##### 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, 2010
 Commission file number 000-50448
 MARLIN BUSINESS SERVICES CORP.
  Pennsylvania
    
    38-3686388(State of incorporation)
    
    (I.R.S. Employer Identification Number)
 
 
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES
 Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 2010
 TABLE OF CONTENTS
 Page No.Part I  Financial Information
    
    
    2Item 1 Condensed Consolidated Financial Statements (Unaudited)
    
    
    2Condensed Consolidated Balance Sheets at June 30, 2010 and December 31, 2009
    
    
    2Condensed Consolidated Statements of Operations for the three- and six-month periods ended
June 30, 2010 and 2009
    
    
    3Condensed Consolidated Statements of Stockholders Equity for the six-month period ended
June 30, 2010 and the year ended December 31, 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the six-month periods ended
June 30, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3 Quantitative and Qualitative Disclosure about Market Risk
    
    
    52Item 4 Controls and Procedures
    
    
    52Part II  Other Information
    
    
    52Item 1 Legal Proceedings
    
    
    52Item 1A Risk Factors
    
    
    52Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    53Item 3 Defaults upon Senior Securities
    
    
    53Item 4 [Removed and Reserved]
    
    
    53Item 5 Other Information
    
    
    53Item 6 Exhibits
    
    
    54Signatures
    
    
    55RULE 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)
 June 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands, except per-
share data)ASSETSCash and due from banks
    
    $
    991
    
    
    $
    1,372Interest-earning deposits with banks
    
    
    34,187
    
    
    
    35,685Total cash and cash equivalents
    
    
    35,178
    
    
    
    37,057Restricted interest-earning deposits with banks (includes $64.4 million and $57.1 million,
respectively, related to consolidated variable interest entities (VIEs))
    
    
    66,546
    
    
    
    63,400Securities available for sale (amortized cost of $1.5 million)
    
    
    1,533
    
    
    
    Net investment in leases and loans (includes $228.4 million and $238.0 million, respectively,
related to consolidated VIEs)
    
    
    380,660
    
    
    
    448,610Property and equipment, net
    
    
    2,228
    
    
    
    2,431Property tax receivables
    
    
    1,127
    
    
    
    1,135Other assets
    
    
    7,723
    
    
    
    13,170Total assets
    
    $
    494,995
    
    
    $
    565,803LIABILITIES AND STOCKHOLDERS EQUITYShort-term borrowings
    
    $
    
    
    
    $
    62,541Long-term borrowings (includes $202.9 million and $226.7 million, respectively, related to
consolidated VIEs)
    
    
    218,987
    
    
    
    244,445Deposits
    
    
    96,852
    
    
    
    80,288Other liabilities:Fair value of derivatives
    
    
    
    
    
    
    2,408Sales and property taxes payable
    
    
    6,342
    
    
    
    4,197Accounts payable and accrued expenses
    
    
    7,376
    
    
    
    7,649Net deferred income tax liability
    
    
    12,816
    
    
    
    16,037Total liabilities
    
    
    342,373
    
    
    
    417,565Commitments and contingencies (Note 6)Stockholders equity:Common Stock, $0.01 par value; 75,000,000 shares authorized;
12,861,656 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
    
    
    86,206
    
    
    
    84,674Stock subscription receivable
    
    
    (2
    )
    
    
    (3
    )Accumulated other comprehensive loss
    
    
    (205
    )
    
    
    (267
    )Retained earnings
    
    
    66,494
    
    
    
    63,706Total stockholders equity
    
    
    152,622
    
    
    
    148,238Total liabilities and stockholders equity
    
    $
    494,995
    
    
    $
    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 June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands, except per-share data)Interest income
    
    $
    11,994
    
    
    $
    17,281
    
    
    $
    24,823
    
    
    $
    36,353Fee income
    
    
    3,501
    
    
    
    4,380
    
    
    
    7,317
    
    
    
    9,414Interest and fee income
    
    
    15,495
    
    
    
    21,661
    
    
    
    32,140
    
    
    
    45,767Interest expense
    
    
    3,955
    
    
    
    7,444
    
    
    
    8,614
    
    
    
    15,276Net interest and fee income
    
    
    11,540
    
    
    
    14,217
    
    
    
    23,526
    
    
    
    30,491Provision for credit losses
    
    
    2,494
    
    
    
    6,793
    
    
    
    5,617
    
    
    
    15,542Net interest and fee income after provision for credit losses
    
    
    9,046
    
    
    
    7,424
    
    
    
    17,909
    
    
    
    14,949Other income:Insurance income
    
    
    987
    
    
    
    1,322
    
    
    
    2,144
    
    
    
    2,865Gain (loss) on derivatives
    
    
    (25
    )
    
    
    646
    
    
    
    (119
    )
    
    
    (661
    )Other income
    
    
    306
    
    
    
    387
    
    
    
    596
    
    
    
    795Other income
    
    
    1,268
    
    
    
    2,355
    
    
    
    2,621
    
    
    
    2,999Other expense:Salaries and benefits
    
    
    4,588
    
    
    
    5,057
    
    
    
    9,713
    
    
    
    10,942General and administrative
    
    
    3,073
    
    
    
    3,287
    
    
    
    6,118
    
    
    
    6,686Financing related costs
    
    
    155
    
    
    
    55
    
    
    
    302
    
    
    
    310Other expense
    
    
    7,816
    
    
    
    8,399
    
    
    
    16,133
    
    
    
    17,938Income before income taxes
    
    
    2,498
    
    
    
    1,380
    
    
    
    4,397
    
    
    
    10Income tax expense (benefit)
    
    
    947
    
    
    
    434
    
    
    
    1,609
    
    
    
    (57
    )Net income
    
    $
    1,551
    
    
    $
    946
    
    
    $
    2,788
    
    
    $
    67Basic earnings per share
    
    $
    0.12
    
    
    $
    0.08
    
    
    $
    0.22
    
    
    $
    0.01Diluted earnings per share
    
    $
    0.12
    
    
    $
    0.08
    
    
    $
    0.22
    
    
    $
    0.01Weighted average shares used in computing basic earnings
per share
    
    
    12,832,792
    
    
    
