Pennsylvania (State of incorporation) |
38-3686388 (I.R.S. Employer Identification Number) |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
-1-
Item 1. | Condensed Consolidated Financial Statements |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Dollars in thousands, except per- | ||||||||
share data) | ||||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 558 | $ | 2,557 | ||||
Interest-earning deposits with banks |
51,346 | 34,469 | ||||||
Total cash and cash equivalents |
51,904 | 37,026 | ||||||
Restricted interest-earning deposits with banks (includes $24.2 million and $44.7 million
at June 30, 2011 and December 31, 2010, respectively, related to consolidated variable
interest entities (VIEs)) |
30,910 | 47,107 | ||||||
Securities available for sale (amortized cost of $1.7 million and $1.5 million at
June 30, 2011 and December 31, 2010, respectively) |
1,715 | 1,534 | ||||||
Net investment in leases and loans (includes $94.8 million and $154.1 million at June 30, 2011
and December 31, 2010, respectively, related to consolidated VIEs) |
354,525 | 351,569 | ||||||
Property and equipment, net |
2,149 | 2,180 | ||||||
Property tax receivables |
298 | 197 | ||||||
Other assets |
25,747 | 28,449 | ||||||
Total assets |
$ | 467,248 | $ | 468,062 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Long-term borrowings (includes $76.5 million and $128.2 million at June 30, 2011
and December 31, 2010, respectively, related to consolidated VIEs) |
143,794 | 178,650 | ||||||
Deposits |
124,522 | 92,919 | ||||||
Other liabilities: |
||||||||
Sales and property taxes payable |
4,717 | 1,978 | ||||||
Accounts payable and accrued expenses |
7,841 | 8,019 | ||||||
Net deferred income tax liability |
24,803 | 26,493 | ||||||
Total liabilities |
305,677 | 308,059 | ||||||
Commitments and contingencies (Note 6) |
||||||||
Stockholders equity: |
||||||||
Common Stock, $0.01 par value; 75,000,000 shares authorized;
12,886,841 and 12,864,665 shares issued and outstanding at June 30, 2011
and December 31, 2010, respectively |
129 | 129 | ||||||
Preferred Stock, $0.01 par value; 5,000,000 shares authorized; none issued |
| | ||||||
Additional paid-in capital |
86,199 | 86,987 | ||||||
Stock subscription receivable |
(2 | ) | (2 | ) | ||||
Accumulated other comprehensive loss |
(60 | ) | (132 | ) | ||||
Retained earnings |
75,305 | 73,021 | ||||||
Total stockholders equity |
161,571 | 160,003 | ||||||
Total liabilities and stockholders equity |
$ | 467,248 | $ | 468,062 | ||||
-2-
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Dollars in thousands, except per-share data) | ||||||||||||||||
Interest income |
$ | 10,863 | $ | 11,994 | $ | 21,763 | $ | 24,823 | ||||||||
Fee income |
2,926 | 3,501 | 6,058 | 7,317 | ||||||||||||
Interest and fee income |
13,789 | 15,495 | 27,821 | 32,140 | ||||||||||||
Interest expense |
3,063 | 3,955 | 6,355 | 8,614 | ||||||||||||
Net interest and fee income |
10,726 | 11,540 | 21,466 | 23,526 | ||||||||||||
Provision for credit losses |
924 | 2,494 | 2,103 | 5,617 | ||||||||||||
Net interest and fee income after provision for credit losses |
9,802 | 9,046 | 19,363 | 17,909 | ||||||||||||
Other income: |
||||||||||||||||
Insurance income |
951 | 987 | 1,928 | 2,144 | ||||||||||||
Loss on derivatives |
(38 | ) | (25 | ) | (43 | ) | (119 | ) | ||||||||
Other income |
434 | 306 | 716 | 596 | ||||||||||||
Other income |
1,347 | 1,268 | 2,601 | 2,621 | ||||||||||||
Other expense: |
||||||||||||||||
Salaries and benefits |
5,384 | 4,588 | 11,321 | 9,713 | ||||||||||||
General and administrative |
3,145 | 3,073 | 6,616 | 6,118 | ||||||||||||
Financing related costs |
157 | 155 | 346 | 302 | ||||||||||||
Other expense |
8,686 | 7,816 | 18,283 | 16,133 | ||||||||||||
Income before income taxes |
2,463 | 2,498 | 3,681 | 4,397 | ||||||||||||
Income tax expense |
933 | 947 | 1,397 | 1,609 | ||||||||||||
Net income |
$ | 1,530 | $ | 1,551 | $ | 2,284 | $ | 2,788 | ||||||||
Basic earnings per share |
$ | 0.12 | $ | 0.12 | $ | 0.18 | $ | 0.22 | ||||||||
Diluted earnings per share |
$ | 0.12 | $ | 0.12 | $ | 0.18 | $ | 0.22 | ||||||||
Weighted average shares used in computing basic earnings
per share |
12,989,681 | 12,832,792 | 12,957,552 | 12,802,579 | ||||||||||||
Weighted average shares used in computing diluted earnings
per share |
13,065,206 | 12,904,163 | 13,033,875 | 12,865,857 |
-3-
Accumulated | ||||||||||||||||||||||||||||
Common | Additional | Stock | Other | Total | ||||||||||||||||||||||||
Common | Stock | Paid-In | Subscription | Comprehensive | Retained | Stockholders | ||||||||||||||||||||||
Shares | Amount | Capital | Receivable | Income (Loss) | Earnings | Equity | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Balance, December 31, 2009 |
12,778,935 | $ | 128 | $ | 84,674 | $ | (3 | ) | $ | (267 | ) | $ | 67,353 | $ | 151,885 | |||||||||||||
Issuance of common stock |
21,398 | | 172 | | | | 172 | |||||||||||||||||||||
Repurchase of common stock |
(80,925 | ) | (1 | ) | (771 | ) | | | | (772 | ) | |||||||||||||||||
Exercise of stock options |
35,864 | 1 | 161 | | | | 162 | |||||||||||||||||||||
Tax benefit on stock options exercised |
| | 72 | | | | 72 | |||||||||||||||||||||
Stock option compensation recognized |
| | 194 | | | | 194 | |||||||||||||||||||||
Payment of receivables |
| | | 1 | | | 1 | |||||||||||||||||||||
Restricted stock grant |
109,393 | 1 | (1 | ) | | | | | ||||||||||||||||||||
Restricted stock compensation
recognized |
| | 2,486 | | | | 2,486 | |||||||||||||||||||||
Net change related to derivatives, net of
tax |
| | | | 138 | | 138 | |||||||||||||||||||||
Net change in unrealized gain/loss on
securities available for sale, net of tax |
| | | | (3 | ) | | (3 | ) | |||||||||||||||||||
Net income |
| | | | | 5,668 | 5,668 | |||||||||||||||||||||
Balance, December 31, 2010 |
12,864,665 | $ | 129 | $ | 86,987 | $ | (2 | ) | $ | (132 | ) | $ | 73,021 | $ | 160,003 | |||||||||||||
Issuance of common stock |
8,598 | | 101 | | | | 101 | |||||||||||||||||||||
Repurchase of common stock |
(258,123 | ) | (3 | ) | (3,058 | ) | | | | (3,061 | ) | |||||||||||||||||
Exercise of stock options |
9,275 | | 62 | | | | 62 | |||||||||||||||||||||
Stock option compensation recognized |
| | 49 | | | | 49 | |||||||||||||||||||||
Restricted stock grant |
262,426 | 3 | (3 | ) | | | | | ||||||||||||||||||||
Restricted stock compensation
recognized |
| | 2,061 | | | | 2,061 | |||||||||||||||||||||
Net change related to derivatives, net of
tax |
| | | | 63 | | 63 | |||||||||||||||||||||
Net change in unrealized gain/loss on
securities available for sale, net of tax |
| | | | 9 | | 9 | |||||||||||||||||||||
Net income |
| | | | | 2,284 | 2,284 | |||||||||||||||||||||
Balance, June 30, 2011 |
12,886,841 | $ | 129 | $ | 86,199 | $ | (2 | ) | $ | (60 | ) | $ | 75,305 | $ | 161,571 | |||||||||||||
-4-
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 2,284 | $ | 2,788 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
1,284 | 1,319 | ||||||
Stock-based compensation |
1,603 | 1,754 | ||||||
Excess tax benefits from stock-based payment arrangements |
(537 | ) | (72 | ) | ||||
Amortization of deferred net loss on cash flow hedge derivatives |
104 | 82 | ||||||
Change in fair value of derivatives |
43 | (2,300 | ) | |||||
Provision for credit losses |
2,103 | 5,617 | ||||||
Net deferred income taxes |
(1,233 | ) | (3,261 | ) | ||||
Amortization of deferred initial direct costs and fees |
2,650 | 3,883 | ||||||
Deferred initial direct costs and fees |
(2,575 | ) | (1,508 | ) | ||||
Loss on equipment disposed |
1,472 | 1,229 | ||||||
Effect of changes in other operating items: |
||||||||
Other assets |
1,818 | 5,483 | ||||||
Other liabilities |
2,587 | 1,960 | ||||||
Net cash provided by operating activities |
11,603 | 16,974 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of equipment for direct financing lease contracts and funds used to originate
loans |
(100,923 | ) | (55,708 | ) | ||||
Principal collections on leases and loans |
92,867 | 113,462 | ||||||
Security deposits collected, net of refunds |
(991 | ) | (1,546 | ) | ||||
Proceeds from the sale of equipment |
2,442 | 2,521 | ||||||
Acquisitions of property and equipment |
(493 | ) | (299 | ) | ||||
Change in restricted interest-earning deposits with banks |
16,197 | (3,146 | ) | |||||
Purchases of securities available for sale |
(165 | ) | (1,513 | ) | ||||
Net cash provided by investing activities |
8,934 | 53,771 | ||||||
Cash flows from financing activities: |
||||||||
Issuances of common stock |
101 | 74 | ||||||
Repurchases of common stock |
(3,061 | ) | (528 | ) | ||||
Exercise of stock options |
31 | 162 | ||||||
Excess tax benefits from stock-based payment arrangements |
537 | 72 | ||||||
Debt issuance costs |
(14 | ) | (969 | ) | ||||
Term securitization advances |
| 68,169 | ||||||
Term securitization repayments |
(51,686 | ) | (92,027 | ) | ||||
Warehouse and bank facility advances |
37,181 | 4,425 | ||||||
Warehouse and bank facility repayments |
(20,351 | ) | (68,566 | ) | ||||
Increase in deposits |
31,603 | 16,564 | ||||||
Net cash used in financing activities |
(5,659 | ) | (72,624 | ) | ||||
Net increase (decrease) in total cash and cash equivalents |
14,878 | (1,879 | ) | |||||
Total cash and cash equivalents, beginning of period |
37,026 | 37,057 | ||||||
Total cash and cash equivalents, end of period |
$ | 51,904 | $ | 35,178 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid for interest on deposits and borrowings |
$ | 5,426 | $ | 7,901 | ||||
Net cash paid (refunds received) for income taxes |
