Marlin Business Services Corp.
Q3 2016 Earnings Call Transcript

Published: 28 Oct 2016

[Operator:]

Good morning, ladies and gentlemen. And welcome to the Marlin Business Services Corporation's Third Quarter 2016 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instruction will follow at that time. [Operator Instructions] I'll now like to introduce your host to this conference call, Lasse Glassen, with Addo Investor Relations. You may begin.

[Lasse Glassen:]

Good morning, and thank you for joining us today for Marlin Business Services Corp's 2016 Third Quarter Earnings Conference Call. On the call today is Jeff Hilzinger, President and Chief Executive Officer, Ed Siciliano, Executive Vice President and Chief Operating Officer, and Taylor Kamp, Senior Vice President and Chief Financial Officer. Before we begin today’s call, let me remind you that some of the statements made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due a variety of factors. We refer you to Marlin's recent filings with the SEC for more detailed discussions of the risks that could impact the Company's future operating results and financial condition. With that it's now my pleasure to turn the call over to Marlin's President and CEO, Jeff Hilzinger. Jeff?

[Jeff Hilzinger:]

Thank you, Lasse. Good morning and thank you everyone for joining us to discuss our 2016 third quarter results. I'll begin my remarks today with an overview of the key highlights from this past quarter including an update on our Marlin 2.0 initiative that outlined on our call last quarter which is aimed to taking Marlin to its next level of growth and profitability. I'll then wrap my comments with the discussion of Marlin 2.0 longer germ key strategic objectives. Ed Siciliano, our Chief Operating Officer will provide comments on our third quarter operational performance and Taylor Kamp, our Chief Financial Officer will then discuss additional details about our financial results and 2016 full year guidance. The third quarter was a very productive period for Marlin highlighted by record origination volume and portfolio size, continued strong credit quality and significant progress on our Marlin 2.0 initiative. Total origination volume of $128.3 million was an all time record, up nearly 6% compared to the previous quarter and nearly 26% from a year ago. Our origination growth was broad based and driven by increased application volume in our equipment finance business including solid contribution from our new franchise and transportation origination platforms. In addition, Funding Stream, our working capital loan business continues to gain traction and comprise $10.3 million or 8% of total origination in the quarter, up from $7.9 million or 6% of total origination volume in the prior quarter. Our investment in leases and loans also reached an all time record during the quarter increasing to $756.1 million, up 4% from the previous quarter and 15% from a year ago. Importantly, we achieved the record origination volume while maintaining our strict underwriting standard as evidenced by the portfolio's credit performance which remained excellent during the quarter. In addition to our strong financial and operational performance, we continue to make good progress in rounding out the Marlin management team. During the quarter we promoted David Lafferty to the newly created position of Capital Markets leader. Dave has been Marlin since 1998 in various credit roles and has nearly 25 years of experience in equipment finance. In his new role, Dave is leading the process of building of capital markets capability in order to help diversify our funding sources while also providing our origination platforms with a broader set of credit products to take to market. This is an important strategic initiative within Marlin 2.0, so I am very pleased to have somebody of Dave's caliber in this role. During the quarter we also promoted Richard Irwin to Treasury. Rich has over 18 years of experience in structured debt finance, capital and liquidity risk management, financial planning and mergers and acquisitions. Prior to joining Marlin in January 2016, Rich held various positions in CIT's Treasury and Corporate Development areas. In his new role, Rich will be responsible for executing Marlin 2.0's capital plan including working closely with Dave Lafferty. This is another important strategic initiative within 2.0, so as with Dave I am very pleased to have somebody of Rich's caliber in this role. With respect to the open position of Chief Credit Officer, I am pleased to report that we identified a strong finalist who is an exceptionally qualified candidate. We expect to make an announcement in the coming weeks. While the hiring of new CCO is taken longer than we originally expected, I am very excited about this individual for this critical role at Marlin. Across the board I am very pleased with the world class team we are assembling, as we move forward it is very important that Marlin 2.0 leverage new ideas and perspectives while preserving what is helped make Marlin such a great company. I'd like to turn to progress on our Marlin 2.0 initiative. As you may recall from our call quarter, I discussed the plan that leadership team is focused on in order to address the tremendous opportunity we have to take Marlin to the next level of growth and profitability. A transformative process which we are referring to as Marlin 2.0. Through this transformation process, we expect to drive sustainable growth and improved returns by substantially expanding our target market, operating more efficiently and using our capital more productively. As you may recall, the 2.0 plan is comprised of three main areas of immediate emphasis that include, one, a strategic revisioning of the company, two, better leveraging the company's capital base and fixed cost to origination and portfolio growth. And three, improved operating efficiency by better leveraging fixed cost and through operational improvements to reduce unit processing cost. I'd like to share with you the progress we've made in each of these areas since our last call. First, with respect to the strategic revisioning process, Marlin senior leadership team and its Board of Directors agreed during the quarter that overarching goal of Marlin 2.0 will be to transform the company from primarily a micro-ticket lessor into a broader provider of credit products and services to small businesses. This transition is supported by our substantial experience underwriting small businesses and by the US small business market itself which is vast, fragmented and underserved. In fact, according to recent US census data, over 99% of American businesses have revenues of less $10 million and a recent Federal Reserve study found that two of the three top issues concerning small businesses were the lack of credit availability and uneven cash flow. Given this overarching goal, the company adopted new mission and vision statements during the third quarter. 