Marlin Business Services 10Q 2020 Q3 Quarterly report

UNITED STATES

SECURITIES 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

September 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

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 reports

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

Exchange Act of 1934 during the preceding 12 months (or

for such shorter period that the registrant was required to file such reports),

and (2) has been subject to such filing requirements for the past

90 days.

Yes

☑

☐

Indicate by check mark whether the registrant has submitted electronically

every 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 period

that

registrant was required to submit such files.)

Yes

☑

☐

Indicate by check mark whether the registrant is a large

accelerated filer, an accelerated filer,

a non-accelerated filer, a smaller

reporting company or an emerging growth company.

See the definitions of "large accelerated

filer,”

“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 to

use the extended transition period for

complying with any new or revised financial accounting standards

provided pursuant to Section 13(a) of

the Exchange Act

☐

Indicate by check mark whether the registrant is a shell company (as

defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes

☐

☒

At October 23, 2020,

11,974,548

shares of Registrant’s common stock,

$.01 par value, were outstanding.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Quarterly Report on Form 10-Q

for the Quarter Ended September 30, 2020

TABLE OF CONTENTS

Page No.

Part I – Financial Information

................................................................

................................ 3

Item 1 Consolidated Financial Statements (Unaudited)

................................................................

...........................................................

Consolidated Balance Sheets at September 30, 2020 and December 31, 2019

................................................................

........ 3

Consolidated Statements of Operations for the three- and nine - month periods ended

September 30, 2020 and 2019

................................................................

............ 4

Consolidated Statements of Comprehensive Income (Loss) for the three- and nine - month periods ended

September 30, 2020 and 2019

................................................................

............ 5

Consolidated Statements of Stockholders’ Equity for the three and six and nine-month periods ended

September 30, 2020 and 2019

................................................................

............. 6

Consolidated Statements of Cash Flows for the nine-month periods ended

September 30, 2020 and 2019

................................................................

............ 8

Notes to Unaudited Consolidated Financial Statements

................................................................

........................................

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

....................................................

Item 3 Quantitative and Qualitative Disclosures about Market Risk

................................................................

....................................

Item 4 Controls and Procedures

................................................................

............................ 70

Part II – Other Information

................................................................

..................................

Item 1 Legal Proceedings

................................................................

......................................

Item 1A Risk Factors

…

................................................................

...........................................

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

................................................................

...................................

Item 3 Defaults upon Senior Securities

................................................................

................. 72

Item 4 Mine Safety Disclosures

................................................................

............................ 72

Item 5 Other Information

................................................................

......................................

Item 6 Exhibits

……. ................................................................................................

................................................................

............ 73

Signatures

................................................................

-3-

PART

I. Financial Information

Item 1. Consolidated

Financial Statements

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

September 30,

December 31,

2020

2019

(Dollars in thousands, except per-share data)

ASSETS

Cash and due from banks

5,436

4,701

Interest-earning deposits with banks

189,696

118,395

Total cash and cash equivalents

195,132

123,096

Time deposits with banks

8,456

12,927

Restricted interest-earning deposits related to consolidated VIEs

5,771

6,931

Investment securities (amortized cost of $

10.6

million and $

11.1

million at

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

10,761

11,076

Net investment in leases and loans:

Leases

357,500

426,608

Loans

550,553

601,607

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

39.3

million and

76.1

million at September 30, 2020 and December 31, 2019, respectively, related to consolidated

VIEs)

908,053

1,028,215

Allowance for credit losses

(61,325)

(21,695)

Total net investment in leases and loans

846,728

1,006,520

Intangible assets

5,846

7,461

Goodwill

6,735

Operating lease right-of-use assets

7,729

8,863

Property and equipment, net

8,422

7,888

Property tax receivables, net of allowance

8,580

5,493

Other assets

8,526

10,453

Total assets

1,105,951

1,207,443

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

823,707

839,132

Long-term borrowings related to consolidated VIEs

39,833

76,091

Operating lease liabilities

8,790

9,730

Other liabilities:

Sales and property taxes payable

5,706

2,678

Accounts payable and accrued expenses

25,533

34,028

Net deferred income tax liability

20,032

30,828

Total liabilities

923,601

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;

11,974,651

and

12,113,585

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

120

121

Additional paid-in capital

75,893

79,665

Accumulated other comprehensive income

Retained earnings

106,244

135,112

Total stockholders’ equity

182,350

214,956

Total liabilities and stockholders’ equity

1,105,951

1,207,443

The accompanying notes are an integral part of the unaudited

consolidated financial statements.

-4-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

(Dollars in thousands, except per-share data)

Interest income

22,398

27,708

73,111

80,673

Fee income

2,803

3,869

8,019

11,418

Interest and fee income

25,201

31,577

81,130

92,091

Interest expense

4,694

6,561

15,802

18,931

Net interest and fee income

20,507

25,016

65,328

73,160

Provision for credit losses

7,204

7,662

51,160

17,781

Net interest and fee income after provision for credit losses

13,303

17,354

14,168

55,379

Non-interest income:

Gain on leases and loans sold

6,456

2,426

13,400

Insurance premiums written and earned

2,082

2,230

6,612

6,538

Other income

2,044

1,676

11,172

10,573

Non-interest income

4,213

10,362

20,210

30,511

Non-interest expense:

Salaries and benefits

8,515

10,897

25,702

34,817

General and administrative

4,717

6,092

24,169

25,514

Goodwill impairment

6,735

Intangible assets impairment

1,016

Non-interest expense

14,248

16,989

57,622

60,331

Income (loss) before income taxes

3,268

10,727

(23,244)

25,559

Income tax expense (benefit)

525

3,281

(8,284)

6,857

Net income (loss)

2,743

7,446

(14,960)

18,702

Basic earnings (loss) per share

0.23

0.61

(1.27)

1.52

Diluted earnings (loss) per share

0.23

0.60

(1.27)

1.51

The accompanying notes are an integral part of the unaudited

consolidated financial statements.

-5-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

(Dollars in thousands)

Net income (loss)

2,743

7,446

(14,960)

18,702

Other comprehensive income:

Increase in fair value of debt securities available for sale

179

Tax effect

(3)

(14)

(12)

(46)

Total other comprehensive income

133

Comprehensive income (loss)

2,750

7,487

(14,925)

18,835

The accompanying notes are an integral part of the unaudited

consolidated 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’

Amount

Capital

Income (Loss)

Earnings

Equity

(Dollars in thousands)

Balance, December 31, 2019

12,113,585

121

79,665

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)

—

Stock-based compensation recognized

—

518

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

(38)

Net loss

—

(11,821)

Impact of adoption of new accounting

standards

(1)

—

(8,877)

Cash dividends paid ($

0.14

per share)

—

(1,710)

Balance, March 31, 2020

11,884,473

119

75,647

112,704

188,490

Issuance of common stock

14,891

120

Repurchase of common stock

(1,897)

(12)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

44,780

—

Stock-based compensation recognized

—

(149)

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

Net loss

—

(5,882)

Cash dividends paid ($

0.14

per share)

—

(1,629)

Balance, June 30, 2020

11,942,247

119

75,606

105,193

181,004

Repurchase of common stock

(18,446)

(149)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

50,850

(1)

Stock-based compensation recognized

—

437

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

Net income

—

2,743

Cash dividends paid ($

0.14

per share)

—

(1,692)

Balance, September 30, 2020

11,974,651

120

75,893

106,244

182,350

(1)

Represents the impact of Accounting Standards Update ("ASU")

2016-13 and related ASUs collectively referred to as "CECL".

See Note 2.

The accompanying notes are an integral part of the unaudited

consolidated 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’

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

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

Net income

—

5,141

Cash dividends paid ($

0.14

per share)

—

(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

Repurchase of common stock

(73,360)

(1,719)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

(450)

—

Stock-based compensation recognized

—

990

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

Net income

—

6,115

Cash dividends paid ($

0.14

per share)

—

(1,774)

Balance, June 30, 2019

12,285,564

123

82,726

(2)

122,659

205,554

Repurchase of common stock

(147,383)

(2)

(3,391)

(3,393)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

16,480

(1)

Stock-based compensation recognized

—

894

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

Net income

—

7,446

Cash dividends paid ($

0.14

per share)

—

(1,755)

Balance, September 30, 2019

12,154,661

122

80,228

(2)

128,350

208,787

The accompanying notes are an integral part of the unaudited

consolidated financial statements.

-8-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Nine Months

Ended September 30,

2020

2019

(Dollars in thousands)

Cash flows from operating activities:

Net (loss) income

(14,960)

18,702

Adjustments to reconcile net (loss) income to net cash provided

by operating activities:

Depreciation and amortization

2,996

3,632

Stock-based compensation

806

2,745

Impairment of goodwill and intangible assets

7,751

Change in fair value of equity securities

(89)

(121)

Provision for credit losses

51,160

17,781

Change in net deferred income tax liability

(7,777)

6,883

Amortization of deferred initial direct costs and fees

9,244

11,008

Loss on equipment disposed

116

1,331

Gain on leases sold

(2,426)

(13,400)

Leases originated for sale

(4,882)

(46,038)

Proceeds from sale of leases originated for sale

5,123

47,771

Noncash lease expense

1,365

857

Adjustment to value of contingent consideration

(1,435)

Effect of changes in other operating items:

Other assets

(1,642)

(3,465)

Other liabilities

(311)

(3,142)

Net cash provided by operating activities

45,039

44,544

Cash flows from investing activities:

Net change in time deposits with banks

4,471

(5,260)

Purchases of equipment for lease contracts and funds used to

originate loans

(298,244)

(594,831)

Principal collections on leases and loans

356,133

380,345

Proceeds from sale of leases originated for investment

25,663

161,566

Security deposits collected, net of refunds

(176)

(175)

Proceeds from the sale of equipment

1,567

2,065

Acquisitions of property and equipment

(2,266)

(3,492)

Principal payments received on securities available for sale

432

1,015

Net cash provided by (used in) investing activities

87,580

(58,767)

Cash flows from financing activities:

Net change in deposits

(15,425)

113,481

Term securitization repayments

(36,538)

(58,887)

Business combinations earn-out consideration payments

(180)

(349)

Issuances of common stock

120

240

Repurchases of common stock

(4,699)

(6,257)

Dividends paid

(5,021)

(5,169)

Net cash (used in) provided by financing activities

(61,743)

43,059

Net increase in total cash, cash equivalents and restricted cash

70,876

28,836

Total cash, cash equivalents

and restricted cash, beginning of period

130,027

111,201

Total cash, cash equivalents

and restricted cash, end of period

200,903

140,037

The accompanying notes are an integral part of the unaudited

consolidated financial statements.

-9-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30,

2020

2019

(Dollars in thousands)

Supplemental disclosures of cash flow information:

Cash paid for interest on deposits and borrowings

17,308

17,610

Net cash (received)/paid for income taxes

(5,005)

2,736

Leases and loans transferred into held for sale from investment

23,460

149,895

Supplemental disclosures of non cash investing activities:

Business combinations assets acquired

146

Purchase of equipment for lease contracts and loans originated

2,253

8,432

Reconciliation of Cash, cash equivalents and restricted cash

the Consolidated Balance Sheets:

Cash and cash equivalents

195,132

132,461

Restricted interest-earning deposits

5,771

7,576

Cash, cash equivalents and restricted cash at end of period

200,903

140,037

-10-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

NOTE 1 – The Company

Marlin Business Services Corp. (the “Company”) is a nationwide provider

of credit products and services to small businesses. The

products and services we provide to our customers include loans and

leases for the acquisition of commercial equipment (including

Commercial Vehicle

Group (“CVG”) assets which now incorporates Transportation

Finance Group (“TFG”)) and working capital

loans. The Company was incorporated in the Commonwealth

of Pennsylvania on August 5, 2003. In May 2000,

we established

AssuranceOne, Ltd., a Bermuda-based, wholly-owned captive

insurance subsidiary (“Assurance One”), which enables us to reinsure

the property insurance coverage for the equipment financed by Marlin

Leasing Corporation (“MLC”) and Marlin Business Bank

(“MBB”) for our small business customers. Effective

March 12, 2008, the Company opened MBB, a commercial

bank chartered by

the State of Utah and a member of the Federal Reserve System.

MBB serves as the Company’s

primary funding source through its

issuance of

Federal Deposit Insurance Corporation (“FDIC”)-insured

deposits.

In January 2017, we completed the acquisition of

Horizon Keystone Financial (“HKF”), an equipment leasing company which

primarily identifies and sources lease and loan contracts

for investor partners for a fee.

On September 19, 2018, the Company completed the acquisition of Fleet

Financing Resources

(“FFR”), a leading provider of equipment finance credit products specializing

in the leasing and financing of both new and used

commercial vehicles, with an emphasis on livery equipment and

other types of commercial vehicles used by small businesses.

References to the “Company,”

“Marlin,” “Registrant,” “we,” “us” and “our” herein refer to

Marlin Business Services Corp. and its

wholly-owned subsidiaries, unless the context otherwise requires.

NOTE 2 – Summary of Significant Accounting Policies

Basis of financial statement presentation.

The unaudited consolidated financial statements include

the accounts of the Company and

its wholly-owned subsidiaries. MLC and MBB are managed together

as a single business segment and are aggregated for financial

reporting purposes as they exhibit similar economic characteristics,

share the same leasing and loan portfolio and have a single

consolidated product offering platform. All intercompany

accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements present

the Company’s financial position

at September 30, 2020 and

the results of operations for the three- and nine -month periods

ended September 30, 2020 and 2019,

and cash flows for the nine-

month periods ended September 30, 2020 and 2019.

In management’s opinion, the unaudited

consolidated financial statements

contain all adjustments, which include normal and recurring adjustments,

necessary for a fair presentation of the financial position and

results of operations for the interim periods presented.

These unaudited consolidated financial statements should be

read in

conjunction with the consolidated financial statements and note

disclosures included in the Company’s

Form 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 results of operations or

cash flows

for the respective full years or any other period.

Use of Estimates.

These unaudited consolidated financial statements

require management to make estimates and assumptions that

affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of

the financial

statements and the reported amounts of revenues and expense

during the reporting period. Estimates are used when accounting

for

income recognition, the residual values of leased equipment,

the allowance for credit losses, deferred initial direct costs and fees, late

fee receivables, the fair value of financial instruments, estimated

losses from insurance program, and income taxes. Actual results

could differ from those estimates.

Income taxes.

Our statutory tax rate was

25.4

% for the three months ended September 30, 2020.

For the three-month period ended September 30,

2020, the effective tax rate was

16.1

%, driven by partial recognition of the prior quarter’s

interim reporting limitation on the amount

of tax benefits that can be recognized under Accounting Standards

Codification (“ASC”) 740,

Income Taxes

For the nine-month period ended September 30, 2020, the effective

tax rate in recognizing our benefit was

35.6

%, driven by a $

3.2

million discrete benefit, resulting from certain provisions in the Coronavirus

Aid, Relief, and Economic Security Act (“CARES Act”)

that allow for a remeasurement of our federal net operating losses.

The Company filed for a refund of carryback net operating

losses

-11-

as permitted under the CARES act and that refund was received

in July 2020.

The impact to our effective rate from that benefit was

partially offset by the limitation on interim tax benefits,

as discussed above.

For the three and nine-month periods ended September 30,

2019, our effective tax rates were

30.6

% and

26.8

%, respectively.

The Company is currently under examination by the IRS for tax years

ending December 31, 2013 to 2018, and the Company

remains

subject to examination for the year ended December 31,

2019.

Significant Accounting Policies.

There have been no significant changes to our Significant

Accounting Policies as described in our

Annual Report on Form 10-K for the year ended December

31, 2019, other than the adoption of ASU 2016-13 as described

below.

Recently Adopted Accounting Standards

Credit Losses.

In June 2016, the FASB

issued ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of

Credit Losses on Financial Instruments

, which changes the methodology for evaluating impairment

of most financial instruments.

This guidance was subsequently amended by ASU 2018-19,

Codification Improvements,

ASU 2019-04,

Codification Improvements

ASU 2019-05,

Targeted

Transition 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 measurement

of expected credit losses for the contractual term of the

Company’s current portfolio of loans

and leases.

Under CECL, an

allowance, or estimate of credit losses, is recognized immediately

upon the origination of a loan or lease and will be adjusted in

each subsequent reporting period.

This estimate of credit losses takes

into consideration all cashflows the Company expects to receive or

derive from the pools of contracts, including recoveries after

charge-off, amounts related to initial direct cost

and origination costs net of fees deferred, accrued interest receivable

and certain

future cashflows from residual assets. The Company had previously

recognized residual income within Fee Income in its Consolidated

Statements

of Operations; the adoption of CECL results in such residual income

being captured as a component of the activity of the

allowance. The Company’s policy for

charging off contracts against the allowance, and

non-accrual policy are not impacted by the

adoption of CECL.

The provision for credit losses recognized in the Consolidated

Statements of Operations under CECL will be primarily driven by

originations, offset by the reversal of the allowance

for any contracts sold, plus any amounts of realized cashflows,

such as charge-

offs, above or below our modeled estimates, plus adjustments

for changes in estimate each subsequent reporting period.

Estimating an allowance under CECL requires the Company to

develop and maintain a consistent systematic methodology to

measure

the estimated credit losses inherent in its current portfolio,

over the entire life of the contracts.

The Company assesses the appropriate

collective, or pool, basis to use to aggregate its portfolio based

on the existence of similar risk characteristics and determined that its

measurement begins by separately considering segments of financing

receivables, which is similar to how it has historically analyzed

its allowance for credit losses: (i) equipment finance lease and loan;

(ii) working capital loans; (iii) commercial vehicles “CVG”;

and

(iv) Community Reinvestment Act and Paycheck Protection loans.

However, these classes of receivables are

further disaggregated

into pools of loans based on risk characteristics that may include:

lease or loan type, origination channel, and internal credit

score

(which is a measurement that combines many risk characteristics,

including loan size, external credit scores, existence of

a guarantee,

and various characteristics of the borrower’s business).

As part of our analysis of expected credit losses, we may analyze

contracts on an individual basis, or create additional pools of

contracts, in situations where such loans exhibit unique risk characteristics

and 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 each

measurement date, management considers relevant qualitative and

quantitative factors to assess whether the historical loss experience

being referenced should be adjusted to better reflect the risk

characteristics of the current portfolio and the expected future

loss experience for the life of these contracts.

This assessment

incorporates all available information relevant to considering the collectability

of its current portfolio, including considering economic

and business conditions, default trends, changes in its portfolio

composition, changes in its lending policies and practices, among

other

internal and external factors.

-12-

The Company adopted the guidance in these ASUs, effective

January 1, 2020, applying changes resulting from the application

of the

new standard’s provisions as a

cumulative-effect adjustment to retained earnings as of

the beginning of the first reporting period in

which the guidance is effective (i.e., modified retrospective

approach).

The adoption of this standard resulted in the following adjustment

to the Company’s Consolidated

Balance Sheets:

Balance as of

December 31,

Adoption

January 1,

2019

Impact

2020

(Dollars in thousands)

Assets:

Net investment in leases and loans

1,028,215

Allowance for credit losses

(21,695)

(11,908)

(33,603)

Total net investment in leases

and loans

1,006,520

994,612

Liabilities:

Net deferred income tax liability

30,828

(3,031)

27,797

Stockholders' Equity:

Retained Earnings

135,112

(8,877)

126,235

See Note 6 – Allowance for Credit Losses, for further discussion of the

January 1, 2020 measurement of allowance under CECL, as

well as discussion of the Company’s

new Accounting Policy governing its Allowance.

See Note 13 – Stockholders’ Equity,

for discussion of the Company’s

election to delay for two-years the effect of CECL

on regulatory

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

transition.

In addition, as a result of adoption this standard, future measurements of

the impairment of our investment securities will

incorporate

the guidance in these ASUs, including analyzing any decline

in fair value between credit quality-driven factors versus other factors.

