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
10-Q 2020-06-30 Filed 2020-08-13
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. Operating and Capital Lease Commitments and Total Rental Expense
Note 8. Concentrations of Credit Risks
Note 9. Contingencies
Note 10. Stock Based Compensation
Note 11. Business Segments
Note 12. Income Taxes
Note 13. Transactions with Variable Interest Entities
Note 14. Equity Method Investment
Note 15. Supplemental Guarantor Information
Note 16. Supplemental Condensed Consolidating Guarantor and Non‑ Guarantor Financial Information
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part Ii—Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 6. Exhibits.
EX-31.1 ccfi-20170930ex311c0201f.htm
EX-31.2 ccfi-20170930ex31254e283.htm
EX-32.1 ccfi-20170930ex321ad433f.htm
EX-32.2 ccfi-20170930ex322372303.htm

Community Choice Financial Earnings 2017-09-30

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 ccfi-20170930x10q.htm 10-Q ccfi_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑Q

(Mark One)

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

 

For the quarterly period ended September 30, 2017

 

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

 

For the transition period from to                  to                

 

Commission File Number: 001‑35537

COMMUNITY CHOICE FINANCIAL INC.

(Exact name of registrant as specified in its charter)

Ohio

(State or other jurisdiction of

incorporation or organization)

45‑1536453

(IRS Employer

Identification No.)

 

 

6785 Bobcat Way, Suite 200, Dublin, Ohio

(Address of principal executive offices)

43016

(Zip Code)

 

(614) 798‑5900

(Registrant’s telephone number, including area code)

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

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

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 ☒   No ☐

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

 

 

 

 

Large accelerated filer 

Accelerated filer

 

 

Non-accelerated filer    

Smaller reporting company

(Do not check if a smaller reporting company)

Emerging growth company

 

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

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

There is no market for the registrant’s equity. As of September 30, 2017, there were 7,990,020 shares outstanding.

 

 


 

Community Choice Financial Inc. and Subsidiaries

 

Form 10-Q for the Quarterly Period Ended September 30, 2017

 

Table of Contents

 

 

 

 

 

 

Page

 

Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016

3

 

 

 

 

Consolidated Statements of Operations for the three months and nine months ended September 30, 2017 (unaudited) and September 30, 2016 (unaudited)

4

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2017 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 (unaudited) and September 30, 2016 (unaudited)

6

 

 

 

 

Notes to unaudited Consolidated Financial Statements

7-27 

 

 

 

Item 2. 

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

28-48

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

48

 

 

 

Item 4. 

Controls and Procedures

49

 

 

 

Part II 

Other Information

 

 

 

 

Item 1. 

Legal Proceedings

50

 

 

 

Item 1A. 

Risk Factors

50-53

 

 

 

Item 6. 

Exhibits

53

 

 

 

 

Signatures

54

 

 

 

 

2


 

Community Choice Financial Inc. and Subsidiaries

 

Consolidated Balance Sheets

 

September 30, 2017 and December 31, 2016

 

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2017

    

2016

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

92,741

 

$

106,333

 

Restricted cash

 

 

5,240

 

 

3,015

 

Finance receivables, net of allowance for loan losses of $13,632 and $13,373

 

 

96,542

 

 

87,960

 

Short-term investments, certificates of deposit

 

 

 —

 

 

500

 

Card related pre-funding and receivables

 

 

1,121

 

 

1,545

 

Other current assets

 

 

18,882

 

 

19,404

 

Total current assets

 

 

214,526

 

 

218,757

 

Noncurrent Assets

 

 

 

 

 

 

 

Finance receivables, net of allowance for loan losses of $3,484 and $2,846

 

 

7,528

 

 

5,859

 

Property, leasehold improvements and equipment, net

 

 

30,529

 

 

36,431

 

Goodwill

 

 

113,500

 

 

113,290

 

Other intangible assets

 

 

1,047

 

 

1,412

 

Security deposits

 

 

2,502

 

 

2,614

 

