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




---



##### 



MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES
 Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 2007
 TABLE OF CONTENTS
  
 Page No.Part I  Financial Information
    
    
    2-30Item 1 Financial Statements
    
    
    2-15Consolidated Balance Sheets at September 30, 2007 (unaudited) and December 31, 2006
    
    
    2Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006 (unaudited)
    
    
    3Consolidated Statements of Stockholders Equity at September 30, 2007 (unaudited) and December 31, 2006
    
    
    4Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006 (unaudited)
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-15Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15-31Item 3 Quantitative and Qualitative Disclosure about Market Risk
    
    
    31Item 4 Controls and Procedures
    
    
    31Part II  Other Information
    
    
    32Item 1 Legal Proceedings
    
    
    32Item 1A Risk Factors
    
    
    32Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3 Defaults upon Senior Securities
    
    
    32Item 4 Submission of Matters to a Vote of Security Holders
    
    
    32Item 5 Other Information
    
    
    32Item 6 Exhibits
    
    
    32Signatures
    
    
    33CertificationsRULE 13a-14(a) CERTIFICATION OF CEORULE 13a-14(a) CERTIFICATION OF CFORULE 13a-14(b) CERTIFICATION OF CEO AND CFO
  1




---



##### Table of Contents



PART I. Financial Information
 
 Item 1. Financial Statements
 MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 September 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands, except per-share data)(Unaudited)ASSETSCash and cash equivalents
    
    $
    10,964
    
    
    $
    26,663Restricted cash
    
    
    68,634
    
    
    
    57,705Net investment in leases and loans
    
    
    755,928
    
    
    
    693,911Property and equipment, net
    
    
    3,281
    
    
    
    3,430Property tax receivables
    
    
    852
    
    
    
    257Fair value of cash flow hedge derivatives
    
    
    43
    
    
    
    456Other assets
    
    
    11,855
    
    
    
    13,030Total assets
    
    $
    851,557
    
    
    $
    795,452LIABILITIES AND STOCKHOLDERS EQUITYRevolving and term secured borrowings
    
    $
    659,561
    
    
    $
    616,322Other liabilities:Fair value of cash flow hedge derivatives
    
    
    4,172
    
    
    
    1,607Sales and property taxes payable
    
    
    9,804
    
    
    
    8,034Accounts payable and accrued expenses
    
    
    9,974
    
    
    
    12,269Deferred income tax liability
    
    
    17,613
    
    
    
    22,931Total liabilities
    
    
    701,124
    
    
    
    661,163Commitments and contingenciesStockholders equity:Common Stock, $0.01 par value; 75,000,000 shares
authorized; 12,288,036 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
    
    
    85,645
    
    
    
    81,850Stock subscription receivable
    
    
    (7
    )
    
    
    (18
    )Accumulated other comprehensive income (expense)
    
    
    (1,006
    )
    
    
    1,892Retained earnings
    
    
    65,678
    
    
    
    50,445Total stockholders equity
    
    
    150,433
    
    
    
    134,289Total liabilities and stockholders equity
    
    $
    851,557
    
    
    $
    795,452
  2




---



##### Table of Contents



MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands, except per-share data)(Unaudited)Income:Interest income
    
    $
    22,622
    
    
    $
    19,629
    
    
    $
    66,210
    
    
    $
    55,996Fee income
    
    
    5,685
    
    
    
    5,241
    
    
    
    16,486
    
    
    
    15,245Interest and fee income
    
    
    28,307
    
    
    
    24,870
    
    
    
    82,696
    
    
    
    71,241Interest expense
    
    
    8,768
    
    
    
    6,888
    
    
    
    24,735
    
    
    
    18,389Net interest and fee income
    
    
    19,539
    
    
    
    17,982
    
    
    
    57,961
    
    
    
    52,852Provision for credit losses
    
    
    3,966
    
    
    
    3,082
    
    
    
    10,826
    
    
    
    7,096Net interest and fee income after provision for
credit losses
    
    
    15,573
    
    
    
