Marlin Business Services 10K 2020 Annual report

-1-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form

10-K

(Mark One)

☑

ANNUAL REPORT PURSUANT TO SECTION

13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

December 31, 2020

☐

TRANSITION REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to__________

Commission file number

000-50448

Marlin Business Services Corp.

(Exact name of Registrant as specified in its charter)

Pennsylvania

38-3686388

(State of incorporation)

(I.R.S. Employer Identification No.)

300 Fellowship Road

Mount Laurel

08054

(Address of principal executive offices)

Registrant’s telephone number,

including area code:

(

888

)

479-9111

Securities registered pursuant to Section

12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 per share

MRLN

NASDAQ

Global Select Market

Securities registered pursuant to Section

12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes

☐

☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes

☐

☑

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of

1934 during

the preceding

12 months (or

for such

shorter period

that the

Registrant was

required to

file such

reports), and

(2) has been

subject to

such filing requirements for the past 90 days.

Yes

☑

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to

Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that registrant was required to submit and such files.)

Yes

☑

☐

Indicate

check

mark

whether

the

registrant

large

accelerated

filer,

accelerated

filer,

non-accelerated

filer,

smaller

reporting

company,

emerging

growth

company.

See

definition

“large

accelerated

filer,”

“accelerated

filer,”

“smaller

reporting

company,”

and

“emerging growth company” in Rule 12b-2

of the Exchange Act

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

-2-

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its

internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm

that prepared or issued its audit report .

☑

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes

☐

☑

The aggregate market value of the voting common stock held by non-affiliates of the Registrant, based on the closing price of such shares on the

NASDAQ Global Select Market was approximately $

69,053,755

as of June 30, 2020. This determination of affiliate status is not necessarily a

conclusive determination for other purposes.

The number of shares of Registrant’s common stock outstanding as of February 26, 2021 was

11,987,682

shares.

DOCUMENTS INCORPORATED

BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement related to the 2021 Annual Meeting of Shareholders, to be filed with the Securities and

Exchange Commission within 120 days of the close of Registrant’s fiscal year, are incorporated by reference into Part III of this Form 10-K.

-3-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

FORM 10-K

INDEX

Page

No.

PART I

Item

Business

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

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

Item

Risk

Factors

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

........................................... 15

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

.................. 25

Item

Properties

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

............................................... 26

Item

Legal

Proceedings

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

.................................. 26

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

........................ 26

Issuer Purchases of Equity Securities

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

..... 27

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

.......................... 29

................................................. 32

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

............................... 62

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

...................................................... 62

............................................... 126

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

...................... 126

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

................................ 126

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

................................... 127

Item

Executive

Compensation

...

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

................... 127

............................. 127

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

.... 127

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

.............................................................. 127

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

....................................................... 128

PART

-4-

As used herein, the terms “Company,”

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

and its

subsidiaries.

Item 1.

Business

Overview

We are a nationwide

provider of credit products and services to small businesses and were incorporated

in the Commonwealth of

Pennsylvania in 2003. In 2008, we opened Marlin Business Bank (“MBB”), a commercial

bank chartered by the State of Utah and a

member of the Federal Reserve System, which serves as the Company’s

primary funding source through its issuance of Federal

Deposit Insurance Corporation (“FDIC”)-insured deposits.

In 2009, Marlin Business Services Corp. became a bank holding company

subject to the Bank Holding Company Act and in 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, Ltd. (“AssuranceOne”).

The products and services we provide to our customers include loans and leases for

the acquisition of commercial equipment and

working capital loans.

Our average original transaction size was approximately $18,000 at December

31, 2020 and our average net

investment on Equipment Finance contracts as of December 31, 2020 was approximately

$11,000.

We acquire our small business

customers primarily by offering equipment financing

through independent commercial equipment dealers and various national account

programs, through direct solicitation of our small business customers and

through relationships with select lease and loan brokers.

Through these origination partners, we are able to cost-effectively

access small business customers while also helping our origination

partners obtain financing for their customers. As of December 31, 2020,

we serviced approximately 80,000 finance contracts having a

total original value of $1.5 billion for approximately 68,000 small business customers.

The small balance commercial financing market is highly fragmented.

We estimate that there are

more than 100,000 independent

commercial equipment dealers and other intermediaries who sell the types

of equipment we finance or require the types of financing

we provide. We

believe this segment of equipment dealers is underserved because: (1) large

commercial finance companies and large

commercial banks typically concentrate their efforts

on marketing their products and services directly to larger equipment

manufacturers and larger distributors, rather than

to independent equipment dealers; and (2) many smaller commercial finance

companies and regional banking institutions have not developed the

systems and infrastructure required to adequately service large

volumes of low-balance transactions. We

focus on establishing our relationships with independent equipment

dealers who value

convenient point-of-sale financing programs because we can make

their sale process more effective. By providing them with the

ability to offer our financing and related services to

their customers as an integrated part of their selling process, our origination

partners are able to increase their sales and provide better service to their

customers. By doing this, we are also able to gather small

business customers to which we can sell additional credit products and services

through our fully integrated origination platform,

which allows us to efficiently solicit, process and service

a large number of low-balance financing transactions.

We generate

revenue through net interest margin on our owned portfolio

of leases and loans, from originating new contracts to

generate fee income and to replenish our owned portfolio, and we may

sell populations of finance receivables to third parties in the

capital markets as a source of liquidity and to manage the size and composition

of our balance sheet and capital levels.

We manage

risk to our portfolio through performing a comprehensive credit underwriting

process for our origination partners and small business

customers, and we continually monitor and analyze the performance

of our portfolio, assess our delinquency and credit loss

experience against our underwriting criteria and determine whether

our performance is commensurate with our intended risk

tolerance.

The following discussion outlines the significant products, services and

revenue-generating activities of our business.

Origination Channels

We use multiple

sales origination channels to access the highly diversified and fragmented

small-ticket equipment leasing market,

including both direct and indirect origination channels.

-5-

Indirect Channel

Our indirect sales origination

channels, which account for approximately [90%]

of the active lease contracts in our

portfolio, involve:

•

Independent Equipment Dealer Solicitations.

This origination channel focuses on soliciting and establishing relationships

with independent equipment dealers in a variety of equipment categories located

across the United States. Service is a key

determinant in becoming the preferred provider of financing recommended

by these equipment dealers.

• Major and National Accounts.

This channel focuses on two specific areas of development: (i) national

equipment

manufacturers and distributors, where we seek to leverage their endorsements

to become the preferred lease financing source

for their independent dealers, and (ii) major accounts (larger

independent dealers, distributors and manufacturers)

with a

consistent flow of business that need a specialized marketing and sales platform

to convert more sales using a leasing option.

• Brokers.

Our broker channels account for approximately 15% of the active

lease contracts in our portfolio and consist of

our relationships with lease brokers and certain equipment dealers who ref

er small business customer transactions to us for a

fee or sell us leases that they originated with small business customers. We

conduct our own independent credit analysis on

each small business customer in a broker lease transaction. We

have written agreements with most of our broker origination

partners

whereby they provide us with certain representations and warranties about the

underlying lease transaction. The

origination partners

in our broker channels generate leases that are similar to those generated by our direct

channels.

Direct Channel

This channel focuses primarily on soliciting our existing portfolio of

approximately 68,000 small business customers

for additional equipment leasing or working capital opportunities. We

view our existing small business customers as an excellent

source for additional business for various

reasons, including (i) retained credit information; (ii) payment history; and

(iii) a

demonstrated propensity to finance their equipment.

Product Offerings

Equipment Loans and Leases.

We originate

both equipment finance leases and loans.

Generally, an equipment

lease is when the

Company remains the owner of the equipment during the lease term.

An equipment lease may have an option at the end of the term

for the lessee to purchase the equipment, whereas with an equipment loan,

the borrower

purchases equipment with the loan proceeds.

In the case of equipment loans, the borrower is the owner of the equipment

during the loan period but the equipment is collateral for

the loan. Once the loan is fully repaid the equipment is no longer collateral.

The types of lease and loan products offered by each of

our sales origination channels share common characteristics, and

we generally underwrite our contracts using the same criteria.

We use the direct

finance method of accounting to record our sales-type leases and related

interest income. At the time of lease

application, small business customers 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. We

seek to realize our recorded residual in leased equipment at the end of the

initial lease term by collecting the purchase option price

from the small business customer, re-marketing

the equipment in the secondary market or receiving additional rental payments

pursuant to the applicable contract’s

renewal provision.

Our leases provide for non-cancelable rental payments due during the initial

lease term.

The terms

of our equipment finance leases and loans is equal to or less than the equipment’s

economic life, and generally ranges

from

36 to 72 months. At December 31, 2020,

the average original term of the equipment finance contracts

in our portfolio was

approximately 50 months, and we had personal guarantees on approximately

31% of our portfolio.

The remaining terms and

conditions of our contracts are substantially similar,

generally requiring small business customers to, among other things:

•

address any maintenance or service issues directly with the equipment

dealer or manufacturer;

•

insure the equipment against property and casualty loss;

•

pay or reimburse us for all taxes associated with the equipment;

•

use the equipment only for business purposes; and

•

make all scheduled payments regardless of the performance of the

equipment.

-6-

We charge

late fees when appropriate throughout the term of the equipment finance lease or loan

Our standard contract provides that

in the event of a default, we can require payment of the entire balance

due under the lease through the initial term and can take action

to seize and remove the equipment collateral for subsequent sale, refinancing

or other disposal at our discretion, subject to any

limitations imposed by law.

Property Insurance on Leased Equipment.

Our lease agreements specifically require customers to obtain all-risk property

insurance in

an amount sufficient to cover the value of the equipment

and to designate us as the loss payee on the policy.

If the customer already

has a commercial property policy for its business, it can satisfy its obligation

under the lease by delivering a certificate of insurance

that evidences us as the loss payee under that policy.

At December 31, 2020,

approximately 51% of our small business customers

insured the equipment under their existing policies. For the others, we have

a master property insurance policy underwritten by a third-

party national insurance company that is licensed to write insurance

under our program in all 50 states and the District of Columbia.

This master policy names us as the beneficiary for all of the equipment

insured under the policy and provides all-risk coverage for the

value of the equipment.

Through AssuranceOne, our Bermuda-based, wholly-owned captive

insurance subsidiary we reinsure the property insurance coverage

for the equipment financed by Marlin Leasing Corporation and MBB for

our small business customers.

Under this contract,

AssuranceOne reinsures 100% of the risk under the master policy,

and the issuing insurer pays AssuranceOne the policy premiums,

less claims, premium tax and a ceding fee based on a percentage of annual

net premiums written. The reinsurance contract is

scheduled to expire in September 2023.

As a Class 3 insurer under the Bermuda Insurance Act of 1978, as amended,

AssuranceOne is

permitted to collect up to 50% of its premiums in connection with insurance

coverage on equipment unrelated to the Company,

meaning that, through AssuranceOne, we may offer an

insurance product to cover equipment not otherwise financed through the

Company.

Working

Capital Loans

. In 2015, the Company launched Funding Stream, a flexible loan program of MBB. The

success of this

program and the growing demand by small businesses for convenient

working capital solutions prompted the Company to update the

name of this program to Working

Capital Loans in 2018, while maintaining its commitment to a convenient, hassle-free

alternative to

traditional lenders and access to capital to help companies grow their business

es. Generally, these loans range

from $5,000 to

$150,000,

have 6 to 24 month terms, and have automated daily or weekly payback.

Business owners can apply online, in ten minutes

or less, on MarlinCapitalSolutions.com.

Approved borrowers can receive funds in as little as two days.

Portfolio Overview

Equipment Finance.

At December 31, 2020,

we had approximately 80,000 active Equipment Finance leases and loans in our

portfolio, representing a period ending net investment in Equipment

Finance lease and loans, excluding the allowance for credit losses,

of $849.0 million. With respect to our portfolio

at December 31, 2020:

•

the average original Equipment Finance lease and loan transaction was approximately

$18,000,

with an average remaining

balance of approximately $12,000;

•

the average original Equipment Finance lease and loan term was approximately

50 months;

•

our active Equipment Finance lease and loans were spread among approximately

68,000 different small business customers, with

the largest single small business customer accounting

for only 0.16% of the aggregate Equipment Finance minimum lease and

loan payments receivable;

•

over 75.4% of the aggregate minimum Equipment Finance lease and

loan payments receivable were with small business

customers who had been in business for more than five years;

•

the portfolio was spread among 10,707 origination partners, with the largest

source accounting for only 5.91% of the aggregate

Equipment Finance minimum lease and loan payments receivable,

and our 10 largest origination partners

account for only 18.4%

of the aggregate Equipment Finance minimum lease and loan payments receivable;

•

there

were

over

100

different

equipment

categories

set

forth

the

following

tables;

and

•

had

leases

outstanding

with

small

business

stomers

located

all

states

and

the

District

Columbia,

with

our

largest

states of origination, as set forth in the following tables.

-7-

Working

Capital:

As of December 31, 2020,

the Company had approximately 870 Working

Capital Loans with a book value of $20.0

million on the balance sheet, excluding the allowance for credit losses. Approximately

50% of our Working

Capital Loan customers

renew financing with Marlin.

The following tables outline the concentrations by state, industry,

and equipment category as a percentage of the net investment

receivable for our portfolio as of December 31, 2020:

Top 10

Industries, by Borrower SIC Code

Top 10

States

Equipment

Finance

Working

Finance

Working

and CVG

Capital

and CVG

Capital

Medical

13.7

8.1

14.0

10.7

Misc. Services

11.9

8.3

11.7

11.4

Retail

10.1

13.0

9.4

8.7

Construction

8.9

11.0

6.8

6.0

Restaurants

6.8

6.5

4.6

6.5

Professional Services

6.6

5.5

3.5

4.6

Manufacturing

6.0

7.5

3.4

3.7

Transportation

5.3

2.6

3.3

5.9

Trucking

4.3

1.8

3.2

2.6

Automotive

3.3

6.1

3.2

2.4

All Other

23.1

29.6

All Other

36.9

37.5

Total

100

Total

100

Equipment Type

Equipment

Finance

Working

and CVG

Capital

Copiers

20.9

Titled V-Commercial

13.2

n/a

Commerce & Indus

8.3

Restaurant

4.8

Dental Systems

4.7

Medical

4.2

Office Furniture

2.5

Computer Software

1.8

Automotive General

1.7

Machine Tool

1.6

All other

36.3

Total

100.00

-8-

Markets and Competition

In response to the COVID-19 pandemic, we initially focused our

efforts on protecting the value of our portfolio and assisting our

customers that had been negatively impacted by the pandemic, including

initiating a loan modification program in response to the

pandemic, and by assisting some of our borrowers by originating loans

guaranteed under the Small Business Administration’s

(SBA’s)

Paycheck Protection Program (“PPP”).

In addition, in response to the onset of the pandemic, we temporarily tightened

underwriting

standards for areas of elevated risk, and we continue to update such risk assessments based

on current conditions.

Consistent with other market participants, after the onset of the pandemic

we have experienced

softer demand for financing by the

small business community we service due to challenges facing many industries

resulting from the continued economic fallout of

COVID-19 across much of the United States.

In addition, we have noticed some lessors extending the terms of leases for

their current

equipment, rather than entering into commitments to purchase and finance

new equipment, which may be driven by the uncertainties

of this environment.

In response to the potential impacts on our business resulting from the pandemic, we

took a series of actions to

preserve our capital and liquidity and reposition the business for success

once the full effects of the pandemic are realized and the

economy begins to recovery.

These actions included: (i) temporary re-allocation of resources from

front-end origination activities to

portfolio servicing and collection activities (ii) cost reduction initiatives that

led to a permanent reduction of approximately 80

employees and (iii) a re-organization of origination and processing

platforms

to accelerate automation and digitization.

We are

currently targeting the rollout of our digital origination platform,

which we are calling Express, by the middle of 2021.

We are

continuing to monitor the evolving health crisis, and its impacts on our operations

and ability to serve our customers in this changing

environment.

Any return to pre-pandemic levels of activity,

and the long-term impacts of this crisis on our market, remains uncertain

and will be dependent on,

among other things, the timing and pace of the macro-economic recovery

and the execution of the strategy

that we undertook in 2020.

We compete

with a variety of equipment financing sources that are available to small and mid

-sized businesses, including:

•

national, regional and local banks and finance companies that provide

leases and loan products;

•

financing through captive finance and leasing companies affiliated

with major equipment manufacturers;

•

FinTech companies;

•

working capital lenders;

•

corporate credit cards; and

•

commercial banks, savings and loan associations and credit unions.

Our principal competitors in the small-ticket equipment finance market

are independent finance companies, local and regional banks

and, to a lesser extent, in the case of our national accounts channels, national

providers of equipment financing, some of which are

national banks with leasing divisions. Many of our national competitors

are substantially larger than we are and generally focus on

larger ticket transactions and in some cases international

programs. We compete

on the quality of service we provide to our

origination partners

and small business customers,

as well as the pricing of our equipment finance and working capital products.

With

the introduction of our Working

Capital Loans,

we also compete with FinTech

lenders. We have encountered

and will continue to

encounter significant competition.

We believe several

characteristics may distinguish us from our competitors, including

the following:

Multiple Sales Origination Channels.

We use multiple

sales origination channels to penetrate effectively the highly

diversified and

fragmented small-ticket equipment finance market.

We use both direct

and indirect origination channels.

Our direct channel involves

soliciting our existing small business customer base for repeat business as well as identifying

other small business customers who

need financing.

The indirect channel sources financing opportunities through our partner network

and our broker network. Our

indirect origination channels, which accounted for approximately

83% of the 2020 lease and loan new origination volume, involve:

(1) establishing relationships with independent equipment dealers; (2)

securing endorsements from national equipment manufacturers

and distributors to become the preferred lease financing source for the independent

dealers who sell their equipment; and

(3) establishing relationships with independent brokers who identify

opportunities for us. Our broker network accounted for 24% of

the indirect channel’s 2020

lease and loan new origination volume.

Our direct origination channel accounted for approximately 17%

-9-

of the 2020 lease and loan new origination volume.

Highly Effective Account Origination Platform.

Our telephonic direct marketing platform and our strategic use of outside sales

account executives offer origination partners a high

level of personalized service through our team of sales account executives and

sales support personnel. Our business model is built on a real-time, fully

integrated customer information database and a contact

management and telephony application that facilitate our

account solicitation and servicing functions.

Comprehensive Credit Process.

We seek to manage

credit risk

effectively at the origination partner as well as at the transaction and

portfolio levels. Our comprehensive credit process starts with the qualification

and ongoing review of our origination partners. Once

the origination partner is approved, our credit process focuses on analyzing

and underwriting the small business customer and the

specific financing transaction, regardless of whether the transaction

was originated through our direct or indirect origination channels.

Our underwriting process involves the use of our customized acquisition

scorecards along with detailed rules-based analysis

conducted by our team of seasoned credit analysts.

Portfolio Diversification.

As of December 31, 2020,

no single small business customer accounted for more than 0.16% of our

portfolio balance and leases from our largest origination partner

accounted for only 5.91% of our portfolio. Our portfolio is also

diversified nationwide with the largest state portfolios existing

in California, Texas and Florida,

and we have a diverse equipment type

and industry group represented in our portfolio, as outlined in the above

tables.

Fully Integrated Information Management System.

Our business integrates information technology solutions to optimize the sales

origination, credit, collection and account servicing functions. Throughout

a transaction, we collect a significant amount of

information on our origination partners and small business customers.

The enterprise-wide integration of our systems enables data

collected by one group, such as credit, to be used by other groups,

such as sales or collections, to better perform their functions.

Sophisticated Collections Environment.

Our centralized collections department is structured to collect delinquent

accounts, minimize

credit losses and maximize post charge-off recovery

dollars. Our collection strategy employs a delinquency bucket segmentation

approach, where certain collectors are assigned to accounts based on their

delinquency status. We

also stratify and assign our accounts

to collectors based on other relevant criteria, such as customers with an early

missed payment, risk profile and transaction size. This

segmentation approach allows us to assign our more experienced collectors

to the late stage delinquent accounts. In addition, the

collections department also focuses on collecting delinquent late fees,

property taxes, and other outstanding amounts due under the

customer’s contracts.

Access to Multiple Funding Sources.

We have established

and maintained diversified funding sources, with our wholly-owned

subsidiary, MBB.

MBB is currently our primary funding source through the issuance of fixed and

variable rate FDIC-insured deposits

raised nationally through direct platforms, listing services, and through

various deposit brokers. We

believe that our proven ability to

access funding consistently at competitive rates through various economic

cycles provides us with the liquidity necessary to manage

our business. (See

Liquidity and Capital Resources

in Item 7).

Experienced Management Team.

Our executive officers have an average of more than 20 years of

experience in financial services. As

we have grown, we have expanded the management team with a group of

successful, seasoned executives.

Government Regulation

The banking

industry is heavily

regulated, and

such regulations are

intended primarily

for the protection

of depositors and

the federal

deposit

insurance

funds,

not

shareholders.

Since

becoming

bank

holding

company

on January

13,

2009,

have

been

subject

regulation

the

Federal

Reserve

Board

and

the

Federal

Reserve

Bank

Philadelphia

and

subject

the

Bank

Holding

Company

Act.

Our

bank

subsidiary,

MBB,

also

subject

regulation

the

Federal

Reserve

Board,

the

Federal

Reserve

Board

San

Francisco,

and

the

Utah

Department

Financial

Institutions.

Such

regulation

affects

our

lending

practices,

capital

structure,

investment practices, dividend policy and growth.

See further

discussion in

“Risk Factors—Regulations—

Government regulation

significantly affects

our business.

Further changes

regulations that

impact our business may have

a significant impact on our

business, results of

operations, and financial condition.”

Item 1A of this Form 10-K.

We believe that

we currently are in substantial compliance with all material statutes and regulations

that are applicable to our business.

-10-

Certain of the regulatory requirements that

are applicable to Marlin Business Services Corp.,

MBB and our other subsidiaries are

described below.

This description of statutes and regulations is not intended to be a complete explanation

of such statutes and

regulations and their effects on us and our subsidiaries and is qualified

in its entirety by reference to the actual statutes and regulations.

Banking Regulation.

Our subsidiary,

Marlin Business Bank, is a Utah state-chartered Federal Reserve member bank and is supervised

by both the Federal

Reserve Bank of San Francisco and the Utah Department of Financial Institutions

(the “Department”).

We are a registered

bank

holding company under the Bank Holding Company Act and are

supervised by the Federal Reserve Board, including the Federal

Reserve Bank of Philadelphia.

We elected to become

a financial holding company (while remaining a bank holding company)

and the

Bank Holding Company Act, as modified by the Gramm-Leach-Bliley

Act, permits us to engage in a wider range of financial

activities deemed to be “financial in nature”

including lending, exchanging, transferring, investing for others, safeguarding

money or

securities, providing financial, investment or economic advisory

services and underwriting, dealing in, or making a market in

securities.

Our status as a financial holding company permits the Company to

conduct reinsurance activities through our

AssuranceOne subsidiary.

Federal law provides the federal banking regulators, including the FDIC and

the Federal Reserve Board, with substantial enforcement

powers. This enforcement authority includes, among other things, the ability

to assess civil money penalties, to issue cease-and-desist

or removal orders, and to initiate injunctive actions against banking organizations

and institution-affiliated parties. In general, these

enforcement actions may be initiated for violations of laws and regulations

and unsafe or unsound practices. Other actions or inactions

may provide the basis for enforcement action, including misleading

or untimely reports filed with regulatory authorities.

Federal and state laws and regulations which are applicable to banks

regulate, among other things, the scope of their business, their

investments, their reserves against deposits, the payment of dividends,

the timing of the availability of deposited funds and the nature

and amount of and collateral for certain loans. There are periodic examinations

by the Department and the FDIC to test our

compliance with various regulatory requirements. This regulation and

supervision establishes a comprehensive framework of activities

in which an institution can engage and is intended primarily for

the protection of the insurance fund and depositors. The regulatory

structure also gives the regulatory authorities extensive discretion in connection

with their supervisory and enforcement activities and

examination policies, including policies with respect to the classification

of assets and the establishment of adequate loan loss reserves

for regulatory purposes. Any change in such regulation, whether

by the Department, the FDIC, the Federal Reserve Board or Congress

could have a material adverse impact on our operations.

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, as modified by certain provisions

of the Dodd-Frank Act that became fully effective on January 1,

2019.

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 requirements include a 6% minimum Tier

1 risk-based ratio (8%

to be considered well-capitalized). Tier 1 Capital,

as defined in the implementing regulations, 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. At December

31, 2020,

the Company’s Tier

1 Capital and

total capital ratios were 22.74% and 24.04%,

respectively.

The capital standards

require a minimum Tier 1 leverage ratio of 4%. The

capital requirements also now require a new 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

are 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. At

December 31, 2020,

the Company’s leverage and common

equity ratios were 18.78% and 22.74%,

respectively.

-11-

The Company is required to have a level of regulatory capital in excess of

the regulatory minimum and to have a capital buffer above

2.5% for 2020 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.

Prompt Corrective Action

The Federal Deposit Insurance Corporation Improvement Act of 1991

(“FDICIA”) requires 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 depository institutions consist of those with capital

levels significantly below

the minimum requirements for any relevant capital measure.

Critically undercapitalized depository institutions are those with minimal

capital and at serious risk for government seizure.

Under certain circumstances, a well-capitalized, adequately capitalized

or undercapitalized institution may be treated as if the

institution were in the next lower capital category.

A depository institution is generally prohibited from making capital distributions,

including paying dividends, or paying management fees to a holding company

if the institution would thereafter be undercapitalized.

Institutions that are adequately capitalized but not well-capitalized

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

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

can be paid on such deposits.

Undercapitalized

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

The federal bank regulatory agencies are permitted or,

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

falling within one of the three undercapitalized categories.

Depending on the level of an institution’s

capital, the agency’s corrective

powers include, among other things:

•

prohibiting

the

payment

principal

and

interest

subordinated

debt;

•

prohibiting

the

holding

com

pany

from

making

distributions

without

prior

regulatory

approval;

•

placing

limits

asset

growth

and

restrictions

activities;

•

placing

additional

restrictions

transactions

with

affiliates;

•

restricting

the

interest

rate

institution

may

pay

deposits;

•

prohibiting

the

institution

from

accepting

deposits

from

correspondent

banks;

and

•

the

most

severe

cases,

appointing

conservator

receiver

for

the

institution.

A banking institution that is undercapitalized is required to submit a capit

al restoration plan and such a plan will not be accepted

unless, among other things, the banking institution’s

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

Any such

guarantee from a depository institution’s

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

MBB’s Tier 1 Capital

balance was $148.3 million at December 31, 2020,

resulting in a Tier 1 leverage ratio, common

equity Tier 1 risk based ratio, Tier

risk-based capital ratio and a total risk-based capital ratio of 15.26%

18.23%,

18.23% and 19.53%, respectively,

which exceeded the

regulatory requirements for well-capitalized status of 5%, 6.5%, 8% and

10%, respectively.

Pursuant to the FDIC Agreement entered into in conjunction with the opening

of MBB, MBB was required to keep its total risk-based

capital ratio above 15%. On March 25, 2020, MBB received notice from

the FDIC that it had approved MBB’s request to

rescind

certain nonstandard conditions in the FDIC’s

order granting federal deposit insurance issued on March 20, 2007. Furthermore,

effective March 26, 2020, the FDIC, the Company

and certain of the Company’s subsidiaries terminated

the Capital Maintenance and

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

Agreement, each entered into by and among the Company,

certain of its subsidiaries and the FDIC in conjunction with the opening of

MBB. As a result of these actions, MBB is no longer

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

ratio above 15%. Rather, MBB must continue

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 preceding paragraphs.

-12-

The federal banking agencies’ final regulatory capital rules, discussed above,

also modify the above prompt corrective action

requirements to add a common equity tier 1 risk-based ratio requirement,

and increase certain other capital requirements for the

various prompt corrective action thresholds. For example, the requirements

for a bank to be considered well-capitalized under the

rules are a 5.0% tier 1 leverage ratio, a 6.5% common equity tier 1 risk-based ratio,

an 8.0% tier 1 risk-based capital ratio and a 10.0%

total risk-based capital ratio. To

be adequately capitalized, those ratios are 4.0%, 4.5%, 6.0% and 8.0%, respectively.

Federal Deposit Insurance.

The deposits of MBB are insured to the maximum extent permitted by the Deposit

Insurance Fund (the “DIF”) and are backed by the

full faith and credit of the U.S. Government. The Dodd-Frank Act increased

deposit insurance on most accounts to $250,000. As

insurer, the FDIC is authorized to conduct

examinations of, and to require reporting by,

insured institutions. It also may prohibit any

insured institution from engaging in any activity determined by

regulation or order to pose a serious threat to the FDIC. The FDIC also

has the authority to initiate enforcement actions against savings institutions.

The FDIC’s risk-based premium

system for FDIC deposit insurance is governed by the Federal Deposit Insurance

Reform Act of

2005, as amended by certain provisions of the Dodd-Frank Act. The

FDIC changed its risk-based premium system for FDIC deposit

insurance which now includes quarterly assessments of FDIC-insured

institutions based on their respective rankings in one of four risk

categories depending upon their examination ratings and capital ratios.

The FDIC capital assessment base now includes

consolidated

total assets minus tangible equity capital, defined as Tier

1 Capital. Institutions in FDIC-assigned Risk Categories II, III and IV are

assessed premiums at progressively higher rates.

The Dodd Frank Act raised the minimum reserve ratio of the Deposit Insurance

Fund from 1.15% to 1.35% and requires the FDIC to

offset the effect of this increase on insured institutions

with assets of less than $10 billion (small institutions).

Small institutions will

receive credits for the portion of their regular assessments that contributed

to growth in the reserve ratio between 1.15% and 1.35%.

When the reserve ratio is at or above 1.38%, the FDIC will automatically apply a small

bank's credits to reduce its regular assessment

up to the entire amount of the assessment.

If the reserve ratio exceeds 1.5%, the FDIC must dividend to DIF members the amount

above the amount necessary to maintain the DIF at 1.5%, but the FDIC Board

of Directors may, in

its sole discretion, suspend or limit

the declaration of payment of dividends.

Source of Strength

Doctrine

Under the provisions of the Dodd-Frank Act, as well as Federal Reserve Board

policy and regulation, a bank holding company must

serve as a source of financial and managerial strength to each of its subsidiary

banks and is expected to stand prepared to commit

resources to support each of them.

Consistent with this policy,

the Federal Reserve Board has stated that, as a matter of prudent

banking, a bank holding company should generally not maintain a given rate

of cash dividends unless its net income available to

common shareholders has been sufficient to fully fund

the dividends and the prospective rate of earnings retention appears to be

consistent with the organization’s

capital needs, asset quality and overall financial condition.

National Monetary Policy

In addition to being affected by general economic conditions,

the earnings and growth of the Company and MBB are affected

by the

policies of the Federal Reserve Board.

An important function of the Federal Reserve Board is to regulate the money supply

and credit

conditions.

Among the instruments used by the Federal Reserve Board to implement these objectives

are open market operations in

U.S. government securities, adjustments of the discount rate and changes

in reserve requirements against bank deposits.

These

instruments are used in varying combinations to influence overall economic

growth and the distribution of credit, bank loans,

investments and deposits.

Their use also affects interest rates charged on

loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve Board

have had a significant effect on the operating results of

commercial banks in the past and are expected to continue to do so in the future.

The effects of such policies upon our future business,

earnings and growth cannot be predicted.

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

-13-

consideration of current and prospective economic conditions. MBB’s

ability to pay dividends to the Company is subject to various

regulatory requirements, including Title

12 part 208 of the Code of Federal Regulations (12 CFR 208.5), which places limitations

bank dividends. Such limitations applicable to MBB include requiring

the approval of the Federal Reserve Board for the payment of

dividends by the bank subsidiary in any calendar year if the total of all dividends

declared by the bank in that calendar year, including

the proposed dividend, exceeds the current year’s

net income combined with the retained net income for the two preceding calendar

years. “Retained net income” for any period means the net income for that period

less any common or preferred stock dividends

declared in that period. Moreover, no dividends

may be paid by such bank in excess of its undivided profits account.

Furthermore, as

discussed under “

Source of Strength Doctrine

”, as a bank holding company, the

Company’s ability to pay dividends to its shareholders

is also subject to various regulatory requirements, including Supervisory

Letter SR 09-4, Applying Supervisory Guidance and

Regulations on the Payment of Dividends, Stock Redemptions and Stock

Repurchases at Bank Holding Companies.

Transfers of Funds and Transactions

with Affiliates.

Regulations governing the Company and its affiliates,

including sections 23A and 23B of the Federal Reserve Act, impose restrictions

on MBB that limit the transfer of funds by MBB to Marlin Business Services Corp.

and certain of its affiliates, in the form of loans,

extensions of credit, investments or purchases of assets. These transfers by

MBB to Marlin Business Services Corp. or any other

single affiliate are limited in amount to 10% of MBB’s

capital and surplus, and transfers to all affiliates are limited

in the aggregate to

20% of MBB’s capital and surplus.

These loans and extensions of credit are also subject to various collateral

requirements. These

regulations also require generally that MBB’s

transactions with its affiliates be on terms no

less favorable to MBB than comparable

transactions with unrelated third parties.

Subject to certain exceptions, the Change in Bank Control Act of 1978,

as amended, prohibits a person or group of persons from

acquiring "control" of a bank holding company unless the FDIC has been

notified 60 days prior to such acquisition and has not

objected to the transaction. Under a rebuttable presumption

in the Change in Bank Control Act, the acquisition of 10% or more of a

class of voting stock of a bank holding company with a class of securities registered

under Section 12 of the 1934 Act, such as the

Company, would, under

the circumstances set forth in the presumption, constitute acquisition of control

of the bank holding company.

The regulations provide a procedure for challenging this rebuttable control

presumption.

Securities and Exchange Commission and The NASDAQ Global Select

Market (NASDAQ)

We are also subject

to regulations promulgated by the Securities and Exchange Commission

and certain state securities commissions

for matters relating to the offering and sale of our securities. We

are subject to the disclosure and regulatory requirements of the

Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,

as amended, as administered by the Securities and

Exchange Commission. We

are listed on NASDAQ under the trading symbol “MRLN,” and we are

subject to the rules of NASDAQ

for listed companies.

Other Regulations.

Although most states do not directly regulate the commercial equipment

financing business, certain states require lenders and finance

companies to be licensed, impose limitations on certain contract terms and

on interest rates and other charges, mandate disclosure of

certain contract terms and constrain collection practices and remedies.

In addition to state licensing requirements, we are required to comply with

various laws and requirements that protect credit applicants

or are otherwise applicable to financial institutions, including

but not limited to the following:

●

Gramm-Leach-Bliley Act, which requires financial institutions to maintain

privacy regarding credit application data in our

possession and to periodically communicate with certain customers

on privacy matters;

●

USA Patriot Act of 2001, which requires financial institutions, including our banking

subsidiary, to assist in the prevention,

detection and prosecution of money laundering and the financing of terrorism;

●

Telephone

Consumer Protection Act of 1991, which protects from unwanted auto-dialed or pre

-recorded telemarketing calls;

●

Fair and Accurate Credit Transactions Act (“FACT

Act”), which requires financial institutions to establish a written

program

to implement “Red Flag Guidelines,” which are intended to detect,

prevent and mitigate identity theft. The FACT

Act also

provides guidance regarding reasonable policies and procedures that a user

of consumer credit reports must employ when a

consumer reporting agency sends the user a notice of address discrepancy;

-14-

●

Fair Credit Reporting Act, which regulates the use and reporting of information

related to the credit history of certain credit

applicants;

and

●

Equal Credit Opportunity Act and Regulation B, which prohibit discrimination

on the basis of age, race and certain other

characteristics in the extension of credit and require that we provide notice to credit

applicants of their right to receive a

written statement of reasons for declined credit applications.

Our insurance operations are subject to various

types of governmental regulation. Our wholly-owned insurance company subsidiary,

AssuranceOne, is a Class 3 Bermuda insurance company and, as such, is subject

to the Bermuda Insurance Act 1978, as amended, and

related regulations.

Seasonality

The products and services we provide to our customers include loans and leases for

the acquisition of commercial equipment and

working capital loans.

Our business activities are not seasonal in nature.

Human Capital

We believe our

success depends on the strength of our workforce. The Chief Human Resources

Officer ("CHRO") is responsible for

developing and executing our human capital strategy.

