fair value of equity securities | (58 | ) | (43 | ) | ||||
Provision for credit losses | 25,150 | 5,363 | ||||||
Change in net deferred income tax liability | (2,107 | ) | 1,364 | |||||
Amortization of deferred initial direct costs and fees | 3,413 | 3,563 | ||||||
Loss on equipment disposed | — | 389 | ||||||
Gain on leases sold | (2,282 | ) | (3,612 | ) | ||||
Leases originated for sale | (3,693 | ) | (10,675 | ) | ||||
Proceeds from sale of leases originated for sale | 3,874 | 11,052 | ||||||
Noncash lease expense | 324 | 275 | ||||||
Effect of changes in other operating items: | ||||||||
Other assets | (12,002 | ) | (4,982 | ) | ||||
Other liabilities | 1,083 | 2,559 | ||||||
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Net cash provided by operating activities | 10,191 | 12,464 | ||||||
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Cash flows from investing activities: | ||||||||
Net change in time deposits with banks | (737 | ) | (1,580 | ) | ||||
Purchases of equipment for lease contracts and funds used to originate loans | (156,145 | ) | (197,168 | ) | ||||
Principal collections on leases and loans | 129,810 | 122,871 | ||||||
Proceeds from sale of leases originated for investment | 21,337 | 45,428 | ||||||
Security deposits collected, net of refunds | (78 | ) | (76 | ) | ||||
Proceeds from the sale of equipment | 840 | 696 | ||||||
Acquisitions of property and equipment | (796 | ) | (376 | ) | ||||
Principal payments received on securities available for sale | 594 | 372 | ||||||
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Net cash (used in) investing activities | (5,175 | ) | (29,833 | ) | ||||
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Cash flows from financing activities: | ||||||||
Net change in deposits | 102,864 | 84,391 | ||||||
Term securitization repayments | (14,008 | ) | (21,104 | ) | ||||
Business combinations earn-out consideration payments | (132 | ) | (121 | ) | ||||
Repurchases of common stock | (4,538 | ) | (1,145 | ) | ||||
Dividends paid | (1,685 | ) | (1,727 | ) | ||||
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Net cash provided by financing activities | 82,501 | 60,294 | ||||||
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Net increase in total cash, cash equivalents and restricted cash | 87,517 | 42,925 | ||||||
Total cash, cash equivalents and restricted cash, beginning of period | 130,027 | 111,201 | ||||||
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Total cash, cash equivalents and restricted cash, end of period | $ | 217,544 | $ | 154,126 | ||||
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dividends paid ($
-7-
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| (Dollars in thousands) | ||||||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest on deposits and borrowings | $ | 5,420 | $ | 5,204 | ||||
Net cash paid (refunds received) for income taxes | 1,797 | 1,371 | ||||||
Leases transferred into held for sale from investment | 19,235 | 42,193 | ||||||
Supplemental disclosures of non cash investing activities: | ||||||||
Business combinations assets acquired | $ | — | $ | 146 | ||||
Purchase of equipment for lease contracts and loans originated | 3,773 | 6,979 | ||||||
Reconciliation of Cash, cash equivalents and restricted cash tothe Consolidated Balance Sheets: | ||||||||
Cash and cash equivalents | $ | 211,070 | $ | 140,952 | ||||
Restricted interest-earning deposits | 6,474 | 13,174 | ||||||
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Cash, cash equivalents and restricted cash at end of period | $ | 217,544 | $ | 154,126 | ||||
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-8-
rates were
-9-
Standards
-10-
| Balance as of December 31, 2019 | Adoption Impact | Balance as of January 1, 2020 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Assets: | ||||||||||||
Net investment in leases and loans | $ | 1,028,215 | $ | — | $ | 1,028,215 | ||||||
Allowance for credit losses | (21,695 | ) | (11,908 | ) | (33,603 | ) | ||||||
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Total net investment in leases and loans | 1,006,520 | 994,612 | ||||||||||
Liabilities: | ||||||||||||
Net deferred income tax liability | 30,828 | (3,031 | ) | 27,797 | ||||||||
Stockholders’ Equity: | ||||||||||||
Retained Earnings | 135,112 | (8,877 | ) | 126,235 | ||||||||
-11-
| Three Months Ended March 31, | ||||||||
| (dollars in thousands) | ||||||||
| 2020 | 2019 | |||||||
Insurance premiums written and earned | $ | 2,282 | $ | 2,132 | ||||
Gain on sale of leases and loans | 2,282 | 3,612 | ||||||
Other income: | ||||||||
Property tax income | 5,504 | 5,643 | ||||||
Servicing income | 566 | 287 | ||||||
Net gain (loss) recognized on equity securities | 58 | 43 | ||||||
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Non-interest income within the scope of other GAAP topics | 10,692 | 11,717 | ||||||
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Other income: | ||||||||
Insurance policy fees | 918 | 668 | ||||||
Property tax administrative fees on leases | 234 | 268 | ||||||
ACH payment fees | 72 | 86 | ||||||
Referral fees | 94 | 155 | ||||||
Other | 193 | 54 | ||||||
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Non-interest income from contracts with customers | 1,511 | 1,231 | ||||||
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Totalnon-interest income | $ | 12,203 | $ | 12,948 | ||||
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-12-
| March 31, 2020 | December 31, 2019 | |||||||
| (Dollars in thousands) | ||||||||
Equity Securities | ||||||||
Mutual fund | $ | 3,692 | $ | 3,615 | ||||
Debt Securities, Available for Sale: | ||||||||
Asset-backed securities (“ABS”) | 4,135 | 4,332 | ||||||
Municipal securities | 2,653 | 3,129 | ||||||
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Total investment securities | $ | 10,480 | $ | 11,076 | ||||
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| Three months ended | ||||||||
| (Dollars in thousands) | March 31, 2020 | March 31, 2019 | ||||||
Net gains and (losses) recognized during the period on equity securities | $ | 58 | $ | 43 | ||||
Less: Net gains and (losses) recognized during the period on equity securities sold during the period | — | — | ||||||
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Unrealized gains and (losses) recognized during the reporting period on equity securities still held at the reporting date | $ | 58 | $ | 43 | ||||
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-13-
| March 31, 2020 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
ABS | $ | 4,074 | $ | 61 | $ | — | $ | 4,135 | ||||||||
Municipal securities | 2,664 | 14 | (25 | ) | 2,653 | |||||||||||
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Total Debt Securities, Available for Sale | $ | 6,738 | $ | 75 | $ | (25 | ) | $ | 6,788 | |||||||
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| December 31, 2019 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
ABS | $ | 4,302 | $ | 33 | $ | (3 | ) | $ | 4,332 | |||||||
Municipal securities | 3,058 | 71 | — | 3,129 | ||||||||||||
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Total Debt Securities, Available for Sale | $ | 7,360 | $ | 104 | $ | (3 | ) | $ | 7,461 | |||||||
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-14-
$
| March 31, 2020 | ||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
| Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Municipal securities | $ | (25 | ) | $ | 1,834 | $ | — | $ | — | $ | (25 | ) | $ | 1,834 | ||||||||||
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Total available for sale investment securities | $ | (25 | ) | $ | 1,834 | $ | — | $ | — | $ | (25 | ) | $ | 1,834 | ||||||||||
