Thursday, April 26, 2007

Payday Loan Company Reports Widespread Gains

By Paul Rizzo
Payday Loan Writer

Cash America is flush with cash. The instant payday loan and pawnshop operator reported strong growth in its cash advance operations, along with increases in its pawn business, thanks to an influx of new customers.

First-quarter revenue rose to $223 million, a 37% increase over the $163 million the payday loan company reported last year. Much of that growth resulted from the more than 235 pawn shops and cash advance centers the company opened over the past three years, creating an entry point for a significant number of new customers. Profits, meanwhile, rose 25% to $19.2 million, or $0.63 per share.

The share-price drop was an opportunity in the making for investors, though, since the stock had previously traded at a premium to its competitors. Shares have recovered 15% from the lows they ultimately reached last month, though they’re still some 8% off the fast payday advance company’s 52-week highs.

In the first quarter, Cash America enjoyed a tripling of its cash loans receivable on the cash advance side of the ledger, along with a 6% increase in the number of pawn loans written or renewed. The number of advances written has more than doubled, while the average pawn loan taken out - and the balance remaining at the end of the quarter - has edged upward.

The strength of the cash advance business was also aided by Cash America’s CashNet USA online payday loan business, which the company acquired last year.

Yet all the new customers crowding into Cash America’s stores also raise the risk of more frequent and plentiful defaults. In response, Cash America implemented a sevenfold increase in its loan-loss provision expense. That seems to be a prudent move; according to the company, a 10% increase in loss rates could trigger a corresponding $4 million decrease in net income, assuming cash advance volumes are written at the same rate as in 2006.

The sole tarnish on Cash America’s otherwise sterling quarter came from its check-cashing operations, where revenue dropped 1% on virtually flat fees collected from customers. However, with those operations accounting for just a little more than $1.1 million in revenue, the overall impact of this shortfall was negligible.

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