There was no impact as of the adoption date to our investment

securities.

-13-

NOTE 3 – Non-Interest Income

The following table summarizes non-interest income for the periods

presented:

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Insurance premiums written and earned

2,082

2,230

6,612

6,538

Property tax (loss) income

123

(42)

5,247

5,680

Servicing income

462

395

1,517

1,021

Gain on sale of leases and loans

6,456

2,426

13,400

Net gains recognized during the period on equity securities

121

Non-interest income - other than from contracts with customers

2,754

9,066

15,891

26,760

Insurance policy fees

819

688

2,610

2,021

Property tax administrative fees on leases

243

272

713

801

ACH payment fees

143

238

Referral fees

129

123

448

Other

347

129

730

243

Non-interest income from contracts with customers

1,459

1,296

4,319

3,751

Total non-interest income

4,213

10,362

20,210

30,511

-14-

NOTE 4 - Investment Securities

The Company had the following investment securities as of the

dates presented:

September 30,

December 31,

(Dollars in thousands)

2020

2019

Equity Securities

Mutual fund

3,756

3,615

Debt Securities, Available

for Sale:

Asset-backed securities ("ABS")

3,836

4,332

Municipal securities

3,169

3,129

Total investment securities

10,761

11,076

The following schedule summarizes changes in fair value of equity securities

and the portion of unrealized gains and losses for each

period presented:

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

2020

2019

2020

2019

Net gains recognized during the period on equity securities

121

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

121

-15-

Available for

Sale

The following schedule is a summary of available for sale investments

as of the dates presented:

September 30, 2020

Gross

Amortized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

(Dollars in thousands)

ABS

3,776

3,836

Municipal securities

3,082

(1)

3,169

Total Debt

Securities, Available for Sale

6,858

148

(1)

7,005

December 31, 2019

Gross

Amortized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

(Dollars in thousands)

ABS

4,302

(3)

4,332

Municipal securities

3,058

3,129

Total Debt

Securities, Available for Sale

7,360

104

(3)

7,461

The Company evaluates its available for sale securities in an unrealized

loss position for other than temporary impairment on at least a

quarterly basis. The Company did not recognize any other than temporary

impairment to earnings for each of the periods ended

September 30, 2020 and September 30, 2019.

The following tables present the aggregate amount of unrealized

losses on available for sale securities in the Company’s

investment

securities classified according to the amount of time those securities

have been in a continuous loss position as of September

30, 2020

and December 31, 2019:

September 30, 2020

Less than 12 months

12 months or longer

Total

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Losses

Value

Losses

Value

Losses

Value

(Dollars in thousands)

Municipal securities

(1)

142

Total available

for sale investment

securities

142

(1) The unrealized loss is immaterial

December 31, 2019

Less than 12 months

12 months or longer

Total

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Losses

Value

Losses

Value

Losses

Value

(Dollars in thousands)

ABS

(3)

430

(3)

430

Total available

for sale investment

securities

(3)

430

(3)

430

-16-

The following table presents the amortized cost, fair value, and

weighted average yield of available for sale investments at September

30, 2020,

based on estimated average life. Receipt of cash flows may differ

from 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

2,271

1,505

3,776

Municipal securities

302

2,623

142

3,082

Total available

for sale investments

2,573

4,128

142

6,858

Estimated fair value

2,625

4,223

142

7,005

Weighted-average

yield, GAAP basis

4.75%

1.98%

1.99%

2.10%

1.99%

-17-

NOTE 5 – Net Investment in Leases and Loans

Net investment in leases and loans consists of the following:

September 30, 2020

December 31, 2019

(Dollars in thousands)

Minimum lease payments receivable

376,649

457,602

Estimated residual value of equipment

27,974

29,342

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

(46,708)

(59,746)

Security deposits

(415)

(590)

Total leases

357,500

426,608

Commercial loans, net of origination costs and fees deferred

Working Capital

Loans

26,472

60,942

CRA

(1)

1,114

1,398

Equipment loans

(2)

457,627

464,655

CVG

65,340

74,612

Total commercial loans

550,553

601,607

Net investment in leases and loans, excluding allowance

908,053

1,028,215

Allowance for credit losses

(61,325)

(21,695)

Total net investment in leases

and loans

846,728

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 response to COVID-19, starting in mid-March 2020,

the Company instituted a payment deferral contract modification

program in

order to assist our small-business customers.

See Note 6, “Allowance for Credit Losses” for discussion of that program.

At September 30, 2020, $

42.8

million in net investment in leases were pledged as collateral for

the Company’s outstanding asset-

backed securitization balance and $

55.0

million in net investment in leases were pledged as collateral for the secured

borrowing

capacity at the Federal Reserve Discount Window.

The amount of deferred initial direct costs and origination costs

net of fees deferred were $

16.1

million and $

20.5

million as of

September 30, 2020 and December 31, 2019,

respectively. Initial direct costs 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 deferral as initial direct costs for

leases, which reduced the deferral of unit lease costs and resulted

in an increase in current period expense. Origination costs are

netted

in commercial loans and are amortized to income using the effective

interest method. At September 30, 2020 and

December 31, 2019,

22.2

million and $

23.4

million, respectively, of the

estimated residual value of equipment retained on our Consolidated

Balance

Sheets was related to copiers.

-18-

Maturities of lease receivables

under lease contracts and the amortization of unearned lease income, including

initial direct costs and

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

Minimum Lease

Payments

Net Income

Receivable

(1)

Amortization

(2)

(Dollars in thousands)

Period Ending December 31,

Remainder of 2020

40,682

7,503

2021

144,561

20,557

2022

98,671

11,212

2023

57,414

5,177

2024

27,063

1,749

Thereafter

8,258

510

376,649

46,708

________________________

(1)

Represents the undiscounted cash flows of the lease payments receivable.

(2)

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

Portfolio Sales

The Company originates certain lease and loans for sale to

third parties, based on their underwriting criteria and specifications.

addition, the Company may periodically enter into agreements to sell certain

leases and loans that were originated for investment to

third parties.

For agreements that qualify as a sale where the Company has

continuing involvement through servicing, the Company recognizes

servicing liability at its initial fair value, and then amortizes the liability

over the expected servicing period based on the effective yield

method, within Other income in the Consolidated Statements of Operations.

The Company’s sale agreements

typically do not contain

a stated servicing fee, so the initial value recognized as a servicing

liability is a reduction of the proceeds received and is based

on an

estimate of the fair value attributable to that obligation.

The Company’s servicing liability

was $

1.5

million and $

2.5

million as of

September 30, 2020,

and December 31, 2019, respectively,

and is recognized within Accounts payable and accrued

expenses in the

Consolidated Balance Sheets.

As of September 30, 2020 and December 31, 2019, the portfolio

of leases and loans serviced for others

was $

261

million and $

340

million, respectively.

In addition, the Company may have continuing involvement in contracts

sold through any recourse obligations that may include

customary representations and warranties or specific recourse

provisions. The Company’s reserve

for expected losses from recourse

obligations was $

0.9

million as of September 30, 2020 and $

0.4

million as of December 31, 2019.

In 2020, the Company was a participating lender,

offering loans to its customers that are guaranteed under

the Small Business

Administration’s (SBA’s)

Paycheck Protection Program (“PPP”).

In the three months ended September 30, 2020, the Company sold

its PPP receivable portfolio and recognized an insignificant gain on

sale; the Company will have no continuing involvement with

those receivables.

The following table summarizes information related to portfolio

sales for the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

(Dollars in thousands)

Sales of leases and loans

4,286

85,425

28,342

195,932

Gain on sale of leases and loans

6,456

2,426

13,400

-19-

NOTE 6 – Allowance for Credit Losses

For 2019 and prior, we maintained an allowance

for credit losses at an amount sufficient to absorb

losses inherent in our existing lease

and loan portfolios as of the reporting dates based on our estimate of probable

incurred net credit losses in accordance with the

Contingencies Topic

of the FASB ASC.

Effective January 1, 2020, we

adopted

ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses on Financial Instruments

(“CECL”)

which changed our accounting policy and estimated allowance.

CECL replaces the

probable, incurred loss model with a measurement of expected

credit losses for the contractual term of the Company’s

current

portfolio of loans and leases.

After the adoption of CECL, an allowance, or estimate of credit

losses, is recognized immediately upon

the origination of a loan or lease and will be adjusted in each

subsequent reporting period.

See further discussion of the adoption of

this accounting standard and a summary of the Company’s

revised Accounting Policy for Allowance for Credit Losses

in Note 2,

Summary of Significant Accounting Policies.

Detailed discussion of our measurement of allowance under CECL

as of the adoption

date and September 30, 2020 is below.

The following tables summarize activity in the allowance for

credit losses

Three Months Ended September 30, 2020

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, beginning of period

48,550

7,962

7,132

63,644

Charge-offs

(10,509)

(633)

(524)

(11,666)

Recoveries

983

101

1,178

Net charge-offs

(9,526)

(532)

(430)

(10,488)

Realized cashflows from Residual Income

965

Provision for credit losses

7,226

(3,974)

3,952

7,204

Allowance for credit losses, end of period

47,215

3,456

10,654

61,325

Net investment in leases and loans, before allowance

803,689

26,472

76,778

1,114

908,053

Three Months Ended September 30, 2019

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, beginning of period

13,416

1,940

1,421

16,777

Charge-offs

(5,023)

(417)

(526)

(5,966)

Recoveries

457

227

738

Net charge-offs

(4,566)

(190)

(472)

(5,228)

Provision for credit losses

6,799

346

517

7,662

Allowance for credit losses, end of period

15,649

2,096

1,466

19,211

Net investment in leases and loans, before allowance

910,046

55,794

86,415

1,454

1,053,709

-20-

Nine Months Ended September 30, 2020

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, December 31, 2019

18,334

1,899

1,462

21,695

Adoption of 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

(24,723)

(2,598)

(2,157)

(29,478)

Recoveries

2,237

156

257

2,650

Net charge-offs

(22,486)

(2,442)

(1,900)

(26,828)

Realized cashflows from Residual Income

3,390

Provision for credit losses

38,713

4,002

8,445

51,160

Allowance for credit losses, end of period

47,215

3,456

10,654

61,325

Net investment in leases and loans, before allowance

803,689

26,472

76,778

1,114

908,053

Nine Months Ended September 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

(13,863)

(1,692)

(1,200)

(16,755)

Recoveries

1,671

298

116

2,085

Net charge-offs

(12,192)

(1,394)

(1,084)

(14,670)

Provision for credit losses

14,310

2,023

1,448

17,781

Allowance for credit losses, end of period

15,649

2,096

1,466

19,211

Net investment in leases and loans, before allowance

910,046

55,794

86,415

1,454

1,053,709

__________________

(1)

The Company adopted ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses 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 recognizes

an allowance, or estimate of credit losses, immediately

upon the origination of a loan or lease, and that estimate will

be reassessed in each subsequent reporting period.

This estimate of

credit losses takes into consideration all cashflows the Company

expects to receive or derive from the pools of contracts, including

recoveries after charge-off, amounts related to

initial 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 each

measurement date, management considers relevant qualitative and

quantitative factors to assess whether the historical loss experience

being referenced should be adjusted to better reflect the risk

characteristics of the current portfolio and the expected future

loss experience for the life of these contracts.

This assessment

incorporates all available information relevant to considering the collectability

of its current portfolio, including considering economic

and business conditions, default trends, changes in its portfolio

composition, changes in its lending policies and practices, among

other

internal and external factors. As part of the analysis of expected

credit losses, we may analyze contracts on an individual basis,

create additional pools of contracts, in situations where such loans

exhibit unique risk characteristics and are no longer expected

experience similar losses to the rest of their pool.

Current Measurement

The Company selected a vintage loss model as the approach to

estimate and measure its expected credit losses for all portfolio

segments and for all pools, primarily because the timing of the losses

realized has been consistent across historical vintages, such

that

the company is able to develop a predictable and reliable

loss curve for each separate portfolio segment.

The vintage model assigns

loans to vintages by origination date, measures our historical

average actual loss and recovery experience within that vintage, develops

a loss curve based on the averages of all vintages, and predicts (or

forecasts) the remaining expected net losses of the current portfolio

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

vintage.

Additional detail specific to the measurement of each portfolio

segment under CECL as of January 1, 2020 and September

30, 2020,

summarized below.

Equipment Finance:

Equipment Finance consists of Equipment Finance Agreements, Installment

Purchase Agreements and other leases and loans.

The risk characteristics referenced to develop pools of Equip

ment Finance leases and loans are based on internally developed

credit score ratings, which is a measurement that combines many risk

characteristics, including loan size, external credit

scores, existence of a guarantee, and various characteristics of the borrower’s

business.

In addition, the Company separately

measured a pool of true leases so that any future cashflows from residuals

could be used to partially offset the allowance for

that pool.

The Company’s measurement of

Equipment Finance pools is based on its own historical loss experience.

The Company

analyzed the correlation of its own loss data from 2004 to 2019

against various economic variables in order to determine an

approach for reasonable and supportable forecast.

The Company then selected certain economic variables to

reference for its

forecast about the future, specifically the unemployment rate

and growth in business bankruptcy.

The Company’s

methodology reverts from the forecast data to its own loss data

adjusted for the long-term average of the referenced economic

variables, on a straight-line basis.

At each reporting date, the Company considers current conditions, including

changes in portfolio composition or the business

environment, when determining the appropriate measurement

of current expected credit losses for the remaining life of its

portfolio.

As of the January 1, 2020 adoption date, the Company utilized a 12

-month forecast period and 12-month straight-

line reversion period, based on its initial assessment of the appropriate

timing.

However, starting with the March 31,

2020 measurement, the Company adjusted its model to reference

a 6-month forecast

period and 12-month straight line reversion period.

The change in the length of the reasonable and supportable

forecast was

based on observed market volatility in late March,

and the Company continues to reference a 6-month forecast

period at

September 30, 2020 due to continuing uncertainty of the duration and

level of impact of 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 $

1.2

million and $

22.2

million for the three- and nine -

months ended September 30, 2020,

respectively.

After completing the forecast adjustment, the Company assessed

the output of the Equipment Finance reserve estimate and

increased the reserve for a $

0.9

million qualitative adjustment as of September 30, 2020,

primarily based on an analysis that

incorporates the current forecasted peak levels of unemployment and

business bankruptcy.

-22-

Working Capital:

The risk characteristics referenced to develop pools of Working

Capital loans is based on origination channel, separately

considering an estimation of loss for direct-sourced loans versus loans

that were sourced from a broker.

The Company’s

historical relationship with its direct-sourced customers typically

results in a lower level of credit risk than loans sourced

from brokers where the Company has no prior credit relationship

with the customer.

The Company’s measurement of

Working Capital

pools is based on its own historical loss experience.

The Company’s

Working Capital loans

typically range from 6 – 12 months of duration. For this portfolio

segment, due to the short contract

duration, the Company did not define a standard methodology to

adjust its loss estimate based on a forecast of economic

conditions.

However, the Company will continually

assess through a qualitative adjustment whether there are changes in

conditions and the environment that will impact the performance

of these loans that should be considered for qualitative

adjustment.

At each reporting date, the Company considers current conditions, inclu

ding changes in portfolio composition or the business

environment, when determining the appropriate measurement

of current expected credit losses for the remaining life of its

portfolio.

As of the January 1, 2020 adoption date, there was no qualitative adjustment to

the Working

Capital portfolio.

However, starting with its March 31,

2020 measurement, driven by the elevated risk of credit loss driven by market

conditions due to COVID-19, the Company developed alternate

scenarios for credit loss based on an analysis of the

characteristics of its portfolio,

considering different timing and magnitudes of potential

exposures.

During the third quarter, the Company updated

its expectation for credit losses for the Working

Capital segment based on the

favorable actual portfolio performance during the quarter and

a revised forecast based on its current assessment of risks in the

portfolio.

Based on that analysis, the Company recognized a reserve reduction of $

3.9

million for the three months ended

September 30, 2020, bringing the provision associated with qualitative

adjustments to $

3.1

million for the nine months ended

September 30, 2020.

Commercial Vehicle

Group (CVG):

Transportation-related equipment leases and

loans are analyzed as a single pool, as the Company did not consider

any risk

characteristics to be significant enough to warrant disaggregating this

population.

The Company’s measurement of

CVG is based on a combination of its own historical loss experience

and industry loss data

from an external source. The Company has limited history of this product,

and therefore the Company determined it was

appropriate to develop an estimate based on a combination of

internal and industry data.

Due to the Company’s limited

history of performance of this segment, and the limited size of

the portfolio, the Company did not develop a standard

methodology to adjust its loss estimate based on a forecast of economic

conditions.

However, the Company will continually

assess through a qualitative adjustment whether there are changes

in conditions and the environment that will impact the

performance of these loans that should be considered for

qualitative adjustment.

At each reporting date, the Company considers current conditions, including

changes in portfolio composition or the business

environment, when determining the appropriate measurement

for the remaining life of the current portfolio.

As of the

January 1, 2020 adoption date, there were no qualitative adjustment to

the CVG portfolio.

However, starting with the March

31, 2020 measurement, driven by the elevated risk of credit loss driven

by market conditions due to COVID-19, the

Company developed alternate scenarios for expected credit

loss for this segment, considering different timing

and

magnitudes of potential exposures.

During the third quarter, the Company updated

its expectation for credit losses for the CVG segment, including separately

assessing the elevated risks of a population of motor coach industry

contracts that are facing prolonged impacts from

COVID-19.

Primarily driven by that population, the Company recognized provision

related to CVG for the third quarter of

3.8

million, which increased the year to date qualitative adjustments for COVID-19

related risks to $

7.0

million for this

portfolio segment.

-23-

Community Reinvestment Act (CRA) Loans:

CRA loans are comprised of loans originated under a line of

credit to satisfy the Company’s obligations

under the CRA.

The

Company does not measure an allowance specific to this

population because the exposure to credit loss is nominal.

For the three- and nine - months ended September 30,

2020, the Company has recognized $

1.9

million and $

36.6

million of provision,

respectively, driven by increasing

the allowance for qualitative and forecast adjustments as

a result of conditions driven by the

COVID-19 pandemic.

The COVID-19 pandemic, business shutdowns and impacts to our

customers, is still ongoing, and the extent of

the effects of the pandemic on our portfolio

depends on future developments, which are highly uncertain and

are difficult to predict.

Further, the Company instituted a

Loan modification payment deferral program, as discussed further

below, to give payment

relief to

customers during this period.

As of September 30, 2020,

the ultimate performance of loans modified under that program remains

uncertain, due to the timing of the modified loans resuming payment.

Our reserve as of September 30, 2020,

and the qualitative and economic adjustments discussed above, were calculated

referencing our

historical loss experience, including loss experience through the 2008

economic 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 rates

and business bankruptcies and are based on our current

expectations of the performance of our portfolio in the current environment.

We may recognize

credit losses in excess of our reserve,

or revise our estimate of credit losses in the future, and such

amounts 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.

Loan Modification Program:

In response to COVID-19, starting in mid-March 2020,

the Company instituted a payment deferral program in order

to assist its small-

business customers that requested relief and were current under

their existing agreement.

The payment deferral program allows for up

to 6 months of fully deferred or reduced payments.

The below table outlines certain data on the modified population

with details of count and net investment balance, with all information

as of September 30, 2020.

