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



FORM 10-Q

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

For the quarterly period ended March 31, 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 March 31, 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 March 31, 2015

Table of Contents

 
   
  Page  

 

Financial Information

       

Item 1.

 

Financial Statements

   
 
 

 

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

    3  

 

Consolidated Statements of Income for the three months ended March 31, 2015 (unaudited) and March 31, 2014 (unaudited)

    4  

 

Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2015 (unaudited)

    5  

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2015 (unaudited) and March 31, 2014 (unaudited)

    6  

 

Notes to unaudited Consolidated Financial Statements

    7 - 26  

Item 2.

 

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

   
27 - 42
 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

   
42
 

Item 4.

 

Controls and Procedures

   
43
 

Part II

 

Other Information

       

Item 1.

 

Legal Proceedings

   
43
 

Item 1A.

 

Risk Factors

   
43
 

Item 6.

 

Exhibits

   
44
 

 

Signatures

   
45
 

2


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Balance Sheets

March 31, 2015 and December 31, 2014

(In thousands, except per share data)

 
  March 31,
2015
  December 31,
2014
 
 
  (unaudited)
   
 

Assets

             

Current Assets

             

Cash and cash equivalents

  $ 145,488   $ 77,734  

Restricted cash

    5,967     3,877  

Finance receivables, net of allowance for loan losses of $19,556 and $22,775

    120,505     140,418  

Short-term investments, certificates of deposit

    1,115     1,115  

Card related pre-funding and receivables

    2,167     2,606  

Other current assets

    22,929     25,840  

Deferred tax asset, net

    12,770     12,770  

Total current assets

    310,941     264,360  

Noncurrent Assets

             

Finance receivables, net of allowance for loan losses of $6,202 and $7,588

    15,967     19,251  

Property, leasehold improvements and equipment, net

    43,475     39,635  

Goodwill

    222,233     222,565  

Other intangible assets

    3,088     3,545  

Security deposits

    2,658     2,653  

Deferred tax asset, net

    12,455     17,052  

Deferred debt issuance costs

    9,536     9,328  

Total assets

  $ 620,353   $ 578,389  

Liabilities and Stockholders' Equity

             

Current Liabilities

             

Current portion of capital lease obligation

  $ 1,158   $ 1,166  

Current portion of related party Florida seller notes

    2,795     2,786  

Current portion of subsidiary notes payable

    210     383  

Deferred revenue

    3,043     2,993  

Accrued interest

    19,673     8,189  

Money orders payable

    13,667     9,090  

Accounts payable and accrued liabilities

    27,921     36,376  

Total current liabilities

    68,467     60,983  

Noncurrent Liabilities

             

Lines of credit

    26,700      

Subsidiary notes payable

    36,140     33,754  

Capital lease obligation

    1,948     1,806  

Stock repurchase obligation

    4,120     4,130  

Related party Florida seller notes

    8,644     9,346  

Senior secured notes

    420,000     420,000  

Deferred revenue

    2,245     2,982  

Total liabilities

    568,264     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 March 31, 2015 and December 31, 2014

    90     90  

Additional paid-in capital

    127,987     127,729  

Retained deficit

    (75,988 )   (82,431 )

Total stockholders' equity

    52,089     45,388  

Total liabilities and stockholders' equity

  $ 620,353   $ 578,389  

   

See Notes to Unaudited Consolidated Financial Statements.

3


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Statements of Income

Three Months Ended March 31, 2015 and 2014

(In thousands)

(Unaudited)

 
  Three Months Ended
March 31,
 
 
  2015   2014  

Revenues:

             

Finance receivable fees

  $ 82,619   $ 83,112  

Credit service fees

    27,387     6,161  

Check cashing fees

    17,177     21,737  

Card fees

    2,292     1,523  

Other

    6,959     7,369  

Total revenues

    136,434     119,902  

Operating expenses:

             

Salaries and benefits

    20,561     18,052  

Provision for loan losses

    39,910     30,127  

Occupancy

    7,577     6,978  

Advertising and marketing

    4,802     3,456  

Depreciation and amortization

    2,393     1,954  

Other

    14,044     12,624  

Total operating expenses

    89,287     73,191  

Operating gross profit

    47,147     46,711  

Corporate and other expenses

             

Corporate expenses

    20,809     20,763  

Depreciation and amortization

    1,415     1,464  

Interest expense, net

    14,208     13,335  

Total corporate and other expenses

    36,432     35,562  

Income from continuing operations, before tax

    10,715     11,149  

Provision for income taxes

    4,272     4,452  

Income from continuing operations, net of tax

    6,443     6,697  

Discontinued operations (net of provision for income taxes of $-0- and $69)

        173  

Net income

    6,443     6,870  

Net income attributable to non-controlling interests

        133  

Net income attributable to controlling interests

  $ 6,443   $ 6,737  

Amounts attributable to Community Choice Financial shareholders:

             

Net income from continuing operations, net of tax

  $ 6,443   $ 6,697  

Discontinued operations, net of tax

        40  

Net income attributable to Community Choice Financial shareholders

  $ 6,443   $ 6,737  

   

See Notes to Unaudited Consolidated Financial Statements.

