GREENVILLE, S.C. -- The downtown branch of World Acceptance Corp. is tucked away on a side street with other small loan companies, its presence announced only by simple lettering across the window.

Manager James L. Hammons, wearing a white shirt and tie but no jacket, is preparing to call some delinquent accounts - "the worst part of the job," he says - while a female employee takes information from a couple sitting in a cubbyhole to the side.

Mr. Hammons, 27, looks over at the couple. The man sports a pony tail, black jeans, and a black T-shirt; the woman is in blue shorts and a yellow T-shirt, holding a baby. "These are people down in the valley who come to us for a little help in getting out of the valley," he says.

Better than a Pawn Shop

Private banking at J.P. Morgan it ain't. In the food chain of financial institutions, Greenville-based World Acceptance may rank above pawn shops and check cashers but it is far below larger consumer finance companies such as Household International and Beneficial Corp. At least from appearances, it is not even in the same league as most banks.

"These are loans that neither the banks nor the larger consumer finance companies want, because of the small dollars advanced, the risk, and the lack of collateral," says World Acceptance chief executive Charles D. Walters, 55, an 18-year veteran of the company.

Mr. Walters knows his clientele. A small-town boy, he was raised in Matthews, N.C., and holds only a high school diploma. He began his working life as a mail clerk for an insurance company, before joining the consumer finance business.

Career Milestone

He says the proudest moment of his life came when he was promoted from manager-trainee to manager of an office. "It was an important milestone for me, not having any education and being able to accomplish something of that magnitude," he says.

But World Acceptance doesn't need well-heeled customers to be profitable. It earns good returns by lending small amounts of money to people of modest means, usually credit impaired. Loan limits vary by state, but World Acceptance's internal cutoff point is $1,000 and most loans are under $500.

Year in and year out, through good times and bad, World Acceptance makes money. Last year's 32% gain in net income, which reached $5.8 million, is about par for the course.

The company has never lost money in its entire 32-year history and only reported one year, 1979, when earnings didn't improve over the previous year. And that was because of heavy investments in a new computer system.

World Acceptance has done particularly well since the current management, headed by Mr. Walters, took over in a 1989 leveraged buyout from First Union Corp., which had acquired the company in 1986 when it purchased a South Carolina bank.

An initial public offering followed in November 1991 and First Union sold the last of its shares two years later.

Banks may worry about shrinking markets, but not World Acceptance, whose average customer makes $15,000 a year. The Census Bureau has estimated that about one-third the U.S. population earns between $10,000 and $30,000.

The Federal Reserve calculates that one-fourth of adult Americans don't have checking or savings accounts, just like the typical World Acceptance customer.

Endless Growth Horizon

As the second-largest company in its category, which is dominated by thousands of mom-and-pop operations, World Acceptance enjoys a virtually endless horizon for growth. Last year alone, it purchased five small loan companies, adding 14 offices in Texas and South Carolina.

Its current total is 217 offices in six southeastern and southwestern states, with 226,000 loan accounts and $72.4 million in gross loans outstanding.

The company has targeted 22 other states as suitable for acquisitions because of favorable regulation and demographics, including Alabama, Illinois, and New Mexico. "We want to be as big as we can be," Mr. Walters says.

Analysts like the predictability in World Acceptance's earnings and the fact that it can keep expanding in an unconsolidated industry. "World Acceptance is becoming an annuity," says Henry J. Coffey Jr., with J.C. Bradford & Co. in Nashville. "There's very little in the way to create meaningful volatility in the stock.

"It's just a question of finding out what kind of acquisitions they can make, how many branches they can open, and what that means to the bottom line."

Acquirees Instantly Profitable

The economics behind this acquisition strategy is simple. Acquired offices are immediately profitable while newly established ones can take up to a year to turn the corner.

"In nearly all the acquired offices, when we implement our management philosophy and systems, we're able to significantly increase the size and profitability," Mr. Walters says.

Loan authority in the World Acceptance system remains in the hands of managers such as Mr. Hammons. But Mr. Hammons, who worked in the receiving department of a textile mill before becoming a consumer finance lender, is backstopped on several levels.

A district supervisor comes by once a month to review his files. Then the regional audit staff does a comprehensive analysis every eight months. A recently installed computer system will enable more of these audit duties to be handled on-line from Greenville by the end of the year.

Chargeoff Threshold

World Acceptance's credit analysis is much simpler than that of a typical bank because loan amounts are so small and terms so short; the average is eight months. Problems show up quickly and any loan that goes 180 days past due is immediately charged off.

"The way World Acceptance manages its portfolio, there's never any buildup of risk," Mr. Coffey says.

By bank standards, World Acceptance's chargeoff rates are high, ranging from 7% to 8.5% of loans in recent years. But the company compensates by earning sky high margins. The yield on a $300 loan can reach 60%, although that includes an origination fee, credit life insurance, property insurance, and monthly maintenance charges in addition to the interest rate.

World Acceptance needs those high margins because its lending is essentially unsecured. It does require a customer to sign over interest in his car or television set, but Mr. Walters admits this is done mainly for "psychological reinforcement." Given the small amounts involved, trying to collect on this collateral is not worth the expense.

Only Source of Credit

World Acceptance finds that most customers do tend to pay up, apparently to protect their only source of credit. "We are a customer's credit card. We are his source of liquidity, if you will, from payday to payday," Mr. Walters says.

Like any credit card company, World Acceptance's biggest loan demand occurs during the Christmas season, which is also when it does most of its advertising, mostly by direct mail to existing customers.

World Acceptance is able to fund its loans out of cash flow rather than debt, which is gradually being paid down. "What's unique about World Acceptance relative to other financial companies is that it's cash flow is positive and it has virtually no interest rate risk," says Joseph E.M LaManna, with William Blair & Co. in Chicago.

Amortization Schedule

The company did emerge from its 1989 leveraged buyout with $25 million in intangible assets, which must be amortized down until 1998. This amortization subtracted $3.5 million, or 30 cents a share, from fiscal 1994 earnings.

But the expense decreases each year, gradually freeing up earnings power. From $2.5 million in 1995, it will drop to virtually nothing by 1998, which will eliminate the gap between reported and operating earnings.

"The only risk in the stock is price -- maybe somebody says it's worth 25 times earnings and somebody else says it's worth 15. There's virtually no risk in the business," says C. Marks Hinton Jr., an analyst with Equitable Securities Corp., Houston.

World Acceptance is currently trading at the $18 a share level, or 21 times earnings.

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