-24-

Equipment

Working

(Dollars in thousands)

Finance

CVG

Capital

Total

Modified leases and loans receivable

4,437

431

369

5,237

Resolved

(payoff, chargeoff)

(1)

230

122

372

Total Program, number of contracts

4,667

451

491

5,609

Current Quarter Population Changes:

Q3 - New modification

6,689

2,468

286

9,443

Q3 - Extended modification

5,547

8,412

2,458

16,417

Last Modified in Q2 or Q1

79,664

14,892

9,466

104,022

Total Modifications, Net investment

receivable

91,900

25,772

12,210

129,882

% of total segment receivables

11.4%

33.6%

46.1%

14.3%

Deferral Status:

Out of deferral

82,978

16,649

9,489

109,116

In deferral period - partial payment during deferral

6,372

3,163

2,721

12,256

In deferral period - full deferral of payment

2,550

5,960

8,510

Total Modifications, Net investment

receivable

(2)

91,900

25,772

12,210

129,882

Modifications 30+ Days Delinquent:

Out of deferral

3,352

1,367

320

5,039

In deferral period, with partial payment during

deferral

639

462

1,200

_________________

(1)

Total resolved modifications

include

contracts charged off where $

574

thousand credit loss was realized, and

331

contracts that paid in full.

(2)

Out of the deferral period represents the month in which the contract

returns to its regular contract schedule for the entire

month.

For loans in deferral period, the deferral may either be full, with zero

payment owed during the deferral period, or

partial, with reduced payments during deferral that are primarily

% of schedule, or the deferral period payment may

be a nominal amount. In all cases, information is presented with respect

to the contracts’ current deferral terms as of

September 30, 2020.

As of September 30, 2020, $

109.1

million, or

% of our total modified contracts are out of the deferral period,

and the current

deferral period will expire for substantially all of the remaining modified

contracts before December 31, 2020.

We are closely

monitoring the performance of the modified contracts as their

deferral period expires.

As of the end of the third quarter we have

stopped taking new applications for modifications, although

we may consider offering extensions in select cases as part of our

loss

mitigation strategies.

TDRs are restructurings of leases and loans in which, due to the borrower's

financial difficulties, a lender grants a concession that

would not otherwise consider for borrowers of similar credit

quality.

In accordance with the interagency guidance as updated

in April

2020, that the FASB

concurred with, loans modified under the Company’s

payment deferral program are not considered TDRs. As of

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

t have any TDRs.

-25-

Credit Quality

At origination, the Company utilizes an internally developed

credit score ratings as part of its underwriting assessment and

pricing

decisions for new contracts.

The internal credit score is a measurement that combines

many risk characteristics, including loan size,

external credit scores, existence of a guarantee, and various characteristics

of the borrower’s business.

The internal credit score is

used to create pools of loans for analysis in the Company’s

Equipment Finance portfolio segment, as discussed further above.

believe this segmentation allows our loss modeling to properly

reflect changes in portfolio mix driven by sales activity and

adjustments to underwriting standards.

However, this score is not updated after origination

date for analyzing the Company’s

provision.

On an ongoing basis, to monitor the credit quality of its portfolio,

the Company primarily reviews the current delinquency of the

portfolio and delinquency migration to monitor risk and default trends. We

believe that delinquency is the best factor to use to monitor

the credit quality of our portfolio on an ongoing basis because

it reflects the current condition of the portfolio, and is a good

predictor

of near term charge-offs and can help with identifying

trends and emerging risks to the portfolio.

The following tables provide information about delinquent leases

and loans in the Company’s

portfolio based on the contract’s

status

as-of the dates presented. In particular, contracts

that are part of the Loan Modification Program discussed

above are presented in the

below delinquency table and the non-accrual information for

September 30, 2020 based on their status with respect to the

modified

terms. See Loan Modification section above for delinquency data

specific to the modified portfolio.

-26-

Portfolio by Origination Year as of

September 30, 2020

Total

2020

2019

2018

2017

2016

Prior

Receivables

(Dollars in thousands)

Equipment Finance

30-59

837

2,103

1,387

740

316

5,454

60-89

520

1,692

1,182

748

315

4,496

90+

334

2,789

1,444

1,220

294

6,123

Total Past Due

1,691

6,584

4,013

2,708

925

152

16,073

Current

214,104

306,024

158,593

79,064

26,424

3,407

787,616

Total

215,795

312,608

162,606

81,772

27,349

3,559

803,689

Working Capital

30-59

328

399

60-89

133

151

90+

222

228

Total Past Due

210

568

778

Current

11,521

13,996

139

25,694

Total

11,731

14,564

139

26,472

CVG

30-59

467

748

60-89

588

307

336

1,231

90+

584

701

Total Past Due

678

830

993

142

2,680

Current

13,971

34,922

15,342

7,447

2,364

74,098

Total

14,649

35,752

16,335

7,589

2,401

76,778

CRA

Total Past Due

Current

1,114

Total

1,114

Net investment in leases

and loans, before allowance

243,289

362,924

179,080

89,399

29,750

3,611

908,053

-27-

Portfolio by Origination Year as of

December 31, 2019

Total

2019

2018

2017

2016

2015

Prior

Receivables

(Dollars in thousands)

Equipment Finance

30-59

1,420

1,755

935

454

169

4,750

60-89

1,023

1,055

685

366

3,213

90+

947

1,522

1,090

527

163

4,256

Total Past Due

3,390

4,332

2,710

1,347

412

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

584

60-89

90+

203

Total Past Due

785

855

Current

57,706

2,343

60,087

Total

58,491

2,413

60,942

CVG

30-59

126

365

60-89

188

254

90+

178

158

389

Total Past Due

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

Total

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 and

loans are generally charged-off when they are contractually

past due for

120 days or more.

Income recognition is discontinued when a default on monthly payment

exists for a period of 90 days or more.

Income recognition resumes when a lease or loan becomes less

than 90 days delinquent.

At September 30, 2020 and December 31,

2019, there were

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

-28-

Working Capital Loans

are generally placed in non-accrual status when they are

30 days past due and generally charged-off

at 60 days

past due. The loan is removed from non-accrual status once sufficient

payments are made to bring the loan current and reviewed

management. At September 30, 2020 and December 31,

2019, there were

Working Capital

Loans past due 30 days or more and still

accruing.

The following tables provide information about non-accrual leases and

loans:

September 30,

December 31,

(Dollars in thousands)

2020

2019

Equipment Finance

6,345

4,256

Working Capital Loans

1,144

946

CVG

886

389

Total

Non-Accrual

8,375

5,591

NOTE 7 - Goodwill and Intangible Assets

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’s

fair value of the assets acquired and is not amortizable but is deductible

for tax purposes.

The Company assigns its goodwill to a single, consolidated reporting

unit, Marlin Business Services Corp. In the first quarter

of 2020,

events or circumstances indicated that it was more likely than

not that the fair value of its reporting unit was less than its carrying

amount, driven in part by market capitalization of the Company falling

below its book value, and negative current events that impact

the Company related to 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 multiplied

by shares outstanding as of March 31, 2020 and then further

applying a control premium, and compared it to its carrying amount,

including goodwill.

The Company concluded that the implied

fair value of goodwill was less than its carrying amount, and

recognized impairment equal to the $

6.7

million balance in the

Consolidated Statements of Operations.

The changes in the carrying amount of goodwill for the nine-month period

ended September 30, 2020 are as follows:

(Dollars in thousands)

Total Company

Balance at December 31, 2019

6,735

Impairment of Goodwill

(6,735)

Balance at September 30, 2020

Intangible assets

The following table presents details of the Company’s

intangible assets:

-29-

(Dollars in thousands)

Gross Carrying

Accumulated

Net

Amount

Amortization

Value

As of September 30, 2020

Vendor

relationships

7,290

1,472

5,818

Corporate trade name

Total

7,350

1,504

5,846

As of December 31, 2019

Useful Life

Lender relationships

years

1,630

519

1,111

Vendor

relationships

years

7,290

974

6,316

Corporate trade name

years

Total

8,980

1,519

7,461

(Dollars in thousands)

FFR

HKF

Total

Beginning Balance, December 31, 2019

6,758

703

7,461

Amortization Expense

(530)

(69)

(599)

Impairment

(1,016)

Ending Balance, September 30, 2020

5,212

634

5,846

The Company’s intangible assets consist

of definite-lived assets in connection with the January 2017

acquisition of HKF,

and definite-

lived intangible assets in connection with the September 2018

acquisition of FFR. The Company has

indefinite-lived intangible

assets.

In the three months ended September 30, 2020, the Company determined

that a decrease in projected volumes for its FFR business

and a decrease in the sales team that supports that business resulted

in a triggering event that warranted a review of the recoverability

of the related vendor relationship and lender relationship intangible

assets.

Those assets were evaluated as separate asset groups, as

they generate independent cashflows, such that the vendor

relationships relate to the origination of contracts and the lend

relationships relate to the sale or syndication of contracts.

The estimate of fair value was modeled based on an expected

cashflow

analysis.

As a result of those analyses, there was no impairment related

to the FFR vendor relationship intangible, and the Company

recognized $

1.0

million of impairment for the FFR lender relationship intangible. This

impairment is reflected in Intangible

impairment in the Consolidated Statement of Operations.

Amortization related to the Company’s

definite lived intangible assets was $

0.6

million and $

0.7

million for the nine-month periods

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

The Company expects the amortization expense for the next

five years will be as follows:

Amortization

(Dollars in thousands)

Expense

Remainder of 2020

168

2021

671

2022

671

2023

671

2024

663

-30-

NOTE 8 – Other Assets

Other assets are comprised of the following:

September 30,

December 31,

2020

2019

(Dollars in thousands)

Accrued fees receivable

2,816

3,509

Prepaid expenses

2,393

2,872

Federal Reserve Bank Stock

1,711

Other

1,606

2,361

8,526

10,453

NOTE 9 – Deposits

MBB serves as the Company’s

primary funding source. MBB issues fixed-rate FDIC-insured

certificates of deposit raised nationally

through various brokered deposit relationships and fixed-rate

FDIC-insured deposits received from direct sources. MBB offers

FDIC-

insured money market deposit accounts (the “MMDA Product”)

through participation in a partner bank’s

insured savings account

product. This brokered deposit product has a variable rate,

no maturity date and is offered to the clients of the partner bank and

recorded as a single deposit account at MBB. As of September

30, 2020, money market deposit accounts totaled $

52.7

million.

As of September 30, 2020, the scheduled maturities of certificates

of deposits are as follows:

Scheduled

Dollars in thousands

Maturities

Period Ending December 31,

Remainder of 2020

166,820

2021

312,968

2022

154,949

2023

76,924

2024

42,181

Thereafter

17,934

Total

771,776

Certificates of deposits issued by MBB are time deposits and are

generally issued in denominations of $

250,000

or less. The MMDA

Product is also issued to customers in amounts less than $

250,000

. The FDIC insures deposits up to $

250,000

per depositor. The

weighted average all-in interest rate of deposits at September

30, 2020 was

1.92

NOTE 10 – Debt and Financing Arrangements

Short-Term

Borrowings

The Company had a secured, variable rate revolving line of credit

in the amount of $

5.0

million that was scheduled to expire on

November 20, 2020

. The line of credit was terminated by mutual agreement with the line of

credit provider in 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 principal

amount. At September 30, 2020,

outstanding term securitizations

amounted to $

40.0

million and are collateralized by $

42.8

million of minimum lease and loan payments receivable and

5.8

million of

restricted interest-earning deposits. The Company’s

term note securitizations are classified as long-term borrowings.

-31-

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

September 30,

December 31,

2020

2019

(Dollars in thousands)

Term securitization 2018

-1

40,031

76,563

Unamortized debt issuance costs

(198)

(472)

39,833

76,091

The term note securitization is summarized below:

Outstanding Balance as of

Notes

Final

Original

September 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

8,391

36,910

April, 2023

3.36

Class B

10,400

May, 2023

3.54

Class C

11,390

June, 2023

3.70

Class D

5,470

July, 2023

3.99

Class E

4,380

May, 2025

5.02

Total Term

Note Securitizations

40,031

76,563

201,650

3.05

(1)(2)

__________________

(1)

Represents the original weighted average initial coupon rate for

all tranches of the securitization. In addition to this coupon

interest, term note securitizations have other transaction costs which are

amortized over the life of the borrowings as additional

interest expense.

(2)

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

will approximate

3.77

% over the remaining term of the

borrowing.

Scheduled principal and interest payments on outstanding borrowings

as of September 30, 2020 are as follows:

Principal

Interest

(Dollars in thousands)

Period Ending December 31,

Remainder of 2020

7,820

358

2021

23,629

813

2022

8,582

159

40,031

1,330

-32-

NOTE 11 – Fair Value

Measurements and Disclosures about

the Fair Value

of Financial Instruments

Fair Value

Measurements

Fair value is defined in GAAP as the price that would be received

to sell an asset or the price that would be paid to transfer a

liability

on the measurement date. GAAP focuses on the exit price in

the principal or most advantageous market for the asset or liability in

orderly transaction between market participants. A three-level

valuation hierarchy is required for disclosure of fair value

measurements based upon the transparency of inputs to the valuation of

an asset or liability as of the measurement date. The fair value

hierarchy gives the highest priority to quoted prices (unadjusted)

in active markets for identical assets or liabilities (Level 1) and

the

lowest priority to unobservable inputs (Level 3). The level in the fair

value hierarchy within which the fair value measurement in its

entirety falls is determined based on the lowest level input that

is significant to the measurement in its entirety.

The Company’s balances measured

at fair value on a recurring basis include the following

as of September 30, 2020 and December

31, 2019:

September 30, 2020

December 31, 2019

Fair Value Measurements Using

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

(Dollars in thousands)

Assets

ABS

3,836

4,332

Municipal securities

3,169

3,129

Mutual fund

3,756

3,615

At this time, the Company has not elected to report any assets

and liabilities using the fair value option. There have been

no transfers

between Level 1 and Level 2 of the fair value hierarchy for

any of the periods presented.

Non-Recurring Measurements

Non-recurring fair value measurements include assets and liabilities

that are periodically remeasured or assessed for impairment

using

Fair value measurements. Non-recurring measurements include

the Company’s evaluation of goodwill

and residual assets for

impairment, and the Company’s remeasurement

of contingent consideration and assessment of the carrying amount

of its servicing

liability.

For the nine months ended September 30, 2020, the Company recognized

6.7

million for the impairment of goodwill and in the three-

and nine-months ended September 30, 2020, $

1.0

million for the impairment of intangible assets, as discussed further

in Note 7,

Goodwill and Intangible Assets.

In addition, in the three-and nine-months ended September

30, 2020 the Company updated its fair

value measurement of contingent consideration liability in connection

with the 2018 FFR acquisition due to lower forecasted volumes

for that business, resulting in a $

1.4

million reduction in that liability which was recognized as a reduction in General

and

administrative expense.

For the nine months ended September 30, 2019, there were no significant

amounts recognized in the Consolidated Statements of

Operations in connection with non-recurring fair value measurements.

Fair Value

of Other Financial Instruments

The following summarizes the carrying amount and estimated

fair value of the Company’s other financial

instruments, including those

not measured at fair value on a recurring basis:

-33-

September 30, 2020

December 31, 2019

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

(Dollars in thousands)

Financial Assets

Cash and cash equivalents

195,132

123,096

Time deposits with banks

8,456

8,515

12,927

12,970

Restricted interest-earning deposits with banks

5,771

6,931

Loans, net of allowance

509,936

517,269

588,688

593,406

Federal Reserve Bank Stock

1,711

Financial Liabilities

Deposits

823,707

787,478

839,132

846,304

Long-term borrowings

39,833

40,344

76,091

76,781

There have been no significant changes in the methods and assumptions

used in estimating the fair values of financial instruments, as

outlined in our consolidated financial statements and note disclosures

in the Company’s Form 10-K for

the year ended December 31,

2019.

-34-

NOTE 12 – Earnings Per Share

The Company’s restricted stock

awards are paid non-forfeitable common stock dividends and

thus meet the criteria of participating

securities. Accordingly, earnings

per 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 allocated

to common stock by the weighted average common shares

used in computing basic EPS. For the computation of basic EPS,

all shares of restricted stock have been deducted from the weighted

average shares outstanding.

Diluted EPS has been computed by dividing net income or loss

allocated to common stock by the weighted average number

common shares used in computing basic EPS, further adjusted

by including the dilutive impact of the exercise or conversion of

common stock equivalents, such as stock options, into shares

of common stock as if those securities were exercised or

converted.

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

and diluted EPS:

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

(Dollars in thousands, except per-share data)

Basic EPS

Net income (loss)

2,743

7,446

(14,960)

18,702

Less: net income allocated to participating securities

(36)

(89)

(237)

Net income (loss) allocated to common stock

2,707

7,357

(14,960)

18,465

Weighted average common

shares outstanding

11,946,549

12,203,086

11,951,375

12,290,906

Less: Unvested restricted stock awards considered participating

securities

(155,408)

(148,142)

(142,186)

(156,116)

Adjusted weighted average common shares used in computing

basic EPS

11,791,141

12,054,944

11,809,189

12,134,790

Basic EPS

0.23

0.61

(1.27)

1.52

Diluted EPS

Net income (loss) allocated to common stock

2,707

7,357

(14,960)

18,465

Adjusted weighted average common shares used in computing

basic EPS

11,791,141

12,054,944

11,809,189

12,134,790

Add: Effect of dilutive stock-based compensation awards

41,272

113,018

94,186

Adjusted weighted average common shares used in computing

diluted EPS

11,832,413

12,167,962

11,809,189

12,228,976

Diluted EPS

0.23

0.60

(1.27)

1.51

For the three-month periods ended September 30,

2020 and September 30, 2019,

weighted average outstanding stock-based

compensation awards in the amount of

230,428

and

157,952

, respectively, were considered

antidilutive and therefore were not

considered in the computation of potential common shares for

purposes of diluted EPS.

For the nine-month periods ended September 30, 2020

and September 30, 2019, weighted average outstanding stock-based

compensation awards in the amount of

286,349

and

172,473

, respectively, were considered

antidilutive and therefore were not

considered in the computation of potential common shares for

purposes of diluted EPS.

-35-

NOTE 13 – Stockholders’ Equity

Share Repurchases

During the three-month period ended September 30,

2020, the Company did

t purchase any shares of its common stock under any

stock repurchase plan. During the nine-month period

ended September 30, 2020, the Company purchased

264,470

shares of its

common stock under a stock repurchase plan approved by the

Company’s Board 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 September 30,

2019, the Company purchased

144,729

shares of its common stock in the open

market under a stock repurchase plan approved by the Company’s

Board of Directors on May 30, 2017 (the “2017 Repurchase Plan”)

at an average cost of $

23.00

per share. During the nine-month period ended September 30,

2019, the Company purchased

247,500

shares of its common stock under the 2017 Repurchase Plan at

an average cost of $

23.24

per share.

At September 30, 2020, the Company had $

4.7

million of remaining authorizations under the 2019 Repurchase Plan.

In addition to the repurchases described above, participants in

the Company’s 2014 Equity Compensation

Plan (approved by the

Company’s shareholders on June 3,

2014) (the “2014 Plan”) may have shares withheld to cover

income taxes. During the three-month

periods ended September 30, 2020 and September 30,

2019, there were

18,446

shares and

2,654

shares repurchased to cover income

tax withholding under the 2014 Plan at an average cost of $

8.06

per share and $

23.80

per share, respectively. During

the nine-month

periods ended September 30, 2020 and September 30,

2019, there were

41,466

and

22,100

shares repurchased to cover income tax

withholding in connection with shares granted under the 2014

Plan at average per-share costs of $

10.70

and $

22.87

, respectively.

Regulatory Capital Requirements

Through its issuance of FDIC-insured deposits, MBB serves as the Company’s

primary funding source. Over time, MBB may offer

other products and services to the Company’s

customer base. MBB operates as a Utah state-chartered, Federal

Reserve member

commercial bank, insured by the FDIC. As a state-chartered Federal

Reserve member bank, MBB is supervised by both the Federal

Reserve Bank of San Francisco and the Utah Department of Financial

Institutions.

