Cash America 2008 Annual Report Download - page 64

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41
As of December 31, 2008, cash advance products were available in 679 lending locations, including
431 pawnshops and 248 cash advance locations. In 249 of these lending locations, the Company arranges
for customers to obtain cash advance products from independent third-party lenders for a fee. Cash advance
fees from same stores (stores that have been open for at least twelve months) decreased $28.3 million, or
17.1%, to $137.3 million in 2008 compared to $165.6 million in 2007.
Cash advance fees include revenue from the cash advance portfolio owned by the Company and
fees paid to the Company for arranging, marketing or processing cash advance products from independent
third-party lenders for customers. Cash advance fees associated with the Company’s card services activities
include revenue from the Company’s participation interest in the receivables generated by the third party
lender, as well as marketing, processing and other miscellaneous fee income. See further discussion in Note
4 of Notes to Consolidated Financial Statements. Although cash advance transactions may take the form of
loans or deferred check deposit transactions or the marketing and processing of, and the participation in
receivables generated by, a third-party lender’s line of credit product, the transactions are referred to
throughout this discussion as “cash advances” for convenience.
The following table sets forth cash advance fees by operating segment for the years ended
December 31, 2008 and 2007 (dollars in thousands):
2008 2007 Inc./(Dec.)
Cash advance operations components:
Storefront ....................................................................
.
$ 106,294 $ 128,454 $ (22,160) (17.3) %
Internet lending...........................................................
.
221,319
184,724 36,595 19.8
Card services...............................................................
.
2,150
–– 2,150 N/A
Total cash advance operations....................................
.
$ 329,763 $ 313,178 $ 16,585 5.3 %
Pawn lending operations ................................................
.
34,840
42,018 (7,178) (17.1)
Consolidated cash advance fees ................................
.
$ 364,603 $ 355,196 $ 9,407 2.6 %
The dollar value of cash advances written increased $51.6 million, or 2.6%, to $2.1 billion in 2008
from $2.0 billion in 2007. These amounts include $702.9 million in 2008 and $654.8 million in 2007
extended to customers by all independent third-party lenders. The average amount per cash advance
increased to $433 from $413, primarily due to the mix within the portfolio (with a larger percent in markets
allowing for larger loans) and adjustments to underwriting criteria. The outstanding combined portfolio
balance of cash advances decreased $7.9 million, or 5.3%, to $140.5 million at December 31, 2008 from
$148.4 million at December 31, 2007. Those amounts included $105.3 million and $113.8 million at
December 31, 2008 and 2007, respectively, which are included in the Company’s consolidated balance
sheet. An allowance for losses of $21.5 million and $25.7 million has been provided in the consolidated
financial statements for December 31, 2008 and 2007, respectively, which is netted against the outstanding
cash advance amounts on the Company’s consolidated balance sheets.
In June 2008, the Governor of Ohio signed into law legislation that capped the annual percentage
rate, as defined in the statute (“APR”), on payday loans in that state at 28%, which effectively eliminated the
profitability of the existing cash advance product in Ohio. Upon the new law becoming effective in the
fourth quarter of 2008, the Company's online business and its Ohio storefronts, including the remaining
Ohio locations, began offering customers short-term unsecured loans governed by the Ohio Second
Mortgage Loan statute, and most of the remaining Ohio Cashland locations also began offering gold buying
services.
Going forward, management believes that the amount of cash advances written will be lower in the
first half of 2009 compared to the prior year. The reduced volume is expected primarily due to 56 closed
storefront locations during 2008 and changes in, or the elimination of, earnings attributable to certain cash
advance markets that contributed to volume and revenue during 2008 as described below. Management also
anticipates lower levels of consolidated cash advance fees for the first half of 2009 as a result of regulatory
changes in the economics of cash advance products in the states of Florida and Ohio. Management believes