MARLIN BUSINESS SERVICES CORP (Form: 10-Q, Received: 07/31/2020 16:24:32)

 
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

June 30, 2020

Commission file number

000-50448

MARLIN BUSINESS SERVICES CORP.

(Exact name of registrant as specified in its charter)

Pennsylvania

38-3686388

(State of incorporation) (I.R.S.

Employer Identification Number)

300 Fellowship Road

,

Mount Laurel

,

NJ

08054

(Address of principal executive offices)

(Zip code)

(

888

)

479-9111

(Registrant’s telephone number,

including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 per share

MRLN

NASDAQ

Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports

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

Exchange Act of 1934 during the preceding 12 months (or

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

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

90 days.

Yes

☑

No

☐

Indicate by check mark whether the registrant has submitted electronically

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

☑

No

☐

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

☐

No

☒

At July 24, 2020,

11,941,024

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 June 30, 2020

TABLE OF CONTENTS

Page No.

Part I – Financial Information

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

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

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

Item 1 Consolidated Financial Statements (Unaudited)

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

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

3

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

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

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

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

June 30, 2020 and 2019

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

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

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

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

June 30, 2020 and 2019

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

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

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

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

June 30, 2020 and 2019

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

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

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

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

June 30, 2020 and 2019

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

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

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

Notes to Unaudited Consolidated Financial Statements

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

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

10

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

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

42

Item 3 Quantitative and Qualitative Disclosures about Market Risk

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

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

70

Item 4 Controls and Procedures

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

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

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

Part II – Other Information

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

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

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

70

Item 1 Legal Proceedings

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

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

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

70

Item 1A Risk Factors

…

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

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

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

70

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

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

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

72

Item 3 Defaults upon Senior Securities

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

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

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

Item 4 Mine Safety Disclosures

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

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

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

Item 5 Other Information

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

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

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

72

Item 6 Exhibits

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

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

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

Signatures

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

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

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

74

 
-3-

PART

I. Financial Information

Item 1. Consolidated

Financial Statements

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

June 30,

December 31,

2020

2019

(Dollars in thousands, except per-share data)

ASSETS

Cash and due from banks

$

5,898

$

4,701

Interest-earning deposits with banks

205,808

118,395

Total cash and cash equivalents

211,706

123,096

Time deposits with banks

9,941

12,927

Restricted interest-earning deposits related to consolidated VIEs

6,072

6,931

Investment securities (amortized cost of

$10.3

million and

$11.1

million at

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

10,408

11,076

Net investment in leases and loans:

Leases

383,787

426,608

Loans

590,892

601,607

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

50.5

million and

974,679

1,028,215

$

76.1

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

Allowance for credit losses

(63,644)

(21,695)

Total net investment in leases and loans

911,035

1,006,520

Intangible assets

7,062

7,461

Goodwill

—

6,735

Operating lease right-of-use assets

8,146

8,863

Property and equipment, net

8,594

7,888

Property tax receivables, net of allowance

9,217

5,493

Other assets

14,034

10,453

Total assets

$

1,196,215

$

1,207,443

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

$

902,191

$

839,132

Long-term borrowings related to consolidated VIEs

50,890

76,091

Operating lease liabilities

9,242

9,730

Other liabilities:

Sales and property taxes payable

6,884

2,678

Accounts payable and accrued expenses

24,245

34,028

Net deferred income tax liability

21,759

30,828

Total liabilities

1,015,211

992,487

Commitments and contingencies

Stockholders’ equity:

Preferred Stock, $

0.01

par value;

5,000,000

shares authorized; none issued

—

—

Common Stock, $

0.01

par value;

75,000,000

shares authorized;

11,942,247

and

12,113,585

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

119

121

Additional paid-in capital

75,606

79,665

Accumulated other comprehensive income

86

58

Retained earnings

105,193

135,112

Total stockholders’ equity

181,004

214,956

Total liabilities and stockholders’ equity

$

1,196,215

$

1,207,443

 
The accompanying notes are an integral part of the unaudited

consolidated financial statements.

-4-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(Dollars in thousands, except per-share data)

Interest income

$

24,248

$

27,082

$

50,713

$

52,965

Fee income

2,450

3,507

5,216

7,549

Interest and fee income

26,698

30,589

55,929

60,514

Interest expense

5,428

6,408

11,108

12,370

Net interest and fee income

21,270

24,181

44,821

48,144

Provision for credit losses

18,806

4,756

43,956

10,119

Net interest and fee income after provision for credit losses

2,464

19,425

865

38,025

Non-interest income:

Gain on leases and loans sold

57

3,332

2,339

6,944

Insurance premiums written and earned

2,249

2,176

4,531

4,308

Other income

1,489

1,693

9,128

8,897

Non-interest income

3,795

7,201

15,998

20,149

Non-interest expense:

Salaries and benefits

7,668

12,469

17,187

23,920

General and administrative

5,847

6,068

19,452

19,422

Goodwill impairment

—

—

6,735

—

Non-interest expense

13,515

18,537

43,374

43,342

(Loss) income before income taxes

(7,256)

8,089

(26,511)

14,832

Income tax (benefit) expense

(1,374)

1,974

(8,808)

3,576

Net (loss) income

$

(5,882)

6,115

(17,703)

11,256

Basic (loss) earnings per share

$

(0.50)

$

0.50

$

(1.50)

$

0.91

Diluted (loss) earnings per share

$

(0.50)

$

0.49

$

(1.50)

$

0.91

 
The accompanying notes are an integral part of the unaudited

consolidated financial statements.

-5-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(Dollars in thousands)

Net (loss) income

$

(5,882)

$

6,115

$

(17,703)

$

11,256

Other comprehensive income (loss):

Increase in fair value of debt securities available for sale

88

69

37

123

Tax effect

(22)

(17)

(9)

(31)

Total other comprehensive income

66

52

28

92

Comprehensive (loss) income

$

(5,816)

$

6,167

$

(17,675)

$

11,348

 
The accompanying notes are an integral part of the 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’

Shares

Amount

Capital

Income (Loss)

Earnings

Equity

(Dollars in thousands)

Balance, December 31, 2019

12,113,585

$

121

$

79,665

$

58

$

135,112

$

214,956

Repurchase of common stock

(285,593)

(3)

(4,535)

—

—

(4,538)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

56,481

1

(1)

—

—

—

Stock-based compensation recognized

—

—

518

—

—

518

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

—

—

(38)

—

(38)

Net loss

—

—

—

—

(11,821)

(11,821)

Impact of adoption of new accounting

standards

(1)

—

—

—

—

(8,877)

(8,877)

Cash dividends paid ($

0.14

per share)

—

—

—

—

(1,710)

(1,710)

Balance, March 31, 2020

11,884,473

119

75,647

20

112,704

188,490

Issuance of common stock

14,891

—

120

—

—

120

Repurchase of common stock

(1,897)

—

(12)

—

—

(12)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

44,780

—

—

—

—

—

Stock-based compensation recognized

—

—

(149)

—

—

(149)

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

—

—

66

—

66

Net loss

—

—

—

—

(5,882)

(5,882)

Cash dividends paid ($

0.14

per share)

—

—

—

—

(1,629)

(1,629)

Balance, June 30, 2020

11,942,247

$

119

$

75,606

$

86

$

105,193

$

181,004

(1)

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

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

See Note 2.

 
The accompanying notes are an integral part of the 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’

Shares

Amount

Capital

Receivable

Income (Loss)

Earnings

Equity

(Dollars in thousands)

Balance, December 31, 2018

12,367,724

$

124

$

83,498

$

(2)

$

(44)

$

114,935

$

198,511

Repurchase of common stock

(48,857)

(1)

(1,144)

—

—

—

(1,145)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

30,209

—

—

—

—

—

—

Stock-based compensation recognized

—

—

861

—

—

—

861

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

—

—

—

40

—

40

Net income

—

—

—

—

—

5,141

5,141

Cash dividends paid ($

0.14

per share)

—

—

—

—

—

(1,758)

(1,758)

Balance, March 31, 2019

12,349,076

123

83,215

(2)

(4)

118,318

201,650

Issuance of common stock

10,298

—

240

—

—

—

240

Repurchase of common stock

(73,360)

—

(1,719)

—

—

—

(1,719)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

(450)

—

—

—

—

—

—

Stock-based compensation recognized

—

—

990

—

—

—

990

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

—

—

—

52

—

52

Net income

—

—

—

—

—

6,115

6,115

Cash dividends paid ($

0.14

per share)

—

—

—

—

—

(1,774)

(1,774)

Balance, June 30, 2019

12,285,564

$

123

$

82,726

$

(2)

$

48

$

122,659

$

205,554

 
The accompanying notes are an integral part of the unaudited

consolidated financial statements.

-8-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended June 30,

2020

2019

(Dollars in thousands)

Cash flows from operating activities:

Net (loss) income

$

(17,703)

$

11,256

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

by operating activities:

Depreciation and amortization

2,059

2,390

Stock-based compensation

369

1,851

Goodwill impairment

6,735

—

Change in fair value of equity securities

(89)

(94)

Provision for credit losses

43,956

10,119

Change in net deferred income tax liability

(6,047)

4,142

Amortization of deferred initial direct costs and fees

6,393

7,252

(Gain) loss on equipment disposed

(37)

911

Gain on leases sold

(2,339)

(6,944)

Leases originated for sale

(4,820)

(29,036)

Proceeds from sale of leases originated for sale

5,058

30,062

Noncash lease expense

872

551

Effect of changes in other operating items:

Other assets

(7,665)

(4,549)

Other liabilities

(1,320)

(892)

Net cash provided by operating activities

25,422

27,019

Cash flows from investing activities:

Net change in time deposits with banks

2,986

(3,020)

Purchases of equipment for lease contracts and funds used to

originate loans

(229,512)

(409,915)

Principal collections on leases and loans

237,797

248,563

Proceeds from sale of leases originated for investment

21,337

87,390

Security deposits collected, net of refunds

(129)

(130)

Proceeds from the sale of equipment

1,151

1,409

Acquisitions of property and equipment

(1,790)

(816)

Principal payments received on securities available for sale

779

529

Net cash provided by (used in) investing activities

32,619

(75,990)

Cash flows from financing activities:

Net change in deposits

63,059

132,785

Term securitization repayments

(25,402)

(40,829)

Business combinations earn-out consideration payments

(168)

(223)

Issuances of common stock

120

240

Repurchases of common stock

(4,550)

(2,864)

Dividends paid

(3,349)

(3,456)

Net cash provided by financing activities

29,710

85,653

Net increase in total cash, cash equivalents and restricted cash

87,751

36,682

Total cash, cash equivalents

and restricted cash, beginning of period

130,027

111,201

Total cash, cash equivalents

and restricted cash, end of period

$

217,778

$

147,883

 
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)

Six Months Ended June 30,

2020

2019

(Dollars in thousands)

Supplemental disclosures of cash flow information:

Cash paid for interest on deposits and borrowings

$

11,368

$

11,504

Net cash paid for income taxes

1,868

1,362

Leases transferred into held for sale from investment

19,235

81,472

Supplemental disclosures of non cash investing activities:

Business combinations assets acquired

$

—

$

146

Purchase of equipment for lease contracts and loans originated

4,106

7,038

Reconciliation of Cash, cash equivalents and restricted cash

to

the Consolidated Balance Sheets:

Cash and cash equivalents

$

211,706

$

139,731

Restricted interest-earning deposits

6,072

8,152

Cash, cash equivalents and restricted cash at end of period

$

217,778

$

147,883

 
-10-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO UNAUDITED 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 June 30, 2020 and the

results of operations for the three-

and six -month periods ended June 30, 2020 and 2019

,

and cash flows for the six-month periods

ended June 30, 2020 and 2019.

In management’s opinion, 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 expenses

during the reporting period. Estimates are used when accounting

for

income recognition, the residual values of leased equipment,

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

fee receivables, the fair value of financial instruments, estimated

losses from insurance program, and income taxes. Actual results

could differ from those estimates.

Provision for income taxes.

Our statutory tax rate was

25.4

% for the three months ended June 30, 2020.

For the three-month period ended June 30, 2020, the

effective tax rate was

18.9

%, driven by an interim reporting limitation on the amount of tax benefits

that can be recognized under

Accounting Standards Codification (“ASC”) 740,

Income Taxes

.

For the six-month period ended June 30, 2020, the effective

tax rate in recognizing our benefit was

33.2

%, 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 has filed for a refund of carryback net operating losses

 
-11-

as permitted under the CARES act.

The impact to our effective rate from that benefit was partially

offset by the limitation on interim

tax benefits, as discussed above.

