##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2010
 Commission file number 000-50448
 MARLIN BUSINESS SERVICES CORP.
  Pennsylvania
(State of incorporation)
    
    38-3686388
(I.R.S. Employer Identification Number)
 
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES
 Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 2010
 TABLE OF CONTENTS
 Page No.Part I  Financial Information
    
    
    2Item 1 Condensed Consolidated Financial Statements (Unaudited)
    
    
    2Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009
    
    
    2Condensed Consolidated Statements of Operations for the three- and nine-month periods ended
September 30, 2010 and 2009
    
    
    3Condensed Consolidated Statements of Stockholders Equity for the nine-month period ended
September 30, 2010 and the year ended December 31, 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine-month periods ended
September 30, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3 Quantitative and Qualitative Disclosure about Market Risk
    
    
    56Item 4 Controls and Procedures
    
    
    56Part II  Other Information
    
    
    57Item 1 Legal Proceedings
    
    
    57Item 1A Risk Factors
    
    
    57Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    59Item 3 Defaults upon Senior Securities
    
    
    59Item 4 [Removed and Reserved]
    
    
    59Item 5 Other Information
    
    
    59Item 6 Exhibits
    
    
    60Signatures
    
    
    61CertificationsRULE 13a-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICERRULE 13a-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICERRULE 13a-14(b) CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
   -1-




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##### Table of Contents



PART I. Financial Information
 
 Item 1. Condensed Consolidated Financial Statements
 MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 (Unaudited)
 September 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands, except per-share data)ASSETSCash and due from banks
    
    $
    1,310
    
    
    $
    1,372Interest-earning deposits with banks
    
    
    42,790
    
    
    
    35,685Total cash and cash equivalents
    
    
    44,100
    
    
    
    37,057Restricted interest-earning deposits with banks (includes $44.8 million and $57.1 million,
respectively, related to consolidated variable interest entities (VIEs))
    
    
    47,384
    
    
    
    63,400Securities available for sale (amortized cost of $1.5 million)
    
    
    1,557
    
    
    
    Net investment in leases and loans (includes $184.3 million and $238.0 million, respectively,
related to consolidated VIEs)
    
    
    361,143
    
    
    
    448,610Property and equipment, net
    
    
    2,020
    
    
    
    2,431Property tax receivables
    
    
    592
    
    
    
    1,135Other assets
    
    
    9,509
    
    
    
    13,170Total assets
    
    $
    466,305
    
    
    $
    565,803LIABILITIES AND STOCKHOLDERS EQUITYShort-term borrowings
    
    $
    
    
    
    $
    62,541Long-term borrowings (includes $159.5 million and $226.7 million, respectively, related to
consolidated VIEs)
    
    
    191,858
    
    
    
    244,445Deposits
    
    
    95,358
    
    
    
    80,288Other liabilities:Fair value of derivatives
    
    
    
    
    
    
    2,408Sales and property taxes payable
    
    
    5,291
    
    
    
    4,197Accounts payable and accrued expenses
    
    
    7,198
    
    
    
    7,649Net deferred income tax liability
    
    
    12,090
    
    
    
    16,037Total liabilities
    
    
    311,795
    
    
    
    417,565Commitments and contingencies (Note 6)Stockholders equity:Common Stock, $0.01 par value; 75,000,000 shares authorized;
12,870,979 and 12,778,935 shares issued and outstanding, respectively
    
    
    129
    
    
    
    128Preferred Stock, $0.01 par value; 5,000,000 shares authorized; none issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    86,608
    
    
    
    84,674Stock subscription receivable
    
    
    (2
    )
    
    
    (3
    )Accumulated other comprehensive loss
    
    
    (153
    )
    
    
    (267
    )Retained earnings
    
    
    67,928
    
    
    
    63,706Total stockholders equity
    
    
    154,510
    
    
    
    148,238Total liabilities and stockholders equity
    
    $
    466,305
    
    
    $
    565,803
   -2-




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##### Table of Contents



MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations
 (Unaudited)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands, except per-share data)Interest income
    
    $
    11,421
    
    
    $
    15,591
    
    
    $
    36,245
    
    
    $
    51,944Fee income
    
    
    3,567
    
    
    
    4,288
    
    
    
    10,884
    
    
    
    13,702Interest and fee income
    
    
    14,988
    
    
    
    19,879
    
    
    
    47,129
    
    
    
    65,646Interest expense
    
    
    3,590
    
    
    
    6,448
    
    
    
    12,204
    
    
    
    21,724Net interest and fee income
    
    
    11,398
    
    
    
    13,431
    
    
    
    34,925
    
    
    
    43,922Provision for credit losses
    
    
    2,083
    
    
    
    5,951
    
    
    
    7,700
    
    
    
    21,493Net interest and fee income after provision for credit losses
    
    
    9,315
    
    
    
    7,480
    
    
    
    27,225
    
    
    
    22,429Other income:Insurance income
    
    
    985
    
    
    
    1,186
    
    
    
    3,130
    
    
    
    4,051Gain (loss) on derivatives
    
    
    (9
    )
    
    
    (1,164
    )
    
    
    (128
    )
    
    
    (1,825
    )Other income
    
    
    354
    
    
    
    409
    
    
    
    948
    
    
    
    1,205Other income
    
    
    1,330
    
    
    
    431
    
    
    
    3,950
    
    
    
    3,431Other expense:Salaries and benefits
    
    
    4,947
    
    
    
    4,051
    
    
    
    14,659
    
    
    
    14,994General and administrative
    
    
    3,156
    
    
    
    3,076
    
    
    
    9,275
    
    
    
    9,761Financing related costs
    
    
    131
    
    
    
    51
    
    
    
    433
    
    
    
    361Other expense
    
    
    8,234
    
    
    
    7,178
    
    
    
    24,367
    
    
    
    25,116Income before income taxes
    
    
    2,411
    
    
    
    733
    
    
    
    6,808
    
    
    
    744Income tax expense
    
    
    977
    
    
    
    225
    
    
    
    2,586
    
    
    
    169Net income
    
    $
    1,434
    
    
    $
    508
    
    
    $
    4,222
    
    
    $
    575Basic earnings per share
    
    $
    0.11
    
    
    $
    0.04
    
    
    $
    0.33
    
    
    $
    0.05Diluted earnings per share
    
    $
    0.11
    
    
    $
    0.04
    
    
    $
    0.33
    
    
    $
    0.05Weighted average shares used in computing basic earnings
per share
    
    
    12,872,123
    
    
    
    12,607,147
    
    
    
    12,826,263
    
    
    
    12,499,578Weighted average shares used in computing diluted earnings
per share
    
    
    12,933,439
    
    
    
    12,649,800
    
    
    
    12,888,662
    
    
    
    12,522,685
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MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Stockholders Equity
 (Unaudited)
 AccumulatedCommon
    
    
    Additional
    
    
    Stock
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Stock
    
    
    Paid-In
    
    
    Subscription
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Receivable
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Equity(Dollars in thousands)Balance, December 31, 2008
    
    
    12,246,405
    
    
    $
    122
    
    
    $
    83,671
    
    
    $
    (5
    )
    
    $
    167
    
    
    $
    62,670
    
    
    $
    146,625Issuance of common stock
    
    
    35,004
    
    
    
    1
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106Repurchase of common stock
    
    
    (102,614
    )
    
    
    (1
    )
    
    
    (399
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (400
    )Exercise of stock options
    
    
    40,424
    
    
    
    
    
    
    
