UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)~~

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2017~~March 31, 2020

Commission file number000-50448

MARLIN BUSINESS SERVICES CORP.

(Exact name of registrant as specified in its charter)

Pennsylvania

38-3686388

(State of incorporation)

(I.R.S. Employer

Identification Number)

300 Fellowship Road, Mount Laurel, NJ 08054

(Address of principal executive offices)

(Zip code)

(888)~~(888)~~ 479-9111

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 per share	MRLN	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation~~Regulation~~ S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit ~~and post~~ such files.) Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated ~~filer”,~~filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule~~Rule~~ 12b-2 of the Exchange Act. ~~(Check one):~~


Large accelerated filer	☐	Accelerated filer	☑☒

Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule~~Rule~~ 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☑

At ~~October 26, 2017, 12,508,989~~April 23, 2020, 11,884,174 shares of Registrant’s common stock, $.01 par value, were outstanding.

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

Quarterly Report on Form~~Form~~ 10-Q

for the Quarter Ended ~~September 30, 2017~~March 31, 2020

TABLE OF CONTENTS


			Page No.
Part I –Financial Information				3
Item 1	~~Condensed~~ Consolidated Financial Statements (Unaudited)			3
	Consolidated Balance Sheets at March 31, 2020 and December 31, 2019			3
	~~Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016~~			3
	~~Condensed~~ Consolidated Statements of Operations for the~~three-and~~ ~~nine-month~~ three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019			4
	~~Condensed~~ Consolidated Statements of Comprehensive Income (Loss) for the~~three-and~~ ~~nine-month~~ three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019			5
	~~Condensed~~ Consolidated Statements of Stockholders’ Equity for the ~~nine-month~~three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019			6
	~~Condensed~~ Consolidated Statements of Cash Flows for the ~~nine-month~~three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019			7
	Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements			89
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations			3542
Item 3	Quantitative and Qualitative Disclosures about Market Risk			61
~~Item 4~~	~~Controls and Procedures~~			61
~~Part II – Other Information~~				61
~~Item 1~~	~~Legal Proceedings~~			61
~~Item 1A~~	~~Risk Factors~~			61
~~Item 2~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~			62
~~Item 3~~	~~Defaults upon Senior Securities~~			62
Item 4	Controls and Procedures			62
Part II –~~Mine Safety Disclosures~~Other Information				62
Item 51	Legal Proceedings	��		62
Item 1A	~~Other Information~~Risk Factors			62
Item 62	~~Exhibits~~Unregistered Sales of Equity Securities and Use of Proceeds			6365
Item 3	Defaults upon Senior Securities			65
Item 4	Mine Safety Disclosures			65
Item 5	Other Information			66
Item 6	Exhibits			67
Signatures				6468
~~Certifications~~

PART I. Financial Information

Item 1. Consolidated Financial Statements

~~Item 1.~~

~~Condensed Consolidated Financial Statements~~

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

~~Condensed~~ Consolidated Balance Sheets

(Unaudited)

   September 30, December 31,
   2017 2016
   (Dollars in thousands, except
per-share data)
ASSETS

Cash and due from banks
   $ 5,297 $ 4,055
Interest-earning deposits with banks
   77,640 57,702


Total cash and cash equivalents
   82,937 61,757
Time deposits with banks
   8,360 9,605
Securities available for sale (amortized cost of $12.0 million and $6.1 million at September 30, 2017 and December 31, 2016, respectively)
   11,878 5,880
Net investment in leases and loans:

Net investment in leases and loans, excluding allowance for credit losses
   900,934 807,654
Allowance for credit losses
   (14,504 ) (10,937 )


Total net investment in leases and loans
   886,430 796,717
Intangible assets
   1,181 —
Goodwill
   1,160 —
Property and equipment, net
   4,295 3,495
Property tax receivables
   7,416 5,296
Other assets
   9,360 9,408


Total assets
   $ 1,013,017 $ 892,158


LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits
   $ 806,954 $ 697,357
Other liabilities:

Sales and property taxes payable
   5,604 2,586
Accounts payable and accrued expenses
   23,835 14,809
Net deferred income tax liability
   10,329 15,117


Total liabilities
   846,722 729,869


Commitments and contingencies (Note 8)

Stockholders’ equity:

Preferred Stock, $0.01 par value; 5,000,000 shares authorized; none issued
   —   —
Common Stock, $0.01 par value; 75,000,000 shares authorized; 12,530,707 and 12,572,114 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
   125 126
Additionalpaid-in capital
   83,393 83,505
Stock subscription receivable
   (2 ) (2 )
Accumulated other comprehensive loss
   (82 ) (138 )
Retained earnings
   82,861 78,798


Total stockholders’ equity
   166,295 162,289


Total liabilities and stockholders’ equity
   $ 1,013,017 $ 892,158


	March 31,			December 31,
	2020			2019
	(Dollars in thousands, except per-share data)
ASSETS
Cash and due from banks	$	5,261		$	4,701
Interest-earning deposits with banks		205,809			118,395

Total cash and cash equivalents		211,070			123,096
Time deposits with banks		13,664			12,927
Restricted interest-earning deposits (includes $6.5 million and $6.9 million at March 31, 2020 and December 31, 2019, respectively related to consolidated VIEs)		6,474			6,931
Investment securities (amortized cost of $10.6 million and $11.1 million at March 31, 2020 and December 31, 2019, respectively)		10,480			11,076
Net investment in leases and loans:
Leases		407,148			426,608
Loans		614,988			601,607

Net investment in leases and loans, excluding allowance for credit losses (includes $62.0 million and $76.1 million at March 31, 2020 and December 31, 2019, respectively, related to consolidated VIEs)		1,022,136			1,028,215
Allowance for credit losses		(52,060	)		(21,695	)

Total net investment in leases and loans		970,076			1,006,520
Intangible assets		7,261			7,461
Goodwill		—			6,735
Operating leaseright-of-use assets		8,618			8,863
Property and equipment, net		8,138			7,888
Property tax receivables, net of allowance		10,291			5,493
Other assets		17,465			10,453

Total assets	$	1,263,537		$	1,207,443

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	941,996		$	839,132
Long-term borrowings related to consolidated VIEs		62,193			76,091
Operating lease liabilities		9,487			9,730
Other liabilities:
Sales and property taxes payable		7,267			2,678
Accounts payable and accrued expenses		28,427			34,028
Net deferred income tax liability		25,677			30,828

Total liabilities		1,075,047			992,487

Commitments and contingencies
Stockholders’ equity:
Preferred Stock, $0.01 par value; 5,000,000 shares authorized; none issued		—			—
Common Stock, $0.01 par value; 75,000,000 shares authorized; 11,884,473 and 12,113,585 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively		119			121
Additionalpaid-in capital		75,647			79,665
Accumulated other comprehensive income (loss)		20			58
Retained earnings		112,704			135,112

Total stockholders’ equity		188,490			214,956

Total liabilities and stockholders’ equity	$	1,263,537		$	1,207,443

The accompanying notes are an integral part of the unaudited ~~condensed~~ consolidated financial statements.

-3-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

~~Condensed~~ Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2020			2019
	(Dollars in thousands, exceptper-share data)								(Dollars in thousands, except per-share data)
Interest income	$	22,363	$	18,803	$	64,461	$	54,521	$	26,465		$	25,883
Fee income		3,780		3,944		11,055		11,747		2,766			4,042

Interest and fee income		26,143		22,747		75,516		66,268		29,231			29,925
Interest expense		3,000		2,055		7,952		5,604		5,680			5,962

Net interest and fee income		23,143		20,692		67,564		60,664		23,551			23,963
Provision for credit losses		5,680		3,137		13,878		8,880		25,150			5,363

Net interest and fee income after provision for credit losses		17,463		17,555		53,686		51,784		(1,599	)		18,600

Other income:
Non-interest income:
Gain on leases and loans sold										2,282			3,612
Insurance premiums written and earned		1,817		1,567		5,274		4,759		2,282			2,132
Other income		1,785		1,065		6,160		2,013		7,639			7,204

Other income		3,602		2,632		11,434		6,772
Non-interest income										12,203			12,948

Other expense:
Non-interest expense:
Salaries and benefits		9,302		7,817		27,763		23,829		9,519			11,451
General and administrative		6,409		4,980		22,689		14,073		13,605			13,354
Financing related costs		—		17		—		85
Goodwill impairment										6,735			—

Other expenses		15,711		12,814		50,452		37,987
Non-interest expense										29,859			24,805

Income before income taxes		5,354		7,373		14,668		20,569
Income tax expense		2,049		3,028		5,270		8,105
(Loss) income before income taxes										(19,255	)		6,743
Income tax (benefit) expense										(7,434	)		1,602

Net income	$	3,305	$	4,345	$	9,398	$	12,464
Net (loss) income									$	(11,821	)	$	5,141

Basic earnings per share	$	0.26	$	0.35	$	0.75	$	1.00
Diluted earnings per share	$	0.26	$	0.35	$	0.75	$	1.00
Cash dividends declared per share	$	0.14	$	0.14	$	0.42	$	0.42
Basic (loss) earnings per share									$	(1.00	)	$	0.42
Diluted (loss) earnings per share									$	(1.00	)	$	0.41

The accompanying notes are an integral part of the unaudited ~~condensed~~ consolidated financial statements.

-4-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

~~Condensed~~ Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

   Three Months Ended September 30, Nine Months Ended September 30,
   2017 2016 2017 2016
   (Dollars in thousands)
Net income
   $ 3,305 $ 4,345 $ 9,398 $ 12,464


Other comprehensive income (loss):

Increase (decrease) in fair value of securities available for sale
   38 28 90 200
Tax effect
   (14 ) (11 ) (34 ) (76 )


Total other comprehensive income (loss)
   24 17 56 124


Comprehensive income
   $ 3,329 $ 4,362 $ 9,454 $ 12,588


	Three Months Ended March 31,
	2020			2019
	(Dollars in thousands)
Net (loss) income	$	(11,821	)	$	5,141

Other comprehensive income (loss):
(Decrease) increase in fair value of debt securities available for sale		(51	)		54
Tax effect		13			(14	)

Total other comprehensive (loss) income		(38	)		40

Comprehensive (loss) income	$	(11,859	)	$	5,181

The accompanying notes are an integral part of the unaudited ~~condensed~~ consolidated financial statements.

-5-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

~~Condensed~~ Consolidated Statements of Stockholders’ Equity

(Unaudited)

   Common
Shares Common
Stock
Amount Additional
Paid-In
Capital Stock
Subscription
Receivable Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings Total
Stockholders’
Equity
   (Dollars in thousands)
Balance, December 31, 2015
   12,410,899 $ 124 $ 81,703 $ (2 ) $ (129 ) $ 68,442 $ 150,138
Issuance of common stock
   7,981 —   122 —   —   —   122
Repurchase of common stock
   (22,673 ) —   (330 ) —   —   —   (330 )
Exercise of stock options
   6,880 —   71 —   —   —   71
Excess tax benefits from stock-based payment arrangements
   —   —   (86 ) —   —   —   (86 )
Restricted stock grant, net of forfeitures
   161,674 2 (2 ) —   —   —   —
Stock-based compensation recognized
   —   —   1,414 —   —   —   1,414
Net change in unrealized gain/loss on securities available for sale, net of tax
   —   —   —   —   124 —   124
Net income
   —   —   —   —   —   12,464 12,464
Cash dividends declared
   —   —   —   —   —   (5,249 ) (5,249 )


Balance, September 30, 2016
   12,564,761 $ 126 $ 82,892 $ (2 ) $ (5 ) $ 75,657 $ 158,668


Balance, December 31, 2016
   12,572,114 126 83,505 (2 ) (138 ) 78,798 162,289
Issuance of common stock
   9,876 —   169 —   —   —   169
Repurchase of common stock
   (119,672 ) (1 ) (2,981 ) —   —   —   (2,982 )
Exercise of stock options
   39,416 —   487 —   —   —   487
Restricted stock grant, net of forfeitures
   28,973 —   —   —   —   —   —
Stock-based compensation recognized
   —   —   2,213 —   —   —   2,213
Net change in unrealized gain/loss on securities available for sale, net of tax
   —   —   —   —   56 —   56
Net income
   —   —   —   —   —   9,398 9,398
Cash dividends declared
   —   —   —   —   —   (5,335 ) (5,335 )


Balance, September 30, 2017
   12,530,707 $ 125 $ 83,393 $ (2 ) $ (82 ) $ 82,861 $ 166,295


	Common Shares			Common Stock Amount			Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Stockholders’ Equity
	(Dollars in thousands)
Balance, December 31, 2018		12,367,724			124			83,496			(44	)		114,935		$	198,511
Repurchase of common stock		(48,857	)		(1	)		(1,144	)		—			—			(1,145	)
Stock issued in connection with restricted stock and RSUs, net of forfeitures		30,209			—			—			—			—			—
Stock-based compensation recognized		—			—			861			—			—			861
Net change in unrealized gain/loss on securities available for sale, net of tax		—			—			—			40			—			40
Net income		—			—			—			—			5,141			5,141
Cash dividends paid ($0.14 per share)		—			—			—			—			(1,758	)		(1,758	)

Balance, March 31, 2019		12,349,076		$	123		$	83,213		$	(4	)	$	118,318		$	201,650

Balance, December 31, 2019		12,113,585			121			79,665			58			135,112			214,956
Repurchase of common stock		(285,593	)		(3	)		(4,535	)		—			—			(4,538	)
Stock issued in connection with restricted stock and RSUs, net of forfeitures		56,481			1			(1	)		—			—			—
Stock-based compensation recognized		—			—			518			—			—			518
Net change in unrealized gain/loss on securities available for sale, net of tax		—			—			—			(38	)		—			(38	)
Net (loss)		—			—			—			—			(11,821	)		(11,821	)
Impact of adoption of new accounting standards⁽¹⁾		—			—			—			—			(8,877	)		(8,877	)
Cash dividends paid ($0.14 per share)		—			—			—			—			(1,710	)		(1,710	)

Balance, March 31, 2020		11,884,473		$	119		$	75,647		$	20		$	112,704		$	188,490

⁽¹⁾	Represents the impact of Accounting Standards Update (“ASU”)2016-13 and related ASUs collectively referred to as “CECL”. See Note 2.

The accompanying notes are an integral part of the unaudited ~~condensed~~ consolidated financial statements.

-6-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

~~Condensed~~ Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Cash flows from operating activities:
Net income	$	9,398		$	12,464
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income							$	(11,821	)	$	5,141
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		2,155			1,360			1,057			1,209
Stock-based compensation		2,213			1,414			518			861
Excess tax (benefits) deficit from stock-based payment arrangements		—			86
Goodwill impairment								6,735			—
Change in fair value of equity securities								(58	)		(43	)
Provision for credit losses		13,878			8,880			25,150			5,363
Net deferred income taxes		(4,823	)		(2,482	)
Change in net deferred income tax liability								(2,107	)		1,364
Amortization of deferred initial direct costs and fees		8,242			6,275			3,413			3,563
Loss on equipment disposed		787			574			—			389
Gain on leases sold		(925	)		(198	)		(2,282	)		(3,612	)
Leases originated for sale		(2,687	)		(625	)		(3,693	)		(10,675	)
Proceeds from sale of leases originated for sale		2,732			627			3,874			11,052
Noncash lease expense								324			275
Effect of changes in other operating items:
Other assets		(2,993	)		(962	)		(12,002	)		(4,982	)
Other liabilities		11,634			898			1,083			2,559

Net cash provided by operating activities		39,611			28,311			10,191			12,464

Cash flows from investing activities:
Net change in time deposits with banks		1,245			(1,739	)		(737	)		(1,580	)
Purchases of equipment for direct financing lease contracts and funds used to originate loans		(457,814	)		(366,225	)
Purchases of equipment for lease contracts and funds used to originate loans								(156,145	)		(197,168	)
Principal collections on leases and loans		315,021			265,450			129,810			122,871
Proceeds from sale of leases originated for investment		28,902			6,148			21,337			45,428
Security deposits collected, net of refunds		(348	)		(549	)		(78	)		(76	)
Proceeds from the sale of equipment		2,490			2,651			840			696
Acquisitions of property and equipment		(1,526	)		(800	)		(796	)		(376	)
Business combinations		(2,500	)		—
Change in restricted interest-earning deposits with banks		—			216
Purchases of securities available for sale, net		(5,912	)		525
Principal payments received on securities available for sale								594			372

Net cash (used in) investing activities		(120,442	)		(94,323	)		(5,175	)		(29,833	)

Cash flows from financing activities:
Net change in deposits		109,597			88,980			102,864			84,391
Issuances of common stock		169			122
Term securitization repayments								(14,008	)		(21,104	)
Business combinations earn-out consideration payments								(132	)		(121	)
Repurchases of common stock		(2,982	)		(330	)		(4,538	)		(1,145	)
Dividends paid		(5,260	)		(5,249	)		(1,685	)		(1,727	)
Exercise of stock options		487			71
Excess tax benefits (deficit) from stock-based payment arrangements		—			(86	)

Net cash provided by financing activities		102,011			83,508			82,501			60,294

Net (decrease) increase in total cash and cash equivalents		21,180			17,496
Total cash and cash equivalents, beginning of period		61,757			60,129
Net increase in total cash, cash equivalents and restricted cash								87,517			42,925
Total cash, cash equivalents and restricted cash, beginning of period								130,027			111,201

Total cash and cash equivalents, end of period	$	82,937		$	77,625
Total cash, cash equivalents and restricted cash, end of period							$	217,544		$	154,126

Supplemental disclosures of cash flow information:
Cash paid for interest on deposits and borrowings	$	7,142		$	5,201
Net cash paid for income taxes	$	9,873		$	5,534
Leases transferred into held for sale from investment	$	28,022		$	5,953

The accompanying notes are an integral part of the unaudited ~~condensed~~ consolidated financial statements.

-7-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31,
	2020		2019
	(Dollars in thousands)
Supplemental disclosures of cash flow information:
Cash paid for interest on deposits and borrowings	$	5,420	$	5,204
Net cash paid (refunds received) for income taxes		1,797		1,371
Leases transferred into held for sale from investment		19,235		42,193
Supplemental disclosures of non cash investing activities:
Business combinations assets acquired	$	—	$	146
Purchase of equipment for lease contracts and loans originated		3,773		6,979
Reconciliation of Cash, cash equivalents and restricted cash tothe Consolidated Balance Sheets:
Cash and cash equivalents	$	211,070	$	140,952
Restricted interest-earning deposits		6,474		13,174

Cash, cash equivalents and restricted cash at end of period	$	217,544	$	154,126

The accompanying notes are an integral part of the unaudited consolidated financial statements.

-8-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – The Company

~~Description~~

Marlin Business Services Corp. (the “Company”) is a nationwide provider of credit products and services to small businesses. The products and services we provide to our customers include loans and leases for the acquisition of commercial equipment (including Commercial Vehicle Group (“CVG”) assets which now incorporates Transportation Finance Group (“TFG”)) and working capital ~~loans and insurance products.~~loans. The Company was incorporated in the Commonwealth of Pennsylvania on August 5, 2003. In May 2000, we established AssuranceOne, Ltd., a Bermuda-based, wholly-owned captive insurance subsidiary (“Assurance One”), which enables us to reinsure the property insurance coverage for the equipment financed by Marlin Leasing Corporation (“MLC”) and Marlin Business Bank (“MBB”) for our ~~end user~~small business customers. Effective March 12, 2008, the Company opened MBB, a commercial bank chartered by the State of Utah and a member of the Federal Reserve System. MBB serves as the Company’s primary funding source through its issuance of Federal Deposit Insurance Corporation (“FDIC”)-insured deposits.

On ~~January 4, 2017,~~September 19, 2018, the Company completed the acquisition of ~~Horizon Keystone Financial~~Fleet Financing Resources (“~~HKF”~~FFR”), a leading provider of equipment finance credit products specializing in the leasing and financing of both new and used commercial vehicles, with an emphasis on livery equipment ~~leasing company which primarily identifies~~ and sources lease and loan contracts for investor partners for a fee. With this acquisition, the Company will expand the current leasing business, grow annual originations and increase its presence in certain industry sectors. Additionally, the Company expects to leverage HKF’s valuable relationships with lenders and equipment vendors. The Company paid $2.5 million in cash for HKF and incurred an immaterial amountother types of acquisition-related cost for the acquisition. Cash settlement occurred on the date of acquisition. The Company performed an allocation of the purchase price with $1.2 million recorded to goodwill and $1.3 million recorded to intangible assets for vendor relationships, customer relationships, and the corporate trade name. See Note 6 for additional information regarding the identified intangible assets acquired.commercial vehicles used by small businesses.

References to the “Company,” “Marlin,” “Registrant,” “we,” “us” and “our” herein refer to Marlin Business Services Corp. and its wholly-owned subsidiaries, unless the context otherwise requires.

NOTE 2 – Summary of Significant Accounting Policies

Basis of financial statement presentation. The unaudited ~~condensed~~ consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. MLC and MBB are managed together as a single business segment and are aggregated for financial reporting purposes as they exhibit similar economic characteristics, share the same leasing and loan portfolio and have ~~one~~a single consolidated product ~~offering.~~offering platform. All intercompany accounts and transactions have been eliminated in consolidation.

During the second quarter of 2017, the Company identified that the sale of certain leases had been reported as cash flows from operating activities that should have been presented as investing activities. In addition, the Company also identified that the deferral of certain expenses associated with the cost of originating leases had been reported as an adjustment to operating cash flow rather than as an investing activity. The Company corrected the previously presented cash flows for these items and in doing so, the consolidated statement of cash flow for the nine-month period ended September 30, 2016 was adjusted to increase net cash flows from operating activities by $2.4 million and to decrease net cash flows used in investing activities by the same amount. The Company has evaluated the effect of this incorrect presentation, both qualitatively and quantitatively, on its previously filed consolidated financial statements and has collectively concluded that such effect is not material.

The accompanying unaudited ~~condensed~~ consolidated financial statements present the Company’s financial position at ~~September 30, 2017~~March 31, 2020 and the results of operations for the~~three-and~~ ~~nine-month~~ three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, and cash flows for the ~~nine-month~~three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016.~~2019. In ~~Management’s~~management’s opinion, the unaudited ~~Condensed Consolidated Financial Statements~~consolidated financial statements contain all adjustments, which include normal and recurring adjustments, necessary for a fair presentation of the financial position and results of operations for the interim periods presented. These unaudited ~~condensed~~ consolidated financial statements should be read in conjunction with the consolidated financial statements and note disclosures included in the Company’s Form10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (“SEC”) on March 13, ~~2017.~~2020. The consolidated results ~~of operations for thethree-and~~ ~~nine-month periods ended September 30, 2017~~ and ~~2016 and the consolidated~~ statements of cash flows for ~~the nine-month periods ended September 30, 2017 and 2016~~these interim financial statements are not necessarily indicative of the results of operations or cash flows for the respective full years or any other period.

~~-8-~~

~~Goodwill~~Use of Estimates. These unaudited consolidated financial statements require management to make estimates and ~~Intangible Assets.The Company tests for impairment~~assumptions that affect the reported amounts of ~~goodwill~~assets and liabilities and disclosure of contingent assets and liabilities at ~~least annually and more frequently as circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows for~~ the ~~testing of goodwill for impairment using both qualitative and quantitative factors. Impairment of goodwill is recognized only if the carrying amount~~date of the ~~Company, including goodwill, exceeds~~financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for income recognition, the residual values of leased equipment, the allowance for credit losses, deferred initial direct costs and fees, late fee receivables, the fair value of financial instruments, estimated losses from insurance program, and income taxes. Actual results could differ from those estimates.

Provision for income taxes.Income tax benefit of $7.4 million was recorded for the ~~Company. The amount~~three-month period ended March 31, 2020, compared to expense of $1.6 million for the three-month period ended March 31, 2019. For the three-month period ended March 31, 2020, the income tax benefit includes a $3.2 million discrete benefit, related to remeasuring our federal net operating losses, driven by certain provisions in the CARES Act. Our statutory tax rate, which is a combination of federal and state income tax rates, was approximately 23.9% for both periods. However, our effective tax rate was 38.6% for the three-month period ended March 31, 2020, driven by the recognition of the discrete benefit.

Significant Accounting Policies.There have been no significant changes to our Significant Accounting Policies as described in our 2019 Annual Report on Form10-K other than the adoption of ASU2016-13 as described below.

-9-

Recently Adopted Accounting Standards.

Credit Losses. In June 2016, the FASB issued ASU2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement ofCredit Losses on Financial Instruments, which changes the methodology for evaluating impairment of most financial instruments. This guidance was subsequently amended by ASU2018-19,Codification Improvements, ASU2019-04,Codification Improvements, ASU2019-05,Targeted Transition Relief,ASU2019-10,Effective Dates,and ASU2019-11,Codification Improvements. These ASUs are referred to collectively as “CECL”.

CECL replaces the probable, incurred loss ~~would be equal to~~model with a measurement of expected credit losses for the ~~excess carrying value of the goodwill over the implied fair value~~contractual term of the Company’s ~~goodwill.~~

~~Currently,~~current portfolio of loans and leases. After the adoption of CECL, an allowance, or estimate of credit losses, will be recognized immediately upon the origination of a loan or lease, and will be adjusted in each subsequent reporting period. This estimate of credit losses takes into consideration all cashflows the Company ~~does not have any intangible assets with indefinite useful lives.~~

~~Intangible assets that~~expects to receive or derive from the pools of contracts, including recoveries aftercharge-off, amounts related to initial direct cost and origination costs net of fees deferred, accrued interest receivable and certain future cashflows from residual assets. The Company had previously recognized residual income within Fee Income in its Consolidated Statements of Operations; the adoption of CECL results in such residual income being captured as a component of the activity of the allowance. The Company’s policy for charging off contracts against the allowance, andnon-accrual policy are not ~~deemed to have an indefinite useful life are amortized over their estimated useful lives.~~ impacted by the adoption of CECL.

The ~~carrying amounts of intangible assets are regularly reviewed~~provision for indicators of impairment in accordance with applicable accounting guidance. Impairment is recognized only if the carrying amount of the intangible asset is in excess of its undiscounted projected cash flows. Impairment is measured as the difference between the carrying amount and the estimated fair value of the asset.

~~Other income.~~Other income includes various administrative transaction fees, insurance policy fees, fees received from referral of leases to third parties and gain on sale of leases and servicing fee income, recognized as earned. Effective third quarter 2016, on a prospective basis, the insurance policy fees arecredit losses recognized in the Consolidated Statements of Operations under CECL will be primarily driven by originations, offset by the reversal of the allowance for any contracts sold, plus any amounts of realized cashflows, such as charge-offs, above or below our modeled estimates, plus adjustments for changes in ~~“Other income”~~estimate each subsequent reporting period.

Estimating an allowance under CECL requires the Company to develop and maintain a consistent systematic methodology to measure the estimated credit losses inherent in its current portfolio, over the entire life of the contracts. The Company assesses the appropriate collective, or pool, basis to use to aggregate its portfolio based on the existence of similar risk characteristics and determined that its measurement begins by separately considering segments of financing receivables, which is similar to how it has historically analyzed its allowance for ~~all previous annual~~credit losses: (i) equipment finance lease and ~~interim periods~~loan; (ii) working capital loans; (iii) commercial vehicles “CVG”; and (iv) Community Reinvestment Act. However, these classes of receivables are ~~recorded net~~further disaggregated into pools of loans based on risk characteristics that may include: lease or loan type, origination channel, and internal credit score (which is a measurement that combines many risk characteristics, including loan size, external credit scores, existence of a guarantee, and various characteristics of the borrower’s business).

As part of our analysis of expected credit losses, we may analyze contracts on an individual basis, or create additional pools of contracts, in ~~“Insurance premiums written~~situations where such loans exhibit unique risk characteristics and ~~earned.” Selected major components~~are no longer expected to experience similar losses to the rest of ~~other income~~their pool.

As part of its estimate of expected credit losses, specific to each measurement date, management considers relevant qualitative and quantitative factors to assess whether the historical loss experience being referenced should be adjusted to better reflect the risk characteristics of the current portfolio and the expected future loss experience for the ~~three-month period ended September 30, 2017 included $0.5 million~~life of ~~referral income, $0.5 million~~these contracts. This assessment incorporates all available information relevant to considering the collectability of ~~insurance policy fees,~~its current portfolio, including considering economic and ~~$0.5 million gain on~~business conditions, default trends, changes in its portfolio composition, changes in its lending policies and practices, among other internal and external factors.

The Company adopted the ~~sale of leases and servicing fee income. In comparison, selected major components of other income for~~guidance in these ASUs, effective January 1, 2020, applying changes resulting from the three-month period ended September 30, 2016 included $0.1 million of referral income, $0.4 million of insurance policy fees, and $0.2 million gain on the sale of leases and servicing fee income. Selected major components of other income for the nine-month period ended September 30, 2017 included $2.2 million of referral income, $1.4 million of insurance policy fees, and $1.5 million gain on the sale of leases and servicing fee income. In comparison, selected major components of other income for the nine-month period ended September 30, 2016 included $0.4 million of referral income, $0.4 million of insurance policy fees, and $0.3 million gain on the sale of leases and servicing fee income.

~~There have been no other significant changes to our Critical Accounting Policies as described in our 2016 Annual Report on Form10-K.~~

~~Recently Issued Accounting Standards.~~

~~In September 2017, the FASB Accounting Standards Update2017-13,~~~~Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July~~ ~~20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.~~~~The Accounting Standards Codification is amended as described in paragraphs 2–20~~application of the ~~guidance.~~

~~Stock-Based Compensation.~~ ~~In May 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)2017-09,~~~~Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting~~~~. The amendments in this ASU provide guidance about which changes~~new standard’s provisions as a cumulative-effect adjustment to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of modifications unless all the following are met: 1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used)retained earnings as of the ~~modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used)~~beginning of the ~~original award immediately before~~first reporting period in which the ~~original award~~guidance is ~~modified; 2) the vesting conditions of the~~effective (i.e., modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and 3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this ASU. The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company will apply the amendments in this ASU prospectively to each period presented, when applicable. The Company is evaluating the impact of this new requirement on the consolidated statement of operations, balance sheet and cash flows of the Company.

