MRLN
$7.10
Marlin Business Serv
($.07)
(.98%)
Earnings Details
Quarter June 2020
Thursday, July 30, 2020 4:05:00 PM
Tweet Share Watch
Summary

Marlin Business Serv (MRLN) Recent Earnings

Marlin Business Serv (MRLN) reported a Quarter June 2020 loss of $0.43 per share on revenue of $26.7 million.. Revenue fell 12.7% compared to the same quarter a year ago.

Marlin Business Services Corp is a provider of equipment financing solutions to small & mid-sized businesses customer, including copiers, computers & software, security systems, telecommunications equipment & certain commercial & industrial equipment.

Results
Reported Earnings
($0.43)
Earnings Whisper
-
Consensus Estimate
Reported Revenue
$26.7 Mil
Revenue Estimate
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Marlin Reports Second Quarter 2020 Results and Declares a Cash Dividend of $0.14 Per Share

Second Quarter Summary:

  • Net loss of $5.9 million, or $0.50 per diluted share, compared with net income of $6.1 million, or $0.49 per diluted share a year ago and net loss of $11.8 million, or $1.00 per diluted share last quarter. Net loss on an adjusted basis* of $5.1 million, or $0.43 per diluted share, compared with net income on an adjusted basis of $6.3 million, or $0.51 per diluted share a year ago

  • Ended the quarter with total stockholders’ equity of $181.0 million, book value per share of $15.16 and a consolidated equity-to-assets ratio of 15.13%

  • Assisted our customers by restructuring over 5,000 contracts totaling $133.8 million, or 13.7%, of net investment through payment deferrals

  • Total sourced origination volume of $67.2 million, down 71.0% year-over-year. Average total finance receivables were $979.3 million, down 5% year-over-year

  • Total allowance for credit losses of $63.6 million; allowance as a percentage of receivables was 5.97% for equipment finance and 18.92% for working capital

  • Annualized net charge-offs of 3.47%, compared with 3.11% in the prior quarter and 1.88% in the second quarter last year

MOUNT LAUREL, N.J., July 30, 2020 (GLOBE NEWSWIRE) -- Marlin Business Services Corp. (NASDAQ: MRLN), a nationwide provider of capital solutions to small businesses (“Marlin” or the “Company”), today reported second quarter 2020 net loss of $5.9 million, or $0.50 per diluted share, compared with net loss of $11.8 million, or $1.00 per diluted share in the prior quarter, and net income of $6.1 million, or $0.49 per diluted share 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.

Non-interest income was $3.8 million for the second quarter of 2020, compared with $12.2 million in the prior quarter and $7.2 million in the prior year period. The sequential decrease in non-interest income is primarily due to the seasonality of property taxes which are paid by the lessee to the lessor and required to be presented gross in the consolidated statement of operations, which are primarily incurred in the first quarter.  The year-over-year decrease in non-interest income is primarily due to a decrease in gains from the sale of assets. Non-interest expense was $13.5 million for the second quarter of 2020, compared with $29.9 million in the prior quarter and $18.5 million in the second quarter of 2019. The sequential quarter decrease was due to the aforementioned seasonality of property tax expenses, a Goodwill impairment charge of $6.7 million in the first quarter, and a reduction in Salaries and Benefits associated with employee furlough actions, as well as lower commission and incentive compensation on lower origination volumes.  The year-over-year decrease was primarily due to the aforementioned reduction in Salaries and Benefits.

The Company’s efficiency ratio for the second quarter was 53.9% compared with 59.1% in the second quarter last year. Excluding the impact of certain non-GAAP adjustments, the Company’s efficiency ratio on an adjusted basis* for the second quarter was 47.6% compared with 55.8% in the second quarter of 2019.  

Marlin recorded a $1.4 million tax benefit in the second quarter, representing an effective tax rate of 18.9%. The low effective tax rate during the quarter was due to a $0.6 million discrete reduction in the income tax benefit resulting from interim tax allocations that is expected to normalize in the second half of 2020.  In the first quarter of 2020, the Company recorded a $7.4 million tax benefit representing an effective tax rate of 38.6% reflecting changes in the valuation of the Company’s NOL deferred tax assets resulting from the CARES Act, and in the second quarter of 2019, the Company recorded $2.0 million of tax expense, representing an effective tax rate of 24.1%.   

Portfolio Performance
Allowance for credit losses as a percentage of total finance receivables was 6.53% at June 30, 2020 compared with 5.09% at March 31, 2020.  In addition, under the incurred loss allowance model in 2019, the percentage was 1.59% at June 30, 2019.

