QC (QCCO) 10-Q 2008 Q1 Quarterly report

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 March 31, 2008

OR

¨ 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 is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

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 April 30, 2008:

Common Stock $0.01 per share par value – 17,783,761 Shares

QC HOLDINGS, INC.

Form 10-Q

March 31, 2008

Index

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
Introductory Comments		1
Consolidated Balance Sheets - December 31, 2007 and March 31, 2008		2
Consolidated Statements of Income - Three Months Ended March 31, 2007 and 2008		3
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2007 and 2008		4
Consolidated Statements of Changes in Stockholders’ Equity - Year Ended December 31, 2007 and Three Months Ended March 31, 2008		5
Notes to Consolidated Financial Statements		6
	Computation of Basic and Diluted Earnings per Share	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 6.	Exhibits	27
SIGNATURES		28

QC HOLDINGS, INC.

FORM 10-Q

MARCH 31, 2008

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 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, 2007. Results for the three months ended March 31, 2008 are not necessarily indicative of the results expected for the full year 2008.

QC HOLDINGS, INC.AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	December 31, 2007			March 31, 2008
				Unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	24,145		$	14,377
Loans receivable, less allowance for losses of $4,442 at December 31, 2007 and $2,767 at March 31, 2008		72,903			60,816
Prepaid expenses and other current assets		3,290			3,613
Total current assets		100,338			78,806
Property and equipment, net		26,525			25,509
Goodwill		16,081			16,144
Other assets, net		6,636			6,628
Total assets	$	149,580		$	127,087
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,321		$	1,403
Accrued expenses and other liabilities		4,245			7,811
Accrued compensation and benefits		6,653			3,704
Deferred revenue		5,277			4,092
Income taxes payable		769			3,713
Debt due within one year		28,500			7,750
Deferred income taxes		766
Total current liabilities		47,531			28,473
Long-term debt		46,000			44,750
Deferred income taxes		989			900
Other non-current liabilities		2,834			3,309
Total liabilities		97,354			77,432
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value: 75,000,000 shares authorized; 20,700,250 shares issued and 18,787,267 outstanding at December 31, 2007; 20,700,250 shares issued and 17,828,956 outstanding at March 31, 2008		207			207
Additional paid-in capital		67,446			66,796
Retained earnings		9,502			14,896
Treasury stock, at cost		(24,929	)		(32,244	)
Total stockholders’ equity		52,226			49,655
Total liabilities and stockholders’ equity	$	149,580		$	127,087

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 March 31,
	2007		2008
Revenues
Payday loan fees	$	41,580	$	43,567
Other		6,939		10,877
Total revenues		48,519		54,444
Branch expenses
Salaries and benefits		11,877		12,023
Provision for losses		6,475		9,143
Occupancy		7,916		6,656
Depreciation and amortization		1,227		1,153
Other		3,822		4,271
Total branch expenses		31,317		33,246
Branch gross profit		17,202		21,198
Regional expenses		3,006		3,443
Corporate expenses		6,415		6,905
Depreciation and amortization		496		675
Interest expense, net		115		1,209
Other expense, net		1,542		78
Income before taxes		5,628		8,888
Provision for income taxes		2,246		3,494
Net income	$	3,382	$	5,394
Weighted average number of common shares outstanding:
Basic		19,539		18,721
Diluted		20,153		18,914
Earnings per share:
Basic	$	0.17	$	0.29
Diluted	$	0.17	$	0.29

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

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QC HOLDINGS, INC.AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2007			2008
Cash flows from operating activities
Net income	$	3,382		$	5,394
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,723			1,828
Provision for losses		6,475			9,143
Deferred income taxes		(1,492	)		(1,040	)
Loss on disposal of property and equipment		1,542			78
Stock-based compensation		679			681
Stock option income tax benefits		(353	)		122
Changes in operating assets and liabilities:
Loans receivable, net		5,945			3,015
Prepaid expenses and other assets		(547	)		(138	)
Other assets		72			(245	)
Accounts payable		(42	)		82
Accrued expenses, other liabilities, accrued compensation and benefits and deferred revenue		(333	)		(568	)
Income taxes		2,944			2,822
Other non-current liabilities		(35	)		475
Net operating		19,960			21,649
Cash flows from investing activities
Purchase of property and equipment		(929	)		(571	)
Proceeds from sale of property and equipment		10			5
Acquisition costs, net		(197	)		(205	)
Net investing		(1,116	)		(771	)
Cash flows from financing activities
Repayments under credit facility		(16,300	)		(24,500	)
Repayments of long-term debt					(1,000	)
Borrowings under credit facility					3,500
Dividends to stockholders		(1,975	)
Repurchase of common stock		(1,577	)		(8,524	)
Exercise of stock options		231
Excess tax benefits from stock-based payment arrangements		353			(122	)
Net financing		(19,268	)		(30,646	)
Cash and cash equivalents
Net decrease		(424	)		(9,768	)
At beginning of year		23,446			24,145
At end of period	$	23,022		$	14,377
Supplementary schedule of cash flow information
Cash paid during the period for
Interest	$	279		$	1,381
Income taxes		795			1,712

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

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QC HOLDINGS, INC.AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

(in thousands, except share amounts)

	Outstanding shares		Common stock		Additional paid-in capital			Retained earnings			Treasury stock			Total stockholders’ equity
Balance, December 31, 2006	19,501,300		$	207	$	70,227		$	49,284		$	(14,930	)	$	104,788
Net income									14,602						14,602
Common stock repurchases	(1,343,991	)										(18,213	)		(18,213	)
Dividends to stockholders									(54,384	)					(54,384	)
Issuance of restricted stock awards	37,172					(473	)					473			—
Stock-based compensation expense						2,139									2,139
Stock option exercises	592,786					(6,333	)					7,741			1,408
Tax impact of stock-based compensation						1,886									1,886
Balance, December 31, 2007	18,787,267			207		67,446			9,502			(24,929	)		52,226
Net income									5,394						5,394
Common stock repurchases	(1,051,200	)										(8,524	)		(8,524	)
Issuance of restricted stock awards	92,889					(1,209	)					1,209			—
Stock-based compensation expense						681									681
Tax impact of stock-based compensation						(122	)								(122	)
Balance, March 31, 2008 (Unaudited)	17,828,956		$	207	$	66,796		$	14,896		$	(32,244	)	$	49,655