2.0's mission which is a statement of our focus is to help small businesses achieve their American dream. We believe that this mission statement captures the essence of 2.0's commitment to small businesses and their success. 2.0's vision which is a statement of what we've aspire to be is to be come the preeminent provider of credit products and services to small businesses nationwide while delivering exceptional value and service to our customers. We believe that this captures not only our commitment to small businesses and their success, but also distinguishes 2.0 by its commitment to creating outstanding customer experiences. An example of this new vision is the early success we are seeing with our funding stream working capital loan business, which is our initial offering beyond our equipment finance business. Our new franchise platform also has the potential to become an independent business within 2.0 as we work to expand its products beyond just equipment finance. Consistent with this new vision, we look for funding stream and franchise to continue to gain traction in the quarters in years ahead. Also consistent with this vision we expect to become much more deliberate in the identification and acquisition of platform extensions, new platforms teams or products that will help us better serve the small business market. We also made good progress during the quarter on our second key near-term priority which aims to better leverage the company's capital and fixed cost through growth. With respect to leveraging capital, during the quarter we began working with several major financial institutions to establish a wholesale credit facility at the holding company that would better leverage our capital base and increase the company's return on equity, while also providing an additional funding source. We are currently in the process of negotiating terms and conditions and we expect to have the new facility in place soon. In addition, our commitment to this part of the 2.0 transformation is further demonstrated by the newly created capital markets leader position and the appointment of Dave Lafferty which I mentioned earlier .We also continue to make progress better leveraging the company's fixed cost during the quarter through our record origination volume and portfolio size which also noted earlier. And third, Marlin has been operating for almost two decades with an evolving set of businesses processes that need to be evaluated and renewed in order to improve the company's operating efficiency. During the quarter, we engaged the consultant with significant experience and leading process renewal initiative and appointed a design team to lead the redesign of core business processes with the objective of achieving dramatic improvements in productivity, cycle times and quality. We are currently six weeks into this effort and while this still early days and what will ultimately be six to nine months project. I am very encouraged by what we are seeing in terms of the potential gains and throughput while maintaining current headcount levels. As an early case in point, I'd like to highlight as an example our funding process which the design team has identified as an initial area of focus. This process which begins when documents are generated and ends when the lease or loan is funded is an area of extreme customer sensitivity and is a process that is right for automation. Before wrapping up my remarks, I'd like to share with you the three strategic objectives that we have established for the next several years as extensions of the new Marlin 2.0 paradigm. The first is growth. It is critical that the company continue to accelerate growth to leverage its infrastructure across a large portfolio. As such while we will look to grow our legacy equipment leasing business as much as possible, we will also look to grow our funding stream transportation franchise and office equipment channel substantially over the next several years. We will also endeavor to identify future growth engines both through acquisitions and organic means with the goal of doubling of origination volume by 2020. Our second key strategic objective is to operate more efficiently. As we execute on our growth objective, we will be able to better leverage our fixed cost through scale. In addition, we expect to benefit from reduced unit processing cost to the process renewal activities that I discussed earlier. We also know that the value proposition for small ticket business is speed and convenience, so we are highly focused on using process renewal to also improve the customer experience which reinforces our growth objective. Through the combination of these activities, we expect to improve Marlin's operating efficiency ratio in a coming years to approximately 45%. And finally our third objective is to use capital more productively. To this end, we see a significant opportunity to diversify our funding around Marlin Business Bank and to better leverage our capital base to the wholesale credit facility and the capital markets activities I mentioned earlier. As I also noted previously, we've made a good start on these initiatives with the goal of increasing Marlin's overall portfolio leverage to approximately 90% over time. In summary, Marlin's transition from primarily a micro-ticker lessor to a broader provider of credit products and services is a significant paradigm shift for the company. In broadening our strategic purview, we do expect overall yields to decline somewhat as we grow by extending our reach into segments. But we expect that the financial impact from reduced yields will be more than offset by efficiencies from scale, improved credit quality, larger transaction sizes and more efficient use of capital. Taken together, these changes will result in a substantial increase in return on equity which is our primary focus. I look forward to executing on our new strategy, enhancing our financial and operational performance and driving superior value for all of our stakeholders as we move forward. With that, I'd like to turn the call over to Ed Siciliano, our COO to discuss our third quarter operational performance in more detail. Ed?