    14,900
    
    
    
    47,135
    
    
    
    45,756Insurance and other income
    
    
    1,659
    
    
    
    1,365
    
    
    
    4,888
    
    
    
    3,949Operating income
    
    
    17,232
    
    
    
    16,265
    
    
    
    52,023
    
    
    
    49,705Non-interest expenseSalaries and benefits
    
    
    5,257
    
    
    
    5,171
    
    
    
    16,087
    
    
    
    15,570General and administrative
    
    
    3,447
    
    
    
    2,868
    
    
    
    10,080
    
    
    
    8,692Financing related costs
    
    
    202
    
    
    
    408
    
    
    
    662
    
    
    
    1,060Non-interest expense
    
    
    8,906
    
    
    
    8,447
    
    
    
    26,829
    
    
    
    25,322Income before income taxes
    
    
    8,326
    
    
    
    7,818
    
    
    
    25,194
    
    
    
    24,383Income taxes
    
    
    3,298
    
    
    
    3,088
    
    
    
    9,961
    
    
    
    9,631Net income
    
    $
    5,028
    
    
    $
    4,730
    
    
    $
    15,233
    
    
    $
    14,752Basic earnings per share
    
    $
    0.41
    
    
    $
    0.40
    
    
    $
    1.26
    
    
    $
    1.25Diluted earnings per share
    
    $
    0.41
    
    
    $
    0.39
    
    
    $
    1.24
    
    
    $
    1.22Weighted average shares used in computing basic
earnings per share
    
    
    12,155,152
    
    
    
    11,838,677
    
    
    
    12,066,077
    
    
    
    11,755,028Weighted average shares used in computing
diluted earnings per share
    
    
    12,355,484
    
    
    
    12,154,889
    
    
    
    12,310,198
    
    
    
    12,114,655
  3




---



##### 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 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
    
    
    
    
    
    
    
    171
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171Exercise of stock options
    
    
    206,792
    
    
    
    2
    
    
    
    1,646
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,648Tax benefit on stock options
exercised
    
    
    
    
    
    
    
    
    
    
    1,197
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,197Stock option compensation recognized
    
    
    
    
    
    
    
    
    
    
    360
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    360Payment of receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    11Restricted stock grant
    
    
    43,417
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Restricted stock compensation
recognized
    
    
    
    
    
    
    
    
    
    
    421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421Unrealized losses on cash flow
hedge derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,898
    )
    
    
    
    
    
    
    (2,898
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,233
    
    
    
    15,233Balance, September 30, 2007
    
    
    12,288,036
    
    
    $
    123
    
    
    $
    85,645
    
    
    $
    (7
    )
    
    $
    (1,006
    )
    
    $
    65,678
    
    
    $
    150,433
  4




---



##### Table of Contents



MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Nine Months Ended September 30,2007

    
    2006(In thousands)(Unaudited)Cash flows from operating activities:Net income
    
    $
    15,233
    
    
    $
    14,752Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,148
    
    
    
    1,966Stock-based compensation
    
    
    781
    
    
    
    1,632Excess tax benefits from stock-based payment
arrangements
    
    
    (1,197
    )
    
    
    (960
    )Amortization of deferred gain on cash flow hedge
derivatives
    
    
    (1,826
    )
    
    
    (1,149
    )Provision for credit losses
    
    
    10,826
    
    
    
    7,096Deferred taxes
    
    
    (3,413
    )
    
    
    (870
    )Amortization of deferred initial direct costs and fees
    
    
    11,847
    
    
    
    9,677Deferred initial direct costs and fees
    
    
    (14,631
    )
    
    
    (13,817
    )Effect of changes in other operating items:Other assets
    
    
    658
    
    
    
    2,767Other liabilities
    
    
    (499
    )
    
    
    3,326Net cash provided by operating activities
    
    
    19,927
    
    
    
    24,420Cash flows from investing activities:Purchases of equipment for direct financing lease contracts
and funds used to originate loans
    