$ | 347 | $ | (1,115 | ) |
-5-
-6-
-7-
-8-
-9-
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Minimum lease payments receivable |
$ | 396,031 | $ | 389,247 | ||||
Estimated residual value of equipment |
34,860 | 37,320 | ||||||
Unearned lease income, net of initial direct costs and fees deferred |
(66,847 | ) | (63,355 | ) | ||||
Security deposits |
(4,035 | ) | (5,026 | ) | ||||
Loans, including unamortized deferred fees and costs |
691 | 1,101 | ||||||
Allowance for credit losses |
(6,175 | ) | (7,718 | ) | ||||
$ | 354,525 | $ | 351,569 | |||||
Minimum Lease | ||||||||
Payments | Income | |||||||
Receivable | Amortization | |||||||
(Dollars in thousands) | ||||||||
Period Ending December 31, |
||||||||
2011 |
$ | 95,793 | $ | 19,681 | ||||
2012 |
142,332 | 25,815 | ||||||
2013 |
85,349 | 13,334 | ||||||
2014 |
44,176 | 5,919 | ||||||
2015 |
23,907 | 1,948 | ||||||
Thereafter |
4,474 | 150 | ||||||
$ | 396,031 | $ | 66,847 | |||||
-10-
Three Months Ended | Six Months Ended | Year Ended | ||||||||||||||||||
June 30, | June 30, | December 31, | ||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2010 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Allowance for credit losses, beginning of
period |
$ | 6,887 | $ | 10,253 | $ | 7,718 | $ | 12,193 | $ | 12,193 | ||||||||||
Charge-offs |
(2,247 | ) | (4,438 | ) | (4,875 | ) | (10,364 | ) | (17,095 | ) | ||||||||||
Recoveries |
611 | 842 | 1,229 | 1,705 | 3,182 | |||||||||||||||
Net charge-offs |
(1,636 | ) | (3,596 | ) | (3,646 | ) | (8,659 | ) | (13,913 | ) | ||||||||||
Provision for credit losses |
924 | 2,494 | 2,103 | 5,617 | 9,438 | |||||||||||||||
Allowance for credit losses, end of period(1) |
$ | 6,175 | $ | 9,151 | $ | 6,175 | $ | 9,151 | $ | 7,718 | ||||||||||
Annualized net charge-offs to average total
finance receivables (2) |
1.86 | % | 3.63 | % | 2.08 | % | 4.19 | % | 3.58 | % | ||||||||||
Allowance for credit losses to total
finance receivables, end of period (2) |
1.74 | % | 2.40 | % | 1.74 | % | 2.40 | % | 2.19 | % | ||||||||||
Average total finance receivables (2) |
$ | 351,389 | $ | 395,906 | $ | 350,296 | $ | 413,541 | $ | 389,001 | ||||||||||
Total finance receivables, end of period (2) |
$ | 354,014 | $ | 381,977 | $ | 354,014 | $ | 381,977 | $ | 352,527 | ||||||||||
Delinquencies greater than 60 days past due |
$ | 2,221 | $ | 5,202 | $ | 2,221 | $ | 5,202 | $ | 3,504 | ||||||||||
Delinquencies greater than 60 days past due (3) |
0.56 | % | 1.24 | % | 0.56 | % | 1.24 | % | 0.90 | % | ||||||||||
Allowance for credit losses to delinquent
accounts greater than 60 days past due (3) |
278.03 | % | 175.91 | % | 278.03 | % | 175.91 | % | 220.26 | % | ||||||||||
Non-accrual leases and loans, end of period |
$ | 1,197 | $ | 2,819 | $ | 1,197 | $ | 2,819 | $ | 1,996 | ||||||||||
Renegotiated leases and loans, end of period |
$ | 1,485 | $ | 3,024 | $ | 1,485 | $ | 3,024 | $ | 2,221 |
(1) | The allowance for credit losses allocated to loans at June 30, 2011, June 30, 2010
and December 31, 2010, was $0.1 million, $0.2 million and $0.1 million, respectively. |
|
(2) | Total finance receivables include net investment in direct financing leases and
loans. 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. |
|
(3) | Calculated as a percent of minimum lease payments receivable for leases and as a
percent of principal outstanding for loans. |
-11-
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Accrued fees receivable |
$ | 1,918 | $ | 2,250 | ||||
Deferred transaction costs |
1,770 | 2,420 | ||||||
Prepaid expenses |
1,171 | 1,674 | ||||||
Income taxes receivable |
18,425 | 20,711 | ||||||
Other |
2,463 | 1,394 | ||||||
$ | 25,747 | $ | 28,449 | |||||
Principal | Interest(1) | |||||||
(Dollars in thousands) | ||||||||
Period Ending December 31, |
||||||||
2011 |
$ | 30,934 | $ | 3,882 | ||||
2012 |
101,526 | 3,569 | ||||||
2013 |
8,563 | 247 | ||||||
2014 |
1,623 | 102 | ||||||
2015 |
1,031 | 26 | ||||||
Thereafter |
117 | | ||||||
Total |
$ | 143,794 | $ | 7,826 | ||||
(1) | Interest on variable-rate long-term borrowings is assumed at the June 30, 2011
rate for the remaining term. |
-12-
Scheduled | ||||
Maturities | ||||
(Dollars in | ||||
thousands) | ||||
Period Ending December 31, |
||||
2011 |
$ | 16,373 | ||
2012 |
37,547 | |||
2013 |
33,993 | |||
2014 |
19,723 | |||
2015 |
14,582 | |||
Thereafter |
2,304 | |||
Total |
$ | 124,522 | ||
| Level 1 Inputs to the valuation are unadjusted quoted prices in active markets for
identical assets or liabilities. |
| Level 2 Inputs to the valuation may include quoted prices for similar assets and
liabilities in active or inactive markets, and inputs other than quoted prices, such as
interest rates and yield curves, which are observable for the asset or liability for
substantially the full term of the financial instrument. |
| Level 3 Inputs to the valuation are unobservable and significant to the fair value
measurement. Level 3 inputs shall be used to measure fair value only to the extent that
observable inputs are not available. |
-13-
June 30, 2011 | December 31, 2010 | |||||||||||||||
Fair Value Measurements Using | Fair Value Measurements Using | |||||||||||||||
Level 1 | Level 2 | Level 1 | Level 2 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Assets |
||||||||||||||||
Securities available for sale |
$ | 1,715 | $ | | $ | 1,534 | $ | | ||||||||
Interest-rate caps purchased |
| 16 | | 14 |
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 51,904 | $ | 51,904 | $ | 37,026 | $ | 37,026 | ||||||||
Restricted interest-earning deposits with banks |
30,910 | 30,910 | 47,107 | 47,107 | ||||||||||||
Securities available for sale |
1,715 | 1,715 | 1,534 | 1,534 | ||||||||||||
Loans |
686 | 686 | 1,040 | 1,025 | ||||||||||||
Interest-rate caps purchased |
16 | 16 | 14 | 14 | ||||||||||||
Liabilities |
||||||||||||||||
Long-term borrowings |
143,794 | 146,519 | 178,650 | 183,088 | ||||||||||||
Deposits |
124,522 | 126,111 | 92,919 | 94,602 | ||||||||||||
Accounts payable and accrued
expenses (1) |
12,558 | 12,558 | 9,997 | 9,997 |
(1) | Includes sales and property taxes payable. |
-14-
-15-
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Dollars in thousands, except per-share data) | ||||||||||||||||
Net income |
$ | 1,530 | $ | 1,551 | $ | 2,284 | $ | 2,788 | ||||||||
Weighted average common shares outstanding |
11,979,787 | 11,899,847 | 11,957,281 | 11,854,044 | ||||||||||||
Add: Unvested restricted stock awards
considered participating
securities |
1,009,894 | 932,945 | 1,000,271 | 948,535 | ||||||||||||
Adjusted weighted average common shares used in computing
basic EPS |
12,989,681 | 12,832,792 | 12,957,552 | 12,802,579 | ||||||||||||
Add: Effect of dilutive stock options |
75,525 | 71,371 | 76,323 | 63,278 | ||||||||||||
Adjusted weighted average common shares used in computing
diluted EPS |
13,065,206 | 12,904,163 | 13,033,875 | 12,865,857 | ||||||||||||
Net earnings per common share: |
||||||||||||||||
Basic |
$ | 0.12 | $ | 0.12 | $ | 0.18 | $ | 0.22 | ||||||||
Diluted |
$ | 0.12 | $ | 0.12 | $ | 0.18 | $ | 0.22 | ||||||||
-16-
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Net income |
$ | 1,530 | $ | 1,551 | $ | 2,284 | $ | 2,788 | ||||||||
Other comprehensive income: |
||||||||||||||||
Amortization of net deferred losses on
cash flow hedge derivatives |
46 | 40 | 104 | 82 | ||||||||||||
Change in fair value of securities available for sale |
20 | 20 | 16 | 20 | ||||||||||||
Tax effect |
(26 | ) | (23 | ) | (48 | ) | (40 | ) | ||||||||
Total other comprehensive income |
40 | 37 | 72 | 62 | ||||||||||||
Comprehensive income |
$ | 1,570 | $ | 1,588 | $ | 2,356 | $ | 2,850 | ||||||||
-17-
-18-
Minimum Capital | Well-Capitalized Capital | |||||||||||||||||||||||
Actual | Requirement | Requirement | ||||||||||||||||||||||
Ratio | Amount | Ratio (1) | Amount | Ratio | Amount | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Tier 1 Leverage Capital |
||||||||||||||||||||||||
Marlin Business Services Corp. |
34.35 | % | $ | 161,631 | 4 | % | $ | 18,821 | 5 | % | $ | 23,526 | ||||||||||||
Marlin Business Bank |
28.96 | % | $ | 47,350 | 5 | % | $ | 8,174 | 5 | % | $ | 8,174 | ||||||||||||
Tier 1 Risk-based Capital |
||||||||||||||||||||||||
Marlin Business Services Corp. |
40.10 | % | $ | 161,631 | 4 | % | $ | 16,124 | 6 | % | $ | 24,186 | ||||||||||||
Marlin Business Bank |
28.39 | % | $ | 47,350 | 6 | % | $ | 10,007 | 6 | % | $ | 10,007 | ||||||||||||
Total Risk-based Capital |
||||||||||||||||||||||||
Marlin Business Services Corp. |
41.35 | % | $ | 166,684 | 8 | % | $ | 32,248 | 10 | % | $ | 40,310 | ||||||||||||
Marlin Business Bank |
29.42 | % | $ | 49,069 | 15 | % | $ | 25,016 | 10 | % (1) | $ | 16,678 |
(1) | MBB is required to maintain well-capitalized status. In addition, MBB must
maintain a total risk-based capital ratio greater than 15% pursuant to the FDIC Order. |
| prohibiting the payment of principal and interest on subordinated debt; |
| prohibiting the holding company from making 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 severe cases, appointing a conservator or receiver for the institution. |
-19-
-20-
Weighted | ||||||||
Average | ||||||||
Number of | Exercise Price | |||||||
Options | Shares | Per Share | ||||||
Outstanding, December 31, 2010 |
648,153 | $ | 9.99 | |||||
Granted |
| | ||||||
Exercised |
(9,275 | ) | 3.39 | |||||
Forfeited |
| | ||||||
Expired |
| | ||||||
Outstanding, June 30, 2011 |
638,878 | 10.08 | ||||||
Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||||||
Weighted | Weighted | Aggregate | Weighted | Weighted | Aggregate | |||||||||||||||||||||||||||
