Mike Costello and Tom Decosimo presented this power point at the CFSA 2012- 12th Annual Meeting and Conference in the Bahamas on March 9, 2012.

1. Both Sides of the
Lending Counter
PRESENTATION TO THE CFSA CONFERENCE

2. When Debt Goes Bad
ESTIMATING LOSSES FOR BAD DEBT

3. Bad Debts
 Companies generally don’t give the details of how
they compute bad debts
 There are, however, typical considerations
 Historical rates of charge-offs and recoveries (mostly the
company’s own, but industry-wide numbers may also be part
of the process)
 Transaction volume
 Age of the stores
 Details of state law
 Economic conditions

4. Measuring the Allowance
 Most common: income statement measure
 Numerator: bad debt expense for the year
 Denominator: revenue from the relevant type of loan
 Also sometimes seen: balance statement measure
 Numerator: amount in the bad debt reserve
 Denominator: loans receivable
 The allowance is an estimate of the entire portfolio,
not a judgment about any one loan
 DLLR is an exception, recording increases to the reserve when
a default actually occurs

5. Special Cases
 Texas (CSO) structure
 The allowance is typically classified as a contingent liability
under the letter of credit
 This does not affect the amount reserved, only the presentation
 Pawn loans
 No reserve is accrued
 If the customer does not redeem the item, the transaction was
really not a loan, but a purchase of inventory, and the books
are adjusted to reflect this
 The above does not apply to title loans—those have a bad debt
reserve.

6. Values of the Ratios
 AEA Advance America
 Essentially pure payday-loan
 First 9 months 2011: 16.7% (up from 16.2%)
 Third Quarter 2011: 20.9% (down from 21.6%)
 Appears to be seasonal
 Full-year values:
 2010, 17.4%
 2009, 19.2%
 2008, 20.1%
 2007, 19.8% (not comparable before that)

7. Values of the Ratios
 CSH Cash America
 Three-fifths of revenue is pawn
 Consumer loans (both payday and installment)
 2010:37.2%
 2009: 35.2%
 2008: 38.6%
 On balance-sheet basis, more reserves for payday (20.8% of
receivables) than for installment (16.3% of receivables)

8. Values of the Ratios
 DLLR Dollar Financial (renamed to DFC Global)
 Majority of revenue (56.4%) is payday; only installment loans are in a
military program (also do pawn, check cashing, and gold buying)
 3rd Quarter 2011: 20.2%, up from 15.2%
 Annual (July–June):
 2010–2011:17.2%
 2009–2010: 14.4%
 2008–2009: 19.5%
 2007–2008: 20.7%
 2006–2007: 20.7%
 Another interesting note: their non-performing loans went from
22.6% to 26.2% of receivables from 2010-Sept to 2011-Sept, which
drove the expense up
 Their reports focus more on the balance sheet ratio

9. Values of the Ratios
 EZPW EZCorp
 October–September fiscal year; 80% pawn
 Like CSH, has a “signature loans” category that covers both
payday and installment, but is mostly payday
 2011:24.2%
 2010: 22.8%
 2009: 25.2%
 Separate category for auto title loans
 2011: 11.2%
 2010: 15.4%
 2009: 10.6%
 Varies in exactly the opposite pattern

10. Values of the Ratios
 FCFS First Cash Financial
 12% payday and 2‰ installment, the rest is pawn
 2010: 25.4%
 2009: 26.0%
 2008: 28.2%
 9 Months 2011: 30.2%, down from 32.4%
 3rd Quarter 2011: 23.1%, down from 26.5%

11. Values of the Ratios
 QCCO QC Holdings
 Payday and installment are again not distinguished in the
reserve, about 2:1 payday with a tiny bit of check cashing and
buy here/pay here
 2010: 22.5%
 2009: 23.0%
 2008: 25.3%
 2007: 24.0%
 2006: 21.1%

12. Values of the Ratios
 WRLD World Acceptance
 Strictly installment loans, and services (e. g. insurance)
ancillary to installment lending
 April–March fiscal year
 2010: 22.6%
 2009: 24.1%
 2008: 25.8%
 2007: 23.1%
 2006: 21.0%
 April–September 2011: 30.2%, down from 32.4%
 3rd quarter 2011: 23.1%, down from 26.5%

13. When Lenders Borrow
CAPITAL STRUCTURES

14. Comparative Capital Structures
100%
90%
80%
70% Common Equity
60% Derivatives
50% Subordinated Debt
40% Senior Notes
30% Other Short-term Debt
20% Revolver
10% Accruals
0%

