10-Q 1 a2225664z10-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, 2015

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, 2015, 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, 2015

Table of Contents

 
   
  Page  

 

Financial Information

       

Item 1.

 

Financial Statements

   
 
 

 

Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014

    3  

 

Consolidated Statements of Operations for the three months and six months ended June 30, 2015 (unaudited) and June 30, 2014 (unaudited)

    4  

 

Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2015 (unaudited)

    5  

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2015 (unaudited) and June 30, 2014 (unaudited)

    6  

 

Notes to unaudited Consolidated Financial Statements

    7 - 27  

Item 2.

 

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

   
28 - 46
 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

   
46
 

Item 4.

 

Controls and Procedures

   
47
 

Part II

 

Other Information

   
 
 

Item 1.

 

Legal Proceedings

   
47
 

Item 1A.

 

Risk Factors

   
47
 

Item 6.

 

Exhibits

   
47
 

 

Signatures

   
49
 

2


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Balance Sheets

June 30, 2015 and December 31, 2014

(In thousands, except per share data)

 
  June 30,
2015
  December 31,
2014
 
 
  (unaudited)
   
 

Assets

             

Current Assets

             

Cash and cash equivalents

  $ 111,415   $ 77,734  

Restricted cash

    4,773     3,877  

Finance receivables, net of allowance for loan losses of $22,512 and $22,775

    133,678     140,418  

Short-term investments, certificates of deposit

    1,115     1,115  

Card related pre-funding and receivables

    2,547     2,606  

Other current assets

    24,437     25,840  

Deferred tax asset, net

    12,770     12,770  

Total current assets

    290,735     264,360  

Noncurrent Assets

             

Finance receivables, net of allowance for loan losses of $6,771 and $7,588

    15,776     19,251  

Property, leasehold improvements and equipment, net

    45,925     39,635  

Goodwill

    221,667     222,565  

Other intangible assets

    2,569     3,545  

Security deposits

    2,648     2,653  

Deferred tax asset, net

    18,932     17,052  

Deferred debt issuance costs

    9,053     9,328  

Total assets

  $ 607,305   $ 578,389  

Liabilities and Stockholders' Equity

             

Current Liabilities

             

Current portion of capital lease obligation

  $ 1,380   $ 1,166  

Current portion of related party Florida seller notes

    2,756     2,786  

Current portion of subsidiary notes payable

    35,211     383  

Deferred revenue

    3,064     2,993  

Accrued interest

    8,199     8,189  

Money orders payable

    12,474     9,090  

Accounts payable and accrued liabilities

    31,600     36,376  

Total current liabilities

    94,684     60,983  

Noncurrent Liabilities

             

Lines of credit

    31,700      

Subsidiary notes payable

    1,126     33,754  

Capital lease obligation

    1,886     1,806  

Stock repurchase obligation

    5,140     4,130  

Related party Florida seller notes

    7,988     9,346  

Senior secured notes

    420,000     420,000  

Deferred revenue

    1,492     2,982  

Total liabilities

    564,016     533,001  

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, 2015 and December 31, 2014

    90     90  

Additional paid-in capital

    128,101     127,729  

Retained deficit

    (84,902 )   (82,431 )

Total stockholders' equity

    43,289     45,388  

Total liabilities and stockholders' equity

  $ 607,305   $ 578,389  

   

See Notes to Unaudited Consolidated Financial Statements.

3


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Statements of Operations

Three Months and Six Months Ended June 30, 2015 and 2014

(In thousands)

(Unaudited)

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
 
  2015   2014   2015   2014  

Revenues:

                         

Finance receivable fees

  $ 80,410   $ 84,994   $ 163,029   $ 168,106  

Credit service fees

    25,547     6,359     52,934     12,520  

Check cashing fees

    16,261     19,880     33,438     41,617  

Card fees

    2,191     1,807     4,483     3,330  

Other

    5,855     6,400     12,814     13,769  

Total revenues

    130,264     119,440     266,698     239,342  

Operating expenses:

                         

Salaries and benefits

    20,575     18,521     41,136     36,573  

Provision for loan losses

    51,916     44,155     91,826     74,282  

Occupancy

    7,719     7,385     15,296     14,363  

Advertising and marketing

    7,501     4,146     12,303     7,602  

Lease termination costs

    826         826      

Depreciation and amortization

    2,491     2,003     4,884     3,957  

Other

    14,793     12,930     28,837     25,554  

Total operating expenses

    105,821     89,140     195,108     162,331  

Operating gross profit

    24,443     30,300     71,590     77,011  

Corporate and other expenses

                         

Corporate expenses

    21,702     18,744     42,521     39,563  

Depreciation and amortization

    1,395     1,405     2,810     2,868  

Interest expense, net

    15,151     13,362     29,359     26,697  

Market value of stock repurchase obligation

    1,020     16     1,010     (40 )

Total corporate and other expenses

    39,268     33,527     75,700     69,088  

Income (loss) from continuing operations, before tax           

    (14,825 )   (3,227 )   (4,110 )   7,923  

Provision (benefit) for income taxes

    (5,911 )   (1,226 )   (1,639 )   3,226  

Income (loss) from continuing operations, net of tax           

    (8,914 )   (2,001 )   (2,471 )   4,697  

Discontinued operations (net of income tax benefit of $0, $(199), $0, and $(130))

        (4,758 )       (4,585 )

Net income (loss)

    (8,914 )   (6,759 )   (2,471 )   112  

Net loss attributable to non-controlling interests           

        (431 )       (297 )

Net income (loss) attributable to controlling interests           

  $ (8,914 ) $ (6,328 ) $ (2,471 ) $ 409  

Amounts attributable to Community Choice Financial shareholders:

                         

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

  $ (8,914 ) $ (2,001 ) $ (2,471 ) $ 4,697  

Discontinued operations, net of tax

        (4,327 )       (4,288 )

Net income (loss) attributable to Community Choice Financial shareholders

  $ (8,914 ) $ (6,328 ) $ (2,471 ) $ 409  

   

See Notes to Unaudited Consolidated Financial Statements.

