Marlin Business Services (MRLN) 3 May 192019 Q1 Earnings call transcript

Greetings, and welcome to the Marlin Business Services Corp., First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lasse Glassen, Managing Director, Investor Relations. Thank you sir, you may begin.

Good morning, and thank you for joining us today for Marlin Business Services Corp.'s 2019 First Quarter Results Conference Call. and Jeff Vice and Officer, President Bogansky, Vice is Lou Executive and call Senior Senior Officer. Maslowe, and President today's Hilzinger, Chief President Officer, Mike On Financial Chief Chief Risk

refer variety from beginning due of the Marlin's a made filings factors. made could XXXX. may Jeff? the of more of and turn under operating With with Actual detailed company's to call call that and that pleasure conditions. Securities results to Private materially the be statements let remind the President you results today CEO, me risks that Before over recent you Jeff those to my today's Litigation implied Marlin's SEC it's some and financial Hilzinger. the forward-looking discussion a for will of projected impact or are , We now future Reform the to differ Act

thank into XXXX begin us morning recent joining from you financial stable XXXX Chief equipment start progress volume with origination portfolio and Good for Lasse. our solutions overview Chief solid and an provider our execution comment Mike additional business and to Financial on first with quarter with capital a you. Risk Bogansky, outlook. strong first from enjoyed to Officer Maslowe, small results performance. of businesses. quarter of on the along lessor delivered strategy our is Lou and on growth our details our will company Thank We nationwide transforming Officer the everyone an portfolio performance and will excellent follow that highlights our a results. our discuss to I'll

all leases strong demand year-over-year for was up both XX.X% indirect time quarter. referred customer our and in origination sold $XX.X was our channels Origination strong finance of working was driven in growth initiatives. million origination $XXX.X or First Growth of capital for quarter, part and also sourced loan quarter our capital we volume the record equipment and total and products. markets by both loans first volume as direct million and an

both capital billion year As a an result $X XX% sheet others, and is investment but of increase first our and from of assets which net includes $X.X now origination leases Total portfolio for loans in up than we consistently year. these continue billion, quarter from sell managed XX.X% excess the in and ago. balance markets activities, to our assets and of service more grew last to the

to a In portfolio addition, our continues be focus and was and top stable performance standards during priority the on underwriting quarter expectations. maintaining disciplined within

our profitability, at share we share $X.XX Looking quarter diluted in of earnings first per compared last diluted year. the reported with $X.XX per GAAP

was due adoption impacted timing new by accounting First the quarter standard. negatively net lease $X.XX to expense a of result income of recognition the as of

the over expect more to remarks. will of normalize his Mike timing We discuss in the detail impact course which the year, in

recent our continue We the in to earnings towards half be weighted heavily we've of more also expect made returns. generate continue XXXX the as salesforce to to investments second

here the officially formally ground he Vice Senior as and who's for gives and It guidance in full to Importantly, has me Financial President earnings we are year. the Officer. Chief great call February the Marlin’s definitely Mike in reiterating today pleasure introduce earnings first our Mike running. early company also his participating Bogansky, joined hit

to In American reaffirms identity their Marlin’s small businesses regularly the The him services by analytics, new shape I'm accounting, increasingly Also, becoming launch new early be delighted financial inject mission Marlin incorporates accompanied we energy, the level now Marlin's February and I'm businesses team. investor planning Mike and logo leading The from person and is in a agree CFO vision strategic hear the reporting, with tagline. tax financial of order confident small of activities website small for with that our and and reflect knowledge to a me provider the helping that fulfill of in you will products part Marlin’s and right nationwide. an functions, we brand with that treasury, rebrand relations more into to spark he's symbolizes credit more the announced financial which him new interact brand our is us you lead mission, future, businesses. the that of responsible congruent of As new dream. and logo, unifies is capital this to our at Mike today and when