4


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Community Choice Financial Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

Three months Ended March 31, 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          

            258         258  

Net income

                6,443     6,443  

Balance, March 31, 2015

    8,981,536   $ 90   $ 127,987   $ (75,988 ) $ 52,089  

   

See Notes to Unaudited Consolidated Financial Statements.

5


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Three months Ended March 31, 2015 and 2014

(In thousands)

(Unaudited)

 
  Three Months Ended
March 31,
 
 
  2015   2014  

Cash flows from operating activities

             

Net income

  $ 6,443   $ 6,697  

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

             

Provision for loan losses

    39,910     30,127  

Loss on deconsolidation of Insight Holdings

        173  

Loss on disposal of assets

    16      

Depreciation

    3,215     2,527  

Amortization of note discount and deferred debt issuance costs

    691     643  

Amortization of intangibles

    592     1,651  

Deferred income taxes

    5,163     4,052  

Change in fair value of stock repurchase obligation

    (10 )   (56 )

Stock-based compensation

    258     377  

Changes in assets and liabilities:

             

Card related pre-funding and receivables

    439     5  

Restricted cash

    (2,090 )   (251 )

Other assets

    2,906     110  

Deferred revenue

    (687 )   (531 )

Accrued interest

    11,484     11,399  

Money orders payable

    4,577     (1,700 )

Accounts payable and accrued expenses

    (8,455 )   4,341  

Net cash provided by operating activities

    64,452     59,564  

Cash flows from investing activities

             

Net receivables originated

    (16,582 )   (7,247 )

Net acquired assets, net of cash

    (810 )   (1,704 )

Internally developed software intangible asset

        (32 )

Purchase of leasehold improvements and equipment

    (5,954 )   (4,729 )

Net cash used in investing activities

    (23,346 )   (13,712 )

Cash flows from financing activities

             

Proceeds from subsidiary note

    2,400      

Payments on subsidiary note

    (187 )    

Payments on related party Florida seller notes

    (750 )    

Payments on capital lease obligations

    (673 )   (86 )

Proceeds on lines of credit

    26,700     11,664  

Payments on mortgage note payable

        (426 )

Proceeds from refinance of mortgage note payable

        720  

Debt issuance costs

    (842 )    

Member distribution

        (345 )

Net cash provided by financing activities

    26,648     11,527  

Net increase in cash and cash equivalents

    67,754     57,379  

Cash and cash equivalents:

             

Beginning

    77,734     90,311  

Ending

  $ 145,488   $ 147,690  

   

See Notes to Unaudited Consolidated Financial Statements.

6


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share data)

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

        Nature of business:    Community Choice Financial Inc. (together with its consolidated subsidiaries, "CCFI" or "the Company") was formed on April 6, 2011, under the laws of the State of Ohio. As of March 31, 2015, the Company owned and operated 543 stores in 15 states, had an internet presence in 24 states, and had a small internet presence in the United Kingdom. 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 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 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, 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 of April 1, 2013 until it was sold on May 12, 2014. Insight Holdings has been presented as a discontinued operation and the prior period has been restated on the consolidated statements of income.

        Reclassifications:    Certain amounts reported in the consolidated financial statements for the three months ended March 31, 2014 have been reclassified to conform to classifications presented in the consolidated financial statements for the three months ended March 31, 2015 consolidated financial statements, without affecting the previously reported net income or stockholders' equity. Prior periods have been reclassified in the statement of income to present Insight Holdings as discontinued operations. Additionally, 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 income, and

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)

secured loans are included in finance receivables as either a short-term or medium-term consumer loan.

        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 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. Fees and direct costs incurred for the origination of finance receivables are deferred and amortized over the loan period using the interest method. 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 17.8% and 17.5% of short-term consumer loans at March 31, 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 14.2% and 15.0% of medium-term consumer loans at March 31, 2015 and December 31, 2014, respectively.

8


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

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

        CCFI disclosed secured consumer loans as a separate category in prior periods. Secured consumer loans typically range from $750 to $5,000, and are asset-based consumer loans whereby the customer obtains cash and may grant a right in collateral and the consumer loan may be secured with a lien on the collateral. All prior year schedules have been reclassified to reflect the current year's classification of secured loans as either short-term or medium-term consumer loans.

        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 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.

9


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)

        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 Income for the three months ended March 31, 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.

    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 generally accepted accounting principles and expands disclosure about fair value measurements. This standard enables a reader of consolidated financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The standard requires that assets and liabilities carried at fair value be classified and disclosed in one of the three categories.

