First Cash Financial Services, Inc.

Feltl and Company Research Department

225 South Sixth Street, Suite 4200 Minneapolis, MN 55402 1.866.655.3431

Joshua J. Elving

jjelving@ | 612.492.8872

First Cash Financial Services, Inc.

Company Description: First Cash Financial is a provider of pawn and consumer credit services to individuals with limited access to credit or traditional banking relationships. The company provides pawn loans (loans collateralized by personal property) in 97 domestic pawn stores (First Cash Pawn) and 271 locations in Mexico. First Cash was founded in July of 1988, went public in 1991, and is headquartered in Arlington, Texas.

Specialty Finance December 22, 2009

Initiating coverage with a Hold rating and $21 price target

(FCFS - $22.18) HOLD

Key Points

Financial Summary

We are initiating research coverage of First Cash Financial Services (FCFS) with a Hold rating and $21 price target. Our 09/10/11 EPS estimates are $1.40/$1.65/$1.92, respectively. Our target is based on an 11x multiple applied to our 2011 EPS estimate of $1.92. In addition, our $21 target represents a 6.8x EV/2010EBITDA multiple. Our 11x P/E target multiple is slightly above the peer group average, and the EV/EBITDA multiple represents a more significant premium to peers. A slight valuation premium is warranted in our opinion due to lower payday exposure and a leadership position in Mexico. Our valuation methodology appears to be more conservative than other analysts and we acknowledge that increases in gold prices or EPS upside could put further upward pressure on shares in the near-term.

Rev(mil)

Mar Jun Sep Dec

FY P/Sales

2009E

$82.6A $84.2A $94.6A $100.6E

2010E

$92.1E $95.5E $100.5E $111.0E

2011E

$102.6E $107.2E $112.2E $124.0E

$362E 1.86x

$399E $446E 1.68x 1.51x

Growth at FCFS will likely be driven by further expansion of pawn locations in Mexico coupled with the maturing of stores added during the past several years. Domestically, the pawn space is relatively saturated, so growth in the U.S. will likely be driven by loan growth rather than locations. Rising gold prices should continue as a tailwind for both gold scrapping margins and increased loan balances. Interestingly, FCFS does not employ much in the way of hedging against swings in the price of gold, leading to a wider range of gold scrapping margins depending on the direction of gold prices.

FCFS has de-emphasized its payday lending operations through the growth of pawn, both domestically and in Mexico, as well as the closing or sale of payday locations throughout the U.S. FCFS has payday operations in just seven states now, and we believe the Company is actively looking to sell its operations in 3 of those states. Management has stated that is has little interest in exiting Texas as it believes the regulatory environment is unlikely to change any time soon, and this appears to be the general consensus in the marketplace. The Company will likely continue to expand its payday offerings in Mexican locations often adjoined to pawn shops. We do not necessarily dislike the payday loan business; however, we acknowledge investor concern of additional regulatory restrictions. As such, we believe the business mix shift at FCFS drives a higher multiple for its shares.

EPS 2009E 2010E 2011E

Mar

$0.32A $0.38E $0.44E

Jun

$0.31A $0.37E $0.43E

Sep $0.35A $0.41E $0.48E

Dec $0.42E $0.49E $0.57E

FY

$1.40E $1.65E $1.92E

P/E

15.8x

13.4x

11.5x

Price: 52-Week Range: Target: Rating:

$22.18 $22.25-$11.26

$21.00 HOLD

INVESTMENT THESIS We are initiating coverage of First Cash Financial Services, Inc. (FCFS) with a HOLD rating and $21 price target. Our $21 target is based on an 11x multiple applied to our 2011 EPS estimate of $1.92, and represents a 6.8x multiple of EV/2010 EBITDA. Our 11x multiple applied to our 2011 EPS estimates is a slight premium to the peer group average. FCFS currently trades at 15.8x our 2009 EPS estimate of $1.40 and 13.4x our 2010 EPS estimate of $1.65. We point out that shares are currently trading at a premium to peers on almost all metrics we look at. We believe some of the premium valuation is warranted due to a lower mix of payday lending, its leading position in Mexico, and its higher EPS growth opportunities in the near-term.

