10-Q 1 a2220131z10-q.htm 10-Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q

(Mark One)    
ý   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to                to              

Commission File Number: 001-35537

COMMUNITY CHOICE FINANCIAL, INC
(Exact name of registrant as specified in its charter)

Ohio
(State or other jurisdiction of
incorporation or organization)
  45-1536453
(IRS Employer
Identification No.)

7001 Post Rd, Suite 200, Dublin, Ohio
(Address of principal executive offices)

 

43016
(Zip Code)

(614) 798-5900
(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Act.) Yes o    No ý

        There is no market for the registrant's equity. As of March 31, 2014, there were 8,981,536 shares outstanding.

   


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Form 10-Q for the Quarterly Period Ended March 31, 2014

Table of Contents

 
   
  Page  

 

Financial Information

       

Item 1.

 

Financial Statements

       

 

Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013

    3  

 

Consolidated Statements of Income for the three months ended March 31, 2014 (unaudited) and March 31, 2013 (unaudited)

    4  

 

Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2014 (unaudited)

    5  

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2014 (unaudited) and March 31, 2013 (unaudited)

    6  

 

Notes to unaudited Consolidated Financial Statements

    7 - 35  


Item 2.


 


Management's Discussion and Analysis of Financial Condition and Result of Operations


 

 


36 - 50

 


Item 3.


 


Quantitative and Qualitative Disclosures about Market Risk


 

 


50

 


Item 4.


 


Controls and Procedures


 

 


51

 


Part II


 


Other Information


 

 



 


Item 1.


 


Legal Proceedings


 

 


51

 


Item 1A.


 


Risk Factors


 

 


51

 


Item 6.


 


Exhibits


 

 


52

 



 


Signatures


 

 


53

 

2


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Balance Sheets

March 31, 2014 and December 31, 2013

(In thousands, except per share data)

 
  March 31,
2014
  December 31,
2013
 
 
  (unaudited)
   
 

Assets

             

Current Assets

             

Cash and cash equivalents

  $ 147,690   $ 90,311  

Restricted cash

    1,665     1,414  

Finance receivables, net of allowance for loan losses of $15,054 and $15,548            

    130,659     157,152  

Short-term investments, certificates of deposit

    1,114     1,114  

Card related pre-funding and receivables

    801     806  

Other current assets

    9,400     9,516  

Deferred tax asset, net

    9,157     9,157  
           

Total current assets

    300,486     269,470  

Noncurrent Assets

             

Finance receivables, net of allowance for loan losses of $3,651 and $2,460

    12,291     8,178  

Property, leasehold improvements and equipment, net

    28,164     25,804  

Goodwill

    312,883     312,534  

Other intangible assets

    21,884     23,372  

Security deposits

    3,092     3,086  

Deferred debt issuance costs

    10,734     11,324  
           

Total assets

  $ 689,534   $ 653,768  
           
           

Liabilities and Stockholders' Equity

             

Current Liabilities

             

Current portion of capital lease obligation

  $ 557   $ 681  

Current portion of related party Florida seller notes

    1,250     500  

Subsidiary note payable

    8,100     8,100  

Deferred revenue

    2,748     2,682  

Accrued interest

    19,550     8,151  

Money orders payable

    13,795     15,495  

Accounts payable and accrued liabilities

    29,871     25,155  
           

Total current liabilities

    75,871     60,764  

Noncurrent Liabilities

             

Accrued liabilities

    700     1,075  

Lines of credit

    36,664     25,000  

Capital lease obligation

    295     257  

Stock repurchase obligation

    872     928  

Related party Florida seller notes

    11,212     11,909  

Mortgage note payable

    714     420  

Senior secured notes

    420,000     420,000  

Deferred revenue

    4,806     5,403  

Deferred tax liability, net

    10,156     6,670  
           

Total liabilities

    561,290     532,426  
           

Commitments and Contingencies

             

Stockholders' Equity

             

Preferred stock, par value $.01 per share, 3,000 shares authorized, no shares issued and outstanding

         

Common stock, par value $.01 per share, 300,000 authorized shares and 8,982 outstanding shares at March 31, 2014 and December 31, 2013

    90     90  

Additional paid-in capital

    125,864     125,487  

Non-controlling interest

    26,216     26,428  

Retained deficit

    (23,926 )   (30,663 )
           

Total stockholders' equity

    128,244     121,342  
           

Total liabilities and stockholders' equity

  $ 689,534   $ 653,768  
           
           

   

See Notes to Unaudited Consolidated Financial Statements.

3


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Community Choice Financial Inc. and Subsidiaries

Consolidated Statements of Income

Three Months Ended March 31, 2014 and 2013

(In thousands)

(Unaudited)

 
  Three Months Ended
March 31,
 
 
  2014   2013  

Revenues:

             

Finance receivable fees

  $ 88,823   $ 68,711  

Check cashing fees

    21,737     22,216  

Card fees

    6,570     1,501  

Other

    7,956     6,523  
           

Total revenues

    125,086     98,951  
           

Operating expenses:

             

Salaries and benefits

    19,602     17,187  

Provision for loan losses

    30,127     19,089  

Occupancy

    7,097     6,447  

Advertising and marketing

    3,669     2,168  

Depreciation and amortization

    1,954     1,617  

Other

    12,617     12,496  
           

Total operating expenses

    75,066     59,004  
           

Operating gross profit

    50,020     39,947  
           

Corporate and other expenses

             

Corporate expenses

    23,122     14,761  

Depreciation and amortization

    2,224     2,053  

Interest expense, net

    13,352     12,809  

Loss on equity method investments

        17  
           

Total corporate and other expenses

    38,698     29,640  
           

Income before provision for income taxes

    11,322     10,307  
           

Provision for income taxes

    4,452     4,232  
           

Net income

    6,870     6,075  

Net income attributable to non-controlling interests

    133      
           

Net income attributable to controlling interests

  $ 6,737   $ 6,075  
           
           

   

See Notes to Unaudited Consolidated Financial Statements.

4


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Statement of Stockholders' Equity

Three Months Ended March 31, 2014

(Dollars in thousands)

(Unaudited)

 
  Common Stock    
   
   
   
 
 
  Additional
Paid-In
Capital
  Non-controlling
Interest
  Retained
Deficit
   
 
 
  Shares   Amount   Total  

Balance, December 31, 2013

    8,981,536   $ 90   $ 125,487   $ 26,428   $ (30,663 ) $ 121,342  

Stock-based compensation expense

            377             377  

Member distribution

                (345 )              (345 )

Net income

                133     6,737     6,870  
                           

Balance, March 31, 2014

    8,981,536   $ 90   $ 125,864   $ 26,216   $ (23,926 ) $ 128,244  
                           
                           

   

See Notes to Unaudited Consolidated Financial Statements.

5


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Three Months Ended March 31, 2014 and 2013

(In thousands)

(Unaudited)

 
  Three Months Ended
March 31,
 
 
  2014   2013  

Cash flows from operating activities

             

Net income

  $ 6,870   $ 6,075  

Adjustments to reconcile net income to net cash provided

             

by operating activities:

             

Provision for loan losses

    30,127     19,089  

Loss on disposal of assets

        12  

(Gain) Loss on equity method investments

        17  

Depreciation

    2,527     2,032  

Amortization of note discount and deferred debt issuance costs

    643     733  

Amortization of intangibles

    1,651     1,635  

Deferred income taxes

    4,052     2,697  

Change in fair value of stock repurchase obligation

    (56 )   (152 )

Stock-based compensation

    377     310  

Changes in assets and liabilities:

             

Card related pre-funding and receivables

    5     3,639  

Restricted cash

    (251 )    

Other assets

    110     1,349  

Deferred revenue

    (531 )   (678 )

Accrued interest

    11,399     11,007  

Money orders payable

    (1,700 )   (270 )

Accounts payable and accrued expenses

    4,341     1,060  
           

Net cash provided by operating activities

    59,564     48,555  
           

Cash flows from investing activities

             

Net receivables originated

    (7,247 )    

Net receivables repaid

        3,425  

Net acquired assets, net of cash

    (1,704 )    

Purchase of customer list intangible asset

        (12 )

Internally developed software intangible asset

    (32 )    

Purchase of leasehold improvements and equipment

    (4,729 )   (1,516 )
           

Net cash (used in) provided by investing activities

    (13,712 )   1,897  
           

Cash flows from financing activities

             

Payments on capital lease obligations, net

    (86 )    

Net advances on lines of credit

    11,664      

Payments on mortgage note payable

    (426 )      

Proceeds from refinance of mortgage note payable

    720        

Member distribution

    (345 )    
           

Net cash provided by financing activities

    11,527      
           

Net increase in cash and cash equivalents

    57,379     50,452  

Cash and cash equivalents:

             

Beginning

    90,311     79,044  
           

Ending

  $ 147,690   $ 129,496  
           
           

   

See Notes to Unaudited Consolidated Financial Statements.

