UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

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

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

For the Quarterly Period Ended ~~June 30, 2019~~March 31, 2020

Commission file number000-50448

MARLIN BUSINESS SERVICES CORP.

(Exact name of registrant as specified in its charter)

Pennsylvania

38-3686388

(State of incorporation)

(I.R.S. Employer

Identification Number)

300 Fellowship Road, Mount Laurel, NJ 08054

(Address of principal executive offices) ~~(Zip~~

(Zip code)

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

(Registrant’s telephone number, including area code)

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

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, $.01 per share

MRLN

~~The~~ NASDAQ ~~Stock~~Global Select Market ~~LLC~~

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~~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, anon-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~~Rule~~ 12b-2 of the Exchange Act.

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

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

At ~~July 26, 2019, 12,240,635~~April 23, 2020, 11,884,174 shares of Registrant’s common stock, $.01 par value, were outstanding.

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

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

for the Quarter Ended ~~June 30, 2019~~March 31, 2020

TABLE OF CONTENTS


			Page No.

Part I –Financial Information				3
Item 1	Consolidated Financial Statements (Unaudited)			3
	Consolidated Balance Sheets at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019			3
	Consolidated Statements of Operations for the ~~three- andsix-~~ ~~month~~three-month periods ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~			4
	Consolidated Statements of Comprehensive Income (Loss) for the ~~three- andsix-~~ ~~month~~three-month periods ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~			5
	Consolidated Statements of Stockholders’ Equity for the ~~three andsix-month~~three-month periods ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~			6
	Consolidated Statements of Cash Flows for the~~six-month~~ three-month periods ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~			87
	Notes to Unaudited Consolidated Financial Statements			109
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations			42
Item 3	Quantitative and Qualitative Disclosures about Market Risk			6462
Item 4	Controls and Procedures			6462
Part II –Other Information				6462
Item 1	Legal Proceedings	��		6462
Item 1A	Risk Factors			6462
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds			65
Item 3	Defaults upon Senior Securities			65
Item 4	Mine Safety Disclosures			65
Item 5	Other Information			6566
Item 6	Exhibits			6667
Signatures				6768

PART I. Financial Information

Item 1. Consolidated Financial Statements

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)


	June 30,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
	(Dollars in thousands, except per-share data)						(Dollars in thousands, except per-share data)
ASSETS
Cash and due from banks	$	5,170		$	5,088		$	5,261		$	4,701
Interest-earning deposits with banks		134,561			92,068			205,809			118,395

Total cash and cash equivalents		139,731			97,156			211,070			123,096
Time deposits with banks		12,679			9,659			13,664			12,927
Restricted interest-earning deposits (includes $8.1 million and $10.0 million at June 30, 2019 and December 31, 2018, respectively related to consolidated VIEs)		8,152			14,045
Investment securities (amortized cost of $10.7 million and $11.2 million at June 30, 2019 and December 31, 2018, respectively)		10,633			10,956
Restricted interest-earning deposits (includes $6.5 million and $6.9 million at March 31, 2020 and December 31, 2019, respectively related to consolidated VIEs)								6,474			6,931
Investment securities (amortized cost of $10.6 million and $11.1 million at March 31, 2020 and December 31, 2019, respectively)								10,480			11,076
Net investment in leases and loans:
Leases		478,068			489,299			407,148			426,608
Loans		600,980			527,541			614,988			601,607

Net investment in leases and loans, excluding allowance for credit losses (includes $109.8 million and $150.2 million at June 30, 2019 and December 31, 2018, respectively, related to consolidated VIEs)		1,079,048			1,016,840
Net investment in leases and loans, excluding allowance for credit losses (includes $62.0 million and $76.1 million at March 31, 2020 and December 31, 2019, respectively, related to consolidated VIEs)								1,022,136			1,028,215
Allowance for credit losses		(16,777	)		(16,100	)		(52,060	)		(21,695	)

Total net investment in leases and loans		1,062,271			1,000,740			970,076			1,006,520
Intangible assets		7,920			7,912			7,261			7,461
Goodwill		6,735			7,360			—			6,735
Operating leaseright-of-use assets		8,626			—			8,618			8,863
Property and equipment, net		4,014			4,317			8,138			7,888
Property tax receivables, net of allowance		8,070			5,245			10,291			5,493
Other assets		11,152			9,656			17,465			10,453

Total assets	$	1,279,983		$	1,167,046		$	1,263,537		$	1,207,443

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	888,561		$	755,776		$	941,996		$	839,132
Long-term borrowings related to consolidated VIEs		109,637			150,055			62,193			76,091
Operating lease liabilities		9,074			—			9,487			9,730
Other liabilities:
Sales and property taxes payable		7,827			3,775			7,267			2,678
Accounts payable and accrued expenses		32,597			36,369			28,427			34,028
Net deferred income tax liability		26,733			22,560			25,677			30,828

Total liabilities		1,074,429			968,535			1,075,047			992,487

Commitments and contingencies (Note 10)
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; 12,285,564 and 12,367,724 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		123			124
Common Stock, $0.01 par value; 75,000,000 shares authorized; 11,884,473 and 12,113,585 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively								119			121
Additionalpaid-in capital		82,726			83,498			75,647			79,665
Stock subscription receivable		(2	)		(2	)
Accumulated other comprehensive loss		48			(44	)
Accumulated other comprehensive income (loss)								20			58
Retained earnings		122,659			114,935			112,704			135,112

Total stockholders’ equity		205,554			198,511			188,490			214,956

Total liabilities and stockholders’ equity	$	1,279,983		$	1,167,046		$	1,263,537		$	1,207,443

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

-3-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020			2019
	(Dollars in thousands, exceptper-share data)								(Dollars in thousands, except per-share data)
Interest income	$	27,082	$	23,964	$	52,965	$	47,243	$	26,465		$	25,883
Fee income		3,507		3,876		7,549		7,835		2,766			4,042

Interest and fee income		30,589		27,840		60,514		55,078		29,231			29,925
Interest expense		6,408		3,711		12,370		7,110		5,680			5,962

Net interest and fee income		24,181		24,129		48,144		47,968		23,551			23,963
Provision for credit losses		4,756		4,256		10,119		8,868		25,150			5,363

Net interest and fee income after provision for credit losses		19,425		19,873		38,025		39,100		(1,599	)		18,600

Non-interest income:
Gain on leases and loans sold										2,282			3,612
Insurance premiums written and earned		2,176		1,993		4,308		3,932		2,282			2,132
Other income		5,025		2,634		15,841		5,929		7,639			7,204

Non-interest income		7,201		4,627		20,149		9,861		12,203			12,948

Non-interest expense:
Salaries and benefits		12,469		9,527		23,920		19,550		9,519			11,451
General and administrative		6,068		6,449		19,422		13,020		13,605			13,354
Goodwill impairment										6,735			—

Non-interest expense		18,537		15,976		43,342		32,570		29,859			24,805

Income before income taxes		8,089		8,524		14,832		16,391
Income tax expense		1,974		2,057		3,576		3,739
(Loss) income before income taxes										(19,255	)		6,743
Income tax (benefit) expense										(7,434	)		1,602

Net income	$	6,115	$	6,467	$	11,256	$	12,652
Net (loss) income									$	(11,821	)	$	5,141

Basic earnings per share	$	0.50	$	0.52	$	0.91	$	1.02
Diluted earnings per share	$	0.49	$	0.52	$	0.91	$	1.01
Basic (loss) earnings per share									$	(1.00	)	$	0.42
Diluted (loss) earnings per share									$	(1.00	)	$	0.41

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

-4-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

~~AND SUBSIDIARIES~~

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

   Three Months Ended June 30, Six Months Ended June 30,
   2019 2018 2019 2018
   (Dollars in thousands)
Net income
   $ 6,115 $ 6,467 $ 11,256 $ 12,652


Other comprehensive income (loss):

Reclassification due to adoption of ASU2016-01, ASU2018-02 and ASU2018-03
   —   —   —   107
Increase (decrease) in fair value of debt securities available for sale
   69 33 123 (46 )
Tax effect
   (17 ) (8 ) (31 ) (38 )


Total other comprehensive income (loss)
   52 25 92 23


Comprehensive income
   $ 6,167 $ 6,492 $ 11,348 $ 12,675


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

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

Total other comprehensive (loss) income		(38	)		40

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

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

-5-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)


	Common Shares			Common Stock Amount			Additional Paid-In Capital			Stock Subscription Receivable			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Stockholders’ Equity			Common Shares			Common Stock Amount			Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Stockholders’ Equity
	(Dollars in thousands)																					(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 RSU’s, 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
Balance, December 31, 2018																							12,367,724			124			83,496			(44	)		114,935		$	198,511
Repurchase of common stock		(73,360	)		—			(1,719	)		—			—			—			(1,719	)		(48,857	)		(1	)		(1,144	)		—			—			(1,145	)
Stock issued in connection with restricted stock and RSUs, net of forfeitures		(450	)		—			—			—			—			—			—			30,209			—			—			—			—			—
Stock-based compensation recognized		—			—			990			—			—			—			990			—			—			861			—			—			861
Net change in unrealized gain/loss on securities available for sale, net of tax		—			—			—			—			52			—			52			—			—			—			40			—			40
Net income		—			—			—			—			—			6,115			6,115			—			—			—			—			5,141			5,141
Cash dividends paid ($0.14 per share)		—			—			—			—			—			(1,774	)		(1,774	)		—			—			—			—			(1,758	)		(1,758	)

Balance,June 30, 2019		12,285,564		$	123		$	82,726		$	(2	)	$	48		$	122,659		$	205,554
Balance, March 31, 2019																							12,349,076		$	123		$	83,213		$	(4	)	$	118,318		$	201,650

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

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

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

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

-6-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of ~~Stockholders’ Equity~~Cash Flows

(Unaudited)

   Common
Shares Common
Stock
Amount    Additional
Paid-In
Capital Stock
Subscription
Receivable Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings Total
Stockholders’
Equity
   (Dollars in thousands)
Balance, December 31, 2017
   12,449,458 $ 124    $ 82,588 $ (2 ) $ (96 ) $ 97,035 $ 179,649
Repurchase of common stock
   (37,026 ) —      (1,000 ) —   —   —   (1,000 )
Stock issued in connection with restricted stock and RSU’s, net of forfeitures
   6,065 —      —   —   —   —   —
Stock-based compensation recognized
   —   —      921 —   —   —   921
Net change in unrealized gain/loss on securities available for sale, net of tax
   —   —      —   —   (59 ) —   (59 )
Net income
   —   —      —   —   —   6,185 6,185
Impact of adoption of new accounting standards⁽¹⁾
   —   —      —   —   57 (57 ) —
Cash dividends paid ($0.14 per share)
   —   —      —   —   —   (1,769 ) (1,769 )




Balance, March 31, 2018
   12,418,497 124    82,509 (2 ) (98 ) 101,394 183,927
Issuance of common stock
   9,101 —      211 —   —   —   211
Repurchase of common stock
   (1,121 ) —      (32 ) —   —   —   (32 )
Exercise of stock options
   909 —      23 —   —   —   23
Stock issued in connection with restricted stock and RSUs, net of forfeitures
   11,545 —      —   —   —   —   —
Stock-based compensation recognized
   —   —      763 —   —   —   763
Net change in unrealized gain/loss on securities available for sale, net of tax
   —   —      —   —   25 —   25
Net income
   —   —      —   —   —   6,467 6,467
Cash dividends paid ($0.14 per share)
   —   —      —   —   —   (1,742 ) (1,742 )




Balance, June 30, 2018
   12,438,931 $ 124    $ 83,474 $ (2 ) $ (73 ) $ 106,119 $ 189,642

~~(1)~~

~~Represents the impact of Accounting Standards Update (“ASU”)2016-01,~~ ~~ASU2018-02~~ ~~and ASU2018-03~~

~~See Note 2 to the consolidated financial statements for more information~~


	Three Months Ended March 31,
	2020			2019
	(Dollars in thousands)
Cash flows from operating activities:
Net (loss) income	$	(11,821	)	$	5,141
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		1,057			1,209
Stock-based compensation		518			861
Goodwill impairment		6,735			—
Change in fair value of equity securities		(58	)		(43	)
Provision for credit losses		25,150			5,363
Change in net deferred income tax liability		(2,107	)		1,364
Amortization of deferred initial direct costs and fees		3,413			3,563
Loss on equipment disposed		—			389
Gain on leases sold		(2,282	)		(3,612	)
Leases originated for sale		(3,693	)		(10,675	)
Proceeds from sale of leases originated for sale		3,874			11,052
Noncash lease expense		324			275
Effect of changes in other operating items:
Other assets		(12,002	)		(4,982	)
Other liabilities		1,083			2,559

Net cash provided by operating activities		10,191			12,464

Cash flows from investing activities:
Net change in time deposits with banks		(737	)		(1,580	)
Purchases of equipment for lease contracts and funds used to originate loans		(156,145	)		(197,168	)
Principal collections on leases and loans		129,810			122,871
Proceeds from sale of leases originated for investment		21,337			45,428
Security deposits collected, net of refunds		(78	)		(76	)
Proceeds from the sale of equipment		840			696
Acquisitions of property and equipment		(796	)		(376	)
Principal payments received on securities available for sale		594			372

Net cash (used in) investing activities		(5,175	)		(29,833	)

Cash flows from financing activities:
Net change in deposits		102,864			84,391
Term securitization repayments		(14,008	)		(21,104	)
Business combinations earn-out consideration payments		(132	)		(121	)
Repurchases of common stock		(4,538	)		(1,145	)
Dividends paid		(1,685	)		(1,727	)

Net cash provided by financing activities		82,501			60,294

Net increase in total cash, cash equivalents and restricted cash		87,517			42,925
Total cash, cash equivalents and restricted cash, beginning of period		130,027			111,201

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

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

-7-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

   Six Months Ended June 30,
   2019 2018
   (Dollars in thousands)
Cash flows from operating activities:

Net income
   $ 11,256 $ 12,652
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
   2,390 2,228
Stock-based compensation
   1,851 1,684
Change in fair value of equity securities
   (94 ) 81
Provision for credit losses
   10,119 8,868
Net deferred income taxes
   4,142 3,868
Amortization of deferred initial direct costs and fees
   7,252 6,517
Loss on equipment disposed
   911 604
Gain on leases sold
   (6,944 ) (2,616 )
Leases originated for sale
   (29,036 ) (2,063 )
Proceeds from sale of leases originated for sale
   30,062 2,104
Operating lease liability payments
   (199 ) —
Effect of changes in other operating items:

Other assets
   (4,549 ) 5,427
Other liabilities
   (142 ) 5,025


Net cash provided by operating activities
   27,019 44,379


Cash flows from investing activities:

Net change in time deposits with banks
   (3,020 ) (304 )
Funds used to originate leases and loans
   (409,915 ) (339,701 )
Principal collections on leases and loans
   248,563 235,669
Proceeds from sale of leases originated for investment
   87,390 40,383
Security deposits collected, net of refunds
   (130 ) (141 )
Proceeds from the sale of equipment
   1,409 1,731
Acquisitions of property and equipment
   (816 ) (543 )
Principal payments received on securities available for sale
   529 632


Net cash (used in) investing activities
   (75,990 ) (62,274 )


Cash flows from financing activities:

Net change in deposits
   132,785 54,253
Term securitization repayments
   (40,829 ) —
Business combinationsearn-out consideration payments
   (223 ) —
Issuances of common stock
   240 211
Repurchases of common stock
   (2,864 ) (1,032 )
Dividends paid
   (3,456 ) (3,479 )
Exercise of stock options
   —   23


Net cash provided by financing activities
   85,653 49,976


Net increase in total cash, cash equivalents and restricted cash
   36,682 32,081
Total cash, cash equivalents and restricted cash, beginning of period
   111,201 67,146


Total cash, cash equivalents and restricted cash, end of period
   $ 147,883 $ 99,227


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

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

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

-8-

MARLIN BUSINESS SERVICES CORP.

~~AND SUBSIDIARIES~~

~~Consolidated Statements of Cash Flows~~

~~(Unaudited)~~

   Six Months Ended June 30,
   2019    2018
   (Dollars in thousands)
Supplemental disclosures of cash flow information:

Cash paid for interest on deposits and borrowings
   $ 11,504    $ 6,805
Net cash paid (refunds received) for income taxes
   $ 1,362    $ (8,051 )
Leases transferred into held for sale from investment
   $ 81,472    $ 37,808
Supplemental disclosures of non cash investing activities:

Business combinations assets acquired
   $ 146    $ —
Purchase of equipment for lease contracts and loans originated
   $ 7,038    $ 9,294
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets

Cash and cash equivalents
   $ 139,731    $ 99,227
Restricted Cash
   8,152    —




Cash, cash equivalents and restricted cash at end of period
   $ 147,883    $ 99,227

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

~~-9-~~

~~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 ~~end user~~small business customers. Effective March 12, 2008, the Company opened MBB, a commercial bank chartered by the State of Utah and a member of the Federal Reserve System. MBB serves as the Company’s primary funding source through its issuance of Federal Deposit Insurance Corporation (“FDIC”)-insured deposits.

On 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. This acquisition is consistent with our strategy of augmenting organic growth with strategic acquisitions that extend our existing equipment finance business into new and attractive markets. The Company paid $10.0 million in cash for FFR and incurred an immaterial amount of acquisition-related cost. In addition, if FFR generates volume of up to $542 million from the closing date through September 30, 2026, we have agreed to pay the seller up to an additional $5.5 million in cash in~~earn-out~~ ~~consideration. Thisearn-out~~ ~~consideration will be calculated quarterly based on a sliding scale of percentage of revenue volume that increases as successively greater tiers of volume are attained, and if the maximumearn-out~~ ~~consideration is earned, the total consideration paid for FFR will be $15.5 million. The valuation of thisearn-out~~ ~~will be evaluated in the fourth quarter of each year and more frequently if warranted, and the difference between the revised fair value estimate and theearn-out~~ liability will be recorded in earnings. The Company completed the purchase price allocation in the first quarter of 2019 with $5.6 million recorded to goodwill and $7.6 million recorded to intangible assets for vendor relationships and lender relationships, offset by a contingent consideration liability of $3.2 million representing the estimated fair value of the~~earn-out.~~ See Note 7 for additional information regarding the identified intangible assets acquired. The acquisition has been accounted for using the acquisition method of accounting. The unaudited pro forma financial information disclosed in the following sentence is for informational purposes only and is not indicative of future operations or results. If the acquisition had occurred at the beginning of 2018, the Company’s Interest and fee income,~~Non-interest~~ ~~income and net income for thesix-month~~ ~~period ending June 30, 2018, would have been approximately $57.8 million, $10.0 million and $13.3 million, respectively.~~

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 ~~one~~a single consolidated product ~~offering.~~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, 2019~~March 31, 2020 and the results of operations for the ~~three- andsix-month~~three-month periods ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and cash flows for the~~six-month~~ three-month periods ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019. In ~~Management’s~~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~~Form~~ 10-K for the year ended December 31, ~~2018,~~2019, filed with the Securities and Exchange Commission (“SEC”) on March ~~8, 2019.~~13, 2020. The consolidated results ~~of operations for the three-~~ and~~six-month~~ ~~periods ended June 30, 2019 and 2018 and the consolidated~~ statements of cash flows for ~~thesix-month~~ ~~periods ended June 30, 2019 and 2018~~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.Income tax benefit of $7.4 million was recorded for the three-month period ended March 31, 2020, compared to expense of $1.6 million for the three-month period ended March 31, 2019. For the three-month period ended March 31, 2020, the income tax benefit includes a $3.2 million discrete benefit, related to remeasuring our federal net operating losses, driven by certain provisions in the CARES Act. Our statutory tax rate, which is a combination of federal and state income tax rates, was approximately 23.9% for both periods. However, our effective tax rate was 38.6% for the three-month period ended March 31, 2020, driven by the recognition of the discrete benefit.

Significant Accounting Policies.There have been no significant changes to our Significant Accounting Policies as described in our ~~2018~~2019 Annual Report on Form10-K other than the adoption of ASU~~2016-02~~2016-13 as described below.

~~-10-~~-9-

Recently ~~Issued~~Adopted Accounting ~~Standards~~Standards..

~~Fair Value.~~~~In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2018-13,~~~~Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement~~which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of such transfers and the valuation process for Level 3 fair value measurements. The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income. The ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The adoption of this new requirement is not expected to have a material impact on the consolidated earnings, financial position or cash flows of the company.

~~Intangibles—Goodwill.~~~~In August 2018, the FASB issued ASU2018-15,~~~~Intangibles – Goodwill and Other –Internal-Use~~ ~~Software (Subtopic350-40):~~ ~~Customer~~’~~s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~to clarify the accounting treatment for implementation costs for cloud computing arrangements The ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The adoption of this new requirement is not expected to have a material impact on the consolidated earnings, financial position or cash flows of the company.

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

CECL replaces the ~~currently used~~probable, incurred loss model with a ~~forward-looking~~measurement of expected credit losses for the contractual term of the Company’s current ~~expected loss model which~~portfolio of loans and leases. After the adoption of CECL, an allowance, or estimate of credit losses, will ~~generally result~~be recognized immediately upon the origination of a loan or lease, and will be adjusted in ~~more timely recognition~~each subsequent reporting period. This estimate of ~~losses. In April 2019,~~credit losses takes into consideration all cashflows the ~~FASB issued ASU~~Company expects to receive or derive from the pools of contracts, including recoveries after~~2019-04,~~charge-off,~~Codification Improvements~~~~, which provides guidance on accounting~~ amounts related to initial direct cost and origination costs net of fees deferred, accrued interest receivable and certain future cashflows from residual assets. The Company had previously recognized residual income within Fee Income in its Consolidated Statements of Operations; the adoption of CECL results in such residual income being captured as a component of the activity of the allowance. The Company’s policy for charging off contracts against the allowance, andnon-accrual policy are not impacted by the adoption of CECL.

