10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2013

or

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

Commission File No. 1-14771

MICROFINANCIAL INCORPORATED

(Exact name of registrant as specified in its charter)

Massachusetts	04-2962824
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

16 New England Executive Park, Suite 200, Burlington, MA 01803

(Address of principal executive offices)

(781) 994-4800

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(b) of the Securities and 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.    x  Yes    ¨  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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

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	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

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

As of November 8, 2013, 14,435,498 shares of the registrant’s common stock were outstanding.

MICROFINANCIAL INCORPORATED

TABLE OF CONTENTS

			Page
Part I - FINANCIAL INFORMATION
	Item 1.	Financial Statements (unaudited):
		Condensed Consolidated Balance Sheets - September 30, 2013, and December 31, 2012		3
		Condensed Consolidated Statements of Income - Three and nine months ended September 30, 2013 and 2012		4
		Condensed Consolidated Statements of Stockholders’ Equity – Nine months ended September 30, 2013, and twelve months ended December 31, 2012		5
		Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2013 and 2012		6
		Notes to Condensed Consolidated Financial Statements		7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		28
	Item 4.	Controls and Procedures		28
Part II - OTHER INFORMATION
	Item 1.	Legal Proceedings		29
	Item 1A.	Risk Factors		29
	Item 6.	Exhibits		30
Signatures
Headers

2

MICROFINANCIAL INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

	September 30, 2013			December 31, 2012
ASSETS
Cash and cash equivalents	$	1,389		$	3,557
Restricted cash		1,641			1,213
Net investment in leases:
Receivables due in installments		215,599			213,466
Estimated residual value		23,545			24,176
Initial direct costs		1,746			1,751
Less:
Advance lease payments and deposits		(3,088	)		(3,278	)
Unearned income		(60,378	)		(62,244	)
Allowance for credit losses		(15,534	)		(14,038	)
Net investment in leases		161,890			159,833
Investment in service contracts, net		1,693			797
Investment in rental contracts, net		1,139			1,037
Property and equipment, net		1,364			1,534
Other assets		1,721			1,658
Total assets	$	170,837		$	169,629
LIABILITIES AND STOCKHOLDERS’ EQUITY
Revolving line of credit	$	70,766		$	70,380
Accounts payable		3,254			3,220
Dividends payable		54			40
Other liabilities		2,581			2,545
Income taxes payable		287			653
Deferred income taxes		6,991			10,399
Total liabilities		83,933			87,237
Commitments and contingencies (Note H)
Stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued at September 30, 2013, and December 31, 2012		—			—
Common stock, $.01 par value; 25,000,000 shares authorized; 14,435,498 and 14,470,219 shares issued at September 30, 2013, and December 31, 2012, respectively		144			145
Additional paid-in capital		47,329			47,500
Retained earnings		39,431			34,747
Total stockholders’ equity		86,904			82,392
Total liabilities and stockholders’ equity	$	170,837		$	169,629

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

3

MICROFINANCIAL INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share data)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Revenues:
Income on financing leases	$	10,303	$	10,160	$	30,866	$	29,715
Rental income		2,660		2,462		7,845		7,181
Income on service contracts		250		95		640		265
Loss and damage waiver fees		1,474		1,370		4,361		3,978
Service fees and other		1,056		950		3,000		2,837
Total revenues		15,743		15,037		46,712		43,976
Expenses:
Selling, general and administrative		4,618		4,466		14,121		12,847
Provision for credit losses		4,790		4,847		14,414		14,291
Depreciation and amortization		1,355		1,083		3,970		3,156
Interest		679		747		2,009		2,035
Total expenses		11,442		11,143		34,514		32,329
Income before provision for income taxes		4,301		3,894		12,198		11,647
Provision for income taxes		1,721		1,587		4,886		4,688
Net income	$	2,580	$	2,307	$	7,312	$	6,959
Net income per common share – basic	$	0.18	$	0.16	$	0.51	$	0.49
Net income per common share – diluted	$	0.18	$	0.16	$	0.49	$	0.47
Weighted-average shares:
Basic		14,433,695		14,311,900		14,469,077		14,297,888
Diluted		14,744,158		14,716,500		14,773,263		14,669,997

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

4

MICROFINANCIAL INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands, except share and per share data)

(Unaudited)

	Common Stock						Additional Paid-in Capital			Retained Earnings			Total Stockholders’ Equity
	Shares			Amount
Balance at December 31, 2011		14,257,324		$	143		$	46,727		$	28,853		$	75,723
Stock issued for director compensation		48,148			—			346			—			346
Stock-based compensation		—			—			191			—			191
Shares issued upon vesting of restricted stock units		8,380			—			—			—			—
Warrants exercised		6,367			—			—			—			—
Stock options exercised		150,000			2			236			—			238
Common stock dividends ($0.24 per share)		—			—			—			(3,457	)		(3,457	)
Net income		—			—			—			9,351			9,351
Balance at December 31, 2012		14,470,219			145			47,500			34,747			82,392
Stock issued for director compensation		45,792			—			361			—			361
Stock-based compensation		—			—			175			—			175
Repurchase of common stock		(97,153	)		(1	)		(707	)		—			(708	)
Shares issued upon vesting of restricted stock units		16,640			—			—			—			—
Common stock dividends ($0.18 per share)		—			—			—			(2,628	)		(2,628	)
Net income		—			—			—			7,312			7,312
Balance at September 30, 2013		14,435,498		$	144		$	47,329		$	39,431		$	86,904

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

5

MICROFINANCIAL INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:
Cash received from customers	$	97,886		$	89,581
Cash paid to suppliers and employees		(18,212	)		(15,708	)
Cash paid for income taxes		(8,660	)		(6,779	)
Interest paid		(1,803	)		(1,767	)
Net cash provided by operating activities		69,211			65,327
Cash flows from investing activities:
Investment in lease and service contracts		(66,672	)		(68,144	)
Investment in direct costs		(1,091	)		(1,220	)
Investment in property and equipment		(252	)		(151	)
Net cash used in investing activities		(68,015	)		(69,515	)
Cash flows from financing activities:
Proceeds from revolving line of credit		99,838			96,817
Repayment of revolving line of credit		(99,452	)		(90,245	)
Decrease (Increase) in restricted cash		(428	)		23
Repayment of capital lease obligation		—			(1	)
Repurchase of common stock		(708	)		—
Payment of dividends		(2,614	)		(2,577	)
Net cash (used in) provided by financing activities		(3,364	)		4,017
Net change in cash and cash equivalents		(2,168	)		(171	)
Cash and cash equivalents, beginning of period		3,557			2,452
Cash and cash equivalents, end of period	$	1,389		$	2,281
Reconciliation of net income to net cash provided by operating activities:
Net income	$	7,312		$	6,959
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of unearned income, net of initial direct costs		(30,866	)		(29,715	)
Depreciation and amortization		3,970			3,156
Provision for credit losses		14,414			14,291
Recovery of equipment cost and residual value		77,651			71,258
Stock-based compensation expense		175			142
Decrease in deferred income taxes		(3,408	)		(364	)
Changes in assets and liabilities:
Decrease in income taxes payable		(366	)		(760	)
Increase in other assets		(63	)		(902	)
Increase in accounts payable		395			680
Increase (decrease) in other liabilities		(3	)		582
Net cash provided by operating activities	$	69,211		$	65,327
Supplemental disclosure of non-cash activities:
Acquisition of property and equipment through lease incentives	$	39		$	—
Fair value of stock issued for compensation	$	361		$	346

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

6

MICROFINANCIAL INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tables in thousands, except percentages, share and per share data)

A. Nature of Business

MicroFinancial Incorporated (referred to as “MicroFinancial,” “we,” “us” or “our”) operates primarily through its wholly-owned subsidiaries, TimePayment Corp. and LeaseComm Corporation. TimePayment is a specialized commercial/consumer finance company that leases and rents equipment and provides other financing services, with a primary focus on the “microticket” market. LeaseComm originated leases from January 1986 through October 2002, and continues to service its remaining contract portfolio. TimePayment commenced originating leases in July 2004. The average contract amount financed by TimePayment was approximately $5,200 during 2012 and $4,800 during the first nine months of 2013. We primarily source our originations through a nationwide network of independent equipment vendors, sales organizations and other dealer-based origination networks. We fund our operations through cash provided by operating activities and borrowings under our revolving line of credit.

B. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial statements. Accordingly, our interim statements do not include all of the information and disclosures required for our annual financial statements. In the opinion of our management, the condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of these interim results. These financial statements should be read in conjunction with our consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2012. The results for the nine months ended September 30, 2013, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013.

The balance sheet at December 31, 2012, has been derived from the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012.

Segment Reporting

We operate in one industry segment that leases and rents microticket equipment and provides other financing services. All of our operations are located in the United States. Accordingly, we believe we have a single reportable segment for disclosure purposes.

Allowance for Credit Losses and Credit Quality

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. Given the nature of the microticket market and the individual size of each contract, we do not have a formal credit review committee to review individual contracts. Rather, we have developed a sophisticated, multi-tiered pricing model and have automated the credit scoring, approval and collection processes. We believe that with the proper pricing model, we can grant credit to a wide range of applicants provided we have priced appropriately for the associated risk. As a result of approving a wide range of credits, we experience a relatively high level of delinquency and write-offs in our portfolio. We periodically review the credit scoring and approval process to ensure that the automated system is making appropriate credit decisions. Given the nature of the microticket market and the individual size of each contract, we do not evaluate contracts individually for the purpose of developing and determining the adequacy of the allowance for credit losses. Contracts in our portfolio are not re-graded subsequent to the initial extension of credit and the allowance is not allocated to specific contracts. Rather, we view the contracts as having common characteristics and maintain a general allowance against our entire portfolio utilizing historical collection statistics and an assessment of current credit risk in the portfolio as the basis for the amount.

Each period, the provision for credit losses in the consolidated statements of income results from the combination of an estimate by management of credit losses that occurred during the current period and the ongoing adjustment of prior estimates of losses occurring in prior periods. To serve as a basis for making this provision, we

7

MICROFINANCIAL INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tables in thousands, except percentages, share and per share data)

have adopted a consistent, systematic procedure for establishing and maintaining an appropriate allowance for credit losses for our contracts. We estimate the likelihood of credit losses net of recoveries in the portfolio at each reporting period based upon a combination of an internally-developed proprietary scoring model that considers several factors including the lessee’s bureau-reported credit score at contract inception and the current delinquency status of the account. In addition to these elements, we also consider other relevant factors including general economic trends, trends in delinquencies and credit losses, static pool analysis of our portfolio, trends in recoveries made on charged off accounts, and other relevant factors which might affect the performance of our portfolio. This combination of historical experience, credit scores, delinquency levels, trends in credit losses, and the review of current factors provides the basis for our analysis of the adequacy of the allowance for credit losses. In general, a receivable is deemed uncollectable when it is 360 days past due or earlier if other adverse events occur with respect to an account. None of our receivables are placed on non-accrual status as contracts are charged off when deemed uncollectible. Historically, the typical monthly payment under our microticket contracts has been small and as a result, our experience is that lessees will pay past due amounts later in the process because of the relatively small amount necessary to bring a contract current.

We segregate our contract portfolio between TimePayment and LeaseComm to perform the calculation and analysis of the allowance for credit losses. Each subsidiary consists of a single portfolio segment – microticket equipment. Leases of microticket equipment and other contracts are made to businesses and individuals and are generally secured by assets of the business or a personal guarantee. Repayment is expected from the cash flows of the business or individual. A weakened economy, and resultant decreased consumer spending, may have a negative effect on the credit quality in this segment.

We assign internal risk ratings for all lessees and determine the creditworthiness of each contract based upon this internally-developed proprietary scoring model. The LeaseComm portfolio is evaluated in total, with a reserve calculated based upon the aging of the portfolio and our collection experience. The TimePayment scoring model generates one of ten acceptable risk ratings based upon the creditworthiness of each application or it rejects the application. The scores are assigned at contract inception, and these scores are maintained over the contract term regardless of payment performance. To facilitate review and reporting, management aggregates these ten scores into one of three categories with similar risk profiles and delinquency characteristics identified as Gold, Silver or Bronze.

• Contracts assigned a Gold rating represent those transactions which exhibit the best risk rating based on our internal credit scores. They are considered of sufficient quality to preclude an otherwise adverse rating. Gold rated contracts are typically represented by lessees with high bureau-reported credit scores for personal guarantors at contract inception or are supported by established businesses for those transactions which are not personally guaranteed by the lessee.

• Contracts assigned a Silver rating fall in the middle range of the ten acceptable scores generated by the scoring model. These transactions possess a reasonable amount of risk based on their profile and may exhibit vulnerability to deterioration if adverse factors are encountered. These contracts typically demonstrate adequate coverage but warrant a higher level of monitoring by management to ensure that weaknesses do not advance.

• A Bronze rating applies to contracts at the lower end of the ten acceptable scores generated by the scoring model whereby the lessee may have difficulty meeting the contract obligation if adverse factors are encountered. Bronze rated contracts typically have lower reported credit scores at contract inception and will typically have other less desirable credit attributes.

See Note C for details of our allowance for credit losses and the aged analysis of past due financing receivables based upon our internally-developed proprietary scoring model.

8

MICROFINANCIAL INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tables in thousands, except percentages, share and per share data)

Fair Value of Financial Instruments

Accounting for fair value measurements involves a single definition of fair value, along with a conceptual framework to measure fair value, with fair value 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 at the measurement date.” The fair value measurement hierarchy consists of three levels:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs developed using estimates and assumptions which are developed by the reporting entity and reflect those assumptions that a market participant would use.

We apply valuation techniques that (1) place greater reliance on observable inputs and less reliance on unobservable inputs and (2) are consistent with the market approach, the income approach and/or the cost approach.

The carrying values of cash and cash equivalents, restricted cash, other assets, accounts payable and other liabilities approximate their fair values due to the short maturity of these instruments. The fair value of the amounts outstanding under our revolving line of credit, evaluated using Level 2 inputs as of September 30, 2013, and December 31, 2012, approximate the carrying value.

Stock-based Employee Compensation

We have adopted the fair value recognition provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 Compensation—Stock Compensation. FASB ASC Topic 718 requires us to recognize the compensation cost related to share-based payment transactions with employees in the financial statements. The compensation cost is measured based upon the fair value of the instrument issued. Share-based compensation transactions with employees covered by FASB ASC Topic 718 include share options, restricted share plans and performance-based awards.

Net Income Per Share

Basic net income per common share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net income per common share gives effect to all potentially dilutive common shares outstanding during the period. The computation of diluted net income per share does not assume the issuance of common shares that have an antidilutive effect on net income per common share.

Cash and Cash Equivalents

We consider all highly liquid instruments purchased with original maturities of less than three months to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value.

