Marlin Business Services (MRLN) 10-Q 2020 Q2 Quarterly report

UNITED STATESSECURITIES AND EXCHANGE

COMMISSION

WASHINGTON,D.C. 20549

FORM

10-Q

QUARTERLY REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended

June 30, 2020

Commission file number

000-50448

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

)

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 reportsrequired to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),

and (2) has been subject to such filing requirements for the past90 days.

Yes

☑

No

☐

Indicate by check mark whether the registrant has submitted electronicallyevery Interactive Data File required to be submitted

pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter periodthat

registrant was required to submit such files.)

Yes

☑

No

☐

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer,a non-accelerated filer, a smaller

reporting company or an emerging growth company.See the definitions of "large acceleratedfiler,”“accelerated filer", “smaller

reporting company” and “emerging growth company”in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company,indicate by check mark if the registrant has elected not touse the extended transition period for

complying with any new or revised financial accounting standardsprovided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes

☐

No

☒

At July 24, 2020,

11,941,024

shares of Registrant’s commonstock, $.01 par value, were outstanding.

MARLIN BUSINESS SERVICES CORP.AND SUBSIDIARIES

Quarterly Report on Form 10-Q

for the Quarter Ended June 30, 2020

TABLE OF CONTENTS

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-3-

PARTI. Financial Information

Item 1. ConsolidatedFinancial Statements

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

June 30,

December 31,

2020

2019

(Dollars in thousands, except per-share data)

ASSETS

Cash and due from banks

$

5,898

$

4,701

Interest-earning deposits with banks

205,808

118,395

Total cash and cash equivalents

211,706

123,096

Time deposits with banks

9,941

12,927

Restricted interest-earning deposits related to consolidated VIEs

6,072

6,931

Investment securities (amortized cost of

$10.3

million and

$11.1

million at

June 30, 2020 and December 31, 2019, respectively)

10,408

11,076

Net investment in leases and loans:

Leases

383,787

426,608

Loans

590,892

601,607

Net investment in leases and loans, excluding allowance for credit losses (includes $

50.5

million and

974,679

1,028,215

$

76.1

million at June 30, 2020 and December 31, 2019, respectively, related to consolidated VIEs)

Allowance for credit losses

(63,644)

(21,695)

Total net investment in leases and loans

911,035

1,006,520

Intangible assets

7,062

7,461

Goodwill

—

6,735

Operating lease right-of-use assets

8,146

8,863

Property and equipment, net

8,594

7,888

Property tax receivables, net of allowance

9,217

5,493

Other assets

14,034

10,453

Total assets

$

1,196,215

$

1,207,443

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

$

902,191

$

839,132

Long-term borrowings related to consolidated VIEs

50,890

76,091

Operating lease liabilities

9,242

9,730

Other liabilities:

Sales and property taxes payable

6,884

2,678

Accounts payable and accrued expenses

24,245

34,028

Net deferred income tax liability

21,759

30,828

Total liabilities

1,015,211

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;

11,942,247

and

12,113,585

shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

119

121

Additional paid-in capital

75,606

79,665

Accumulated other comprehensive income

86

58

Retained earnings

105,193

135,112

Total stockholders’ equity

181,004

214,956

Total liabilities and stockholders’ equity

$

1,196,215

$

1,207,443

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

-4-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(Dollars in thousands, except per-share data)

Interest income

$

24,248

$

27,082

$

50,713

$

52,965

Fee income

2,450

3,507

5,216

7,549

Interest and fee income

26,698

30,589

55,929

60,514

Interest expense

5,428

6,408

11,108

12,370

Net interest and fee income

21,270

24,181

44,821

48,144

Provision for credit losses

18,806

4,756

43,956

10,119

Net interest and fee income after provision for credit losses

2,464

19,425

865

38,025

Non-interest income:

Gain on leases and loans sold

57

3,332

2,339

6,944

Insurance premiums written and earned

2,249

2,176

4,531

4,308

Other income

1,489

1,693

9,128

8,897

Non-interest income

3,795

7,201

15,998

20,149

Non-interest expense:

Salaries and benefits

7,668

12,469

17,187

23,920

General and administrative

5,847

6,068

19,452

19,422

Goodwill impairment

—

—

6,735

—

Non-interest expense

13,515

18,537

43,374

43,342

(Loss) income before income taxes

(7,256)

8,089

(26,511)

14,832

Income tax (benefit) expense

(1,374)

1,974

(8,808)

3,576

Net (loss) income

$

(5,882)

6,115

(17,703)

11,256

Basic (loss) earnings per share

$

(0.50)

$

0.50

$

(1.50)

$

0.91

Diluted (loss) earnings per share

$

(0.50)

$

0.49

$

(1.50)

$

0.91

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

-5-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(Dollars in thousands)

Net (loss) income

$

(5,882)

$

6,115

$

(17,703)

$

11,256

Other comprehensive income (loss):

Increase in fair value of debt securities available for sale

88

69

37

123

Tax effect

(22)

(17)

(9)

(31)

Total other comprehensive income

66

52

28

92

Comprehensive (loss) income

$

(5,816)

$

6,167

$

(17,675)

$

11,348

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

-6-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Accumulated

Common

Additional

Other

Total

Common

Stock

Paid-In

Comprehensive

Retained

Stockholders’

Shares

Amount

Capital

Income (Loss)

Earnings

Equity

(Dollars in thousands)

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

Issuance of common stock

14,891

—

120

—

—

120

Repurchase of common stock

(1,897)

—

(12)

—

—

(12)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

44,780

—

—

—

—

—

Stock-based compensation recognized

—

—

(149)

—

—

(149)

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

—

—

66

—

66

Net loss

—

—

—

—

(5,882)

(5,882)

Cash dividends paid ($

0.14

per share)

—

—

—

—

(1,629)

(1,629)

Balance, June 30, 2020

11,942,247

$

119

$

75,606

$

86

$

105,193

$

181,004

(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 unauditedconsolidated financial statements.

-7-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Accumulated

Common

Additional

Stock

Other

Total

Common

Stock

Paid-In

Subscription

Comprehensive

Retained

Stockholders’

Shares

Amount

Capital

Receivable

Income (Loss)

Earnings

Equity

(Dollars in thousands)

Balance, December 31, 2018

12,367,724

$

124

$

83,498

$

(2)

$

(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

83,215

(2)

(4)

118,318

201,650

Issuance of common stock

10,298

—

240

—

—

—

240

Repurchase of common stock

(73,360)

—

(1,719)

—

—

—

(1,719)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

(450)

—

—

—

—

—

—

Stock-based compensation recognized

—

—

990

—

—

—

990

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

—

—

—

52

—

52

Net income

—

—

—

—

—

6,115

6,115

Cash dividends paid ($

0.14

per share)

—

—

—

—

—

(1,774)

(1,774)

Balance, June 30, 2019

12,285,564

$

123

$

82,726

$

(2)

$

48

$

122,659

$

205,554

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

-8-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended June 30,

2020

2019

(Dollars in thousands)

Cash flows from operating activities:

Net (loss) income

$

(17,703)

$

11,256

Adjustments to reconcile net (loss) income to net cash providedby operating activities:

Depreciation and amortization

2,059

2,390

Stock-based compensation

369

1,851

Goodwill impairment

6,735

—

Change in fair value of equity securities

(89)

(94)

Provision for credit losses

43,956

10,119

Change in net deferred income tax liability

(6,047)

4,142

Amortization of deferred initial direct costs and fees

6,393

7,252

(Gain) loss on equipment disposed

(37)

911

Gain on leases sold

(2,339)

(6,944)

Leases originated for sale

(4,820)

(29,036)

Proceeds from sale of leases originated for sale

5,058

30,062

Noncash lease expense

872

551

Effect of changes in other operating items:

Other assets

(7,665)

(4,549)

Other liabilities

(1,320)

(892)

Net cash provided by operating activities

25,422

27,019

Cash flows from investing activities:

Net change in time deposits with banks

2,986

(3,020)

Purchases of equipment for lease contracts and funds used tooriginate loans

(229,512)

(409,915)

Principal collections on leases and loans

237,797

248,563

Proceeds from sale of leases originated for investment

21,337

87,390

Security deposits collected, net of refunds

(129)

(130)

Proceeds from the sale of equipment

1,151

1,409

Acquisitions of property and equipment

(1,790)

(816)

Principal payments received on securities available for sale

779

529

Net cash provided by (used in) investing activities

32,619

(75,990)

Cash flows from financing activities:

Net change in deposits

63,059

132,785

Term securitization repayments

(25,402)

(40,829)

Business combinations earn-out consideration payments

(168)

(223)

Issuances of common stock

120

240

Repurchases of common stock

(4,550)

(2,864)

Dividends paid

(3,349)

(3,456)

Net cash provided by financing activities

29,710

85,653

Net increase in total cash, cash equivalents and restricted cash

87,751

36,682

Total cash, cash equivalentsand restricted cash, beginning of period

130,027

111,201

Total cash, cash equivalentsand restricted cash, end of period

$

217,778

$

147,883

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

-9-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended June 30,

2020

2019

(Dollars in thousands)

Supplemental disclosures of cash flow information:

Cash paid for interest on deposits and borrowings

$

11,368

$

11,504

Net cash paid for income taxes

1,868

1,362

Leases transferred into held for sale from investment

19,235

81,472

Supplemental disclosures of non cash investing activities:

Business combinations assets acquired

$

—

$

146

Purchase of equipment for lease contracts and loans originated

4,106

7,038

Reconciliation of Cash, cash equivalents and restricted cashto

the Consolidated Balance Sheets:

Cash and cash equivalents

$

211,706

$

139,731

Restricted interest-earning deposits

6,072

8,152

Cash, cash equivalents and restricted cash at end of period

$

217,778

$

147,883

-10-

MARLIN BUSINESS SERVICES CORP.AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATEDFINANCIAL STATEMENTS

NOTE 1 – The Company

Marlin Business Services Corp. (the “Company”) is a nationwide providerof credit products and services to small businesses. The

products and services we provide to our customers include loans andleases for the acquisition of commercial equipment (including

Commercial VehicleGroup (“CVG”) assets which now incorporates TransportationFinance Group (“TFG”)) and working capital

loans. The Company was incorporated in the Commonwealthof Pennsylvania on August 5, 2003. In May 2000,we established

AssuranceOne, Ltd., a Bermuda-based, wholly-owned captiveinsurance subsidiary (“Assurance One”), which enables us to reinsure

the property insurance coverage for the equipment financed by MarlinLeasing Corporation (“MLC”) and Marlin Business Bank

(“MBB”) for our small business customers. EffectiveMarch 12, 2008, the Company opened MBB, a commercialbank chartered by

the State of Utah and a member of the Federal Reserve System.MBB serves as the Company’sprimary 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 whichprimarily identifies and sources lease and loan contracts

for investor partners for a fee.On September 19, 2018, the Company completed the acquisition of FleetFinancing Resources

(“FFR”), a leading provider of equipment finance credit products specializingin the leasing and financing of both new and used

commercial vehicles, with an emphasis on livery equipment andother types of commercial vehicles used by small businesses.

References to the “Company,”“Marlin,” “Registrant,” “we,” “us” and “our” herein refer toMarlin 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 consolidated financial statements includethe accounts of the Company and

its wholly-owned subsidiaries. MLC and MBB are managed togetheras 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 a single

consolidated product offering platform. All intercompanyaccounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements presentthe Company’s financial positionat June 30, 2020 and the

results of operations for the three-and six -month periods ended June 30, 2020 and 2019,and cash flows for the six-month periods

ended June 30, 2020 and 2019.In management’s opinion, theunaudited consolidated financial statements contain all adjustments,

which include normal and recurring adjustments, necessary for afair presentation of the financial position and results of operationsfor

the interim periods presented.These unaudited consolidated financial statements should beread in conjunction with the consolidated

financial statements and note disclosures included in the Company’sForm 10-K for the year ended December 31, 2019,filed with the

Securities and Exchange Commission (“SEC”) on March 13,2020. The consolidated results and statements of cash flows for these

interim financial statements are not necessarily indicative of the resultsof operations or cash flows for the respective full years orany

other period.

Use of Estimates.

These unaudited consolidated financial statementsrequire management to make estimates and assumptions that

affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date ofthe financial

statements and the reported amounts of revenues and expensesduring the reporting period. Estimates are used when accountingfor

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, estimatedlosses from insurance program, and income taxes. Actual results

could differ from those estimates.

Provision for income taxes.

Our statutory tax rate was

25.4

% for the three months ended June 30, 2020.For the three-month period ended June 30, 2020, the

effective tax rate was

18.9

%, driven by an interim reporting limitation on the amount of tax benefitsthat can be recognized under

Accounting Standards Codification (“ASC”) 740,

Income Taxes

.

For the six-month period ended June 30, 2020, the effectivetax rate in recognizing our benefit was

33.2

%, driven by a $

3.2

million

discrete benefit, resulting from certain provisions in the CoronavirusAid, Relief, and Economic Security Act (“CARES Act”) that

allow for a remeasurement of our federal net operating losses.The Company has filed for a refund of carryback net operating losses

-11-

as permitted under the CARES act.The impact to our effective rate from that benefit was partiallyoffset by the limitation on interim

tax benefits, as discussed above.

For the three and six month periods ended June 30, 2019,our effective tax rates were

24.4

% and

24.1

%, respectively, and there were

no significant reconciling items from our statutory rate.

Significant Accounting Policies.

There have been no significant changes to our SignificantAccounting Policies as described in our

Annual Report on Form 10-K for the year ended December31, 2019, other than the adoption of ASU 2016-13 as describedbelow.

Recently Adopted Accounting Standards

.

Credit Losses.

In June 2016, the FASBissued ASU 2016-13,

Financial Instruments - Credit Losses (Topic326): Measurement of

Credit Losses on Financial Instruments

, which changes the methodology for evaluating impairmentof most financial instruments.

This guidance was subsequently amended by ASU 2018-19,

Codification Improvements,

ASU 2019-04,

Codification Improvements

,

ASU 2019-05,

TargetedTransition Relief,

ASU 2019-10,

Effective Dates,

and ASU 2019-11,

Codification Improvements

.These

ASUs are referred to collectively as “CECL”.

CECL replaces the probable, incurred loss model with a measurementof expected credit losses for the contractual term of the

Company’s current portfolio of loansand leases.Under CECL, anallowance, or estimate of credit losses, is recognized immediately

upon the origination of a loan or lease and will be adjusted ineach subsequent reporting period.This estimate of credit losses takes

into consideration all cashflows the Company expects to receive orderive from the pools of contracts, including recoveries after

charge-off, amounts related to initial direct costand origination costs net of fees deferred, accrued interest receivableand certain

future cashflows from residual assets. The Company had previouslyrecognized residual income within Fee Income in its Consolidated

Statementsof Operations; the adoption of CECL results in such residual incomebeing captured as a component of the activity of the

allowance. The Company’s policy for charging off contracts against theallowance, and non-accrual policy are not impacted by the

adoption of CECL.

The provision for credit losses recognized in the ConsolidatedStatements of Operations under CECL will be primarily driven by

originations, offset by the reversal of the allowancefor any contracts sold, plus any amounts of realized cashflows,such as charge-

offs, above or below our modeled estimates, plus adjustmentsfor changes in estimate each subsequent reporting period.

Estimating an allowance under CECL requires the Company todevelop and maintain a consistent systematic methodology tomeasure

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 basedon the existence of similar risk characteristics and determined that its

measurement begins by separately considering segments of financingreceivables, which is similar to how it has historically analyzed

its allowance for credit losses: (i) equipment finance lease and loan;(ii) working capital loans; (iii) commercial vehicles “CVG”;and

(iv) Community Reinvestment Act and Paycheck Protectionloans.However, these classes of receivables arefurther disaggregated

into pools of loans based on risk characteristics that may include:lease or loan type, origination channel, and internal creditscore

(which is a measurement that combines many risk characteristics,including loan size, external credit scores, existence ofa guarantee,

and various characteristics of the borrower’s business).

As part of our analysis of expected credit losses, we may analyzecontracts on an individual basis, or create additional pools of

contracts, in situations where such loans exhibit unique risk characteristicsand are no longer expected to experience similar losses to

the rest of their pool.

As part of its estimate of expected credit losses, specific to eachmeasurement date, management considers relevant qualitative and

quantitative factors to assess whether the historical loss experiencebeing referenced should be adjusted to better reflect the risk

characteristics of the current portfolio and the expected futureloss experience for the life of these contracts.This assessment

incorporates all available information relevant to considering the collectabilityof its current portfolio, including considering economic

and business conditions, default trends, changes in its portfoliocomposition, changes in its lending policies and practices, amongother

internal and external factors.

The Company adopted the guidance in these ASUs, effectiveJanuary 1, 2020, applying changes resulting from the applicationof the

new standard’s provisions as acumulative-effect adjustment to retained earnings as ofthe beginning of the first reporting period in

which the guidance is effective (i.e., modified retrospectiveapproach).

-12-

The adoption of this standard resulted in the following adjustmentto the Company’s ConsolidatedBalance Sheets:

Balance as of

Balance as of

December 31,

Adoption

January 1,

2019

Impact

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 leasesand 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 – Allowance for Credit Losses, for further discussion of theJanuary 1, 2020 measurement of allowance under CECL, as

well as discussion of the Company’snew Accounting Policy governing its Allowance.

See Note 13 – Stockholders’ Equity,for discussion of the Company’selection to delay for two-years the effect of CECLon regulatory

capital, followed by a three-year phase-in for a five-year totaltransition.

In addition, as a result of adoption this standard, future measurements ofthe impairment of our investment securities willincorporate

the guidance in these ASUs, including analyzing any declinein fair value between credit quality-driven factors versus other factors.

There was no impact as of the adoption date to our investmentsecurities.

-13-

NOTE 3 – Non-Interest Income

The following table summarizes non-interest income for the periodspresented:

Three Months Ended

Six Months Ended

June 30,

June 30,

(Dollars in thousands)

2020

2019

2020

2019

Insurance premiums written and earned

$

2,249

$

2,176

$

4,531

$

4,308

Gain on sale of leases and loans

57

3,332

2,339

6,944

Servicing income

489

339

1,055

626

Property tax (loss) income

(380)

79

5,124

5,722

Net gains recognized during the period on equity securities

31

50

89

94

Non-interest income - other than from contracts with customers

2,446

5,976

13,138

17,694

Property tax administrative fees on leases

236

261

470

529

ACH payment fees

36

74

108

160

Insurance policy fees

873

666

1,791

1,334

Referral fees

14

164

108

318

Other

190

60

383

114

Non-interest income from contracts with customers

1,349

1,225

2,860

2,455

Total non-interest income

$

3,795

$

7,201

$

15,998

$

20,149

-14-

NOTE 4 - Investment Securities

The Company had the following investment securities as of thedates presented:

June 30,

December 31,

2020

2019

(Dollars in thousands)

Equity Securities

Mutual fund

$

3,740

$

3,615

Debt Securities, Availablefor Sale:

Asset-backed securities ("ABS")

3,935

4,332

Municipal securities

2,733

3,129

Total investment securities

$

10,408

$

11,076

The following schedule summarizes changes in fair value of equity securitiesand the portion of unrealized gains and losses for each

period presented:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

2020

2019

2020

2019

Net gains recognized during the period on equity securities

$

31

$

50

$

89

$

94

Less: Net gains recognized during the period

on equity securities sold during the period

—

—

—

—

Unrealized gains recognized during the reporting period

on equity securities still held at the reporting date

$

31

$

50

$

89

$

94

-15-

Available forSale

The following schedule is a summary of available for sale investmentsas of the dates presented:

June 30, 2020

Gross

Gross

Amortized

Unrealized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

(Dollars in thousands)

ABS

$

3,865

$

70

$

—

$

3,935

Municipal securities

2,664

69

—

2,733

Total DebtSecurities, Available for Sale

$

6,529

$

139

$

—

$

6,668

December 31, 2019

Gross

Gross

Amortized

Unrealized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

(Dollars in thousands)

ABS

$

4,302

$

33

$

(3)

$

4,332

Municipal securities

3,058

71

—

3,129

Total DebtSecurities, Available for Sale

$

7,360

$

104

$

(3)

$

7,461

The Company evaluates its available for sale securities in an unrealizedloss position for other than temporary impairment on at least a

quarterly basis. The Company did not recognize any other than temporaryimpairment to earnings for each of the periods ended June

30, 2020 and June 30, 2019.