~~Other Income.~~ ~~In February 2017, the FASB issued ASU2017-05,~~~~Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic610-20):~~ ~~Clarifying the Scope of Asset Derecognition Guidance and~~retrospective approach).

~~-9-~~-10-

The adoption of this standard resulted in the following adjustment to the Company’s Consolidated Balance Sheets:


	Balance as of December 31, 2019			Adoption Impact			Balance as of January 1, 2020
				(Dollars in thousands)
Assets:
Net investment in leases and loans	$	1,028,215		$	—		$	1,028,215
Allowance for credit losses		(21,695	)		(11,908	)		(33,603	)

Total net investment in leases and loans		1,006,520						994,612
Liabilities:
Net deferred income tax liability		30,828			(3,031	)		27,797
Stockholders’ Equity:
Retained Earnings		135,112			(8,877	)		126,235

See Note 6 –~~Accounting~~Allowance for ~~Partial Sales of Nonfinancial Assets.~~Credit Losses ~~The amendments in this ASU clarify that a financial asset is within the scope of Subtopic610-20~~ if it meets the definition of an in substance nonfinancial asset. The amendments define the term in substance nonfinancial asset, in part, as a financial asset promised to a counterparty in a contract if substantially all, for further discussion of the ~~fair value~~January 1, 2020 measurement of allowance under CECL, as well as discussion of the ~~assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. If substantially all~~Company’s new Accounting Policy governing its Allowance.

See Note 13 –Stockholders’ Equity, for discussion of the ~~fair value~~Company’s election to delay fortwo-years the effect of ~~the assets that are promised to the counterparty in~~CECL on regulatory capital, followed by a ~~contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty are in substance nonfinancial assets within the scope of Subtopic~~three-year~~610-20.~~phase-in ~~The amendments in this ASU also clarify that nonfinancial assets within the scope of Subtopic610-20~~ ~~may include nonfinancial assets transferred within~~for a legal entity to a counterparty. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company will apply the amendments in this ASU prospectively to each period presented, when applicable. The Company is evaluating the impact of this new requirement on the consolidated statement of operations, balance sheet and cash flows of the Company.five-year total transition.

~~Revenue Recognition.~~ ~~In May 2014, the FASB issued ASU2014-09,~~ Revenue from Contracts with Customers (a new revenue recognition standard). The ASU’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ~~this ASU specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This ASU is effective,~~ as a result of ~~ASU2015-14,~~ for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company expects to adopt the revenue recognition guidance on January 1, 2018 using the modified retrospective approach. A significant amountadoption this standard, future measurements of the ~~Company’s revenues is derived from net interest income on financial assets and liabilities, which are excluded from~~impairment of our investment securities will incorporate the ~~scope~~guidance in these ASUs, including analyzing any decline in fair value between credit quality-driven factors versus other factors. There was no impact as of the ~~amended guidance. With respect~~adoption date to other income, the Company is in the process of identifying and evaluating the revenue streams and underlying revenue contracts within the scope of the guidance. The Company is expecting to develop processes and procedures during the fourth quarter of 2017 to ensure it is fully compliant with these amendments. To date, the Company has not yet identified any significant changes in the timing of revenue recognition when considering the amended accounting guidance; however, the Company’s implementation efforts are ongoing and such assessments may change prior to the January 1, 2018 implementation date.our investment securities.

~~Recently Adopted Accounting Standards.~~

~~In March 2016, the FASB issued ASU2016-09,~~ ~~Compensation – Stock Compensation (Topic 718):~~~~Improvements to Employee Share-Based Payment Accounting~~.This ASU, which was adopted by the Company on January 1, 2017, simplifies the accounting for several aspects of share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The changes which impacted the Company included a requirement that all excess tax benefits and deficiencies that pertain to share-based payment arrangements be recognized within income tax expense line instead of additional paid in capital. The Company elected to adopt these changes on a prospective basis. Additionally, the ASU no longer requires a presentation of excess tax benefits and deficiencies related to the vesting and exercise of share-based compensation as both an operating outflow and financing inflow on the statement of cash flows. Adoption of this ASU did not have a material impact on our results of operations or financial position-11-

NOTE 3 – ~~Investments~~Non-Interest Income

~~Available~~The following table summarizesnon-interest income for ~~sale investments are recorded at~~the periods presented:


	Three Months Ended March 31,
	(dollars in thousands)
	2020		2019
Insurance premiums written and earned	$	2,282	$	2,132
Gain on sale of leases and loans		2,282		3,612
Other income:
Property tax income		5,504		5,643
Servicing income		566		287
Net gain (loss) recognized on equity securities		58		43

Non-interest income within the scope of other GAAP topics		10,692		11,717

Other income:
Insurance policy fees		918		668
Property tax administrative fees on leases		234		268
ACH payment fees		72		86
Referral fees		94		155
Other		193		54

Non-interest income from contracts with customers		1,511		1,231

Totalnon-interest income	$	12,203	$	12,948

-12-

NOTE 4 – Investment Securities

The Company has the following investment securities as of the periods presented:


	March 31, 2020		December 31, 2019
	(Dollars in thousands)
Equity Securities
Mutual fund	$	3,692	$	3,615
Debt Securities, Available for Sale:
Asset-backed securities (“ABS”)		4,135		4,332
Municipal securities		2,653		3,129

Total investment securities	$	10,480	$	11,076

The following schedule summarizes changes in fair value of equity securities and the portion of unrealized gains and losses are reported, net of taxes, in accumulated other comprehensive income (loss) included in stockholders’ equity unless management determines that an investment is other-than-temporarily impaired (OTTI). The amortized cost and estimated fair value of investments, with gross unrealized gains and losses, were as follows as of September 30, 2017 and December 31, 2016:for each period presented:


	Three months ended
(Dollars in thousands)	March 31, 2020		March 31, 2019
Net gains and (losses) recognized during the period on equity securities	$	58	$	43
Less: Net gains and (losses) recognized during the period on equity securities sold during the period		—		—

Unrealized gains and (losses) recognized during the reporting period on equity securities still held at the reporting date	$	58	$	43

~~-10-~~

-13-

   September 30, 2017
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses Estimated
Fair
Value
   (Dollars in thousands)
Securities Available for Sale

Asset-backed securities (“ABS”)
   $ 6,059    $ 7    $ (35 ) $ 6,031
Municipal securities
   $ 2,420    $ —      $ (2 ) $ 2,418
Mutual fund
   $ 3,534    $ —      $ (105 ) $ 3,429






Total securities available for sale
   $ 12,013    $ 7    $ (142 ) $ 11,878






   December 31, 2016
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses Estimated
Fair
Value
   (Dollars in thousands)
Securities Available for Sale

ABS
   $ —      $ —      $ —   $ —
Municipal securities
   $ 2,625    $ —      $ (97 ) $ 2,528
Mutual fund
   $ 3,479    $ —      $ (127 ) $ 3,352






Total securities available for sale
   $ 6,104    $ —      $ (224 ) $ 5,880

Available for Sale

The following schedule is a summary of available for sale investments for the periods presented:


	March 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(Dollars in thousands)
ABS	$	4,074	$	61	$	—		$	4,135
Municipal securities		2,664		14		(25	)		2,653

Total Debt Securities, Available for Sale	$	6,738	$	75	$	(25	)	$	6,788


	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(Dollars in thousands)
ABS	$	4,302	$	33	$	(3	)	$	4,332
Municipal securities		3,058		71		—			3,129

Total Debt Securities, Available for Sale	$	7,360	$	104	$	(3	)	$	7,461

-14-

The Company evaluates its available for sale securities in an unrealized loss position for other than temporary impairment on at least a quarterly basis. The company did not recognize any other than temporary impairment to earnings for each of the periods ended March 31, 2020 and March 31, 2019.

The following tables present the aggregate amount of unrealized losses on available for sale securities in the Company’s~~available-for-sale~~ investment ~~portfolios~~securities classified according to the amount of time those securities have been in a continuous loss position as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016:~~2019:


	March 31, 2020
	Less than 12 months					12 months or longer					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
						(Dollars in thousands)
Municipal securities	$	(25	)	$	1,834	$	—		$	—	$	(25	)	$	1,834

Total available for sale investment securities	$	(25	)	$	1,834	$	—		$	—	$	(25	)	$	1,834


	December 31, 2019
	Less than 12 months					12 months or longer					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
						(Dollars in thousands)
ABS	$	—		$	—	$	(3	)	$	430	$	(3	)	$	430

Total available for sale investment securities	$	—		$	—	$	(3	)	$	430	$	(3	)	$	430

~~-11-~~

-15-

   September 30, 2017
   Less than 12 months    12 months or longer    Total
   Gross
Unrealized
Losses Fair
Value    Gross
Unrealized
Losses Fair
Value    Gross
Unrealized
Losses Fair
Value
   (Dollars in thousands)
Securities Available for Sale:

ABS
   $ (35 ) $ 4,015    $ —   $ —      $ (35 ) $ 4,015
Municipal securities
   $ (2 ) $ 2,418    $ —   $ —      $ (2 ) $ 2,418
Mutual fund
   $ —   $ —      $ (105 ) $ 3,429    $ (105 ) $ 3,429






Total debt securities available for sale
   $ (37 ) $ 6,433    $ (105 ) $ 3,429    $ (142 ) $ 9,862






   December 31, 2016
   Less than 12 months    12 months or longer    Total
   Gross
Unrealized
Losses Fair
Value    Gross
Unrealized
Losses Fair
Value    Gross
Unrealized
Losses Fair
Value
   (Dollars in thousands)
Securities Available for Sale:

ABS
   $ —   $ —      $ —   $ —      $ —   $ —
Municipal securities
   $ (97 ) $ 2,528    $ —   $ —      $ (97 ) $ 2,528
Mutual fund
   $ —   $ —      $ (127 ) $ 3,352    $ (127 ) $ 3,352






Total debt securities available for sale
   $ (97 ) $ 2,528    $ (127 ) $ 3,352    $ (224 ) $ 5,880

The following table presents the amortized cost, fair value, and weighted average yield of ~~investments in debt securities~~ available for sale investments at ~~September 30, 2017, by remaining contractual maturity, with the exception of ABS and municipal securities, which are~~March 31, 2020, based on estimated average life. Receipt of cash flows may differ from ~~contractual~~those estimated maturities because borrowers may have the right to call or prepay obligations with or without penalties:

~~-12-~~

   1 Year
or Less    After 1 Year
through 5 Years After 5 Years
through 10
Years After 10
Years Total
   (Dollars in thousands)
Amortized Cost:

Available for Sale:

ABS
   $ —      $ 4,043 $ 1,014 $ 1,002 $ 6,059
Municipal securities
   $ —      $ 20 $ 1,442 $ 958 $ 2,420




Total debt securities available for sale
   $ —      $ 4,063 $ 2,456 $ 1,960 $ 8,479




Estimated fair value
   $ —      $ 4,054 $ 2,449 $ 1,909 $ 8,412
Weighted-average yield, GAAP basis
   —      1.96 % 2.40 % 1.97 % 2.09 %

~~OTTI~~

The Company evaluates all investment securities in an unrealized loss position for OTTI on at least a quarterly basis. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. The OTTI assessment is a subjective process requiring the use of judgments and assumptions. During the securities-level assessments, consideration is given to (1) the intent not to sell and probability that the Company will not be required to sell the security before recovery of its cost basis to allow for any anticipated recovery in fair value, (2) the financial condition and near-term prospects of the issuer, as well as company news and current events, and (3) the ability to collect the future expected cash flows. Key assumptions utilized to forecast expected cash flows may include loss severity, expected cumulative loss percentage, cumulative loss percentage to date, weighted average Fair Isaac Corporation (“FICO^®~~”) scores and weighted average LTV ratio, rating or scoring, credit ratings and market spreads, as applicable.~~

According to accounting guidance for debt securities in an unrealized loss position, the Company is required to assess whether it has the intent to sell the debt security or more likely than not will be required to sell the debt security before the anticipated recovery. If either of these conditions is met the Company must recognize an other than temporary impairment with the entire unrealized loss being recorded through earnings. For debt securities in an unrealized loss position not meeting these conditions, the Company assesses whether the impairment of a security is other than temporary. If the impairment is deemed to be other than temporary, the Company must separate the other than temporary impairment into two components: the amount representing the credit loss and the amount related to all other factors, such as changes in interest rates. The credit loss represents the portion of the amortized book value in excess of the net present value of the projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. The credit loss component of the other than temporary impairment is recorded through earnings, whereas the amount relating to factors other than credit losses is recorded in other comprehensive income, net of taxes. The Company did not recognize any OTTI in earnings related to its investment securities for the three-and-nine months ended September 30, 2017 and September 30, 2016.


	Distribution of Maturities
	1 Year or Less			Over 1 to 5 Years			Over 5 to 10 Years			Over 10 Years			Total
							(Dollars in thousands)
Amortized Cost:
ABS	$	—		$	2,427		$	1,647		$	—		$	4,074
Municipal securities		15			34			756			1,859			2,664

Total available for sale investments	$	15		$	2,461		$	2,403		$	1,859		$	6,738

Estimated fair value	$	15		$	2,501		$	2,413		$	1,859		$	6,788
Weighted-average yield, GAAP basis		4.75	%		2.02	%		1.81	%		2.58	%		2.42	%

~~-13-~~-16-

NOTE 45 – Net Investment in Leases and Loans

Net investment in leases and loans consists of the following:


	September 30, 2017			December 31, 2016			March 31, 2020			December 31, 2019
	(Dollars in thousands)						(Dollars in thousands)
Minimum lease payments receivable	$	957,406		$	867,806		$	434,841		$	457,602
Estimated residual value of equipment		26,839			26,790			29,464			29,342
Unearned lease income, net of initial direct costs and fees deferred		(127,376	)		(115,158	)		(56,645	)		(59,746	)
Security deposits		(1,145	)		(1,493	)		(512	)		(590	)

Total leases								407,148			426,608
Commercial loans, net of origination costs and fees deferred
Funding Stream		26,410			19,870
Other⁽¹⁾		18,800			9,839
Working Capital Loans								59,012			60,942
CRA⁽¹⁾								1,410			1,398
Equipment loans⁽²⁾								481,000			464,655
CVG								73,566			74,612

Total commercial loans		45,210			29,709			614,988			601,607
Net investment in leases and loans, excluding allowance								1,022,136			1,028,215
Allowance for credit losses		(14,504	)		(10,937	)		(52,060	)		(21,695	)

	$	886,430		$	796,717		$	970,076		$	1,006,520

⁽¹⁾	~~Other~~ CRA loans are comprised of ~~commercial loans and other~~ loans originated ~~by MBB~~under a line of credit to satisfy its obligations under the Community Reinvestment Act of 1977.

⁽²⁾	Equipment loans are comprised of Equipment Finance Agreements, Installment Purchase Agreements and other loans.

At ~~September 30, 2017, $35.1~~March 31, 2020, $62.0 million in net investment in leases ~~are~~were pledged as collateral for the Company’s outstanding asset-backed securitization balance and $55.1 million in net investment in leases were pledged as collateral for the secured borrowing capacity at the Federal Reserve Discount Window.

~~In the third quarter~~The amount of 2017 the Company booked additional reserves for estimated inherent credit losses of $0.5 million based on our assessment of information available as of September 30, 2017 on our lease portfolio’s exposure to those geographic areas most impacted by Hurricane Harveydeferred initial direct costs and Hurricane Irma in August 2017 and September 2017, respectively. Marlin estimates that it has approximately $60.2 million in net investment in leases outstanding in the areas most affected by Hurricane Harvey and Hurricane Irma. The longer term impact of these hurricanes on the economy in the impacted region remains uncertain.

~~Initial direct~~origination costs net of fees deferred were ~~$16.4~~$19.5 million and ~~$13.9~~$20.5 million as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively. Initial direct costs are netted in unearned income and are amortized to income using the effective interest method. ~~Origination~~ASU2016-02 limited the types of costs ~~net~~that qualify for deferral as initial direct costs for leases, which reduced the deferral of ~~fees deferred were $0.7 million~~unit lease costs and ~~$0.4 million as of September 30, 2017 and December 31, 2016, respectively.~~resulted in an increase in current period expense. Origination costs are netted in commercial loans and are amortized to income using the effective interest method. At ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016, $22.7~~2019, $23.5 million and ~~$22.5~~$23.4 million, respectively, of the estimated residual value of equipment retained on our ~~Condensed~~ Consolidated Balance Sheets was related to copiers.

~~Minimum~~

-17-

Maturities of lease ~~payments receivable~~receivables under lease contracts and the amortization of unearned lease income, including initial direct costs and fees deferred, ~~are~~were as follows as of ~~September 30, 2017:~~March 31, 2020:


	Minimum Lease Payments Receivable⁽¹⁾		Net Income Amortization ⁽²⁾
	(Dollars in thousands)
Period Ending December 31,
Remainder of 2020	$	132,867	$	22,664
2021		137,907		18,737
2022		90,158		9,728
2023		49,519		4,107
2024		20,660		1,140
Thereafter		3,730		269

	$	434,841	$	56,645

~~-14-~~

⁽¹⁾	Represents the undiscounted cash flows of the lease payments receivable.

⁽²⁾	Represents the difference between the undiscounted cash flows and the discounted cash flows.

Portfolio Sales

   Minimum Lease
Payments
Receivable    Income
Amortization
   (Dollars in thousands)
Period Ending December 31,

2017
   $ 103,097    $ 19,437
2018
   352,442    56,185
2019
   246,046    31,253
2020
   151,821    14,570
2021
   78,673    5,099
Thereafter
   25,327    832




   $ 957,406    $ 127,376




The Company originates certain lease and loans for sale to third parties, based on their underwriting criteria and specifications. In addition, the Company may periodically enter into agreements to sell certain leases and loans that were originated for investment to third parties.

AsFor agreements that qualify as a sale where the Company has continuing involvement through servicing, the Company recognizes a servicing liability at its initial fair value, and then amortizes the liability over the expected servicing period based on the effective yield method, within Other income in the Consolidated Statements of ~~September 30, 2017~~Operations. The Company’s sale agreements typically do not contain a stated servicing fee, so the initial value recognized as a servicing liability is a reduction of the proceeds received and is based on an estimate of the fair value attributable to that obligation. The Company’s servicing liability was $2.3 million and $2.5 million as of March 31, 2020 and December 31, ~~2016,~~2019, respectively, and is recognized within Accounts payable and accrued expenses in the ~~Company maintained total finance receivables which were on anon-accrual~~ ~~basis of $3.0 million and $2.2 million, respectively.~~Consolidated Balance Sheets. As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016, there were less than $0.1 million and $0.1 million~~2019, the portfolio of ~~commercial loans on anon-accrual~~ basis, respectively. As of September 30, 2017 and December 31, 2016, the Company had total finance receivables in which the terms of the original agreements had been renegotiated in the amount of $2.5 million and $0.8 million, respectively. As of September 30, 2017 and December 31, 2016 there were $0.1 million of commercial loans that had been renegotiated. (See Note 5 for income recognition on leases and loans serviced for others was $328 million and ~~additional asset quality information.)~~$340 million, respectively.

In addition, the Company may have continuing involvement in contracts sold through any recourse obligations that may include customary representations and warranties or specific recourse provisions. The Company’s expected losses from recourse obligations was $1.2 million as of March 31, 2020 and was $0.4 million as of December 31, 2019.

The following table summarizes information related to portfolio sales for the periods presented:


	Three Months Ended March 31,
	2020		2019
	(Dollars in thousands)
Sales of leases and loans	$	22,929	$	52,867
Gain on sale of leases and loans		2,282		3,612

~~-15-~~

-18-

NOTE 56 – Allowance for Credit Losses

~~In accordance with the Contingencies~~For 2019 and ~~Receivables Topics of the FASB ASC,~~prior, we ~~maintain~~maintained an allowance for credit losses at an amount sufficient to absorb losses inherent in our existing lease and loan portfolios as of the reporting dates based on our estimate of probable incurred net credit ~~losses.~~losses in accordance with the Contingencies Topic of the FASB ASC.

Effective January 1, 2020, we adopted ASU2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of CreditLosses on Financial Instruments (“CECL”), which changed our accounting policy and estimated allowance. CECL replaces the probable, incurred loss model with a measurement of expected credit losses for the contractual term of the Company’s current portfolio of loans and leases. After the adoption of CECL, an allowance, or estimate of credit losses, will be recognized immediately upon the origination of a loan or lease, and will be adjusted in each subsequent reporting period. See further discussion of the adoption of this accounting standard and a summary of the Company’s revised Accounting Policy for Allowance for Credit Losses in Note 2, Summary of Significant Accounting Policies. Detailed discussion of our measurement of allowance under CECL as of the adoption date and March 31, 2020 is below.

The ~~table which follows provides~~following tables summarize activity in the allowance for credit ~~losses and asset quality statistics.~~losses:

   Three Months Ended
September 30, Nine Months Ended
September 30, Year Ended
December 31,
   2017 2016 2017 2016 2016
   (Dollars in thousands)
Allowance for credit losses, beginning of period
   $ 12,559 $ 9,430 $ 10,937 $ 8,413 $ 8,413


Charge-offs
   (4,368 ) (3,062 ) (12,111 ) (9,060 ) (12,387 )
Recoveries
   633 568 1,800 1,840 2,497


Net charge-offs
   (3,735 ) (2,494 ) (10,311 ) (7,220 ) (9,890 )


Provision for credit losses
   5,680 3,137 13,878 8,880 12,414


Allowance for credit losses, end of period
   (1 ) $ 14,504 $ 10,073 $ 14,504 $ 10,073 $ 10,937


Annualized net charge-offs to average total finance receivables
   (2 ) 1.73 % 1.36 % 1.65 % 1.36 % 1.37 %
Allowance for credit losses to total finance receivables, end of period
   (2 ) 1.64 % 1.33 % 1.64 % 1.33 % 1.38 %
Average total finance receivables
   (2 ) $ 862,718 $ 732,346 $ 831,718 $ 705,879 $ 720,060
Total finance receivables, end of period
   (2 ) $ 883,778 $ 756,144 $ 883,778 $ 756,144 $ 793,285
Delinquencies greater than 60 days past due
   $ 6,157 $ 3,885 $ 6,157 $ 3,885 $ 4,137
Delinquencies greater than 60 days past due
   (3 ) 0.61 % 0.45 % 0.61 % 0.45 % 0.46 %
Allowance for credit losses to delinquent accounts greater than 60 days past due
   (3 ) 235.57 % 259.28 % 235.57 % 259.28 % 264.37 %
Non-accrual leases and loans, end of period
   $ 2,950 $ 2,022 $ 2,950 $ 2,022 $ 2,242
Renegotiated leases and loans, end of period
   (4 ) $ 2,543 $ 350 $ 2,543 $ 350 $ 769


	Three Months Ended March 31, 2020
	Commercial Leases and Loans
(Dollars in thousands)	Equipment Finance			Working Capital Loans			CVG			CRA		Total
Allowance for credit losses, December 31, 2019	$	18,334		$	1,899		$	1,462		$	—	$	21,695
Adoption of ASU2016-13 (CECL)⁽¹⁾		9,264			(3	)		2,647			—		11,908

Allowance for credit losses, January 1, 2020	$	27,598		$	1,896		$	4,109		$	—	$	33,603

Charge-offs		(6,490	)		(1,279	)		(729	)		—		(8,498	)
Recoveries		525			38			89			—		652

Net chargeoffs		(5,965	)		(1,241	)		(640	)		—		(7,846	)

Realized cashflows from Residual Income		1,153			—			—			—		1,153

Provision for credit losses		14,988			6,545			3,617			—		25,150

Allowance for credit losses, end of period	$	37,774		$	7,200		$	7,086		$	—	$	52,060

Net investment in leases and loans, before allowance	$	877,199		$	59,012		$	84,515		$	1,410	$	1,022,136

-19-


	Three Months Ended March 31, 2019
	Commercial Leases and Loans
(Dollars in thousands)	Equipment Finance			Working Capital Loans			CVG			CRA		Total
Allowance for credit losses, beginning of period	$	13,531		$	1,467		$	1,102		$	—	$	16,100

Charge-offs		(4,333	)		(673	)		(328	)		—		(5,334	)
Recoveries		734			19			—			—		753

Net charge-offs		(3,599	)		(654	)		(328	)		—		(4,581	)

Provision for credit losses		4,043			871			449			—		5,363

Allowance for credit losses, end of period	$	13,975		$	1,684		$	1,223		$	—	$	16,882

Net investment in leases and loans, before allowance	$	915,556		$	43,210		$	79,830		$	1,476	$	1,040,072

⁽¹⁾

~~At September 30, 2017, December 31, 2016,~~

The Company adopted ASU2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses onFinancial Instruments, which changed our accounting policy and ~~September 30, 2016 the~~estimated allowance, ~~for credit losses allocated to Funding Stream loans was $1.1 million, $0.8 million,~~effective January 1, 2020. See further discussion in Note 2, Summary of Significant Accounting Policies, and ~~$0.7 million, respectively.~~below.

Estimate of Current Expected Credit Losses (CECL)

Starting with the January 1, 2020 adoption of CECL, the Company recognizes an allowance, or estimate of credit losses, immediately upon the origination of a loan or lease, and that estimate will be reassessed in each subsequent reporting period. This estimate of credit losses takes into consideration all cashflows the Company expects to receive or derive from the pools of contracts, including recoveries aftercharge-off, amounts related to initial direct cost and origination costs net of fees deferred, accrued interest receivable and certain future cashflows from residual assets.

As part of its estimate of expected credit losses, specific to each measurement date, management considers relevant qualitative and quantitative factors to assess whether the historical loss experience being referenced should be adjusted to better reflect the risk characteristics of the current portfolio and the expected future loss experience for the life of these contracts. This assessment incorporates all available information relevant to considering the collectability of its current portfolio, including considering economic and business conditions, default trends, changes in its portfolio composition, changes in its lending policies and practices, among other internal and external factors.

Current Measurement

The Company selected a vintage loss model as the approach to estimate and measure its expected credit losses for all portfolio segments and for all pools, primarily because the timing of the losses realized has been consistent across historical vintages, such that the company is able to develop a predictable and reliable loss curve for each separate portfolio segment. The vintage model assigns loans to vintages by origination date, measures our historical average actual loss and recovery experience within that vintage, develops a loss curve based on the averages of all vintages, and predicts (or forecasts) the remaining expected net losses of the current portfolio by applying the expected net loss rates to the remaining life of each open vintage.

Additional detail specific to the measurement of each portfolio segment under CECL as of January 1, 2020 and March 31, 2020 is summarized below.

-20-

Equipment Finance:

Equipment Finance consists of Equipment Finance Agreements, Installment Purchase Agreements and other leases and loans. The risk characteristics referenced to develop pools of Equipment Finance leases and loans are based on internally developed credit score ratings, which is a measurement that combines many risk characteristics, including loan size, external credit scores, existence of a guarantee, and various characteristics of the borrower’s business. In addition, the Company separately measured a pool of true leases so that any future cashflows from residuals could be used to partially offset the allowance for that pool.

The Company’s measurement of Equipment Finance pools is based on its own historical loss experience. The Company analyzed the correlation of its own loss data from 2004 to 2019 against various economic variables in order to determine an approach for reasonable and supportable forecast. The Company then selected certain economic variables to reference for its forecast about the future, specifically the unemployment rate and growth in business bankruptcy. The Company’s methodology reverts from the forecast data to its own loss data adjusted for the long-term average of the referenced economic variables, on a straight-line basis.

However, for its March 31, 2020 measurement, the Company adjusted its model to reference a6-month forecast period and12-month straight line reversion period. The change in the length of the reasonable and supportable forecast was based on observed market volatility in late March and uncertainty of the duration and level of impact of theCOVID-19 virus on the macroeconomic environment and the Company’s portfolio, including uncertainty about the forecasted impact ofCOVID-19 that was underlying its economic forecasted variables beyond a6-month period. The forecast adjustment to the Equipment Finance portfolio segment resulted in a $10.8 million increase to the provision for the three months ended March 31, 2020.

The Company qualitatively assessed the output of the Equipment Finance calculated allowance after adjusting the forecast period, and determined the resulting credit loss estimate to properly reflect its estimate of expected net cashflows of this portfolio segment over the remaining contract term.

Working Capital:

The risk characteristics referenced to develop pools of Working Capital loans is based on origination channel, separately considering an estimation of loss for direct-sourced loans versus loans that were sourced from a broker. The Company’s historical relationship with its direct-sourced customers typically results in a lower level of credit risk than loans sourced from brokers where the Company has no prior credit relationship with the customer.

The Company’s measurement of Working Capital pools is based on its own historical loss experience. The Company’s Working Capital loans typically range from 6 – 12 months of duration. For this portfolio segment, due to the short contract duration, the Company did not define a standard methodology to adjust its loss estimate based on a forecast of economic conditions. However, the Company will continually assess through a qualitative adjustment whether there are changes in conditions and the environment that will impact the performance of these loans that should be considered for qualitative adjustment.

At each reporting date, the Company considers current conditions, including changes in portfolio composition or the business environment, when determining the appropriate measurement of current expected credit losses for the remaining life of its portfolio. As of the January 1, 2020 adoption date, there was no qualitative adjustment to the Working Capital portfolio. However, for the March 31, 2020 measurement, driven by the elevated risk of credit loss driven by market conditions due toCOVID-19, the Company developed alternate scenarios for credit loss based on an analysis of the characteristics of its portfolio, considering different timing and magnitudes of potential exposures. The Company determined its most likely expectation for credit losses for the Working Capital segment for the remaining nine months of 2020, based on the increased risk to its borrowers and increased risk to the collectability of its portfolio fromCOVID-19, and increased the reserve by a $5.5 million qualitative adjustment for that loss estimate.