Concentration of Credit Risk

We deposit our cash and invest in short-term investments primarily through national commercial banks. Deposits in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC) are exposed to loss in the event of nonperformance by the institution. The Company has had cash deposits in excess of the FDIC insurance coverage. However, we have not experienced any losses in such accounts.

9

MICROFINANCIAL INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tables in thousands, except percentages, share and per share data)

C. Allowance for Credit Losses and Credit Quality

The following table reconciles the activity in the allowance for credit losses by portfolio segment for the three months ended September 30, 2013 and 2012:

	Microticket equipment
	Three months ended September 30, 2013									Three months ended September 30, 2012
	Lease- Comm			Time- Payment			Total			Lease- Comm			Time- Payment			Total
Allowance for credit losses:
Beginning balance	$	108		$	15,468		$	15,576		$	126		$	12,904		$	13,030
Charge-offs		(84	)		(6,042	)		(6,126	)		(121	)		(5,575	)		(5,696	)
Recoveries		37			1,257			1,294			68			1,110			1,178
Provisions		37			4,753			4,790			38			4,809			4,847
Ending balance, allowance for credit losses	$	98		$	15,436		$	15,534		$	111		$	13,248		$	13,359

The following table reconciles the activity in the allowance for credit losses by portfolio segment for the nine months ended September 30, 2013 and 2012:

	Microticket equipment
	Nine months ended September 30, 2013									Nine months ended September 30, 2012
	Lease- Comm			Time- Payment			Total			Lease- Comm			Time- Payment			Total
Allowance for credit losses:
Beginning balance	$	103		$	13,935		$	14,038		$	162		$	13,018		$	13,180
Charge-offs		(254	)		(17,050	)		(17,304	)		(454	)		(17,463	)		(17,917	)
Recoveries		126			4,260			4,386			205			3,600			3,805
Provisions		123			14,291			14,414			198			14,093			14,291
Ending balance, allowance for credit losses	$	98		$	15,436		$	15,534		$	111		$	13,248		$	13,359

The following table presents the allowance for credit losses and financing receivables by portfolio segment as of September 30, 2013, and December 31, 2012, classified according to the impairment evaluation method:

	As of September 30, 2013						As of December 31, 2012
	Lease- Comm		Time- Payment		Total		Lease- Comm		Time- Payment		Total
Allowance for credit losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		98		15,436		15,534		103		13,935		14,038
Contracts acquired with deteriorated credit quality		—		—		—		—		—		—
Ending balance, allowance for credit losses	$	98	$	15,436	$	15,534	$	103	$	13,935	$	14,038

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MICROFINANCIAL INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tables in thousands, except percentages, share and per share data)

	As of September 30, 2013						As of December 31, 2012
	Lease- Comm		Time- Payment		Total		Lease- Comm		Time- Payment		Total
Financing receivables:(1)
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		188		177,236		177,424		174		173,697		173,871
Contracts acquired with deteriorated credit quality		—		—		—		—		—		—
Ending balance, financing receivables	$	188	$	177,236	$	177,424	$	174	$	173,697	$	173,871

(1) Total financing receivables include net investment in leases. For purposes of asset quality and allowance calculations, the allowance for credit losses is excluded.

The following table presents the aging status of the recorded investment in leases as of September 30, 2013, classified according to the original score granted by our internally-developed proprietary scoring model:

				31 to 60 Days			61 to 90 Days			Over 90 Days						Over 90 Days
	Current			Past Due			Past Due			Past Due			Total			Accruing
LeaseComm	$	92		$	4		$	4		$	88		$	188		$	88
TimePayment
Gold		56,727			1,782			1,156			3,508			63,173			3,508
Silver		83,505			2,671			2,768			14,016			102,960			14,016
Bronze		7,541			491			490			2,581			11,103			2,581
TimePayment subtotal		147,773			4,944			4,414			20,105			177,236			20,105
Total financing receivables	$	147,865		$	4,948		$	4,418		$	20,193		$	177,424		$	20,193
Percent of total financing receivables		83.3	%		2.8	%		2.5	%		11.4	%		100.0	%

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MICROFINANCIAL INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tables in thousands, except percentages, share and per share data)

The following table presents the aging status of the recorded investment in leases as of December 31, 2012, classified according to the original score granted by our internally-developed proprietary scoring model:

				31 to 60 Days			61 to 90 Days			Over 90 Days						Over 90 Days
	Current			Past Due			Past Due			Past Due			Total			Accruing
LeaseComm	$	90		$	5		$	5		$	74		$	174		$	74
TimePayment
Gold		54,446			2,763			1,042			2,309			60,560			2,309
Silver		84,268			2,883			3,281			13,312			103,744			13,312
Bronze		6,341			493			441			2,118			9,393			2,118
TimePayment subtotal		145,055			6,139			4,764			17,739			173,697			17,739
Total financing receivables	$	145,145		$	6,144		$	4,769		$	17,813		$	173,871		$	17,813
Percent of total financing receivables		83.5	%		3.5	%		2.7	%		10.3	%		100	%

D. Net Income per Share

Net income per share for the three and nine months ended September 30, 2013 and 2012 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Net income	$	2,580	$	2,307	$	7,312	$	6,959
Weighted average common shares outstanding		14,433,695		14,311,900		14,469,077		14,297,888
Dilutive effect of common stock options, warrants and restricted stock		310,463		404,600		304,186		372,109
Shares used in computation of net income per common share - diluted		14,744,158		14,716,500		14,773,263		14,669,997
Net income per common share - basic	$	0.18	$	0.16	$	0.51	$	0.49
Net income per common share - diluted	$	0.18	$	0.16	$	0.49	$	0.47

For the three and nine month periods ended September 30, 2013 and 2012, there were no options excluded from the computation of diluted net income per share because their effect would have been antidilutive.

12

MICROFINANCIAL INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tables in thousands, except percentages, share and per share data)

E. Dividends

Dividends paid during the nine months ended September 30, 2013 and 2012, are as follows:

2013
Date Declared	Record Date	Payment Date	Dividend per Share
January 29, 2013	February 8, 2013	February 15, 2013	$	0.06
April 23, 2013	May 3, 2013	May 15, 2013		0.06
July 17, 2013	July 30, 2013	August 15, 2013		0.06
Total			$	0.18

2012
Date Declared	Record Date	Payment Date	Dividend per Share
January 31, 2012	February 10, 2012	February 15, 2012	$	0.06
April 19, 2012	April 30, 2013	May 15, 2012		0.06
July 19, 2012	July 30, 2012	August 15, 2012		0.06
Total			$	0.18

F. Revolving line of credit

On August 2, 2007, we entered into a revolving line of credit with a bank syndicate led by Santander Bank (formerly known as Sovereign Bank) (Santander) based on qualified TimePayment lease receivables. The total commitment under the facility, originally $30 million, has been increased at various times, most recently from $100 million to $150 million in December 2012. The December 2012 amendment would also permit further increases in the total commitment under an accordion feature, to $175 million, with the agreement of the Agent and, as applicable, a new or existing Lender under certain conditions. Outstanding borrowings are collateralized by eligible lease contracts and a security interest in all of our other assets.

We had approximately $70.8 million and $70.4 million outstanding on our revolving line of credit facility at September 30, 2013, and December 31, 2012, respectively. At September 30, 2013, our available borrowing capacity was approximately $79.2 million, subject to limitations based on lease eligibility and a borrowing base formula. The revolving line of credit has financial covenants that we must comply with to obtain funding and avoid an event of default. As of September 30, 2013, we were in compliance with all covenants under the revolving line of credit.

The maturity date of our revolving line of credit is December 21, 2016, at which time the outstanding loan balance plus interest becomes due and payable. At our option upon maturity, the unpaid principal balance may be converted to a six month term loan.

The following table demonstrates the total commitment under the revolving credit facility with the associated rate options in effect during the three and nine month periods ended September 30, 2013 and 2012. As of September 30, 2013, the total commitment under the facility was $150 million.

Amendment Date	Total Commitment under Credit Facility (in millions)		Rate options(1)
October 2011	$	100	Prime plus 0.75% or LIBOR plus 2.75%
December 2012	$	150	Base(2) plus 0.75% or LIBOR plus 2.50%

(1) Under the terms of the facility, loans are Base Rate Loans (or, prior to December 2012, Prime Rate Loans), unless we elect LIBOR Loans. If a LIBOR Loan is not renewed at maturity it automatically converts to a Base Rate Loan.

(2) The “base rate” is the highest of the prime rate established by the Agent, or one-month LIBOR plus 1%, or the federal funds effective rate plus 0.5%.

13

MICROFINANCIAL INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tables in thousands, except percentages, share and per share data)

At September 30, 2013, $65.0 million of our loans were LIBOR loans and $5.8 million of our loans were Base Rate Loans. The interest rate on our loans at September 30, 2013, was between 2.8% and 4.0%. At the same date, the qualified lease receivables eligible under the borrowing base computation were approximately $128.7 million.

G. Stock-Based Employee Compensation

Under our 2008 Equity Incentive Plan, we reserved 1,000,000 shares of common stock for issuance, all of which have been issued as of September 30, 2013. In May 2012, our stockholders approved our 2012 Equity Incentive Plan, for which we have 750,000 shares of common stock reserved, of which 613,183 shares are unissued as of September 30, 2013.

For the three months ended September 30, 2013 and 2012, the total share-based compensation cost recognized was $57,000 and $49,000, respectively. For the nine months ended September 30, 2013 and 2012, the total share-based compensation cost recognized was $175,000 and $142,000, respectively. The unrecognized compensation cost was $536,000 and $365,000 at September 30, 2013 and December 31, 2012, respectively.

Non-employee director stock grants

The following details the stock granted to our non-employee directors under the 2008 and 2012 Plans during the nine months ended September 30, 2013 and 2012. These shares were issued as part of our annual director compensation arrangements related to the prior years’ service, and were fully vested on the date of issuance.

Date of Grant	Number of Shares		Fair Value per Share		Fair Value of Grant
February 2012		31,820	$	6.60	$	210
July 2012		16,328	$	8.36		136
Total 2012		48,148			$	346
January 2013		29,205	$	7.55	$	221
July 2013		16,587	$	8.44		140
Total 2013		45,792			$	361

Restricted Stock Unit Grants (RSUs)

The following provides details of our vested and unvested RSUs as of September 30, 2013:

							As of September 30, 2013
Date of Grant	Number of RSUs		Fair Value per Share		Fair Value of Grant		Vested		Non- Vested
February 2010		33,518	$	3.15	$	106		16,759		16,759
February 2011		33,044	$	4.11		136		8,261		24,783
February 2012		40,393	$	6.60		266		—		40,393
January 2013		45,316	$	7.55		342		—		45,316
		152,271			$	850		25,020		127,251

In January 2013, the Compensation and Benefits Committee of our Board of Directors granted 45,316 RSUs to our executive officers. The RSUs were valued on the date of grant and the fair value of these awards was $7.55 per share. The issuance consists of three separate tranches. The first tranche is for 28,643 RSUs which vest over five years at 25% annually beginning on the second anniversary of the grant date. The second tranche is for 15,548 RSUs which cliff vest after three years only if management achieves specific performance measures. The third tranche is for 1,125 RSUs which vest over five years at 25% annually, beginning on the second anniversary of the grant date, and represent payment related to 2012 incentive bonus compensation.

14

MICROFINANCIAL INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tables in thousands, except percentages, share and per share data)

During the three months ended September 30, 2013, and September 30, 2012, amortized compensation expense related to RSUs was $50,000 and $29,000, respectively. During the nine months ended September 30, 2013, and September 30, 2012, amortized compensation expense related to RSUs was $149,000 and $81,000, respectively.

Stock Options

Information relating to our outstanding stock options at September 30, 2013, is as follows:

Outstanding							Exercisable
Exercise Price		Shares		Weighted- Average Life (Years)	Intrinsic Value		Weighted- Average Exercise Price		Shares		Intrinsic Value
$	2.30		258,723	5.42	$	1,444	$	2.30		194,042	$	1,083
$	5.77		31,923	3.42		67	$	5.77		31,923		67
$	5.85		142,382	4.33		289	$	5.85		142,382		289
			433,028	4.91	$	1,800	$	3.97		368,347	$	1,439

During the three and nine months ended September 30, 2013, there were no options granted, exercised, forfeited, or expired.

H. Commitments and Contingencies

Legal Matters

We are involved from time to time in litigation incidental to the conduct of our business. Although we do not expect that the outcome of any of these matters, individually or collectively, will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, judgments could be rendered, or settlements entered, that could adversely affect our operating results or cash flows in a particular period. We routinely assess all of our litigation and threatened litigation as to the probability of ultimately incurring a liability, and record our best estimate of the ultimate loss in situations where we assess the likelihood of loss as probable.

Contract Commitments

We accept contract applications on a daily basis and, as a result, we have a pipeline of applications that have been approved, where a contract has not been originated. Our commitment to lend does not become binding until all of the steps in the contract origination process have been completed, including the receipt of the contract, supporting documentation and verification with the lessee. Since we fund on the same day a contract is verified, we do not have any outstanding commitments to lend.

Stock Repurchases

On August 10, 2010, our Board of Directors approved a common stock repurchase program under which we are authorized to purchase up to 250,000 of our outstanding shares from time to time. The repurchases may take place in either the open market or through block trades. The repurchase program will be funded by our working capital and may be suspended or discontinued at any time.

During the first nine months of fiscal year 2013, the Company repurchased and retired 97,153 shares of its common stock under our stock buyback program at an average price per share of $7.28. The total cost of the shares purchased was approximately $708,000. There were no share repurchases made during the first nine months of 2012.

15

MICROFINANCIAL INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tables in thousands, except percentages, share and per share data)

I. Subsequent Events

We have evaluated all events and transactions that occurred through the date on which we issued these financial statements. Other than the declaration of dividends, we did not have any material subsequent events that impacted our condensed consolidated financial statements.

On October 24, 2013, we declared a dividend of $0.07 payable on November 15, 2013, to shareholders of record on November 4, 2013.

J. Recent Accounting Pronouncements

None.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following information should be read in conjunction with our condensed consolidated financial statements and notes thereto in Part I, Item 1 of this Quarterly Report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2012.

Forward-Looking Information

Statements in this document that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, words such as “believes”, “anticipates”, “expects,” “intends” and similar expressions are intended to identify forward-looking statements. We caution that a number of important factors could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. Such statements contain a number of risks and uncertainties, including but not limited to those associated with: the demand for the equipment types we finance; our significant capital requirements; our ability or inability to obtain the financing we need, or to use internally generated funds, in order to continue originating contracts; the risks of defaults on our leases; our provision for credit losses; our residual interests in underlying equipment; possible adverse consequences associated with our collection policy; the effect of higher interest rates on our portfolio; increasing competition; increased governmental regulation of the rates and methods we use in financing and collecting on our leases and contracts; acquiring other portfolios or companies; dependence on key personnel; changes to accounting standards for equipment leases; adverse results in litigation and regulatory matters, or promulgation of new or enhanced legislation or regulations; information technology systems disruptions; and general economic and business conditions. Readers should not place undue reliance on forward-looking statements, which reflect our view only as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. We cannot assure that we will be able to anticipate or respond timely to changes which could adversely affect our operating results. Results of operations in any past period should not be considered indicative of results to be expected in future periods. Fluctuations in operating results may result in fluctuations in the price of our common stock. Statements relating to past dividend payments or our current dividend policy should not be construed as a guarantee that any future dividends will be paid. For a more complete description of the prominent risks and uncertainties inherent in our business, see the risk factors included in our most recent Annual Report on Form 10-K and other documents we file from time to time with the Securities and Exchange Commission.