4


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Community Choice Financial Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

Six Months Ended June 30, 2015

(Dollars in thousands)

(Unaudited)

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

Balance, December 31, 2014

    8,981,536   $ 90   $ 127,729   $ (82,431 ) $ 45,388  

Stock-based compensation expense          

            372         372  

Net loss

                (2,471 )   (2,471 )

Balance, June 30, 2015

    8,981,536   $ 90   $ 128,101   $ (84,902 ) $ 43,289  

   

See Notes to Unaudited Consolidated Financial Statements.

5


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Community Choice Financial Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Six months Ended June 30, 2015 and 2014

(In thousands)

(Unaudited)

 
  Six Months Ended
June 30,
 
 
  2015   2014  

Cash flows from operating activities

             

Net income (loss)

  $ (2,471 ) $ 112  

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

             

Provision for loan losses

    91,826     74,282  

Loss on deconsolidation of Insight Holdings

        4,585  

(Gain) Loss on disposal of assets

    354     (46 )

Depreciation

    6,582     5,095  

Amortization of note discount and deferred debt issuance costs

    1,471     1,288  

Amortization of intangibles

    1,111     2,871  

Deferred income taxes

    (748 )   2,374  

Change in fair value of stock repurchase obligation

    1,010     (40 )

Stock-based compensation

    372     1,592  

Changes in assets and liabilities:

             

Card related pre-funding and receivables

    59     (439 )

Restricted cash

    (896 )   (2,473 )

Other assets

    1,408     223  

Deferred revenue

    (1,419 )   (1,218 )

Accrued interest

    10     (42 )

Money orders payable

    3,384     (1,954 )

Accounts payable and accrued expenses

    (4,776 )   7,097  

Net cash provided by operating activities

    97,277     93,307  

Cash flows from investing activities

             

Net receivables originated

    (81,480 )   (78,757 )

Net acquired assets, net of cash

    (810 )   (2,020 )

Internally developed software intangible asset

        (72 )

Deconsolidation of Insight Holdings

        (628 )

Proceeds from sale of equity investment

        3,500  

Purchase of leasehold improvements and equipment

    (11,624 )   (9,290 )

Net cash used in investing activities

    (93,914 )   (87,267 )

Cash flows from financing activities

             

Proceeds from subsidiary note

    2,400     17,250  

Payments on subsidiary note

    (200 )    

Payments on related party Florida seller notes

    (1,500 )    

Payments on capital lease obligations, net

    (998 )   (17 )

Proceeds on lines of credit

    31,700     11,664  

Repurchase of restricted stock units

        (107 )

Payments on mortgage note payable

        (426 )

Proceeds from refinance of mortgage note payable

        720  

Debt issuance costs

    (1,084 )   (216 )

Member distribution

        (387 )

Net cash provided by financing activities

    30,318     28,481  

Net increase in cash and cash equivalents

    33,681     34,521  

Cash and cash equivalents:

             

Beginning

    77,734     90,311  

Ending

  $ 111,415   $ 124,832  

   

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, 2015, the Company owned and operated 542 retail locations in 15 states, had an internet presence in 32 states, and had a small internet presence in the United Kingdom. Through its network of retail locations and over the internet, the Company provides customers a variety of financial products and services, including secured and unsecured, short and medium-term consumer loans, check cashing, prepaid debit cards, and other services that address the specific needs of its individual customers.

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

        Basis of presentation:    The accompanying interim unaudited consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States (or "GAAP") for interim financial information. They do not include all information and footnotes required by GAAP 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, 2014, in the Company's Annual Report on Form 10-K filed with the Securities & Exchange Commission on March 30, 2015. 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, 2015.

        Basis of consolidation:    The accompanying consolidated financial statements include the accounts of CCFI. 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 from April 1, 2013, until it was sold on May 12, 2014. Insight Holdings has been reclassified as a discontinued operation on the consolidated statements of operations for the three months and six months ended June 30, 2014.

        Reclassifications:    Certain amounts reported in the consolidated financial statements for the three months and six months ended June 30, 2014, have been reclassified to conform to classifications presented in the consolidated financial statements for the three months and six months ended June 30, 2015, without affecting the previously reported net income or stockholders' equity. The Company has recognized that the functions performed at the Utah offices of its Direct Financial Solutions ("DFS") subsidiary have been integrated into CCFI's general corporate functions and the DFS office has expanded to serve other corporate office functions. At the same time, the expansion of call centers to assist our customers has grown in both the Company's Dublin, Ohio and Utah offices. Therefore, the Company has reclassified certain expenses to show call center costs as operating expenses and the remaining DFS costs as corporate expenses, as consistent with its use. Additionally, the Company's credit service organization ("CSO") product offering has expanded and is now disclosed as a separate revenue category ("credit service fees") in the statement of operations. Secured consumer loans are

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

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

included in finance receivables as either a short-term or medium-term on the Consolidated Balance Sheet.

