MRLN Marlin Business Services Corp - 10-K

Item 1A.

Risk Factors

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

the Securities and Exchange Commission are risks

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

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

contemplated by the forward-looking statements contained

in this report and other periodic statements we make.

COVID-19 Related

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

could have a material adverse effect on our

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

will depend on future developments, which are highly

uncertain and are difficult to predict.

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

government actions taken to reduce the spread of the virus

have been weighing on the macroeconomic environment, and the outbreak

has significantly increased

economic uncertainty and

reduced economic activity.

The pandemic has resulted in authorities implementing numerous measures

to try to contain the virus, such

as travel bans and restrictions, quarantines, shelter in place or total lock

-down orders and business limitations and shutdowns. Such

measures have significantly contributed to rising unemployment

and negatively impacted consumer and business spending. The

United States government has taken steps to attempt to mitigate some of

the more severe anticipated economic effects of the virus,

including the passage of the Coronavirus Aid, Relief, and Economic

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

such steps will be effective or achieve their desired results in

a timely fashion.

We continue to monitor

and evaluate newly enacted

and proposed government and banking regulations issued in response

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

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

impact on our future operations and business strategies.

Our operations and financial results have already been negatively

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

“Part II – Item 7. Management’s Discussion

and Analysis of Financial Condition and Results of Operations

—Overview” and “—

Results of Operations”.

The pandemic, reduction in economic activity,

and current business limitations and shutdowns have increased

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

Portfolio Risk.

We experienced

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

the year ended

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

visibility to the future recovery of such demand.

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

a 54% decrease from $801.9 million for the

year ended December 31, 2019.

We have shifted

the focus of portions of our operations and certain personnel to implement specific

programs and new products in

response to the pandemic.

In particular, we have focused efforts on

loan modifications and a payment deferral program,

implemented a new PPP loan product, and increased customer service

efforts to respond to our borrower’s needs.

We modified

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

$111.2 million, or

12.8% of our Net investment in

leases and loans as of December 31, 2020.

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

of our loss mitigation strategies we are further extending the deferral

period for select customers in industries that are suffering

prolonged impacts of COVID-19.

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

any risk of credit

loss.

Credit Risk.

We extend credit primarily

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

susceptible to business limitations, shutdowns and possible recessions and

may be unable to make scheduled lease or loan

payments during these periods and may be at risk of discontinuing

their operations.

As a result, our delinquencies and credit

losses may substantially increase.

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

economic activity

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

operations or are unable to return to normal

levels of activity after the restrictions are lifted.

Our estimate of expected future credit losses recognized within our

allowance as of December 31, 2020 is based on certain

assumptions, forecasts and estimates about the impact of current economic

conditions on our portfolio of receivables based on

information known as of that date, including certain expectations about

the extent and timing of impacts from COVID-19.

those assumptions, forecasts or estimates underlying our financial statements are

incorrect, we may experience significant losses

as the ultimate realization of value, or revisions to our estimates, may

be materially different than the amounts reflected in our

consolidated statement of financial position as of any particular date.

Liquidity and Capital Risk.

As of December 31, 2020, all of our capital ratios, and our subsidiary bank’s

capital ratios, were in

excess of all regulatory requirements.

While we currently have sufficient capital, our reported and

regulatory capital ratios could

be adversely impacted by further credit losses and other COVID-19

related impacts on our operations.

We are managing the

evolving risks of our business while closely monitoring and forecasting the

potential impacts of COVID-19 on our future

operations and financial position, including capital levels.

However, given the uncertainty about

future developments and the

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

future operations, we face elevated risks to our ability to

forecast and estimate future capital levels.

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

condition

or results of operations may be adversely affected.

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

and have enabled us to manage the size and

composition of leases and loans on our balance sheet.

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

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

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

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

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

pandemic on the economic environment resulted in a lack of demand

in the syndication

market since the end of the first quarter of

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

sheet.

Our sales execution decisions, including

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

our origination volumes, the characteristics of

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

sheet composition and capital levels, and current

market conditions, among other factors.

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

may have difficulty accessing the capital market

and may find decreased interest and ability of counterparties to purchase our

contracts, or we may be unable to negotiate terms acceptable to us.

We have historically

returned capital to shareholders through normal dividends, special dividends

and share repurchases. There

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

or that they will continue in the future.

Operational Risk.

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

implementing certain

business continuity plans, and developing work from home and social

distancing plans for our employees), and we may take

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

determine are in the best interests of our employees,

customers and business partners.

We face increased

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

business practices necessitated by the pandemic.

These factors may remain prevalent for a significant period of time

and may continue to adversely affect our business, results of

operations and financial condition even after the COVID-19 pandemic

has subsided.

The extent to which the coronavirus pandemic impacts our business, results of operations

and financial condition will depend on

future developments, which are highly uncertain and are difficult

to predict, including, but not limited to, the duration and spread of

the outbreak, its severity,

the actions to contain the virus or treat its impact, and how quickly and to what exten

normal economic and

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

has subsided, we may continue to experience materially adverse

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

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

our

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

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

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

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

and subject to change. We

do not yet know the full extent of

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

as a whole. However, the effects could have

a material impact on

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

Regulations

Government regulation significantly affects our business.

Further changes in regulations that impact our business may have

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

condition.

The banking industry is heavily regulated, and such regulations are

intended primarily for the protection of depositors and the federal

deposit insurance

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

January 13, 2009, we have been subject to

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

and subject to the Bank Holding Company

Act. Our bank subsidiary,

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

Francisco, and the Utah Department of Financial Institutions.

Such regulation affects lending practices, capital structure, investment

practices, dividend policy and growth.

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

agencies placing increased focus and scrutiny on the

financial services industry,

which have subjected financial institutions to additional restrictions,

oversight and costs. In particular, the

Dodd-Frank Act substantially increased regulation of the financial

services industry,

changed deposit insurance provisions, and

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

with historical practices, including in the areas of

compensation, interest rates, financial product offerings

and disclosures, among other things.

New proposals for legislation continue

to be introduced in Congress that could further substantially increase regulation

of the financial services industry and impose

restrictions on the operations and general ability of firms within the

industry to conduct business consistent with historical practices,

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

offerings and disclosures, among other things. Federal and

state regulatory agencies also frequently adopt changes to their reg

ulations or change the manner in which existing regulations are

applied. Such proposed changes in laws, regulations and regulatory

practices affecting the banking industry or affecting

the equipment

financing, telemarketing and collecting processes, may

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

adversely affect us, including our ability to execute our

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

of additional costs on us.

We, like other

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

investigations and actions

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

to assess or quantify, and

their magnitude may remain

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

a significant regulatory action against us could cause us to

suffer significant costs and expenses and could require us

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

business.

Monetary policies and regulations of the Federal Reserve Board could

adversely affect our business, financial condition and

results of operations.

In addition to being affected by general economic conditions,

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

Reserve Board.

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

and credit conditions.

Among

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

are open market operations in U.S. government

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

against bank deposits.

These instruments are used in

varying combinations to influence overall economic growth and the distribution

of credit, bank loans, investments and deposits.

Their

use also affects interest rates charged on

loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve Board

have had a significant effect on the operating results of bank

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

The effects of such policies upon our business,

financial condition and results of operations cannot be predicted.

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

have a significant financial impact on us.

The FDIC insures deposits at FDIC-insured financial institutions up

to certain limits and charges insured financial institutions

premiums to maintain the Deposit Insurance Fund (DIF).

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

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

the DIF. The FDIC is required

by law to maintain adequate

funding of the DIF,

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

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

reserves against future losses, which will necessitate increased deposit

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

than $10 billion.

Future increases in insurance

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

and the manner in which we operate our

business.

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

set forth in the FDIC Agreement entered into in

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

Liquidity and Capital Resources–Bank Capital and

Regulatory Oversight.

We could become subject

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

other

things, result in lower returns

on equity, could limit our

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

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

and could result in regulatory actions if we were to be

unable to comply with such requirements.

Liquidity and Capital Resources

We are reliant on debt

financing to operate our business.

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

we may be unable to fund our

operations.

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

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

operations, cash flows and financial

position

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

requirements will increase as our lease and loan originations

increase. We obtain

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

funding sources, such as

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

activities including sales and syndications of leases and

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

affect our ability to fund and originate new leases

and loans.

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

a renewal of our lender’s commitment and new funding

facilities is affected by a number of factors, including:

conditions in the market for FDIC-insured deposits;

restrictions and costs associated with banking industry regulation which

could negatively impact MBB;

conditions in the long-term lending markets; and

our ability to service the leases and loans.

We are and

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

loans and to satisfy our other

working capital needs. We

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

of prevailing interest

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

restrictions under existing financing arrangements. If

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

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

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

In the event we seek to obtain equity financing, our

shareholders may experience dilution as a result of the issuance of

additional equity securities. This dilution may be significant

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

we issue such securities.

We rely on the sale of finance

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

If such

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

financing on economically viable terms, if at all.

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

and have enabled us to manage the size and

composition of leases and loans on our balance sheet.

Our ability to continue to execute syndications is affected

by a number of

factors, including:

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

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

our ability to maintain relationships with such

counterparties;

current market conditions, including interest rate levels; and

our ability to negotiate terms acceptable to us.

For the year ended December 31, 2020,

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

million.

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

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

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

on the economic environment resulted in a lack of

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

and we retained substantially all of our origination volume

on our balance sheet.

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

pandemic, we may have difficulty

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

counterparties to purchase our contracts, or we may be

unable to negotiate terms acceptable to us.

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

or any other market disruptions, could negatively affect

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

operations and

cash flows.

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

requirements, or if our counterparties’

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

be unable to find replacement funding sources for these

assets.

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

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

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

value of the transferred assets and/or any liability

incurred.

We may have continuing

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

and/or

through any recourse obligations that may include customary representations

and warranties or specific recourse provisions.

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

to the extent that we violate such representations and

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

could impact our cashflows and ability to fund our

operations.

We are subject to regulatory

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

condition

or results of operations may be adversely affected.

We may be required to raise additional

capital in the future, but that capital may

not be available when it is needed.

Under regulatory capital adequacy guidelines, and other regulatory

requirements, we must meet guidelines that include quantitative

measures of assets, liabilities and certain off-balance

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

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

capital guidelines and other regulatory requirements, our business,

financial condition or results of operations may be adversely affected.

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

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

under regulatory exam procedures or if we experience

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

our related eligibility for a streamlined review process for

acquisition proposals and our ability to offer certain financial

products may be compromised or impaired.

We may require

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

capital levels, changes in the

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

changes in market conditions, among other factors.

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

program or any practice of declaring regular quarterly dividends

order to retain more capital on our Balance sheets.

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

operations.

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

at that time, which are

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

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

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

we may become subject to adverse regulatory

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

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

shareholders’ interests in us could be diluted.

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

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

Liquidity and Capital Resources. Bank Capital and Regulatory Oversight”

in this Form 10-K.

If interest rates change significantly, we may be

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

cause us to suffer material

losses.

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

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

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

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

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

fixed-rate in nature.

When we originate or acquire leases,

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

each lease and the effective interest rate we expect

to pay when we finance the lease. To

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

borrowings,

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

the spread, or result in a negative spread.