-21-

Commercial Vehicle Group (CVG):

Transportation-related equipment leases and loans are analyzed as a single pool, as the Company did not consider any risk characteristics to be significant enough to warrant disaggregating this population.

The Company’s measurement of CVG pools is based on a combination of its own historical loss experience and industry loss data from an external source. The Company has limited history of this product, and therefore the Company determined it was appropriate to develop an estimate based on a combination of data. Due to the Company’s limited history of performance of this segment, and the limited size of the portfolio, the Company did not develop a standard methodology to adjust its loss estimate based on a forecast of economic conditions. However, the Company will continually assess through a qualitative adjustment whether there are changes in conditions and the environment that will impact the performance of these loans that should be considered for qualitative adjustment.

At each reporting date, the Company considers current conditions, including changes in portfolio composition or the business environment, when determining the appropriate measurement of for the remaining life of the current portfolio. As of the January 1, 2020 adoption date, there were no qualitative adjustment to the CVG portfolio. However, for the March 31, 2020 measurement, driven by the elevated risk of credit loss driven by market conditions due toCOVID-19, the Company developed alternate scenarios for expected credit loss for this segment, considering different timing and magnitudes of potential exposures. The Company determined its most likely expectation for credit losses for the CVG segment for the remaining nine months of 2020 based on the increased risk to its borrowers and increased risk to the collectability of its portfolio fromCOVID-19, and increased the reserve by a $2.9 million qualitative adjustment for that loss estimate.

Community Reinvestment Act (CRA):

CRA loans are comprised of loans originated under a line of credit to satisfy the Company’s obligations under the Community Reinvestment Act of 1977. The Company does not measure an allowance specific to this portfolio segment because the exposure to credit loss is nominal.

In response toCOVID-19, starting inmid-March 2020, the Company instituted a payment deferral program in order to assist its small-business customers that request relief who are current under their existing obligations and can demonstrate that their ability to repay has been impacted by the COVID-19 crisis. Through March 31, 2020, the Company had processed payment deferral modifications for 520 contracts, or $19.5 million net investment in leases and loans, where the typical modification included a60-day deferral of payments for Working Capital loans and90-day deferral of payments for other customers, with such payments added to the end of the contract term. The modifications for each portfolio segment were $8.5 million of Equipment Finance, $7.0 million of Working Capital, and $4.0 million of CVG net investment in leases and loans. The Company did not adjust its estimate of credit losses for any portfolio segment based on whether or not contracts were modified; the Company’s allowance estimate assesses the risk of credit loss for modified loans to be equal to loans that were not modified as of March 31, 2020.

Subsequent toquarter-end, through April 24, 2020, the Company has approved the payment deferral modification application for contracts representing an additional $134.5 million net investment in leases and loans. A portion of these modifications are subject to the completion of final processing and documentation.

Troubled debt restructurings are restructurings of leases and loans in which, due to the borrower’s financial difficulties, a lender grants a concession that it would not otherwise consider for borrowers of similar credit quality. In accordance with the interagency guidance issued in March 2020, that the Financial Accounting Standards Board concurred with, loans modified under the Company’s payment deferral program are not considered troubled debt restructurings. As of March 31, 2020 and December 31, 2019, the Company did not have any troubled debt restructurings.

As part of our analysis of expected credit losses, we may analyze contracts on an individual basis, or create additional pools of contracts, in situations where such loans exhibit unique risk characteristics and are no longer expected to experience similar losses to the rest of their pool. As of March 31, 2020 and January 1, 2020, there were no contracts subject to specific analysis outside of the portfolio segments and pools that are outlined above.

-22-

Credit Quality

At origination, the Company utilizes an internally developed credit score ratings as part of its underwriting assessment and pricing decisions for new contracts. The internal credit score is a measurement that combines many risk characteristics, including loan size, external credit scores, existence of a guarantee, and various characteristics of the borrower’s business. The internal credit score is used to create pools of loans for analysis in the Company’s Equipment Finance portfolio segment, as discussed further above. We believe this segmentation allows our loss modeling to properly reflect changes in portfolio mix driven by sales activity and adjustments to underwriting standards. However, this score is not updated after origination date for analyzing the Company’s provision.

On an ongoing basis, to monitor the credit quality of its portfolio, the Company primarily reviews the current delinquency of the portfolio and delinquency migration to monitor risk and default trends. We believe that delinquency is the best factor to use to monitor the credit quality of our portfolio on an ongoing basis because it reflects the current condition of the portfolio, and is a good predictor of near term charge-offs and can help with identifying trends and emerging risks to the portfolio.

-23-

The following tables provide information about delinquent leases and loans in the Company’s portfolio based on the contract’s statusas-of the dates presented:


	Portfolio by Origination Year as of March 31, 2020
	2020		2019		2018		2017		2016		Prior		Total Receivables
	(Dollars in thousands)
Equipment Finance
30-59	$	179	$	2,952	$	1,803	$	1,368	$	512	$	167	$	6,981
60-89		—		1,428		1,304		767		319		73		3,891
90+		—		2,157		1,629		1,046		387		138		5,357

Total Past Due		179		6,537		4,736		3,181		1,218		378		16,229
Current⁽¹⁾		110,762		372,522		207,521		114,189		44,511		11,465		860,970

Total		110,941		379,059		212,257		117,370		45,729		11,843		877,199

Working Capital
30-59		—		609		—		—		—		—		609
60-89		—		16		—		—		—		—		16
90+		—		23		26		—		—		—		49

Total Past Due		—		648		26		—		—		—		674
Current⁽¹⁾		21,388		35,947		965		38		—		—		58,338

Total		21,388		36,595		991		38		—		—		59,012

CVG
30-59		—		126		178		106		30		—		440
60-89		—		182		84		49		—		—		315
90+		—		276		75		211		31		—		593

Total Past Due		—		584		337		366		61		—		1,348
Current⁽¹⁾		8,755		39,679		19,750		11,054		3,833		96		83,167

Total		8,755		40,263		20,087		11,420		3,894		96		84,515

CRA
Total Past Due		—		—		—		—		—		—		—
Current		1,410		—		—		—		—		—		1,410

Total		1,410		—		—		—		—		—		1,410

Net investment in leases and loans, before allowance	$	142,494	$	455,917	$	233,335	$	128,828	$	49,623	$	11,939	$	1,022,136

-24-


	Portfolio by Origination Year as of December 31, 2019
	2019		2018		2017		2016		2015		Prior		Total Receivables
	(Dollars in thousands)
Equipment Finance
30-59	$	1,420	$	1,755	$	935	$	454	$	169	$	17	$	4,750
60-89		1,023		1,055		685		366		80		4		3,213
90+		947		1,522		1,090		527		163		7		4,256

Total Past Due		3,390		4,332		2,710		1,347		412		28		12,219
Current		424,559		236,068		135,419		55,119		16,461		1,407		869,033

Total		427,949		240,400		138,129		56,466		16,873		1,435		881,252

Working Capital
30-59		566		18		—		—		—		—		584
60-89		16		52		—		—		—		—		68
90+		203		—		—		—		—		—		203

Total Past Due		785		70		—		—		—		—		855
Current		57,706		2,343		38		—		—		—		60,087

Total		58,491		2,413		38		—		—		—		60,942

CVG
30-59		50		126		90		99		—		—		365
60-89		5		15		188		46		—		—		254
90+		—		178		158		53		—		—		389

Total Past Due		55		319		436		198		—		—		1,008
Current		42,536		22,531		13,442		4,976		130		—		83,615

Total		42,591		22,850		13,878		5,174		130		—		84,623

CRA
Total Past Due		—		—		—		—		—		—		—
Current		1,398		—		—		—		—		—		1,398

Total		1,398		—		—		—		—		—		1,398

Net investment in leases and loans, before allowance	$	530,429	$	265,663	$	152,045	$	61,640	$	17,003	$	1,435	$	1,028,215

⁽²⁾⁽¹⁾

~~Total finance~~

Current receivables include ~~net investment in direct financing~~ leases and ~~loans. For purposes~~loans that are in payment deferral status as part of ~~asset quality and allowance calculations,~~ the ~~effects of (i) the allowance for credit losses and (ii) initial direct costs and fees deferred are excluded.~~Company’sCOVID-19 modification program. See further discussion above.

⁽³⁾	~~Calculated as a percentage of total minimum lease payments receivable for leases and as a percentage of principal outstanding for loans.~~

⁽⁴⁾	~~As of September 30, 2017, there were $1.6 million of restructures due to Hurricane Harvey and Hurricane Irma.~~

-25-

Net investments in ~~finance receivables~~Equipment Finance and CVG leases and loans are generallycharged-off when they are contractually past due for 120 days or more. Income recognition is discontinued ~~on leases or loans~~ when a default on monthly payment exists for a period of 90 days or more. Income recognition resumes when a lease or loan becomes less than 90 days delinquent. At ~~September 30, 2017,~~March 31, 2020 and December 31, ~~2016 and September 30, 2016,~~2019, there were no finance receivables past due 90 days or more and still accruing.

~~-16-~~

~~Funding Stream loans~~Working Capital Loans are generally placed innon-accrual status when they are 30 days past due and generallycharged-off at 60 days past due. The loan is removed fromnon-accrual status once sufficient payments are made to bring the loan current and reviewed by management. At March 31, 2020 and December 31, 2019, there were no Working Capital Loans past due 30 days or more and still accruing.

Net charge-offs for the three-month period ended September 30, 2017 were $3.7 million (1.73% of average total finance receivables on an annualized basis), compared to $3.4 million (1.65% of average total finance receivables on an annualized basis) for the three-month period ended June 30, 2017The following tables provide information aboutnon-accrual leases and ~~$2.5 million (1.36% of average total finance receivables on an annualized basis) for the three-month period ended September 30, 2016.~~loans:


(Dollars in thousands)	March 31, 2020		December 31, 2019
Equipment Finance	$	5,357	$	4,256
Working Capital Loans		755		946
CVG		593		389

TotalNon-Accrual	$	6,705	$	5,591

-26-

NOTE 67 – Goodwill and Intangible Assets

Goodwill

~~As a result~~The Company’s goodwill balance of ~~the HKF acquisition on January 4, 2017, the Company recorded goodwill of~~$6.7 million at December 31, 2019 included $1.2 million asfrom the Company’s acquisition of Horizon Keystone Financial, an equipment company (‘HKF”), in January 2017, and $5.5 million from the September ~~30, 2017, which~~2018 acquisition of FFR. The goodwill balance represents the excess purchase price over the Company’s fair value of the assets ~~acquired. The recorded goodwill~~acquired and is not amortizable but is deductible for tax purposes. ~~The purchase price allocation was finalized in the third quarter of 2017 and no changes made to the preliminary valuations were recorded.~~ Impairment testing will be performed in the fourth quarter of each year and more frequently as warranted in accordance with the applicable accounting guidance. ~~There~~

The Company assigns its goodwill to a single, consolidated reporting unit, Marlin Business Services Corp. In the first quarter of 2020, events or circumstances indicated that it was nomore likely than not that the fair value of its reporting unit was less than its carrying amount, driven in part by market capitalization of the Company falling below its book value, and negative current events that impact the Company related to theCOVID-19 economic shutdown. The Company calculated the fair value of the reporting unit, by taking the average stock price over a reasonable period of time multiplied by shares outstanding as of March 31, 2020 and then further applying a control premium, and compared it to its carrying amount, including goodwill. The Company concluded that the implied fair value of goodwill was less than its carrying amount, and recognized impairment ~~recorded during~~equal to the ~~nine-month period ended September 30, 2017.~~$6.7 million balance in General and administrative expense in the Consolidated Statements of Operations.

The changes in the carrying amount of goodwill for the ~~nine-month~~three- month period ended ~~September 30, 2017~~March 31, 2020 are as follows:

(Dollars in thousands)    Total Company
Balance at December 31, 2016
   $ —
Acquisition of HKF on January 4, 2017
   1,160


Balance at September 30, 2017
   $ 1,160


(Dollars in thousands)	Total Company
Balance at December 31, 2019	$	6,735
Impairment of Goodwill		(6,735	)

Balance at March 31, 2020	$	—

Intangible assets

The ~~Company had no~~Company’s intangible assets ~~at December 31, 2016.~~

~~During the first quarter~~consist of ~~2017,~~$1.3 million of definite-lived assets with a weighted-average amortization period of 8.7 years that were recognized in connection with the January 2017 acquisition of HKF, ~~the Company acquired certain~~and $7.6 million of definite-lived intangible assets with a ~~total cost of $1.3 million and a weighted average~~weighted-average amortization period of ~~8.7 years.~~10.8 years that were recognized in connection with the September 2018 acquisition of FFR. The Company ~~had~~has no indefinite-lived intangible ~~assets at September 30, 2017.~~assets.

The following table presents details of the Company’s intangible assets as of ~~September 30, 2017:~~March 31, 2020:

~~-17-~~


(Dollars in thousands) Description	Useful Life	Cost		Accumulated Amortization		Net Value		Useful Life		Gross Carrying Amount		Accumulated Amortization		Net Value
Lender relationships	3 years	$	360	$	90	$	270		3 to 10 years	$	1,630	$	551	$	1,079
Vendor relationships	11 years		920		63		857		11 years		7,290		1,140		6,150
Corporate trade name	7 years		60		6		54		7 years		60		28		32

		$	1,340	$	159	$	1,181			$	8,980	$	1,719	$	7,261

There was no impairment of these assets in ~~2017.~~the first quarter of 2020 or 2019. Amortization related to the Company’s definite lived intangible assets was $0.2 million and $0.2 million for the ~~nine-month period~~three-month periods ended ~~September 30, 2017.~~ March 31, 2020 and March 31, 2019, respectively.

-27-

The Company expects the amortization expense for the next five years will be as follows:


(Dollars in thousands)
2018	$	212
2019		212
2020		92
Remainder of 2020			$	599
2021		92		798
2022		92		798
2023				798
2024				790

NOTE 78 – Other Assets

Other assets are comprised of the following:


	September 30, 2017		December 31, 2016		March 31, 2020		December 31, 2019
	(Dollars in thousands)				(Dollars in thousands)
Accrued fees receivable	$	3,002	$	2,762	$	3,683	$	3,509
Prepaid expenses		1,461		2,201		2,853		2,872
Income taxes receivable⁽¹⁾						6,877		—
Federal Reserve Bank Stock		1,711		1,711		1,711		1,711
Other		3,186		2,734		2,341		2,361

	$	9,360	$	9,408	$	17,465	$	10,453

~~NOTE 8 – Commitments and Contingencies~~

~~MBB is a member bank in anon-profit,~~ multi-financial institution Community Development Financial Institution (“CDFI”) organization. The CDFI serves as a catalyst for community development by offering flexible financing for affordable, quality housing to~~low-~~ and moderate-income residents, helping the Bank meet its Community Reinvestment Act (“CRA”) obligations. Currently, MBB receives approximately 1.2% participation in each funded loan which is collateral for the loan issued to the CDFI under the program. MBB records loans in its financial statements when they have been funded or become payable. Such loans help MBB satisfy its obligations under the Community Reinvestment Act of 1977. At September 30, 2017, MBB had an unfunded commitment of $0.8 million for this activity. Unless renewed prior to termination, MBB’s~~one-year~~ ~~commitment to the CDFI will expire in September 2018.~~

~~-18-~~

The Company is involved in legal proceedings, which include claims, litigation and suits arising in the ordinary course of business. In the opinion of management, these actions will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

Banking institutions are subject to periodic reviews and examinations from banking regulators. In the first quarter of 2017, one of MBB’s regulatory agencies communicated preliminary findings in connection with the timing of certain aspects of payment application process in effect prior to February 2016 related to the assessment of late fees. The Company believes that the resolution of this matter will require the Company to pay restitution to customers. The Company estimated such restitution at $4.2 million, which was expensed and related liability was recorded in the first quarter of 2017. However, the ultimate resolution of this matter could be materially different from the current estimate, including with respect to the timing, the exact amount of any required restitution or the possible imposition of any fines and penalties.

As of September 30, 2017, the Company leases all eight of its office locations including its executive offices in Mt. Laurel, New Jersey, and its offices in or near Atlanta, Georgia; Salt Lake City, Utah; Portsmouth, New Hampshire; Highlands Ranch, Colorado; Denver, Colorado; Plymouth, Michigan; and Philadelphia, Pennsylvania. These lease commitments are accounted for as operating leases. The Company has entered into several capital leases to finance corporate property and equipment.
⁽¹⁾
See Note 2 –Summary of Significant Accounting Policies,for discussion of the Provision for income taxes.

~~-19-~~-28-

~~The following is a schedule of future minimum lease payments for capital and operating leases as of September 30, 2017:~~

   Future Minimum Lease Payment Obligations
Period Ending December 31,
   Capital
Leases    Operating
Leases    Total
   (Dollars in thousands)
2017
   $ 28    $ 405    $ 433
2018
   112    1,489    1,601
2019
   112    1,447    1,559
2020
   112    686    798
2021
   65    —      65






Total minimum lease payments
   $ 429    $ 4,027    $ 4,456




Less: amount representing interest
   (18 )



Present value of minimum lease payments
   $ 411

~~Rent expense was $0.8 million for each of the nine-month periods ended September 30, 2017 and September 30, 2016.~~

NOTE 9 – Deposits

MBB serves as the Company’s primary funding source. MBB issues fixed-rate FDIC-insured certificates of deposit raised nationally through various brokered deposit relationships and fixed-rate FDIC-insured deposits received from direct sources. MBB offers FDIC-insured money market deposit accounts (the “MMDA Product”) through participation in a partner bank’s insured savings account product. This brokered deposit product has a variable rate, no maturity date and is offered to the clients of the partner bank and recorded as a single deposit account at MBB. As of ~~September 30, 2017,~~March 31, 2020, money market deposit accounts totaled ~~$36.9~~$51.6 million.

As of ~~September 30, 2017,~~March 31, 2020, the ~~remaining~~ scheduled maturities of certificates of deposits are as follows:


	Scheduled Maturities		Scheduled Maturities
	(Dollars in thousands)		(Dollars in thousands)
Period Ending December 31,
2017	$	84,627
2018		307,583
2019		197,288
2020		95,197
Remainder of 2020			$	387,922
2021		60,400		265,743
2022				134,233
2023				66,915
2024				28,046
Thereafter		24,918		6,927

Total	$	770,013	$	889,786

Certificates of deposits issued by MBB are time deposits and are generally issued in denominations of $250,000 or less. The MMDA Product is also issued to customers in amounts less than $250,000. The FDIC insures deposits up to $250,000 per depositor. The weighted averageall-in interest rate of deposits at ~~September 30, 2017~~March 31, 2020 was ~~1.52%~~2.15%.

NOTE 10 – Debt and Financing Arrangements

Short-Term Borrowings

The Company has a secured, variable rate revolving line of credit in the amount of $5.0 million that expires on November 20, 2020. As of March 31, 2020, the Company was in compliance with all debt covenants required under this line of credit and there were no outstanding balances on this line of credit as of March 31, 2020 and December 31, 2019.

Long-term Borrowings

On July 27, 2018, the Company completed a $201.7 million asset-backed term securitization. Each tranche of the term note securitization has a fixed term, fixed interest rate and fixed principal amount. At March 31, 2020, outstanding term securitizations amounted to $62.6 million and are collateralized by $68.5 million of minimum lease and loan payments receivable and $6.5 million of restricted interest-earning deposits. The Company’s term note securitizations are classified as long-term borrowings.

The balance of long-term borrowings consisted of the following:


	March 31, 2020			December 31, 2019
	(Dollars in thousands)
Term securitization2018-1	$	62,555		$	76,563
Unamortized debt issuance costs		(362	)		(472	)

	$	62,193		$	76,091

~~-20-~~

-29-

The term note securitization is summarized below:


	Outstanding Balance as of				Notes		Final		Original
	March 31, 2020		December 31, 2019		Originally Issued		Maturity Date		Coupon Rate
			(Dollars in thousands)
2018 — 1
Class A-1	$	—	$	—	$	77,400		July, 2019		2.55	%
Class A-2		—		8,013		55,700		October, 2020		3.05
Class A-3		30,915		36,910		36,910		April, 2023		3.36
Class B		10,400		10,400		10,400		May, 2023		3.54
Class C		11,390		11,390		11,390		June, 2023		3.70
Class D		5,470		5,470		5,470		July, 2023		3.99
Class E		4,380		4,380		4,380		May, 2025		5.02

Total Term Note Securitizations	$	62,555	$	76,563	$	201,650				3.05	%⁽¹⁾⁽²⁾

⁽¹⁾	Represents the original weighted average initial coupon rate for all tranches of the securitization. In addition to this coupon interest, term note securitizations have other transaction costs which are amortized over the life of the borrowings as additional interest expense.

⁽²⁾	The weighted average coupon rate of the2018-1 term note securitization will approximate 3.62% over the remaining term of the borrowing.

Scheduled principal and interest payments on outstanding borrowings as of March 31, 2020 are as follows:


	Principal		Interest
	(Dollars in thousands)
Period Ending December 31,
Remainder of 2020	$	30,344	$	1,342
2021		23,629		813
2022		8,582		159

	$	62,555	$	2,314

-30-

NOTE 1011 – Fair Value Measurements and Disclosures about the Fair Value of Financial Instruments

Fair Value Measurements

The Fair Value Measurements and Disclosures Topic of the FASB ASC establishes a framework for measuring fair value and requires certain disclosures about fair value measurements. Its provisions do not apply to fair value measurements for purposes of lease classification and measurement, which is addressed in the Leases Topic of the FASB ASC.

Fair value is defined in GAAP as the price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement date. GAAP focuses on the exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. A three-level valuation hierarchy is required for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.

The ~~three levels are defined as follows:~~

~~Level 1 – Inputs to the valuation are unadjusted quoted prices in active markets for identical assets or liabilities.~~

Level 2 – Inputs to the valuation may include quoted prices for similar assets and liabilities in active or inactive markets, and inputs other than quoted prices, such as interest rates and yield curves, which are observable for the asset or liability for substantially the full term of the financial instrument.

Level 3 – Inputs to the valuation are unobservable and significant to the fair value measurement. Level 3 inputs shall be used to measure fair value only to the extent that observable inputs are not available.

The Company characterizes active markets as those where transaction volumes are sufficient to provide objective pricing information, such as an exchange traded price. Inactive markets are typically characterized by low transaction volumes, and price quotations that vary substantially among market participants or are not based on current information.

~~The~~ Company’s balances measured at fair value on a recurring basis include the following as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016:~~2019:


	September 30, 2017				December 31, 2016
	Fair Value Measurements Using				Fair Value Measurements Using				March 31, 2020 Fair Value Measurements Using						December 31, 2019 Fair Value Measurements Using
	Level 1		Level 2		Level 1		Level 2		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	(Dollars in thousands)								(Dollars in thousands)
Assets
ABS	$	—	$	6,030	$	—	$	—	$	—	$	4,135	$	—	$	—	$	4,332	$	—
Municipal securities		—		2,418		—		2,528		—		2,653		—		—		3,129		—
Mutual fund		3,430		—		3,352		—		3,692		—		—		3,615		—		—

At this time, the Company has not elected to report any assets orand liabilities using the fair value ~~option available under the Financial Instruments Topic of the FASB ASC.~~option. There have been no transfers between Level 1 and Level 2 of the fair value ~~hierarchy.~~hierarchy for any of the periods presented.

~~Disclosures about~~Non-Recurring Measurements

Non-recurring fair value measurements include assets and liabilities that are periodically remeasured or assessed for impairment using Fair value measurements.Non-recurring measurements include the Company’s evaluation of goodwill and residual assets for impairment, and the Company’s remeasurement of contingent consideration and assessment of the carrying amount of its servicing liability.

For the three months ended March 31, 2020, the Company recognized $6.7 million for the impairment of goodwill in General and administrative expense in the Consolidated Statements of Operations, as discussed further in Note 7, Goodwill and Intangible Assets. For the three months ended March 31, 2019, there were no significant amounts recognized in the Consolidated Statements of Operations in connection withnon-recurring fair value measurements.

-31-

Fair Value of Other Financial Instruments

The Financial Instruments Topic of the FASB ASC requires the disclosure of the estimated fair value of financial instruments including those financial instruments not measured at fair value on a recurring basis. This requirement excludes certain instruments, such as the net investment in leases and all nonfinancial instruments.

~~-21-~~

The fair values shown below have been derived, in part, by management’s assumptions, the estimated amount and timing of future cash flows and estimated discount rates. Valuation techniques involve uncertainties and require assumptions and judgments regarding prepayments, credit risk and discount rates. Changes in these assumptions will result in different valuation estimates. The fair values presented would not necessarily be realized in an immediate sale. Derived fair value estimates cannot necessarily be substantiated by comparison to independent markets or to other companies’ fair value information.

~~-22-~~

The following summarizes the carrying amount and estimated fair value of the Company’s other financial instruments, ~~that are~~including those not ~~recorded on the consolidated balance sheet~~measured at fair value ~~as of September 30, 2017 and December 31, 2016:~~on a recurring basis:


	September 30, 2017				December 31, 2016				March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)								(Dollars in thousands)
Financial Assets
Cash and cash equivalents	$	82,937	$	82,937	$	61,757	$	61,757	$	211,070	$	211,070	$	123,096	$	123,096
Time deposits with banks		8,360		8,339		9,605		9,614		13,664		13,094		12,927		12,970
Restricted interest-earning deposits with banks										6,474		6,474		6,931		6,931
Loans, net of allowance		44,129		44,279		28,949		29,128		580,244		558,584		588,688		593,406
Federal Reserve Bank Stock										1,711		1,711		1,711		1,711
Financial Liabilities
Deposits	$	806,954	$	802,762	$	697,357	$	694,721	$	941,996	$	952,958	$	839,132	$	846,304
Long-term borrowings										62,193		62,841		76,091		76,781

~~The paragraphs which follow describe~~There have been no significant changes in the methods and assumptions used in estimating the fair values of financial ~~instruments.~~

~~Cash~~instruments, as outlined in our consolidated financial statements and ~~Cash Equivalents~~

~~The carrying amounts of~~note disclosures in the Company’s ~~cash and cash equivalents approximate fair value as of September 30, 2017 and~~Form10-K for the year ended December 31, ~~2016, because they bear interest at market rates and had maturities of less than 90 days at the time of purchase. This fair value measurement is classified as Level 1.~~

~~Time Deposits with Banks~~

Fair value of time deposits is estimated by discounting cash flows of current rates paid by market participants for similar time deposits of the same or similar remaining maturities. This fair value measurement is classified as Level 2.

~~Securities Available for Sale~~

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon various sources of market pricing. Securities are classified within the fair value hierarchy after giving consideration to the activity level in the market for the security type and the observability of the inputs used to determine the fair value. When available, the Company uses quoted prices in active markets and classifies such instruments within Level 1 of the fair value hierarchy. Level 1 securities include mutual funds. When instruments are traded in secondary markets and quoted market prices do not exist for such securities, the Company relies on prices obtained from third-party pricing vendors and classifies these instruments within Level 2 of the fair value hierarchy. The third-party vendors use a variety of methods when pricing securities that incorporate relevant market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. Level 2 securities include ABS and municipal bonds.2019.

~~-23-~~-32-

~~Loans~~

~~The loan balances are comprised of three types of loans. Loans made as a member bank in anon-profit,~~ ~~multi-financial institution CDFI serve as a catalyst for community development by offering financing for affordable, quality housing tolow-~~ and moderate-income residents. Such loans help MBB satisfy its obligations under the Community Reinvestment Act of 1977. The fair value of these loans approximates the carrying amount at September 30, 2017 and December 31, 2016 as it is based on recent comparable sales transactions with consideration of current market rates. This fair value measurement is classified as Level 2. The Company also invests in a small business loan product tailored to the small business market. Fair value for these loans is estimated by discounting cash flows at an imputed market rate for similar loan products with similar characteristics. This fair value measurement is classified as Level 2. The Company invests in loans to our customers in the franchise finance channel. These loans may be secured by equipment being acquired, blanket liens on personal property, or specific equipment already owned by the customer. The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans would be made to borrowers with similar credit, collateral, and for the same remaining maturities. This fair value measurement is classified as Level 2.

~~Deposits~~

Deposit liabilities with no defined maturity such as MMDA deposits have a fair value equal to the amount payable on demand at the reporting date (i.e., their carrying amount). Fair value for certificates of deposits is estimated by discounting cash flows at current rates paid by the Company for similar certificates of deposit of the same or similar remaining maturities. This fair value measurement is classified as Level 2.

~~-24-~~

NOTE 1112 – Earnings Per Share

The Company’s restricted stock awards are paidnon-forfeitable common stock dividends and thus meet the criteria of participating securities. Accordingly, earnings per share (“EPS”) has been calculated using thetwo-class method, under which earnings are allocated to both common stock and participating securities.

Basic EPS has been computed by dividing net income or loss allocated to common stock by the weighted average common shares used in computing basic EPS. For the computation of basic EPS, all shares of restricted stock have been deducted from the weighted average shares outstanding.

Diluted EPS has been computed by dividing net income or loss allocated to common stock by the weighted average number of common shares used in computing basic EPS, further adjusted by including the dilutive impact of the exercise or conversion of common stock equivalents, such as stock options, into shares of common stock as if those securities were exercised or converted.