        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 previously consolidated VIE was included in retail financial services.

        Revenue recognition:    Transactions include loans, CSO fees, 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. Credit service fees are recognized over the arranged credit service period. Accounts are charged-off between 1 and 91 days past due rather than being placed in nonaccrual status.

        Finance receivables:    Finance receivables consist of short term and medium-term consumer loans.

        Short-term consumer loans can be unsecured or secured with a maturity up to ninety days. Unsecured short-term products typically range in size from $100 to $1,000, with a maturity between fourteen and thirty days, and an agreement to defer the presentment of the customer's personal check or preauthorized debit 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 permitting fees of 15% to 20%, to charging interest at 25% per annum plus origination fees. The customers repay the cash advance by making cash payments or allowing the check or preauthorized debit to be presented. Secured consumer loans with a maturity of 90 days or less are included in this category and represent 16.2% and 17.5% of short-term consumer loans at June 30, 2015 and December 31, 2014, respectively.

        Medium-term consumer loans can be unsecured or secured with a maturity greater than ninety days up to thirty-six months. Unsecured medium-term products typically range from $100 to $5,000, and are evidenced by a promissory note with a maturity between three and thirty-six months. These consumer loans vary in structure depending upon the regulatory environments where they are offered. The consumer loans are due in installments or provide for a line of credit with periodic monthly payments. Secured consumer loans with a maturity greater than 90 days are included in this category and represent 12.3% and 15.0% of medium-term consumer loans at June 30, 2015, and December 31, 2014, respectively.

        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

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

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

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

        For medium term unsecured consumer loans which have a term of one year or less, the Company's policy requires that balances be charged off when accounts are sixty days past due. For medium term consumer loans which have an initial maturity of greater than one year, the Company's policy requires that balances be charged off when accounts are no more than ninety-one days past due. The Company's line of credit products are charged-off on the first day past due. For medium term secured consumer loans that have terms ranging from sixty days to one year, the Company's policy dictates that balances be charged off when accounts are sixty days past due. For secured consumer loans that have terms of greater than one year, the Company's policy requires that balances be charged off when accounts are no more than ninety-one days past due.

        In certain markets, the Company may make modifications to medium-term consumer loans to assist borrowers in avoiding default and to mitigate risk of loss. The loan is restructured only if the Company believes the customer has the ability to pay under the restructured terms for the foreseeable future. When a medium-term consumer loan's contractual terms are modified for economic or other reasons related to the borrower's financial difficulties and a concession is granted that the Company would not otherwise consider, that loan is classified as a troubled debt restructuring.

        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.

        Discontinued operations:    On May 12, 2014, Insight Holdings was sold to a third party and its consolidated operations have been classified as discontinued operations on the Consolidated Statement of Operations for the three months and six months ended June 30, 2014.

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

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

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

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

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

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

        The Company follows the provisions of 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 GAAP 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, 2015, and December 31, 2014, the carrying amounts in the consolidated financial statements approximate their fair values. Our finance receivables are short term in nature and are originated at prevailing market rates. Our lines of credit bear interest at current market rates.

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

        The fair value of related party Florida seller notes payable was determined based on applicable market yields of similar debt and the fair value of the stock repurchase obligation was determined based on a probability-adjusted Black Scholes option valuation model.

 
  June 30, 2015  
 
  Carrying
Amount
  Fair Value   Level  

Financial assets:

                   

Cash and cash equivalents

  $ 111,415   $ 111,415     1  

Restricted cash

    4,773     4,773     1  

Finance receivables

    149,454     149,454     3  

Short-term investments, certificates of deposit

    1,115     1,115     2  

Financial liabilities:

                   

10.75% Senior secured notes

    395,000     205,400     1  

12.75% Senior secured notes

    25,000     13,000     2  

Related party Florida seller notes

    10,744     10,744     2  

Line of Credit

    31,700     31,700     2  

Subsidiary Note payable

    36,337     36,337     2  

Stock repurchase obligation

    5,140     5,140     2  

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

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

 
  December 31, 2014  
 
  Carrying
Amount
  Fair Value   Level  

Financial assets:

                   

Cash and cash equivalents

  $ 77,734   $ 77,734     1  

Restricted cash

    3,877     3,877     1  

Finance receivables

    159,669     159,669     3  

Short-term investments, certificates of deposit

    1,115     1,115     2  

Financial liabilities:

                   

10.75% Senior secured notes

    395,000     254,775     1  

12.75% Senior secured notes

    25,000     16,125     2  

Related party Florida seller notes

    12,132     12,132     2  

Subsidiary Note payable

    34,137     34,137     2  

Stock repurchase obligation

    4,130     4,130     2  

        Subsequent events:    The Company has evaluated its subsequent events (events occurring after June 30, 2015) through the issuance date of August 12, 2015.