Overview

We are a specialized commercial/consumer finance company that provides equipment leasing and other financing services, with a primary focus on the microticket market. The average contract amount financed by TimePayment was approximately $5,200 during 2012 and $4,800 during the first nine months of 2013. Our portfolio generally consists of business equipment leased or rented primarily to small commercial enterprises.

We finance the origination of our leases and contracts primarily through cash provided by operating activities and borrowings under our revolving line of credit. On August 2, 2007, we entered into a revolving line of credit with a bank syndicate led by Santander Bank (formerly known as Sovereign Bank) (Santander) based on qualified TimePayment lease receivables. The total commitment under the facility, originally $30 million, has been increased at various times, most recently in December 2012, when it was increased from $100 million to $150 million. The December 2012 amendment would permit further increases in the total commitment under an accordion feature, to $175 million, with the agreement of the Agent and, as applicable, a new or existing Lender under certain conditions. Outstanding borrowings are collateralized by eligible lease contracts and a security interest in all of our other assets.

In a typical lease transaction, we originate a lease through our nationwide network of equipment vendors, independent sales organizations and brokers. Upon our approval of a lease application and verification that the lessee has received the equipment and signed the lease, we pay the dealer for the cost of the equipment, plus the dealer’s profit margin.

17

Substantially all leases originated or acquired by us are non-cancelable. During the term of the lease, we are scheduled to receive payments sufficient to cover our borrowing costs and the cost of the underlying equipment and provide us with an appropriate profit. We pass along some of the costs of our leases and contracts by charging late fees, prepayment penalties, loss and damage waiver fees and other service fees, when applicable. Collection fees are imposed based on our estimate of the costs of collection. The loss and damage waiver fees are charged if a customer fails to provide proof of insurance and are reasonably related to the cost of replacing the lost or damaged equipment or product. The initial non-cancelable term of the lease is equal to or less than the equipment’s estimated economic life and often provides us with additional revenues based on the residual value of the equipment at the end of the lease. Initial terms of the leases in our portfolio generally range from 12 to 60 months, with an average initial term of 42 months as of December 31, 2012.

We also acquire service contracts under which a homeowner purchases a security system and simultaneously signs a contract with the dealer for the monitoring of that system for a monthly fee. Upon approval of the monitoring application and verification with the homeowner that the system is installed, we purchase the right to the payment stream under the monitoring service contract from the dealer at a negotiated multiple of the monthly payments. In years prior to 2012, our service contract revenue was derived from our LeaseComm portfolio, for which we have not purchased any new security service contracts since 2002. Consequently, our service contract revenue from LeaseComm represents a less significant portion of our revenue stream over time. Beginning in the second quarter of 2012, TimePayment began acquiring service contracts.

Operating Data

Dealer funding was $23.6 million and $67.6 million for the three and nine months ended September 30, 2013, respectively; compared to $23.3 million and $68.8 million for the comparable periods in 2012. On a year to date basis, this represents a decrease of $1.2 million, or 1.9%, period over period. Originations declined as a result of lower average contract amounts, which decreased from $5,300 during the first nine months of 2012 to $4,800 during the first nine months of 2013. In part, the reduction in the average contract amount was due to the increase in the number of service contract originations, for which the average amount funded was approximately $1,200.

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 and gross investment in rental and service contracts increased from $242.3 million at December 31, 2012, to $244.9 million at September 30, 2013. Cash received from customers increased by $3.7 million during the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, and by $8.3 million during the first nine months of 2013 as compared to the equivalent period in 2012.

Critical Accounting Policies

Our significant accounting policies are more fully described in Note B to the condensed consolidated financial statements included in this Quarterly Report and in Note B to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission. Certain accounting policies are particularly important to the portrayal of our consolidated financial position and results of operations. These policies require the application of significant judgment by us and as a result, are subject to an inherent degree of uncertainty. In applying these policies, we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. We base our estimates and judgments on historical experience, terms of existing contracts, observance of trends in the industry, information obtained from dealers and other sources, and on various other assumptions that we believe to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies, including revenue recognition, maintaining the allowance for credit losses, determining provisions for income taxes, and accounting for share-based compensation are each discussed in more

18

detail in our Annual Report on Form 10-K. We have reviewed and determined that those policies remain our critical accounting policies and we did not make any changes in those policies during the nine months ended September 30, 2013.

Results of Operations - Three months ended September 30, 2013, compared to the three months ended September 30, 2012

Revenues

	Three months ended September 30,
	2013		Change			2012
	(Dollars in thousands)
Revenues:
Income on financing leases	$	10,303		1.4	%	$	10,160
Rental income		2,660		8.0	%		2,462
Income on service contracts		250		163.2	%		95
Loss and damage waiver fees		1,474		7.6	%		1,370
Service fees and other		1,056		11.2	%		950
Total revenues	$	15,743		4.7	%	$	15,037

Our lease contracts are accounted for as financing leases. At origination, we record the gross lease receivable, the estimated residual value of the leased equipment, initial direct costs incurred and the unearned lease income. Unearned lease income is the amount by which the gross lease receivable plus the estimated residual value exceeds the cost of the equipment. Unearned lease income and initial direct costs incurred are amortized over the related lease term using the interest method. Other revenues such as loss and damage waiver fees, service fees relating to the leases and contracts, and rental revenues are recognized as they are earned.

Total revenues for the three months ended September 30, 2013, were $15.7 million, an increase of $0.7 million, or 4.7%, from the three months ended September 30, 2012. The overall increase was due to an increase of $0.1 million in income on financing leases, a $0.2 million increase in rental income a $0.2 million increase in service contract revenue and a $0.2 million increase in fees and other income. The increase in income on financing leases is a result of the continued growth in new lease originations during 2012 and 2013. The increase in rental income is the result of TimePayment lease contracts coming to term and converting to rentals, partially offset by the attrition of existing LeaseComm and TimePayment rental contracts. Beginning in the second quarter of 2012, TimePayment began acquiring service contracts. During the third quarter of 2013, approximately 75% of our service contract revenue was earned by TimePayment. The increase in fees and other income relates to increases in loss and damage waiver fees and various service fees billed.

Selling, General and Administrative Expenses

	Three months ended September 30,
	2013			Change			2012
	(Dollars in thousands)
Selling, general and administrative	$	4,618			3.4	%	$	4,466
As a percent of revenue		29.3	%					29.7	%

Our selling, general and administrative (SG&A) expenses include costs of maintaining corporate functions such as accounting, finance, collections, legal, human resources, sales and underwriting and information systems. SG&A expenses also include commissions, service fees and other marketing costs associated with our portfolio of leases, service and rental contracts. SG&A expenses increased by $0.2 million for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. The increase was primarily driven by increases in compensation-related expenses, related to higher average headcount during the third quarter of 2013 as compared to the same period in 2012.

19

Provision for Credit Losses

	Three months ended September 30,
	2013			Change			2012
	(Dollars in thousands)
Provision for credit losses	$	4,790			(1.2	)%	$	4,847
As a percent of revenue		30.4	%					32.2	%

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 $57,000 for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, while net charge-offs increased by 6.9% to $4.8 million. The provision was based on providing a general allowance on leases funded during the period and our analysis of actual and expected losses in our portfolio. The allowance as a percentage of the net lease receivables was 10.0% and 8.9%, at September 30, 2013 and 2012, respectively. Net lease receivables consist of receivables due in installments, reduced by unearned income. The increase in the allowance as a percentage of the net lease receivables reflects higher delinquency levels of the lease portfolio.

Depreciation and Amortization

	Three months ended September 30,
	2013			Change			2012
	(Dollars in thousands)
Depreciation - property and equipment	$	151			1.3	%	$	149
Depreciation - rental equipment		1,073			15.7	%		927
Amortization - service contracts		131			1771.4	%		7
Total depreciation and amortization	$	1,355			25.1	%	$	1,083
As a percent of revenue		8.6	%					7.2	%

Depreciation and amortization expense consists of depreciation on property and equipment and rental equipment, and the amortization of service contracts. Property and equipment are recorded at cost and depreciated over their expected useful lives. Most of our rental contracts are originated as a result of the renewal provisions of our lease agreements where at the end of lease term, the customer may elect to continue to rent the leased equipment on a month-to-month basis. The rental equipment is recorded at its residual value and depreciated over a term of 12 months. This term represents the estimated life of a previously leased piece of equipment and is based upon our historical experience. In the event the contract terminates prior to the end of the 12 month period, the remaining net book value is expensed. Investments in service contracts are amortized over the term of the contract. In the event the contract terminates prior to its contractual term, the remaining net book value is expensed.

Depreciation expense on rentals increased by $0.1 million for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. The increase in depreciation is due to the increase in the number of TimePayment lease contracts reaching maturity and converting to rentals. Amortization expense on service contracts increased by $0.1 million for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due to new service contract originations since the second quarter of 2012, when TimePayment began to acquire service contracts. Depreciation of property and equipment increased by $2,000 for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012.

20

Interest Expense

	Three months ended September 30,
	2013			Change			2012
	(Dollars in thousands)
Interest	$	679			(9.1	)%	$	747
As a percent of revenue		4.3	%					5.0	%
Line of credit balance (end of period):	$	70,766					$	69,312

We pay interest on borrowings under our revolving line of credit. Interest expense decreased by $68,000 for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. This decrease resulted primarily from lower interest rates, partially offset by our increased level of borrowing on the revolving line of credit.

Provision for Income Taxes

	Three months ended September 30,
	2013			Change			2012
	(Dollars in thousands)
Provision for income taxes	$	1,721			8.4	%	$	1,587
As a percent of revenue		10.9	%					10.6	%
As a percent of income before taxes		40.0	%					40.8	%

The provision for income taxes, deferred tax assets and liabilities and any necessary valuation allowance recorded against net deferred tax assets, 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 recorded on the balance sheet. We must then assess the likelihood that deferred tax assets will be recovered from future taxable income or tax carry-back availability and to the extent we believe recovery is more likely than not, a valuation allowance is unnecessary.

The provision for income taxes increased by $0.1 million for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. This increase resulted from the $0.4 million increase in income before taxes for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012.

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.

Our federal income tax returns are subject to examination for tax years ended on or after December 31, 2010, and our state income tax returns are subject to examination for tax years ended on or after December 31, 2009.

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Results of Operations - Nine months ended September 30, 2013, compared to the nine months ended September 30, 2012

Revenues

	Nine months ended September 30,
	2013		Change			2012
	(Dollars in thousands)
Revenues:
Income on financing leases	$	30,866		3.9	%	$	29,715
Rental income		7,845		9.2	%		7,181
Income on service contracts		640		141.5	%		265
Loss and damage waiver fees		4,361		9.6	%		3,978
Service fees and other		3,000		5.7	%		2,837
Total revenues	$	46,712		6.2	%	$	43,976

Our lease contracts are accounted for as financing leases. At origination, we record the gross lease receivable, the estimated residual value of the leased equipment, initial direct costs incurred and the unearned lease income. Unearned lease income is the amount by which the gross lease receivable plus the estimated residual value exceeds the cost of the equipment. Unearned lease income and initial direct costs incurred are amortized over the related lease term using the interest method. Other revenues such as loss and damage waiver fees, service fees relating to the leases and contracts, and rental revenues are recognized as they are earned.

Total revenues for the nine months ended September 30, 2013, were $46.7 million, an increase of $2.7 million, or 6.2%, from the nine months ended September 30, 2012. The overall increase was due to an increase of $1.1 million in income on financing leases, a $0.7 million increase in rental income, a $0.4 million increase in service contract revenue and a $0.5 million increase in fees and other income. The increase in income on financing leases is a result of the continued growth during 2012 and 2013 in new lease originations. The increase in rental income is the result of TimePayment lease contracts coming to term and converting to rentals, partially offset by the attrition of existing LeaseComm and TimePayment rental contracts. TimePayment began acquiring service contracts beginning in the second quarter of 2012. The increase in service contract revenue for 2013 is attributable to an increase in TimePayment service contract originations during the past year. The increase in fees and other income relates to increases in loss and damage waiver fees and various service fees billed.

Selling, General and Administrative Expenses

	Nine months ended September 30,
	2013			Change			2012
	(Dollars in thousands)
Selling, general and administrative	$	14,121			9.9	%	$	12,847
As a percent of revenue		30.2	%					29.2	%

Our selling, general and administrative (SG&A) expenses include costs of maintaining corporate functions such as accounting, finance, collections, legal, human resources, sales and underwriting and information systems. SG&A expenses also include commissions, service fees and other marketing costs associated with our portfolio of leases and rental contracts. SG&A expenses increased by $1.3 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. The increase was primarily driven by increases in compensation-related expenses and bank servicing fees, related to higher average headcount during the first nine months of 2013 as compared to the same period in 2012.

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Provision for Credit Losses

	Nine months ended September 30,
	2013			Change			2012
	(Dollars in thousands)
Provision for credit losses	$	14,414			0.9	%	$	14,291
As a percent of revenue		30.9	%					32.5	%

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 $0.1 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, while net charge-offs decreased by 8.5% to $12.9 million. The provision was based on providing a general allowance on contracts funded during the period and our analysis of actual and expected losses in our portfolio. The allowance as a percentage of the net lease receivables increased from 8.9% at September 30, 2012 to 10.0% at September 30, 2013, reflecting the higher delinquency levels of the lease portfolio. Net lease receivables consist of receivables due in installments, reduced by unearned income.

Depreciation and Amortization

	Nine months ended September 30,
	2013			Change			2012
	(Dollars in thousands)
Depreciation - property and equipment	$	462			2.2	%	$	452
Depreciation - rental equipment		3,167			17.5	%		2,696
Amortization - service contracts		341			4,162.5	%		8
Total depreciation and amortization	$	3,970			25.8	%	$	3,156
As a percent of revenue		8.5	%					7.2	%

Depreciation and amortization expense consists of depreciation on property and equipment and rental equipment, and the amortization of service contracts. Property and equipment are recorded at cost and depreciated over their expected useful lives. Most of our rental contracts are originated as a result of the renewal provisions of our lease agreements where at the end of lease term, the customer may elect to continue to rent the leased equipment on a month-to-month basis. The rental equipment is recorded at its residual value and depreciated over a term of 12 months. This term represents the estimated life of a previously leased piece of equipment and is based upon our historical experience. In the event the contract terminates prior to the end of the 12 month period, the remaining net book value is expensed. Investments in service contracts are amortized over the term of the contract. In the event the contract terminates prior to its contractual term, the remaining net book value is expensed.