        In determining the appropriate levels, the Company performed a detailed analysis of the assets and liabilities that are subject to ASC 820-10. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The Company's financial instruments consist primarily of cash and cash equivalents, finance receivables, short-term investments, and lines of credit. For all such instruments, other than senior secured notes, notes payable, and stock repurchase obligation at March 31, 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.

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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)

        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.

 
  March 31, 2015  
 
  Carrying
Amount
  Fair Value   Level  

Financial assets:

                   

Cash and cash equivalents

  $ 145,488   $ 145,488     1  

Restricted cash

    5,967     5,967     1  

Finance receivables

    136,472     136,472     3  

Short-term investments, certificates of deposit

    1,115     1,115     2  

Financial liabilities:

                   

10.75% Senior secured notes

    395,000     213,300     1  

12.75% Senior secured notes

    25,000     13,500     2  

Related party Florida seller notes

    11,439     11,439     2  

Line of Credit

    26,700     26,700     2  

Subsidiary Note payable

    36,350     36,350     2  

Stock repurchase obligation

    4,120     4,120     2  

 

 
  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 March 31, 2015) through the issuance date of May 13, 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 2. Finance Receivables, Credit Quality Information and Allowance for Loan Losses

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

 
  March 31,
2015
  December 31,
2014
 

Short-term consumer loans

  $ 76,952   $ 96,015  

Medium-term consumer loans

    87,644     97,460  

Gross receivables

  $ 164,596   $ 193,475  

Unearned advance fees, net of deferred loan origination costs

    (2,366 )   (3,443 )

Finance receivables before allowance for loan losses

    162,230     190,032  

Allowance for loan losses

    (25,758 )   (30,363 )

Finance receivables, net

  $ 136,472   $ 159,669  

Finance receivables, net

             

Current portion

  $ 120,505   $ 140,418  

Non-current portion

    15,967     19,251  

Total finance receivables, net

  $ 136,472   $ 159,669  

        Changes in the allowance for the loan losses by product type for the three months ended March 31, 2015, are as follows:

 
  Balance
1/1/2015
  Provision   Charge-Offs   Recoveries   Balance
3/31/2015
  Receivables
3/31/2015
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 5,141   $ 11,642   $ (35,561 ) $ 22,802   $ 4,024   $ 76,952     5.23 %

Medium-term consumer loans

    25,222     18,038     (24,186 )   2,660     21,734     87,644     24.80 %

  $ 30,363   $ 29,680   $ (59,747 ) $ 25,462   $ 25,758   $ 164,596     15.65 %

        The provision for loan losses for the three months ended March 31, 2015 also includes losses from returned items from check cashing of $2,256.

        The provision for short-term consumer loans of $11,642 is net of debt sales of $631 and the provision for medium-term consumer loans of $18,038 includes a provision of $504 on loans the Company considered to be troubled debt restructurings.

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

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

Short-term consumer loans

  $ 5,631   $ 14,582   $ (43,863 ) $ 28,011   $ 4,361   $ 101,173     4.31 %

Medium-term consumer loans

    12,377     11,283     (11,007 )   1,691     14,344     64,876     22.11 %

  $ 18,008   $ 25,865   $ (54,870 ) $ 29,702   $ 18,705   $ 166,049     11.26 %

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

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

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

        The Company has subsidiaries that facilitate third party lender loans. Changes in the accrual for third-party lender losses for the three months ended March 31, 2015, and 2014 were as follows:

 
  Three months ended
March 31,
 
 
  2015   2014  

Balance, beginning of period

  $ 4,434   $ 1,481  

Provision for loan losses

    7,974     2,630  

Charge-offs, net

    (9,305 )   (2,914 )

Balance, end of period

  $ 3,103   $ 1,197  

        Total gross finance receivables for which the Company has recorded an accrual for third-party lender losses totaled $39,330 and $52,680 at March 31, 2015 and December 31, 2014, respectively, and the corresponding guaranteed short-term 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.

        The aging of receivables at March 31, 2015 and December 31, 2014, are as follows:

 
  March 31, 2015   December 31, 2014  

Current finance receivables

  $ 148,801     90.4 % $ 173,522     89.7 %

Past due finance receivables (1 - 30 days)

                         

Short-term consumer loans

    1,148     0.7 %   1,185     0.6 %

Medium-term consumer loans

    8,861     5.4 %   12,258     6.3 %

Total past due finance receivables (1 - 30 days)

    10,009     6.1 %   13,443     6.9 %

Past due finance receivables (31 - 60 days)

                         

Medium-term consumer loans

    3,662     2.2 %   4,377     2.3 %

Total past due finance receivables (31 - 60 days)