The provision for credit losses ~~on accrued interest receivable balances~~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 ~~guidance on including recoveries when estimating~~maintain a consistent systematic methodology to measure the ~~allowance. In May 2019,~~estimated credit losses inherent in its current portfolio, over the ~~FASB issued ASU2019-05,~~~~Targeted Transition Relief,~~~~which allows entities with an option to elect fair value for certain instruments upon adoption~~entire life of ~~Topic 326.~~

~~The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.~~the contracts. The Company ~~has formed a cross functional implementation team~~assesses the appropriate collective, or pool, basis to ~~review the requirements of ASU2016-13.~~ ~~The Company is still evaluating the impact the adoption of this ASU will have on our consolidated financial statements.~~

~~Recently Adopted Accounting Standards~~.

~~Leases.~~~~In February 2016, the FASB issued ASU2016-02,~~~~Leases (Topic 842)~~use to ~~increase transparency and comparability among organizations recognizing lease assets and lease liabilities~~aggregate its portfolio based on the ~~balance sheet. The ASU will require lessees~~existence of similar risk characteristics and determined that its measurement begins by separately considering segments of financing receivables, which is similar to ~~recognize~~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. 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~~right-of-use~~ ~~(ROU) asset for~~ 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 ~~right~~estimate of expected credit losses, specific to ~~use~~each measurement date, management considers relevant qualitative and quantitative factors to assess whether the ~~underlying asset~~historical loss experience being referenced should be adjusted to better reflect the risk characteristics of the current portfolio and ~~a lease liability~~the expected future loss experience for the ~~corresponding lease obligation for leases with terms~~life of ~~more than twelve months. Accounting by lessors will remain largely unchanged from~~these contracts. This assessment incorporates all available information relevant to considering the collectability of its current ~~U.S. GAAP. The ASU also requires expanded quantitative~~portfolio, including considering economic and ~~qualitative disclosures for both lessees~~business conditions, default trends, changes in its portfolio composition, changes in its lending policies and ~~lessors. In July 2018, the FASB issued ASU2018-11,~~ ~~Leases (Topic 842): Targeted Improvements,~~ ~~which provides entities with an additional (and optional) transition method in which the entity applies the new leases standard at the adoption date~~practices, among other internal and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has applied the new transition method upon adoption. In December 2018, the FASB issued ASU~~2018-20~~~~Leases (Topic 842): Narrow Scope Improvements for Lessors,~~~~which clarifies the treatment of sales taxes and other taxes collected from lessees, lessor costs paid directly by lessees, and recognition of variable payments for contracts with lease andnon-lease~~ ~~components. In March 2019, the FASB issued ASU2019-01,~~ Leases (Topic 842): Codification Improvements, which aligned the new lease guidance with the existing guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers. It also clarified an exemption for lessors and lessees from a certain interim disclosure requirement associated with adopting the board’s new lease accounting standard.external factors.

The Company adopted the guidance in these ASUs, oneffective January 1, ~~2019. As~~2020, applying changes resulting from the application of the new standard’s provisions as a ~~result, the Company recordedright-of-use~~ ~~assets of $9.1 million and lease liabilities of $9.1 million. At January 1, 2019, there was no~~cumulative-effect adjustment to ~~opening~~ retained ~~earnings. The Company,~~earnings as ~~a Lessor, will record property tax income and expense associated with leasing on a gross basis~~of the beginning of the first reporting period in which the ~~Consolidated~~guidance is effective (i.e., modified retrospective approach).

~~-11-~~-10-

~~Statements~~The adoption of ~~Operations. The property tax income and expense are recorded~~this standard resulted in the ~~same period~~following adjustment to the Company’s Consolidated Balance Sheets:


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

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

See Note 6 –Allowance for Credit Losses, for further discussion of the January 1, 2020 measurement of allowance under CECL, as ~~earned and incurred, and~~well as discussion of the ~~Company recognizes~~Company’s new Accounting Policy governing its Allowance.

See Note 13 –Stockholders’ Equity, for discussion of the Company’s election to delay fortwo-years the effect of CECL on regulatory capital, followed by a ~~provision~~three-yearphase-in for ~~uncollectible property tax revenue as contra-revenue when~~ a ~~loss is probable and collectability is not reasonably assured.~~ five-year total transition.

In addition, ~~ASU2016-02~~ ~~limits~~as a result of adoption this standard, future measurements of the ~~types~~impairment of ~~direct lease origination costs that are able~~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 ~~be deferred, which will reduce prospective deferred lease origination costs on a unit basis.~~our investment securities.

~~-12-~~-11-

NOTE 3 –Non-Interest Income

The ~~Company earns revenue including interest and fees from customers as well as revenues fromnon-customers.~~ The Company recognizes revenue when the performance obligations related to the transfer of goods or services under the terms of the contract are satisfied. Some obligations are satisfied at a point in time while others are satisfied over a period of time related to the specific obligation. Revenue is recognized as the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. When consideration includes a variable component, the amount of consideration attributable to variability is included in the transaction price only to the extent it is probable that significant revenue recognized will not be reversed when uncertainty associated with the variable consideration is subsequently resolved. Generally, the variability relating to the consideration is explicitly stated in the contracts, but may also arise from the Company’s customer business practice, for example, waiving certain fees. The Company’s contracts generally do not contain terms that require significant judgement to determine the variability impacting the transaction price.

~~The majority of the Company’s revenue-generating transactions are not subject to ASC 606,~~~~Revenue from Contracts with Customers~~, including revenue generated from financial instruments, such as our leases and loans, investment securities, as well as revenue related to our gain on sale of leases and loans, servicing income, and insurance premiums written and earned. Revenue-generating activities that the Company accounts for under ASC 606, which are presented in our income statements as components of~~non-interest~~ income, include certain fees such as property tax administrative fees on leases, ACH payment fees, insurance policy fees outside of the scope of ASC 944, broker fees earned for referring leases and loans to other funding partners, and other fees. The Company has included the following table ~~regarding the Company’s~~summarizesnon-interest income for the periods ~~presented.~~presented:


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,
(Dollars in thousands)	2019		2018			2019		2018
											(dollars in thousands)
											2020		2019
Insurance premiums written and earned	$	2,176	$	1,993		$	4,308	$	3,932		$	2,282	$	2,132
Gain on sale of leases and loans		3,332		936			6,944		2,616			2,282		3,612
Other income:
Property tax income												5,504		5,643
Servicing income		339		677			626		1,174			566		287
Property tax income		79		—			5,722		—
Net gains (losses) recognized during the period on equity securities		50		(26	)		94		(81	)
Net gain (loss) recognized on equity securities												58		43

Non-interest income within the scope of other GAAP topics		5,976		3,580			17,694		7,641			10,692		11,717

Other income:
Insurance policy fees												918		668
Property tax administrative fees on leases		261		190			529		381			234		268
ACH payment fees		74		83			160		168			72		86
Insurance policy fees		666		514			1,334		1,025
Referral fees		164		210			318		493			94		155
Other		60		50			114		153			193		54

Non-interest income from contracts with customers		1,225		1,047			2,455		2,220			1,511		1,231

Totalnon-interest income	$	7,201	$	4,627		$	20,149	$	9,861		$	12,203	$	12,948

~~-13-~~-12-

NOTE 4 – Investment Securities

~~Debt Securities, Available for Sale are recorded at fair value and unrealized gains and losses are reported, net~~The Company has the following investment securities as of ~~taxes, in accumulated other comprehensive income (loss) included in stockholders’ equity unless management determines that an investment is other-than-temporarily impaired (OTTI). Changes~~the periods presented:


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

Total investment securities	$	10,480	$	11,076

The following schedule summarizes changes in fair value of equity securities ~~are recorded through~~and the ~~Consolidated Statements~~portion of ~~Operations. The amortized cost and estimated fair value of investments, with gross~~ unrealized gains and losses ~~were as follows as of June 30, 2019 and December 31, 2018:~~for each period presented:

   June 30, 2019
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Estimated
Fair Value
   (Dollars in thousands)
Debt Securities, Available for Sale:

Asset-backed securities (“ABS”)
   $ 4,607    $ 29    $ (21 )    $ 4,615
Municipal securities
   2,375    79    —      2,454
Equity Securities

Mutual fund
   3,672    —      (108 )    3,564








Total investment securities
   $ 10,654    $ 108    $ (129 )    $ 10,633








   December 31, 2018
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Estimated
Fair Value
   (Dollars in thousands)
Debt Securities, Available for Sale:

ABS
   $ 4,934    $ 20    $ (39 )    $ 4,915
Municipal securities
   2,629    3    (20 )    2,612
Equity Securities

Mutual fund
   3,631    —      (202 )    3,429








Total investment securities
   $ 11,194    $ 23    $ (261 )    $ 10,956


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

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

-13-

Available for Sale

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


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

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


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

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

-14-

The Company ~~had $3.6 million~~evaluates its available for sale securities in an unrealized loss position for other than temporary impairment on at least a quarterly basis. The company did not recognize any other than temporary impairment to earnings for each of the periods ended March 31, 2020 and ~~$3.4 million in equity securities recorded at fair value at June 30, 2019 and December~~March 31, ~~2018, respectively. The following schedule is a summary of fair value changes recognized in net income on equity securities during the three and six months ended June 30, 2019:~~2019.

   Three Months Ended June 30,    Six Months Ended June 30,
(Dollars in thousands)    2019    2018    2019    2018
Net gains (losses) recognized during the period on equity securities
   $ 50    $ (26 )    $ 94    $ (81 )
Less: Net gains (losses) recognized during the period on equity securities sold during the period
   —      —      —      —








Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date
   $ 50    $ (26 )    $ 94    $ (81 )

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, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

   June 30, 2019
   Less than 12 months    12 months or longer    Total
   Gross
Unrealized
Losses Fair
Value    Gross
Unrealized
Losses Fair
Value    Gross
Unrealized
Losses Fair
Value
   (Dollars in thousands)
Debt Securities, Available for Sale:

ABS
   $ —   $ —      $ (21 ) $ 1,433    $ (21 ) $ 1,433
Equity Securities Mutual fund
   —   —      (108 ) 3,564    (108 ) 3,564






Total investment securities
   $ —   $ —      $ (129 ) $ 4,997    $ (129 ) $ 4,997






   December 31, 2018
   Less than 12 months    12 months or longer    Total
   Gross
Unrealized
Losses Fair
Value    Gross
Unrealized
Losses Fair
Value    Gross
Unrealized
Losses Fair
Value
   (Dollars in thousands)
Debt Securities, Available for Sale:

ABS
   $ —   $ —      $ (39 ) $ 3,340    $ (39 ) $ 3,340
Municipal securities
   (16 ) 1,436    (4 ) 408    (20 ) 1,844
Equity Securities Mutual fund
   —   —      (202 ) 3,429    (202 ) 3,429






Total investment securities
   $ (16 ) $ 1,436    $ (245 ) $ 7,177    $ (261 ) $ 8,613


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

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


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

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

-15-

The following table presents the amortized cost, fair value, and weighted average yield of ~~investments in debt securities~~ available for sale investments at ~~June 30, 2019, by remaining contractual maturity, with the exception of ABS and municipal securities, which are~~March 31, 2020, based on estimated average life. Receipt of cash flows may differ from ~~contractual~~those estimated maturities because borrowers may have the right to call or prepay obligations with or without penalties:

   June 30, 2019
   1 Year
or Less    1-5
Years 5-10
Years After 10
Years    Total
   (Dollars in thousands)
Amortized Cost:

Debt Securities, Available for Sale:

ABS
   $ —      $ 2,776 $ 1,863 $ —      $ 4,639
Municipal securities
   —      521 1,854 —      2,375






Total debt securities available for sale
   $ —      $ 3,297 $ 3,717 $ —      $ 7,014






Estimated fair value
   $ —      $ 3,327 $ 3,774 $ —      $ 7,101
Weighted-average yield, GAAP basis
   —      2.34 % 2.72 % —      2.55 %

~~OTTI~~

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

According to accounting guidance for debt securities in an unrealized loss position, the Company is required to assess whether it has the intent to sell the debt security or more likely than not will be required to sell the debt security before the anticipated recovery. If either of these conditions is met the Company must recognize an other than temporary impairment with the entire unrealized loss being recorded through earnings. For debt securities in an unrealized loss position not meeting these conditions, the Company assesses whether the impairment of a security is other than temporary. If the impairment is deemed to be other than temporary, the Company must separate the other than temporary impairment into two components: the amount representing the credit loss and the amount related to all other factors, such as changes in interest rates. The credit loss represents the portion of the amortized book value in excess of the net present value of the projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. The credit loss component of the other than temporary impairment is recorded through earnings, whereas the amount relating to factors other than credit losses is recorded in other comprehensive income, net of taxes. The Company did not recognize any OTTI in earnings related to its investment securities for the six months ended June 30, 2019 and June 30, 2018.


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

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

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

-16-

NOTE 5 – Net Investment in Leases and Loans

The Company’s lease portfolio is comprised entirely of sales type leases whose terms generally range from 36 to 72 months. At the time of application, small business customers can select a purchase option that will allow them to purchase the equipment at the end of the contract term for either one dollar, the fair market value of the equipment or a specified percentage of the original equipment cost. Alternatively, the customers can continue leasing or return the equipment. We estimate the residual value of the equipment which is recorded as an asset on our balance sheet. Realization of residual values depends on numerous factors including: the general market conditions at the time of expiration of the lease; the customer’s election to enter into a renewal period; the cost of comparable new equipment; the obsolescence of the leased equipment; any unusual or excessive wear and tear on or damage to the equipment; the effect of any additional or amended government regulations; and the foreclosure by a secured party of our interest in a defaulted lease.

The Company’s loan portfolio is comprised of Working Capital loans, loans under the Community Reinvestment Act of 1977 (CRA), and Equipment loans. Working Capital loans generally have 6 to 24 month terms with repayment terms that can vary from daily, weekly or monthly. Equipment loans are comprised of Equipment Finance Agreements, Installment Purchase Agreements, and other loans.

Net investment in leases and loans consists of the following:


	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(Dollars in thousands)						(Dollars in thousands)
Minimum lease payments receivable	$	518,005		$	530,867		$	434,841		$	457,602
Estimated residual value of equipment		28,688			27,646			29,464			29,342
Unearned lease income, net of initial direct costs and fees deferred		(67,917	)		(68,376	)		(56,645	)		(59,746	)
Security deposits		(708	)		(838	)		(512	)		(590	)

Total leases		478,068			489,299			407,148			426,608
Commercial loans, net of origination costs and fees deferred Working Capital Loans		51,748			36,856
Commercial loans, net of origination costs and fees deferred
Working Capital Loans								59,012			60,942
CRA⁽¹⁾		1,493			1,466			1,410			1,398
Equipment loans⁽²⁾		469,367			423,168			481,000			464,655
CVG		78,372			66,051			73,566			74,612

Total commercial loans		600,980			527,541			614,988			601,607
Net investment in leases and loans, excluding allowance								1,022,136			1,028,215
Allowance for credit losses		(16,777	)		(16,100	)		(52,060	)		(21,695	)

	$	1,062,271		$	1,000,740		$	970,076		$	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.

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

At ~~June 30, 2019, $109.8~~March 31, 2020, $62.0 million in net investment in leases were pledged as collateral for the Company’s outstanding asset-backed securitization balance and ~~$35.6~~$55.1 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 ~~deferred~~ fees deferred were ~~$21.3~~$19.5 million and $20.5 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Initial direct costs are netted in unearned income and are amortized to income using the effective interest method. ASU2016-02 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, 2019~~March 31, 2020 and December 31, ~~2018, $24.2~~2019, $23.5 million and ~~$23.6~~$23.4 million, respectively, of the estimated residual value of equipment retained on our Consolidated Balance Sheets was related to copiers.

-17-

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, 2019:~~March 31, 2020:

~~-17-~~


	Minimum Lease Payments Receivable⁽¹⁾		Net Income Amortization ⁽²⁾		Minimum Lease Payments Receivable⁽¹⁾		Net Income Amortization ⁽²⁾
	(Dollars in thousands)				(Dollars in thousands)
Period Ending December 31,
Remainder of 2019	$	112,557	$	19,216
2020		175,405		25,906
Remainder of 2020					$	132,867	$	22,664
2021		118,603		13,913		137,907		18,737
2022		69,111		6,326		90,158		9,728
2023		33,751		2,131		49,519		4,107
2024						20,660		1,140
Thereafter		8,578		425		3,730		269

	$	518,005	$	67,917	$	434,841	$	56,645

⁽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 $2.3 million and $2.5 million as ~~follows:~~of March 31, 2020 and December 31, 2019, respectively, and is recognized within Accounts payable and accrued expenses in the Consolidated Balance Sheets. As of March 31, 2020 and December 31, 2019, the portfolio of leases and loans serviced for others was $328 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 expected losses from recourse obligations was $1.2 million as of March 31, 2020 and was $0.4 million as of December 31, 2019.

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

   Three Months Ended June 30    Six Months Ended June 30
   2019    2018    2019    2018
   (Dollars in thousands)
Selling Profit⁽¹⁾
   $ —      $ —      $ —      $ —
Interest Income
   $ 10,730    $ 12,482    $ 21,691    $ 25,478

~~(1)~~

~~The Company does not derive income from the sale of the equipment.~~


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

-18-

NOTE 6 – Allowance for Credit Losses

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

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

The following tables ~~which follow provide~~summarize activity in the allowance for credit ~~losses and asset quality statistics.~~losses:


	Three Months Ended June 30, 2019														Three Months Ended March 31, 2020
	Commercial Lease and Loans														Commercial Leases and Loans
(Dollars in thousands)	Working Capital Loans			CRA		Equipment Finance⁽²⁾			CVG			Total			Equipment Finance			Working Capital Loans			CVG			CRA		Total
Allowance for credit losses, beginning of period	$	1,684		$	—	$	13,975		$	1,223		$	16,882
Allowance for credit losses, December 31, 2019															$	18,334		$	1,899		$	1,462		$	—	$	21,695
Adoption of ASU2016-13 (CECL)⁽¹⁾																9,264			(3	)		2,647			—		11,908

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

Charge-offs		(602	)		—		(4,508	)		(345	)		(5,455	)		(6,490	)		(1,279	)		(729	)		—		(8,498	)
Recoveries		51			—		482			61			594			525			38			89			—		652

Net charge-offs		(551	)		—		(4,026	)		(284	)		(4,861	)
Net chargeoffs																(5,965	)		(1,241	)		(640	)		—		(7,846	)

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

Provision for credit losses		807			—		3,467			482			4,756			14,988			6,545			3,617			—		25,150

Allowance for credit losses, end of period	$	1,940		$	—	$	13,416		$	1,421		$	16,777		$	37,774		$	7,200		$	7,086		$	—	$	52,060

Ending lease or loan balance^(1,3)	$	51,223		$	1,493	$	921,709		$	83,301		$	1,057,726

	Three Months Ended June 30, 2018
	Commercial Lease and Loans
(Dollars in thousands)	Working Capital Loans			CRA		Equipment Finance⁽²⁾			CVG			Total
Allowance for credit losses, beginning of period	$	1,310		$	—	$	13,140		$	1,170		$	15,620

Charge-offs		(499	)		—		(4,190	)		(243	)		(4,932	)
Recoveries		43			—		580			3			626

Net charge-offs		(456	)		—		(3,610	)		(240	)		(4,306	)

Provision for credit losses		480			—		3,482			294			4,256

Allowance for credit losses, end of period	$	1,334		$	—	$	13,012		$	1,224		$	15,570

Ending lease or loan balance⁽¹⁾	$	30,880		$	1,445	$	870,366		$	56,761		$	959,452
Ending balance: individually evaluated for impairment	$	—		$	—	$	545		$	—		$	545

Ending balance: collectively evaluated for impairment	$	30,880		$	1,445	$	869,821		$	56,761		$	958,907

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

-19-


	Six Months Ended June 30, 2019														Three Months Ended March 31, 2019
	Commercial Lease and Loans														Commercial Leases and Loans
(Dollars in thousands)	Working Capital Loans			CRA		Equipment Finance⁽²⁾			CVG			Total			Equipment Finance			Working Capital Loans			CVG			CRA		Total
Allowance for credit losses, beginning of period	$	1,467		$	—	$	13,531		$	1,102		$	16,100		$	13,531		$	1,467		$	1,102		$	—	$	16,100

Charge-offs		(1,275	)		—		(8,840	)		(673	)		(10,788	)		(4,333	)		(673	)		(328	)		—		(5,334	)
Recoveries		71			—		1,214			61			1,346			734			19			—			—		753

Net charge-offs		(1,204	)		—		(7,626	)		(612	)		(9,442	)		(3,599	)		(654	)		(328	)		—		(4,581	)

Provision for credit losses		1,677			—		7,511			931			10,119			4,043			871			449			—		5,363

Allowance for credit losses, end of period	$	1,940		$	—	$	13,416		$	1,421		$	16,777		$	13,975		$	1,684		$	1,223		$	—	$	16,882

Ending lease or loan balance^(1,3)	$	51,223		$	1,493	$	921,709		$	83,301		$	1,057,726

	Six Months Ended June 30, 2018
	Commercial Lease and Loans
(Dollars in thousands)	Working Capital Loans			CRA		Equipment Finance⁽²⁾			CVG			Total
Allowance for credit losses, beginning of period	$	1,036		$	—	$	12,663		$	1,152		$	14,851

Charge-offs		(728	)		—		(8,219	)		(400	)		(9,347	)
Recoveries		49			—		1,108			41			1,198

Net charge-offs		(679	)		—		(7,111	)		(359	)		(8,149	)

Provision for credit losses		977			—		7,460			431			8,868

Allowance for credit losses, end of period	$	1,334		$	—	$	13,012		$	1,224		$	15,570

Ending lease or loan balance⁽¹⁾	$	30,880		$	1,445	$	870,366		$	56,761		$	959,452
Ending balance: individually evaluated for impairment	$	—		$	—	$	545		$	—		$	545

Ending balance: collectively evaluated for impairment	$	30,880		$	1,445	$	869,821		$	56,761		$	958,907


	Year ended December 31, 2018
	Commercial Lease and Loans
(Dollars in thousands)	Working Capital Loans			CRA		Equipment Finance⁽²⁾			CVG			Total
Allowance for credit losses, beginning of period	$	1,036		$	—	$	12,663		$	1,152		$	14,851

Charge-offs		(1,537	)		—		(18,149	)		(907	)		(20,593	)
Recoveries		60			—		2,199			61			2,320

Net charge-offs		(1,477	)		—		(15,950	)		(846	)		(18,273	)

Provision for credit losses		1,908			—		16,818			796			19,522

Allowance for credit losses, end of period	$	1,467		$	—	$	13,531		$	1,102		$	16,100

Ending lease or loan balance^(1,3)	$	36,478		$	1,466	$	890,785		$	67,654		$	996,383
Net investment in leases and loans, before allowance															$	915,556		$	43,210		$	79,830		$	1,476	$	1,040,072

⁽¹⁾

The Company adopted ASU2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses onFinancial 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 aftercharge-off, amounts related to initial direct cost and origination costs net of fees deferred, accrued interest receivable and certain future cashflows from residual assets.