Shares Outstanding: Mkt. Capitalization: Ave. Volume: Instit. Ownership: BV / Share: Debt / Tot. Cap.: Est. LT EPS Growth:

30.3 mil $672 mil 177,000

85% $6.43 19% 16%

Please see important disclosures on pages 13 to 15.

December 22, 2009

While peers are looking at expansion opportunities in Canada, Europe, and Australia, FCFS continues to focus on improving its operations in the U.S. and growing aggressively in Mexico. Our conversations with management lead us to believe that FCFS has enough growth opportunities in Mexico alone to keep their hands full. At some point in the future, we believe the next area of growth FCFS would focus on would be Central and South America. Shares are fairly valued in our opinion at current levels. While there is perhaps some room for multiple expansion, we believe upside in the stock would more likely be driven by EPS estimate increases, which is possible if the economy continues to improve or if gold prices resume the rally.

First Cash is a leader in the pawn lending market, providing a crucial service to the unbanked and underbanked population in the United States and Mexico. The pawn marketplace is fragmented in both markets, and while the U.S. market appears to be relatively saturated, the Mexican market remains full of opportunity for expansion. Based on various sources, we believe that approximately 20% of U.S. households fall into the underbanked category. Data the Company looks at suggests that the level of underbanked households in Mexico could be as high as 80%.

The risk of increased regulation over the payday loan industry remains a constant headwind in the United States. FCFS has not opened any new domestic payday loan stores since March of 2009, and does not anticipate opening any more going forward. In fact, the Company recently sold or closed its payday stores in Michigan and is looking at exiting the payday business in Washington, Oregon, and California, which would leave Texas and Illinois as its only two payday loan states. Clearly we believe the de-emphasis of payday has led to a higher valuation of FCFS shares.

FCFS generates strong cash flow and has a clean balance sheet which has been used to fund store expansion; debt totals just $50mm. FCFS generated approximately $27 MM of free cash in 2008 ($0.90 per share) and we are currently modeling for 2009E free cash flow of approximately $43 MM or $1.44 per share. We believe excess free cash flow will be used to fund additional store expansion, primarily in Mexico, pawn loan portfolio growth, and to pay down debt. While share repurchase is another option for free cash flow use, the recent increase in the share price probably makes share repurchase less attractive at current levels.

Ticker CSH EZPW AEA DLLR Average

Previous Close $34.32 $16.98 $5.99 $23.09

Earnings Per Share 2009 2010 2011 $3.04 $3.50 $3.85 $1.42 $1.71 $1.87 $0.78 $0.79 $1.02 $0.07 $2.18 $2.35

P/E 2009 2010 11.3x 9.8x 11.9x 9.9x 7.7x 7.6x

10.6x 10.3x 9.5x

2011 8.9x 9.1x 5.9x 9.8x 8.4x

Enterprise Value $1,331 $625 $868 $740

Estimated EBITDA

2009 2010 2011

$212 $239 $262

$113 $137 $149

$107 $113

--

$124 $159 $177

Est EV/EBITDA 2009 2010 2011 6.3x 5.6x 5.1x 5.5x 4.5x 4.2x 8.1x 7.6x 6.0x 4.7x 6.5x 5.6x 4.6x

EPS Growth 2010 2011 15% 10% 20% 10% 1% 29%

8% 12% 14%

Est EBITDA Growth

2010

2011

13%

10%

21%

8%

6%

28%

17%

9%

FCFS

$21.94 $1.40 $1.65 $1.92 15.6x 13.3x 11.4x $677

$78 $89 $100 8.7x 7.6x 6.8x 17% 17% 14%

13%

Source: FirstCall, Feltl & Company

Company Overview First Cash Financial is a provider of pawn and consumer credit services to the unbanked or underbanked market (individuals with limited access to credit or traditional banking relationships). The company provides pawn loans (loans collateralized by personal property) in 97 domestic pawn stores (First Cash Pawn) and 271 locations in Mexico. Approximately 30% of pawn loans are not repaid resulting in forfeited collateral being sold to other customers looking for good values.

