Marlin Business Services (MRLN) 10-K/A 2014 FY Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

(Amendment No. 1)

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number 000-50448

Marlin Business Services Corp.

(Exact name of Registrant as specified in its charter)

Pennsylvania	38-3686388
(State of incorporation)	(I.R.S. Employer Identification No.)

300 Fellowship Road, Mount Laurel, NJ 08054

(Address of principal executive offices)

Registrant’s telephone number, including area code:

(888) 479-9111

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $.01 par value	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.)

Yes    x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes  ¨    No  x

The aggregate market value of the voting common stock held by non-affiliates of the Registrant, based on the closing price of such shares on the NASDAQ Global Select Market was approximately $155,483,736 as of June 30, 2014. Shares of common stock held by each executive officer and director and persons known to us who beneficially own 5% or more of our outstanding common stock have been excluded from this computation in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of Registrant’s common stock outstanding as of February 19, 2015 was 12,896,711 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement related to the 2015 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days of the close of Registrant’s fiscal year, are incorporated by reference into Part III of this Form 10-K.

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

FORM 10-K/A

INDEX

		Page No.
	PART II
Item 8	Financial Statements and Supplementary Data		1
	PART IV
Item 15	Exhibits and Financial Statement Schedules.		40

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Annual Report on Form 10-K of Marlin Business Services Corp., a Pennsylvania corporation (“Company,” “Marlin,” “Registrant,” “we,” “us” or “our”), for the year ended December 31, 2014 that was originally filed with the Securities and Exchange Commission (“SEC”) on March 6, 2015 (the “Original Filing”) and is being filed solely for the limited purpose of amending each “REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” included in Item 8 of Part II to correct references to theInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission in the report relating to the Company’s and its subsidiaries’ internal control over financial reporting, and to include the signature of the independent registered public accounting firm in the report relating to the consolidated financial statements of the Company and its subsidiaries. Except for the correction of such Part II information, the update to the cover page, and the filing of related certifications and the consent of Independent Registered Public Accounting Firm, this Amendment does not amend or otherwise update any other information in the Original Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing and with our filings with the SEC subsequent to the Original Filing.

PART II

Item 8. Financial Statements and Supplementary Data

Management’s Annual Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the 1934 Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission inInternal Control — Integrated Framework (2013).

Management has concluded that, as of December 31, 2014, the Company’s internal control over financial reporting was effective based on the criteria set forth by the COSO of the Treadway Commission inInternal Control — Integrated Framework (2013).

The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

-1-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Marlin Business Services Corp. and Subsidiaries

Mount Laurel, New Jersey

We have audited the internal control over financial reporting of Marlin Business Services Corp. and subsidiaries (the “Company”) as of December 31, 2014, based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2014 of the Company and our report dated March 6, 2015 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

March 6, 2015

-2-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

Index to Consolidated Financial Statements

	Page No.
Report of Independent Registered Public Accounting Firm		4
Consolidated Balance Sheets		5
Consolidated Statements of Operations		6
Consolidated Statements of Comprehensive Income		7
Consolidated Statements of Stockholders’ Equity		8
Consolidated Statements of Cash Flows		9
Notes to Consolidated Financial Statements		10

-3-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Marlin Business Services Corp. and Subsidiaries

Mount Laurel, New Jersey

We have audited the accompanying consolidated balance sheets of Marlin Business Services Corp. and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Marlin Business Services Corp. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 6, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

March 6, 2015

-4-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2014			2013
	(Dollars in thousands, except per-share data)
ASSETS
Cash and due from banks	$	2,437		$	3,534
Interest-earning deposits with banks		108,219			82,119
Total cash and cash equivalents		110,656			85,653
Restricted interest-earning deposits with banks		711			1,273
Securities available for sale (amortized cost of $5.8 million and $5.8 million at December 31, 2014 and 2013, respectively)		5,722			5,387
Net investment in leases and loans		629,507			597,075
Property and equipment, net		2,846			2,265
Property tax receivables		690			377
Other assets		8,317			10,177
Total assets	$	758,449		$	702,207
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	550,119		$	503,038
Other liabilities:
Sales and property taxes payable		2,739			4,035
Accounts payable and accrued expenses		14,406			14,220
Net deferred income tax liability		17,221			17,876
Total liabilities		584,485			539,169
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common Stock, $0.01 par value; 75,000,000 shares authorized; 12,838,449 and 12,994,758 shares issued and outstanding at December 31, 2014 and 2013, respectively		128			130
Preferred Stock, $0.01 par value; 5,000,000 shares authorized; none issued		—			—
Additional paid-in capital		89,130			91,730
Stock subscription receivable		(2	)		(2	)
Accumulated other comprehensive loss		(17	)		(257	)
Retained earnings		84,725			71,437
Total stockholders’ equity		173,964			163,038
Total liabilities and stockholders’ equity	$	758,449		$	702,207

The accompanying notes are an integral part of the consolidated financial statements.

-5-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2014		2013			2012
	(Dollars in thousands, except per-share data)
Interest income	$	66,764	$	63,685		$	52,975
Fee income		14,920		13,390			11,976
Interest and fee income		81,684		77,075			64,951
Interest expense		4,965		4,545			6,882
Net interest and fee income		76,719		72,530			58,069
Provision for credit losses		9,116		9,617			5,920
Net interest and fee income after provision for credit losses		67,603		62,913			52,149
Other income:
Insurance income		5,463		4,924			4,101
Loss on derivatives		—		(2	)		(6	)
Other income		1,614		1,676			1,869
Other income		7,077		6,598			5,964
Other expense:
Salaries and benefits		26,628		27,680			24,862
General and administrative		15,606		14,725			13,547
Financing related costs		1,174		1,106			850
Other expense		43,408		43,511			39,259
Income before income taxes		31,272		26,000			18,854
Income tax expense		11,922		9,769			7,157
Net income	$	19,350	$	16,231		$	11,697
Basic earnings per share	$	1.50	$	1.26		$	0.92
Diluted earnings per share	$	1.49	$	1.25		$	0.91

The accompanying notes are an integral part of the consolidated financial statements.

-6-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended December 31,
	2014			2013			2012
	(Dollars in thousands)
Net income	$	19,350		$	16,231		$	11,697
Other comprehensive income:
Amortization of net deferred losses on cash flow hedge derivatives		—			—			53
Increase (decrease) in fair value of securities available for sale		388			(506	)		36
Tax effect		(148	)		194			(35	)
Total other comprehensive income (loss)		240			(312	)		54
Comprehensive income	$	19,590		$	15,919		$	11,751

The accompanying notes are an integral part of the consolidated financial statements.

-7-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Shares			Common Stock Amount			Additional Paid-In Capital			Stock Subscription Receivable			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Stockholders’ Equity
	(Dollars in thousands)
Balance, December 31, 2011		12,760,266		$	128		$	85,544		$	(2	)	$	1		$	78,430		$	164,101
Issuance of common stock		8,788			—			136			—			—			—			136
Repurchase of common stock		(145,315	)		(2	)		(2,187	)		—			—			—			(2,189	)
Exercise of stock options		89,900			1			850			—			—			—			851
Excess tax benefits from stock-based payment arrangements		—			—			592			—			—			—			592
Stock option compensation recognized		—			—			34			—			—			—			34
Restricted stock grant		61,190			1			(1	)		—			—			—			—
Restricted stock compensation recognized		—			—			2,526			—			—			—			2,526
Net change related to derivatives, net of tax		—			—			—			—			32			—			32
Net change in unrealized gain/loss on securities available for sale, net of tax		—			—			—			—			22			—			22
Net income		—			—			—			—			—			11,697			11,697
Cash dividends paid ($0.28 per share)		—			—			—			—			—			(3,552	)		(3,552	)
Balance, December 31, 2012		12,774,829		$	128		$	87,494		$	(2	)	$	55		$	86,575		$	174,250
Issuance of common stock		14,727			—			270			—			—			—			270
Repurchase of common stock		(53,988	)		(1	)		(1,167	)		—			—			—			(1,168	)
Exercise of stock options		127,957			1			1,523			—			—			—			1,524
Excess tax benefits from stock-based payment arrangements		—			—			1,052			—			—			—			1,052
Stock option compensation recognized		—			—			188			—			—			—			188
Restricted stock grant		131,233			2			(2	)		—			—			—			—
Restricted stock compensation recognized		—			—			2,372			—			—			—			2,372
Net change related to derivatives, net of
Net change in unrealized gain/loss on securities available for sale, net of tax		—			—			—			—			(312	)		—			(312	)
Net income		—			—			—			—			—			16,231			16,231
Cash dividends paid ($2.42 per share)		—			—			—			—			—			(31,369	)		(31,369	)
Balance, December 31, 2013		12,994,758		$	130		$	91,730		$	(2	)	$	(257	)	$	71,437		$	163,038
Issuance of common stock		14,428			—			253			—			—			—			253
Repurchase of common stock		(283,064	)		(3	)		(5,724	)		—			—			—			(5,727	)
Exercise of stock options		14,469			—			154			—			—			—			154
Excess tax benefits from stock-based payment arrangements		—			—			754			—			—			—			754
Stock option compensation recognized		—			—			7			—			—			—			7
Restricted stock grant		97,858			1			(1	)		—			—			—			—
Restricted stock compensation recognized		—			—			1,957			—			—			—			1,957
Net change in unrealized gain/loss on securities available for sale, net of tax		—			—			—			—			240			—			240
Net income		—			—			—			—			—			19,350			19,350
Cash dividends paid ($0.47 per share)		—			—			—			—			—			(6,062	)		(6,062	)
Balance, December 31, 2014		12,838,449		$	128		$	89,130		$	(2	)	$	(17	)	$	84,725		$	173,964

The accompanying notes are an integral part of the consolidated financial statements.

