10-Q 1 a2221082z10-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 June 30, 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.)

6785 Bobcat Way, 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 June 30, 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 June 30, 2014

Table of Contents

 
   
  Page  

 

Financial Information

       

Item 1.

 

Financial Statements

       

 

Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013

    2  

 

Consolidated Statements of Operations for the three months and six months ended June 30, 2014 (unaudited) and June 30, 2013 (unaudited)

    3  

 

Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2014 (unaudited)

    4  

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2014 (unaudited) and June 30, 2013 (unaudited)

    5  

 

Notes to unaudited Consolidated Financial Statements

    6 - 37  


Item 2.


 


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


 

 


38 - 56

 


Item 3.


 


Quantitative and Qualitative Disclosures about Market Risk


 

 


57

 


Item 4.


 


Controls and Procedures


 

 


57

 


Part II


 


Other Information


 

 



 


Item 1.


 


Legal Proceedings


 

 


57

 


Item 1A.


 


Risk Factors


 

 


58

 


Item 6.


 


Exhibits


 

 


58

 



 


Signatures


 

 


59

 

1


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Balance Sheets

June 30, 2014 and December 31, 2013

(In thousands, except per share data)

 
  June 30,
2014
  December 31,
2013
 
 
  (unaudited)
   
 

Assets

             

Current Assets

             

Cash and cash equivalents

  $ 124,832   $ 90,311  

Restricted cash

    3,150     1,414  

Finance receivables, net of allowance for loan losses of $19,227 and $15,548

    155,112     157,152  

Short-term investments, certificates of deposit

    1,115     1,114  

Card related pre-funding and receivables

    1,785     806  

Other current assets

    8,252     9,516  

Deferred tax asset, net

    11,411     9,157  
           

Total current assets

    305,657     269,470  

Noncurrent Assets

             

Finance receivables, net of allowance for loan losses of $5,069 and $2,460

    15,390     8,178  

Property, leasehold improvements and equipment, net

    29,109     25,804  

Goodwill

    295,700     312,534  

Other intangible assets

    4,871     23,372  

Security deposits

    3,070     3,086  

Deferred debt issuance costs

    10,359     11,324  
           

Total assets

  $ 664,156   $ 653,768  
           
           

Liabilities and Stockholders' Equity

             

Current Liabilities

             

Current portion of capital lease obligation

  $ 470   $ 681  

Current portion of line of credit

    36,664      

Current portion of related party Florida seller notes

    2,000     500  

Current portion of subsidiary note payable

    8,100     8,100  

Deferred revenue

    2,748     2,682  

Accrued interest

    8,109     8,151  

Money orders payable

    13,541     15,495  

Accounts payable and accrued liabilities

    30,833     25,155  
           

Total current liabilities

    102,465     60,764  

Noncurrent Liabilities

             

Accrued liabilities

        1,075  

Lines of credit

        25,000  

Subsidiary note payable

    17,250      

Capital lease obligation

    402     257  

Stock repurchase obligation

    888     928  

Related party Florida seller notes

    10,516     11,909  

Mortgage note payable

        420  

Senior secured notes

    420,000     420,000  

Deferred revenue

    4,119     5,403  

Deferred tax liability, net

    11,708     6,670  
           

Total liabilities

    567,348     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 June 30, 2014 and December 31, 2013

    90     90  

Additional paid-in capital

    126,972     125,487  

Non-controlling interest

        26,428  

Retained deficit

    (30,254 )   (30,663 )
           

Total stockholders' equity

    96,808     121,342  
           

Total liabilities and stockholders' equity

  $ 664,156   $ 653,768  
           
           

   

See Notes to Unaudited Consolidated Financial Statements.

2


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Statements of Operations

Three Months and Six Months Ended June 30, 2014 and 2013

(In thousands)

(Unaudited)

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
 
  2014   2013   2014   2013  

Revenues:

                         

Finance receivable fees

  $ 91,803   $ 67,546   $ 180,626   $ 136,257  

Check cashing fees

    19,880     19,976     41,617     42,192  

Card fees

    1,807     1,585     3,330     3,086  

Other

    5,950     6,156     13,769     12,679  
                   

Total revenues

    119,440     95,263     239,342     194,214  
                   

Operating expenses:

                         

Salaries and benefits

    20,058     17,667     39,660     34,854  

Provision for loan losses

    44,155     26,157     74,282     45,246  

Occupancy

    7,502     6,504     14,599     12,951  

Advertising and marketing

    4,446     3,575     8,115     5,744  

Depreciation and amortization

    2,003     1,788     3,957     3,405  

Other

    13,194     11,630     25,811     24,125  
                   

Total operating expenses

    91,358     67,321     166,424     126,325  
                   

Operating gross profit

    28,082     27,942     72,918     67,889  
                   

Corporate and other expenses

                         

Corporate expenses

    16,542     14,325     35,430     29,086  

Depreciation and amortization

    1,405     1,777     2,868     3,830  

Interest expense, net

    13,362     12,870     26,697     25,679  

Gain on equity method investments

        (277 )       (260 )
                   