Average | Average | Intrinsic | Average | Average | Intrinsic | |||||||||||||||||||||||||||
Range of | Number | Remaining | Exercise | Value | Number | Remaining | Exercise | Value | ||||||||||||||||||||||||
Exercise Prices | Outstanding | Life (Years) | Price | (In thousands) | Exercisable | Life (Years) | Price | (In thousands) | ||||||||||||||||||||||||
$3.39 |
76,650 | 0.8 | $ | 3.39 | $ | 710 | 76,650 | 0.8 | $ | 3.39 | $ | 710 | ||||||||||||||||||||
$7.17 - 10.18 |
354,528 | 2.8 | 9.43 | 1,142 | 216,028 | 2.2 | 9.39 | 704 | ||||||||||||||||||||||||
$12.08 - 12.41 |
145,612 | 5.9 | 12.40 | 36 | 30,195 | 5.9 | 12.40 | 7 | ||||||||||||||||||||||||
$14.00 - 16.01 |
39,984 | 2.5 | 14.33 | | 37,253 | 2.5 | 14.33 | | ||||||||||||||||||||||||
$19.78 - 21.50 |
22,104 | 2.0 | 20.80 | | 22,104 | 2.0 | 20.80 | | ||||||||||||||||||||||||
638,878 | 3.2 | 10.08 | $ | 1,888 | 382,230 | 2.2 | 9.57 | $ | 1,421 | |||||||||||||||||||||||
-21-
Weighted | ||||||||
Average | ||||||||
Grant-Date | ||||||||
Non-vested restricted stock | Shares | Fair Value | ||||||
Outstanding at December 31, 2010 |
954,029 | $ | 7.90 | |||||
Granted |
267,776 | 11.15 | ||||||
Vested |
(269,934 | ) | 6.91 | |||||
Forfeited |
(5,350 | ) | 14.73 | |||||
Outstanding at June 30, 2011 |
946,521 | 9.06 | ||||||
-22-
-23-
Item 2. | Managements Discussion And Analysis Of Financial Condition And Results Of Operations |
| 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; 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, 2010 filed with the SEC. |
-24-
Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
June 30, | As of or For the Year Ended December 31, | |||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||
Number of sales account executives |
97 | 87 | 38 | 86 | 118 | 100 | ||||||||||||||||||
Number of originating sources(1) |
783 | 604 | 465 | 1,014 | 1,246 | 1,295 |
(1) | Monthly average of origination sources generating lease volume |
-25-
-26-
-27-
-28-
-29-
Three Months Ended June 30, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
(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 |
$ | 47,818 | $ | 8 | 0.07 | % | $ | 39,903 | $ | 9 | 0.09 | % | ||||||||||||
Restricted interest-earning deposits with
banks |
33,798 | 5 | 0.06 | 65,075 | 19 | 0.12 | ||||||||||||||||||
Securities available for sale |
1,705 | 14 | 3.27 | 1,255 | 13 | 4.14 | ||||||||||||||||||
Net investment in leases(3) |
350,662 | 10,825 | 12.35 | 393,248 | 11,876 | 12.08 | ||||||||||||||||||
Loans receivable(3) |
726 | 11 | 5.83 | 2,658 | 77 | 11.59 | ||||||||||||||||||
Total interest-earning assets |
434,709 | 10,863 | 10.00 | 502,139 | 11,994 | 9.55 | ||||||||||||||||||
Non-interest-earning assets: |
||||||||||||||||||||||||
Cash and due from banks |
1,594 | 1,886 | ||||||||||||||||||||||
Property and equipment, net |
2,202 | 2,280 | ||||||||||||||||||||||
Property tax receivables |
1,949 | 3,603 | ||||||||||||||||||||||
Other assets(4) |
27,028 | 6,607 | ||||||||||||||||||||||
Total non-interest-earning assets |
32,773 | 14,376 | ||||||||||||||||||||||
Total assets |
$ | 467,482 | $ | 516,515 | ||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Short-term borrowings(5) |
$ | | $ | | | % | $ | | $ | 19 | | % | ||||||||||||
Long-term borrowings(5) |
159,921 | 2,441 | 6.11 | 243,171 | 3,279 | 5.39 | ||||||||||||||||||
Deposits(5) |
106,662 | 622 | 2.33 | 93,166 | 657 | 2.82 | ||||||||||||||||||
Total interest-bearing liabilities |
266,583 | 3,063 | 4.60 | 336,337 | 3,955 | 4.68 | ||||||||||||||||||
Non-interest-bearing liabilities: |
||||||||||||||||||||||||
Fair value of derivatives |
| 572 | ||||||||||||||||||||||
Sales and property taxes payable |
5,002 | 7,149 | ||||||||||||||||||||||
Accounts payable and accrued expenses |
8,234 | 6,158 | ||||||||||||||||||||||
Net deferred income tax liability |
25,881 | 14,680 | ||||||||||||||||||||||
Total non-interest-bearing liabilities |
39,117 | 28,559 | ||||||||||||||||||||||
Total liabilities |
305,700 | 364,896 | ||||||||||||||||||||||
Stockholders equity |
161,782 | 151,619 | ||||||||||||||||||||||
Total liabilities and stockholders
equity |
$ | 467,482 | $ | 516,515 | ||||||||||||||||||||
Net interest income |
$ | 7,800 | $ | 8,039 | ||||||||||||||||||||
Interest rate spread(6) |
5.40 | % | 4.87 | % | ||||||||||||||||||||
Net interest margin(7) |
7.18 | % | 6.40 | % | ||||||||||||||||||||
Ratio of average interest-earning assets to
average interest-bearing liabilities |
163.07 | % | 149.30 | % |
(1) | Average balances are calculated using month-end balances, to the extent such
averages are representative of operations. |
|
(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. |
|
(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 a percentage of average
interest-earning assets. |
-30-
Three Months Ended June 30, 2011 Compared To | ||||||||||||
Three Months Ended June 30, 2010 | ||||||||||||
Increase (Decrease) Due To: | ||||||||||||
Volume(1) | Rate(1) | Total | ||||||||||
(Dollars in thousands) | ||||||||||||
Interest income: |
||||||||||||
Interest-earning deposits with banks |
$ | 1 | $ | (2 | ) | $ | (1 | ) | ||||
Restricted interest-earning deposits with banks |
(7 | ) | (7 | ) | (14 | ) | ||||||
Securities available for sale |
4 | (3 | ) | 1 | ||||||||
Net investment in leases |
(1,310 | ) | 259 | (1,051 | ) | |||||||
Loans receivable |
(39 | ) | (27 | ) | (66 | ) | ||||||
Total interest income |
(1,666 | ) | 535 | (1,131 | ) | |||||||
Interest expense: |
||||||||||||
Short-term borrowings |
| (19 | ) | (19 | ) | |||||||
Long-term borrowings |
(1,230 | ) | 392 | (838 | ) | |||||||
Deposits |
88 | (123 | ) | (35 | ) | |||||||
Total interest expense |
(803 | ) | (89 | ) | (892 | ) | ||||||
Net interest income |
(1,148 | ) | 909 | (239 | ) |
(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 periods average rates. Changes attributable to changes in
rate represent changes in average rates multiplied by the prior years 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. |
-31-
Three Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Interest income |
$ | 10,863 | $ | 11,994 | ||||
Fee income |
2,926 | 3,501 | ||||||
Interest and fee income |
13,789 | 15,495 | ||||||
Interest expense |
3,063 | 3,955 | ||||||
Net interest and fee income |
10,726 | 11,540 | ||||||
Average total finance receivables(1) |
$ | 351,389 | $ | 395,906 | ||||
Percent of average total finance receivables: |
||||||||
Interest income |
12.37 | % | 12.12 | % | ||||
Fee income |
3.33 | 3.54 | ||||||
Interest and fee income |
15.70 | 15.66 | ||||||
Interest expense |
3.49 | 4.00 | ||||||
Net interest and fee margin |
12.21 | % | 11.66 | % | ||||
(1) | Total finance receivables include net investment in direct financing 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. |
-32-
-33-
-34-
Six Months Ended June 30, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
(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 |
$ | 41,482 | $ | 21 | 0.10 | % | $ | 37,622 | $ | 13 | 0.07 | % | ||||||||||||
Restricted interest-earning deposits with
banks |
41,104 | 16 | 0.08 | 64,061 | 31 | 0.10 | ||||||||||||||||||
Securities available for sale |
1,658 | 27 | 3.27 | 628 | 13 | 4.14 | ||||||||||||||||||
Net investment in leases(3) |
349,469 | 21,672 | 12.40 | 410,332 | 24,572 | 11.98 | ||||||||||||||||||
Loans receivable(3) |
826 | 27 | 6.52 | 3,209 | 194 | 12.09 | ||||||||||||||||||
Total interest-earning assets |
434,539 | 21,763 | 10.01 | 515,852 | 24,823 | 9.63 | ||||||||||||||||||
Non-interest-earning assets: |
||||||||||||||||||||||||
Cash and due from banks |
2,090 | 1,861 | ||||||||||||||||||||||
Property and equipment, net |
2,168 | 2,322 | ||||||||||||||||||||||
Property tax receivables |
1,355 | 2,542 | ||||||||||||||||||||||
Other assets(4) |
27,177 | 6,611 | ||||||||||||||||||||||
Total non-interest-earning assets |
32,790 | 13,336 | ||||||||||||||||||||||
Total assets |
$ | 467,329 | $ | 529,188 | ||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Short-term borrowings(5) |
$ | | $ | | | % | $ | 14,427 | $ | 344 | 4.77 | % | ||||||||||||
Long-term borrowings(5) |
167,998 | 5,151 | 6.13 | 249,391 | 6,984 | 5.60 | ||||||||||||||||||
Deposits(5) |
99,945 | 1,204 | 2.41 | 87,297 | 1,286 | 2.95 | ||||||||||||||||||
Total interest-bearing liabilities |
267,943 | 6,355 | 4.74 | 351,115 | 8,614 | 4.91 | ||||||||||||||||||
Non-interest-bearing liabilities: |
||||||||||||||||||||||||
Fair value of derivatives |
| 1,184 | ||||||||||||||||||||||
Sales and property taxes payable |
3,524 | 5,459 | ||||||||||||||||||||||
Accounts payable and accrued expenses |
8,420 | 5,639 | ||||||||||||||||||||||
Net deferred income tax liability |
26,208 | 15,315 | ||||||||||||||||||||||
Total non-interest-bearing liabilities |
38,152 | 27,597 | ||||||||||||||||||||||
Total liabilities |
306,095 | 378,712 | ||||||||||||||||||||||
Stockholders equity |
161,234 | 150,476 | ||||||||||||||||||||||
Total liabilities and stockholders
equity |
$ | 467,329 | $ | 529,188 | ||||||||||||||||||||
Net interest income |
$ | 15,408 | $ | 16,209 | ||||||||||||||||||||
Interest rate spread(6) |
5.27 | % | 4.72 | % | ||||||||||||||||||||
Net interest margin(7) |
7.09 | % | 6.28 | % | ||||||||||||||||||||
Ratio of average interest-earning assets to
average interest-bearing liabilities |
162.18 | % | 146.92 | % |
(1) | Average balances are calculated using month-end balances, to the extent such
averages are representative of operations. |
|
(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. |
|
(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 a percentage of average
