Marlin Reports Third Quarter 2021 Results and Declares a Cash Dividend of $0.14 Per Share - Form 8-K

Marlin Reports Third Quarter 2021 Results and Declares a Cash Dividend of $0.14 Per Share

Provides Update on Proposed Acquisition by Funds Managed by HPS Investment Partners LLC

Third Quarter Summary:

• Net income of $5.5 million, or $0.45 per diluted share, up from $2.7 million, or $0.23 per diluted share a year ago and down from $10.3 million, or $0.84 per diluted share last quarter.
• Ended the quarter with total stockholders' equity of $215.3 million and a consolidated equity-to-assets ratio of 20.17%.
• Continued to make progress towards satisfying the closing conditions for the proposed acquisition by funds managed by HPS, including obtaining stockholder approval on August 4, 2021, and are currently targeting closing the transaction within the first six weeks of 2022.
• Total 30+ day delinquencies were 0.77%, down from 2.15% in the prior year and 0.80% in the second quarter.
• Total sourced origination volume of $98.7 million, down 2.1% from the prior quarter, and up 44.1% year-over-year. Average total finance receivables were $803.8 million for the third quarter.
  

MOUNT LAUREL, N.J., Oct. 28, 2021 (GLOBE NEWSWIRE) -- Marlin Business Services Corp. (NASDAQ: MRLN), a nationwide provider of capital solutions to small businesses ("Marlin" or the "Company"), today reported third quarter 2021 net income of $5.5 million, or $0.45 per diluted share, compared with net income of $10.3 million, or $0.84 per diluted share in the prior quarter, and net income of $2.7 million, or $0.23 per diluted share a year ago.

Commenting on the third quarter results, Jeffrey A. Hilzinger, Marlin's President and CEO, said, "Operating results continue to improve as we emerge from the pandemic. I am also pleased with the significant progress made in our ongoing effort towards satisfying the conditions to close the proposed merger with a subsidiary of funds managed by HPS. Given this recent progress, we believe the total costs in connection with the de-banking process will not result in a share price adjustment and now believe we could close the transaction within the first six weeks of 2022."

Update on Acquisition by Funds Managed by HPS Investment Partners LLC
On April 19, 2021, the Company announced that it had entered into an Agreement and Plan of Merger, dated as of April 18, 2021 (the "Merger Agreement") with subsidiaries of funds managed by HPS Investment Partners LLC ("HPS"). Upon the terms and subject to the conditions set forth in the Merger Agreement, HPS will acquire all of the Company's outstanding shares of common stock through its European Asset Value Funds in an all cash transaction for $23.50 per share, as potentially subject to downward adjustment as set forth in the Merger Agreement. During the third quarter, and subsequent to quarter end, the Company made progress toward meeting the Merger Agreement closing conditions as follows:

• On July 16, 2021, the 30-day waiting period under the HSR Act expired with respect to the transactions contemplated by the Merger Agreement.
• A Special Meeting of Shareholders was held on August 4, 2021, whereby the Company's shareholders overwhelmingly approved the transaction, with over 99% of voted shares supporting the merger.
• On October 8, 2021, Marlin Business Bank entered into an agreement whereby a FDIC-insured depository institution agreed to acquire Marlin Business Bank's portfolio of brokered deposits held through the Depository Trust Company. Subject to regulatory approval, the deposit transfer, which is expected to consist of all of Marlin Business Bank's then-remaining deposits, is expected to occur in late December 2021 or early January 2022.

Due to the pending merger, Marlin will not host a conference call to discuss its third quarter 2021 financial results.

Results of Operations
Total sourced origination volume for the third quarter of $98.7 million was up 44.1% from a year ago. Net Investment in Leases and Loans was $793.2 million, down 6.3% from third quarter last year, while total managed assets stood at approximately $939.4 million, down 15.2% from the third quarter last year.

