MRLN - Earnings call transcript Q4 2017 | Marlin Business Services Corp

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Operator

Greetings, and welcome to the Marlin Business Services Corp Fourth Quarter and Full Year 2017 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Lasse Glassen, Investor Relations for Marlin Business Services. you. Thank

begin. may You

Lasse Glassen

thank Corp's joining full XXXX conference and Marlin year today Business call. Services fourth you morning us for for results Good quarter and

Officer; Hilzinger, call Risk Chief Officer. Taylor President and is the Vice and Senior Jeff Senior Chief On Chief President today Officer; Executive and Lou Kamp, and Maslowe, Vice President Financial

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

Jeff Hilzinger

strong Lasse. quarter on you, of discuss everyone quarter and volume, and business full our strong for demand details Kamp, and was our with XXXX highlighted and Risk quarter for remarks year. equipment an will by designed performance and Good our recent is quarter volume outlook. our with performance this credit in results. Maslowe, excellent improved Financial to driven origination small prepared record Officer thankyou from that growth. X.X by credit of finance business. strategy fourth to lessor I Chief from will the on fourth XX% XXXX and from portfolio increased past from results Taylor help up highlights single company was customer prior origination Chief our primarily a to earnings Officer with Total equipment year million last sourced Lou an financial The conclude businesses. $XXX.X provider transform then our the begin the of will growth comment joining and XX% into record Marlin an products overview wrapped fourth fourth Marlin a quarter quarter our the a all-time quarter services including progress our us morning on Thank and

our and or existing our addition, also to I'm pleased funding loan working a contribution the Marlin's markets ongoing origination capital success a direct In during early of within product the of Also, customer make quarter. that stream loans identifies as our referred with we combined initiative quarter meaningful opportunities the financing of capital activities. million additional sold in part leases base. $XX.X continued

previous and the to these grew As combined to origination a more leases investment than up quarter in ago. up from XX% capital X% and result a a year compared and record activities, our of million $XXX.X loans markets

franchise During strategic the reward our beginning that transportation were improve our to both address and impact within a quarter, included pivot ultimately of took we swift profile performance these trends efforts action portfolio channels risk proactively businesses. the the to to

time and resources. plus plus improved to XX first to quarters day quarter decision six Importantly, collection XX primarily our delinquencies for a fourth increase the in sequentially due

At Act over in will portfolio to in channel, of of provide targeted that the share, Fourth diluted impact quarter on benefit a we expect share continued quarter from XXXX but four included GAAP last the to the what per transportation a $X.XX resulting compared Jobs with past required XXXX resulted diluted one-time revalue and earnings Lou earnings for remain $X.XX the recorded to year. fourth remarks continue transportation term. in Cuts $XX.X deferred an company the in of and we've per seen our assets additional details charge-offs of the full to million Tax its benefit in and consistent Excluding quarter. the portfolio a for our the net near the our range. portfolio, to stabilize within XXXX, liabilities perform detail earnings tax line, which bottom GAAP was more tax in reported year from including his range the and we years. performance

operating A Excluding $X.XX per the is income available million this adjusted items, share GAAP per basis after share adjusted press Marlin the excluding nonrecurring on diluted profitable release and net X.X the reconciliation stabilized a performance, the even impact diluted the of $X.X efficiency earnings million basis $X.X was Strategy afternoon. strong and quarter fourth an in yesterday portfolio to issued period year benefit. or with underlying of strong other tax show improving fourth a and volume, quarter net of for was origination compared ago. to Due power income of $X.XX growth

like to now XXXX the as XXXX. We we provide to in work company's X.X. business gears I success for that into of switch expect these I'd employees on and want continue trends hard their to to to and refer an Marlin thank update Marlin's initiative dedication our and transformation all

drive may on by returns you strategically Marlin equity and through X.X, As first recall, expanding market. our growth we expect to target improve

leveraging better company's base cost through and origination capital Second, and fixed growth. the portfolio

and micro-ticket broader primarily key provider goal since company appetite. credit elevated to leveraging of a managing transform each historically in to the risk proactively a into objective by services four, Touching to as and expansion X.X last with newly scale improvements small our efficiency the on market to risk unit these and you a made consistent operating Marlin strategic I'd products cost be progress our costs has we've XXXX, Marlin like is of the to a of our operational for while reduce improving share with better through fixed processing company's lessor, strategic our call. areas equipment businesses. is which Third. through profile first operated initiatives,

user our this addition, to strategy our go-to-market In also solutions end looks customers. strategy financing additional providing directly expand to by

products This go-to-market is business with indirect are and our seeing business. funding stream finance we evident meaningful year, clearly ongoing beyond strategy. past success most we and credit the our that the direct Over working loan contributions our equipment capital from reached with saw services

the fourth volume was $XX.X sourced ago. origination from nearly million year or of X% This of comprised originations total million quarter, a up stream total During of sourced X% funding originations. $XX.X

pleased year, For totaled stream are funding compared over million stream the up as XXXX, to are results the strategy both $XX continue that the we as overall, funding the with in this At and we've the direct for late of producing. million market's introducing full we performance, exceed expectation. with is be stream our product time, very loans portfolio originations demand well pleased Since $XXX to funding this nearly which same continues growing XXXX. now originated product XX% market to to