    167
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    167Tax benefit on stock options exercised
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Stock option compensation recognized
    
    
    
    
    
    
    
    
    
    
    298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    298Payment of receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Restricted stock grant
    
    
    559,716
    
    
    
    6
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock compensation
recognized
    
    
    
    
    
    
    
    
    
    
    790
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    790Net change related to derivatives, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (434
    )
    
    
    
    
    
    
    (434
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,036
    
    
    
    1,036Balance, December 31, 2009
    
    
    12,778,935
    
    
    $
    128
    
    
    $
    84,674
    
    
    $
    (3
    )
    
    $
    (267
    )
    
    $
    63,706
    
    
    $
    148,238Issuance of common stock
    
    
    10,479
    
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73Repurchase of common stock
    
    
    (61,442
    )
    
    
    (1
    )
    
    
    (561
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (562
    )Exercise of stock options
    
    
    35,864
    
    
    
    1
    
    
    
    161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162Tax benefit on stock options exercised
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72Stock option compensation recognized
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166Payment of receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Restricted stock grant
    
    
    107,143
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock compensation
recognized
    
    
    
    
    
    
    
    
    
    
    2,024
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,024Net change related to derivatives, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    95Net change in unrealized gain/loss on
securities available for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    19Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,222
    
    
    
    4,222Balance, September 30, 2010
    
    
    12,870,979
    
    
    $
    129
    
    
    $
    86,608
    
    
    $
    (2
    )
    
    $
    (153
    )
    
    $
    67,928
    
    
    $
    154,510
   -4-




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MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 Nine Months Ended September 30,2010
    
    
    2009(In thousands)Cash flows from operating activities:Net income
    
    $
    4,222
    
    
    $
    575Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    1,938
    
    
    
    1,844Stock-based compensation
    
    
    2,190
    
    
    
    1,006Excess tax benefits from stock-based payment arrangements
    
    
    (72
    )
    
    
    (5
    )Amortization of deferred net loss on cash flow hedge derivatives
    
    
    158
    
    
    
    113Change in fair value of derivatives
    
    
    (2,291
    )
    
    
    (997
    )Cash flow hedge gains reclassified from accumulated other comprehensive income
    
    
    
    
    
    
    (642
    )Provision for credit losses
    
    
    7,700
    
    
    
    21,493Net deferred income taxes
    
    
    (4,021
    )
    
    
    (1,726
    )Amortization of deferred initial direct costs and fees
    
    
    5,488
    
    
    
    9,482Deferred initial direct costs and fees
    
    
    (2,449
    )
    
    
    (2,039
    )Loss on equipment disposed
    
    
    1,806
    
    
    
    1,259Effect of changes in other operating items:Other assets
    
    
    4,467
    
    
    
    4,933Other liabilities
    
    
    668
    
    
    
    (935
    )Net cash provided by operating activities
    
    
    19,804
    
    
    
    34,361Cash flows from investing activities:Purchases of equipment for direct financing lease contracts and funds used to originate loans
    
    
    (91,477
    )
    
    
    (68,904
    )Principal collections on leases and loans
    
    
    164,783
    
    
    
    207,923Security deposits collected, net of refunds
    
    
    (2,110
    )
    
    
    (3,415
    )Proceeds from the sale of equipment
    
    
    3,727
    
    
    
    3,754Acquisitions of property and equipment
    
    
    (332
    )
    
    
    (366
    )Change in restricted interest-earning deposits with banks
    
    
    16,016
    
    
    
    1,292Purchases of securities available for sale
    
    
    (1,527
    )
    
    
    Net cash provided by investing activities
    
    
    89,080
    
    
    
    140,284Cash flows from financing activities:Issuances of common stock
    
    
    74
    
    
    
    56Repurchases of common stock
    
    
    (562
    )
    
    
    (400
    )Exercise of stock options
    
    
    162
    
    
    
    44Excess tax benefits from stock-based payment arrangements
    
    
    72
    
    
    
    5Debt issuance costs
    
    
    (1,529
    )
    
    
    (512
    )Term securitization advances
    
    
    68,169
    
    
    
    Term securitization repayments
    
    
    (135,383
    )
    
    
    (166,279
    )Warehouse and bank facility advances
    
    
    24,488
    
    
    
    42,130Warehouse and bank facility repayments
    
    
    (72,402
    )
    
    
    (57,393
    )Other short-term borrowing advances
    
    
    
    
    
    
    2,200Other short-term borrowing repayments
    
    
    
    
    
    
    (1,000
    )Increase in deposits
    
    
    15,070
    
    
    
    16,675Net cash used in financing activities
    
    
    (101,841
    )
    
    
    (164,474
    )Net increase (decrease) in total cash and cash equivalents
    
    
    7,043
    
    
    
    10,171Total cash and cash equivalents, beginning of period
    
    
    37,057
    
    
    
    40,270Total cash and cash equivalents, end of period
    
    $
    44,100
    
    
    $
    50,441Supplemental disclosures of cash flow information:Cash paid for interest on deposits and borrowings
    
    $
    10,957
    
    
    $
    20,546Cash paid for income taxes, net of refunds received
    
    $
    3,710
    
    
    $
    806
   -5-




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##### Table of Contents



MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  Organization
 Description
   NOTE 2  Basis of Financial Statement Presentation and Critical Accounting Policies
  Use of estimates.
 Income recognition on leases and loans.
  Fee income.
  -6-




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Insurance income
 Other income.
 Securities available for sale.
 Initial direct costs and fees.
 Lease residual values.
     Allowance for credit losses. ,
  -7-




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Interagency Policy Statement on the Allowance for Loan and Lease Losses
  Securitizations.
 Derivatives.
    -8-




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##### Table of Contents



Common stock and equity.
 Stock-based compensation.
   Income taxes.
    -9-




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Earnings per share.
 
  -10-




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##### Table of Contents



NOTE 3  Net Investment in Leases and Loans
  September 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Minimum lease payments receivable
    
    $
    397,683
    
    
    $
    494,954Estimated residual value of equipment
    
    
    38,859
    
    
    
    43,928Unearned lease income, net of initial direct costs and fees deferred
    
    
    (62,900
    )
    
    
    (74,823
    )Security deposits
    
    
    (5,570
    )
    
    
    (7,681
    )Loans, including unamortized deferred fees and costs
    
    
    1,426
    
    
    
    4,425Allowance for credit losses
    
    
    (8,355
    )
    
    
    (12,193
    )$
    361,143
    
    
    $
    448,610
    Minimum LeasePayments
    
    
    IncomeReceivable
    
    
    Amortization(Dollars in thousands)Period Ending December 31,2010
    
    $
    53,197
    
    
    $
    10,7522011
    
    
    173,560
    
    
    
    29,4352012
    
    
    99,967
    
    
    
    14,5582013
    
    
    47,262
    
    
    
    5,9242014
    
    
    18,229
    
    
    
    1,935Thereafter
    
    
    5,468
    
    
    
    296$
    397,683
    
    
    $
    62,900
   -11-




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NOTE 4  Allowance for Credit Losses
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)
    
    
    (Dollars in thousands)Allowance for credit losses, beginning of period
    
    $
    9,151
    
    
    $
    13,978
    
    
    $
    12,193
    
    
    $
    15,283Charge-offs
    
    
    (3,659
    )
    
    
    (8,605
    )
    
    
    (14,023
    )
    
    
    (26,947
    )Recoveries
    
    
    780
    
    
    
    969
    
    
    
    2,485
    
    
    