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

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QC HOLDINGS, INC.ANDSUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – The Company and Basis of Presentation

Business.The accompanying unaudited interim 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. and QC E-Services, 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. has provided various retail consumer financial products and services throughout its 23-year history. 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 March 31, 2008, the Company operated 597 branches with locations in Alabama, Arizona, California, Colorado, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, Ohio, Oklahoma, South Carolina, Texas, Utah, Virginia, Washington and Wisconsin. The Company operates one location in Missouri that is focused exclusively on buy-here, pay-here segment of the used automobile markets. This location sells used vehicles and earns finance charges from the related vehicle financing contracts.

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 generally accepted accounting principles (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, 2007 was derived from the audited financial statements of the Company, but does not include all disclosures required by 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, 2007.

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 December 31, 2007 and March 31, 2008, and the results of operations and cash flows for the three months ended March 31, 2007 and 2008, in conformity with GAAP.

The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the full year 2008.

Page 6

Note 2 – Accounting Developments

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157,Fair Value Measurement (SFAS 157). SFAS 157 establishes a common definition for fair value to be applied to generally accepted accounting principles guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS 157 on January 1, 2008 with no impact on its consolidated financial statements.

In February 2008, the FASB issued Staff Position 157-2,Effective Date of FASB 157, (FSP 157-2) which deferred the provisions of SFAS 157 to annual periods beginning after November 15, 2008 for non-financial assets and liabilities. Non-financial assets include fair value measurements associated with business acquisitions and impairment testing of tangible and intangible assets. The Company is still evaluating the impact, if any, that the adoption of FSP 157-2 will have on its consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities using different measurement techniques. SFAS 159 requires additional disclosures related to fair value measurements included in the entity’s financial statements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company adopted SFAS 159 on January 1, 2008 with no impact on its consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007),Business Combinations (SFAS 141R). SFAS 141R broadens the guidance of SFAS 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses. It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations. SFAS 141R expands on required disclosures to improve the statement users’ abilities to evaluate the nature and financial effects of business combinations. SFAS 141R is effective for fiscal year beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS 141R to have a material effect on its consolidated financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161), which requires enhanced disclosures about an entity’s derivative and hedging activities. The effective date of SFAS 161 is the Company’s fiscal year beginning January 1, 2009. The Company has not yet completed an assessment of the impact of SFAS 161.

Note 3 – Earnings Per Share

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 year. The computation of diluted earnings per share gives effect to all dilutive potential common shares that were outstanding during the year. 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.

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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 March 31,
	2007		2008
Net income	$	3,382	$	5,394
Weighted average shares outstanding:
Weighted average basic common shares outstanding		19,539		18,721
Dilutive effect of stock options and unvested restricted stock		614		193
Weighted average diluted common shares outstanding		20,153		18,914
Basic earnings per share:	$	0.17	$	0.29
Diluted earnings per share:	$	0.17	$	0.29

Note 4 – Significant Business Transactions

Closure of branches.During first quarter 2007, the Company closed 31 of its lower performing branches in various states (the majority of which were consolidated into nearby branches) and terminated the de novo process on eight branches that never opened. In accordance with GAAP, the Company recorded approximately $3.0 million in pre-tax charges during first quarter 2007 as a result of these closings. The charges recorded included $1.5 million loss for the disposition of fixed assets, $1.5 million for lease terminations and other related occupancy costs and $40,000 for other costs. In the Consolidated Statements of Income, the loss associated with the disposition of fixed assets is reported as other expense, the costs associated with the lease terminations are occupancy costs and the other costs of $40,000 are included in other branch expenses.

The following table summarizes the accrued costs associated with the closure of branches discussed above and the activity related to those charges as of March 31, 2008(in thousands).

	Balance at December 31, 2007		Additions		Reductions			Balance at March 31, 2008
Lease and related occupancy costs	$	351	$	109	$	(116	)	$	344

As of March 31, 2008, the balance of $344,000 for accrued costs associated with the closure of branches is included as a current liability on the Consolidated Balance Sheet as the Company expects that the liabilities for these costs will be settled within one year.

Note 5 – Allowance for Doubtful Accounts and Provision for 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.

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

	Three Months Ended March 31,
	2007		2008
Average loan to customer (principal plus fee)	$	362.81	$	371.32
Average fee received by the Company	$	52.30	$	53.62
Average term of the loan (days)		16		16

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. During first quarter 2007, the Company received approximately $1.0 million from the sale of certain payday loan receivables that the Company had previously charged off. The sale was recorded as a credit to the overall loss provision, which is consistent with the Company’s policy for recording recoveries.

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. Prior to January 1, 2008, the Company aggregated payday loans, title loans and installment loans for purposes of computing the loss allowance based on very similar historical averages of uncollectible amounts as a percentage of volume for each type of loan (generally ranging from 2% to 5% of the total volume). For purposes of the allowance calculation, installment loans were included with payday loans and title loans based on the expectation that the loss experience for installment loans would be similar to payday loans and title loans. Beginning in fiscal year 2008, with approximately 18 full months of data available for installment loans, the Company calculated a separate component of the allowance for installment loans. The Company also calculates a separate component of the allowance for auto loans. The overall allowance represents the Company’s best estimate of probable losses inherent in the outstanding loan portfolios at the end of each reporting period.