This includes the acquisition, development, and retention of talent to deliver on

the Company’s strategy as well as the design

of employee compensation and benefits programs.

We recognize

that attracting,

motivating and retaining talent at all levels is vital to continuing our success.

We offer

industry competitive wages and benefits and

are committed to maintaining a workplace environment that promotes

employee productivity and satisfaction.

We manage

the business through establishing operational and financial goals that are

focused on achieving our organization-wide

initiatives.

Those goals are focused for the leadership of each department, and then

cascaded through the levels of the organization.

Like many companies, the COVID-19 pandemic has been especially challenging

as we focused our health and safety efforts on

protecting our employees and families from potential virus exposure

while continuing to maintain our operations and support our

customers. Since the beginning of the pandemic, our employees have been

working remotely, and we have

not experienced any

significant interruptions to our operations from that transition.

As of December 31, 2020, we employed 254 people. None of our employees are

covered by a collective bargaining agreement and

have never experienced any work stoppages.

Available Information

We are a Pennsylvania

corporation with our principal executive offices located

at 300 Fellowship Road, Mount Laurel, NJ 08054. Our

telephone number is (888) 479-9111

and our website address is www.marlincapitalsolutions

.com.

We make available

free of charge

through the investor relations section of our website our Annual Reports

on Form 10-K, Quarterly Reports on Form 10-Q, current

reports on Form 8-K and all amendments to those reports as soon as reasonably

practicable after such material is electronically filed

with or furnished to the Securities and Exchange Commission. The

SEC also maintains a website at www.sec.gov

that contains our

reports, proxy and information statements, and other information that we

electronically file with the SEC. We

include the above

website addresses in this Annual Report on Form 10-K only as inactive textual

references

and do not intend them to be active links

such websites.

-15-

Item 1A.

Risk Factors

Set forth below and elsewhere in this report and in other documents we file with

the Securities and Exchange Commission are risks

and uncertainties, not limited to the risks set forth below,

that could cause our actual results to differ materially from the results

contemplated by the forward-looking statements contained

in this report and other periodic statements we make.

COVID-19 Related

The ongoing COVID-19 pandemic and measures intended to prevent its spread

could have a material adverse effect on our

business, results of operations and financial condition, and such effects

will depend on future developments, which are highly

uncertain and are difficult to predict.

Global health concerns relating to the COVID-19 pandemic and related

government actions taken to reduce the spread of the virus

have been weighing on the macroeconomic environment, and the outbreak

has significantly increased

economic uncertainty and

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 Coronavirus Aid, Relief, and Economic

Security Act (“CARES Act”), but there can be no assurance that

such steps will be effective or achieve their desired results in

a timely fashion.

We continue to monitor

and evaluate newly enacted

and proposed government and banking regulations issued in response

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

impact our business or that impact our customers could have a significant

impact on our future operations and business strategies.

Our operations and financial results have already been negatively

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

“Part II – Item 7. Management’s Discussion

and Analysis of Financial Condition and Results of Operations

—Overview” and “—

Results of Operations”.

The pandemic, reduction in economic activity,

and current business limitations and shutdowns have increased

risks to our business that include, but are not limited to:

●

Portfolio Risk.

We experienced

a significant decrease in demand for our lease and loan products during

the year ended

December 31, 2020 as a result of the COVID-19 pandemic, and we have limited

visibility to the future recovery of such demand.

Our origination volumes for the year ended December 31, 2020 was $367.1 million

a 54% decrease from $801.9 million for the

year ended December 31, 2019.

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.

We modified

over 5,600 contracts as part of our payment deferral program, representing

$111.2 million, or

12.8% of our Net investment in

leases and loans as of December 31, 2020.

While 92% of the modified contracts are out of the deferral period at year end, as part

of our loss mitigation strategies we are further extending the deferral

period for select customers in industries that are suffering

prolonged impacts of COVID-19.

There can be no assurances that our efforts will be successful in mitigating

any risk of credit

loss.

●

Credit Risk.

We extend credit primarily

to small and mid-sized businesses, and many of our customers may be particularly

susceptible to business limitations, shutdowns and possible recessions and

may be unable to make scheduled lease or loan

payments during these periods and may be at risk of discontinuing

their operations.

As a result, our delinquencies and credit

losses may substantially increase.

Our risk and exposure to future losses may be amplified to the extent

economic activity

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

operations or are unable to return to normal

levels of activity after the restrictions are lifted.

Our estimate of expected future credit losses recognized within our

allowance as of December 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 that date, including certain expectations about

the extent and timing of impacts from COVID-19.

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.

-16-

●

Liquidity and Capital Risk.

As of December 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 other COVID-19

related impacts on our operations.

We are managing the

evolving risks of our business while closely monitoring and forecasting the

potential impacts of COVID-19 on our future

operations and financial position, including capital levels.

However, given the uncertainty about

future developments and the

extent and duration of the impacts of COVID-19 on our business and

future operations, we face elevated risks to our ability to

forecast and estimate future capital levels.

If we fail to meet capital requirements in the future, our business, financial

condition

or results of operations may be adversely affected.

Our capital markets sale and syndication activities provide a source of liquidity

and have enabled us to manage the size and

composition of leases and loans on our balance sheet.

For the year ended December 31, 2020, we sold $28.3 million of assets that

generated a net pre-tax gain on sale of $2.4 million.

In comparison, for the year ended December 31, 2019, we sold $310.4

million of assets for pre-tax gain on sale of $22.2 million.

Disruptions in the capital markets due to the impact of COVID-19

pandemic on the economic environment resulted in a lack of demand

in the syndication

market since the end of the first quarter of

2020 and we retained substantially all of our origination volume on our balance

sheet.

Our sales execution decisions, including

the timing, volume and frequency of such sales, depend on many factors including

our origination volumes, the characteristics of

our contracts versus market requirements, our current assessment of our balance

sheet composition and capital levels, and current

market conditions, among other factors.

Driven by the continued market disruptions resulting from the COVID-19 pandemic,

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.

We have historically

returned capital to shareholders through normal dividends, special dividends

and share repurchases. There

can be no assurances that these forms of capital returns are the optimal use of our capital

or that they will continue in the future.

●

Operational Risk.

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

implementing certain

business continuity plans, and developing work from home and social

distancing plans for our employees), and we may take

further actions as may be required by government authorities or as we

determine are in the best interests of our employees,

customers and business partners.

We face increased

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

business practices necessitated by the pandemic.

These factors may remain prevalent for a significant period of time

and may continue to adversely affect our business, results of

operations and financial condition even after the COVID-19 pandemic

has subsided.

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 exten

normal economic and

operating conditions can resume. Even after the COVID-19 pandemic

has subsided, we may continue to experience materially adverse

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

global economic impact, including the availability of credit, adverse impacts on

our

liquidity and any recession that has occurred or may occur in the future.

There are no comparable recent events that provide guidance as to the effect

the spread of COVID-19 as a global pandemic may have,

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

and subject to change. We

do not yet know the full extent of

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

as a whole. However, the effects could have

a material impact on

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

Regulations

Government regulation significantly affects our business.

Further changes in regulations that impact our business may have

significant impact on our business, results of operations, and financial

condition.

The banking industry is heavily regulated, and such regulations are

intended primarily for the protection of depositors and the federal

deposit insurance

funds, not shareholders. Since becoming a bank holding company on

January 13, 2009, we have been subject to

regulation by the Federal Reserve Board and the Federal Reserve Bank of Philadelphia

and subject to the Bank Holding Company

Act. Our bank subsidiary,

MBB, is also subject to regulation by the Federal Reserve Board, the Federal Reserve Board of San

Francisco, and the Utah Department of Financial Institutions.

Such regulation affects lending practices, capital structure, investment

practices, dividend policy and growth.

-17-

The financial crisis of 2008 and 2009 resulted in U.S. government and regulatory

agencies placing increased focus and scrutiny on the

financial services industry,

which have subjected financial institutions to additional restrictions,

oversight and costs. In particular, the

Dodd-Frank Act substantially increased regulation of the financial

services industry,

changed deposit insurance provisions, and

impacted the ability of firms within the industry to conduct business consistent

with historical practices, including in the areas of

compensation, interest rates, financial product offerings

and disclosures, among other things.

New proposals for legislation continue

to be introduced in Congress that could further substantially increase regulation

of the financial services industry and impose

restrictions on the operations and general ability of firms within the

industry to conduct business consistent with historical practices,

including in the areas of compensation, interest rates and financial product

offerings and disclosures, among other things. Federal and

state regulatory agencies also frequently adopt changes to their reg

ulations or change the manner in which existing regulations are

applied. Such proposed changes in laws, regulations and regulatory

practices affecting the banking industry or affecting

the equipment

financing, telemarketing and collecting processes, may

limit the manner in which we conduct our business. Such changes may

adversely affect us, including our ability to execute our

strategies, and originate loans and leases, and may also result in the imposition

of additional costs on us.

We, like other

finance companies, face the risk of litigation, including class action litigation, and regulatory

investigations and actions

in connection with our business activities. These matters may be difficult

to assess or quantify, and

their magnitude may remain

unknown for substantial periods of time. A substantial legal liability or

a significant regulatory action against us could cause us to

suffer significant costs and expenses and could require us

to alter our business strategy and the manner in which we operate our

business.

Monetary policies and regulations of the Federal Reserve Board could

adversely affect our business, financial condition and

results of operations.

In addition to being affected by general economic conditions,

our earnings and growth are affected by the policies of the Federal

Reserve Board.

An important function of the Federal Reserve Board is to regulate the money supply

and credit conditions.

Among

the instruments used by the Federal Reserve Board to implement these objectives

are open market operations in U.S. government

securities, adjustments of the discount rate and changes in reserve requirements

against bank deposits.

These instruments are used in

varying combinations to influence overall economic growth and the distribution

of credit, bank loans, investments and deposits.

Their

use also affects interest rates charged on

loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve Board

have had a significant effect on the operating results of bank

holding companies in the past and are expected to continue to do so in the future.

The effects of such policies upon our business,

financial condition and results of operations cannot be predicted.

Further increase in the FDIC deposit insurance premium or required reserves may

have a significant financial impact on us.

The FDIC insures deposits at FDIC-insured financial institutions up

to certain limits and charges insured financial institutions

premiums to maintain the Deposit Insurance Fund (DIF).

In the event of a bank failure, the FDIC takes control of a failed bank and

ensures payment of deposits up to insured limits using the resources of

the DIF. The FDIC is required

by law to maintain adequate

funding of the DIF,

and the FDIC may increase premium assessments to maintain such funding.

The Dodd-Frank Act required the FDIC to increase the DIF’s

reserves against future losses, which will necessitate increased deposit

insurance premiums that are to be borne primarily by institutions with assets of greater

than $10 billion.

Future increases in insurance

premiums may decrease our earnings and could require us to alter our business strategy

and the manner in which we operate our

business.

The total risk-based capital ratio that MBB is required to maintain is currently

set forth in the FDIC Agreement entered into in

conjunction with the opening of the bank, as discussed further in –Item 7,

Liquidity and Capital Resources–Bank Capital and

Regulatory Oversight.

We could become subject

to more stringent capital requirements, and such requirements could, among

other

things, result in lower returns

on equity, could limit our

ability to make distributions to shareholders, require the raising of additional

capital, require us to significantly change our funding strategies or operations,

and could result in regulatory actions if we were to be

unable to comply with such requirements.

-18-

Liquidity and Capital Resources

We are reliant on debt

financing to operate our business.

If we cannot issue deposits or obtain other suitable sources of financing,

we may be unable to fund our

operations.

Furthermore, if the cost of debt financing increases, we may not be able to increase the

associated pricing of our leases and loans, which could adversely impact our results of

operations, cash flows and financial

position

Our business requires a substantial amount of cash to operate. Our cash

requirements will increase as our lease and loan originations

increase. We obtain

a substantial amount of the cash required for operations through a variety of external

funding sources, such as

deposits raised by MBB, long-term note securitizations and capital markets

activities including sales and syndications of leases and

loans. A failure to access the deposits market or to add new funding facilities could

affect our ability to fund and originate new leases

and loans.

Our ability to obtain continued access to the deposits market or to obtain

a renewal of our lender’s commitment and new funding

facilities is affected by a number of factors, including:

•

conditions in the market for FDIC-insured deposits;

•

restrictions and costs associated with banking industry regulation which

could negatively impact MBB;

•

conditions in the long-term lending markets; and

•

our ability to service the leases and loans.

We are and

will continue to be dependent upon these funding sources to continue to originate leases and

loans and to satisfy our other

working capital needs. We

may be unable to obtain additional financing on acceptable terms, or at all, as a result

of prevailing interest

rates or other factors at the time, including the presence of covenants or other

restrictions under existing financing arrangements. If

any or all of our funding sources become unavailable on acceptable terms or

at all, we may not have access to the financing necessary

to conduct our business, which would limit our ability to fund our operations.

In the event we seek to obtain equity financing, our

shareholders may experience dilution as a result of the issuance of

additional equity securities. This dilution may be significant

depending upon the amount of equity securities that we issue and the prices at which

we issue such securities.

We rely on the sale of finance

receivables to third parties in the capital markets as an important source of our liquidity.

If such

arrangements become unavailable to us, we may be unable to find replacement

financing on economically viable terms, if at all.

Our capital markets sale and syndication activities provide a source of liquidity

and have enabled us to manage the size and

composition of leases and loans on our balance sheet.

Our ability to continue to execute syndications is affected

by a number of

factors, including:

•

our ability to originate assets with characteristics that meet market demand;

•

the interest and ability of counterparties to purchase our contracts, and

our ability to maintain relationships with such

counterparties;

•

current market conditions, including interest rate levels; and

•

our ability to negotiate terms acceptable to us.

For the year ended December 31, 2020,

we sold $28.3 million of assets that generated a net pre-tax gain on sale of $2.

million.

comparison, for the year ended December 31, 2019, we sold $310.4

million of assets for pre-tax gain on sale of $22.2 million.

Disruptions in the capital markets due to the impact of COVID-19 pandemic

on the economic environment resulted in a lack of

demand in the syndication market since the end of the first quarter of 2020

and we retained substantially all of our origination volume

on our balance sheet.

Driven by the continued market disruptions resulting from the COVID-19

pandemic, we may have difficulty

accessing the capital market and may find decreased interest and ability of

counterparties to purchase our contracts, or we may be

unable to negotiate terms acceptable to us.

Any disruption in our ability to access the syndication market due to COVID-19 pandemic,

or any other market disruptions, could negatively affect

our revenues, and may have an adverse effect on our results of

operations and

cash flows.

-19-

In addition, if we fail to originate assets with suitable characteristics to satisfy market

requirements, or if our counterparties’

underwriting criteria or interest in acquiring our contracts declines, we may

be unable to find replacement funding sources for these

assets.

The execution of syndications that are accounted for as sales result in the derecognition

of the assets, and the recognition of a gain (or

loss) on the sale date, to the extent the proceeds received are in excess of the

value of the transferred assets and/or any liability

incurred.

We may have continuing

involvement in the contracts sold to syndication through servicing the contracts sold,

and/or

through any recourse obligations that may include customary representations

and warranties or specific recourse provisions.

generally do not retain credit risk on loans sold, but we are exposed to risk

to the extent that we violate such representations and

warranties, and we may be required to repurchase loans and leases, which

could impact our cashflows and ability to fund our

operations.

We are subject to regulatory

capital adequacy guidelines, and if we fail to meet these guidelines, our business, financial

condition

or results of operations may be adversely affected.

We may be required to raise additional

capital in the future, but that capital may

not be available when it is needed.

Under regulatory capital adequacy guidelines, and other regulatory

requirements, we must meet guidelines that include quantitative

measures of assets, liabilities and certain off-balance

sheet items, subject to qualitative judgments by regulators regarding components,

risk weightings and other factors. If we fail to meet these minimum

capital guidelines and other regulatory requirements, our business,

financial condition or results of operations may be adversely affected.

In addition, if we fail to maintain “well-capitalized” status

under the regulatory framework, if we are deemed to be not well-managed

under regulatory exam procedures or if we experience

certain regulatory violations, our status as a financial holding company,

our related eligibility for a streamlined review process for

acquisition proposals and our ability to offer certain financial

products may be compromised or impaired.

We may require

additional capital to fund our operations, driven by changes in required regulatory

capital levels, changes in the

availability of our funding sources, changes in our business strategies, and

changes in market conditions, among other factors.

As a

result, we may need to suspend or discontinue our share repurchase

program or any practice of declaring regular quarterly dividends

order to retain more capital on our Balance sheets.

In addition, we may at some point need to raise additional capital to support our

operations.

Our ability to raise additional capital will depend, in part, on conditions in the capital markets

at that time, which are

outside our control, and on our financial performance. Accordingly,

we may be unable to raise additional capital, if and when needed,

on terms acceptable to us, or at all. If we cannot raise additional capital when needed,

we may become subject to adverse regulatory

actions or restrictions, and limitations on growth of our operations.

In addition, if we decide to raise additional equity capital, our

shareholders’ interests in us could be diluted.

For further information on our required capital levels, see “–Item 1.

Business. Supervision and Regulation” and see “–Item 7.

Liquidity and Capital Resources. Bank Capital and Regulatory Oversight”

in this Form 10-K.

If interest rates change significantly, we may be

subject to higher interest costs with respect to our funding sources, which may

cause us to suffer material

losses.

Because we use FDIC insured deposits to fund our leases, our margins could

be reduced by an increase in interest rates. Each of our

leases is structured so that the sum of all scheduled lease payments will equal

the cost of the equipment to us, less the residual, plus a

return on the amount of our investment. Generally our leases and loans are

fixed-rate in nature.

When we originate or acquire leases,

we base our pricing in part on the spread we expect to achieve between the yield on

each lease and the effective interest rate we expect

to pay when we finance the lease. To

the extent that a lease is financed with variable-rate funding from deposits or

borrowings,

increases in interest rates during the term of a lease could narrow or eliminate

the spread, or result in a negative spread.

A negative

spread is an interest cost greater than the yield on the lease. If interest rates increase

faster than we are able to adjust the pricing under

our new leases or loans, our net interest margin would be reduced.

In addition, with respect to our fixed-rate deposits and borrowings,

increases in interest rates could have the effect of increasing

our costs on future transactions.

-20-

Credit and Portfolio Risk

If we inaccurately assess the creditworthiness of our small business customers,

we may

experience a higher number of lease and

loan defaults, which may restrict our access to funding and reduce our earnings.

We specialize in leasing

and financing equipment and providing working capital to small and mid

-sized businesses. Small and mid-

sized businesses may be more vulnerable than large

businesses to economic downturns, as they typically depend on the management

talents and efforts of one person or a small group of persons and

often need substantial additional capital to expand or compete. Small

and mid-sized business leases and loans, therefore, may entail a greater

risk of delinquencies and defaults than leases and loans

entered

into with larger leasing customers. In addition, there is typically only

limited publicly available financial and other information

about small and mid-sized businesses and they often do not have

audited financial statements. Accordingly,

in making credit

decisions, our underwriting guidelines rely upon the accuracy of information

about these small and mid-sized businesses obtained

from the small and mid-sized business owner and/or third-party sources,

such as credit reporting agencies. If the information we

obtain from small and mid-sized business owners and/or third-party

sources is incorrect or fraudulent, our ability to make appropriate

credit decisions will be impaired. If we inaccurately assess the creditworthiness

of our small business customers, we may experience a

higher number of lease and loan defaults and related decreases in our

earnings.

We rely on information

provided by our customers and vendors.

If the information that we rely upon is not accurate, or if it was

provided with fraudulent or malicious intent, we may not make

appropriate credit decisions and our financial position, operating

results and reputation may be negatively impacted.

Customer and vendor fraud have always been risks inherent to the equipment

finance business. We have

taken measures to detect and

reduce the risk of fraud, including the implementation of new antifraud

tools, increased vendor surveillance staff and enhancements

procedures, but these measures need to be continually improved and may not

be effective against new and continually evolving forms

of fraud. If we experience increases in fraudulent activity,

or if our anti-fraud measures are not effective, we could experience

increase in the level of our fraud charge-offs,

adversely affecting the results of operations.

This could also lead to increased regulatory

scrutiny, which

could adversely affect our brand and reputation.

These impacts, as well as the implementation of any necessary

measures to reduce fraud risk could increase our costs and adversely impact

our results of operations.

If we cannot maintain

our relationships with origination partners and our existing customers our ability

generate lease and loan

transactions and related revenues may be significantly

impeded.

We have formed

relationships with thousands of origination partners, comprised primarily

of independent equipment dealers. We

rely

on these relationships to generate lease and loan applications and

originations. Most of these relationships are not formalized in

written agreements, and those that are formalized by written agreements

are typically terminable at will. Our typical relationship does

not commit the origination partner to provide a minimum number of lease and

loan transactions to us nor does it require the

origination partner to direct all of its lease and loan transactions to us. The

decision by a significant number of our origination partners

to refer their leasing transactions to another company could impede our

ability to generate lease and loan transactions and related

revenues.

Customer complaints or negative publicity could result in a decline in our customer

growth and our business could suffer

Our reputation is important to attract new customers as well as to obtain repeat

business from existing customers. There can be no

assurance that we will continue to maintain a good relationship with our customers

or avoid negative publicity.

Any damage to our

reputation, whether arising from our conduct of business, negative publicity,

regulatory, supervisory

or enforcement actions, matters

affecting our financial reporting or compliance with Securities and

Exchange Commission and NASDAQ listing requirements,

security breaches or otherwise could have a material adverse effect

on our business.

-21-

Risks Related to our Operations

If we are unable to effectively execute our business strategy,

we may suffer material

operating losses.

Our financial position, liquidity and results of operations depend

on management’s ability to execute our

business strategies.

Our

objective to transition from a micro-ticket equipment lessor into a nationwide

provider of capital solutions to small businesses,

includes the following priorities:

a focus on strategically expanding our target market; better leveraging

our capital and fixed cost

base through origination and portfolio growth, improving our operating

efficiency,

and proactively managing our risk profile.

The economic fallout from the pandemic caused a reduction in demand

for financing in our target market.

The tightening of our

underwriting standards and the re-organization of

our origination platform caused further pressure on our origination activities in the

wake of the pandemic.

Executing the expansion of our target market and growth of our or

iginations and portfolio depends on a

number of factors,

including executing the acceleration of our automation and digital

initiatives, achieving the desired volume of

leases and loans of suitable yield and credit quality,

effectively managing those leases and loans, obtaining appropriate

funding, the

competitive environment, and changes to our industry,

market and general economic conditions.

Accomplishing such a result on a

cost-effective basis is largely a function of our

marketing capabilities, our management of the leasing process, our credit underwriting

guidelines, our ability to provide competent, attentive and efficient

servicing to our origination partners and our small business

customers, our ability to execute effective credit risk management

and collection techniques, our access to financing sources on

acceptable terms, our ability to create an automated customer experience through

our accelerated digital initiative and our ability to

attract and retain high quality employees in all areas of our business.

There can be no assurances that we will be successful in our

growth and expansion strategies, or that such measures will improve our

operating efficiency,

or that such measures will improve our

operating results, cashflows or financial position.

To proactively

manage our risk profile, we continually monitor and analyze the performance of

our portfolio, assess our delinquency

and credit loss experience against our underwriting criteria and determine

whether our performance is commensurate with our

intended risk tolerance.

We may make adjustments

in response to such analysis to tighten or loosen our underwriting criteria, or

adjust borrower guarantee requirements, among other measures.

For example, in 2020 we made continual adjustments based on our

assessments of the appropriate risk profile for different

geographies and industries based on the changing economic climate driven by

the COVID-19 pandemic.

Any such changes to our risk profile may not have the intended outcome on our portfolio’s

performance,

and our results of operations, cashflows, and financial position.

To the extent that we tighten our standards,

we risk not being not

competitive in the market and losing origination volume.

To the extent that we loosen our standards,

we risk incurring credit losses in

excess of our expectations.

As part of our growth and market expansion strategies, we may evaluate

opportunities for business combinations from time to time.

We completed

the acquisitions of Horizon Keystone Financial in January 2017, and Fleet Financing

Resources in September 2018, as

part of our strategies to grow through acquisitions that extend our business into

new and attractive markets.

Any such business

combinations entail numerous risks, including risks related to:

(i) integrating the acquired operations, services and products;

(ii)

achieving expected synergies, including infrastructure

costs; (iii) acquisition-related costs or amortization cost for acquired intangible

assets, that could impact our operating results;

(iv) retention of customer and supplier relationships of the acquired business; (v)

diverting management attention from our ongoing business; and (vi) potentially

negatively impacting our ability to attract, retain and

motivate key personnel.

We may not realize

the anticipated benefits of past or future investments or acquisitions, and

integration of

acquisitions may disrupt our business and management.

There can be no assurances that any business combinations will have the

impact that we intend on our financial position, results of operations and

cash flows.

While we assess the potential benefits that could

be realized from any acquisition, as well as the potential costs and operating losses that

could be incurred, our assessments and

estimates may differ materially from actual costs and benefits realized.

If we cannot effectively compete within the equipment leasing industry,

we may be

unable to increase our revenues or maintain

our current levels of

operations.

The business of small-ticket equipment leasing is highly fragmented

and competitive. Many of our competitors are substantially larger

and have considerably greater financial, technical and marketing resources

than we do. For example, some competitors may have a

lower cost of funds and access to funding sources that are not available to us.

A lower cost of funds could enable a competitor to offer

leases and loans with yields that are lower than those we use to price our leases and loans, potentially

forcing us to decrease our yields

or lose origination volume. In addition, certain of our

competitors may have higher risk tolerances or different risk assessments,

which

could allow them to establish more origination partner and small business customer

relationships and increase their market share. The

barriers to entry are relatively low with respect to our business and, therefore,

new competitors could enter the business of small-ticket

-22-

equipment leasing at any time. The companies that typically provide

financing for large-ticket or middle-market transactions

could

begin competing with us on small-ticket equipment leases. If this occurs,

or we are unable to compete effectively with our

competitors, we may be unable to sustain our operations at their current levels

or generate revenue growth.

Deteriorated economic or business conditions may lead to greater than anticipated

lease or loan defaults and credit losses and

lower origination volumes, which could substantially reduce our operating

income and limit our ability to obtain additional

financing.

Furthermore, natural disasters, widespread disease or pandemics

(including the recent coronavirus outbreak), acts of

war or terrorism, or other external events could significantly impact

our business

Historically, the capital

and credit markets have experienced periodic volatility and disruption.

In many cases, these markets have

produced downward pressure on stock prices of, and credit availability

to, certain companies without regard to those companies’

underlying financial strength. Concerns over geopolitical issues and

the availability and cost of credit, have contributed to increased

volatility for the economy and the capital and credit markets. In the event

of extreme and prolonged market events, such as a global

credit crisis, we could incur significant losses.

Even in the absence of a market downturn, we are exposed to substantial risk of

loss

due to market volatility.

Our operating income may be reduced by various economic factors

and business conditions, including the level of economic activity

in the markets in which we operate. In turn, those economic factors and business conditions

can be significantly and negatively

impacted by natural disasters, widespread disease or pandemics (including

the recent coronavirus outbreak), acts of war or terrorism or

other adverse external events, all of which can result in economic slowdowns

or recessions. Delinquencies and credit losses generally

increase during economic slowdowns or recessions. Because we extend

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

our customers may be particularly susceptible to economic slowdowns or recessions

and may be unable to make scheduled lease or

loan payments during these periods. Therefore, to the extent that economic

activity or business conditions deteriorate, our

delinquencies and credit losses may increase. Unfavorable economic

conditions may also make it more difficult for us to maintain

both our new lease and loan origination volume and the credit quality of new

leases and loans at levels previously attained.

Unfavorable economic conditions could also increase our funding

costs or operating cost structure or limit our access to funding. We

experienced such impacts in the year ended December 31, 2020 as a result

of macroeconomic conditions driven by the COVID-19

pandemic, which would be the primary driver of negative impacts for

2020 as compared to 2019, including $10.0 million increase in

realized credit losses, a 52% decline in equipment finance origination

volumes, a 69% decline in working capital origination volumes,

as well as reduced capital market interest in purchases of finance contracts

that, paired with our lower origination volumes,

substantially reduced our gains on sale.

Any return to levels prior to the COVID-19 pandemic, or the timing of such

return, remains

uncertain, and any prolonged impacts could continue to impact our operating

income.

In addition, any further changes to economic

and business conditions could reduce our operating income.

In addition, natural disasters, widespread disease or pandemics (including

the recent coronavirus outbreak), acts of war or terrorism or

other adverse external events could have not only a significant economic impact

as described above, but also a significant impact on

our ability to conduct business as a result of business shutdowns, regional

quarantines or otherwise.

While we have established and

regularly test disaster recovery procedures, the occurrence of any such event

could have a material adverse effect on our business and

operations.

The termination or interruption of, or a decrease in volume under,

our property

insurance program would cause us to experience

lower revenues and may result in a

significant reduction in our net income.

Our customers are required to obtain all-risk property insurance for the

replacement value of financed equipment. Each customer has

the option of either delivering a certificate of insurance listing us as loss payee

under a commercial property policy issued by a third-

party insurer or satisfying such insurance obligation through our

insurance program. Under our program, the customer pays for

coverage under a master property insurance policy written by a national

third-party insurer (our “primary insurer”) with whom our

captive insurance subsidiary,

AssuranceOne, has entered into a 100% reinsurance arrangement. Termination

or interruption of our

program could occur for a variety of reasons, including: (1) adverse changes in laws or

regulations affecting our primary insurer or

AssuranceOne; (2) a change in the financial condition or financial strength

ratings of our primary insurer or AssuranceOne;

(3) negative developments in the loss reserves or future loss experience of

AssuranceOne, which render it uneconomical for us to

continue the program; (4) termination or expiration of the reinsurance

agreement with our primary insurer, coupled with an inability

by us to identify quickly and negotiate an acceptable arrangement with a replacement

carrier; or (5) competitive factors in the property

insurance market. If there is a termination or interruption of this program

or if fewer small business customers elected to satisfy their

insurance obligations through our program, we would experience lower

revenues and our net income may be reduced.

-23-

Our financial statements are based in part on assumptions and estimates made

by our management that could vary from actual

results.

Pursuant to accounting principles generally accepted in the United

States, we utilize certain assumptions and estimates in preparing

our financial statements, including but not limited to, when accounting for income

recognition, the allowance for credit losses, the

residual values of leased equipment, deferred initial direct costs and fees, late fee

receivables, the fair value of financial instruments,

estimated losses from insurance program, and income taxes.

If the assumptions or estimates underlying our financial statements are

incorrect, we may experience significant losses as the ultimate realization

of value may be materially different than the amounts

reflected in our consolidated statement of financial position as of any particular

date.

Specific to our allowance for credit losses, in connection with our financing

activities, we record an allowance to provide for estimated

losses based on both qualitative and quantitative factors including, among

other things, past collection experience, lease and loan

delinquency data, industry data, economic conditions and our assessment of

collection risks. Significant management judgment is

required to determine the appropriate level of the allowance and,

therefore, our determination of this allowance may prove to be

inadequate to cover losses in connection with our portfolio of leases and

loans. Factors that could lead to the inadequacy of our

allowance may include our inability to manage collections effectively,

unanticipated adverse changes in the economy or discrete

events adversely affecting specific leasing customers,

industries or geographic areas. Losses in excess of our allowance for credit

losses would cause us to increase our provision for credit losses, reducing

or eliminating our operating income.

On January 1, 2020,

the Company adopted the guidance of

ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses on Financial Instruments

(“CECL”) to measure its allowance for credit losses.

This standard substantially replaced the prior

measurement that was based on probable, incurred losses.

Starting in 2020, the recognized allowance estimate will include expected

credit losses over the remaining contractual term of the existing portfolio.

After the adoption of this standard, our allowance estimate

will continue to involve management’s

judgment, and assessment of various qualitative and quantitative factors,

and such estimate

will still be subject to continual update driven by similar factors outlined

above.

Specific to our estimates of residual value of equipment, we record sales-type

financing leases at the aggregate future minimum lease

payments plus the estimated residual value less unearned income.

Residual values are established on our balance sheet at lease

inception based on our estimate of the expected fair value of the equipment

at the end of the lease term.

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. Our failure

to realize our recorded residual values would reduce the

residual value of equipment recorded as assets on our balance sheet and

may reduce our operating income.

For additional information on the key areas for which assumptions and

estimates are used in preparing our financial statements, see

“Part II—Item 7. Management’s

Discussion and Analysis of Financial Condition and Results of Operations

—Critical Accounting

Policies and Estimates”, and see “Note 2.

Summary of Significant Accounting Policies ” in our Financial Statements for further

discussion of our accounting policies in this Form 10-K.

Technology

We are continually encountering

technological change.

If we experience significant telecommunications or technology downtime,

our

operations would be disrupted and our ability to generate operating

income could be

negatively impacted.

Our business depends in large part on our telecommunications

and information management systems, and we are increasing our

reliance on our technology platform as a result of our current digital initiative

business strategy. The temporary

or permanent loss of

our computer systems, telecommunications equipment or software systems,

through casualty or operating malfunction, could disrupt

our originations and operations and negatively impact our ability to secure

new business and to service our customers. This could lead

to significant declines in our operating income.

-24-

Furthermore, particularly given our digital strategy implemented and announced

in 2020, we are constantly undergoing rapid

technological change with frequent introductions of new technology

-driven products and services. The effective use of technology

increases efficiency and enables us to better service clients and

reduce costs. Our future success depends, in part, upon our ability to

address the needs of our clients by using technology to provide products

and services that will satisfy client demands, as well as create

additional efficiencies within our operations.

Many of our large competitors have substantially greater resources to invest in

technological improvements. We

may not be able to effectively implement new technology

-driven products and services quickly or be

successful in marketing these products and services to our clients. Failure

to successfully keep pace with technological change

affecting the financial services industry generally

and our business strategy specifically could have a material adverse impact on our

business and, in turn, our financial condition and results of operations.

A failure in or breach of our technology infrastructure or information protection

programs, or those of our outsource service

providers, could result in the inadvertent disclosure of the confidential information

of our customers and affiliates or confidential

personal information of personal guarantors of our loans and leases.

Any such failure, including as a result of cyber-attacks

against us or our outsource partners, non-compliance with our contractual or other

legal obligations regarding such information,

or a violation of the Company's privacy and security policies with respect to such

information, could adversely affect us

Our business model and our reputation as a service provider to our

clients are dependent upon our ability to safeguard confidential

information. Although we have put in place, and require our outsource

service providers to follow,

a comprehensive information

security program that we monitor and update as needed, security

breaches could occur through intentional or unintentional acts by

individuals having authorized or unauthorized access to confidential information

of our customers, employees or stakeholders which

could potentially compromise confidential information processed and

stored in or transmitted through our technology infrastructure.

The legal, regulatory and contractual environment surrounding

information security and privacy is constantly evolving and companies

that collect and retain such information are under increasing attack by

cyber-criminals around the world. A significant actual or

potential theft, loss, fraudulent use or misuse of customer,

stockholder, employee or our data by cybercrime

or otherwise, non-

compliance with our contractual or other legal obligations regarding such

data or a violation of our privacy and security policies with

respect to such data could adversely impact our reputation and could result

in significant costs, fines, litigation or regulatory action

against us. Increasingly,

our products and services are accessed through the Internet, and security breaches

in connection with the

delivery of our services via the Internet may affect us and

could be detrimental to our reputation, business, operating results and

financial condition.

We cannot be certain

that advances in criminal capabilities, new discoveries in the field of cryptography

or other

developments will not compromise or breach the technology protecting

the networks that access our products and services.

Risks Related to our Stock

Our common stock price is volatile.

The trading price of our common stock may fluctuate substantially depending

on many factors, some of which are beyond our control

and may not be related to our operating performance. These fluctuations

could cause investors to lose part or all of their investment in

our shares of common stock. Those factors that could cause fluctuations

include, but are not limited to, the following:

•

price

and

volume

fluctuations

the

overall

stock

market

from

time

time;

•

ignificant

volatility

the

market

price

and

trading

volume

financial

services

companies

the

trading

volume

our

common stock in particular;

•

actual

anticipated

changes

our

earnings

fluctuations

our

operating

results

the

expectations

market

analysts;

•

investor

perceptions

the

equipment

leasing

industry

general

and

the

Company

particular;

•

the

operating

and

stock

performance

comparable

companies;

•

legislative

and

regulatory

changes

with

respect

the

financial

banking

industries;

•

general

economic

conditions

and

trends

including

but

not

limited

those

resulting

from

the

COVID

pandemic;

•

major

catastro

phic

events;

-25-

•

loss

external

funding

sources;

•

sales

large

blocks

our

stock

sales

insiders;

•

departure

key

personnel.

