Marlin Business Services Corp. reported second-quarter net income of $10.3 million compared with net income of $6.9 million in the prior quarter, and a net loss of $5.9 million a year ago.

Jeffrey A. Hilzinger, Marlin’s President and CEO, said, “Our solid results in the second quarter were driven by improved origination volume, excellent portfolio performance and strong earnings growth. Our team is committed to executing our business plans and meeting the closing requirements for our proposed merger with a subsidiary of funds managed by HPS. Based on the progress made to date on certain closing conditions, we continue to believe that the transaction would likely close in the first quarter of 2022.”

Update on Acquisition by Funds Managed by HPS Investment Partners LLC
On April 19, the company announced it had entered into an Agreement and Plan of Merger, dated as of April 18 with subsidiaries of funds managed by HPS Investment Partners LLC (HPS). Upon the terms and subject to the conditions set forth in the Merger Agreement, HPS will acquire all of the company’s outstanding shares of common stock through its European Asset Value Funds in an all-cash transaction for $23.50 per share, as potentially subject to downward adjustment as set forth in the Merger Agreement. The company has made progress toward meeting the Merger Agreement closing conditions as follows:

• On June 25, the company received the requisite regulatory non-objections to allow the company to begin implementing the plan of liquidation of Marlin Business Bank, which plan must be fully completed before the company can satisfy the closing condition that Marlin Business Bank be “de-banked” and surrender its bank charter to the applicable regulators and cease holding deposits. The aggregate consideration paid by certain funds managed by HPS to the company’s shareholders may be reduced if the total costs in connection with the de-banking of Marlin Business Bank exceed $8 million. At this time, the company continues to believe that this provision will not have a material impact on the consideration received.
• On July 16, the 30-day waiting period under the HSR Act expired with respect to the transactions contemplated by the Merger Agreement.
• A Special Meeting of Shareholders has been scheduled for August 4 to vote on the transaction and related matters.

Results of Operations
Total sourced origination volume for the second quarter of $100.9 million was up 50.1 percent from a year ago. Net Investment in Leases and Loans was $800.4 million, down 12.1 percent from second quarter last year, while total managed assets stood at approximately $1.0 billion, down 19.4 percent from the second quarter last year.

Net interest and fee margin as a percentage of average finance receivables was 8.42 percent for the second quarter, up 3 basis points from the first quarter and down 26 basis points from a year ago. The company’s interest expense as a percent of average total finance receivables was 138 basis points in the second quarter of 2021 compared with 157 basis points for the prior quarter and 222 basis points for the second 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 $17.2 million for the second quarter of 2021 compared with $21.3 million in the second quarter last year.

Marlin recorded a $9.9 million provision for credit losses net benefit in the second quarter of 2021, compared to $2.9 million provision net benefit in the first quarter, and $18.8 million provision net expense in the second quarter of 2020. The provision release in the second quarter of 2021 reflects better than expected portfolio performance, continued positive performance trends, and an improved macroeconomic outlook.

Non-interest income was $3.5 million for the second quarter of 2021, compared with $8.6 million in the prior quarter and $3.8 million in the prior year period. The sequential quarter decrease is primarily due to property tax revenue that is seasonally high in the first quarter.

The company recorded a $3.5 million tax expense in the second quarter, representing an effective tax rate of 25.3 percent. In the first quarter of 2021, the company recorded a $2.5 million tax expense representing an effective tax rate of 26.9 percent, and in the second quarter of 2020, the company recorded $1.4 million of tax benefit.

Portfolio Performance
Allowance for credit losses as a percentage of total finance receivables was 3.47 percent at June 30 compared with 4.65 percent at March 31, 2021.

For the three months ended June 30, 2021, the company recorded a $9.9 million provision for credit losses net benefit, compared with $18.8 million provision net expense recognized in the second quarter of 2020 and a $2.9 million provision net benefit recorded for the first quarter of 2021. The provision release in the second 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.

Equipment Finance receivables over 30 days delinquent were 70 basis points as of June 30, 2021, down 46 basis points from March 31, 2021, and down 313 basis points from June 30, 2020. Working Capital receivables over 15 days delinquent were 36 basis points as of June 30, 2021, down 111 basis points from March 31, 2021, and down 402 basis points from June 30, 2020. Annualized second quarter total net charge-offs were 0.60 percent of average total finance receivables versus 1.67 percent in the first quarter of 2021 and 3.47 percent a year ago.