Total corporate and other expenses

    31,309     28,695     64,995     58,335  
                   

Income (loss) from continuing operations, before tax

    (3,227 )   (753 )   7,923     9,554  
                   

Provision (benefit) for income taxes

    (1,226 )   (257 )   3,226     3,975  
                   

Income (loss) from continuing operations, net of tax

    (2,001 )   (496 )   4,697     5,579  

Discontinued operations (net of provision (benefit) for income taxes of $1,483, ($468), $1,353, and ($468)

    (4,758 )   (701 )   (4,585 )   (701 )
                   

Net income (loss)

    (6,759 )   (1,197 )   112     4,878  

Net loss attributable to non-controlling interests

    (431 )   (906 )   (297 )   (906 )
                   

Net income (loss) attributable to controlling interests

  $ (6,328 ) $ (291 ) $ 409   $ 5,784  
                   
                   

Amounts attributable to Community Choice Financial:

   
 
   
 
   
 
   
 
 

Net income (loss) from continuing operations, net of tax

  $ (2,001 ) $ (496 ) $ 4,697   $ 5,579  

Discontinued operations, net of tax

    (4,327 )   205     (4,288 )   205  
                   

Net income (loss) attributable to Community Choice Financial

  $ (6,328 ) $ (291 ) $ 409   $ 5,784  
                   
                   

   

See Notes to Unaudited Consolidated Financial Statements.

3


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Community Choice Financial Inc. and Subsidiaries

Consolidated Statement of Stockholders' Equity

Six Months Ended June 30, 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

            1,592             1,592  

Restricted stock unit buy-back

            (107 )           (107 )

De-consolidation of Insight Holdings

                (25,744 )       (25,744 )

Member distribution

                (387 )       (387 )

Net income (loss)

                (297 )   409     112  
                           

Balance, June 30, 2014

    8,981,536   $ 90   $ 126,972   $   $ (30,254 ) $ 96,808  
                           
                           

   

See Notes to Unaudited Consolidated Financial Statements.

4


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2014 and 2013

(In thousands)

(Unaudited)

 
  Six Months Ended June 30,  
 
  2014   2013  

Cash flows from operating activities

             

Net income

  $ 112   $ 4,878  

Adjustments to reconcile net income to net cash provided by operating activities:

             

Provision for loan losses

    74,282     45,437  

Loss on deconsolidation of Insight Holdings

    4,585      

Gain on disposal of assets

    (46 )   (16 )

Gain on equity method investments

        (260 )

Depreciation

    5,095     4,452  

Amortization of note discount and deferred debt issuance costs

    1,288     1,407  

Amortization of intangibles

    2,871     3,753  

Deferred income taxes

    2,374     2,169  

Change in fair value of stock repurchase obligation

    (40 )   (252 )

Stock-based compensation

    1,592     678  

Changes in assets and liabilities:

             

Card related pre-funding and receivables

    (439 )   6,753  

Restricted cash

    (2,473 )   528  

Other assets

    223     886  

Deferred revenue

    (1,218 )   (1,343 )

Accrued interest

    (42 )   (319 )

Money orders payable

    (1,954 )   700  

Accounts payable and accrued expenses

    7,097     (577 )
           

Net cash provided by operating activities

    93,307     68,874  
           

Cash flows from investing activities

             

Net receivables originated

    (78,757 )   (42,450 )

Net acquired assets, net of cash

    (2,020 )   1,595  

Purchase of customer list intangible asset

        (22 )

Internally developed software intangible asset

    (72 )   (81 )

De-consolidation of Insight Holdings

    (628 )    

Proceeds from sale of equity investment

    3,500      

Proceeds from sale of leasehold improvements and equipment

        181  

Purchase of leasehold improvements and equipment

    (9,290 )   (4,209 )
           

Net cash used in by investing activities

    (87,267 )   (44,986 )
           

Cash flows from financing activities

             

Proceeds from subsidiary note

    17,250      

Payments on capital lease obligations, net

    (17 )   (38 )

Net advances on lines of credit

    11,664     30,000  

Buy back of restricted stock units

    (107 )    

Payments on mortgage note payable

    (426 )    

Proceeds from refinance of mortgage note payable

    720      

Net payments of long-term debt

        (750 )

Member distribution

    (387 )    

Debt issuance costs

    (216 )    
           

Net cash provided by financing activities

    28,481     29,212  
           

Net increase in cash and cash equivalents

    34,521     53,100  

Cash and cash equivalents:

             

Beginning

    90,311     79,044  
           

Ending

  $ 124,832   $ 132,144  
           
           

   

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 June 30, 2014, the Company owned and operated 531 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 previously determined that Insight Holdings Company, LLC ("Insight Holdings") was a Variable Interest Entity ("VIE") of which the Company was the primary beneficiary. Therefore, the Company consolidated this VIE as of April 1, 2013 until it was sold on May 12, 2014. Insight Holdings has been presented as a discontinued operation.

        Reclassifications:    Certain amounts reported in the consolidated financial statements for the three months and six months ended June 30, 2013 have been reclassified to conform to classifications presented in the consolidated financial statements for the three months and six months ended June 30, 2014, without affecting the previously reported net income or stockholders' equity. Prior periods have been restated in the statement of operations for the discontinued operations of Insight Holdings.

        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.

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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)

        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 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 method.