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

Current Measurement

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

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

-20-

Equipment Finance:

~~(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)~~

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 ~~Agreements, Installment Purchase Agreements, and other leases and loans.~~

~~(3)~~

~~For the six months ended June 30, 2019 and the year ended December 31, 2018, all leases and loans were collectively evaluated .~~

~~For thesix-month~~ periods ended June 30, 2019 and June 30, 2018, the Company sold $110.5 million of leases and loans from its portfolio for a gain on sale of $6.9 million and $38.8 million of leases and loans from its portfolio for a gain on sale of $2.6 million, respectively. For the year ended December 31, 2018, the Company sold $139.0 million of leases and loans from its portfolio for a gain on sale of $8.4 million.

~~Credit Quality Indicators~~

The Company’s credit review process includes a risk classification of all leases and loans that includes pass, special mention, substandard, doubtful, and loss. The classification of a lease or loan may change based on changes in the creditworthiness of the borrower. The description of the risk classifications are as follows:

~~Pass:~~~~A lease or loan is classified as pass when payments are current and it is performing under the original contractual terms.~~

~~Special Mention:~~A lease or loan is classified as special mention when the borrower exhibits potential credit weakness or a downward trend which, if not checked or corrected, will weaken the asset or inadequately protect the Company’s position. While potentially weak, the borrower is currently marginally acceptable; no loss of principal or interest is envisioned.

~~Substandard:~~A lease or loan is classified as substandard when the borrower has a well-defined weakness or weaknesses that jeopardize the orderly liquidation of the debt. A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor, normal repayment from this borrower is in jeopardy, and there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected.

~~Doubtful:~~A lease or loan is classified as doubtful when a borrower has all weaknesses inherent in a loan classified as substandard with the added provision that: (1) the weaknesses make collection of debt in full on the basis of currently existing facts, conditions and values highly questionable and improbable; (2) serious problems exist to the point where a partial loss of principal is likely; and (3) the possibility of loss is extremely high, but because of certain important, reasonably specific pending factors which may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens and additional refinancing plans.

~~Loss:~~ A lease or loan is classified as loss when uncollectible and of such little value that its continuance as a bankable asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.

~~The Companycharges-off~~ ~~the collateral or discounted cash flow deficiency on all loans onnon-accrual~~ ~~status. In all cases,~~ leases and loans are ~~placed~~based on internally developed credit score ratings, which is a measurement that combines many risk characteristics, including loan size, external credit scores, existence of a guarantee, and various characteristics of the borrower’s business. In addition, the Company separately measured a pool of true leases so that any future cashflows from residuals could be used to partially offset the allowance for that pool.

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

At each reporting date, the Company considers current conditions, including changes in portfolio composition or the business environment, when determining the appropriate measurement of current expected credit losses for the remaining life of its portfolio. As of the January 1, 2020 adoption date, the Company utilized a~~non-accrual~~12-month forecast period and12-month straight-line reversion period, based on its initial assessment of the appropriate timing.

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

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

Working Capital:

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

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

At each reporting date, the Company considers current conditions, including changes in portfolio composition or the business environment, when ~~90 days past~~determining the appropriate measurement of current expected credit losses for the remaining life of its portfolio. As of the January 1, 2020 adoption date, there was no qualitative adjustment to the Working Capital portfolio. However, for the March 31, 2020 measurement, driven by the elevated risk of credit loss driven by market conditions due ~~or earlier if collection~~toCOVID-19, the Company developed alternate scenarios for credit loss based on an analysis of ~~principal or interest is considered doubtful.~~the characteristics of its portfolio, considering different timing and magnitudes of potential exposures. The Company determined its most likely expectation for credit losses for the Working Capital segment for the remaining nine months of 2020, based on the increased risk to its borrowers and increased risk to the collectability of its portfolio fromCOVID-19, and increased the reserve by a $5.5 million qualitative adjustment for that loss estimate.

-21-

Commercial Vehicle Group (CVG):

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

The ~~following tables present~~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 ~~segments~~Company determined it was appropriate to develop an estimate based on a combination of data. Due to the Company’s limited history of performance of this segment, and the limited size of the ~~loan~~ 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 ~~which a formal risk weighting system is utilized summarized~~conditions and the environment that will impact the performance of these loans that should be considered for qualitative adjustment.

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

Community Reinvestment Act (CRA):

CRA loans are comprised of loans originated under a line of credit to satisfy the Company’s ~~risk rating system at June 30, 2019~~obligations under the Community Reinvestment Act of 1977. The Company does not measure an allowance specific to this portfolio segment because the exposure to credit loss is nominal.

In response toCOVID-19, starting inmid-March 2020, the Company instituted a payment deferral program in order to assist its small-business customers that request relief who are current under their existing obligations and ~~December~~can demonstrate that their ability to repay has been impacted by the COVID-19 crisis. Through March 31, ~~2018. The data within~~2020, the ~~tables reflect~~Company had processed payment deferral modifications for 520 contracts, or $19.5 million net investment ~~excluding deferred fees~~in leases and ~~cost~~loans, where the typical modification included a60-day deferral of payments for Working Capital loans and ~~allowance:~~90-day deferral of payments for other customers, with such payments added to the end of the contract term. The modifications for each portfolio segment were $8.5 million of Equipment Finance, $7.0 million of Working Capital, and $4.0 million of CVG net investment in leases and loans. The Company did not adjust its estimate of credit losses for any portfolio segment based on whether or not contracts were modified; the Company’s allowance estimate assesses the risk of credit loss for modified loans to be equal to loans that were not modified as of March 31, 2020.

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

   June 30, 2019
   Commercial Leases and Loans
(Dollars in thousands)
   Working
Capital
Loans    CRA    Equipment
Finance    CVG    Total
Pass
   $ 50,465    $ 1,493    $ 910,157    $ 81,709    $ 1,043,824
Special Mention
   267    —      4,406    347    5,020
Substandard
   243    —      3,351    719    4,313
Doubtful
   248    —      2,265    368    2,881
Loss
   —      —      1,530    158    1,688










Total
   $ 51,223    $ 1,493    $ 921,709    $ 83,301    $ 1,057,726










   December 31, 2018
   Commercial Leases and Loans
(Dollars in thousands)
   Working
Capital
Loans    CRA    Equipment
Finance    CVG    Total
Pass
   $ 35,793    $ 1,466    $ 879,275    $ 66,463    $ 982,997
Special Mention
   47    —      4,373    146    4,566
Substandard
   145    —      3,460    660    4,265
Doubtful
   300    —      2,353    158    2,811
Loss
   193    —      1,324    227    1,744










Total
   $ 36,478    $ 1,466    $ 890,785    $ 67,654    $ 996,383

Troubled debt restructurings are restructurings of leases and loans in which, due to the borrower’s financial difficulties, a lender grants a concession that it would not otherwise consider for borrowers of similar credit quality. In accordance with the interagency guidance issued in March 2020, that the Financial Accounting Standards Board concurred with, loans modified under the Company’s payment deferral program are not considered troubled debt restructurings. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company did not have any troubled debt restructurings.

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

-22-

Credit Quality

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

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

-23-

The following tables provide information about delinquent leases and loans in the Company’s portfolio based on the contract’s status~~Non-Accrual~~as-of ~~Leases and Loans~~the dates presented:


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

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

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

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

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

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

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

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

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

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

Total		1,410		—		—		—		—		—		1,410

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

-24-


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

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

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

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

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

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

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

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

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

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

Total		1,398		—		—		—		—		—		1,398

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

⁽¹⁾	Current receivables include leases and loans that are in payment deferral status as part of the Company’sCOVID-19 modification program. See further discussion above.

-25-

Net investments in Equipment Finance and CVG leases and loans are generallycharged-off when they are contractually past due for 120 days or more. Income recognition is discontinued ~~on leases or loans~~ when a default on monthly payment exists for a period of 90 days or more. Income recognition resumes when a lease or loan becomes less than 90 days delinquent. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, there were no finance receivables past due 90 days or more and still accruing.

Working Capital Loans are generally placed innon-accrual status when they are 30 days past due and generallycharged-off at 60 days past due. The loan is removed fromnon-accrual status once sufficient payments are made to bring the loan current and reviewed by management. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, there were no Working Capital Loans past due 30 days or more and still accruing.

~~-22-~~

~~Management further monitors the performance and credit quality of the loan portfolio as determined by the length of time a recorded payment is due.~~

The following tables provide information about ~~delinquent and~~non-accrual leases and ~~loans in the Company’s portfolio as of June 30, 2019 and December 31, 2018:~~loans:

June 30, 2019
(Dollars in thousands)
   30-59
Days
Past
Due    60-89
Days
Past
Due    >90
Days
Past
Due    Total
Past
Due    Current    Total
Finance
Receivables    Non-
Accruing
Working Capital Loans
   $ 240    $ —      $ —      $ 240 �� $ 50,983    $ 51,223    $ 248
CRA
   —      —      —      —      1,493    1,493    —
Equipment Finance⁽¹⁾
   4,287    3,030    3,817    11,134    1,037,233    1,048,367    3,817
CVG
   381    374    465    1,220    96,424    97,644    465














Total Leases and Loans⁽²⁾
   $ 4,908    $ 3,404    $ 4,282    $ 12,594    $ 1,186,133    $ 1,198,727    $ 4,530














December 31, 2018
(Dollars in thousands)
   30-59
Days
Past
Due    60-89
Days
Past
Due    >90
Days
Past
Due    Total
Past
Due    Current    Total
Finance
Receivables    Non-
Accruing
Working Capital Loans
   $ 300    $ 51    $ 141    $ 492    $ 35,986    $ 36,478    $ 492
CRA
   —      —      —      —      1,466    1,466    —
Equipment Finance⁽¹⁾
   4,537    3,123    3,529    11,189    1,001,363    1,012,552    3,529
CVG
   166    257    191    614    78,407    79,021    191














Total Leases and Loans⁽²⁾
   $ 5,003    $ 3,431    $ 3,861    $ 12,295    $ 1,117,222    $ 1,129,517    $ 4,212

~~(1)~~

~~Equipment Finance consists of Equipment Finance Agreements, Installment Purchase Agreements, and other leases and loans.~~

~~(2)~~

~~Represents total minimum lease and loan payments receivable for Equipment Finance and CVG and as a percentage of principal outstanding for Working Capital Loans and CRA.~~


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

TotalNon-Accrual	$	6,705	$	5,591

~~-23-~~-26-

NOTE 7 – Goodwill and Intangible Assets

Goodwill

The Company’s goodwill balance of ~~$7.4~~$6.7 million at December 31, ~~2018~~2019 included $1.2 million from the Company’s acquisition of Horizon Keystone Financial, an equipment company (‘HKF”), in January 2017, and ~~$6.2~~$5.5 million from the ~~preliminary allocation of the purchase price of the Company’s~~September 2018 acquisition of FFR in September 2018. The Company completed the purchase price allocation in the first quarter of 2019 upon receiving clarification of certain outstanding matters and established a final goodwill valuation of $5.6 million resulting in a goodwill reduction of $0.6 million in the first quarter of 2019.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. Impairment testing will be performed in the fourth quarter of each year and more frequently as warranted in accordance with the applicable accounting guidance.

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 theCOVID-19 economic shutdown. The Company calculated the fair value of the reporting unit, by taking the average stock price over a reasonable period of time multiplied by shares outstanding as of March 31, 2020 and then further applying a control premium, and compared it to its carrying amount, including goodwill. The Company concluded that the implied fair value of goodwill was less than its carrying amount, and recognized impairment equal to the $6.7 million balance in General and administrative expense in the Consolidated Statements of Operations.

The changes in the carrying amount of goodwill for the ~~six~~three- month period ended ~~June 30, 2019~~March 31, 2020 are as follows:

(Dollars in thousands)    Total
Company
Balance at December 31, 2018
   $ 7,360
Changes
   (625 )


Balance at June 30, 2019
   $ 6,735


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

Balance at March 31, 2020	$	—

Intangible assets

~~During the first quarter~~The Company’s intangible assets consist of ~~2017,~~$1.3 million of definite-lived assets with a weighted-average amortization period of 8.7 years that were recognized in connection with the January 2017 acquisition of HKF, ~~the Company acquired certain~~and $7.6 million of definite-lived intangible assets with a ~~total cost of $1.3 million and a weighted average~~weighted-average amortization period of ~~8.7 years. During the third quarter of 2018,~~10.8 years that were recognized in connection with the September 2018 acquisition of ~~FFR, the Company acquired certain definite-lived intangible assets with a total cost of $7.2 million based on a preliminary evaluation.~~FFR. The Company subsequently completed the purchase price allocation in the first quarter of 2019 and established a cost of $7.6 million for the acquired intangible assets and a weighted average amortization period of 10.8 years. The Company hadhas no indefinite-lived intangible ~~assets at June 30, 2019.~~assets.

The following table presents details of the Company’s intangible assets as of ~~June 30, 2019:~~March 31, 2020:


(Dollars in thousands) Description	Useful Life		Cost		Accumulated Amortization		Net Value		Useful Life		Gross Carrying Amount		Accumulated Amortization		Net Value
Lender relationships		3 to 10 years	$	1,630	$	395	$	1,235		3 to 10 years	$	1,630	$	551	$	1,079
Vendor relationships		11 years		7,290		644		6,646		11 years		7,290		1,140		6,150
Corporate trade name		7 years		60		21		39		7 years		60		28		32

			$	8,980	$	1,060	$	7,920			$	8,980	$	1,719	$	7,261

There was no impairment of these assets in the ~~second~~first quarter of 2020 or ~~six months of 2019 or 2018.~~2019. Amortization related to the Company’s definite lived intangible assets was ~~$0.5~~$0.2 million and ~~$0.1~~$0.2 million for the~~six-month~~ three-month periods ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and June 30, 2018,~~ respectively.

~~-24-~~-27-

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


(Dollars in thousands)
Remainder of 2019	$	459
2020		798
Remainder of 2020			$	599
2021		798		798
2022		798		798
2023		798		798
2024				790

NOTE 8 – Other Assets

Other assets are comprised of the following:

   June 30,
2019    December 31,
2018
   (Dollars in thousands)
Accrued fees receivable
   $ 3,339    $ 3,354
Prepaid expenses
   2,956    2,447
Income taxes receivable
   754    —
Federal Reserve Bank Stock
   1,711    1,711
Other
   2,392    2,144




   $ 11,152    $ 9,656

~~NOTE 9 – Leases~~

~~The Company determines if an arrangement is a lease at inception. Operating leases are included in operating leaseright-of-use~~ (“ROU”) assets and operating lease liabilities on our consolidated balance sheets. ROU assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, in order to determine the present value of future payments for office leases we use an incremental borrowing rate based on the information available through real estate databases for similar locations and for the present value of future payments for equipment leases we use the average rate of our term note securitization which is collateralized by similar equipment. The ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

As of June 30, 2019, the Company leases all six of its office locations including its executive offices in Mt. Laurel, New Jersey, and its offices in or near Salt Lake City, Utah; Portsmouth, New Hampshire; Highlands Ranch, Colorado; Riverside, California; and Philadelphia, Pennsylvania. The Company has elected not to recognize ROU assets and lease liabilities for three office leases whose terms are twelve months or less and are considered short-term leases. Three of the office leases include options to extend for terms of three to ten years. These options have not been recognized as part of our ROU assets and lease liabilities as the Company is not reasonably certain to exercise these options. The Company has also entered into two leases for office equipment for which ROU assets and lease liabilities have been recognized. All the aforementioned leases have been accounted for as operating leases.


	March 31, 2020		December 31, 2019
	(Dollars in thousands)
Accrued fees receivable	$	3,683	$	3,509
Prepaid expenses		2,853		2,872
Income taxes receivable⁽¹⁾		6,877		—
Federal Reserve Bank Stock		1,711		1,711
Other		2,341		2,361

	$	17,465	$	10,453

~~-25-~~

~~The components of lease expense were as follows:~~

   Three Months Ended June 30,    Six Months Ended June 30,
   2019    2018    2019    2018
   (Dollars in thousands)    (Dollars in thousands)
Operating lease cost
   $ 333    $ 283    $ 556    $ 559
Finance lease costs
   —      2    —      4
Short-term lease cost
   35    —      74    —








Total lease cost
   $ 368    $ 285    $ 630    $ 563

~~Supplemental information related to leases was as follows:~~

(Dollars in thousands)    Six Months Ended
June 30, 2019
Supplemental balance sheet information

Operating leaseright-of-use assets⁽¹⁾
   $ 8,626
Operating lease liabilities
   9,074
Weighted average remaining lease term
   12.4 Years
Weighted average discount rate
   3.30 %
Supplemental cash flow information

Operating cash flows from operating leases
   $ 199
Right-of-use assets obtained in exchange for lease obligations
   8,626

⁽¹⁾

InSee Note 2 –Summary of Significant Accounting Policies,for discussion of the ~~second quarter,right-of-use~~ assets related to the Company’s existing leases increased by $2.9 million as a result of additional negotiations with a landlord on a lease put in place January 1, 2019. These changes resulted in additional right-of-use assets and the removal of lease incentive receivables.Provision for income taxes.

~~Maturities of lease liabilities were as follows:~~

   Operating Leases
Period Ending December 31,    (Dollars in thousands)
Remainder of 2019
   $ 210
2020
   1,098
2021
   886
2022
   791
2023
   806
Thereafter
   7,378


Total lease payments
   $ 11,169
Less: imputed interest
   (2,095 )


Total
   $ 9,074

~~-26-~~-28-

NOTE ~~10 – Commitments and Contingencies~~

~~MBB is a member bank in anon-profit,~~ multi-financial institution Community Development Financial Institution (“CDFI”) organization. The CDFI serves as a catalyst for community development by offering flexible financing for affordable, quality housing to~~low-~~ and moderate-income residents, helping MBB meet its Community Reinvestment Act (“CRA”) obligations. Currently, MBB receives approximately 1.2% participation in each funded loan which is collateral for the loan issued to the CDFI under the program. MBB records loans in its financial statements when they have been funded or become payable. Such loans help MBB satisfy its obligations under the Community Reinvestment Act of 1977. At June 30, 2019, MBB had an unfunded commitment of $0.5 million for this activity. MBB’s~~one-year~~ ~~commitment to the CDFI will expire in September 2019 at which time the commitment may be renewed for another year based on the Company’s discretion.~~

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

Banking institutions are subject to periodic reviews and examinations from banking regulators. In 2017, one of MBB’s regulatory agencies communicated findings in connection with the timing of certain aspects of payment application processes in effect prior to February 2016 related to the assessment of late fees. The Company agreed to pay restitution to customers in the amount $4.0 million to resolve this matter, and the Company established a liability for such amount in the first quarter of 2017. In the second quarter of 2019, the Company remitted the $4.0 million into a fund that will process the restitution and resolve its obligation for this matter.

~~NOTE 11~~9 – Deposits

MBB serves as the Company’s primary funding source. MBB issues fixed-rate FDIC-insured certificates of deposit raised nationally through various brokered deposit relationships and fixed-rate FDIC-insured deposits received from direct sources. MBB offers FDIC-insured money market deposit accounts (the “MMDA Product”) through participation in a partner bank’s insured savings account product. This brokered deposit product has a variable rate, no maturity date and is offered to the clients of the partner bank and recorded as a single deposit account at MBB. As of ~~June 30, 2019,~~March 31, 2020, money market deposit accounts totaled ~~$22.6~~$51.6 million.

As of ~~June 30, 2019,~~March 31, 2020, the scheduled maturities of certificates of deposits are as follows:


	Scheduled Maturities		Scheduled Maturities
	(Dollars in thousands)		(Dollars in thousands)
Period Ending December 31,
Remainder of 2019	$	209,179
2020		277,081
Remainder of 2020			$	387,922
2021		202,896		265,743
2022		105,523		134,233
2023		45,873		66,915
2024				28,046
Thereafter		25,062		6,927

Total	$	865,614	$	889,786

Certificates of deposits issued by MBB are time deposits and are generally issued in denominations of $250,000 or less. The MMDA Product is also issued to customers in amounts less than $250,000. The FDIC insures deposits up to $250,000 per depositor. The weighted averageall-in interest rate of deposits at ~~June 30, 2019~~March 31, 2020 was ~~2.44%~~2.15%.