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

        Finance receivables representing amounts due from customers for advances at June 30, 2015, and December 31, 2014, consisted of the following:

 
  June 30,
2015
  December 31,
2014
 

Short-term consumer loans

  $ 86,431   $ 96,015  

Medium-term consumer loans

    94,989     97,460  

Gross receivables

  $ 181,420   $ 193,475  

Unearned advance fees, net of deferred loan origination costs

    (2,683 )   (3,443 )

Finance receivables before allowance for loan losses

    178,737     190,032  

Allowance for loan losses

    (29,283 )   (30,363 )

Finance receivables, net

  $ 149,454   $ 159,669  

Finance receivables, net

             

Current portion

  $ 133,678   $ 140,418  

Non-current portion

    15,776     19,251  

Total finance receivables, net

  $ 149,454   $ 159,669  

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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)

        Changes in the allowance for loan losses by product type for the three months ended June 30, 2015, are as follows:

 
  Balance
4/1/2015
  Provision   Charge-Offs   Recoveries   Balance
6/30/2015
  Receivables
6/30/2015
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 4,024   $ 18,635   $ (37,156 ) $ 18,959   $ 4,462   $ 86,431     5.16 %

Medium-term consumer loans

    21,734     21,644     (20,394 )   1,837     24,821     94,989     26.13 %

  $ 25,758   $ 40,279   $ (57,550 ) $ 20,796   $ 29,283   $ 181,420     16.14 %

        The provision for loan losses for the three months ended June 30, 2015, also includes losses from returned items from check cashing of $2,283.

        The provision for medium-term consumer loans of $21,644 includes a provision of $163 on loans the Company considered to be troubled debt restructurings.

        Changes in the allowance for loan losses by product type for the six months ended June 30, 2015, are as follows:

 
  Balance
1/1/2015
  Provision   Charge-Offs   Recoveries   Balance
6/30/2015
  Receivables
6/30/2015
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 5,141   $ 30,277   $ (72,717 ) $ 41,761   $ 4,462   $ 86,431     5.16 %

Medium-term consumer loans

    25,222     39,682     (44,580 )   4,497     24,821     94,989     26.13 %

  $ 30,363   $ 69,959   $ (117,297 ) $ 46,258   $ 29,283   $ 181,420     16.14 %

        The provision for loan losses for the six months ended June 30, 2015, also includes losses from returned items from check cashing of $4,539.

        The provision for short-term consumer loans of $30,277 is net of debt sales of $631 and the provision for medium-term consumer loans of $39,682 includes a provision of $667 on loans the Company considered to be troubled debt restructurings.

        Changes in the allowance for 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

  $ 4,361   $ 21,830   $ (44,475 ) $ 23,490   $ 5,206   $ 120,922     4.31 %

Medium-term consumer loans

    14,344     16,293     (13,125 )   1,578     19,090     79,160     24.12 %

  $ 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.

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

        Changes in the allowance for 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

  $ 5,631   $ 36,412   $ (90,265 ) $ 53,428   $ 5,206   $ 120,922     4.31 %

Medium-term consumer loans

    12,377     27,576     (24,132 )   3,269     19,090     79,160     24.12 %

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

        The provision for loan losses for the six months ended June 30, 2014, also includes losses from returned items from check cashing of $3,546.

        The Company has subsidiaries that facilitate third party lender loans. Changes in the accrual for third-party lender losses for the three months and six months ended June 30, 2015, and 2014 were as follows:

 
  Three months ended
June 30,
  Six months ended
June 30,
 
 
  2015   2014   2015   2014  

Balance, beginning of period

  $ 3,103   $ 1,197   $ 4,434   $ 1,481  

Provision for loan losses

    9,354     4,108     17,328     6,738  

Charge-offs, net

    (9,428 )   (3,470 )   (18,733 )   (6,384 )

Balance, end of period

  $ 3,029   $ 1,835   $ 3,029   $ 1,835  

        Total gross finance receivables for which the Company has recorded an accrual for third-party lender losses totaled $44,735 and $52,680 at June 30, 2015, and December 31, 2014, respectively, and the corresponding guaranteed consumer loans are disclosed as an off-balance sheet arrangement.

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

13


Table of Contents


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 aging of receivables at June 30, 2015, and December 31, 2014, are as follows:

 
  June 30, 2015   December 31, 2014  

Current finance receivables

  $ 160,949     88.7 % $ 173,522     89.7 %

Past due finance receivables (1 - 30 days)

                         

Short-term consumer loans

    1,274     0.7 %   1,185     0.6 %

Medium-term consumer loans

    12,365     6.8 %   12,258     6.3 %

Total past due finance receivables (1 - 30 days)

    13,639     7.5 %   13,443     6.9 %

Past due finance receivables (31 - 60 days)

                         

Medium-term consumer loans

    4,181     2.3 %   4,377     2.3 %

Total past due finance receivables (31 - 60 days)

    4,181     2.3 %   4,377     2.3 %

Past due finance receivables (61 - 90 days)

                         

Medium-term consumer loans

    2,651     1.5 %   2,133     1.1 %

Total past due finance receivables (61 - 90 days)

    2,651     1.5 %   2,133     1.1 %

Total delinquent

    20,471     11.3 %   19,953     10.3 %

  $ 181,420     100.0 % $ 193,475     100.0 %

Note 3. Related Party Transactions and Balances

        A named executive officer has an interest in a limited partnership that owns an interest in a vendor from which the Company purchases telecommunications services. The $251 and $361, respectively, in hardware and services for the three months and six months ended June 30, 2015 was provided to the Company by the vendor at a reduced rate. There were no services provided for the six months ended June 30, 2014. If the Company were to source the service from another vendor, the overall cost of the services would likely increase.

        There were no additional significant new, or changes to existing, related party transactions during the six months ended June 30, 2015.

