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Marlin Reports 51% Y/Y Rise in Q3 Direct Origination Volume

November 02, 2018, 07:25 AM
Filed Under: Corporate Earnings

Marlin Business Services Corp. reported third-quarter 2018 net income of $5.9 million, up 79 percent from net income of $3.3 million a year ago. Third-quarter net income on an adjusted basis was $6.4
million compared with $3.9 million a year ago—a jump of 64 percent.

“The third quarter was another productive period for Marlin highlighted by solid growth in origination volume, continued stable credit quality, strong earnings performance, the successful completion of an asset-backed securitization transaction and an important strategic acquisition to augment our organic growth initiatives,” said Jeffrey A. Hilzinger, President and CEO.

Excluding referral volume, total origination volume was $173.1 million for the quarter compared with $147.4 million last year, resulting in a year-over-year increase of 17.4 percent, he said. The increase included strong growth from both Equipment Finance and Working Capital Loan products as well as from its Direct origination channel.

“In addition, as part of Marlin’s capital markets activities, we referred or sold $43.5 million of leases and loans that were better suited for our capital markets partners’ balance sheets. Due to these origination and capital markets activities, our Net Investment in Leases and Loans increased to $970.4 million, up 9 percent from a year ago and our total managed assets grew to approximately $1.1 billion, an increase of 18 percent from last year,” Hilzinger said. “Our ability to achieve this robust growth while maintaining our disciplined underwriting standards and stable portfolio performance is evidence of how core risk management is to Marlin’s culture. At the bottom line, earnings expanded sharply on both a sequential quarter and year-over-year basis.”

Results of Operations
Total origination volume (excluding referral and originated for sale volume) for the third quarter of $173.1 million was up 17 percent from a year ago. Direct origination volume of $35.5 million in the third quarter was up 51 percent from $23.4 million in the third quarter of 2017. Indirect origination volume in the third quarter of 2018 was $137.6 million, up from $124.0 million in the same period a year ago. Referral volume totaled $2.5 million, down from $13 million in the third 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 9.94% for the third quarter, down 37 basis points from the second quarter of 2018 and down 79 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 59 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 207 basis points compared with 159 basis points for the previous quarter and 139 basis points for the third quarter of 2017, primarily because of the impact on funding costs from the recent debt securitization.

On an absolute basis, net interest and fee income was $23.8 million for the third quarter of 2018 compared with $23.1 million for the third 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 $4.4 million for the third quarter of 2018, compared with $4.6 million in the prior quarter and $3.6 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 $15.7 million for the third quarter of 2018, compared with $16 million in the prior quarter and $15.7 million in the third quarter last year.  Third quarter 2018 non-interest expense included $600,000 of expense related to the departure of the company’s chief financial officer.
Business Outlook
The company is maintaining guidance for the full year ending Dec. 31, 2018 as follows:

  • Total origination volume (including referral volume) is expected to finish 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.

To read the full release, click here.

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