Company Quick10K Filing
Quick10K
Community Choice Financial
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2018-12-12 Enter Agreement, Leave Agreement, M&A, Shareholder Rights, Other Events, Exhibits
8-K 2018-12-03 Enter Agreement, Other Events
8-K 2018-10-31 Enter Agreement, Other Events, Exhibits
8-K 2018-10-10 Other Events
8-K 2018-08-31 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-21 Other Events
8-K 2018-08-14 Regulation FD, Exhibits
8-K 2018-06-12 Regulation FD, Exhibits
8-K 2018-01-05 Officers
GLF Gulfmark Offshore 261
PKKW Parkway Acquisition 80
INVU Investview 54
ZENO Zenosense 13
JSDA Jones Soda 13
MOJO Mojo Organics 6
PWVI Powerverde 3
MSOF Multi Soft II 0
STSA Satsuma Pharmaceuticals 0
ADPT Adaptive Biotechnologies 0
CCFI 2018-09-30
Note 1. Ownership, Nature of Business, and Significant Accounting Policies
Note 2. Finance Receivables, Credit Quality Information and Allowance for Loan Losses
Note 3. Related Party Transactions and Balances
Note 4. Other Intangible Assets
Note 5. Pledged Assets and Debt
Note 6. Accounts Payable and Accrued Liabilities
Note 7. Operating and Capital Lease Commitments and Total Rental Expense
Note 8. Concentrations of Credit Risks
Note 9. Contingencies
Note 10. Stock Based Compensation
Note 11. Business Segments
Note 12. Income Taxes
Note 13. Transactions with Variable Interest Entities
Note 14. Supplemental Guarantor Information
Note 15. Supplemental Condensed Consolidating Guarantor and Non‑Guarantor Financial Information
Note 16. Subsequent Event
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part Ii—Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 6. Exhibits.
EX-31.1 ccfi-20180930ex3115417cb.htm
EX-31.2 ccfi-20180930ex3122a6621.htm
EX-32.1 ccfi-20180930ex321db0d5f.htm
EX-32.2 ccfi-20180930ex32281d7f5.htm

Community Choice Financial Earnings 2018-09-30

CCFI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ccfi-20180930x10q.htm 10-Q ccfi_Current_Folio-10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑Q

(Mark One)

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

 

For the quarterly period ended September 30, 2018

 

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)

 

(888) 513‑9395

(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 ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒   No ☐

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

 

 

 

 

Large accelerated filer 

Accelerated filer

 

 

Non-accelerated filer    

Smaller reporting company 

 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

There is no market for the registrant’s equity. As of September 30, 2018, there were 7,990,020 shares outstanding.

 

 


 

Community Choice Financial Inc. and Subsidiaries

 

Form 10-Q for the Quarterly Period Ended September 30, 2018

 

Table of Contents

 

 

 

 

 

 

Page

 

Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017

3

 

 

 

 

Consolidated Statements of Operations for the three months and nine months ended September 30, 2018 (unaudited) and September 30, 2017 (unaudited)

4

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2018 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 (unaudited) and September 30, 2017 (unaudited)

6

 

 

 

 

Notes to unaudited Consolidated Financial Statements

7-31

 

 

 

Item 2. 

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

32-54

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

54

 

 

 

Item 4. 

Controls and Procedures

54

 

 

 

Part II 

Other Information

55

 

 

 

Item 1. 

Legal Proceedings

55

 

 

 

Item 1A. 

Risk Factors

55

 

 

 

 

 

 

Item 6. 

Exhibits

56

 

 

 

 

Signatures

57

 

 

 

 

2


 

Community Choice Financial Inc. and Subsidiaries

 

Consolidated Balance Sheets

 

September 30, 2018 and December 31, 2017

 

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2018

    

2017

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

50,914

 

$

66,627

 

Restricted cash

 

 

4,220

 

 

4,585

 

Finance receivables, net of allowance for loan losses of $13,767 and $13,517

 

 

79,054

 

 

89,707

 

Card related pre-funding and receivables

 

 

860

 

 

1,062

 

Other current assets

 

 

16,021

 

 

15,271

 

Total current assets

 

 

151,069

 

 

177,252

 

Noncurrent Assets

 

 

 

 

 

 

 

Finance receivables, net of allowance for loan losses of $1,853 and $2,810

 

 

3,123

 

 

4,632

 

Property, leasehold improvements and equipment, net

 

 

22,394

 