Note 4. Goodwill and Other Intangible Assets

        Intangible amortization expense for the three months ended June 30, 2015, and 2014 were $519 and $1,218, and for the six months ended June 30, 2015, and 2014 were $1,111 and $2,871, respectively. There were no additional significant changes to goodwill and other intangible assets during the six months ended June 30, 2015.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 5. Pledged Assets and Debt

        Lines of credit at June 30, 2015, and December 31, 2014, consisted of the following:

 
  June 30,
2015
  December 31,
2014
 

$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

  $   $  

$31,700 Revolving credit, secured, interest rate as defined below, due March 2017, collateralized by all Company assets

    31,700      

    31,700      

Less current maturities

         

Long-term portion

  $ 31,700   $  

        The revolving credit facility due April 2015 was amended in March 2015 and is now structured as a $31.7 million revolving credit facility with an accordion feature that allows the Company to request an increase in the revolving credit facility of up to $40.0 million in total availability, so long as no event of default exists. The revolving credit facility is a two-year facility scheduled to mature on March 27, 2017. The interest rate is one-month LIBOR plus 14% with a 15% floor, and there is a make-whole payment if the revolving principal balance falls below 85% of the aggregate commitment on or before September 27, 2016. The 1-month LIBOR rate was 0.18% and 0.15% at June 30, 2015, and December 31, 2014, respectively, and the prime rate was 3.25% at both June 30, 2015, and December 31, 2014. The revolving credit facility includes an undrawn line fee of 3.0% of any unused commitments.

        There were no additional significant changes to pledged assets or debt during the six months ended June 30, 2015.

Note 6. Accounts Payable and Accrued Liabilities

        Accounts payable and accrued liabilities at June 30, 2015, and December 31, 2014, consisted of the following:

 
  June 30,
2015
  December 31,
2014
 

Accounts payable

  $ 3,661   $ 7,661  

Accrued payroll and compensated absences

    9,522     7,184  

Wire transfers payable

    2,400     1,815  

Accrual for third-party losses

    3,029     4,434  

Unearned CSO Fees

    5,201     5,925  

Deferred rent

    1,156     1,141  

Bill payment

    2,198     3,386  

Other

    4,433     4,830  

  $ 31,600   $ 36,376  

15


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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

        Rental expense totaled $8,047 and $7,592 for the three months ended June 30, 2015, and 2014, and $15,956 and $14,940 for the six months ended June 30, 2015, and 2014, respectively.

        There were no additional significant changes to operating and capital lease commitments during the six months ended June 30, 2015. Lease termination costs of $826 were recorded at June 30, 2015, for the remaining operating lease obligation for closed retail locations.

Note 8. Concentrations of Credit Risks

        The Company's portfolio of finance receivables is comprised of loan agreements with customers living in thirty-four states and consequently such customers' ability to honor their loan agreements may be affected by economic conditions in those states. 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, 2015 and December 31, 2014:

 
  June 30, 2015   December 31, 2014  
State
  Balance
Outstanding
  Percentage of
Total Outstanding
  Balance
Outstanding
  Percentage of
Total Outstanding
 

Alabama

  $ 21,910     12.1 % $ 22,681     11.7 %

Arizona

    15,301     8.4     16,859     8.7  

California

    68,025     37.5     71,643     37.0  

Florida

    9,027     5.0     9,697     5.0  

Virginia

    15,459     8.5     15,770     8.2  

Other retail segment states

    27,672     15.3     30,393     15.7  

Other internet segment states

    24,026     13.2     26,432     13.7  

Total

  $ 181,420     100.0 % $ 193,475     100.0 %

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

        The other internet segment states are: Alaska, Delaware, Hawaii, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington, Wisconsin, and Wyoming. In addition, DFS UK which is operating in a limited capacity offering loans in the United Kingdom is included in the other internet segment states. DFS Canada and DFS Australia are currently not offering loans.

        In certain markets, the Company offers a CSO product to assist consumers in obtaining credit with unaffiliated third-party lenders. Total gross finance receivables for which the Company has recorded an accrual for third-party lender losses totaled $44,735 and $52,680 at June 30, 2015, and December 31, 2014, respectively, and the corresponding guaranteed consumer loans are disclosed as an off-balance sheet arrangement.

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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 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

        There were no significant business combinations during the six months ended June 30, 2015.

Note 11. Stock Based Compensation

        Stock-based compensation costs for the three months ended June 30, 2015, and 2014 were $114 and $1,215, and for the six months ended June 30, 2015, and 2014 were $372 and $1,592, respectively. As of June 30, 2015, and 2014, unrecognized stock-based compensation costs to be recognized over future periods approximated $1,159 and $2,617, respectively. At June 30, 2015, the remaining unrecognized compensation expense was $726 for certain awards that vest solely upon a change in control and $433 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 unrecognized compensation expense of $433 is expected to be recognized over a weighted-average period of 1.0 years. The total income tax benefit recognized in the consolidated statements of operations for the stock-based compensation arrangements was $464 and $1,047 for the six month periods ended June 30, 2015 and 2014, respectively.

        There were no significant stock option, restricted stock unit, and stock appreciation right activities during the six months ended June 30, 2015.

