Company Quick10K Filing
Community Choice Financial
Price-0.00 EPS-18
Shares8 P/E0
MCap-0 P/FCF-0
Net Debt-18 EBIT-153
TEV-18 TEV/EBIT0
TTM 2018-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-13
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10-Q 2020-03-31 Filed 2020-05-15
10-K 2019-12-31 Filed 2020-03-12
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-14
10-K 2017-12-31 Filed 2018-04-02
10-Q 2017-09-30 Filed 2017-11-13
10-Q 2017-06-30 Filed 2017-08-11
10-Q 2017-03-31 Filed 2017-05-15
10-K 2016-12-31 Filed 2017-03-29
10-Q 2016-09-30 Filed 2016-11-10
10-Q 2016-06-30 Filed 2016-08-12
10-Q 2016-03-31 Filed 2016-05-12
10-K 2015-12-31 Filed 2016-03-30
10-Q 2015-09-30 Filed 2015-11-16
10-Q 2015-06-30 Filed 2015-08-12
10-Q 2015-03-31 Filed 2015-05-13
10-K 2014-12-31 Filed 2015-03-30
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-14
10-Q 2014-03-31 Filed 2014-05-14
10-K 2013-12-31 Filed 2014-03-28
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-14
10-K 2012-12-31 Filed 2013-03-29
10-Q 2012-09-30 Filed 2012-11-13
8-K 2018-12-12
8-K 2018-12-03
8-K 2018-10-31
8-K 2018-10-10
8-K 2018-08-31
8-K 2018-08-21
8-K 2018-08-14
8-K 2018-06-12
8-K 2018-05-14
8-K 2018-04-02
8-K 2018-01-05

CCFI 10Q Quarterly Report

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. Goodwill and Other Intangible Assets
Note 5. Pledged Assets and Debt
Note 6. Accounts Payable and Accrued Liabilities
Note 7. Concentrations of Credit Risks
Note 8. Contingencies
Note 9. Business Combinations
Note 10. Stock Based Compensation
Note 11. Business Segments
Note 12. Income Taxes
Note 13. Transactions with Variable Interest Entities
Note 14. Optional Card Feature
Note 15. Equity Method Investment
Note 16. Supplemental Guarantor Information
Note 17. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information
Note 18. Subsequent Events
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 a2217328zex-31_1.htm
EX-31.2 a2217328zex-31_2.htm
EX-32.1 a2217328zex-32_1.htm
EX-32.2 a2217328zex-32_2.htm

Community Choice Financial Earnings 2013-09-30

Balance SheetIncome StatementCash Flow
690503316129-58-2452013201520172019
Assets, Equity
485362239116-7-1302013201520172019
Rev, G Profit, Net Income
1459137-17-71-1252013201520172019
Ops, Inv, Fin

10-Q 1 a2217328z10-q.htm 10-Q

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Table of Contents

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 September 30, 2013

o

 

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

For the transition period from to                to              

Commission File Number: 001-35537

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

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

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

 

43016
(Zip Code)

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

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

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

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

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

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

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

        There is no market for the registrant's equity. As of September 30, 2013, there were 8,981,536 shares outstanding.

   


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Form 10-Q for the Quarterly Period Ended September 30, 2013

Table of Contents

 
   
  Page  

 

Financial Information

       

Item 1.

 

Financial Statements

       

 

Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012

    3  

 

Consolidated Statements of Operations for the three months and nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)

    4  

 

Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 2013 (unaudited)

    5  

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 (unaudited ) and September 30, 2012 (unaudited)

    6  

 

Notes to Consolidated Financial Statements (unaudited)

    7  

Item 2.

 

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

   
40
 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

   
61
 

Item 4.

 

Controls and Procedures

   
61
 

Part II

 

Other Information

       

Item 1.

 

Legal Proceedings

   
61
 

Item 1A.

 

Risk Factors

   
62
 

Item 6.

 

Exhibits

   
63
 

 

Signatures

   
64
 

2


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Balance Sheets

September 30, 2013 and December 31, 2012

(In thousands, except per share data)

 
  September 30,
2013
  December 31,
2012
 
 
  (unaudited)
   
 

Assets

             

Current Assets

             

Cash and cash equivalents

  $ 116,683   $ 79,044  

Restricted cash

    741      

Finance receivables, net of allowance for loan losses of $12,339 and $8,511            

    140,588     125,637  

Short-term investments, certificates of deposit

    1,114     1,113  

Card related pre-funding and receivables

    1,298     8,050  

Other current assets

    6,327     6,246  

Deferred tax asset, net

    5,976     5,517  
           

Total current assets

    272,727     225,607  

Noncurrent Assets

             

Finance receivables, net of allowance for loan losses of $1,913 and $603

    6,993     3,286  

Leasehold improvements and equipment, net

    21,403     18,346  

Goodwill

    312,403     297,122  

Other intangible assets

    24,981     10,257  

Security deposits

    2,362     1,728  

Equity method investments

        6,491  

Deferred debt issuance costs

    11,812     13,493  
           

Total assets

  $ 652,681   $ 576,330  
           

Liabilities and Stockholders' Equity

             

Current Liabilities

             

Current portion of capital lease obligation

  $ 115   $  

Current portion of related party Florida seller notes

    2,723     1,731  

Deferred revenue

    2,658     2,661  

Accrued interest

    19,119     8,035  

Money orders payable

    13,839     16,036  

Accounts payable and accrued liabilities

    25,988     18,602  
           

Total current liabilities

    64,442     47,065  

Noncurrent Liabilities

             

Accrued liabilities

    1,075      

Lines of credit

    30,000      

Capital lease obligation

    18      

Stock repurchase obligation

    1,042     1,288  

Related party Florida seller notes

    13,476     15,599  

Senior secured notes

    420,000     420,000  

Deferred revenue

    6,095     7,979  

Deferred tax liability, net

    186     186  
           

Total liabilities

    536,334     492,117  
           

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 September 30, 2013 and December 31, 2012

    90     90  

Additional paid-in capital

    124,031     122,963  

Non-controlling interest

    26,869      

Retained deficit

    (34,643 )   (38,840 )
           

Total stockholders' equity

    116,347     84,213  
           

Total liabilities and stockholders' equity

  $ 652,681   $ 576,330  
           

   

See Notes to Unaudited Consolidated Financial Statements.

3


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Statements of Operations

Three Months and Nine Months Ended September 30, 2013 and 2012

(In thousands)

(unaudited)

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2013   2012   2013   2012  

Revenues:

                         

Finance receivable fees

  $ 81,785   $ 70,119   $ 218,042   $ 185,014  

Check cashing fees

    20,727     19,798     62,919     57,931  

Card fees

    6,109     2,340     13,434     10,840  

Other

    6,415     5,949     19,190     17,428  
                   

Total revenues

    115,036     98,206     313,585     271,213  
                   

Operating expenses:

                         

Salaries and benefits

    18,380     14,858     53,234     46,386  

Provision for loan losses

    40,247     28,127     85,684     65,954  

Occupancy

    6,982     6,373     19,933     17,502  

Advertising and marketing

    6,108     1,965     11,852     5,214  

Depreciation and amortization

    1,590     1,547     4,995     4,651  

Other

    12,000     12,038     36,125     31,323  
                   

Total operating expenses

    85,307     64,908     211,823     171,030  
                   

Operating gross profit

    29,729     33,298     101,762     100,183  
                   

Corporate and other expenses (income)

                         

Corporate expenses

    18,327     12,505     51,741     38,256  

Registration expenses

                2,774  

Bond registration expenses

        814         814  

Transaction expenses

        196         1,233  

Depreciation and amortization

    2,178     1,752     6,980     4,218  

Interest expense, net

    12,945     12,415     38,637     34,995  

(Gain) loss on equity method investments

        128     (260 )   283  
                   

Total corporate and other expenses (income)                    

    33,450     27,810     97,098     82,573  
                   

Income (loss) before income taxes

    (3,721 )   5,488     4,664     17,610  
                   

Provision (benefit) for income taxes

    (1,661 )   1,995     1,846     6,929  
                   

Net income (loss)

    (2,060 )   3,493     2,818     10,681  

Net loss attributable to non-controlling interests

   
(473

)
 
   
(1,379

)
 
 
                   

Net income (loss) attributable to controlling interests

  $ (1,587 ) $ 3,493   $ 4,197   $ 10,681  
                   

   

See Notes to Unaudited Consolidated Financial Statements.