For the three months ended June 30, 2020, the Company recorded an $18.8 million provision for credit losses, which was $14.1 million greater than the $4.8 million provision recognized for the three months ended June 30, 2019 and $6.4 million lower than the $25.2 million recognized in the first quarter of 2020.  The year-over-year increase in provision was primarily due to updates to the Company’s estimate for changes in economic conditions due to COVID-19.

As a result of the ongoing impact from COVID-19, through the end of the second quarter the Company has completed over 5,000 loan and lease restructure requests from customers who have been impacted by the pandemic. These restructure agreements consisted of a 90-day payment deferral program for equipment finance loans and leases and a 30-60 day payment deferral program for working capital loans for customers who were current under their existing obligations.  While a majority of the initial restructure requests have been processed, the Company is evaluating subsequent requests focused on the borrower’s capacity to pay.  As of June 30, 2020, the Company had $115.9 million (12.5%) and $17.9 million (42.4%) of net investment in payment deferral agreements for equipment finance and working capital, respectively.  Those contracts are reported in our delinquency and non-accrual data based on their status with respect to their modified terms. There were $0.2 million of Equipment Finance restructured contracts and $0.5 million of Working Capital restructured contacts on non-accrual as of June 30, 2020.

The following table outlines the delinquency status of the Company’s portfolio as of June 30, 2020, including information on restructured contracts, and contracts with restructure requests that have not been processed:

 Net Investment (in thousands) Delinquency Rate
  30 6090+CurrentTotal 30 60 90+CurrentTotal
Equipment Finance           
Non-Restructured Portfolio:           
Modification not requested$8,150$7,625$6,745$744,616$767,136 1.06%0.99%0.88%97.07%100%
Requested, Not Processed (1) 4,289 5,793 3,061 31,287 44,430 9.65%13.04%6.89%70.42%100%
Total Non-Restructured 12,439 13,418 9,806 775,903 811,566 1.53%1.65%1.21%95.61%100%
            
Restructured Portfolio 424 109 21 115,387 115,941 0.37%0.09%0.02%99.52%100%
            
Total Equipment Finance$12,864$13,527$9,826$891,290$927,507 1.39%1.46%1.06%96.09%100%
            


 Net Investment (in thousands) Delinquency Rate
  15 3060+CurrentTotal 15 30 60+CurrentTotal
Working Capital           
Non-Restructured Portfolio:           
Modification not requested$98$212$368$22,243$22,921 0.43%0.92%1.60%97.05%100%
Requested, Not Processed (1) 7 13 81 1,180 1,281 0.58%1.05%6.35%92.02%100%
Total Non-Restructured 105 225 449 23,423 24,202 0.44%0.93%1.85%96.78%100%
            
Restructured Portfolio 608 242 212 16,814 17,876 3.40%1.35%1.18%94.07%100%
            
Total Working Capital$713$467$661$40,237$42,078 1.69%1.11%1.57%95.63%100%

________________

(1)   The Requested, Not Processed portfolio? represents a subset of modification requests that have not been processed, where the customer contacted the Company to initiate a modification, but the request was not processed.  This includes requests cancelled because the customer declined the revised terms or did not finalize documents, requests declined by the Company, as well as an insignificant amount of requests that were in-process at the end of the second quarter.

Equipment Finance receivables over 30 days delinquent were 390 basis points as of June 30, 2020, up 208 basis points from March 31, 2020, and up 284 basis points from June 30, 2019.   Working Capital receivables over 15 days delinquent were 438 basis points as of June 30, 2020, up 183 basis points from March 31, 2020 and up 386 basis points from June 30, 2019.  Annualized second quarter total net charge-offs were 3.47% of average total finance receivables versus 3.11% in the first quarter of 2020 and 1.88% a year ago.

Through the end of the second quarter, we have yet to experience a material increase in charge-offs driven by the impact of COVID-19.  We are continuing to evaluate the delinquency trends of the non-modified portfolio, and we are monitoring the performance of the modified portfolio as those customers begin to resume payments.  As of June 30, 2020, 25% of the modified contracts had returned to full payment, 72% are scheduled to resume payment in the third quarter, and the remaining 3% resume payment in the fourth quarter.  However the performance of loans modified loan portfolio remains uncertain.  

Portfolio Concentration
In response to COVID-19, the Company took aggressive action during the first quarter to adjust its underwriting standards, focusing on industries identified as highly impacted. Businesses in these industries were in most cases deemed non-essential by state governments and were therefore subject to mandatory shutdown due to social distancing requirements. We have a well-diversified portfolio across industries and geographical areas for both Equipment Finance and Working Capital

The following table reflects our contracts in highly impacted industries (which includes consideration of geographical areas) where net investment is in excess of 5% of the total portfolio as of June 30, 2020:

Equipment Finance Working Capital
Miscellaneous Services (1) 9.0% Retail 10.9%
Restaurants 7.3% Miscellaneous Services (1) 8.2%
Medical 7.0% Restaurants 8.2%
Retail 5.9%   

________    

 (1) Miscellaneous Services is an amalgamation of service related SIC codes, the largest of which are Business Services, Repair Services, and Equipment Rental and Leasing.