Total assets

 

$

369,632

 

$

378,363

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

49,330

 

$

37,002

 

Money orders payable

 

 

8,362

 

 

8,209

 

Accrued interest

 

 

11,297

 

 

4,727

 

Current portion of capital lease obligation

 

 

514

 

 

1,155

 

Current portion of line of credit, net of deferred issuance costs of $-0- and $14

 

 

 —

 

 

2,236

 

Current portion of subsidiary notes payable, net of deferred issuance costs of $1 and $7

 

 

117

 

 

7,407

 

Deferred revenue

 

 

4,521

 

 

2,753

 

Total current liabilities

 

 

74,141

 

 

63,489

 

Noncurrent Liabilities

 

 

 

 

 

 

 

Lease termination payable

 

 

1,720

 

 

1,066

 

Capital lease obligation

 

 

10

 

 

292

 

Line of credit, net of deferred issuance costs of $2,302 and $760

 

 

44,698

 

 

29,840

 

Subsidiary notes payable, net of deferred issuance costs of $936 and $617

 

 

60,933

 

 

41,341

 

Senior secured notes, net of deferred issuance costs of $1,964 and $2,861

 

 

247,826

 

 

246,929

 

Deferred revenue

 

 

6,504

 

 

10,055

 

Deferred tax liability, net

 

 

10,310

 

 

9,675

 

Total liabilities

 

 

446,142

 

 

402,687

 

Commitments and Contingencies

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

Preferred stock, par value $.01 per share, 3,000 shares authorized, no shares issued and outstanding

 

 

 —

 

 

 —

 

Common stock, par value $.01 per share, 300,000 authorized shares and 7,990 outstanding shares at September 30, 2017 and  7,982 outstanding shares at December 31, 2016

 

 

90

 

 

90

 

Additional paid-in capital

 

 

129,666

 

 

129,624

 

Retained deficit

 

 

(206,216)

 

 

(153,988)

 

Treasury stock

 

 

(50)

 

 

(50)

 

Total stockholders' deficit

 

 

(76,510)

 

 

(24,324)

 

Total liabilities and stockholders' equity

 

$

369,632

 

$

378,363

 

 

See Notes to Unaudited Consolidated Financial Statements.

3


 

Community Choice Financial Inc. and Subsidiaries

 

Consolidated Statements of Operations

 

Three Months and Nine Months Ended September 30, 2017 and 2016

 

(In thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance receivable fees

 

$

57,808

 

$

61,053

 

$

154,789

 

$

182,889

 

Credit service fees

 

 

22,026

 

 

21,915

 

 

55,311

 

 

65,188

 

Check cashing fees

 

 

11,192

 

 

11,723

 

 

35,097

 

 

37,053

 

Card fees

 

 

2,046

 

 

1,924

 

 

6,166

 

 

6,112

 

Other

 

 

4,572

 

 

5,164

 

 

12,801

 

 

16,423

 

Total revenues

 

 

97,644

 

 

101,779

 

 

264,164

 

 

307,665

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries

 

 

18,040

 

 

17,577

 

 

52,829

 

 

52,925

 

Provision for loan losses

 

 

43,133

 

 

32,617

 

 

86,532

 

 

89,364

 

Occupancy

 

 

6,626

 

 

6,946

 

 

19,857

 

 

20,184

 

Advertising and marketing

 

 

3,362

 

 

813

 

 

5,720

 

 

6,030

 

Lease termination

 

 

 —

 

 

175

 

 

959

 

 

1,276

 

Depreciation and amortization

 

 

2,311

 

 

2,424

 

 

7,176

 

 

7,698

 

Other

 

 

14,113

 

 

12,611

 

 

38,411

 

 

40,547

 

Total operating expenses

 

 

87,585

 

 

73,163

 

 

211,484

 

 

218,024

 

Operating gross profit

 

 

10,059

 

 

28,616

 

 

52,680

 

 

89,641

 

Corporate and other expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

21,882

 

 