    3,662     2.2 %   4,377     2.3 %

Past due finance receivables (61 - 90 days)

                         

Medium-term consumer loans

    2,124     1.3 %   2,133     1.1 %

Total past due finance receivables (61 - 90 days)

    2,124     1.3 %   2,133     1.1 %

Total delinquent

    15,795     9.6 %   19,953     10.3 %

  $ 164,596     100.0 % $ 193,475     100.0 %

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 3. Related Party Transactions and Balances

        A senior member of management has an interest in a limited partnership that owns an interest in a vendor from which the Company purchases telecommunications services. The $140 in services for the three months ended March 31, 2015 was provided to the Company by the vendor at a reduced rate. There were no services provided for the three months ended March 31, 2014. If the Company were to source the service from another vendor, the overall cost of the service would increase.

        There were no additional significant new, or changes to existing, related party transactions during the three months ended March 31, 2015.

Note 4. Goodwill and Other Intangible Assets

        Intangible amortization expense for the three months ended March 31, 2015 and 2014 were $592 and $1,651, respectively. There were no additional significant changes to goodwill and other intangible assets during the three months ended March 31, 2015.

Note 5. Pledged Assets and Debt

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

 
  March 31,
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

  $   $  

$26,700 Revolving credit, secured, interest rate as defined below, due March 2017, collateralized by all Company assets

    26,700      

    26,700      

Less current maturities

         

Long-term portion

  $ 26,700   $  

        The revolving credit facility due April 2015 was amended in March 2015 and is now structured as a $26.7 million revolving credit facility with an accordion feature, so long as no event of default exists, and allows the Company to request an increase in the revolving credit facility of up to $40.0 million in total availability. 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 0.17% and 0.15% at March 31, 2015, and December 31, 2014, respectively, and the prime rate was 3.25% at both March 31, 2015, and December 31, 2014. The revolving credit facility includes an undrawn line fee of 3.0% of the unused commitments.

        There were no additional significant changes to pledged assets or debt during the three months ended March 31, 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 6. Accounts Payable and Accrued Liabilities

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

 
  March 31,
2015
  December 31,
2014
 

Accounts payable

  $ 2,829   $ 7,661  

Accrued payroll and compensated absences

    6,927     7,184  

Wire transfers payable

    2,695     1,815  

Accrual for third-party losses

    3,103     4,434  

Unearned CSO Fees

    4,417     5,925  

Deferred rent

    1,178     1,141  

Bill payment

    2,040     3,386  

Other

    4,732     4,830  

  $ 27,921   $ 36,376  

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

        Rental expense totaled $7,909 and $7,349 for the three months ended March 31, 2015, and 2014, respectively.

        There were no additional significant changes to operating and capital lease commitments during the three months ended March 31, 2015.

Note 8. Concentrations of Credit Risks

        The Company's portfolio of finance receivables is comprised of loan agreements with customers living in thirty-two 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 March 31, 2015 and December 31, 2014:

 
  March 31, 2015   December 31, 2014  
State
  Balance
Outstanding
  Percentage of
Total Outstanding
  Balance
Outstanding
  Percentage of
Total Outstanding
 

Alabama

  $ 19,865     12.1 % $ 22,681     11.7 %

Arizona

    14,305     8.7     16,859     8.7  

California

    63,897     38.8     71,643     37.0  

Florida

    7,794     4.7     9,697     5.0  

Virginia

    13,159     8.0     15,770     8.2  

Other retail segment states

    23,086     14.0     30,393     15.7  

Other internet segment states

    22,490     13.7     26,432     13.7  

Total

  $ 164,596     100.0 % $ 193,475     100.0 %

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 8. Concentrations of Credit Risks (Continued)

        The other retail segment states are: Indiana, Illinois, Kansas, Kentucky, Michigan, Missouri, Ohio, 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. In addition, DFS UK which is operating in a limited capacity offering loans in the United Kingdom, and DFS Canada, which does not currently offer loans, are included as internet segment states.

        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 $39,330 and $52,680 at March 31, 2015, and December 31, 2014, respectively, and the corresponding guaranteed consumer loans are disclosed as an off-balance sheet arrangement.

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 three months ended March 31, 2015.

Note 11. Stock Based Compensation

        For the three months ended March 31, 2015 and 2014, the Company recorded stock-based compensation costs in the amounts of $258 and $377, respectively. As of March 31, 2015 and March 31, 2014, unrecognized stock-based compensation costs to be recognized over future periods approximated $1,274 and $3,796, respectively. At March 31, 2015, the remaining unrecognized compensation expense was $726 for certain awards that vest solely upon a change in control and $548 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 $548 is expected to be recognized over a weighted-average period of 1.2 years. The total income tax benefit recognized in the consolidated statements of operations for the stock-based compensation arrangements was $510 and $1,518 for the three month periods ended March 31, 2015 and 2014, respectively.