Note 12. Business Segments

        The Company has elected to organize and report on its operations 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, 2015  
 
  Retail
Financial Services
  % of
Revenue
  Internet
Financial Services
  % of
Revenue
  Consolidated   % of
Revenue
 

Total Assets

  $ 524,703         $ 82,602         $ 607,305        

Goodwill

    221,667                     221,667        

Other Intangible Assets

    1,058           1,511           2,569        

Total Revenues

  $ 97,145     100.0 % $ 33,119     100.0 % $ 130,264     100.0 %

Provision for Loan Losses

    29,555     30.5 %   22,361     67.6 %   51,916     39.9 %

Other Operating Expenses

    46,661     48.0 %   7,244     21.9 %   53,905     41.3 %

Operating Gross Profit

    20,929     21.5 %   3,514     10.5 %   24,443     18.8 %

Interest Expense, net

    10,041     10.3 %   5,110     15.4 %   15,151     11.6 %

Depreciation and Amortization

    1,109     1.1 %   286     0.9 %   1,395     1.1 %

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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 $697 for the three months ended June 30, 2015, have been eliminated.

 
  As of and for the six months ended June 30, 2015  
 
  Retail
Financial Services
  % of
Revenue
  Internet
Financial Services
  % of
Revenue
  Consolidated   % of
Revenue
 

Total Assets

  $ 524,703         $ 82,602         $ 607,305        

Goodwill

    221,667                     221,667        

Other Intangible Assets

    1,058           1,511           2,569        

Total Revenues

  $ 200,527     100.0 % $ 66,171     100.0 % $ 266,698     100.0 %

Provision for Loan Losses

    51,039     25.5 %   40,787     61.7 %   91,826     34.4 %

Other Operating Expenses

    90,718     45.2 %   12,564     19.0 %   103,282     38.8 %

Operating Gross Profit

    58,770     29.3 %   12,820     19.3 %   71,590     26.8 %

Interest Expense, net

    19,333     9.6 %   10,026     15.2 %   29,359     11.0 %

Depreciation and Amortization

    2,240     1.1 %   570     0.9 %   2,810     1.1 %

        Intersegment revenues of $1,237 for the six months ended June 30, 2015, have been eliminated.

 
  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

    40,698     43.6 %   4,287     16.3 %   44,985     37.6 %

Operating Gross Profit

    25,685     27.6 %   4,615     17.5 %   30,300     25.4 %

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

    80,780     42.6 %   7,269     14.6 %   88,049     36.8 %

Operating Gross Profit

    62,663     33.1 %   14,348     28.7 %   77,011     32.2 %

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 %

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

18


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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 13. Income Taxes

        The Company files 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 permanent differences between book and tax. The Company had no liability recorded for unrecognized tax benefits at June 30, 2015 and December 31, 2014.

Note 14. Discontinued Operations

        The Company previously determined that Insight Holdings was a 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 reclassified as a discontinued operation on the consolidated statements of operations for the three months and six months ended June 30, 2015.

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

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

Revenues:

             

Card fees

  $ 2,447   $ 7,494  

Other

    54     191  

Total revenues

    2,501     7,685  

Operating gross profit

    2,501     7,685  

Corporate and other expenses

             

Corporate expenses

    2,612     6,846  

Depreciation and amortization

    379     1,139  

Interest expense, net

    7     24  

Total corporate and other expenses

    2,998     8,009  

Loss before benefit for income taxes

    (497 )   (324 )

Benefit for income taxes

    (199 )   (130 )

Loss from continuing operations

    (298 )   (194 )

Loss on disposal

    (4,460 )   (4,391 )

Total discontinued operations

  $ (4,758 ) $ (4,585 )

        There were no discontinued operations for the three months or six months ended June 30, 2015.

Note 15. Transactions with Variable Interest Entities

        The Company has limited agency agreements with unaffiliated third-party lenders. The agreements govern 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. As of June 30, 2015, and

19


Table of Contents


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)

December 31, 2014, the outstanding amount of active consumer loans, which was the Company's maximum exposure, was $44,735 and $52,680, respectively, which were guaranteed by the Company. This guarantee obligation is recorded as a current liability on the Company's consolidated balance sheet. The accrual for these obligations totaled $3,029 and $4,434 as of June 30, 2015 and December 31, 2014, 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 2019 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, 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 of certain states in which the Company operates and certain requirements relating to the Company's Alabama subsidiary, Insight Capital, LLC, as a result of its separate revolving credit facility (the "Alabama Revolving Credit Agreement"). 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 $7.4 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 the Company's ability to pay dividends on, or repurchase, its common stock.

        As long as the $7,000 Alabama Revolving Credit Agreement remains outstanding, the guarantee provided Insight Capital, LLC will be secured on a second-priority basis by the shared Alabama collateral held by such subsidiary. 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.

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

        The following presents the condensed consolidating guarantor financial information as of June 30, 2015, and December 31, 2014, and for the six months ended June 30, 2015, and 2014, 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, Direct Financial Solutions of Canada, Inc and its subsidiaries DFS-CC Financial Services LLC, DFS-CC Financial Services (Calgary) LLC and DFS-CC Financial Services (Toronto) LLC, and Direct Financial Solutions of Australia Pty Ltd and its subsidiary Cash Central of Australia Pty Ltd. The Company's entire guarantor subsidiaries are 100% owned, and all guarantees are full, unconditional, and joint and several.

