Marlin Business Services Corp.
Q2 2013 Earnings Call Transcript

Published: 31 Jul 2013

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Marlin Business Services Corp.'s second quarter 2013 earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder this conference is being recorded and is being webcast simultaneously on the Investor Relation section of Marlin's website at www.marlinfinance.com. The recording of the call will be archived at the website for approximately 45 days. I would like to remind you that this conference call may contain certain statements that are forward-looking within the meaning of the applicable Federal Securities Laws and are based on Marlin Business Service Corp's current expectations and assumptions, which are subject to a number of risk and uncertainties. That could cause actual results to differ materially from those anticipated. Factors that could cause actual results to differ from those anticipated are detailed in the company's Securities and Exchange Commission filings. Listeners are cautioned not to place undue reliance on these forward-looking statements. Such forward-looking statements speak only as of the date of which they are made and the company does not undertake any obligation to update forward-looking statements to reflect the events or circumstances after the date of this call. Speaking to you today will be Dan Dyer, Chief Executive Officer. Also on the call is George Pelose, Chief Operating Officer, Lynne Wilson, Chief Financial Officer and Ed Siciliano, Chief Sales Officer. The company will begin the call with prepared comments and follow up with the question-and-answer session. It is now my pleasure to introduce your host, Mr. Dan Dyer, CEO of Marlin Businesses Corp. Thank you, Dan, you may begin.

[Dan Dyer:]

Good morning to everyone and thanks for being on today's call. To begin, we are pleased with the solid momentum and fundamentals of the business. As reported, we earned $0.34 a share, announced an increase to our regular quarterly dividend to $0.11. The return on assets is 2.7% and returns on capital increased to 10%. Assets under management grew 11% sequentially and earnings are up 50% over this time last year. For the quarter, new asset originations were 14% higher than Q1 while the environment for pricing, margins and credit quality, our new business flow remains favorable. Currently, based on our own customer feedback, the economy appears to be in the new phase. On the business development side, we believe our service oriented customer focus approach is allowing us to stand out amongst others in the sector, a new return helping fuel to steady growth momentum in the business. We are well positioned for a long-term and are intended to continue to drive asset growth and profitability like expanding our core sales channels and market segments and maintaining credit discipline by continuing to invest in new business development initiatives in the equipment finance phase. With that let me turn the call over to Lynne.

[Lynne Wilson:]

Thank you, Dan and good morning to everyone listening on the call. We reported another solid quarter, but let me take you through some of the key highlights. Marlin delivers net income of $4.5 million, an EPS of $0.34 per share. Our earnings asset based grew 26% year-over-year and 6% sequentially, net income in fee margin was strong at 13.4%; credit metrics remain at (inaudible) our current efficiency ratios 53% versus 60% a year ago and our return on equity reached 10%. My comments this morning will focus on the key financial drivers. Our earnings assets grew 6% sequentially, this reflected growth in new business volume would reach $91.4 million in the second quarter of 2013 and represents growth of 14% over second quarter of 2012 and 13% sequentially. Moving on to margin, our net interest in fee margin remains stable through the second quarter, we had a modest benefit in funding cost due to a greater use of bank deposits, offsetting modestly lower interest in fee income yields, rates on new deposits currently averaged approximately 0.6%. Our credit metrics continue to be very strong, charge-offs increased however delinquencies decreased from third quarter of 2013. For additional information on static pool losses and delinquencies is available on our website. As I mentioned the moment ago, the efficiency ratio improved to 53% versus 60% a year ago and closer to our-long term target of 49% to 60%. This quarter effective tax rate benefited from additional accrued interest on a tax refund as well as the mix of income rapprochement across jurisdictions and miscellaneous adjustments. Lastly, our capital position remains very strong with total replaced capital of 30.86% compared to regulatory guidance of 10% for well capitalized institution. With that, I will turn it over to Q&A.

[Operator:]

(Operator Instructions) Our first question is from Brian Hogan of William Blair. Your line is open.