        As a result of the Company's charge-off policies, accounts are charged-off between 1 and 91 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 Holdings and Insight Holding'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, and cash used to meet minimum net worth requirements. Effective with the sale of Insight, restricted cash represents only cash used to meet minimum net worth requirements for state licensing.

        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

7


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)

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 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 $1,788 of the $200,082 of total receivables at June 30, 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

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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)

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 91 days past due. The Company's line of credit products are charged-off on the thirty first day past due.

        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 91 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. On April 1, 2013, the Company extended a line of credit to Insight Holdings and consolidated Insight Holdings. 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. However, when Insight Holdings was sold on May 12, 2014, the prefunding reverted back to the Company acting as an agent and required to pre-fund certain card activity.

        Deferred loan origination costs:    Direct costs incurred for the origination of loans, which consist mainly of direct 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

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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)

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 June 30, 2014 and 2013 were $1,218 and $2,118, and for the six months ended June 30, 2014 and 2013 were $2,871 and $3,753, 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 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 consolidated Insight Holdings as of April 1, 2013 as the Company determined that it is the primary beneficiary of the variable interest entity. Effective May 12, 2014, Insight Holdings was sold to a third party and is classified as a discontinued operation.

        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 operations.

        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 June 30, 2014 and 2013 was $4,446 and $3,575, and for the six months ended June 30, 2014 and 2013 were $8,115 and $5,744 respectively. Corporate level advertising and marketing expense for the three months ended June 30,

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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)

2014 and 2013 were $340 and $10 and for the six months ended June 30, 2014 and 2013 were $600 and $35, 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, provision for 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.

        Discontinued operations:    Effective May 12, 2014, Insight Holdings was sold to a third party and its operations have been classified as discontinued operations on the Consolidated Statement of Operations. As discussed in Note 14, Insight Holdings is now treated as a discontinued operation and prior periods have been restated on the statement of operations.

        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.

        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

11


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)

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.

    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 June 30, 2014 and December 31, 2013, the carrying amounts in the consolidated financial statements approximate their fair values. Our finance receivables

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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)

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.

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

 
  June 30, 2014  
 
  Carrying
Amount
  Fair Value   Level  

Financial assets:

                   

Cash and cash equivalents

  $ 124,832   $ 124,832     1  

Restricted cash

    3,150     3,150     1  

Finance receivables

    170,502     170,502     3  

Short-term investments, certificates of deposit

    1,115     1,115     2  

Financial liabilities:

                   

10.75% Senior secured notes

    395,000     338,910     1  

12.75% Senior secured notes

    25,000     21,450     2  

Related party Florida seller notes

    12,516     12,516     2  

Lines of Credit

    36,664     36,664     2  

Subsidiary Note payable

    25,350     25,350     2  

Stock repurchase obligation

    888     888     2  

 

 
  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     377,225     1  

12.75% Senior secured notes

    25,000     25,000     2  

Related party Florida seller notes

    12,409     12,409     2  

Lines of Credit

    25,000     25,000     2  

Subsidiary Note payable

    8,100     8,100     2  

Stock repurchase obligation

    928     928     2  

Mortgage note payable

    420     420     2  

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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)

        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 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.

        In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The Company is still assessing the impact of ASU 2014-09 on its financial position and results of operations.

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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 June 30, 2014 and December 31, 2013 consisted of the following:

 
  June 30,
2014
  December 31,
2013
 

Short-term consumer loans

  $ 102,211   $ 110,826  

Medium-term loans

    66,320     46,497  

Secured loans

    31,551     31,785  
           

Gross receivables

    200,082     189,108  

Unearned advance fees, net of deferred loan origination costs

    (5,284 )   (5,770 )
           

Finance receivables before allowance for loan losses

    194,798     183,338  

Allowance for loan losses

    (24,296 )   (18,008 )
           

Finance receivables, net

  $ 170,502   $ 165,330  
           
           

Finance receivable, net

             

Current portion

  $ 155,112   $ 157,152  

Non-current portion

    15,390     8,178  
           

Total finance receivable, net

  $ 170,502   $ 165,330  
           
           

        Changes in the allowance for the loan losses by product type for the three months ended June 30, 2014 are as follows:

 
  Balance
4/1/2014
  Provision   Charge-Offs   Recoveries   Balance
6/30/2014
  Receivables
6/30/2014
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 3,655   $ 19,974   $ (37,701 ) $ 18,620   $ 4,548   $ 102,211     4.45 %

Medium-term loans

    13,108     14,816     (11,887 )   1,094     17,131     66,320     25.83 %

Secured loans

    1,942     3,333     (8,012 )   5,354     2,617     31,551     8.29 %
                               

  $ 18,705   $ 38,123   $ (57,600 ) $ 25,068   $ 24,296   $ 200,082     12.14 %
                               
                               

        The provision for loan losses for the three months ended June 30, 2014 also includes losses from returned items from check cashing of $1,924.

        Changes in the allowance for the loan losses by product type for the six months ended June 30, 2014 are as follows:

 
  Balance
1/1/2014
  Provision   Charge-Offs   Recoveries   Balance
6/30/2014
  Receivables
6/30/2014
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 4,807   $ 33,347   $ (76,155 ) $ 42,549   $ 4,548   $ 102,211     4.45 %

Medium-term loans

    11,024     25,520     (21,582 )   2,169     17,131     66,320     25.83 %

Secured loans

    2,177     5,121     (16,660 )   11,979     2,617     31,551     8.29 %
                               

  $ 18,008   $ 63,988   $ (114,397 ) $ 56,697   $ 24,296   $ 200,082     12.14 %
                               
                               

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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 six months ended June 30, 2014 also includes losses from returned items from check cashing of $3,556.