The following table summarizes the activity in the allowance for loan losses and the provision for losses during the three months ended March 31, 2007 and 2008(in thousands):

	Three Months Ended March 31,
	2007			2008
Allowance for loan losses
Balance, beginning of period	$	2,982		$	4,442
Adjustment to provision for losses based on evaluation of outstanding receivables		(1,212	)		(1,675	)
Balance, end of period	$	1,770		$	2,767
Provision for losses
Charged-off to expense	$	21,046		$	24,330
Recoveries		(13,369	)		(13,432	)
Adjustment to provision for losses based on evaluation of outstanding receivables and credit service obligation at period end		(1,202	)		(1,755	)
Total provision for losses	$	6,475		$	9,143

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Note 6 – Other Revenues

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

	Three Months Ended March 31,
	2007		2008
Installment loan fees	$	1,525	$	4,605
Credit service fees		1,440		1,988
Check cashing fees		2,172		1,987
Title loan fees		1,113		932
Other fees		689		1,365
Total	$	6,939	$	10,877

Note 7 – Property and Equipment

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

	December 31, 2007			March 31, 2008
Buildings	$	2,540		$	2,540
Leasehold improvements		20,898			21,022
Furniture and equipment		23,216			23,291
Vehicles		865			886
		47,519			47,739
Less: Accumulated depreciation and amortization		(20,994	)		(22,230	)
Total	$	26,525		$	25,509

In February 2005, the Company entered into a seven-year lease to relocate its corporate headquarters to office space in Overland Park, Kansas. As part of the lease agreement, the Company received a tenant allowance from the landlord for leasehold improvements totaling $976,000. The tenant allowance was recorded by the Company as a deferred rent liability and is being amortized as a reduction of rent expense over the life of the lease. As of December 31, 2007, the balance of the deferred rent liability was approximately $598,000, of which $459,000 is classified as a non-current liability. As of March 31, 2008, the balance of the deferred rent liability was approximately $563,000 of which $424,000 is classified as a non-current liability.

Note 8 –Acquisitions, Goodwill and Intangible Assets

Acquisitions.As part of its efforts to increase market share, the Company acquired 13 branches and certain assets during 2007 for a total of $3.3 million, which included net book value of depreciable assets of approximately $204,000, loans receivable of approximately $1.4 million, and the assumption of $200,000 in liabilities for branches not yet opened. Included in the acquisition were six branches in Missouri that were closed and the receivable balances transferred to existing locations. The Company used the purchase method of accounting. The excess of the total acquisition cost over the fair value of the net assets acquired totaled $1.9 million. Of this amount, the Company allocated $1.3 million to goodwill, $388,000 to customer relationships and $206,000 to non-compete agreements. The purchase price allocations with respect to these acquisitions have been completed. The pro forma results of operations have not been presented because the results of operations for the Company would not have been materially different from those reported for the year ended December 31, 2007.

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In third quarter 2007, the Company paid $375,000 to purchase certain assets related exclusively to the buy-here, pay-here segment of the used vehicle market in connection with ongoing efforts to evaluate alternative products that serve the Company’s customer base. During the first quarter 2008, the Company acquired one payday loan branch and certain assets for a total of $205,000, which included net book value of depreciable assets of approximately $35,000 and loans receivable of approximately $70,000. The Company used the purchase method of accounting for both of these acquisitions. The excess of the total acquisition cost over the fair value of the net assets acquired was allocated to goodwill, customer relationships and other assets. The pro forma results of operations have not been presented because the results of operations for the Company would not have been materially different from those reported.

Goodwill.The following table summarizes the changes in the carrying amount of goodwill(in thousands):

	December 31, 2007		March 31, 2008
Balance at beginning of period	$	14,492	$	16,081
Acquisitions		1,589		63
Balance at end of period	$	16,081	$	16,144

Intangible Assets. The following table summarizes intangible assets(in thousands):

	December 31, 2007			March 31, 2008
Amortized intangible assets:
Customer relationships	$	2,303		$	2,327
Non-compete agreements		907			918
Debt issue costs		2,334			2,347
Other		15			15
		5,559			5,607
Non-amortized intangible assets:
Trade names		600			600
Gross carrying amount		6,159			6,207
Less: Accumulated amortization		(1,238	)		(1,527	)
Net intangible assets	$	4,921		$	4,680

Intangible assets at December 31, 2007 and March 31, 2008 include customer relationships, non-compete agreements, trade names and debt financing costs. Customer relationships are amortized using the straight-line method over the weighted average useful lives ranging from 4 to 15 years. Non-compete agreements are currently amortized using the straight-line method over the term of the agreements, ranging from three to five years. The amount recorded for trade names is considered an indefinite life intangible and is not subject to amortization. Costs paid to obtain debt financing are amortized over the term of each related debt agreement using the straight-line method, which approximates the effective interest method.

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Note 9 – Indebtedness

The following table summarizes long-term debt at December 31, 2007 and March 31, 2008(in thousands):

	December 31, 2007			March 31, 2008
Term loan	$	50,000		$	49,000
Revolving credit facility		24,500			3,500
Total debt		74,500			52,500
Less: debt due within one year		(28,500	)		(7,750	)
Long-term debt	$	46,000		$	44,750

On December 7, 2007, the Company entered into an Amended and Restated Credit Agreement with a syndicate of banks to replace its existing line of credit facility. The previous line of credit facility had a total commitment of $45.0 million. 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 to $120.0 million pursuant to bank approval and subject to terms and conditions set forth therein.

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%. LIBOR Rate loans bear interest at rates based on the LIBOR rate for the applicable loan period. 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. 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, total indebtedness, and maximum loss ratio. As of March 31, 2008, 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.

The Company entered into an interest rate swap agreement on March 31, 2008. The swap agreement is designated as a cash flow hedge, and 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 will pay a fixed interest rate of 3.43% and receive interest at a rate of LIBOR.

