Note

6—Structured

Settlements (At Fair Value)

CBC purchases periodic payments under structured settlements and annuity policies from individuals in exchange for a lump sum payment. The Company elected to carry the structured settlements at fair value. Unearned income on structured settlements is recognized as interest income using the effective interest method over the life of the related structured settlement. Changes in fair value are recorded in unrealized gain (loss) on structured settlements in the Company’s statements of operations. Unrealized gains on structured settlements is comprised of both unrealized gains resulting from fair market valuation at the date of acquisition of the structured settlements and the subsequent fair value adjustments resulting from the change in the discount rate. Of the

$1.6

million of unrealized gains recognized in the

three

month period ended

December

31,

2016,

approximately

$2.1

million is due to day

one

gains on new structured settlements financed during the period, offset by a decrease of

$0.5

million in realized gains recognized as realized interest income on structured settlements during the period. There were no other changes in assumptions during the period.

The Company elected the fair value treatment under ASC

825

through

to be transparent to the user regarding the underlying fair value of the structured settlement which collateralizes the debt of CBC. The Company believes any change in fair value is driven by market risk as opposed to credit risk associated with the underlying structured settlement annuity issuer.

The purchased personal injury structured settlements result in payments over time through an annuity policy. Most of the annuities acquired involve guaranteed payments with specific defined ending dates. CBC also purchases a small number of life contingent annuity payments with specific ending dates but the actual payments to be received could be less due to the mortality risk associated with the measuring life. CBC records a provision for loss each period. The life contingent annuities are not a material portion of assets at

December

31,

2016

and revenue for the

three

month period ended

December

31,

2016.

Structured settlements consist of the following as of

December

31,

2016

and

September

30,

2015:

	December 31 , 2016			September 30, 2016
Maturity (1) (2)	$	143,226,000		$	133,059,000
Unearned income		(51,721,000	)		(47,351,000	)
Net collections	$	91,505,000		$	85,708,000

(1)	The maturity value represents the aggregate unpaid principal balance at December 31, 2016 and September 30, 2016.

(2)	There are no amounts of structured settlements that are past due, or in nonaccrual status at December 31, 2016 and September 30, 2016.

Encumbrances on structured settlements as of

December

31,

2016

and

September

30,

2016

are as follows:

	December 31 , 2016		September 30, 2016
Notes payable secured by settlement receivables with principal and interest outstanding payable until June 2025 (3)	$	1,817,000	$	1,862,000
Notes payable secured by settlement receivables with principal and interest outstanding payable until August 2026 (3)		4,138,000		4,242,000
Notes payable secured by settlement receivables with principal and interest outstanding payable until April 2032 (3)		3,948,000		3,987,000
Notes payable secured by settlement receivables with principal and interest outstanding payable until February 2037 (3)		18,601,000		18,978,000
Notes payable secured by settlement receivables with principal and interest outstanding payable until March 2034 (3)		14,193,000		14,507,000
Notes payable secured by settlement receivables with principal and interest outstanding payable until February 2043 (3)		13,605,000		13,705,000
$25,000,000 revolving line of credit (3)		15,264,000		10,154,000
Encumbered structured settlements		71,566,000		67,435,000
Structured settlements not encumbered		19,939,000		18,273,000
Total structured settlements	$	91,505,000	$	85,708,000

(3)	See Note 10 – Other Debt – CBC

December

31,

2016,

the expected cash flows of structured settlements based on maturity value are as follows:

September 30, 2017 (9 months)	$	7,635,000
September 30, 2018		8,556,000
September 30, 2019		8,914,000
September 30, 2020		8,371,000
September 30, 2021		9,105,000
Thereafter		100,645,000
Total	$	143,226,000