Marlin Business Services Corp. reported second quarter 2018 net income of $6.5 million, up from net income of $4.6 million a year ago. Second quarter net income on an adjusted basis was $6.5 million compared with $4.8 million.

“Marlin delivered another strong performance this past quarter highlighted by solid growth in origination volume, stable credit quality and expanding profitability,” said Jeffrey A. Hilzinger, Marlin’s President and CEO. “Excluding referral volume, total origination volume was $172.2 million for the quarter compared with $155.5 million last year, resulting in a year-over-year increase of 11 percent. Growth in the quarter was driven by continued traction in our Direct origination channel which focuses on providing financing to our existing customers.

“During the quarter, Direct origination volume increased to $36.3 million compared with $23.6 million last year, resulting in a year-over-year increase of 54 percent. Our Investment in Leases and Loans increased to $963.1 million during the quarter, up 12 percent from a year ago, and our total managed portfolio grew to $1.1 billion, up 18 percent from a year ago. We also remained keenly focused on maintaining our disciplined underwriting standards as evidenced by our portfolio performance which remained stable and within expectations during the quarter.”

Results of Operations
Total origination volume (excluding referral volume) for the second quarter of $172.2 million was up 11 percent from a year ago. Direct origination volume of $36.3 million in the second quarter was up 54 percent from $23.6 million in the second quarter of 2017. Indirect origination volume in the second quarter of 2018 was $135.9 million, up slightly from $131.8 million in the same period a year ago. Referral volume totaled $5.6 million, down from $12.3 million in the second quarter last year, largely due to the transition of leases originated by Marlin’s Horizon Keystone Financial division to Marlin’s balance sheet over the past year.

Net interest and fee margin as a percentage of average finance receivables was 10.31 percent for the second quarter, down 12 basis points from the first quarter of 2018 and down 56 basis points from a year ago. With the execution of the ABS transaction, the company expects the margin to compress slightly.  The Company’s interest expense as a percent of average finance receivables increased to 159 basis points compared with 149 basis points for the previous quarter and 125 basis points for the second quarter of 2017, primarily because of the rising interest rate environment.

On an absolute basis, net interest and fee income was $24.1 million for the second quarter of 2018 compared with $22.7 million for the second quarter last year. The increase continues to reflect the strong growth in the portfolio and the underlying earnings power of the business as the company continues to grow and scale.

Non-interest income was $4.6 million for the second quarter of 2018, compared with $5.2 million in the prior quarter and $4.1 million in the prior year period.  The decrease in Non-interest income compared to the prior quarter was primarily due to a $0.8 million decrease in gains-on-sale and referral fee income from the Company’s capital markets activities due to lower asset sales, partially offset by an increase of $0.2 million in servicing fee income. The year-over-year increase in non-interest income is primarily due to a $0.5 million increase in gains-on-sale, $0.3 million increase in Insurance related income and a $0.4 million increase in servicing fee income, partially offset by a decrease of $0.6 million in referral income.

Business Outlook
The company is maintaining guidance for the full year ending December 31, 2018 as follows:

• Total origination volume (including referral volume) is expected to finish approximately 15 percent to 20 percent above 2017 levels
• Portfolio performance is expected to remain in-line with the results observed over the past 12 months
• Net interest margin, as a percentage, is expected to be between 9.75 percent and 10 percent
• ROE is expected to improve in 2018 as the company continues to improve operating scale
• EPS is expected to be between $2 and $2.10 per share.

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