4


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Statement of Stockholders' Equity

Nine Months Ended September 30, 2013

(Dollars in thousands)

(unaudited)

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

Balance, December 31, 2012

    8,981,536   $ 90   $ 122,963   $   $ (38,840 ) $ 84,213  

Stock-based compensation expense

            1,068             1,068  

Non-controlling interests conversion elimination

                28,248         28,248  

Net income (loss)

                (1,379 )   4,197     2,818  
                           

Balance, September 30, 2013

    8,981,536   $ 90   $ 124,031   $ 26,869   $ (34,643 ) $ 116,347  
                           

   

See Notes to Unaudited Consolidated Financial Statements.

5


Table of Contents


Community Choice Financial Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2013 and 2012

(In thousands)

(unaudited)

 
  Nine Months Ended
September 30,
 
 
  2013   2012  

Cash flows from operating activities

             

Net income

  $ 2,818   $ 10,681  

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

             

Provision for loan losses

    85,684     65,954  

Gain on disposal of assets

    (16 )    

(Gain) loss on equity method investments

    (260 )   283  

Depreciation

    6,645     5,789  

Amortization of note discount and deferred debt issuance costs

    2,050     1,664  

Amortization of intangibles

    5,326     3,080  

Deferred income taxes

    1,239     939  

Change in fair value of stock repurchase obligation

    (246 )    

Stock-based compensation

    1,068     446  

Changes in assets and liabilities:

             

Short term investments

        237  

Card related pre-funding and receivables

    6,752     1,602  

Restricted cash

    459      

Other assets

    2,159     374  

Deferred revenue

    (1,887 )   (1,991 )

Accrued interest

    11,084     11,645  

Money orders payable

    (2,197 )   (251 )

Accounts payable and accrued expenses

    466     (3,050 )
           

Net cash provided by operating activities

    121,144     97,402  
           

Cash flows from investing activities

             

Net receivables originated

    (104,342 )   (58,597 )

Net acquired assets, net of cash

    865     (33,665 )

Purchase of customer list intangible asset

    (22 )    

Internally developed software intangible asset

    (115 )    

Contributions for non-controlling interest

    366      

Equity investment capital contribution

        (450 )

Proceeds from sale of leasehold improvements and equipment

    181      

Purchase of leasehold improvements and equipment

    (8,859 )   (3,880 )
           

Net cash used in investing activities

    (111,926 )   (96,592 )
           

Cash flows from financing activities

             

Proceeds from senior notes

        25,000  

Capital lease payments

    (79 )    

Net payments of long-term debt

    (1,500 )    

Net advances on lines of credit

    30,000      

Debt issuance costs

        (1,100 )
           

Net cash provided by financing activities

    28,421     23,900  
           

Net increase in cash and cash equivalents

    37,639     24,710  

Cash and cash equivalents:

             

Beginning

    79,044     65,635  
           

Ending

  $ 116,683   $ 90,345  
           

   

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 September 30, 2013, the Company owned and operated 498 stores in 15 states and had an internet presence in 23 states. Through its network of retail stores and over the internet, the Company provides customers a variety of financial products and services, including short-term consumer loans, check cashing, prepaid debit cards, title loans, medium term loans and other services that address the specific needs of our individual customers.

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

        Basis of presentation:    The accompanying interim unaudited consolidated financial statements of Community Choice Financial Inc. and its subsidiaries have been prepared in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States for interim financial information. They do not include all information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Although management believes that the disclosures are adequate to prevent the information from being misleading, the interim unaudited consolidated financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2012 in the Company's Form 10-K. In the opinion of the Company's management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company's financial condition, have been included. The results for any interim period are not necessarily indicative of results to be expected for the year ending December 31, 2013. Certain prior period amounts have been reclassified to conform to current period presentation, with no effect on income or stockholders' equity.

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

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

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

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)

and assess performance. Prior to April 1, 2012, the Company operated in one segment, retail financial services. As a result of the Company's acquisition of Direct Financial Solutions, LLC ("DFS"), a provider of consumer loans through the internet, the Company now operates in two segments: Retail financial services and Internet financial services. The consolidation of Insight Holdings Company, LLC ("Insight Holdings"), as described further in Note 9, is included in retail financial services.

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

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

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

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

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

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

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

        In certain states, either in compliance with law or through our following of best practices recommended by the Community Financial Services Association of America ("CFSA") we offer an extended payment plan for all borrowers. This extended payment plan is advertised to all customers

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)

where the program is offered, either via pamphlet or by being posted at the store at the time of the loan. This payment plan is available to all customers in these states upon request and is not contingent on the borrower's repayment status or further underwriting standards. The term is extended from an average of approximately 17 days to approximately four payments over eight weeks. If customers do not make these payments, then their held check is deposited. Gross loan receivables subject to these repayment plans represented $1,728 of the $167,874 of total receivables at September 30, 2013 and $1,578 of the $144,026 of total receivables at December 31, 2012.

        Medium term loans typically range from $.1 to $2.5 and are evidenced by a promissory note with a maturity between 112 days and 36 months. These loans vary in their structure to correspond with the regulatory environments where they are offered. The loans are due in installments or provide for a line of credit with periodic monthly payments. The Company also purchased loan participations in a third party lender's loan portfolio which are classified as medium-term finance receivables during 2012. For unsecured loans, the risk of repayment primarily relates to the customer's ability to repay the loans.

        Title loan products typically range in size from $.75 to $2.5, and are evidenced by a promissory note with a maturity between 30 days and 24 months. The loan is typically secured with a lien on the customer's vehicle title. The risk characteristics of secured loans primarily depend on the markets in which the Company operates and the regulatory requirements of each market. Risks associated with secured financings relate to the ability of the borrower to repay its loans and the value of the collateral underlying the loan should the borrower default on its payments.

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

        Allowance for loan losses:    Provisions for loan losses are charged to income in amounts sufficient to maintain an adequate allowance for loan losses and an adequate accrual for losses related to guaranteed loans processed for third-party lenders. The factors used in assessing the overall adequacy of the allowance for loan losses, the accrual for losses related to guaranteed loans processed for third-party lenders and the resulting provision for loan losses include an evaluation by product by market based on historical loan loss experience, contractual delinquency of certain medium-term loans, overall portfolio quality, current economic conditions that may affect the borrower's ability to pay and management's judgment. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions.

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

        For medium term loans which have a term of one year or less, the Company's policy requires that balances be charged off when accounts are 60 days past due. For medium term loans which have an

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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)

initial maturity of greater than one year, the Company's policy requires that balances be charged off when accounts are no more than 90 days past due.

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

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

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

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

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

        The Company's other intangible assets consist of non-compete agreements, customer lists, trade names, and internally developed software. Generally, the amounts recorded for non-compete agreements, customer lists and trade names are amortized using the straight-line method over five years and internally developed software is amortized using the straight-line method over three years. The customer list intangibles for DFS and the acquisition of 54 stores in Florida ("Florida Acquisition") are amortized based on the expected customer retention rate on an accelerated method over a period of 3 to 4 years. Amortization expense for the three months ended September 30, 2013 and 2012 were $1,573 and $1,258, and for the nine months ended September 30, 2013 and 2012 were $5,169 and $2,530, respectively.

        Equity method investments:    Entities and investments over which the Company exercises significant influence over the activities of the entity but which do not meet the requirements for

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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)

consolidation are accounted for using the equity method of accounting pursuant to ASC 323, whereby the Company records its share of the underlying income or losses of these entities. Intercompany profit arising from transactions with affiliates is eliminated to the extent of its beneficial interest. Equity in losses of equity method investments is not recognized after the carrying value of an investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist.

        The Company evaluates its equity method investments for impairment, whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. The difference between the carrying value of the equity method investment and its estimated fair value is recognized as impairment when the loss in value is deemed other than temporary. The fair value of the equity method investments is estimated based on discounted cash flow models using projected Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"). The discount rate applied to the projected EBITDA is determined based on the weighted average cost of capital for the Company.

        On April 1, 2013, the Company extended a line of credit to Insight Holdings. The Company has consolidated Insight Holdings as of April 1, 2013 as the Company has determined that it is the primary beneficiary of the variable interest entity, as described in Note 9.

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

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

        Deferred rent:    The Company leases premises under agreements which provide for periodic increases over the lease term. Accordingly, timing differences between the amount paid for rent and the amount expensed are recorded in accounts payable and accrued liabilities in the accompanying consolidated balance sheets. As of September 30, 2013 and December 31, 2012, the Company had a liability of $874 and $848, respectively, related to deferred rent expense.

        Advertising and marketing costs:    Costs incurred for producing and communicating advertising, and marketing over the internet are charged to operations when incurred or the first time advertising takes place. Advertising and marketing expense for the three months ended September 30, 2013 and 2012 was $6,108 and $1,965, and for the nine months ended September 30, 2013 and 2012 was $11,852 and $5,214, respectively. Corporate level advertising and marketing expense for the three months ended September 30, 2013 and 2012 was $147 and $25, and for the nine months ended September 30, 2013 and 2012 was $234 and $120, respectively.