It is possible that in some future quarter our operating results may be below

the expectations of financial market analysts and investors

and, as a result of these and other factors, the price of our common stock may

decline.

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 into the future.

During 2019, our Board of Directors authorized an updated share repurchase

program under which we repurchased 264,470 shares of

our common stock in the year ended December 31, 2020 and at December

31, 2020 had $4.7 million remaining authorizations under

that 2019 repurchase program. We

have no obligation to repurchase shares under this authorization,

and any share repurchase program

may be extended, modified, suspended or discontinued at any time.

Any such repurchases reduce our market capitalization and public

float, which is the number of shares of our common stock that are

owned by non-affiliated stockholders and available for

trading in the securities markets, which may reduce the volume of trading in

our shares and result in reduced liquidity and volatility in our stock price.

The market price of our common stock has been and may

continue to be volatile which may affect your ability to

sell our common stock at an advantageous price. For example, the closing

market price of our common stock on the NASDAQ fluctuated between

$6.02 per share and $22.01 per share during 2020 and may

continue to fluctuate.

Market price fluctuations in our common stock may be due to factors both within

and outside of our control,

including our strategic actions, industry and regulatory matters or other

material public announcements, as well as a variety of

additional factors including, without limitation, those set forth under

these “Risk Factors” and "Cautionary Note Regarding Forward-

Looking Statements."

Any repurchases would utilize cash that we will not be able to use in other

ways, or to meet other potential demands, and may not

prove to be the best use of our capital. There can be no assurance that we will repurchase

any, or the full amount authorized

under any

share repurchase program, or that any past or future repurchases will have a positive

impact on our stock price.

Future sales of our Common Stock by our significant shareholders may

depress our stock price or impair our ability to raise funds

in new share offerings.

Our existing shareholders may be able to exert significant influence over matters

requiring shareholder

approval and over our management.

A small number of shareholders own a substantial amount of our Common

Stock.

As of December 31, 2020, our top 5 largest

shareholders beneficially own 55% of our common stock. The market

price of our common stock could be adversely affected as a

result of sales of a large number of our common stock shares in the market,

or the perception that these sales could occur.

These sales,

or the possibility that these sales might occur,

also might make it more difficult for us to sell equity securities in the

future at a time

and at a price that we deem attractive.

These shareholders, if acting together,

would be in a position to significantly influence the election of our directors

and the vote on

certain corporate transactions, including mergers

and other business combinations.

This concentrated ownership could limit other

stockholders’ ability to influence corporate matters.

This may result in our taking corporate actions that other shareholders may

not

consider to be in their best interest and may affect the price of

our Common Stock.

Anti-takeover provisions and our right to issue preferred stock

could make a

third-party acquisition of us difficult.

We are a Pennsylvania

corporation. Anti-takeover provisions of Pennsylvania law could make

it more difficult for a third party to

acquire control of us, even if such change in control would be beneficial to our

shareholders. Our amended and restated articles of

incorporation and our bylaws contain certain other provisions that would

make it difficult for a third party to acquire control of us,

including a provision that our Board of Directors may issue preferred

stock without shareholder approval.

Item 1B.

Unresolved Staff Comments

None.

-26-

Item 2.

Properties

At December 31,

2020,

we operated from three leased facilities including our executive office facility,

a branch office and the

headquarters of MBB. Our Mount Laurel, New Jersey executive offices

are housed in a leased facility of approximately 50,000 square

feet under a lease that expires in May 2032.

The headquarters of MBB in Salt Lake City, Utah

is 4,399 square feet and the lease

expires in December 2021. We

also lease office space for our branch office in

Philadelphia,

Pennsylvania.

We believe our

leased facilities are adequate for our current needs and sufficient to

support our current operations and anticipated

future requirements.

See Note 11 – Leases, in the accompanying Notes

to Consolidated Financial Statements for additional information.

Item 3.

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 effect

on our business, financial condition or results of operations or

cash flows.

Item 4.

Mine Safety Disclosures

Not applicable.

-27-

PART

Item 5.

Market for Registrant’s Common

Equity, Related Stockholder

Matters and Issuer Purchases of Equity Securities

Marlin Business Services Corp. completed its IPO of common

stock and became a publicly traded company on November 12, 2003.

The Company’s common

stock trades on the NASDAQ Global Select Market under the symbol “MRLN.”

Dividend Policy

On October 29, 2020, Marlin Business Services Corp. declared

its thirty-seventh regular quarterly dividend. The dividend of $0.14

per

share of common stock was paid on November 19, 2020 to holders of our common

stock as of November 9, 2020.

The Federal Reserve Board has issued policy statements which provide

that, as a general matter, insured banks and bank holding

companies should pay dividends only out of current operating earnings. Payment

of dividends by MBB to its sole shareholder,

Marlin

Business Services Corp., are also subject to the regulatory requirements

and restrictions described in the “Supervision and Regulation”

portion of Item 1 of Part I of this Form 10-K.

Payment of future dividends

will also depend upon our earnings, financial condition, capital requirements,

cash flow, long-range plans

and such other factors as our Board of Directors may deem relevant.

Number of Record Holders

There were 121 holders of record of our common stock at February 26, 2021

We believe that the number

of beneficial owners is

greater than the number of record holders because a large

portion of our common stock is held of record through brokerage firms in

“street name.”

Information on Stock Repurchases

On August 1, 2019, the Company’s

Board of Directors approved a stock repurchase plan (the “2019 Repurchase Plan”) under

which

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

shares of common stock.

There is no stated

expiration date for the authorizations under this plan.

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

the fourth quarter of 2020 and the maximum dollar value of

shares that may yet be purchased under the 2019 Repurchase Plan is $4,491,747.

Remaining authorizations for share repurchases 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.

Any stock repurchase programs do not obligate the

Company to acquire any particular amount of common stock, and

such programs may be suspended at any time at the Company's

discretion. The repurchases are funded using the Company’s

working capital.

In addition to any repurchases described above, pursuant to the Company’s

2003 Equity Compensation Plan, as amended (the “2003

Plan”) and 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”), participants may have shares withheld

to cover income taxes. There were 41,821 shares repurchased to cover

income tax withholding in connection with shares granted

under the Equity Plans during the year ended December 31, 2020

at an average per-share cost of $10.69.

-28-

Shareholder Return Performance Graph

The following graph compares the dollar change in the cumulative total

shareholder return on the Company’s

common stock against

the cumulative total return of the Russell 2000 Index and the SNL Specialty

Lender Index for the period commencing on December

31, 2015 and ending on December 31, 2020. The graph shows the cumulative

investment return to shareholders based on the

assumption that a $100 investment was made on December 31,

2015 in each of the following: the Company’s

common stock, the

Russell 2000 Index and the SNL Specialty Lender Index. We

computed returns assuming the reinvestment

of all dividends. The

shareholder return shown on the following graph is not indicative of future

performance.

Period Ending

(amounts in $)

Index

12/31/15

12/31/16

12/31/17

12/31/18

12/31/19

12/31/20

Marlin Business Services Corp.

100.00

134.78

147.84

150.41

151.80

89.57

Russell 2000 Index

100.00

121.31

139.08

123.76

155.35

186.36

SNL Specialty Lender Index

100.00

113.01

134.65

114.28

155.10

155.52

-29-

Item 6.

Selected Financial Data

The following selected financial data as of and for each of the five years

ended December 31, 2020 has been derived from the

consolidated financial statements. The selected financial data should

be read together with the consolidated financial statements and

notes thereto and “Management’s Discussion

and Analysis of Financial Condition and Results of Operations” included elsewhere

this Form 10-K.

Year Ended December 31,

2020

(1)

2019

2018

2017

(2)

2016

(Dollars in thousands, except per-share data)

Statement of Operations Data:

Interest and fee income

103,359

122,625

112,868

102,319

90,252

Interest expense

19,868

25,033

17,414

11,180

7,778

Net interest and fee income

83,491

97,592

95,454

91,139

82,474

Provision for credit losses

(3)

38,509

28,036

19,522

18,394

12,414

Net interest and fee income after

provision for credit losses

44,982

69,556

75,932

72,745

70,060

Non-Interest Income:

Gain on leases and loans sold

(4)

2,426

22,210

8,363

2,818

469

Insurance premiums and Other income

21,914

21,821

13,071

13,914

9,289

Non-Interest Income

24,340

44,031

21,434

16,732

9,758

Non-interest expense:

Salaries and benefits

33,783

44,168

39,750

37,569

31,912

General and administrative

30,914

32,566

24,915

28,272

19,523

Goodwill impairment

6,735

—

Intangible assets impairment

1,016

—

Financing related costs

—

Non-interest expense

72,448

76,734

64,665

65,841

51,520

Income before income taxes

(3,126)

36,853

32,701

23,636

28,298

Income tax (benefit) expense

(3,468)

9,737

7,721

(1,656)

11,019

Net income

342

27,116

24,980

25,292

17,279

Basic earnings per share

0.03

2.21

2.01

2.02

1.38

Diluted earnings per share

0.03

2.20

2.00

2.01

1.38

Cash dividends declared per share

0.56

-30-

Year Ended December 31,

2020

(1)

2019

2018

2017

(2)

2016

(Dollars in thousands, except per-share data)

Operating Data:

Total number of finance receivables originated

16,602

31,246

33,105

32,189

27,583

Total finance receivables originated

367,128

801,945

704,894

629,445

504,282

Assets sold in the period

(4)

28,342

310,415

138,995

66,744

18,132

Average total finance receivables

(5)

945,599

1,028,617

944,588

846,743

720,060

Weighted average interest rate (implicit)

on new finance receivables originated

(6)

10.66

12.86

12.45

11.98

11.67

Interest income as a percent of average

total finance receivables

(5)

9.81

10.44

10.27

10.33

10.38

Interest expense as percent of average

interest-bearing liabilities

2.20

2.58

2.02

1.43

1.20

Portfolio Asset Quality Data:

Total finance receivables, end of period

(5)

869,284

1,007,706

996,383

911,242

793,285

Delinquencies greater than 60 days past due

(7)

0.77

0.85

0.65

0.55

0.46

Allowance for credit losses

(3)

44,228

21,695

16,100

14,851

10,937

Allowance for credit losses to total finance

receivables, end of period

(5)

5.09

2.15

1.62

1.63

1.38

Charge-offs, net

32,416

22,441

18,273

14,480

9,890

Ratio of net charge-offs to average

total finance receivables

(5)

3.43

2.18

1.93

1.71

1.37

Operating Ratios:

Efficiency ratio

(8)

67.19

54.18

55.32

61.04

55.77

Return on average total assets

0.03

2.18

2.29

2.59

2.08

Return on average stockholders’ equity

0.18

13.33

13.27

15.38

11.15

Balance Sheet Data:

Cash and cash equivalents

135,691

123,096

97,156

67,146

61,757

Restricted interest-earning deposits with banks

4,719

6,931

$14,045

—

Net investment in leases and loans

825,056

1,006,520

1,000,740

914,420

796,717

Total assets

1,021,998

1,207,443

1,167,046

1,040,160

892,158

Deposits

729,614

839,132

755,776

809,315

697,357

Long-term borrowings

30,665

76,091

$150,055

—

Total liabilities

825,633

992,487

968,535

860,511

729,869

Total stockholders’ equity

196,365

214,956

198,511

179,649

162,289

__________________________________________________________________________________________

(1)

In 2020, our business activities, origination volumes, and volumes of lease and loan sales were largely impacted by the COVID-19

pandemic.

See “—

Results of Operations” in Item 7 for discussion.

(2)

Net

income,

Income

tax

benefit,

and

certain

operation

ratios

for

2017

were

favorably

impacted

one

time

tax

benefit

$10.2

million

the

December 2017 enactment of the Tax Cuts and Jobs Act of 2017.

-31-

(3)

On January 1, 2020, the Company adopted “CECL”, which replaced 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.

The December 31, 2019

end of period allowance and % of receivables were $33,603 and 3.27% after the January 1, 2020 adoption

of CECL.

See “—Finance Receivables and

Asset Quality” in Item 7 for discussion.

(4)

See

“

—

Liquidity

and

Capital

Resources”

Item

for

discussion

our

sales

finance

receivables

and

trends

(5)

Total

finance

receivables

include

net

investment

sales

type

leases

and

loans.

For

purposes

set

quality

and

allowance

calculations

the

effects

(i)

the allowance for credit losses and (ii) initial direct costs and fees deferred, are excluded from total finance receivables.

(6)

Excludes

initial

direct

costs

and

fees

deferred

(7)

Calculat

percentage

minimum

lease

payments

receivable

for

leases

and

percentage

principal

outstanding

for

loans

(8)

Salaries,

benefits,

general

and

administrative

expense

divided

net

interest

and

fee

income,

and

non

interest

income

-32-

Item 7.

Management’s Discussion and Analysis

of Financial Condition and

Results of Operations

FORWARD

-LOOKING STATEMENTS

Certain statements in this document (or made in other documents filed or furnished

with the Securities and Exchange Commission or

orally to analysts, investors, representatives of the media and others) 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”), Section 21E of the Securities Exchange Act of 1934, as amended

(the “1934 Act”) and the Private Securities Litigation Reform

Act of 1995.

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,

other sources of liquidity such as asset syndications;

(d) our understanding of our competition; (e) industry

and market trends; and (f)

the expected impact of the adoption of recently issued accounting pronouncements

on our financial statements.

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; and

•

the factors set forth in the section captioned “Risk Factors” in Item 1A of this Form

10-K.

Forward-looking statements apply only as of the date made and the Company

is not required to update forward-looking statements for

subsequent or unanticipated events or circumstances. For any forward

-looking statements contained in any document, we claim the

protection of the safe harbor for forward-looking statements contained

in the Private Securities Litigation Reform Act of 1995.

used herein, the terms “Company,”

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

Corp. and its

subsidiaries.

VERVIEW

Founded in 1997, we are a nationwide provider of credit products and services

to small and mid-sized businesses. The products and

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

commercial equipment (including Commercial

Vehicle

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

AssuranceOne, Ltd., a Bermuda-based,

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

which enables us to reinsure the property insurance coverage for the

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

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

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

and a member of the Federal Reserve System. MBB

serves as the Company’s primary

funding source through its issuance of Federal Deposit Insurance Corporation

(“FDIC”)-insured

deposits.

In January 2017, we completed the acquisition of Horizon Keystone Financial (“HKF”), an

equipment leasing company

which 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 are continuing

to execute on our objective to transition from a micro-ticket equipment lessor into

a nationwide provider of capital

solutions to small businesses.

This includes the following priorities:

a focus on strategically expanding our target market; better

leveraging our capital and fixed cost base through origination and

portfolio growth, improving our operating efficiency,

and

proactively managing our risk profile.

-33-

We access our end

user customers primarily through origination sources consisting of independent

commercial equipment dealers,

various national account programs, through direct solicitation of our

end user customers and through relationships with select lease

and loan brokers. We

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

accounts, outside sales executives to market to

our origination sources and end user customers. Through these origination

sources, we are able to cost-effectively access end user

customers while also helping our origination sources obtain financing

for their customers.

XECUTIVE

UMMARY

In 2020, we faced unprecedented operating challenges and macro

-economic uncertainty from the COVID-19 pandemic.

Our initial

focus from the beginning of the COVID-19 crisis was working with existing

customers to protect the value of our portfolio and

limiting the erosion of shareholder capital.

To this end, we initiated a loan

modification program in response to the pandemic, and

assisted some of our borrowers by originating loans guaranteed under the

Small Business Administration’s (SBA’s)

Paycheck

Protection Program (“PPP”).

In addition, early in response to the onset of the pandemic, we temporarily

tightened underwriting

standards for areas of elevated risk, and we continue to update such risk assessments based

on current conditions.

In response to the potential impacts on our business resulting from the pandemic,

we took a series of actions to preserve our capital

and liquidity and reposition the business for success once the full effects

of the pandemic are realized and the economy begins to

recovery.

These actions included: (i) temporary re-allocation of resources from front-end origination

activities to portfolio servicing

and collection activities (ii) cost reduction initiatives that led to a permanent

reduction of approximately 80 employees and (iii) a re-

organization of origination and processing platforms

to accelerate automation and digitization.

We are currently

targeting the rollout

of our digital origination platform, which we are calling Express, by the middle

of 2021.

We are continuing

to monitor the evolving

health crisis, and its impacts on our operations and ability to serve our

customers in this changing environment.

Any return to pre-

pandemic levels of activity,

and the long-term impacts of this crisis on our market, remains uncertain and

will be dependent, among

other things, on the timing and pace of the macro-economic recovery

and the execution of the strategy that we undertook in 2020.

We recognized

$ 0.3 million Net income for the year ended December 31, 2020, down from $27.1 million

in 2019.

Significant drivers

of our results for the year include:

Provisions for credit losses

were $10.5 million higher for the year ended December 31, 2020, as compared

to 2019.

Based on

information available at the end of each period, we had significant reserve

building in the first half of 2020, including recognizing

$34.7 million of increases to our estimate related to changing economic

conditions primarily resulting from the effects of COVID-

19 and our expected impacts on our portfolio.

In the second half of the year, as we received updated

forecast information and

observed the actual performance of our portfolio, we lowered our expected

losses by $12.3 million. At year end, our allowance

was $44.2 million, or 5.09% as a percentage of receivables, an increase

from $21.7 million (2.15%) at the end of the prior year.

Our current estimate of credit losses incorporates all of our current

judgments about the impact of the COVID-19 pandemic on

our portfolio.

Modification program

was formed in mid-March 2020 to assist our customers who experienced difficulty

from COVID-19.

Under

this program, we completed payment deferral modifications of over

5,600 contracts in our owned portfolio.

As of December 31,

2020,

$111.2 million (or 12.8%) of

our net investment were modified pursuant to that program, and 92% of those contracts are

out of the deferral period by year end.

We continue

to process extended modifications of contracts in the fourth quarter for

customers with prolonged COVID-19 impacts as part of our loss mitigation

strategies.

Cost Reduction

program was executed promptly in response to COVID-19 pandemic,

driving reductions of $10.4 million in Salary

and benefits expense and $1.7 million in General and administrative expense,

as compared to the prior year.

We continue to

assess all other aspects of our expense base in order to stabilize our operations

and minimize the negative impacts of the ongoing

pandemic.

Origination and Sales Volumes

for 2020 were substantially lower than 2019.

We have been intentionally

operating out of a more

defensive position since the pandemic began. Total

sourced origination volume of $367.1 million was well below our

volume

from last year of $801.9 million due to a variety of factors, which include:

(i) the

purposeful actions we took in the second and

third quarters to reduce our workforce and re-position the frontend of our

business; (ii) the continuing soft demand for financing

by the small business community due to challenges facing many industries resulting

from the continued economic fallout of

COVID-19 across much of the United States; and (iii) lower approval rates

stemming from our tighter underwriting criteria.

-34-

In addition, our gain on leases and loans sold is $19.8 million lower for 2020 as compared to

2019, driven by disruptions in the

capital markets from the current economic environment.

Our 2020 sales occurred in the first quarter; we retained substantially all

of our origination volume on our balance sheet for the remainder

of the year.

While we experienced modest improvement in origination volumes

in the fourth quarter of 2020 compared to earlier in the year,

and

have seen some improving trends in delinquency,

we still are experiencing negative impacts from the effects of the pandemic

and as

this period of uncertainty continues to impact the macroeconomic environment.

Given the ongoing health crisis in the United States,

any return to pre-pandemic levels of activity remains uncertain.

At year end, our employees continue to work remotely,

and we have not experienced any significant interruption to our operations

from that transition.

We continue to assess how

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

this changing

environment.

Stock Repurchase Plan

During the year ended December 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. At December 31, 2020

$4.7 million of authorizations remain under the 2019

Repurchase Plan.

This authority may be exercised from time to time and in such amounts as market conditions

warrant. The stock

repurchase program does not obligate us to acquire any particular amount

of common stock, and it may be suspended at any time at

our discretion. Stock repurchases are funded using our working capital.

-35-

INANCE

ECEIVABLES

AND

SSET

UALITY

The following table summarizes certain portfolio statistics for the

periods presented:

December 31,

2020

2019

2018

(Dollars in thousands)

Finance receivables:

Net investment in leases and loans, excluding allowance, end of period

825,056

1,028,215

1,016,840

Average finance

receivables for the year

(1)

945,599

1,028,617

944,588

Origination Volume

(5)

367,128

801,946

704,894

Assets Sold

28,342

310,415

138,995

Allowance for credit losses :

(3)

End of period

44,228

21,695

16,100

As a % of end of period receivables

(1)

5.09%

2.15%

1.62%

Annualized net charge-offs to average

total finance receivables

(1)

3.43%

2.18%

1.93%

Leases and Loans Modified:

Payment deferral program

(2)

End of period

111,209

—

As a % of end of period receivables

12.8%

—

Other Restructured leases and loans, end of period

922

2,906

2,323

Delinquencies, end of period:

(4)

Equipment Finance and CVG:

Greater than 60 days past due, $

6,582

8,112

6,036

Greater than 60 days past due, %

0.78%

0.86%

0.63%

Working

Capital:

Greater than 30 days past due, $

741

855

492

Greater than 30 days past due, %

3.69%

1.42%

1.35%

__________________

(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)

Represents balance

of active

contracts that

were part

of our

2020 payment-deferral

modification program.

As of

December 31,

2020, 92%

the modified contracts are out of the deferral period.

See further discussion of our loan modification program below.

(3)

The December 31, 2019 end of period allowance and % of receivables were $33,603 and 3.27%, respectively,

after the January 1, 2020 adoption

of CECL.

See further discussion below.

(4)

Calculated

percentage

net

investment

leases

and

loans.

Contracts

that

are

part

the

payment

deferral

modification

program

will

appear in our delinquency and non-accrual measures based on their performance against their modified terms.

(5)

For the

year ended

December 31,

2020, excludes

$4.4 million

of loans

originated under

the Paycheck

Protection Program

(PPP).

In the

third

quarter of 2020, the Company sold the PPP portfolio and will have no continuing involvement with those receivables.

-36-

Finance Receivables.

During the year ended December 31, 2020,

we generated 16,602 new Equipment Finance leases and loans with equipment

costs of

$367.1 million, compared to 31,246 new Equipment Finance leases and loans

with equipment costs of $801.9 million generated for

the year ended December 31, 2019.

Equipment finance originations decreased 52% for 2020 as compared to

the prior year.

Working

Capital loan originations were $33.2 million during the year ended

December 31, 2020,

compared to $108.6 million for the prior year,

a 69% decrease.

Our origination volumes for 2020 were lower than our historical norms,

primarily driven by decreased demand attributable to COVID-

19 related business shutdowns and other macroeconomic factors,

as well as our actions to reduce the workforce in the second and third

quarters of this year.

During the year, our total originations were $151.5

million for the first quarter, declining to $65.4 million,

$67.1

million, and $83.0 million for the second, third and fourth quarters,

respectively.

While we experienced modest improvement in

origination volumes in the fourth quarter compared to earlier in the year,

we still are experiencing negative impacts from the effects of

the pandemic as this period of uncertainty continues to impact the macroeconomic

environment.

Given the ongoing health crisis in

the United States, any return to pre-pandemic levels of activity remains uncertain.

Driven by the declines in origination volume, our average net investment

in total finance receivables decreased 8.1% for 2020 as

compared to 2019, and our ending net investment in leases and loans,

excluding allowance, has declined 19.8% at December 31, 2020

compared to prior year end.

See further discussion of the impacts of lower volumes and decreased

portfolio size within discussion of

our Results of Operations section, in particular Net interest margin

and Gain on leases and loans sold.

Allowance for credit losses.

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

Twelve Months Ended December 31,

2020

2019

2018

(Dollars in thousands)

Allowance for credit losses, December 31, 2019

21,695

Adoption of ASU 2016-13 (CECL),

January 1, 2020

11,908

Allowance for credit losses, beginning of period

33,603

16,100

14,851

Provision for credit losses

38,509

28,036

19,522

Net Charge-offs:

Equipment Finance

(26,796)

(18,164)

(15,950)

Working

Capital

(2,781)

(2,531)

(1,477)

CVG

(2,838)

(1,746)

(846)

Net Charge-offs

(32,415)

(22,441)

(18,273)

Realized cashflows from Residual Income

4,531

—

Allowance for credit losses, end of period

44,228

21,695

16,100

Year

Ended December 31, 2020:

The allowance for credit losses as a percentage of total finance receivables

increased to 5.09% as of

December 31, 2020,

from 2.15% as of December 31, 2019.

This increase in reserve coverage is primarily driven by both the $11.9

million increase from the January 1, 2020 adoption of CECL (as defined

below),

which increased the effective coverage to 3.27% as

of that date, and the $14.0 million of forecast and qualitative adjustments included

in the estimate of credit loss as of December 31,

2020 related to the increased risks for future losses driven by the ongoing

impacts from the COVID-19 pandemic,

as discussed further

below.

-37-

Adoption of ASU 2016-13 / CECL.

Effective January 1, 2020, we adopted new guidance

for accounting for our allowance, or ASU 2016-13, Financial Instruments -

Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“CECL”),

which replaces the probable/

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

with a measurement of expected credit losses for the

contractual term of our current portfolio of loans and leases.

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

recognized immediately upon the origination of a loan or lease, and will be

adjusted in each subsequent reporting period.

This

estimate of credit losses takes into consideration all remaining cashflows

the Company expects to receive or derive from the pools

of contracts, including recoveries after charge-off,

accrued interest receivable and certain future cashflows from residual assets.

The provision for credit losses recognized in our Consolidated Statements

of Operations under CECL, starting in 2020, will be

primarily driven by origination volumes, offset by the

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

changes in estimate each subsequent reporting period, including

adjustments for economic forecasts within a reasonable and

supportable time period.

The impact of adopting CECL effective January 1, 2020

included a $11.9 million increase to the allowance,

an $8.9 million

decrease to Retained earnings and $3.0 million impact to our Net deferred

income tax liability.

In the accompanying Notes to

Consolidated Financial Statements, see Note 2 –

Summary of Significant Accounting Policies

, for further discussion of the

adoption of this accounting standard, and see Note 7 –

Allowance for Credit Losses

, for further discussion of the Company’s

methodology for measuring its allowance as of the adoption date.

Provision for credit losses

The provision for credit losses recognized after the adoption of CECL is primarily

driven by origination volumes, offset by the

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

in estimate each subsequent reporting period.

For

2020, given the wide changes in the macroeconomic environment driven

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

significant driver of provision.

In contrast, the allowance estimate recognized in 2019 under the probable,

incurred model was

based on the current estimate of probable net credit losses inherent

in the portfolio.

For the year ended December 31, 2020, the $ 38.5 million provision

for credit losses recognized was $10.5 million greater than

the $ 28.0 million provision recognized for same period of 2019.

Provision for the year ended December 31, 2020 includes $18.9

million from originations, and $19.6 million driven by updates to economic

forecast and qualitative adjustments related to

COVID-19 and other model updates.

For the Equipment Finance portfolio, our estimated credit losses includes updates

to a reasonable and supportable forecast based

on the modeled correlation of changes in the loss experience of the our

portfolio to certain economic statistics, specifically

changes in the unemployment rate and changes in the number of business bankruptcies.

Starting in the first quarter,

we are using

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

the current economic environment related to

COVID-19 pandemic.

As of December 31, 2020, our estimate of credit loss for Equipment Finance includes

probability

weighting alternate forecast scenarios for those economic statistics, to address

the continuing uncertainty in the economic climate

and uncertainty around our portfolio’s

performance in these conditions.

Equipment Finance provision for the year ended

December 31, 2020 includes $10.9 million driven by updates to economic

forecast and qualitative adjustments related to COVID-

19 and other model updates.

For the Working

Capital portfolio segment, our estimate of increased losses is based on qualitative adjustments,

taking into

consideration alternative scenarios to determine the Company’s

estimate of the ongoing risk related to COVID-19.

Working

Capital provision for the year ended December 31, 2020 includes $1

.2 million driven by updates to economic forecast and

qualitative adjustments related to COVID-19 and other model updates.

For the CVG segment, our estimate of increased losses is based on qualitative

adjustments, taking into consideration the increased

risk of a population of motor coach receivables that have prolonged

impacts from the COVID-19 pandemic, as well as an

assessment of alternative scenarios to estimate the expected performance

of this segment in the current economic environment.

CVG provision for the year ended December 31, 2020 includes $7.5 million

driven by these updates to economic forecast and

qualitative adjustments related to COVID-19 and other model updates.

-38-

The qualitative and economic adjustments to our allowance take into

consideration information and our judgments as of

December 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.

See further discussion of the risks to our estimate below.

Net Charge-offs.

Equipment Finance and TFG receivables are generally charged

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

Working

Capital receivables are generally charged-off at 60 days past

due.

Total portfolio

net charge-offs for the year December 31, 2020 were $32.4

million (3.43% of average total finance receivables on

an annualized basis), compared to $22.4 million (2.18%)

for 2019.

The elevated net charge-offs for 2020 were primarily driven

the economic impact of the COVID-19 pandemic, and we experienced

our highest levels of net charge-offs in the third quarter

2020.

While we experienced a positive trend in net charge-off

levels in the fourth quarter, we continue to monitor

the continued

risks in our portfolio from the COVID-19 driven economic environment.

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

program, as discussed above.

While 92% of those

contracts are out of the deferral period by December 31, 2020, the long-term

performance of the modified portfolio remains

uncertain.

We are continually monitoring

the performance of our portfolio and assessing all related risks to ensure that our

allowance estimate is sufficient to cover the expected losses from

COVID-19.

Our best estimate of the risk of future net credit

losses and the near-term uncertainty of the macro-economic environment

is reflected in our allowance for loan losses of $44.2

million as of December 31, 2020.

See further discussion about the risks to our reserve estimate discussed below.

Residual Income.

Residual income includes income from lease renewals and gains and

losses on the realization of residual values of leased

equipment disposed at the end of term

In 2019 and prior years, t

he Company had previously recognized residual income within

Fee Income in its Consolidated Statements

of Operations; the adoption of CECL results in any realized amounts of residual

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

the Company’s estimate of credit

losses under

CECL takes into consideration all cashflows the Company expects to

receive or derive from the pools of contracts.

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.

In particular, as of December 31, 2020, these assumptions

include our current

expectations of the future economic impacts of the COVID-19 pandemic

and our current expectations for the performance of our

modified loan portfolio.

Our allowance measurement is an estimate, is inherently uncertain,

and is reassessed at each measurement

date.

We may recognize

credit losses in excess of our reserve, or revise our estimate of expected credit losses in the future, and

such

amounts may be significant, based on: (i) the actual performance of our

portfolio, including the performance of the modified portfolio;

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

or unforeseen circumstances that impact our

portfolio.

Years

Ended December 31, 2019 and 2018:

Provision for credit losses

The provision for credit losses increased $8.5 million, or 43.6%, to $28.0

million for the year ended December 31, 2019 from $19.5

million for the year ended December 31, 2018.

Our provision for credit losses is charged against earnings to

maintain our allowance

at the appropriate level based on the projected probable net credit losses inherent

in our portfolio.

Our projection of probable net

credit losses incorporates a migration analysis, which is partially based

on the delinquency status of the portfolio as of the

measurement date, as well as consideration of multiple qualitative factors.

The increase in our provision for credit losses was driven in part by higher

delinquency experience in the portfolio as of December 31,

2019, resulting in a higher projection of expected credit losses. In addition,

the increase in the provision was partially driven by

replenishing the allowance from a higher charge-off

experience.

-39-

As of December 31, 2019, 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 0.85%,

compared to 0.65% at December 31, 2018.

This trend in

higher delinquency experience is consistent with the trends for aging of

receivables in the equipment leasing industry,

as published in

the Monthly Leasing and Finance Index (MLFI-25) of the Equipment

Leasing and Finance Association.

Net Charge-offs.

Net charge-offs were $22.4 million for

the year ended December 31, 2019, compared to $18.3 million for the year ended December

31, 2018. Net charge-offs as a percentage of

average total finance receivables increased to 2.18% during the year ended December

31,

2019, from 1.93% for the year ended December 31, 2018. Industry data on

average charge-offs from MLFI-25 indicates an 9.4%

increase in net charge-offs as a percent of

receivables for peers, while our increase in net charge-off

percentage is 13.0%. Our analysis

of our higher charge-off experience indicates

that the small business and lower credit quality borrowers in our portfolio were

disproportionately impacted by the economic headwinds observed

in 2019, particularly in the second-half of the year.

Both 2019 and

2018 include charge-offs related to fraudulent

activity of single vendor partners (separate incidents) of $0.9 million

and $1.2 million

respectively.

Leases and Loans Modified.

In response to COVID-19, starting in mid-March 2020, we instituted a payment

deferral program in order to assist our small-business

customers that request relief who are current under their existing obligations.

Our COVID-19 modification program allows for up to 6

months of deferred payments.

The below table outlines certain data on the modified population based

on the net investment balance and status as of December 31,

2020.

Equip.Fin

Working

and CVG

Capital

Total

(Dollars in thousands)

Active Modified Population:

Modified Contracts, out of deferral period

94,962

6,922

101,884

Extended modifications in fourth quarter

9,325

—

9,325

Total Program

104,287

6,922

111,209

% of total segment receivables

12.3%

34.6%

12.8%

Active Modification Population:

On Non Accrual as of December 31, 2020

10,731

846

11,577

Resolved Population:

Charge-Offs of Modified Contracts, year

ended December 31, 2020

2,374

889

3,263

Our initial deferral program in response to COVID-19 extended through

September 30, 2020, and in accordance with the interagency

guidance, loans modified were not considered TDRs and followed our

general non-accrual policies with respect to their modified

terms.

This program allowed for up to 6 months of fully deferred or reduced paymen

ts.

As of December 31, 2020, 92% of our total

modified contracts, are out of the deferral period.

In the fourth quarter of 2020, the modification period of contracts was general

ly extended only as part of our loss mitigation strategies

for customers with prolonged negative impacts from the pandemic.

These extended deferrals total $9.3 million at December 31, 2020,

or 8% of the modified population, and the extensions generally consisted

of requiring a partial payment of 25% to 50% of the original

schedule, with full payment scheduled to resume in the first quarter of

2021 for 56% of the population, and the remainder in the

second quarter of 2021.

We evaluated these extended

deferrals on a program basis and concluded that these deferrals are beyond

short-term period, the deferrals were due to the borrower’s

financial difficulties, and the payment deferrals are a concession.

The loan

-40-

contracts were assessed as troubled debt restructurings and were put

on non-accrual, and the extended lease contracts were also put on

non-accrual.

The estimate of increased risk of credit loss for these contracts was assessed as discussed with the

qualitative

adjustments above.

There were no defaults of these extended, troubled receivables during the year

ended December 31, 2020.

Delinquency and Non-Accrual

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

portfolio as of December 31, 2020,

including information on the

population of restructured contracts, and contracts with restructure

requests:

Net Investment (in thousands)

Delinquency Rate by population

90+

Current

Total

90+

Current

Total

Equip.Finance and CVG

Restructured Portfolio

$2,461

$610

$1,349

$99,867

$104,287

2.36%

0.58%

1.29%

95.77%

100%

Non-Restructured

4,425

2,169

2,453

735,916

744,963

0.59%

0.29%

0.33%

98.79%

100%

Total

$6,886

$2,779

$3,802

$835,783

$849,250

0.81%

0.33%

0.45%

98.41%

100%

Net Investment (in thousands)

Delinquency Rate by population

60+

Current

Total

60+

Current

Total

Working Capital

Restructured Portfolio

$225

$550

$135

$6,012

$6,922

3.25%

7.95%

1.95%

86.85%

100%

Non-Restructured

—

13,019

13,111

0.27%

0.43%

0.00%

99.30%

100%

Total

$261

$606

$135

$19,031

$20,033

1.30%

3.03%

0.67%

95.00%

100%

Contracts that are part of the payment deferral modification program

are reflected in our Delinquency and Non-Accrual measures

based on their performance against their modified terms.

