"With our initial public offering behind us, we believe that we are positioned to capitalize on opportunities that are evident in the payday industry"
Don Early, CEO

QC Holdings, Inc. (QCCO) reported a 41% increase in net income during second quarter 2004, growing to $3.8 million for the three months ended June 30, 2004, from $2.7 million for the three months ended June 30, 2003. For the six months ended June 30, 2004, net income totaled $9.0 million, which is approximately 64% higher than the $5.5 million in comparable 2003. The significant increases in net income from 2003 to 2004 reflect strong revenue growth and operating margin improvements.

Don Early, QC's Chairman and Chief Executive Officer, commented: "We are pleased that our earnings for second quarter and six months ended June 30, 2004, continued the momentum from our first quarter. Ongoing efforts by our store personnel and regional management group to improve operations, while driving loan volumes, have been instrumental to our success during 2004, as evidenced by our double-digit comparable store growth rates."

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QC reported store gross margins of 38.0% in second quarter 2004 and 41.9% for the six months ended June 30, 2004, versus 32.9% in second quarter 2003 and 34.2% for the six months ended June 30, 2003. The Company's ability to attain these margins is indicative of the variability in QC's business model and favorable loss experience resulting from the Company's customer service approach to collections.

Darrin Andersen, QC's President and Chief Operating Officer, said, "We believe the Company's store gross margins are a meaningful indicator of the financial strength and value of our company."

For the three months ended June 30, 2004, revenues reached $28.9 million, a 24.6% increase from the $23.2 million during the three months ended June 30, 2003. This revenue growth was primarily a result of higher payday loan volumes, together with higher average payday loan fees. QC originated approximately $181.1 million of payday loans during second quarter 2004 compared to $140.6 million during second quarter 2003, an increase in loan volume of 28.8%. Average fees received from customers per loan increased 6.9%, from $46.68 in second quarter 2003 to $49.90 in second quarter 2004.

Revenues for comparable stores (defined as those stores that were open for all of the two periods being compared, which means the 15 months since March 31, 2003) improved $4.2 million, or 18.5%, to $26.9 million in second quarter 2004, largely as a result of higher payday loan volume during the current year period driven by the Company's convenient lending policy and the continued strong demand by consumers for the payday loan product. Second quarter 2004 revenues also benefited from the inclusion of 32 stores that were opened during the last three quarters of 2003, which contributed $1.8 million in revenues, and nine stores that were opened during 2004, which contributed $115,000.

Revenues from check cashing, title loans and other sources totaled $2.8 million during second quarter 2004, a 5.1% decrease from the comparable prior year period. This decrease reflects declining volumes, primarily in check cashing and title loans.

Store gross profit improved $3.4 million, or 44.7%, from $7.6 million in second quarter 2003 to $11.0 million in second quarter 2004. This improvement was due to a higher rate of growth in revenues than in store expenses quarter to quarter. With respect to store expenses, salaries increased by $1.0 million for the three months ended June 30, 2004, compared to prior year, primarily as a result of new personnel to operate the 31 stores added subsequent to June 30, 2003.

The Company reported favorable loss experience in second quarter 2004 compared to second quarter 2003. While absolute loss totals increased from $5.5 million in second quarter 2003 to $6.0 million in second quarter 2004, this rate of increase was lower than revenue growth, resulting in a decline in losses as a percentage of revenues from 23.8% during second quarter 2003 to 20.9% during second quarter 2004. The Company believes the second quarter loss ratio of 20.9%, which is within the range of 20% to 22% that management believes is reasonable on an annualized basis, improved over prior year's quarter due to QC's customer service approach to collections, which focuses on maintaining a positive relationship with the customer through efforts to minimize the number of checks presented to the bank for payment.

Other expense components, including occupancy, depreciation and amortization and various other costs, increased $774,000 quarter to quarter. Occupancy costs as a percentage of revenues declined during second quarter 2004 versus 2003, indicative of the fixed nature of these costs.

Store gross margin, which is store gross profit as a percentage of revenues, improved to 38.0% from 32.9%. This improvement reflected the Company's strong revenue growth, together with efficient operations and favorable loss experience. Specifically, comparable stores during second quarter 2004 reported a gross margin of 41.0% versus 35.1% in second quarter 2003. Stores opened during the last nine months of 2003, of which 10 were opened during second quarter and 22 were opened during the last six months, reported second quarter 2004 gross profit of $312,000.

Regional and corporate expenses were $4.1 million during the three months ended June 30, 2004, compared to $2.9 million in the prior year quarter. This increase reflects higher administrative expenses, such as salaries, benefits and travel, as a result of the increase in the number of stores and the development of support functions. Together, regional and corporate expenses totaled 14.1% of revenues in second quarter 2004, which is below the Company's expected annual range of 15% to 16% of revenues. The higher expected level of regional and corporate expenses reflects the additional costs of being a public company and the anticipated related reporting and compliance expenses.

Interest expense increased $138,000 quarter to quarter as a result of higher average debt balances in second quarter 2004, primarily due to the $15 million repurchase of approximately 3.7 million shares of common stock during fourth quarter 2003. In July 2004, the Company repaid all of its outstanding indebtedness with a portion of the proceeds received in connection with the Company's initial public offering, which closed on July 21, 2004.

Commenting on second quarter 2004, Mr. Andersen noted: "We were particularly pleased to maintain store gross margins of 38% during the typically slower second quarter of the year. Our ability to increase revenues over prior year and this year's first quarter, while maintaining competitive loss ratios, highlights the benefits of our Operational Excellence program."

Mr. Early noted: "Consistent with our long-standing beliefs, we are pleased that our store personnel continue to make the loan process convenient and quick for our customers. We believe their efforts were key to driving our comparable store revenue and gross profit growth for each of the periods in 2004."

Mr. Early concluded: "With our initial public offering behind us, we believe that we are positioned to capitalize on opportunities that are evident in the payday industry. During 2002 and 2003, we were able to achieve de novo unit store growth of 27% and 17%, respectively. With nine stores already opened in 2004 through June 30, and approximately 40 to 50 more set to open by the end of the year, we believe we can achieve 20% to 30% unit store growth over the next few years. We believe our balance sheet and operational strength situate us favorably in the market to pursue growth from a position of strength and flexibility."

QC will present its financial results for the three and six months ended June 30, 2004, in a conference call on August 5, 2004, at 2:00 p.m. EDT. Stockholders and other interested parties are invited to listen online at www.qcholdings.com or dial 800-901-5217. The accompanying slides to the presentation are expected to be available on the QC Web site on the morning of August 5. A replay of the audio portion of the presentation will be available online until the close of business on August 19. The replay can also be accessed by telephone for seven days at 888-286-8010, code #42521180.

Headquartered in Kansas City, Kansas, QC Holdings, Inc. provides consumer financial services, principally payday loans, through 301 stores in 22 states as of June 30, 2004. The Company entered the payday loan market in 1992 and, since 1998, has grown from 48 stores to 301 stores through a combination of new, or de novo, stores and acquisitions. During fiscal 2003, the Company advanced more than $590 million to customers through payday loans and reported total revenues of $98.5 million.