A negative

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

faster than we are able to adjust the pricing under

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

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

increases in interest rates could have the effect of increasing

our costs on future transactions.

Credit and Portfolio Risk

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

we may

experience a higher number of lease and

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

We specialize in leasing

and financing equipment and providing working capital to small and mid

-sized businesses. Small and mid-

sized businesses may be more vulnerable than large

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

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

often need substantial additional capital to expand or compete. Small

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

risk of delinquencies and defaults than leases and loans

entered

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

limited publicly available financial and other information

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

audited financial statements. Accordingly,

in making credit

decisions, our underwriting guidelines rely upon the accuracy of information

about these small and mid-sized businesses obtained

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

such as credit reporting agencies. If the information we

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

sources is incorrect or fraudulent, our ability to make appropriate

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

of our small business customers, we may experience a

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

earnings.

We rely on information

provided by our customers and vendors.

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

provided with fraudulent or malicious intent, we may not make

appropriate credit decisions and our financial position, operating

results and reputation may be negatively impacted.

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

finance business. We have

taken measures to detect and

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

tools, increased vendor surveillance staff and enhancements

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

be effective against new and continually evolving forms

of fraud. If we experience increases in fraudulent activity,

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

increase in the level of our fraud charge-offs,

adversely affecting the results of operations.

This could also lead to increased regulatory

scrutiny, which

could adversely affect our brand and reputation.

These impacts, as well as the implementation of any necessary

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

our results of operations.

If we cannot maintain

our relationships with origination partners and our existing customers our ability

generate lease and loan

transactions and related revenues may be significantly

impeded.

We have formed

relationships with thousands of origination partners, comprised primarily

of independent equipment dealers. We

rely

on these relationships to generate lease and loan applications and

originations. Most of these relationships are not formalized in

written agreements, and those that are formalized by written agreements

are typically terminable at will. Our typical relationship does

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

loan transactions to us nor does it require the

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

decision by a significant number of our origination partners

to refer their leasing transactions to another company could impede our

ability to generate lease and loan transactions and related

revenues.

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

growth and our business could suffer

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

business from existing customers. There can be no

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

or avoid negative publicity.

Any damage to our

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

regulatory, supervisory

or enforcement actions, matters

affecting our financial reporting or compliance with Securities and

Exchange Commission and NASDAQ listing requirements,

security breaches or otherwise could have a material adverse effect

on our business.

Risks Related to our Operations

If we are unable to effectively execute our business strategy,

we may suffer material

operating losses.

Our financial position, liquidity and results of operations depend

on management’s ability to execute our

business strategies.

Our

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

provider of capital solutions to small businesses,

includes the following priorities:

a focus on strategically expanding our target market; better leveraging

our capital and fixed cost

base through origination and portfolio growth, improving our operating

efficiency,

and proactively managing our risk profile.

The economic fallout from the pandemic caused a reduction in demand

for financing in our target market.

The tightening of our

underwriting standards and the re-organization of

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

wake of the pandemic.

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

iginations and portfolio depends on a

number of factors,

including executing the acceleration of our automation and digital

initiatives, achieving the desired volume of

leases and loans of suitable yield and credit quality,

effectively managing those leases and loans, obtaining appropriate

funding, the

competitive environment, and changes to our industry,

market and general economic conditions.

Accomplishing such a result on a

cost-effective basis is largely a function of our

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

guidelines, our ability to provide competent, attentive and efficient

servicing to our origination partners and our small business

customers, our ability to execute effective credit risk management

and collection techniques, our access to financing sources on

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

our accelerated digital initiative and our ability to

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

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

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

operating efficiency,

or that such measures will improve our

operating results, cashflows or financial position.

To proactively

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

our portfolio, assess our delinquency

and credit loss experience against our underwriting criteria and determine

whether our performance is commensurate with our

intended risk tolerance.

We may make adjustments

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

adjust borrower guarantee requirements, among other measures.

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

assessments of the appropriate risk profile for different

geographies and industries based on the changing economic climate driven by

the COVID-19 pandemic.

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

performance,

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

To the extent that we tighten our standards,

we risk not being not

competitive in the market and losing origination volume.

To the extent that we loosen our standards,

we risk incurring credit losses in

excess of our expectations.

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

opportunities for business combinations from time to time.

We completed

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

Resources in September 2018, as

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

new and attractive markets.

Any such business

combinations entail numerous risks, including risks related to:

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

achieving expected synergies, including infrastructure

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

assets, that could impact our operating results;

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

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

negatively impacting our ability to attract, retain and

motivate key personnel.

We may not realize

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

integration of

acquisitions may disrupt our business and management.

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

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

cash flows.

While we assess the potential benefits that could

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

could be incurred, our assessments and

estimates may differ materially from actual costs and benefits realized.

If we cannot effectively compete within the equipment leasing industry,

we may be

unable to increase our revenues or maintain

our current levels of

operations.

The business of small-ticket equipment leasing is highly fragmented

and competitive. Many of our competitors are substantially larger

and have considerably greater financial, technical and marketing resources

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

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

A lower cost of funds could enable a competitor to offer

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

forcing us to decrease our yields

or lose origination volume. In addition, certain of our

competitors may have higher risk tolerances or different risk assessments,

which

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

relationships and increase their market share. The

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

new competitors could enter the business of small-ticket

equipment leasing at any time. The companies that typically provide

financing for large-ticket or middle-market transactions

could

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

or we are unable to compete effectively with our

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

or generate revenue growth.

Deteriorated economic or business conditions may lead to greater than anticipated

lease or loan defaults and credit losses and

lower origination volumes, which could substantially reduce our operating

income and limit our ability to obtain additional

financing.

Furthermore, natural disasters, widespread disease or pandemics

(including the recent coronavirus outbreak), acts of

war or terrorism, or other external events could significantly impact

our business

Historically, the capital

and credit markets have experienced periodic volatility and disruption.

In many cases, these markets have

produced downward pressure on stock prices of, and credit availability

to, certain companies without regard to those companies’

underlying financial strength. Concerns over geopolitical issues and

the availability and cost of credit, have contributed to increased

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

of extreme and prolonged market events, such as a global

credit crisis, we could incur significant losses.

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

loss

due to market volatility.

Our operating income may be reduced by various economic factors

and business conditions, including the level of economic activity

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

can be significantly and negatively

impacted by natural disasters, widespread disease or pandemics (including

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

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

or recessions. Delinquencies and credit losses generally

increase during economic slowdowns or recessions. Because we extend

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

our customers may be particularly susceptible to economic slowdowns or recessions

and may be unable to make scheduled lease or

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

activity or business conditions deteriorate, our

delinquencies and credit losses may increase. Unfavorable economic

conditions may also make it more difficult for us to maintain

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

leases and loans at levels previously attained.

Unfavorable economic conditions could also increase our funding

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

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

of macroeconomic conditions driven by the COVID-19

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

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

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

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

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

that, paired with our lower origination volumes,

substantially reduced our gains on sale.

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

return, remains

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

income.

In addition, any further changes to economic

and business conditions could reduce our operating income.

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

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

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

as described above, but also a significant impact on

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

quarantines or otherwise.

While we have established and

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

could have a material adverse effect on our business and

operations.

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

our property

insurance program would cause us to experience

lower revenues and may result in a

significant reduction in our net income.

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

replacement value of financed equipment. Each customer has

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

under a commercial property policy issued by a third-

party insurer or satisfying such insurance obligation through our

insurance program. Under our program, the customer pays for

coverage under a master property insurance policy written by a national

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

captive insurance subsidiary,

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

or interruption of our

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

regulations affecting our primary insurer or

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

ratings of our primary insurer or AssuranceOne;

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

AssuranceOne, which render it uneconomical for us to

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

agreement with our primary insurer, coupled with an inability

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

carrier; or (5) competitive factors in the property

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

or if fewer small business customers elected to satisfy their

insurance obligations through our program, we would experience lower

revenues and our net income may be reduced.

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

by our management that could vary from actual

results.

Pursuant to accounting principles generally accepted in the United

States, we utilize certain assumptions and estimates in preparing

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

recognition, the allowance for credit losses, the

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

receivables, the fair value of financial instruments,

estimated losses from insurance program, and income taxes.

If the assumptions or estimates underlying our financial statements are

incorrect, we may experience significant losses as the ultimate realization

of value may be materially different than the amounts

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

date.

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

activities, we record an allowance to provide for estimated

losses based on both qualitative and quantitative factors including, among

other things, past collection experience, lease and loan

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

collection risks. Significant management judgment is

required to determine the appropriate level of the allowance and,

therefore, our determination of this allowance may prove to be

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

loans. Factors that could lead to the inadequacy of our

allowance may include our inability to manage collections effectively,

unanticipated adverse changes in the economy or discrete

events adversely affecting specific leasing customers,

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

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

or eliminating our operating income.

On January 1, 2020,

the Company adopted the guidance of

ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses on Financial Instruments

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

This standard substantially replaced the prior

measurement that was based on probable, incurred losses.

Starting in 2020, the recognized allowance estimate will include expected

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

After the adoption of this standard, our allowance estimate

will continue to involve management’s

judgment, and assessment of various qualitative and quantitative factors,

and such estimate

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

above.

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

financing leases at the aggregate future minimum lease

payments plus the estimated residual value less unearned income.

Residual values are established on our balance sheet at lease

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

at the end of the lease term.

Realization of residual values

depends on numerous factors including: the general market conditions

at the time of expiration of the lease; the customer’s election to

enter into a renewal period; the cost of comparable new equipment; the

obsolescence of the leased equipment; any unusual or

excessive wear and tear on or damage to the equipment; the effect

of any additional or amended government regulations; and the

foreclosure by a secured party of our interest in a defaulted lease. Our failure

to realize our recorded residual values would reduce the

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

may reduce our operating income.

For additional information on the key areas for which assumptions and

estimates are used in preparing our financial statements, see

“Part II—Item 7. Management’s

Discussion and Analysis of Financial Condition and Results of Operations

—Critical Accounting

Policies and Estimates”, and see “Note 2.

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

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

Technology

We are continually encountering

technological change.

If we experience significant telecommunications or technology downtime,

our

operations would be disrupted and our ability to generate operating

income could be

negatively impacted.

Our business depends in large part on our telecommunications

and information management systems, and we are increasing our

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

business strategy. The temporary

or permanent loss of

our computer systems, telecommunications equipment or software systems,

through casualty or operating malfunction, could disrupt

our originations and operations and negatively impact our ability to secure

new business and to service our customers. This could lead

to significant declines in our operating income.

Furthermore, particularly given our digital strategy implemented and announced

in 2020, we are constantly undergoing rapid

technological change with frequent introductions of new technology

-driven products and services. The effective use of technology

increases efficiency and enables us to better service clients and

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

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

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

additional efficiencies within our operations.

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

technological improvements. We

may not be able to effectively implement new technology

-driven products and services quickly or be

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

to successfully keep pace with technological change

affecting the financial services industry generally

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

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

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

programs, or those of our outsource service

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

of our customers and affiliates or confidential

personal information of personal guarantors of our loans and leases.

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

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

legal obligations regarding such information,

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

information, could adversely affect us

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

clients are dependent upon our ability to safeguard confidential

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

service providers to follow,

a comprehensive information

security program that we monitor and update as needed, security

breaches could occur through intentional or unintentional acts by

individuals having authorized or unauthorized access to confidential information

of our customers, employees or stakeholders which

could potentially compromise confidential information processed and

stored in or transmitted through our technology infrastructure.