Equipment Finance receivables over 30 days delinquent were 159

basis points as of December 31, 2020, down 54 basis points from

September 30, 2020, and up 19 basis points from December 31,

2019. Working Capital receivable

over 15 days delinquent were 500

basis points as of December 31, 2020, up 107 basis points from September

30, 2020, and up 325

basis points from December 31,

2019.

A significant portion of the restructured portfolios is out of the deferral period

as of December 31, 2020, and we continue to see

elevated levels of delinquency from that population as compared to the non-restructured

portfolio.

The following table summarizes non-accrual leases and loans in the Company’s

portfolio:

December 31,

2020

2019

2018

(Dollars in thousands)

Equipment finance and CVG

13,357

4,645

3,115

Working capital

932

946

492

Total non-accrual leases and

loans

14,289

5,591

3,607

As of December 31, 2020, the increase in leases and loans on non-accrual

is driven by a population of $9.3 million Equipment Finance

and CVG loan modifications contracts that were further extended in the

fourth quarter and were placed on non-accrual due to their risk

characteristics.

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 30 days delinquent.

-41-

Working

Capital Loans are generally placed in non-accrual status when they are 30 days past due.

The loan is removed from non-

accrual status once sufficient payments are made

to bring the loan current and evidence of a sustained performance period as reviewed

by management.

The Company has no loans 90 days or more past due that were still accruing

interest for any of the periods

presented.

ESULTS

PERATIONS

Comparison of the Year

Ended December 31, 2020 and December 31, 2019

Net income.

Net income of $0.3 million was reported for the year ended December 31, 2020

resulting in diluted EPS of $0.03,

compared to net

income of $27.1 million and diluted EPS of $2.20 for the year ended December

31, 2019.

This decrease in Net income was primarily

driven by:

$14.1 million decrease in Net interest and fee income, driven primarily by

a decline in the size of our finance receivable

portfolio and lower funding needs;

$10.5 million increase in Provision for credit losses, driven by refining our

loss estimates for expected increased credit losses

driven by the impacts of the pandemic on our portfolio.

In addition, we adopted CECL on January 1, 2020 and substantially

changed the 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”;

$19.8 million decrease in gains on leases and loans sold due to a decrease in

assets sold resulting from disruptions in the

capital markets during this current economic environment;

$7.7 million impairments of Goodwill and intangible assets, driven by

declines in the fair value of its reporting unit and

projected volumes;

Those drivers of decreases to Net income were partially offset by:

$10.4 million decrease in Salaries and benefits, driven primarily by

lower Commissions, Incentives and the Company’s

proactive cost reduction measures;

$13.2 million favorable change in Income

tax (benefit),

driven primarily by lower income before taxes and a $3.3 million

benefit from the remeasurement of the federal net operating losses driven

by provisions of the CARES Act.

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 years

ended December 31, 2020 and 2019.

-42-

Year Ended December 31,

2020

2019

(Dollars in thousands)

Average

Yields/

Average

Yields/

Balance

(1)

Interest

Rates

Balance

(1)

Interest

Rates

Interest-earning assets:

Interest-earning deposits with banks

164,132

419

0.25

122,762

2,731

2.23

Time deposits

10,940

193

1.77

12,272

308

2.51

Restricted interest-earning deposits with banks

6,831

0.13

12,231

0.78

Securities available for sale

10,676

207

1.94

10,495

269

2.56

Net investment in leases

(2)

863,875

75,948

8.79

936,707

84,790

9.05

Loans receivable

(2)

81,724

16,023

19.61

91,910

19,227

20.92

Total

interest-earning assets

1,138,178

92,799

8.15

1,186,377

107,420

9.05

Non-interest-earning assets:

Cash and due from banks

5,249

5,551

Allowance for loan and lease losses

(50,710)

(17,905)

Intangible assets

6,839

7,844

Goodwill

1,666

6,887

Operating lease right-of-use assets

8,269

7,168

Property and equipment, net

8,435

5,067

Property tax receivables

8,777

6,990

Other assets

30,383

33,944

Total

non-interest-earning assets

18,908

55,546

Total

assets

1,157,086

1,241,923

Interest-bearing liabilities:

Certificate of Deposits

(3)

806,763

17,357

2.15

836,249

19,999

2.39

Money Market Deposits

(3)

45,418

239

0.53

22,870

537

2.35

Long-term borrowings

(3)

51,913

2,272

4.38

111,730

4,497

4.02

Total

interest-bearing liabilities

904,094

19,868

2.20

970,849

25,033

2.58

Non-interest-bearing liabilities:

Sales and property taxes payable

6,318

6,308

Operating lease liabilities

9,207

8,524

Accounts payable and accrued expenses

22,290

26,449

Net deferred income tax liability

24,566

26,300

Total

non-interest-bearing liabilities

62,381

67,582

Total

liabilities

966,475

1,038,430

Stockholders’ equity

190,611

203,493

Total

liabilities and stockholders’ equity

1,157,086

1,241,923

Net interest income

72,931

82,388

Interest rate spread

(4)

5.95

6.47

Net interest margin

(5)

6.41

6.94

Ratio of average interest-earning assets to

average interest-bearing liabilities

125.89

122.20

-43-

__________________

(1)

Average balances were calculated using average daily balances.

(2)

Average balances of leases and loans include non-accrual leases and loans, and are presented net of

unearned income. The average balances of leases and loans

not include the effects of (i) the allowance for credit losses and (ii)

initial direct costs and fees deferred.

(3)

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.

(4)

Interest rate spread represents the difference between the average yield

on interest-earning assets and the average rate on interest-bearing

liabilities.

(5)

Net interest margin represents net interest income as a percentage

of average interest-earning assets.

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

by volume and rate.

Year Ended December 31, 2020 Compared To

Year Ended December 31, 2019

Increase (Decrease) Due To:

Volume

(1)

Rate

(1)

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

696

(3,008)

(2,312)

Restricted interest-earning deposits with banks

(30)

(56)

(86)

Time Deposits

(31)

(84)

(115)

Securities available for sale

(67)

(62)

Net investment in leases

(6,454)

(2,388)

(8,842)

Loans receivable

(2,046)

(1,158)

(3,204)

Total

interest income

(4,237)

(10,384)

(14,621)

Interest expense:

Certificate of Deposits

(687)

(1,955)

(2,642)

Money Market Deposits

300

(598)

(298)

Long-term borrowings

(2,588)

363

(2,225)

Total

interest expense

(1,640)

(3,525)

(5,165)

Net interest income

(3,258)

(6,198)

(9,456)

__________________

(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.

-44-

Net interest and fee margin.

The following table summarizes the Company’s

net interest and fee income as a percentage of average

total finance receivables for the years ended December 31, 2020 and 2019

Year Ended December 31,

2020

2019

(Dollars in thousands)

Interest income

92,799

107,420

Fee income

10,560

15,205

Interest and fee income

103,359

122,625

Interest expense

19,868

25,033

Net interest and fee income

83,491

97,592

Average total

finance receivables

(1)

945,599

1,028,617

Percent of average total finance receivables:

Interest income

9.81

10.44

Fee income

1.12

1.48

Interest and fee income

10.93

11.92

Interest expense

2.10

2.43

Net interest and fee margin

8.83

9.49

__________________

(1)

For the calculations above, the effects of (i) the allowance

for credit losses and (ii) initial direct costs and fees deferred are

excluded.

Net interest and fee income decreased $14.1 million, or 14.4%, to $83.5

million for the year ended December 31, 2020 from $97.6

million for the year ended December 31, 2019.

The net interest and fee margin was 8.83% and 9.49% for the years ended

December

31, 2020 and December 31, 2019,

respectively

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

$14.6 million, or 13.6%,

to $92.8 million for the year ended

December 31, 2020 from $107.4 million for the year ended December

31, 2019.

The decrease in interest income was principally due

to an 8.1% decrease in average total finance receivables, which decreased

$83.0 million to $945.6 million at December 31, 2020 from

$1,028.6 million at December 31, 2019.

The decrease in average total finance receivables was primarily due to lower origination

volume along with the customary loan repayments and charge

-offs.

The average yield on the portfolio decreased 63 basis points to

9.81%

from 10.44% in the prior year. The

weighted average implicit interest rate on new finance receivables decreased 220

basis

points to 10.66% for the year ended December 31, 2020,

from 12.86% for the year ended December 31, 2019.

The decrease was

primarily driven by a shift in mix away from higher-yield Working

Capital originations that dropped from 13.55% of originations in

fiscal 2019 to 9.05% in fiscal 2020, along with a decrease of 415 basis points

in the implicit yield on those Working

Capital loans

from 34.72% for the year ended December 31, 2019 to 30.57% for the

year ended December 31, 2020.

Fee income was $10.6 million for the year ended December 31, 2020

and $15.2 million for the year ended December 31, 2019,

and as

a percentage of average total finance receivables, decreased 36 basis points

to 1.12% for the year ended December 31, 2020 from

1.48% for the year ended December 31, 2019.

Fee income included approximately $3.7 million of net residual income for the

year

ended December 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 allowance, including future cashflows

from net residual income.

Amounts of residual income are

presented within the rollforward of the Allowance, as discussed further

in “—Finance Receivables and Asset Quality”.

Fee income also included approximately $7.1 million and $8.4 million

in late fee income for the year ended December 31, 2020 and

December 31, 2019,

respectively. Late fees remained

the largest component of fee income at 0.75% as a percentage of

average total

finance receivables for the year ended December 31, 2020,

compared to 0.89% for the year ended December 31, 2019.

-45-

Interest expense decreased $5.1 million to $19.9 million for the year

ended December 31, 2020 from $25.0 million for the year ended

December 31, 2019,

primarily due to a decrease of $2.6 million on lower deposit balances as well as a decrease of

$1.9 million due to

the continuing paydown of outstanding long-term debt.

Interest expense, as an annualized percentage of average total finance

receivables, decreased 33 basis points to 2.10% for the year ended

December 31, 2020,

from 2.43% for the year ended December 31,

2019.

The average balance of total interest-bearing liabilities was $904.1 million

and $970.8 million for the years ended December 31,

2020 and December 31, 2019, respectively,

and the average interest expense on those liabilities was 2.20% and 2.58% for the years

ended December 31, 2020 and December 31, 2019,

respectively.

For the year ended December 31, 2020,

average term securitization outstanding was $51.9 million at a weighted

average coupon of

4.38%. For the year ended December 31, 2019,

average term securitization outstanding was $111.7

million at a weighted average

coupon of 4.02%.

Our wholly-owned subsidiary,

MBB, serves as our

primary funding source. MBB raises time deposits through a variety of

sources

including: directly from customers, through the use of on-line listing services,

and through the use of deposit brokers.

At December

31, 2020,

brokered certificates of deposit represented approximately 52.1% of total

deposits, while approximately 40.8% of total

deposits were obtained from

direct channels,

and 7.1% were in the brokered MMDA Product.

Gain on Sale of Leases and Loans.

Gain on sale of leases and loans decreased to $2.4 million for the year ended December

31,

2020,

from

$22.2 million for the year ended December 31, 2019,

or $19.8 million reduction in income. Assets sold decreased to

$28.3 million, for the year ended December 31, 2020 compared to

$310.4 million for the year ended December 31, 2019.

Disruptions

in the capital markets due to the impact of COVID-19 pandemic on the

economic environment resulted in a lack of demand in the

syndication market since the end of the first quarter of 2020 and we retained

substantially all of our origination volume on our balance

sheet.

Our sales execution decisions, including the timing, volume and frequency

of such sales, depend on many factors including our

origination volumes, the characteristics of our contracts versus market

requirements, our current assessment of our balance sheet

composition and capital levels, and current market conditions, among

other factors.

Driven by the continued market disruptions

resulting from the COVID-19 pandemic, we may have difficulty

accessing the capital market and may find decreased interest and

ability of counterparties to purchase our contracts, or we may be unable

to negotiate terms acceptable to us.

Insurance premiums written and earned.

Insurance

premiums written and earned declined slightly to $8.7 million for the year

ended

December 31, 2020 from $8.8 million for the year ended December 31, 2019.

Other income.

Other income was $13.2 million and $13.0 million for the years

ended December 31, 2020 and December 31, 2019,

respectively.

The major components

of other income are property tax income and administration fees, insurance

policy fees and

syndication servicing.

Salaries and benefits expense

The following table summarizes the Company’s

Salary and benefits expense:

Year Ended December 31,

2020

2019

(Dollars in thousands)

Salary, benefits and payroll

taxes

27,675

28,770

Incentive compensation

4,809

8,694

Commissions

1,299

6,704

Total

33,783

44,168

-46-

Salaries and benefits expense decreased $10.4 million, or 23.5%, to

$33.8 for the year ended December 31, 2020 from $44.2 for the

year ended December 31, 2019. This change resulted from a $5.4 million

decrease in Commissions due to lower origination volumes

coupled with an updated commission structure and a decrease of $3.9 million

in Incentive compensation due to lower recognized

bonus and share-based compensation amounts driven by the Company’s

operating results. As part of our efforts to tighten our expense

base in response to COVID-19, in April 2020, we put approximately 120

employees on furlough; then in June 2020, we took steps to

permanently reduce our work force by approximately 80 employees. Our headcount

is 254 at December 31, 2020,

down from 348 at

December

31, 2019

We recognized

Severance expense in Salary, benefits

and payroll taxes of $1.7 million in 2020, compared to $0.3

million in 2019, in connection with this workforce reduction. We

recognized $2.5 million lower Salary,

benefits and payroll taxes for

the year ended December 31, 2020 as compared to the prior year primarily

from our expense reduction efforts.

General and administrative expense

The following table summarizes the Company’s

General and administrative expense.

Year

Ended December 31,

2020

2019

(Dollars in thousands)

Property taxes

6,503

6,653

Occupancy and depreciation

5,392

5,492

Professional fees

4,233

4,036

Information technology

4,026

3,922

Marketing

1,126

1,744

Insurance-related

2,424

1,564

Credit bureau costs

1,404

1,532

Intangible amortization

767

929

FDIC Insurance fees

1,464

660

Acquisition-related contingent payment fair value adjustment

(1,435)

—

Other G&A

5,010

6,034

General and administrative

30,914

32,566

General and administrative expense decreased $1.7 million, or 5.2% for

the year ended December 31, 2020.

Components of the

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

consideration earn out liability related to our 2018

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

volumes which decreases the liability for estimated

payments.

In addition, we recognized a reduction of $0.7 million Other G&A related travel and

entertainment expenses due to the

travel restrictions imposed during the COVID-19 pandemic, offset

by an increase of $0.8 million in FDIC insurance fees. In addition,

Occupancy and depreciation expense for the year ended December

31, 2020 includes $0.4 million of costs in connection with office

lease terminations as part of our expense reduction efforts.

General and administrative expense as a percentage of average total finance

receivables was 3.27% for the year ended December 31,

2020,

compared to 3.45% for the year ended December 31, 2019.

Goodwill impairment.

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

COVID-19 economic shutdown,

our market capitalization falling below book value and other related

impacts, we analyzed goodwill for impairment.

We concluded

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

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

million

balance in the year ended December 31, 2020.

Intangible impairment.

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

with

reductions in headcount in its salesforce, we determined we had

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

vendor and lender intangibles against their current fair value.

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

recognizing $1.0 million of expense.

The vendor intangibles were not impaired.

Provision for income taxes.

Income tax benefit of $3.5 million was recorded for the year ended December

31, 2020, compared to an

expense of $9.7 million for the year ended December 31, 2019. Our effective

tax rate, which includes a combination of federal and

state income tax rates, was approximately 110.2%

for the year ended December 31, 2020, compared to 26.4% for the year ended

-47-

December 31, 2019. The income tax benefit was primarily driven by a $3.2

million discrete benefit from certain provisions in the

CARES Act that allowed for remeasuring our federal net operating losses for

carryback utilization.

-48-

Comparison of the Years

Ended December 31, 2019 and 2018

Net income.

Net income of $27.1 million was reported for the year ended December

31, 2019, resulting in diluted EPS of $2.20, compared to net

income of $25.0 million and diluted EPS of $2.00 for the year ended December

31, 2018. This increase in Net income was primarily

driven by:

$2.1 million increase in Net interest and fee income, driven primarily

by an increase in the size of our finance receivable

portfolio;

$13.8 million increase in gains on leases and loans sold due to increased syndication

volumes;

Those drivers of increases to Net income were partially offset by:

$8.5 million increase in Provision for credit losses, primarily due to higher

charge-offs attributed to increased delinquencies

in the second half of 2019 as well as the growth in average finance receivables

and charge-offs in the fourth quarter of $0.9

million due to fraudulent activity by a single vendor partner;

$4.4 million higher Salaries and benefits due to an increase in personnel,

and commissions driven by increased origination

volume

Return on average assets was 2.18% for the year ended December 31, 2019,

compared to a return of 2.29% for the year ended

December 31, 2018. Return on average equity was 13.33% for the year

ended December 31, 2019, compared to a return of 13.27% for

the year ended December 31, 2018.

Overall, our average net investment in total finance receivables for the

year ended December 31, 2019 increased 8.9% to $1,028.6

million, compared to $944.6 million for the year ended December

31, 2018. This change was primarily due to origination volume

continuing to exceed lease and loan repayments, asset sales and charge

-offs.

The end-of-period net investment in total finance

receivables at December 31, 2019 was $1,006.5 million, an increase

of 0.6% from $1,000.7 million at December 31, 2018.

During the year ended December 31, 2019, we generated 31,246

new leases and loans in the amount of $801.9 million, compared to

33,105 new leases and loans in the amount of $704.9 million originated for

the year ended December 31, 2018. Approval rates

decreased from 57% at December 31, 2018 to 55% at December 31, 2019.

For the year ended December 31, 2019 compared to the year ended

December 31, 2018, net interest and fee income increased $2.1

million, or 2.2%, primarily due to a $10.4 million increase in interest income

and a $0.6 million increase in fee income offset by a $7.6

million increase in interest expense. The provision for credit losses increased

$8.5 million, or 43.6%, to $28.0 million for the year

ended December 31, 2019 from $19.5 million for the year ended

December 31, 2018.

Gain on sale of leases and loans increased $13.8

million for the year ended December 31, 2019 compared to the year

ended December 31, 2018.

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 years

ended December 31, 2019 and 2018.

-49-

Year Ended December 31,

2019

2018

(Dollars in thousands)

Average

Yields/

Average

Yields/

Balance

(1)

Interest

Rates

Balance

(1)

Interest

Rates

Interest-earning assets:

Interest-earning deposits with banks

122,762

2,731

2.23

77,141

1,554

2.01

Time deposits

12,272

308

2.51

8,639

154

1.79

Restricted interest-earning deposits with banks

12,231

0.78

6,323

0.90

Securities available for sale

10,495

269

2.56

10,977

225

2.05

Net investment in leases

(2)

936,707

84,790

9.05

880,547

82,361

9.35

Loans receivable

(2)

91,910

19,227

20.92

64,041

12,674

19.79

Total

interest-earning assets

1,186,377

107,420

9.05

1,047,668

97,025

9.26

Non-interest-earning assets:

Cash and due from banks

5,551

Allowance for loan and lease losses

(17,905)

(15,614)

Intangible assets

7,844

2,826

Goodwill

6,887

2,727

Operating lease right-of-use assets

7,168

Property and equipment, net

5,067

4,134

Property tax receivables

6,990

7,491

Other assets

(3)

33,946

37,168

Total

non-interest-earning assets

55,546

44,283

Total

assets

1,241,923

1,091,951

Interest-bearing liabilities:

Certificate of Deposits

(4)

836,249

19,999

2.39

756,571

13,999

1.85

Money Market Deposits

(4)

22,870

537

2.35

29,068

598

2.06

Long-term borrowings

(4)

111,730

4,497

4.02

75,180

2,817

3.75

Total

interest-bearing liabilities

970,849

25,033

2.58

860,819

17,414

2.02

Non-interest-bearing liabilities:

Sales and property taxes payable

6,308

5,796

Operating lease liabilities

8,524

Accounts payable and accrued expenses

26,449

18,076

Net deferred income tax liability

26,300

19,049

Total

non-interest-bearing liabilities

67,582

42,921

Total

liabilities

1,038,430

903,740

Stockholders’ equity

203,493

188,211

Total

liabilities and stockholders’ equity

1,241,923

1,091,951

Net interest income

82,388

79,611

Interest rate spread

(5)

6.47

7.24

Net interest margin

(6)

6.94

7.60

Ratio of average interest-earning assets to

average interest-bearing liabilities

122.20

121.71

-50-

__________________

(1)

Average balances

were calculated using average daily balances.

(2)

Average balances

of leases and loans include non-accrual leases and loans, and are presented

net of unearned income. The

average balances of leases and loans do not include the effects of (i)

the allowance for credit losses and (ii) initial direct costs and

fees deferred.

(3)

Includes operating leases only for 2018.

(4)

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.

(5)

Interest rate spread represents the difference between

the average yield on interest-earning assets and the average rate on interest-

bearing liabilities.

(6)

Net interest margin represents net interest income as a percentage

of average interest-earning assets.

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

by volume and rate.

Year Ended December 31, 2019 Compared To

Year Ended December 31, 2018

Increase (Decrease) Due To:

Volume

(1)

Rate

(1)

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

1,000

177

1,177

Time Deposits

154

Restricted interest-earning deposits with banks

(9)

Securities available for sale

(10)

Net investment in leases

5,141

(2,712)

2,429

Loans receivable

5,794

759

6,553

Total

interest income

12,600

(2,205)

10,395

Interest expense:

Certificate of Deposits

1,588

4,412

6,000

Money Market Deposits

(139)

(61)

Long-term borrowings

1,459

221

1,680

Total

interest expense

2,421

5,198

7,619

Net interest income

9,989

(7,213)

2,776

__________________

(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 a percentage of average

total finance receivables for the years ended December 31, 2019 and 2018.

Year Ended December 31,

2019

2018

(Dollars in thousands)

Interest income

107,420

97,025

Fee income

15,205

15,843

Interest and fee income

122,625

112,868

Interest expense

25,033

17,414

Net interest and fee income

97,592

95,454

Average total

finance receivables

(1)

1,028,617

944,588

Percent of average total finance receivables:

Interest income

10.44

10.27

Fee income

1.48

1.68

Interest and fee income

11.92

11.95

Interest expense

2.43

1.84

Net interest and fee margin

9.49

10.11

__________________

(1)

Total finance

receivables include net investment in sales-type leases and loans in 2019 and direct financing

lease and loans in

2018.

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 $2.1 million, or 2.2%, to $97.6 million for

the year ended December 31, 2019 from $95.5

million for the year ended December 31, 2018. The net interest and fee margin

was 9.49% and 10.11% for the years ended December

31, 2019 and December 31, 2018, respectively.

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

$10.4 million, or 10.7%, to $107.4 million for the year ended

December 31, 2019 from $97.0 million for the year ended December

31, 2018. The increase in interest income was principally due to

a 8.9% increase in average total finance receivables, which increased

$84.0 million to $1,028.6 million at December 31, 2019 from

$944.6 million at December 31, 2018. The increase in average total finance

receivables was primarily due to origination volume

continuing to exceed lease and loan repayments, asset sales and charge

-offs. The weighted average implicit interest rate on new

finance receivables increased 47 basis point to 12.86% for the year ended

December 31, 2019, from 12.45% for the year ended

December 31, 2018.

Fee income decreased $0.6 million, or 3.8%, to $15.2 million for

the year ended December 31, 2019 from $15.8 million for the year

ended December 31, 2018. Fee income included approximately $8.4

million in late fee income for the year ended December 31, 2019,

which decreased 9.7%, compared to $9.3 million for the year ended December

31, 2018. Fee income also included approximately $3.7

million of net residual income the years ended December 31, 2019 and 2018.

Fee income, as a percentage of average total finance receivables, decreased

20 basis points to 1.48% for the year ended December 31,

2019 from 1.68% for the year ended December 31, 2018. Late fees remained

the largest component of fee income at 0.82% as a

percentage of average total finance receivables for the year ended December

31, 2019, compared to 0.99% for the year ended

December 31, 2018. As a percentage of average total finance receivables,

net residual income was 0.36% for the year ended December

31, 2019, compared to 0.40% for the year ended December 31, 2018.

-52-

Interest expense increased $7.6 million to $25.0 million for

the year ended December 31, 2019 from $17.4 million for the year ended

December 31, 2018. The increase was primarily due to higher rates on

higher average deposit balances and to a lesser extent to a full

year of interest expense on our term securitization that was completed in

the second half of 2018. Interest expense, as an annualized

percentage of average total finance receivables, increased 59 basis points to

2.43% for the year ended December 31, 2019, from 1.84%

for the year ended December 31, 2018. The average balance of total

interest-bearing liabilities was $970.8 million and $860.8 million

for the years ended December 31, 2019 and December 31, 2018, respectively,

and the average interest expense on those liabilities was

2.58% and 2.02% for the years ended December 31, 2019 and December 31, 2018,

respectively.

For the year ended December 31, 2019, average term securitization

outstanding was $111.7

million at a weighted average coupon of

4.02%. We

issued the term note securitization with an original balance of $201.6 million

in July 2018,

and for the year ended

December 31, 2018, average term securitization outstanding was $75.1

million at a weighted average coupon of 3.75%.

Our wholly-owned subsidiary,

MBB, serves as our primary funding source. MBB raises time deposits through

a variety of sources

including: directly from customers, through the use of on-line listing services,

and through the use of deposit brokers. At December

31, 2019, brokered certificates of deposit represented approximately 48.6%

of total deposits, while approximately 48.6% of total

deposits were obtained from direct channels, and 2.8% were in the brokered

MMDA Product.

Gain on Sale of Leases and Loans.

Gain on sale of leases and loans increased $13.8 million to $22.2 million for the year ended

December 31, 2019, from $8.4 million for the year ended December

31, 2018.

Assets sold grew to $310.4 million, for 2019

compared to $139.0 million for 2018.

We rely on the sale of finance

receivables to third parties in the capital markets as an important

source of our liquidity and use such sales to manage the size and composition

of our balance sheet and capital levels.

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.

The execution of such sales results in the derecognition of the lease

and loan assets, and the recognition of a gain (or loss) and the servicing asset and liability as applicable

on the sale date driven by the

pricing and net proceeds received;

the immediate recognition of such gain is in exchange for all future revenues from the contracts

and the transfer all risk of loss for sales without recourse and substantially all risks

of loss for sales with recourse.

Substantially all of

our asset sales to date have been without recourse.

Insurance premiums written and earned.

Insurance premiums written and earned increased $0.7 million to $8.8 million for

the year

ended December 31, 2019 from $8.1 million for the year ended

December 31, 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 increased $8.0 million to $13.0 million for the year ended

December 31, 2019 from $5.0 million for the

year ended December 31, 2018. A significant component of the increase in other

income is property tax income that was previously

netted against property tax expense for the year ended December 31, 2018, but

is presented as a separate component of revenue for the

year ended December 31, 2019, as a result of the adoption of ASU 2016-02 and related

ASUs. Selected major components of other

income for the year ended December 31, 2019 included $6.4 million

in property tax income, $2.7 million of insurance policy fees, and

$2.1 million in income from servicing revenue and fees received from referral

of leases to third parties. In comparison, selected major

components of other income for the year ended December 31, 2018

included $2.1 million of insurance policy fees, and $1.5 million in

income from servicing revenue and fees received from referral of leases to third

parties.

Salaries and benefits expense

The following table summarizes the Company’s

Salary and benefits expense:

Year Ended December 31,

2019

2018

(Dollars in thousands)

Salary and benefits

28,770

25,126

Commissions

6,704

5,817

Incentive compensation

8,694

8,807

Salaries and benefits

44,168

39,750

-53-

Salaries and benefits expense increased $4.4 million, or 11.1%,

for the year ended December 31, 2019 primarily due to an increase in

total personnel and increased commissions driven by increased origination

volume.

In addition, in 2019 the Company deferred $1.2

million less of salary for lease origination costs driven by the January

1, 2019 adoption of new lease accounting guidance in ASU

2016-02 that limits the deferral of certain costs.

That change in our deferral rate will continue to affect

the company on a prospective

basis.

Salaries and benefits expense, as a percentage of average total finance

receivables, was 4.29% for the year ended December 31, 2019

compared with 4.21% for the year ended December 31, 2018. Total

personnel was 348 at December 31, 2019 compared to 341 at

December 31, 2018.

General and administrative expense

The following table summarizes the Company’s

General and administrative expense:

Year Ended December 31,

2019

2018

(Dollars in thousands)

Property taxes

6,653

634

Occupancy and depreciation

5,492

4,419

Professional fees

4,036

3,834

Information technology

3,922

3,826

Marketing

1,744

1,857

Insurance-related

1,564

1,691

Credit bureau costs

1,532

839

Intangible amortization

929

378

FDIC Insurance fees

660

1,070

Other G&A

6,034

6,367

General and administrative

32,566

24,915

General and administrative expense increased $7.7 million, or 30.9%

for the year ended December 31, 2019. A major driver of the

increase was due to the January 1, 2019 adoption of new lease accounting guidance

in ASU 2016-02, which resulted in the gross

recognition of property tax expense that was previously netted against property

tax income in fiscal 2018, and lower deferred lease

origination costs for credit bureaus.

Those changes will continue to affect the company on a prospective

basis.

In addition, we

recognized higher intangible amortization expense in 2019 driven by our

September 2018 acquisition of FFR.

General and administrative expense as a percentage of average total finance

receivables was 3.17% for the year ended December 31,

2019, compared to 2.64% for the year ended December 31, 2018.

Provision for income taxes.

Income tax expense of $9.7 million was recorded for the year ended December

31, 2019, compared to an

expense of $7.7 million for the year ended December 31, 2018. Our effective

tax rate, which is a combination of federal and state

income tax rates, was approximately 26.4% for the year ended December

31, 2019, compared to 23.6% for the year ended December

31, 2018. The higher effective tax rate for the year ended

December 31, 2019 is associated with changes in state statutory rates and

related revaluation of deferred tax as well as the increase of a valuation

allowance against certain net operating loss carryforwards that

are not expected to be utilized.

-54-

Operating Data

The efficiency ratio (relating expenses with revenues) and

the ratio of salaries and benefits and general and administrative expense as

a percentage of the average total finance receivables shown below measure

productivity and spending levels. Please refer to

Management’s Discussion and Analysis of

Financial Condition and Results of Operations—Results of Operations

for additional

information regarding factors influencing these metrics.

Year Ended December 31,

2020

2019

2018

(Dollars in thousands)

Average total

finance receivables

945,599

1,028,617

944,588

Salaries and benefits expense

33,783

44,168

39,750

General and administrative expense

30,914

32,566

24,915

Efficiency ratio

(1)

67.19

54.18

55.32

Percent of average total finance receivables:

Salaries and benefits

3.57

4.29

4.21

General and administrative

3.27

3.17

2.64

________________

(1)

Represents expenses (salaries and benefits expense and general

and administrative expense) divided by the sum of net

interest and fee income and non-interest income.

We generally

reach our lessees through a network of independent equipment dealers

and, to a much lesser extent, lease brokers. The

number of dealers and brokers with whom we conduct business depends

on, among other things, the number of sales account

executives we have.

Liquidity and Capital Resources

Our business requires a substantial amount of cash to operate and grow.

Our primary liquidity need is to fund new originations. In

addition, we need liquidity to pay interest and principal on our deposits and

borrowings, to pay fees and expenses incurred in

connection with our financing transactions, to fund infrastructure and

technology investment, to pay dividends and to pay

administrative and other operating expenses.

We are dependent

upon the availability of financing from a variety of funding sources to satisfy these liquidity

needs. Historically, we

have relied upon four principal types of external funding sources for our

operations:

•

FDIC

insured

deposits;

•

sales

and

syndications

leases

and

loans;

•

borrowings

under

various

bank

facilities;

•

financing

leases

and

loans

various

warehouse

facilities

(all

which

have

been

repaid

full);

and

•

financing

leases

through

term

note

securitizations.

As a result

of the uncertainties

surrounding the

actual and potential

impacts of

COVID-19 on

our business and

financial condition,

the first quarter

of 2020 we

raised additional liquidity

through the issuance

of FDIC-insured deposits

and we increased

our borrowing

capacity

the

Federal

Reserve

Discount

Window.

have

continued

proactively

manage

our

funding

sources

response

changing conditions in this economic climate.

-55-

primarily

fund

new originations

through

the issuance

FDIC-insured

deposits issued

by our

wholly-owned

subsidiary,

Marlin

Business Bank

(“MBB”). 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. See

further discussion

under “--

Bank Capital and

Regulatory Oversight

”.

Deposits issued by MBB

represent our primary

funding source for new

originations. MBB

receives time deposits

through a

variety of sources

including: directly

from customers, through

the use of

on-line listing services,

and

through the use of deposit brokers.

We have relied

on the sale of finance receivables to third parties in the capital markets as a potential source

of our liquidity.

Among

other attributes, the syndication program enables us to better manag

the overall size and composition of our portfolio in terms of

returns, credit risk and exposure to particular industries, geographies and

asset classes.

Our asset syndication program activity

decreased for the year ended December 31, 2020,

and we sold

$28.3 million of assets that generated an immediate net pre-tax gain on

sale of $2.4 million.

In comparison, for the year ended December 31, 2019,

we sold

$310.4 million of assets for pre-tax gain on sale

$22.2 million. The decreased syndication volume in 2020 as compared to 2019

is due to disruptions in the capital markets due to

the impact of COVID-19 pandemic on the economic environment resulting

in a lack of demand in the syndication market.

Future

levels of syndication volumes will depend on our current assessment of

our balance sheet composition, the quality and eligibility of

originated contracts versus the requirements of our counterparties, and our

ability to negotiate terms acceptable to us, among other

factors.

We continue

to service the contracts

sold, which allows us to maintain an ongoing relationship with these customers.

As of

December 31, 2020,

we were servicing a loan and lease portfolio of approximately $230 million for others.

We have $30.8

million of long-term borrowings remaining as of December 31, 2020 under an asset-backed

term note securitization

that was originated in 2018.

From other bank facilities, at December 31, 2020,

we have approximately $25.0 million of available

borrowing capacity in addition to available cash and cash equivalents

of $135.7 million. This amount excludes additional liquidity that

may be provided by the issuance of insured deposits through MBB and additional

borrowing capacity under the Federal Reserve

Discount Window.

Our debt to equity ratio was 3.87 to 1 at December 31, 2020 and 4.26 to 1

at December 31, 2019.

On October 29, 2020, Marlin Business Services Corp. declared

its thirty-seventh consecutive regular quarterly dividend. The dividend

of $0.14 per share of common stock was paid on November 19, 2020

holders of our common stock as of November 9, 2020.

Net cash provided by investing activities was $117.2

million for the year ended December 31, 2020,

compared to net cash used in

investing activities of $38.0 million for the year ended December

31, 2019 and $126.9 million for the year ended December 31, 2018.

The increase in cash flow from investing activities in 2020 as compared

to 2019 is primarily due to a decrease of $432.1 million in

purchases of equipment for sales-type lease contracts and funds used

to originate loans offset by a decrease of $242.2 million in

proceeds from sale of leases originated for investment and decreased principa

collections on leases and loans of $46.0 million.

The

increase in cash flows from investing activities from 2018 to 2019 is primarily due

to an increase of $138.6 million in proceeds from

sale of leases originated for investment and increased principal collections

on leases and loans of $40.8 million, offset by an increase

of $94.1 million in purchases of equipment for sales-type lease contracts and

funds used to originate loans.

Net cash used in financing activities was $166.8 million for the year

ended December 31, 2020,

compared to net cash used in

financing activities of $5.6 million for the year ended December 31, 2019

and net cash provided by financing activities of $86.6

million for the year ended December 31, 2018.

The decrease in cash flows from financing activities from 2019 to 2020 is primarily

due to a $192.2 million net decrease in deposits driven by lower funding

requirements for the portfolio, offset by a decrease of $28.9

million in term securitization repayments. The decrease in financing

activities from 2018 to 2019 is primarily due to the net proceeds

of $151.2 million received in 2018 from our asset backed securitization

and $74.7 million in term securitization repayments in the

current year,

offset by a $136.9 million net increase in deposits.

Additional liquidity is provided by our cash flow from operations. Net cash

provided by operating activities for the years

ended

December 31, 2020,

2019 and 2018 was $60.0 million, $62.4 million and $84.4 million, respectively.

The operating results of our

business are impacted by significant non-cash activities which include

the recognition of provision for credit losses and depreciation

and amortization, including the amortization of deferred initial direct costs and

fees.