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| December 31, 2019 | ||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
| Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
ABS | $ | — | $ | — | $ | (3 | ) | $ | 430 | $ | (3 | ) | $ | 430 | ||||||||||
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Total available for sale investment securities | $ | — | $ | — | $ | (3 | ) | $ | 430 | $ | (3 | ) | $ | 430 | ||||||||||
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-15-
| Distribution of Maturities | ||||||||||||||||||||
| 1 Year or Less | Over 1 to 5 Years | Over 5 to 10 Years | Over 10 Years | Total | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
Amortized Cost: | ||||||||||||||||||||
ABS | $ | — | $ | 2,427 | $ | 1,647 | $ | — | $ | 4,074 | ||||||||||
Municipal securities | 15 | 34 | 756 | 1,859 | 2,664 | |||||||||||||||
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Total available for sale investments | $ | 15 | $ | 2,461 | $ | 2,403 | $ | 1,859 | $ | 6,738 | ||||||||||
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Estimated fair value | $ | 15 | $ | 2,501 | $ | 2,413 | $ | 1,859 | $ | 6,788 | ||||||||||
Weighted-average yield, GAAP basis | 4.75 | % | 2.02 | % | 1.81 | % | 2.58 | % | 2.42 | % | ||||||||||
-16-
| March 31, 2020 | December 31, 2019 | |||||||
| (Dollars in thousands) | ||||||||
Minimum lease payments receivable | $ | 434,841 | $ | 457,602 | ||||
Estimated residual value of equipment | 29,464 | 29,342 | ||||||
Unearned lease income, net of initial direct costs and fees deferred | (56,645 | ) | (59,746 | ) | ||||
Security deposits | (512 | ) | (590 | ) | ||||
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Total leases | 407,148 | 426,608 | ||||||
Commercial loans, net of origination costs and fees deferred | ||||||||
Working Capital Loans | 59,012 | 60,942 | ||||||
CRA(1) | 1,410 | 1,398 | ||||||
Equipment loans(2) | 481,000 | 464,655 | ||||||
CVG | 73,566 | 74,612 | ||||||
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Total commercial loans | 614,988 | 601,607 | ||||||
Net investment in leases and loans, excluding allowance | 1,022,136 | 1,028,215 | ||||||
Allowance for credit losses | (52,060 | ) | (21,695 | ) | ||||
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| $ | 970,076 | $ | 1,006,520 | |||||
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-17-
| Minimum Lease Payments Receivable(1) | Net Income Amortization (2) | |||||||
| (Dollars in thousands) | ||||||||
Period Ending December 31, | ||||||||
Remainder of 2020 | $ | 132,867 | $ | 22,664 | ||||
2021 | 137,907 | 18,737 | ||||||
2022 | 90,158 | 9,728 | ||||||
2023 | 49,519 | 4,107 | ||||||
2024 | 20,660 | 1,140 | ||||||
Thereafter | 3,730 | 269 | ||||||
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| $ | 434,841 | $ | 56,645 | |||||
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| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| (Dollars in thousands) | ||||||||
Sales of leases and loans | $ | 22,929 | $ | 52,867 | ||||
Gain on sale of leases and loans | 2,282 | 3,612 | ||||||
-18-
| Three Months Ended March 31, 2020 | ||||||||||||||||||||
| Commercial Leases and Loans | ||||||||||||||||||||
(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 ASU2016-13 (CECL)(1) | 9,264 | (3 | ) | 2,647 | — | 11,908 | ||||||||||||||
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Allowance for credit losses, January 1, 2020 | $ | 27,598 | $ | 1,896 | $ | 4,109 | $ | — | $ | 33,603 | ||||||||||
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Charge-offs | (6,490 | ) | (1,279 | ) | (729 | ) | — | (8,498 | ) | |||||||||||
Recoveries | 525 | 38 | 89 | — | 652 | |||||||||||||||
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Net chargeoffs | (5,965 | ) | (1,241 | ) | (640 | ) | — | (7,846 | ) | |||||||||||
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Realized cashflows from Residual Income | 1,153 | — | — | — | 1,153 | |||||||||||||||
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Provision for credit losses | 14,988 | 6,545 | 3,617 | — | 25,150 | |||||||||||||||
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Allowance for credit losses, end of period | $ | 37,774 | $ | 7,200 | $ | 7,086 | $ | — | $ | 52,060 | ||||||||||
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Net investment in leases and loans, before allowance | $ | 877,199 | $ | 59,012 | $ | 84,515 | $ | 1,410 | $ | 1,022,136 | ||||||||||
-19-
| Three Months Ended March 31, 2019 | ||||||||||||||||||||
| Commercial Leases and Loans | ||||||||||||||||||||
(Dollars in thousands) | Equipment Finance | Working Capital Loans | CVG | CRA | Total | |||||||||||||||
Allowance for credit losses, beginning of period | $ | 13,531 | $ | 1,467 | $ | 1,102 | $ | — | $ | 16,100 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Charge-offs | (4,333 | ) | (673 | ) | (328 | ) | — | (5,334 | ) | |||||||||||
Recoveries | 734 | 19 | — | — | 753 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net charge-offs | (3,599 | ) | (654 | ) | (328 | ) | — | (4,581 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Provision for credit losses | 4,043 | 871 | 449 | — | 5,363 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Allowance for credit losses, end of period | $ | 13,975 | $ | 1,684 | $ | 1,223 | $ | — | $ | 16,882 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment in leases and loans, before allowance | $ | 915,556 | $ | 43,210 | $ | 79,830 | $ | 1,476 | $ | 1,040,072 | ||||||||||
|
:
-20-
Equipment Finance:
TheJune 30, 2020, respectively.
business bankruptcy.
-21-
the three and six months ended June 30, 2020, respectively.
the three and six months ended June 30, 2020,
respectively.and Paycheck Protection
Program (PPP)Loans:Subsequent toquarter-end, through April 24, 2020, the Company has approved the payment deferral modification application for contracts representing an additional $134.5 million net investment in leases and loans. A portion of these modifications are subject to the completion of final processing and documentation.
Troubled debt restructuringsquarter.
As partTDRs.
-22-
-23-
| Portfolio by Origination Year as of March 31, 2020 | ||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Total Receivables | ||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||
Equipment Finance | ||||||||||||||||||||||||||||
30-59 | $ | 179 | $ | 2,952 | $ | 1,803 | $ | 1,368 | $ | 512 | $ | 167 | $ | 6,981 | ||||||||||||||
60-89 | — | 1,428 | 1,304 | 767 | 319 | 73 | 3,891 | |||||||||||||||||||||
90+ | — | 2,157 | 1,629 | 1,046 | 387 | 138 | 5,357 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total Past Due | 179 | 6,537 | 4,736 | 3,181 | 1,218 | 378 | 16,229 | |||||||||||||||||||||
Current(1) | 110,762 | 372,522 | 207,521 | 114,189 | 44,511 | 11,465 | 860,970 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 110,941 | 379,059 | 212,257 | 117,370 | 45,729 | 11,843 | 877,199 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Working Capital | ||||||||||||||||||||||||||||
30-59 | — | 609 | — | — | — | — | 609 | |||||||||||||||||||||
60-89 | — | 16 | — | — | — | — | 16 | |||||||||||||||||||||
90+ | — | 23 | 26 | — | — | — | 49 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total Past Due | — | 648 | 26 | — | — | — | 674 | |||||||||||||||||||||
Current(1) | 21,388 | 35,947 | 965 | 38 | — | — | 58,338 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 21,388 | 36,595 | 991 | 38 | — | — | 59,012 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
CVG | ||||||||||||||||||||||||||||
30-59 | — | 126 | 178 | 106 | 30 | — | 440 | |||||||||||||||||||||
60-89 | — | 182 | 84 | 49 | — | — | 315 | |||||||||||||||||||||
