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Microfinancial $5.9M Q Loss/Revenues Down $8.2M

MicroFinancial Incorporated Announces Second Quarter 2004 Results

WOBURN, Mass.----MicroFinancial Incorporated (NYSE:MFI), announced today its financial results for the second quarter and the six months ended June 30, 2004.

Second quarter revenue for the period ended June 30, 2004, was $15.8 million compared to $24.0 million for the same period last year. The reduction in revenues is attributable to the decrease in the size of the Company's portfolio of leases, rentals and service contracts. The reduction in revenues is directly related to the Company's suspension of virtually all originations beyond October 2002.

The net loss for the quarter was $5.9 million, or ($0.45) per share on 13,182,666 shares as compared with a net loss of $3.7 million or ($0.29) per share in the prior year's second quarter. The net loss is primarily the result of a 61.4% decline in lease and loan revenues to $3.2 million, a 33.0% decline in service contracts to $1.6 million, and a 44.3% decrease in service fees and other to $1.8 million as compared to the same period last year. Other components of revenue declined by 8.5% to $9.2 million

Total operating expenses for the quarter declined approximately 15.3% to $25.6 million as compared to the same period in 2003. Interest expense declined 71.5% to $0.6 million as a result of lower debt balances of approximately $95.2 million. Selling, general and administrative expenses decreased 21.4% to $6.8 million for the second quarter ended June 30, 2003, versus $8.7 million for the same period last year. The decrease was attributable to reductions in personnel related expenses of approximately $0.7 million, a $0.4 million reduction in sales program costs, a $0.5 million reduction in professional and legal fees, and a $0.1 million reduction in cost of goods sold. The provision for credit losses decreased 7.0% to $14.2 million for the quarter ended June 30, 2004 from $15.2 million for the same period last year, while net charge offs decreased to $19.7 million. Past due balances greater than 31 days delinquent at June 30, 2004 decreased to 17.7% from 19.2% last quarter. Total cash received from customers for the quarter decreased 10.7% to $22.5 compared to $25.2 million for the previous quarter. During the quarter the Company repaid $15.1 million on its senior credit facility and securitized debt.

Richard Latour, President and Chief Executive Officer stated, "I am pleased that the collections from our existing portfolio remained strong in the second quarter. The Company's ongoing strategy of driving down expenses while maximizing collections continued."

The Company remains in full compliance with the terms and conditions of its securitizations and senior credit facility. The Company operates within all delinquency and charge-off covenants and has made or exceeded all scheduled payments on these debt instruments in a timely manner. During the quarter, MicroFinancial's successful collections efforts allowed the Company to reduce its bank debt by $14.4 million to $26.1 million. The Company also made its final payment on the securitized debt.

Year to date revenues for the period ended June 30, 2004 decreased 31.8% to $33.8 million compared to $49.5 million during the same period in 2003. The reduction in revenues is directly related to the Company's decision to suspend funding virtually all originations since October 2002 as a result of its Lenders' decision not to renew the revolving credit facility on September 30, 2002.

The net loss year to date ending June 30, 2004 was $10.6 million versus a net loss of $4.5 million for the same period last year. Net loss per share year to date was ($0.80) on 13,181,107 shares.

Total operating expenses for the six months ended June 30, 2004 were $51.4 million compared to $57.0 million in 2003. Interest expense declined 69.5% to $1.5 million as a result of lower average debt balances of approximately $101.3 million. Selling, general and administrative expenses decreased 20.8% to $14.1 million for the six months ended June 30, 2004 versus $17.8 million for the same period last year. The decrease was driven by a reduction in personnel related expenses of approximately $1.7 million, a $0.8 million reduction in professional fees and legal costs, a $0.8 million reduction in sales program expenses, and a reduction in facilities expenses of $0.8 million. The Company's headcount at June 30, 2004 was 120, down from 159 from the same period last year. The provision for credit losses increased 5.9% to $27.6 million for the six months ended June 30, 2004 from $26.1 million for the same period last year. Year to date net charge-offs increased to $39.3 million from $36.2 million for the same period last year, and the Company repaid $32.5 million on its senior credit facility and securitizations for the six months ended June 30, 2004.

MicroFinancial Incorporated continues to operate without the use of gain on sale accounting treatment and a balance sheet with total liabilities less subordinated debt to total equity plus subordinated debt of 0.6 to 1.

Mr. Latour concluded, "MicroFinancial's capital structure and cash flow remain strong. Although no new originations occurred during the second quarter, the closing of a new $10 million credit facility in June has allowed the Company to begin the process of signing new vendors and processing lease applications. We continue to seek various financing, restructuring and strategic alternatives that will enable the Company to strengthen its position in the leasing market."

ONTACT: MicroFinancial Incorporated

Richard F. Latour, 781-994-4800

President and CEO

SOURCE: MicroFinancial Incorporated

full press release with financial statements available at:

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