    
    (294,790
    )
    
    
    (281,882
    )Principal collections on leases and loans
    
    
    226,326
    
    
    
    195,384Security deposits collected, net of returns
    
    
    (1,595
    )
    
    
    (719
    )Acquisitions of property and equipment
    
    
    (773
    )
    
    
    (702
    )Change in restricted cash
    
    
    (10,929
    )
    
    
    (132,178
    )Net cash used in investing activities
    
    
    (81,761
    )
    
    
    (220,097
    )Cash flows from financing activities:Issuances of common stock, net of terminations
    
    
    182
    
    
    
    165Exercise of stock options
    
    
    1,648
    
    
    
    634Excess tax benefits from stock-based payment arrangements
    
    
    1,197
    
    
    
    960Debt issuance costs
    
    
    (131
    )
    
    
    (1,901
    )Term securitization advances
    
    
    
    
    
    
    380,182Term securitization repayments
    
    
    (204,180
    )
    
    
    (209,066
    )Secured bank facility advances
    
    
    160,652
    
    
    
    154,558Secured bank facility repayments
    
    
    (133,960
    )
    
    
    (130,168
    )Warehouse advances
    
    
    242,046
    
    
    
    217,168Warehouse repayments
    
    
    (21,319
    )
    
    
    (217,168
    )Net cash provided by financing activities
    
    
    46,135
    
    
    
    195,364Net decrease in cash and cash equivalents
    
    
    (15,699
    )
    
    
    (313
    )Cash and cash equivalents, beginning of period
    
    
    26,663
    
    
    
    34,472Cash and cash equivalents, end of period
    
    $
    10,964
    
    
    $
    34,159Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    25,230
    
    
    $
    18,132Cash paid for income taxes
    
    
    13,366
    
    
    
    8,161
  5




---



##### 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




---



##### 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




---



##### Table of Contents



Income taxes. Accounting for Income Taxes.
  Accounting for
Uncertainty in Income Taxes,
  NOTE 3  Net Investment in Leases and Loans
  September 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Minimum lease payments receivable
    
    $
    859,139
    
    
    $
    797,697Estimated residual value of equipment
    
    
    50,620
    
    
    
    48,188Unearned lease income, net of initial direct
costs and fees deferred
    
    
    (137,696
    )
    
    
    (128,252
    )Security deposits
    
    
    (15,929
    )
    
    
    (17,524
    )Loans, net of unamortized deferred fees and costs
    
    
    9,189
    
    
    
    2,003Allowance for credit losses
    
    
    (9,395
    )
    
    
    (8,201
    )$
    755,928
    
    
    $
    693,911
   8




---



##### Table of Contents



Minimum LeasePayments
    
    
    IncomeReceivable
    
    
    Amortization(Dollars in thousands)Period Ending December 31:2007
    
    $
    93,616
    
    
    $
    20,5482008
    
    
    318,474
    
    
    
    61,6532009
    
    
    226,653
    
    
    
    34,0852010
    
    
    135,664
    
    
    
    15,6642011
    
    
    69,175
    
    
    
    5,179Thereafter
    
    
    15,557
    
    
    
    567$
    859,139
    
    
    $
    137,696
 NOTE 4  Other Assets
  September 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Derivative collateral
    
    $
    4,195
    
    
    $
    3,099Accrued fees receivable
    
    
    3,046
    
    
    
    2,687Deferred transaction costs
    
    
    1,306
    
    
    
    2,427Factoring receivables
    
    
    95
    
    
    
    1,760Prepaid expenses
    
    
    654
    
    
    
    871Other
    
    
    2,559
    
    
    
    2,186$
    11,855
    
    
    $
    13,030
  NOTE 5  Revolving and Term Secured Borrowings
  Principal
    
    
    Interest(1)(Dollars in thousands)2007
    
    $
    269,538
    
    
    $
    10,5202008
    
    
    190,508
    
    
    
    13,2372009
    
    
    115,148
    
    
    