For the three and six month periods ended June 30, 2019,

our effective tax rates were

24.4

% and

24.1

%, respectively, and there were

no significant reconciling items from our statutory rate.

Significant Accounting Policies.

There have been no significant changes to our 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 poli

cy 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 Protectio

n

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.

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).

 
-12-

The adoption of this standard resulted in the following adjustment

to the Company’s Consolidated

Balance Sheets:

Balance as of

Balance as of

December 31,

Adoption

January 1,

2019

Impact

2020

(Dollars in thousands)

Assets:

Net investment in leases and loans

$

1,028,215

$

—

$

1,028,215

Allowance for credit losses

(21,695)

(11,908)

(33,603)

Total net investment in 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

Six Months Ended

June 30,

June 30,

(Dollars in thousands)

2020

2019

2020

2019

Insurance premiums written and earned

$

2,249

$

2,176

$

4,531

$

4,308

Gain on sale of leases and loans

57

3,332

2,339

6,944

Servicing income

489

339

1,055

626

Property tax (loss) income

(380)

79

5,124

5,722

Net gains recognized during the period on equity securities

31

50

89

94

Non-interest income - other than from contracts with customers

2,446

5,976

13,138

17,694

Property tax administrative fees on leases

236

261

470

529

ACH payment fees

36

74

108

160

Insurance policy fees

873

666

1,791

1,334

Referral fees

14

164

108

318

Other

190

60

383

114

Non-interest income from contracts with customers

1,349

1,225

2,860

2,455

Total non-interest income

$

3,795

$

7,201

$

15,998

$

20,149

 
-14-

NOTE 4 - Investment Securities

The Company had the following investment securities as of the

dates presented:

June 30,

December 31,

2020

2019

(Dollars in thousands)

Equity Securities

Mutual fund

$

3,740

$

3,615

Debt Securities, Available

for Sale:

Asset-backed securities ("ABS")

3,935

4,332

Municipal securities

2,733

3,129

Total investment securities

$

10,408

$

11,076

The following schedule summarizes changes in fair value of equity securities

and the portion of unrealized gains and losses for each

period presented:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

2020

2019

2020

2019

Net gains recognized during the period on equity securities

$

31

$

50

$

89

$

94

Less: Net gains recognized during the period

on equity securities sold during the period

—

—

—

—

Unrealized gains recognized during the reporting period

on equity securities still held at the reporting date

$

31

$

50

$

89

$

94

 
-15-

Available for

Sale

The following schedule is a summary of available for sale investments

as of the dates presented:

June 30, 2020

Gross

Gross

Amortized

Unrealized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

(Dollars in thousands)

ABS

$

3,865

$

70

$

—

$

3,935

Municipal securities

2,664

69

—

2,733

Total Debt

Securities, Available for Sale

$

6,529

$

139

$

—

$

6,668

December 31, 2019

Gross

Gross

Amortized

Unrealized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

(Dollars in thousands)

ABS

$

4,302

$

33

$

(3)

$

4,332

Municipal securities

3,058

71

—

3,129

Total 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 June

30, 2020 and June 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 June 30, 2020

and

December 31, 2019:

June 30, 2020

Less than 12 months

12 months or longer

Total

Gross

Gross

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Losses

Value

Losses

Value

Losses

Value

(Dollars in thousands)

Municipal securities

(1)

$

—

$

170

$

—

$

—

$

—

$

170

Total available

for sale investment

securities

$

—

$

170

$

—

$

—

$

—

$

170

(1) The unrealized loss is immaterial

December 31, 2019

Less than 12 months

12 months or longer

Total

Gross

Gross

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Losses

Value

Losses

Value

Losses

Value

(Dollars in thousands)

ABS

$

—

$

—

$

(3)

$

430

$

(3)

$

430

Total 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 June 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

$

—

$

2,351

$

1,514

$

—

$

3,865

Municipal securities

15

346

2,133

170

2,664

Total available

for sale investments

$

15

$

2,697

$

3,647

$

170

$

6,529

Estimated fair value

$

15

$

2,762

$

3,721

$

170

$

6,668

Weighted-average

yield, GAAP basis

4.75%

2.01%

2.31%

2.10%

2.19%

 
-17-

NOTE 5 – Net Investment in Leases and Loans

Net investment in leases and loans consists of the following:

June 30, 2020

December 31, 2019

(Dollars in thousands)

Minimum lease payments receivable

$

407,019

$

457,602

Estimated residual value of equipment

28,851

29,342

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

(51,625)

(59,746)

Security deposits

(458)

(590)

Total leases

383,787

426,608

Commercial loans, net of origination costs and fees deferred

Working Capital

Loans

42,078

60,942

CRA

(1)

1,098

1,398

Equipment loans

(2)

473,267

464,655

CVG

70,452

74,612

PPP Loans

3,997

—

Total commercial loans

590,892

601,607

Net investment in leases and loans, excluding allowance

974,679

1,028,215

Allowance for credit losses

(63,644)

(21,695)

Total net investment in leases

and loans

$

911,035

$

1,006,520

________________________

(1)

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

(“CRA”).

(2)

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

In 2020, the Company was a participating lender,

offering loans to its customers that are guaranteed under

the Small Business

Administration’s (SBA’s)

Paycheck Protection Program (“PPP”).

The SBA pays lender fees for processing PPP loans, and the

Company will recognize the fee income associated with originating

these loans over the life of the contracts on the effective

interest

method.

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 June 30, 2020, $

50.5

million in net investment in leases were pledged as collateral

for the Company’s outstanding asset-backed

securitization balance and $

56.3

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 $

17.9

million and $

20.5

million as of June

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 June 30, 2020 and December 31,

2019, $

23.1

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 June 30, 2020:

Minimum Lease

Payments

Net Income

Receivable

(1)

Amortization

(2)

(Dollars in thousands)

Period Ending December 31,

Remainder of 2020

$

87,364

$

15,111

2021

142,161

19,713

2022

94,796

10,463

2023

53,312

4,588

2024

23,862

1,403

Thereafter

5,524

347

$

407,019

$

51,625

________________________

(1)

Represents the undiscounted cash flows of the lease payments receivable.

(2)

Represents the difference between the 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.

In

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

a

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

over the expected servicing period based on the effective yield

method, within Other income in the Consolidated Statements of 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 $

1.9

million and $

2.5

million as of

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

and is recognized within Accounts payable and accrued expenses

in the

Consolidated Balance Sheets.

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

of leases and loans serviced for others was

$

296

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 $

0.8

million as of June 30, 2020 and $

0.4

million as of December 31, 2019.

The following table summarizes information related to portfolio

sales for the periods presented:

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(Dollars in thousands)

Sales of leases and loans

$

1,127

$

57,640

$

24,056

$

110,508

Gain on sale of leases and loans

57

3,332

2,339

6,944

 
-19-

NOTE 6 – Allowance for Credit Losses

For 2019 and prior, we maintained an 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 June 30, 2020 is below.

The following tables summarize activity in the allowance for

credit losses

:

Three Months Ended June 30, 2020

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA &

PPP

Total

Allowance for credit losses, beginning of period

$

37,774

$

7,200

$

7,086

$

—

$

52,060

Charge-offs

(7,724)

(686)

(904)

—

(9,314)

Recoveries

729

17

74

—

820

Net charge-offs

(6,995)

(669)

(830)

—

(8,494)

Realized cashflows from Residual Income

1,272

—

—

—

1,272

Provision for credit losses

16,499

1,431

876

—

18,806

Allowance for credit losses, end of period

$

48,550

$

7,962

$

7,132

$

—

$

63,644

Net investment in leases and loans, before

allowance

$

846,057

$

42,078

$

81,449

$

5,095

$

974,679

Three Months Ended June 30, 2019

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, beginning of period

$

13,975

$

1,684

$

1,223

$

—

$

16,882

Charge-offs

(4,508)

(602)

(345)

—

(5,455)

Recoveries

482

51

61

—

594

Net charge-offs

(4,026)

(551)

(284)

—

(4,861)

Provision for credit losses

3,467

807

482

—

4,756

Allowance for credit losses, end of period

$

13,416

$

1,940

$

1,421

$

—

$

16,777

Net investment in leases and loans, before

allowance

$

942,508

$

51,748

$

83,299

$

1,493

$

1,079,048

 
-20-

Six Months Ended June 30, 2020

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA &

PPP

Total

Allowance for credit losses, December 31, 2019

$

18,334

$

1,899

$

1,462

$

—

$

21,695

Adoption of ASU 2016-13 (CECL)

(1)

9,264

(3)

2,647

—

11,908

Allowance for credit losses, January 1, 2020

$

27,598

$

1,896

$

4,109

$

—

$

33,603

Charge-offs

(14,214)

(1,965)

(1,633)

—

(17,812)

Recoveries

1,254

55

163

—

1,472

Net charge-offs

(12,960)

(1,910)

(1,470)

—

(16,340)

Realized cashflows from Residual Income

2,425

—

—

—

2,425

Provision for credit losses

31,487

7,976

4,493

—

43,956

Allowance for credit losses, end of period

$

48,550

$

7,962

$

7,132

$

—

$

63,644

Net investment in leases and loans, before

allowance

$

846,057

$

42,078

$

81,449

$

5,095

$

974,679

Six Months Ended June 30, 2019

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, beginning of period

$

13,531

$

1,467

$

1,102

$

—

$

16,100

Charge-offs

(8,840)

(1,275)

(673)

—

(10,788)

Recoveries

1,214

71

61

—

1,346

Net charge-offs

(7,626)

(1,204)

(612)

—

(9,442)

Provision for credit losses

7,511

1,677

931

—

10,119

Allowance for credit losses, end of period

$

13,416

$

1,940

$

1,421

$

—

$

16,777

Net investment in leases and loans, before

allowance

$

942,508

$

51,748

$

83,299

$

1,493

$

1,079,048

__________________

(1)

The Company adopted ASU 2016-13,

Financial Instruments - Credit Losses (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.

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 June 30,

2020 is

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 Equipment

Finance leases and loans are based on internally developed

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

characteristics, including loan size, external credit

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

business.

In addition, the Company separately

measured a pool of true leases so that any future cashflo

ws 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 June

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 $

10.1

million and $

20.9

million for the three and six months

ended June 30, 2020, respectively.

After completing the forecast adjustment, the Company assessed

the output of the Equipment Finance reserve estimate and

increased the reserve for a $

3.4

million qualitative adjustment as of June 30,

2020 based on an analysis that incorporates the

current forecasted peak levels of unemployment and business bankruptcy.

Working Capital:

The risk characteristics referenced to develop pools of 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.

 
-22-

The Company’s measurement of

Working Capital

pools is based on its own historical loss experience.

The Company’s

Working Capital loans

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

segment, due to the short contract

duration, the Company did not define a standard methodology to

adjust its loss estimate based on a forecast of economic

conditions.

However, the Company will continually

assess through a qualitative adjustment whether there are changes in

conditions and the environment that will impact the performance

of these loans that should be considered for qualitative

adjustment.

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

changes in portfolio composition or the business

environment, when determining the appropriate measurement

of current expected credit losses for the remaining life of its

portfolio.

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

the Working

Capital portfolio.

However, 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.

The Company determined

its most likely expectation for credit losses for the Working

Capital segment based on the increased risk to its borrowers and

increased risk to the collectability of its portfolio from COVID

-19.

Based on that analysis, the Working

Capital reserve was

increased and the Company recognized provision associated with

qualitative adjustments of $

1.5

million and $

7.0

million for

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

Commercial Vehicle

Group (CVG):

Transportation-related equipment leases and

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

any risk

characteristics to be significant enough to warrant disaggregating this

population.

The Company’s measurement of

CVG pools is based on a combination of its own historical

loss experience and industry loss

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

product, and therefore the Company determined it was

appropriate to develop an estimate based on a combination of

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.

The Company determined its most likely expectation for

credit losses for the CVG

segment based on the increased risk to its borrowers and increased

risk to the collectability of its portfolio from COVID-19,

and increased the reserve and recognized provision associated

with qualitative adjustments of $

0.4

million and $

3.3

million

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

respectively.

Community Reinvestment Act (CRA) and Paycheck Protection

Program (PPP)

Loans:

CRA loans are comprised of loans originated under a line of

credit to satisfy the Company’s obligations

under the CRA. PPP

loans are comprised of loans that are guaranteed by the Small Business

Administration.

The Company does not measure an

allowance specific to these populations

because the exposure to credit loss is nominal.

Specific Analysis:

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

contracts on an individual basis, or create additional pools

of contracts, in situations where such loans exhibit unique risk characteristics

and are no longer expected to experience

similar losses to the rest of their pool.