15. Advance America
 $270 million revolver available
 Company may request increase to $365 million with covenants
 $79.1 million outstanding, plus $6.5 million in letters
of credit (related to Texas)
 Premium over LIBOR is from 2½ to 3¼ points,
currently at 2½
 Determined based on leverage

16. Cash America
 $280 million line of credit, 80% outstanding
 LIBOR premium is from 2 to 3¼
 Currentlyset at 2½
 Method of computing the premium is also not specified
 Commitment fee is 25–50 basis points (current 38)
 Arrangement also includes a term loan of $50
million, floating interest at 3½ points over LIBOR
 Fixed-rate debt:
 $136.7 million straight debt, rates from 6.09% to 7.26% and
maturities 2012–2021
 $106.3 million convertible debt, at 5.25%, matures 2029

17. DFC Global f/k/a Dollar Financial
 Information is as of December 2011
 Global revolver of $200 million
 Maximum of $75 million in US$; may also be tapped in C$, £, or €
 Interest at 4 points over the LIBOR or equivalent rate for the relevant
currency
 May be capped at a percentage of cash and receivables
 $154.3 million outstanding
 Scandinavian facilities based on an acquisition
 SEK 240 million in term loans at current rate of 4.68%
 SEK 20 million out of 85 million in an overdraft facility currently at
4.78%
 The above are lender’s cost (3.08%) plus a premium.
 Also, €16 million out of 17.5 million at Euribor plus 1.95 points
(current 2.59%)

18. DFC Global f/k/a Dollar Financial cont.
 Fixed-rate debt is in three issues
 $600 million of 10.375% notes due in 2016 (issued 2009 at
99.5)
 $40.7 million of 2.875% convertible notes due in 2027
 $90.9 million of 3% convertible notes due in 2028
 Derivatives in place:
 US$/C$ interest rates, paying a fixed rate on a notional C$322
million and receiving a floating rate on a notional US$280
million (down $43.5 million in fair value)
 Collars on 4,500 ozt of gold (near zero fair value)

19. EZCorp
 Information as of December 2011
 Revolver is for $175 million, of which $40.5 million
was borrowed and $5 million tied up in Texas letters
of credit
 Premium to LIBOR is 2 to 2¾ points (current 2½)
 Commitment fee is 37½ to 50 bp (current 50)
 Exact premium is decided by leverage

20. First Cash Financial
 No material debt

21. QC Holdings
 Term loan is for $32 million
 Premium over LIBOR is 4¼ points
 Must be prepaid with at least 50% of available cash (75% if they are
at more than 1:1 leverage)
 Matures in 2014
 Revolver for up to $27 million
 Rate varies from 3¼ to 4¼ points over LIBOR
 Commitment fee is 37½ to 62½ bp
 Exact premiums depend on leverage
 $3 million of subordinated debt
 Chairman/CEO holds $2½ million, an outside shareholder has the
rest
 12% cash interest payment plus 4% in-kind interest (bunny bonds)
 Matures in 2015, may be prepaid after the other loans are covered

22. World Acceptance
 Information is as of December 2011
 Revolver is up to $300 million, with $279 million
borrowed
 Interest rate is LIBOR plus 3 points, but a minimum of 4%
(which currently controls)
 Commitment fee is 40 bp
 $20 million is hedged to a synthetic quasi-fixed rate of 5.4%
 Subordinated note still has decent backing to it
 Line of credit, not revolving
 LIBOR plus 4⅞ points
 $70 million maximum ($50 million out), decreasing $5 million
per year

23. And on the equity market…
WALL STREET AND THE PAYDAY COMPANIES

24. 4 January 2012
104
102
100
AEA
CSFS
98 CSH
DLLR
96 EZPW
FCFS
94 QCCO
WRLD
SPY
92
90

25. 115
95
85
90
100
105
110
120
12-28-2015
12-30-2015
01-01-2016
01-03-2016
01-05-2016
01-07-2016
01-09-2016
01-11-2016
01-13-2016
01-15-2016
01-17-2016
01-19-2016
01-21-2016
01-23-2016
01-25-2016
01-27-2016
01-29-2016
01-31-2016
02-02-2016
02-04-2016
02-06-2016
Since then…
02-08-2016
02-10-2016
02-12-2016
02-14-2016
02-16-2016
02-18-2016
02-20-2016
02-22-2016
02-24-2016
SPY
AEA
CSFS
QCCO
WRLD

