QC Holdings, Inc. - FORM 10-Q

QC Holdings, Inc. - FORM 10-Q - August 9, 2011

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from to

Commission File Number 000-50840

QC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Kansas		48-1209939
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9401 Indian Creek Parkway, Suite 1500 Overland Park, Kansas		66210
(Address of principal executive offices)		(Zip Code)

(913) 234-5000

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s common stock, as of July 31, 2011:

Common Stock $0.01 per share par value – 17,017,830 Shares

QC HOLDINGS, INC.

Form 10-Q

June 30, 2011

Index


	Page
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Introductory Comments		1

Consolidated Balance Sheets—December 31, 2010 and June 30, 2011		2

Consolidated Statements of Income—Three and Six Months Ended June 30, 2010 and 2011		3

Consolidated Statements of Cash Flows—Six Months Ended June 30, 2010 and 2011		4

Consolidated Statements of Changes in Stockholders’ Equity—Year Ended December 31, 2010 and Six Months Ended June 30, 2011		5

Notes to Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25

Item 3. Quantitative and Qualitative Disclosures About Market Risk		41

Item 4. Controls and Procedures		41

PART II—OTHER INFORMATION

Item 1. Legal Proceedings		42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		42

Item 6. Exhibits		43

SIGNATURES		44

QC HOLDINGS, INC.

FORM 10-Q

JUNE 30, 2011

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

INTRODUCTORY COMMENTS

The consolidated financial statements included in this report have been prepared by QC Holdings, Inc. (the Company or QC), without audit, under the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted under those rules and regulations, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. These consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Results for the six months ended June 30, 2011 are not necessarily indicative of the results expected for the full year 2011.

QC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share and per share amounts)


	December 31,			June 30,
	2010			2011
				Unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	16,288		$	13,976
Loans receivable, less allowance for losses of $5,300 at December 31, 2010 and $5,510 at June 30, 2011		64,319			60,804
Deferred income taxes		3,706			4,388
Prepaid expenses and other current assets		9,713			8,538

Total current assets		94,026			87,706
Non-current automotive loans receivable, less allowance for losses of $1,850 at December 31, 2010 and $1,940 at June 30, 2011		5,740			7,158
Property and equipment, net		14,110			12,787
Goodwill		16,491			16,356
Deferred income taxes		1,400			1,247
Other assets, net		6,275			6,272

Total assets	$	138,042		$	131,526

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	467		$	258
Accrued expenses and other liabilities		4,200			5,344
Accrued compensation and benefits		7,606			6,542
Deferred revenue		4,356			3,221
Revolving credit facility		17,250			16,950
Debt due within one year		10,863			10,610

Total current liabilities		44,742			42,925
Long-term debt		16,881			8,331
Other non-current liabilities		4,872			5,049

Total liabilities		66,495			56,305

Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value: 75,000,000 shares authorized;
20,700,250 shares issued and 16,972,194 outstanding at December 31, 2010;
20,700,250 shares issued and 17,023,995 outstanding at June 30, 2011		207			207
Additional paid-in capital		67,712			65,702
Retained earnings		38,710			42,224
Treasury stock, at cost		(34,590	)		(32,611	)
Accumulated other comprehensive loss		(492	)		(301	)

Total stockholders’ equity		71,547			75,221

Total liabilities and stockholders’ equity	$	138,042		$	131,526

The accompanying notes are an integral part of these consolidated financial statements.

Page 2

QC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Revenues
Payday loan fees	$	32,182		$	28,731		$	65,361		$	57,799
Automotive sales, interest and fees		4,746			5,610			9,572			12,585
Other		7,983			9,893			16,785			20,072

Total revenues		44,911			44,234			91,718			90,456

Branch expenses
Salaries and benefits		9,947			9,364			19,841			19,619
Provision for losses		10,647			10,938			16,346			15,858
Occupancy		4,910			5,174			10,231			10,401
Cost of sales—automotive		2,261			2,930			4,423			6,737
Depreciation and amortization		785			692			1,630			1,414
Other		3,131			3,054			6,155			6,070

Total branch expenses		31,681			32,152			58,626			60,099

Branch gross profit		13,230			12,082			33,092			30,357
Regional expenses		3,381			3,460			7,211			6,768
Corporate expenses		5,589			7,591			11,051			12,644
Depreciation and amortization		675			472			1,369			1,175
Interest expense		551			465			1,255			1,059
Other expense, net		20			18			33			23

Income from continuing operations before income taxes		3,014			76			12,173			8,688
Provision for income taxes		1,215			42			4,750			3,454

Income from continuing operations		1,799			34			7,423			5,234
Gain (loss) from discontinued operations, net of income tax		(365	)		(7	)		(812	)		83

Net income	$	1,434		$	27		$	6,611		$	5,317

Weighted average number of common shares outstanding:
Basic		17,351			17,040			17,416			17,047
Diluted		17,426			17,132			17,499			17,104
Earnings (loss) per share:
Basic
Continuing operations	$	0.10		$	—		$	0.41		$	0.29
Discontinued operations		(0.02	)		—			(0.05	)		—

Net income	$	0.08		$	—		$	0.36		$	0.29

Diluted
Continuing operations	$	0.10		$	—		$	0.41		$	0.29
Discontinued operations		(0.02	)		—			(0.05	)		—

Net income	$	0.08		$	—		$	0.36		$	0.29

The accompanying notes are an integral part of these consolidated financial statements.

Page 3

QC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Six Months Ended June 30,
	2010			2011
Cash flows from operating activities
Net income	$	6,611		$	5,317
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,180			2,596
Provision for losses		17,382			15,975
Deferred income taxes		129			(646	)
Gain on cash surrender value of life insurance					(108	)
Loss on disposal of property and equipment		293			75
Gain on sale of branch					(377	)
Stock-based compensation		1,199			1,174
Changes in operating assets and liabilities
Loans, interest and fees receivable, net		(4,638	)		(14,015	)
Prepaid expenses and other current assets		(580	)		554
Other assets		(446	)		1
Accounts payable		1,781			(209	)
Accrued expenses, other liabilities, accrued compensation and benefits and deferred revenue		(5,228	)		(748	)
Income taxes		(1,710	)		496
Other non-current liabilities		(377	)		177

Net operating		17,596			10,262

Cash flows from investing activities
Purchase of property and equipment		(1,141	)		(968	)
Proceeds from sale of branch					666
Acquisition costs, net of cash acquired		(225	)
Payments for premiums on life insurance					(292	)
Other		3			5

Net investing		(1,363	)		(589	)

Cash flows from financing activities
Borrowings under credit facility		10,800			11,100
Payments on credit facility		(21,000	)		(11,400	)
Repayments of long-term debt		(6,864	)		(8,803	)
Dividends to stockholders		(3,637	)		(1,803	)
Repurchase of common stock		(1,837	)		(1,274	)
Exercise of stock options					195

Net financing		(22,538	)		(11,985	)

Cash and cash equivalents
Net decrease		(6,305	)		(2,312	)
At beginning of year		21,151			16,288

At end of period	$	14,846		$	13,976

Supplementary schedule of cash flow information
Cash paid during the period for
Interest	$	1,225		$	1,054
Income taxes		5,796			3,657

The accompanying notes are an integral part of these consolidated financial statements.

Page 4

QC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

(in thousands)


	Outstanding shares			Common stock		Additional paid-in capital			Retained earnings			Treasury stock			Accumulated other comprehensive loss			Total stockholders’ equity



Balance, December 31, 2009		17,414		$	207	$	67,879		$	32,182		$	(33,981	)	$	(737	)	$	65,550
Comprehensive income:
Net income										11,943
Unrealized gain on derivative instrument, net of deferred taxes of $150																245
Total comprehensive income																			12,188
Common stock repurchases		(674	)										(2,993	)					(2,993	)
Dividends to stockholders										(5,415	)								(5,415	)
Issuance of restricted stock awards		232					(2,384	)					2,384						—
Stock-based compensation expense							2,355												2,355
Tax impact of stock-based compensation							(138	)											(138	)

Balance, December 31, 2010		16,972			207		67,712			38,710			(34,590	)		(492	)		71,547
Comprehensive income:
Net income										5,317
Unrealized gain on derivative instrument, net of deferred taxes of $117																191
Total comprehensive income																			5,508
Common stock repurchases		(304	)										(1,274	)					(1,274	)
Dividends to stockholders										(1,803	)								(1,803	)
Issuance of restricted stock awards		256					(2,345	)					2,345						—
Stock-based compensation expense							1,174												1,174
Stock option exercises		100					(713	)					908						195
Tax impact of stock-based compensation							(126	)											(126	)

Balance, June 30, 2011 (Unaudited)		17,024		$	207	$	65,702		$	42,224		$	(32,611	)	$	(301	)	$	75,221

The accompanying notes are an integral part of these consolidated financial statements.

Page 5

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – The Company and Significant Accounting Policies

Business. The accompanying consolidated financial statements include the accounts of QC Holdings, Inc. and its wholly-owned subsidiaries, QC Financial Services, Inc., QC Auto Services, Inc., QC Loan Services, Inc., QC E-Services, Inc., QC Canada Holdings Inc. and QC Capital, Inc. (collectively the Company). QC Financial Services, Inc. is the 100% owner of QC Financial Services of California, Inc., Financial Services of North Carolina, Inc., QC Financial Services of Texas, Inc., Express Check Advance of South Carolina, LLC, QC Advance, Inc., Cash Title Loans, Inc. and QC Properties, LLC. QC Holdings, Inc., incorporated in 1998 under the laws of the State of Kansas, was founded in 1984, and has provided various retail consumer financial products and services throughout its 27-year history. The Company’s common stock trades on the NASDAQ Global Market exchange under the symbol “QCCO.”

Since 1998, the Company has been primarily engaged in the business of providing short-term consumer loans, known as payday loans, with principal values that typically range from $100 to $500. Payday loans provide customers with cash in exchange for a promissory note with a maturity of generally two to three weeks and supported by that customer’s personal check for the aggregate amount of the cash advanced plus a fee. The fee varies from state to state, based on applicable regulations and generally ranges from $15 to $20 per $100 borrowed. To repay the cash advance, customers may redeem their check by paying cash or they may allow the check to be presented to the bank for collection.

The Company also provides other consumer financial products and services, such as installment loans, credit services, check cashing services, title loans, money transfers and money orders. All of the Company’s loans and other services are subject to state regulation, which vary from state to state, as well as to federal and local regulation, where applicable. As of June 30, 2011, the Company operated 499 branches with locations in Alabama, Arizona, California, Colorado, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Nebraska, Nevada, New Mexico, Ohio, Oklahoma, South Carolina, Texas, Utah, Virginia, Washington and Wisconsin.

In September 2007, the Company entered into the buy here, pay here segment of the used automotive market in connection with ongoing efforts to evaluate alternative products that serve the Company’s customer base. In January 2009, the Company purchased two buy here, pay here locations in Missouri for approximately $4.2 million. In May 2009, the Company opened a service center to provide reconditioning services on its inventory of vehicles and repair services for its customers. As of June 30, 2011, the Company operated five buy here, pay here lots, which are located in Missouri and Kansas. These locations sell used vehicles and earn finance charges from the related vehicle financing contracts. The average principal amount for buy here, pay here loans originated during the six months ended June 30, 2011 was approximately $9,816 and the average term of the loan was 34 months.

Basis of Presentation. The consolidated financial statements of QC Holdings, Inc. included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. The Consolidated Balance Sheet as of December 31, 2010 was derived from the audited financial statements of the Company, but does not include all disclosures required by US GAAP. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Page 6

In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal closing procedures) necessary to present fairly the financial position of the Company and its subsidiary companies as of June 30, 2011, and the results of operations for the three and six months ended June 30, 2010 and 2011 and cash flows for the six months ended June 30, 2010 and 2011, in conformity with US GAAP. The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year 2011.

Accounting reclassifications. Certain reclassifications have been made to prior period financial information to conform to the current presentation. On the Consolidated Balance Sheets, certain amounts associated with the automotive loans receivable have been reclassified from Other assets, net to separately present the non-current portion.

Inventory. Inventory primarily consists of vehicles acquired from auctions and trade-ins. Vehicle transportation and reconditioning costs are capitalized as a component of inventory. The cost of vehicle inventory is determined on the specific identification method. Vehicle inventories are stated at the lower of cost or market. Valuation allowances are established when the inventory carrying values are in excess of estimated selling prices, net of direct costs of disposal. As of December 31, 2010 and June 30, 2011, the Company had inventory of used vehicles totaling $3.3 million and $2.6 million, respectively, which is included in other current assets in the consolidated balance sheets. Management has determined that a valuation allowance is not necessary as of December 31, 2010 and June 30, 2011.

Loans Receivable, Provision for Losses and Allowance for Loan Losses. When the Company enters into a payday loan with a customer, the Company records a loan receivable for the amount loaned to the customer plus the fee charged by the Company, which varies from state to state based on applicable regulations.

