##### 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, 2006
 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
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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES
 Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 2006
 TABLE OF CONTENTS
 Page No.Part I  Financial Information
    
    
    3Item 1 Financial Statements
    
    
    3Consolidated Balance Sheets at September 30, 2006 (unaudited) and December 31, 2005
    
    
    3Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005 (unaudited)
    
    
    4Consolidated Statements of Stockholders Equity at September 30, 2006 (unaudited) and December 31, 2005
    
    
    5Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 (unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7-15Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16-32Item 3 Quantitative and Qualitative Disclosure about Market Risk
    
    
    32Item 4 Controls and Procedures
    
    
    32Part II  Other Information
    
    
    33-35Item 1 Legal Proceedings
    
    
    33Item 1A Risk Factors
    
    
    33Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3 Defaults upon Senior Securities
    
    
    33Item 4 Submission of Matters to a Vote of Security Holders
    
    
    33Item 5 Other Information
    
    
    33Item 6 Exhibits
    
    
    33-35Signatures
    
    
    36CertificationsRULE 13a-14(a) CERTIFICATION OF CEORULE 13a-14(a) CERTIFICATION OF CFORULE 13a-14(b) CERTIFICATION OF CEO AND CFO
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##### Table of Contents



PART I. Financial Information
 
 Item 1. Financial Statements
 MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Consolidated Balance Sheets
  September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)AssetsCash and cash equivalents
    
    $
    34,159
    
    
    $
    34,472Restricted cash
    
    
    179,964
    
    
    
    47,786Net investment in direct financing leases
    
    
    656,842
    
    
    
    572,581Property and equipment, net
    
    
    3,573
    
    
    
    3,776Property tax receivables
    
    
    721
    
    
    
    191Fair value of cash flow hedge derivatives
    
    
    690
    
    
    
    3,383Other assets
    
    
    10,970
    
    
    
    8,800Total assets
    
    $
    886,919
    
    
    $
    670,989Liabilities and Stockholders EquityRevolving and term secured borrowings
    
    $
    712,355
    
    
    $
    516,849Other liabilities:Fair value of cash flow hedge derivatives
    
    
    1,801
    
    
    
    Sales and property taxes payable
    
    
    10,069
    
    
    
    7,702Accounts payable and accrued expenses
    
    
    9,364
    
    
    
    8,467Deferred income tax liability
    
    
    23,729
    
    
    
    25,362Total liabilities
    
    
    757,318
    
    
    
    558,380Commitments and ContingenciesStockholders equity:Common Stock, $0.01 par value; 75,000,000 shares authorized; 12,009,489
and 11,755,225 shares issued and outstanding, respectively
    
    
    120
    
    
    
    117Preferred Stock, $0.01 par value; 5,000,000 shares authorized; none issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    80,567
    
    
    
    77,186Stock subscription receivable
    
    
    (19
    )
    
    
    (25
    )Cumulative other comprehensive income
    
    
    2,370
    
    
    
    3,520Retained earnings
    
    
    46,563
    
    
    
    31,811Total stockholders equity
    
    
    129,601
    
    
    
    112,609Total liabilities and stockholders equity
    
    $
    886,919
    
    
    $
    670,989
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##### Table of Contents



MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Consolidated Statements of Operations
   Three
Months EndedSeptember 30,
    
    

Nine
Months EndedSeptember 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Income:Interest income
    
    $
    19,629
    
    
    $
    17,490
    
    
    $
    55,996
    
    
    $
    49,593Fee income
    
    
    5,241
    
    
    
    4,225
    
    
    
    15,245
    
    
    
    13,258Interest and fee income
    
    
    24,870
    
    
    
    21,715
    
    
    
    71,241
    
    
    
    62,851Interest expense
    
    
    6,888
    
    
    
    5,618
    
    
    
    18,389
    
    
    
    14,902Net interest and fee income
    
    
    17,982
    
    
    
    16,097
    
    
    
    52,852
    
    
    
    47,949Provision for credit losses
    
    
    3,082
    
    
    
    3,510
    
    
    
    7,096
    
    
    
    8,460Net interest and fee income
after provision for credit losses
    
    
    14,900
    
    
    
    12,587
    
    
    
    45,756
    
    
    
    39,489Insurance and other income
    
    
    1,365
    
    
    
    1,162
    
    
    
    3,949
    
    
    
    3,551Operating income
    
    
    16,265
    
    
    
    13,749
    
    
    
    49,705
    
    
    
    43,040Non-interest expense:Salaries and benefits
    
    
    5,171
    
    
    
    4,567
    
    
    
    15,570
    
    
    
    13,391General and administrative
    
    
    2,868
    
    
    
