mrln-20210331

UNITED STATES

SECURITIES AND EXCHANGE

COMMISSION

WASHINGTON,

D.C. 20549

FORM

10-Q

☑

QUARTERLY

REPORT PURSUANT TO SECTION

13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF

1934

For the Quarterly Period Ended

March 31, 2021

☐

TRANSITION REPORT PURSUANT TO

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

1934

For the transition period from__________ to__________

Commission file number

000-50448

MARLIN BUSINESS SERVICES CORP.

(Exact name of registrant as specified in its charter)

Pennsylvania

38-3686388

(State of incorporation)

(I.R.S. Employer Identification Number)

300 Fellowship Road

Mount Laurel

08054

(Address of principal executive offices)

(Zip code)

(

888

)

479-9111

(Registrant’s telephone number,

including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 per share

MRLN

NASDAQ

Global Select Market

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

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

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

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

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

Yes

☑

☐

Indicate by check mark whether the registrant has submitted electronically

every Interactive Data File required to be submitted

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

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

registrant was required to submit such files.)

Yes

☑

☐

Indicate by check mark whether the registrant is a large accelerated

filer, an accelerated filer,

a non-accelerated filer, a smaller

reporting company or an emerging growth company.

See the definitions of "large accelerated filer,”

“accelerated filer", “smaller

reporting company” and “emerging growth

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

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company,

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

period for

complying with any new or revised financial accounting standards provided

pursuant to Section 13(a) of the Exchange Act.

☐

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

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

Yes

☐

☒

At April 23, 2021,

12,009,234

shares of Registrant’s common

stock, $.01 par value, were outstanding.

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Quarterly Report on Form 10-Q

for the Quarter Ended March 31, 2021

TABLE OF CONTENTS

Page

No.

Part I – Financial Information

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

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

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

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

Consolidated Balance Sheets at March 31, 2021 and December 31, 2020

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

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

Consolidated Statements of Operations for the three- month periods ended

March 31, 2021 and 2020

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

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

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

March 31, 2021 and 2020

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

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

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

March 31, 2021 and 2020

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

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

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

March 31, 2021 and 2020

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

................... 7

Notes to Unaudited Consolidated Financial Statements

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

.......................................... 9

.................................................... 35

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

.................................... 49

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

............................ 49

Part II – Other Information

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

.................................. 49

Item

Legal

Proceedings

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

...................................... 49

Item 1A Risk Factors

…

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

........................................... 49

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

................................... 50

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

................. 51

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

............................ 51

Item

Other

Information

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

...................................... 51

Item

Exhibits

…….

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

............................................ 52

Signatures

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

-3-

PART

I. Financial Information

Item

Consolidated

Financial

Statements

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

March 31,

December 31,

2021

2020

(Dollars in thousands, except per-share

data)

ASSETS

Cash and due from banks

5,244

5,473

Interest-earning deposits with banks

105,378

130,218

Total cash and cash equivalents

110,622

135,691

Time deposits with banks

4,482

5,967

Restricted interest-earning deposits related to consolidated VIEs

4,358

4,719

Investment securities (amortized cost of $

12.6

million and $

11.5

million at

March 31, 2021 and December 31, 2020, respectively)

12,373

11,624

Net investment in leases and loans:

Leases

319,092

337,159

Loans

517,249

532,125

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

23.2

million and

30.4

million at March 31, 2021 and December 31, 2020, respectively, related to consolidated VIEs)

836,341

869,284

Allowance for credit losses

(38,912)

(44,228)

Total net investment in leases and loans

797,429

825,056

Intangible assets

5,510

5,678

Operating lease right-of-use assets

7,648

7,623

Property and equipment, net

8,603

8,574

Property tax receivables, net of allowance

12,063

6,854

Other assets

9,776

10,212

Total assets

972,864

1,021,998

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

678,331

729,614

Long-term borrowings related to consolidated VIEs

23,670

30,665

Operating lease liabilities

8,517

8,700

Other liabilities:

Sales and property taxes payable

10,916

6,316

Accounts payable and accrued expenses

26,086

27,734

Net deferred income tax liability

23,642

22,604

Total liabilities

771,162

825,633

Commitments and contingencies

Stockholders’ equity:

Preferred Stock, $

0.01

par value;

5,000,000

shares authorized;

none

issued

—

Common Stock, $

0.01

par value;

75,000,000

shares authorized;

12,009,323

and

11,974,530

shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

120

Additional paid-in capital

76,682

76,323

Accumulated other comprehensive (loss) income

(115)

Retained earnings

125,015

119,853

Total stockholders’ equity

201,702

196,365

Total liabilities and stockholders’ equity

972,864

1,021,998

The accompanying notes are an integral part of the unaudited consolidated

financial statements.

-4-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

Three Months Ended March 31,

2021

2020

(Dollars in thousands, except per-share

data)

Interest income

18,288

26,465

Fee income

2,455

2,766

Interest and fee income

20,743

29,231

Interest expense

3,263

5,680

Net interest and fee income

17,480

23,551

Provision for credit losses

(2,936)

25,150

Net interest and fee income (loss) after provision for credit losses

20,416

(1,599)

Non-interest income:

Gain on leases and loans sold

—

2,282

Insurance premiums written and earned

1,998

2,282

Other income

6,574

7,639

Non-interest income

8,572

12,203

Non-interest expense:

Salaries and benefits

8,373

9,519

General and administrative

11,246

13,605

Goodwill impairment

—

6,735

Non-interest expense

19,619

29,859

Income (loss) before income taxes

9,369

(19,255)

Income tax expense (benefit)

2,518

(7,434)

Net income (loss)

6,851

(11,821)

Basic earnings (loss) per share

0.57

(1.00)

Diluted earnings (loss)

per share

0.57

(1.00)

The accompanying notes are an integral part of the unaudited consolidated

financial statements.

-5-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

Three Months Ended March 31,

2021

2020

(Dollars in thousands)

Net income (loss)

6,851

(11,821)

Other comprehensive income (loss):

Decrease in fair value of debt securities available for sale

(246)

(51)

Tax effect

Total other comprehensive

loss

(184)

(38)

Comprehensive income (loss)

6,667

(11,859)

The accompanying notes are an integral part of the unaudited consolidated

financial statements.

-6-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Accumulated

Common

Additional

Other

Total

Common

Stock

Paid-In

Comprehensive

Retained

Stockholders’

Amount

Capital

Income (Loss)

Earnings

Equity

(Dollars in thousands)

Balance, December 31, 2019

12,113,585

121

79,665

135,112

214,956

Repurchase of common stock

(285,593)

(3)

(4,535)

—

(4,538)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

56,481

(1)

—

Stock option compensation recognized

—

518

—

518

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

(38)

—

(38)

Net loss

—

(11,821)

Impact of adoption of new accounting

standards

(1)

—

(8,877)

Cash dividends paid ($

0.14

per share)

—

(1,710)

Balance, March 31, 2020

11,884,473

119

75,647

112,704

188,490

Balance, December 31, 2020

11,974,530

120

76,323

119,853

196,365

Repurchase of common stock

(16,038)

—

(224)

—

(224)

Stock issued in connection with restricted

stock and RSUs, net of forfeitures

50,831

—

Stock-based compensation recognized

—

583

—

583

Net change in unrealized gain/loss on

securities available for sale, net of tax

—

(184)

—

(184)

Net income

—

6,851

Cash dividends paid ($

0.14

per share)

—

(1,689)

Balance, March 31, 2021

12,009,323

120

76,682

(115)

125,015

201,702

(1)

Represents the impact of Accounting Standards Update

("ASU") 2016-13 and related ASUs collectively referred

to as "CECL".

See Note 2.

The accompanying notes are an integral part of the unaudited consolidated

financial statements.

-7-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended March 31,

2021

2020

(Dollars in thousands)

Cash flows from operating activities:

Net income (loss)

6,851

(11,821)

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

Depreciation and amortization

877

1,057

Stock-based compensation

583

518

Impairment of goodwill and intangible assets

—

6,735

Change in fair value of equity securities

(58)

Provision for credit losses

(2,936)

25,150

Change in net deferred income tax liability

1,100

(2,107)

Amortization of deferred initial direct costs and fees

2,520

3,413

Gain on leases sold

—

(2,282)

Leases originated for sale

—

(3,693)

Proceeds from sale of leases originated for sale

—

3,874

Noncash lease expense

166

324

Effect of changes in other operating items:

Other assets

(4,905)

(12,002)

Other liabilities

2,710

1,083

Net cash provided by operating activities

7,032

10,191

Cash flows from investing activities:

Net change in time deposits with banks

1,485

(737)

Purchases of equipment for lease contracts and funds used to originate

loans

(85,571)

(156,145)

Principal collections on leases and loans

112,667

129,810

Proceeds from sale of leases originated for investment

—

21,337

Security deposits collected, net of refunds

(14)

(78)

Proceeds from the sale of equipment

817

840

Acquisitions of property and equipment

(615)

(796)

Purchases of investment securities

(1,569)

(19)

Principal payments received on investment securities

548

613

Net cash provided by (used in) investing activities

27,748

(5,175)

Cash flows from financing activities:

Net change in deposits

(51,283)

102,864

Term securitization repayments

(7,026)

(14,008)

Business combinations earn-out consideration payments

—

(132)

Repurchases of common stock

(224)

(4,538)

Dividends paid

(1,677)

(1,685)

Net cash (used in) provided by financing activities

(60,210)

82,501

Net increase in total cash, cash equivalents and restricted cash

(25,430)

87,517

Total cash, cash equivalents

and restricted cash, beginning of period

140,410

130,027

Total cash, cash equivalents

and restricted cash, end of period

114,980

217,544

The accompanying notes are an integral part of the unaudited consolidated

financial statements.

-8-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended March 31,

2021

2020

(Dollars in thousands)

Supplemental disclosures of cash flow information:

Cash paid for interest on deposits and borrowings

3,170

5,420

Net cash paid for income taxes

903

1,797

Leases and loans transferred into held for sale from investment

—

19,235

Supplemental disclosures of non-cash investing activities:

Purchase of equipment for lease contracts and loans originated

1,309

3,773

Reconciliation of Cash, cash equivalents and restricted cash to

the Consolidated Balance Sheets:

Cash and cash equivalents

110,622

211,070

Restricted interest-earning deposits

4,358

6,474

Cash, cash equivalents and restricted cash at end of period

114,980

217,544

-9-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

NOTE 1 – The Company

We are a nationwide

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

in the Commonwealth of

Pennsylvania in

2003

. In 2008, we opened Marlin Business Bank (“MBB”), a commercial bank chartered

by the State of

Utah

and a

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

primary funding source through its issuance of Federal

Deposit Insurance Corporation (“FDIC”)-insured deposits. In 2009,

Marlin Business Services Corp. became a bank holding company

subject to the Bank Holding Company Act and in 2010, the Federal Reserve

Bank of Philadelphia confirmed the effectiveness of

Marlin Business Services Corp.’s

election to become a financial holding company (while remaining a bank

holding company)

pursuant to Sections 4(k) and (l) of the Bank Holding Company Act and

section 225.82 of the Federal Reserve Board’s

Regulation Y.

Such election permits Marlin Business Services Corp. to engage

in activities that are financial in nature or incidental to a financial

activity,

including the maintenance and expansion of our reinsurance activities conducted

through our wholly-owned subsidiary,

AssuranceOne, Ltd. (“AssuranceOne”).

References to the “Company,”

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

Business Services Corp. and its

wholly-owned subsidiaries, unless the context otherwise requires.

NOTE 2 – Summary of Significant Accounting Policies

Basis of financial statement presentation.

The unaudited consolidated financial statements include the

accounts of the Company and

its wholly-owned subsidiaries. The Company has one reportable segment,

which includes the Company’s commercial

lending and

leasing products and related services, including equipment loans and

leases, property insurance on leased equipment, and working

capital loans. All intercompany accounts and transactions have been

eliminated in consolidation.