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

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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)

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

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

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

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

        Registration Expenses:    The Company had deferred legal and other transaction expenses related to a planned initial public offering ("IPO") with the expectation that such expenses would be accounted for as a reduction of capital pain in excess of par. In May 2012, the Company decided not to pursue the IPO due to market conditions. At that time, deferred expenses totaling $2,774 were expensed.

        Bond Registration Expenses:    Bond registration expenses represent the cost of registering our senior secured notes with the Securities and Exchange Commission.

        Transaction Expenses:    Transaction expenses consist of costs directly associated with acquisitions, which are primarily bonus earnings, transaction advisory fees paid to the majority shareholder, and professional services, which are included in corporate and other expenses to determine income before income taxes and discontinued operations on the consolidated statements of operations.

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

        Although states provide the primary regulatory framework under which the Company offers consumer loans, certain federal laws also impact the business. The Company's payday cash advance services and consumer loans are subject to federal laws and regulations, including the Truth-in-Lending Act ("TILA"), the Equal Credit Opportunity Act ("ECOA"), the Fair Credit Reporting Act ("FCRA"), the Gramm-Leach-Bliley Act ("GLBA"), the Bank Secrecy Act, the Money Laundering Control Act of 1986, the Money Laundering Suppression Act of 1994, and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the "PATRIOT Act")

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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)

and the regulations promulgated for each. Among other things, these laws require disclosure of the principal terms of each transaction to every customer, prohibit misleading advertising, protect against discriminatory lending practices, proscribe unfair credit practices and prohibit creditors from discriminating against credit applicants on the basis of race, sex, age or marital status. The GLBA and its implementing regulations generally require the Company to protect the confidentiality of its customers' nonpublic personal information and to disclose to the Company's customers its privacy policy and practices.

        At the federal level, in July 2010, the Dodd-Frank Act was signed into law. Among other things, this act created the Consumer Financial Protection Bureau ("CFPB") and granted it the authority to regulate companies that provide consumer financial services. The CFPB began examinations of payday lenders in 2012 and examined us starting in April 2012. We have received our examination report and although we remain in dialogue with the CFPB regarding various aspects of the report and the CFPB's request for various document and information, at this time we do not anticipate any material changes to our commercial operations.

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

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

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

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

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

        In determining the appropriate levels, the Company performed a detailed analysis of the assets and liabilities that are subject to ASC 820-10. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The Company's financial instruments consist primarily of cash and cash equivalents, finance receivables, short-term investments, and lines of credit. For all such instruments, other than senior secured notes, notes payable, and stock repurchase obligation at September 30, 2013 and December 31, 2012, the carrying amounts in the consolidated financial statements approximate their fair values. Our finance

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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)

receivables are short term in nature and are originated at prevailing market rates. Our lines of credit bear interest at current market rates.

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

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

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

 
  September 30, 2013  
 
  Carrying
Amount
  Fair Value   Level  

Financial assets:

                   

Cash and cash equivalents

  $ 116,683   $ 116,683     1  

Restricted cash

    741     741     1  

Finance receivables

    147,581     147,581     3  

Short-term investments, certificates of deposit

    1,114     1,114     2  

Financial liabilities:

                   

10.75% Senior secured notes

    395,000     339,700     2  

12.75% Senior secured notes

    25,000     22,344     2  

Related party Florida seller notes

    16,199     16,199     2  

Stock repurchase obligation

    1,042     1,042     3  

 

 
  December 31, 2012  
 
  Carrying
Amount
  Fair Value   Level  

Financial assets:

                   

Cash and cash equivalents

  $ 79,044   $ 79,044     1  

Finance receivables

    128,923     128,923     3  

Short-term investments, certificates of deposit

    1,113     1,113     2  

Financial liabilities:

                   

10.75% Senior secured notes

    395,000     377,225     2  

12.75% Senior secured notes

    25,000     25,000     2  

Related party Florida seller notes

    17,330     17,330     2  

Stock repurchase obligation

    1,288     1,288     3  

        Recent Accounting Pronouncements In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment ("ASU 2012-02"). ASU 2012-02 provides companies with the option to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not (a likelihood of more than 50%) that the indefinite-lived intangible asset is impaired. If a company concludes that it is more likely than not that the asset is impaired, it is required to determine the fair value of the

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Table of Contents


Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

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

intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying value in accordance with ASC 350, Intangibles—Goodwill and Other. If a company concludes otherwise, no further quantitative assessment is required. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, although early adoption is permitted. The Company adopted ASU 2012-02 on January 1, 2013, and the adoption did not have a material effect on its financial position or results of operations.

        In February 2013, the FASB issued Accounting Standards Update ("ASU") No. 2013-02, Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"), which improves the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required that provide additional detail about those amounts. The Company adopted ASU 2013-02 on January 1, 2013, and the adoption did not have a material effect on its financial position or results of operations.

        In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force) ("ASU 2013-05"), which applies to the release of the cumulative translation adjustment into net income when a parent either sells all or a part of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The Company does not expect ASU 2013-05 to have a material effect on the Company's financial position or results of operations.

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

        Subsequent events:    The Company has evaluated its subsequent events (events occurring after September 30, 2013) through the issuance date of November 14, 2013 as disclosed in Note 18.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

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

        Finance receivables representing amounts due from customers for advances at September 30, 2013 and December 31, 2012 consisted of the following:

 
  September 30,
2013
  December 31,
2012
 

Short-term consumer loans

  $ 102,566   $ 102,913  

Medium-term loans

    36,716     14,855  

Title loans

    28,592     26,258  
           

Gross receivables

    167,874     144,026  

Unearned advance fees, net of deferred loan origination costs

    (6,041 )   (5,989 )
           

Finance receivables before allowance for loan losses

    161,833     138,037  

Allowance for loan losses

    (14,252 )   (9,114 )
           

Finance receivables, net

  $ 147,581   $ 128,923  
           

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

 
  Balance
7/1/2013
  Provision   Charge-Offs   Recoveries   Balance
9/30/2013
  Receivables
9/30/2013
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 4,513   $ 22,328   $ (44,569 ) $ 21,972   $ 4,244   $ 102,566     4.14 %

Medium-term loans

    3,918     8,382     (4,634 )   442     8,108     36,716     22.08 %

Title loans

    1,331     3,416     (8,303 )   5,456     1,900     28,592     6.65 %
                               

  $ 9,762   $ 34,126   $ (57,506 ) $ 27,870   $ 14,252   $ 167,874     8.49 %
                               

        The provision for loan losses for the three months ended September 30, 2013 also includes losses from returned items from check cashing of $2,342.

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

 
  Balance
1/1/2013
  Provision   Charge-Offs   Recoveries   Balance
9/30/2013
  Receivables
9/30/2013
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 4,344   $ 50,771   $ (113,281 ) $ 62,410   $ 4,244   $ 102,566     4.14 %

Medium-term loans

    3,077     14,349     (10,835 )   1,517     8,108     36,716     22.08 %

Title loans

    1,693     6,372     (22,245 )   16,080     1,900     28,592     6.65 %
                               

  $ 9,114   $ 71,492   $ (146,361 ) $ 80,007   $ 14,252   $ 167,874     8.49 %
                               

        The provision for loan losses for the nine months ended September 30, 2013 also includes losses from returned items from check cashing of $5,913.

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

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

        Changes in the allowance for the loan losses by product type for the three months ended September 30, 2012 are as follows:

 
  Balance
7/1/2012
  Provision   Charge-Offs   Recoveries   Balance
9/30/2012
  Receivables
9/30/2012
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 2,906   $ 16,074   $ (31,534 ) $ 15,654   $ 3,100   $ 95,439     3.25 %

Medium-term loans

    2,753     3,014     (3,872 )   631     2,526     14,140     17.86 %

Title loans

    1,468     2,854     (6,615 )   3,854     1,561     24,264     6.43 %
                               

  $ 7,127   $ 21,942   $ (42,021 ) $ 20,139   $ 7,187   $ 133,843     5.37 %
                               

        The provision for loan losses for the three months ended September 30, 2012 also includes card losses of $4, and losses from returned items from check cashing of $1,592.