        Of the entities 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. Buckeye Check Cashing of Florida II, LLC was acquired on July 31, 2012, CCFI Funding was created on December 20, 2013, and CCFI Funding II was established on June 19, 2014. As of June 30, 2015, and December 31, 2014, such unrestricted subsidiaries had total assets of $105,261 and $90,718 and total liabilities of $79,606 and $69,380, respectively, and for the six months ended June 30, 2015, and 2014 had total revenues of $47,609 and $17,717, total operating expenses of $28,082 and $12,157, and income before income taxes of $12,103 and $1,264, respectively. As described in Note 14 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. For the six months ended June 30, 2014, this entity 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.

21


Table of Contents


Community Choice Financial Inc. and Subsidiaries

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, 2015

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Assets

                               

Current Assets

                               

Cash and cash equivalents

  $   $ 79,667   $ 31,748   $   $ 111,415  

Restricted cash

        4,773             4,773  

Finance receivables, net

        98,462     38,879     (3,663 )   133,678  

Short-term investments, certificates of deposit

        1,115             1,115  

Card related pre-funding and receivables

        2,547             2,547  

Other current assets

        59,016     88     (34,667 )   24,437  

Deferred tax asset, net

        12,770             12,770  

Total current assets

        258,350     70,715     (38,330 )   290,735  

Noncurrent Assets

                               

Investment in Subsidiaries

    400,823     16,768         (417,591 )    

Finance receivables, net

        15,776             15,776  

Property, leasehold improvements and equipment, net

        43,071     2,854         45,925  

Goodwill

        190,632     31,035         221,667  

Other intangible assets

        2,319     250         2,569  

Security deposits

        2,481     167         2,648  

Deferred tax asset, net

        18,932             18,932  

Deferred debt issuance costs

    8,633     180     240         9,053  

Total assets

  $ 409,456   $ 548,509   $ 105,261   $ (455,921 ) $ 607,305  

Liabilities and Stockholders' Equity

                               

Current Liabilities

                               

Current portion of capital lease obligation

        1,263     117       $ 1,380  

Current portion of related party Florida seller notes

            2,756         2,756  

Current portion of subsidiary note payable

        211     35,000         35,211  

CCFI Funding Notes

            5,353     (5,353 )    

Deferred revenue

        3,064             3,064  

Accrued interest

    8,057     14     1,157     (1,029 )   8,199  

Money orders payable

        12,474             12,474  

Accounts payable and accrued liabilities

        41,572     21,976     (31,948 )   31,600  

Total current liabilities

    8,057     58,598     66,359     (38,330 )   94,684  

Noncurrent Liabilities

                               

Lines of credit

    31,700                 31,700  

Subsidiary note payable

        1,126             1,126  

Capital lease obligation

        1,767     119         1,886  

Stock repurchase obligation

            5,140         5,140  

Related party Florida seller notes

            7,988         7,988  

Senior secured notes

    420,000                 420,000  

Deferred Revenue

        1,492             1,492  

Total liabilities

    459,757     62,983     79,606     (38,330 )   564,016  

Stockholders' Equity (Deficit)

    (50,301 )   485,526     25,655     (417,591 )   43,289  

Total liabilities and stockholders' equity

  $ 409,456   $ 548,509   $ 105,261   $ (455,921 ) $ 607,305  

22


Table of Contents


Community Choice Financial Inc. and Subsidiaries

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
December 31, 2014

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Total
Eliminations
  Consolidated  

Assets

                               

Current Assets

                               

Cash and cash equivalents

  $   $ 63,372   $ 14,362   $   $ 77,734  

Restricted cash

        3,877             3,877  

Finance receivables, net

        101,493     41,181     (2,256 )   140,418  

Short-term investments, certificates of deposit

        1,115             1,115  

Card related pre-funding and receivables

        2,606             2,606  

Other current assets

        45,856     101     (20,117 )   25,840  

Deferred tax asset, net

        12,770             12,770  

Total current assets

        231,089     55,644     (22,373 )   264,360  

Noncurrent Assets

                               

Investment in Subsidiaries

    368,838     15,168         (384,006 )    

Finance receivables, net

        19,251             19,251  

Property, leasehold improvements and equipment, net

        36,734     2,901         39,635  

Goodwill

        191,530     31,035         222,565  

Other intangible assets

        2,902     643         3,545  

Security deposits

        2,486     167         2,653  

Deferred tax asset, net

        17,052             17,052  

Deferred debt issuance costs

    8,950     50     328         9,328  

Total assets

  $ 377,788   $ 516,262   $ 90,718   $ (406,379 ) $ 578,389  

Liabilities and Stockholders' Equity

                               

Current Liabilities

                               

Current portion of capital lease obligation

  $   $ 1,050   $ 116   $   $ 1,166  

Current portion of related party Florida seller notes

            2,786         2,786  

Current portion of subsidiary note payable

        383             383  

CCFI Funding Notes

            5,353     (5,353 )    

Deferred revenue

        2,993             2,993  

Accrued interest

    8,046     1     640     (498 )   8,189  

Money orders payable

        8,508     582         9,090  

Accounts payable and accrued liabilities

        39,242     13,656     (16,522 )   36,376  

Total current liabilities

    8,046     52,177     23,133     (22,373 )   60,983  

Noncurrent Liabilities

                               

Subsidiary note payable

        1,154     32,600         33,754  

Capital lease obligation

        1,635     171         1,806  

Stock repurchase obligation

            4,130         4,130  

Related party Florida seller notes

            9,346         9,346  

Senior secured notes

    420,000                 420,000  

Deferred Revenue

        2,982             2,982  

Total liabilities

    428,046     57,948     69,380     (22,373 )   533,001  

Stockholders' Equity (Deficit)