Note 10 – Income taxes

On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48). Prior to the adoption of FIN 48, the Company had accrued sufficient liabilities for unrecognized tax benefits under the provisions of Statement of Financial Accounting Standard No. 5, “Accounting for Contingencies” and therefore no adjustments to retained earnings were necessary as a result of the implementation of FIN 48. As required by FIN 48, which clarifies FASB Statement No. 109, “Accounting for Income Taxes”, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the

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position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. As of December 31, 2007 and March 31, 2008, the accrued liability for unrecognized tax benefits was approximately $94,000.

A reconciliation of the beginning and ending amount of unrecognized benefits is as follows(in thousands):

	December 31, 2007			March 31, 2008
Balance at beginning of period	$	150		$	94
Settlements		(56	)
Balance at end of period	$	94		$	94

The $94,000 of unrecognized tax benefits at March 31, 2008, which if ultimately recognized, will reduce the Company’s annual effective tax rate. During third quarter 2007, the Company settled its only outstanding tax audit with one state jurisdiction. The review board of the state jurisdiction agreed with the Company’s petition and withdrew the tax amounts that were assessed under the audit. As a result of the settlement, the Company’s FIN 48 liability was decreased by $56,000 and interest payable was decreased by $27,000.

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 March 31, 2008.

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 our income tax returns. These audits examine our significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax jurisdictions. During 2006, the Company settled two open tax years, 2003 and 2004, which were undergoing audit by the United States Internal Revenue Service. The 2004, 2005, 2006 and 2007 federal income tax returns are the only open tax years for which the statute of limitations is still open. Generally, state income tax returns for all years after 2003 are subject to potential future audit by tax authorities in the Company’s state tax jurisdictions.

Note 11 – 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 credit service organization (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, 2007 and March 31, 2008, the consumers had total loans outstanding with the lender of approximately $3.1 million and $2.4 million, respectively. Because of the economic exposure for potential losses related to the guarantee of these loans, the Company records a payable to reflect the anticipated losses related to uncollected loans. The payable is recognized at its fair value pursuant to FASB Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.Changes in the liability are recognized through the provision for loan losses on the Consolidated Statements of Income. The balance of the liability for estimated losses reported in accrued liabilities was approximately $160,000 as of December 31, 2007 and $80,000 as of March 31, 2008.

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Note 12 – Stock-Based Compensation

The following table summarizes the stock-based compensation expense reported in net income for the three months ended March 31, 2007 and March 31, 2008(in thousands):

	Three Months Ended March 31,
	2007		2008
Employee stock-based compensation:
Stock options	$	199	$	270
Restricted stock awards		123		195
Performance-based shares		157
		479		465
Non-employee director stock-based compensation:
Restricted stock awards		200		216
Total stock-based compensation	$	679	$	681

Stock option grants. In first quarter 2008, the Company granted 235,700 stock options to certain employees under the 2004 Equity Incentive Plan. The grants of stock options vest equally over four years. The Company estimated that the fair value of these option grants was approximately $1.1 million. The fair value of the options was determined at the grant date using a Black-Scholes option-pricing model, which requires the Company to make several assumptions. The risk-free interest rate used was based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of the grant. The dividend yield on the Company’s common stock was assumed to be zero since the Company’s board of directors has not established a formal dividend policy. The expected volatility factor used by the Company was based on the Company’s historical stock trading history. In accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107, the Company computed the expected term of the option by using the simplified method, which is an average of the vesting term and original contractual term. As of March 31, 2008, there were $1.0 million of total unrecognized compensation costs related to the options granted during first quarter 2008. The Company expects that these costs will be amortized over a weighted average period of 3.75 years.

A summary of non-vested stock option activity and related information for the three months ended March 31, 2008 is as follows:

	Options		Weighted Average Grant Date Fair Value
Non-vested balance, January 1, 2008	591,567		$	4.25
Granted	235,700			4.64
Vested	(197,189	)		4.25
Forfeited
Non-vested balance, March 31, 2008	630,078		$	4.39

Restricted stock grants. During February 2008, the Company granted 161,672 shares of restricted stock to various employees and non-employee directors pursuant to restricted stock agreements. The grants consisted of 140,512 shares granted to employees that vest equally over four years and 21,160 shares granted to non-employee directors that vested immediately upon grant. The Company estimated that the fair market value of these restricted stock grants was approximately $1.6 million. For the three months ended March 31, 2008, the Company recognized $272,000 in stock-based compensation expense related to these restricted stock grants. As of March 31, 2008, there were $1.3 million of total unrecognized compensation costs related to these restricted stock grants. The Company expects that these costs will be amortized over a weighted average period of 3.75 years.

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A summary of all restricted stock activity under the equity compensation plans for the three months ended March 31, 2008 is as follows:

	Restricted Stock		Weighted Average Grant Date Fair Value
Non-vested balance, January 1, 2008	138,688		$	14.46
Granted	161,672			10.19
Vested	(50,889	)		12.45
Forfeited	(1,244	)		12.33
Non-vested balance, March 31, 2008	248,227		$	12.10

Performance-based share awards. On December 14, 2006, the Company granted 42,000 shares to four executive officers pursuant to performance-based share award agreements. The vesting of the performance-based share awards was based on the Company meeting certain performance goals for the year ended December 31, 2007. The fair market value of these grants was approximately $629,000. The Company recognized approximately $157,000 in stock-based compensation expense related to these grants during the first quarter 2007. The performance-based shares were fully amortized as of December 31, 2007. During first quarter 2008, the performance shares vested based upon the certification of the Company’s financial results by the Company’s board of directors.

Note 13 – Commitments and Contingencies

Litigation. The Company is subject to various legal proceedings arising from normal business operations. Although there can be no assurances, based on the information currently available, management believes that it is probable that the ultimate outcome of each of the actions will not have a material adverse effect on the consolidated financial statements. However, an adverse outcome in any of the actions could have a material adverse effect on the financial results of the Company in the period, which it is recorded.