    3,049
    
    
    
    8,692
    
    
    
    8,846Financing related costs
    
    
    408
    
    
    
    390
    
    
    
    1,060
    
    
    
    1,173Non-interest expense
    
    
    8,447
    
    
    
    8,006
    
    
    
    25,322
    
    
    
    23,410Income before income taxes
    
    
    7,818
    
    
    
    5,743
    
    
    
    24,383
    
    
    
    19,630Income taxes
    
    
    3,088
    
    
    
    2,299
    
    
    
    9,631
    
    
    
    7,753Net income
    
    $
    4,730
    
    
    $
    3,444
    
    
    $
    14,752
    
    
    $
    11,877Basic earnings per share
    
    $
    0.40
    
    
    $
    0.30
    
    
    $
    1.25
    
    
    $
    1.03Diluted earnings per share
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    1.22
    
    
    $
    0.99Shares used in computing basic
earnings per share
    
    
    11,838,677
    
    
    
    11,608,450
    
    
    
    11,775,028
    
    
    
    11,524,164Shares used in computing diluted
earnings per share
    
    
    12,154,889
    
    
    
    12,048,274
    
    
    
    12,114,655
    
    
    
    11,953,274
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##### Table of Contents



MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Consolidated Statements of Stockholders Equity
   Additional
    
    
    Stock
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Stock
    
    
    Paid-In
    
    
    Subscription
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Receivable
    
    
    Income
    
    
    Earnings
    
    
    EquityBalance, December 31, 2004
    
    
    11,527,697
    
    
    $
    115
    
    
    $
    74,352
    
    
    $
    (54
    )
    
    $
    374
    
    
    $
    15,563
    
    
    $
    90,350Issuance of common stock
    
    
    19,792
    
    
    
    
    
    
    
    356
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    356Exercise of stock options
    
    
    147,591
    
    
    
    1
    
    
    
    594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    595Tax benefit on stock
options exercised
    
    
    
    
    
    
    
    
    
    
    972
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    972Payment of receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    29Restricted stock grant
    
    
    60,145
    
    
    
    1
    
    
    
    (168
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (167
    )Restricted stock compensation
recognized
    
    
    
    
    
    
    
    
    
    
    1,080
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,080Unrealized gains (losses) on cash
flow hedge derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,146
    
    
    
    
    
    
    
    3,146Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,248
    
    
    
    16,248Balance, December 31, 2005
    
    
    11,755,225
    
    
    
    117
    
    
    
    77,186
    
    
    
    (25
    )
    
    
    3,520
    
    
    
    31,811
    
    
    
    112,609Issuance of common stock
    
    
    7,469
    
    
    
    1
    
    
    
    158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159Exercise of stock options
    
    
    143,994
    
    
    
    1
    
    
    
    633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    634Tax benefit on stock
options exercised
    
    
    
    
    
    
    
    
    
    
    960
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    960Stock option compensation
recognized
    
    
    
    
    
    
    
    
    
    
    645
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    645Payment of receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6Restricted stock grant
    
    
    102,801
    
    
    
    1
    
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )Restricted stock compensation
recognized
    
    
    
    
    
    
    
    
    
    
    1,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,013Unrealized gains (losses) on cash
flow hedge derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,150
    )
    
    
    
    
    
    
    (1,150
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,752
    
    
    
    14,752Balance, September 30, 2006
    
    
    12,009,489
    
    
    $
    120
    
    
    $
    80,567
    
    
    $
    (19
    )
    
    $
    2,370
    
    
    $
    46,563
    
    
    $
    129,601
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MARLIN BUSINESS SERVICES CORP.
AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
   Nine Months Ended September 30,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    14,752
    
    
    $
    11,877Adjustments to reconcile net income to net cash from
operating activities:Depreciation and amortization
    
    
    3,598
    
    
    
    3,091Excess tax benefits from stock-based payment arrangements
    
    
    (960
    )
    
    
    Amortization of deferred (gain) on cash flow hedge derivatives
    
    
    (1,149
    )
    
    
    (238
    )Provision for credit losses
    
    
    7,096
    
    
    
    8,460Deferred taxes
    
    
    (870
    )
    
    
    7,753Amortization of deferred initial direct costs and fees
    
    
    9,677
    
    
    
    8,802Deferred initial direct costs and fees
    
    
    (13,817
    )
    
    
    (10,725
    )Effect of changes in other operating items:Other assets
    
    
    866
    
    
    
    221Other liabilities
    
    
    3,326
    
    
    
    4,320Net cash provided by operating activities
    
    
    22,519
    
    
    
    33,561Cash flows from investing activities:Gross equipment purchased for direct financing lease contracts
    