For 2020, the operating results also included

non-cash activities related to the recognition of impairment for goodwill

and intangible assets.

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.

-56-

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 certificates of deposit issued through MBB. Total

cash and cash equivalents

available as of December 31, 2020 totaled $135.7 million compared to

$123.1 million at December 31, 2019.

Time Deposits with Banks.

Time deposits with banks are primarily

composed of FDIC-insured certificates of deposits that have

original maturity dates of greater than 90 days. Generally,

the certificates of deposits have the ability to redeem early,

however, early

redemption penalties

may be incurred. Total

time deposits as of December 31, 2020 and December 31, 2019 totaled $6.0 million

and

$12.9 million, respectively.

Restricted Interest-earning Deposits with Banks

As of December 31, 2020 and 2019,

$4.7 million and $6.7 million, respectively,

was classified as restricted interest-earning deposits with banks consisted

of funds in a trust account related to our secured debt

facility.

Borrowings.

Our primary borrowing relationships may require the pledging

of eligible lease and loan receivables to secure amounts

advanced.

We had $30.8 million

outstanding secured borrowings at December 31, 2020 and $76.6 million

at December 31, 2019.

Borrowings outstanding consist of the following:

For the Twelve Months

Ended December 31, 2020

As of December 31, 2020

Maximum

Month End

Average

Weighted

Facility

Amount

Average

Amount

Average

Unused

Amount

Outstanding

Rate

(3)

Outstanding

Rate

(2)

Capacity

(1)

(Dollars in thousands)

Federal funds purchased

25,000

—

25,000

Revolving line of credit

—

Term note securitizations

(4)

—

71,721

51,913

4.38

30,800

3.89

—

25,000

51,913

30,800

25,000

__________________

(1)

Does not include MBB’s access to the

Federal Reserve Discount Window,

which is based on the amount of assets MBB chooses

to pledge. Based on assets pledged at December 31, 2020,

MBB had $50.9 million in unused, secured borrowing capacity at the

Federal Reserve Discount Window.

Additional liquidity that may be provided by the issuance of insured deposits is also excluded

from this table.

(2)

Does not include transaction costs.

(3)

Includes transaction costs.

(4)

Our term note securitizations are one-time fundings that pay down

over time without any ability for us to draw down additional

amounts.

-57-

Federal Funds Line of Credit with Correspondent Bank

MBB has established a federal funds line of credit with a correspondent

bank. This line allows for both selling and purchasing of federal funds. The

amount that can be drawn against the line is limited to

$25.0 million.

Federal Reserve Discount Window.

In addition, MBB has received approval to borrow from the Federal

Reserve Discount Window

based on the amount of assets MBB chooses to pledge. MBB had $50.9

million in unused, secured borrowing capacity at the Federal

Reserve Discount Window,

based on $56.7 million of net investment in leases pledged at December 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

and the financing is recorded in long-term borrowings in the Consolidated

Balance Sheet.

At December 31, 2020 outstanding term securitizations amounted

to $30.8 million with $76.6 million outstanding at December 31,

2019.

As of December 31, 2020, $32.9 million of minimum lease payments receivable

and $4.7 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

Outstanding

Notes

Balance

Final

Original

Originally

as of

Maturity

Coupon

Issued

December 31, 2020

Date

Rate

(Dollars in thousands)

2018 — 1

Class A-1

77,400

—

July 2019

2.55

Class A-2

55,700

—

October 2020

3.05

Class A-3

36,910

—

April 2023

3.36

Class B

10,400

$9,560

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

30,800

3.05

(1)(2)

__________________

(1)

Represents the original weighted average initial coupon rate for

all tranches of the securitization. In addition to this coupon

interest, term note securitizations have other transaction costs which are amortized

over the life of the borrowings as additional

interest expense.

(2)

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

will approximate 3.54%

over the remaining term of the

borrowing.

At December 31, 2020,

the Company was in compliance with terms of the term note securitization agreement.

Bank Capital and Regulatory Oversight

We are subject

to regulation under the Bank Holding Company Act and all of our subsidiaries may

be subject to examination by the

Federal Reserve Board and the Federal Reserve Bank of Philadelphia even if

not otherwise regulated by the Federal Reserve Board.

MBB is also subject to comprehensive federal and state regulations dealing

with a wide variety of subjects, including minimum capital

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

in transactions with its affiliates, restrictions as to dividend

payments and numerous other aspects of its operations.

These regulations generally have been adopted to protect depositors and

creditors rather than shareholders.

-58-

At December 31, 2020,

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 exceeded the requirements for well-capitalized status.

Further, MBB exceeded the requirement

for “well

capitalized” status pursuant to the FDIC Agreement entered into

in conjunction with the opening of the bank.

At December 31, 2020,

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 exceeded the requirements

for well-capitalized status.

See “Item 1—Supervision

and Regulation” and

Note 18—Stockholders’ Equity

in the Notes to

Consolidated Financial Statements

for

additional information regarding these ratios and our levels at December

31, 2020.

Information on Stock Repurchases

Information on Stock Repurchases is provided in “Part II, Item 5, Market for

Registrant’s Common Equity,

Related Stockholder

Matters and Issuer Purchases of Equity Securities,” herein.

Items Subsequent to December 31, 2020

The Company declared a dividend of $0.14 per share on January 28,

2021. The quarterly dividend, which amounted to a dividend

payment of approximately $1.7 million, was paid on February 18, 2021

to shareholders of record on the close of business on February

8, 2021.

It represents the Company’s thirty-eighth

consecutive quarterly cash dividend.

The

Federal

Reserve

Board

has

issued

policy

statements

which

provide

that,

general

matter,

insured

banks

and

bank

holding

companies should pay dividends

only out of current

operating earnings. Payment of

dividends by Marlin Business Services

Corp., and

MBB

Marlin

Business

Services

Corp.,

are

also

subject

the

regulatory

requirements

and

restricti

ons

described

the

“Supervision and Regulation” portion of Item 1 of Part I of this Form 10

-K.

The

payment

of future

dividends

will be

subject

approval

the

Company’s

Board

of Directors

and

will.

also

depend

upon

our

earnings, financial

condition, capital

requirements, cash

flow,

long-range plans

and such

other factors

as our

Board of

Directors may

deem relevant.

Contractual Obligations

In addition to our scheduled maturities on our deposits, 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, operating leases, agreements and commitments under non-cancelable

contracts as of December 31, 2020 were as

follows:

Contractual Obligations as of December 31, 2020

Certificates

Contractual

Interest

Operating

Period Ending December 31,

Deposits

(1)

Borrowings

Payments

(2)

Leases

Total

(Dollars in thousands)

2021

320,093

22,218

9,895

896

353,102

2022

175,691

8,582

4,520

706

189,499

2023

98,712

—

2,037

661

101,410

2024

53,178

—

520

626

54,324

2025

29,087

—

656

29,818

Thereafter

—

5,155

Total

676,761

30,800

17,047

8,700

733,308

________________________

-59-

(1)

Money market deposit accounts are not included. As of December

31, 2020,

money market deposit accounts totaled

$52.8

million.

(2)

Includes interest on certificates of deposits and borrowings.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements requiring

disclosure at December 31, 2020.

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 assets we originate are almost entirely fixed-rate. Accordingly,

we generally seek to finance these assets with fixed interest

certificates of deposit issued by MBB, and to a lesser extent through the variable

-rate MMDA Product at MBB.

Our earnings are sensitive to fluctuations in interest rates. Since the Company

has no outstanding variable-rate borrowings as of

December 31, 2020,

and since the Company also manages its interest rate risk by funding its fixed rate leases with fixed

rate funding

sources whenever possible, the Company’s

exposure to interest rate risk is controlled.

However, there can be no assurance that we

will be able to offset higher deposits costs with increased pricing

of our assets.

As such, the major sources of the Company’s

interest

rate risk are timing differences in the maturity and repricing

characteristics of assets and liabilities, changes in the shape of the yield

curve, changes in customer behavior and changes in relationship between

rate indices (basis risk).

We manage

and monitor our exposure to interest rate risk using balance sheet simulation models. Such

models incorporate many of

our assumptions about our business including new asset production

and pricing, interest rate forecasts, overhead expense forecasts and

assumed credit losses. Many of the assumptions we use in our simulation

models are based on past experience and actual results could

vary

substantially.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations

are based upon our consolidated financial statements,

which have been prepared in accordance with U.S. GAAP.

Preparation of these financial statements requires us to make estimates and

judgments that affect reported amounts of assets, liabilities,

revenues and expenses and affect related disclosure

of contingent assets

and liabilities at the date of our financial statements. On an ongoing basis, we evaluate

our estimates, including credit losses, residuals,

initial direct costs and fees, other fees, the fair value of financial instruments,

insurance reserves and the realization of deferred tax

assets. We base our

estimates on historical experience and on various other assumptions that are

believed to be reasonable under the

circumstances, the results of which form the basis for making judgments

about the carrying values of assets and liabilities that are not

readily apparent from other sources. Critical accounting policies are defined

as those that are reflective of significant judgments and

uncertainties. Our consolidated financial statements are based on the selection

and application of critical accounting policies, the most

significant of which are described below.

-60-

Allowance for credit losses

For 2019 and prior, we maintained an

allowance for credit losses at an amount sufficient to absorb losses inherent

in our existing lease

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

incurred net credit losses in accordance with the

Contingencies Topic

of the FASB ASC.

See further discussion of our policy under the incurred model in the

“Critical Accounting

Policy” section of our 2019 Form 10-K.

Effective January 1, 2020, we adopted ASU 2016

-13, Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

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

accounting policy and estimated allowance.

CECL replaces the

probable, incurred loss model with a measurement of expected credit

losses for the contractual term of the Company’s

current

portfolio of loans and leases.

After the adoption of CECL, an allowance, or estimate of credit losses, will be

recognized immediately

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

reporting period

We maintain an

allowance for credit losses at an amount that takes into consideration all future cashflows

that we expect to receive or

derive from the pools of contracts, including recoveries after charge

-off, amounts related to initial direct cost and origination costs net

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

A provision is charged against earnings

to maintain the allowance

for credit losses at the appropriate level.

We developed

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

in our current portfolio, over

the entire life of the contracts.

We made certain

key decisions that underlie our methodology,

including our decisions of how to

aggregate our portfolio into pools for analysis based on similar risk

characteristics, the selection of appropriate historical loss data to

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

a reasonable and supportable forecast, and the length of our

forecast and approach to reverting to historical loss data.

For our Equipment Finance segment, we determine our reasonable and

supportable forecast based on certain economic variables that

were selected based on a statistical analysis of our own historical loss experience,

going back to 2004. We

selected unemployment rate

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

based on an analysis of the correlation of changes in

those variables to our loss experience over time.

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

date, management considers relevant qualitative and

quantitative factors to assess whether the historical loss experience

being referenced should be adjusted to better reflect the risk

characteristics of the current portfolio and the expected future loss experience

for the life of these contracts.

This assessment

incorporates all available information relevant to considering

the collectability of our current portfolio, including considering

economic and business conditions, default trends, changes in portfolio

composition, changes in lending policies and practices, among

other internal and external factors.

Further, each measurement period we determine

whether to separate any loans from their current

pool for individual analysis based on their unique risk characteristics. Our

approach to estimating qualitative adjustments takes into

consideration all significant current information we believe appropriate

to reflect the changes and risks in the portfolio or environment

and involves significant judgment.

Our estimates of expected net credit losses are inherently uncertain, and

as a result we cannot predict with certainty the amount of

such losses. We may

recognize credit losses in excess of our reserve, or a significant increase to our

credit loss estimate, in the future,

driven by the update of assumptions and information underlying

our estimate and/or driven by the actual amount of realized losses.

Our estimate of credit losses will be revised each period to reflect current information,

including current forecasts of economic

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

and emerging trends in our portfolio, among other

factors, and these updates for current information could drive a significant

adjustment to our reserve.

Further, actual credit losses may

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

if the actual performance of our portfolio differs significantly

from

the current assumptions and judgements, including those underlying our

forecast and qualitative adjustments, as of any given

measurement date.

Income taxes.

We are subject

to the income tax laws of the various jurisdictions in which we operate, including

U.S. federal, state and local

jurisdictions. These tax laws are complex and are subject to different

interpretations by the taxpayer, the relevant government

taxing

authorities, and courts.

When determining our current income tax expense, we must make judgments

about the application of these

inherently complex tax laws.

-61-

Deferred income taxes are determined using the balance sheet method.

Recognition of deferred taxes is based on the estimated future

tax effects of differences between the

financial statement and tax basis of assets and liabilities, given the provisions of the enacted

tax

laws; however, deferred tax assets are reduced

by valuation allowances if it is more likely than not that some portion of the deferred

tax asset will not be realized.

We evaluate our

deferred tax assets quarterly to determine if adjustments to our valuation allowance

are

required based on the consideration of all available evidence, using a "more likely

than not" standard with respect to whether deferred

tax assets will be realized.

The ultimate realization of deferred tax assets is dependent upon

the generation of future taxable income during the periods in which

those temporary differences become deductible.

In making this assessment, management considers the scheduled reversal of deferred

tax liabilities and projected future taxable income, the level of historical

taxable income, projections for future taxable income over the

periods which the deferred tax assets are deductible and available tax

planning strategies.

Should a change in circumstances,

including differences between our future operating

results and estimates, lead to a change in our judgments about the realization of

deferred

tax assets in future years, we would adjust the valuation allowances in the period

that the change in circumstances occurs,

along with a charge or credit to income tax expense.

We record

penalties and accrued interest related to taxes in income tax expense.

Uncertain tax positions (including interest and

penalties) are recognized when we believe it is more likely than not that the

tax position will be upheld on examination by the taxing

authorities based on merits of the position.

As of December 31, 2020 and 2019,

there are no unrecognized tax positions.

Lease residual values.

A sales-type lease is recorded at the aggregate future minimum lease payments

plus the estimated residual value less unearned income.

Residual values are established at lease inception based on our estimate of

the expected fair value of the equipment at the end of the

lease term. Residual values may be realized at lease termination from lease extensions,

sales or other dispositions of leased equipment.

These estimates are based on industry data, management’s

experience, and historical performance.

For all fair market value and fixed purchase option leases, we record an

estimated residual value at lease inception based on a

percentage of the equipment cost of the asset being leased.

The percentages used depend on equipment type and term. For fixed

purchase option leases, we record an estimated residual value on based on

the contractual fixed purchase price.

In setting and

reviewing estimated residual values, our analysis focuses primarily

on total historical and expected realization statistics pertaining to

sales of equipment.

At the end of an original lease term, lessees may choose to purchase the equipment,

renew the lease or return the equipment to us. We

receive income from lease renewals when the lessee elects to retain the

equipment longer than the original term of the lease.

When a

lessee elects to return equipment at lease termination, the equipment is transferred

to other assets at the lower of its basis or fair market

value. We generally

sell returned equipment to independent third parties, rather than leasing the equipment a

second time. We

generally charge off the value of equipment

within other assets once it has been aged greater than 120 days.

Starting with the January 1, 2020 adoption of CECL, the measurement

of any expected future cashflows from residuals, including both

estimated income after the end of term or any potential gain or loss on

the sale of the asset, are included as a component of the

expected cashflows of the pool of contracts when measuring the allowance

for credit losses.

These amounts would be recognized in

the Provision for credit losses in the statement of operations.

Historical realization statistics are used to develop the estimated

cashflows from residuals,

including lease renewals and equipment sales.

Any such positive expected cashflows, would offset the

allowance for the related leases,

but limited to reducing such estimated credit losses for the pool to zero.

Any estimated cashflows that

may represent a loss in value would increase the estimate of credit loss.

Recently Adopted Accounting Standards

Information on recently issued accounting pronouncements

and the expected impact on our financial statements is provided in Note 2,

Summary of Significant Accounting Policies in the accompanying

Notes to Consolidated Financial Statements.

-62-

Item 7A.

Quantitative and Qualitative Disclosures About Market

Risk

The information appearing in the section captioned “Management’s

Discussion and Analysis of Operations and Financial

Condition — Market Interest-Rate Risk and Sensitivity” under Item 7

of this Form 10-K is incorporated herein by reference.

Item 8.

Financial Statements and Supplementary Data

Management’s Annual Report on Internal

Control over Financial Reporting

Management of the Company is responsible for establishing and

maintaining adequate internal control over financial reporting as

defined in Rule 13a-15(f) under the 1934 Act. The Company’s

internal control over financial reporting is designed to provide

reasonable assurance to the Company’s

management and Board of Directors regarding the preparation and fair presentation

published financial statements. Because of its inherent limitations, internal

control over financial reporting may not prevent or detect

misstatements.

Management has assessed the effectiveness of the

Company’s internal control over financial

reporting as of December 31, 2020.

making its assessment of internal control over financial reporting,

management used the criteria set forth by the Committee of

Sponsoring Organizations (“COSO”) of the Treadway

Commission in

Internal

Control — Integrated Framework (2013).

Management has concluded that, as of December 31, 2020,

the Company’s internal control over

financial reporting was effective

based on the criteria set forth by the COSO of the Treadway

Commission in

Internal Control — Integrated

Framework (2013).

The effectiveness of our internal control over financial

reporting as of December 31, 2020 has been audited by Deloitte & Touche

LLP,

an independent registered public accounting firm, as stated in their report,

which is included herein.

-63-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Marlin Business Services Corp.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Marlin Business Services Corp. and subsidiaries (the

"Company") as of December 31, 2020, based on criteria established in

Internal Control — Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company

maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on

criteria established in

Internal Control – Integrated Framework (2013)

issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)

(PCAOB), the consolidated

financial statements as of and for the year ended December 31, 2020, of the Company and our

report dated March 5, 2021, expressed an unqualified opinion on those financial statements and included

an explanatory

paragraph regarding the Company’s adoption of accounting standards update (ASU) 2016-13:

Financial Instruments - Credit

Losses: Measurement of Credit Losses on Financial Instruments (CECL)

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its

assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s

Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s

internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and

are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the

applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in

all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing

the

risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based

on the assessed risk, and performing such other procedures as we considered necessary in

the circumstances. We believe

that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the

reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally

accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures

that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to

permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and

expenditures of the company are being made only in accordance with authorizations of management and directors of the

company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or

disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate

because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 5, 2021

-64-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Index to Consolidated Financial Statements

Page

No.

Report of Independent Registered Public Accounting Firm

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

.................................. 65

Consolidated Balance Sheets

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

................. 67

Consolidated Statements of Operations

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

Consolidated Statements of Comprehensive Income

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

............................................ 69

Consolidated Statements of Stockholders’ Equity

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

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

Consolidated Statements of Cash Flows

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

Notes to Consolidated Financial Statements

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

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

-65-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Marlin Business Services Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Marlin Business Services Corp. and subsidiaries (the

"Company") as of December 31, 2020 and 2019 the related consolidated statements of operations, comprehensive income,

stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related

notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all

material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its

operations

and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting

principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)

(PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on the criteria established

Internal Control – Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway

Commission and our report dated March 5, 2021, expressed an unqualified opinion on the Company’s internal control over

financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for

the

allowance for credit losses in 2020 due to the adoption of ASU 2016-13,

Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (

“CECL”

)

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion

on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and

are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the

applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether

due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the

financial

statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included

examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits

also

included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the

overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements

that was communicated or required to be communicated to the audit and risk committee and that (1) relates to

accounts or

disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex

judgments. The communication of a

critical audit matter does not alter in any way our opinion on the financial statements,

taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the

critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses —Equipment Finance Portfolio Segment — Refer to Notes 2 and 7 to the consolidated

financial

statements.

Critical Audit Matter Description

-66-

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.

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

better reflect the risk characteristics of the current portfolio and the expected future loss experience

for the life of these

contracts.

This assessment incorporates all available information relevant to considering the collectability of its current

portfolio, including considering economic and business conditions, default trends, changes in its portfolio composition,

changes in its lending policies and practices, among other internal and external factors.

The Company’s measurement of the allowance for credit losses specific to its Equipment Finance portfolio segment is based

on its own historical loss experience

he Company then selects certain economic variables to reference for its forecast

about the future, specifically the unemployment rate and the rate of business bankruptcies. The Company utilized probability

weighted alternate economic forecast scenarios to determine a qualitative adjustment to address the continued risks

from

the uncertainty in the pandemic-related economic environment and uncertainty of the portfolio’s performance in those

conditions.

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.

Management applied judgment in developing assumptions to adjust their historical losses for the Equipment Finance portfolio

to account for changes in the economic environment, including the selection of certain economic variables to reference,

the

forecast period of such variables and the probability weighting of alternate economic forecast scenarios.

Auditing the

assumptions utilized to adjust historical losses to account for changes in the economic environment involved a high degree

auditor judgment and required specialized knowledge and significant effort, including the need to involve credit specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the adjustments made to adjust the Company’s historical losses for the Equipment Finance

portfolio segment within the Company’s estimate of its allowance for credit losses, included the following, among others:

●

We tested the effectiveness of management's internal controls over the allowance for credit losses, including controls

covering the key assumptions and judgments used within the calculation.

●

We evaluated the appropriateness of the methodology and the reasonableness of probability weighted alternate

economic factors and assumptions used in the allowance for credit loss calculation.

●

We evaluated the appropriateness and consistency of the methods and assumptions used by management to

develop the qualitative adjustment, including comparing actual losses

incurred to management’s historical estimates,

evaluating external economic and industry trends, and benchmarking against peers.

●

We tested the arithmetic accuracy of the allowance for credit loss calculation.

●

We involved credit specialists to assist us in evaluating the Company’s development of the Equipment Finance

portfolio segment CECL model.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 5, 2021

We have served as the Company’s auditor since 2005.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

CONSOLIDATED

BALANCE SHEETS

The accompanying notes are an integral part of the consolidated financial

statements.

-67-

December 31,

2020

2019

(Dollars in thousands, except per-share

data)

ASSETS

Cash and due from banks

5,473

4,701

Interest-earning deposits with banks

130,218

118,395

Total cash and cash

equivalents

135,691

123,096

Time deposits with banks

5,967

12,927

Restricted interest-earning deposits related to consolidated

VIEs

4,719

6,931

Investment securities (amortized cost of $

11.5

million and $

11.1

million at

December 31, 2020 and

December 31, 2019, respectively)

11,624

11,076

Net investment in leases and loans:

Leases

337,159

426,608

Loans

532,125

601,607

Net investment in leases and loans, excluding allowance for credit

losses

(includes $

30.4

million and $

76.1

million at December 31, 2020 and December 31, 2019,

respectively, related

to consolidated VIEs)

869,284

1,028,215

Allowance for credit losses

(44,228)

(21,695)

Total net investment

in leases and loans

825,056

1,006,520

Intangible assets

5,678

7,461

Goodwill

6,735

Operating lease right-of-use assets

7,623

8,863

Property and equipment, net

8,574

7,888

Property tax receivables

6,854

5,493

Other assets

10,212

10,453

Total assets

1,021,998

1,207,443

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

729,614

839,132

Long-term borrowings related to consolidated VIEs

30,665

76,091

Operating lease liabilities

8,700

9,730

Other liabilities:

Sales and property taxes payable

6,316

2,678

Accounts payable and accrued expenses

27,734

34,028

Net deferred income tax liability

22,604

30,828

Total liabilities

825,633

992,487

Commitments and contingencies (Note 12)

Stockholders’ equity:

Preferred Stock, $

0.01

par value;

5,000,000

shares authorized; none issued

Common Stock, $

0.01

par value;

75,000,000

shares authorized;

11,974,530

and

12,113,585

shares issued and outstanding at December 31, 2020 and

December 31, 2019, respectively

120

121

Additional paid-in capital

76,323

79,665

Accumulated other comprehensive income (loss)

Retained earnings

119,853

135,112

Total stockholders’

equity

196,365

214,956

Total liabilities and stockholders’

equity

1,021,998

1,207,443

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS

OF OPERATIONS

The accompanying notes are an integral part of the consolidated financial

statements.

-68-

Year Ended December 31,

2020

2019

2018

(Dollars in thousands, except per-share data)

Interest income

92,799

107,420

97,025

Fee income

10,560

15,205

15,843

Interest and fee income

103,359

122,625

112,868

Interest expense

19,868

25,033

17,414

Net interest and fee income

83,491

97,592

95,454

Provision for credit losses

38,509

28,036

19,522

Net interest and fee income after provision for credit losses

44,982

69,556

75,932

Non-interest income:

Gain on leases and loans sold

2,426

22,210

8,363

Insurance premiums written and earned

8,677

8,796

8,087

Other income

13,237

13,025

4,984

Non-interest income

24,340

44,031

21,434

Non-interest expense:

Salaries and benefits

33,783

44,168

39,750

General and administrative

30,914

32,566

24,915

Goodwill impairment

6,735

Intangible asset impairment

1,016

Non-interest expense

72,448

76,734

64,665

(Loss) income before income taxes

(3,126)

36,853

32,701

Income tax (benefit) expense

(3,468)

9,737

7,721

Net income

342

27,116

24,980

Basic earnings per share

0.03

2.21

2.01

Diluted earnings per share

0.03

2.20

2.00

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

The accompanying notes are an integral part of the consolidated financial

statements.

-69-

Year Ended December 31,

2020

2019

2018

(Dollars in thousands)

Net income

342

27,116

24,980

Other comprehensive income:

Reclassification due to adoption of ASU 2016-01, ASU 2018-02

and ASU 2018-03

107

Net change in unrealized gain (loss) on securities available for sale

138

(7)

Tax effect

(4)

(36)

(48)

Total other comprehensive

income

102

Comprehensive income

353

27,218

25,032

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS

OF STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part of the consolidated financial

statements.

-70-

Accumulated

Common

Additional

Other

Total

Common

Stock

Paid-In

Comprehensive

Retained

Stockholders’

Amount

Capital

Income (Loss)

Earnings

Equity

(Dollars in thousands)

Balance, December 31, 2017

12,449,458

124

82,586

(96)

97,035

179,649

Issuance of common stock

18,076

401

Repurchase of common stock

(111,910)

(2,908)

Exercise of stock options

909

Stock issued in connection with

restricted stock and RSU's, net of forfeitures

11,191

—

Stock-based compensation recognized

—

3,394

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

(5)

Net income

—

24,980

Impact of adoption of new accounting

standards

(1)

—

(57)

Cash dividends paid ($

0.56

per share)

—

(7,023)

Balance, December 31, 2018

12,367,724

124

83,496

(44)

114,935

198,511

Issuance of common stock

18,458

410

Repurchase of common stock

(317,427)

(3)

(7,320)

(7,323)

Stock issued in connection with

restricted stock and RSU's, net of forfeitures

44,830

—

Stock based compensation recognized

—

3,079

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

102

Net income

—

27,116

Cash dividends paid ($

0.56

per share)

—

(6,939)

Balance, December 31, 2019

12,113,585

121

79,665

135,112

214,956

Issuance of common stock

14,891

120

Repurchase of common stock

(306,291)

(3)

(4,700)

(4,703)

Stock issued in connection with

restricted stock and RSU's, net of forfeitures

152,345

(2)

Stock based compensation recognized

—

1,240

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

Net income

—

342

Impact of adoption of new accounting

standards

(2)

—

(8,877)

Cash dividends paid ($

0.56

per share)

—

(6,724)

Balance, December 31, 2020

11,974,530

120

76,323

119,853

196,365

(1)

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

2016-01, ASU 2018-02 and ASU 2018-03

(2)

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

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

See Note 2 to the consolidated financial statements

for more information

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS

OF CASH FLOWS

The accompanying notes are an integral part of the consolidated financial

statements.

-71-

Year Ended December 31,

2020

2019

2018

(Dollars in thousands)

Cash flows from operating activities:

Net income

342

27,116

24,980

Adjustments to reconcile net income to net cash provided

by operating

activities:

Depreciation and amortization

3,928

4,065

3,146

Stock-based compensation

1,240

3,079

3,394

Impairment of goodwill and intangible assets

7,751

Change in fair value of equity securities

(78)

(104)

Provision for credit losses

38,509

28,036

19,522

Change in net deferred income tax liability

(5,197)

8,233

5,821

Amortization of deferred initial direct costs and fees

12,109

14,846

13,361

Loss on equipment disposed

117

1,819

1,219

Gain on leases sold

(2,426)

(22,210)

(8,363)

Leases originated for sale

(4,383)

(62,371)

(17,436)

Proceeds from the sale of leases originated for sale

4,624

64,751

18,069

Noncash lease expense

1,423

1,201

Adjustment to value of contingent consideration

(1,435)

250

Effect of changes in other operating items:

Other assets

(1,746)

(1,574)

16,942

Other liabilities

5,213

(4,717)

3,651

Net cash provided by operating activities

59,991

62,420

84,381

Cash flows from investing activities:

Net change in time deposits with banks

6,960

(3,268)

(1,549)

Purchases of equipment for lease contracts and funds

used to originate loans

(385,487)

(816,834)

(722,745)

Principal collections on leases and loans

471,307

517,338

476,533

Proceeds from sale of leases originated for investment

25,663

267,874

129,290

Security deposits collected, net of refunds

(204)

(246)

(210)

Proceeds from the sale of equipment

2,365

2,654

3,120

Acquisitions of property and equipment

(2,973)

(5,657)

(1,836)

Acquisition of businesses

(10,000)

Purchases of investment securities

(1,090)

(512)

(287)

Principal payments received on investment securities

613

610

752

Net cash provided by (used in) investing activities

117,154

(38,041)

(126,932)

Cash flows from financing activities:

Net change in deposits

(109,518)

83,356

(53,539)

Term securitization

advances

201,650

Term securitization

repayments

(45,769)

(74,670)

(50,417)

Business combinations earn-out consideration payments

(194)

(461)

Issuances of common stock

120

410

401

Repurchases of common stock

(4,703)

(7,323)

(2,908)

Dividends paid

(6,698)

(6,865)

(6,936)

Exercise of stock options

Debt issuance costs

(1,668)

Net cash (used in) provided by financing activities

(166,762)

(5,553)

86,606

Net increase in total cash and cash equivalents

10,383

18,826

44,055

Total cash, cash equivalents

and restricted cash beginning of period

130,027

111,201

67,146

Total cash, cash equivalents

and restricted cash end of period

140,410

130,027

111,201

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS

OF CASH FLOWS

The accompanying notes are an integral part of the consolidated financial

statements.

-72-

Year Ended December 31,

2020

2019

2018

(Dollars in thousands)

Supplemental disclosures of cash flow information:

Cash paid for interest on deposits and borrowings

19,457

23,535

16,130

Net cash paid (refunds received) for income taxes

(5,312)

2,574

(12,634)

Leases transferred into held for sale from investment

23,460

248,044

121,559

Supplemental disclosures of non-cash investing activities:

Business combinations assets acquired

3,376

Purchase of equipment for lease contracts and loans originated

2,063

6,916

8,588

Reconciliation of cash, cash equivalents and restricted cash to

the consolidated

balance sheets

Cash and cash equivalents

135,691

123,096

97,156

Restricted Cash

4,719

6,931

14,045

Cash, cash equivalents and restricted cash at end of period

140,410

130,027

111,201

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-73-

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) and working capital loans. The Company was incorporated

in the Commonwealth of

Pennsylvania

August 5, 2003

. In

May 2000

, we established AssuranceOne, Ltd., a

Bermuda-based

, wholly-owned captive

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

the property insurance coverage for the equipment financed by

Marlin Leasing Corporation (“MLC”) and Marlin Business Bank (“MBB”)

for our small business customers. Effective

March 12,

2008

, the Company opened MBB, a commercial bank chartered by the State of

Utah

and a member of the Federal Reserve System.

MBB serves as the Company’s primary

funding source through its issuance of Federal Deposit Insurance Corporation

(“FDIC”)-

insured deposits.

January 2017

, we completed the acquisition of Horizon Keystone Financial (“HKF”), an equipment

leasing

company which identifies and sources lease and loan contracts for investor

partners for a fee. On

September 19, 2018

, the Company

completed the acquisition of Fleet Financing Resources (“FFR”), a leading

provider of equipment finance credit products specializing

in the leasing and financing of both new and used commercial vehicles, with an emphasis on

livery equipment and other types of

commercial vehicles used by small businesses.

References

the

“Company,”

“Marlin,”

“Registrant,”

“we,” “us”

and

“our” herein

refer

Marlin

Business

Services

Corp.

and

its

wholly-owned subsidiaries, unless the context otherwise requires.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-74-

NOTE 2 - Summary of Significant Accounting Policies

Basis of Financial Statement Presentation

The consolidated financial statements include the accounts of the

Company and its wholly-owned subsidiaries. The Company has

reportable segment, which includes the Company’s

commercial lending and leasing products and related services, including

equipment loans and leases, property insurance on leased equipment,

and working capital loans. All intercompany accounts and

transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in accordance with generally

accepted accounting principles in the United States (“U.S.

GAAP”) requires 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.

Cash and Cash Equivalents

Cash and cash equivalents include cash and interest-bearing money

market funds. For purposes of the consolidated statement of cash

flows, the Company considers all highly liquid investments purchased

with a maturity of three months or less to be cash equivalents.

Time Deposits with Banks

Time deposits with banks are composed

of FDIC-insured certificates of deposits that generally have original

maturity dates of greater

than 90 days. These deposits are held on the balance sheet at amortized cost.

Generally, the certificates of deposits issued

directly have

the ability to redeem early; however early redemption penalties may be

incurred. The certificates of deposit issued through deposit

brokers generally do not have the ability to redeem early.

Restricted Interest-Earning Deposits with Banks

Restricted interest-earning deposits with banks consist primarily

of various interest-earning trust accounts primarily related to the

Company’s secured debt

facilities including amounts due from securitizations representing reimbursements

of servicing fees and

excess spread income.

Investments

Available for Sale.

Debt securities, available for sale include

asset-backed securities (“ABS”) and municipal bonds that are measured

at fair value on a recurring basis.

Debt securities, available for sale, are recorded at fair value, and unrealized

gains and losses, net of

tax, are reported, net of taxes, in accumulated other comprehensive income

(loss) included in stockholders’ equity unless management

determines that an investment is other-than-temporarily impaired (OTTI).

Fair value measurement is based upon quoted prices in

active markets, if available. If quoted prices in active markets are not available,

fair values are based on prices obtained from third-

party pricing vendors. See Note 15 for more information on fair value measurement

of securities.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-75-

Securities are evaluated on a quarterly basis, and more frequently when

market conditions warrant such an evaluation, to determine

whether declines in their value are other-than-temporary (OTTI). To

determine whether a loss in value is other-than-temporary,

management utilizes criteria such as the reasons underlying the decline,

the magnitude and duration of the decline and whether

management intends to sell or expects that it is more likely than not that it will be

required to sell the security prior to an anticipated

recovery of the fair value. The term “other-than-temporary” is not intended

to indicate that the decline is permanent, but indicates that

the prospects for a near-term recovery of value

is not necessarily favorable, or that there is a lack of evidence to support a realizable

value equal to or greater than the carrying value of the investment. Once a decline

in value for a debt security is determined to be

other-than-temporary,

the other-than-temporary impairment is separated into (a) the amount of the total

other-than-temporary

impairment related to a decrease in cash flows expected to be collected from the

debt security (the credit loss) and (b) the amount of

the total other-than-temporary impairment related to all other factors.

Starting with the January 1, 2020 adoption of CECL, any

amount of the total other-than-temporary impairment relating to

credit loss will be recognized as an allowance for credit losses and

will be recognized in earnings. The amount of the total other-than-temporary

impairment related to all other factors is recognized in

other comprehensive income.

Equity Securities.

Equity securities represent mutual funds that are recorded at fair value.

Net Investment in Leases and Loans

The Company uses the direct finance method of accounting to record

its sales-type leases and related interest income. At the inception

of a lease, the Company records as an asset, the aggregate future minimum lease

payments receivable, plus the estimated residual

value of the leased equipment, less unearned lease income. Residual values

are established at lease inception based on our estimate of

the expected fair value of the equipment at the end of the lease term. Residual values may be

realized at lease termination from lease

extensions, sales or other dispositions of leased equipment. Estimates are

based on industry data, management’s

experience, and

historical performance.

The Company records an estimated residual value at lease inception

for all fair market value and fixed purchase option leases based on

a percentage of the equipment cost of the asset being leased.

The percentages used depend on equipment type and term.

In setting

estimated residual values, the Company focuses its analysis primarily

on the Company’s total historical and

expected realization

statistics pertaining to sales of equipment.