        There were no significant stock option, restricted stock unit, and stock appreciation right activities during the three months ended March 31, 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 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 March 31, 2015  
 
  Retail
Financial Services
  % of
Revenue
  Internet
Financial Services
  % of
Revenue
  Consolidated   % of
Revenue
 

Total Assets

  $ 543,562         $ 76,791         $ 620,353        

Goodwill

    222,233                     222,233        

Other Intangible Assets

    1,408           1,680           3,088        

Total Revenues

  $ 103,382     100.0 % $ 33,052     100.0 % $ 136,434     100.0 %

Provision for Loan Losses

    21,484     20.8 %   18,426     55.7 %   39,910     29.2 %

Other Operating Expenses

    44,057     42.6 %   5,320     16.1 %   49,377     36.2 %

Operating Gross Profit

    37,841     36.6 %   9,306     28.2 %   47,147     34.6 %

Interest Expense, net

    9,292     9.0 %   4,916     14.9 %   14,208     10.4 %

Depreciation and Amortization

    1,131     1.1 %   284     0.9 %   1,415     1.0 %

        Intersegment revenues of $570 for the three months ended March 31, 2015, have been eliminated.

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

Total Assets

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

Goodwill

    299,210           13,673           312,883        

Other Intangible Assets

    19,083           2,801           21,884        

Total Revenues

  $ 96,333     100.0 % $ 23,569     100.0 % $ 119,902     100.0 %

Provision for Loan Losses

    19,273     20.0 %   10,854     46.1 %   30,127     25.1 %

Other Operating Expenses

    40,082     41.6 %   2,982     12.7 %   43,064     35.9 %

Operating Gross Profit

    36,978     38.4 %   9,733     41.2 %   46,711     39.0 %

Interest Expense, net

    12,535     13.0 %   800     3.4 %   13,335     11.1 %

Depreciation and Amortization

    930     1.0 %   534     2.3 %   1,464     1.2 %

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

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 March 31, 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 presented as a discontinued operation and the prior period has been restated on the consolidated statements of income.

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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 three months ended March 31, 2014 were as follows:

 
  Three Months
Ended
March 31,
2014
 

Revenues:

       

Card fees

  $ 5,047  

Other

    137  

Total revenues

    5,184  

Operating expenses:

       

Other

     

Total operating expenses

     

Operating gross profit

    5,184  

Corporate and other expenses

       

Corporate expenses

    4,234  

Depreciation and amortization

    760  

Interest expense, net

    17  

Total corporate and other expenses

    5,011  

Income before income taxes

    173  

Provision for income taxes

    69  

Income from continuing operations

    104  

Loss on disposal

    69  

Total discontinued operations

  $ 173  

        There were no discontinued operations for the three months ended March 31, 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 March 31, 2015 and December 31, 2014, the outstanding amount of active consumer loans, which was our maximum exposure, was $39.3 million and $52.7 million, 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 $3,103 and $4,434 as of March 31, 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.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 16. Supplemental 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 $7.7 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 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 by the Alabama subsidiary, 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.

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

        The following presents the condensed consolidating guarantor financial information as of March 31, 2015 and December 31, 2014, and for the three months ended March 31, 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. The Company's entire guarantor subsidiaries are 100% owned, and all guarantees are full and unconditional, 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,

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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 (Continued)

CCFI Funding was created on December 20, 2013, and CCFI Funding II was established on June 19, 2014. As of March 31, 2015 and December 31, 2014, such unrestricted subsidiaries had total assets of $101,840 and $90,718 and total liabilities of $70,346 and $69,380, respectively and for the three months ended March 31, 2015 and 2014 had total revenues of $23,760 and $9,846, total operating expenses of $12,025 and $4,424, and income before income taxes of $8,865 and $ 3,874, 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. For the three months ended March 31, 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.

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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 (Continued)


Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Balance Sheet (unaudited)
March 31, 2015

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Assets

                               

Current Assets

                               

Cash and cash equivalents

  $ 778   $ 112,907   $ 31,803   $   $ 145,488  

Restricted cash

        5,967             5,967  

Finance receivables, net

        88,282     34,930     (2,707 )   120,505  

Short-term investments, certificates of deposit

        1,115             1,115  

Card related pre-funding and receivables

        2,167             2,167  

Other current assets

        46,665     104     (23,840 )   22,929  

Deferred tax asset, net

        12,770             12,770  

Total current assets

    778     269,873     66,837     (26,547 )   310,941  

Noncurrent Assets

                               

Investment in Subsidiaries

    405,991     17,280         (423,271 )    