As of June 30, 2020 and January 1, 2020, there were

no

contracts subject to specific

analysis.

 
-23-

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

$15.5 million and $

34.7

million of provision,

respectively, driven by 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 June 30, 2020, the performance of loans modified under

that program remains uncertain, due to

the timing of the modified loans resuming payment.

Our reserve as of June 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 increases to our credit loss estimate, in the future, and such

increases 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 request relief who were current under

their existing agreement.

The payment deferral program through June

30,

2020 for Equipment Finance and CVG typically included

a deferral of the full payment amount, and for Working

Capital, included

a deferral of the partial amount of payment.

The Company’s COVID-modification

program allows for up to 6 months of deferred payments.

The Company typically processed

first requests to defer customers for up to 3 months; starting in June,

the Company has been evaluating and processing requests to

extend the modification period for certain customers

using specific underwriting criteria, such that the modification

terms may extend

up to 6 months in total.

The below table outlines certain data on the modified population

based on the balance and status as of June 30, 2020.

See discussion

below the table on the status of this population subsequent to

quarter-end.

Equipment

Finance

Working

(Dollars in thousands)

and CVG

Capital

Total

Net investment in leases and loans

Completed modifications

$

115,941

$

17,876

$

133,817

% of total segment

12.5%

42.4%

13.7%

Number of active modifications as of June 30, 2020

4,564

453

5,017

Interest income recognized for the three months

ended June 30, 2020 on modified loans

(1)

$

2,295

$

1,633

$

3,928

Weighted-average

total term (months):

before modification

56.0

15.7

after modification

59.0

18.9

_________________

(1)

As discussed further below, the

Company did not account for these modifications as Troubled

Debt Restructurings (“TDRs”),

and as such these loans were not put on non-accrual upon modification.

The amount presented for interest income reflects

total income recognized for the three months, for any loan that

was modified in the quarter.

 
-24-

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

financial difficulties, a lender grants a concession that

it

would not otherwise consider for borrowers of similar credit

quality.

In accordance with the interagency guidance 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

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

no

t have any TDRs.

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

25

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

schedule before the end of the second quarter,

7

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

remaining

3

% were

scheduled to resume payment in the fourth quarter.

Through July 24, 2020, we processed modifications for an additional

$5.9 million of Equipment Finance net investment and additions

to the modified population of Working

Capital were not significant.

Credit Quality

At origination, the Company utilizes an internally developed

credit score ratings as part of its underwriting assessment and

pricing

decisions for new contracts.

The internal credit score is a measurement that combines

many risk characteristics, including loan size,

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

of the borrower’s business.

The internal credit score is

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

Equipment Finance portfolio segment, as discussed

further above.

We

believe this segmentation allows our loss modeling to properly

reflect changes in portfolio mix driven by sales activity and

adjustments to underwriting standards.

However, this score is not updated after origination

date for analyzing the Company’s

provision.

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

the Company primarily reviews the current delinquency of the

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

believe that delinquency is the best factor to use to monitor

the credit quality of our portfolio on an ongoing basis because

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

predictor

of near term charge-offs and can help with identifying

trends and emerging risks to the portfolio.

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 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 request relief who are current under

their existing obligations and can demonstrate that their ability to

repay

has been impacted by the COVID-19 crisis.

This program includes either reduced or full-payment deferrals for

the modified

contracts, and those contracts are presented in the below delinquency

table and the non-accrual information for June 30,

2020 based on

their status with respect to the modified terms.

See “Loan Modification Program” section above for

further information on the

modifications.

 
-25-

Portfolio by Origination Year as of

June 30, 2020

Total

2020

2019

2018

2017

2016

Prior

Receivables

(Dollars in thousands)

Equipment Finance

30-59

$

1,392

$

5,493

$

2,764

$

1,833

$

501

$

144

$

12,127

60-89

1,277

5,008

3,551

2,030

810

190

12,866

90+

461

3,519

2,722

1,564

784

139

9,189

Total Past Due

3,130

14,020

9,037

5,427

2,095

473

34,182

Current

163,706

333,621

179,308

94,036

34,558

6,646

811,875

Total

166,836

347,641

188,345

99,463

36,653

7,119

846,057

Working Capital

30-59

91

344

32

—

—

—

467

60-89

177

206

—

—

—

—

383

90+

—

279

—

—

—

—

279

Total Past Due

268

829

32

—

—

—

1,129

Current

16,277

24,238

396

38

—

—

40,949

Total

16,545

25,067

428

38

—

—

42,078

CVG

30-59

58

313

147

210

9

—

737

60-89

220

124

143

160

13

—

660

90+

54

62

236

252

33

—

637

Total Past Due

332

499

526

622

55

—

2,034

Current

11,940

37,580

17,728

8,951

3,138

78

79,415

Total

12,272

38,079

18,254

9,573

3,193

78

81,449

CRA & PPP

Total Past Due

—

—

—

—

—

—

—

Current

5,095

—

—

—

—

—

5,095

Total

5,095

—

—

—

—

—

5,095

Net investment in leases

and loans, before allowance

$

200,748

$

410,787

$

207,027

$

109,074

$

39,846

$

7,197

$

974,679

 
-26-

Portfolio by Origination Year as 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

$

17

$

4,750

60-89

1,023

1,055

685

366

80

4

3,213

90+

947

1,522

1,090

527

163

7

4,256

Total Past Due

3,390

4,332

2,710

1,347

412

28

12,219

Current

424,559

236,068

135,419

55,119

16,461

1,407

869,033

Total

427,949

240,400

138,129

56,466

16,873

1,435

881,252

Working Capital

30-59

566

18

—

—

—

—

584

60-89

16

52

—

—

—

—

68

90+

203

—

—

—

—

—

203

Total Past Due

785

70

—

—

—

—

855

Current

57,706

2,343

38

—

—

—

60,087

Total

58,491

2,413

38

—

—

—

60,942

CVG

30-59

50

126

90

99

—

—

365

60-89

5

15

188

46

—

—

254

90+

—

178

158

53

—

—

389

Total Past Due

55

319

436

198

—

—

1,008

Current

42,536

22,531

13,442

4,976

130

—

83,615

Total

42,591

22,850

13,878

5,174

130

—

84,623

CRA

Total Past Due

—

—

—

—

—

—

—

Current

1,398

—

—

—

—

—

1,398

Total

1,398

—

—

—

—

—

1,398

Net investment in leases

and loans, before allowance

$

530,429

$

265,663

$

152,045

$

61,640

$

17,003

$

1,435

$

1,028,215

Net investments in Equipment Finance and CVG leases 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 June 30, 2020 and December

31, 2019,

there were

no

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

 
-27-

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

by

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

there were

no

Working Capital Loans

past due 30 days or more and still

accruing.

The following tables provide information about non-accrual leases and

loans:

June 30,

December 31,

(Dollars in thousands)

2020

2019

Equipment Finance

$

9,205

$

4,256

Working Capital Loans

1,189

946

CVG

637

389

Total

Non-Accrual

$

11,031

$

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 carryin

g

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 six-month period

ended June 30, 2020 are as follows:

(Dollars in thousands)

Total Company

Balance at December 31, 2019

$

6,735

Impairment of Goodwill

(6,735)

Balance at June 30, 2020

$

—

Intangible assets

The Company’s intangible assets consist

of $

1.3

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

of

8.7

years that were recognized in connection with the January 2017

acquisition of HKF, and

$

7.6

million

of definite-lived intangible

assets with a weighted-average amortization period of

10.8

years that were recognized in connection with the September

2018

acquisition of FFR.

The Company has no indefinite-lived intangible assets.

The following table presents details of the Company’s

intangible assets as of June 30, 2020:

 
-28-

(Dollars in thousands)

Gross Carrying

Accumulated

Net

Description

Useful Life

Amount

Amortization

Value

Lender relationships

3

to

10

years

$

1,630

$

582

$

1,048

Vendor

relationships

11

years

7,290

1,306

5,984

Corporate trade name

7

years

60

30

30

$

8,980

$

1,918

$

7,062

There was

no

impairment of these assets in the six-months ended June 30,

2020 or 2019.

Amortization related to the Company’s

definite lived intangible assets was $

0.4

million and $

0.5

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

2019,

respectively.

The Company expects the amortization expense for the next

five years will be as follows:

(Dollars in thousands)

Remainder of 2020

$

399

2021

798

2022

798

2023

798

2024

790

NOTE 8 – Other Assets

Other assets are comprised of the following:

June 30,

December 31,

2020

2019

(Dollars in thousands)

Accrued fees receivable

$

3,213

$

3,509

Prepaid expenses

2,776

2,872

Income taxes receivable

(1)

4,348

—

Federal Reserve Bank Stock

1,711

1,711

Other

1,986

2,361

$

14,034

$

10,453

_______________________

(1)

See Note 2 –

Summary of Significant Accounting Policies,

for discussion of the Provision for income taxes.

 
-29-

NOTE 9 – Deposits

MBB serves as the Company’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 a

nd

recorded as a single deposit account at MBB. As of June 30,

2020, money market deposit accounts totaled $

53.2

million.

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

deposits are as follows:

Scheduled

Maturities

(Dollars in

thousands)

Period Ending December 31,

Remainder of 2020

$

300,996

2021

293,009

2022

147,704

2023

71,375

2024

29,290

Thereafter

7,299

Total

$

849,673

Certificates of deposits issued by MBB are time deposits and 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 June 30,

2020 was

1.99

%.

NOTE 10 – Debt and Financing Arrangements

Short-Term

Borrowings

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

in the amount of $

5.0

million that was scheduled to expire on

November 20, 2020

. There were

no

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

and the line of credit was

terminated by mutual agreement with the line of credit 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 June 30, 2020,

outstanding term securitizations

amounted to $

51.2

million and are collateralized by $

55.4

million of minimum lease and loan payments receivable and

$

6.1

million of

restricted interest-earning deposits. The Company’s

term note securitizations are classified as long-term borrowings.

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

June 30,

December 31,

2020

2019

(Dollars in thousands)

Term securitization 2018

-1

$

51,161

$

76,563

Unamortized debt issuance costs

(271)

(472)

$

50,890

$

76,091

 
-30-

The term note securitization is summarized below:

Outstanding Balance as of

Notes

Final

Original

June 30,

December 31,

Originally

Maturity

Coupon

2020

2019

Issued

Date

Rate

(Dollars in thousands)

2018 — 1

Class A-1

$

—

$

—

$

77,400

July, 2019

2.55

%

Class A-2

—

8,013

55,700

October, 2020

3.05

Class A-3

19,521

36,910

36,910

April, 2023

3.36

Class B

10,400

10,400

10,400

May, 2023

3.54

Class C

11,390

11,390

11,390

June, 2023

3.70

Class D

5,470

5,470

5,470

July, 2023

3.99

Class E

4,380

4,380

4,380

May, 2025

5.02

Total Term

Note Securitizations

$

51,161

$

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

3.68

% over the remaining term of the

borrowing.

Scheduled principal and interest payments on outstanding borrowings

as of June 30, 2020 are as follows:

Principal

Interest

(Dollars in thousands)

Period Ending December 31,

Remainder of 2020

$

18,950

$

803

2021

23,629

813

2022

8,582

159

$

51,161

$

1,775

 
-31-

NOTE 11 – Fair 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

an

orderly transaction between market participants. A three-level

valuation hierarchy is required for disclosure of fair value

measurements based upon the transparency of inputs to the valuation of

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

hierarchy gives the highest priority to quoted prices (unadjusted)

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

the

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

value hierarchy within which the fair value measurement in its

entirety falls is determined based on the lowest level input that

is significant to the measurement in its entirety.

The Company’s balances measured

at fair value on a recurring basis include the following

as of June 30, 2020 and December 31,

2019:

June 30, 2020

December 31, 2019

Fair Value Measurements Using

Fair Value Measurements Using

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

(Dollars in thousands)

Assets

ABS

$

—

$

3,935

$

—

$

—

$

4,332

$

—

Municipal securities

—

2,733

—

—

3,129

—

Mutual fund

3,740

—

—

3,615

—

—

At this time, the Company has not elected to report any 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 six months ended June 30, 2020, the Company recognized

$

6.7

million for the impairment of goodwill in the Consolidated

Statements of Operations, as discussed further in Note 7, Goodwill

and Intangible Assets.