interest-earning assets. |
-35-
Six Months Ended June 30, 2011 Compared To | ||||||||||||
Six Months Ended June 30, 2010 | ||||||||||||
Increase (Decrease) Due To: | ||||||||||||
Volume(1) | Rate(1) | Total | ||||||||||
(Dollars in thousands) | ||||||||||||
Interest income: |
||||||||||||
Interest-earning deposits with banks |
$ | 1 | $ | 7 | $ | 8 | ||||||
Restricted interest-earning deposits with banks |
(10 | ) | (5 | ) | (15 | ) | ||||||
Securities available for sale |
17 | (3 | ) | 14 | ||||||||
Net investment in leases |
(3,750 | ) | 850 | (2,900 | ) | |||||||
Loans receivable |
(103 | ) | (64 | ) | (167 | ) | ||||||
Total interest income |
(4,040 | ) | 980 | (3,060 | ) | |||||||
Interest expense: |
||||||||||||
Short-term borrowings |
(172 | ) | (172 | ) | (344 | ) | ||||||
Long-term borrowings |
(2,447 | ) | 614 | (1,833 | ) | |||||||
Deposits |
171 | (253 | ) | (82 | ) | |||||||
Total interest expense |
(1,981 | ) | (278 | ) | (2,259 | ) | ||||||
Net interest income |
(2,736 | ) | 1,935 | (801 | ) |
(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 periods average rates. Changes attributable to changes in
rate represent changes in average rates multiplied by the prior years 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. |
-36-
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Interest income |
$ | 21,763 | $ | 24,823 | ||||
Fee income |
6,058 | 7,317 | ||||||
Interest and fee income |
27,821 | 32,140 | ||||||
Interest expense |
6,355 | 8,614 | ||||||
Net interest and fee income |
21,466 | 23,526 | ||||||
Average total finance receivables(1) |
$ | 350,296 | $ | 413,541 | ||||
Percent of average total finance receivables: |
||||||||
Interest income |
12.43 | % | 12.01 | % | ||||
Fee income |
3.46 | 3.54 | ||||||
Interest and fee income |
15.89 | 15.55 | ||||||
Interest expense |
3.63 | 4.17 | ||||||
Net interest and fee margin |
12.26 | % | 11.38 | % | ||||
(1) | Total finance receivables include net investment in direct financing 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. |
-37-
-38-
-39-
Three Months Ended | Six Months Ended | Year Ended | ||||||||||||||||||
June 30, | June 30, | December 31, | ||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2010 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Allowance for credit losses, beginning of
period |
$ | 6,887 | $ | 10,253 | $ | 7,718 | $ | 12,193 | $ | 12,193 | ||||||||||
Charge-offs |
(2,247 | ) | (4,438 | ) | (4,875 | ) | (10,364 | ) | (17,095 | ) | ||||||||||
Recoveries |
611 | 842 | 1,229 | 1,705 | 3,182 | |||||||||||||||
Net charge-offs |
(1,636 | ) | (3,596 | ) | (3,646 | ) | (8,659 | ) | (13,913 | ) | ||||||||||
Provision for credit losses |
924 | 2,494 | 2,103 | 5,617 | 9,438 | |||||||||||||||
Allowance for credit losses, end of period(1) |
$ | 6,175 | $ | 9,151 | $ | 6,175 | $ | 9,151 | $ | 7,718 | ||||||||||
Annualized net charge-offs to average total
finance receivables (2) |
1.86 | % | 3.63 | % | 2.08 | % | 4.19 | % | 3.58 | % | ||||||||||
Allowance for credit losses to total
finance receivables, end of period (2) |
1.74 | % | 2.40 | % | 1.74 | % | 2.40 | % | 2.19 | % | ||||||||||
Average total finance receivables (2) |
$ | 351,389 | $ | 395,906 | $ | 350,296 | $ | 413,541 | $ | 389,001 | ||||||||||
Total finance receivables, end of period (2) |
$ | 354,014 | $ | 381,977 | $ | 354,014 | $ | 381,977 | $ | 352,527 | ||||||||||
Delinquencies greater than 60 days past due |
$ | 2,221 | $ | 5,202 | $ | 2,221 | $ | 5,202 | $ | 3,504 | ||||||||||
Delinquencies greater than 60 days past due (3) |
0.56 | % | 1.24 | % | 0.56 | % | 1.24 | % | 0.90 | % | ||||||||||
Allowance for credit losses to delinquent
accounts greater than 60 days past due (3) |
278.03 | % | 175.91 | % | 278.03 | % | 175.91 | % | 220.26 | % | ||||||||||
Non-accrual leases and loans, end of period |
$ | 1,197 | $ | 2,819 | $ | 1,197 | $ | 2,819 | $ | 1,996 | ||||||||||
Renegotiated leases and loans, end of period |
$ | 1,485 | $ | 3,024 | $ | 1,485 | $ | 3,024 | $ | 2,221 | ||||||||||
Accruing leases and loans past due
90 days or more |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Interest income included on non-accrual
leases and loans(4) |
$ | 13 | $ | 34 | $ | 41 | $ | 112 | $ | 214 | ||||||||||
Interest income excluded on non-accrual
leases and loans(5) |
$ | 13 | $ | 39 | $ | 19 | $ | 42 | $ | 46 |
(1) | The allowance for credit losses allocated to loans at June 30, 2011, June 30, 2010
and December 31, 2010, was $0.1 million, $0.2 million and $0.1 million, respectively. |
|
(2) | Total finance receivables include net investment in direct financing leases and
loans. 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. |
|
(3) | Calculated as a percent of total minimum lease payments receivable for leases and as
a percent of principal outstanding for loans. |
|
(4) | Represents interest which was recognized during the period on non-accrual loans and
leases, prior to non-accrual status. |
|
(5) | Represents interest which would have been recorded on non-accrual loans and leases
had they performed in accordance with their contractual terms during the period. |
-40-
-41-
| borrowings under revolving, short-term or long-term 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 |
||
| FDIC-insured certificates of deposit issued by our wholly-owned subsidiary, MBB. |
-42-
-43-
For the Six Months Ended June 30, 2011 | As of June 30, 2011 | |||||||||||||||||||||||||||
Maximum | ||||||||||||||||||||||||||||
Maximum | Month End | Average | Weighted | Weighted | ||||||||||||||||||||||||
Facility | Amount | Amount | Average | Amount | Average | Unused | ||||||||||||||||||||||
Amount | Outstanding | Outstanding | Rate(3) | Outstanding | Rate(3) | Capacity(1) | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Federal funds purchased |
$ | 1,600 | $ | | $ | | | % | $ | | | % | $ | 1,600 | ||||||||||||||
Term note securitizations(2) |
| 121,318 | 102,248 | 5.35 | % | 76,498 | 5.13 | % | | |||||||||||||||||||
Long-term loan facilities |
125,000 | 76,255 | 65,749 | 5.29 | % | 67,296 | 5.18 | % | 57,704 | |||||||||||||||||||
$ | 126,600 | $ | 167,997 | 5.34 | % | $ | 143,794 | 5.15 | % | $ | 59,304 | |||||||||||||||||
(1) | Does not include MBBs access to the Federal Reserve Discount Window, which is based
on the amount of assets MBB chooses to pledge. Based on assets pledged at June 30, 2011, MBB
had $8.2 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) | Our term note securitizations are one-time fundings that pay down over time without
any ability for us to draw down additional amounts. |
|
(3) | Does not include transaction costs. |
-44-
-45-
Actual(1) | Requirement | |||||||
Tangible net worth minimum |
$161.6 million | $142.2 million | ||||||
Debt-to-equity ratio maximum |
1.56 to 1 | 10.0 to 1 | ||||||
Maximum servicer senior leverage ratio |
1.26 to 1 | 4.0 to 1 | ||||||
Four-quarter rolling average interest coverage ratio minimum |
2.42 to 1 | 1.50 to 1 | ||||||
Maximum portfolio delinquency ratio |
0.56 | % | 3.50 | % | ||||
Maximum gross charge-off ratio |
3.19 | % | 7.00 | % |
(1) | Calculations are based on specific contractual definitions and subsidiaries per
the applicable debt agreements, which may differ from ratios or amounts presented elsewhere in
this document. |
-46-
-47-
Contractual Obligations as of June 30, 2011 | ||||||||||||||||||||||||
Operating | Leased | Capital | ||||||||||||||||||||||
Period Ending December 31, | Borrowings | Interest (1) | Leases | Facilities | Leases | Total | ||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
2011 |
$ | 30,934 | $ | 3,882 | $ | 2 | $ | 798 | $ | 60 | $ | 35,676 | ||||||||||||
2012 |
101,526 | 3,569 | 4 | 1,621 | 103 | 106,823 | ||||||||||||||||||
2013 |
8,563 | 247 | 4 | 789 | 86 | 9,689 | ||||||||||||||||||
2014 |
1,623 | 102 | 4 | 141 | 21 | 1,891 | ||||||||||||||||||
2015 |
1,031 | 26 | | | | 1,057 | ||||||||||||||||||
Thereafter |
117 | | | | | 117 | ||||||||||||||||||
Total |
$ | 143,794 | $ | 7,826 | $ | 14 | $ | 3,349 | $ | 270 | $ | 155,253 | ||||||||||||
(1) | Interest on the variable-rate long-term loan facilities is assumed at the June 30,
2011 rate for the remaining term. |
-48-
Scheduled Maturities by Calendar Year | ||||||||||||||||||||||||
Total | ||||||||||||||||||||||||
2015 & | Carrying | |||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | Thereafter | Amount | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Debt: |
||||||||||||||||||||||||
Fixed-rate debt |
$ | 30,934 | $ | 34,230 | $ | 8,563 | $ | 1,623 | $ | 1,148 | $ | 76,498 | ||||||||||||
Average fixed rate |
5.37 | % | 5.25 | % | 3.99 | % | 6.21 | % | 6.51 | % | 5.20 | % | ||||||||||||
Variable-rate debt |
$ | | $ | 67,296 | $ | | $ | | $ | | $ | 67,296 | ||||||||||||
Average variable
rate |
| 5.18 | % | | | | 5.18 | % |
-49-
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 4. | Controls and Procedures |
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
-50-
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Total Number of | Maximum Approximate | |||||||||||||||
Shares Purchased as | Dollar Value of Shares that | |||||||||||||||
Number of | Average Price | Part of a Publicly | May Yet be Purchased | |||||||||||||
Shares | Paid Per | Announced Plan or | Under the Plans or | |||||||||||||
Time Period | Purchased | Share(1) | Program | Programs | ||||||||||||
April 1, 2011 to
April 30, 2011 |
8,383 | $ | 11.48 | 8,383 | $ | 10,166,918 | ||||||||||
May 1, 2011 to
May 31, 2011 |
33,010 | $ | 12.17 | 33,010 | $ | 9,765,126 | ||||||||||
June 1, 2011 to
June 30, 2011 |
