QC Holdings Inc. Reports Operating Results (10-Q)
Qc Holdings Inc. has a market cap of $71.8 million; its shares were traded at around $4.13 with a P/E ratio of 3.7 and P/S ratio of 0.3. The dividend yield of Qc Holdings Inc. stocks is 4.9%. Qc Holdings Inc. had an annual average earning growth of 20.2% over the past 5 years.QCCO is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations: We derive our revenues primarily by providing short-term consumer loans, known as payday loans, which represented approximately 71.6% of our total revenues for the six months ended June 30, 2010. We earn fees for various other financial services, such as installment loans, credit services, check cashing services, title loans, money transfers and money orders. We operated 545 short-term lending branches in 24 states at June 30, 2010. 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.
In Texas, through one of our subsidiaries, we operate as a credit service organization (CSO) on behalf of consumers in accordance with Texas laws. We charge the consumer a CSO fee for arranging for an unrelated third-party to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the consumers obligation to the third-party lender. In Illinois, New Mexico, Montana and Utah, we offer longer-term installment loan products, which are amortizing loans generally over four to twelve months with principal amounts ranging between $300 and $1,000.
The payday loan industry has followed, and continues to be significantly affected by, payday lending legislation and regulation in the various states and on a national level. We actively monitor and evaluate legislative and regulatory initiatives in each of the states and nationally, and are closely involved with the efforts of the CFSA. To the extent that states enact legislation or regulations that negatively impacts payday lending, whether through preclusion, fee reduction or loan caps, our business has been adversely affected in the past and could be further adversely affected in the future. Over the past several years a few states have enacted interest rate caps from 28% to 36% per annum on payday lending. A 36% per annum interest rate translates to approximately $1.38 per $100 loaned, which effectively precludes us from offering payday loans in those states. In Ohio, we closed 13 branches in the third quarter of 2008 in response to legislation that effectively precludes payday lending in that state, but are offering customers an alternative product at our remaining Ohio branches under a different statute.
During 2009, payday loan-related legislation that severely restricts customer access to payday loans was passed in South Carolina, Washington, Virginia and Kentucky. These law changes are adversely affecting our revenues and operating income during 2010. The first half 2010 results from the states in which we have experienced law changes have been more negative that we expected, with revenue declines and loss rates exceeding our forecasts. For the six months ended June 30, 2010, revenues and gross profit from South Carolina, Washington, Virginia and Kentucky declined by $10.0 million and $7.4 million, respectively, from prior years comparable period. In Arizona, the existing payday lending law expired on June 30, 2010. We are currently offering title loans to our Arizona customers. However, we do not expect that our customers in Arizona will embrace this product as they have the payday loan product. Our initial estimates suggest that annual revenues and gross profit will decline by up to $10 million and $8 million, respectively, as a result of this Arizona law change. To mitigate the impact of these earnings declines, we have implemented modest fee increases in a few states. Also, we expect that results from our automotive group will improve due to more industry experience and an improved collection effort. Absent other changes in payday lending laws or dramatic fluctuations in the broader economy and markets, we expect the net impact of these challenges and opportunities in 2010 to reduce revenues by $23 million to $25 million and to reduce branch gross profit by $13 million to $15 million during the year ended 2010 compared to 2009.
Revenues. For the three months ended June 30, 2010, revenues were $46.5 million, a decrease of 9.4% from $51.3 million during the three months ended June 30, 2009. The decrease in revenues was primarily due to reduced payday loan volumes.
Revenues from our payday loan product represent our largest source of revenues and were approximately 71.9% of total revenues for the three months ended June 30, 2010. With respect to payday loan volume, we originated approximately $232.7 million in loans during second quarter 2010, which was a decline of 14.9% from the $273.6 million during second quarter 2009. This decline is primarily attributable to law changes in Washington, South Carolina and Virginia that severely restrict customer access to payday loans, as well as soft demand in various other states. In Virginia, we began offering an open-end credit product in late 200
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