90+ | — | 276 | 75 | 211 | 31 | — | 593 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total Past Due | — | 584 | 337 | 366 | 61 | — | 1,348 | |||||||||||||||||||||
Current(1) | 8,755 | 39,679 | 19,750 | 11,054 | 3,833 | 96 | 83,167 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 8,755 | 40,263 | 20,087 | 11,420 | 3,894 | 96 | 84,515 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
CRA | ||||||||||||||||||||||||||||
Total Past Due | — | — | — | — | — | — | — | |||||||||||||||||||||
Current | 1,410 | — | — | — | — | — | 1,410 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 1,410 | — | — | — | — | — | 1,410 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment in leases and loans, before allowance | $ | 142,494 | $ | 455,917 | $ | 233,335 | $ | 128,828 | $ | 49,623 | $ | 11,939 | $ | 1,022,136 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
-24-
| Portfolio by Origination Year as of December 31, 2019 | ||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | Prior | Total Receivables | ||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||
Equipment Finance | ||||||||||||||||||||||||||||
30-59 | $ | 1,420 | $ | 1,755 | $ | 935 | $ | 454 | $ | 169 | $ | 17 | $ | 4,750 | ||||||||||||||
60-89 | 1,023 | 1,055 | 685 | 366 | 80 | 4 | 3,213 | |||||||||||||||||||||
90+ | 947 | 1,522 | 1,090 | 527 | 163 | 7 | 4,256 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total Past Due | 3,390 | 4,332 | 2,710 | 1,347 | 412 | 28 | 12,219 | |||||||||||||||||||||
Current | 424,559 | 236,068 | 135,419 | 55,119 | 16,461 | 1,407 | 869,033 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 427,949 | 240,400 | 138,129 | 56,466 | 16,873 | 1,435 | 881,252 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Working Capital | ||||||||||||||||||||||||||||
30-59 | 566 | 18 | — | — | — | — | 584 | |||||||||||||||||||||
60-89 | 16 | 52 | — | — | — | — | 68 | |||||||||||||||||||||
90+ | 203 | — | — | — | — | — | 203 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total Past Due | 785 | 70 | — | — | — | — | 855 | |||||||||||||||||||||
Current | 57,706 | 2,343 | 38 | — | — | — | 60,087 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 58,491 | 2,413 | 38 | — | — | — | 60,942 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
CVG | ||||||||||||||||||||||||||||
30-59 | 50 | 126 | 90 | 99 | — | — | 365 | |||||||||||||||||||||
60-89 | 5 | 15 | 188 | 46 | — | — | 254 | |||||||||||||||||||||
90+ | — | 178 | 158 | 53 | — | — | 389 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total Past Due | 55 | 319 | 436 | 198 | — | — | 1,008 | |||||||||||||||||||||
Current | 42,536 | 22,531 | 13,442 | 4,976 | 130 | — | 83,615 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 42,591 | 22,850 | 13,878 | 5,174 | 130 | — | 84,623 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
CRA | ||||||||||||||||||||||||||||
Total Past Due | — | — | — | — | — | — | — | |||||||||||||||||||||
Current | 1,398 | — | — | — | — | — | 1,398 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 1,398 | — | — | — | — | — | 1,398 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net investment in leases and loans, before allowance | $ | 530,429 | $ | 265,663 | $ | 152,045 | $ | 61,640 | $ | 17,003 | $ | 1,435 | $ | 1,028,215 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
(Dollars in thousands) | March 31, 2020 | December 31, 2019 | ||||||
Equipment Finance | $ | 5,357 | $ | 4,256 | ||||
Working Capital Loans | 755 | 946 | ||||||
CVG | 593 | 389 | ||||||
|
|
|
| |||||
TotalNon-Accrual | $ | 6,705 | $ | 5,591 | ||||
|
|
|
| |||||
-26-
| (Dollars in thousands) | Total Company | |||
Balance at December 31, 2019 | $ | 6,735 | ||
Impairment of Goodwill | (6,735 | ) | ||
|
| |||
Balance at March 31, 2020 | $ | — | ||
|
| |||
(Dollars in thousands) Description | Useful Life | Gross Carrying Amount | Accumulated Amortization | Net Value | ||||||||||||
Lender relationships | 3 to 10 years | $ | 1,630 | $ | 551 | $ | 1,079 | |||||||||
Vendor relationships | 11 years | 7,290 | 1,140 | 6,150 | ||||||||||||
Corporate trade name | 7 years | 60 | 28 | 32 | ||||||||||||
|
|
|
|
|
| |||||||||||
| $ | 8,980 | $ | 1,719 | $ | 7,261 | |||||||||||
|
|
|
|
|
| |||||||||||
-27-
| (Dollars in thousands) | ||||
Remainder of 2020 | $ | 599 | ||
2021 | 798 | |||
2022 | 798 | |||
2023 | 798 | |||
2024 | 790 | |||
| March 31, 2020 | December 31, 2019 | |||||||
| (Dollars in thousands) | ||||||||
Accrued fees receivable | $ | 3,683 | $ | 3,509 | ||||
Prepaid expenses | 2,853 | 2,872 | ||||||
Income taxes receivable(1) | 6,877 | — | ||||||
Federal Reserve Bank Stock | 1,711 | 1,711 | ||||||
Other | 2,341 | 2,361 | ||||||
|
|
|
| |||||
| $ | 17,465 | $ | 10,453 | |||||
|
|
|
| |||||
|
-28-
| Scheduled Maturities | ||||
| (Dollars in thousands) | ||||
Period Ending December 31, | ||||
Remainder of 2020 | $ | 387,922 | ||
2021 | 265,743 | |||
2022 | 134,233 | |||
2023 | 66,915 | |||
2024 | 28,046 | |||
Thereafter | 6,927 | |||
|
| |||
Total | $ | 889,786 | ||
|
| |||
the line of credit was
| March 31, 2020 | December 31, 2019 | |||||||
| (Dollars in thousands) | ||||||||
Term securitization2018-1 | $ | 62,555 | $ | 76,563 | ||||
Unamortized debt issuance costs | (362 | ) | (472 | ) | ||||
|
|
|
| |||||
| $ | 62,193 | $ | 76,091 | |||||
|
|
|
| |||||
-29-
| Outstanding Balance as of | Notes | Final | Original | |||||||||||||||||
| March 31, 2020 | December 31, 2019 | Originally Issued | Maturity Date | Coupon Rate | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
2018 — 1 | ||||||||||||||||||||
Class A-1 | $ | — | $ | — | $ | 77,400 | July, 2019 | 2.55 | % | |||||||||||
Class A-2 | — | 8,013 | 55,700 | October, 2020 | 3.05 | |||||||||||||||
Class A-3 | 30,915 | 36,910 | 36,910 | April, 2023 | 3.36 | |||||||||||||||
Class B | 10,400 | 10,400 | 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 | $ | 62,555 | $ | 76,563 | $ | 201,650 | 3.05 | %(1)(2) | ||||||||||||
|
|
|
|
|
| |||||||||||||||
|
|
| Principal | Interest | |||||||
| (Dollars in thousands) | ||||||||
Period Ending December 31, | ||||||||
Remainder of 2020 | $ | 30,344 | $ | 1,342 | ||||
2021 | 23,629 | 813 | ||||||
2022 | 8,582 | 159 | ||||||
|
|
|
| |||||
| $ | 62,555 | $ | 2,314 | |||||
|
|
|
| |||||
-30-
Principal
| March 31, 2020 Fair Value Measurements Using | December 31, 2019 Fair Value Measurements Using | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
ABS | $ | — | $ | 4,135 | $ | — | $ | — | $ | 4,332 | $ | — | ||||||||||||
Municipal securities | — | 2,653 | — | — | 3,129 | — | ||||||||||||||||||
Mutual fund | 3,692 | — | — | 3,615 | — | — | ||||||||||||||||||
-31-
| March 31, 2020 | December 31, 2019 | |||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Financial Assets | ||||||||||||||||
Cash and cash equivalents | $ | 211,070 | $ | 211,070 | $ | 123,096 | $ | 123,096 | ||||||||
Time deposits with banks | 13,664 | 13,094 | 12,927 | 12,970 | ||||||||||||
Restricted interest-earning deposits with banks | 6,474 | 6,474 | 6,931 | 6,931 | ||||||||||||
Loans, net of allowance | 580,244 | 558,584 | 588,688 | 593,406 | ||||||||||||
Federal Reserve Bank Stock | 1,711 | 1,711 | 1,711 | 1,711 | ||||||||||||
Financial Liabilities | ||||||||||||||||
Deposits | $ | 941,996 | $ | 952,958 | $ | 839,132 | $ | 846,304 | ||||||||
Long-term borrowings | 62,193 | 62,841 | 76,091 | 76,781 | ||||||||||||
-32-
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| (Dollars in thousands, exceptper-share data) | ||||||||
Basic EPS | ||||||||
Net (loss) income | $ | (11,821 | ) | $ | 5,141 | |||
Less: net income allocated to participating securities | — | (72 | ) | |||||
|
|
|
| |||||
Net (loss) income allocated to common stock | $ | (11,821 | ) | $ | 5,069 | |||