The accompanying unaudited consolidated financial statements present

the Company’s financial position

at March 31, 2021 and the

results of operations for the three-month periods ended March 31, 2021

and 2020,

and cash flows for the three-month periods ended

March 31, 2021 and 2020.

In management’s opinion, the unaudited

consolidated financial statements contain all adjustments, which

include normal and recurring adjustments, necessary for a fair presentation

of the financial position and results of operations for the

interim periods presented.

These unaudited consolidated financial statements should be read in conjunction

with the consolidated

financial statements and note disclosures included in the Company’s

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

Securities and Exchange Commission (“SEC”) on March 5, 2021

The consolidated results and statements of cash flows for these

interim financial statements are not necessarily indicative of the results of

operations or cash flows for the respective

full years or any

other period.

Use of Estimates.

These unaudited consolidated financial statements require

management to make estimates and assumptions that

affect the reported amounts of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the financial

statements and the reported amounts of revenues and expenses during

the reporting period. Estimates are used when accounting for

income recognition, the residual values of leased equipment, the

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

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

insurance program, and income taxes. Actual results

could differ from those estimates.

Income taxes.

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

rates

was

25.1

% and

23.9

% for the three months ended

March 31, 2021 and March 31, 2020, respectively.

For the three months ended March 31, 2021 our effective

tax rate was

26.9

% expense and for the three months ended March 31, 2020,

our effective tax rate was

38.6

% benefit, driven by a $

3.2

million discrete benefit, resulting from certain provisions in the Coronavirus

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

of our federal net operating losses.

The Company is

currently under examination

by the IRS

for tax

years ending December

31, 2013 to

2018 resulting from

Joint Committee

Review as part of an IRS refund claim. The Company remains subject to examination for the 2017 tax year to the present under regular

statute of limitations. The Company files state income tax returns in various

states which may have different statutes of limitations.

-10-

Significant Accounting Policies.

There have been no significant changes to our Significant Accounting

Policies as described in our

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

2020.

Recently Adopted Accounting Standards

Credit Losses.

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

issued Accounting Standards Update (“ASU”)

ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses on Financial Instruments

and related

ASUs collectively referred to as “CECL”.

The Company adopted the guidance in these ASUs, effective January

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

new standard’s provisions

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

of the first reporting period in

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

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

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

this guidance.

Income Taxes

In December 2019, the FASB

issued ASU 2019-12,

Income Taxes

(Topic 740):

Simplifying the Accounting for

Income Taxes

, which removes certain exceptions to the general principles of ASC 740 in order

to reduce the cost and complexity of its

application.

The amendments also clarify and amend existing guidance to improve consistent application.

The ASU is effective for

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

within those annual periods.

We adopted

ASU 2019-12 on

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

consolidated financial position or results of operations.

-11-

NOTE 3 – Non-Interest Income

The following table summarizes the Company’s

non-interest income for the periods presented:

Three Months Ended March 31,

(dollars in thousands)

2021

2020

Insurance premiums written and earned

1,998

2,282

Gain on sale of leases and loans

—

2,282

Other income:

Property tax income

5,020

5,504

Servicing income

386

566

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

(66)

Non-interest income - other than contracts with customers

7,338

10,692

Other income:

Insurance policy fees

772

918

Property tax administrative fees on leases

203

234

ACH payment fees

Referral fees

Other

190

193

Non-interest income from contracts with customers

1,234

1,511

Total non-interest income

8,572

12,203

-12-

NOTE 4 - Investment Securities

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

March 31,

December 31,

(Dollars in thousands)

2021

2020

Equity Securities

Mutual fund

3,707

3,760

Debt Securities, Available

for Sale:

Asset-backed securities ("ABS")

5,192

3,719

Municipal securities

3,474

4,145

Total investment securities

12,373

11,624

The following schedule summarizes changes in fair value of equity securities

and the portion of unrealized gains and losses for each

period presented:

Three Months Ended March 31,

2021

2020

(Dollars in thousands)

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

(66)

Less: Net gains and (losses) recognized during the period

on equity securities sold during the period

—

Unrealized gains and (losses) recognized during the reporting period

on equity securities still held at the reporting date

(66)

Available for

Sale

The following schedule is a summary of available for sale investments as of the

dates presented:

March 31, 2021

Gross

Amortized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

(Dollars in thousands)

ABS

5,125

—

5,192

Municipal securities

3,672

(199)

3,474

Total Debt Securities, Available

for Sale

8,797

(199)

8,666

December 31, 2020

Gross

Amortized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

(Dollars in thousands)

ABS

3,666

—

3,719

Municipal securities

4,082

(1)

4,145

Total Debt Securities, Available

for Sale

7,748

117

(1)

7,864

-13-

The Company evaluates its available for sale securities in an unrealized loss position

for other than temporary impairment on at least a

quarterly basis. The Company did

t recognize any other than temporary impairment to earnings for each of the periods ended

March

31, 2021 and March 31, 2020.

The following tables present the aggregate amount of unrealized losses on

available for sale securities in the Company’s

investment

securities classified according to the amount of time those securities

have been in a continuous loss position as of March 31, 2021 and

December 31, 2020:

March 31, 2021

Less than 12 months

12 months or longer

Total

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Losses

Value

Losses

Value

Losses

Value

(Dollars in thousands)

Municipal securities

(199)

3,348

—

(199)

3,348

Total available for sale investment

securities

(199)

3,348

—

(199)

3,348

December 31, 2020

Less than 12 months

12 months or longer

Total

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Losses

Value

Losses

Value

Losses

Value

(Dollars in thousands)

Municipal securities

(1)

141

—

(1)

141

Total available for sale investment

securities

(1)

141

—

(1)

141

The following table presents the amortized cost, fair value, and weighted average

yield of available for sale investments at March 31,

2021,

based on estimated average life. Receipt of cash flows may differ

from those estimated maturities because borrowers may have

the right to call or prepay obligations with or without penalties:

Distribution of Maturities

1 Year

Over 1 to

Over 5 to

Over 10

or Less

5 Years

10 Years

Years

Total

(Dollars in thousands)

Amortized Cost:

ABS

750

1,302

1,475

1,598

5,125

Municipal securities

120

—

3,547

3,672

Total available for sale investments

755

1,422

1,475

5,145

8,797

Estimated fair value

763

1,447

1,510

4,946

8,666

Weighted-average

yield, GAAP basis

2.31

1.84

0.81

2.15

1.89

-14-

NOTE 5 – Net Investment in Leases and Loans

Net investment in leases and loans consists of the following:

March 31, 2021

December 31, 2020

(Dollars in thousands)

Minimum lease payments receivable

334,294

354,298

Estimated residual value of equipment

26,349

26,983

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

(41,179)

(43,737)

Security deposits

(372)

(385)

Total leases

319,092

337,159

Commercial loans, net of origination costs and fees deferred

Working

Capital Loans

18,351

20,034

CRA

(1)

1,158

1,091

Equipment loans

(2)

436,814

449,149

CVG

60,926

61,851

Total commercial

loans

517,249

532,125

Net investment in leases and loans, excluding allowance

836,341

869,284

Allowance for credit losses

(38,912)

(44,228)

Total net investment

in leases and loans

797,429

825,056

________________________

(1)

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

(“CRA”).

(2)

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

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

instituted a payment deferral contract modification program in

order to assist our small-business customers.

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

At March 31, 2021, $

24.9

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

outstanding asset-backed

securitization balance and $

55.2

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

capacity at

the Federal Reserve Discount Window.

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

were $

13.6

million and $

14.6

million as of March

31, 2021 and December 31, 2020,

respectively. Initial direct

costs are netted in unearned income and are amortized to income using

the effective interest method. Origination costs are

netted in commercial loans and are amortized to income using the effective interest

method. At March 31, 2021 and December 31, 2020, $

21.5

million and $

21.9

million, respectively,

of the estimated residual value of

equipment retained on our Consolidated Balance Sheets was related

to copiers.

-15-

Maturities of lease receivables

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

initial direct costs and

fees deferred, were as follows as of March 31, 2021:

Minimum Lease

Payments

Net Income

Receivable

(1)

Amortization

(2)

(Dollars in thousands)

Period Ending March 31,

Remainder of 2021

105,209

18,517

2022

109,389

13,153

2023

68,649

6,463

2024

35,012

2,403

2025

13,032

589

Thereafter

3,003

334,294

41,179

________________________

(1)

Represents the undiscounted cash flows of the lease payments receivable.

(2)

Represents the difference between the undiscounted cash flows and the discounted cash flows.

The lease income recognized was as follows:

Three Months Ended March 31,

2021

2020

(Dollars in thousands)

Interest Income

6,693

9,151

As of March 31, 2021 and December 31, 2020,

the Company maintained total finance receivables which were on a non-accrual basis

with net investment of $

14.0

million and $

14.3

million, respectively.

As of March 31, 2021, the Company had contracts that had been

modified under its COVID-19 payment deferral program of $

93.8

million representing approximately

11.2

% of the Company’s total

net investment.

See

Note 6

“Allowance for Credit Losses” for additional discussion of loan modifications

due to COVID-19.

Portfolio Sales

The Company originates certain lease and loans for sale to third parties, based

on their underwriting criteria and specifications.

addition, the Company may periodically enter into agreements to sell certain leases and

loans that were originated for investment to

third parties.

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

involvement through servicing, the Company recognizes a

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

the expected servicing period based on the effective yield

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

The Company’s sale agreements typically

do not contain

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

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

estimate of the fair value attributable to that obligation.

The Company’s servicing liability

was $

1.1

million and $

1.3

million as of

March 31, 2021,

and December 31, 2020,

respectively, and is recognized

within Accounts payable and accrued expenses in the

Consolidated Balance Sheets.

As of March 31, 2021 and December 31, 2020,

the portfolio of leases and loans serviced for others was

approximately $

199

million and $

230

million, respectively.

In addition, the Company may have continuing involvement in contracts

sold through any recourse obligations that may include

customary representations and warranties or specific recourse provisions.

The following table summarizes information related to portfolio

sales for the periods presented:

-16-

Three Months Ended March 31,

2021

2020

(Dollars in thousands)

Sales of leases and loans

—

22,929

Gain on sale of leases and loans

—

2,282

-17-

NOTE 6 – Allowance for Credit Losses

Effective January 1, 2020, we

adopted

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

which replaced

the probable,

incurred loss model with a measurement of expected credit losses for the contractual

term of the Company’s current portfolio

of loans

and leases.

See our Annual Report on Form 10-K for the year ended December 31, 20

20 for a detailed discussion of our adoption of

this guidance.

The following tables summarize activity in the allowance for credit losses

Three Months Ended March 31, 2021

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, beginning of period

33,184

1,206

9,838

—

44,228

Charge-offs

(3,711)

(535)

(762)

—

(5,008)

Recoveries

1,360

130

—

1,533

Net charge-offs

(2,351)

(405)

(719)

—

(3,475)

Realized cashflows from Residual Income

1,095

—

1,095

Provision for credit losses

(3,076)

209

(69)

—

(2,936)

Allowance for credit losses, end of period

28,852

1,010

9,050

—

38,912

Net investment in leases and loans, before allowance

746,395

18,351

70,437

1,158

836,341

Three Months Ended March 31, 2020

(Dollars in thousands)

Equipment

Finance

Working

Capital

Loans

CVG

CRA

Total

Allowance for credit losses, December 31, 2019

18,334

1,899

1,462

—

21,695

Adoption of ASU 2016-13 (CECL)

(1)

9,264

(3)

2,647

—

11,908

Allowance for credit losses, January 1, 2020

27,598

1,896

4,109

—

33,603

Charge-offs

(6,490)

(1,279)

(729)

—

(8,498)

Recoveries

525

—

652

Net charge-offs

(5,965)

(1,241)

(640)

—

(7,846)

Realized cashflows from Residual Income

1,153

—

1,153

Provision for credit losses

14,988

6,545

3,617

—

25,150

Allowance for credit losses, end of period

37,774

7,200

7,086

—

52,060

Net investment in leases and loans, before allowance

877,199

59,012

84,515

1,410

1,022,136

__________________

(1)

The Company adopted ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses on

Financial Instruments

, which changed our accounting policy and estimated allowance,

effective January 1, 2020.