The Company and MBB are subject to capital adequacy regulations

issued jointly by the federal bank regulatory agencies. These

risk-

based capital and leverage guidelines make regulatory capital requirements

more sensitive to differences in risk profiles among

banking organizations and 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 requirements

in the future due to the current economic environment.

Under the capital adequacy regulation, at least half of a banking organization’s

total capital is required to be "Tier

1 Capital" as

defined in the regulations, comprised of common equity,

retained earnings and a limited amount of non-cumulative

perpetual

preferred stock. The remaining capital, "Tier

2 Capital," as defined in the regulations, may consist of other preferred

stock, a limited

amount of term subordinated debt or a limited amount of the

reserve for possible credit losses. The regulations establish

minimum

leverage ratios for banking organizations, which are

calculated by dividing Tier 1 Capital

by total average assets. Recognizing that the

risk-based capital standards principally address credit risk rather than interest

rate, liquidity, operational

or other risks, many banking

organizations are expected to maintain capital in excess

of the minimum standards.

The Company and MBB operate under the Basel III capital

adequacy standards. These standards require a minimum for Tier

leverage ratio of

%, minimum Tier 1 risk-based ratio

%, and a total risk-based capital ratio of

The Basel III capital adequacy

standards established a new common equity Tier

1 risk-based capital ratio with a required

4.5

% minimum (

6.5

% to be considered

well-capitalized). The Company is required to have a level of

regulatory capital in excess of the regulatory minimum and

to have a

capital buffer above

2.5

%. If a banking organization does not maintain capital above

the minimum plus the capital conservation buffer

it may be subject to restrictions on dividends, share buybacks, and

certain discretionary payments such as bonus payments.

CMLA Agreement.

On March 25, 2020, MBB received notice from the FDIC that

it had approved MBB’s request

to rescind certain

nonstandard conditions in the FDIC’s

order granting federal deposit insurance issued on March 20,

2007. Furthermore, effective

March 26, 2020, the FDIC, the Company and certain of the Company’s

subsidiaries terminated the Capital Maintenance and Liquidity

Agreement (the “CMLA Agreement”) and the Parent Company

Agreement, each entered into by and among the Company,

certain of

its subsidiaries and the FDIC in conjunction with the opening of

MBB.

a result of these actions, MBB is no longer required

-36-

pursuant to the CMLA Agreement to maintain a total risk-based

capital ratio above

%. Rather, MBB must continue to maintain a

total risk-based capital ratio above 10% in order to maintain

“well-capitalized” status as defined by banking regulations, while the

Company must continue to maintain a total risk-based capital

ratio as discussed in the immediately preceding paragraph.

The

additional capital released by the termination of the CMLA Agreement

is held at MBB and is subject to the restrictions outlined in

Title 12 part 208 of the Code of Federal Regulations

(12 CFR 208.5), which places limitations on bank dividends,

including restricting

dividends for any year to the earnings from the current and prior

two calendar years.

Any dividends declared above that amount and

any return

of permanent capital would require prior approval of the Federal

Reserve Board of Governors. As of September 30,

2020,

MBB does not have the capacity to pay dividends to the Company

without explicit approval from the Federal Reserve Board

Governors because of the current period losses and the amount of

cumulative dividends paid over the past two years.

MBB’s Tier

1 Capital balance at September 30, 2020 was $

139.4

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

and qualified MBB for “well-capitalized” status. At September

30, 2020,

the Company also exceeded its regulatory capital

requirements and was considered “well-capitalized” as defined

by federal banking regulations and as required by the FDIC

Agreement.

CECL Capital Transition.

The Company adopted CECL, or a new measurement methodology for

the allowance estimate, on January

1, 2020, as discussed further in Note 2—Summary of Significant Accounting

Policies.

Rules governing the Company’s regulatory

capital requirements give entities the option of delaying for two years

the estimated impact of CECL on regulatory capital, followed

by a three-year transition period to phase out the aggregate amount

of capital benefit, or a five-year transition in total. The Company

has elected to avail itself of the five-year transition.

For measurements of regulatory capital in 2020 and 2021

under the two year

delay the Company shall prepare: (i) a measurement of its estimated

allowance for credit losses under CECL, as reported in its balance

sheets; and (ii) a measurement of its estimated allowance under

the historical incurred loss methodology,

as prescribed by the

regulatory calculation.

Any amount of provisions under CECL that is in excess of the incurred

estimate will be an adjustment the

Company’s capital during the two-year

delay.

The three-year transition, starting in 2022, will phase in that

adjustment straight-line,

such that

percent of the transitional amounts will be included in the first year,

and an additional

% over each of the next two

years, such that we will have phased in

% of the adjustment during year three.

At the beginning of year 6 (2025) the Company will

have completely reflected the effects of CECL in its regulatory

capital.

-37-

The following table sets forth the Tier

1 leverage ratio, common equity Tier 1

risk-based capital ratio, Tier 1 risk-based capital

ratio

and total risk-based capital ratio for Marlin Business Services Corp.

and MBB at September 30, 2020.

Minimum Capital

Well-Capitalized Capital

Actual

Requirement

Ratio

Amount

Ratio

Amount

Ratio

Amount

(Dollars in thousands)

Tier 1 Leverage Capital

Marlin Business Services Corp.

16.92%

192,218

4.00%

45,443

5.00%

56,804

Marlin Business Bank

13.26%

139,365

4.00%

42,053

5.00%

52,566

Common Equity Tier 1 Risk-Based Capital

Marlin Business Services Corp.

21.17%

192,218

4.50%

40,860

6.50%

59,019

Marlin Business Bank

16.88%

139,365

4.50%

37,147

6.50%

53,657

Tier 1 Risk-based Capital

Marlin Business Services Corp.

21.17%

192,218

6.00%

54,479

8.00%

72,639

Marlin Business Bank

16.88%

139,365

6.00%

49,530

8.00%

66,040

Total

Risk-based Capital

Marlin Business Services Corp.

22.49%

204,185

8.00%

72,639

10.00%

90,799

Marlin Business Bank

18.21%

150,285

8.00%

66,040

10.00%

82,550

Prompt Corrective Action

The Federal Deposit Insurance Corporation Improvement Act of

1991 (“FDICIA”) requires the federal

regulators to take prompt corrective action against any undercapitalized

institution.

Five capital categories have been established

under federal banking regulations:

well-capitalized, adequately capitalized, undercapitalized,

significantly undercapitalized and

critically undercapitalized.

Well-capitalized

institutions significantly exceed the required minimum level

for each relevant capital

measure.

Adequately capitalized institutions include depository institutions

that meet but do not significantly exceed the required

minimum level for each relevant capital measure. Undercapitalized

institutions consist of those that fail to meet the required

minimum

level for one or more relevant capital measures.

Significantly undercapitalized characterizes depository institutions with

capital levels

significantly below the minimum requirements for any relevant capital

measure.

Critically undercapitalized refers to depository

institutions with minimal capital and at serious risk for government

seizure.

Under certain circumstances, a well-capitalized, adequately capitalized

or undercapitalized institution may be treated as if the

institution were in the next lower capital category.

A depository institution is generally prohibited from making

capital distributions,

including paying dividends, or paying management fees to a holding

company if the institution would thereafter be undercapitalized.

Institutions that are adequately capitalized but not well-capitalized

cannot accept, renew or roll over brokered deposits except with a

waiver from the FDIC and are subject to restrictions on the interest

rates that can be paid on such deposits. Undercapitalized

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

The federal bank regulatory agencies are permitted or,

in certain cases, required to take certain actions with respect to

institutions

falling within one of the three undercapitalized categories.

Depending on the level of an institution’s

capital, the agency’s corrective

powers include, among other things:

• prohibiting

the payment of principal and interest on subordinated

debt;

• prohibiting

the holding company from making distributions without

prior regulatory approval;

• placing

limits on asset growth and restrictions on activities;

• placing

additional restrictions on transactions with affiliates;

• restricting

the interest rate the institution may pay on deposits;

-38-

• prohibiting the institution from accepting

deposits from correspondent banks; and

• in the most severe cases, appointing a

conservator or receiver for the institution.

A banking institution that is undercapitalized is required to

submit a capital restoration plan, and such a plan will not be accepted

unless, among other things, the banking institution’s

holding company guarantees the plan up to a certain specified amount.

Any such

guarantee from a depository institution’s

holding company is entitled to a priority of payment in bankruptcy.

MBB’s total risk-based capital

ratio of

18.21

% at September 30, 2020 exceeded the threshold for “well capitalized”

status under the

applicable laws and regulations.

Dividends

The Federal Reserve Board has issued policy statements requiring

insured banks and bank holding companies to have an

established assessment process for maintaining capital comm

ensurate with their overall risk profile. Such assessment process

may

affect the ability of the organizations to pay

dividends. Although generally organizations may pay dividends

only out of current

operating earnings, dividends may be paid if the distribution is prudent

relative to the organization’s

financial position and risk profile,

after consideration of current and prospective economic conditions.

As mentioned above, MBB’s ability to

pay dividends to the

Company is subject to various regulatory requirements, including

Title 12 part 208 of the Code of Federal

Regulations (12 CFR

208.5), which places limitations on bank dividends. Furthermore, as

a bank holding company,

the Company’s ability to

pay dividends

to its shareholders is also subject to various regulatory requirements,

including Supervisory Letter SR 09-4,

Applying Supervisory

Guidance and Regulations on the Payment of Dividends,

Stock Redemptions and Stock Repurchases

at Bank Holding Companies

NOTE 14 – Stock-Based Compensation

Awards for

Stock-Based Compensation are governed by the Company’s

2003 Equity Compensation Plan, as amended (the “2003

Plan”), the Company’s 2014

Equity Compensation Plan (approved by the Company’s

shareholders on June 3, 2014) (the “2014 Plan”)

and the Company’s 2019

Equity Compensation Plan (approved by the Company’s

shareholders on May 30, 2019) (the “2019 Plan”

and, together with the 2014 Plan and the 2003 Plan, the “Equity Compensation

Plans”). Under the terms of the Equity Compensation

Plans, employees, certain consultants and advisors and non-employee

members of the Company’s Board

of Directors have the

opportunity to receive incentive and nonqualified grants of stock options,

stock appreciation rights, restricted stock and other equity-

based awards as approved by the Company’s

Board of Directors.

These award programs are used to attract, retain and motivate

employees and to encourage individuals in key management

roles to retain stock.

The Company has a policy of issuing new shares to

satisfy awards under the Equity Compensation Plans. The aggregate number

of shares under the 2019 Plan that may be issued for

Grants is

826,036

. There were

546,070

shares available for future awards under the 2019 Plan as of September 30,

2020.

Total stock-based compensation

expense was $

0.4

million and $

0.9

million for the three-month periods ended September 30, 2020 and

September 30, 2019, respectively.

Total stock-based compensation

expense was $

0.8

million and $

2.8

million for the nine-month

periods ended September 30, 2020

and September 30, 2019, respectively. Excess

tax deficits from stock-based payment arrangements

were $

0.6

million and

0.1

million for the nine-month periods ended September 30, 2020

and 2019, respectively.

Stock Options

Option awards are generally granted with an exercise price equal

to the market price of the Company’s

stock at the date of the grant

and have

year contractual terms.

All options issued contain service conditions based on the participant’s

continued service with the

Company and provide for accelerated vesting if there is a change in control

as defined in the Equity Compensation Plans.

Employee

stock options generally vest over

three

four years

There were

stock options granted during the three-month and nine periods

ended September 30, 2020 and September 30, 2019,

respectively.

The expected life for options is estimated based on their vesting and

contractual terms and was determined by applying the simplified

method as defined by the SEC’s Staff

Accounting Bulletin No. 107 (“SAB 107”). The risk-free interest rate

reflected the yield on

zero-coupon Treasury securities with a term

approximating the expected life of the stock options. The

expected volatility was

determined using historical volatilities based on historical stock

prices

-39-

A summary of option activity for the nine-month period

ended September 30, 2020 follows:

Weighted

Average

Number of

Exercise Price

Options

Per Share

Outstanding, December 31, 2019

135,159

26.79

Granted

Exercised

Forfeited

(3,929)

27.31

Expired

(16,648)

26.19

Outstanding, September 30, 2020

114,582

26.87

The Company recognized $

0.1

million of compensation expense related to options during the three and

nine-month periods ended

September 30, 2020.

The Company recognized $

0.1

million and $

0.3

million of compensation expense related to options during the

three and nine-month periods ended September 30,

2019.

There were

stock options exercised during the three or nine-month periods ended

September 30, 2020 and September 30, 2019.

The following table summarizes information about the stock

options outstanding and exercisable as of September 30, 2020:

Options Outstanding

Options Exercisable

Weighted

Aggregate

Weighted

Aggregate

Average

Intrinsic

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

63,440

3.5

25.75

63,440

3.5

25.75

28.25

51,142

4.5

28.25

34,092

4.5

28.25

114,582

3.9

26.87

97,532

3.8

26.62

The aggregate intrinsic value in the preceding table represents

the total pretax intrinsic value, based on the Company’s

closing stock

price of $

7.05

as of September 30, 2020, which would have been received by the option

holders had all option holders exercised their

options as of that date.

As of September 30, 2020, there was $

0.1

million of unrecognized compensation cost related to non-vested stock options

not yet

recognized in the Consolidated Statements of Operations scheduled

to be recognized over a weighted average period of

0.5

year.

Restricted Stock Awards

The Company’s restricted stock

awards provide that, during the applicable vesting periods,

the shares awarded may not be sold or

transferred by the participant. The vesting period for restricted

stock awards generally ranges from

three

seven years

. All awards

issued contain service conditions based on the participant’s

continued service with the Company and may provide for accelerated

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

Plans.

The vesting of certain restricted shares may be accelerated to

a minimum of

three years

based on achievement of various individual

performance measures. Acceleration of expense for awards based

on individual performance factors occurs when the achievement of

the performance criteria is determined.

Vesting

was accelerated in 2019 on certain awards based on the achievement

of certain performance criteria determined annually,

-40-

described below.

The Company also issues restricted stock to non-employee independent

directors.

These shares generally vest in

seven years

from the

grant date or

six months

following the director’s termination from Board

of Directors service.

The following table summarizes the activity of non-vested restricted

stock for the nine-month period ended September 30, 2020:

Weighted

Average

Grant-Date

Non-vested restricted stock

Fair Value

Outstanding at December 31, 2019

143,935

21.88

Granted

45,830

8.64

Vested

(37,734)

23.04

Forfeited

(2,750)

25.84

Outstanding at September 30, 2020

149,281

17.45

During the three-month period ended September 30,

2020, the Company did

t grant any restricted stock awards. During the three-

month period ended September 30, 2019, the Company granted

restricted stock awards with grant-date fair values totaling $

0.4

million. During the nine-month periods ended September 30,

2020 and September 30, 2019,

the Company granted restricted stock

awards with grant-date fair values totaling $

0.4

million and $

0.4

million, respectively.

As vesting occurs, or is deemed likely to occur,

compensation expense is recognized over the requisite service

period 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 September 30, 2020

and September 30, 2019, respectively.

The Company recognized $

0.3

million and $

0.7

million of compensation expense related to restricted stock for the nine-month

periods ended September 30, 2020 and

September 30, 2019,

respectively.

Of the $

0.3

million total compensation expense related to restricted stock for the nine-month

period ended September 30, 2020,

expense was related to accelerated vesting based on achievement

of certain performance criteria determined annually.

Of the $

0.7

million total compensation expense related to restricted stock for

the nine-month period ended September 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 September 30, 2020, there was $

1.4

million of unrecognized compensation cost related to non-vested restricted

stock

compensation scheduled to be recognized over a weighted average

period of

4.8

years.

The fair value of shares that vested during the three-month periods

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

0.1

million and $

0.2

million, respectively. The

fair value of shares that vested during the nine-month periods

ended September 30, 2020

and September 30, 2019 was $

0.4

million and $

1.3

million, respectively.

Restricted Stock Units

Restricted stock units (“RSUs”) are granted with vesting conditions

based on fulfillment of a service condition (generally three to

four

years from the grant date), and may also require achievement

of certain operating performance criteria,

achievement of certain market-

based targets associated with the Company’s

stock price or relative total shareholder return, or a

combination of both performance

criteria and market-based targets.

For those awards subject to achievement of certain market

performance criteria, the market-based

target measurement period begins

one year

from the grant date and ends

three years

from the grant date. Expense for equity-based

awards with market and performance conditions is recognized

over the performance period based on the grant-date fair value of the

award for those awards which are expected to be

earned.

-41-

The following tables summarize restricted stock unit activity for

the

nine-month period ended September 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

(65,810)

12.89

Cancelled due to non-achievement of market condition

(56,390)

18.19

Outstanding at September 30, 2020

225,953

19.12

Service-based RSUs

Outstanding at December 31, 2019

99,951

23.59

Granted

69,422

20.43

Forfeited

(24,016)

22.07

Converted

(39,879)

24.30

Outstanding at September 30, 2020

105,478

21.59

There were

RSUs with vesting conditions based solely on market conditions granted

during the nine-month periods ended

September 30, 2020 and September 30, 2019,

respectively.

The weighted average grant-date fair value of RSUs with both performance

and market-based vesting conditions granted during the

nine-month periods ended September 30, 2020 and September

30, 2019

was $

12.90

and $

12.91

per unit, respectively. The weighted

average grant date fair value of these performance and market-based

RSUs was estimated using a Monte Carlo simulation valuation

model with the following assumptions:

Nine Months Ended September 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 Treasury

securities with a term approximating the expected life of the

RSUs. The expected volatility was based on historical volatility

of the Company’s common

stock. Dividend yield was assumed at zero

as the grant assumes dividends distributed during the performance period

are reinvested.

When valuing the grant, we have assumed a

dividend yield of zero, which is mathematically equivalent to

reinvesting dividends in the issuing entity.

There were

RSUs granted during the three-month periods ended September 30,

2020 and September 30, 2019, respectively.

During the nine-month periods ended September 30,

2020 and September 30, 2019,

the Company granted RSUs with grant-date fair

values totaling $

3.1

million and $

3.4

million, respectively.

The fair value of restricted stock units that converted to shares

of common

stock during the nine-month periods ended September 30,

2020 and September 30, 2019 was $

1.1

million and $

0.8

million,

respectively.

-42-

The Company recognized $

0.3

million and $

0.6

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

periods ended

September 30, 2020 and September 30, 2019, respectively.

The Company recognized $

0.3

million and $

1.7

million of compensation

expense related to RSUs for the nine-month periods

September 30, 2020 and September 30, 2019,

respectively. During the nine-month

period ended September 30, 2020 the Company reversed $

0.7

million of previously recognized compensation expense related

to RSUs

based on the adjustment of the most probable performance assumptions

related to certain non-market performance awards.

As of

September 30, 2020, there was $

1.7

million of unrecognized compensation cost related to RSUs scheduled

to be recognized over a

weighted average period of

1.4

years based on the most probable performance assumptions.

In the event maximum performance

targets are achieved, an additional $

8.1

million of compensation cost would be recognized over a weighted

average period of

1.5

years.

As of September 30, 2020,

3,960

performance units are expected to convert to shares of common stock based

on the most

probable performance assumptions. In the event maximum performance targets

are achieved,

428,917

performance units would

convert to shares of common stock.

NOTE 15 – Subsequent Events

The Company declared a dividend of $

0.14

per share on October 29, 2020. The quarterly dividend, which is expected

to result in a

dividend payment of approximately $

1.7

million, is scheduled to be paid on

November 19, 2020

to shareholders of record on the close

of business on

November 9, 2020

. It represents the Company’s thirty-seventh

consecutive quarterly cash dividend. The payment of

future dividends

will be subject to satisfaction of regulatory requirements applicable

to bank holding companies and approval by the

Company’s Board of Directors.