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 has not filed an answer, but moved to compel arbitration of this matter. Plaintiff secured the right to have discovery regarding the Company’s arbitration provision, however, prior to the court’s ruling on the Company’s motion. The Court heard oral arguments on the Company’s motion in June 2007. On December 31, 2007, the court entered an order striking the class action waiver provision in our customer arbitration agreement, ordered the case to arbitration and dismissed the lawsuit filed in Circuit Court. In February 2008, we appealed the portion of the court’s order striking the class action waiver provision in the arbitration agreement with our customer.

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 under specified North Carolina statutes. Plaintiffs have not sued the bank in this

Page 15

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. This case is in the preliminary stages.

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, have appealed that ruling. The judge handling the lawsuit against the Company in North Carolina is the same judge who issued these three orders in December 2005. The Company has not had a ruling on the similar pending motions by the plaintiffs and the Company in its North Carolina case. There is a stay in the North Carolina lawsuit, pending the outcome of the appeal in the other three North Carolina cases concerning the enforceability of the arbitration provision in the consumer contracts. Accordingly, there will be no ruling on the Company’s motion to enforce arbitration in North Carolina during the pendency of that appeal. In January 2007, the North Carolina Court of Appeals heard the appeal in the three companion cases, although it is unknown when the court will issue its ruling.

Other Matters.The Company is also currently involved in ordinary, routine litigation and administrative proceedings incidental to its business, including customer bankruptcy and employment-related matters. The Company believes the likely outcome of these other cases and proceedings will not be material to its business or its financial condition.

Note 14 – Certain Concentrations of Risk

The Company is subject to regulation by federal and state governments, that affects the products and services provided by the Company, particularly payday loans. As of March 31, 2008, the Company offered payday loans in 24 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 specific payday lending legislation to other states with very strict guidelines and requirements.

Company branches located in the states of Missouri, California, Arizona, South Carolina, Illinois and Kansas represented approximately 24%, 13%, 9%, 7%, 5% and 5%, respectively, of total revenues for the three months ended March 31, 2008. Company branches located in the states of Missouri, Arizona, California, Illinois, South Carolina, and Kansas represented approximately 29%, 11%, 10%, 7%, 7% and 6%, respectively, of total branch gross profit for the three months ended March 31, 2008. To the extent that laws and regulations are passed that affect the Company’s ability to offer payday loans or the manner in which the Company offers its payday loans in any one of those states, the Company’s financial position, results of operations and cash flows could be adversely affected.

Note 15 – Subsequent Events

Dividends. On April 29, 2008, the Company’s board of directors declared a cash dividend of $0.05 per common share. The dividend is payable on May 23, 2008 to stockholders of record as of May 16, 2008. The Company estimates that the total amount of the dividends 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,” “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) the increased leverage of the Company as a result of the payment of a $48.5 million special cash dividend in December 2007, (2) changes in laws or regulations or governmental interpretations of existing laws and regulations governing consumer protection or payday lending practices, (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 unit branches, (5) negative media reports and public perception of the payday loan industry and the impact on federal and state legislatures and federal and state regulators, (6) changes in our key management personnel, (7) integration risks and costs associated with contemplated and completed acquisitions, and (8) the other risks detailed under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007 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, 2007, 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. and QC E-Services, 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 80.0% of our total revenues for the three months ended March 31, 2008. We also earn fees for various other financial services, such as installment loans, credit services, check cashing services, title loans, money transfers, money orders and auto sales. We operated 597 branches in 24 states at March 31, 2008. In all but one of these states, Texas, we fund our payday loans directly to the customer and receive a fee. Fees charged to customers vary from state to state, generally ranging from $15 to $20 per $100 borrowed, and in most cases, are limited by state law.

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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 and occupancy expense for our leased real estate. 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 evaluate changes in comparable branch metrics on a routine basis to assess operating efficiency. We define comparable branches as those branches that are open during the full periods for which a comparison is being made. For example, comparable branches for the analysis as of March 31, 2008 have been open at least 15 months on that date. 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 driven primarily by the addition of branches throughout the year and growth in 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. We have experienced seasonality in our operations, with the first and fourth quarters typically being our strongest periods as a result of broader economic factors, such as holiday spending habits at the end of each year and income tax refunds during the first quarter.

According to the Community Financial Services Association of America (CFSA), industry analysts estimate that the industry has grown to approximately 24,000 payday loan branches in the United States and these branches extend approximately $40 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 as 10 companies operate approximately 10,200 branches in the United States.

The growth of the payday loan industry has followed, and continues to be significantly affected by, payday lending legislation and regulation in the various states and nationally. 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 could be adversely affected.

With this fragmentation and industry growth, we believe there are opportunities to expand through acquisitions and new branch openings. We are actively identifying possible branch locations in numerous states in which we currently operate and evaluating the regulatory environment and market potential in the various states in which we currently do not have branches. As we consider acquisitions and open new branches, there are various execution risks associated with any such transactions.

The following table sets forth our growth through de novo branch openings and branch acquisitions since January 1, 2003.

	2003		2004		2005		2006		2007		March 31, 2008
Beginning branch locations	258		294		371		532		613		596
De novo branches opened during period	45		54		174		46		20		2
Acquired branches during period			29		10		51		13		1
Branches closed during period	(9	)	(6	)	(23	)	(16	)	(50	)	(2	)
Ending branch locations	294		371		532		613		596		597

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Recent Accounting Developments

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,Fair Value Measurement (SFAS 157). SFAS 157 establishes a common definition for fair value to be applied to generally accepted accounting principles guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We adopted SFAS 157 on January 1, 2008 with no impact on our consolidated financial statements.