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Table of Contents


Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share data)

Note 1. Ownership, Nature of Business, and Significant Accounting Policies

        Nature of business:    Community Choice Financial Inc. (together with its consolidated subsidiaries, "CCFI" or "the Company") was formed on April 6, 2011 under the laws of the State of Ohio. As of March 31, 2014, the Company owned and operated 522 stores in 15 states and had an internet presence in 24 states. Through its network of retail stores and over the internet, the Company provides customers a variety of financial products and services, including secured and unsecured, short and medium-term loans, check cashing, prepaid debit cards, and other services that address the specific needs of our individual customers.

        A summary of the Company's significant accounting policies follows:

        Basis of presentation:    The accompanying interim unaudited consolidated financial statements of Community Choice Financial Inc. and its subsidiaries have been prepared in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States for interim financial information. They do not include all information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Although management believes that the disclosures are adequate to prevent the information from being misleading, the interim unaudited consolidated financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2013 in the Company's Form 10-K. In the opinion of the Company's management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company's financial condition, have been included. The results for any interim period are not necessarily indicative of results to be expected for the year ending December 31, 2014.

        Basis of consolidation:    The accompanying consolidated financial statements include the accounts of Community Choice Financial Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company determined that Insight Holdings Company, LLC ("Insight Holdings") is a Variable Interest Entity ("VIE") of which the Company is the primary beneficiary. Therefore, the Company has consolidated this VIE as of April 1, 2013.

        Use of estimates:    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, the valuation of goodwill, the valuation of equity method investments, the valuation of stock repurchase obligations, the value of stock based compensation and the valuation of deferred tax assets and liabilities.

        Business segments:    FASB Accounting Standards Codification ("ASC") Topic 280 requires that a public enterprise report a measure of segment profit or loss, certain specific revenue and expense items, segment assets, information about the way operating segments were determined and other items. The Company reports operating segments in accordance with FASB ASC Topic 280. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in determining how to allocate resources and assess performance. The Company operates in two segments: Retail financial services and Internet

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Table of Contents


Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 1. Ownership, Nature of Business, and Significant Accounting Policies (Continued)

financial services. The consolidation of Insight Holdings, as described further in Note 10, is included in retail financial services.

        Revenue recognition:    Transactions include loans, check cashing, bill payment, money transfer, money order sales, and other miscellaneous products and services. The full amount of the check cashing fee is recognized as revenue at the time of the transaction. Fees and direct costs incurred for the origination of loans are deferred and amortized over the loan period using the interest method. The Company acts in an agency capacity regarding bill payment services, money transfers, card products, and money orders offered and sold at its branches. The Company records the net amount retained as revenue because the supplier is the primary obligor in the arrangement, the amount earned by the Company is fixed, and the supplier is determined to have the ultimate credit risk. Fees and direct costs incurred for the origination of finance receivables are deferred and amortized over the loan period using the interest method.

        Interest and fee income is recognized for all loan products using the interest (actuarial) method.

        As a result of the Company's charge-off policies, accounts are charged-off between 1 and 90 days past due rather than being placed in nonaccrual status.

        Cash and cash equivalents:    Cash and cash equivalents include cash on hand and short-term investments with original maturities of three months or less. At times, the Company may maintain deposits with banks in amounts in excess of federal depository insurance limits, but believes any such amounts do not represent significant credit risk.

        Restricted cash:    Restricted cash includes the carrying amounts of cash and cash equivalent items which are restricted as to withdrawal or usage. Restricted cash represents the funds collected in advance from Insight and Insight's retail agents that are held at the card issuing bank for future loads to be received from cardholders at point of sale or through electronic funds transfer.

        Finance receivables:    Finance receivables consist of three categories of receivables: short term consumer loans, medium-term loans, and secured loans.

        Short term consumer loan products typically range in size from $100 to $1,000, and are evidenced by a promissory note with a maturity generally 14 to 30 days with an agreement to defer the presentment of the customer's personal check or ACH authorization for the aggregate amount of the advance plus fees. This form of lending is based on applicable laws and regulations, which vary by state. Statutes vary from providing fees of 15% to 20% per $100 borrowed, to providing interest at 25% per annum plus origination fees. The customers repay the cash advance by making cash payments or allowing their check or ACH to be presented. For unsecured loans, the risk of repayment primarily relates to the customer's ability to repay the loans.

        In certain states, either in compliance with law or through our following of best practices recommended by the Community Financial Services Association of America ("CFSA") we offer an extended payment plan for all borrowers. This extended payment plan is advertised to all customers where the program is offered, either via pamphlet or by being posted at the store at the time of the loan. This payment plan is available to all customers in these states upon request and is not contingent on the borrower's repayment status or further underwriting standards. The term is extended to roughly

8


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 1. Ownership, Nature of Business, and Significant Accounting Policies (Continued)

four payments over eight weeks. If customers do not make these payments, then their held check is deposited. Gross loan receivables subject to these repayment plans represented $1,411 of the $166,049 of total receivables at March 31, 2014 and $1,793 of the $189,108 of total receivables at December 31, 2013.

        Medium term loans typically range from $100 to $5,000 and are evidenced by a promissory note with a maturity between 3 months and 36 months. These loans vary in their structure to correspond with the regulatory environments where they are offered. The loans are due in installments or provide for a line of credit with periodic monthly payments. For unsecured loans, the risk of repayment primarily relates to the customer's ability to repay the loans.

        Secured loan products typically range in size from $750 to $5,000, and are evidenced by a promissory note with a maturity between 30 days and 24 months. The customer grants a right in collateral and the loan may be secured with the lien on the collateral. The risk characteristics of secured loans primarily depend on the markets in which the Company operates and the regulatory requirements of each market. Risks associated with secured financings relate to the ability of the borrower to repay its loans and the value of the collateral underlying the loan should the borrower default on its payments.

        Short-term investments, certificates of deposit:    Short-term investments consist of certificates of deposit with original maturities of more than three months. Short-term investments are recorded at the carrying value, which approximates fair value and interest is recognized as earned.

        Allowance for loan losses:    Provisions for loan losses are charged to income in amounts sufficient to maintain an adequate allowance for loan losses and an adequate accrual for losses related to guaranteed loans processed for third-party lenders. The factors used in assessing the overall adequacy of the allowance for loan losses, the accrual for losses related to guaranteed loans processed for third-party lenders and the resulting provision for loan losses include an evaluation by product by market based on historical loan loss experience and delinquency of certain medium-term loans. The Company evaluates various qualitative factors that may or may not affect the computed initial estimate of the allowance for loan losses, including, among others, overall portfolio quality and current economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions.

        For short term consumer loans, our policy is to charge off accounts when they become past due. The Company's policy dictates that, where a customer has provided a check or ACH authorization for presentment upon the maturity of a loan, if the customer has not paid off the loan by the due date, the Company will deposit the customer's check or draft the customer's bank account for the amount due. If the check or draft is returned as uncollected, all accrued fees and outstanding principal are charged-off as uncollectible.

        For medium term loans which have a term of one year or less, the Company's policy requires that balances be charged off when accounts are 60 days past due. For medium term loans which have an initial maturity of greater than one year, the Company's policy requires that balances be charged off when accounts are no more than 90 days past due. The Company's line of credit products are charged-off on the thirty first day past due.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 1. Ownership, Nature of Business, and Significant Accounting Policies (Continued)

        For secured loans that are 30 days in duration, the Company's policy requires that balances be charged off when accounts are 30 days past due. For secured loans that have terms ranging from 60 days to one year, the Company's policy dictates that balances be charged off when accounts are 60 days past due. For secured loans that have terms of greater than one year, the Company's policy requires that balances be charged off when accounts are no more than 90 days past due.

        Recoveries of amounts previously charged off are recorded to the allowance for loan losses or the accrual for third-party losses in the period in which they are received.

        Card related pre-funding and receivables:    Prior to April 1, 2013, the Company acted as an agent for Insight Holdings marketing prepaid debit cards. Pursuant to the Company's agreement, the Company was required to pre-fund certain card activity. The Company was also the beneficiary of certain receivables resulting from its card sales that relate to the commissions earned from this entity payable according to negotiated terms. Effective April 1, 2013, the card related prefunding between the Company and Insight Holdings has been eliminated and represents prefunding by Insight Holdings to the banks for card activity.

        Deferred loan origination costs:    Direct costs incurred for the origination of loans, which consist mainly of marketing and employee-related costs, are deferred and amortized to loan fee income over the contractual lives of the loans using the interest method. Unamortized amounts are recognized in income at the time that loans are paid in full.

