Cash America experiencing positive earnings, negative times

The past few months have not been kind to the high-dollar financial industry, however, banking institutions that work in small amounts appear to be running smoothly, albeit with some bumps in the road.

While massive bankruptcies and government bailouts have made headlines – Lehman Brothers Holdings Inc. and Washington Mutual Inc., for example – smaller financial institutions for the most part have avoided being on the receiving end of punches dealt by the continuing economic crisis.

Cash American International Inc., a provider of pawn loans and short-term cash advances, reported positive earnings of $18.9 million, or $0.63 per share, for the third quarter, up 14 percent compared to the same period of 2007. The Fort Worth-based company has grown steadily over the past five years, up about 59 percent during that time.

But while the past few years have been agreeable, the past few weeks have been more difficult.

In the past three months, Cash America shares, traded under CSH on the New York Stock Exchange, have dropped 31 percent, trading around $30 a share, as of publication. Shares traded as high as almost $49 in late April, but since have fallen, retraced and fallen again. In its Oct. 23 third quarter earnings release, the company said it expected lower earnings in the first two quarters of 2009.

Other pawn shop operators and payday cash lenders are experiencing similar woes as a result of the economic downturn.

Fellow pawn shop operators EZCorp Inc. and First Cash Financial Services Inc. also are down 18 percent and 21 percent in the past three months, respectively. Advance American, Cash Advance Centers has dropped 65 percent during the same time period, and currently trades at $2 per share. Shares were as high as $10 per share in April.

Some analysts have said the companies might experience further woes as legislators seek to curtail the amounts lenders can charge to consumers, as evident by two initiatives in Arizona and Ohio that passed Nov. 4.

Cash America campaigned heavily against an Ohio proposal, HB 545, that aimed to reduce the annual percentage rate that lenders can charge to 28 percent – down from 391 percent – and limit the number of loans customers can take out to four per year. Voters overwhelmingly approved the measure Nov. 4, which proponents said would place more restrictions on lenders that often left borrowers in permanent debt. Cash America said consumers who have nowhere to turn for short-term credit would “incur higher costs associated with bank overdraft fees, late fees and penalties on items such as utility bills and credit cards,” according to a Nov. 5 statement.

President and CEO Daniel R. Feehan said the company respects the democratic process, but added the results would result in store closures and redundancy.

“Sadly, this outcome will force us to close about 43 of our Cashland lending locations, leaving about 150 of our hard-working coworkers without jobs,” Feehan said in the release.

The new law reduces the fee charged on a $100 two-week loan to $1.08, or less than 10 cents a day, according to the company.

“There is no way to sustain a viable store front business by offering small, short-term unsecured consumer credit at this rate,” Feehan said.

Meanwhile, 1,900 miles southwest, Arizona voters provided an additional headache for Cash America. The company said it supported a ballot initiative in Arizona to preserve the cash advance option for Arizona consumers by extending the current cash advance statute beyond its currently-scheduled expiration date of July 1, 2010, but was unsuccessful. The industry will continue working with Arizona legislators in 2009 in an effort to extend or repeal the expiration date and to incorporate new consumer protection measures in the existing statute, according to the release.

Cash America said it would lose about $2.5 million related to store closures, but that the election results would not change future earnings guidance.