Depreciation expense on rentals increased by $0.5 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. The increase in depreciation is due to the increase in the number of TimePayment lease contracts reaching maturity and converting to rentals. Amortization expense on service contracts increased by $0.3 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. TimePayment began acquiring service contracts in the second quarter of 2012. Depreciation and amortization of property and equipment increased by $10,000 for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012.

23

Interest Expense

	Nine months ended September 30,
	2013			Change			2012
	(Dollars in thousands)
Interest	$	2,009			(1.3	)%	$	2,035
As a percent of revenue		4.3	%					4.6	%
Line of credit balance (end of period):	$	70,766					$	69,312

We pay interest on borrowings under our revolving line of credit. Interest expense decreased by $26,000 for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. This decrease resulted primarily from lower interest rates, partially offset by our increased level of borrowing on the revolving line.

Provision for Income Taxes

	Nine months ended September 30,
	2013			Change			2012
	(Dollars in thousands)
Provision for income taxes	$	4,886			4.2	%	$	4,688
As a percent of revenue		10.5	%					10.7	%
As a percent of income before taxes		40.1	%					40.3	%

The provision for income taxes, deferred tax assets and liabilities and any necessary valuation allowance recorded against net deferred tax assets, 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 recorded on the balance sheet. We must then assess the likelihood that deferred tax assets will be recovered from future taxable income or tax carry-back availability and, to the extent we believe recovery is more likely than not, a valuation allowance is unnecessary.

The provision for income taxes increased by $0.2 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. This increase resulted primarily from the $0.6 million increase in income before taxes for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012.

Fair Value of Financial Instruments

For financial instruments including cash and cash equivalents, restricted cash, accounts payable, and other liabilities, we believe that the carrying amount approximates fair value due to their short-term nature. The fair value of the revolving line of credit is calculated based on the incremental borrowing rates currently available on loans with similar terms and maturities. In December 2012, we amended our revolving line of credit which reduced our interest rate to a more current rate. We have determined that the fair value of our revolving line of credit at September 30, 2013, and at December 31, 2012, approximates its carrying value.

Exposure to Credit Losses

The amounts in the table below represent the balance of delinquent receivables on an exposure basis for all leases, rental contracts, and service contracts in our portfolio. An exposure basis aging classifies the entire receivable based on the invoice that is the most delinquent. For example, in the case of a rental or service contract, if a receivable is 91 days past due, all amounts billed and unpaid are placed in the over 90 days past due category. In the case of lease receivables, where the minimum contractual obligation of the lessee is booked as a receivable at the inception of the lease, if a receivable is more than 90 days past due, the entire receivable, including all amounts billed and unpaid as well as the minimum contractual obligation yet to be billed, will be placed in the over 90 days past due category.

	September 30, 2013				December 31, 2012
	(dollars in thousands)
Current	$	181,548	84.2	%	$	179,887	84.3	%
31-60 days past due		6,124	2.8	%		7,601	3.6	%
61-90 days past due		5,295	2.5	%		5,825	2.7	%
Over 90 days past due		22,632	10.5	%		20,153	9.4	%
Gross receivables due in installments	$	215,599	100.0	%	$	213,466	100.0	%

24

Liquidity and Capital Resources

General

Our lease and finance business is capital-intensive and requires access to substantial short-term and long-term credit to fund lease originations. Since inception, we have funded our operations primarily through borrowings under our credit facilities, on-balance sheet securitizations, the issuance of subordinated debt, cash provided by operating activities and the proceeds from our initial public offering completed in February 1999. We will continue to require significant additional capital to maintain and expand our funding of leases and contracts, as well as to fund any future acquisitions of leasing companies or portfolios. In the near term, we expect to finance our business utilizing cash on hand, cash provided from operating activities and borrowings on our revolving line of credit which matures in December 2016. Additionally, our uses of cash include the payment of interest and principal on borrowings, selling, general and administrative expenses, income taxes, payment of dividends and capital expenditures.

For the nine months ended September 30, 2013 and 2012, our primary sources of liquidity were cash provided by operating activities and borrowings on our revolving line of credit. We generated cash flow from operations of $69.2 million for the nine months ended September 30, 2013, compared to $65.3 million for the nine months ended September 30, 2012. At September 30, 2013, we had approximately $70.8 million outstanding under our revolving credit facility and had available borrowing capacity of approximately $79.2 million, subject to the borrowing base formula.

We used net cash in investing activities of $68.0 million for the nine months ended September 30, 2013, and $69.5 million for the nine months ended September 30, 2012. Investing activities primarily relate to the origination of leases with investments in lease and service contracts, direct costs, property and equipment.

Net cash used in financing activities was $3.4 million for the nine months ended September 30, 2013, and net cash provided by financing activities was $4.0 million for the nine months ended September 30, 2012. Financing activities primarily consist of the borrowings and repayments on our revolving line of credit and dividend payments. During the first nine months of 2013, we borrowed $99.8 million and repaid $99.5 million on our line of credit. During the same period in 2012, we borrowed $96.8 million and repaid $90.2 million on our line of credit. During the first nine months of 2013, we used $0.7 million to repurchase our common stock. Dividends paid were $2.6 million during the first nine months of 2013 and 2012.

The maturity date of our revolving line of credit is December 2016, at which time the outstanding loan balance plus interest becomes due and payable. At our option upon maturity, the unpaid principal balance may be converted to a six-month term loan.

25

Borrowings

We utilize our revolving line of credit to fund the origination and acquisition of leases that satisfy the eligibility requirements established pursuant to the facility. Borrowings outstanding consist of the following:

	September 30, 2013							December 31, 2012
(dollars in 000)	Amounts Outstanding		Interest Rate	Unused Capacity		Maximum Facility Amount		Amounts Outstanding		Interest Rate	Unused Capacity		Maximum Facility Amount
Revolving credit facility (1)	$	70,766	2.77-4.00%	$	79,234	$	150,000	$	70,380	2.96-4.00%	$	79,620	$	150,000

⁽¹⁾  The unused capacity is subject to the borrowing base formula.

On August 2, 2007, we entered into a revolving line of credit with a bank syndicate led by Santander based on qualified TimePayment lease receivables. The total commitment under the facility, originally $30 million, has been increased at various times, most recently in December 2012, from $100 million to $150 million. In addition, the December 2012 amendment would permit further increases in the total commitment under an accordion feature, to $175 million, with the agreement of the Agent and, as applicable, a new or existing Lender under certain conditions. Outstanding borrowings are collateralized by eligible lease contracts and a security interest in all of our other assets.

The following table demonstrates the total commitment under the revolving credit facility with the associated rate options in effect during the three and nine month periods ended September 30, 2013 and 2012. As of September 30, 2013, the total commitment under the facility was $150 million.

Amendment Date	Total Commitment under Credit Facility (in millions)		Rate options(1)
October 2011	$	100	Prime plus 0.75% or LIBOR plus 2.75%
December 2012	$	150	Base(2) plus 0.75% or LIBOR plus 2.50%

⁽¹⁾  Under the terms of the facility, loans are Base Rate Loans (or prior to December 2012, Prime Rate Loans), unless we elect LIBOR Loans. If a LIBOR Loan is not renewed at maturity it automatically converts to a Base Rate Loan.

⁽²⁾  The “base rate” is the highest of the prime rate established by the Agent, or one-month LIBOR plus 1%, or the federal funds effective rate plus 0.5%.

At September 30, 2013, $65.0 million of our loans were LIBOR loans and $5.8 million of our loans were Base Rate Loans. At September 30, 2013, the qualified lease receivables eligible under the borrowing base computation were approximately $128.7 million.

26

Dividends

Dividends declared and paid or payable were as follows:

2013
Date Declared	Record Date	Payment Date	Dividend per Share
January 29, 2013	February 8, 2013	February 15, 2013	$	0.06
April 23, 2013	May 3, 2013	May 15, 2013		0.06
July 17, 2013	July 30, 2013	August 15, 2013		0.06
October 24,2013	November 4, 2013	November 15 2013		0.07
Total			$	0.25

2012
Date Declared	Record Date	Payment Date	Dividend per Share
January 31, 2012	February 10, 2012	February 15, 2012	$	0.06
April 19, 2012	April 30, 2012	May 15, 2012		0.06
July 19, 2012	July 30, 2012	August 15, 2012		0.06
October 18, 2012	October 31, 2012	November 15, 2012		0.06
Total			$	0.24

Future dividend payments are subject to ongoing review and evaluation by our Board of Directors. The decision as to the amount and timing of future dividends, if any, will be made in light of our financial condition, capital requirements and growth plans, as well as our external financing arrangements and any other factors our Board of Directors may deem relevant. We can give no assurance as to the amount and timing of future dividends.

Share repurchases

On August 10, 2010, our Board of Directors approved a common stock repurchase program under which we are authorized to purchase up to 250,000 of our outstanding shares from time to time. The repurchases may take place in either the open market or through block trades. The repurchase program will be funded by our working capital and may be suspended or discontinued at any time.

During the nine months ended September 30, 2013, we repurchased a total of 97,153 shares of our common stock under the common stock repurchase program approved in 2010, at an average price per share of $7.28. The total cost of the shares purchased was approximately $708,000. We did not repurchase any of our stock during the three months ended September 30, 2013.

Since the program’s inception, we have repurchased a total of 183,448 shares of our common stock at a total cost of approximately $1.1 million.

Contract Commitments

We accept lease applications on a daily basis and have a pipeline of applications that have been approved, where a contract has not been originated. Our commitment to lend does not become binding until all of the steps in the lease origination process have been completed, including but not limited to the receipt of a complete and accurate lease document, all required supporting information and successful verification with the contract. Since we fund on the same day a lease is successfully verified, we do not have any firm outstanding commitments to lend.

Recent Accounting Pronouncements

None.

27

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

The following discussion about our risk management activities includes forward-looking statements that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In the normal course of operations, we also face risks that are either non-financial or non-quantifiable. Such risks principally include credit risk and legal risk, and are not represented in the analysis that follows.

The implicit yield on all of our leases and contracts is on a fixed interest rate basis due to the leases and contracts having scheduled payments that are fixed at the time of origination. When we originate or acquire leases or contracts, we base our pricing in part on the spread we expect to achieve between the implicit yield on each lease or contract and the effective interest rate we expect to incur in financing such lease or contract through our credit facility. Increases in interest rates during the term of each lease or contract could narrow or eliminate the spread, or result in a negative spread.

Given the relatively short average life of our leases and contracts, our philosophy is to maintain a blend of fixed and variable interest rate obligations, whenever feasible, in order to limit our interest rate risk. Based on our assessment of current market conditions, we have determined that the cost associated with obtaining fixed rate debt would exceed the benefits associated with mitigating the current interest rate risk. Accordingly, we currently have no fixed-rate obligations; however, our variable interest rate obligations under our revolving line of credit are tied to several Libor contracts with varying maturity dates ranging from 30 days to 180 days in duration. As of September 30, 2013, we have $70.8 million of outstanding variable interest rate obligations under our revolving line of credit.

Our revolving line of credit bears interest at rates which fluctuate with changes in the prime rate or the LIBOR; therefore, our interest expense is subject to changes in market interest rates. However, the effect of a 10% adverse change in market interest rates, sustained for one year, on our interest expense would be immaterial.

We maintain an investment portfolio in accordance with our investment policy guidelines. The primary objectives of the investment guidelines are to preserve capital, maintain sufficient liquidity to meet our operating needs, and to maximize return. We minimize investment risk by limiting the amount invested in any single security and by focusing on conservative investment choices with short terms and high credit quality standards. We do not use derivative financial instruments or invest for speculative trading purposes. Investment activity during 2012 and 2013 was very limited given the lack of cash available to invest and the relatively low investment rates being offered.

ITEM 4. Controls and Procedures

Disclosure controls and procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Internal control over financial reporting

During the third quarter of our fiscal year ending December 31, 2013, no changes were made in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

28

Part II - Other Information

ITEM 1. Legal Proceedings

We are involved from time to time in litigation incidental to the conduct of our business. Although we do not expect that the outcome of any of these matters, individually or collectively, will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, judgments could be rendered or settlements entered, that could adversely affect our operating results or cash flows in a particular period. We routinely assess all of our litigation and threatened litigation as to the probability of ultimately incurring a liability, and record our best estimate of the ultimate loss in situations where we assess the likelihood of loss as probable.

ITEM 1A. Risk Factors

For a discussion of the material risks that we face relating to our business, financial performance and industry, as well as other risks that an investor in our common stock may face, see the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012. The risks described in our Annual Report on Form 10-K and elsewhere in this report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or operating results.

29

ITEM 6. Exhibits

(a) Exhibits index

3.1	Restated Articles of Organization, as amended (incorporated by reference to Exhibit 3.1 in the Registrant’s Registration Statement on Form S-1, No. 333-56639, filed with the Securities and Exchange Commission on June 9, 1998).
3.2	Restated Bylaws, as amended (incorporated by reference to Exhibit 3.2 in the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2007).
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**	The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012, (ii) Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2013 and 2012, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2013 and the twelve months ended December 31, 2012, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, and (v) Notes to Consolidated Financial Statements.

* Filed herewith

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

30

SIGNATURES

Pursuant to the requirements 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.

	MicroFinancial Incorporated
	By:	/s/ Richard F. Latour
	President and Chief Executive Officer
	By:	/s/ James R. Jackson Jr.
	Vice President and Chief Financial Officer
Date: November 14, 2013

31

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Richard F. Latour, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MicroFinancial Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ RICHARD F. LATOUR

Richard F. Latour

President and Chief Executive Officer

Date: November 14, 2013

EX-31.2

Exhibit 31.2

CERTIFICATION

I, James R. Jackson, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of MicroFinancial Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ James R. Jackson Jr.

James R. Jackson Jr.

Vice President and Chief Financial Officer

Date: November 14, 2013

EX-32.1

Exhibit 32.1

MicroFinancial Incorporated

Certification of Chief Executive Officer

Regarding Quarterly Report on Form 10-Q for the

Quarter Ended September 30, 2013

Richard F. Latour, President and Chief Executive Officer of MicroFinancial Incorporated, (the “Company”), hereby certifies that, to the best of his knowledge, based upon a review of the Quarterly Report on Form 10-Q for the Quarter ended September 30, 2013, (the “Covered Report”) and, except as corrected or supplemented in a subsequent covered report:

• the Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof, the undersigned has signed this Certification as of November 14, 2013.