114,211 | $ | 12.04 | 114,211 | $ | 8,389,547 | ||||||||||
Total for the quarter ended
June 30, 2011 |
155,604 | $ | 12.04 | 155,604 | $ | 8,389,547 |
(1) | Average price paid per share includes commissions and is rounded to the nearest two
decimal places. |
Item 3. | Defaults Upon Senior Securities |
Item 4. | [Removed and Reserved.] |
Item 5. | Other Information |
-51-
Item 6. | Exhibits |
Exhibit | ||||
Number | Description | |||
3.1 | Amended and Restated Articles of Incorporation (1) |
|||
3.2 | Bylaws (2) |
|||
31.1 | Certification of the Chief Executive Officer of Marlin Business Services Corp. required by
Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. (Filed herewith) |
|||
31.2 | Certification of the Chief Financial Officer of Marlin Business Services Corp. required by
Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. (Filed herewith) |
|||
32.1 | Certification of the Chief Executive Officer and Chief Financial Officer of Marlin Business
Services Corp. required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as
amended. (This exhibit shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that
section. Further, this exhibit shall not be deemed to be incorporated by reference into any
filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended.) (Furnished herewith) |
|||
101 | Financial statements from the Quarterly Report on Form 10-Q of the Company for the period
ended June 30, 2011, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii)
the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated
Statements of Stockholders Equity, (iv) the Condensed Consolidated Statements of Cash Flows
and (v) the Notes to Unaudited Condensed Consolidated Financial Statements tagged as blocks of
text. (Submitted electronically with this report) |
(1) | Previously filed with the SEC as an exhibit to the Companys Annual Report on Form
10-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 Companys Amendment No. 1 to
Registration Statement on Form S-1 (File No. 333-108530), filed on October 14, 2003 and
incorporated by reference herein. |
-52-
MARLIN BUSINESS SERVICES CORP. | ||||||
(Registrant) | ||||||
By: | /s/ Daniel P. Dyer
|
|||||
Chief Executive Officer | ||||||
(Chief Executive Officer) | ||||||
By: | /s/ Lynne C. Wilson
|
|||||
Chief Financial Officer & Senior Vice President | ||||||
(Principal Financial Officer) |
-53-
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 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 registrants 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 registrants 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 registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants 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 registrants 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 registrants internal control over financial
reporting. |
/s/ Daniel P. Dyer
|
||||
Chief Executive Officer |
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 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 registrants 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 registrants 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 registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants 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 registrants 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 registrants internal control over financial
reporting. |
/s/ Lynne C. Wilson
|
||||
Chief Financial Officer & Senior Vice President | ||||
(Principal Financial Officer) |
(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. |
/s/ Daniel P. Dyer
|
||||
Chief Executive Officer | ||||
/s/ Lynne C. Wilson
|
||||
Chief Financial Officer &Senior Vice President | ||||
(Principal Financial Officer) |
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)
In Millions, except Share data |
3 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2011
|
Dec. 31, 2010
|
|
Condensed Consolidated Balance Sheets | Â | Â |
Restricted interest-earning deposits related to consolidated variable interest entities | $ 24.2 | $ 44.7 |
Available-for -sale securities, amortized cost | 1.7 | 1.5 |
Net investment in leases and loans related to consolidated VIEs | 94.8 | 154.1 |
Long-term borrowings related to consolidated VIEs | $ 76.5 | $ 128.2 |
Common stock par value | $ 0.01 | $ 0.01 |
Common stock shares authorized | 75,000,000 | 75,000,000 |
Common stock shares issued | 12,886,841 | 12,864,665 |
Common stock shares outstanding | 12,886,841 | 12,864,665 |
Preferred Stock - par or stated value | $ 0.01 | $ 0.01 |
Preferred stock shares authorized | 5,000,000 | 5,000,000 |
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Share data |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Income Statement Abstract | Â | Â | Â | Â |
Interest income | $ 10,863 | $ 11,994 | $ 21,763 | $ 24,823 |
Fee income | 2,926 | 3,501 | 6,058 | 7,317 |
Interest and fee income | 13,789 | 15,495 | 27,821 | 32,140 |
Interest expense | 3,063 | 3,955 | 6,355 | 8,614 |
Net interest and fee income | 10,726 | 11,540 | 21,466 | 23,526 |
Provision for credit losses | 924 | 2,494 | 2,103 | 5,617 |
Net interest and fee income after provision for credit losses | 9,802 | 9,046 | 19,363 | 17,909 |
Other income: | Â | Â | Â | Â |
Insurance income | 951 | 987 | 1,928 | 2,144 |
Loss on derivatives | (38) | (25) | (43) | (119) |
Other income | 434 | 306 | 716 | 596 |
Other income | 1,347 | 1,268 | 2,601 | 2,621 |
Other expense: | Â | Â | Â | Â |
Salaries and benefits | 5,384 | 4,588 | 11,321 | 9,713 |
General and administrative | 3,145 | 3,073 | 6,616 | 6,118 |
Financing related costs | 157 | 155 | 346 | 302 |
Other expense | 8,686 | 7,816 | 18,283 | 16,133 |
Income before income taxes | 2,463 | 2,498 | 3,681 | 4,397 |
Income tax expense | 933 | 947 | 1,397 | 1,609 |
Net income | $ 1,530 | $ 1,551 | $ 2,284 | $ 2,788 |
Basic earnings per share | $ 0.12 | $ 0.12 | $ 0.18 | $ 0.22 |
Diluted earnings per share | $ 0.12 | $ 0.12 | $ 0.18 | $ 0.22 |
Weighted average shares used in computing basic earnings per share | 12,989,681 | 12,832,792 | 12,957,552 | 12,802,579 |
Weighted average shares used in computing diluted earnings per share | 13,065,206 | 12,904,163 | 13,033,875 | 12,865,857 |
Document and Entity Information
|
3 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Jul. 26, 2011
|
|
Document And Entity Information [Abstract] | Â | Â |
Document Type | 10-Q | Â |
Document period end date | Jun. 30, 2011 | |
Amendment flag | false | Â |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Current fiscal year end date | --12-31 | Â |
Entity central index key | 0001260968 | Â |
Entity current reporting status | Yes | Â |
Entity filer category | Accelerated Filer | Â |
Entity registrant name | MARLIN BUSINESS SERVICES CORP. | Â |
Entity voluntary filers | No | Â |
Entity well known seasoned issuer | Yes | Â |
Entity common stock shares outstanding | Â | 12,827,574 |
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Commitments and Contingencies
|
3 Months Ended |
---|---|
Jun. 30, 2011
|
|
Commitments And Contingencies [Abstract] | Â |
Commitments And Contingencies | NOTE 6 - Commitments and Contingencies
The Company is involved in legal proceedings, which include claims, litigation and suits arising in the ordinary course of business. In the opinion of management, these actions will not have a material impact on the Company's consolidated financial position, results of operations or cash flows. |
Comprehensive Income (Loss)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Comprehensive Income (Loss) [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income (Loss) | NOTE 11 - Comprehensive Income
The following table details the components of comprehensive income:
|
Basis of Financial Statement Presentation and Critical Accounting Policies
|
3 Months Ended |
---|---|
Jun. 30, 2011
|
|
Basis Of Financial Statement Presentation And Critical Accounting Policies [Abstract] | Â |
Basis of Financial Statement Presentation and Critical Accounting Policies | NOTE 2 - Basis of Financial Statement Presentation and Critical Accounting Policies
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring items) necessary to present fairly the Company's financial position at June 30, 2011 and the results of operations for the three- and six-month periods ended June 30, 2011 and 2010, and cash flows for the six-month periods ended June 30, 2011 and 2010. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and note disclosures included in the Company's Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 16, 2011. The consolidated results of operations for the three- and six-month periods ended June 30, 2011 and 2010 are not necessarily indicative of the results for the respective full years or any other period. All intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates. The preparation of financial statements in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) requires 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, performance assumptions for stock-based compensation awards, the fair value of financial instruments and income taxes. Actual results could differ from those estimates.
Interest income. Interest income is recognized under the effective interest method. The effective interest method of income recognition applies a constant rate of interest equal to the internal rate of return on each lease. Generally, when a lease or loan is 90 days or more delinquent, the contract is classified as non-accrual, and we do not recognize interest income on that contract until it is less than 90 days delinquent.
