Company Release – 5/3/2018 5:00 PM ET
First Quarter Summary:
- Net income of $6.2 million, or $0.50 per diluted share
- Net income on an adjusted basis was also $6.2 million, or $0.50 per diluted share, an increase of 44% compared with net income on an adjusted basis of $4.3 million, or $0.34 per diluted share in the first quarter last year
- Net interest and fee income of $23.8 million for the quarter, compared with $21.7 million for the first quarter last year
- ROE of 13.7%; ROE on an adjusted basis of 13.7% compared with ROE on an adjusted basis of 10.4% in the first quarter last year
- Net Investment in loans and leases totaled $930.6 million, up 12.3% from a year ago and total managed assets surpassed the $1 billion milestone and ended the first quarter at $1.02 billion, up 19.4% from a year ago
- Total first quarter origination volume (excluding leases and loans originated but referred to third parties) of $159.7 million, up 9.0% year-over-year
- Total direct and indirect origination yield of 12.44%, up 85 basis points from the prior quarter and up 58 basis points year-over-year
- 30+ and 60+ day delinquencies on total finance receivables increased modestly from prior quarter to 105 basis points and 64 basis points, respectively
- Annualized net charge-offs of 1.68%, compared with 1.87% in the prior quarter and 1.57% in the first quarter last year
- Provision for credit losses of $4.6 million compared with $4.5 million in the prior quarter and $3.9 million in the first quarter last year
- Closed on a $300 million forward flow agreement with Varadero Capital
- Strong capital position, with equity to assets ratio of 17.2%
MOUNT LAUREL, N.J., May 03, 2018 (GLOBE NEWSWIRE) — Marlin Business Services Corp. (NASDAQ:MRLN) (“Marlin” or the “Company”) today reported first quarter 2018 net income of $6.2 million, or $0.50 per diluted share, compared with net income of $1.5 million, or $0.12 per share a year ago. First quarter net income on an adjusted basis was $6.2 million, or $0.50 per diluted share, compared with $4.3 million, or $0.34 per diluted share a year ago.
Commenting on the Company’s results, Jeffrey A. Hilzinger, Marlin’s President and CEO, said, “Marlin is off to a good start in 2018 as strong execution continued to drive solid origination volume, stable credit performance and excellent earnings growth. Excluding referral volume, total origination volume was $159.7 million for the quarter compared with $146.5 million last year, resulting in a year-over-year increase of 9%. Growth in the quarter was driven by solid demand for both our Equipment Finance product and Funding Stream, our working capital loan product. During the quarter, yield on our origination volume was 12.44% compared to 11.86% a year ago with Equipment Finance increasing to 9.99% from 9.67% and Funding Stream decreasing from 33.0% to 31.7%. We also continued to gain traction in our Direct origination initiative that identifies additional financing opportunities with existing customers. During the quarter, Direct origination volume was $30.9 million compared with $16.6 million last year, resulting in a year-over-year increase of 86%. As part of Marlin’s developing capital markets activities, we referred or sold $27.2 million of leases and loans. As a result of these origination and capital markets activities, our Net Investment in Leases and Loans grew to $930.6 million, up 12.3% from a year ago. Also, for the first time our Managed Assets exceeded $1 billion growing to $1.02 billion compared with $855.3 million a year ago, resulting in a year-over-year increase of 19.4%. Importantly, our focus on maintaining disciplined underwriting standards continues to be a top priority and credit quality remained stable and within expectations during the quarter.”
Mr. Hilzinger concluded, “Our momentum continues to build and puts us on track to achieve our strategic, operational and financial objectives for the year. I look forward to continued strong execution of our strategy, further enhancing our financial performance and driving shareholder value as we move forward.”
Results of Operations
Total origination volume (excluding referral volume) for the first quarter of $159.7 million was up 9.0% from a year ago. Direct origination volume of $30.9 million in the first quarter was up 86.3% from $16.6 million in the first quarter of 2017. Indirect origination volume in the first quarter of 2018 was $128.8 million, down slightly from $129.9 million in the same period a year ago. Referral volume totaled $4.2 million, down from $22.3 million in the first quarter last year, largely due to the transition of leases originated by Horizon Keystone Financial to Marlin’s balance sheet over the past year.