See further

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

below.

-18-

Estimate of Current Expected Credit Losses (CECL)

The Company uses a vintage loss model as the approach to estimate and measure

its expected credit losses for all portfolio segments

and for all pools, primarily because the timing of the losses realized has been

consistent across historical vintages, such that the

company is able to develop a predictable and reliable loss curve for each separate

portfolio segment.

The vintage model assigns loans

to vintages by origination date, measures our historical average actual

loss and recovery experience within that vintage, develops a

loss curve based on the averages of all vintages, and predicts (or forecasts) the

remaining expected net losses of the current portfolio

by applying the expected net loss rates to the remaining life of each open vintage.

Additional detail specific to the measurement of each portfolio segment

as of March 31, 2021, is summarized below.

Equipment Finance:

Equipment Finance consists of Equipment Finance Agreements, Installment

Purchase Agreements and other leases and loans.

The risk characteristics referenced to develop pools of Equipment

Finance leases and loans are based on internally developed

credit score ratings, which is a measurement that combines many

risk characteristics, including loan size, external credit

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

business.

In addition, the Company separately

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

could be used to partially offset the allowance for

that pool.

The Company’s measurement

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

The Company

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

economic variables in order to determine an

approach for reasonable and supportable forecast.

The Company then selected certain economic variables to reference for

its

forecast about the future, specifically the unemployment rate and growth

in business bankruptcy.

The Company’s

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

the long-term average of the referenced economic

variables, on a straight-line basis.

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

changes in portfolio composition or the business

environment, when determining the appropriate measurement

of current expected credit losses for the remaining life of its

portfolio.

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

and 12-month straight-

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

However, starting with the March 31, 2020

measurement,

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

period and 12-month straight line reversion period.

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

based on observed market volatility in March 2020.

During the first quarter of 2021,

the Company reverted back to the pre-

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

period as uncertainty of the duration and level of

impact of the COVID-19 virus on the macroeconomic environment

and Company’s portfolio, including

uncertainty about the

forecasted impact of COVID-19,

was reduced.

The provision impact from improving economic forecasts was partially offset

by the reversion to a 12-month forecast, additional provision for new originations,

continued residual performance, and better

than expected net charge-offs, contributing

to first quarter provision benefit for Equipment Finance of $

3.1

million.

Working Capital:

The risk characteristics referenced to develop pools of Working

Capital loans is based on origination channel, separately

considering an estimation of loss for direct-sourced loans versus loans that were

sourced from a broker. The Company’s

historical relationship with its direct-sourced customers typically results in

a lower level of credit risk than loans sourced

from brokers where the Company has no prior credit relationship with the

customer.

The Company’s measurement

of Working

Capital pools is based on its own historical loss experience.

The Company’s

Working

Capital loans typically range from 6 – 12 months of duration. For this portfolio segment,

due to the short contract

duration, the Company did not define a standard methodology to adjust

its loss estimate based on a forecast of economic

conditions.

However, the Company will continually assess through

a qualitative adjustment whether there are changes in

conditions and the environment that will impact the performance of

these loans that should be considered for qualitative

adjustment.

-19-

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

changes in portfolio composition or the business

environment, when determining the appropriate measurement

of current expected credit losses for the remaining life of its

portfolio.

As of the January 1, 2020 adoption date, there was no qualitative adjustment to the Working

Capital portfolio.

However, starting with its March 31, 2020

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

conditions due to COVID-19, the Company developed alternate

scenarios for credit loss based on an analysis of the

characteristics of its portfolio,

considering different timing and magnitudes of potential

exposures.

During the first quarter, the Company

updated its expectation for credit losses for the Working

Capital segment based on the

favorable actual portfolio performance during the quarter

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

portfolio.

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

0.2

million for the three months ended

March 31, 2021, bringing the total provision associated with Working

Capital to $

0.2

million for the three months ended

March 31, 2021.

Commercial Vehicle

Group (CVG):

Transportation-related equipment leases and

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

characteristics to be significant enough to warrant disaggregating this population.

The Company’s measurement

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

industry loss data

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

and therefore the Company determined it was

appropriate to develop an estimate based on a combination of internal

and industry data.

Due to the Company’s limited

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

portfolio, the Company did not develop a standard

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

However, the Company will continually

assess through a qualitative adjustment whether there are changes in

conditions and the environment that will impact the

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

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

changes in portfolio composition or the business

environment, when determining the appropriate measurement

for the remaining life of the current portfolio.

As of the

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

However, starting with the March

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

conditions due to COVID-19, the

Company developed alternate scenarios for expected credit loss for

this segment, considering different timing and

magnitudes of potential exposures.

During the first quarter, the Company

updated its expectation for credit losses for the CVG segment, including separately

assessing the elevated risks of a population of motor coach industry

contracts that are facing prolonged impacts from

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

as seen in the segment’s

delinquency and modification balances, it is also experiencing positive

indicators such as paydown of balance.

These factors,

including no further significant reduction in collateral values contributed

to a $

0.7

million reduction in qualitative reserve

ending the period at $

5.7

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

Community Reinvestment Act (CRA) Loans:

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

Company’s obligations under the CRA.

The

Company does not measure an allowance specific to this population because

the exposure to credit loss is nominal.

For the three- months ended March 31, 2021, the Company has recognized

a provision benefit of $

2.9

million, driven primarily by

improving economic forecasts and portfolio performance, partially offset

by the reversion to a 12-month forecast period. The COVID-

19 pandemic, business shutdowns and impacts to our customers, are still ongoing,

and the extent of the effects of the pandemic on our

portfolio depends on future developments, which remain uncertain

and are difficult to predict.

Further, the Company instituted a Loan

modification payment deferral program, as discussed further below,

to give payment relief to customers during this period.

As of

March 31, 2021,

the ultimate performance of loans modified under that program remains uncertain, due

to the timing of the modified

loans resuming payment.

-20-

Our reserve as of March 31, 2021,

and the qualitative and economic adjustments discussed above, were calculated

referencing our

historical loss experience, including loss experience through the 2008

economic cycle, and our adjustments to that experience based

on our judgements about the extent of the impact of the COVID-19 pandemic.

Those judgements include certain expectations for the

extent and timing of impacts from COVID-19 on unemployment rates and business

bankruptcies and are based on our current

expectations of the performance of our portfolio in the current environment.

We may recognize

credit losses in excess of our reserve,

or revise our estimate of credit losses in the future, and such amounts

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

portfolio, including the performance of the modified portfolio, (ii)

any further changes in the economic environment, or (iii) other

developments or unforeseen circumstances that impact our portfolio.

Loan Modification Program:

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

instituted a payment deferral program in order to assist its small-

business customers that requested relief and were current under their

existing agreement.

The payment deferral program allows for up

to 6 months of fully deferred or reduced payments. In 2020, the COVID-19

deferral program ended, however, the

Company continues

to consider modifications in select cases.

The below table outlines certain data on the modified population with details

of count and net investment balance, with all information

as of March 31, 2021.

Equipment

Working

(Dollars in thousands)

Finance

CVG

Capital

Total

Modified leases and loans receivable

3,808

372

176

4,356

Resolved

(payoff, chargeoff)

(1)

877

315

1,273

Total Program, number

of contracts

4,685

453

491

5,629

Current Quarter Population Changes:

Q1 - New modification

150

—

178

Q1 - Extended modification

994

3,773

—

4,767

Previously Modified

69,649

16,249

3,004

88,902

Total Modifications,

Net investment receivable

70,671

20,172

3,004

93,847

% of total segment receivables

9.5

28.6

16.3

11.2

Deferral Status:

Out of deferral

69,605

14,820

3,004

87,429

In deferral period

1,066

5,352

—

6,418

Total Modifications,

Net investment receivable

(2)

70,671

20,172

3,004

93,847

Modifications 30+ Days Delinquent:

Modified Contracts, not TDR

1,751

293

143

2,187

TDR and Extended Modifications

1,056

—

1,078

-21-

_________________

(1)

Total resolved

modifications include

230

contracts charged off where $

5.7

million credit loss was realized, and

1,043

contracts that paid in full.

(2)

Out of the deferral period represents the month in which the contract

returns to its regular contract schedule for the entire

month.

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

during the deferral period, or

partial, with reduced payments during deferral that are primarily

% of schedule, or the deferral period payment may

be a nominal amount. In all cases, information is presented with respect to the contracts’

current deferral terms as of March

31, 2021.

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

difficulties, a lender grants a concession that it

would not otherwise consider for borrowers of similar credit quality.

In accordance with the interagency guidance as updated in April

2020, that the FASB concurred

with, loans modified under the Company’s

payment deferral program modified on or before

September 30, 2020, were not considered TDRs. As of March 31, 2021,

the Company had $

11.4

million of active contracts designated

as TDRs.

Credit Quality

At origination, the Company utilizes an internally developed credit

score ratings as part of its underwriting assessment and pricing

decisions for new contracts.

The internal credit score is a measurement that combines many risk characteristics,

including loan size,

external credit scores, existence of a guarantee, and various characteristics

of the borrower’s business.

The internal credit score is

used to create pools of loans for analysis in the Company’s

Equipment Finance portfolio segment, as discussed further above.

believe this segmentation allows our loss modeling to properly reflect

changes in portfolio mix driven by sales activity and

adjustments to underwriting standards.

However, this score is not updated after origination

date for analyzing the Company’s

provision.

On an ongoing basis, to monitor the credit quality of its portfolio, the

Company primarily reviews the current delinquency of the

portfolio and delinquency migration to monitor risk and default trends

We believe that

delinquency is the best factor to use to monitor

the credit quality of our portfolio on an ongoing basis because it reflects the

current condition of the portfolio, and is a good predictor

of near term charge-offs and can help with identifying

trends and emerging risks to the portfolio.

The following tables provide information about delinquent leases and loans

in the Company’s portfolio

based on the contract’s status

as-of the dates presented. In particular, contracts

that are part of the Loan Modification Program discussed above are presented

in the

below delinquency table and the non-accrual information for March

31, 2021 based on their status with respect to the modified

terms.

See Loan Modification section above for delinquency data specific

to the modified portfolio.