[Ed Siciliano:]

Thank you, Jeff, and good morning, everyone. My comment today will focus on our third quarter origination activities and overall credit quality. Total origination volume in the third quarter was $128.3 million, breaking the previous record established last quarter by more than 5% and up 26% compared to the third quarter last year. As Jeff mentioned earlier, we achieved this record origination volume while maintaining our strong credit underwriting standards and without increasing approval rate. Our equipment finance originations volume, independent of funding stream, also reached a historic high of $E117.9 million, about 4% higher than the previous record. In addition, our investment in leases and loans grew to $756 million, also an historic high of 4% from the prior quarter and up 15% from the third quarter last year. The origination volume growth on both the year-over-year and sequential quarter basis was driven by a number of factors, including increased application levels and dealer contribution, higher average ticket and increasing momentum in our franchise and transportation channel. Overall, Marlin’s disciplined credit underwriting continues as evidenced by our excellent credit quality and portfolio performance. For the quarter, 30 plus and 60 plus day delinquencies were 78 basis points and 45 basis points respectively, this is up slightly from the prior quarter but well within a desirable range. Net charge-offs during the quarter were $2.5 million, or 1.36% of average finance receivables as compared to $2.3 million or 1.38% of AFR in the prior quarter and $2 million or 1.23% of AFR in the third quarter last year. We also continue to see momentum from our working capital loan business, funding stream, which was launched just over a year ago. Total funding stream origination volume increased to $10.3 million, up 31% from the prior quarter and nearly 5x higher than the year ago period. Additionally, funding stream represented 8% of total originations in the third quarter, up from 6.5% of total originations in the second quarter and up from 2.2% of total origination volume a year ago. Similar to last quarter, we were able to significantly increase total funding stream origination volume while also maintaining better than expected credit results. During the quarter approximately 80% of funding stream's loans was originated with existing Marlin customers illustrating the power, efficiency and safety of marketing to our substantial small business customer base. In addition, yield in this are nearly 3.5x higher than our average yield in the equipment finance business. The continued growth in funding stream once again help to offset the decline in equipment finance yield. We would expect equipment finance yield to continue to decline driven almost exclusively by channel mix, offset by growing funding stream volume. During the quarter, we completed our second sale of equipment leases previously held on our balance sheet totaling $3.6 million. Flow base sale sides indication is an activity we plan to continue on a regular basis. This transaction in the third quarter generated an immediate gain on sale of $123,000 that was recorded in other income. In addition, we also retained services and right on leases that were sold and we will recognize service and fees over the life of the leases. In closing, we at Marlin are looking forward to achieving the objectives that we have laid for you in the past two earnings call. We continue to reach new milestones and I believe we have a well thought out strategy for substantial growth as we execute on the Marlin 2.0 plan. With that, I'll turn the call over to our CFO, Taylor Kamp for a more detailed discussion of our third quarter financial results. Taylor?