        Changes in the allowance for the loan losses by product type for the three months ended June 30, 2013 are as follows:

 
  Balance
4/1/2013
  Provision   Charge-Offs   Recoveries   Balance
6/30/2013
  Receivables
6/30/2013
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 3,072   $ 16,914   $ (33,871 ) $ 18,398   $ 4,513   $ 96,746     4.66 %

Medium-term loans

    2,722     3,612     (2,834 )   418     3,918     19,870     19.72 %

Secured loans

    1,336     1,840     (6,745 )   4,900     1,331     24,733     5.38 %
                               

  $ 7,130   $ 22,366   $ (43,450 ) $ 23,716   $ 9,762   $ 141,349     6.91 %
                               
                               

        The provision for loan losses for the three months ended June 30, 2013 also includes losses on tax loans of $5, and losses from returned items from check cashing of $1,638.

        Changes in the allowance for the loan losses by product type for the six months ended June 30, 2013 are as follows:

 
  Balance
1/1/2013
  Provision   Charge-Offs   Recoveries   Balance
6/30/2013
  Receivables
6/30/2013
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 4,344   $ 28,443   $ (68,712 ) $ 40,438   $ 4,513   $ 96,746     4.66 %

Medium-term loans

    3,077     5,967     (6,201 )   1,075     3,918     19,870     19.72 %

Secured loans

    1,693     2,956     (13,942 )   10,624     1,331     24,733     5.38 %
                               

  $ 9,114   $ 37,366   $ (88,855 ) $ 52,137   $ 9,762   $ 141,349     6.91 %
                               
                               

        The provision for loan losses for the six months ended June 30, 2013 also includes losses on tax loans of $9, and losses from returned items from check cashing of $3,562.

        Changes in the accrual for third-party lender losses for the three months and six months ended June 30, 2014 and 2013 were as follows:

 
  Three months ended
June 30,
  Six months ended
June 30,
 
 
  2014   2013   2014   2013  

Balance, beginning of period

  $ 1,197   $ 771   $ 1,481   $ 392  

Provision for loan losses

    4,108     2,148     6,738     4,309  

Charge-offs, net

    (3,910 )   (2,566 )   (6,824 )   (4,348 )
                   

Balance, end of period

  $ 1,395   $ 353   $ 1,395   $ 353  
                   
                   

        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 $8,915 and $9,228 at June 30, 2014 and December 31, 2013, respectively, and the corresponding guaranteed consumer loans are disclosed as an off-balance sheet arrangement.

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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 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 June 30, 2014 and December 31, 2013 are as follows:

 
  June 30, 2014   December 31, 2013  

Current finance receivables

  $ 183,086     91.4 % $ 174,651     92.4 %

Past due finance receivables (1 - 30 days)

                         

Medium-term loans

    8,128     4.1 %   5,065     2.7 %

Secured loans

    2,780     1.4 %   2,534     1.3 %
                   

Total past due finance receivables (1 - 30 days)

    10,908     5.5 %   7,599     4.0 %
                   

Past due finance receivables (31 - 60 days)

                         

Medium-term loans

    3,511     1.9 %   5,220     2.8 %

Secured loans

    613     0.2 %   657     0.3 %
                   

Total past due finance receivables (31 - 60 days)

    4,124     2.1 %   5,877     3.1 %
                   

Past due finance receivables (61 - 90 days)

                         

Medium-term loans

    1,721     0.9 %   822     0.4 %

Secured loans

    243     0.1 %   159     0.1 %
                   

Total past due finance receivables (61 - 90 days)

    1,964     1.0 %   981     0.5 %
                   

Total delinquent

    16,996     8.6 %   14,457     7.6 %
                   

  $ 200,082     100.0 % $ 189,108     100.0 %
                   
                   

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 June 30, 2014 and 2013 were $269 and $336, and for the six months ended June 30, 2014 and 2013 were $640 and $687, 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 June 30, 2014 and 2013 were $29 and $-0-, and for the six months ended June 30, 2014 and 2013 were $68 and $-0-,respectively, and are included with corporate expenses on the consolidated statements of operations.

        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.

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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 (Continued)

        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 June 30, 2014 and 2013 were $282 and $267, and for the six months ended June 30, 2014 and 2013 were $559 and $550, respectively, and are included with occupancy expense on the consolidated statements of operations.

        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 because the sellers in the Florida Acquisition, and recipients of the notes, became shareholders of the Company.

Note 4. Goodwill and Other Intangible Assets

        The following table summarizes goodwill and other intangible assets as of June 30, 2014 and December 31, 2013:

 
  June 30,
2014
  December 31,
2013
 

Goodwill

  $ 295,700   $ 312,534  
           
           

Other intangible assets, net:

             

Non-compete agreements

  $ 522   $ 824  

Trade names

    2,444     4,977  

Customer lists

    1,359     14,124  

Internally developed software

    546     3,447  
           

  $ 4,871   $ 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.

