##### 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 June 30, 2007
 Commission file number 000-50448
 MARLIN BUSINESS SERVICES CORP.
  Pennsylvania
    
    38-3686388(State of incorporation)
    
    (I.R.S. Employer Identification Number)
 
 
 þ o
  o þ o
  o þ




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##### 



MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES
 Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 2007
 TABLE OF CONTENTS
 Page No.Part I  Financial Information
    
    
    2-30Item 1 Financial Statements
    
    
    2-14Consolidated Balance Sheets at June 30, 2007 (unaudited) and December 31, 2006
    
    
    2Consolidated Statements of Operations for the three and six months ended June 30, 2007 and 2006 (unaudited)
    
    
    3Consolidated Statements of Stockholders Equity at June 30, 2007 (unaudited) and December 31, 2006
    
    
    4Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006 (unaudited)
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-14Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14-30Item 3 Quantitative and Qualitative Disclosure about Market Risk
    
    
    30Item 4 Controls and Procedures
    
    
    30Part II  Other Information
    
    
    31Item 1 Legal Proceedings
    
    
    31Item 1A Risk Factors
    
    
    31Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3 Defaults upon Senior Securities
    
    
    31Item 4 Submission of Matters to a Vote of Security Holders
    
    
    31Item 5 Other Information
    
    
    31Item 6 Exhibits
    
    
    31Signatures
    
    
    32CertificationsRULE 13a-14(a) CERTIFICATION OF CEORULE 13a-14(a) CERTIFICATION OF CFORULE 13a-14(b) CERTIFICATION OF CEO AND CFO
  1




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##### Table of Contents



PART I. Financial Information
 
 Item 1. Financial Statements
 MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 June 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands, except per-share data)(Unaudited)ASSETSCash and cash equivalents
    
    $
    8,060
    
    
    $
    26,663Restricted cash
    
    
    64,660
    
    
    
    57,705Net investment in leases and loans
    
    
    748,139
    
    
    
    693,911Property and equipment, net
    
    
    3,366
    
    
    
    3,430Property tax receivables
    
    
    6,483
    
    
    
    257Fair value of cash flow hedge derivatives
    
    
    243
    
    
    
    456Other assets
    
    
    11,251
    
    
    
    13,030Total assets
    
    $
    842,202
    
    
    $
    795,452LIABILITIES AND STOCKHOLDERS EQUITYRevolving and term secured borrowings
    
    $
    651,771
    
    
    $
    616,322Other liabilities:Fair value of cash flow hedge derivatives
    
    
    6
    
    
    
    1,607Sales and property taxes payable
    
    
    11,216
    
    
    
    8,034Accounts payable and accrued expenses
    
    
    10,451
    
    
    
    12,269Deferred income tax liability
    
    
    21,107
    
    
    
    22,931Total liabilities
    
    
    694,551
    
    
    
    661,163Commitments and contingenciesStockholders equity:Common Stock, $0.01 par value; 75,000,000 shares
authorized; 12,279,967 and 12,030,259 shares
issued and outstanding, respectively
    
    
    123
    
    
    
    120Preferred Stock, $0.01 par value; 5,000,000
shares authorized; none issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    84,934
    
    
    
    81,850Stock subscription receivable
    
    
    (11
    )
    
    
    (18
    )Cumulative other comprehensive income
    
    
    1,955
    
    
    
    1,892Retained earnings
    
    
    60,650
    
    
    
    50,445Total stockholders equity
    
    
    147,651
    
    
    
    134,289Total liabilities and stockholders equity
    
    $
    842,202
    
    
    $
    795,452
  2




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##### Table of Contents



MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands, except per-share data)(Unaudited)Income:Interest income
    
    $
    22,151
    
    
    $
    18,549
    
    
    $
    43,588
    
    
    $
    36,368Fee income
    
    
    5,186
    
    
    
    5,097
    
    
    
    10,801
    
    
    
    10,004Interest and fee income
    
    
    27,337
    
    
    
    23,646
    
    
    
    54,389
    
    
    
    46,372Interest expense
    
    
    8,256
    
    
    
    6,006
    
    
    
    15,967
    
    
    
    11,501Net interest and fee income
    
    
    19,081
    
    
    
    17,640
    
    
    
    38,422
    
    
    
    34,871Provision for credit losses
    
    
    3,468
    
    
    
    1,599
    
    
    
    6,860
    
    
    
    4,014Net interest and fee income after provision for
credit losses
    
    
    15,613
    
    
    
    16,041
    
    
    
    31,562
    
    
    
    30,857Insurance and other income
    
    
    1,553
    
    
    
    1,229
    
    
    
    3,228
    
    
    