    
    (281,882
    )
    
    
    (241,951
    )Principal collections on direct financing lease receivables
    
    
    195,384
    
    
    
    167,300Security deposits collected, net of returns
    
    
    (719
    )
    
    
    (77
    )Acquisitions of property and equipment
    
    
    (702
    )
    
    
    (925
    )Change in restricted cash
    
    
    (132,178
    )
    
    
    (70,963
    )Net cash used in investing activities
    
    
    (220,097
    )
    
    
    (146,616
    )Cash flows from financing activities:Issuances of common stock, net of terminations
    
    
    165
    
    
    
    199Exercise of stock options
    
    
    634
    
    
    
    478Excess tax benefits from stock-based payment arrangements
    
    
    960
    
    
    
    Term securitization advances
    
    
    380,182
    
    
    
    340,560Term securitization repayments
    
    
    (209,066
    )
    
    
    (180,586
    )Secured bank facility advances
    
    
    154,558
    
    
    
    50,581Secured bank facility repayments
    
    
    (130,168
    )
    
    
    (50,581
    )Warehouse advances
    
    
    217,168
    
    
    
    169,005Warehouse repayments
    
    
    (217,168
    )
    
    
    (181,037
    )Net cash provided by financing activities
    
    
    197,265
    
    
    
    148,619Net decrease in cash and cash equivalents
    
    
    (313
    )
    
    
    35,564Cash and cash equivalents, beginning of period
    
    
    34,472
    
    
    
    16,092Cash and cash equivalents, end of period
    
    $
    34,159
    
    
    $
    51,656Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    18,132
    
    
    $
    13,057Cash paid for income taxes
    
    $
    8,161
    
    
    $
    370
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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.
    Initial direct costs and fees. Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases.
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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 Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
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Accounting for Stock-based Compensation -
Transition and Disclosure
 Income taxes.
 NOTE 3  Net Investment in Direct Financing Leases
  September 30,
    
    
    December 31,2006
    
    
    2005(dollars in thousands)Minimum lease payments receivable
    
    $
    757,041
    
    
    $
    660,946Estimated residual value of equipment
    
    
    47,243
    
    
    
    44,279Unearned lease income, net of initial direct costs and fees deferred
    
    
    (121,646
    )
    
    
    (106,083
    )Security deposits
    
    
    (18,029
    )
    
    
    (18,748
    )Allowance for credit losses
    
    
    (7,767
    )
    
    
    (7,813
    )$
    656,842
    
    
    $
    572,581
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Minimum Lease
    
    
    IncomePeriod Ending
    
    Payments Receivable
    
    
    AmortizationDecember 31:
    
    September 30, 2006
    
    
    September 30, 2006(dollars in thousands)2006
    
    $
    82,056
    
    
    $
    18,6102007
    
    
    282,333
    
    
    
    54,4102008
    
    
    200,080
    
    
    
    29,8992009
    
    
    117,154
    
    
    
    13,6222010
    
    
    59,241
    
    
    
    4,560Thereafter
    
    
    16,177
    
    
    
    545$
    757,041
    
    
    $
    121,646
 NOTE 4  Derivative Financial Instruments
 Accounting for
Derivative Instruments and Hedging Activities
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NOTE 5    Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands)
    
    
    (dollars in thousands)Net income, as reported
    
    $
    4,730
    
    
    $
    3,444
    
    
    $
    14,752
    
    
    $
    11,877Other comprehensive income:Changes in fair values of
cash flow hedge derivatives
    
    
    (3,486
    )
    
    
    3,647
    
    
    
    (762
    )
    
    
    5,245Amortization of deferred loss
(gain) on cash flow hedge
derivatives
    
    
    (393
    )
    
    
    (238
    )
    
    
    (1,149
    )
    
    
    (238
    )Tax effect
    
    
    1,544
    
    
    
    (1,358
    )
    
    
    761
    
    
    
    (1,995
    )Total other comprehensive income
    
    
    (2,335
    )
    
    
    2,051
    
    
    
    (1,150
    )
    
    
    3,012Comprehensive income
    
    $
    2,395
    
    
    $
    5,495
    
    
    $
    13,602
    
    
    $
    14,889
 NOTE 6  Earnings Per Common Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    4,730
    
    
    $
    3,444
    
    
    $
    14,752
    
    
    $
    11,877Weighted average common shares outstanding
used in computing basic EPS
    
    
    11,838,677
    
    
    
    11,608,450
    
    
    
    11,775,028
    
    
    
    11,524,164Effect of dilutive securities:Stock options and restricted stock
    
    
    316,212
    
    
    