-8-

MARLIN BUSINESS SERVICES CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2014			2013			2012
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	19,350		$	16,231		$	11,697
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,612			1,816			2,259
Stock-based compensation		1,964			2,560			2,560
Excess tax benefits from stock-based payment arrangements		(754	)		(1,052	)		(592	)
Amortization of deferred net loss on cash flow hedge derivatives		—			—			53
Change in fair value of derivatives		—			2			6
Provision for credit losses		9,116			9,617			5,920
Net deferred income taxes		(848	)		(57	)		(3,031	)
Amortization of deferred initial direct costs and fees		7,263			6,774			5,680
Deferred initial direct costs and fees		(7,096	)		(7,762	)		(7,773	)
Loss on equipment disposed		1,405			2,384			3,097
Effect of changes in other operating items:
Other assets		1,682			13,878			(729	)
Other liabilities		(1,025	)		1,529			5,772
Net cash provided by operating activities		32,669			45,920			24,919
Cash flows from investing activities:
Purchases of equipment for direct financing lease contracts and funds used to originate loans		(335,272	)		(349,915	)		(322,284	)
Principal collections on leases and loans		288,864			241,538			196,171
Security deposits collected, net of refunds		(31	)		(147	)		(337	)
Proceeds from the sale of equipment		3,319			3,453			4,350
Acquisitions of property and equipment		(1,614	)		(1,011	)		(961	)
Change in restricted interest-earning deposits with banks		562			2,247			25,117
Purchases of securities available for sale		53			(1,047	)		(3,029	)
Net cash used in investing activities		(44,119	)		(104,882	)		(100,973	)
Cash flows from financing activities:
Increase in deposits		47,081			124,850			179,609
Term securitization repayments		—			—			(45,119	)
Warehouse and bank facility advances		—			—			11,902
Warehouse and bank facility repayments		—			(15,514	)		(43,273	)
Issuances of common stock		253			270			136
Repurchases of common stock		(5,727	)		(1,168	)		(2,189	)
Dividends paid		(6,062	)		(31,369	)		(3,552	)
Exercise of stock options		154			1,524			851
Excess tax benefits from stock-based payment arrangements		754			1,052			592
Debt issuance costs		—			—			(218	)
Net cash provided by financing activities		36,453			79,645			98,739
Net increase (decrease) in total cash and cash equivalents		25,003			20,683			22,685
Total cash and cash equivalents, beginning of period		85,653			64,970			42,285
Total cash and cash equivalents, end of period	$	110,656		$	85,653		$	64,970
Supplemental disclosures of cash flow information:
Cash paid for interest on deposits and borrowings	$	4,258		$	3,474		$	5,553
Net cash (received) paid for income taxes	$	10,243		$	(5,471	)	$	9,554

The accompanying notes are an integral part of the consolidated financial statements.

-9-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - The Company

Marlin Business Services Corp. (“Company”) is a bank holding company and a financial holding company regulated by the Federal Reserve Board under the Bank Holding Company Act. The Company was incorporated in the Commonwealth of Pennsylvania on August 5, 2003. Through its principal operating subsidiary, Marlin Leasing Corporation (“MLC”), the Company provides equipment financing solutions nationwide, primarily to small and mid-sized businesses in a segment of the equipment leasing market commonly referred to in the industry as the “small-ticket” segment. The Company finances over 100 categories of commercial equipment important to its end user customers including copiers, security systems, computers, telecommunications equipment and certain commercial and industrial equipment. In May 2000, we established AssuranceOne, Ltd., a Bermuda-based, wholly-owned captive insurance subsidiary, which enables us to reinsure the property insurance coverage for the equipment financed by MLC and Marlin Business Bank (“MBB”) for our end user customers. Effective March 12, 2008, the Company opened MBB, a commercial bank chartered by the State of Utah and a member of the Federal Reserve System. MBB serves as the Company’s primary funding source through its issuance of FDIC-insured deposits. The Company is a bank holding company and a financial holding company regulated by the Federal Reserve Board under the Bank Holding Company Act.

References to the “Company,” “Marlin,” “Registrant,” “we,” “us” and “our” herein refer to Marlin Business Services Corp. and its wholly-owned subsidiaries, unless the context otherwise requires.

NOTE 2 - Summary of Significant Accounting Policies

Basis of Financial Statement Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. MLC and MBB are managed together as a single business segment and are aggregated for financial reporting purposes as they exhibit similar economic characteristics, share the same leasing portfolio and have one product offering. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for income recognition, the residual values of leased equipment, the allowance for credit losses, deferred initial direct costs and fees, late fee receivables, the fair value of financial instruments, self-insurance reserves, and income taxes. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash and interest-bearing money market funds. For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

Restricted Interest-Earning Deposits with Banks

Restricted interest-earning deposits with banks consist primarily of an interest-earning trust account related to the Company’s secured debt facility. The balance also includes amounts due from securitizations representing reimbursements of servicing fees and excess spread income.

Net Investment in Leases and Loans

As required by U.S. GAAP, the Company uses the direct finance method of accounting to record its direct financing leases and related interest income. At the inception of a lease, the Company records as an asset, the aggregate future minimum lease payments receivable, plus the estimated residual value of the leased equipment, less unearned lease income. Residual values are established at lease inception based on our estimate of the expected fair value of the equipment at the end of the lease term. Residual values may be realized at lease termination from lease extensions, sales or other dispositions of leased equipment. Estimates are based on industry data, management’s experience, and historical performance.

-10-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company records an estimated residual value at lease inception for all fair market value and fixed purchase option leases based on a percentage of the equipment cost of the asset being leased. The percentages used depend on equipment type and term. In setting estimated residual values, the Company focuses its analysis primarily on the Company’s total historical and expected realization statistics pertaining to sales of equipment. In subsequent evaluations for the impairment of the booked residual values, the Company reviews historical realization statistics including lease renewals and equipment sales. Anticipated renewal income is not included in the determination of fair value; however, it is one of the ways that fair value may be realized at the end of the lease term.

At the end of an original lease term, lessees may choose to purchase the equipment, renew the lease or return the equipment to the Company. The Company receives income from lease renewals when the lessee elects to retain the equipment longer than the original term of the lease. This income, net of appropriate periodic reductions in the estimated residual values of the related equipment, is included in fee income as net residual income.

When a lessee elects to return equipment at lease termination, the equipment is transferred to other assets at the lower of its basis or fair market value. The Company generally sells returned equipment to independent third parties, rather than leasing the equipment a second time. The Company generally charges off the value of equipment in other assets for longer than 120 days. Any loss recognized on transferring equipment to other assets and any gain or loss realized on the sale or disposal of equipment to a lessee or to others is included in fee income as net residual income.

Based on the Company’s experience, the amount of ultimate realization of the residual value tends to relate more to the customer’s election at the end of the lease term to enter into a renewal period, to purchase the leased equipment or to return the leased equipment than it does to the equipment type. Management performs reviews of the estimated residual values and historic realization statistics no less frequently than quarterly and any impairment, if other than temporary, is recognized in the current period.

Initial direct costs and fees related to lease originations are deferred as part of the investment and amortized over the lease term. Unearned lease income is the amount by which the total lease receivable plus the estimated residual value exceeds the cost of the equipment. Unearned lease income, net of initial direct costs and fees, is recognized as revenue over the lease term using the effective interest method.

Allowance for Credit Losses

In accordance with the Contingencies Topic of the FASB ASC, we maintain an allowance for credit losses at an amount sufficient to absorb losses inherent in our existing lease and loan portfolios as of the reporting dates based on our projection of probable net credit losses. We evaluate our portfolios on a pooled basis, due to their composition of small balance, homogenous accounts with similar general credit risk characteristics, diversified among a large cross-section of variables including industry, geography, equipment type, obligor and vendor.

We generally consider both quantitative and qualitative factors in determining the allowance for credit losses. Quantitative factors considered include a migration analysis stratified by industry classification, historic delinquencies and charge-offs, and a static pool analysis of historic recoveries. A migration analysis is a technique used to estimate the likelihood that an account will progress through the various delinquency stages and ultimately charge off. As part of our quantitative analysis we may also consider specifically identified pools of leases separately from the migration analysis, whenever certain identified pools are not expected to perform consistently with their credit characteristics or the portfolio as a whole. These lease pools may be analyzed for impairment separately from the migration analysis and a specific reserve established.

Qualitative factors that may result in further adjustments to the quantitative analysis include items such as forecasting uncertainties, changes in the composition of our lease and loan portfolios (including geography, industry, equipment type and vendor source), seasonality, economic or business conditions and emerging trends, business practices or policies at the reporting date that are different from the periods used in the quantitative analysis.

The various factors used in the analysis are reviewed periodically, and no less frequently than quarterly. We then establish an allowance for credit losses for the projected probable net credit losses inherent in the portfolio based on this analysis. A provision is charged against earnings to maintain the allowance for credit losses at the appropriate level. Our policy is to generally charge-off against the allowance the estimated unrecoverable portion of accounts once they reach 120 or more days delinquent.

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our projections of probable net credit losses are inherently uncertain, and as a result we cannot predict with certainty the amount of such losses. Changes in economic conditions, the risk characteristics and composition of the portfolio, bankruptcy laws, and other factors could impact our actual and projected net credit losses and the related allowance for credit losses. To the extent we add new leases and loans to our portfolios, or to the degree credit quality is worse than expected, we record expense to increase the allowance for credit losses to reflect the estimated net losses inherent in our portfolios. Actual losses may vary from current estimates.

Property and Equipment

The Company records property and equipment at cost. Equipment capitalized under capital leases is recorded at the present value of the minimum lease payments due over the lease term. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets or lease term, whichever is shorter. The Company generally uses depreciable lives that range from three to seven years based on equipment type.

Other Assets

Included in other assets on the Consolidated Balance Sheets are deferred transaction costs associated with term note securitization transactions, income taxes receivable, prepaid expenses, accrued fee income, progress payments on equipment purchased to lease and Federal Reserve Bank stock. Deferred transactions costs associated with term note securitization transactions were amortized over the estimated lives of the related term note securitization transactions using a method which approximates the effective interest method.

