Marlin reported second-quarter 2019 net income of $6.1 million compared with $5.1 million in the prior quarter, and $6.5 million a year ago. Second-quarter 2019 net income on an adjusted basis was $6.3 million compared with $6.5 million a year ago.

Commenting on the company’s results, Jeffrey A. Hilzinger, Marlin’s President and CEO, said, “Marlin delivered a productive second quarter highlighted by strong growth in origination volume, stable portfolio performance and improving profitability. Second quarter total sourced origination volume of $231.5 million increased 29 percent year-over-year, a record for a single quarter. Growth was strong in both our equipment finance and working capital loan products and we continued to benefit from strong growth in both our direct and indirect origination channels. At quarter end, our net investment in leases and loans reached nearly $1.1 billion, up 10 percent from a year ago.  Our portfolio of total managed assets, which includes assets we service for others, expanded to nearly $1.3 billion, an increase of 20 percent from the second quarter last year. Importantly, the credit quality of our portfolio remained stable and within expectations.”

Second Quarter Summary

• Net income of $6.1 million up from $5.1 million last quarter, but down from $6.5 million
• Net Investment in leases and loans totaled $1.1 billion, up 10.3 percent from a year ago, and total managed assets ended the second quarter at $1.3 billion, up 20.2 percent from a year ago
• Total sourced origination volume of $231.5 million, up 28.9 percent year-over-year; Direct origination volume of $49 million, up 34.9 percent year-over-year
• Total origination yield of 12.95 percent, up 19 basis points from the prior quarter and up 71 basis points year-over-year     
• Annualized net charge-offs of 1.88 percent, compared with 1.83 percent in the prior quarter and 1.84 percent in the second quarter last year
• Equity to assets ratio decreased to 16.06 percent, compared with 17.03 percent in the second quarter last year

Results of Operations
Total sourced origination volume for the second quarter of $231.5 million was up 28.9 percent from a year ago. Direct origination volume of $49 million in the second quarter was up 34.9 percent from $36.3 million in the second quarter of 2018. Indirect origination volume in the second quarter of 2019 was $160.3 million, up 18 percent from $135.9 million in the second quarter last year. Assets originated for sale in the second quarter of $18 million compared with $1.8 in the second quarter last year. Referral volume totaled $4.1 million, down from $5.6 million in the second quarter last year.

Net interest and fee margin as a percentage of average finance receivables was 9.38 percent for the second quarter, down 21 basis points from the first quarter of 2019 and down 93 basis points from a year ago. The year-over-year decrease in margin percentage was primarily a result of an increase in interest expense resulting from higher deposit rates as well as the higher cost of funds associated with the securitization that was executed in the second half of 2018, partially offset by an increase of 71 basis points in new origination loan and lease yield. The company’s interest expense as a percent of average total finance receivables increased to 248 basis points in the second quarter of 2019 compared with 239 basis points for the first quarter of 2019 and 159 basis points for the second quarter of 2018.  The sequential quarter increase was primarily due to an increase in deposits costs, while the year-over-year increase was due to a higher cost of funds associated with both deposits and long-term borrowings from the securitization.

On an absolute basis, net interest and fee income was $24.2 million for the second quarter of 2019 compared with $24.1 million for the second quarter last year.

Non-interest income was $7.2 million for the second quarter of 2019, compared with $12.9 million in the prior quarter and $4.6 million in the prior year period. The decrease compared with the prior quarter is primarily due to the company’s Jan. 1, 2019 adoption of ASC 842 – Lease Accounting, which increased non-interest income by $5.6 million for the first quarter of 2019, as certain lessor costs, including property taxes that are paid by the lessee to the lessor are required to be presented gross in the consolidated statement of operations.  The year-over-year increase in non-interest income is primarily due to an increase in gains-on-sale and an increase in insurance-related income. Non-interest expense was $18.5 million for the second quarter of 2019, compared with $24.8 million in the prior quarter and $16.0 million in the second quarter last year. The decrease in non-interest expense compared with the prior quarter was primarily due to the aforementioned adoption of ASC 842, which increased non-interest expense by $6.2 million in the first quarter of 2019 due to the change in presentation of property taxes paid by the lessee to the lessor gross in the consolidated statement of operations. The year-over-year increase in non-interest expense is primarily due to higher employee related expenses and an increase in commissions tied to originations. 

The company’s efficiency ratio for the second quarter was 59.1 percent compared with 55.6 percent in the second quarter last year. The company’s non-GAAP efficiency ratio for the second quarter was 55.8 percent compared with 54.3 percent in the second quarter last year.   Marlin expects its efficiency ratio to improve during the remainder of 2019 as the company continues to generate improving returns from recent investments in its salesforce, leverages its fixed costs through continued portfolio growth and generates continued operating efficiencies through its various process improvement and cost containment activities.

Marlin recorded an income tax expense of $2.0 million, representing an effective tax rate of 24.4 percent for the second quarter of 2019, compared with an income tax expense of $2.1 million, representing an effective tax rate of 24.1 percent, for the second quarter of 2018.

Portfolio Performance
Allowance for credit losses as a percentage of total finance receivables was 1.59 percent at June 30, 2019 compared with 1.66 percent at March 31, 2019 and 1.62 percent at June 30, 2018.

Finance receivables over 30 days delinquent were 1.05 percent of the company’s total finance receivables portfolio as of June 30, 2019, down 6 basis points from March 31, 2019 and up 9 basis points from June 30, 2018. Finance receivables over 60 days delinquent were 0.64 percent of the company’s total finance receivables portfolio as of June 30, 2019, down 2 basis points from March 31, 2019 and up 9 basis points from June 30, 2018. Annualized second quarter net charge-offs were 1.88 percent of average total finance receivables versus 1.83 percent in the first quarter of 2019 and 1.84 percent a year ago.

Business Outlook

The company is reaffirming its previously issued guidance for the full year ending Dec. 31, 2019 as follows:

• Total Sourced Origination volume is expected to finish approximately 20 percent above 2018 levels
• Total asset sales are expected to be $250 million to $280 million as it continues to integrate the acquisition of Fleet Financing Resources and execute loan and lease syndications. The company expects to achieve an immediate gain on sale margin of 6.0 percent to 7.0 percent.
• Portfolio performance is expected to remain in line with the results observed over the last 12 months
• Net interest and fee margin, as a percentage of average finance receivables, is expected to be between 9.5 percent and 10.0 percent
• ROE is expected to continue to improve in 2019 as the company continues to improve operating scale

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