At the end of an original lease term, lessees may choose to purchase the equipment,

renew the lease or return the equipment to us. We

receive income from lease renewals when the lessee elects to retain the

equipment longer than the original term of the lease.

When a

lessee elects to return equipment at lease termination, the equipment is transferred

to other assets at the lower of its basis or fair market

value. We generally

sell returned equipment to independent third parties, rather than leasing the equipment a

second time. We

generally charge off the value of equipment

within other assets once it has been aged greater than 120 days.

For 2019 and prior, the Company periodically

assessed the residual assets for impairment, and recognized subsequent

collections of

residual income after end of term, or any gain/loss on disposition of

the asset, in fee income as net residual income.

Starting with the January 1, 2020 adoption of CECL, the measurement

of any expected future cashflows from residuals, including both

estimated income after the end of term or any potential gain or loss on

the sale of the asset, are included as a component of the

expected cashflows of the pool of contracts when measuring the allowance

for credit losses.

These amounts would be recognized in

the Provision for credit losses in the statement of operations.

Historical realization statistics are used to develop the estimated

cashflows from residuals, including lease renewals and equipment

��

sales.

Any such positive expected cashflows, would offset the

allowance for the related leases, but limited to reducing such estimated credit losses for

the pool to zero.

Any estimated cashflows that

may represent a loss in value (or asset value measured below book value)

would increase the estimate of credit loss through the

allowance.

Loans are stated at principal balance, net of deferred fees and costs. Loan origination

fees, commitment fees and direct loan

origination costs are deferred and recognized over the life of the related loans using

an effective yield method over the period to

maturity.

Initial direct costs and fees related to lease originations are deferred as part of

the investment and amortized over the lease term.

Unearned lease income is the amount by which the total lease receivable

plus the estimated residual value exceeds the cost of the

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-76-

equipment. Unearned lease income, net of initial direct costs and fees, is recognized

as revenue over the lease term using the effective

interest method.

Allowance for Credit Losses

The Company adopted CECL, or

ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses on

Financial Instrument

and related amendments,

on January 1, 2020, which

resulted in significant changes to the company’s

allowance

measurement.

See further discussion under “—

Recently Adopted Accounting Standards”

The following allowance discussion

outlines the accounting policy under CECL as of and for the year ended

December 31, 2020 separately from the incurred loss

measurement that was effective for 2019 and years prior.

CECL Measurement – 2020.

As of January 1, 2020, the Company maintains

an allowance, or estimate of credit losses for the life of

each contract,

recognized immediately upon the origination of a loan or lease, and the estimate

will be adjusted in each subsequent

reporting period.

This estimate of credit losses takes into consideration all cashflows the Company expects

to receive or derive from

the pools of contracts, including recoveries after charge

-off, amounts related to initial direct cost and origination costs net of fees

deferred, accrued interest receivable and certain future cashflows from

residual assets.

The provision for credit losses recognized in the Consolidated Statements

of Operations under CECL is 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.

The Company has established a systematic methodology to measure

the estimated credit losses inherent in its current portfolio, over

the entire life of the contracts, and this methodology will be consistently applied

The Company assesses the appropriate collective, or

pool, basis to use to aggregate its portfolio based on the existence of similar risk

characteristics and determined that its measurement

begins by separately considering segments of financing receivables,

which is similar to how it has historically analyzed its allowance

for credit losses: (i) equipment finance leases and loans; (ii) working

capital loans; (iii) commercial vehicles “CVG”; and (iv)

Community Reinvestment Act loans.

However, these classes of receivables are further

disaggregated into pools of loans based on risk

characteristics that may include: lease or loan type, origination channel,

and internal credit score (which is a measurement that

combines many risk characteristics, including loan size, external

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

the borrower’s business).

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

on an individual basis, or create additional pools of

contracts, in situations where such loans exhibit unique risk characteristics

and are no longer expected to

experience similar losses to

the rest of their pool.

As part of its estimate of expected credit losses, specific to each measurement

date, management considers relevant qualitative and

quantitative factors to assess whether the historical loss experience

being referenced should be adjusted to better reflect the risk

characteristics of the current portfolio and the expected future loss experience

for the life of these contracts.

This assessment

incorporates all available information relevant to considering the collectability

of its current portfolio, including considering economic

and business conditions, default trends, changes in its portfolio composition,

changes in its lending policies and practices, among other

internal and external factors.

Incurred Loss Method – 2019 and prior.

For the year ended December 31, 2019 and prior,

the Company maintained an allowance

for credit losses under the incurred loss method, 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.

Each segment generally considers both quantitative and qualitative factors

in determining the allowance for credit losses:

●

For the Equipment lease and loan segment,

quantitative factors include a migration analysis stratified by industry

classification,

historic delinquencies and charge-offs,

and a static pool analysis of historic recoveries. A migration analysis is a technique

used to

estimate the likelihood that an account will progress through the various delinquency

stages and ultimately charge off.

A loss

emergence period (LEP), which is the period of

time between an event that triggers the probability of a loss and the confirmation

of loss, is applied to the migration results to develop an estimate of losses inherent

in the portfolio at the reporting period.

●

For the CVG and Working

Capital loan segments,

quantitative factors include establishing a loss curve based on historical

analysis of net charge-offs.

The loss curve technique is used to estimate the likelihood and timing of when

an account will

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-77-

charge-off relative to the month in which

it was funded.

An LEP is applied to the loss curve results to develop an estimate of

losses inherent in the portfolio at the reporting period.

The CVG and Working

Capital Loans segments utilize different

assumptions for the historical charge-offs

and loss emergence which is based on analysis specific to each segment.

●

For the CRA loan segment,

quantitative factor includes the analysis of historical losses that are used in conjunction

with an LEP

to develop a quantitative allowance for credit losses.

As part of our quantitative analyses for each segment our measurement

may also consider specifically identified pools of equipment

leases or loans separately from the quantitative analysis, whenever

certain identified pools are not expected to perform consistently

with their credit characteristics or the portfolio segment as a whole. These lease and

loan pools may be analyzed for impairment

separately quantitative analysis and a specific reserve established.

Qualitative factors that may result in further adjustments to the quantitative

analyses include items such as changes in the composition

of our lease and loan portfolio segments (including geography,

industry, equipment type

and vendor source), seasonality,

economic or

business conditions and other external factors, business practices or

policies at the reporting date that are different from the periods

used in the quantitative analyses and changes in experience and ability

of leasing and lending management and other relevant staff.

The various factors used in the analysis are reviewed periodically,

and no less frequently than quarterly.

The allowance for credit

losses is then established based on this analysis for the projected probable

net credit losses inherent in the portfolio.

Goodwill and Intangible Assets

The Company tests for impairment of goodwill at least annually and more

frequently as circumstances warrant in accordance with

applicable accounting guidance. Accounting guidance

allows for the testing of goodwill for impairment using both qualitative and

quantitative factors. In the year ended December 31, 2020, the Company

completed such an analysis and recognized a full impairment

of its goodwill, as further discussed in Note 8,

Goodwill and Intangible Assets.

Currently, the

Company does not have any intangible assets with indefinite useful lives.

Intangible assets that are not deemed to have an indefinite useful life are

amortized over their estimated useful lives. The carrying

amounts of intangible assets are regularly reviewed for indicators of impairment

in accordance with applicable accounting guidance.

Impairment is recognized only if the carrying amount of the intangible

asset is in excess of its undiscounted projected cash flows.

Impairment is measured as the difference between the

carrying amount and the estimated fair value of the asset.

Leases

The Company determines if an arrangement is a lease at inception. Operating

leases are included in operating lease right-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.

Property and Equipment

Property and equipment are recorded at cost. Equipment capitalized under

capital leases is recorded at the present value of the

minimum lease payments due over the lease term. Depreciation and amortization

are provided using the straight-line method over the

estimated useful lives of the related assets or lease term, whichever is shorter.

Depreciable lives generally range from three to seven

years based on equipment type.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-78-

Other Assets

Included in other assets on the Consolidated Balance Sheets are prepaid expenses,

accrued fee income,

progress payments on

equipment purchased to lease, income taxes receivable and Federal Reserve Bank

stock.

Revenue Recognition

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.

Revenue—Interest Income.

Interest income is recognized under the effective

interest method. The effective interest method of

income recognition applies a constant rate of interest equal to the internal rate

of return on each lease at inception.

Based on the historical payment behavior of the Company’s

equipment finance lease and loan portfolio as a whole, payments are

considered reasonably assured when a lease or loan’s

delinquency status is less than 90 days. Therefore, when a lease or loan is 90

days or more delinquent, the contract is classified as non-accrual and

interest income recognition is discontinued. Interest income

recognition resumes when the borrower makes payments sufficient

to bring the status to less than 90 days delinquent. Working

Capital

Loans are generally placed in non-accrual status when they are 30 days past

due and charged-off at 60 days past due. The loan

removed from non-accrual status once sufficient payments

are made to bring the loan current and reviewed by management.

Revenue—Fee Income.

Fee income consists of fees for delinquent lease and loan payments, cash collected

on early termination of

leases and net residual income. 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 a lease’s

term. Residual income is recognized as earned.

Fee income from delinquent lease payments is recognized on an accrual

basis based on anticipated collection rates. At a minimum of

every quarter, an analysis of anticipated

collection rates is performed based on updates to collection history.

Adjustments in the

anticipated collection rate assumptions are made as needed based on

this analysis. Other fees are recognized when received.

Revenue—Non-Interest Income.

The Company’s non-interest income

includes 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.

Insurance premiums written and earned are recognized on an accrual

basis over the term of the policy, which

is month to month.

Generally, insurance

payments that are 120 days or more past due are charged against income. Since

the policy’s premiums are

recognized month to month, there is no unearned premium on the

Consolidated Balance Sheets as these are fully recognized through

the Consolidated Statements of Operations in the month written.

Gain on sale of leases and loans is recognized in connection with the Company’s

transactions to sell populations of contracts to third

parties. When the transfer qualifies as a sale, the lease and loan assets are derecognized

and the Company recognizes any gain (or loss)

and the servicing asset and liability as applicable on the sale date driven by the pricing

and net proceeds received.

In the event the

transfer does not qualify as a sale, the transfer would be treated as a secured

borrowing.

The Company may have continuing

involvement in leases and loans sold through servicing the sold assets, or through

limited recourse provisions.

Securitizations

In connection with its term note securitization transaction, the Company

established a bankruptcy remote special-purpose subsidiary

(“SPE”) and issued term debt to institutional investors. This type of

SPE is considered a variable interest entity (“VIE”) under U.S.

generally accepted accounting principles (“GAAP”). The Company

is required to consolidate a VIE in which it is 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.

The Company continues to service the assets of its

VIEs and retain equity and/or residual interests. Accordingly,

assets and related debt of these VIEs are included in the accompanying

Consolidated Balance Sheets. The Company’s

leases and restricted interest-earning deposits with banks are assigned

as collateral for

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-79-

these borrowings and there is no further recourse to our general credit.

Collateral in excess of these borrowings represents the

Company’s maximum

loss exposure.

Initial Direct Costs and Fees

We defer initial

direct costs incurred and fees received to originate our leases and loans

The initial direct costs and fees we defer are

part of the net investment in leases and loans and are amortized to interest income

using the effective interest method.

The January 1, 2019 adoption of ASU 2016-02,

Leases

, includes provisions that

limit the types of direct lease origination costs that

may be deferred, which may reduce prospective deferred

lease origination costs on a unit basis.

For leases originated in 2019 and

thereafter,

the costs deferred are limited to internal commissions and third party commissions.

For loans, including both equipment finance loans and working capital loans,

and for leases originated in 2018 and prior,

we defer

third-party commission costs, as well as certain internal costs directly related

to successful origination activity,

including

compensation and certain general and administrative costs. Costs subject

to deferral include evaluating each prospective customer’s

financial condition, evaluating and recording guarantees and other security

arrangements, negotiating terms, preparing and processing

documents and closing each transaction.

The fees we defer are documentation fees collected at inception. The

realization of the initial direct costs, net of fees deferred, is

predicated on the net future cash flows generated by our lease and loan portfolios.

Stock-Based Compensation

The Compensation—Stock Compensation Topic

of the FASB ASC establishes fair value

as the measurement objective in accounting

for share-based payment arrangements and requires all entities to apply

a fair-value-based measurement method in accounting

for

share-based payment transactions with employees and non-employees,

except for equity instruments held by employee share

ownership plans.

The Company measures stock-based compensation cost at grant date,

based on the fair value of the awards ultimately expected to vest.

Stock-based compensation expense is recognized on a straight-line

basis over the service period. We

generally use the Black-Scholes

valuation model to measure the fair value of our stock options and the

Monte Carlo simulation valuation model to measure the fair

value of our restricted stock units utilizing various assumptions with respect

to expected holding period, risk-free interest rates, stock

price volatility, and

dividend yield. The assumptions are based on management’s

judgment concerning future events.

The Company uses its judgment in estimating the amount of awards that are

expected to be forfeited, with subsequent revisions to the

assumptions if actual forfeitures differ from those estimates.

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.

Non-forfeitable dividends paid on shares of restricted stock are recorded

to retained earnings for shares that are expected to vest and to

compensation expense for shares that are not expected to vest.

Income Taxes

The Company is subject to the income tax laws of the various jurisdictions in which

it operates, including U.S. federal, state and local

jurisdictions.

A consolidated federal income tax return is filed.

Depending upon the jurisdiction, the Company files consolidated or

separate legal entity state income tax returns.

Current tax expense represents the amount of taxes currently payable to

or receivable from a taxing authority plus amounts accrued for

income tax contingencies (including tax, penalty and interest). Deferred

tax expense generally represents the net change in the

deferred tax asset or liability balance during the year plus any change in the valuation

allowance, excluding any changes in amounts

recorded in Additional paid-in capital or Accumulated other comprehensive

income (loss) in the Consolidated Balance Sheets.

Deferred income taxes are determined using the balance sheet method.

Recognition of deferred taxes is based on the expected future

tax consequences of temporary differences between

the carrying amounts of assets or liabilities for book and tax purposes using the

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-80-

current enacted tax rates; however,

deferred tax assets are reduced by valuation allowances if it is more likely than

not that some

portion of the deferred tax asset will not

be realized.

We evaluate our

deferred tax assets quarterly to determine if adjustments to our

valuation allowance are required based on the consideration of all available

evidence, using a "more likely than not" standard with

respect to whether deferred tax assets will be realized.

The ultimate realization of deferred tax assets is dependent upon

the generation of future taxable income during the periods in which

those temporary differences become deductible.

In making this assessment, management considers the scheduled reversal of deferred

tax liabilities and projected future taxable income, the level of historical

taxable income, projections for future taxable income over the

periods which the deferred tax assets are deductible and available tax

planning strategies.

Should a change in circumstances,

including differences between our future operating

results and estimates, lead to a change in our judgments about the realization of

deferred tax assets in future years, we would adjust the valuation allowances

in the period that the change in circumstances occurs,

along with a charge or credit to income tax expense.

The Company records penalties and accrued interest related to taxes in income

tax expense. Uncertain tax positions (including interest

and penalties) are recognized when we believe it is more likely than not that the

tax position will be upheld on examination by the

taxing authorities based on merits of the position.

As of December 31, 2020 and 2019, there are

unrecognized tax positions.

Earnings Per Share

The Company’s restricted stock

awards are paid non-forfeitable common stock dividends and thus meet

the criteria of participating

securities. Accordingly,

earnings per share (“EPS”) is calculated using the two-class method, under which

earnings are allocated to

both common shares and participating securities. All shares of restricted

stock are deducted from the weighted average shares

outstanding for the computation of basic EPS.

Diluted EPS is computed based on the weighted average number of common

shares outstanding for the period 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.

Insurance Program Deferred Acquisition Costs

Deferred acquisitions costs represent the fees paid to a third-party insurance

company.

For the years ended December 31, 2020,

2019,

and 2018, the Company recognized deferred acquisition costs and premium

taxes of $

1.0

million, $

1.0

million, and $

0.9

million,

respectively. Since

the policy’s premiums are recognized

on a month to month basis, there is

deferred acquisition costs on the

Consolidated Balance Sheet as these are fully recognized through the Consolidated

Statements of Operations in the month written.

Provision for Unpaid Losses and Loss Adjustment Expenses

The Company records a provision for insurance losses and loss adjustment expenses.

The liability for losses and loss adjustment

expenses includes an amount determined from loss reports and individual

cases and an amount, based on historical loss experience and

industry statistics, for losses incurred but not reported (“IBNR”).

These estimates are continually reviewed and are subject to the

impact of future changes in such factors as claim severity and frequency.

Loss and loss expenses are paid when advised by the third-

party insurance company.

Outstanding losses comprise estimates of the amount of reported losses and loss expenses

received from the

third-party insurance company plus a provision for losses IBNR.

IBNR is determined with the assistance of a third-party actuary.

For

the years ended December 31, 2020,

2019,

and 2018,

the Company recognized provision for unpaid losses and loss adjustment

expenses of $

0.6

million, $

0.6

million, and $

0.8

million, respectively.

Recently Adopted Accounting Standards

Credit Losses.

In June 2016, the FASB issued

ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of

Credit Losses on Financial Instruments

, which changes the methodology for evaluating impairment

of most financial instruments. The

Company adopted the guidance in ASU 2013-13, and related amendments,

collectively referred to as “CECL”, effective January 1,

2020.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-81-

CECL replaces the probable, incurred loss model with a measurement

of expected credit losses for the contractual term of the

Company’s current portfolio

of loans and leases.

Under CECL, an allowance, or estimate of credit losses, is recognized immediately

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

reporting period.

This estimate of credit losses takes

into consideration all cashflows the Company expects to receive or derive

from the pools of contracts, including recoveries after

charge-off, amounts related to initial direct cost and

origination costs net of fees deferred, accrued interest receivable and certain

future cashflows from residual assets. The Company had previously

recognized residual income within Fee Income in its Consolidated

Statements

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

being captured as a component of the activity of the

allowance. The Company’s

policy for charging off contracts against the allowance,

and non-accrual policy are not impacted by the

adoption of CECL.

Upon adoption on January 1, 2020, changes resulting from the application

of the new standard’s provisions were

applied as a

cumulative-effect adjustment to retained earnings

as of the beginning of the first reporting period in which the guidance is effective

(i.e., modified retrospective approach).

The adoption of this standard resulted in the following adjustment to the Company’s

Consolidated Balance Sheets:

Balance as of

December 31,

Adoption

January 1,

2019

Impact

2020

(Dollars in thousands)

Assets:

Net investment in leases and loans

1,028,215

Allowance for credit losses

(21,695)

(11,908)

(33,603)

Total net investment

in leases and loans

1,006,520

994,612

Liabilities:

Net deferred income tax liability

30,828

(3,031)

27,797

Stockholders' Equity:

Retained Earnings

135,112

(8,877)

126,235

See Note 7 – Allowance for Credit Losses, for further discussion of the January

1, 2020 measurement of allowance under CECL, as

well as discussion of the Company’s

current measurement.

In addition, see the Policy section earlier in this footnote for further

discussion of the Accounting Policy under CECL.

See Note 18 – Stockholders’ Equity,

for discussion of the Company’s election

to delay for two-years the effect of CECL on regulatory

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

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

the impairment of our investment securities will incorporate

the guidance in these ASUs, including analyzing any decline in fair value between

credit quality-driven factors versus other factors.

There was

impact as of the adoption date to our investment securities.

Income Taxes.

In December 2019, the Financial Accounting Standards Board (“FASB”)

issued Accounting Standards

Update (“ASU”) 2019-12,

Income Taxes (Topic

740): Simplifying the Accounting for Income Taxes

, which removes certain exceptions

to the general principles of ASC 740 in order to reduce the cost and complexity

of its application.

Among other changes, the ASU

simplifies intraperiod allocation, removes exceptions related to outside

basis differences with respect to accounting for equity method

investments and revises certain exceptions related to accounting for year

-to-date losses in interim periods.

The ASU is effective for

fiscal years beginning after December 15, 2020, with early adoption permitted.

The adoption of this new requirement will impact the

Company’s measurement

of interim taxes on a prospective basis, but is not expected to have a material effect

on the Company’s

results of operations, cash flows, or balance sheets.

Fair Value.

In August 2018, the FASB issued

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

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-82-

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 impacts only footnote disclosure and

did not impact the Company’s

consolidated earnings, financial

position or cash flows.

Intangibles - Goodwill.

In August 2018, the FASB

issued ASU 2018-15,

Intangibles – Goodwill and Other – Internal-Use

Software (Subtopic 350-40): 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 did not

impact the Company’s consolidated

earnings, financial position or cash flows.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-83-

NOTE 3 – Non-Interest Income

The following table summarizes the Company’s

non-interest income for the periods presented:

Year Ended December 31,

2020

2019

2018

(Dollars in thousands)

Insurance premiums written and earned

8,677

8,796

8,087

Gain on sale of leases and loans

2,426

22,210

8,363

Other Income

Property tax income

(1)

5,534

6,401

Servicing income

1,907

1,526

653

Net gains (loss) recognized during the period on equity securities

104

(75)

Non-interest income - other than from contracts with customers

18,622

39,037

17,028

Other Income

Insurance policy fees

3,413

2,706

2,124

Property tax administrative fees on leases

979

1,076

740

ACH payment fees

187

316

333

Referral fees

227

543

839

Other

912

353

370

Non-interest income from contracts with customers

5,718

4,994

4,406

Total non-interest income

24,340

44,031

21,434

__________________

(1)

After the January 1, 2019 adoption of ASU 2016-02,

Leases

, for the years ended December 31, 2020 and 2019 the Company

is recording property tax income and expense gross in the Consolidated

Statements of Operations.

For 2018, the Company

had recognized these amounts net within General and administrative expense

in the Consolidated Statements of Operations.

Note 4 – Investment Securities

The Company had the following investment securities as of the dates presented

December 31,

2020

2019

(Dollars in thousands)

Equity Securities

Mutual fund

3,760

3,615

Debt Securities, Available

for Sale:

Asset-backed securities ("ABS")

3,719

4,332

Municipal securities

4,145

3,129

Total investment securities

11,624

11,076

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-84-

Equity Securities

The following schedule summarizes changes in fair value of equity securities

and the portion of unrealized gains and losses for each

period presented:

Year Ended December 31,

2020

2019

2018

(Dollars in thousands)

Net gains and (losses) recognized during the period on equity securities

104

(75)

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

104

(75)

Available for

Sale

The following schedule is a summary of available for sale investments as of the

dates presented:

December 31, 2020

Gross

Amortized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

(Dollars in thousands)

ABS

3,666

3,719

Municipal securities

4,082

(1)

4,145

Total Debt Securities, Available

for Sale

7,748

117

(1)

7,864

December 31, 2019

Gross

Amortized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

(Dollars in thousands)

ABS

4,302

(3)

4,332

Municipal securities

3,058

3,129

Total Debt Securities, Available

for Sale

7,360

104

(3)

7,461

The Company evaluates its available for sale securities in an unrealized loss position

for other than temporary impairment on at least a

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

impairment to earnings for each of the years ended

December 31, 2020 and December 31, 2019.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-85-

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 December 31, 2020

and December 31, 2019:

December 31, 2020

Less than 12 months

12 months or longer

Total

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Losses

Value

Losses

Value

Losses

Value

(Dollars in thousands)

Municipal securities

(1)

141

(1)

141

Total available for sale investment

securities

(1)

141

(1)

141

December 31, 2019

Less than 12 months

12 months or longer

Total

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Losses

Value

Losses

Value

Losses

Value

(Dollars in thousands)

ABS

(3)

430

(3)

430

Total available for sale investment

securities

(3)

430

(3)

430

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

yield of available for sale investments at December

31, 2020,

based on estimated average life.

Receipt of cash flows may differ from those estimated maturities

because borrowers may

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

Distribution of Maturities

1 Year

Over 1 to

Over 5 to

Over

or Less

5 Years

10 Years

Total

(Dollars in thousands)

Amortized Cost:

ABS

2,170

1,496

3,666

Municipal securities

302

2,623

1,142

4,082

Total available for sale investments

2,472

4,119

1,142

7,748

Estimated fair value

2,516

4,192

1,141

7,864

Weighted-average

yield, GAAP basis

4.75%

1.99%

2.00%

1.66%

1.95%

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-86-

NOTE 5 - Net Investment in Leases and Loans

Net investment in leases and loans consists of the following:

December 31,

2020

2019

(Dollars in thousands)

Minimum lease payments receivable

354,298

457,602

Estimated residual value of equipment

26,983

29,342

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

(43,737)

(59,746)

Security deposits

(385)

(590)

Total leases

337,159

426,608

Commercial loans, net of origination costs and fees deferred

Working

Capital Loans

20,034

60,942

CRA

(1)

1,091

1,398

Equipment loans

(2)

449,149

464,654

CVG

61,851

74,612

Total commercial

loans

532,125

601,607

Net investment in leases and loans, excluding allowance

869,284

1,028,215

Allowance for credit losses

(44,228)

(21,695)

825,056

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.

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

instituted a payment deferral contract modification program in

order to assist our small-business customers.

See Note 7, “Allowance for Credit Losses” for discussion of that program.

At December 31, 2020, $

32.9

million in net investment in leases are pledged as collateral for the company’s

outstanding asset-backed

securitization balance and $

56.7

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

borrowing capacity at the

Federal Reserve Discount Window.

Initial direct costs and origination costs net of fees deferred were $

14.6

million and $

20.5

million as of December 31, 2020 and

December 31, 2019,

respectively. Initial direct

costs are netted in unearned income and are amortized to income using the effective

interest method. Origination costs are netted in commercial loans and

are amortized to income using the effective interest method. At

December 31, 2020 and December 31, 2019, $

21.9

million and $

23.4

million, respectively, of

the estimated residual value of

equipment retained on our Consolidated Balance Sheets was related

to copiers.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-87-

Leases

Minimum lease payments receivable under lease contracts and the

amortization of unearned lease income, including initial direct costs

and fees deferred, are as follows as of December 31, 2020:

Minimum Lease

Payments

Income

Receivable

(1)

Amortization

(2)

(Dollars in thousands)

Period Ending December 31,

2021

145,456

23,796

2022

103,726

11,947

2023

62,599

5,624

2024

30,667

1,940

2025

9,697

392

Thereafter

2,153

354,298

43,737

________________________

(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.

The lease income recognized was as follows:

Year Ended December 31,

2020

2019

2018

(Dollars in thousands)

Interest Income

33,271

41,891

48,914

As of December 31, 2020 and December 31, 2019,

the Company maintained total finance receivables which were on a non-accrual

basis with net investment of $

14.3

million and $

5.6

million, respectively.

As of December 31, 2020, the Company had contracts that

had been modified under its COVID-19 payment deferral program of

111.2

million and as of December 31, 2020 and December 31,

2019,

the Company had other finance receivables in which the terms of the original agreements

had been renegotiated in the amount

of $

0.9

million and $

2.9

million, respectively.

See

Note 7

“Allowance for Credit Losses” for additional discussion of loan

modifications due to COVID-19.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-88-

Portfolio Sales

The Company originates certain lease and loans for sale to third parties, based

on their underwriting criteria and specifications.

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

loans that were originated for investment to

third parties.

For agreements that qualify as a sale where the Company has continuing

involvement through servicing, the Company recognizes 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

is $

1.3

million and $

2.5

million as of

December 31, 2020 and December 31, 2019,

respectively, and is recognized

within Accounts payable and accrued expenses in the

Consolidated Balance Sheets.

As of December 31, 2020 and December 31, 2019,

the portfolio of leases and loans serviced for others

was approximately $

230

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 is

not significant as of December 31, 2020.

The following table summarizes information related to portfolio

sales for the periods presented:

Year Ended December 31,

2020

2019

2018

(Dollars in thousands)

Sales of leases and loans

28,342

310,415

138,995

Gain on sale of leases and loans

2,426

22,210

8,363

NOTE 6 - Concentrations of Risk

As of December 31, 2020 and 2019, leases approximating

% and

% of the net investment balance of leases by the Company

were located in the states of California, Texas

and Florida.

No other state accounted for more than

% of the net investment balance of

leases owned and serviced by the Company as of December 31, 2020

and December 31, 2019.

As of December 31, 2020 and

December 31, 2019, no single vendor source accounted for more

than

% of the net investment balance of leases owned by the

Company. The largest

single obligor accounted for less than

% of the net investment balance of leases owned by the Company as of

December 31, 2020 and December 31, 2019.

Although the Company’s portfolio

of leases includes lessees located throughout the

United States, such lessees’ ability to honor their contracts may be substantially

dependent on economic conditions in these states. All

such contracts are collateralized by the related equipment. The Company

leases to a variety of different industries, including the

medical, retail, service, manufacturing and restaurant industries, among

others. To the extent that the economic

or regulatory

conditions prevalent in such industries change, the lessees’ ability to honor

their lease obligations may be adversely impacted.

As of December 31, 2020 and December 31, 2019, copiers comprised

81.3

% and

79.7

%, respectively, of the estimated

residual value

of leased equipment. No other group of equipment represented more

than

% of equipment residuals as of December 31, 2020 and

December 31, 2019.

Improvements and other changes in technology could adversely impact the Company’s

ability to realize the

recorded value of this equipment. There were

impairments of estimated residual value recorded during the years ended

2019 or

2018.

As discussed further in Note 2, “Summary

of Significant Accounting Policies” starting with the January 1, 2020 adoption

CECL, the measurement of expected future cashflows from residuals, including

any potential gain or loss on the sale of the asset, is

part of our measurement of the allowance for that pool of contracts .

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-89-

NOTE 7 - Allowance for Credit Losses

For 2019 and prior, we maintained an

allowance for credit losses at an amount sufficient to absorb losses inherent

in our existing lease

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

incurred net credit losses in accordance with the

Contingencies Topic

of the FASB ASC.

Effective January 1, 2020, we

adopted

ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses on Financial Instruments

(“CECL”)

which changed our accounting policy and estimated allowance.

CECL replaces the

probable, incurred loss model with a measurement of expected credit

losses for the contractual term of the Company’s

current

portfolio of loans and leases.

After the adoption of CECL, an allowance, or estimate of credit losses, is recognized

immediately upon

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

period.

See further discussion of the adoption of

this accounting standard and a summary of the Company’s

revised Accounting Policy for Allowance for Credit Losses in Note 2,

Summary of Significant Accounting Policies.

Detailed discussion of our measurement of allowance under CECL as of the adoption

date and December 31, 2020 is below.

The following tables summarize activity in the allowance for credit losses:

Twelve Months Ended December 31, 2020

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, December 31, 2019

18,334

1,899

1,462

21,695

Adoption of ASU 2016-13 (CECL)

(1)

9,264

(3)

2,647

11,908

Allowance for credit losses, January 1, 2020

27,598

1,896

4,109

33,603

Charge-offs

(2)

(30,008)

(3,142)

(3,189)

(36,339)

Recoveries

3,212

361

351

3,924

Net charge-offs

(26,796)

(2,781)

(2,838)

(32,415)

Realized cashflows from Residual Income

4,531

Provision for credit losses

27,851

2,091

8,567

38,509

Allowance for credit losses, end of period

33,184

1,206

9,838

44,228

Net investment in leases and loans, before allowance

776,371

20,034

71,788

1,091

869,284

Twelve Months Ended December 31, 2019

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, beginning of period

13,531

1,467

1,102

16,100

Charge-offs

(20,328)

(2,868)

(1,875)

(25,071)

Recoveries

2,164

337

129

2,630

Net charge-offs

(18,164)

(2,531)

(1,746)

(22,441)

Provision for credit losses

22,967

2,963

2,106

28,036

Allowance for credit losses, end of period

18,334

1,899

1,462

21,695

Net investment in leases and loans, before allowance

881,252

60,942

84,623

1,398

1,028,215

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-90-

Twelve Months Ended December 31, 2018

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, beginning of period

12,663

1,036

1,152

14,851

Charge-offs

(18,149)

(1,537)

(907)

(20,593)

Recoveries

2,199

2,320

Net charge-offs

(15,950)

(1,477)

(846)

(18,273)

Provision for credit losses

16,818

1,908

796

19,522

Allowance for credit losses, end of period

13,531

1,467

1,102

16,100

Net investment in leases and loans, before allowance

909,447

36,856

69,071

1,466

1,016,840

__________________

(1)

The

Company

adopted

ASU

2016-13,

Financial

Instruments

Credit

Losses

(Topic

326):

Measurement

Credit

Losses

Financial

Instruments

, which

changed our

accounting policy

and estimated

allowance, effective

January 1,

2020.

See further

discussion in

Note 2,

“Summary of Significant Accounting Policies”, and below.

(2)

See

“Loan

Modification

Program”

section

below

for

summary

charge-offs

contracts

that

were

part

our

payment

deferral

modification program.

Estimate of Current Expected Credit Losses (CECL)

Starting with the January 1, 2020 adoption of CECL, the Company recognizes

an allowance, or estimate of credit losses, immediately

upon the origination of a loan or lease, and that estimate will be reassessed in each

subsequent reporting period.

This estimate of

credit losses takes into consideration all cashflows the Company

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

recoveries after charge-off, amounts related

to initial direct cost and origination costs net of fees deferred, accrued interest receivable

and certain future cashflows from residual assets.

As part of its estimate of expected credit losses, specific to each measurement

date, management considers relevant qualitative and

quantitative factors to assess whether the historical loss experience

being referenced should be adjusted to better reflect the risk

characteristics of the current portfolio and the expected future loss experience

for the life of these contracts.

This assessment

incorporates all available information relevant to considering the collectability

of its current portfolio, including considering economic

and business conditions, default trends, changes in its portfolio composition,

changes in its lending policies and practices, among other

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

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

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 December 31, 2020,

summarized below.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-91-

Equipment Finance:

Equipment Finance consists of Equipment Finance Agreements, Installment

Purchase Agreements and other leases and loans.

The risk characteristics referenced to develop pools of Equipment

Finance leases and loans are based on internally developed

credit score ratings, which is a measurement that combines many

risk characteristics, including loan size, external credit

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

business.

In addition, the Company separately

measured a pool of true leases so that any future 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 number

of business bankruptcy filings.

The Company’s

methodology reverts from the forecast data to its own loss data adjusted for

the long-term average of the referenced economic

variables, on a straight-line basis.

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

changes in portfolio composition or the business

environment, when determining the appropriate measurement

of current expected credit losses for the remaining life of its

portfolio.

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

and 12-month straight-

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

However, starting with the March 31, 2020

measurement,

the Company adjusted its model to reference a 6-month forecast period and

12-month straight line reversion

period.

The change in the length of the reasonable and supportable forecast was based on observed

market volatility in late

March,

and the Company continues to reference a 6-month forecast period at December 31, 2020

due to continuing

uncertainty of the duration and level of impact of the COVID-19 virus on

the macroeconomic environment and the

Company’s portfolio, including

uncertainty about the forecasted impact of COVID-19 that was underlying

its economic

forecasted variables beyond a 6-month period.

In particular, the economic forecast as of December

31, 2020 reflects

significant improvement in outlook, especially for the business bankruptcy

variable referenced by our model.

The Company

believed that the model estimate after applying this standard forecast did

not properly reflect all of the continued risks to our

portfolio related to the current economic climate.

The Company utilized alternate economic forecast scenarios, and

probability weighted potential outcomes, to determine a qualitative adjustment

of a $

5.6

million as of December 31, 2020, to

address the continued risks to our portfolio from the pandemic-related

economic climate.

In addition, the estimate of credit

loss includes a $

1.0

million qualitative related to specific risks for extended modifications,

based on an assessment of the

probability of default of that receivable pool, and a recent average

loss if default.

The $

27.9

million provision for Equipment Finance for the year ended December 31, 2020 was $

17.0

million for the estimate

of credit losses for new originations, and $

10.9

million for forecast, qualitative and other adjustments, primarily driven by

elevated risks to the portfolio from the COVID-19 pandemic.

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.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-92-

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

changes in portfolio composition or the business

environment, when determining the appropriate measurement

of current expected credit losses for the remaining life of its

portfolio.

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

Capital portfolio.

However, starting with its March 31, 2020

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

conditions due to COVID-19, the Company developed alternate

scenarios for credit loss based on an analysis of the

characteristics of its portfolio,

considering different timing and magnitudes of potential

exposures.

As of

December 31,

2020, the working capital reserve includes a $

0.9

million qualitative adjustment to address the continued risks to our portfolio

from the pandemic-related economic climate.