Securitizations

In connection with its term note securitization transactions, the Company previously established a bankruptcy remote special-purpose subsidiary (“SPE”) and issued term debt to institutional investors. These SPEs were considered variable interest entities (“VIEs”) under U.S. GAAP. The Company was required to consolidate VIEs in which it was deemed to be the primary beneficiary through having (1) power over the significant activities of the entity and (2) an obligation to absorb losses or the right to receive benefits from the VIE which were potentially significant to the VIE. The Company serviced the assets of its VIEs and retained equity and/or residual interests. Accordingly, assets and related debt of these VIEs were included in the accompanying Consolidated Balance Sheets. The Company’s leases and restricted interest-earning deposits with banks were assigned as collateral for these borrowings and there was no further recourse to our general credit. Collateral in excess of these borrowings represented the Company’s maximum loss exposure.

Interest Income

Interest income is recognized under the effective interest method. The effective interest method of income recognition applies a constant rate of interest equal to the internal rate of return on each lease at inception.

The Company’s lease portfolio consists of homogenous small balance accounts with an average balance less than $10,000 across a large cross section of credit variables such as state, equipment type, obligor, vendor and industry category. Based on the historical payment behavior of the Company’s lease portfolio as a whole, payments are considered reasonably assured when a lease’s delinquency status is less than 90 days. Therefore, when a lease or loan is 90 days or more delinquent, the contract is classified as non-accrual and interest income recognition is discontinued. Interest income recognition resumes on a contract when the lessee makes payments sufficient to bring the contract’s status to less than 90 days delinquent.

Modifications resulting in renegotiated leases may include reductions in payment and extensions in term. However, such renegotiated leases are not granted concessions regarding implicit rates or reductions in total amounts due. Modifications may be granted on a one-time basis in situations that indicate the lessee is experiencing a temporary, timing issue and has a high likelihood of success with a revised payment plan. After a modification, a lease’s accrual status is based on compliance with the modified terms.

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fee Income

Fee income consists of fees for delinquent lease and loan payments, cash collected on early termination of leases and net residual income. Net residual income includes income from lease renewals and gains and losses on the realization of residual values of leased equipment disposed at the end of a lease’s term. Residual income is recognized as earned.

Fee income from delinquent lease payments is recognized on an accrual basis based on anticipated collection rates. At a minimum of every quarter, an analysis of anticipated collection rates is performed based on updates to collection history. Adjustments in the anticipated collection rate assumptions are made as needed based on this analysis. Other fees are recognized when received.

Insurance Income

Insurance income is recognized on an accrual basis as earned over the term of each lease. Generally, insurance payments that are 120 days or more past due are charged against income. Ceding commissions, losses and loss adjustment expenses are recorded in the period incurred and netted against insurance income.

Loss on Derivatives

Changes in the fair value of derivative instruments are recognized immediately in loss on derivatives.

Other Income

Other income includes various administrative transaction fees and fees received from lease syndications, recognized as earned.

Securities Available for Sale

Securities available for sale consist of mutual funds and municipal bonds that are measured at fair value on a recurring basis. Unrealized holding gains or losses of all securities available for sale, net of related deferred income taxes, are reported in accumulated other comprehensive income. Fair value measurement is based upon quoted prices in active markets, if available. If quoted prices in active markets are not available, fair values are based on prices obtained from third-party pricing vendors. See Note 11 for more information on fair value measurement of securities.

Initial Direct Costs and Fees

We defer initial direct costs incurred and fees received to originate our leases and loans in accordance with the Receivables Topic and the Nonrefundable Fees and Other Costs Subtopic of the FASB ASC.The initial direct costs and fees we defer are part of the net investment in leases and loans and are amortized to interest income using the effective interest method. We defer third-party commission costs, as well as certain internal costs directly related to the origination activity. Costs subject to deferral include evaluating each prospective customer’s financial condition, evaluating and recording guarantees and other security arrangements, negotiating terms, preparing and processing documents and closing each transaction. The fees we defer are documentation fees collected at inception. The realization of the initial direct costs, net of fees deferred, is predicated on the net future cash flows generated by our lease and loan portfolios.

Common Stock and Equity

On November 2, 2007, the Company’s Board of Directors approved the 2007 Repurchase Plan, under which, the Company was authorized to repurchase up to $15 million in value of its outstanding shares of common stock. On July 29, 2014, the Company’s Board of Directors approved the 2014 Repurchase Plan to replace the 2007 Repurchase Plan. Under the 2014 Repurchase Plan, the Company is authorized to repurchase up to $15 million in value of its outstanding shares of common stock on the open market. The par value of the shares repurchased is charged to common stock with the excess of the purchase price over par charged against any available additional paid-in capital.

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financing Related Costs

Financing related costs primarily consist of bank commitment fees paid to our financing sources on the unused portion of loan facility. These fees are recognized as incurred.

Stock-Based Compensation

The Compensation — Stock Compensation Topic of the FASB ASC establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees and non-employees, except for equity instruments held by employee share ownership plans.

The Company measures stock-based compensation cost at grant date, based on the fair value of the awards ultimately expected to vest. Stock-based compensation expense is recognized on a straight-line basis over the service period. We generally use the Black-Scholes valuation model to measure the fair value of our stock options utilizing various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility, and dividend yield. The assumptions are based on management’s judgment concerning future events.

The fair value calculations for the one-time stock option exchange program the Company effected through an October 28, 2009 amendment to its 2003 Equity Compensation Plan were based on a binomial valuation model which considered many variables, such as the volatility of our stock and the expected term of an option, including consideration of the ratio of stock price to the exercise price at which exercise is expected to occur. The binomial valuation model was used for both the surrendered stock options and the new replacement options under the stock option exchange program.

As required by U.S. GAAP, the Company uses its judgment in estimating the amount of awards that are expected to be forfeited, with subsequent revisions to the assumptions if actual forfeitures differ from those estimates. The vesting of certain restricted shares may be accelerated to a minimum of three years based on achievement of various individual performance measures. Acceleration of expense for awards based on individual performance factors occurs when the achievement of the performance criteria is determined.

Non-forfeitable dividends paid on shares of restricted stock are recorded to retained earnings for shares that are expected to vest and to compensation expense for shares that are not expected to vest.

Self-Insurance

Beginning in 2014, the Company assumed financial risk for providing health care benefits to its employees through a self-insured group health plan. We estimate the liabilities associated with this risk by considering historical claims experience.

Income Taxes

The Income Taxes Topic of the FASB ASC requires the use of the asset and liability method under which deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities, given the provisions of the enacted tax laws. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences.

Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any necessary valuation allowance recorded against net deferred tax assets. The process involves summarizing temporary differences resulting from the different treatment of items, such as leases, for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are included within the Consolidated Balance Sheets. Management then assesses the likelihood that deferred tax assets will be recovered from future taxable income or tax carry-back availability and, to the extent our management believes recovery is not likely, a valuation allowance is established. To the extent that we establish a valuation allowance in a period, an expense is recorded within the tax provision in the Consolidated Statements of Operations.

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2014 and 2013, there were no uncertain tax positions. The periods subject to examination for the Company’s federal return include the 2011 tax year to the present. The Company files state income tax returns in various states which may have different statutes of limitations. Generally, state income tax returns for the years 2011 through the present are subject to examination. As of December 31, 2014, the Company has a net receivable balance of $0.9 million, due to estimated payments exceeding the calculated liability.

The Company records penalties and accrued interest related to taxes, including penalties and interest related to uncertain tax positions, in income tax expense. Such adjustments have historically been minimal and immaterial to our financial results.

Earnings Per Share

The Company’s restricted stock awards are paid non-forfeitable common stock dividends and thus meet the criteria of participating securities. Accordingly, earnings per share (“EPS”) is calculated using the two-class method, under which earnings are allocated to both common shares and participating securities. All shares of restricted stock are deducted from the weighted average shares outstanding for the computation of basic EPS.

Diluted EPS is computed based on the weighted average number of common shares outstanding for the period including the dilutive impact of the exercise or conversion of common stock equivalents, such as stock options, into shares of common stock as if those securities were exercised or converted.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2014-08,Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.Under the new guidance, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This guidance also changes an entity’s requirements when presenting, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation. A discontinued operation may include a component of an entity, or a business or nonprofit activity. The guidance is effective interim and annual reporting periods beginning after December 15, 2014. The adoption of the new requirements is not expected to have a material impact on the consolidated earnings, financial position or cash flows of the Company.

In May 2014, the FASB issued Accounting Standards Update 2014-09,Revenue from Contracts with Customers (Topic 606).The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The adoption of the new requirements is not expected to have a material impact on the consolidated balance sheet, statement of operations, or statement of cash flows of the Company.

In June 2014, the FASB issued Accounting Standards Update 2014-12,Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.Under the new guidance, it is required that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This guidance also requires that the performance target not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The adoption of the new requirements is not expected to have a material impact on the consolidated balance sheet, statement of operations, or statement of cash flows of the Company.

In August 2014, the FASB issued Accounting Standards Update 2014-15,Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Under the new

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

guidance, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of the new requirements is not expected to have a material impact on the consolidated balance sheet, statement of operations, or statement of cash flows of the Company.

NOTE 3 - Net Investment in Leases and Loans

Net investment in leases and loans consists of the following:

	December 31,
	2014			2013
	(Dollars in thousands)
Minimum lease payments receivable	$	710,801		$	682,081
Estimated residual value of equipment		27,458			28,396
Unearned lease income, net of initial direct costs and fees deferred		(98,738	)		(103,258	)
Security deposits		(2,600	)		(2,631	)
Loans, including unamortized deferred fees and costs		1,123			954
Allowance for credit losses		(8,537	)		(8,467	)
	$	629,507		$	597,075

At December 31, 2014, a total of $4.6 million of minimum lease payments receivable is assigned as collateral for the borrowing facility. At December 31, 2014, there is no amount outstanding under this borrowing facility and the unused borrowing capacity is $75.0 million. In addition, $32.0 million in net investment in leases are pledged as collateral for the secured borrowing capacity at the Federal Reserve Discount Window.