 

26,848

 

Other intangible assets

 

 

379

 

 

924

 

Security deposits

 

 

2,260

 

 

2,750

 

Total assets

 

$

179,225

 

$

212,406

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

32,805

 

$

39,566

 

Money orders payable

 

 

6,840

 

 

7,169

 

Accrued interest

 

 

11,403

 

 

5,145

 

Current portion of capital lease obligation

 

 

 9

 

 

371

 

Current portion of line of credit, net of deferred issuance costs of $34 and $-0-

 

 

2,966

 

 

 —

 

Current portion of subsidiary notes payable, net of deferred issuance costs of $1,126 and $1

 

 

63,273

 

 

118

 

Current portion of senior secured notes, net of deferred issuance costs and unamortized discount of $3,446 

 

 

243,844

 

 

 —

 

Deferred revenue

 

 

2,535

 

 

2,535

 

Total current liabilities

 

 

363,675

 

 

54,904

 

Noncurrent Liabilities

 

 

 

 

 

 

 

Lease termination payable

 

 

555

 

 

818

 

Line of credit, net of deferred issuance costs of $-0- and $1,871

 

 

 —

 

 

45,129

 

Subsidiary notes payable, net of deferred issuance costs of $12 and $762

 

 

958

 

 

61,077

 

Secured notes payable, net of deferred issuance cost of $4,827 and $-0-

 

 

37,173

 

 

 —

 

Senior secured notes, net of deferred issuance costs of $109 and $1,664

 

 

12,391

 

 

248,126

 

Deferred revenue

 

 

5,619

 

 

7,520

 

Total liabilities

 

 

420,371

 

 

417,574

 

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 7,990 outstanding shares at September 30, 2018 and December 31, 2017

 

 

90

 

 

90

 

Additional paid-in capital

 

 

129,700

 

 

129,675

 

Retained deficit

 

 

(370,886)

 

 

(334,883)

 

Treasury stock

 

 

(50)

 

 

(50)

 

Total stockholders' deficit

 

 

(241,146)

 

 

(205,168)

 

Total liabilities and stockholders' equity

 

$

179,225

 

$

212,406

 

 

See Notes to Unaudited Consolidated Financial Statements.

3


 

Community Choice Financial Inc. and Subsidiaries

 

Consolidated Statements of Operations

 

Three Months and Nine Months Ended September 30, 2018 and 2017

 

(In thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2018

    

2017

    

2018

    

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance receivable fees

 

$

51,088

 

$

57,808

 

$

148,330

 

$

154,789

 

Credit service fees

 

 

19,421

 

 

22,026

 

 

56,108

 

 

55,311

 

Check cashing fees

 

 

11,821

 

 

11,192

 

 

35,075

 

 

35,097

 

Card fees

 

 

2,216

 

 

2,046

 

 

6,675

 

 

6,166

 

Other

 

 

3,500

 

 

4,572

 

 

10,834

 

 

12,801

 

Total revenues

 

 

88,046

 

 

97,644

 

 

257,022

 

 

264,164

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries

 

 

17,177

 

 

18,040

 

 

51,670

 

 

52,829

 

Provision for loan losses

 

 

28,809

 

 

43,133

 

 

74,267

 

 

86,532

 

Occupancy

 

 

6,378

 

 

6,626

 

 

18,950

 

 

19,857

 

Advertising and marketing

 

 

1,363

 

 

3,362

 

 

3,870

 

 

5,720

 

Lease termination

 

 

164

 

 

 —

 

 

730

 

 

959

 

Depreciation and amortization

 

 

1,929

 

 

2,311

 

 

6,256

 

 

7,176

 

Other

 

 

10,385

 

 

14,113

 

 

32,394

 

 

38,411

 

Total operating expenses

 

 

66,205

 

 

87,585

 

 

188,137

 

 

211,484

 

Operating gross profit

 

 

21,841

 

 

10,059

 

 

68,885

 

 

52,680

 

Corporate and other expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

16,086

 

 

21,882

 

 

50,847

 

 

62,358

 

Lease termination

 

 

 —

 

 

 —

 

 

 —

 

 

1,762

 

Depreciation and amortization

 

 

1,074

 

 

1,287

 

 

3,496

 

 

3,777

 

Interest expense, net

 

 

13,916

 

 

12,210

 

 

39,713

 

 

36,012

 

Loss on debt extinguishment

 

 

10,832

 

 

