Marlin Business Services 10Q 2021 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE

COMMISSION

WASHINGTON,

D.C. 20549

FORM

10-Q

☑

QUARTERLY

REPORT PURSUANT TO SECTION

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

1934

For the Quarterly Period Ended

September 30, 2021

☐

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 Number)

300 Fellowship Road

Mount Laurel

08054

(Address of principal executive offices) (Zip code)

(

888

)

479-9111

(Registrant’s telephone number,

including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 per share

MRLN

NASDAQ

Global Select Market

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

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

Exchange Act of 1934 during the preceding 12 months (or for such shorter

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

and (2) has been subject to such filing requirements for the past 90 days.

Yes

☑

☐

Indicate by check mark whether the registrant has submitted electronically

every Interactive Data File required to be submitted

pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)

during the preceding 12 months (or for such shorter period that

registrant was required to submit such files.)

Yes

☑

☐

Indicate by check mark whether the registrant is a large accelerated

filer, an accelerated filer,

a non-accelerated filer, a smaller

reporting company or an emerging growth company.

See the definitions of "large accelerated filer,”

“accelerated filer", “smaller

reporting company” and “emerging growth

company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company,

indicate by check mark if the registrant has elected not to use the extended transition

period for

complying with any new or revised financial accounting standards provided

pursuant to Section 13(a) of

the Exchange Act

☐

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

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

Yes

☐

☒

At October 22, 2021,

12,026,394

shares of Registrant’s common

stock, $.01 par value, were outstanding.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Quarterly Report on Form 10-Q

for the Quarter Ended September 30, 2021

TABLE OF CONTENTS

Page No.

Part I – Financial Information

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

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

Item 1 Consolidated Financial Statements (Unaudited)

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

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

Consolidated Balance Sheets at September 30, 2021 and December 31, 2020

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

........ 3

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

September 30, 2021 and 2020

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

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

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

September 30, 2021 and 2020

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

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

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

September 30, 2021 and 2020

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

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

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

September 30, 2021 and 2020

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

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

Notes to Unaudited Consolidated Financial Statements

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

........................................ 10

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

.................................................... 36

Item 3 Quantitative and Qualitative Disclosures about Market Risk

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

.................................... 56

Item 4 Controls and Procedures

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

............................ 56

Part II – Other Information

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

.................................. 56

Item 1 Legal Proceedings

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

...................................... 56

Item 1A Risk Factors

…

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

........................................... 57

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

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

................................... 58

Item 3 Defaults upon Senior Securities

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

................. 58

Item 4 Mine Safety Disclosures

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

............................ 58

Item 5 Other Information

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

...................................... 58

Item 6 Exhibits

…….

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

............................................ 59

Signatures

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

................................................................ 60

-3-

PART

I. Financial Information

Item 1.

Consolidated Financial Statements

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

September 30,

December 31,

2021

2020

(Dollars in thousands, except per-

share data)

ASSETS

Cash and due from banks

4,914

5,473

Interest-earning deposits with banks

217,346

130,218

Total cash and cash equivalents

222,260

135,691

Time deposits with banks

996

5,967

Restricted interest-earning deposits related to consolidated VIEs

3,202

4,719

Investment securities (amortized cost of

$11.5 million at December 31, 2020)

11,624

Net investment in leases and loans:

Leases

295,514

337,159

Loans

525,239

532,125

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

12.1

million and

30.4

million at September 30, 2021 and December 31, 2020, respectively, related to consolidated

VIEs)

820,753

869,284

Allowance for credit losses

(27,521)

(44,228)

Total net investment in leases and loans

793,232

825,056

Intangible assets

5,175

5,678

Operating lease right-of-use assets

7,268

7,623

Property and equipment, net

9,359

8,574

Property tax receivables, net of allowance

9,260

6,854

Other assets

16,560

10,212

Total assets

1,067,312

1,021,998

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

783,203

729,614

Long-term borrowings related to consolidated VIEs

11,676

30,665

Operating lease liabilities

8,134

8,700

Other liabilities:

Sales and property taxes payable

6,203

6,316

Accounts payable and accrued expenses

19,086

27,734

Net deferred income tax liability

23,728

22,604

Total liabilities

852,030

825,633

Commitments and contingencies

Stockholders’ equity:

Preferred Stock, $

0.01

par value;

5,000,000

shares authorized; none issued

Common Stock, $

0.01

par value;

75,000,000

shares authorized;

12,026,429

and

11,974,530

shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

120

Additional paid-in capital

77,903

76,323

Accumulated other comprehensive income

Retained earnings

137,259

119,853

Total stockholders’ equity

215,282

196,365

Total liabilities and stockholders’ equity

1,067,312

1,021,998

The accompanying notes are an integral part of the unaudited consolidated

financial statements.

-4-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

(Dollars in thousands, except per-share data)

Interest income

17,656

22,398

53,622

73,111

Fee income

2,027

2,803

6,795

8,019

Interest and fee income

19,683

25,201

60,417

81,130

Interest expense

2,594

4,694

8,676

15,802

Net interest and fee income

17,089

20,507

51,741

65,328

Provision for credit losses

(1,183)

7,204

(14,010)

51,160

Net interest and fee income after provision for credit losses

18,272

13,303

65,751

14,168

Non-interest income:

Gain on leases and loans sold

2,426

Insurance premiums written and earned

1,906

2,082

5,847

6,612

Other income

1,700

2,044

9,828

11,172

Non-interest income

3,606

4,213

15,675

20,210

Non-interest expense:

Salaries and benefits

8,162

8,515

24,996

25,702

General and administrative

6,200

4,717

25,823

24,169

Goodwill impairment

6,735

Intangible assets impairment

1,016

Non-interest expense

14,362

14,248

50,819

57,622

Income (loss) before income taxes

7,516

3,268

30,607

(23,244)

Income tax expense (benefit)

2,035

525

8,019

(8,284)

Net income (loss)

5,481

2,743

22,588

(14,960)

Basic earnings (loss) per share

0.46

0.23

1.88

(1.27)

Diluted earnings (loss) per share

0.45

0.23

1.86

(1.27)

The accompanying notes are an integral part of the unaudited consolidated

financial statements.

-5-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

(Dollars in thousands)

Net income (loss)

5,481

2,743

22,588

(14,960)

Other comprehensive income:

(Decrease) increase in fair value of debt securities available

for sale

(247)

(116)

Tax effect

(3)

(12)

Total other comprehensive

(loss) income

(165)

(69)

Comprehensive income (loss)

5,316

2,750

22,519

(14,925)

The accompanying notes are an integral part of the unaudited consolidated

financial statements.

-6-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Accumulated

Common

Additional

Other

Total

Common

Stock

Paid-In

Comprehensive

Retained

Stockholders’

Amount

Capital

Income (Loss)

Earnings

Equity

(Dollars in thousands)

Balance, December 31, 2020

11,974,530

120

76,323

119,853

196,365

Repurchase of common stock

(16,038)

(224)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

50,831

—

Stock-based compensation recognized

—

583

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

(184)

Net income

—

6,851

Cash dividends paid ($

0.14

per share)

—

(1,689)

Balance, March 31, 2021

12,009,323

120

76,682

(115)

125,015

201,702

Repurchase of common stock

(124)

(3)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

17,274

—

Stock-based compensation recognized

—

600

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

280

Net income

—

10,256

Cash dividends paid ($

0.14

per share)

—

(1,756)

Balance, June 30, 2021

12,026,473

120

77,279

165

133,515

211,079

Repurchase of common stock

(1)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

(50)

—

Stock-based compensation recognized

—

625

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

(165)

Net income

—

5,481

Cash dividends paid ($

0.14

per share)

—

(1,737)

Balance, September 30, 2021

12,026,429

120

77,903

137,259

215,282

The accompanying notes are an integral part of the unaudited consolidated

financial statements.

-7-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Accumulated

Common

Additional

Other

Total

Common

Stock

Paid-In

Comprehensive

Retained

Stockholders’

Amount

Capital

Income (Loss)

Earnings

Equity

(Dollars in thousands)

Balance, December 31, 2019

12,113,585

121

79,665

135,112

214,956

Repurchase of common stock

(285,593)

(3)

(4,535)

(4,538)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

56,481

(1)

Stock-based compensation recognized

—

518

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

(38)

Net loss

—

(11,821)

Impact of adoption of new accounting

standards

(1)

—

(8,877)

Cash dividends paid ($

0.14

per share)

—

(1,710)

Balance, March 31, 2020

11,884,473

119

75,647

112,704

188,490

Issuance of common stock

14,891

120

Repurchase of common stock

(1,897)

(12)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

44,780

—

Stock-based compensation recognized

—

(149)

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

Net loss

—

(5,882)

Cash dividends paid ($

0.14

per share)

—

(1,629)

Balance, June 30, 2020

11,942,247

119

75,606

105,193

181,004

Repurchase of common stock

(18,446)

(149)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

50,850

(1)

Stock-based compensation recognized

—

437

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

Net income

—

2,743

Cash dividends paid ($

0.14

per share)

—

(1,692)

Balance, September 30, 2020

11,974,651

120

75,893

106,244

182,350

(1)

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

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

The accompanying notes are an integral part of the unaudited consolidated

financial statements.

-8-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30,

2021

2020

(Dollars in thousands)

Cash flows from operating activities:

Net income (loss)

22,588

(14,960)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

2,848

2,996

Stock-based compensation

1,808

806

Impairment of goodwill and intangible assets

7,751

Change in fair value of equity securities

(20)

(89)

Provision for credit losses

(14,010)

51,160

Change in net deferred income tax liability

1,107

(7,777)

Amortization of deferred initial direct costs and fees

7,770

9,244

Loss on equipment disposed

116

Gain on leases sold

(2,426)

Leases originated for sale

(4,882)

Proceeds from sale of leases originated for sale

5,123

Noncash lease expense

683

1,365

Adjustment to value of contingent consideration

(1,435)

Effect of changes in other operating items:

Other assets

(9,153)

(1,642)

Other liabilities

(10,183)

(311)

Net cash provided by operating activities

3,438

45,039

Cash flows from investing activities:

Net change in time deposits with banks

4,971

4,471

Purchases of equipment for lease contracts and funds used to originate

loans

(289,391)

(298,244)

Principal collections on leases and loans

325,824

356,133

Proceeds from sale of leases originated for investment

25,663

Security deposits collected, net of refunds

(176)

Proceeds from the sale of equipment

2,148

1,567

Acquisitions of property and equipment

(2,616)

(2,266)

Principal payments received on securities available for sale

11,567

432

Net cash provided by investing activities

52,521

87,580

Cash flows from financing activities:

Net change in deposits

53,589

(15,425)

Term securitization repayments

(19,080)

(36,538)

Business combinations earn-out consideration payments

(3)

(180)

Issuances of common stock

120

Repurchases of common stock

(228)

(4,699)

Dividends paid

(5,185)

(5,021)

Net cash provided (used in) by financing activities

29,093

(61,743)

Net (decrease) increase in total cash, cash equivalents and restricted cash

85,052

70,876

Total cash, cash equivalents

and restricted cash, beginning of period

140,410

130,027

Total cash, cash equivalents

and restricted cash, end of period

225,462

200,903

The accompanying notes are an integral part of the unaudited consolidated

financial statements.

-9-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30,

2021

2020

(Dollars in thousands)

Supplemental disclosures of cash flow information:

Cash paid for interest on deposits and borrowings

8,491

17,308

Net cash (received) paid for income taxes

22,591

(5,005)

Leases and loans transferred into held for sale from investment

23,460

Supplemental disclosures of non cash investing activities:

Purchase of equipment for lease contracts and loans originated

3,191

2,253

Reconciliation of Cash, cash equivalents and restricted cash to

the Consolidated Balance Sheets:

Cash and cash equivalents

222,260

195,132

Restricted interest-earning deposits

3,202

5,771

Cash, cash equivalents and restricted cash at end of period

225,462

200,903

-10-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

NOTE 1 – The Company

We are a nationwide

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

in the Commonwealth of

Pennsylvania

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

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”).

On April 18, 2021, the Company entered into an Agreement and Plan of Merger

(the “Merger Agreement”), by and among the

Company, Madeira

Holdings, LLC and Madeira Merger Subsidiary,

Inc. (“HPS Merger Sub”) pursuant to which all outstanding

shares of the Company’s common

stock will, subject to the terms and conditions of the Merger Agreement,

be cancelled and

converted into the merger consideration specified

in the Merger Agreement in an all cash transaction pursuant to a merger

of the

Company with and into HPS Merger Sub, with the Company

surviving (the “Merger”).

On August 4, 2021, our shareholders

approved the adoption of the Merger Agreement.

The Merger remains subject to, in addition to various other customary closing

conditions,

governmental and regulatory approvals and completion of MBB’s

surrender of its banking

licenses and authority and

termination of its FDIC insured deposits (a process we refer to as “De-banking”).

References to the “Company,”

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

Business Services Corp. and its

wholly-owned subsidiaries, unless the context otherwise requires.