~~-27-~~

NOTE 1210 – Debt and Financing Arrangements

Short-Term Borrowings

~~On November 20, 2018, the~~The Company ~~closed on~~has a secured, variable rate revolving line of credit in the amount of $5.0 million that expires on November 20, ~~2019.~~2020. As of ~~June 30, 2019,~~March 31, 2020, the Company was in compliance with all debt covenants required under this line of credit and there were no outstanding balances on this line of credit as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

Long-term Borrowings

On July 27, 2018, the Company completed a $201.7 million asset-backed term securitization. Each tranche of the term note securitization has a fixed term, fixed interest rate and fixed principal amount. At ~~June 30, 2019,~~March 31, 2020, outstanding term securitizations amounted to ~~$110.4~~$62.6 million and are collateralized by ~~$124.0~~$68.5 million of minimum lease and loan payments receivable and ~~$8.1~~$6.5 million of restricted interest-earning deposits. The Company’s term note securitizations are classified as long-term borrowings.

The ~~Company’s~~balance of long-term borrowings consisted of the following:


	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(Dollars in thousands)						(Dollars in thousands)
Term securitization2018-1	$	110,405		$	151,233		$	62,555		$	76,563
Unamortized debt issuance costs		(768	)		(1,178	)		(362	)		(472	)

	$	109,637		$	150,055		$	62,193		$	76,091

-29-

The ~~July 27, 2018~~ term note securitization is summarized below:


					Notes		Final		Original
	Outstanding Balance as of				Originally		Maturity		Coupon			Outstanding Balance as of				Notes		Final		Original
	June 30, 2019		December 31, 2018		Issued		Date		Rate			March 31, 2020		December 31, 2019		Originally Issued		Maturity Date		Coupon Rate
	(Dollars in thousands)													(Dollars in thousands)
2018 — 1
Class A-1	$	—	$	26,983	$	77,400		July, 2019		2.55	%	$	—	$	—	$	77,400		July, 2019		2.55	%
Class A-2		41,855		55,700		55,700		October, 2020		3.05			—		8,013		55,700		October, 2020		3.05
Class A-3		36,910		36,910		36,910		April, 2023		3.36			30,915		36,910		36,910		April, 2023		3.36
Class B		10,400		10,400		10,400		May, 2023		3.54			10,400		10,400		10,400		May, 2023		3.54
Class C		11,390		11,390		11,390		June, 2023		3.70			11,390		11,390		11,390		June, 2023		3.70
Class D		5,470		5,470		5,470		July, 2023		3.99			5,470		5,470		5,470		July, 2023		3.99
Class E		4,380		4,380		4,380		May, 2025		5.02			4,380		4,380		4,380		May, 2025		5.02

Total Term Note Securitizations	$	110,405	$	151,233	$	201,650				3.05	%⁽¹⁾⁽²⁾	$	62,555	$	76,563	$	201,650				3.05	%⁽¹⁾⁽²⁾

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

⁽²⁾	The weighted average coupon rate of the2018-1 term note securitization will approximate ~~3.41%~~3.62% over the remaining term of the borrowing.

~~-28-~~

Scheduled principal and interest payments on outstanding borrowings as of ~~June 30, 2019~~March 31, 2020 are as follows:


	Principal		Interest		Principal		Interest
	(Dollars in thousands)				(Dollars in thousands)
Period Ending December 31,
Remainder of 2019	$	32,994	$	1,656
2020		45,200		1,993
Remainder of 2020					$	30,344	$	1,342
2021		23,629		813		23,629		813
2022		8,582		159		8,582		159

	$	110,405	$	4,621	$	62,555	$	2,314

~~-29-~~-30-

NOTE 1311 – Fair Value Measurements and Disclosures about the Fair Value of Financial Instruments

Fair Value Measurements

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

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

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

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

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

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

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

~~The~~ Company’s balances measured at fair value on a recurring basis include the following as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


	June 30, 2019 Fair Value Measurements Using						December 31, 2018 Fair Value Measurements Using						March 31, 2020 Fair Value Measurements Using						December 31, 2019 Fair Value Measurements Using
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	(Dollars in thousands)												(Dollars in thousands)
Assets
ABS	$	—	$	4,615	$	—	$	—	$	4,915	$	—	$	—	$	4,135	$	—	$	—	$	4,332	$	—
Municipal securities		—		2,454		—		—		2,612		—		—		2,653		—		—		3,129		—
Mutual fund		3,564		—		—		3,429		—		—		3,692		—		—		3,615		—		—

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

~~Disclosures about the Fair Value of Financial Instruments~~Non-Recurring Measurements

~~The Financial Instruments Topic~~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 ~~FASB ASC requires~~carrying amount of its servicing liability.

For the ~~disclosure~~three months ended March 31, 2020, the Company recognized $6.7 million for the impairment of goodwill in General and administrative expense in the ~~estimated~~Consolidated Statements of Operations, as discussed further in Note 7, Goodwill and Intangible Assets. For the three months ended March 31, 2019, there were no significant amounts recognized in the Consolidated Statements of Operations in connection withnon-recurring fair value of financial instruments including those financial instruments not measured at fair value on a recurring basis. This requirement excludes certain instruments, such as the net investment in leases and all nonfinancial instruments.

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

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Fair Value of Other Financial Instruments

The following summarizes the carrying amount and estimated fair value of the Company’s other financial instruments, ~~that are~~including those not ~~recorded on the consolidated balance sheet~~measured at fair value ~~as of June 30, 2019 and December 31, 2018:~~on a recurring basis:


	June 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)								(Dollars in thousands)
Financial Assets
Cash and cash equivalents	$	139,731	$	139,731	$	97,156	$	97,156	$	211,070	$	211,070	$	123,096	$	123,096
Time deposits with banks		12,679		12,210		9,659		9,614		13,664		13,094		12,927		12,970
Restricted interest-earning deposits with banks		8,152		8,152		14,045		14,045		6,474		6,474		6,931		6,931
Loans, net of allowance		590,973		596,755		518,697		515,754		580,244		558,584		588,688		593,406
Federal Reserve Bank Stock		1,711		1,711		1,711		1,711		1,711		1,711		1,711		1,711
Financial Liabilities
Deposits	$	888,561	$	868,564	$	755,776	$	722,682	$	941,996	$	952,958	$	839,132	$	846,304
Long-term borrowings		109,637		110,532		150,055		149,912		62,193		62,841		76,091		76,781
Servicing Liability		1,794		1,794		1,352		1,352

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

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

~~The carrying amounts of~~note disclosures in the Company’s ~~cash and cash equivalents approximate fair value as of June 30, 2019 and~~Form10-K for the year ended December 31, 2018, because they bear interest at market rates and had maturities of less than 90 days at the time of purchase. The cash equivalents include a money market fund with a balance of $34.3 million that the Company considers operating cash and has no reportable gross unrealized gains or losses. The fair value measurement of cash and cash equivalents is classified as Level 1.

~~Time Deposits with Banks~~

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

~~Restricted Interest-Earning Deposits with Banks~~

The company maintains interest-earning trust accounts pledged as collateral for our secured debt facilities. The book value of such accounts is included in restricted interest-earning deposits with banks on the accompanying Consolidated Balance Sheet. These accounts earn a floating market rate of interest which results in a fair value approximating the carrying amount at June 30, 2019 and December 31, 2018. This fair value measurement is classified as Level 1.

~~Loans~~

~~The loan balances are comprised of three types of loans. Loans made as a member bank in anon-profit,~~ ~~multi-financial institution CDFI serve as a catalyst for community development by offering financing for affordable, quality housing tolow-~~ and moderate-income residents. Such loans help MBB satisfy its obligations under the Community Reinvestment Act of 1977. The fair value of these loans approximates the carrying amount at June 30, 2019 and December 31, 2018 as it is based on recent comparable sales transactions with consideration of current market rates. This fair value measurement is classified as Level 2. The Company also invests in a small business loan product tailored to the small business market. Fair value for these loans is estimated by discounting cash flows at an imputed market rate for similar loan products with similar characteristics. This fair value measurement is classified as Level 2. The Company invests in loans to our customers in the franchise finance channel. These loans may be secured by equipment being acquired, blanket liens on personal property, or specific equipment already owned by the customer. The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans would be made to borrowers with similar credit, collateral, and for the same remaining maturities. This fair value measurement is classified as Level 2.

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~~Federal Reserve Bank Stock~~

~~Federal Reserve Bank Stock arenon-marketable~~ ~~equitable equity securities and are reported at their redeemable carrying amounts, which approximates fair value. This fair value measurement is classified as Level 2.~~

~~Deposits~~

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

~~Long-Term Borrowings~~

The fair value of the Company’s secured borrowings is estimated by discounting cash flows at indicative market rates applicable to the Company’s secured borrowings of the same or similar maturities. This fair value measurement is classified as Level 2.

~~Servicing Liability~~

Servicing liabilities do not trade in an active market with readily observable prices. Accordingly, we determined fair value based on a discounted cash flow model which uses various inputs related to the estimated net servicing income, if any, and costs to service discounted back at a discount rate. There were no changes to the valuation techniques for the periods presented. Fair value measurements of our servicing liabilities use unobservable inputs, and accordingly we classify our servicing liability as Level 3.2019.

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NOTE 1412 – Earnings Per Share

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

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

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

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


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(Dollars in thousands, exceptper-share data)												(Dollars in thousands, exceptper-share data)
Basic EPS
Net income	$	6,115		$	6,467		$	11,256		$	12,652
Net (loss) income													$	(11,821	)	$	5,141
Less: net income allocated to participating securities		(74	)		(115	)		(147	)		(235	)		—			(72	)

Net income allocated to common stock	$	6,041		$	6,352		$	11,109		$	12,417
Net (loss) income allocated to common stock													$	(11,821	)	$	5,069

Weighted average common shares outstanding		12,333,383			12,419,955			12,335,545			12,427,501			12,014,396			12,337,730
Less: Unvested restricted stock awards considered participating securities		(148,387	)		(220,866	)		(160,170	)		(233,475	)		(138,249	)		(172,084	)

Adjusted weighted average common shares used in computing basic EPS		12,184,996			12,199,089			12,175,375			12,194,026			11,876,147			12,165,646

Basic EPS	$	0.50		$	0.52		$	0.91		$	1.02
Basic (loss) earnings per share													$	(1.00	)	$	0.42

Diluted EPS
Net income allocated to common stock	$	6,041		$	6,352		$	11,109		$	12,417
Net (loss) income allocated to common stock													$	(11,821	)	$	5,069

Adjusted weighted average common shares used in computing basic EPS		12,184,996			12,199,089			12,175,375			12,194,026			11,876,147			12,165,646
Add: Effect of dilutive stock-based compensation awards		81,855			70,900			84,624			61,473			—			86,470

Adjusted weighted average common shares used in computing diluted EPS		12,266,851			12,269,989			12,259,999			12,255,499			11,876,147			12,252,116

Diluted EPS	$	0.49		$	0.52		$	0.91		$	1.01
Diluted (loss) earnings per share													$	(1.00	)	$	0.41

For each of the three-month periods ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and June 30, 2018,~~ outstanding ~~stock-based~~stock based compensation awards in the amount of ~~174,458~~359,035 and ~~135,265,~~188,583, respectively, were considered antidilutive and therefore were not considered in the computation of potential common shares for purposes of diluted EPS.

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~~For thesix-month~~ periods ended June 30, 2019 and June 30, 2018, outstanding stock-based compensation awards in the amount of 187,093 and 125,166, respectively, were considered antidilutive and therefore were not considered in the computation of potential common shares for purposes of diluted EPS.

NOTE 1513 – Stockholders’ Equity

~~Stockholders’ Equity~~Share Repurchases

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

During the three-month period ended ~~June 30,~~March 31, 2020, the Company purchased 264,470 shares of its common stock in the open market under the 2019 Repurchase Plan at an average cost of $16.09 per share. During the three-month period ended March 31, 2019, the Company purchased ~~72,824~~29,947 shares of its common stock in the open market under the 2017 Repurchase Plan at an average cost of ~~$ 23.44 per share. During thesix-month~~ period ended June 30, 2019, the Company purchased 102,771 shares of its common stock under the 2017 Repurchase Plan at an average cost of $ 23.57 per share. During the three-month period ended June 30, 2018 the Company did not purchase any its common stock in the open market under the 2017 Repurchase Plan. During the~~six-month~~ ~~period ended June 30, 2018, the Company purchased 17,725 shares of its common stock under the 2017 Repurchase Plan at an average cost of $ 28.21~~$23.86 per share. At ~~June 30, 2019,~~March 31, 2020, the Company had ~~$ 3.3~~$4.7 million remaining in the ~~2017~~2019 Repurchase Plan.

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In addition to the repurchases described above, participants in the Company’s 2014 Equity Compensation Plan (approved by the Company’s shareholders on June 3, 2014) (the “2014 Plan”) may have shares withheld to cover income taxes. ~~There~~During the three-month periods ended March 31, 2020 and March 31, 2019, there were ~~536~~21,123 shares and ~~19,446~~18,910 shares repurchased to cover income tax withholding ~~in connection with shares granted~~ under the 2014 Plan ~~during each of the three- andsix-month~~ ~~periods ended June 30, 2019,~~ at an average~~per-share~~ ~~costs~~ cost of $ ~~22.81~~13.38 per share and ~~$ 22.74, respectively. There were 1,121 and 20,422 shares repurchased to cover income tax withholding in connection with shares granted under the 2014 Plan during the three- andsix-month~~ ~~periods ended June 30, 2018, at averageper-share~~ ~~costs of $ 29.13 and $ 26.09,~~$22.74 per share, respectively.

Regulatory Capital Requirements

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

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

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

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

MBB’s Tier 1 Capital balance at ~~June 30, 2019~~March 31, 2020 was ~~$146.3~~$139.2 million, which met all capital requirements to which MBB is subject and qualified MBB for “well-capitalized” status. At ~~June 30, 2019,~~March 31, 2020, the Company also exceeded its regulatory capital requirements and was considered “well-capitalized” as defined by federal banking regulations and as required by the FDIC Agreement.

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

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

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

The following table sets forth the Tier 1 leverage ratio, common equity Tier 1 risk-based capital ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio for Marlin Business Services Corp. and MBB at ~~June 30, 2019.~~March 31, 2020.

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

Marlin Business Services Corp.
   15.24 % $ 190,851    4 % $ 50,084    5 % $ 62,605
Marlin Business Bank
   13.76 % $ 146,293    5 % $ 53,146    5 % $ 53,146
Common Equity Tier 1 Risk-Based Capital

Marlin Business Services Corp.
   17.01 % $ 190,851    4.5 % $ 50,497    6.5 % $ 72,939
Marlin Business Bank
   15.05 % $ 146,293    6.5 % $ 68,053    6.5 % $ 68,053
Tier 1 Risk-based Capital

Marlin Business Services Corp.
   17.01 % $ 190,851    6 % $ 67,329    8 % $ 89,772
Marlin Business Bank
   15.05 % $ 146,293    8 % $ 82,635    8 % $ 82,635
Total Risk-based Capital

Marlin Business Services Corp.
   18.26 % $ 204,912    8 % $ 89,772    10 % $ 112,215
Marlin Business Bank
   16.30 % $ 158,476    15 % $ 145,827    10 %⁽¹⁾ $ 102,079

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


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

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

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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.

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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.

~~Pursuant to the FDIC Agreement entered into in conjunction with the opening of MBB, MBB must keep its total risk-based capital ratio above 15%.~~ MBB’s total risk-based capital ratio of ~~16.30%~~16.16% at ~~June 30, 2019~~March 31, 2020 exceeded the threshold for “well capitalized” status under the applicable laws and ~~regulations, and also exceeded the 15% minimum total risk-based capital ratio required in the FDIC Agreement.~~regulations.

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

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NOTE 1614 – 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 andnon-employee members of the Company’s Board of Directors have the opportunity to receive incentive and nonqualified grants of stock options, stock appreciation rights, restricted stock and other equity-based awards ~~(collectively referred to as “Grants”)~~ 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 ~~826,036~~573,981 shares available for future ~~awards~~grants under the 2019 Plan as of ~~June 30, 2019.~~March 31, 2020.

Total stock-based compensation expense was ~~$1.0~~$0.5 million and ~~$0.7~~$0.9 million for the three-month periods ended ~~June 30,~~March 31, 2020 and

March 31, 2019, ~~and June 30, 2018, respectively. Total stock-based compensation expense was $1.9 million and $1.7 million for thesix-month~~ ~~periods ended June 30, 2019 and June 30, 2018,~~ respectively. Excess tax ~~benefits from stock-based payment arrangements was $0.1 million and $0.2 million~~deficit for the~~six-month~~ ~~periods~~ three-month period ended ~~June 30,~~March 31, 2020 was $0.4 million. Excess tax benefits for the three-month period ended March 31, 2019 ~~and June 30, 2018, respectively.~~was less than $0.1 million.

~~-36-~~

Stock Options

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

~~The Company may also issue stock options tonon-employee~~ ~~independent directors. These options generally vest in one year.~~

There were no stock options granted during the three-month ~~and six-month~~ periods ended ~~June 30,~~March 31, 2020 and March 31, 2019, respectively. There were no stock options and 68,689 stock options granted during the three-month and six-month periods ended June 30, 2018, respectively. The fair value of stock options granted during the six-month period ended June 30, 2018 was $7.21. The fair value was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:


~~Six Months Ended June 30, 2018~~
~~Risk-free interest rate~~	~~2.64~~	%
~~Expected life (years)~~	~~4.50~~
~~Expected volatility~~	~~32.32~~	%
~~Expected dividends~~	~~1.98~~	%

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~~ three-month period ended ~~June 30, 2019~~March 31, 2020 follows:


Options	Number of Shares			Weighted Average Exercise Price Per Share		Number of Shares			Weighted Average Exercise Price Per Share
Outstanding, December 31, 2018		146,431		$	26.77
Outstanding, December 31, 2019							135,159		$	26.79
Granted		—			—		—			—
Exercised		—			—		—			—
Forfeited		—			—		(3,929	)		27.31
Expired		(3,175	)		25.75		(7,097	)		26.36

Outstanding, June 30, 2019		143,256			26.80
Outstanding, March 31, 2020							124,133			26.80

~~The~~During each three-month period ended March 31, 2020 and March 31, 2019, the Company recognized ~~$0.1 million and $0.2 million of~~ compensation expense related to options ~~during the three andsix-month~~ ~~periods ended June 30, 2019. The Company recognized~~of $0.1 ~~million and $0.1 million of compensation expense related to options during the three andsix-month~~ ~~periods ended June 30, 2018.~~million.

There were no stock options exercised during the three-month ~~period~~periods ended ~~June 30,~~March 31, 2020 and March 31, 2019. ~~There were 909 stock options exercised during the three-month period ended June 30, 2018.~~

~~The total pretax intrinsic values of stock options exercised was $0.1 million for thesix-month~~ ~~period ended June 30, 2018.~~

-37-

The following table summarizes information about the stock options outstanding and exercisable as of ~~June 30, 2019:~~March 31, 2020.


*Options Outstanding*	*Options Outstanding*								*Options Exercisable*							*Options Outstanding*									*Options Exercisable*
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Life (Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value (In thousands)		Number Exercisable		Weighted Average Remaining Life (Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value (In thousands)			Number Outstanding		Weighted Average Remaining Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value (In thousands)		Number Exercisable		Weighted Average Remaining Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value (In thousands)
$25.75			83,235	4.8	$	25.75	$	—		55,165	4.8	$	25.75		—			71,766		4.0	$	25.75	$	—		71,766		4.0	$	25.75		—
$28.25			60,021	5.7	$	28.25	$	—		20,001	5.7	$	28.25	$	—			52,367		5.0	$	28.25	$	—		35,317		5.0	$	28.25	$	—

			143,256	5.2	$	26.80	$	—		75,166	5.0	$	26.42	$	—			124,133		4.4	$	26.80	$	—		107,083		4.3	$	26.57	$	—

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of ~~$24.93~~$11.17 as of ~~June 30, 2019,~~March 31, 2020, which would have been received by the option holders had all option holders exercised their options as of that date.

As of ~~June 30, 2019,~~March 31, 2020, there was ~~$0.4~~$0.1 million of unrecognized compensation cost related tonon-vested stock options not yet recognized in the Consolidated Statements of Operations scheduled to be recognized over a weighted average period of ~~1.1 years.~~1.0 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.

~~Of the total restricted stock awards granted during thesix-month~~ ~~period ended June 30, 2019, no shares may be subject to accelerated vesting based on individual performance factors; no shares have vesting contingent upon performance factors.~~ Vesting was accelerated in 2019 ~~and 2018~~ on certain awards based on the achievement of certain performance criteria determined annually, as described below.

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

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The following table summarizes the activity of thenon-vested restricted stock during the~~six-month~~ three-month period ended ~~June 30, 2019:~~March 31, 2020:

Non-vested restricted stock
   Shares    Weighted
Average
Grant-Date
Fair Value
Outstanding at December 31, 2018
   186,603    $ 19.91
Granted
   1,100    23.05
Vested
   (46,492 )    15.37
Forfeited
   (1,850 )    22.79



Outstanding at June 30, 2019
   139,361    21.41

~~-38-~~


Non-vested restricted stock	Shares			Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2019		143,935		$	21.88
Granted		—			0.00
Vested		(11,973	)		18.83
Forfeited		(550	)		25.88

Outstanding at March 31, 2020		131,412			22.14

During the three-month ~~periods~~period ended ~~June 30,~~March 31, 2020 there were no restricted stock awards granted. During the three-month period ended March 31, 2019, ~~and June 30, 2018,~~ the Company granted restricted stock awards with ~~grant-date~~a grant date fair values totaling less than $0.1 ~~million and $0.5 million, respectively. During thesix-month~~ ~~periods ended June 30, 2019 and June 30, 2018, the Company granted restricted stock awards with grant-date fair values totaling less than $0.1 million and $0.5 million, respectively.~~million.