    12,593,514
    
    
    
    12,802,579
    
    
    
    12,456,874Weighted average shares used in computing diluted earnings
per share
    
    
    12,904,163
    
    
    
    12,603,305
    
    
    
    12,865,857
    
    
    
    12,465,312
   -3-




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##### Table of Contents



MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Stockholders Equity
 (Unaudited)
 AccumulatedAdditional
    
    
    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
    
    
    (58,170
    )
    
    
    (1
    )
    
    
    (527
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (528
    )Exercise of stock options
    
    
    35,864
    
    
    
    1
    
    
    
    161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162Tax benefit on stock options exercised
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72Stock option compensation recognized
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125Payment of receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Restricted stock grant
    
    
    94,548
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock compensation
recognized
    
    
    
    
    
    
    
    
    
    
    1,629
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,629Net change related to derivatives, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Net change in unrealized gain/loss on
securities available for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    12Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,788
    
    
    
    2,788Balance, June 30, 2010
    
    
    12,861,656
    
    
    $
    129
    
    
    $
    86,206
    
    
    $
    (2
    )
    
    $
    (205
    )
    
    $
    66,494
    
    
    $
    152,622
   -4-




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##### Table of Contents



MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 Six Months Ended June 30,2010
    
    
    2009(In thousands)Cash flows from operating activities:Net income
    
    $
    2,788
    
    
    $
    67Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    1,319
    
    
    
    1,230Stock-based compensation
    
    
    1,754
    
    
    
    624Excess tax benefits from stock-based payment arrangements
    
    
    (72
    )
    
    
    (4
    )Amortization of deferred net loss on cash flow hedge derivatives
    
    
    82
    
    
    
    66Change in fair value of derivatives
    
    
    (2,300
    )
    
    
    (1,195
    )Cash flow hedge gains reclassified from accumulated other comprehensive income
    
    
    
    
    
    
    (409
    )Provision for credit losses
    
    
    5,617
    
    
    
    15,542Net deferred income taxes
    
    
    (3,261
    )
    
    
    (2,137
    )Amortization of deferred initial direct costs and fees
    
    
    3,883
    
    
    
    6,739Deferred initial direct costs and fees
    
    
    (1,508
    )
    
    
    (1,598
    )Loss on equipment disposed
    
    
    1,229
    
    
    
    764Effect of changes in other operating items:Other assets
    
    
    5,483
    
    
    
    4,254Other liabilities
    
    
    1,960
    
    
    
    2,501Net cash provided by operating activities
    
    
    16,974
    
    
    
    26,444Cash flows from investing activities:Purchases of equipment for direct financing lease contracts and funds used to originate
loans
    
    
    (55,708
    )
    
    
    (52,091
    )Principal collections on leases and loans
    
    
    113,462
    
    
    
    143,629Security deposits collected, net of refunds
    
    
    (1,546
    )
    
    
    (1,571
    )Proceeds from the sale of equipment
    
    
    2,521
    
    
    
    2,613Acquisitions of property and equipment
    
    
    (299
    )
    
    
    (330
    )Change in restricted interest-earning deposits with banks
    
    
    (3,146
    )
    
    
    (1,539
    )Purchases of securities available for sale
    
    
    (1,513
    )
    
    
    Net cash provided by investing activities
    
    
    53,771
    
    
    
    90,711Cash flows from financing activities:Issuances of common stock
    
    
    74
    
    
    
    56Repurchases of common stock
    
    
    (528
    )
    
    
    (400
    )Exercise of stock options
    
    
    162
    
    
    
    26Excess tax benefits from stock-based payment arrangements
    
    
    72
    
    
    
    4Debt issuance costs
    
    
    (969
    )
    
    
    (397
    )Term securitization advances
    
    
    68,169
    
    
    
    Term securitization repayments
    
    
    (92,027
    )
    
    
    (113,314
    )Warehouse and bank facility advances
    
    
    4,425
    
    
    
    42,130Warehouse and bank facility repayments
    
    
    (68,566
    )
    
    
    (45,921
    )Increase in deposits
    
    
    16,564
    
    
    
    13,920Net cash used in financing activities
    
    
    (72,624
    )
    
    
    (103,896
    )Net increase (decrease) in total cash and cash equivalents
    
    
    (1,879
    )
    
    
    13,259Total cash and cash equivalents, beginning of period
    
    
    37,057
    
    
    
    40,270Total cash and cash equivalents, end of period
    
    $
    35,178
    
    
    $
    53,529Supplemental disclosures of cash flow information:Cash paid for interest on deposits and borrowings
    
    $
    7,901
    
    
    $
    14,621Cash paid (refunds received) for income taxes
    
    $
    (1,115
    )
    
    $
    273
   -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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##### Table of Contents



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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##### Table of Contents



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




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##### Table of Contents



Stock-based compensation.
   Income taxes.
    Earnings per share.
   -9-




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##### Table of Contents



NOTE 3  Net Investment in Leases and Loans
  June 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Minimum lease payments receivable
    
    $
    418,117
    
    
    $
    494,954Estimated residual value of equipment
    
    
    40,266
    
    
    
    43,928Unearned lease income, net of initial direct costs and fees deferred
    
    
    (64,752
    )
    
    
    (74,823
    )Security deposits
    
    
    (6,134
    )
    
    
    (7,681
    )Loans, including unamortized deferred fees and costs
    
    
    2,314
    
    
    
    4,425Allowance for credit losses
    
    
    (9,151
    )
    
    
    (12,193
    )$
    380,660
    
    
    $
    448,610
    Minimum LeasePayments
    
    
    IncomeReceivable
    
    
    Amortization(Dollars in thousands)Period Ending December 31,2010
    
    $
    109,652
    
    
    $
    20,7892011
    
    
    163,584
    
    
    
    25,9872012
    
    
    90,150
    
    
    
    12,1332013
    
    
    39,050
    
    
    