[Brian Hogan:]

Thanks for taking my questions. First, nice origination momentum and more than we are expecting, can you give some color on how alternative through the quarter, what is picked up through in June and just kind of some color on that?

[Dan Dyer:]

Yeah, Brian, this is Dan speaking, generally speaking in the second quarter it was alleviated over a months-by-months over Q1, as you know in Q1 January was a little soft given with the pull through from some questions that customers had in terms of Section 179 disappeared which it did not. So throughout the quarter Q2, we did see a modest increase at quarter end. So generally speaking again, quarter was elevated month-by-month over where we saw it in Q1. Where we are right now and the economy as you know I guess preliminary estimated the GDP bounce back somewhat in Q2 over we came in Q1. So that's a positive sign. Although, the economy itself is sort of as I said in my earlier comments, sort of in a neutral state, it's not really what I'd call in picking up ahead of steam. So we will see that how plays out throughout the rest of the year, but very positive quarter and we're pleased about that.

[Brian Hogan:]

Has that momentum kind of flow through to July?

[Dan Dyer:]

Little slow in July and part of that is seasonality with the summer. But we'd like to see a little bit more tailwind with the economy, but we're working hard just as we always do to sort of to continue to grow and sort of counter act what was going on the economic side.

[Brian Hogan:]

Sure. And then focusing on I guess it's tied to origination growth, a new business interest, I mean you when and the healthcare is not some others over the past year or so. What are you most excited about and how are they progressing, any color on that please?

[Dan Dyer:]

We are in all the core markets and we're excited about, there is great potential in all of our core markets and they are large. And as I said in my earlier remarks, our focus is to continue to expand and penetrate those score segments that we're in. We don't, we don't want to comment on any individual sectors as we have not in the past, but I wouldn't say that any one sector is more attractive than others, you know they are all big, they are all growing and we think there's tremendous potential in each one.

[Brian Hogan:]

Competition, you know there's been a lot of headlines out from banks and other financial institutions about how they are entering the equipment finance space and are you seeing any influx of competition from in your markets and pricing pressure or anything?

[Dan Dyer:]

Look, yeah, I think it has garnered attention because it is an attractive space to be in you know and I think there's been some news articles recently written about equipment used finance market, but we didn't see a lot of new competitors, a few. What we have seen is competition for high quality assets and competing on price. We are seeing more of that today than we have in the past. So the competition for high quality assets seems to be on the price side which seems to make sense given the large amount of liquidity in the market and the appetite for banks and lenders in general to grow their business. And so what we are focused on is maintaining price discipline particularly as it relates to risk adjusted pricing with credit, that's something that we've always stood by. We are seeing a bit more rationality out there with respect to price on a risk adjusted basis. So that's something, you know we are sort of in that phase of the cycle so to speak and so that's just something that we are going to have to be watchful of as we move forward.

[Brian Hogan:]

Thanks. And your efficiency goals, Dan you mentioned the 49% to 50% being your goal which is, you said that in the past many times. And your 53% in the quarter, how fast do you get down there, is it by the end of the year or is it end of next year?

[Dan Dyer:]

We're not going to give you a period Brian, but we think that over the next one to two years, we will be in that range and that's really a balance optimizing efficiency with investing for growth.

[Brian Hogan:]

Sure. And along the same lines, I mean your sales force up to 121 increased by 3 during the quarter if I saw that correctly. What are your plans on the sales force? Do you plan that growth from here or is it kind of maximized what you have?

[Dan Dyer:]

Long term to grow it, but that will just go in fixing stops and it's really sort of based on opportunity for quality people, but also our focus right now is the playing capacity to growth business. So it's really going to be our primary attention at the moment is just working in terms of the seasoning and development of the sales force. Again, plenty of capacity with the existing sales force to grow over the next 12 to 18 months.

[Operator:]

(Operator Instructions). I am not showing any further questions in the queue. I would like thank everyone for joining and participating in today's conference. This concludes today's program and you may all disconnect. Everyone have a great day.