For the six months ended June 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:

 
-32-

June 30, 2020

December 31, 2019

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

(Dollars in thousands)

Financial Assets

Cash and cash equivalents

$

211,706

$

211,706

$

123,096

$

123,096

Time deposits with banks

9,941

10,034

12,927

12,970

Restricted interest-earning deposits with banks

6,072

6,072

6,931

6,931

Loans, net of allowance

548,989

561,140

588,688

593,406

Federal Reserve Bank Stock

1,711

1,711

1,711

1,711

Financial Liabilities

Deposits

$

902,191

$

921,196

$

839,132

$

846,304

Long-term borrowings

50,890

51,469

76,091

76,781

There have been no significant changes in the methods and 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.

 
-33-

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

of

common shares used in computing basic EPS, further adjusted

by including the dilutive impact of the exercise or conversion of

common stock equivalents, such as stock options, into shares

of common stock as if those securities were exercised or

converted.

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

and diluted EPS:

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(Dollars in thousands, except per-share data)

Basic EPS

Net (loss) income

$

(5,882)

$

6,115

$

(17,703)

$

11,256

Less: net income allocated to participating securities

—

(74)

—

(147)

Net (loss) income allocated to common stock

$

(5,882)

$

6,041

$

(17,703)

$

11,109

Weighted average common

shares outstanding

11,893,235

12,333,383

11,953,815

12,335,545

Less: Unvested restricted stock awards considered participating

securities

(132,756)

(148,387)

(135,502)

(160,170)

Adjusted weighted average common shares used in computing

basic EPS

11,760,479

12,184,996

11,818,313

12,175,375

Basic EPS

$

(0.50)

$

0.50

$

(1.50)

$

0.91

Diluted EPS

Net (loss) income allocated to common stock

$

(5,882)

$

6,041

$

(17,703)

$

11,109

Adjusted weighted average common shares used in computing

basic EPS

11,760,479

12,184,996

11,818,313

12,175,375

Add: Effect of dilutive stock-based compensation awards

—

81,855

—

84,624

Adjusted weighted average common shares used in computing

diluted EPS

11,760,479

12,266,851

11,818,313

12,259,999

Diluted EPS

$

(0.50)

$

0.49

$

(1.50)

$

0.91

For the three-month periods ended June 30, 2020

and June 30,

2019,

weighted average outstanding stock-based compensation awards

in the amount of

289,635

and

174,458

, respectively, were considered antidilutive

and therefore were not considered in the

computation of potential common shares for purposes of diluted

EPS.

 
-34-

For the six-month periods ended June 30, 2020

and June 30, 2019,

weighted average outstanding stock-based compensation awards in

the amount of

297,057

and

187,093

, respectively, were considered

antidilutive and therefore were not considered in the computation

of potential common shares for purposes of diluted EPS.

NOTE 13 – Stockholders’ Equity

Share Repurchases

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

the Company did

no

t purchase any shares of its common stock under the 2019

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

2020, the Company purchased

264,470

shares of its common stock

under a stock repurchase plan approved by the Company’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 June 30, 2019,

the Company purchased

72,824

shares of its common stock in the open market

under the 2017 Repurchase Plan at an average cost of $

23.44

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

the

Company purchased

102,771

shares of its common stock under a stock repurchase plan approved

by the Company’s Board of

Directors on May 30, 2017 (the “2017 Repurchase Plan”) at an

average cost of $

23.57

per share.

At June 30, 2020, the Company had $

4.7

million of remaining authorizations under the 2019 Repurchase Plan.

In addition to the repurchases described above, participants 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 June 30, 2020 and June 30, 2019, there were

1,897

shares and

536

shares repurchased to cover income tax withholding

under the 2014 Plan at an average cost of $

6.50

per share and $

22.81

per share, respectively. During the

six-month periods ended

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

23,020

and

19,446

shares repurchased to cover income tax withholding in connection

with shares granted under the 2014 Plan at average per-share

costs of $

12.81

and $

22.74

, 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

1

leverage ratio of

4

%, minimum Tier 1 risk-based ratio

of

6

%, and a total risk-based capital ratio of

8

%.

The Basel III capital adequacy

standards established a new common equity Tier

1 risk-based capital ratio with a required

4.5

% minimum (

6.5

% to be considered

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

regulatory capital in excess of the regulatory minimum and

to have a

capital buffer above

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

 
-35-

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.

As

a result of these actions, MBB is no longer required

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

capital ratio above

15

%. Rather, MBB must continue to maintain a

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

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

Company must continue to maintain a total risk-based capital

ratio as discussed in the immediately preceding paragraph.

The

additional capital released by the termination of the CMLA Agreement

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

Title 12 part 208 of the Code of Federal Regulations

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

including restricting

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

two calendar years.

Any dividends declared above that amount and

any return of permanent capital would require prior

approval of the Federal Reserve Board of Governors.

MBB’s Tier

1 Capital balance at June 30, 2020 was$

133.6

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

and

qualified MBB for “well-capitalized” status. At June 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

25

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

and an additional

25

% over each of the next two

years, such that we will have phased in

75

% of the adjustment during year three.

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

have completely reflected the effects of CECL in its regulatory

capital.

The following table sets forth the Tier

1 leverage ratio, common equity Tier 1

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

ratio

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

and MBB at June 30, 2020.

Minimum Capital

Well-Capitalized Capital

Actual

Requirement

Requirement

Ratio

Amount

Ratio

Amount

Ratio

Amount

(Dollars in thousands)

Tier 1 Leverage Capital

Marlin Business Services Corp.

15.05%

$

190,244

4.00%

$

50,558

5.00%

$

63,197

Marlin Business Bank

11.79%

$

133,551

4.00%

$

45,322

5.00%

$

56,652

Common Equity Tier 1 Risk-Based Capital

Marlin Business Services Corp.

19.33%

$

190,244

4.50%

$

44,282

6.50%

$

63,962

Marlin Business Bank

14.91%

$

133,551

4.50%

$

40,297

6.50%

$

58,207

Tier 1 Risk-based Capital

Marlin Business Services Corp.

19.33%

$

190,244

6.00%

$

59,042

8.00%

$

78,723

Marlin Business Bank

14.91%

$

133,551

6.00%

$

53,729

8.00%

$

71,639

Total

Risk-based Capital

Marlin Business Services Corp.

20.65%

$

203,178

8.00%

$

78,723

10.00%

$

98,404

Marlin Business Bank

16.23%

$

145,364

8.00%

$

71,639

10.00%

$

89,549

 
-36-

Prompt Corrective Action

.

The Federal Deposit Insurance Corporation Improvement Act 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;

• 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

1623

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

status under the

applicable laws and regulations.

Dividends

.

The Federal Reserve Board has issued policy statements requiring

insured banks and bank holding companies to have an

established assessment process for maintaining capital commensurate

with their overall risk profile. Such assessment process may

affect the ability of the organizations to pay

dividends. Although generally organizations may pay dividends

only out of current

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

relative to the organization’s

financial position and risk profile,

after consideration of current and prospective economic conditions.

As of June 30, 2020, MBB does not have the capacity to pay

dividends to the Company without explicit approval from the

Federal Reserve Board of Governors because of the current

period losses

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

 
-37-

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

541,222

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

2020.

There was

no

stock-based compensation expense recognized for the three-month

period ended June 30, 2020. Total

stock-based

compensation expense was $

1.0

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

Total stock-based compensation

expense was

$

0.4

million and $

1.9

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

June 30, 2019, respectively. Excess

tax benefits from

stock-based payment arrangements were less than $

0.1

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

Stock Options

Option awards are generally granted with an exercise price equal

to the market price of the Company’s

stock at the date of the grant

and have

7

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

to

four years

.

There were

no

stock options granted during the three-month and six periods ended

June 30, 2020 and June 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

.

A summary of option activity for the six-month period ended

June 30, 2020 follows:

Weighted

Average

Number of

Exercise Price

Options

Shares

Per Share

Outstanding, December 31, 2019

135,159

$

26.79

Granted

—

—

Exercised

—

—

Forfeited

(3,929)

27.31

Expired

(11,270)

26.41

Outstanding, June 30, 2020

119,960

26.82

The Company recognized $

0.1

million of compensation expense related to options during the three and

six-month periods ended June

30, 2020.

The Company recognized $

0.1

million and $

0.2

million of compensation expense related to options during the three

and

six-month periods ended June 30, 2019.

There were

no

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

June 30, 2020 and June 30, 2019.

 
-38-

The following table summarizes information about the stock

options outstanding and exercisable as of June 30, 2020:

Options Outstanding

Options Exercisable

Weighted

Weighted

Aggregate

Weighted

Weighted

Aggregate

Average

Average

Intrinsic

Average

Average

Intrinsic

Range of

Number

Remaining

Exercise

Value

Number

Remaining

Exercise

Value

Exercise Prices

Outstanding

Life (Years

)

Price

(In thousands)

Exercisable

Life (Years

)

Price

(In thousands)

$

25.75

68,818

3.8

$

25.75

$

—

68,818

3.8

$

25.75

—

$

28.25

51,142

4.7

$

28.25

$

—

34,092

4.7

$

28.25

$

—

119,960

4.2

$

26.82

$

—

102,910

4.1

$

26.58

$

—

The aggregate intrinsic value in the preceding table represents

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

closing stock

price of $

8.46

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

had all option holders exercised their

options as of that date.

As of June 30, 2020, there was $

0.1

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

not yet recognized

in the Consolidated Statements of Operations scheduled to be recognized

over a weighted average period of

0.7

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

to

seven years

. All awards

issued contain service conditions based on the participant’s

continued service with the Company and may provide for accelerated

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

Plans.

The vesting of certain restricted shares may be accelerated to

a minimum of

three years

based on achievement of various individual

performance measures. Acceleration of expense for awards based

on individual performance factors occurs when the achievement of

the performance criteria is determined.

Vesting

was accelerated in 2019 on certain awards based on the achievement

of certain performance criteria determined annually,

as

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 six-month period ended June 30, 2020:

Weighted

Average

Grant-Date

Non-vested restricted stock

Shares

Fair Value

Outstanding at December 31, 2019

143,935

$

21.88

Granted

45,830

8.64

Vested

(29,774)

22.02

Forfeited

(1,600)

25.67

Outstanding at June 30, 2020

158,391

17.98

 
-39-

During the three-month periods ended June 30, 2020

and June 30,

2019, the Company granted restricted stock awards with grant-date

fair values totaling $

0.4

million and $

0.1

million, respectively. During the

six-month periods ended June 30, 2020 and June 30,

2019,

the Company granted restricted stock awards with grant-date

fair values totaling $

0.4

million and $

0.1

million, respectively.

As vesting occurs, or is deemed likely to occur,

compensation expense is recognized over the requisite 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 June 30, 2020

and June 30, 2019, respectively. The

Company recognized $

0.2

million and

$

0.5

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

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

respectively.

Of the $

0.2

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

period ended June 30, 2020,

no

expense

was related to accelerated vesting based on achievement of certain performance

criteria determined annually.

Of the $0.5 million total

compensation expense related to restricted stock for the six-month

period ended June 30, 2019, approximately $

0.1

million related to

accelerated vesting during the first quarter of 2019,

which was also based on the achievement of certain performance criteria

determined annually.

As of June 30, 2020, there was $

1.6

million of unrecognized compensation cost related to non-vested restricted

stock compensation

scheduled to be recognized over a weighted average period

of

5.0

years.

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

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

0.1

million and $

0.3

million, respectively. The

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

ended June 30, 2020 and June 30, 2019 was

$

0.3

million and $

1.1

million, respectively.

Restricted Stock Units

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

 
-40-

The following tables summarize restricted stock unit activity for

the

six-month period ended June 30, 2020:

Weighted

Average

Number of

Grant-Date

Performance-based & market-based RSUs

RSUs

Fair Value

Outstanding at December 31, 2019

257,476

$

18.00

Granted

95,758

17.55

Forfeited

(5,081)

23.99

Converted

(13,810)

25.75

Cancelled due to non-achievement of market condition

(30,390)

25.65

Outstanding at June 30, 2020

303,953

16.64

Service-based RSUs

Outstanding at December 31, 2019

99,951

$

23.59

Granted

69,422

20.43

Forfeited

(19,299)

22.25

Converted

(39,879)

24.30

Outstanding at June 30, 2020

110,195

21.58

There were

no

RSUs with vesting conditions based solely on market conditions granted

during the six-month periods ended June 30,

2020 and June 30, 2019,

respectively. The weighted average

grant-date fair value of RSUs with both performance and market-based

vesting conditions granted during the six-month periods ended

June 30, 2020 and June 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:

Six Months Ended June 30,

2020

2019

Grant date stock price

$

20.43

21.50

Risk-free interest rate

1.40

%

2.16

Expected volatility

26.18

%

26.68

Dividend yield

—

—

The risk free interest rate reflected the yield on zero coupon 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.

 
-41-

There were

no

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

2020 and June 30, 2019, respectively.