26. 115
95
85
90
100
105
110
120
12-28-2015
12-30-2015
01-01-2016
01-03-2016
01-05-2016
01-07-2016
01-09-2016
01-11-2016
01-13-2016
01-15-2016
01-17-2016
01-19-2016
01-21-2016
01-23-2016
01-25-2016
01-27-2016
01-29-2016
01-31-2016
02-02-2016
02-04-2016
02-06-2016
02-08-2016
02-10-2016
02-12-2016
Since then… (part 2)
02-14-2016
02-16-2016
02-18-2016
02-20-2016
02-22-2016
02-24-2016
SPY
CSH
FCFS
DLLR
EZPW

27. Multiples (as of 24 February 2012)
AEA CSFS CSH DLLR EZPW FCFS QCCO WRLD
EV to 1.14 0.59 1.19 1.69 1.76 2.34 0.51 2.41
Revenue ⑥ ⑦ ⑤ ④ ③ ② ⑧ ①
EV to 5.75 4.73 6.15 5.58 7.59 10.23 3.76 7.27
EBITDA ⑥ ⑦ ④ ② ① ⑧ ③
P/E 11.25 16.08 10.93 14.02 11.70 17.51 6.66 10.41
(Trail) ⑤ ② ⑥ ③ ④ ① ⑧ ⑦
Price to 2.48 1.28 1.50 1.84 2.24 4.09 0.80 2.19
Book ② ⑦ ⑥ ⑤ ③ ① ⑧ ④
P/E (Y 7.70 7.94 — — — — — —
+1)

28. Contact Us
Mike Costello Tom Decosimo
CPA•ABV, ASA, CFE, CFF CPA•ABV, ASA
Principal Principal
mikecostello@decosimo.com tomdecosimo@decosimo.com
423-756-7100 423-756-7100

29. About Decosimo
 Top 100 Regional CPA firm with approximately 300 professionals and staff
 Office Locations:
 Huntsville, Alabama
 Chattanooga, Knoxville, Memphis and Nashville, Tennessee
 Cincinnati, Ohio
 Atlanta and Dalton, Georgia
 Grand Cayman
 Independent firm associated with Moore Stephens International Limited
 Association comprised of 314 independent CPA firms with 638 office locations across 97 countries
 Allows us to provide resources comparable to Big Four firms
 CPA of choice for the pioneers in consumer finance with a 40 year history of serving payday
cash advance providers, rent-to-own operators, title loan providers, pawn shops and consumer
loan providers
 Consumer finance services include:
 Business advisory including due diligence and business valuation
 Tax consulting and compliance
 Assurance and accounting
www.decosimo.com/consumerfinance

30. About Decosimo Advisory Services
 Decosimo Advisory Services is a practice of the regional accounting firm Decosimo providing
business valuation, litigation support, and transaction advisory services to
businesses, business owners and their advisors. These services have been an integral part of the
Decosimo firm since its founding in 1971.
 Our professionals have a diverse array of credentials in a variety of fields:
 Accredited in Business Valuation
 Accredited Senior Appraiser
 Business Valuator Accredited for Litigation
 Certified Business Appraiser
 Certified Fraud Examiner
 Certified Management Accountant
 Certified Public Accountant
 Fellow of the Healthcare Financial Management Association
 With 40 years experience involving over $17 billion in transactions, Decosimo Advisory Services
has the strength, capacity and expertise to maximize value for the middle market.
www.decosimo.com/advisory

31. About Decosimo Corporate Finance
 With a forty year history in hundreds of transactions, DCF helps business owners grow and maximize value
when selling their businesses, accessing capital for growth, or growing through acquisition. DCF is a broker/
dealer, member FINRA/SIPC
 Sell-Side Advisory –
 DCF’s clients concentrate on maximizing their value by doing what they do best – running their businesses. DCF seeks to maximize their
clients’ value by doing what they do best – conducting their disciplined sell-side process. DCF’s process is comprehensive, minimizes
disruption to daily operations, and is designed to maintain confidentiality and maximize value.
 Buy-Side Advisory –
 DCF’s full range of buy-side advisory includes acquisition searches, valuation analysis, due diligence, and merger and acquisition
financing. DCF brings its experience of over 40 years and $17 billion of transactions to each assignment.
 Capital Sourcing –
 Growing businesses require capital, and DCF understands the methods to help business owners obtain an optimal capital structure. DCF
utilizes a myriad of capital sources including banks, asset based lenders, equipment lessors, mezzanine lenders, equity funds, Regulation D
private offerings, and other private sources.
 Fairness Opinions –
 Corporate boards, special committees, trustees, shareholders, and other interested parties wishing to confirm the fairness of a particular
sale or transaction price require fairness opinions. DCF’s professionals have more than 40 years of transaction and valuation expertise, as
well as senior business valuation credentials.
www.dcf-llc.com