Capital and Liquidity
As of June 30, 2020, the Company had $211.7 million of Cash and cash equivalents, an increase of $88.6 million from December 31, 2019.  As of June 30, 2020, the Company had additional available liquidity of $80.2 million from lines of credit with financial institutions and the Federal Reserve discount window. There were no borrowings made on these additional sources of liquidity as of June 30, 2020 or subsequently.

As of June 30, 2020, the Company’s consolidated equity to assets ratio was 15.13%. This compares to 14.92% and 16.06%, in the prior quarter and year ago quarter, respectively.  The Company’s Total Risk-based capital ratio was 20.65% as of June 30, 2020, which was 12.65% above our minimum regulatory requirement.

Corporate Developments
On July 30, 2020, Marlin’s Board of Directors declared a $0.14 per share quarterly dividend. The dividend is payable on August 20, 2020, to shareholders of record on August 10, 2020. Based on the closing stock price on July 29, 2020, the annualized dividend yield on the Company’s common stock is 7.13%.

On July 16, 2020, the Company announced the completion, effective July 20, 2020, of its previously announced employee furlough.  In response to the impact of the COVID-19 pandemic on its business, the Company implemented a reduction in force that affected approximately 80 employees in June and July 2020. The Company believes that through these actions, it has re-aligned its organizational structure to meet current and anticipated near-term origination demand and it does not expect these actions to impact its ability to grow origination volume when general business and economic conditions permit.

* Non-GAAP Financial Measures: Net income (loss) on an adjusted basis and adjusted efficiency ratio are financial measures that are not in accordance with U.S. generally accepted accounting principles (GAAP).  See “Regulation G – Non-GAAP Financial Measures” and “Reconciliation of GAAP to Non-GAAP Financial Measures” below for a detailed description and reconciliation of such Non-GAAP financial measures to their most directly comparable GAAP financial measures, in accordance with Regulation G.

Conference Call and Webcast
Marlin will host a conference call on Friday, July 31, 2020 at 9:00 a.m. ET to discuss the Company’s second quarter 2020 results. The conference call details are as follows:
Second Quarter 2020 Financial Results Conference Call

Date:Friday, July 31, 2020
Time:9:00 a.m. Eastern Time / 6:00 a.m. Pacific Time
Dial-in:1-877-407-0792 (Domestic)
1-201-689-8263 (International)
Conference ID:13705742
Webcast:http://public.viavid.com/index.php?id=140371

For those unable to participate during the live broadcast, a replay of the call will also be available from 12:00 p.m. Eastern Time on July 31, 2020 through 11:59 p.m. Eastern Time on August 14, 2020 by dialing 1-844-512-2921 (domestic) and 1-412-317-6671 (international) and referencing the replay pin number: 13705742.

About Marlin

Marlin is a nationwide provider of capital solutions to small businesses with a mission of helping small businesses fulfill their American dream. Our products and services are offered directly to small businesses and through financing programs with independent equipment dealers and other intermediaries. For more information about Marlin, visit marlincapitalsolutions.com or call toll free at (888) 479-9111.

Forward-Looking Statements
This release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements represent only the company’s current beliefs regarding future events and are not guarantees of performance or results.  All forward-looking statements (including statements regarding expectations of future financial and operating results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “expect,” “estimate,” “plan,” “may,” “could”, “intend” and similar expressions are generally intended to identify forward-looking statements. Economic, business, funding, market, competitive, legal and/or regulatory factors, among others (including but not limited to the impact of the COVID-19 pandemic), affecting our business are examples of factors that could cause actual results to differ materially from those described in the forward-looking statements. More detailed information about these factors is contained under the headings “Forward-Looking Statements” and “Risk Factors” in our periodic reports filed with the United States Securities and Exchange Commission, including the most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are also available in the “Investors” section of our website. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.  Investors are cautioned not to place undue reliance on such forward-looking statements.