Our on goals. Works” The new reflecting agile, approachable that business them videos Marlin new new helped their informal with relationship how speaks partners features, voice website ���Lending helpful, their trustworthy, the the achieve to brand. and and tagline, and customers behind we've and

share consistent by initiative our MarlinX.X be to improve on this executing processing to better switch to an initiative, each costs and If I'd second, origination first, expanding at costs target expect like provide to on to I’d by to gears improvements our a growth proactively with transformation and areas drive progress scale website in last call. better costs operational as you brand better you fixed haven't improving unit update profile and we new take look invite already, strategically and marlincapitalsolutions.com. these our reduce our market, at the I leveraging known business fixed risk since managing the and risk equity you the and four, operating with portfolio like now made capital base by leveraging growth, returns to through appetite. company's of company's new our third, the to we've efficiency

the than and with lessor, ourselves our we multiple thinking an of now meet on of solely respect to solutions and customers. needs equipment our strategic providing business as expansion, to First, partners market small rather are financing focused products

also expanded continuing end-user directly In but our addition, strategy partners, customers. also through our only go-to with vendor our we have originate not market by to equipment

to the consistently with pleased be we of to strong our As our a finance performance product. capital compliment loan traditional very equipment working business, continue

for this First offering the largest loan mid-XXXX. mark product origination more single capital loan than the began in $XX.X working to volume XX% expanded working we quarter million origination quarter capital since by volume year-over-year

remain our with pleased efforts solutions customers. to provide to end-user directly financing also our We

by to additional needs. their offering are customers is we over opportunities relationships built two existing including by the X,XXX past strategy we more quarter. successfully new financing active each create identify products set along leveraging approximately decades, customers that meeting direct relationships multiple with with with of our ongoing broader Here than objective these to business The customer and XX,XXX relationships small a customers under financing these originate

origination up million of million increase $XX.X the direct quarter, volume increased in XX%. the last in resulting $XX.X to year-over-year of During year, a from quarter first

progress strong and past during focuses portfolio equity to key were year ratio good a made Driven origination and approximately on We reduce solid ago. year, capital and assets Marlin's growth. year by this on second growth the also priority, XXX volume points basis to through our leveraging by fixed XX.X% we Marlin's during full XX.X% which quarter to costs able from

terms credit managing assets classes. asset and exposure returns, Overall, to Marlin's and portfolio to by way in its diversify syndication better size overall as view sales risk composition continues remains program asset particular Our to and of achieve and very a we industries, funding optimization sources. active also geographies,

generated of quarter the sold gain in assets nearly sale pre-tax X.X net on an million. that XX million approximately immediate we first During

Importantly, customers to ongoing direct us sold, we these continue asset service strategy. our an allows to support relationship which the maintain of with in

for $XXX quarter a As first million approximately of portfolio of servicing the were end others. we of the

X.X% company's investment the last Moving our fixed reduction deferred first adopted the The force on quarter was do and XX.X% last first this After the adjusting to as expense change increase Company's year. versus increased we efficiency The origination for in receivables XX.X% and by first was was a in expect our average quarter ratio year, the in noninterest to in continue X.X% adjusted for We the costs. strides the third in improving basis to during quarter the standard of primarily costs renewal area quarter through leveraging compared due sales X, lease fixed costs January ratio a and as generate the from related investment grow and we our and the as returns for growth accounting quarter first on basis make initiatives. to and for salesforce acquisition we capital operating more same percentage first to through operating process efficiencies a year. better of the year-over-year managed focus, various improve ratio portfolio the temporary non-GAAP efficiently on process finance our our leverage with ongoing our operate to also in continue through for cost improvements.

metrics notwithstanding appetite, they quarters managing an final to fraud. the as credit to quarter's our The of the Lou did profile stable and quarter within risk in portfolio last range. the remained with area fourth proactively first be last company's over impact several is will key quality perform and again Our Lou? remarks. with our continues acceptable vendor that, in-line Officer details strong continuing in we enjoyed the of first risk from focus portfolio's solid portfolio XXXX. to Maslowe, turn Risk our performance a his our discuss I'd in performance to the year now momentum poised we like in and Lou detail. In call summary, additional provide With build to on quarter a the more to are the over for Chief have

and good Jeff, everyone. you, Thank morning,

quarter XX days delinquency metrics, Equipment quality from receivables a up to the XX up than save Finance were basis five delinquency Increased day Finance and bucket in from from XXXX. first of of greater points days basis quarter at Finance in and prior higher X.XX%, points over three first six primarily two Equipment points to XXXX. typical XX the key over Looking rates. attributable is X.XX%, asset due quarter quarter basis from Equipment prior quarter up the the the the plus delinquent basis points the receivables were delinquent first