The following tables present the aggregate amount of unrealizedlosses on available for sale securities in the Company’sinvestment

securities classified according to the amount of time those securitieshave been in a continuous loss position as of June 30, 2020and

December 31, 2019:

June 30, 2020

Less than 12 months

12 months or longer

Total

Gross

Gross

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Losses

Value

Losses

Value

Losses

Value

(Dollars in thousands)

Municipal securities

(1)

$

—

$

170

$

—

$

—

$

—

$

170

Total availablefor sale investment

securities

$

—

$

170

$

—

$

—

$

—

$

170

(1) The unrealized loss is immaterial

December 31, 2019

Less than 12 months

12 months or longer

Total

Gross

Gross

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Losses

Value

Losses

Value

Losses

Value

(Dollars in thousands)

ABS

$

—

$

—

$

(3)

$

430

$

(3)

$

430

Total availablefor sale investment

securities

$

—

$

—

$

(3)

$

430

$

(3)

$

430

-16-

The following table presents the amortized cost, fair value, andweighted average yield of available for sale investments at June 30,

2020,based on estimated average life. Receipt of cash flows may differfrom those estimated maturities because borrowers may have

the right to call or prepay obligations with or without penalties:

Distribution of Maturities

1 Year

Over 1 to

Over 5 to

Over 10

or Less

5 Years

10 Years

Years

Total

(Dollars in thousands)

Amortized Cost:

ABS

$

—

$

2,351

$

1,514

$

—

$

3,865

Municipal securities

15

346

2,133

170

2,664

Total availablefor sale investments

$

15

$

2,697

$

3,647

$

170

$

6,529

Estimated fair value

$

15

$

2,762

$

3,721

$

170

$

6,668

Weighted-averageyield, GAAP basis

4.75%

2.01%

2.31%

2.10%

2.19%

-17-

NOTE 5 – Net Investment in Leases and Loans

Net investment in leases and loans consists of the following:

June 30, 2020

December 31, 2019

(Dollars in thousands)

Minimum lease payments receivable

$

407,019

$

457,602

Estimated residual value of equipment

28,851

29,342

Unearned lease income, net of initial direct costs and fees deferred

(51,625)

(59,746)

Security deposits

(458)

(590)

Total leases

383,787

426,608

Commercial loans, net of origination costs and fees deferred

Working CapitalLoans

42,078

60,942

CRA

(1)

1,098

1,398

Equipment loans

(2)

473,267

464,655

CVG

70,452

74,612

PPP Loans

3,997

—

Total commercial loans

590,892

601,607

Net investment in leases and loans, excluding allowance

974,679

1,028,215

Allowance for credit losses

(63,644)

(21,695)

Total net investment in leasesand loans

$

911,035

$

1,006,520

________________________

(1)

CRA loans are comprised of loans originated under a line of credit to satisfy its obligations under the Community Reinvestment Act of 1977

(“CRA”).

(2)

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

In 2020, the Company was a participating lender,offering loans to its customers that are guaranteed underthe Small Business

Administration’s (SBA’s)Paycheck Protection Program (“PPP”).The SBA pays lender fees for processing PPP loans, and the

Company will recognize the fee income associated with originatingthese loans over the life of the contracts on the effectiveinterest

method.

In response to COVID-19, starting in mid-March 2020,the Company instituted a payment deferral contract modificationprogram in

order to assist our small-business customers.See Note 6, “Allowance for Credit Losses” for discussion of that program.

At June 30, 2020, $

50.5

million in net investment in leases were pledged as collateralfor the Company’s outstanding asset-backed

securitization balance and $

56.3

million in net investment in leases were pledged as collateral forthe secured borrowing capacity at

the Federal Reserve Discount Window.

The amount of deferred initial direct costs and origination costsnet of fees deferred were $

17.9

million and $

20.5

million as of June

30, 2020 and December 31, 2019,respectively. Initial directcosts are netted in unearned income and are amortized to income using

the effective interest method.ASU 2016-02 limited the types of costs that qualify for deferralas initial direct costs for leases, which

reduced the deferral of unit lease costs and resulted in an increasein current period expense. Origination costs are netted in

commercial loans and are amortized to income using the effectiveinterest method. At June 30, 2020 and December 31,2019, $

23.1

million and $

23.4

million, respectively, of the estimatedresidual value of equipment retained on our Consolidated BalanceSheets was

related to copiers.

-18-

Maturities of lease receivablesunder lease contracts and the amortization of unearned lease income, includinginitial direct costs and

fees deferred, were as follows as of June 30, 2020:

Minimum Lease

Payments

Net Income

Receivable

(1)

Amortization

(2)

(Dollars in thousands)

Period Ending December 31,

Remainder of 2020

$

87,364

$

15,111

2021

142,161

19,713

2022

94,796

10,463

2023

53,312

4,588

2024

23,862

1,403

Thereafter

5,524

347

$

407,019

$

51,625

________________________

(1)

Represents the undiscounted cash flows of the lease payments receivable.

(2)

Represents the difference between the undiscountedcash flows and the discounted cash flows.

Portfolio Sales

The Company originates certain lease and loans for sale tothird parties, based on their underwriting criteria and specifications.In

addition, the Company may periodically enter into agreements to sell certainleases and loans that were originated for investment to

third parties.

For agreements that qualify as a sale where the Company hascontinuing involvement through servicing, the Company recognizesa

servicing liability at its initial fair value, and then amortizes the liabilityover the expected servicing period based on the effective yield

method, within Other income in the Consolidated Statements of Operations.The Company’s sale agreementstypically do not contain

a stated servicing fee, so the initial value recognized as a servicingliability is a reduction of the proceeds received and is basedon an

estimate of the fair value attributable to that obligation.The Company’s servicing liabilitywas $

1.9

million and $

2.5

million as of

June 30, 2020 and December 31, 2019, respectively,and is recognized within Accounts payable and accrued expensesin the

Consolidated Balance Sheets.As of June 30, 2020 and December 31, 2019, the portfolioof leases and loans serviced for others was

$

296

million and $

340

million, respectively.

In addition, the Companymay have continuing involvement in contracts sold through any recourseobligations that may include

customary representations and warranties or specific recourseprovisions. The Company’s reservefor expected losses from recourse

obligations was $

0.8

million as of June 30, 2020 and $

0.4

million as of December 31, 2019.

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

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(Dollars in thousands)

Sales of leases and loans

$

1,127

$

57,640

$

24,056

$

110,508

Gain on sale of leases and loans

57

3,332

2,339

6,944

-19-

NOTE 6 – Allowance for Credit Losses

For 2019 and prior, we maintained an allowancefor credit losses at an amount sufficient to absorblosses inherent in our existing lease

and loan portfolios as of the reporting dates based on our estimate of probableincurred net credit losses in accordance with the

Contingencies Topicof the FASB ASC.

Effective January 1, 2020, we

adopted

ASU 2016-13,

Financial Instruments - Credit Losses (Topic326): 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 expectedcredit losses for the contractual term of the Company’scurrent

portfolio of loans and leases.After the adoption of CECL, an allowance, or estimate of creditlosses, is recognized immediately upon

the origination of a loan or lease and will be adjusted in eachsubsequent reporting period.

See further discussion of the adoption of

this accounting standard and a summary of the Company’srevised Accounting Policy for Allowance for Credit Lossesin Note 2,

Summary of Significant Accounting Policies.Detailed discussion of our measurement of allowance under CECLas of the adoption

date and June 30, 2020 is below.

The following tables summarize activity in the allowance forcredit losses

:

Three Months Ended June 30, 2020

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA &

PPP

Total

Allowance for credit losses, beginning of period

$

37,774

$

7,200

$

7,086

$

—

$

52,060

Charge-offs

(7,724)

(686)

(904)

—

(9,314)

Recoveries

729

17

74

—

820

Net charge-offs

(6,995)

(669)

(830)

—

(8,494)

Realized cashflows from Residual Income

1,272

—

—

—

1,272

Provision for credit losses

16,499

1,431

876

—

18,806

Allowance for credit losses, end of period

$

48,550

$

7,962

$

7,132

$

—

$

63,644

Net investment in leases and loans, before

allowance

$

846,057

$

42,078

$

81,449

$

5,095

$

974,679

Three Months Ended June 30, 2019

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, beginning of period

$

13,975

$

1,684

$

1,223

$

—

$

16,882

Charge-offs

(4,508)

(602)

(345)

—

(5,455)

Recoveries

482

51

61

—

594

Net charge-offs

(4,026)

(551)

(284)

—

(4,861)

Provision for credit losses

3,467

807

482

—

4,756

Allowance for credit losses, end of period

$

13,416

$

1,940

$

1,421

$

—

$

16,777

Net investment in leases and loans, before

allowance

$

942,508

$

51,748

$

83,299

$

1,493

$

1,079,048

-20-

Six Months Ended June 30, 2020

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA &

PPP

Total

Allowance for credit losses, December 31, 2019

$

18,334

$

1,899

$

1,462

$

—

$

21,695

Adoption of ASU 2016-13 (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

(14,214)

(1,965)

(1,633)

—

(17,812)

Recoveries

1,254

55

163

—

1,472

Net charge-offs

(12,960)

(1,910)

(1,470)

—

(16,340)

Realized cashflows from Residual Income

2,425

—

—

—

2,425

Provision for credit losses

31,487

7,976

4,493

—

43,956

Allowance for credit losses, end of period

$

48,550

$

7,962

$

7,132

$

—

$

63,644

Net investment in leases and loans, before

allowance

$

846,057

$

42,078

$

81,449

$

5,095

$

974,679

Six Months Ended June 30, 2019

(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

(8,840)

(1,275)

(673)

—

(10,788)

Recoveries

1,214

71

61

—

1,346

Net charge-offs

(7,626)

(1,204)

(612)

—

(9,442)

Provision for credit losses

7,511

1,677

931

—

10,119

Allowance for credit losses, end of period

$

13,416

$

1,940

$

1,421

$

—

$

16,777

Net investment in leases and loans, before

allowance

$

942,508

$

51,748

$

83,299

$

1,493

$

1,079,048

__________________

(1)

The Company adopted ASU 2016-13,

Financial Instruments - Credit Losses (Topic326): Measurement of CreditLosses on

Financial Instruments

, which changed our accounting policy and estimated allowance,effective January 1, 2020.See further

discussion in Note 2, “Summary of Significant Accounting Policies”,and below.

Estimate of Current Expected Credit Losses(CECL)

Starting with the January 1, 2020 adoption of CECL, the Company recognizesan allowance, or estimate of credit losses, immediately

upon the origination of a loan or lease, and that estimate willbe reassessed in each subsequent reporting period.This estimate of

credit losses takes into consideration all cashflows the Companyexpects to receive or derive from the pools of contracts, including

recoveries after charge-off, amounts related toinitial direct cost and origination costs net of fees deferred,accrued interest receivable

and certain future cashflows from residual assets.

-21-

As part of its estimate of expected credit losses, specific to eachmeasurement date, management considers relevant qualitative and

quantitative factors to assess whether the historical loss experiencebeing referenced should be adjusted to better reflect the risk

characteristics of the current portfolio and the expected futureloss experience for the life of these contracts.This assessment

incorporates all available information relevant to considering the collectabilityof its current portfolio, including considering economic

and business conditions, default trends, changes in its portfoliocomposition, changes in its lending policies and practices, amongother

internal and external factors.

Current Measurement

The Company selected a vintage loss model as the approach toestimate and measure its expected credit losses for all portfolio

segments and for all pools, primarily because the timing of the lossesrealized has been consistent across historical vintages, suchthat

the company is able to develop a predictable and reliableloss curve for each separate portfolio segment.The vintage model assigns

loans to vintages by origination date, measures our historicalaverage actual loss and recovery experience within that vintage, develops

a loss curve based on the averages of all vintages, and predicts (orforecasts) the remaining expected net losses of the current portfolio

by applying the expected net loss rates to the remaining life of each openvintage.

Additional detail specific to the measurement of each portfoliosegment under CECL as of January 1, 2020 and June 30,2020 is

summarized below.

Equipment Finance:

Equipment Finance consists of Equipment Finance Agreements, InstallmentPurchase Agreements and other leases and loans.

The risk characteristics referenced to develop pools of EquipmentFinance leases and loans are based on internally developed

credit score ratings, which is a measurement that combines many riskcharacteristics, including loan size, external credit

scores, existence of a guarantee, and various characteristics of the borrower’sbusiness.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 ofEquipment Finance pools is based on its own historical loss experience.The Company

analyzed the correlation of its own loss data from 2004 to 2019against various economic variables in order to determine an

approach for reasonable and supportable forecast.The Company then selected certain economic variables toreference for its

forecast about the future, specifically the unemployment rateand growth in business bankruptcy.The Company’s

methodology reverts from the forecast data to its own loss dataadjusted for the long-term average of the referenced economic

variables, on a straight-line basis.

At each reporting date, the Company considers current conditions, includingchanges in portfolio composition or the business

environment, when determining the appropriate measurementof current expected credit losses for the remaining life of its

portfolio.As of the January 1, 2020 adoption date, the Company utilized a 12-month forecast period and 12-month straight-

line reversion period, based on its initial assessment of the appropriatetiming.

However, starting with the March 31,2020 measurement, the Company adjustedits model to reference a 6-month forecast

period and 12-month straight line reversion period.The change in the length of the reasonable and supportableforecast was

based on observed market volatility in late March,and the Company continues to reference a 6-month forecastperiod at June

30, 2020 due to continuing uncertainty of the duration and level of impactof the COVID-19 virus on the macroeconomic

environment and the Company’s portfolio,including uncertainty about the forecasted impact of COVID-19 that was

underlying its economic forecasted variables beyond a 6-month period.The forecast adjustment to the Equipment Finance

portfolio segment resulted in the recognition of provision of $

10.1

million and $

20.9

million for the three and six months

ended June 30, 2020, respectively.

After completing the forecast adjustment, the Company assessedthe output of the Equipment Finance reserve estimate and

increased the reserve for a $

3.4

million qualitative adjustment as of June 30,

2020 based on an analysis that incorporates the

current forecasted peak levels of unemployment and business bankruptcy.

Working Capital:

The risk characteristics referenced to develop pools of WorkingCapital loans is based on origination channel, separately

considering an estimation of loss for direct-sourced loans versus loansthat were sourced from a broker.The Company’s

historical relationship with its direct-sourced customers typicallyresults in a lower level of credit risk than loans sourced

from brokers where the Company has no prior credit relationshipwith the customer.

-22-

The Company’s measurement ofWorking Capitalpools is based on its own historical loss experience.The Company’s

Working Capital loanstypically range from 6 – 12 months of duration. For this portfoliosegment, due to the short contract

duration, the Company did not define a standard methodology toadjust its loss estimate based on a forecast of economic

conditions.However, the Company will continuallyassess through a qualitative adjustment whether there are changes in

conditions and the environment that will impact the performanceof these loans that should be considered for qualitative

adjustment.

At each reporting date, the Company considers current conditions, includingchanges in portfolio composition or the business

environment, when determining the appropriate measurementof current expected credit losses for the remaining life of its

portfolio.As of the January 1, 2020 adoption date, there was no qualitative adjustment tothe WorkingCapital portfolio.

However, starting with its March 31,2020measurement, driven by the elevated risk of credit loss driven by market

conditions due to COVID-19, the Company developed alternatescenarios for credit loss based on an analysis of the

characteristics of its portfolio,considering different timing and magnitudes of potentialexposures.The Company determined

its most likely expectation for credit losses for the WorkingCapital segment based on the increased risk to its borrowers and

increased risk to the collectability of its portfolio from COVID-19.Based on that analysis, the WorkingCapital reserve was

increased and the Company recognized provision associated withqualitative adjustments of $

1.5

million and $

7.0

million for

the three and six months ended June 30, 2020, respectively.

Commercial VehicleGroup (CVG):

Transportation-related equipment leases andloans are analyzed as a single pool, as the Company did not considerany risk

characteristics to be significant enough to warrant disaggregating thispopulation.

The Company’s measurement ofCVG pools is based on a combination of its own historicalloss experience and industry loss

data from an external source. The Company has limited history of thisproduct, and therefore the Company determined it was

appropriate to develop an estimate based on a combination ofinternal and industry data.Due to the Company’s limited

history of performance of this segment, and the limited size ofthe portfolio, the Company did not develop a standard

methodology to adjust its loss estimate based on a forecast of economicconditions.However, the Company will continually

assess through a qualitative adjustment whether there are changesin conditions and the environment that will impact the

performance of these loans that should be considered forqualitative adjustment.

At each reporting date, the Company considers current conditions, includingchanges in portfolio composition or the business

environment, when determining the appropriate measurementfor the remaining life of the current portfolio.As of the

January 1, 2020 adoption date, there were no qualitative adjustment tothe CVG portfolio.However, starting with the March

31, 2020 measurement, driven by the elevated risk of credit loss drivenby market conditions due to COVID-19, the

Company developed alternate scenarios for expected creditloss for this segment, considering different timingand

magnitudes of potential exposures.The Company determined its most likely expectation forcredit losses for the CVG

segment based on the increased risk to its borrowers and increasedrisk to the collectability of its portfolio from COVID-19,

and increased the reserve and recognized provision associatedwith qualitative adjustments of $

0.4

million and $

3.3

million

for the three and six months ended June 30, 2020,respectively.

Community Reinvestment Act (CRA) and Paycheck ProtectionProgram (PPP)Loans:

CRA loans are comprised of loans originated under a line ofcredit to satisfy the Company’s obligationsunder the CRA. PPP

loans are comprised of loans that are guaranteed by the Small BusinessAdministration.The Company does not measure an

allowance specific to these populationsbecause the exposure to credit loss is nominal.

Specific Analysis:

As part of our analysis of expected credit losses, we may analyzecontracts on an individual basis, or create additional pools

of contracts, in situations where such loans exhibit unique risk characteristicsand are no longer expected to experience

similar losses to the rest of their pool.As of June 30, 2020 and January 1, 2020, there were

0

contracts subject to specific

analysis.

-23-

For the three and six months ended June 30, 2020, the Company has recognized$15.5 million and $

34.7

million of provision,

respectively, driven by increasingthe allowance for qualitative and forecast adjustments asa result of conditions driven by the

COVID-19 pandemic.The COVID-19 pandemic, business shutdowns and impacts to ourcustomers, is still ongoing, and the extent of

the effects of the pandemic on our portfoliodepends on future developments, which are highly uncertain andare difficult to predict.

Further, the Company instituted aLoan modification payment deferral program, as discussed furtherbelow, to give paymentrelief to

customers during this period.As of June 30, 2020, the performance of loans modified underthat program remains uncertain, due to

the timing of the modified loans resuming payment.

Our reserve as of June 30, 2020, and the qualitative and economicadjustments discussed above, were calculated referencing our

historical loss experience, including loss experience through the 2008economic cycle, and our adjustments to that experience based

on our judgements about the extent of the impact of the COVID-19 pandemic.Those judgements include certain expectations for the

extent and timing of impacts from COVID-19 on unemployment ratesand business bankruptcies and are based on our current

expectations of the performance of our portfolio in the current environment.We may recognizecredit losses in excess of our reserve,

or increases to our credit loss estimate, in the future, and suchincreases may be significant, based on (i) the actual performance ofour

portfolio, including the performance of the modified portfolio,(ii) any further changes in the economic environment, or (iii) other

developments or unforeseen circumstances that impact our portfolio.