        The Company performed a subsequent goodwill impairment test for the retail services segment as required when a portion of the segment is sold. This resulted in no impairment of goodwill.

        Intangible amortization expense for the three months ended June 30, 2014 and 2013 were $1,218 and $2,118, and for the six months ended June 30, 2014 and 2013 were $2,871 and $3,753, respectively.

        Intangible assets for Insight Holdings were $15,923 at the date of sale in May of 2014.

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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

        Senior secured notes payable at June 30, 2014 and December 31, 2013 consisted of the following:

 
  June 30,
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 the Company's 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 the Company's revolving credit facility contains restrictive covenants that limit our ability to incur additional indebtedness, pay dividends on or make other distributions or repurchase the Company's 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 Indentures governing the Company's notes. In addition, the agreement governing the Company's 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 June 30, 2014, we were in compliance with these covenants.

        Lines of credit at June 30, 2014 and December 31, 2013 consisted of the following:

 
  June 30,
2014
  December 31,
2013
 

$7,000 Revolving credit, secured, prime plus 1.00% with 5.00% floor, due July 2016, collateralized by all of Insight Capital, LLC's assets

  $   $  

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

    36,664     25,000  
           

    36,664     25,000  

Less current maturities

    36,664      
           

Long-term portion

  $   $ 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 5.00% or (b) an alternative base rate (determined as the greatest of the prime rate, the federal funds effective rate plus 0.50% or 1-month LIBOR plus 1.00%) plus a margin of 4.00%, and will mature on April 29, 2015. The 3-month LIBOR rate was 0.23% and 0.24% at June 30, 2014 and December 31, 2013, respectively, and the prime rate was 3.25% at June 30, 2014 and December 31, 2013. The weighted average interest rate of our revolving credit borrowings during the six months ended June 30, 2014 was 6.12%.

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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)

        Non-guarantor notes payable at June 30, 2014, and December 31, 2013, consisted of the following:

 
  June 30,
2014
  December 31,
2013
 

$8,000 non-guarantor term note, secured, 10.00%, quarterly interest payments with principal due August 2016

  $ 7,684   $ 7,619  

$9,000 non-guarantor term note, secured, 10.00%, quarterly principal and interest payments, August 2016

    4,832     4,790  

$1,500 non-guarantor term note, secured, 0.00%, quarterly principal and interest payments, paid off November 2013

         
           

    12,516     12,409  

Less current maturities

    2,000     500  
           

Long-term portion

  $ 10,516   $ 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 in 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 $54 and $107 for the three months ended June 30, 2014 and 2013, and was $107 and $272 for the six months ended June 30, 2014 and 2013, respectively.

        The related party Florida seller notes are secured by the assets of the non-guarantor subsidiary. The indenture governing the Company's non-guarantor secured related party Florida seller notes due 2016 contains covenants that limit the ability of the Company's non-guarantor subsidiaries party thereto to create liens, declare or pay any dividend or distribution, incur debt, and transfer or otherwise dispose of substantially all of its current assets. These covenants were evaluated for compliance 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 party thereto. 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 related party Florida seller notes. 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, such non-guarantor subsidiary settled in full, the $1,500 note with the resulting gain being recognized as an equity adjustment. The $8,000 and $9,000 notes were further amended to provide the non-guarantor subsidiary the option to prepay the notes at a 20.00% discount through September 30, 2014, or at a 15.00% discount from October 1, 2014 through September 30, 2015.

        On December 20, 2013 and June 19, 2014 the Company created non-guarantor subsidiaries in order to acquire loans from the retail and internet portfolios. The non-guarantor subsidiaries funding came from a note payable to finance the loan acquisitions.

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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)

        The subsidiary notes payable at June 30, 2014 and December 31, 2013 consisted of the following:

 
  June 30,
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  

$17,250 Revolving credit, secured, interest rate as defined below, collateralized by acquired loans, due June 2016

    17,250      
           

    25,350     8,100  

Less current maturities

    8,100     8,100  
           

Long-term portion

  $ 17,250   $  
           
           

        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, 20.00%, and after the adjustment date, 17.00%, provided no default has occurred.

        The 2-year, $17,250 term note, bears interest monthly at 17.50% per annum and decreasing to 16.50% per annum after twelve months.

        The mortgage note payable, bears interest at 4.95%, was refinanced on January 21, 2014 and was de-consolidated with the sale of Insight Holdings on May 12, 2014. The outstanding balance at June 30, 2014 and December 31, 2013 consisted of the following:

 
  June 30,
2014
  December 31,
2013
 

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

  $   $ 420  
           

Long-term portion

  $   $ 420  
           
           

Note 6. Accounts Payable and Accrued Liabilities

        Accounts payable and accrued liabilities at June 30, 2014 and December 31, 2013 consisted of the following:

 
  June 30,
2014
  December 31,
2013
 

Accounts payable

  $ 3,827   $ 5,665  

Accrued payroll

    6,684     4,628  

Compensated absences

    2,150     1,419  

Wire transfers payable

    5,242     3,673  

Accrual for third-party losses

    1,395     1,481  

Deferred rent

    986     961  

Bill payment

    1,514     838  

Self insurance

    1,147      

Other

    7,888     6,490  
           

  $ 30,833   $ 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 June 30, 2014, is due as follows:

June 30,
  Capital
Leases
  Operating
Leases
 

2015

    549     23,852  

2016

    306     18,687  

2017

    138     15,009  

2018

        10,129  

2019

        5,440  

Thereafter

        4,959  
           

Total minimum lease payments

    993   $ 78,076  
             
             

Less amount representing interest (ranging from 2.25% to 14.34%)

    (121 )      
             

Present value of net minimum lease payments

    872        

Less current portion

    (470 )      
             

Long term portion

  $ 402        
             
             

        Rental expense totaled $7,592 and $6,846 for the three months ended June 30, 2014 and 2013, and $14,940 and $13,486 for the six months ended June 30, 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 June 30, 2014 and December 31, 2013:

 
  June 30, 2014   December 31, 2013  
State
  Balance
Outstanding
  Percentage of
Total Outstanding
  Balance
Outstanding
  Percentage of
Total Outstanding
 

Alabama

  $ 19,168     9.6 % $ 17,084     9.0 %

Arizona

    14,199     7.1     15,957     8.4  

California

    59,381     29.7     50,877     26.9  

Florida

    8,232     4.1     8,554     4.5  

Ohio

    38,380     19.2     43,330     22.9  

Virginia

    15,068     7.5     14,491     7.7  

Other retail segment states

    27,558     13.8     27,269     14.5  

Other internet segment states

    18,096     9.0     11,546     6.1  
                   

Total

  $ 200,082     100.0 % $ 189,108     100.0 %
                   
                   

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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 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 was the primary beneficiary. As a result of these determinations, the Company 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  
       
       

        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

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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)

$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 for the six months ended June 30, 2013.

        Effective May 12, 2014, Insight Holdings was sold to a third party and is being treated as a discontinued operation. See Note 14.

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 June 30, 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 June 30, 2014, there were a total of 883,290 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.

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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)

        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.

        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.

        In May of 2014, the Company settled one half of the vested outstanding Restricted Stock Units held by certain of its named executive officers. The number of shares purchased was 11,710 at a total cost of $107.

        The following weighted average assumptions were used by the Company for awards granted during the six months ended June 30, 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 six months ended June 30, 2014 and 2013, the Company recorded stock-based compensation costs in the amounts of $1,592 and $678, respectively. As of June 30, 2014 and December 31, 2013, unrecognized stock-based compensation costs to be recognized over future periods approximated $2,617 and $4,029, respectively. At June 30, 2014, the remaining unrecognized compensation expense is $958 for certain awards that vest solely upon a change in control and $1,660 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 $2,617 is expected to be recognized over a weighted-average period of 1.5 years. The total income tax benefit recognized in the consolidated statements of operations for the stock-based compensation arrangements was $-0- for the three month period ended June 30, 2014 and 2013, and $-0- for the six month period ended June 30, 2014 and 2013.

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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)

        Stock option activity for the six months ended June 30, 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     9.8     N/A  

Exercised

                N/A  

Forfeited or expired

    9,890             N/A  
                     

Outstanding at June 30, 2014

    1,716,641   $ 7.62     6.4     N/A  
                   
                     

Exercisable at June 30, 2014

    968,834   $ 7.75     6.1   $ 1,501  
                   
                   

Vested or expected to vest at June 30, 2014

    1,398,970   $ 7.97     6.8   $ 1,776  
                   
                   

        Restricted stock unit ("RSU") activity for the six months ended June 30, 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  

Repurchased

    11,710     13.51         N/A  
                     

Outstanding at June 30, 2014

    48,872   $ 10.77     0.3     N/A  
                   
                     

Exercisable at June 30, 2014

    37,162   $ 9.91     0.2   $ 346  
                   
                   

Vested or expected to vest at June 30, 2014

    48,872   $ 10.77     0.3   $ 455  
                   
                   

        Stock appreciation rights activity for the six months ended June 30, 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 June 30, 2014

    292,944   $     3.0     N/A  
                   
                     

Exercisable at June 30, 2014

    201,108   $     2.7   $ 336  
                   
                   

Vested or expected to vest at June 30, 2014

    201,108   $     2.7   $ 336  
                   
                   

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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

        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.

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

 
  As of and for the three months ended June 30, 2014  
 
  Retail
Financial Services
  % of
Revenue
  Internet
Financial Services
  % of
Revenue
  Consolidated   % of
Revenue
 

Total Assets

  $ 588,477         $ 75,679         $ 664,156        

Goodwill

    282,242           13,458           295,700        

Other Intangible Assets

    2,447           2,424           4,871        

Total Revenues

  $ 93,198     100.0 % $ 26,242     100.0 % $ 119,440     100.0 %

Provision for Loan Losses

    26,815     28.8 %   17,340     66.2 %   44,155     37.0 %

Other Operating Expenses

    40,152     43.1 %   7,051     26.7 %   47,203     39.5 %

Operating Gross Profit

    26,231     28.1 %   1,851     7.1 %   28,082     23.5 %

Interest Expense, net

    8,276     8.9 %   5,086     19.4 %   13,362     11.2 %

Depreciation and Amortization

    975     1.0 %   430     1.6 %   1,405     1.2 %

        Intersegment revenues of $754 for the three months ended June 30, 2014, have been eliminated.