In addition, the company makes payday loans through 142 stand alone short-term loan locations and 65 of its 97 domestic pawn shops. Payday loans are made to individuals who often have no other credit alternatives. While there is an argument to be made on behalf of the payday lenders for the service being provided and the risk being assumed, the payday loan business remains a lightning rod for political and consumer advocacy group criticism. Rather than diversify its product offerings or making significant adjustments, FCFS appears to have decided to reduce this portion of its business. First Cash was founded in July of 1988, went public in 1991, and is headquartered in Arlington, Texas.

First Cash is segmented between Domestic and Foreign revenues. While pawn revenues are relatively evenly split between the U.S. and Mexico, the vast majority of payday revenues are generated domestically.

Feltl and Company Research Department

First Cash Financial Services, Inc. (FCFS)

Page 2

December 22, 2009

First Cash Domestic Locations at September 30, 2009

California D.C. Illinois Maryland Missouri Oklahoma

United States

Pawn Only Locations

2 21 2 -

Pawn & Payday Locations 3

Oregon South Carolina Texas Virginia Washington

-

-

3

3

2

59

2

-

-

-

Total

32

65

Total Domestic Pawn Locations

97

Total Domestic Short-Term Loan Locations

207

Mexico

Mexico

Combined

Total First Cash Locations

Source: Feltl & Company, Company Reports

Pawn Only Locations

0

32

553

Pawn & Payday Locations 271

336

Payday Only Locations 15 10 3 110 4 142

Payday Only Locations 43

185

Domestic Operations Through the first three quarters of 2009, domestic operations accounted for 54.3% of total revenue compared to 58.4% for the first three quarters of 2008. While growth in new store locations has clearly been focused on Mexico, we point out that total FCFS locations domestically are down 17 year-to-date, with three new pawn locations offset by a reduction of 20 shortterm loan stores.

Pawn Lending and Merchandise Sales The majority of revenues generated domestically are driven through the Company's pawn operations. Through its pawn locations, the company makes short-term loans collateralized by personal property to individuals who often fall into the underbanked portion of the population. In a typical pawn loan, a customer brings in property at the time of the loan request to serve as collateral for the loan. The item is appraised and the loan officer determines an appropriate loan amount based on the value of the appraisal (typically adhering to internal loan-to-value or "LTV" guidelines).

While the regulatory environment differs from state to state, and depending on the size of the loan, a typical loan earns 10%-20% a month and is held for approximately 30 days. Most states have a mandatory grace period following the initial term of the loan lasting 15-60 days depending on the state. If the loan is not repaid by the end of the loan term and grace period, the customer forfeits the pawned item, and it becomes inventory available for sale at the pawn location. The average pawn loan size for First Cash is approximately $150 in the United States, and the most frequent item pawned is jewelry. Pawn service fees (or interest on pawn loans) accounted for 19% of total domestic revenues and 28% of gross domestic pawn revenues through the first three quarters of 2009.

Feltl and Company Research Department

First Cash Financial Services, Inc. (FCFS)

Page 3

December 22, 2009

Composition of Pawn Inventory

12% 8%

43%

37%

Gold Jewelry Electronics Tools Other

Source: Feltl & Company, Company Reports

Accounting for the majority of domestic revenues is merchandise sales (49.6% through 9 months of 2009). As mentioned, through the course of pawn lending the company acquires merchandise through loan forfeitures and to a lesser extent through an outright purchase. First Cash has typically experienced about a 30% forfeiture rate on its pawn loans. Gross margin on merchandise sales depends on the valuation assessment of the merchandise pawned as well as loan-to-value decision at the time the pawn loan is made. Depending on the type of merchandise, the company typically loans between 40% and 60% of the determined valuation of the item.

There are two avenues for disposition of forfeited items: Sale through its pawn locations or scrapping of jewelry (primarily gold). First Cash has historically generated 40%-45% gross margins on the disposition of forfeited items, with sales generally generating slightly higher margins than gold scrapping. Gold prices clearly play an important role in the decision making process. As gold prices move higher, the pawn locations are willing to lend a higher amount against gold jewelry given the underlying commodity value, which increases pawn loans balances driving greater interest income. Given the slightly higher margins on sales, the Company typically seeks to sell forfeited jewelry through its stores; however, as gold prices move higher, the scrapping alternative becomes more attractive, and scrapping is also a convenient tool used to manage inventories.