Initial direct costs net of fees deferred were $10.1 million and $10.3 million as of December 31, 2014 and December 31, 2013, respectively, are netted in unearned income and will be amortized to income using the effective interest method. At December 31, 2014 and December 31, 2013, $22.0 million and $22.7 million, respectively, of the estimated residual value of equipment retained on our Consolidated Balance Sheets was related to copiers.

Minimum lease payments receivable under lease contracts and the amortization of unearned lease income, including initial direct costs and fees deferred, are as follows as of December 31, 2014:

	Minimum Lease Payments Receivable		Income Amortization
	(Dollars in thousands)
Period Ending December 31,
2015	$	300,895	$	52,290
2016		207,004		28,153
2017		122,305		12,841
2018		59,282		4,565
2019		20,201		855
Thereafter		1,114		34
	$	710,801	$	98,738

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2014 and December 31, 2013, the Company maintained total finance receivables which were on a non-accrual basis of $1.7 million. As of December 31, 2014 and December 31, 2013, the Company had total finance receivables in which the terms of the original agreements had been renegotiated in the amount of $1.0 million and $0.8 million, respectively. (See Note 5 for additional asset quality information.)

NOTE 4 - Concentrations of Risk

As of December 31, 2014, leases approximating 12%, 9%, and 9% of the net investment balance of leases by the Company were located in the states of California, Florida, and Texas, respectively. No other state accounted for more than 8% of the net investment balance of leases owned and serviced by the Company as of December 31, 2014. As of December 31, 2014, no single vendor source accounted for more than 2% of the net investment balance of leases owned by the Company. The largest single obligor accounted for less than 1% of the net investment balance of leases owned by the Company as of December 31, 2014. Although the Company’s portfolio of leases includes lessees located throughout the United States, such lessees’ ability to honor their contracts may be substantially dependent on economic conditions in these states. All such contracts are collateralized by the related equipment. The Company leases to a variety of different industries, including the medical, retail, service, manufacturing and restaurant industries, among others. To the extent that the economic or regulatory conditions prevalent in such industries change, the lessees’ ability to honor their lease obligations may be adversely impacted. As of December 31, 2014, copiers comprised 80.2% of the estimated residual value of leased equipment. No other group of equipment represented more than 10% of equipment residuals as of December 31, 2014. Improvements and other changes in technology could adversely impact the Company’s ability to realize the recorded value of this equipment. There were no impairments of estimated residual value recorded during the years ended December 31, 2014, 2013, or 2012.

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - Allowance for Credit Losses

In accordance with the Contingencies Topic of the FASB ASC, we maintain an allowance for credit losses at an amount sufficient to absorb losses inherent in our existing lease and loan portfolios as of the reporting dates based on our estimate of probable net credit losses.

The table which follows provides activity in the allowance for credit losses and asset quality statistics for each of the years ended December 31, 2014, 2013, and 2012.

	Year Ended December 31,
	2014			2013			2012
	(Dollars in thousands)
Allowance for credit losses, beginning of period	$	8,467		$	6,488		$	5,353
Charge-offs		(11,463	)		(9,499	)		(6,358	)
Recoveries		2,417			1,861			1,573
Net charge-offs		(9,046	)		(7,638	)		(4,785	)
Provision for credit losses		9,116			9,617			5,920
Allowance for credit losses, end of period(1)	$	8,537		$	8,467		$	6,488
Net charge-offs to average total finance receivables(2)		1.50	%		1.41	%		1.11	%
Allowance for credit losses to total finance receivables, end of period(2)		1.36	%		1.42	%		1.30	%
Average total finance receivables(2)	$	602,923		$	540,717		$	432,829
Total finance receivables, end of period(2)	$	627,922		$	595,253		$	500,203
Delinquencies greater than 60 days past due	$	3,602		$	3,204		$	2,444
Delinquencies greater than 60 days past due(3)		0.51	%		0.47	%		0.42	%
Allowance for credit losses to delinquent accounts greater than 60 days past due(3)		237.01	%		264.26	%		265.47	%
Non-accrual leases and loans, end of period	$	1,742		$	1,665		$	1,395
Renegotiated leases and loans, end of period	$	1,014		$	815		$	862

⁽¹⁾  At December 31, 2014, 2013, and 2012, there was no allowance for credit losses allocated to loans.

⁽²⁾  Total finance receivables include net investment in direct financing leases and loans. For purposes of asset quality and allowance calculations, the effects of (i) the allowance for credit losses and (ii) initial direct costs and fees deferred are excluded.

⁽³⁾  Calculated as a percent of total minimum lease payments receivable for leases and as a percent of principal outstanding for loans.

Net investments in finance receivables are generally charged-off when they are contractually past due for 120 or more days. Income recognition is discontinued on leases or loans when a default on monthly payment exists for a period of 90 days or more. Income recognition resumes when a lease or loan becomes less than 90 days delinquent. At December 31, 2014 and 2013, there were no finance receivables past due 90 days or more and still accruing.

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net charge-offs for the year ended December 31, 2014 were $9.0 million, or 1.50% of average total finance receivables, compared to $7.6 million, or 1.41% of average total finance receivables, for the year ended December 31, 2013. The increase in net charge-offs during year ended December 31, 2014 compared to recent years is primarily due to the growth in average total finance receivables, the ongoing seasoning of the portfolio as reflected in the mix of origination vintages and the mix of credit profiles. Our key credit quality indicator is delinquency status.

NOTE 6 - Property and Equipment, Net

Property and equipment consist of the following:

	December 31,						Depreciable Life
	2014			2013
	(Dollars in thousands)
Furniture and equipment	$	2,784		$	2,792		7 years
Computer systems and equipment		10,690			10,094		3-5 years
Leasehold improvements		1,170			919		Shorter of estimated useful life
							or remaining lease term
Total property and equipment		14,644			13,805
Less - Accumulated depreciation and amortization		(11,798	)		(11,540	)
Property and equipment, net	$	2,846		$	2,265

Depreciation and amortization expense was $0.9 million for each of the years ended December 31, 2014, 2013, and 2012.

NOTE 7 - Other Assets

Other assets are comprised of the following:

	December 31,
	2014		2013
	(Dollars in thousands)
Accrued fees receivable	$	2,465	$	2,062
Deferred transaction costs		—		110
Prepaid expenses		1,748		2,011
Income taxes receivable (See Note 12 for further discussion)		854		2,580
Other		3,250		3,414
	$	8,317	$	10,177

NOTE 8 - Commitments and Contingencies

MBB is a member bank in a non-profit, multi-financial institution consortium serving as a catalyst for community development by offering flexible financing for affordable, quality housing to low- and moderate-income residents. Currently, MBB receives approximately 1.2% participation in each funded loan under the program. MBB records loans in its financial statements when they have been funded or become payable. Such loans help MBB satisfy its obligations under the Community Reinvestment Act of 1977. At December 31, 2014 and 2013, MBB had an unfunded commitment of $0.8 million and $0.9 million, respectively, for this activity. Unless renewed prior to termination, MBB’s membership in the consortium will expire in September 2015.

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company is involved in legal proceedings, which include claims, litigation and suits arising in the ordinary course of business. In the opinion of management, these actions will not have a material effect on the Company’s consolidated balance sheet, statement of operations or cash flows.

As of December 31, 2014, the Company leases all five of its office locations including its executive offices in Mt. Laurel, New Jersey, and its offices in or near Atlanta, Georgia; Philadelphia, Pennsylvania; Salt Lake City, Utah; and Sherwood, Oregon. These lease commitments are accounted for as operating leases. The Company has entered into several capital leases to finance corporate property and equipment.

The following is a schedule of future minimum lease payments for capital and operating leases as of December 31, 2014:

	Future Minimum Lease Payment Obligations
Period Ending December 31,	Capital Leases			Operating Leases		Total
	(Dollars in thousands)
2015	$	102		$	1,460	$	1,562
2016		102			1,476		1,578
2017		77			1,483		1,560
2018		—			1,428		1,428
2019		—			1,394		1,394
Thereafter		—			670		670
Total minimum lease payments	$	281		$	7,911	$	8,192
Less: amount representing interest		(21	)
Present value of minimum lease payments	$	260

Rent expense was $1.0 million, $1.0 million and $1.1 million for the years ended December 31, 2014, 2013, and 2012, respectively.

The Company has an employment agreement with a certain senior officer that currently extends through November 2015, with certain renewal options.

NOTE 9 - Deposits

MBB serves as the Company’s primary funding source. MBB issues fixed-rate FDIC-insured certificates of deposit raised nationally through various brokered deposit relationships and fixed-rate FDIC-insured deposits received from direct sources. On February 23, 2014, MBB began offering the FDIC-insured MMDA Product through participation in a partner bank’s insured savings account product. This brokered deposit product has a variable rate, no maturity date and is offered to the clients of the partner bank and recorded as a single deposit account at MBB. As of December 31, 2014, money market deposit accounts totaled $47.4 million.

As of December 31, 2014, the remaining scheduled maturities of certificates of deposits are as follows:

	Scheduled Maturities
	(Dollars in thousands)
Period Ending December 31,
2015	$	210,649
2016		142,055
2017		100,763
2018		35,170
2019		14,093
	$	502,730

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certificates of deposits are time deposits. Most certificates of deposits are issued in denominations of $250,000 or less. The MMDA Product is also issued to customers in amounts less than $250,000. The FDIC insures deposits up to $250,000 per depositor. The weighted average all-in interest rate of deposits outstanding at December 31, 2014 was 0.95%.

NOTE 10 - Long-term Borrowings

Borrowings with an original maturity of one year or more are classified as long-term borrowings. The Company’s long-term loan facility is classified as long-term borrowings. The Company did not have any outstanding long term borrowings at December 31, 2014 and December 31, 2013.