        Changes in the allowance for the loan losses by product type for the nine months ended September 30, 2012 are as follows:

 
  Balance
1/1/2012
  Provision   Charge-Offs   Recoveries   Balance
9/30/2012
  Receivables
9/30/2012
  Allowance as
a percentage
of receivable
 

Short-term consumer loans

  $ 2,504   $ 37,057   $ (83,943 ) $ 47,482   $ 3,100   $ 95,439     3.25 %

Medium-term loans

    2,018     9,813     (11,731 )   2,426     2,526     14,140     17.86 %

Title loans

    1,104     6,219     (13,896 )   8,134     1,561     24,264     6.43 %
                               

  $ 5,626   $ 53,089   $ (109,570 ) $ 58,042   $ 7,187   $ 133,843     5.37 %
                               

        The provision for loan losses for the nine months ended September 30, 2012 also includes card losses of $84, losses on tax loans of $295, and losses from returned items from check cashing of $4,000.

        Changes in the accrual for third-party lender losses for the three months and nine months ended September 30, 2013 and 2012 were as follows:

 
  Three Months
Ended September 30,
  Nine Months
Ended September 30,
 
 
  2013   2012   2013   2012  

Balance, beginning of period

  $ 353   $ 752   $ 392   $ 157  

Provision for loan losses

    3,779     4,589     8,279     8,486  

Charge-offs, net

    (3,184 )   (4,325 )   (7,723 )   (7,627 )
                   

Balance, end of period

  $ 948   $ 1,016   $ 948   $ 1,016  
                   

        Total gross finance receivables for which the Company has recorded an accrual for third-party lender losses totaled $6,007 and $9,740 at September 30, 2013 and 2012, respectively.

        The Company operates subsidiaries that act as a Credit Service Organization ("CSO") in the state of Texas and Ohio.

        The Company considers the near term repayment performance of the finance receivable as its primary credit quality indicator. The Company typically does not perform credit checks through

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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)

consumer reporting agencies. If a third-party lender provides the advance, the applicable third-party lender decides whether to approve the cash advance and establishes all of the underwriting criteria and terms, conditions, and features of the customer agreements.

        The aging of receivables at September 30, 2013 and December 31, 2012 are as follows:

 
  September 30, 2013   December 31, 2012  

Current finance receivables

  $ 159,246     94.9 % $ 138,451     96.1 %

Past due finance receivables (1 - 30 days)

                         

Medium-term loans

    3,486     2.1 %   1,597     1.1 %

Title loans

    2,293     1.3 %   2,268     1.6 %
                   

Total past due finance receivables (1 - 30 days)

    5,779     3.4 %   3,865     2.7 %
                   

Past due finance receivables (31 - 60 days)

                         

Medium-term loans

    1,814     1.2 %   996     0.7 %

Title loans

    546     0.2 %   450     0.3 %
                   

Total past due finance receivables (31 - 60 days)

    2,360     1.4 %   1,446     1.0 %
                   

Past due finance receivables (61 - 90 days)

                         

Medium-term loans

    322     0.2 %   167     0.1 %

Title loans

    167     0.1 %   97     0.1 %
                   

Total past due finance receivables (61 - 90 days)

    489     0.3 %   264     0.2 %
                   

Total delinquent

    8,628     5.1 %   5,575     3.9 %
                   

  $ 167,874     100.0 % $ 144,026     100.0 %
                   

Note 3. Related Party Transactions and Balances

        Quarterly fees are paid to affiliates of several stockholders in consideration for ongoing management and other advisory services provided to the Company and its subsidiaries in the greater amount of a) $150 or b) 25% multiplied by 1.5% of the EBITDA for the previous twelve-month period. Total fees paid pursuant to this agreement for the three months ended September 30, 2013 and 2012 were $306 and $355, and for the nine months ended September 30, 2013 and 2012 were $993 and $1,060, respectively.

        The Company had a management agreement with a related party in which the Company receives management fee revenue on a monthly basis for providing certain accounting functions to these parties. The Company's payroll department provided payroll administration for a related party. The related company is charged actual costs for payroll services. This management agreement was terminated in September 2012. Management fee revenue from related parties for the three months ended September 30, 2012 was $9, and for the nine months ended September 30, 2012 was $39. The related party management fee revenue is included with corporate expenses on the Consolidated Statement of Operations.

        The Company's senior management has access to use an aircraft owned by a related party. The Company rents the aircraft from this related party for Company business. Total rent paid to these

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 3. Related Party Transactions and Balances (Continued)

related parties for usage of the aircraft for the three months ended September 30, 2013 and 2012 were $43 and $22, and for the nine months ended September 30, 2013 and 2012 were $43 and $65, respectively, and are included with corporate expenses on the consolidated statements of operations.

        Certain branches of the Company are owned by related parties and leased from the related party. The corporate office was owned by a related party before it was sold to a non-related party on July 29, 2012. Rent paid to the related parties for the three months ended September 30, 2013 and 2012 were $268 and $313, and for the nine months ended September 30, 2013 and 2012 were $818 and $1,249, respectively, and are included with occupancy expense on the consolidated statements of operations.

        Members of management had a non-controlling, minority interest in a card program managing company until November 2011 when the Company purchased a 22.5% interest in Insight Holdings. The interest was purchased from the owners of Insight Holdings, two of whom are management of the Company. The total purchase price of the 22.5% was $11,250, of which $7,500 was purchased directly from the members of management of the Company. As of September 30, 2013, and December 31, 2012, the Company, as an agent for the card program managing company, had made net prepayments of $1,298 and $8,050, respectively, to the card program managing company for various items related to a product offering of the Company. These prepayments are included as card related pre-funding and receivables on the balance sheet. The Company made available to Insight Holdings a revolving credit facility of $3,000 effective April 1, 2013 and, as a result, as discussed further in Note 9, consolidated Insight Holdings effective as of April 1, 2013. All intercompany balances and profit are eliminated.

        A non-guarantor subsidiary of the Company issued a series of related party Florida seller notes as a portion of the consideration to acquire 54 stores in the Florida market. These notes have been classified as a related party transaction due to the sellers of the Florida Acquisition, and recipients of the notes, being shareholders of the Company. See Note 9 for a description of the Florida Acquisition. See Note 18 for modification of the related party Florida seller notes subsequent to September 30, 2013.

Note 4. Goodwill and Other Intangible Assets

        The following table summarizes goodwill and other intangible assets as of September 30, 2013 and December 31, 2012:

 
  September 30,
2013
  December 31,
2012
 

Goodwill

  $ 312,403   $ 297,122  
           

Other intangible assets:

             

Non-compete agreements

  $ 999   $ 941  

Trade names

    5,244     3,400  

Customer lists

    14,852     4,559  

Internally developed software

    3,886     1,357  
           

  $ 24,981   $ 10,257  
           

        The Company conducted its annual test for impairment of goodwill as of December 31, 2012 for both retail financial and internet services segments which resulted in no impairment of goodwill. The

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 4. Goodwill and Other Intangible Assets (Continued)

methodology for determining the fair value was a combination of quoted market prices, prices of comparable businesses, discounted cash flows and other valuation techniques.

        The amount of tax goodwill at the acquisition date of the Company in 2006 exceeded the reported amount of goodwill for financial statement reporting purposes by approximately $50,965. The total estimated effect of the tax benefit attributable to tax goodwill in excess of the amount reported in these financial statements was approximately $31,237 which will reduce financial statement goodwill each year as the tax benefits are recognized. This benefit will be recognized over a 15-year period from the date of acquisition by recording deferred income tax expense and reducing the carrying amount of goodwill as those tax benefits occur. The tax benefit for the three months ended September 30, 2013 and 2012 was $566 and $521, and for the nine months ended September 30, 2013 and 2012 were $1,698 and $1,563, respectively. The effect of the tax benefits for each subsequent quarter is expected to be $566 and will result in future reductions to the carrying amount of goodwill.

        The amount of book goodwill from the acquisition of California Check Cashing Services in 2011 exceeded the amount of tax goodwill by approximately $46,907. Differences arising for tax deductible goodwill results in the recognition of deferred tax liabilities.

        Intangible amortization expense for the three months ended September 30, 2013 and 2012 were $1,573 and $1,258, and for the nine months ended September 30, 2013 and 2012 were $5,169 and $2,530, respectively.