NOTE 2 – Summary of Significant Accounting Policies

Basis of financial statement presentation.

The unaudited consolidated financial statements include the

accounts of the Company and

its wholly-owned subsidiaries. Marlin Leasing Corporation (“MLC”) and MBB are managed

together as a single business segment and

are aggregated for financial reporting purposes as they exhibit similar economic

characteristics, share the same leasing and loan

portfolio and have a single consolidated product offering

platform. All intercompany accounts and transactions have been eliminated

in consolidation.

The accompanying unaudited consolidated financial statements present

the Company’s financial position

at September 30, 2021 and

the results of operations for the three-

and nine -month periods ended September 30, 2021 and 2020, and cash flows for

the nine-

month periods ended September 30, 2021 and 2020.

In management’s opinion, the unaudited

consolidated financial statements

contain all adjustments, which include normal and recurring adjustments,

necessary for a fair presentation of the financial position and

results of operations for the interim periods presented.

These unaudited consolidated financial statements should be read in

conjunction with the consolidated financial statements and note disclosures

included in the Company’s Form 10-K

for the year ended

December 31, 2020, filed with the Securities and Exchange Commission (“SEC”)

on March 5, 2021. The consolidated results and

statements of cash flows for these interim financial statements are not

necessarily indicative of the results of operations or cash flows

for the respective full years or any other period.

Use of Estimates.

These unaudited consolidated financial statements require

management to make estimates and assumptions that

affect the reported amounts of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the financial

statements and the reported amounts of revenues and expenses during

the reporting period. Estimates are used when accounting for

income recognition, the residual values of leased equipment, the

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

fee receivables, the fair value of financial instruments, estimated losses from

insurance program, and income taxes. Actual results

could differ from those estimates.

Income taxes.

-11-

Our statutory tax rate, which is a combination of federal and state income taxes,

was

25.1

% and

25.4

% for the three months ended

September 30, 2021 and September 30, 2020, respectively.

For the nine months ended September 30, 2021, our effective

tax rate was

26.2

%. For the nine months ended September 30, 2020, our

effective tax rate was

35.6

%, driven by a $

3.2

million discrete benefit, resulting from certain provisions in the Coronavirus Aid,

Relief, and Economic Security Act (“CARES Act”) that allow for

a remeasurement of our federal net operating losses.

For the three and nine-month periods ended September 30, 2021,

our effective tax rates were

27.1

% and

26.2

%, respectively.

The Company’s IRS federal audit

for tax years ending December 31, 2013 to 2018 resulting from Joint Committee

Review as part of

an IRS refund claim closed in the second quarter of 2021 with no adjustments.

The Company remains subject to examination for the

2017 tax year to the present as of September 30, 2021 under regular statute

of limitations.

Significant Accounting Policies.

There have been no significant changes to our Significant Accounting

Policies as described in our

Annual Report on Form 10-K for the year ended December 31,

2020.

Recently Adopted Accounting Standards

Credit Losses.

In June 2016, the Financial Accounting Standards Board (“FASB”)

issued Accounting Standards Update (“ASU”)

ASU 2016-13, Financial Instruments - Credit Losses (Topic

326): Measurement of Credit Losses on Financial Instruments and related

ASUs collectively referred to as “CECL”.

The Company adopted the guidance in these ASUs, effective January

1, 2020, applying changes resulting from the application of the

new standard’s provisions

as a cumulative-effect adjustment to retained earnings as of the beginning

of the first reporting period in

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

approach). See our Annual Report on Form 10-K for the year ended

December 31, 2020 for a detailed discussion of our adoption of

this guidance.

Income Taxes

. In December 2019, the FASB

issued 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.

The amendments also clarify and amend existing guidance to improve

consistent application. The ASU is effective for

fiscal years beginning after December 15, 2020, including interim periods

within those annual periods.

We adopted

ASU 2019-12 on

January 1, 2021, and the adoption did not have a material impact on our

consolidated financial position or results of operations.

-12-

NOTE 3 – Non-Interest Income

The following table summarizes non-interest income for the periods

presented:

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2021

2020

2021

2020

Insurance premiums written and earned

1,906

2,082

5,847

6,612

Gain on sale of leases and loans

2,426

Other income:

Property tax income

149

123

5,190

5,247

Servicing income

270

462

963

1,517

Net (loss) gain recognized during the period on investment securities

(3)

(59)

Non-interest income - other than from contracts with customers

2,322

2,754

11,941

15,891

Other income:

Insurance policy fees

749

819

2,268

2,610

Property tax administrative fees on leases

213

243

622

713

ACH payment fees

184

143

Referral fees

123

Other

234

347

603

730

Non-interest income from contracts with customers

1,284

1,459

3,734

4,319

Total non-interest

income

3,606

4,213

15,675

20,210

-13-

NOTE 4 - Investment Securities

In accordance with the Merger Agreement and De-banking

process discussed in Note 1, the Company sold all its investment securities

in the third quarter of 2021 and recognized an immaterial gain on

the sale of those securities:

The Company had the following investment securities as of the dates presented:

September 30,

December 31,

(Dollars in thousands)

2021

2020

Equity Securities

Mutual fund

3,760

Debt Securities, Available

for Sale:

Asset-backed securities ("ABS")

3,719

Municipal securities

4,145

Total investment securities

11,624

The following schedule summarizes changes in fair value of equity securities and

the portion of unrealized gains and losses for each

period presented:

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

2021

2020

2021

2020

Net gains (losses) recognized during the period on equity securities

Less: Net gains (losses) recognized during the period

on equity securities sold during the period

Unrealized gains recognized during the reporting period

on equity securities still held at the reporting date

-14-

Available for

Sale

There are no available for sale investments as of September 30, 2021

due to the liquidation of all the Company’s

available for sale

investments in the third quarter of 2021 resulting in immaterial gains in the

three and nine month periods ending September 30, 2021.

The following schedules

are a summary of available for sale investments as of December 31, 2020, and

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

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

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

-15-

NOTE 5 – Net Investment in Leases and Loans

Net investment in leases and loans consists of the following:

September 30, 2021

December 31, 2020

(Dollars in thousands)

Minimum lease payments receivable

308,479

354,298

Estimated residual value of equipment

24,999

26,983

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

(37,560)

(43,737)

Security deposits

(404)

(385)

Total leases

295,514

337,159

Commercial loans, net of origination costs and fees deferred

Working

Capital Loans

31,178

20,034

CRA

(1)

1,019

1,091

Equipment loans

(2)

414,392

449,149

CVG

78,650

61,851

Total commercial

loans

525,239

532,125

Net investment in leases and loans, excluding allowance

820,753

869,284

Allowance for credit losses

(27,521)

(44,228)

Total net investment

in leases and loans

793,232

825,056

________________________

(1)

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

(“CRA”).

(2)

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

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

instituted a payment deferral contract modification program in

order to assist our small-business customers.

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

At September 30, 2021, $

12.8

million in net investment in leases were pledged as collateral for the Company’s

outstanding asset-

backed securitization balance and $

55.9

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

capacity at the Federal Reserve Discount Window.

The amount of deferred initial direct costs and origination costs net of fees deferred

were $

13.6

million and $

14.6

million as of

September 30, 2021 and December 31, 2020, 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 September 30, 2021 and

December 31, 2020, $

20.8

million and $

21.9

million, respectively, of the

estimated residual value of equipment retained on our Consolidated Balance

Sheets was related to copiers.

-16-

Maturities of lease receivables

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

initial direct costs and

fees deferred, were as follows as of September 30, 2021:

Minimum Lease

Payments

Net Income

Receivable

(1)

Amortization

(2)

(Dollars in thousands)

Period Ending December 31,

Remainder of 2021

33,951

7,902

2022

120,586

16,069

2023

80,663

8,510

2024

45,306

3,668

2025

20,550

1,221

Thereafter

7,423

190

308,479

37,560

________________________

(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.

-17-

The lease income recognized was as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

(Dollars in thousands)

Interest Income

6,070

8,357

19,073

25,977

As of September 30, 2021 and December 31, 2020, the Company maintained

total finance receivables which were on a non-accrual

basis with net investment of $

10.1

million and $

14.3

million, respectively. See

Note 6 “Allowance for Credit Losses” for additional

discussion of loan modifications due to COVID-19.

Portfolio Sales

The Company has historically originated certain lease and loans for

sale to third parties, based on their underwriting criteria and

specifications.

In addition, the Company may periodically enter into agreements to

sell certain leases and loans that were originated

for investment to third parties.

For agreements that qualify as a sale where the Company has continuing

involvement through servicing, the Company recognizes a

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

the expected servicing period based on the effective yield

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

The Company’s sale agreements typically

do not contain

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

is a reduction of the proceeds received and is based on an

estimate of the fair value attributable to that obligation.

The Company’s servicing liability

was $

0.7

million and $

1.3

million as of

September 30, 2021, and December 31, 2020, respectively,

and is recognized within Accounts payable and accrued expenses in the

Consolidated Balance Sheets.

As of September 30, 2021 and December 31, 2020, the portfolio

of leases and loans serviced for others

was $

146

million and $

230

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 following table summarizes information related to portfolio

sales for the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

(Dollars in thousands)

Sales of leases and loans

4,286

28,342

Gain on sale of leases and loans

2,426

-18-

NOTE 6 – Allowance for Credit Losses

Effective January 1, 2020, we

adopted

ASU 2016-13 and related ASUs collectively referred to as CECL

which replaced 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.

See our Annual Report on Form 10-K for the year ended December 31, 2020

for a detailed discussion of our adoption of

this guidance

The following tables summarize activity in the allowance for credit

losses

Three Months Ended September 30, 2021

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, beginning of period

19,718

1,003

8,036

28,757

Charge-offs

(2,407)

(262)

(27)

(2,696)

Recoveries

1,273

158

1,516

Net charge-offs

(1,134)

(104)

(1,180)

Realized cashflows from Residual Income

1,127

Provision for credit losses

(1,334)

300

(149)

(1,183)

Allowance for credit losses, end of period

18,377

1,199

7,945

27,521

Net investment in leases and loans, before allowance

717,697

31,178

70,859

1,019

820,753

Three Months Ended September 30, 2020

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA &

PPP

Total

Allowance for credit losses, beginning of period

48,550

7,962

7,132

63,644

Charge-offs

(10,509)

(633)

(524)

(11,666)

Recoveries

983

101

1,178

Net charge-offs

(9,526)

(532)

(430)

(10,488)

Realized cashflows from Residual Income

965

Provision for credit losses

7,226

(3,974)

3,952

7,204

Allowance for credit losses, end of period

47,215

3,456

10,654

61,325

Net investment in leases and loans, before allowance

803,689

26,472

76,778

1,114

908,053

-19-

Nine Months Ended September 30, 2021

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, beginning of period

33,184

1,206

9,838

44,228

Charge-offs

(8,556)

(813)

(1,176)

(10,545)

Recoveries

3,933

432

308

4,673

Net charge-offs

(4,623)

(381)

(868)

(5,872)

Realized cashflows from Residual Income

3,175

Provision for credit losses

(13,359)

374

(1,025)

(14,010)

Allowance for credit losses, end of period

18,377

1,199

7,945

27,521

Net investment in leases and loans, before allowance

717,697

31,178

70,859

1,019

820,753

Nine Months Ended September 30, 2020

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA &

PPP

Total

Allowance for credit losses, December 31, 2019

18,334

1,899

1,462

21,695

Adoption of ASU 2016-13 (CECL)

(1)

9,264

(3)

2,647

11,908

Allowance for credit losses, beginning of period

27,598

1,896

4,109

33,603

Charge-offs

(24,723)

(2,598)

(2,157)

(29,478)

Recoveries

2,237

156

257

2,650

Net charge-offs

(22,486)

(2,442)

(1,900)

(26,828)

Realized cashflows from Residual Income

3,390

Provision for credit losses

38,713

4,002

8,445

51,160

Allowance for credit losses, end of period

47,215

3,456

10,654

61,325

Net investment in leases and loans, before allowance

803,689

26,472

76,778

1,114

908,053

__________________

(1)

The Company adopted ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses on

Financial Instruments

, which changed our accounting policy and estimated allowance,

effective January 1, 2020.

See further

discussion in Note 2, “Summary of Significant Accounting Policies”, and

below.

-20-

Estimate of Current Expected Credit Losses (CECL)

The Company uses 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

as of September 30, 2021, is summarized below.

Equipment Finance:

Equipment Finance consists of Equipment Finance Agreements, Installment

Purchase Agreements and other leases and loans.

The risk characteristics referenced to develop pools of Equipment

Finance leases and loans are based on internally developed

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

characteristics, including loan size, external credit

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

business.

In addition, the Company separately

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

be used to partially offset the allowance for

that pool.

The Company’s measurement

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

The Company

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

economic variables in order to determine an

approach for reasonable and supportable forecast.

The Company then selected certain economic variables to reference for its

forecast about the future, specifically the unemployment rate and growth

in business bankruptcy.

