Community Choice Financial Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

10-Q 1 ccfi-20200930x10q.htm 10-Q

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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, 2020

◻	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: 333-231069

CCF HOLDINGS LLC

(Exact name of registrant as specified in its charter)

Ohio

(State or other jurisdiction of

incorporation or organization)

83-2704255

(IRS Employer

Identification No.)

5165 Emerald Parkway, Suite 100, Dublin, Ohio

(Address of principal executive offices)

43017

(Zip Code)

(800) 837-0381

(Registrant’s telephone number, including area code)

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

Securities Registered pursuant to Section 12(b) of the Act: none

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

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


Large accelerated filer ◻		Accelerated filer ◻

Non-accelerated filer ⌧		Smaller reporting company ◻
		Emerging growth company ⌧

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

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

There is no market for the registrant’s equity. As of September 30, 2020, there were 992,857 units outstanding.

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CCF Holdings LLC and Subsidiaries

Form 10-Q for the Quarterly Period Ended September 30, 2020

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		Page
	Financial Information

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019 (unaudited)	3

	Consolidated Statements of Operations and Comprehensive Income for the three months and nine months ended September 30, 2020 (unaudited) and September 30, 2019 (unaudited)	4

	Consolidated Statements of Members’ Equity for the three months and nine months ended September 30, 2020 (unaudited) and September 30, 2019 (unaudited)	5

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 (unaudited) and September 30, 2019 (unaudited)	6

	Notes to unaudited Consolidated Financial Statements	7-26

Item 2.	Management’s Discussion and Analysis of Financial Condition and Result of Operations	27-45

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45

Item 4.	Controls and Procedures	46

Part II	Other Information	46

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46-48

Item 6.	Exhibits	48

	Signatures	49

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CCF Holdings LLC and Subsidiaries

Consolidated Balance Sheets

September 30, 2020 and December 31, 2019

(In thousands, except share data)

(unaudited)


	September 30,		December 31,
	2020		2019
Assets
Current Assets
Cash and cash equivalents	$	60,023	$	49,016
Restricted cash		3,650		6,090
Finance receivables, net of allowance for loan losses of $10,731 and $12,869		47,395		79,692
Card related pre-funding and receivables		796		970
Other current assets		6,695		10,273
Total current assets		118,559		146,041
Noncurrent Assets
Finance receivables, net of allowance for loan losses of $269 and $959		531		2,303
Property, leasehold improvements and equipment, net		31,391		40,577
Right of use assets - operating leases		33,967		36,728
Goodwill		—		11,288
Other intangible assets		2,309		2,650
Security deposits		3,596		7,238
Total assets	$	190,353	$	246,825
Liabilities and Members' Equity
Current Liabilities
Accounts payable and accrued liabilities	$	26,278	$	30,195
Money orders payable		5,496		9,448
Accrued interest		10,182		2,544
Current portion of operating lease obligation		13,977		12,878
Current portion of subsidiary notes payable, net of deferred issuance cost of $984 and $1		68,987		127
Deferred revenue		2,535		2,535
Total current liabilities		127,455		57,727
Noncurrent Liabilities
Deferred payroll taxes		1,831		—
Operating lease obligation		22,530		24,403
Subsidiary notes payable, net of deferred issuance costs of $-0- and $372		665		74,231
Secured notes payable		40,000		40,000
Senior PIK notes, at fair value		17,070		74,243
Deferred revenue		550		2,451
Total liabilities		210,101		273,055
Commitments and Contingencies
Members' Equity
Common units, par value $-0- per unit, 850,000 Class A and 142,857 Class B authorized and outstanding units at September 30, 2020 and December 31, 2019		870		870
Retained deficit		(118,446)		(51,208)
Accumulated other comprehensive income		97,828		24,108
Total members' equity (deficit)		(19,748)		(26,230)
Total liabilities and members' equity	$	190,353	$	246,825

See Notes to Unaudited Consolidated Financial Statements.