Loan Modification Program:

In response to COVID-19, starting in mid-March 2020,the Company instituted a payment deferral program in orderto assist its small-

business customers that request relief who were current undertheir existing agreement.The payment deferral program through June

30,

2020 for Equipment Finance and CVG typically includeda deferral of the full payment amount, and for WorkingCapital, included

a deferral of the partial amount of payment.

The Company’s COVID-modificationprogram allows for up to 6 months of deferred payments.The Company typically processed

first requests to defer customers for up to 3 months; starting in June,the Company has been evaluating and processing requests to

extend the modification period for certain customersusing specific underwriting criteria, such that the modificationterms may extend

up to 6 months in total.

The below table outlines certain data on the modified populationbased on the balance and status as of June 30, 2020.See discussion

below the table on the status of this population subsequent toquarter-end.

Equipment

Finance

Working

(Dollars in thousands)

and CVG

Capital

Total

Net investment in leases and loans

Completed modifications

$

115,941

$

17,876

$

133,817

% of total segment

12.5%

42.4%

13.7%

Number of active modifications as of June 30, 2020

4,564

453

5,017

Interest income recognized for the three months

ended June 30, 2020 on modified loans

(1)

$

2,295

$

1,633

$

3,928

Weighted-averagetotal term (months):

before modification

56.0

15.7

after modification

59.0

18.9

_________________

(1)

As discussed further below, theCompany did not account for these modifications as TroubledDebt Restructurings (“TDRs”),

and as such these loans were not put on non-accrual upon modification.The amount presented for interest income reflects

total income recognized for the three months, for any loan thatwas modified in the quarter.

-24-

TDRs are restructurings of leases and loans in which, due to the borrower'sfinancial difficulties, a lender grants a concession thatit

would not otherwise consider for borrowers of similar creditquality.In accordance with the interagency guidance as updatedin April

2020, that the FASBconcurred with, loans modified under the Company’spayment deferral program are not considered TDRs. As of

June 30, 2020 and December 31, 2019, the Company did

0

t have any TDRs.

Based on their modified terms as of June 30, 2020,

25

% of our total modified contracts had already resumed their regular payment

schedule before the end of the second quarter,

7

2% were scheduled to resume payment in the third quarter and theremaining

3

% were

scheduled to resume payment in the fourth quarter.

Through July 24, 2020, we processed modifications for an additional$5.9 million of Equipment Finance net investment and additions

to the modified population of WorkingCapital were not significant.

Credit Quality

At origination, the Company utilizes an internally developedcredit score ratings as part of its underwriting assessment andpricing

decisions for new contracts.The internal credit score is a measurement that combinesmany risk characteristics, including loan size,

external credit scores, existence of a guarantee, and various characteristicsof the borrower’s business.The internal credit score is

used to create pools of loans for analysis in the Company’sEquipment Finance portfolio segment, as discussedfurther above.We

believe this segmentation allows our loss modeling to properlyreflect changes in portfolio mix driven by sales activity and

adjustments to underwriting standards.However, this score is not updated after originationdate 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. Webelieve that delinquency is the best factor to use to monitor

the credit quality of our portfolio on an ongoing basis becauseit reflects the current condition of the portfolio, and is a goodpredictor

of near term charge-offs and can help with identifyingtrends and emerging risks to the portfolio.

The following tables provide information about delinquent leasesand loans in the Company’sportfolio based on the contract’sstatus

as-of the dates presented.

In response to COVID-19, starting in mid-March 2020,the Company instituted a payment deferral program in orderto assist its small-

business customers that request relief who are current undertheir existing obligations and can demonstrate that their ability torepay

has been impacted by the COVID-19 crisis.This program includes either reduced or full-payment deferrals forthe modified

contracts, and those contracts are presented in the below delinquencytable and the non-accrual information for June 30,2020 based on

their status with respect to the modified terms.See “Loan Modification Program” section above forfurther information on the

modifications.

-25-

Portfolio by Origination Year as ofJune 30, 2020

Total

2020

2019

2018

2017

2016

Prior

Receivables

(Dollars in thousands)

Equipment Finance

30-59

$

1,392

$

5,493

$

2,764

$

1,833

$

501

$

144

$

12,127

60-89

1,277

5,008

3,551

2,030

810

190

12,866

90+

461

3,519

2,722

1,564

784

139

9,189

Total Past Due

3,130

14,020

9,037

5,427

2,095

473

34,182

Current

163,706

333,621

179,308

94,036

34,558

6,646

811,875

Total

166,836

347,641

188,345

99,463

36,653

7,119

846,057

Working Capital

30-59

91

344

32

—

—

—

467

60-89

177

206

—

—

—

—

383

90+

—

279

—

—

—

—

279

Total Past Due

268

829

32

—

—

—

1,129

Current

16,277

24,238

396

38

—

—

40,949

Total

16,545

25,067

428

38

—

—

42,078

CVG

30-59

58

313

147

210

9

—

737

60-89

220

124

143

160

13

—

660

90+

54

62

236

252

33

—

637

Total Past Due

332

499

526

622

55

—

2,034

Current

11,940

37,580

17,728

8,951

3,138

78

79,415

Total

12,272

38,079

18,254

9,573

3,193

78

81,449

CRA & PPP

Total Past Due

—

—

—

—

—

—

—

Current

5,095

—

—

—

—

—

5,095

Total

5,095

—

—

—

—

—

5,095

Net investment in leases

and loans, before allowance

$

200,748

$

410,787

$

207,027

$

109,074

$

39,846

$

7,197

$

974,679

-26-

Portfolio by Origination Year as ofDecember 31, 2019

Total

2019

2018

2017

2016

2015

Prior

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

Net investments in Equipment Finance and CVG leases andloans are generally charged-off when they are contractuallypast due for

120 days or more.Income recognition is discontinued when a default on monthly paymentexists for a period of 90 days or more.

Income recognition resumes when a lease or loan becomes lessthan 90 days delinquent. At June 30, 2020 and December31, 2019,

there were

0

finance receivables past due 90 days or more and still accruing.

-27-

Working Capital Loansare generally placed in non-accrual status when they are30 days past due and generally charged-offat 60 days

past due. The loan is removed from non-accrual status once sufficientpayments are made to bring the loan current and reviewedby

management. At June 30, 2020 and December 31, 2019,there were

0

Working Capital Loanspast due 30 days or more and still

accruing.

The following tables provide information about non-accrual leases andloans:

June 30,

December 31,

(Dollars in thousands)

2020

2019

Equipment Finance

$

9,205

$

4,256

Working Capital Loans

1,189

946

CVG

637

389

TotalNon-Accrual

$

11,031

$

5,591

NOTE 7 - Goodwill and IntangibleAssets

Goodwill

The Company’s goodwill balance of $

6.7

million at December 31, 2019 included $

1.2

million from the Company’s acquisition of

HKF, in January 2017,and $

5.5

million from the September 2018 acquisition of FFR.The goodwill balance represents the excess

purchase price over the Company’sfair value of the assets acquired and is not amortizable but is deductiblefor tax purposes.

The Company assigns its goodwill to a single, consolidated reportingunit, Marlin Business Services Corp. In the first quarterof 2020,

events or circumstances indicated that it was more likely thannot that the fair value of its reporting unit was less than its carrying

amount, driven in part by market capitalization of the Company fallingbelow its book value, and negative current events that impact

the Company related to the COVID-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 multipliedby shares outstanding as of March 31, 2020 and then further

applying a control premium, and compared it to its carryingamount, including goodwill.The Company concluded that the implied

fair value of goodwill was less than its carrying amount, andrecognized impairment equal to the $

6.7

million balance in the

Consolidated Statements of Operations.

The changes in the carrying amount of goodwill for the six-month periodended June 30, 2020 are as follows:

(Dollars in thousands)

Total Company

Balance at December 31, 2019

$

6,735

Impairment of Goodwill

(6,735)

Balance at June 30, 2020

$

—

Intangible assets

The Company’s intangible assets consistof $

1.3

million of definite-lived assets with a weighted-average amortization periodof

8.7

years that were recognized in connection with the January 2017acquisition of HKF, and$

7.6

millionof definite-lived intangible

assets with a weighted-average amortization period of

10.8

years that were recognized in connection with the September2018

acquisition of FFR.The Company has no indefinite-lived intangible assets.

The following table presents details of the Company’sintangible assets as of June 30, 2020:

-28-

(Dollars in thousands)

Gross Carrying

Accumulated

Net

Description

Useful Life

Amount

Amortization

Value

Lender relationships

3

to

10

years

$

1,630

$

582

$

1,048

Vendorrelationships

11

years

7,290

1,306

5,984

Corporate trade name

7

years

60

30

30

$

8,980

$

1,918

$

7,062

There was

0

impairment of these assets in the six-months ended June 30,2020 or 2019.Amortization related to the Company’s

definite lived intangible assets was $

0.4

million and $

0.5

million for the six-month periods ended June 30, 2020 and June 30,2019,

respectively.

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

(Dollars in thousands)

Remainder of 2020

$

399

2021

798

2022

798

2023

798

2024

790

NOTE 8 – Other Assets

Other assets are comprised of the following:

June 30,

December 31,

2020

2019

(Dollars in thousands)

Accrued fees receivable

$

3,213

$

3,509

Prepaid expenses

2,776

2,872

Income taxes receivable

(1)

4,348

—

Federal Reserve Bank Stock

1,711

1,711

Other

1,986

2,361

$

14,034

$

10,453

_______________________

(1)

See Note 2 –

Summary of Significant Accounting Policies,

for discussion of the Provision for income taxes.

-29-

NOTE 9 – Deposits

MBB serves as the Company’sprimary funding source. MBB issues fixed-rate FDIC-insuredcertificates of deposit raised nationally

through various brokered deposit relationships and fixed-rateFDIC-insured deposits received from direct sources. MBB offersFDIC-

insured money market deposit accounts (the “MMDA Product”)through participation in a partner bank’sinsured 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 June 30,2020, money market deposit accounts totaled $

53.2

million.

As of June 30, 2020, the scheduled maturities of certificates ofdeposits are as follows:

Scheduled

Maturities

(Dollars in

thousands)

Period Ending December 31,

Remainder of 2020

$

300,996

2021

293,009

2022

147,704

2023

71,375

2024

29,290

Thereafter

7,299

Total

$

849,673

Certificates of deposits issued by MBB are time deposits and aregenerally 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 average all-in interest rate of deposits at June 30,2020 was

1.99

%.

NOTE 10 – Debt and Financing Arrangements

Short-TermBorrowings

The Company has a secured, variable rate revolving line of creditin the amount of $

5.0

million that was scheduled to expire on

November 20, 2020

. There were

0

outstanding balances on this line of credit as of June 30, 2020,and the line of credit was

terminated by mutual agreement with the line of credit providerin July 2020.

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 principalamount. At June 30, 2020,outstanding term securitizations

amounted to $

51.2

million and are collateralized by $

55.4

million of minimum lease and loan payments receivable and$

6.1

million of

restricted interest-earning deposits. The Company’sterm note securitizations are classified as long-term borrowings.

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

June 30,

December 31,

2020

2019

(Dollars in thousands)

Term securitization 2018-1

$

51,161

$

76,563

Unamortized debt issuance costs

(271)

(472)

$

50,890

$

76,091

-30-

The term note securitization is summarized below:

Outstanding Balance as of

Notes

Final

Original

June 30,

December 31,

Originally

Maturity

Coupon

2020

2019

Issued

Date

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

19,521

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 TermNote Securitizations

$

51,161

$

76,563

$

201,650

3.05

%

(1)(2)

__________________

(1)

Represents the original weighted average initial coupon rate forall tranches of the securitization. In addition to this coupon

interest, term note securitizations have other transaction costs which areamortized over the life of the borrowings as additional

interest expense.

(2)

The weighted average coupon rate of the 2018-1 term note securitizationwill approximate

3.68

% over the remaining term of the

borrowing.

Scheduled principal and interest payments on outstanding borrowingsas of June 30, 2020 are as follows:

Principal

Interest

(Dollars in thousands)

Period Ending December 31,

Remainder of 2020

$

18,950

$

803

2021

23,629

813

2022

8,582

159

$

51,161

$

1,775

-31-

NOTE 11 – Fair ValueMeasurements and Disclosures aboutthe Fair Valueof Financial Instruments

Fair ValueMeasurements

Fair value is defined in GAAP as the price that would be receivedto sell an asset or the price that would be paid to transfer aliability

on the measurement date. GAAP focuses on the exit price inthe principal or most advantageous market for the asset or liability inan

orderly transaction between market participants. A three-levelvaluation hierarchy is required for disclosure of fair value

measurements based upon the transparency of inputs to the valuation ofan 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) andthe

lowest priority to unobservable inputs (Level 3). The level in the fairvalue hierarchy within which the fair value measurement in its

entirety falls is determined based on the lowest level input thatis significant to the measurement in its entirety.

The Company’s balances measuredat fair value on a recurring basis include the followingas of June 30, 2020 and December 31,

2019:

June 30, 2020

December 31, 2019

Fair Value Measurements Using

Fair Value Measurements Using

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

(Dollars in thousands)

Assets

ABS

$

—

$

3,935

$

—

$

—

$

4,332

$

—

Municipal securities

—

2,733

—

—

3,129

—

Mutual fund

3,740

—

—

3,615

—

—

At this time, the Company has not elected to report any assetsand liabilities using the fair value option. There have beenno transfers

between Level 1 and Level 2 of the fair value hierarchy forany of the periods presented.

Non-Recurring Measurements

Non-recurring fair value measurements include assets and liabilitiesthat are periodically remeasured or assessed for impairmentusing

Fair value measurements. Non-recurring measurements includethe Company’s evaluation of goodwilland residual assets for

impairment, and the Company’s remeasurementof contingent consideration and assessment of the carrying amountof its servicing

liability.

For the six months ended June 30, 2020, the Company recognized$

6.7

million for the impairment of goodwill in the Consolidated

Statements of Operations, as discussed further in Note 7, Goodwilland Intangible Assets.For the six months ended June 30,2019,

there were no significant amounts recognized in the ConsolidatedStatements of Operations in connection with non-recurring fair

value measurements.

Fair Valueof Other Financial Instruments

The following summarizes the carrying amount and estimatedfair value of the Company’s other financialinstruments, including those

not measured at fair value on a recurring basis:

-32-

June 30, 2020

December 31, 2019

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

(Dollars in thousands)

Financial Assets

Cash and cash equivalents

$

211,706

$

211,706

$

123,096

$

123,096

Time deposits with banks

9,941

10,034

12,927

12,970

Restricted interest-earning deposits with banks

6,072

6,072

6,931

6,931

Loans, net of allowance

548,989

561,140

588,688

593,406

Federal Reserve Bank Stock

1,711

1,711

1,711

1,711

Financial Liabilities

Deposits

$

902,191

$

921,196

$

839,132

$

846,304

Long-term borrowings

50,890

51,469

76,091

76,781

There have been no significant changes in the methods and assumptionsused in estimating the fair values of financial instruments, as

outlined in our consolidated financial statements and note disclosuresin the Company’s Form 10-K forthe year ended December 31,

2019.

-33-

NOTE 12 – Earnings Per Share

The Company’s restricted stockawards are paid non-forfeitable common stock dividends andthus meet the criteria of participating

securities. Accordingly, earningsper share (“EPS”) has been calculated using the two-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 allocatedto 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 lossallocated to common stock by the weighted average numberof

common shares used in computing basic EPS, further adjustedby including the dilutive impact of the exercise or conversion of

common stock equivalents, such as stock options, into sharesof common stock as if those securities were exercised orconverted.

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

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(Dollars in thousands, except per-share data)

Basic EPS

Net (loss) income

$

(5,882)

$

6,115

$

(17,703)

$

11,256

Less: net income allocated to participating securities

—

(74)

—

(147)

Net (loss) income allocated to common stock

$

(5,882)

$

6,041

$

(17,703)

$

11,109

Weighted average commonshares outstanding

11,893,235

12,333,383

11,953,815

12,335,545

Less: Unvested restricted stock awards considered participating

securities

(132,756)

(148,387)

(135,502)

(160,170)

Adjusted weighted average common shares used in computing

basic EPS

11,760,479

12,184,996

11,818,313

12,175,375

Basic EPS

$

(0.50)

$

0.50

$

(1.50)

$

0.91

Diluted EPS

Net (loss) income allocated to common stock

$

(5,882)

$

6,041

$

(17,703)

$

11,109

Adjusted weighted average common shares used in computing

basic EPS

11,760,479

12,184,996

11,818,313

12,175,375

Add: Effect of dilutive stock-based compensation awards

—

81,855

—

84,624

Adjusted weighted average common shares used in computing

diluted EPS

11,760,479

12,266,851

11,818,313

12,259,999

Diluted EPS

$

(0.50)

$

0.49

$

(1.50)

$

0.91

For the three-month periods ended June 30, 2020and June 30,2019,weighted average outstanding stock-based compensation awards

in the amount of

289,635

and

174,458

, respectively, were considered antidilutiveand therefore were not considered in the

computation of potential common shares for purposes of dilutedEPS.

-34-

For the six-month periods ended June 30, 2020and June 30, 2019,weighted average outstanding stock-based compensation awards in

the amount of

297,057

and

187,093

, respectively, were consideredantidilutive and therefore were not considered in the computation

of potential common shares for purposes of diluted EPS.

NOTE 13 – Stockholders’ Equity

Share Repurchases

During the three-month period ended June 30, 2020,the Company did

0

t purchase any shares of its common stock under the 2019

Repurchase Plan. During the six-month period ended June 30,2020, the Company purchased

264,470

shares of its common stock

under a stock repurchase plan approved by the Company’sBoard of Directors on August 1, 2019 (the “2019 Repurchase Plan”)at an

average cost of $

16.09

per share.

During the three-month period ended June 30, 2019,the Company purchased

72,824

shares of its common stock in the open market

under the 2017 Repurchase Plan at an average cost of $

23.44

per share. During the six-month period ended June 30, 2019,the

Company purchased

102,771

shares of its common stock under a stock repurchase plan approvedby the Company’s Board of

Directors on May 30, 2017 (the “2017 Repurchase Plan”) at anaverage cost of $

23.57

per share.

At June 30, 2020, the Company had $

4.7

million of remaining authorizations under the 2019 Repurchase Plan.

In addition to the repurchases described above, participants inthe Company’s 2014 Equity CompensationPlan (approved by the

Company’s shareholders on June 3,2014) (the “2014 Plan”) may haveshares withheld to cover income taxes. During the three-month

periods ended June 30, 2020 and June 30, 2019, there were

1,897

shares and

536

shares repurchased to cover income tax withholding

under the 2014 Plan at an average cost of $

6.50

per share and $

22.81

per share, respectively. During thesix-month periods ended

June 30, 2020 and June 30, 2019, there were

23,020

and

19,446

shares repurchased to cover income tax withholding in connection

with shares granted under the 2014 Plan at average per-sharecosts of $

12.81

and $

22.74

, respectively.

Regulatory Capital Requirements

Through its issuance of FDIC-insured deposits, MBB serves as the Company’sprimary funding source. Over time, MBB may offer

other products and services to the Company’scustomer base. MBB operates as a Utah state-chartered, FederalReserve member

commercial bank, insured by the FDIC. As a state-chartered FederalReserve member bank, MBB is supervised by both the Federal

Reserve Bank of San Francisco and the Utah Department of FinancialInstitutions.

The Company and MBB are subject to capital adequacy regulationsissued jointly by the federal bank regulatory agencies. Theserisk-

based capital and leverage guidelines make regulatory capital requirementsmore sensitive to differences in risk profiles among

banking organizations and consider off-balance sheet exposures in determining capital adequacy.The federal bank regulatory agencies

and/or the U.S. Congress may determine to increase capital requirementsin the future due to the current economic environment.