The following table provides net income and shares used in computing basic and diluted EPS:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2020			2019
	(Dollars in thousands, exceptper-share data)												(Dollars in thousands, exceptper-share data)
Basic EPS
Net income	$	3,305		$	4,345		$	9,398		$	12,464
Net (loss) income													$	(11,821	)	$	5,141
Less: net income allocated to participating securities		(80	)		(136	)		(241	)		(366	)		—			(72	)

Net income allocated to common stock	$	3,225		$	4,209		$	9,157		$	12,098
Net (loss) income allocated to common stock													$	(11,821	)	$	5,069

Weighted average common shares outstanding		12,527,182			12,543,818			12,551,334			12,507,898			12,014,396			12,337,730
Less: Unvested restricted stock awards considered participating securities		(306,801	)		(397,091	)		(325,759	)		(373,081	)		(138,249	)		(172,084	)

Adjusted weighted average common shares used in computing basic EPS		12,220,381			12,146,727			12,225,575			12,134,817			11,876,147			12,165,646

Basic EPS	$	0.26		$	0.35		$	0.75		$	1.00
Basic (loss) earnings per share													$	(1.00	)	$	0.42

Diluted EPS
Net income allocated to common stock	$	3,225		$	4,209		$	9,157		$	12,098
Net (loss) income allocated to common stock													$	(11,821	)	$	5,069

Adjusted weighted average common shares used in computing basic EPS		12,220,381			12,146,727			12,225,575			12,134,817			11,876,147			12,165,646
Add: Effect of dilutive stock options		37,541			10,629			29,260			8,025
Add: Effect of dilutive stock-based compensation awards														—			86,470

Adjusted weighted average common shares used in computing diluted EPS		12,257,922			12,157,356			12,254,835			12,142,842			11,876,147			12,252,116

Diluted EPS	$	0.26		$	0.35		$	0.75		$	1.00
Diluted (loss) earnings per share													$	(1.00	)	$	0.41

For each of the three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016,~~March 31, 2019, outstanding ~~stock-based~~stock based compensation awards in the amount of ~~114,084~~359,035 and ~~21,789,~~188,583, respectively, were considered antidilutive and therefore were not considered in the computation of potential common shares for purposes of diluted EPS.

~~-25-~~

For the nine-month periods ended September 30, 2017 and September 30, 2016, outstanding stock-based compensation awards in the amount of 91,068 and 8,829, respectively, were considered antidilutive and therefore were not considered in the computation of potential common shares for purposes of diluted EPS.

NOTE 1213 – Stockholders’ Equity

~~Stockholders’ Equity~~Share Repurchases

On July 29, 2014, the Company’s Board of Directors approved a stock repurchase plan, under which, the Company was authorized to repurchase up to $15 million in value of its outstanding shares of common stock (the “2014 Repurchase Plan”). On May 30, 2017, the Company’s Board of Directors approved a new stock repurchase plan to replace the 2014 Repurchase Plan (the “2017 Repurchase Plan”). Under the 2017 Repurchase Plan, the Company is authorized to repurchase up to $10 million in value of its outstanding shares of common stock. This authority may be exercised from time to time and in such amounts as market conditions warrant. Any shares purchased under this plan are returned to the status of authorized but unissued shares of common stock. The repurchases may be made on the open market or in block trades. The program may be suspended or discontinued at any time. The repurchases are funded using the Company’s working capital.

During the three-month period ended ~~September 30, 2017, the Company did not repurchase any of its common stock under the 2017 Repurchase Plan in the open market. During the nine-month period ended September 30, 2017,~~March 31, 2020, the Company purchased ~~58,914~~264,470 shares of its common stock in the open market under the ~~2014~~2019 Repurchase Plan at an average cost of ~~$25.09~~$16.09 per share. During the ~~nine-month~~three-month period ended ~~September 30, 2017,~~March 31, 2019, the Company purchased ~~23,490~~29,947 shares of its common stock in the open market under the 2017 Repurchase Plan at an average cost of ~~$25.54~~$23.86 per share. ~~During the three- and nine-month periods ended September 30, 2016, the Company did not repurchase any of its common stock under the 2014 Repurchase Plan in the open market.~~ At ~~September 30, 2017,~~March 31, 2020, the Company had ~~$9.4~~$4.7 million remaining in the ~~2017~~2019 Repurchase Plan.

-33-

In addition to the repurchases described above, participants in the Company’s 2014 Equity Compensation Plan (approved by the Company’s shareholders on June 3, 2014) (the “2014 Plan”) may have shares withheld to cover income taxes. ~~There~~During the three-month periods ended March 31, 2020 and March 31, 2019, there were ~~3,660~~21,123 shares and ~~37,268~~18,910 shares repurchased to cover income tax withholding ~~in connection with shares granted~~ under the 2014 Plan ~~during each~~at an average cost of ~~the three-~~$ 13.38 per share and ~~nine-month periods ended September 30, 2017, at averageper-share~~ costs of $26.73 and $24.26, respectively. There were 735 and 22,673 shares repurchased to cover income tax withholding in connection with shares granted under the 2014 Plan during the three- and nine-month periods ended September 30, 2016, at average~~per-share~~ ~~costs of $17.98 and $14.56,~~$22.74 per share, respectively.

Regulatory Capital Requirements

Through its issuance of FDIC-insured deposits, MBB serves as the Company’s primary funding source. Over time, MBB may offer other products and services to the Company’s customer base. MBB operates as a Utah state-chartered, Federal Reserve member commercial bank, insured by the FDIC. As a state-chartered Federal Reserve member bank, MBB is supervised by both the Federal Reserve Bank of San Francisco and the Utah Department of Financial Institutions.

The Company and MBB are subject to capital adequacy regulations issued jointly by the federal bank regulatory agencies. These risk-based capital and leverage guidelines make regulatory capital requirements more sensitive to differences in risk profiles among banking organizations and consideroff-balance sheet exposures in determining capital adequacy. The federal bank regulatory agencies and/or the U.S. Congress may determine to increase capital requirements in the future due to the current economic environment. Under the capital adequacy regulation, at least half of a banking organization’s total capital is required to be “Tier 1 Capital” as defined in the regulations, comprised of common equity, retained earnings and a limited amount ofnon-cumulative perpetual preferred stock. The remaining capital, “Tier 2 Capital,” as defined in the regulations, may consist of other preferred stock, a limited amount of term subordinated debt or a limited amount of the reserve for possible credit losses. The regulations establish minimum leverage ratios for banking organizations, which are calculated by dividing Tier 1 Capital by total average assets. Recognizing that the risk-based capital standards principally address credit risk rather than interest rate, liquidity, operational or other risks, many banking organizations are expected to maintain capital in excess of the minimum standards.

~~-26-~~

The Company and MBB operate under the Basel III capital adequacy standards. These standards require a minimum for Tier 1 leverage ratio of 4%, minimum Tier 1 risk-based ratio of 6%, and a total risk-based capital ratio of 8%. The Basel III capital adequacy standards established a new common equity Tier 1 risk-based capital ratio with a required 4.5% minimum (6.5% to be considered well-capitalized). The Company is required to have a level of regulatory capital in excess of the regulatory minimum and to have a capital buffer above ~~1.25% for 2017,~~ 1.875% for 2018, and 2.5% for 2019 and thereafter. If a banking organization does not maintain capital above the minimum plus the capital conservation buffer it may be subject to restrictions on dividends, share buybacks, and certain discretionary payments such as bonus payments.

~~The~~CMLA Agreement.On March 25, 2020, MBB received notice from the FDIC that it had approved MBB’s request to rescind certain nonstandard conditions in the FDIC’s order granting federal deposit insurance issued on March 20, 2007. Furthermore, effective March 26, 2020, the FDIC, the Company ~~plans to provide~~and certain of the ~~necessary capital to maintain MBB at “well-capitalized” status as defined by banking regulations~~Company’s subsidiaries terminated the Capital Maintenance and ~~as required by an agreement~~Liquidity Agreement (the “CMLA Agreement”) and the Parent Company Agreement, each entered into by and among ~~MBB, MLC, Marlin Business Services Corp.~~the Company, certain of its subsidiaries and the FDIC in conjunction with the opening of MBB. As a result of these actions, MBB ~~(the “FDIC Agreement”)~~is no longer required pursuant to the CMLA Agreement to maintain a total risk-based capital ratio above 15%. Rather, MBB must continue to maintain a total risk-based capital ratio above 10% in order to maintain “well-capitalized” status as defined by banking regulations, while the Company must continue to maintain a total risk-based capital ratio as discussed in the immediately preceding paragraph. The additional capital released by the termination of the CMLA Agreement is held at MBB and is subject to the restrictions outlined in Title 12 part 208 of the Code of Federal Regulations (12 CFR 208.5), which places limitations on bank dividends, including restricting dividends for any year to the earnings from the current and prior two calendar years. Any dividends declared above that amount and any return of permanent capital would require prior approval of the Federal Reserve Board of Governors.

MBB’s Tier 1 Capital balance at ~~September 30, 2017~~March 31, 2020 was ~~$131.1~~$139.2 million, which met all capital requirements to which MBB is subject and qualified MBB for “well-capitalized” status. At ~~September 30, 2017,~~March 31, 2020, the Company also exceeded its regulatory capital requirements and was considered “well-capitalized” as defined by federal banking regulations and as required by the FDIC Agreement.

CECL Capital Transition.The Company adopted CECL, or a new measurement methodology for the allowance estimate, on January

~~-27-~~1, 2020, as discussed further in Note 2—Summary of Significant Accounting Policies. Rules governing the Company’s regulatory capital requirements give entities the option of delaying for two years the estimated impact of CECL on regulatory capital, followed

-34-

by a three-year transition period to phase out the aggregate amount of capital benefit, or a five-year transition in total. The Company has elected to avail itself of the five-year transition. For measurements of regulatory capital in 2020 and 2021, under the two year delay the Company shall prepare: (i) a measurement of its estimated allowance for credit losses under CECL, as reported in its balance sheets; and (ii) a measurement of its estimated allowance under the historical incurred loss methodology, as prescribed by the regulatory calculation. Any amount of provisions under CECL that is in excess of the incurred estimate will be an adjustment the Company’s capital during thetwo-year delay. The three-year transition, starting in 2022, will phase in that adjustment straight-line, such that 25 percent of the transitional amounts will be included in the first year, and an additional 25% over each of the next two years, such that we will have phased in 75% of the adjustment during year three. At the beginning of year 6 (2025) the Company will have completely reflected the effects of CECL in its regulatory capital.

The following table sets forth the Tier 1 leverage ratio, common equity Tier 1 risk-based capital ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio for Marlin Business Services Corp. and MBB at ~~September 30, 2017.~~March 31, 2020.

   Actual    Minimum Capital
Requirement    Well-Capitalized Capital
Requirement
   Ratio Amount    Ratio⁽¹⁾ Amount    Ratio Amount
   (Dollars in thousands)
Tier 1 Leverage Capital

Marlin Business Services Corp.
   16.24 % $ 164,209    4 % $ 40,453    5 % $ 50,566
Marlin Business Bank
   13.64 % $ 131,060    5 % $ 48,055    5 % $ 48,055
Common Equity Tier 1 Risk-Based Capital

Marlin Business Services Corp.
   17.64 % $ 164,209    4.5 % $ 41,880    6.5 % $ 60,494
Marlin Business Bank
   14.38 % $ 131,060    6.5 % $ 59,236    6.5 % $ 59,236
Tier 1 Risk-based Capital

Marlin Business Services Corp.
   17.64 % $ 164,209    6 % $ 55,841    8 % $ 74,454
Marlin Business Bank
   14.38 % $ 131,060    8 % $ 72,906    8 % $ 72,906
Total Risk-based Capital

Marlin Business Services Corp.
   18.90 % $ 175,878    8 % $ 74,454    10 % $ 93,068
Marlin Business Bank
   15.64 % $ 142,489    15 % $ 136,700    10 %⁽¹⁾ $ 91,133

⁽¹⁾	~~MBB is required to maintain “well-capitalized” status and must also maintain a total risk-based capital ratio greater than 15% pursuant to the FDIC Agreement.~~


	Actual					Minimum Capital Requirement					Well-Capitalized Capital Requirement
	Ratio			Amount		Ratio			Amount		Ratio			Amount
	(Dollars in thousands)
Tier 1 Leverage Capital
Marlin Business Services Corp.		16.18	%	$	194,700		4	%	$	48,137		5	%	$	60,171
Marlin Business Bank		13.27	%	$	139,242		4	%	$	41,961		5	%	$	52,451
Common Equity Tier 1 Risk-Based Capital
Marlin Business Services Corp.		18.64	%	$	194,700		4.5	%	$	47,004		6.5	%	$	67,894
Marlin Business Bank		14.86	%	$	139,242		4.5	%	$	42,163		6.5	%	$	60,902
Tier 1 Risk-based Capital
Marlin Business Services Corp.		18.64	%	$	194,700		6	%	$	62,672		8	%	$	83,562
Marlin Business Bank		14.86	%	$	139,242		6	%	$	56,217		8	%	$	74,957
Total Risk-based Capital
Marlin Business Services Corp.		19.94	%	$	208,238		8	%	$	83,562		10	%	$	104,453
Marlin Business Bank		16.16	%	$	151,425		8	%	$	74,957		10	%	$	93,696

Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires the federal regulators to take prompt corrective action against any undercapitalized institution. Five capital categories have been established under federal banking regulations: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Well-capitalized institutions significantly exceed the required minimum level for each relevant capital measure. Adequately capitalized institutions include depository institutions that meet but do not significantly exceed the required minimum level for each relevant capital measure. Undercapitalized institutions consist of those that fail to meet the required minimum level for one or more relevant capital measures. Significantly undercapitalized characterizes depository institutions with capital levels significantly below the minimum requirements for any relevant capital measure. Critically undercapitalized refers to depository institutions with minimal capital and at serious risk for government seizure.

Under certain circumstances, a well-capitalized, adequately capitalized or undercapitalized institution may be treated as if the institution were in the next lower capital category. A depository institution is generally prohibited from making capital distributions, including paying dividends, or paying management fees to a holding company if the institution would thereafter be undercapitalized. Institutions that are adequately capitalized but not well-capitalized cannot accept, renew or roll over brokered deposits except with a waiver from the FDIC and are subject to restrictions on the interest rates that can be paid on such deposits. Undercapitalized institutions may not accept, renew or roll over brokered deposits.

-35-

The federal bank regulatory agencies are permitted or, in certain cases, required to take certain actions with respect to institutions falling within one of the three undercapitalized categories. Depending on the level of an institution’s capital, the agency’s corrective powers include, among other things:

prohibiting the payment of principal and interest on subordinated debt;

prohibiting the holding company from making distributions without prior regulatory approval;

~~-28-~~

placing limits on asset growth and restrictions on activities;

placing additional restrictions on transactions with affiliates;

restricting the interest rate the institution may pay on deposits;

prohibiting the institution from accepting deposits from correspondent banks; and

in the most severe cases, appointing a conservator or receiver for the institution.

A banking institution that is undercapitalized is required to submit a capital restoration plan, and such a plan will not be accepted unless, among other things, the banking institution’s holding company guarantees the plan up to a certain specified amount. Any such guarantee from a depository institution’s holding company is entitled to a priority of payment in bankruptcy.

~~Pursuant to the FDIC Agreement entered into in conjunction with the opening of MBB, MBB must keep its total risk-based capital ratio above 15%.~~ MBB’s total risk-based capital ratio of ~~15.64%~~16.16% at ~~September 30, 2017~~March 31, 2020 exceeded the threshold for “well capitalized” status under the applicable laws and ~~regulations, and also exceeded the 15% minimum total risk-based capital ratio required in the FDIC Agreement.~~regulations.

Dividends. The Federal Reserve Board has issued policy statements requiring insured banks and bank holding companies to have an established assessment process for maintaining capital commensurate with their overall risk profile. Such assessment process may affect the ability of the organizations to pay dividends. Although generally organizations may pay dividends only out of current operating earnings, dividends may be paid if the distribution is prudent relative to the organization’s financial position and risk profile, after consideration of current and prospective economic conditions.

-36-

NOTE 1314 – Stock-Based Compensation

Awards for Stock-Based Compensation are governed by the Company’s 2003 Equity Compensation Plan, as amended (the “2003 Plan”), the Company’s 2014 Equity Compensation Plan (approved by the Company’s shareholders on June 3, 2014) (the “2014 Plan”) and the Company’s 2019 Equity Compensation Plan (approved by the Company’s shareholders on May 30, 2019) (the “2019 Plan” and, together with the 2014 Plan and the 2003 Plan, the “Equity Compensation Plans”). Under the terms of the ~~2014 Plan,~~Equity Compensation Plans, employees, certain consultants and advisors andnon-employee members of the Company’s Board of Directors have the opportunity to receive incentive and nonqualified grants of stock options, stock appreciation rights, restricted stock and other equity-based awards as approved by the Company’s Board of Directors. These award programs are used to attract, retain and motivate employees and to encourage individuals in key management roles to retain stock. The Company has a policy of issuing new shares to satisfy awards under the ~~2014 Plan.~~Equity Compensation Plans. The aggregate number of shares under the ~~2014~~2019 Plan that may be issued ~~pursuant to stock options, restricted stock units or restricted stock awards~~for Grants is ~~1,200,000 with not more than 1,000,000 of such shares available for issuance as restricted stock awards.~~826,036. There were ~~405,094~~573,981 shares available for future ~~awards~~grants under the ~~2014~~2019 Plan as of ~~September 30, 2017, of which 317,179 shares were available to be issued as restricted stock awards.~~March 31, 2020.

Total stock-based compensation expense was ~~$0.7~~$0.5 million and ~~$0.4~~$0.9 million for the three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016, respectively. Total stock-based compensation expense was $2.2 million and $1.4 million for the nine-month periods ended September 30, 2017 and September 30, 2016,~~

March 31, 2019, respectively. Excess tax ~~benefits from stock-based payment arrangements~~deficit for the three-month period ended March 31, 2020 was $0.4 ~~million~~million. Excess tax benefits for the ~~nine-month~~three-month period ended ~~September 30, 2017. An excess tax deficit from stock-based payment arrangements increased cash provided by operating activities and decreased cash provided by financing activities by~~March 31, 2019 was less than $0.1 ~~million for the nine-month period ended September 30, 2016.~~million.

Stock Options

Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of the grant and have ~~seven~~7 year contractual terms. All options issued contain service conditions based on the participant’s continued service with the Company and ~~may~~ provide for accelerated vesting if there is a change in control as defined in the Equity Compensation Plans. Employee stock options generally vest over three to four years. ~~The Company may also issues stock options tonon-employee~~ ~~independent directors.~~

~~There were no stock options and 115,883 stock options granted during the three-month and nine-month periods ended September 30, 2017, respectively.~~ There were no stock options granted during the three-month ~~and nine-month~~ periods ended ~~September 30, 2016. The fair value of stock options granted during the nine-month period ended September 30, 2017 was $6.56~~March 31, 2020 and ~~was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:~~March 31, 2019, respectively.

~~-29-~~


	~~Assumption~~
~~Risk-free interest rate~~		~~1.82~~	%
~~Expected life (years)~~		~~4.50~~
~~Expected volatility~~		~~34.62~~	%
~~Expected dividends~~		~~2.17~~	%

The expected life for options is estimated based on their vesting and contractual terms and was determined by applying the simplified method as defined by the SEC’s Staff Accounting Bulletin No. 107 (“SAB 107”). The risk-free interest rate reflected the yield on~~zero-coupon~~ ~~Treasury securities with a term approximating the expected life of the stock options. The expected volatility was determined using historical volatilities based on historical stock prices.~~

~~-30-~~

A summary of option activity for the ~~nine-month~~three-month period ended ~~September 30, 2017~~March 31, 2020 follows:


Options	Number of Shares			Weighted Average Exercise Price Per Share		Number of Shares			Weighted Average Exercise Price Per Share
Outstanding, December 31, 2016		41,640		$	12.37
Outstanding, December 31, 2019							135,159		$	26.79
Granted		115,883			25.75		—			—
Exercised		(39,416	)		12.37		—			—
Forfeited		(6,022	)		20.82		(3,929	)		27.31
Expired		—			—		(7,097	)		26.36

Outstanding, September 30, 2017		112,085			25.75
Outstanding, March 31, 2020							124,133			26.80

~~The~~During each three-month period ended March 31, 2020 and March 31, 2019, the Company recognized ~~$0.1 million of~~ compensation expense related to options ~~during both~~ of the three and nine-month periods ended September 30, 2017. The Company did not recognize compensation expense related to options during both of the three and nine-month periods ended September 30, 2016.$0.1 million.

There were no stock options exercised during the three-month ~~period ended September 30, 2017. There were 3,425 stock options exercised during the three-month~~ periods ended ~~September 30, 2016. The total pretax intrinsic values of stock options exercised were less than $0.1 million for the three-month period ended September 30, 2016.~~March 31, 2020 and March 31, 2019.

~~The total pretax intrinsic values of stock options exercised were $0.4 million and $0.1 million for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively.~~

-37-

The following table summarizes information about the stock options outstanding and exercisable as of ~~September 30, 2017:~~March 31, 2020.


*Options Outstanding*	*Options Outstanding*								*Options Exercisable*							*Options Outstanding*									*Options Exercisable*
				Weighted	Weighted		Aggregate				Weighted	Weighted		Aggregate
				Average	Average		Intrinsic				Average	Average		Intrinsic
Range of		Number		Remaining	Exercise		Value		Number		Remaining	Exercise		Value
Exercise Prices		Outstanding		Life (Years)	Price		(In thousands)		Exercisable		Life (Years)	Price		(In thousands)
Range of Exercise Prices																	Number Outstanding		Weighted Average Remaining Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value (In thousands)		Number Exercisable		Weighted Average Remaining Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value (In thousands)
$25.75			112,085	6.5	$	25.75	$	336		—	—	$	—	$	—			71,766		4.0	$	25.75	$	—		71,766		4.0	$	25.75		—
$28.25																		52,367		5.0	$	28.25	$	—		35,317		5.0	$	28.25	$	—

			112,085	6.5	$	25.75	$	336		—	—	$	—	$	—			124,133		4.4	$	26.80	$	—		107,083		4.3	$	26.57	$	—

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of ~~$28.75~~$11.17 as of ~~September 30, 2017,~~March 31, 2020, which would have been received by the option holders had all option holders exercised their options as of that date.

As of ~~September 30, 2017, the total future~~March 31, 2020, there was $0.1 million of unrecognized compensation cost related tonon-vested stock options not yet recognized in the Consolidated Statements of Operations ~~was $0.6 million.~~scheduled to be recognized over a weighted average period of 1.0 year.

~~-31-~~

Restricted Stock Awards

The Company’s restricted stock awards provide that, during the applicable vesting periods, the shares awarded may not be sold or transferred by the participant. The vesting period for restricted stock awards generally ranges from three to seven years. All awards issued contain service conditions based on the participant’s continued service with the Company and may provide for accelerated vesting if there is a change in control as defined in the Equity Compensation Plans.

The vesting of certain restricted shares may be accelerated to a minimum of three years based on achievement of various individual performance measures. Acceleration of expense for awards based on individual performance factors occurs when the achievement of the performance criteria is determined.

Of the total restricted stock awards granted during the nine-month period ended September 30, 2017, no shares may be subject to accelerated vesting based on individual performance factors; no shares have vesting contingent upon performance factors. Vesting was accelerated in ~~2016 and 2017~~2019 on certain awards based on the achievement of certain performance criteria determined annually, as described below.

The Company also issues restricted stock tonon-employee independent directors. These shares generally vest in seven years from the grant date or six months following the director’s termination from Board of Directors service.

-38-

The following table summarizes the activity of thenon-vested restricted stock during the ~~nine-month~~three-month period ended ~~September 30, 2017:~~March 31, 2020:


				Weighted
				Average
				Grant-Date
Non-vested restricted stock	Shares			Fair Value		Shares			Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2016		396,518		$	16.07
Outstanding at December 31, 2019							143,935		$	21.88
Granted		43,208			25.36		—			0.00
Vested		(119,952	)		16.14		(11,973	)		18.83
Forfeited		(14,235	)		16.39		(550	)		25.88

Outstanding at September 30, 2017		305,539			17.34
Outstanding at March 31, 2020							131,412			22.14

During the three-month ~~periods~~period ended ~~September 30, 2017 and September 30, 2016,~~March 31, 2020 there were no restricted stock awards granted. During the three-month period ended March 31, 2019, the Company granted restricted stock awards with ~~grant-date~~a grant date fair values totaling $0.3 million and $0.4, respectively. During the nine-month periods ended September 30, 2017 and September 30, 2016, the Company granted restricted stock awards with grant-date fair values totaling $1.1 million and $2.8 million, respectively.less than $0.1 million.

As vesting occurs, or is deemed likely to occur, compensation expense is recognized over the requisite service period and additionalpaid-in capital is increased. The Company recognized $0.1 million and $0.3 million of compensation expense related to restricted stock for ~~both~~the three-month periods ended ~~September 30, 2017~~March 31, 2020 and September 30, 2016. The Company recognized $1.5 million and $1.4 million of compensation expense related to restricted stock for the nine-month periods ended September 30, 2017 and September 30, 2016,March 31, 2019, respectively.

Of the ~~$1.5~~$0.1 million total compensation expense related to restricted stock for the ~~nine-month~~three-month period ended ~~September 30, 2017, approximately $0.5 million~~March 31, 2020, no expense was related to accelerated vesting ~~during the first quarter of 2017,~~ based on achievement of certain performance criteria determined annually. Of the ~~$1.4~~$0.3 million total compensation expense related to restricted stock for the ~~nine-month~~three-month period ended ~~September 30, 2016,~~March 31, 2019, approximately ~~$0.4~~$0.1 million related to accelerated vesting ~~during the first quarter of 2016, which was also~~ based on the achievement of certain performance criteria determined annually.

As of ~~September 30, 2017,~~March 31, 2020, there was ~~$3.6~~$1.3 million of unrecognized compensation cost related tonon-vested restricted stock

compensation

~~-32-~~

scheduled to be recognized over a weighted average period of ~~3.7~~4.3 years. In the event individual performance targets are achieved, $0.7 million of the unrecognized compensation cost would accelerate to be recognized over a weighted average period of 0.9 years. In addition, certain of the awards granted may result in the issuance of 30,513 additional shares of stock if achievement of certain targets is greater than 100%. The expense related to the additional shares awarded will be dependent on the Company’s stock price when the achievement level is determined.

The fair value of shares that vested during the three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016~~March 31, 2019 was ~~$0.3~~$0.2 million and ~~$0.1 million, respectively. The fair value of shares that vested during the nine-month periods ended September 30, 2017 and September 30, 2016 was $2.9 million and $0.9~~$0.7 million, respectively.

Restricted Stock Units

Restricted stock units (“RSUs”) are granted with vesting conditions based on fulfillment of a service condition (generally three to four years from the grant date), and may also require achievement of certain operating performance criteria or achievement of certain market-based targets associated with the Company’s stock price. ~~The~~For those awards subject to achievement of certain market performance criteria, the market based target measurement period begins one year from the grant date and ends three years from the grant date. Expense for equity based awards with market and service conditions is recognized over the service period based on the grant-date fair value of the award.

-39-

The following tables summarize restricted stock unit activity for the ~~nine-month~~three-month period ended ~~September 30, 2017:~~March 31, 2020:


Performance-based & market-based RSUs	Number of RSUs			Weighted Average Grant-Date Fair Value		Number of RSUs			Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2016		120,000		$	9.47
Outstanding at December 31, 2019							257,476		$	18.00
Granted		71,032			23.65		95,758			17.55
Forfeited		(7,934	)		13.44		(5,081	)		23.99
Converted		—			—		(13,810	)		25.75
Cancelled due tonon-achievement of market condition		—			—
Cancelled due tonon-achievement of performance condition							(30,390	)		25.65

Outstanding at September 30, 2017		183,098			14.80

Outstanding at March 31, 2020							303,953			16.64

Service-based RSUs
Outstanding at December 31, 2016		—		$	—
Outstanding at December 31, 2019							99,951		$	23.59
Granted		29,504			25.75		69,422			20.43
Forfeited		(967	)		25.75		(4,480	)		23.69
Converted		—			—		(39,879	)		24.30

Outstanding at September 30, 2017		28,537			25.75
Outstanding at March 31, 2020							125,014			21.61

There were no RSUs with vesting conditions based solely on market conditions granted during the three-month periods ended March 31, 2020 and March 31, 2019, respectively. The weighted average grant-date fair value of RSUs with both performance and market based vesting conditions granted during the ~~nine-month period~~three-month periods ended ~~September 30, 2017~~March 31, 2020 and March 31, 2019 was ~~$13.32~~$12.90 and 12.91 per ~~unit.~~unit, respectively. The weighted average grant date fair value of these market based RSUs was estimated using a Monte Carlo simulation valuation model with the following assumptions:

~~-33-~~


	Nine Months Ended September 30,					Three Months Ended March 31,
	2017			2016		2020			2019
Grant date stock price	$	25.75			—	$	20.43		$	21.50
Risk-free interest rate		1.72	%		—		1.40	%		2.16	%
Expected volatility		33.42	%		—		26.18	%		26.68	%
Dividend yield		—			—

The risk free interest rate reflected the yield on zero coupon Treasury securities with a term approximating the expected life of the RSUs. The expected volatility was based on historical volatility of the Company’s common stock. Dividend yield was assumed at zero as the grant assumes dividends distributed during the performance period are reinvested. When valuing the grant, we have assumed a dividend yield of zero, which is mathematically equivalent to reinvesting dividends in the issuing entity.

~~There were no RSUs granted during the three-month period ended September 30, 2017.~~

-40-

During the ~~three-month period~~three month periods ended ~~September 30, 2016,~~March 31, 2020 and March 31, 2019, the Company granted RSUs with grant-date fair values totaling ~~$1.1 million. During the nine-month periods ended September 30, 2017 and September 30, 2016, the Company granted RSUs with grant-date fair values totaling $2.4~~$3.1 million and ~~$1.1~~$3.4 million, respectively. The Company recognized $0.3 million and ~~less than $0.1~~$0.5 million of compensation expense related to RSUs for the ~~three-month~~three month periods ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016,~~March 31, 2019, respectively. The ~~Company recognized~~fair value of restricted stock units that converted to shares of common stock during both the three month periods ended March 31, 2020 and March 31, 2019 was $0.6 million, ~~and less than $0.1 million of compensation expense related to RSUs for the nine-month periods ended September 30, 2017 and September 30, 2016,~~ respectively. As of ~~September 30, 2017,~~March 31, 2020, there was ~~$2.8~~$4.7 million of unrecognized compensation cost related to RSUs scheduled to be recognized over a weighted average period of ~~2.4~~1.9 years based on the most probable performance assumptions. In the event maximum performance targets are achieved, an additional ~~$1.5~~$5.0 million of compensation cost would be recognized over a weighted average period of 2.3 ~~years and may result in~~years. As of March 31, 2020 182,181 performance units are expected to convert to shares of common stock based on the ~~conversion of 57,098 additional~~most probable performance assumptions. In the event maximum performance targets are achieved 514,957 performance units ~~into~~would convert to shares of common stock.