    2,464Net charge-offs
    
    
    (2,879
    )
    
    
    (7,636
    )
    
    
    (11,538
    )
    
    
    (24,483
    )Provision for credit losses
    
    
    2,083
    
    
    
    5,951
    
    
    
    7,700
    
    
    
    21,493Allowance for credit losses, end of period
    
    $
    8,355
    
    
    $
    12,293
    
    
    $
    8,355
    
    
    $
    12,293
 Interagency Policy Statement on the Allowance for Loan and Lease Losses
  NOTE 5  Other Assets
  September 30,
    
    
    December 31.2010
    
    
    2009(Dollars in thousands)Accrued fees receivable
    
    $
    2,407
    
    
    $
    3,189Deferred transaction costs
    
    
    2,398
    
    
    
    1,893Prepaid expenses
    
    
    822
    
    
    
    1,360Income taxes receivable
    
    
    2,353
    
    
    
    5,178Other
    
    
    1,529
    
    
    
    1,550$
    9,509
    
    
    $
    13,170
 NOTE 6  Commitments and Contingencies
   -12-




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NOTE 7  Short-term and Long-term Borrowings
   Principal
    
    
    Interest(1)(Dollars in thousands)Period Ending December 31,2010
    
    $
    32,787
    
    
    $
    4,8862011
    
    
    84,789
    
    
    
    3,9662012
    
    
    66,517
    
    
    
    1,7442013
    
    
    7,465
    
    
    
    272014
    
    
    294
    
    
    
    1Thereafter
    
    
    6
    
    
    
    Total
    
    $
    191,858
    
    
    $
    10,624
 
 (1)
    
    Interest on variable-rate long-term loan facilities is assumed at the September 30,
2010 rate for the remaining term.  
  -13-




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##### Table of Contents



NOTE 8  Deposits
  ScheduledMaturities(Dollars inthousands)Period Ending December 31,2010
    
    $
    9,8642011
    
    
    31,4282012
    
    
    26,3652013
    
    
    18,2002014
    
    
    6,302Thereafter
    
    
    3,199$
    95,358
 
  -14-




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##### Table of Contents



NOTE 9  Derivative Financial Instruments
         -15-




---



##### Table of Contents



June/For Terminated Agreements:
    
    August,
    
    
    Various,
    
    
    August
    
    
    SeptemberInception Date
    
    2006/2007
    
    
    2007/2008
    
    
    2006/2007
    
    
    2005
 October,
    
    
    October,
    
    
    October,
    
    
    September,Commencement Date
    
    2008
    
    
    2009
    
    
    2007
    
    
    2006
 June
    
    
    May/October,
    
    
    October,
    
    
    September,Termination Date
    
    2010
    
    
    2009
    
    
    2007
    
    
    2006(Dollars in thousands)Notional amount
    
    $
    100,000
    
    
    $
    150,000
    
    
    $
    300,000
    
    
    $
    225,000Realized gain (loss) at termination
    
    $
    
    
    
    $
    (7,316
    )
    
    $
    (2,683
    )
    
    $
    3,732Deferred gain (loss), net of tax, recorded in equity:September 30, 2010
    
    $
    
    
    
    $
    
    
    
    $
    (172
    )
    
    $
    December 31, 2009
    
    $
    
    
    
    $
    
    
    
    $
    (357
    )
    
    $
    90Amortization recognized as increase (decrease) in
interest expense:Nine months ended September 30, 2010
    
    $
    
    
    
    $
    
    
    
    $
    308
    
    
    $
    (150
    )Year ended December 31, 2009
    
    $
    
    
    
    $
    
    
    
    $
    699
    
    
    $
    (514
    )Expected amortization during next 12 months as an
increase in interest expense
    
    $
    
    
    
    $
    
    
    
    $
    209
    
    
    $
    
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)Change in fair value of derivative contracts
    
    $
    (9
    )
    
    $
    (1,397
    )
    
    $
    (128
    )
    
    $
    (2,467
    )Cash flow hedging gains on forecasted transactions
no longer probable of occurring(1)
    
    
    
    
    
    
    233
    
    
    
    
    
    
    
    642Gain (loss) on derivatives
    
    $
    (9
    )
    
    $
    (1,164
    )
    
    $
    (128
    )
    
    $
    (1,825
    )
 
 (1)
    
    Reclassified from accumulated other comprehensive income 
  -16-




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##### Table of Contents



NOTE 10  Fair Value Measurements
    
    
    Level 1  Inputs to the valuation are unadjusted quoted prices in active markets for
identical assets or liabilities.
 
    
    Level 2  Inputs to the valuation may include quoted prices for similar assets and
liabilities in active or inactive markets, and inputs other than quoted prices, such as
interest rates and yield curves, which are observable for the asset or liability for
substantially the full term of the financial instrument.
 
    
    Level 3  Inputs to the valuation are unobservable and significant to the fair value
measurement. Level 3 inputs shall be used to measure fair value only to the extent that
observable inputs are not available.
   September 30, 2010
    
    
    December 31, 2009Fair Value Measurements Using
    
    
    Fair Value Measurements UsingLevel 1
    
    
    Level 2
    
    
    Level 1
    
    
    Level 2(Dollars in thousands)AssetsSecurities available for sale
    
    $
    1,557
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest-rate caps purchased
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    119LiabilitiesInterest-rate swaps
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,408
  Disclosures about the Fair Value of Financial Instruments
   -17-




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##### Table of Contents



September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(Dollars in thousands)AssetsCash and cash equivalents
    
    $
    44,100
    
    
    $
    44,100
    
    
    $
    37,057
    
    
    $
    37,057Restricted interest-earning deposits with banks
    
    
    47,384
    
    
    
    47,384
    
    
    
    63,400
    
    
    
    63,400Securities available for sale
    
    
    1,557
    
    
    
    1,557
    
    
    
    
    
    
    
    Loans
    
    
    1,284
    
    
    
    1,280
    
    
    
    4,026
    
    
    
    3,969Interest-rate caps purchased
    
    
    2
    
    
    
    2
    
    
    
    119
    
    
    
    119LiabilitiesShort-term borrowings
    
    
    
    
    
    
    
    
    
    
    62,541
    
    
    
    62,541Long-term borrowings
    
    
    191,858
    
    
    
    198,263
    
    
    
    244,445
    
    
    
    244,477Deposits
    
    
    95,358
    
    
    
    97,404
    
    
    
    80,288
    
    
    
    81,903Accounts payable and accrued
expenses (1)
    
    
    12,489
    
    
    
    12,489
    
    
    
    11,846
    
    
    
    11,846Interest-rate swaps
    
    
    
    
    
    
    
    
    
    
    2,408
    
    
    
    2,408
 
 (1)
    
    Includes sales and property taxes payable.  (a) Cash and Cash Equivalents
  (b) Restricted Interest-earning Deposits with Banks
   -18-




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##### Table of Contents



(c) Securities Available for Sale
  (d) Loans
  (e) Short-term and Long-term Borrowings
  (f) Deposits
  (g) Accounts Payable and Accrued Expenses
  (h) Interest-Rate Swaps and Interest-Rate Caps
 
  -19-




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##### Table of Contents



NOTE 11  Earnings Per Common Share (EPS)
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands, except per-share data)Net income
    
    $
    1,434
    
    
    $
    508
    
    
    $
    4,222
    
    
    $
    575Weighted average common shares outstanding
    
    
    11,919,693
    
    
    
    11,708,401
    
    
    
    11,876,168
    
    
    