The following table summarizes certain data with respect to the Company’s payday loans:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2011		2010		2011
Average amount of cash provided to customer	$	319.64	$	318.90	$	319.43	$	319.44
Average fee received by the Company	$	56.24	$	56.65	$	56.14	$	56.84
Average term of the loan (days)		17.0		17.5		16.9		17.4

When checks are presented to the bank for payment and returned as uncollected, all accrued fees, interest and outstanding principal are charged-off as uncollectible, generally within 14 days after the due date. Accordingly, payday loans included in the receivable balance at any given point in time are typically not older than 30 days. These charge-offs are recorded as expense through the provision for losses. Any recoveries on losses previously charged to expense are recorded as a reduction to the provision for losses in the period recovered. With respect to title loans, no additional fees or interest are charged after the loan has defaulted, which generally occurs after attempts to contact the customer have been unsuccessful. Based on state regulations and operating procedures, the Company stops accruing interest on installment loans between 60 to 90 days after the last payment. On automotive loans, the Company stops accruing interest 60 days after the last payment.

With respect to the loans receivable at the end of each reporting period, the Company maintains an aggregate allowance for loan losses (including fees and interest) for payday loans, title loans, installment loans and auto loans at levels estimated to be adequate to absorb estimated incurred losses in the respective outstanding loan portfolios. The Company does not specifically reserve for any individual loan.

The methodology for estimating the allowance for payday and title loan losses utilizes a four-step approach, which reflects the short-term nature of the loan portfolio at each period-end, the historical collection experience in the month following each reporting period-end and any fluctuations in recent general economic conditions. First, the Company computes the loss/volume ratio for the last month of each reporting period. The loss/volume ratio represents the percentage of aggregate net payday and title loan charge-offs to total payday and title loan volumes

Page 7

during a given period. Second, the Company computes an adjustment to this percentage to reflect the collections experience in the month immediately following the reporting period-end. To estimate collections experience, the Company computes an average of the change in the loss/volume ratio from the last month of each reporting period to the immediate subsequent month-end for each of the last three years (excluding the current year). This change is then added to, or subtracted from, the loss/volume ratio computed for the last month of the current reporting period to derive an experience-adjusted loss/volume ratio. Third, the period-end gross payday and title loans receivable balance is multiplied by the experience-adjusted loss/volume ratio to determine the initial estimate of the allowance for loan losses. Fourth, the Company reviews and evaluates various qualitative factors that may or may not affect the computed initial estimate of the allowance for loan losses, including, among others, known changes in state regulations or laws, changes to the Company’s business and operating structure, and geographic or demographic developments. As of December 31, 2010 and June 30, 2011, the Company determined that no qualitative adjustment to the allowance for payday loan losses was necessary.

The Company maintains an allowance for installment loans at a level it considers sufficient to cover estimated losses in the collection of its installment loans. The allowance calculation for installment loans is based upon historical charge-off experience (primarily a six-month trailing average of charge-offs to total volume) and qualitative factors, with consideration given to recent credit loss trends and economic factors. As of December 31, 2010 and June 30, 2011, the Company reviewed the qualitative factors and determined that no qualitative adjustment was needed.

The allowance calculation for auto loans is determined on an aggregate basis and is based upon the Company’s review of the loan portfolio by period of origination, industry loss experience and qualitative factors, with consideration given to changes in loan characteristics, delinquency levels, collateral values and other general economic conditions. This estimate of probable losses is primarily determined using static pool analyses prepared for various segments of the portfolio using estimated loss experience, adjusted for consideration of any current economic factors. Over the last few years, industry loss rates have generally ranged between 20% and 28% of revenues, with higher ratios during more difficult macroeconomic periods. In 2008 and 2009, the automotive sales industry experienced an increase in delinquencies and, as a result, an increase in losses. The Company’s level of allowance with respect to automotive loans in prior years was higher than levels during 2010 and first six months of 2011 due to the Company’s relative inexperience in the buy here, pay here business, as well as the age of the new locations and the generally negative industry and macroeconomic environment. During 2010, the Company’s loss experience with respect to automotive loans improved significantly due to management and process enhancements. As of December 31, 2010 and June 30, 2011, the Company reviewed various qualitative factors with respect to its automotive loans receivable and determined that no qualitative adjustment was needed.

Based on the information discussed above, the Company records an adjustment to the allowance for loan losses through the provision for losses. The overall allowance represents the Company’s best estimate of probable losses inherent in the outstanding loan portfolio at the end of each reporting period.

On occasion, the Company will sell certain payday loan receivables that the Company had previously charged off to third parties for cash. The sales are recorded as a credit to the overall loss provision, which is consistent with the Company’s policy for recording recoveries noted above. The following table summarizes cash received from the sale of these payday loan receivables (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2011		2010		2011
Cash received from sale of payday loan receivables	$	87	$	75	$	152	$	280

Fair Value of Financial Instruments. The fair value of cash and cash equivalents, short-term payday, title and installment loans receivable, borrowings under the credit facility, accounts payable and certain other current liabilities that are short-term in nature approximates carrying value.

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The Company estimates the fair value of its automotive loan receivables at what a third party purchaser might be willing to pay. The Company has had discussions with third parties that indicate a 35% discount to face value would be a reasonable fair value in a negotiated third party transaction. Since the Company does not intend to offer the receivables for sale to an outside third party, the expectation is that the carrying value at December 31, 2010 and June 30, 2011, will be ultimately collected. By collecting the accounts internally, the Company expects to realize more than a third party purchaser would expect to collect with a servicing requirement and a profit margin included. As of December 31, 2010 and June 30, 2011, the fair value of the automotive loan receivables was $10.0 million and $11.7 million, respectively.

The Company estimates the fair value of long-term debt based upon borrowing rates available at the reporting date for indebtedness with similar terms and average maturities. During December 2007, the Company entered into a $50 million, five-year term loan (as discussed in Note 11). The balance on the term loan was $27.7 million as of December 31, 2010 and $18.9 million as of June 30, 2011. As of December 31, 2010 and June 30, 2011, the fair value of the five-year term loan was approximately $28.5 million and $18.2 million, respectively.

Legal Fees on Loss Contingencies. The Company’s accrual for loss contingencies includes estimates of legal fees and other directly related costs to be incurred.

Note 2 – Accounting Developments

In June 2011, the Financial Accounting Standards Board (FASB) issued guidance on the presentation of comprehensive income. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity, which is currently how the Company presents comprehensive income, and also requires presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. This guidance will be effective for fiscal years and interim periods beginning after December 15, 2011, and is not expected to have a material effect on the Company’s consolidated financial statements, though it will change the Company’s financial statement presentation of comprehensive income.

In May 2011, the FASB issued an update to the authoritative guidance, which establishes common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with US GAAP and International Financial Reporting Standards (IFRS). This guidance will be effective for fiscal years and interim periods beginning after December 15, 2011. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s consolidated financial statements.

In December 2010, the FASB updated its guidance related to when to perform step two of the goodwill impairment test for reporting units with zero or negative carrying amounts. The updated guidance requires that for any reporting unit with a zero or negative carrying amount, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that an impairment of goodwill exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment of goodwill may exist. The Company adopted this guidance on January 1, 2011. The adoption did not have a material effect on the Company’s consolidated financial statements.

In December 2010, the FASB updated its guidance related to disclosure of supplementary pro forma information for business combinations. The updated guidance requires that if comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period only. The Company adopted this guidance on January 1, 2011. The adoption did not have a material effect on the Company’s consolidated financial statements.

In July 2010, FASB issued guidance to improve disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of this guidance, an entity will be required to disaggregate, by portfolio segment or class of financing receivable, certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. For public

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entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The adoption did not have a material effect on the Company’s consolidated financial statements. See additional information in Note 8.

Note 3 – Fair Value Measurements

Fair Value Hierarchy Tables. The fair value measurement accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability.

The following table presents fair value measurements for recurring financial assets as of June 30, 2011 (in thousands):


	Fair Value Measurements
	Level 1		Level 2		Level 3		Liability at fair value
Interest rate swap agreement	$	—	$	485	$	—	$	485

Total	$	—	$	485	$	—	$	485

The following table presents fair value measurements for recurring financial assets as of December 31, 2010 (in thousands):


	Fair Value Measurements
	Level 1		Level 2		Level 3		Liability at fair value
Interest rate swap agreement	$	—	$	793	$	—	$	793

Total	$	—	$	793	$	—	$	793

The Company measures the value of its interest rate swap agreement relying on a mark-to-market valuation based on yield curves using observable market interest rates for the interest rate swap agreement. As of December 31, 2010 and June 30, 2011, the fair value of the interest rate swap agreement was a liability of $793,000 and $485,000, respectively. For the three months and six months ended June 30, 2011 the Company recorded unrealized gains of $118,000 and $308,000 respectively, on the interest rate swap agreement in other comprehensive income. For the three months and six months ended June 30, 2010 the Company recorded unrealized gains of $96,000 and $121,000 respectively, on the interest rate swap agreement in other comprehensive income. For additional information on the interest rate swap agreement, see Notes 11 and 12.

Fair Value Measurements on a Non-Recurring Basis. The Company also measures the fair value of certain assets on a non-recurring basis when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Page 10

Note 4 – Significant Business Transactions

Closure of Branches. During first six months of 2011, the Company closed seven of its lower performing branches in various states (which included four branches that were consolidated into a nearby branches). The Company recorded approximately $150,000 in pre-tax charges during the six months ended June 30, 2011 associated with these closures. The charges included a $71,000 loss for the disposition of fixed assets, $74,000 for lease terminations and other related occupancy costs and $5,000 for other costs.

During the first six months of 2010, the Company closed 12 of its lower performing branches in various states. The Company recorded approximately $484,000 in pre-tax charges during the six months ended June 30, 2010 associated with these closings. The charges included $260,000 representing the loss on the disposition of fixed assets, $216,000 for lease terminations and other related occupancy costs and $8,000 for other costs. See additional information in Note 5 regarding discontinued operations.

The following table summarizes the accrued costs associated with the closure of branches and the activity related to those charges as of June 30, 2011 (in thousands):


	Balance at December 31, 2010		Additions		Reductions			Balance at June 30, 2011
Lease and related occupancy costs	$	325	$	74	$	(327	)	$	72
Severance		155				(155	)
Other				5		(5	)

Total	$	480	$	79	$	(487	)	$	72

As of June 30, 2011, the balance of $72,000 for accrued costs associated with the closure of branches is included as a current liability on the Consolidated Balance Sheets as the Company expects that the liabilities for these costs will be settled within one year.

Sale of Branch. In March 2011, the Company sold a branch located in California for approximately $666,000. The carrying value of the payday loan receivables, fixed assets and other assets sold was approximately $137,000, $15,000 and $2,000, respectively. The Company also recorded a disposition of goodwill totaling $135,000 due to the sale of this location. The gain from the sale of the branch, which was approximately $377,000, and its related operations are included in discontinued operations in the Consolidated Statements of Income.

Note 5 – Discontinued Operations

The Company closed 34 branches during 2010 that were not consolidated into nearby branches and announced it would close 21 branches in Arizona, Washington and South Carolina in 2011. During the first six months of 2011, the Company closed 18 of the 21 branches and expects to close the remaining three branches in second half of 2011. In addition, the Company closed three branches during first six months of 2011 that were not consolidated into nearby branches and sold one branch. These branches are reported as discontinued operations in the Consolidated Statements of Income and related disclosures in the accompanying notes for all periods presented. With respect to the Consolidated Balance Sheets, the Consolidated Statements of Cash Flows and related disclosures in the accompanying notes, the items associated with the discontinued operations are included with the continuing operations for all periods presented.

Page 11

Summarized financial information for discontinued operations during the three and six months ended June 30, 2010 and 2011 is presented below (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2011			2010			2011
Total revenues	$	1,667		$	104		$	3,876		$	500
Provision for losses		493			34			1,036			117
Other branch expenses		1,702			79			3,921			580

Branch gross loss		(528	)		(9	)		(1,081	)		(197	)
Other, net		(76	)		(2	)		(261	)		332

Gain (loss) before income taxes		(604	)		(11	)		(1,342	)		135
Income tax benefit (expense)		239			4			530			(52	)

Gain (loss) from discontinued operations	$	(365	)	$	(7	)	$	(812	)	$	83

Note 6 – Earnings Per Share

The Company computes basic and diluted earnings per share using a two-class method because the Company has participating securities in the form of unvested share-based payment awards with rights to receive non-forfeitable dividends. Basic and diluted earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share gives effect to all dilutive potential common shares that were outstanding during the period. The effect of stock options and unvested restricted stock represent the only differences between the weighted average shares used for the basic earnings per share computation compared to the diluted earnings per share computation for each period presented.

