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 or closure of 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 future 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 80.3% of our total revenues for the nine months ended September 30, 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 585 branches in 24 states at September 30, 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.

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 quarterly analysis as of September 30, 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.

With this fragmentation and industry growth, we believe there are opportunities to expand through acquisitions and new branch openings. We regularly evaluate possible branch locations in numerous states in which we currently operate and 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.

                                                                                              September 30,
                                                 2003     2004     2005     2006     2007         2008
Beginning branch locations                        258      294      371      532      613               596
De novo branches opened during period              45       54      174       46       20                 9
Acquired branches during period                             29       10       51       13                 1
Branches closed during period                      (9 )     (6 )    (23 )    (16 )    (50 )             (21 )

Ending branch locations                           294      371      532      613      596               585

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.

During 2008, the industry undertook ballot initiatives in Arizona and Ohio in an effort to secure stability for the industry the ability to provide short-term loans to customers in those states. While the outcomes of these initiatives were not favorable, there is little immediate impact to us. In Arizona, we will continue to operate under the existing legislation, while working to eliminate the July 2010 sunset provision that would eliminate short-term loans as an alternative for Arizona customers. In Ohio, we have already closed 13 branches in the third quarter of 2008 in response to the legislation that effectively precludes payday lending in that state, but will offer customers a new product at our remaining Ohio branches under a different statute.

Recent Accounting Developments

In June 2008, the Financial Accounting Standard Board (FASB) issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1 clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impact of FSP EITF 03-6-1 and anticipate that any impact to basic earnings per share will be immaterial.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles(SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United States. SFAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. We do not expect the adoption of SFAS 162 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 years beginning January 1, 2009. We have not yet completed an assessment of the impact of SFAS 161.

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 years 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 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 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.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2008 Compared with the Three Months Ended
September 30, 2007

The following table sets forth our results of operations for the three months
ended September 30, 2008 compared to the three months ended September 30, 2007:



                                                Three Months Ended              Three Months Ended
                                                  September 30,                   September 30,
                                                2007           2008          2007               2008
                                                  (in thousands)             (percentage of revenues)
Revenues
Payday loan fees                             $   48,338      $ 47,157           86.3 %             79.4 %
Other                                             7,649        12,226           13.7 %             20.6 %

Total revenues                                   55,987        59,383          100.0 %            100.0 %

Branch expenses
Salaries and benefits                            11,111        12,711           19.8 %             21.4 %
Provision for losses                             16,970        17,272           30.3 %             29.1 %
Occupancy                                         6,117         6,778           10.9 %             11.4 %
Depreciation and amortization                     1,163         1,109            2.1 %              1.9 %
Other                                             3,741         4,707            6.7 %              7.9 %

Total branch expenses                            39,102        42,577           69.8 %             71.7 %

Branch gross profit                              16,885        16,806           30.2 %             28.3 %

Regional expenses                                 3,277         3,247            5.9 %              5.5 %
Corporate expenses                                5,389         6,349            9.6 %             10.7 %
Depreciation and amortization                       582           678            1.0 %              1.1 %
Interest expense, net                               198         1,076            0.4 %              1.8 %
Other expense (income), net                         (27 )          88           (0.1 )%             0.2 %

Income from continuing operations before
income taxes                                      7,466         5,368           13.4 %              9.0 %
Provision for income taxes                        2,955         2,582            5.3 %              4.3 %

Income from continuing operations                 4,511         2,786            8.1 %              4.7 %
Loss from discontinued operations, net of
income tax                                         (228 )         (40 )         (0.4 )%            (0.1 )%

Net income                                   $    4,283      $  2,746            7.7 %              4.6 %

The following table sets forth selected financial and statistical information for the three months ended September 30, 2007 and 2008:

                                                                       Three Months Ended
                                                                          September 30,
                                                                       2007          2008
Other Information:
Payday loan volume (in thousands)                                    $ 337,900     $ 334,469
Average revenue per branch                                              95,950       101,596

Average loan size (principal plus fee)                               $  369.40     $  371.02
Average fees per loan                                                    54.11         53.73

Branch Information:
Number of branches, beginning of period                                    599           597
De novo branches opened                                                      2             3
Acquired branches
Branches closed                                                             (9 )         (15 )

Number of branches, end of period                                          592           585

Average number of branches open during period                              596           591


                                                                       Three Months Ended
                                                                          September 30,
                                                                       2007          2008
Comparable Branch Information (a):
Total revenues generated by all comparable branches (in thousands)   $  55,430     $  56,727
Total number of comparable branches                                        571           571
Average revenue per comparable branch                                $  97,075     $  99,347

(a) Comparable branches are those branches that were open for all of the two periods being compared, which means the 15 months since June 30, 2007.

Income from continuing operations. For the three months ended September 30, 2008, income from continuing operations was $2.8 million compared to $4.5 million for the same period in 2007. A discussion of the various components of net income follows.