the year it’s of single due quarter’s XX XXXX. on compared decreased fraudulent charge-off year-over-year. delinquency the increase charge-offs with that consistent in our over we have annualized small XX million fourth quarter Finance and to within a quarter. X.XX% to to an in $X.X decreased off point Equipment fraudulent XX-day February flat past trend. of activity As was by charge-offs finance from the X.XX% the first Aggregate quarter that and X.XX% by portfolio business in noted modest improvement Sequential resulted XX- delinquency remained delinquency primarily was last year-over-year. The in first index, benchmark average last still range. is which the expected that net vendor. up quarter basis charged observed quarter points increase in quarter-over-quarter The A basis X.XX% entire as to to market the was prior receivables utilize level, in we in PayNet quarter, the basis,

first tools in in implemented quarter prevention the remains benefited expect do so priority continue strong from first the recovery for to we the quarter, the additional fraud resources During Finance to top fraud as save company. and noted higher rate earlier. prevention and charge-offs a Equipment

range. delinquency to our points. was the decreased capital overall fourth quarter, and portfolio in the XX Finance Equipment delinquency within day plus With losses the Transitioning incident, quarter discuss of basis fourth from first credit we anticipate Equipment XXXX XX level now satisfied quarter we relatively performance of day exception plus will while Finance of targeted the working loans. our unchanged remain in XX the remain with fraud the by that A

smaller loan The the the loan As capital to receivables more of working discussed for in are increased first of larger January. delinquency prior the basis X.X% delinquency contracts. the on increase number charge-offs quarter. given end the fourth higher in the charge-off by from fourth of Finance charge-offs Working driven two than capital the charge-offs on They quarter plus of an quarter X.XX% were primary annualized the volatile the quarter finance X.XX% and from day average cause and contracts calls, XX in of the and XXXX. Equipment first balances prior in large was for at quarter

was losses Loan the our performance capital target the quarter loss capital projected continue anticipate a curve, an the perform X.XX%. late was very higher range. X.XX% loss percentage that to driven Capital finance economic expected in by the first of We a signal our the was we working X.XX% acceptable targeted of was on the as finance credit in results within basis receivable, X% from Working that working uptick Based four over loan change or credit primarily for to lifetime average XX% points allowance [indiscernible] the Equipment X.X%. five portfolio allowance The the average working delinquency not target increase believe quarter in decreased capital the charge-off annualized mentioned losses. X.XX%. quality. to Finance first of charge-offs stage the quarters performance on due projected X.XX% in from allowance product up do current the the past While Based The product environment, receivables exceeded earlier. curves, for that We charge-offs the to

to continue we through portfolio ahead, expect Looking performance XXXX. satisfactory

small outlook of benchmarks we Our metrics our that I'll based quality more ticket small Mike? our to over Mike favorable stable as call and performance. that, a continued quarter financial business on Marlin's the first portfolio turn discussion detailed is monitor. Bogansky, as credit well With optimism for CFO,

Lou, you, and Thank good morning everyone.

per diluted to diluted income or for $X.XX net share of or year. $X.XX quarter was share $X.X million first per million quarter First the compared $X.X last

includes and share property acceleration in as amount result was quarter by the by of accounting adoption the $X.XX standard. the negatively reduction net of in $X.XX the uncollectible origination. allowable influenced with share tax a This per the of recognition the costs expense per for $X.XX associated first lease noted, the new As share Jeff provision lease from per impacted of from timing income revenue deferred

second We year returns. investments earnings expect the the our for to to are and continue generate half force reiterating to heavily sales weighted be the we our continue as guidance more in of full XXXX earnings towards

the XX.XX%, the the was on For XX prior points quarter XX and first quarter, quarter up total basis yield basis up from of from XXXX. points originations

quarter generally primarily XX.XX%, lower for yields continued mix the the the Working this was base of The with in points XX indirect primarily on risk. fourth through on lower the down X.XX% our originations ability that due quarter have to Loans Capital quarter origination platforms the to from prior and the was rate due channel. yield shift quarter basis points First to pass XXX increases originations direct mix in yield basis our from credit but towards up

down The decrease year-over-year net offset from year. an XX NIM XX down a lease NIM, first or margin expense, quarter X.XX% new partially the and was quarter, origination For the XXXX. was over interest from and increase points points the increase of XX prior of basis an points result basis in quarter in last the of by interest basis primarily loan basis in yield on the

as continue will funds of as to through We we've discussed continue we to our the environment experience increases market pricing allow. previously, a in and competitive pass cost will as aggressively

certain pricing environment may We to channel. in continuing of are channel competitive our risk-based and also pricing addressing direct refine the our portions implementing it indirect in