-22-

Portfolio by Origination Year as of

March 31, 2021

Total

2021

2020

2019

2018

2017

Prior

Receivables

(Dollars in thousands)

Equipment Finance

30-59

112

767

1,517

748

406

155

3,705

60-89

—

360

940

421

346

191

2,258

90+

—

358

735

511

245

148

1,997

Total Past Due

112

1,485

3,192

1,680

997

494

7,960

Current

65,850

241,243

246,179

118,356

53,855

12,952

738,435

Total

65,962

242,728

249,371

120,036

54,852

13,446

746,395

Working Capital

30-59

—

60-89

—

90+

—

Total Past Due

—

166

—

208

Current

7,647

7,950

2,546

—

18,143

Total

7,647

7,992

2,712

—

18,351

CVG

30-59

—

705

790

60-89

—

172

542

152

—

880

90+

—

115

Total Past Due

—

172

1,298

222

1,785

Current

6,612

16,485

27,792

11,937

4,618

1,208

68,652

Total

6,612

16,657

29,090

12,159

4,641

1,278

70,437

CRA

Total Past Due

—

Current

1,158

—

1,158

Total

1,158

—

1,158

Net investment in leases

and loans, before allowance

81,379

267,377

281,173

132,195

59,493

14,724

836,341

-23-

Portfolio by Origination Year as of

December 31, 2020

Total

2020

2019

2018

2017

2016

Prior

Receivables

(Dollars in thousands)

Equipment Finance

30-59

1,162

1,526

1,349

690

292

5,033

60-89

367

1,111

463

532

130

2,609

90+

503

1,370

804

377

199

3,269

Total Past Due

2,032

4,007

2,616

1,599

621

10,911

Current

265,036

276,140

138,142

65,722

18,805

1,615

765,460

Total

267,068

280,147

140,758

67,321

19,426

1,651

776,371

Working Capital

30-59

125

481

—

606

60-89

—

135

—

135

Total Past Due

125

616

—

741

Current

12,741

6,528

—

19,293

Total

12,866

7,144

—

20,034

CVG

30-59

591

1,039

173

—

1,853

60-89

—

170

90+

—

340

179

—

535

Total Past Due

591

1,448

385

100

—

2,558

Current

17,065

30,805

13,733

5,938

1,659

69,230

Total

17,656

32,253

14,118

5,972

1,759

71,788

CRA

Total Past Due

—

Current

1,091

—

1,091

Total

1,091

—

1,091

Net investment in leases

and loans, before allowance

298,681

319,544

154,900

73,293

21,185

1,681

869,284

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

charged-off when they are contractually past due

for

120 days or more.

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

a period of 90 days or more.

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

days delinquent.

At March 31, 2021 and December 31, 2020,

there were

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

Working

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

and generally charged-off at 60 days

past due.

The loan is removed from non-accrual status once sufficient payments

are made to bring the loan current and reviewed by

management. At March 31, 2021 and December 31, 2020, there were

Working

Capital Loans past due 30 days or more and still

accruing.

-24-

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

March 31,

December 31,

(Dollars in thousands)

2021

2020

Equipment Finance

5,254

5,543

Working

Capital Loans

344

932

CVG

8,415

7,814

Total

Non-Accrual

14,013

14,289

NOTE 7 - Goodwill and Intangible Assets

Goodwill

In the first quarter of 2020, driven by negative events that impacted the Company

related to the COVID-19 economic shutdown, the

Company concluded that the implied fair value of its $

6.7

million goodwill balance was less than the carrying amount and recognized

impairment equal to the $

6.7

million balance in the March 31, 2020 Consolidated Statements of

Operations.

Intangible assets

The following table presents details of the Company’s

intangible assets as of March 31, 2021:

Gross Carrying

Accumulated

Net

Useful Life

Amount

Amortization

Value

(Dollars in thousands)

Vendor

relationships

years

7,290

1,804

5,486

Corporate trade name

years

Total

7,350

1,840

5,510

The Company’s intangible

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

acquisition of Horizon

Keystone Financial and the September 2018 acquisition of Fleet Financing

Resources. The Company has

indefinite-lived intangible

assets.

There was

impairment of these assets in the first quarter of 2021.

Amortization related to the Company’s

definite lived intangible

assets was $

0.2

million and $

0.2

million for the three-month periods ended March 31, 2021 and March 31, 2020,

respectively.

-25-

The Company expects the amortization expense for the next five years

will be as follows:

Amortization

(Dollars in thousands)

Expense

Remainder of 2021

503

2022

671

2023

671

2024

663

2025

663

NOTE 8 – Other Assets

Other assets are comprised of the following:

March 31,

December 31,

2021

2020

(Dollars in thousands)

Accrued fees receivable

2,609

2,928

Prepaid expenses

2,824

2,790

Federal Reserve Bank Stock

1,711

Other

2,632

2,783

9,776

10,212

NOTE 9 – Deposits

MBB serves as the Company’s primary

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

raised nationally

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

deposits received from direct sources. MBB offers FDIC-

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

participation in a partner bank’s

insured savings account

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

and is offered to the clients of the partner bank and

recorded as a single deposit account at MBB. As of March 31, 2021,

money market deposit accounts totaled $

52.5

million.

As of March 31, 2021, the scheduled maturities of certificates of deposits are as follows:

Scheduled

Dollars in thousands

Maturities

Period Ending December 31,

Remainder of 2021

212,240

2022

210,075

2023

117,717

2024

56,814

2025

29,087

Total

625,933

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

in denominations of $

250,000

or less. The MMDA

Product is also issued to customers in amounts less than $

250,000

. The FDIC insures deposits up to $

250,000

per depositor. The

weighted average all-in interest rate of deposits at March 31, 2021 was

1.60

-26-

NOTE 10 – Debt and Financing Arrangements

Long-term Borrowings

Borrowings with an original maturity date of one year or more are

classified as long-term borrowings.

The Company’s term note

securitizations are classified as long-term borrowings.

The balance of long-term borrowings consisted of the following:

March 31,

December 31,

2021

2020

(Dollars in thousands)

Term securitization

2018-1

23,774

30,800

Unamortized debt issuance costs

(104)

(135)

23,670

30,665

On July 27, 2018, the Company completed a $

201.7

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

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

At March 31, 2021,

outstanding term securitizations

amounted to $

23.8

million and are collateralized by $

24.9

million of minimum lease and loan payments receivable and $

4.4

million of

restricted interest-earning deposits.

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

Outstanding Balance as of

Notes

Final

Original

March 31,

December 31,

Originally

Maturity

Coupon

2021

2020

Issued

Date

Rate

(Dollars in thousands)

2018 — 1

Class A-1

—

77,400

July, 2019

2.55

Class A-2

—

55,700

October, 2020

3.05

Class A-3

—

36,910

April, 2023

3.36

Class B

2,534

9,560

10,400

May, 2023

3.54

Class C

11,390

June, 2023

3.70

Class D

5,470

July, 2023

3.99

Class E

4,380

May, 2025

5.02

Total Term

Note Securitizations

23,774

30,800

201,650

3.05

(1)(2)

__________________

(1)

Represents the original weighted average initial coupon rate for

all tranches of the securitization. In addition to this coupon

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

over the life of the borrowings as additional

interest expense.

(2)

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

will approximate

3.99

% over the remaining term of the

borrowing.

Federal Funds Line of Credit with Correspondent

Bank

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

bank. This line allows for both selling and purchasing of

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

25.0

million. As of March 31, 2021 and December 31,

2020, there were

balances outstanding on this line of credit.

-27-

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 $

49.7

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

Window,

based on

55.2

million of net investment in leases pledged at March 31, 2021.

Maturities

Based on current expected cashflows of leases underlying our term note

securitization, principal and interest payments are estimated

as of March 31, 2021 as follows:

Principal

Interest

(Dollars in thousands)

Period Ending December 31,

Remainder of 2021

15,191

524

2022

8,583

159

23,774

683

-28-

NOTE 11 – Fair Value

Measurements and Disclosures about the Fair

Value of Financial

Instruments

Fair Value

Measurements

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

would be paid to transfer a liability

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

or most advantageous market for the asset or liability in an

orderly transaction between market participants. A three-level valuation

hierarchy is required for disclosure of fair value

measurements based upon the transparency of inputs to the valuation of

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

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

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

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

hierarchy within which the fair value measurement in its

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

to the measurement in its entirety.

Recurring Fair Value

Measurements

The Company’s balances measured

at fair value on a recurring basis include the following as of March 31, 2021

and December 31,

2020:

March 31, 2021

December 31, 2020

Fair Value Measurements Using

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

(Dollars in thousands)

Assets

ABS

—

5,192

—

3,719

—

Municipal securities

—

3,474

—

4,145

—

Mutual fund

3,707

—

3,760

—

At this time, the Company has not elected to report any assets and liabilities

using the fair value option. There have been

transfers

between Level 1 and Level 2 of the fair value hierarchy for any of the periods

presented.

Non-Recurring Measurements

Non-recurring fair value measurements include assets and liabilities that

are periodically remeasured or assessed for impairment using

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

evaluation of goodwill and intangible assets for

impairment, and the Company’s

remeasurement of contingent consideration and assessment of the

carrying amount of its servicing

liability.

For the three months ended March 31, 2021,

there were no significant amounts recognized in the Consolidated Statements of

Operations in connection with non-recurring fair value measurements.

For the three months ended March 31, 2020, the Company recognized

6.7

million for the impairment of goodwill as discussed further

in Note 7, Goodwill and Intangible Assets.

Fair Value

of Other Financial Instruments

The following summarizes the carrying amount and estimated fair

value of the Company’s other financial

instruments, including those

not measured at fair value on a recurring basis:

-29-

March 31, 2021

December 31, 2020

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

(Dollars in thousands)

Financial Assets

Cash and cash equivalents

110,622

135,691

Time deposits with banks

4,482

4,504

5,967

6,003

Restricted interest-earning deposits with banks

4,358

4,719

Loans, net of allowance

490,516

507,612

500,768

507,362

Federal Reserve Bank Stock

1,711

Financial Liabilities

Deposits

678,331

687,928

729,614

742,882

Long-term borrowings

23,670

24,025

30,665

31,114

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

in estimating the fair values of financial instruments,

outlined in our consolidated financial statements and note disclosures in

the Company’s Form 10-K for the

year ended December 31,

2020.

-30-

NOTE 12 – Earnings Per Share

The Company’s restricted stock

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

the criteria of participating

securities. Accordingly,

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

which earnings are

allocated to both common stock and participating securities.

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

stock by the weighted average common shares

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

restricted stock have been deducted from the weighted

average shares outstanding.

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

common stock by the weighted average number of

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

the dilutive impact of the exercise or conversion of

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

stock as if those securities were exercised or converted.

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

and diluted EPS:

Three Months Ended March 31,

2021

2020

(Dollars in thousands,

except per-share data)

Basic EPS

Net income (loss)

6,851

(11,821)

Less: net income allocated to participating securities

(85)

—

Net income (loss) allocated to common stock

6,766

(11,821)

Weighted average

common shares outstanding

11,982,476

12,014,396

Less: Unvested restricted stock awards considered participating securities

(148,061)

(138,249)

Adjusted weighted average common shares used in computing basic EPS

11,834,415

11,876,147

Basic earnings (loss) per share

0.57

(1.00)

Diluted EPS

Net income (loss) allocated to common stock

6,766

(11,821)

Adjusted weighted average common shares used in computing basic EPS

11,834,415

11,876,147

Add: Effect of dilutive stock-based compensation

awards

34,803

—

Adjusted weighted average common shares used in computing diluted EPS

11,869,218

11,876,147

Diluted earnings (loss) per share

0.57

(1.00)

For each of the three-month periods ended March 31, 2021 and March

31, 2020,

outstanding stock based compensation awards in the

amount of

199,193

and

359,035

, respectively, were considered

antidilutive and therefore were not considered in the computation of

potential common shares for purposes of diluted EPS.

-31-

NOTE 13 – Stockholders’ Equity

Share Repurchases

During the three-month period ended March 31, 2021, the Company

did

t purchase any shares of its common stock under a stock

repurchase plan approved by the Company’s

Board of Directors on August 1, 2019 (the “2019 Repurchase Plan”).

During the three-

month period ended March 31, 2020, the Company purchased

264,470

shares of its common stock in the open market under 2019

Repurchase Plan at an average cost of $

16.09

per share.

At March 31, 2021, the Company had $

4.7

million of remaining authorizations under the 2019 Repurchase Plan.

Pursuant to the

Agreement and Plan of Merger dated as of April 18, 2021 by and

among the Company, Madeira Holdings,

LLC and Madeira Merger

Subsidiary, Inc., the

Company may not repurchase shares of common stock (pursuant to the 201

Repurchase Plan or otherwise)

without prior written consent of Madeira Holdings, LLC. See Note 14

“Subsequent Events” for additional discussion regarding the

proposed merger transaction.