Regulation G – Non-GAAP Financial Measures
The Company uses certain financial measures which are not calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company defines net income on an adjusted basis as net income excluding after-tax income and expenses that are deemed to be unusual in nature or infrequent in occurrence and are not indicative of the underlying performance of the business for the period presented.  The Company defines diluted earnings per share on an adjusted basis, return on average assets on an adjusted basis and return on average equity on an adjusted basis as the calculation used for the “as reported” number substituting net income as reported with net income on an adjusted basis while using the same denominator in the “as reported” number, where appropriate. The Company defines efficiency ratio on an adjusted basis as the calculation used for the “as reported” ratio adjusting the numerator for any discrete pre-tax adjustments used to present net income on an adjusted basis as well as the impact of pass-through lease expenses that are required to be presented on a gross basis in the income statement, acquisition related expense, and Rep and Warranty liability adjustments, as applicable.  The Company adjusts the denominator in the “as reported” ratio for pass-through lease revenue that is required to be presented on a gross basis in the income statement, as applicable. The Company defines General and administrative annualized percent of average finance receivables, on an adjusted basis, as the calculation used for the “as reported” ratio, adjusting the numerator for acquisition related general and administrative expenses, Rep and Warranty liability adjustments, and pass-through lease expenses that are required to be presented on a gross basis in the income statement, as applicable.  The adjusted ratio uses the same denominator as the “as reported” ratio.  The Company defines Non-interest expense divided by average total managed assets, on an adjusted basis, as the calculation used for the “as reported” ratio adjusting the number for any discrete pre-tax adjustments used to present net income on an adjusted basis as well as the impact of pass-through lease expenses that are required to be presented on a gross basis in the income statement, acquisition related expenses, and Rep and Warranty liability adjustments, as applicable.  The adjusted ratio uses the same denominator as the “as reported” ratio.  The Company believes that these non-GAAP measures are useful performance metrics for management, investors and lenders, because it provides a means to evaluate period-to-period comparisons of the Company's financial performance without the effects of certain adjustments in accordance with GAAP that may not necessarily be indicative of current operating performance. 

Non-GAAP financial measures should not be considered as an alternative to GAAP financial measures. They may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as a substitute for performance measures calculated in accordance with GAAP.

Investor Contacts:
Mike Bogansky, Senior Vice President & Chief Financial Officer
856-505-4108

Lasse Glassen, Addo Investor Relations
lglassen@addoir.com
424-238-6249

-Tables to Follow--



Marlin Business Services Corp. and Subsidiaries
Consolidated Balance Sheets   (Unaudited)
(Dollars in thousands, except share amounts)

  June 30, December 31,
  2020  2019 
ASSETS      
Cash and due from banks $5,898  $4,701 
Interest-earning deposits with banks  205,808   118,395 
  Total cash and cash equivalents  211,706   123,096 
Time deposits with banks  9,941   12,927 
Restricted interest-earning deposits related to consolidated VIEs  6,072   6,931 
Investment securities (amortized cost of $10.3 million and $11.1 million at      
June 30, 2020 and December 31, 2019, respectively)  10,408   11,076 
Net investment in leases and loans:      
 Leases  383,787   426,608 
 Loans  590,892   601,607 
Net investment in leases and loans, excluding allowance for credit losses  974,679   1,028,215 
(includes $50.5 million and $76.1 million at June 30, 2020 and December 31, 2019,      
respectively, related to consolidated VIEs)      
Allowance for credit losses  (63,644)  (21,695)
  Total net investment in leases and loans  911,035   1,006,520 
Intangible assets  7,062   7,461 
Goodwill     6,735 
Operating lease right-of-use assets  8,146   8,863 
Property and equipment, net  8,594   7,888 
Property tax receivables, net of allowance  9,217   5,493 
Other assets  14,034   10,453 
  Total assets $1,196,215  $1,207,443 
       
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Deposits $902,191  $839,132 
Long-term borrowings related to consolidated VIEs  50,890   76,091 
Operating lease liabilities  9,242   9,730 
Other liabilities:      
  Sales and property taxes payable  6,884   2,678 
  Accounts payable and accrued expenses  24,245   34,028 
  Net deferred income tax liability  21,759   30,828 
  Total liabilities  1,015,211   992,487 
       
Stockholders’ equity:      
Preferred Stock, $0.01 par value; 5,000,000 shares authorized; none issued      
Common Stock, $0.01 par value; 75,000,000 shares authorized; 11,945,814 and      
12,113,585 shares issued and outstanding at June 30, 2020 and December 31, 2019,  119   121 
respectively      
  Additional paid-in capital  75,606   79,665 
  Accumulated other comprehensive income (loss)  86   58 
  Retained earnings  105,193   135,112 
  Total stockholders’ equity  181,004   214,956 
  Total liabilities and stockholders’ equity $1,196,215  $1,207,443 


Marlin Business Services Corp. and Subsidiaries

Consolidated Statements of Operations   (Unaudited)
(Dollars in thousands, except share amounts)