During the six-

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

the Company granted RSUs with grant-date fair values totaling $

3.1

million

and $

3.4

million, respectively.

The Company did

no

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

period

ended June 30, 2020.

The Company recognized $

0.7

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

ended June 30, 2019. The Company did

no

t recognize compensation expense related to RSUs for

the six-month period ended June 30,

2020.

The Company recognized $

1.1

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

ended June 30, 2019.

During the three-month period ended June 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.

The fair value of restricted stock units that converted to shares of common

stock during the six-month periods

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

0.6

million and $

0.8

million, respectively. As of June 30,

2020, there was $

2.1

million of

unrecognized compensation cost related to RSUs scheduled to

be recognized over a weighted average period of

1.5

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

1.7

years.

As of June 30, 2020,

64,260

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,

514,957

performance units would convert to shares of common stock.

NOTE 15 – Subsequent Events

The Company declared a dividend of $

0.14

per share on July 30, 2020. The quarterly dividend, which is expected to

result in a

dividend payment of approximately $

1.7

million, is scheduled to be paid on

August 20, 2020

to shareholders of record on the close of

business on

August 10, 2020

. It represents the Company’s thirty-sixth consecutive

quarterly cash dividend. The payment of future

dividends will be subject to approval by the Company’s

Board of Directors.

In addition, see Note 6—"Allowance for Credit Losses” for an update

on our payment deferral contract modification program

subsequent to June 30, 2020.

 
-42-

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

The following discussion and analysis of our 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.

F

ORWARD

-L

OOKING

S

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.

As

used herein, the terms “Company,”

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

Services Corp. and its

subsidiaries.

O

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.

 
-43-

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.

E

XECUTIVE

S

UMMARY

Summary

Through the second quarter, the impacts

of the COVID-19 pandemic continued to be experienced

by our business. Origination

volumes for both equipment finance and working capital loans

were down, a combined decrease of almost 70% from the

second

quarter of 2019.

While we have tightened our underwriting standards for all of our products,

the decline in volume is primarily due to

decreased demand during this period of business shutdowns and

economic uncertainty.

We expect our

origination volumes for the

second half 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, especially the

recent COVID-19 flare-

ups in the south and west, any return to pre-pandemic levels of

activity remains uncertain.

We implemented

a payment deferral contract modification program to assist

our customers who, during this period of economic

decline, were current under their existing obligations.

As of June 30, 2020, we had $133.8 million, or 13.7%, of our Net investment

in

leases and loans in payment deferral agreements,

and on average the term of the modified contracts had increased

by three months.

We have begun to extend

the deferrals for certain customers using specific underwriting

criteria,

for up to six months of total

modification.

As our contract modification program will allow for up-to six months

of payment deferrals, and the program began in late March,

the

ultimate performance of this portfolio and the customers’

ability to resume full payment will be shown generally starting

late in the

third quarter or going into the fourth quarter of this year.

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

25% of our total

modified contracts had already resumed their regular payment schedule

before the end of the second quarter,

72%

were scheduled to

resume payment in the third quarter and the remaining 3% were

scheduled to resume payment in the fourth quarter.

We are closely

monitoring the payment performance of our customers as their

post-deferral obligations become due.

While most modification

extensions require partial payments, the ability of these customers

to resume their scheduled payment obligations under their contract

has yet to be confirmed.

Additionally, their ability to resume

payment may be highly impacted by the extent and duration of the

continued impacts of the pandemic, which remains uncertain

.

Our delinquency statistics as of June 30, 2020 measure the portfolio

based on their current effective terms, which would include

intervals of either full or partial payment deferral for the modified

portfolio.

For Equipment Finance and Working

Capital, 12.5% and

42.4% of the respective portfolios were in the modification program.

The 60+ delinquency rate for Equipment Finance has increased

to 2.52% as of June 30, 2020 from 0.86% at December 31,

2019.

The 30+ delinquency rate for Working

Capital has increased to

2.68% as of June 30, 2020 from 1.42% at December 31,

2019. Further, these delinquency rates have doubled

from the quarter ended

March 31, 2020.

Year

-to-date, we have recognized $34.7 million of increases to

our allowance for qualitative and forecast adjustments as a result of the

expected impacts of the COVID-19 pandemic on our portfolio.

These increases include $15.5 million of provision recognized

in the

second quarter, and $19.2 million in the

first quarter.

Our allowance as a percent of receivables has increased for Equipment

Finance

to 6.00% from 2.05% at December 31, 2019, and increased

for Working Capital

to 18.92% from 3.12% at December 31,

2019.

Our total Allowance of $63.6 million as of June 30, 2020

incorporates all of our current judgments about the impact of the COVID

-19

pandemic on our portfolio.

Our estimate of credit losses is based on our assessment of the

risks to our portfolio, including certain

economic assumptions driven by forecasted unemployment and business

bankruptcy levels, our expectations regarding the

performance of our portfolio under these economic conditions,

and such estimates are driven by limited information regarding the

extent and timeline of impacts from COVID-19. All of the assumptions

and expectations underlying our estimate of credit loss depend

largely on future developments, and these estimates are

highly uncertain;

the ultimate amount of credit losses we may realize on our

portfolio may vary from our current estimate.

We may recognize credit

losses in excess of our reserve, or adjustments to our required

reserve based on future performance,

and such adjustments may be significant, based on: (i)

the actual performance of our portfolio,

including the performance of the modified portfolio;

(ii) any further changes in the economic environment; or (iii)

other developments

or unforeseen circumstances that impact our portfolio.

 
-44-

We recognized

a $5.9 million Net loss for the quarter,

driven largely by the $15.5 million COVID-related

provision for loan loss.

We

began efforts to tighten our expense base, putting approximately

120 employees on furlough in mid-April.

In June, we made the

decision to permanently reduce our workforce by approximately

80 employees, which reduced our headcount to approximately

250

employees at the end of July,

down from approximately 350 employees as of December 31,

2019.

Our total Salaries and benefits was

$7.7 million for the second quarter of 2020, which is $4.8

million lower than the same quarter of 2019.

That reduction reflects $1.7

million of lower salary expense, primarily driven by reduced

headcount from the furlough, partially offset by $0.9

million of

severance recognized, plus $1.9 million lower incentive compensation cost and

$2.1

million of lower commission expense.

We also

made the decision to exit one office lease as part of our

cost reduction efforts, and recognized $0.2 million of costs

associated with

that planned exit.

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.

Through the second 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-

F

INANCE

R

ECEIVABLES

AND

A

SSET

Q

UALITY

The following table summarizes certain portfolio statistics for

the periods presented:

June 30,

March 31,

December 31,

June 30,

2020

2020

2019

2019

(Dollars in thousands)

Finance receivables:

End of period

$

974,679

$

1,022,135

$

1,007,706

(1)

$

1,057,727

(1)

Average for the quarter

(1)

979,313

1,008,823

1,034,464

1,031,774

Origination Volume

- three months

(6)

65,419

157,391

215,161

209,317

Origination Volume

- six months, through June 30

(6)

222,810

—

—

402,757

Assets Sold - three months

1,127

22,929

114,483

57,640

Assets Sold - six months, through June 30

24,056

—

—

110,507

Leases and Loans Modified:

(3)

Payment deferral program

(2)

End of period

$

133,817

$

19,518

—

—

As a % of end of period receivables

(1)

13.7%

1.9%

—

—

Other Restructured leases and loans, end of period

$

1,751

$

3,095

$

2,668

$

3,122

Allowance for credit losses :

(4)

End of period

$

63,644

$

52,060

$

21,695

$

16,777

As a % of end of period receivables

(1)

6.53%

5.09%

2.15%

1.59%

Annualized net charge-offs

to average total finance receivables

(quarter)

(1)

3.47%

3.11%

3.00%

1.88%

Delinquencies, end of period:

(3)(5)

Equipment Finance and CVG:

Greater than 60 days past due, $

$

23,353

$

10,156

$

8,112

$

6,593

Greater than 60 days past due, %

2.52%

1.05%

0.86%

0.66%

Working Capital:

Greater than 30 days past due, $

$

1,130

$

673

$

855

$

240

Greater than 30 days past due, %

2.68%

1.14%

1.42%

0.47%

__________________

(1)

For purposes 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 and

six months ended June

30, 2020 presented

above excludes $4.2 million

of loans originated

under the

Paycheck Protection Program (PPP).

 
-46-

For three and six months ended June 30, 2020, we have recognized

$15.5 million and $34.7 million of provision for credit losses,

respectively, driven by 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.

As of June 30, 2020, the performance of loans modified under that program

remains uncertain.

Our reserve as of June 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 increases to our estimated expected credit loss

es, in the future, and such increases 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.

We typically processed

first requests to defer customers for up to 3 months; starting

in July, we have

been evaluating and processing requests to extend the modification

period for certain customers using specific underwriting criteria,

such that the modification terms may extend to up to 6

months in total.

The below table outlines certain data on the modified population

based on the balance and status as of June 30, 2020.

See discussion

below the table on the status of this population subsequent to

quarter-end.

Equipment

Working

Finance

Capital

Total

(Dollars in thousands)

Net investment in leases and loans

Completed modifications

$

115,941

$

17,876

$

133,817

% of total segment

12.5%

42.4%

13.7%

Interest income recognized for the three months

ended June 30, 2020 on modified loans

(1)

$

2,295

$

1,633

$

3,928

Number of modifications (units)

Modified and Active

4,564

453

5,017

Modified and Resolved

(2)

56

15

71

Not Processed

(3)

3,107

84

3,191

Total Applications - owned

portfolio

7,727

552

8,279

Weighted-average

total term (months)

before modification

56.0

15.7

after modification

59.0

18.9

_________________

(1)

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

As such these loans were

not put on non-accrual upon modification.

The amount presented for interest income reflects total income recognized for the three months,

for any loan that was modified in the quarter.

(2)

Resolved population through June 30, 2020 includes:

for Equipment Finance, 55 loans paid in full and 1 charge-off, and for Working

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

 
-47-

(3)

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

an insignificant

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

Through June 30, 2020, the first round of modifications processed

for Equipment Finance generally consisted of adding three

months

of $0 payments, or fully deferred payments.

As a result, the weighted-average total contract yield for this population declined

by 35

basis points.

The extension requests we are currently processing for

Equipment Finance, to extend the term of the deferral to

up to 6

months total, are generally being processed to require a partial

payment during the deferral period, with additions to the customers

’

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

Through June 30, 2020, the modifications processed for Working

Capital have generally consisted of up to 6 months of partial-

payment deferral, with additions to the customers post-deferral

payments to achieve a consistent level of yield.

Through July 24, 2020, we processed modifications for an additional

$5.9 million of Equipment Finance net investment and additions

to the modified population for Working

Capital were not significant.

Portfolio Trends

During the three months ended June 30, 2020,

we generated 3,178 new Equipment Finance leases and loans with equipment

costs of

$64.6 million, compared to 7,648 new Equipment Finance leases and

loans with equipment costs of $181.8 million generated

for the

three months ended June 30, 2019.

Working Capital loan

originations were less than $1.0 million during the three-month

period ended

June 30, 2020,

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

2019.

Overall, our average net investment in total finance receivables

for the three-month period ended June 30, 2020 decreased

5.1% to

$979.3 million, compared to $1,031.8 million for the three-month period

ended June 30, 2019.

Our origination volumes in the three

months ended June 30, 2020 were lower than our historical norms,

primarily driven by decreased demand attributable to

COVID-19

related business shutdowns and other macroeconomic factors.

We expect our

origination volumes for the third quarter of 2020 will

continue to be 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, especially the

recent COVID-19 flare-ups

in the south and west, any returns to pre-pandemic levels of activity

remains uncertain.

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

portfolio as of June 30, 2020, including information on the

population of restructured contracts, and contracts with restructure

requests:

Net Investment (in thousands)

Delinquency Rate by population

30

60

90+

Current

Total

30

60

90+

Current

Total

Equipment Finance

Non-Restructured Portfolio:

Modification not requested

$8,150

$7,625

$6,745

$744,616

$767,136

1.06%

0.99%

0.88%

97.07%

100%

Requested, Not Processed

(1)

4,289

5,793

3,061

31,287

44,430

9.65%

13.04%

6.89%

70.42%

100%

Total Non-Restructured

12,439

13,418

9,806

775,903

811,566

1.53%

1.65%

1.21%

95.61%

100%

Restructured Portfolio

424

109

21

115,387

115,941

0.37%

0.09%

0.02%

99.52%

100%

Total

Equipment Finance

$12,864

$13,527

$9,826

$891,290

$927,507

1.39%

1.46%

1.06%

96.09%

100%

 
-48-

Net Investment (in thousands)

Delinquency Rate by population

15

30

60+

Current

Total

15

30

60+

Current

Total

Working Capital

Non-Restructured Portfolio:

Modification not requested

$98

$212

$368

$22,243

$22,921

0.43%

0.92%

1.60%

97.05%

100%

Requested, Not Processed

(1)

7

13

81

1,180

1,281

0.58%

1.05%

6.35%

92.02%

100%

Total Non-Restructured

105

225

449

23,423

24,202

0.44%

0.93%

1.85%

96.78%

100%

Restructured Portfolio

608

242

212

16,814

17,876

3.40%

1.35%

1.18%

94.07%

100%

Total

Working Capital

$713

$467

$661

$40,237

$42,078

1.69%

1.11%

1.57%

95.63%

100%

_________________

(1)

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

processed.