-43-

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

The following discussion and analysis of our financial

condition and results of operations should

be read in conjunction with our

Consolidated Financial Statements and the related

notes thereto in our Form 10-K for the year

ended December 31, 2019 filed with

the SEC.

This discussion contains certain statements of a forward

-looking nature that involve risks and

uncertainties.

ORWARD

-L

OOKING

TATEMENTS

Certain statements in this document may include the words or

phrases “can be,” “expects,” “plans,” “may,”

“may affect,” “may

depend,” “believe,” “estimate,” “intend,” “could,” “should,” “would,”

“if” and similar words and phrases that constitute “forward-

looking statements” within the meaning of Section 27A of the

Securities Act of 1933,

as amended (the “1933 Act”), and Section 21E

of the Securities Exchange Act of 1934,

as amended (the “1934 Act”). Investors are cautioned not to place undue reliance

on these

forward-looking statements. Forward-looking statements are

subject to various known and unknown risks and uncertainties and

the

Company cautions that any forward-looking information provided

by or on its behalf is not a guarantee of future performance.

Statements regarding the following subjects are forward-looking by their

nature: (a) our business strategy; (b) our projected

operating

results; (c) our ability to obtain external deposits or financing; (d)

our understanding of our competition; and (e) industry and market

trends. The Company’s actual results

could differ materially from those anticipated

by such forward-looking statements due to a

number of factors, some of which are beyond the Company’s

control, including, without limitation:

◾

availability, terms and deployment

of funding and capital;

◾

changes in our industry, interest

rates, the regulatory environment or the general economy resulting

in changes to our

business strategy;

◾

the degree and nature of our competition;

◾

availability and retention of qualified personnel;

◾

general volatility of the capital markets;

◾

the effects of the COVID-19 pandemic; and

◾

the factors set forth in the section captioned “Risk Factors” in

Item 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 and

the Company is not required to update forward-looking statements for

subsequent or unanticipated events or circumstances.

For any forward-looking statements contained in any document,

we claim the

protection of the safe harbor for forward-looking statements

contained in the Private Securities Litigation Reform Act of 1995.

used herein, the terms “Company,”

“Marlin,” “Registrant,” “we,” “us” or “our” refer to Marlin Business

Services Corp. and its

subsidiaries.

VERVIEW

Founded in 1997, we are a nationwide provider of credit

products and services to small and mid-sized businesses. The products

and

services we provide to our customers include loans and leases for the acquisition

of commercial equipment (including Commercial

Vehicle

Group (“CVG”) assets) and working capital loans. In May 2000,

we established AssuranceOne, Ltd., a Bermuda-based,

wholly-owned captive insurance subsidiary (“Assurance One”),

which enables us to reinsure the property insurance coverage for the

equipment financed by Marlin Leasing Corporation (“MLC”) and

Marlin Business Bank (“MBB”) for our small business customers.

In 2008, we opened MBB, a commercial bank chartered by the State

of Utah and a member of the Federal Reserve System. MBB

serves as the Company’s primary

funding source through its issuance of Federal Deposit Insurance

Corporation (“FDIC”)-insured

deposits.

In January 2017, we completed the acquisition of Horizon Keystone Financial

(“HKF”), an equipment leasing company

which primarily identifies and sources lease and loan contracts

for investor partners for a fee, and in September 2018,

we completed

the acquisition of Fleet Financing Resources (“FFR”), an company

specializing in the leasing and financing of both new and used

commercial vehicles, with an emphasis on livery equipment and

other types of commercial vehicles used by small businesses.

We access our

end user customers primarily through origination sources consisting

of independent commercial equipment dealers,

various national account programs, through direct solicitation of our

end user customers and through relationships with select

lease

and loan brokers. We

use both a telephonic direct sales model and, for strategic larger

accounts, outside sales executives to market to

our origination sources and end user customers. Through these origination

sources, we are able to cost-effectively access end

user

customers while also helping our origination sources obtain financing

for their customers.

-44-

We fund our

business primarily through the issuance of fixed and variable-rate

FDIC-insured deposits and money market demand

accounts raised nationally by MBB, sales of pools of leases or

loans, as well as, from time to time, fixed-rate asset backed

securitization transactions.

XECUTIVE

UMMARY

Through the third quarter, the impacts of the

COVID-19 pandemic continued to be experienced by our business.

We recognized $

2.7

million Net income for the third quarter,

returning to profitability after Net losses of $11.8

million and $5.9 million in the first and

second quarters of 2020, respectively.

For the third quarter, our provision for credit

losses related to the changing economic

conditions was $1.9 million, whereas we had significant reserve

building in the first and second quarters of 2020 related

to changing

economic conditions primarily resulting from the effects

of COVID-19 of $19.2 million and $15.5 million,

respectively.

Our third

quarter results also reflected the positive effects of

our cost reduction efforts, as we reduced Salary and benefits

expense by $2.4

million and General and administrative expenses by $1.4

million as compared to the third quarter of 2019.

We continue to

assess all

other aspects of our expense base in order to stabilize our

operations and minimize the negative impacts of the ongoing pandemic.

As has been the case since the beginning of the COVID-19 crisis,

one primary operational priority has been working with existing

customers to protect the value of our portfolio and limiting the

erosion of shareholder capital. As such, we have been intentionally

operating out of a more defensive position since the pandemic

began. As anticipated, third quarter total sourced origination volume of

$68.5 million was well below our volume from last year due

to a variety of factors, which include:

(i) the

purposeful actions we took

in the second and third quarters to reduce our workforce and re-position

the frontend of our business; (ii) the continuing soft demand

for financing by the small business community due to challenges

facing many industries resulting from the continued

economic fallout

of COVID-19 across much of the United States;

and (iii) lower approval rates stemming from our tighter underwriting

criteria.

expect our origination volumes for the remainder of 2020

will be negatively impacted as the effects of the pandemic continue

and this

period of uncertainty continues to impact the macroeconomic

environment.

Given the ongoing health crisis in the United States, any

return to pre-pandemic levels of activity remains uncertain.

As of September 30, 2020,

$129.9 million of net investment, or 14.3%, have been part of our payment

deferral contract modification

program that was instituted in March to assist our customers who

have experienced difficulty from the economic impacts

of COVID-

19.

In the third quarter, we completed new modifications or

extended modified terms for 725 contracts totaling $25.9

million net

investment, bringing our total modified portfolio to $129.8

million, or 14.3% of our net investment at the end of the third

quarter.

of the end of the third quarter we have stopped taking new applications

for modifications, although we may consider offering

extensions in select cases as part of our loss mitigation strategies.

As of September 30, 2020 84% of our modified contracts are

out of the deferral period, and the current deferral period will expire

for

substantially all of the remaining modified contracts before

December 31, 2020. We

are closely monitoring the payment performance

of our customers as their post-deferral obligations become due.

Our allowance as a percent of receivables has increased for Equipment

Finance to 6.57% from 2.09% at December 31, 2019,

and

increased for Working

Capital to 13.06% from 3.14% at December 31,

2019.

Our total Allowance of $ 61.3 million as of September

30, 2020 incorporates all of our current judgments about the impact

of the COVID-19 pandemic on our portfolio.

We remain very

confident in the strength of our balance sheet and capital position,

as well as our ability to withstand any future potential losses, should

they occur. We

will continue to closely monitor and evaluate our capital position and potential

liquidity requirements as economic

conditions continue to change.

See further information about this estimate in “—Portfolio and

Asset Quality” below.

Through the third quarter, our employees continue

to work remotely, and

we have not experienced any significant interruption to our

operations from that transition.

We continue to assess how

to best evolve our operations and how to best serve our customers

in this

changing environment.

-45-

INANCE

ECEIVABLES

AND

SSET

UALITY

The following table summarizes certain portfolio statistics for

the periods presented:

September 30,

June 30,

December 31,

September 30,

2020

2019

(Dollars in thousands)

Finance receivables:

End of period

908,053

974,679

1,007,706

(1)

1,032,868

(1)

Average for the quarter

(1)

924,635

979,313

1,034,464

1,048,798

Origination Volume

- three months

(6)

67,117

65,419

218,161

181,028

Origination Volume

- nine months, through Sept. 30

284,117

—

583,785

Assets Sold - three months

4,286

1,127

114,483

85,425

Assets Sold - nine months, through Sept. 30

28,342

—

195,932

Leases and Loans Modified:

(3)

Payment deferral program

(2)

End of period

129,882

133,817

—

As a % of end of period receivables

(1)

14.3%

13.7%

—

Other Restructured leases and loans, end of period

1,035

1,751

2,668

2,323

Allowance for credit losses :

(4)

End of period

61,325

63,644

21,695

19,211

As a % of end of period receivables

(1)

6.75%

6.53%

2.15%

1.86%

Annualized net charge-offs

to average total finance receivables

(quarter)

(1)

4.54%

3.47%

3.00%

1.99%

Delinquencies, end of period:

(3)(5)

Equipment Finance and CVG:

Greater than 60 days past due, $

12,551

23,353

8,112

8,515

Greater than 60 days past due, %

1.43%

2.52%

0.86%

0.87%

Working Capital:

Greater than 30 days past due, $

777

1,130

855

740

Greater than 30 days past due, %

2.94%

2.68%

1.42%

1.34%

__________________

(1)

For purposes of

asset quality and

allowance calculations, the

effects of (i)

the allowance for

credit losses and

(ii) initial direct

costs and fees

deferred are excluded.

(2)

Contracts that are

part of our

Payment-deferral modification program

that allows for

either full or

partial payment deferral,

will appear in

our

Delinquency and Non-Accrual measures

based on their performance

against their modified terms.

See further discussion of

our Loan modification

program below.

(3)

No renegotiated leases

or loans met

the definition of

a Troubled

Debt Restructuring for

any period presented,

including our payment

deferral

modifications, as discussed further below.

(4)

The December 31, 2019 end of period allowance and %

of receivables were $33,603 and 3.27% after

the January 1, 2020 adoption of CECL.

See

further discussion below.

(5)

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

(6)

Amount of originations for the three months

ended September 30, 2020 and June 30,

2020 presented above exclude $0.2 million and $4.2

million,

respectively, of loans originated under the Paycheck Protection Program (PPP).

In the third quarter of 2020, the Company sold the PPP portfolio

and will have no continuing involvement with those receivables.

-46-

For three and nine-months ended September 30, 2020,

we have recognized $ 7.2 and $ 51.2 of provision for credit

losses, respectively,

primarily driven by qualitative and forecast adjustments to

the 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 our

customers, are still ongoing, and the extent

of the effects of the pandemic on our portfolio

depends on future developments, which are highly uncertain and are

difficult to predict.

Further, we instituted a Loan modification

payment deferral program, as discussed further below,

to give payment relief to customers

during this period.

Our reserve as of September 30, 2020,

and the qualitative and economic adjustments outlined below in our Provision

discussion, were

calculated referencing our historical loss experience, including loss

experience through the 2008 economic cycle, and our adjustments

to that experience based on our judgements about the expected

impact of the COVID-19 pandemic.

Those judgements include certain

expectations

for the extent and timing of impacts from COVID-19 on unemployment

rates and business bankruptcies and are based on

our current expectations of the performance of our portfolio in

the current environment.

We may recognize

credit losses in excess of

our reserve, or revise our estimate of expected credit losses in

the future, and such amounts 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.

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 existing

obligations.

Our COVID-19 modification program allows for up to 6

months of deferred payments.

The below table outlines certain data on the modified population

based on the net investment balance and status as of September

30,

2020.

-47-

Equip.Fin

Working

and CVG

Capital

Total

(Dollars in thousands)

Number of Modifications:

Modified leases and loans receivable

4,868

369

5,237

Resolved modifications

(2)

250

122

372

Total Program, number of contracts

5,118

491

5,609

Current Quarter Population Changes:

Q3 - New modification

9,157

286

9,443

Q3 - Extended modification

13,959

2,458

16,417

Last Modified in Q1 or Q2

94,556

9,466

104,022

Total Modifications, Net investment

receivable

117,672

12,210

129,882

% of total segment receivables

13.0%

46.1%

14.3%

Deferral Status:

Out of deferral

99,627

9,489

109,116

In deferral period - partial payment during deferral

9,535

2,721

12,256

In deferral period - full deferral of payment

8,510

—

8,510

Total Modifications, Net investment

receivable

(3)

117,672

12,210

129,882

Total

Interest income recognized on modified loans:

Third quarter of 2020

(1)

2,588

1,190

3,778

Second and third quarters of 2020

4,883

2,823

7,706

_________________

(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 September 30, 2020 includes:

for Equipment Finance, 230 loans paid in full and 20 charge-offs

with $91

thousand realized loss, and for Working Capital, 101 loans paid in full and 21 charge-offs with

$483 thousand realized loss.

(3)

Out of the deferral period represents the month in which the contract returns to its regular contract schedule for the entire month.

For loans

in deferral period, the deferral may either be full, with zero payment owed during the deferral period, or partial, with reduced payments

during deferral that are primarily 25%-50% of schedule, or the payment during deferral may be a nominal amount. In all cases, information

is presented with respect to the contracts’ current deferral terms as of September 30, 2020.

As of September 30, 2020, $109.1 million, or 84%,

of our total modified contracts are out of the deferral period,

and the current

deferral period will expire for substantially all of the remaining modified

contracts before December 31, 2020.

We are closely

monitoring the performance of the modified contracts as thei

deferral period expires.

As of September 30, 2020, the Company is not actively taking

new applications for modifications under its COVID deferral

program.

However, the Company is continuing to assess a

population of receivables that have prolonged industry

specific risk resulting from

COVID.

As part of our loss mitigation strategies, we may process select deferrals

beyond 6 months, which may be categorized as

TDRs.

The total receivables that are currently part of that risk assessment are

approximately $13

million net investment, and the

Company evaluated the estimate of credit loss for the population

separately when establishing its allowance at the end of the third

quarter.

-48-

Portfolio Trends

During the three months ended September 30, 2020

we generated 3,410 new Equipment Finance leases and loans with equipment

costs of $65.8 million, compared to 6,836 new Equipment Finance leases

and loans with equipment costs of $154.8

million generated

for the three months ended September 30, 2019. Working

Capital loan originations were $1.3

million during the three-month period

ended September 30, 2020,

compared to $26.2 million for the three-month period ended September

30, 2019.

Overall, our average net investment in total finance receivables

for the three-month period ended September 30, 2020

decreased

11.8% to $924.6 million, compared

to $1,048.8 million for the three-month period ended September 30,

2019.

Our origination

volumes in the three months ended September 30, 2020

were lower than our historical norms, primarily driven by

decreased demand

attributable to COVID-19 related business shutdowns and other

macroeconomic factors, as well as our actions to reduce the workforce

in the second and third quarters of this year.

We expect our

origination volumes for the fourth quarter of 2020 will continue to

negatively impacted by these factors, and our portfolio of

receivables may continue to decline as long as our origination volumes

are

less than portfolio runoff.

Given the ongoing health crisis in the United States, any returns

to pre-pandemic levels of activity remains

uncertain.

The following table outlines the delinquency status of the Company’s

portfolio as of September 30, 2020,

including information on

the population of restructured contracts, and contracts with restructure

requests:

Net Investment (in thousands)

Delinquency Rate by population

90+

Current

Total

90+

Current

Total

Equipment Finance

Out of deferral period

(1)

$1,402

$1,646

$1,672

$94,905

$99,625

1.41%

1.65%

1.68%

95.26%

100%

In deferral period

371

733

—

16,943

18,047

2.06%

4.06%

—

93.88%

100%

Restructured Portfolio

1,773

2,379

1,672

111,848

117,672

1.51%

2.02%

1.42%

95.05%

100%

Non-Restructured

4,430

3,348

5,148

749,869

762,795

0.58%

0.44%

0.67%

98.31%

100%

Total

Equipment Finance

$6,203

$5,727

$6,820

$861,717

$880,467

0.70%

0.65%

0.77%

97.87%

100%

Net Investment (in thousands)

Delinquency Rate by population

60+

Current

Total

60+

Current

Total

Working Capital

Out of deferral period

(1)

$185

$207

$276

$8,820

$9,488

1.95%

2.18%

2.91%

92.96%

100%

In deferral period

(1)

2,585

2,722

1.40%

2.39%

1.25%

94.96%

100%

Restructured Portfolio

223

272

310

11,405

12,210

1.83%

2.23%

2.54%

93.40%

100%

Non-Restructured

127

14,026

14,262

0.29%

0.89%

0.48%

98.34%

100%

Total

Working Capital

$264

$399

$378

$25,431

$26,472

1.00%

1.51%

1.43%

96.06%

100%

_________________

(1)

Out of modification period represents loans that have resumed their regular payment schedule for at least 1 month prior to September 30,

2020.

Contracts that are part of the payment deferral modification program

will be reflected in our Delinquency and Non-Accrual measures

based on their performance against their modified terms.

-49-

Equipment Finance receivables over 30 days delinquent were

213 basis points as of September 30, 2020, down 177 basis points from

June 30,

2020, but up 86 basis points from September 30, 2019.

Working Capital receivables

over 15 days delinquent were 393 basis

points as of September 30, 2020, down 45 basis points from

June 30,

2020,

but up 204 basis points from September 30, 2019.

Equipment Finance leases and loans are generally charged

-off when they are contractually past due for 120 days or

more.

Working

Capital loans are generally charged-off at 60

days past due. Annualized second quarter total net charge

-offs were 4.54%

of average

total finance receivables versus 3.47%

in the second quarter of 2020 and 1.99%

a year ago.

In accordance with interagency guidance as amended in April

2020, as affirmed by the FASB,

we are not accounting for our payment-

deferral modified loans as TDRs, and we are continuing to accrue

interest on those loans.

For the three months ended September 30,

2020, we recognized total Interest income of $3.8 million on loans in our

COVID-19 loan modification program.

The following table summarizes non-accrual leases and loans

in the Company’s portfolio:

September 30,

June 30,

December 31

September 30,

2020

2019

(Dollars in thousands)

Equipment finance

6,345

9,205

4,256

3,494

Working capital

1,144

1,189

946

284

CVG

886

637

389

199

Total non-accrual leases

and loans

8,375

11,031

5,591

3,977

Through September 30, 2020,

the increase in leases and loans on non-accrual reflects the growth

in delinquencies in our portfolio.

Income recognition is discontinued on Equipment Finance leases or

loans, including CVG loans, when a default on monthly payment

exists for a period of 90 days or more. Income recognition resumes when

the lease or loan becomes less than 90 days delinquent.

Working Capital Loans

are generally placed in non-accrual status when they are

30 days

past due. The loan is removed from non-

accrual status once sufficient payments are made

to bring the loan current and evidence of a sustained performance

period as reviewed

by management.

The Company has no loans 90 days or more past

due that were still accruing interest for any of the periods

presented.

Portfolio Concentration.

The following table summarizes the concentrations of our portfolio

of net investment in leases and loans as of September 30,

2020 by

state and industry:

-50-

Top 10 Industries, by Borrower

SIC Code

Top 10 States

Equipment

Finance

Working

Finance

Working

and CVG

Capital

and CVG

Capital

Medical

13.5

8.6

14.1

10.5

Misc. Services

12.0

8.2

11.6

11.3

Retail

10.2

13.6

9.5

8.7

Construction

8.7

11.2

6.9

5.8

Restaurants

7.1

7.8

4.6

7.1

Professional Services

6.6

6.3

3.5

5.4

Manufacturing

5.9

9.9

3.4

4.2

Transportation

5.4

3.2

3.3

4.6

Trucking

4.3

2.3

3.1

2.3

Automotive

3.3

6.1

3.1

2.1

All Other

23.0

22.8

All Other

36.9

38.0

Total

100

Total

100

As a result of the COVID-19 pandemic, we have been continually

assessing the risks to our portfolio, including consideration

of high-

risk industries and geographic locations that are being more significantly

impacted by the spread of COVID-19.