The following table presents the computations of basic and diluted earnings per share for each of the periods indicated (in thousands, except per share data):


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2011			2010			2011
Income available to common stockholders:
Income from continuing operations	$	1,799		$	34		$	7,423		$	5,234
Discontinued operations, net of income tax		(365	)		(7	)		(812	)		83

Net income	$	1,434		$	27		$	6,611		$	5,317

Weighted average shares outstanding:
Weighted average basic common shares outstanding		17,351			17,040			17,416			17,047
Dilutive effect of stock options and unvested restricted stock		75			92			83			57

Weighted average diluted common shares outstanding		17,426			17,132			17,499			17,104

Basic earnings (loss) per share:
Continuing operations	$	0.10		$	—		$	0.41		$	0.29
Discontinued operations		(0.02	)					(0.05	)

Net income	$	0.08		$	—		$	0.36		$	0.29

Diluted earnings (loss) per share:
Continuing operations	$	0.10		$	—		$	0.41		$	0.29
Discontinued operations		(0.02	)					(0.05	)

Net income	$	0.08		$	—		$	0.36		$	0.29

Page 12

Anti-dilutive securities. Options to purchase 2.6 million shares of common stock were excluded from the diluted earnings per share calculation for the three and six months ended June 30, 2011, respectively, because they were anti-dilutive. Options to purchase 2.1 million shares were excluded from the diluted earnings per share calculation for the three and six months ended June 30, 2010, respectively, because they were anti-dilutive.

Note 7 – Segment Information

The Company’s operating business units offer various financial services and sell used vehicles and earn finance charges from the related vehicle financing contracts. The Company has elected to organize and report on these business units as two operating segments (Financial Services and Automotive). The Financial Services segment includes branches that offer payday loans, installment loans, credit services, check cashing services, title loans, money transfers and money orders. The Automotive segment consists of the buy here, pay here operations. The Company evaluates the performance of its segments based on, among other things, branch gross profit, income from continuing operations before income taxes and return on invested capital.

The following table presents summarized financial information for the Company’s segments (in thousands):


	Three Months Ended June 30, 2011
	Financial Services			Automotive			Consolidated Total
	Financial Services			Automotive			Consolidated Total
Total revenues	$	38,624		$	5,610		$	44,234
Provision for losses		9,375			1,563			10,938
Other branch expenses		17,460			3,754			21,214

Branch gross profit		11,789			293			12,082
Other, net (a)		(11,462	)		(544	)		(12,006	)

Income (loss) from continuing operations before income taxes	$	327		$	(251	)	$	76


	Three Months Ended June 30, 2010
	Financial Services			Automotive			Consolidated Total
	Financial Services			Automotive			Consolidated Total
Total revenues	$	40,165		$	4,746		$	44,911
Provision for losses		9,454			1,193			10,647
Other branch expenses		18,039			2,995			21,034

Branch gross profit		12,672			558			13,230
Other, net (a)		(9,820	)		(396	)		(10,216	)

Income from continuing operations before income taxes	$	2,852		$	162		$	3,014

(a)	Represents expenses not associated with branch operations, which includes regional expenses, corporate expenses, depreciation and amortization, interest and other expenses.

Page 13


	Six Months Ended June 30, 2011
	Financial Services			Automotive			Consolidated Total
	Financial Services			Automotive			Consolidated Total
Total revenues	$	77,871		$	12,585		$	90,456
Provision for losses		13,365			2,493			15,858
Other branch expenses		35,745			8,496			44,241

Branch gross profit		28,761			1,596			30,357
Other, net (a)		(20,556	)		(1,113	)		(21,669	)

Income from continuing operations before income taxes	$	8,205		$	483		$	8,688


	Six Months Ended June 30, 2010
	Financial Services			Automotive			Consolidated Total
	Financial Services			Automotive			Consolidated Total
Total revenues	$	82,146		$	9,572		$	91,718
Provision for losses		14,883			1,463			16,346
Other branch expenses		36,382			5,898			42,280

Branch gross profit		30,881			2,211			33,092
Other, net (a)		(20,102	)		(817	)		(20,919	)

Income from continuing operations before income taxes	$	10,779		$	1,394		$	12,173

(a)	Represents expenses not associated with branch operations, which includes regional expenses, corporate expenses, depreciation and amortization, interest and other expenses.

Information concerning total assets by reporting segment is as follows (in thousands):


	December 31, 2010		June 30, 2011
	December 31, 2010		June 30, 2011
Financial Services	$	120,413	$	112,069
Automotive		17,629		19,457

Total	$	138,042	$	131,526

Note 8 – Customer Receivables and Allowance for Loan Losses

Customer receivables, including both current and non-current, consisted of the following (in thousands):


June 30, 2011:	Payday and Title Loans			Automotive Loans			Installment Loans			Total


Total loans, interest and fees receivable	$	48,516		$	18,002		$	8,894		$	75,412
Less: allowance for losses		(1,530	)		(3,840	)		(2,080	)		(7,450	)

Loans, interest and fees receivable, net of allowance	$	46,986		$	14,162		$	6,814		$	67,962

Page 14


December 31, 2010:	Payday and Title Loans			Automotive Loans			Installment Loans			Total


Total loans, interest and fees receivable	$	54,148		$	15,366		$	7,695		$	77,209
Less: allowance for losses		(1,760	)		(3,740	)		(1,650	)		(7,150	)

Loans, interest and fees receivable, net of allowance	$	52,388		$	11,626		$	6,045		$	70,059

Credit quality information. In order to manage the portfolios of consumer loans effectively, the Company utilizes a variety of proprietary underwriting criteria, monitors the performance of the portfolio and maintains either an allowance or accrual for losses on consumer loans (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the portfolio. The portfolio includes balances outstanding from all consumer loans, including short-term payday and title loans, automotive loans and multi-payment installment loans. The allowance for losses on consumer loans offsets the outstanding loan amounts in the consolidated balance sheets.

The Company has $5.1 million in automotive loans receivable that are past due as of June 30, 2011 and approximately 13.9% of this amount is more than 60 days past due. In addition, the Company has automotive loans receivable totaling $702,000 that are on non-accrual status as of June 30, 2011. With respect to installment loans, the Company has approximately $1.8 million in installment loans receivable that are past due as of June 30, 2011 and approximately 4.2% of this amount is more that 60 days past due.

Allowance for loan losses. The following table summarizes the activity in the allowance for loan losses during the three and six months ended June 30, 2010 and 2011 (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
Allowance for loan losses	2010			2011			2010			2011
Balance, beginning of period	$	8,640		$	5,690		$	10,803		$	7,150
Charge-offs		(17,860	)		(15,531	)		(36,464	)		(31,097	)
Recoveries		8,133			6,946			18,600			16,432
Provision for losses		10,657			10,345			16,631			14,965

Balance, end of period	$	9,570		$	7,450		$	9,570		$	7,450

The provision for losses in the Consolidated Statements of Income includes losses associated with the credit service organization (see note 14 for additional information) and excludes loss activity related to discontinued operations (see note 5 for additional information).

The following table summarizes the activity in the allowance for loan losses by product type during the six months ended June 30, 2011 (in thousands):


	Payday and Title Loans			Automotive Loans			Installment Loans			Other			Total


Balance, beginning of period	$	1,760		$	3,740		$	1,650		$	—		$	7,150
Charge-offs		(24,015	)		(2,394	)		(4,365	)		(323	)		(31,097	)
Recoveries		15,261						973			198			16,432
Provision for losses		8,524			2,494			3,822			125			14,965

Balance, end of period	$	1,530		$	3,840		$	2,080		$	—		$	7,450

Page 15

Note 9 – Other Revenues

The components of “Other” revenues as reported in the statements of income are as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2011		2010		2011
Installment loan interest and fees	$	3,788	$	5,020	$	7,783	$	9,658
Credit service fees		1,667		1,727		3,397		3,663
Check cashing fees		1,022		967		2,455		2,304
Title loan fees		887		1,563		1,795		3,130
Other fees		619		616		1,355		1,317

Total	$	7,983	$	9,893	$	16,785	$	20,072

Note 10 – Property and Equipment

Property and equipment consisted of the following (in thousands):


	December 31,			June 30,
	2010			2011
Buildings	$	3,262		$	3,262
Leasehold improvements		19,589			19,976
Furniture and equipment		23,315			23,194
Land		512			512
Vehicles		1,017			1,040

		47,695			47,984
Less: Accumulated depreciation and amortization		(33,585	)		(35,197	)

Total	$	14,110		$	12,787

In February 2005, the Company entered into a seven-year lease for a new corporate headquarters in Overland Park, Kansas. In January 2011, the Company amended its lease agreement to extend the lease term and modify the lease payments. The lease was extended with a new landlord through October 31, 2017 and includes a renewal option for an additional five years. As part of the original agreement lease agreement and the amendment to the lease agreement, the Company received tenant allowances from the landlord for leasehold improvements totaling $1.4 million. The tenant allowances are recorded by the Company as a deferred liability and are being amortized as a reduction of rent expense over the life of the lease. As of December 31, 2010, the balance of the deferred liability was approximately $185,000, which consisted of $46,000 classified as a non-current liability. As of June 30, 2011, the balance of the deferred liability was approximately $353,000, which consisted of $297,000 classified as a non-current liability.

Note 11 – Indebtedness

The following table summarizes long-term debt at December 31, 2010 and June 30, 2011 (in thousands):


	December 31, 2010			June 30, 2011
	December 31, 2010			June 30, 2011
Term loan	$	27,744		$	18,941
Revolving credit facility		17,250			16,950

Total debt		44,994			35,891
Less: debt due within one year		(28,113	)		(27,560	)

Long-term debt	$	16,881		$	8,331

Page 16

On December 7, 2007, the Company entered into an amended and restated credit agreement with a syndicate of banks. The amended credit agreement provides for a five-year term loan of $50.0 million and a revolving line of credit (including provisions permitting the issuance of letters of credit and swingline loans) of up to $45.0 million. The maximum borrowings under the amended credit facility may be increased by $25.0 million pursuant to bank approval in accordance with the terms set forth in the credit facility.

The credit facility is guaranteed by each subsidiary and is secured by all the capital stock of each subsidiary of the Company and all personal property (including all present and future accounts receivable, inventory, property and equipment, general intangibles (including intellectual property), instruments, deposit accounts, investment property and the proceeds thereof). Borrowings under the term loan and the facility are available based on two types of loans, Base Rate loans or LIBOR Rate loans. Base Rate loans bear interest at the higher of the Prime Rate or the Federal Funds Rate plus 0.50%, either of which is then added to a maximum margin of 2.00%. LIBOR Rate loans bear interest at rates based on the LIBOR rate for the applicable loan period with a maximum margin over LIBOR of 4.00%. The loan period for a LIBOR Rate loan may be one month, two months, three months or six months and the loan may be renewed upon notice to the agent provided that no default has occurred. As a result, the revolving credit facility is classified as debt due within one year, although the revolving credit facility, by its terms, does not mature until December 6, 2012. The credit facility has a grid that adjusts the borrowing rates for both Base Rate loans and LIBOR Rate loans based upon the Company’s leverage ratio. Leverage ratio is defined as the ratio of total debt to earnings before interest, taxes, depreciation and amortization (EBITDA). The credit facility also includes a non-use fee ranging from 0.25% to 0.375%, which is based upon the Company’s leverage ratio. Among other provisions, the amended credit agreement contains certain financial covenants related to EBITDA, fixed charges, leverage ratio, working capital ratio, total indebtedness, and maximum loss ratio. As of June 30, 2011, the Company is in compliance with all of its debt covenants. The credit facility expires on December 6, 2012.

In addition to scheduled repayments, the term loan contains mandatory prepayment provisions beginning in 2009 whereby the Company is required to reduce the outstanding principal amounts of the term loan based on the Company’s excess cash flow (as defined in the agreement) and the Company’s leverage ratio as of the most recent completed fiscal year. In March 2010, the Company made a $5.4 million principal payment on the term loan, which included $3.9 million required under the mandatory prepayment provisions and the $1.5 million scheduled principal payment. In March 2011, the Company made a $7.1 million principal payment on the term loan, which included $5.3 million required under the mandatory prepayment provisions and the $1.8 million scheduled principal payment.

Note 12 – Derivative Instruments

Derivative instruments are accounted for at fair value. The accounting for changes in the fair value of a derivative depends on the intended use and designation of the derivative instrument. For a derivative instrument designated as a fair value hedge, the gain or loss on the derivative is recognized in earnings in the period of change in fair value together with the offsetting gain or loss on the hedged item. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of Other Comprehensive Income (OCI) and is subsequently recognized in earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is recognized in earnings. Gains or losses from changes in fair values of derivatives that are not designated as hedges for accounting purposes are recognized currently in earnings.