The Company’s

methodology reverts from the forecast data to its own loss data adjusted for

the long-term average of the referenced economic

variables, on a straight-line basis.

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

changes in portfolio composition or the business

environment, when determining the appropriate measurement of

current expected credit losses for the remaining life of its

portfolio.

As of the January 1, 2020 adoption date, the Company utilized a 12-month forecast period

and 12-month straight-

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

However, starting with the March 31, 2020

measurement, the Company adjusted its model to reference a 6-month forecast

period and 12-month straight line reversion period.

The change in the length of the reasonable and supportable forecast was

based on observed market volatility in March 2020. During the first quarter

of 2021, the Company reverted to the pre-

COVID 12-month forecast period and 12-month straight line reversion

period and continued

using this forecast in the second

and third quarters of 2021 as uncertainty in the macroeconomic environment

has lessened and the Company’s

portfolio has

stabilized with low net charge-offs

and delinquencies.

The continued positive economic forecast resulted in provision

benefits for Equipment Finance of $

1.3

million and $

13.4

million for the three and nine-months ended September 30, 2021,

respectively, as compared

to provisions of $

7.2

million and $

38.7

million for the same periods in 2020 during the height of

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.

-21-

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.

During the third quarter, the Company

updated its expectation for credit losses for the Working

Capital segment based on the

favorable actual portfolio performance during the quarter

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

portfolio.

Based on that analysis, the Company recognized a provision of $

0.3

million for the three months ended September

30, 2021, bringing the total provision associated with Working

Capital to $

0.4

million for the nine months ended September

30, 2021.

Commercial Vehicle

Group (CVG):

Transportation-related equipment leases and

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

characteristics to be significant enough to warrant disaggregating this population.

The Company’s measurement

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

loss data

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

and therefore the Company determined it was

appropriate to develop an estimate based on a combination of internal

and industry data.

Due to the Company’s limited

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

the Company did not develop a standard

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

However, the Company will continually

assess through a qualitative adjustment whether there are changes in conditions

and the environment that will impact the

performance of these loans that should be considered for qualitative adjustment.

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

changes in portfolio composition or the business

environment, when determining the appropriate measurement for

the remaining life of the current portfolio.

As of the

January 1, 2020 adoption date, there were no qualitative adjustment to the CVG portfolio.

However, starting with the

March

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

conditions due to COVID-19, the

Company developed alternate scenarios for expected credit loss for

this segment, considering different timing and

magnitudes of potential exposures.

Beginning in the first quarter of 2021, the Company updated its expectation for

credit losses for the CVG segment, including

separately assessing the elevated risks of a population of motor coach industry contracts

that are facing prolonged impacts

from COVID-19. While the segment continues to evidence negative impacts

from COVID-19 as seen in the segment’s

delinquency and modification balances, it is also experiencing positive

indicators such as paydown of balance.

These factors,

including no further significant reduction in collateral values resulted

in the qualitative reserve remaining unchanged from the

prior quarter at $

4.7

million of total CVG qualitative adjustments for COVID-19 related risks.

Community Reinvestment Act (CRA) Loans:

CRA loans are comprised of loans originated under a line of credit to satisfy the

Company’s obligations under

the CRA.

The

Company does not measure an allowance specific to this population because

the exposure to credit loss is nominal.

For the three and nine-months ended September 30, 2021, the Company recognized

provision benefits of $

1.2

million, and $

14.0

million, respectively,

driven primarily by improving economic forecasts and portfolio performance.

Our reserve as of September 30, 2021, 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.

-22-

Loan Modification Program:

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

instituted a Loan modification payment deferral program in

order to assist its customers that requested relief and were current under their existing

agreement.

The payment deferral program

allows for up to 6 months of fully deferred or reduced payments. As of September

30, 2021, the Company’s Loan modification

program has been terminated, with future modifications considered

and granted on a case-by-case basis.

As of September 30, 2021, the Company had

3,460

active modified leases and loans totaling $

69.5

million of which all except $

0.5

million were out of the deferral period. Out of the deferral period

means the contract has returned to its regular payment schedule. For

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

owed during the deferral period, or partial, with reduced

payments during deferral that are primarily

% of schedule, or the deferral period payment may be a nominal amount.

Total resolved

modifications include

311

contracts charged off where a $

7.0

million credit loss was realized, and

1,848

contracts that

paid in full.

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

difficulties, a lender grants a concession that it

would not otherwise consider for borrowers of similar credit quality.

In accordance with the interagency guidance as updated in April

2020, that the FASB concurred

with, loans modified under the Company’s

payment deferral program are not considered TDRs. As of

September 30, 2021, the Company had $

10.3

million of active contracts designated as 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 September

30, 2021 based on their status with respect to the modified

terms.

-23-

Portfolio by Origination Year as of

September 30, 2021

Total

2021

2020

2019

2018

2017

Prior

Receivables

(Dollars in thousands)

Equipment Finance

30-59

612

688

1,149

435

230

3,145

60-89

179

146

584

277

1,292

90+

266

323

197

998

Total Past Due

882

1,100

2,056

909

398

5,435

Current

203,688

196,444

192,259

83,310

32,507

4,054

712,262

Total

204,570

197,544

194,315

84,219

32,905

4,144

717,697

Working Capital

30-59

224

250

60-89

90+

Total Past Due

275

368

Current

28,626

1,901

283

30,810

Total

28,901

1,951

326

31,178

CVG

30-59

60-89

157

313

90+

129

Total Past Due

157

165

492

Current

21,695

13,879

23,270

8,735

2,393

395

70,367

Total

21,746

14,036

23,435

8,811

2,395

436

70,859

CRA

Total Past Due

Current

1,019

Total

1,019

Net investment in leases

and loans, before allowance

256,236

213,531

218,076

93,030

35,300

4,580

820,753

-24-

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

Net investments in Equipment Finance and CVG leases and loans are generally

charged-off when they are contractually past due for

120 days or more.

Income recognition is discontinued when a default on monthly payment exists for

a period of 90 days or more.

Income recognition resumes when a lease or loan becomes less than 90

days delinquent.

At September 30, 2021 and December 31,

2020, there were

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

-25-

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.

Both Equipment Finance and Working

Capital loans are considered for non-accrual status if and when they are modified

and

classified as a troubled

debt restructuring. The loan is removed from non-accrual status once sufficient

payments are made to bring the

loan current and reviewed by management. At September 30,

2021 and December 31, 2020, there were

Working Capital Loans

past due 30 days or more and still accruing.

The following tables provide information about non-accrual leases and loans:

September 30,

December 31,

(Dollars in thousands)

2021

2020

Equipment Finance

2,485

5,543

Working

Capital Loans

139

932

CVG

7,495

7,814

Total

Non-Accrual

10,119

14,289

NOTE 7 - Goodwill and Intangible Assets

Goodwill

In the first quarter of 2020, driven by negative

events that impacted the Company related to the COVID-19 economic shutdown,

the

Company concluded that the implied fair value of its $

6.7

million goodwill balance was less than the carrying amount and recognized

impairment equal to the $

6.7

million balance in the March 31, 2020 Consolidated Statements of Operations.

Intangible assets

The following table presents details of the Company’s

intangible assets as of September 30, 2021:

Gross Carrying

Accumulated

Net

(Dollars in thousands)

Useful Life

Amount

Amortization

Value

Vendor

relationships

years

7,290

2,134

5,156

Corporate trade name

years

Total

7,350

2,175

5,175

The Company’s intangible

assets consist of definite-lived assets in connection with the January 2017 acquisition

of Horizon Keystone

Financial,

and definite-lived intangible assets in connection with the September

2018 acquisition of Fleet Financing Resources.

The

Company has

indefinite-lived intangible assets.

There was

impairment of these assets in the nine-months ended September 30, 2021 or 2020.

Amortization related to the

Company’s definite lived

intangible assets was $

0.5

million and $

0.6

million for the nine-month periods ended September 30, 2021

and September 30, 2020, respectively.

-26-

The Company expects the amortization expense for the next five years

will be as follows:

Amortization

(Dollars in thousands)

Expense

Remainder of 2021

168

2022

671

2023

671

2024

663

2025

663

NOTE 8 – Other Assets

Other assets are comprised of the following:

September 30,

December 31,

2021

2020

(Dollars in thousands)

Accrued fees receivable

2,289

2,928

Prepaid expenses

2,404

2,790

Income taxes receivable

8,214

Federal Reserve Bank Stock

1,711

Other

1,942

2,783

16,560

10,212

NOTE 9 – Deposits

MBB serves as the Company’s primary

funding source. MBB issues fixed-rate FDIC-insured certificates of deposit raised

nationally

through various brokered deposit relationships and fixed-rate FDIC-insured

deposits received from direct sources. MBB offers FDIC-

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

participation in a partner bank’s

insured savings account

product. This brokered deposit product has a variable rate, no maturity date

and is offered to the clients of the partner bank and

recorded as a single deposit account at MBB. As of September 30, 2021,

money market deposit accounts totaled $

55.0

million.

As of September 30, 2021, the scheduled maturities of certificates of deposits are

as follows:

Scheduled

Dollars in thousands

Maturities

Period Ending December 31,

Remainder of 2021

391,752

2022

204,023

2023

91,829

2024

33,321

2025

9,054

Total

729,979

Certificates of deposits issued by MBB are time deposits and are generally issued in

denominations of $

250,000

or less. The MMDA

Product is also issued to customers in amounts less than $

250,000

. The FDIC insures deposits up to $

250,000

per depositor. The

weighted average all-in interest rate of deposits at September 30, 2021

was

1.07

See Note 14 –

Subsequent Events

for a discussion of an agreement entered into by MBB in October 2021 to transfer

its portfolio of

brokered certificates of deposit held through The Depository Trust

Company.

-27-

NOTE 10 – Debt and Financing Arrangements

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 balance of long-term borrowings consisted of the following:

September 30,

December 31,

2021

2020

(Dollars in thousands)

Term securitization

2018-1

11,719

30,800

Unamortized debt issuance costs

(43)

(135)

11,676

30,665

Long-term Borrowings

On July 27, 2018, the Company completed a $

201.7

million asset-backed term securitization. Each tranche of the term note

securitization has a fixed term, fixed interest rate and fixed principal amount.

At September 30, 2021, outstanding term securitizations

amounted to $

11.7

million and are collateralized by $

12.8

million of minimum lease and loan payments receivable and $

3.2

million of

restricted interest-earning deposits. The Company’s

term note securitizations are classified as long-term borrowings.

The term note securitization is summarized below:

Outstanding Balance as of

Notes

Final

Original

September 30,

December 31,

Originally

Maturity

Coupon

2021

2020

Issued

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

9,560

10,400

May, 2023

3.54

Class C

1,869

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

11,719

30,800

201,650

3.05

(1)(2)

__________________

(1)

Represents the original weighted average initial coupon rate for all tranches

of the securitization. In addition to this coupon

interest, term note securitizations have other transaction costs which are amortized

over the life of the borrowings as additional

interest expense.

(2)

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

will approximate 4.33% over the remaining term of the

borrowing.

-28-

Based on current expected cashflows of leases underlying our term note

securitization, principal and interest payments are estimated

as of September 30, 2021 as follows:

Principal

Interest

(Dollars in thousands)

Period Ending December 31,

Remainder of 2021

3,137

121

2022

8,582

159

11,719

280

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 September 30, 2021, and December 31,

2020, 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 $

50.2

million in unused, secured borrowing capacity at the Federal Reserve Discount Window,

based on

55.9

million of net investment in leases pledged at September 30, 2021.

-29-

NOTE 11 – Fair Value

Measurements and Disclosures about the Fair

Value of Financial

Instruments

Fair Value

Measurements

Fair value is defined in GAAP as the price that would be received to sell an asset or the price that would

be paid to transfer a liability

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

most advantageous market for the asset or liability in an

orderly transaction between market participants. A three-level valuation

hierarchy is required for disclosure of fair value

measurements based upon the transparency of inputs to the valuation of

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

hierarchy gives the highest priority to quoted prices (unadjusted) in active

markets for identical assets or liabilities (Level 1) and the

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

within which the fair value measurement in its

entirety falls is determined based on the lowest level input that is significant to

the measurement in its entirety.

In accordance with the Merger Agreement and De-banking

process discussed in Note 1, the Company sold all its investment securities

in the third quarter of 2021.

The Company’s balances measured

at fair value on a recurring basis include the following as of September 30,

2021 and December

31, 2020:

September 30, 2021

December 31, 2020

Fair Value Measurements Using

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

(Dollars in thousands)

Assets

ABS

3,719

Municipal securities

4,145

Mutual fund

3,760

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.

Non-Recurring Measurements

Non-recurring fair value measurements include assets and liabilities that

are periodically remeasured or assessed for impairment using

Fair value measurements. Non-recurring measurements include the Company’s

evaluation of goodwill and residual assets for

impairment, and the Company’s

remeasurement of contingent consideration and assessment of the

carrying amount of its servicing

liability.

For the nine months ended September 30, 2021, there were no significant

amounts recognized in the Consolidated Statements of

Operations in connection with non-recurring fair value measurements.