    6,1192010
    
    
    56,575
    
    
    
    2,2792011
    
    
    26,354
    
    
    
    400Thereafter
    
    
    1,438
    
    
    
    3Total
    
    $
    659,561
    
    
    $
    32,558
 
 (1)
    
    Includes interest on term note securitizations only. Excludes interest on $247.4
million of revolving bank facilities and CP conduit warehouse facilities.  9




---



##### Table of Contents



NOTE 6  Derivative Financial Instruments
 Accounting for Derivative Instruments and Hedging Activities
     For Active Agreements:Inception Date
    
    August, 2007
    
    August, 2006
    
    August, 2007
    
    August, 2006
    
    July, 2004Commencement Date
    
    October, 2007
    
    October, 2007
    
    October, 2008
    
    October, 2008
    
    July, 2004(Dollars in thousands)Notional amount
    
    $
    100,000
    
    
    $
    200,000
    
    
    $
    100,000
    
    
    $
    100,000
    
    
    $
    11,603For active agreements:Fair value recorded in other assets (liabilities)September 30, 2007
    
    $
    (275
    )
    
    $
    (2,104
    )
    
    $
    (572
    )
    
    $
    (1,221
    )
    
    $
    43December 31, 2006
    
    $
    
    
    
    $
    (983
    )
    
    $
    
    
    
    $
    (624
    )
    
    $
    456Unrealized gains (losses), net of tax, recorded
in equitySeptember 30, 2007
    
    $
    (166
    )
    
    $
    (1,271
    )
    
    $
    (346
    )
    
    $
    (737
    )
    
    $
    26December 31, 2006
    
    $
    
    
    
    $
    (591
    )
    
    $
    
    
    
    $
    (375
    )
    
    $
    274
 10




---



##### Table of Contents



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 equitySeptember 30, 2007
    
    $
    1,171
    
    
    $
    317December 31, 2006
    
    $
    1,900
    
    
    $
    680Amortization recognized as decrease in
interest expenseNine months ended September 30, 2007
    
    $
    (1,220
    )
    
    $
    (605
    )Twelve months ended December 31, 2006
    
    $
    (573
    )
    
    $
    (1,334
    )Expected amortization during next 12 months
as decrease in interest expense
    
    $
    (1,198
    )
    
    $
    (436
    )
   NOTE 7  Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands)Net income, as reported
    
    $
    5,028
    
    
    $
    4,730
    
    
    $
    15,233
    
    
    $
    14,752Other comprehensive income:Changes in fair values of cash flow hedge derivatives
    
    
    (4,366
    )
    
    
    (3,486
    )
    
    
    (2,978
    )
    
    
    (762
    )Amortization of deferred gain on cash flow hedge
derivatives
    
    
    (536
    )
    
    
    (393
    )
    
    
    (1,826
    )
    
    
    (1,149
    )Tax effect
    
    
    1,940
    
    
    
    1,544
    
    
    
    1,906
    
    
    
    761Total other comprehensive income
    
    
    (2,962
    )
    
    
    (2,335
    )
    
    
    (2,898
    )
    
    
    (1,150
    )Comprehensive income
    
    $
    2,066
    
    
    $
    2,395
    
    
    $
    12,335
    
    
    $
    13,602
 11




---



##### Table of Contents



NOTE 8  Earnings Per Common Share
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands, except per-share data)Net income
    
    $
    5,028
    
    
    $
    4,730
    
    
    $
    15,233
    
    
    $
    14,752Weighted average common shares outstanding used in
computing basic EPS
    
    
    12,155,152
    
    
    
    11,838,677
    
    
    
    12,066,077
    
    
    
    11,775,028Effect of dilutive securities:Stock options and restricted stock
    
    
    200,332
    
    
    
    316,212
    
    
    
    244,121
    
    
    
    339,627Adjusted weighted average common shares used in
computing diluted EPS
    
    
    12,355,484
    
    
    
    12,154,889
    
    
    