historically is primary approximate user customers lifetime have importance of always ecosystem Marlin part leveraging approximately been to the business While alone. the quarter XXX,XXX equipment distributors dealers, of became critical during and the end company of customers, and our fourth be small part and X.X Marlin's will new that X,XXX equally manufactures Marlin including important customers

financing with with the identify offering our needs and reminder, products a a broader of As their existing ongoing opportunities objective set create meeting to to multiple under customers over time. these by these relationships direct additional by customers strategy financing

and good XX% volume reflects is direct year-over-year year. I by $XX.X initiative in traction rates gaining is of evidenced respectively. and mentioned This million full origination $XX.X As million this growth of fourth in as XX% earlier, the quarter the

the successful to the make further second productively, on full ratio on for reducing X.X in year, year growth Moving to the XX.X% Marlin were XX.X% the pillar more focuses XXXX using progress. Thanks we we that XXXX during to of capital in equity and continue XXXX. assets from XX.X% portfolio in in our to good strong to

the the prior continue to asset XXXX, we capital our three to higher We reside product we of during markets on originate activities. ultimately economic portfolio to sheets. balance Investor portfolio our platform's the was and our a remains sales $XX.X over ROE during in more which pricing Additionally, fourth composition of was sheet means our and balance strong that times customers to year improve for both on very composition credit the and and need, the assets these enhance efficiently that transactions quarter monetizing our demand by time the other's than to sold million ability sales as and particularly year. manage excellent. but Marlin's in execution well over ability optimize assets, Marlin's view size and Throughout to

XXXX. growth committed As through are we during made our the progress in more and productively using we capital activities, market securitization to entering capital markets also

than equity to his in higher our funds generate to while in will securitized back. of fixed will initiative operational growth the will speak our comments. and cost Taylor better funding allowing respect costs, cost to existing progress company's also our a under be return currently thereby make better we our scale also be support base strategic this improving initiatives. third capital continue through process through substantially renewal pillar, the can With generating required our than to to leveraging continue more the efficiencies by securitization less, the While on portfolio within capital us bank we to in

overall renewal improvements activities loan process achieving quality received. once productivity far, or application So a have efforts in lease on been on cycle has times, primarily and focused

increased growth XX.X% XXXX in respectively efforts, comprehensive of execution efficiency trend our the million also million function. deployed company to an of which resources speed, have year, better XXXX improving XX.X% as a This the Earlier loan upstream application. origination begun XX.X% value or operating and compared This of allowing XXXX. these a against including per renewal, customers. significant or receipt process the is marketing a in ago, $X.X lease quarter phase productivity prior and we in a the force our experience improvement really the gains which employee evidence volume look and led we overarching from our year ratio to how taking by of continue XXXX only how of to $X.X to we for million better at we processes during expect of XX.X% effectiveness much our our sales launched goal led the are originate, with proposition but the to originated our next this $X.X XXXX consistency, increases adjusted from reviewing of As for in contributed has origination in convenience and fourth to not generated in during to this and

risk returns expect a these changes just that cycle. we to businesses finally, calls. implemented way speak have transportation to are risk risk-adjusted specific the a call in activities undergone products pillar improve adjusted pivot regarding will will losses beyond. Within equipment strategy with on transportation proactive credit in we effort, cycle performance companies. financing channels in second our our to quarter, have in I and on attractive Lou strategic by progress impact and at comments, and the channel appetite of channel on during this than Similarly, to channel, credit a updating extensive an in on equipment discussed our towards to fourth underway that used in financing fully XXXX respect transportation, As have rather oriented fourth the our forward length you more profitability look positive through our we now more on vocational used we changes transportation to the future the significant to management, within And franchise results by with focuses small transportation significantly of our we've his and level our the moved the channels. generate franchise completed shifts. Due last portfolio ROE strategic the XXXX, respect but half analysis on that both

economic our to turn, like the will are a tax of comment power my rate operating recently passed greatly rapid working well legislation Before has a include which briefly capital. and small customers, on combination Marlin. wrapping capital same business strategic as of increasing and will improve acquisitions to no we more macroeconomic enhanced Marlin's capacity return conditions of up among time, the for organic significantly capital by which in tax There earnings potentially to that or resulted will greater This in broaden the I'd is lower opportunities increase demand Congress future. in options our expect the in equipment specific accumulation create additional the shareholders. as result for At doubt we to growth, reform in remarks, optimism the

over Lou continue XXXX the our driving I'd that, our and now performance in forward, our detail, very for the All exciting I Lou? turn With more support. to to as momentum continues Chief our and discuss we look employees to their in and all, Officer I'm Maslowe, build confident in beyond. thank continued customers, growth to like these shareholders Moving portfolio for ability of call are our Marlin ahead profitable and to Risk times

