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. Business Segments
Note 11. Income Taxes
Note 12. Transactions with Variable Interest Entities
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-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

Community Choice Financial Earnings 2020-09-30

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-20200930x10q.htm 10-Q

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.


CCF Holdings LLC and Subsidiaries

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

Table of Contents

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

2


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.

3


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.

4


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.

5


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.

6


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

7


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.

8


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

9


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