|
|
|
| |||||
Weighted average common shares outstanding | 12,014,396 | 12,337,730 | ||||||
Less: Unvested restricted stock awards considered participating securities | (138,249 | ) | (172,084 | ) | ||||
|
|
|
| |||||
Adjusted weighted average common shares used in computing basic EPS | 11,876,147 | 12,165,646 | ||||||
|
|
|
| |||||
Basic (loss) earnings per share | $ | (1.00 | ) | $ | 0.42 | |||
|
|
|
| |||||
Diluted EPS | ||||||||
Net (loss) income allocated to common stock | $ | (11,821 | ) | $ | 5,069 | |||
|
|
|
| |||||
Adjusted weighted average common shares used in computing basic EPS | 11,876,147 | 12,165,646 | ||||||
Add: Effect of dilutive stock-based compensation awards | — | 86,470 | ||||||
|
|
|
| |||||
Adjusted weighted average common shares used in computing diluted EPS | 11,876,147 | 12,252,116 | ||||||
|
|
|
| |||||
Diluted (loss) earnings per share | $ | (1.00 | ) | $ | 0.41 | |||
|
|
|
| |||||
-33-
In addition to the repurchases described above, participants in
the Company’s 2014 Equity CompensationPlan (approved by theDuring thesix-month periods ended
-34-
by a three-year transition period to phase out the aggregate amount
of capital benefit, or a five-year transition in total. The Company| Actual | Minimum Capital Requirement | Well-Capitalized Capital Requirement | ||||||||||||||||||||||
| Ratio | Amount | Ratio | Amount | Ratio | Amount | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Tier 1 Leverage Capital | ||||||||||||||||||||||||
Marlin Business Services Corp. | 16.18 | % | $ | 194,700 | 4 | % | $ | 48,137 | 5 | % | $ | 60,171 | ||||||||||||
Marlin Business Bank | 13.27 | % | $ | 139,242 | 4 | % | $ | 41,961 | 5 | % | $ | 52,451 | ||||||||||||
Common Equity Tier 1 Risk-Based Capital | ||||||||||||||||||||||||
Marlin Business Services Corp. | 18.64 | % | $ | 194,700 | 4.5 | % | $ | 47,004 | 6.5 | % | $ | 67,894 | ||||||||||||
Marlin Business Bank | 14.86 | % | $ | 139,242 | 4.5 | % | $ | 42,163 | 6.5 | % | $ | 60,902 | ||||||||||||
Tier 1 Risk-based Capital | ||||||||||||||||||||||||
Marlin Business Services Corp. | 18.64 | % | $ | 194,700 | 6 | % | $ | 62,672 | 8 | % | $ | 83,562 | ||||||||||||
Marlin Business Bank | 14.86 | % | $ | 139,242 | 6 | % | $ | 56,217 | 8 | % | $ | 74,957 | ||||||||||||
Total Risk-based Capital | ||||||||||||||||||||||||
Marlin Business Services Corp. | 19.94 | % | $ | 208,238 | 8 | % | $ | 83,562 | 10 | % | $ | 104,453 | ||||||||||||
Marlin Business Bank | 16.16 | % | $ | 151,425 | 8 | % | $ | 74,957 | 10 | % | $ | 93,696 | ||||||||||||
-35-
• prohibiting
the holding company from making distributions withoutprior 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 severe cases, appointing a
conservator or receiver for the institution.-36-
Total
March 31, 2019, respectively. Excess tax deficitJune 30, 2020. Total
June 30, 2019.
There were no stock options granted during the three-month periods ended March 31, 2020 and March 31, 2019, respectively.
A summary of option activity for the three-month period ended March 31, 2020 follows:
Options | Number of Shares | Weighted Average Exercise Price Per Share | ||||||
Outstanding, December 31, 2019 | 135,159 | $ | 26.79 | |||||
Granted | — | — | ||||||
Exercised | — | — | ||||||
Forfeited | (3,929 | ) | 27.31 | |||||
Expired | (7,097 | ) | 26.36 | |||||
|
| |||||||
Outstanding, March 31, 2020 | 124,133 | 26.80 | ||||||
|
| |||||||
During each three-month period ended March 31, 2020 and March 31, 2019, the Company recognized compensation expense related to options of $0.1 million.
There were no stock options exercised during the three-month periods ended March 31, 2020 and March 31, 2019.
-37-
The following table summarizes information about the stock options outstanding and exercisable as of March 31, 2020.
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||||||
| Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Life (Years) | Weighted Average Exercise Price | Aggregate Intrinsic Value (In thousands) | Number Exercisable | Weighted Average Remaining Life (Years) | Weighted Average Exercise Price | Aggregate Intrinsic Value (In thousands) | ||||||||||||||||||||||||
| $25.75 | 71,766 | 4.0 | $ | 25.75 | $ | — | 71,766 | 4.0 | $ | 25.75 | — | |||||||||||||||||||||
| $28.25 | 52,367 | 5.0 | $ | 28.25 | $ | — | 35,317 | 5.0 | $ | 28.25 | $ | — | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
| 124,133 | 4.4 | $ | 26.80 | $ | — | 107,083 | 4.3 | $ | 26.57 | $ | — | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $11.17 as of March 31, 2020, which would have been received by the option holders had all option holders exercised their options as of that date.
As of March 31, 2020, there was $0.1 million of unrecognized compensation cost related tonon-vested stock options not yet recognized in the Consolidated Statements of Operations scheduled to be recognized over a weighted average period of 1.0 year.
Restricted Stock Awards
The Company’s restricted stock awards provide that, during the applicable vesting periods, the shares awarded may not be sold or transferred by the participant. The vesting period for restricted stock awards generally ranges from three to seven years. All awards issued contain service conditions based on the participant’s continued service with the Company and may provide for accelerated vesting if there is a change in control as defined in the Equity Compensation Plans.
-38-
Non-vested restricted stock | Shares | Weighted Average Grant-Date Fair Value | ||||||
Outstanding at December 31, 2019 | 143,935 | $ | 21.88 | |||||
Granted | — | 0.00 | ||||||
Vested | (11,973 | ) | 18.83 | |||||
Forfeited | (550 | ) | 25.88 | |||||
|
| |||||||
Outstanding at March 31, 2020 | 131,412 | 22.14 | ||||||
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| |||||||
2019
$
The
fair value of shares that vested during the six-month periodsended June 30, 2020 and June 30, 2019 was-39-
award for those awards which are expected to be
earned.Performance-based & market-based RSUs | Number of RSUs | Weighted Average Grant-Date Fair Value | ||||||
Outstanding at December 31, 2019 | 257,476 | $ | 18.00 | |||||
Granted | 95,758 | 17.55 | ||||||
Forfeited | (5,081 | ) | 23.99 | |||||
Converted | (13,810 | ) | 25.75 | |||||
Cancelled due tonon-achievement of performance condition | (30,390 | ) | 25.65 | |||||
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| |||||||
Outstanding at March 31, 2020 | 303,953 | 16.64 | ||||||
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| |||||||
Service-based RSUs | ||||||||
Outstanding at December 31, 2019 | 99,951 | $ | 23.59 | |||||
Granted | 69,422 | 20.43 | ||||||
Forfeited | (4,480 | ) | 23.69 | |||||
Converted | (39,879 | ) | 24.30 | |||||
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| |||||||
Outstanding at March 31, 2020 | 125,014 | 21.61 | ||||||
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2019
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
Grant date stock price | $ | 20.43 | $ | 21.50 | ||||
Risk-free interest rate | 1.40 | % | 2.16 | % | ||||
Expected volatility | 26.18 | % | 26.68 | % | ||||
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◾forward-lookingforward-looking nature that involve risks anduncertainties. “may“may affect,” “may “if”“if” and similar words and phrases that constitute “forward-looking“forward-
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-42-
The
business. Origination
The estimate of credit losses for our portfolio increased $30.4 million as of March 31, 2020 compared to December 31, 2019, driven both by the recognition of an $11.9 million increase to our allowanceforecast adjustments as a result of the January 1, 2020 adoption
portfolio.