The legal, regulatory and contractual environment surrounding

information security and privacy is constantly evolving and companies

that collect and retain such information are under increasing attack by

cyber-criminals around the world. A significant actual or

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

stockholder, employee or our data by cybercrime

or otherwise, non-

compliance with our contractual or other legal obligations regarding such

data or a violation of our privacy and security policies with

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

in significant costs, fines, litigation or regulatory action

against us. Increasingly,

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

in connection with the

delivery of our services via the Internet may affect us and

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

financial condition.

We cannot be certain

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

or other

developments will not compromise or breach the technology protecting

the networks that access our products and services.

Risks Related to our Stock

Our common stock price is volatile.

The trading price of our common stock may fluctuate substantially depending

on many factors, some of which are beyond our control

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

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

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

include, but are not limited to, the following:

price

and

volume

fluctuations

the

overall

stock

market

from

time

time;

ignificant

volatility

the

market

price

and

trading

volume

financial

services

companies

the

trading

volume

our

common stock in particular;

actual

anticipated

changes

our

earnings

fluctuations

our

operating

results

the

expectations

market

analysts;

investor

perceptions

the

equipment

leasing

industry

general

and

the

Company

particular;

the

operating

and

stock

performance

comparable

companies;

legislative

and

regulatory

changes

with

respect

the

financial

banking

industries;

general

economic

conditions

and

trends

including

but

not

limited

those

resulting

from

the

COVID

pandemic;

major

catastro

phic

events;

loss

external

funding

sources;

sales

large

blocks

our

stock

sales

insiders;

departure

key

personnel.

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

the expectations of financial market analysts and investors

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

decline.

We have historically returned

capital to shareholders through normal dividends, special dividends and

share repurchases.

There

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

use of our capital or that they will continue into the future.

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

program under which we repurchased 264,470 shares of

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

31, 2020 had $4.7 million remaining authorizations under

that 2019 repurchase program. We

have no obligation to repurchase shares under this authorization,

and any share repurchase program

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

Any such repurchases reduce our market capitalization and public

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

owned by non-affiliated stockholders and available for

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

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

The market price of our common stock has been and may

continue to be volatile which may affect your ability to

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

market price of our common stock on the NASDAQ fluctuated between

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

continue to fluctuate.

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

and outside of our control,

including our strategic actions, industry and regulatory matters or other

material public announcements, as well as a variety of

additional factors including, without limitation, those set forth under

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

Looking Statements."

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

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

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

any, or the full amount authorized

under any

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

impact on our stock price.

Future sales of our Common Stock by our significant shareholders may

depress our stock price or impair our ability to raise funds

in new share offerings.

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

requiring shareholder

approval and over our management.

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

Stock.

As of December 31, 2020, our top 5 largest

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

price of our common stock could be adversely affected as a

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

or the perception that these sales could occur.

These sales,

or the possibility that these sales might occur,

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

future at a time

and at a price that we deem attractive.

These shareholders, if acting together,

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

and the vote on

certain corporate transactions, including mergers

and other business combinations.

This concentrated ownership could limit other

stockholders’ ability to influence corporate matters.

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

not

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

our Common Stock.

Anti-takeover provisions and our right to issue preferred stock

could make a

third-party acquisition of us difficult.

We are a Pennsylvania

corporation. Anti-takeover provisions of Pennsylvania law could make

it more difficult for a third party to

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

shareholders. Our amended and restated articles of

incorporation and our bylaws contain certain other provisions that would

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

including a provision that our Board of Directors may issue preferred

stock without shareholder approval.

Item 7.

Management’s Discussion and Analysis

of Financial Condition and

Results of Operations

FORWARD

-LOOKING STATEMENTS

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

with the Securities and Exchange Commission or

orally to analysts, investors, representatives of the media and others) may

include the words or phrases “can be,” “expects,” “plans,”

“may,” “may affect,”

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

“if” and similar words and phrases

that constitute “forward-looking statements” within the meaning

of Section 27A of the Securities Act of 1933,

as amended (the “1933

Act”), Section 21E of the Securities Exchange Act of 1934, as amended

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

Act of 1995.

Investors are cautioned not to place undue reliance on these forward-looking

statements. Forward-looking statements are

subject to various known and unknown risks and uncertainties and

the Company cautions that any forward-looking information

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

Statements regarding the following subjects are forward-looking

by their nature: (a) our business strategy; (b) our projected operating

results; (c) our ability to obtain external deposits or financing,

other sources of liquidity such as asset syndications;

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

and market trends; and (f)

the expected impact of the adoption of recently issued accounting pronouncements

on our financial statements.

The Company’s actual

results could differ materially

from those anticipated by such forward-looking statements due to a number

of factors, some of which

are beyond the Company’s control,

including, without limitation:

availability, terms and

deployment of funding and capital;

changes in our industry,

interest rates, the regulatory environment or the general economy resulting in changes

to our business

strategy;

the degree and nature of our competition;

availability and retention of qualified personnel;

general volatility of the capital markets; and

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

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

is not required to update forward-looking statements for

subsequent or unanticipated events or circumstances. For any forward

-looking statements contained in any document, we claim the

protection of the safe harbor for forward-looking statements contained

in the Private Securities Litigation Reform Act of 1995.

used herein, the terms “Company,”

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

Corp. and its

subsidiaries.

VERVIEW

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

to small and mid-sized businesses. The products and

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

commercial equipment (including Commercial

Vehicle

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

AssuranceOne, Ltd., a Bermuda-based,

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

which enables us to reinsure the property insurance coverage for the

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

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

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

and a member of the Federal Reserve System. MBB

serves as the Company’s primary

funding source through its issuance of Federal Deposit Insurance Corporation

(“FDIC”)-insured

deposits.

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

equipment leasing company

which identifies and sources lease and loan contracts for investor partners

for a fee, and in September 2018, we completed the

acquisition of Fleet Financing Resources (“FFR”), an company specializing

in the leasing and financing of both new and used

commercial vehicles, with an emphasis on livery equipment and other

types of commercial vehicles used by small businesses.

We are continuing

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

a nationwide provider of capital

solutions to small businesses.

This includes the following priorities:

a focus on strategically expanding our target market; better

leveraging our capital and fixed cost base through origination and

portfolio growth, improving our operating efficiency,

and

proactively managing our risk profile.

We access our end

user customers primarily through origination sources consisting of independent

commercial equipment dealers,

various national account programs, through direct solicitation of our

end user customers and through relationships with select lease

and loan brokers. We

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

accounts, outside sales executives to market to

our origination sources and end user customers. Through these origination

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

customers while also helping our origination sources obtain financing

for their customers.

XECUTIVE

UMMARY

In 2020, we faced unprecedented operating challenges and macro

-economic uncertainty from the COVID-19 pandemic.

Our initial

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

customers to protect the value of our portfolio and

limiting the erosion of shareholder capital.

To this end, we initiated a loan

modification program in response to the pandemic, and

assisted some of our borrowers by originating loans guaranteed under the

Small Business Administration’s (SBA’s)

Paycheck

Protection Program (“PPP”).

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

tightened underwriting

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

on current conditions.

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

we took a series of actions to preserve our capital

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

of the pandemic are realized and the economy begins to

recovery.

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

activities to portfolio servicing

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

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

organization of origination and processing platforms

to accelerate automation and digitization.

We are currently

targeting the rollout

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

We are continuing

to monitor the evolving

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

customers in this changing environment.

Any return to pre-

pandemic levels of activity,

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

will be dependent, among

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

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

We recognized

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

Significant drivers

of our results for the year include:

Provisions for credit losses

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

Based on

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

building in the first half of 2020, including recognizing

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

conditions primarily resulting from the effects of COVID-

19 and our expected impacts on our portfolio.

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

forecast information and

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

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

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

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

Our current estimate of credit losses incorporates all of our current

judgments about the impact of the COVID-19 pandemic on

our portfolio.

Modification program

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

from COVID-19.

Under

this program, we completed payment deferral modifications of over

5,600 contracts in our owned portfolio.

As of December 31,

$111.2 million (or 12.8%) of

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

out of the deferral period by year end.

We continue

to process extended modifications of contracts in the fourth quarter for

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

strategies.

Cost Reduction

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

driving reductions of $10.4 million in Salary

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

as compared to the prior year.

We continue to

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

and minimize the negative impacts of the ongoing

pandemic.

Origination and Sales Volumes

for 2020 were substantially lower than 2019.

We have been intentionally

operating out of a more

defensive position since the pandemic began. Total

sourced origination volume of $367.1 million was well below our

volume

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

(i) the

purposeful actions we took in the second and

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

business; (ii) the continuing soft demand for financing

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

from the continued economic fallout of

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

stemming from our tighter underwriting criteria.

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

2019, driven by disruptions in the

capital markets from the current economic environment.

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

of our origination volume on our balance sheet for the remainder

of the year.

While we experienced modest improvement in origination volumes

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

and

have seen some improving trends in delinquency,

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

and as

this period of uncertainty continues to impact the macroeconomic environment.

Given the ongoing health crisis in the United States,

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

At year end, our employees continue to work remotely,

and we have not experienced any significant interruption to our operations

from that transition.

We continue to assess how

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

this changing

environment.

Stock Repurchase Plan

During the year ended December 31, 2020,

the Company purchased 264,470 shares of its common stock in the open market under

the

2019 Repurchase Plan at an average cost of $16.09. At December 31, 2020

$4.7 million of authorizations remain under the 2019

Repurchase Plan.

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

warrant. The stock

repurchase program does not obligate us to acquire any particular amount

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

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

INANCE

ECEIVABLES

AND

SSET

UALITY

The following table summarizes certain portfolio statistics for the

periods presented:

December 31,

(Dollars in thousands)

Finance receivables:

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

Average finance

receivables for the year

Origination Volume

Assets Sold

Allowance for credit losses :

End of period

As a % of end of period receivables

Annualized net charge-offs to average

total finance receivables

Leases and Loans Modified:

Payment deferral program

End of period

As a % of end of period receivables

Other Restructured leases and loans, end of period

Delinquencies, end of period:

Equipment Finance and CVG:

Greater than 60 days past due, $

Greater than 60 days past due, %

Working

Capital:

Greater than 30 days past due, $

Greater than 30 days past due, %

For purposes

of asset

quality and

allowance calculations,

the effects

the allowance

for credit

losses and

(ii) initial

direct costs

and fees

deferred are excluded.

Represents balance

of active

contracts that

were part

of our

2020 payment-deferral

modification program.

December 31,

the modified contracts are out of the deferral period.

See further discussion of our loan modification program below.

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

after the January 1, 2020 adoption

of CECL.

See further discussion below.

Calculated

percentage

net

investment

leases

and

loans.

Contracts

that

are

part

the

payment

deferral

modification

program

will

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

For the

year ended

December 31,

2020, excludes

$4.4 million

of loans

originated under

the Paycheck

Protection Program

(PPP).

In the

third

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

Finance Receivables.

During the year ended December 31, 2020,

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

costs of

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

with equipment costs of $801.9 million generated for

the year ended December 31, 2019.