[Taylor Kamp:]

Thank you, Ed and Jeff, and good morning. Marlin delivered another solid quarterly performance led by record growth in originations and record portfolio levels while maintaining excellent credit quality. In the third quarter, we generated net income of $4.3million and EPS of $0.35 per diluted share. This was compared with $4.5 million or $0.36 per diluted share in the prior quarter. And $4.8 million or $0.38 per diluted share a year ago. Expenses relating to non-recurring and strategic initiatives tampered EPS slightly in the third quarter. These expenses were comprised of $120,000 one time true up of tax relating to state apportionment as well as transformational related expenses associated with Marlin 2.0 of approximately $100,000 after tax. As previously noted, total origination volume was $128.3 million, up 6% from the prior quarter and 26% from a year ago. And was the fourth consecutive quarter of record originations. Our net investment in leases and loans grew approximately 4% from last quarter and 15% year-over-year to $759.4 million. Investment in leases and loans before deferred cost and loss allowance in effect our portfolio of earnings asset hit an all time record of $756.1 million. Return on equity for the quarter was 11.01%, down 56 basis points from the prior quarter and up 15 basis points from a year ago. The decrease in ROE from the prior quarter was a result of increase expenses driven by the one time tax true up as well as the transformation related expense associated with the company's Marlin 2.0 initiative. We expect ROE to improve as the business grows and we better leverage fixed cost through increasing scale and we began to experience benefits from process renewal. For the quarter, net interest margin was 11.30%, 20 basis points lower than the prior quarter and 66 basis points lower than a year ago. The decrease in margin percentage from the prior and year ago period was driven by the roll off of higher a yielding assets, a shift in mix to lower rate, better credit quality assets with higher average transaction sizes, and a decline in late fees. The company experiences a slight increase of 7 basis points in cost to fund from last quarter to 1.12%. This reflects the increasing impact of the December 2015 Fed rate hike and is in line with our expectations for continued NIM compression in the equipment finance business. The portfolio continues to perform well on the third quarter. Total charge-offs decrease slightly to 1.36% of average finance receivables as compared to 1.38% last quarter but were 13 basis points from 1.23% from last year. For the quarter, the allowance for credit loss reserves was 1.33% of total finance receivables and 259.3% coverage of 60-day delinquencies. So far in the fourth quarter, we are continuing to see good credit performance. Additional information on static pool losses and delinquencies is available on our Investor Relations website. Third quarter operating expense was $12.8 million compared to $12.5 million in the prior quarter and $11.4 million in the third quarter last year. The increase and other expenses compared to the prior quarter were primarily related to our Marlin 2.0 strategic revisioning process. The full quarter impact of the new CEO as well as perspective changes to where the company reports expenses relating to its insurance program. Effective during the third quarter, the company began recording expenses related to its insurance program and other expense general and administrative on a perspective application. These expenses prior to the third quarter are reported net in other income insurance premiums return and earned. The increase in other expenses compared to the third quarter last year was primarily due to higher salaries and benefits from an increase in personnel mostly from the build out of the transportation and franchise platforms and Marlin senior leadership team. Expenses are also up to a lesser extent from higher general and administrative expense in the current quarter associated with marketing activities and the perspective change in insurance reporting. It is important to note that increased levels of earnings assets in the quarter from the growth in our equipment finance and funding stream portfolios more than offset higher quarter-over-quarter expenses. As a result, our efficiency ratio improved 76 basis points to 54.9 in the third quarter. Our capital position remains strong with equity to assets ratio of 18.26%, 23 basis points below last quarter and 88 basis points below last year. The continuing decrease in the capital ratio quarter-to-quarter is by design and results from strong asset growth. I am pleased to report that our Board of Directors declared a regular quarterly dividend of $0.14 per share, payable on November 17, 2016 to shareholders of record as of November 7, 2016. We continue to be committed to prudently balancing our growth strategy, while still providing value to shareholders. We will weigh capital investment alternatives and adjust our capital trajectory as needed with the best interests of our shareholders in mind. Now turning to our business outlook for the full year ending December 31, 2016. Full-year origination volume including both equipment finance and funding stream is expected to finish in the range of $480 million to $490 million. At the low-end, this would represent an almost 26% increase over 2015. Credit quality is anticipated to remain strong within the expected range. Net interest margin is expected to slightly decrease during the fourth quarter as the mix of equipment finance originations continues to shift to flows with larger average transaction sizes, higher credit quality and lower yields. This decline in NIM will be partially offset by continued strategic growth in the higher yielding funding stream product. And finally, despite transformation expenses incurred during the third quarter it caused a slight decline in ROE. We expect full year ROE to improve as the business better leverages its fixed cost through increasing scale and ongoing emphasis on improving affiances. In conclusion, Marlin's strong third quarter performance led by robust origination growth and excellent credit quality represents another well executed quarter as we continue to achieve new levels of growth and profitability in 2016. And with that I'll turn the call over to the operator for Q&A