Our estimate of credit losses is based on our assessment of therisks to our portfolio, including certainIn addition, see further discussion of the risks to our business from theCOVID-19 pandemic in “–Item 1A. Risk Factors— The ongoingCOVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations and financial condition, and such effects will depend
Capital Update
On March 25,
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bonuses. The additional capital released by the terminationour current expectations of the CMLA Agreement is held at MBBperformance of our portfolio in
Rules governing our 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. We have elected to avail ourselves of the five-year transition option. See our current measurements of capital and further discussion of the measurements of regulatory capital during the delay and transition periods in Note 14, Stockholders’ Equitychanges in the accompanying condensed consolidated financial statements. At March 31, 2020, 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.
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FINANCE RECEIVABLESAND ASSET QUALITY
The following table summarizes certain portfolio statistics for the periods presented:
| Three Months Ended March 31, | Year Ended December 31, | |||||||||||
| 2020 | 2019 | 2019 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Finance receivables: | ||||||||||||
End of period(1) | $ | 1,022,135 | $ | 1,019,311 | $ | 1,007,706 | ||||||
Average for the period(1) | $ | 1,008,823 | $ | 999,432 | $ | 1,028,617 | ||||||
Origination Volume | $ | 157,391 | $ | 208,355 | $ | 877,913 | ||||||
Assets Sold | $ | 22,929 | $ | 52,867 | $ | 310,415 | ||||||
Allowance for credit losses : | ||||||||||||
End of period | $ | 52,060 | $ | 16,882 | $ | 21,695 | ||||||
As a % of end of period receivables(1) | 5.09 | % | 1.66 | % | 2.15 | % | ||||||
Loans modified, in payment deferral: | ||||||||||||
End of period | $ | 19,518 | $ | — | $ | — | ||||||
As a % of end of period receivables(1) | 1.91 | % | — | — | ||||||||
Delinquencies, end of period:(2) | ||||||||||||
Equipment Finance and CVG: | ||||||||||||
Greater than 60 days past due, $ | $ | 10,156 | $ | 8,112 | $ | 6,518 | ||||||
Greater than 60 days past due, % | 1.05 | % | 0.86 | % | 0.67 | % | ||||||
Working Capital: | ||||||||||||
Greater than 30 days past due, $ | $ | 673 | $ | 855 | $ | 284 | ||||||
Greater than 30 days past due, % | 1.14 | % | 1.42 | % | 0.66 | % | ||||||
Other Renegotiated leases and loans, end of period(3) | $ | 3,095 | $ | 3,008 | $ | 2,668 | ||||||
Annualized net charge-offs to average total finance receivables(1) | 3.11 | % | 1.83 | % | 2.18 | % | ||||||
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Loan Modification Program.
Subsequent toquarter-end, through April 24, 2020, we have approved the payment deferral modification application for contracts representing an additional $134.5 million net investment in leases and loans. A portion of these modifications are subject to final processing and documentation.
Changes in Portfolio.
three-month period ended June 30,
2019.During the three
In response to the potential impacts of theCOVID-19 pandemic and the slowing economy in the latter part of the first quarter, we tightened our underwriting standards for both our equipment finance and working capital products. other macroeconomic factors.
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Top 10 Industries, by Borrower SIC Code | Top 10 States | |||||||||||||||||
| Equipment Finance and CVG | Working Capital | Equipment Finance and CVG | Working Capital | |||||||||||||||
Medical | 12.7 | % | 8.5 | % | CA | 13.8 | % | 11.6 | % | |||||||||
Misc. Services | 12.4 | 8.0 | TX | 11.7 | 11.0 | |||||||||||||
Retail | 10.3 | 12.8 | FL | 9.8 | 9.1 | |||||||||||||
Construction | 8.5 | 13.5 | NY | 6.8 | 5.2 | |||||||||||||
Restaurants | 7.7 | 7.6 | NJ | 4.5 | 6.2 | |||||||||||||
Professional Services | 6.5 | 5.0 | PA | 3.6 | 4.6 | |||||||||||||
Manufacturing | 5.8 | 8.3 | GA | 3.4 | 4.7 | |||||||||||||
Transportation | 5.3 | 3.3 | IL | 3.3 | 3.9 | |||||||||||||
Trucking | 4.5 | 2.4 | NC | 3.1 | 2.9 | |||||||||||||
Auto Repair Shops | 3.3 | 6.6 | MA | 3.0 | 2.3 | |||||||||||||
All Other | 23.0 | 24.0 | All Other | 37.0 | 38.5 | |||||||||||||
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Total | 100 | % | 100 | % | Total | 100 | % | 100 | % | |||||||||
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| Three Months Ended March 31, | Year Ended December 31, | |||||||||||
| 2020 | 2019 | 2019 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Allowance for credit losses, December 31, 2019 | $ | 21,695 | ||||||||||
Adoption of ASU2016-13 (CECL) | 11,908 | |||||||||||
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| |||||||||||
Allowance for credit losses, beginning of period | 33,603 | $ | 16,100 | $ | 16,100 | |||||||
Provision for credit losses | 25,150 | 5,363 | 28,036 | |||||||||
Net Charge-offs: | ||||||||||||
Equipment Finance | (5,959 | ) | (3,599 | ) | (18,164 | ) | ||||||
Working Capital | (1,243 | ) | (654 | ) | (2,531 | ) | ||||||
CVG | (644 | ) | (328 | ) | (1,746 | ) | ||||||
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Net Charge-offs | (7,846 | ) | (4,581 | ) | (19,811 | ) | ||||||
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Realized cashflows from Residual Income | 1,153 | — | — | |||||||||
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Allowance for credit losses, end of period | $ | 52,060 | $ | 16,882 | $ | 21,695 | ||||||
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The allowance
with the Provision above
The impact of adopting CECL effective January 1, 2020 included a $11.9 million increase to the allowance, an $8.9 million decrease to Retained earnings and $3.0 million impact to our Net deferred income tax liability.
See Note 2 –Summary of Significant Accounting Policies, for further discussion of the adoption of this accounting standard, and see Note 6 –Allowance for Credit Losses, for further discussion of the Company’s methodology for measuring its allowance as of the adoption date.
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See –Executive Summary and Note 13 –Stockholders’ Equity, for discussion of our election to delay fortwo-years the effect of CECL on regulatory capital, followed by a three-yearphase-in, or a five-year total transition.
Provision for credit losses.
For 2020, the provision for credit losses recognized under CECL is primarily driven by origination volumes, offset by the reversal of the allowance for any contracts sold, plus adjustments for changes in estimate each subsequent reporting period. In contrast, the allowance estimate recognized under the probable, incurred model was based on the current estimate of probable net credit losses inherent in the portfolio.
For the three months ended March 31, 2020, the $25.2 million provision for credit losses recognized was $19.8 million greater than the $5.4 million provision recognized for the three months ended March 31, 2019. The provision for the first quarter of 2020 included $19.1 million of additions to the provision driven by updates to the Company’s estimate driven by changes in economic conditions related toCOVID-19. In particular, the Company’s estimate of increased losses in its Equipment Finance portfolio is driven by updates to a reasonable and supportable forecast based on the modeled correlation of changes in the loss experience of the Company’s portfolio to certain economic statistics, specifically changes in the unemployment rate and changes in the number of business bankruptcies. For the CVG and Working Capital portfolio segments, the Company’s estimate of increased losses was based on qualitative adjustments, taking into consideration alternative scenarios to determine the Company’s estimate of the probable impact of the economic shutdown.
TheCOVID-19 pandemic, and related business shutdowns, is still ongoing, and the extent of the effects of the pandemic on our portfolio depends on future developments, which are highly uncertain and are difficult to predict. The qualitative and economic adjustments to our allowance take into consideration information and our judgments as of March 31, 2020, and are based in part on an expectation 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 increases to our credit loss estimate, in the future, and such increases may be significant, based on future developments.
Net Charge-offs.
Equipment Finance and TFG receivables are generallycharged-off when they are contractually past due for 120 days or more. Working Capital receivables are generallycharged-off at 60 days past due.