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

6.7

million for the impairment of goodwill as discussed

further in Note 7 -

Goodwill and Intangible Assets

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:

-30-

September 30, 2021

December 31, 2020

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

(Dollars in thousands)

Financial Assets

Cash and cash equivalents

222,260

135,691

Time deposits with banks

996

1,000

5,967

6,003

Restricted interest-earning deposits with banks

3,202

4,719

Loans, net of allowance

504,335

513,431

500,768

507,362

Federal Reserve Bank Stock

1,711

Financial Liabilities

Deposits

783,203

790,175

729,614

742,882

Long-term borrowings

11,676

11,961

30,665

31,114

There have been no significant changes in the methods and assumptions used

in estimating the fair values of financial instruments, as

outlined in our consolidated financial statements and note disclosures in

the Company’s Form 10-K

for the year ended December 31,

2020.

-31-

NOTE 12 – Earnings Per Share

The Company’s restricted stock

awards are paid non-forfeitable common stock dividends and thus meet

the criteria of participating

securities. Accordingly,

earnings per share (“EPS”) has been calculated using the two-class method, under

which earnings are

allocated to both common stock and participating securities.

Basic EPS has been computed by dividing net income or loss allocated to common

stock by the weighted average common shares

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

restricted stock have been deducted from the weighted

average shares outstanding.

Diluted EPS has been computed by dividing net income or loss allocated to common

stock by the weighted average number of

common shares used in computing basic EPS, further adjusted by including the

dilutive impact of the exercise or conversion of

common stock equivalents, such as stock options, into shares of comm

on stock as if those securities were exercised or converted.

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

and diluted EPS:

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

(Dollars in thousands, except per-share data)

Basic EPS

Net income (loss)

5,481

2,743

22,588

(14,960)

Less: net income allocated to participating securities

(69)

(36)

(281)

Net income (loss) allocated to common stock

5,412

2,707

22,307

(14,960)

Weighted average

common shares outstanding

12,026,443

11,946,549

12,007,963

11,951,375

Less: Unvested restricted stock awards considered participating

securities

(150,339)

(155,408)

(149,462)

(142,186)

Adjusted weighted average common shares used in computing

basic EPS

11,876,104

11,791,141

11,858,501

11,809,189

Basic EPS

0.46

0.23

1.88

(1.27)

Diluted EPS

Net income (loss) allocated to common stock

5,412

2,707

22,307

(14,960)

Adjusted weighted average common shares used in computing

basic EPS

11,876,104

11,791,141

11,858,501

11,809,189

Add: Effect of dilutive stock-based compensation

awards

186,146

41,272

113,767

Adjusted weighted average common shares used in computing

diluted EPS

12,062,250

11,832,413

11,972,268

11,809,189

Diluted EPS

0.45

0.23

1.86

(1.27)

For the three-month periods ended September 30, 2021 and September

30, 2020, weighted average outstanding stock-based

compensation awards in the amount of

112,216

and

230,428

, respectively, were considered

antidilutive and therefore were not

considered in the computation of potential common shares for purposes of

diluted EPS.

For the nine-month periods ended September 30, 2021 and September

30, 2020, weighted average outstanding stock-based

compensation awards in the amount of

132,619

and

286,349

, respectively, were considered

antidilutive and therefore were not

considered in the computation of potential common shares for purposes of

diluted EPS.

-32-

NOTE 13 – Stockholders’ Equity

Share Repurchases

During the three month and nine-month periods ended September

30, 2021, the Company did

t purchase any shares of its common

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

Board of Directors on August 1, 2019 (the “2019 Repurchase

Plan”).

During the three-month period ended September 30, 2020, the Company

did

t purchase any shares of its common stock under the

2019 Repurchase Plan.

During the nine-month period ended September 30, 2020, the Company purchased

264,470

shares of its

common stock under the 2019 Repurchase Plan at an average cost of $

16.09

per share.

At September 30, 2021, the Company had $

4.7

million of remaining authorizations under the 2019 Repurchase Plan. Pursuant

to the

Merger Agreement, the Company may not repurchase shares of

common stock (pursuant to the 2019 Repurchase Plan or otherwise)

without the prior written consent of Madeira Holdings, LLC.

In addition to the repurchases described above, participants in the

Company’s 2014 Equity Compensation

Plan (approved by the

Company’s shareholders

on June 3, 2014) (the “2014 Plan”) and the Company’s

2019 Equity Compensation Plan (approved by the

Company’s shareholders

on May 30, 2019) (as amended by the First Amendment approved by the Company’s

shareholders on June 2,

2021, the “2019 Plan”) may have shares withheld to cover income taxes. During

the three-month periods ended September 30, 2021

and September 30, 2020, there were

shares and

18,446

shares repurchased to cover income tax withholding under the 2014 Plan

and the 2019 Plan at an average cost of $

22.44

per share and $

8.06

per share, respectively. During

the nine-month periods ended

September 30, 2021 and September 30, 2020, there were

16,198

and

41,466

shares repurchased to cover income tax withholding in

connection with shares granted under the 2014 Plan and the 2019

Plan at average per-share costs of $

14.07

and $

10.70

, respectively.

Regulatory Capital Requirements

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

primary funding source. Over time, MBB may offer

other products and services to the Company’s

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

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

member bank, MBB is supervised by both the Federal

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

The Company and MBB are subject to capital adequacy regulations issued

jointly by the federal bank regulatory agencies. These risk-

based capital and leverage guidelines make regulatory capital requirements more

sensitive to differences in risk profiles among

banking organizations and consider off

-balance sheet exposures in determining capital adequacy.

The federal bank regulatory agencies

and/or the U.S. Congress may determine to increase capital requirements

in the future due to the current economic environment.

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

total capital is required to be "Tier 1 Capital" as

defined in the regulations, comprised of common equity,

retained earnings and a limited amount of non-cumulative perpetual

preferred stock. The remaining capital, "Tier

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

amount of term subordinated debt or a limited amount of the reserve for possible

credit losses. The regulations establish minimum

leverage ratios for banking organizations, which

are calculated by dividing Tier 1 Capital by total average

assets. Recognizing that the

risk-based capital standards principally address credit risk rather than

interest rate, liquidity, operational

or other risks, many banking

organizations are expected to maintain capital in excess

of the minimum standards.

The Company and MBB operate under the Basel III capital adequacy standards.

These standards require a minimum for Tier 1

leverage ratio of

%, 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

-33-

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

% to be considered adequately capitalized and above

% to be considered well-capitalized 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 the

amount of cumulative dividends paid over that 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 September 30, 2021, MBB has the capacity under 12

CFR 208.5 to pay dividends to the Company without explicit approval from

the Federal Reserve Board of Governors.

MBB’s Tier 1

Capital balance at September 30, 2021 was $

165.9

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

and qualified MBB for “well-capitalized” status. At September 30, 2021,

the Company also exceeded its regulatory capital

requirements and was considered “well-capitalized” as defined by federal

banking regulations and as required by the FDIC

Agreement.

CECL Capital Transition.

The Company adopted CECL, or a new measurement methodology for

the allowance estimate, on January

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

Policies.

Rules governing the Company’s

regulatory

capital requirements give entities the option of delaying for two years the

estimated impact of CECL on regulatory capital, followed

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

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

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

For measurements of regulatory capital in 2020 and 2021, under the two year

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

for credit losses under CECL, as reported in its balance

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

historical incurred loss methodology,

as prescribed by the

regulatory calculation.

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

will be an adjustment the

Company’s capital during the two-year

delay.

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

-line,

such that

% 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.

-34-

The following table sets forth the Tier 1 leverage

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

Tier 1 risk-based capital ratio

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

30, 2021.

Minimum Capital

Well-Capitalized Capital

Actual

Requirement

Ratio

Amount

Ratio

Amount

Ratio

Amount

(Dollars in thousands)

Tier 1 Leverage Capital

Marlin Business Services Corp.

21.71%

217,465

4.00%

40,076

5.00%

50,095

Marlin Business Bank

17.84%

165,937

4.00%

37,210

5.00%

46,513

Common Equity Tier 1 Risk-Based Capital

Marlin Business Services Corp.

25.33%

217,465

4.50%

38,640

6.50%

55,813

Marlin Business Bank

20.67%

165,937

4.50%

36,131

6.50%

52,189

Tier 1 Risk-based Capital

Marlin Business Services Corp.

25.33%

217,465

6.00%

51,519

8.00%

68,693

Marlin Business Bank

20.67%

165,937

6.00%

48,174

8.00%

64,232

Total

Risk-based Capital

Marlin Business Services Corp.

26.60%

228,405

8.00%

68,693

10.00%

85,866

Marlin Business Bank

21.94%

176,181

8.00%

64,232

10.00%

80,290

Prompt Corrective Action

The Federal Deposit Insurance Corporation Improvement Act of 1991

(“FDICIA”) requires the federal

regulators to take prompt corrective action against any undercapitalized institution.

Five capital categories have been established

under federal banking regulations:

well-capitalized, adequately capitalized, undercapitalized, significantly

undercapitalized and

critically undercapitalized.

Well-capitalized institutions

significantly exceed the required minimum level for each relevant capital

measure.

Adequately capitalized institutions include depository institutions that meet

but do not significantly exceed the required

minimum level for each relevant capital measure. Undercapitalized institutions

consist of those that fail to meet the required minimum

level for one or more relevant capital measures.

Significantly undercapitalized characterizes depository institutions with capital

levels

significantly below the minimum requirements for any relevant capital

measure.

Critically undercapitalized refers to depository

institutions with minimal capital and at serious risk for government seizure.

Under certain circumstances, a well-capitalized, adequately capitalized or

undercapitalized institution may be treated as if the

institution were in the next lower capital category.

A depository institution is generally prohibited from making capital distributions,

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

if the institution would thereafter be undercapitalized.

Institutions that are adequately capitalized but not well-capitalized

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

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

be paid on such deposits. Undercapitalized

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

The federal bank regulatory agencies are permitted or,

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

falling within one of the three undercapitalized categories.

Depending on the level of an institution’s

capital, the agency’s corrective

powers include, among other things:

•

prohibiting the payment of principal and interest on subordinated debt

;

•

prohibiting the holding company from making distributions without

prior regulatory approval;

•

placing limits on asset growth and restrictions on activities;

•

placing additional restrictions on transactions with affiliates;

•

restricting the interest rate the institution may pay on deposits;

-35-

•

prohibiting the institution from accepting deposits from correspondent

banks; and

•

in the most severe cases, appointing a conservator or receiver for the institution.

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

restoration plan, and such a plan will not be accepted

unless, among other things, the banking institution’s

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

Any such

guarantee from a depository institution’s

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

MBB’s total risk-based capital

ratio of

21.94

% at September 30, 2021 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.

Pursuant to the Merger Agreement, the Company

may not, without the prior written consent of Madeira Holdings, LLC, declare or pay

any dividends, other than the Company’s

regular quarterly cash dividends in an amount not to exceed $

0.14

per quarter.

NOTE 14 – Subsequent Events

Quarterly Dividend

The Company declared a dividend of $

0.14

per share on October 28, 2021. The quarterly dividend, which is expected to result in a

dividend payment of approximately $

1.7

million, is scheduled to be paid on

November 18, 2021

to shareholders of record on the close

of business on

November 8, 2021

. It represents the Company’s

forty-first

consecutive quarterly cash dividend. The payment of future

dividends will be subject to satisfaction of regulatory requirements appli

cable to bank holding companies and approval by the

Company’s Board of Directors.

In addition, pursuant to the Merger Agreement, the Company may not,

without the prior written

consent of Madeira Holdings, LLC, declare or pay any future dividends other

than the Company’s regular quarterly

cash dividend in

an amount not to exceed $

0.14

per quarter.

Deposit Assignment & Assumption Agreement.

On October 8, 2021, MBB entered into an agreement to transfer its portfolio of

brokered certificates of deposit held through The

Depository Trust Company with an outstanding

principal amount of approximately $

204.8

million to a Federal Deposit Insurance

Corporation (“FDIC”)-insured depository institution.

In exchange for the acquiror’s assumption of those deposits, MBB has agreed

pay the acquiror at the time of transfer, in addition

to the outstanding principal amount of the deposits, all accrued but unpaid interest

on the deposits as of the transfer date plus a sum of $

750,000

The agreement contemplates that the transfer,

which is subject to

(among other customary closing conditions) the approval of the Utah Department

of Financial Institutions and of the FDIC pursuant to

Section 18(c) of the Federal Deposit Insurance Act, expected to occur in late December

2021 or early January 2022.

-36-

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

The following discussion and analysis of our financial condition and

results of operations should be read

in conjunction with our

Consolidated Financial Statements and the related

notes thereto in our Form 10-K for the year ended

December 31, 2020 filed with

the SEC.

This discussion contains certain statements of a forward-looking

nature that involve risks and uncertainties.