 
  As of and for the six months ended June 30, 2014  
 
  Retail
Financial Services
  % of
Revenue
  Internet
Financial Services
  % of
Revenue
  Consolidated   % of
Revenue
 

Total Assets

  $ 588,477         $ 75,679         $ 664,156        

Goodwill

    282,242           13,458           295,700        

Other Intangible Assets

    2,447           2,424           4,871        

Total Revenues

  $ 189,531     100.0 % $ 49,811     100.0 % $ 239,342     100.0 %

Provision for Loan Losses

    46,088     24.3 %   28,194     56.7 %   74,282     31.0 %

Other Operating Expenses

    79,798     42.1 %   12,344     24.7 %   92,142     38.5 %

Operating Gross Profit

    63,645     33.6 %   9,273     18.6 %   72,918     30.5 %

Interest Expense, net

    20,811     11.0 %   5,886     11.8 %   26,697     11.2 %

Depreciation and Amortization

    1,904     1.0 %   964     1.9 %   2,868     1.2 %

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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 12. Business Segments (Continued)

        Intersegment revenues of $1,268 for the six months ended June 30, 2014, have been eliminated.

 
  As of and for the three months ended June 30, 2013  
 
  Retail
Financial Services
  % of
Revenue
  Internet
Financial Services
  % of
Revenue
  Consolidated   % of
Revenue
 

Total Assets

  $ 613,559         $ 31,034         $ 644,593        

Goodwill

    299,142           13,261           312,403        

Other Intangible Assets

    22,315           3,116           25,431        

Total Revenues

  $ 86,125     100.0 % $ 9,138     100.0 % $ 95,263     100.0 %

Provision for Loan Losses

    20,184     23.4 %   5,973     65.4 %   26,157     27.5 %

Other Operating Expenses

    36,409     42.3 %   4,755     52.0 %   41,164     43.2 %

Operating Gross Profit

    29,532     34.3 %   (1,590 )   (17.4 )%   27,942     29.3 %

Interest Expense, net

    12,870     14.9 %       0.0 %   12,870     13.5 %

Depreciation and Amortization

    1,346     1.6 %   431     4.7 %   1,777     1.9 %

        There were no intersegment revenues for the three months ended June 30, 2013.

 
  As of and for the six months ended June 30, 2013  
 
  Retail
Financial Services
  % of
Revenue
  Internet
Financial Services
  % of
Revenue
  Consolidated   % of
Revenue
 

Total Assets

  $ 613,559         $ 31,034         $ 644,593        

Goodwill

    299,142           13,261           312,403        

Other Intangible Assets

    22,315           3,116           25,431        

Total Revenues

  $ 176,073     100.0 % $ 18,141     100.0 % $ 194,214     100.0 %

Provision for Loan Losses

    35,487     20.2 %   9,759     53.8 %   45,246     23.3 %

Other Operating Expenses

    73,082     41.5 %   7,997     44.1 %   81,079     41.7 %

Operating Gross Profit

    67,504     38.3 %   385     2.1 %   67,889     35.0 %

Interest Expense, net

    25,679     14.6 %       0.0 %   25,679     13.2 %

Depreciation and Amortization

    2,788     1.6 %   1,042     5.7 %   3,830     2.0 %

        There were no intersegment revenues for the six months ended June 30, 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 June 30, 2014 and December 31, 2013.

Note 14. Discontinued Operations

        In May of 2014, the controlling members of the Company's consolidated VIE, Insight Holdings, sold 100% of the member interests. The Company received $3.5 million for its member interests and has classified Insight Holdings as a discontinued operation.

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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 14. Discontinued Operations (Continued)

        Results from discontinued operations of Insight Holdings for the periods of the three months ended June 30, 2014 and 2013 and the six months ended June 30, 2014 and 2013 were as follows:

 
  Three Months
Ended
June 30,
  Six Months
Ended
June 30,
 
 
  2014   2013   2014   2013  

Revenues:

                         

Card fees

  $ 2,447   $ 4,239   $ 7,494   $ 4,239  

Other

    54     96     191     96  
                   

Total revenues

    2,501     4,335     7,685     4,335  
                   

Operating expenses:

                         

Other

        191         191  
                   

Total operating expenses

        191         191  
                   

Operating gross profit

    2,501     4,144     7,685     4,144  
                   

Corporate and other expenses

                         

Corporate expenses

    2,612     4,328     6,846     4,328  

Depreciation and amortization

    379     972     1,139     972  

Interest expense, net

    7     13     24     13  

Total corporate and other expenses

    2,998     5,313     8,009     5,313  
                   

Loss before benefit for income taxes

    (497 )   (1,169 )   (324 )   (1,169 )
                   

Benefit for income taxes

    (199 )   (468 )   (130 )   (468 )
                   

Loss from continuing operations

    (298 )   (701 )   (194 )   (701 )

Loss on disposal

    (4,460 )       (4,391 )    
                   

Total discontinued operations

  $ (4,758 ) $ (701 ) $ (4,585 ) $ (701 )
                   
                   

        Assets of $37,718 and liabilities of $4,777 were included at December 31, 2013 in the Consolidated Balance Sheet and Consolidating Balance Sheets in Note 17. Insight Holdings was formerly included in the Retail segment.