In February 2008, the FASB issued Staff Position 157-2,Effective Date of FASB 157, (FSP 157-2) which deferred the provisions of SFAS 157 to annual periods beginning after November 15, 2008 for non-financial assets and liabilities. Non-financial assets include fair value measurements associated with business acquisitions and impairment testing of tangible and intangible assets. We are still evaluating the impact, if any, that the adoption of FSP 157-2 will have on our consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities using different measurement techniques. SFAS 159 requires additional disclosures related to fair value measurements included in the entity’s financial statements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. We adopted SFAS 159 on January 1, 2008 with no impact on our consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007),Business Combinations (SFAS 141R). SFAS 141R broadens the guidance of SFAS 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses. It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations. SFAS 141R expands on required disclosures to improve the statement users’ abilities to evaluate the nature and financial effects of business combinations. SFAS 141R is effective for fiscal year beginning on or after December 15, 2008. We do not expect the adoption of SFAS 141R to have a material effect on our consolidated financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161), which requires enhanced disclosures about an entity’s derivative and hedging activities. The effective date of SFAS 161 is for our fiscal year beginning January 1, 2009. We have not yet completed an assessment of the impact of SFAS 161.

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RESULTS OF OPERATIONS

Three Months Ended March 31, 2008 Compared with the Three Months Ended March 31, 2007

The following table sets forth our results of operations for the three months ended March 31, 2008 compared to the three months ended March 31, 2007:

	Three Months Ended March 31,				Three Months Ended March 31,
	2007		2008		2007		2008
	(in thousands)				(percentage of revenues)
Revenues
Payday loan fees	$	41,580	$	43,567	85.7	%	80.0	%
Other		6,939		10,877	14.3	%	20.0	%
Total revenues		48,519		54,444	100.0	%	100.0	%
Branch expenses
Salaries and benefits		11,877		12,023	24.5	%	22.1	%
Provision for losses		6,475		9,143	13.3	%	16.8	%
Occupancy		7,916		6,656	16.3	%	12.2	%
Depreciation and amortization		1,227		1,153	2.5	%	2.1	%
Other		3,822		4,271	7.9	%	7.9	%
Total branch expenses		31,317		33,246	64.5	%	61.1	%
Branch gross profit		17,202		21,198	35.5	%	38.9	%
Regional expenses		3,006		3,443	6.2	%	6.3	%
Corporate expenses		6,415		6,905	13.2	%	12.7	%
Depreciation and amortization		496		675	1.0	%	1.2	%
Interest expense, net		115		1,209	0.2	%	2.2	%
Other expense, net		1,542		78	3.3	%	0.2	%
Income before taxes		5,628		8,888	11.6	%	16.3	%
Provision for income taxes		2,246		3,494	4.6	%	6.4	%
Net income	$	3,382	$	5,394	7.0	%	9.9	%

The following table sets forth selected financial and statistical information for the three months ended March 31, 2007 and 2008:

	Three Months Ended March 31,
	2007			2008
Other Information:
Payday loan volume(in thousands)	$	279,052		$	304,569
Average revenue per branch		80,730			91,196
Average loan size (principal plus fee)	$	362.81		$	371.32
Average fees per loan		52.30			53.62
Branch Information:
Number of branches, beginning of period		613			596
De novo branches opened		4			2
Acquired branches		8			1
Branches closed		(37	)		(2	)
Number of branches, end of period		588			597
Average number of branches open during period		601			597

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Comparable Branch Information (a):	Three Months Ended March 31,
	2007		2008
Total revenues generated by all comparable branches(in thousands)	$	47,138	$	52,102
Total number of comparable branches		567		567
Average revenue per comparable branch	$	83,136	$	91,891

(a) Comparable branches are those branches that were open for all of the two periods being compared, which means the 15 months since December 31, 2006.

Net income.For the three months ended March 31, 2008, net income was $5.4 million compared to $3.4 million for the same period in 2007. During first quarter 2007, we closed 31 of our lower performing branches in various states (the majority of which were consolidated into nearby branches) and terminated the de novo process on eight branches that never opened. As a result of these closings, we recorded approximately $3.0 million in pre-tax charges during first quarter 2007. The charges recorded included $1.5 million in losses on the disposition of fixed assets, $1.5 million in occupancy costs for lease terminations and other related occupancy costs and $40,000 in other costs. A discussion of the various components of net income follows.

Revenues.For the three months ended March 31, 2008, revenues were $54.4 million, a 12.2% increase from $48.5 million during the three months ended March 31, 2007. The growth in revenues was primarily a result of higher loan volumes, which was driven by the continued maturation of the group of branches added in 2005 through 2007. We originated approximately $304.6 million through payday loans during first quarter 2008, which was an increase of 9.1% over the $279.1 million during first quarter 2007. The average loan (including fee) totaled $371.32 in first quarter 2008 versus $362.81 during first quarter 2007. Average fees received from customers per loan increased from $52.30 in first quarter 2007 to $53.62 in first quarter 2008. Our average fee rate per $100 for first quarter 2008 was $16.88 compared to $16.84 in first quarter 2007.

We anticipate that our average fee rate may decline in 2008 as rates are modified based on changing legislation or regulation and as we enter into or expand in states that have lower fee structures. In March 2007, New Mexico adopted legislation (effective November 2007) that reduced the maximum fee that may be charged to a customer from $20.00 per $100.00 borrowed to $15.50 per $100.00 borrowed. In addition, the legislation restricted the total number of loans a customer may have and prohibits immediate loan renewals.

One manner by which we evaluate our branches is revenue growth, with consideration given to the length of time the branch has been open. We define comparable branches as those branches that are open during the full periods for which a comparison is being made. For example, comparable branches for the quarterly analysis as of March 31, 2008 have been open at least 15 months. The following table provides a summary of our revenues by comparable branches and new branches(in thousands):

	Three Months Ended March 31,
	2007		2008
Comparable branches	$	47,138	$	52,102
Branches opened in 2007		5		1,540
Branches opened in 2008				31
Other (a)		1,376		771
Total	$	48,519	$	54,444

(a) represents primarily closed branches in 2007 and revenues from buy-here, pay-here business during 2008

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Our revenues from comparable branches increased by $5.0 million, from $47.1 million during first quarter 2007 to $52.1 million in first quarter 2008. This increase is primarily attributable to the benefits resulting from the continuing development of our branches opened in 2005. Revenues from our branches opened during 2005 and 2006 improved 24.6% to $17.2 million for the first quarter 2008 versus $13.8 million in first quarter 2007.