Equipment finance originations decreased 52% for 2020 as compared to

the prior year.

Working

Capital loan originations were $33.2 million during the year ended

December 31, 2020,

compared to $108.6 million for the prior year,

a 69% decrease.

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

primarily driven by decreased demand attributable to COVID-

19 related business shutdowns and other macroeconomic factors,

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

quarters of this year.

During the year, our total originations were $151.5

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

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

respectively.

While we experienced modest improvement in

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

we still are experiencing negative impacts from the effects of

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

environment.

Given the ongoing health crisis in

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

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

in total finance receivables decreased 8.1% for 2020 as

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

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

compared to prior year end.

See further discussion of the impacts of lower volumes and decreased

portfolio size within discussion of

our Results of Operations section, in particular Net interest margin

and Gain on leases and loans sold.

Allowance for credit losses.

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

Twelve Months Ended December 31,

(Dollars in thousands)

Allowance for credit losses, December 31, 2019

Adoption of ASU 2016-13 (CECL),

January 1, 2020

Allowance for credit losses, beginning of period

Provision for credit losses

Net Charge-offs:

Equipment Finance

Working

Capital

CVG

Net Charge-offs

Realized cashflows from Residual Income

Allowance for credit losses, end of period

Year

Ended December 31, 2020:

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

increased to 5.09% as of

December 31, 2020,

from 2.15% as of December 31, 2019.

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

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

below),

which increased the effective coverage to 3.27% as

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

in the estimate of credit loss as of December 31,

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

impacts from the COVID-19 pandemic,

as discussed further

below.

Adoption of ASU 2016-13 / CECL.

Effective January 1, 2020, we adopted new guidance

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

Credit Losses (Topic 326):

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

which replaces the probable/

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

with a measurement of expected credit losses for the

contractual term of our current portfolio of loans and leases.

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

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

adjusted in each subsequent reporting period.

This

estimate of credit losses takes into consideration all remaining cashflows

the Company expects to receive or derive from the pools

of contracts, including recoveries after charge-off,

accrued interest receivable and certain future cashflows from residual assets.

The provision for credit losses recognized in our Consolidated Statements

of Operations under CECL, starting in 2020, will be

primarily driven by origination volumes, offset by the

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

changes in estimate each subsequent reporting period, including

adjustments for economic forecasts within a reasonable and

supportable time period.

The impact of adopting CECL effective January 1, 2020

included a $11.9 million increase to the allowance,

an $8.9 million

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

income tax liability.

In the accompanying Notes to

Consolidated Financial Statements, see Note 2 –

Summary of Significant Accounting Policies

, for further discussion of the

adoption of this accounting standard, and see Note 7 –

Allowance for Credit Losses

, for further discussion of the Company’s

methodology for measuring its allowance as of the adoption date.

Provision for credit losses

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

driven by origination volumes, offset by the

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

in estimate each subsequent reporting period.

For

2020, given the wide changes in the macroeconomic environment driven

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

significant driver of provision.

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

incurred model was

based on the current estimate of probable net credit losses inherent

in the portfolio.

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

for credit losses recognized was $10.5 million greater than

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

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

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

forecast and qualitative adjustments related to

COVID-19 and other model updates.

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

to a reasonable and supportable forecast based

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

portfolio to certain economic statistics, specifically

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

Starting in the first quarter,

we are using

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

the current economic environment related to

COVID-19 pandemic.

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

probability

weighting alternate forecast scenarios for those economic statistics, to address

the continuing uncertainty in the economic climate

and uncertainty around our portfolio’s

performance in these conditions.

Equipment Finance provision for the year ended

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

forecast and qualitative adjustments related to COVID-

19 and other model updates.

For the Working

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

taking into

consideration alternative scenarios to determine the Company’s

estimate of the ongoing risk related to COVID-19.

Working

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

.2 million driven by updates to economic forecast and

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

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

adjustments, taking into consideration the increased

risk of a population of motor coach receivables that have prolonged

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

assessment of alternative scenarios to estimate the expected performance

of this segment in the current economic environment.

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

driven by these updates to economic forecast and

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

The qualitative and economic adjustments to our allowance take into

consideration information and our judgments as of

December 31, 2020,

and are based in part on an expectation for the extent and timing of impacts from

COVID-19 on

unemployment rates and business bankruptcies, and are based on our

current expectations of the performance of our portfolio in

the current environment.

See further discussion of the risks to our estimate below.

Net Charge-offs.

Equipment Finance and TFG receivables are generally charged

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

Working

Capital receivables are generally charged-off at 60 days past

due.

Total portfolio

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

million (3.43% of average total finance receivables on

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

for 2019.

The elevated net charge-offs for 2020 were primarily driven

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

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

While we experienced a positive trend in net charge-off

levels in the fourth quarter, we continue to monitor

the continued

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

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

program, as discussed above.

While 92% of those

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

performance of the modified portfolio remains

uncertain.

We are continually monitoring

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

allowance estimate is sufficient to cover the expected losses from

COVID-19.

Our best estimate of the risk of future net credit

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

is reflected in our allowance for loan losses of $44.2

million as of December 31, 2020.

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

Residual Income.

Residual income includes income from lease renewals and gains and

losses on the realization of residual values of leased

equipment disposed at the end of term

In 2019 and prior years, t

he Company had previously recognized residual income within

Fee Income in its Consolidated Statements

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

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

the Company’s estimate of credit

losses under

CECL takes into consideration all cashflows the Company expects to

receive or derive from the pools of contracts.

Our recorded allowance reflects our current estimate of the expected

credit losses of all contracts currently in portfolio based on our

current assessment of information regarding the risks of our current

portfolio, default and collection trends, a reasonable and

supportable forecast of economic factors, qualitative adjustments based

on our best estimate of expected losses for certain portfolio

segments, among other internal and external factors.

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

include our current

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

and our current expectations for the performance of our

modified loan portfolio.

Our allowance measurement is an estimate, is inherently uncertain,

and is reassessed at each measurement

date.

We may recognize

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

such

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

portfolio, including the performance of the modified portfolio;

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

or unforeseen circumstances that impact our

portfolio.

Years

Ended December 31, 2019 and 2018:

Provision for credit losses

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

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

million for the year ended December 31, 2018.

Our provision for credit losses is charged against earnings to

maintain our allowance

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

in our portfolio.

Our projection of probable net

credit losses incorporates a migration analysis, which is partially based

on the delinquency status of the portfolio as of the

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

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

delinquency experience in the portfolio as of December 31,

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

the increase in the provision was partially driven by

replenishing the allowance from a higher charge-off

experience.

As of December 31, 2019, delinquent accounts 60 days or more past due (as a percentage

of minimum lease payments receivable for

leases and as a percentage of principal outstanding for loans) were 0.85%,

compared to 0.65% at December 31, 2018.

This trend in

higher delinquency experience is consistent with the trends for aging of

receivables in the equipment leasing industry,

as published in

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

Leasing and Finance Association.

Net Charge-offs.

Net charge-offs were $22.4 million for

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

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

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

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

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

increase in net charge-offs as a percent of

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

percentage is 13.0%. Our analysis

of our higher charge-off experience indicates

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

disproportionately impacted by the economic headwinds observed

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

Both 2019 and

2018 include charge-offs related to fraudulent

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

and $1.2 million

respectively.

Leases and Loans Modified.

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

deferral program in order to assist our small-business

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

Our COVID-19 modification program allows for up to 6

months of deferred payments.

The below table outlines certain data on the modified population based

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

Equip.Fin

Working

and CVG

Capital

Total

(Dollars in thousands)

Active Modified Population:

Modified Contracts, out of deferral period

Extended modifications in fourth quarter

Total Program

% of total segment receivables

Active Modification Population:

On Non Accrual as of December 31, 2020

Resolved Population:

Charge-Offs of Modified Contracts, year

ended December 31, 2020

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

September 30, 2020, and in accordance with the interagency

guidance, loans modified were not considered TDRs and followed our

general non-accrual policies with respect to their modified

terms.

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

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

modified contracts, are out of the deferral period.

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

ly extended only as part of our loss mitigation strategies

for customers with prolonged negative impacts from the pandemic.

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

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

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

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

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

second quarter of 2021.

We evaluated these extended

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

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

financial difficulties, and the payment deferrals are a concession.

The loan

contracts were assessed as troubled debt restructurings and were put

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

non-accrual.

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

qualitative

adjustments above.

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

ended December 31, 2020.

Delinquency and Non-Accrual

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

portfolio as of December 31, 2020,

including information on the

population of restructured contracts, and contracts with restructure

requests:

Net Investment (in thousands)

Delinquency Rate by population

Current

Total

Current

Total

Equip.Finance and CVG

Restructured Portfolio

Non-Restructured

Total

Net Investment (in thousands)

Delinquency Rate by population

Current

Total

Current

Total

Working Capital

Restructured Portfolio

Non-Restructured

Total

Contracts that are part of the payment deferral modification program

are reflected in our Delinquency and Non-Accrual measures

based on their performance against their modified terms.

Equipment Finance receivables over 30 days delinquent were 159

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

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

2019. Working Capital receivable

over 15 days delinquent were 500

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

30, 2020, and up 325

basis points from December 31,

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

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

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

portfolio.

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

portfolio:

December 31,

(Dollars in thousands)

Equipment finance and CVG

Working capital

Total non-accrual leases and

loans

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

is driven by a population of $9.3 million Equipment Finance

and CVG loan modifications contracts that were further extended in the

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

characteristics.

Income recognition is discontinued on Equipment Finance leases or loans, including

CVG loans, when a default on monthly payment

exists for a period of 90 days or more. Income recognition resumes when the

lease or loan becomes less than 30 days delinquent.

Working

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

The loan is removed from non-

accrual status once sufficient payments are made

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

by management.

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

interest for any of the periods

presented.

ESULTS

PERATIONS

Comparison of the Year

Ended December 31, 2020 and December 31, 2019

Net income.

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

resulting in diluted EPS of $0.03,

compared to net

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

This decrease in Net income was primarily

driven by:

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

a decline in the size of our finance receivable

portfolio and lower funding needs;

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

loss estimates for expected increased credit losses

driven by the impacts of the pandemic on our portfolio.

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

changed the methodology for measuring the estimate of credit loss.

See further discussion of the Provision and the change in

measurement in the prior section “—Finance Receivables and Asset Quality”;

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

assets sold resulting from disruptions in the

capital markets during this current economic environment;

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

declines in the fair value of its reporting unit and

projected volumes;

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

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

lower Commissions, Incentives and the Company’s

proactive cost reduction measures;

$13.2 million favorable change in Income

tax (benefit),

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

benefit from the remeasurement of the federal net operating losses driven

by provisions of the CARES Act.

Average balances

and net interest margin.

The following table summarizes the Company’s

average balances, interest income,

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

-earning assets and interest-bearing liabilities for the years

ended December 31, 2020 and 2019.