ORWARD

-L

OOKING

TATEMENTS

Certain statements in this document may include the words or phrases “can be,”

“expects,” “plans,” “may,”

“may affect,” “may

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

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

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

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

of the Securities Exchange Act of 1934, as amended (the “1934 Act”). Investors

are cautioned not to place undue reliance on these

forward-looking statements. Forward-looking statements are subject to various

known and unknown risks and uncertainties and the

Company cautions that any forward-looking information provided

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

Statements regarding the following subjects are forward-looking

by their nature: (a) our expectations related to the proposed Merger,

including the timing thereof and the costs to be incurred in connection with

the De-banking; (b) our business strategy; (c) our

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

(e) our understanding of our competition; and (f)

industry and market trends. The Company’s

actual results could differ materially from those anticipated

by such forward-looking

statements due to a number of factors, some of which are beyond the Company’s

control, including, without limitation:

◾

our ability to complete our proposed merger with HPS Merger

Sub, including to complete the De-banking within the timeline

required under the merger agreement, if at all;

◾

availability, terms and deployment

of funding and capital;

◾

changes in our industry,

interest rates, the regulatory environment

or the general economy resulting in changes to our

business strategy;

◾

the degree and nature of our competition;

◾

availability and retention of qualified personnel;

◾

general volatility of the capital markets;

◾

the effects of the COVID-19 pandemic; and

◾

the factors set forth in the section captioned “Risk Factors” in Item 1 of our

Form 10-K for the year ended December 31,

2020 and in Part II—Item 1A of this Form 10-Q.

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

not required to update forward-looking statements for

subsequent or unanticipated events or circumstances.

For any forward-looking statements contained in any document, we claim the

protection of the safe harbor for forward-looking statements contained

in the Private Securities Litigation Reform Act of 1995. As

used herein, the terms “Company,”

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

and its

subsidiaries.

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,

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, a company specializing in the leasing and

financing of both new and used commercial vehicles, with an

emphasis on livery equipment and other types of commercial vehicles used

by small businesses.

We access our end

user customers primarily through origination sources consisting of independent

commercial equipment dealers,

various national account programs, through direct solicitation of our

end user customers and through relationships with select lease

and loan brokers. We

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

outside sales executives to market to

-37-

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.

We fund

our business primarily through the issuance of fixed and variable-rate FDIC-insured

deposits and money market demand

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

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

securitization transactions.

XECUTIVE

UMMARY

Proposed Acquisition by a Subsidiary of Funds Managed by HPS Investment

Partners, LLC.

On April 18, 2021, the Company entered into an Agreement and Plan of Merger

(the “Merger Agreement”), by and among the

Company, Madeira

Holdings, LLC and HPS Merger Sub pursuant to which

all outstanding shares of the Company’s

common stock

will, subject to the terms and conditions of the Merger Agreement,

be cancelled and converted into the merger consideration specified

in the Merger Agreement in an all cash transaction pursuant to

a merger of the Company with and into HPS Merger Sub,

with the

Company surviving (the “Merger”).

On August 4, 2021, our shareholders approved the adoption of the Merger

Agreement. The

Merger remains subject to, in addition to various other

customary closing conditions, governmental and regulatory approvals and

completion of the De-banking.

We continue

to operate the business and are focused on taking necessary actions to ensure we meet

all closing conditions, including

completion of the De-banking.

See “Part I—Item 1A. Risk Factors—Risks Related to Our Strategies—"We

may fail to consummate the proposed Merger Agreement,

and uncertainties related to the consummation of the transaction may have

a material adverse effect on our business, financial position,

results of operations and cash flows, and negatively impact the price

of our Common stock." in this Form 10-Q.

Business Update

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 in the first quarter of 2020

was working with existing customers to protect the value

of our portfolio and limiting the erosion of shareholder capital.

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.

As we have seen economic conditions improve and continued

excellent portfolio performance, our underwriting criteria and standards

have been updated accordingly.

Most of our employees continue to work remotely but we have not experienced

any significant interruption to our operations. We

began to return some of our employees back to the workplace in May 2021 based

upon business needs and employee interest.

currently intend to implement

a hybrid approach to our return to the office beginning in

early 2022; however, we will continually re-

evaluate our return to office approach as we monitor the

trends in COVID-19 cases across the country.

Our third quarter results of net income of $5.5 million, or $0.45 earnings

per share, were primarily driven by a $1.2 million provision

for credit losses benefit due to continued positive portfolio

performance coupled with expense management benefits.

Our total

originations in the third quarter 2021 were $98.6 million, which were

16% above total origination in the same quarter as last year,

but

2% below the prior quarter.

Additionally, total originations

in the quarter were 46% below the pre-pandemic levels of 2019.

Economic factors, including but not limited to employment conditions

and global supply chain disruptions, have affected our

origination volumes; however, we are

proactively increasing staffing in our sales organization

in order to increase sales activities and

origination momentum.

Portfolio Trends

and Performance

During the three months ended September 30, 2021, we generated

3,836 new Equipment Finance leases and loans with equipment

costs of $81.6

million, compared to 3,410 new Equipment Finance leases and loans with equipment

costs of $65.8 million generated

for the three months ended September 30, 2020. Working

Capital loan originations were $17.0 million during the three-month period

ended September 30, 2021, compared to $1.4 million for the three-month

period ended September 30, 2020.

Overall, our average net investment in total finance receivables for the

three-month period ended September 30, 2021 decreased

13.1%

to $803.8 million, compared to $924.6 million for the three-month period

ended September 30, 2020, which has caused a

corresponding reduction in interest and fee income.

-38-

Equipment Finance receivables delinquent over 30 days were

0.76% at September 30, 2021, down 137 basis points from 2.13% at

September 30, 2020 and down 83 basis points from 1.59% at December 31,

2020. Working Capital receivables

over 15 days

delinquent were 1.49% at September 30, 2021, down 244 basis points from

3.93% at September 30, 2020 and down 351 basis point

from 5.00% at December 31, 2020.

Annualized total net charge-offs for the third quarter

of 2021 were 0.59% of average total finance

receivables as compared to 4.54% for the same period in 2020.

For the three-months ended September 30, 2021 we recognized a provision

benefit of $1.2 million as compared to a provision net

expense of $7.2 million for the same period in 2020. The provision benefit

in the third quarter of 2021 was primarily due to positive

changes in the outlook of macroeconomic assumptions to which the reserve

is correlated as well as positive trends in portfolio

performance. Allowance for credit losses as a percentage of total finance

receivables was 3.35%

at September 30, 2021 compared with

6.75%

at September 30, 2020.

-39-

INANCE

ECEIVABLES

AND

SSET

UALITY

The following table summarizes certain portfolio statistics for the

periods presented:

September 30,

June 30,

December 31,

September 30,

2021

2020

(Dollars in thousands)

Finance receivables:

End of period

820,753

829,111

869,284

908,053

Average for the quarter

(1)

803,783

815,761

945,599

924,635

Origination Volume

- three months

98,605

100,864

83,011

67,117

Origination Volume

- nine months, through September 30

282,772

184,630

—

284,117

Assets Sold - three months

—

4,286

Assets Sold - nine months, through September 30

—

28,342

Leases and Loans Modified:

Payment deferral program

(2)

End of period

69,456

80,554

111,209

129,882

As a % of end of period receivables

(1)

8.5%

9.7%

12.8%

14.3%

Allowance for credit losses :

End of period

27,521

28,757

44,228

61,325

As a % of end of period receivables

(1)

3.35%

3.47%

5.09%

6.75%

Annualized net charge-offs

to average total finance receivables

(quarter)

(1)

0.59%

0.60%

3.43%

4.54%

Delinquencies, end of period:

(3)

Equipment Finance and CVG:

Greater than 60 days past due, $

2,848

3,899

6,717

12,551

Greater than 60 days past due, %

0.35%

0.37%

0.77%

1.43%

Working

Capital:

Greater than 30 days past due, $

368

741

777

Greater than 30 days past due, %

1.18%

0.23%

3.69%

2.94%

__________________

(1)

For purposes

of asset

quality and

allowance calculations,

the effects

of (i)

the allowance

for credit

losses and

(ii) initial

direct costs

and fees

deferred are excluded.

(2)

Contracts that

are part

of our

Payment-deferral modification

program, that

allows for

either full

or partial

payment deferral,

will appear

in our

Delinquency and Non-Accrual measures based on their performance against their modified terms.

(3)

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

-40-

ESULTS OF

PERATIONS

Comparison of the Three-Month Periods Ended September

30, 2021 and September 30, 2020

Net income.

Net income of $5.5 million was reported for the three-month period

ended September 30, 2021, resulting in diluted EPS per share of

$0.45,

compared to net income of $2.7 million and diluted loss per share of $0.23 for

the three-month period ended September 30,

2020.

This $2.8 million increase in Net income was primarily driven by:

$8.4 million decrease in Provision for credit losses, driven primarily by an

improvement in economic conditions during the

past 12 months

;

$3.4 million decrease in net interest and fee income driven primarily

by a decline in the size of our finance receivable

portfolio;

$2.1 million decrease in interest expense due to a decline in the deposit balance

and rates, as well as continuing reduction of

long-term debt;

$1.5 million increase in general and administrative, primarily driven

by a prior year $1.4 million reduction to the fair value of

the contingent consideration earn out liability related to our 2018 acquisition

of the FFR business.

Average balances and

net interest margin.

The following table summarizes the Company’s

average balances, interest income,

interest expense and average yields and rates on major categories of interest-earning

assets and interest-bearing liabilities for the three-

month periods ended September 30, 2021 and September 30, 2020

-41-

Three Months Ended September 30,

2021

2020

(Dollars in thousands)

Average

Yields/

Average

Yields/

Balance

(1)

Interest

Rates

(2)

Balance

(1)

Interest

Rates

(2)

Interest-earning assets:

Interest-earning deposits with banks

142,540

0.08

165,257

0.07

Time Deposits

2,466

1.07

10,069

1.67

Restricted interest-earning deposits with banks

3,888

—

6,487

—

0.01

Securities available for sale

6,325

0.98

10,755

1.86

Net investment in leases

(3)

753,506

15,282

8.11

851,683

19,010

8.93

Loans receivable

(3)

50,277

2,324

18.49

72,952

3,266

17.91

Total

interest-earning assets

959,002

17,657

7.36

1,117,203

22,398

8.02

Non-interest-earning assets:

Cash and due from banks

5,686

5,515

Allowance for loan and lease losses

(29,621)

(61,470)

Intangible assets

5,285

6,982

Operating lease right-of-use assets

7,393

8,070

Property and equipment, net

9,252

8,580

Property tax receivables

9,395

8,949

Other assets

(4)

28,428

28,390

Total

non-interest-earning assets

35,818

5,016

Total

assets

994,820

1,122,219

Interest-bearing liabilities:

Certificate of Deposits

(5)

666,637

2,374

1.42

784,056

4,149

2.12

Money Market Deposits

(5)

53,611

0.30

51,563

0.29

Long-term borrowings

(5)

14,589

180

4.93

45,594

507

4.45

Total

interest-bearing liabilities

734,837

2,594

1.41

881,213

4,694

2.13

Non-interest-bearing liabilities:

Sales and property taxes payable

6,603

6,340

Operating lease liabilities

8,260

9,015

Accounts payable and accrued expenses

8,172

20,893

Net deferred income tax liability

25,181

21,865

Total

non-interest-bearing liabilities

48,216

58,113

Total

liabilities

783,053

939,326

Stockholders’ equity

211,768

182,893

Total

liabilities and stockholders’ equity

994,820

1,122,219

Net interest income

15,063

17,704

Interest rate spread

(6)

5.95

5.89

Net interest margin

(7)

6.28

6.34

Ratio of average interest-earning assets to

average interest-bearing liabilities

130.51

126.78

__________________

(1)

Average balances were calculated using average daily balances.

(2)

Annualized.

-42-

(3)

Average

balances of leases

and loans include

non-accrual leases and

loans, and are

presented net of

unearned income. The

average balances of

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

(4)

Includes operating leases.

(5)

Includes effect of

transaction costs. Amortization of

transaction costs is on

a straight-line basis, resulting

in an increased average

rate whenever

average portfolio balances are at reduced levels.

(6)

Interest rate spread

represents the difference

between the average

yield on interest-earning

assets and the

average rate on

interest-bearing liabilities.

(7)

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

Changes due to volume and rate.

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

by volume and

rate.

Three Months Ended September 30, 2021 Compared To

Three Months Ended September 30, 2020

Increase (Decrease) Due To:

Volume

(1)

Rate

(1)

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

(4)

(2)

Time Deposits

(24)

(11)

(35)

Securities available for sale

(16)

(19)

(35)

Net investment in leases

(2,080)

(1,648)

(3,728)

Loans receivable

(1,045)

103

(942)

Total

interest income

(3,007)

(1,734)

(4,741)

Interest expense:

Certificate of Deposits

(558)

(1,217)

(1,775)

Money Market Deposits

Long-term borrowings

(377)

(327)

Total

interest expense

(693)

(1,407)

(2,100)

Net interest income

(2,486)

(155)

(2,642)

__________________

(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.