        Goodwill and other intangibles:    Goodwill, or cost in excess of fair value of net assets of the companies acquired, is recorded at its carrying value and is periodically evaluated for impairment. The Company tests the carrying value of goodwill and other intangible assets annually as of December 31 or when the events and circumstances warrant such a review. One of the methods for this review is performed using estimates of future cash flows. If the carrying value of goodwill or other intangible assets is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the goodwill or intangible assets exceeds its fair value. Based upon the annual impairment testing performed by the Company, management has determined that goodwill is not impaired. Changes in estimates of cash flows and fair value, however, could affect the evaluation.

        The Company's other intangible assets consist of non-compete agreements, customer lists, trade names, and internally developed software. Generally, the amounts recorded for non-compete agreements, customer lists and trade names are amortized using the straight-line method over five years and internally developed software is amortized using the straight-line method over three years. The customer list intangibles for DFS and the acquisition of 54 stores in Florida ("Florida Acquisition") are amortized based on the expected customer retention rate on an accelerated method over a period of 3 to 4 years. Amortization expense for the three months ended March 31, 2014 and 2013 were $1,651 and $1,635, respectively.

        Equity method investments:    Entities and investments over which the Company exercises significant influence over the activities of the entity but which do not meet the requirements for consolidation are accounted for using the equity method of accounting pursuant to ASC 323, whereby the Company records its share of the underlying income or losses of these entities. Intercompany profit arising from transactions with affiliates is eliminated to the extent of its beneficial interest. Equity in

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Table of Contents


Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 1. Ownership, Nature of Business, and Significant Accounting Policies (Continued)

losses of equity method investments is not recognized after the carrying value of an investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist.

        On April 1, 2013, the Company extended a line of credit to Insight Holdings. The Company has consolidated Insight Holdings as of April 1, 2013 as the Company has determined that it is the primary beneficiary of the variable interest entity.

        Deferred debt issuance costs:    Deferred debt issuance costs are amortized on the interest method of accounting over the life of the related note payable agreement. Amortization is included as a component of interest expense in the consolidated statements of income.

        Deferred revenue:    The Company's deferred revenue is comprised of an upfront fee received under an agency agreement to offer wire transfer services at the Company's branches. The deferred revenue is recognized over the contract period on a straight-line basis.

        Deferred rent:    The Company leases premises under agreements which provide for periodic increases over the lease term. Accordingly, timing differences between the amount paid for rent and the amount expensed are recorded in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.

        Self-Insurance Liability:    The Company is self-insured for employee medical benefits subject to certain loss limitations. The incurred but not reported liability ("IBNR") represents an estimate of the cost of unreported claims based on historical claims reporting. The Company monitors the continued reasonableness of the assumptions and methods used to estimate the IBNR liability each reporting period.

        Advertising and marketing costs:    Costs incurred for producing and communicating advertising, and marketing over the internet are charged to operations when incurred or the first time advertising takes place. Advertising and marketing expense for the three months ended March 31, 2014 and 2013 was $3,669 and $2,168, respectively. Corporate level advertising and marketing expense for the three months ended March 31, 2014 and 2013 was $262 and $25, respectively.

        Operating expenses:    The direct costs incurred in operating the Company's operations have been classified as operating expenses. Operating expenses include salaries and benefits of operations employees, internet operations, loan losses, rent and other occupancy costs, depreciation and amortization of branch property and equipment, armored services and security costs, and other direct costs. District and regional managers' salaries are included in corporate expenses. Insight Holdings activity is included in corporate expenses.

        Preopening costs:    New store preopening costs are expensed when incurred.

        Impairment of long-lived assets:    The Company evaluates all long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Impairment is recognized when the carrying amount of these assets cannot be recovered by the undiscounted net cash flows they will generate.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 1. Ownership, Nature of Business, and Significant Accounting Policies (Continued)

        Income taxes:    Deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Income tax expense represents current tax obligations and the change in deferred tax assets and liabilities.

        The Company recognizes the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties on income taxes are charged to income tax expense.

        Governmental regulation:    The Company is subject to various state and federal laws and regulations, which are subject to change and which may impose significant costs or limitations on the way the Company conducts or expands its business. Certain limitations include among other things imposed limits on fee rates and other charges, the number of loans to a customer, a cooling off period, the number of permitted rollovers and required licensing and qualification.

        Although states provide the primary regulatory framework under which the Company offers consumer loans, certain federal laws also impact the business. The Company's consumer loans are subject to federal laws and regulations, including the Truth-in-Lending Act ("TILA"), the Equal Credit Opportunity Act ("ECOA"), the Fair Credit Reporting Act ("FCRA"), the Gramm-Leach-Bliley Act ("GLBA"), the Bank Secrecy Act, the Money Laundering Control Act of 1986, the Money Laundering Suppression Act of 1994, and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the "PATRIOT Act"), "Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank"), and the regulations, if any, promulgated for each. Among other things, these laws require disclosure of the principal terms of each transaction to every customer, prohibit misleading advertising, protect against discriminatory lending practices, proscribe unfair credit practices and prohibit creditors from discriminating against credit applicants on the basis of race, sex, age or marital status. The GLBA and its implementing regulations generally require the Company to protect the confidentiality of its customers' nonpublic personal information and to disclose to the Company's customers its privacy policy and practices.

        The Consumer Financial Protection Bureau ("CFPB"), which was created by Dodd-Frank, began examinations of payday lenders in 2012 and examined us starting in April 2012. We have received our examination report and although we remain in dialogue with the CFPB regarding various aspects of the report and the CFPB's request for various documents and information, at this time we do not anticipate any material changes to our commercial operations.

        Fair value of financial instruments:    Financial assets and liabilities measured at fair value are grouped in three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:

    Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 1. Ownership, Nature of Business, and Significant Accounting Policies (Continued)

    Level 2—Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are less attractive.

    Level 3—Unobservable inputs for assets and liabilities reflecting the reporting entity's own assumptions.

        The Company follows the provisions of the ASC 820-10, which applies to all assets and liabilities that are being measured and reported on a fair value basis. ASC 820-10 requires disclosure that establishes a framework for measuring fair value within generally accepted accounting principles and expands disclosure about fair value measurements. This standard enables a reader of consolidated financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The standard requires that assets and liabilities carried at fair value be classified and disclosed in one of the three categories.

        In determining the appropriate levels, the Company performed a detailed analysis of the assets and liabilities that are subject to ASC 820-10. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The Company's financial instruments consist primarily of cash and cash equivalents, finance receivables, short-term investments, and lines of credit. For all such instruments, other than senior secured notes, notes payable, and stock repurchase obligation at March 31, 2014 and December 31, 2013, the carrying amounts in the consolidated financial statements approximate their fair values. Our finance receivables are short term in nature and are originated at prevailing market rates. Our lines of credit bear interest at current market rates.

        The fair value of our 10.75% senior secured notes due 2019 (the "2019 notes") and our 12.75% senior secured notes due 2020 (the "2020 notes") were determined based on market yield on trades of the notes at the end of that reporting period.

        The fair value of related party Florida seller notes payable was determined based on applicable market yields of similar debt.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 1. Ownership, Nature of Business, and Significant Accounting Policies (Continued)

        The fair value of the stock repurchase obligation was determined based on a probability-adjusted Black Scholes option valuation model.

 
  March 31, 2014  
 
  Carrying
Amount
  Fair Value   Level  

Financial assets:

                   

Cash and cash equivalents

  $ 147,690   $ 147,690     1  

Restricted cash

    1,665     1,665     1  

Finance receivables

    142,950     142,950     3  

Short-term investments, certificates of deposit

    1,114     1,114     2  

Financial liabilities:

                   

10.75% Senior secured notes

    395,000     332,906     1  

12.75% Senior secured notes

    25,000     21,070     2  

Related party Florida seller notes

    12,462     12,462     2  

Lines of credit

    36,664     36,664     2  

Subsidary Note payable

    8,100     8,100     2  

Stock repurchase obligation

    872     872     2  

Mortgage note payable

    714     714     3  

 

 
  December 31, 2013  
 
  Carrying
Amount
  Fair Value   Level  

Financial assets:

                   

Cash and cash equivalents

  $ 90,311   $ 90,311     1  

Restricted cash

    1,414     1,414     1  

Finance receivables

    165,330     165,330     3  

Short-term investments, certificates of deposit

    1,114     1,114     2  

Financial liabilities:

                   

10.75% Senior secured notes

    395,000     338,318     1  

12.75% Senior secured notes

    25,000     21,413     2  

Related party Florida seller notes

    12,409     12,409     2  

Lines of credit

    25,000     25,000     2  

Subsidary Note payable

    8,100     8,100     2  

Stock repurchase obligation

    928     928     2  

Mortgage note payable

    420     420     3  

        Recent Accounting Pronouncements In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force) ("ASU 2013-05"), which applies to the release of the cumulative translation adjustment into net income when a parent either sells all or a part of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. ASU 2013-05 is effective prospectively

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 1. Ownership, Nature of Business, and Significant Accounting Policies (Continued)

for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The Company adopted ASU 2013-05 on January 1, 2014, and did not have a material effect on the Company's financial position or results of operations.