        The Company will continue to be an agent for the Insight prepaid card and earn fees based on card sales and activity.

        Prior to the sale of Insight Holdings, a portion of the revenue was eliminated during consolidation. The agency revenue paid to the Company, from Insight Holdings previously eliminated was $662 and $1,322 for the three month periods ended June 30, 2014 and 2013, respectively, and $2,145 and $1,322 for the six month periods ended June 30, 2014 and 2013, respectively.

Note 15. 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

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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. Transactions with Variable Interest Entities (Continued)

was a VIE but that the Company was not the primary beneficiary, and therefore, had not consolidated Insight Holdings. The investment in Insight Holdings was accounted for under the equity method. Effective with the extension of the line of credit on April 1, 2013, the Company 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. Effective May 12, 2014, Insight Holdings was sold to an independent third party and is treated as a discontinued operation and the Company has no continued ownership remaining.

        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 $1,395 and $1,387 as of June 30, 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 16. 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 the Company 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. The Company 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 $11.7 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 certain entities that 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 consolidated Insight Holdings as of April 1, 2013 and as discussed in Note 14, Insight Holdings is now treated as a discontinued operation and prior periods

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Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 16. Supplemental Guarantor Information (Continued)

have been restated on the statement of operations. Insight Holdings was not a subsidiary of the Company was not a guarantor under the 2019 notes or 2020 notes and was not otherwise an obligor under the Company's debt instruments.

        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 17. Supplemental Condensed Consolidating Guarantor and Non- Guarantor Financial Information

        The following presents the condensed consolidating guarantor financial information as of June 30, 2014 and December 31, 2013, and for the six months ended June 30, 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 a guarantor. The non-guarantor subsidiaries are Buckeye Check Cashing of Florida II, LLC, CCFI Funding LLC, CCFI Funding II, LLC, 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 consolidated from April 1, 2013 until sold on May 12, 2014, did not guarantee and was 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, CCFI Funding, and CCFI Funding II 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, CCFI Funding was established on December 20, 2013, and CCFI Funding II was established on June 19, 2014. As of June 30, 2014 and December 31, 2013, such unrestricted subsidiaries had total assets of $73,705 and $54,665 and total liabilities of $61,319 and $39,717, respectively and for the six months ended June 30, 2014 and 2013 had total revenues of $17,717 and $10,886, total operating expenses of $12,157 and $8,798, and net income (loss) from continuing operations of $749 and ($459), respectively. As described above, Insight Holdings is included in the tables below as a "Non-Guarantor Subsidiary" because the Company consolidated the entity as of April 1, 2013. As of December 31, 2013, such consolidated entity had total assets of $37,718 and total liabilities of $4,777. For the six months ended June 30, 2014 and June 30, 2013, Insight Holdings is included in discontinued operations, net of tax. 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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Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 17. Supplemental Condensed Consolidating Guarantor and Non- Guarantor Financial Information (Continued)


Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Balance Sheet (unaudited)
June 30, 2014

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Assets

                               

Current Assets

                               

Cash and cash equivalents

  $   $ 109,148   $ 15,684   $   $ 124,832  

Restricted cash

        3,150             3,150  

Finance receivables, net

        132,319     22,793         155,112  

Short-term investments, certificates of deposit

        1,115             1,115  

Card related pre-funding and receivables

        1,785             1,785  

Other current assets

        28,813     66     (20,627 )   8,252  

Deferred tax asset, net

        11,411             11,411  
                       

Total current assets

        287,741     38,543     (20,627 )   305,657  

Noncurrent Assets

                               

Investment in Subsidiaries

    404,439     16,739         (421,178 )    

Finance receivables, net

        15,390             15,390  

Leasehold improvements and equipment, net

        26,389     2,720         29,109  

Goodwill

        264,665     31,035         295,700  

Other intangible assets

        3,806     1,065         4,871  

Security deposits

        2,984     86         3,070  

Deferred debt issuance costs

    10,078     25     256         10,359  
                       

Total assets

  $ 414,517   $ 617,739   $ 73,705   $ (441,805 ) $ 664,156  
                       
                       

Liabilities and Stockholders' Equity

                               

Current Liabilities

                               

Current portion of capital lease obligation

  $   $ 395   $ 75   $   $ 470  

Current portion of related party Florida seller notes

            2,000         2,000  

Current portion of lines of credit

        36,664             36,664  

Subsidiary note payable

            8,100         8,100  

CCFI funding notes

            6,572     (6,572 )    

Deferred revenue

        2,748             2,748  

Accrued interest

    8,111         396     (398 )   8,109  

Money orders payable

        13,541             13,541  

Accounts payable and accrued liabilities

        16,767     15,380     (1,314 )   30,833  
                       

Total current liabilities

    8,111     70,115     32,523     (8,284 )   102,465  

Noncurrent Liabilities

                               

Lines of credit

    36,664     (36,664 )            

Capital lease obligation

        260     142         402  

Stock repurchase obligation

            888         888  

Related party Florida seller notes

            10,516         10,516  

Subsidiary note payable

            17,250         17,250  

Senior secured notes

    420,000                 420,000  

Deferred Revenue

        4,119             4,119  

Deferred tax liability, net

        11,708