    Three Months Ended June 30, Six Months Ended June 30,
    2020  2019 2020  2019
               
Interest income$24,248  $27,082 $50,713  $52,965
Fee income 2,450   3,507  5,216   7,549
 Interest and fee income 26,698   30,589  55,929   60,514
Interest expense 5,428   6,408  11,108   12,370
 Net interest and fee income 21,270   24,181  44,821   48,144
Provision for credit losses 18,806   4,756  43,956   10,119
 Net interest and fee income after provision for credit losses 2,464   19,425  865   38,025
            
Non-interest income:           
 Gain on leases and loans sold 57   3,332  2,339   6,944
 Insurance premiums written and earned 2,249   2,176  4,531   4,308
 Other income 1,489   1,693  9,128   8,897
 Non-interest income 3,795   7,201  15,998   20,149
Non-interest expense:           
 Salaries and benefits 7,668   12,469  17,187   23,920
 General and administrative 5,847   6,068  19,452   19,422
 Goodwill impairment      6,735   
  Non-interest expense 13,515   18,537  43,374   43,342
   (Loss) income before income taxes (7,256)  8,089  (26,511)  14,832
Income tax (benefit) expense (1,374)  1,974  (8,808)  3,576
   Net (loss) income$(5,882)  6,115  (17,703)  11,256
            
Basic (loss) earnings per share$(0.50) $0.50 $(1.50) $0.91
Diluted (loss) earnings per share$(0.50) $0.49 $(1.50) $0.91


Marlin Business Services Corp. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures
(Dollars in thousands, except share amounts)

 Three Months Ended June 30, Six Months Ended June 30,
 2020  2019  2020  2019 
            
Net (loss) income as reported$ (5,882) $ 6,115  $ (17,703) $ 11,256 
Deduct:           
Goodwill impairment          (6,735)    
Charge in connection with workforce reorganization  (877)   (311)   (877)   (311)
Charge in connection with office lease termination  (224)       (224)    
Reversal of charges in connection with executive separation              218 
Tax effect  275    79    1,956    24 
Total adjustments, net of tax  (826)   (232)   (5,880)   (69)
            
Net tax benefit resulting from the CARES Act of 2020          3,256     
Net (loss) income on an adjusted basis$ (5,056) $ 6,347  $ (15,079) $ 11,325 
            
Diluted (loss) earnings per share           
As reported ($0.50)  $0.49   ($1.50)  $0.91 
As adjusted ($0.43)  $0.51   ($1.28)  $0.91 
Return on Average Assets           
As reported  -1.88%   1.94%   -2.91%   1.82%
As adjusted  -1.62%   2.02%   -2.48%   1.84%
Return on Average Equity           
As reported  -12.41%   12.05%   -17.82%   11.26%
As adjusted  -10.67%   12.51%   -15.18%   11.33%
            
Efficiency Ratio numerator as reported$ 13,515    18,537    43,374    43,342 
Adjustments to Numerator:           
Expense adjustments as seen in Net Income reconciliation  (1,101)   (311)   (7,836)   (93)
Acquisition related expenses  (293)   (757)   (671)   (1,472)
Rep & Warranty liability adjustment          (807)    
Pass-through expenses  (13)   (10)   (6,015)   (6,242)
Efficiency ratio numerator on an adjusted basis$ 12,108  $ 17,459  $ 28,045  $ 35,535 
            
Efficiency Ratio denominator as reported$ 25,065  $ 31,381  $ 60,819  $ 68,292 
Adjustments to Denominator:           
Pass-through revenue  380    (79)   (5,124)   (5,722)
Efficiency Ratio denominator on an adjusted basis$ 25,445  $ 31,302  $ 55,695  $ 62,570 
            
Efficiency Ratio           
As reported  53.92%   59.07%   71.32%   63.47%
As adjusted  47.58%   55.78%   50.35%   56.79%


Marlin Business Services Corp. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures
(Dollars in thousands, except share amounts)

 Three Months Ended June 30, Six Months Ended June 30,
 2020  2019  2020  2019 
            
Non-interest Expense / Average total managed assets numerator, as reported$13,515  $18,537  $43,374  $43,342 
Adjustments to Numerator:           
Expense adjustments as seen in Net Income reconciliation (1,101)  (311)  (7,836)  (93)
Acquisition related expenses (293)  (757)  (671)  (1,472)
Rep & Warranty liability adjustment       (807)   
Pass-through expenses (13)  (10)  (6,015)  (6,242)
Non-interest Expense / Average total managed assets numerator, on an adjusted basis$12,108  $17,459  $28,045  $35,535 
            