/s/ Richard F. Latour

Richard F. Latour

President and Chief Executive Officer

EX-32.2

Exhibit 32.2

MicroFinancial Incorporated

Certification of Chief Financial Officer

Regarding Quarterly Report on Form 10-Q for the

Quarter Ended September 30, 2013

James R. Jackson Jr., Vice President and Chief Financial Officer of MicroFinancial Incorporated, (the “Company”), hereby certifies that, to the best of his knowledge, based upon a review of the Quarterly Report on Form 10-Q for the Quarter ended September 30, 2013, (the “Covered Report”) and, except as corrected or supplemented in a subsequent covered report:

• the Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof, the undersigned has signed this Certification as of November 14, 2013.

/s/ James R. Jackson Jr.

Vice President and Chief Financial Officer

XML

Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2013

Accounting Changes And Error Corrections [Abstract]

Recent Accounting Pronouncements

J. Recent Accounting Pronouncements

None.

XML

Condensed Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Revenues:
Income on financing leases	$ 10,303	$ 10,160	$ 30,866	$ 29,715
Rental income	2,660	2,462	7,845	7,181
Income on service contracts	250	95	640	265
Loss and damage waiver fees	1,474	1,370	4,361	3,978
Service fees and other	1,056	950	3,000	2,837
Total revenues	15,743	15,037	46,712	43,976
Expenses:
Selling, general and administrative	4,618	4,466	14,121	12,847
Provision for credit losses	4,790	4,847	14,414	14,291
Depreciation and amortization	1,355	1,083	3,970	3,156
Interest	679	747	2,009	2,035
Total expenses	11,442	11,143	34,514	32,329
Income before provision for income taxes	4,301	3,894	12,198	11,647
Provision for income taxes	1,721	1,587	4,886	4,688
Net income	$ 2,580	$ 2,307	$ 7,312	$ 6,959
Net income per common share - basic	$ 0.18	$ 0.16	$ 0.51	$ 0.49
Net income per common share - diluted	$ 0.18	$ 0.16	$ 0.49	$ 0.47
Weighted-average shares:
Basic	14,433,695	14,311,900	14,469,077	14,297,888
Diluted	14,744,158	14,716,500	14,773,263	14,669,997

XML

Allowance for Credit Losses and Credit Quality

9 Months Ended

Sep. 30, 2013

Text Block [Abstract]

Allowance for Credit Losses and Credit Quality

C. Allowance for Credit Losses and Credit Quality

The following table reconciles the activity in the allowance for credit losses by portfolio segment for the three months ended September 30, 2013 and 2012:

	Microticket equipment
	Three months ended September 30, 2013									Three months ended September 30, 2012
	Lease- Comm			Time- Payment			Total			Lease- Comm			Time- Payment			Total
Allowance for credit losses:
Beginning balance	$	108		$	15,468		$	15,576		$	126		$	12,904		$	13,030
Charge-offs		(84	)		(6,042	)		(6,126	)		(121	)		(5,575	)		(5,696	)
Recoveries		37			1,257			1,294			68			1,110			1,178
Provisions		37			4,753			4,790			38			4,809			4,847
Ending balance, allowance for credit losses	$	98		$	15,436		$	15,534		$	111		$	13,248		$	13,359

The following table reconciles the activity in the allowance for credit losses by portfolio segment for the nine months ended September 30, 2013 and 2012:

	Microticket equipment
	Nine months ended September 30, 2013									Nine months ended September 30, 2012
	Lease- Comm			Time- Payment			Total			Lease- Comm			Time- Payment			Total
Allowance for credit losses:
Beginning balance	$	103		$	13,935		$	14,038		$	162		$	13,018		$	13,180
Charge-offs		(254	)		(17,050	)		(17,304	)		(454	)		(17,463	)		(17,917	)
Recoveries		126			4,260			4,386			205			3,600			3,805
Provisions		123			14,291			14,414			198			14,093			14,291
Ending balance, allowance for credit losses	$	98		$	15,436		$	15,534		$	111		$	13,248		$	13,359

The following table presents the allowance for credit losses and financing receivables by portfolio segment as of September 30, 2013, and December 31, 2012, classified according to the impairment evaluation method:

	As of September 30, 2013						As of December 31, 2012
	Lease- Comm		Time- Payment		Total		Lease- Comm		Time- Payment		Total
Allowance for credit losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		98		15,436		15,534		103		13,935		14,038
Contracts acquired with deteriorated credit quality		—		—		—		—		—		—
Ending balance, allowance for credit losses	$	98	$	15,436	$	15,534	$	103	$	13,935	$	14,038

	As of September 30, 2013						As of December 31, 2012
	Lease- Comm		Time- Payment		Total		Lease- Comm		Time- Payment		Total
Financing receivables:(1)
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		188		177,236		177,424		174		173,697		173,871
Contracts acquired with deteriorated credit quality		—		—		—		—		—		—
Ending balance, financing receivables	$	188	$	177,236	$	177,424	$	174	$	173,697	$	173,871

(1) Total financing receivables include net investment in leases. For purposes of asset quality and allowance calculations, the allowance for credit losses is excluded.

The following table presents the aging status of the recorded investment in leases as of September 30, 2013, classified according to the original score granted by our internally-developed proprietary scoring model:

				31 to 60 Days			61 to 90 Days			Over 90 Days						Over 90 Days
	Current			Past Due			Past Due			Past Due			Total			Accruing
LeaseComm	$	92		$	4		$	4		$	88		$	188		$	88
TimePayment
Gold		56,727			1,782			1,156			3,508			63,173			3,508
Silver		83,505			2,671			2,768			14,016			102,960			14,016
Bronze		7,541			491			490			2,581			11,103			2,581
TimePayment subtotal		147,773			4,944			4,414			20,105			177,236			20,105
Total financing receivables	$	147,865		$	4,948		$	4,418		$	20,193		$	177,424		$	20,193
Percent of total financing receivables		83.3	%		2.8	%		2.5	%		11.4	%		100.0	%

The following table presents the aging status of the recorded investment in leases as of December 31, 2012, classified according to the original score granted by our internally-developed proprietary scoring model:

				31 to 60 Days			61 to 90 Days			Over 90 Days						Over 90 Days
	Current			Past Due			Past Due			Past Due			Total			Accruing
LeaseComm	$	90		$	5		$	5		$	74		$	174		$	74
TimePayment
Gold		54,446			2,763			1,042			2,309			60,560			2,309
Silver		84,268			2,883			3,281			13,312			103,744			13,312
Bronze		6,341			493			441			2,118			9,393			2,118
TimePayment subtotal		145,055			6,139			4,764			17,739			173,697			17,739
Total financing receivables	$	145,145		$	6,144		$	4,769		$	17,813		$	173,871		$	17,813
Percent of total financing receivables		83.5	%		3.5	%		2.7	%		10.3	%		100	%

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Nature of Business - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012 Time Payment Corp [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Average amount financed by subsidiary	$ 4,800	$ 5,200

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial statements. Accordingly, our interim statements do not include all of the information and disclosures required for our annual financial statements. In the opinion of our management, the condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of these interim results. These financial statements should be read in conjunction with our consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2012. The results for the nine months ended September 30, 2013, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013.

The balance sheet at December 31, 2012, has been derived from the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012.

Segment Reporting

Segment Reporting

We operate in one industry segment that leases and rents microticket equipment and provides other financing services. All of our operations are located in the United States. Accordingly, we believe we have a single reportable segment for disclosure purposes.

Allowance for Credit Losses and Credit Quality

Allowance for Credit Losses and Credit Quality

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. Given the nature of the microticket market and the individual size of each contract, we do not have a formal credit review committee to review individual contracts. Rather, we have developed a sophisticated, multi-tiered pricing model and have automated the credit scoring, approval and collection processes. We believe that with the proper pricing model, we can grant credit to a wide range of applicants provided we have priced appropriately for the associated risk. As a result of approving a wide range of credits, we experience a relatively high level of delinquency and write-offs in our portfolio. We periodically review the credit scoring and approval process to ensure that the automated system is making appropriate credit decisions. Given the nature of the microticket market and the individual size of each contract, we do not evaluate contracts individually for the purpose of developing and determining the adequacy of the allowance for credit losses. Contracts in our portfolio are not re-graded subsequent to the initial extension of credit and the allowance is not allocated to specific contracts. Rather, we view the contracts as having common characteristics and maintain a general allowance against our entire portfolio utilizing historical collection statistics and an assessment of current credit risk in the portfolio as the basis for the amount.

Each period, the provision for credit losses in the consolidated statements of income results from the combination of an estimate by management of credit losses that occurred during the current period and the ongoing adjustment of prior estimates of losses occurring in prior periods. To serve as a basis for making this provision, we have adopted a consistent, systematic procedure for establishing and maintaining an appropriate allowance for credit losses for our contracts. We estimate the likelihood of credit losses net of recoveries in the portfolio at each reporting period based upon a combination of an internally-developed proprietary scoring model that considers several factors including the lessee’s bureau-reported credit score at contract inception and the current delinquency status of the account. In addition to these elements, we also consider other relevant factors including general economic trends, trends in delinquencies and credit losses, static pool analysis of our portfolio, trends in recoveries made on charged off accounts, and other relevant factors which might affect the performance of our portfolio. This combination of historical experience, credit scores, delinquency levels, trends in credit losses, and the review of current factors provides the basis for our analysis of the adequacy of the allowance for credit losses. In general, a receivable is deemed uncollectable when it is 360 days past due or earlier if other adverse events occur with respect to an account. None of our receivables are placed on non-accrual status as contracts are charged off when deemed uncollectible. Historically, the typical monthly payment under our microticket contracts has been small and as a result, our experience is that lessees will pay past due amounts later in the process because of the relatively small amount necessary to bring a contract current.

We segregate our contract portfolio between TimePayment and LeaseComm to perform the calculation and analysis of the allowance for credit losses. Each subsidiary consists of a single portfolio segment – microticket equipment. Leases of microticket equipment and other contracts are made to businesses and individuals and are generally secured by assets of the business or a personal guarantee. Repayment is expected from the cash flows of the business or individual. A weakened economy, and resultant decreased consumer spending, may have a negative effect on the credit quality in this segment.

We assign internal risk ratings for all lessees and determine the creditworthiness of each contract based upon this internally-developed proprietary scoring model. The LeaseComm portfolio is evaluated in total, with a reserve calculated based upon the aging of the portfolio and our collection experience. The TimePayment scoring model generates one of ten acceptable risk ratings based upon the creditworthiness of each application or it rejects the application. The scores are assigned at contract inception, and these scores are maintained over the contract term regardless of payment performance. To facilitate review and reporting, management aggregates these ten scores into one of three categories with similar risk profiles and delinquency characteristics identified as Gold, Silver or Bronze.

• Contracts assigned a Gold rating represent those transactions which exhibit the best risk rating based on our internal credit scores. They are considered of sufficient quality to preclude an otherwise adverse rating. Gold rated contracts are typically represented by lessees with high bureau-reported credit scores for personal guarantors at contract inception or are supported by established businesses for those transactions which are not personally guaranteed by the lessee.

• Contracts assigned a Silver rating fall in the middle range of the ten acceptable scores generated by the scoring model. These transactions possess a reasonable amount of risk based on their profile and may exhibit vulnerability to deterioration if adverse factors are encountered. These contracts typically demonstrate adequate coverage but warrant a higher level of monitoring by management to ensure that weaknesses do not advance.

• A Bronze rating applies to contracts at the lower end of the ten acceptable scores generated by the scoring model whereby the lessee may have difficulty meeting the contract obligation if adverse factors are encountered. Bronze rated contracts typically have lower reported credit scores at contract inception and will typically have other less desirable credit attributes.

See Note C for details of our allowance for credit losses and the aged analysis of past due financing receivables based upon our internally-developed proprietary scoring model.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Accounting for fair value measurements involves a single definition of fair value, along with a conceptual framework to measure fair value, with fair value 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 at the measurement date.” The fair value measurement hierarchy consists of three levels:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs developed using estimates and assumptions which are developed by the reporting entity and reflect those assumptions that a market participant would use.

We apply valuation techniques that (1) place greater reliance on observable inputs and less reliance on unobservable inputs and (2) are consistent with the market approach, the income approach and/or the cost approach.

The carrying values of cash and cash equivalents, restricted cash, other assets, accounts payable and other liabilities approximate their fair values due to the short maturity of these instruments. The fair value of the amounts outstanding under our revolving line of credit, evaluated using Level 2 inputs as of September 30, 2013, and December 31, 2012, approximate the carrying value.

Stock-Based Employee Compensation

Stock-based Employee Compensation

We have adopted the fair value recognition provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 Compensation—Stock Compensation. FASB ASC Topic 718 requires us to recognize the compensation cost related to share-based payment transactions with employees in the financial statements. The compensation cost is measured based upon the fair value of the instrument issued. Share-based compensation transactions with employees covered by FASB ASC Topic 718 include share options, restricted share plans and performance-based awards.

Net Income Per Share

Net Income Per Share

Basic net income per common share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net income per common share gives effect to all potentially dilutive common shares outstanding during the period. The computation of diluted net income per share does not assume the issuance of common shares that have an antidilutive effect on net income per common share.

Cash and Cash Equivalents

Cash and Cash Equivalents

We consider all highly liquid instruments purchased with original maturities of less than three months to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value.

Concentration of Credit Risk

Concentration of Credit Risk

We deposit our cash and invest in short-term investments primarily through national commercial banks. Deposits in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC) are exposed to loss in the event of nonperformance by the institution. The Company has had cash deposits in excess of the FDIC insurance coverage. However, we have not experienced any losses in such accounts.