    4,5042014
    
    
    13,232
    
    
    
    1,233Thereafter
    
    
    2,449
    
    
    
    107$
    418,117
    
    
    $
    64,753
   -10-




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NOTE 4  Allowance for Credit Losses
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)
    
    
    (Dollars in thousands)Allowance for credit losses, beginning of period
    
    $
    10,253
    
    
    $
    15,309
    
    
    $
    12,193
    
    
    $
    15,283Charge-offs
    
    
    (4,438
    )
    
    
    (8,944
    )
    
    
    (10,364
    )
    
    
    (18,342
    )Recoveries
    
    
    842
    
    
    
    820
    
    
    
    1,705
    
    
    
    1,495Net charge-offs
    
    
    (3,596
    )
    
    
    (8,124
    )
    
    
    (8,659
    )
    
    
    (16,847
    )Provision for credit losses
    
    
    2,494
    
    
    
    6,793
    
    
    
    5,617
    
    
    
    15,542Allowance for credit losses, end of period
    
    $
    9,151
    
    
    $
    13,978
    
    
    $
    9,151
    
    
    $
    13,978
 Interagency Policy Statement on the Allowance for Loan
and Lease Losses
 NOTE 5  Other Assets
  June 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Accrued fees receivable
    
    $
    2,594
    
    
    $
    3,189Deferred transaction costs
    
    
    2,157
    
    
    
    1,893Prepaid expenses
    
    
    1,444
    
    
    
    1,360Income taxes receivable
    
    
    
    
    
    
    5,178Other
    
    
    1,528
    
    
    
    1,550$
    7,723
    
    
    $
    13,170
 NOTE 6  Commitments and Contingencies
   -11-




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NOTE 7  Short-term and Long-term Borrowings
   Principal
    
    
    Interest(1)(Dollars in thousands)Period Ending December 31,2010
    
    $
    74,775
    
    
    $
    6,2782011
    
    
    86,091
    
    
    
    3,8952012
    
    
    50,411
    
    
    
    1,2972013
    
    
    7,416
    
    
    
    572014
    
    
    287
    
    
    
    1Thereafter
    
    
    7
    
    
    
    Total
    
    $
    218,987
    
    
    $
    11,528
 
 (1)
    
    Interest on the variable-rate long-term loan facility is assumed at the June 30,
2010 rate for the remaining term.  NOTE 8  Deposits
  ScheduledMaturities(Dollars inthousands)Period Ending December 31,2010
    
    $
    18,9332011
    
    
    31,4282012
    
    
    24,2902013
    
    
    12,7002014
    
    
    6,302Thereafter
    
    
    3,199$
    96,852
   -12-




---



##### Table of Contents



NOTE 9  Derivative Financial Instruments
         -13-




---



##### Table of Contents



For Terminated Agreements:
 June/August,
    
    
    Various,
    
    
    August 2006/
    
    
    SeptemberInception Date
    
    2006/2007
    
    
    2007/2008
    
    
    2007
    
    
    2005October,
    
    
    October,
    
    
    October,
    
    
    September,Commencement Date
    
    2008
    
    
    2009
    
    
    2007
    
    
    2006June
    
    
    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:June 30, 2010
    
    $
    
    
    
    $
    
    
    
    $
    (222
    )
    
    $
    5December 31, 2009
    
    $
    
    
    
    $
    
    
    
    $
    (357
    )
    
    $
    90Amortization recognized as increase (decrease) in
interest expense:Six months ended June 30, 2010
    
    $
    
    
    
    $
    
    
    
    $
    223
    
    
    $
    (141
    )Year ended December 31, 2009
    
    $
    
    
    
    $
    
    
    
    $
    699
    
    
    $
    (514
    )Expected amortization during next 12 months as
increase (decrease) in interest expense
    
    $
    
    
    
    $
    
    
    
    $
    260
    
    
    $
    (9
    )
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)Change in fair value of derivative contracts
    
    $
    (25
    )
    
    $
    237
    
    
    $
    (119
    )
    
    $
    (1,070
    )Cash flow hedging gains on forecasted transactions
no longer probable of occurring(1)
    
    
    
    
    
    
    409
    
    
    
    
    
    
    
    409Gain (loss) on derivatives
    
    $
    (25
    )
    
    $
    646
    
    
    $
    (119
    )
    
    $
    (661
    )
 
 (1)
    
    Reclassified from accumulated other comprehensive income   -14-




---



##### 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, that 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.
   June 30, 2010
    
    
    December 31, 2009Fair Value Measurements Using
    
    
    Fair Value Measurements UsingLevel 1
    
    
    Level 2
    
    
    Level 1
    
    
    Level 2(Dollars in thousands)
    
    
    (Dollars in thousands)AssetsSecurities available for sale
    
    $
    1,533
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest-rate caps purchased
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    119LiabilitiesInterest-rate swaps
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,408
  Disclosures about the Fair Value of Financial Instruments
   -15-




---



##### Table of Contents



June 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(Dollars in thousands)AssetsCash and cash equivalents
    
    $
    35,178
    
    
    $
    35,178
    
    
    $
    37,057
    
    
    $
    37,057Restricted interest-earning deposits with banks
    
    
    66,546
    
    
    
    66,546
    
    
    
    63,400
    
    
    
    63,400Securities available for sale
    
    
    1,533
    
    
    
    1,533
    
    
    
    
    
    
    
    Loans
    
    
    2,101
    
    
    
    2,004
    
    
    
    4,026
    
    
    
    3,969Interest-rate caps purchased
    
    
    11
    
    
    
    11
    
    
    
    119
    
    
    
    119LiabilitiesShort-term borrowings
    
    
    
    
    
    
    
    
    
    
    62,541
    
    
    
    62,541Long-term borrowings
    
    
    218,987
    
    
    
    226,562
    
    
    
    244,445
    
    
    
    244,477Deposits
    
    
    96,852
    
    
    
    98,498
    
    
    
    80,288
    
    
    
    81,903Accounts payable and accrued
expenses (1)
    