    2,584Operating income
    
    
    17,166
    
    
    
    17,270
    
    
    
    34,790
    
    
    
    33,441Non-interest expenseSalaries and benefits
    
    
    5,113
    
    
    
    5,254
    
    
    
    10,830
    
    
    
    10,399General and administrative
    
    
    3,281
    
    
    
    3,078
    
    
    
    6,633
    
    
    
    5,824Financing related costs
    
    
    213
    
    
    
    198
    
    
    
    459
    
    
    
    653Non-interest expense
    
    
    8,607
    
    
    
    8,530
    
    
    
    17,922
    
    
    
    16,876Income before income taxes
    
    
    8,559
    
    
    
    8,740
    
    
    
    16,868
    
    
    
    16,565Income taxes
    
    
    3,381
    
    
    
    3,452
    
    
    
    6,663
    
    
    
    6,543Net income
    
    $
    5,178
    
    
    $
    5,288
    
    
    $
    10,205
    
    
    $
    10,022Basic earnings per share
    
    $
    0.43
    
    
    $
    0.45
    
    
    $
    0.85
    
    
    $
    0.85Diluted earnings per share
    
    $
    0.42
    
    
    $
    0.44
    
    
    $
    0.83
    
    
    $
    0.83Weighted average shares used in computing basic
earnings per share
    
    
    12,106,482
    
    
    
    11,780,018
    
    
    
    12,030,155
    
    
    
    11,740,989Weighted average shares used in computing
diluted earnings per share
    
    
    12,341,182
    
    
    
    12,092,752
    
    
    
    12,297,097
    
    
    
    12,074,066
  3




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##### Table of Contents



MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Consolidated Statements of Stockholders Equity
 Additional
    
    
    Stock
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Stock
    
    
    Paid-In
    
    
    Subscription
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Receivable
    
    
    Income
    
    
    Earnings
    
    
    Equity(Dollars in thousands)(Unaudited)Balance, December 31, 2005
    
    
    11,755,225
    
    
    $
    117
    
    
    $
    77,186
    
    
    $
    (25
    )
    
    $
    3,520
    
    
    $
    31,811
    
    
    $
    112,609Issuance of common stock
    
    
    15,739
    
    
    
    
    
    
    
    343
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343Exercise of stock options
    
    
    156,494
    
    
    
    2
    
    
    
    688
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    690Tax benefit on stock options
exercised
    
    
    
    
    
    
    
    
    
    
    1,048
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,048Stock option compensation recognized
    
    
    
    
    
    
    
    
    
    
    1,090
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,090Payment of receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Restricted stock grant
    
    
    102,801
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Restricted stock compensation
recognized
    
    
    
    
    
    
    
    
    
    
    1,495
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,495Unrealized gains (losses) on cash
flow
hedge derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,628
    )
    
    
    
    
    
    
    (1,628
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,634
    
    
    
    18,634Balance, December 31, 2006
    
    
    12,030,259
    
    
    $
    120
    
    
    $
    81,850
    
    
    $
    (18
    )
    
    $
    1,892
    
    
    $
    50,445
    
    
    $
    134,289Issuance of common stock
    
    
    7,568
    
    
    
    
    
    
    
    153
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    153Exercise of stock options
    
    
    180,869
    
    
    
    2
    
    
    
    1,181
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,183Tax benefit on stock options
exercised
    
    
    
    
    
    
    
    
    
    
    1,118
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,118Stock option compensation recognized
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260Payment of receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Restricted stock grant
    
    
    61,271
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Restricted stock compensation
recognized
    
    
    
    
    
    
    
    
    
    
    372
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    372Unrealized gains (losses) on cash
flow
hedge derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    63Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,205
    
    
    
    10,205Balance, June 30, 2007
    
    
    12,279,967
    
    
    $
    123
    
    
    $
    84,934
    
    
    $
    (11
    )
    
    $
    1,955
    
    
    $
    60,650
    
    
    $
    147,651
  4




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##### Table of Contents



MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Six Months Ended June 30,2007
    
    
    2006(In thousands)(Unaudited)Cash flows from operating activities:Net income
    
    $
    10,205
    
    
    $
    10,022Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,099
    
    
    
    2,333Excess tax benefits from stock-based payment
arrangements
    
    
    (1,118
    )
    
    
    (759
    )Amortization of deferred (gain) on cash flow hedge
derivatives
    
    
    (1,290
    )
    
    
    (756
    )Provision for credit losses
    
    
    6,860
    
    
    
    4,014Deferred taxes
    
    
    (1,858
    )
    
    
    (1,011
    )Amortization of deferred initial direct costs and fees
    
    
    7,752
    
    
    