Under the capital adequacy regulation, at least half of a banking organization’stotal capital is required to be "Tier1 Capital" as

defined in the regulations, comprised of common equity,retained earnings and a limited amount of non-cumulativeperpetual

preferred stock. The remaining capital, "Tier2 Capital," as defined in the regulations, may consist of other preferredstock, a limited

amount of term subordinated debt or a limited amount of thereserve for possible credit losses. The regulations establishminimum

leverage ratios for banking organizations, which arecalculated by dividing Tier 1 Capitalby total average assets. Recognizing that the

risk-based capital standards principally address credit risk rather than interestrate, liquidity, operationalor other risks, many banking

organizations are expected to maintain capital in excessof the minimum standards.

The Company and MBB operate under the Basel III capitaladequacy standards. These standards require a minimum for Tier1

leverage ratio of

4

%, minimum Tier 1 risk-based ratioof

6

%, and a total risk-based capital ratio of

8

%.The Basel III capital adequacy

standards established a new common equity Tier1 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 ofregulatory capital in excess of the regulatory minimum andto have a

capital buffer above

2.5

%. If a banking organization does not maintain capital abovethe minimum plus the capital conservation buffer

it may be subject to restrictions on dividends, share buybacks, andcertain discretionary payments such as bonus payments.

CMLA Agreement.

On March 25, 2020, MBB received notice from the FDIC thatit had approved MBB’s requestto rescind certain

nonstandard conditions in the FDIC’sorder granting federal deposit insurance issued on March 20,2007. Furthermore, effective

-35-

March 26, 2020,the FDIC, the Company and certain of the Company’ssubsidiaries terminated the Capital Maintenance and Liquidity

Agreement (the “CMLA Agreement”) and the Parent CompanyAgreement, each entered into by and among the Company,certain of

its subsidiaries and the FDIC in conjunction with the opening ofMBB.Asa result of these actions, MBB is no longer required

pursuant to the CMLA Agreement to maintain a total risk-basedcapital 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 capitalratio as discussed in the immediately preceding paragraph.The

additional capital released by the termination of the CMLA Agreementis 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 priortwo calendar years.Any dividends declared above that amount and

any return of permanent capital would require priorapproval of the Federal Reserve Board of Governors.

MBB’s Tier1 Capital balance at June 30, 2020 was$

133.6

million, which met all capital requirements to which MBB is subjectand

qualified MBB for “well-capitalized” status. At June 30, 2020,the Company also exceeded its regulatory capital requirements andwas

considered “well-capitalized” as defined by federal banking regulationsand as required by the FDIC Agreement.

CECL Capital Transition.

The Company adopted CECL, or a new measurement methodology forthe allowance estimate, on January

1, 2020, as discussed further in Note 2—Summary of Significant AccountingPolicies.Rules governing the Company’s regulatory

capital requirements give entities the option of delaying for two yearsthe estimated impact of CECL on regulatory capital, followed

by a three-year transition period to phase out the aggregate amountof 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 estimatedallowance for credit losses under CECL, as reported in its balance

sheets; and (ii) a measurement of its estimated allowance underthe historical incurred loss methodology,as prescribed by the

regulatory calculation.Any amount of provisions under CECL that is in excess of the incurredestimate will be an adjustment the

Company’s capital during the two-yeardelay.The three-year transition, starting in 2022, will phase in thatadjustment 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 regulatorycapital.

The following table sets forth the Tier1 leverage ratio, common equity Tier 1risk-based capital ratio, Tier 1 risk-based capitalratio

and total risk-based capital ratio for Marlin Business Services Corp.and MBB at June 30, 2020.

Minimum Capital

Well-Capitalized Capital

Actual

Requirement

Requirement

Ratio

Amount

Ratio

Amount

Ratio

Amount

(Dollars in thousands)

Tier 1 Leverage Capital

Marlin Business Services Corp.

15.05%

$

190,244

4.00%

$

50,558

5.00%

$

63,197

Marlin Business Bank

11.79%

$

133,551

4.00%

$

45,322

5.00%

$

56,652

Common Equity Tier 1 Risk-Based Capital

Marlin Business Services Corp.

19.33%

$

190,244

4.50%

$

44,282

6.50%

$

63,962

Marlin Business Bank

14.91%

$

133,551

4.50%

$

40,297

6.50%

$

58,207

Tier 1 Risk-based Capital

Marlin Business Services Corp.

19.33%

$

190,244

6.00%

$

59,042

8.00%

$

78,723

Marlin Business Bank

14.91%

$

133,551

6.00%

$

53,729

8.00%

$

71,639

TotalRisk-based Capital

Marlin Business Services Corp.

20.65%

$

203,178

8.00%

$

78,723

10.00%

$

98,404

Marlin Business Bank

16.23%

$

145,364

8.00%

$

71,639

10.00%

$

89,549

-36-

Prompt Corrective Action

.The Federal Deposit Insurance Corporation Improvement Act of1991 (“FDICIA”) requires the federal

regulators to take prompt corrective action against any undercapitalizedinstitution.Five capital categories have been established

under federal banking regulations:well-capitalized, adequately capitalized, undercapitalized,significantly undercapitalized and

critically undercapitalized.Well-capitalizedinstitutions significantly exceed the required minimum levelfor each relevant capital

measure.Adequately capitalized institutions include depository institutionsthat meet but do not significantly exceed the required

minimum level for each relevant capital measure. Undercapitalizedinstitutions consist of those that fail to meet the requiredminimum

level for one or more relevant capital measures.Significantly undercapitalized characterizes depository institutions withcapital levels

significantly below the minimum requirements for any relevant capitalmeasure.Critically undercapitalized refers to depository

institutions with minimal capital and at serious risk for governmentseizure.

Under certain circumstances, a well-capitalized, adequately capitalizedor undercapitalized institution may be treated as if the

institution were in the next lower capital category.A depository institution is generally prohibited from makingcapital distributions,

including paying dividends, or paying management fees to a holdingcompany if the institution would thereafter be undercapitalized.

Institutions that are adequately capitalized but not well-capitalizedcannot accept, renew or roll over brokered deposits except with a

waiver from the FDIC and are subject to restrictions on the interestrates that can be paid on such deposits. Undercapitalized

institutions may not accept, renew or roll over brokered deposits.

The federal bank regulatory agencies are permitted or,in certain cases, required to take certain actions with respect toinstitutions

falling within one of the three undercapitalized categories.Depending on the level of an institution’scapital, the agency’s corrective

powers include, among other things:

• prohibitingthe payment of principal and interest on subordinateddebt;

• prohibitingthe holding company from making distributions withoutprior regulatory approval;

• placinglimits on asset growth and restrictions on activities;

• placingadditional restrictions on transactions with affiliates;

• restrictingthe interest rate the institution may pay on deposits;

• prohibiting the institution from acceptingdeposits from correspondent banks; and

• in the most severe cases, appointing aconservator or receiver for the institution.

A banking institution that is undercapitalized is required tosubmit a capital restoration plan, and such a plan will not be accepted

unless, among other things, the banking institution’sholding company guarantees the plan up to a certain specified amount.Any such

guarantee from a depository institution’sholding company is entitled to a priority of payment in bankruptcy.

MBB’s total risk-based capitalratio of

1623

% at June 30, 2020 exceeded the threshold for “well capitalized”status under the

applicable laws and regulations.

Dividends

.The Federal Reserve Board has issued policy statements requiringinsured banks and bank holding companies to have an

established assessment process for maintaining capital commensuratewith their overall risk profile. Such assessment process may

affect the ability of the organizations to paydividends. Although generally organizations may pay dividendsonly out of current

operating earnings, dividends may be paid if the distribution is prudentrelative to the organization’sfinancial position and risk profile,

after consideration of current and prospective economic conditions.As of June 30, 2020, MBB does not have the capacity to pay

dividends to the Company without explicit approval from theFederal Reserve Board of Governors because of the currentperiod losses

and the amount of cumulative dividends paid over the past two years.

-37-

NOTE 14 – Stock-Based Compensation

Awards forStock-Based Compensation are governed by the Company’s2003 Equity Compensation Plan, as amended (the “2003

Plan”), the Company’s 2014Equity Compensation Plan (approved by the Company’sshareholders on June 3, 2014) (the “2014 Plan”)

and the Company’s 2019Equity Compensation Plan (approved by the Company’sshareholders on May 30, 2019) (the “2019 Plan”

and, together with the 2014 Plan and the 2003 Plan, the “Equity CompensationPlans”). Under the terms of the Equity Compensation

Plans, employees, certain consultants and advisors and non-employeemembers of the Company’s Boardof 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’sBoard of Directors.These award programs are used to attract, retain and motivate

employees and to encourage individuals in key managementroles to retain stock.The Company has a policy of issuing new shares to

satisfy awards under the Equity Compensation Plans. The aggregate numberof shares under the 2019 Plan that may be issued for

Grants is

826,036

. There were

541,222

shares available for future awards under the 2019 Plan as of June 30,2020.

There was

0

stock-based compensation expense recognized for the three-monthperiod ended June 30, 2020. Totalstock-based

compensation expense was $

1.0

million for the three-month period ended June 30, 2019.Total stock-based compensationexpense was

$

0.4

million and $

1.9

million for the six-month periods ended June 30, 2020 andJune 30, 2019, respectively. Excesstax benefits from

stock-based payment arrangements were less than $

0.1

million for the six-month period ended June 30, 2019.

Stock Options

Option awards are generally granted with an exercise price equalto the market price of the Company’sstock at the date of the grant

and have

7

year contractual terms.All options issued contain service conditions based on the participant’scontinued service with the

Company and provide for accelerated vesting if there is a change in controlas defined in the Equity Compensation Plans.Employee

stock options generally vest over

three

to

four years

.

There were

0

stock options granted during the three-month and six periods endedJune 30, 2020 and June 30, 2019, respectively.

The expected life for options is estimated based on their vesting andcontractual terms and was determined by applying the simplified

method as defined by the SEC’s StaffAccounting Bulletin No. 107 (“SAB 107”). The risk-free interest ratereflected the yield on

zero-coupon Treasury securities with a termapproximating the expected life of the stock options. Theexpected volatility was

determined using historical volatilities based on historical stockprices

.

A summary of option activity for the six-month period endedJune 30, 2020 follows:

Weighted

Average

Number of

Exercise Price

Options

Shares

Per Share

Outstanding, December 31, 2019

135,159

$

26.79

Granted

—

—

Exercised

—

—

Forfeited

(3,929)

27.31

Expired

(11,270)

26.41

Outstanding, June 30, 2020

119,960

26.82

The Company recognized $

0.1

million of compensation expense related to options during the three andsix-month periods ended June

30, 2020.The Company recognized $

0.1

million and $

0.2

million of compensation expense related to options during the threeand

six-month periods ended June 30, 2019.

There were

0

stock options exercised during the three or six-month periods endedJune 30, 2020 and June 30, 2019.

-38-

The following table summarizes information about the stockoptions outstanding and exercisable as of June 30, 2020:

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)

$

25.75

68,818

3.8

$

25.75

$

—

68,818

3.8

$

25.75

—

$

28.25

51,142

4.7

$

28.25

$

—

34,092

4.7

$

28.25

$

—

119,960

4.2

$

26.82

$

—

102,910

4.1

$

26.58

$

—

The aggregate intrinsic value in the preceding table representsthe total pretax intrinsic value, based on the Company’sclosing stock

price of $

8.46

as of June 30, 2020, which would have been received by the option holdershad all option holders exercised their

options as of that date.

As of June 30, 2020, there was $

0.1

million of unrecognized compensation cost related to non-vested stock optionsnot yet recognized

in the Consolidated Statements of Operations scheduled to be recognizedover a weighted average period of

0.7

year.

Restricted Stock Awards

The Company’s restricted stockawards provide that, during the applicable vesting periods,the shares awarded may not be sold or

transferred by the participant. The vesting period for restrictedstock awards generally ranges from

three

to

seven years

. All awards

issued contain service conditions based on the participant’scontinued service with the Company and may provide for accelerated

vesting if there is a change in control as defined in the Equity CompensationPlans.

The vesting of certain restricted shares may be accelerated toa minimum of

three years

based on achievement of various individual

performance measures. Acceleration of expense for awards basedon individual performance factors occurs when the achievement of

the performance criteria is determined.

Vestingwas accelerated in 2019 on certain awards based on the achievementof certain performance criteria determined annually,as

described below.

The Company also issues restricted stock to non-employee independentdirectors.These shares generally vest in

seven years

from the

grant date or

six months

following the director’s termination from Boardof Directors service.

The following table summarizes the activity of non-vested restrictedstock for the six-month period ended June 30, 2020:

Weighted

Average

Grant-Date

Non-vested restricted stock

Shares

Fair Value

Outstanding at December 31, 2019

143,935

$

21.88

Granted

45,830

8.64

Vested

(29,774)

22.02

Forfeited

(1,600)

25.67

Outstanding at June 30, 2020

158,391

17.98

��

-39-

During the three-month periods ended June 30, 2020and June 30,2019, the Company granted restricted stock awards with grant-date

fair values totaling $

0.4

million and $

0.1

million, respectively. During thesix-month periods ended June 30, 2020 and June 30,2019,

the Company granted restricted stock awards with grant-datefair values totaling $

0.4

million and $

0.1

million, respectively.

As vesting occurs, or is deemed likely to occur,compensation expense is recognized over the requisite serviceperiod and additional

paid-in capital is increased. The Company recognized $

0.1

million and $

0.2

million of compensation expense related to restricted

stock for the three-month periods ended June 30, 2020and June 30, 2019, respectively. TheCompany recognized $

0.2

million and

$

0.5

million of compensation expense related to restricted stock for the six-monthperiods ended June 30, 2020 and June 30, 2019,

respectively.

Of the $

0.2

million total compensation expense related to restricted stock for the six-monthperiod ended June 30, 2020,

0

expense

was related to accelerated vesting based on achievement of certain performancecriteria determined annually.Of the $0.5 million total

compensation expense related to restricted stock for the six-monthperiod ended June 30, 2019, approximately $

0.1

million related to

accelerated vesting during the first quarter of 2019,which was also based on the achievement of certain performance criteria

determined annually.

As of June 30, 2020, there was $

1.6

million of unrecognized compensation cost related to non-vested restrictedstock compensation

scheduled to be recognized over a weighted average periodof

5.0

years.

The fair value of shares that vested during the three-month periodsended June 30, 2020 and June 30, 2019 was $

0.1

million and $

0.3

million, respectively. Thefair value of shares that vested during the six-month periodsended June 30, 2020 and June 30, 2019 was

$

0.3

million and $

1.1

million, respectively.

Restricted Stock Units

Restricted stock units (“RSUs”) are granted with vesting conditionsbased on fulfillment of a service condition (generally three tofour

years from the grant date), and may also require achievementof certain operating performance criteria,achievement of certain market-

based targets associated with the Company’sstock price or relative total shareholder return, or acombination of both performance

criteria and market-based targets.

For those awards subject to achievement of certain marketperformance criteria, the market-based

target measurement period begins one year from the grantdate and ends three years from the grant date. Expense forequity-based

awards with market and performance conditions is recognizedover the performance period based on the grant-date fair value of the

award for those awards which are expected to beearned.

-40-

The following tables summarize restricted stock unit activity forthesix-month period ended June 30, 2020:

Weighted

Average

Number of

Grant-Date

Performance-based & market-based RSUs

RSUs

Fair Value

Outstanding at December 31, 2019

257,476

$

18.00

Granted

95,758

17.55

Forfeited

(5,081)

23.99

Converted

(13,810)

25.75

Cancelled due to non-achievement of market condition

(30,390)

25.65

Outstanding at June 30, 2020

303,953

16.64

Service-based RSUs

Outstanding at December 31, 2019

99,951

$

23.59

Granted

69,422

20.43

Forfeited

(19,299)

22.25

Converted

(39,879)

24.30

Outstanding at June 30, 2020

110,195

21.58

There were

0

RSUs with vesting conditions based solely on market conditions grantedduring the six-month periods ended June 30,

2020 and June 30, 2019,respectively. The weighted averagegrant-date fair value of RSUs with both performance and market-based

vesting conditions granted during the six-month periods endedJune 30, 2020 and June 30, 2019was $

12.90

and

12.91

per unit,

respectively. The weightedaverage grant date fair value of these performance and market-basedRSUs was estimated using a Monte

Carlo simulation valuation model with the following assumptions:

Six Months Ended June 30,

2020

2019

Grant date stock price

$

20.43

21.50

Risk-free interest rate

1.40

%

2.16

Expected volatility

26.18

%

26.68

Dividend yield

—

—

The risk free interest rate reflected the yield on zero coupon Treasurysecurities with a term approximating the expected life of the

RSUs. The expected volatility was based on historical volatilityof the Company’s commonstock. Dividend yield was assumed at zero

as the grant assumes dividends distributed during the performance periodare reinvested.When valuing the grant, we have assumed a

dividend yield of zero, which is mathematically equivalent toreinvesting dividends in the issuing entity.

-41-

There were

0

RSUs granted during the three-month periods ended June 30,2020 and June 30, 2019, respectively.During the six-

month periods ended June 30, 2020 and June 30, 2019,the Company granted RSUs with grant-date fair values totaling $

3.1

million

and $

3.4

million, respectively.The Company did

0

t recognize compensation expense related to RSUs for the three-monthperiod

ended June 30, 2020.The Company recognized $

0.7

million of compensation expense related to RSUs for the three-month period

ended June 30, 2019. The Company did

0

t recognize compensation expense related to RSUs forthe six-month period ended June 30,

2020.The Company recognized $

1.1

million of compensation expense related to RSUs for the six-month periodended June 30, 2019.

During the three-month period ended June 30, 2020the Company reversed $

0.7

million of previously recognized compensation

expense related to RSUs based on the adjustment of the most probableperformance assumptions related to certain non-market

performance awards.The fair value of restricted stock units that converted to shares of commonstock during the six-month periods

ended June 30, 2020 and June 30, 2019 was $

0.6

million and $

0.8

million, respectively. As of June 30,2020, there was $

2.1

million of

unrecognized compensation cost related to RSUs scheduled tobe recognized over a weighted average period of

1.5

years based on the

most probable performance assumptions. In the event maximum performancetargets are achieved, an additional $

8.1

million of

compensation cost would be recognized over a weighted average periodof

1.7

years.As of June 30, 2020,

64,260

performance units

are expected to convert to shares of common stock based on themost probable performance assumptions. In the event maximum

performance targets are achieved,

514,957

performance units would convert to shares of common stock.

NOTE 15 – Subsequent Events

The Company declared a dividend of $

0.14

per share on July 30, 2020. The quarterly dividend, which is expected toresult in a

dividend payment of approximately $

1.7

million, is scheduled to be paid on

August 20, 2020

to shareholders of record on the close of

business on

August 10, 2020

. It represents the Company’s thirty-sixth consecutivequarterly cash dividend. The payment of future

dividends will be subject to approval by the Company’sBoard of Directors.

In addition, see Note 6—"Allowance for Credit Losses” for an updateon our payment deferral contract modification program

subsequent to June 30, 2020.

-42-

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

The following discussion and analysis of our financialcondition and results of operations shouldbe read in conjunction with our

Consolidated Financial Statements and the relatednotes thereto in our Form 10-K for the yearended December 31, 2019 filed with

the SEC.

This discussion contains certain statements of a forward-looking nature that involve risks anduncertainties.

F

ORWARD

-L

OOKING

S

TATEMENTS

Certain statements in this document may include the words orphrases “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 theSecurities 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 relianceon these

forward-looking statements. Forward-looking statements aresubject to various known and unknown risks and uncertaintiesand the

Company cautions that any forward-looking information providedby or on its behalf is not a guarantee of future performance.