The Company is exposed to certain risks relating to adverse changes in interest rates on its long-term debt and manages this risk through the use of a derivative. The Company does not enter into derivative instruments for trading or speculative purposes.

Cash Flow Hedge. The Company entered into an interest rate swap agreement during first quarter 2008 for $49 million of its outstanding debt as a cash flow hedge to interest rate fluctuations under its credit facility. The swap agreement is designated as a cash flow hedge, and effectively changes the floating rate interest obligation associated with the $50 million term loan into a fixed rate. The swap agreement has a maturity date of December 6, 2012. Under the swap, the Company pays a fixed interest rate of 3.43% and receives interest at a rate of LIBOR. As of June 30, 2011, approximately $18.0 million (representing the majority of the unpaid principal of the term loan) is

Page 17

subject to the interest rate swap agreement. The hedge is highly effective and, therefore, the Company reported no net gain or loss during the six months ended June 30, 2010 and 2011. The Company expects approximately $552,000 of losses in accumulated other comprehensive income to be reclassified into earnings within the next 12 months.

The following table summarizes the fair value and location in the Consolidated Balance Sheets of all derivatives held by the Company as of December 31, 2010 and June 30, 2011 (in thousands).


Derivatives Designated as Hedging Instruments under ASC Topic 815	Balance Sheet Classification	Fair Value
	Balance Sheet Classification	December 31, 2010		June 30, 2011
Liabilities:
Interest rate swaps	Accrued expenses and other liabilities	$	793	$	485

The following table summarizes the gains (losses) recognized in Other Comprehensive Income (in thousands) related to the interest rate swap agreement for the three months ended June 30, 2010 and 2011.


Derivatives Designated as Hedging Instruments under ASC Topic 815	Gain (Loss) Recognized in OCI
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Cash flow hedges:
Loss recognized in other comprehensive income	$	(150	)	$	(38	)	$	(419	)	$	(55	)
Amount reclassified from accumulated other comprehensive loss to interest expense		246			156			540			363

Total	$	96		$	118		$	121		$	308

Note 13 – Income taxes

Effective Tax Rate. The Company’s effective tax rate was 39.8% for the six months ended June 30, 2011 compared to 39.0% for the six months ended June 30, 2010. Significant items impacting the 2011 rate include state tax expense, net of federal benefits, and certain non-deductible permanent items.

Uncertain Tax Positions. The Company had unrecognized tax benefits of approximately $253,000 as of December 31, 2010 and as of June 30, 2011.

The Company records accruals for interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively. Interest and penalties and associated accruals were not material as of June 30, 2011.

The Company does not anticipate any material changes in the amount of unrecognized tax benefits in the next twelve months.

The Company is subject to income taxes in the U.S federal jurisdiction and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In the ordinary course of business, transactions occur for which the ultimate tax outcome is uncertain. In addition, respective tax authorities periodically audit the Company’s income tax returns. These audits examine the Company’s significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax jurisdictions. The following table outlines the tax years that generally remain subject to examination as of June 30, 2011:


	Federal		State
Statute remains open		2007-2010		2006-2010
Tax years currently under examination		None		None

Page 18

Note 14 – Credit Services Organization

Payday loans are originated by the Company at all of its branches, except branches in Texas. For its locations in Texas, the Company began operating as a CSO, through one of its subsidiaries, in September 2005. As a CSO, the Company acts as a credit services organization on behalf of consumers in accordance with Texas laws. The Company charges the consumer a fee for arranging for an unrelated third-party to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the consumer’s obligation to the third-party lender. The Company also services the loan for the lender. The CSO fee is recognized ratably over the term of the loan. The Company is not involved in the loan approval process or in determining the loan approval procedures or criteria. As a result, loans made by the lender are not included in the Company’s loans receivable balance and are not reflected in the Consolidated Balance Sheets. As noted above, however, the Company absorbs all risk of loss through its guarantee of the consumer’s loan from the lender. As of December 31, 2010 and June 30, 2011, the consumers had total loans outstanding with the lender of approximately $3.0 million and $2.6 million, respectively. Because of the economic exposure for potential losses related to the guarantee of these loans, the Company records a payable at fair value to reflect the anticipated losses related to uncollected loans. The balance of the liability for estimated losses reported in accrued liabilities was approximately $100,000 as of December 31, 2010 and $90,000 as of June 30, 2011. The following tables summarize the activity in the CSO liability (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
Allowance for loan losses	2010			2011			2010			2011
Balance, beginning of period	$	60		$	50		$	100		$	100
Charge-offs		(583	)		(743	)		(1,136	)		(1,446	)
Recoveries		149			155			394			426
Provision for losses		484			628			752			1,010

Balance, end of period	$	110		$	90		$	110		$	90

Note 15 – Stockholders Equity

Comprehensive income (loss). Components of comprehensive income consist of the following (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Net income	$	1,434		$	27		$	6,611		$	5,317
Other comprehensive income:
Unrealized loss on interest rate swap		(150	)		(38	)		(419	)		(55	)
Amount reclassified to interest expense related to interest rate swap		246			156			540			363
Deferred income taxes		(37	)		(45	)		(46	)		(117	)

Other comprehensive income		59			73			75			191

Comprehensive income	$	1,493		$	100		$	6,686		$	5,508

Stock Repurchases. The board of directors has authorized the Company to repurchase up to $60 million of its common stock in the open market and through private purchases. The acquired shares may be used for corporate purposes, including shares issued to employees in stock-based compensation programs. As of June 30, 2011, the Company had repurchased 5.5 million shares at a total cost of approximately $55.4 million, which leaves approximately $4.6 million that may yet be purchased under the current program, which expires June 30, 2012.

Page 19

Dividends. On April 27, 2011, the Company’s board of directors declared a regular quarterly cash dividend of $0.05 per common share. The dividends were paid on May 31, 2011 to stockholders of record as of May 17, 2011. The total amount of the dividend paid was approximately $898,000.

Note 16 – Stock-Based Compensation

The following table summarizes the stock-based compensation expense reported in net income (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2011		2010		2011
Employee stock-based compensation:
Stock options	$	106	$	96	$	245	$	193
Restricted stock awards		380		405		729		798

		486		501		974		991
Non-employee director stock-based compensation:
Restricted stock awards						225		183

Total	$	486	$	501	$	1,199	$	1,174

Stock option grants. The Company did not grant stock options during first six months of 2011. As of June 30, 2011, the Company had 2.7 million stock options outstanding with a weighted average exercise price of $9.78 and 2.4 million stock options exercisable with a weighted average exercise price of $10.37.

Restricted stock grants. During first quarter 2011, the Company granted 532,040 shares of restricted stock to various employees and non-employee directors under the 2004 Equity Incentive Plan pursuant to restricted stock agreements. The grants consisted of 487,200 shares granted to employees that vest equally over four years and 44,840 shares granted to non-employee directors that vested immediately upon grant subject to an agreed-upon six-month holding period. The Company estimated that the fair market value of these restricted stock grants was approximately $2.2 million. For the three and six months ended June 30, 2011, the Company recognized $122,000 and $387,000 respectively, in stock-based compensation expense related to these restricted stock grants. As of June 30, 2011, the total unrecognized compensation costs related to these restricted stock grants was $1.8 million. The Company expects that these costs will be amortized over a weighted average period of 3.5 years.

A summary of all restricted stock activity under the equity compensation plans for the six months ended June 30, 2011 is as follows:


	Restricted Stock			Weighted Average Grant Date Fair Value
Non-vested balance, January 1, 2010		661,296		$	6.56
Granted		532,040			4.09
Vested		(255,883	)		5.49
Forfeited		(5,547	)		5.39

Non-vested balance, June 30, 2011		931,906		$	5.81

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Note 17 – Commitments and Contingencies

Litigation. The Company is subject to various asserted and unasserted claims during the course of business. Due to the uncertainty surrounding the litigation process, except for those matters for which an accrual is described below, the Company is unable to reasonably estimate the range of loss, if any, in connection with the asserted and unasserted legal actions against it. Although the outcome of many of these matters is currently not determinable, the Company believes that it has meritorious defenses and that the ultimate cost to resolve these matters will not have a material adverse effect on the Company’s consolidated financial statements. In addition to the legal proceedings discussed below, the Company is subject to various legal proceedings arising from normal business operations.

The Company assesses the materiality of litigation by reviewing a range of qualitative and quantitative factors. These factors include the size of the potential claims, the merits of the Company’s defenses and the likelihood of plaintiffs’ success on the merits, the regulatory environment that could impact such claims and the potential impact of the litigation on our business. The Company evaluates the likelihood of an unfavorable outcome of the legal or regulatory proceedings to which it is a party in accordance with accounting guidance. This assessment is subjective based on the status of the legal proceedings and is based on consultation with in-house and external legal counsel. The actual outcomes of these proceedings may differ from the Company’s assessments.

Missouri. On October 13, 2006, one of the Company’s Missouri customers sued the Company in the Circuit Court of St. Louis County, Missouri in a purported class action. The lawsuit alleges violations of the Missouri statute pertaining to unsecured loans under $500 and the Missouri Merchandising Practices Act. The lawsuit seeks monetary damages and a declaratory judgment that the arbitration agreement with the plaintiff is not enforceable on a variety of theories. The Company moved to compel arbitration of this matter. In December 2007, the court refused to enforce the class action waiver provision in the Company’s customer arbitration agreement, ordered the case to arbitration and dismissed the lawsuit filed in Circuit Court. In July 2008, the Company filed its appeal of the court’s order with the Missouri Court of Appeals. In December 2008, the Court of Appeals affirmed the decision of the trial court. In September 2009, the plaintiff filed her action in arbitration. The Company has filed its answer, and a three-person arbitration panel has been chosen. Discovery has commenced, and the parties were scheduled to argue class certification in August 2011. In early August 2011, the Company and plaintiff reached a tentative agreement to settle this purported class action arbitration for approximately $1.9 million. As of June 30, 2011, the Company has recorded a $2.0 million liability in accrued expenses and other liabilities in connection with this tentative settlement and anticipated additional legal expenses to effect the settlement.

North Carolina. On February 8, 2005, the Company, two of its subsidiaries, including its subsidiary doing business in North Carolina, and Mr. Don Early, the Company’s Chairman of the Board and Chief Executive Officer, were sued in Superior Court of New Hanover County, North Carolina in a putative class action lawsuit filed by James B. Torrence, Sr. and Ben Hubert Cline, who were customers of a Delaware state-chartered bank for whom the Company provided certain services in connection with the bank’s origination of payday loans in North Carolina, prior to the closing of the Company’s North Carolina branches in fourth quarter 2005. The lawsuit alleges that the Company violated various North Carolina laws, including the North Carolina Consumer Finance Act, the North Carolina Check Cashers Act, the North Carolina Loan Brokers Act, the state unfair trade practices statute and the state usury statute, in connection with payday loans made by the bank to the two plaintiffs through the Company’s retail locations in North Carolina. The lawsuit alleges that the Company made the payday loans to the plaintiffs in violation of various state statutes, and that if the Company is not viewed as the “actual lenders or makers” of the payday loans, its services to the bank that made the loans violated various North Carolina statutes. Plaintiffs are seeking certification as a class, unspecified monetary damages, and treble damages and attorneys fees

Page 21

under specified North Carolina statutes. Plaintiffs have not sued the bank in this matter and have specifically stated in the complaint that plaintiffs do not challenge the right of out-of-state banks to enter into loans with North Carolina residents at such rates as the bank’s home state may permit, all as authorized by North Carolina and federal law. In July 2011, the parties completed a weeklong hearing on the Company’s motion to enforce its class action waiver provision and its arbitration provision. The Company expects to receive a decision from the trial court by the end of 2011.

There are three similar purported class action lawsuits filed in North Carolina against three other companies unrelated to the Company. In December 2005, the judge in those three cases (1) granted the defendants’ motions to stay the purported class action lawsuits and to compel arbitration in accordance with the terms of the arbitration provisions contained in the consumer loan contracts, (2) ruled that the class action waivers in those consumer loan contracts are valid, and (3) denied plaintiffs’ motions for class certifications. The plaintiffs in those three cases, who are represented by the same law firms as the plaintiffs in the case filed against the Company, appealed that ruling. In January 2007, the North Carolina Court of Appeals heard the appeal in the three companion cases. In May 2008, the appellate court remanded the three companion cases to the state court to review its ruling in light of a recent North Carolina Supreme Court decision. In June 2009, the trial court denied defendants’ motion to compel arbitration and granted each of the respective plaintiffs’ motions for class certification. Defendants appealed those rulings, but by the end of 2010, settlements in each of the three companion cases were reached. However the settlements do not provide reasonable guidance on settlements in the Company’s case. As noted above, the Company argued its own issues concerning arbitration and class certification before the trial court in July 2011.

The judge handling the lawsuit against the Company in North Carolina is the same judge who is handling the three companion cases.