    439,824
    
    
    
    339,627
    
    
    
    429,110Adjusted weighted average common
shares used in computing diluted EPS
    
    
    12,154,889
    
    
    
    12,048,274
    
    
    
    12,114,655
    
    
    
    11,953,274Net earnings per common share:Basic
    
    $
    0.40
    
    
    $
    0.30
    
    
    $
    1.25
    
    
    $
    1.03Diluted
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    1.22
    
    
    $
    0.99
   NOTE 7  Stock-Based Compensation
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Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
  Accounting for Stock-based Compensation -
Transition and Disclosure
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2005Net income, as reported
    
    $
    3,444
    
    
    $
    11,877Add: Stock-option-based employee compensation expense
included in net income, net of tax
    
    
    172
    
    
    
    446Deduct: Total stock-option-based employee compensation expense
determined under fair-value-based method for all awards, net of tax
    
    
    (261
    )
    
    
    (709
    )Pro forma net income
    
    $
    3,355
    
    
    $
    11,614Basic earnings per share:As reported
    
    $
    0.30
    
    
    $
    1.03Pro forma
    
    
    0.29
    
    
    
    1.01Diluted earnings per share:As reported
    
    
    0.29
    
    
    
    0.99Pro forma
    
    
    0.28
    
    
    
    0.97
  Stock Options
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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 302006
    
    2005
    
    2006
    
    2005Risk-free interest rate
    
    
    n/a
    
    
    
    4.12
    %
    
    
    4.84
    %
    
    
    3.74
    %Expected life (years)
    
    
    n/a
    
    
    
    5
    
    
    
    5
    
    
    
    5Expected volatility
    
    
    n/a
    
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   WeightedAverageShares
    
    
    Exercise PriceOptionsOutstanding at January 1, 2006
    
    
    1,002,258
    
    
    $
    9.56Granted
    
    
    109,431
    
    
    
    21.59Exercised
    
    
    (143,994
    )
    
    
    4.41Forfeited
    
    
    (36,218
    )
    
    
    16.26Expired
    
    
    
    
    
    
    Outstanding at September 30, 2006
    
    
    931,477
    
    
    $
    11.51
   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)$1.90 - 3.39
    
    
    239,292
    
    
    
    4.5
    
    
    $
    3.13
    
    
    $
    4,252
    
    
    
    224,067
    
    
    
    4.4
    
    
    $
    3.11
    
    
    $
    3,986$4.23 - 5.01
    
    
    99,291
    
    
    
    3.6
    
    
    
    4.39
    
    
    
    1,639
    
    
    
    99,291
    
    
    
    3.6
    
    
    
    4.39
    
    
    
    1,639$10.18
    
    
    164,535
    
    
    
    5.2
    
    
    
    10.18
    
    
    
    1,764
    
    
    
    159,697
    
    
    
    5.1
    
    
    
    10.18
    
    
    
    1,712$14.00-16.02
    
    
    99,000
    
    
    
    7.4
    
    
    
    14.73
    
    
    
    611
    
    
    
    39,538
    
    
    
    7.2
    
    
    
    14.42
    
    
    
    256$17.52-22.25
    
    
    329,359
    
    
    
    6.4
    
    
    
    19.45
    
    
    
    478
    
    
    
    37,667
    
    
    
    5.8
    
    
    
    18.28
    
    
    
    99931,477
    
    
    
    5.5
    
    
    $
    11.51
    
    
    $
    8,744
    
    
    
    560,260
    
    
    
    4.7
    
    
    $
    7.17
    
    
    $
    7,692
 - 14 -




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##### Table of Contents



Restricted Stock Awards
      WeightedAverageGrant-DateShares
    
    
    Fair ValueNon-vested restricted stock at January 1, 2006
    
    
    141,180
    
    
    $
    16.91Granted
    
    
    107,396
    
    
    
    21.79Vested
    
    
    (36,250
    )
    
    
    16.02Forfeited
    
    
    (4,595
    )
    
    
    17.59Non-vested restricted stock at September 30, 2006
    
    
    207,731
    
    
    $
    19.57
  - 15 -




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##### 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/A 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/A filed with the Securities and Exchange Commission.
  Overview
    - 16 -




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##### Table of Contents



NineMonths EndedAs of or For the Years Ended December 31,
    
    September 30,2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006Number of sales account executives
    
    
    50
    
    
    
    67
    
    
    
    84
    
    
    
    100
    
    
    
    103
    
    
    
    100Number of originating sources (1)
    
    
    815
    
    
    
    929
    
    
    
    1,147
    
    
    
    1,244
    
    
    
    1,295
    
    
    
    1,291
 
 (1)
    