Total portfolio net charge-offs for the three months ended March 31, 2020 were $7.8 million (3.11% of average total finance receivables on an annualized basis), compared to $5.6 million (3.00%) for the three months ended December 31, 2019, and $4.6 million (1.83%) for the three months ended March 31, 2019. In the second half of 2019 and early in the first quarter of 2020, we observed certain economic headwinds that were disproportionally impacting the small business and lower credit quality borrowers in our portfolio. Those economic conditions deteriorated significantly driven by the end of March 2020, as the impact ofCOVID-19 developed; as a result, the Company is experiencing elevated net-chargeoffs compared to the same quarter in the prior year.
As discussed above, we implemented a payment deferral modification program in March 2020, to respond to our borrower’s needs related to the impacts ofCOVID-19. There can be no assurances that such efforts to modify contracts will be successful in mitigating any risk of credit loss or futurecharge-off of such contracts.
Residual Income.
Residual income includes income from lease renewals and gains and losses on the realization of residual values of leased equipment disposed at the end of term In 2019 and prior years, the Company had previously recognized residual income within Fee Income in its Consolidated Statements of Operations; the adoption of CECL results in any realized amounts of residual income being captured as a component of the activity of the allowance because the Company’s estimate of credit losses under CECL takes into consideration all cashflows the Company expects to receive or derive from the pools of contracts.
Our recorded allowance reflects our current estimate of the expected credit losses of all contracts currently in portfolio, based on our current assessment of information regarding the risks of our current portfolio, default and collection trends, a reasonable and supportable forecast of economic factors, qualitative adjustments based on our best estimate of expected losses for certain portfolio segments, among other internal and external factors. Our allowance measurement is an estimate, is inherently uncertain, and is reassessed at each
-49-
measurement date. Actual performance of our portfolio and updates to other information involved in our assessment may drive changes in modeled assumptions, may cause management to adjust the allowance estimate through qualitative adjustments and/or may result in actual losses that vary significantly from of our current estimate.
Non-Accrual.
The following table summarizesnon-accrual leases and loans in the Company’s portfolio:
| Three Months Ended March 31, | Year Ended December 31, 2019 | |||||||||||
| 2020 | 2019 | |||||||||||
| (Dollars in thousands) | ||||||||||||
Equipment finance | $ | 5,357 | $ | 3,494 | $ | 4,256 | ||||||
Working capital | 755 | 284 | 946 | |||||||||
CVG | 593 | 199 | 389 | |||||||||
CRA | — | — | — | |||||||||
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Totalnon-accrual leases and loans | $ | 6,705 | $ | 3,977 | $ | 5,591 | ||||||
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Net investments in finance receivables are generallycharged-off when they are contractually past due for 120 days or more. Income recognition is discontinued on Equipment Finance leases or loans, including CVG loans, when a default on monthly payment exists for a period of 90 days or more. Income recognition resumes when the lease or loan becomes less than 90 days delinquent.
Working Capital Loans are generally placed innon-accrual status when they are 30 days past due. The loan is removed fromnon-accrual status once sufficient payments are made to bring the loan current and evidence of a sustained performance period as reviewed by management.
The Company has no loans 90 days or more past due that were still accruing interest for any of the periods presented above.
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RESULTSOF OPERATIONS
Comparison of the Three-Month Periods Ended March 31, 2020 and March 31, 2019
Net income.
Net loss of $11.8 million was reported for the three-month period ended March 31, 2020, resulting in diluted loss per share of $1.00, compared to net income of $5.1 million and diluted EPS of $0.41 for the three-month period ended March 31, 2019. This $16.9 million decrease in Net income was primarily driven by:
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($6.7 million) impairment of Goodwill, driven by declines in the fair value of its reporting unit;
$3.2 million benefit recognized in Income tax (benefit) from the remeasurement of the federal net operating losses driven by provisions of the CARES Act;
$1.9 million decrease in Salaries and benefits, driven primarily by lower Commissions and Incentives as a result of Company performance.
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, 2020 and March 31, 2019.
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| Three Months Ended March 31, | ||||||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Average Balance(1) | Interest | Average Yields/ Rates(2) | Average Balance(1) | Interest | Average Yields/ Rates(2) | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Interest-earning deposits with banks | $ | 100,582 | $ | 327 | 1.30 | % | $ | 126,798 | $ | 773 | 2.44 | % | ||||||||||||
Time Deposits | 13,507 | 63 | 1.88 | 10,466 | 61 | 2.35 | ||||||||||||||||||
Restricted interest-earning deposits with banks | 8,033 | 9 | 0.44 | 15,620 | 30 | — | ||||||||||||||||||
Securities available for sale | 10,778 | 58 | 2.14 | 10,720 | 69 | 2.56 | ||||||||||||||||||
Net investment in leases(3) | 904,548 | 20,269 | 8.96 | 918,655 | 20,934 | 9.12 | ||||||||||||||||||
Loans receivable(3) | 104,275 | 5,739 | 22.02 | 80,776 | 4,016 | 19.89 | ||||||||||||||||||
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Total interest-earning assets | 1,141,723 | 26,465 | 9.27 | 1,163,035 | 25,883 | 8.90 | ||||||||||||||||||
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Non-interest-earning assets: | ||||||||||||||||||||||||
Cash and due from banks | 5,470 | 5,600 | ||||||||||||||||||||||
Intangible assets | 7,392 | 7,852 | ||||||||||||||||||||||
Goodwill | 6,663 | 7,340 | ||||||||||||||||||||||
Operating leaseright-of-use assets | 8,776 | 3,903 | ||||||||||||||||||||||
Property and equipment, net | 8,094 | 4,282 | ||||||||||||||||||||||
Property tax receivables | 8,886 | 6,614 | ||||||||||||||||||||||
Other assets(4) | 1,811 | 17,002 | ||||||||||||||||||||||
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Totalnon-interest-earning assets | 47,092 | 52,593 | ||||||||||||||||||||||
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Total assets | $ | 1,188,815 | $ | 1,215,628 | ||||||||||||||||||||
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Interest-bearing liabilities: | ||||||||||||||||||||||||
Certificate of Deposits(5) | $ | 814,178 | $ | 4,856 | 2.39 | % | 793,665 | $ | 4,447 | 2.24 | % | |||||||||||||
Money Market Deposits(5) | 24,322 | 85 | 1.40 | 23,236 | 142 | 2.44 | ||||||||||||||||||
Long-term borrowings(5) | 69,751 | 739 | 4.24 | 140,500 | 1,373 | 3.91 | ||||||||||||||||||
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Total interest-bearing liabilities | 908,251 | 5,680 | 2.51 | 957,401 | 5,962 | 2.49 | ||||||||||||||||||
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Non-interest-bearing liabilities: | ||||||||||||||||||||||||
Sales and property taxes payable | 5,890 | 5,380 | ||||||||||||||||||||||
Operating lease liabilities | 9,644 | 5,890 | ||||||||||||||||||||||
Accounts payable and accrued expenses | 27,726 | 27,185 | ||||||||||||||||||||||
Net deferred income tax liability | 29,468 | 22,947 | ||||||||||||||||||||||
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Totalnon-interest-bearing liabilities | 72,728 | 61,402 | ||||||||||||||||||||||
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Total liabilities | 980,979 | 1,018,803 | ||||||||||||||||||||||
Stockholders’ equity | 207,836 | 196,825 | ||||||||||||||||||||||
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Total liabilities and stockholders’ equity | $ | 1,188,815 | $ | 1,215,628 | ||||||||||||||||||||
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Net interest income | $ | 20,785 | $ | 19,921 | ||||||||||||||||||||
Interest rate spread(6) | 6.76 | % | 6.41 | % | ||||||||||||||||||||
Net interest margin(7) | 7.28 | % | 6.85 | % | ||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 125.71 | % | 121.48 | % | ||||||||||||||||||||
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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, 2020 Compared To Three Months Ended March 31, 2019 | ||||||||||||
| Increase (Decrease) Due To: | ||||||||||||
| Volume(1) | Rate(1) | Total | ||||||||||
| (Dollars in thousands) | ||||||||||||
Interest income: | ||||||||||||
Interest-earning deposits with banks | $ | (137 | ) | $ | (309 | ) | $ | (446 | ) | |||
Time Deposits | 16 | (14 | ) | 2 | ||||||||
Restricted interest-earning deposits with banks | (11 | ) | (10 | ) | (21 | ) | ||||||
Securities available for sale | — | (11 | ) | (11 | ) | |||||||
Net investment in leases | (319 | ) | (346 | ) | (665 | ) | ||||||
Loans receivable | 1,260 | 463 | 1,723 | |||||||||
Total interest income | (480 | ) | 1,062 | 582 | ||||||||
Interest expense: | ||||||||||||
Certificate of Deposits | 117 | 292 | 409 | |||||||||
Money Market Deposits | 6 | (63 | ) | (57 | ) | |||||||
Long-term borrowings | (741 | ) | 107 | (634 | ) | |||||||
Total interest expense | (307 | ) | 25 | (282 | ) | |||||||
Net interest income | (370 | ) | 1,233 | 863 | ||||||||
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Net interest and fee margin.The following table summarizes the Company’s net interest and fee income as an annualized percentage of average total finance receivables for the three-month periods ended March 31, 2020 and March 31, 2019.