    11,686,120Add: Unvested restricted stock awards
considered participating
securities
    
    
    952,430
    
    
    
    898,746
    
    
    
    950,095
    
    
    
    813,458Adjusted weighted average common shares used in computing
basic EPS
    
    
    12,872,123
    
    
    
    12,607,147
    
    
    
    12,826,263
    
    
    
    12,499,578Add: Effect of dilutive stock options
    
    
    61,316
    
    
    
    42,653
    
    
    
    62,399
    
    
    
    23,107Adjusted weighted average common shares used in computing
diluted EPS
    
    
    12,933,439
    
    
    
    12,649,800
    
    
    
    12,888,662
    
    
    
    12,522,685Net earnings per common share:Basic
    
    $
    0.11
    
    
    $
    0.04
    
    
    $
    0.33
    
    
    $
    0.05Diluted
    
    $
    0.11
    
    
    $
    0.04
    
    
    $
    0.33
    
    
    $
    0.05
    -20-




---



##### Table of Contents



NOTE 12  Comprehensive Income (Loss)
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)Net income, as reported
    
    $
    1,434
    
    
    $
    508
    
    
    $
    4,222
    
    
    $
    575Other comprehensive income:Reclassification of cash flow hedging gains on forecasted
transactions no longer probable of occurring
    
    
    
    
    
    
    (233
    )
    
    
    
    
    
    
    (642
    )Amortization of net deferred losses on
cash flow hedge derivatives
    
    
    76
    
    
    
    47
    
    
    
    158
    
    
    
    113Change in fair value of securities available for sale
    
    
    11
    
    
    
    
    
    
    
    31
    
    
    
    Tax effect
    
    
    (35
    )
    
    
    74
    
    
    
    (75
    )
    
    
    210Total other comprehensive income (loss)
    
    
    52
    
    
    
    (112
    )
    
    
    114
    
    
    
    (319
    )Comprehensive income
    
    $
    1,486
    
    
    $
    396
    
    
    $
    4,336
    
    
    $
    256
 NOTE 13  Stockholders Equity
 Stockholders Equity
    Regulatory Capital Requirements
    -21-




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##### Table of Contents



-22-




---



##### Table of Contents



Minimum Capital
    
    
    Well-Capitalized CapitalActual
    
    
    Requirement
    
    
    RequirementRatio
    
    
    Amount
    
    
    Ratio(1)
    
    
    Amount
    
    
    Ratio
    
    
    Amount(Dollars in thousands)Tier 1 Leverage CapitalMarlin Business Services Corp.
    
    
    31.92
    %
    
    $
    154,663
    
    
    
    4
    %
    
    $
    19,380
    
    
    
    5
    %
    
    $
    24,225Marlin Business Bank
    
    
    15.53
    %
    
    $
    19,047
    
    
    
    5
    %
    
    $
    6,134
    
    
    
    5
    %
    
    $
    6,134Tier 1 Risk-based CapitalMarlin Business Services Corp.
    
    
    38.98
    %
    
    $
    154,663
    
    
    
    4
    %
    
    $
    15,871
    
    
    
    6
    %
    
    $
    23,806Marlin Business Bank
    
    
    16.37
    %
    
    $
    19,047
    
    
    
    6
    %
    
    $
    6,980
    
    
    
    6
    %
    
    $
    6,980Total Risk-based CapitalMarlin Business Services Corp.
    
    
    40.24
    %
    
    $
    159,665
    
    
    
    8
    %
    
    $
    31,742
    
    
    
    10
    %
    
    $
    39,677Marlin Business Bank
    
    
    17.61
    %
    
    $
    20,485
    
    
    
    15
    %
    
    $
    17,451
    
    
    
    10
    %  (1)
    
    $
    11,634
 
 (1)
    
    MBB is required to maintain well-capitalized status. In addition, MBB must
maintain a total risk-based capital ratio greater than 15%. Prompt Corrective Action
   
    
    prohibiting the payment of principal and interest on subordinated debt;
    
    prohibiting the holding company from making distributions without prior regulatory
approval;
    
    placing limits on asset growth and restrictions on activities;
    
    placing additional restrictions on transactions with affiliates;
    
    restricting the interest rate the institution may pay on deposits;
    
    prohibiting the institution from accepting deposits from correspondent banks; and
    
    in the most severe cases, appointing a conservator or receiver for the institution.
  -23-




---



##### Table of Contents



Dividends
 NOTE 14  Stock-Based Compensation
   Stock Options
       -24-




---



##### Table of Contents



AssumptionRisk-free interest rate
    
    
    2.18
    %Expected life (years)
    
    
    5Expected volatility
    
    
    79
    %Expected dividends
    
    
    
    WeightedAverageNumber of
    
    
    Exercise PriceOptions
    
    Shares
    
    
    Per ShareOutstanding, December 31, 2009
    
    
    778,161
    
    
    $
    12.20Granted
    
    
    146,421
    
    
    
    12.40Exercised
    
    
    (35,864
    )
    
    
    4.49Forfeited
    
    
    (240,565
    )
    
    
    19.42Expired
    
    
    
    
    
    
    Outstanding, September 30, 2010
    
    
    648,153
    
    
    
    9.99
     -25-




---



##### Table of Contents



Options Oustanding
    
    
    Options ExercisableWeighted
    
    
    Weighted
    
    
    Aggregate
    
    
    
    
    
    
    Weighted
    
    
    Weighted
    
    
    AggregateAverage
    
    
    Average
    
    
    Intrinsic
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    IntrinsicRange of
    
    Number
    
    
    Remaining
    
    
    Exercise
    
    
    Value
    
    
    Number
    
    
    Remaining
    
    
    Exercise
    
    
    ValueExercise Prices
    
    Outstanding
    
    
    Life (Years)
    
    
    Price
    
    
    (In thousands)
    
    
    Exercisable
    
    
    Life (Years)
    
    
    Price
    
    
    (In thousands)$3.39
    
    
    85,925
    
    
    
    1.5
    
    
    $
    3.39
    
    
    $
    740
    
    
    
    85,925
    
    
    
    1.5
    
    
    $
    3.39
    
    
    $
    740$7.17  10.18
    
    
    354,528
    
    
    
    3.5
    
    
    
    9.43
    
    
    
    911
    
    
    
    181,712
    
    
    
    2.6
    
    
    
    9.55
    
    
    
    445$12.08  12.41
    
    
    145,612
    
    
    
    6.6
    
    
    
    12.40
    
    
    
    
    
    
    
    
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a$14.00  16.01
    
    
    39,984
    
    
    
    3.3
    
    
    
    14.33
    
    
    
    
    
    
    
    36,835
    
    
    
    3.2
    
    
    
    14.33
    
    
    
    $19.78  21.50
    
    
    22,104
    
    
    
    2.7
    
    
    
    20.80
    
    
    
    
    
    
    
    22,104
    
    
    
    2.7
    
    
    
    20.80
    
    
    
    648,153
    
    
    
    3.9
    
    
    
    9.99
    
    
    $
    1,651
    
    
    
    326,576
    
    
    
    2.4
    
    
    
    9.23
    
    
    $
    1,185
   Restricted Stock Awards
      -26-




---



##### Table of Contents



WeightedAverageGrant-DateNon-vested restricted stock
    
    Shares
    
    
    Fair ValueOutstanding at December 31, 2009
    
    
    1,023,403
    
    
    $
    7.74Granted
    
    
    121,385
    
    
    
    10.53Vested
    
    
    (177,117
    )
    