Revenues. For the three months ended September 30, 2008, revenues were $59.4 million, a 6.1% increase from $56.0 million during the three months ended September 30, 2007. The growth in revenues was primarily a result of higher installment loan volumes and automobile loan volumes, which totaled $11.4 million for third quarter 2008 versus $5.0 million in prior year's third quarter. With respect to payday loan volume, we originated approximately $334.5 million in loans during third quarter 2008, which was a decline of 1.0% over the $337.9 million during third quarter 2007. This decline is primarily attributable to customers in New Mexico transitioning from the payday product to our installment loan product. The average loan (including fee) totaled $371.02 in third quarter 2008 versus $369.40 during third quarter 2007. Average fees received from customers per loan declined from $54.11 in third quarter 2007 to $53.73 in third quarter 2008. Our average fee rate per $100 for third quarter 2008 was $16.93 compared to $17.16 in third quarter 2007.

We anticipate that our average fee rate may decline in 2009 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 September 30, 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
                                                 September 30,
                                                2007         2008
                   Comparable branches       $    55,430   $ 56,727
                   Branches opened in 2007                      179
                   Branches opened in 2008                      476
                   Other (a)                         557      2,001

                   Total                     $    55,987   $ 59,383

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

Our revenues from comparable branches increased by $1.3 million, from $55.4 million during third quarter 2007 to $56.7 million in third quarter 2008. This increase is primarily attributable to the acceleration of revenues associated with the 2005 and 2006 groups of branches, where revenues improved 9.5%, from $16.8 million during third quarter 2007 to $18.4 million in third quarter 2008.

Revenues from installment loans, CSO fees, check cashing, title loans, buy-here, pay-here and other sources totaled $12.2 million during third quarter 2008, up approximately $4.5 million from the $7.7 million in the comparable prior year quarter. The following table summarizes other revenues (in thousands):

                                    Three Months Ended         Three Months Ended
                                      September 30,               September 30,
                                     2007         2008        2007              2008
                                      (in thousands)        (percentage of revenues)
    Installment loan fees         $    2,509    $  5,101          4.5 %            8.6 %
    Credit service fees                2,132       2,326          3.8 %            3.9 %
    Check cashing fees                 1,350       1,227          2.4 %            2.1 %
    Title loan fees                    1,002         922          1.8 %            1.6 %
    Buy-here, pay-here revenues                    1,926                           3.2 %
    Other fees                           656         724          1.2 %            1.2 %

    Total                         $    7,649    $ 12,226         13.7 %           20.6 %

The revenue increases in installment loan 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. The declines in check cashing fees and title loan fees reflect a decrease in customer demand for these products.

Branch Expenses. Total branch expenses increased $3.5 million, or 9.0%, from $39.1 million during third quarter 2007 to $42.6 million in third quarter 2008. Branch-level salaries and benefits increased by $1.6 million for the three months ended September 30, 2008 compared to the same period in the prior year primarily due to higher benefit costs and a slightly higher number of field personnel.

The provision for losses increased from $17.0 million in third quarter 2007 to $17.3 million during third quarter 2008. Our loss ratio was 29.1% in third quarter 2008 and 30.3% in third quarter 2007. Our charge-offs as a percentage of revenue were 47.4% during third quarter 2008 and 51.7% during third quarter 2007. Our collections as a percentage of charge-offs were 42.3% during third quarter 2008 and 41.0% during third quarter 2007. We received approximately $205,000 from the sale of certain payday loan receivables during third quarter 2008 that had previously been written off compared to $128,000 received in the third quarter 2007.

Comparable branches totaled $16.7 million in loan losses during third quarter 2008 compared to $17.1 million for the same period in the prior year. In our comparable branches, the loss ratio was 29.5% during third quarter 2008 compared to 30.8% during third quarter 2007.

Occupancy costs increased from $6.1 million in third quarter 2007 to $6.8 million in third quarter 2008. Occupancy costs as a percentage of revenues increased from 10.9% in third quarter 2007 to 11.4% in third quarter 2008. The higher level of occupancy costs during third quarter 2008 was primarily due to standard lease escalation provisions.

Branch Gross Profit. Branch gross profit was $16.9 million in third quarter 2007 and $16.8 million in third quarter 2008. Branch gross margin, which is branch gross profit as a percentage of revenues, decreased from 30.2% during third quarter 2007 to 28.3% during third quarter 2008. The following table summarizes our branch gross profit by comparable branches and new branches (in thousands):

                                              Three Months Ended
                                                 September 30,
                                               2007          2008
                  Comparable branches       $   16,465     $ 17,604
                  Branches opened in 2007          (16 )        (89 )
                  Other (a)                        436         (709 )

                  Total                     $   16,885     $ 16,806

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

Comparable branches during third quarter 2008 reported a gross margin of 31.0% versus 29.7% in third quarter 2007, with the improvements resulting from stronger results in the majority of states, partially offset by reduced profit from our New Mexico branches due to the new, more restrictive payday loan legislation effective November 1, 2007.

Regional and Corporate Expenses. Regional and corporate expenses increased by . . .