Note 5. Pledged Assets and Debt

        Senior secured notes payable at September 30, 2013 and December 31, 2012 consisted of the following:

 
  September 30,
2013
  December 31,
2012
 

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

  $ 395,000   $ 395,000  

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

    25,000     25,000  
           

    420,000     420,000  

Less current maturities

         
           

Long-term portion

  $ 420,000   $ 420,000  
           

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 5. Pledged Assets and Debt (Continued)

        Lines of credit at September 30, 2013 and December 31, 2012 consisted of the following:

 
  September 30,
2013
  December 31,
2012
 

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

  $ 3,000   $  

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

    27,000      
           

    30,000      

Less current maturities

         
           

Long-term portion

  $ 30,000   $  
           

        The indentures governing the 2019 notes and the 2020 notes each contains certain covenants and events of default, including limitations on our ability to incur additional indebtedness, pay dividends on or make other distributions or repurchase our capital stock, make certain investments, enter into certain types of transactions with affiliates, create liens and sell certain assets or merge with or into other companies. The agreement governing our $40,000 revolving credit facility contains restrictive covenants that limit our ability to incur additional indebtedness, pay dividends on or make other distributions or repurchase our capital stock, make certain investments, enter into certain types of transactions with affiliates, create liens and sell certain assets or merge with or into other companies, in each case to the same extent as the Indenture governing our notes. In addition, the agreement governing this revolving credit facility contains a consolidated total net leverage ratio covenant, which will be tested at the time of any borrowing under the facility and on a quarterly basis when any loans are outstanding. As of September 30, 2013, we were in compliance with these covenants.

        The 4-year, $40,000 revolving credit facility, at the Company's option, bears interest at either (a) LIBOR plus a margin of 5% or (b) an alternative base rate (determined as the greatest of the prime rate, the federal funds effective rate plus 0.5% or 1-month LIBOR plus 1%) plus a margin of 4%, and will mature on April 29, 2015. The Company selected the alternate base rate option for advances under this credit facility during 2012. The Company selected the alternative base rate and LIBOR options for advances under this credit facility during 2013.

        The 3-month LIBOR rate at September 30, 2013 and December 31, 2012 was 0.25% and 0.31%, respectively, and the prime rate was 3.25% at September 30, 2013 and December 31, 2012.

        A non-guarantor subsidiary of the Company issued a series of related party Florida seller notes as a portion of the consideration in the Florida Acquisition. These notes have been classified as related party due to the sellers of the Florida Acquisition, and recipients of the notes, now being shareholders of the Company. The related party Florida seller notes were originally recorded at a fair value of $17,223 using an estimated market interest rate of 12.75%. The initial discount of $1,277 is being amortized over the life of the related party Florida seller notes as a component of interest expense. The amortization of discount was $96 for the three months ended September 30, 2013 and $368 for the nine months ended September 30, 2013.

        The related party Florida seller notes are secured by the assets of the non-guarantor subsidiary. The credit agreement governing our non- guarantor secured term related party Florida seller notes due 2016

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 5. Pledged Assets and Debt (Continued)

contains covenants that limit the ability of our Florida acquisition to create liens, declare or pay any dividend or distribution, incur debt, and transfer or otherwise dispose of substantially all of our current assets. These covenants are evaluated quarterly. The related party Florida seller notes contain certain covenants and provisions which are enforceable upon the non-guarantor subsidiary. As of September 30, 2013, we were in compliance with these covenants. The related party Florida seller notes are non-recourse to the guarantor subsidiaries. The non-guarantor subsidiary may offset against the related party Florida seller notes for certain adjustments and indemnification related to the Florida Acquisition.

        A forbearance agreement was signed on September 28, 2012, for a related party Florida seller note in the amount of $1,500 in which the lender waived its rights to the mandatory payment, interest and right to declare a default arising from the borrower's failure to make the mandatory payment and remit interest. The forbearance agreement was mutually agreed upon pending the resolution of certain post-acquisition closing adjustments.

        Non-guarantor notes payable at September 30, 2013, and December 31, 2012, consisted of the following:

 
  September 30,
2013
  December 31,
2012
 

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

  $ 7,588   $ 7,500  

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

    7,266     8,645  

$1,500 non-guarantor term note, secured, 0%, quarterly principal and interest payments, August 2016

    1,345     1,185  
           

    16,199     17,330  

Less current maturities

    2,723     1,731  
           

Long-term portion

  $ 13,476   $ 15,599  
           

        The non-guarantor notes payable have been subsequently amended as described in Note 18.

Note 6. Accounts Payable and Accrued Liabilities

        Accounts payable and accrued liabilities at September 30, 2013 and December 31, 2012 consisted of the following:

 
  September 30,
2013
  December 31,
2012
 

Accounts payable

  $ 2,765   $ 2,461  

Accrued payroll

    5,659     3,513  

Compensated absences

    2,191     1,310  

Wire transfers payable

    5,470     4,816  

Accrual for third-party losses

    948     392  

Deferred rent

    874     848  

Bill payment

    1,420     1,147  

Other

    6,661     4,115  
           

  $ 25,988   $ 18,602  
           

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 7. Concentrations of Credit Risks

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

        The following table summarizes the allocation of the portfolio balance by state at September 30, 2013 and December 31, 2012:

 
  September 30, 2013   December 31, 2012  
State
  Balance
Outstanding
  Percentage of
Total Outstanding
  Balance
Outstanding
  Percentage of
Total Outstanding
 

Alabama

  $ 15,751     9.4 % $ 14,024     9.7 %

Arizona

    14,112     8.4     13,391     9.3  

California

    44,235     26.4     27,291     19.0  

Florida

    8,133     4.8     7,557     5.3  

Idaho

    5,004     3.0     1,499     1.0  

Illinois

    2,395     1.4     2,906     2.0  

Indiana

    3,731     2.2     5,465     3.8  

Kansas

    2,587     1.5     2,056     1.4  

Kentucky

    2,974     1.8     3,042     2.1  

Michigan

    3,961     2.4     3,942     2.7  

Missouri

    3,462     2.1     2,675     1.9  

Ohio

    41,499     24.7     43,560     30.2  

Oregon

    960     0.6     1,047     0.7  

Tennessee

    335     0.2          

Utah

    3,766     2.2     3,708     2.6  

Virginia

    12,268     7.3     10,494     7.3  

Other internet segment states

    2,701     1.6     1,369     1.0  
                   

Total

  $ 167,874     100.0 % $ 144,026     100.0 %
                   

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

Note 8. 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.

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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 9. Business Combinations

    Retail Financial Services

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

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

Acquisition-date fair value of non-controlling interests

  $ 27,882  

Acquisition-date fair value of Company's interests

    6,594  
       

  $ 34,476  
       

Acquisition-related costs

  $  
       

Recognized amounts of identifiable assets required and liabilities assumed

       

Cash and cash equivalents

  $ 1,595  

Restricted cash

    1,200  

Other current assets

    2,875  

Leasehold improvements and equipment, net

    858  

Identifiable intangible assets

    18,667  

Capital lease obligation

    (212 )

Other liabilities

    (6,920 )
       

Total identifiable net assets

    18,063  

Goodwill

    16,413  
       

  $ 34,476  
       

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

        On July 31, 2012, the Company, through a newly formed non-guarantor subsidiary, acquired 54 stores in Florida in an asset purchase. The non-guarantor subsidiary paid $12,798 in cash consideration, issued three related party Florida seller notes with an aggregate face value of $18,500 and a fair value of $17,223, issued one million shares of common stock in the Company with a fair value of $9,100, and entered into a stock repurchase agreement with a fair value of $1,266 related to the one million shares of common stock. These notes have been classified as related party notes due to the sellers in the Florida Acquisition, and recipients of the notes, now being shareholders of the Company.

        The first note is for $9,000, bears interest at 10% and is due in August 2016. The second note is for $8,000, bears interest at 10% and is due upon the completion of an initial public offering ("IPO") or August 2016, whichever occurs first. The third note is for $1,500, bears no stated interest and is due August 2016. The fair value of these related party Florida seller notes was determined to be $17,223 using a discounted cash flow methodology and an estimated market interest rate of 12.75%. The fair value of the one million shares of common stock issued to the sellers was determined utilizing both a

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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 9. Business Combinations (Continued)

discounted cash flow and guideline company valuation methodologies. A forbearance agreement was signed on September 28, 2012 for a related party Florida seller note in the amount of $1,500 in which the lender waived its rights to the mandatory payment, interest and right to declare a default arising from the failure to make the mandatory payments. The forbearance agreement was mutually agreed upon pending the resolution of certain post-acquisition closing adjustments. The non-guarantor notes payable were subsequently amended as described in Note 18.

        After August 1, 2017, the purchase agreement provides the sellers the option of requiring the non-guarantor subsidiary to repurchase all, but not less than all, of the shares then held by the seller at a price of $12.76 per share should an initial public offering by the Company not have occurred prior to August 1, 2017. The fair value of the stock repurchase agreement was determined using a probability-adjusted Black Scholes option valuation model. The results of operations have been included in the consolidated financial statements since the date of the acquisition.

        The following table summarizes the fair value of assets acquired at the date of acquisition.