Lou Maslowe

basis would performance respectively. in prior demonstrate To and years to average quarter transportation today portfolio, quarter quarter year. Jeff previous highly quarter. remains Thank channel. additional the better with added equipment focus Overall, the transportation a to the increased quarter and you, our good over in the that expectations. for we second The very delinquencies third XXX seven good down over channel note this a XX year. an we of perform compared well excluding XX-day first were periods in loss charge-offs product. profitable performance. and just on the line XX-day were finance points increase to allowance quarters, a our XX to excluding finance to to fourth increase, net charge-offs XX XX quarter expectations. and as level were in We of basis discussed in the quarterly fourth point, losses like I pivot now at basis this the that points important transportation This XX-days delinquencies basis net is prior-year time to basis department. compared charge-offs the last will points continue with recent to our Marlin's activity points allowance on year for and It to XX which discuss and past we details charge-offs four respectively. fourth the million strategy. The decreases of due represented Marlin's the morning, and points. deviation in XXXX million, in and had from years credit XXX six compares nine our quarter our were year-over-year. quarter. on for points level total Transportation modestly. days delinquent the to points to negative about standard charge-offs seven XXX has quarterly quarter-over-quarter points the fourth third strategies additional average XXX as XX-day in and basis third higher basis points quarter also on been the collections pleased provide up basis basis in quarter-over-quarter of to while and by portfolio an which My $XX.X XXX comments for were attributable indication resources XXX X.X% portfolio last quarter noted will the some The over points that Aggregate due were an year-over-year. update receivables on our the stream basis basis line of increased Equipment transportation and points performance, additional to was we basis prior charge-offs the the improved the $XXX,XXX basis as a receivables XXX for finance would primarily charge-offs increased the receivables XXXX points in basis and Both Net that XXXX from primarily results growth as XXX increased impact in our in basis $XXX,XXX the by begin quarter likely of quarter-over-quarter points points, everyone. points excluding the Funding the and basis fourth Last to see finance XX XX from basis quarter view pivot which points was X.X fourth annualized down quarter within pleased finance as $X.X fourth annualized XX-day well both are full the of details previously demonstrated estimate basis, increased points results I equipment in with quarter off Equipment in basis portfolio. as to delinquent above to

of the has recently the average which portfolio we're completed of had on booked remaining even December months. XX strategy necessary transportation entire was net the was in this investment X.X through of The in Over channel. portfolio, clear million the tenor months, become $XX X.X Transportation is last transportation few XX and the that calling We an analysis as end weighted XXXX. shift it portfolio a what

over the the analysis and of and have potentially the losses life future enter the The we our $X decision the that we in net strategy incremental on X.X in underwriting remaining the This million the made finance only on transportation we Marlin's size projected transportation's on to change material Transportation portfolio was shows overall charge-offs four-basis entire point significantly the XXXX saw expected a Our impact would performance expect portfolio, the negative company portfolio XXX will action evident when in impact to transportation Based to up Marlin's the charge-offs. to equipment portfolio, impact total transportation negative has original on over above basis took had have company. we points of incur negative performance. net a the swift mitigated XXXX. total channel where losses not the of variance

rate objective. and to $XXX,XXX portfolio, third of will a quarter, addition the provide a most like contracts out last program, an representing strategic in of We risk our has statement, $X.X XXX underwriting Marlin been at risk-appetite investment mentioned and the is on portfolio to a expanded a added reputation risk performance Marlin types our and build hurricane we closing, monitor quarter, to had willing to I'd rest. net Management compliance asset with is achieve beyond risks risk assume satisfied In with emphasis particular level have management credit in due to entails which of restructured Harvey assess we've in continuing to Marlin's of with only during December. manage fourth XXXX. regions Irma. soon other this portfolio to of impacted post liquidity going on our tightened types also as these enhance are potential Board we provision booked We've improving operational Transportation strategic the risks, better have we focus and made better-quality remain we our provided contracts losses. criteria our update expecting to and or quarter total capabilities now risk, for the and In Committee their achieve Jeff million. and In include in risk progress hurricane-related our the We've interest overall recently too risk Risk It X.X received the we total, risk performance which to significantly proactive time restructure Risk continued the number the developed enterprise-wide management mentioned for satisfied also approval Marlin Committee. and with our X.X order to started the November strategy objective. oversight by in As our aggregate This first defines risk the portfolio to profile. order risk, performance forward. on and by Board payment credit attract restructured

years. remain financial that, XXXX full With Taylor turn performance to expect the continued over continue range over for our With a discussion economic underwriting, in year our We to positive past the outlook, we a fourth and we to achieve strategy I'll transportation our channel. performance, closely we've the results, detailed the of performance and our necessary our order to Taylor? portfolio just as desired did CFO, call few timely monitor in will and to Kamp business quarter with the adjustments in more portfolio seen make

