Marlin Business Services Corp. Reports Third Quarter 2010 Results

Third Quarter Highlights:
  • Net Income of $1.4 million, an increase of 182% over the third quarter of 2009
  • Increased sales force by 15 full-time equivalents to 84
  • 12.9% increase in origination funding from the second quarter of 2010
  • 30+ day lease delinquencies improved 29 basis points from the second quarter of 2010 and improved 120 basis points from third quarter of 2009
  • Non-performing assets improved 15% from the second quarter of 2010 and 54% from third quarter of 2009
  • Available committed funding of $105 million
  • Strong capital position, equity to assets ratio of 33.1%
  • Total risk-based capital of 40.24%

MOUNT LAUREL, N.J., Nov. 8, 2010 (GLOBE NEWSWIRE) -- Marlin Business Services Corp. (Nasdaq:MRLN) today reported third quarter 2010 net income of $1.4 million, or $0.11 per diluted share, and net income on an adjusted basis of $1.4 million, or $0.11 per share.

"Despite the lingering effects of a weak economy, we're pleased with the solid results for the quarter," says Daniel P. Dyer, Marlin's CEO. "We continue to make steady progress on the sales side, with solid new lease originations growth and continued investment in the sales force. Portfolio credit quality is in very good shape and the underlying credit and profit fundamentals of the business are solidly intact to support profitable growth in the future. Looking ahead, our attention is squarely focused on disciplined growth and capitalizing on the exciting opportunity to serve the growing demand for our services by customers across the U.S."   

Third quarter 2010 lease production was $35.8 million, based on initial equipment cost, up 12.9% from $31.7 million for the second quarter of 2010. Approval rates on lease originations were 49% for the third quarter of 2010. The average implicit yield on new lease production was 14.40% in the third quarter of 2010. Net interest and fee margin was 12.26% for the third quarter of 2010 compared to 11.66% in the second quarter of 2010 and 10.20% a year ago.

The Company increased its sales force 22% in third quarter 2010 to 84 full-time equivalents.

Credit trends continued to improve and have returned to historic levels. Highlights for the third quarter of 2010 included:
  • Leases over 30 days delinquent were 2.35% of Marlin's lease portfolio, which is 29 basis points lower than the second quarter of 2010 and the lowest since third quarter of 2006.  On a dollar basis, 30+ day delinquencies have decreased 15% from the second quarter of 2010.
  • Leases over 60 days delinquent were 1.03% of Marlin's lease portfolio, which is 17 basis points lower than the second quarter of 2010 and the lowest since the fourth quarter of 2007. On a dollar basis 60+ day delinquencies have decreased 18% from the second quarter of 2010.
  • Non-performing assets of $2.4 million were 15% lower than the second quarter of 2010.
  • Net lease charge-offs of $2.8 million were 20% lower than the second quarter of 2010 levels.  
  • Static pool credit losses and delinquency performance continue to be at or better than expectations for 2008, 2009 and 2010 vintages.
  • Reflecting improving credit trends, the allowance for credit losses as a percentage of total finance receivables stands at 2.31% as of September 30, 2010 compared to 2.40% as of June 30, 2010 and 2.71% as of December 31, 2009.

In conjunction with this release, static pool loss statistics and vintage delinquency analysis have been updated as supplemental information on the Investor Relations section of the Company's website at www.marlincorp.com.

At September 30, 2010, the Company had outstanding $110.6 million of leases and loans funded through its banking subsidiary, Marlin Business Bank, and had $95.4 million in FDIC-insured deposits outstanding at an average borrowing rate of 2.69% with a weighted average term to maturity of 2.9 years. Average deposits outstanding for the third quarter of 2010 were $96.3 million at a weighted average interest rate of 2.70%.

On September 24, 2010, Marlin Leasing Receivables XIII LLC, an affiliate of the Company, closed on a $50 million three-year committed funding facility with Key Equipment Finance Inc. The facility will be used by the Company to fund its growth, increasing its ability to extend flexible equipment financing options to small- and medium-sized businesses nationwide.

At September 30, 2010, the Company had $105 million of available funding through its bank facilities and Marlin Business Bank.

In our form 10Q filed on August 6, 2010, we disclosed that we were in discussions with the Federal Reserve Bank in connection with the Federal Reserve Bank's interpretation of the Interagency Policy Statement on the Allowance for Loan and Lease Losses (SR 06-17) dated December 13, 2006 (the "ALLL Policy Statement") and the appropriate application of the ALLL Policy Statement to management's estimates used in determining the Company's allowance for credit losses (the "Allowance").  On October 27, 2010, Marlin Business Bank received a written determination from the Federal Reserve Bank of San Francisco and the Utah Department of Financial Institutions (the "MBB Report"). We do not believe that any of the recommendations in the MBB Report require a material adjustment by the Company.

