In accordance with the Contingencies Topic 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 estimate of probable net credit losses.

The chart which follows provides activity in the allowance for credit losses and asset quality statistics.

	Three Months Ended				Six Months Ended				Year Ended
	June 30,				June 30,				December 31,
	2011		2010		2011		2010		2010

	(Dollars in thousands)
Allowance for credit losses, beginning of period	$	6,887	$	10,253	$	7,718	$	12,193	$	12,193
Charge-offs		(2,247)		(4,438)		(4,875)		(10,364)		(17,095)
Recoveries		611		842		1,229		1,705		3,182
Net charge-offs		(1,636)		(3,596)		(3,646)		(8,659)		(13,913)
Provision for credit losses		924		2,494		2,103		5,617		9,438
Allowance for credit losses, end of period⁽¹⁾	$	6,175	$	9,151	$	6,175	$	9,151	$	7,718

Annualized net charge-offs to average total
finance receivables ⁽²⁾		1.86%		3.63%		2.08%		4.19%		3.58%

Allowance for credit losses to total
finance receivables, end of period ⁽²⁾		1.74%		2.40%		1.74%		2.40%		2.19%

Average total finance receivables ⁽²⁾	$	351,389	$	395,906	$	350,296	$	413,541	$	389,001
Total finance receivables, end of period ⁽²⁾	$	354,014	$	381,977	$	354,014	$	381,977	$	352,527

Delinquencies greater than 60 days past due	$	2,221	$	5,202	$	2,221	$	5,202	$	3,504
Delinquencies greater than 60 days past due ⁽³⁾		0.56%		1.24%		0.56%		1.24%		0.90%
Allowance for credit losses to delinquent
accounts greater than 60 days past due ⁽³⁾		278.03%		175.91%		278.03%		175.91%		220.26%

Non-accrual leases and loans, end of period	$	1,197	$	2,819	$	1,197	$	2,819	$	1,996
Renegotiated leases and loans, end of period	$	1,485	$	3,024	$	1,485	$	3,024	$	2,221

(1) The allowance for credit losses allocated to loans at June 30, 2011, June 30, 2010 and December 31, 2010, was $0.1 million, $0.2 million and $0.1 million, respectively.

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

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

Net investments in finance receivables are generally charged-off when they are contractually past due for 121 days. Income is not recognized 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, 2011, June 30, 2010 and December 31, 2010, there were no finance receivables past due 90 days or more and still accruing.

Net charge-offs for the three-month period ended June 30, 2011 were $1.6 million (1.86% of average total finance receivables on an annualized basis), compared to $2.0 million (2.30% of average total finance receivables on an annualized basis) for the three-month period ended March 31, 2011. The decrease in net charge-offs during the three-month period ended June 30, 2011 compared to recent previous periods is primarily due to improving delinquency migrations and lower portfolio balances. Our key credit quality indicator is delinquency status.

As previously disclosed, based on feedback the Company received from the Federal Reserve Bank of Philadelphia in April 2011, the Company is operating under its established methodology for determining its allowance for credit losses (the “Allowance”), which methodology will be reviewed by the Federal Reserve Bank of San Francisco and the Utah Department of Financial Institutions during their next regularly scheduled commercial bank examination of Marlin Business Bank.