        In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"), which provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update are effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company adopted ASU 2013-11 on January 1, 2014, and did not have a material effect on the Company's financial position or results of operations.

        In April 2014, the Financial Accounting Standards Board issued ASU No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360)" ("ASU 2014-08"). The amendments in ASU 2014-08 require that a disposal representing a strategic shift that has (or will have) a major effect on an entity's financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014 (early adoption is permitted only for disposals that have not been previously reported). The Company does not expect ASU 2014-08 to have a material effect on the Company's current financial position, results of operations or financial statement disclosures; however, it may impact the reporting of future discontinued operations if and when they occur.

        Subsequent events:    The Company has evaluated its subsequent events (events occurring after March 31, 2014) through the issuance date of May 14, 2014 as disclosed in Note 17.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 2. Finance Receivables, Credit Quality Information and Allowance for Loan Losses

        Finance receivables representing amounts due from customers for advances at March 31, 2014 and December 31, 2013 consisted of the following:

 
  March 31,
2014
  December 31,
2013
 

Short-term consumer loans

  $ 84,609   $ 110,826  

Medium-term loans

    53,463     46,497  

Secured loans

    27,977     31,785  
           

Gross receivables

    166,049     189,108  

Unearned advance fees, net of deferred loan origination costs

    (4,394 )   (5,770 )
           

Finance receivables before allowance for loan losses

    161,655     183,338  

Allowance for loan losses

    (18,705 )   (18,008 )
           

Finance receivables, net

  $ 142,950   $ 165,330  
           
           

Finance receivable, net

             

Current portion

  $ 130,659   $ 157,152  

Non-current portion

    12,291     8,178  
           

Total finance receivable, net

  $ 142,950   $ 165,330  
           
           

        Changes in the allowance for the loan losses by product type for the three months ended March 31, 2014 are as follows:

 
  Balance
1/1/2014
  Provision   Charge-Offs   Recoveries   Balance
3/31/2014
  Receivables
3/31/2014
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 4,807   $ 13,373   $ (38,454 ) $ 23,929   $ 3,655   $ 84,609     4.32 %

Medium-term loans

    11,024     10,704     (9,695 )   1,075     13,108     53,463     24.52 %

Secured loans

    2,177     1,788     (8,648 )   6,625     1,942     27,977     6.94 %
                               

  $ 18,008   $ 25,865   $ (56,797 ) $ 31,629   $ 18,705   $ 166,049     11.26 %
                               
                               

        The provision for loan losses for the three months ended March 31, 2014 also includes losses from returned items from check cashing of $1,632.

        Changes in the allowance for the loan losses by product type for the three months ended March 31, 2013 are as follows:

 
  Balance
1/1/2013
  Provision   Charge-Offs   Recoveries   Balance
3/31/2013
  Receivables
3/31/2013
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 4,344   $ 11,529   $ (34,841 ) $ 22,040   $ 3,072   $ 82,553     3.72 %

Medium-term loans

    3,077     2,355     (3,367 )   657     2,722     13,314     20.44 %

Secured loans

    1,693     1,116     (7,197 )   5,724     1,336     22,323     5.98 %
                               

  $ 9,114   $ 15,000   $ (45,405 ) $ 28,421   $ 7,130   $ 118,190     6.03 %
                               
                               

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 2. Finance Receivables, Credit Quality Information and Allowance for Loan Losses (Continued)

        The provision for loan losses for the three months ended March 31, 2013 also includes losses from returned items from check cashing of $1,928.

        Changes in the accrual for third-party lender losses for the three months ended March 31, 2014 and 2013 were as follows:

 
  Three months ended
March 31,
 
 
  2014   2013  

Balance, beginning of period

  $ 1,481   $ 392  

Provision for loan losses

    2,630     2,161  

Charge-offs, net

    (2,914 )   (1,782 )
           

Balance, end of period

  $ 1,197   $ 771  
           
           

        The Company has subsidiaries that facilitate third party lender loans. Total gross finance receivables for which the Company has recorded an accrual for third-party lender losses totaled $7,747 and $9,228 at March 31, 2014 and December 31, 2013, respectively, and the corresponding guaranteed consumer loans are disclosed as an off-balance sheet arrangement.

        The Company considers the near term repayment performance of finance receivables as its primary credit quality indicator. The Company performs credit checks through consumer reporting agencies on certain loans. If a third-party lender provides the advance, the applicable third-party lender decides whether to approve the cash advance and establishes all of the underwriting criteria and terms, conditions, and features of the customer agreements.

        The aging of receivables at March 31, 2014 and December 31, 2013 are as follows:

 
  March 31, 2014   December 31, 2013  

Current finance receivables

  $ 154,131     92.7 % $ 174,651     92.4 %

Past due finance receivables (1 - 30 days)

                         

Medium-term loans

    5,290     3.2 %   5,065     2.7 %

Secured loans

    2,273     1.4 %   2,534     1.3 %
                   

Total past due finance receivables (1 - 30 days)

    7,563     4.6 %   7,599     4.0 %
                   

Past due finance receivables (31 - 60 days)

                         

Medium-term loans

    2,978     1.9 %   5,220     2.8 %

Secured loans

    444     0.2 %   657     0.3 %
                   

Total past due finance receivables (31 - 60 days)

    3,422     2.1 %   5,877     3.1 %
                   

Past due finance receivables (61 - 90 days)

                         

Medium-term loans

    788     0.5 %   822     0.4 %

Secured loans

    145     0.1 %   159     0.1 %
                   

Total past due finance receivables (61 - 90 days)

    933     0.6 %   981     0.5 %
                   

Total delinquent

    11,918     7.3 %   14,457     7.6 %
                   

  $ 166,049     100.0 % $ 189,108     100.0 %
                   
                   

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 3. Related Party Transactions and Balances

        Quarterly fees are paid to affiliates of several stockholders in consideration for ongoing management and other advisory services provided to the Company and its subsidiaries. Total fees pursuant to this agreement for the three months ended March 31, 2014 and 2013 were $338 and $351, respectively.

        The Company's senior management has access to use an aircraft owned by a related party. The Company rents the aircraft from this related party for Company business. Total rent for usage of the aircraft for the three months ended March 31, 2014 and 2013 were $39 and $-0-, respectively, and are included with corporate expenses on the consolidated statements of income.

        In May, 2013, the Company entered into an agreement with a limited liability company owned by a related party. Pursuant to the terms of the agreement, the Company exchanged a 25% interest in an aircraft it owned for a 25% interest in an aircraft owned by the limited liability company. Subsequently, the Company sold the interest it received in the exchange to an unrelated party and recognized a gain on the transactions of $28.

        Certain retail locations of the Company are owned by related parties and leased from the related parties. Related party rent for the three months ended March 31, 2014 and 2013 were $277 and $283, respectively, and are included with occupancy expense on the consolidated statements of income.

        A non-guarantor subsidiary of the Company issued a series of related party Florida seller notes as a portion of the consideration to acquire 54 stores in the Florida market. These notes have been classified as a related party transaction due to the sellers of the Florida Acquisition, and recipients of the notes, being shareholders of the Company.

Note 4. Goodwill and Other Intangible Assets

        The following table summarizes goodwill and other intangible assets as of March 31, 2014 and December 31, 2013:

 
  March 31,
2014
  December 31,
2013
 

Goodwill

  $ 312,883   $ 312,534  
           
           

Other intangible assets, net:

             

Non-compete agreements

  $ 658   $ 824  

Trade names

    4,717     4,977  

Customer lists

    13,513     14,124  

Internally developed software

    2,996     3,447  
           

  $ 21,884   $ 23,372  
           
           

        The Company conducted its annual test for impairment of goodwill as of December 31, 2013 for both Retail financial and Internet financial services segments which resulted in no impairment of goodwill. The methodology for determining the fair value was a combination of quoted market prices, prices of comparable businesses, discounted cash flows and other valuation techniques.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 4. Goodwill and Other Intangible Assets (Continued)

        Intangible amortization expense for the three months ended March 31, 2014 and 2013 were $1,651 and $1,635, respectively.