    
    8.16Forfeited
    
    
    (14,292
    )
    
    
    16.04Outstanding at September 30, 2010
    
    
    953,379
    
    
    
    7.89
     
  -27-




---



##### Table of Contents



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, 2009 filed with the SEC. This discussion contains
certain statements of a forward-looking nature that involve risks and uncertainties.
 FORWARD-LOOKING STATEMENTS
  
    
    availability, terms and deployment of funding and capital;
 
    
    general volatility of the securitization and capital markets;
 
    
    changes in our industry, interest rates or the general economy resulting in changes to
our business strategy;
 
    
    the degree and nature of our competition;
 
    
    availability and retention of qualified personnel; and
 
    
    the factors set forth in the section captioned Risk Factors in our Form 10-K for the
year ended December 31, 2009 filed with the SEC.
  Overview
        -28-




---



##### Table of Contents



Nine MonthsEndedSeptember 30,
    
    
    As of or For the Year Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Number of sales account executives
    
    
    84
    
    
    
    38
    
    
    
    86
    
    
    
    118
    
    
    
    100
    
    
    
    103Number of originating sources(1)
    
    
    564
    
    
    
    465
    
    
    
    1,014
    
    
    
    1,246
    
    
    
    1,295
    
    
    
    1,295
 
 (1)
    
    Monthly average of origination sources generating lease volume       -29-




---



##### Table of Contents



Critical Accounting Policies
  Income recognition.
     -30-




---



##### Table of Contents



Initial direct costs and fees. .
 Lease residual values.
     Allowance for credit losses.
    -31-




---



##### Table of Contents



Securitizations.
 Derivatives.
     Stock-based compensation.
  -32-




---



##### Table of Contents



Income taxes.
    RESULTS OF OPERATIONS
 Comparison of the Three-Month Periods Ended September 30, 2010 and September 30, 2009
 Net income.
   -33-




---



##### Table of Contents



Average balances and net interest margin.
  -34-




---



##### Table of Contents



Three Months Ended September 30,2010
    
    
    2009(Dollars in thousands)Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yields/
    
    
    Average
    
    
    
    
    
    
    Yields/Balance(1)
    
    
    Interest
    
    
    Rates(2)
    
    
    Balance(1)
    
    
    Interest
    
    
    Rates(2)Interest-earning assets:Interest-earning deposits with banks
    
    $
    35,647
    
    
    $
    17
    
    
    
    0.20
    %
    
    $
    49,196
    
    
    $
    20
    
    
    
    0.16
    %Restricted interest-earning deposits with banks
    
    
    62,293
    
    
    
    23
    
    
    
    0.15
    
    
    
    65,569
    
    
    
    44
    
    
    
    0.27Securities available for sale
    
    
    1,541
    
    
    
    13
    
    
    
    3.42
    
    
    
    
    
    
    
    
    
    
    
    Net investment in leases(3)
    
    
    369,973
    
    
    
    11,317
    
    
    
    12.24
    
    
    
    519,791
    
    
    
    15,317
    
    
    
    11.79Loans receivable(3)
    
    
    1,860
    
    
    
    51
    
    
    
    10.92
    
    
    
    7,038
    
    
    
    210
    
    
    
    11.94Total interest-earning assets
    
    
    471,314
    
    
    
    11,421
    
    
    
    9.70
    
    
    
    641,594
    
    
    
    15,591
    
    
    
    9.72Non-interest-earning assets:Cash and due from banks
    
    
    1,267
    
    
    
    
    
    
    
    
    
    
    
    4,239Property and equipment, net
    
    
    2,125
    
    
    
    
    
    
    
    
    
    
    
    2,725Property tax receivables
    
    
    718
    
    
    
    
    
    
    
    
    
    
    
    1,354Other assets(4)
    
    
    6,083
    
    
    
    
    
    
    
    
    
    
    
    6,932Total non-interest-earning assets
    
    
    10,193
    
    
    
    
    
    
    
    
    
    
    
    15,250Total assets
    
    $
    481,507
    
    
    
    
    
    
    
    
    
    
    $
    656,844Interest-bearing liabilities:Short-term borrowings(5)
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    92,292
    
    
    $
    1,275
    
    
    
    5.53
    %Long-term borrowings(5)
    
    
    205,896
    
    
    
    2,940
    
    
    
    5.71
    
    
    
    301,788
    
    
    
    4,483
    
    
    
    5.94Deposits
    
    
    96,294
    
    
    
    650
    
    
    
    2.70
    
    
    
    79,444
    
    
    
    690
    
    
    
    3.47Total interest-bearing liabilities
    
    
    302,190
    
    
    
    3,590
    
    
    
    4.75
    
    
    
    473,524
    
    
    
    6,448
    
    
    
    5.45Non-interest-bearing liabilities:Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,859Sales and property taxes payable
    
    
    5,468
    
    
    
    
    
    
    
    
    
    
    
    7,674Accounts payable and accrued expenses
    
    
    6,504
    
    
    
    
    
    
    
    
    
    
    
    5,621Net deferred income tax liability
    
    
    13,704
    
    
    
    
    
    
    
    
    
    
    
    13,152Total non-interest-bearing liabilities
    
    
    25,676
    
    
    
    
    
    
    
    
    
    
    
    36,306Total liabilities
    
    
    327,866
    
    
    
    
    
    
    
    
    
    
    
    509,830Stockholders equity
    
    
    153,641
    
    
    
    
    
    
    
    
    
    
    
    147,014Total liabilities and stockholders equity
    
    $
    481,507
    
    
    
    
    
    
    
    
    
    
    $
    656,844Net interest income
    
    
    
    
    
    $
    7,831
    
    
    
    
    
    
    
    
    
    
    $
    9,143Interest rate spread(6)
    
    
    
    
    
    
    
    
    
    
    4.95
    %
    
    
    
    
    
    
    
    
    
    
    4.27
    %Net interest margin(7)
    
    
    
    
    
    
    
    
    
    
    6.65
    %
    
    
    
    
    
    
    
    
    
    
    5.70
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    155.97
    %
    
    
    
    
    
    
    
    
    
    
    135.49
    %
 
 (1)
    
    Average balances are calculated using month-end balances, to the extent such
averages are representative of operations.(2)
    
    Annualized.(3)
    
    Average balances of leases and loans include non-accrual leases and loans, and are
presented net of unearned income.(4)
    
    Includes operating leases.(5)
    
    Includes effect of transaction costs.(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 a percentage of average
interest-earning assets.  -35-




---



##### Table of Contents



Three Months Ended September 30, 2010 Compared ToThree Months Ended September 30, 2009Increase (Decrease) Due To:Volume(1)
    
    
    Rate(1)
    
    
    Total(Dollars in thousands)Interest income:Interest-earning deposits with banks
    
    $
    (6
    )
    
    $
    3
    
    
    $
    (3
    )Restricted interest-earning deposits with banks
    
    
    (2
    )
    
    
    (19
    )
    
    
    (21
    )Securities available for sale
    
    
    13
    
    
    
    
    
    
    
    13Net investment in leases
    
    
    (4,563
    )
    
    
    563
    
    
    
    (4,000
    )Loans receivable
    
    
    (143
    )
    
    
    (16
    )
    
    
    (159
    )Total interest income
    
    
    (4,127
    )
    
    
    (43
    )
    
    
    (4,170
    )Interest expense:Short-term borrowings
    
    
    (638
    )
    
    
    (637
    )
    
