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MicroFinancial Inc Reports Operating Results (10-Q)

November 15, 2010 | About:
10qk

10qk

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MicroFinancial Inc (MFI) filed Quarterly Report for the period ended 2010-09-30.

Microfinancial Inc has a market cap of $63.06 million; its shares were traded at around $4.42 with a P/E ratio of 12.63 and P/S ratio of 1.37. The dividend yield of Microfinancial Inc stocks is 4.52%.MFI is in the portfolios of Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

We finance the funding of our leases and contracts primarily through cash provided by operating activities and our revolving line of credit. On August 2, 2007, we entered into a three-year line of credit with Sovereign Bank based on qualified TimePayment lease receivables. The total commitment under the facility was originally $30 million, and was subsequently increased to $60 million in July 2008, to $85 million in February 2009, and most recently to $100 million in connection with a July 28, 2010 amendment. Outstanding borrowings are collateralized by eligible lease contracts and a security interest in all of our other assets. Prior to the July 2010 amendment, outstanding borrowings bore interest at Prime plus 1.75% or at LIBOR plus 3.75%, in each case subject to a minimum rate of 5%. Following the July 2010 amendment, outstanding borrowings bear interest at either Prime plus 1.25% or LIBOR plus 3.25%, without being subject to any minimum rate. Under the terms of the facility, loans are Prime Rate Loans, unless we elect LIBOR Loans. If a LIBOR Loan is not renewed at maturity it automatically coverts to a Prime Rate Loan. The July 2010 amendment extended the maturity date of the facility to August 2, 2013. At our option, upon maturity, the unpaid principal balance may be converted to a six-month term loan.

Total revenues for the three months ended September 30, 2010 were $12.9 million, an increase of $0.9 million, or 7.7%, from the three months ended September 30, 2009. The overall increase was due to an increase of $1.2 million in income on financing leases, partially offset by a decrease of $0.2 million in rental income, and a decrease of $0.1 million in income on service contracts. The increase in income on financing leases is a result of the continued growth in new lease originations. The decline in rental income is the result of the attrition of Leasecomm rental contracts which is partially offset by TimePayment lease contracts coming to term and converting to rental status. Service contract revenue continues to decline since we have not funded any new service contracts since 2004.

We maintain an allowance for credit losses on our investment in leases, service contracts and rental contracts at an amount that we believe is sufficient to provide adequate protection against losses in our portfolio. Our provision for credit losses decreased by $0.5 million, or 8.6%, for the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, while net charge-offs increased by 6.6% to $5.4 million. The 90-day delinquent lease payments receivable on an exposure basis decreased by 18.4% to $19.9 million at September 30, 2010 compared to $24.5 million at September 30, 2009. The decrease in the allowance reflects improvements in delinquency levels and improved credit quality of the lease portfolio.

As of June 30, 2010 we had a liability of $20,000 for unrecognized tax benefits and a liability of $8,000 for accrued interest and penalties related to various state income tax matters. As of September 30, 2010 we had a liability of $20,000 for unrecognized tax benefits and a liability of $8,000 for accrued interest and penalties. Of these amounts, approximately $18,000 would impact our effective tax rate after a $10,000 federal tax benefit for state income taxes. It is reasonably possible that the total amount of unrecognized tax benefits may change significantly within the next 12 months; however at this time we are unable to estimate the change.

Dealer funding was $19.3 million for the three months ended September 30, 2010, a decrease of $1.4 million or 6.7%, compared to the three months ended September 30, 2009. We continue to concentrate on our business development efforts, which include increasing the size of our vendor base and sourcing a larger number of applications from those vendors. Receivables due in installments, estimated residual values, net investment in service contracts and net investment in rental contracts increased from $207.9 million at June 30, 2010 to $211.8 million at September 30, 2010. Net cash provided by operating activities increased by $4.4 million, or 29.6%, to $19.2 million during the three months ended September 30, 2010 as compared to the three months ended September 30, 2009.

Total revenues for the nine months ended September 30, 2010 were $37.8 million, an increase of $3.9 million, or 11.4%, from the nine months ended September 30, 2009. The overall increase was due to an increase of $3.9 million in income on financing leases, and a $0.8 million increase in fees and other income partially offset by a decrease of $0.7 million in rental income, and a decrease of $0.1 million in income on service contracts. The increase in income on financing leases is a result of the continued growth in our lease portfolio. The decline in rental income is the result of attrition of Leasecomm rental contracts which is partially offset by TimePayment lease contracts coming to term and converting to rentals. Service contract revenue continues to decline since we have not been actively funding new service contracts.

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