    12,310,198
    
    
    
    12,114,655Net earnings per common share:Basic
    
    $
    0.41
    
    
    $
    0.40
    
    
    $
    1.26
    
    
    $
    1.25Diluted
    
    $
    0.41
    
    
    $
    0.39
    
    
    $
    1.24
    
    
    $
    1.22
    NOTE 9  Stock-Based Compensation
  Stock Options
   12




---



##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Risk-free interest rate
    
    
    n/a
    
    
    
    n/a
    
    
    
    4.51
    %
    
    
    4.84
    %Expected life (years)
    
    
    n/a
    
    
    
    n/a
    
    
    
    5
    
    
    
    5Expected volatility
    
    
    n/a
    
    
    
    n/a
    
    
    
    35
    %
    
    
    35
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   WeightedAverageOptions
    
    Shares
    
    Exercise PriceOutstanding at January 1, 2007
    
    
    918,977
    
    
    $
    11.61Granted
    
    
    104,425
    
    
    
    20.73Exercised
    
    
    (206,792
    )
    
    
    7.97Forfeited
    
    
    (58,009
    )
    
    
    19.75Expired
    
    
    
    
    
    
    Outstanding at September 30, 2007
    
    
    758,601
    
    
    
    13.23
   13




---



##### 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
    
    
    157,761
    
    
    
    4.0
    
    
    $
    3.31
    
    
    $
    1,739
    
    
    
    157,761
    
    
    
    4.0
    
    
    $
    3.31
    
    
    $
    1,739$4.23 - 5.01
    
    
    58,641
    
    
    
    2.5
    
    
    
    4.34
    
    
    
    586
    
    
    
    58,641
    
    
    
    2.5
    
    
    
    4.34
    
    
    
    586$10.18
    
    
    106,645
    
    
    
    4.2
    
    
    
    10.18
    
    
    
    443
    
    
    
    106,645
    
    
    
    4.2
    
    
    
    10.18
    
    
    
    443$14.00-16.02
    
    
    95,125
    
    
    
    6.3
    
    
    
    14.72
    
    
    
    
    
    
    
    67,650
    
    
    
    6.3
    
    
    
    14.61
    
    
    
    $17.52-22.25
    
    
    340,429
    
    
    
    5.7
    
    
    
    19.90
    
    
    
    
    
    
    
    124,190
    
    
    
    5.5
    
    
    
    19.26
    
    
    
    758,601
    
    
    
    5.0
    
    
    
    13.23
    
    
    $
    2,768
    
    
    
    514,887
    
    
    
    4.5
    
    
    
    10.18
    
    
    $
    2,768
   Restricted Stock Awards
      WeightedAverageGrant-DateShares
    
    
    Fair ValueNon-vested restricted stock at January 1, 2007
    
    
    207,731
    
    
    $
    19.57Granted
    
    
    80,828
    
    
    
    20.71Vested
    
    
    (47,117
    )
    
    
    17.61Forfeited
    
    
    (37,411
    )
    
    
    19.08Non-vested restricted stock at September 30, 2007
    
    
    204,031
    
    
    
    20.56
 14




---



##### 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 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;
    
    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
  15




---



##### Table of Contents



Nine MonthsEndedSeptember 30,
    
    
    
    
    
    As of or For the Year Ended December 31,2007
    
    
    
    
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Number of sales account executives
    
    

    
    105
    

    
    
    
    
    
    100
    
    
    
    103
    
    
    
    100
    
    
    
    84
    
    
    
    67Number of originating
sources(1)
    
    

    
    1,266
    

    
    
    
    
    
    1,295
    
    
    
    1,295
    
    
    
    1,244
    
    
    
    1,147
    
    
    
    929
 
 (1)
    
    Monthly average of origination sources generating lease volume    16




---



##### Table of Contents



Accounting for Derivative Instruments and Hedging Activities
 Critical Accounting Policies
  Income recognition.
    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.
 17