While we are attempting to mitigate the impact of the COVID

-19 pandemic on our portfolio, by tightening underwriting standards

for

areas of elevated risk and by assisting borrowers that have been negative

ly impacted, the extent of the impacts of COVID-19 on our

portfolio remains uncertain.

Allowance for credit losses.

The following table provides a rollforward of our Allowance

for credit loss:

Three Months Ended

Nine Months Ended

September 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

63,644

16,777

33,603

16,100

Provision for credit losses

7,204

7,662

51,160

17,781

Net Charge-offs:

Equipment Finance

(9,526)

(4,566)

(22,486)

(12,192)

Working Capital

(532)

(190)

(2,442)

(1,394)

CVG

(430)

(472)

(1,900)

(1,084)

Net Charge-offs

(10,488)

(5,228)

(26,828)

(14,670)

Realized cashflows from Residual Income

965

—

3,390

—

Allowance for credit losses, end of period

61,325

19,211

61,325

19,211

-51-

The allowance for credit losses as a percentage of total finance

receivables increased to 6.75% as of September 30, 2020

from 2.15%

as of December 31, 2019.

This increase in reserve coverage is primarily driven by an $11.9

million increase from the January 1, 2020

adoption of CECL, and $36.6 million of Provision for credit

losses recognized as a result of qualitative and forecast adjustments

in the

nine-months ended September 30, 2020 as a result of the estimated

impact to the portfolio from the COVID-19 pandemic,

as discussed

further below.

Provision for credit

losses

The provision for credit losses recognized after the adoption

of CECL is primarily driven by origination volumes, offset

by the

reversal of the allowance for any contracts sold, plus adjustments for

changes in estimate each subsequent reporting period.

For

2020, given the wide changes in the macroeconomic environment

driven by COVID-19, the changes in estimate is the most

significant driver of provision.

In contrast, the allowance estimate recognized in 2019 under

the probable, incurred model was

based on the current estimate of probable net credit

losses inherent in the portfolio.

For the three months ended September 30, 2020 the $ 7.2

million provision for credit losses recognized was $ 0.5 million less

than the $ 7.7 million provision recognized for the three months ended

September 30, 2019.

Provision for the three months ended

September 30, 2020 includes $2.0 million related to COVID from updates

to both the economic forecast and qualitative

adjustments to incorporate timing adjustments, $4.2 million from originations,

and $1.0 million for other updates, primarily

driven by updating

the model loss curves.

For the nine-months ended September 30, 2020, the $ 51.2

million provision for credit losses recognized was $ 33.4

million

greater than the $ 17.8 million provision recognized for same

period of 2019.

Provision for the nine-months ended September

30, 2020 includes $36.6 million related to COVID from updates to

both the economic forecast and qualitative adjustments to

incorporate timing adjustments, $13.0 million from originations, and $1.

million for other updates, primarily driven by updating

the model loss curves.

For the Equipment Finance portfolio, our estimate of elevated

COVID-related losses is primarily driven by updates to a

reasonable and supportable forecast based on the modeled correlation

of changes in the loss experience of the our portfolio to

certain economic statistics, specifically changes in the unemployment

rate and changes in the number of business bankruptcies.

Starting in the first quarter, we are

using a 6-month period for applying the economic statistics due to

the uncertainty in the

current economic environment.

For Equipment Finance, we recognized forecast and qualitative adjustments

for the three and

nine-months ended September 30, 2020 of $2.1 million and

$26.5 million, respectively, related

to COVID based on applying the

economic forecast adjustment, and from incorporating timing

adjustments.

For the CVG and Working

Capital portfolio segments, our estimate of increased losses is based

on qualitative adjustments, taking

into consideration alternative scenarios to determine the Company’s

estimate of the probable impact of the economic shutdown.

For CVG, we recognized qualitative provision for the three and

nine-months ended September 30, 2020 of $3.7

million and $7.0

million, respectively.

For the third quarter, qualitative adjustments

primarily are driven by sub-segmenting a population of

motor

coach receivables that have prolonged industry-specific risks.

For both periods of 2020, the reserve includes adjustments to

incorporate economic risk. For Working

Capital, we recognized qualitative provision based on

our risk assessment of the

expected performance of this segment in the current economic

environment.

For the three ended September 30, 2020 that

includes a credit, or provision reversal, of $3.9 million related

to refining our risk assessment of this portfolio segment due

positive performance in the third quarter.

That credit brings the Working

Capital qualitative provision for the nine-months ended

September 30, 2020 to $3.1 million.

The qualitative and economic adjustments to our allowance take into

consideration information and our judgments as of

September 30, 2020,

and are based in part on an expectation for the extent and timing of impacts

from COVID-19 on

unemployment rates and business bankruptcies, and are based

on our current expectations of the performance of our portfolio in

the current environment.

The COVID-19 pandemic, and related business shutdowns, is

still ongoing, and the extent of the effects

of the pandemic on our portfolio depends on future developments,

which are highly uncertain and are difficult to predict.

may recognize credit losses in excess of our reserve, or increases to our

credit loss estimate, in the future, and such increases may

be significant, based on future developments.

Net Charge-offs.

Equipment Finance and TFG receivables are generally charged

-off when they are contractually past due for 120

days or more.

Working Capital receivables

are generally charged-off at 60 days past

due.

-52-

Total portfolio

net charge-offs for the three months ended September

30, 2020 were $10.5 million (4.54%)

of average total

finance receivables on an annualized basis), compared to

$8.5 million (3.47%)

for the quarter ended June 30, 2020, and $5.2

million (1.99%)

for the three months ended September 30, 2019.

Compared to the same quarter of the prior year,

the Company is

experiencing elevated net charge-offs, due

primarily to the economic impacts resulting from the COVID

-19 pandemic.

As of

September 30, 2020,

our portfolio delinquency rates have improved to 2.15% for 30+ past

due, compared to 3.83% at June

30, 2020, but still elevated compared to 1.27% in the same quarter

of 2019.

A large portion of our portfolio was part of the payment deferral

modification program, as discussed above.

While 84%

of those

contracts are back to full scheduled payment levels by September 30,

2020, the performance of the modified portfolio remains

uncertain.

We are

continually monitoring the performance of our portfolio and assessing

all related risks to ensure that our

allowance estimate is sufficient to cover the expected

losses from COVID-19.

See further discussion with the Provision above

about the risks to our reserve estimate, and discussion with Portfolio

Trends above about current delinquency levels.

Residual Income.

Residual income includes income from lease renewals and

gains and losses on the realization of residual values of leased

equipment disposed at the end of term

In 2019 and prior years, t

he Company had previously recognized residual income within

Fee Income in its Consolidated Statements of Operations; the

adoption of CECL results in any realized amounts of residual

income being captured as a component of the activity of the allowance

because the Company’s

estimate of credit losses under

CECL takes into consideration all cashflows the Company expects

to receive or derive from the pools of contracts.

Adoption of ASU 2016-13 / CECL.

Effective January 1, 2020, we adopted

new guidance for accounting for our allowance, or ASU 2016-13,

Financial Instruments -

Credit Losses (Topic

326): Measurement of Credit Losses on Financial Instruments (“CECL”).

CECL replaces the probable/

incurred loss model that we historically used to measure our allowance,

with a measurement of expected credit losses for the

contractual term of our current portfolio of loans and leases.

Under CECL, an allowance, or estimate of credit losses, will be

recognized immediately upon the origination of a loan or lease,

and will be adjusted in each subsequent reporting period.

This

estimate of credit losses takes into consideration all remaining cashflows

the Company expects to receive or derive from the pools

of contracts, including recoveries after charge-off,

accrued interest receivable and certain future cashflows from residual

assets.

The provision for credit losses recognized in our Consolidated

Statements of Operations under CECL, starting in 2020,

will be

primarily driven by origination volumes, offset by the reversal

of the allowance for any contracts sold, plus adjustments for

changes in estimate each subsequent reporting period, including adjustments

for economic forecasts within a reasonable and

supportable time period.

The impact of adopting CECL effective January 1,

2020 included a $11.9 million increase

to the allowance, an $8.9 million

decrease to Retained earnings and $3.0 million impact to our

Net deferred income tax liability.

See Note 2 –

Summary of

Significant Accounting Policies

, for further discussion of the adoption of this accounting standard,

and see Note 6 –

Allowance for

Credit Losses

, for further discussion of the Company’s

methodology for measuring its allowance as of the adoption

date.

Also,

see –

Executive Summary

and Note 13 –

Stockholders’ Equity

, for discussion of our election to delay for two-years the effect

CECL on regulatory capital, followed by a three-year phase

-in, or a five-year total transition.

Our recorded allowance reflects our current estimate of the expected

credit losses of all contracts currently in portfolio based on our

current assessment of information regarding the risks of our current

portfolio, default and collection trends, a reasonable and

supportable forecast of economic factors, qualitative adjustments based

on our best estimate of expected losses for certain portfolio

segments, among other internal and external factors.

Our allowance measurement is an estimate, is inherently uncertain,

and is

reassessed at each measurement date.

Actual performance of our portfolio and updates to other information

involved in our

assessment may drive changes in modeled assumptions, may

cause management to adjust the allowance estimate through

qualitative

adjustments and/or may result in actual losses that vary significantly from

of our current estimate.

-53-

ESULTS

PERATIONS

Comparison of the Three-Month Periods Ended September

30, 2020 and September 30, 2019

Net income.

Net income of $2.7 million was reported for the three-month period

ended September 30, 2020,

resulting in diluted EPS per share of

$0.23,

compared to net income of $7.4 million and diluted EPS of $0.60

for the three-month period ended September 30, 2019.

This

$4.7 million decrease in Net income was primarily driven by:

$6.4 million decrease in Interest and fee income, driven primarily by

a decline in the size of our finance receivable portfolio

;

$6.4 million decrease in gains

on leases and loans sold due to a decrease in assets sold resulting from

disruptions in the

capital markets during this current economic environment;

$1.9 million decrease in interest expense due to a decline in the deposit

balance as well as continuing reduction of long-term

debt;

$2.4 million decrease in Salaries and benefits, driven primarily by lower

Commissions, Incentives and the Company’s

proactive cost reduction measures.

Average balances

and net interest margin.

The following table summarizes the Company’s

average balances, interest income,

interest expense and average yields and rates on major

categories of interest-earning assets and interest-bearing liabilities

for the three-

month periods ended September 30, 2020 and September 30,

2019.

-54-

Three Months Ended September 30,

2020

2019

(Dollars in thousands)

Average

Yields/

Average

Yields/

Balance

(1)

Interest

Rates

(2)

Balance

(1)

Interest

Rates

(2)

Interest-earning assets:

Interest-earning deposits with banks

165,257

0.07

135,262

793

2.35

Time Deposits

10,069

1.72

12,815

2.59

Restricted interest-earning deposits with banks

6,487

0.01

9,898

0.91

Securities available for sale

10,755

1.85

10,405

2.48

Net investment in leases

(3)

851,683

19,010

8.93

951,309

21,513

9.05

Loans receivable

(3)

72,952

3,266

17.91

97,490

5,231

21.46

Total

interest-earning assets

1,117,203

22,398

8.02

1,217,179

27,708

9.11

Non-interest-earning assets:

Cash and due from banks

5,515

5,592

Allowance for loan and lease losses

(61,470)

(17,567)

Intangible assets

6,982

7,841

Goodwill

6,735

Operating lease right-of-use assets

8,070

8,834

Property and equipment, net

8,580

5,006

Property tax receivables

8,949

6,924

Other assets

(4)

28,390

31,754

Total

non-interest-earning assets

5,016

55,120

Total

assets

1,122,219

1,272,299

Interest-bearing liabilities:

Certificate of Deposits

(5)

784,056

4,149

2.12

875,904

5,398

2.47

Money Market Deposits

(5)

51,563

0.30

21,664

126

2.33

Long-term borrowings

(5)

45,594

507

4.45

101,594

1,037

4.08

Total

interest-bearing liabilities

881,213

4,694

2.13

999,162

6,561

2.63

Non-interest-bearing liabilities:

Sales and property taxes payable

6,340

6,912

Operating lease liabilities

9,015

9,373

Accounts payable and accrued expenses

20,893

24,864

Net deferred income tax liability

21,865

27,711

Total

non-interest-bearing liabilities

58,113

68,860

Total

liabilities

939,326

1,068,022

Stockholders’ equity

182,893

204,277

Total

liabilities and stockholders’ equity

1,122,219

1,272,299

Net interest income

17,705

21,147

Interest rate spread

(6)

5.89

6.48

Net interest margin

(7)

6.34

6.95

Ratio of average interest-earning assets to

average interest-bearing liabilities

126.78

121.82

__________________

(1)

Average balances were calculated using average daily balances.

-55-

(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. Amortization of transaction costs

is on a straight-line basis,

resulting in an increased average

rate whenever

average portfolio balances are at reduced levels.

(6)

Interest rate spread represents

the difference between the

average yield on interest-earning

assets and the

average rate on interest-bearing

liabilities.

(7)

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

Changes due to volume and rate.

The following table presents the components of the changes in net

interest income by volume and

rate.

Three Months Ended September 30, 2020 Compared To

Three Months Ended September 30, 2019

Increase (Decrease) Due To:

Volume

(1)

Rate

(1)

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

144

(907)

(763)

Time Deposits

(15)

(25)

(40)

Restricted interest-earning deposits with banks

(6)

(17)

(23)

Securities available for sale

(17)

(15)

Net investment in leases

(2,227)

(276)

(2,503)

Loans receivable

(1,185)

(780)

(1,965)

Total

interest income

(2,165)

(3,144)

(5,309)

Interest expense:

Certificate of Deposits

(532)

(717)

(1,249)

Money Market Deposits

(169)

(88)

Long-term borrowings

(615)

(530)

Total

interest expense

(718)

(1,149)

(1,867)

Net interest income

(1,663)

(1,779)

(3,442)

__________________

(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’s

net interest and fee income as an annualized percentage

of average total finance receivables for the three-month periods

ended September 30, 2020 and September 30, 2019.

Three Months Ended September 30,

2020

2019

(Dollars in thousands)

Interest income

22,398

27,708

Fee income

2,803

3,869

Interest and fee income

25,201

31,577

Interest expense

4,694

6,561

Net interest and fee income

20,507

25,016

Average total finance receivables

(1)

924,635

1,048,798

Annualized percent of average total finance

receivables:

Interest income

9.69

10.57

Fee income

1.21

1.48

Interest and fee income

10.90

12.05

Interest expense

2.03

2.50

Net interest and fee margin

8.87

9.55

__________________

(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 $4.5 million, or 18.0%,

to $20.5 million for the three months ended September 30,

2020 from

$25.0 million for the three months ended September 30,

2019. The annualized net interest and fee margin decreased

68 basis points to

8.87% in the three-month period ended September 30, 2020

from 9.55% for the corresponding period in 2019.

Interest income, net of amortized initial direct costs and fees,

was $22.4 million and $27.7 million for the three-month periods

ended

September 30, 2020 and September 30, 2019,

respectively. Average

total finance receivables decreased $124.2 million, or

11.8%,

$924.6 million at September 30, 2020 from $1,048.8

million at September 30, 2019.

The decrease in average total finance receivables

was primarily due to lower origination volume along with the

customary loan repayments and charge-offs.

The average yield on the

portfolio decreased 88 basis points to 9.69% from 10.57%

in the prior year quarter.

The weighted average implicit interest rate on

new finance receivables originated decreased 404 basis points

to 9.34% for the three-month period ended September 30,

2020

compared to 13.38% for the three-month period ended September 30,

2019.

That decrease was primarily driven by a shift in the mix

of originations as higher-yield Working

Capital originations comprised 2% of our originations for the three months

ended September

30, 2020, compared to 15% in 2019.

The reduction in Working

Capital volume is driven by our tightening of underwriting standards

in the third quarter in response to the uncertain macroeconomic environment

Given the ongoing health crisis in the United States,

especially the COVID-19 flare-ups in the south and west, any returns

to pre-pandemic levels of origination activity,

and our ability to

replenish or grow our portfolio, remains uncertain.

Fee income was $2.8 million and $3.9 million for the three-month periods

ended September 30, 2020 and September 30, 2019,

respectively. Fee income included

approximately $1.0 million of net residual income for the three-month period

ended September 30,

2019.

For 2020, after the adoption of CECL, all future cashflows from the

Company’s pools of loans are

included in the measurement

of the allowance, including future cashflows from net residual

income.

Amounts of residual income are presented within the

rollforward of the Allowance, as discussed further in “—Finance

Receivables and Asset Quality”

Fee income also included approximately $1.7 million and $2.0

million in late fee income for the three-month periods ended

September

30, 2020 and September 30, 2019,

respectively. Late fees remained

the largest component of fee income at 0.68% as an annualized

percentage of average total finance receivables for the three-month period

ended September 30, 2020,

compared to 0.81% for the

three-month period ended September 30, 2019.

-57-

Interest expense decreased $1.9 million to $4.7 million for the

three-month period ended September 30, 2020 from $6.6 million

for the

corresponding period in 2019, primarily due to a decrease

of $1.2 million on lower deposit balances as well as a decrease

of $0.5

million due to the continuing reduction of long-term debt.

Interest expense, as an annualized percentage of average total finance

receivables, decreased 47 basis points to 2.03% for the three

-month period ended September 30, 2020,

from 2.50% for the

corresponding period in 2019.

The average balance of deposits was $835.6 million and $897.6

million for the three-month periods

ended September 30, 2020 and September 30, 2019,

respectively.

For the three-month period ended September 30, 2020

average term securitization borrowings outstanding were $45.6

million at a

weighted average coupon of 4.45%.

For the three-month period ended September 30, 2019, average term securitization

borrowings

outstanding were $101.6 million at a weighted average coupon

of 4.08%.

Our wholly-owned subsidiary,

MBB, serves as our primary funding source. MBB raises fixed

-rate and variable-rate FDIC-insured

deposits via the brokered certificates of deposit market, on a direct

basis, and through the brokered MMDA Product. At September

30,

2020,

brokered certificates of deposit represented approximately 53% of total

deposits, while approximately 41% of total deposits

were obtained from direct channels, and 6% were in the brokered

MMDA 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 September

30, 2020,

compared to $ 6.5 million for the three-month period ended

September 30, 2019.

Assets sold decreased to $4.3 million for

the three months ended September 30, 2020,

compared to $85.4 million for the three months ended September

30, 2019. In the third

quarter of 2020, we continue to see a lack of buyer demand in the syndication

market and we retained substantially all of our

origination volume on our balance sheet.

Our sales for the three months ended September 30,

2020 consisted primarily of our PPP

Loan portfolio; we will not have continuing involvement in servicing those

receivables.

Our sales execution decisions, including the timing, volume and

frequency of such sales, depend on many factors including our

origination volumes, the characteristics of our contracts versus

market requirements, our current assessment of our balance

sheet

composition and capital levels, and current market conditions,

among other factors.

In the current slowing economy resulting from the

COVID-19 pandemic, we may have difficulty accessing

the capital market and may find decreased interest and ability

counterparties to purchase our contracts, or we may be unable

to negotiate terms acceptable to us.

Insurance premiums written and earned.

Insurance premiums written declined slightly to $ 2.1 million for the three

-month period

ended September 30, 2020,

compared to $ 2.2 million for the three-month period ended September

30, 2019.

Other income.

Other income was $ 2.0 million and $ 1.7 million for the three-month periods

ended September 30, 2020 and

September 30, 2019,

respectively. The increase in other

income was primarily driven by increased insurance policy and

other

miscellaneous fees.

Salaries and benefits expense.

