Marlin Business Services Corp.'s (MRLN) first-quarter earnings of $0.11 per share were 15 cents below the consensus as well as our estimates. We suspect the weakening economy will continue to impact the new originations, and the delinquencies will continue to rise through 2008.

MRLN recently opened its industrial bank, which will lower the cost of funding in future, however we do not expect any significant impact on the earnings in the current year. We are maintaining our Sell recommendation on the shares.

Based on the results and our concerns for further deterioration in growth, we have lowered our FY08 and FY09 estimates to $0.73 and $1.14 per share respectively. MRLN currently trades at 4.8 times the consensus forward estimate, a 65% discount to the peer group median.  On a price-to- book basis, the shares now trade at a 59% discount to the peer median, versus a 56% discount in April.

We are reducing our six-month target price to $6.00 per share. This price target equates to 8.2x our 2008 earnings estimate of $0.73 per share or 0.48x our estimated book value six months out. With no dividend to supplement the return, this equates to a 13.6% expected negative total return over the period.