Marlin Returns to Profit in Q3, Origination Volume Down 66% Y/Y

October 30, 2020, 07:28 AM

Filed Under: Corporate Earnings

Related: COVID-19, Jeff Hilzinger, Marlin Business Services, Originations

Marlin Business Services Corp. reported third-quarter 2020 net income of $2.7 million compared with net loss of $5.9 million in the last quarter, and net income of $7.4 million in the third-quarter a year ago.

Third Quarter Summary:

Net income of $2.7 million compared with net income of $7.4 million a year ago and net loss of $5.9 million last quarter. Net income on an adjusted basis of $3.2 million, compared with net income on an adjusted basis of $7.4 million, a year ago;
Total 30+ day delinquencies were 2.15 percent, up from 1.27 percent prior year, but down from 3.83 percent in the second quarter;
Expense reduction efforts resulted in a $3.8 million (22 percent) reduction in Salaries and General and Administrative expenses during the third quarter versus prior year;
Total sourced origination volume of $68.5 million, down 66.0 percent year-over-year. Average total finance receivables were $924.6 million, down 11.8 percent year-over-year;
Total allowance for credit losses of $61.3 million; allowance as a percentage of receivables was 6.57 percent for equipment finance and 13.06 percent for working capital; annualized net charge-offs of 4.54 percent, compared with 3.47 percent in the prior quarter and 1.99 percent in the third quarter last year.

Commenting on the Company’s results, Jeffrey A. Hilzinger, Marlin’s President and CEO, said, “Given the significant challenges we faced in the first half of 2020 arising from the COVID-19 pandemic, I am very pleased with the resiliency of our business and our return to profitability in the third quarter. Due to significantly improving portfolio performance and outlook, coupled with the benefits from the cost reductions we implemented earlier in the year, we generated net income of $2.7 million, or $0.23 per diluted share and adjusted net income of $3.2 million, or $0.27 per diluted share. Portfolio performance improved throughout the third quarter and has continued into the fourth quarter.”

Total sourced origination volume for the third quarter of $68.5 million was down 66 percent from a year ago. Direct origination volume of $8.4 million in the third quarter was down 79.8 percent from $41.6 million in the third quarter of 2019. Indirect origination volume in the third quarter of 2020 was $58.8 million, down 57.9 percent from $139.5 million in the third quarter last year. Assets originated for sale in the third quarter were not significant, compared with $18.2 million in the third quarter last year. Referral volume totaled $1.3 million, down from $2.4 million in the third quarter last year. Net Investment in Leases and Loans was $847 million, down 18.2 percent from third quarter last year, while our total managed assets stood at approximately $1.2 billion, down 14.7 percent from the third quarter last year.

Hilzinger concluded, “Third-quarter total sourced origination volume of $68.5 million was impacted by a number of factors including the disruption caused by the restructuring of our front-office operations, reduced customer demand and lower approval rates from tightened underwriting standards. As we look ahead, we believe that our strong balance sheet and the investments we are making in our digital origination platform put us in a great position to best serve our partners and customers and to take full advantage of the increased demand for small business financing as the economy recovers.”
The provision for credit losses was $7.2 million in the third quarter of 2020, compared to $18.8 million in the second quarter of 2020, and $7.7 million in the third quarter of 2019. In the third quarter of 2020, our net change in expected impacts from COVID-19 on our portfolio and estimated credit losses was not significant compared to the prior quarters of this year.

As a result of the ongoing impact from COVID-19, through the end of the third quarter the company has completed over 5,200 loan and lease restructure requests from customers who have been impacted by the pandemic. As of Sept. 30, the company had $129.9 million total receivables that were part of this program, or 14.3 percent of total net investment, or $117.6 million (13.4 percent) Equipment Finance and $12.2 million (46.1 percent) of Working Capital. In the third quarter, it processed new modifications for 406 contracts, or $9.4 million net investment, and we extended the modification period for 319 contracts with $16.4 million net investment.

Through the end of the third quarter, $109.1 million (84 percent) of modified contracts are out of the deferral period, and the current deferral period will expire for substantially all the remaining modified contracts before December 31, 2020. As of the end of the third quarter it has stopped taking new applications for modifications, although it may consider offering extensions in select cases as part of our loss mitigation strategies.

See the full release here.