Cash paid

  $ 12,798  

Notes payable

    17,223  

Shares issued

    9,100  

Stock repurchase obligation

    1,266  
       

Fair value of total consideration transferred

  $ 40,387  
       

Acquisition-related costs

  $ 590  
       

Recognized amounts of identifiable assets acquired

       

Finance receivables

  $ 4,198  

Leasehold improvements and equipment

    1,172  

Identifiable intangible assets

    4,845  
       

Total identifiable net assets

    10,215  

Goodwill

    30,172  
       

  $ 40,387  
       

Internet Financial Services

        On April 1, 2012, the Company acquired the equity interests, in the form of both membership units and stock of DFS, as well as two other affiliated entities, Direct Financial Solutions of UK Limited and its subsidiary Cash Central UK Limited and DFS Direct Financial Solutions of Canada, Inc. and a related company, Reliant Software, Inc. The purchase price for the business was $22,385. The results of operations have been included in the consolidated financial statements since the date of the acquisition.

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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 9. Business Combinations (Continued)

        The following table summarizes the estimated fair value of assets acquired at the date of acquisition.

Fair value of total consideration transferred, cash

  $ 22,385  
       

Acquisition-related costs

  $ 520  
       

Recognized amounts of identifiable assets acquired and liabilities assumed

       

Cash and cash equivalents

  $ 1,518  

Finance receivables

    3,658  

Security deposits and other current assets

    251  

Leasehold improvements and equipment

    144  

Identifiable intangible assets

    5,827  

Other liabilities

    (2,274 )
       

Total identifiable net assets

    9,124  

Goodwill

    13,261  
       

  $ 22,385  
       

Note 10. Stock Based Compensation

        On May 1, 2006, the Company adopted the 2006 Management Equity Incentive Plan (the "Plan") pursuant to which the Company's Board of Directors, or a duly-authorized committee thereof, may grant stock options, restricted stock, restricted stock units and stock appreciation rights to employees and consultants of the Company or its subsidiaries. The Company amended the plan to increase the number of shares and to convert the number of shares in the 2006 plan to the 2011 plan. Options that have been granted under the Plan have been granted at an exercise price equal to (or greater than) the stock's fair market value at the date of the grant, with terms of 10 years and vesting generally over four to five years or on the occurrence of a liquidity event. On April 19, 2011, the Company adopted the Plan to be effective as of April 29, 2011. The maximum number of shares that may be subject to awards under the Plan is 2,941,746 as of September 30, 2013.

        The Company recognizes compensation costs in the financial statements for all share-based payments granted on or after May 1, 2006, based on the grant date fair value estimated. No options were outstanding prior to May 1, 2006.

        The Plan allows for awards based on time, performance and market conditions. Compensation expense for awards based on time is expensed on a straight-line basis over the service period. Compensation expense for performance awards are recognized using the graded vesting method. Compensation expense for market conditions such as those conditioned on either a liquidity event condition or a specified performance condition have not been recognized and will be recognized upon consummation of the relevant market condition. At September 30, 2013, there were a total of 864,392 additional shares available for grant under the Plan.

        The fair value of option awards are estimated on the date of grant using a lattice-based option valuation model. Because lattice-based option valuation models incorporate ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on the historical volatility of the stock of comparable public companies. The Company uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 10. Stock Based Compensation (Continued)

historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

        On May 15, 2013, the Company issued 477,250 options with a per share exercise price of $8.40. The options vest ratably over a three year period or become fully vested in the event of a change in control as defined in the award agreement. The Company also re-priced certain previously issued options and stock appreciation rights on May 15, 2013 at a per share exercise price of $8.40, which resulted in incremental compensation expense of $73 attributable to fully vested awards.

        For the nine months ended September 30, 2013 and 2012, the Company recorded stock-based compensation costs in the amounts of $1,068 and $446, respectively. As of September 30, 2013 and December 31, 2012, unrecognized stock-based compensation costs to be recognized over future periods approximated $4,514 and $3,864, respectively. At September 30, 2013, the remaining unrecognized compensation expense is $1,634 for certain awards that vest solely upon a change in control and $2,880 for certain awards that vest either over the requisite service period or a change in control. The remaining weighted-average period for the awards that vest solely upon a change in control cannot be determined because they vest upon an event not within the Company's control. The remaining compensation expense of $2,880 is expected to be recognized over a weighted-average period of 2.0 years. The total income tax benefit recognized in the consolidated statements of operations for the stock-based compensation arrangements was $-0- for the three months ended September 30, 2013 and 2012 and for the nine months ended September 30, 2013 and 2012.

        The following weighted average assumptions were used by the Company for awards granted during the nine months ended September 30, 2013:

 
  2013  

Risk-free interest rate

    0.84 %

Dividend yield

    0.00 %

Expected volatility

    50.00 %

Expected term (years)

    5.00  

Weighted average fair value of options granted

  $ 3.66  

Weighted average fair value of stock appreciation rights granted

  $ 3.66  

        Stock option activity for the nine months ended September 30, 2013 is as follows (these amounts have not been rounded in thousands):

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

Outstanding at December 31, 2012

    1,280,160   $ 7.88     7.0     N/A  

Granted

    942,663     8.40     8.4     N/A  

Exercised

                N/A  

Forfeited or expired

    473,543             N/A  
                     

Outstanding at September 30, 2013

    1,749,280   $ 7.62     7.1     N/A  
                   

Exercisable at September 30, 2013

    487,100   $ 7.17     5.4   $ 563  
                   

Vested or expected to vest at September 30, 2013

    1,179,010   $ 7.89     7.6   $ 563  
                   

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 10. Stock Based Compensation (Continued)

        Restricted stock unit ("RSU") activity for the nine months ended September 30, 2013, is as follows (these amounts have not been rounded in thousands):

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

Outstanding at December 31, 2012

    35,130   $ 13.51     2.1     N/A  

Granted

                N/A  

Exercised

                N/A  

Forfeited or expired

                N/A  
                     

Outstanding at September 30, 2013

    35,130   $ 13.51     1.4     N/A  
                   

Exercisable at September 30, 2013

    11,710   $ 13.51     1.4   $ 97  
                   

Vested or expected to vest at September 30, 2013

    35,130   $ 13.51     1.4   $ 290  
                   

        Stock appreciation rights activity for the nine months ended September 30, 2013 is as follows (these amounts have not been rounded into thousands):

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

Outstanding at December 31, 2012

    292,944   $     4.5     N/A  

Granted

    163,944         2.6     N/A  

Exercised

                N/A  

Forfeited or expired

    163,944             N/A  
                     

Outstanding at September 30, 2013

    292,944   $     3.8     N/A  
                   

Exercisable at September 30, 2013

    201,108   $     3.4   $ 145  
                   

Vested or expected to vest at September 30, 2013

    201,108   $     3.4   $ 145  
                   

Note 11. Business Segments

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

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 11. Business Segments (Continued)

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

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

Total Assets

  $ 612,099         $ 40,582         $ 652,681        

Goodwill

    298,731           13,672           312,403        

Other Intangible Assets

    21,210           3,771           24,981        

Total Revenues

  $ 100,509     100.0 % $ 14,527     100.0 % $ 115,036     100.0 %

Provision for Loan Losses

    28,955     28.8 %   11,292     77.7 %   40,247     35.0 %

Other Operating Expenses

    39,083     38.9 %   5,977     41.1 %   45,060     39.2 %

Operating Gross Profit (loss)

    32,471     32.3 %   (2,742 )   (18.8 )%   29,729     25.8 %

Interest Expense, net

    12,945     12.9 %       0.0 %   12,945     11.3 %

Depreciation and Amortization

    1,702     1.7 %   476     3.3 %   2,178     1.9 %

 

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

Total Revenues

  $ 280,917     100.0 % $ 32,668     100.0 % $ 313,585     100.0 %

Provision for Loan Losses

    64,634     23.0 %   21,050     64.4 %   85,684     27.3 %

Other Operating Expenses

    112,164     39.9 %   13,975     42.8 %   126,139     40.2 %

Operating Gross Profit

    104,119     37.1 %   (2,357 )   (7.2 )%   101,762     32.5 %

Interest Expense, net

    38,637     13.8 %       0.0 %   38,637     12.3 %

Depreciation and Amortization

    5,462     1.9 %   1,518     4.6 %   6,980     2.2 %

        Intersegment revenues of $74 for the three and nine month periods ending September 30, 2013, have been eliminated.