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CCF Holdings LLC and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

Three Months and Nine Months Ended September 30, 2020 and 2019

(In thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
		2020		2019		2020		2019
Revenues:
Finance receivable fees	$	27,124	$	51,051	$	97,632	$	146,513
Credit service fees		2,938		12,579		10,613		47,373
Check cashing fees		13,649		13,292		42,986		38,586
Card fees		2,734		2,686		8,133		8,582
Other		7,471		5,285		22,206		12,828
Total revenues		53,916		84,893		181,570		253,882
Operating expenses:
Salaries		14,251		18,093		43,872		52,335
Provision for loan losses		8,866		31,317		34,295		77,949
Occupancy		8,821		8,931		25,970		25,877
Advertising and marketing		2,728		1,087		5,042		2,659
Depreciation and amortization		3,729		5,406		12,375		18,758
Other		7,325		7,279		23,404		21,431
Total operating expenses		45,720		72,113		144,958		199,009
Operating gross profit		8,196		12,780		36,612		54,873
Corporate and other expenses:
Corporate expenses		16,387		17,907		50,216		52,544
Depreciation and amortization		900		1,430		2,740		4,378
Interest expense, net		13,362		12,259		39,523		35,520
Goodwill impairment		—		—		11,288		—
Total corporate and other expenses		30,649		31,596		103,767		92,442
Loss from continuing operations, before tax		(22,453)		(18,816)		(67,155)		(37,569)
Provision for (benefit from) income taxes		(193)		6		83		23
Net loss	$	(22,260)	$	(18,822)	$	(67,238)	$	(37,592)
Other comprehensive income (loss):
Change in fair value of senior PIK notes		(517)		6,637		73,720		1,484
Other comprehensive income (loss):		(517)		6,637		73,720		1,484
Comprehensive income (loss)	$	(22,777)	$	(12,185)	$	6,482	$	(36,108)

See Notes to Unaudited Consolidated Financial Statements.

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CCF Holdings LLC and Subsidiaries

Consolidated Statements of Members’ Equity

Three Months and Nine Months Ended September 30, 2020 and 2019

(Dollars in thousands)

(Unaudited)


	Three Months Ended September 30, 2020
									Accumulated
									Other
	Class A Units			Class B Units			Retained		Comprehensive
	Shares	Amount		Shares	Amount		Deficit		Income		Total

Balance, June 30, 2020	850,000	$	740	142,857	$	130	$	(96,186)	$	98,345	$	3,029
Net loss	—		—	—		—		(22,260)		—		(22,260)
Change in fair value of senior PIK notes	—		—	—		—		—		(517)		(517)
Balance, September 30, 2020	850,000	$	740	142,857	$	130	$	(118,446)	$	97,828	$	(19,748)

	Three Months Ended September 30, 2019
									Accumulated
									Other
	Class A Units			Class B Units			Retained		Comprehensive
	Shares	Amount		Shares	Amount		Deficit		Income (Loss)		Total

Balance, June 30, 2019	850,000	$	740	142,857	$	130	$	(17,134)	$	1,482	$	(14,782)
Net loss	—		—	—		—		(18,822)		—		(18,822)
Change in fair value of senior PIK notes	—		—	—		—		—		6,637		6,637
Balance, September 30, 2019	850,000	$	740	142,857	$	130	$	(35,956)	$	8,119	$	(26,967)

	Nine Months Ended September 30, 2020
									Accumulated
									Other
	Class A Units			Class B Units			Retained		Comprehensive
	Shares	Amount		Shares	Amount		Deficit		Income		Total

Balance, December 31, 2019	850,000	$	740	142,857	$	130	$	(51,208)	$	24,108	$	(26,230)
Net loss	—		—	—		—		(67,238)		—		(67,238)
Change in fair value of senior PIK notes	—		—	—		—		—		73,720		73,720
Balance, September 30, 2020	850,000	$	740	142,857	$	130	$	(118,446)	$	97,828	$	(19,748)

	Nine Months Ended September 30, 2019
									Accumulated
							Retained		Other
	Class A Units			Class B Units			Earnings		Comprehensive
	Shares	Amount		Shares	Amount		(Deficit)		Income (Loss)		Total

Balance, December 31, 2018	850,000	$	740	150,000	$	130	$	1,636	$	6,635	$	9,141
Redemption of common units	—		—	(7,143)		—		—		—		—
Net loss	—		—	—		—		(37,592)		—		(37,592)
Change in fair value of senior PIK notes	—		—	—		—		—		1,484		1,484
Balance, September 30, 2019	850,000	$	740	142,857	$	130	$	(35,956)	$	8,119	$	(26,967)

See Notes to Unaudited Consolidated Financial Statements.