    6,293Deferred initial direct costs and fees
    
    
    (10,140
    )
    
    
    (8,764
    )Effect of changes in other operating items:Other assets
    
    
    (4,162
    )
    
    
    1,076Other liabilities
    
    
    1,373
    
    
    
    4,317Net cash provided by (used by) operating
activities
    
    
    9,721
    
    
    
    16,765Cash flows from investing activities:Purchases of equipment for direct financing lease contracts
and funds used to originate loans
    
    
    (206,933
    )
    
    
    (179,920
    )Principal collections on leases and loans
    
    
    149,235
    
    
    
    128,483Security deposits collected, net of returns
    
    
    (1,002
    )
    
    
    (339
    )Acquisitions of property and equipment
    
    
    (538
    )
    
    
    (358
    )Change in restricted cash
    
    
    (6,956
    )
    
    
    (6,670
    )Net cash used in investing activities
    
    
    (66,194
    )
    
    
    (58,804
    )Cash flows from financing activities:Issuances of common stock, net of terminations
    
    
    160
    
    
    
    162Exercise of stock options
    
    
    1,183
    
    
    
    525Excess tax benefits from stock-based payment arrangements
    
    
    1,118
    
    
    
    759Debt issuance costs
    
    
    (40
    )
    
    
    (148
    )Term securitization repayments
    
    
    (141,715
    )
    
    
    (124,258
    )Secured bank facility advances
    
    
    102,233
    
    
    
    74,995Secured bank facility repayments
    
    
    (94,044
    )
    
    
    (66,936
    )Warehouse advances
    
    
    176,690
    
    
    
    131,807Warehouse repayments
    
    
    (7,715
    )
    
    
    (6,171
    )Net cash provided by (used by) financing
activities
    
    
    37,870
    
    
    
    10,735Net increase (decrease) in cash and cash equivalents
    
    
    (18,603
    )
    
    
    (31,304
    )Cash and cash equivalents, beginning of period
    
    
    26,663
    
    
    
    34,472Cash and cash equivalents, end of period
    
    $
    8,060
    
    
    $
    3,168Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    16,234
    
    
    $
    11,324Cash paid for income taxes
    
    
    9,535
    
    
    
    5,558
  5




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##### Table of Contents



MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  Organization
 Description
    NOTE 2  Basis of Financial Statement Presentation and Critical Accounting Policies
  Use of Estimates.
 Income recognition.
 Fee income.
  Insurance and other income
 6




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##### Table of Contents



Initial direct costs and fees. Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases.
 Lease residual values.
 Allowance for credit losses.
  Securitizations. Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities
 Derivatives. Accounting for Derivative Instruments and Hedging Activities
 Stock-Based Compensation. Share-Based Payments
 7




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##### Table of Contents



Income taxes. Accounting for Income Taxes.
  Accounting for
Uncertainty in Income Taxes,
  NOTE 3  Net Investment in Leases and Loans
  June 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Minimum lease payments receivable
    
    $
    852,223
    
    
    $
    797,697Estimated residual value of equipment
    
    
    50,198
    
    
    
    48,188Unearned lease income, net of initial direct
costs and fees deferred
    
    
    (137,123
    )
    
    
    (128,252
    )Security deposits
    
    
    (16,522
    )
    
    
    (17,524
    )Loans, net of unamortized deferred fees and costs
    
    
    8,192
    
    
    
    2,003Allowance for credit losses
    
    
    (8,829
    )
    
    
    (8,201
    )$
    748,139
    
    
    $
    693,911
   8




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##### Table of Contents



Minimum LeasePayments
    
    
    IncomeReceivable
    
    
    AmortizationJune 30, 2007
    
    
    June 30, 2007(Dollars in thousands)Period Ending December 31:2007
    
    $
    179,227
    
    
    $
    38,8342008
    
    
    292,300
    
    
    
    53,3762009
    
    
    201,579
    
    
    
    28,5922010
    
    
    115,184
    
    
    
    12,4962011
    
    
    55,866
    
    
    
    3,623Thereafter
    
    
    8,067
    
    
    
    202$
    852,223
    
    
    $
    137,123
 NOTE 4  Other Assets
  June 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Derivative collateral
    
    $
    2,179
    
    
    $
    3,099Accrued fees receivable
    
    
    2,851
    
    
    
    2,687Deferred transaction costs
    
    
    1,402
    
    
    
    2,427Factoring receivables
    
    
    182
    
    
    
    1,760Prepaid expenses
    
    
    1,062
    
    
    
    871Other
    
    
    3,575
    
    
    
    2,186$
    11,251
    
    
    $
    13,030
  NOTE 5  Derivative Financial Instruments
 Accounting for
Derivative Instruments and Hedging Activities
   9