Year Ended December 31,

(Dollars in thousands)

Average

Average

Average

Yields/

Average

Yields/

Balance

Interest

Rates

Balance

Interest

Rates

Interest-earning assets:

Interest-earning deposits with banks

Time deposits

Restricted interest-earning deposits with banks

Securities available for sale

Net investment in leases

Loans receivable

Total

interest-earning assets

Non-interest-earning assets:

Cash and due from banks

Allowance for loan and lease losses

Intangible assets

Goodwill

Operating lease right-of-use assets

Property and equipment, net

Property tax receivables

Other assets

Total

non-interest-earning assets

Total

assets

Interest-bearing liabilities:

Certificate of Deposits

Money Market Deposits

Long-term borrowings

Total

interest-bearing liabilities

Non-interest-bearing liabilities:

Sales and property taxes payable

Operating lease liabilities

Accounts payable and accrued expenses

Net deferred income tax liability

Total

non-interest-bearing liabilities

Total

liabilities

Stockholders’ equity

Total

liabilities and stockholders’ equity

Net interest income

Interest rate spread

Net interest margin

Ratio of average interest-earning assets to

average interest-bearing liabilities

Average balances were calculated using average daily balances.

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

unearned income. The average balances of leases and loans

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

initial direct costs and fees deferred.

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.

Interest rate spread represents the difference between the average yield

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

liabilities.

Net interest margin represents net interest income as a percentage

of average interest-earning assets.

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

by volume and rate.

Year Ended December 31, 2020 Compared To

Year Ended December 31, 2019

Increase (Decrease) Due To:

Volume

Rate

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

Restricted interest-earning deposits with banks

Time Deposits

Securities available for sale

Net investment in leases

Loans receivable

Total

interest income

Interest expense:

Certificate of Deposits

Money Market Deposits

Long-term borrowings

Total

interest expense

Net interest income

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.

Net interest and fee margin.

The following table summarizes the Company’s

net interest and fee income as a percentage of average

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

Year Ended December 31,

(Dollars in thousands)

Interest income

Fee income

Interest and fee income

Interest expense

Net interest and fee income

Average total

finance receivables

Percent of average total finance receivables:

Interest income

Fee income

Interest and fee income

Interest expense

Net interest and fee margin

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

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

excluded.

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

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

million for the year ended December 31, 2019.

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

December

31, 2020 and December 31, 2019,

respectively

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

$14.6 million, or 13.6%,

to $92.8 million for the year ended

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

The decrease in interest income was principally due

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

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

$1,028.6 million at December 31, 2019.

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

volume along with the customary loan repayments and charge

-offs.

The average yield on the portfolio decreased 63 basis points to

from 10.44% in the prior year. The

weighted average implicit interest rate on new finance receivables decreased 220

basis

points to 10.66% for the year ended December 31, 2020,

from 12.86% for the year ended December 31, 2019.

The decrease was

primarily driven by a shift in mix away from higher-yield Working

Capital originations that dropped from 13.55% of originations in

fiscal 2019 to 9.05% in fiscal 2020, along with a decrease of 415 basis points

in the implicit yield on those Working

Capital loans

from 34.72% for the year ended December 31, 2019 to 30.57% for the

year ended December 31, 2020.

Fee income was $10.6 million for the year ended December 31, 2020

and $15.2 million for the year ended December 31, 2019,

and as

a percentage of average total finance receivables, decreased 36 basis points

to 1.12% for the year ended December 31, 2020 from

1.48% for the year ended December 31, 2019.

Fee income included approximately $3.7 million of net residual income for the

year

ended December 31, 2019.

For 2020, after the adoption of CECL, all future cashflows from the Company’s

pools of loans are

included in the measurement of the allowance, including future cashflows

from net residual income.

Amounts of residual income are

presented within the rollforward of the Allowance, as discussed further

in “—Finance Receivables and Asset Quality”.

Fee income also included approximately $7.1 million and $8.4 million

in late fee income for the year ended December 31, 2020 and

December 31, 2019,

respectively. Late fees remained

the largest component of fee income at 0.75% as a percentage of

average total

finance receivables for the year ended December 31, 2020,

compared to 0.89% for the year ended December 31, 2019.

Interest expense decreased $5.1 million to $19.9 million for the year

ended December 31, 2020 from $25.0 million for the year ended

December 31, 2019,

primarily due to a decrease of $2.6 million on lower deposit balances as well as a decrease of

$1.9 million due to

the continuing paydown of outstanding long-term debt.

Interest expense, as an annualized percentage of average total finance

receivables, decreased 33 basis points to 2.10% for the year ended

December 31, 2020,

from 2.43% for the year ended December 31,

The average balance of total interest-bearing liabilities was $904.1 million

and $970.8 million for the years ended December 31,

2020 and December 31, 2019, respectively,

and the average interest expense on those liabilities was 2.20% and 2.58% for the years

ended December 31, 2020 and December 31, 2019,

respectively.

For the year ended December 31, 2020,

average term securitization outstanding was $51.9 million at a weighted

average coupon of

4.38%. For the year ended December 31, 2019,

average term securitization outstanding was $111.7

million at a weighted average

coupon of 4.02%.

Our wholly-owned subsidiary,

MBB, serves as our

primary funding source. MBB raises time deposits through a variety of

sources

including: directly from customers, through the use of on-line listing services,

and through the use of deposit brokers.

At December

brokered certificates of deposit represented approximately 52.1% of total

deposits, while approximately 40.8% of total

deposits were obtained from

direct channels,

and 7.1% were in the brokered MMDA Product.

Gain on Sale of Leases and Loans.

Gain on sale of leases and loans decreased to $2.4 million for the year ended December

from

$22.2 million for the year ended December 31, 2019,

or $19.8 million reduction in income. Assets sold decreased to

$28.3 million, for the year ended December 31, 2020 compared to

$310.4 million for the year ended December 31, 2019.

Disruptions

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

economic environment resulted in a lack of demand in the

syndication market since the end of the first quarter of 2020 and we retained

substantially all of our origination volume on our balance

sheet.

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

of such sales, depend on many factors including our

origination volumes, the characteristics of our contracts versus market

requirements, our current assessment of our balance sheet

composition and capital levels, and current market conditions, among

other factors.

Driven by the continued market disruptions

resulting from the COVID-19 pandemic, we may have difficulty

accessing the capital market and may find decreased interest and

ability of counterparties to purchase our contracts, or we may be unable

to negotiate terms acceptable to us.

Insurance premiums written and earned.

Insurance

premiums written and earned declined slightly to $8.7 million for the year

ended

December 31, 2020 from $8.8 million for the year ended December 31, 2019.

Other income.

Other income was $13.2 million and $13.0 million for the years

ended December 31, 2020 and December 31, 2019,

respectively.

The major components

of other income are property tax income and administration fees, insurance

policy fees and

syndication servicing.

Salaries and benefits expense

The following table summarizes the Company’s

Salary and benefits expense:

Year Ended December 31,

(Dollars in thousands)

Salary, benefits and payroll

taxes

Incentive compensation

Commissions

Total

Salaries and benefits expense decreased $10.4 million, or 23.5%, to

$33.8 for the year ended December 31, 2020 from $44.2 for the

year ended December 31, 2019. This change resulted from a $5.4 million

decrease in Commissions due to lower origination volumes

coupled with an updated commission structure and a decrease of $3.9 million

in Incentive compensation due to lower recognized

bonus and share-based compensation amounts driven by the Company’s

operating results. As part of our efforts to tighten our expense

base in response to COVID-19, in April 2020, we put approximately 120

employees on furlough; then in June 2020, we took steps to

permanently reduce our work force by approximately 80 employees. Our headcount

is 254 at December 31, 2020,

down from 348 at

December

We recognized

Severance expense in Salary, benefits

and payroll taxes of $1.7 million in 2020, compared to $0.3

million in 2019, in connection with this workforce reduction. We

recognized $2.5 million lower Salary,

benefits and payroll taxes for

the year ended December 31, 2020 as compared to the prior year primarily

from our expense reduction efforts.

General and administrative expense

The following table summarizes the Company’s

General and administrative expense.

Year

Ended December 31,

(Dollars in thousands)

Property taxes

Occupancy and depreciation

Professional fees

Information technology

Marketing

Insurance-related

Credit bureau costs

Intangible amortization

FDIC Insurance fees

Acquisition-related contingent payment fair value adjustment

Other G&A

General and administrative

General and administrative expense decreased $1.7 million, or 5.2% for

the year ended December 31, 2020.

Components of the

decrease included a $1.4 million reduction to the fair value of the contingent

consideration earn out liability related to our 2018

acquisition of the FFR business, driven by a forecasted decrease in projected

volumes which decreases the liability for estimated

payments.

In addition, we recognized a reduction of $0.7 million Other G&A related travel and

entertainment expenses due to the

travel restrictions imposed during the COVID-19 pandemic, offset

by an increase of $0.8 million in FDIC insurance fees. In addition,

Occupancy and depreciation expense for the year ended December

31, 2020 includes $0.4 million of costs in connection with office

lease terminations as part of our expense reduction efforts.

General and administrative expense as a percentage of average total finance

receivables was 3.27% for the year ended December 31,

compared to 3.45% for the year ended December 31, 2019.

Goodwill impairment.

In the first quarter of 2020, driven by negative current events related to the

COVID-19 economic shutdown,

our market capitalization falling below book value and other related

impacts, we analyzed goodwill for impairment.

We concluded

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

carrying amount, and recognized impairment equal to the entire $6.7

million

balance in the year ended December 31, 2020.

Intangible impairment.

In the third quarter of 2020, driven by an update to forecasted volumes of its FFR business, combined

with

reductions in headcount in its salesforce, we determined we had

a triggering event that required us to check the book value of FFR

vendor and lender intangibles against their current fair value.

As a result of that analysis, we fully impaired the lender intangibles,

recognizing $1.0 million of expense.

The vendor intangibles were not impaired.

Provision for income taxes.

Income tax benefit of $3.5 million was recorded for the year ended December

31, 2020, compared to an

expense of $9.7 million for the year ended December 31, 2019. Our effective

tax rate, which includes a combination of federal and

state income tax rates, was approximately 110.2%

for the year ended December 31, 2020, compared to 26.4% for the year ended

December 31, 2019. The income tax benefit was primarily driven by a $3.2

million discrete benefit from certain provisions in the

CARES Act that allowed for remeasuring our federal net operating losses for

carryback utilization.

Comparison of the Years

Ended December 31, 2019 and 2018

Net income.

Net income of $27.1 million was reported for the year ended December

31, 2019, resulting in diluted EPS of $2.20, compared to net

income of $25.0 million and diluted EPS of $2.00 for the year ended December

31, 2018. This increase in Net income was primarily

driven by:

$2.1 million increase in Net interest and fee income, driven primarily

by an increase in the size of our finance receivable

portfolio;

$13.8 million increase in gains on leases and loans sold due to increased syndication

volumes;

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

$8.5 million increase in Provision for credit losses, primarily due to higher

charge-offs attributed to increased delinquencies

in the second half of 2019 as well as the growth in average finance receivables

and charge-offs in the fourth quarter of $0.9

million due to fraudulent activity by a single vendor partner;

$4.4 million higher Salaries and benefits due to an increase in personnel,

and commissions driven by increased origination

volume

Return on average assets was 2.18% for the year ended December 31, 2019,

compared to a return of 2.29% for the year ended

December 31, 2018. Return on average equity was 13.33% for the year

ended December 31, 2019, compared to a return of 13.27% for

the year ended December 31, 2018.