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

Three Months Ended September 30,

2020

2019

(Dollars in thousands)

Salary, benefits and payroll

taxes

6,825

7,204

Incentive compensation

1,632

2,144

Commissions

1,549

Total

8,515

10,897

Salaries and benefits expense decreased $ 2.4 million, or

21.9%, to $ 8.5 million for the three-month period ended

September 30, 2020

from $ 10.9 million for the corresponding period in 2019

In June and July 2020, as part of our efforts to tighten our

expense base in

response COVID-19, we took steps to permanently reduce our work

force by approximately 80 employees, which reduced our

headcount to approximately 250 employees at the end of September,

down from approximately 350 employees as of September 30,

2019.

As such, our salary, benefits and

payroll tax expense was $ 0.4 million lower than the three months

ended September 30, 2019,

primarily driven by reduced headcount, partially offset

by $0.8

million of additional severance recognized in the third quarter of 202

-58-

Incentive compensation decreased $ 0.5 million, driven by lower

recognized bonus and share-based compensation amounts driven

the Company’s operating results.

The decrease in Commissions for the three months ended

September 30, 2020 reflects a lower

amount of commission earned driven by 63% lower origination

volumes, along with a reduction in Commission driven by an

update

to our commission program structure.

General and administrative expense.

The following table summarizes General and administrative expense:

Three Months Ended September 30,

2020

2019

(Dollars in thousands)

Occupancy and depreciation

1,483

1,405

Professional fees

910

861

Information technology

972

909

Marketing

162

280

Acquisition-related contingent payment fair value adjustment

(1,435)

—

Other G&A

2,625

2,637

Total

4,717

6,092

General and administrative expense decreased $ 1.4 million,

or 22.6%, to $ 4.7 million for the three months ended September 30,

2020

from $ 6.1 million for the corresponding period in 2019

The primary driver of the change was a $1.4 million reduction to

the fair

value of the contingent consideration earn out liability related

to our 2018 acquisition of the FFR business, driven by a forecasted

decrease in projected volumes, which decreases the liability for

estimated payments.

In addition, the Company recognized $0.2

million in Occupancy expense in the three months ended September

30, 2020 in connection with a planned facility exit.

General and administrative expense as an annualized percentage of average

total finance receivables was 2.04% for the three-month

period ended September 30, 2020,

compared to 2.32% for the three-month period ended September 30,

2019.

balance.

Intangible impairment.

In the third quarter of 2020, driven by an update to forecasted volumes of its

FFR business, combined with

reductions in headcount in its salesforce, we determined we had

a triggering event that required us to compare the book value of

FFR

vendor and lender intangibles against their current fair value.

As a result of that analysis, we fully impaired the lender intangibles,

recognizing $1.0 million of expense.

The vendor intangibles were not impaired.

Provision for income taxes.

Income tax expense of $0.5 million was recorded for the three-month period

ended September 30, 2020,

compared to expense of $3.3 million for the three-month period

ended September 30, 2019. Our effective tax rate was 16.1

for the

three-month period ended September 30, 2020,

driven by partial recognition of prior quarter’s interim reporting

limitation on the

amount of tax benefits that can be recognized under Accounting Standards

Codification (“ASC”) 740,

Income Taxes

-59-

Comparison of the Nine-Month Periods Ended September

30, 2020 and September 30, 2019

Net income/loss.

Net loss of $15.0 million was reported for the nine-month period

ended September 30, 2020, resulting in diluted loss per share of

$1.27,

compared to net income of $18.7 million and diluted EPS of $1.51

for the nine-month period ended September 30, 2019.

This

$33.7 million decrease in Net income was primarily driven by:

($33.4 million) increase in Provision for credit losses, primarily driven

by updates to the Company’s

estimate, 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 credit

loss.

See further discussion of the Provision and

the change in measurement in the prior section “—

Finance Receivables and Asset Quality”;

($6.7 million)

impairment of Goodwill, driven by declines in the fair value of its

reporting unit;

$11.0 million decrease in gains on leases and

loans sold due to a decrease in assets sold resulting from the negative

impact of

the COVID-19 pandemic on capital markets activity;

3.2 million benefit recognized in Income tax (benefit) from the remeasurement

of the federal net operating losses driven by

provisions of the CARES Act;

$9.1 million decrease in Salaries and benefits, driven primarily by lower

Commissions, Incentives and the Company’s

proactive cost reduction measures.

Average balances

and net interest margin.

The following table summarizes the Company’s

average balances, interest income,

interest expense and average yields and rates on major

categories of interest-earning assets and interest-bearing liabilities

for the nine-

month periods ended September 30, 2020 and September 30,

2019.

-60-

Nine Months Ended September 30,

2020

2019

(Dollars in thousands)

Average

Yields/

Average

Yields/

Balance

(1)

Interest

Rates

(2)

Balance

(1)

Interest

Rates

(2)

Interest-earning assets:

Interest-earning deposits with banks

161,528

388

0.32

129,144

2,318

2.39

Time Deposits

11,942

167

1.87

11,665

216

2.47

Restricted interest-earning deposits with banks

7,189

0.17

13,396

0.81

Securities available for sale

10,671

159

1.99

10,600

207

2.60

Net investment in leases

(3)

880,571

58,515

8.86

937,494

64,004

9.10

Loans receivable

(3)

90,353

13,873

20.47

89,174

13,847

20.70

Total

interest-earning assets

1,162,254

73,111

8.39

1,191,473

80,673

9.02

Non-interest-earning assets:

Cash and due from banks

5,547

5,503

Allowance for loan and lease losses

(47,253)

(17,031)

Intangible assets

7,189

7,921

Goodwill

2,221

6,937

Operating lease right-of-use assets

8,459

6,557

Property and equipment, net

8,387

4,428

Property tax receivables

9,270

7,339

Other assets

(4)

31,276

33,137

Total

non-interest-earning assets

25,096

54,791

Total

assets

1,187,350

1,246,264

Interest-bearing liabilities:

Certificate of Deposits

(5)

829,792

13,747

2.21

834,727

14,887

2.38

Money Market Deposits

(5)

42,883

196

0.61

22,842

425

2.48

Long-term borrowings

(5)

57,434

1,859

4.32

120,834

3,619

3.99

Total

interest-bearing liabilities

930,109

15,802

2.27

978,402

18,931

2.58

Non-interest-bearing liabilities:

Sales and property taxes payable

6,435

6,835

Operating lease liabilities

9,354

8,119

Accounts payable and accrued expenses

22,079

26,452

Net deferred income tax liability

25,959

25,088

Total

non-interest-bearing liabilities

63,827

66,494

Total

liabilities

993,936

1,044,897

Stockholders’ equity

193,414

201,367

Total

liabilities and stockholders’ equity

1,187,350

1,246,264

Net interest income

57,309

61,742

Interest rate spread

(6)

6.12

6.44

Net interest margin

(7)

6.57

6.91

Ratio of average interest-earning assets to

average interest-bearing liabilities

124.96

121.78

-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. Amortization

of transaction costs is on a

straight-line basis, resulting in an increased

average rate whenever average

portfolio balances are at reduced levels.

(6)

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

(7)

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

The following table presents the components of the changes in net interest

income by volume and rate.

Nine Months Ended September 30, 2020 Compared To

Nine Months Ended September 30, 2019

Increase (Decrease) Due To:

Volume

(1)

Rate

(1)

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

468

(2,398)

(1,930)

Time Deposits

(54)

(49)

Restricted interest-earning deposits with banks

(27)

(45)

(72)

Securities available for sale

(49)

(48)

Net investment in leases

(3,814)

(1,675)

(5,489)

Loans receivable

182

(156)

Total

interest income

(1,942)

(5,620)

(7,562)

Interest expense:

Certificate of Deposits

(88)

(1,052)

(1,140)

Money Market Deposits

222

(451)

(229)

Long-term borrowings

(2,032)

272

(1,760)

Total

interest expense

(902)

(2,227)

(3,129)

Net interest income

(1,489)

(2,944)

(4,433)

__________________

(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.

-62-

Net interest and fee margin.

The following table summarizes the Company’s

net interest and fee income as an annualized percentage

of average total finance receivables for the nine-month periods

ended September 30, 2020 and 2019.

Nine Months Ended September 30,

2020

2019

(Dollars in thousands)

Interest income

73,111

80,673

Fee income

8,019

11,418

Interest and fee income

81,130

92,091

Interest expense

15,802

18,931

Net interest and fee income

65,328

73,160

Average total finance receivables

(1)

970,924

1,026,668

Percent of average total finance receivables:

Interest income

10.04

10.48

Fee income

1.10

1.48

Interest and fee income

11.14

11.96

Interest expense

2.17

2.46

Net interest and fee margin

8.97

9.50

__________________

(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 $7.9 million, or 10.8%,

to $65.3 million for the nine-month period ended September

30, 2020

from $73.2 million for the nine-month period ended September

30, 2019. The annualized net interest and fee margin decreased

basis points to 8.97% in the nine-month period ended September 30,

2020 from 9.50% for the corresponding period in 2019

Interest income, net of amortized initial direct costs and fees,

decreased $7.6 million, or 9.4%, to $73.1 million for the nine

-month

period ended September 30, 2020 from $80.7 million for the nine-month period

ended September 30, 2019.

The decrease in interest

income was principally due to a

decrease in average yield of 44 basis points and by a 5.4% decrease

in average total finance

receivables, which decreased $55.8 million to $970.9

million for the nine-months ended September 30, 2020 from $1,026.7

million for

the nine-months ended September 30, 2019.

The decrease in average total finance receivables was primarily due

to lower origination

volume along with the customary loan repayments and charge

-offs.

The weighted average implicit interest rate on new finance

receivables originated decreased 206 basis points to 10.96%

for the nine-month period ended September 30, 2020

compared to

13.02% for the nine-month period ended September 30,

2019. That decrease was primarily driven by a shift in the mix of originations

as higher-yield Working

Capital originations comprised 9% of our originations for

the nine months ended September 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 incomes may 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 $8.0 million and $11.4

for the nine-month periods ended September 30, 2020 and September 30,

2019,

respectively.

Fee income included approximately $2.9 million of residual

income for the nine-month period ended September 30,

2019. For 2020,

after the adoption of CECL, all future cashflows from the Company’s

pools of loans are included in the measurement of the

allowance, including future cashflows from net residual income.

Amounts of residual income are presented within the rollforward of

the Allowance, as discussed further in “—Finance Receivables

and Asset Quality”.

-63-

Fee income also included approximately $5.6 million in late fee income

for the nine-month period ended September 30, 2020

which

decreased 11.1% from $6.3 million for the nine

-month period ended September 30, 2019.

Late fees remained the largest component of

fee income at 0.74% as an annualized percentage of average total

finance receivables for the nine-month period ended September

30,

2020,

compared to 0.85% for the nine-month period ended September 30,

2019.

Interest expense decreased $3.1 million to $15.8 million for the nine

-month period ended September 30, 2020 from $18.9 for the

corresponding period in 2019.

The decrease of $3.1 million was primarily due to a $1.5

million decrease in term securitization interest,

and

a $1.1 million decrease in interest on lower deposit balances. Interest

expense, as an annualized percentage of average total

finance receivables, decreased 29 basis points to 2.17%

for the nine-month period ended September 30, 2020, from 2.46% for the

corresponding period in 2019.

The average balance of deposits was $872.7 million and $857.6

million for the nine-month periods

ended September 30, 2020 and September 30, 2019,

respectively.

For the nine-month period ended September 30, 2020,

average term securitization borrowings outstanding were $57.4 million at a

weighted average coupon of 4.32%.

For the nine-month period ended September 30, 2019,

average term securitization borrowings

outstanding were $120.8 million at a weighted average coupon

of 3.99%

Our wholly-owned subsidiary,

MBB, serves as our primary funding source. MBB raises fixed

-rate and variable-rate FDIC-insured

deposits via the brokered certificates of deposit market, on a direct

basis, and through the brokered MMDA Product. At September

30,

2020,

brokered certificates of deposit represented approximately 53% of total

deposits, while approximately 41% of total deposits

were obtained from direct channels, and 6% were in the brokered

MMDA Product.

Gain on Sale of Leases and Loans.

Gain on sale of leases and loans was $ 2.4 million for the nine

-month period ended September

30, 2020,

compared to $ 13.4 million for the nine-month period ended

September 30, 2019, due to a decline in assets sold to $28.3

million for the nine-month period ended September 30,

2020 from $195.9

million for the same period of 2019.

Our sales in 2020

primarily occurred in the first quarter; for the second and third

quarters, we have experienced a lack of buyer demand in the

syndication market and we retained substantially all of our origination volume

on our balance sheet.

Our sales execution decisions,

including the timing, volume and frequency of such sales, depend

on many factors including our origination volumes, the

characteristics of our contracts versus market requirements, our

current assessment of our balance sheet composition and

capital

levels, and current market conditions, among other factors.

In the current slowing economy resulting from the COVID-19

pandemic,

we may have difficulty accessing the capital market and

may find decreased interest and ability of counterparties to purchase our

contracts, or we may be unable to negotiate terms acceptable

to us.

Insurance premiums written and earned.

Insurance premiums written and earned remained relatively consistent, at $

6.6 million for

the nine-month period ended September 30, 2020,

from $ 6.5 million for the same period of 2019.

Other income.

Other income was $ 11.2 million and $ 10.6

million for the nine-month periods ended September 30,

2020 and

September 30, 2019,

respectively. The increase in other

income was driven by $0.6

million increase in insurance policy fees.

Salaries and benefits expense.

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

Nine Months Ended September 30,

2020

2019

(Dollars in thousands)

Salary, benefits and payroll

taxes

21,248

22,196

Incentive compensation

3,343

7,365

Commissions

1,111

5,256

Total

25,702

34,817

Salaries and benefits expense decreased $ 9.1 million, or

26.2%, to $ 25.7 million for the nine-month period ended

September 30,

2020 from $ 34.8 million for the corresponding period in 2019

In mid-April 2020, we began efforts to tighten our expense

base in

response COVID-19, putting approximately 120 employees on furlough.

In June and July 2020, we took steps to permanently reduce

our work force by approximately 80 employees, which reduced

our headcount to approximately 250 employees at the end of

September, down from approximately 350

employees as of September 30, 2019.

Our salary, benefits and payroll tax

expense was $

-64-

1.0 million lower for the nine-months ended September 30,

2020 than for the same period

of 2019,

primarily driven by reduced

headcount from the furlough and headcount reductions,

partially offset by $1.3

million higher severance recognized in 2020 as

compared to 2019.

Incentive compensation decreased $ 4.1 million, driven by lower

recognized bonus and share-based compensation amounts driven

the Company’s operating results,

including reversing $0.7 million of expense associated with performance

-based RSU awards that are

now assessed as not probable of achievement.

Commissions decreased $ 4.2 million primarily driven by a 51

decrease in

origination volume.

General and administrative expense.

The following table summarizes General and administrative expense:

Nine Months Ended September 30,

2020

2019

(Dollars in thousands)

Property taxes

6,178

6,273

Occupancy and depreciation

4,218

3,860

Professional fees

2,994

3,092

Information technology

2,953

2,869

Marketing

870

1,375

FDIC Insurance

1,089

380

Acquisition-related contingent payment fair value adjustment

(1,435)

—

Other G&A

7,302

7,665

Total

24,169

25,514

General and administrative expense of $ 24.2 million for the nine-months

ended September 30, 2020 was a decrease of $

1.3 million

from the same period in 2019. In 2020, the Company recognized

a $1.4 million reduction to the fair value of the contingent

consideration earn out liability related to our 2018 acquisition

of the FFR business, driven by a forecasted decrease in projected

volumes, which decreases the liability for estimated payments.

In addition, the Company recognized $0.4 million in Occupancy

expense in the nine-months ended September 30, 2020

in connection the planned exits of two facilities.

FDIC Insurance was $0.7

million lower for the nine-months ended September 30,

2019 due to a one-time adjustment to true-up that balance.

Goodwill impairment.

In the first quarter of 2020, driven by negative current events related

to the COVID-19 economic shutdown,

our market capitalization falling below book value and other

related impacts, we analyzed goodwill for impairment.

We concluded

that the implied fair value of goodwill was less than it’s

carrying amount, and recognized impairment equal to the entire $6.7

million

balance in the nine-months ended September 30, 2020

Intangible impairment.

In the third quarter of 2020, driven by an update to forecasted volumes of its

FFR business, combined with

reductions in headcount in its salesforce, we determined we had

a triggering event that required us to check the book value of FFR

vendor and lender intangibles against their current fair value.

As a result of that analysis, we fully impaired the lender intangibles,

recognizing $1.0 million of expense.

The vendor intangibles were not impaired.

Provision for income taxes.

Income tax benefit of 8.3 million was recorded for the nine-month period

ended September 30, 2020,

compared to expense of $6.9 million for the nine-month period

ended September 30, 2019.

Our effective tax rate from measuring our benefit for

the nine months ended September 30, 2020 was 35.6%,

driven by a $3.2 million

discrete benefit from certain provisions in the CARES Act that

allowed for remeasuring our federal net operating losses.

The impact to

our effective rate from that benefit was partially offset

by a limitation on the amount of tax benefits that can be recognized

in an

interim period under ASC 740.

-65-

IQUIDITY AND

APITAL

ESOURCES

Our business requires a substantial amount of liquidity and capital

to operate and grow. Our

primary liquidity need is to fund new

originations; however, we also utilize liquidity

for our financing needs (including our deposits and long term deposits),

to fund

infrastructure and technology investment, to pay dividends and

to pay administrative and other non-interest expenses.

As a result of the uncertainties surrounding the actual and potential impacts

of COVID-19 on our business and financial condition, in

the first quarter of 2020 we raised additional liquidity through the issua

nce of FDIC-insured deposits and we increased our borrowing

capacity at the Federal Reserve Discount Window.

We are

dependent upon the availability of financing from a variety of funding

sources to satisfy these liquidity needs. Historically,

have relied upon five principal types of external funding sources

for our operations:

•

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

MBB;

•

borrowings under various bank facilities;

•

financing of leases and loans in various warehouse facilities (all

of which have since been repaid in full);

•

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 source

for new originations, primarily through the issuance of FDIC insured

deposits.

MBB also offers an FDIC-insured MMDA Product

as another source of deposit funding. This product is offered

through participation

in a partner bank’s insured savings

account product to clients of that bank.

It is a brokered account with a variable interest rate,

recorded as a single deposit account at MBB. Over time, MBB

may offer other products and services to the Company’s

customer base.

MBB is a Utah state-chartered, Federal Reserve member commercial

bank. As such, MBB is supervised by both the Federal

Reserve

Bank of San Francisco and the Utah Department of Financial

Institutions.

We declared

a dividend of $0.14 per share on July 30, 2020.

The quarterly dividend was paid on August 20, 2020 to

shareholders of

record on the close of business on August 10, 2020

which resulted in a dividend payment of approximately $1.7 million.

represented the Company’s thirty

-sixth consecutive quarterly cash dividend.

At September 30, 2020,

we had approximately $25.0 million of available borrowing capacity from a federal

funds line of credit with a

correspondent bank in addition to available cash and cash equivalents

of $195.1 million. This amount excludes additional liquidity that

may be provided by the issuance of insured deposits through

MBB.

Our debt to equity ratio was 4.74 to 1 at September 30, 2020

and 4.26 to 1 at December 31, 2019.

Net cash provided by investing activities was $87.6 million for

the nine-month period ended September 30, 2020,

compared to net

cash used in investing activities of $58.8 million for the nine

-month period ended September 30, 2019.

The increase in cash from

investing activities is primarily due to a decrease of $296.6

million for purchases of equipment for lease contracts partially offset

by a

reduction of $135.9 million in proceeds from sales of leases originated

for investment.

The decrease in purchases of equipment was

driven by lower origination volumes for the nine months ended

September 30, 2020 compared to the corresponding period of 2019,

and the reduction in proceeds from sales was driven by lower

volumes of sales.

Net cash used financing activities was $61.7 million for the nine-month

period ended September 30, 2020,

compared to net cash

provided by financing activities of $43.1 million for the nine

-month period ended September 30, 2019.