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| (Dollars in thousands) | ||||||||
Interest income | $ | 26,465 | $ | 25,883 | ||||
Fee income | 2,766 | 4,042 | ||||||
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Interest and fee income | 29,231 | 29,925 | ||||||
Interest expense | 5,680 | 5,962 | ||||||
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Net interest and fee income | $ | 23,551 | $ | 23,963 | ||||
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Average total finance receivables(1) | $ | 1,008,823 | $ | 999,432 | ||||
Annualized percent of average total finance receivables: | ||||||||
Interest income | 10.49 | % | 10.36 | % | ||||
Fee income | 1.10 | 1.62 | ||||||
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Interest and fee income | 11.59 | 11.98 | ||||||
Interest expense | 2.25 | 2.39 | ||||||
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Net interest and fee margin | 9.34 | % | 9.59 | % | ||||
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Net interest and fee income decreased $0.4 million, or 1.7%, to $23.6 million for the three months ended March 31, 2020 from $24.0 million for the three months ended March 31, 2019. The annualized net interest and fee margin decreased 25 basis points to 9.34% in the three-month period ended March 31, 2020 from 9.59% for the corresponding period in 2019.
Interest income, net of amortized initial direct costs and fees, was $26.5 million and $25.9 million for the three-month periods ended March 31, 2020 and March 31, 2019, respectively. Average total finance receivables increased $9.4 million, or 0.9%, to $1,008.8 million at March 31, 2020 from $999.4 million at March 31, 2019. The increase in average total finance receivables was primarily due to origination volume exceeding lease and loan repayments, sales and charge-offs. The average yield on the portfolio increased 13 basis points to 10.49% from 10.36% in the prior year quarter. The weighted average implicit interest rate on new finance receivables originated was 12.45% and 12.76% for the three-month periods ended March 31, 2020, and March 31, 2019, respectively. As our origination volumes have been negatively impacted by theCOVID-19 pandemic, our portfolio of finance receivables and related incomes may decline in the second quarter of 2020. Any returns to normal levels of origination activity, and our ability to replenish or grow our portfolio, remains uncertain.
Fee income was $2.8 million and $4.0 million for the three-month periods ended March 31, 2020 and March 31, 2019, respectively. Fee income included approximately $1.0 million of net residual income for the three-month period ended March 31, 2019. For 2020, after the adoption of CECL, all future cashflows from the Company’s pools of loans are included in the measurement of the allowance, including future cashflows from net residual income. Amounts of residual income are presented within the rollforward of the Allowance, as discussed further in “—Finance Receivables and Asset Quality”
Fee income also included approximately $2.1 million and $2.3 million in late fee income for the three-month periods ended March 31, 2020 and March 31, 2019, respectively. Late fees remained the largest component of fee income at 0.85% as an annualized percentage of average total finance receivables for the three-month period ended March 31, 2020, compared to 0.94% for the three-month period ended March 31, 2019.
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Interest expense decreased $0.3 million to $5.7 million for the three-month period ended March 31, 2020 from $6.0 million for the corresponding period in 2019, primarily due to a decrease in interest expense of $0.6 million on lower outstanding long-term borrowings offset by an increase of $0.3 million on higher deposit balances. Interest expense, as an annualized percentage of average total finance receivables, decreased 14 basis points to 2.25% for the three-month period ended March 31, 2020, from 2.39% for the corresponding period in 2019. The average balance of deposits was $838.5 million and $816.9 million for the three-month periods ended March 31, 2020 and March 31, 2019, respectively.
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%. For the three-month period ended March 31, 2019, average term securitization borrowings outstanding were $140.5 million at a weighted average coupon of 3.91%.
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, 2020, brokered certificates of deposit represented approximately 52% of total deposits, while approximately 42% of total deposits were obtained from direct channels, and 6% were in the brokered MMDA Product.
Gain on Sale of Leases and Loans.Gain on sale of leases and loans was $2.3 million for the three-month period ended March 31, 2020, compared to $3.6 million for the three-month period ended March 31, 2019. Assets sold decreased to $22.9 million, for the first quarter of 2020 compared to $52.9 million for the first quarter of 2019, a 57% decrease. The amount of gain recognized declined by only 35%, reflecting a stronger margin realized on sales executed in the first quarter of 2020.
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 theCOVID-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 and earned increased $0.2 million to $2.3 million for the three-month period ended March 31, 2020, from $2.1 million for the three-month period ended March 31, 2019, primarily due to an increase in the number of contracts enrolled in the insurance program as well as higher average ticket size driving higher premiums.
Other income. Other income was $7.6 million and $7.2 million for the three-month periods ended March 31, 2020 and March 31, 2019, respectively. The increase in other income was primarily driven by a $0.3 million increase in servicing income, driven by a higher portfolio serviced for others.
Salaries and benefits expense. The following table summarizes the Company’s Salary and benefits expense:
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| (Dollars in thousands) | ||||||||
Salary, benefits and payroll taxes | $ | 7,555 | $ | 7,352 | ||||
Incentive compensation | 905 | 2,438 | ||||||
Commissions | 1,059 | 1,661 | ||||||
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Total | $ | 9,519 | $ | 11,451 | ||||
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Salaries and benefits expense decreased $2.0 million, or 17.4%, to $9.5 million for the three-month period ended March 31, 2020 from $11.5 million for the corresponding period in 2019. Total personnel decreased to 339 at March 31, 2020 from 352 at March 31, 2019. Incentive compensation decreased $1.5 million, driven by lower recognized bonus and share-based compensation amounts primarily driven by the Company’s operating results. Commissions decreased $0.6 million, or 36% primarily driven by a 24% decrease in origination volume.
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As previously announced, subsequent to quarter end, in April 2020, the Company temporarily reduced the salaries of certain executives and furloughed approximately 120 employees as part of a plan to adjust the Company’s expense base and ensure operating efficiency during theCOVID-19 crisis. The furlough period began on April 13, 2020 and is currently expected to continue through May 31, 2020.
General and administrative expense. The following table summarizes General and administrative expense:
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| (Dollars in thousands) | ||||||||
Property taxes | $ | 6,012 | $ | 6,241 | ||||
Occupancy and depreciation | 1,320 | 1,232 | ||||||
Professional fees | 1,219 | 1,300 | ||||||
Information technology | 986 | 1,059 | ||||||
Marketing | 502 | 597 | ||||||
FDIC Insurance | 274 | 130 | ||||||
Other G&A | 3,292 | 2,795 | ||||||
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Total | $ | 13,605 | $ | 13,354 | ||||
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General and administrative expense increased $0.2 million, or 1.5%, to $13.6 million for the three months ended March 31, 2020 from $13.4 million for the corresponding period in 2019.
General and administrative expense as an annualized percentage of average total finance receivables was 5.39% for the three-month period ended March 31, 2020, compared to 5.34% for the three-month period ended March 31, 2019.
Goodwill impairment.In the first quarter of 2020, driven by negative current events related to theCOVID-19 economic shutdown, the Company’s market capitalization falling below book value and other related impacts, the Company analyzed its goodwill for impairment. The Company concluded that the implied fair value of goodwill was less than it’s carrying amount, and recognized impairment equal to the entire $6.7 million balance.