As vesting occurs, or is deemed likely to occur, compensation expense is recognized over the requisite service period and additionalpaid-in capital is increased. The Company recognized ~~$0.2~~$0.1 million and ~~$0.2~~$0.3 million of compensation expense related to restricted stock for the three-month periods ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and June 30, 2018, respectively. The Company recognized $0.5 million and $0.8 million of compensation expense related to restricted stock for thesix-month~~ ~~periods ended June 30, 2019 and June 30, 2018,~~ respectively.

Of the ~~$0.5~~$0.1 million total compensation expense related to restricted stock for the~~six-month~~ three-month period ended ~~June 30, 2019, approximately $0.1 million~~March 31, 2020, no expense was related to accelerated vesting ~~during the first quarter of 2019,~~ based on achievement of certain performance criteria determined annually. Of the ~~$0.8~~$0.3 million total compensation expense related to restricted stock for the~~six-month~~ three-month period ended ~~June 30, 2018,~~March 31, 2019, approximately ~~$0.3~~$0.1 million related to accelerated vesting ~~during the first quarter of 2018, which was also~~ based on the achievement of certain performance criteria determined annually.

As of ~~June 30, 2019,~~March 31, 2020, there was ~~$1.5~~$1.3 million of unrecognized compensation cost related tonon-vested restricted stock compensation scheduled to be recognized over a weighted average period of ~~3.6~~4.3 years. ~~As of June 30, 2019, there were no restricted stock awards outstanding for which vesting may be accelerated based on achievement of individual performance measures.~~

The fair value of shares that vested during the three-month periods ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~ was ~~$0.3~~$0.2 million and ~~$0.6~~$0.7 million, respectively. ~~The fair value of shares that vested during thesix-month~~ ~~periods ended June 30, 2019 and June 30, 2018 was $1.1 million and $1.8 million, respectively.~~

~~-39-~~

Restricted Stock Units

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

In the second quarter of 2018, the Company modified the terms of the portion of certain outstanding 2017 performance based RSUs that are based on actual versus targeted operating performance criteria over the performance period. The modification eliminated the tax benefit that arose from the Tax Cuts and Jobs Act enacted in December of 2017. This modification did not result in any incremental compensation costs.

-39-

The following tables summarize restricted stock unit activity for the~~six-month~~ three-month period ended ~~June 30, 2019:~~March 31, 2020:


Performance-based & market-based RSUs	Number of RSUs			Weighted Average Grant-Date Fair Value		Number of RSUs			Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2018		191,921		$	17.43
Outstanding at December 31, 2019							257,476		$	18.00
Granted		95,408			18.37		95,758			17.55
Forfeited		—			0.00		(5,081	)		23.99
Converted		(8,000	)		9.47		(13,810	)		25.75
Cancelled due tonon-achievement of market condition		(4,000	)		9.47
Cancelled due tonon-achievement of performance condition							(30,390	)		25.65

Outstanding at June 30, 2019		275,329			18.10
Outstanding at March 31, 2020							303,953			16.64

Service-based RSUs
Outstanding at December 31, 2018		61,256		$	27.61
Outstanding at December 31, 2019							99,951		$	23.59
Granted		74,620			21.50		69,422			20.43
Forfeited		—			0.00		(4,480	)		23.69
Converted		(22,509	)		27.47		(39,879	)		24.30

Outstanding at June 30, 2019		113,367			23.62
Outstanding at March 31, 2020							125,014			21.61

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

   Six Months Ended June 30,
   2019 2018
Grant date stock price
   $ 21.50 —
Risk-free interest rate
   2.16 % —
Expected volatility
   26.68 % —
Dividend yield
   —   —

~~There were no RSUs with vesting conditions based solely on market conditions granted during thesix-month~~ ~~periods ended June 30, 2019. There were no RSU’s granted during thesix-month~~ ~~period ended June 30, 2018.~~

~~-40-~~


	Three Months Ended March 31,
	2020			2019
Grant date stock price	$	20.43		$	21.50
Risk-free interest rate		1.40	%		2.16	%
Expected volatility		26.18	%		26.68	%

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

~~There were no RSUs granted during the three-month period ended June 30, 2019.~~

-40-

During the ~~three-month period~~three month periods ended ~~June 30, 2018,~~March 31, 2020 and March 31, 2019, the Company granted RSUs with grant-date fair values totaling ~~$0.1 million. During thesix-month~~ ~~periods ended June 30, 2019 and June 30, 2018, the Company granted RSUs with grant-date fair values totaling $3.4~~$3.1 million and ~~$2.4~~$3.4 million, respectively. The Company recognized ~~$0.7~~$0.3 million and ~~$0.4~~$0.5 million of compensation expense related to RSUs for the ~~three-month~~three month periods ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and June 30, 2018,~~ respectively. The ~~Company recognized $1.1 million and $0.7 million~~fair value of ~~compensation expense related~~restricted stock units that converted to ~~RSUs for~~shares of common stock during both the~~six-month~~ three month periods ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018,~~was $0.6 million, respectively. As of ~~June 30, 2019,~~March 31, 2020, there was $4.7 million of unrecognized compensation cost related to RSUs scheduled to be recognized over a weighted average period of ~~1.7~~1.9 years based on the most probable performance assumptions. In the event maximum performance targets are achieved, an additional ~~$3.7~~$5.0 million of compensation cost would be recognized over a weighted average period of ~~1.9~~2.3 years. As of ~~June 30, 2019, 210,211~~March 31, 2020 182,181 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 ~~450,107~~514,957 performance units would convert to shares of common stock.

NOTE 1715 – Subsequent Events

The Company declared a dividend of $0.14 per share on ~~August 1, 2019.~~April 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 22, 2019~~May 21, 2020 to shareholders of record on the close of business on ~~August 12, 2019.~~May 11, 2020. It represents the Company’s ~~thirty-second~~thirty-fifth consecutive quarterly cash dividend. The payment of future dividends will be subject to approval by the Company’s Board of Directors.

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 authorization is inIn addition, to the $3.3 million remaining authorization under the 2017 Repurchase Plan. The repurchase may be made on the open market, in block trades through privately negotiated transactions or plans, pursuant to instructions or contracts established under Rule 10b5-1 under the Securities Exchange Act of 1934, or otherwise in accordance with applicable laws, rules and regulations. No time limit has been setsee Note 6—Allowance for ~~the completion~~Credit Losses for discussion of the ~~program. The stock repurchase program does not obligate the Company~~volume of payment deferral contract modification requests approved subsequent to acquire any particular amount of common stock, and it may be suspended at any time at the Company’s discretion. The stock repurchase will be funded using the Company’s working capital. Any shares purchased under this program will be returned to the status of authorized but unissued shares of common stock.March 31, 2020.

-41-

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes thereto in our Form10-K for the year ended December 31, ~~2018~~2019 filed with the SEC. This discussion contains certain statements of a forward-looking nature that involve risks and uncertainties.

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

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

availability, terms and deployment of funding and capital;

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

the degree and nature of our competition;

availability and retention of qualified personnel;

general volatility of the capital markets;

the effects of theCOVID-19 pandemic; and

the factors set forth in the section captioned “Risk Factors” in Item 1 of our Form10-K for the year ended December 31, ~~2018 filed with the SEC.~~2019 and in PartII--Item 1A of this Form10-Q.

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

~~OVERVIEW~~OVERVIEW

Founded in 1997, we are a nationwide provider of credit products and services to small andmid-sized businesses. The products and services we provide to our customers include loans and leases for the acquisition of commercial equipment (including Commercial Vehicle Group (“CVG”) assets) and working capital loans. ~~We acquire~~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 ~~by offering equipment financing~~ through origination sources consisting of independent commercial equipment dealers, ~~and~~ various national account programs, through direct solicitation of our ~~small business~~end user customers and through relationships with select lease and loan brokers. We ~~also extend financing through~~use both a telephonic direct ~~solicitation of~~sales model and, for strategic larger accounts, outside sales executives to market to our ~~existing small business~~origination sources and end user customers. Through these origination ~~partners,~~sources, we are able to cost-effectively access ~~small business~~end user customers while also helping our origination ~~partners~~sources obtain financing for their customers.

Our leases and loans are fixed-rate transactions with terms generally ranging from 36 to 60 months. At June 30, 2019, our lease and loan portfolio consisted of 94,088 accounts, excluding Working Capital Loans, with an average original term of 49 months and average original transaction size of approximately $17,000.

MBB offers a flexible loan program called Working Capital Loans (formerly called Funding Stream.) Working Capital Loans is tailored to the small business market to provide customers access to capital to help grow their businesses. As of June 30, 2019, the Company had approximately $51.7 million, not including the allowance for credit losses allocated to loans of $1.9 million, of small business loans on the balance sheet. Generally, these loans range from $5,000 to $200,000, have flexible 6 to 24 month terms, and have automated daily, weekly and monthly payback.

~~At June 30, 2019, we had $1.28 billion in total assets. Our assets are substantially comprised of our net investment in leases and loans which totaled $1.06 billion at June 30, 2019.~~

-42-

~~Our revenue consists of interest and fees from our leases and loans, interest income from our interest earning cash and investments and, to a lesser extent,non-interest~~ ~~income from insurance premiums written and earned and other income. Our expenses consist of interest expense andnon-interest~~ expense, which include salaries and benefits and general and administrative expenses. As a credit lender, our earnings are also impacted by credit losses. For the quarter ended June 30, 2019, our annualized net credit losses were 1.88% of our average total finance receivables. We establish reserves for credit losses which require us to estimate inherent losses in our portfolio as of the reporting date.

Our leases are classified under U.S. GAAP as sales type leases, and we recognize interest income over the term of the lease. Sales type leases transfer substantially all of the benefits and risks of ownership to the equipment lessee. Net investment in leases consists of the sum of total minimum lease payments receivable and the estimated residual value of leased equipment, less unearned lease income. Unearned lease income consists of the excess of the total future minimum lease payments receivable plus the estimated residual value expected to be realized at the end of the lease term plus deferred net initial direct costs and fees less the cost of the related equipment. Approximately 59% of our lease portfolio at June 30, 2019 amortizes over the lease term to a $1 residual value. For the remainder of the portfolio, we must estimate end of term residual values for the leased assets. Failure to correctly estimate residual values could result in losses being realized on the disposition of the equipment at the end of the lease term.

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

EXECUTIVE SUMMARY

Summary

TheCOVID-19 pandemic rapidly escalated bymid-March, and we shifted our business focus towards mitigating the adverse effect of this crisis on our employees, customers and partners, while at the same time maintaining the stability of our operations. We ~~anticipate that FDIC-insured deposits issued by MBB will continue~~implemented our business continuity plan inmid-March to ~~represent~~allow our ~~primary source~~employees to work remotely, and we have not experienced any significant interruption of ~~funds~~our operations.

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

We implemented a payment deferral program to assist our customers who, during this period of economic decline, are current under their existing obligations and can demonstrate that their ability to repay has been impacted by the ~~future MBB may elect~~COVID-19 crisis. The program generally provides for 90 day deferrals for equipment finance customers, and 60 days deferrals for working capital loans. Through March 31, we processed modifications representing $19.5 million net investment in leases and loans, and subsequent to ~~offer other products~~quarter-end, through April 24, we have approved the modification application for contracts representing an additional $134.5 million net investment in leases and ~~services~~loans. A portion of these modifications are subject to the ~~Company’s customer base. As a Utah state-chartered Federal Reserve member bank, MBB is supervised by both the Federal Reserve Bank~~completion of ~~San Francisco~~final processing and ~~the Utah Department~~documentation.

The estimate of Financial Institutions. As of June 30, 2019, total MBB deposits were $888.6 million, compared to $755.8 million at December 31, 2018. We had $109.6 million of outstanding secured borrowings as of June 30, 2019 and $150.1credit losses for our portfolio increased $30.4 million as of March 31, 2020 compared to December 31, ~~2018.~~2019, driven both by the recognition of an $11.9 million increase to our allowance as a result of the January 1, 2020 adoption of CECL and by a $25.1 million Provision for loan losses for the three months ended March 31, 2020. The provision recognized included approximately $19.2 million of increases based on our current assessment of the probable economic impacts from theCOVID-19 pandemic, based on information known as of March 31st.

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

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

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

Capital Update

On ~~January 13, 2009, Marlin Business Services Corp. became~~March 25, 2020, we received notice that the FDIC approved MBB’s request to rescind certain nonstandard conditions that had been in effect since the bank was formed in 2007. In addition, the FDIC, the Company and certain of the Company’s subsidiaries terminated the Capital Maintenance and Liquidity Agreement (the “CMLA Agreement”) and the Parent Company Agreement, effective March 26, 2020. As a ~~bank holding company and~~result of these actions, MBB is ~~subject~~no longer required pursuant to the ~~Bank Holding~~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 ~~Act~~must continue to maintain a total risk-based capital ratio above 10.5% in order to avoid restrictions on capital returns to shareholders and supervised by the Federal Reserve Bank of Philadelphia. On September 15, 2010, the Federal Reserve Bank of Philadelphia confirmed the effectiveness of Marlin Business Services Corp.’s election to become a financial holding company (while remaining a bank holding company) pursuant to Sections 4(k) and (l) of the Bank Holding Company Act and Section 225.82 of the Federal Reserve Board’s Regulation Y. Such election permits Marlin Business Services Corp. to engage in activities that are financial in nature or incidental to a financial activity, including the maintenance and expansion of the reinsurance activities conducted through its wholly-owned subsidiary, AssuranceOne, Ltd. On September 19, 2018, we acquired Fleet Financing Resources (“FFR”), an equipment financing and leasing company specializing in both new and used commercial vehicles. This acquisition will augment our organic growth by extending our existing equipment finance business into new and attractive markets.certain discretionary payments such as

-43-

~~RESULTS OF OPERATIONS~~

~~Comparison~~bonuses. The additional capital released by the termination of the ~~Three-Month Periods Ended June 30, 2019~~CMLA Agreement is held at MBB and ~~June 30, 2018~~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.

~~Net income~~~~. Net income~~Rules governing our regulatory capital requirements give entities the option of ~~$6.1 million was reported~~delaying for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of capital benefit, or a five-year transition in total. We have elected to avail ourselves of the five-year transition option. See our current measurements of capital and further discussion of the measurements of regulatory capital during the delay and transition periods in Note 14, Stockholders’ Equity in the accompanying condensed consolidated financial statements. At March 31, 2020, Marlin Business 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.

-44-

FINANCE RECEIVABLESAND ASSET QUALITY

The following table summarizes certain portfolio statistics for the ~~three-month period ended June 30, 2019, resulting~~periods presented:


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

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

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

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

-45-

Loan Modification Program.

In response toCOVID-19, starting in ~~diluted EPS~~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 and can demonstrate that their ability to repay has been impacted by the COVID-19 crisis. Through March 31, 2020, we processed payment deferral modifications for 520 contracts, or $19.5 million net investment in leases and loans, where the typical modification included a60-day deferral of ~~$0.49, compared~~payments for Working Capital loans and90-day deferral of payments for other customers, with such payments added to the end of the contract term. The modifications for each portfolio segment were $8.5 million of Equipment Finance, $7.0 million of Working Capital, and $4.0 million of CVG net ~~income~~investment in leases and loans. The Company did not adjust its estimate of $6.5 million and diluted EPS of $0.52 for the three-month period ended June 30, 2018. This decrease was primarily due to an increase in interest expense of $2.7 million due to interest payments on deposits as well as the interest on the asset backed securitization completed in the third quarter of 2018 and an increase in the provision for credit losses based on whether or not contracts were modified; the Company’s allowance estimate assesses the risk of ~~$0.5~~credit loss for modified loans to be equal to loans that were not modified as of March 31, 2020.

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

Return on average assets was 1.94% for the three-month period ended June 30, 2019, compared to a return of 2.41% for the three-month period ended June 30, 2018. Return on average equity was 12.05% for the three-month period ended June 30, 2019, compared to a return of 13.93% for the three-month period ended June 30, 2018.Changes in Portfolio.

Overall, our average net investment in total finance receivables for the three-month period ended ~~June 30, 2019~~March 31, 2020 increased ~~10.2%~~0.9% to ~~$1,031.8~~$1,008.8 million, compared to ~~$936.0~~$999.4 million for the three-month period ended ~~June 30, 2018. This change was primarily due to origination volume exceeding lease and loan repayments, sales and charge-offs.~~March 31, 2019. Theend-of-period net investment in total finance receivables at ~~June 30, 2019~~March 31, 2020 was ~~$1,062.3~~$970.1 million, ~~an increase~~a decrease of ~~$61.6~~$36.4 million, or ~~6.2%~~3.6%, from ~~$1,000.7~~$1,006.5 million at December 31, ~~2018.~~2019.

During the three months ended ~~June 30, 2019,~~March 31, 2020, we generated ~~7,648~~5,863 new equipment finance leases and loans with equipment costs of ~~$181.8~~$127.7 million, compared to ~~8,238~~7,467 new equipment finance leases and loans with equipment costs of ~~$155.4~~$169.8 million generated for the three months ended ~~June 30, 2018.~~March 31, 2019. Working Capital loan originations were ~~$27.5~~$26.2 million during the three-month period ended ~~June 30, 2019,~~March 31, 2020, an increase of ~~$10.7~~$6.7 million, or ~~63.5%~~34.1%, as compared to the three-month period ended ~~June~~March 31, 2019.

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

-46-

Portfolio Concentration.

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


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

Total		100	%		100	%	Total		100	%		100	%

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

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

-47-

Allowance for credit losses.

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


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

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

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

Realized cashflows from Residual Income		1,153			—			—

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

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

Adoption of ASU2016-13 / CECL.

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

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

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

-48-

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

Provision for credit losses.

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

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

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

Net Charge-offs.

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

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

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

Residual Income.

Residual income includes income from lease renewals and gains and losses on the realization of residual values of leased equipment disposed at the end of term In 2019 and prior years, the Company had previously recognized residual income within Fee Income in its Consolidated Statements of Operations; the adoption of CECL results in any realized amounts of residual income being captured as a component of the activity of the allowance because the Company’s estimate of credit losses under CECL takes into consideration all cashflows the Company expects to receive or derive from the pools of contracts.

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

-49-

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

Non-Accrual.

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


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

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

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

Working Capital Loans are generally placed innon-accrual status when they are 30 ~~2018. Approval rates decreased~~days past due. The loan is removed fromnon-accrual status once sufficient payments are made to bring the loan current and evidence of a sustained performance period as reviewed by ~~1% to 55%~~management.

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

-50-

RESULTSOF OPERATIONS

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

Net income.

Net loss of $11.8 million was reported for the three-month period ended ~~June 30, 2019,~~March 31, 2020, resulting in diluted loss per share of $1.00, compared to ~~56%~~net income of $5.1 million and diluted EPS of $0.41 for the three-month period ended ~~June 30, 2018.~~March 31, 2019. This $16.9 million decrease in Net income was primarily driven by:

•

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

($6.7 million) impairment of Goodwill, driven by declines in the fair value of its reporting unit;

$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;

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

Average balances and net interest margin.The following table summarizes the Company’s average balances, interest income, interest expense and average yields and rates on major categories of interest-earning assets and interest-bearing liabilities for the three-month periods ended ~~June 30, 2019~~March 31, 2020 and ~~June 30, 2018.~~March 31, 2019.