In addition to the repurchases described above, participants in

the Company’s 2014 Equity Compensation

Plan (approved by the

Company’s shareholders

on June 3, 2014) and the Company’s 2019

Equity Compensation Plan (approved by the Company’s

shareholders on May 30, 2019) may have shares withheld to cover income

taxes. During the three-month periods

ended March 31,

2021 and March 31, 2020, there were

16,038

shares and

21,123

shares repurchased to cover income tax withholding under the 2014

Equity Compensation Plan and the 2019 Equity Compensation Plan

at an average cost of $

14.01

per share and $

13.38

per share,

respectively.

Regulatory Capital Requirements

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

primary funding source. Over time, MBB may offer

other products and services to the Company’s

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

commercial

bank, insured by the FDIC. As a state-chartered Federal Reserve member bank, MBB is

supervised by both the Federal

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

The Company and MBB are subject to capital adequacy regulations issued

jointly by the federal bank regulatory agencies. These risk-

based capital and leverage guidelines make regulatory capital requirements more

sensitive to differences in risk profiles among

banking organizations and consider off

-balance sheet exposures in determining capital adequacy.

The federal bank regulatory agencies

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

in the future due

to the current economic environment.

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

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

defined in the regulations, comprised of common equity,

retained earnings and a limited amount of non-cumulative perpetual

preferred stock. The remaining capital, "Tier

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

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

credit losses. The regulations establish minimum

leverage ratios for banking organizations, which

are calculated by dividing Tier 1 Capital by total average

assets. Recognizing that the

risk-based capital standards principally address credit risk rather than

interest rate, liquidity, operational

or other risks, many banking

organizations are expected to maintain capital in excess

of the minimum standards.

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

These standards require a minimum for Tier 1

leverage ratio of

%, minimum Tier 1 risk-based ratio of

%, and a total risk-based capital ratio of

The Basel III capital adequacy

standards established a new common equity Tier

1 risk-based capital ratio with a required

4.5

% minimum (

6.5

% to be considered

well-capitalized). The Company is required to have a level of

regulatory capital in excess of the regulatory minimum and to have a

capital buffer above

2.5

%. If a banking organization does not maintain capital above the

minimum plus the capital conservation buffer

it may be subject to restrictions on dividends, share buybacks, and certain discretionary

payments such as bonus payments.

CMLA Agreement.

On March 25, 2020, MBB received notice from the FDIC that it had approved

MBB’s request to rescind certain

nonstandard conditions in the FDIC’s

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

Furthermore, effective

March 26, 2020, the FDIC, the Company and certain of the Company’s

subsidiaries terminated the Capital Maintenance and Liquidity

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

Agreement, each entered into by and among the Company,

certain of

its subsidiaries and the FDIC in conjunction with the opening of MBB. As a result of

these actions, MBB is no longer required

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

above

%. Rather, MBB must continue to maintain a

total risk-based capital ratio above

% in order to maintain “well-capitalized” status as defined by banking regulations,

while the

Company must continue to maintain a total risk-based capital ratio as discussed

in the immediately preceding paragraph.

The

-32-

additional capital released by the termination of the CMLA Agreement

is held at MBB and is subject to the restrictions outlined in

Title 12 part 208 of the Code of Federal Regulations

(12 CFR 208.5), which places limitations on bank dividends, including

restricting

dividends for any year to the earnings from the current and prior two calendar

years less the amount of cumulative dividends paid over

that period.

Any dividends declared above that amount and any return of permanent capital would

require prior approval of the

Federal Reserve Board of Governors. As of March 31, 2021,

MBB has the capacity under 12 CFR 208.5 to pay dividends to the

Company without explicit approval from the Federal Reserve Board

of Governors.

MBB’s Tier 1

Capital balance at March 31, 2021 was $

152.9

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

qualified MBB for “well-capitalized” status. At March 31, 2021,

the Company also exceeded its regulatory capital requirements and

was considered “well-capitalized” as defined by federal banking

regulations and as required by the FDIC Agreement.

CECL Capital Transition.

The Company adopted CECL, or a new measurement methodology for

the allowance estimate, on January

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

Policies.

Rules governing the Company’s

regulatory

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

estimated impact of CECL on regulatory capital, followed

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

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

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

For measurements of regulatory capital in 2020 and 2021,

under the two year

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

for credit losses under CECL, as reported in its balance

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

historical incurred loss methodology,

as prescribed by the

regulatory calculation.

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

will be an adjustment the

Company’s capital during the two-year

delay.

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

-line,

such that

% of the transitional amounts will be included in the first year,

and an additional

% over each of the next two years,

such that we will have phased in

% of the adjustment during year three.

At the beginning of year 6 (2025) the Company will have

completely reflected the effects of CECL in its regulatory

capital.

The following table sets forth the Tier 1

leverage ratio, common equity Tier 1 risk-based

capital ratio, Tier 1 risk-based capital ratio

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

31, 2021.

Minimum Capital

Well-Capitalized Capital

Actual

Requirement

Ratio

Amount

Ratio

Amount

Ratio

Amount

(Dollars in thousands)

Tier 1 Leverage Capital

Marlin Business Services Corp.

20.68%

206,512

4.00%

39,945

5.00%

49,931

Marlin Business Bank

16.84%

152,855

4.00%

36,316

5.00%

45,395

Common Equity Tier 1 Risk-Based Capital

Marlin Business Services Corp.

23.79%

206,512

4.50%

39,068

6.50%

56,432

Marlin Business Bank

19.00%

152,855

4.50%

36,203

6.50%

52,294

Tier 1 Risk-based Capital

Marlin Business Services Corp.

23.79%

206,512

6.00%

52,091

8.00%

69,454

Marlin Business Bank

19.00%

152,855

6.00%

48,271

8.00%

64,361

Total

Risk-based Capital

Marlin Business Services Corp.

25.08%

217,711

8.00%

69,454

10.00%

86,818

Marlin Business Bank

20.29%

163,253

8.00%

64,361

10.00%

80,452

-33-

Prompt Corrective Action

The Federal Deposit Insurance Corporation Improvement

Act of 1991 (“FDICIA”) requires the federal

regulators to take prompt corrective action against any undercapitalized institution.

Five capital categories have been established

under federal banking regulations:

well-capitalized, adequately capitalized, undercapitalized, significantly

undercapitalized and

critically undercapitalized.

Well-capitalized

institutions significantly exceed the required minimum level

for each relevant capital

measure.

Adequately capitalized institutions include depository institutions that meet

but do not significantly exceed the required

minimum level for each relevant capital measure. Undercapitalized institutions

consist of those that fail to meet the required minimum

level for one or more relevant capital measures.

Significantly undercapitalized characterizes depository institutions with capital

levels

significantly below the minimum requirements for any relevant capital

measure.

Critically undercapitalized refers to depository

institutions with minimal capital and at serious risk for government

seizure.

Under certain circumstances, a well-capitalized, adequately capitalized

or undercapitalized institution may be treated as if the

institution were in the next lower capital category.

A depository institution is generally prohibited from making capital distributions,

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

if the institution would thereafter be undercapitalized.

Institutions that are adequately capitalized but not well-capitalized

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

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

can be paid on such deposits. Undercapitalized

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

The federal bank regulatory agencies are permitted or,

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

falling within one of the three undercapitalized categories.

Depending on the level of an institution’s

capital, the agency’s corrective

powers include, among other things:

•

prohibiting

the

payment

principal

and

interest

subordinated

debt;

•

prohibiting

the

holding

company

from

makin

distributions

without

prior

regulatory

approval;

•

placing

limits

asset

growth

and

restrictions

activities;

•

placing

additional

restrictions

transactions

with

affiliates;

•

restricting

the

interest

rate

the

institution

may

pay

deposits;

•

prohibiting

the

institution

from

accepting

deposits

from

correspondent

banks;

and

•

the

most

sev

ere

cases,

appointing

conservator

receiver

for

the

institution.

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

restoration plan, and such a plan will not be accepted

unless, among other things, the banking institution’s

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

Any such

guarantee from a depository institution’s

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

MBB’s total risk-based capital

ratio of

20.29

% at March 31, 2021 exceeded the threshold for “well capitalized” status under

the

applicable laws and regulations.

Dividends

The Federal Reserve Board has issued policy statements requiring insured banks

and bank holding companies to have an

established assessment process for maintaining capital commensurate

with their overall risk profile. Such assessment process may

affect the ability of the organizations to

pay dividends. Although generally organizations may

pay dividends only out of current

operating earnings, dividends may be paid if the distribution is prudent

relative to the organization’s

financial position and risk profile,

after consideration of current and prospective economic conditions. As mentioned

above, MBB’s ability to pay dividends to the

Company is subject to various regulatory requirements, including

Title 12 part 208 of the Code of Federal Regulations (12 CFR

208.5), which places limitations on bank dividends. Furthermore,

as a bank holding company, the

Company’s ability to pay dividends

to its shareholders is also subject to various regulatory requirements, including

Supervisory Letter SR 09-4,

Applying Supervisory

Guidance and Regulations on the Payment of Dividends, Stock Redemptions

and Stock Repurchases at Bank Holding Companies

Pursuant to the Agreement and Plan of Merger dated as of April

18, 2021 by and among the Company,

Madeira Holdings, LLC and

Madeira Merger Subsidiary,

Inc., the Company may not, without the prior written consent of Madeira

Holdings, LLC, declare or pay

any dividends, other than the Company’s

regular quarterly cash dividends in an amount not to exceed $

0.14

per quarter. See Note 14

“Subsequent Events” for additional discussion regarding the proposed merger

transaction.

-34-

NOTE 14 – Subsequent Events

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

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

Company, Madeira

Holdings, LLC and Madeira Merger Subsidiary,

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

shares of the Company’s common

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

be cancelled and

converted into the merger consideration specified

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

of the

Company with and into the HPS Merger Sub, with the Company

surviving (the “Merger”).

The Company's Board of Directors has

unanimously approved the Merger.

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

conditions: approval by

the Company’s shareholders; antitrust

clearance and other governmental and regulatory approvals; and

the completion of MBB’s

surrender of its banking licenses and authority and termination of its FDIC insured

deposits (a process we refer to as “De-banking”).

The Company declared a dividend of $

0.14

per share on April 29, 2021. The quarterly dividend, which is expected to result in a

dividend payment of approximately $

1.7

million, is scheduled to be paid on

May 20, 2021

to shareholders of record on the close of

business on

May 10, 2021

. It represents the Company’s

thirty-ninth

consecutive quarterly cash dividend. The payment of future

dividends will be subject to satisfaction of regulatory requirements

applicable to bank holding companies and approval by the

Company’s Board of Directors.

In addition, pursuant to the Merger Agreement, the Company may

not, without the prior written consent of Madeira Holdings, LLC,

declare or pay any future dividends other than the Company’s

regular quarterly cash dividend in an amount not to exceed $

0.14

per

quarter.

-35-

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

The following discussion and analysis of our financial condition

and results of operations should be read

in conjunction with our

Consolidated Financial Statements and the related

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

December 31, 2020 filed with

the SEC.

This discussion contains certain statements of a forward-looking

nature that involve risks and uncertainties.