Note 5. Pledged Assets and Debt

        Senior secured notes payable at March 31, 2014 and December 31, 2013 consisted of the following:

 
  March 31,
2014
  December 31,
2013
 

$395,000 Senior Note payable, 10.75%, collateralized by all Company assets, semi-annual interest payments with principal due April 2019

  $ 395,000   $ 395,000  

$25,000 Senior Note payable, 12.75%, collateralized by all Company assets, semi-annual interest payments with principal due May 2020

    25,000     25,000  
           

    420,000     420,000  

Less current maturities

         
           

Long-term portion

  $ 420,000   $ 420,000  
           
           

        The indentures governing the 2019 notes and the 2020 notes each contains certain covenants and events of default, including limitations on our ability to incur additional indebtedness, pay dividends on or make other distributions or repurchase our capital stock, make certain investments, enter into certain types of transactions with affiliates, create liens and sell certain assets or merge with or into other companies. The agreement governing our revolving credit facility contains restrictive covenants that limit our ability to incur additional indebtedness, pay dividends on or make other distributions or repurchase our capital stock, make certain investments, enter into certain types of transactions with affiliates, create liens and sell certain assets or merge with or into other companies, in each case to the same extent as the Indenture governing our notes. In addition, the agreement governing our revolving credit facility contains a consolidated total net leverage ratio covenant, which will be tested at the time of any borrowing under the facility and on a quarterly basis when any loans are outstanding. As of March 31, 2014, we were in compliance with these covenants.

        Lines of credit at March 31, 2014 and December 31, 2013 consisted of the following:

 
  March 31,
2014
  December 31,
2013
 

$7,000 Revolving credit, secured, prime plus 1.00% with 5.00% floor, due July 2015, collateralized by all of Insight Capital, LLC's assets

  $   $  

$40,000 Revolving credit, secured, interest rate as defined below, due May 2015, collateralized by all Company assets

    36,664     25,000  
           

    36,664     25,000  

Less current maturities

         
           

Long-term portion

  $ 36,664   $ 25,000  
           
           

        The 4-year, $40,000 revolving credit facility, at the Company's option, bears interest at either (a) LIBOR plus a margin of 5% or (b) an alternative base rate (determined as the greatest of the

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 5. Pledged Assets and Debt (Continued)

prime rate, the federal funds effective rate plus 0.5% or 1-month LIBOR plus 1%) plus a margin of 4%, and will mature on April 29, 2015. The 3-month LIBOR rate was 0.24% at March 31, 2014 and December 31, 2013, and the prime rate was 3.25% at March 31, 2014 and December 31, 2013. The weighted average interest rate of our revolving credit borrowings during the three months ending March 31, 2014 was 6.03%.

        Non-guarantor notes payable at March 31, 2014, and December 31, 2013, consisted of the following:

 
  March 31,
2014
  December 31,
2013
 

$8,000 non-guarantor term note, secured, 10%, quarterly interest payments with principal due August 2016

  $ 7,651   $ 7,619  

$9,000 non-guarantor term note, secured, 10%, quarterly principal and interest payments, August 2016

    4,811     4,790  
           

    12,462     12,409  

Less current maturities

    1,250     500  
           

Long-term portion

  $ 11,212   $ 11,909  
           
           

        A non-guarantor subsidiary of the Company issued a series of related party Florida seller notes as a portion of the consideration to acquire 54 stores in the Florida market. These notes have been classified as related party due to the sellers of the Florida Acquisition, and recipients of the notes, now being shareholders of the Company. The related party Florida seller notes were originally recorded at a fair value of $17,223 using an estimated market interest rate of 12.75%. The discount of $1,277 is being amortized over the life of the related party Florida seller notes as a component of interest expense. The amortization of discount was $53 and $165 for the three months ended March 31, 2014 and 2013, respectively.

        The related party Florida seller notes are secured by the assets of the non-guarantor subsidiary. The indenture governing our non-guarantor secured term related party Florida seller notes due 2016 contains covenants that limit the ability of our non-guarantor subsidiaries to create liens, declare or pay any dividend or distribution, incur debt, and transfer or otherwise dispose of substantially all of our current assets. These covenants will be evaluated quarterly beginning on December 31, 2012. The related party Florida seller notes contain certain covenants and provisions which are enforceable upon the non-guarantor subsidiary. The related party Florida seller notes are non-recourse to the Company and the guarantor subsidiaries.

        On November 1, 2013, the Company entered into an amendment to the Non-guarantor notes resulting from the Florida Acquisition. Pursuant to this amendment, the non-guarantor subsidiary pre-paid $2,500 of the principal payments originally scheduled to be paid during 2014. In addition, for a payment of $500, the Non-guarantor settled in full, the $1,500 Non-guarantor term note with the resulting gain being recognized as an equity adjustment. The $8,000 and $9,000 Non-guarantor notes were further amended to provide the Non-guarantor subsidiary the option to prepay the notes at a 20% discount through September 30, 2014, or at a 15% discount from October 1, 2014 through September 30, 2015.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 5. Pledged Assets and Debt (Continued)

        On December 20, 2013, the Company created a non-guarantor subsidiary in order to acquire loans from the retail and internet portfolios. The non-guarantor subsidiary funding came from a note payable to finance the loan acquisitions.

        The subsidiary note payable at March 31, 2014 and December 31, 2013 consisted of the following:

 
  March 31,
2014
  December 31,
2013
 

$8,100 Revolving credit, secured, interest rate as defined below, collateralized by acquired loans, due December 2014

  $ 8,100   $ 8,100  
           

Short-term portion

  $ 8,100   $ 8,100  
           
           

        The 1-year, $8,100 term note, bears interest monthly at the lesser of (a) the maximum rate or (b) if prior to the adjustment date of June 20, 2014, 20%, and after the adjustment date, 17%, provided no default has occurred.

        The mortgage note payable, bears interest at 4.95%, was refinanced on January 21, 2014 and the outstanding balance at March 31, 2014 and December 31, 2013 consisted of the following:

 
  March 31,
2014
  December 31,
2013
 

$720 term note, 4.95% interest rate, due January 2019

  $ 714   $ 420  
           

Long-term portion

  $ 714   $ 420  
           
           

Note 6. Accounts Payable and Accrued Liabilities

        Accounts payable and accrued liabilities at March 31, 2014 and December 31, 2013 consisted of the following:

 
  March 31,
2014
  December 31,
2013
 

Accounts payable

  $ 3,524   $ 5,665  

Accrued payroll

    6,149     4,628  

Compensated absences

    1,735     1,419  

Wire transfers payable

    5,420     3,673  

Accrual for third-party losses

    1,197     1,481  

Deferred rent

    973     961  

Bill payment

    1,175     838  

Self insurance

    1,313      

Other

    8,385     6,490  
           

  $ 29,871   $ 25,155  
           
           

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 7. Operating and Capital Lease Commitments and Total Rental Expense

        The Company leases its facilities under various non-cancelable agreements, which require various minimum annual rentals and may also require the payment of normal common area maintenance on the properties. The total minimum rental commitment at March 31, 2014, is due as follows:

March 31,
  Capital
Leases
  Operating
Leases
 

2015

  $ 628   $ 23,363  

2016

    227     17,820  

2017

    92     14,294  

2018

        9,437  

Thereafter

        8,931  
           

Total minimum lease payments

    947   $ 73,845  
             
             

Less amount representing interest

    (95 )      
             

Present value of net minimum lease payments

    852        

Less current portion

    (557 )      
             

Long term portion

  $ 295        
             
             

        Rental expense totaled $7,349 and $6,640 for the three months ended March 31, 2014 and 2013, respectively.

Note 8. Concentrations of Credit Risks

        The Company's portfolio of finance receivables is with customers living in thirty-two states and consequently such customers' ability to honor their contracts may be affected by economic conditions in these areas. Additionally, the Company is subject to regulation by federal and state governments that affect the products and services provided by the Company. To the extent that laws and regulations are passed that affect the Company's ability to offer loans or similar products in any of the states in which it operates, the Company's financial position could be adversely affected.

        The following table summarizes the allocation of the portfolio balance by state at March 31, 2014 and December 31, 2013:

 
  March 31, 2014   December 31, 2013  
State
  Balance
Outstanding
  Percentage of
Total Outstanding
  Balance
Outstanding
  Percentage of
Total Outstanding
 

Alabama

  $ 15,698     9.5 % $ 17,084     9.0 %

Arizona

    13,071     7.9     15,957     8.4  

California

    51,397     31.0     50,877     26.9  

Florida

    6,973     4.2     8,554     4.5  

Ohio

    32,437     19.5     43,330     22.9  

Virginia

    12,681     7.6     14,491     7.7  

Other retail segment states

    21,178     12.7     27,269     14.5  

Other internet segment states

    12,614     7.6     11,546     6.1  
                   

Total

  $ 166,049     100.0 % $ 189,108     100.0 %
                   
                   

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 8. Concentrations of Credit Risks (Continued)

        The other retail segment states are: Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Oregon, Tennessee, and Utah.