    
    (1,275
    )Long-term borrowings
    
    
    (1,375
    )
    
    
    (168
    )
    
    
    (1,543
    )Deposits
    
    
    130
    
    
    
    (170
    )
    
    
    (40
    )Total interest expense
    
    
    (2,113
    )
    
    
    (745
    )
    
    
    (2,858
    )Net interest income
    
    
    (2,674
    )
    
    
    1,362
    
    
    
    (1,312
    )
 
 (1)
    
    Changes due to volume and rate are calculated independently for each line item
presented. 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.  -36-




---



##### Table of Contents



Net interest and fee margin.
 Three Months Ended September 30,2010
    
    
    2009(Dollars in thousands)Interest income
    
    $
    11,421
    
    
    $
    15,591Fee income
    
    
    3,567
    
    
    
    4,288Interest and fee income
    
    
    14,988
    
    
    
    19,879Interest expense
    
    
    3,590
    
    
    
    6,448Net interest and fee income
    
    
    11,398
    
    
    
    13,431Average total finance receivables(1)
    
    $
    371,833
    
    
    $
    526,829Percent of average total finance receivables:Interest income
    
    
    12.28
    %
    
    
    11.84
    %Fee income
    
    
    3.84
    
    
    
    3.26Interest and fee income
    
    
    16.12
    
    
    
    15.10Interest expense
    
    
    3.86
    
    
    
    4.90Net interest and fee margin
    
    
    12.26
    %
    
    
    10.20
    %
 
 (1)
    
    Total finance receivables include net investment in direct financing 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.     -37-




---



##### Table of Contents



Insurance income.
 Other income.
 Gain (loss) on derivatives.
   Salaries and benefits expense.
  -38-




---



##### Table of Contents



General and administrative expense.
 Financing related costs.
 Provision for credit losses.
  Provision for income taxes.
 Comparison of the Nine-Month Periods Ended September 30, 2010 and September 30, 2009
 Net income.
    -39-




---



##### Table of Contents



Average balances and net interest margin.
  -40-




---



##### Table of Contents



Nine Months Ended September 30,2010
    
    
    2009(Dollars in thousands)Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yields/
    
    
    Average
    
    
    
    
    
    
    Yields/Balance(1)
    
    
    Interest
    
    
    Rates(2)
    
    
    Balance(1)
    
    
    Interest
    
    
    Rates(2)Interest-earning assets:Interest-earning deposits with banks
    
    $
    37,455
    
    
    $
    30
    
    
    
    0.11
    %
    
    $
    45,736
    
    
    $
    116
    
    
    
    0.34
    %Restricted interest-earning deposits with banks
    
    
    63,471
    
    
    
    55
    
    
    
    0.12
    
    
    
    67,136
    
    
    
    264
    
    
    
    0.52Securities available for sale
    
    
    932
    
    
    
    27
    
    
    
    3.79
    
    
    
    
    
    
    
    
    
    
    
    Net investment in leases(3)
    
    
    396,879
    
    
    
    35,888
    
    
    
    12.06
    
    
    
    577,199
    
    
    
    50,753
    
    
    
    11.72Loans receivable(3)
    
    
    2,759
    
    
    
    245
    
    
    
    11.84
    
    
    
    9,136
    
    
    
    811
    
    
    
    11.84Total interest-earning assets
    
    
    501,496
    
    
    
    36,245
    
    
    
    9.64
    
    
    
    699,207
    
    
    
    51,944
    
    
    
    9.90Non-interest-earning assets:Cash and due from banks
    
    
    1,663
    
    
    
    
    
    
    
    
    
    
    
    2,723Property and equipment, net
    
    
    2,256
    
    
    
    
    
    
    
    
    
    
    
    2,859Property tax receivables
    
    
    1,934
    
    
    
    
    
    
    
    
    
    
    
    3,010Other assets(4)
    
    
    6,435
    
    
    
    
    
    
    
    
    
    
    
    9,891Total non-interest-earning assets
    
    
    12,288
    
    
    
    
    
    
    
    
    
    
    
    18,483Total assets
    
    $
    513,784
    
    
    
    
    
    
    
    
    
    
    $
    717,690Interest-bearing liabilities:Short-term borrowings(5)
    
    $
    9,618
    
    
    $
    344
    
    
    
    4.77
    %
    
    $
    102,633
    
    
    $
    3,922
    
    
    
    5.10
    %Long-term borrowings(5)
    
    
    234,892
    
    
    
    9,924
    
    
    
    5.63
    
    
    
    356,666
    
    
    
    15,766
    
    
    
    5.89Deposits
    
    
    90,787
    
    
    
    1,936
    
    
    
    2.84
    
    
    
    74,000
    
    
    
    2,036
    
    
    
    3.67Total interest-bearing liabilities
    
    
    335,297
    
    
    
    12,204
    
    
    
    4.85
    
    
    
    533,299
    
    
    
    21,724
    
    
    
    5.43Non-interest-bearing liabilities:Fair value of derivatives
    
    
    789
    
    
    
    
    
    
    
    
    
    
    
    10,546Sales and property taxes payable
    
    
    5,462
    
    
    
    
    
    
    
    
    
    
    
    7,636Accounts payable and accrued expenses
    
    
    5,927
    
    
    
    
    
    
    
    
    
    
    
    4,826Net deferred income tax liability
    
    
    14,778
    
    
    
    
    
    
    
    
    
    
    
    14,387Total non-interest-bearing liabilities
    
    
    26,956
    
    
    
    
    
    
    
    
    
    
    
    37,395Total liabilities
    
    
    362,253
    
    
    
    
    
    
    
    
    
    
    
    570,694Stockholders equity
    
    
    151,531
    
    
    
    
    
    
    
    
    
    
    
    146,996Total liabilities and stockholders equity
    
    $
    513,784
    
    
    
    
    
    
    
    
    
    
    $
    717,690Net interest income
    
    
    
    
    
    $
    24,041
    
    
    
    
    
    
    
    
    
    
    $
    30,220Interest rate spread(6)
    
    
    
    
    
    
    
    
    
    
    4.79
    %
    
    
    
    
    
    
    
    
    
    
    4.47
    %Net interest margin(7)
    
    
    
    
    
    
    
    
    
    
    6.39
    %
    
    
    
    
    
    
    
    
    
    
    5.76
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    149.57
    %
    
    
    
    
    
    
    
    
    
    
    131.11
    %
 
 (1)
    
    Average balances are calculated using month-end balances, to the extent such
averages are representative of operations.(2)
    
    Annualized.(3)
    
    Average balances of leases and loans include non-accrual leases and loans, and are
presented net of unearned income.(4)
    
    Includes operating leases.(5)
    
    Includes effect of transaction costs.(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 a percentage of average
interest-earning assets.  -41-




---



##### Table of Contents



Nine Months Ended September 30, 2010 Compared ToNine Months Ended September 30, 2009Increase (Decrease) Due To:Volume(1)
    
    
    Rate(1)
    
    
    Total(Dollars in thousands)Interest income:Interest-earning deposits with banks
    
    $
    (18
    )
    
    $
    (68
    )
    
    $
    (86
    )Restricted interest-earning deposits with banks
    
    
    (14
    )
    
    
    (195
    )
    
    
    (209
    )Securities available for sale
    
    
    27
    
    
    
    
    
    
    
    27Net investment in leases
    
    
    (16,268
    )
    
    
    1,403
    
    
    
    (14,865
    )Loans receivable
    
    
    (566
    )
    
    
    
    
    