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

year ended December 31, 2019 increased 8.9% to $1,028.6

million, compared to $944.6 million for the year ended December

31, 2018. This change was primarily due to origination volume

continuing to exceed lease and loan repayments, asset sales and charge

-offs.

The end-of-period net investment in total finance

receivables at December 31, 2019 was $1,006.5 million, an increase

of 0.6% from $1,000.7 million at December 31, 2018.

During the year ended December 31, 2019, we generated 31,246

new leases and loans in the amount of $801.9 million, compared to

33,105 new leases and loans in the amount of $704.9 million originated for

the year ended December 31, 2018. Approval rates

decreased from 57% at December 31, 2018 to 55% at December 31, 2019.

For the year ended December 31, 2019 compared to the year ended

December 31, 2018, net interest and fee income increased $2.1

million, or 2.2%, primarily due to a $10.4 million increase in interest income

and a $0.6 million increase in fee income offset by a $7.6

million increase in interest expense. The provision for credit losses increased

$8.5 million, or 43.6%, to $28.0 million for the year

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

December 31, 2018.

Gain on sale of leases and loans increased $13.8

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

ended December 31, 2018.

Average balances

and net interest margin.

The following table summarizes the Company’s

average balances, interest income,

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

-earning assets and interest-bearing liabilities for the years

ended December 31, 2019 and 2018.

Year Ended December 31,

(Dollars in thousands)

Average

Average

Average

Yields/

Average

Yields/

Balance

Interest

Rates

Balance

Interest

Rates

Interest-earning assets:

Interest-earning deposits with banks

Time deposits

Restricted interest-earning deposits with banks

Securities available for sale

Net investment in leases

Loans receivable

Total

interest-earning assets

Non-interest-earning assets:

Cash and due from banks

Allowance for loan and lease losses

Intangible assets

Goodwill

Operating lease right-of-use assets

Property and equipment, net

Property tax receivables

Other assets

Total

non-interest-earning assets

Total

assets

Interest-bearing liabilities:

Certificate of Deposits

Money Market Deposits

Long-term borrowings

Total

interest-bearing liabilities

Non-interest-bearing liabilities:

Sales and property taxes payable

Operating lease liabilities

Accounts payable and accrued expenses

Net deferred income tax liability

Total

non-interest-bearing liabilities

Total

liabilities

Stockholders’ equity

Total

liabilities and stockholders’ equity

Net interest income

Interest rate spread

Net interest margin

Ratio of average interest-earning assets to

average interest-bearing liabilities

Average balances

were calculated using average daily balances.

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.

Includes operating leases only for 2018.

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.

Interest rate spread represents the difference between

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

bearing liabilities.

Net interest margin represents net interest income as a percentage

of average interest-earning assets.

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

by volume and rate.

Year Ended December 31, 2019 Compared To

Year Ended December 31, 2018

Increase (Decrease) Due To:

Volume

Rate

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

Time Deposits

Restricted interest-earning deposits with banks

Securities available for sale

Net investment in leases

Loans receivable

Total

interest income

Interest expense:

Certificate of Deposits

Money Market Deposits

Long-term borrowings

Total

interest expense

Net interest income

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.

Net interest and fee margin.

The following table summarizes the Company’s

net interest and fee income as a percentage of average

total finance receivables for the years ended December 31, 2019 and 2018.

Year Ended December 31,

(Dollars in thousands)

Interest income

Fee income

Interest and fee income

Interest expense

Net interest and fee income

Average total

finance receivables

Percent of average total finance receivables:

Interest income

Fee income

Interest and fee income

Interest expense

Net interest and fee margin

Total finance

receivables include net investment in sales-type leases and loans in 2019 and direct financing

lease and loans in

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

(ii) initial direct costs and fees deferred are

excluded.

Net interest and fee income increased $2.1 million, or 2.2%, to $97.6 million for

the year ended December 31, 2019 from $95.5

million for the year ended December 31, 2018. The net interest and fee margin

was 9.49% and 10.11% for the years ended December

31, 2019 and December 31, 2018, respectively.

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

$10.4 million, or 10.7%, to $107.4 million for the year ended

December 31, 2019 from $97.0 million for the year ended December

31, 2018. The increase in interest income was principally due to

a 8.9% increase in average total finance receivables, which increased

$84.0 million to $1,028.6 million at December 31, 2019 from

$944.6 million at December 31, 2018. The increase in average total finance

receivables was primarily due to origination volume

continuing to exceed lease and loan repayments, asset sales and charge

-offs. The weighted average implicit interest rate on new

finance receivables increased 47 basis point to 12.86% for the year ended

December 31, 2019, from 12.45% for the year ended

December 31, 2018.

Fee income decreased $0.6 million, or 3.8%, to $15.2 million for

the year ended December 31, 2019 from $15.8 million for the year

ended December 31, 2018. Fee income included approximately $8.4

million in late fee income for the year ended December 31, 2019,

which decreased 9.7%, compared to $9.3 million for the year ended December

31, 2018. Fee income also included approximately $3.7

million of net residual income the years ended December 31, 2019 and 2018.

Fee income, as a percentage of average total finance receivables, decreased

20 basis points to 1.48% for the year ended December 31,

2019 from 1.68% for the year ended December 31, 2018. Late fees remained

the largest component of fee income at 0.82% as a

percentage of average total finance receivables for the year ended December

31, 2019, compared to 0.99% for the year ended

December 31, 2018. As a percentage of average total finance receivables,

net residual income was 0.36% for the year ended December

31, 2019, compared to 0.40% for the year ended December 31, 2018.

Interest expense increased $7.6 million to $25.0 million for

the year ended December 31, 2019 from $17.4 million for the year ended

December 31, 2018. The increase was primarily due to higher rates on

higher average deposit balances and to a lesser extent to a full

year of interest expense on our term securitization that was completed in

the second half of 2018. Interest expense, as an annualized

percentage of average total finance receivables, increased 59 basis points to

2.43% for the year ended December 31, 2019, from 1.84%

for the year ended December 31, 2018. The average balance of total

interest-bearing liabilities was $970.8 million and $860.8 million

for the years ended December 31, 2019 and December 31, 2018, respectively,

and the average interest expense on those liabilities was

2.58% and 2.02% for the years ended December 31, 2019 and December 31, 2018,

respectively.

For the year ended December 31, 2019, average term securitization

outstanding was $111.7

million at a weighted average coupon of

issued the term note securitization with an original balance of $201.6 million

in July 2018,

and for the year ended

December 31, 2018, average term securitization outstanding was $75.1

million at a weighted average coupon of 3.75%.

Our wholly-owned subsidiary,

MBB, serves as our primary funding source. MBB raises time deposits through

a variety of sources

including: directly from customers, through the use of on-line listing services,

and through the use of deposit brokers. At December

31, 2019, brokered certificates of deposit represented approximately 48.6%

of total deposits, while approximately 48.6% of total

deposits were obtained from direct channels, and 2.8% were in the brokered

MMDA Product.

Gain on Sale of Leases and Loans.

Gain on sale of leases and loans increased $13.8 million to $22.2 million for the year ended

December 31, 2019, from $8.4 million for the year ended December

Assets sold grew to $310.4 million, for 2019

compared to $139.0 million for 2018.

We rely on the sale of finance

receivables to third parties in the capital markets as an important

source of our liquidity and use such sales to manage the size and composition

of our balance sheet and capital levels.

Our sales

execution decisions, including the timing, volume and frequency

of such sales, depend on many factors including our origination

volumes, the characteristics of our contracts versus market requirements,

our current assessment of our balance sheet composition and

capital levels, and current market conditions, among other factors.

The execution of such sales results in the derecognition of the lease

and loan assets, and the recognition of a gain (or loss) and the servicing asset and liability as applicable

on the sale date driven by the

pricing and net proceeds received;

the immediate recognition of such gain is in exchange for all future revenues from the contracts

and the transfer all risk of loss for sales without recourse and substantially all risks

of loss for sales with recourse.

Substantially all of

our asset sales to date have been without recourse.

Insurance premiums written and earned.

Insurance premiums written and earned increased $0.7 million to $8.8 million for

the year

ended December 31, 2019 from $8.1 million for the year ended

December 31, 2018, primarily due to an increase in the number of

contracts enrolled in the insurance program as well as higher average

ticket size.

Other income.

Other income increased $8.0 million to $13.0 million for the year ended

December 31, 2019 from $5.0 million for the

year ended December 31, 2018. A significant component of the increase in other

income is property tax income that was previously

netted against property tax expense for the year ended December 31, 2018, but

is presented as a separate component of revenue for the

year ended December 31, 2019, as a result of the adoption of ASU 2016-02 and related

ASUs. Selected major components of other

income for the year ended December 31, 2019 included $6.4 million

in property tax income, $2.7 million of insurance policy fees, and

$2.1 million in income from servicing revenue and fees received from referral

of leases to third parties. In comparison, selected major

components of other income for the year ended December 31, 2018

included $2.1 million of insurance policy fees, and $1.5 million in

income from servicing revenue and fees received from referral of leases to third

parties.

Salaries and benefits expense

The following table summarizes the Company’s

Salary and benefits expense:

Year Ended December 31,

(Dollars in thousands)

Salary and benefits

Commissions

Incentive compensation

Salaries and benefits

Salaries and benefits expense increased $4.4 million, or 11.1%,

for the year ended December 31, 2019 primarily due to an increase in

total personnel and increased commissions driven by increased origination

volume.

In addition, in 2019 the Company deferred $1.2

million less of salary for lease origination costs driven by the January

1, 2019 adoption of new lease accounting guidance in ASU

2016-02 that limits the deferral of certain costs.

That change in our deferral rate will continue to affect

the company on a prospective

basis.

Salaries and benefits expense, as a percentage of average total finance

receivables, was 4.29% for the year ended December 31, 2019

compared with 4.21% for the year ended December 31, 2018. Total

personnel was 348 at December 31, 2019 compared to 341 at

December 31, 2018.

General and administrative expense

The following table summarizes the Company’s

General and administrative expense:

Year Ended December 31,

(Dollars in thousands)

Property taxes

Occupancy and depreciation

Professional fees

Information technology

Marketing

Insurance-related

Credit bureau costs

Intangible amortization

FDIC Insurance fees

Other G&A

General and administrative

General and administrative expense increased $7.7 million, or 30.9%

for the year ended December 31, 2019. A major driver of the

increase was due to the January 1, 2019 adoption of new lease accounting guidance

in ASU 2016-02, which resulted in the gross

recognition of property tax expense that was previously netted against property

tax income in fiscal 2018, and lower deferred lease

origination costs for credit bureaus.

Those changes will continue to affect the company on a prospective

basis.

In addition, we

recognized higher intangible amortization expense in 2019 driven by our

September 2018 acquisition of FFR.

General and administrative expense as a percentage of average total finance

receivables was 3.17% for the year ended December 31,

2019, compared to 2.64% for the year ended December 31, 2018.

Provision for income taxes.

Income tax expense of $9.7 million was recorded for the year ended December

31, 2019, compared to an

expense of $7.7 million for the year ended December 31, 2018. Our effective

tax rate, which is a combination of federal and state

income tax rates, was approximately 26.4% for the year ended December

31, 2019, compared to 23.6% for the year ended December

31, 2018. The higher effective tax rate for the year ended

December 31, 2019 is associated with changes in state statutory rates and

related revaluation of deferred tax as well as the increase of a valuation

allowance against certain net operating loss carryforwards that

are not expected to be utilized.