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##### Table of Contents



For Active Agreements:Inception Date
    
    August, 2006
    
    August, 2006
    
    July, 2004Commencement Date
    
    October, 2007
    
    October, 2008
    
    July, 2004(Dollars in thousands)Notional amount
    
    $
    200,000
    
    
    $
    100,000
    
    
    $
    21,488For active agreements:Fair value recorded in other assets (liabilities)June 30, 2007
    
    $
    102
    
    
    $
    4
    
    
    $
    132December 31, 2006
    
    $
    (983
    )
    
    $
    (624
    )
    
    $
    456Unrealized gains (losses), net of tax, recorded
in equityJune 30, 2007
    
    $
    62
    
    
    $
    2
    
    
    $
    80December 31, 2006
    
    $
    (591
    )
    
    $
    (375
    )
    
    $
    274
 For Terminated Agreements:Inception Date
    
    June/September, 2005
    
    October/December, 2004Commencement Date
    
    September, 2006
    
    August, 2005Termination Date
    
    September, 2006
    
    August, 2005(Dollars in thousands)Notional amount
    
    $
    225,000
    
    
    $
    250,000Realized gain at termination
    
    $
    3,732
    
    
    $
    3,151Deferred gain, net of tax, recorded in equityJune 30, 2007
    
    $
    1,391
    
    
    $
    421December 31, 2006
    
    $
    1,900
    
    
    $
    680Amortization recognized as increase
(decrease) in interest expenseSix months ended June 20, 2007
    
    $
    (857
    )
    
    $
    (433
    )Twelve months ended December 31, 2006
    
    $
    (573
    )
    
    $
    (1,334
    )Expected amortization during next 12 months
as increase (decrease) in interest expense
    
    $
    (1,224
    )
    
    $
    (530
    )
   10




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##### Table of Contents



NOTE 6  Comprehensive Income
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands)Net income, as reported
    
    $
    5,178
    
    
    $
    5,288
    
    
    $
    10,205
    
    
    $
    10,022Other comprehensive income:Changes in fair values of cash flow hedge derivatives
    
    
    2,301
    
    
    
    1,159
    
    
    
    1,388
    
    
    
    2,724Amortization of deferred loss (gain) on cash flow hedge
derivatives
    
    
    (607
    )
    
    
    (354
    )
    
    
    (1,290
    )
    
    
    (756
    )Tax effect
    
    
    (666
    )
    
    
    (320
    )
    
    
    (35
    )
    
    
    (783
    )Total other comprehensive income
    
    
    1,028
    
    
    
    485
    
    
    
    63
    
    
    
    1,185Comprehensive income
    
    $
    6,206
    
    
    $
    5,773
    
    
    $
    10,268
    
    
    $
    11,207
 NOTE 7  Earnings Per Common Share
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands, except per-share data)Net income
    
    $
    5,178
    
    
    $
    5,288
    
    
    $
    10,205
    
    
    $
    10,022Weighted average common shares outstanding used in
computing basic EPS
    
    
    12,106,482
    
    
    
    11,780,018
    
    
    
    12,030,155
    
    
    
    11,740,989Effect of dilutive securities:Stock options and restricted stock
    
    
    234,700
    
    
    
    312,734
    
    
    
    266,942
    
    
    
    333,077Adjusted weighted average common shares used in
computing diluted EPS
    
    
    12,341,182
    
    
    
    12,092,752
    
    
    
    12,297,097
    
    
    
    12,074,066Net earnings per common share:Basic
    
    $
    0.43
    
    
    $
    0.45
    
    
    $
    0.85
    
    
    $
    0.85Diluted
    
    $
    0.42
    
    
    $
    0.44
    
    
    $
    0.83
    
    
    $
    0.83
   NOTE 8  Stock-Based Compensation
  11




---



##### Table of Contents



Stock Options
     Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Risk-free interest rate
    
    
    4.86
    %
    
    
    5.04
    %
    
    
    4.51
    %
    
    
    4.84
    %Expected life (years)
    
    
    4
    
    
    
    5
    
    
    
    5
    
    
    
    5Expected volatility
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   WeightedAverageOptions
    
    Shares
    
    Exercise PriceOutstanding at January 1, 2007
    
    
    918,977
    
    
    $
    11.61Granted
    
    
    104,425
    
    
    
    20.73Exercised
    
    
    (180,869
    )
    
    
    6.54Forfeited
    
    
    (15,200
    )
    
    
    20.35Expired
    
    
    
    
    
    
    Outstanding at June 30, 2007
    
    
    827,333
    
    
    $
    13.71
   12




---



##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    Aggregate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AggregateAverage
    