Ohio. In April 2009, the Ohio Division of Financial Institutions issued a notice of violation challenging the business model used by a subsidiary of the Company in that state. In Ohio, the Company issues short-term loan proceeds to customers in the form of a check. The Company offers to cash these checks for a fee. Cashing a check is a voluntary transaction and the underlying short-term loan is not conditioned upon an agreement to cash the customer’s loan proceeds check. The Division of Financial Institutions has claimed that cashing these checks is a violation of the Ohio’s Small Loan Act and has asked the Company to cease cashing the checks for a fee. The Company believes that its business practice complies with all applicable laws and continues to conduct business without any changes to its operations. The Division asked for an administrative hearing to determine whether the business model violates state law. A hearing officer determined, however, that the Company’s model does not violate state law. The Division, as allowed by law, rejected this finding in early 2011 and issued another cease and desist order to the Company. As a result, the Company moved to stay the order and has forced an appeal of the administrative ruling to state district court. In July 2011, the district court ruled in favor of the Company’s appeal, rejecting the Division’s attack on the Company’s business practices in Ohio. It is unclear if the Division will appeal this ruling.

In a separate action, the Company, joined by other short-term lending companies, sued the Division to bar the enforcement of these new proposed rules. In April 2010, the court overseeing the case issued a temporary restraining order against the Division, preventing the enforcement of the administrative ruling for the near future.

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Note 18 – Certain Concentrations of Risk

The Company is subject to regulation by federal and state governments that affect the products and services provided by the Company, particularly payday loans. The Company currently operates in 23 states throughout the United States. The level and type of regulation of payday loans varies greatly from state to state, ranging from states with no regulations or legislation to other states with very strict guidelines and requirements.

Company branches located in the states of Missouri, California, Kansas and Illinois represented approximately 32%, 14%, 9% and 6%, respectively, of total revenues for the six months ended June 30, 2011. Company branches located in the states of Missouri, California, Kansas, Illinois, Texas and New Mexico represented approximately 36%, 15%, 10%, 7%, 5% and 5%, respectively, of total branch gross profit for the six months ended June 30, 2011. To the extent that laws and regulations are passed that affect the Company’s ability to offer loans or the manner in which the Company offers its loans in any one of those states, the Company’s financial position, results of operations and cash flows could be adversely affected. For example, the Arizona payday loan statutory authority expired by its terms on June 30, 2010, and the expiration of this law had a significant adverse effect on the revenues and profitability of the Company. For the six months ended June 30, 2011, revenues and gross profit from the Arizona branches declined by $3.9 million and $3.4 million respectively, from the same period in the prior year. Prior to the expiration of the Arizona payday loan law, branches in Arizona accounted for more than 5% of Company revenues and gross profits.

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In March 2011, a new payday law became effective in Illinois that imposes customer usage restrictions that will negatively affect revenues and profitability. This type of customer restriction, when passed in other states such as Washington, South Carolina and Kentucky, has resulted in a 30% to 60% decline in annual revenues depending on the types of alternative products that competitors may offer within the state. The Illinois law provides for an overlap of the previous lending approach with loans issued under the new law for a period of one year, which will likely extend the time period over which the negative effects of the new law will occur.

Note 19 – Subsequent Events

Dividends. On July 29, 2011, the Company’s board of directors declared a quarterly dividend of $0.05 per common share. The dividend is payable on September 1, 2011 to stockholders of record as of August 18, 2011. The Company estimates that the total amount of the dividend will be approximately $900,000.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

The discussion below includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding, among other things, our plans, strategies and prospects, both business and financial. All statements other than statements of current or historical fact contained in this discussion are forward-looking statements. The words “believe,” “expect,” “anticipate,” “should,” “would,” “could,” “plan,” “will,” “may,” “intend,” “estimate,” “potential,” “objective”, “continue” or similar expressions or the negative of these terms are intended to identify forward-looking statements.

These forward-looking statements are based on our current expectations and are subject to a number of risks and uncertainties, which could cause actual results to differ materially from those forward-looking statements. These risks include (1) changes in laws or regulations or governmental interpretations of existing laws and regulations governing consumer protection or payday lending practices, including particularly the magnitude of the adverse impact as a result of changes in Washington, South Carolina, Arizona, Virginia and Kentucky (2) uncertainties relating to the interpretation, application and promulgation of regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act, including the impact of future regulations proposed or adopted by the Consumer Financial Protection Bureau, which was created by that Act, (3) litigation or regulatory action directed towards us or the payday loan industry, (4) volatility in our earnings, primarily as a result of fluctuations in loan loss experience and the rate of growth in or closure of branches, (5) risks associated with the leverage of the Company, (6) negative media reports and public perception of the payday loan industry and the impact on federal and state legislatures and federal and state regulators, (7) changes in our key management personnel, (8) integration risks and costs associated with future acquisitions, and (9) the other risks detailed under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission. In light of these risks, uncertainties and assumptions, the forward-looking statements in this report may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. When investors consider these forward-looking statements, they should keep in mind the risk factors and other cautionary statements in this discussion.

Our forward-looking statements speak only as of the date they are made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The discussion in this item is intended to clarify and focus on our results of operations, certain changes in financial position, liquidity, capital structure and business developments for the periods covered by the consolidated financial statements included under Item 1 of this Form 10-Q. This discussion should be read in conjunction with these consolidated financial statements, the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010, and the related notes thereto and is qualified by reference thereto.

EXECUTIVE SUMMARY

We operate primarily through our wholly-owned subsidiaries, QC Financial Services, Inc., QC Auto Services, Inc., QC Loan Services, Inc., QC E-Services, Inc., QC Canada Holdings Inc. and QC Capital, Inc. QC Financial Services, Inc. is the 100% owner of QC Financial Services of California, Inc., Financial Services of North Carolina, Inc., QC Financial Services of Texas, Inc., Express Check Advance of South Carolina, LLC, QC Advance, Inc., Cash Title Loans, Inc. and QC Properties, LLC.

We derive our revenues primarily by providing short-term consumer loans, known as payday loans, which represented approximately 63.9% of our total revenues for the six months ended June 30, 2011. We earn fees for various other financial services, such as installment loans, credit services, check cashing services, title loans, open-end credit, money transfers and money orders. We operated 499 branches in 23 states at June 30, 2011. In all but one of these states, Texas, we fund our payday loans directly to the customer and receive a fee. Fees charged to

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customers vary from state to state, generally ranging from $15 to $20 per $100 borrowed, and in most cases, are limited by state law. We also sell used automobiles and finance most of those sales, earning income on the automobile sales and interest on the automobile loans.

We currently offer installment loans to customers in Colorado, Idaho, Illinois, Montana, New Mexico and Utah. The installment loans are payable in monthly installments (principal plus accrued interest) with terms ranging from four months to one year, and all loans are pre-payable at any time without penalty. The fee for an installment loan varies based on the amount borrowed and the term of the loan. Generally, the maximum amount that we advance under an installment loan is $1,000. The average principal amount for installment loans originated during six months ended June 30, 2011 was approximately $535 and the average term of the loan was 219 days.

In Texas, through one of our subsidiaries, we operate as a credit service organization (CSO) on behalf of consumers in accordance with Texas laws. We charge the consumer a CSO fee for arranging for an unrelated third-party to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the consumer’s obligation to the third-party lender.

In September 2007, we entered into the buy here, pay here segment of the used automotive market in connection with ongoing efforts to evaluate alternative products that serve our customer base. In January 2009, we purchased two buy here, pay here locations in Missouri for approximately $4.2 million. In May 2009, we opened a service center to provide reconditioning services on our inventory of vehicles and repair services for our customers. As of June 30, 2011, we operated five buy here, pay here lots, which are located in Missouri and Kansas. These locations sell used vehicles and earn finance charges from the related vehicle financing contracts. The average principal amount for buy here, pay here loans originated during six months ended June 30, 2011 was approximately $9,816 and the average term of the loan was 34 months.

We have elected to organize and report on our business units as two operating segments (Financial Services and Automotive). The Financial Services segment includes branches that offer payday loans, installment loans, credit services, check cashing services, title loans, money transfers and money orders. The Automotive segment consists of our buy here, pay here operations. We evaluate the performance of our segments based on, among other things, branch gross profit, income from continuing operations before income taxes and return on invested capital.

Our expenses primarily relate to the operations of our branch network. The most significant expenses include salaries and benefits for our branch employees, provisions for losses, occupancy expense for our leased real estate and cost of sales for our automobile purchases. Regional and corporate expenses, which include compensation of employees, professional fees and equity award charges, are our other primary costs.

We evaluate our branches based on revenue growth, gross profit contributions and loss ratio (which is losses as a percentage of revenues), with consideration given to the length of time the branch has been open and its geographic location. We monitor newer branches for their progress to profitability and rate of loan growth.

With respect to our cost structure, salaries and benefits are one of our largest costs and are generally driven by changes in number of branches and loan volumes. Our provision for losses is also a significant expense. If a customer’s check is returned by the bank as uncollected, we make an immediate charge-off to the provision for losses for the amount of the customer’s loan, which includes accrued fees and interest. Any recoveries on amounts previously charged off are recorded as a reduction to the provision for losses in the period recovered.

In response to changes in the overall market, we have dramatically slowed our branch expansion since January 1, 2007 and closed a significant number of branches. During this period, we opened 38 de novo branches, acquired 14 branches, closed 166 branches and sold one branch.

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The following table summarizes our changes in the number of short-term lending branches locations since January 1, 2007.


													June 30,
	2007			2008			2009			2010			2011
Beginning branch locations		613			596			585			556			523
De novo branches opened during period		20			12			3			1			2
Acquired branches during period		13			1
Branches closed/sold during period		(50	)		(24	)		(32	)		(34	)		(26	)

Ending branch locations		596			585			556			523			499

We intend to evaluate opportunities for new branch development to complement existing branches within a given state or market. Additionally, we utilize a disciplined acquisition strategy for both the payday and the buy here, pay here businesses. During 2011, we expect to open approximately five to ten branches providing short-term loan products and one or two automotive locations.

The payday loan industry began its rapid growth in 1996, when there were an estimated 2,000 payday loan branches in the United States. According to the Community Financial Services Association of America (CFSA), industry analysts estimate that the industry has approximately 19,700 payday loan branches in the United States and these branches (exclusive of internet lending) extend approximately $29 billion in short-term credit to millions of middle-class households that experience cash-flow shortfalls between paydays. We believe our industry is highly fragmented, with the 16 largest companies operating approximately one-half (approximately 9,900 branches) of the total industry branches. After a number of years of growth, the industry has contracted slightly in the past few years, primarily due to changes in laws that govern the payday product. Absent changes in regulations and laws, we do not expect significant fluctuations in the industry’s number of branches in the foreseeable future.

The payday loan industry has followed, and continues to be significantly affected by, payday lending legislation and regulation in the various states and on a national level. We actively monitor and evaluate legislative and regulatory initiatives in each of the states and nationally, and are closely involved with the efforts of the CFSA. To the extent that states enact legislation or regulations that negatively impacts payday lending, whether through preclusion, fee reduction or loan caps, our business has been adversely affected in the past and could be further adversely affected in the future. Over the past few years certain states have enacted interest rate caps from 28% to 36% per annum on payday lending. A 36% per annum interest rate translates to approximately $1.38 per $100 loaned, which effectively precludes us from offering payday loans in those states unless other transaction fees may be charged to the customer.

During 2009, payday loan-related legislation that severely restricts customer access to payday loans was passed in South Carolina, Washington, Virginia and Kentucky. These law changes adversely affected our revenues and operating income during 2010. During 2010, the results from the states in which we experienced law changes were more negative than we expected, with revenue declines and loss rates exceeding our 2010 forecasts. For the year ended December 31, 2010, revenues and gross profit from South Carolina, Washington, Virginia and Kentucky declined by $14.1 million and $9.0 million, respectively, compared to the prior year. In Arizona, the existing payday lending law expired on June 30, 2010. While we are currently offering title loans in Arizona, our customers have not embraced this product as they did the payday loan product. For the six months ended June 30, 2011, revenues and gross profit from our Arizona branches declined by $3.9 million and $3.4 million, respectively, from the prior year. In March 2011, a new payday law became effective in Illinois that imposes customer usage restrictions that will negatively affect revenues and profitability. This type of customer restriction, when passed in other states such as Washington, South Carolina and Kentucky, has resulted in a 30% to 60% decline in annual revenues depending on the types of alternative products that competitors may offer within the state. The Illinois law provides for an overlap of the previous lending approach with loans issued under the new law for a period of one year, which will likely extend the time period over which the negative effects of the new law will occur. Absent other changes in payday lending laws or dramatic fluctuations in the broader economy and markets, we expect the net impact of the Illinois law change as discussed above, as well as the residual effect of Arizona in first half 2011 versus 2010 to reduce revenues by $7.0 million to $10.0 million and to reduce branch gross profit by $5.0 million to

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$7.0 million during the year ending December 31, 2011 compared to 2010. Improvements in our Automotive division, as well as continued diversification efforts both within our Financial Services branches and external to them, are expected to help offset the declines from the negative legislative changes.