~~-44-~~-51-


	Three Months Ended June 30,														Three Months Ended March 31,
	2019							2018							2020							2019
	(Dollars in thousands)														(Dollars in thousands)
	Average Balance⁽¹⁾		Interest		Average Yields/ Rates⁽²⁾			Average Balance⁽¹⁾		Interest		Average Yields/ Rates⁽²⁾			Average Balance⁽¹⁾		Interest		Average Yields/ Rates⁽²⁾			Average Balance⁽¹⁾		Interest		Average Yields/ Rates⁽²⁾
Interest-earning assets:
Interest-earning deposits with banks	$	129,210	$	752		2.33	%	$	77,957	$	320		1.64	%	$	100,582	$	327		1.30	%	$	126,798	$	773		2.44	%
Time Deposits		11,715		72		2.46			8,706		39		1.77			13,507		63		1.88			10,466		61		2.35
Restricted interest-earning deposits with banks		14,671		28		0.77			—		—		—			8,033		9		0.44			15,620		30		—
Securities available for sale		10,674		74		2.76			10,850		60		2.21			10,778		58		2.14			10,720		69		2.56
Net investment in leases⁽³⁾		942,517		21,556		9.15			874,877		20,517		9.38			904,548		20,269		8.96			918,655		20,934		9.12
Loans receivable⁽³⁾		89,257		4,600		20.61			61,131		3,028		19.82			104,275		5,739		22.02			80,776		4,016		19.89

Total interest-earning assets		1,198,044		27,082		9.04			1,033,521		23,964		9.27			1,141,723		26,465		9.27			1,163,035		25,883		8.90

Non-interest-earning assets:
Cash and due from banks		5,319							3,989							5,470							5,600
Intangible assets		8,070							1,056							7,392							7,852
Goodwill		6,735							1,160							6,663							7,340
Operating leaseright-of-use assets		6,935							—							8,776							3,903
Property and equipment, net		3,996							4,054							8,094							4,282
Property tax receivables		8,479							9,650							8,886							6,614
Other assets⁽⁴⁾		21,042							22,115							1,811							17,002

Totalnon-interest-earning assets		60,576							42,024							47,092							52,593

Total assets	$	1,258,620						$	1,075,545						$	1,188,815						$	1,215,628

Interest-bearing liabilities:
Certificate of Deposits⁽⁵⁾	$	842,274	$	5,042		2.39	%		814,524	$	3,556		1.75	%	$	814,178	$	4,856		2.39	%		793,665	$	4,447		2.24	%
Money Market Deposits⁽⁵⁾		23,715		158		2.66			30,091		155		2.06			24,322		85		1.40			23,236		142		2.44
Long-term borrowings⁽⁵⁾		120,407		1,208		4.01			—		—		—			69,751		739		4.24			140,500		1,373		3.91

Total interest-bearing liabilities		986,396		6,408		2.59			844,615		3,711		1.76			908,251		5,680		2.51			957,401		5,962		2.49

Non-interest-bearing liabilities:
Sales and property taxes payable		8,213							7,451							5,890							5,380
Operating lease liabilities		9,094							—							9,644							5,890
Accounts payable and accrued expenses		27,315							18,402							27,726							27,185
Net deferred income tax liability		24,601							19,316							29,468							22,947

Totalnon-interest-bearing liabilities		69,223							45,169							72,728							61,402

Total liabilities		1,055,619							889,784							980,979							1,018,803
Stockholders’ equity		203,001							185,761							207,836							196,825

Total liabilities and stockholders’ equity	$	1,258,620						$	1,075,545						$	1,188,815						$	1,215,628

Net interest income			$	20,674						$	20,253						$	20,785						$	19,921
Interest rate spread⁽⁶⁾						6.45	%						7.51	%						6.76	%						6.41	%
Net interest margin⁽⁷⁾						6.90	%						7.84	%						7.28	%						6.85	%
Ratio of average interest-earning assets to average interest-bearing liabilities						121.46	%						122.37	%						125.71	%						121.48	%

~~-45-~~-52-

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

⁽²⁾	Annualized.

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

⁽⁴⁾	Includes operating leases.

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

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

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

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, 2019 Compared To Three Months Ended June 30, 2018								Three Months Ended March 31, 2020 Compared To Three Months Ended March 31, 2019
	Increase (Decrease) Due To:								Increase (Decrease) Due To:
	Volume⁽¹⁾			Rate⁽¹⁾			Total		Volume⁽¹⁾			Rate⁽¹⁾			Total
	(Dollars in thousands)								(Dollars in thousands)
Interest income:
Interest-earning deposits with banks	$	264		$	168		$	432	$	(137	)	$	(309	)	$	(446	)
Time Deposits		16			17			33		16			(14	)		2
Restricted interest-earning deposits with banks		28			—			28		(11	)		(10	)		(21	)
Securities available for sale		(1	)		15			14		—			(11	)		(11	)
Net investment in leases		1,557			(518	)		1,039		(319	)		(346	)		(665	)
Loans receivable		1,445			127			1,572		1,260			463			1,723
Total interest income		3,732			(614	)		3,118		(480	)		1,062			582
Interest expense:
Certificate of Deposits		125			1,361			1,486		117			292			409
Money Market Deposits		(37	)		40			3		6			(63	)		(57	)
Long-term borrowings		1,208			—			1,208		(741	)		107			(634	)
Total interest expense		700			1,997			2,697		(307	)		25			(282	)
Net interest income		3,004			(2,583	)		421		(370	)		1,233			863

⁽¹⁾

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

~~-46-~~-53-

Net interest and fee margin.The following table summarizes the Company’s net interest and fee income as an annualized percentage of average total finance receivables for the three-month periods ended ~~June 30, 2019~~March 31, 2020 and ~~June 30, 2018.~~March 31, 2019.


	Three Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Interest income	$	27,082		$	23,964		$	26,465		$	25,883
Fee income		3,507			3,876			2,766			4,042

Interest and fee income		30,589			27,840			29,231			29,925
Interest expense		6,408			3,711			5,680			5,962

Net interest and fee income	$	24,181		$	24,129		$	23,551		$	23,963

Average total finance receivables⁽¹⁾	$	1,031,774		$	936,007		$	1,008,823		$	999,432
Annualized percent of average total finance receivables:
Interest income		10.50	%		10.24	%		10.49	%		10.36	%
Fee income		1.36			1.66			1.10			1.62

Interest and fee income		11.86			11.90			11.59			11.98
Interest expense		2.48			1.59			2.25			2.39

Net interest and fee margin		9.38	%		10.31	%		9.34	%		9.59	%

⁽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 ~~increased $0.1~~decreased $0.4 million, or ~~0.4%~~1.7%, to ~~$24.2~~$23.6 million for the three months ended ~~June 30, 2019~~March 31, 2020 from ~~$24.1~~$24.0 million for the three months ended ~~June 30, 2018.~~March 31, 2019. The annualized net interest and fee margin decreased 9325 basis points to ~~9.38%~~9.34% in the three-month period ended ~~June 30, 2019~~March 31, 2020 from ~~10.31%~~9.59% for the corresponding period in ~~2018.~~2019.

Interest income, net of amortized initial direct costs and fees, was ~~$27.1~~$26.5 million and ~~$24.0~~$25.9 million for the three-month periods ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and June 30, 2018,~~ respectively. Average total finance receivables increased ~~$95.8~~$9.4 million, or ~~10.2%~~0.9%, to ~~$1,031.8~~$1,008.8 million at ~~June 30, 2019~~March 31, 2020 from ~~$936.0~~$999.4 million at ~~June 30, 2018.~~March 31, 2019. The increase in average total finance receivables was primarily due to origination volume ~~continuing to exceed~~exceeding lease and loan repayments, sales and charge-offs. The average yield on the portfolio increased 2613 basis points to ~~10.50%~~10.49% from ~~10.24%~~10.36% in the prior year quarter. The weighted average implicit interest rate on new finance receivables originated was ~~12.95%~~12.45% and ~~12.24%~~12.76% for the three-month periods ended ~~June 30,~~March 31, 2020, and March 31, 2019, respectively. As our origination volumes have been negatively impacted by theCOVID-19 pandemic, our portfolio of finance receivables and ~~June 30, 2018, respectively.~~related incomes may decline in the second quarter of 2020. Any returns to normal levels of origination activity, and our ability to replenish or grow our portfolio, remains uncertain.

Fee income was ~~$3.5~~$2.8 million and ~~$3.9~~$4.0 million for the three-month periods ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and June 30, 2018,~~ respectively. Fee income included approximately ~~$0.9~~$1.0 million of net residual income for ~~each~~the three-month period ended March 31, 2019. For 2020, after the adoption of CECL, all future cashflows from the Company’s pools of loans are included in the measurement of the ~~three-month periods ended June 30, 2019~~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 ~~June 30, 2018, respectively.~~Asset Quality”

Fee income also included approximately ~~$2.0~~$2.1 million and $2.3 million in late fee income for the three-month periods ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and June 30, 2018,~~ respectively.

Fee income, as an annualized percentage of average total finance receivables, decreased 30 basis points to 1.36% for the three-month period ended June 30, 2019 from 1.66% for the corresponding period in 2018. Late fees remained the largest component of fee income at ~~0.76%~~0.85% as an annualized percentage of average total finance receivables for the three-month period ended ~~June 30, 2019,~~March 31, 2020, compared to ~~0.97%~~0.94% for the three-month period ended June 30, 2018. As an annualized percentage of average total finance receivables, net residual income was 0.34% for the three-month period ended June 30, 2019, compared to 0.39% for the three-month period ended June 30, 2018.March 31, 2019.

~~-47-~~-54-

Interest expense ~~increased $2.7~~decreased $0.3 million to ~~$6.4~~$5.7 million for the three-month period ended ~~June 30, 2019~~March 31, 2020 from ~~$3.7~~$6.0 million for the corresponding period in 2017. A significant component of the increase was $1.2 million attributable to our long-term borrowings related to our 2018 asset-backed term securitization. The remaining increase of $1.5 million represented $5.2 million interest expense or 2.40% as an annualized percentage of average deposits for the three-month period ended June 30, 2019, ~~from $3.7 million, or 1.76% as an annualized percentage of average deposits for the three-month period ended June 30, 2018. The increase was~~ primarily due to a decrease in interest expense of $0.6 million on lower outstanding long-term borrowings offset by an increase ~~in the rate paid~~of $0.3 million on ~~interest bearing liabilities and to a lesser degree, the increase in the average balances of interest bearing liabilities.~~higher deposit balances. Interest expense, as an annualized percentage of average total finance receivables, ~~increased 89~~decreased 14 basis points to ~~2.48%~~2.25% for the three-month period ended ~~June 30, 2019,~~March 31, 2020, from ~~1.59%~~2.39% for the corresponding period in ~~2018.~~2019. The average balance of deposits was ~~$866.0~~$838.5 million and ~~$844.6~~$816.9 million for the three-month periods ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and June 30, 2018,~~ respectively.

For the three-month period ended ~~June 30,~~March 31, 2020, average term securitization borrowings outstanding were $69.8 million at a weighted average coupon of 4.24%. For the three-month period ended March 31, 2019, average term securitization borrowings outstanding were ~~$120.4~~$140.5 million at a weighted average coupon of ~~4.01%~~3.91%. ~~There were no outstanding borrowings for the period ended June 30, 2018.~~

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, 2019,~~March 31, 2020, brokered certificates of deposit represented approximately ~~49%~~52% of total deposits, while approximately ~~48%~~42% of total deposits were obtained from direct channels, and 3%6% were in the brokered MMDA Product.

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

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

Insurance premiums written and earned.Insurance premiums written and earned increased $0.2 million to ~~$2.2~~$2.3 million for the three-month period ended ~~June 30, 2019,~~March 31, 2020, from ~~$2.0~~$2.1 million for the three-month period ended ~~June 30, 2018,~~March 31, 2019, primarily due to an increase in the number of contracts enrolled in the insurance program as well as higher average ticket ~~size.~~size driving higher premiums.

Other income. Other income was ~~$5.0~~$7.6 million and ~~$2.6~~$7.2 million for the three-month periods ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and June 30, 2018,~~ respectively. Other income also includes various administrative transaction fees and fees received from referral of leases to third parties, gain on sale of leases and servicing fee income, recognized as earned. Selected major components ofThe increase in other income was primarily driven by a $0.3 million increase in servicing income, driven by a higher portfolio serviced for the three-month period ended June 30, 2019 included $3.8 million in income attributed to capital markets related activities, including gain on sale, servicing revenue and referral fee income, and $0.7 million of insurance policy fees. In comparison, selected major components of other income for the three-month period ended June 30, 2018 included $1.8 million in income attributed to capital markets related activities, including gain on sale, servicing revenue and referral fee income and $0.5 million of insurance policy fees.others.

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


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

Total	$	9,519	$	11,451

Salaries and benefits expense ~~increased $3.0~~decreased $2.0 million, or ~~31.6%~~17.4%, to ~~$12.5~~$9.5 million for the three-month period ended ~~June 30, 2019~~March 31, 2020 from ~~$9.5~~$11.5 million for the corresponding period in 2018. This increase was due to higher compensation costs related to increases in personnel, bonuses, commissions on higher origination volume and reduced salary deferrals due to changes in the accounting treatment of initial direct costs under ASC 842 – Leases. Salaries and benefits expense, as an annualized percentage of average total finance receivables, was 4.83% for the three-month period ended June 30, 2019 compared with 4.07% for the corresponding period in 2018.2019. Total personnel ~~increased~~decreased to ~~356~~339 at ~~June 30, 2019~~March 31, 2020 from ~~320~~352 at ~~June 30, 2018.~~March 31, 2019. Incentive compensation decreased $1.5 million, driven by lower recognized bonus and share-based compensation amounts primarily driven by the Company’s operating results. Commissions decreased $0.6 million, or 36% primarily driven by a 24% decrease in origination volume.

-55-

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

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


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

Total	$	13,605	$	13,354

General and administrative expense ~~decreased $0.3~~increased $0.2 million, or ~~4.7%~~1.5%, to ~~$6.1~~$13.6 million for the three months ended ~~June 30, 2019~~March 31, 2020 from ~~$6.4~~$13.4 million for the corresponding period in ~~2018.~~ 2019.

General and administrative expense as an annualized percentage of average total finance receivables was ~~2.35%~~5.39% for the three-month period ended ~~June 30, 2019,~~March 31, 2020, compared to ~~2.76%~~5.34% for the three-month period ended June 30, 2018. Selected major components of general and administrative expense for the three-month period ended June 30, 2019 included $1.1 million of premises and occupancy expense, $0.4 million of audit and tax compliance expense, $0.9 million of data processing expense, $0.5 million of marketing expense, and $0.3 million of insurance-related expenses. In comparison, selected major components of general and administrative expense for the three-month period ended June 30, 2018 included $0.9 million of premises and occupancy expense, $0.5 million of audit and tax compliance expense, $0.9 million of data processing expense, $0.4 million of marketing expense and $0.3 million of insurance-related expenses.March 31, 2019.

~~Provision for credit losses.~~Goodwill impairment.The provision for credit losses was $4.8 million for the three-month period ended June 30, 2019 compared to $4.3 million for the three-month period ended June 30, 2018. Equipment Finance portfolio losses tend to follow patterns based on the mix of origination vintages comprising the portfolio. The anticipated credit losses from the inception of a particular Equipment Finance origination vintage to~~charge-off~~ ~~generally follow a pattern of lower losses for~~In the first ~~few months, followed~~quarter of 2020, driven by ~~increased losses in subsequent months, then lower losses during~~negative current events related to the ~~later periods~~COVID-19 economic shutdown, the Company’s market capitalization falling below book value and other related impacts, the Company analyzed its goodwill for impairment. The Company concluded that the implied fair value of ~~the lease term. The higher provision is reflective of higher charge-offs~~goodwill was less than it’s carrying amount, and ~~increasing portfolio size and the seasoning, or mix of origination vintages, of the portfolio affects the timing and amount of anticipated probable and estimable credit losses.~~

~~-48-~~

~~The $0.5 million increase in the provision for credit losses was attributable~~recognized impairment equal to the ~~increases in the Working Capital Loans and CVG portfolios of $0.3~~entire $6.7 million ~~and $0.2 million, respectively, for the three-month period ended June 30, 2019 as compared to the three-month period ended June 30, 2018.~~

~~Total portfolio net charge-offs were $4.9 million for the three-month period ended June 30, 2019, compared to $4.3 million for the corresponding period in 2018. The increase incharge-off~~ rate is primarily due to the ongoing seasoning of the Equipment Finance portfolio as reflected in the mix of origination vintages and the mix of credit profiles, as well as the increased portfolio balances. Total portfolio net charge-offs as an annualized percentage of average total finance receivables increased to 1.88% during the three-month period ended June 30, 2019, from 1.84% for the corresponding period in 2018. The allowance for credit losses increased to approximately $16.8 million at June 30, 2019, an increase of $0.7 million from $16.1 million at December 31, 2018.

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

Provision for income taxes.Income tax ~~expense~~benefit of ~~$2.0 million and $2.1~~$7.4 million was recorded for the three-month ~~periods~~period ended ~~June 30, 2019 and June 30, 2018, respectively.~~March 31, 2020, compared to expense of $1.6 million for the three-month period ended March 31, 2019. For the three-month period ended March 31, 2020, the income tax benefit includes a $3.2 million discrete benefit, related to remeasuring our federal net operating losses, driven by certain provisions in the CARES Act. Our ~~effective~~statutory tax rate, which is a combination of federal and state income tax rates, was approximately ~~24.4% and 24.1%~~23.9% for both periods. However, our effective tax rate was 38.6% for the three-month ~~periods ended June 30, 2019 and June 30, 2018, respectively.~~

~~Comparison of theSix-Month~~ ~~Periods Ended June 30, 2019 and June 30, 2018~~

~~Net income.~~ ~~Net income of $11.3 million was reported for thesix-month~~period ended ~~June 30, 2019, resulting in diluted EPS of $0.91, compared to net income of $12.7 million and diluted EPS of $1.01 for~~March 31, 2020, driven by the~~six-month~~ period ended June 30, 2018. The decrease is primarily due to increased interest expense of $5.3 million offset by interest and fee income of $5.4 million, an increase in provision for credit losses of $1.3 million, an increase in salary and benefits expense of $4.3 million and an increased gain on sale in capital market activities of $4.3 million.

~~Return on average assets was 1.82% for thesix-month~~ ~~period ended June 30, 2019, compared to a return of 2.39% for thesix-month~~ ~~period ended June 30, 2018. Return on average equity was 11.26% for thesix-month~~ ~~period ended June 30, 2019, compared to a return of 13.81% for thesix-month~~ ~~period ended June 30, 2018.~~

~~Overall, our average net investment in total finance receivables for thesix-month~~ ~~period ended June 30, 2019 increased 9.8% to $1,015.6 million, compared to $924.9 million for thesix-month~~ ~~period ended June 30, 2018. This change was primarily due to origination volume continuing to exceed lease repayments. Theend-of-period~~ ~~net investment in total finance receivables at June 30, 2019 was $1,062.3 million, an increase of $61.6 million, or 6.2%, from $1,000.7 million at December 31, 2018.~~

During the six months ended June 30, 2019, we generated 15,115 new leases with equipment cost of $351.7 million, compared to 16,002 new leases with equipment cost of $297.0 million generated for the six months ended June 30, 2018. Approval rates were 57% for the~~six-month~~ ~~period ended June 30, 2019, compared to 56% for thesix-month~~ ~~period ended June 30, 2018.~~

~~For thesix-month~~ ~~period ended June 30, 2019 compared to thesix-month~~ ~~period ended June 30, 2018, net interest and fee income increased $0.2 million, or 0.3%. The provision for credit losses increased $1.2 million, or 13.5%, to $10.1 million for thesix-month~~ ~~period ended June 30, 2019 from $8.9 million for the same period in 2018, due to an increase in delinquency and charge-offs which is attributed to a return to a more normal credit environment.~~

~~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, 2019 and June 30, 2018.~~

~~-49-~~

   Six Months Ended June 30,
   2019 2018
   (Dollars in thousands)
   Average
Balance⁽¹⁾    Interest    Average
Yields/
Rates⁽²⁾ Average
Balance⁽¹⁾    Interest    Average
Yields/
Rates⁽²⁾
Interest-earning assets:

Interest-earning deposits with banks
   $ 126,084    $ 1,525    2.42 % $ 74,204    $ 569    1.53 %
Time Deposits
   11,090    133    2.41 8,309    67    1.62
Restricted interest-earning deposits with banks
   15,146    58    0.77 —      —      —
Securities available for sale
   10,697    142    2.66 11,026    102    1.86
Net investment in leases⁽³⁾
   930,586    42,491    9.13 866,643    40,659    9.38
Loans receivable⁽³⁾
   85,017    8,616    20.27 58,262    5,846    20.07









Total interest-earning assets
   1,178,620    52,965    8.99 1,018,444    47,243    9.27









Non-interest-earning assets:

Cash and due from banks
   5,459       4,493
Intangible assets
   7,961       1,083
Goodwill
   7,038       1,160
Operating leaseright-of-use assets
   5,419       —
Property and equipment, net
   4,139       4,124
Property tax receivables
   7,546       8,874
Other assets⁽⁴⁾
   17,393       20,487





Totalnon-interest-earning assets
   54,955       40,221





Total assets
   $ 1,233,575       $ 1,058,665





Interest-bearing liabilities:

Certificate of Deposits⁽⁵⁾
   $ 814,466    $ 9,489    2.33 % $ 804,596    $ 6,802    1.69 %
Money Market Deposits⁽⁵⁾
   23,430    299    2.56 32,986    308    1.86
Long-term borrowings⁽⁵⁾
   130,454    2,582    3.96 —      —      —









Total interest-bearing liabilities
   968,350    12,370    2.56 837,582    7,110    1.70









Non-interest-bearing liabilities:

Sales and property taxes payable
   6,796       5,711
Operating lease liabilities
   7,492       —
Accounts payable and accrued expenses
   27,251       13,803
Net deferred income tax liability
   23,773       18,307





Totalnon-interest-bearing liabilities
   65,312       37,821





Total liabilities
   1,033,662       875,403
Stockholders’ equity
   199,913       183,262





Total liabilities and stockholders’ equity
   $ 1,233,575       $ 1,058,665





Net interest income
      $ 40,595       $ 40,133
Interest rate spread⁽⁶⁾
         6.43 %       7.57 %
Net interest margin⁽⁷⁾
         6.89 %       7.88 %
Ratio of average interest-earning assets to average interest-bearing liabilities
         121.71 %       121.59 %

~~-50-~~

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

⁽²⁾	~~Annualized.~~

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

⁽⁴⁾	~~Includes operating leases.~~

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

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

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

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

   Six Months Ended June 30, 2019 Compared To
Six Months Ended June 30, 2018
   Increase (Decrease) Due To:
   Volume⁽¹⁾    Rate⁽¹⁾    Total
   (Dollars in thousands)
Interest income:

Interest-earning deposits with banks
   $ 523    $ 433    $ 956
Time Deposits
   27    39    66
Restricted interest-earning deposits with banks
   58    —      58
Securities available for sale
   (3 )    43    40
Net investment in leases
   2,941    (1,109 )    1,832
Loans receivable
   2,711    59    2,770
Total interest income
   7,236    (1,514 )    5,722
Interest expense:

Certificate of Deposits
   84    2,602    2,687
Money Market Deposits
   (104 )    95    (9 )
Long-term borrowings
   2,582    —      2,582
Total interest expense
   1,242    4,018    5,260
Net interest income
   5,870    (5,408 )    462

⁽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.