Modifications to leases are accounted for in accordance with Topic 840 of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”). Modifications resulting in renegotiated leases may include reductions in payment and extensions in term. However, such renegotiated leases are not granted concessions regarding implicit rates or reductions in total amounts due. Modifications may be granted on a one-time basis in situations that indicate the lessee is experiencing a temporary, timing issue and has a high likelihood of success with a revised payment plan. After a modification, a lease's accrual status is based on compliance with the modified terms.
Fee income. Fee income consists of fees for delinquent lease and loan payments, cash collected on early termination of leases and net residual income. Net residual income includes income from lease renewals and gains and losses on the realization of residual values of leased equipment disposed of at the end of a lease's term. Residual income is recognized as earned.
Fee income from delinquent lease payments is recognized on an accrual basis based on anticipated collection rates. At a minimum of every quarter, an analysis of anticipated collection rates is performed based on updates to collection history. Adjustments in the anticipated collection rate assumptions are made as needed based on this analysis. Other fees are recognized when received.
Insurance income. Insurance income is recognized on an accrual basis as earned over the term of each lease. Generally, insurance payments that are 120 days or more past due are charged against income. Ceding commissions, losses and loss adjustment expenses are recorded in the period incurred and netted against insurance income.
Other income. Other income includes various administrative transaction fees, fees received from lease syndications and gains on sales of leases.
Securities available for sale. Securities available for sale consist of mutual funds. Securities available for sale are measured at fair value on a recurring basis, computed using fair value measurements classified as Level 1 (as defined in Note 9, Fair Value Measurements and Disclosures about the Fair Value of Financial Instruments), since prices are obtained from quoted prices in an active market. Unrealized holding gains or losses, net of related deferred income taxes, are reported in accumulated other comprehensive income.
Initial direct costs and fees. We defer initial direct costs incurred and fees received to originate our leases and loans in accordance with the Receivables Topic and the Nonrefundable Fees and Other Costs Subtopic of the FASB ASC. The initial direct costs and fees we defer are part of the net investment in leases and loans and are amortized to interest income using the effective interest method. We defer third-party commission costs, as well as certain internal costs directly related to the origination activity. Costs subject to deferral include evaluating each prospective customer's financial condition, evaluating and recording guarantees and other security arrangements, negotiating terms, preparing and processing documents and closing each transaction. The fees we defer are documentation fees collected at inception. The realization of the initial direct costs, net of fees deferred, is predicated on the net future cash flows generated by our lease and loan portfolios.
Net Investment in Leases and Loans. The Company uses the direct financing method of accounting to record its direct financing leases and related interest income. At the inception of a lease, the Company records as an asset the aggregate future minimum lease payments receivable, plus the estimated residual value of the leased equipment, less unearned lease income. Residual values generally reflect the estimated amounts to be received at lease termination from lease extensions, sales or other dispositions of leased equipment. Estimates are based on industry data and management's experience.
The Company records an estimated residual value at lease inception for all fair market value and fixed purchase option leases based on a percentage of the equipment cost of the asset being leased. The percentages used depend on equipment type and term. In setting and reviewing estimated residual values, the Company focuses its analysis primarily on total historical and expected realization statistics pertaining to both lease renewals and sales of equipment.
At the end of an original lease term, lessees may choose to purchase the equipment, renew the lease or return the equipment to the Company. The Company receives income from lease renewals when a lessee elects to retain the equipment longer than the original term of the lease. This income, net of appropriate periodic reductions in the estimated residual values of the related equipment, is included in fee income as net residual income.
When a lessee elects to return equipment at lease termination, the equipment is transferred to other assets at the lower of its basis or fair market value. The Company generally sells returned equipment to independent third parties, rather than leasing the equipment a second time. The Company does not maintain equipment in other assets for longer than 120 days. Any loss recognized on transferring equipment to other assets and any gain or loss realized on the sale or disposal of equipment to a lessee or to others are included in fee income as net residual income.
Based on the Company's experience, the amount of ultimate realization of the residual value tends to relate more to the customer's election at the end of the lease term to enter into a renewal period, to purchase the leased equipment or to return the leased equipment than it does to the equipment type. Management performs periodic reviews of the estimated residual values and historic realization statistics no less frequently than quarterly and any impairment, if other than temporary, is recognized in the current period.
Allowance for credit losses. In accordance with the Contingencies Topic of the FASB ASC, we maintain an allowance for credit losses at an amount sufficient to absorb losses inherent in our existing lease and loan portfolios as of the reporting dates based on our projection of probable net credit losses. We evaluate our portfolios on a pooled basis, due to their composition of small balance, homogenous accounts with similar general credit risk characteristics, diversified among a large cross-section of variables, including industry, geography, equipment type, obligor and vendor.
We consider both quantitative and qualitative factors in determining the allowance for credit losses. Quantitative factors considered include a migration analysis, historic delinquencies and charge-offs, historic bankruptcies, historic performance of restructured accounts and a static pool analysis of historic recoveries. A migration analysis is a technique used to estimate the likelihood that an account will progress through the various delinquency stages and ultimately reach charge-off. Qualitative factors that may result in further adjustments to the quantitative analysis include items such as forecasting uncertainties, changes in the composition of our lease and loan portfolios (including geography, industry, equipment type and vendor source), seasonality, economic conditions and trends or business practices at the reporting date that are different from the periods used in the quantitative analysis.
The various factors used in the analysis are reviewed periodically, and no less frequently than quarterly. We then establish an allowance for credit losses for the projected probable net credit losses based on this analysis. A provision is charged against earnings to maintain the allowance for credit losses at the appropriate level. Our policy is to charge-off against the allowance the estimated unrecoverable portion of accounts once they reach 121 days delinquent.
Our projections of probable net credit losses are inherently uncertain, and as a result we cannot predict with certainty the amount of such losses. Changes in economic conditions, the risk characteristics and composition of the portfolio, bankruptcy laws and other factors could impact our actual and projected net credit losses and the related allowance for credit losses. To the extent we add new leases and loans to our portfolios, or to the degree credit quality is worse than expected, we record expense to increase the allowance for credit losses to reflect the estimated net losses inherent in our portfolios. Actual losses may vary from current estimates.
As previously disclosed, based on feedback the Company received from the Federal Reserve Bank of Philadelphia in April 2011, the Company is operating under its established methodology for determining its allowance for credit losses (the “Allowance”), which methodology will be reviewed by the Federal Reserve Bank of San Francisco and the Utah Department of Financial Institutions during their next regularly scheduled commercial bank examination of Marlin Business Bank.
Securitizations. In connection with each of its term note securitization transactions, the Company established a bankruptcy remote special-purpose subsidiary (“SPE”) and issued term debt to institutional investors. These SPEs are each considered VIEs under U.S. GAAP. The Company is required to consolidate VIEs in which it is deemed to be the primary beneficiary through having (1) power over the significant activities of the entity and (2) an obligation to absorb losses or the right to receive benefits from the VIE which are potentially significant to the VIE. The Company continues to service the assets of its VIEs and retain equity and/or residual interests. Accordingly, assets and related debt of these VIEs are included in the accompanying Consolidated Balance Sheets. The Company's leases and restricted interest-earning deposits with banks are assigned as collateral for these borrowings and there is no further recourse to our general credit. Collateral in excess of these borrowings represents the Company's maximum loss exposure.
Common stock and equity. On November 2, 2007, the Company's Board of Directors approved a stock repurchase plan. Under the stock repurchase plan, the Company is authorized to repurchase its common stock on the open market. The par value of the shares repurchased is charged to common stock with the excess of the purchase price over par charged against any available additional paid-in capital.
Stock-based compensation. The Compensation—Stock Compensation Topic of the FASB ASC establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees and non-employees, except for equity instruments held by employee share ownership plans.
The Company measures stock-based compensation cost at grant date, based on the fair value of the awards ultimately expected to vest. Compensation cost is recognized on a straight-line basis over the service period. We generally use the Black-Scholes valuation model to measure the fair value of our stock options utilizing various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield. The assumptions are based on management's judgment concerning future events.
The Company uses its judgment in estimating the amount of awards that are expected to be forfeited, with subsequent revisions to the assumptions if actual forfeitures differ from those estimates. In addition, for performance-based awards, the Company estimates the degree to which the performance conditions will be met to estimate the number of shares expected to vest and the related compensation expense. Compensation expense is adjusted in the period such performance estimates change.
Income taxes. The Income Taxes Topic of the FASB ASC requires the use of the asset and liability method under which deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities, given the provisions of the enacted tax laws. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.
Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any necessary valuation allowance recorded against net deferred tax assets. The process involves summarizing temporary differences resulting from the different treatment of items, such as leases, for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are included within the Consolidated Balance Sheets. Management then assesses the likelihood that deferred tax assets will be recovered from future taxable income or tax carry-back availability and, to the extent management believes recovery is not likely, a valuation allowance is established. To the extent that we establish a valuation allowance in a period, an expense is recorded within the tax provision in the Consolidated Statements of Operations.
In accordance with U.S. GAAP, uncertain tax positions taken or expected to be taken in a tax return are subject to potential financial statement recognition based on prescribed recognition and measurement criteria. Based on our evaluation, we concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. At June 30, 2011, there have been no material changes to the liability for uncertain tax positions and there are no significant unrecognized tax benefits.
The periods subject to examination for the Company's federal return include the 2006 tax year to the present. The Company files state income tax returns in various states which may have different statutes of limitations. Generally, state income tax returns for the years 2005 through the present are subject to examination.
The Company records penalties and accrued interest related to uncertain tax positions in income tax expense. Such adjustments have historically been minimal and immaterial to our financial results.
Earnings per share. Pursuant to the Earnings Per Share Topic of the FASB ASC, unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share (“EPS”) using the two-class method.
Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period using the two-class method, which includes our unvested restricted stock awards as participating securities. Diluted EPS is computed based on the weighted average number of common shares outstanding for the period using the two-class method, which includes our unvested restricted stock awards as participating securities, and 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. |
Deposits
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Jun. 30, 2011
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Deposits [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | NOTE 8 - Deposits
Effective March 12, 2008, the Company opened MBB. MBB currently provides diversification of the Company's funding sources primarily through the issuance of Federal Deposit Insurance Corporation (“FDIC”) insured certificates of deposit raised nationally through various brokered deposit relationships and through FDIC-insured retail deposits directly from other financial institutions. As of June 30, 2011, the remaining scheduled maturities of time deposits are as follows:
All time deposits are in denominations of less than $250,000 and all are fully insured by the FDIC. The weighted average all-in interest rate of deposits outstanding at June 30, 2011 was 2.08%. |
Stock-Based Compensation
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Stock-Based Compensation [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Based Compensation | NOTE 13 - Stock-Based Compensation
Under the terms of the 2003 Plan, employees, certain consultants and advisors and non-employee members of the Company's Board of Directors have the opportunity to receive incentive and nonqualified grants of stock options, stock appreciation rights, restricted stock and other equity-based awards as approved by the Company's Board of Directors. These award programs are used to attract, retain and motivate employees and to encourage individuals in key management roles to retain stock. The Company has a policy of issuing new shares to satisfy awards under the 2003 Plan. The aggregate number of shares under the 2003 Plan that may be issued pursuant to stock options or restricted stock grants is 3,300,000. Not more than 1,650,000 of such shares shall be available for issuance as restricted stock grants. There were 211,729 shares available for future grants under the 2003 Plan as of June 30, 2011.
Total stock-based compensation expense was $0.5 million for the three-month period ended June 30, 2011 and $0.4 million for the three-month period ended June 30, 2010. Total stock-based compensation expense was $1.6 million and $1.7 million for the six-month periods ended June 30, 2011 and June 30, 2010, respectively. Excess tax benefits from stock-based payment arrangements decreased cash provided by operating activities and increased cash provided by financing activities by $0.5 million and $0.1 million for the six-month periods ended June 30, 2011 and June 30, 2010, respectively. Stock Options
Option awards are generally granted with an exercise price equal to the market price of the Company's stock at the date of the grant and have 7- to 10-year contractual terms. All options issued contain service conditions based on the participant's continued service with the Company, and provide for accelerated vesting if there is a change in control as defined in the 2003 Plan.
Employee stock options generally vest over four years. The vesting of certain options is contingent on various Company performance measures, such as earnings per share and net income. The Company has recognized expense related to performance options based on the most probable performance assumptions as of June 30, 2011. There were no revisions to performance assumptions during the six-month periods ended June 30, 2011 and June 30, 2010.
The Company also issues stock options to non-employee independent directors. These options generally vest in one year.
There were no stock options granted during the three-month and six-month periods ended June 30, 2011. In addition to the stock options granted pursuant to the May 2010 stock option exchange program, there were 5,000 stock options granted during the three-month period ended June 30, 2010 and 5,000 stock options granted during the six-month period ended June 30, 2010.
A summary of option activity for the six month period ended June 30, 2011 follows:
During the three-month periods ended June 30, 2011 and June 30, 2010, the Company recognized total compensation expense related to options of $0.1 million and $0.1 million, respectively. During the six-month periods ended June 30, 2011 and June 30, 2010, the Company recognized total compensation expense related to options of $0.1 million and $0.1 million, respectively. There were 9,275 stock options exercised during the three-month period ended June 30, 2011. There were 7,361 stock options exercised for the three-month period ended June 30, 2010. The total pretax intrinsic values of stock options exercised were $0.1 million and $0.1 million for the three-month periods ended June 30, 2011 and June 30, 2010, respectively. The related tax benefits realized from the exercise of stock options for the three-month periods ended June 30, 2011 and June 30, 2010 were $0.1 million and $0.1 million, respectively.
The total pretax intrinsic values of stock options exercised were $0.1 million and $0.2 million for the six-month periods ended June 30, 2011 and June 30, 2010, respectively. The related tax benefits realized from the exercise of stock options for the six-month periods ended June 30, 2011 and June 30, 2010 were $0.1 million and $0.1 million, respectively.
The following table summarizes information about the stock options outstanding and exercisable as of June 30, 2011:
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company's closing stock price of $12.65 as of June 30, 2011, which would have been received by the option holders had all option holders exercised their options as of that date.
As of June 30, 2011, the total future compensation cost related to non-vested stock options not yet recognized in the Consolidated Statements of Operations was $0.1 million and the weighted average period over which these awards are expected to be recognized was 1.4 years, based on the most probable performance assumptions as of June 30, 2011. In the event maximum performance targets are achieved, an additional $0.4 million of compensation cost would be recognized over a weighted average period of 0.7 years. Restricted Stock Awards
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 10 years, though certain awards for special projects may vest in as little as one year depending on the duration of the project. 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 2003 Plan.
The vesting of certain restricted shares may be accelerated to a minimum of three to four years based on achievement of various individual and Company performance measures. In addition, the Company has issued certain shares under a Management Stock Ownership Program. Under this program, restrictions on the shares lapse at the end of 10 years but may lapse (vest) in a minimum of three years if the employee continues in service at the Company and owns a matching number of other common shares in addition to the restricted shares.
Of the total restricted stock awards granted during the six-month period ended June 30, 2011, 204,464 shares may be subject to accelerated vesting based on performance factors; no shares have vesting contingent upon performance factors. The Company has recognized expense related to performance-based shares based on the most probable performance assumptions as of June 30, 2011. There were no revisions to performance assumptions for the six-month periods ended June 30, 2011 and June 30, 2010, although vesting was accelerated in 2011 on certain awards based on an annual evaluation of the achievement of performance criteria, as described below.
The Company also issues restricted stock to non-employee independent directors. These shares generally vest in seven years from the grant date or six months following the director's termination from Board of Directors service.
The following table summarizes the activity of the non-vested restricted stock during the six months ended June 30, 2011:
During the three-month periods ended June 30, 2011 and June 30, 2010, the Company granted restricted stock awards with grant date fair values totaling $0.4 million and $0.5 million, respectively. During the six-month periods ended June 30, 2011 and June 30, 2010, the Company granted restricted stock awards with grant date fair values totaling $3.0 million and $1.1 million, respectively.
As vesting occurs, or is deemed likely to occur, compensation expense is recognized over the requisite service period and additional paid-in capital is increased. The Company recognized $0.5 million and $0.4 million of compensation expense related to restricted stock for the three-month periods ended June 30, 2011 and June 30, 2010, respectively. The Company recognized $1.6 million and $1.6 million of compensation expense related to restricted stock for the six-month periods ended June 30, 2011 and June 30, 2010, respectively.
Of the $1.6 million total compensation expense related to restricted stock for the six-month period ended June 30, 2011, approximately $0.6 million related to the acceleration of vesting based on an annual evaluation of the achievement of certain performance criteria during the first quarter 2011.
As of June 30, 2011, there was $5.6 million of unrecognized compensation cost related to non-vested restricted stock compensation scheduled to be recognized over a weighted average period of 4.6 years, based on the most probable performance assumptions as of June 30, 2011. In the event performance targets are achieved, $2.6 million of the unrecognized compensation cost would accelerate to be recognized over a weighted average period of 1.4 years. In addition, certain of the awards granted may result in the issuance of 160,809 additional shares of stock if achievement of certain targets is greater than 100%. The expense related to the additional shares awarded will be dependent on the Company's stock price when the achievement level is determined.
The fair values of shares that vested during the three-month periods ended June 30, 2011 and June 30, 2010 were $1.2 million and $0.1 million, respectively. The fair values of shares that vested during the six-month periods ended June 30, 2011 and June 30, 2010 were $3.1 million and $1.6 million, respectively.
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Fair Value Measurements and Disclosures about the Fair Value of Financial Instruments
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Fair Value Measurements And Disclosures About Fair Value Of Financial Instruments [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements and Disclosures about the Fair Value of Financial Instruments | NOTE 9 - Fair Value Measurements and Disclosures about the Fair Value of Financial Instruments
The Fair Value Measurements and Disclosures Topic of the FASB ASC establishes a framework for measuring fair value and requires certain disclosures about fair value measurements. Its provisions do not apply to fair value measurements for purposes of lease classification and measurement, which is addressed in the Leases Topic of the FASB ASC.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the measurement date (exit price). A three-level valuation hierarchy is required for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.
The three levels are defined as follows:
The Company uses derivative financial instruments to manage exposure to the effects of changes in market interest rates and to fulfill certain covenants in our borrowing arrangements. All derivatives are recorded on the Consolidated Balance Sheets at their fair value as either assets or liabilities using measurements classified as Level 2. Because the Company's derivatives are not listed on an exchange, the Company values these instruments using a valuation model with pricing inputs that are observable in the market or that can be derived principally from or corroborated by observable market data. These inputs include the forward London Interbank Offered Rate (“LIBOR”) curve on which the variable payments are based and the applicable interest-rate swap market curve. The Company's methodology also incorporates the impact of both the Company's and the counterparty's credit standing.
All of the Company's derivatives are measured at fair value on a recurring basis, computed using fair value measurements classified as Level 2. The fair value of securities available for sale is computed using fair value measurements classified as Level 1, since prices are obtained from quoted prices in an active market. The Company's balances measured at fair value on a recurring basis include the following:
At this time, the Company has not elected to report any assets and liabilities using the fair value option available under the Financial Instruments Topic of the FASB ASC.
Disclosures about the Fair Value of Financial Instruments
The Financial Instruments Topic of the FASB ASC requires the disclosure of the estimated fair value of financial instruments, including those financial instruments not measured at fair value on a recurring basis. This requirement excludes certain instruments, such as the net investment in leases and all nonfinancial instruments.
The fair values shown below have been derived, in part, by management's assumptions, the estimated amount and timing of future cash flows and estimated discount rates. Valuation techniques involve uncertainties and require assumptions and judgments regarding prepayments, credit risk and discount rates. Changes in these assumptions will result in different valuation estimates. The fair values presented would not necessarily be realized in an immediate sale. Derived fair value estimates cannot necessarily be substantiated by comparison to independent markets or to other companies' fair value information.
The following summarizes the carrying amount and estimated fair value of the Company's financial instruments:
__________________ (1) Includes sales and property taxes payable.
The paragraphs which follow describe the methods and assumptions used in estimating the fair values of financial instruments.
(a) Cash and Cash Equivalents
The carrying amounts of the Company's cash and cash equivalents approximate fair value as of June 30, 2011 and December 31, 2010, because they bear interest at market rates and have maturities of less than 90 days.
(b) Restricted Interest-Earning Deposits with Banks
The Company maintains various interest-earning trust accounts related to our secured debt facilities. The book value of such accounts is included in restricted interest-earning deposits with banks on the accompanying Consolidated Balance Sheet. These accounts earn a floating market rate of interest which results in a fair value approximating the carrying amount at June 30, 2011 and December 31, 2010.
(c) Securities Available for Sale
The fair value of securities available for sale is recorded using prices obtained from quoted prices in an active market.
(d) Loans
The fair value of loans is estimated by discounting contractual cash flows, using interest rates currently being offered by the Company for loans with similar terms and remaining maturities to borrowers with similar credit risk characteristics. Estimates utilized were based on the original credit status of the borrowers combined with the portfolio delinquency statistics.