Net interest and fee margin as a percentage of average finance receivables was 10.43% for the first quarter, down 14 basis points from the fourth quarter of 2017 and down 48 basis points from a year ago. The decrease in margin percentage was primarily a result of a decline in interest income and an increase in interest expense. The Company’s interest expense as a percent of average finance receivables increased to 149 basis points compared with 145 basis points for the previous quarter and 117 basis points for the first quarter of 2017, primarily as a result of the rising interest rate environment.
On an absolute basis, net interest and fee income was $23.8 million for the first quarter of 2018 compared with $21.7 million for the first quarter last year. The increase continues to reflect the strong growth in the portfolio and the underlying earnings power of the business.
Non-interest income was $5.2 million for the first quarter of 2018, compared with $5.3 million in the prior quarter and $3.8 million in the prior year period. The year-over-year increase in non-interest income is primarily due to a $1.5 million increase in gains-on-sale, $0.3 million increase in Insurance related income and a $0.4 million increase in servicing fee income, partially offset by a decrease of $0.6 million in referral income.
Non-interest expense was $16.6 million for the first quarter of 2018, compared with $15.4 million in the prior quarter and $19.6 million in the first quarter last year. The increase from the prior quarter was primarily due to a $0.3 million increase in stock-based compensation expense, $0.4 million increase in payroll taxes and a $0.2 million increase in marketing expense. The overall increase from prior quarter was actually less than anticipated due to the timing of approximately $0.4 million of employee related expenses that were expected to be recognized in the first quarter but will ultimately be recognized in the second and third quarters. The decrease from a year ago was primarily due to a $4.4 million charge recorded in the first quarter last year in connection with a regulatory matter. This was partially offset by increases in expenses in the first quarter of 2018 related to the Horizon Keystone acquisition, including intangibles amortization expense, higher salaries and benefits and higher sales commissions. Expenses also increased due to investments in the Direct origination initiative and expenses associated with building-out Marlin’s senior leadership team.
The Company’s efficiency ratio for the first quarter was 57.1% compared with 76.8% in the first quarter last year. On an adjusted basis, first quarter 2017 efficiency ratio was 59.5%. Excluding acquisition related sales commissions, the efficiency ratio in the first quarter of 2018 was 55.8%. Marlin expects its efficiency ratio to continue to improve as the Company leverages its fixed costs through continued portfolio growth and from continued operational efficiencies generated by its various process renewal initiatives.
Marlin recorded an income tax expense of $1.7 million, representing an effective tax rate of 21.4% for the first quarter of 2018, compared with an income tax expense of $0.5 million in the first quarter of 2017.
Allowance for credit losses as a percentage of total finance receivables was 1.68% at March 31, 2018 compared with 1.63% at December 31, 2017 and 1.42% at March 31, 2017, with the year-over-year increase driven by generally higher portfolio delinquency and net charge-offs. Coverage of total 60+ day delinquencies was 231.9% at March 31, 2018 compared with 262.99% at December 31, 2017 and 247.1% at March 31, 2017.
Finance receivables over 30 days delinquent were 1.05% of the Company’s total finance receivables portfolio as of March 31, 2018, up 3 basis points from December 31, 2017 and up 17 basis points from March 31, 2017. Finance receivables over 60 days delinquent were 0.64% of the Company’s total finance receivables portfolio as of March 31, 2018, up 9 basis points from December 31, 2017 and up 13 basis point from March 31, 2017. Annualized first quarter net charge-offs were 1.68% of average total finance receivables versus 1.87% in the fourth quarter of 2017 and 1.57% a year ago. The overall increase in delinquency and charge-offs year-over-year is attributed to a return to a more normal credit environment.
As of March 31, 2018, the Company’s consolidated equity to assets ratio was 17.17%. This compares to 17.27% and 17.22%, in the prior quarter and year ago quarter, respectively.
