Marlin Reports Q1 Total Sourced Origination Volume Falls 24.5% Y/Y, Posts Net Loss

May 01, 2020, 07:25 AM

Filed Under: Corporate Earnings

Related: COVID-19, Jeffrey Hilzinger, Marlin Business Services, Marlin Capital Solutions, Originations

Marlin Business Services Corp. reported a first quarter 2020 net loss of $11.8 million compared with net income of $8.4 million in the prior quarter and $5.1 million a year ago.

Selected highlights:

Net loss of $11.8 million compared with net income of $5.1 million a year ago and $8.4 million last quarter.
Net loss on an adjusted basis of $10.0 million compared with net income on an adjusted basis of $5.0 million a year ago.
Total sourced origination volume of $157.4 million, down 24.5 percent year-over-year. Total origination yield of 12.45 percent, up 2 basis points from the prior quarter and down 31 basis points year-over-year.
Net Investment in leases and loans totaled $970.1 million, compared with $1.0 billion a year ago; total managed assets ended the first quarter at $1.3 billion, up 6.8 percent from a year ago
Total Allowance for credit losses of $52.1 million, representing a $30.4 million increase from December 31, 2019, which includes an $11.9 million increase from the adoption of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (“CECL”); the allowance as a percentage of receivables was 4.66 percent for equipment finance and 12.20 percent for working capital.
Annualized net charge-offs of 3.11 percent, compared with 3.00 percent in the prior quarter and 1.83 percent in the first quarter last year.

Jeffrey A. Hilzinger, Marlin’s President and CEO, said, “Marlin continues to carefully evaluate the public health crisis and resulting economic dislocation to its small business customers resulting from the COVID-19 outbreak. Beginning in early March, we initiated a series of measures to protect our employees from the effects of the pandemic, carefully manage our liquidity and capital position, and protect the value of our portfolio. We are continuing to lend and support our customers and partners during these challenging times. In addition, for existing customers and partners, we have implemented programs to help them weather the crisis including a payment deferral program for customers that have been directly impacted by COVID-19, and we are a participating lender in the second round of funding under the federal government’s Paycheck Protection Program administered by the SBA.”

Hilzinger continued, “As we navigate this evolving and uncertain environment, we remain focused on the tasks at hand—supporting our employees, valued customers and partners while ensuring business continuity and financial stability. This has been a particularly stressful time for our employees, and I want to thank all of my colleagues for their deep commitment to our company and our customers during this unprecedented experience. We look forward to serving our customers and communities well in a time of need and emerging from this crisis as a stronger enterprise.”

Results of Operations
Total sourced origination volume for the first quarter of $157.4 million was down 24.5 percent from a year ago. Direct origination volume of $37.8 million in the first quarter was down 13.2 percent from $43.6 million in the first quarter of 2019. Indirect origination volume in the first quarter of 2020 was $113.8 million, down 24.1 percent from $149.9 million in the first quarter last year. Assets originated for sale in the first quarter of $3.3 million compared with $11.3 million in the first quarter last year. Referral volume totaled $2.5 million, down from $3.6 million in the first quarter last year.

The company adopted CECL during the first quarter, which resulted in an $11.9 million increase to the allowance for credit losses as of January 1, 2020. During the quarter, the company’s expectations for future net cash flows of the portfolio, the credit environment and economic conditions changed considerably to reflect the impact from COVID-19, which in turn significantly impacted estimated lifetime credit losses. As a result, the provision for credit losses was $25.2 million in the first quarter of 2020, compared to $5.4 million in the first quarter of 2019.

As a result of the impact from COVID-19, the company has experienced an increase in the amount of loan and lease restructure requests from customers who have been impacted by the pandemic. The company is currently offering a 90-day payment deferral program for equipment finance loans and leases and a 30- to 60-day payment deferral program for working capital loans for customers who are current under their existing obligations and can demonstrate that their ability to repay has been directly impacted by the COVID-19 crisis.

As of March 31, 2020, the company had $12.5 million and $7.0 million of net investment in payment deferral agreements for equipment finance and working capital, respectively.

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