    
    13,718
    
    
    
    13,718
    
    
    
    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
   -16-




---



##### 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
   -17-




---



##### Table of Contents



NOTE 11  Earnings Per Common Share (EPS)
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands, except per-share data)Net income
    
    $
    1,551
    
    
    $
    946
    
    
    $
    2,788
    
    
    $
    67Weighted average common shares outstanding
    
    
    11,899,847
    
    
    
    11,672,352
    
    
    
    11,854,044
    
    
    
    11,674,795Add: Unvested restricted stock awards
considered participating
securities
    
    
    932,945
    
    
    
    921,162
    
    
    
    948,535
    
    
    
    782,079Adjusted weighted average common shares used in computing
basic EPS
    
    
    12,832,792
    
    
    
    12,593,514
    
    
    
    12,802,579
    
    
    
    12,456,874Add: Effect of dilutive stock options
    
    
    71,371
    
    
    
    9,791
    
    
    
    63,278
    
    
    
    8,438Adjusted weighted average common shares used in computing
diluted EPS
    
    
    12,904,163
    
    
    
    12,603,305
    
    
    
    12,865,857
    
    
    
    12,465,312Net earnings per common share:Basic
    
    $
    0.12
    
    
    $
    0.08
    
    
    $
    0.22
    
    
    $
    0.01Diluted
    
    $
    0.12
    
    
    $
    0.08
    
    
    $
    0.22
    
    
    $
    0.01
    -18-




---



##### Table of Contents



NOTE 12  Comprehensive Income (Loss)
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)Net income, as reported
    
    $
    1,551
    
    
    $
    946
    
    
    $
    2,788
    
    
    $
    67Other comprehensive income:Reclassification of cash flow hedging gains on forecasted
transactions no longer probable of occurring
    
    
    
    
    
    
    (409
    )
    
    
    
    
    
    
    (409
    )Amortization of net deferred losses on
cash flow hedge derivatives
    
    
    40
    
    
    
    47
    
    
    
    82
    
    
    
    66Change in fair value of securities available for sale
    
    
    20
    
    
    
    
    
    
    
    20
    
    
    
    Tax effect
    
    
    (23
    )
    
    
    144
    
    
    
    (40
    )
    
    
    136Total other comprehensive income (loss)
    
    
    37
    
    
    
    (218
    )
    
    
    62
    
    
    
    (207
    )Comprehensive income (loss)
    
    $
    1,588
    
    
    $
    728
    
    
    $
    2,850
    
    
    $
    (140
    )
 NOTE 13  Stockholders Equity
 Stockholders Equity
    Regulatory Capital Requirements
    -19-




---



##### 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.
    
    
    29.43
    %
    
    $
    152,839
    
    
    
    4
    %
    
    $
    20,770
    
    
    
    5
    %
    
    $
    25,963Marlin Business Bank
    
    
    15.22
    %
    
    $
    17,890
    
    
    
    5
    %
    
    $
    5,877
    
    
    
    5
    %
    
    $
    5,877Tier 1 Risk-based CapitalMarlin Business Services Corp.
    
    
    36.61
    %
    
    $
    152,839
    
    
    
    4
    %
    
    $
    16,699
    
    
    
    6
    %
    
    $
    25,048Marlin Business Bank
    
    
    15.47
    %
    
    $
    17,890
    
    
    
    6
    %
    
    $
    6,940
    
    
    
    6
    %
    
    $
    6,940Total Risk-based CapitalMarlin Business Services Corp.
    
    
    37.87
    %
    
    $
    158,106
    
    
    
    8
    %
    
    $
    33,398
    
    
    
    10
    %
    
    $
    41,747Marlin Business Bank
    
    
    16.38
    %
    
    $
    18,942
    
    
    
    15
    %
    
    $
    17,351
    
    
    
    10
    %(1)
    
    $
    11,567
 
 (1)
    
    MBB is required to maintain well-capitalized status. In addition, MBB must
maintain a total risk-based capital ratio greater than 15%.  -20-




---



##### Table of Contents



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.
   Dividends
 NOTE 14  Stock-Based Compensation
    -21-




---



##### Table of Contents



Stock Options
       AssumptionRisk-free interest rate
    
    
    2.18
    %Expected life (years)
    
    
    5Expected volatility
    
    
    79
    %Expected dividends
    
    
    
    -22-




---



##### Table of Contents



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, June 30, 2010
    
    
    648,153
    
    
    
    9.99
     Options Outstanding
    
    
    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
    
    
    
    1.8
    
    
    $
    3.39
    
    
    $
    748
    
    
    
    85,925
    
    
    
    1.8
    
    
    $
    3.39
    
    
    $
    748$7.17 - 10.18
    
    
    354,528
    
    
    
    3.8
    
    
    
    9.43
    
    
    
    943
    
    
    
    177,541
    
    
    
    2.8
    
    
    
    9.58
    
    
    
    445$12.08 - 12.41
    
    
    145,612
    
    
    
    6.9
    
    
    
    12.40
    
    
    
    
    
    
    
    
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a$14.00 - 16.01
    
    
    39,984
    
    
    
    3.5
    
    
    
    14.33
    
    
    
    
    
    
    
    36,835
    
    
    
    3.5
    
    
    
    14.33
    
    
    
    $19.78 - 21.50
    
    
    22,104
    
    
    
    3.0
    
    
    
    20.80
    
    
    
    
    
    
    
    22,104
    
    
    
    3.0
    
    
    
    20.80
    
    
    
    648,153
    
    
    
    4.2
    
    
    
    9.99
    
    
    $
    1,691
    
    
    
    322,405
    
    
    
    2.6
    
    
    
    9.24
    
    
    $
    1,193
    -23-




---



##### Table of Contents



Restricted Stock Awards
      WeightedAverageGrant-DateNon-vested restricted stock
    
    Shares
    
    
    Fair ValueOutstanding at December 31, 2009
    
    
    1,023,403
    
    
    $
    7.74Granted
    
    
    105,290
    
    
    