Non-interest Expense / Average total managed assets           
As reported 4.18%  6.03%  6.58%  7.20%
As adjusted 3.75%  5.68%  4.26%  5.90%
            
General and administrative expense Annualized % of           
  Avg. Fin. Receivables numerator, as reported$5,847  $6,068  $19,452  $19,422 
Adjustments to Numerator:           
Expense adjustments as seen in Net Income reconciliation (224)     (224)   
Acquisition related expenses (200)  (230)  (671)  (471)
Rep & Warranty liability adjustment       (807)   
Pass-through expenses (13)  (10)  (6,015)  (6,242)
General and administrative expense Annualized % of           
  Avg. Fin. Receivables numerator, as adjusted$5,410  $5,828  $11,735  $12,709 
            
General and administrative expense Annualized % of           
Average Finance Receivables           
As reported 2.39%  2.35%  3.91%  3.82%
As adjusted 2.21%  2.26%  2.36%  2.50%


Marlin Business Services Corp. and Subsidiaries

Supplemental Quarterly Data
(Dollars in thousands, except share amounts)

 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
               
Net Income (Loss) $6,115   $7,446   $8,414   ($11,821)  ($5,882)
               
Annualized Performance Measures:              
Return on Average Assets  1.94%   2.34%   2.74%   -3.98%   -1.88%
Return on Average Stockholders' Equity  12.05%   14.58%   16.04%   -22.75%   -12.41%
               
EPS Data:              
Net Income Allocated to Common Stock $6,041   $7,357   $8,313   ($11,821)  ($5,882)
Basic Earnings (loss) per Share $0.50   $0.61   $0.69   ($1.00)  ($0.50)
Diluted Earnings (loss) per Share $0.49   $0.60   $0.69   ($1.00)  ($0.50)
Number of Shares - Basic12,184,996  12,054,944  11,996,446  11,876,147  11,760,479 
Number of Shares - Diluted12,266,851  12,167,962  12,118,193  11,876,147  11,760,479 
               
Cash Dividends Declared per share $0.14   $0.14   $0.14   $0.14   $0.14 
               
New Asset Production:              
Direct Originations $49,038   $41,556   $50,421   $37,821   $6,617 
Indirect Originations $160,279   $139,472   $167,740   $113,760   $58,802 
  Total Originations (1) $209,317   $181,028   $218,161   $151,581   $65,419 
               
Equipment Finance Originations $181,824   $154,781   $186,852   $127,681   $64,572 
Working Capital Loans Originations $27,493   $26,247   $31,309   $23,900   $847 
  Total Originations (1) $209,317   $181,028   $218,161   $151,581   $65,419 
               
Assets originated for sale in the period $18,025   $18,174   $16,344   $3,301   $1,135 
Assets referred in the period $4,140   $2,408   $1,961   $2,509   $664 
Total Sourced Originations (1) $231,482   $201,610   $236,466   $157,391   $67,218 
               
Implicit Yield on Loans Originated:              
Total (1)  12.95%   13.38%   12.43%   12.45%   9.16%
Direct  23.09%   24.38%   23.20%   21.69%   13.80%
Indirect  9.85%   10.10%   9.19%   9.39%   8.64%
Equipment Finance  9.71%   9.57%   8.91%   8.95%   8.80%
Working Capital  34.34%   35.81%   33.51%   31.16%   36.75%
               
Paycheck Protection Program Loans Originated                 $4,178 
Implicit Yield on PPP Loans Originated                  4.56%
               
Assets sold in the period $57,640   $85,425   $114,483   $22,929   $1,127 
               
# of Leases / Loans Equipment Finance  7,648    6,836    7,279    5,863    3,178 
Equipment Finance Approval Percentage  55%   53%   54%   46%   37%
Average Monthly Equipment Finance Sources  1,149    1,067    1,033    932    518 

_________________
      (1)       Excludes Paycheck Protection Program (PPP) Loans Originated.


Marlin Business Services Corp. and Subsidiaries

Supplemental Quarterly Data
(Dollars in thousands, except share amounts)

 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
               
Net Interest and Fee Margin Percentage              
of Average Total Finance Receivables:              
Interest Income 10.50%  10.57%  10.34%   10.49%  9.90%
Fee Income (4) 1.36%  1.48%  1.46%   1.10%  1.00%
Interest and Fee Income 11.86%  12.05%  11.80%   11.59%  10.90%
Interest Expense 2.48%  2.50%  2.36%   2.25%  2.22%
Net Interest and Fee Margin (NIM) 9.38%  9.55%  9.44%   9.34%  8.68%
               
Cost of Funds (2) 2.60%  2.63%  2.57%   2.50%  2.17%
               
Interest Income Equipment Finance$22,390  $22,355  $21,620  $ 21,076  $19,985 
Interest Income Working Capital 3,767   4,389   4,545    4,932   4,095 
               