Provision for income taxes.Income tax benefit of $7.4 million was recorded for the three-month period ended March 31, 2020, compared to expense of $1.6 million for the three-month period ended March 31, 2019. For the three-month period ended March 31, 2020, the income tax benefit includes a $3.2 million discrete benefit, related to remeasuring our federal net operating losses, driven by certain provisions in the CARES Act. Our statutory tax rate, which is a combination of federal and state income tax rates, was approximately 23.9% for both periods. However, our effective tax rate was 38.6% for the three-month period ended March 31, 2020, driven by the recognition of the discrete benefit.
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LIQUIDITYAND CAPITAL RESOURCES
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 othernon-interest expenses.
As a result of the uncertainties surrounding the actual and potential impacts ofCOVID-19 on our business and financial condition, 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 capital 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 30, 2020. The quarterly dividend was paid on February 20, 2020 to shareholders of record on the close of business on February 10, 2020, which resulted in a dividend payment of approximately $1.7 million. It represented the Company’s thirty-fourth consecutive quarterly cash dividend.
At March 31, 2020, 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 $211.1 million. This amount excludes additional liquidity that may be provided by the issuance of insured deposits through MBB.
Our debt to equity ratio was 5.33 to 1 at March 31, 2020 and 4.26 to 1 at December 31, 2019.
Net cash used in investing activities was $5.2 million for the three-month period ended March 31, 2020, compared to net cash used in investing activities of $29.8 million for the three-month period ended March 31, 2019. The decrease in cash outflows from investing activities is primarily due to a decrease of $41.0 million for purchases of equipment for lease contracts partially offset by a reduction of $24.0 million in proceeds from sales of leases originated for investment. The decrease in purchases of equipment was primarily driven by lower origination volumes for the three months ended March 31, 2020 compared to 2019, and the reduction in proceeds from sales was driven by lower volumes of sales, driven primarily by our execution decisions.
Net cash provided by financing activities was $82.5 million for the three-month period ended March 31, 2020, compared to net cash provided by financing activities of $60.3 million for the three-month period ended March 31, 2019. The increase in cash flows from financing activities is primarily due to an increase of $18.5 million in deposits and a decrease of $7.1 million of term securitization repayments offset by $3.4 million of additional repurchases of common stock. Financing activities also include transactions related to the Company’s payment of dividends.
Net cash provided by operating activities was $10.2 million for the three-month period ended March 31, 2020, compared to net cash provided by operating activities of $12.5 million for the three-month period ended March 31, 2019. Transactions affecting net cash provided by operating activities including goodwill impairment, provision for credit losses, changes in income tax liability and leases originated for sale and proceeds thereof are discussed in detail in the notes to the Consolidated Financial Statements.
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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, 2020 totaled $211.1 million, compared to $123.1 million at December 31, 2019.
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, 2020 and December 31, 2019 totaled $13.7 million and $12.9 million, respectively.
Restricted Interest-Earning Deposits with Banks. As of March 31, 2020 and December 31, 2019, we had $6.5 million and $6.9 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 $62.6 million at March 31, 2020 and $76.6 million at December 31, 2019. Information pertaining to our borrowing facilities is as follows:
| For the Three Months Ended March 31, 2020 | As of March 31, 2020 | |||||||||||||||||||||||||||
| Maximum Facility Amount | Maximum Month End Amount Outstanding | Average Amount Outstanding | Weighted Average Rate(3) | Amount Outstanding | Weighted Average Rate(2) | Unused Capacity(1) | ||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||
Federal funds purchased | $ | 25,000 | $ | — | $ | — | — | % | $ | — | — | % | $ | 25,000 | ||||||||||||||
Term note securitizations(4) | — | 71,721 | 69,751 | 4.24 | % | 62,555 | 3.62 | % | — | |||||||||||||||||||
Revolving line of credit | 5,000 | — | — | — | % | — | — | % | 5,000 | |||||||||||||||||||
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| $ | 30,000 | $ | 71,721 | $ | 69,751 | 4.24 | % | $ | 62,555 | 3.62 | % | $ | 30,000 | |||||||||||||||
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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 $47.8 million in unused, secured borrowing capacity at the Federal Reserve Discount Window, based on $55.1 million of net investment in leases pledged at March 31, 2020.
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. Collateral in excess of our borrowings under the securitization transaction represents our maximum loss exposure and there is no further recourse to our general credit. At March 31, 2020 and December 31, 2019 outstanding term securitizations amounted to $62.2 million and $76.1 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 all of our subsidiaries may be subject to examination by the Federal Reserve Board and the Federal Reserve Bank of Philadelphia even if not otherwise regulated by the Federal Reserve Board. MBB is 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 its operations. These regulations generally have been adopted to protect depositors and creditors rather than shareholders.
At March 31, 2020, 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 MDA—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, 2020.
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, 2020
The Company declared a dividend of $0.14 per share on April 30, 2020. The quarterly dividend, which is expected to result in a dividend payment of approximately $1.7 million, is scheduled to be paid on May 21, 2020 to shareholders of record on the close of business on May 11, 2020. It represents the Company’s thirty-fifth consecutive quarterly cash dividend. The payment of future dividends will be subject to approval by the Company’s Board of Directors.
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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.
CRITICAL ACCOUNTING POLICIES
There have been no significant changes to our Critical Accounting Policies as described in our Form10-K for the year ended December 31, 2019, other than as discussed below.
Allowance for credit losses.
For 2019 and prior, we maintained an allowance for credit losses at an amount sufficient to absorb losses inherent in our existing lease and loan portfolios as of the reporting dates based on our estimate of probable incurred net credit losses in accordance with the Contingencies Topic of the FASB ASC. See further discussion of our policy under the incurred model in the “Critical Accounting Policy” section of our 2019 Form10-K.
Effective January 1, 2020, we adopted ASU2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”), which changed our accounting policy and estimated allowance. CECL replaces 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. After the adoption of CECL, an allowance, or estimate of credit losses, will be recognized immediately upon the origination of a loan or lease, and will be adjusted in each subsequent reporting period
We maintain an
allowance for credit losses at an amount that takes into considerationall future cashflows that we expect to receive or-60-
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by this report.Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures as of the end of the period covered SEC’sCompany’s firstCompany's second fiscalquarter of 2020 that have materially affected, or arereasonably likely to
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in a timely fashion.
We continue to monitorand evaluate newly enacted and●
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There are no comparable recent events that provide guidance as to
the effect the spread ofCOVID-19 as a global pandemic mayhave,-64-
On May 30, 2017, the Company’s Board of Directors approved a stock repurchase plan (the “2017 Repurchase Plan”) under which the Company was authorized to repurchase up to $10 million in value of its outstanding shares of common stock. At September 30, 2019, there was no balance remaining in the 2017 Repurchase Plan.
The following table sets forth information regarding the Company’s repurchases of its common stock during the three months ended March 31, 2020.
| Number of Shares Purchased | Average Price Paid Per Share(1) | Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | ||||||||||
Time Period | ||||||||||||
January 1, 2020 to | ||||||||||||
January 31, 2020 | 62,512 | $ | 21.27 | $ | 7,618,055 | |||||||
February 1, 2020 to | ||||||||||||
February 29, 2020 | 66,289 | $ | 20.34 | $ | 6,269,949 | |||||||
March 1, 2020 to | ||||||||||||
March 31, 2020 | 135,669 | $ | 11.63 | $ | 4,691,747 | |||||||
Total for the quarter ended | ||||||||||||
March 31, 2020 | 264,470 | $ | 16.09 | |||||||||
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In addition to the repurchases described above, pursuant
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(1)Previously filed with the SEC as an exhibit to the Registrant’s Annual Report on Form10-K for the fiscal year ended December 31, 2007 filed on March 5, 2008, and incorporated by reference herein.(2)Previously filed with the SEC as an exhibit to the Registrant’s Current Report on Form8-K filed on October 20, 2016, and incorporated by reference herein.(3)Previously filed with the SEC as an exhibit to the Registrant’s Current Report on Form8-K filed on April 24, 2020, and incorporated by reference herein.-67-
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