While the Company has not received a written determination from the Federal Reserve Bank of Philadelphia in connection with the ALLL Policy Statement and Allowance discussion, if the Company receives such a written determination and if, as a result of the Company's review of such written determination, management determines that it should revise its estimates or methodology used to compute the Allowance, such changes could have a material impact on the size of the Allowance.

Conference Call and Webcast

We will host a conference call on Tuesday, November 9, 2010 at 9:00 a.m. ET to discuss the Company's third quarter 2010 results. If you wish to participate, please call 877-312-5414 approximately 10 minutes in advance of the call time. The conference ID will be: "Marlin." The call will also be webcast on the Investor Relations page of the Company's website, www.marlincorp.com. An audio replay will also be available on the Investor Relations section of Marlin's website for approximately 100 days.

About Marlin Business Services Corp.

Marlin Business Services Corp. is a nationwide provider of equipment leasing to small businesses. The Company's principal operating subsidiary, Marlin Leasing Corporation, finances over 100 equipment categories in a segment of the market generally referred to as "small-ticket" leasing (i.e., leasing transactions less than $250,000). The Company was founded in 1997 and completed its initial public offering of common stock on November 12, 2003. For more information, visit www.marlincorp.com or call toll free at (888) 479-9111.

The Marlin Business Services Corp. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4087

Forward-Looking Statements

This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All forward-looking statements (including statements regarding 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," "intend," and similar expressions are generally intended to identify forward-looking statements. Economic, business, funding, market, competitive, legal and/or regulatory factors, among others, 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 in our filings with the SEC, including the sections captioned "Risk Factors" and "Business" in the Company's Form 10-K filed with the Securities and Exchange Commission. 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.

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)

     
  September 30, December 31,
  2010  2009
  (Dollars in thousands, except per-share data)
ASSETS    
Cash and due from banks $1,310  $1,372 
Interest-earning deposits with banks 42,790  35,685 
Total cash and cash equivalents 44,100  37,057 
Restricted interest-earning deposits with banks (includes $44.8 million and $57.1 million,    
 respectively, related to consolidated variable interest entities ("VIEs")) 47,384  63,400 
Securities available for sale (amortized cost of $1.5 million) 1,557  — 
Net investment in leases and loans (includes $184.3 million and $238.0 million, respectively,    
 related to consolidated VIEs) 361,143  448,610 
Property and equipment, net 2,020  2,431 
Property tax receivables 592  1,135 
Other assets 9,509  13,170 
Total assets 466,305  565,803 
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Short-term borrowings $—  $62,541 
Long-term borrowings (includes $159.5 million and $226.7 million, respectively, related to    
 consolidated VIEs) 191,858  244,445 
Deposits 95,358  80,288 
Other liabilities:    
 Fair value of derivatives —  2,408 
 Sales and property taxes payable 5,291  4,197 
 Accounts payable and accrued expenses 7,198  7,649 
 Net deferred income tax liability 12,090  16,037 
Total liabilities 311,795  417,565 
     
Commitments and contingencies    
     
Stockholders' equity:    
 Common Stock, $0.01 par value; 75,000,000 shares authorized;    
 12,870,979 and 12,778,935 shares issued and outstanding, respectively 129  128 
 Preferred Stock, $0.01 par value; 5,000,000 shares authorized; none issued —  — 
 Additional paid-in capital 86,608  84,674 
 Stock subscription receivable (2) (3)
 Accumulated other comprehensive loss (153) (267)
 Retained earnings 67,928  63,706 
 Total stockholders' equity 154,510  148,238 
Total liabilities and stockholders' equity $466,305  $565,803 

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited)
  Three Months Ended September 30, Nine Months Ended September 30,
  2010 2009 2010 2009
  (Dollars in thousands, except per-share data)
Interest income $11,421  $15,591  $36,245  $51,944 
Fee income 3,567  4,288  10,884  13,702 
Interest and fee income 14,988  19,879  47,129  65,646 
Interest expense 3,590  6,448  12,204  21,724 
Net interest and fee income 11,398  13,431  34,925  43,922 
Provision for credit losses 2,083  5,951  7,700  21,493 
Net interest and fee income after provision for credit losses 9,315  7,480  27,225  22,429 
         