For the years ended December 31, 2014, 2013 and 2012, the Company incurred commitment fees on the unused portion of loan facilities of $1.1 million, $1.0 million, and $0.6 million, respectively.

The Company’s long-term borrowings would be collateralized by certain of the Company’s direct financing leases. The Company is restricted from selling, transferring or assigning these leases or placing liens or pledges on these leases. At the end of each period, the Company has the following minimum lease payments receivable assigned as collateral:

	December 31,
	2014		2013
	(Dollars in thousands)
Long-term Loan Facilities	$	4,569	$	14,999

Federal Funds Line of Credit with Correspondent Bank

MBB has established a federal funds line of credit with a correspondent bank. This line allows for both selling and purchasing of federal funds. The amount that can be drawn against the line is limited to $10.0 million. As of December 31, 2014 and 2013, there were no balances outstanding on this line of credit.

Federal Reserve Discount Window

In addition, MBB has received approval to borrow from the Federal Reserve Discount Window based on the amount of assets MBB chooses to pledge. MBB had $29.4 million in unused, secured borrowing capacity at the Federal Reserve Discount Window, based on $32.0 million of net investment in leases pledged at December 31, 2014.

Term Note Securitizations

07-1 Transaction — On October 24, 2007, the Company closed a $440.5 million term note securitization. In connection with the 2007-1 transaction, seven classes of fixed-rate notes were issued to investors. The weighted average interest coupon approximated 5.70% over the term of the financing. After the effects of hedging and other transaction costs are considered, total interest expense on the 2007-1 term transaction averaged approximately 6.32% over the term of the financing. On April 16, 2012, the Company elected to exercise its call option and paid off the remaining $16.9 million of its 2007 term note securitization.

10-1 Transaction — On February 12, 2010, the Company completed an $80.7 million term asset-backed securitization, of which it elected to defer the issuance of subordinated notes totaling $12.5 million. The two senior classes of notes issued under the securitization constituted eligible collateral under the Federal Reserve Bank of New York’s Term Asset-Backed Securities Loan Facility (“TALF”) program. This financing provided the Company with fixed-cost borrowing and was recorded in long-term borrowings in the Consolidated Balance Sheets. Total interest expense on the 2010-1 term transaction averaged approximately 3.13% over the term of the financing. On December 17, 2012, the Company elected to exercise its call option and paid off the remaining $3.5 million of its 2010 term note securitization.

-21-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-term Loan Facilities

On October 9, 2009, Marlin Business Services Corp.’s wholly-owned subsidiary, MRC, closed on a $75.0 million, three-year committed loan facility with the lender finance division of Wells Fargo Capital Finance. The facility is secured by a lien on MRC’s assets and is supported by guaranties from Marlin Business Services Corp. and MLC. Advances under the facility are made pursuant to a borrowing base formula, and the proceeds are used to fund lease originations. On October 3, 2014, the facility was amended to extend the maturity date to January 7, 2015. On January 7, 2015, the facility was further amended to extend the maturity date to April 8, 2015. An event of default, such as non-payment of amounts when due under the loan agreement or a breach of covenants, may accelerate the maturity date of the facility.

On September 24, 2010, the Company’s subsidiary, Marlin Leasing Receivables XIII LLC (“MLR XIII”), closed on a $50.0 million three-year committed loan facility with Key Equipment Finance Inc. The facility is secured by a lien on MLR XIII’s assets. Advances under the facility are made pursuant to a borrowing base formula, and the proceeds are used to fund lease originations. The maturity date of the facility was September 23, 2013. On March 15, 2013, the Company elected to exercise its option to repay the remaining $1.3 million of the facility.

Financial Covenants

The Company’s secured borrowing arrangements contain numerous covenants, restrictions and default provisions that it must comply with in order to obtain funding through the facility and to avoid an event of default. Some of the critical financial and credit quality covenants under the Company’s borrowing arrangements as of December 31, 2014 include:

	Actual(1)			Requirement
Debt-to-equity ratio maximum		3.16 to 1			5.5 to 1
Maximum servicer senior leverage ratio		0 to 1			5.0 to 1
Maximum portfolio delinquency ratio		0.51	%		3.50	%
Maximum gross charge-off ratio		1.88	%		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.

A change in certain executive officers as described in the loan documents is an event of default under our long-term loan facility with Wells Fargo Capital Finance, unless we hire a replacement with skills and experience appropriate for performing the duties of the applicable positions within 120 days.

A merger or consolidation with another company in which the Company is not the surviving entity is also an event of default under the financing facility. The Company’s long-term loan facility contains acceleration clauses allowing the creditor to accelerate the scheduled maturities of the obligation under certain conditions that may not be objectively determinable (for example, “if a material adverse change occurs”). An event of default under our facility could result in an acceleration of amounts outstanding under the facility, foreclosure on all or a portion of the leases financed by the facility and/or the removal of the Company as servicer of the leases financed by the facility.

As of December 31, 2014, the Company believes it was in compliance with the terms of its secured borrowing arrangements.

-22-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - Fair Value Measurements and Disclosures about the Fair Value of Financial Instruments

Fair Value Measurements

The Fair Value Measurements and Disclosures Topic of the FASB ASC establishes a framework for measuring fair value and requires certain disclosures about fair value measurements. Its provisions do not apply to fair value measurements for purposes of lease classification and measurement, which is addressed in the Leases Topic of the FASB ASC.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the measurement date (exit price). A three-level valuation hierarchy is required for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.

The three levels are defined as follows:

• Level 1 — Inputs to the valuation are unadjusted quoted prices in active markets for identical assets or liabilities.

• Level 2 — Inputs to the valuation may include quoted prices for similar assets and liabilities in active or inactive markets, and inputs other than quoted prices, such as interest rates and yield curves, which are observable for the asset or liability for substantially the full term of the financial instrument.

• Level 3 — Inputs to the valuation are unobservable and significant to the fair value measurement. Level 3 inputs shall be used to measure fair value only to the extent that observable inputs are not available.

The Company characterizes active markets as those where transaction volumes are sufficient to provide objective pricing information, such as an exchange traded price. Inactive markets are typically characterized by low transaction volumes, and price quotations that vary substantially among market participants or are not based on current information.

-23-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s balances measured at fair value on a recurring basis include the following as of December 31, 2014 and 2013:

	December 31, 2014				December 31, 2013
	Fair Value Measurements Using				Fair Value Measurements Using
	Level 1		Level 2		Level 1		Level 2
	(Dollars in thousands)
Assets
Securities available for sale	$	3,281	$	2,441	$	3,140	$	2,247

At this time, the Company has not elected to report any assets and liabilities using the fair value option available under the Financial Instruments Topic of the FASB ASC. There have been no transfers between Level 1 and Level 2 of the fair value hierarchy.

Disclosures about the Fair Value of Financial Instruments

The Financial Instruments Topic of the FASB ASC requires the disclosure of the estimated fair value of financial instruments including those financial instruments not measured at fair value on a recurring basis. This requirement excludes certain instruments, such as the net investment in leases and all nonfinancial instruments.

The fair values shown below have been derived, in part, by management’s assumptions, the estimated amount and timing of future cash flows and estimated discount rates. Valuation techniques involve uncertainties and require assumptions and judgments regarding prepayments, credit risk and discount rates. Changes in these assumptions will result in different valuation estimates. The fair values presented would not necessarily be realized in an immediate sale. Derived fair value estimates cannot necessarily be substantiated by comparison to independent markets or to other companies’ fair value information.

The following summarizes the carrying amount and estimated fair value of the Company’s financial instruments:

	December 31, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
Assets
Cash and cash equivalents	$	110,656	$	110,656	$	85,653	$	85,653
Restricted interest-earning deposits with banks		711		711		1,273		1,273
Loans		1,123		1,123		954		954
Liabilities
Deposits	$	550,119	$	549,578	$	503,038	$	502,937

-24-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The paragraphs which follow describe the methods and assumptions used in estimating the fair values of financial instruments.

(a) Cash and Cash Equivalents

The carrying amounts of the Company’s cash and cash equivalents approximate fair value as of December 31, 2014 and December 31, 2013, because they bear interest at market rates and had maturities of less than 90 days at the time of purchase. This fair value measurement is classified as Level 1.

(b) Restricted Interest-Earning Deposits with Banks

The Company maintains an interest-earning trust account related to our secured debt facility. The book value of such accounts is included in restricted interest-earning deposits with banks on the accompanying Consolidated Balance Sheet. These accounts earn a floating market rate of interest which results in a fair value approximating the carrying amount at December 31, 2014 and December 31, 2013. This fair value measurement is classified as Level 1.

(c) Securities Available for Sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon various sources of market pricing. Securities are classified within the fair value hierarchy after giving consideration to the activity level in the market for the security type and the observability of the inputs used to determine the fair value. When available, the Company uses quoted prices in active markets and classifies such instruments within Level 1 of the fair value hierarchy. Level 1 securities include mutual funds. When instruments are traded in secondary markets and quoted market prices do not exist for such securities, the Company relies on prices obtained from third-party pricing vendors and classifies these instruments within Level 2 of the fair value hierarchy. The third-party vendors use a variety of methods when pricing securities that incorporate relevant market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. Level 2 securities include municipal bonds.

(d) Loans

Loans are primarily comprised of participating interests acquired through membership in a non-profit, multi-financial institution consortium serving as a catalyst for community development by offering financing for affordable, quality housing to low- and moderate-income residents. Such loans help MBB satisfy its obligations under the Community Reinvestment Act of 1977. The fair value of the Company’s loans approximates the carrying amount at December 31, 2014 and December 31, 2013. This estimate was based on recent comparable sales transactions with consideration of current market rates. This fair value measurement is classified as Level 2.