    
    Weighted
    
    
    Intrinsic
    
    
    
    
    
    
    Weighted
    
    
    Weighted
    
    
    IntrinsicRange of
    
    Number
    
    
    Remaining
    
    
    Average
    
    
    Value
    
    
    Number
    
    
    Average Remaining
    
    
    Average
    
    
    ValueExercise Prices
    
    Outstanding
    
    
    Life (Years)
    
    
    Exercise Price
    
    
    (In thousands)
    
    
    Exercisable
    
    
    Life (Years)
    
    
    Exercise Price
    
    
    (In thousands)$2.81 - 3.39
    
    
    158,361
    
    
    
    4.2
    
    
    $
    3.31
    
    
    $
    2,850
    
    
    
    158,361
    
    
    
    4.2
    
    
    $
    3.31
    
    
    $
    2,850$4.23 - 5.01
    
    
    58,641
    
    
    
    2.8
    
    
    
    4.34
    
    
    
    995
    
    
    
    58,641
    
    
    
    2.8
    
    
    
    4.34
    
    
    
    995$10.18
    
    
    106,645
    
    
    
    4.4
    
    
    
    10.18
    
    
    
    1,187
    
    
    
    106,645
    
    
    
    4.4
    
    
    
    10.18
    
    
    
    1,187$14.00-16.02
    
    
    97,000
    
    
    
    6.6
    
    
    
    14.71
    
    
    
    640
    
    
    
    66,525
    
    
    
    6.5
    
    
    
    14.59
    
    
    
    447$17.52-22.25
    
    
    406,686
    
    
    
    6.0
    
    
    
    19.79
    
    
    
    618
    
    
    
    149,364
    
    
    
    5.7
    
    
    
    19.07
    
    
    
    335827,333
    
    
    
    5.3
    
    
    
    13.71
    
    
    $
    6,290
    
    
    
    539,536
    
    
    
    4.8
    
    
    
    10.53
    
    
    $
    5,814
   Restricted Stock Awards
     13




---



##### Table of Contents



WeightedAverageGrant-DateShares
    
    Fair ValueNon-vested restricted stock at January 1, 2007
    
    
    207,731
    
    
    $
    19.57Granted
    
    
    72,752
    
    
    
    20.74Vested
    
    
    (43,617
    )
    
    
    17.21Forfeited
    
    
    (11,481
    )
    
    
    19.51Non-vested restricted stock at June 30, 2007
    
    
    225,385
    
    
    
    20.41
     
 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 filed with the Securities and Exchange Commission This discussion contains certain
statements of a forward-looking nature that involve risks and uncertainties.
 FORWARD-LOOKING STATEMENTS
  
    
    availability, terms and deployment of capital;
    
    general volatility of the securitization and capital markets;
    
    changes in our industry, interest rates or the general economy;
    
    changes in our business strategy;
    
    the degree and nature of our competition;
 14




---



##### Table of Contents




    
    availability of qualified personnel; and
    
    the factors set forth in the section captioned Risk Factors in our
Form 10-K filed with the Securities and Exchange Commission.
  Overview
     Six MonthsEndedJune 30,
    
    As of or For the Year Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Number of sales account executives
    
    
    97
    
    
    
    100
    
    
    
    103
    
    
    
    100
    
    
    
    84
    
    
    
    67Number of originating
sources(1)
    
    
    1,308
    
    
    
    1,295
    
    
    
    1,295
    
    
    
    1,244
    
    
    
    1,147
    
    
    
    929
 
 (1)
    
    Monthly average of origination sources generating lease volume   15




---



##### Table of Contents



Accounting for Derivative Instruments and
Hedging Activities
 Critical Accounting Policies
  Income recognition.
    16




---



##### Table of Contents



Initial direct costs and fees. Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases.
 Lease residual values.
 Allowance for credit losses.
  Securitizations. Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 Derivatives. Accounting for Derivative Instruments and Hedging Activities
 Stock-Based Compensation. Share-Based Payments
 17




---



##### Table of Contents



Income taxes.
 Accounting for
Uncertainty in Income Taxes,
  RESULTS OF OPERATIONS
 Comparison of the Three Months Ended June 30, 2007 and 2006
 Net income.
   18




---



##### Table of Contents



Three Months Ended June 30,2007
    
    
    2006(Dollars in thousands)Interest income
    
    $
    22,151
    
    
    $
    18,549Fee income
    
    
    5,186
    
    
    
    5,097Interest and fee income
    
    
    27,337
    
    
    
    23,646Interest expense
    
    
    8,256
    
    
    
    6,006Net interest and fee income
    
    $
    19,081
    
    
    $
    17,640Average total finance receivables (1)
    