The $

2.1

million provision for Working

Capital for the year ended December 31, 2020 was $

1.0

million for the estimate of

credit losses for new originations, and $

1.1

million for forecast, qualitative and other adjustments, primarily driven by

elevated risks to the portfolio from the COVID-19 pandemic.

Commercial Vehicle

Group (CVG):

The Company’s measurement

of transportation-related leases and loans (CVG) is based on a combination

of its own

historical loss experience and industry loss data from an external source. The

Company has limited history of this product,

and therefore the Company determined it was appropriate to develop

an estimate based on a combination of internal and

industry data.

Due to the Company’s limited history

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

Company did not develop a standard methodology to adjust its loss estimate based

on a forecast of economic conditions.

However, the Company will continually

assess through a qualitative adjustment whether there are changes in conditions and

the environment that will impact the performance of these loans that should

be considered for qualitative adjustment.

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

changes in portfolio composition or the business

environment, when determining the appropriate measurement

for the remaining life of the current portfolio.

As of the

January 1, 2020 adoption date, there were no qualitative adjustment to the CVG portfolio.

However, starting with the March

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

conditions due to COVID-19, the

Company developed alternate scenarios for expected credit loss for

this segment, considering different timing and

magnitudes of potential exposures.

As of

December 31, 2020, the CVG reserve includes a $

0.9

million qualitative

adjustment to address the continued risks to our portfolio from the pandemic

-related economic climate.

In addition, the Company separately assessed the elevated risks of a pool

of motor coach industry (travel/transportation)

contracts that are facing prolonged impacts from COVID-19.

As of December 31, 2020, the $

11.5

million of receivables in

this population were assessed as collateral-dependent, as the operation

or sale of the vehicle collateral is expected to provide

for the repayment of the receivable and the borrowers are experiencing financial

difficulty.

For this population, the $

6.3

million total reserve as of December 31, 2020 is based on the difference

between (i) the estimated the fair value of the

underlying vehicle collateral less costs to sell; and (ii) the amortized cost of the receivable,

and these receivables were put on

non-accrual.

There were

receivables assessed as collateral-dependent as of December 31, 2019.

The $

8.6

million provision for CVG for the year ended December 31, 2020

was $

1.0

million for the estimate of credit losses

for new originations, and $

7.6

million for forecast, qualitative and other adjustments, primarily driven

by elevated risks to the

portfolio from the COVID-19 pandemic.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-93-

Community Reinvestment Act (CRA) Loans:

CRA loans are comprised of loans originated under a line of credit to satisfy the

Company’s obligations under the CRA.

The

Company does not measure an allowance specific to this population because

the exposure to credit loss is nominal.

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

customers, is still ongoing, and the extent of the effects of the

pandemic on our portfolio depends on future developments, which

are highly uncertain and are difficult to predict.

Further, the

Company instituted a Loan modification payment deferral program,

as discussed further below, to give

payment relief to customers

during this period.

As of December 31, 2020,

the ultimate performance of loans modified under that program remains

uncertain, due

to the timing of the modified loans resuming payment. Our reserve as of

December 31, 2020,

and the qualitative and economic

adjustments discussed above, were calculated referencing our historical

loss experience, including loss experience through the 2008

economic cycle, and our adjustments to that experience based on our

judgements about the extent of the impact of the COVID-19

pandemic.

Those judgements include certain expectations for the extent and timing of

impacts from COVID-19 on unemployment

rates and business bankruptcies and are based on our current expectations

of the performance of our portfolio in the current

environment.

We may recognize credit

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

such

amounts may be significant, based on (i) the actual performance of our portfolio,

including the performance of the modified portfolio,

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

developments or unforeseen circumstances that impact our

portfolio.

Loan and Lease Modification Program:

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

instituted a payment deferral program in order to assist its small-

business customers that requested relief and were current under their

existing agreement.

The below table outlines certain data on the

modified population with details of count and net investment balance,

with all information as of December 31, 2020.

Equipment

Working

(Dollars in thousands)

Finance

CVG

Capital

Total

Population Summary:

Modified Contracts, out of deferral period

79,663

15,299

6,922

101,884

Extended modifications of Loans in fourth quarter

1,728

681

2,409

Extended modifications of Leases in fourth quarter

318

6,598

6,916

Total Modifications,

Net investment receivable

81,709

22,578

6,922

111,209

% of total segment receivables

10.5%

31.5%

34.6%

12.8%

Total

Program, number of contracts:

Active modified leases and loans receivable

(count)

4,128

395

286

4,809

Resolved by payoff

462

168

672

Resolved by charge-off

148

4,686

452

491

5,629

Resolved Population:

Charge-offs of modified contracts, for the

year ended December 31, 2020

1,619

755

889

3,263

Modifications 30+ Days Delinquent:

Modified Contracts

2,336

2,084

685

5,105

TDR and Extended Modifications

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-94-

The Company’s initial deferral

program in response to COVID-19 extended through September

30, 2020, and in accordance with the

interagency guidance, loans modified were not considered

TDRs and followed the Company’s

general non-accrual policies with

respect to their modified terms.

This program allowed for up to 6 months of fully deferred or reduced payments.

As of December 31,

2020, these contracts totaled $

101.9

million, or

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

In the fourth quarter of 2020, the modification period of contracts was generally

extended only as part of our loss mitigation strategies

for customers with prolonged negative impacts from the pandemic.

These extended deferrals totaled $

9.3

million at December 31,

2020, or

% of the modified population, and the extensions generally consisted of requiring

a partial payment of

% to

% of the

original schedule, with full payment scheduled to resume in the first quarter

for

% of the population, and the remainder in the

second quarter of 2021.

The Company evaluated these extended deferrals on a program basis and concluded

that these deferrals are

beyond a short-term period,

the deferrals were due to the borrower’s financial difficulties, and

the payment deferrals are a concession.

The loan contracts were assessed as troubled debt restructurings and

were put on non-accrual, and the extended lease contracts were

also put on non-accrual.

The estimate of increased risk of credit loss for these contracts was assessed as discussed

with the qualitative

adjustments above.

There were

defaults of these extended, troubled receivables during the year ended December

31, 2020.

As of December 31, 2019, the Company did

t have any TDRs.

Credit Quality

At origination, the Company utilizes an internally developed credit

score ratings as part of its underwriting assessment and pricing

decisions for new contracts.

The internal credit score is a measurement that combines many risk characteristics,

including loan size,

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

of the borrower’s business.

The internal credit score is

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

Equipment Finance portfolio segment, as discussed further above.

believe this segmentation allows our loss modeling to properly reflect

changes in portfolio mix driven by sales activity and

adjustments to underwriting standards.

However, this score is not updated after origination

date for analyzing the Company’s

provision.

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

Company primarily reviews the current delinquency of the

portfolio and delinquency migration to monitor risk and default trends

We believe that

delinquency is the best factor to use to monitor

the credit quality of our portfolio on an ongoing basis because it reflects the

current condition of the portfolio, and is a good predictor

of near term charge-offs and can help with identifying

trends and emerging risks to the portfolio.

The following tables provide information about delinquent leases and loans

in the Company’s portfolio

based on the contract’s status

as-of the dates presented. In particular, contracts

that are part of the Loan Modification Program discussed above are presented

in the

below delinquency table and the non-accrual information for December

31, 2020 based on their status with respect to the modified

terms. See Loan Modification section above for delinquency data

specific to the modified portfolio.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-95-

Portfolio by Origination Year as of

December 31, 2020

Total

2020

2019

2018

2017

2016

Prior

Receivables

(Dollars in thousands)

Equipment Finance

30-59

1,162

1,526

1,349

690

292

5,033

60-89

367

1,111

463

532

130

2,609

90+

503

1,370

804

377

199

3,269

Total Past Due

2,032

4,007

2,616

1,599

621

10,911

Current

265,036

276,140

138,142

65,722

18,805

1,615

765,460

Total

267,068

280,147

140,758

67,321

19,426

1,651

776,371

Working Capital

30-59

125

481

606

60-89

135

90+

Total Past Due

125

616

741

Current

12,741

6,528

19,293

Total

12,866

7,144

20,034

CVG

30-59

591

1,039

173

1,853

60-89

170

90+

340

179

535

Total Past Due

591

1,448

385

100

2,558

Current

17,065

30,805

13,733

5,938

1,659

69,230

Total

17,656

32,253

14,118

5,972

1,759

71,788

CRA

Total Past Due

Current

1,091

Total

1,091

Net investment in leases

and loans, before

allowance

298,681

319,544

154,900

73,293

21,185

1,681

869,284

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-96-

Portfolio by Origination Year as of

December 31, 2019

Total

2019

2018

2017

2016

2015

Prior

Receivables

(Dollars in thousands)

Equipment Finance

30-59

1,420

1,755

935

454

169

4,750

60-89

1,023

1,055

685

366

3,213

90+

947

1,522

1,090

527

163

4,256

Total Past Due

3,390

4,332

2,710

1,347

412

12,219

Current

424,559

236,068

135,419

55,119

16,461

1,407

869,033

Total

427,949

240,400

138,129

56,466

16,873

1,435

881,252

Working Capital

30-59

566

584

60-89

90+

203

Total Past Due

785

855

Current

57,706

2,343

60,087

Total

58,491

2,413

60,942

CVG

30-59

126

365

60-89

188

254

90+

178

158

389

Total Past Due

319

436

198

1,008

Current

42,536

22,531

13,442

4,976

130

83,615

Total

42,591

22,850

13,878

5,174

130

84,623

CRA

Total Past Due

Current

1,398

Total

1,398

Net investment in leases

and loans, before

allowance

530,429

265,663

152,045

61,640

17,003

1,435

1,028,215

Net investments in Equipment Finance and CVG leases and loans are generally

charged-off when they are contractually past due

for

120 days or more.

Income recognition is discontinued when a default on monthly payment exists for

a period of 90 days or more.

Income recognition resumes when a lease or loan becomes less than 30

days delinquent.

At December 31, 2020 and December 31,

2019, there were

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

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-97-

Working

Capital Loans are generally placed in non-accrual status when they are 30 days past due

and generally charged-off at 60 days

past due.

The loan is removed from non-accrual status once sufficient payments

are made to bring the loan current and reviewed by

management. At December 31, 2020 and December 31, 2019, there

were

Working Capital Loans past

due 30 days or more and still

accruing.

The following table provides information about non-accrual leases and loans:

December 31,

(Dollars in thousands)

2020

2019

Equipment Finance

5,543

4,256

Working

Capital Loans

932

946

CVG

7,814

389

Total

Non-Accrual

14,289

5,591

As of December 31, 2020, non-accrual includes $

11.5

million related to contracts that were part of our 2020 payment deferral

modification program, or $

3.0

million Equipment Finance, $

0.8

million Working

Capital, and $

7.7

million CVG.

Included in that

total is $

9.3

million related to modified lease and loan contracts that were extended

in the fourth quarter of 2020 and are considered

troubled.

See further information on the extended modifications in the Loan Modification section.

NOTE 8 - Goodwill and Intangible

Assets

Goodwill

The Company’s goodwill balance

of $

6.7

million at December 31, 2019 included $

1.2

million from the Company’s

acquisition of

HKF, in January

2017, and $

5.5

million from the September 2018 acquisition of FFR.

The goodwill balance represents the excess

purchase price over the Company’s

fair value of the assets acquired and is not amortizable but is deductible for tax purposes.

The Company assigns its goodwill to a single, consolidated reporting

unit, Marlin Business Services Corp. In the first quarter of 2020,

events or circumstances indicated that it was more likely than not

that the fair value of its reporting unit was less than its carrying

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

below its book value, and negative current events that impact

the Company related to the COVID-19 economic shutdown.

The Company calculated the fair value of the reporting unit, by taking

the average stock price over a reasonable period of time multiplied by

shares outstanding as of March 31, 2020 and then further

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

including goodwill.

The Company concluded that the implied

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

impairment equal to the $

6.7

million balance in the

Consolidated Statements of Operations.

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

ended December 31, 2020 are as follows:

(Dollars in thousands)

Total Company

Balance at December 31, 2019

6,735

Impairment of Goodwill

(6,735)

Balance at December 31, 2020

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-98-

Intangible assets

The following table presents details of the Company’s

intangible assets:

Gross

Carrying

Accumulated

Net Book

Useful Life

Amount

Amortization

Value

As of December 31, 2020

(Dollars in thousands)

Vendor

relationships

years

7,290

1,638

5,652

Corporate trade name

years

Total

7,350

1,672

5,678

As of December 31, 2019

Lender relationships

years

1,630

519

1,111

Vendor

relationships

years

7,290

974

6,316

Corporate trade name

years

Total

8,980

1,519

7,461

(Dollars in thousands)

FFR

HKF

Total

Beginning Balance, December 31, 2019

6,758

703

7,461

Amortization Expense

(674)

(93)

(767)

Impairment

(1,016)

Ending Balance, December 31, 2020

5,068

610

5,678

The Company’s intangible

assets consist of definite-lived assets in connection with the January 2017 acquisition

of HKF, and definite-

lived intangible assets in connection with the September 2018 acquisition

of FFR. The Company has no indefinite-lived intangible

assets.

In the third quarter of 2020, the Company determined that a decrease in projected

volumes for its FFR business and a decrease in the

sales team that supports that business resulted in a triggering event that warranted

a review of the recoverability of the related vendor

relationship and lender relationship intangible assets.

Those assets were evaluated as separate asset groups, as they generate

independent cashflows, such that the vendor relationships relate to the

origination of contracts and the lender relationships relate to the

sale or syndication of contracts.

The estimate of fair value was modeled based on an expected cashflow

analysis.

As a result of those

analyses, there was

impairment related to the FFR vendor relationship intangible, and the Company

recognized $

1.0

million of

impairment for the FFR lender relationship intangible. This impairment

is reflected in Intangible impairment in the Consolidated

Statement of Operations.

Amortization related to the Company’s

definite lived intangible assets was $

0.8

million and $

0.9

million for the twelve-month periods

ended December 31, 2020 and December 31, 2019, respectively.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-99-

The Company expects the amortization expense for the next five years

will be as follows:

(Dollars in thousands)

Amortization

Expense

2021

671

2022

671

2023

671

2024

663

2025

663

NOTE 9 - Property and Equipment, Net

Property and equipment, net consist of the following:

December 31,

2020

2019

Depreciable Life

(Dollars in thousands)

Furniture and equipment

3,790

4,035

years

Computer systems and equipment

20,607

18,584

years

Leasehold improvements

3,936

3,552

Shorter of estimated useful

life or remaining lease term

Total property

and equipment

28,333

26,171

Less - Accumulated depreciation and amortization

(19,759)

(18,283)

Property and equipment, net

8,574

7,888

Depreciation and amortization expense was $

2.2

million, $

1.8

million and $

1.6

million for each of the years ended December 31,

2020, 2019 and 2018, respectively.

NOTE 10 - Other Assets

Other assets are comprised of the following:

December 31,

2020

2019

(Dollars in thousands)

Accrued fees receivable

2,928

3,509

Prepaid expenses

2,790

2,872

Federal Reserve bank stock

1,711

Other

2,783

2,361

Total

10,212

10,453

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-100-

NOTE 11 – Leases

The Company determines if an arrangement is a lease at inception. Operating

leases are included in operating lease right-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 December 31, 2020,

the Company leases all 3 of its office locations including its executive offices in Mt. Laurel, New

Jersey, and its offices in or near Salt Lake City, Utah and Philadelphia, Pennsylvania.

The Company has elected not to recognize a

ROU asset and lease liability for one office lease whose term is twelve months

or less and is considered a short-term lease.

Two of the

office leases include options to extend for terms of one 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.

The components of lease expense were as follows:

Year Ended December 31,

2020

2019

2018

(Dollars in thousands)

Operating lease cost

1,649

1,201

1,131

Finance lease costs

Short-term lease cost

368

Total lease cost

1,691

1,569

1,138

The Company

adopted ASU

2016-02,

Leases

, on

January 1,

2019, which

requires the

Company to

recognize right-of

-use assets

and

lease liabilities on its Consolidated Balance Sheets, as follows:

Year Ended December 31,

2020

2019

(Dollars in thousands)

Operating lease right-of-use assets

7,623

8,863

Operating lease liabilities

8,700

9,730

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-101-

Other information related to the Company’s

leases follows:

As of

December 31,

2020

2019

Weighted average

remaining lease term

10.5

years

11.3

years

Weighted average

discount rate

3.20

3.30

Year Ended December 31,

2020

2019

(Dollars in thousands)

Cash payments for operating lease liabilities, included in operating cash flows

199

424

Right-of-use assets obtained in exchange for new operating lease obligations

391

756

Maturities of lease liabilities are as follows:

Operating

Leases

Period

Ending December 31,

(Dollars in thousands)

2021

1,125

2022

988

2023

883

2024

827

2025

836

Thereafter

5,721

Total lease payments

10,380

Less: imputed interest

(1,680)

Total

8,700

NOTE 12 - Commitments and Contingencies

MBB is a member bank in a non-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 hous

ing

to low- and moderate-income residents, helping MBB meet its Community

Reinvestment Act (“CRA”) obligations. Currently,

MBB

receives a range of approximately

0.8

% to

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 December 31, 2020 and December 31, 2019,

MBB

had an unfunded commitment of $

0.9

million and $

0.6

million, respectively, for

this activity.

MBB’s one-year commitment

to the

CDFI will expire in August 2021 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.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-102-

NOTE 13 - 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 December 31, 2020,

money market deposit accounts totaled $

52.8

million.

As of December 31, 2020, the remaining scheduled maturities of certificates

of deposits are as follows:

Scheduled

Maturities

(Dollars in thousands)

Period Ending December 31,

2021

320,093

2022

175,691

2023

98,712

2024

53,178

2025

29,087

676,761

Certificates of deposits issued by MBB are time deposits and are generally issued

in denominations of $

250,000

or less.

The MMDA

Product is also issued to customers in amounts less than $

250,000

. The FDIC insures deposits up to $

250,000

per depositor. The

weighted average all-in interest rate of deposits outstanding at December

31, 2020 was

1.78

NOTE 14 – Debt and Financing Arrangements

Short-Term

Borrowings

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

5.0

million, which was scheduled to expire on

November 20, 2020. The line of credit was terminated by mutual agreement

with the line of credit provider in July 2020

Long-Term

Borrowings

Borrowings with an original maturity date of one year or more are

classified as long-term borrowings. The Company’s

term note

securitizations are classified as long-term borrowings.

The Company’s long-term

borrowings consisted of the following:

December 31,

2020

2019

(Dollars in thousands)

Term securitization

2018-1

30,800

76,563

Unamortized debt issuance costs

(135)

(472)

30,665

76,091

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 December 31, 2020, outstanding term securitizations

amounted to $

30.8

million and were collateralized by $

32.9

million of minimum lease and loan payments receivable and $

4.7

million

of restricted interest-earning deposits.

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

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-103-

Outstanding

Notes

Balance

Final

Original

Originally

as of

Maturity

Coupon

Issued

December 31, 2020

Date

Rate

(Dollars in thousands)

2018 — 1

Class A-1

77,400

July 2019

2.55

Class A-2

55,700

October 2020

3.05

Class A-3

36,910

April 2023

3.36

Class B

10,400

9,560

May 2023

3.54

Class C

11,390

June 2023

3.70

Class D

5,470

July 2023

3.99

Class E

4,380

May 2025

5.02

Total Term

Note Securitizations

201,650

30,800

3.05

(1)(2)

__________________

(1)

Represents the original weighted average initial coupon rate for

all tranches of the securitization. In addition to this coupon

interest, term note securitizations have other transaction costs which are amortized

over the life of the borrowings as additional

interest expense.

(2)

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

will approximate

3.89

% over the remaining term of the

borrowing.

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. As of December 31, 2020 and 2019, there

were

balances outstanding on this line of credit.

Federal Reserve Discount Window

In addition, MBB has received approval to borrow from the Federal Reserve

Discount Window based on the amount of assets MBB

chooses to pledge. MBB had $

50.9

million in unused, secured borrowing capacity at the Federal Reserve Discount

Window,

based on

56.7

million of net investment in leases pledged at December 31, 2020.

Maturities

Based on current expected cashflows of leases underlying our term note

securitization, principal and interest payments are estimated

as of December 31, 2020 as follows:

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-104-

Principal

Interest

(Dollars in thousands)

Period Ending December 31,

2021

22,218

809

2022

8,582

159

30,800

968

NOTE 15 - Fair Value

Measurements and Disclosures about the Fair

Value of Financial

Instruments

Fair Value

Measurements

Fair value is defined in GAAP as the price that would be received to sell an asset or the price that

would be paid to transfer a liability

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

or most advantageous market for the asset or liability in an

orderly transaction between market participants. A three-level valuation

hierarchy is required for disclosure of fair value

measurements based upon the transparency of inputs to the valuation of

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

hierarchy gives the highest priority to quoted prices (unadjusted) in active

markets for identical assets or liabilities (Level 1) and the

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

hierarchy within which the fair value measurement in its

entirety falls is determined based on the lowest level input that is significant

to the measurement in its entirety.

Recurring Fair Value

Measurements

The Company’s balances measured

at fair value on a recurring basis include the following as of December 31, 2020

and 2019:

December 31, 2020

December 31, 2019

Fair Value Measurements Using

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

(Dollars in thousands)

Assets: Investment Securities

ABS

3,719

—

4,332

—

Municipal securities

4,145

—

3,129

—

Mutual fund

3,760

—

3,615

—

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

using the fair value option. There have been

transfers

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

presented.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-105-

Non-Recurring Measurements

Non-recurring fair value measurements include assets and liabilities that

are periodically remeasured or assessed for impairment using

Fair value measurements. Non-recurring measurements include the Company’s

evaluation of goodwill and intangible assets for

impairment, the remeasurement of contingent consideration liability,

the measurement of the allowance for credit losses for collateral-

dependent contracts, and assessment of the carrying amount of its servicing

liability.

For the year ended December 31, 2020, the Company recognized

6.7

million for the impairment of goodwill and $

1.0

million for the

impairment of intangible assets, as discussed further in Note 8, Goodwill

and Intangible Assets.

In addition, for the year ended

December 31, 2020,

the Company updated its fair value measurement of contingent consideration liability

in connection with the 2018

FFR acquisition due to lower forecasted volumes for that business, resulting

in a $

1.4

million reduction in that liability which was

recognized as a reduction in General and administrative expense.

For the year ended December 31, 2020,

the Company’s allowance

for credit losses includes $

6.3

million of reserves based on the estimated fair value of the underlying

vehicle collateral less costs to

sell, versus the amortized cost of the related pool of receivables.

See Note 7, Allowance for Credit Losses, for further detail.

For the year ended December 31, 2019, the Company recognized

0.3

million for the remeasurement of contingent consideration in

the Consolidated Statements of Operations in connection with non-recurring

fair value measurements. For the year ended December

31, 2018,

there were no significant amounts recognized in the Consolidated Statements

of Operations in connection with non-

recurring fair value measurements.

Fair Value

of Other Financial Instruments

The following summarizes the carrying amount and estimated fair

value of the Company’s other financial

instruments, including those

not measured at fair value on a recurring basis:

December 31, 2020

December 31, 2019

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

(Dollars in thousands)

Financial Assets

Cash and cash equivalents

135,691

123,096

Time deposits with banks

5,967

6,003

12,927

12,970

Restricted interest-earning deposits

4,719

6,931

Net investment in loans, net of allowance

500,768

507,362

588,688

593,406

Other Assets: Federal Reserve Bank Stock

1,711

Financial Liabilities

Deposits

729,614

742,882

839,132

846,304

Long-term borrowings

30,665

31,114

76,091

76,781

The fair values shown above 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.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-106-

The paragraphs which follow describe the methods and assumptions

used in estimating the fair values of financial instruments.

Cash and Cash Equivalents

The carrying amounts of the Company’s

cash and cash equivalents approximates

fair value, 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 $

32.9

million that the Company considers operating cash and has no reportable gross

unrealized gains or

losses. This fair value measurement of cash and cash equivalents is classified as Level

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.

Interest-earning deposits earn a floating rate of market interest which

results in a fair value

approximating the carrying amount. This fair value measurement is classified as Level

Loans.

The Company’s loan portfolio

is comprised of Equipment Loans, Working

Capital loans, and loans under the Community

Reinvestment Act of 1977 (“CRA”).

Fair value of Equipment 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.

Fair value for Working

Capital 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.

Fair value of CRA loans approximates the carrying amount at December

31, 2020 and December 31, 2019 as it is based on recent

comparable sales transactions with consideration of current market

rates. This fair value measurement is classified as Level 2.

Federal Reserve Bank Stock.

Federal Reserve Bank Stock are non-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

classified as Level 2.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-107-

NOTE 16 - Income Taxes

Income Tax

Provision

The Company’s income

tax provision consisted of the following components:

Year Ended December 31,

2020

2019

2018

(Dollars in thousands)

Current:

Federal

7,332

240

201

State

1,211

1,829

1,707

Total current

8,543

2,069

1,908

Deferred

Federal

(10,437)

6,896

6,133

State

(1,574)

772

(320)

Total deferred

(12,011)

7,668

5,813

Total income

tax (benefit) expense

(3,468)

9,737

7,721

In accordance with U.S. GAAP,

uncertain tax positions taken or expected to

be taken in a tax return are subject to potential financial

statement recognition based on prescribed

recognition and measurement criteria. Based on our

evaluation,

uncertain tax positions

result for years ended December 31,

2020, 2019 or 2018

. We do

not expect our unrecognized tax positions to change

significantly

over the next 12 months

. No material income tax interest or penalties were incurred or accrued for the years

ended December 31,

2020, 2019 or 2018.

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

December 31, 2013 to 2018 resulting from Joint

Committee Review as part of the IRS refund claim. The Company remains

subject to examination for the 2017 tax year to the present

under regular statute of limitations.

The Company files state income tax returns in various states which may have

different statutes of

limitations. Generally,

state income tax returns for the years 2017 through the present are subject

to examination.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-108-

Deferred Income Taxes,

net

The sources of these temporary differences and the related

tax effects were as follows:

December 31,

2020

2019

(Dollars in thousands)

Deferred income tax assets:

Allowance for credit losses

(1)

11,546

5,830

Net operating loss

578

4,002

Accrued expenses

1,050

1,003

Deferred income

1,254

1,656

Deferred compensation

952

1,476

Other comprehensive loss

Amortization of intangibles

1,699

127

Other

461

Gross deferred income tax assets

17,556

14,131

Valuation

allowance

(263)

(258)

Deferred tax assets, net of valuation allowance

17,293

13,873

Deferred income tax liabilities:

Lease accounting

(36,885)

(41,770)

Deferred acquisition costs

(1,326)

(1,960)

Depreciation

(1,686)

(971)

Deferred income tax liabilities

(39,897)

(44,701)

Net deferred income tax liability

(22,604)

(30,828)

__________________

(1)

The Company increased its deferred tax asset related to the Allowance for

credit losses by $

3.0

million as of January 1, 2020, in

connection with the tax effect of the adoption of CECL. See Note 2,

Summary of Significant Accounting Policies, for further

information on adopting that accounting standard.

The Company's gross deferred tax assets are reduced by valuation allowances

if it is more likely than not that some portion of the

deferred tax asset will not be realized. The Company’s

evaluation of the realizability of its gross deferred tax asset as of December 31,

2020 resulted in a valuation allowance relating to certain state loss carryforwards.

The Company has

gross federal income tax net operating loss carryforward for the year ending

December 31, 2020. The Company

had a gross federal income tax net operating loss carryforward of $

15.9

million for the year ended December 31, 2019. Under the

Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), federal

net operating losses arising in tax years beginning

after

December 31, 2017 and before January 1, 2021, may be carried back

to each of the five tax years preceding the tax year of such loss.

The Company has elected to carryback its federal net operating loss resulting

in a $

8.2

million refund claim. The Company recorded a

3.3

million income tax benefit relating to the difference in the

% federal tax rate on the deferred tax asset for the net operating loss

compared to the federal tax rate in the year the net operating loss was utilized (

%). This refund was received in July 2020. The

Company has a gross state income tax net operating loss carryforward

in the amount of $

9.6

million and $

11.8

million for years

ending December 31, 2020 and December 31, 2019, respectively.

Most of the state net operating loss carryforwards are set to expire

between

2023

and

2039

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-109-

Tax Rate

The following is a reconciliation of the statutory federal income tax

rate to the effective income tax

rate:

Year Ended December 31,

2020

2019

2018

Statutory federal income tax rate

21.0

State taxes, net of federal benefit

9.1

5.6

3.3

Other permanent differences

(2.4)

0.3

0.2

Excess stock based compensation

(17.1)

(0.2)

(0.7)

Tax benefit due to CARES Act

104.5

Other

(4.9)

(0.2)

Effective rate

110.2

26.4

23.6

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-110-

NOTE 17-

Earnings Per Share

The Company’s restricted stock

awards are paid non-forfeitable common stock dividends and thus meet

the criteria of participating

securities. Accordingly,

earnings per share (“EPS”) has been calculated using the two-class method, under

which earnings are

allocated to both common stock and participating securities.

Basic EPS has been computed by dividing net income or loss allocated to common

stock by the weighted average common shares

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

restricted stock have been deducted from the weighted

average shares outstanding.

Diluted EPS has been computed by dividing net income or loss allocated to

common stock by the weighted average number of

common shares used in computing basic EPS, further adjusted by including

the dilutive impact of the exercise or conversion of

common stock equivalents, such as stock options, into shares of common

stock as if those securities were exercised or converted.

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

and diluted EPS:

Year Ended December 31,

2020

2019

2018

(Dollars in thousands, except per-share data)

Basic EPS

Net income

342

27,116

24,980

Less: net income allocated to participating securities

(3)

(339)

(432)

Net income allocated to common stock

339

26,777

24,548

Weighted average

common shares outstanding

11,957,301

12,253,402

12,418,510

Less: Unvested restricted stock awards considered participating

securities

(143,963)

(153,482)

(217,045)

Adjusted weighted average common shares used in computing

basic EPS

11,813,338

12,099,920

12,201,465

Basic EPS

0.03

2.21

2.01

Diluted EPS

Net income allocated to common stock

339

26,777

24,548

Adjusted weighted average common shares used in computing

basic EPS

11,813,338

12,099,920

12,201,465

Add: Effect of dilutive stock-based compensation

awards

42,223

97,877

71,941

Adjusted weighted average common shares used in computing

diluted EPS

11,855,561

12,197,797

12,273,406

Diluted EPS

0.03

2.20

2.00

For the years ended December 31, 2020, 2019 and 2018, weighted

average outstanding stock-based compensation awards in the

amount of

227,698

159,077

and

145,847

, respectively, were considered

antidilutive and therefore were not considered in the

computation of potential common shares for purposes of diluted EPS.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-111-

NOTE 18 - Stockholders’ Equity

Stockholders’ Equity

On July 29, 2014, the Company’s

Board of Directors approved the 2014 Repurchase Plan, under which,

the Company was authorized

to repurchase up to $

million in value of its outstanding shares of common stock. On May 30, 2017, the

Company’s Board of

Directors approved the 2017 Repurchase Plan (the “2017 Repurchase

Plan”) to replace the 2014 Repurchase Plan. Under the 2017

Repurchase Plan, the Company was authorized to repurchase up to $

million in value of its outstanding shares of common stock.

December 31, 2019, there was

authorization remaining under 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 $

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.

The repurchases may be made on the open market, in

block trades or otherwise. The stock repurchase program does not obligate

the Company to acquire any particular amount of common

stock, and it may be suspended at any time at the Company's discretion. The repurchases are

funded using the Company’s working

capital. At December 31, 2020, the Company had $

4.7

million of remaining authorizations under the 2019 Repurchase Plan.

Any shares purchased under this plan are returned to the status of authorized

but unissued shares of common stock. Par value of the

shares repurchased is charged to common stock

with the excess of the purchase price over par charged against any available

additional

paid-in capital.

During the year ended December 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

. During the year ended December 31, 2019, the Company purchased

47,186

of its common stock in the open market under the 2019 Repurchase Plan

at an average cost of $

22.30

per share and

247,500

shares of

its common stock in the open market under the 2017 Repurchase Plan at an

average cost of $

23.24

per share. During the year ended

December 31, 2018, the Company purchased

83,305

shares of its common stock in the open market under the 2017 Repurchase Plan

at an average cost of $

25.83

per share

In addition to the repurchases described above, participants in

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) 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”)may have shares withheld to cover income taxes.

There were

41,821

22,741

and

28,605

shares repurchased to cover income tax withholding in connection with shares granted under

the Equity Plans during the years ended December 31, 2020, 2019 and

2018, respectively, at average

per-share costs of $

10.69

, $

22.85

and $

26.50

, respectively.

Regulatory Capital Requirements

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

primary funding source. Over time, MBB may offer

other products and services to the Company’s

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

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

member bank, MBB is supervised by both the Federal

Reserve Bank of San Francisco and the Utah Department of Financial Institutions.

The Company and MBB are subject to capital adequacy regulations issued

jointly by the federal bank regulatory agencies. These risk-

based capital and leverage guidelines make regulatory capital requirements more

sensitive to differences in risk profiles among

banking organizations and consider off

-balance sheet exposures in determining capital adequacy.

The federal bank regulatory agencies

and/or the U.S. Congress may determine to increase capital requirements

in the future due to the current economic environment.

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

total capital is required to be "Tier 1 Capital" as

defined in the regulations, comprised of common equity,

retained earnings and a limited amount of non-cumulative perpetual

preferred stock. The remaining capital, "Tier

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

amount of term subordinated debt or a limited amount of the reserve for possible

credit losses. The regulations establish minimum

leverage ratios for banking organizations, which

are calculated by dividing Tier 1 Capital by total average

assets. Recognizing that the

risk-based capital standards principally address credit risk rather than

interest rate, liquidity, operational

or other risks, many banking

organizations are expected to maintain capital in excess

of the minimum standards.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-112-

The Company and MBB operate under the Basel III capital adequacy standards

These standards require a minimum for Tier 1

leverage ratio of

%, minimum Tier 1 risk-based ratio of

%, and a total risk-based capital ratio of

The Basel III capital adequacy

standards established a new common equity Tier

1 risk-based capital ratio with a required

4.5

% minimum (

6.5

% to be considered

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

capital in excess of the regulatory minimum and to have a

capital buffer above

2.5

%. If a banking organization does not maintain capital above the

minimum plus the capital conservation buffer

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

payments such as bonus payments.

CMLA Agreement.

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

MBB’s request to rescind certain

nonstandard conditions in the FDIC’s

order granting federal deposit insurance issued on March 20, 2007.

Furthermore, effective

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

subsidiaries terminated the Capital Maintenance and Liquidity

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

Agreement, each entered into by and among the Company,

certain of

its subsidiaries and the FDIC in conjunction with the opening of MBB. As a result of

these actions, MBB is no longer required

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

above

%. Rather, MBB must continue to maintain a

total risk-based capital ratio above

% 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, less any dividends already paid during the period.

Any dividends declared above that amount and any return of permanent capital

would require prior approval of the Federal Reserve

Board of Governors. As of December 31, 2020, MBB does not have the capacity

to pay dividends to the Company without explicit

approval from the Federal Reserve Board of Governors.

MBB’s Tier 1

Capital balance at December 31, 2020 was $

148.3

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

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

2020,

as discussed

further

Note

2—Summary

of Significant

Accounting

Policies.

Rules governing

the

Company’s

regulatory

capital requirements

give entities

the option

of delaying

for two

years the

estimated impact

of CECL

on regulatory

capital, followed

by a

three-year transition

period to

phase out

the aggregate

amount of

capital benefit,

or a

five-year transition

in total.

The Company

has

elected

to avail

itself of

the five-year

transition.

For measurements

of regulatory

capital in

2020

and

2021,

under the

two year

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

its estimated allowance for credit losses under CECL, as reported

in its balance

sheets;

and

(ii)

measurement

its

estimated

allowance

under

the

historical

incurred

loss

methodology,

prescribed

the

regulatory

calculation.

Any amount

provisions

under CECL

that

is in

excess

the

incurred

estimate

will be

adjustment

the

Company’s

capital during

the two-year

delay.

The three-year

transition, starting

in 2022,

will phase

in that

adjustment straight

-line,

such that

percent

of the

transitional amounts

will be

included

in the

first year,

and

an additional

% over

each of

the next

two

years, such that we will

have phased in

% of the adjustment during

year three.