Revenues from installment loans, CSO fees, check cashing, title loans and other sources totaled $10.9 million during first quarter 2008, up approximately $4.0 million from the $6.9 million in the comparable prior year quarter. The following table summarizes other revenues(in thousands):

	Three Months Ended March 31,
	2007		2008
Installment loan fees	$	1,525	$	4,605
Credit service fees		1,440		1,988
Check cashing fees		2,172		1,987
Title loan fees		1,113		932
Other fees		689		1,365
Total	$	6,939	$	10,877

The revenue increases in installment loans and credit services fees reflects the addition of new product offerings as installment loans were offered in our Illinois branches beginning in second quarter 2006 and in New Mexico branches beginning in fourth quarter 2007 and credit services were offered in our Texas branches beginning in September 2005. The decline in check cashing fees as a percentage of revenues is due primarily to a higher rate of growth in payday and installment loan revenues.

Branch Expenses.Total branch expenses increased $1.9 million, or 6.1%, from $31.3 million during first quarter 2007 to $33.2 million in first quarter 2008. Branch-level salaries and benefits increased by $146,000 for the three months ended March 31, 2008 compared to the same period in the prior year.

The provision for losses increased from $6.5 million in first quarter 2007 to $9.1 million during first quarter 2008. Our loss ratio was 16.8% in first quarter 2008 versus 13.3% in first quarter 2007. The less favorable loss experience in 2008 reflects a higher level of charge-offs (partially due to our year-long focus on increasing loan volumes during 2007) and a more challenging collection environment as customers manage through the difficult credit, financial and economic environment. Our charge-offs as a percentage of revenue were 44.7% during first quarter 2008 compared to 43.4% during first quarter 2007. Our collections as a percentage of charge-offs were 55.2% during first quarter 2008 and 63.5% during first quarter 2007. In addition, we received approximately $1.0 million from the sale of certain payday loan receivables during first quarter 2007 that had previously been written off.

Comparable branches totaled $8.8 million in loan losses during first quarter 2008 compared to $7.6 million for the same period in the prior year. In our comparable branches, the loss ratio was 16.8% during first quarter 2008 compared to 16.1% during first quarter 2007.

Occupancy costs declined from $7.9 million in first quarter 2007 to $6.7 million in first quarter 2008. Occupancy costs as a percentage of revenues decreased from 16.3% in first quarter 2007 to 12.2% in first quarter 2008. The higher level of occupancy costs during first quarter 2007 was primarily due to the branch closings. As noted above, we recorded a charge of $1.5 million to occupancy expense during first quarter 2007 to reflect an estimate of the lease termination costs and other related occupancy costs associated with our decision to close those branches.

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Branch Gross Profit.Branch gross profit increased by $4.0 million, or 23.3%, from $17.2 million in first quarter 2007 to $21.2 million in first quarter 2008. Branch gross margin, which is branch gross profit as a percentage of revenues, increased from 35.5% during first quarter 2007 to 38.9% during first quarter 2008. The following table summarizes our branch gross profit by comparable branches and new branches(in thousands).

	Three Months Ended March 31,
	2007			2008
Comparable branches	$	18,543		$	20,927
Branches opened in 2007		(200	)		(54	)
Branches opened in 2008					(20	)
Other (a)		(1,141	)		345
Total	$	17,202		$	21,198

(a) represents primarily closed branches in 2007 and buy-here, pay-here business during 2008

Comparable branches during first quarter 2008 reported a gross margin of 40.2% versus 39.3% in first quarter 2007, with the improvements resulting from stronger results in the majority of states. The 27 branches added during 2007 reported gross a gross loss of $54,000 during first quarter 2008.

Regional and Corporate Expenses.Regional and corporate expenses increased by $900,000, from $9.4 million in first quarter 2007 to $10.3 million in first quarter 2008. The higher level of expenses in first quarter 2008 is attributable to higher public education and awareness expenditures, as well as higher compensation charges a result of annual merit increases.

Income Tax Provision. The effective income tax rate during first quarter 2008 was 39.3% compared to 39.9% in prior year’s first quarter.

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LIQUIDITY AND CAPITAL RESOURCES

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

	Three Months Ended March 31,
	2007			2008
Cash flows provided by (used for):
Operating activities	$	19,960		$	21,649
Investing activities		(1,116	)		(771	)
Financing activities		(19,268	)		(30,646	)
Net decrease in cash and cash equivalents		(424	)		(9,768	)
Cash and cash equivalents, beginning of year		23,446			24,145
Cash and cash equivalents, end of period	$	23,022		$	14,377

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, which 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 maximum borrowings under the amended credit facility may be increased to $120 million pursuant to bank approval in accordance with the terms set forth in the first amendment to the credit facility as of March 7, 2008. We used the proceeds of the term loan to pay a $2.50 per common share special cash dividend in December 2007.

Net cash provided by operating activities for the three months ended March 31, 2008 was $21.7 million, approximately $1.7 million higher than the $20.0 million in comparable 2007. This increase is primarily attributable to higher net income during first quarter 2008.

Net cash used by investing activities for the three months ended March 31, 2008 was $771,000, which consisted of approximately $571,000 for capital expenditures and approximately $205,000 for acquisition costs. The capital expenditures included $70,000 to open two de novo branches in 2008, $349,000 for renovations to existing and acquired branches, $22,000 for technology and other furnishings at the corporate office, $98,000 for branches not yet open as of March 31, 2008 and $32,000 for other expenditures. Net cash used by investing activities for the three months ended March 31, 2007 was $1.1 million for capital expenditures. The capital expenditures included $147,000 to open four de novo branches in 2007, $371,000 for renovations to existing and acquired branches, $234,000 for technology and other furnishings at the corporate office, $39,000 for branches not yet open as of March 31, 2007 and $138,000 for other expenditures.