Statements regarding the following subjects are forward-looking by theirnature: (a) our business strategy; (b) our projectedoperating

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 resultscould differ materially from those anticipatedby such forward-looking statements due to a

number of factors, some of which are beyond the Company’scontrol, including, without limitation:

◾

availability, terms and deploymentof funding and capital;

◾

changes in our industry, interestrates, the regulatory environment or the general economy resultingin changes to our

business strategy;

◾

the degree and nature of our competition;

◾

availability and retention of qualified personnel;

◾

general volatility of the capital markets;

◾

the effects of the COVID-19 pandemic; and

◾

the factors set forth in the section captioned “Risk Factors” inItem 1 of our Form 10-K for the year ended December 31,

2019 and in Part II—Item 1A of this Form 10-Q.

Forward-looking statements apply only as of the date made andthe 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 statementscontained in the Private Securities Litigation Reform Act of 1995.As

used herein, the terms “Company,”“Marlin,” “Registrant,” “we,” “us” or “our” refer to Marlin BusinessServices Corp. and its

subsidiaries.

O

VERVIEW

Founded in 1997, we are a nationwide provider of creditproducts and services to small and mid-sized businesses. The productsand

services we provide to our customers include loans and leases for the acquisitionof commercial equipment (including Commercial

VehicleGroup (“CVG”) assets) and working capital 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”) andMarlin Business Bank (“MBB”) for our small business customers.

In 2008, we opened MBB, a commercial bank chartered by the Stateof Utah and a member of the Federal Reserve System. MBB

serves as the Company’s primaryfundingsource 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 contractsfor investor partners for a fee, and in September 2018,we completed

the acquisition of Fleet Financing Resources (“FFR”), an companyspecializing in the leasing and financing of both new and used

commercial vehicles, with an emphasis on livery equipment andother types of commercial vehicles used by small businesses.

We access ourend user customers primarily through origination sources consistingof independent commercial equipment dealers,

various national account programs, through direct solicitation of ourend user customers and through relationships with selectlease

and loan brokers. Weuse both a telephonic direct sales model and, for strategic largeraccounts, outside sales executives to market to

our origination sources and end user customers. Through these originationsources, we are able to cost-effectively access enduser

customers while also helping our origination sources obtain financingfor their customers.

-43-

We fund ourbusiness primarily through the issuance of fixed and variable-rateFDIC-insured deposits and money market demand

accounts raised nationally by MBB, sales of pools of leases orloans, as well as, from time to time, fixed-rate asset backed

securitization transactions.

E

XECUTIVE

S

UMMARY

Summary

Through the second quarter, the impactsof the COVID-19 pandemic continued to be experiencedby our business. Origination

volumes for both equipment finance and working capital loanswere down, a combined decrease of almost 70% from thesecond

quarter of 2019.While we have tightened our underwriting standards for all of our products,the decline in volume is primarily due to

decreased demand during this period of business shutdowns andeconomic uncertainty.We expect ourorigination volumes for the

second half of 2020 will be negatively impacted as the effectsof the pandemic continue and this period of uncertainty continues to

impact the macroeconomic environment.Given the ongoing health crisis in the United States, especially therecent COVID-19 flare-

ups in the south and west, any return to pre-pandemic levels ofactivity remains uncertain.

We implementeda payment deferral contract modification program to assistour customers who, during this period of economic

decline, were current under their existing obligations.As of June 30, 2020, we had $133.8 million, or 13.7%, of our Net investmentin

leases and loans in payment deferral agreements,and on average the term of the modified contracts had increasedby three months.

We have begun to extendthe deferrals for certain customers using specific underwritingcriteria,for up to six months of total

modification.

As our contract modification program will allow for up-to six monthsof payment deferrals, and the program began in late March,the

ultimate performance of this portfolio and the customers’ability to resume full payment will be shown generally startinglate in the

third quarter or going into the fourth quarter of this year.Based on their modified terms as of June 30, 2020,25% of our total

modified contracts had already resumed their regular payment schedulebefore the end of the second quarter,72%were scheduled to

resume payment in the third quarter and the remaining 3% werescheduled to resume payment in the fourth quarter.We are closely

monitoring the payment performance of our customers as theirpost-deferral obligations become due.While most modification

extensions require partial payments, the ability of these customersto resume their scheduled payment obligations under their contract

has yet to be confirmed.Additionally, their ability to resumepayment may be highly impacted by the extent and duration of the

continued impacts of the pandemic, which remains uncertain.

Our delinquency statistics as of June 30, 2020 measure the portfoliobased on their current effective terms, which would include

intervals of either full or partial payment deferral for the modifiedportfolio.For Equipment Finance and WorkingCapital, 12.5% and

42.4% of the respective portfolios were in the modification program.The 60+ delinquency rate for Equipment Finance has increased

to 2.52% as of June 30, 2020 from 0.86% at December 31,2019.The 30+ delinquency rate for WorkingCapital has increased to

2.68% as of June 30, 2020 from 1.42% at December 31,2019. Further, these delinquency rates have doubledfrom the quarter ended

March 31, 2020.

Year-to-date, we have recognized $34.7 million of increases toour allowance for qualitative and forecast adjustments as a result of the

expected impacts of the COVID-19 pandemic on our portfolio.These increases include $15.5 million of provision recognizedin the

second quarter, and $19.2 million in thefirst quarter.Our allowance as a percent of receivables has increased for EquipmentFinance

to 6.00% from 2.05% at December 31, 2019, and increasedfor Working Capitalto 18.92% from 3.12% at December 31,2019.

Our total Allowance of $63.6 million as of June 30, 2020incorporates all of our current judgments about the impact of the COVID-19

pandemic on our portfolio.Our estimate of credit losses is based on our assessment of therisks to our portfolio, including certain

economic assumptions driven by forecasted unemployment and businessbankruptcy 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 from COVID-19. All of the assumptionsand expectations underlying our estimate of credit loss depend

largely on future developments, and these estimates arehighly uncertain;the ultimate amount of credit losses we may realize on our

portfolio may vary from our current estimate.We may recognize creditlosses in excess of our reserve, or adjustments to our required

reserve based on future performance,and such adjustments may be significant, based on: (i)the actual performance of our portfolio,

including the performance of the modified portfolio;(ii) any further changes in the economic environment; or (iii)other developments

or unforeseen circumstances that impact our portfolio.

-44-

We recognizeda $5.9 million Net loss for the quarter,driven largely by the $15.5 million COVID-relatedprovision for loan loss.We

began efforts to tighten our expense base, putting approximately120 employees on furlough in mid-April.In June, we made the

decision to permanently reduce our workforce by approximately80 employees, which reduced our headcount to approximately250

employees at the end of July,down from approximately 350 employees as of December 31,2019.Our total Salaries and benefits was

$7.7 million for the second quarter of 2020, which is $4.8million lower than the same quarter of 2019.That reduction reflects $1.7

million of lower salary expense, primarily driven by reducedheadcount from the furlough, partially offset by $0.9million of

severance recognized, plus $1.9 million lower incentive compensation cost and$2.1million of lower commission expense.We also

made the decision to exit one office lease as part of ourcost reduction efforts, and recognized $0.2 million of costsassociated with

that planned exit.We continueto assess all other aspects of our expense base in order tostabilize our operations and minimize the

negative impacts of the ongoing pandemic.

Through the second quarter, our employeescontinue to work remotely,and we have not experienced any significant interruption to

our operations from that transition.We continue toassess how to best evolve our operations and how to best serve our customersin

this changing environment.

-45-

F

INANCE

R

ECEIVABLESAND

A

SSET

Q

UALITY

The following table summarizes certain portfolio statistics forthe periods presented:

June 30,

March 31,

December 31,

June 30,

2020

2020

2019

2019

(Dollars in thousands)

Finance receivables:

End of period

$

974,679

$

1,022,135

$

1,007,706

(1)

$

1,057,727

(1)

Average for the quarter

(1)

979,313

1,008,823

1,034,464

1,031,774

Origination Volume- three months

(6)

65,419

157,391

215,161

209,317

Origination Volume- six months, through June 30

(6)

222,810

—

—

402,757

Assets Sold - three months

1,127

22,929

114,483

57,640

Assets Sold - six months, through June 30

24,056

—

—

110,507

Leases and Loans Modified:

(3)

Payment deferral program

(2)

End of period

$

133,817

$

19,518

—

—

As a % of end of period receivables

(1)

13.7%

1.9%

—

—

Other Restructured leases and loans, end of period

$

1,751

$

3,095

$

2,668

$

3,122

Allowance for credit losses :

(4)

End of period

$

63,644

$

52,060

$

21,695

$

16,777

As a % of end of period receivables

(1)

6.53%

5.09%

2.15%

1.59%

Annualized net charge-offs

to average total finance receivables(quarter)

(1)

3.47%

3.11%

3.00%

1.88%

Delinquencies, end of period:

(3)(5)

Equipment Finance and CVG:

Greater than 60 days past due, $

$

23,353

$

10,156

$

8,112

$

6,593

Greater than 60 days past due, %

2.52%

1.05%

0.86%

0.66%

Working Capital:

Greater than 30 days past due, $

$

1,130

$

673

$

855

$

240

Greater than 30 days past due, %

2.68%

1.14%

1.42%

0.47%

__________________

(1)

For purposes ofasset quality andallowance calculations, theeffects of (i)the allowance forcredit losses and(ii) initial directcosts and fees

deferred are excluded.

(2)

Contracts that arepart of ourPayment-deferral modification program,that allows foreither full orpartial payment deferral,will appear inour

Delinquency and Non-Accrual measures based on their performance against their modified terms.See further discussion ofour Loan

modification program below.

(3)

No renegotiated leasesor loans metthe definition ofa TroubledDebt Restructuring forany period presented,including our paymentdeferral

modifications, as discussed further below.

(4)

The December 31,2019 end ofperiod allowance and% of receivableswere $33,603 and3.27%after the January 1,2020 adoption ofCECL.

See further discussion below.

(5)

Calculated as a percentage of net investment in leases and loans.

(6)

Amount of originationsfor the three andsix months ended June30, 2020 presentedabove excludes $4.2 millionof loans originatedunder the

Paycheck Protection Program (PPP).

-46-

For three and six months ended June 30, 2020, we have recognized$15.5 million and $34.7 million of provision for credit losses,

respectively, driven by qualitativeand forecast adjustments tothe allowance for credit losses as a result of the economic impact of the

COVID-19 pandemic.The COVID-19 pandemic, business shutdowns and impacts to ourcustomers, are still ongoing, and the extent

of the effects of the pandemic on our portfoliodepends on future developments, which are highly uncertain and aredifficult to predict.

Further, we instituted a Loan modificationpayment deferral program, as discussed further below,to give payment relief to customers

during this period.As of June 30, 2020, the performance of loans modified under that programremains uncertain.

Our reserve as of June 30, 2020, and the qualitative and economicadjustments outlined below in our Provision discussion,were

calculated referencing our historical loss experience, including lossexperience through the 2008 economic cycle, and our adjustments

to that experience based on our judgements about the expectedimpact of the COVID-19 pandemic.Those judgements include certain

expectationsfor the extent and timing of impacts from COVID-19 on unemploymentrates and business bankruptcies and are based on

our current expectations of the performance of our portfolio inthe current environment.We may recognizecredit losses in excess of

our reserve, or increases to our estimated expected credit losses, in the future, and such increases may be significant, basedon: (i) the

actual performance of our portfolio, including the performanceof the modified portfolio;(ii) any further changes in the economic

environment; or (iii) other developments or unforeseen circumstancesthat impact our portfolio.

Loan Modification Program.

In response to COVID-19, starting in mid-March 2020,we instituted a payment deferral program in order to assist our small-business

customers that request relief who are current under their existingobligations.Our COVID-19 modification program allows for up to 6

months of deferred payments.We typically processedfirst requests to defer customers for up to 3 months; startingin July, we have

been evaluating and processing requests to extend the modificationperiod for certain customers using specific underwriting criteria,

such that the modification terms may extend to up to 6months in total.

The below table outlines certain data on the modified populationbased on the balance and status as of June 30, 2020.See discussion

below the table on the status of this population subsequent toquarter-end.

Equipment

Working

Finance

Capital

Total

(Dollars in thousands)

Net investment in leases and loans

Completed modifications

$

115,941

$

17,876

$

133,817

% of total segment

12.5%

42.4%

13.7%

Interest income recognized for the three months

ended June 30, 2020 on modified loans

(1)

$

2,295

$

1,633

$

3,928

Number of modifications (units)

Modified and Active

4,564

453

5,017

Modified and Resolved

(2)

56

15

71

Not Processed

(3)

3,107

84

3,191

Total Applications - ownedportfolio

7,727

552

8,279

Weighted-averagetotal term (months)

before modification

56.0

15.7

after modification

59.0

18.9

_________________

(1)

We did not account for these modifications as TDR, as allowed by interagency guidance issued in April 2020.As such these loans were

not put on non-accrual upon modification.The amount presented for interest income reflects total income recognized for the three months,

for any loan that was modified in the quarter.

(2)

Resolved population through June 30, 2020 includes:for Equipment Finance, 55 loans paid in full and 1 charge-off, and for Working

Capital, 11 loans paid in full and 4 charge-offs.

-47-

(3)

Requests not processed includes requests declined or cancelled by the customer, requests declined by the Company, andan insignificant

amount of requests in process pending underwriting or without finalized documentation as of June 30, 2020.

Through June 30, 2020, the first round of modifications processedfor Equipment Finance generally consisted of adding threemonths

of $0 payments, or fully deferred payments.As a result, the weighted-average total contract yield for this population declinedby 35

basis points.The extension requests we are currently processing forEquipment Finance, to extend the term of the deferral toup to 6

months total, are generally being processed to require a partialpayment during the deferral period, with additions to the customers’

post-deferral payments to achieve a consistent level of yield.

Through June 30, 2020, the modifications processed for WorkingCapital have generally consisted of up to 6 months of partial-

payment deferral, with additions to the customers post-deferralpayments to achieve a consistent level of yield.

Through July 24, 2020, we processed modifications for an additional$5.9 million of Equipment Finance net investment and additions

to the modified population for WorkingCapital were not significant.

Portfolio Trends

During the three months ended June 30, 2020,we generated 3,178 new Equipment Finance leases and loans with equipmentcosts of

$64.6 million, compared to 7,648 new Equipment Finance leases andloans with equipment costs of $181.8 million generatedfor the

three months ended June 30, 2019.Working Capital loanoriginations were less than $1.0 million during the three-monthperiod ended

June 30, 2020,compared to $27.5 million for the three-month period ended June 30,2019.

Overall, our average net investment in total finance receivablesfor the three-month period ended June 30, 2020 decreased5.1% to

$979.3 million, compared to $1,031.8 million for the three-month periodended June 30, 2019.Our origination volumes in the three

months ended June 30, 2020 were lower than our historical norms,primarily driven by decreased demand attributable toCOVID-19

related business shutdowns and other macroeconomic factors.We expect ourorigination volumes for the third quarter of 2020 will

continue to be negatively impacted by these factors, and ourportfolio of receivables may continue to decline as long as ourorigination

volumes are less than portfolio runoff.Given the ongoing health crisis in the United States, especially therecent COVID-19 flare-ups

in the south and west, any returns to pre-pandemic levels of activityremains uncertain.

The following table outlines the delinquency status of the Company’sportfolio as of June 30, 2020, including information on the

population of restructured contracts, and contracts with restructurerequests:

Net Investment (in thousands)

Delinquency Rate by population

30

60

90+

Current

Total

30

60

90+

Current

Total

Equipment Finance

Non-Restructured Portfolio:

Modification not requested

$8,150

$7,625

$6,745

$744,616

$767,136

1.06%

0.99%

0.88%

97.07%

100%

Requested, Not Processed

(1)

4,289

5,793

3,061

31,287

44,430

9.65%

13.04%

6.89%

70.42%

100%

Total Non-Restructured

12,439

13,418

9,806

775,903

811,566

1.53%

1.65%

1.21%

95.61%

100%

Restructured Portfolio

424

109

21

115,387

115,941

0.37%

0.09%

0.02%

99.52%

100%

TotalEquipment Finance

$12,864

$13,527

$9,826

$891,290

$927,507

1.39%

1.46%

1.06%

96.09%

100%

-48-

Net Investment (in thousands)

Delinquency Rate by population

15

30

60+

Current

Total

15

30

60+

Current

Total

Working Capital

Non-Restructured Portfolio:

Modification not requested

$98

$212

$368

$22,243

$22,921

0.43%

0.92%

1.60%

97.05%

100%

Requested, Not Processed

(1)

7

13

81

1,180

1,281

0.58%

1.05%

6.35%

92.02%

100%

Total Non-Restructured

105

225

449

23,423

24,202

0.44%

0.93%

1.85%

96.78%

100%

Restructured Portfolio

608

242

212

16,814

17,876

3.40%

1.35%

1.18%

94.07%

100%

TotalWorking Capital

$713

$467

$661

$40,237

$42,078

1.69%

1.11%

1.57%

95.63%

100%

_________________

(1)

Represents a subset of modification requests where the customer contacted the Company to initiate a modification, but the request was not

processed.This includes requests cancelled because the customer declined the revised terms or did not finalize documents, requests

declined by the Company, as well as an insignificant amount of requests that were in-process at the end of the second quarter.

Contracts that are part of the payment deferral modification programwill be reflected in our Delinquency and Non-Accrual measures

based on their performance against their modified terms.

Equipment Finance receivables over 30 days delinquent were390 basis points as of June 30, 2020, up 208 basis points from March

31, 2020, and up 284 basis points from June 30, 2019.Working Capital receivablesover 15 days delinquent were 438 basis points as

of June 30, 2020, up 183 basis points from March 31, 2020and up 386 basis points from June 30, 2019.

Equipment Finance leases and loans are generally charged-off when they are contractually past due for 120 days ormore.Working

Capital loans are generally charged-off at 60days past due. Annualized second quarter total net charge-offs were 3.47% of average

total finance receivables versus 3.11%in the first quarter of 2020 and 1.88% a year ago.

Through the end of the second quarter,we have not yet begun to experience any material increase in charge-offs driven by the impact

of COVID-19.We arecontinuing to evaluate the delinquency trends of the non-modified portfolio,and we are monitoring the

payment performance of the modified portfolio as those customersbegin to resume payment. Based on their modified terms asof June

30, 2020, 25% of our total modified contracts had already resumedtheir regular payment schedule before the end of the second

quarter, 72% were scheduled to resume paymentin the third quarter and the remaining 3% were scheduled to resumepayment in the

fourth quarter.We areclosely monitoring the payment performance of our customers as theirpayments post-deferral become due.

While most modification extensions require partial payments, the abilityof these customers to resume their scheduled obligation of

their contract has yet to be confirmed.Additionally, their ability to resumepayment may be highly impacted by the extent and

duration of the continued impacts of the pandemic, which remainsuncertain.

In accordance with interagency guidance as amended in April2020, as affirmed by the FASB,we are not accounting for our payment-

deferral modified loans as TDRs, and we are continuing to accrueinterest on those loans.For the three months ended June 30, 2020,

we recognized total Interest income of $3.93 million on loans in ourCOVID-19 loan modification program.

-49-

The following table summarizes non-accrual leases and loansin the Company’s portfolio:

June 30,

March 31,

December 31

June 30,

2020

2020

2019

2019

(Dollars in thousands)

Equipment finance

$

9,205

$

5,357

$

4,256

$

3,494

Working capital

1,189

755

946

284

CVG

637

593

389

199

CRA and PPP

—

—

—

—

Total non-accrual leasesand loans

$

11,031

$

6,705

$

5,591

$

3,977

Through June 30, 2020, the increase in leases and loans on non-accrualreflects the growth in delinquencies in our portfolio.Income

recognition is discontinued on Equipment Finance leases orloans, including CVG loans, when a default on monthly paymentexists

for a period of 90 days or more. Income recognition resumeswhen the lease or loan becomes less than90 days delinquent.Working

Capital Loans are generally placed in non-accrual status when theyare 30 days past due. The loan is removed from non-accrualstatus

once sufficient payments are made to bring the loancurrent and evidence of a sustained performance periodas reviewed by

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

Portfolio Concentration.