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CCF Holdings LLC and Subsidiaries

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2020 and 2019

(In thousands, Unaudited)


	Nine Months Ended
	September 30,
	2020		2019
Cash flows from operating activities
Net loss	$	(67,238)	$	(37,592)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses		34,295		77,949
Goodwill impairment		11,288		—
Loss on disposal of assets		1,157		320
Gain on sale of receivables		(207)		—
Depreciation		14,784		22,808
Amortization of deferred debt issuance costs		1,333		754
Amortization of intangibles		330		328
Non-cash interest on PIK notes		25,340		23,068
Right of use assets - operating leases		1,987		1,962
Changes in assets and liabilities:
Card related pre-funding and receivables		174		(74)
Other assets		7,231		(3,058)
Deferred revenue		(1,901)		(1,901)
Accrued interest		(1,155)		(261)
Money orders payable		(3,952)		(262)
Lease termination payable		—		(387)
Deferred payroll taxes		1,831		—
Accounts payable and accrued expenses		(3,917)		2,071
Net cash provided by operating activities		21,380		85,725
Cash flows from investing activities
Net receivables originated		(1,387)		(76,061)
Proceeds from sale of receivables		1,368		—
Purchase of leasehold improvements and equipment		(6,756)		(4,814)
Net cash used in investing activities		(6,775)		(80,875)
Cash flows from financing activities
Repurchase of secured notes		—		(2,000)
Proceeds from subsidiary note		—		3,000
Payments on subsidiary note		(4,095)		(77)
Debt issuance costs		(1,943)		(1,475)
Net cash used in financing activities		(6,038)		(552)
Net increase in cash and cash equivalents and restricted cash		8,567		4,298
Cash and cash equivalents and restricted cash:
Beginning		55,106		57,383
Ending	$	63,673	$	61,681


The following table reconciles cash and cash equivalents and restricted cash from the
Consolidated Balance Sheets to the above statements:
	December 31,
	2019		2018
Cash and cash equivalents	$	49,016	$	53,208
Restricted Cash		6,090		4,175
Total cash and cash equivalents and restricted cash	$	55,106	$	57,383

	September 30,
	2020		2019
Cash and cash equivalents	$	60,023	$	57,511
Restricted Cash		3,650		4,170
Total cash and cash equivalents and restricted cash	$	63,673	$	61,681

See Notes to Unaudited Consolidated Financial Statements.

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CCF Holdings LLC and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

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

Nature of business: CCF Holdings LLC (the “Company” or “CCF”) is a provider of alternative financial services to unbanked and under-banked consumers. The Company was formed in 2018 and succeeded to the business and operations of Community Choice Financial Inc.. The Company owned and operated 452 retail locations in 12 states and was licensed to deliver similar financial services over the internet in 27 states as of September 30, 2020. 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-term and medium-term consumer loans, check cashing, prepaid debit cards, and other services that address the specific needs of its individual customers.

As an “emerging growth company”, the Company is permitted to delay the adoption of new or revised accounting standards until such time as those standards apply to private companies. The Company has chosen to take advantage of the extended transition period for complying with new or revised accounting standards.

COVID-19 Pandemic: The 2019 novel coronavirus (“COVID-19”) has adversely affected, and will continue to adversely affect, economic activity globally, nationally, and locally. It is unknown the extent to which COVID-19 may spread, may have a destabilizing effect on financial and economic activity and may increasingly have the potential to negatively impact the Company’s and its customers’ costs, demand for the Company’s products and services, and the U.S. economy. These conditions could adversely affect the Company’s business, financial condition, and results of operations. Further, COVID-19 may result in health or other government authorities requiring the closure of the Company’s operations or businesses of the Company’s customers and suppliers, which could significantly disrupt the Company’s operations and the operations of the Company’s customers.

As of September 30, 2020, because of the COVID-19 pandemic, the Company had experienced a significant decline in portfolio levels and in the demand for its products and services. Declining portfolio levels will have a negative impact on operating profits and liquidity and will impact our ability to meet all debt financing and covenant obligations.

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 financial statements for the year ended December 31, 2018 included in Amendment No. 1 to the Company’s annual report on Form 10-K for the year ended December 31, 2019 filed with the SEC on October 20, 2020. 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, 2020.