(e) Deposits

Deposit liabilities with no defined maturity such as MMDA deposits have a fair value equal to the amount payable on demand at the reporting date (i.e., their carrying amount). Fair value for certificates of deposits is estimated by discounting cash flows at current rates paid by the Company for similar certificates of deposit of the same or similar remaining maturities. This fair value measurement is classified as Level 2.

-25-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - INCOME TAXES

The Company’s income tax provision consisted of the following components:

	Year Ended December 31,
	2014			2013			2012
	(Dollars in thousands)
Current:
Federal	$	10,212		$	9,112		$	9,045
State		1,764			1,325			1,143
Total current		11,976			10,437			10,188
Deferred
Federal		91			(811	)		(3,077	)
State		(145	)		143			46
Total deferred		(54	)		(668	)		(3,031	)
Total income tax expense	$	11,922		$	9,769		$	7,157

In accordance with U.S. GAAP, uncertain tax positions taken or expected to be taken in a tax return are subject to potential financial statement recognition based on prescribed recognition and measurement criteria. Based on our evaluation, we concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. For the years ended December 31, 2014, 2013 and 2012, there were no uncertain tax positions. We do not expect our unrecognized tax positions to change significantly over the next 12 months.

The periods subject to examination for the Company’s federal return include the 2011 tax year to the present. The Company files state income tax returns in various states which may have different statutes of limitations. Generally, state income tax returns for the years 2011 through the present are subject to examination. No material income tax interest or penalties were incurred for the years ended December 31, 2014, 2013, or 2012.

Deferred income tax expense results principally from the use of different revenue and expense recognition methods for tax and financial accounting purposes, primarily related to lease accounting. The Company estimates these differences and adjusts to actual upon preparation of the income tax returns.

-26-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The sources of these temporary differences and the related tax effects were as follows:

	December 31,
	2014			2013
	(Dollars in thousands)
Deferred income tax assets:
Allowance for credit losses	$	3,730		$	3,805
Interest-rate swaps and caps		—			12
Accrued expenses		1,092			856
Deferred income		1,788			1,882
Deferred compensation		958			1,641
Other comprehensive income		11			159
Other		190			(819	)
Total deferred income tax assets		7,769			7,536
Deferred income tax liabilities:
Lease accounting		(21,950	)		(22,386	)
Deferred acquisition costs		(2,889	)		(2,936	)
Depreciation		(151	)		(90	)
Total deferred income tax liabilities		(24,990	)		(25,412	)
Net deferred income tax liability	$	(17,221	)	$	(17,876	)

As of December 31, 2014, the Company has a net receivable balance of $0.9 million, due to estimated payments exceeding the calculated liability.

As of December 31, 2014, the Company has utilized all of its federal net operating loss carryforwards generated in prior tax years.

The following is a reconciliation of the statutory federal income tax rate to the effective income tax rate:

	Year Ended December 31,
	2014			2013			2012
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		3.4	%		3.7	%		4.1	%
Other permanent differences		(0.4	)%		(0.5	)%		0.1	%
Interest on amended returns		—	%		(0.6	)%		(0.3	)%
Other		0.1	%		—	%		(0.9	)%
Effective rate		38.1	%		37.6	%		38.0	%

-27-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - Earnings Per Common Share

The Company’s restricted stock awards are paid non-forfeitable common stock dividends and thus meet the criteria of participating securities. Accordingly, EPS has been calculated using the two-class method, under which earnings are allocated to both common stock and participating securities.

Basic EPS has been computed by dividing net income allocated to common stock by the weighted average common shares used in computing basic EPS. For the computation of basic EPS, all shares of restricted stock have been deducted from the weighted average shares outstanding.

Diluted EPS has been computed by dividing net income allocated to common stock by the weighted average number of common shares used in computing basic EPS, further adjusted by including the dilutive impact of the exercise or conversion of common stock equivalents, such as stock options, into shares of common stock as if those securities were exercised or converted.

The following table provides net income and shares used in computing basic and diluted EPS:

	Year Ended December 31,
	2014			2013			2012
	(Dollars in thousands, except per-share data)
Basic EPS
Net income	$	19,350		$	16,231		$	11,697
Less: net income allocated to participating securities		(552	)		(593	)		(500	)
Net income allocated to common stock	$	18,798		$	15,638		$	11,197
Weighted average common shares outstanding		12,887,643			12,905,110			12,739,072
Less: Unvested restricted stock awards considered participating securities		(367,147	)		(506,985	)		(562,772	)
Adjusted weighted average common shares used in computing basic EPS		12,520,496			12,398,125			12,176,300
Basic EPS	$	1.50		$	1.26		$	0.92
Diluted EPS
Net income allocated to common stock	$	18,798		$	15,638		$	11,197
Adjusted weighted average common shares used in computing basic EPS		12,520,496			12,398,125			12,176,300
Add: Effect of dilutive stock options		55,442			87,096			83,034
Adjusted weighted average common shares used in computing diluted EPS		12,575,938			12,485,221			12,259,334
Diluted EPS	$	1.49		$	1.25		$	0.91

-28-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2014, 2013, and 2012, options to purchase 15,698, 23,036, and 44,911 shares of common stock were not considered in the computation of potential common shares for purposes of diluted EPS, since the exercise prices of the options were greater than the average market price of the Company’s common stock for the respective periods.

NOTE 14 - Stockholders’ Equity

Stockholders’ Equity

On November 2, 2007, the Company’s Board of Directors approved the 2007 Repurchase Plan, under which, the Company was authorized to repurchase up to $15 million in value of its outstanding shares of common stock. On July 29, 2014, the Company’s Board of Directors approved the 2014 Repurchase Plan to replace the 2007 Repurchase Plan. Under the 2014 Repurchase Plan, the Company is authorized to repurchase up to $15 million in value of its outstanding shares of common stock. This authority may be exercised from time to time and in such amounts as market conditions warrant. Any shares purchased under this plan are returned to the status of authorized but unissued shares of common stock. The repurchases may be made on the open market, in block trades or otherwise. The program may be suspended or discontinued at any time. The repurchases are funded using the Company’s working capital.

During the year ended December 31, 2014, the Company purchased 113,884 shares of its common stock in the open market under the 2007 Repurchase Plan at an average cost of $19.66 per share and 97,507 shares of its common stock in the open market under the 2014 Repurchase Plan at an average cost of $19.08 per share. The Company purchased 231 shares of its common stock at an average cost of $18.52 per share during the year ended December 31, 2013 under the 2007 Repurchase Plan. The Company purchased 33,546 shares of its common stock at an average cost of $17.91 per share during the year ended December 31, 2012 under the 2007 Repurchase Plan. At December 31, 2014, the Company had $ 13.4 million remaining in the 2014 Repurchase Plan.

In addition to the repurchases described above, pursuant to the Company’s Equity Plans, participants may have shares withheld to cover income taxes. There were 71,673, 53,757, and 111,769 shares repurchased to cover income tax withholding in connection with shares granted under the Equity Plans during the years ended December 31, 2014, 2013 and 2012, respectively, at average per-share costs of $22.64, $21.65, and $14.21, respectively.

Regulatory Capital Requirements

Through its issuance of FDIC-insured deposits, MBB serves as the Company’s primary funding source. Over time, MBB may offer other products and services to the Company’s customer base. MBB operates as a Utah state-chartered, Federal Reserve member commercial bank, insured by the FDIC. As a state-chartered Federal Reserve member bank, MBB is supervised by both the Federal Reserve Bank of San Francisco and the Utah Department of Financial Institutions.

MBB is subject to capital adequacy guidelines issued by the Federal Financial Institutions Examination Council (the “FFIEC”). These risk-based capital and leverage guidelines make regulatory capital requirements more sensitive to differences in risk profiles among banking organizations and consider off-balance sheet exposures in determining capital adequacy. The FFIEC and/or the U.S. Congress may determine to increase capital requirements in the future due to the current economic environment. Under the rules and regulations of the FFIEC, at least half of a bank’s total capital is required to be “Tier 1 Capital” as defined in the regulations, comprised of common equity, retained earnings and a limited amount of non-cumulative perpetual preferred stock. The remaining capital, “Tier 2 Capital,” as defined in the regulations, may consist of other preferred stock, a limited amount of term subordinated debt or a limited amount of the reserve for possible credit losses. The FFIEC has also adopted minimum leverage ratios for banks, which are calculated by dividing Tier 1 Capital by total quarterly average assets. Recognizing that the risk-based capital standards principally address credit risk rather than interest rate, liquidity, operational or other risks, many banks are expected to maintain capital in excess of the minimum standards. The Company plans to provide the necessary capital to maintain MBB at “well-capitalized” status as defined by banking regulations. MBB’s Tier 1 Capital balance at December 31, 2014 was $116.0 million, which met all capital requirements to which MBB is subject and qualified MBB for “well-capitalized” status. Bank holding companies are required to comply with the Federal Reserve Board’s risk-based capital guidelines that require a minimum ratio of total capital to risk-weighted assets of 8%. At least half of the total capital is required to be Tier 1 Capital. In addition to the risk-based capital guidelines, the Federal Reserve Board has adopted a minimum leverage capital ratio under which a bank holding company must maintain a ratio of Tier 1 Capital to average total consolidated assets of at least 3% in the case of a bank holding company which has the highest regulatory examination rating and is not contemplating significant growth or expansion. All other bank holding companies are expected to maintain a leverage capital ratio of at least 4%. At December 31, 2014, Marlin Business Services Corp. also exceeded its regulatory capital requirements and was considered “well-capitalized” as defined by federal banking regulations.

-29-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the Tier 1 leverage ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio for Marlin Business Services Corp. and MBB at December 31, 2014.

