by Christopher Menkin
Marlin Business Services Corp (NASDAQ: MRLN), parent of Marlin Leasing, reported a third quarter net income of $1.8 million. For the nine-month period ended September 30, 2011, net income was $4.1 million. In addition to the high pay taken by key officers, the selling of vested stock has made them very wealthy
in comparison to the income. Is the taking of the high salary and selling of stock a sign that the company making its profit on renewal income of leases and sees
the near future as more state are making it illegal not to inform lessees regarding
the termination of their original lease contract?
Should Pennsylvania, where Marlin runs their documentation center, change its position that lessees be notified in advance of a lease expiring, it would require them to move this operation to another state and if not, more than likely change the profit position of Marlin Business Services. It should be noted
there are six states that now find it illegal not to notify lessees regarding
the termination of their original lease contract. Several state legislatures
are also considering such legislation.
October 19, 2011 Leasing News noted the serious trading of stock by President, CEO, Treasurer Daniel P. Dyer and George D Pelose, Executive Vice President, Chief Operating Officer, General Counsel & Secretary. The third quarter did not report the officers’ salary, but here are 2010 year-end:
"The Company recognized $2.0 million and $2.0 million of compensation expense related to restricted stock for the nine-month periods ended September 30, 2011 and September 30, 2010, respectively. Of the $2.0 million total compensation expense related to restricted stock for the nine-month period ended September 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 September 30, 2011, there was $5.4 million of unrecognized compensation cost related to non-vested restricted stock compensation scheduled to be recognized over a weighted average period of 4.4 years, based on the most probable performance assumptions as of September 30, 2011. In the event performance targets are achieved, $2.5 million of the unrecognized compensation cost would accelerate to be recognized over a weighted average period of 1.2 years. In addition, certain of the awards granted may result in the issuance of 163,783 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 September 30, 2011 and September 30, 2010 were $0.4 million and $0.1 million, respectively. The fair values of shares that vested during the nine-month periods ended September 30, 2011 and September 30, 2010 were $3.6 million and $1.6 million, respectively.
And where did the net profit come from? Yes, again, as for the last two years, Evergreen clause.
Fee income was $1.2 million and $1.3 million for the same period of time as part of residuals, as well as renewal income totaled $5.7 for the three month period, and $5.8 million for the nine-month period.
|Net Profit||Lease Renewel income||net of depreciation|
|First Quarter, 2010||$1.2 million||$1.9 million||$1.8 million (1)|
|Second Quarter, 2010||$1.2 million||$3.9 million||$2.5 million (2)|
|Third Quarter, 2010||$1.4 million||$1.9 million||$1.8 million (3)|
|Fourth Quarter, 2010||$1.8 million|
|First Quarter, 2011||$1.2 million||$2.0 million||$1.9 million (4)|
|Second Quarter, 2011||$1.5 million||$2.3 million||$2.7 million (6)|
In Marlin’s third quarter filing, page 42, it was stated 81.4% of residual assets were related to copiers:
"As of September 30, 2011, approximately 65% of our leases were one dollar purchase option leases, 33% were fair market value leases and 2% were fixed purchase option leases, the latter of which typically contain an end-of-term purchase option equal to 10% of the original equipment cost. As of September 30, 2011, there were $33.9 million of residual assets retained on our Consolidated Balance Sheet, of which $27.6 million, or 81.4%, were related to copiers. No other group of equipment represented more than 10% of equipment residuals as of September 30, 2011 and December 31, 2010, respectively."
"Fee income included approximately $1.2 million and $1.3 million of net residual income for the three-month periods ended September 30, 2011 and September 30, 2010, respectively. Fee income included approximately $3.5 million and $4.0 million of net residual income for the nine-month periods ended September 30, 2011 and September 30, 2010
"Our leases generally include renewal provisions and many leases continue beyond their initial contractual term. Based on the Company’s experience, the amount of ultimate realization of the residual value tends to relate more to the customer’s election at the end of the lease term to enter into a renewal period, purchase the leased equipment or return the leased equipment than it does to the equipment type. We consider renewal income a component of residual performance. Renewal income net of depreciation totaled approximately $1.9 million for each of the three-month periods ended September 30, 2011 and September 30, 2010. Renewal income net of depreciation totaled approximately $5.7 million and $5.8 million for the nine-month periods ended September 30, 2011 and September 30, 2010, respectively."
"During the three months ended September 30, 2011, we generated 4,580 new leases with a cost of $59.7 million, compared to 3,253 new leases with a cost of $35.8 million generated for the three months ended September 30, 2010. Much of the change in volume is the result of increasing sales staffing levels from 84 sales account executives at September 30, 2010 to 95 sales account executives at September 30, 2011. Approval rates also rose from 49% for the quarter ended September 30, 2010 to 60% for the quarter ended September 30, 2011 due to the improved credit quality of the applications received and adjustments made to credit policy in light of the continued strong performance of recent years’ lease originations."
Third Quarter SEC filing:
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Re-wrote this to bring emphasize as per suggestion. Basically,first paragraph expanded and a new second paragraph was addedas per the editiorial suggestion.