Net interest and fee margin as a percentage of average finance receivables was 8.51% for the third quarter, up 9 basis points from the second quarter and down 36 basis points from a year ago. The Company's interest expense as a percent of average total finance receivables was 129 basis points in the third quarter of 2021 compared with 138 basis points for the prior quarter and 203 basis points for the third quarter of 2020, resulting from lower rates and a shift in mix, as higher rate long-term debt pays down.

On an absolute basis, net interest and fee income was $17.1 million for the third quarter of 2021 compared with $20.5 million in the third quarter last year.

Marlin recorded a $1.2 million provision for credit losses net benefit in the third quarter of 2021, compared to $9.9 million provision net benefit in the second quarter, and $7.2 million provision net expense in the third quarter of 2020. The provision release in the third quarter of 2021 reflects better than expected portfolio performance, continued positive performance trends, and an improved macroeconomic outlook.

Non-interest income was $3.6 million for the third quarter of 2021, compared with $3.5 million in the prior quarter and $4.2 million in the prior year period. The year-over-year decrease in non-interest income is primarily due to a decline in Syndication related servicing income, gain on sale of leases, and Insurance premium revenue.

The Company recorded a $2.0 million tax expense in the third quarter, representing an effective tax rate of 27.1%. In the second quarter of 2021, the Company recorded a $3.5 million tax expense representing an effective tax rate of 25.3%, and in the third quarter of 2020, the Company recorded a $0.5 million tax expense representing an effective tax rate of 16.1%.

Portfolio Performance
Allowance for credit losses as a percentage of total finance receivables was 3.35% at September 30, 2021 compared with 3.47% at June 30, 2021.

For the three months ended September 30, 2021, the Company recorded a $1.2 million provision for credit losses net benefit, compared with $7.2 million provision net expense recognized in the third quarter of 2020 and a $9.9 million provision net benefit recorded for the second quarter of 2021. The provision release in the third quarter of 2021 was primarily due to positive trends in portfolio performance as well as positive changes in the outlook of macroeconomic assumptions to which the reserve is correlated.

Equipment Finance receivables over 30 days delinquent were 76 basis points as of September 30, 2021, down 6 basis points from June 30, 2021, and down 137 basis points from September 30, 2020. Working Capital receivables over 15 days delinquent were 149 basis points as of September 30, 2021, up 113 basis points from June 30, 2021, and down 244 basis points from September 30, 2020. Annualized third quarter total net charge-offs were 0.59% of average total finance receivables versus 0.60% in the second quarter of 2021 and 4.54% a year ago.

Corporate Developments
On October 28, 2021, Marlin's Board of Directors declared a $0.14 per share quarterly dividend. The dividend is payable on November 18, 2021, to shareholders of record on November 8, 2021. Based on the closing stock price on October 27, 2021, the annualized dividend yield on the Company's common stock is 2.49%.

* Non-GAAP Financial Measures: Net income (loss) on an adjusted basis are financial measures that are not in accordance with U.S. generally accepted accounting principles (GAAP). See "Regulation G - Non-GAAP Financial Measures" and "Reconciliation of GAAP to Non-GAAP Financial Measures" below for a detailed description and reconciliation of such Non-GAAP financial measures to their most directly comparable GAAP financial measures, in accordance with Regulation G.

About Marlin
Marlin is a nationwide provider of capital solutions to small businesses with a mission of helping small businesses fulfill their American dream. Our products and services are offered directly to small businesses and through financing programs with independent equipment dealers and other intermediaries. For more information about Marlin, visit marlincapitalsolutions.com or call toll free at (888) 479-9111.

Cautionary Note Regarding Forward-Looking Statements
This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements represent only the Company's current beliefs regarding future events and are not guarantees of performance or results. All forward-looking statements (including statements regarding expectations of 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," "could", "intend" and similar expressions are generally intended to identify forward-looking statements. Economic, business, funding, market, competitive, legal and/or regulatory factors, among others (including but not limited to the impact of the COVID-19 pandemic), 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 under the headings "Forward-Looking Statements" and "Risk Factors" in our periodic reports filed with the United States Securities and Exchange Commission, including the most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are also available in the "Investors" section of our website. 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, except as required by law. Investors are cautioned not to place undue reliance on such forward-looking statements.