Taylor Kamp

strong last for quarter diluted with per in portfolio financial million you, everybody. a Lou fourth fourth while our morning, to and very growth levels expectations. share, the good quarter robust per $X.X performance $XX.X was income Jeff quarter year. net consistent Marlin marked performance, Fourth record or originations and credit delivered diluted by or including million Thank $X.XX $X.XX good and share compared maintaining

benefit tax and related Jobs earnings $X.XX XXXX. included to mentioned, share the a $XX.X fourth Cuts diluted one-time share, our Jeff million As Tax Act of quarter or XXXX per per of

per per nonrecurring this Excluding of $X.X basis or share, was the impact net ago. compared $X.XX and income year fourth with $X.X million diluted other an quarter items, share on diluted $X.XX a adjusted million

share share For the $XX.X the of full-year XXXX. XXXX, per $XX.X income net million diluted from or up generated $X.XX company or $X.XX in diluted per

full-year diluted $XX.X prior originations third quarter. quarter was or funding For basis stream Fourth was million XX XXXX. was million mix. compared due adjusted channel the XX.XX% on share on to for down the income diluted share XXXX, $X.XX in $XX.X yield XX.XX% basis quarter originations yield to to equipment per net finance from X.XX% per quarter The for $X.XX the and points the compared

funded For down $X.X $X on and from fourth XXXX. XX% funding the maintaining million be of in of with January from Horizon of Most up on fourth the was of referral nine was we of superior to the in $X.X Referral continue this prior quarter points the XX quarter but of XX.XX% continues existing volume customers by Keystone XXXX. product. down from generated total credit million acquired million the as of quarter volume from Approximately basis basis yield originations points quarter stream's to up quarter originated prior new the Marlin be were focused XXXX. loans quality

approximately volume balance in put previously XX% demonstrated Horizon the sheet kept to continuing XX% by of the where As we balance last approximately sheet, of more on as compared are fourth quarter, with production quarter. Marlin communicated, this on Keystone's

we all to this balance XXXX, sheet. migration originations of expect of ahead As until HK's on look are to currently continue we assets Marlin's

very generated by This fourth volume immediate pricing. income. in increase a possible completed The of in on $XX record syndication we in sale quarter market sales, was made that pretax recorded million more an than quarter, portfolio million $X.XX three gain the attractive nearly third very high sold was the times and assets the in substantial net a During quarter. receptive other

the recognize life of service leases. servicing We assets the sold continue fees over and the we'll to

customers. allows in for servicing with us million our which relationship We partners, funding assets these maintain an are to currently $XX ongoing over

year-over-year investment quarter and record XX% volume by ago. Our million, all-time assets a an approximately X% full Total growth total increased managed sourced driven from XX% grew leases XX.X% origination was a from $XXX.X totaling portfolio with of in an year million, the year size increase loans origination $XXX and to year last strong ago. from This XXXX record.

in point fourth in funds year. points origination previous fourth For the quarter, the to was late quarter fees primarily funds, of loan down The and in and net allowance an receivables equipment reserves basis quarter lease basis quarter channels offset end in to of ranges The from within a XX XXX increase of finance practices, and loss year of The the XXX delinquencies XXX%. lower and increased basis in margin cost prior credit certain total and and nine points XX.XX% cost to by growth the over ago. lease updated percentage revenue yield finance for basis increase for a based was interest a was points margin of basis servicing the acceptable the points portfolio of decrease points on perform continued than partially new result XXXX. compared was lower quarter. basis total coverage last XX yielding The in for of X.XX% XXX XX-day of decline an

to $XX.X the Fourth was operating year quarter was last million COO. quarter offset expense is last reserve to prior quarter associated million insurance recorded with due it were $X.X increase in higher origination in earlier, due primarily increased higher of exit The the associated investments initiative, commissions. As the $XX.X delinquency the the reserves efficiency was to claim amortization from intangibles expenses the million loss COO, expenses XX.X% that last approximately Keystone Marlin our in and salaries of emergence. basis Leadership important also special The Horizon quarter note by with quarter to adjusted XX.X% without improved hurricane very to in due and ratio ratio and team. acquisition, The million sensitive quarter to bonus basis in small The expenses in commissions year. XX.X% fourth It benefits the efficiency methodology we've prior of the Horizon quarter, exit the short-term is in $XX.X the points primarily quarter including Keystone. ratio the QX quarter is sales been to partially from from paid efficiency Senior year. XX.X%. the an decrease to direct mentioned an that consultants out and building and the fourth the quarter Expenses to fourth to increase fourth fourth expense, compared on compared would XXX changes to for company's prior the prior adjusted and note lower related important have

by the remained design to continued XX resulted from asset from year the capital Our strong an last of capital strong in equity in growth. below quarter was assets with position and decrease ratio XX.XX%, basis points last ratio The year.