20,008

 

 

62,358

 

 

64,394

 

Lease termination

 

 

 —

 

 

 —

 

 

1,762

 

 

 —

 

Depreciation and amortization

 

 

1,287

 

 

1,285

 

 

3,777

 

 

3,716

 

Interest expense, net

 

 

12,210

 

 

10,996

 

 

36,012

 

 

33,306

 

Loss on sale of subsidiary

 

 

 —

 

 

2,537

 

 

 —

 

 

4,106

 

Gain on debt extinguishment

 

 

 —

 

 

(2,265)

 

 

 —

 

 

(65,117)

 

Goodwill impairment

 

 

 —

 

 

28,949

 

 

 —

 

 

28,949

 

Total corporate and other expenses

 

 

35,379

 

 

61,510

 

 

103,909

 

 

69,354

 

Income (loss) from continuing operations, before tax

 

 

(25,320)

 

 

(32,894)

 

 

(51,229)

 

 

20,287

 

Provision for income taxes

 

 

333

 

 

7,731

 

 

999

 

 

14,051

 

Net income (loss)

 

$

(25,653)

 

$

(40,625)

 

$

(52,228)

 

$

6,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

4


 

Community Choice Financial Inc. and Subsidiaries

 

Consolidated Statements of Stockholders’ Equity

 

Nine Months Ended September 30, 2017

 

(Dollars in thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Common Stock

 

Treasury

 

Paid-In

 

Retained

 

 

 

 

    

Shares

    

Amount

    

Stock

    

Capital

    

Deficit

    

Total

Balance, December 31, 2016

 

7,981,536

 

$

90

 

$

(50)

 

$

129,624

 

$

(153,988)

 

$

(24,324)

Issuance of common stock for settlement of restricted stock units

 

8,484

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation expense

 

 —

 

 

 —

 

 

 —

 

 

42

 

 

 —

 

 

42

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(52,228)

 

 

(52,228)

Balance, September 30, 2017

 

7,990,020

 

$

90

 

$

(50)

 

$

129,666

 

$

(206,216)

 

$

(76,510)

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

5


 

Community Choice Financial Inc. and Subsidiaries

 

Consolidated Statements of Cash Flows

 

Nine Months Ended September 30, 2017 and 2016

 

(In thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2017

    

2016

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

(52,228)

    

$

6,236

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Provision for loan losses

 

 

86,532

 

 

89,364

Goodwill impairment

 

 

 —

 

 

28,949

Loss on disposal of assets

 

 

2,280

 

 

2,759

Gain on debt extinguishment

 

 

 —

 

 

(65,117)

Loss on sale of subsidiary

 

 

 —

 

 

4,106

Depreciation

 

 

10,580

 

 

10,874

Amortization of note discount and deferred debt issuance costs

 

 

2,988

 

 

1,936

Amortization of intangibles

 

 

373

 

 

540

Deferred income taxes

 

 

635

 

 

14,050

Stock-based compensation

 

 

42

 

 

1,281

Changes in assets and liabilities:

 

 

 

 

 

 

Short-term investments

 

 

500

 

 

715

Card related pre-funding and receivables

 

 

424

 

 

346

Restricted cash

 

 

(2,225)

 

 

20

Other assets

 

 

637

 

 

(5,832)

Deferred revenue

 

 

(1,783)

 

 

11,249

Accrued interest

 

 

6,570

 

 

4,910

Money orders payable

 

 

153

 

 

(3,252)

Lease termination payable

 

 

654

 

 

(189)

Accounts payable and accrued expenses

 

 

11,454

 

 

404

Net cash provided by operating activities

 

 

67,586

 

 

103,349

Cash flows from investing activities

 

 

 

 

 

 

Net receivables originated

 

 

(96,400)

 

 

(62,517)

Net acquired assets, net of cash

 

 

(373)

 

 

(296)

Purchase of leasehold improvements and equipment

 

 

(6,315)

 

 

(7,495)

Net cash used in investing activities

 