Average Total Finance Receivables$1,031,774  $1,048,798  $1,034,464  $ 1,008,823  $979,313 
Average Net Investment Equipment Finance 986,075   995,346   977,225    947,696   928,210 
Average Working Capital Loans 45,699   53,452   57,239    61,127   51,103 
               
End of Period Net Investment in leases and loans,              
net of allowance:              
Equipment Finance$1,012,463  $980,799  $947,477  $ 918,264  $876,919 
Working Capital 49,808   53,699   59,043    51,812   34,116 
Total Owned Leases and Loans (3) 1,062,271   1,034,498   1,006,520    970,076   911,035 
               
Assets Serviced for Others 213,797   264,226   341,064    328,252   296,401 
  Total Managed Assets$1,276,068  $1,298,724  $1,347,584  $ 1,298,328  $1,207,436 
               
Average Total Managed Assets$1,229,588  $1,278,394  $1,314,728  $ 1,343,862  $1,292,052 
               
Restructured Receivables:              
Payment Deferral Modification Program:              
Equipment Finance         $ 12,530  $115,941 
Working Capital           6,987   17,876 
Total - $         $ 19,517  $133,817 
               
Total - as a % of Ending Finance Receivables           2.0%  13.7%
Total - # of Contracts           520   5,017 
               
Other Restructured Contracts:              
Total$2,830  $2,323  $2,668  $$3,096  $1,751 

________________

(2)COF is defined as interest expense for the period divided by average interest-bearing liabilities, annualized
(3)Net investment in total finance receivables includes net investment in Equipment finance leases and loans and Working Capital loans.
(4) Effective January 1, 2020, in connection with the adoption of ASU 2016-13 “CECL”, residual income is no longer recorded as a component of fee income and instead is presented within the allowance for loan loss.


Marlin Business Services Corp. and Subsidiaries
Supplemental Quarterly Data
(Dollars in thousands, except share amounts)

 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
               
Portfolio Asset Quality              
               
Allowance              
Total $16,777   $19,211   $21,695   $52,060   $63,644 
% of Total Finance Receivables  1.59%   1.86%   2.15%   5.09%   6.53%
               
Equipment Finance $14,837   $17,115   $19,796   $44,860   $55,682 
% of Net Investment Equipment Finance  1.47%   1.75%   2.09%   4.66%   5.97%
               
Working Capital $1,940   $2,096   $1,899   $7,200   $7,962 
% of Total Working Capital Loans  3.79%   3.80%   3.14%   12.20%   18.92%
               
Net Charge-Offs              
Total $4,861   $5,228   $7,771   $7,846   $8,494 
% on Avg. Finance Receivables, Annualized  1.88%   1.99%   3.00%   3.11%   3.47%
               
Equipment Finance $4,310   $5,038   $6,634   $6,603   $7,872 
% on Avg. Finance Receivables, Annualized  1.75%   2.02%   2.72%   2.79%   3.39%
               
Working Capital $551   $190   $1,137   $1,243   $622 
% on Avg. Finance Receivables, Annualized  4.82%   1.42%   7.95%   8.13%   4.87%
               
Delinquency              
Total Finance Receivables:              
30+ Days Past Due  1.03%   1.27%   1.40%   1.79%   3.83%
60+ Days Past Due  0.62%   0.83%   0.83%   1.00%   2.46%
               
Equipment Finance:              
30+ Days Past Due  1.06%   1.27%   1.40%   1.82%   3.90%
60+ Days Past Due  0.66%   0.87%   0.86%   1.05%   2.52%
               
Working Capital:              
15+ Days Past Due  0.52%   1.89%   1.75%   2.55%   4.38%
30+ Days Past Due  0.47%   1.34%   1.42%   1.14%   2.68%
               


Marlin Business Services Corp. and Subsidiaries

Supplemental Quarterly Data
(Dollars in thousands, except share amounts)

 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
               
               
Delinquency  (continued)              
Total Finance Receivables:              
30+ Days Past Due $10,946   $13,130   $14,081   $18,249   $37,347 
60+ Days Past Due $6,593   $8,542   $8,383   $10,220   $24,015 
               
Equipment Finance:              
30+ Days Past Due $10,706   $12,390   $13,226   $17,576   $36,217 
60+ Days Past Due $6,593   $8,515   $8,112   $10,156   $23,353 
               
Working Capital:              
15+ Days Past Due $268   $1,043   $1,058   $1,504   $1,843 
30+ Days Past Due $240   $740   $855   $673   $1,130 
               