On June 8, 2020, the Company received notice from its registered public accounting firm, RSM US LLP (“RSM”), that RSM resigned effective immediately due to an independence issue. RSM’s resignation was not due to any reason related to the Company’s or its predecessor’s financial reporting or accounting operations, policies, or practices. As a result of this independence issue, RSM stated that it had concluded that reliance should no longer be placed on (i) the audit report of RSM relating to the 2019 and 2018 financial statements of the Company and its predecessor, as applicable, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, (ii) the audit report of RSM relating to the financial statements of the Company and its predecessor, as applicable, for the period

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December 13, 2018 (inception of the Company) through December 31, 2018 and for the predecessor period from January 1, 2018 through December 12, 2018 included in the Company’s Registration Statement on Form S-1, and (iii) its reviews of the Company’s interim financial information for the quarters ended March 31, June 30 and September 30, 2019 and March 31, 2020. The Company has engaged a new independent registered public accounting firm to audit and review the periods noted above, as applicable. Amendment No. 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2020, were both filed on October 20, 2020.

Basis of consolidation: The accompanying consolidated financial statements include the accounts of CCF and subsidiaries. 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 (“Retail segment”) and Internet financial services (“Internet segment”).

Revenue recognition: Transactions include loans, credit service fees, check cashing, bill payment, money transfer, money order sales, and other miscellaneous products and services. The recognized revenue from these transactions is classified in the following categories:

Finance receivables fees—Advance fees and direct costs incurred for the origination of secured and unsecured short-term and medium-term consumer loans are deferred and amortized over the loan period using the interest method. 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. Revenues from short-term and medium-term consumer loans are recognized and the performance obligation is satisfied over the term of the loan.

Credit service fees—Credit service organization and credit access bureau (collectively “CSO”) fees are recognized over the arranged credit service period. ASC 606 requires product sales to be allocated based on performance obligation. CSO performance obligations include the guarantee and the arrangement of the loan. The guarantee portion of the fees are recognized over the period of the loan as the guarantee represents the primary performance obligation. The arrangement of the loan represents a small portion of the CSO fee, and the net impact resulting from the application of ASC 606 for this portion of the fee would not be material. Credit service fees are recognized and the performance obligation is satisfied over the term of the related loan.

Check cashing fees—The full amount of the check cashing fee is recognized as revenue at the time of the transaction. The revenue is recognized and the performance obligation is satisfied at the time the service is provided.

Card fees and Other—The Company acts in an agency capacity regarding bill payment services, money transfers, card products, and money orders offered and sold at its retail locations. The Company records the net amount retained as revenue because the supplier is the primary obligor in the arrangement, the amount earned by the Company is fixed, and the supplier is determined to have the ultimate credit risk. The revenue is recognized and the performance obligation is satisfied at the time the service is provided.

Disaggregation of revenues—Revenues for finance receivable and CSO fees are recognized over the term of the loan and were $30,062 and $63,630 for the three months, and $108,245 and $193,886 for the nine months ended September 30, 2020, and 2019, respectively. Revenues for check cashing, card fees, and other are recognized at the time of service and were $23,854 and $21,263 for the three months, and $73,325 and $59,996 for the nine months ended September 30, 2020, and 2019, respectively.

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The following table illustrates the disaggregation of revenues by segment for the three months and nine months ending September 30, 2020 and 2019.


	For the three months ending September 30, 2020						For the three months ending September 30, 2019
	Retail		Internet				Retail		Internet
	Segment		Segment		Total		Segment		Segment		Total
Finance receivable and CSO fees	$	23,527	$	6,535	$	30,062	$	51,953	$	11,677	$	63,630
Check cashing, card fees and other		23,673		181		23,854		20,934		329		21,263
Total revenues	$	47,200	$	6,716	$	53,916	$	72,887	$	12,006	$	84,893


	For the nine months ending September 30, 2020						For the nine months ending September 30, 2019
	Retail		Internet				Retail		Internet
	Segment		Segment		Total		Segment		Segment		Total
Finance receivable and CSO fees	$	86,220	$	22,025	$	108,245	$	161,304	$	32,582	$	193,886
Check cashing, card fees and other		72,715		610		73,325		59,102		894		59,996
Total revenues	$	158,935	$	22,635	$	181,570	$	220,406	$	33,476	$	253,882

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 5% to 27%, to charging interest up to 25% per month. 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 18.6% and 14.2% of short-term consumer loans at September 30, 2020 and December 31, 2019, respectively.

