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MicroFinancial Inc Reports Operating Results (10-Q)

November 16, 2009 | About:
10qk

10qk

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MicroFinancial Inc (MFI) filed Quarterly Report for the period ended 2009-09-30.

MicroFinancial Incorporated is a specialized commercial finance company that leases and rents `microticket` equipment and provides other financing services. MicroFinancial Inc. formerly Boyle Leasing Technologies, through subsidiary TimePayment, provides leasing and financing services through vendors to small businesses. TimePayment leases and rents commercial equipment automated teller machines, espresso machines, credit card terminals, computers, vending machines, water purification equipment, wireless communications devices, and more. The company's services are provided through a network of independent vendors; these equipment vendors submit their clients' financing applications to TimePayment via the Internet, telephone, fax, or e-mail. Microfinancial Inc has a market cap of $47 million; its shares were traded at around $3.3165 with a P/E ratio of 12.28 and P/S ratio of 1.19. The dividend yield of Microfinancial Inc stocks is 6.03%.

Highlight of Business Operations:

Total revenues for the three months ended September 30, 2009 were $12.0 million, an increase of $1.9 million, or 18.7%, from the three months ended September 30, 2008. The overall increase was due to an increase of $1.6 million in income on financing leases, an increase of $0.6 million in fees and other income, partially offset by a decrease of $0.2 million in rental income, a decrease of $0.1 million in income on service contracts, and a decrease of $23,000 in interest income. 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 rentals. 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 increased by $1.7 million, or 43.8%, for the three months ended September 30, 2009, as compared to the three months ended September 30, 2008, while net charge-offs increased by 76.2% to $5.1 million. The 90-day delinquent lease payments receivable on an exposure basis increased by 36.5% to $24.5 million at September 30, 2009 compared to $17.9 million at September 30, 2008. The increase in the allowance for credit losses reflects both the increased size of our lease portfolio and increased delinquency levels.

As of June 30, 2009, we had a liability of $293,000 for unrecognized tax benefits and a liability of $170,000 for accrued interest and penalties related to various state income tax matters. As of September 30, 2009 we had a liability of $286,000 for unrecognized tax benefits and a liability of $156,000 for accrued interest and penalties. Of these amounts, approximately $288,000 would impact our effective tax rate after a $155,000 federal tax benefit for state income taxes. The decrease in the unrecognized tax benefits and interest is due to the release of certain state reserves related to the expiration of various state statutes of limitations on exposure items. It is reasonably possible that the total amount of unrecognized tax benefits may change significantly within the next twelve months; however, at this time we are unable to estimate the change.

Dealer funding was $20.7 million for the three months ended September 30, 2009, an increase of $4.7 million or 29.0%, compared to the three months ended September 30, 2008. 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 $180.6 million at June 30, 2009 to $191.7 million at September 30, 2009. Net cash provided by operating activities increased by $3.6 million, or 31.8%, to $14.8 million during the three months ended September 30, 2009 as compared to the three months ended September 30, 2008.

Total revenues for the nine months ended September 30, 2009 were $34.0 million, an increase of $5.0 million, or 17.2%, from the nine months ended September 30, 2008. The overall increase was due to an increase of $5.0 million in income on financing leases, and a $1.4 million increase in fees and other income partially offset by a decrease of $1.1 million in rental income, a decrease of $0.2 million in income on service contracts and a decrease of $0.1 million in interest income. 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 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.

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 increased by $5.7 million, or 55.7%, for the nine months ended September 30, 2009, as compared to the nine months ended September 30, 2008, while net charge-offs increased by 148.8% to $13.7 million. The 90-day delinquent lease payments receivable on an exposure basis increased by 36.5% to $24.5 million at September 30, 2009 compared to $17.9 million at September 30, 2008. The increase in the allowance for credit losses reflects both the increased size of our lease portfolio and increased delinquency levels.

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