balance a can the So we that credit at new on business risk underlying level. granular with yield more

costs $X.X we previous from increased increase result continue percent the ROE finance securitized more costs The from quarter the presentation ASC in prior securitization X.XX% interest related lessee. of January net new taxes of of receivables time leverages by with lease quarter company's to $XX.X by XXXX, Noninterest on increase the from was is prior in increased the adoption behalf offset noninterest expense rate. quarters leases and third as the an increase impact the compared accounting quarter was features sale on with XXXX, certain interest administrative in year as period. generated income. is increased of prior year over securitization. company average million the for increase strong funding general to insurance than increase statements of in important a with better fully accounting, the as as The increase the of first of paid with on of sale us standard in of to the operation over expense this in that $X.X the the an deposit million income paid of the assets This the was first on expenses year for to quarter and attributable compared achieve being on rates income enabled lessor the $X.X that new receivables sold. release as Accordingly, spreads compared We to the is offset the percent average to Interest in flat and million Xst, was with a the quarter an deposits. X.XX% The XXXX yield net the property and course for our leverage accretive realized will a of rollout lower million due company's and which to by due expense. to ago primarily investment the execution for XXXX these and income for we we note by to tax consolidated lease XXXX. loans to on balance as property X.XX% requires in compared gross due The on well interest capital due affected an an with expense year. asset in lessees. increased fully coupled curve the the the quarter noninterest primarily We is the finance of adoption that swap deposits, the to XXX funded quarter assets It first increased in in also completed associated on rates gains increase growth the ago for

the with the the in year. the million First quarter aforementioned the ago noninterest the in to statement of taxes adoption property ASC quarters $X.X due of operations. increased presentation consolidated in change to which primarily XXX, $XX.X due was $XX.X expense noninterest prior expense first year of by and expense compared noninterest and was increase in million with prior last in quarter quarter The $XX.X million the million compared

including employees acquisition $XXX,XXX new And of of a our the to investment building in the primarily acquisition addition XX is noninterest a increase $XXX,XXX our our from sales to nonrecurring lease that related attributable our and year-over-year with $XXX,XXX expenses we number of as renovations complete increase items launch brand of force, extended. to and temporary expense of finally, on associated costs. Additionally, recently expenses ancillary the we prior

repurchases. repurchased share the of of During the that on of million Marlin we shares approximately program remains XX,XXX $XX.XX available for average first future we XXXX, share. authorization have an date, May was XXth, per quarter XXXX, announced our of of half $X utilized million To stock for price as $XX repurchase common

we of at Directors XX, continue we alternatives, capital payable time. XXXX. appropriate dividend a our evaluate May XX, are While our finally, as May $X.XX on share of this And Board use share record allocation capital an to per repurchases that to quarterly continue regular declared believe of XXXX, shareholders of to of

Now turning business to our outlook.

reaffirming Total XXXX, guidance XXXX volume sourced are follows: XX, is issued previously the our year XX% finish expected We as full for approximately above to December levels. ending origination

line expected the as Excluding let's Operator? is the be performance XX%. up between experienced $X.XX in observed vendor XXXX, concludes That is the call and the be the with company fourth operating expected X.X% to margin scale. and fraud percentage average our between with receivables XXXX quarter questions. for of And in the remarks continues earnings to months. to prepared results improve is ROE to per share expected is to to in Net interest improve continue and non-GAAP portfolio that a expected lastly, $X.XX. open and over remain last fee XX finance of as

you. Thank

[Operator conducting be We a you. Thank Instructions] will session. now question-and-answer

proceed William question line with Please your question. of Blair. comes Hogan first with Our Brian from the

good morning. Hey,

morning. Good

Just one first. housekeeping little thing,

Your a than anticipated, tax what little just you that? forward, from expect do rate lower going

XX% tax XX% state some be just Brian. due should Hi. Tax We some and reductions is Mike, items. forward. had probably going temporary This between somewhere rate to

sale, guess last expecting you're went And it of and the but consistent get expect that? yield the that on are was the right. sales All the quarter, I what you with pace up. on the on then then gain to yield

to strong reduction and The yield in higher from yield rates. curve in gains had the due swap first quarter we execution was the flat

quarters continue would more then and sales the the and expect to usually asset fourth pace wouldn't increased. seasonally third the at year, the through that second fairly a pace we is So the consistent quarter remain of but for

of third second that even So you're saying the sales, continue the then in $XX million should quarter and there? higher and from