---



##### Table of Contents



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
 Income taxes.
 Accounting for
Uncertainty in Income Taxes,
 18




---



##### Table of Contents



RESULTS OF OPERATIONS
 Comparison of the Three Months Ended September 30, 2007 and 2006
 Net income.
   Three Months Ended September 30,2007
    
    
    2006(Dollars in thousands)Interest income
    
    $
    22,622
    
    
    $
    19,629Fee income
    
    
    5,685
    
    
    
    5,241Interest and fee income
    
    
    28,307
    
    
    
    24,870Interest expense
    
    
    8,768
    
    
    
    6,888Net interest and fee income
    
    $
    19,539
    
    
    $
    17,982Average total finance receivables (1)
    
    $
    733,304
    
    
    $
    624,711Percent of average total finance receivables:Interest income
    
    
    12.34
    %
    
    
    12.57
    %Fee income
    
    
    3.10
    
    
    
    3.35Interest and fee income
    
    
    15.44
    
    
    
    15.92Interest expense
    
    
    4.78
    
    
    
    4.41Net interest and fee margin
    
    
    10.66
    %
    
    
    11.51
    %
 
 (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.Net interest and fee income increased $1.5 million, or 8.3%, to $19.5
million for the three months ended September 30, 2007 from $18.0 million for the three months ended
September 30, 2006. The annualized net interest and fee margin decreased 85 basis points to
10.66% in the three-month period ended September 30, 2007 from 11.51% for the same period in 2006.Interest income, net of amortized initial direct costs and fees, increased $3.0 million, or 15.3%,
to $22.6 million for the three-month period ended September 30, 2007 from $19.6 million for the
three-month period ended September 30, 2006. The increase in interest income was due principally to
a 17.4% growth in average total finance receivables, which increased $108.6 million to $733.3
million at September 30, 2007 from $624.7 million at September 30, 2006. The weighted average
implicit interest rate on new leases originated
 19




---



##### Table of Contents



Insurance and other income.
 Salaries and benefits expense.
 General and administrative expense.
 20




---



##### Table of Contents



Financing related costs.
 Provision for credit losses.
 Provision for income taxes.
 Comparison of the Nine Months Ended September 30, 2007 and 2006
 Net income.
    Nine Months Ended September 30,2007
    
    
    2006(Dollars in thousands)Interest income
    
    $
    66,210
    
    
    $
    55,996Fee income
    
    
    16,486
    
    
    
    15,245Interest and fee income
    
    
    82,696
    
    
    
    71,241Interest expense
    
    
    24,735
    
    
    
    18,389Net interest and fee income
    
    $
    57,961
    
    
    $
    52,852Average total finance receivables (1)
    
    $
    714,150
    
    
    $
    594,955Percent of average total finance receivables:Interest income
    
    
    12.36
    %
    
    
    12.55
    %Fee income
    
    
    3.08
    
    
    
    3.41Interest and fee income
    
    
    15.44
    
    
    
    15.96Interest expense
    
    
    4.62
    
    
    
    4.12Net interest and fee margin
    
    
    10.82
    %
    
    
    11.84
    %
 
 (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. 21




---



##### Table of Contents



Net interest and fee margin.
       Insurance and other income.
 Salaries and benefits expense.
 22




---



##### Table of Contents



General and administrative expense.
 Financing related costs.
 Provision for credit losses.
 Provision for income taxes.
 FINANCE RECEIVABLES AND ASSET QUALITY
  23




---



##### Table of Contents



Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Year EndedSeptember 30,
    
    
    Nine Months Ended September 30,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2006(Dollars in thousands)Allowance for credit losses, beginning of period
    
    $
    8,829
    
    
    $
    7,370
    
    
    $
    8,201
    
    
    $
    7,813
    
    
    $
    7,813Provision for credit losses
    
    
    3,966
    
    
    
    3,082
    
    
    
    10,826
    
    
    
    7,096
    
    
    
    9,934Charge-offs, net
    
    
    (3,400
    )
    