ORWARD

-L

OOKING

TATEMENTS

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

be,” “expects,” “plans,” “may,”

“may affect,” “may

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

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

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

1933,

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

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

are cautioned not to place undue reliance on these

forward-looking statements. Forward-looking statements are subject

to various known and unknown risks and uncertainties and the

Company cautions that any forward-looking information provided

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

Statements regarding the following subjects are forward-looking

by their nature: (a) our expectations related to our proposed merger

with a subsidiary of funds managed by HPS Investment Partners, LLC (the

“HPS Merger Sub”), including the timing thereof and the

costs to be incurred in connection with MBB’s

surrender of its banking licenses and authority and termination

of its FDIC insured

deposits (a process we refer to as “De-banking”); (b) our business strategy; (c) our

projected operating results; (d) our ability to obtain

external deposits or financing; (e) our understanding of our competition; and

(f) industry and market trends. The Company’s

actual

results could differ materially from those anticipated

by such forward-looking statements due to a number of factors, some of which

are beyond the Company’s control,

including,

without limitation:

◾

our ability to complete our proposed merger with the

HPS Merger Sub, including to complete the De-banking within

the

timeline required under the merger agreement, if at all, and

to obtain the requisite shareholder approval for the proposed

merger;

◾

availability, terms and deployment

of funding and capital;

◾

changes in our industry,

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

to our

business strategy;

◾

the degree and nature of our competition;

◾

availability and retention of qualified personnel;

◾

general volatility of the capital markets;

◾

the effects of the COVID-19 pandemic; and

◾

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

10-K for the year ended December 31,

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

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

is not required to update forward-looking statements for

subsequent or unanticipated events or circumstances.

For any forward-looking statements contained in any document,

we claim the

protection of the safe harbor for forward-looking statements contained

in the Private Securities Litigation Reform Act of 1995. As

used herein, the terms “Company,”

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

Corp. and its

subsidiaries.

VERVIEW

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

to small and mid-sized businesses. The products and

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

commercial equipment (including Commercial

Vehicle

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

AssuranceOne, Ltd., a Bermuda-based,

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

which enables us to reinsure the property insurance coverage for the

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

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

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

and a member of the Federal Reserve System. MBB

serves as the Company’s primary

funding source through its issuance of Federal Deposit Insurance Corporation

(“FDIC”)-insured

deposits.

In January 2017, we completed the acquisition of Horizon Keystone Financial, an equipment

leasing company which

identifies and sources lease and loan contracts for investor partners for

a fee, and in September 2018, we completed the acquisition of

Fleet Financing Resources, a company specializing in the leasing and

financing of both new and used commercial vehicles, with an

emphasis on livery equipment and other types of commercial vehicles

used by small businesses.

-36-

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.

We fund

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

deposits and money market demand

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

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

securitization transactions.

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

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

Company, Madeira

Holdings, LLC and the HPS Merger Sub pursuant

to which all outstanding shares of the Company’s

common

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

be cancelled and converted into the merger consideration

specified in the Merger Agreement in an all cash transaction pursuant

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

with the Company surviving (the “Merger”).

The Company's Board of Directors has unanimously approved the Merger.

The Merger

is subject to, in addition to various other customary closing conditions: approval

by the Company’s shareholders;

antitrust clearance

and other governmental and regulatory approvals; and completion of

the De-banking.

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

We may

fail to consummate the proposed Merger

Agreement,

and uncertainties related to the consummation

of the transaction may have a material adverse effect on our business, financial

position, results of operations and cash flows, and

negatively impact the price of our Common stock.

" in this Form 10-Q.

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 in the first quarter of 2020

was working with existing customers to protect the value

of our portfolio and limiting the erosion of shareholder capital.

To this end, we initiated

a loan modification

program in response to

the pandemic that allowed for up to six months of deferred payments

Although the pace of modifications has slowed substantially

during the first quarter,

we continue offering extensions in select cases as part of our loss mitigation strategies.

See Note 6 –

Allowance for Credit Losses for information and data about our loan modifications

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.

As we see economic conditions improve, our

underwriting criteria and standards have been updated accordingly.

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

any significant interruption to our operations. We

anticipate officially re-opening our offices in the second quarter

of 2021 for select departments while offering our employees

the

choice of returning to the office or continuing to work

remotely for the foreseeable future.

Our first quarter results of net income of $6.9 million, or $0.57 earnings

per share, are highlighted by solid credit quality,

improving

origination volume trends and strong earnings, and although our

first quarter origination volume remains well below pre-pandemic

levels, originations grew sequentially during each month of the quarter

Portfolio trends and performance.

During the three months ended March 31, 2021, we generated 3,687

new Equipment Finance leases and loans with equipment costs of

$75.3 million, compared to 5,863 new Equipment Finance leases and loans

with equipment costs of $127.7 million generated for the

three months ended March 31, 2020.

Working Capital loan

originations were $8.4 million during the three-month period ended March

31, 2021, compared to $23.9 million for the three-month period ended

March 31, 2020.

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

three-month period ended March 31, 2021 decreased 17.4% to

$833.5 million, compared to $1,008.8 million for the three-month period

ended March 31, 2020.

Equipment Finance receivables delinquent over 30 days were 1.16%

at March 31, 2021, down 66 basis points from 1.82% at March

31, 2020. Working

Capital receivables over 15 days delinquent were 1.47% at March 31, 2021,

down 108 basis points from 2.55% at

March 31, 2020. Annualized total net charge-offs

for the first quarter of 2021 were 1.67% of average total finance receivables as

compared to 3.11% for the same period in 2020

-37-

For the three-months ended March 31, 2021 we recognized a provision

benefit of $2.9 million as compared to a provision net expense

of $25.2 million for the same period in 2020. The provision release in the

first quarter of 2021 was primarily due to positive changes

in the outlook of macroeconomic assumptions to which the reserve

is correlated as well as positive trends in portfolio performance.

Allowance for credit losses as a percentage of total finance

receivables was 4.65% at March 31, 2021 compared with 5.09% at March

31, 2020.

-38-

INANCE

ECEIVABLES

AND

SSET

UALITY

The following table summarizes certain portfolio statistics for the periods

presented:

Three Months Ended

Year Ended

March 31,

December 31,

2021

2020

(Dollars in thousands)

Finance receivables:

End of period

(1)

836,341

1,022,135

825,056

Average for the period

(1)

833,474

1,008,823

945,599

Origination Volume

83,766

157,391

367,128

Assets Sold

—

22,929

28,342

Allowance for credit losses :

End of period

38,912

52,060

44,228

As a % of end of period receivables

(1)

4.65%

5.09%

Loans modified, in payment deferral:

End of period

93,847

19,518

111,209

As a % of end of period receivables

(1)

11.22%

1.91%

12.80%

Delinquencies, end of period:

(2)

Equipment Finance and CVG:

Greater than 60 days past due, $

5,203

10,156

6,717

Greater than 60 days past due, %

0.62%

1.05%

0.77%

Working

Capital:

Greater than 30 days past due, $

193

673

741

Greater than 30 days past due, %

1.05%

1.14%

3.69%

Other Renegotiated leases and loans, end of period

(3)

822

3,095

922

Annualized net charge-offs

to average total finance receivables

(1)

1.67%

3.11%

3.43%

__________________

(1)

For purposes

of asset

quality and

allowance calculations,

the effects

of (i)

the allowance

for credit

losses and

(ii) initial

direct costs

and fees

deferred are excluded.

(2)

Contracts that

are part

of our

Payment-deferral modification

program,

that allows

for either

full or

partial payment

deferral, will

appear in

our

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

(3)

No renegotiated

leases or

loans met

the definition

of a

Troubled Debt

Restructuring for

any period

presented,

including our

payment deferral

modifications, as discussed further below.

-39-

ESULTS

PERATIONS

Comparison of the Three-Month Periods Ended March

31, 2021 and March 31, 2020

Net income.

Net income of $6.9 million was reported for the three-month period

ended March 31, 2021, resulting in diluted EPS per share of

$0.57,

compared to net loss of $11.8 million and diluted Loss per Share

of $1.00 for the three-month period ended March 31, 2020.

This $18.7 million increase in Net income was primarily driven by:

$28.1 million decrease in Provision for credit losses, driven primarily

by an improvement in economic conditions during the

past 12 months

;

$6.1 million decrease in net interest and fee income driven primarily

by a decline in the size of our finance receivable

portfolio;

$2.3 million decrease in gains on lease and loans sold due to a decrease in assets sold resulting

from disruptions in the capital

markets during this current economic environment;

$3.5 million decrease in Salaries and benefits, and General and administrative

expenses

driven primarily by lower

Commissions, Incentives and the Company’s

cost reduction measures;

$6.7 million Goodwill impairment recorded in 2020;

$10.0 million increase in income tax expense.

Average balances

and net interest margin.

The following table summarizes the Company’s

average balances, interest income,

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

-earning assets and interest-bearing liabilities for the three-

month periods ended March 31, 2021 and March 31, 2020.

-40-

Three Months Ended March 31,

2021

2020

(Dollars in thousands)

Average

Yields/

Average

Yields/

Balance

(1)

Interest

Rates

(2)

Balance

(1)

Interest

Rates

(2)

Interest-earning assets:

Interest-earning deposits with banks

115,151

0.06

100,582

327

1.30

Time Deposits

5,325

1.37

13,507

1.88

Restricted interest-earning deposits with banks

4,870

—

8,033

0.44

Securities available for sale

11,236

1.70

10,778

2.14

Net investment in leases

(3)

784,787

16,339

8.33

904,548

20,269

8.96

Loans receivable

(3)

48,687

1,866

15.33

104,275

5,739

22.02

Total

interest-earning assets

970,056

18,288

7.54

1,141,723

26,465

9.27

Non-interest-earning assets:

Cash and due from banks

5,819

5,470

Allowance for loan and lease losses

(43,993)

(29,325)

Intangible assets

5,620

7,392

Goodwill

—

6,663

Operating lease right-of-use assets

7,559

8,776

Property and equipment, net

8,738

8,094

Property tax receivables

8,033

8,886

Other assets

(4)

27,740

31,136

Total

non-interest-earning assets

19,516

47,092

Total

assets

989,572

1,188,815

Interest-bearing liabilities:

Certificate of Deposits

(5)

648,030

2,933

1.81

814,178

4,856

2.39

Money Market Deposits

(5)

53,320

0.28

24,322

1.40

Long-term borrowings

(5)

27,313

293

4.29

69,751

739

4.24

Total

interest-bearing liabilities

728,663

3,263

1.79

908,251

5,680

2.51

Non-interest-bearing liabilities:

Sales and property taxes payable

7,226

5,890

Operating lease liabilities

8,559

9,644

Accounts payable and accrued expenses

24,758

27,726

Net deferred income tax liability

23,043

29,468

Total

non-interest-bearing liabilities

63,586

72,728

Total

liabilities

792,249

980,979

Stockholders’ equity

197,323

207,836

Total

liabilities and stockholders’ equity

989,572

1,188,815

Net interest income

15,025

20,785

Interest rate spread

(6)

5.75

6.76

Net interest margin

(7)

6.20

7.28

Ratio of average interest-earning assets to

average interest-bearing liabilities

133.13

125.71

__________________

(1)

Average balances were calculated using average daily balances.

-41-

(2)

Annualized.

(3)

Average

balances of leases

and loans include

non-accrual leases and

loans, and are

presented net of

unearned income. The

average balances of

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

(4)

Includes operating leases.

(5)

Includes effect of

transaction costs. Amortization of

transaction costs is on

a straight-line basis, resulting

in an increased average

rate whenever

average portfolio balances are at reduced levels.

(6)

Interest rate spread

represents the difference

between the average

yield on interest-earning

assets and the

average rate on

interest-bearing liabilities.

(7)

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

Changes due to volume and rate.

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

by volume and

rate.

Three Months Ended March 31, 2021 Compared To

Three Months Ended March 31, 2020

Increase (Decrease) Due To:

Volume

(1)

Rate

(1)

Total

(Dollars in thousands)

Interest income:

Interest-earning deposits with banks

(351)

(310)

Time Deposits

(31)

(14)

(45)

Restricted interest-earning deposits with banks

(3)

(6)

(9)

Securities available for sale

(12)

(10)

Net investment in leases

(2,560)

(1,370)

(3,930)

Loans receivable

(2,468)

(1,405)

(3,873)

Total

interest income

(3,648)

(4,529)

(8,177)

Interest expense:

Certificate of Deposits

(881)

(1,042)

(1,923)

Money Market Deposits

(101)

(48)

Long-term borrowings

(455)

(446)

Total

interest expense

(992)

(1,425)

(2,417)

Net interest income

(2,891)

(2,869)

(5,760)

__________________

(1)

Changes due to volume and rate are calculated independently for each line item presented rather than presenting vertical subtotals for the

individual volume and rate columns.