the along late in been roll XXXX plan sit secured finalized we the will bank built deposit funding in mentioned, new which marketing. a This The early funding to burner Jeff add on structure our As out with the source mostly we third leg stool out securitization throughout in had to secondary successfully back and our XXXX XXXX. as capabilities. syndication funding

into as our that bank. two of machine our pool This of quickly syndication to the soundness in XXXX. in turned company end, we Now market. the fund operating will out plan in meaningful short-term portion origination time is bank [Holco]. will the leverage speed, This full over the since do the and first course holding then we safety and we the in a in quarter diverting expect realize off the In entail the be facility for or a our times aggregation protect assets still flow a at to Holco almost of three our invested

our report our income growth dividend quarterly the $X.XX We to commitment focused of to to of I on February February net of maintaining XX, on share per addition, precise Board that record XXXX. regular payable as our a to declared and execution strategy remain am increasing XXXX In pleased shareholders. strong returns, value our of Directors and deliver of XX, shareholders

operating XXXX. business to our expected is for interest expected between is to new taking to is XX%. rate margin improve sourced Jeff, to the expected back be and to improve a expected continues And in XX% turning performance call the origination the tax that, our $X.XX XX% and Jeff? company year off And Total as Portfolio to turn Now be into expected corporate EPS volume the range. XXXX per in is approximately share. between levels. above the be finish to level range outlook ROE statutory account of percentage to to to XXXX the finally, is Net XX% expected as XX.XX%. a with $X.XX remain is within I'll targeted scale. rate and effective

Jeff Hilzinger

a third of I growth. as XXXX financial provide forward opportunities on fourth and and profitable quarter, enhancing Taylor. we continuing a look strong in we Thanks position Both After company-specific forward performance in strategy, our to move year of Marlin new while beyond. focus to operational the and bounced tailwinds X.X our and the ended back XXXX a as quarter embark we from mixed on strength. macro execution

more to simply even has been call am about never our quite XXXX, what for up Marlin, excited ahead With let's proud I've the operator? our open that, I lies Although brighter. of future questions, competence

Operator

your you. from [Operator comes with York question first Thank JMP instructions] Securities. Please of question. Chris line proceed Our with the

Chris York

for thanks And question. guys. morning, my taking Good

Jeff Hilzinger

Chris. morning, Good

Chris York

the our estimates been discussing quarters, 'XX repricing. the the then and only and the maybe last metric floor had margin couple this for better trend the So, metrics on it's to of benefits the we from guide than was

potentially the for So, decline? the and then change you little trajectory in the talk could about a bit of some the drivers

Jeff Hilzinger

that? which metric sorry, I Chris, was am

Chris York

it's margin? and margin The

Jeff Hilzinger

NIM? The

Chris York

Yeah.

Jeff Hilzinger

we Taylor what's higher that the important what year on to can level analytics But that segment some yielding level as ROE offset that that little ROE. prove, think shift creating is for but mix pretty expecting. in accretive that, at towards talk is today with is loss -- that channel as least about bit consistent growth by our on the higher channel indirect retail channel. between guidance but directives been the is segments used that There's every we're we're remember I a me as is entered, the although more a a an that's that ROE we've seeing it's giving the path have legacy good of the NIM of on direct what the going we've we've analytics with channel segments

some high-yielding are what high losses. So,

lower and to yielding so the optimize expected Some what is focused on, operationally looking what are yield intensive yield. mix each some is as flow we some opposed on with the we're are that's return for for from high just really maximizing those aren’t. channel ROE equity lower high into losses, All factor that and

Taylor Kamp

the into not business time. that obviously tamped new quarter only portfolio yield flows a overall over it down volume to to and being yields contributed quarter will I of quarter those that would in dollars add fourth to there point Jeff lower that going to third bit quarter, little additional a the in the $XX the channels million the compared was fourth down, that quarter over and yielding but

flat we we The other guidance, relatively a relatively expect but NIM to and NIM flat be range piece of throughout XXXX. the in our gave that

happening. things have two You

also costs pass rates have, a this is little so But on they increase actually we've our interest You're obviously we be that before that leave little from bit. because we little than and there we even along a can a going the market a that guidance going reprice in believe rate get bit squeezed based quicker phenomenon cost little have where deposit our of will gotten up analysts. bit we funds, to a the

So increase yield. time that the kind of in over general offset,

just profitability is flat in down. So, mean those and as down, yields are channel doesn't that Jeff to because said,

Chris York

a lot of sense. Makes

selling bit Taylor leases then Okay. of could one? lines flows, maybe little what and the capital for balance lumpiness all shifting a as income criterion on your decision expect a down a or then versus drill the for decision-making 'XX? markets gears, referrals then on lease is sheet And And your throughout making bit outlook the primary which you follow-up and today sales your from we that then other HK could on touched we retaining little

Taylor Kamp

Yeah.

sort can I of if see through questions Chris. those me let logically So, go

So, assets XXXX of we sold a million. XX plan XX of million during on

undersold but than from that did did. the We much. we we more little market quarter, would definitely friendlier had plan, the we fourth conditions definitely quarter, quarter. a the in to have primarily the was sell a original fourth in felt bit quarter not that in we There third shift we So, third because which

again presented fourth So, that really, to pricing the bit the quarter us really the from more what in of we the market advantage deftly shifted third and that in a little the bit the had little to quarter to we because take original sold then we was fourth plan a good. than

was really than was than it strategic. that it more was it So opportunistic --

that move the used we're to that originate can doing last sheet. try balance me question to what's was doing Let in we we to rewarded which as trying let is know to customers is demand, it a basically, where to risk our next, sell? else's your what can originate way So be ultimately much intermediated balance -- but me criteria we it somebody and liquid as that