 

(103,088)

 

 

(70,308)

Cash flows from financing activities

 

 

 

 

 

 

Repurchase of senior secured notes

 

 

 —

 

 

(38,809)

Proceeds from subsidiary note

 

 

20,000

 

 

14,265

Payments on subsidiary note

 

 

(7,385)

 

 

(218)

Payments on capital lease obligations

 

 

(923)

 

 

(1,032)

Net proceeds on lines of credit

 

 

14,150

 

 

6,750

Debt issuance costs

 

 

(3,932)

 

 

670

Net cash provided by (used in) financing activities

 

 

21,910

 

 

(18,374)

Net increase (decrease) in cash and cash equivalents

 

 

(13,592)

 

 

14,667

Cash and cash equivalents:

 

 

 

 

 

 

Beginning

 

 

106,333

 

 

98,941

Ending

 

$

92,741

 

$

113,608

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

6


 

Community Choice Financial Inc. and Subsidiaries

 

Notes to Unaudited Consolidated Financial Statements

 

(Dollars in thousands, except per share data)

 

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

 

Nature of business:  Community Choice Financial Inc. (together with its consolidated subsidiaries, “CCFI” or “the Company”) owned and operated 502 retail locations in 12 states and was licensed to deliver similar financial services over the internet in 31 states as of September 30, 2017. Through its network of retail locations and over the internet, the Company provides customers a variety of financial products and services, including secured and unsecured, short and medium‑term consumer loans, check cashing, prepaid debit cards, and other services that address the specific needs of its individual customers.

 

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

 

Basis of presentation:  The accompanying interim unaudited consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10‑Q and accounting principles generally accepted in the United States (“GAAP”) for interim financial information. They do not include all information and footnotes required by GAAP for complete financial statements. Although management believes that the disclosures are adequate to prevent the information from being misleading, the interim unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2016, included in the Company’s Annual Report on Form 10‑K filed with the Securities & Exchange Commission on March 29, 2017. 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, 2017.

 

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

 

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

 

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

 

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

 

Revenue recognition:  Transactions include loans, credit service fees, check cashing, bill payment, money transfer, money order sales, and other miscellaneous products and services. The full amount of the check cashing fee is recognized as revenue at the time of the transaction. Fees and direct costs incurred for the origination of loans are deferred and amortized over the loan period using the interest method. The Company acts in an agency capacity regarding bill payment services, money transfers, card products, and money orders offered and sold at its retail locations.

7


 

The Company records the net amount retained as revenue because the supplier is the primary obligor in the arrangement, the amount earned by the Company is fixed, and the supplier is determined to have the ultimate credit risk. Revenue on loans determined to be troubled debt restructurings are recognized at the impaired loans’ original interest rates until the impaired loans are charged off or paid by the customer. Credit service organization (“CSO”) fees are recognized over the arranged credit service period.

 

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

 

Short-term consumer loans can be unsecured or secured with a maturity up to ninety days. Unsecured short-term loan products typically range in principal from $100 to $1,000, with a maturity between fourteen and thirty days, and include a written agreement to defer the presentment of the customer’s personal check or preauthorized debit for the aggregate amount of the advance plus fees. This form of lending is based on applicable laws and regulations, which vary by state. State statutes vary from charging fees of 15% to 20%, to charging interest at 25% per annum plus origination fees. The customers repay the cash advance by making cash payments or allowing a check or preauthorized debit to be presented. Secured consumer loans with a maturity of ninety days or less are included in this category and represented 16.1% and 18.2% of short-term consumer loans at September 30, 2017 and December 31, 2016, respectively.

 

Medium-term consumer loans can be unsecured or secured with a maturity greater than ninety days and up to thirty-six months. Unsecured medium-term products typically range from $100 to $5,000, and are evidenced by a promissory note with a maturity between three and thirty-six months. These consumer loans vary in structure depending upon the applicable laws and regulations where they are offered. The medium-term consumer loans are payable in installments or provide for a line of credit with periodic payments. Secured consumer loans with a maturity greater than ninety days are included in this category and represented 9.1% and 10.2% of medium-term consumer loans at September 30, 2017, and December 31, 2016, respectively.