 —

 

 

10,832

 

 

 —

 

Total corporate and other expenses

 

 

41,908

 

 

35,379

 

 

104,888

 

 

103,909

 

Loss from continuing operations, before tax

 

 

(20,067)

 

 

(25,320)

 

 

(36,003)

 

 

(51,229)

 

Provision for income taxes

 

 

 —

 

 

333

 

 

 —

 

 

999

 

Net loss

 

$

(20,067)

 

$

(25,653)

 

$

(36,003)

 

$

(52,228)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

4


 

Community Choice Financial Inc. and Subsidiaries

 

Consolidated Statements of Stockholders’ Equity

 

Nine Months Ended September 30, 2018

 

(Dollars in thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

Treasury

 

Paid-In

 

Retained

 

 

 

 

 

    

Shares

    

Amount

    

Stock

    

Capital

    

Deficit

    

Total

 

Balance, December 31, 2017

 

7,990,020

 

$

90

 

$

(50)

 

$

129,675

 

$

(334,883)

 

$

(205,168)

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

 —

 

 

25

 

 

 —

 

 

25

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(36,003)

 

 

(36,003)

 

Balance, September 30, 2018

 

7,990,020

 

$

90

 

$

(50)

 

$

129,700

 

$

(370,886)

 

$

(241,146)

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

5


 

Community Choice Financial Inc. and Subsidiaries

 

Consolidated Statements of Cash Flows

 

Nine Months Ended September 30, 2018 and 2017

 

(In thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2018

    

2017

    

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

 

$

(36,003)

    

$

(52,228)

    

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

 

 

 

 

 

 

 

Provision for loan losses

 

 

74,267

 

 

86,532

 

Loss on disposal of assets

 

 

390

 

 

2,280

 

Loss on debt extinguishment

 

 

10,832

 

 

 —

 

Depreciation

 

 

9,207

 

 

10,580

 

Amortization of note discount and deferred debt issuance costs

 

 

5,777

 

 

2,988

 

Amortization of intangibles

 

 

545

 

 

373

 

Deferred income taxes

 

 

 —

 

 

635

 

Stock-based compensation

 

 

25

 

 

42

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Short-term investments

 

 

 —

 

 

500

 

Card related pre-funding and receivables

 

 

202

 

 

424

 

Other assets

 

 

(260)

 

 

637

 

Deferred revenue

 

 

(1,901)

 

 

(1,783)

 

Accrued interest

 

 

6,258

 

 

6,570

 

Money orders payable

 

 

(329)

 

 

153

 

Lease termination payable

 

 

(263)

 

 

654

 

Accounts payable and accrued expenses

 

 

(6,761)

 

 

11,454

 

Net cash provided by operating activities

 

 

61,986

 

 

69,811

 

Cash flows from investing activities

 

 

 

 

 

 

 

Net receivables originated

 

 

(62,105)

 

 

(96,400)

 

Net acquired assets, net of cash

 

 

 —

 

 

(373)

 

Purchase of leasehold improvements and equipment

 

 

(5,143)

 

 

(6,315)

 

Net cash used in investing activities

 

 

(67,248)

 

 

(103,088)

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from subsidiary note

 

 

3,500

 

 

20,000

 

Payments on subsidiary note

 

 

(89)

 

 

(7,385)

 

Proceeds from secured notes payable

 

 

42,000

 

 

 —

 

Payments on capital lease obligations

 

 

(362)

 

 

(923)

 

Net advances (payments) on lines of credit

 

 

(44,000)

 

 

14,150

 

Debt issuance costs

 

 

(11,865)

 

 

(3,932)

 

Net cash provided by (used in) financing activities

 

 

(10,816)

 

 

21,910

 

Net decrease in cash and cash equivalents and restricted cash

 

 

(16,078)

 

 

(11,367)

 

Cash and cash equivalents and restricted cash:

 

 

 

 

 

 

 

Beginning

 

 

71,212

 

 

109,348

 

Ending

 

$

55,134

 

$

97,981

 

 

 

 

 

 

 

 

 

The following table reconciles cash and cash equivalents and restricted cash from the

 

 

 

 

 

 

 

Consolidated Balance Sheets to the above statements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

2017

 

2016

 

Cash and cash equivalents

 

$

66,627

 

$

106,333

 

Restricted Cash

 

 

4,585

 

 

3,015

 

Total cash and cash equivalents and restricted cash

 

$

71,212

 

$

109,348

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

2018

 

2017

 

Cash and cash equivalents

 

$

50,914

 

$

92,741

 

Restricted Cash

 

 

4,220

 

 

5,240

 

Total cash and cash equivalents and restricted cash

 

$

55,134

 

$

97,981

 

6


 

 

 

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”) owned and operated 474 retail locations in 12 states and was licensed to deliver similar financial services over the internet in 29 states as of September 30, 2018. 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 (“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, 2017, included in the Company’s Annual Report on Form 10‑K filed with the Securities & Exchange Commission on April 2, 2018. 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, 2018.