Operating Data

The efficiency ratio (relating expenses with revenues) and

the ratio of salaries and benefits and general and administrative expense as

a percentage of the average total finance receivables shown below measure

productivity and spending levels. Please refer to

Management’s Discussion and Analysis of

Financial Condition and Results of Operations—Results of Operations

for additional

information regarding factors influencing these metrics.

Year Ended December 31,

(Dollars in thousands)

Average total

finance receivables

Salaries and benefits expense

General and administrative expense

Efficiency ratio

Percent of average total finance receivables:

Salaries and benefits

General and administrative

Represents expenses (salaries and benefits expense and general

and administrative expense) divided by the sum of net

interest and fee income and non-interest income.

We generally

reach our lessees through a network of independent equipment dealers

and, to a much lesser extent, lease brokers. The

number of dealers and brokers with whom we conduct business depends

on, among other things, the number of sales account

executives we have.

Liquidity and Capital Resources

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

Our primary liquidity need is to fund new originations. In

addition, we need liquidity to pay interest and principal on our deposits and

borrowings, to pay fees and expenses incurred in

connection with our financing transactions, to fund infrastructure and

technology investment, to pay dividends and to pay

administrative and other operating expenses.

We are dependent

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

needs. Historically, we

have relied upon four principal types of external funding sources for our

operations:

FDIC

insured

deposits;

sales

and

syndications

leases

and

loans;

borrowings

under

various

bank

facilities;

financing

leases

and

loans

various

warehouse

facilities

(all

which

have

been

repaid

full);

and

financing

leases

through

term

note

securitizations.

As a result

of the uncertainties

surrounding the

actual and potential

impacts of

COVID-19 on

our business and

financial condition,

the first quarter

raised additional liquidity

through the issuance

of FDIC-insured deposits

and we increased

our borrowing

capacity

the

Federal

Reserve

Discount

Window.

have

continued

proactively

manage

our

funding

sources

response

changing conditions in this economic climate.

primarily

fund

new originations

through

the issuance

FDIC-insured

deposits issued

by our

wholly-owned

subsidiary,

Marlin

Business Bank

(“MBB”). MBB is

a Utah state-chartered,

Federal Reserve member

commercial bank. As

such, MBB is

supervised by

both the

Federal Reserve

Bank of

San Francisco

and the

Utah Department

of Financial

Institutions. See

further discussion

under “--

Bank Capital and

Regulatory Oversight

Deposits issued by MBB

represent our primary

funding source for new

originations. MBB

receives time deposits

through a

variety of sources

including: directly

from customers, through

the use of

on-line listing services,

and

through the use of deposit brokers.

We have relied

on the sale of finance receivables to third parties in the capital markets as a potential source

of our liquidity.

Among

other attributes, the syndication program enables us to better manag

the overall size and composition of our portfolio in terms of

returns, credit risk and exposure to particular industries, geographies and

asset classes.

Our asset syndication program activity

decreased for the year ended December 31, 2020,

and we sold

$28.3 million of assets that generated an immediate net pre-tax gain on

sale of $2.4 million.

In comparison, for the year ended December 31, 2019,

we sold

$310.4 million of assets for pre-tax gain on sale

$22.2 million. The decreased syndication volume in 2020 as compared to 2019

is due to disruptions in the capital markets due to

the impact of COVID-19 pandemic on the economic environment resulting

in a lack of demand in the syndication market.

Future

levels of syndication volumes will depend on our current assessment of

our balance sheet composition, the quality and eligibility of

originated contracts versus the requirements of our counterparties, and our

ability to negotiate terms acceptable to us, among other

factors.

We continue

to service the contracts

sold, which allows us to maintain an ongoing relationship with these customers.

December 31, 2020,

we were servicing a loan and lease portfolio of approximately $230 million for others.

We have $30.8

million of long-term borrowings remaining as of December 31, 2020 under an asset-backed

term note securitization

that was originated in 2018.

From other bank facilities, at December 31, 2020,

we have approximately $25.0 million of available

borrowing capacity in addition to available cash and cash equivalents

of $135.7 million. This amount excludes additional liquidity that

may be provided by the issuance of insured deposits through MBB and additional

borrowing capacity under the Federal Reserve

Discount Window.

Our debt to equity ratio was 3.87 to 1 at December 31, 2020 and 4.26 to 1

at December 31, 2019.

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

its thirty-seventh consecutive regular quarterly dividend. The dividend

of $0.14 per share of common stock was paid on November 19, 2020

holders of our common stock as of November 9, 2020.

Net cash provided by investing activities was $117.2

million for the year ended December 31, 2020,

compared to net cash used in

investing activities of $38.0 million for the year ended December

31, 2019 and $126.9 million for the year ended December 31, 2018.

The increase in cash flow from investing activities in 2020 as compared

to 2019 is primarily due to a decrease of $432.1 million in

purchases of equipment for sales-type lease contracts and funds used

to originate loans offset by a decrease of $242.2 million in

proceeds from sale of leases originated for investment and decreased principa

collections on leases and loans of $46.0 million.

The

increase in cash flows from investing activities from 2018 to 2019 is primarily due

to an increase of $138.6 million in proceeds from

sale of leases originated for investment and increased principal collections

on leases and loans of $40.8 million, offset by an increase

of $94.1 million in purchases of equipment for sales-type lease contracts and

funds used to originate loans.

Net cash used in financing activities was $166.8 million for the year

ended December 31, 2020,

compared to net cash used in

financing activities of $5.6 million for the year ended December 31, 2019

and net cash provided by financing activities of $86.6

million for the year ended December 31, 2018.

The decrease in cash flows from financing activities from 2019 to 2020 is primarily

due to a $192.2 million net decrease in deposits driven by lower funding

requirements for the portfolio, offset by a decrease of $28.9

million in term securitization repayments. The decrease in financing

activities from 2018 to 2019 is primarily due to the net proceeds

of $151.2 million received in 2018 from our asset backed securitization

and $74.7 million in term securitization repayments in the

current year,

offset by a $136.9 million net increase in deposits.

Additional liquidity is provided by our cash flow from operations. Net cash

provided by operating activities for the years

ended

December 31, 2020,

2019 and 2018 was $60.0 million, $62.4 million and $84.4 million, respectively.

The operating results of our

business are impacted by significant non-cash activities which include

the recognition of provision for credit losses and depreciation

and amortization, including the amortization of deferred initial direct costs and

fees.

For 2020, the operating results also included

non-cash activities related to the recognition of impairment for goodwill

and intangible assets.

We expect cash

from operations, additional borrowings on existing and future

credit facilities and funds from deposits issued through

brokers, direct deposit sources, and the MMDA Product to be adequate

to support our operations and projected growth for the next 12

months and the foreseeable future.

Total

Cash and Cash Equivalents.

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

free cash in leases and loans.

We primarily

fund our originations and growth using certificates of deposit issued through MBB. Total

cash and cash equivalents

available as of December 31, 2020 totaled $135.7 million compared to

$123.1 million at December 31, 2019.

Time Deposits with Banks.

Time deposits with banks are primarily

composed of FDIC-insured certificates of deposits that have

original maturity dates of greater than 90 days. Generally,

the certificates of deposits have the ability to redeem early,

however, early

redemption penalties

may be incurred. Total

time deposits as of December 31, 2020 and December 31, 2019 totaled $6.0 million

and

$12.9 million, respectively.

Restricted Interest-earning Deposits with Banks

As of December 31, 2020 and 2019,

$4.7 million and $6.7 million, respectively,

was classified as restricted interest-earning deposits with banks consisted

of funds in a trust account related to our secured debt

facility.

Borrowings.

Our primary borrowing relationships may require the pledging

of eligible lease and loan receivables to secure amounts

advanced.

We had $30.8 million

outstanding secured borrowings at December 31, 2020 and $76.6 million

at December 31, 2019.

Borrowings outstanding consist of the following:

For the Twelve Months

Ended December 31, 2020

As of December 31, 2020

Maximum

Maximum

Month End

Average

Weighted

Weighted

Facility

Amount

Amount

Average

Amount

Average

Unused

Amount

Outstanding

Outstanding

Rate

Outstanding

Rate

Capacity

(Dollars in thousands)

Federal funds purchased

Revolving line of credit

Term note securitizations

Does not include MBB’s access to the

Federal Reserve Discount Window,

which is based on the amount of assets MBB chooses

to pledge. Based on assets pledged at December 31, 2020,

MBB had $50.9 million in unused, secured borrowing capacity at the

Federal Reserve Discount Window.

Additional liquidity that may be provided by the issuance of insured deposits is also excluded

from this table.

Does not include transaction costs.

Includes transaction costs.

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 $50.9

million in unused, secured borrowing capacity at the Federal

Reserve Discount Window,

based on $56.7 million of net investment in leases pledged at December 31,

Term Note

Securitizations.

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

securitization. This transaction was

Marlin's eleventh term securitization and its first since 2010. It provides

the company with fixed-cost borrowing with the objective of

diversifying its funding sources.

As with all prior securitizations, this transaction was recorded as an “on-balance

sheet” transaction

and the financing is recorded in long-term borrowings in the Consolidated

Balance Sheet.

At December 31, 2020 outstanding term securitizations amounted

to $30.8 million with $76.6 million outstanding at December 31,

As of December 31, 2020, $32.9 million of minimum lease payments receivable

and $4.7 million of restricted interest-earning

deposits are assigned as collateral for the term note securitization.

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

Outstanding

Notes

Balance

Final

Original

Originally

Maturity

Coupon

Issued

December 31, 2020

Date

Rate

(Dollars in thousands)

Class A-1

July 2019

Class A-2

October 2020

Class A-3

April 2023

Class B

May 2023

Class C

June 2023

Class D

July 2023

Class E

May 2025

Total Term

Note Securitizations

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.

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

will approximate 3.54%

over the remaining term of the

borrowing.

At December 31, 2020,

the Company was in compliance with terms of the term note securitization agreement.

Bank Capital and Regulatory Oversight

We are subject

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

be subject to examination by the

Federal Reserve Board and the Federal Reserve Bank of Philadelphia even if

not otherwise regulated by the Federal Reserve Board.

MBB is also subject to comprehensive federal and state regulations dealing

with a wide variety of subjects, including minimum capital

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

in transactions with its affiliates, restrictions as to dividend

payments and numerous other aspects of its operations.

These regulations generally have been adopted to protect depositors and

creditors rather than shareholders.

At December 31, 2020,

MBB’s Tier 1 leverage

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

1 risk-based capital ratio and total

risk-based capital ratio exceeded the requirements for well-capitalized status.

Further, MBB exceeded the requirement

for “well

capitalized” status pursuant to the FDIC Agreement entered into

in conjunction with the opening of the bank.

At December 31, 2020,

Marlin Business Services Corp.’s Tier

1 leverage ratio, common equity Tier 1 risk based ratio,

Tier 1 risk-

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

for well-capitalized status.

See “Item 1—Supervision

and Regulation” and

Note 18—Stockholders’ Equity

in the Notes to

Consolidated Financial Statements

for

additional information regarding these ratios and our levels at December

Information on Stock Repurchases

Information on Stock Repurchases is provided in “Part II, Item 5, Market for

Registrant’s Common Equity,

Related Stockholder

Matters and Issuer Purchases of Equity Securities,” herein.