 

Allowance for loan losses:  Provisions for loan losses are charged to income in amounts sufficient to maintain an adequate allowance for loan losses and an adequate accrual for losses related to guaranteed loans processed for third-party lenders under the CSO programs. The factors used in assessing the overall adequacy of the allowance for loan losses, the accrual for losses related to guaranteed loans made by third-party lenders and the resulting provision for loan losses include an evaluation by product, by market based on historical loan loss experience, and delinquency of certain medium-term consumer loans. The Company evaluates various qualitative factors that may or may not affect the computed initial estimate of the allowance for loan losses, by using internal valuation inputs including historical loan loss experience, delinquency, overall portfolio quality, and current economic conditions.

 

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

 

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

 

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

 

8


 

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

 

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

 

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

 

·

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

 

·

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

 

·

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

 

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

 

In determining the appropriate levels, the Company performed a detailed analysis of the assets and liabilities that are subject to ASC 820-10. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The Company’s financial instruments consist primarily of cash and cash equivalents, finance receivables, short-term investments, and lines of credit. For all such instruments, other than senior secured notes and notes payable at September 30, 2017, and December 31, 2016, the carrying amounts in the consolidated financial statements approximate their fair values. Finance receivables are short term in nature and are originated at prevailing market rates and lines of credit bear interest at current market rates. The fair value of finance receivables at September 30, 2017 and December 31, 2016 approximates carrying value and is measured using internal valuation inputs including historical loan loss experience, delinquency, overall portfolio quality, and current economic conditions. 

 

9


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

 

Carrying

 

 

 

 

 

 

    

Amount

    

Fair Value

    

Level

 

Financial assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

92,741

 

$

92,741

 

1

 

Restricted cash

 

 

5,240

 

 

5,240

 

1

 

Finance receivables

 

 

104,070

 

 

104,070

 

3

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

10.75% Senior secured notes

 

 

237,290

 

 

209,468

 

1

 

12.75% Senior secured notes

 

 

12,500

 

 

10,762

 

2

 

Subsidiary Note payable

 

 

61,987

 

 

61,987

 

2

 

Line of Credit

 

 

47,000

 

 

47,000

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Carrying

 

 

 

 

 

 

    

Amount

    

Fair Value

    

Level

 

Financial assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

106,333

 

$

106,333

 

1

 

Restricted cash

 

 

3,015

 

 

3,015

 

1

 

Finance receivables

 

 

93,819

 

 

93,819

 

3

 

Short-term investments, certificates of deposit

 

 

500

 

 

500

 

2

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

10.75% Senior secured notes

 

 

237,290

 

 

195,503

 

1

 

12.75% Senior secured notes

 

 

12,500

 

 

10,221

 

2

 

Subsidiary Note payable

 

 

49,372

 

 

49,372

 

2

 

Line of Credit

 

 

32,850

 

 

32,850

 

2

 

 

Treasury Stock:  Treasury stock is reported at cost and consists of one million common shares at September 30, 2017 and December 31, 2016.

 

Subsequent events:  The Company has evaluated its subsequent events (events occurring after September 30, 2017) through the issuance date of November 13, 2017.

 

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

 

Finance receivables representing amounts due from customers for advances at September 30, 2017, and December 31, 2016, consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2017

    

2016

 

Short-term consumer loans

 

$

67,616

 

$

61,589

 

Medium-term consumer loans

 

 

56,387

 

 

51,431

 

Gross receivables

 

$

124,003

 

$

113,020

 

Unearned advance fees, net of deferred loan origination costs

 

 

(2,817)

 

 

(2,982)

 

Finance receivables before allowance for loan losses

 

 

121,186

 

 

110,038

 

Allowance for loan losses

 

 

(17,116)

 

 

(16,219)