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Stock-Based Employee Compensation - Outstanding Stock Options (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise Price	$ 2.30
Shares, Outstanding	258,723
Weighted-Average Life (Years), Outstanding	5 years 5 months 1 day
Intrinsic Values, Outstanding	$ 1,444
Weighted-Average Exercise Price, Exercisable	$ 2.30
Shares, Exercisable	194,042
Intrinsic Values Exercisable, at stock option plan exercise price	1,083
Stock Options Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise Price	$ 5.77
Shares, Outstanding	31,923
Weighted-Average Life (Years), Outstanding	3 years 5 months 1 day
Intrinsic Values, Outstanding	67
Weighted-Average Exercise Price, Exercisable	$ 5.77
Shares, Exercisable	31,923
Intrinsic Values Exercisable, at stock option plan exercise price	67
Stock Options Three [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise Price	$ 5.85
Shares, Outstanding	142,382
Weighted-Average Life (Years), Outstanding	4 years 3 months 29 days
Intrinsic Values, Outstanding	289
Weighted-Average Exercise Price, Exercisable	$ 5.85
Shares, Exercisable	142,382
Intrinsic Values Exercisable, at stock option plan exercise price	289
Stock Options Four [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares, Outstanding	433,028
Weighted-Average Life (Years), Outstanding	4 years 10 months 28 days
Intrinsic Values, Outstanding	1,800
Weighted-Average Exercise Price, Exercisable	$ 3.97
Shares, Exercisable	368,347
Intrinsic Values Exercisable, at stock option plan exercise price	$ 1,439

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Allowance for Credit Losses and Credit Quality - Financing Receivables by Portfolio Segment by Impairment Evaluation Method (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for credit losses: Individually evaluated for impairment
Allowance for credit losses: Collectively evaluated for impairment	15,534		14,038
Allowance for credit losses: Contracts acquired with deteriorated credit quality
Allowance for credit losses, Ending balance	15,534	15,576	14,038	13,359	13,030	13,180
Financing receivables: Individually evaluated for impairment
Financing receivables: Collectively evaluated for impairment	177,424		173,871
Financing receivables: Contracts acquired with deteriorated credit quality
Financing receivables, Ending balance	177,424		173,871
Lease-Comm Microticket Equipment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for credit losses: Individually evaluated for impairment
Allowance for credit losses: Collectively evaluated for impairment	98		103
Allowance for credit losses: Contracts acquired with deteriorated credit quality
Allowance for credit losses, Ending balance	98	108	103	111	126	162
Financing receivables: Individually evaluated for impairment
Financing receivables: Collectively evaluated for impairment	188		174
Financing receivables: Contracts acquired with deteriorated credit quality
Financing receivables, Ending balance	188		174
Time-Payment Microticket Equipment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for credit losses: Individually evaluated for impairment
Allowance for credit losses: Collectively evaluated for impairment	15,436		13,935
Allowance for credit losses: Contracts acquired with deteriorated credit quality
Allowance for credit losses, Ending balance	15,436	15,468	13,935	13,248	12,904	13,018
Financing receivables: Individually evaluated for impairment
Financing receivables: Collectively evaluated for impairment	177,236		173,697
Financing receivables: Contracts acquired with deteriorated credit quality
Financing receivables, Ending balance	$ 177,236		$ 173,697

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Allowance for Credit Losses and Credit Quality - Allowance for Credit Losses by Portfolio Segment (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for credit losses, Beginning balance	$ 15,576	$ 13,030	$ 14,038	$ 13,180
Charge-offs	(6,126)	(5,696)	(17,304)	(17,917)
Recoveries	1,294	1,178	4,386	3,805
Provisions	4,790	4,847	14,414	14,291
Allowance for credit losses, Ending balance	15,534	13,359	15,534	13,359
Lease-Comm Microticket Equipment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for credit losses, Beginning balance	108	126	103	162
Charge-offs	(84)	(121)	(254)	(454)
Recoveries	37	68	126	205
Provisions	37	38	123	198
Allowance for credit losses, Ending balance	98	111	98	111
Time-Payment Microticket Equipment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for credit losses, Beginning balance	15,468	12,904	13,935	13,018
Charge-offs	(6,042)	(5,575)	(17,050)	(17,463)
Recoveries	1,257	1,110	4,260	3,600
Provisions	4,753	4,809	14,291	14,093
Allowance for credit losses, Ending balance	$ 15,436	$ 13,248	$ 15,436	$ 13,248

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Revolving Line of Credit - Chronology of Total Commitment Under Revolving Credit Facility with Associated Rate Options in Effect (Parenthetical) (Detail)	10 Months Ended	12 Months Ended	9 Months Ended
	Oct. 31, 2011	Dec. 31, 2012	Sep. 30, 2013 London Interbank Offered Rate (LIBOR) [Member]	Sep. 30, 2013 Federal Funds [Member]	Sep. 30, 2013 Base Rate [Member]
Credit Facilities [Line Items]
The base rate established by the Agent			1.00%	0.50%
Rate options	Prime plus 0.75% or LIBOR plus 2.75%	Base plus 0.75% or LIBOR plus 2.50%			The "base rate" is the highest of the prime rate established by the Agent, or one-month LIBOR plus 1%, or the federal funds effective rate plus 0.5%.

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Subsequent Events - Additional Information (Detail) (Subsequent Event [Member], USD $)	1 Months Ended
	Oct. 24, 2013
Subsequent Event [Member]
Subsequent Event [Line Items]
Dividends declared per common share	$ 0.07
Expected dividend payment date	Nov. 15, 2013
Expected dividend record date	Nov. 04, 2013

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Dividends - Dividends Declared and Paid or Payable (Detail) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Dividend per Share	$ 0.18	$ 0.18
Dividend 1 [Member]
Date Declared	Jan. 29, 2013	Jan. 31, 2012
Record Date	Feb. 08, 2013	Feb. 10, 2012
Payment Date	Feb. 15, 2013	Feb. 15, 2012
Dividend per Share	$ 0.06	$ 0.06
Dividend 2 [Member]
Date Declared	Apr. 23, 2013	Apr. 19, 2012
Record Date	May 03, 2013	Apr. 30, 2013
Payment Date	May 15, 2013	May 15, 2012
Dividend per Share	$ 0.06	$ 0.06
Dividend 3 [Member]
Date Declared	Jul. 17, 2013	Jul. 19, 2012
Record Date	Jul. 30, 2013	Jul. 30, 2012
Payment Date	Aug. 15, 2013	Aug. 15, 2012
Dividend per Share	$ 0.06	$ 0.06

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Summary of Significant Accounting Policies - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2013 RiskRating Segment
Accounting Policies [Abstract]
Number of operating segments	1
Finance receivable charged-off	360 days past due or earlier
Number of scores	10
Risk rate description	The TimePayment scoring model generates one of ten acceptable risk ratings based upon the creditworthiness of each application or it rejects the application
Cash and Cash Equivalents, Maturity description	less than three months

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Condensed Consolidated Statements of Stockholders' Equity (Parenthetical) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Common stock dividends per share	$ 0.18	$ 0.24
Retained Earnings [Member]
Common stock dividends per share	$ 0.18	$ 0.24

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Nature of Business

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Nature of Business

A. Nature of Business

MicroFinancial Incorporated (referred to as “MicroFinancial,” “we,” “us” or “our”) operates primarily through its wholly-owned subsidiaries, TimePayment Corp. and LeaseComm Corporation. TimePayment is a specialized commercial/consumer finance company that leases and rents equipment and provides other financing services, with a primary focus on the “microticket” market. LeaseComm originated leases from January 1986 through October 2002, and continues to service its remaining contract portfolio. TimePayment commenced originating leases in July 2004. The average contract amount financed by TimePayment was approximately $5,200 during 2012 and $4,800 during the first nine months of 2013. We primarily source our originations through a nationwide network of independent equipment vendors, sales organizations and other dealer-based origination networks. We fund our operations through cash provided by operating activities and borrowings under our revolving line of credit.

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Net Income Per Share

9 Months Ended

Sep. 30, 2013

Earnings Per Share [Abstract]

Net Income Per Share

D. Net Income per Share

Net income per share for the three and nine months ended September 30, 2013 and 2012 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Net income	$	2,580	$	2,307	$	7,312	$	6,959
Weighted average common shares outstanding		14,433,695		14,311,900		14,469,077		14,297,888
Dilutive effect of common stock options, warrants and restricted stock		310,463		404,600		304,186		372,109
Shares used in computation of net income per common share - diluted		14,744,158		14,716,500		14,773,263		14,669,997
Net income per common share - basic	$	0.18	$	0.16	$	0.51	$	0.49
Net income per common share - diluted	$	0.18	$	0.16	$	0.49	$	0.47

For the three and nine month periods ended September 30, 2013 and 2012, there were no options excluded from the computation of diluted net income per share because their effect would have been antidilutive.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

B. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial statements. Accordingly, our interim statements do not include all of the information and disclosures required for our annual financial statements. In the opinion of our management, the condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of these interim results. These financial statements should be read in conjunction with our consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2012. The results for the nine months ended September 30, 2013, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013.

The balance sheet at December 31, 2012, has been derived from the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012.

Segment Reporting

We operate in one industry segment that leases and rents microticket equipment and provides other financing services. All of our operations are located in the United States. Accordingly, we believe we have a single reportable segment for disclosure purposes.

Allowance for Credit Losses and Credit Quality

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. Given the nature of the microticket market and the individual size of each contract, we do not have a formal credit review committee to review individual contracts. Rather, we have developed a sophisticated, multi-tiered pricing model and have automated the credit scoring, approval and collection processes. We believe that with the proper pricing model, we can grant credit to a wide range of applicants provided we have priced appropriately for the associated risk. As a result of approving a wide range of credits, we experience a relatively high level of delinquency and write-offs in our portfolio. We periodically review the credit scoring and approval process to ensure that the automated system is making appropriate credit decisions. Given the nature of the microticket market and the individual size of each contract, we do not evaluate contracts individually for the purpose of developing and determining the adequacy of the allowance for credit losses. Contracts in our portfolio are not re-graded subsequent to the initial extension of credit and the allowance is not allocated to specific contracts. Rather, we view the contracts as having common characteristics and maintain a general allowance against our entire portfolio utilizing historical collection statistics and an assessment of current credit risk in the portfolio as the basis for the amount.

Each period, the provision for credit losses in the consolidated statements of income results from the combination of an estimate by management of credit losses that occurred during the current period and the ongoing adjustment of prior estimates of losses occurring in prior periods. To serve as a basis for making this provision, we have adopted a consistent, systematic procedure for establishing and maintaining an appropriate allowance for credit losses for our contracts. We estimate the likelihood of credit losses net of recoveries in the portfolio at each reporting period based upon a combination of an internally-developed proprietary scoring model that considers several factors including the lessee’s bureau-reported credit score at contract inception and the current delinquency status of the account. In addition to these elements, we also consider other relevant factors including general economic trends, trends in delinquencies and credit losses, static pool analysis of our portfolio, trends in recoveries made on charged off accounts, and other relevant factors which might affect the performance of our portfolio. This combination of historical experience, credit scores, delinquency levels, trends in credit losses, and the review of current factors provides the basis for our analysis of the adequacy of the allowance for credit losses. In general, a receivable is deemed uncollectable when it is 360 days past due or earlier if other adverse events occur with respect to an account. None of our receivables are placed on non-accrual status as contracts are charged off when deemed uncollectible. Historically, the typical monthly payment under our microticket contracts has been small and as a result, our experience is that lessees will pay past due amounts later in the process because of the relatively small amount necessary to bring a contract current.

We segregate our contract portfolio between TimePayment and LeaseComm to perform the calculation and analysis of the allowance for credit losses. Each subsidiary consists of a single portfolio segment – microticket equipment. Leases of microticket equipment and other contracts are made to businesses and individuals and are generally secured by assets of the business or a personal guarantee. Repayment is expected from the cash flows of the business or individual. A weakened economy, and resultant decreased consumer spending, may have a negative effect on the credit quality in this segment.

We assign internal risk ratings for all lessees and determine the creditworthiness of each contract based upon this internally-developed proprietary scoring model. The LeaseComm portfolio is evaluated in total, with a reserve calculated based upon the aging of the portfolio and our collection experience. The TimePayment scoring model generates one of ten acceptable risk ratings based upon the creditworthiness of each application or it rejects the application. The scores are assigned at contract inception, and these scores are maintained over the contract term regardless of payment performance. To facilitate review and reporting, management aggregates these ten scores into one of three categories with similar risk profiles and delinquency characteristics identified as Gold, Silver or Bronze.

• Contracts assigned a Gold rating represent those transactions which exhibit the best risk rating based on our internal credit scores. They are considered of sufficient quality to preclude an otherwise adverse rating. Gold rated contracts are typically represented by lessees with high bureau-reported credit scores for personal guarantors at contract inception or are supported by established businesses for those transactions which are not personally guaranteed by the lessee.

• Contracts assigned a Silver rating fall in the middle range of the ten acceptable scores generated by the scoring model. These transactions possess a reasonable amount of risk based on their profile and may exhibit vulnerability to deterioration if adverse factors are encountered. These contracts typically demonstrate adequate coverage but warrant a higher level of monitoring by management to ensure that weaknesses do not advance.

• A Bronze rating applies to contracts at the lower end of the ten acceptable scores generated by the scoring model whereby the lessee may have difficulty meeting the contract obligation if adverse factors are encountered. Bronze rated contracts typically have lower reported credit scores at contract inception and will typically have other less desirable credit attributes.

See Note C for details of our allowance for credit losses and the aged analysis of past due financing receivables based upon our internally-developed proprietary scoring model.

Fair Value of Financial Instruments

Accounting for fair value measurements involves a single definition of fair value, along with a conceptual framework to measure fair value, with fair value 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 at the measurement date.” The fair value measurement hierarchy consists of three levels:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs developed using estimates and assumptions which are developed by the reporting entity and reflect those assumptions that a market participant would use.

We apply valuation techniques that (1) place greater reliance on observable inputs and less reliance on unobservable inputs and (2) are consistent with the market approach, the income approach and/or the cost approach.

The carrying values of cash and cash equivalents, restricted cash, other assets, accounts payable and other liabilities approximate their fair values due to the short maturity of these instruments. The fair value of the amounts outstanding under our revolving line of credit, evaluated using Level 2 inputs as of September 30, 2013, and December 31, 2012, approximate the carrying value.

Stock-based Employee Compensation

We have adopted the fair value recognition provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 Compensation—Stock Compensation. FASB ASC Topic 718 requires us to recognize the compensation cost related to share-based payment transactions with employees in the financial statements. The compensation cost is measured based upon the fair value of the instrument issued. Share-based compensation transactions with employees covered by FASB ASC Topic 718 include share options, restricted share plans and performance-based awards.

Net Income Per Share

Basic net income per common share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net income per common share gives effect to all potentially dilutive common shares outstanding during the period. The computation of diluted net income per share does not assume the issuance of common shares that have an antidilutive effect on net income per common share.

Cash and Cash Equivalents

We consider all highly liquid instruments purchased with original maturities of less than three months to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value.

Concentration of Credit Risk

We deposit our cash and invest in short-term investments primarily through national commercial banks. Deposits in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC) are exposed to loss in the event of nonperformance by the institution. The Company has had cash deposits in excess of the FDIC insurance coverage. However, we have not experienced any losses in such accounts.