Items Subsequent to December 31, 2020

The Company declared a dividend of $0.14 per share on January 28,

2021. The quarterly dividend, which amounted to a dividend

payment of approximately $1.7 million, was paid on February 18, 2021

to shareholders of record on the close of business on February

It represents the Company’s thirty-eighth

consecutive quarterly cash dividend.

The

Federal

Reserve

Board

has

issued

policy

statements

which

provide

that,

general

matter,

insured

banks

and

bank

holding

companies should pay dividends

only out of current

operating earnings. Payment of

dividends by Marlin Business Services

Corp., and

MBB

Marlin

Business

Services

Corp.,

are

also

subject

the

regulatory

requirements

and

restricti

ons

described

the

“Supervision and Regulation” portion of Item 1 of Part I of this Form 10

The

payment

of future

dividends

will be

subject

approval

the

Company’s

Board

of Directors

and

will.

also

depend

upon

our

earnings, financial

condition, capital

requirements, cash

flow,

long-range plans

and such

other factors

as our

Board of

Directors may

deem relevant.

Contractual Obligations

In addition to our scheduled maturities on our deposits, we have future cash

obligations under various types of contracts. We

lease

office space and office equipment under

long-term operating leases. The contractual obligations under our certificates

of deposits,

credit facilities, operating leases, agreements and commitments under non-cancelable

contracts as of December 31, 2020 were as

follows:

Contractual Obligations as of December 31, 2020

Certificates

Contractual

Interest

Operating

Period Ending December 31,

Deposits

Borrowings

Payments

Leases

Total

(Dollars in thousands)

Thereafter

Total

Money market deposit accounts are not included. As of December

money market deposit accounts totaled

million.

Includes interest on certificates of deposits and borrowings.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements requiring

disclosure at December 31, 2020.

Market Interest-Rate Risk and Sensitivity

Market risk is the risk of losses arising from changes in values of financial instruments.

We engage

in transactions in the normal

course of business that expose us to market risks. We

attempt to mitigate such risks through prudent management practices and

strategies such as attempting to match the expected cash flows of our

assets and liabilities.

We are exposed

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

with changes in interest rates.

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

we generally seek to finance these assets with fixed interest

certificates of deposit issued by MBB, and to a lesser extent through the variable

-rate MMDA Product at MBB.

Our earnings are sensitive to fluctuations in interest rates. Since the Company

has no outstanding variable-rate borrowings as of

December 31, 2020,

and since the Company also manages its interest rate risk by funding its fixed rate leases with fixed

rate funding

sources whenever possible, the Company’s

exposure to interest rate risk is controlled.

However, there can be no assurance that we

will be able to offset higher deposits costs with increased pricing

of our assets.

As such, the major sources of the Company’s

interest

rate risk are timing differences in the maturity and repricing

characteristics of assets and liabilities, changes in the shape of the yield

curve, changes in customer behavior and changes in relationship between

rate indices (basis risk).

We manage

and monitor our exposure to interest rate risk using balance sheet simulation models. Such

models incorporate many of

our assumptions about our business including new asset production

and pricing, interest rate forecasts, overhead expense forecasts and

assumed credit losses. Many of the assumptions we use in our simulation

models are based on past experience and actual results could

vary

substantially.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations

are based upon our consolidated financial statements,

which have been prepared in accordance with U.S. GAAP.

Preparation of these financial statements requires us to make estimates and

judgments that affect reported amounts of assets, liabilities,

revenues and expenses and affect related disclosure

of contingent assets

and liabilities at the date of our financial statements. On an ongoing basis, we evaluate

our estimates, including credit losses, residuals,

initial direct costs and fees, other fees, the fair value of financial instruments,

insurance reserves and the realization of deferred tax

assets. We base our

estimates on historical experience and on various other assumptions that are

believed to be reasonable under the

circumstances, the results of which form the basis for making judgments

about the carrying values of assets and liabilities that are not

readily apparent from other sources. Critical accounting policies are defined

as those that are reflective of significant judgments and

uncertainties. Our consolidated financial statements are based on the selection

and application of critical accounting policies, the most

significant of which are described below.

Allowance for credit losses

For 2019 and prior, we maintained an

allowance for credit losses at an amount sufficient to absorb losses inherent

in our existing lease

and loan portfolios as of the reporting dates based on our estimate of probable

incurred net credit losses in accordance with the

Contingencies Topic

of the FASB ASC.

See further discussion of our policy under the incurred model in the

“Critical Accounting

Policy” section of our 2019 Form 10-K.

Effective January 1, 2020, we adopted ASU 2016

-13, Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses on Financial Instruments (“CECL”), which changed our

accounting policy and estimated allowance.

CECL replaces the

probable, incurred loss model with a measurement of expected credit

losses for the contractual term of the Company’s

current

portfolio of loans and leases.

After the adoption of CECL, an allowance, or estimate of credit losses, will be

recognized immediately

upon the origination of a loan or lease, and will be adjusted in each subsequent

reporting period

We maintain an

allowance for credit losses at an amount that takes into consideration all future cashflows

that we expect to receive or

derive from the pools of contracts, including recoveries after charge

-off, amounts related to initial direct cost and origination costs net

of fees deferred, and certain future cashflows from residual assets.

A provision is charged against earnings

to maintain the allowance

for credit losses at the appropriate level.

We developed

a consistent, systematic methodology to measure our estimate of the credit losses inherent

in our current portfolio, over

the entire life of the contracts.

We made certain

key decisions that underlie our methodology,

including our decisions of how to

aggregate our portfolio into pools for analysis based on similar risk

characteristics, the selection of appropriate historical loss data to

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

a reasonable and supportable forecast, and the length of our

forecast and approach to reverting to historical loss data.

For our Equipment Finance segment, we determine our reasonable and

supportable forecast based on certain economic variables that

were selected based on a statistical analysis of our own historical loss experience,

going back to 2004. We

selected unemployment rate

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

based on an analysis of the correlation of changes in

those variables to our loss experience over time.

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

date, management considers relevant qualitative and

quantitative factors to assess whether the historical loss experience

being referenced should be adjusted to better reflect the risk

characteristics of the current portfolio and the expected future loss experience

for the life of these contracts.

This assessment

incorporates all available information relevant to considering

the collectability of our current portfolio, including considering

economic and business conditions, default trends, changes in portfolio

composition, changes in lending policies and practices, among

other internal and external factors.

Further, each measurement period we determine

whether to separate any loans from their current

pool for individual analysis based on their unique risk characteristics. Our

approach to estimating qualitative adjustments takes into

consideration all significant current information we believe appropriate

to reflect the changes and risks in the portfolio or environment

and involves significant judgment.

Our estimates of expected net credit losses are inherently uncertain, and

as a result we cannot predict with certainty the amount of

such losses. We may

recognize credit losses in excess of our reserve, or a significant increase to our

credit loss estimate, in the future,

driven by the update of assumptions and information underlying

our estimate and/or driven by the actual amount of realized losses.

Our estimate of credit losses will be revised each period to reflect current information,

including current forecasts of economic

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

and emerging trends in our portfolio, among other

factors, and these updates for current information could drive a significant

adjustment to our reserve.

Further, actual credit losses may

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

if the actual performance of our portfolio differs significantly

from

the current assumptions and judgements, including those underlying our

forecast and qualitative adjustments, as of any given

measurement date.

Income taxes.

We are subject

to the income tax laws of the various jurisdictions in which we operate, including

U.S. federal, state and local

jurisdictions. These tax laws are complex and are subject to different

interpretations by the taxpayer, the relevant government

taxing

authorities, and courts.

When determining our current income tax expense, we must make judgments

about the application of these

inherently complex tax laws.

Deferred income taxes are determined using the balance sheet method.

Recognition of deferred taxes is based on the estimated future

tax effects of differences between the

financial statement and tax basis of assets and liabilities, given the provisions of the enacted

tax

laws; however, deferred tax assets are reduced

by valuation allowances if it is more likely than not that some portion of the deferred

tax asset will not be realized.

We evaluate our

deferred tax assets quarterly to determine if adjustments to our valuation allowance

are

required based on the consideration of all available evidence, using a "more likely

than not" standard with respect to whether deferred

tax assets will be realized.

The ultimate realization of deferred tax assets is dependent upon

the generation of future taxable income during the periods in which

those temporary differences become deductible.

In making this assessment, management considers the scheduled reversal of deferred

tax liabilities and projected future taxable income, the level of historical

taxable income, projections for future taxable income over the

periods which the deferred tax assets are deductible and available tax

planning strategies.

Should a change in circumstances,

including differences between our future operating

results and estimates, lead to a change in our judgments about the realization of

deferred

tax assets in future years, we would adjust the valuation allowances in the period

that the change in circumstances occurs,

along with a charge or credit to income tax expense.

We record

penalties and accrued interest related to taxes in income tax expense.

Uncertain tax positions (including interest and

penalties) are recognized when we believe it is more likely than not that the

tax position will be upheld on examination by the taxing

authorities based on merits of the position.

As of December 31, 2020 and 2019,

there are no unrecognized tax positions.

Lease residual values.

A sales-type lease is recorded at the aggregate future minimum lease payments

plus the estimated residual value less unearned income.

Residual values are established at lease inception based on our estimate of

the expected fair value of the equipment at the end of the

lease term. Residual values may be realized at lease termination from lease extensions,

sales or other dispositions of leased equipment.

These estimates are based on industry data, management’s

experience, and historical performance.

For all fair market value and fixed purchase option leases, we record an

estimated residual value at lease inception based on a

percentage of the equipment cost of the asset being leased.

The percentages used depend on equipment type and term. For fixed

purchase option leases, we record an estimated residual value on based on

the contractual fixed purchase price.

In setting and

reviewing estimated residual values, our analysis focuses primarily

on total historical and expected realization statistics pertaining to

sales of equipment.

At the end of an original lease term, lessees may choose to purchase the equipment,

renew the lease or return the equipment to us. We

receive income from lease renewals when the lessee elects to retain the

equipment longer than the original term of the lease.

When a

lessee elects to return equipment at lease termination, the equipment is transferred

to other assets at the lower of its basis or fair market

value. We generally

sell returned equipment to independent third parties, rather than leasing the equipment a

second time. We

generally charge off the value of equipment

within other assets once it has been aged greater than 120 days.

Starting with the January 1, 2020 adoption of CECL, the measurement

of any expected future cashflows from residuals, including both

estimated income after the end of term or any potential gain or loss on

the sale of the asset, are included as a component of the

expected cashflows of the pool of contracts when measuring the allowance

for credit losses.

These amounts would be recognized in

the Provision for credit losses in the statement of operations.

Historical realization statistics are used to develop the estimated

cashflows from residuals,

including lease renewals and equipment sales.

Any such positive expected cashflows, would offset the

allowance for the related leases,

but limited to reducing such estimated credit losses for the pool to zero.

Any estimated cashflows that

may represent a loss in value would increase the estimate of credit loss.

Recently Adopted Accounting Standards

Information on recently issued accounting pronouncements

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

Summary of Significant Accounting Policies in the accompanying

Notes to Consolidated Financial Statements.