Three Months Ended June 30, 2011 Compared with the Three Months Ended June 30, 2010

The following table sets forth our results of operations for the three months ended June 30, 2011 compared to the three months ended June 30, 2010:


	Three Months Ended June 30,						Three Months Ended June 30,
	2010			2011			2010			2011
	*(in thousands)*						*(percentage of revenues)*
Revenues
Payday loan fees	$	32,182		$	28,731			71.7	%		65.0	%
Automotive sales, interest and fees		4,746			5,610			10.6	%		12.7	%
Other		7,983			9,893			17.7	%		22.3	%

Total revenues		44,911			44,234			100.0	%		100.0	%

Branch expenses
Salaries and benefits		9,947			9,364			22.1	%		21.2	%
Provision for losses		10,647			10,938			23.7	%		24.7	%
Occupancy		4,910			5,174			10.9	%		11.7	%
Cost of sales—automotive		2,261			2,930			5.0	%		6.6	%
Depreciation and amortization		785			692			1.7	%		1.6	%
Other		3,131			3,054			7.1	%		6.9	%

Total branch expenses		31,681			32,152			70.5	%		72.7	%

Branch gross profit		13,230			12,082			29.5	%		27.3	%

Regional expenses		3,381			3,460			7.6	%		7.8	%
Corporate expenses		5,589			7,591			12.4	%		17.2	%
Depreciation and amortization		675			472			1.6	%		1.1	%
Interest expense		551			465			1.2	%		1.0	%
Other expense, net		20			18			0.0	%		0.0	%

Income from continuing operations before income taxes		3,014			76			6.7	%		0.2	%
Provision for income taxes		1,215			42			2.7	%		0.1	%

Income from continuing operations		1,799			34			4.0	%		0.1	%
Loss from discontinued operations, net of income tax		(365	)		(7	)		(0.8	)%		(0.0	)%

Net income	$	1,434		$	27			3.2	%		0.1	%

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The following table sets forth selected financial and statistical information for the three months ended June 30, 2010 and 2011:


	Three Months Ended June 30,
	2010			2011
Financial Services Branch Information:
Number of branches, beginning of period		553			501
De novo branches opened					2
Acquired branches
Branches scheduled to close					(3	)
Branches closed		(8	)		(4	)

Number of branches, end of period		545			496

Average number of branches open during period (excluding branches reported as discontinued operations)		498			497

Average revenue per branch (in thousands)	$	81		$	78

Other Information:
Payday Loans:
Payday loan volume (in thousands)	$	223,364		$	200,465
Average loan (principal plus fee)		375.88			375.55
Average fees per loan		56.24			56.65
Average fee rate per $100		17.59			17.76

Installment Loans:
Installment loan volume (in thousands)	$	6,088		$	10,098
Average loan (principal)		481.46			539.17
Average term (days)		171			182

Automotive Loans:
Automotive loan volume (in thousands)	$	3,862		$	4,313
Average loan (principal)		9,328			9,801
Average term (months)		33			33
Locations, end of period		5			5

Income from continuing operations. For the three months ended June 30, 2011, income from continuing operations was $34,000 compared to $1.8 million for the same period in 2010. The results for the three months ended June 30, 2011 include $2.0 million in accrued costs resulting from a tentative settlement of an outstanding legal matter. A discussion of the various components of net income follows.

Revenues. For the three months ended June 30, 2011, revenues were $44.2 million, a decrease of 1.5% from $44.9 million during the three months ended June 30, 2010. The decrease in revenues was primarily due to reduced payday loan volumes in Arizona resulting from the expiration of the payday law on June 30, 2010, substantially offset by higher automotive revenues and improvements in other short-term lending products such as installment and title loans. In Arizona, we are now offering a title loan product, but customer demand is significantly lower for this product than the payday loan alternative previously available.

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Revenues from our payday loan product represent our largest source of revenues and were approximately 65.0% of total revenues for the three months ended June 30, 2011. With respect to payday loan volume, we originated approximately $200.5 million in loans during second quarter 2011, which was a decline of 10.3% from the $223.4 million during 2010. This decline is primarily attributable to the expiration of the payday loan law in Arizona on June 30, 2010. The average payday loan (including fee) totaled $375.55 in second quarter 2011 versus $375.88 during second quarter 2010. Average fees received from customers per loan increased from $56.24 in second quarter 2010 to $56.65 in second quarter 2011. Our average fee rate per $100 for second quarter 2011 was $17.76 compared to $17.59 in 2010.

An $864,000 improvement in automotive sales and interest revenues partially offset the decline in payday lending revenue. We believe this increase is attributable to improved customer demand and an additional year of operating experience in the same locations.

The following table summarizes other revenues:


	Three Months Ended June 30,				Three Months Ended June 30,
	2010		2011		2010			2011
	*(in thousands)*				*(percentage of* *revenues)*
Installment loan interest and fees	$	3,788	$	5,020		8.4	%		11.3	%
Credit service fees		1,667		1,727		3.7	%		3.9	%
Check cashing fees		1,022		967		2.3	%		2.2	%
Title loan fees		887		1,563		2.0	%		3.5	%
Other fees		619		616		1.3	%		1.4	%

Total	$	7,983	$	9,893		17.7	%		22.3	%

Revenues from installment loans, credit service fees, check cashing, title loans and other sources totaled $9.9 million during second quarter 2011, up approximately $1.9 million from $8.0 million in the comparable prior year quarter. The increase was primarily due to an increase in installment loan interest and fees and title loan fees. We began offering the installment product in additional states during 2010 and we offered title loans in Arizona as an alternative to payday loans when the Arizona payday loan law expired on June 30, 2010.

We evaluate our branches based on revenue growth, with consideration given to the length of time a branch has been open and its geographic location. The following table summarizes our revenues and average revenue per short-term lending branch per month for the three months ended June 30, 2010 and 2011 based on the year that a branch was opened or acquired. Note, the table excludes three branches that are scheduled to close during second half of 2011, as these branches are part of discontinued operations.

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Year			Revenues							Average Revenue/Branch/Month
Opened/Acquired	Branches		2010		2011		% Change			2010		2011
				*(in thousands)*							*(in thousands)*
Financial Services Branches:
Pre—1999		33	$	5,002	$	4,662		(6.8	)%	$	51	$	47
1999		36		3,891		3,817		(1.9	)%		36		35
2000		45		4,375		4,229		(3.3	)%		32		31
2001		29		2,685		2,247		(16.3	)%		31		26
2002		48		4,016		3,491		(13.1	)%		28		24
2003		39		2,851		2,571		(9.8	)%		24		22
2004		55		3,921		3,770		(3.8	)%		24		23
2005		122		8,426		8,379		(0.6	)%		23		23
2006		63		3,081		3,556		15.4	%		16		19
2007		13		945		1,091		15.5	%		24		28
2008		9		509		469		(7.9	)%		19		17
2009		1		45		63		42.0	%		15		21
2010		1		28		55		(b	)		9		19
2011		2				85							14

Sub-total		496		39,775		38,485		(3.2	)%	$	27	$	26

Consolidated branches (a)				358		108
Automotive branches		5		4,747		5,609				$	316	$	374
Other				31		32

Total			$	44,911	$	44,234		(1.5	)%

(a)	Amounts represent branches that were consolidated into nearby branches and therefore were not reported as discontinued operations.

(b)	Not meaningful.

We anticipate that customer demand will continue to remain soft during 2011 due to high unemployment rates, low consumer spending and weak consumer confidence. In addition, although we began offering title loans in our Arizona branches upon the expiration of the Arizona payday lending law on June 30, 2010, our Arizona customers have not embraced the title loan product. As a result, our overall revenues in Arizona declined by $1.7 million compared to prior year’s second quarter. As noted above, absent other changes in payday lending laws or dramatic fluctuations in the broader economy and markets, we expect the residual effect of Arizona in first half 2011 versus 2010 and the net impact of the Illinois law change to reduce revenues by $7.0 million to $10.0 million and to reduce branch gross profit by $5.0 million to $7.0 million during the year ending December 31, 2011 compared to 2010. Improvements in our Automotive division, as well as continued diversification efforts both within our Financial Services branches and external to them, are expected to help offset the declines from the negative legislative changes.

Branch Expenses. Total branch expenses increased $500,000, from $31.7 million during second quarter 2010 to $32.2 million in second quarter 2011. Branch operating costs, exclusive of loan losses, increased from $21.0 million during second quarter 2010 to $21.2 million in second quarter 2011. This increase was primarily attributable to an increase in cost of sales from the automotive business, substantially offset by lower compensation attributable to a decline in the number of employees in our financial services branches. The total number of field personnel averaged 1,514 during second quarter 2011 compared to 1,654 during second quarter 2010.

The provision for losses increased from $10.6 million in second quarter 2010 to $10.9 million during second quarter 2011. Our loss ratio was 23.7% in second quarter 2010 versus 24.7% in second quarter 2011. The higher loss ratio in second quarter 2011 reflects a lower rate of collections in second quarter 2011 versus second quarter 2010. Our charge-offs as a percentage of revenue were 36.7% during second quarter 2011 compared to 38.9% during second quarter 2010. Our collections as a percentage of charge-offs were 43.7% during second quarter 2011 compared to 44.6% during second quarter 2010. In addition, we received cash of approximately $75,000 from the sale of certain payday loan receivables during second quarter 2011 that had previously been written off compared to $87,000 during second quarter 2010.

Page 31

Branch Gross Profit. Branch gross profit was $12.1 million in second quarter 2011 versus $13.2 million in second quarter 2010. Branch gross margin, which is branch gross profit as a percentage of revenues, was 27.3% during second quarter 2011 compared to 29.5% during second quarter 2010. The decline is attributable to the changes in the Arizona law as noted above, partially offset by improvements in various other states in which we operate.

The following table summarizes our gross profit (loss), gross margin (gross profit as a percentage of revenues) and loss ratio (losses as a percentage of revenues) of branches for the three months ended June 30, 2010 and 2011 based on the year that a branch was opened or acquired. Note that the table excludes three branches that are scheduled to close during second half of 2011.


Year			Gross Profit (Loss)						Gross Margin %						Loss Ratio
Opened/Acquired	Branches		2010			2011			2010			2011			2010			2011
			*(in thousands)*
Financial Services Branches:
Pre—1999		33	$	2,102		$	2,194			42.0	%		47.0	%		24.0	%		18.9	%
1999		36		1,357			1,471			34.9	%		38.5	%		21.1	%		17.5	%
2000		45		1,637			1,511			37.4	%		35.7	%		24.0	%		24.3	%
2001		29		812			644			30.2	%		28.7	%		29.2	%		23.8	%
2002		48		1,401			719			34.9	%		20.6	%		21.9	%		31.4	%
2003		39		846			557			29.7	%		21.7	%		22.9	%		26.3	%
2004		55		1,178			1,035			30.0	%		27.4	%		22.0	%		23.1	%
2005		122		2,000			2,009			23.7	%		24.0	%		25.6	%		26.6	%
2006		63		265			379			8.6	%		10.7	%		26.6	%		32.6	%
2007		13		219			272			23.1	%		24.9	%		26.5	%		30.0	%
2008		9		81			96			16.0	%		20.4	%		24.5	%		16.9	%
2009		1		(2	)		24			(5.0	)%		37.2	%		43.1	%		14.2	%
2010		1		(14	)		3			(45.2	)%		5.8	%		36.9	%		31.6	%
2011		2					(4	)		(c	)		(3.2	)%					19.5	%

Sub-total		496		11,882			10,910			29.9	%		28.3	%		24.2	%		24.9	%

Consolidated branches (a)				134			(20	)
Automotive branches		5		555			288			11.7	%		5.1	%		25.1	%		27.9	%
Other (b)				659			904

Total			$	13,230		$	12,082			29.5	%		27.3	%		23.7	%		24.7	%

(a)	Amounts represent branches that were consolidated into nearby branches and therefore were not reported as discontinued operations.

(b)	Includes the sale of older debt for approximately $75,000 and $87,000 for the three months ended June 30, 2011 and 2010, respectively.

(c)	Not meaningful.

Regional and Corporate Expenses. Regional and corporate expenses increased from $9.0 million in second quarter 2010 to $11.0 million in second quarter 2011. The increase is primarily attributable to the accruals associated with the tentative settlement of an outstanding legal matter ($2.0 million) and higher professional expenses. These items were partially offset by reduced public affairs expenditures.

Interest and Other Expenses. Interest expense declined by approximately $86,000 from $551,000 during second quarter 2010 to $465,000 during second quarter 2011 due to lower average outstanding debt balances.