So, bank just originate it on you capital sense we XX% doesn't has amount a intermediate sheet that's the That look even relative bank level economics got when at -- attractiveness a can to makes there's terms make of an instrument XX% that same. can X% that it and the or we fair a balance that retail the ROE difference big are from standpoint though the a lease in capital.

coupled assuming maybe that now of to of that our be generally to of will cost required fact the the lower that profitability to actually lower in a using securitized with capital think the growth, I of some eluded amount terms between comments I of in is we enhance environment, be our organic portfolios in hold this our our our of against retention capital to these improved into pricing weren’t portion law if pass just ROE. to retail flows by that we that tax securitizing suddenly intermediate which the think changed, in virtue through don't for rate, a be destructive tax we that hadn’t at lower order level, not to forced would get doesn’t makes reduced having will happen, of think

it of at well. we that and continue our sheet processes. that we as lots are knowing from liquid we sell. we our on and is what else's get sleep think from the documents night look evolve nonfinancial So, market feedback to understanding the be can ROE of could standpoint, balance channel on lots better as at yield we There really portfolio move other come our the ROE analytics quality ROE our If balance determines sheet what versus and our benefits somebody and of level what it's away from we'll we that operational its on really value a is,

of to to So, to in comes of a market there's a broader with the relates the it sort what I further duration by sense validation refer that on Marlin to over least being what benefit virtue assets. origination at makes as as for of regular hold basis

Jeff Hilzinger

Just expect assets of in to to add on balance 'XX. QX be XXX% to that, those HK's sheet would we of

Chris York

that All Thanks. helpful. reforms a beneficiary Tax color Okay. your on business is clearly fronts. is to tremendously multiple

maybe then investing rate talk they and the how how can additional like So, tax fall will income lower should you line? managing business to the plan bottom and you a much today the maybe how are from in little bit you receive

Jeff Hilzinger

Chris. progress, work still in that's a Yeah,

a lot time effectively what's or this exactly that or really the improved of the the and has. think magnitude earnings so sense rational spending quantify the the of what been our company we've the the figure understand -- most weeks of most trying on with six makes last of trying to Board to really the spending level company been I retained out to of use positive what trying impact we've

of that little lot So, more origination sense I been we could comments, want return capital current to talk price I we've in course a it are in think especially company. holding return we're might of a make make as working that may sense. of of There's we piece to that our the a the and why like way that to There our about there's our lot opportunities acquisition at of might said one rationale my volume what shareholders. for bit a employees a looking look at through to form then probably stock additional and strong

we we're really -- really than I going sense mix that reached you the to exactly is former any or going through other use the process of conclusions haven’t a So, yet is be. as giving for what

Chris York

and Fair for Last queue. enough. me then hop the in I'll question

across materially country. lending in the So, or perspective guidance but you for an maybe the over backdrop last has itself your days flat, improved on the kept economic businesses improved origination environment essentially XX demand equipment all

think be not would then be guidance should why we barricades your the what origination miss your So to target. on and may that is conservative

Taylor Kamp

services is in I number. think growth a sort XX% growth is financial I of a high XX% or year think for that's think mode that good I per company mode,

market in I level shows think the and at has ability controls stresses that the company it to share, the processes but a we're growing the take that the business. not operating

a more necessarily So generated by think driven by but bottoms-up is possible, what that number is isn't responsible. projection. also we really It's

little we to we're be will It demand. it's less, how a we've the It more. that particularly want in It number. XX% a there think the probably the I because that's little portfolio decided mix mix less. manage If little a isn't be could So could channel differently. be at be it won't because the

Chris York

Okay. Thanks guys.

Operator

you. Thank

your Grant comes with line Nick Please with question question. next of the from proceed Our KBW.

Nick Grant

Good Hey. morning, guys.

Jeff Hilzinger

Good morning.

Nick Grant

real the does maybe the that about think So I guidance stream mix 'XX funding commentary how on finance. the of NIM securitization equivalent include quick, originations to follow-up in and should relative

margin. So just moving pieces the other some the in of

Jeff Hilzinger

percentage overall higher our side volume than stream funding won't the some wouldn't It how $XXX into to but tell does that include the a more funding haven’t say leasing target completely ability small but put little we growth stream would much than I on still volume how higher, and we a going I assets. portfolio. in remain into likely. We the of it's of then leasing the would facility. that, dialed North million than would much assets of volume sort that be and you divert it

Nick? So, that what third of was part the

Nick Grant

that's Oh of yes. to the something your mix yields equivalent stream And funding loan relative versus finance but then yields? the lease

Jeff Hilzinger

So, volume volume volume, be something overall like X% about funding lease X%, of stream I will say. should that or overall

turns but quickly. very that so And --

half of maybe that in investment, that. doesn’t it itself manifest all So,

still remains X% of it So, assets. overall

Nick Grant

prioritizing of and lot becoming a talked provider a businesses. you strategy your to And solutions you small M&A of Great. more Okay. discussed about of full

is said, the more that it do being adding about same of M&A additional or you verticals with the strategy? lending on think So, strategy,

Jeff Hilzinger

good Yeah that's a question Nick.