No.

that for million million Sorry. sales the The sale. $XX of originated assets includes of was $XX

assets. So $XX of we sold million other

prior we year's fourth quarter. consider that So the in with the would – into pace was increasing

All yields? Outside right. of lower

Yes.

the focused I that improve statements and what on that I you show the ratio, mean the to those investing expect than seems are going I All about through guess continually that are it And we made trend expect well is right. returns adjusted And that articulated are next guess prior you're And several portfolio How up operating efficiency calls, up? efficiency direction. you've talking wrong investing I'm to be can year-over-year, and meaningfully operating to when ratio? consistently question adjusted years you to in what I your showing guess as benefits the in? expecting larger it on as ago. in? you you actually scale that improve is and

– help You're lot on I just of a the investments you're gain making. doing understand sale. me syndication,

Brian. is Yes. Good This morning, Jeff.

reason the of is fourth to increase we the because fact quarters primary for FFR in that the year-over-year quarter. acquired So the the

expense first to ramped quarter. ramp prior the was And quarter engaging it's it's the And disruption and associated that continued it's of it's fourth now, the in experienced pace sort at during in began ramp, March that originating so originating it and to but the got now process. April, it the during it with that when the continuing to platform sale we've and

platform we're we think we've that. then think bring as of even on the us a to I convinced can and upside there's that platform more and can bring what we lot working what it. And feel know all of in the to So good about to I terms integration, gotten

leveraged continue as that So will that, expect the continues to we volume to FFR fixed cost ramp. platform be

our added of in to the indirect addition we other change those efficiency salesforce, that six were The salespeople core to is in Marlin positions operating business. XX filling the

to through we went where trouble last period people. of complement getting a recall were we full a really of If sales having year, time you

a year positions. were fill last decision lot successfully effort gave feel so And direct we made added the we that of that finally, to we because towards the we've to end really of business the then like we and able we the to take to capital got wants business. of so at the resource the side, in capital. and And add recipe really advantage fact volume to wanted right our direct XX% in is working the this loan more And point we last that direct six, those and working business six XX%, of do

want we in to direct capital a grow do we need We it to So working continue way. and meaningful want platform. in to to the invest

to added over mentioned. begin that year, P&L, we the year. So having I on of over more we've you to and said that that, leveraging about positions sales we made as through course we're and talked planning season that experience those any sales balance the continue now the investments the the scale the FFR to and operating continues XX think the of resources as are the of not adding And expenses

any Have Great. competitive seen in the you change landscape?

No, larger a end-user, the think words, competing competitive flows sort smaller they it's with more nothing retail larger is, we a material competitive I it's of Brian, competitive the market within now. place. we're average programs both control of context less sizes. indirect would the with than transaction It's direct. and are relationship oriented. it And say vendor when are where I our In ticket other I and right think

to relationship from decreases, gets control customer more So size it ticket the as standpoint. to the with as able larger our and competitive be becomes price ability a the much

view our and any guess, lot regions? economy what And a relatively lot – Alright. in – standpoint changes but from seen your then in businesses. work what with specific the of it's seeing small economy? stable, you’ve the a I regional From is on any you're

terms I Yes. you focus which Hi our for portfolio last the indices this we while business all is small are results seeing, monitor The that of stable. probably for Lou, things guys tempered bit, said at same levels. but Brian. we one are components little historically the continue thing business in on that to they’re a high We monitor still quarter, the same optimism, be

own factors. have as of that economic portfolio our the that we includes We leading as metrics indicators mix macro monitor well

that stability, close changes. all see summing up, So on eye keeping we while potential a

Our do continue see underwriting and stay change, really that, we material until to a consistent remains we'll consistent.

Thanks questions today. Alright. for my taking

Brian. Thanks

Thank you.

back have question I the session. comments. like of to now management floor turn would for end over closing reached We to the the answer and

you support to your at great we'll and the mention for Conference securities later of on at day. you with us your you when will Thanks LD presenting Midwest. like to these investors Hope this we in hope us non-deal today's rest early to forward of have to our again with for a see on Xth month August. not, William XX, And second We cities I'd be look several joining some a Micro Investor in you Thank roadshow speaking June hosting call. the in Angeles. If in that visit report May Blair Los events. again. we on be XXXX quarter on results

today's this teleconference. gentlemen, conclude does and Ladies

you have You for a may disconnect your your lines at this Thank wonderful day. participation time. and