    (50,258 )   458,314     21,338     (384,006 )   45,388  

Total liabilities and stockholders' equity

  $ 377,788   $ 516,262   $ 90,718   $ (406,379 ) $ 578,389  

23


Table of Contents


Community Choice Financial Inc. and Subsidiaries

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 Statements of Operations (unaudited)
Six Months Ended June 30, 2015

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Revenues:

                               

Finance receivable fees

  $   $ 124,451   $ 38,578   $   $ 163,029  

Credit service fees

        52,934             52,934  

Check cashing fees

        30,893     7,145     (4,600 )   33,438  

Card fees

        4,213     270         4,483  

Dividend

        10,000         (10,000 )    

Other

        13,087     1,616     (1,889 )   12,814  

Total revenues

        235,578     47,609     (16,489 )   266,698  

Operating expenses:

                               

Salaries and benefits

        37,740     3,396         41,136  

Provision for loan losses

        72,065     19,761         91,826  

Occupancy

        13,531     1,765         15,296  

Advertising and marketing

        13,099     441     (1,237 )   12,303  

Lease termination costs

          788     38           826  

Depreciation and amortization

        4,405     479         4,884  

Other

        31,235     2,202     (4,600 )   28,837  

Total operating expenses

        172,863     28,082     (5,837 )   195,108  

Operating gross profit

        62,715     19,527     (10,652 )   71,590  

Corporate expenses

        41,711     931     (121 )   42,521  

Depreciation and amortization

        2,390     420         2,810  

Interest expense, net

    25,239     949     3,702     (531 )   29,359  

Interest expense allocation

    (25,239 )   23,878     1,361          

Market value of stock repurchase obligation

            1,010         1,010  

Total corporate and other expenses

        68,928     7,424     (652 )   75,700  

Income (loss) before income taxes

        (6,213 )   12,103     (10,000 )   (4,110 )

Provision (benefit) for income taxes

        (2,478 )   4,826     (3,987 )   (1,639 )

Net income (loss)

  $   $ (3,735 ) $ 7,277   $ (6,013 ) $ (2,471 )

24


Table of Contents


Community Choice Financial Inc. and Subsidiaries

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 Statements of Operations (unaudited)
Six Months Ended June 30, 2014

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Revenues:

                               

Finance receivable fees

  $   $ 157,494   $ 10,951   $ (339 ) $ 168,106  

Credit service fees

        12,520             12,520  

Check cashing fees

        36,560     5,057         41,617  

Card fees

        3,212     118         3,330  

Dividend

        4,000         (4,000 )    

Other

        13,464     1,591     (1,286 )   13,769  

Total revenues

        227,250     17,717     (5,625 )   239,342  

Operating expenses:

                               

Salaries and benefits

        33,263     3,310         36,573  

Provision for loan losses

        69,537     4,745         74,282  

Occupancy

        12,675     1,688         14,363  

Advertising and marketing

        8,012     345     (755 )   7,602  

Depreciation and amortization

        3,583     374         3,957  

Other

        24,085     1,695     (226 )   25,554  

Total operating expenses

        151,155     12,157     (981 )   162,331  

Operating gross profit

        76,095     5,560     (4,644 )   77,011  

Corporate expenses

        38,025     1,843     (305 )   39,563  

Depreciation and amortization

        2,270     598         2,868  

Interest expense, net

    25,030     111     1,895     (339 )   26,697  

Interest expense allocation

    (25,030 )   25,030              

Market value of stock repurchase obligation

            (40 )       (40 )

Total corporate and other expenses

        65,436     4,296     (644 )   69,088  

Income before income taxes

        10,659     1,264     (4,000 )   7,923  

Provision for income taxes

        4,340     515     (1,629 )   3,226  

Income from continuing operations

        6,319     749     (2,371 )   4,697  

Discontinued operations, net of tax

            (4,585 )       (4,585 )

Net income (loss)

  $   $ 6,319   $ (3,836 ) $ (2,371 ) $ 112  

25


Table of Contents


Community Choice Financial Inc. and Subsidiaries

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 Statement of Cash Flows (unaudited)
Six Months Ended June 30, 2015

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Consolidated  

Net cash provided by operating activities

  $ 1,157   $ 61,545   $ 34,575   $ 97,277  

Cash flows from investing activities

                         

Net receivables originated

        (64,021 )   (17,459 )   (81,480 )

Net acquired assets, net of cash

        (810 )       (810 )

Purchase of leasehold improvements and equipment

        (11,114 )   (510 )   (11,624 )

Net cash used in investing activities

        (75,945 )   (17,969 )   (93,914 )

Cash flows from financing activities

                         

Proceeds from subsidiary note

            2,400     2,400  

Payments on subsidiary note

        (200 )       (200 )

Payments on related party Florida seller notes

            (1,500 )   (1,500 )

Payments on capital lease obligations, net

        (946 )   (52 )   (998 )

Proceeds from lines of credit

    31,700             31,700  

Intercompany activities

    (31,985 )   31,985          

Debt issuance costs

    (872 )   (144 )   (68 )   (1,084 )

Net cash provided by (used in) financing activities

    (1,157 )   30,695     780     30,318  

Net increase in cash and cash equivalents

        16,295     17,386     33,681  

Cash and cash equivalents:

                         

Beginning

        63,372     14,362     77,734  

Ending

  $   $ 79,667   $ 31,748   $ 111,415