    
    (566
    )Total interest income
    
    
    (14,324
    )
    
    
    (1,375
    )
    
    
    (15,699
    )Interest expense:Short-term borrowings
    
    
    (3,344
    )
    
    
    (234
    )
    
    
    (3,578
    )Long-term borrowings
    
    
    (5,172
    )
    
    
    (670
    )
    
    
    (5,842
    )Deposits
    
    
    410
    
    
    
    (510
    )
    
    
    (100
    )Total interest expense
    
    
    (7,398
    )
    
    
    (2,122
    )
    
    
    (9,520
    )Net interest income
    
    
    (9,218
    )
    
    
    3,039
    
    
    
    (6,179
    )
 
 (1)
    
    Changes due to volume and rate are calculated independently for each line item
presented. 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-




---



##### Table of Contents



Net interest and fee margin.
 Nine Months Ended September 30,2010
    
    
    2009(Dollars in thousands)Interest income
    
    $
    36,245
    
    
    $
    51,944Fee income
    
    
    10,884
    
    
    
    13,702Interest and fee income
    
    
    47,129
    
    
    
    65,646Interest expense
    
    
    12,204
    
    
    
    21,724Net interest and fee income
    
    
    34,925
    
    
    
    43,922Average total finance receivables(1)
    
    $
    399,638
    
    
    $
    586,336Percent of average total finance receivables:Interest income
    
    
    12.09
    %
    
    
    11.81
    %Fee income
    
    
    3.63
    
    
    
    3.12Interest and fee income
    
    
    15.72
    
    
    
    14.93Interest expense
    
    
    4.07
    
    
    
    4.94Net interest and fee margin
    
    
    11.65
    %
    
    
    9.99
    %
 
 (1)
    
    Total finance receivables include net investment in direct financing 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.     -43-




---



##### Table of Contents



Insurance income.
 Other income.
 Gain (loss) on derivatives.
   Salaries and benefits expense.
  -44-




---



##### Table of Contents



General and administrative expense.
 Financing related costs.
 Provision for credit losses.
  Provision for income taxes. .
 FINANCE RECEIVABLES AND ASSET QUALITY
   -45-




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months Ended
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2009(Dollars in thousands)Allowance for credit losses, beginning of period
    
    $
    9,151
    
    
    $
    13,978
    
    
    $
    12,193
    
    
    $
    15,283
    
    
    $
    15,283Charge-offs
    
    
    (3,659
    )
    
    
    (8,605
    )
    
    
    (14,023
    )
    
    
    (26,947
    )
    
    
    (33,575
    )Recoveries
    
    
    780
    
    
    
    969
    
    
    
    2,485
    
    
    
    2,464
    
    
    
    3,296Net charge-offs
    
    
    (2,879
    )
    
    
    (7,636
    )
    
    
    (11,538
    )
    
    
    (24,483
    )
    
    
    (30,279
    )Provision for credit losses
    
    
    2,083
    
    
    
    5,951
    
    
    
    7,700
    
    
    
    21,493
    
    
    
    27,189Allowance for credit losses, end of period(1)
    
    $
    8,355
    
    
    $
    12,293
    
    
    $
    8,355
    
    
    $
    12,293
    
    
    $
    12,193Annualized net charge-offs to average total
finance receivables(2)
    
    
    3.10
    %
    
    
    5.80
    %
    
    
    3.85
    %
    
    
    5.57
    %
    
    
    5.42
    %Allowance for credit losses to total
finance receivables, end of period(2)
    
    
    2.31
    %
    
    
    2.46
    %
    
    
    2.31
    %
    
    
    2.46
    %
    
    
    2.71
    %Average total finance receivables(2)
    
    $
    371,833
    
    
    $
    526,829
    
    
    $
    399,638
    
    
    $
    586,336
    
    
    $
    558,311Total finance receivables, end of period(2)
    
    $
    362,328
    
    
    $
    499,802
    
    
    $
    362,328
    
    
    $
    499,802
    
    
    $
    450,595Delinquencies greater than 60 days past due
    
    $
    4,213
    
    
    $
    9,431
    
    
    $
    4,213
    
    
    $
    9,431
    
    
    $
    8,334Delinquencies greater than 60 days past due(3)
    
    
    1.05
    %
    
    
    1.69
    %
    
    
    1.05
    %
    
    
    1.69
    %
    
    
    1.67
    %Allowance for credit losses to delinquent
accounts greater than 60 days past due(3)
    
    
    198.31
    %
    
    
    130.35
    %
    
    
    198.31
    %
    
    
    130.35
    %
    
    
    146.30
    %Non-accrual leases and loans, end of period
    
    $
    2,398
    
    
    $
    5,209
    
    
    $
    2,398
    
    
    $
    5,209
    
    
    $
    4,557Renegotiated leases and loans, end of period
    
    $
    2,640
    
    
    $
    5,383
    
    
    $
    2,640
    
    
    $
    5,383
    
    
    $
    4,521Accruing leases and loans past due
90 days or more
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest income included on non-accrual
leases and loans(4)
    
    $
    28
    
    
    $
    58
    
    
    $
    167
    
    
    $
    365
    
    
    $
    493Interest income excluded on non-accrual
leases and loans(5)
    
    $
    35
    
    
    $
    240
    
    
    $
    46
    
    
    $
    607
    
    
    $
    103
 
 (1)
    
    The allowance for credit losses allocated to loans at September 30, 2010, September
30, 2009 and December 31, 2009, was $0.1 million, $0.6 million and $0.4 million, respectively.(2)
    
    Total finance receivables include net investment in direct financing leases and
loans. For purposes of asset quality and allowance calculations, the effects of (i) the
allowance for credit losses and (ii) initial direct costs and fees deferred are excluded.(3)
    
    Calculated as a percent of minimum lease payments receivable for leases and as a
percent of principal outstanding for loans.(4)
    
    Represents interest which was recognized during the period on non-accrual loans and
leases, prior to non-accrual status.(5)
    
    Represents interest which would have been recorded on non-accrual loans and leases
had they performed in accordance with their contractual terms during the period.  -46-




---



##### Table of Contents



www.marlincorp.com
  Interagency Policy Statement on the Allowance for Loan and Lease Losses
  RESIDUAL PERFORMANCE
     -47-




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
   
    
    borrowings under revolving, short-term or long-term bank facilities;
    
    financing of leases and loans in various warehouse facilities;
    
    financing of leases through term note securitizations; and
    
    FDIC-insured certificates of deposit issued by our wholly-owned subsidiary, MBB.
        -48-




---



##### Table of Contents



Total Cash and Cash Equivalents.
 Restricted Interest-earning Deposits with Banks
  -49-




---



##### Table of Contents



Borrowings.
 For the Nine Months Ended September 30, 2010
    
    
    As of September 30, 2010MaximumMaximum
    
    
    Month End
    
    
    Average
    
    
    Weighted
    
    
    
    
    
    
    WeightedFacility
    
    
    Amount
    
    
    Amount
    
    
    Average
    
    
    Amount
    
    
    Average
    
    
    UnusedAmount
    
    
    Outstanding
    
    
    Outstanding
    
    
    Coupon
    
    
    Outstanding
    
    
    Coupon
    
    
    Capacity(1)(Dollars in thousands)Federal funds purchased
    
    $
    1,600
    
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    1,600CP conduit warehouse facility(2)
    
    
    
    
    
    
    59,692
    
    
    
    9,618
    
    
    
    3.26
    %
    
    
    
    
    
    
    
    %
    
    
    Term note securitizations(3)
    