    
    (2,685
    )
    
    
    (9,632
    )
    
    
    (7,142
    )
    
    
    (9,546
    )Allowance for credit losses, end of period
    
    $
    9,395
    
    
    $
    7,767
    
    
    $
    9,395
    
    
    $
    7,767
    
    
    $
    8,201Annualized net charge-offs to average total finance receivables
(1)
    
    
    1.85
    %
    
    
    1.72
    %
    
    
    1.80
    %
    
    
    1.60
    %
    
    
    1.56
    %Allowance for credit losses to total finance receivables, end of
period (1)
    
    
    1.27
    %
    
    
    1.21
    %
    
    
    1.27
    %
    
    
    1.21
    %
    
    
    1.21
    %Average net investment in total finance receivables (1)
    
    $
    733,304
    
    
    $
    624,711
    
    
    $
    714,150
    
    
    $
    594,955
    
    
    $
    611,348Net investment in total finance receivables, end of period
(1)
    
    $
    738,373
    
    
    $
    642,419
    
    
    $
    738,373
    
    
    $
    642,419
    
    
    $
    679,621Delinquencies 60 days or more past due
    
    $
    7,951
    
    
    $
    4,411
    
    
    $
    7,951
    
    
    $
    4,411
    
    
    $
    5,715Delinquencies 60 days or more past due (2)
    
    
    0.91
    %
    
    
    0.58
    %
    
    
    0.91
    %
    
    
    0.58
    %
    
    
    0.71
    %Allowance for credit losses to delinquent accounts 60 days or
more past due(2)
    
    
    118.16
    %
    
    
    176.08
    %
    
    
    118.16
    %
    
    
    176.08
    %
    
    
    143.50
    %Non-accrual leases and loans
    
    $
    3,438
    
    
    $
    1,876
    
    
    $
    3,438
    
    
    $
    1,876
    
    
    $
    2,250Renegotiated leases and loans
    
    $
    5,042
    
    
    $
    3,859
    
    
    $
    5,042
    
    
    $
    3,859
    
    
    $
    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.   Residual Performance
   24




---



##### Table of Contents



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.
  Borrowings.
 For the Nine Months Ended September 30, 2007
    
    
    As of September 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
    
    
    $
    26,692
    
    
    $
    5,839
    
    
    
    7.84
    %
    
    $
    26,692
    
    
    
    7.70%
    
    
    $
    13,308CP conduit warehouse
facilities(1)
    
    
    300,000
    
    
    
    220,727
    
    
    
    116,893
    
    
    
    5.88
    %
    
    
    220,727
    
    
    
    6.03%
    
    
    
    79,273Term note securitizations(2)
    
    
    
    
    
    
    591,501
    
    
    
    510,277
    
    
    
    4.70
    %
    
    
    412,142
    
    
    
    4.76%
    
    
    
    $
    340,000
    
    
    
    
    
    
    $
    633,009
    
    
    
    4.95
    %
    
    $
    659,561
    
    
    
    5.30%
    
    
    $
    92,581
 
 (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. 25




---



##### Table of Contents



Revolving Bank Facility
  CP Conduit Warehouse Facilities
    Term Note Securitizations
   26




---



##### Table of Contents



Items
Subsequent to September 30, 2007
   Other
  Contractual Obligations
  27




---



##### Table of Contents



Contractual Obligations as of September 30, 2007Operating
    
    
    Leased
    
    
    CapitalBorrowings
    
    
    Interest(1)
    
    
    Leases
    
    
    Facilities
    
    
    Leases
    
    
    Total(Dollars in thousands)2007
    
    $
    269,538
    
    
    $
    10,520
    
    
    $
    2
    
    
    $
    434
    
    
    $
    20
    
    
    $
    280,5142008
    
    
    190,508
    
    
    
    13,237
    
    
    
    3
    
    
    
    1,548
    
    
    
    45
    
    
    
    205,3412009
    
    
    115,148
    
    
    
    6,119
    
    
    