-43-

Net interest and fee margin.

The following table summarizes the Company’s

net interest and fee income as an annualized percentage

of average total finance receivables for the three-month periods ended September

30, 2021 and September 30, 2020.

Three Months Ended September 30,

2021

2020

(Dollars in thousands)

Interest income

17,656

22,398

Fee income

2,027

2,803

Interest and fee income

19,683

25,201

Interest expense

2,594

4,694

Net interest and fee income

17,089

20,507

Average total

finance receivables

(1)

803,783

924,635

Annualized percent of average total finance receivables:

Interest income

8.79

9.69

Fee income

1.01

1.21

Interest and fee income

9.80

10.90

Interest expense

1.29

2.03

Net interest and fee margin

8.51

8.87

__________________

(1)

Total finance receivables include net investment in leases and loans.

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

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

Net interest and fee income decreased $3.4 million, or 16.6%, to $17.1

million for the three months ended September 30, 2021 from

$20.5 million for the three months ended September 30, 2020.

The annualized net interest and fee margin decreased

36 basis points to

8.51% in the three-month period ended September 30, 2021 from

8.87% for the corresponding period in 2020.

Interest income, net of amortized initial direct costs and fees, was $17.7

million and $22.4 million for the three-month periods ended

September 30, 2021 and September 30, 2020, respectively.

Average total

finance receivables decreased $120.8 million, or 13.1%, to

$803.8 million at September 30, 2021 from $924.6 million at September

30, 2020. 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 90 basis points to 8.79% from 9.69% in the same quarter

one year ago. Higher yielding working capital portfolio

made up a smaller percentage of the total portfolio during the third quarter

of 2021 compared to the same period one year ago.

The

weighted average implicit interest rate on new finance receivables originated

increased 150 basis points to 10.83% for the three-month

period ended September 30, 2021 compared to 9.33% for the three-month

period ended September 30, 2020. That increase was

primarily driven by a shift in the mix of originations as higher-yield

Working Capital originations

comprised $17.0 million of our

originations for the three months ended September 30, 2021, compared

to $1.4 million in 2020. As the economy continues to recover

from the impacts of the COVID-19 pandemic the company is looking to grow originations.

During the third quarter of 2021, the

company originated $98.6 million of total originations compared

to $67.1 million in the same period one year ago.

Additionally,

equipment finance approval percentage in the third quarter of 2021

was 50% which was up 10 basis points compared to the third

quarter of 2020.

Fee income was $2.0 million and $2.8 million for the three-month periods

ended September 30, 2021 and September

30, 2020,

respectively,

and included approximately $1.2 million and $1.7 million in late fee income for

the three-month periods ended

September 30, 2021 and September 30, 2020, respectively.

Late fees remained the largest component of fee income at 0.60% as an

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

period ended September 30, 2021, compared to 0.74%

for the three-month period ended September 30, 2020. Fee income

also included approximately $0.8 million and $1.1 million of early

buyout income for the three-month periods ended September 30,

2021 and September 30, 2020, respectively.

Early buyout income is

driven by customer behavior, in which

increased levels of this activity and related income have been recorded during the course

of the

pandemic.

-44-

Interest expense decreased $2.1 million to $2.6 million for the three-month

period ended September 30, 2021 from $4.7 million for the

corresponding period in 2020, primarily due to a decrease of $1.8

million on lower deposit balances

and rates. Additionally, there

was

a decrease of $0.3 million due to the continuing reduction of long-term debt.

Interest expense, as an annualized percentage of average

total finance receivables, decreased 74 basis points to 1.29% for the three

-month period ended September 30, 2021, from 2.03% for

the corresponding period in 2020. The average balance of deposits was $720.2

million and $835.6 million for the three-month periods

ended September 30, 2021 and September 30, 2020, respectively.

For the three-month period ended September 30, 2021, average term

securitization borrowings outstanding were $14.6 million at a

weighted average coupon of 4.93%. For the three-month period ended

September 30, 2020, average term securitization borrowings

outstanding were $45.6 million at a weighted average coupon of 4.45%.

Our wholly-owned subsidiary,

MBB, serves as our primary funding source. MBB raises fixed-rate and variable

-rate FDIC-insured

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

through the brokered MMDA Product. At September 30,

2021,

brokered certificates of deposit represented approximately 70% of

total deposits, while approximately 23% of total deposits

were obtained from direct channels, and 7% were in the brokered

MMDA Product.

Gain on Sale of Leases and Loans.

There were no asset sales for the three-month period ended September

30, 2021 as we retained all

of our origination volume on our balance sheet. There were $4.3

million of asset sales for the three-month period ended September 30,

2020 for a $0.1 million gain on sale of lease and loans.

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.

There can be no assurance that we can execute

sales based on our prior experience or on terms that are acceptable to us.

Insurance premiums written and earned.

Insurance premiums written declined to $1.9 million for the three-month period ended

September 30, 2021, compared to $2.1 million for the three-month period

ended September 30, 2020 as the overall portfolio

contracted.

Other income.

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

periods ended September 30, 2021 and September

30, 2020, respectively.

Salaries and benefits expense.

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

Three Months Ended September 30,

2021

2020

(Dollars in thousands)

Salary, benefits and payroll

taxes

6,061

6,825

Incentive compensation

1,819

1,632

Commissions

282

Total

8,162

8,515

Salaries and benefits expense.

Salaries and benefits expense increased $0.4 million, or 4.2%, to $8.1

million for the three-month

period ended September 30, 2021 from $8.5 million for the corresponding

period in 2020 primarily due to equity-based compensation

which was adjusted to lower target levels in the corresponding period

in 2020 and due to higher commission and bonus in the 2021

period driven by increased origination volume.

-45-

General and administrative expense.

The following table summarizes General and administrative expense:

Three Months Ended September 30,

2021

2020

(Dollars in thousands)

Occupancy and depreciation

1,174

1,483

Professional fees

965

910

Information technology

1,147

972

Marketing

398

162

Acquisition-related contingent payment fair value adjustment

—

(1,435)

Other G&A

2,516

2,625

Total

6,200

4,717

General and administrative expense increased $1.5 million, or 31.6%,

to $6.2 million for the three months ended September 30, 2021

from $4.7 million for the corresponding period in 2020 The primary

driver of the change was a $1.4 million reduction in 2020 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 decreased

the liability for estimated payments. General and administrative expense as an

annualized percentage of average total finance receivables was 3.09%

for the three-month period ended September 30, 2021,

compared to 2.48% for the three-month period ended September 30, 2020.

Provision for income taxes.

Income tax expense of $2.0 million was recorded for the three-month period ended

September 30, 2021,

compared to $0.5 million for the three-month period ended September

30, 2020. Our effective tax rate was 27.1% for the three-month

period ended September 30, 2021, as compared to an effective tax

rate of 16.1% for the three-month period ended September 30, 2020

which was driven by an interim reporting limitation on the amount of tax benefits

that can be recognized under Accounting Standards

Codification (“ASC”) 740,

Income Taxes

-46-

Comparison of the Nine-Month Periods Ended September 30, 2021

and September 30, 2020

Net income/loss.

Net income of $22.6 million was reported for the nine-month period

ended September 30, 2021,

resulting in diluted EPS of $1.86,

compared to net loss of $15.0 million and diluted loss per share of $1.27

for the nine-month period ended September 30, 2020.

This

$37.6 million increase in Net income was primarily driven by:

$65.2 million decrease in Provision for credit losses, primarily driven

primarily by an improvement in economic conditions

during the past 12 months

;

$20.7 million decrease in interest and fee income driven primarily by

a decline in the size of our finance receivable portfolio;

$7.1 million decrease in interest expense due to a decline in the deposit balance

and rates, as well as continuing reduction of

long-term debt;

$2.4 million decrease in gain on leases and loans sold;

6.8 million decrease in Non-interest expense due to the primarily due to the $6.7

million goodwill impairment that was

recorded in the first quarter of 2020;

$16.8 million increase in Income tax expense.

Average balances and

net interest margin.

The following table summarizes the Company’s

average balances, interest income,

interest expense

and average yields and rates on major categories of interest-earning assets and interest-bearing

liabilities for the nine-

month periods ended September 30, 2021 and September 30, 2020

-47-

Nine Months Ended September 30,

2021

2020

(Dollars in thousands)

Average

Yields/

Average

Yields/

Balance

(1)

Interest

Rates

(2)

Balance

(1)

Interest

Rates

(2)

Interest-earning assets:

Interest-earning deposits with banks

117,394

0.07

161,528

388

0.32

Time Deposits

4,000

1.18

11,942

167

1.86

Restricted interest-earning deposits with banks

4,421

—

7,189

0.17

Securities available for sale

9,999

109

1.45

10,671

159

1.99

Net investment in leases

(3)

769,036

47,295

8.20

880,571

58,515

8.86

Loans receivable

(3)

48,637

6,118

16.77

90,353

13,873

20.47

Total

interest-earning assets

953,487

53,614

7.50

1,162,254

73,111

8.39

Non-interest-earning assets:

Cash and due from banks

6,113

5,547

Allowance for loan and lease losses

(37,863)

(47,253)

Intangible assets

5,453

7,189

Goodwill

—

2,221

Operating lease right-of-use assets

7,512

8,459

Property and equipment, net

8,948

8,387

Property tax receivables

9,401

9,270

Other assets

(4)

26,721

31,276

Total

non-interest-earning assets

26,285

25,096

Total

assets

979,772

1,187,350

Interest-bearing liabilities:

Certificate of Deposits

(5)

649,529

7,841

1.61

829,792

13,747

2.21

Money Market Deposits

(5)

53,323

117

0.29

42,883

196

0.61

Long-term borrowings

(5)

20,858

719

4.59

57,434

1,859

4.32

Total

interest-bearing liabilities

723,710

8,677

1.60

930,109

15,802

2.27

Non-interest-bearing liabilities:

Sales and property taxes payable

7,840

6,435

Operating lease liabilities

8,423

9,354

Accounts payable and accrued expenses

12,670

22,079

Net deferred income tax liability

23,916

25,959

Total

non-interest-bearing liabilities

52,849

63,827

Total

liabilities

776,559

993,936

Stockholders’ equity

203,213

193,414

Total

liabilities and stockholders’ equity

979,772

1,187,350

Net interest income

44,937

57,309

Interest rate spread

(6)

5.90

6.12

Net interest margin

(7)

6.28

6.57

Ratio of average interest-earning assets to

average interest-bearing liabilities

131.75

124.96

-48-

_________________

(1)

Average balances were calculated using average daily balances.

(2)

Annualized.

(3)

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

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

(4)

Includes operating leases.

(5)

Includes effect of transaction

costs. Amortization of transaction costs

is on a straight-line

basis, resulting in an increased

average rate whenever average

portfolio balances are at reduced levels.

(6)

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

liabilities.

(7)

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

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

by volume and rate.

Nine Months Ended September 30, 2021 Compared To

Nine Months Ended September 30, 2020

Increase (Decrease) Due To:

Volume

(1)

Rate

(1)

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

(84)

(247)

(331)

Time Deposits

(85)

(47)

(132)

Restricted interest-earning deposits with banks

(3)

(6)

(9)

Securities available for sale

(10)

(40)

(50)

Net investment in leases

(7,064)

(4,156)

(11,220)

Loans receivable

(5,573)

(2,182)

(7,755)

Total

interest income

(12,256)

(7,241)

(19,497)

Interest expense:

Certificate of Deposits

(2,626)

(3,280)

(5,906)

Money Market Deposits

(119)

(79)

Long-term borrowings

(1,253)

113

(1,140)

Total

interest expense

(3,063)

(4,062)

(7,125)

Net interest income

(9,929)

(2,443)

(12,372)

__________________

(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

the combined impact of volume and rate have been allocated proportionately to the change due to volume and the

change due to rate.

-49-

Net interest and fee margin.

The following table summarizes the Company’s

net interest and fee income as an annualized percentage

of average total finance receivables for the nine-month periods ended

September 30, 2021 and 2020.

Nine Months Ended September 30,

2021

2020

(Dollars in thousands)

Interest income

53,622

73,111

Fee income

6,795

8,019

Interest and fee income

60,417

81,130

Interest expense

8,676

15,802

Net interest and fee income

51,741

65,328

Average total

finance receivables

(1)

817,673

970,924

Percent of average total finance receivables:

Interest income

8.74

10.04

Fee income

1.11

1.10

Interest and fee income

9.85

11.14

Interest expense

1.41

2.17

Net interest and fee margin

8.44

8.97

__________________

(1)

Total finance receivables include net investment in leases and loans.

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

initial direct costs and fees deferred are excluded.

Net interest and fee income decreased $13.6 million, or 20.8%, to $51.7

million for the nine-month period ended September 30, 2021

from $65.3 million for the nine-month

period ended September 30, 2020. The annualized net interest and fee margin

decreased 53

basis points to 8.44% in the nine-month period ended September 30,

2021 from 8.97% for the corresponding period in 2020.

