Marlin Business Services Corp. reported its first quarter 2021 net income of $6.9 million compared with net income of $15.3 million in the prior quarter, and a net loss of $11.8 million a year ago.

Commenting on the company’s results, Jeffrey A. Hilzinger, Marlin’s President and CEO, said, “Marlin’s first-quarter results are highlighted by solid credit quality, improving origination volume trends and strong earnings. Our portfolio performed better than expected during the first quarter with delinquency and net charge-off metrics in-line with, or below, pre-pandemic levels. This, coupled with an improving macro-economic outlook resulted in a net release in loss reserves established last year in response to the pandemic. At the bottom line, net income of $6.9 million, or $0.57 per diluted share, expanded significantly from a year ago.”

Results of Operations
Total sourced origination volume for the first quarter of $83.8 million was down 46.8 percent from a year ago. Direct origination volume of $7.4 million in the first quarter was down 80.3 percent from $37.8 million in the first quarter of 2020. Indirect origination volume in the first quarter of 2021 was $76.2 million, down 33.0 percent from $113.8 million in the first quarter last year. Net Investment in Leases and Loans was $797.4 million, down 17.8 percent from first quarter last year, while total managed assets stood at approximately $1.0 billion, down 23.2 percent from the first quarter last year.

Net interest and fee margin as a percentage of average finance receivables was 8.39 percent for the first quarter, up 3 basis points from the fourth quarter of 2020 and down 95 basis points from a year ago. The sequential quarter increase was driven primarily by a decrease in interest expense resulting from lower deposit rates, partially offset by a decrease in new origination loan and lease yields, interest income, and lower fee income. The year-over-year decrease in margin percentage was primarily related to the decrease in new origination loan and lease yields and interest income. The company’s interest expense as a percent of average total finance receivables was 157 basis points in the first quarter of 2021 compared with 187 basis points for the prior quarter and 225 basis points for the first quarter of 2020, resulting from lower rates and a shift in mix, as higher rate long-term debt pays down.

On an absolute basis, net interest and fee income was $17.5 million for the first quarter of 2021 compared with $23.6 million in the first quarter last year.

Marlin recorded a $2.9 million provision for credit losses net benefit in the first quarter of 2021, compared to $12.7 million provision net benefit in the fourth quarter of 2020, and $25.2 million provision net expense in the first quarter of 2020. The provision release in the first quarter of 2021 reflects better than expected portfolio performance, continued positive performance trends, and an improved macroeconomic outlook.

Non-interest income was $8.6 million for the first quarter of 2021, compared with $4.1 million in the prior quarter and $12.2 million in the prior year period. The sequential quarter increase is primarily due to property tax revenue that is seasonally high in the first quarter. The year-over-year decrease in non-interest income is primarily due to a $2.3 million decrease in gains from the sale of assets. Non-interest expense was $19.6 million for the first quarter of 2021, compared with $14.8 million in the prior quarter and $29.9 million in the first quarter of 2020. The sequential quarter increase was primarily due to higher general and administrative expenses related to property tax expense that is seasonally high in the first quarter. The year-over-year decrease was primarily due to a $6.7 million write-off of goodwill impairment in the prior year period.

Marlin recorded a $2.5 million tax expense in the first quarter, representing an effective tax rate of 26.9 percent. In the fourth quarter of 2020, the Company recorded a $4.8 million tax expense representing an effective tax rate of 23.9 percent, and in the first quarter of 2020, the Company recorded $7.4 million of tax benefit.

Portfolio Performance
Allowance for credit losses as a percentage of total finance receivables was 4.65 percent at March 31, 2021 compared with 5.09 percent at December 31, 2020.

For the three months ended March 31, 2021, the company recorded a $2.9 million provision for credit losses net benefit, compared with $25.2 million provision net expense recognized in the first quarter of 2020 and a $12.7 million provision net benefit recorded for the fourth quarter of 2020. The provision release in the first quarter of 2021 was primarily due to positive changes in the outlook of macroeconomic assumptions to which the reserve is correlated as well as positive trends in portfolio performance.

As of March 31, 2021, the company had $93.8 million total receivables that were modified, or 11.2 percent of total net investment, or $90.8 million (11.1 percent) Equipment Finance and $3.0 million (16.4 percent) of Working Capital. Total modified receivables for Equipment Finance and Working Capital declined 12.9 percent and 56.6 percent, respectively from corresponding amounts as of December 31st.

Equipment Finance receivables over 30 days delinquent were 116 basis points as of March 31, 2021, down 43 basis points from December 31, 2020, and down 66 basis points from March 31, 2020. Working Capital receivables over 15 days delinquent were 147 basis points as of March 31, 2021, down 353 basis points from December 31, 2020, and down 108 basis points from March 31, 2020. Annualized first quarter total net charge-offs were 1.67 percent of average total finance receivables versus 2.57 percent in the fourth quarter of 2020 and 3.11 percent a year ago.