[Operator:]

[Operator Instructions] Our first question comes from Chris York with JMP Securities.

[Chris York:]

Good morning, guys. And thanks for taking my questions. So did the pressure on yield a little bit to growth and low rate yielding equipment net channel. So what channels specifically are driving the growth? Is this franchise and transportation?

[Ed Siciliano:]

Yes. Chris, this is Ed. Yes, thanks for the question. That is the case. When call breakout quarter where we have substantial growth within those two channels combined in Q3. So in the second quarter transportation and franchise together accounted for about 5% of origination. In the third quarter that went up to 12%. Now the yield in those channels are very similar approximately 7%. So it has a dilution effect overall yield new origination yield. So the decline in yield has been -- it was very much a part of mix. Our core channels Chris have been very, very stable throughout the whole year. We are not seeing price compression in the core channel. So it really came from the new channels.

[Jeff Hilzinger:]

And I would just say, this is Jeff, that's our point on this is that, that's more of an offset by higher average transaction cost or higher average transaction sizes and lower credit cost expectations of both those channels. So both those channels would be accretive to ROE not withstanding the fact they are in a lower NIM than the sort of historical leasing business.

[Ed Siciliano:]

Yes. It's very much part of the plan, Chris. And as evident by the total input yield on new origination including funding stream are kind of out running that through funding stream origination which is really pumping yield. In fact this year total origination yields are higher than last year as a result of the funding stream contribution.

[Chris York:]

Make sense. And then maybe breaking down these channels further what so within franchise and transportation, so what types of equipment where franchise are driving demand specifically?

[Ed Siciliano:]

It is everything you would find in a fast service restaurant. So it is restaurant equipment in the case of hotel, it could be AV equipment. It stands a gambit depending on the nature of franchise. But we are doing a lot within restaurant. Then in transportation of course it is trucks.

[Chris York:]

Okay. And then presumably I know Taylor I think commented on this that the lower yield should imply lower risk, so what effect you expect to have on the asset or metric maybe over the duration of these leases relative to the core lease portfolio?

[Taylor Kamp:]

Good morning. We are obviously very selective on what we are funding and what we are putting on balance sheet. And so certainly in the franchise area we believe the losses are below the average what our retail business is for instance. On the transportation side, that we are very selective and trying to get a fair mix of both owner operator and the fleet and so Ed maybe you have some views on the transportation fees.

[Ed Siciliano:]

Yes. You know what I'd point to Chris is the overall approval rate for all of our business which has been declining for the past four quarters. And that's driven by transportation and franchise. Again as we move slowly into those channels, we are being very cautious, very selective on the credit that we put on balance sheet, it is causing a drag on approval rate but we are perfectly fine with that. That is very much part of the plan.

[Chris York:]

Okay. And then maybe in totality what are you expecting or what is the expected range for your credit quality metric?

[Taylor Kamp:]

When you say credit volume, Chris, are you speaking of the just the loss rate to AFR to average finance receivables?