 
  As of and for the three months ended September 30, 2012    
 
 
  Retail
Financial Services
  % of
Revenue
  Internet
Financial Services
  % of
Revenue
  Consolidated   % of
Revenue
 

Total Assets

  $ 560,845         $ 27,068         $ 587,913        

Goodwill

    284,542           12,980           297,522        

Other Intangible Assets

    7,055           4,675           11,730        

Total Revenues

  $ 89,270     100.0 % $ 8,936     100.0 % $ 98,206     100.0 %

Provision for Loan Losses

    21,397     24.0 %   6,730     75.3 %   28,127     28.6 %

Other Operating Expenses

    34,336     38.5 %   2,445     27.4 %   36,781     37.5 %

Operating Gross Profit (loss)

    33,537     37.5 %   (239 )   (2.7 )%   33,298     33.9 %

Interest Expense, net

    12,415     13.9 %       0.0 %   12,415     12.6 %

Depreciation and Amortization

    1,153     1.3 %   599     6.7 %   1,752     1.8 %

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 11. Business Segments (Continued)


 
  As of and for the nine months ended September 30, 2012    
 
 
  Retail
Financial Services
  % of
Revenue
  Internet
Financial Services
  % of
Revenue
  Consolidated   % of
Revenue
 

Total Revenues

  $ 254,700     100.0 % $ 16,513     100.0 % $ 271,213     100.0 %

Provision for Loan Losses

    53,671     21.1 %   12,283     74.4 %   65,954     24.3 %

Other Operating Expenses

    99,598     39.1 %   5,478     33.2 %   105,076     38.7 %

Operating Gross Profit (loss)

    101,431     39.8 %   (1,248 )   (7.6 )%   100,183     37.0 %

Interest Expense, net

    34,995     13.7 %       0.0 %   34,995     12.9 %

Depreciation and Amortization

    3,032     1.2 %   1,186     7.2 %   4,218     1.6 %

        The Internet financial services segment was entered into as a result of our DFS acquisition on April 1, 2012 and therefore the information for the nine months ended September 30, 2012 does not include 1st quarter activity.

Note 12. Income Taxes

        Community Choice Financial Inc. and Subsidiaries file a consolidated federal income tax return. The Company files consolidated or separate state income tax returns as permitted by the individual states in which it operates. The Company's annual effective income tax rates for the nine months ended September 30, 2013 and 2012 were 39.6% and 39.3%, respectively. The Company had no liability recorded for unrecognized tax benefits at September 30, 2013 and December 31, 2012.

Note 13. Transactions with Variable Interest Entities

        The Company has a debt-buying arrangement with the lender whereby it purchases defaulted accounts. The Company accrues for this obligation through management's estimation of anticipated purchases based on expected losses in the lender's portfolio. This obligation is recorded as a current liability on the Company's consolidated balance sheet. The accrual for these obligations totaled $-0- and $231 as of September 30, 2013, and December 31, 2012, respectively. The Company has determined that the vendor is a variable interest entity ("VIE") but that the Company is not the primary beneficiary of this VIE. Therefore, the Company has not consolidated the lender in 2013 or 2012.

        The Company acquired a 22.5% membership interest of Insight Holdings in 2011. As additional consideration to Insight Holdings, the Company agreed to make available to Insight Holdings a revolving credit facility of $3,000. Prior to April 1, 2013, the Company determined that Insight Holdings was a VIE but that the Company was not the primary beneficiary, and therefore, had not consolidated Insight Holdings. The investment in Insight was accounted for under the equity method. Effective with the extension of the line of credit on April 1, 2013, the Company has consolidated Insight Holdings as discussed in Note 9.

        The Company conducts business through wholly owned subsidiaries licensed as a CSO under applicable state laws. In connection with operating as a CSO, the Company entered into a limited agency agreement with unaffiliated third-party lenders. The agreement governs the terms by which the Company refers customers to that lender, on a non-exclusive basis, for a possible extension of credit, processes loan applications and commits to reimburse the lender for any loans or related fees that were not collected from such customers. This obligation is recorded as a current liability on the Company's consolidated balance sheet. The accrual for these obligations totaled $855 and $161 as of September 30,

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Community Choice Financial Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share data)

Note 13. Transactions with Variable Interest Entities (Continued)

2013 and December 31, 2012, respectively. The Company has determined that the lenders are VIEs but that the Company is not the primary beneficiary of the VIEs. Therefore, the Company has not consolidated either lender.

Note 14. Optional Card Feature

        An optional feature available to some customers who signed up for a prepaid debit card through the Company, as agent for Insight Card Services, was the ability to have a third-party lender unrelated to the Company direct loan proceeds on to the customer's card. The Company purchased a participation in these loans which was recorded in the finance receivables. The optional card feature was terminated in the second quarter of 2012.

Note 15. Equity Method Investment

        Prior to April 1, 2013, the Company accounted for the investment in Insight Holdings, a 22.5% owned affiliate, by the equity method of accounting under which the Company's share of the net income of the affiliate is recognized as income in the Company's statement of income and added to the investment account, and dividends received from the affiliate are treated as a reduction of the investment account.

        Under the equity method of accounting, the Company's share of the loss of Insight Holdings for the three months ended March 31, 2013 was $15. Amortization expense recognized on implied intangible assets associated with the investment in Insight Holdings for the three months ended March 31, 2013 was $157. As discussed in Note 9, the Company consolidated Insight Holdings effective April 1, 2013 and the equity method of accounting for the investment has been discontinued.

        As of September 30, 2013, the Company's investment in Latin Card Strategies, LLC ("Latin Card") has been fully absorbed by the Company's share of losses of Latin Card and the equity method of accounting for the investment has been discontinued.

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 CCFI issued the 2019 notes) and any subsequent guarantor subsidiaries that guarantee the Company's indebtedness or the indebtedness of any other subsidiary guarantor (the "Subsidiary Guarantors"), in accordance with the Indentures. CCFI is a holding company and has no independent assets or operations of its own. The guarantees under the 2019 notes and 2020 notes are full and unconditional and joint and several. There are no restrictions on the ability of the Company or any of the Subsidiary Guarantors to obtain funds from its 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.

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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 (Continued)

The total net worth requirements of these Subsidiary Guarantors is $7.4 million. The Indentures contain certain affirmative and negative covenants applicable to the Company and its Subsidiary Guarantors, including restrictions on their ability to incur additional indebtedness, consummate certain asset sales, make investments in entities that are not "Guarantor Subsidiaries" (as defined in the Indentures), create liens on their assets, enter into certain affiliate transactions and make certain restricted payments, including restrictions on the Company's ability to pay dividends on, or repurchase, its common stock.

        As discussed in Note 9, the Company has consolidated Insight Holdings as of April 1, 2013. Insight Holdings is not a subsidiary of the Company, is not a guarantor under the 2019 notes or 2020 notes and is not otherwise an obligor under the Company's debt instruments.

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

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

        The following presents the condensed consolidating guarantor financial information as of September 30, 2013 and December 31, 2012, and for the nine months ended September 30, 2013, for the subsidiaries of the Company that serve as guarantors of the Notes, and for the subsidiaries that do not serve as guarantor. The non-guarantor subsidiaries are Buckeye Check Cashing of Florida II, LLC, Direct Financial Solutions of UK Limited and its subsidiary Cash Central UK Limited, and Direct Financial Solutions of Canada, Inc. In addition, Insight Holdings Company, LLC, which is not a subsidiary of the Company but which the Company is consolidating as of April 1, 2013, does not guarantee and is not otherwise an obligor under the Notes. All of the Company's guarantor subsidiaries are 100% owned, and all guarantees are full and conditional, joint and several.

        Of the entities under "Non-Guarantor Subsidiaries" in the tables below, only Buckeye Check Cashing of Florida II, LLC is an "Unrestricted Subsidiary" as defined in the indentures governing the 2019 notes and 2020 notes. As of September 30, 2013 and December 31, 2012, such unrestricted subsidiary had total assets of $56,375 and $48,242 and total liabilities of $41,515 and $22,320, respectively, and for the three months ended September 30, 2013 and 2012 and the nine months ended September 30, 2013 and September 30, 2012, had total revenues of $6,120, $502, $16,932 and $502 total operating expenses of $4,983, $1,804, $13,440 and $1,804 and net loss of $107, $2,541, $625 and $2,541, respectively. As described above, Insight Holdings is included in the tables below as a "non-Guarantor Subsidiary" because the Company has consolidated the entity as of April 1, 2013. 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)
September 30, 2013

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Assets

                               

Current Assets

                               

Cash and cash equivalents

  $   $ 99,388   $ 17,295   $   $ 116,683  

Restricted cash

            741         741  

Finance receivables, net

        135,015     5,573         140,588  

Short-term investments, certificates of deposit

        1,114             1,114  

Card related pre-funding and receivables

        2,711         (1,413 )   1,298  

Other current assets

        27,229     3,001     (23,903 )   6,327  

Deferred tax asset, net

        5,976             5,976  
                       

Total current assets

        271,433     26,610     (25,316 )   272,727  

Noncurrent Assets

                               