	Actual					Minimum Capital Requirement					Well-Capitalized Capital Requirement
	Ratio			Amount		Ratio(1)			Amount		Ratio			Amount
	(Dollars in thousands)
Tier 1 Leverage Capital
Marlin Business Services Corp.		23.43	%	$	173,948		4	%	$	29,699		5	%	$	37,123
Marlin Business Bank		17.29	%	$	115,963		5	%	$	33,534		5	%	$	33,534
Tier 1 Risk-based Capital
Marlin Business Services Corp.		26.14	%	$	173,948		4	%	$	26,619		6	%	$	39,929
Marlin Business Bank		18.19	%	$	115,963		6	%	$	38,261		6	%	$	38,261
Total Risk-based Capital
Marlin Business Services Corp.		27.39	%	$	182,269		8	%	$	53,239		10	%	$	66,548
Marlin Business Bank		19.44	%	$	123,939		15	%	$	95,652		10	%(1)	$	63,768

⁽¹⁾ MBB is required to maintain “well-capitalized” status and must also maintain a total risk-based capital ratio greater than 15% pursuant to an agreement entered into by and among MBB, the Company, MLC and the FDIC in conjunction with the opening of MBB (the “FDIC Agreement”).

Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires the federal regulators to take prompt corrective action against any undercapitalized institution. Five capital categories have been established under federal banking regulations: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Well-capitalized institutions significantly exceed the required minimum level for each relevant capital measure. Adequately capitalized institutions include depository institutions that meet but do not significantly exceed the required minimum level for each relevant capital measure. Undercapitalized institutions consist of those that fail to meet the required minimum level for one or more relevant capital measures. Significantly undercapitalized characterizes depository institutions with capital levels significantly below the minimum requirements for any relevant capital measure. Critically undercapitalized refers to depository institutions with minimal capital and at serious risk for government seizure.

Under certain circumstances, a well-capitalized, adequately capitalized or undercapitalized institution may be treated as if the institution were in the next lower capital category. A depository institution is generally prohibited from making capital distributions, including paying dividends, or paying management fees to a holding company if the institution would thereafter be undercapitalized. Institutions that are adequately capitalized but not well-capitalized cannot accept, renew or roll over brokered deposits except with a waiver from the FDIC and are subject to restrictions on the interest rates that can be paid on such deposits. Undercapitalized institutions may not accept, renew or roll over brokered deposits.

The federal bank regulatory agencies are permitted or, in certain cases, required to take certain actions with respect to institutions falling within one of the three undercapitalized categories. Depending on the level of an institution’s capital, the agency’s corrective powers include, among other things:

• 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;

-30-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• 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.

A banking institution that is undercapitalized is required to submit a capital restoration plan, and such a plan will not be accepted unless, among other things, the banking institution’s holding company guarantees the plan up to a certain specified amount. Any such guarantee from a depository institution’s holding company is entitled to a priority of payment in bankruptcy.

Pursuant to the FDIC Agreement entered into in conjunction with the opening of MBB, MBB must keep its total risk-based capital ratio above 15%. MBB’s total risk-based capital ratio of 19.44% at December 31, 2014 exceeded the threshold for “well capitalized” status under the applicable laws and regulations, and also exceeded the 15% minimum total risk-based capital ratio required in the FDIC Agreement.

Dividends. The Federal Reserve Board has issued policy statements requiring insured banks and bank holding companies to have an established assessment process for maintaining capital commensurate with their overall risk profile. Such assessment process may affect the ability of the organizations to pay dividends. Although generally organizations may pay dividends only out of current operating earnings, dividends may be paid if the distribution is prudent relative to the organization’s financial position and risk profile, after consideration of current and prospective economic conditions.

In addition to the Company’s regular quarterly dividend, the Company’s Board of Directors declared a special cash dividend of $2.00 per share on September 4, 2013. The special dividend was paid on September 26, 2013 to shareholders of record on the close of business on September 16, 2013, which resulted in a dividend payment of approximately $26.0 million.

NOTE 15 - Stock-Based Compensation

Under the terms of the Company’s 2014 Equity Compensation Plan (approved by the Company’s shareholders on June 3, 2014) (the “2014 Plan”), employees, certain consultants and advisors and non-employee members of the Company’s Board of Directors have the opportunity to receive incentive and nonqualified grants of stock options, stock appreciation rights, restricted stock and other equity-based awards as approved by the Company’s Board of Directors. These award programs are used to attract, retain and motivate employees and to encourage individuals in key management roles to retain stock. The Company has a policy of issuing new shares to satisfy awards under the 2014 Plan. The aggregate number of shares under the 2014 Plan that may be issued pursuant to stock options or restricted stock grants is 1,200,000 with not more than 1,000,000 of such shares shall be available for issuance as restricted stock grants. There were 1,084,920 shares available for future grants under the 2014 Plan as of December 31, 2014, of which 884,920 shares were available to be issued as restricted stock grants.

Total stock-based compensation expense was $2.0 million for the year ended December 31, 2014. Total stock-based compensation expense was $2.6 million for each of the years ended December 31, 2013 and 2012. Excess tax benefits from stock-based payment arrangements increased cash provided by financing activities and decreased cash provided by operating activities by $0.8 million, $1.1 million and, $0.6 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Stock Options

In previous years, stock option awards were issued as part of the Company’s overall compensation strategy.

Option awards were generally granted with an exercise price equal to the market price of the Company’s stock at the date of the grant and have 7- to 10-year contractual terms. All options issued contain service conditions based on the participant’s continued service with the Company, and provide for accelerated vesting if there is a change in control as defined in the 2014 Plan. Employee stock options generally vest over four years. In previous years, the Company also issued stock options to independent directors. These options generally vest in one year.

There were no stock options granted during the years ended December 31, 2014, 2013 and 2012.

-31-

MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of option activity for the each of the three years in the period ended December 31, 2014 follows:

Options	Number of Shares			Weighted Average Exercise Price Per Share
Outstanding, December 31, 2011		475,217		$	10.93
Granted		—			—
Exercised		(89,900	)		9.47
Forfeited		(17,154	)		10.33
Expired		(4,644	)		19.78
Outstanding, December 31, 2012		363,519		$	11.21
Granted		—			—
Exercised		(127,957	)		11.91
Forfeited		(4,229	)		10.38
Expired		(12,416	)		18.48
Outstanding, December 31, 2013		218,917		$	10.40
Granted		—			—
Exercised		(14,469	)		10.66
Forfeited		—			—
Expired		(11,097	)		13.10
Outstanding, December 31, 2014		193,351		$	10.23

During the years ended December 31, 2014, 2013, and 2012, the Company recognized total compensation expense related to options of $0.1 million, $0.2 million, and $0.1 million, respectively.

There were 14,469, 127,957, and 89,900 stock options exercised during the years ended December 31, 2014, 2013, and 2012, respectively. The total pretax intrinsic value of stock options exercised was $0.1 million, $1.7 million, and $0.7 million for the years ended December 31, 2014, 2013, and 2012, respectively.

The following table summarizes information about the stock options outstanding and exercisable as of December 31, 2014:

	Options Outstanding								Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value (In thousands)		Number Exercisable		Weighted Average Remaining Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value (In thousands)
$ 7.17 - 9.52		128,394		0.5		9.13		1,464		50,862		1.0		8.53		610
$ 12.08 - 12.41		64,957		2.4		12.39		529		49,259		2.4		12.38		401
		193,351		1.1		10.23	$	1,993		100,121		1.7		10.42	$	1,011

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $20.53 as of December 31, 2014, which would have been received by the option holders had all option holders exercised their options as of that date.

As of December 31, 2014, there was no future compensation cost related to non-vested stock options not yet recognized in the Consolidated Statements of Operations based on the most probable performance assumptions. As of December 31, 2014, $0.5 million of additional potential compensation cost related to non-vested stock options has not been recognized due to performance targets not being achieved. However, in certain circumstances, these options may be subject to vesting prior to their expiration dates. The weighted average remaining term of these options is approximately 1.1 years.

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Awards

Restricted stock awards provide that, during the applicable vesting periods, the shares awarded may not be sold or transferred by the participant. The vesting period for restricted stock awards generally ranges from three to 10 years. All awards issued contain service conditions based on the participant’s continued service with the Company, and provide for accelerated vesting if there is a change in control as defined in the 2014 Plan.

The vesting of certain restricted shares may be accelerated to a minimum of three years based on achievement of various individual performance measures. Acceleration of expense for awards based on individual performance factors occurs when the achievement of the performance criteria is determined.

In addition, the Company has issued certain shares under a Management Stock Ownership Program. Under this program, restrictions on the shares lapse at the end of 10 years but may lapse (vest) in a minimum of three years if the employee continues in service at the Company and owns a matching number of other common shares in addition to the restricted shares.

Of the total restricted stock awards granted during the year ended December 31, 2014, 44,979 shares may be subject to accelerated vesting based on individual performance factors; no shares have vesting contingent upon performance factors. Vesting was accelerated in 2014, 2013 and 2012 on certain awards based on the achievement of certain performance criteria determined annually, as described below.

The Company also issues restricted stock to non-employee independent directors. These shares generally vest in seven years from the grant date or six months following the director’s termination from Board of Directors service.

The following table summarizes the activity of the non-vested restricted stock during the each of the three years in the period ended December 31, 2014:

Non-vested restricted stock	Shares			Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2011		790,484		$	9.96
Granted		92,689			14.69
Vested		(327,707	)		8.08
Forfeited		(31,499	)		10.49
Outstanding at December 31, 2012		523,967		$	11.94
Granted		163,417			20.29
Vested		(160,738	)		11.05
Forfeited		(32,184	)		16.83
Outstanding at December 31, 2013		494,462		$	14.67
Granted		118,293			18.72
Vested		(246,284	)		14.36
Forfeited		(20,435	)		19.46
Outstanding at December 31, 2014		346,036		$	15.99

During the years ended December 31, 2014, 2013, and 2012, the Company granted restricted stock awards with grant date fair values totaling $2.2 million, $3.3 million, and $1.4 million, respectively.

As vesting occurs, or is deemed likely to occur, compensation expense is recognized over the requisite service period and additional paid-in capital is increased. The Company recognized $2.0 million, $2.4 million, and $2.5 million of compensation expense related to restricted stock for the years ended December 31, 2014, 2013, and 2012, respectively.