        The other internet segment states are: Alaska, Delaware, Hawaii, Idaho, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Nevada, New Mexico, North Dakota, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington, Wisconsin, and Wyoming.

Note 9. Contingencies

        From time-to-time the Company is a defendant in various lawsuits and administrative proceedings wherein certain amounts are claimed or violations of law or regulations are asserted. In the opinion of the Company's management, these claims are without substantial merit and should not result in judgments which in the aggregate would have a material adverse effect on the Company's financial statements.

Note 10. Business Combinations

    Retail Financial Services

        On April 1, 2013, the Company extended a line of credit to Insight Holdings. The Company determined that the line of credit represents financial support constituting a variable interest and the Company is the primary beneficiary. As a result of these determinations, the Company has consolidated Insight Holdings as of April 1, 2013. No additional consideration was transferred in order to effect the consolidation and no consolidation-related costs were incurred.

        The following table summarizes the fair value of the assets and liabilities at the date of consolidation.

Acquisition-date fair value of non-controlling interests

  $ 27,882  

Acquisition-date fair value of Company's interests

    6,594  
       

  $ 34,476  
       
       

Acquisition-related costs

  $  
       
       

Recognized amounts of identifiable assets required and liabilities assumed

       

Cash and cash equivalents

  $ 1,595  

Restricted cash

    1,200  

Other current assets

    2,875  

Leasehold improvements and equipment, net

    858  

Identifiable intangible assets

    18,667  

Capital lease obligation

    (212 )

Other liabilities

    (6,920 )
       

Total identifiable net assets

    18,063  

Goodwill

    16,413  
       

  $ 34,476  
       
       

23


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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 10. Business Combinations (Continued)

        At April 1, 2013, the Company's carrying value of its investment in Insight Holdings was $6,317. The difference between the Company's consolidation-date fair value of $6,594 and carrying value of $6,317 resulted in a gain of $277 and is recorded as part of the gain on equity method investments on the consolidated statements of operations.

Note 11. Stock Based Compensation

        On May 1, 2006, the Company adopted the 2006 Management Equity Incentive Plan (the "Plan") pursuant to which the Company's Board of Directors, or a duly-authorized committee thereof, may grant stock options, restricted stock, restricted stock units and stock appreciation rights to employees and consultants of the Company or its subsidiaries. The Company amended the plan to increase the number of shares and to convert the number of shares in the 2006 plan to the 2011 plan. Options that have been granted under the Plan have been granted at an exercise price equal to (or greater than) the stock's fair market value at the date of the grant, with terms of 10 years and vesting generally over four to five years or on the occurrence of a liquidity event. On April 19, 2011, the Company adopted the Plan to be effective as of April 29, 2011. The maximum number of shares that may be subject to awards under the Plan is 2,941,746 as of March 31, 2014.

        The Company recognizes compensation costs in the financial statements for all share-based payments granted based on the grant date estimated fair value.

        The Plan allows for awards based on time, performance and market conditions. Compensation expense for awards based on time is expensed on a straight-line basis over the service period. Compensation expense for performance awards are recognized using the graded vesting method. Compensation expense for market conditions such as those conditioned on either a liquidity event condition or a specified performance condition have not been recognized and will be recognized upon consummation of the relevant market condition. At March 31, 2014, there were a total of 861,690 additional shares available for grant under the Plan.

        The fair value of option award is estimated on the date of grant using a lattice-based option valuation model. Because lattice-based option valuation models incorporate ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on the historical volatility of the stock of comparable public companies. The Company uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

        On May 15, 2013, the Company issued 419,500 options with a per share exercise price of $8.40. The options vest ratably over a three year period or become fully vested in the event of a change in control as defined in the award agreement. The Company also re-priced certain previously issued options and stock appreciation rights on May 15, 2013 at a per share exercise price of $8.40, which resulted in incremental compensation expense of $73 attributable to fully vested awards.

        On October 1, 2013, the Company granted 25,452 Restricted Stock Units with a per share exercise price of $8.25, and these Restricted Stock Units vested immediately.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 11. Stock Based Compensation (Continued)

        In March of 2014, the Company issued 35,000 options with a per share exercise price of $9.10. The options vest ratably over a three year period or ratably over a specified time frame as defined in the award agreement.

        The following weighted average assumptions were used by the Company for awards granted during the three months ended March 31, 2014:

 
  2014  

Risk-free interest rate

    1.55 %

Dividend yield

    0.00 %

Expected volatility

    40 %

Expected term (years)

    5.0  

Weighted average fair value of options granted

  $ 3.37  

        For the three months ended March 31, 2014 and 2013, the Company recorded stock-based compensation costs in the amounts of $377 and $310, respectively. As of March 31, 2014 and December 31, 2013, unrecognized stock-based compensation costs to be recognized over future periods approximated $3,796 and $4,029, respectively. At March 31, 2014, the remaining unrecognized compensation expense is $1,734 for certain awards that vest solely upon a change in control and $2,062 for certain awards that vest either over the requisite service period or a change in control. The remaining weighted-average period for the awards that vest solely upon a change in control cannot be determined because they vest upon an event not within the Company's control. The remaining compensation expense of $3,796 is expected to be recognized over a weighted-average period of 1.6 years. The total income tax benefit recognized in the consolidated statements of operations for the stock-based compensation arrangements was $-0- for the three months ended March 31, 2014 and 2013.

        Stock option activity for the three months ended March 31, 2014 is as follows (these amounts have not been rounded in thousands):

 
  Shares   Weighted-Average
Exercise Price
(actual per share
price)
  Weighted-Average
Remaining
Contractual
Term
  Aggregate
Intrinsic
Value
(thousands)
 

Outstanding at December 31, 2013

    1,691,531   $ 7.59     6.8     N/A  

Granted

    35,000     9.10     6.6     N/A  

Exercised

                N/A  

Forfeited or expired

                N/A  
                     

Outstanding at March 31, 2014

    1,726,531   $ 7.63     6.6     N/A  
                   
                   

Exercisable at March 31, 2014

    575,327   $ 7.36     5.5   $ 1,233  
                   
                   

Vested or expected to vest at March 31, 2014

    1,408,860   $ 7.97     7.1   $ 1,342  
                   
                   

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 11. Stock Based Compensation (Continued)

        Restricted stock unit ("RSU") activity for the three months ended March 31, 2014, is as follows (these amounts have not been rounded in thousands):

 
  Shares   Weighted-Average
Exercise Price
(actual per share
price)
  Weighted-Average
Remaining
Contractual Term
  Aggregate
Intrinsic
Value
(thousands)
 

Outstanding at December 31, 2013

    60,582   $ 11.30     0.7     N/A  

Granted

                N/A  

Exercised

                N/A  

Forfeited or expired

                N/A  
                     

Outstanding at March 31, 2014

    60,582   $ 11.30     0.5     N/A  
                   
                   

Exercisable at March 31, 2014

    48,872   $ 10.77     0.4   $ 464  
                   
                   

Vested or expected to vest at March 31, 2014

    60,582   $ 11.30     0.5   $ 576  
                   
                   

        Stock appreciation rights activity for the three months ended March 31, 2014 is as follows (these amounts have not been rounded into thousands):

 
  Shares   Weighted-Average
Exercise Price
(actual per share
price)
  Weighted-Average
Remaining
Contractual Term
  Aggregate
Intrinsic
Value
(thousands)
 

Outstanding at December 31, 2013

    292,944   $     3.5     N/A  

Granted

                N/A  

Exercised

                N/A  

Forfeited or expired

                N/A  
                     

Outstanding at March 31, 2014

    292,944   $     3.3     N/A  
                   
                   

Exercisable at March 31, 2014

    201,108   $     2.9   $ 376  
                   
                   

Vested or expected to vest at March 31, 2014

    201,108   $     2.9   $ 376  
                   
                   

Note 12. Business Segments

        Prior to April 1, 2012, the Company's operating business was comprised solely of financial services offered through the Company's network of retail stores. On April 1, 2012, the Company completed its acquisition of DFS which offers short term consumer loans solely through an internet lending operation. Post-acquisition, DFS began offering an installment loan product which is classified as medium-term. The Company has elected to organize and report on these business units separately as two operating segments: Retail Financial Services and Internet Financial Services.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 12. Business Segments (Continued)

        The following tables present summarized financial information for the Company's segments:

 
  As of and for the three months ended March 31, 2014    
 
 
  Retail
Financial Services
  % of
Revenue
  Internet
Financial Services
  % of
Revenue
  Consolidated   % of
Revenue
 

Total Assets

  $ 629,039         $ 60,495         $ 689,534        

Goodwill

    299,210           13,673           312,883        

Other Intangible Assets

    19,083           2,801           21,884        

Total Revenues

  $ 101,517     100.0 % $ 23,569     100.0 % $ 125,086     100.0 %

Provision for Loan Losses

    19,273     19.0 %   10,854     46.1 %   30,127     24.1 %

Other Operating Expenses

    39,647     39.1 %   5,292     22.5 %   44,939     35.9 %

Operating Gross Profit

    42,597     42.0 %   7,423     31.4 %   50,020     40.0 %

Interest Expense, net

    12,552     12.4 %   800     3.4 %   13,352     10.7 %

Depreciation and Amortization

    1,690     1.7 %   534     2.3 %   2,224     1.8 %

        Intersegment revenues of $514 for the three months ending March 31, 2014, have been eliminated.

