by Christopher Menkin
“Renewal income net of depreciation totaled approximately $1.9 million and $1.8 million for the three-month periods ended September 30, 2010 and September 30, 2009, respectively.”
- Marlin 10-Q 9/30/2010 filing
As Marlin Business Services(NASDA: MRLN), Mount Laurel, New Jersey continues with its adding of direct and indirect sale personnel, and improves its position with its bank and tax consequences, including as of September 30, 2010 having approximately $94.2 million of available borrowing capacity in addition to available cash and cash equivalents of $44.1 million, its main income still comes from "Evergreen Leases," where at the end the lessee continues making payments. Most of them, according to their SEC filings, are from copier leases.
Marlin, a member of the Equipment Leasing and Finance Association (ELFA), is one of the prime motivators to keep states from changing the laws to formally notify lessees about the end of their lease and options that they have. In Marlin's case, when the lessee does not contact them 90 days in advance, the lease continues as evidenced by the many SEC filings Leasing News has printed.
It is true that Marlin has increased its sales force and is now taking broker business and therefore has more originations. Here is their explanation, but buried deep in the 10Q is the real reason.
Here is the information as recorded in Marlin's third quarter SEC filing:
“During the three months ended September 30, 2010, we generated 3,253 new leases with a cost of $35.8 million compared to 1,916 new leases with a cost of $16.8 million generated for the three months ended September 30, 2009. Much of the change in volume is the result of increasing sales staffing levels, which were 84 sales account executives at September 30, 2010 and 34 sales account executives at September 30, 2009. Approval rates also rose from 38% for the quarter ended September 30, 2009 to 49% for the quarter ended September 30, 2010 due to the improved credit quality of the applications received.”
Nine Months Ended
September 30, As of or For the Year Ended December 31,
Number of sales account executives
Number of originating sources(')
“Our leases offer our end user customers the option to own the purchased equipment at lease expiration. As of September 30, 2010, approximately 69% of our leases were one dollar purchase option leases, 28% were fair market value leases and 3% were fixed purchase option leases, the latter of which typically contain a purchase price equal to 10% of the original equipment cost. As of September 30, 2010, there were $38.9 million of residual assets retained on our Consolidated Balance Sheet, of which $31.9 million, or 82.0%, were related to copiers. No other group of equipment represented more than 10% of equipment residuals as of September 30, 2010 and December 31, 2009, respectively. Improvements in technology and other market changes, particularly in copiers, could adversely impact our ability to realize the recorded residual values of this equipment.
Fee income included approximately $1.3 million and $1.3 million of net residual income for the three-month periods ended September 30, 2010 and September 30, 2009, respectively. Fee income included approximately $4.0 million and $4.1 million of net residual income for the nine-month periods ended September 30, 2010 and September 30, 2009, respectively. Net residual income includes income from lease renewals and gains and losses on the realization of residual values of leased equipment disposed at the end of term.
“Our leases generally include automatic renewal provisions and many leases continue beyond their initial contractual term. Based on the Company's experience, the amount of ultimate realization of the residual value tends to relate more to the customer's election at the end of the lease term to enter into a renewal period, purchase the leased equipment or return the leased equipment than it does to the equipment type. We consider renewal income a component of residual performance. Renewal income net of depreciation totaled approximately $1.9 million and $1 8 million for the three-month periods ended September 30, 2010 and September 30, 2009, respectively. Renewal income net of depreciation totaled approximately $5.8 million and $5.3 million for the nine-month periods ended September 30, 2010 and September 30, 2009, respectively.”
-Marlin 10-Q 9/30/2010 filing
Again it is highlight in the following press release that direct sales have increased, but not mentioned is business from third party originators. According to one independent broker, he was told the cut-off was 20 brokers, but perhaps in the future, Marlin would increase it. Once heavy into this method of sales, Marlin has made no comment, nor gives any emphasis to its real profit coming from Evergreen Leases.
In an effort of presenting all sides, here is Marlin Business Services press release in full:
### Press Release ############################
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., -- 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.
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
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-ticker 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.
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Marlin 10-Q 9/30/2010 filing:
Disclosure: No position