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Of the $2.0 million total compensation expense related to restricted stock for the year ended December 31, 2014, approximately $0.6 million related to accelerated vesting during the first quarter of 2014, based on the achievement of certain performance criteria determined annually. Of the $2.4 million total compensation expense related to restricted stock for the year ended December 31, 2013, approximately $0.4 million related to accelerated vesting during the first quarter of 2013, which was also based on the achievement of certain performance criteria determined annually.

As of December 31, 2014, there was $3.6 million of unrecognized compensation cost related to non-vested restricted stock compensation scheduled to be recognized over a weighted average period of 4.0 years. In the event individual performance targets are achieved, $1.4 million of the unrecognized compensation cost would accelerate to be recognized over a weighted average period of 0.9 years. In addition, certain of the awards granted may result in the issuance of 44,198 additional shares of stock if achievement of certain targets is greater than 100%. The expense related to the additional shares awarded will be dependent on the Company’s stock price when the achievement level is determined.

The fair values of shares that vested during the years ended December 31, 2014, 2013, and 2012 were $5.4 million, $3.5 million, and $4.7 million, respectively.

Employee Stock Purchase Plan

In May 2012, the Company’s shareholders approved the adoption of the Company’s 2012 Employee Stock Purchase Plan (the “2012 ESPP”). Under the terms of the 2012 ESPP, employees have the opportunity to set aside up to 10% of their compensation (subject to certain maximums) and to purchase shares of common stock during designated offering periods at a price equal to the lesser of 95% of the fair market value per share on the first day of the offering period or the fair market value per share on the purchase date. The aggregate number of shares that may be issued under the 2012 ESPP is 140,000. During the years ended 2014 and 2013 14,428 and 14,727 shares, respectively, of common stock were sold for $0.3 million and $0.3 million, respectively, pursuant to the terms of the 2012 ESPP. As of December 31, 2014, there were 102,057 shares remaining available for issuance under the 2012 ESPP.

NOTE 16 - Employee 401(k) Plan

The Company adopted a 401(k) plan (the “401(k) Plan”) which originally became effective as of January 1, 1997. The Company’s employees are entitled to participate in the 401(k) Plan, which provides savings and investment opportunities. Employees can contribute up to the maximum annual amount allowable per Internal Revenue Service guidelines. Effective July 1, 2007, the 401(k) Plan provides for Company contributions equal to 25% of an employee’s contribution percentage up to a maximum employee contribution of 6%. The Company’s Board of Directors voted to authorize the doubling of the required match for the calendar year 2012. The Company’s contributions to the 401(k) Plan for the years ended December 31, 2014, 2013, and 2012 were approximately $0.1 million, $0.4 million, and $0.4 million, respectively.

NOTE 17 - Related Party Transactions

The Company obtains all of its commercial, healthcare and other insurance coverage through The Selzer Company, an insurance broker located in Warrington, Pennsylvania. Richard Dyer, the brother of Daniel P. Dyer, the Company’s Chief Executive Officer, is the President of The Selzer Company. The Company does not have any contractual arrangement with The Selzer Group or Richard Dyer, nor does it pay either of them any direct fees. Insurance premiums paid to The Selzer Company were $0.4 million, $0.5 million, and $0.5 million during the years ended December 31, 2014, 2013 and 2012, respectively.

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - Parent Company

Summarized financial information of the parent company is as follows:

Parent Company - Balance Sheet

	December 31,
	2014			2013
	(Dollars in thousands, except per-share data)
ASSETS
Investment in and advances to subsidiaries:
Bank subsidiary	$	115,978		$	95,254
Nonbank subsidiaries		57,986			67,784
Total assets	$	173,964		$	163,038
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total Liabilities		—			—
Stockholders’ equity:
Common Stock, $0.01 par value; 75,000,000 shares authorized; 12,838,449 and 12,994,758 shares issued and outstanding at December 31, 2014 and 2013, respectively		128			130
Preferred Stock, $0.01 par value; 5,000,000 shares authorized; none issued		—			—
Additional paid-in capital		89,130			91,730
Stock subscription receivable		(2	)		(2	)
Accumulated other comprehensive loss		(17	)		(257	)
Retained earnings		84,725			71,437
Total stockholders’ equity		173,964			163,038
Total liabilities and stockholders’ equity	$	173,964		$	163,038

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Parent Company - Income Statement

	Year Ended December 31,
	2014			2013			2012
	(Dollars in thousands)
Income:
Dividends from nonbank subsidiaries	$	11,789		$	42,537		$	15,741
Dividends from bank subsidiary		—			—			—
Total revenue		11,789			42,537			15,741
Total expense		—			—			—
Income before income taxes and equity in undistributed net income of subsidiaries		11,789			42,537			15,741
Income tax (benefit) expense		—			—			—
Equity in undistributed income (loss):
Bank subsidiary		20,484			16,167			9,788
Nonbank subsidiaries		(12,923	)		(42,473	)		(13,832	)
Net Income	$	19,350		$	16,231		$	11,697
Other comprehensive income:
Amortization of net deferred losses on cash flow hedge derivatives		—			—			53
Increase (decrease) in fair value of securities available for sale		388			(506	)		36
Tax effect		(148	)		194			(35	)
Total other comprehensive income (loss)		240			(312	)		54
Comprehensive income	$	19,590		$	15,919		$	11,751

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Parent Company - Statement of Cash Flows

	Year Ended December 31,
	2014			2013			2012
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	19,350		$	16,321		$	11,697
Adjustments to reconcile net income to net cash from operating activities:
Equity in undistributed net (income) losses of subsidiaries		(19,350	)		(424	)		4,044
Net cash provided by operating activities		—			15,807			15,741
Cash flows from investing activities:
Capital returned from nonbank subsidiaries		11,789			26,730			—
Capital contributed to subsidiaries		(407	)		(11,794	)		(10,987	)
Net cash provided by (used in) investing activities		11,382			14,936			(10,987	)
Cash flows from financing activities:
Issuances of common stock		253			270			136
Repurchases of common stock		(5,727	)		(1,168	)		(2,189	)
Dividends paid to common stockholders		(6,062	)		(31,369	)		(3,552	)
Exercise of stock options		154			1,524			851
Net cash used in financing activities		(11,382	)		(30,743	)		(4,754	)
Net increase in total cash and cash equivalents		—			—			—
Total cash and cash equivalents, beginning of period		—			—			—
Total cash and cash equivalents, end of period	$	—		$	—		$	—

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - Events Subsequent to Year-End

The Company declared a dividend of $0.125 per share on February 4, 2015. The quarterly dividend, which amounted to a dividend payment of approximately $1.6 million, was paid on February 26, 2015 to shareholders of record on the close of business on February 16, 2015. It represented the Company’s fourteenth consecutive quarterly cash dividend. The payment of future dividends will be subject to approval by the Company’s Board of Directors.

On January 7, 2015, the Company’s affiliate, MRC, amended its $75.0 million borrowing facility. The amendment changed the maturity date of the facility from January 7, 2015 to April 8, 2015.

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MARLIN BUSINESS SERVICES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplementary Data

The selected unaudited quarterly financial data presented below should be read in conjunction with the Consolidated Financial Statements and related notes.

Selected Quarterly Financial Data (Unaudited)

	Fiscal Year Quarters
	First		Second		Third		Fourth
	(Dollars in thousands, except per-share data)
Year ended December 31, 2014
Interest income	$	16,737	$	16,740	$	16,705	$	16,582
Fee income		3,685		3,450		3,881		3,904
Interest and fee income		20,422		20,190		20,586		20,486
Interest expense		1,181		1,216		1,250		1,318
Provision for credit losses		1,732		2,124		2,706		2,554
Income tax expense		2,900		2,921		3,039		3,062
Net income		4,643		4,936		4,904		4,867
Basic earnings per share		0.36		0.38		0.38		0.38
Diluted earnings per share		0.36		0.38		0.38		0.38
Cash dividends declared per share		0.11		0.11		0.125		0.125
Net investment in leases and loans		600,516		615,132		618,691		629,507
Total assets		741,036		736,245		740,185		758,449
Year ended December 31, 2013
Interest income	$	15,057	$	15,732	$	16,286	$	16,610
Fee income		3,175		3,148		3,410		3,657
Interest and fee income		18,232		18,880		19,696		20,267
Interest expense		1,256		1,166		1,036		1,087
Provision for credit losses		2,164		1,893		2,303		3,257
Income tax expense		2,346		2,469		2,870		2,084
Net income(1)		3,651		4,467		4,687		3,426
Basic earnings per share		0.29		0.35		0.37		0.26
Diluted earnings per share		0.28		0.34		0.36		0.26
Cash dividends declared per share(2)		0.10		0.10		2.11		0.11
Net investment in leases and loans		525,901		556,309		576,377		597,075
Total assets		639,640		679,539		673,151		702,207

(1) Net income for the fourth quarter of 2013 reflects an after-tax adjustment charge of approximately $1.3 million, of $0.10 diluted earnings per share, due to the departure of the Company’s Chief Operating Officer.

(2) As previously disclosed, in addition to the Company’s regular quarterly dividend, the Company’s Board of Directors declared a special cash dividend of $2.00 per share on September 4, 2013.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Documents filed as part of this Report

The following is a list of consolidated and combined financial statements and supplementary data included in this report under Item 8 of Part II hereof:

1. Financial Statements and Supplemental Data

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2014 and 2013.

Consolidated Statements of Operations for the years ended December 31, 2014, 2013, and 2012.

Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013, and 2012.

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 2013, and 2012.

Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012.

Notes to Consolidated Financial Statements.

(b) Exhibits.

Number	Description
23.1	Consent of Deloitte & Touche LLP (Filed herewith)
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)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 13, 2015

MARLIN BUSINESS SERVICES CORP.
By:	/s/ DANIEL P. DYER
	Daniel P. Dyer
	Chief Executive Officer

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