Other income:        
 Insurance income 985  1,186  3,130  4,051 
 Gain (loss) on derivatives (9) (1,164) (128) (1,825)
 Other income 354  409  948  1,205 
 Other income 1,330  431  3,950  3,431 
Other expense:        
 Salaries and benefits 4,947  4,051  14,659  14,994 
 General and administrative 3,156  3,076  9,275  9,761 
 Financing related costs 131  51  433  361 
 Other expense 8,234  7,178  24,367  25,116 
 Income before income taxes 2,411  733  6,808  744 
Income tax expense 977  225  2,586  169 
 Net income $1,434  $508  $4,222  $575 
         
Basic earnings per share $0.11  $0.04  $0.33  $0.05 
Diluted earnings per share $0.11  $0.04  $0.33  $0.05 
         
Weighted average shares used in computing basic earnings        
per share 12,872,123  12,607,147  12,826,263  12,499,578 
Weighted average shares used in computing diluted earnings        
per share 12,933,439  12,649,800  12,888,662  12,522,685 

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES Net Income on an Adjusted Basis Reconciliation to GAAP Results (Unaudited)

 
  Three Months Ended September 30, Nine Months Ended September 30,
  2010 2009 2010 2009
  (Dollars in thousands)
         
Net income as reported $ 1,434 $ 508 $ 4,222 $ 575
         
Deduct:        
 Loss on derivatives  (9)  (1,164)  (128)  (1,825)
  Tax effect  4  460  51  721
Gain (loss) on derivatives, net of tax  (5)  (704)  (77)  (1,104)
Net Income on an Adjusted Basis $ 1,439 $ 1,212 $ 4,299 $ 1,679
         

Net Income on an Adjusted Basis is defined as net income excluding the gain (loss) on derivatives, net of tax. The Company believes that Net Income on an Adjusted Basis is a useful performance metric for management, investors and lenders, because it excludes the volatility resulting from derivatives activities subsequent to discontinuing hedge accounting in mid-2008.
     
SUPPLEMENTAL QUARTERLY DATA   
(Dollars in thousands, except share amounts)  
(Unaudited)  
   
   
Quarter Ended: 9/30/2009 12/31/2009 3/31/2010 6/30/2010 9/30/2010
           
New Asset Production:          
# of Sales Reps 34 38 53 69 84
# of Leases 1,916 2,205 2,476 3,009 3,253
Leased Equipment Volume $16,813 $20,031 $23,636 $31,729 $35,759
           
Approval Percentage  38% 44% 46% 49% 49%
           
Average Monthly Sources 371 421 484 581 625
           
Implicit Yield on New Leases 15.62% 15.32% 15.32% 14.56% 14.40%
           
Net Interest and Fee Margin:          
Interest Income Yield 11.84% 11.89% 11.90% 12.12% 12.28%
Fee Income Yield 3.25% 3.12% 3.54% 3.54% 3.84%
Interest and Fee Income Yield 15.09% 15.01% 15.44% 15.66% 16.12%
Cost of Funds 4.89% 4.73% 4.32% 4.00% 3.86%
Net Interest and Fee Margin 10.20% 10.28% 11.12% 11.66% 12.26%
           
Average Total Finance Receivables  $526,829 $474,326 $431,176 $395,906 $371,833
Average Net Investment in Leases $519,791 $469,040 $427,416 $393,248 $369,973
           
End of Period Net Investment in Leases $494,102 $444,583 $405,424 $378,559 $359,859
End of Period Loans $5,454 $4,027 $2,781 $2,101 $1,284
           
Portfolio Asset Quality:          
           
Total Finance Receivables          
30+ Days Past Due Delinquencies 3.62% 3.46% 3.06% 2.70% 2.38%
30+ Days Past Due Delinquencies $20,215 $17,297 $13,829 $11,358 $9,537
           
60+ Days Past Due Delinquencies 1.69% 1.67% 1.39% 1.24% 1.05%
60+ Days Past Due Delinquencies $9,431 $8,334 $6,288 $5,202 $4,213
           
Leasing          
30+ Days Past Due Delinquencies 3.55% 3.38% 3.00% 2.64% 2.35%
30+ Days Past Due Delinquencies $19,583 $16,790 $13,470 $11,031 $9,359
           
60+ Days Past Due Delinquencies 1.65% 1.63% 1.37% 1.20% 1.03%
60+ Days Past Due Delinquencies $9,103 $8,101 $6,135 $5,015 $4,099
           