Medium-term consumer loans can be unsecured or secured with a maturity greater than ninety days and up to thirty-six months. Unsecured medium-term products typically range from $100 to $5,000, and are evidenced by a promissory note with a maturity between three and thirty-six months. These consumer loans vary in structure depending upon the applicable laws and regulations where they are offered. The medium-term consumer loans are payable in installments or provide for a line of credit with periodic payments. Secured consumer loans with a maturity greater than ninety days are included in this category and represented 14.0% and 15.4% of medium-term consumer loans at September 30, 2020, and December 31, 2019, respectively.

Allowance for loan losses: Provisions for loan losses are charged to income in amounts sufficient to maintain an adequate allowance for loan losses, an adequate accrual for losses related to guaranteed loans processed for third-party lenders under the CSO program, and an accrual for the debt buyer liability. 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 debt buyer liability, 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 an electronic payment 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. The Company had $879 and $1,560 of loans in non-accrual status as of September 30, 2020 and

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December 31, 2019, respectively. The amount of the resulting charge-off includes unpaid principal, accrued interest and any uncollected fees, if applicable.

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. The Company accrues interest on past-due loans until charge off. The amount of the resulting charge-off includes unpaid principal, accrued interest and any uncollected fees, if applicable.

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.

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.

Goodwill and other intangible assets: 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. Changes in estimates of cash flows and fair value, however, could affect the valuation.

Due to the macroeconomic effects of the COVID-19 pandemic, the Company conducted a test for impairment of goodwill for the Retail segment as of March 31, 2020, and recorded an impairment of $11,288. The 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 Company’s goodwill was fully impaired as of March 31, 2020.

The Company’s other intangible assets consist of a trade name and favorable lease. The amount recorded for other intangible assets is amortized using the straight-line method over seven years. Intangible amortization expense was $110 and $110 for the three months, and $330 and $328 for the nine months ended September 30, 2020, and 2019, respectively. Intangible assets were determined to be not impaired as of September 30, 2020.

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.

Revenue recognized from the upfront fees totaled $634 and $634 for the three months ended September 30, 2020 and 2019, respectively, and $1,901 and $1,901 for the nine months ended September 30, 2020 and 2019, respectively, and is included in Other revenues on the consolidated statement of operations.

Debt buyer liability: The Company records a liability for the secured and unsecured revolving loans offered by third parties expected to default, as the Company is required to purchase loans that default per debt buying agreements. This liability is disclosed as part of accounts payable and accrued liabilities on the consolidated balance sheet.

Deferred payroll taxes: The Company recorded a liability for the deferral of its share of payroll taxes as an option to improve liquidity offered by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act allows employers to defer deposits of the employer’s portion of the FICA tax due from March 27, 2020, through December 31, 2020. Half of the deferred amount is due by December 31, 2021, with the other half due by December 31, 2022.

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

●

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

●

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

●

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

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

In determining the appropriate levels, the Company performed a detailed analysis of the assets and liabilities that are subject to ASC 820-10. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The Company’s financial instruments consist primarily of cash and cash equivalents, finance receivables, restricted cash, and notes payable. For all such instruments, including notes payable at September 30, 2020, and December 31, 2019, 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, 2020 and December 31, 2019, approximates carrying value and is measured using internal valuation inputs including historical loan loss experience, delinquency, overall portfolio quality, and current economic conditions.

The fair value of the PIK notes was determined at September 30, 2020 and December 31, 2019. As more fully described in Note 5, the fair value of the PIK notes was determined using an approach that considered both a Black Scholes option price methodology and the intrinsic value of the notes on an ‘‘as-if-converted’’ basis.