[Chris York:]

Yes. I mean approximately state to your credit policy [Multiple Speakers]

[Taylor Kamp:]

All things being equal. We see that loss metric moving horizontally over time. We have been in a very sort of exceptional period over the last few quarters so all things being equal we would expect it to go sideways. Over time with the increasing mix and some of these less risky channels and with our expertise in the credit side we expect the percentage to even inch down.

[Chris York:]

Okay. So do we have formal range or is it just kind of directionally?

[Taylor Kamp:]

No. I think we are going through a bit of transition and I think giving that guidance it is too early.

[Jeff Hilzinger:]

I think we will be, Chris, we will be ready to give guidance on that when the Chief Credit Officer is here; we walked down our proxies by channel. We have a pretty good sense right now as to where that's going to be. We are modeling it at the 2.0 level and it looks good. But I just think in fairness to the new Chief Credit Officer before we go public with sort of our expectations on that, I'd like to give that person a chance to weigh in.

[Chris York:]

Sure, understood. And then maybe how is the disruption of online vendor affected demand for funding stream because one of your bank competitors made comment that they are seeing very good opportunity as a result of the disruption?

[Ed Siciliano:]

Yes. I'll start, maybe Jeff you want to jump in. We are tracking that obviously very closely. I mentioned in my comments that we are still very much focused on our existing customer base for all reasons you might expect, Chris. We know these customers. They had leases with us. We understand their credit history, they paid us back. So 80% of our funding stream portfolio consists of existing customers. We are seeing a significant opportunities to increase funding stream volume through the broker community but we are resisting that. And we had a couple of -- there have been a couple of competitors that have stepped out of the business. One of them Windset and immediately we saw an increase in broker activity. But that's not we are going -- that's not how we are going to increase our working capital portfolio. We've decided to resist that and continue to focus on our customer base for credit quality reasons.

[Jeff Hilzinger:]

Yes. I think it is just is a matter of strategic choice, Chris. We want to do as little broker as possible. We probably will never go to zero because we get tremendous market insight from doing business with brokers but we don't want to do much and the business that we do with brokers we want to do with the best brokers that we know. But the primary focuses of funding stream as a product for small businesses. They will be focused primarily on our existing customer base where we've already adjudicated, we've already understand what the credit risk is. And I will say that from what we've seen over the last quarter in terms of what's happening the broker channel of the marketplace vendor is pretty scary. So we are grateful actually that we've got sort of kept inside a customer that we can provide this product because it serves a very good purpose. And it's obviously in demand by small businesses. So and clearly the cost of acquisition for us in the existing portfolio is substantially less than it is when we originating through the broker channel.

[Ed Siciliano:]

The only thing I would add to that is we are fortunate because we have tremendous amount of headroom within our customer base. So I think we put on something like 300 loans in the third quarter while we are marketing to 100,000 pre-qualified existing model and customers. So from a penetration standpoint we are just scratching the surface of the potential within our customer base. So that's where we are going to focus.

[Chris York:]

I think that make lot of sense. I think that 80% metric that you provided in regards to your client that you provide funding stream quite powerful. So that was helpful. And then lastly so maybe help me understand a little bit the full year ROE is expected to grow comment, is this specifically year-over-year because I would think and that's quite clear given the extremely conservative 4Q results.

[Jeff Hilzinger:]

Yes. So I would expect even though we had some expense relating to our various initiatives Marlin 2.0 and so on and so forth, I would expect our ROE in the short run to continue to up slightly through the end of the year. And then our mid range target for ROE, I'll go ahead answer your next question, our mid range target for ROE is in the sort of low to mid-teens and our longer range target in the next three years as an ROE in the mid to high teens.

[Chris York:]

Got it, okay, yes, looks like odd. And then how are you tying maybe within that capital management in terms of balancing your capital ratios which are well above the -- the well capitalized metric. And then your pursuit of growth and then maybe lastly tying the dividend in terms of a payout ratio.