    Monthly average of origination sources generating lease volume.    Accounting for Derivative Instruments and
Hedging Activities
 Critical Accounting Policies
  - 17 -




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##### Table of Contents



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.
 Allowance for credit losses.
  Securitizations. Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of
 - 18 -




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##### Table of Contents



Liabilities
 Derivatives. Accounting for Derivative Instruments and Hedging Activities
 Stock-Based Compensation. Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
  Accounting for Stock-based Compensation -
Transition and Disclosure
 Income taxes.
 - 19 -




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##### Table of Contents



RESULTS OF OPERATIONS
 Comparison of the Three Months Ended September 30, 2006 and 2005
 Net income.
   Three Months Ended September 30,2006
    
    
    2005(dollars in thousands)Interest income
    
    $
    19,629
    
    
    $
    17,490Fee income
    
    
    5,241
    
    
    
    4,225Interest and fee income
    
    
    24,870
    
    
    
    21,715Interest expense
    
    
    6,888
    
    
    
    5,618Net interest and fee income
    
    $
    17,982
    
    
    $
    16,097Average net investment in direct financing leases(1)
    
    $
    624,711
    
    
    $
    536,874Percent of average net investment in direct financing leases:Interest income
    
    
    12.57
    %
    
    
    13.03
    %Fee income
    
    
    3.35
    
    
    
    3.15Interest and fee income
    
    
    15.92
    
    
    
    16.18Interest expense
    
    
    4.41
    
    
    
    4.19Net interest and fee margin
    
    
    11.51
    %
    
    
    11.99
    %
 
 (1)
    
    Excludes allowance for credit losses and initial direct costs and fees
deferred. Net interest and fee margin.
   - 20 -




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##### Table of Contents



Insurance and other income.
 Salaries and benefits expense.
 General and administrative expense.
 Financing related costs.
 Provision for credit losses.
 - 21 -




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##### Table of Contents



Provision for income taxes.
 Comparison of the Nine Months Ended September 30, 2006 and 2005
 Net income.
   Nine Months Ended September 30,2006
    
    
    2005(dollars in thousands)Interest income
    
    $
    55,996
    
    
    $
    49,593Fee income
    
    
    15,245
    
    
    
    13,258Interest and fee income
    
    
    71,241
    
    
    
    62,851Interest expense
    
    
    18,389
    
    
    
    14,902Net interest and fee income
    
    $
    52,852
    
    
    $
    47,949Average net investment in direct financing leases(1)
    
    $
    594,955
    
    
    $
    513,695Percent of average net investment in direct financing leases:Interest income
    
    
    12.55
    %
    
    
    12.87
    %Fee income
    
    
    3.41
    
    
    
    3.44Interest and fee income
    
    
    15.96
    
    
    
    16.31Interest expense
    
    
    4.12
    
    
    
    3.86Net interest and fee margin
    
    
    11.84
    %
    
    
    12.45
    %
 
 (1)
    
    Excludes allowance for credit losses and initial direct costs and fees deferred. Net interest and fee margin.
  - 22 -




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Insurance
and other income.
 Salaries and benefits expense.
 - 23 -




---



##### Table of Contents



General and administrative expense.
 Financing related costs.
 Provision for credit losses.
 Provision for income taxes.
 - 24 -




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##### Table of Contents



LEASE RECEIVABLES AND ASSET QUALITY
   Three Months Ended
    
    
    Nine Months Ended
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2005Allowance for credit losses, beginning
of period
    
    $
    7,370
    
    
    $
    6,355
    
    
    $
    7,813
    
    
    $
    6,062
    
    
    $
    6,062Provision for credit losses
    
    
    3,082
    
    
    
    3,510
    
    
    
    7,096
    
    
    
    8,460
    
    
    
    10,886Charge-offs, net
    
    
    (2,685
    )
    
    
    (1,965
    )
    
    
    (7,142
    )
    
    
    (6,622
    )
    
    
    (9,135
    )Allowance for credit losses, end of period
    
    $
    7,767
    
    
    $
    7,900
    
    
    $
    7,767
    
    
    $
    7,900
    
    
    $
    7,813Annualized net charge-offs to average
net investment in leases (1)
    
    
    1.72
    %
    
    
    1.46
    %
    
    
    1.60
    %
    
    
    1.72
    %
    
    
    1.74
    %Allowance for credit losses to net
investment in leases(1)
    
    
    1.21
    %
    
    
    1.44
    %
    
    
    1.21
    %
    
    
    1.44
    %
    
    
    1.39
    %Average net investment in leases (1)
    