~~-51-~~

~~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 thesix-month~~ ~~periods ended June 30, 2019 and 2018.~~

   Six Months Ended June 30,
   2019 2018
   (Dollars in thousands)
Interest income
   $ 52,965 $ 47,243
Fee income
   7,549 7,835


Interest and fee income
   60,514 55,078
Interest expense
   12,370 7,110


Net interest and fee income
   $ 48,144 $ 47,968


Average total finance receivables⁽¹⁾
   $ 1,015,603 $ 924,906
Percent of average total finance receivables:

Interest income
   10.43 % 10.22 %
Fee income
   1.49 1.69


Interest and fee income
   11.92 11.91
Interest expense
   2.44 1.54


Net interest and fee margin
   9.48 % 10.37 %

⁽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 increased $0.1 million, or 0.2%, to $48.1 million for thesix-month~~ ~~period ended June 30, 2019 from $48.0 million for thesix-month~~ ~~period ended June 30, 2018. The annualized net interest and fee margin decreased 89 basis points to 9.48% in thesix-month~~ ~~period ended June 30, 2019 from 10.37% for the corresponding period in 2018.~~

~~Interest income, net of amortized initial direct costs and fees, increased $5.8 million, or 12.3%, to $53.0 million for thesix-month~~ ~~period ended June 30, 2019 from $47.2 million for thesix-month~~ period ended June 30, 2018. The increase in interest income was principally due to an increase in average yield of 21 basis points and by a 9.8% increase in average total finance receivables, which increased $90.7 million to $1,015.6 million for the~~six-months~~ ~~ended June 30, 2019 from $924.9 million for thesix-months~~ ended June 30, 2018. The increase in average total finance receivables was primarily due to origination volume continuing to exceed lease repayments. The average yield on the portfolio increased, due to higher yields on the new leases compared to the yields on the leases repaying. The weighted average implicit interest rate on new finance receivables originated increased 52 basis points to 12.86% for the~~six-month~~ ~~period ended June 30, 2019, compared to 12.34% for thesix-month~~ ~~period ended June 30, 2018.~~

~~Fee income decreased $0.3 million to $7.5 million for thesix-month~~ ~~period ended June 30, 2019, compared to $7.8 million for thesix-month~~ ~~period ended June 30, 2018. Fee income included approximately $1.9 million of net residual income for thesix-month~~ ~~period ended June 30, 2019 and $1.8 million for thesix-month~~ ~~period ended June 30, 2018.~~

~~Fee income also included approximately $4.3 million in late fee income for thesix-month~~ ~~period ended June 30, 2019, which decreased 10.4% from $4.8 million for thesix-month~~ ~~period ended June 30, 2018.~~

~~-52-~~

~~Fee income, as an annualized percentage of average total finance receivables, decreased 20 basis points to 1.49% for thesix-month~~ ~~period ended June 30, 2019 from 1.69% for thesix-month~~ ~~period ended June 30, 2018. Late fees remained the largest component of fee income at 0.85% as an annualized percentage of average total finance receivables for thesix-month~~ ~~period ended June 30, 2019, compared to 1.03% for thesix-month~~ ~~period ended June 30, 2018. As an annualized percentage of average total finance receivables, net residual income was 0.37% for thesix-month~~ ~~period ended June 30, 2019, compared to 0.39% for thesix-month~~ ~~period ended June 30, 2018.~~

~~Interest expense increased $5.3 million to $12.4 million for thesix-month~~ period ended June 30, 2019 from $7.1 for the corresponding period in 2018. The components of the increase were $2.6 million attributable to our long-term borrowings related to our 2018 asset-backed term securitization and $2.7 million representing $9.8 million interest expense, or 2.34% as an annualized percentage of average deposits for the~~six-month~~ ~~period ended June 30, 2019, from $7.1 million, or 1.70% as an annualized percentage of average deposits for thesix-month~~ period ended June 30, 2018. The increase was primarily due to an increase in the rate paid on interest bearing liabilities and to a lesser degree, the increase in the average balances of interest bearing liabilities. Interest expense, as an annualized percentage of average total finance receivables, increased 90 basis points to 2.44% for the~~six-month~~ period ended June 30, 2019, from 1.54% for the corresponding period in 2018. The average balance of deposits was $837.9 million and $837.6 million for the six-month periods ended June 30, 2019 and June 30, 2018, respectively.

~~For thesix-month~~ period ended June 30, 2019, average term securitization borrowings outstanding were $130.5 million at a weighted average coupon of 3.96%. There were no outstanding borrowings for the period ended June 30, 2018.

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, 2019, brokered certificates of deposit represented approximately 49% of total deposits, while approximately 48% of total deposits were obtained from direct channels, and 3% were in the brokered MMDA Product.

~~Insurance premiums written and earned.~~~~Insurance premiums written and earned increased $0.4 million to $4.3 million for thesix-month~~ ~~period ended June 30, 2019, from $3.9 million for thesix-month~~ ~~period ended June 30, 2018, primarily due to an increase in the number of contracts enrolled in the insurance program as well as higher average ticket size.~~

~~Other income.~~ ~~Other income was $15.8 million and $5.9 million for thesix-month~~ periods ended June 30, 2019 and June 30, 2018, respectively. A major component of the $9.9 million increase in other income is property tax income that was previously netted against property tax expense in fiscal 2018 but is presented as a separate component of revenue in fiscal 2019 as a result of the adoption of ASU~~2016-02~~ and related ASUs. Other income also includes various administrative transaction fees and fees received from referral of leases to third parties, gain on sale of leases and servicing fee income, recognized as earned. Selected major components of other income for the~~six-month~~ period ended June 30, 2019 included $5.7 million in property tax income, $7.8 million in income attributed to capital markets related activities, including gain on sale, servicing revenue and referral fee income, and $1.3 million of insurance policy fees. In comparison, selected major components of other income for the~~six-month~~ period ended June 30, 2018 included $4.2 million in income attributed to capital markets related activities, including gain on sale, servicing revenue and referral fee income, and $1.0 million of insurance policy fees.

~~Salaries and benefits expense.~~~~Salaries and benefits expense increased $4.3 million, or 21.9%, to $23.9 million for thesix-month~~ period ended June 30, 2019 from $19.6 million for the corresponding period in 2018. The increase was due to higher compensation costs related to increases in personnel, bonuses, commissions on higher origination volume and reduced salary deferrals due to changes in the accounting treatment of initial direct costs under ASC 842 – Leases. Salaries and benefits expense, as an annualized percentage of average total finance receivables, was 4.71% for the~~six-month~~ ~~period ended June 30, 2019 compared with 4.23% for the corresponding period in 2018.~~

~~Total personnel increased to 356 at June 30, 2019 from 320 at June 30, 2018.~~

~~-53-~~

~~General and administrative expense.~~~~General and administrative expense increased $6.4 million, or 49.2%, to $19.4 million for thesix-month~~ period ended June 30, 2019 from $13.0 million for the corresponding period in 2018. A major component of the increase is property tax expense that was previously netted against property tax income in fiscal 2018 but is presented on a gross basis in in fiscal 2019 as a result of the adoption of ASU~~2016-02~~ ~~and related ASUs. General and administrative expense as an annualized percentage of average total finance receivables was 3.82% for thesix-month~~ ~~period ended June 30, 2019, compared to 2.82% for thesix-month~~ ~~period ended June 30, 2018. Selected major components of general and administrative expense for thesix-month~~ period ended June 30, 2019 included $6.2 million on property tax expense, $2.1 million of premises and occupancy expense, $0.7 million of audit and tax compliance expense, $2.0 million of data processing expense and $1.1 million of marketing expense. In comparison, selected major components of general and administrative expense for the~~six-month~~ period ended June 30, 2018 included $1.8 million of premises and occupancy expense, $0.9 million of audit and tax compliance expense, $1.8 million of data processing expense, and $1.0 million of marketing expense, and $0.7 million of insurance-related expenses.

~~Provision for credit losses.~~~~The provision for credit losses increased $1.2 million, or 13.5%, to $10.1 million for thesix-month~~ period ended June 30, 2019 from $8.9 million for the corresponding period in 2018. Equipment Finance portfolio losses tend to follow patterns based on the mix of origination vintages comprising the portfolio. The anticipated credit losses from the inception of a particular Equipment Finance origination vintage to~~charge-off~~ generally follow a pattern of lower losses for the first few months, followed by increased losses in subsequent months, then lower losses during the later periods of the lease term. The higher provision is reflective of higher charge-offs and increasing portfolio size and the seasoning, or mix of origination vintages, of the portfolio affects the timing and amount of anticipated probable and estimable credit losses.

~~The provision for credit losses for the Working Capital Loans, Equipment Finance and CVG portfolios increased by $0.7 million, $0.1 million and $0.5 million respectively, for thesix-month~~ ~~period ended June 30, 2019 as compared to thesix-month~~ ~~period ended June 30, 2018.~~

~~The increase in our provision for credit losses resulted from increased delinquency and charge-offs and to a lesser extent growth in the portfolio.~~

~~Total portfolio net charge-offs were $9.4 million for thesix-month~~ ~~period ended June 30, 2019, compared to $8.1 million for the corresponding period in 2018. The increase incharge-off~~ rate is primarily due to the ongoing seasoning of the Equipment Finance portfolio as reflected in the mix of origination vintages and the mix of credit profiles as well as the increased portfolio balances. Net charge-offs as an annualized percentage of average total finance receivables increased to 1.86% during the~~six-month~~ period ended June 30, 2019, from 1.76% for the corresponding period in 2018. The allowance for credit losses increased to approximately $16.8 million at June 30, 2019, an increase of $0.7 million from $16.1 million at December 31, 2018.

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

~~Provision for income taxes.~~~~Income tax expense of $3.6 million was recorded for thesix-month~~ period ended June 30, 2019, compared to an expense of $3.7 million for the corresponding period in 2018. Our effective tax rate, which is a combination of federal and state income tax rates, was approximately 24.1% for the~~six-month~~ ~~period ended June 30, 2019, compared to 22.8% for thesix-month~~ ~~period ended June 30, 2018.~~

~~FINANCE RECEIVABLES AND ASSET QUALITY~~

Our net investment in leases and loans increased $61.6 million, or 6.2%, to $1,062.3 million at June 30, 2019 from $1,000.7 million at December 31, 2018. We continue to monitor our credit underwriting guidelines in response to current economic conditions, and we continue to develop our sales organization and origination strategies to increase originations.

~~-54-~~

~~The chart which follows provides our asset quality statistics for each of the three and six month periods ended June 30, 2019 and June 30, 2018, and the year ended December 31, 2018:~~

   Three Months Ended
June 30, Six Months Ended
June 30, Year Ended
December 31,
   2019 2018 2019 2018 2018
   (Dollars in thousands)
Allowance for credit losses, beginning of period
   $ 16,882 $ 15,620 $ 16,100 $ 14,851 $ 14,851
Provision for credit losses
   4,756 4,256 10,119 8,868 19,522
Charge-offs

Commercial lease and loans:

Working Capital Loans
   (602 ) (499 ) (1,275 ) (728 ) (1,537 )
CRA
   —   —   —   —   —
Equipment Finance
   (4,508 ) (4,190 ) (8,840 ) (8,219 ) (18,149 )
CVG
   (345 ) (243 ) (673 ) (400 ) (907 )


Total Charge-offs
   (5,455 ) (4,932 ) (10,788 ) (9,347 ) (20,593 )


Recoveries

Commercial lease and loans:

Working Capital Loans
   51 43 71 49 60
CRA
   —   —   —   —   —
Equipment Finance
   482 580 1,214 1,108 2,199
CVG
   61 3 61 41 61


Total Recoveries
   594 626 1,346 1,198 2,320


Net charge-offs
   (4,861 ) (4,306 ) (9,442 ) (8,149 ) (18,273 )


Allowance for credit losses, end of period⁽¹⁾
   $ 16,777 $ 15,570 $ 16,777 $ 15,570 $ 16,100


Annualized net charge-offs to average total finance receivables⁽²⁾
   1.88 % 1.84 % 1.86 % 1.76 % 1.93 %
Allowance for credit losses to total finance receivables, end of period⁽²⁾
   1.59 % 1.62 % 1.59 % 1.62 % 1.62 %
Average total finance receivables⁽²⁾
   $ 1,031,774 $ 936,007 $ 1,015,603 $ 924,906 $ 944,588
Total finance receivables, end of period⁽²⁾
   $ 1,057,727 $ 959,452 $ 1,057,727 $ 959,452 $ 996,383
Delinquencies greater than 60 days past due
   $ 7,686 $ 6,007 $ 7,686 $ 6,007 $ 7,292
Delinquencies greater than 60 days past due⁽³⁾
   0.64 % 0.55 % 0.64 % 0.55 % 0.65 %
Allowance for credit losses to delinquent accounts greater than 60 days past due⁽³⁾
   218.28 % 259.20 % 218.28 % 259.20 % 220.79 %
Non-accrual leases and loans, end of period
   $ 4,530 $ 3,358 $ 4,530 $ 3,358 $ 4,353
Renegotiated leases and loans, end of period⁽⁴⁾
   $ 3,122 $ 3,747 $ 3,122 $ 3,747 $ 3,636
Accruing leases and loans past due 90 days or more
   $ —   $ —   $ —   $ —   $ —
Interest income included onnon-accrual leases and loans⁽⁵⁾
   $ 55 $ 39 $ 175 $ 127 $ 410
Interest income excluded onnon-accrual leases and loans⁽⁶⁾
   $ 80 $ 53 $ 104 $ 68 $ 130

⁽¹⁾	~~Equipment Finance consists of Equipment Finance Agreements, Installment Purchase Agreements and other leases and loans.~~

⁽²⁾	~~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.~~

~~-55-~~

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

⁽⁴⁾	~~No renegotiated leases or loans met the definition of a Troubled Debt Restructuring at June 30, 2019, December 31, 2018, or June 30, 2018.~~

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

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

Delinquent accounts 60 days or more past due (as a percentage of minimum lease payments receivable for leases and as a percentage of principal outstanding for loans) were 0.64% at June 30, 2019 and 0.65% at December 31, 2018, compared to 0.55% at June 30, 2018.

In accordance with the Contingencies and Receivables Topics of the FASB ASC, we maintain an allowance for credit losses at an amount sufficient to absorb losses inherent in our existing lease and loan portfolios as of the reporting dates based on our projection of probable net credit losses. The factors and trends discussed above were included in the Company’s analysis to determine its allowance for credit losses. (See “Critical Accounting Policies” in our~~Form10-K~~ ~~for the year ended December 31, 2018.)~~

~~The following tables provide information about delinquent andnon-accrual~~ ~~leases and loans in the Company’s portfolio for each of the six month periods ended June 30, 2019 and June 30, 2018, and the year ended December 31, 2018.~~

   Six Months Ended    Year Ended
   June 30,    December 31
   2019    2018    2018
   (Dollars in thousands)
Non-accrual leases and loans:

Commercial leases and loans:

Working Capital Loans
   $ 248    $ 147    $ 492
CRA
   —      —      —
Equipment Finance⁽¹⁾
   3,817    2,986    3,529
CVG
   465    225    191






Totalnon-accrual leases and loans
   $ 4,530    $ 3,358    $ 4,212

⁽¹⁾	~~Equipment Finance consists of Equipment Finance Agreements, Installment Purchase Agreements and other leases and loans.~~

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

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

The allowance for credit losses as a percentage of total finance receivables decreased to 1.59% at June 30, 2019 from 1.62% at December 31, 2018. The decrease is primarily due to a modest decrease in delinquency rates.discrete benefit.

-56-

Total portfolio net charge-offs for the three months ended June 30, 2019 were $4.9 million (1.88% of average total finance receivables on an annualized basis), compared to $5.6 million (2.30% of average total finance receivables on an annualized basis) for the three months ended March 31, 2019 and $4.3 million (1.84% of average total finance receivables on an annualized basis) for the three months ended June 30, 2018. The Equipment Finance portfolio losses tend to follow patterns based on the mix of origination vintages comprising the portfolio. The timing of credit losses from the inception of a particular lease origination vintage to~~charge-off~~ generally follows a pattern of lower losses for the first few months, followed by increased losses in subsequent months, then lower losses during the later periods of the lease term. Therefore, the seasoning, or mix of origination vintages, of the Equipment Finance portfolio affects the timing and amount of charge-offs.

~~Net charge-offs for thesix-month~~ period ended June 30, 2019 were $9.4 million (1.86% of average total finance receivables on an annualized basis), compared to $8.1 million (1.76% of average total finance receivables on an annualized basis) for the~~six-month~~ ~~period ended June 30, 2018. The increase incharge-off~~ ~~rate is partially due to the ongoing seasoning of the portfolio as reflected in the mix of origination vintages and the mix of credit profiles, as discussed above.~~

~~RESIDUAL PERFORMANCE~~

Our leases offer our end user customers the option to own the equipment at lease expiration. As of June 30, 2019, approximately 59% of our leases were one dollar purchase option leases, 40% were fair market value leases and 1% were fixed purchase option leases, the latter of which typically contain an~~end-of-term~~ purchase option equal to 10% of the original equipment cost. As of June 30, 2019, there were $28.7 million of residual assets retained on our Consolidated Balance Sheet, of which $24.2 million, or 84.2%, were related to copiers. As of December 31, 2018, there were $27.6 million of residual assets retained on our Consolidated Balance Sheet, of which $23.6 million, or 85.4%, were related to copiers. No other group of equipment represented more than 10% of equipment residuals as of June 30, 2019 and December 31, 2018. Improvements in technology and other market changes, particularly in copiers, could adversely impact our ability to realize the recorded residual values of this equipment.

Fee income included approximately $0.9 million of net residual income for both three-month periods ended June 30, 2019 and June 30, 2018, and approximately $1.9 million and $1.8 million of net residual income for the~~six-month~~ periods ended June 30, 2019 and June 30, 2018, respectively. Net residual income includes income from lease renewals and gains and losses on the realization of residual values of leased equipment disposed at the end of term as further described below.

Our leases generally include renewal provisions and many leases continue beyond their initial contractual term. Based on the Company’s experience, the amount of ultimate realization of the residual value tends to relate more to the customer’s election at the end of the lease term to enter into a renewal period, purchase the leased equipment or return the leased equipment than it does to the equipment type. We consider renewal income a component of residual performance. Renewal income net of depreciation totaled approximately $1.4 million and $1.2 million for each of the three-month periods ended June 30, 2019 and June 30, 2018, respectively, and approximately $2.8 million and $2.4 million for the six-month periods ended June 30, 2019 and June 30, 2018, respectively.

For the three months ended June 30, 2019 and June 30, 2018, the net loss on residual values disposed at end of term totaled $0.5 million and $0.3 million, respectively. The net loss on residual values disposed at end of term totaled $0.9 million and $0.6 million for the six-month periods ended June 30, 2019 and June 30, 2018, respectively. Management performs an impairment assessment no less frequently than quarterly using cash flows it expects to derive from the underlying asset at the end of the lease term. If impairment was required, the Company would record an allowance. There was no allowance recorded on estimated residual values during the~~six-month~~ ~~periods ended June 30, 2019 and June 30, 2018, respectively.~~

~~LIQUIDITY~~ LIQUIDITYAND ~~CAPITAL RESOURCES~~ CAPITAL RESOURCES

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 othernon-interest expenses.

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

~~-57-~~

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.

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

We declared a dividend of $0.14 per share on ~~May 2, 2019.~~January 30, 2020. The quarterly dividend was paid on ~~May 23, 2019~~February 20, 2020 to shareholders of record on the close of business on ~~May 13, 2019,~~February 10, 2020, which resulted in a dividend payment of approximately $1.7 million. It represented the Company’s ~~thirty-first~~thirty-fourth consecutive quarterly cash dividend.

On July 27, 2018, we completed a $201.7 million asset-backed term securitization which provided us with fixed-cost borrowing with the objective of diversifying our funding resources. This was a private offering made pursuant to Rule 144A and Reg S under the Securities Act of 1933, as amended, by Marlin Receivables~~2018-1~~ LLC, a wholly owned subsidiary of Marlin Leasing Corporation. Standard & Poor’s Ratings Services, Inc. and Fitch Ratings Inc. rated the transaction, with the two senior classes receiving the agencies’ highest ratings. As with all our prior term note securitizations, it is recorded in long-term borrowings in the Consolidated Balance Sheets.

At ~~June 30, 2019,~~March 31, 2020, we had approximately $25.0 million of available borrowing capacity from a federal funds line of credit with a correspondent bank in addition to available cash and cash equivalents of ~~$139.7~~$211.1 million. This amount excludes additional liquidity that may be provided by the issuance of insured deposits through MBB.

Our debt to equity ratio was ~~4.86~~5.33 to 1 at ~~June 30, 2019~~March 31, 2020 and ~~4.56~~4.26 to 1 at December 31, ~~2018.~~2019.

Net cash used in investing activities was ~~$76.0~~$5.2 million for the~~six-month~~ three-month period ended ~~June 30, 2019,~~March 31, 2020, compared to net cash used in investing activities of ~~$62.3~~$29.8 million for the~~six-month~~ three-month period ended ~~June 30, 2018.~~March 31, 2019. The decrease in cash ~~flows~~outflows from investing activities is primarily due to ~~increases~~a decrease of ~~$9.0~~$41.0 million for purchases of ~~principal collections on leases and loans and $46.9~~equipment for lease contracts partially offset by a reduction of $24.0 million in proceeds from sales of leases ~~and loans~~ originated for ~~investment offset by $66.5 million~~investment. The decrease in purchases of equipment ~~for lease contracts and funds used to originate loans. Included in the purchases of equipment for lease contracts and funds used to originate loans~~ was ~~$8.6 million and $7.9 million of deferred initial direct costs and fees~~primarily driven by lower origination volumes for the~~six-month~~ ~~periods~~ three months ended ~~June 30,~~March 31, 2020 compared to 2019, and ~~2018, respectively. Investing activities~~the reduction in proceeds from sales was driven by lower volumes of sales, driven primarily ~~relate to leasing activities. The Company transferred $81.5 million and $37.8 million of leases originated for investment to held for sale during thesix-month~~ ~~period ended June 30, 2019 and 2018, respectively.~~by our execution decisions.