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

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

Contracts that are part of the payment deferral modification program

will be reflected in our Delinquency and Non-Accrual measures

based on their performance against their modified terms.

Equipment Finance receivables over 30 days delinquent were

390 basis points as of June 30, 2020, up 208 basis points from March

31, 2020, and up 284 basis points from June 30, 2019.

Working Capital receivables

over 15 days delinquent were 438 basis points as

of June 30, 2020, up 183 basis points from March 31, 2020

and up 386 basis points from June 30, 2019.

Equipment Finance leases and loans are generally charged

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

more.

Working

Capital loans are generally charged-off at 60

days past due. Annualized second quarter total net charge

-offs were 3.47% of average

total finance receivables versus 3.11%

in the first quarter of 2020 and 1.88% a year ago.

Through the end of the second quarter,

we have not yet begun to experience any material increase in charge

-offs driven by the impact

of COVID-19.

We are

continuing to evaluate the delinquency trends of the non-modified portfolio,

and we are monitoring the

payment performance of the modified portfolio as those customers

begin to resume payment. Based on their modified terms as

of June

30, 2020, 25% of our total modified contracts had already resumed

their regular payment schedule before the end of the second

quarter, 72% were scheduled to resume payment

in the third quarter and the remaining 3% were scheduled to resume

payment in the

fourth quarter.

We are

closely monitoring the payment performance of our customers as their

payments post-deferral become due.

While most modification extensions require partial payments, the ability

of these customers to resume their scheduled obligation of

their contract has yet to be confirmed.

Additionally, their ability to resume

payment may be highly impacted by the extent and

duration of the continued impacts of the pandemic, which remains

uncertain.

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 June 30, 2020,

we recognized total Interest income of $3.93 million on loans in our

COVID-19 loan modification program.

 
-49-

The following table summarizes non-accrual leases and loans

in the Company’s portfolio:

June 30,

March 31,

December 31

June 30,

2020

2020

2019

2019

(Dollars in thousands)

Equipment finance

$

9,205

$

5,357

$

4,256

$

3,494

Working capital

1,189

755

946

284

CVG

637

593

389

199

CRA and PPP

—

—

—

—

Total non-accrual leases

and loans

$

11,031

$

6,705

$

5,591

$

3,977

Through June 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 June 30, 2020

by state

and industry:

Top 10 Industries, by Borrower

SIC Code

Top 10 States

Equipment

Equipment

Finance

Working

Finance

Working

and CVG

Capital

and CVG

Capital

Medical

13.0

%

8.4

%

CA

13.8

%

11.1

%

Misc. Services

12.4

8.2

TX

11.7

10.5

Retail

10.4

13.1

FL

9.7

8.6

Construction

8.7

13.1

NY

6.8

5.7

Restaurants

7.5

8.2

NJ

4.6

6.7

Professional Services

6.6

5.4

PA

3.6

5.4

Manufacturing

5.9

9.2

GA

3.4

4.6

Transportation

5.3

3.0

IL

3.3

4.0

Trucking

4.5

2.3

NC

3.1

2.6

Automotive

3.4

6.4

MA

3.0

2.1

All Other

22.3

22.7

All Other

37.0

38.7

Total

100

%

100

%

Total

100

%

100

%

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

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

portfolio remains uncertain.

 
-50-

Allowance for credit losses.

The following table provides a rollforward of our Allowance for

credit loss:

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

(Dollars in thousands)

Allowance for credit losses, December 31, 2019

$

21,695

Adoption of ASU 2016-13 (CECL)

11,908

Allowance for credit losses, beginning of period

$

52,060

$

16,882

33,603

$

16,100

Provision for credit losses

18,806

4,756

43,956

10,119

Net Charge-offs:

Equipment Finance

(6,995)

(4,026)

(12,960)

(7,626)

Working Capital

(669)

(551)

(1,910)

(1,204)

CVG

(830)

(284)

(1,470)

(612)

Net Charge-offs

(8,494)

(4,861)

(16,340)

(9,442)

Realized cashflows from Residual Income

1,272

—

2,425

—

Allowance for credit losses, end of period

$

63,644

$

16,777

$

63,644

$

16,777

The allowance for

credit losses as a

percentage of total finance

receivables increased to

6.53% as of June

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 Janu

ary 1,

2020

adoption of CECL, and

a $34.7 million Provision

for credit losses recognized

as a result of

qualitative and forecast adjustments

in the

six months ended June 30,

2020 as a result of the estimated impact to the portfolio from the

COVID-19 pandemic.

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

June 30,

2020, the $18.8 million provision

for credit losses recognized was

$14.0 million greater than

the $4.8

million provision recognized

for the three

months ended

June 30,

2019.

For the

six months ended

June 30,

2020, the

$44.0 million provision for

credit losses recognized was

$33.9 million greater than

the $10.1 million provision

recognized for the

three months ended

June 30, 2019.

The provision included

COVID-related forecast and

qualitative adjustments of

$15.5 million

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

the six months ended June 30, 2020.

Our estimate

of COVID

-related losses

for the

Equipment Finance

portfolio 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 unemployme

nt rate

and changes

in the

number of

business bankruptcies.

Our COVID-

provision for

Equipment Finance

was $10.8

million for the

first quarter

of 2020,

and $10.1

million for the

second quarter,

and

those provision levels

were calculated using

a 6-month period

for the economic

statistics.

In the second

quarter, the

increase in

provision estimate was driven

by the forecasted economic

conditions getting worse than

what was expected at

the end of the first

quarter.

In addition, as of June 30,

we further increased our reserve for

a $3.4 million qualitative adjustment

based on an analysis

that incorporates the current forecasted peak levels of unemployment

and business bankruptcy.

 
-51-

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.

The COVID-related provision for CVG was $2.8

million for the first quarter of 2020, and

$0.4 million for the second quarter.

The

COVID-related provision

for Working

Capital was

$5.5 million

for the

first quarter

of 2020,

and $1.5

million for

the second

quarter.

The qualitative and economic

adjustments to our allowance

take into consideration information

and our judgments

as of June 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.

We may recognize

credit losses

in excess of

our reserve,

or increases

to our

credit loss estimate,

in the future,

and such increases

may be significant,

based on

future developments.

Net Charge-offs.

Equipment Finance

and TFG

receivables are

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.

Total portfolio

net charge

-offs for

the three

months ended

June 30

,

2020 were

$8.5 million

(3.47%

of average

total finance

receivables on an

annualized basis), compared

to $7.7 million

(3.00%) for the

three months ended

December 31, 2019

,

and $4.9

million (1.8

8%) for

the three

months ended

June 30

,

2019.

Compared to

the same

quarter of

the prior

year, the

Company is

experiencing elevated

net charge

-offs, due

primarily to

economic headwinds

that already

existed as of

December 31,

2019 that

were disproportionally impacting the small business and lower

credit quality borrowers in

our portfolio.

Through the end of the second quarter,

our charge-offs are only slightly elevated compared

to the levels in December.

We believe

we have not yet begun to experience the full impact of expected

levels of elevated charge-offs as a result of the

COVID-19

pandemic.

However, we are seeing portfolio trends

that indicate that we will begin to realize those elevated

levels in the third

quarter of 2020.

As of June 30, 2020, our portfolio delinquency rates have doubled

from the quarter ended March 31, 2020, or a

$13.1 million increase in Equipment Finance leases and loans 60+

days past due, and $0.5 million increase in Working

capital

loans 30+ past due.

Further, a large amount of our

portfolio is under deferred payment through our modification program,

as

discussed above.

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 Statement

s

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.

 
-52-

The impact

of adopting

CECL effective

January 1,

2020 included

a $11.9

million incr

ease 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

of

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-

R

ESULTS

OF

O

PERATIONS

Comparison of the Three-Month Periods Ended June 30,

2020 and June 30, 2019

Net income.

Net loss of $5.9 million was reported for the three-month period

ended June 30, 2020,

resulting in diluted loss per share of $0.50,

compared to net income of $6.1 million and diluted EPS of $0.49

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

This $12.0 million

decrease in Net income was primarily driven by:

-

($14.1 million) increase in Provision for credit losses, primarily 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”;

-

$3.9 million decrease in Interest and fee income, driven primarily by

a decline in the size of our finance receivable portfolio;

-

$3.3 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;

-

$4.8 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 June 30, 2020 and June 30, 2019

.

 
-54-

Three Months Ended June 30,

2020

2019

(Dollars in thousands)

Average

Average

Average

Yields/

Average

Yields/

Balance

(1)

Interest

Rates

(2)

Balance

(1)

Interest

Rates

(2)

Interest-earning assets:

Interest-earning deposits with banks

$

218,748

$

31

0.06

%

$

129,210

$

752

2.33

%

Time Deposits

12,248

60

1.97

11,715

72

2.46

Restricted interest-earning deposits with banks

7,046

-

0.01

14,671

28

0.77

Securities available for sale

10,481

52

1.98

10,674

74

2.76

Net investment in leases

(3)

885,482

19,236

8.69

942,517

21,556

9.15

Loans receivable

(3)

93,832

4,868

20.75

89,257

4,600

20.61

Total

interest-earning assets

1,227,837

24,247

7.90

1,198,044

27,082

9.04

Non-interest-earning assets:

Cash and due from banks

5,655

5,319

Allowance for loan and lease losses

(50,963)

(16,915)

Intangible assets

7,192

8,070

Goodwill

-

6,735

Operating lease right-of-use assets

8,530

6,935

Property and equipment, net

8,488

3,996

Property tax receivables

9,975

8,479

Other assets

(4)

34,303

37,957

Total

non-interest-earning assets

23,180

60,576

Total

assets

$

1,251,017

$

1,258,620

Interest-bearing liabilities:

Certificate of Deposits

(5)

$

891,141

$

4,741

2.13

%

842,274

$

5,042

2.39

%

Money Market Deposits

(5)

52,765

73

0.56

23,715

158

2.66

Long-term borrowings

(5)

56,957

613

4.30

120,407

1,208

4.01

Total

interest-bearing liabilities

1,000,863

5,427

2.17

986,396

6,408

2.59

Non-interest-bearing liabilities:

Sales and property taxes payable

7,075

8,213

Operating lease liabilities

9,403

9,094

Accounts payable and accrued expenses

17,587

27,315

Net deferred income tax liability

26,576

24,601

Total

non-interest-bearing liabilities

60,641

69,223

Total

liabilities

1,061,504

1,055,619

Stockholders’ equity

189,513

203,001

Total

liabilities and stockholders’ equity

$

1,251,017

$

1,258,620

Net interest income

$

18,820

$

20,674

Interest rate spread

(6)

5.73

%

6.45

%

Net interest margin

(7)

6.13

%

6.90

%

Ratio of average interest-earning assets to

average interest-bearing liabilities

122.68

%

121.46

%

__________________

(1)

Average balances were calculated using average daily balances.

 
-55-

(2)

Annualized.

(3)

Average balances 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 June 30, 2020 Compared To

Three Months Ended June 30, 2019

Increase (Decrease) Due To:

Volume

(1)

Rate

(1)

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

$

310

$

(1,031)

$

(721)

Time Deposits

3

(15)

(12)

Restricted interest-earning deposits with banks

(10)

(18)

(28)

Securities available for sale

(1)

(21)

(22)

Net investment in leases

(1,269)

(1,051)

(2,320)

Loans receivable

237

31

268

Total

interest income

659

(3,494)

(2,835)

Interest expense:

Certificate of Deposits

281

(582)

(301)

Money Market Deposits

100

(185)

(85)

Long-term borrowings

(677)

82

(595)

Total

interest expense

93

(1,074)

(981)

Net interest income

504

(2,357)

(1,853)

__________________

(1)

Changes due to volume and rate are calculated independently for each line item presented rather than presenting vertical subtotals for the

individual volume and rate columns.