At the beginning of

year 6 (2025) the Company

will

have completely reflected the effects of CECL in its regulatory

capital.

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 December

31, 2020 and 2019.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-113-

December 31, 2020

Minimum Capital

Well-Capitalized Capital

Actual

Requirement

Ratio

Amount

Ratio

(1)

Amount

Ratio

Amount

(Dollars in thousands)

Tier 1 Leverage Capital

Marlin Business Services Corp.

18.78%

202,152

4.0%

43,060

5.0%

53,826

Marlin Business Bank

15.26%

148,260

4.0%

38,861

5.0%

48,576

Common Equity Tier 1 Risk-Based Capital

Marlin Business Services Corp.

22.74%

202,152

4.5%

40,004

6.5%

57,784

Marlin Business Bank

18.23%

148,260

4.5%

36,591

6.5%

52,854

Tier 1 Risk-based Capital

Marlin Business Services Corp.

22.74%

202,152

6.0%

53,339

8.0%

71,118

Marlin Business Bank

18.23%

148,260

6.0%

48,788

8.0%

65,051

Total

Risk-based Capital

Marlin Business Services Corp.

24.04%

213,673

8.0%

71,118

10.0%

88,898

Marlin Business Bank

19.53%

158,825

8.0%

65,051

10.0%

81,314

December 31, 2019

Minimum Capital

Well-Capitalized Capital

Actual

Requirement

Ratio

Amount

Ratio

(1)

Amount

Ratio

Amount

(Dollars in thousands)

Tier 1 Leverage Capital

Marlin Business Services Corp.

16.31%

200,702

4.0%

49,225

5.0%

61,532

Marlin Business Bank

13.91%

147,810

5.0%

53,124

5.0%

53,124

Common Equity Tier 1 Risk-Based Capital

Marlin Business Services Corp.

18.73%

200,702

4.5%

48,228

6.5%

69,663

Marlin Business Bank

15.47%

147,810

6.5%

66,870

6.5%

66,870

Tier 1 Risk-based Capital

Marlin Business Services Corp.

18.73%

200,702

6.0%

64,305

8.0%

85,739

Marlin Business Bank

15.47%

147,810

8.0%

81,199

8.0%

81,199

Total

Risk-based Capital

Marlin Business Services Corp.

19.99%

214,201

8.0%

85,739

10.0%

107,174

Marlin Business Bank

16.73%

159,845

15.0%

143,292

10.0%

100,305

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, significant

ly 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.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-114-

Under certain circumstances, a well-capitalized, adequately capitalized

or undercapitalized institution may be treated as if the

institution were in the next lower capital category.

A depository institution is generally prohibited from making capital distributions,

including paying dividends, or paying management fees to a holding company

if the institution would thereafter be undercapitalized.

Institutions that are adequately capitalized but not well-capitalized

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

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

can be paid on such deposits. Undercapitalized

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

The federal bank regulatory agencies are permitted or,

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

falling within one of the three undercapitalized categories.

Depending on the level of an institution’s

capital, the agency’s corrective

powers include, among other things:

•

prohibiting

the

payment

principal

and

interest

subordinated

debt;

•

prohibiting

the

holding

company

from

making

distributions

without

prior

regulatory

approval;

•

placing

limits

asset

growth

and

restrictions

activities;

•

placing

additional

restrictions

transactions

with

affiliates;

•

restricting

the

interest

rate

the

institution

may

pay

deposits;

•

prohibiting

the

institution

from

accepting

deposits

from

correspondent

banks;

and

•

the

most

severe

cases,

appointing

conservator

receiver

for

the

institution.

A banking institution that is undercapitalized is required to submit a capital

restoration plan, and such a plan will not be accepted

unless, among other things, the banking institution’s

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

Any such

guarantee from a depository institution’s

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

MBB’s total risk-based capital

ratio of

19.53

% at December 31, 2020 exceeded the threshold for “well capitalized” status under

the

applicable laws and regulations.

Dividends

The Federal Reserve Board has issued policy statements requiring insured banks

and bank holding companies to have an

established assessment process for maintaining capital commensurate

with their overall risk profile. Such assessment process may

affect the ability of the organizations to

pay dividends. Although generally organizations may

pay dividends only out of current

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

relative to the organization’s

financial position and risk profile,

after consideration of current and prospective economic conditions. As mentioned

above, MBB’s ability to pay dividends to the

Company is subject to various regulatory requirements, including

Title 12 part 208 of the Code of Federal Regulations (12 CFR

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

as a bank holding company, the

Company’s ability to pay dividends

to its shareholders is also subject to various regulatory requirements, including

Supervisory Letter SR 09-4, Applying Supervisory

Guidance and Regulations on the Payment of Dividends, Stock Redemptions

and Stock Repurchases at Bank Holding Companies.

NOTE 19 - Stock-Based Compensation

Awards

for

Stock-Based

Compensation

are

governed

the

Company’s

2003

Equity

Compensation

Plan,

amended

(the

“2003

Plan”), the Company’s

2014 Equity Compensation Plan

(approved by the Company’s

shareholders on June 3, 2014)

(the “2014 Plan”)

and

the Company’s

2019 Equity

Compensation

Plan (approved

by the

Company’s

shareholders

on May

30, 2019)

(the “2019

Plan”

and, together

with the 2014

Plan and the

2003 Plan, the

“Equity Compensation

Plans”).

Under the

terms of the

Equity Compensation

Plans,

employees,

certain

consultants

and

advisors

and

non-employee

members

the

Company’s

Board

Directors

have

the

opportunity to

receive incentive

and nonqualified

grants of

stock options,

stock appreciation

rights, restricted

stock and

other equity-

based

awards

approved

the

Company’s

Board

Directors.

These

award

programs

are

used

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

under

the

2019

Plan

that

may

issued

for

Grants is

826,036

. There were

481,103

shares available for future awards under the 2019 Plan as of December 31, 2020.

Total

stock-based

compensation

expense

was

1.2

million,

3.1

million

and

3.4

million

for

the

years

ended

December

31,

2020,

2019

and

2018,

respectively.

Excess

tax

benefits

from

stock-based

payment

arrangements

was

0.6

million,

0.1

million

and

0.3

million for the years ended December 31, 2020, 2019 and 2018, respectively.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-115-

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 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

four years

There were

stock options granted during the years ended December 31, 2020 and

2019, respectively.

There were

68,689

stock options granted with fair value of $

7.21

during the year ended December 31, 2018. Fair value of options was

estimated on the date of grant using the Black-Scholes option pricing

model using the following weighted average assumptions:

Year Ended

December 31, 2018

Risk-free interest rate

2.64%

Expected life (years)

4.5

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 each of the three years in the period

ended December 31, 2020 follows:

Weighted

Average

Number of

Exercise Price

Options

Per Share

Outstanding, December 31, 2017

96,985

25.75

Granted

68,689

28.25

Exercised

(909)

25.75

Forfeited

(17,827)

26.97

Expired

(507)

25.75

Outstanding, December 31, 2018

146,431

26.77

Granted

Exercised

Forfeited

(6,948)

27.00

Expired

(4,324)

25.75

Outstanding, December 31, 2019

135,159

26.80

Granted

Exercised

Forfeited

(3,929)

27.31

Expired

(17,048)

26.18

Outstanding, December 31, 2020

114,182

26.87

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-116-

During the years

ended December 31, 2020,

2019 and 2018,

the Company recognized total compensation

expense related to options

of $

0.1

million $

0.3

million, and $

0.3

million, respectively.

There were

stock options exercised during the years ended December 31, 2020 and

2019, respectively. There

were

909

stock

options exercised during the year ended December 31, 2018. The total

pretax intrinsic value of stock options exercised was $

0.1

million for the year ended December 31, 2018.

The following table summarizes information about the stock options

outstanding and exercisable as of December 31, 2020:

Options Outstanding

Options Exercisable

Weighted

Aggregate

Weighted

Aggregate

Average

Intrinsic

Average

Intrinsic

Range of

Number

Remaining

Exercise

Value

Number

Remaining

Exercise

Value

Exercise Prices

Outstanding

Life (Years

)

Price

(In thousands)

Exercisable

Life (Years

)

Price

(In thousands)

25.75

63,040

3.2

25.75

63,040

3.2

25.75

28.25

51,142

4.2

28.25

34,092

4.2

28.25

114,182

3.6

26.87

97,132

3.6

26.63

The aggregate intrinsic value in the preceding table represents the total pretax

intrinsic value, based on the Company’s closing

stock

price of $

12.24

as of December 31, 2020, which would have been received by the option holders

had all option holders exercised their

options as of that date.

As of December 31, 2020, there was $

0.1

million of unrecognized compensation cost related to non-vested stock options not

yet

recognized in the Consolidated Statements of Operations scheduled

to be recognized over a weighted average period of

0.2

years.

Restricted Stock Awards

The Company’s Restricted stock awards

provide that, during the applicable vesting periods, the shares awarded may

not be sold or

transferred by the participant. The vesting period for restricted

stock awards generally ranges from

three

seven years

. All awards

issued contain service conditions based on the participant’s

continued service with the Company and provide for accelerated vesting

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

three years

based on achievement of various individual

performance measures. Acceleration of expense for awards based

on individual performance factors occurs when the achievement of

the performance criteria is determined. Vesting

was accelerated in 2019 on certain awards based on the achievement of certain

performance criteria determined annually,

as described below.

The Company also issues restricted stock to non-employee independent

directors.

These shares generally vest in

seven years

from the

grant date or

six months

following the director’s termination from Board of Directors

service.

The following table summarizes the activity of the non-vested restricted

stock during the each of the three years in the period ended

December 31, 2020:

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-117-

Weighted

Average

Number of

Grant-Date

Non-vested restricted stock

Fair Value

Outstanding at December 31, 2017

277,617

17.51

Granted

18,206

29.84

Vested

(93,764)

15.13

Forfeited

(15,456)

17.46

Outstanding at December 31, 2018

186,603

19.91

Granted

18,924

23.19

Vested

(56,606)

15.95

Forfeited

(4,986)

20.36

Outstanding at December 31, 2019

143,935

21.88

Granted

45,830

8.64

Vested

(38,384)

23.08

Forfeited

(2,900)

25.99

Outstanding at December 31, 2020

148,481

17.40

During the years ended December 31, 2020,

2019 and 2018, the Company granted restricted stock awards with grant date fair values

totaling $

0.4

million, $

0.4

million and $

0.5

million, respectively. The grant

date fair value per share was equivalent to the Company’s

closing stock price on the date of the grant.

As vesting occurs, or is deemed likely to occur,

compensation expense is recognized over the requisite service period and additional

paid-in capital is increased. The Company recognized $

0.4

million, $

0.9

million and $

1.3

million of compensation expense related to

restricted stock for the years ended December 31, 2020,

2019 and 2018,

respectively.

Of the $

0.4

million total compensation expense related to restricted stock for the year ended December

31, 2020,

expense was

related to accelerated vesting based on the achievement of certain performance

criteria determined annually.

Of the $

0.9

million total

compensation expense related to restricted stock for the year ended

December 31, 2019, approximately $

0.1

million related to

accelerated vesting during the first quarter of 2019,

which was also based on the achievement of certain performance criteria

determined annually.

As of December 31, 2020, there was $

1.3

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

compensation scheduled to be recognized over a weighted average period

4.7

years. As of December 31, 2020, there were

restricted stock awards outstanding for which vesting may be accelerated

based on achievement of individual performance measures.

The fair values of shares that vested during the years ended December

31, 2020, 2019 and 2018 were $

0.4

million, $

1.3

million and

2.5

million, respectively.

Restricted Stock Units

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

on fulfillment of a service condition (generally

three

four

years

from the grant date), and may also require achievement of certain operating

performance criteria, achievement of certain market-

based targets associated with the Company’s

stock price or relative total shareholder

return, or a combination of both performance

criteria and market-based targets. For market-based

target awards granted during 2016 and 2017, the performance period

began

one

year

from the grant date and ended

three years

from the grant date. For market-based target awards granted during

2020, the

performance period begins on the grant date and ends

three years

from the grant date. Expense for equity-based awards with market

and service conditions is recognized over the service period based on

the grant-date fair value of the award.

The following tables summarize market restricted stock unit activity during

the each of the three years in the period ended December

31, 2020:

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-118-

Weighted

Average

Number of

Grant-Date

Performance-based & market-based RSUs

RSUs

Fair Value

Outstanding at December 31, 2017

158,553

15.13

Granted

35,056

28.25

Forfeited

(1,688)

25.75

Converted

Outstanding at December 31, 2018

191,921

17.43

Granted

95,408

18.37

Forfeited

(17,853)

19.57

Converted

(8,000)

9.47

Cancelled due to non-achievement of market or performance

condition

(4,000)

9.47

Outstanding at December 31, 2019

257,476

18.00

Granted

344,153

9.98

Forfeited

(5,081)

23.99

Converted

(65,810)

12.89

Cancelled due to non-achievement of market or performance

condition

(56,390)

18.19

Outstanding at December 31, 2020

474,348

12.80

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-119-

Weighted

Average

Number of

Grant-Date

RSUs

Fair Value

Service-based RSUs

Outstanding at December 31, 2017

25,840

25.63

Granted

49,463

28.26

Forfeited

(5,606)

27.21

Converted

(8,441)

25.63

Outstanding at December 31, 2018

61,256

27.61

Granted

74,620

21.50

Forfeited

(13,033)

23.84

Converted

(22,892)

27.39

Outstanding at December 31, 2019

99,951

23.59

Granted

69,422

20.43

Forfeited

(24,016)

22.07

Converted

(40,263)

24.29

Outstanding at December 31, 2020

105,094

21.58

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

and market based vesting conditions granted during the

twelve-month periods ended December 31, 2020 and 2019 was $

12.90

and $

12.91

per unit, respectively. There

were

RSU’s with

vesting conditions based on both performance and market conditions

granted during the twelve-month period ended 2018. There were

RSU’s with vesting conditions based

solely on market conditions granted during the twelve-month periods ended

December 31,

2019 and 2018.

The weighted average grant-date fair value of RSUs with market based vesting

conditions granted during the twelve-

month period ended December 31, 2020 was $

7.06

per unit. The weighted average grant date fair value of

performance based RSUs

was estimated using a Monte Carlo simulation valuation model with the following

assumptions:

Year Ended December 31,

Performance and market-based vesting

conditions

2020

2019

2018

Grant date stock price

20.43

21.50

Risk-free interest rate

1.40

2.16

Expected volatility

26.18

26.68

Dividend yield

Year Ended December 31,

Market-based vesting conditions

2020

2019

2018

Grant date stock price

12.53

Risk-free interest rate

0.17

Expected volatility

70.32

Dividend yield

The risk-free interest rate reflected the yield on zero coupon Treasury

securities with a term approximating the expected life of the

RSUs. The expected volatility was based on historical volatility of

the Company’s common stock. Dividend

yield was assumed at zero

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-120-

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.

During the years ended December 31, 2020, 2019 and 2018, the Company

granted RSUs with grant-date fair values totaling $

4.9

million, $

3.4

million and $

2.4

million, respectively.

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

stock

during the years ended December 31, 2020, 2019 and 2018, was $

1.1

million, $

0.8

million, and $

0.2

million, respectively.

The

Company recognized $

0.6

million, $

1.8

million and $

1.7

million of compensation expense related to RSUs for the years ended

December 31, 2020, 2019 and 2018, respectively.

During the year ended December 31, 2020, the Company reversed $

0.5

million of

previously recognized compensation expense related to RSUs based on

the adjustment of the most probable performance assumptions

related to certain non-market performance awards.

As of December 31, 2020, there was $

3.1

million of unrecognized compensation cost related to RSUs scheduled to be recognized

over

a weighted average period of

2.2

years based on the most probable performance assumptions.

In the event maximum performance

targets are achieved, an additional $

8.1

million of compensation cost would be recognized over a weighted average

period of

1.2

years. As of December 31, 2020,

3,960

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

on the most

probable performance assumptions. In the event maximum performance

targets are achieved,

677,312

performance units would

convert to shares of common stock.

Employee Stock Purchase Plan

In May 2012, the Company’s shareholders

approved the adoption of the Company’s

2012 Employee Stock Purchase Plan (the “2012

ESPP”). Under the terms of the 2012 ESPP,

employees had the opportunity to set aside up to

% of their compensation (subject to

certain maximums) to purchase shares of common stock during designated

offering periods at a price equal to the lesser of

% of the

fair market value per share on the first day of the offering

period or the fair market value per share on the purchase date. The aggregate

number of shares that was available for issuance under the 2012 ESPP was

140,000

. During the years ended 2020 and 2019,

14,891

and

18,458

shares, respectively, of common

stock were sold for $

0.1

million and $

0.4

million, respectively, pursuant

to the terms of

the 2012 ESPP.

As of December 31, 2020, there were

shares remaining available for issuance under the 2012 ESPP.

The Company

recognized total compensation expense of $

0.1

million related to the 2012 ESPP for each of the years ended December 31, 2020,

2019

and 2018, respectively

NOTE 20 - Employee 401(k) Plan

The Company adopted a 401(k) plan (the “401(k) Plan”) which originally became effective as of January 1, 1997. The Company’s

employees are entitled to participate in the 401(k) Plan, which provides savings and investment opportunities. Employees can

contribute up to the maximum annual amount allowable per Internal Revenue Service guidelines. Effective July 1, 2007, the 401(k)

Plan provides for Company contributions equal to 25% of an employee’s contribution percentage up to a maximum employee

contribution of 6%. Beginning January 1, 2021, the Company will increase its contributions to 50% of an employee’s contribution

percentage up to a maximum employee contribution of 6%.

The Company’s contributions to

the 401(k) Plan for the years ended

December 31, 2020, 2019 and 2018 were approximately $

0.2

million, $

0.4

million and $

0.3

million, respectively.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-121-

NOTE 21 – Parent Company

Summarized financial information of the parent company is as follows:

Parent Company – Balance Sheet

December 31,

2020

2019

ASSETS

(Dollars in thousands, except per-

share data)

Investment in and advances to subsidiaries:

Bank subsidiary

139,440

150,745

Nonbank subsidiaries

56,925

64,211

Total assets

196,365

214,956

LIABILITIES AND STOCKHOLDERS’ EQUITY

Total liabilities

Stockholders’ equity:

Preferred Stock, $

0.01

par value;

5,000,000

shares authorized; none issued

Common Stock, $

0.01

par value;

75,000,000

shares authorized;

11,974,530

and

12,113,585

shares issued and outstanding at December 31, 2020 and

2019, respectively

120

121

Additional paid-in capital

76,323

79,665

Accumulated other comprehensive loss

Retained earnings

119,853

135,112

Total stockholders’

equity

196,365

214,956

Total liabilities and stockholders’

equity

196,365

214,956

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-122-

Parent Company – Income Statement

Year

Ended December 31,

2020

2019

2018

(Dollars in thousands)

Income:

Dividends from nonbank subsidiaries

11,427

14,262

9,931

Dividends from bank subsidiary

6,000

20,000

Total revenue

11,427

20,262

29,931

Total expense

Income before income taxes and equity in undistributed

net income of subsidiaries

11,427

20,262

29,931

Income tax (benefit) expense

Equity in undistributed income (loss):

Bank subsidiary

(2,281)

8,816

(3,417)

Nonbank subsidiaries

(8,804)

(1,962)

(1,534)

Net Income

342

27,116

24,980

Other comprehensive income:

Reclassification due to adoption of ASU 2016-01, ASU 2018-02 and

ASU 2018-03

107

Increase (decrease) in fair value of securities available for sale

138

(7)

Tax effect

(4)

(36)

(48)

Total other comprehensive

income

102

Comprehensive income

353

27,218

25,032

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-123-

Parent Company – Statement of Cash Flows

Year

Ended December 31,

2020

2019

2018

(Dollars in thousands)

Cash flows from operating activities:

Net income

342

27,116

24,980

Adjustments to reconcile net income to net cash from

operating activities:

Equity in undistributed net income of subsidiaries

(342)

(21,116)

(4,980)

Net cash provided by operating activities

6,000

20,000

Cash flows from investing activities:

Capital returned from nonbank subsidiaries

11,427

14,262

9,931

Capital contributed to subsidiaries

(146)

(6,484)

(20,492)

Net cash provided by (used in) investing activities

11,281

7,778

(10,561)

Cash flows from financing activities:

Issuances of common stock

120

410

402

Repurchases of common stock

(4,703)

(7,323)

(2,908)

Dividends paid to common stockholders

(6,698)

(6,865)

(6,956)

Exercise of stock options

Net cash used in financing activities

(11,281)

(13,778)

(9,439)

Net increase in total cash and cash equivalents

Total cash and cash

equivalents, beginning of period

Total cash and cash

equivalents, end of period

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

-124-

NOTE 22 - Events Subsequent to Year

-End

The Company declared a dividend of $

0.14

per share on

January 28, 2021

. The quarterly dividend, which amounted to a dividend

payment of approximately $

1.7

million, was paid on

February 18, 2021

to shareholders of record on the close of business on

February

8, 2021

. It represented the Company’s

thirty-eighth

consecutive quarterly cash dividend.

-125-

Supplementary Data

The selected unaudited quarterly financial data presented below should

be read in conjunction with the Consolidated Financial

Statements and related notes.

Selected Quarterly Financial Data (Unaudited)

Fiscal Year Quarters

First

Second

Third

Fourth

(Dollars in thousands, except per-share data)

Year

ended December 31, 2020

Interest income

26,465

24,248

22,398

19,688

Fee income

2,766

2,450

2,803

2,541

Interest and fee income

29,231

26,698

25,201

22,229

Interest expense

5,680

5,428

4,694

4,066

Provision for credit losses

25,150

18,806

7,204

(12,651)

Non-interest income

12,203

3,795

4,213

4,129

Income tax expense (benefit)

(7,434)

(1,374)

525

4,815

Net income (loss)

(11,821)

(5,882)

2,743

15,302

Basic earnings (loss) per share

(1.00)

(0.50)

0.23

1.28

Diluted earnings (loss) per share

(1.00)

(0.50)

0.23

1.28

Cash dividends declared per share

0.14

Net investment in leases and loans

970,076

911,035

846,728

825,056

Total assets

1,263,537

1,196,215

1,105,951

1,021,998

Year

ended December 31, 2019

Interest income

25,883

27,082

27,708

26,747

Fee income

4,042

3,507

3,869

3,787

Interest and fee income

29,925

30,589

31,577

30,534

Interest expense

5,962

6,408

6,561

6,102

Provision for credit losses

5,363

4,756

7,662

10,255

Non-interest income

12,948

7,201

10,362

13,520

Income tax expense

1,602

1,974

3,281

2,880

Net income

5,141

6,115

7,446

8,414

Basic earnings per share

0.42

0.50

0.61

0.69

Diluted earnings per share

0.41

0.49

0.60

0.69

Cash dividends declared per share

0.14

Net investment in leases and loans

1,023,190

1,062,271

1,034,498

1,006,520

Total assets

1,246,725

1,279,983

1,247,416

1,207,443

-126-

Item 9.

Changes in and Disagreements with Accountants on Accounting and

Financial Disclosure

None.

Item 9A.

Controls and Procedures

Disclosure Controls

and Procedures

— The Company maintains disclosure controls and procedures that are

designed to ensure that

information required to be disclosed in the Company’s

reports under the Securities Exchange Act of 1934, as amended

(the “1934

Act”) is recorded, processed, summarized and reported within the time

periods specified in the Securities and Exchange Commission’s

rules and forms, and that such information is accumulated and communicated

to management, including the Company’s

Chief

Executive Officer and Chief Financial Officer,

as appropriate, to allow timely decisions regarding required disclosure.

In connection with the preparation of this Annual Report on Form 10

-K, as of December 31, 2020,

we updated our evaluation of the

effectiveness of the design and operation of our disclosure

controls and procedures for purposes of filing reports under the 1934 Act.

This controls evaluation was done under the supervision and with the participation

of management, including our Chief Executive

Officer and our Chief Financial Officer.

Our Chief Executive Officer and our Chief Financial Officer

have concluded that our

disclosure controls and procedures (as defined in Rule 13(a)-15(e)

and 15(d)-15(e) under the 1934 Act) are designed and operating

effectively to provide reasonable assurance that

information relating to us and our subsidiaries that we are required to disclose in the

reports that we file or submit to the Securities and Exchange Commission is accumulated

and communicated to management as

appropriate to allow timely decisions regarding required disclosure, and is recorded,

processed, summarized and reported with the

time periods specified in the Securities and Exchange Commission’s

rules and forms.

Management’s

Annual Report on Internal Control over Financial

Reporting

— Our Chief Executive Officer and Chief Financial

Officer provided a report on behalf of management on our interna

control over financial reporting. The full text of management’s

report is contained in Item 8 of this Form 10-K and is incorporated herein by reference.

Attestation Report of the Registered Public

Accounting Firm

— The attestation report of our independent registered public accounting

firm on their assessment of internal control over financial reporting is contained

in Item 8 of this Form 10-K and is incorporated herein

by reference.

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 three months ended December 31,

2020 that

have materially affected, or are reasonably likely to

materially affect, the Company’s

internal control over financial reporting.

Item 9B.

Other Information

None.

-127-

PART

III

Item 10.

Directors, Executive Officers and Corporate Governance

The information required by Item 10 is incorporated by reference from

the information in the Registrant’s definitive

Proxy Statement

to be filed pursuant to Regulation 14A for its 2021 Annual Meeting of Shareholders.

We have adopted

a code of ethics and business conduct that applies to all of our directors, officers

and employees, including our

principal executive officer,

principal financial officer, principal accounting

officer and persons performing similar functions. Our code

of ethics and business conduct is available free of charge

within the investor relations section of our website at

www.marlincapitalsolutions

.com.

We intend to post

on our website any amendments and waivers to the code of ethics and business

conduct that are required to be disclosed by the rules of the Securities and

Exchange Commission, or file a Form 8-K, Item 5.05 to the

extent required by NASDAQ listing standards.

Item 11.

Executive Compensation

The information required by Item 11 is incorporated

by reference from the information in the Registrant’s

definitive Proxy Statement

to be filed pursuant to Regulation 14A for its 2021 Annual Meeting of Shareholders.

Item 12.

Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

The information required by Item 12 is incorporated by reference from

the information in the Registrant’s definitive

Proxy Statement

to be filed pursuant to Regulation 14A for its 2021 Annual Meeting of Shareholders.

Item 13.

Certain Relationships and Related Transactions, and

Director Independence

The information required by Item 13 is incorporated by reference from

the information in the Registrant’s definitive

Proxy Statement

to be filed pursuant to Regulation 14A for its 2021 Annual Meeting of Shareholders.

Item 14.

Principal Accountant Fees and Services

The information required by Item 14 is incorporated by reference from

the information in the Registrant’s definitive

Proxy Statement

to be filed pursuant to Regulation 14A for its 2021 Annual Meeting of Shareholders.

-128-

PART

Item 15.

Exhibits and Financial Statement Schedules

(a)

Documents filed as part of this Report

The

following

list

consolidated

and

combined

financial

statements

and

supplementary

data

included

this

report

under

Item 8 of Part II hereof:

Financial

Statements

and

Supplemental

Data

Reports

Independent

Registered

Public

Accounting

Firm

Consolidated

Balance

Sheets

December

31,

2020

and

2019

Consolidated

Statements

Operations

for

the

years

ended

December

31,

2020

2019

and

2018

Consolidated Statements of Comprehensive Income for the years ended

December 31, 2020,

2019 and 2018.

Consolidated

Statements

Stockholders’

Equity

for

the

years

ended

December

31,

2020

2019

and

2018

Consolidated

Stat

ements

Cash

Flows

for

the

years

ended

December

31,

2020

2019

and

2018

Notes

Consolidated

Financial

Statements.

Supplementary

Data.

Financial

Statement

Schedules

are

omitted

because

they

are

not

applicable

are

not

quired

because

the

required

information

included

the

consolidated and combined financial statements or notes thereto.

(b)

Exhibits

Number

Description

3.1

(2)

Amended and Restated Articles of Incorporation of the Registrant.

3.2

(12)

Amended and Restated Bylaws of the Registrant.

3.3

(16)

Amendment to the Amended and Restated Bylaws of the Registrant.

4.1

(1)

Second Amended and Restated Registration Agreement, as amended through July 26, 2001, by and among Marlin

Leasing Corporation and certain of its shareholders.

4.2

(15)

Description of Securities

10.1

(5)†

2003 Equity Compensation Plan of the Registrant, as amended.

10.2

(4)†

Amendment 2009-1 to the Marlin Business Services Corp. 2003 Equity Compensation Plan, as amended.

10.3

(4)†

Amendment 2009-2 to the Marlin Business Services Corp. 2003 Equity Compensation Plan, as amended.

10.4

(4)†

Amendment 2009-3 to the Marlin Business Services Corp. 2003 Equity Compensation Plan, as amended.

10.5

(5)†

2012 Employee Stock Purchase Plan of the Registrant.

10.6

(3)

Letter Agreement, dated as of June 11, 2007 and effective as of March 11, 2008, by and between the Registrant,

Peachtree Equity Investment Management, Inc. and WCI (Private Equity) LLC.

10.7

(6)

†

2014 Equity Compensation Plan.

10.8

(7)

†

Form of Non-Employee Director Stock Award.

10.9

(

)

†

Form of Employee Stock Award.

10.11

(9)†

Severance Pay Plan for Senior Management.

10.12

(10)†

Employment Offer Letter between Jeffrey A. Hilzinger and Marlin Business Services Corp. dated as of April 25, 2016.

10.13

(11)†

Form of Performance Stock Unit Award Agreement.

10.14

(14)†

Employment Offer Letter between Michael A. Bogansky and Marlin Business Services Corp. dated as of December 4,

2018.

10.15

(13)†

2019 Equity Compensation Plan

-129-

10.16

(15)†

Separation and General Release Agreement between Edward R. Dietz, Jr. and Marlin Business Services Corp. dated as

of August 1, 2019 and re-affirmed as of December 31, 2019.

10.17

(17)†

Form of Restricted Stock Unit Award under the 2019 Equity Compensation Plan.

10.18

(17)†

Form of Performance Stock Unit Award under the 2019 Equity Compensation Plan.

10.19

(17)†

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

10.20

(18)†

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

10.21

(19)†

Form of December 2020 Performance Stock Unit Award Agreement.

21.1

List of Subsidiaries

(Filed herewith).

23.1

Consent of Deloitte & Touche LLP

(Filed herewith)

31.1

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

Securities Exchange Act of 1934, as amended

(Filed herewith).

31.2

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

Exchange Act of 1934, as amended

(Filed herewith).

32.1

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

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

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

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

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

(Furnished herewith).

101

Financial

statements

from

the

Annual

Report

Form

the

Company

for

the

period

ended

December

31,

2020

formatted

XBRL:

(i)

the

Consolidated

Balance

Sheets,

(ii)

the

Consolidated

Statements

Operations,

(iii)

the

Consolidated

Statements

Comprehensive

Income,

(iv) the

Consolidated

Statements

Stockholders’

Equity,

(v) the

Consolidated

Statements

Cash

Flows

and

)

the

Notes

Consolidated

Financial

Statemen

(Submitted

electronically with this report).

____________________

†

Management contract or compensatory plan or arrangement.

(1)

Previously

filed

with

the

Securities

and

Exchange

Commission

exhibit

the

Registrant’s

Amendment

No.

Registration Statement on Form S-1 (File No. 333-108530), filed on October

14, 2003 and incorporated by reference herein.

(2)

Previously

filed

with

the

Securities

and

Exchange

Commission

exhibit

the

Registrant’s

Annual

Report

Form

for the fiscal year ended December 31, 2007 filed on March 5, 2008

and incorporated by reference herein.

(3)

Previously filed with

the Securities and

Exchange Commission

as an exhibit

to the Registrant’s

Current

Report on Form

8-K

dated March 11, 2008 and filed on March 17,

2008 and incorporated by reference herein.

(4)

Previously

filed

with

the

Securities

and

Exchange

Commission

exhibit

the

Registrant’s

Current

Report

Form

dated October 28, 2009 and filed on November 2, 2009 and incorporated by

reference herein.

(5)

Previously

filed

with

the

Securi

ties

and

Exchange

Commission

exhibit

the

Registrant’s

Form

DEF

14A

filed

April

23, 2012 and incorporated by reference herein.

(6)

Previously

filed

with

the

Securities

and

Exchange

Commission

exhibit

the

Registrant’s

Current

Report

Form

filed on June 9, 2014 and incorporated by reference herein.

(7)

Previously

filed

with

the

Securities

and

Exchang

Commission

exhibit

the

Registrant’s

Current

Report

Form

filed on June 12, 2014 and incorporated by reference herein.

(8)

Previously

filed

with

the

Securities

and

Exchange

Commission

exhibit

the

Registrant’s

Current

Report

Form

filed on June 12, 2014 and incorporated by reference herein.

(9)

Previously filed with the Securities and Exchange Commission as an

exhibit to the Registrant’s Quarterly

Report on Form

10-Q for the period ended June 30, 2015 filed on August 5, 2015 and incorporat

ed by reference herein.

-130-

(10)

Previously filed with the Securities and Exchange Commission as an

exhibit to the Registrant’s Current

Report on Form 8-K filed on May 5, 2016 and incorporated by reference herein

(11)

Previously

filed

with

the

Securities

and

Exchange

Commission

exhibit

the

Registrant’s

Current

Report

Form

filed on September 19, 2016 and incorporated by reference herein.

(12)

Previously

filed

with

the

Securities

and

Exchange

Commission

exhibit

the

Registrant’s

Current

Report

Form

filed on October 20, 2016 and incorporated by reference herein.

(13)

Previously filed

with the

Securities and

Exchange Commission

as an

exhibit to

the Registrant’s

Current Report

on Form

8-K

filed on June 4, 2019 and incorporated by reference herein.

(14)

Previously

filed

with

the

Securities

and

Exchange

Commission

exhibit

the

Registrant’s

Annual

Report

Form

for the fiscal year ended December 31, 2018 filed on March 8, 2019

and incorporated by reference herein.

(15)

Previously filed with the Securities and Exchange Commission as an

exhibit to the Registrant’s Annual

Report on Form 10-K for the fiscal year ended December 31, 2019 filed on

March 13, 2020 and incorporated by reference

herein.

(16)

Previously

filed

with

the

Securities

and

Exchange

Commission

exhibit

the

Registrant’s

Current

Report

Form

filed on April 24, 2020 and incorporated

by reference herein.

(17)

Previously

filed

with

the

Secur

ities

and

Exchange

Commission

exhibit

the

Registrant’s

Quarterly

Report

Form

10-Q for the period ended March 31, 2020 filed on May 1, 2020 and incorporated

by reference herein.

(18)

Previously

file

with

the

Securities

and

Exchange

Commission

exhibit

the

Registrant’s

Quarterly

Report

Form

10-Q for the period ended June 30,

2020 filed on July 31, 2020 and incorporated by reference herein.

(19)

Previously

filed

with

the

Securities

and

Exchange

Commission

exhibit

the

Registrant’s

Current

Report

Form

filed on December 18, 2020 and incorporated by reference herein.

-131-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: March 5, 2021

ARLIN

USINESS

ERVICES

ORP

By:

/s/

JEFFREY

HILZINGER

Jeffrey Hilzinger

Chief Executive Officer

Pursuant to the requirements of the

Securities Exchange Act of 1934, this

report has been signed below by

the following persons on

behalf of the Registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ J

EFFREY

ILZINGER

Chief Executive Officer

March 5, 2021

Jeffrey Hilzinger

(Principal Executive Officer)

/s/ M

ICHAEL

OGANSKY

Michael R. Bogansky

Chief Financial Officer and

Senior Vice President

(Principal Financial and

Accounting Officer)

March 5, 2021

/s/ L

AWRENCE

NGELO

Chairman of the Board of Directors

March 5, 2021

Lawrence J. DeAngelo

/s/ J

OHN

ALAMARI

Director

March 5, 2021

John J. Calamari

/s/ S

COTT

EIMES

Director

March 5, 2021

Scott Heimes

/s/ M

ATTHEW

ULLIVAN

Director

March 5, 2021

Matthew J. Sullivan

/s/ J.

HRISTOPHER

EETS

Director

March 5, 2021

J. Christopher Teets

/s/ J

AMES

ERT

Director

March 5, 2021

James W. Wert

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Marlin Business Services (MRLN) 10-K2020 FY Annual report

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