[Ed Siciliano:]

Sure. So that I'll say that capital plan and capital management is at the top of my to do list. And we've -- as Jeff has articulated we've added some other levers so that we can manage that whether it be funding through the parent, whether it's funding and or syndications and secondary marketing. And so we can manage that much more precisely now than we could in the past. And so we will be moving the capital ratio down over time both through growth and through these other methods. And so that is a -- we will manage the denominator that way and the ROE calculation and we will as you know there are Basel III, IV that we have to be aware of and have to manage too starting in 2019. So we will -- it will come down. I am not going to tell you precisely although as Jeff is also articulated we believe on a portfolio basis we can get our advance rate to 90% and so that will help us as well. As far as dividends, we announced $0.14 per dividend per share this quarter. We will evaluate quarter-to-quarter how we decide to deploy capital and employ capital. We think that in the short run we have very good opportunities for growth and for profitable growth. And so certainly that's kind of at the top of the list. But we will look at the opportunity to the extent that we are not able to reduce capital as quickly as we hoped to. We would look for opportunities in other ways to deploy capital. So just to finish off, we are at around 3% dividend yield, I would expect we are not going to be that far off.

[Chris York:]

Okay. That's helpful. One last one and then -- thinking about I mean doubling origination volume by 2020. That was a helpful long-term target. What are your thoughts in regards to maybe growth in loan and lease volume for 2017? Now you have taken share I know like you are spending into new channels with transportation and franchise but we had a good GDP print here in Q3, any tailwinds are you expecting from company is finally investing in the business in CapEx?

[Ed Siciliano:]

Yes on the guidance, Chris, I'd tell you that well few stat. This year as we've changed our strategy application, we are up in this business about 35%. And we would expect overall volume to be up about 25% 2016. On a go forward basis we are modeling, we are planning around 20% growth year-over-year for the next three years. And that's how we get to the number that Jeff was talking about. Not necessarily seen tailwinds, I think what we are seeing is success in moving slightly up ticket. So our average ticket has been increasing quarter-over-quarter for the past four consecutive quarters. I think in the third quarter here average book ticket was about 18,000 , that's probably in historically high but still very low and we've got some headroom there to scale the business by moving further up ticket. And that growth is going to come from slower growth within our traditional core channels probably 5% growth and substantial growth within the new channel and the expansion channel that Jeff mentioned specifically franchise, transportation, office equipment and of course funding stream. Now two of those channels will have to hold back growth to some extent. Transportation and funding stream we can actually turnout a lot faster than we are turning on now, but for credit quality reasons and just prudent underwriting we are not doing that. So in 2017 we kind of pull those back a little bit but overall it would be about 20% growth. The economy is just -- there are no headwinds, there is no tailwind, it is just in second gear and I think it has been that way for about three years now.

[Jeff Hilzinger:]

That's pretty benign environment. I think the way to think about it Chris is you got -- you sort of have the legacy or the historical Marlin equipment finance business which is originating around $400 million and that can reasonably without compromising credit quality or price can roll through 3% to 5% a year. And then wrapped around that are these four growth platforms that we talked about, each one I think our goal is to try to get each one to $100 million of volume over a three year period. So that's another $400 million that gets us to $800 million. And then maybe $850 million and then we got a $100 million and $150 million it kind of go find it business over the next three years which I think will lead or happen through just natural organic extensions in the existing businesses or actually hopefully I think that we find things to acquire and to provide other platforms, I think a lot of the positives that Marlin has and then obviously Marlin gets the benefit of accelerating the leveraging of its structural cost.

[Ed Siciliano:]

Yes, Chris, I just want to comment on one last point that we typically talk about that sales headcount. So we are also planning on doing what we just described basically keeping sales headcount relatively flat. So we've got very, very small growth in sales headcount in 2017, probably six to seven people and that's exclusively for the new channel so we continue to invest in franchise, transportation and to a lesser extend funding stream. So it thus become pretty powerful as we gets rep productivity growing at a flat headcount.

[Operator:]

[Operator Instructions] I am not showing any further questions at this time. I'd like to turn the call back over to Jeff for closing remarks.

[Jeff Hilzinger:]

Well, thank you everybody for your support and for joining us on today's call. We look forward to speaking with you again when we report our 2016 fourth quarter and full year results at the end of January. Thanks again.

[Operator:]

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect. And have a wonderful day.