    $
    624,711
    
    
    $
    536,874
    
    
    $
    594,955
    
    
    $
    513,695
    
    
    $
    523,948Delinquencies 60 days or more past due
    
    $
    4,411
    
    
    $
    4,656
    
    
    $
    4,411
    
    
    $
    4,656
    
    
    $
    4,063Delinquencies 60 days or more past due (2)
    
    
    0.58
    %
    
    
    0.72
    %
    
    
    0.58
    %
    
    
    0.72
    %
    
    
    0.61
    %Allowance for credit losses to delinquent accounts
60 days or more past due
    
    
    176.08
    %
    
    
    169.67
    %
    
    
    176.08
    %
    
    
    169.67
    %
    
    
    192.30
    %Non-accrual leases
    
    $
    1,876
    
    
    $
    2,039
    
    
    $
    1,876
    
    
    $
    2,039
    
    
    $
    2,017Renegotiated leases
    
    $
    3,859
    
    
    $
    2,320
    
    
    $
    3,859
    
    
    $
    2,320
    
    
    $
    4,140
 
 (1)
    
    Net investment in leases excludes allowance for credit losses and initial direct
costs and fees deferred for purposes of asset quality and allowance calculations.(2)
    
    Calculated as a percent of minimum lease payments receivable.    - 25 -




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##### Table of Contents



Residual Performance
   LIQUIDITY AND CAPITAL RESOURCES
  
    
    borrowings under a revolving bank facility;
    
    financing of leases in CP conduit warehouse facilities;
    
    financing of leases through term note securitizations; and
    
    equity and debt securities with third party investors.
     Cash and Cash Equivalents.
  - 26 -




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##### Table of Contents



Borrowings.
 For the Nine Months Ended September 30, 2006
    
    As of September 30, 2006MaximumMaximum
    
    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
    
    
    $
    24,390
    
    
    $
    7,716
    
    
    
    7.57
    %
    
    $
    24,390
    
    
    
    6.83
    %
    
    $
    15,610CP conduit warehouse facilities (1)
    
    
    225,000
    
    
    
    193,408
    
    
    
    79,641
    
    
    
    5.81
    %
    
    
    -0-
    
    
    
    0.00
    %
    
    
    225,000Term note securitizations (2)
    
    
    -0-
    
    
    
    687,965
    
    
    
    434,366
    
    
    
    4.10
    %
    
    
    687,965
    
    
    
    4.60
    %
    
    
    -0-$
    265,000
    
    
    
    
    
    
    $
    521,723
    
    
    
    4.41
    %
    
    $
    712,355
    
    
    
    4.68
    %
    
    $
    240,610
 
 (1)
    
    Subject to lease eligibility and borrowing base formula.(2)
    
    Our term note securitizations are one-time fundings that pay down over time without
any ability for us to draw down additional amounts. Revolving Bank Facility
  CP Conduit Warehouse Facilities
    Term Note Securitizations
  - 27 -




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Other
 http://www.fdic.gov
 - 28 -




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##### Table of Contents



Contractual Obligations
  Contractual Obligations as of September 30, 2006(dollars
in thousands)Operating
    
    
    Leased
    
    
    CapitalBorrowings
    
    
    Leases
    
    
    Facilities
    
    
    Leases
    
    
    Total2006
    
    $
    93,522
    
    
    $
    14
    
    
    $
    415
    
    
    $
    24
    
    
    $
    93,9752007
    
    
    273,109
    
    
    
    14
    
    
    
    1,690
    
    
    
    73
    
    
    
    274,8862008
    
    
    180,116
    
    
    
    3
    
    
    
    1,506
    
    
    
    34
    
    
    
    181,6592009
    
    
    101,113
    
    
    
    
    
    
    
    1,351
    
    
    
    
    
    
    
    102,4642010
    
    
    48,770
    
    
    
    
    
    
    
    1,281
    
    
    
    
    
    
    
    50,051Thereafter
    
    
    15,725
    
    
    
    
    
    
    
    2,898
    
    
    
    
    
    
    
    18,623Total
    
    $
    712,355
    
    
    $
    31
    
    
    $
    9,141
    
    
    $
    131
    
    
    $
    721,658
 MARKET INTEREST RATE RISK AND SENSITIVITY
      - 29 -




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- 30 -




---



##### Table of Contents



Scheduled Maturities by Calendar Year2010 and2006
    
    2007
    
    2008
    
    2009
    
    Beyond
    
    Total(dollars in thousands)Debt:Fixed-rate debt
    
    $
    69,132
    
    
    $
    273,109
    
    
    $
    180,116
    
    
    $
    101,113
    
    
    $
    64,495
    
    
    $
    687,965Average fixed rate
    
    
    4.52
    %
    
    
    4.63
    %
    
    
    4.64
    %
    
    
    4.81
    %
    
    
    5.17
    %
    
    
    4.70
    %Variable-rate debt
    
    $
    24,390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    24,390Average variable rate
    