    $
    717,893
    
    
    $
    591,905Percent of average total finance receivables:Interest income
    
    
    12.34
    %
    
    
    12.54
    %Fee income
    
    
    2.89
    
    
    
    3.44Interest and fee income
    
    
    15.23
    
    
    
    15.98Interest expense
    
    
    4.60
    
    
    
    4.06Net interest and fee margin
    
    
    10.63
    %
    
    
    11.92
    %
 
 (1)
    
    Total finance receivables includes net investment in direct financing leases, loans
and factoring receivables. For the calculations above, the effects of (1) the allowance for
credit losses, and (2) initial direct costs and fees deferred, are excluded. Net interest and fee margin.
     19




---



##### Table of Contents



Insurance and other income.
 Salaries and benefits expense.
 General and administrative expense.
 Financing related costs.
 Provision for credit losses.
 Provision for income taxes.
 20




---



##### Table of Contents



Comparison of the Six Months Ended June 30, 2007 and 2006
 Net income.
    Six Months Ended June 30,2007
    
    
    2006(Dollars in thousands)Interest income
    
    $
    43,588
    
    
    $
    36,368Fee income
    
    
    10,801
    
    
    
    10,004Interest and fee income
    
    
    54,389
    
    
    
    46,372Interest expense
    
    
    15,967
    
    
    
    11,501Net interest and fee income
    
    $
    38,422
    
    
    $
    34,871Average total finance receivables (1)
    
    $
    704,573
    
    
    $
    580,077Percent of average total finance receivables:Interest income
    
    
    12.37
    %
    
    
    12.54
    %Fee income
    
    
    3.07
    
    
    
    3.45Interest and fee income
    
    
    15.44
    
    
    
    15.99Interest expense
    
    
    4.53
    
    
    
    3.97Net interest and fee margin
    
    
    10.91
    %
    
    
    12.02
    %
 
 (1)
    
    Total finance receivables includes net investment in direct financing leases, loans
and factoring receivables. For the calculations above, the effects of (1) the allowance for
credit losses, and (2) initial direct costs and fees deferred, are excluded. Net interest and fee margin.
   21




---



##### Table of Contents



Insurance and other income.
 Salaries and benefits expense.
 General and administrative expense.
 Financing related costs.
 22




---



##### Table of Contents



Provision for credit losses.
 Provision for income taxes.
 FINANCE RECEIVABLES AND ASSET QUALITY
   Year EndedThree Months Ended June 30,
    
    
    Six Months Ended June 30,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2006(Dollars in thousands)Allowance for credit losses, beginning of period
    
    $
    8,568
    
    
    $
    7,904
    
    
    $
    8,201
    
    
    $
    7,813
    
    
    $
    7,813Provision for credit losses
    
    
    3,468
    
    
    
    1,599
    
    
    
    6,860
    
    
    
    4,014
    
    
    
    9,934Charge-offs, net
    
    
    (3,207
    )
    
    
    (2,133
    )
    
    
    (6,232
    )
    
    
    (4,457
    )
    
    
    (9,546
    )Allowance for credit losses, end of period
    
    $
    8,829
    
    
    $
    7,370
    
    
    $
    8,829
    
    
    $
    7,370
    
    
    $
    8,201Annualized net charge-offs to average total finance receivables
(1)
    
    
    1.79
    %
    
    
    1.44
    %
    
    
    1.77
    %
    
    
    1.54
    %
    
    
    1.56
    %Allowance for credit losses to total finance receivables, end of
period (1)
    
    
    1.21
    %
    
    
    1.21
    %
    
    
    1.21
    %
    
    
    1.21
    %
    
    
    1.21
    %Average net investment in total finance receivables (1)
    
    $
    717,893
    
    
    $
    591,905
    
    
    $
    704,573
    
    
    $
    580,077
    
    
    $
    611,348Net investment in total finance receivables, end of period
(1)
    
    $
    730,507
    
    
    $
    609,359
    
    
    $
    730,507
    
    
    $
    609,359
    
    
    $
    679,621Delinquencies 60 days or more past due
    
    $
    5,824
    
    
    $
    3,867
    
    
    $
    5,824
    
    
    $
    3,867
    
    
    $
    5,715Delinquencies 60 days or more past due (2)
    
    
    0.68
    %
    
    
    0.54
    %
    
    
    0.68
    %
    
    
    0.54
    %
    
    
    0.71
    %Allowance for credit losses to delinquent accounts 60 days or
more past due
    