To the extent the pawned merchandise is valued inappropriately and the loan results in forfeiture, the margin on the sale of that item may be negatively affected by the company's inability to sell it at the expected price resulting in a markdown to clear out the inventory. Inventory levels tend to rise in the June and September quarters as merchandise sales are lower, causing inventory to build. FCFS tends to experience its strongest sales in the March quarter due to tax refunds and the December quarter due to the holidays.

On the surface it appears as if merchandise sales account for the majority of pawn related revenues. Perhaps the most appropriate way to think about the revenue contribution of merchandise sales is to exclude the cost of goods sold (the value of the loan that was forfeited). When doing so, the gross revenue from merchandise sales is about equal to the interest income generated on pawn loans.

Short-Term Lending Activities Fees on short-term loans accounted for 29.6% of domestic revenue for the first three quarters of 2009 compared to 32.6% of domestic revenue for the comparable quarters in 2008.

Many of First Cash's customers who have short-term cash needs prefer a cash advance loan to other options. In order to access an unsecured short-term loan, the customer must provide proof of employment, identification, a checking account, and have a relatively clean record with regard to returned checks. Short-term loans range from $100 to $1,000 with an average amount of $350. The term of the loan is usually less than 30 days, and the fee rate is typically between 10%-20% of the face amount of the loan depending on the state. Obviously the annualized rate is significantly higher.

First Cash charges off, and begins collections on, all payday loans as soon as a payment is missed, or the payment is rejected (most often due to insufficient funds). Collections begin immediately and are done at the branch level typically for about three weeks. Without resolution, the collection process moves to the centralized collection/call center in Texas.

Feltl and Company Research Department

First Cash Financial Services, Inc. (FCFS)

Page 4

December 22, 2009

Historically the Company sold uncollected loans after a certain period of time to third parties. However, weak pricing for charged off receivables have driven FCFS to continue to work receivables internally.

Payday lending is regulated at the state level. Each state has varying degrees of regulation which make some states more attractive for short-term unsecured lending. While there are several companies conducting payday lending operations in many U.S. states, First Cash operates in just seven. We point out that FCFS recently exited Michigan and closed other underperforming stores in Texas. In our opinion, the de-emphasis of payday lending at FCFS has lead to a higher valuation of shares. In keeping with that strategy, management has suggested that it is looking to exit its operations on the west coast, as locations in Oregon have performed at a low level, regulatory changes in Washington state that go into effect on January 1, 2010 will likely negatively impact profitability and California is not part of its growth plans. We would not be surprised to see the Company wind down its payday lending business in all U.S. markets, except Texas.

We point out that Texas is unique in that the regulatory environment does not allow for "traditional" payday loan products. As such, FCFS is registered as a credit service organization (CSO). Under this model, First Cash facilitates a loan between the customer and a third-party lender for a fee. The structure of the loan is similar to a payday loan and fee generation on behalf of FCFS is derived from advice, assistance and other services provided in obtaining the loan coupled with a guarantee to the lender on the repayment of the loan.

While payday lending can generate nice returns, it continues to be a lightning rod for criticism from political and consumer advocacy groups. At the federal level, there has been a bill authored that limits usury fees on payday loans nationwide, but our sense is that there is not enough support of the bill to be concerned today. That being said, we do not believe the perceived risk to go away anytime soon, thus FCFS will likely continue to maintain a premium valuation.

The following table displays the main revenue drivers of the domestic segment for pawn lending, merchandise sales, jewelry scrapping and short-term lending.

Domestic Revenues Pawn Merchandise Sales Pawn Scrap Jewelry Sales Domestic Pawn Sales

Pawn Service Fees PDL & CSO Fees Other Total Revenue

Domestic Receivables Outstanding Pawn Loans PDL CSO Total Domestic Loans Outstanding

Annualized Yield On Pawn Loans

Avg Total Pawn Loans Outstanding (000s) Q/Q Growth Y/Y Growth

Avg Ending Pawn Inventory Per Store Average Quarter Inventory Per Store Average Total Inventory ($Mil) Q/Q Growth Y/Y Growth

Sales as % Of Total Merchandise Annualized Sales Per Pawn Store (000s) Q/Q Growth Y/Y Growth

Annualized Yield On Short-Term Loans

Average STL Balance Per Store (000s) Q/Q Growth Y/Y Growth Avg Quarterly STL Balance/Store (000s)