    10.45Vested
    
    
    (175,753
    )
    
    
    8.06Forfeited
    
    
    (10,792
    )
    
    
    17.87Outstanding at June 30, 2010
    
    
    942,148
    
    
    
    7.87
     -24-




---



##### 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
     -25-




---



##### Table of Contents



Six MonthsEndedJune 30,
    
    
    As of or For the Year Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Number of sales account executives
    
    
    69
    
    
    
    38
    
    
    
    86
    
    
    
    118
    
    
    
    100
    
    
    
    103Number of originating sources(1)
    
    
    533
    
    
    
    465
    
    
    
    1,014
    
    
    
    1,246
    
    
    
    1,295
    
    
    
    1,295
 
 (1)
    
    Monthly average of origination sources generating lease volume       -26-




---



##### Table of Contents



Critical Accounting Policies
  Income recognition.
      -27-




---



##### Table of Contents



Initial direct costs and fees. .
 Lease residual values.
 Allowance for credit losses.
  Securitizations.
 Derivatives.
  -28-




---



##### Table of Contents



Stock-based compensation.
   Income taxes.
  -29-




---



##### Table of Contents



RESULTS OF OPERATIONS
 Comparison of the Three-Month Periods Ended June 30, 2010 and June 30, 2009
 Net income.
       -30-




---



##### Table of Contents



Average balances and net interest margin.
 Three Months Ended June 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
    
    $
    39,903
    
    
    $
    9
    
    
    
    0.09
    %
    
    $
    50,528
    
    
    $
    38
    
    
    
    0.30
    %Restricted interest-earning deposits with banks
    
    
    65,075
    
    
    
    19
    
    
    
    0.12
    
    
    
    68,364
    
    
    
    79
    
    
    
    0.46Securities available for sale
    
    
    1,255
    
    
    
    13
    
    
    
    4.25
    
    
    
    
    
    
    
    
    
    
    
    Net investment in leases(3)
    
    
    393,248
    
    
    
    11,876
    
    
    
    12.08
    
    
    
    577,493
    
    
    
    16,897
    
    
    
    11.70Loans receivable(3)
    
    
    2,658
    
    
    
    77
    
    
    
    11.64
    
    
    
    9,115
    
    
    
    267
    
    
    
    11.72Total interest-earning assets
    
    
    502,139
    
    
    
    11,994
    
    
    
    9.55
    
    
    
    705,500
    
    
    
    17,281
    
    
    
    9.80Non-interest-earning assets:Cash and due from banks
    
    
    1,886
    
    
    
    
    
    
    
    
    
    
    
    2,279Property and equipment, net
    
    
    2,280
    
    
    
    
    
    
    
    
    
    
    
    2,899Property tax receivables
    
    
    3,603
    
    
    
    
    
    
    
    
    
    
    
    5,122Other assets(4)
    
    
    6,607
    
    
    
    
    
    
    
    
    
    
    
    10,223Total non-interest-earning assets
    
    
    14,376
    
    
    
    
    
    
    
    
    
    
    
    20,523Total assets
    
    $
    516,515
    
    
    
    
    
    
    
    
    
    
    $
    726,023Interest-bearing liabilities:Short-term borrowings(5)
    
    $
    
    
    
    $
    19
    
    
    
    
    %
    
    $
    107,639
    
    
    $
    1,482
    
    
    
    5.51
    %Long-term borrowings(5)
    
    
    243,171
    
    
    
    3,279
    
    
    
    5.39
    
    
    
    357,165
    
    
    
    5,264
    
    
    
    5.90Deposits
    
    
    93,166
    
    
    
    657
    
    
    
    2.82
    
    
    
    74,391
    
    
    
    698
    
    
    
    3.75Total interest-bearing liabilities
    
    
    336,337
    
    
    
    3,955
    
    
    
    4.70
    
    
    
    539,195
    
    
    
    7,444
    
    
    
    5.52Non-interest-bearing liabilities:Fair value of derivatives
    
    
    572
    
    
    
    
    
    
    
    
    
    
    
    10,793Sales and property taxes payable
    
    
    7,149
    
    
    
    
    
    
    
    
    
    
    
    9,738Accounts payable and accrued expenses
    
    
    6,158
    
    
    
    
    
    
    
    
    
    
    
    5,202Net deferred income tax liability
    
    
    14,680
    
    
    
    
    
    
    
    
    
    
    
    14,313Total non-interest-bearing liabilities
    
    
    28,559
    
    
    
    
    
    
    
    
    
    
    
    40,046Total liabilities
    
    
    364,896
    
    
    
    
    
    
    
    
    
    
    
    579,241Stockholders equity
    
    
    151,619
    
    
    
    
    
    
    
    
    
    
    
    146,782Total liabilities and stockholders
equity
    
    $
    516,515
    
    
    
    
    
    
    
    
    
    
    $
    726,023Net interest income
    
    
    
    
    
    $
    8,039
    
    
    
    
    
    
    
    
    
    
    $
    9,837Interest rate spread(6)
    
    
    
    
    
    
    
    
    
    
    4.85
    %
    
    
    
    
    
    
    
    
    
    
    4.28
    %Net interest margin(7)
    
    
    
    
    
    
    
    
    
    
    6.40
    %
    
    
    
    
    
    
    
    
    
    
    5.58
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    149.30
    %
    
    
    
    
    
    
    
    
    
    
    130.84
    %
 
 (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.  -31-




---



##### Table of Contents



Three Months Ended June 30, 2010 Compared ToThree Months Ended June 30, 2009Increase (Decrease) Due To:(Dollars in thousands)Volume(1)
    
    
    Rate(1)
    
    
    TotalInterest income:Interest-earning deposits with banks
    
    $
    (7
    )
    
    $
    (22
    )
    
    $
    (29
    )Restricted interest-earning deposits with banks
    
    
    (4
    )
    
    
    (56
    )
    
    
    (60
    )Securities available for sale
    
    
    13
    
    
    
    
    
    
    
    13Net investment in leases
    
    
    (5,548
    )
    