Changes attributable to changes in volume represent changes in average balances multiplied by the

prior period’s average rates. Changes attributable to changes in rate represent changes in average rates multiplied by the prior year’s

average balances. Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to

volume and the change due to rate.

-42-

Net interest and fee margin.

The following table summarizes the Company’s

net interest and fee income as an annualized percentage

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

31, 2021 and March 31, 2020.

Three Months Ended March 31,

2021

2020

(Dollars in thousands)

Interest income

18,288

26,465

Fee income

2,455

2,766

Interest and fee income

20,743

29,231

Interest expense

3,263

5,680

Net interest and fee income

17,480

23,551

Average total

finance receivables

(1)

833,474

1,008,823

Annualized percent of average total finance receivables:

Interest income

8.78

10.49

Fee income

1.18

1.10

Interest and fee income

9.96

11.59

Interest expense

1.57

2.25

Net interest and fee margin

8.39

9.34

__________________

(1)

Total finance receivables include net investment in leases and loans.

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

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

Net interest and fee income decreased $6.1 million, or 25.8%, to $17.5

million for the three months ended March 31, 2021 from $23.6

million for the three months ended March 31, 2020.

The annualized net interest and fee margin decreased 95 basis points to 8.39%

the three-month period ended March 31, 2021 from 9.34% for the

corresponding period in 2020.

Interest income, net of amortized initial direct costs and fees, was $18.3

million and $26.5 million for the three-month periods ended

March 31, 2021 and March 31, 2020,

respectively. Average

total finance receivables decreased $175.3 million, or 17.4%, to $833.5

million at March 31, 2021 from $1,008.8 million at March 31, 2020

The decrease in average total finance receivables was primarily

due to lower origination volume along with the customary loan repayments

and charge-offs. The average yield on the portfolio

decreased 171 basis points to 8.78% from 10.49% in the prior year quarter

The weighted average implicit interest rate on new

finance receivables originated decreased 299 basis points to 9.46%

for the three-month period ended March 31, 2021 compared to

12.45% for the three-month period ended March 31, 2020.

That decrease was primarily driven by a decrease of 531 basis points for

Working

Capital originations for the three-month period ended March 31, 2021 compared

to the corresponding period in 2020 as a

result of declining interest rates during the economic disruption caused by

the COVID-19 pandemic.

Fee income was $2.5 million and $2.8 million for the three-month periods

ended March 31, 2021 and March 31, 2020,

respectively,

and included approximately $1.6 million and $2.1 million in late fee income

for the three-month periods ended March 31, 2021 and

March 31, 2020,

respectively. Late fees

remained the largest component of fee income at 0.63% as an annualized

percentage of

average total finance receivables for the three-month period ended

March 31, 2021,

compared to 0.86% for the three-month period

ended March 31, 2020.

Interest expense decreased $2.4 million to $3.3 million for the three-month

period ended March 31, 2021 from $5.7 million for the

corresponding period in 2020,

primarily due to a decrease of $1.9 million on lower deposit balance

as well as a decrease of $0.4

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

Interest expense, as an annualized percentage of average total finance

receivables, decreased 68 basis points to 1.57% for the three-month period

ended March 31, 2021,

from 2.25% for the corresponding

period in 2020.

The average balance of deposits was $701.3 million and $838.5 million for the three

-month periods ended March 31,

2021 and March 31, 2020,

respectively.

-43-

For the three-month period ended March 31, 2021,

average term securitization borrowings outstanding were $27.3 million at a

weighted average coupon of 4.29%. For the three-month period ended

March 31, 2020,

average term securitization borrowings

outstanding were $69.8 million at a weighted average coupon of 4.24%.

Our wholly-owned subsidiary,

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

-rate FDIC-insured

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

through the brokered MMDA Product. At March 31,

2021,

brokered certificates of deposit represented approximately 54% of

total deposits, while approximately 38%

of total deposits

were obtained from direct channels, and 8% were in the brokered

MMDA Product.

Gain on Sale of Leases and Loans.

There were no asset sales for the three-month period ended March 31, 2021

as we retained all of

our origination volume on our balance sheet. There were $22.9 million of

asset sales for the three-month period ended March 31, 2020

for a $2.3 million gain on sale of lease and loans.

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

of such sales, depend on many factors including our

origination volumes, the characteristics of our contracts versus market

requirements, our current assessment of our balance sheet

composition and capital levels, and current market conditions, among

other factors.

In the current slowing economy resulting from the

COVID-19 pandemic, we may have difficulty accessing

the capital market and may find decreased interest and ability of

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

terms acceptable to us.

Insurance premiums written and earned.

Insurance premiums written declined slightly to $ 2.0 million for the three-month

period

ended March 31, 2021,

compared to $ 2.3 million for the three-month period ended March 31, 2020.

Other income.

Other income was $ 6.6 million and $ 7.6 million for the three-month periods

ended March 31, 2021 and March 31,

2020,

respectively. The decrease in other

income was primarily driven by lower servicing income, and lower insurance

policy and

other miscellaneous fees.

Salaries and benefits expense

. Salaries and benefits expense decreased $1.1 million, or 12.0%, to

$8.4 million for the three-month

period ended March 31, 2021 from $9.5 million for the corresponding period

in 2020 as a result of our efforts to tighten our expense

base in response to the COVID-19 pandemic by reducing our work force by

approximately 80 employees.

General and administrative expense.

The following table summarizes General and administrative expense:

Three Months Ended March 31,

2021

2020

(Dollars in thousands)

Property tax

5,601

6,012

Occupancy and depreciation

1,066

1,320

Professional fees

893

1,219

Information technology

1,053

986

Marketing

218

502

Other servicing expenses

320

274

Other G&A

2,095

3,292

Total

11,246

13,605

General and administrative expense decreased $2.3 million, or 17.3%,

to $11.2 million for the three months ended March

31, 2021

from $13.6 million for the corresponding period in 2020 as a result of our

cost reduction initiatives. General and administrative

expense as an annualized percentage of average total finance receivables

was 5.40% for the three-month period ended March 31,

2021,

compared to 5.39% for the three-month period ended March 31, 2020

-44-

Goodwill impairment.

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

economic shutdown, we

analyzed goodwill for impairment.

We concluded

that the implied fair value of goodwill was less than its carrying amount, and

recognized impairment equal to the entire $6.7 million balance in the three-months

ended March 31, 2020.

Provision for income taxes.

Income tax expense of $2.5 million was recorded for the three-month period ended

March 31, 2021,

compared to a benefit of $7.4 million for the three-month period ended

March 31, 2020.

For the three-month period ended March 31,

2020, the income tax benefit included a $3.2 million discrete benefit,

related to remeasuring our federal net operating losses, driven by

certain provisions in the CARES Act. For the three months ended March

31, 2021 our effective tax rate was 26.9%

and for the three

months ended March 31, 2020, our effective tax rate was 38.6% driven

by the aforementioned benefit.

-45-

IQUIDITY AND

APITAL

ESOURCES

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

and grow. Our primary liquidity

need is to fund new

originations; however, we also utilize liquidity

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

infrastructure and technology investment, to pay dividends and to

pay administrative and other non-interest expenses.

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

on our business and financial condition, in

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

of FDIC-insured deposits and we increased our borrowing

capacity at the Federal Reserve Discount Window.

We are dependent

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

needs. Historically, we

have relied upon five principal types of external funding sources for

our operations:

•

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

MBB;

•

borrowings

under

various

bank

facilities;

•

financing

leases

and

loans

various

warehouse

facilities

(all

which

have

since

been

repaid

full);

•

financing

leases

through

term

note

securitizations;

and

•

sale

leases

and

loans

through

our

pital

markets

capabilities.

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

primarily through the issuance of FDIC insured

deposits.

MBB also offers an FDIC-insured MMDA Product as another

source of deposit funding. This product is offered through participation

in a partner bank’s insured savings

account product to clients of that bank.

It is a brokered account with a variable interest rate,

recorded as a single deposit account at MBB. Over time, MBB may offer

other products and services to the Company’s

customer base.

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

bank. As such, MBB is supervised by both the Federal Reserve

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

We declared

a dividend of $0.14 per share on January 28, 2021.

The quarterly dividend was paid on February 18, 2021 to shareholders

of record on the close of business on February 8, 2021, which resulted in

a dividend payment of approximately $1.7 million. It

represented the Company’s thirty

-eighth consecutive quarterly cash dividend.

At March 31, 2021,

we had approximately $25.0 million of available borrowing capacity

from a federal funds line of credit with a

correspondent bank in addition to available cash and cash equivalents

of $110.6 million. This amount excludes

additional liquidity that

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

Our debt to equity ratio was 3.48 to 1 at March 31, 2021 and 3.87 to 1 at

December 31, 2020.

Net cash provided by investing activities was $27.7 million for the

three-month period ended March 31, 2021, compared to net cash

used in investing activities of $5.2 million for the three-month period ended

March 31, 2020.

The increase in cash from investing

activities is primarily due to a decrease of $70.6 million for purchases

of equipment for lease contracts partially offset by reductions

$21.3 million in proceeds from sales of leases originated for investment

and $17.1 million in principal collections on leases

and loans.

The decrease in purchases of equipment was driven by lower origination

volumes for the three months ended March 31, 2021

compared to the corresponding period of 2020, and the reduction in

proceeds from sales was driven by the absence of asset sales in the

first quarter of 2021.

Net cash used financing activities was $60.2 million for the three-month

period ended March 31, 2021,

compared to net cash provided

by financing activities of $82.5 million for the three-month period

ended March 31, 2020. The decrease in cash flows from financing

activities is primarily due to a decrease of $154.1 million in the net change

deposits partially offset by a decrease of $7.0 million of

term securitization repayments. Financing activities also include transactions

related to the Company’s payment of

dividends.

Net cash provided by operating activities was $7.0 million for the three-month

period ended March 31, 2021, compared to net cash

provided by operating activities of $10.2 million for the three-month period

ended March 31, 2020.

Adjustments to reconcile net

income or loss to net cash provided by operating activities including goodwill

impairment, provision for credit losses, changes in

deferred income tax liability and leases originated for sale and proceeds

thereof are discussed in detail in the notes to the Consolidated

Financial Statements.

-46-

We expect cash

from operations, additional borrowings on existing and future

credit facilities and funds from deposits issued through

brokers, direct deposit sources,

and the MMDA Product to be adequate to support our operations and projected

growth for the next 12

months and the foreseeable future.

Total

Cash and Cash Equivalents.

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

free cash in leases and loans.

We primarily

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

MBB. Total cash and cash

equivalents

available as of March 31, 2021 totaled $110.6 million,

compared to $135.7 million at December 31, 2020.

Time Deposits with Banks.

Time deposits with banks are primarily

composed of FDIC-insured certificates of deposits that have

original maturity dates of greater than 90 days. Generally,

the certificates of deposits have the ability to redeem early,

however, early

redemption penalties may be incurred. Total

time deposits as of March 31, 2021 and December 31, 2020 totaled $4.5 million and $6.0

million, respectively.

Restricted Interest-Earning Deposits with Banks

. As of March 31, 2021 and December 31, 2020,

we had $4.4 million and $4.7

million, respectively,

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

Restricted interest-earning deposits

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

debt facilities. Therefore, these balances generally decline

as the term securitization borrowings are repaid.

Borrowings.

Our primary borrowing relationship requires the pledging

of eligible lease and loan receivables to secure amounts

advanced. Our secured borrowings amounted to $23.7 million at March 31,

2021 and $30.7 million at December 31, 2020.