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Allowance for Credit Losses and Credit Quality - Aged Analysis of Past Due Financing Receivables by Our Internally Developed Proprietary Scoring Model in Leases (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 147,865	$ 145,145
31 to 60 Days Past Due	4,948	6,144
61 to 90 Days Past Due	4,418	4,769
Over 90 Days Past Due	20,193	17,813
Financing receivables, Ending balance	177,424	173,871
Over 90 Days Accruing	20,193	17,813
Percent of total financing receivables, Current	83.30%	83.50%
Percent of total financing receivables, 31 to 60 Days Past Due	2.80%	3.50%
Percent of total financing receivables, 61 to 90 Days Past Due	2.50%	2.70%
Percent of total financing receivables, Over 90 Days Past Due	11.40%	10.30%
Percent of total financing receivables	100.00%	100.00%
Lease Comm [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	92	90
31 to 60 Days Past Due	4	5
61 to 90 Days Past Due	4	5
Over 90 Days Past Due	88	74
Financing receivables, Ending balance	188	174
Over 90 Days Accruing	88	74
Time Payment Corp [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	147,773	145,055
31 to 60 Days Past Due	4,944	6,139
61 to 90 Days Past Due	4,414	4,764
Over 90 Days Past Due	20,105	17,739
Financing receivables, Ending balance	177,236	173,697
Over 90 Days Accruing	20,105	17,739
Time Payment Corp [Member] | Gold [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	56,727	54,446
31 to 60 Days Past Due	1,782	2,763
61 to 90 Days Past Due	1,156	1,042
Over 90 Days Past Due	3,508	2,309
Financing receivables, Ending balance	63,173	60,560
Over 90 Days Accruing	3,508	2,309
Time Payment Corp [Member] | Silver [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	83,505	84,268
31 to 60 Days Past Due	2,671	2,883
61 to 90 Days Past Due	2,768	3,281
Over 90 Days Past Due	14,016	13,312
Financing receivables, Ending balance	102,960	103,744
Over 90 Days Accruing	14,016	13,312
Time Payment Corp [Member] | Bronze [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	7,541	6,341
31 to 60 Days Past Due	491	493
61 to 90 Days Past Due	490	441
Over 90 Days Past Due	2,581	2,118
Financing receivables, Ending balance	11,103	9,393
Over 90 Days Accruing	$ 2,581	$ 2,118

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Revolving Line of Credit - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Oct. 31, 2011	Aug. 02, 2007
Line of Credit Facility [Line Items]
Borrowing capacity under revolving line of credit	$ 150	$ 150	$ 100	$ 30
Further increases in total commitment		175
Amount outstanding on line of credit	70.8	70.4
Available on revolving line of credit	79.2
Maturity date of the facility	Dec. 21, 2016
Qualified lease receivables eligible under the borrowing base computation	128.7
London Interbank Offered Rate (LIBOR) [Member]
Line of Credit Facility [Line Items]
Amount outstanding on line of credit	65.0
Base Rate [Member]
Line of Credit Facility [Line Items]
Amount outstanding on line of credit	5.8
Minimum [Member]
Line of Credit Facility [Line Items]
Borrowing capacity under revolving line of credit		100
Interest rate on loans	2.80%
Maximum [Member]
Line of Credit Facility [Line Items]
Borrowing capacity under revolving line of credit		$ 150
Interest rate on loans	4.00%

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Stock-Based Employee Compensation - Restricted Stock Units Granted (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	1 Months Ended		9 Months Ended
	Jan. 31, 2013	Sep. 30, 2013	Sep. 30, 2013 Restricted Stock Units (RSUs) [Member] February 2010 [Member]	Sep. 30, 2013 Restricted Stock Units (RSUs) [Member] February 2011 [Member]	Sep. 30, 2013 Restricted Stock Units (RSUs) [Member] February 2012 [Member]	Sep. 30, 2013 Restricted Stock Units (RSUs) [Member] January 2013 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of RSUs			33,518	33,044	40,393	45,316
Fair Value per Share	$ 7.55		$ 3.15	$ 4.11	$ 6.60	$ 7.55
Fair Value of Grant			$ 106	$ 136	$ 266	$ 342
Total		152,271
Fair Value of Grant Total		$ 850
Number Vested		25,020	16,759	8,261
Number Non-Vested		127,251	16,759	24,783	40,393	45,316

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	14,435,498	14,470,219

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Stock-Based Employee Compensation

9 Months Ended

Sep. 30, 2013

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Employee Compensation

G. Stock-Based Employee Compensation

Under our 2008 Equity Incentive Plan, we reserved 1,000,000 shares of common stock for issuance, all of which have been issued as of September 30, 2013. In May 2012, our stockholders approved our 2012 Equity Incentive Plan, for which we have 750,000 shares of common stock reserved, of which 613,183 shares are unissued as of September 30, 2013.

For the three months ended September 30, 2013 and 2012, the total share-based compensation cost recognized was $57,000 and $49,000, respectively. For the nine months ended September 30, 2013 and 2012, the total share-based compensation cost recognized was $175,000 and $142,000, respectively. The unrecognized compensation cost was $536,000 and $365,000 at September 30, 2013 and December 31, 2012, respectively.

Non-employee director stock grants

The following details the stock granted to our non-employee directors under the 2008 and 2012 Plans during the nine months ended September 30, 2013 and 2012. These shares were issued as part of our annual director compensation arrangements related to the prior years’ service, and were fully vested on the date of issuance.

Date of Grant	Number of Shares		Fair Value per Share		Fair Value of Grant
February 2012		31,820	$	6.60	$	210
July 2012		16,328	$	8.36		136
Total 2012		48,148			$	346
January 2013		29,205	$	7.55	$	221
July 2013		16,587	$	8.44		140
Total 2013		45,792			$	361

Restricted Stock Unit Grants (RSUs)

The following provides details of our vested and unvested RSUs as of September 30, 2013:

							As of September 30, 2013
Date of Grant	Number of RSUs		Fair Value per Share		Fair Value of Grant		Vested		Non- Vested
February 2010		33,518	$	3.15	$	106		16,759		16,759
February 2011		33,044	$	4.11		136		8,261		24,783
February 2012		40,393	$	6.60		266		—		40,393
January 2013		45,316	$	7.55		342		—		45,316
		152,271			$	850		25,020		127,251

In January 2013, the Compensation and Benefits Committee of our Board of Directors granted 45,316 RSUs to our executive officers. The RSUs were valued on the date of grant and the fair value of these awards was $7.55 per share. The issuance consists of three separate tranches. The first tranche is for 28,643 RSUs which vest over five years at 25% annually beginning on the second anniversary of the grant date. The second tranche is for 15,548 RSUs which cliff vest after three years only if management achieves specific performance measures. The third tranche is for 1,125 RSUs which vest over five years at 25% annually, beginning on the second anniversary of the grant date, and represent payment related to 2012 incentive bonus compensation.

During the three months ended September 30, 2013, and September 30, 2012, amortized compensation expense related to RSUs was $50,000 and $29,000, respectively. During the nine months ended September 30, 2013, and September 30, 2012, amortized compensation expense related to RSUs was $149,000 and $81,000, respectively.

Stock Options

Information relating to our outstanding stock options at September 30, 2013, is as follows:

Outstanding							Exercisable
Exercise Price		Shares		Weighted- Average Life (Years)	Intrinsic Value		Weighted- Average Exercise Price		Shares		Intrinsic Value
$	2.30		258,723	5.42	$	1,444	$	2.30		194,042	$	1,083
$	5.77		31,923	3.42		67	$	5.77		31,923		67
$	5.85		142,382	4.33		289	$	5.85		142,382		289
			433,028	4.91	$	1,800	$	3.97		368,347	$	1,439

During the three and nine months ended September 30, 2013, there were no options granted, exercised, forfeited, or expired.

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Condensed Consolidated Statements of Stockholders' Equity (USD $) In Thousands, except Share data	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]
Balance, Beginning at Dec. 31, 2011	$ 75,723	$ 143	$ 46,727	$ 28,853
Balance Beginning, shares at Dec. 31, 2011		14,257,324
Stock issued for director compensation	346		346
Stock issued for director compensation , shares		48,148
Stock-based compensation	191		191
Shares issued upon vesting of restricted stock units		8,380
Warrants exercised		6,367
Stock options exercised	238	2	236
Stock options exercised, shares		150,000
Common stock dividends ($0.24 and $0.18 for year 2012 and 2013 respectively)	(3,457)			(3,457)
Net income	9,351			9,351
Balance, Ending at Dec. 31, 2012	82,392	145	47,500	34,747
Balance Ending, shares at Dec. 31, 2012		14,470,219
Stock issued for director compensation	361		361
Stock issued for director compensation , shares		45,792
Stock-based compensation	175		175
Repurchase of common stock	(708)	(1)	(707)
Repurchase of common stock, shares		(97,153)
Shares issued upon vesting of restricted stock units		16,640
Stock options exercised, shares	0
Common stock dividends ($0.24 and $0.18 for year 2012 and 2013 respectively)	(2,628)			(2,628)
Net income	7,312			7,312
Balance, Ending at Sep. 30, 2013	$ 86,904	$ 144	$ 47,329	$ 39,431
Balance Ending, shares at Sep. 30, 2013		14,435,498

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
ASSETS
Cash and cash equivalents	$ 1,389	$ 3,557
Restricted cash	1,641	1,213
Net investment in leases:
Receivables due in installments	215,599	213,466
Estimated residual value	23,545	24,176
Initial direct costs	1,746	1,751
Less:
Advance lease payments and deposits	(3,088)	(3,278)
Unearned income	(60,378)	(62,244)
Allowance for credit losses	(15,534)	(14,038)
Net investment in leases	161,890	159,833
Investment in service contracts, net	1,693	797
Investment in rental contracts, net	1,139	1,037
Property and equipment, net	1,364	1,534
Other assets	1,721	1,658
Total assets	170,837	169,629
LIABILITIES AND STOCKHOLDERS' EQUITY
Revolving line of credit	70,766	70,380
Accounts payable	3,254	3,220
Dividends payable	54	40
Other liabilities	2,581	2,545
Income taxes payable	287	653
Deferred income taxes	6,991	10,399
Total liabilities	83,933	87,237
Commitments and contingencies (Note H)
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued at September 30, 2013, and December 31, 2012
Common stock, $.01 par value; 25,000,000 shares authorized; 14,435,498 and 14,470,219 shares issued at September 30, 2013, and December 31, 2012, respectively	144	145
Additional paid-in capital	47,329	47,500
Retained earnings	39,431	34,747
Total stockholders' equity	86,904	82,392
Total liabilities and stockholders' equity	$ 170,837	$ 169,629

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Net Income Per Share - Net Income Per Share (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Net Income Per Share Basic And Diluted [Abstract]
Net income	$ 2,580	$ 2,307	$ 7,312	$ 6,959	$ 9,351
Weighted average common shares outstanding	14,433,695	14,311,900	14,469,077	14,297,888
Dilutive effect of common stock options, warrants and restricted stock	310,463	404,600	304,186	372,109
Shares used in computation of net income per common share - diluted	14,744,158	14,716,500	14,773,263	14,669,997
Net income per common share - basic	$ 0.18	$ 0.16	$ 0.51	$ 0.49
Net income per common share - diluted	$ 0.18	$ 0.16	$ 0.49	$ 0.47

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Stock-Based Employee Compensation (Tables)

9 Months Ended

Sep. 30, 2013

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock Granted to Our Non-employee Directors

The following details the stock granted to our non-employee directors under the 2008 and 2012 Plans during the nine months ended September 30, 2013 and 2012. These shares were issued as part of our annual director compensation arrangements related to the prior years’ service, and were fully vested on the date of issuance.

Date of Grant	Number of Shares		Fair Value per Share		Fair Value of Grant
February 2012		31,820	$	6.60	$	210
July 2012		16,328	$	8.36		136
Total 2012		48,148			$	346
January 2013		29,205	$	7.55	$	221
July 2013		16,587	$	8.44		140
Total 2013		45,792			$	361

Restricted Stock Units Granted

The following provides details of our vested and unvested RSUs as of September 30, 2013:

							As of September 30, 2013
Date of Grant	Number of RSUs		Fair Value per Share		Fair Value of Grant		Vested		Non- Vested
February 2010		33,518	$	3.15	$	106		16,759		16,759
February 2011		33,044	$	4.11		136		8,261		24,783
February 2012		40,393	$	6.60		266		—		40,393
January 2013		45,316	$	7.55		342		—		45,316
		152,271			$	850		25,020		127,251

Outstanding Stock Options

Information relating to our outstanding stock options at September 30, 2013, is as follows:

Outstanding							Exercisable
Exercise Price		Shares		Weighted- Average Life (Years)	Intrinsic Value		Weighted- Average Exercise Price		Shares		Intrinsic Value
$	2.30		258,723	5.42	$	1,444	$	2.30		194,042	$	1,083
$	5.77		31,923	3.42		67	$	5.77		31,923		67
$	5.85		142,382	4.33		289	$	5.85		142,382		289
			433,028	4.91	$	1,800	$	3.97		368,347	$	1,439

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Commitments and Contingencies - Additional Information (Detail) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Aug. 10, 2010
Commitments And Contingencies Disclosure [Abstract]
Purchase of outstanding shares			250,000
Repurchased and retired under stock buyback program	97,153
Average price of common stock per share	$ 7.28
Total cost of shares purchased	$ 708,000	$ 0

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Stock-Based Employee Compensation - Additional Information (Detail) (USD $)	1 Months Ended	3 Months Ended		9 Months Ended
	Jan. 31, 2013	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation cost recognized		$ 57,000	$ 49,000	$ 175,000	$ 142,000
Unrecognized compensation cost		536,000		536,000		365,000
Fair value of awards, granted	$ 7.55
Number of shares of restricted stock vest	28,643
Shares of the restricted stock vest over period	5 years
Percentage of restricted stock units vesting annually beginning on second anniversary of grant date	25.00%
Number of shares of RSUs cliff vest				15,548
Number of Shares granted		0		0
Stock options exercised		0		0
Stock options forfeited		0		0
Stock options expired		0		0
Tranche 3 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares of restricted stock vest	1,125
Shares of the restricted stock vest over period	5 years
Percentage of restricted stock units vesting annually beginning on second anniversary of grant date	25.00%
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares of the restricted stock vest over period	3 years
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Amortized compensation expense related to the restricted stock units		$ 50,000	$ 29,000	$ 149,000	$ 81,000
Restricted Stock Units (RSUs) [Member] | Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted restricted stock units	45,316
2008 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Reserved shares of common stock for issuance		1,000,000		1,000,000
2012 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Reserved shares of common stock for issuance		750,000		750,000
Unissued common stock reserved under equity incentive plan		613,183		613,183

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Stock-Based Employee Compensation - Stock Granted to Our Non-employee Directors (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended	9 Months Ended	1 Months Ended				9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Jul. 31, 2013 Director [Member]	Jan. 31, 2013 Director [Member]	Jul. 31, 2012 Director [Member]	Feb. 29, 2012 Director [Member]	Sep. 30, 2013 Director [Member]	Sep. 30, 2012 Director [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of Shares	0	0	16,587	29,205	16,328	31,820	45,792	48,148
Fair Value per Share			$ 8.44	$ 7.55	$ 8.36	$ 6.60
Fair Value of Grant			$ 140	$ 221	$ 136	$ 210	$ 361	$ 346

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Revolving Line of Credit

9 Months Ended

Sep. 30, 2013

Debt Disclosure [Abstract]

Revolving Line of Credit

F. Revolving line of credit

On August 2, 2007, we entered into a revolving line of credit with a bank syndicate led by Santander Bank (formerly known as Sovereign Bank) (Santander) based on qualified TimePayment lease receivables. The total commitment under the facility, originally $30 million, has been increased at various times, most recently from $100 million to $150 million in December 2012. The December 2012 amendment would also permit further increases in the total commitment under an accordion feature, to $175 million, with the agreement of the Agent and, as applicable, a new or existing Lender under certain conditions. Outstanding borrowings are collateralized by eligible lease contracts and a security interest in all of our other assets.