    
    527
    
    
    
    (5,021
    )Loans receivable
    
    
    (188
    )
    
    
    (2
    )
    
    
    (190
    )Total interest income
    
    
    (4,868
    )
    
    
    (419
    )
    
    
    (5,287
    )Interest expense:Short-term borrowings
    
    
    (741
    )
    
    
    (722
    )
    
    
    (1,463
    )Long-term borrowings
    
    
    (1,567
    )
    
    
    (418
    )
    
    
    (1,985
    )Deposits
    
    
    154
    
    
    
    (195
    )
    
    
    (41
    )Total interest expense
    
    
    (2,503
    )
    
    
    (986
    )
    
    
    (3,489
    )Net interest income
    
    
    (3,113
    )
    
    
    1,315
    
    
    
    (1,798
    )
 
 (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.  -32-




---



##### Table of Contents



Net interest and fee margin.
 Three Months Ended June 30,2010
    
    
    2009(Dollars in thousands)Interest income
    
    $
    11,994
    
    
    $
    17,281Fee income
    
    
    3,501
    
    
    
    4,380Interest and fee income
    
    
    15,495
    
    
    
    21,661Interest expense
    
    
    3,955
    
    
    
    7,444Net interest and fee income
    
    
    11,540
    
    
    
    14,217Average total finance receivables(1)
    
    $
    395,906
    
    
    $
    586,608Percent of average total finance receivables:Interest income
    
    
    12.12
    %
    
    
    11.78
    %Fee income
    
    
    3.54
    
    
    
    2.99Interest and fee income
    
    
    15.66
    
    
    
    14.77Interest expense
    
    
    4.00
    
    
    
    5.08Net interest and fee margin
    
    
    11.66
    %
    
    
    9.69
    %
 
 (1)
    
    Total finance receivables include net investment in direct financing leases and
loans. For the calculations above, the effects of (1) the allowance for credit losses and (2)
initial direct costs and fees deferred are excluded.     -33-




---



##### Table of Contents



Insurance income.
 Other income.
 Gain (loss) on derivatives.
    Salaries and benefits expense.
  -34-




---



##### Table of Contents



General and administrative expense.
 Financing related costs.
 Provision for credit losses.
  Provision for income taxes.
  -35-




---



##### Table of Contents



Comparison of the Six-Month Periods Ended June 30, 2010 and June 30, 2009
 Net income.
       -36-




---



##### Table of Contents



Average balances and net interest margin.
 Six Months Ended June 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
    
    $
    37,622
    
    
    $
    13
    
    
    
    0.07
    %
    
    $
    43,543
    
    
    $
    96
    
    
    
    0.44
    %Restricted interest-earning deposits with banks
    
    
    64,061
    
    
    
    31
    
    
    
    0.10
    
    
    
    67,919
    
    
    
    220
    
    
    
    0.65Securities available for sale
    
    
    628
    
    
    
    13
    
    
    
    4.25
    
    
    
    
    
    
    
    
    
    
    
    Net investment in leases(3)
    
    
    410,332
    
    
    
    24,572
    
    
    
    11.98
    
    
    
    605,903
    
    
    
    35,436
    
    
    
    11.70Loans receivable(3)
    
    
    3,209
    
    
    
    194
    
    
    
    12.11
    
    
    
    10,185
    
    
    
    601
    
    
    
    11.80Total interest-earning assets
    
    
    515,852
    
    
    
    24,823
    
    
    
    9.62
    
    
    
    727,550
    
    
    
    36,353
    
    
    
    9.99Non-interest-earning assets:Cash and due from banks
    
    
    1,861
    
    
    
    
    
    
    
    
    
    
    
    1,965Property and equipment, net
    
    
    2,322
    
    
    
    
    
    
    
    
    
    
    
    2,927Property tax receivables
    
    
    2,542
    
    
    
    
    
    
    
    
    
    
    
    3,837Other assets(4)
    
    
    6,611
    
    
    
    
    
    
    
    
    
    
    
    11,371Total non-interest-earning assets
    
    
    13,336
    
    
    
    
    
    
    
    
    
    
    
    20,100Total assets
    
    $
    529,188
    
    
    
    
    
    
    
    
    
    
    $
    747,650Interest-bearing liabilities:Short-term borrowings(5)
    
    $
    14,427
    
    
    $
    344
    
    
    
    4.77
    %
    
    $
    107,804
    
    
    $
    2,647
    
    
    
    4.91
    %Long-term borrowings(5)
    
    
    249,391
    
    
    
    6,984
    
    
    
    5.60
    
    
    
    384,104
    
    
    
    11,283
    
    
    
    5.87Deposits
    
    
    87,297
    
    
    
    1,286
    
    
    
    2.95
    
    
    
    70,815
    
    
    
    1,346
    
    
    
    3.80Total interest-bearing liabilities
    
    
    351,115
    
    
    
    8,614
    
    
    
    4.91
    
    
    
    562,723
    
    
    
    15,276
    
    
    
    5.43Non-interest-bearing liabilities:Fair value of derivatives
    
    
    1,184
    
    
    
    
    
    
    
    
    
    
    
    10,889Sales and property taxes payable
    
    
    5,459
    
    
    
    
    
    
    
    
    
    
    
    7,618Accounts payable and accrued expenses
    
    
    5,639
    
    
    
    
    
    
    
    
    
    
    
    4,429Net deferred income tax liability
    
    
    15,315
    
    
    
    
    
    
    
    
    
    
    
    15,004Total non-interest-bearing liabilities
    
    
    27,597
    
    
    
    
    
    
    
    
    
    
    
    37,940Total liabilities
    
    
    378,712
    
    
    
    
    
    
    
    
    
    
    
    600,663Stockholders equity
    
    
    150,476
    
    
    
    
    
    
    
    
    
    
    
    146,987Total liabilities and stockholders
equity
    
    $
    529,188
    
    
    
    
    
    
    
    
    
    
    $
    747,650Net interest income
    
    
    
    
    
    $
    16,209
    
    
    