Finance receivables, net

        15,967             15,967  

Property, leasehold improvements and equipment, net

        40,421     3,054         43,475  

Goodwill

        191,198     31,035         222,233  

Other intangible assets

        2,641     447         3,088  

Security deposits

        2,491     167         2,658  

Deferred tax asset, net

        12,455             12,455  

Deferred debt issuance costs

    9,193     43     300         9,536  

Total assets

  $ 415,962   $ 552,369   $ 101,840   $ (449,818 ) $ 620,353  

Liabilities and Stockholders' Equity

                               

Current Liabilities

                               

Current portion of capital lease obligation

  $   $ 1,042   $ 116   $   $ 1,158  

Current portion of related party Florida seller notes

            2,795         2,795  

Current portion of subsidiary note payable

        210             210  

CCFI Funding Notes

            5,353     (5,353 )    

Deferred revenue

        3,043             3,043  

Accrued interest

    19,520     8     907     (762 )   19,673  

Money orders payable

        13,667             13,667  

Accounts payable and accrued liabilities

        35,086     13,267     (20,432 )   27,921  

Total current liabilities

    19,520     53,056     22,438     (26,547 )   68,467  

Noncurrent Liabilities

                               

Lines of credit

    26,700                 26,700  

Subsidiary note payable

        1,140     35,000         36,140  

Capital lease obligation

        1,804     144         1,948  

Stock repurchase obligation

            4,120         4,120  

Related party Florida seller notes

            8,644         8,644  

Senior secured notes

    420,000                 420,000  

Deferred Revenue

        2,245             2,245  

Total liabilities

    466,220     58,245     70,346     (26,547 )   568,264  

Stockholders' Equity (Deficit)

    (50,258 )   494,124     31,494     (423,271 )   52,089  

Total liabilities and stockholders' equity

  $ 415,962   $ 552,369   $ 101,840   $ (449,818 ) $ 620,353  

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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 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  

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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 (Continued)

Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Statements of Income (unaudited)
Three Months Ended March 31, 2015

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Revenues:

                               

Finance receivable fees

  $   $ 63,479   $ 19,140   $   $ 82,619  

Credit service fees

        27,387             27,387  

Check cashing fees

        15,973     3,663     (2,459 )   17,177  

Card fees

        2,154     138         2,292  

Dividend

        3,000         (3,000 )    

Other

        10,002     819     (3,862 )   6,959  

Total revenues

        121,995     23,760     (9,321 )   136,434  

Operating expenses:

                               

Salaries and benefits

        18,859     1,702         20,561  

Provision for loan losses

        31,950     7,960         39,910  

Occupancy

        6,643     934         7,577  

Advertising and marketing

        5,142     200     (540 )   4,802  

Depreciation and amortization

        2,169     224         2,393  

Other

        15,498     1,005     (2,459 )   14,044  

Total operating expenses

        80,261     12,025     (2,999 )   89,287  

Operating gross profit

        41,734     11,735     (6,322 )   47,147  

Corporate expenses

        20,375     492     (58 )   20,809  

Depreciation and amortization

        1,205     210         1,415  

Interest expense, net

    12,174     130     2,168     (264 )   14,208  

Interest expense allocation

    (12,174 )   12,174              

Total corporate and other expenses

        33,884     2,870     (322 )   36,432  

Income before income taxes

        7,850     8,865     (6,000 )   10,715  

Provision for income taxes

        3,130     3,534     (2,392 )   4,272  

Net income

  $   $ 4,720   $ 5,331   $ (3,608 ) $ 6,443  

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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 (Continued)


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

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Revenues:

                               

Finance receivable fees

  $   $ 77,065   $ 6,214   $ (167 ) $ 83,112  

Credit service fees

        6,161             6,161  

Check cashing fees

        18,967     2,770         21,737  

Card fees

        1,473     50         1,523  

Dividend

        8,000         (8,000 )    

Other

        7,071     812     (514 )   7,369  

Total revenues

        118,737     9,846     (8,681 )   119,902  

Operating expenses:

                               

Salaries and benefits

        16,440     1,612         18,052  

Provision for loan losses

        29,355     772         30,127  

Occupancy

        6,161     817         6,978  

Advertising and marketing

        3,575     202     (321 )   3,456  

Depreciation and amortization

        1,778     176         1,954  

Other

        11,779     845         12,624  

Total operating expenses

        69,088     4,424     (321 )   73,191  

Operating gross profit

        49,649     5,422     (8,360 )   46,711  

Corporate expenses

        20,675     280     (192 )   20,763  

Depreciation and amortization

        1,166     298         1,464  

Interest expense, net

    11,126     1,406     970     (167 )   13,335  

Interest expense allocation

    (11,126 )   11,126              

Total corporate and other expenses

        34,373     1,548     (359 )   35,562  

Income before income taxes

        15,276     3,874     (8,001 )   11,149  

Provision for income taxes

        6,100     1,547     (3,195 )   4,452  

Income from continuing operations

        9,176     2,327     (4,806 )   6,697  

Discontinued operations, net of tax

            173         173  

Net income

  $   $ 9,176   $ 2,500   $ (4,806 ) $ 6,870  

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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 (Continued)