in products So, our extending equipment existing I one two business. about M&A think think and particular is finance levels; our a we at

originating level for example three Keystone full we the of we an a segments time, close Marlin were origination an a Horizon can of wanted of and enter to relationships important to of kinds a long ultimately acquire. company fragmented we assets using there number doing primarily makes for Horizon fact, might created community through hopefully acquirer that difficulty like a platforms. sort Marlin We acquisition be sense. And those of were in And by these position because create with that. brokers when to a platform was in had to and capability transitions very or forward. at to in understand but lot generational look that's be Horizon on had what segments. lot of focused community. margins able that broker and enter significant that experiencing broker there's the the broker's be flow having that a really our are barriers requirement potential will there's a and to capture to platform event M&A a be had a strategy there's that of extend able on very Marlin It's where a retail its There we Keystone opportunity that or were It's good So, part respect a some acquisition a Keystone. its able that going was reconceptualize a to part being we were That like a it purpose able broker lot of platforms able of business two the out in equipment that's of our to from broker really the finance brokerage be exclusively

Those that in looking a is we in equipment than as looking of in that lot those and extensions things exist that those market just actively talk transformational another Marlin the working capital. at would we're about level as finance for product at The the just something as one to be all brought would at transformational obviously sure. a level be and We're product second are we more acquiring product interested They more and the well. extension.

or how product acquisitions and we it. a that about new maybe extension product would new way that's is conceptualize. So be family of a then The think those acquisition better the to a

headset. our that's So

Nick Grant

thinking be you That's strategy And rate. direct All origination from the how also the where we efficient here. helpful. about Great. you're getting and right. should then rent have Obviously, expenses a more nice growth

level? from we should moving how think on about this So

Taylor Kamp

compensation the that blip have. tax first is That's great maybe have XX% somewhere that dots expect fourth our in of that fourth I'll highlight would in like spike a fact want bit quarter in year slightly a at There the the charge the efficiency did in quarter. seasonality. that quarter the on little and try that things question. XXXX, payments first you under large we quarter. some I help connect would are There to the that. or to We the we ratio we exit

growing. to from there relatively million is from levels go but to so expect or be fourth sustainable on down portfolio out, quarter would back continue with first we QX So, flat going quarter $X.X then be to fall and to the to

year. ratio efficiency our why that's the So improved throughout

Nick Grant

for right. Great. questions. All taking Thanks my

Jeff Hilzinger

Nick. Thanks

Operator

Management. the Bill Capital your Thank with comes you. proceed Our question. [Operator from with next Dezellem Tieton line Please question of instructions]

Bill Dezellem

I have couple you. Thank a them. of

that would mentioned in and Horizon had franchise put the all, really product some they of with areas, change about had strategy you which barriers business were for secondarily, are implementing that you in segments then you Keystone the those? talk some that solid First

Jeff Hilzinger

Good morning, Bill.

isn't they $XXX necessarily have case, I order the to think were franchises way limiting become what on million so is in what they it think do So, about to we've I -- would in but platform. doing limited it much

think requirement in I us talked really uncomfortable or we into as and We once we products kinds was look originally the I build about for I underwriting just three I with year and with think two and what think it that platform where than the So, that being transportation, more the order like period. a had the were over were pace chance of to go. of to that platform kinds a with think can ultimately size would we take

can ways. just lending how broad measured a in evolve And industries platform. a in used constraints that constraints a box series products to you that very a so, way credit a different of we manifest different specialize There's of be of we're It around Franchise the lot of company in going number term. series of lot the as ultimately to very a is itself in. and can a around

an franchise can equipment-oriented You be originator.

of lot You level of can originate acquisitions. using enterprise underwriting a -- do on fund lot a and

making flows furniture, the developed case of concept do we the heating we're were I all commercial advantage refreshes. ways can lot air-conditioning build HK's, in part would In franchise and that had what a we're and doing of they very three different And of they just You think with is best ultimately is I in areas equipment automotive. a business and three of franchise to very sure play There's takes and strength. office that Marlin's ventilation works thoughtful how and of franchise and that those argue in that HVAC, deliberate specialized segments. aftermarket which really

Bill Dezellem

replicate that and that do other can strategy And you to is segments? what that their was in something

Jeff Hilzinger

enjoys lot well position. Yeah, franchise that in I Marlin's Marlin argue that of existing would a segments,

I so, business a value franchise at like franchise if have you low value create this, want to to in think ultimately create And you a level.

back is everything out the goes be again franchise. called to franchise don't you conversation that originating there just so And want to that's

HK's need to Marlin's ultimately think you're XX and had know what they in for focus they think success a those they took leverages all decided those strengths. it get And that where three to to -- of I case, a to strategy wanted segments they that years that's and develop I in those what them to where in and at to you and segment think you need you that stand you of think know need leverages like our I need to You through to it think of as I don't -- good But franchise of flows least and flows would HKs franchise these to you evidenced at but are that flows value flow our by because is time you franchise we kind once I very legacy build high it experience do enjoy long build them, overnight. of them, same a definitely HK's ultimately, so most all kinds the and have that to value with right. they're takes certainly defensible

Bill Dezellem

that And exactly? one follow-up you what or additional that if automotive referenced, may, I automotive aftermarket is

Jeff Hilzinger

measurement and in that get systems it's car you and when repaired. to in test it independent systems, garages, equipment it's see take see -- the lifting you It's your you

Bill Dezellem

you. Thank Great.