    
    
    
    
    
    
    
    $
    21,077Interest rate spread(6)
    
    
    
    
    
    
    
    
    
    
    4.71
    %
    
    
    
    
    
    
    
    
    
    
    4.56
    %Net interest margin(7)
    
    
    
    
    
    
    
    
    
    
    6.28
    %
    
    
    
    
    
    
    
    
    
    
    5.79
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    146.92
    %
    
    
    
    
    
    
    
    
    
    
    129.29
    %
 
 (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.  -37-




---



##### Table of Contents



Six Months Ended June 30, 2010 Compared ToSix Months Ended June 30, 2009Increase (Decrease) Due To:(Dollars in thousands)Volume(1)
    
    
    Rate(1)
    
    
    TotalInterest income:Interest-earning deposits with banks
    
    $
    (12
    )
    
    $
    (71
    )
    
    $
    (83
    )Restricted interest-earning deposits with banks
    
    
    (12
    )
    
    
    (177
    )
    
    
    (189
    )Securities available for sale
    
    
    13
    
    
    
    
    
    
    
    13Net investment in leases
    
    
    (11,692
    )
    
    
    828
    
    
    
    (10,864
    )Loans receivable
    
    
    (422
    )
    
    
    15
    
    
    
    (407
    )Total interest income
    
    
    (10,231
    )
    
    
    (1,299
    )
    
    
    (11,530
    )Interest expense:Short-term borrowings
    
    
    (2,230
    )
    
    
    (73
    )
    
    
    (2,303
    )Long-term borrowings
    
    
    (3,794
    )
    
    
    (505
    )
    
    
    (4,299
    )Deposits
    
    
    278
    
    
    
    (338
    )
    
    
    (60
    )Total interest expense
    
    
    (5,304
    )
    
    
    (1,358
    )
    
    
    (6,662
    )Net interest income
    
    
    (6,535
    )
    
    
    1,667
    
    
    
    (4,868
    )
 
 (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.  -38-




---



##### Table of Contents



Net interest and fee margin.
 Six Months Ended June 30,2010
    
    
    2009(Dollars in thousands)Interest income
    
    $
    24,823
    
    
    $
    36,353Fee income
    
    
    7,317
    
    
    
    9,414Interest and fee income
    
    
    32,140
    
    
    
    45,767Interest expense
    
    
    8,614
    
    
    
    15,276Net interest and fee income
    
    
    23,526
    
    
    
    30,491Average total finance receivables (1)
    
    $
    413,541
    
    
    $
    616,089Percent of average total finance receivables:Interest income
    
    
    12.01
    %
    
    
    11.80
    %Fee income
    
    
    3.54
    
    
    
    3.06Interest and fee income
    
    
    15.55
    
    
    
    14.86Interest expense
    
    
    4.17
    
    
    
    4.96Net interest and fee margin
    
    
    11.38
    %
    
    
    9.90
    %
 
 (1)
    
    Total finance receivables include net investment in direct financing leases and
loans. For the calculations above, the effects of (1) the allowance for credit losses and (2)
initial direct costs and fees deferred are excluded.     -39-




---



##### Table of Contents



Insurance income.
 Other income.
 Gain (loss) on derivatives.
    Salaries and benefits expense.
  -40-




---



##### Table of Contents



General and administrative expense.
 Financing related costs.
 Provision for credit losses.
  Provision for income taxes. .
 FINANCE RECEIVABLES AND ASSET QUALITY
   -41-




---



##### Table of Contents



Three Months Ended
    
    
    Six Months Ended
    
    
    Year EndedJune 30,
    
    
    June 30,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2009(Dollars in thousands)Allowance for credit losses, beginning of
period
    
    $
    10,253
    
    
    $
    15,309
    
    
    $
    12,193
    
    
    $
    15,283
    
    
    $
    15,283Charge-offs
    
    
    (4,438
    )
    
    
    (8,944
    )
    
    
    (10,364
    )
    
    
    (18,342
    )
    
    
    (33,575
    )Recoveries
    
    
    842
    
    
    
    820
    
    
    
    1,705
    
    
    
    1,495
    
    
    
    3,296Net charge-offs
    
    
    (3,596
    )
    
    
    (8,124
    )
    
    
    (8,659
    )
    
    
    (16,847
    )
    
    
    (30,279
    )Provision for credit losses
    
    
    2,494
    
    
    
    6,793
    
    
    
    5,617
    
    
    
    15,542
    
    
    
    27,189Allowance for credit losses, end of period (1)
    
    $
    9,151
    
    
    $
    13,978
    
    
    $
    9,151
    
    
    $
    13,978
    
    
    $
    12,193Annualized net charge-offs to average total
finance receivables (2)
    
    
    3.63
    %
    
    
    5.54
    %
    
    
    4.19
    %
    
    
    5.47
    %
    
    
    5.42
    %Allowance for credit losses to total
finance receivables, end of period (2)
    
    
    2.40
    %
    
    
    2.52
    %
    
    
    2.40
    %
    
    
    2.52
    %
    
    
    2.71
    %Average total finance receivables (2)
    
    $
    395,906
    
    
    $
    586,608
    
    
    $
    413,541
    
    
    $
    616,089
    
    
    $
    558,311Total finance receivables, end of period (2)
    
    $
    381,977
    
    
    $
    554,712
    
    
    $
    381,977
    
    
    $
    554,712
    
    
    $
    450,595Delinquencies greater than 60 days past due
    
    $
    5,202
    
    
    $
    14,579
    
    
    $
    5,202
    
    
    $
    14,579
    
    
    $
    8,334Delinquencies greater than 60 days past due (3)
    
    
    1.24
    %
    
    
    2.32
    %
    
    
    1.24
    %
    
    
    2.32
    %
    
    
    1.67
    %Allowance for credit losses to delinquent
accounts greater than 60 days past due (3)
    