 

Basis of consolidation:  The accompanying consolidated financial statements include the accounts of CCFI. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Business segments:  FASB Accounting Standards Codification (“ASC”) Topic 280 Segment Reporting 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.

 

Equity method investments:    Entities and investments over which the Company exercises significant influence over the activities of the entity but which do not meet the requirements for consolidation are accounted for using the equity method of accounting pursuant to ASC 323, whereby the Company records its share of the underlying income or loss of these entities. Intercompany profit arising from transactions with affiliates is eliminated to the extent of its beneficial interest. Under the equity method of accounting for these investments, there is no recognition of losses once the carrying value of the investment, inclusive of advances and loans, has been reduced to zero and there are no guarantee or funding obligations associated therewith.

 

On September 30, 2017, the Company entered into a joint venture with a third party to offer insurance products through select retail locations in a certain market. The joint venture is managed by the third party.

 

Revenue recognition:  Transactions include loans, credit service 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

7


 

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 retail locations. 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. Revenue on loans determined to be troubled debt restructurings are recognized at the impaired loans’ original interest rates until the impaired loans are charged off or paid by the customer. Credit service organization (“CSO”) fees are recognized over the arranged credit service period.

 

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 loan products typically range in principal from $100 to $1,000, with a maturity between fourteen and thirty days, and include a written 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. State statutes vary from charging 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 a check or preauthorized debit to be presented. Secured consumer loans with a maturity of ninety days or less are included in this category and represented 12.6% and 14.5% of short-term consumer loans at September 30, 2018 and December 31, 2017, respectively.

 

Medium-term consumer loans can be unsecured or secured with a maturity greater than ninety days and 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 applicable laws and regulations where they are offered. The medium-term consumer loans are payable in installments or provide for a line of credit with periodic payments. Secured consumer loans with a maturity greater than ninety days are included in this category and represented 14.0% and 12.6% of medium-term consumer loans at September 30, 2018, and December 31, 2017, 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 guaranteed loans processed for third-party lenders under the CSO programs. The factors used in assessing the overall adequacy of the allowance for loan losses, the accrual for losses related to guaranteed loans made by 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, by using internal valuation inputs including historical loan loss experience, delinquency, overall portfolio quality, and current 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 unpaid, all accrued fees and outstanding principal are charged-off as uncollectible. For short term secured loans, the Company’s policy requires that balances be charged off when accounts are either thirty or sixty days past due depending on the product.

 

For medium term secured and unsecured consumer loans that 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 secured and unsecured consumer loans that have an initial maturity of greater than one year, the Company’s policy requires that balances be charged off when accounts are ninety-one days past due.

 

In certain markets, the Company reduced interest rates and favorably changed payment terms for medium-term consumer loans to assist borrowers in avoiding default and to mitigate risk of loss. These reduced interest rates and changed payment terms were limited to loans that the Company believed the customer had the ability to pay in the foreseeable future. These loans were accounted for as troubled debt restructurings and represent the only loans considered impaired due to the nature of the Company’s charge-off policy.

8


 

 

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.

 

Lease termination payable:  The Company records a liability for the remaining lease obligations with the corresponding lease termination expense for closed retail locations disclosed in the operating expenses section, and closed corporate locations disclosed in the corporate and other expenses section, of the consolidated statements of operations, respectively.

 

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, Fair Value Measurements and Disclosures, which applies to all assets and liabilities that are being measured and reported on a fair value basis. ASC 820‑10 requires a disclosure that establishes a framework for measuring fair value within GAAP and expands the 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, restricted cash, and lines of credit. For all such instruments, other than senior secured notes and notes payable at September 30, 2018, and December 31, 2017, the carrying amounts in the consolidated financial statements approximate their fair values. Finance receivables are short term in nature and are originated at prevailing market rates and lines of credit bear interest at current market rates. The fair value of finance receivables at September 30, 2018 and December 31, 2017 approximates carrying value and is measured using internal valuation inputs including historical loan loss experience, delinquency, overall portfolio quality, and current economic conditions. 