Marlin’s Board of Directors today declared a $0.14 per share quarterly dividend. The dividend is payable May 24, 2018, to shareholders of record on May 14, 2018. Based on the closing stock price on May 2, 2018, the annualized dividend yield on the Company’s common stock is 1.94%.
At the end of the first quarter, the Company entered into a forward flow sale agreement with Varadero Capital, L.P., a leading alternative asset management firm, to sell up to $300 million in equipment leases and loans to be originated by Marlin. This arrangement expands Marlin’s ability to provide equipment financing to small businesses that are not currently served by the Company’s existing finance programs, diversifies its funding sources and provides substantial new lending capacity.
The Company is maintaining guidance for the full year ending December 31, 2018 as follows:
- Total origination volume (including referral volume) is expected to finish approximately 20% above 2017 levels
- Portfolio performance is expected to remain within the targeted range
- Net interest margin, as a percentage, is expected to between 10.0% and 10.25%
- ROE is expected to improve in 2018 as the Company continues to improve operating scale
- EPS is expected to be between $1.95 and $2.10 per share
Conference Call and Webcast
Marlin will host a conference call on Friday, May 4, 2018 at 9:00 a.m. ET to discuss the Company’s first quarter 2018 results. If you wish to participate, please call 877-407-0792 approximately 10 minutes in advance of the call time. The conference ID will be: “Marlin.” The call will also be webcast on the Investor Relations page of the Company’s website, www.marlinfinance.com. An audio replay will also be available on the Investor Relations section of Marlin’s website for 45 days.
About Marlin Business Services Corp.
Marlin Business Services Corp. is a nationwide provider of credit products and services to small businesses with a mission of helping small businesses fulfill their American dream. Our products and services are offered directly to small businesses and through financing programs with independent equipment dealers and other intermediaries. Marlin and its wholly-owned operating subsidiary, Marlin Business Bank, are publicly traded (NASDAQ:MRLN). For more information about Marlin, visit www.marlinfinance.com or call toll free at (888) 479-9111.
This release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements (including statements regarding future financial and operating results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “expect,” “estimate,” “plan,” “may,” “intend” and similar expressions are generally intended to identify forward-looking statements. Economic, business, funding, market, competitive, legal and/or regulatory factors, among others, affecting our business are examples of factors that could cause actual results to differ materially from those described in the forward-looking statements. More detailed information about these factors is contained in our filings with the Securities and Exchange Commission, including the sections captioned “Risk Factors” and “Business” in the Company’s Form 10-K filed with the Securities and Exchange Commission. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.
Regulation G – Non-GAAP Financial Measures
In this release the Company uses certain financial measures which are not calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company defines net income on an adjusted basis as net income excluding an after-tax charge related to a reserve for restitution in connection with certain payment processing practices in effect prior to February 2016 and charges for associated legal and consulting fees, the after-tax hurricane credit and insurance loss reserves, the after-tax executive severance (Chief Operating Officer), and the net tax benefit from the tax cut and jobs act, as applicable. The Company defines diluted earnings per share on an adjusted basis, return on average assets on an adjusted basis and return on average equity on an adjusted basis as the calculation used for the “as reported” number substituting net income as reported with net income on an adjusted basis while using the same denominator in the “as reported” number, where appropriate. The Company defines efficiency ratio on an adjusted basis as the calculation used for the “as reported” ratio adjusting the numerator for the reserve for restitution in connection with certain payment processing practices in effect prior to February 2016, hurricane insurance loss reserves, and executive severance, as applicable. The Company believes that these non-GAAP measures are useful performance metrics for management, investors and lenders, because it means to evaluate period-to-period comparisons of the Company’s financial performance without the effects of certain adjustments in accordance with GAAP that may not necessarily be indicative of current operating performance.
Non-GAAP financial measures should not be considered as an alternative to GAAP financial measures. They may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as a substitute for performance measures calculated in accordance with GAAP.
Senior Vice President & Chief Financial Officer
Addo Investor Relations
CLICK HERE for Condensed Consolidated Balance Sheets and Additional Financials.