Cash America 2014 Annual Report Download - page 56

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Consumer Loans and Allowance and Liability for Estimated Losses on Consumer Loans
Allowance and Liability for Estimated Losses on Consumer Loans
The Company monitors the performance of its consumer loan portfolio and maintains either an allowance or
liability for estimated losses on consumer loans (including fees and interest) at a level estimated to be adequate to
absorb credit losses inherent in the portfolio. The allowance for losses on the Company’s owned consumer loans
reduces the outstanding loan balance in the consolidated balance sheets. The liability for estimated losses related to
loans guaranteed under the CSO programs is included in “Accounts payable and accrued expenses” in the
consolidated balance sheets.
In determining the allowance or liability for estimated losses on consumer loans, the Company applies a
documented systematic methodology. In calculating the allowance or liability for loan losses, outstanding loans are
divided into discrete groups of short-term loans and installment loans and are analyzed as current or delinquent.
Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as a “Consumer loan
loss provision” in the consolidated statements of income.
The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted
for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a
six-month rolling average of loss rates by stage of collection. For installment loan portfolios, the Company
generally uses a migration analysis to estimate losses inherent in the portfolio. The allowance or liability calculation
under the migration analysis is based on historical charge-off experience and the loss emergence period, which
represents the average amount of time between the first occurrence of a loss event to the charge-off of a loan. The
factors the Company considers to assess the adequacy of the allowance or liability include past due performance,
historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration
analysis.
The Company fully reserves or charges off consumer loans once the loan or a portion of the loan has been
classified as delinquent for 60 consecutive days. If a loan is estimated to be uncollectible before it is fully reserved,
it is charged off at that point. Consumer loans classified as delinquent generally have an age of one to 59 days from
the date any portion of the loan became delinquent, as defined above. Recoveries on loans previously charged to the
allowance are credited to the allowance when collected.
As of December 31, 2014, the allowance for losses on consumer loans was $4.2 million, and the liability for
estimated losses on third-party lender-owned consumer loans guaranteed by the Company was $1.1 million, in
aggregate representing 8.9% of the combined consumer loan portfolio.
For the year ended December 31, 2014, the consumer loan loss provision was $31.0 million. If the loss
provision increased or decreased by 10%, or $3.1 million, from 2014 levels, net income attributable to the Company
would likewise decrease or increase by $2.0 million, net of taxes, for 2014, assuming the same volume of consumer
loans written and renewed in 2014.
Merchandise Held for Disposition
Merchandise held for disposition consists primarily of forfeited collateral from pawn loans not repaid and
merchandise that is purchased directly from customers or from third parties. The carrying value of the forfeited
collateral and other merchandise held for disposition is stated at the lower of cost (which is the cost basis in the loan
or the amount paid for purchased merchandise) or fair value. The Company provides an allowance for returns and
an allowance for losses based on management’s evaluation of the characteristics of the merchandise and historical
experience.