The following table summarizes the concentrations of our portfolioof net investment in leases and loans as of June 30, 2020by state

and industry:

Top 10 Industries, by BorrowerSIC Code

Top 10 States

Equipment

Equipment

Finance

Working

Finance

Working

and CVG

Capital

and CVG

Capital

Medical

13.0

%

8.4

%

CA

13.8

%

11.1

%

Misc. Services

12.4

8.2

TX

11.7

10.5

Retail

10.4

13.1

FL

9.7

8.6

Construction

8.7

13.1

NY

6.8

5.7

Restaurants

7.5

8.2

NJ

4.6

6.7

Professional Services

6.6

5.4

PA

3.6

5.4

Manufacturing

5.9

9.2

GA

3.4

4.6

Transportation

5.3

3.0

IL

3.3

4.0

Trucking

4.5

2.3

NC

3.1

2.6

Automotive

3.4

6.4

MA

3.0

2.1

All Other

22.3

22.7

All Other

37.0

38.7

Total

100

%

100

%

Total

100

%

100

%

As a result of the COVID-19 pandemic, we have been continuallyassessing the risks to our portfolio, including considerationof high-

risk industries and geographic locations that are being more significantlyimpacted by the spread of COVID-19.

While we are attempting to mitigate the impact of the COVID-19 pandemic on our portfolio, by tightening underwriting standardsfor

areas of elevated risk and by assisting borrowers that have been negativelyimpacted, the extent of the impacts of COVID-19 on our

portfolio remains uncertain.

-50-

Allowance for credit losses.

The following table provides a rollforward of our Allowance forcredit loss:

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

(Dollars in thousands)

Allowance for credit losses, December 31, 2019

$

21,695

Adoption of ASU 2016-13 (CECL)

11,908

Allowance for credit losses, beginning of period

$

52,060

$

16,882

33,603

$

16,100

Provision for credit losses

18,806

4,756

43,956

10,119

Net Charge-offs:

Equipment Finance

(6,995)

(4,026)

(12,960)

(7,626)

Working Capital

(669)

(551)

(1,910)

(1,204)

CVG

(830)

(284)

(1,470)

(612)

Net Charge-offs

(8,494)

(4,861)

(16,340)

(9,442)

Realized cashflows from Residual Income

1,272

—

2,425

—

Allowance for credit losses, end of period

$

63,644

$

16,777

$

63,644

$

16,777

The allowance forcredit losses as apercentage of total financereceivables increased to6.53% as of June30, 2020,from 2.15% as of

December 31,2019.This increasein reservecoverage isprimarily drivenby an$11.9 millionincrease fromthe January 1,2020

adoption of CECL, anda $34.7 million Provisionfor credit losses recognizedas a result ofqualitative and forecast adjustmentsin the

six months ended June 30,2020 as a result of the estimated impact to the portfolio from theCOVID-19 pandemic.

Provision for creditlosses

.

The provision forcredit losses recognizedafter the adoptionof CECL isprimarily drivenby origination volumes,offset bythe

reversal of theallowance for anycontracts sold, plusadjustments for changesin estimate eachsubsequent reporting period.For

2020, giventhe widechanges inthe macroeconomicenvironment drivenby COVID-19, thechanges inestimate isthe most

significant driverof provision.In contrast, theallowance estimaterecognized in2019 underthe probable,incurred modelwas

based on the current estimate of probable net creditlosses inherent in the portfolio.

For the three months endedJune 30,2020, the $18.8 million provisionfor credit losses recognized was$14.0 million greater than

the $4.8million provision recognizedfor the threemonths endedJune 30,2019.For thesix months endedJune 30,2020, the

$44.0 million provision forcredit losses recognized was$33.9 million greater thanthe $10.1 million provisionrecognized for the

three months endedJune 30, 2019.The provision includedCOVID-related forecast andqualitative adjustments of$15.5 million

for the three months ended June 30, 2020, and $34.7 million forthe six months ended June 30, 2020.

Our estimateof COVID-related lossesfor theEquipment Financeportfolio isprimarily drivenby updatesto areasonable and

supportable forecast basedon the modeledcorrelation of changesin the lossexperience of theour portfolio tocertain economic

statistics, specificallychanges inthe unemployment rateand changesin thenumber ofbusiness bankruptcies.Our COVID-

provision forEquipment Financewas $10.8million for thefirst quarterof 2020,and $10.1million for thesecond quarter,and

those provision levelswere calculated usinga 6-month periodfor the economicstatistics.In the secondquarter, theincrease in

provision estimate was drivenby the forecasted economicconditions getting worse thanwhat was expected atthe end of the first

quarter.In addition, as of June 30,we further increased our reserve fora $3.4 million qualitative adjustmentbased on an analysis

that incorporates the current forecasted peak levels of unemploymentand business bankruptcy.

-51-

For the CVG and WorkingCapital portfolio segments, our estimateof increased losses isbased on qualitative adjustments,taking

into consideration alternativescenarios to determinethe Company’sestimate of theprobable impact ofthe economic shutdown.

The COVID-related provision for CVG was $2.8million for the first quarter of 2020, and$0.4 million for the second quarter.The

COVID-related provisionfor WorkingCapital was$5.5 millionfor thefirst quarterof 2020,and $1.5million forthe second

quarter.

The qualitative and economicadjustments to our allowancetake into consideration informationand our judgmentsas of June 30,

2020, and arebased in parton an expectationfor the extentand timing ofimpacts from COVID-19 on unemploymentrates and

business bankruptcies, andare based onour current expectationsof the performanceof our portfolioin the currentenvironment.

The COVID-19 pandemic,and related businessshutdowns, is stillongoing, and theextent of theeffects of thepandemic on our

portfolio depends on future developments, whichare highly uncertain and are difficultto predict.We may recognizecredit losses

in excess ofour reserve,or increasesto ourcredit loss estimate,in the future,and such increasesmay be significant,based on

future developments.

Net Charge-offs.

Equipment Financeand TFGreceivables aregenerally charged-off whenthey arecontractually pastdue for120 daysor more.

Working Capital receivablesare generally charged-off at 60 days pastdue.

Total portfolionet charge-offs forthe threemonths endedJune 30,2020 were$8.5 million(3.47%of averagetotal finance

receivables on anannualized basis), comparedto $7.7 million(3.00%) for thethree months endedDecember 31, 2019,and $4.9

million (1.88%) forthe threemonths endedJune 30,2019.Compared tothe samequarter ofthe prioryear, theCompany is

experiencing elevatednet charge-offs, dueprimarily toeconomic headwindsthat alreadyexisted as ofDecember 31,2019 that

were disproportionally impacting the small business and lowercredit quality borrowers inour portfolio.

Through the end of the second quarter,our charge-offs are only slightly elevated comparedto the levels in December.We believe

we have not yet begun to experience the full impact of expectedlevels of elevated charge-offs as a result of theCOVID-19

pandemic.However, we are seeing portfolio trendsthat indicate that we will begin to realize those elevatedlevels in the third

quarter of 2020.As of June 30, 2020, our portfolio delinquency rates have doubledfrom the quarter ended March 31, 2020, or a

$13.1 million increase in Equipment Finance leases and loans 60+days past due, and $0.5 million increase in Workingcapital

loans 30+ past due.Further, a large amount of ourportfolio is under deferred payment through our modification program,as

discussed above.We arecontinually monitoring the performance of our portfolio and assessing all relatedrisks to ensure that our

allowance estimate is sufficient to cover the expectedlosses from COVID-19.See further discussion with the Provision above

about the risks to our reserve estimate, and discussion with PortfolioTrends above about current delinquency levels.

Residual Income.

Residual incomeincludes incomefrom leaserenewals andgains andlosses onthe realizationof residualvalues ofleased

equipment disposed atthe end of term

In 2019 andprior years, t

he Company had previouslyrecognized residual incomewithin

Fee Incomein itsConsolidated Statementsof Operations;the adoptionof CECLresults inany realizedamounts ofresidual

income beingcaptured asa componentof theactivity ofthe allowancebecause theCompany’s estimateof creditlosses under

CECL takes into consideration all cashflows the Company expectsto receive or derive from the pools of contracts.

Adoption of ASU 2016-13 / CECL.

Effective January 1,2020, we adoptednew guidance for accountingfor our allowance,or ASU 2016-13, Financial Instruments-

Credit Losses(Topic326): Measurementof CreditLosses onFinancial Instruments(“CECL”).CECL replacesthe probable/

incurred lossmodel thatwe historicallyused tomeasure ourallowance, witha measurementof expectedcredit lossesfor the

contractual termof ourcurrent portfolioof loansand leases.Under CECL,an allowance,or estimateof creditlosses, will be

recognized immediatelyupon the originationof a loanor lease,and will beadjusted in eachsubsequent reportingperiod.This

estimate of credit losses takes into considerationall remaining cashflows the Company expectsto receive or derive from the pools

of contracts, includingrecoveries aftercharge-off, accruedinterest receivable andcertain future cashflowsfrom residual assets.

The provisionfor creditlosses recognizedin our ConsolidatedStatements of Operationsunder CECL,starting in2020, willbe

primarily drivenby originationvolumes, offsetby thereversal ofthe allowancefor anycontracts sold,plus adjustmentsfor

changes inestimate eachsubsequent reportingperiod, includingadjustments foreconomic forecastswithin areasonable and

supportable time period.

-52-

The impactof adoptingCECL effectiveJanuary 1,2020 includeda $11.9million increase tothe allowance,an $8.9million

decrease toRetained earningsand $3.0million impactto ourNet deferredincome taxliability.See Note2 –

Summary of

Significant Accounting Policies

, for further discussion of the adoptionof this accounting standard, and seeNote 6 –

Allowance for

Credit Losses

, for furtherdiscussion of theCompany’s methodologyfor measuring itsallowance as ofthe adoption date.Also,

see –

Executive Summary

and Note 13–

Stockholders’ Equity

, for discussionof our electionto delay fortwo-years the effectof

CECL on regulatory capital, followed by a three-year phase-in, or a five-year total transition.

Our recorded allowancereflects our currentestimate of theexpected credit lossesof all contractscurrently in portfolio,based on our

current assessment of information regarding the risks of our current portfolio,default and collection trends, a reasonable and

supportable forecastof economicfactors, qualitativeadjustments basedon ourbest estimateof expectedlosses forcertain portfolio

segments, amongother internaland externalfactors.Our allowancemeasurement isan estimate,is inherentlyuncertain, andis

reassessed at each measurement date.Actual performance of our portfolio and updates to other informationinvolved in our

assessment may drivechanges in modeledassumptions, may causemanagement to adjustthe allowance estimatethrough qualitative

adjustments and/or may result in actual losses that vary significantly fromof our current estimate.

-53-

R

ESULTSOF

O

PERATIONS

Comparison of the Three-Month Periods Ended June 30,2020 and June 30, 2019

Net income.

Net loss of $5.9 million was reported for the three-month periodended June 30, 2020,resulting in diluted loss per share of $0.50,

compared to net income of $6.1 million and diluted EPS of $0.49for the three-month period ended June 30, 2019.This $12.0 million

decrease in Net income was primarily driven by:

-

($14.1 million) increase in Provision for credit losses, primarily drivenby updates to the Company’sestimate, 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 creditloss.See further discussion of the Provision and

the change in measurement in the prior section “—

Finance Receivables and Asset Quality”;

-

$3.9 million decrease in Interest and fee income, driven primarily bya decline in the size of our finance receivable portfolio;

-

$3.3 million decrease in gains on leases and loans sold due toa decrease in assets sold resulting from disruptions in the

capital markets during this current economic environment;

-

$4.8 million decrease in Salaries and benefits, driven primarily by lowerCommissions, Incentives and the Company’s

proactive cost reduction measures.

Average balancesand net interest margin.

The following table summarizes the Company’saverage balances, interest income,

interest expense and average yields and rates on majorcategories of interest-earning assets and interest-bearing liabilitiesfor the three-

month periods ended June 30, 2020 and June 30, 2019.

-54-

Three Months Ended June 30,

2020

2019

(Dollars in thousands)

Average

Average

Average

Yields/

Average

Yields/

Balance

(1)

Interest

Rates

(2)

Balance

(1)

Interest

Rates

(2)

Interest-earning assets:

Interest-earning deposits with banks

$

218,748

$

31

0.06

%

$

129,210

$

752

2.33

%

Time Deposits

12,248

60

1.97

11,715

72

2.46

Restricted interest-earning deposits with banks

7,046

-

0.01

14,671

28

0.77

Securities available for sale

10,481

52

1.98

10,674

74

2.76

Net investment in leases

(3)

885,482

19,236

8.69

942,517

21,556

9.15

Loans receivable

(3)

93,832

4,868

20.75

89,257

4,600

20.61

Totalinterest-earning assets

1,227,837

24,247

7.90

1,198,044

27,082

9.04

Non-interest-earning assets:

Cash and due from banks

5,655

5,319

Allowance for loan and lease losses

(50,963)

(16,915)

Intangible assets

7,192

8,070

Goodwill

-

6,735

Operating lease right-of-use assets

8,530

6,935

Property and equipment, net

8,488

3,996

Property tax receivables

9,975

8,479

Other assets

(4)

34,303

37,957

Totalnon-interest-earning assets

23,180

60,576

Totalassets

$

1,251,017

$

1,258,620

Interest-bearing liabilities:

Certificate of Deposits

(5)

$

891,141

$

4,741

2.13

%

842,274

$

5,042

2.39

%

Money Market Deposits

(5)

52,765

73

0.56

23,715

158

2.66

Long-term borrowings

(5)

56,957

613

4.30

120,407

1,208

4.01

Totalinterest-bearing liabilities

1,000,863

5,427

2.17

986,396

6,408

2.59

Non-interest-bearing liabilities:

Sales and property taxes payable

7,075

8,213

Operating lease liabilities

9,403

9,094

Accounts payable and accrued expenses

17,587

27,315

Net deferred income tax liability

26,576

24,601

Totalnon-interest-bearing liabilities

60,641

69,223

Totalliabilities

1,061,504

1,055,619

Stockholders’ equity

189,513

203,001

Totalliabilities and stockholders’ equity

$

1,251,017

$

1,258,620

Net interest income

$

18,820

$

20,674

Interest rate spread

(6)

5.73

%

6.45

%

Net interest margin

(7)

6.13

%

6.90

%

Ratio of average interest-earning assets to

average interest-bearing liabilities

122.68

%

121.46

%

__________________

(1)

Average balances were calculated using average daily balances.

-55-

(2)

Annualized.

(3)

Average balances ofleases and loansinclude non-accrual leases andloans, and are presentednet 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 transactioncosts. Amortization of transaction costsis on a straight-line basis,resulting in an increased averagerate whenever

average portfolio balances are at reduced levels.

(6)

Interest ratespread representsthe differencebetween theaverage yieldon interest-earningassets andthe averagerate oninterest-bearing

liabilities.

(7)

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

Changes due to volume and rate.

The following table presents the components of the changes in netinterest income by volume and

rate.

Three Months Ended June 30, 2020 Compared To

Three Months Ended June 30, 2019

Increase (Decrease) Due To:

Volume

(1)

Rate

(1)

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

$

310

$

(1,031)

$

(721)

Time Deposits

3

(15)

(12)

Restricted interest-earning deposits with banks

(10)

(18)

(28)

Securities available for sale

(1)

(21)

(22)

Net investment in leases

(1,269)

(1,051)

(2,320)

Loans receivable

237

31

268

Totalinterest income

659

(3,494)

(2,835)

Interest expense:

Certificate of Deposits

281

(582)

(301)

Money Market Deposits

100

(185)

(85)

Long-term borrowings

(677)

82

(595)

Totalinterest expense

93

(1,074)

(981)

Net interest income

504

(2,357)

(1,853)

__________________

(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.

��

-56-

Net interest and fee margin.

The following table summarizes the Company’snet interest and fee income as an annualized percentage

of average total finance receivables for the three-month periodsended June 30, 2020 and June 30, 2019.

Three Months Ended June 30,

2020

2019

(Dollars in thousands)

Interest income

$

24,248

$

27,082

Fee income

2,450

3,507

Interest and fee income

26,698

30,589

Interest expense

5,428

6,408

Net interest and fee income

$

21,270

$

24,181

Average total finance receivables

(1)

$

979,313

$

1,031,774

Annualized percent of average total financereceivables:

Interest income

9.90

%

10.50

%

Fee income

1.00

1.36

Interest and fee income

10.90

11.86

Interest expense

2.22

2.48

Net interest and fee margin

8.68

%

9.38

%

__________________

(1)

Total finance receivables include net investment in 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 decreased $2.9 million, or 12.0%,to $21.3 million for the three months ended June 30, 2020from $24.2

million for the three months ended June 30, 2019.The annualized net interest and fee margin decreased 70basis points to 8.68% in the

three-month period ended June 30, 2020 from 9.38% for the correspondingperiod in 2019.

Interest income, net of amortized initial direct costs and fees,was $24.2 million and $27.1 million for the three-month periodsended

June 30, 2020 and June 30, 2019, respectively.Average totalfinance receivables decreased $52.5 million, or 5.1%,to $979.3 million

at June 30, 2020 from $1,031.8 million at June 30, 2019.The decrease in average total finance receivables was primarilydue to lower

origination volume along with the customary loan repaymentsand charge-offs. The average yield on the portfoliodecreased 60 basis

points to 9.90% from 10.50% in the prior year quarter.The weighted average implicit interest rate on new finance receivables

originated decreased 378 basis points to 9.17% forthe three-month period ended June 30, 2020 compared to 12.95%for the three-

month period ended June 30, 2019.That decrease was primarily driven by a shift in the mix of originationsas higher-yield Working

Capital originations comprised 1% of our originations for the six monthsended June 30, 2020, compared to 13% in 2019.The

reduction in Working Capitalvolume is driven by our tightening of underwriting standardsin the second quarter in response to the

uncertain macroeconomic environment.Given the ongoing health crisis in the United States, especiallythe COVID-19 flare-ups in the

south and west, any returns to pre-pandemic levels of originationactivity, and our ability toreplenish or grow our portfolio, remains

uncertain.

Fee income was $2.5 million and $3.5 million for the three-month periodsended June 30, 2020 and June 30, 2019,respectively. Fee

income included approximately $0.9 million of net residualincome for the three-month period ended June 30,2019.For 2020, after

the adoption of CECL, all future cashflows from the Company’spools 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 rollforwardof the

Allowance, as discussed further in “—Finance Receivables andAsset Quality”

Fee income also included approximately $1.8 million and $2.0million in late fee income for the three-month periods endedJune 30,

2020 and June 30, 2019,respectively. Late fees remainedthe largest component of fee income at 0.69% as an annualizedpercentage

of average total finance receivables for the three-month periodended June 30, 2020,compared to 0.78% for the three-month period

ended June 30, 2019.

-57-

Interest expense decreased $1.0 million to $5.4 million for thethree-month period ended June 30, 2020 from $6.4 million forthe

corresponding period in 2019, primarily due to a decreasein interest expense of $0.6 million on lower outstanding long-term

borrowings offset by an increase of $0.3 million on higherdeposit balances. Interest expense, as an annualized percentageof average

total finance receivables, decreased 26 basis points to 2.22%for the three-month period ended June 30, 2020,from 2.48% for the

corresponding period in 2019.The average balance of deposits was $943.9 million and $866.0million for the three-month periods

ended June 30, 2020 and June 30, 2019,respectively.