We had approximately $70.8 million and $70.4 million outstanding on our revolving line of credit facility at September 30, 2013, and December 31, 2012, respectively. At September 30, 2013, our available borrowing capacity was approximately $79.2 million, subject to limitations based on lease eligibility and a borrowing base formula. The revolving line of credit has financial covenants that we must comply with to obtain funding and avoid an event of default. As of September 30, 2013, we were in compliance with all covenants under the revolving line of credit.

The maturity date of our revolving line of credit is December 21, 2016, at which time the outstanding loan balance plus interest becomes due and payable. At our option upon maturity, the unpaid principal balance may be converted to a six month term loan.

The following table demonstrates the total commitment under the revolving credit facility with the associated rate options in effect during the three and nine month periods ended September 30, 2013 and 2012. As of September 30, 2013, the total commitment under the facility was $150 million.

Amendment Date	Total Commitment under Credit Facility (in millions)		Rate options(1)
October 2011	$	100	Prime plus 0.75% or LIBOR plus 2.75%
December 2012	$	150	Base(2) plus 0.75% or LIBOR plus 2.50%

(1) Under the terms of the facility, loans are Base Rate Loans (or, prior to December 2012, Prime Rate Loans), unless we elect LIBOR Loans. If a LIBOR Loan is not renewed at maturity it automatically converts to a Base Rate Loan.

(2) The “base rate” is the highest of the prime rate established by the Agent, or one-month LIBOR plus 1%, or the federal funds effective rate plus 0.5%.

At September 30, 2013, $65.0 million of our loans were LIBOR loans and $5.8 million of our loans were Base Rate Loans. The interest rate on our loans at September 30, 2013, was between 2.8% and 4.0%. At the same date, the qualified lease receivables eligible under the borrowing base computation were approximately $128.7 million.

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Net Income Per Share - Additional Information (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Earnings Per Share [Abstract]
Options excluded from the computation of diluted net income per share	0	0	0	0

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Subsequent Events

9 Months Ended

Sep. 30, 2013

Subsequent Events [Abstract]

Subsequent Events

I. Subsequent Events

We have evaluated all events and transactions that occurred through the date on which we issued these financial statements. Other than the declaration of dividends, we did not have any material subsequent events that impacted our condensed consolidated financial statements.

On October 24, 2013, we declared a dividend of $0.07 payable on November 15, 2013, to shareholders of record on November 4, 2013.

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Dividends

9 Months Ended

Sep. 30, 2013

Text Block [Abstract]

Dividends

E. Dividends

Dividends paid during the nine months ended September 30, 2013 and 2012, are as follows:

2013
Date Declared	Record Date	Payment Date	Dividend per Share
January 29, 2013	February 8, 2013	February 15, 2013	$	0.06
April 23, 2013	May 3, 2013	May 15, 2013		0.06
July 17, 2013	July 30, 2013	August 15, 2013		0.06
Total			$	0.18

2012
Date Declared	Record Date	Payment Date	Dividend per Share
January 31, 2012	February 10, 2012	February 15, 2012	$	0.06
April 19, 2012	April 30, 2013	May 15, 2012		0.06
July 19, 2012	July 30, 2012	August 15, 2012		0.06
Total			$	0.18

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Cash flows from operating activities:
Cash received from customers	$ 97,886	$ 89,581
Cash paid to suppliers and employees	(18,212)	(15,708)
Cash paid for income taxes	(8,660)	(6,779)
Interest paid	(1,803)	(1,767)
Net cash provided by operating activities	69,211	65,327
Cash flows from investing activities:
Investment in lease and service contracts	(66,672)	(68,144)
Investment in direct costs	(1,091)	(1,220)
Investment in property and equipment	(252)	(151)
Net cash used in investing activities	(68,015)	(69,515)
Cash flows from financing activities:
Proceeds from revolving line of credit	99,838	96,817
Repayment of revolving line of credit	(99,452)	(90,245)
Decrease (Increase) in restricted cash	(428)	23
Repayment of capital lease obligation		(1)
Repurchase of common stock	(708)
Payment of dividends	(2,614)	(2,577)
Net cash (used in) provided by financing activities	(3,364)	4,017
Net change in cash and cash equivalents	(2,168)	(171)
Cash and cash equivalents, beginning of period	3,557	2,452
Cash and cash equivalents, end of period	1,389	2,281
Reconciliation of net income to net cash provided by operating activities:
Net income	7,312	6,959
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of unearned income, net of initial direct costs	(30,866)	(29,715)
Depreciation and amortization	3,970	3,156
Provision for credit losses	14,414	14,291
Recovery of equipment cost and residual value	77,651	71,258
Stock-based compensation expense	175	142
Decrease in deferred income taxes	(3,408)	(364)
Changes in assets and liabilities:
Decrease in income taxes payable	(366)	(760)
Increase in other assets	(63)	(902)
Increase in accounts payable	395	680
Increase (decrease) in other liabilities	(3)	582
Net cash provided by operating activities	69,211	65,327
Supplemental disclosure of non-cash activities:
Acquisition of property and equipment through lease incentives	39
Fair value of stock issued for compensation	$ 361	$ 346

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Revolving Line of Credit - Chronology of Total Commitment Under Revolving Credit Facility with Associated Rate Options in Effect (Detail) (USD $) In Millions, unless otherwise specified	10 Months Ended	12 Months Ended
	Oct. 31, 2011	Dec. 31, 2012	Sep. 30, 2013	Aug. 02, 2007
Debt Disclosure [Abstract]
Amendment Date	Oct. 31, 2011	Dec. 31, 2012
Total Commitment under Credit Facility	$ 100	$ 150	$ 150	$ 30
Rate options	Prime plus 0.75% or LIBOR plus 2.75%	Base plus 0.75% or LIBOR plus 2.50%

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Allowance for Credit Losses and Credit Quality (Tables)

9 Months Ended

Sep. 30, 2013

Text Block [Abstract]

Allowance for Credit Losses by Portfolio Segment

The following table reconciles the activity in the allowance for credit losses by portfolio segment for the three months ended September 30, 2013 and 2012:

	Microticket equipment
	Three months ended September 30, 2013									Three months ended September 30, 2012
	Lease- Comm			Time- Payment			Total			Lease- Comm			Time- Payment			Total
Allowance for credit losses:
Beginning balance	$	108		$	15,468		$	15,576		$	126		$	12,904		$	13,030
Charge-offs		(84	)		(6,042	)		(6,126	)		(121	)		(5,575	)		(5,696	)
Recoveries		37			1,257			1,294			68			1,110			1,178
Provisions		37			4,753			4,790			38			4,809			4,847
Ending balance, allowance for credit losses	$	98		$	15,436		$	15,534		$	111		$	13,248		$	13,359

The following table reconciles the activity in the allowance for credit losses by portfolio segment for the nine months ended September 30, 2013 and 2012:

	Microticket equipment
	Nine months ended September 30, 2013									Nine months ended September 30, 2012
	Lease- Comm			Time- Payment			Total			Lease- Comm			Time- Payment			Total
Allowance for credit losses:
Beginning balance	$	103		$	13,935		$	14,038		$	162		$	13,018		$	13,180
Charge-offs		(254	)		(17,050	)		(17,304	)		(454	)		(17,463	)		(17,917	)
Recoveries		126			4,260			4,386			205			3,600			3,805
Provisions		123			14,291			14,414			198			14,093			14,291
Ending balance, allowance for credit losses	$	98		$	15,436		$	15,534		$	111		$	13,248		$	13,359

Financing Receivables by Portfolio Segment by Impairment Evaluation Method

The following table presents the allowance for credit losses and financing receivables by portfolio segment as of September 30, 2013, and December 31, 2012, classified according to the impairment evaluation method:

	As of September 30, 2013						As of December 31, 2012
	Lease- Comm		Time- Payment		Total		Lease- Comm		Time- Payment		Total
Allowance for credit losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		98		15,436		15,534		103		13,935		14,038
Contracts acquired with deteriorated credit quality		—		—		—		—		—		—
Ending balance, allowance for credit losses	$	98	$	15,436	$	15,534	$	103	$	13,935	$	14,038

	As of September 30, 2013						As of December 31, 2012
	Lease- Comm		Time- Payment		Total		Lease- Comm		Time- Payment		Total
Financing receivables:(1)
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		188		177,236		177,424		174		173,697		173,871
Contracts acquired with deteriorated credit quality		—		—		—		—		—		—
Ending balance, financing receivables	$	188	$	177,236	$	177,424	$	174	$	173,697	$	173,871

(1) Total financing receivables include net investment in leases. For purposes of asset quality and allowance calculations, the allowance for credit losses is excluded.

Aged Analysis of Past Due Financing Receivables by Our Internally Developed Proprietary Scoring Model in Leases

The following table presents the aging status of the recorded investment in leases as of September 30, 2013, classified according to the original score granted by our internally-developed proprietary scoring model:

				31 to 60 Days			61 to 90 Days			Over 90 Days						Over 90 Days
	Current			Past Due			Past Due			Past Due			Total			Accruing
LeaseComm	$	92		$	4		$	4		$	88		$	188		$	88
TimePayment
Gold		56,727			1,782			1,156			3,508			63,173			3,508
Silver		83,505			2,671			2,768			14,016			102,960			14,016
Bronze		7,541			491			490			2,581			11,103			2,581
TimePayment subtotal		147,773			4,944			4,414			20,105			177,236			20,105
Total financing receivables	$	147,865		$	4,948		$	4,418		$	20,193		$	177,424		$	20,193
Percent of total financing receivables		83.3	%		2.8	%		2.5	%		11.4	%		100.0	%

The following table presents the aging status of the recorded investment in leases as of December 31, 2012, classified according to the original score granted by our internally-developed proprietary scoring model:

				31 to 60 Days			61 to 90 Days			Over 90 Days						Over 90 Days
	Current			Past Due			Past Due			Past Due			Total			Accruing
LeaseComm	$	90		$	5		$	5		$	74		$	174		$	74
TimePayment
Gold		54,446			2,763			1,042			2,309			60,560			2,309
Silver		84,268			2,883			3,281			13,312			103,744			13,312
Bronze		6,341			493			441			2,118			9,393			2,118
TimePayment subtotal		145,055			6,139			4,764			17,739			173,697			17,739
Total financing receivables	$	145,145		$	6,144		$	4,769		$	17,813		$	173,871		$	17,813
Percent of total financing receivables		83.5	%		3.5	%		2.7	%		10.3	%		100	%

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

H. Commitments and Contingencies

Legal Matters

We are involved from time to time in litigation incidental to the conduct of our business. Although we do not expect that the outcome of any of these matters, individually or collectively, will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, judgments could be rendered, or settlements entered, that could adversely affect our operating results or cash flows in a particular period. We routinely assess all of our litigation and threatened litigation as to the probability of ultimately incurring a liability, and record our best estimate of the ultimate loss in situations where we assess the likelihood of loss as probable.

Contract Commitments

We accept contract applications on a daily basis and, as a result, we have a pipeline of applications that have been approved, where a contract has not been originated. Our commitment to lend does not become binding until all of the steps in the contract origination process have been completed, including the receipt of the contract, supporting documentation and verification with the lessee. Since we fund on the same day a contract is verified, we do not have any outstanding commitments to lend.

Stock Repurchases

On August 10, 2010, our Board of Directors approved a common stock repurchase program under which we are authorized to purchase up to 250,000 of our outstanding shares from time to time. The repurchases may take place in either the open market or through block trades. The repurchase program will be funded by our working capital and may be suspended or discontinued at any time.

During the first nine months of fiscal year 2013, the Company repurchased and retired 97,153 shares of its common stock under our stock buyback program at an average price per share of $7.28. The total cost of the shares purchased was approximately $708,000. There were no share repurchases made during the first nine months of 2012.

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Revolving Line of Credit (Tables)

9 Months Ended

Sep. 30, 2013

Debt Disclosure [Abstract]

Chronology of Total Commitment Under Revolving Credit Facility with Associated Rate Options in Effect

The following table demonstrates the total commitment under the revolving credit facility with the associated rate options in effect during the three and nine month periods ended September 30, 2013 and 2012. As of September 30, 2013, the total commitment under the facility was $150 million.

Amendment Date	Total Commitment under Credit Facility (in millions)		Rate options(1)
October 2011	$	100	Prime plus 0.75% or LIBOR plus 2.75%
December 2012	$	150	Base(2) plus 0.75% or LIBOR plus 2.50%

(1) Under the terms of the facility, loans are Base Rate Loans (or, prior to December 2012, Prime Rate Loans), unless we elect LIBOR Loans. If a LIBOR Loan is not renewed at maturity it automatically converts to a Base Rate Loan.

(2) The “base rate” is the highest of the prime rate established by the Agent, or one-month LIBOR plus 1%, or the federal funds effective rate plus 0.5%.

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Net Income Per Share (Tables)

9 Months Ended

Sep. 30, 2013

Earnings Per Share [Abstract]

Net Income Per Share

Net income per share for the three and nine months ended September 30, 2013 and 2012 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Net income	$	2,580	$	2,307	$	7,312	$	6,959
Weighted average common shares outstanding		14,433,695		14,311,900		14,469,077		14,297,888
Dilutive effect of common stock options, warrants and restricted stock		310,463		404,600		304,186		372,109
Shares used in computation of net income per common share - diluted		14,744,158		14,716,500		14,773,263		14,669,997
Net income per common share - basic	$	0.18	$	0.16	$	0.51	$	0.49
Net income per common share - diluted	$	0.18	$	0.16	$	0.49	$	0.47

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Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 08, 2013
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Entity Registrant Name	MICROFINANCIAL INC
Entity Central Index Key	0000827230
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		14,435,498

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Dividends (Tables)

9 Months Ended

Sep. 30, 2013

Text Block [Abstract]

Dividends Declared and Paid or Payable

Dividends paid during the nine months ended September 30, 2013 and 2012, are as follows:

2013
Date Declared	Record Date	Payment Date	Dividend per Share
January 29, 2013	February 8, 2013	February 15, 2013	$	0.06
April 23, 2013	May 3, 2013	May 15, 2013		0.06
July 17, 2013	July 30, 2013	August 15, 2013		0.06
Total			$	0.18

2012
Date Declared	Record Date	Payment Date	Dividend per Share
January 31, 2012	February 10, 2012	February 15, 2012	$	0.06
April 19, 2012	April 30, 2013	May 15, 2012		0.06
July 19, 2012	July 30, 2012	August 15, 2012		0.06
Total			$	0.18