Investment in Subsidiaries

    369,661     14,853         (384,514 )    

Finance receivables, net

        6,993             6,993  

Leasehold improvements and equipment, net

        18,504     2,899         21,403  

Goodwill

        265,818     46,585         312,403  

Other intangible assets

        5,603     19,378         24,981  

Security deposits

        2,256     106         2,362  

Equity method investments

        6,835         (6,835 )    

Deferred debt issuance costs

    11,771     41             11,812  
                       

Total assets

  $ 381,432   $ 592,336   $ 95,578   $ (416,665 ) $ 652,681  
                       

Liabilities and Stockholders' Equity

                               

Current Liabilities

                               

Current portion of capital lease obligation

  $   $   $ 115   $   $ 115  

Current portion of related party Florida seller notes

            2,723         2,723  

Deferred revenue

        2,658             2,658  

Accrued interest

    19,103     10     6         19,119  

Money orders payable

        13,832     7         13,839  

Accounts payable and accrued liabilities

        21,483     29,821     (25,316 )   25,988  
                       

Total current liabilities

    19,103     37,983     32,672     (25,316 )   64,442  

Noncurrent Liabilities

                               

Accrued liabilities

        1,075             1,075  

Lines of credit

    27,000     3,250         (250 )   30,000  

Capital lease obligation

            18         18  

Stock repurchase obligation

            1,042         1,042  

Related party Florida seller notes

            13,476         13,476  

Senior secured notes

    420,000                 420,000  

Deferred Revenue

        6,095             6,095  

Deferred tax liability, net

        186             186  
                       

Total liabilities

    466,103     48,589     47,208     (25,566 )   536,334  
                       

Stockholders' Equity

    (84,671 )   543,747     48,370     (391,099 )   116,347  
                       

Total liabilities and stockholders' equity

  $ 381,432   $ 592,336   $ 95,578   $ (416,665 ) $ 652,681  
                       

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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
December 31, 2012

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Assets

                               

Current Assets

                               

Cash and cash equivalents

  $   $ 71,093   $ 7,951   $   $ 79,044  

Finance receivables, net

        120,587     5,050         125,637  

Short-term investments, certificates of deposit

        1,113             1,113  

Card related pre-funding and receivables

        8,050             8,050  

Other current assets

        6,065     181         6,246  

Deferred tax asset, net

        5,517             5,517  
                       

Total current assets

        212,425     13,182         225,607  

Noncurrent Assets

                               

Investment in Subsidiaries

    366,168     25,922         (392,090 )    

Finance receivables, net

        3,286             3,286  

Leasehold improvements and equipment, net

        16,876     1,470         18,346  

Goodwill

        266,950     30,172         297,122  

Other intangible assets

        6,557     3,700         10,257  

Security deposits

        1,663     65         1,728  

Equity method investments

        6,491             6,491  

Deferred debt issuance costs

    13,465     28             13,493  
                       

Total assets

  $ 379,633   $ 540,198   $ 48,589   $ (392,090 ) $ 576,330  
                       

Liabilities and Stockholders' Equity

                               

Current Liabilities

                               

Current portion of related party Florida seller notes

  $   $   $ 1,731   $   $ 1,731  

Deferred revenue

        2,661             2,661  

Accrued interest

    7,602         433         8,035  

Money orders payable

        14,941     1,095         16,036  

Accounts payable and accrued liabilities

        16,419     2,183         18,602  
                       

Total current liabilities

    7,602     34,021     5,442         47,065  

Noncurrent Liabilities

                               

Stock repurchase obligation

            1,288         1,288  

Related party Florida seller notes

            15,599         15,599  

Senior secured notes

    420,000                 420,000  

Deferred Revenue

        7,979             7,979  

Deferred tax liability, net

        186             186  
                       

Total liabilities

    427,602     42,186     22,329         492,117  
                       

Stockholders' Equity (Deficit)

    (47,969 )   498,012     26,260     (392,090 )   84,213  
                       

Total liabilities and stockholders' equity

  $ 379,633   $ 540,198   $ 48,589   $ (392,090 ) $ 576,330  
                       

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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
Consolidated Statements of Operations (unaudited)
Three Months Ended September 30, 2013

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Revenues:

                               

Finance receivable fees

  $   $ 78,574   $ 3,211   $   $ 81,785  

Check cashing fees

        18,624     2,103         20,727  

Card fees

        1,483     5,825     (1,199 )   6,109  

Other

        5,610     893     (88 )   6,415  
                       

Total revenues

        104,291     12,032     (1,287 )   115,036  
                       

Operating expenses:

                               

Salaries and benefits

        16,705     1,675         18,380  

Provision for loan losses

        38,912     1,335         40,247  

Occupancy

        6,160     822         6,982  

Advertising and marketing

        5,914     194         6,108  

Depreciation and amortization

        1,465     125         1,590  

Other

        11,081     919         12,000  
                       

Total operating expenses

        80,237     5,070         85,307  
                       

Operating gross profit

        24,054     6,962     (1,287 )   29,729  
                       

Corporate expenses

        13,573     6,041     (1,287 )   18,327  

Registration expenses

                     

Bond registration expenses

                     

Transaction expenses

                     

Depreciation and amortization

        1,090     1,088         2,178  

Interest expense, net

    12,688     (242 )   499         12,945  

Loss on equity method investments

                     
                       

Total corporate and other expenses

    12,688     14,421     7,628     (1,287 )   33,450  
                       

Income (loss) before income taxes

    (12,688 )   9,633     (666 )       (3,721 )
                       

Provision (benefit) for income taxes

    (4,484 )   3,042     (219 )       (1,661 )
                       

Net income (loss)

    (8,204 )   6,591     (447 ) $     (2,060 )

Net loss attributable to non-controlling interests

            (473 )       (473 )
                       

Net income

  $ (8,204 ) $ 6,591   $ 26   $   $ (1,587 )
                       

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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
Consolidated Statements of Operations (unaudited)
Three Months Ended September 30, 2012

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Revenues:

                               

Finance receivable fees

  $   $ 70,119   $   $   $ 70,119  

Check cashing fees

        19,798             19,798  

Card fees

        2,336     4         2,340  

Other

        5,451     498         5,949  
                       

Total revenues

        97,704     502         98,206  
                       

Operating expenses:

                               

Salaries and benefits

        13,982     876         14,858  

Provision for loan losses

        28,123     4         28,127  

Occupancy

        5,860     513         6,373  

Advertising and marketing

        1,965             1,965  

Depreciation and amortization

        1,547             1,547  

Other

        11,608     430         12,038  
                       

Total operating expenses

        63,085     1,823         64,908  
                       

Operating gross profit

        34,619     (1,321 )       33,298  
                       

Corporate expenses

        12,118     387         12,505  

Registration expenses

                     

Bond registration expenses

        814             814  

Transaction expenses

        184     12         196  

Depreciation and amortization

        1,263     489         1,752  

Interest expense, net

    12,059     6     350         12,415  

Loss on equity method investments

        128             128  
                       

Total and other corporate expenses

    12,059     14,513     1,238         27,810  
                       

Income (loss) before income taxes

    (12,059 )   20,106     (2,559 )       5,488  
                       

Provision (benefit) for income taxes

    (4,439 )   7,441     (1,007 )       1,995  
                       

Net income (loss)

    (7,620 )   12,665     (1,552 )       3,493  

Net (gain) loss attributable to non-controlling interests

                     
                       

Net income (loss) attributable to controlling interests

  $ (7,620 ) $ 12,665   $ (1,552 ) $   $ 3,493  
                       

36


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
Consolidated Statements of Operations (unaudited)
Nine Months Ended September 30, 2013

 
  Community
Choice Financial
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Revenues:

                               

Finance receivable fees

  $   $ 210,101   $ 7,941   $   $ 218,042  

Check cashing fees

        56,306     6,613         62,919  

Card fees

        4,471     11,484     (2,521 )   13,434  

Other

        16,740     2,538     (88 )   19,190  
                       

Total revenues

        287,618     28,576     (2,609 )   313,585  
                       

Operating expenses:

                               

Salaries and benefits

        48,393     4,841         53,234  

Provision for loan losses

        82,455     3,229         85,684  

Occupancy

        17,569     2,364         19,933  

Advertising and marketing

        11,203     649         11,852  

Depreciation and amortization

        4,666     329         4,995  

Other

        33,478     2,647         36,125  
                       

Total operating expenses

        197,764     14,059         211,823  
                       

Operating gross profit

        89,854     14,517     (2,609 )   101,762  
                       

Corporate expenses

        42,303     12,047     (2,609 )   51,741  

Registration expenses

                     

Bond registration expenses