Marlin Business Services Corp. reported fourth-quarter 2018 net income of $6.4 million compared with net income of $15.9 million. Fourth-quarter net income on an adjusted basis was $6.4 million compared with $5.9 million a year ago.

For the year ended Dec. 31, net income was $25 million, down from $25.3 million in 2017. Adjusted net income in 2018 increased 34.9 percent to $25.4 million, compared with $18.9 million in the prior year.

Jeffrey A. Hilzinger, President and CEO, said, “We completed the year with a strong fourth quarter driven by solid origination volume that led to Net Investment in Leases and Loans reaching a record level and excellent year-over-year growth in adjusted net income. Fourth quarter Total Sourced Origination volume was $216.3 million compared with $186.5 million last year, resulting in a year-over-year improvement of 15.9 percent. This increase included strong growth from both our Equipment Finance and Working Capital Loan products as well as from our direct origination channel.

“In addition, as part of Marlin’s capital markets initiatives, we referred or sold $62.6 million of leases and loans. Due to these origination and capital markets activities, our Net Investment in Leases and Loans increased 9.4 percent from a year ago and surpassed the $1 billion milestone for the first time in company history, and total managed assets grew to nearly $1.2 billion, an increase of 17.8 percent from a year ago. At the bottom line, adjusted earnings expanded sharply on a year-over-year basis for both the fourth quarter and full-year.”

Hilzinger concluded, “While overall asset quality of our portfolio remains strong, charge-offs during the fourth quarter were elevated due primarily to fraudulent activity perpetrated by a single vendor. Charge-offs in the fourth quarter associated with fraud by this vendor totaled $1.2 million. Excluding the fraud, net charge-offs in the fourth quarter would have been 1.69 percent on an annualized basis which is better than the average for the prior four quarters of 1.74 percent and adjusted earnings per share would have been $2.11. Significant actions have been taken throughout 2018 to combat fraud risk including the implementation of new anti-fraud tools, increased vendor surveillance staff and enhancements to procedures. Overall, we expect our portfolio performance to continue to be stable and remain within our targeted range.”

Results of Operations
Total Sourced Origination volume for the fourth quarter of $216.3 million was up 15.9 percent from a year ago. Direct origination volume of $40.4 million in the fourth quarter was up 27.7 percent from $31.6 million in the fourth quarter of 2017. Indirect origination volume in the fourth quarter of 2018 was $159.5 million, up from $148.5 million in the same period a year ago. Referral volume totaled $4.5 million, down from $6.5 million in the fourth quarter last year, largely due to the transition of leases originated by Marlin’s Horizon Keystone division to Marlin’s balance sheet over the past year.

Net interest and fee margin as a percentage of average finance receivables was 9.76 percent for the fourth quarter, down 18 basis points from the third quarter of 2018 and down 81 basis points from a year ago. The decrease in margin percentage was primarily a result of an increase in interest expense, partially offset by an increase of 77 basis points in new origination loan and lease yield over last year.

The company’s interest expense as a percent of average finance receivables increased to 220 basis points compared with 207 basis points for the previous quarter due exclusively to the securitization completed in the third quarter. Interest expense as a percent of average finance receivables increased from 145 basis points for the fourth quarter of 2017 due primarily to the impact on funding costs from the recent securitization and to a lesser extent an increase in deposit rates.

On an absolute basis, net interest and fee income was $23.7 million for the fourth quarter of 2018 compared with $23.6 million for the fourth quarter last year.

Non-interest income was $7.1 million for the fourth quarter of 2018, compared with $4.4 million in the prior quarter and $5.3 million in the prior year period. The year-over-year increase in non-interest income is primarily due to an increase in gains-on-sale and to a lesser extent an increase in insurance-related income. Non-interest expense was $16.4 million for the fourth quarter of 2018, compared with $15.7 million in the prior quarter and $15.4 million in the fourth quarter last year.

Business Outlook
The company’s guidance for the full year ending Dec. 31, 2019 is as follows:

• Total Sourced Origination volume is expected to finish approximately 20 percent above 2018 levels.
• Excluding the vendor fraud experienced in the fourth quarter of 2018, portfolio performance is expected to remain in line with the results observed over the last 12 months.
• Net interest and fee margin, as a percentage of average finance receivables, is expected to be between 9.5 percent and 10 percent.
• ROE is expected to continue to improve in 2019 as the company continues to improve operating scale.

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