    
    
    
    
    
    265,883
    
    
    
    214,140
    
    
    
    5.06
    %
    
    
    159,502
    
    
    
    4.98
    %
    
    
    Long-term loan facilities
    
    
    125,000
    
    
    
    32,356
    
    
    
    20,752
    
    
    
    5.50
    %
    
    
    32,356
    
    
    
    5.50
    %
    
    
    92,644$
    126,600
    
    
    
    
    
    
    $
    244,510
    
    
    
    5.03
    %
    
    $
    191,858
    
    
    
    5.07
    %
    
    $
    94,244
 
 (1)
    
    Does not include MBBs access to the Federal Reserve Discount Window, which is based
on the amount of assets MBB chooses to pledge. Based on assets pledged at September 30, 2010,
MBB had $8.4 million in unused, secured borrowing capacity at the Federal Reserve Discount
Window.(2)
    
    Converted from a revolving facility to an amortizing facility in March 2009, and was
fully repaid in February 2010.(3)
    
    Our term note securitizations are one-time fundings that pay down over time without
any ability for us to draw down additional amounts. Federal Funds Line of Credit with Correspondent Bank
  Federal Reserve Discount Window
  CP Conduit Warehouse Facility
  Term Note Securitizations
    -50-




---



##### Table of Contents



Long-term Loan Facilities
   Financial Covenants
    -51-




---



##### Table of Contents



Actual(1)
    
    
    RequirementTangible net worth minimum
    
    $
    159.3 million
    

    
    $
    83.0 millionDebt-to-equity ratio maximum
    
    
    1.88 to 1
    
    
    
    10.0 to 1Maximum servicer senior leverage ratio
    
    
    1.42 to 1
    
    
    
    4.0 to 1Four-quarter rolling average interest coverage ratio minimum
    
    
    1.9 to 1
    
    
    
    1.50 to 1Maximum portfolio delinquency ratio
    
    
    1.03
    %
    
    
    3.50
    %Maximum charge-off ratio
    
    
    4.78
    %
    
    
    7.00
    %
 
 (1)
    
    Calculations are based on specific contractual definitions and subsidiaries per
the applicable debt agreements, which may differ from ratios or amounts presented elsewhere in
this document.  Bank Capital and Regulatory Oversight
    Capital Adequacy
  -52-




---



##### Table of Contents



i.e.
    Information on Stock Repurchases
   -53-




---



##### Table of Contents



Contractual Obligations (excluding Deposits)
  Contractual Obligations as of September 30, 2010Operating
    
    
    Leased
    
    
    CapitalPeriod Ending December 31,
    
    Borrowings
    
    
    Interest(1)
    
    
    Leases
    
    
    Facilities
    
    
    Leases
    
    
    Total(Dollars in thousands)2010
    
    $
    32,787
    
    
    $
    4,886
    
    
    $
    3
    
    
    $
    392
    
    
    $
    9
    
    
    $
    38,0772011
    
    
    84,789
    
    
    
    3,966
    
    
    
    8
    
    
    
    1,587
    
    
    
    35
    
    
    
    90,3852012
    
    
    66,517
    
    
    
    1,744
    
    
    
    4
    
    
    
    1,621
    
    
    
    18
    
    
    
    69,9042013
    
    
    7,465
    
    
    
    27
    
    
    
    4
    
    
    
    789
    
    
    
    
    
    
    
    8,2852014
    
    
    294
    
    
    
    1
    
    
    
    4
    
    
    
    141
    
    
    
    
    
    
    
    440Thereafter
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Total
    
    $
    191,858
    
    
    $
    10,624
    
    
    $
    23
    
    
    $
    4,530
    
    
    $
    62
    
    
    $
    207,097
 
 (1)
    
    Interest on the long-term loan facility is assumed at the September 30, 2010 rate
for the remaining term. MARKET INTEREST RATE RISK AND SENSITIVITY
    .
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Scheduled Maturities by Calendar YearTotal2014 &
    
    
    Carrying2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    Amount(Dollars in thousands)Debt:Fixed-rate debt
    
    $
    32,787
    
    
    $
    84,789
    
    
    $
    34,161
    
    
    $
    7,465
    
    
    $
    300
    
    
    $
    159,502Average fixed rate
    
    
    4.95
    %
    
    
    5.25
    %
    
    
    5.01
    %
    
    
    4.09
    %
    
    
    5.00
    %
    
    
    5.08
    %Variable-rate debt
    
    $
    
    
    
    $
    
    
    
    $
    32,356
    
    
    $
    
    
    
    $
    
    
    
    $
    32,356Average variable
rate
    
    
    
    
    
    
    
    
    
    
    5.50
    %
    
    
    
    
    
    
    
    
    
    
    5.50
    %
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##### Table of Contents



RECENTLY ISSUED ACCOUNTING STANDARDS
 Receivables (Topic 310):
Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses
 Accounting for Transfers of Financial Assets, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,
 Amendments to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities,
 
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   -56-




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##### Table of Contents



PART II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Legislative and regulatory reforms may have a significant impact on our business, results of
operations and financial condition.
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##### Table of Contents



Further increase in the FDIC deposit insurance premium or required reserves may have a significant
financial impact on us.
   We are subject to regulatory capital adequacy guidelines, and if we fail to meet these guidelines,
our business, financial condition or results of operations may be adversely affected. Managements Discussion And Analysis of Financial Condition and Results of
OperationsLiquidity and Capital ResourcesBank Capital and Regulatory Oversight
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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Information on Stock Repurchases
    
 Item 3. Defaults Upon Senior Securities
  
 Item 4. [Removed and Reserved.]
 
 Item 5. Other Information
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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description3.1
    
    
    Amended and Restated Articles of Incorporation(1)3.2
    
    
    Bylaws(2)3.3
    
    
    Receivables Loan and Security Agreement, dated as of September 24, 2010, by and among Marlin
Leasing Receivables XIII LLC, Marlin Leasing Corporation, Key Equipment Finance Inc., the
lenders party thereto and Wells Fargo Bank, National Association(3)31.1
    
    
    Certification of the Chief Executive Officer of Marlin Business Services Corp. required by
Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. (Filed herewith)31.2
    
    
    Certification of the Chief Financial Officer of Marlin Business Services Corp. required by
Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. (Filed herewith)32.1
    
    
    Certification of the Chief Executive Officer and Chief Financial Officer of Marlin Business
Services Corp. required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as
amended. (This exhibit shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that
section. Further, this exhibit shall not be deemed to be incorporated by reference into any
filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended.) (Furnished herewith)
 
 (1)
    
    Previously filed with the SEC as an exhibit to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2007 filed on March 5, 2008, and incorporated by
reference herein.(2)
    
    Previously filed with the SEC as an exhibit to the Companys Amendment No. 1 to
Registration Statement on Form S-1 (File No. 333-108530), filed on October 14, 2003 and
incorporated by reference herein.(3)
    
    Previously filed with the SEC as an exhibit to the Companys Current Report on Form
8-K filed on September 27, 2010 and incorporated by reference herein.  -60-




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##### Table of Contents



SIGNATURES
  MARLIN BUSINESS SERVICES CORP.(Registrant)By:
    
    /s/ Daniel P. Dyer

Daniel P. Dyer
    
    Chief Executive Officer (Chief
Executive Officer)By:
    
    /s/ Lynne C. WilsonLynne C. Wilson
    
    Chief Financial Officer & Senior Vice President
(Principal Financial Officer)
   -61-