 

9


 

The fair value of the Company’s 10.75% senior secured notes due 2019 (the “2019 notes”) and the 12.75% senior secured notes due 2020 (the “2020 notes”) were determined based on market yield on trades of the 2019 notes at the end of the recent reporting period.

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

 

 

Carrying

 

 

 

 

 

 

    

Amount

    

Fair Value

    

Level

 

Financial assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

50,914

 

$

50,914

 

1

 

Restricted cash

 

 

4,220

 

 

4,220

 

1

 

Finance receivables

 

 

82,177

 

 

82,177

 

3

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

10.75% Senior secured notes

 

 

247,290

 

 

192,886

 

1

 

12.75% Senior secured notes

 

 

12,500

 

 

6,626

 

2

 

Senior Note Payable

 

 

42,000

 

 

42,000

 

2

 

Subsidiary Note payable

 

 

65,369

 

 

65,369

 

2

 

Line of Credit

 

 

3,000

 

 

3,000

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

Carrying

 

 

 

 

 

 

    

Amount

    

Fair Value

    

Level

 

Financial assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

66,627

 

$

66,627

 

1

 

Restricted cash

 

 

4,585

 

 

4,585

 

1

 

Finance receivables

 

 

94,339

 

 

94,339

 

3

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

10.75% Senior secured notes

 

 

237,290

 

 

212,636

 

1

 

12.75% Senior secured notes

 

 

12,500

 

 

10,841

 

2

 

Subsidiary Note payable

 

 

61,958

 

 

61,958

 

2

 

Line of Credit

 

 

47,000

 

 

47,000

 

2

 

 

Treasury Stock:  Treasury stock is reported at cost and consists of one million common shares at September 30, 2018 and December 31, 2017.

 

Subsequent events:  The Company has evaluated its subsequent events (events occurring after September 30, 2018) through the issuance date of November 14, 2018.

 

10


 

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

 

Finance receivables representing amounts due from customers for advances at September 30, 2018, and December 31, 2017, consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2018

    

2017

 

Short-term consumer loans

 

$

60,721

 

$

66,465

 

Medium-term consumer loans

 

 

39,379

 

 

46,903

 

Gross receivables

 

$

100,100

 

$

113,368

 

Unearned advance fees, net of deferred loan origination costs

 

 

(2,303)

 

 

(2,702)

 

Finance receivables before allowance for loan losses

 

 

97,797

 

 

110,666

 

Allowance for loan losses

 

 

(15,620)

 

 

(16,327)

 

Finance receivables, net

 

$

82,177

 

$

94,339

 

 

 

 

 

 

 

 

 

Finance receivables, net

 

 

 

 

 

 

 

Current portion

 

$

79,054

 

$

89,707

 

Non-current portion

 

 

3,123

 

 

4,632

 

Total finance receivables, net

 

$

82,177

 

$

94,339

 

 

 

Changes in the allowance for loan losses by product type for the three months ended September 30, 2018, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as

 

 

 

Balance

 

 

 

 

 

 

 

 

 

 

Balance

 

Receivables

 

a percentage

 

 

    

7/1/2018

    

Provision

    

Charge-Offs

    

Recoveries

    

9/30/2018

    

9/30/2018

    

of receivables

 

Short-term consumer loans

 

$

2,631

 

$

11,437

 

$

(19,549)

 

$

8,104

 

$

2,623

 

$

60,721

 

4.32

%  

Medium-term consumer loans

 

 

11,926

 

 

8,326

 

 

(8,158)

 

 

903

 

 

12,997

 

 

39,379

 

33.00

%  

 

 

$

14,557

 

$

19,763

 

$

(27,707)

 

$

9,007

 

$

15,620

 

$

100,100

 

15.60

%  

 

The provision for loan losses for the three months ended September 30, 2018, also includes losses from returned items from check cashing of $1,510.

 

The provision for short-term consumer loans of $11,437 is net of debt sales of $184 for the three months ended September 30, 2018.

 

The provision for medium-term consumer loans of $8,326 is net of debt sales of $248 for the three months ended September 30, 2018.