NOTE 1415 – Subsequent Events

The Company declared a dividend of $0.14 per share on ~~October 26, 2017.~~April 30, 2020. The quarterly dividend, which is expected to result in a dividend payment of approximately ~~$1.8~~$1.7 million, is scheduled to be paid on ~~November 16, 2017~~May 21, 2020 to shareholders of record on the close of business on ~~November 6, 2017.~~May 11, 2020. It represents the Company’s ~~twenty-fifth~~thirty-fifth consecutive quarterly cash dividend. The payment of future dividends will be subject to approval by the Company’s Board of Directors.

~~As previously disclosed in~~In addition, see Note 6—Allowance for Credit Losses for discussion of the ~~Company’s Form8-K~~ filed on October 13, 2017, the Company announced that Edward J. Siciliano is resigning from his position as Executive Vice President and Chief Operating Officer. In connection with his resignation, the Company and Mr. Siciliano have entered into a separation and general release agreement dated October 13, 2017. Under the separation and general release agreement, Mr. Siciliano’s employment with the Company will terminate on October 13, 2017. The Company anticipates a fourth quarter 2017~~after-tax~~ ~~charge~~volume of ~~approximately $0.6 million due~~payment deferral contract modification requests approved subsequent to ~~a cash severance payment as defined by the separation and general release agreement.~~March 31, 2020.

~~-34-~~-41-

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes thereto in our Form10-K for the year ended December 31, ~~2016~~2019 filed with the SEC. This discussion contains certain statements of a forward-looking nature that involve risks and uncertainties.

~~FORWARD-LOOKING STATEMENTS~~FORWARD-LOOKING STATEMENTS

Certain statements in this document may include the words or phrases “can be,” “expects,” “plans,” “may,” “may affect,” “may depend,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “if” and similar words and phrases that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “1933 Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “1934 Act”). Investors are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements are subject to various known and unknown risks and uncertainties and the Company cautions that any forward-looking information provided by or on its behalf is not a guarantee of future performance. Statements regarding the following subjects are forward-looking by their nature: (a) our business strategy; (b) our projected operating results; (c) our ability to obtain external deposits or financing; (d) our understanding of our competition; and (e) industry and market trends. The Company’s actual results could differ materially from those anticipated by such forward-looking statements due to a number of factors, some of which are beyond the Company’s control, including, without limitation:

availability, terms and deployment of funding and capital;

changes in our industry, interest rates, the regulatory environment or the general economy resulting in changes to our business strategy;

the degree and nature of our competition;

availability and retention of qualified personnel;

general volatility of the capital markets; ~~and~~

the effects of theCOVID-19 pandemic; and

the factors set forth in the section captioned “Risk Factors” in Item 1 of our Form10-K for the year ended December 31, ~~2016 filed with the SEC.~~2019 and in PartII--Item 1A of this Form10-Q.

Forward-looking statements apply only as of the date made and the Company is not required to update forward-looking statements for subsequent or unanticipated events or circumstances. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. As used herein, the terms “Company,” “Marlin,” “Registrant,” “we,” “us” or “our” refer to Marlin Business Services Corp. and its subsidiaries.

~~Overview~~OVERVIEW

Founded in 1997, we are a nationwide provider of credit products and services to small andmid-sized businesses. The products and services we provide to our customers include loans and leases for the acquisition of commercial equipment (including Commercial Vehicle Group (“CVG”) assets) and working capital ~~loans~~loans. In May 2000, we established AssuranceOne, Ltd., a Bermuda-based, wholly-owned captive insurance subsidiary (“Assurance One”), which enables us to reinsure the property insurance coverage for the equipment financed by Marlin Leasing Corporation (“MLC”) and ~~insurance products.~~ Marlin Business Bank (“MBB”) for our small business customers. In 2008, we opened MBB, a commercial bank chartered by the State of Utah and a member of the Federal Reserve System. MBB serves as the Company’s primary funding source through its issuance of Federal Deposit Insurance Corporation (“FDIC”)-insured deposits. In January 2017, we completed the acquisition of Horizon Keystone Financial (“HKF”), an equipment leasing company which primarily identifies and sources lease and loan contracts for investor partners for a fee, and in September 2018, we completed the acquisition of Fleet Financing Resources (“FFR”), an company specializing in the leasing and financing of both new and used commercial vehicles, with an emphasis on livery equipment and other types of commercial vehicles used by small businesses.

We access our end user customers primarily through origination sources consisting of independent commercial equipment dealers, various national account programs, through direct solicitation of our end user customers and through relationships with select lease and loan brokers. We use both a telephonic direct sales model and, for strategic larger accounts, outside sales executives to market to our origination sources and end user customers. Through these origination sources, we are able to cost-effectively access end user customers while also helping our origination sources obtain financing for their customers.

Our leases are fixed-rate transactions with terms generally ranging from 36 to 60 months. At September 30, 2017, our lease portfolio consisted of 90,070 accounts with an average original term of 48 months and average original transaction size of approximately $16,000.

MBB offers a flexible loan program called Funding Stream. Funding Stream is tailored to the small business market to provide customers a convenient, hassle free alternative to traditional lenders and access to capital to help grow their businesses. As of September 30, 2017, the Company had approximately $26.4 million, not including the allowance for credit losses allocated to loans of $1.1 million, of small business loans on the balance sheet. Generally, these loans range from $5,000 to $150,000, have flexible 6 to 24 month terms, and have automated daily, weekly, and monthly payback. Small business owners can apply online, in ten minutes or less, on~~www.Fundingstream.com. Approved borrowers can receive funds in as little as two days.~~

~~At September 30, 2017, we had $1,013.0 million in total assets. Our assets are substantially comprised of our net investment in leases and loans which totaled $886.4 million at September 30, 2017.~~

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Our revenue consists of interest and fees from our leases and loans and, to a lesser extent, income from our property insurance program and other fee income. Our expenses consist of interest expense and other expenses, which include salaries and benefits and other general and administrative expenses. As a credit lender, our earnings are also impacted by credit losses. For the quarter ended September 30, 2017, our annualized net credit losses were 1.73% of our average total finance receivables. We establish reserves for credit losses which require us to estimate inherent losses in our portfolio as of the reporting date. In the third quarter of 2017 we booked an additional reserve for credit losses of $0.5 million based on our assessment of our lease portfolio’s exposure to those geographic areas most impacted by Hurricane Harvey and Hurricane Irma in August 2017 and September 2017, respectively.

Our leases are classified under U.S. GAAP as direct financing leases, and we recognize interest income over the term of the lease. Direct financing leases transfer substantially all of the benefits and risks of ownership to the equipment lessee. Our net investment in direct finance leases is included in our consolidated financial statements in “net investment in leases and loans.” Net investment in direct financing leases consists of the sum of total minimum lease payments receivable and the estimated residual value of leased equipment, less unearned lease income. Unearned lease income consists of the excess of the total future minimum lease payments receivable plus the estimated residual value expected to be realized at the end of the lease term plus deferred net initial direct costs and fees less the cost of the related equipment. Approximately 70% of our lease portfolio at September 30, 2017 amortizes over the lease term to a $1 residual value. For the remainder of the portfolio, we must estimate end of term residual values for the leased assets. Failure to correctly estimate residual values could result in losses being realized on the disposition of the equipment at the end of the lease term.

We fund our business primarily through the issuance of fixed and variable-rate FDIC-insured deposits and money market demand accounts raised nationally by MBB, ~~opened~~sales of pools of leases or loans, as well as, from time to time, fixed-rate asset backed securitization transactions.

EXECUTIVE SUMMARY

Summary

TheCOVID-19 pandemic rapidly escalated bymid-March, and we shifted our business focus towards mitigating the adverse effect of this crisis on our employees, customers and partners, while at the same time maintaining the stability of our operations. We implemented our business continuity plan in ~~2008.~~mid-March to allow our employees to work remotely, and we have not experienced any significant interruption of our operations.

Origination volumes for both equipment finance and working capital loans declined significantly through March, and we ended the quarter with $157.4 million origination volume, a 22.6% decline from the first quarter of 2019. Our assets sales in the first quarter of 2020 were $22.9 million, which is considerably lower than recent prior quarters, due in part to weaker overall investor demand. As we observe the impact of the slowing economy on small businesses, through the end of March we tightened our underwriting standards for both our equipment finance and working capital products. We expect our origination volumes for the second quarter of 2020 will be negatively impacted by these factors, and any returns to normal levels of activity remains uncertain.

We ~~anticipate~~implemented a payment deferral program to assist our customers who, during this period of economic decline, are current under their existing obligations and can demonstrate that ~~FDIC-insured deposits issued~~their ability to repay has been impacted by the COVID-19 crisis. The program generally provides for 90 day deferrals for equipment finance customers, and 60 days deferrals for working capital loans. Through March 31, we processed modifications representing $19.5 million net investment in leases and loans, and subsequent toquarter-end, through April 24, we have approved the modification application for contracts representing an additional $134.5 million net investment in leases and loans. A portion of these modifications are subject to the completion of final processing and documentation.

The estimate of credit losses for our portfolio increased $30.4 million as of March 31, 2020 compared to December 31, 2019, driven both by the recognition of an $11.9 million increase to our allowance as a result of the January 1, 2020 adoption of CECL and by a $25.1 million Provision for loan losses for the three months ended March 31, 2020. The provision recognized included approximately $19.2 million of increases based on our current assessment of the probable economic impacts from theCOVID-19 pandemic, based on information known as of March 31st.

Our estimate of credit losses is based on our assessment of the risks to our portfolio, including certain economic assumptions driven by forecasted unemployment and business bankruptcy levels, our expectations regarding the performance of our portfolio under these economic conditions, and such estimates are driven by limited information regarding the extent and timeline of impacts fromCOVID-19. All of the assumptions and expectations underlying our estimate of credit loss depend largely on future developments, and these estimates are highly uncertain. We may experience significant credit losses in future periods as we refine our estimates or realize the actual performance of our portfolio.

Our modification program, the adoption of CECL, the provision for credit losses, and the elevated risks to our portfolio are discussed further below under “—Finance Receivables and Asset Quality”.

In addition, see further discussion of the risks to our business from theCOVID-19 pandemic in “–Item 1A. Risk Factors— The ongoingCOVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations and financial condition, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.”

Capital Update

On March 25, 2020, we received notice that the FDIC approved MBB’s request to rescind certain nonstandard conditions that had been in effect since the bank was formed in 2007. In addition, the FDIC, the Company and certain of the Company’s subsidiaries terminated the Capital Maintenance and Liquidity Agreement (the “CMLA Agreement”) and the Parent Company Agreement, effective March 26, 2020. As a result of these actions, MBB ~~will~~is no longer required pursuant to the CMLA Agreement to maintain a total risk-based capital ratio above 15%. Rather, MBB must continue to ~~represent our primary source~~maintain a total risk-based capital ratio above 10% in order to maintain “well-capitalized” status as defined by banking regulations, while the Company must continue to maintain a total risk-based capital ratio above 10.5% in order to avoid restrictions on capital returns to shareholders and certain discretionary payments such as

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bonuses. The additional capital released by the termination of ~~funds for~~ the ~~foreseeable future. In the future~~CMLA Agreement is held at MBB may elect to offer other products and services to the Company’s customer base. As a Utah state-chartered Federal Reserve member bank, MBB is supervised by both the Federal Reserve Bank of San Francisco and the Utah Department of Financial Institutions. As of September 30, 2017, total MBB deposits were $807.0 million, compared to $697.4 million at December 31, 2016. We had no outstanding secured borrowings as of both September 30, 2017 and December 31, 2016.

~~On January 13, 2009, Marlin Business Services Corp. became a bank holding company~~ and is subject to the Bank Holding Company Act and supervised by the Federal Reserve Bank of Philadelphia. On September 15, 2010, the Federal Reserve Bank of Philadelphia confirmed the effectiveness of Marlin Business Services Corp.’s election to become a financial holding company (while remaining a bank holding company) pursuant to Sections 4(k) and (l)restrictions outlined in Title 12 part 208 of the ~~Bank Holding Company Act~~Code of Federal Regulations (12 CFR 208.5), which places limitations on bank dividends, including restricting dividends for any year to the earnings from the current and ~~Section 225.82~~prior two calendar years. Any dividends declared above that amount and any return of permanent capital would require prior approval of the Federal Reserve ~~Board’s Regulation Y. Such election permits~~Board of Governors.

Rules governing our regulatory capital requirements give entities the option of delaying for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of capital benefit, or a five-year transition in total. We have elected to avail ourselves of the five-year transition option. See our current measurements of capital and further discussion of the measurements of regulatory capital during the delay and transition periods in Note 14, Stockholders’ Equity in the accompanying condensed consolidated financial statements. At March 31, 2020, Marlin Business ~~Services Corp.~~Service Corp and MBB’s Tier 1 leverage ratio, common equity Tier 1 risk-based ratio, Tier 1 risk-based capital ratio and total risk-based capital ratios exceeded the requirements for well-capitalized status.

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FINANCE RECEIVABLESAND ASSET QUALITY

The following table summarizes certain portfolio statistics for the periods presented:


	Three Months Ended March 31,						Year Ended December 31,
	2020			2019			2019
				(Dollars in thousands)
Finance receivables:
End of period⁽¹⁾	$	1,022,135		$	1,019,311		$	1,007,706
Average for the period⁽¹⁾	$	1,008,823		$	999,432		$	1,028,617
Origination Volume	$	157,391		$	208,355		$	877,913
Assets Sold	$	22,929		$	52,867		$	310,415
Allowance for credit losses :
End of period	$	52,060		$	16,882		$	21,695
As a % of end of period receivables⁽¹⁾		5.09	%		1.66	%		2.15	%
Loans modified, in payment deferral:
End of period	$	19,518		$	—		$	—
As a % of end of period receivables⁽¹⁾		1.91	%		—			—
Delinquencies, end of period:⁽²⁾
Equipment Finance and CVG:
Greater than 60 days past due, $	$	10,156		$	8,112		$	6,518
Greater than 60 days past due, %		1.05	%		0.86	%		0.67	%
Working Capital:
Greater than 30 days past due, $	$	673		$	855		$	284
Greater than 30 days past due, %		1.14	%		1.42	%		0.66	%
Other Renegotiated leases and loans, end of period⁽³⁾	$	3,095		$	3,008		$	2,668
Annualized net charge-offs to average total finance receivables⁽¹⁾		3.11	%		1.83	%		2.18	%

⁽¹⁾	For purposes of asset quality and allowance calculations, the effects of (i) the allowance for credit losses and (ii) initial direct costs and fees deferred are excluded.

⁽²⁾	Calculated as a percentage of total minimum lease payments receivable for leases and as a percentage of principal outstanding for loans.

⁽³⁾	No renegotiated leases or loans met the definition of a Troubled Debt Restructuring for any period presented.

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Loan Modification Program.

In response to ~~engage~~COVID-19, starting in ~~activities~~mid-March 2020, we instituted a payment deferral program in order to assist our small-business customers that request relief who are ~~financial~~current under their existing obligations and can demonstrate that their ability to repay has been impacted by the COVID-19 crisis. Through March 31, 2020, we processed payment deferral modifications for 520 contracts, or $19.5 million net investment in ~~nature or incidental~~leases and loans, where the typical modification included a60-day deferral of payments for Working Capital loans and90-day deferral of payments for other customers, with such payments added to ~~a financial activity, including~~ the ~~maintenance and expansion~~end of the ~~reinsurance activities conducted through its wholly-owned subsidiary, AssuranceOne, Ltd.~~

~~Critical Accounting Policies~~

~~Goodwill~~contract term. The modifications for each portfolio segment were $8.5 million of Equipment Finance, $7.0 million of Working Capital, and ~~Intangible Assets~~.$4.0 million of CVG net investment in leases and loans. The Company ~~tests~~did not adjust its estimate of credit losses based on whether or not contracts were modified; the Company’s allowance estimate assesses the risk of credit loss for impairment of goodwill at least annually and more frequently as circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows for the testing of goodwill for impairment using both qualitative and quantitative factors. Impairment of goodwill is recognized only if the carrying amount of the Company, including goodwill, exceeds the fair value of the Company. The amount of the impairment loss wouldmodified loans to be equal to loans that were not modified as of March 31, 2020.

Subsequent toquarter-end, through April 24, 2020, we have approved the ~~excess carrying value of the goodwill over the implied fair value of the Company goodwill.~~

~~Currently, the Company does not have any intangible assets with indefinite useful lives.~~

~~Intangible assets that are not deemed to have an indefinite useful life are amortized over their estimated useful lives. The carrying amounts of definite lived intangible assets are regularly reviewed~~payment deferral modification application for indicators of impairment in accordance with applicable accounting guidance. Impairment is recognized only if the carrying amount of the intangible asset is in excess of its undiscounted projected cash flows. The impairment is measured as the difference between the carrying amount and the estimated fair value of the asset.

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~~There have been no other significant changes to our Critical Accounting Policies as described in our 2016 Annual Report on Form10-K.~~

~~RECENTLY ISSUED ACCOUNTING STANDARDS~~

Information on recently issued accounting pronouncements and the expected impact on our financial statements is provided in Note 2, Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements.

~~RECENTLY ADOPTED ACCOUNTING STANDARDS~~

Information on recently adopted accounting pronouncements and the expected impact on our financial statements is provided in Note 2, Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements.

~~RESULTS OF OPERATIONS~~

~~Comparison of the Three-Month Periods Ended September 30, 2017 and September 30, 2016~~

~~Net income.~~ Net income of $3.3 million was reported for the three-month period ended September 30, 2017, resulting in diluted EPS of $0.26, compared to net income of $4.3 million and diluted EPS of $0.35 for the three-month period ended September 30, 2016. During the quarter ended September 30, 2017, the Company increased its credit reserves and insurance reserves for estimated inherent losses bycontracts representing an additional ~~$0.5~~$134.5 million net investment in leases and ~~$0.4 million, respectively, based on its initial assessments~~loans. A portion of ~~exposure~~these modifications are subject to ~~geographic areas significantly impacted by Hurricane Harvey~~final processing and ~~Hurricane Irma. The impact of this increase~~documentation.

Changes in ~~reserves was a reduction of approximately $0.6 million in net income and $0.05 in net income per diluted share for the quarter ended September 30, 2017.~~

Return on average assets was 1.31% for the three-month period ended September 30, 2017, compared to a return of 2.05% for the three-month period ended September 30, 2016. Return on average equity was 8.01% for the three-month period ended September 30, 2017, compared to a return of 11.10% for the three-month period ended September 30, 2016.Portfolio.

Overall, our average net investment in total finance receivables for the three-month period ended ~~September 30, 2017~~March 31, 2020 increased ~~17.8%~~0.9% to ~~$862.7~~$1,008.8 million, compared to ~~$732.3~~$999.4 million for the three-month period ended ~~September 30, 2016. This change was primarily due to origination volume continuing to exceed lease repayments.~~March 31, 2019. Theend-of-period net investment in total finance receivables at ~~September 30, 2017~~March 31, 2020 was ~~$886.4~~$970.1 million, ~~an increase~~a decrease of ~~$89.7~~$36.4 million, or ~~11.3%~~3.6%, from ~~$796.7~~$1,006.5 million at December 31, ~~2016.~~2019.

~~-37-~~

During the three months ended ~~September 30, 2017,~~March 31, 2020, we generated ~~7,447~~5,863 new equipment finance leases and loans with equipment ~~cost~~costs of ~~$133.6~~$127.7 million, compared to ~~6,606~~7,467 new equipment finance leases and loans with equipment ~~cost~~costs of ~~$117.9~~$169.8 million generated for the three months ended ~~September 30, 2016. Approval rates remained constant at 56% for each of the quarters ended September 30, 2017 and ended September 30, 2016.~~

~~For~~March 31, 2019. Working Capital loan originations were $26.2 million during the three-month period ended ~~September 30, 2017~~March 31, 2020, an increase of $6.7 million, or 34.1%, as compared to the three-month period ended ~~September 30, 2016,~~March 31, 2019.

In response to the potential impacts of theCOVID-19 pandemic and the slowing economy in the latter part of the first quarter, we tightened our underwriting standards for both our equipment finance and working capital products. We expect our origination volumes for the second quarter of 2020 will be negatively impacted by these factors, and any returns to normal levels of activity remains uncertain.

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Portfolio Concentration.

The following table summarizes the concentrations of our portfolio of net ~~interest~~investment in leases and ~~fee income~~loans as of March 31, 2020 by state and industry:


Top 10 Industries, by Borrower SIC Code							Top 10 States
	Equipment Finance and CVG			Working Capital				Equipment Finance and CVG			Working Capital
Medical		12.7	%		8.5	%	CA		13.8	%		11.6	%
Misc. Services		12.4			8.0		TX		11.7			11.0
Retail		10.3			12.8		FL		9.8			9.1
Construction		8.5			13.5		NY		6.8			5.2
Restaurants		7.7			7.6		NJ		4.5			6.2
Professional Services		6.5			5.0		PA		3.6			4.6
Manufacturing		5.8			8.3		GA		3.4			4.7
Transportation		5.3			3.3		IL		3.3			3.9
Trucking		4.5			2.4		NC		3.1			2.9
Auto Repair Shops		3.3			6.6		MA		3.0			2.3
All Other		23.0			24.0		All Other		37.0			38.5

Total		100	%		100	%	Total		100	%		100	%

As a result of theCOVID-19 pandemic, we have been continually assessing the risks to our portfolio, including consideration of high-risk industries and geographic locations that are being more significantly impacted by the spread ofCOVID-19.

While we are attempting to mitigate the impact of theCOVID-19 pandemic on our portfolio, by tightening underwriting standards for areas of elevated risk and by assisting borrowers that have been negatively impacted, the extent of the impacts ofCOVID-19 on our portfolio remains uncertain.

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Allowance for credit losses.

The following table provides a rollforward of our Allowance for credit loss:


	Three Months Ended March 31,						Year Ended December 31,
	2020			2019			2019
				(Dollars in thousands)
Allowance for credit losses, December 31, 2019	$	21,695
Adoption of ASU2016-13 (CECL)		11,908

Allowance for credit losses, beginning of period		33,603		$	16,100		$	16,100
Provision for credit losses		25,150			5,363			28,036
Net Charge-offs:
Equipment Finance		(5,959	)		(3,599	)		(18,164	)
Working Capital		(1,243	)		(654	)		(2,531	)
CVG		(644	)		(328	)		(1,746	)

Net Charge-offs		(7,846	)		(4,581	)		(19,811	)

Realized cashflows from Residual Income		1,153			—			—

Allowance for credit losses, end of period	$	52,060		$	16,882		$	21,695

The allowance for credit losses as a percentage of total finance receivables increased ~~$2.4 million, or 11.6%, primarily due~~ to ~~a $3.6 million~~5.19% as of March 31, 2020, from 2.15% as of December 31, 2019. This increase in reserve coverage is driven by the Company’s January 1, 2020 adoption of CECL, and an elevated Provision for credit losses recognized for the three months ended March 31, 2020, primarily as a result of the estimated impact to the portfolio from theCOVID-19 pandemic. See further discussion below.

Adoption of ASU2016-13 / CECL.

Effective January 1, 2020, we adopted new guidance for accounting for our allowance, or ASU2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”). CECL replaces the probable/ incurred loss model that we historically used to measure our allowance, with a measurement of expected credit losses for the contractual term of our current portfolio of loans and leases. Under CECL, an allowance, or estimate of credit losses, will be recognized immediately upon the origination of a loan or lease, and will be adjusted in each subsequent reporting period. This estimate of credit losses takes into consideration all remaining cashflows the Company expects to receive or derive from the pools of contracts, including recoveries aftercharge-off, accrued interest ~~income, partially offset by a $1.0 million increase in interest expense.~~receivable and certain future cashflows from residual assets. The provision for credit losses recognized in our Consolidated Statements of Operations under CECL, starting in 2020, will be primarily driven by origination volumes, offset by the reversal of the allowance for any contracts sold, plus adjustments for changes in estimate each subsequent reporting period, including adjustments for economic forecasts within a reasonable and supportable time period.

The impact of adopting CECL effective January 1, 2020 included a $11.9 million increase to the allowance, an $8.9 million decrease to Retained earnings and $3.0 million impact to our Net deferred income tax liability.

See Note 2 –Summary of Significant Accounting Policies, for further discussion of the adoption of this accounting standard, and see Note 6 –Allowance for Credit Losses, for further discussion of the Company’s methodology for measuring its allowance as of the adoption date.

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See –Executive Summary and Note 13 –Stockholders’ Equity, for discussion of our election to delay fortwo-years the effect of CECL on regulatory capital, followed by a three-yearphase-in, or a five-year total transition.

Provision for credit losses.

For 2020, the provision for credit losses recognized under CECL is primarily driven by origination volumes, offset by the reversal of the allowance for any contracts sold, plus adjustments for changes in estimate each subsequent reporting period. In contrast, the allowance estimate recognized under the probable, incurred model was based on the current estimate of probable net credit losses inherent in the portfolio.

For the three months ended March 31, 2020, the $25.2 million provision for credit losses recognized was $19.8 million greater than the $5.4 million provision recognized for the three months ended March 31, 2019. The provision for the first quarter of 2020 included $19.1 million of additions to the provision driven by updates to the Company’s estimate driven by changes in economic conditions related toCOVID-19. In particular, the Company’s estimate of increased ~~$2.6~~losses in its Equipment Finance portfolio is driven by updates to a reasonable and supportable forecast based on the modeled correlation of changes in the loss experience of the Company’s portfolio to certain economic statistics, specifically changes in the unemployment rate and changes in the number of business bankruptcies. For the CVG and Working Capital portfolio segments, the Company’s estimate of increased losses was based on qualitative adjustments, taking into consideration alternative scenarios to determine the Company’s estimate of the probable impact of the economic shutdown.

TheCOVID-19 pandemic, and related business shutdowns, is still ongoing, and the extent of the effects of the pandemic on our portfolio depends on future developments, which are highly uncertain and are difficult to predict. The qualitative and economic adjustments to our allowance take into consideration information and our judgments as of March 31, 2020, and are based in part on an expectation for the extent and timing of impacts from COVID-19 on unemployment rates and business bankruptcies, and are based on our current expectations of the performance of our portfolio in the current environment. We may recognize credit losses in excess of our reserve, or increases to our credit loss estimate, in the future, and such increases may be significant, based on future developments.

Net Charge-offs.

Equipment Finance and TFG receivables are generallycharged-off when they are contractually past due for 120 days or more. Working Capital receivables are generallycharged-off at 60 days past due.

Total portfolio net charge-offs for the three months ended March 31, 2020 were $7.8 million (3.11% of average total finance receivables on an annualized basis), compared to $5.6 million (3.00%) for the three months ended December 31, 2019, and $4.6 million (1.83%) for the three months ended March 31, 2019. In the second half of 2019 and early in the first quarter of 2020, we observed certain economic headwinds that were disproportionally impacting the small business and lower credit quality borrowers in our portfolio. Those economic conditions deteriorated significantly driven by the end of March 2020, as the impact ofCOVID-19 developed; as a result, the Company is experiencing elevated net-chargeoffs compared to the same quarter in the prior year.

As discussed above, we implemented a payment deferral modification program in March 2020, to respond to our borrower’s needs related to the impacts ofCOVID-19. There can be no assurances that such efforts to modify contracts will be successful in mitigating any risk of credit loss or ~~83.9%,~~futurecharge-off of such contracts.

Residual Income.

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 In 2019 and prior years, the Company had previously recognized residual income within Fee Income in its Consolidated Statements of Operations; the adoption of CECL results in any realized amounts of residual income being captured as a component of the activity of the allowance because the Company’s estimate of credit losses under CECL takes into consideration all cashflows the Company expects to ~~$5.7~~receive or derive from the pools of contracts.

Our recorded allowance reflects our current estimate of the expected credit losses of all contracts currently in portfolio, based on our current assessment of information regarding the risks of our current portfolio, default and collection trends, a reasonable and supportable forecast of economic factors, qualitative adjustments based on our best estimate of expected losses for certain portfolio segments, among other internal and external factors. Our allowance measurement is an estimate, is inherently uncertain, and is reassessed at each

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measurement date. Actual performance of our portfolio and updates to other information involved in our assessment may drive changes in modeled assumptions, may cause management to adjust the allowance estimate through qualitative adjustments and/or may result in actual losses that vary significantly from of our current estimate.

Non-Accrual.

The following table summarizesnon-accrual leases and loans in the Company’s portfolio:


	Three Months Ended March 31,				Year Ended December 31, 2019
	2020		2019		Year Ended December 31, 2019
	(Dollars in thousands)
Equipment finance	$	5,357	$	3,494	$	4,256
Working capital		755		284		946
CVG		593		199		389
CRA		—		—		—

Totalnon-accrual leases and loans	$	6,705	$	3,977	$	5,591

Net investments in finance receivables are generallycharged-off when they are contractually past due for 120 days or more. Income recognition is discontinued on Equipment Finance leases or loans, including CVG loans, when a default on monthly payment exists for a period of 90 days or more. Income recognition resumes when the lease or loan becomes less than 90 days delinquent.

Working Capital Loans are generally placed innon-accrual status when they are 30 days past due. The loan is removed fromnon-accrual status once sufficient payments are made to bring the loan current and evidence of a sustained performance period as reviewed by management.

The Company has no loans 90 days or more past due that were still accruing interest for any of the periods presented above.

-50-

RESULTSOF OPERATIONS

Comparison of the Three-Month Periods Ended March 31, 2020 and March 31, 2019

Net income.

