Marlin Business Services reported a second quarter 2020 net loss of $5.9 million, compared with net loss of $11.8 million in the prior quarter, and net income of $6.1 million a year ago.
Commenting on the Company’s results, Jeffrey A. Hilzinger, Marlin’s President and CEO, said, “We, along with the entire financial services industry, continue to operate in a challenging and uncertain environment arising from the unprecedented impact of the COVID-19 health crisis on our business. Our $5.9 million net loss during the quarter was driven by a significant increase in the allowance for loan losses, as our provision for credit losses was $18.8 million. Despite the loss for the quarter, our capital and liquidity positions remain very strong which enabled us to provide payment deferral contract modifications for a select group of customers. We also maintained our second quarter dividend and took steps to significantly reduce costs and re-align our organizational structure to take advantage of emerging opportunities that we believe will accelerate as the current economic uncertainty dissipates.”
Mr. Hilzinger concluded, “As we manage the business through this challenging environment, we remain focused on our core fundamentals: protecting our employees and our portfolio, helping our customers, maintaining strong liquidity, reducing costs and proactively preparing for the future. I am extremely proud of our employees’ dedication to both our business and our customers during these challenging times. We are thankful for the support of our shareholders, and we look forward to continuing to serve our customers and communities during this time of need and emerging from this crisis in an even stronger competitive position.”
Results of Operations
Total sourced origination volume for the second quarter of $67.2 million was down 71.0% from a year ago. Direct origination volume of $6.6 million in the second quarter was down 86.5% from $49.0 million in the second quarter of 2019. Indirect origination volume in the second quarter of 2020 was $58.8 million, down 63.3% from $160.3 million in the second quarter last year. Assets originated for sale in the second quarter of $1.1 million compared with $18.0 million in the second quarter last year. Referral volume totaled $0.7 million, down from $4.1 million in the second quarter last year. Net Investment in Leases and Loans was $911 million, down 14.2% from second quarter last year, while our total managed assets stood at approximately $1.2 billion, down 5.4% from the second quarter last year.
Net interest and fee margin as a percentage of average finance receivables was 8.68% for the second quarter, down 66 basis points from the first quarter of 2020 and down 70 basis points from a year ago. The sequential quarter decrease was driven primarily by a decrease in new origination loan and lease yields, lower fee income, and portfolio mix, partially offset by a decrease in interest expense resulting from lower deposit rates. The year-over-year decrease in margin percentage was also primarily related to the decrease in new origination loan and lease yields, the change in the presentation of residual income driven by the adoption of CECL, and portfolio mix, partially offset by a decrease in interest expense resulting from lower deposit rates. During 2019 and prior periods, residual income was presented in fee income; however, effective in the first quarter 2020, residual income is included in the future cash flows used to assess credit losses and therefore this activity is reflected in the allowance for credit losses. The Company’s interest expense as a percent of average total finance receivables was 222 basis points in the second quarter of 2020 compared with 225 basis points for the prior quarter and 248 basis points for the second quarter of 2019, 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 $21.3 million for the second quarter of 2020 compared with $24.2 million in the second quarter last year.
The provision for credit losses was $18.8 million in the second quarter of 2020, compared to $4.8 million in the second quarter of 2019. This increase reflects the change in the Company’s outlook and estimated credit losses as a result of the ongoing impact of COVID-19, including lower economic activity, higher unemployment and a weaker credit environment. During the second quarter of 2020, deteriorating economic conditions and other qualitative factors accounted for $15.5 million of the total provision for credit losses. Under the new CECL standard, forward looking economic forecasting is a key factor in determining the allowance for credit losses. As a result, the worsening economic fallout from the COVID-19 pandemic significantly increased our estimated lifetime credit losses under CECL, driving a substantial increase to our provision for credit losses.
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