Community Choice Financial Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows (unaudited)
Three Months Ended March 31, 2015

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Consolidated  

Net cash provided by operating activities

  $ 12,047   $ 34,487   $ 17,918   $ 64,452  

Cash flows from investing activities

                         

Net receivables originated

        (14,873 )   (1,709 )   (16,582 )

Net acquired assets, net of cash          

        (810 )       (810 )

Purchase of leasehold improvements and equipment

        (5,563 )   (391 )   (5,954 )

Net cash used in investing activities

        (21,246 )   (2,100 )   (23,346 )

Cash flows from financing activities

                         

Proceeds from subsidiary note

            2,400     2,400  

Payments on subsidiary note

        (187 )       (187 )

Payments on related party Florida seller notes

            (750 )   (750 )

Payments on capital lease obligations, net

        (646 )   (27 )   (673 )

Proceeds from lines of credit

    26,700             26,700  

Intercompany activities

    (37,153 )   37,153          

Debt issuance costs

    (816 )   (26 )       (842 )

Net cash provided by (used in) financing activities

    (11,269 )   36,294     1,623     26,648  

Net increase in cash and cash equivalents

    778     49,535     17,441     67,754  

Cash and cash equivalents:

                         

Beginning

        63,372     14,362     77,734  

Ending

  $ 778   $ 112,907   $ 31,803   $ 145,488  

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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 (Continued)


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

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Consolidated  

Net cash provided by (used in) operating activities

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

Cash flows from investing activities

                         

Net receivables originated

        (10,776 )   3,529     (7,247 )

Net acquired assets, net of cash          

        (386 )   (1,318 )   (1,704 )

Internally developed software intangible asset

            (32 )   (32 )

Purchase of leasehold improvements and equipment

        (4,396 )   (333 )   (4,729 )

Net cash provided by (used in) investing activities

        (15,558 )   1,846     (13,712 )

Cash flows from financing activities

                         

Payment on capital lease obligations, net

        (52 )   (34 )   (86 )

Net advances on lines of credit          

    11,664             11,664  

Payments on mortgage note payable

            (426 )   (426 )

Proceeds from refinance of mortgage note payable

            720     720  

Member distribution

            (345 )   (345 )

Intercompany activities

    (8,977 )   8,977          

Net cash provided by (used in) financing activities

    1,871     9,741     (85 )   11,527  

Net increase in cash and cash equivalents

    (816 )   53,624     4,571     57,379  

Cash and cash equivalents:

                         

Beginning

        84,433     5,878     90,311  

Ending

  $ (816 ) $ 138,057   $ 10,449   $ 147,690  

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion contains management's discussion and analysis of Community Choice Financial's financial condition and results of operations. References to "CCFI", "the company", "us", "we", "our" and "ours" refer to Community Choice Financial, together with its subsidiaries. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Actual results may differ materially from those contained in any forward-looking statements.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

        The Private Securities Litigation Reform Act of 1995 ("Act") provides a safe harbor for forward-looking statements. Certain statements in this report are forward-looking statements within the meaning of the Act, and such statements are intended to qualify for the protection of the safe harbor provided by the Act. The words "anticipate," "estimate," "expect," "objective," "goal," "project," "intend," "plan," "believe," "will," "should," "may," "target," "forecast," "guidance," "outlook," and similar expressions generally identify forward-looking statements. Similarly, descriptions of our objectives, strategies, plans, goals or targets are also forward-looking statements. Forward-looking statements relate to the expectations of management as to future occurrences and trends, including statements expressing optimism or pessimism about future operating results or events and projected revenues, earnings, capital expenditures and business strategy. Forward-looking statements are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Forward-looking statements are and will be based upon management's then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. Although we believe the expectations expressed in forward-looking statements are based on reasonable assumptions within the bounds of our knowledge, forward-looking statements, by their nature, involve risks, uncertainties and other factors, any one or a combination of which could materially affect our business, financial condition, results of operations or liquidity.

        Forward-looking statements that we make herein and in other reports and releases are not guarantees of future performance and actual results may differ materially from those discussed in such forward-looking statements as a result of various factors, including, but not limited to, the ongoing impact of the economic and credit crisis, leveling demand for our products, our inability to successfully execute strategic initiatives, including integration of acquired businesses, competitive pressures, economic pressures on our customers and us, regulatory and legislative changes, the impact of legislation, the risks discussed under Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014, and other factors discussed from time to time. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly update forward-looking statements whether as a result of new information, future events or otherwise.

        Readers are advised, however, to consult any further disclosures we make on related subjects in our public announcements, releases, and reports.