Page 32

Six Months Ended June 30, 2011 Compared with the Six Months Ended June 30, 2010

The following table sets forth our results of operations for the six months ended June 30, 2011 compared to the six months ended June 30, 2010:


	Six Months Ended June 30,					Six Months Ended June 30,
	2010			2011		2010			2011
	*(in thousands)*					*(percentage of revenues)*
Revenues
Payday loan fees	$	65,361		$	57,799		71.3	%		63.9	%
Automotive sales and interest		9,572			12,585		10.4	%		13.9	%
Other		16,785			20,072		18.3	%		22.2	%

Total revenues		91,718			90,456		100.0	%		100.0	%

Branch expenses
Salaries and benefits		19,841			19,619		21.6	%		21.7	%
Provision for losses		16,346			15,858		17.8	%		17.5	%
Occupancy		10,231			10,401		11.2	%		11.5	%
Cost of automotive sales		4,423			6,737		4.8	%		7.4	%
Depreciation and amortization		1,630			1,414		1.8	%		1.6	%
Other		6,155			6,070		6.7	%		6.7	%

Total branch expenses		58,626			60,099		63.9	%		66.4	%

Branch gross profit		33,092			30,357		36.1	%		33.6	%

Regional expenses		7,211			6,768		7.9	%		7.5	%
Corporate expenses		11,051			12,644		12.0	%		14.0	%
Depreciation and amortization		1,369			1,175		1.5	%		1.3	%
Interest expense		1,255			1,059		1.4	%		1.2	%
Other expense, net		33			23		0.0	%		0.0	%

Income from continuing operations before income taxes		12,173			8,688		13.3	%		9.6	%
Provision for income taxes		4,750			3,454		5.2	%		3.8	%

Income from continuing operations		7,423			5,234		8.1	%		5.8	%
Gain (loss) from discontinued operations, net of income tax		(812	)		83		(0.9	)%		0.1	%

Net income	$	6,611		$	5,317		7.2	%		5.9	%

Page 33

The following table sets forth selected financial and statistical information for the six months ended June 30, 2010 and 2011:


	Six Months Ended June 30,
	2010			2011
Financial Services Branch Information:
Number of branches, beginning of period		556			523
De novo branches opened		1			2
Acquired branches
Branches scheduled to close					(3	)
Branches closed		(12	)		(26	)

Number of branches, end of period		545			496

Average number of branches open during period (excluding branches reported as discontinued operations)		498			497

Average revenue per branch (in thousands)	$	165		$	157

Other Information:
Payday loans:
Payday loan volume (in thousands)	$	441,912		$	390,889
Average loan (principal plus fee)		375.57			376.28
Average fees per loan		56.14			56.84
Average fee rate per $100		17.58			17.79

Installment Loans:
Installment loan volume (in thousands)	$	10,984		$	18,068
Average loan (principal)		485.13			535.12
Average term (days)		171			219

Automotive Loans:
Automotive loan volume (in thousands)	$	7,738		$	9,865
Average loan (principal)		9,083			9,816
Average term (months)		32			34
Locations, end of period		5			5

Income from continuing operations. For the six months ended June 30, 2011, income from continuing operations was $5.2 million compared to $7.4 million for the same period in 2010. As noted above in the quarterly discussion, the results for the six months ended June 30, 2011 include $2.0 million in accrued costs resulting from a tentative settlement of an outstanding legal matter. A discussion of the various components of net income follows.

Revenues. For the six months ended June 30, 2011, revenues were $90.5 million, a 1.3% decrease from $91.7 million during the six months ended June 30, 2010. The decline is due to reduced loan volumes in Arizona resulting from the expiration of the existing payday loan law on June 30, 2010, which was substantially offset by higher automotive revenues and improvements in other short-term lending products such as installment and title loans. We originated approximately $390.9 million through payday loans during the six months ended June 30, 2011, which was a decrease of 11.5% from the $441.9 million during the same period in the prior year. The average loan (including fee) totaled $376.28 during the first six months of 2011 versus $375.57 in comparable 2010. Average fees received from customers per loan were $56.14 during first six months of 2010 compared to $56.84 during first six months of 2011. Our average fee rate per $100.00 was $17.79 for the first six months 2011 and $17.58 for the same period in 2010.

Page 34

The following table summarizes other revenues:


	Six Months Ended June 30,				Six Months Ended June 30,
	2010		2011		2010			2011
	*(in thousands)*				*(percentage of revenues)*
Installment loan interest and fees	$	7,783	$	9,658		8.5	%		10.7	%
Credit service fees		3,397		3,663		3.7	%		4.0	%
Check cashing fees		2,455		2,304		2.7	%		2.5	%
Title loan fees		1,795		3,130		2.0	%		3.5	%
Other fees		1,355		1,317		1.4	%		1.5	%

Total	$	16,785	$	20,072		18.3	%		22.2	%

Revenues from installment loans, CSO fees, check cashing, title loans and other sources totaled $20.1 million and $16.8 million for the six months ended June 30, 2011 and 2010, respectively. The increase was primarily due to an increase in installment loan interest and fees and title loan fees. We began offering the installment product in additional states during 2010 and we offered title loans in Arizona as an alternative to payday loans when the Arizona payday loan law expired on June 30, 2010.

We evaluate our branches based on revenue growth, with consideration given to the length of time a branch has been open and its geographic location. The following table summarizes our revenues and average revenue per short-term lending branch per month for the six months ended June 30, 2010 and 2011 based on the year that a branch was opened or acquired. Note, the table excludes three branches that are scheduled to close during the second half of 2011, as these branches are part of discontinued operations.


Year			Revenues							Average Revenue/Branch/Month
Opened/Acquired	Branches		2010		2011		% Change			2010		2011
			*(in thousands)*							*(in thousands)*
Financial Services Branches:
Pre - 1999		33	$	10,127	$	9,420		(7.0	)%	$	51	$	48
1999		36		7,902		7,709		(2.4	)%		37		36
2000		45		9,009		8,653		(4.0	)%		33		32
2001		29		5,708		4,627		(18.9	)%		33		27
2002		48		8,257		7,246		(12.3	)%		29		25
2003		39		5,824		5,182		(11.0	)%		25		22
2004		55		7,958		7,507		(5.7	)%		24		23
2005		122		16,995		16,851		(0.9	)%		23		23
2006		63		6,528		6,773		3.7	%		17		18
2007		13		1,884		2,112		12.1	%		24		27
2008		9		1,049		937		(10.7	)%		19		17
2009		1		67		126			(b)		11		21
2010		1		51		118			(b)		8		20
2011		2				83			(b)				7

Sub-total		496		81,359		77,344		(4.9	)%	$	27	$	26

Closed branches (a)				725		466
Automotive branches		5		9,572		12,585				$	319	$	420
Other				62		61

Total			$	91,718	$	90,456		(1.4	)%

(a)	Amounts for closed branches do not include revenues from branches that are reported as discontinued operations.

(b)	Not meaningful.

Page 35

Branch Expenses. Total branch expenses increased by $1.5 million, or 2.6%, from $58.6 million during first six months of 2010 to $60.1 million in first six months of 2011. Branch operating costs, exclusive of loan losses, totaled $44.2 million during the six months ended June 30, 2011 compared to $42.3 million during the same period in the prior year. This increase was primarily due to higher cost of sales for automobile purchases.

The provision for losses declined from $16.3 million for the six months ended June 30, 2010 to $15.9 million during six months ended June 30, 2011. Our loss ratio improved to 17.5% for the six months ended June 30, 2011 versus 17.8% for the six months ended June 30, 2010, largely due to a lower rate of returned items as a percentage of revenues. Our charge-offs as a percentage of revenue were 35.6% during the six months ended June 30, 2011 compared to 38.2% in the same period of the prior year. Our collections as a percentage of charge-offs were 51.9% during the six months ended June 30, 2011 compared to 50.4% during the same period in the prior year.

Branch Gross Profit. Branch gross profit decreased by $2.7 million, or 8.2%, from $33.1 million for the six months ended June 30, 2010 to $30.4 million for the six months ended June 30, 2011. Branch gross margin decreased from 36.1% to 33.6%. The decrease period-to-period was attributable to the changes in the Arizona law as noted above, partially offset by improvements in the majority of the other states in which we operate.

The following table summarizes our gross profit (loss), gross margin (gross profit as a percentage of revenues) and loss ratio (losses as a percentage of revenues) of branches for the six months ended June 30, 2010 and 2011 based on the year that a branch was opened or acquired. Note, the table excludes three branches that are scheduled to close during the second half of 2011, as these branches are part of discontinued operations.


Year			Gross Profit (Loss)						Gross Margin %						Loss Ratio
Opened/Acquired	Branches		2010			2011			2010			2011			2010			2011
			*(in thousands)*
Financial Services Branches:
Pre - 1999		33	$	4,821		$	4,919			47.6	%		52.2	%		18.0	%		13.5	%
1999		36		3,103			3,138			39.3	%		40.7	%		16.2	%		14.1	%
2000		45		3,815			3,637			42.3	%		42.0	%		19.7	%		18.8	%
2001		29		2,278			1,692			39.9	%		36.6	%		21.7	%		17.7	%
2002		48		3,368			2,185			40.8	%		30.2	%		17.1	%		23.0	%
2003		39		2,118			1,586			36.4	%		30.6	%		15.9	%		17.3	%
2004		55		2,935			2,708			36.9	%		36.1	%		15.2	%		14.3	%
2005		122		5,054			5,121			29.7	%		30.4	%		19.1	%		19.9	%
2006		63		739			1,242			11.3	%		18.3	%		26.2	%		22.2	%
2007		13		486			640			25.8	%		30.3	%		22.6	%		22.5	%
2008		9		277			273			26.4	%		29.1	%		16.5	%		7.5	%
2009		1		(11	)		51			(15.8	)%		40.3	%		37.1	%		13.2	%
2010		1		(46	)		24				(c)		20.8	%		42.4	%		20.3	%
2011		2					(14	)					(15.5	)%					19.5	%

Sub-total		496		28,937			27,202			35.6	%		35.2	%		18.8	%		18.0	%

Closed branches (a)				232			159
Automotive branches		5		2,205			1,588			23.0	%		12.6	%		15.3	%		19.8	%
Other (b)				1,718			1,408

Total			$	33,092		$	30,357			36.1	%		33.6	%		17.8	%		17.5	%

(a)	Amounts for closed branches do not include gross losses from branches that are reported as discontinued operations.

(b)	Includes the receipt of cash of approximately $280,000 from selling older debt during the six months ended June 30, 2011 and $152,000 from selling older debt during the six months ended June 30, 2010.

(c)	Not meaningful.

Regional and Corporate Expenses. Regional and corporate expenses increased by $1.1 million from $18.3 million during the six months ended June 30, 2010 to $19.4 million in the current year period. The increase is primarily attributable to the $2.0 million legal settlement accrual as noted above, partially offset by reductions in compensation (due to a lower number of employees), in occupancy costs associated with a renegotiated corporate lease and in public affairs expenditures.

Page 36

Interest and Other Expenses. Interest expense totaled $1.1 million during the six months ended June 30, 2011 compared to interest expense of $1.3 million during the six months ended June 30, 2010. The lower level of interest expense reflects lower average debt balances during the six months ended June 30, 2011.

Income Tax Provision. The effective income tax rate for the six months ended June 30, 2011 was 39.8% compared to 39.0% for the six months ended June 30, 2010.

Discontinued Operations. We closed 34 branches during 2010 that were not consolidated into nearby branches and announced we would close 21 branches in Arizona, Washington and South Carolina during first half of 2011. During first six months of 2011, we closed 18 of the 21 branches and we expect to close the remaining three branches in second half of 2011. In addition, we closed three branches during first six months of 2011 that were not consolidated into nearby branches and sold one branch. These branches are reported as discontinued operations in the Consolidated Statements of Income and related disclosures in the accompanying notes for all periods presented. With respect to the Consolidated Balance Sheets, the Consolidated Statements of Cash Flows and related disclosures in the accompanying notes, the items associated with the discontinued operations are included with the continuing operations for all periods presented.