Average Total STLs Outstanding (000s) Q/Q Growth Y/Y Growth

Source: Feltl & Company, Company Reports

2008 62.2 27.0 89.2

35.0 63.6 3.9 191.7

1Q09 17.1 6.8 23.9

8.7 13.7 0.9 47.2

2Q09 15.0 6.6 21.6

8.5 13.2 0.7 44.0

3Q09 15.8 9.0 24.8

10.1 15.0 0.7 50.5

4Q09E 15.9 9.0 24.9

2009 63.8 31.3 95.1

10.9 38.1

16.0 57.9

0.9

3.2

52.6 194.4

1Q10E 17.8 8.8 26.6

10.8 13.1 0.9 51.4

2Q10E 16.5 8.1 24.7

9.4 12.9 0.7 47.7

3Q10E 17.7 8.7 26.3

9.9 13.4 0.7 50.3

4Q10E 18.1 8.9 27.1

11.7 14.7 0.9 54.3

2010E 70.2 34.5 104.6

41.8 54.2 3.2 203.7

2011E 75.9 37.3 113.3

45.6 50.4 3.2 212.4

23.6 23.0 28.1 31.2 28.9 28.9 26.3 29.3 31.7 31.8 31.8 34.4

5.2

3.7

4.2

4.5

4.3

4.3

4.0

3.8

4.1

4.0

4.0

3.8

12.6

9.5

10.9 11.9 11.3 11.3 10.6 10.1 10.8 10.7 10.7 10.1

41.4 36.2 43.2 47.6 44.6 44.6 40.9 43.3 46.5 46.5 46.5 48.3

146.3% 149.4% 132.6% 136.0% 145.0% 139.6% 149.0% 135.0% 135.0% 150.0% 139.2% 139.2%

24,455

24,162 -4.9%

24,489 1.4% 6.4%

27,804 13.5% 13.1%

29,950 7.7% 17.9%

26,621 8.9%

28,945 -3.4% 19.8%

27,805 -3.9% 13.5%

29,254 5.2% 5.2%

31,235 6.8% 4.3%

29,321 10.1%

32,058 9.3%

251

251

295

329

301

301

274

303

327

325

325

344

257

251

273

312

315

288

288

288

315

326

304

327

24.4 23.3 25.5 29.6 28.9 27.2 26.3 29.3 31.7 31.8 29.5 32.3

-7.4% 9.5% 16.2% -2.4%

-9.0% 11.5% 8.1% 0.4%

2.8% 7.8% 15.0% 15.0% 11.5% 13.0% 15.0% 7.0% 10.0% 8.5% 9.6%

91.6% $943

14.2%

102.4% $1,027

5.9% 5.0%

84.6% $924 -10.0% 5.6%

83.6% $1,043 12.9%

9.3%

86.0% $1,043 -0.1%

7.5%

87.6% $676

-28.3%

101.0% $743 -28.7% -27.6%

84.0% $685 -7.8% -25.9%

83.0% $728 6.3% -30.2%

85.0% $744 2.3% -28.6%

88.8% $725

7.3%

87.7% $769

6.1%

370.3% 353.4% 373.6% 381.0% 410.0% 379.8% 350.0% 365.0% 375.0% 400.0% 372.4% 367.5%

107.8 102.9

99.7 -7.5% -7.8% 103.8

96.2 -10.7% -0.4% 98.0

108.8 13.1% 4.5% 102.5

108.9 0.0% 1.0% 108.8

103.4

-4.0% 103.3

102.7 -5.7% 3.0% 105.8

99.1 -3.5% 3.0% 100.9

106.7 7.6% -2.0% 102.9

106.7 0.0% -2.0% 106.7

103.8

0.4% 104.1

101.7

-2.0% 102.0

16,406

16,134 -5.7%

14,403 14,815 -10.7% 2.9% -11.3% -7.8%

15,620 5.4% -8.7%

15,243 -7.1%

15,022 -3.8% -6.9%

14,179 -5.6% -1.6%

14,301 0.9% -3.5%

14,667 2.6% -6.1%

14,542 -4.6%

13,716 -5.7%

Foreign Operations Feltl and Company Research Department

First Cash Financial Services, Inc. (FCFS)

Page 5

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