Cash used for financing activities for the three months ended March 31, 2008 was $30.6 million, which primarily consisted of $24.5 million in repayments of indebtedness under the credit facility, $1.0 million in repayments on the term loan and $8.5 million for the repurchase of 1.1 million shares of common stock. These items were partially offset by proceeds received from the borrowing of $3.5 million under the 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. During the three months ended March 31, 2007, cash outflows for financing activities was $19.3 million, which primarily consisted of $16.3 million in repayments of indebtedness under the credit facility. In addition, we paid dividends to stockholders totaling $2.0 million and repurchased approximately 116,000 shares of our common stock for $1.6 million.

Future Capital Requirements.We believe that our available cash, expected cash flows from operations and borrowings available under our credit facility will be sufficient to fund our liquidity and capital expenditure requirements for the foreseeable future. Expected future uses of cash include funding of anticipated increases in payday loans, dividend payments, common stock repurchases, financing of new branch expansion and acquisitions and, if amounts are borrowed under the credit facility, debt repayments and interest payments on the outstanding debt.

On April 29, 2008, our board of directors declared a cash dividend of $0.05 per common share. The dividend is payable on May 23, 2008 to stockholders of record as of May 16, 2008. We estimate that the total amount of the dividend will be approximately $900,000.

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The level of cash required to operate a particular payday branch varies based on the products and services provided by that branch. For each branch location, cash is comprised of: (i) a certain amount of cash needed in the branch location; (ii) an operating reserve amount at the local bank used by that branch; and (iii) in-transit amounts within the banking system. As a general guideline, a typical branch offering only the payday loan product requires an average of approximately $10,000 to $15,000, while a branch that also includes check cashing requires an average of approximately $35,000 to $45,000.

As part of our business strategy, we intend to open de novo branches and consider acquisitions in existing and new markets. During 2005, 2006 and 2007, we had de novo unit branch growth of 46.9%, 8.6% and 3.3%, respectively. In addition, we acquired 10 branches in 2005, 51 branches in 2006 and 13 branches in 2007. We expect to open approximately 20 branches in 2008. 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 this level of branch growth, assuming no material acquisitions in 2008.

The capital costs of opening a de novo branch include leasehold improvements, signage, computer equipment and security systems, and the costs vary depending on the branch size, location and the services being offered. During 2006 and 2007, we opened 66 de novo branches. The average cost of capital expenditures for these new branches was approximately $56,000 per branch.

On March 11, 2008, our board of directors increased our $40 million common stock repurchase program to $60 million. As noted above, we repurchased $8.5 million of our common stock during first quarter 2008, which leaves approximately $13.3 million that may yet be purchased under the current program. We will continue to weigh common share repurchase opportunities with other capital allocation alternatives based on liquidity, total capital available, existing debt covenants and stock price fluctuations.

We have one buy-here, pay-here automotive lot open as of March 31, 2008. We expect to open a second lot in second quarter 2008 and possibly a third lot in third or fourth quarter of 2008. During the start-up of these operations, capital requirements are not material. As the business grows, however, the business requires accumulation 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. As this business progresses, we will evaluate the capital requirements and the associated return on investment.

Concentration of Risk. Our branches located in the states of Missouri, California, Arizona, South Carolina, Illinois and Kansas represented approximately 24%, 13%, 9%, 7%, 5% and 5%, respectively, of total revenues for the three months ended March 31, 2008. Our branches located in the states of Missouri, Arizona, California, Illinois, South Carolina, and Kansas represented approximately 29%, 11%, 10%, 7%, 7% and 6%, respectively, of total branch gross profit for the three months ended March 31, 2008. 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.

Seasonality

Our business is seasonal due to fluctuating demand for payday loans during the year. Historically, we have experienced our highest demand for payday loans in January and in the fourth calendar quarter. As a result of the receipt by customers of their income tax refunds, demand for payday loans has historically declined in the balance of the first quarter of each calendar year and the first month of the second quarter. Our loss ratio historically fluctuates with these changes in payday 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. 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.

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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 will not acquire or own any participation interest in the loans. Consequently, loans made by the lender will not be included in our loans receivable balance and will not be reflected in the Consolidated Balance Sheet. 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, 2007, and March 31, 2008, consumers had total loans outstanding with the lender of approximately $3.1 million and $2.4 million, respectively. Because of the economic exposure for potential losses related to the guarantee of these loans, we record a payable to reflect the anticipated losses related to uncollected loans. The payable is recognized at its fair value pursuant to FIN 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.Changes in the liability are recognized through the provision for loan losses in our Consolidated Statements of Income. The balance of the liability for estimated losses reported in accrued liabilities was approximately $160,000 as of December 31, 2007 and $80,000 as of March 31, 2008.

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, 2007.

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

There have been no material developments in the first quarter 2008 in any cases material to the Company as reported in our 2007 Annual Report on Form 10-K.

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

Issuer Purchases of Equity Securities.On March 11, 2008, our board of directors increased the authorization limit of our common stock repurchase program to $60 million and extended the program through June 30, 2009. As of March 31, 2008, we have repurchased 4.0 million shares at a total cost of approximately $46.7 million.

The following table sets forth certain information about the shares of common stock we repurchased during the first quarter 2008.

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
January 1 – January 31 (a)	7,826	$	10.23		$	1,678,790
February 1 – February 29 (a)	14,363		10.19			1,678,790
March 1 – March 31	1,029,011		8.06	1,029,011		13,380,183
Total	1,051,200	$	8.11	1,029,011	$	13,380,183

(a) Stock repurchases during January 2008 and February 2008 were made in connection with the funding of employee income tax withholding obligations arising from the vesting of restricted shares.

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 May 9, 2008.

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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