               
Non-Accrual              
Total  0.37%   0.68%   0.55%   0.66%   1.13%
Equipment Finance  0.36%   0.65%   0.49%   0.62%   1.06%
Working Capital  0.48%   1.34%   1.57%   1.28%   2.83%
               
               
Total $3,898   $7,047   $5,592   $6,705   $11,031 
Equipment Finance $3,650   $6,307   $4,646   $5,950   $9,842 
Working Capital $248   $740   $946   $755   $1,189 
               


Marlin Business Services Corp. and Subsidiaries

Supplemental Quarterly Data
(Dollars in thousands, except share amounts)

 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
               
               
Expense Ratios              
Salaries and Benefits Expense $12,469   $10,897   $9,351   $9,519   $7,668 
As a % of Avg. Fin. Receivables (annualized)  4.83%   4.16%   3.62%   3.77%   3.13%
               
Total personnel end of quarter  356    348    348    339    240 
               
General and Administrative Expense $6,068   $6,092   $7,052   $13,605   $5,847 
As a % of Avg. Fin. Receivables (annualized)  2.35%   2.32%   2.73%   5.39%   2.39%
               
Adjusted General and Administrative Expense              
As a % of Avg. Fin. Receivables (annualized) (5)  2.26%   2.23%   2.40%   2.62%   2.21%
               
Non-Interest Expense /              
Average Total Managed Assets  6.03%   5.32%   4.99%   8.89%   4.18%
               
Adjusted Non-Interest Expense /              
 Average Total Managed Assets (6)  5.68%   5.10%   4.56%   4.74%   3.75%
               
Efficiency Ratio  59.07%   48.02%   43.22%   83.51%   53.92%
               
Adjusted Efficiency Ratio (6)  55.78%   46.05%   40.23%   52.68%   47.58%
               

_________________

(5)Adjusted general and administrative expense adjusts certain items, as defined in the reconciliation of GAAP to Non-GAAP financial measures.  See schedule for details.
(6) Adjusted non-interest expense adjusts certain items, as defined in the reconciliation of GAAP to Non-GAAP financial measures.  See schedule for details.


Marlin Business Services Corp. and Subsidiaries

Supplemental Quarterly Data
(Dollars in thousands, except share amounts)

 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
               
Balance Sheet:              
Assets              
Investment in Leases and Loans $1,057,726   $1,032,868   $1,007,707   $1,002,611   $956,981 
Initial Direct Costs and Fees  21,322    20,841    20,508    19,525    17,698 
Reserve for Credit Losses  (16,777)   (19,211)   (21,695)   (52,060)   (63,644)
Net Investment in Leases and Loans $1,062,271   $1,034,498   $1,006,520   $970,076   $911,035 
Cash and Cash Equivalents  139,731    132,461    123,096    211,070    211,706 
Restricted Cash  8,152    7,576    6,931    6,474    6,072 
Other Assets  69,829    72,881    70,896    75,917    67,402 
Total Assets $1,279,983   $1,247,416   $1,207,443   $1,263,537   $1,196,215 
               
Liabilities              
Deposits  888,561    869,257    839,132    941,996    902,191 
Total Debt  109,637    91,739    76,091    62,193    50,890 
Other Liabilities  76,231    77,633    77,264    70,858    62,130 
Total Liabilities $1,074,429   $1,038,629   $992,487   $1,075,047   $1,015,211 
               
Stockholders' Equity              
Common Stock $123   $122   $121   $119   $119 
Paid-in Capital, net  82,724    80,226    79,665    75,647    75,606 
Other Comprehensive Income (Loss)  48    89    58    20    86 
Retained Earnings  122,659    128,350    135,112    112,704    105,193 
Total Stockholders' Equity $205,554   $208,787   $214,956   $188,490   $181,004 
               
Total Liabilities and              
Stockholders' Equity $1,279,983   $1,247,416   $1,207,443   $1,263,537   $1,196,215 
               
Capital and Leverage:              
Equity $205,554   $208,787   $214,956   $188,490   $181,004 
Debt to Equity  4.86    4.60    4.26    5.33    5.27 
Equity to Assets  16.06%   16.74%   17.80%   14.92%   15.13%
               
Regulatory Capital Ratios:              
Tier 1 Leverage Capital  15.24%   15.28%   16.31%   16.18%   15.05%
Common Equity Tier 1 Risk-based Capital  17.01%   17.72%   18.73%   18.64%   19.33%
Tier 1 Risk-based Capital  17.01%   17.72%   18.73%   18.64%   19.33%
Total Risk-based Capital  18.26%   18.98%   19.99%   19.94%   20.65%

MarlinCS_PMS.png

Source: Marlin Business Services Corp.