(e) Interest-Rate Caps
Interest-rate caps are measured at fair value on a recurring basis in accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the FASB ASC, using the inputs and methods described previously in the first section of this Note 9.
(f) Long-Term Borrowings
The fair value of the Company's debt and secured borrowings is estimated by discounting cash flows at indicative market rates applicable to the Company's debt and secured borrowings of the same or similar remaining maturities.
(g) Deposits
The fair value of the Company's deposits is estimated by discounting cash flows at current rates paid by the Company for similar certificates of deposit of the same or similar remaining maturities.
(h) Accounts Payable and Accrued Expenses
The carrying amount of the Company's accounts payable and accrued expenses approximates fair value as of June 30, 2011 and December 31, 2010, because of the relatively short timeframe to realization.
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Short-term and Long-term Borrowings
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Short Term And Long Term Borrowings [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-term and Long-term Borrowings | NOTE 7 - Short-term and Long-term Borrowings
Borrowings with an original maturity of less than one year are classified as short-term borrowings. MBB's federal funds purchased are classified as short-term borrowings. Borrowings with an original maturity of one year or more are classified as long-term borrowings. The Company's term note securitizations and long-term loan facilities are classified as long-term borrowings.
Scheduled principal and interest payments on outstanding borrowings as of June 30, 2011 are as follows:
__________________ (1) Interest on variable-rate long-term borrowings is assumed at the June 30, 2011 rate for the remaining term.
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Net Investment in Leases and Loans
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Net Investment in Leases and Loans [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Investment in Leases and Loans | NOTE 3 - Net Investment in Leases and Loans
Net investment in leases and loans consists of the following:
At June 30, 2011, a total of $194.4 million of minimum lease payments receivable is assigned as collateral for borrowings, including the amounts related to consolidated VIEs.
Initial direct costs net of fees deferred were $6.7 million and $6.8 million as of June 30, 2011 and December 31, 2010, respectively, and are netted in unearned income and will be amortized to income using the effective interest method. At June 30, 2011 and December 31, 2010, $28.5 million and $30.6 million, respectively, of the estimated residual value of equipment retained on our Consolidated Balance Sheets was related to copiers.
Minimum lease payments receivable under lease contracts and the amortization of unearned lease income, including initial direct costs and fees deferred, are as follows as of June 30, 2011:
Income is not recognized on leases or loans when a default on monthly payment exists for a period of 90 days or more. Income recognition resumes when the contract becomes less than 90 days delinquent. As of June 30, 2011 and December 31, 2010, the Company maintained total finance receivables which were on a non-accrual basis of $1.2 million and $2.0 million, respectively. As of June 30, 2011 and December 31, 2010, the Company had total finance receivables in which the terms of the original agreements had been renegotiated in the amount of $1.5 million and $2.2 million, respectively. (See Note 4 for additional asset quality information.) |
Allowance for Credit Losses
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Allowance For Credit Losses [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance For Credit Losses | NOTE 4 - Allowance for Credit Losses
In accordance with the Contingencies Topic of the FASB ASC, we maintain an allowance for credit losses at an amount sufficient to absorb losses inherent in our existing lease and loan portfolios as of the reporting dates based on our estimate of probable net credit losses.
The chart which follows provides activity in the allowance for credit losses and asset quality statistics.
__________________ (1) The allowance for credit losses allocated to loans at June 30, 2011, June 30, 2010 and December 31, 2010, was $0.1 million, $0.2 million and $0.1 million, respectively. (2) Total finance receivables include net investment in direct financing leases and loans. 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. (3) Calculated as a percent of minimum lease payments receivable for leases and as a percent of principal outstanding for loans.
Net investments in finance receivables are generally charged-off when they are contractually past due for 121 days. Income is not recognized on leases or loans when a default on monthly payment exists for a period of 90 days or more. Income recognition resumes when a lease or loan becomes less than 90 days delinquent. At June 30, 2011, June 30, 2010 and December 31, 2010, there were no finance receivables past due 90 days or more and still accruing.
Net charge-offs for the three-month period ended June 30, 2011 were $1.6 million (1.86% of average total finance receivables on an annualized basis), compared to $2.0 million (2.30% of average total finance receivables on an annualized basis) for the three-month period ended March 31, 2011. The decrease in net charge-offs during the three-month period ended June 30, 2011 compared to recent previous periods is primarily due to improving delinquency migrations and lower portfolio balances. Our key credit quality indicator is delinquency status.
As previously disclosed, based on feedback the Company received from the Federal Reserve Bank of Philadelphia in April 2011, the Company is operating under its established methodology for determining its allowance for credit losses (the “Allowance”), which methodology will be reviewed by the Federal Reserve Bank of San Francisco and the Utah Department of Financial Institutions during their next regularly scheduled commercial bank examination of Marlin Business Bank.
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Stockholders' Equity
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Jun. 30, 2011
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Stockholders' Equity [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity | NOTE 12 - Stockholders' Equity
Stockholders' Equity
On November 2, 2007, the Company's Board of Directors approved a stock repurchase plan. Under this program, the Company is authorized to repurchase up to $15 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 program may be suspended or discontinued at any time. The repurchases are funded using the Company's working capital.
The Company purchased 155,604 shares of its common stock at an average cost of $12.04 per share during the three-month period ended June 30, 2011. The Company purchased 171,198 shares of its common stock at an average cost of $11.98 per share during the six-month period ended June 30, 2011. The Company did not purchase any shares of its common stock on the open market during the three- or six-month periods ended June 30, 2010. At June 30, 2011, the Company had $8.4 million remaining in its stock repurchase plan authorized by the Board of Directors.
In addition to the repurchases described above, pursuant to the Company's 2003 Equity Compensation Plan (as amended, the “2003 Plan”), participants may have shares withheld to cover income taxes. There were 29,730 and 86,925 shares repurchased to cover income taxes during the three- and six-month periods ended June 30, 2011, at average per-share costs of $12.47 and $11.62, respectively. There were 3,570 and 58,170 shares repurchased to cover income taxes during the three- and six-month periods ended June 30, 2010, at average per-share costs of $12.08 and $9.08, respectively. Regulatory Capital Requirements
On March 20, 2007, the FDIC approved the application of MBB to become an industrial bank chartered by the State of Utah. MBB commenced operations effective March 12, 2008. MBB provides diversification of the Company's funding sources and, over time, may add other product offerings to better serve our customer base.
On December 31, 2008, MBB received approval from the Federal Reserve Bank of San Francisco to (i) convert from an industrial bank to a state-chartered commercial bank and (ii) become a member of the Federal Reserve System. In addition, on December 31, 2008, Marlin Business Services Corp. received approval from the Federal Reserve Bank of Philadelphia to become a bank holding company upon conversion of MBB from an industrial bank to a commercial bank. On January 13, 2009, pursuant to the December 31, 2008 approval from the Federal Reserve Bank of San Francisco, MBB converted from an industrial bank to a commercial bank chartered in the State of Utah and supervised by the State of Utah and the Federal Reserve Board. In connection with MBB's conversion to a commercial bank and pursuant to the December 31, 2008 approval from the Federal Reserve Bank of Philadelphia, on January 13, 2009 Marlin Business Services Corp. became a bank holding company, and is subject to the Bank Holding Company Act and supervised by the Federal Reserve Board. Until March 12, 2011, MBB operated in accordance with its original de novo three-year business plan (as required by the original FDIC order issued on March 20, 2007 (the “FDIC Order”)), which assumed total assets of up to $128 million by March 12, 2011 (when its three-year de novo period expired). In March 2011, following the expiration of the de novo period, the Company provided MBB with $25.0 million of additional capital to support future growth.
On September 15, 2010, the Federal Reserve Bank of Philadelphia confirmed the effectiveness of Marlin Business Services Corp.'s election to become a financial holding company (while remaining a bank holding company) pursuant to Sections 4(k) and (l) of the Bank Holding Company Act and Section 225.82 of the Federal Reserve Board's Regulation Y. Such election permits the Company 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.
MBB is subject to capital adequacy guidelines issued by the Federal Financial Institutions Examination Council (the "FFIEC"). 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 FFIEC and/or the U.S. Congress may determine to increase capital requirements in the future due to the current economic environment. Under the rules and regulations of the FFIEC, at least half of a bank'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 FFIEC has also adopted minimum leverage ratios for banks, which are calculated by dividing Tier 1 Capital by total quarterly average assets. Recognizing that the risk-based capital standards principally address credit risk rather than interest rate, liquidity, operational or other risks, many banks are expected to maintain capital in excess of the minimum standards. The Company plans to provide the necessary capital to maintain MBB at “well-capitalized” status as defined by banking regulations. MBB's equity balance at June 30, 2011 was $47.4 million, which met all capital requirements to which MBB is subject and qualified MBB for “well-capitalized” status. Bank holding companies are required to comply with the Federal Reserve Board's risk-based capital guidelines that require a minimum ratio of total capital to risk-weighted assets of 8%. At least half of the total capital is required to be Tier 1 Capital. In addition to the risk-based capital guidelines, the Federal Reserve Board has adopted a minimum leverage capital ratio under which a bank holding company must maintain a ratio of Tier 1 Capital to average total consolidated assets of at least 3% in the case of a bank holding company which has the highest regulatory examination rating and is not contemplating significant growth or expansion. All other bank holding companies are expected to maintain a leverage capital ratio of at least 4%. At June 30, 2011, Marlin Business Services Corp. also exceeded its regulatory capital requirements and was considered “well-capitalized” as defined by federal banking regulations.
The following table sets forth the Tier 1 leverage ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio for Marlin Business Services Corp. and MBB at June 30, 2011.
__________________ (1) MBB is required to maintain “well-capitalized” status. In addition, MBB must maintain a total risk-based capital ratio greater than 15% pursuant to the FDIC Order.
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. FDICIA establishes five capital categories: 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 making 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 severe 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.
Pursuant to the FDIC Order, MBB must keep its total risk-based capital ratio above 15%. MBB's equity balance at June 30, 2011 was $47.4 million, which qualifies MBB for “well capitalized” status.
Dividends. The Federal Reserve Board has issued policy statements which provide that, as a general matter, insured banks and bank holding companies should pay dividends only out of current operating earnings. Additionally, pursuant to the FDIC Order, MBB was not permitted to pay dividends during its first three years of operations without the prior written approval of the FDIC and the State of Utah (such initial three-year period ended on March 12, 2011).
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Other Assets
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Jun. 30, 2011
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Other Assets [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Assets | NOTE 5 - Other Assets
Other assets are comprised of the following:
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