Net loss of $11.8 million was reported for the three-month period ended ~~September 30, 2017 from $3.1~~March 31, 2020, resulting in diluted loss per share of $1.00, compared to net income of $5.1 million and diluted EPS of $0.41 for the ~~corresponding~~three-month period ended March 31, 2019. This $16.9 million decrease in ~~2016, due to increased delinquency and charge-offs and to a lesser extent growth~~Net income was primarily driven by:

•

($19.7 million) increase in Provision for credit losses, primarily driven by updates to the Company’s estimate, reflecting forecasted economic conditions fromCOVID-19 pandemic. The Company adopted CECL on January 1, 2020 which substantially changed its methodology for measuring the estimate of credit loss. See further discussion of the Provision and the change in measurement in the prior section “—Finance Receivables and Asset Quality”;

($6.7 million) impairment of Goodwill, driven by declines in the ~~portfolio, and an additional $0.5~~fair value of its reporting unit;

$3.2 million ~~for estimated inherent credit losses~~benefit recognized in Income tax (benefit) from the ~~areas hardest hit~~remeasurement of the federal net operating losses driven by ~~Hurricane Harvey~~provisions of the CARES Act;

$1.9 million decrease in Salaries and ~~Hurricane Irma.~~benefits, driven primarily by lower Commissions and Incentives as a result of Company performance.

Average balances and net interest margin.The following table summarizes the Company’s average balances, interest income, interest expense and average yields and rates on major categories of interest-earning assets and interest-bearing liabilities for the three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016.~~March 31, 2019.

~~-38-~~-51-


	Three Months Ended September 30,														Three Months Ended March 31,
	2017							2016							2020							2019
	(Dollars in thousands)														(Dollars in thousands)
	Average Balance⁽¹⁾		Interest		Average Yields/ Rates⁽²⁾			Average Balance⁽¹⁾		Interest		Average Yields/ Rates⁽²⁾			Average Balance⁽¹⁾		Interest		Average Yields/ Rates⁽²⁾			Average Balance⁽¹⁾		Interest		Average Yields/ Rates⁽²⁾
Interest-earning assets:
Interest-earning deposits with banks	$	91,962	$	240		1.04	%	$	78,907	$	48		0.25	%	$	100,582	$	327		1.30	%	$	126,798	$	773		2.44	%
Time Deposits		8,360		25		1.20			9,107		28		1.21			13,507		63		1.88			10,466		61		2.35
Restricted interest-earning deposits with banks		—		—		—			18		—		0.11			8,033		9		0.44			15,620		30		—
Securities available for sale		10,624		44		1.67			6,120		34		2.22			10,778		58		2.14			10,720		69		2.56
Net investment in leases⁽³⁾		820,151		19,550		9.53			713,413		17,361		9.73			904,548		20,269		8.96			918,655		20,934		9.12
Loans receivable⁽³⁾		42,567		2,504		23.53			18,933		1,332		28.13			104,275		5,739		22.02			80,776		4,016		19.89

Total interest-earning assets		973,664		22,363		9.18			826,498		18,803		9.10			1,141,723		26,465		9.27			1,163,035		25,883		8.90

Non-interest-earning assets:
Cash and due from banks		2,830							2,532							5,470							5,600
Intangible assets		1,216							—							7,392							7,852
Goodwill		1,160							—							6,663							7,340
Operating leaseright-of-use assets																8,776							3,903
Property and equipment, net		4,437							3,718							8,094							4,282
Property tax receivables		9,503							5,356							8,886							6,614
Other assets⁽⁴⁾		13,530							11,284							1,811							17,002

Totalnon-interest-earning assets		32,676							22,890							47,092							52,593

Total assets	$	1,006,340						$	849,388						$	1,188,815						$	1,215,628

Interest-bearing liabilities:
Certificate of Deposits⁽⁵⁾	$	765,873	$	2,866		1.50	%		610,912	$	1,971		1.29	%	$	814,178	$	4,856		2.39	%		793,665	$	4,447		2.24	%
Money Market Deposits⁽⁵⁾		40,334		134		1.33			52,027		84		0.64			24,322		85		1.40			23,236		142		2.44
Long-term borrowings⁽⁵⁾																69,751		739		4.24			140,500		1,373		3.91

Total interest-bearing liabilities		806,207		3,000		1.49			662,939		2,055		1.24			908,251		5,680		2.51			957,401		5,962		2.49

Non-interest-bearing liabilities:
Sales and property taxes payable		6,125							5,882							5,890							5,380
Operating lease liabilities																9,644							5,890
Accounts payable and accrued expenses		16,092							8,144							27,726							27,185
Net deferred income tax liability		12,892							15,907							29,468							22,947

Totalnon-interest-bearing liabilities		35,109							29,933							72,728							61,402

Total liabilities		841,316							692,872							980,979							1,018,803
Stockholders’ equity		165,024							156,516							207,836							196,825

Total liabilities and stockholders’ equity	$	1,006,340						$	849,388						$	1,188,815						$	1,215,628

Net interest income			$	19,363						$	16,748						$	20,785						$	19,921
Interest rate spread⁽⁶⁾						7.69	%						7.86	%						6.76	%						6.41	%
Net interest margin⁽⁷⁾						7.95	%						8.11	%						7.28	%						6.85	%
Ratio of average interest-earning assets to average interest-bearing liabilities						120.77	%						124.67	%						125.71	%						121.48	%

~~-39-~~-52-

⁽¹⁾	Average balances were calculated using average daily balances.

⁽²⁾	Annualized.

⁽³⁾	Average balances of leases and loans includenon-accrual leases and loans, and are presented net of unearned income. The average balances of leases and loans do not include the effects of (i) the allowance for credit losses and (ii) initial direct costs and fees deferred.

⁽⁴⁾	Includes operating leases.

⁽⁵⁾	Includes effect of transaction costs. Amortization of transaction costs is on a straight-line basis, resulting in an increased average rate whenever average portfolio balances are at reduced levels.

⁽⁶⁾	Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities.

⁽⁷⁾	Net interest margin represents net interest income as an annualized percentage of average interest-earning assets.

~~-40-~~

Changes due to volume and rate.The following table presents the components of the changes in net interest income by volume and rate.


	Three Months Ended September 30, 2017 Compared To Three Months Ended September 30, 2016									Three Months Ended March 31, 2020 Compared To Three Months Ended March 31, 2019
	Increase (Decrease) Due To:									Increase (Decrease) Due To:
	Volume⁽¹⁾			Rate⁽¹⁾			Total			Volume⁽¹⁾			Rate⁽¹⁾			Total
	(Dollars in thousands)									(Dollars in thousands)
Interest income:
Interest-earning deposits with banks	$	9		$	183		$	192		$	(137	)	$	(309	)	$	(446	)
Time Deposits		(2	)		(1	)		(3	)		16			(14	)		2
Restricted interest-earning deposits with banks											(11	)		(10	)		(21	)
Securities available for sale		20			(10	)		10			—			(11	)		(11	)
Net investment in leases		2,551			(362	)		2,189			(319	)		(346	)		(665	)
Loans receivable		1,422			(250	)		1,172			1,260			463			1,723
Total interest income		3,378			182			3,560			(480	)		1,062			582

Interest expense:
Certificate of Deposits		549			346			895			117			292			409
Money Market Deposits		(23	)		73			50			6			(63	)		(57	)
Long-term borrowings											(741	)		107			(634	)
Total interest expense		490			455			945			(307	)		25			(282	)

Net interest income		2,934			(319	)		2,615			(370	)		1,233			863

⁽¹⁾

Changes due to volume and rate are calculated independently for each line item presented rather than presenting vertical subtotals for the individual volume and rate columns.Changes attributable to changes in volume represent changes in average balances multiplied by the prior period’s average rates. Changes attributable to changes in rate represent changes in average rates multiplied by the prior year’s average balances. Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate.

~~-41-~~-53-

Net interest and fee margin.The following table summarizes the Company’s net interest and fee income as an annualized percentage of average total finance receivables for the three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016.~~March 31, 2019.


	Three Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Interest income	$	22,363		$	18,803		$	26,465		$	25,883
Fee income		3,780			3,944			2,766			4,042

Interest and fee income		26,143			22,747			29,231			29,925
Interest expense		3,000			2,055			5,680			5,962

Net interest and fee income	$	23,143		$	20,692		$	23,551		$	23,963

Average total finance receivables⁽¹⁾	$	862,718		$	732,346		$	1,008,823		$	999,432

Annualized percent of average total finance receivables:
Interest income		10.37	%		10.27	%		10.49	%		10.36	%
Fee income		1.75			2.15			1.10			1.62

Interest and fee income		12.12			12.42			11.59			11.98
Interest expense		1.39			1.12			2.25			2.39

Net interest and fee margin		10.73	%		11.30	%		9.34	%		9.59	%

⁽¹⁾	Total finance receivables include net investment in ~~direct financing~~ leases and loans. For the calculations above, the effects of (i) the allowance for credit losses and (ii) initial direct costs and fees deferred are excluded.

Net interest and fee income ~~increased $2.4~~decreased $0.4 million, or ~~11.6%~~1.7%, to ~~$23.1~~$23.6 million for the three months ended ~~September 30, 2017~~March 31, 2020 from ~~$20.7~~$24.0 million for the three months ended ~~September 30, 2016.~~March 31, 2019. The annualized net interest and fee margin decreased 5725 basis points to ~~10.73%~~9.34% in the three-month period ended ~~September 30, 2017~~March 31, 2020 from ~~11.30%~~9.59% for the corresponding period in ~~2016.~~2019.

Interest income, net of amortized initial direct costs and fees, was ~~$22.4~~$26.5 million and ~~$18.8~~$25.9 million for the three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016,~~March 31, 2019, respectively. Average total finance receivables increased ~~$130.4~~$9.4 million, or ~~17.8%~~0.9%, to ~~$862.7~~$1,008.8 million at ~~September 30, 2017~~March 31, 2020 from ~~$732.3~~$999.4 million at ~~September 30, 2016.~~March 31, 2019. The increase in average total finance receivables was primarily due to origination volume ~~continuing to exceed~~exceeding lease ~~repayments.~~and loan repayments, sales and charge-offs. The average yield on the portfolio increased ~~due~~13 basis points to ~~higher yields on~~10.49% from 10.36% in the ~~new leases and loans compared to the yields on the leases and loans repaying.~~prior year quarter. The weighted average implicit interest rate on new finance receivables originated was ~~12.23%~~12.45% and ~~11.70%~~12.76% for the three-month periods ended ~~September 30, 2017,~~March 31, 2020, and ~~September 30, 2016,~~March 31, 2019, respectively. As our origination volumes have been negatively impacted by theCOVID-19 pandemic, our portfolio of finance receivables and related incomes may decline in the second quarter of 2020. Any returns to normal levels of origination activity, and our ability to replenish or grow our portfolio, remains uncertain.

Fee income was ~~$3.8~~$2.8 million and ~~$3.9~~$4.0 million for the three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016,~~March 31, 2019, respectively. Fee income included approximately ~~$0.9 million and $1.1~~$1.0 million of net residual income for the three-month ~~periods~~period ended ~~September 30, 2017~~March 31, 2019. For 2020, after the adoption of CECL, all future cashflows from the Company’s pools of loans are included in the measurement of the allowance, including future cashflows from net residual income. Amounts of residual income are presented within the rollforward of the Allowance, as discussed further in “—Finance Receivables and ~~September 30, 2016, respectively.~~Asset Quality”

Fee income also included approximately ~~$2.3~~$2.1 million and ~~$2.4~~$2.3 million in late fee income for the three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016,~~March 31, 2019, respectively.

~~-42-~~

Fee income, as an annualized percentage of average total finance receivables, decreased 40 basis points to 1.75% for the three-month period ended September 30, 2017 from 2.15% for the corresponding period in 2016. Late fees remained the largest component of fee income at ~~1.07%~~0.85% as an annualized percentage of average total finance receivables for the three-month period ended ~~September 30, 2017,~~March 31, 2020, compared to ~~1.29%~~0.94% for the three-month period ended ~~September 30, 2016. As an annualized percentage of average total finance receivables, net residual income was 0.43%~~March 31, 2019.

-54-

Interest expense decreased $0.3 million to $5.7 million for the three-month period ended ~~September 30, 2017, compared to 0.58%~~March 31, 2020 from $6.0 million for the ~~three-month~~corresponding period ~~ended September 30, 2016.~~

Interest expense increased $0.9 million to $3.0 million, or 1.49% as an annualized percentage of average deposits, for the three-month period ended September 30, 2017, from $2.1 million, or 1.24% as an annualized percentage of average deposits, for the three-month period ended September 30, 2016. The increase wasin 2019, primarily due to a decrease in interest expense of $0.6 million on lower outstanding long-term borrowings offset by an increase ~~in the rate paid~~of $0.3 million on ~~interest bearing liabilities and to a lesser degree, the increase in the average balances of interest bearing liabilities.~~higher deposit balances. Interest expense, as an annualized percentage of average total finance receivables, ~~increased 27~~decreased 14 basis points to ~~1.39%~~2.25% for the three-month period ended ~~September 30, 2017,~~March 31, 2020, from ~~1.12%~~2.39% for the corresponding period in ~~2016.~~2019. The average balance of deposits was ~~$806.2~~$838.5 million and ~~$662.9~~$816.9 million for the three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016,~~March 31, 2019, respectively.

~~There were no~~For the three-month period ended March 31, 2020, average term securitization borrowings outstanding ~~for each~~were $69.8 million at a weighted average coupon of 4.24%. For the three-month ~~periods~~period ended ~~September 30, 2017, and September 30, 2016.~~March 31, 2019, average term securitization borrowings outstanding were $140.5 million at a weighted average coupon of 3.91%.

Our wholly-owned subsidiary, MBB, serves as our primary funding source. MBB raises fixed-rate and variable-rate FDIC-insured deposits via the brokered certificates of deposit market, on a direct basis, and through the brokered MMDA Product. At ~~September 30, 2017,~~March 31, 2020, brokered certificates of deposit represented approximately ~~55%~~52% of total deposits, while approximately ~~40%~~42% of total deposits were obtained from direct channels, and 5%6% were in the brokered MMDA Product.

Gain on Sale of Leases and Loans.Gain on sale of leases and loans was $2.3 million for the three-month period ended March 31, 2020, compared to $3.6 million for the three-month period ended March 31, 2019. Assets sold decreased to $22.9 million, for the first quarter of 2020 compared to $52.9 million for the first quarter of 2019, a 57% decrease. The amount of gain recognized declined by only 35%, reflecting a stronger margin realized on sales executed in the first quarter of 2020.

Our sales execution decisions, including the timing, volume and frequency of such sales, depend on many factors including our origination volumes, the characteristics of our contracts versus market requirements, our current assessment of our balance sheet composition and capital levels, and current market conditions, among other factors. In the current slowing economy resulting from theCOVID-19 pandemic, we may have difficulty accessing the capital market and may find decreased interest and ability of counterparties to purchase our contracts, or we may be unable to negotiate terms acceptable to us.

Insurance premiums written and earned.Insurance premiums written and earned increased $0.2 million to ~~$1.8~~$2.3 million for the three-month period ended ~~September 30, 2017~~March 31, 2020, from ~~$1.6~~$2.1 million for the three-month period ended ~~September 30, 2016,~~March 31, 2019, primarily due to an increase in the number of contracts enrolled in the insurance program as well as higher average ticket size. For all annual and interim periods, second quarter 2016 and prior, income and expense related to insurance premiums written and earned, insurance policy fees, deferred acquisition costs, premium taxes and provision for losses and loss adjustment expenses is recorded within the “Insurance premiums written and earned” line on the Consolidated Statement of Operations. Effective third quarter 2016, on a prospective basis, only insurance premiums written and earned were recorded to that line. Effective third quarter 2016, on a prospective basis, insurance policy fees were recorded to “Other income” and deferred acquisition costs, premium taxes and provision for losses and loss adjustment expenses were recorded in the “General and administrative” expense line.size driving higher premiums.

Other income. Other income was ~~$1.8~~$7.6 million and ~~$1.1~~$7.2 million for the three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016,~~March 31, 2019, respectively. Other income primarily includes various administrative transaction fees and fees received from referral of leases to third parties, and gain on sale of leases and servicing fee income, recognized as earned. Selected major components ofThe increase in other income was primarily driven by a $0.3 million increase in servicing income, driven by a higher portfolio serviced for the three-month period ended September 30, 2017 included $0.5 million of referral income, $0.5 million of insurance policy fees, and $0.5 million gain on the sale of leases and servicing fee income. In comparison, selected major components of other income for the three-month period ended September 30, 2016 included $0.1 million of referral income, $0.4 million of insurance policy fees, and $0.2 million gain on the sale of leases and servicing fee income.others.

Salaries and benefits expense. The following table summarizes the Company’s Salary and benefits expense:


	Three Months Ended March 31,
	2020		2019
	(Dollars in thousands)
Salary, benefits and payroll taxes	$	7,555	$	7,352
Incentive compensation		905		2,438
Commissions		1,059		1,661

Total	$	9,519	$	11,451

Salaries and benefits expense ~~increased $1.5~~decreased $2.0 million, or ~~19.2%~~17.4%, to ~~$9.3~~$9.5 million for the three-month period ended ~~September 30, 2017~~March 31, 2020 from ~~$7.8~~$11.5 million for the corresponding period in ~~2016.~~2019. Total personnel decreased to 339 at March 31, 2020 from 352 at March 31, 2019. Incentive compensation decreased $1.5 million, driven by lower recognized bonus and share-based compensation amounts primarily driven by the Company’s operating results. Commissions decreased $0.6 million, or 36% primarily driven by a 24% decrease in origination volume.

-55-

As previously announced, subsequent to quarter end, in April 2020, the Company temporarily reduced the salaries of certain executives and furloughed approximately 120 employees as part of a plan to adjust the Company’s expense base and ensure operating efficiency during theCOVID-19 crisis. The ~~increase was primarily due~~furlough period began on April 13, 2020 and is currently expected to ~~an increase~~continue through May 31, 2020.

General and administrative expense. The following table summarizes General and administrative expense:


	Three Months Ended March 31,
	2020		2019
	(Dollars in thousands)
Property taxes	$	6,012	$	6,241
Occupancy and depreciation		1,320		1,232
Professional fees		1,219		1,300
Information technology		986		1,059
Marketing		502		597
FDIC Insurance		274		130
Other G&A		3,292		2,795

Total	$	13,605	$	13,354

General and administrative expense increased $0.2 million, or 1.5%, to $13.6 million for the three months ended March 31, 2020 from $13.4 million for the corresponding period in ~~total personnel~~2019.

General and ~~increased compensation related to increased origination volume. Salaries and benefits~~administrative expense as an annualized percentage of average total finance receivables was ~~4.31%~~5.39% for the three-month period ended ~~September 30, 2017~~March 31, 2020, compared ~~with 4.27% for the corresponding period in 2016. Total personnel increased~~ to ~~331 at September 30, 2017 from 318 at September 30, 2016.~~

~~General and administrative expense.~~General and administrative expense increased $1.4 million, or 28.0%, to $6.4 million for the three months ended September 30, 2017 from $5.0 million for the corresponding period in 2016. General and administrative expense as an annualized

~~-43-~~

~~percentage of average total finance receivables was 2.97%~~5.34% for the three-month period ended ~~September 30, 2017, compared to 2.72% for~~March 31, 2019.

Goodwill impairment.In the ~~three-month period ended September 30, 2016. Selected major components~~first quarter of general and administrative expense for the three-month period ended September 30, 2017 included $0.9 million of premises and occupancy expense, $0.4 million of audit and tax compliance expense, $0.8 million of data processing expense, $0.4 million of marketing expense, $0.2 million of amortization expense, $0.1 million of legal fee expense, and $0.8 million of insurance-related expenses which include $0.4 million2020, driven by negative current events related to ~~Hurricane Harvey~~theCOVID-19 economic shutdown, the Company’s market capitalization falling below book value and ~~Hurricane Irma. In prior quarters, insurance-related expenses were recognized net in “Insurance premiums written and earned”. In comparison, selected major components~~other related impacts, the Company analyzed its goodwill for impairment. The Company concluded that the implied fair value of general and administrative expense for the three-month period ended September 30, 2016 included $0.8 million of premises and occupancy expense, $0.3 million of audit and tax compliance expense, $0.6 million of data processing expense, and $0.5 million of marketing expense, and $0.3 million of insurance-related expenses which were recognized net in “Insurance premiums written and earned” in prior quarters.

~~Financing-related costs.~~Financing-related costs primarily represent bank commitment fees paid to our financing sources on the unused portion of loan facilities. There were no financing-related costs for the three-month period ended September 30, 2017, compared togoodwill was less than ~~$0.1 million for the three-month period ended September 30, 2016.~~

~~Provision for credit losses.~~The provision for credit losses increased $2.6 million, or 83.9%, to $5.7 million for the three-month period ended September 30, 2017 from $3.1 million for the corresponding period in 2016. Lease portfolio losses tend to follow patterns based on the mix of origination vintages comprising the portfolio. The anticipated credit losses from the inception of a particular lease origination vintage to~~charge-off~~ generally follow a pattern of lower losses for the first few months, followed by increased losses in subsequent months, then lower losses during the later periods of the lease term. Therefore, the seasoning, or mix of origination vintages, of the portfolio affects the timingit’s carrying amount, and ~~amount of anticipated probable and estimable credit losses.~~

The increase in our provision for credit losses resulted from increased delinquency and charge-offs and to a lesser extent growth in the portfolio, and an additional $0.5 million for estimated inherent losses from the areas hardest hit by Hurricane Harvey and Hurricane Irma. This additional reserve is an estimate based on information currently available which includes information obtained from contacting affected customers.

~~Net charge-offs were $3.7 million for the three-month period ended September 30, 2017, compared to $2.5 million for the corresponding period in 2016. The increase incharge-off~~ ~~rate is primarily due~~recognized impairment equal to the ongoing seasoning of the portfolio as reflected in the mix of origination vintages and the mix of credit profiles. Net charge-offs as an annualized percentage of average total finance receivables increased to 1.73% during the three-month period ended September 30, 2017, from 1.36% for the corresponding period in 2016. The allowance for credit losses increased to approximately $14.5entire $6.7 million ~~at September 30, 2017, an increase of $3.6 million from $10.9 million at December 31, 2016.~~

~~Additional information regarding asset quality is included herein in the section “Finance Receivables and Asset Quality.”~~balance.

Provision for income taxes.Income tax ~~expense~~benefit of ~~$2.0 million and $3.0~~$7.4 million was recorded for the three-month ~~periods~~period ended ~~September 30, 2017 and September 30, 2016, respectively.~~March 31, 2020, compared to expense of $1.6 million for the three-month period ended March 31, 2019. For the three-month period ended March 31, 2020, the income tax benefit includes a $3.2 million discrete benefit, related to remeasuring our federal net operating losses, driven by certain provisions in the CARES Act. Our ~~effective~~statutory tax rate, which is a combination of federal and state income tax rates, was approximately ~~38.3% and 41.1%~~23.9% for both periods. However, our effective tax rate was 38.6% for the three-month ~~periods~~period ended ~~September 30, 2017 and September 30, 2016, respectively.~~

~~Comparison~~March 31, 2020, driven by the recognition of the ~~Nine-Month Periods Ended September 30, 2017 and September 30, 2016~~

~~Net income.~~ Net income of $9.4 million was reported for the nine-month period ended September 30, 2017, resulting in diluted EPS of $0.75, compared to net income of $12.5 million and diluted EPS of $1.00 for the nine-month period ended September 30, 2016. The decrease is primarily due to a $4.2 million estimated charge in first quarter 2017 for restitution expense in connection with MBB’s regulatory examination preliminary findings (See Note 8, Commitments and Contingencies, in the accompanying Notes to Consolidated Financial Statements). During the nine-months ended September 30, 2017, the Company increased its credit reserves and insurance reserves for estimated inherent losses by an additional $0.5 million and $0.4 million, respectively, based on its initial assessments of exposure to geographic areas significantly impacted by Hurricane Harvey and Hurricane Irma. The impact of this increase in reserves was a reduction of approximately $0.6 million in net income and $0.05 in net income per diluted share for the nine-month period ended September 30, 2017.discrete benefit.

~~-44-~~-56-

Return on average assets was 1.31% for the nine-month period ended September 30, 2017, compared to a return of 2.04% for the nine-month period ended September 30, 2016. Return on average equity was 7.66% for the nine-month period ended September 30, 2017, compared to a return of 10.84% for the nine-month period ended September 30, 2016.

Overall, our average net investment in total finance receivables for the nine-month period ended September 30, 2017 increased 17.8% to $831.7 million, compared to $705.9 million for the nine-month period ended September 30, 2016. This change was primarily due to origination volume continuing to exceed lease repayments. The~~end-of-period~~ ~~net investment in total finance receivables at September 30, 2017 was $886.4 million, an increase of $89.7 million, or 11.3%, from $796.7 million at December 31, 2016.~~

During the nine months ended September 30, 2017, we generated 22,336 new leases with equipment cost of $407.0 million, compared to 19,603 new leases with equipment cost of $333.7 million generated for the nine months ended September 30, 2016. Approval rates declined by 3% to 56% for the nine-month period ended September 30, 2017, compared to 59% for the nine-month period ended September 30, 2016.

For the nine-month period ended September 30, 2017 compared to the nine-month period ended September 30, 2016, net interest and fee income increased $6.9 million, or 11.4%, primarily due to a $10.0 million increase in interest income, partially offset by a $2.4 million increase in interest expense. The provision for credit losses increased $5.0 million, or 56.2%, to $13.9 million for the nine-month period ended September 30, 2017 from $8.9 million for the corresponding period in 2016, due to increased delinquency and charge-offs and to a lesser extent growth in the portfolio, and an additional $0.5 million for estimated inherent credit losses from the areas hardest hit by Hurricane Harvey and Hurricane Irma..

~~Average balances and net interest margin.~~The following table summarizes the Company’s average balances, interest income, interest expense and average yields and rates on major categories of interest-earning assets and interest-bearing liabilities for the nine-month periods ended September 30, 2017 and September 30, 2016.

~~-45-~~

   Nine Months Ended September 30,
   2017 2016
   (Dollars in thousands)
   Average
Balance⁽¹⁾    Interest    Average
Yields/
Rates⁽²⁾ Average
Balance⁽¹⁾    Interest    Average
Yields/
Rates⁽²⁾
Interest-earning assets:

Interest-earning deposits with banks
   $ 80,639    $ 446    0.73 % $ 71,323    $ 137    0.26 %
Time Deposits
   8,773    79    1.21 8,662    78    1.21
Restricted interest-earning deposits with banks
   —      —      —   82    —      0.08
Securities available for sale
   7,805    113    1.94 6,232    104    2.24
Net investment in leases⁽³⁾
   794,316    57,080    9.58 692,085    51,250    9.87
Loans receivable⁽³⁾
   37,401    6,743    24.04 13,794    2,952    28.53









Total interest-earning assets
   928,934    64,461    9.25 792,178    54,521    9.17









Non-interest-earning assets:

Cash and due from banks
   1,968       2,805
Intangible assets
   585       —
Goodwill
   553       —
Property and equipment, net
   3,905       3,777
Property tax receivables
   8,580       3,711
Other assets⁽⁴⁾
   14,942       11,662





Totalnon-interest-earning assets
   30,533       21,955





Total assets
   $ 959,467       $ 814,133





Interest-bearing liabilities:

Certificate of Deposits⁽⁵⁾
   $ 717,422    $ 7,566    1.41 % 580,631    $ 5,386    1.24 %
Money Market Deposits⁽⁵⁾
   46,716    386    1.10 52,168    218    0.56









Total interest-bearing liabilities
   764,138    7,952    1.39 632,799    5,604    1.18









Non-interest-bearing liabilities:

Sales and property taxes payable
   5,333       5,192
Accounts payable and accrued expenses
   12,058       6,002
Net deferred income tax liability
   14,327       16,833





Totalnon-interest-bearing liabilities
   31,718       28,027





Total liabilities
   795,856       660,826
Stockholders’ equity
   163,611       153,307





Total liabilities and stockholders’ equity
   $ 959,467       $ 814,133





Net interest income
      $ 56,509       $ 48,917
Interest rate spread⁽⁶⁾
         7.86 %       7.99 %
Net interest margin⁽⁷⁾
         8.09 %       8.21 %
Ratio of average interest-earning assets to average interest-bearing liabilities
         121.57 %       125.19 %

~~-46-~~

⁽¹⁾	~~Average balances were calculated using average daily balances.~~

⁽²⁾	~~Annualized.~~

⁽³⁾	~~Average balances of leases and loans includenon-accrual~~ leases and loans, and are presented net of unearned income. The average balances of leases and loans do not include the effects of (i) the allowance for credit losses and (ii) initial direct costs and fees deferred.

⁽⁴⁾	~~Includes operating leases.~~

⁽⁵⁾	~~Includes effect of transaction costs. Amortization of transaction costs is on a straight-line basis, resulting in an increased average rate whenever average portfolio balances are at reduced levels.~~

⁽⁶⁾	~~Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities.~~

⁽⁷⁾	~~Net interest margin represents net interest income as an annualized percentage of average interest-earning assets.~~

~~-47-~~

~~The following table presents the components of the changes in net interest income by volume and rate.~~

   Nine Months Ended September 30, 2017 Compared To
Nine Months Ended September 30, 2016
   Increase (Decrease) Due To:
   Volume⁽¹⁾    Rate⁽¹⁾    Total
   (Dollars in thousands)
Interest income:

Interest-earning deposits with banks
   $ 20    $ 289    $ 309
Time Deposits
   1    —      1
Securities available for sale
   24    (15 )    9
Net investment in leases
   7,384    (1,554 )    5,830
Loans receivable
   4,323    (532 )    3,791
Total interest income
   9,486    454    9,940
Interest expense:

Certificate of Deposits
   1,379    801    2,180
Money Market Deposits
   (25 )    193    168
Total interest expense
   1,274    1,074    2,348
Net interest income
   8,331    (739 )    7,592

⁽¹⁾

~~Changes due to volume and rate are calculated independently for each line item presented rather than presenting vertical subtotals for the individual volume and rate columns.~~Changes attributable to changes in volume represent changes in average balances multiplied by the prior period’s average rates. Changes attributable to changes in rate represent changes in average rates multiplied by the prior year’s average balances. Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate.