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	September 30, 2020
	Carrying
	Amount		Fair Value		Level
Financial assets:
Cash and cash equivalents	$	60,023	$	60,023	1
Restricted cash		3,650		3,650	1
Finance receivables		47,926		47,926	3
Financial liabilities:
Senior PIK Notes		17,070		17,070	3
Secured Note Payable		40,000		40,000	2
Subsidiary Note payable		70,636		70,636	2


	December 31, 2019
	Carrying
	Amount		Fair Value		Level
Financial assets:
Cash and cash equivalents	$	49,016	$	49,016	1
Restricted cash		6,090		6,090	1
Finance receivables		81,995		81,995	3
Financial liabilities:
Senior PIK Notes		74,243		74,243	3
Secured Note Payable		40,000		40,000	2
Subsidiary Note payable		74,731		74,731	2

Recent Accounting Pronouncements: In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. Any impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, however, the loss recognized should not exceed the total amount of goodwill. This guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment, and if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. This guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021 for emerging growth companies. The Company elected to early adopt the provisions of ASU 2017-04 during the three months ended March 31, 2020.

Subsequent events: The Company has evaluated its subsequent events (events occurring after September 30, 2020) through the issuance date of November 13, 2020.

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

Finance receivables representing amounts due from customers for advances at September 30, 2020, and December 31, 2019, consisted of the following:


	September 30,		December 31,
	2020		2019
Short-term consumer loans:
Secured	$	6,895	$	8,774
Unsecured		30,086		53,199
Total short-term consumer loans		36,981		61,973
Medium-term consumer loans
Secured		3,225		5,612
Unsecured		19,876		30,745
Total medium-term consumer loans		23,101		36,357
Total gross receivables		60,082		98,330
Unearned advance fees, net of deferred loan origination costs		(1,156)		(2,507)
Finance receivables before allowance for loan losses		58,926		95,823
Allowance for loan losses		(11,000)		(13,828)
Finance receivables, net	$	47,926	$	81,995

Finance receivables, net
Current portion	$	47,395	$	79,692
Non-current portion		531		2,303
Total finance receivables, net	$	47,926	$	81,995

Changes in the allowance for loan losses by product type for the three months ended September 30, 2020, are as follows:


													Allowance as
	Balance								Balance		Receivables		a percentage
	7/1/2020		Provision		Charge-Offs		Recoveries		9/30/2020		9/30/2020		of receivable
Short-term consumer loans	$	1,602	$	3,984	$	(8,055)	$	4,238	$	1,769	$	36,981	4.78	%
Medium-term consumer loans		8,997		2,331		(2,763)		666		9,231		23,101	39.96	%
	$	10,599	$	6,315	$	(10,818)	$	4,904	$	11,000	$	60,082	18.31	%

The provision for loan losses for the three months ended September 30, 2020, also includes losses from returned items from check cashing of $721.

The provision for short-term consumer loans of $3,984 is net of debt sales of $453 for the three months ended September 30, 2020.

The provision for medium-term consumer loans of $2,331 is net of debt sales of $238 for the three months ended September 30, 2020.

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The Company evaluates all short-term and medium-term consumer loans collectively for impairment, except for individually evaluating certain unsecured 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 certain unsecured 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 $7 and is included in the provision for medium-term consumer loans for the three months ended September 30, 2020. For these loans evaluated for impairment, there were $1 of payment defaults during the three months ended September 30, 2020. The troubled debt restructurings during the three months ended September 30, 2020, are subject to an allowance of $1 with a net carrying value of $8 at September 30, 2020.

Changes in the allowance for loan losses by product type for the nine months ended September 30, 2020, are as follows:


													Allowance as
	Balance								Balance		Receivables		a percentage
	1/1/2020		Provision		Charge-Offs		Recoveries		9/30/2020		9/30/2020		of receivables
Short-term consumer loans	$	2,654	$	12,319	$	(32,177)	$	18,973	$	1,769	$	36,981	4.78	%
Medium-term consumer loans		11,174		11,375		(15,632)		2,314		9,231		23,101	39.96	%
	$	13,828	$	23,694	$	(47,809)	$	21,287

Price	-0.00	EPS	-18
Shares	8	P/E	0
MCap	-0	P/FCF	-0
Net Debt	-18	EBIT	-153
TEV	-18	TEV/EBIT	0
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

EX-10.3	ccfi-20200930ex1030cdff0.htm
EX-31.1	ccfi-20200930ex311a5ee89.htm
EX-31.2	ccfi-20200930ex31202a9da.htm
EX-32.1	ccfi-20200930ex321614b1c.htm
EX-32.2	ccfi-20200930ex322f7bc57.htm

CCFI 10Q Quarterly Report

Community Choice Financial Earnings 2020-09-30