Changes attributable to changes in volume represent changes in average balances multiplied by the

prior period’s average rates. Changes attributable to changes in rate represent changes in average rates multiplied by the prior year’s

average balances. Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to

volume and the change due to rate.

 
-56-

Net interest and fee margin.

The following table summarizes the Company’s

net interest and fee income as an annualized percentage

of average total finance receivables for the three-month periods

ended June 30, 2020 and June 30, 2019.

Three Months Ended June 30,

2020

2019

(Dollars in thousands)

Interest income

$

24,248

$

27,082

Fee income

2,450

3,507

Interest and fee income

26,698

30,589

Interest expense

5,428

6,408

Net interest and fee income

$

21,270

$

24,181

Average total finance receivables

(1)

$

979,313

$

1,031,774

Annualized percent of average total finance

receivables:

Interest income

9.90

%

10.50

%

Fee income

1.00

1.36

Interest and fee income

10.90

11.86

Interest expense

2.22

2.48

Net interest and fee margin

8.68

%

9.38

%

__________________

(1)

Total finance receivables include net investment in leases and loans.

For the calculations above, the effects of (i) the allowance for credit losses

and (ii) initial direct costs and fees deferred are excluded.

Net interest and fee income decreased $2.9 million, or 12.0%,

to $21.3 million for the three months ended June 30, 2020

from $24.2

million for the three months ended June 30, 2019.

The annualized net interest and fee margin decreased 70

basis points to 8.68% in the

three-month period ended June 30, 2020 from 9.38% for the corresponding

period in 2019.

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

was $24.2 million and $27.1 million for the three-month periods

ended

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

Average total

finance receivables decreased $52.5 million, or 5.1%,

to $979.3 million

at June 30, 2020 from $1,031.8 million at June 30, 2019

.

The decrease in average total finance receivables was primarily

due to lower

origination volume along with the customary loan repayments

and charge-offs. The average yield on the portfolio

decreased 60 basis

points to 9.90% from 10.50% in the prior year quarter.

The weighted average implicit interest rate on new finance receivables

originated decreased 378 basis points to 9.17% for

the three-month period ended June 30, 2020 compared to 12.95%

for the three-

month period ended June 30, 2019.

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

as higher-yield Working

Capital originations comprised 1% of our originations for the six months

ended June 30, 2020, compared to 13% in 2019.

The

reduction in Working Capital

volume is driven by our tightening of underwriting standards

in the second 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 $2.5 million and $3.5 million for the three-month periods

ended June 30, 2020 and June 30, 2019,

respectively. Fee

income included approximately $0.9 million of net residual

income for the three-month period ended June 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 $1.8 million and $2.0

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

June 30,

2020 and June 30, 2019,

respectively. Late fees remained

the largest component of fee income at 0.69% as an annualized

percentage

of average total finance receivables for the three-month period

ended June 30, 2020,

compared to 0.78% for the three-month period

ended June 30, 2019.

 
-57-

Interest expense decreased $1.0 million to $5.4 million for the

three-month period ended June 30, 2020 from $6.4 million for

the

corresponding period in 2019, primarily due to a decrease

in interest expense of $0.6 million on lower outstanding long

-term

borrowings offset by an increase of $0.3 million on higher

deposit balances. Interest expense, as an annualized percentage

of average

total finance receivables, decreased 26 basis points to 2.22%

for the three-month period ended June 30, 2020,

from 2.48% for the

corresponding period in 2019.

The average balance of deposits was $943.9 million and $866.0

million for the three-month periods

ended June 30, 2020 and June 30, 2019,

respectively.

For the three-month period ended June 30, 2020,

average term securitization borrowings outstanding were $57.0

million at a weighted

average coupon of 4.30%.

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

borrowings outstanding were

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

Our wholly-owned subsidiary,

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

-rate and variable-rate FDIC-insured

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

basis, and through the brokered MMDA Product. At June 30,

2020,

brokered certificates of deposit represented approximately 52%

of total deposits, while approximately 43% of total deposits were

obtained from direct channels, and 6% were in the 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 June 30,

2020,

compared to $3.3 million for the three-month period ended June 30,

2019.

Assets sold decreased to $1.1 million for the three

months ended June 30, 2020, compared to $57.6 million for the three

months ended June 30, 2019.

Our sales execution decisions, including the timing, volu

me 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 remained flat at $2.2 million for the three

-month periods ended

June 30, 2020 and June 30, 2019.

Other income.

Other income was $1.5 million and $1.7 million for the three-month periods

ended June 30, 2020 and June 30, 2019,

respectively. The decrease

in other income was primarily driven by a $0.2 million decrease

in servicing income.

Salaries and benefits expense.

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

Three Months Ended June 30,

2020

2019

(Dollars in thousands)

Salary, benefits and payroll

taxes

$

6,868

$

7,640

Incentive compensation

806

2,783

Commissions

(6)

2,046

Total

$

7,668

$

12,469

Salaries and benefits expense decreased $4.8 million, or

38.4%, to $7.7 million for the three-month period ended

June 30, 2020 from

$12.5 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, we made the decision to permanently reduce our

workforce

by approximately 80 employees, which reduced our headcount to

approximately 250 employees at the end of July,

down from

approximately 350 employees as of December 31, 2019.

As such, our salary expense is $1.7 million lower than the three months

ended June 30, 2019,

primarily driven by reduced headcount from the furlough, partially offset

by $0.9 million of severance

recognized.

Incentive compensation decreased $2.0 million, driven by lower

recognized bonus and share-based compensation amounts

driven by

the Company’s operating results,

including reversing $0.7 million of expense associated with performance

-based RSU awards that are

 
-58-

now assessed as not probable of achievement.

The decrease in Commissions for the three months ended June

30, 2020 reflects a

lower amount of commission earned driven by 69% lower origination

volumes, which was fully offset by an annual commission

true-

up adjustment in 2020.

General and administrative expense.

The following table summarizes General and administrative expense:

Three Months Ended June 30,

2020

2019

(Dollars in thousands)

Occupancy and depreciation

$

1,415

$

1,223

Professional fees

865

931

Information technology

995

901

Marketing

206

498

Other G&A

2,366

2,515

Total

$

5,847

$

6,068

General and administrative expense decreased $0.3

million, or 4.9%, to $5.8 million for the three months ended June 30, 2020

from

$6.1 million for the corresponding period in 2019

.

General and administrative expense as an annualized percentage of average

total finance receivables

was 2.39% for the three-month

period ended June 30, 2020,

compared to 2.35% for the three-month period ended June 30, 2019

.

balance.

Provision for income taxes.

Income tax benefit of $1.4 million was recorded for the three-month period

ended June 30, 2020,

compared to expense of $2.0 million for the three-month period

ended June 30, 2019.

Our effective tax rate was 18.9% for the three-

month period ended June 30, 2020,

driven by a limitation on the recognition of tax benefits when measuring

the provision on a loss

position in an interim period under ASC 740.

 
-59-

Comparison of the Six-Month Periods Ended June 30, 2020

and June 30, 2019

Net income.

Net loss of $17.7 million was reported for the six-month period

ended June 30, 2020,

resulting in diluted loss per share of $1.50,

compared to net income of $11.3 million and diluted

EPS of $0.91 for the six-month period ended June 30,

2019. This $29.0 million

decrease in Net income was primarily driven by:

-

($33.8 million) increase in Provision for credit losses, primarily 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;

-

$4.6 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;

-

$6.7 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 six-

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

.

 
-60-

Six Months Ended June 30,

2020

2019

(Dollars in thousands)

Average

Average

Average

Yields/

Average

Yields/

Balance

(1)

Interest

Rates

(2)

Balance

(1)

Interest

Rates

(2)

Interest-earning assets:

Interest-earning deposits with banks

$

159,665

$

358

0.45

%

$

126,084

$

1,525

2.42

%

Time Deposits

12,878

124

1.92

11,090

133

2.41

Restricted interest-earning deposits with banks

7,540

9

0.24

15,146

58

0.77

Securities available for sale

10,629

110

2.06

10,697

142

2.66

Net investment in leases

(3)

895,015

39,505

8.83

930,586

42,491

9.13

Loans receivable

(3)

99,053

10,607

21.42

85,017

8,616

20.27

Total

interest-earning assets

1,184,780

50,713

8.56

1,178,620

52,965

8.99

Non-interest-earning assets:

Cash and due from banks

5,563

5,459

Allowance for loan and lease losses

(40,144)

(16,764)

Intangible assets

7,292

7,961

Goodwill

3,332

7,038

Operating lease right-of-use assets

8,653

5,419

Property and equipment, net

8,291

4,139

Property tax receivables

9,430

7,546

Other assets

(4)

32,719

34,157

Total

non-interest-earning assets

35,136

54,955

Total

assets

$

1,219,916

$

1,233,575

Interest-bearing liabilities:

Certificate of Deposits

(5)

$

852,659

$

9,597

2.25

%

$

814,466

$

9,489

2.33

%

Money Market Deposits

(5)

38,544

158

0.82

23,430

299

2.56

Long-term borrowings

(5)

63,354

1,352

4.27

130,454

2,582

3.96

Total

interest-bearing liabilities

954,557

11,107

2.33

968,350

12,370

2.56

Non-interest-bearing liabilities:

Sales and property taxes payable

6,482

6,796

Operating lease liabilities

9,524

7,492

Accounts payable and accrued expenses

22,657

27,251

Net deferred income tax liability

28,022

23,773

Total

non-interest-bearing liabilities

66,685

65,312

Total

liabilities

1,021,242

1,033,662

Stockholders’ equity

198,674

199,913

Total

liabilities and stockholders’ equity

$

1,219,916

$

1,233,575

Net interest income

$

39,606

$

40,595

Interest rate spread

(6)

6.23

%

6.43

%

Net interest margin

(7)

6.69

%

6.89

%

Ratio of average interest-earning assets to

average interest-bearing liabilities

124.12

%

121.71

%

 
-61-

_________________

(1)

Average balances were calculated using average daily balances.

(2)

Annualized.

(3)

Average balances of leases and loans include non-accrual leases and loans, and are presented net of unearned income. The average balances of leases and

loans do not include the effects of (i) the allowance for credit losses and (ii) initial direct costs and fees deferred.

(4)

Includes operating leases.

(5)

Includes effect of transaction costs. 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.

Six Months Ended June 30, 2020 Compared To

Six Months Ended June 30, 2019

Increase (Decrease) Due To:

Volume

(1)

Rate

(1)

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

$

325

$

(1,492)

$

(1,167)

Time Deposits

20

(29)

(9)

Restricted interest-earning deposits with banks

(21)

(28)

(49)

Securities available for sale

(1)

(31)

(32)

Net investment in leases

(1,595)

(1,391)

(2,986)

Loans receivable

1,482

509

1,991

Total

interest income

276

(2,528)

(2,252)

Interest expense:

Certificate of Deposits

436

(328)

108

Money Market Deposits

129

(270)

(141)

Long-term borrowings

(1,418)

188

(1,230)

Total

interest expense

(174)

(1,089)

(1,263)

Net interest income

211

(1,200)

(989)

__________________

(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 six-month periods ended

June 30, 2020 and 2019.

Six Months Ended June 30,

2020

2019

(Dollars in thousands)

Interest income

$

50,713

$

52,965

Fee income

5,216

7,549

Interest and fee income

55,929

60,514

Interest expense

11,108

12,370

Net interest and fee income

$

44,821

$

48,144

Average total finance receivables

(1)

$

994,068

$

1,015,603

Percent of average total finance receivables:

Interest income

10.20

%

10.43

%

Fee income

1.05

1.49

Interest and fee income

11.25

11.92

Interest expense

2.23

2.44

Net interest and fee margin

9.02

%

9.48

%

__________________

(1)

Total finance 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 $3.3 million, or 6.9%

,

to $44.8 million for the six-month period ended June 30,

2020 from

$48.1 million for the six-month period ended June 30,

2019. The annualized net interest and fee margin decreased

46 basis points to

9.02% in the six-month period ended June 30, 2020

from 9.48% for the corresponding period in 2019.

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

decreased $2.3 million, or 4.3%, to $50.7 million for the six-month

period ended June 30, 2020 from $53.0 million for the six-month period

ended June 30, 2019.

The decrease in interest income was

principally due to a

decrease in average yield of 23 basis points and by a 2.1%

decrease in average total finance receivables, which

decreased $21.5 million to $994.1 million for the six-months ended

June 30, 2020 from $1,015.6 million for the six-months ended

June 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 140 basis points to 11.46%

for the six-month period ended June 30, 2020,

compared to 12.86% for the six-month period

ended June 30, 2019.