    
    6.83
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.83
    %
    RECENTLY ISSUED ACCOUNTING STANDARDS
 Share-Based Payments
 Accounting Changes and Error Corrections  a replacement
of APB Opinion No. 20 and FASB Statement No. 3.
 Accounting for Certain Hybrid Financial Instruments
 - 31 -




---



##### Table of Contents



Accounting for Uncertainty in
Income Taxes Accounting for Income Taxes
 Fair Value Measurements
 , Financial
Statements  Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in
Current Year Financial Statements
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
      - 32 -




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##### 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
    
    Description3.1(3)
    
    Amended and Restated Articles of Incorporation of the Registrant.3.2(2)
    
    Bylaws of the Registrant.4.1(2)
    
    Second Amended and Restated Registration Agreement, as amended through July 26,
2001, by and among Marlin Leasing Corporation and certain of its shareholders.10.1(2)
    
    2003 Equity Compensation Plan of the Registrant.10.2(2)
    
    2003 Employee Stock Purchase Plan of the Registrant.10.3(2)
    
    Lease Agreement, dated as of April 9, 1998, and amendment thereto dated as of
September 22, 1999 between W9/PHC Real Estate Limited Partnership and Marlin Leasing
Corporation.10.4(4)
    
    Lease Agreement, dated as of October 21, 2003, between Liberty Property Limited
Partnership and Marlin Leasing Corporation10.5(2)
    
    Employment Agreement, dated as of October 14, 2003 between Daniel P. Dyer and the Registrant.10.6(2)
    
    Employment Agreement, dated as of October 14, 2003 between Gary R. Shivers and the Registrant.10.7(2)
    
    Employment Agreement, dated as of October 14, 2003 between George D. Pelose and the Registrant.10.8(12)
    
    Amendment 2006-1 dated as of May 19, 2006 to the Employment Agreement between
George D. Pelose and the Registrant.10.9(1)
    
    Master Lease Receivables Asset-Backed Financing Facility Agreement, dated as of
December 1, 2000, by and among Marlin Leasing Corporation, Marlin Leasing Receivables Corp. IV
and Wells Fargo Bank Minnesota, National Association.10.10(1)
    
    Amended and Restated Series 2000-A Supplement dated as of August 7, 2001, to
the Master Lease Receivables Asset-Backed Financing Facility Agreement, dated as of December
1, 2000, by and among Marlin Leasing Corporation, Marlin Leasing Receivables Corp. IV, Marlin
Leasing Receivables IV LLC, Deutsche Bank AG, New York Branch, XL Capital Assurance Inc. and
Wells Fargo Bank Minnesota, National Association.10.11(1)
    
    Third Amendment to the Amended and Restated Series 2000-A Supplement dated as
of September 25, 2002, by and among Marlin Leasing Corporation, Marlin Leasing Receivables
Corp. IV, Marlin Leasing Receivables IV LLC, Deutsche Bank AG, New York Branch, XL Capital
Assurance Inc. and Wells Fargo Bank Minnesota, National Association.10.12(5)
    
    Fourth Amendment to the Amended and Restated Series 2000-A Supplement dated as
of October 7, 2004, by and among Marlin Leasing Corporation, Marlin Leasing Receivables Corp.
IV, Marlin Leasing Receivables IV LLC, Deutsche Bank AG, New York Branch, XL Capital Assurance
Inc. and Wells Fargo Bank, National Association.
 - 33 -




---



##### Table of Contents



ExhibitNumber
    
    Description10.13(13)
    
    Second Amended and Restated Series 2000-A Supplement to the Master Facility
Agreement, dated as of September 28, 2006, among Marlin Leasing Corporation, Marlin Leasing
Receivables Corp. IV, Marlin Leasing Receivables IV LLC, Deutsche Bank AG, New York Branch and
Wells Fargo Bank, N.A.10.14(1)
    
    Second Amended and Restated Warehouse Revolving Credit Facility Agreement dated
as of August 31, 2001, by and among Marlin Leasing Corporation, the Lenders and National City
Bank.10.15(1)
    
    First Amendment to Second Amended and Restated Warehouse Revolving Credit
Facility Agreement dated as of July 28, 2003, by and among Marlin Leasing Corporation, the
Lenders and National City Bank.10.16(3)
    
    Second Amendment to Second Amended and Restated Warehouse Revolving Credit
Facility Agreement dated as of October 16, 2003, by and among Marlin Leasing Corporation, the
Lenders and National City Bank.10.17(9)
    