 

The Company evaluates all short-term and medium-term consumer loans collectively for impairment, except for individually evaluating medium-term loans that have been modified and classified as troubled debt restructurings. In certain markets, the Company reduced interest rates and favorably changed payment terms for medium-term consumer loans to assist borrowers in avoiding default and to mitigate risk of loss. The provision and subsequent charge off related to these loans totaled $43 and is included in the provision for medium-term consumer loans for the three months ended September 30, 2018. For these loans evaluated for impairment, there were $47 of payment defaults during the three months ended September 30, 2018. The troubled debt restructurings during the three months ended September 30, 2018 are subject to an allowance of $17 with a net carrying value of $20 at September 30, 2018.

11


 

Changes in the allowance for loan losses by product type for the nine months ended September 30, 2018, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as

 

 

 

Balance

 

 

 

 

 

 

 

 

 

 

Balance

 

Receivables

 

a percentage

 

 

    

1/1/2018

    

Provision

    

Charge-Offs

    

Recoveries

    

9/30/2018

    

9/30/2018

    

of receivables

 

Short-term consumer loans

 

$

2,697

 

$

28,295

 

$

(53,590)

 

$

25,221

 

$

2,623

 

$

60,721

 

4.32

%  

Medium-term consumer loans

 

 

13,630

 

 

22,807

 

 

(26,902)

 

 

3,462

 

 

12,997

 

 

39,379

 

33.00

%  

 

 

$

16,327

 

$

51,102

 

$

(80,492)

 

$

28,683

 

$

15,620

 

$

100,100

 

15.60

%  

 

The provision for loan losses for the nine months ended September 30, 2018, also includes losses from returned items from check cashing of $3,901.

 

The provision for short-term consumer loans of $28,295 is net of debt sales of $1,007 for the nine months ended September 30, 2018.

 

The provision for medium-term consumer loans of $22,807 is net of debt sales of $1,027 for the nine months ended September 30, 2018.

 

The provision and subsequent charge off related to troubled debt restructurings totaled $84 and is included in the provision for medium-term consumer loans for the nine months ended September 30, 2018. For these loans evaluated for impairment, there were $168 of payment defaults during the nine months ended September 30, 2018. The troubled debt restructurings during the nine months ended September 30, 2018, are subject to an allowance of $33 with a net carrying value of $47 at September 30, 2018.

 

Changes in the allowance for loan losses by product type for the three months ended September 30, 2017, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as

 

 

 

Balance

 

 

 

 

 

 

 

 

 

 

Balance

 

Receivables

 

a percentage

 

 

    

7/1/2017

    

Provision

    

Charge-Offs

    

Recoveries

    

9/30/2017

    

9/30/2017

    

of receivable

 

Short-term consumer loans

 

$

2,556

 

$

14,438

 

$

(26,027)

 

$

11,915

 

$

2,882

 

$

67,616

 

4.26

%  

Medium-term consumer loans

 

 

10,396

 

 

13,780

 

 

(11,655)

 

 

1,713

 

 

14,234

 

 

56,387

 

25.24

%  

 

 

$

12,952

 

$

28,218

 

$

(37,682)

 

$

13,628

 

$

17,116

 

$

124,003

 

13.80

%  

 

The provision for loan losses for the three months ended September 30, 2017, also includes losses from returned items from check cashing of $1,491.

 

The provision for short-term consumer loans of $14,438 is net of debt sales of $653 for the three months ended September 30, 2017.

 

The provision for medium-term consumer loans of $13,780 is net of debt sales of $785 for the three months ended September 30, 2017.

 

The provision and subsequent charge off related to troubled debt restructurings totaled $165 and is included in the provision for medium-term consumer loans for the three months ended September 30, 2017. For these loans evaluated for impairment, there were $39 of payment defaults during the three months ended September 30, 2017. The troubled debt restructurings during the three months ended September 30, 2017 are subject to an allowance of $53 with a net carrying value of $84 at September 30, 2017.

12


 

Changes in the allowance for loan losses by product type for the nine months ended September 30, 2017, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as

 

 

 

Balance

 

 

 

 

 

 

 

 

 

 

Balance

 

Receivables

 

a percentage

 

 

    

1/1/2017

    

Provision

    

Charge-Offs

    

Recoveries

    

9/30/2017

    

9/30/2017

    

of receivable

 

Short-term consumer loans

 

$

2,223

 

$

30,264

 

$

(65,063)

 

$

35,458

 

$

2,882

 

$

67,616

 

4.26

%  

Medium-term consumer l