Net cash provided by financing activities was ~~$85.7~~$82.5 million for the~~six-month~~ three-month period ended ~~June 30, 2019,~~March 31, 2020, compared to net cash provided by financing activities of ~~$50.0~~$60.3 million for the~~six-month~~ three-month period ended ~~June 30, 2018.~~March 31, 2019. The increase in cash flows from financing activities is primarily due to ~~a $78.5~~an increase of $18.5 million ~~increase~~ in deposits and a decrease of $7.1 million of term securitization repayments offset by ~~$40.8~~$3.4 million of ~~repayments on borrowings from our 2018 asset-backed term securitization.~~additional repurchases of common stock. Financing activities also include transactions related to the Company’s ~~common stock, such as repurchasing common stock and paying~~payment of dividends.

~~-58-~~

Net cash provided by operating activities was ~~$27.0~~$10.2 million for the~~six-month~~ three-month period ended ~~June 30, 2019,~~March 31, 2020, compared to net cash provided by operating activities of ~~$44.4~~$12.5 million for the~~six-month~~ three-month period ended ~~June 30, 2018. The decrease in~~March 31, 2019. Transactions affecting net cash ~~flows from~~provided by operating activities ~~is primarily due~~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 ~~receipt in 2018 of a $7.5 million tax refund as a result of the Tax Cut and Jobs Act and the remittance in 2019 of the $4.0 million for restitution as discussed in Note 10.~~Consolidated Financial Statements.

-57-

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

Total Cash and Cash Equivalents.Our objective is to maintain an adequate level of cash, investing any free cash in leases 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, 2019~~March 31, 2020 totaled ~~$139.7~~$211.1 million, compared to ~~$97.2~~$123.1 million at December 31, ~~2018.~~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, 2019~~March 31, 2020 and December 31, ~~2018~~2019 totaled ~~$12.7~~$13.7 million and ~~$9.7~~$12.9 million, respectively.

Restricted Interest-Earning Deposits with Banks. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had ~~$8.2~~$6.5 million and ~~$14.0,~~$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 ~~$110.4~~$62.6 million at ~~June 30, 2019~~March 31, 2020 and ~~$151.2~~$76.6 million at December 31, ~~2018.~~2019. Information pertaining to our borrowing facilities is as follows:


	For the Six Months Ended June 30, 2019									As of June 30, 2019							For the Three Months Ended March 31, 2020									As of March 31, 2020
	Maximum Facility Amount		Maximum Month End Amount Outstanding		Average Amount Outstanding		Weighted Average Rate⁽³⁾			Amount Outstanding		Weighted Average Rate⁽²⁾			Unused Capacity⁽¹⁾		Maximum Facility Amount		Maximum Month End Amount Outstanding		Average Amount Outstanding		Weighted Average Rate⁽³⁾			Amount Outstanding		Weighted Average Rate⁽²⁾			Unused Capacity⁽¹⁾
	(Dollars in thousands)																(Dollars in thousands)
Federal funds purchased	$	25,000	$	—	$	—		—	%	$	—		—	%	$	25,000	$	25,000	$	—	$	—		—	%	$	—		—	%	$	25,000
Term note securitizations⁽⁴⁾		—		143,912		130,454		3.96	%		110,405		3.39	%		—		—		71,721		69,751		4.24	%		62,555		3.62	%		—
Revolving line of credit		5,000		—		—		—	%		—		—	%		5,000		5,000		—		—		—	%		—		—	%		5,000

	$	30,000	$	143,912	$	130,454		3.96	%	$	110,405		3.39	%	$	30,000	$	30,000	$	71,721	$	69,751		4.24	%	$	62,555		3.62	%	$	30,000

⁽¹⁾

Does not include MBB’s access to the Federal Reserve Discount Window, which is based on the amount of assets MBB chooses to pledge. Based on assets pledged at ~~June 30, 2019,~~March 31, 2020, MBB had ~~$32.9~~$47.8 million in unused, secured borrowing capacity at the Federal Reserve Discount Window. Additional liquidity that may be provided by the issuance of insured deposits is also excluded from this table.

⁽²⁾	Does not include transaction costs.

⁽³⁾	Includes transaction costs.

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

~~-59-~~-58-

Federal Funds Line of Credit with Correspondent Bank

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

Federal Reserve Discount Window

In addition, MBB has received approval to borrow from the Federal Reserve Discount Window based on the amount of assets MBB chooses to pledge. MBB had ~~$32.9~~$47.8 million in unused, secured borrowing capacity at the Federal Reserve Discount Window, based on ~~$35.6~~$55.1 million of net investment in leases pledged at ~~June 30, 2019.~~March 31, 2020.

Term Note Securitizations

On July 27, 2018 we completed a $201.7 million asset-backed term securitization. ~~This transaction was Marlin’s eleventh term securitization and its first since 2010.~~ It provides the company with fixed-cost borrowing with the objective of diversifying its funding ~~sources. As with all prior securitizations, this transaction was recorded as an“on-balance~~ ~~sheet” transaction~~sources and ~~the financing~~ is recorded in long-term borrowings in the Consolidated Balance Sheet.

~~This was a private offering made to qualified institutional buyers pursuant to Rule 144A under and Regulation S under the Securities Act of 1933 by Marlin Receivables2018-1~~ LLC, a wholly-owned subsidiary of Marlin Leasing Corporation. Standard & Poor’s Ratings Service, Inc. and Fitch Ratings Inc. rated the transaction with the two senior classes receiving the agencies’ highest ratings. The effective weighted average interest expense over the term of the financing is expected to be approximately 3.41%.

In connection with this securitization transaction, we ~~have~~ 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 ~~offerings. These SPEs are~~offering. The SPE is considered variable interest ~~entities~~entity (“~~VIEs”~~VIE”) under U.S. GAAP. We are required to consolidate VIEs in which we are deemed to be the primary beneficiary through having (1) power over the significant activities of the entity and (2) an obligation to absorb losses or the right to receive benefits from the VIE which are potentially significant to the VIE. We continue to service the assets of our ~~VIEs~~VIE and retain equity and/or residual interests. Accordingly, assets and related debt of ~~these VIEs are~~the VIE is included in the accompanying Consolidated Balance Sheets. ~~Our leases and restricted interest-earning deposits with banks are assigned as collateral for these~~Collateral in excess of our borrowings under the securitization transaction represents our maximum loss exposure and there is no further recourse to our general credit. ~~Collateral in excess of these borrowings represents our maximum loss exposure. Our term note securitizations have fixed terms, fixed interest rates~~At March 31, 2020 and ~~fixed principal amounts. At June 30,~~December 31, 2019 outstanding term securitizations amounted to ~~$109.6~~$62.2 million and ~~$150.1~~$76.1 million, ~~at December 31, 2018.~~

~~-60-~~

~~As of June 30, 2019, $124.0 million of minimum lease payments receivable~~respectively and ~~$8.1 million of restricted interest-earning deposits are assigned as collateral for the term note securitization. The July 27, 2018, term note securitization is summarized below:~~

   Notes
Originally
Issued    Outstanding
Balance
as of
June 30, 2019    Final
Maturity
Date    Original
Coupon
Rate
   (Dollars in thousands)
2018 — 1

Class A-1
   $ 77,400    $ —      July 2019    2.55 %
Class A-2
   55,700    $ 41,855    October 2020    3.05
Class A-3
   36,910    $ 36,910    April 2023    3.36
Class B
   10,400    $ 10,400    May 2023    3.54
Class C
   11,390    $ 11,390    June 2023    3.70
Class D
   5,470    $ 5,470    July 2023    3.99
Class E
   4,380    $ 4,380    May 2025    5.02





Total Term Note Securitizations
   $ 201,650    $ 110,405       3.05 %⁽¹⁾⁽²⁾

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

⁽²⁾	~~The weighted average coupon rate of the2018-1~~ ~~term note securitization will approximate 3.41% over the term of the borrowing.~~

~~At June 30, 2019,~~ the Company was in compliance with terms of the term note securitization agreement. See Note 10 – Debt and Financing Arrangements in the accompanying Consolidated Financial Statements for detailed information regarding of our term note securitization

Bank Capital and Regulatory Oversight

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

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

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

~~Capital Adequacy~~. The Company and MBB operate under the Basel III capital adequacy standards adopted by the federal bank regulatory agencies effective on January 1, 2015. Under the risk-based capital requirements applicable to them, bank holding companies must maintain a ratio of total capital to risk-weighted assets (including the asset equivalent of certain~~off-balance~~ ~~sheet activities such as acceptances and letters of credit) of not less than 8% (10% in order to be considered “well-capitalized”). The~~

~~-61-~~

requirements include a 6% minimum Tier 1 risk-based ratio (8% to be considered well-capitalized). Tier 1 Capital consists of common stock, related surplus, retained earnings, qualifying perpetual preferred stock and minority interests in the equity accounts of certain consolidated subsidiaries, after deducting goodwill and certain other intangibles. The remainder of total capital (“Tier 2 Capital”) may consist of certain perpetual debt securities, mandatory convertible debt securities, hybrid capital instruments and limited amounts of subordinated debt, qualifying preferred stock, allowance for credit losses on loans and leases, allowance for credit losses on~~off-balance-sheet~~ ~~credit exposures and unrealized gains on equity securities.~~

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

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

~~At June 30, 2019,~~ MBB’s Tier 1 leverage ratio, common equity Tier 1 risk-based ratio, Tier 1 risk-based capital ratio and total risk-based capital ~~ratio were 13.76%, 15.05%, 15.05% and 16.30%, respectively, which exceeds~~ratios exceeded the requirements for well-capitalized ~~status~~status.

See MDA—Executive Summary for discussion of ~~5%, 6.5%, 8%~~updates to our capital requirements driven by the termination of the CMLA Agreement and 10%, respectively. At June 30, 2019, Marlin Business Services Corp.’s Tier 1 leverage ratio, common equity Tier 1 risk based ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio were 15.24%, 17.01%, 17.01% and 18.26%, respectively, which exceeds requirements for well-capitalized status of 5%, 6.5%, 8% and 10%, respectively.

~~Pursuant~~driven by our election to utilize the five-year transition related to the ~~FDIC Agreement entered into~~adoption of the CECL accounting standard. In addition, see Note 13—Stockholders’ Equity in ~~conjunction with~~ the ~~opening of MBB, MBB is required~~Notes to ~~keep its total risk-based capital ratio above 15%. MBB’s Tier 1 Capital balance~~Consolidated Financial Statements for additional information regarding these ratios and our levels at ~~June 30, 2019 was $146.3 million, which exceeds the regulatory threshold for “well capitalized” status.~~March 31, 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, 2019~~March 31, 2020

~~Contractual Obligations~~

In addition to scheduled maturities on our deposits and credit facilities, we have future cash obligations under various types of contracts. We lease office space and office equipment under long-term operating leases. The contractual obligations under our certificates of deposits, credit facilities, term note securitizations, operating leases, agreements and commitments under~~non-cancelable~~ ~~contracts as of June 30, 2019 were as follows:~~

~~-62-~~-59-

   Contractual Obligations as of June 30, 2019
Period Ending December 31,
   Certificates
of
Deposits⁽¹⁾    Borrowings    Contractual
Interest
Payments⁽²⁾    Operating
Leases    Total
   (Dollars in thousands)
Remainder of 2019
   $ 209,179    $ 32,994    $ 15,972    $ 623    $ 258,768
2020
   277,081    45,200    14,547    1,769    338,597
2021
   202,896    23,629    7,901    1,547    235,973
2022
   105,523    8,582    3,327    1,458    118,890
2023
   45,873    —      1,404    1,371    48,648
Thereafter
   25,062    —      190    11,358    36,610










Total
   $ 865,614    $ 110,405    $ 43,341    $ 18,126    $ 1,037,486

⁽¹⁾	~~Money market deposit accounts are not included. As of June 30, 2019, money market deposit accounts totaled $22.6 million.~~

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

~~There were nooff-balance~~ ~~sheet arrangements requiring disclosure at June 30, 2019.~~

MARKET INTEREST RATE RISK AND SENSITIVITY

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

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

~~CRITICAL ACCOUNTING POLICIES~~CRITICAL ACCOUNTING POLICIES

There have been no significant changes to our Critical Accounting Policies as described in our Form10-K for the year ended December 31, ~~2018.~~2019, other than as discussed below.

~~RECENTLY ISSUED ACCOUNTING STANDARDS~~Allowance for credit losses.

~~Information~~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 ~~recently issued~~our estimate of probable incurred net credit losses in accordance with the Contingencies Topic of the FASB ASC. See further discussion of our policy under the incurred model in the “Critical Accounting Policy” section of our 2019 Form10-K.

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

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

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

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

As part of our estimate of expected credit losses, specific to each measurement date, management considers relevant qualitative and quantitative factors to assess whether the historical loss experience being referenced should be adjusted to better reflect the risk characteristics of the current portfolio and the expected ~~impact~~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 ~~our financial statements is provided in Note 2, Summary of Significant Accounting Policies~~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 ~~accompanying Notes~~portfolio or environment and involves significant judgment.

-60-

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

~~RECENTLY ADOPTED ACCOUNTING STANDARDS~~RECENTLY ADOPTED ACCOUNTING STANDARDS

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

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

~~-63-~~-61-

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with management’s evaluation that occurred during the Company’s ~~second~~first fiscal quarter of ~~2019~~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 Form10-K for the year ended December 31, ~~2018.~~2019, other than as discussed below.

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

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

-62-

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

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

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

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

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

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

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

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

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

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

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

-63-

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

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

-64-

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

Information on Stock Repurchases

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

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, or in block ~~trades.~~trades or otherwise. The stock repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended ~~or discontinued~~ at any ~~time.~~time at the Company’s discretion. The repurchases are funded using the Company’s working capital. As of March 31, 2020, the Company had $4.7 million remaining in the 2019 Repurchase Plan.

The following table sets forth information regarding the Company’s repurchases of its common stock during the three months ended ~~June 30, 2019.~~March 31, 2020.

Time Period
   Number of
Shares
Purchased⁽²⁾    Average Price
Paid Per
Share⁽¹⁾    Maximum Approximate
Dollar Value of Shares that
May Yet be Purchased
Under the Plans or
Programs
April 1, 2019 to April 30, 2019
   —      $ —      $ 5,036,613
May 1, 2019 to May 31, 2019
   15,971    $ 23.34    $ 4,663,794
June 1, 2019 to June 30, 2019
   56,853    $ 23.47    $ 3,329,408



Total for the quarter ended June 30, 2019
   72,824    $ 23.44    $ 3,329,408


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

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

⁽²⁾	~~On May 30, 2017, the Company’s Board of Directors approved a stock repurchase plan to repurchase up to $10 million in value of its outstanding shares of common stock.~~

In addition to the repurchases described above, pursuant to the 2014 Equity Compensation Plan, participants may have shares withheld to cover income taxes. There were ~~536~~21,123 shares repurchased to cover income tax withholding in connection with the shares granted under the 2014 Equity Compensation Plan during the three-month period ended ~~June 30, 2019,~~March 31, 2020, at an average cost of $ ~~22.81~~13.38 per share. ~~At June 30, 2019, the Company had $ 3.3 million remaining in the 2017 Repurchase Plan.~~

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

-65-

Item 5. Other Information

None

~~-65-~~-66-

Item 6. Exhibits


Exhibit Number		Description

3.1		Amended and Restated Articles of Incorporation⁽¹⁾

3.2		Amended and Restated Bylaws⁽²⁾

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

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

10.2		Form of Performance Stock Unit Award under the 2019 Equity Compensation Plan. (Filed Herewith)

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

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

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

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

101		Financial statements from the Quarterly Report on Form~~Form~~ 10-Q of Marlin Business Services Corp. for the period ended ~~June 30, 2019,~~March 31, 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 Form10-K for the fiscal year ended December 31, 2007 filed on March 5, 2008, and incorporated by reference herein.

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

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

~~-66-~~-67-

SIGNATURES

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


MARLIN BUSINESS SERVICES CORP. (Registrant)

~~(Registrant)~~



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

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

Date: ~~August 2, 2019~~May 1, 2020

~~-67-~~-68-


	June 30, 2019
	1 Year or Less		1-5 Years			5-10 Years			After 10 Years		Total
	(Dollars in thousands)
Amortized Cost:
Debt Securities, Available for Sale:
ABS	$	—	$	2,776		$	1,863		$	—	$	4,639
Municipal securities		—		521			1,854			—		2,375

Total debt securities available for sale	$	—	$	3,297		$	3,717		$	—	$	7,014

Estimated fair value	$	—	$	3,327		$	3,774		$	—	$	7,101
Weighted-average yield, GAAP basis		—		2.34	%		2.72	%		—		2.55	%


	Three Months Ended June 30				Six Months Ended June 30
	2019		2018		2019		2018
	(Dollars in thousands)
Selling Profit⁽¹⁾	$	—	$	—	$	—	$	—
Interest Income	$	10,730	$	12,482	$	21,691	$	25,478


June 30, 2019 (Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		>90 Days Past Due		Total Past Due			Current		Total Finance Receivables		Non- Accruing
Working Capital Loans	$	240	$	—	$	—	$	240	��	$	50,983	$	51,223	$	248
CRA		—		—		—		—			1,493		1,493		—
Equipment Finance⁽¹⁾		4,287		3,030		3,817		11,134			1,037,233		1,048,367		3,817
CVG		381		374		465		1,220			96,424		97,644		465

Total Leases and Loans⁽²⁾	$	4,908	$	3,404	$	4,282	$	12,594		$	1,186,133	$	1,198,727	$	4,530


December 31, 2018 (Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		>90 Days Past Due		Total Past Due			Current		Total Finance Receivables		Non- Accruing
Working Capital Loans	$	300	$	51	$	141	$	492		$	35,986	$	36,478	$	492
CRA		—		—		—		—			1,466		1,466		—
Equipment Finance⁽¹⁾		4,537		3,123		3,529		11,189			1,001,363		1,012,552		3,529
CVG		166		257		191		614			78,407		79,021		191

Total Leases and Loans⁽²⁾	$	5,003	$	3,431	$	3,861	$	12,295		$	1,117,222	$	1,129,517	$	4,212


(Dollars in thousands)	Total Company
Balance at December 31, 2018	$	7,360
Changes		(625	)

Balance at June 30, 2019	$	6,735


(Dollars in thousands)	Six Months Ended June 30, 2019
Supplemental balance sheet information
Operating leaseright-of-use assets⁽¹⁾	$	8,626
Operating lease liabilities		9,074
Weighted average remaining lease term		12.4	Years
Weighted average discount rate		3.30	%
Supplemental cash flow information
Operating cash flows from operating leases	$	199
Right-of-use assets obtained in exchange for lease obligations		8,626


	Operating Leases
Period Ending December 31,	(Dollars in thousands)
Remainder of 2019	$	210
2020		1,098
2021		886
2022		791
2023		806
Thereafter		7,378

Total lease payments	$	11,169
Less: imputed interest		(2,095	)

Total	$	9,074


	Six Months Ended				Year Ended
	June 30,				December 31
	2019		2018		2018
	(Dollars in thousands)
Non-accrual leases and loans:
Commercial leases and loans:
Working Capital Loans	$	248	$	147	$	492
CRA		—		—		—
Equipment Finance⁽¹⁾		3,817		2,986		3,529
CVG		465		225		191

Totalnon-accrual leases and loans	$	4,530	$	3,358	$	4,212


	Notes Originally Issued		Outstanding Balance as of June 30, 2019		Final Maturity Date		Original Coupon Rate
	(Dollars in thousands)
2018 — 1
Class A-1	$	77,400	$	—		July 2019		2.55	%
Class A-2		55,700	$	41,855		October 2020		3.05
Class A-3		36,910	$	36,910		April 2023		3.36
Class B		10,400	$	10,400		May 2023		3.54
Class C		11,390	$	11,390		June 2023		3.70
Class D		5,470	$	5,470		July 2023		3.99
Class E		4,380	$	4,380		May 2025		5.02

Total Term Note Securitizations	$	201,650	$	110,405				3.05	%⁽¹⁾⁽²⁾


	Contractual Obligations as of June 30, 2019
Period Ending December 31,	Certificates of Deposits⁽¹⁾		Borrowings		Contractual Interest Payments⁽²⁾		Operating Leases		Total
	(Dollars in thousands)
Remainder of 2019	$	209,179	$	32,994	$	15,972	$	623	$	258,768
2020		277,081		45,200		14,547		1,769		338,597
2021		202,896		23,629		7,901		1,547		235,973
2022		105,523		8,582		3,327		1,458		118,890
2023		45,873		—		1,404		1,371		48,648
Thereafter		25,062		—		190		11,358		36,610

Total	$	865,614	$	110,405	$	43,341	$	18,126	$	1,037,486


Time Period	Number of Shares Purchased⁽²⁾		Average Price Paid Per Share⁽¹⁾		Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
April 1, 2019 to April 30, 2019		—	$	—	$	5,036,613
May 1, 2019 to May 31, 2019		15,971	$	23.34	$	4,663,794
June 1, 2019 to June 30, 2019		56,853	$	23.47	$	3,329,408

Total for the quarter ended June 30, 2019		72,824	$	23.44	$	3,329,408

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company