    
    
    
    
    1,394
    
    
    
    11
    
    
    
    122,6722010
    
    
    56,575
    
    
    
    2,279
    
    
    
    
    
    
    
    1,323
    
    
    
    3
    
    
    
    60,1802011
    
    
    26,354
    
    
    
    400
    
    
    
    
    
    
    
    1,223
    
    
    
    
    
    
    
    27,977Thereafter
    
    
    1,438
    
    
    
    3
    
    
    
    
    
    
    
    2,193
    
    
    
    
    
    
    
    3,634Total
    
    $
    659,561
    
    
    $
    32,558
    
    
    $
    5
    
    
    $
    8,115
    
    
    $
    79
    
    
    $
    700,318
 
 (1)
    
    Includes interest on term note securitizations only. Excludes interest on $247.4
million of revolving bank facilities and CP conduit warehouse facilities. MARKET INTEREST RATE RISK AND SENSITIVITY
       28




---



##### Table of Contents



For Active Agreements:Inception Date
    
    August, 2007
    
    August, 2006
    
    August, 2007
    
    August, 2006
    
    July, 2004Commencement Date
    
    October, 2007
    
    October, 2007
    
    October, 2008
    
    October, 2008
    
    July, 2004(Dollars in thousands)Notional amount
    
    $
    100,000
    
    
    $
    200,000
    
    
    $
    100,000
    
    
    $
    100,000
    
    
    $
    11,603For active agreements:Fair value recorded in other assets (liabilities)September 30, 2007
    
    $
    (275
    )
    
    $
    (2,104
    )
    
    $
    (572
    )
    
    $
    (1,221
    )
    
    $
    43December 31, 2006
    
    $
    
    
    
    $
    (983
    )
    
    $
    
    
    
    $
    (624
    )
    
    $
    456Unrealized gains (losses), net of tax, recorded
in equitySeptember 30, 2007
    
    $
    (166
    )
    
    $
    (1,271
    )
    
    $
    (346
    )
    
    $
    (737
    )
    
    $
    26December 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 equitySeptember 30, 2007
    
    $
    1,171
    
    
    $
    317December 31, 2006
    
    $
    1,900
    
    
    $
    680Amortization recognized as decrease in
interest expenseNine months ended September 30, 2007
    
    $
    (1,220
    )
    
    $
    (605
    )Twelve months ended December 31, 2006
    
    $
    (573
    )
    
    $
    (1,334
    )Expected amortization during next 12 months
as decrease in interest expense
    
    $
    (1,198
    )
    
    $
    (436
    )
   29




---



##### Table of Contents



Scheduled Maturities by Calendar YearTotal2011 &
    
    Carrying2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    Amount(Dollars in thousands)Debt:Fixed-rate debt
    
    $
    22,119
    
    
    $
    190,508
    
    
    $
    115,147
    
    
    $
    56,575
    
    
    $
    27,793
    
    
    $
    412,142Average fixed rate
    
    
    4.33
    %
    
    
    4.73
    %
    
    
    4.83
    %
    
    
    4.97
    %
    
    
    5.49
    %
    
    
    4.82
    %Variable-rate debt
    
    $
    247,419
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    247,419Average variable rate
    
    
    6.21
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.21
    %
    RECENTLY ISSUED ACCOUNTING STANDARDS
 Accounting for Certain Hybrid Financial Instruments
- an amendment of SFAS No. 133 and No. 140.
 Accounting for Uncertainty in
Income Taxes Accounting for Income Taxes Definition of Settlement in FASB Interpretation No. 48
 Fair Value Measurements
 30




---



##### Table of Contents



, Financial
Statements  Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in
Current Year Financial Statements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
      31




---



##### Table of Contents



PART II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters To A Vote Of Security Holders
  
 Item 5. Other Information
  
 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)
 32




---



##### 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. Wilson
 Lynne
C. Wilson
    
    Chief Financial Officer & Senior Vice President
(Principal Financial Officer)
  33