Information pertaining to our borrowing facilities is as follows:

For the Three Months Ended March 31, 2021

As of March 31, 2021

Maximum

Month End

Average

Weighted

Facility

Amount

Average

Amount

Average

Unused

Amount

Outstanding

Rate

(3)

Outstanding

Rate

(2)

Capacity

(1)

(Dollars in thousands)

Federal funds purchased

25,000

—

25,000

Term note securitizations

(4)

—

28,279

27,313

4.29

23,774

3.99

—

25,000

28,279

27,313

4.29

23,774

3.99

25,000

__________________

(1)

Does

not

include

MBB’s

access

the

Federal

Reserve

Discount

Window,

which

based

the

amount

assets

MBB

chooses

pledge.

Based on assets pledged at March 31, 2021, MBB had $49.7 million in unused, secured borrowing capacity at the Federal Reserve Discount

Window.

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

(2)

Does

not

include

transaction

costs.

(3)

Includes

transaction

costs.

(4)

Our

term

note

securitizations

are

one

time

fundings

that

pay

down

over

time

without

any

ability

for

draw

down

additional

amounts.

-47-

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 $49.7 million in unused, secured borrowing

capacity at the Federal Reserve Discount Window,

based on

$55.2 million of net investment in leases pledged at March 31, 2021

Term Note

Securitizations

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

It provides the company with fixed-cost borrowing

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

borrowings in the Consolidated Balance Sheet.

In connection with this securitization transaction, we transferred

leases to our bankruptcy remote special purpose wholly-owned

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

leases to institutional investors in a private securities

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

under U.S. GAAP.

We continue

to service the assets of our VIE and

retain equity and/or residual interests. Accordingly,

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

Balance Sheets.

At March 31, 2021 and December 31, 2020 outstanding term securitizations amounted

to $23.8 million and $30.8

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

the term note securitization agreement. See Note 10 – Debt

and Financing Arrangements in the accompanying Consolidated Financial

Statements for detailed information regarding of our term

note securitization

Bank Capital and Regulatory Oversight

We are subject

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

be subject to examination

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

not otherwise regulated by the Federal Reserve Board.

We and

MBB are also subject to comprehensive federal and state regulations dealing

with a wide variety of subjects, including minimum

capital standards, reserve requirements, terms on which a bank

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

payments and numerous other aspects of operations.

These regulations generally have been adopted to protect depositors and

creditors rather than shareholders.

At March 31, 2021,

Marlin Business Service Corp and MBB’s

Tier 1 leverage ratio, common equity Tier

1 risk-based ratio, Tier 1

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

requirements for well-capitalized status.

See “Management’s

Discussion and

Analysis of Financial

Condition and

Results of Operations

—Executive Summary”

for discussion

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

driven by our election to utilize the five-

year transition related

to the adoption of

the CECL accounting

standard.

In addition, see Note

13—Stockholders’ Equity

in the Notes

to Consolidated Financial Statements for additional information regarding

these ratios and our levels at March 31, 2021.

Information on Stock Repurchases

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

Item 2, Unregistered Sales of Equity Securities and Use

of Proceeds” herein.

Items Subsequent to March 31, 2021

April

18,

2021,

the

Company

entered

into

the

Merger

Agreement,

pursuant

which

all

outstanding

the

Company’s

common

stock

will,

subject

the

terms

and

conditions

the

Merger

Agreement,

cancelled

and

converted

into

the

merger

consideration specified in the Merger Agreement

in an all cash transaction pursuant to the Merger.

The Company's Board of Directors

has unanimously approved the Merger. The Merger

is subject to, in addition to various

other customary closing conditions: approval by

the Company’s shareholders; antitrust

clearance and other governmental and regulatory approvals; and

completion of the De-banking.

The Company declared a dividend of 0.14 per share on April 29, 2021

The quarterly dividend, which is expected to result in a

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

on May 20, 2021 to shareholders of record on the close of

-48-

business on May 10, 2021.

It represents the Company’s thirty

-ninth consecutive quarterly cash dividend. The payment of future

dividends will be subject to satisfaction of regulatory requirements

applicable to bank holding companies and approval by the

Company’s Board of Directors.

In addition, pursuant to the Merger Agreement, the Company may

not, without the prior written consent of Madeira Holdings, LLC,

declare or pay any future dividends other than the Company’s

regular quarterly cash dividend in an amount not to exceed $0.14 per

quarter.

MARKET INTEREST RATE

RISK AND SENSITIVITY

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

We engage

in transactions in the normal

course of business that expose us to market risks. We

attempt to mitigate such risks through prudent management practices and

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

assets and liabilities.

We are exposed

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

with changes in interest rates.

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

we generally seek to finance these assets primarily

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

through the variable rate MMDA Product at MBB.

RITICAL

CCOUNTING

OLICIES

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

in our Form 10-K for the year ended

December 31, 2020.

ECENTLY

SSUED

CCOUNTING

TANDARDS

Information on recently issued accounting pronouncements

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

Summary of Significant Accounting Policies in the accompanying

Notes to Consolidated Financial Statements.

ECENTLY

DOPTED

CCOUNTING

TANDARDS

Information on recently adopted accounting pronouncements and the expected

impact on our financial statements is provided in Note

2, Summary of Significant Accounting Policies in the accompanying Notes

to Consolidated Financial Statements.

-49-

Item

Quantitative

and

Qualitative

Disclos

ures

About

Market

Risk

The information appearing in the section captioned “Management’s

Discussion and Analysis of Financial Condition and Results of

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

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

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer

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

effectiveness of our disclosure controls and procedures

as of the end of the period covered by this report.

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

controls and procedures as of the end of the period covered

by this report are designed and operating effectively

to provide reasonable assurance that the information required to be disclosed by

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

reported within the time periods specified in the

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

including the CEO and CFO, as appropriate to

allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s

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

evaluation that occurred during the Company's first fiscal quarter of 2021

that have materially affected, or are reasonably likely to

materially affect, the Company’s

internal control over financial reporting.

PART

II. Other Information

Item

Legal

Proceedings

We are party

to various legal proceedings, which include claims and litigation arising

in the ordinary course of business.

In the

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

financial condition,

results of operations or

cash flows.

Item

1A.

Risk

Factors

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

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

other than as discussed below.

We may fail

to consummate the proposed Merger,

and uncertainties related to the consummation of the Merger may have a

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

operations and cash flows, and negatively impact the price of

our Common stock.

-50-

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

Agreement, pursuant to which all outstanding shares of the

Company’s common

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

be cancelled and converted into the

merger consideration specified in the Merger

Agreement

in an all cash transaction pursuant to the Merger.

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

closing conditions: approval by the Company’s

shareholders; antitrust

clearance and other governmental and regulatory approvals; and

completion of the De-banking.

The Merger Agreement includes customary representations

and warranties of the parties.

We have also made

certain additional

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

the operation of our business and that of our subsidiaries

pending the closing of the Merger,

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

providing non-public

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

respect to, proposals relating to alternative business

combination transactions, except as permitted under the Merger

Agreement. The Merger Agreement provides that, upon termination

of the Merger Agreement under certain specified circumstances,

including the acceptance of a Superior Proposal (as defined in the

Merger Agreement) for an alternative business combination

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

$10.3 million.

There is no assurance that the merger will occur on the terms and

timeline as set forth in the Merger Agreement and currently

contemplated,

or at all. Potential risks and uncertainties include, but are not limited to:

●

The Merger Agreement generally requires that

we operate our business in the ordinary course pending consummation of the

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

consent, from taking certain specified actions until the

Merger is completed. These restrictions may affect

our ability to execute our business strategies and attain our financial and

other goals which could negatively impact our business and results of operations.

●

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

including the De-banking and shareholder and regulatory

approval processes, may place a significant burden on management

and internal resources, and the Merger whether or not

consummated, may result in a diversion of management’s

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

of our operations. Any significant diversion of management attention

away from our ongoing business and any difficulties

encountered in the Merger process could negatively

impact our business and results of operations.

●

We could be

subject to litigation related to the proposed Merger,

which could result in significant costs and expenses. In

addition to potential litigation-related expenses, we have incurred

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

professional services and other transaction costs in connection with

the proposed Merger, and many

of these fees and costs

are

payable

regardless

whether

not

the

proposed

Merger

consummated.

●

The Merger Agreement contains certain termination provisions.

If the proposed Merger is not completed or the Merger

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

including to the extent that the current market price of

our common stock reflects an assumption that the Merger

will be consummated without unexpected delays.

All of the foregoing could materially and adversely affect our

business, financial position, results of operations and cash flows.

Item

Unregistered

Sales

Equity

Securities

and

Use

Proceeds

Information on Stock Repurchases

On August 1, 2019, the Company’s

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

which

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

shares of common stock. This authority may be

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

Any shares purchased under this plan are returned to

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

may be made on the open market, in block trades or

otherwise. The stock repurchase program does not obligate the Company

to acquire any particular amount of common stock, and it

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

are funded using the Company’s

working capital.

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

months ended March 31, 2021.

As of March 31, 2021,

the

Company had $4.7 million remaining in the 2019 Repurchase Plan. Pursuant

to the Merger Agreement, the Company may not

repurchase shares of common stock (pursuant to the 2019 Repurchase

Plan or otherwise) without the prior written consent of Madeira

Holdings, LLC.

-51-

Pursuant to the 2014 Equity Compensation Plan and the 2019 Equity

Compensation Plan, participants may have shares withheld to

cover income taxes. There were 16,038 shares repurchased to cover income

tax withholding in connection with the shares granted

under the 2014 Equity Compensation Plan and 2019 Equity Compensation

Plan during the three-month period ended March 31, 2021,

at an average cost of $14.01 per share.

Item

Defaults

Upon

Senior

Securities

None.

Item

Mine

Safety

Disclosures

None.

Item

Other

Information

None

-52-

Item

Exhibits

Exhibit

Number

Description

2.1

Agreement and Plan of Merger, dated as of April 18, 2021, among Marlin Business Services Corp., Madeira Holdings,

LLC, and Madeira Subsidiary, Inc.

(1)

3.1

Amended and Restated Articles of Incorporation

(2)

3.2

Amended and Restated Bylaws

(3)

3.3

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

(4)

31.1

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

Securities Exchange Act of 1934, as amended.

(Filed herewith)

31.2

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

Securities Exchange Act of 1934, as amended.

(Filed herewith)

32.1

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

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

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

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

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

(Furnished herewith)

101

Financial

statements

from

the

Quarterly

Report

Form

Marlin

Business

Services

Corp.

for

the

period

ended

March 31, 2021,

formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations,

(iii) the

Consolidated

Statements of

Comprehensive Income,

(iv) the

Consolidated Statements

of Stockholders’

Equity,

(v) the

Consolidated

Statements

Cash

Flows

and

(vi) the

Notes

Unaudited

Consolidated

Financial

Statements.

(Submitted electronically with this report)

__________________

(1)

Previo

usly filed with the SEC as an exhibit to the Registrant’s Current Report on Form 8-K filed on April 20, 2021, and incorporated by

reference herein.

(2)

Previo

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

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

(3)

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

reference herein.

(4)

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

reference herein.

-53-

SIGNATURES

Pursuant to the requirements of

the Securities Exchange Act of

1934, the Registrant has duly

caused this report to be

signed on its behalf

by the undersigned thereunto duly authorized.

MARLIN BUSINESS SERVICES CORP.

(Registrant)

By:

/s/ Jeff Hilzinger

Chief Executive Officer

Jeff

Hilzinger

(Principal Executive Officer)

By:

/s/ Michael R. Bogansky

Michael R. Bogansky

Chief Financial Officer & Senior Vice

President

(Principal

Financial

Officer)

Date:

April 30, 2021