Summarized financial information for discontinued operations during the three and six months ended June 30, 2010 and 2011 is presented below (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2011			2010			2011
Total revenues	$	1,667		$	104		$	3,876		$	500
Provision for losses		493			34			1,036			117
Other branch expenses		1,702			79			3,921			580

Branch gross loss		(528	)		(9	)		(1,081	)		(197	)
Other, net		(76	)		(2	)		(261	)		332

Gain (loss) before income taxes		(604	)		(11	)		(1,342	)		135
Income tax benefit (expense)		239			4			530			(52	)

Gain (loss) from discontinued operations	$	(365	)	$	(7	)	$	(812	)	$	83

Page 37

LIQUIDITY AND CAPITAL RESOURCES

Summary cash flow data is as follows (in thousands):


	Six Months Ended June 30,
	2010			2011
Cash flows provided by (used for):
Operating activities	$	17,596		$	10,262
Investing activities		(1,363	)		(589	)
Financing activities		(22,538	)		(11,985	)

Net decrease in cash and cash equivalents		(6,305	)		(2,312	)
Cash and cash equivalents, beginning of year		21,151			16,288

Cash and cash equivalents, end of period	$	14,846		$	13,976

Cash Flow Discussion. Our primary source of liquidity is cash provided by operations. On December 7, 2007, we entered into an amended and restated credit agreement with a syndicate of banks that provides for a term loan of $50 million and a revolving line of credit (including provisions permitting the issuance of letters of credit and swingline loans) in the aggregate principal amount of up to $45 million. The credit facility expires on December 6, 2012. The maximum borrowings under the amended credit facility may be increased by $25 million pursuant to bank approval in accordance with the terms set forth in the credit facility.

Since fourth quarter 2008, the capital and credit markets have been volatile, with fluctuating receptivity to lending based on underlying macroeconomic factors. If the capital and credit markets continue to experience volatility and the availability of funds remains limited, it is possible that our ability to access the capital and credit markets may be limited at a time when we would like or need to do so, which could have an impact on our ability to fund our operations, refinance maturing debt or react to changing economic and business conditions. At this time, we believe that our available short-term and long-term capital resources are sufficient to fund our working capital requirements, scheduled debt payments, interest payments, capital expenditures, income tax obligations, anticipated dividends to our stockholders, and anticipated share repurchases for the foreseeable future.

In accordance with accounting principles generally accepted in the United States of America, amounts drawn on our revolving credit facility are shown as debt due within one year. Under the terms of our credit agreement, however, our revolving credit facility does not mature until December 2012, and no principal amounts are due thereon prior to the maturity of the credit facility. Accordingly, so long as we are in compliance with our financial and other covenants in the credit facility, we do not face a refinancing risk until the term loan and the revolving credit facility mature in December 2012.

Net cash provided by operating activities for the six months ended June 30, 2011 was $10.3 million, approximately $7.3 million lower than the $17.6 million in comparable 2010. This decline is due to changes in working capital items, primarily attributable to a more rapid growth in loans receivable in 2011 compared to 2010.

Net cash used by investing activities for the six months ended June 30, 2011 was $589,000, which included $968,000 for capital expenditures and $292,000 in payments of premiums on life insurance. The capital expenditures primarily included $744,000 for technology and furnishings at the corporate office. These items were partially offset by proceeds received from the sale of a branch in California totaling $666,000. Net cash used by investing activities for the six months ended June 30, 2010 was $1.4 million, which included $1.1 million for capital expenditures. The capital expenditures primarily included $364,000 for renovations to existing and acquired branches and $699,000 for technology and other furnishings at the corporate office.

Net cash used for financing activities for the six months ended June 30, 2011 was $12.0 million, which primarily consisted of $11.4 million in repayments of indebtedness under the revolving credit facility, $8.8 million in repayments on the term loan, $1.8 million in dividend payments to stockholders and $1.3 million for the

Page 38

repurchase of 304,000 shares of common stock. These items were partially offset by proceeds received from the borrowing of $11.1 million under the revolving credit facility. Net cash used for financing activities for the six months ended June 30, 2010 was $22.5 million, which primarily consisted of $21.0 million in repayments of indebtedness under the revolving credit facility, $6.9 million in repayments on the term loan, $3.6 million in dividend payments to stockholders and $1.8 million for the repurchase of 384,000 shares of common stock. These items were partially offset by proceeds received from the borrowing of $10.8 million under the revolving credit facility.

The normal seasonality of our business results in a substantial decrease in loans receivable in the first quarter of each calendar year and a corresponding increase in cash or reduction of our revolving credit facility. Throughout the rest of the year, the loans receivable balance typically grows in accordance with increasing customer demand. This growth is funded either with operating cash or borrowings under the revolving credit facility.

Future Capital Requirements. We believe that our available cash, expected cash flow from operations, and borrowings available under our credit facility will be sufficient to fund our liquidity and capital expenditure requirements during the remainder of 2011. Expected short-term uses of cash include funding of any increases in short-term and automotive loans, debt repayments, interest payments on outstanding debt, dividend payments (to the extent approved by the board of directors), repurchases of company stock, and financing of new branch expansion and acquisitions, if any. We expect that the majority of our cash requirements will be satisfied through internally generated cash flows, with any shortfall being funded through borrowing under our revolving credit facility. We believe that any acquisition-related capital requirements would be satisfied by draws on our current revolving credit facility or an additional term loan under an amended credit facility. Our current credit facility requires lender approval for any purchase price of an acquisition in the same line of business that exceeds $5.0 million. For all other acquisitions and investments, the credit facility allows for expenditures in the aggregate of up to $500,000.

In November 2008, our board of directors established a regular quarterly dividend of $0.05 per common share. The declaration of dividends is subject to the discretion of our board of directors and will depend on our operating results, financial condition, cash and capital requirements and other factors that the board of directors deems relevant. Our board of directors has also approved special cash dividends from time to time, including a special cash dividend in November 2009 and February 2010. On July 29, 2011, our board of directors declared a regular quarterly dividend of $0.05 per common share. The dividend is payable September 1, 2011, to stockholders of record as of August 18, 2011, and the total amount to be paid will be approximately $900,000.

Our credit agreement requires us to maintain a fixed charge coverage ratio (computed in accordance with the credit agreement) of not less than 1.25 to 1. Under our credit agreement, we are required to subtract any cash dividends paid on our common stock from our operating cash flow (as defined in the agreement) amount used in computing our fixed charge coverage ratio. Thus, our credit agreement may restrict our ability to pay cash dividends in the future.

The board of directors has authorized us to repurchase up to $60 million of our common stock in the open market and through private purchases. The acquired shares may be used for corporate purposes, including shares issued to employees in stock-based compensation programs. As of June 30, 2011, we had repurchased 5.5 million shares at a total cost of approximately $55.4 million, which leaves approximately $4.6 million that may yet be purchased under the current program, which expires June 30, 2012.

As part of our business strategy, we consider acquisitions and strategic business expansion opportunities from time to time. We believe our current cash position, the availability under the credit facility and our expected cash flow from operations should provide the capital needed to fund internal growth opportunities, assuming no material acquisitions in 2011.

In response to changes in the overall market, over the past three years we have substantially reduced our branch expansion efforts. Since January 1, 2007, we have opened 38 branches with the majority (32) of those opened during 2007 and 2008. The capital costs of opening a de novo branch include leasehold improvements,

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signage, computer equipment and security systems, and the costs vary depending on the branch size, location and the services being offered. The average cost of capital expenditures for branches opened during 2007 and 2008 was approximately $44,000 per branch. Existing branches require minimal ongoing capital expenditure, with the majority of any expenditures related to discretionary renovation or relocation projects.

As of June 30, 2011, we had five buy here, pay here locations. During the start-up of these operations, capital requirements are not material. As the business grows, however, the business requires ongoing replenishment of automobile inventory. Sales of automobiles are typically completed through a small down payment and an installment loan. As a result, the initial phase of a buy here, pay here operation is cash flow negative. Based on initial information and industry research, it appears that a typical location requires approximately $2.5 million to $3.5 million of capital availability over a two to four year period. As this business progresses, we will evaluate the capital requirements and the associated return on investment. We have the ability to manage the capital needs of the business through reduction of the number of automobiles held at each location, although reduced inventory levels may limit sales because of the appearance of limited vehicle selection for the customer.

Concentration of Risk. Our branches located in the states of Missouri, California, Kansas and Illinois represented approximately 32%, 14%, 9% and 6%, respectively, of total revenues for six months ended June 30, 2011. Our branches located in the states of Missouri, California, Kansas, Illinois, Texas and New Mexico represented approximately 36%, 15%, 10%, 7%, 5% and 5%, respectively, of total branch gross profit for the six months ended June 30, 2011. To the extent that laws and regulations are passed that affect our ability to offer payday loans or the manner in which we offer payday loans in any one of those states, our financial position, results of operations and cash flows could be adversely affected. As noted above, a new payday loan law in Illinois became effective in March 2011, which will negatively affect revenues and profitability in that state over the next twelve to eighteen months.

Seasonality

Our Financial Services business is seasonal due to fluctuating demand for short-term loans during the year. Historically, we have experienced our highest demand for short-term loans in January and in the fourth calendar quarter. As a result, to the extent that internally generated cash flows are not sufficient to fund the growth in loans receivable, fourth quarter and the month of January are the most likely periods of time for utilization or increase in borrowings under our credit facility. Due to the receipt by customers of their income tax refunds, demand for short-term loans has historically declined in the balance of the first quarter of each calendar year and the first month of the second quarter. Accordingly, this period is typically when any outstanding borrowings under the credit facility would be repaid (exclusive of any other capital-usage activity, such as acquisitions, significant stock repurchases, etc.). Our loss ratio historically fluctuates with these changes in short-term loan demand, with a higher loss ratio in the second and third quarters of each calendar year and a lower loss ratio in the first and fourth quarters of each calendar year. During mid-second quarter through third quarter, periodic utilization of our credit facility is not unusual, based on the level of loan losses and other capital-usage activities. Due to the seasonality of our business, results of operations for any quarter are not necessarily indicative of the results of operations that may be achieved for the full year.

Similarly, our Automotive segment experiences seasonality as automobile sales peak during the first quarter of each year, primarily as a result of the receipt by customers of their income tax refunds, which are used as down payments for a vehicle. Automobile sales in the final three quarters are generally lower than the first quarter. In addition, vehicle acquisition costs tend to increase in the second half of the year as companies build inventories for the expected first quarter volumes.

Off-Balance Sheet Arrangements

In September 2005, we began operating through a subsidiary as a CSO in our Texas branches. As a CSO, we act as a credit services organization on behalf of consumers in accordance with Texas laws. We charge the consumer a fee for arranging for an unrelated third-party lender to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the consumer’s obligation to the third-party lender. We also service the loan for the lender. We are not involved in the loan approval process or in determining the loan approval procedures or criteria, and we do not acquire or own any participation interest in the loans. Consequently,

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loans made by the lender will not be included in our loans receivable balance and will not be reflected in the Consolidated Balance Sheets. Under the agreement with the current lender, however, we absorb all risk of loss through our guarantee of the consumer’s loan from the lender. As of December 31, 2010 and June 30, 2011, the consumers had total loans outstanding with the lender of approximately $3.0 million and $2.6 million, respectively. Because of the economic exposure for potential losses related to the guarantee of these loans, we record a payable at fair value to reflect the anticipated losses related to uncollected loans. The balance of the liability for estimated losses reported in accrued liabilities was $100,000 as of December 31, 2010 and $90,000 as of June 30, 2011. The following table summarizes the activity in the CSO liability (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
Allowance for loan losses	2010			2011			2010			2011
Balance, beginning of period	$	60		$	50		$	100		$	100
Charge-offs		(583	)		(743	)		(1,136	)		(1,446	)
Recoveries		149			155			394			427
Provision for losses		484			628			752			1,009

Balance, end of period	$	110		$	90		$	110		$	90

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We have had no significant changes in our Quantitative and Qualitative Disclosures About Market Risk from that previously reported in our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 4.

Controls and Procedures

We maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report, have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

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PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

The previously reported settlement of the Arizona Attorney General matter has been completed.

In early August 2011, we reached a preliminary settlement with the plaintiff in the purported class action arbitration proceeding in Missouri for approximately $1.9 million.

There have been no other material developments in the second quarter 2011 in any cases material to the Company as reported in our 2010 Annual Report on Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities. The following table sets forth certain information about the shares of common stock we repurchased during the second quarter 2011.


Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
April 1 – April 30		47,387	$	4.72		47,387	$	4,639,699
May 1 – May 31		6,611		4.37		6,611		4,610,802
June 1 – June 30		7,352		4.18		7,352		4,580,081

Total		61,350	$	4.62		61,350	$	4,580,081

On June 1, 2011, our board of directors extended our common stock repurchase program through June 30, 2012. The board of directors has previously authorized us to repurchase up to $60 million of our common stock in the open market and through private purchases. As of June 30, 2011, we have repurchased 5.5 million shares at a total cost of approximately $55.4 million, which leaves approximately $4.6 million that may yet be purchased under the current program.

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Item 6.

Exhibits



31.1		Certification of Chief Executive Officer under Rule 13-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer under Rule 13-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer pursuant to Section 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to Section 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized and in the capacities indicated on August 9, 2011.


		QC Holdings, Inc.

		/s/ Darrin J. Andersen
		Darrin J. Andersen
		President and Chief Operating Officer

		/s/ Douglas E. Nickerson
		Douglas E. Nickerson
		Chief Financial Officer (Principal Financial and Accounting Officer)

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Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company