For the three-month period ended June 30, 2020,average term securitization borrowings outstanding were $57.0million at a weighted

average coupon of 4.30%.For the three-month period ended June 30, 2019, average term securitizationborrowings outstanding were

$120.4 million at a weighted average coupon of 4.01%.

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 directbasis, and through the brokered MMDA Product. At June 30,2020,

brokered certificates of deposit represented approximately 52%of total deposits, while approximately 43% of total deposits were

obtained from direct channels, and 6% were in the brokeredMMDA Product.

Gain on Sale of Leases and Loans.

Gain on sale of leases and loans was $0.1 million for the three-month period ended June 30,

2020,compared to $3.3 million for the three-month period ended June 30,2019.Assets sold decreased to $1.1 million for the three

months ended June 30, 2020, compared to $57.6 million for the threemonths ended June 30, 2019.

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 versusmarket requirements, our current assessment of our balancesheet

composition and capital levels, and current market conditions,among other factors.In the current slowing economy resulting from the

COVID-19 pandemic, we may have difficulty accessingthe capital market and may find decreased interest and abilityof

counterparties to purchase our contracts, or we may be unableto negotiate terms acceptable to us.

Insurance premiums written and earned.

Insurance premiums written remained flat at $2.2 million for the three-month periods ended

June 30, 2020 and June 30, 2019.

Other income.

Other income was $1.5 million and $1.7 million for the three-month periodsended June 30, 2020 and June 30, 2019,

respectively. The decreasein other income was primarily driven by a $0.2 million decreasein servicing income.

Salaries and benefits expense.

The following table summarizes the Company's Salary and benefits expense:

Three Months Ended June 30,

2020

2019

(Dollars in thousands)

Salary, benefits and payrolltaxes

$

6,868

$

7,640

Incentive compensation

806

2,783

Commissions

(6)

2,046

Total

$

7,668

$

12,469

Salaries and benefits expense decreased $4.8 million, or38.4%, to $7.7 million for the three-month period endedJune 30, 2020 from

$12.5 million for the corresponding period in 2019.In mid-April 2020, we began efforts to tighten our expense basein response

COVID-19, putting approximately 120 employees on furlough.In June, we made the decision to permanently reduce ourworkforce

by approximately 80 employees, which reduced our headcount toapproximately 250 employees at the end of July,down from

approximately 350 employees as of December 31, 2019.As such, our salary expense is $1.7 million lower than the three months

ended June 30, 2019,primarily driven by reduced headcount from the furlough, partially offsetby $0.9 million of severance

recognized.

Incentive compensation decreased $2.0 million, driven by lowerrecognized bonus and share-based compensation amountsdriven by

the Company’s operating results,including reversing $0.7 million of expense associated with performance-based RSU awards that are

-58-

now assessed as not probable of achievement.The decrease in Commissions for the three months ended June30, 2020 reflects a

lower amount of commission earned driven by 69% lower originationvolumes, which was fully offset by an annual commissiontrue-

up adjustment in 2020.

General and administrative expense.

The following table summarizes General and administrative expense:

Three Months Ended June 30,

2020

2019

(Dollars in thousands)

Occupancy and depreciation

$

1,415

$

1,223

Professional fees

865

931

Information technology

995

901

Marketing

206

498

Other G&A

2,366

2,515

Total

$

5,847

$

6,068

General and administrative expense decreased $0.3million, or 4.9%, to $5.8 million for the three months ended June 30, 2020from

$6.1 million for the corresponding period in 2019.

General and administrative expense as an annualized percentage of averagetotal finance receivableswas 2.39% for the three-month

period ended June 30, 2020,compared to 2.35% for the three-month period ended June 30, 2019.

balance.

Provision for income taxes.

Income tax benefit of $1.4 million was recorded for the three-month periodended June 30, 2020,

compared to expense of $2.0 million for the three-month periodended June 30, 2019.Our effective tax rate was 18.9% for the three-

month period ended June 30, 2020,driven by a limitation on the recognition of tax benefits when measuringthe provision on a loss

position in an interim period under ASC 740.

-59-

Comparison of the Six-Month Periods Ended June 30, 2020and June 30, 2019

Net income.

Net loss of $17.7 million was reported for the six-month periodended June 30, 2020,resulting in diluted loss per share of $1.50,

compared to net income of $11.3 million and dilutedEPS of $0.91 for the six-month period ended June 30,2019. This $29.0 million

decrease in Net income was primarily driven by:

-

($33.8 million) increase in Provision for credit losses, primarily drivenby updates to the Company’sestimate, reflecting

forecasted economic conditions from COVID-19 pandemic.The Company adopted CECL on January 1, 2020 which

substantially changed its methodology for measuring the estimate of creditloss.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 fair value of itsreporting unit;

-

$4.6 million decrease in gains on leases and loans sold due toa decrease in assets sold resulting from the negative impactof

the COVID-19 pandemic on capital markets activity;

-

3.2 million benefit recognized in Income tax (benefit) from the remeasurementof the federal net operating losses driven by

provisions of the CARES Act;

-

$6.7 million decrease in Salaries and benefits, driven primarily by lowerCommissions, Incentives and the Company’s

proactive cost reduction measures.

Average balancesand net interest margin.

The following table summarizes the Company’saverage balances, interest income,

interest expense and average yields and rates on majorcategories of interest-earning assets and interest-bearing liabilitiesfor the six-

month periods ended June 30, 2020 and June 30, 2019.

-60-

Six Months Ended June 30,

2020

2019

(Dollars in thousands)

Average

Average

Average

Yields/

Average

Yields/

Balance

(1)

Interest

Rates

(2)

Balance

(1)

Interest

Rates

(2)

Interest-earning assets:

Interest-earning deposits with banks

$

159,665

$

358

0.45

%

$

126,084

$

1,525

2.42

%

Time Deposits

12,878

124

1.92

11,090

133

2.41

Restricted interest-earning deposits with banks

7,540

9

0.24

15,146

58

0.77

Securities available for sale

10,629

110

2.06

10,697

142

2.66

Net investment in leases

(3)

895,015

39,505

8.83

930,586

42,491

9.13

Loans receivable

(3)

99,053

10,607

21.42

85,017

8,616

20.27

Totalinterest-earning assets

1,184,780

50,713

8.56

1,178,620

52,965

8.99

Non-interest-earning assets:

Cash and due from banks

5,563

5,459

Allowance for loan and lease losses

(40,144)

(16,764)

Intangible assets

7,292

7,961

Goodwill

3,332

7,038

Operating lease right-of-use assets

8,653

5,419

Property and equipment, net

8,291

4,139

Property tax receivables

9,430

7,546

Other assets

(4)

32,719

34,157

Totalnon-interest-earning assets

35,136

54,955

Totalassets

$

1,219,916

$

1,233,575

Interest-bearing liabilities:

Certificate of Deposits

(5)

$

852,659

$

9,597

2.25

%

$

814,466

$

9,489

2.33

%

Money Market Deposits

(5)

38,544

158

0.82

23,430

299

2.56

Long-term borrowings

(5)

63,354

1,352

4.27

130,454

2,582

3.96

Totalinterest-bearing liabilities

954,557

11,107

2.33

968,350

12,370

2.56

Non-interest-bearing liabilities:

Sales and property taxes payable

6,482

6,796

Operating lease liabilities

9,524

7,492

Accounts payable and accrued expenses

22,657

27,251

Net deferred income tax liability

28,022

23,773

Totalnon-interest-bearing liabilities

66,685

65,312

Totalliabilities

1,021,242

1,033,662

Stockholders’ equity

198,674

199,913

Totalliabilities and stockholders’ equity

$

1,219,916

$

1,233,575

Net interest income

$

39,606

$

40,595

Interest rate spread

(6)

6.23

%

6.43

%

Net interest margin

(7)

6.69

%

6.89

%

Ratio of average interest-earning assets to

average interest-bearing liabilities

124.12

%

121.71

%

-61-

_________________

(1)

Average balances were calculated using average daily balances.

(2)

Annualized.

(3)

Average balances of leases and loans include non-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. Amortizationof transaction costs is on astraight-line basis, resulting in an increasedaverage 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.

The following table presents the components of the changes in net interestincome by volume and rate.

Six Months Ended June 30, 2020 Compared To

Six Months Ended June 30, 2019

Increase (Decrease) Due To:

Volume

(1)

Rate

(1)

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

$

325

$

(1,492)

$

(1,167)

Time Deposits

20

(29)

(9)

Restricted interest-earning deposits with banks

(21)

(28)

(49)

Securities available for sale

(1)

(31)

(32)

Net investment in leases

(1,595)

(1,391)

(2,986)

Loans receivable

1,482

509

1,991

Totalinterest income

276

(2,528)

(2,252)

Interest expense:

Certificate of Deposits

436

(328)

108

Money Market Deposits

129

(270)

(141)

Long-term borrowings

(1,418)

188

(1,230)

Totalinterest expense

(174)

(1,089)

(1,263)

Net interest income

211

(1,200)

(989)

__________________

(1)

Changes due to volume and rate are calculated independently foreach line item presented rather than presenting vertical subtotals

for the individual volume and rate columns.

Changes attributable to changes in volume represent changes in averagebalances

multiplied by the prior period’saverage rates. Changes attributable to changes in rate represent changesin average rates

multiplied by the prior year’s average balances. Changesattributable to the combined impact of volume and ratehave been

allocated proportionately to the change due to volume and thechange due to rate.

-62-

Net interest and fee margin.

The following table summarizes the Company’snet interest and fee income as an annualized percentage

of average total finance receivables for the six-month periods endedJune 30, 2020 and 2019.

Six Months Ended June 30,

2020

2019

(Dollars in thousands)

Interest income

$

50,713

$

52,965

Fee income

5,216

7,549

Interest and fee income

55,929

60,514

Interest expense

11,108

12,370

Net interest and fee income

$

44,821

$

48,144

Average total finance receivables

(1)

$

994,068

$

1,015,603

Percent of average total finance receivables:

Interest income

10.20

%

10.43

%

Fee income

1.05

1.49

Interest and fee income

11.25

11.92

Interest expense

2.23

2.44

Net interest and fee margin

9.02

%

9.48

%

__________________

(1)

Total finance receivablesinclude net investment in leases and loans.For the calculations above, the effects of (i)the allowance

for credit losses and (ii) initial direct costs and fees deferred areexcluded.

Net interest and fee income decreased $3.3 million, or 6.9%,to $44.8 million for the six-month period ended June 30,2020 from

$48.1 million for the six-month period ended June 30,2019. The annualized net interest and fee margin decreased46 basis points to

9.02% in the six-month period ended June 30, 2020from 9.48% for the corresponding period in 2019.

Interest income, net of amortized initial direct costs and fees,decreased $2.3 million, or 4.3%, to $50.7 million for the six-month

period ended June 30, 2020 from $53.0 million for the six-month periodended June 30, 2019.The decrease in interest income was

principally due to adecrease in average yield of 23 basis points and by a 2.1%decrease in average total finance receivables, which

decreased $21.5 million to $994.1 million for the six-months endedJune 30, 2020 from $1,015.6 million for the six-months ended

June 30, 2019.The decrease in average total finance receivables was primarily dueto lower origination volume along with the

customary loan repayments and charge-offs.The weighted average implicit interest rate on new finance receivablesoriginated

decreased 140 basis points to 11.46%for the six-month period ended June 30, 2020,compared to 12.86% for the six-month period

ended June 30, 2019.That decrease was primarily driven by a shift in the mix of originationsas higher-yield WorkingCapital

originations comprised 11% of our originationsfor the six months ended June 30, 2020, compared to 13%in 2019.As our origination

volumes have been negatively impacted by the COVID-19 pandemic, our portfolio of finance receivables and related incomesmay

continue to decline. Any returns to normal levels of origination activity,and our ability to replenish or grow our portfolio,remains

uncertain.

Fee income was $5.2 million and $7.5 for the six-month periodsended June 30, 2020 and June 30, 2019,respectively. Fee income

included approximately $1.9 million of residual income for thesix-month period ended June 30, 2019.For 2020, after the adoption of

CECL, all future cashflows from the Company’spools 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 rollforwardof the Allowance, as discussed

further in “—Finance Receivables and Asset Quality”.

-63-

Fee income also included approximately $3.9 million in late fee incomefor the six-month period ended June 30, 2020,which

decreased 9.3% from $4.3 million for the six-month period endedJune 30, 2019.Late fees remained the largest component of fee

income at 0.77% as an annualized percentage of average total finance receivablesfor the six-month period ended June 30, 2020,

compared to 0.86% for the six-month period ended June 30,2019.

Interest expense decreased $1.3 million to $11.1million for the six-month period ended June 30, 2020 from $12.4for the

corresponding period in 2019.The decrease of $1.3 million was primarily due to a $1.0million decrease in term securitization interest,

and a $0.2 million decrease in transaction costs. Interest expense,as an annualized percentage of average total finance receivables,

decreased 21 basis points to 2.23% for the six-month periodended June 30, 2020,from 2.44% for the corresponding period in 2019.

The average balance of deposits was $891.2 million and $837.9million for the six-month periods ended June 30, 2020 and June 30,

2019,respectively.

For the six-month period ended June 30, 2020,average term securitization borrowings outstanding were $63.4million at a weighted

average coupon of 4.27%.For the six-month period ended June 30, 2019,average term securitization borrowings outstanding were

$130.5 million at a weighted average coupon of 3.96%

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 directbasis, and through the brokered MMDA Product. AtJune 30, 2020,

brokered certificates of deposit represented approximately 52%of total deposits, while approximately 43% of total deposits were

obtained from direct channels, and 6% were in the brokeredMMDA Product.

Gain on Sale of Leases and Loans.

Gain on sale of leases and loans was 2.3 million for the six-month periodended June 30, 2020,

compared to 6.9 million for the six-month period endedJune 30, 2019 due to a decline in assets sold to $24.1 million for the six-

month period ended June 30, 2020 from $110.5million for the six-month period ended June 30, 2019.

Our sales execution decisions, including the timing, volume andfrequency of such sales, depend on many factors including our

origination volumes, the characteristics of our contracts versusmarket requirements, our current assessment of our balancesheet

composition and capital levels, and current market conditions,among other factors.In the current slowing economy resulting from the

COVID-19 pandemic, we may have difficulty accessingthe capital market and may find decreased interest and abilityof

counterparties to purchase our contracts, or we may be unableto negotiate terms acceptable to us.

Insurance premiums written and earned.

Insurance premiums written and earned remained relatively flat at $4.5million for the six-

month period ended June 30, 2020,from $4.3 million for the six-month period ended June 30,2019.

Other income.

Other income remained consistent at $9.1 million and $8.9 million forthe six-month periods ended June 30, 2020 and

June 30, 2019,respectively.

Salaries and benefits expense.

The following table summarizes the Company's Salary and benefits expense:

Six Months Ended June 30,

2020

2019

(Dollars in thousands)

Salary, benefits and payrolltaxes

$

14,423

$

14,992

Incentive compensation

1,711

5,221

Commissions

1,053

3,707

Total

$

17,187

$

23,920

Salaries and benefits expense in total decreased $6.7 million forthe six months ended June 30, 2020, compared to the corresponding

period in 2019.In mid-April 2020, we began efforts to tighten our expense basein response COVID-19, putting approximately 120

employees on furlough.In June, we made the decision to permanently reduce our workforceby approximately 80 employees, which

reduced our headcount to approximately 250 employees at theend of July, down from approximately350 employees as of December

-64-

31, 2019.As such, our salary expense was $1.4 million lower for the six-monthsended June 30, 2020 than for the six months ended

June 30, 2019,primarily driven by reduced headcount from the furlough, partially offsetby $0.9 million of severance recognized.

Incentive compensation decreased $3.5 million, driven by lowerrecognized bonus and share-based compensation amountsprimarily

driven by the Company’s operatingresults, including reversing $0.7 million of expense associatedwith performance-based RSU

awards that are now assessed as not probable of achievement.Commissions decreased $2.7 million primarily driven by a 45%

decrease in origination volume.

General and administrative expense.

The following table summarizes General and administrative expense:

Six Months Ended June 30,

2020

2019

(Dollars in thousands)

Property taxes

$

6,026

$

6,256

Occupancy and depreciation

2,735

2,455

Professional fees

2,084

2,231

Information technology

1,981

1,960

Marketing

708

1,095

FDIC Insurance

639

130

Other G&A

5,279

5,295

Total

$

19,452

$

19,422

General and administrative expense of $19.4 million for the six monthsended June 30, 2020 was relatively consistent with the total

from the corresponding period in 2019.General and administrative expense as an annualized percentage of averagetotal finance

receivables was 3.56% for the six-month period endedJune 30, 2020,compared to 3.82% for the six-month period ended June 30,

2019.

Goodwill impairment.

In the first quarter of 2020, driven by negative current events relatedto the COVID-19 economic shutdown,

our market capitalization falling below book value and otherrelated impacts, we analyzed goodwill for impairment.We concluded

that the implied fair value of goodwill was less than it’scarrying amount, and recognized impairment equal to the entire $6.7million

balance in the six months ended June 30, 2020.

Provision for income taxes.

Income tax benefit of 8.8 million was recorded for the six-month periodended June 30, 2020,compared

to expense of $3.6 million for the six-month period endedJune 30, 2019.

Our effective tax rate from measuring our benefit forthe six months ended June 30, 2020 was 33.2%,driven by a $3.2 million discrete

benefit from certain provisions in the CARES Act that allowedfor remeasuring our federal net operating losses.The impact to our

effective rate from that benefit was partially offsetby a limitation on the amount of tax benefits that can be recognizedin an interim

period under ASC 740.

-65-

L

IQUIDITY AND

C

APITAL

R

ESOURCES

Our business requires a substantial amount of liquidity and capitalto operate and grow. Ourprimary liquidity need is to fund new

originations; however, we also utilize liquidityfor our financing needs (including our deposits and long term deposits),to fund

infrastructure and technology investment, to pay dividends andto pay administrative and other non-interest expenses.

As a result of the uncertainties surrounding the actual and potential impactsof COVID-19 on our business and financial condition, in

the first quarter of 2020 we raised additional liquidity through the issuanceof FDIC-insured deposits and we increased our borrowing

capacity at the Federal Reserve Discount Window.

We aredependent upon the availability of financing from a variety of fundingsources to satisfy these liquidity needs. Historically,we

have relied upon five principal types of external funding sourcesfor 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 (allof which have since been repaid in full);

•financing of leases through term note securitizations; and

• sale of leases and loans through our capital markets capabilities.

Deposits issued by MBB represent our primary funding sourcefor new originations, primarily through the issuance of FDIC insured

deposits.

MBB also offers an FDIC-insured MMDA Productas another source of deposit funding. This product is offeredthrough participation

in a partner bank’s insured savingsaccount 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, MBBmay offer other products and services to the Company’scustomer base.

MBB is a Utah state-chartered, Federal Reserve member commercialbank. As such, MBB is supervised by both the FederalReserve

Bank of San Francisco and the Utah Department of FinancialInstitutions.

We declareda dividend of $0.14 per share on April 30, 2020.The quarterly dividend was paid on May 21, 2020 to shareholdersof

record on the close of business on May 11,2020,which resulted in a dividend payment of approximately $1.7 million. Itrepresented

the Company’s thirty-fifth consecutivequarterly cash dividend.

At June 30, 2020,we had approximately $25.0 million of available borrowing capacity froma federal funds line of credit with a

correspondent bank in addition to available cash and cash equivalentsof $211.7 million. This amount excludes additional liquidity that

may be provided by the issuance of insured deposits throughMBB.

Our debt to equity ratio was 5.27 to 1 at June 30,2020 and 4.26 to 1 at December 31, 2019.