    
    175.91
    %
    
    
    95.88
    %
    
    
    175.91
    %
    
    
    95.88
    %
    
    
    146.30
    %Non-accrual leases and loans, end of period
    
    $
    2,819
    
    
    $
    7,650
    
    
    $
    2,819
    
    
    $
    7,650
    
    
    $
    4,557Renegotiated leases and loans, end of period
    
    $
    3,024
    
    
    $
    6,567
    
    
    $
    3,024
    
    
    $
    6,567
    
    
    $
    4,521Accruing leases and loans past due
90 days or more
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest income included on non-accrual
leases and loans (4)
    
    $
    34
    
    
    $
    105
    
    
    $
    112
    
    
    $
    316
    
    
    $
    493Interest income excluded on non-accrual
leases and loans (5)
    
    $
    39
    
    
    $
    168
    
    
    $
    42
    
    
    $
    367
    
    
    $
    103
 
 (1)
    
    The allowance for credit losses allocated to loans at June 30, 2010, June 30, 2009
and December 31, 2009, was $0.2 million, $0.9 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 (1) the
allowance for credit losses and (2) 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.  -42-




---



##### Table of Contents



www.marlincorp.com
  Interagency Policy Statement on the Allowance for Loan
and Lease Losses
 RESIDUAL PERFORMANCE
     -43-




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
   
    
    borrowings under a revolving, short-term or long-term bank facility;
    
    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.
        -44-




---



##### Table of Contents



Total Cash and Cash Equivalents.
 Restricted Interest-earning Deposits with Banks
  -45-




---



##### Table of Contents



Borrowings.
 For the Six Months Ended June 30, 2010
    
    
    As of June 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
    
    
    
    14,427
    
    
    
    3.26
    %
    
    
    
    
    
    
    
    %
    
    
    Term note securitizations(3)
    
    
    
    
    
    
    265,883
    
    
    
    230,944
    
    
    
    5.07
    %
    
    
    202,857
    
    
    
    4.72
    %
    
    
    Long-term loan facility
    
    
    75,000
    
    
    
    20,413
    
    
    
    18,447
    
    
    
    5.50
    %
    
    
    16,130
    
    
    
    5.50
    %
    
    
    58,870$
    76,600
    
    
    
    
    
    
    $
    263,818
    
    
    
    5.01
    %
    
    $
    218,987
    
    
    
    4.78
    %
    
    $
    60,470
 
 (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 June 30, 2010, MBB
had $8.2 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 (Federal Reserve Advances)
  CP Conduit Warehouse Facility
  Term Note Securitizations
    -46-




---



##### Table of Contents



Long-term Loan Facility
  Financial Covenants
    -47-




---



##### Table of Contents



Actual(1)
    
    
    RequirementTangible net worth minimum
    
    $
    157.7 million
    
    
    $
    82.2 millionDebt-to-equity ratio maximum
    
    
    2.1 to 1
    
    
    
    10.0 to 1Maximum servicer senior leverage ratio
    
    
    1.63 to 1
    
    
    
    4.0 to 1Four-quarter rolling average interest coverage ratio minimum
    
    
    1.78 to 1
    
    
    
    1.50 to 1Maximum portfolio delinquency ratio
    
    
    1.20
    %
    
    
    3.50
    %Maximum charge-off ratio
    
    
    5.37
    %
    
    
    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
 i.e.
  -48-




---



##### Table of Contents



Information on Stock Repurchases
  Contractual Obligations (excluding Deposits)
  Contractual Obligations as of June 30,Operating
    
    
    Leased
    
    
    CapitalPeriod Ending December 31,
    
    Borrowings
    
    
    Interest(1)
    
    
    Leases
    
    
    Facilities
    
    
    Leases
    
    
    Total(Dollars in thousands)2010
    
    $
    74,775
    
    
    $
    6,278
    
    
    $
    6
    
    
    $
    754
    
    
    $
    18
    
    
    $
    81,8312011
    
    
    86,091
    
    
    
    3,895
    
    
    
    8
    
    
    
    1,431
    
    
    
    35
    
    
    
    91,4602012
    
    
    50,411
    
    
    
    1,297
    
    
    
    4
    
    
    
    1,461
    
    
    
    18
    
    
    
    53,1912013
    
    
    7,416
    
    
    
    57
    
    
    
    4
    
    
    
    624
    
    
    
    
    
    
    
    8,1012014
    
    
    287
    
    
    
    1
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    292Thereafter
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Total
    
    $
    218,987
    
    
    $
    11,528
    
    
    $
    26
    
    
    $
    4,270
    
    
    $
    71
    
    
    $
    234,882
 
 (1)
    
    Interest on the long-term loan facility is assumed at the June 30, 2010 rate for the
remaining term.  -49-




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##### Table of Contents



MARKET INTEREST RATE RISK AND SENSITIVITY
    .
        -50-




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##### Table of Contents



Scheduled Maturities by Calendar YearTotal2014 &
    
    
    Carrying2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    Amount(Dollars in thousands)Debt:Fixed-rate debt
    
    $
    74,775
    
    
    $
    86,091
    
    
    $
    34,281
    
    
    $
    7,416
    
    
    $
    294
    
    
    $
    202,857Average fixed rate
    
    
    4.97
    %
    
    
    5.16
    %
    
    
    4.93
    %
    
    
    4.08
    %
    
    
    5.15
    %
    
    
    5.01
    %Variable-rate debt
    
    $
    
    
    
    $
    
    
    
    $
    16,130
    
    
    $
    
    
    
    $
    
    
    
    $
    16,130Average variable
rate
    
    
    
    
    
    
    
    
    
    
    5.50
    %
    
    
    
    
    
    
    
    
    
    
    5.50
    %
    RECENTLY ISSUED ACCOUNTING STANDARDS
 Accounting for Transfers of Financial Assets, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,
  -51-




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##### Table of Contents



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
  
 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.
  -52-




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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
   -53-




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##### Table of Contents



Item 6.
    
    Exhibits
 ExhibitNumber
    
    Description3.1
    
    
    Amended and Restated Articles of Incorporation (1)3.2
    
    
    Bylaws (2)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.  -54-




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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)
   -55-