 
  As of and for the three months ended March 31, 2013    
 
 
  Retail
Financial Services
  % of
Revenue
  Internet
Financial Services
  % of
Revenue
  Consolidated   % of
Revenue
 

Total Assets

  $ 565,290         $ 28,557         $ 593,847        

Goodwill

    283,295           13,261           296,556        

Other Intangible Assets

    5,268           3,523           8,791        

Total Revenues

  $ 89,948     100.0 % $ 9,003     100.0 % $ 98,951     100.0 %

Provision for Loan Losses

    15,303     17.0 %   3,786     42.1 %   19,089     19.3 %

Other Operating Expenses

    36,423     40.5 %   3,492     38.7 %   39,915     40.3 %

Operating Gross Profit

    38,222     42.5 %   1,725     19.2 %   39,947     40.4 %

Interest Expense, net

    12,809     14.2 %       0.0 %   12,809     12.9 %

Depreciation and Amortization

    1,442     1.6 %   611     6.8 %   2,053     2.1 %

        There were no intersegment revenues for the three months ending March 31, 2013.

Note 13. Income Taxes

        Community Choice Financial Inc. and subsidiaries file a consolidated federal income tax return. The Company files consolidated or separate state income tax returns as permitted by the individual states in which it operates. The effective rate change is related to the consolidation of Insight Holdings which is considered a permanent difference between book and tax. The Company had no liability recorded for unrecognized tax benefits at March 31, 2014 and December 31, 2013.

Note 14. Transactions with Variable Interest Entities

        The Company acquired a 22.5% membership interest of Insight Holdings in 2011. As additional consideration to Insight Holdings, the Company agreed to make available to Insight Holdings a revolving credit facility of $3,000. Prior to April 1, 2013, the Company determined that Insight Holdings was a VIE but that the Company was not the primary beneficiary, and therefore, had not consolidated

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Table of Contents


Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 14. Transactions with Variable Interest Entities (Continued)

Insight Holdings. The investment in Insight was accounted for under the equity method. Effective with the extension of the line of credit on April 1, 2013, the Company has consolidated Insight Holdings. During 2013, the Company's membership interest increased to 22.7% as a result of Insight Holdings redeeming the membership interests of another member.

        The Company entered into a limited agency agreement with unaffiliated third-party lenders. The agreement governs the terms by which the Company refers customers to that lender, on a non-exclusive basis, for a possible extension of credit, processes loan applications and commits to reimburse the lender for any loans or related fees that were not collected from such customers. This obligation is recorded as a current liability on the Company's consolidated balance sheet. The accrual for these obligations totaled $1,111 and $1,387 as of March 31, 2014 and December 31, 2013, respectively. The Company has determined that the lenders are VIEs but that the Company is not the primary beneficiary of the VIEs. Therefore, the Company has not consolidated either lender.

Note 15. Supplemental Guarantor Information

        The 2019 notes and the 2020 notes contain various covenants that, subject to certain exceptions defined in the indentures governing the notes (the "Indentures"), limit the Company's ability to, among other things, engage in certain transactions with affiliates, pay dividends or distributions, redeem or repurchase capital stock, incur or assume liens or additional debt, and consolidate or merge with or into another entity or sell substantially all of its assets. The Company has optional redemption features on the 2019 notes and the 2020 notes prior to their maturity which, depending on the date of the redemption, would require premiums to be paid in addition to all principal and interest due.

        The 2019 notes and 2020 notes are guaranteed by all of the Company's guarantor subsidiaries existing as of April 29, 2011 (the date CCFI issued the notes) and any subsequent guarantor subsidiaries that guarantee the Company's indebtedness or the indebtedness of any other subsidiary guarantor (the "Subsidiary Guarantors"), in accordance with the Indentures. CCFI is a holding company and has no independent assets or operations of its own. The guarantees under the 2019 notes and 2020 notes are full and unconditional and joint and several. There are no restrictions on the ability of the Company or any of the Subsidiary Guarantors to obtain funds from its restricted subsidiaries by dividend or loan, except for net worth requirements required by certain states in which the Company operates and certain requirements relating to Insight Capital, LLC as a result of its separate revolving credit facility. Certain Subsidiary Guarantors are required to maintain net worth ranging from $5 to $1,000. The total net worth requirements of these Subsidiary Guarantors is $11.6 million. The Indentures contain certain affirmative and negative covenants applicable to the Company and its Subsidiary Guarantors, including restrictions on their ability to incur additional indebtedness, consummate certain asset sales, make investments in entities that are not "Guarantor Subsidiaries" (as defined in the Indentures), create liens on their assets, enter into certain affiliate transactions and make certain restricted payments, including restrictions on CCFI's ability to pay dividends on, or repurchase, its common stock.

        As discussed in Note 10, the Company has consolidated Insight Holdings as of April 1, 2013. Insight Holdings is not a subsidiary of the Company is not a guarantor under the 2019 notes or 2020 notes and is not otherwise an obligor under the Company's debt instruments.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 15. Supplemental Guarantor Information (Continued)

        As long as the $7,000 Alabama Revolving Credit Agreement remains outstanding, the guarantee provided by our Alabama subsidiary, Insight Capital, LLC, will be secured on a second-priority basis by the shared Alabama collateral. As a result, any obligations under the Alabama Revolving Credit Agreement must first be satisfied before the Alabama subsidiary can make any payments with respect to the 2019 and 2020 Notes.

Note 16. Supplemental Condensed Consolidating Guarantor and Non- Guarantor Financial Information

        The following presents the condensed consolidating guarantor financial information as of March 31, 2014 and December 31, 2013, and for the three months ended March 31, 2014 and 2013, for the subsidiaries of the Company that serve as guarantors of the Notes, and for the subsidiaries that do not serve as guarantor. The non-guarantor subsidiaries are Buckeye Check Cashing of Florida II, LLC, CCFI Funding, Direct Financial Solutions of UK Limited and its subsidiary Cash Central UK Limited, and Direct Financial Solutions of Canada, Inc. In addition, Insight Holdings Company, LLC, which is not a subsidiary of the Company but which the Company is consolidating as of April 1, 2013, does not guarantee and is not otherwise an obligor under the Notes. The Company's entire guarantor subsidiaries are 100% owned, and all guarantees are full and conditional, joint and several.

        Of the entities included under "Non-Guarantor Subsidiaries" in the tables below, Buckeye Check Cashing of Florida II, LLC and CCFI Funding are "Unrestricted Subsidiaries" as defined in the indentures governing the 2019 notes and 2020 notes. Buckeye Check Cashing of Florida II, LLC was acquired on July 31, 2012 and CCFI Funding was established on December 20, 2013. As of March 31, 2014 and December 31, 2013, such unrestricted subsidiaries had total assets of $55,100 and $54,665 and total liabilities of $36,575 and $39,717, respectively and for the three months ended March 31, 2014 and 2013 had total revenues of $9,834 and $5,267, total operating expenses of $4,397 and $4,001, and net income of $3,898 and ($187), respectively. As described above, Insight Holdings is included in the tables below as a "Non-Guarantor Subsidiary" because the Company has consolidated the entity as of April 1, 2013. As of March 31, 2014 and December 31, 2013, such consolidated entity had total assets of $38,182 and $37,718 and total liabilities of $3,980 and $4,777, respectively, and for the three months ended March 31, 2014 and was not consolidated and, therefore, not included in results of operations for the three months ending March 31,2013 had total revenues of $6,666, total operating expenses of $—0-, and net income of $172. The remainder of the entities included under "non-Guarantor Subsidiaries" in the tables below are "Restricted Subsidiaries" as defined in the indentures governing the 2019 notes and the 2020 notes and, for the periods specified, did not have material assets, liabilities, revenue or expenses.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 16. Supplemental Condensed Consolidating Guarantor and Non- Guarantor Financial Information (Continued)


Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Balance Sheet (unaudited)
March 31, 2014

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Assets

                               

Current Assets

                               