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

as higher-yield Working

Capital

originations comprised 11% of our originations

for the six months ended June 30, 2020, compared to 13%

in 2019.

As our origination

volumes have been negatively impacted by the COVID

-19 pandemic, our portfolio of finance receivables and related 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 $5.2 million and $7.5 for the six-month periods

ended June 30, 2020 and June 30, 2019,

respectively. Fee income

included approximately $1.9 million of residual income for the

six-month period ended June 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 $3.9 million in late fee income

for the six-month period ended June 30, 2020,

which

decreased 9.3% from $4.3 million for the six-month period ended

June 30, 2019.

Late fees remained the largest component of fee

income at 0.77% as an annualized percentage of average total finance receivables

for the six-month period ended June 30, 2020,

compared to 0.86% for the six-month period ended June 30,

2019.

Interest expense decreased $1.3 million to $11.1

million for the six-month period ended June 30, 2020 from $12.4

for the

corresponding period in 2019.

The decrease of $1.3 million was primarily due to a $1.0

million decrease in term securitization interest,

and a $0.2 million decrease in transaction costs. Interest expense,

as an annualized percentage of average total finance receivables,

decreased 21 basis points to 2.23% for the six-month period

ended June 30, 2020,

from 2.44% for the corresponding period in 2019.

The average balance of deposits was $891.2 million and $837.9

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

2019,

respectively.

For the six-month period ended June 30, 2020,

average term securitization borrowings outstanding were $63.4

million at a weighted

average coupon of 4.27%.

For the six-month period ended June 30, 2019,

average term securitization borrowings outstanding were

$130.5 million at a weighted average coupon of 3.96%

Our wholly-owned subsidiary,

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

-rate and variable-rate FDIC-insured

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

basis, and through the brokered MMDA Product. At

June 30, 2020,

brokered certificates of deposit represented approximately 52%

of total deposits, while approximately 43% of total deposits were

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

MMDA Product.

Gain on Sale of Leases and Loans.

Gain on sale of leases and loans was 2.3 million for the six-month period

ended June 30, 2020,

compared to 6.9 million for the six-month period ended

June 30, 2019 due to a decline in assets sold to $24.1 million for the six-

month period ended June 30, 2020 from $110.5

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

Our sales execution decisions, including the timing, volume and

frequency of such sales, depend on many factors including our

origination volumes, the characteristics of our contracts 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 flat at $4.5

million for the six-

month period ended June 30, 2020,

from $4.3 million for the six-month period ended June 30,

2019.

Other income.

Other income remained consistent at $9.1 million and $8.9 million for

the six-month periods ended June 30, 2020 and

June 30, 2019,

respectively.

Salaries and benefits expense.

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

Six Months Ended June 30,

2020

2019

(Dollars in thousands)

Salary, benefits and payroll

taxes

$

14,423

$

14,992

Incentive compensation

1,711

5,221

Commissions

1,053

3,707

Total

$

17,187

$

23,920

Salaries and benefits expense in total decreased $6.7 million for

the six months ended June 30, 2020, compared to 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, we made the decision to permanently reduce our workforce

by approximately 80 employees, which

reduced our headcount to approximately 250 employees at the

end of July, down from approximately

350 employees as of December

 
-64-

31, 2019.

As such, our salary expense was $1.4 million lower for the six-months

ended June 30, 2020 than for the six months ended

June 30, 2019,

primarily driven by reduced headcount from the furlough, partially offset

by $0.9 million of severance recognized.

Incentive compensation decreased $3.5 million, driven by lower

recognized bonus and share-based compensation amounts

primarily

driven by 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 $2.7 million primarily driven by a 45%

decrease in origination volume.

General and administrative expense.

The following table summarizes General and administrative expense:

Six Months Ended June 30,

2020

2019

(Dollars in thousands)

Property taxes

$

6,026

$

6,256

Occupancy and depreciation

2,735

2,455

Professional fees

2,084

2,231

Information technology

1,981

1,960

Marketing

708

1,095

FDIC Insurance

639

130

Other G&A

5,279

5,295

Total

$

19,452

$

19,422

General and administrative expense of $19.4 million for the six months

ended June 30, 2020 was relatively consistent with the total

from the corresponding period in 2019.

General and administrative expense as an annualized percentage of average

total finance

receivables was 3.56% for the six-month period ended

June 30, 2020,

compared to 3.82% for the six-month period ended June 30,

2019.

Goodwill impairment.

In the first quarter of 2020, driven by negative current events 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 six months ended June 30, 2020.

Provision for income taxes.

Income tax benefit of 8.8 million was recorded for the six-month period

ended June 30, 2020,

compared

to expense of $3.6 million for the six-month period ended

June 30, 2019.

Our effective tax rate from measuring our benefit for

the six months ended June 30, 2020 was 33.2%,

driven by a $3.2 million discrete

benefit from certain provisions in the CARES Act that 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-

L

IQUIDITY AND

C

APITAL

R

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 issuance

of FDIC-insured deposits and we increased our borrowing

capacity at the Federal Reserve Discount Window.

We are

dependent upon the availability of financing from a variety of funding

sources to satisfy these liquidity needs. Historically,

we

have relied upon 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 April 30, 2020.

The quarterly dividend was paid on May 21, 2020 to shareholders

of

record on the close of business on May 11,

2020,

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

represented

the Company’s thirty-fifth consecutive

quarterly cash dividend.

At June 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 $211.7 million. This amount excludes ad

ditional liquidity that

may be provided by the issuance of insured deposits through

MBB.

Our debt to equity ratio was 5.27 to 1 at June 30,

2020 and 4.26 to 1 at December 31, 2019.

Net cash provided by investing activities was $32.6 million for

the six-month period ended June 30, 2020,

compared to net cash used

in investing activities of $76.0 million for the six-month period

ended June 30, 2019.

The increase in cash outflows from investing

activities is primarily due to a decrease of $180.4 million for

purchases of equipment for lease contracts partially offset by

a reduction

of $66.1 million in proceeds from sales of leases originated for

investment. The decrease in purchases of equipment was driven

by

lower origination volumes for the six months ended June 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 provided by financing activities was $29.7 million for

the six-month period ended June 30, 2020,

compared to net cash

provided by financing activities of $85.7 million for the six-month period

ended June 30, 2019.

The decrease in cash flows from

financing activities is primarily due to a decrease of $69.8

million in deposits offset by a decrease of $15.4

million of term

securitization repayments.

Financing activities also include transactions related to

the Company’s payment of divi

dends.

Net cash provided by operating activities was $25.4 million for

the six-month period ended June 30, 2020,

compared to net cash

provided by operating activities of $27.0 million for the six-month period

ended June 30, 2019.

Transactions affecting net

cash

provided by operating activities including goodwill impairment,

provision

for credit losses, changes in 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 June 30, 2020 totaled $211.7

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 June 30, 2020 and December 31, 2019 totaled

$9.9 million and $12.9

million, respectively.

Restricted Interest-Earning Deposits with Banks

. As of June 30, 2020 and December 31, 2019

,

we had $6.1 million and $6.9 million,

respectively, of cash that 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 $51.2

million at June 30, 2020 and $76.6 million at December 31, 2019

.

Information

pertaining to our borrowing facilities is as follows:

For the Six Months Ended June 30, 2020

As of June 30, 2020

Maximum

Maximum

Month End

Average

Weighted

Weighted

Facility

Amount

Amount

Average

Amount

Average

Unused

Amount

Outstanding

Outstanding

Rate

(3)

Outstanding

Rate

(2)

Capacity

(1)

(Dollars in thousands)

Federal funds purchased

$

25,000

$

—

$

—

—

%

$

—

—

%

$

25,000

Term note securitizations

(4)

—

71,721

69,751

4.24

%

51,161

3.68

%

—

Revolving line of credit

(5)

5,000

—

—

—

%

—

—

%

5,000

$

30,000

$

71,721

$

69,751

4.24

%

$

51,161

3.68

%

$

30,000

__________________

(1) Does not include MBB’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 June 30, 2020, MBB had $50.2 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 $50.2 million in unused, secured

borrowing capacity at the Federal Reserve Discount Window

,

based on

$56.3 million of net investment in leases pledged at June 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

y

(“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 June 30, 2020 and December 31, 2019 outstanding term securitizations

amounted to $50.9 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 all of our

subsidiaries may be subject to examination by the

Federal Reserve Board and the Federal Reserve Bank of Philadelphia

even if not otherwise regulated by the Federal Reserve Board.

MBB is also subject to comprehensive federal and state regulations

dealing with a wide variety of subjects, including minimum capital

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

in transactions with its affiliates, restrictions as

to dividend

payments and numerous other aspects of its operations.

These regulations generally have been adopted

to protect depositors and

creditors rather than shareholders.

At June 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 June 30, 2020

.

Information on Stock Repurchases

Information on Stock Repurchases is provided in “Part II.

Other Information, Item 2, Unregistered Sales of Equity Securities and Use

of Proceeds” herein.

Items Subsequent to June 30, 2020

The Company declared a dividend of 0.14 per share on July

30, 2020. The quarterly dividend, which is expected to

result in a dividend

payment of approximately 1.7 million, is scheduled to be paid

on August 20, 2020 to shareholders of record on the close of business

on August 10, 2020.

It represents the Company’s thirty-sixth

consecutive quarterly cash dividend. The payment of future dividends

will be subject to 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.

C

RITICAL

A

CCOUNTING

P

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 credi

t

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

to

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

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

our

forecast and approach to reverting to historical loss data.

For our Equipment Finance segment, we determine our reasonable

and supportable forecast based on certain economic variables

that

were selected based on a statistical analysis of our own historical

loss experience, going back to 2004. We

selected unemployment rate

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

based on an analysis of the correlation of changes in

those variables to our loss experience over time.

As part

of our estimate of expected credit losses, specific to each measurement

date, management considers relevant qualitative and

quantitative factors to assess whether the historical loss experience

being referenced should be adjusted to better reflect the risk

characteristics of the current portfolio and the expected future

loss experience for the life of these contracts.

This assessment

incorporates all available information relevant to considering the collectability

of our current portfolio, including considering

economic and business conditions, default trends, changes in

portfolio composition, changes in lending policies and practices,

among

other internal and external factors.

Further, each measurement period we determine

whether to separate any loans from their current

pool for individual analysis based on their unique risk characteristics.

Our approach to estimating qualitative adjustments takes into

consideration all significant current information we believe appropriate

to reflect the changes and risks in the portfolio or environment

and involves significant judgment.

 
-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 increase to

our credit loss estimate, in the future,

driven by the update of assumptions and information underlying our

estimate and/or driven by the actual amount of realized

losses.

Our estimate of credit losses will be revised each period

to reflect current information, including current forecasts of economic

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

and emerging trends in our portfolio, among other

factors, and these updates for current information could drive

a significant adjustment to our reserve.

Further, actual credit losses may

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

if the actual performance of our portfolio differs signif

icantly from

the current assumptions and judgements, including those underlying our

forecast and qualitative adjustments, as of any given

measurement date.

R

ECENTLY

I

SSUED

A

CCOUNTING

S

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.

R

ECENTLY

A

DOPTED

A

CCOUNTING

S

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

to

allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s

internal control over financial reporting identified

in connection with management’s

evaluation that occurred during the Company's second 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 June 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 June 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 June 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

it

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 June 30, 2020.

As of June 30, 2020,

the

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

Pursuant to the 2014 Equity Compensation Plan, participants

may have shares withheld to cover income taxes. There were 1,897

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 June 30, 2020,

at an average cost of $ 6.50 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)

10.1

Form of Restricted Stock Award for Independent Directors under the 2019 Equity Compensation Plan

(Filed Herewith)

31.1

Certification of the Chief Executive Officer of Marlin Business Services Corp. required by Rule 13a-14(a) under the

Securities Exchange Act of 1934, as amended.

(Filed herewith)

31.2

Certification of the Chief Financial Officer of Marlin Business Services Corp. required by Rule 13a-14(a) under the

Securities Exchange Act of 1934, as amended.

(Filed herewith)

32.1

Certification of the Chief Executive Officer and Chief Financial Officer of Marlin Business Services Corp. required by

Rule 13a -14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for

purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that

section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities

Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)

(Furnished herewith)

101 Financial

statements from

the Quarterly

Report on

Form 10-Q of

Marlin Business

Services Corp.

for the period

ended

June 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

of Stockholders’

Equity,

(v) the Consolidated

Statements of

Cash Flows

and (vi)

the Notes

to Unaudited

Consolidated Financial

Statements.

(Submitted electronically with this report)

__________________

(1)

Previously 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:

July 31, 2020