    
    151.60
    %
    
    
    190.59
    %
    
    
    151.60
    %
    
    
    190.59
    %
    
    
    143.50
    %Non-accrual leases and loans
    
    $
    2,449
    
    
    $
    1,648
    
    
    $
    2,449
    
    
    $
    1,648
    
    
    $
    2,250Renegotiated leases and loans
    
    $
    4,347
    
    
    $
    4,346
    
    
    $
    4,347
    
    
    $
    4,346
    
    
    $
    3,819
 
 (1)
    
    Net investment in total finance receivables includes net investment in direct
financing leases, loans and factoring receivables. For purposes of asset quality and
allowance calculations the effects of (1) the allowance for credit losses, and (2) initial
direct costs and fees deferred, are excluded.(2)
    
    Calculated as a percent of minimum lease payments receivable for leases and as a
percent of principal outstanding for loans and factoring receivables.   23




---



##### Table of Contents



Residual Performance
   LIQUIDITY AND CAPITAL RESOURCES
  
    
    borrowings under a revolving bank facility;
    
    financing of leases in CP conduit warehouse facilities;
    
    financing of leases through term note securitizations; and
    
    equity and debt securities with third party investors.
     Cash and Cash Equivalents.
  24




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##### Table of Contents



Borrowings.
 For the Six Months Ended June 30, 2007
    
    
    As of June 30, 2007MaximumMaximum
    
    
    Month End
    
    
    Average
    
    
    Weighted
    
    
    
    
    
    
    WeightedFacility
    
    
    Amount
    
    
    Amount
    
    
    Average
    
    
    Amounts
    
    
    Average
    
    
    UnusedAmount
    
    
    Outstanding
    
    
    Outstanding
    
    
    Coupon
    
    
    Outstanding
    
    
    Coupon
    
    
    Capacity(Dollars in thousands)Revolving bank facility(1)
    
    $
    40,000
    
    
    $
    10,380
    
    
    $
    3,262
    
    
    
    8.22
    %
    
    $
    8,189
    
    
    
    7.42
    %
    
    $
    31,811CP conduit warehouse

facilities(1)
    
    
    225,000
    
    
    
    168,974
    
    
    
    76,916
    
    
    
    5.75
    %
    
    
    168,974
    
    
    
    5.64
    %
    
    
    56,026Term note securitizations(2)
    
    
    
    
    
    
    
    
    
    
    543,781
    
    
    
    4.69
    %
    
    
    474,608
    
    
    
    4.74
    %
    
    
    $
    265,000
    
    
    
    
    
    
    $
    623,959
    
    
    
    4.84
    %
    
    $
    651,771
    
    
    
    5.01
    %
    
    $
    87,837
 
 (1)
    
    Subject to lease eligibility and borrowing base formula.(2)
    
    Our term note securitizations are one-time fundings that pay down over time without
any ability for us to draw down additional amounts. Revolving Bank Facility
  CP Conduit Warehouse Facilities
    Term Note Securitizations
  25




---



##### Table of Contents



Other
  26




---



##### Table of Contents



Contractual Obligations
  Contractual Obligations as of June 30, 2007Operating
    
    
    Leased
    
    
    CapitalBorrowings
    
    
    Interest(1)
    
    
    Leases
    
    
    Facilities
    
    
    Leases
    
    
    Total(Dollars in thousands)2007
    
    $
    292,141
    
    
    $
    11,137
    
    
    $
    4
    
    
    $
    868
    
    
    $
    41
    
    
    $
    304,1912008
    
    
    183,608
    
    
    
    14,102
    
    
    
    3
    
    
    
    1,548
    
    
    
    45
    
    
    
    199,3062009
    
    
    106,252
    
    
    
    6,482
    
    
    
    
    
    
    
    1,394
    
    
    
    11
    
    
    
    114,1392010
    
    
    51,981
    
    
    
    2,325
    
    
    
    
    
    
    
    1,323
    
    
    
    3
    
    
    
    55,6322011
    
    
    17,583
    
    
    
    380
    
    
    
    
    
    
    
    1,223
    
    
    
    
    
    
    
    19,186Thereafter
    
    
    206
    
    
    
    3
    
    
    
    
    
    
    
    2,193
    
    
    
    
    
    
    
    2,402Total
    
    $
    651,771
    
    
    $
    34,429
    
    
    $
    7
    
    
    $
    8,549
    
    
    $
    100
    
    
    $
    694,856
 
 (1)
    
    Includes interest on term note securitizations only. Excludes interest on $177.2
million of revolving bank facilities and CP conduit warehouse facilities. MARKET INTEREST RATE RISK AND SENSITIVITY
      27