 

Finance receivables, net

 

$

104,070

 

$

93,819

 

 

 

 

 

 

 

 

 

Finance receivables, net

 

 

 

 

 

 

 

Current portion

 

$

96,542

 

$

87,960

 

Non-current portion

 

 

7,528

 

 

5,859

 

Total finance receivables, net

 

$

104,070

 

$

93,819

 

 

10


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as

 

 

 

Balance

 

 

 

 

 

 

 

 

 

 

Balance

 

Receivables

 

a percentage

 

 

    

7/1/2017

    

Provision

    

Charge-Offs

    

Recoveries

    

9/30/2017

    

9/30/2017

    

of receivable

 

Short-term consumer loans

 

$

2,556

 

$

14,438

 

$

(26,027)

 

$

11,915

 

$

2,882

 

$

67,616

 

4.26

%  

Medium-term consumer loans

 

 

10,396

 

 

13,780

 

 

(11,655)

 

 

1,713

 

 

14,234

 

 

56,387

 

25.24

%  

 

 

$

12,952

 

$

28,218

 

$

(37,682)

 

$

13,628

 

$

17,116

 

$

124,003

 

13.80

%  

 

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

 

The provision for short-term consumer loans of $14,438 is net of debt sales of $635 for the three months ended September 30, 2017.

 

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

 

The Company evaluates all short-term and medium-term consumer loans collectively for impairment, except for individually evaluating medium-term loans that have been modified and classified as troubled debt restructurings. In certain markets, the Company reduced interest rates and favorably changed payment terms for medium-term consumer loans to assist borrowers in avoiding default and to mitigate risk of loss. The provision and subsequent charge off related to these loans totaled $165 and is included in the provision for medium-term consumer loans for the three months ended September 30, 2017. For these loans evaluated for impairment, there were $39 of payment defaults during the three months ended September 30, 2017. The troubled debt restructurings during the three months ended September 30, 2017 are subject to an allowance of $53 with a net carrying value of $84 at September 30, 2017.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as

 

 

 

Balance

 

 

 

 

 

 

 

 

 

 

Balance

 

Receivables

 

a percentage

 

 

    

1/1/2017

    

Provision

    

Charge-Offs

    

Recoveries

    

9/30/2017

    

9/30/2017

    

of receivable

 

Short-term consumer loans

 

$

2,223

 

$

30,264

 

$

(65,063)

 

$

35,458

 

$

2,882

 

$

67,616

 

4.26

%  

Medium-term consumer loans

 

 

13,996

 

 

29,008

 

 

(33,488)

 

 

4,718

 

 

14,234

 

 

56,387

 

25.24

%  

 

 

$

16,219

 

$

59,272

 

$

(98,551)

 

$

40,176

 

$

17,116

 

$

124,003

 

13.80

%  

 

The provision for loan losses for the nine months ended September 30, 2017, also includes losses from returned items from check cashing of $4,586.

 

The provision for short-term consumer loans of $30,264 is net of debt sales of $1,071 for the nine months ended September 30, 2017.

 

The provision for medium-term consumer loans of $29,008 is net of debt sales of $1,384 for the nine months ended September 30, 2017.

 

The provision and subsequent charge off related to troubled debt restructurings totaled $199 and is included in the provision for medium-term consumer loans for the nine months ended September 30, 2017. For these loans evaluated for impairment, there were $358 of payment defaults during the nine months ended September 30, 2017. The troubled debt restructurings during the nine months ended September 30, 2017 are subject to an allowance of $64 with a net carrying value of $120 at September 30, 2017.

 

11


 

Changes in the allowance for loan losses by product type for the three months ended September 30, 2016, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as

 

 

 

Balance

 

 

 

 

 

 

 

 

 

 

Balance

 

Receivables

 

a percentage

 

 

    

7/1/2016

    

Provision

    

Charge-Offs

    

Recoveries

    

9/30/2016

    

9/30/2016

    

of receivable

 

Short-term consumer loans