The decrease in cash flows

from financing activities is primarily due to a decrease of $128.9

million in deposits partially offset by a decrease of $22.3

million of

term securitization repayments.

Financing activities also include transactions related to the

Company’s payment of dividends.

Net cash provided by operating activities was $45.0 million for

the nine-month period ended September 30, 2020,

compared to net

cash provided by operating activities of $44.5 million for

the nine-month period ended September 30, 2019.

Adjustments to reconcile

net income or loss to net cash provided by operating activities

including goodwill impairment, provision for credit

losses, changes in

deferred income tax liability and leases originated for sale and proceeds

thereof are discussed in detail in the notes to the Consolidated

Financial Statements.

-66-

We expect

cash from operations, additional borrowings on existing and future

credit facilities and funds from deposits issued through

brokers, direct deposit sources,

and the MMDA Product to be adequate to support our operations and

projected growth for the next 12

months and the foreseeable future.

Total

Cash and Cash Equivalents.

Our objective is to maintain an adequate level of cash, investing

any free cash in leases and loans.

We primarily fund

our originations and growth using FDIC-insured deposits issued

through MBB. Total

cash and cash equivalents

available as of September 30, 2020 totaled $195.1 million, compared

to $123.1 million at December 31, 2019.

Time Deposits with Banks.

Time deposits with banks are primarily composed

of FDIC-insured certificates of deposits that have

original maturity dates of greater than 90 days. Generally,

the certificates of deposits have the ability to redeem early,

however, early

redemption penalties may be incurred. Total

time deposits as of September 30, 2020 and December 31, 2019

totaled $8.5 million and

$12.9 million, respectively.

Restricted Interest-Earning Deposits with Banks

. As of September 30, 2020 and December 31,

2019,

we had $5.8 million and $6.9

million, respectively,

of cash that was classified as restricted interest-earning deposits

with banks. Restricted interest-earning deposits

with banks consist primarily of various trust accounts related

to our secured debt facilities. Therefore, these balances generally

decline

as the term securitization borrowings are repaid.

Borrowings.

Our primary borrowing relationship requires the pledging of

eligible lease and loan receivables to secure amounts

advanced. Our secured borrowings amounted to $40.0

million at September 30, 2020 and $76.6 million at December 31,

2019.

Information pertaining to our borrowing facilities is as follows:

For the Nine Months Ended September 30, 2020

As of September 30, 2020

Maximum

Month End

Average

Weighted

Facility

Amount

Average

Amount

Average

Unused

Amount

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

40,031

3.77

��

Revolving line of credit

(5)

—

25,000

71,721

69,751

4.24

40,031

3.77

25,000

__________________

(1) Does not include MBB’s

access to the Federal Reserve Discount Window, which is based on the amount of assets MBB chooses

to pledge.

Based on assets pledged at September 30, 2020, MBB had $49.3 million in unused, secured borrowing capacity at the Federal Reserve Discount

Window. Additional

liquidity that may be provided by the issuance of insured deposits is also excluded from this table.

(2) Does not include transaction costs.

(3) Includes transaction costs.

(4) Our term note securitizations 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 correspondent

bank. This line allows for both selling and purchasing of

federal funds. The amount that can be drawn against the line

is limited to $25.0 million.

Federal Reserve Discount Window

In addition, MBB has received approval to borrow from the

Federal Reserve Discount Window based on the

amount of assets MBB

chooses to pledge. MBB had $49.3 million in unused, secured

borrowing capacity at the Federal Reserve Discount Window

based on

$55.0 million of net investment in leases pledged at September

30, 2020.

Term

Note Securitizations

On July 27, 2018 we completed a $201.7 million asset-backed

term securitization. It provides the company with fixed-cost borrowing

with the objective of diversifying its funding sources and is recorded

in long-term borrowings in the Consolidated Balance Sheet.

In connection with this securitization transaction, we transferred

leases to our bankruptcy remote special purpose wholly-owned

subsidiary (“SPE”) and issued term debt collateralized

by such commercial leases to institutional investors in a private securities

offering. The SPE is considered variable interest entit

(“VIE”) under U.S. GAAP.

We continue to

service the assets of our VIE and

retain equity and/or residual interests. Accordingly,

assets and related debt of the VIE is included in the accompanying

Consolidated

Balance Sheets.

At September 30, 2020 and December 31, 2019

outstanding term securitizations amounted to $ 39.8 million and $

76.1 million, respectively and the Company was in compliance

with terms of the term note securitization agreement. See Note

10 –

Debt and Financing Arrangements in the accompanying Consolidated

Financial Statements for detailed information regarding of our

term note securitization

Bank Capital and Regulatory Oversight

We are

subject to regulation under the Bank Holding Company Act and we and

all of our subsidiaries may be subject to examination

by the Federal Reserve Board and the Federal Reserve Bank even if

not otherwise regulated by the Federal Reserve Board.

We and

MBB are also subject to comprehensive federal and state regulations dealing

with a wide variety of subjects, including minimum

capital standards, reserve requirements, terms on which a bank may engage

in transactions with its affiliates, restrictions as

to dividend

payments and numerous other aspects of operations.

These regulations generally have been adopted to protect

depositors and

creditors rather than shareholders.

At September 30, 2020,

Marlin Business Service Corp and MBB’s

Tier 1 leverage ratio, common equity Tier

1 risk-based ratio, Tier 1

risk-based capital ratio and total risk-based capital ratios exceeded

the requirements for well-capitalized status.

See “Management’s

Discussion and Analysis

of Financial Condition

and Results of Operations

—Executive Summary”

for discussion

of updates to our capital requirements driven by the termination of the CMLA Agreement

and driven by our election to utilize the five-

year transition related to

the adoption of the

CECL accounting standard.

In addition, see Note

13—Stockholders’ Equity in the

Notes

to Consolidated Financial Statements for additional information

regarding these ratios and our levels at September 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 September 30, 2020

The Company declared a dividend of 0.14 per share on October

29, 2020. The quarterly dividend, which is expected to result in a

dividend payment of approximately 1.7 million, is scheduled

to be paid on November 19, 2020 to shareholders of record on the close

of business on November 9, 2020.

It represents the Company’s thirty

-seventh consecutive quarterly cash dividend. The

payment of

future dividends will be subject to satisfaction of regulatory requirements

applicable to bank holding companies and approval by the

Company’s Board of Directors.

-68-

MARKET INTEREST RATE

RISK AND SENSITIVITY

Market risk is the risk of losses arising from changes in values of financial

instruments. We

engage in transactions in the normal

course of business that expose us to market risks. We

attempt to mitigate such risks through prudent management practices

and

strategies such as attempting to match the expected cash flows of

our assets and liabilities.

We are

exposed to market risks associated with changes in interest rates and

our earnings may fluctuate with changes in interest rates.

The lease and loan assets we originate are almost entirely fixed

-rate. Accordingly, we generally

seek to finance these assets primarily

with fixed interest certificates of deposit issued by MBB,

and to a lesser extent through the variable rate MMDA Product

at MBB.

RITICAL

CCOUNTING

OLICIES

There have been no significant changes to our Critical Accounting Policies

as 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 allowance

for credit losses at an amount sufficient to absorb

losses inherent in our existing lease

and loan portfolios as of the reporting dates based on our estimate of probable

incurred net credit losses in accordance with the

Contingencies Topic

of the FASB ASC.

See further discussion of our policy under the incurred

model in the “Critical Accounting

Policy” section of our 2019 Form 10-K.

Effective January 1, 2020, we adopted ASU 2016

-13, Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses on Financial Instruments (“CECL”), which changed our

accounting policy and estimated allowance.

CECL replaces the

probable, incurred loss model with a measurement of expected

credit losses for the contractual term

of the Company’s current

portfolio of loans and leases.

After the adoption of CECL, an allowance, or estimate of credit

losses, will be recognized immediately

upon the origination of a loan or lease, and will be adjusted in each subsequent

reporting period

We maintain an

allowance for credit losses at an amount that takes into consideration

all future cashflows that we expect to receive or

derive from the pools of contracts, including recoveries after

charge-off, amounts related to initial direct cost

and origination costs net

of fees deferred, and certain future cashflows from residual assets.

A provision is charged against earnings to maintain the

allowance

for credit losses at the appropriate level.

We developed

a consistent, systematic methodology to measure our estimate of the credit

losses inherent in our current portfolio, over

the entire life of the contracts.

We made certain key decisions

that underlie our methodology,

including our decisions of how to

aggregate our portfolio into pools for analysis based on similar

risk characteristics, the selection of appropriate historical loss data

reference in the model, our selection of a model to calculate the

estimate, a reasonable and supportable forecast, and the length of

our

forecast and approach to reverting to historical loss data.

For our Equipment Finance segment, we determine our reasonable

and supportable forecast based on certain economic variables

that

were selected based on a statistical analysis of our own historical

loss experience, going back to 2004. We

selected unemployment rate

and changes in the number of business bankruptcies as our economic variables

based on an analysis of the correlation of changes in

those variables to our loss experience over time.

As part of our estimate of expected credit losses, specific to each

measurement date, management considers relevant qualitative and

quantitative factors to assess whether the historical loss experience

being referenced should be adjusted to better reflect the risk

characteristics of the current portfolio and the expected future

loss experience for the life of these contracts.

This assessment

incorporates all available information relevant to considering the collectability

of our current portfolio, including considering

economic and business conditions, default trends, changes in

portfolio composition, changes in lending policies and practices,

among

other internal and external factors.

Further, each measurement period we determine

whether to separate any loans from their current

pool for individual analysis based on their unique risk characteristics.

Our approach to estimating qualitative adjustments takes into

consideration all significant current information we believe appropriate

to reflect the changes and risks in the portfolio or environment

and involves significant judgment.

-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. We

may recognize credit losses in excess of our reserve, or a significant increa

se to our credit loss estimate, in the future,

driven by the update of assumptions and information underlying our

estimate and/or driven by the actual amount of realized

losses.

Our estimate of credit losses will be revised each period

to reflect current information, including current forecasts of economic

conditions, changes in the risk characteristics and composition of the portfolio,

and emerging trends in our portfolio, among other

factors, and these updates for current information could drive

a significant adjustment to our reserve.

Further, actual credit losses may

exceed our estimated reserve, and such excess may be significant,

if the actual performance of our portfolio differs significantly

from

the current assumptions and judgements, including those underlying our

forecast and qualitative adjustments, as of any given

measurement date.

ECENTLY

SSUED

CCOUNTING

TANDARDS

Information on recently issued accounting pronouncements and

the expected impact on our financial statements is provided

in Note 2,

Summary of Significant Accounting Policies in the accompanying

Notes to Consolidated Financial Statements.

ECENTLY

DOPTED

CCOUNTING

TANDARDS

Information on recently adopted accounting pronouncements and the expected

impact on our financial statements is provided in Note

2, Summary of Significant Accounting Policies in the accompanying Notes

to Consolidated Financial Statements.

-70-

Item 3. Quantitative

and Qualitative Disclosures About Market Risk

The information appearing in the section captioned “Management’s

Discussion and Analysis of Financial Condition and

Results of

Operations – Market Interest Rate Risk and Sensitivity” under

Item 2 of Part I of this 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 procedures

as of the end of the period covered by this report.

Based on that evaluation, the CEO and CFO concluded that our

disclosure controls and procedures as of the end of the period

covered

by this report are designed and operating effectively to

provide reasonable assurance that the information required

to be disclosed by

us in reports filed under the 1934 Act is (i) recorded, processed,

summarized and reported within the time periods specified in the

SEC's rules and forms and (ii) accumulated and communicated

to our management, including the CEO and CFO, as appropriate

allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s

internal control over financial reporting identified

in connection with management’s

evaluation that occurred during the Company's third fiscal quarter

of 2020 that have materially affected, or

are reasonably likely to

materially affect, the Company’s

internal control over financial reporting.

PART

II. Other Information

Item 1. Legal Proceedings

We are

party to various legal proceedings, which include claims and litigation arising

in the ordinary course of business.

In the

opinion of management, these actions will not have a material impact on

our business, financial condition,

results of operations or

cash flows.

Item 1A. Risk Factors

There have been no material changes in the risk factors disclosed

in the Company’s Form 10-K for the year

ended December 31, 2019,

other than as discussed below.

The ongoing COVID-19 pandemic and measures intended to

prevent its spread could have a material adverse effect

on our

business, results of operations and financial condition, and

such effects will depend on future developments, which are

highly

uncertain and are difficult to predict.

Global health concerns relating to the COVID-19 pandemic and

related government actions taken to reduce the spread of

the virus

have been weighing on the macroeconomic environment, and

the outbreak has significantly increased economic uncertainty and

-71-

reduced economic activity. The

pandemic has resulted in authorities implementing numerous measures

to try to contain the virus, such

as travel bans

and restrictions, quarantines, shelter in place or total

lock-down orders and business limitations and shutdowns. Such

measures have significantly contributed to rising unemployment

and negatively impacted consumer and business spending. The

United States

government has taken steps to attempt to mitigate some of the more

severe anticipated economic effects of the virus,

including the passage of the CARES Act, but there can be no

assurance that such steps will be effective or achieve their

desired results

in a timely fashion.

We continue to monitor

and evaluate newly enacted and proposed government and banking

regulations issued in

response to the COVID-19 pandemic; further changes in regulation that

impact our business or that impact our customers could

have a

significant impact on our future operations and business strategies.

Our operations and financial results have already been negatively

impacted as a result of COVID-19 pandemic, as discussed

further in

“Part I – Item 2. Management’s

Discussion and Analysis of Financial Condition and Results of

Operations —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 extend

credit primarily to small and mid-sized businesses, and many of

our customers may be particularly

susceptible to business limitations, shutdowns and possible recessions

and may be unable to make scheduled lease or loan

payments during these periods and may be at risk of discontinuing

their operations.

As a result, our delinquencies and credit

losses may substantially increase.

Our risk and exposure to future losses may be amplified to

the extent economic activity

remains shutdown for an extended period, or to the extent businesses

have limited operations or are unable to return to

normal levels of activity after the restrictions are lifted.

Our estimate of expected future credit losses recognized within our

allowance as of September 30, 2020 is based

on certain

assumptions, forecasts and estimates about the impact of current

economic conditions on our portfolio of receivables based

on information known as of September 30,

2020, including certain expectations about the extent and timing of

impacts from

COVID-19.

If those assumptions, forecasts or estimates underlying our financial statements

are incorrect, we may

experience significant losses as the ultimate realization of value, or

revisions to our estimates, may be materially different

than the amounts reflected in our consolidated statement of financial

position as of any particular date.

●

Portfolio Risk.

We are

currently experiencing a significant decrease in demand for our lease and

loan products as a result of

the COVID-19 pandemic, and we have limited visibility to the future

recovery of such demand.

We have shifted

the focus of portions of our operations and certain personnel

to implement specific programs and new

products in response to the pandemic.

In particular, we have focused efforts

on loan modifications and a payment deferral

program, implemented a new PPP loan product, and increased

customer service efforts to respond to our borrower’s

needs.

There can be no assurances that such efforts will be

successful in mitigating any risk of credit loss.

●

Liquidity and Capital Risk.

As of September 30,

2020, all of our capital ratios, and our subsidiary bank’s

capital ratios,

were in excess of all regulatory requirements.

While we currently have sufficient capital, our reported

and regulatory capital

ratios could be adversely impacted by further credit losses and

other COVID-19 related impacts on our operations.

We are

managing the evolving risks of our business while closely monitoring

and forecasting the potential impacts of COVID-19 on

our future operations and financial position, including capital levels.

However, given the uncertainty about

future

developments and the extent and duration of the impacts of COVID

-19 on our business and future operations, we face

elevated risks to our ability to forecast and estimate future capital

levels.

If we fail to meet capital requirements in the future,

our business, financial condition or results of operations may be

adversely affected.

We have historically returned

capital to shareholders through normal dividends, special dividends and

share repurchases.

There can be no assurances that these forms of capital returns are

the optimal use of our capital or that they will continue in

the future.

●

Operational Risk.

The spread of COVID-19 has caused us to modify our business practices

(including implementing certain

business continuity plans, and developing work from home and

social distancing plans for our employees), and we may take

further actions as may be required by government authorities

or as we determine are in the best interests of our employees,

customers and business partners.

We face increased

risk of any operational or procedural failures due to changes in our

normal business practices necessitated by the pandemic.

These factors may remain prevalent for a significant period of

time and may continue to adversely affect our business,

results of

operations and financial condition even after the COVID-19 pandemic

has 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 difficult

to predict, including, but not limited to, the duration and

spread of

the outbreak, its severity, the

actions to contain the virus or treat its impact, and how quickly

and to what extent normal economic and

operating conditions can resume. Even after the COVID-19

pandemic has subsided, we may continue to experience materially

adverse

impacts to our business as a result of the virus’s

global economic impact, including the availability of credit, adverse

impacts on our

liquidity and any recession that has occurred or may occur in

the future.

There are no comparable recent events that provide guidance as to

the effect the spread of COVID-19 as a global pandemic may

have,

and, as a result, the ultimate impact of the outbreak is highly

uncertain and subject to change. We

do not yet know the full extent of

the impacts on our business, our operations or the global economy

as a whole. However, the effects

could have a material impact on

our results of operations and heighten many of our known risks described

in the “Risk Factors” section of our Annual Report on

Form

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

Item 2. Unregistered Sales of Equity

Securities and Use of Proceeds

Information on Stock Repurchases

On August 1, 2019, the Company’s

Board of Directors approved a stock repurchase plan (the “2019

Repurchase Plan”) under which

the Company is authorized to repurchase up to $10 million in value of its

outstanding shares of common stock. This authority may be

exercised from time to time and in such amounts as market conditions

warrant. Any shares purchased under this plan are returned to

the status of authorized but unissued shares of common stock. The

repurchases may be made on the open market, in block trades or

otherwise. The stock repurchase program does not obligate the Company

to acquire any particular amount of common stock, and

may be suspended at any time at the Company's discretion. The repurchases

are funded using the Company’s

working capital.

The Company did not repurchase any of its common stock during the

three months ended September 30, 2020.

As of September 30,

2020,

the Company had $4.7 million remaining in the 2019 Repurchase Plan.

Pursuant to the 2014 Equity Compensation Plan, participants

may have shares withheld to cover income taxes. There were 18,446

shares repurchased to cover income tax withholding in connection

with the shares granted under the 2014 Equity Compensation Plan

during the three-month period ended September 30, 2020

at an average cost of $8.06 per share.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine

Safety 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)

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 Financial

statements from

the Quarterly

Report on

Form 10-Q of

Marlin Business

Services Corp.

for the period

ended

September 30,

2020,

formatted in

XBRL: (i)

the Consolidated

Balance Sheets,

(ii) the Consolidated

Statements of

Operations, (iii)

the Consolidated

Statements of

Comprehensive Income,

(iv) the

Consolidated Statements

Stockholders’ Equity,

(v) the Consolidated

Statements of

Cash Flows

and (vi)

the Notes

to Unaudi

ted Consolidated

Financial Statements. (Submitted electronically with this report)

__________________

(1)

Previo

usly filed with the SEC as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 filed

on March 5, 2008, and incorporated by reference herein.

(2)

Previously filed with the SEC as an exhibit to the Registrant’s Current Report on 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’s Current Report on Form 8-K filed on April 24, 2020, and incorporated by

reference herein.

-74-

SIGNATURES

Pursuant to the requirements of the

Securities Exchange Act of 1934, the Registrant

has duly caused this report to be

signed on its behalf

by the undersigned thereunto duly authorized.

MARLIN BUSINESS SERVICES CORP.

(Registrant)

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:

October 30, 2020

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Marlin Business Services (MRLN) 10-Q2020 Q3 Quarterly report

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