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

$19.5 million, or 26.7%,

to $53.6 million for the nine-month

period ended September 30, 2021 from $73.1 million for the nine-month

period ended September 30, 2020. The decrease in interest

income was principally due to a decrease in average yield of 130 basis points and

by a 15.8% decrease in average total finance

receivables, which decreased $153.2 million to $817.7 million for the

nine-months ended September 30, 2021 from $970.9 million for

the nine-months ended September 30, 2020. The decrease in average total

finance receivables was primarily due to lower origination

volume along with the customary loan repayments and charge

-offs.

The weighted average implicit interest rate on new finance

receivables originated decreased 80 basis points

to 10.16% for the nine-month period ended September 30, 2021, compared

to 10.96%

for the nine-month period ended September 30, 2020. During

the nine months of 2021, the company originated $282.7 million of total

originations compared to $284.1 million in the same period one year

ago. Equipment finance approval percentage in the first nine

months of 2021 was 48% as compared to 41% for the same period one year ago.

Fee income was $6.8 million and $8.0 million for the nine-month

periods ended September 30, 2021 and September 30, 2020,

respectively,

and included approximately $4.0 million and $5.6 million in late fee income for

the nine-month periods ended September

30, 2021 and September 30, 2020, respectively.

Late fees remained the largest component of fee income at

0.66% as an annualized

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

ended September 30, 2021, compared to 0.77% for the nine-

month period ended September 30, 2020. Fee income also included approximately

$2.7 million and $2.4 million of early buyout

income for the nine-month periods ended September 30, 2021 and

September 30, 2020, respectively.

Early buyout income is driven

by customer behavior, increased levels of

this activity and related income have been recorded during the course of the pandemic.

-50-

Interest expense decreased $7.1 million to $8.7 million for the nine-month

period ended September 30, 2021 from $15.8 for the

corresponding period in 2020, primarily due to a decrease

of $5.9 million on lower deposit balances and rates, as well as a decrease

$1.0 million due to the continuing reduction of long-term debt. Interest

expense, as an annualized percentage of average total finance

receivables, decreased 76 basis points to 1.41% for the nine-month

period ended September 30, 2021, from 2.17% for the

corresponding period in 2020. The average balance of deposits was $702.9

million and $872.7 million for the nine-month periods

ended September 30, 2021 and September 30, 2020, respectively.

For the nine-month period ended September 30, 2021, average term securitization

borrowings outstanding were $20.9 million at a

weighted average coupon of 4.59%. For the nine-month period ended

September 30, 2020, average term securitization borrowings

outstanding were $57.4 million at a weighted average coupon of 4.32%

Our wholly-owned subsidiary,

MBB, serves as our primary funding source. MBB raises fixed-rate and variable

-rate FDIC-insured

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

through the brokered MMDA Product. At September 30,

2021,

brokered certificates of deposit represented approximately 70% of

total deposits, while approximately 23% of total deposits

were obtained from direct channels, and 7% were in the brokered

MMDA Product.

Gain on Sale of Leases and Loans.

There were no asset sales for the nine-month period ended September 30,

2021 as we retained all

of our origination volume on our balance sheet. There were $28.3

million of asset sales for the nine-month period ended September

30, 2020 for a $2.4 million gain on sale of lease and loans.

Our sales execution decisions, including the timing, volume and frequency

of such sales, depend on many factors including our

origination volumes, the characteristics of our contracts versus market

requirements, our current assessment of our balance sheet

composition and capital levels, and current market conditions, among

other factors.

In the current economy resulting from the

COVID-19 pandemic, we may have difficulty accessing

the capital market and may find decreased interest and ability of

counterparties to purchase our contracts, or we may be unable to negotiate

terms acceptable to us.

Insurance premiums written and earned.

Insurance premiums written declined to $5.9 million for the nine-month period ended

September 30, 2021, compared to $6.6 million for the nine-month period

ended September 30, 2020 as the overall portfolio

contracted.

Other income.

Other income was $9.8 million and $11.2

million for the nine-month periods ended September 30, 2021 and September

30, 2020, respectively.

The decrease was primarily driven by a $0.6 million decrease on servicing of leases sold to

third parties and a

$0.3 million decrease of lower insurance policy fees.

Salaries and benefits expense.

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

Nine Months Ended September 30,

2021

2020

(Dollars in thousands)

Salary, benefits and payroll

taxes

18,650

21,248

Incentive compensation

5,488

3,343

Commissions

858

1,111

Total

24,996

25,702

Total salaries and benefits

expense decreased to $25.0 million for the nine-month period ended

September 30, 2021 compared to $25.7

million for the corresponding period in 2020. In 2020, in response to

COVID-19, we reduced our workforce resulting in a lower

expense base. Our salary,

benefits and payroll tax expense was $2.6 million lower for the nine-months ended September

30, 2021 than

for the same period of 2020, primarily driven by higher average headcount during

the first nine months of 2020 and severance

recorded associated with the workforce reduction.

Incentive compensation increased $2.1 million, primarily due to equity-based compensation

which was adjusted to lower target levels

in the corresponding period in 2020 and lower bonus on COVID related impacts on

company performance.

-51-

General and administrative expense.

The following table summarizes General and administrative expense:

Nine Months Ended September 30,

2021

2020

(Dollars in thousands)

Property taxes

6,429

6,178

Occupancy and depreciation

3,276

4,218

Professional fees

5,329

2,994

Information technology

3,426

2,953

Marketing

917

870

FDIC Insurance

333

1,089

Acquisition-related contingent payment fair value adjustment

—

(1,435)

Other G&A

6,113

7,302

Total

25,823

24,169

General and administrative expense increased to $25.8 million for

the nine-months ended September 30, 2021 from $24.2 million

from the same period in 2020. Professional fees increased by $2.3 million primarily

due to fees connected with the Merger

Agreement.

Goodwill impairment.

In the first quarter of 2020, driven by negative events related to the COVID-19

economic shutdown, our

market capitalization falling below book value and other related impacts, we analyzed

goodwill for impairment.

We concluded

that

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

carrying amount, and recognized impairment equal to the

entire $6.7 million

balance in the nine-months ended September 30, 2020.

Provision for income taxes.

Income tax expense of $8.0 million was recorded for the nine-month period ended

September 30, 2021,

compared to an income tax benefit of $8.3 million for the nine-month

period ended September 30, 2020.

For the nine months ended September 30, 2021 our effective

tax rate was 26.2% and for the nine months ended September 30, 2020,

our effective tax rate was 35.6%, driven by a $3.2 million discrete benefit,

resulting from certain provisions in the Coronavirus Aid,

Relief, and Economic Security Act (“CARES Act”) that allow for a remeasurement

of our federal net operating losses.

-52-

IQUIDITY AND

APITAL

ESOURCES

Our business requires a substantial amount of liquidity and capital to operate

and grow. Our primary liquidity

need is to fund new

originations; however, we also utilize liquidity

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

infrastructure and technology investment, to pay dividends and to pay administrative

and other non-interest expenses.

As a result of the uncertainties surrounding the actual and potential impacts of COVID-19

on our business and financial condition, in

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

FDIC-insured deposits and we increased our borrowing

capacity at the Federal Reserve Discount Window.

We are dependent

upon the availability of financing from a variety of funding sources to satisfy these liquidity

needs. Historically, we

have relied upon five principal types of external funding sources for

our operations:

•

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

MBB;

•

borrowings under various bank facilities;

•

financing of leases and loans in various warehouse facilities (all of which

have since been repaid in full);

•

financing of leases through term note securitizations; and

•

sale of leases and loans through our capital markets capabilities.

Deposits issued by MBB represent our primary funding source for new originations,

primarily through the issuance of FDIC insured

deposits.

We are currently

executing our De-banking process, after which time our primary sources of liquidity

will transition to

third-party bank and securitization financing as opposed to FDIC-insured

deposits.

See “Items Subsequent to September 30, 2021”

below for more information regarding actions taken in the fourth quarter

to effectuate this transition.

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

As such, MBB is supervised by both the Federal Reserve

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

We declared

a dividend of $0.14 per share on July 29, 2021. The quarterly dividend was paid on

August 19, 2021 to shareholders of

record on the close of business on August 9, 2021, which resulted in a dividend

payment of approximately $1.7 million. It represented

the Company’s fortieth

consecutive quarterly cash dividend.

At September 30, 2021, we had approximately $25.0 million of available

borrowing capacity from a federal funds line of credit

with a

correspondent bank in addition to available cash and cash equivalents of

$222.3 million. This amount excludes additional liquidity that

may be provided by the issuance of insured deposits through MBB.

Our debt to equity ratio was 3.69 to 1 at September 30, 2021 and 3.87

to 1 at December 31, 2020.

Net cash provided by investing activities was $52.5 million for the nine

-month period ended September 30, 2021, compared to $87.6

million for the nine-month period ended September 30, 2020. The

decrease in cash from investing activities is primarily due to

reductions

of $29.7 million in principal collections on leases and loans and $25.7 million

in proceeds from sales of leases originated

for investment offset by $11.1 million

in proceeds received on the sale of our investment securities.

Net cash provided by financing activities was $29.1 million for

the nine-month period ended September 30, 2021, compared to net

cash used in financing activities of $61.7 million for the nine-month period

ended September 30, 2020. The increase in cash flows

from financing activities is primarily due to an increase of $69.0 million in deposits and

decreases of $17.5 million of term

securitization repayments and $4.5 million in repurchases of common stock.

Financing activities also include transactions related to

the Company’s paymen

of dividends.

Net cash provided by operating activities was $3.4 million and $45.0 million

for the nine-month periods ended September 30, 2021

and September 30, 2020, respectively.

Adjustments to reconcile net income or loss to net cash provided by operating activities

including goodwill impairment, provision for credit losses, changes

in deferred income tax liability and leases originated for sale and

proceeds thereof are discussed in detail in the notes to the Consolidated Financial

Statements.

We expect cash

from operations, additional borrowings on existing and future

credit facilities and funds from deposits to be adequate

to support our operations and projected growth for the next 12 months

and the foreseeable future.

-53-

Total

Cash and Cash Equivalents.

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

cash in leases and loans.

We primarily

fund our originations and growth using FDIC-insured deposits issued through

MBB. Total cash and

cash equivalents

available as of September 30, 2021 totaled $222.3 million, compared

to $135.7 million at December 31, 2020.

Time Deposits with Banks.

Time deposits with banks are primarily

composed of FDIC-insured certificates of deposits that have

original maturity dates of greater than 90 days. Generally,

the certificates of deposits have the ability to redeem early,

however, early

redemption penalties may be incurred. Total

time deposits as of September 30, 2021 and December 31, 2020 totaled $1.0 million

and

$6.0 million, respectively.

Restricted Interest-Earning Deposits with Banks

. As of September 30, 2021, and December 31, 2020, we had $3.2

million and $4.7

million, respectively,

of cash that was classified as restricted interest-earning deposits with banks

Restricted interest-earning deposits

with banks consist primarily of various trust accounts related to our secured

debt facilities. Therefore, these balances generally decline

as the term securitization borrowings are repaid.

Borrowings.

Our primary borrowing relationship requires the pledging

of eligible lease and loan receivables to secure amounts

advanced. Our secured borrowings amounted to $11.7

million at September 30, 2021 and $30.7million at December 31, 2020.

Information pertaining to our borrowing facilities is as follows:

For the Nine Months Ended September 30, 2021

As of September 30, 2021

Maximum

Month End

Average

Weighted

Facility

Amount

Average

Amount

Average

Unused

Amount

Outstanding

Rate

(3)

Outstanding

Rate

(2)

Capacity

(1)

(Dollars in thousands)

Federal funds purchased

25,000

—

25,000

Term note securitizations

(4)

—

28,279

20,858

4.59

11,719

4.33

—

25,000

28,279

20,858

4.59

11,719

4.33

25,000

__________________

(1)

Does not include MBB’s access to the Federal Reserve Discount Window,

which is based on the amount of assets MBB chooses to pledge.

Based on assets pledged at September 30, 2021, MBB had $50.2 million in unused, secured borrowing capacity at the Federal Reserve Discount

Window.

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

(2)

Does not include transaction costs.

(3)

Includes transaction costs.

(4)

Our term note securitizations are one-time fundings that pay down over time without any ability for us to draw down additional amounts.

Federal Funds Line of Credit with Correspondent Bank

MBB has established a federal funds line of credit with a correspondent bank.

This line allows for both selling and purchasing of

federal funds. The amount that can be drawn against the line is limited to $25.0

million.

Federal Reserve Discount Window

In addition, MBB has received approval to borrow from the Federal Reserve

Discount Window based on the amount of assets MBB

chooses to pledge. MBB had $50.2 million in unused, secured borrowing

capacity at the Federal Reserve Discount Window,

based on

$55.9 million of net investment in leases pledged at September 30, 2021.

Term Note

Securitizations

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

It provides the company with fixed-cost borrowing

with the objective of diversifying its funding sources and is recorded in long-term

borrowings in the Consolidated Balance Sheet.