Net cash provided by investing activities was $32.6 million forthe six-month period ended June 30, 2020,compared to net cash used

in investing activities of $76.0 million for the six-month periodended June 30, 2019.The increase in cash outflows from investing

activities is primarily due to a decrease of $180.4 million forpurchases of equipment for lease contracts partially offset bya reduction

of $66.1 million in proceeds from sales of leases originated forinvestment. The decrease in purchases of equipment was drivenby

lower origination volumes for the six months ended June 30,2020 compared to the corresponding period of 2019, andthe reduction in

proceeds from sales was driven by lower volumes of sales.

Net cash provided by financing activities was $29.7 million forthe six-month period ended June 30, 2020,compared to net cash

provided by financing activities of $85.7 million for the six-month periodended June 30, 2019.The decrease in cash flows from

financing activities is primarily due to a decrease of $69.8million in deposits offset by a decrease of $15.4million of term

securitization repayments.Financing activities also include transactions related tothe Company’s payment of dividends.

Net cash provided by operating activities was $25.4 million forthe six-month period ended June 30, 2020,compared to net cash

provided by operating activities of $27.0 million for the six-month periodended June 30, 2019.Transactions affecting netcash

provided by operating activities including goodwill impairment,provisionfor credit losses, changes in income tax liability and leases

originated for sale and proceeds thereof are discussed in detail in thenotes to the Consolidated Financial Statements.

-66-

We expectcash from operations, additional borrowings on existing and futurecredit facilities and funds from deposits issued through

brokers, direct deposit sources,and the MMDA Product to be adequate to support our operations andprojected growth for the next 12

months and the foreseeable future.

TotalCash and Cash Equivalents.

Our objective is to maintain an adequate level of cash, investingany free cash in leases and loans.

We primarily fundour originations and growth using FDIC-insured deposits issuedthrough MBB. Totalcash and cash equivalents

available as of June 30, 2020 totaled $211.7million, compared to $123.1 million at December 31, 2019.

Time Deposits with Banks.

Time deposits with banks are primarily composedof 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. Totaltime deposits as of June 30, 2020 and December 31, 2019 totaled$9.9 million and $12.9

million, respectively.

Restricted Interest-Earning Deposits with Banks

. As of June 30, 2020 and December 31, 2019,we had $6.1 million and $6.9 million,

respectively, of cash that wasclassified as restricted interest-earning deposits with banks. Restrictedinterest-earning deposits with

banks consist primarily of various trust accounts related to our secureddebt facilities. Therefore, these balances generallydecline as

the term securitization borrowings are repaid.

Borrowings.

Our primary borrowing relationship requires the pledging ofeligible lease and loan receivables to secure amounts

advanced. Our secured borrowings amounted to $51.2million at June 30, 2020 and $76.6 million at December 31, 2019.Information

pertaining to our borrowing facilities is as follows:

For the Six Months Ended June 30, 2020

As of June 30, 2020

Maximum

Maximum

Month End

Average

Weighted

Weighted

Facility

Amount

Amount

Average

Amount

Average

Unused

Amount

Outstanding

Outstanding

Rate

(3)

Outstanding

Rate

(2)

Capacity

(1)

(Dollars in thousands)

Federal funds purchased

$

25,000

$

—

$

—

—

%

$

—

—

%

$

25,000

Term note securitizations

(4)

—

71,721

69,751

4.24

%

51,161

3.68

%

—

Revolving line of credit

(5)

5,000

—

—

—

%

—

—

%

5,000

$

30,000

$

71,721

$

69,751

4.24

%

$

51,161

3.68

%

$

30,000

__________________

(1) Does not include MBB’saccess to the Federal Reserve Discount Window, which is based on the amount of assets MBB choosesto pledge.

Based on assets pledged at June 30, 2020, MBB had $50.2 million in unused, secured borrowing capacity at the Federal Reserve Discount

Window. Additionalliquidity 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 are one-time fundings that pay down over time without any ability for us to draw down additional amounts.

(5)The revolving line of credit was terminated by mutual agreement with the line of credit provider in July 2020.

-67-

Federal Funds Line of Credit with Correspondent Bank

MBB has established a federal funds line of credit with a correspondentbank. This line allows for both selling and purchasing of

federal funds. The amount that can be drawn against the lineis limited to $25.0 million.

Federal Reserve Discount Window

In addition, MBB has received approval to borrow from theFederal Reserve Discount Window based on theamount of assets MBB

chooses to pledge. MBB had $50.2 million in unused, securedborrowing capacity at the Federal Reserve Discount Window,based on

$56.3 million of net investment in leases pledged at June 30,2020.

TermNote Securitizations

On July 27, 2018 we completed a $201.7 million asset-backedterm securitization. It provides the company with fixed-cost borrowing

with the objective of diversifying its funding sources and is recordedin long-term borrowings in the Consolidated Balance Sheet.

In connection with this securitization transaction, we transferredleases to our bankruptcy remote special purpose wholly-owned

subsidiary (“SPE”) and issued term debt collateralizedby 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 toservice the assets of our VIE and

retain equity and/or residual interests. Accordingly,assets and related debt of the VIE is included in the accompanyingConsolidated

Balance Sheets.At June 30, 2020 and December 31, 2019 outstanding term securitizationsamounted to $50.9 million and $76.1

million, respectively and the Company was in compliance with termsof the term note securitization agreement. See Note 10– Debt

and Financing Arrangements in the accompanying ConsolidatedFinancial Statements for detailed information regarding of our term

note securitization

Bank Capital and Regulatory Oversight

We aresubject to regulation under the Bank Holding Company Act and all of oursubsidiaries may be subject to examination by the

Federal Reserve Board and the Federal Reserve Bank of Philadelphiaeven if not otherwise regulated by the Federal Reserve Board.

MBB is also subject to comprehensive federal and state regulationsdealing with a wide variety of subjects, including minimum capital

standards, reserve requirements, terms on which a bank may engagein transactions with its affiliates, restrictions asto dividend

payments and numerous other aspects of its operations.These regulations generally have been adoptedto protect depositors and

creditors rather than shareholders.

At June 30, 2020,Marlin Business Service Corp and MBB’sTier 1 leverage ratio, common equity Tier1 risk-based ratio, Tier 1 risk-

based capital ratio and total risk-based capital ratios exceededthe requirements for well-capitalized status.

See “Management’sDiscussion and Analysisof Financial Conditionand Results of Operations—Executive Summary”for discussion

of updatesto ourcapital requirementsdriven bythe terminationof theCMLA Agreementand drivenby ourelection toutilize the

five-year transition relatedto the adoptionof the CECLaccounting standard.In addition, seeNote 13—Stockholders’ Equityin the

Notes to Consolidated Financial Statements for additional informationregarding these ratios and our levels at June 30, 2020.

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 June 30, 2020

The Company declared a dividend of 0.14 per share on July30, 2020. The quarterly dividend, which is expected toresult in a dividend

payment of approximately 1.7 million, is scheduled to be paidon August 20, 2020 to shareholders of record on the close of business

on August 10, 2020.It represents the Company’s thirty-sixthconsecutive quarterly cash dividend. The payment of future dividends

will be subject to approval by the Company’sBoard of Directors.

-68-

MARKET INTEREST RATERISK AND SENSITIVITY

Market risk is the risk of losses arising from changes in values of financialinstruments. Weengage in transactions in the normal

course of business that expose us to market risks. Weattempt to mitigate such risks through prudent management practicesand

strategies such as attempting to match the expected cash flows ofour assets and liabilities.

We areexposed to market risks associated with changes in interest rates andour earnings may fluctuate with changes in interest rates.

The lease and loan assets we originate are almost entirely fixed-rate. Accordingly, we generallyseek to finance these assets primarily

with fixed interest certificates of deposit issued by MBB,and to a lesser extent through the variable rate MMDA Productat MBB.

C

RITICAL

A

CCOUNTING

P

OLICIES

There have been no significant changes to our Critical Accounting Policiesas described in our Form 10-K for the year ended

December 31, 2019,other than as discussed below.

Allowance for credit losses.

For 2019 and prior, we maintained an allowancefor credit losses at an amount sufficient to absorblosses inherent in our existing lease

and loan portfolios as of the reporting dates based on our estimate of probableincurred net credit losses in accordance with the

ContingenciesTopic of the FASBASC.See further discussion of our policy under the incurredmodel in the “Critical Accounting

Policy” section of our 2019 Form 10-K.

Effective January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic326): Measurement of Credit

Losses on Financial Instruments (“CECL”), which changed ouraccounting policy and estimated allowance.CECL replaces the

probable, incurred loss model with a measurement of expectedcredit losses for the contractual term of the Company’scurrent

portfolio of loans and leases.After the adoption of CECL, an allowance, or estimate of creditlosses, will be recognized immediately

upon the origination of a loan or lease, and will be adjusted in each subsequentreporting period

We maintain anallowance for credit losses at an amount that takes into considerationall future cashflows that we expect to receive or

derive from the pools of contracts, including recoveries aftercharge-off, amounts related to initial direct costand 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 developeda consistent, systematic methodology to measure our estimate of the creditlosses inherent in our current portfolio, over

the entire life of the contracts.We made certain key decisionsthat underlie our methodology,including our decisions of how to

aggregate our portfolio into pools for analysis based on similarrisk characteristics, the selection of appropriate historical loss datato

reference in the model, our selection of a model to calculate theestimate, a reasonable and supportable forecast, and the length ofour

forecast and approach to reverting to historical loss data.

For our Equipment Finance segment, we determine our reasonableand supportable forecast based on certain economic variablesthat

were selected based on a statistical analysis of our own historicalloss experience, going back to 2004. Weselected 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 partof our estimate of expected credit losses, specific to each measurementdate, management considers relevant qualitative and

quantitative factors to assess whether the historical loss experiencebeing referenced should be adjusted to better reflect the risk

characteristics of the current portfolio and the expected futureloss experience for the life of these contracts.This assessment

incorporates all available information relevant to considering the collectabilityof our current portfolio, including considering

economic and business conditions, default trends, changes inportfolio composition, changes in lending policies and practices,among

other internal and external factors.Further, each measurement period we determinewhether 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 appropriateto reflect the changes and risks in the portfolio or environment

and involves significant judgment.

-69-

Our estimates of expected net credit losses are inherently uncertain,and as a result we cannot predict with certainty the amount of

such losses. Wemay recognizecredit losses in excess of our reserve, or a significant increase toour credit loss estimate, in the future,

driven by the update of assumptions and information underlying ourestimate and/or driven by the actual amount of realizedlosses.

Our estimate of credit losses will be revised each periodto 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 drivea 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 ourforecast and qualitative adjustments, as of any given

measurement date.

R

ECENTLY

I

SSUED

A

CCOUNTING

S

TANDARDS

Information on recently issued accounting pronouncements andthe expected impact on our financial statements is providedin Note 2,

Summary of Significant Accounting Policies in the accompanyingNotes to Consolidated Financial Statements.

R

ECENTLY

A

DOPTED

A

CCOUNTING

S

TANDARDS

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

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

-70-

Item 3. Quantitativeand Qualitative Disclosures About Market Risk

The information appearing in the section captioned “Management’sDiscussion and Analysis of Financial Condition andResults of

Operations – Market Interest Rate Risk and Sensitivity” underItem 2 of Part I of this Form 10-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 proceduresas of the end of the period covered by this report.

Based on that evaluation, the CEO and CFO concluded that ourdisclosure controls and procedures as of the end of the periodcovered

by this report are designed and operating effectively toprovide reasonable assurance that the information requiredto 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 communicatedto our management, including the CEO and CFO, as appropriateto

allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’sinternal control over financial reporting identifiedin connection with management’s

evaluation that occurred during the Company's second fiscalquarter of 2020 that have materially affected, or arereasonably likely to

materially affect, the Company’sinternal control over financial reporting.

PARTII. Other Information

Item 1. Legal Proceedings

We areparty to various legal proceedings, which include claims and litigation arisingin the ordinary course of business.In the

opinion of management, these actions will not have a material impact onour business, financial condition,results of operations or

cash flows.

Item 1A. Risk Factors

There have been no material changes in the risk factors disclosedin the Company’s Form 10-K for the yearended December 31, 2019,

other than as discussed below.

The ongoing COVID-19 pandemic and measures intended toprevent its spread could have a material adverse effecton our

business, results of operations and financial condition, andsuch effects will depend on future developments, which arehighly

uncertain and are difficult to predict.

Global health concerns relating to the COVID-19 pandemic andrelated government actions taken to reduce the spread ofthe virus

have been weighing on the macroeconomic environment, andthe outbreak has significantly increased economic uncertainty and

-71-

reduced economic activity. Thepandemic has resulted in authorities implementing numerous measuresto try to contain the virus, such

as travel bans and restrictions, quarantines, shelter in place ortotal lock-down orders and business limitations and shutdowns. Such

measures have significantly contributed to rising unemploymentand negatively impacted consumer and business spending. The

United States government has taken steps to attempt to mitigatesome of the more severe anticipated economic effects ofthe virus,

including the passage of the CARES Act, but there can be noassurance that such steps will be effective or achieve theirdesired results

in a timely fashion.We continue to monitorand evaluate newly enacted and proposed government and bankingregulations issued in

response to the COVID-19 pandemic; further changes in regulation thatimpact our business or that impact our customers couldhave a

significant impact on our future operations and business strategies.

Our operations and financial results have already been negativelyimpacted as a result of COVID-19 pandemic, as discussedfurther in

“Part I – Item 2. Management’sDiscussion and Analysis of Financial Condition and Results ofOperations —Overview” and ”—

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 extendcredit primarily to small and mid-sized businesses, and many ofour customers may be particularly

susceptible to business limitations, shutdowns and possible recessionsand may be unable to make scheduled lease or loan

payments during these periods and may be at risk of discontinuingtheir operations.As a result, our delinquencies and credit

losses may substantially increase.Our risk and exposure to future losses may be amplified tothe extent economic activity

remains shutdown for an extended period, or to the extent businesseshave 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 ourallowance as of June 30,2020 is based on certain

assumptions, forecasts and estimates about the impact of currenteconomic conditions on our portfolio of receivables based

on information known as of June 30,2020, including certain expectations about the extent and timing of impactsfrom

COVID-19.If those assumptions, forecasts or estimates underlying our financial statementsare incorrect, we may

experience significant losses as the ultimate realization of value, orrevisions to our estimates, may be materially different

than the amounts reflected in our consolidated statement of financialposition as of any particular date.

●

Portfolio Risk.

We arecurrently experiencing a significant decrease in demand for our lease andloan products as a result of

the COVID-19 pandemic, and we have limited visibility to the futurerecovery of such demand.

We have shiftedthe focus of portions of our operations and certain personnelto implement specific programs and new

products in response to the pandemic.In particular, we have focused effortson loan modifications and a payment deferral

program, implemented a new PPP loan product, and increasedcustomer service efforts to respond to our borrower’sneeds.

There can be no assurances that such efforts will besuccessful in mitigating any risk of credit loss.

●

Liquidity and Capital Risk.

As of June 30,2020, all of our capital ratios, and our subsidiary bank’scapital ratios, were in

excess of all regulatory requirements.While we currently have sufficient capital, our reportedand 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 monitoringand forecasting the potential impacts of COVID-19 on

our future operations and financial position, including capital levels.However, given the uncertainty aboutfuture

developments and the extent and duration of the impacts of COVID-19 on our business and future operations, we face

elevated risks to our ability to forecast and estimate future capitallevels.If we fail to meet capital requirements in the future,

our business, financial condition or results of operations may beadversely affected.

We have historically returnedcapital to shareholders through normal dividends, special dividends andshare repurchases.

There can be no assurances that these forms of capital returns arethe optimal use of our capital or that they will continue in

the future.

●

Operational Risk.

The spread of COVID-19 has caused us to modify our business practices(including implementing certain

business continuity plans, and developing work from home andsocial distancing plans for our employees), and we may take

further actions as may be required by government authoritiesor as we determine are in the best interests of our employees,

customers and business partners.We face increasedrisk 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 oftime and may continue to adversely affect our business,results of

operations and financial condition even after the COVID-19 pandemichas subsided.

-72-

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 difficultto predict, including, but not limited to, the duration andspread of

the outbreak, its severity, theactions to contain the virus or treat its impact, and how quicklyand to what extent normal economic and

operating conditions can resume. Even after the COVID-19pandemic has subsided, we may continue to experience materiallyadverse

impacts to our business as a result of the virus’sglobal economic impact, including the availability of credit, adverseimpacts on our

liquidity and any recession that has occurred or may occur inthe future.

There are no comparable recent events that provide guidance as tothe effect the spread of COVID-19 as a global pandemic mayhave,

and, as a result, the ultimate impact of the outbreak is highlyuncertain and subject to change. Wedo not yet know the full extent of

the impacts on our business, our operations or the global economyas a whole. However, the effectscould have a material impact on

our results of operations and heighten many of our known risks describedin the “Risk Factors” section of our Annual Report onForm

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

Item 2. Unregistered Sales of EquitySecurities and Use of Proceeds

Information on Stock Repurchases

On August 1, 2019, the Company’sBoard of Directors approved a stock repurchase plan (the “2019Repurchase Plan”) under which

the Company is authorized to repurchase up to $10 million in value of itsoutstanding shares of common stock. This authority may be

exercised from time to time and in such amounts as market conditionswarrant. Any shares purchased under this plan are returned to

the status of authorized but unissued shares of common stock. Therepurchases may be made on the open market, in block trades or

otherwise. The stock repurchase program does not obligate the Companyto acquire any particular amount of common stock, andit

may be suspendedat any time at the Company's discretion. The repurchases are fundedusing the Company’s workingcapital.

The Company did not repurchase any of its common stock during thethree months ended June 30, 2020.As of June 30, 2020,the

Company had $4.7 million remaining in the 2019 Repurchase Plan.

Pursuant to the 2014 Equity Compensation Plan, participantsmay have shares withheld to cover income taxes. There were 1,897

shares repurchased to cover income tax withholding in connectionwith the shares granted under the 2014 Equity Compensation Plan

during the three-month period ended June 30, 2020,at an average cost of $ 6.50 per share.

Item 3. Defaults Upon Senior Securities

None.

Item 4. MineSafety Disclosures

None.

Item 5. Other Information

None

-73-

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 Award for Independent Directors under the 2019 Equity Compensation Plan

(Filed Herewith)

31.1

Certification of the Chief Executive Officer of Marlin Business Services Corp. required by Rule 13a-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 Rule 13a-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

Rule 13a -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 Financialstatements fromthe QuarterlyReport onForm 10-Q ofMarlin BusinessServices Corp.for the periodended

June 30, 2020,formatted in XBRL: (i)the Consolidated BalanceSheets, (ii) the ConsolidatedStatements of Operations,

(iii) the ConsolidatedStatements of ComprehensiveIncome, (iv)the Consolidated Statementsof Stockholders’Equity,

(v) the ConsolidatedStatements ofCash Flowsand (vi)the Notesto UnauditedConsolidated FinancialStatements.

(Submitted electronically with this report)

__________________

(1)

Previously filed with the SEC as an exhibit to the Registrant’sAnnual Report on Form 10-K for the fiscal year ended December

31, 2007 filed on March 5, 2008, and incorporated by referenceherein.

(2)

Previously filed with the SEC as an exhibit to the Registrant’sCurrent Report on Form 8-K filed on October 20,2016, and

incorporated by reference herein.

(3)

Previously filed with the SEC as an exhibit to the Registrant’sCurrent Report on Form 8-K filed on April 24,2020,and

incorporatedby reference herein.

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SIGNATURES

Pursuant tothe requirementsof the SecuritiesExchange Actof 1934,the Registrant hasduly caused thisreport tobe signed onits

behalf by the undersigned thereunto duly authorized.

MARLIN BUSINESS SERVICES CORP.

(Registrant)

By: /s/Jeff Hilzinger

Chief Executive Officer

Jeff Hilzinger

(Principal Executive Officer)

By:

/s/ Michael R. Bogansky

Michael R. Bogansky

Chief Financial Officer & Senior Vice

President

(Principal Financial Officer)

Date:July 31, 2020