~~-48-~~

~~Net interest and fee margin.~~LIQUIDITYAND CAPITAL RESOURCESThe following table summarizes the Company’s net interest and fee income as an annualized percentage of average total finance receivables for the nine-month periods ended September 30, 2017 and 2016.

   Nine Months Ended
September 30,
   2017 2016
   (Dollars in thousands)
Interest income
   $ 64,461 $ 54,521
Fee income
   11,055 11,747


Interest and fee income
   75,516 66,268
Interest expense
   7,952 5,604


Net interest and fee income
   $ 67,564 $ 60,664


Average total finance receivables⁽¹⁾
   $ 831,718 $ 705,879
Percent of average total finance receivables:

Interest income
   10.31 % 10.30 %
Fee income
   1.77 2.22


Interest and fee income
   12.08 12.52
Interest expense
   1.27 1.06


Net interest and fee margin
   10.81 % 11.46 %

⁽¹⁾	Total finance receivables include net investment in direct financing leases and loans. For the calculations above, the effects of (i) the allowance for credit losses and (ii) initial direct costs and fees deferred are excluded.

Net interest and fee income increased $6.9 million, or 11.4%, to $67.6 million for the nine-month period ended September 30, 2017 from $60.7 million for the nine-month period ended September 30, 2016. The annualized net interest and fee margin decreased 65 basis points to 10.81% in the nine-month period ended September 30, 2017 from 11.46% for the corresponding period in 2016.

Interest income, net of amortized initial direct costs and fees, increased $10.0 million, or 18.3%, to $64.5 million for the nine-month period ended September 30, 2017 from $54.5 million for the nine-month period ended September 30, 2016. The increase in interest income was principally due to an increase in average yield of one basis point partially offset by a 17.8% increase in average total finance receivables, which increased $125.8 million to $831.7 million for the nine-months ended September 30, 2017 from $705.9 million for the nine-months ended September 30, 2016. The increase in average total finance receivables was primarily due to origination volume continuing to exceed lease repayments. The average yield on the portfolio increased, due to higher yields on the new leases compared to the yields on the leases repaying. The weighted average implicit interest rate on new finance receivables originated increased 40 basis points to 12.13% for the nine-month period ended September 30, 2017, compared to 11.73% for the nine-month period ended September 30, 2016.

Fee income decreased $0.6 million to $11.1 million for the nine-month period ended September 30, 2017, compared to $11.7 million for the nine-month period ended September 30, 2016. Fee income included approximately $2.7 million of net residual income for the nine-month period ended September 30, 2017 and $3.2 million for the nine-month period ended September 30, 2016.

Fee income also included approximately $6.6 million in late fee income for the nine-month period ended September 30, 2017, which decreased 5.7% from $7.0 million for the nine-month period ended September 30, 2016.

~~-49-~~

Fee income, as an annualized percentage of average total finance receivables, decreased 45 basis points to 1.77% for the nine-month period ended September 30, 2017 from 2.22% for the nine-month period ended September 30, 2016. Late fees remained the largest component of fee income at 1.06% as an annualized percentage of average total finance receivables for the nine-month period ended September 30, 2017, compared to 1.31% for the nine-month period ended September 30, 2016. As an annualized percentage of average total finance receivables, net residual income was 0.44% for the nine-month period ended September 30, 2017, compared to 0.61% for the nine-month period ended September 30, 2016.

Interest expense increased $2.4 million to $8.0 million, or 1.39% as an annualized percentage of average deposits, for the nine-month period ended September 30, 2017, from $5.6 million, or 1.18% as an annualized percentage of average deposits, for the nine-month period ended September 30, 2016. The increase was primarily due to an increase in the rate paid on interest bearing liabilities and to a lesser degree, the increase in the average balances of interest bearing liabilities. Interest expense, as an annualized percentage of average total finance receivables, increased 21 basis points to 1.27% for the nine-month period ended September 30, 2017, from 1.06% for the corresponding period in 2016. The average balance of deposits was $764.1 million and $632.8 million for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively.

~~There were no borrowings outstanding for each of the nine-month periods ended September 30, 2017, and September 30, 2016.~~

Our wholly-owned subsidiary, MBB, serves as our primary funding source. MBB raises fixed-rate and variable-rate FDIC-insured deposits via the brokered certificates of deposit market, on a direct basis, and through the brokered MMDA Product. At September 30, 2017, brokered certificates of deposit represented approximately 55% of total deposits, while approximately 40% of total deposits were obtained from direct channels, and 5% were in the brokered MMDA Product.

~~Insurance premiums written and earned.~~Insurance premiums written and earned increased $0.5 million to $5.3 million for the nine-month period ended September 30, 2017, from $4.8 million for the nine-month period ended September 30, 2016, primarily due to an increase in the number of contracts enrolled in the insurance program as well as higher average ticket size. For all annual and interim periods, second quarter 2016 and prior, income and expense related to insurance premiums written and earned, insurance policy fees, deferred acquisition costs, premium taxes and provision for losses and loss adjustment expenses is recorded within the “Insurance premiums written and earned” line on the Consolidated Statement of Operations. Effective third quarter 2016, on a prospective basis, only insurance premiums written and earned were recorded to that line. Effective third quarter 2016, on a prospective basis, insurance policy fees were recorded to “Other income” and deferred acquisition costs, premium taxes and provision for losses and loss adjustment expenses were recorded in the “General and administrative” expense line.

~~Other income.~~ Other income was $6.2 million and $2.0 million for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively. Other income primarily includes various administrative transaction fees and fees received from referral of leases to third parties, and gain on sale of leases and servicing fee income, recognized as earned. Selected major components of other income for the nine-month period ended September 30, 2017 included $2.2 million of referral income, $1.4 million of insurance policy fees, and $1.5 million gain on the sale of leases and servicing fee income. In comparison, selected major components of other income for the nine-month period ended September 30, 2016 included $0.4 million of referral income, $0.4 million of insurance policy fees, and $0.3 million gain on the sale of leases and servicing fee income.

~~Salaries and benefits expense.~~Salaries and benefits expense increased $4.0 million, or 16.8%, to $27.8 million for the nine-month period ended September 30, 2017 from $23.8 million for the corresponding period in 2016. The increase was primarily due to an increase in total personnel and increased compensation related to increased origination volume.

~~-50-~~

~~Total personnel increased to 331 at September 30, 2017 from 318 at September 30, 2016.~~

~~General and administrative expense.~~General and administrative expense increased $8.6 million, or 61.0%, to $22.7 million for the nine-month period ended September 30, 2017 from $14.1 million for the corresponding period in 2016. General and administrative expense as an annualized percentage of average total finance receivables was 3.63% for the nine-month period ended September 30, 2017, compared to 2.65% for the nine-month period ended September 30, 2016. Selected major components of general and administrative expense for the nine-month period ended September 30, 2017 included $2.6 million of premises and occupancy expense, $1.2 million of audit and tax compliance expense, $2.4 million of data processing expense, $1.4 million of marketing expense, $0.6 million of amortization expense, $0.9 million of legal fee expense, a $4.2 million estimated charge for restitution expense in connection with MBB’s regulatory examination preliminary findings (See Note 8, Commitments and Contingencies, in the accompanying Notes to Consolidated Financial Statements), and $1.5 million of insurance-related expenses which include $0.4 million related to Hurricane Harvey and Hurricane Irma. In prior periods, insurance-related expenses were recognized net in “Insurance premiums written and earned”. In comparison, selected major components of general and administrative expense for the nine-month period ended September 30, 2016 included $2.5 million of premises and occupancy expense, $1.0 million of audit and tax compliance expense, $1.7 million of data processing expense, and $1.5 million of marketing expense, and $0.3 million of insurance-related expenses which were recognized net in “Insurance premiums written and earned” in prior quarters.

~~Financing-related costs.~~Financing-related costs primarily represent bank commitment fees paid to our financing sources on the unused portion of loan facilities. There were no financing-related costs for the nine-month period ended September 30, 2017, compared to $0.1 million for the corresponding period in 2016..

~~Provision for credit losses.~~The provision for credit losses increased $5.0 million, or 56.2%, to $13.9 million for the nine-month period ended September 30, 2017 from $8.9 million for the corresponding period in 2016. Lease portfolio losses tend to follow patterns based on the mix of origination vintages comprising the portfolio. The anticipated credit losses from the inception of a particular lease origination vintage to~~charge-off~~ generally follow a pattern of lower losses for the first few months, followed by increased losses in subsequent months, then lower losses during the later periods of the lease term. Therefore, the seasoning, or mix of origination vintages, of the portfolio affects the timing and amount of anticipated probable and estimable credit losses.

~~Net charge-offs were $10.3 million for the nine-month period ended September 30, 2017, compared to $7.2 million for the corresponding period in 2016. The increase incharge-off~~ rate is primarily due to the ongoing seasoning of the portfolio as reflected in the mix of origination vintages and the mix of credit profiles. Net charge-offs as an annualized percentage of average total finance receivables increased to 1.65% during the nine-month period ended September 30, 2017, from 1.36% for the corresponding period in 2016. The allowance for credit losses increased to approximately $14.5 million at September 30, 2017, an increase of $3.6 million from $10.9 million at December 31, 2016.

~~Additional information regarding asset quality is included herein in the section “Finance Receivables and Asset Quality.”~~

~~Provision for income taxes.~~Income tax expense of $5.3 million was recorded for the nine-month period ended September 30, 2017, compared to an expense of $8.1 million for the corresponding period in 2016. Our effective tax rate, which is a combination of federal and state income tax rates, was approximately 35.9% for the nine-month period ended September 30, 2017, compared to 39.4% for the nine-month period ended September 30, 2016.The decrease was primarily due to a decrease in pretax income and, to a lesser extent, excess tax benefits pertaining to share-based payment arrangements that were recognized in income tax expense instead of~~additional-paid-in-capital~~ ~~because of the January 1, 2017 adoption of ASU2016-09.~~

~~-51-~~

~~FINANCE RECEIVABLES AND ASSET QUALITY~~

Our net investment in leases and loans increased $89.7 million, or 11.3%, to $886.4 million at September 30, 2017 from $796.7 million at December 31, 2016. We continue to monitor our credit underwriting guidelines in response to current economic conditions, and we continue to develop our sales organization to increase originations.

~~-52-~~

~~The chart which follows provides our asset quality statistics for each of thethree-and~~ ~~nine-month periods ended September 30, 2017 and September 30, 2016, and the year ended December 31, 2016:~~

   Three Months Ended Nine Months Ended Year Ended
   September 30, September 30, December 31,
   2017 2016 2017 2016 2016
   (Dollars in thousands)
Allowance for credit losses, beginning of period
   $ 12,559 $ 9,430 $ 10,937 $ 8,413 $ 8,413


Charge-offs
   (4,368 ) (3,062 ) (12,111 ) (9,060 ) (12,387 )
Recoveries
   633 568 1,800 1,840 2,497


Net charge-offs
   (3,735 ) (2,494 ) (10,311 ) (7,220 ) (9,890 )


Provision for credit losses
   5,680 3,137 13,878 8,880 12,414


Allowance for credit losses, end of period
   (1 ) $ 14,504 $ 10,073 $ 14,504 $ 10,073 $ 10,937


Annualized net charge-offs to average total finance receivables
   (2 ) 1.73 % 1.36 % 1.65 % 1.36 % 1.37 %
Allowance for credit losses to total finance receivables, end of period
   (2 ) 1.64 % 1.33 % 1.64 % 1.33 % 1.38 %
Average total finance receivables
   (2 ) $ 862,718 $ 732,346 $ 831,718 $ 705,879 $ 720,060
Total finance receivables, end of period
   (2 ) $ 883,778 $ 756,144 $ 883,778 $ 756,144 $ 793,285
Delinquencies greater than 60 days past due
   $ 6,157 $ 3,885 $ 6,157 $ 3,885 $ 4,137
Delinquencies greater than 60 days past due
   (3 ) 0.61 % 0.45 % 0.61 % 0.45 % 0.46 %
Allowance for credit losses to delinquent accounts greater than 60 days past due
   (3 ) 235.57 % 259.28 % 235.57 % 259.28 % 264.37 %
Non-accrual leases and loans, end of period
   $ 2,950 $ 2,022 $ 2,950 $ 2,022 $ 2,242
Renegotiated leases and loans, end of period
   (4 ) $ 2,543 $ 350 $ 2,543 $ 350 $ 769
Accruing leases and loans past due 90 days or more
   $ —   $ —   $ —   $ —   $ —
Interest income included onnon-accrual leases and loans
   (5 ) $ 37 $ 21 $ 198 $ 111 $ 207
Interest income excluded onnon-accrual leases and loans
   (6 ) $ 35 $ 23 $ 48 $ 40 $ 53

⁽¹⁾	~~At September 30, 2017, December 31, 2016, and September 30, 2016 the allowance for credit losses allocated to Funding Stream loans was $1.1 million, $0.8 million, and $0.7 million, respectively.~~

⁽²⁾	Total finance receivables include net investment in direct financing leases and loans. For purposes of asset quality and allowance calculations, the effects of (i) the allowance for credit losses and (ii) initial direct costs and fees deferred are excluded.

⁽³⁾	~~Calculated as a percentage of total minimum lease payments receivable for leases and as a percentage of principal outstanding for loans.~~

~~-53-~~

⁽⁴⁾	~~As of September 30, 2017, there were $1.6 million of restructures due to Hurricane Harvey and Hurricane Irma.~~

⁽⁵⁾	~~Represents interest which was recognized during the period onnon-accrual~~ ~~loans and leases, prior tonon-accrual~~ ~~status.~~

⁽⁶⁾	~~Represents interest which would have been recorded onnon-accrual~~ ~~loans and leases had they performed in accordance with their contractual terms during the period.~~

~~Net investments in finance receivables are generallycharged-off~~ when they are contractually past due for 120 days or more. Income recognition is discontinued on leases or loans when a default on monthly payment exists for a period of 90 days or more. Income recognition resumes when a lease or loan becomes less than 90 days delinquent.

Funding Stream loans are generally placed in non-accrual status when they are 30 days past due. The loan is removed from non-accrual status once sufficient payments are made to bring the loan current and reviewed by management.

In the third quarter of 2017 we booked additional reserves for estimated inherent credit losses of $0.5 million based on our assessment of information available at the time on our lease portfolio’s exposure to those geographic areas most impacted by Hurricane Harvey and Hurricane Irma in August 2017 and September 2017, respectively. Marlin estimates that it has approximately $60.2 million in net investment in leases outstanding in the areas most affected by Hurricane Harvey and Hurricane Irma. The additional Hurricane Harvey and Hurricane Irma reserve is the primary cause of the increase in the allowance for credit losses as a percentage of total finance receivables to increase to 1.64% at September 30, 2017 from 1.38% at December 31, 2016.

Net charge-offs for the three months ended September 30, 2017 were $3.7 million (1.73% of average total finance receivables on an annualized basis), compared to $3.4 million (1.65% of average total finance receivables on an annualized basis) for the three months ended June 30, 2017 and $2.5 million (1.36% of average total finance receivables on an annualized basis) for the three months ended September 30, 2016. Lease portfolio losses tend to follow patterns based on the mix of origination vintages comprising the portfolio. The timing of credit losses from the inception of a particular lease origination vintage to~~charge-off~~ generally follows a pattern of lower losses for the first few months, followed by increased losses in subsequent months, then lower losses during the later periods of the lease term. Therefore, the seasoning, or mix of origination vintages, of the portfolio affects the timing and amount of charge-offs.

Net charge-offs for the nine-month period ended September 30, 2017 were $10.3 million (1.65% of average total finance receivables on an annualized basis), compared to $7.2 million (1.36% of average total finance receivables on an annualized basis) for the nine-month period ended September 30, 2016. The increase in~~charge-off~~ ~~rate is partially due to the ongoing seasoning of the portfolio as reflected in the mix of origination vintages and the mix of credit profiles, as discussed above.~~

Delinquent accounts 60 days or more past due (as a percentage of minimum lease payments receivable for leases and as a percentage of principal outstanding for loans) were 0.61% at September 30, 2017 and 0.46% at December 31, 2016, compared to 0.45% at September 30, 2016.

In accordance with the Contingencies and Receivables Topics of the FASB ASC, we maintain an allowance for credit losses at an amount sufficient to absorb losses inherent in our existing lease and loan portfolios as of the reporting dates based on our projection of probable net credit losses. The factors and trends discussed above were included in the Company’s analysis to determine its allowance for credit losses. (See “Critical Accounting Policies.”)

~~RESIDUAL PERFORMANCE~~

Our leases offer our end user customers the option to own the equipment at lease expiration. As of September 30, 2017, approximately 70% of our leases were one dollar purchase option leases, 29% were fair market value leases and less than 1% were fixed purchase option leases, the latter of which typically contain an~~end-of-term~~ purchase option equal to 10% of the original equipment cost. As of September 30, 2017, there were $26.8 million of residual assets retained on our Consolidated Balance Sheet, of which $22.7 million, or 84.4%, were related to copiers. As of December 31, 2016, there were $26.8 million of residual assets retained on our Consolidated Balance Sheet, of which $22.5 million, or 83.8%, were related to copiers. No other group of equipment represented more than 10% of equipment residuals as of September 30, 2017 and December 31, 2016. Improvements in technology and other market changes, particularly in copiers, could adversely impact our ability to realize the recorded residual values of this equipment.

~~-54-~~

Fee income included approximately $0.9 million and $1.1 million of net residual income for the three-month periods ended September 30, 2017 and September 30, 2016, respectively. Fee income included approximately $2.7 million and $3.2 million of net residual income for the nine-month periods ended September 30, 2017 and September 30, 2016, 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 as further described below.

Our leases generally include 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 $1.2 million and $1.3 million for the three-month periods ended September 30, 2017 and September 30, 2016, respectively. Renewal income net of depreciation totaled approximately $3.5 million and $3.8 million for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively.

For the three months ended September 30, 2017 and September 30, 2016, the net loss on residual values disposed at end of term totaled $0.2 million and $0.2 million, respectively. For the nine months ended September 30, 2017, the net loss on residual values disposed at end of term totaled $0.8 million, compared to a net loss of $0.6 million for the nine months ended September 30, 2016. The primary driver of the changes was a shift in the mix of the amounts, types and age of equipment disposed at the end of the applicable lease term. Historically, our net residual income has exceeded 100% of the residual recorded on such leases. Management performs periodic reviews of the estimated residual values and historical realization statistics no less frequently than quarterly. There was no impairment recognized on estimated residual values during the nine-month periods ended September 30, 2017 and September 30, 2016, respectively.

~~LIQUIDITY AND CAPITAL RESOURCES~~

Our business requires a substantial amount of ~~cash~~liquidity and capital to operate and grow. Our primary liquidity need is to fund new ~~originations. In addition,~~originations; however, we ~~need~~also utilize liquidity ~~to pay interest and principal on~~for our financing needs (including our deposits and ~~borrowings, to pay fees and expenses incurred in connection with our financing transactions,~~long term deposits), to fund infrastructure and technology investment, to pay dividends and to pay administrative and other ~~operating~~non-interest expenses.

As a result of the uncertainties surrounding the actual and potential impacts ofCOVID-19 on our business and financial condition, we raised additional liquidity through the issuance of FDIC-insured deposits and we increased our borrowing capacity at the Federal Reserve Discount Window.

We are dependent upon the availability of financing from a variety of funding sources to satisfy these liquidity needs. Historically, we have relied upon ~~four~~five principal types of external funding sources for our operations:

FDIC-insured deposits issued by our wholly-owned subsidiary, MBB;

borrowings under various bank facilities;

financing of leases and loans in various warehouse facilities (all of which have since been repaid in full); ~~and~~

financing of leases through term note ~~securitizations (all~~securitizations; and

sale of ~~which have been repaid in full).~~leases and loans through our capital markets capabilities

Deposits issued by MBB represent our primary funding source for new originations, primarily through the issuance of FDIC insured deposits.

MBB also offers an FDIC-insured MMDA Product as another source of deposit funding. This product is offered through participation in a partner bank’s insured savings account product to clients of that bank. It is a brokered account with a variable interest rate, recorded as a single deposit account at MBB. Over time, MBB may offer other products and services to the Company’s customer base. MBB is a Utah state-chartered, Federal Reserve member commercial bank. As such, MBB is supervised by both the Federal Reserve Bank of San Francisco and the Utah Department of Financial Institutions.

On January 13, 2009, Marlin Business Services Corp. became a bank holding company and is subject to the Bank Holding Company Act and supervised by the Federal Reserve Bank of Philadelphia. On September 15, 2010, the Federal Reserve Bank of Philadelphia confirmed the effectiveness of Marlin Business Services Corp.’s election to become a financial holding company (while remaining a bank holding company) pursuant to Sections 4(k) and (l) of the Bank Holding Company Act and Section 225.82 of the Federal Reserve Board’s Regulation Y. Such election permits Marlin Business Services Corp. to engage in activities that are financial in nature or incidental to a financial activity, including the maintenance and expansion of our reinsurance activities conducted through our wholly-owned subsidiary, AssuranceOne.

~~-55-~~

~~The Company~~We declared a dividend of $0.14 per share on ~~July 27, 2017.~~January 30, 2020. The quarterly dividend was paid on ~~August 17, 2017~~February 20, 2020 to shareholders of record on the close of business on ~~August 7, 2017,~~February 10, 2020, which resulted in a dividend payment of approximately ~~$1.8~~$1.7 million. It represented the Company’s ~~twenty-fourth~~thirty-fourth consecutive quarterly cash dividend.

At ~~September 30, 2017,~~March 31, 2020, we had approximately $25.0 million of available borrowing capacity from a federal funds line of credit with a correspondent bank in addition to available cash and cash equivalents of ~~$82.9~~$211.1 million. This amount excludes additional liquidity that may be provided by the issuance of insured deposits through MBB.

Our debt to equity ratio was 5.33 to 1 at March 31, 2020 and 4.26 to 1 at December 31, 2019.

Net cash used in investing activities was ~~$120.4~~$5.2 million for the ~~nine-month~~three-month period ended ~~September 30, 2017,~~March 31, 2020, compared to net cash used in investing activities of ~~$94.3~~$29.8 million for the ~~nine-month~~three-month period ended ~~September 30, 2016.~~March 31, 2019. The decrease in cash ~~flows~~outflows from investing activities is primarily due to ~~an additional $91.6~~a decrease of $41.0 million for purchases of equipment for lease contracts partially offset by a reduction of $24.0 million in proceeds from sales of leases originated for investment. The decrease in purchases of equipment ~~for direct financing lease contracts and funds used to originate loans partially offset~~was primarily driven by $49.6 million more of principal collections on leases and loans due to higher average finance receivables. Included in the purchases of equipment for direct financing lease contracts and funds used to originate loans was $7.6 million and $8.5 million of deferred initial direct costs and feeslower origination volumes for the ~~nine-month period~~three months ended ~~September 30, 2017~~March 31, 2020 compared to 2019, and ~~2016, respectively. Investing activities~~the reduction in proceeds from sales was driven by lower volumes of sales, driven primarily relate to leasing activities. The Company transferred $28.0 million and $6.0 million of leases originated for investment to held for sale during the nine-month period ended September 30, 2017 and 2016, respectively.by our execution decisions.

Net cash provided by financing activities was ~~$102.0~~$82.5 million for the ~~nine-month~~three-month period ended ~~September 30, 2017,~~March 31, 2020, compared to net cash provided by financing activities of ~~$83.5~~$60.3 million for the ~~nine-month~~three-month period ended ~~September 30, 2016.~~March 31, 2019. The increase in cash flows from financing activities is primarily due to an increase of $18.5 million in deposits and a ~~$20.6~~decrease of $7.1 million ~~increase in deposits.~~of term securitization repayments offset by $3.4 million of additional repurchases of common stock. Financing activities also include ~~net advances and repayments on our various deposit and borrowing sources and~~ transactions related to the Company’s ~~common stock, such as repurchasing common stock and paying~~payment of dividends.

~~Additional liquidity is provided by or used by our cash flow from operations.~~ Net cash provided by operating activities was ~~$39.6~~$10.2 million for the ~~nine-month~~three-month period ended ~~September 30, 2017,~~March 31, 2020, compared to net cash provided by operating activities of ~~$28.3~~$12.5 million for the ~~nine-month~~three-month period ended ~~September 30, 2016. The increase in~~March 31, 2019. Transactions affecting net cash ~~flows from~~provided by operating activities ~~is primarily due to an increase in the~~including goodwill impairment, provision for credit ~~loss, proceeds from sale of~~losses, changes in income tax liability and leases originated for sale and ~~change~~proceeds thereof are discussed in ~~other liabilities.~~detail in the notes to the Consolidated Financial Statements.

-57-

We expect cash from operations, additional borrowings on existing and future credit facilities and funds from deposits issued through brokers, direct deposit sources, and the MMDA Product to be adequate to support our operations and projected growth for the next 12 months and the foreseeable future.

Total Cash and Cash Equivalents.Our objective is to maintain an adequate level of cash, investing any free cash in ~~leases.~~leases and loans. We primarily fund our originations and growth using FDIC-insured deposits issued through MBB. Total cash and cash equivalents available as of ~~September 30, 2017~~March 31, 2020 totaled ~~$82.9~~$211.1 million, compared to ~~$61.8~~$123.1 million at December 31, ~~2016.~~2019.

Time Deposits with Banks.Time deposits with banks are primarily composed of FDIC-insured certificates of deposits that have original maturity dates of greater than 90 days. Generally, the certificates of deposits have the ability to redeem early, however, early redemption penalties may be incurred. Total time deposits as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 totaled ~~$8.4~~$13.7 million and ~~$9.6~~$12.9 million, respectively.

Restricted Interest-Earning Deposits with Banks. As of March 31, 2020 and December 31, 2019, we had $6.5 million and $6.9 million, respectively, of cash that was classified as restricted interest-earning deposits with banks. Restricted interest-earning deposits with banks consist primarily of various trust accounts related to our secured debt facilities. Therefore, these balances generally decline as the term securitization borrowings are repaid.

~~-56-~~

Borrowings.Our primary borrowing relationship requires the pledging of eligible lease and loan receivables to secure amounts advanced. ~~We had no outstanding~~Our secured borrowings amounted to $62.6 million at ~~September 30, 2017~~March 31, 2020 and $76.6 million at December 31, ~~2016.~~2019. Information pertaining to our borrowing facilities is as follows:

   For the Nine Months Ended September 30, 2017 As of September 30, 2017
   Maximum
Facility
Amount    Maximum
Month End
Amount
Outstanding    Average
Amount
Outstanding    Weighted
Average
Rate⁽²⁾ Amount
Outstanding    Weighted
Average
Rate⁽²⁾ Unused
Capacity⁽¹⁾
   (Dollars in thousands)
Federal funds purchased
   $ 25,000    $ —      $ —      —   % $ —      —   % $ 25,000








   $ 25,000       $ —      —   % $ —      —   % $ 25,000


	For the Three Months Ended March 31, 2020									As of March 31, 2020
	Maximum Facility Amount		Maximum Month End Amount Outstanding		Average Amount Outstanding		Weighted Average Rate⁽³⁾			Amount Outstanding		Weighted Average Rate⁽²⁾			Unused Capacity⁽¹⁾
	(Dollars in thousands)
Federal funds purchased	$	25,000	$	—	$	—		—	%	$	—		—	%	$	25,000
Term note securitizations⁽⁴⁾		—		71,721		69,751		4.24	%		62,555		3.62	%		—
Revolving line of credit		5,000		—		—		—	%		—		—	%		5,000

	$	30,000	$	71,721	$	69,751		4.24	%	$	62,555		3.62	%	$	30,000

⁽¹⁾

Does not include MBB’s access to the Federal Reserve Discount Window, which is based on the amount of assets MBB chooses to pledge. Based on assets pledged at ~~September 30, 2017,~~March 31, 2020, MBB had ~~$31.1~~$47.8 million in unused, secured borrowing capacity at the Federal Reserve Discount Window. Additional liquidity that may be provided by the issuance of insured deposits is also excluded from this table.

⁽²⁾	Does not include transaction costs.

⁽³⁾	Includes transaction costs.

⁽⁴⁾	Our term note securitizations areone-time fundings that pay down over time without any ability for us to draw down additional amounts.

-58-

Federal Funds Line of Credit with Correspondent Bank

MBB has established a federal funds line of credit with a correspondent bank. This line allows for both selling and purchasing of federal funds. The amount that can be drawn against the line is limited to $25.0 million.

Federal Reserve Discount Window

In addition, MBB has received approval to borrow from the Federal Reserve Discount Window based on the amount of assets MBB chooses to pledge. MBB had ~~$31.1~~$47.8 million in unused, secured borrowing capacity at the Federal Reserve Discount Window, based on ~~$35.1~~$55.1 million of net investment in leases pledged at ~~September 30, 2017.~~March 31, 2020.

Term Note Securitizations

~~-57-~~

On July 27, 2018 we completed a $201.7 million asset-backed term securitization. It provides the company with fixed-cost borrowing with the objective of diversifying its funding sources and is recorded in long-term borrowings in the Consolidated Balance Sheet.