In connection with this securitization transaction, we transferred leases to our

bankruptcy remote special purpose wholly-owned

subsidiary (“SPE”) and issued term debt collateralized by such commercial

leases to institutional investors in a private securities

offering. The SPE is considered variable interest entity (“VIE”)

under U.S. GAAP.

We continue

to service the assets of our VIE and

-54-

retain equity and/or residual interests. Accordingly,

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

Balance Sheets.

At September 30, 2021 and December 31, 2020 outstanding

term securitizations amounted to $11.7 million

and $30.8

million, respectively and the Company was in compliance with terms of

the term note securitization agreement. See Note 10 – Debt

and Financing Arrangements in the accompanying Consolidated Financial Statements

for detailed information regarding of our term

note securitization

Bank Capital and Regulatory Oversight

We are subject

to regulation under the Bank Holding Company Act and we and all of our subsidiaries may

be subject to examination

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

not otherwise regulated by the Federal Reserve Board.

We and

MBB are also subject to comprehensive federal and state regulations dealing

with a wide variety of subjects, including minimum

capital standards, reserve requirements, terms on which a bank

may engage in transactions with its affiliates, restrictions as to dividend

payments and numerous other aspects of operations.

These regulations generally have been adopted to protect depositors and

creditors rather than shareholders.

At September 30, 2021, Marlin Business Service Corp and MBB’s

Tier 1 leverage ratio, common equity

Tier 1 risk-based ratio, Tier

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

requirements for well-capitalized status.

See “Management’s

Discussion and

Analysis of Financial

Condition and

Results of Operations

—Executive Summary”

for discussion

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

driven by our election to utilize the five-

year transition related

to the adoption of

the CECL accounting

standard.

In addition, see Note

13—Stockholders’ Equity

in the Notes

to Consolidated Financial Statements for additional information regarding

these ratios and our levels at September 30, 2021.

Information on Stock Repurchases

Information on Stock Repurchases is provided in “Part II. Other Information,

Item 2, Unregistered Sales of Equity Securities and Use

of Proceeds” herein.

Items Subsequent to September 30, 2021

The Company declared a dividend of $0.14 per share on October 28, 2021.

The quarterly dividend, which is expected to result in a

dividend payment of approximately $1.7 million, is scheduled to be paid

on November 18, 2021 to shareholders of record on the close

of business on November 8, 2021. It represents the Company’s

forty-first consecutive quarterly cash dividend. The payment of future

dividends will be subject to satisfaction of regulatory requirements applicable

to bank holding companies and approval by the

Company’s Board of Directors.

In addition, pursuant to the Merger Agreement, the Company

may not, without the prior written

consent of Madeira Holdings, LLC, declare or pay any future dividends other

than the Company’s regular quarterly cash

dividend in

an amount not to exceed $0.14 per quarter.

On October 8, 2021, MBB entered into an agreement to transfer its portfolio of

brokered certificates of deposit held through The

Depository Trust Company with an outstanding

principal amount of approximately $204.8 million to a Federal Deposit Insurance

Corporation (“FDIC”)-insured depository institution.

In exchange for the acquiror’s assumption of those deposits, MBB has agreed

pay the acquiror at the time of transfer, in addition

to the outstanding principal amount of the deposits, all accrued but unpaid interest

on the deposits as of the transfer date plus a sum of $750,000.

The agreement contemplates that the transfer,

which is subject to

(among other customary closing conditions) the approval of the Utah Department

of Financial Institutions and of the FDIC pursuant to

Section 18(c) of the Federal Deposit Insurance Act, will occur in late December or

early January.

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.

-55-

We are exposed

to market risks associated with changes in interest rates and our earnings may fluctuate

with changes in interest rates.

The lease and loan assets we originate are almost entirely fixed-rate. Accordingly,

we generally seek to finance these assets primarily

with fixed interest certificates of deposit issued by MBB, and to a lesser extent

through the variable rate MMDA Product at MBB.

RITICAL

CCOUNTING

OLICIES

There have been no significant changes to our Critical Accounting Policies as described

in our Form 10-K for the year ended

December 31, 2020.

ECENTLY

SSUED

CCOUNTING

TANDARDS

Information on recently issued accounting pronouncements

and the expected impact on our financial statements is provided in Note 2,

Summary of Significant Accounting Policies in the accompanying

Notes to Consolidated Financial Statements.

ECENTLY

DOPTED

CCOUNTING

TANDARDS

Information on recently adopted accounting pronouncements and the expected

impact on our financial statements is provided in Note

2, Summary of Significant Accounting Policies in the accompanying Notes

to Consolidated Financial Statements.

-56-

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

The information appearing in the section captioned “Management’s

Discussion and Analysis of Financial Condition and Results of

Operations – Market Interest Rate Risk and Sensitivity” under Item 2 of

Part I of this Form 10-Q is incorporated herein by reference.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Off

icer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the

effectiveness of our disclosure controls and procedures as of the end

of the period covered by this report.

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

disclosure controls and procedures as of the end of the period covered

by this report are designed and operating effectively to provide

reasonable assurance that the information required to be disclosed by

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

within the time periods specified in the

SEC's rules and forms and (ii) accumulated and communicated to our management,

including the CEO and CFO, as appropriate to

allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s

internal control over financial reporting identified in connection with management’s

evaluation that occurred during the Company's third fiscal quarter

of 2021 that have materially affected, or are reasonably likely

materially affect, the Company’s

internal control over financial reporting.

PART

II. Other Information

Item 1.

Legal Proceedings

We are party

to various legal proceedings, which include claims and litigation arising in the ordinary

course of business.

In the

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

financial condition,

results of operations or

cash flows.

Following the announcement on April 18, 2021 of the proposed Merger,

four complaints were filed against us and each member of our

Board of Directors, two of which were filed in the United States District Court for the

Southern District of New York,

one of which

was filed in the United States District Court for the Eastern District of New York

and one of which was filed in the United States

District Court for the District of New Jersey.

The complaints assert, among other things, claims under Section 14(a) and Section

20(a)

of the 1934 Act, and Rule 14a-9 promulgated thereunder,

for allegedly causing a materially incomplete and misleading preliminary

proxy statement to be filed with the SEC and disseminated to the Company’s

shareholders. The Company subsequently engaged in

arm’s-length negotiations

with parties to three of the four complaints to attempt to resolve the claims asserted and reached an

agreement whereby the Company filed a Current Report on Form 8-K

on July 23, 2021 (the “July 23 Form 8-K”) containing certain

supplemental disclosures regarding the Merger.

The Company believes that the allegations and claims asserted in the complaints lack

merit, and that the supplemental disclosures set forth in the July 23 Form 8-K were

not required or necessary under applicable laws.

However, solely in order to avoid the

risk of the litigation delaying or otherwise adversely affecting the Merger

and to minimize the

costs, risks, and uncertainties inherent in defending the litigation, the Company

voluntarily filed the July 23 Form 8-K. The Company

denies any liability or wrongdoing in connection with the alleged claims, and

nothing in the July 23 Form 8-K should be construed as

-57-

an admission of the legal necessity or materiality under applicable laws of any

of the supplemental disclosures.

See “Part I—Item 2.

Management’s Discussion and Analysis

of Financial Condition and Results of Operations—Executive

Summary” in this Form 10-Q

for more information regarding the proposed Merger.

Item 1A.

Risk Factors

There have been no material changes in the risk factors disclosed in the Company’s

Form 10-K for the year ended December 31, 2020,

other than as discussed below.

We may fail

to consummate the proposed Merger, and

uncertainties related to the consummation of the Merger may have a

material adverse effect on our business, financial position, results of

operations and cash flows, and negatively impact the price of

our Common stock.

As previously discussed, on April 18, 2021, we entered into the Merger

Agreement, pursuant to which all outstanding shares of the

Company’s common

stock will, subject to the terms and conditions of the Merger

Agreement, be cancelled and converted into the

merger consideration specified in the Merger

Agreement in an all cash transaction pursuant to the Merger.

The Merger is subject to, in addition to various other customary

closing conditions,

governmental and regulatory approvals and

completion of the De-banking.

The Merger Agreement includes customary representations

and warranties of the parties.

We have also made

certain additional

covenants in the Merger Agreement, including (a) covenants regarding

the operation of our business and that of our subsidiaries

pending the closing of the Merger,

and (b) a customary non-solicitation covenant prohibiting us from soliciting, providing

non-public

information in response to, or entering into discussions or negotiations with

respect to, proposals relating to alternative business

combination transactions, except as permitted under the Merger

Agreement. The Merger Agreement provides that, upon termination

of the Merger Agreement under certain specified circumstances, including

the acceptance of a Superior Proposal (as defined in the

Merger Agreement) for an alternative business combination

transaction, we will be required to pay a termination fee of approximately

$10.3

million.

There is no assurance that the Merger will occur on the terms and timeline

as set forth in the Merger Agreement and currently

contemplated, or at all. Potential risks and uncertainties include, but

are not limited to:

•

The Merger Agreement generally requires that we operate our

business in the ordinary course pending consummation of

the proposed Merger and restricts us, without Madeira Holdings, LLC’s

consent, from taking certain specified actions until the Merger

is completed. These restrictions may affect our ability

to execute our business strategies and attain our financial and other goals which

could negatively impact our business and results of operations.

•

The efforts to satisfy the closing conditions of the proposed Merger,

including the De-banking and regulatory approval

processes, may place a significant burden on management and internal

resources, and the Merger whether or not consummated, may

result in a diversion of management’s

attention from our day-to-day operations and result in a disruption of our

operations. Any

significant diversion of management attention away from our ongoing

business and any difficulties encountered in the Merger

process

could negatively impact our business and results of operations.

•

We could be

subject to litigation related to the proposed Merger,

which could result in significant costs and expenses. In

addition to potential litigation-related expenses, we have incurred

and will continue to incur other costs, expenses and fees for

professional services and other transaction costs in connection with

the proposed Merger, and many

of these fees and costs are payable

regardless of whether or not the proposed Merger is consummated.

•

The Merger Agreement contains certain termination provisions.

If the proposed Merger is not completed or the Merger

Agreement is terminated, the price of our common stock may decline,

including to the extent that the current market price of our

common stock reflects an assumption that the Merger will be consummated

without unexpected delays.

All of the foregoing could materially and adversely affect our business,

financial position, results of operations and cash flows.

-58-

Item 2.

Unregistered Sales of Equity Securities and Use of

Proceeds

Information on Stock Repurchases

On August 1, 2019, the Company’s

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

which

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

shares of common stock. This authority may be

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

Any shares purchased under this plan are returned to

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

be made on the open market, in block trades or

otherwise. The stock repurchase program does not obligate the Company to

acquire any particular amount of common stock, and it

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

funded using the Company’s working

capital.

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

ended September 30, 2021. As of September 30,

2021, the Company had $4.7 million remaining in the 2019 Repurchase

Plan. Pursuant to the Merger Agreement, the Company may

not repurchase shares of common stock (pursuant to the 2019 Repurchase Plan

or otherwise) without the prior written consent of

Madeira Holdings, LLC.

Pursuant to the 2014 Plan and the 2019 Plan, participants may have shares withheld

to cover income taxes. During the three-month

period ended September 30, 2021, there were 36 shares repurchased to

cover income tax withholding under the 2014 Plan and the

2019 Plan at an average cost of $22.44 per share.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

None.

Item 5.

Other Information

None

-59-

Item 6.

Exhibits

Exhibit

Number

Description

3.1

Amended and Restated Articles of Incorporation

(1)

3.2

Amended and Restated Bylaws

(2)

3.3

Amendment to Amended and Restated Bylaws, effective as of April 20, 2020

(3)

31.1

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

Securities Exchange Act of 1934, as amended

(Filed herewith)

31.2

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

Securities Exchange Act of 1934, as amended.

(Filed herewith)

32.1

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

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

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

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

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

(Furnished herewith)

101

Financial

statements from

the Quarterly

Report

on Form

10-Q of

Marlin

Business Services

Corp.

for

the period

ended

September

30,

2021,

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

(vi) the

Notes

Unaudited

Consolidated

Financial Statements. (Submitted electronically with this report)

__________________

(1)

Previo

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

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

(2)

Previously filed with the SEC as an exhibit to the Registrant’s Current Report on Form 8-K filed on October 20, 2016, and incorporated by

reference herein.

(3)

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

reference herein.

-60-

SIGNATURES

Pursuant to the requirements of

the Securities Exchange Act of

1934, the Registrant has duly

caused this report to be

signed on its behalf

by the undersigned thereunto duly authorized.

MARLIN BUSINESS SERVICES CORP.

(Registrant)

By:

/s/ Jeff Hilzinger

Chief Executive Officer

Jeff Hilzinger

(Principal Executive Officer)

By:

/s/ Michael R. Bogansky

Michael R. Bogansky

Chief Financial Officer & Senior Vice

President

(Principal Financial Officer)

Date:

October 29, 2021

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Marlin Business Services (MRLN) 10-Q2021 Q3 Quarterly report

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