Cash and cash equivalents

  $   $ 137,241   $ 10,449   $   $ 147,690  

Restricted cash

        901     764         1,665  

Finance receivables, net

        119,782     10,877         130,659  

Short-term investments, certificates of deposit

        1,114             1,114  

Card related pre-funding and receivables

        1,865     801     (1,865 )   801  

Other current assets

        21,862     1,658     (14,120 )   9,400  

Deferred tax asset, net

        9,157             9,157  
                       

Total current assets

        291,922     24,549     (15,985 )   300,486  

Noncurrent Assets

                               

Investment in Subsidiaries

    353,091     17,099         (370,190 )    

Finance receivables, net

        12,291             12,291  

Leasehold improvements and equipment, net

        24,502     3,662         28,164  

Goodwill

        265,435     47,448         312,883  

Other intangible assets

        4,316     17,568         21,884  

Security deposits

        2,993     99         3,092  

Equity method investments

        6,384         (6,384 )    

Deferred debt issuance costs

    10,643     30     61         10,734  
                       

Total assets

  $ 363,734   $ 624,972   $ 93,387   $ (392,559 ) $ 689,534  
                       
                       

Liabilities and Stockholders' Equity

                               

Current Liabilities

                               

Current portion of capital lease obligation

  $   $ 504   $ 53   $   $ 557  

Current portion of related party Florida seller notes

            1,250         1,250  

Subsidiary note payable

            8,100         8,100  

CCFI funding notes

            2,720     (2,720 )    

Deferred revenue

        2,748             2,748  

Accrued interest

    19,542         279     (271 )   19,550  

Money orders payable

        13,795             13,795  

Accounts payable and accrued liabilities

        16,671     15,361     (2,161 )   29,871  
                       

Total current liabilities

    19,542     33,718     27,763     (5,152 )   75,871  

Noncurrent Liabilities

                               

Accrued liabilities

        700             700  

Lines of credit

    36,664                 36,664  

Capital lease obligation

        289     6         295  

Stock repurchase obligation

            872         872  

Related party Florida seller notes

            11,212         11,212  

Building note

            714         714  

Senior secured notes

    420,000                 420,000  

Deferred Revenue

        4,806             4,806  

Deferred tax liability, net

        10,156             10,156  
                       

Total liabilities

    476,206     49,669     40,567     (5,152 )   561,290  
                       

Stockholders' Equity

    (112,472 )   575,303     52,820     (387,407 )   128,244  
                       

Total liabilities and stockholders' equity

  $ 363,734   $ 624,972   $ 93,387   $ (392,559 ) $ 689,534  
                       
                       

30


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 16. Supplemental Condensed Consolidating Guarantor and Non- Guarantor Financial Information (Continued)


Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 2013

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Assets

                               

Current Assets

                               

Cash and cash equivalents

  $   $ 84,432   $ 5,879   $   $ 90,311  

Restricted cash

        755     659         1,414  

Finance receivables, net

        142,258     14,894         157,152  

Short-term investments, certificates of deposit

        1,114             1,114  

Card related pre-funding and receivables

        1,691     792     (1,677 )   806  

Other current assets

        23,533     1,576     (15,593 )   9,516  

Deferred tax asset, net

        9,157             9,157  
                       

Total current assets

        262,940     23,800     (17,270 )   269,470  

Noncurrent Assets

                               

Investment in Subsidiaries

    344,114     15,590         (359,704 )    

Finance receivables, net

        8,178             8,178  

Leasehold improvements and equipment, net

        22,347     3,457         25,804  

Goodwill

        265,949     46,585         312,534  

Other intangible assets

        4,901     18,471         23,372  

Security deposits

        2,987     99         3,086  

Equity method investments

        6,835         (6,835 )    

Deferred debt issuance costs

    11,207     36     81         11,324  
                       

Total assets

  $ 355,321   $ 589,763   $ 92,493   $ (383,809 ) $ 653,768  
                       
                       

Liabilities and Stockholders' Equity

                               

Current Liabilities

                               

Current portion of capital lease obligation

  $   $ 600   $ 81   $   $ 681  

Current portion of related party Florida seller notes

            500         500  

Subsidiary note payable

            8,100         8,100  

CCFI funding notes

            2,720     (2,720 )    

Deferred revenue

        2,682             2,682  

Accrued interest

    8,143         67     (59 )   8,151  

Money orders payable

        14,481     1,014         15,495  

Accounts payable and accrued liabilities

        8,495     18,640     (1,980 )   25,155  
                       

Total current liabilities

    8,143     26,258     31,122     (4,759 )   60,764  

Noncurrent Liabilities

                               

Accrued liabilities

        1,075             1,075  

Lines of credit

    25,000                 25,000  

Capital lease obligation

        245     12         257  

Stock repurchase obligation

        (114 )   1,042         928  

Related party Florida seller notes

            11,909         11,909  

Building note

            420         420  

Senior secured notes

    420,000                 420,000  

Deferred Revenue

        5,403             5,403  

Deferred tax liability, net

        6,670             6,670  
                       

Total liabilities

    453,143     39,537     44,505     (4,759 )   532,426  
                       

Stockholders' Equity

    (97,822 )   550,226     47,988     (379,050 )   121,342  
                       

Total liabilities and stockholders' equity

  $ 355,321   $ 589,763   $ 92,493   $ (383,809 ) $ 653,768  
                       
                       

31


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 16. Supplemental Condensed Consolidating Guarantor and Non- Guarantor Financial Information (Continued)

Community Choice Financial Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
Three Months Ended March 31, 2014

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Revenues:

                               

Finance receivable fees

  $   $ 82,776   $ 6,214   $ (167 ) $ 88,823  

Check cashing fees

        18,967     2,770         21,737  

Card fees

        1,474     6,578     (1,482 )   6,570  

Other

        7,520     950     (514 )   7,956  
                       

Total revenues

        110,737     16,512     (2,163 )   125,086  
                       

Operating expenses:

                               

Salaries and benefits

        17,990     1,612         19,602  

Provision for loan losses

        29,355     772         30,127  

Occupancy

        6,278     819         7,097  

Advertising and marketing

        3,788     202     (321 )   3,669  

Depreciation and amortization

        1,778     176         1,954  

Other

        11,765     852         12,617  
                       

Total operating expenses

        70,954     4,433     (321 )   75,066  
                       

Operating gross profit

        39,783     12,079     (1,842 )   50,020  
                       

Corporate expenses

        18,809     5,988     (1,675 )   23,122  

Depreciation and amortization

        1,165     1,059         2,224  

Interest expense, net

    12,474     59     986     (167 )   13,352  

Interest expense allocation

    (12,474 )   12,474              
                       

Total coporate and other expenses

        32,507     8,033     (1,842 )   38,698  
                       

Income before income taxes

        7,276     4,046         11,322  

Provision for income taxes

        2,861     1,591         4,452  
                       

Net income

        4,415     2,455         6,870  

Net income attributable to non-controlling interests

            133         133  
                       

Net income

  $   $ 4,415   $ 2,322   $   $ 6,737  
                       
                       

32


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 16. Supplemental Condensed Consolidating Guarantor and Non- Guarantor Financial Information (Continued)

Community Choice Financial Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
Three Months Ended March 31, 2013

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Consolidated  

Revenues:

                         

Finance receivable fees

  $   $ 66,663   $ 2,048   $ 68,711  

Check cashing fees

        19,789     2,427     22,216  

Card fees

        1,435     66     1,501  

Other

        5,780     743     6,523  
                   

Total revenues

        93,667     5,284     98,951  
                   

Operating expenses:

                         

Salaries and benefits

        15,640     1,547     17,187  

Provision for loan losses

        18,403     686     19,089  

Occupancy

        5,704     743     6,447  

Advertising and marketing

        1,923     245     2,168  

Depreciation and amortization

        1,550     67     1,617  

Other

        11,395     1,101     12,496  
                   

Total operating expenses

        54,615     4,389     59,004  
                   

Operating gross profit

        39,052     895     39,947  
                   

Corporate expenses

        14,595     166     14,761  

Depreciation and amortization

        1,356     697     2,053  

Interest expense, net

    12,006     213     590     12,809  

Interest expense allocation

    (12,006 )   12,006          

Loss on equity method investments

        17         17  
                   

Total coporate and other expenses

        28,187     1,453     29,640  
                   

Income (loss) before income taxes

        10,865     (558 )   10,307  

Provision (benefit) for income taxes

        4,461     (229 )   4,232  
                   

Net income (loss)

  $   $ 6,404   $ (329 ) $ 6,075  
                   
                   

33


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 16. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information (Continued)

Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows (unaudited)
Three Months Ended March 31, 2014

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Consolidated  

Net cash provided by (used in) operating activities          

  $ (2,687 ) $ 59,441   $ 2,810   $ 59,564