Net Charge-offs - Total Finance Receivables $7,636 $5,796 $5,063 $3,596 $2,879
% on Average Total Finance Receivables          
 Annualized 5.80% 4.89% 4.70% 3.63% 3.10%
           
Net Charge-offs - Leasing $7,039 $5,469 $4,843 $3,489 $2,778
% on Average Net Investment in          
 Leases Annualized 5.42% 4.66% 4.53% 3.55% 3.00%
           
Allowance for Credit Losses $12,293 $12,193 $10,253 $9,151 $8,355
% of 60+ Delinquencies 130.35% 146.30% 163.06% 175.91% 198.31%
           
90+ Day Delinquencies (Non-earning total finance  receivables) $5,209 $4,557 $3,399 $2,819 $2,398
           
Balance Sheet:          
Assets          
Investment in Leases and Loans $499,802 $450,595 $409,637 $381,978 $362,328
Initial Direct Costs and Fees 12,047 10,208 8,821 7,833 7,170
Reserve for Credit Losses (12,293) (12,193) (10,253) (9,151) (8,355)
Net Investment in Leases and Loans $499,556 $448,610 $408,205 $380,660 $361,143
Cash and Cash Equivalents 50,441 37,057 44,334 35,178 44,100
Restricted Cash 64,920 63,400 65,521 66,546 47,384
Other Assets 13,140 16,736 16,461 12,611 13,678
Total Assets $628,057 $565,803 $534,521 $494,995 $466,305
           
Liabilities          
Total Debt $362,966 $306,986 $268,434 $218,987 $191,858
Deposits  80,060  80,288  85,135  96,852  95,358
Other Liabilities 37,573 30,291 30,434 26,534 24,579
Total Liabilities $480,599 $417,565 $384,003 $342,373 $311,795
           
Stockholders' Equity          
Common Stock $126 $128 $128 $129 $129
Paid-in Capital, net 84,239 84,671 85,689 86,204 86,606
Other Comprehensive Income (152) (267) (242) (205) (153)
Retained Earnings 63,245 63,706 64,943 66,494 67,928
Total Stockholders' Equity $147,458 $148,238 $150,518 $152,622 $154,510
           
Total Liabilities and           
Stockholders' Equity $628,057 $565,803 $534,521 $494,995 $494,995
           
Capital and Leverage:          
Equity $147,458 $148,238 $150,518 $152,622 $154,510
Debt to Equity 3.00 2.61 2.35 2.07 1.86
Equity to Assets 23.48% 26.20% 28.16% 30.83% 33.13%
           
Regulatory Capital Ratios:          
Tier 1 Leverage Capital 22.31% 24.89% 27.69% 29.43% 31.92%
Tier 1 Risk-based Capital 27.16% 30.19% 33.35% 36.61% 38.98%
Total Risk-based Capital 28.43% 31.45% 34.61% 37.87% 40.24%
           
Expense Ratios:          
Salaries and Benefits Expense $4,051 $4,078 $5,124 $4,588 $4,947
Salaries and Benefits Expense          
Annualized % of Avg. Fin. Recbl. 3.08% 3.44% 4.75% 4.64% 5.32%
           
Total personnel end of quarter 175 181 196 211 229
           
General and Administrative Expense $3,076 $3,092 $3,046 $3,073 $3,156
General and Administrative Expense           
Annualized % of Avg. Fin. Recbl. 2.34% 2.61% 2.83% 3.10% 3.40%
           
Efficiency Ratio 47.43% 52.01% 60.82% 59.70% 63.62%
           
Net Income:          
Net Income $508 $461 $1,237 $1,551 $1,434
           
Annualized Performance Measures:          
Return on Average Assets 0.31% 0.31% 0.90% 1.20% 1.19%
Return on Average Stockholders' Equity 1.38% 1.25% 3.31% 4.09% 3.73%
           
Per Share Data:          
Number of Shares - Basic 12,607,147 12,681,773 12,778,463 12,832,792 12,872,123
Basic Earnings per Share $0.04 $0.04 $0.10 $0.12 $0.11
           
Number of Shares - Diluted 12,649,800 12,724,998 12,833,643 12,904,163 12,933,439
Diluted Earnings per Share $0.04 $0.04 $0.10 $0.12 $0.11
           
Net investment in total finance receivables includes          
net investment in direct financing leases and loans.        
CONTACT:  Marlin Business Services Corp.          Lynne Wilson           888 479 9111 Ext. 4108

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