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##### Table of Contents



For Active Agreements:Inception Date
    
    August, 2006
    
    August, 2006
    
    July, 2004Commencement Date
    
    October, 2007
    
    October, 2008
    
    July, 2004(Dollars in thousands)Notional amount
    
    $
    200,000
    
    
    $
    100,000
    
    
    $
    21,488For active agreements:Fair value recorded in other assets (liabilities)June 30, 2007
    
    $
    102
    
    
    $
    4
    
    
    $
    132December 31, 2006
    
    $
    (983
    )
    
    $
    (624
    )
    
    $
    456Unrealized gains (losses), net of tax, recorded
in equityJune 30, 2007
    
    $
    62
    
    
    $
    2
    
    
    $
    80December 31, 2006
    
    $
    (591
    )
    
    $
    (375
    )
    
    $
    274
 For Terminated Agreements:Inception Date
    
    June/September, 2005
    
    October/December, 2004Commencement Date
    
    September, 2006
    
    August, 2005Termination Date
    
    September, 2006
    
    August, 2005(Dollars in thousands)Notional amount
    
    $
    225,000
    
    
    $
    250,000Realized gain at termination
    
    $
    3,732
    
    
    $
    3,151Deferred gain, net of tax, recorded in equityJune 30, 2007
    
    $
    1,391
    
    
    $
    421December 31, 2006
    
    $
    1,900
    
    
    $
    680Amortization recognized as increase
(decrease) in interest expenseSix months ended June 20, 2007
    
    $
    (857
    )
    
    $
    (433
    )Twelve months ended December 31, 2006
    
    $
    (573
    )
    
    $
    (1,334
    )Expected amortization during next 12 months
as increase (decrease) in interest expense
    
    $
    (1,224
    )
    
    $
    (530
    )
   28




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##### Table of Contents



Scheduled Maturities by Calendar YearTotal2011 &
    
    Carrying2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    Amount(Dollars in thousands)Debt:Fixed-rate debt
    
    $
    114,978
    
    
    $
    183,608
    
    
    $
    106,252
    
    
    $
    51,981
    
    
    $
    17,789
    
    
    $
    474,608Average fixed rate
    
    
    4.68
    %
    
    
    4.70
    %
    
    
    4.85
    %
    
    
    5.08
    %
    
    
    5.49
    %
    
    
    4.80
    %Variable-rate debt
    
    $
    177,163
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    177,163Average variable rate
    
    
    5.73
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.73
    %
    RECENTLY ISSUED ACCOUNTING STANDARDS
 Accounting for Certain Hybrid Financial Instruments
 Accounting for Uncertainty in
Income Taxes Accounting for Income Taxes
 Fair Value Measurements
 29




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##### Table of Contents



, Financial
Statements  Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in
Current Year Financial Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
      30




---



##### Table of Contents



PART II. Other Information
 
 Item 1.
    
    Legal Proceedings
 We are party to various legal proceedings, which include claims and litigation arising in
the ordinary course of business. In the opinion of management, these actions will not have
a material adverse effect on our business, financial condition or results of operations.
 
 Item 1A.
    
    Risk Factors
 There have been no material changes in the risk factors from those disclosed in the
Companys Annual Report on Form 10-K for the year ended December 31, 2006.
 
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 None
 
 Item 3.
    
    Defaults Upon Senior Securities
 None
 
 Item 4.
    
    Submission of Matters To A Vote Of Security Holders
 On May 25, 2007, the Registrant held its Annual Meeting of Shareholders (the Meeting).
At the Meeting, the shareholders re-elected six existing Directors to serve until the 2008
Annual Meeting of Shareholders and until their successors are elected and qualified. The
vote on each Director is set forth below:
 Name
    
    For
    
    WithheldDaniel P. Dyer
    
    11,368,313 shares
    
    129,346 sharesJohn J. Calamari
    
    11,067,968 shares
    
    429,691 sharesLawrence J. DeAngelo
    
    11,380,014 shares
    
    117,645 sharesEdward Grzedzinski
    
    11,380,014 shares
    
    117,645 sharesKevin J. McGinty
    
    11,348,778 shares
    
    148,881 sharesJames W. Wert
    
    11,348,778 shares
    
    148,881 shares
 
 Item 5.
    
    Other Information
 None
 
 Item 6.
    
    Exhibits
 ExhibitNumber
    
    Description31.1
    
    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)
 31




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##### Table of Contents



SIGNATURES
  MARLIN BUSINESS SERVICES CORP.(Registrant)By:
    
    /s/ Daniel P. Dyer
    
    Chief Executive OfficerDaniel P. Dyer
    
    (Chief Executive Officer)By:
    
    /s/ Lynne C. WilsonLynne C. Wilson
    
    Chief Financial Officer & Senior Vice President(Principal Financial Officer)
  32