Operator

Thank you.

question Please a follow-up York Chris the from next your Our with is question. Securities. JMP with of proceed line

Chris York

not required for the optimizing balance your are sheet Yes should much guys, what that as securitization that require targets the equity bank? at is considering

Taylor Kamp

good Chris. question another That's

assets ratio. equity XX.X%, we're XX.X% I -- now, the right we ended So year think about

in financed assets the are our bank. of All

We in XX% floor bank. a have the

XX.X%. we get XX% capabilities you the sheet stay can't And can that a put so, if the XX.XX% lot just to lot we We to view to have because can the more that more in precisely, go a on little you size but a if leverage in company -- obviously now we below could bit can't exclusively get closer you the there's we safely continue capital but XX%. markets manage can't of probably not balance we the down bank. that straight because fund bank,

the be XX% rate the in to original of cost, today's you take bank the market securitize advance equipment If begin world, in the once to we rate. in that term the banks is advance should somewhere XX% XX% to we basically assets

in that a or cyclical. in X% issue the XX% securitization today's to where our asset securitization. of in of But and the we still against we this the bank take to out in X% from about divert capital because that probably term the with every market, always market like it's XX% assets bank down we feel securitize talking market, very So, the decreasing from today's bank not course it's we're is that's

$X portfolio then securitized in our environment of that significant ability that you made So, pretty can on comment a made That's company's is retaining we capital more It's a we the of the tax to fact lower be and lower earnings. we're rates released. have amount tax with rate, couple we that a with accumulate that why especially significant. the the it's capital

Jeff Hilzinger

try that at nonearning side that looking at add I And on that assets a those. would of on million, $X also asset $X million balance we are looking and to don't have sheet, balance at minimize sheet lot, but to looking counts. everything be can't the the every -- We the million, leveraged $X

Chris York

And That's thinking had treatment? helpful. have that it follow-up, XX% for discussions to de remove a as your you about any with bank novo and floor 'XX, Jeff, regulator

Jeff Hilzinger

politicized count think make on it's remain that such ongoing hopeful on such uncertain can't just a and Yes. an we conversation we'll That's and Chris -- I you we environment an that, ultimately, progress it's process but it. that just

securitization important when continues is direction. really is in think in it's press securitization extremely play we think environment market the We continue but like are when Marlin's highly value high funding a liquid that now Its the we overall to bank cycles. you're a So, strategy. part less I to in value

to So, on and our control we we but need There's want the We like for own to capital, the bank take a even to keep of capital XX% we at move need the structure by we role going bank. a forward referred think it the that of will get bank -- three-legged that can outside of we to securitizing And worlds. the Taylor we think sort the stool. about best both and way bank.

we're now developed very the those there's looks our does so in got got by of origination course find optimal. uninterrupted can well-developed it capability then cycle, possible company's we a optimizing a funding things -- efforts the We've top that single mix the structure cycle. this a over to credit the access we more at that markets cycle any is of different than at funding. and but than capability the of change capital, depository bottom that and having of point got as it -- third over the that's of wholesale the our cycle at way and to time the keep pretty can But virtue mix You capital the three so ourselves, capital

Chris York

sense. strategy than I Marlin that new am X.X makes lot and Last disruptions is aware I equipment this lessor, that previous are recognize and X.X so different Great. under any in of me but Yeah, your operation that the a running much business from for back and is of do question you X.X, co-owners venture? volumes Marlin up or expect

Jeff Hilzinger

in part commercial has I there six finance a months. shift independent industry finance would over of last that been say the the equipment lot the

now bank. a by have You is Leaf -- a owned is now [Vitus] owned bank, by

market all that's a add it's start that which I you independent all spec talk against any Newman with a is origination up if of them share. you actually -- together, a we don't then compete and think their and all of is volumes good and that company the that finance reality is bank got that of I for really You the think it industry those directly

So, for any a way. market a of opportunity very game it's and people fragmented. huge of that's There's not it's ton lot zero-sum a a in

way world and we it's ultimately as environment. the as So, we feel the And that any can works we're like competitive win anybody. in

we a don't way optimal we really that we're operating things position it. competitive our and we those but watch about sure that at So, and make worry we're in

Chris York

for Great. Taylor Thanks That's Thanks me. it Jeff.

Jeff Hilzinger

you. Thank

Operator

you. questions, you like there floor the I comments. no any are Thank turn further back to final for would Since to

Jeff Hilzinger

you. early for you results when report Thank XXXX again quarter on our joining April. support to look in forward with you us We and Thank your today's speaking we for first call.

Operator

concludes This you. Thank teleconference. today

time. You disconnect you participation. may Thank your lines for your at this

Marlin Business Services (MRLN) 2 Feb 182017 Q4 Earnings call transcript