    Third Amendment to Second Amended and Restated Warehouse Revolving Credit
Facility Agreement dated as of August 26, 2005, by and among Marlin Leasing Corporation, the
Lenders and National City Bank.10.18(1)
    
    Master Lease Receivables Asset-Backed Financing Facility Agreement, dated as of
April 1, 2002, by and among Marlin Leasing Corporation, Marlin Leasing Receivables Corp. II
and Wells Fargo Bank Minnesota, National Association.10.19(1)
    
    Series 2002-A Supplement, dated as of April 1, 2002, to the Master Lease
Receivables Asset-Backed Financing Facility Agreement, dated as of April 1, 2002, by and among
Marlin Leasing Corporation, Marlin Leasing Receivables Corp. II, Marlin Leasing Receivables II
LLC, National City Bank and Wells Fargo Bank Minnesota, National Association.10.20(1)
    
    First Amendment to Series 2002-A Supplement and Consent to Assignment of 2002-A
Note, dated as of July 10, 2003, by and among Marlin Leasing Corporation, Marlin Leasing
Receivables Corp. II, Marlin Leasing Receivables II LLC, ABN AMRO Bank N.V. and Wells Fargo
Bank Minnesota, National Association.10.21(4)
    
    Second Amendment to Series 2002-A Supplement, dated as of January 13, 2004, by
and among Marlin Leasing Corporation, Marlin Leasing Receivables Corp. II, Marlin Leasing
Receivables II LLC, Bank One, N.A., and Wells Fargo Bank Minnesota, National Association.10.22(4)
    
    Third Amendment to Series 2002-A Supplement, dated as of March 19, 2004, by and
among Marlin Leasing Corporation, Marlin Leasing Receivables Corp. II, Marlin Leasing
Receivables II LLC, Bank One, N.A., and Wells Fargo Bank Minnesota, National Association.10.23(6)
    
    Fifth Amendment to Series 2002-A Supplement, dated as of March 18, 2005, by and
among Marlin Leasing Corporation, Marlin Leasing Receivables Corp. II, Marlin Leasing
Receivables II LLC, JP Morgan Chase Bank, N.A., (successor by merger to Bank One, N.A.), and
Wells Fargo Bank Minnesota, National Association.10.24(11)
    
    Amended & Restated Series 2002-A Supplement to the Master Facility Agreement,
dated as of March 15, 2006, by and among Marlin Leasing Corporation, Marlin Leasing
Receivables Corp. II, Marlin Leasing Receivables II LLC, JPMorgan Chase Bank, N.A. and Wells
Fargo Bank, N.A.10.25(7)
    
    Compensation Policy for Non-Employee Independent Directors.10.26(10)
    
    Transition & Release Agreement made as of December 6, 2005 (effective as of
December 14, 2005) between Bruce E. Sickel and the Registrant.16.1(8)
    
    Letter on Change in Certifying Accountant dated June 27, 2005 from KPMG LLP to
the Securities and Exchange Commission.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)
 
 
    
    Management contract or compensatory plan or arrangement.(1)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Registration Statement on Form S-1 (File No. 333-108530), filed on September 5,
2003, and incorporated by reference herein.(2)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-108530),
filed on October 14, 2003, and incorporated by reference herein.(3)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Amendment No. 2 to Registration Statement on Form S-1 filed on October 28, 2003
(File No. 333-108530), and incorporated by reference herein. - 34 -




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##### Table of Contents



(4)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2003 filed on
March 29, 2004, and incorporated by reference herein.(5)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Form 8-K dated October 7, 2004 filed on October 12, 2004, and incorporated herein
by reference.(6)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 filed
on May 9, 2005, and incorporated by reference herein.(7)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Form 8-K dated May 26, 2005 filed on June 2, 2005, and incorporated by reference
herein.(8)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Form 8-K dated June 24, 2005 filed on June 29, 2005, and incorporated by
reference herein.(9)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Form 8-K dated August 26, 2005 filed on August 26, 2005, and incorporated by
reference herein.(10)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Form 8-K dated December 14, 2005 and filed on December 14, 2005, and incorporated
by reference herein.(11)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Form 8-K dated March 15, 2006 and filed on March 17, 2006, and incorporated by
reference herein.(12)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Form 8-K dated May 19, 2006 and filed on May 25, 2006, and incorporated by
reference herein.(13)
    
    Previously filed with the Securities and Exchange Commission as an exhibit to the
Registrants Form 8-K dated September 28, 2006 and filed on September 29, 2006, and
incorporated by reference herein. - 35 -




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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)
  - 36 -