In connection with this securitization transaction, we transferred leases to our bankruptcy remote special purpose wholly-owned subsidiary (“SPE”) and issued term debt collateralized by such commercial leases to institutional investors in a private securities offering. The SPE is considered variable interest entity (“VIE”) under U.S. GAAP. We continue to service the assets of our VIE and retain equity and/or residual interests. Accordingly, assets and related debt of the VIE is included in the accompanying Consolidated Balance Sheets. Collateral in excess of our borrowings under the securitization transaction represents our maximum loss exposure and there is no further recourse to our general credit. At March 31, 2020 and December 31, 2019 outstanding term securitizations amounted to $62.2 million and $76.1 million, respectively and the Company was in compliance with terms of the term note securitization agreement. See Note 10 – Debt and Financing Arrangements in the accompanying Consolidated Financial Statements for detailed information regarding of our term note securitization

Bank Capital and Regulatory Oversight

~~On January 13, 2009, we became a bank holding company by order of the Federal Reserve Board and~~We are subject to regulation under the Bank Holding Company ~~Act. All~~Act and all of our subsidiaries may be subject to examination by the Federal Reserve Board and the Federal Reserve Bank of Philadelphia even if not otherwise regulated by the Federal Reserve Board. On September 15, 2010, the Federal Reserve Bank of Philadelphia confirmed the effectiveness of our election to become a financial holding company (while remaining a bank holding company) pursuant to Sections 4(k) and (l) of the Bank Holding Company Act and Section 225.82 of the Federal Reserve Board’s Regulation Y. Such election permits us to engage in activities that are financial in nature or incidental to a financial activity, including the maintenance and expansion of our reinsurance activities conducted through our wholly-owned subsidiary, AssuranceOne.

MBB is also subject to comprehensive federal and state regulations dealing with a wide variety of subjects, including minimum capital standards, reserve requirements, terms on which a bank may engage in transactions with its affiliates, restrictions as to dividend payments and numerous other aspects of its operations. These regulations generally have been adopted to protect depositors and creditors rather than shareholders.

~~There are a number of restrictions on bank holding companies that are designed to minimize potential loss to depositors~~At March 31, 2020, Marlin Business Service Corp and the FDIC insurance funds. If an FDIC-insured depository subsidiary is “undercapitalized,” the bank holding company is required to ensure (subject to certain limits) the subsidiary’s compliance with the terms of any capital restoration plan filed with its appropriate banking agency. Also, a bank holding company is required to serve as a source of financial strength to its depository institution subsidiaries and to commit resources to support such institutions in circumstances where it might not do so absent such policy. Under the Bank Holding Company Act, the Federal Reserve Board has the authority to require a bank holding company to terminate any activity or to relinquish control of a~~non-bank~~ subsidiary upon the Federal Reserve Board’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of a depository institution subsidiary of the bank holding company.

~~Capital Adequacy~~. The Company and MBB operate under the Basel III capital adequacy standards adopted by the federal bank regulatory agencies effective on January 1, 2015. Under the risk-based capital requirements applicable to them, bank holding companies must maintain a ratio of total capital to risk-weighted assets (including the asset equivalent of certain~~off-balance~~ sheet activities such as acceptances and letters of credit) of not less than 8% (10% in order to be considered “well-capitalized”). The requirements include a 6% minimum Tier 1 risk-based ratio (8% to be considered well-capitalized). Tier 1 Capital consists of common stock, related surplus, retained earnings, qualifying perpetual preferred stock and minority interests in the equity accounts of certain consolidated subsidiaries, after deducting goodwill and certain other intangibles. The remainder of total capital (“Tier 2 Capital”) may consist of certain perpetual debt securities, mandatory convertible debt securities, hybrid capital instruments and limited amounts of subordinated debt, qualifying preferred stock, allowance for credit losses on loans and leases, allowance for credit losses on~~off-balance-sheet~~ ~~credit exposures and unrealized gains on equity securities.~~

The capital standards require a minimum Tier 1 leverage ratio of 4%. The capital requirements also require a common equity Tier 1 risk-based capital ratio with a required minimum of 4.5% (6.5% to be considered well-capitalized). The Federal Reserve Board’s guidelines also provide that bank holding companies experiencing internal growth or making acquisitions may be expected to maintain capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the guidelines indicate that the Federal Reserve Board will continue to consider a “tangible tier 1 leverage ratio” (~~i.e.~~~~, after deducting all intangibles) in evaluating proposals for expansion or new activities. MBB is subject to similar capital standards.~~

The Company is required to have a level of regulatory capital in excess of the regulatory minimum and to have a capital buffer above 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. If a banking organization does not maintain capital above the minimum plus the capital conservation buffer it may be subject to restrictions on dividends, share buybacks, and certain discretionary payments such as bonus payments.

~~At September 30, 2017,~~ MBB’s Tier 1 leverage ratio, common equity Tier 1 risk-based ratio, Tier 1 risk-based capital ratio and total risk-based capital ~~ratio were 13.64%, 14.38%, 14.38% and 15.64%, respectively, which exceeds~~ratios exceeded the requirements for well-capitalized ~~status~~status.

See MDA—Executive Summary for discussion of ~~5%, 6.5%, 8%~~updates to our capital requirements driven by the termination of the CMLA Agreement and 10%, respectively. At September 30, 2017, Marlin Business Services Corp.’s Tier 1 leverage ratio, common equity Tier 1 risk based ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio were 16.24%, 17.64%, 17.64% and 18.90%, respectively, which exceeds requirements for well-capitalized status of 5%, 6.5%, 8% and 10%, respectively.

~~Pursuant~~driven by our election to utilize the five-year transition related to the ~~FDIC Agreement entered into~~adoption of the CECL accounting standard. In addition, see Note 13—Stockholders’ Equity in ~~conjunction with~~ the ~~opening of MBB, MBB is required~~Notes to ~~keep its total risk-based capital ratio above 15%. MBB’s Tier 1 Capital balance~~Consolidated Financial Statements for additional information regarding these ratios and our levels at ~~September 30, 2017 was $131.1 million, which exceeds the regulatory threshold for “well capitalized” status.~~March 31, 2020.

~~-58-~~

Information on Stock Repurchases

Information on Stock Repurchases is provided in “Part II. Other Information, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds” herein.

Items Subsequent to ~~September 30, 2017~~March 31, 2020

~~As previously disclosed in the Company’s Form8-K~~ filed on October 13, 2017, the Company announced that Edward J. Siciliano is resigning from his position as Executive Vice President and Chief Operating Officer. In connection with his resignation, the Company and Mr. Siciliano have entered into a separation and general release agreement dated October 13, 2017. Under the separation and general release agreement, Mr. Siciliano’s employment with the Company will terminate on October 13, 2017. The Company anticipates a fourth quarter 2017~~after-tax~~ ~~charge of approximately $0.6 million due to a cash severance payment as defined by the separation and general release agreement.~~

~~Contractual Obligations~~

In addition to scheduled maturities on our deposits and credit facilities, we have future cash obligations under various types of contracts. We lease office space and office equipment under long-term operating leases. The contractual obligations under our certificates of deposits, credit facilities, operating leases, agreements and commitments under~~non-cancelable~~ ~~contracts as of September 30, 2017 were as follows:~~

   Contractual Obligations as of September 30, 2017
Period Ending December 31,
   Certificates
of
Deposits⁽¹⁾    Contractual
Interest
Payments⁽²⁾    Operating
Leases    Leased
Facilities    Capital
Leases    Total
   (Dollars in thousands)
2017
   $ 84,627    $ 2,687    $ 9    $ 396    $ 28    $ 87,747
2018
   307,583    8,073    35    1,454    112    317,257
2019
   197,288    4,634    35    1,412    112    203,481
2020
   95,197    2,276    8    678    112    98,271
2021
   60,400    990    —      —      65    61,455
Thereafter
   24,918    229    —      —      —      25,147












Total
   $ 770,013    $ 18,889    $ 87    $ 3,940    $ 429    $ 793,358

⁽¹⁾	~~Money market deposit accounts are not included. As of September 30, 2017, money market deposit accounts totaled $36.9 million.~~

⁽²⁾	~~Includes interest on certificates of deposits and borrowings.~~

~~There were nooff-balance~~ ~~sheet arrangements requiring disclosure at September 30, 2017.~~

-59-

MARKET INTEREST RATE RISK AND SENSITIVITY

Market risk is the risk of losses arising from changes in values of financial instruments. We engage in transactions in the normal course of business that expose us to market risks. We attempt to mitigate such risks through prudent management practices and strategies such as attempting to match the expected cash flows of our assets and liabilities.

We are exposed to market risks associated with changes in interest rates and our earnings may fluctuate with changes in interest rates. The lease and loan assets we originate are almost entirely fixed-rate. Accordingly, we generally seek to finance these assets primarily with fixed interest certificates of deposit issued by MBB, and to a lesser extent through the variable rate MMDA Product at MBB.

CRITICAL ACCOUNTING POLICIES

There have been no significant changes to our Critical Accounting Policies as described in our Form10-K for the year ended December 31, 2019, other than as discussed below.

Allowance for credit losses.

For 2019 and prior, we maintained an allowance for credit losses at an amount sufficient to absorb losses inherent in our existing lease and loan portfolios as of the reporting dates based on our estimate of probable incurred net credit losses in accordance with the Contingencies Topic of the FASB ASC. See further discussion of our policy under the incurred model in the “Critical Accounting Policy” section of our 2019 Form10-K.

Effective January 1, 2020, we adopted ASU2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”), which changed our accounting policy and estimated allowance. CECL replaces the probable, incurred loss model with a measurement of expected credit losses for the contractual term of the Company’s current portfolio of loans and leases. After the adoption of CECL, an allowance, or estimate of credit losses, will be recognized immediately upon the origination of a loan or lease, and will be adjusted in each subsequent reporting period

We maintain an allowance for credit losses at an amount that takes into consideration all future cashflows that we expect to receive or derive from the pools of contracts, including recoveries aftercharge-off, amounts related to initial direct cost and origination costs net of fees deferred, and certain future cashflows from residual assets. A provision is charged against earnings to maintain the allowance for credit losses at the appropriate level.

We developed a consistent, systematic methodology to measure our estimate of the credit losses inherent in our current portfolio, over the entire life of the contracts. We made certain key decisions that underly our methodology, including our decisions of how to aggregate our portfolio into pools for analysis based on similar risk characteristics, the selection of appropriate historical loss data to reference in the model, our selection of a model to calculate the estimate, a reasonable and supportable forecast, and the length of our forecast and approach to reverting to historical loss data.

For our Equipment Finance segment, we determine our reasonable and supportable forecast based on certain economic variables that were selected based on a statistical analysis of our own historical loss experience, going back to 2004. We selected unemployment rate and changes in the number of business bankruptcies as our economic variables, based on an analysis of the correlation of changes in those variables to our loss experience over time.

As part of our estimate of expected credit losses, specific to each measurement date, management considers relevant qualitative and quantitative factors to assess whether the historical loss experience being referenced should be adjusted to better reflect the risk characteristics of the current portfolio and the expected future loss experience for the life of these contracts. This assessment incorporates all available information relevant to considering the collectability of our current portfolio, including considering economic and business conditions, default trends, changes in portfolio composition, changes in lending policies and practices, among other internal and external factors. Further, each measurement period we determine whether to separate any loans from their current pool for individual analysis based on their unique risk characteristics. Our approach to estimating qualitative adjustments takes into consideration all significant current information we believe appropriate to reflect the changes and risks in the portfolio or environment and involves significant judgment.

-60-

Our estimates of expected net credit losses are inherently uncertain, and as a result we cannot predict with certainty the amount of such losses. We may recognize credit losses in excess of our reserve, or a significant increase to our credit loss estimate, in the future, driven by the update of assumptions and information underlying our estimate and/or driven by the actual amount of realized losses. Our estimate of credit losses will be revised each period to reflect current information, including current forecasts of economic conditions, changes in the risk characteristics and composition of the portfolio, and emerging trends in our portfolio, among other factors, and these updates for current information could drive a significant adjustment to our reserve. Further, actual credit losses may exceed our estimated reserve, and such excess may be significant, if the actual performance of our portfolio differs significantly from the current assumptions and judgements, including those underlying our forecast and qualitative adjustments, as of any given measurement date.

RECENTLY ADOPTED ACCOUNTING STANDARDS

Information on recently adopted accounting pronouncements and the expected impact on our financial statements is provided in Note

2, Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements.

-61-

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information appearing in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Interest Rate Risk and Sensitivity” under Item 2 of Part I of this Form10-Q is incorporated herein by reference.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.

Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures as of the end of the period covered by this report are designed and operating effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the 1934 Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with management’s evaluation that occurred during the Company’s ~~third~~first fiscal quarter of ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

We are party to various legal proceedings, which include claims and litigation arising in the ordinary course of business. In the opinion of management, these actions will not have a material impact on our business, financial condition, results of operations or cash flows.

Item 1A. Risk Factors

There have been no material changes in the risk factors disclosed in the Company’s ~~Annual Report on~~ Form10-K for the year ended December 31, ~~2016.~~2019, other than as discussed below.

The ongoingCOVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations and financial condition, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.

Global health concerns relating to theCOVID-19 pandemic and related government actions taken to reduce the spread of the virus have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty and reduced economic activity. The pandemic has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. Such measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act, but there can be no assurance that such steps will be effective or achieve their desired results

~~-61-~~-62-

in a timely fashion. We continue to evaluate newly enacted and monitor proposed government and banking regulations issued in response to theCOVID-19 pandemic; further changes in regulation that impact our business or that impact our customers could have a significant impact on our future operations and business strategies.

Our operations and financial results have already been negatively impacted as a result ofCOVID-19 pandemic, as discussed further in“ MDA – Overview” andMDA—Results of Operations”. The pandemic, reduction in economic activity, and current business limitations and shutdowns have increased risks to our business that include, but are not limited to:

Credit Risk. We extend credit primarily to small andmid-sized businesses, and many of our customers may be particularly susceptible to business limitations, shutdowns and possible recessions and may be unable to make scheduled lease or loan payments during these periods and may be at risk of discontinuing their operations. As a result, our delinquencies and credit losses may substantially increase. Our risk and exposure to future losses may be amplified to the extent economic activity remains shutdown for an extended period, or to the extent businesses have limited operations or are unable to return to normal levels of activity after the restrictions are lifted.

Our estimate of expected future credit losses recognized within our allowance as of March 31, 2020 is based on certain assumptions, forecasts and estimates about the impact of current economic conditions on our portfolio of receivables based on information known as of March 31, 2020, including certain expectations about the extent and timing of impacts fromCOVID-19. If those assumptions, forecasts or estimates underlying our financial statements are incorrect, we may experience significant losses as the ultimate realization of value, or revisions to our estimates, may be materially different than the amounts reflected in our consolidated statement of financial position as of any particular date.

Portfolio Risk. We are currently experiencing a significant decrease in demand for our lease and loan products as a result of theCOVID-19 pandemic, and we have limited visibility to the future recovery of such demand.

We have shifted the focus of portions of our operations and certain personnel to implement specific programs and new products in response to the pandemic. In particular, we have focused efforts on loan modifications and a payment deferral program, implemented a new PPP loan product, and increased customer service efforts to respond to our borrower’s needs. There can be no assurances that such efforts will be successful in mitigating any risk of credit loss.

Liquidity and Capital Risk.As of March 31, 2020, all of our capital ratios, and our subsidiary bank’s capital ratios, were in excess of all regulatory requirements. While we currently have sufficient capital, our reported and regulatory capital ratios could be adversely impacted by further credit losses and otherCOVID-19 related impacts on our operations. We are managing the evolving risks of our business while closely monitoring and forecasting the potential impacts ofCOVID-19 on our future operations and financial position, including capital levels. However, given the uncertainty about future developments and the extent and duration of the impacts ofCOVID-19 on our business and future operations, we face elevated risks to our ability to forecast and estimate future capital levels. If we fail to meet capital requirements in the future, our business, financial condition or results of operations may be adversely affected.

We have historically returned capital to shareholders through normal dividends, special dividends and share repurchases. There can be no assurances that these forms of capital returns are the optimal use of our capital or that they will continue in the future.

Operational Risk.The spread ofCOVID-19 has caused us to modify our business practices (including implementing certain business continuity plans, and developing work from home and social distancing plans for our employees), and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, customers and business partners. We face increased risk of any operational or procedural failures due to changes in our normal business practices necessitated by the pandemic.

These factors may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after theCOVID-19 pandemic has subsided.

The extent to which the coronavirus pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after theCOVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

-63-

There are no comparable recent events that provide guidance as to the effect the spread ofCOVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form

10-K for the year ended December 31, 2019.

-64-

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Information on Stock Repurchases

On ~~July 29, 2014,~~May 30, 2017, the Company’s Board of Directors approved a stock repurchase plan (the “2017 Repurchase Plan”) under which the Company was authorized to repurchase up to ~~$15~~$10 million in value of its outstanding shares of common ~~stock (the “2014~~stock. At September 30, 2019, there was no balance remaining in the 2017 Repurchase ~~Plan”).~~ Plan.

On ~~May 30, 2017,~~August 1, 2019, the Company’s Board of Directors approved a ~~new~~ stock repurchase plan ~~to replace the 2014 Repurchase Plan~~ (the ~~“2017~~“2019 Repurchase Plan”)~~. Under the 2017 Repurchase Plan,~~ under which the Company is authorized to repurchase up to $10 million in value of its outstanding shares of common stock. This authority may be exercised from time to time and in such amounts as market conditions warrant. Any shares purchased under this plan are returned to the status of authorized but unissued shares of common stock. The repurchases may be made on the open market, or in block ~~trades.~~trades or otherwise. The stock repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended ~~or discontinued~~ at any ~~time.~~time at the Company’s discretion. The repurchases are funded using the Company’s working capital. ~~During~~As of March 31, 2020, the Company had $4.7 million remaining in the 2019 Repurchase Plan.

The following table sets forth information regarding the Company’s repurchases of its common stock during the three months ended ~~September 30, 2017, the Company did not repurchase any of its common stock under the 2017 Repurchase Plan in the open market.~~March 31, 2020.


	Number of Shares Purchased		Average Price Paid Per Share⁽¹⁾		Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
Time Period
January 1, 2020 to
January 31, 2020		62,512	$	21.27	$	7,618,055
February 1, 2020 to
February 29, 2020		66,289	$	20.34	$	6,269,949
March 1, 2020 to
March 31, 2020		135,669	$	11.63	$	4,691,747
Total for the quarter ended
March 31, 2020		264,470	$	16.09

⁽¹⁾	Average price paid per share includes commissions and is rounded to the nearest two decimal places.

In addition to the repurchases described above, pursuant to the 2014 Equity Compensation Plan, participants may have shares withheld to cover income taxes. There were ~~3,660~~21,123 shares repurchased to cover income tax withholding in connection with the shares granted under the 2014 Equity Compensation Plan during the three-month period ended ~~September 30, 2017,~~March 31, 2020, at an average cost of ~~$26.73~~$ 13.38 per share.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

-65-

Item 5. Other Information

None

~~-62-~~-66-

Item 6. Exhibits


Exhibit Number		Description

3.1		Amended and Restated Articles of Incorporation⁽¹⁾

3.2		Amended and Restated Bylaws⁽²⁾

3.3		Amendment to Amended and Restated Bylaws, effective as of April 20, 2020⁽³⁾

10.1		Form of Restricted Stock Unit Award under the ~~Registrant~~⁽²⁾2019 Equity Compensation Plan. (Filed Herewith)

~~10.1~~10.2		~~Separation Agreement and Release dated as~~Form of ~~October 13, 2017 between Marlin Business Services Corp. and Edward J. Siciliano~~⁽³⁾Performance Stock Unit Award under the 2019 Equity Compensation Plan. (Filed Herewith)

10.3		Form of Performance Stock Unit Award (with TSR Modifier) under the 2019 Equity Compensation Plan. (Filed Herewith)

31.1		Certification of the Chief Executive Officer of Marlin Business Services Corp. required by Rule13a-14(a) under the Securities Exchange Act of 1934, as amended. (Filed herewith)

31.2		Certification of the Chief Financial Officer of Marlin Business Services Corp. required by Rule13a-14(a) under the Securities Exchange Act of 1934, as amended. (Filed herewith)

32.1		Certification of the Chief Executive Officer and Chief Financial Officer of Marlin Business Services Corp. required by Rule13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.) (Furnished herewith)

101		Financial statements from the Quarterly Report on Form10-Q of ~~the Company~~Marlin Business Services Corp. for the period ended ~~September 30, 2017,~~March 31, 2020, formatted in XBRL: (i) the ~~Condensed~~ Consolidated Balance Sheets, (ii) the ~~Condensed~~ Consolidated Statements of Operations, (iii) the ~~Condensed~~ Consolidated Statements of Comprehensive Income, (iv) the ~~Condensed~~ Consolidated Statements of Stockholders’ Equity, (v) the ~~Condensed~~ Consolidated Statements of Cash Flows and (vi) the Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements. (Submitted electronically with this report)

⁽¹⁾	Previously filed with the SEC as an exhibit to the Registrant’s Annual Report on Form10-K for the fiscal year ended December 31, 2007 filed on March 5, 2008, and incorporated by reference herein.

⁽²⁾	Previously filed with the SEC as an exhibit to the Registrant’s Current Report on Form8-K filed on October 20, 2016, and incorporated by reference herein.

⁽³⁾	Previously filed with the SEC as an exhibit to the Registrant’s Current Report on Form8-K filed on ~~October 13, 2017,~~April 24, 2020, and incorporated by reference herein.

~~-63-~~-67-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


MARLIN BUSINESS SERVICES CORP. (Registrant)

~~(Registrant)~~

By:	/s/ Jeff Hilzinger	Chief Executive Officer ~~(Principal Executive Officer)~~
	Jeff Hilzinger	(Principal Executive Officer)

By:	/s/ ~~W. Taylor Kamp~~Michael R. Bogansky
	Michael R. Bogansky	Chief Financial Officer & Senior Vice ~~President~~ ~~(Principal Financial Officer)~~
	~~W. Taylor Kamp~~	President
		(Principal Financial Officer)

Date: ~~October 30, 2017~~May 1, 2020

~~-64-~~-68-


	September 30,			December 31,
	2017			2016
	(Dollars in thousands, except per-share data)
ASSETS
Cash and due from banks	$	5,297		$	4,055
Interest-earning deposits with banks		77,640			57,702

Total cash and cash equivalents		82,937			61,757
Time deposits with banks		8,360			9,605
Securities available for sale (amortized cost of $12.0 million and $6.1 million at September 30, 2017 and December 31, 2016, respectively)		11,878			5,880
Net investment in leases and loans:
Net investment in leases and loans, excluding allowance for credit losses		900,934			807,654
Allowance for credit losses		(14,504	)		(10,937	)

Total net investment in leases and loans		886,430			796,717
Intangible assets		1,181			—
Goodwill		1,160			—
Property and equipment, net		4,295			3,495
Property tax receivables		7,416			5,296
Other assets		9,360			9,408

Total assets	$	1,013,017		$	892,158

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	806,954		$	697,357
Other liabilities:
Sales and property taxes payable		5,604			2,586
Accounts payable and accrued expenses		23,835			14,809
Net deferred income tax liability		10,329			15,117

Total liabilities		846,722			729,869

Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred Stock, $0.01 par value; 5,000,000 shares authorized; none issued		—			—
Common Stock, $0.01 par value; 75,000,000 shares authorized; 12,530,707 and 12,572,114 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		125			126
Additionalpaid-in capital		83,393			83,505
Stock subscription receivable		(2	)		(2	)
Accumulated other comprehensive loss		(82	)		(138	)
Retained earnings		82,861			78,798

Total stockholders’ equity		166,295			162,289

Total liabilities and stockholders’ equity	$	1,013,017		$	892,158


	1 Year or Less		After 1 Year through 5 Years			After 5 Years through 10 Years			After 10 Years			Total
	(Dollars in thousands)
Amortized Cost:
Available for Sale:
ABS	$	—	$	4,043		$	1,014		$	1,002		$	6,059
Municipal securities	$	—	$	20		$	1,442		$	958		$	2,420

Total debt securities available for sale	$	—	$	4,063		$	2,456		$	1,960		$	8,479

Estimated fair value	$	—	$	4,054		$	2,449		$	1,909		$	8,412
Weighted-average yield, GAAP basis		—		1.96	%		2.40	%		1.97	%		2.09	%


	Minimum Lease Payments Receivable		Income Amortization
	(Dollars in thousands)
Period Ending December 31,
2017	$	103,097	$	19,437
2018		352,442		56,185
2019		246,046		31,253
2020		151,821		14,570
2021		78,673		5,099
Thereafter		25,327		832

	$	957,406	$	127,376


			Three Months Ended September 30,						Nine Months Ended September 30,						Year Ended December 31,
			2017			2016			2017			2016			2016
			(Dollars in thousands)
Allowance for credit losses, beginning of period			$	12,559		$	9,430		$	10,937		$	8,413		$	8,413

Charge-offs				(4,368	)		(3,062	)		(12,111	)		(9,060	)		(12,387	)
Recoveries				633			568			1,800			1,840			2,497

Net charge-offs				(3,735	)		(2,494	)		(10,311	)		(7,220	)		(9,890	)

Provision for credit losses				5,680			3,137			13,878			8,880			12,414

Allowance for credit losses, end of period	(1	)	$	14,504		$	10,073		$	14,504		$	10,073		$	10,937

Annualized net charge-offs to average total finance receivables	(2	)		1.73	%		1.36	%		1.65	%		1.36	%		1.37	%
Allowance for credit losses to total finance receivables, end of period	(2	)		1.64	%		1.33	%		1.64	%		1.33	%		1.38	%
Average total finance receivables	(2	)	$	862,718		$	732,346		$	831,718		$	705,879		$	720,060
Total finance receivables, end of period	(2	)	$	883,778		$	756,144		$	883,778		$	756,144		$	793,285
Delinquencies greater than 60 days past due			$	6,157		$	3,885		$	6,157		$	3,885		$	4,137
Delinquencies greater than 60 days past due	(3	)		0.61	%		0.45	%		0.61	%		0.45	%		0.46	%
Allowance for credit losses to delinquent accounts greater than 60 days past due	(3	)		235.57	%		259.28	%		235.57	%		259.28	%		264.37	%
Non-accrual leases and loans, end of period			$	2,950		$	2,022		$	2,950		$	2,022		$	2,242
Renegotiated leases and loans, end of period	(4	)	$	2,543		$	350		$	2,543		$	350		$	769


(Dollars in thousands)	Total Company
Balance at December 31, 2016	$	—
Acquisition of HKF on January 4, 2017		1,160

Balance at September 30, 2017	$	1,160


	Future Minimum Lease Payment Obligations
Period Ending December 31,	Capital Leases			Operating Leases		Total
	(Dollars in thousands)
2017	$	28		$	405	$	433
2018		112			1,489		1,601
2019		112			1,447		1,559
2020		112			686		798
2021		65			—		65

Total minimum lease payments	$	429		$	4,027	$	4,456

Less: amount representing interest		(18	)

Present value of minimum lease payments	$	411


			Three Months Ended						Nine Months Ended						Year Ended
			September 30,						September 30,						December 31,
			2017			2016			2017			2016			2016
			(Dollars in thousands)
Allowance for credit losses, beginning of period			$	12,559		$	9,430		$	10,937		$	8,413		$	8,413

Charge-offs				(4,368	)		(3,062	)		(12,111	)		(9,060	)		(12,387	)
Recoveries				633			568			1,800			1,840			2,497

Net charge-offs				(3,735	)		(2,494	)		(10,311	)		(7,220	)		(9,890	)

Provision for credit losses				5,680			3,137			13,878			8,880			12,414

Allowance for credit losses, end of period	(1	)	$	14,504		$	10,073		$	14,504		$	10,073		$	10,937

Annualized net charge-offs to average total finance receivables	(2	)		1.73	%		1.36	%		1.65	%		1.36	%		1.37	%
Allowance for credit losses to total finance receivables, end of period	(2	)		1.64	%		1.33	%		1.64	%		1.33	%		1.38	%
Average total finance receivables	(2	)	$	862,718		$	732,346		$	831,718		$	705,879		$	720,060
Total finance receivables, end of period	(2	)	$	883,778		$	756,144		$	883,778		$	756,144		$	793,285
Delinquencies greater than 60 days past due			$	6,157		$	3,885		$	6,157		$	3,885		$	4,137
Delinquencies greater than 60 days past due	(3	)		0.61	%		0.45	%		0.61	%		0.45	%		0.46	%
Allowance for credit losses to delinquent accounts greater than 60 days past due	(3	)		235.57	%		259.28	%		235.57	%		259.28	%		264.37	%
Non-accrual leases and loans, end of period			$	2,950		$	2,022		$	2,950		$	2,022		$	2,242
Renegotiated leases and loans, end of period	(4	)	$	2,543		$	350		$	2,543		$	350		$	769
Accruing leases and loans past due 90 days or more			$	—		$	—		$	—		$	—		$	—
Interest income included onnon-accrual leases and loans	(5	)	$	37		$	21		$	198		$	111		$	207
Interest income excluded onnon-accrual leases and loans	(6	)	$	35		$	23		$	48		$	40		$	53


	For the Nine Months Ended September 30, 2017									As of September 30, 2017
	Maximum Facility Amount		Maximum Month End Amount Outstanding		Average Amount Outstanding		Weighted Average Rate⁽²⁾			Amount Outstanding		Weighted Average Rate⁽²⁾			Unused Capacity⁽¹⁾
	(Dollars in thousands)
Federal funds purchased	$	25,000	$	—	$	—		—	%	$	—		—	%	$	25,000

	$	25,000			$	—		—	%	$	—		—	%	$	25,000


	Contractual Obligations as of September 30, 2017
Period Ending December 31,	Certificates of Deposits⁽¹⁾		Contractual Interest Payments⁽²⁾		Operating Leases		Leased Facilities		Capital Leases		Total
	(Dollars in thousands)
2017	$	84,627	$	2,687	$	9	$	396	$	28	$	87,747
2018		307,583		8,073		35		1,454		112		317,257
2019		197,288		4,634		35		1,412		112		203,481
2020		95,197		2,276		8		678		112		98,271
2021		60,400		990		—		—		65		61,455
Thereafter		24,918		229		—		—		—		25,147

Total	$	770,013	$	18,889	$	87	$	3,940	$	429	$	793,358