Overview

        We are a leading provider of alternative financial services to unbanked and under banked consumers. We provide our customers a variety of financial products and services, including short-term and medium-term consumer loans, check cashing, prepaid debit cards, and other services that address the specific needs of our customers. Through our retail focused business model, we provide our customers with high-quality service and immediate access to retail financial services at competitive rates and through the channel most convenient for our customers. As of March 31, 2015, we operated 543 storefront locations across 15 states and 24 states via the internet.

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        Our retail business model is focused on providing a broadening array of financial products and services through the distribution channels which satisfy the target customer needs where and when they desire. We want to achieve a superior level of customer satisfaction resulting in increased market penetration and value creation. Our overall revenue has expanded as we have executed on our retail model. An important part of our retail model is investing in and creating a premier brand presence, supported by a highly trained and motivated workforce with the aim of enhancing the customer's experience, generating increased traffic and introducing our customers to our diversified set of products. We have achieved organic growth through increased market share and expanded our customer relationships through our additional product offerings.

Factors Affecting Our Results of Operations

Expansion of our Retail Platform

        We actively grow our store count and internet presence to increase our market share. During the three months ended March 31, 2015, we opened 14 stores; however, we have made the strategic planning decision to reduce the rate of de novo store growth for the remainder of the year. We close underperforming stores as part of our routine performance review.

        The chart below sets forth certain information regarding our retail presence and number of states served via the internet for the year ended December 31, 2014, and the three months ended March 31, 2015.

 
  Year Ended
December 31,
2014
  Three Months
Ended
March 31,
2015
 

# of Locations

             

Beginning of Period

    516     530  

Opened

    25     14  

Closed

    11     1  

End of Period

    530     543  

Number of states served by our internet operations

    24     24  

        The following table provides the geographic composition of our physical locations as of December 31, 2014, and March 31, 2015:

 
  December 31,
2014
  March 31,
2015
 

Alabama

    36     40  

Arizona

    40     40  

California

    156     156  

Florida

    63     65  

Indiana

    21     21  

Illinois

    12     12  

Kansas

    5     5  

Kentucky

    15     15  

Michigan

    14     14  

Missouri

    7     7  

Ohio

    96     96  

Oregon

    3     3  

Tennessee

    25     30  

Utah

    10     10  

Virginia

    27     29  

    530     543  

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        We also provide internet financial services in the following states: Alabama, Alaska, California, Delaware, Hawaii, Idaho, Illinois, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Nevada, New Mexico, North Dakota, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington, Wisconsin, and Wyoming. Additionally, DFS UK operates in a limited capacity offering loans in the United Kingdom.

Changes in Legislation

        In July 2010, the Dodd-Frank Act was signed into law. Among other things, this act created the CFPB and granted it the authority to regulate companies that provide consumer financial services. In April 2012, the CFPB began its first examination of our retail operations. We have received our report and at this time we do not anticipate any material changes to our retail operations as a result of this examination report. We are currently undergoing an examination of our internet operations by the CFPB. We expect to be periodically examined in the future by the CFPB as well as other regulatory agencies.

Product Characteristics and Mix

        As we expand our product offerings to meet our customers' needs, the characteristics of our overall loan portfolio shift to reflect the terms of these new products. Our various lending products have different terms. In addition, the shift in mix to longer term loans has resulted in and is expected to result in higher loan loss reserves. We believe that our prepaid debit card direct deposit offering has reduced our check cashing fees, however, by establishing our Insight prepaid debit card with direct deposit as an alternative to check cashing, we may extend the customer relationship and increase associated revenue over time.

Expenses

        Our operating expenses relate primarily to the operation of its stores and internet presence, including salaries and benefits, store occupancy costs, and call center costs, internet advertising, loan loss provisions, and depreciation of assets. We also incur corporate and other expenses on a company-wide basis, including interest expense and other financing costs related to our indebtedness, advertising, insurance, salaries, benefits, occupancy costs, professional expenses and management fees paid to our majority stockholders.

        We view our compliance, collections and information technology groups as core competencies. We have invested in each of these areas and believe we will benefit from increased economies of scale as we continue to grow our business.

Critical Accounting Policies

        Consistent with accounting principles generally accepted in the United States of America, our management makes certain estimates and assumptions to determine the reported amounts of assets, liabilities, revenue and expenses in the process of preparing our financial statements. These estimates and assumptions are based on the best information available to management at the time the estimates or assumptions are made. The most significant estimates made by our management, include allowance for loan losses, equity method investments, goodwill, stock based compensation, stock repurchase obligation, and our determination for recording the amount of deferred income tax assets and liabilities, because these estimates and assumptions could change materially as a result of conditions both within and beyond management's control.

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        Management believes that among our significant accounting policies, the following involve a higher degree of judgment:

Finance Receivables, Net <