Special Note Regarding Forward-Looking Statements
In addition to the Cautionary Note Regarding Forward-Looking Statements above, with respect to the proposed merger, factors that may cause actual results to differ from expected results include, among others: the risk that the merger may not be consummated in a timely manner or at all, which may adversely affect the Company's business and the price of the Company common stock; the risk that required approvals of the merger may not be obtained, or that the de-banking of Marlin Business Bank may not be consummated, on the terms expected or on the anticipated schedule or at all; the risk that the parties to the merger agreement may fail to satisfy other conditions to the consummation of the merger or meet expectations regarding the timing and consummation of the merger; the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement; the effect of the announcement or pendency of the merger on the Company's business relationships, operating results, employees and business generally; the risk that the proposed merger disrupts current plans and operations of the Company and potential difficulties in the Company's employee retention as a result of the merger; risks related to diverting management's attention from the Company's ongoing business operations; the outcome of legal proceedings that may be instituted against the Company related to the merger agreement or the merger; the amount of unexpected costs, fees, expenses and other charges related to the merger; and political instability.

Regulation G - Non-GAAP Financial Measures
The Company uses certain financial measures which are not calculated and presented in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company defines net income on an adjusted basis as net income excluding after-tax income and expenses that are deemed to be unusual in nature or infrequent in occurrence and are not indicative of the underlying performance of the business for the period presented. The Company defines diluted earnings per share on an adjusted basis, return on average assets on an adjusted basis and return on average equity on an adjusted basis as the calculation used for the "as reported" number substituting net income as reported with net income on an adjusted basis while using the same denominator in the "as reported" number, where appropriate. The Company defines efficiency ratio on an adjusted basis as the calculation used for the "as reported" ratio adjusting the numerator for any discrete pre-tax adjustments used to present net income on an adjusted basis as well as the impact of pass-through lease expenses that are required to be presented on a gross basis in the income statement, acquisition related expense, and Rep and Warranty liability adjustments, as applicable. The Company adjusts the denominator in the "as reported" ratio for pass-through lease revenue that is required to be presented on a gross basis in the income statement, as applicable. The Company defines General and administrative annualized percent of average finance receivables, on an adjusted basis, as the calculation used for the "as reported" ratio, adjusting the numerator for any General and administrative discrete pre-tax adjustments used to present net income on an adjusted basis, acquisition related general and administrative expenses, Rep and Warranty liability adjustments, and pass-through lease expenses that are required to be presented on a gross basis in the income statement, as applicable. The adjusted ratio uses the same denominator as the "as reported" ratio. The Company defines Non-interest expense divided by average total managed assets, on an adjusted basis, as the calculation used for the "as reported" ratio adjusting the number for any non-interest expense discrete pre-tax adjustments used to present net income on an adjusted basis as well as the impact of pass-through lease expenses that are required to be presented on a gross basis in the income statement, acquisition related expenses, and Rep and Warranty liability adjustments, as applicable. The adjusted ratio uses the same denominator as the "as reported" ratio. The Company believes that these non-GAAP measures are useful performance metrics for management, investors and lenders, because it provides a means to evaluate period-to-period comparisons of the Company's financial performance without the effects of certain adjustments in accordance with GAAP that may not necessarily be indicative of current operating performance.

Non-GAAP financial measures should not be considered as an alternative to GAAP financial measures. They may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as a substitute for performance measures calculated in accordance with GAAP.

Investor Contacts:
Mike Bogansky, Senior Vice President & Chief Financial Officer
856-505-4108

Lasse Glassen, Addo Investor Relations
lglassen@addoir.com
424-238-6249