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 June 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 June 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 June 30, 2020

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		Page
	Financial Information

Item 1.	Financial Statements

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

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

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

	Consolidated Statements of Cash Flows for the six months ended June 30, 2020 (unaudited) and June 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	27-46

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46

Item 4.	Controls and Procedures	46

Part II	Other Information	47

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47-48

Item 6.	Exhibits	49

	Signatures	50

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CCF Holdings LLC and Subsidiaries

Consolidated Balance Sheets

June 30, 2020 and December 31, 2019

(In thousands, except share data)

(unaudited)


	June 30,		December 31,
	2020		2019
Assets
Current Assets
Cash and cash equivalents	$	74,362	$	49,016
Restricted cash		4,090		6,090
Finance receivables, net of allowance for loan losses of $10,278 and $12,869		42,173		79,692
Card related pre-funding and receivables		843		970
Other current assets		6,350		10,273
Total current assets		127,818		146,041
Noncurrent Assets
Finance receivables, net of allowance for loan losses of $321 and $959		563		2,303
Property, leasehold improvements and equipment, net		34,068		40,577
Right of use assets - operating leases		37,022		36,728
Goodwill		—		11,288
Other intangible assets		2,422		2,650
Security deposits		3,500		7,238
Total assets	$	205,393	$	246,825
Liabilities and Members' Equity
Current Liabilities
Accounts payable and accrued liabilities	$	26,369	$	30,195
Money orders payable		4,957		9,448
Accrued interest		2,530		2,544
Current portion of operating lease obligation		13,040		12,878
Current portion of subsidiary notes payable, net of deferred issuance cost of $1,408 and $1		68,578		127
Deferred revenue		2,535		2,535
Total current liabilities		118,009		57,727
Noncurrent Liabilities
Deferred payroll taxes		768		—
Operating lease obligation		25,169		24,403
Subsidiary notes payable, net of deferred issuance costs of $-0- and $372		681		74,231
Secured notes payable		40,000		40,000
Senior PIK notes, at fair value		16,553		74,243
Deferred revenue		1,184		2,451
Total liabilities		202,364		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 June 30, 2020 and December 31, 2019		870		870
Retained deficit		(96,186)		(51,208)
Accumulated other comprehensive income		98,345		24,108
Total members' equity (deficit)		3,029		(26,230)
Total liabilities and members' equity	$	205,393	$	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 Six Months Ended June 30, 2020 and 2019

(In thousands)

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
		2020		2019		2020		2019
Revenues:
Finance receivable fees	$	25,993	$	46,633	$	70,508	$	95,462
Credit service fees		2,039		16,688		7,675		34,794
Check cashing fees		14,147		12,774		29,336		25,294
Card fees		2,906		2,681		5,399		5,896
Other		6,590		3,717		14,736		7,543
Total revenues		51,675		82,493		127,654		168,989
Operating expenses:
Salaries		12,759		17,396		29,622		34,242
Provision for loan losses		5,700		25,346		25,429		46,632
Occupancy		8,373		8,409		17,149		16,947
Advertising and marketing		1,504		795		2,314		1,572
Depreciation and amortization		4,066		5,147		8,646		13,352
Other		7,600		7,158		16,078		14,151
Total operating expenses		40,002		64,251		99,238		126,896
Operating gross profit		11,673		18,242		28,416		42,093
Corporate and other expenses:
Corporate expenses		15,615		17,538		33,830		34,637
Depreciation and amortization		883		1,467		1,840		2,948
Interest expense, net		12,961		11,875		26,160		23,261
Goodwill impairment		—		—		11,288		—
Total corporate and other expenses		29,459		30,880		73,118		60,846
Loss from continuing operations, before tax		(17,786)		(12,638)		(44,702)		(18,753)
Provision for income taxes		218		4		276		17
Net loss	$	(18,004)	$	(12,642)	$	(44,978)	$	(18,770)
Other comprehensive income (loss):
Change in fair value of senior PIK notes		36,664		9,492		74,237		(5,153)
Other comprehensive income (loss):		36,664		9,492		74,237		(5,153)
Comprehensive income (loss)	$	18,660	$	(3,150)	$	29,259	$	(23,923)

See Notes to Unaudited Consolidated Financial Statements.

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CCF Holdings LLC and Subsidiaries

Consolidated Statements of Members’ Equity

Three Months and Six Months Ended June 30, 2020 and 2019

(Dollars in thousands)

(Unaudited)


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

Balance, March 31, 2020	850,000	$	740	142,857	$	130	$	(78,182)	$	61,681	$	(15,631)
Net loss	—		—	—		—		(18,004)		—		(18,004)
Change in fair value of senior PIK notes	—		—	—		—		—		36,664		36,664
Balance, June 30, 2020	850,000	$	740	142,857	$	130	$	(96,186)	$	98,345	$	3,029

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

Balance, March 31, 2019	850,000	$	740	142,857	$	130	$	(4,492)	$	(8,010)	$	(11,632)
Net loss	—		—	—		—		(12,642)		—		(12,642)
Change in fair value of senior PIK notes	—		—	—		—		—		9,492		9,492
Balance, June 30, 2019	850,000	$	740	142,857	$	130	$	(17,134)	$	1,482	$	(14,782)

	Six Months Ended June 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	—		—	—		—		(44,978)		—		(44,978)
Change in fair value of senior PIK notes	—		—	—		—		—		74,237		74,237
Balance, June 30, 2020	850,000	$	740	142,857	$	130	$	(96,186)	$	98,345	$	3,029

	Six Months Ended June 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	—		—	—		—		(18,770)		—		(18,770)
Change in fair value of senior PIK notes	—		—	—		—		—		(5,153)		(5,153)
Balance, June 30, 2019	850,000	$	740	142,857	$	130	$	(17,134)	$	1,482	$	(14,782)

See Notes to Unaudited Consolidated Financial Statements.

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CCF Holdings LLC and Subsidiaries

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2020 and 2019

(In thousands, Unaudited)


	Six Months Ended
	June 30,
	2020		2019
Cash flows from operating activities
Net loss	$	(44,978)	$	(18,770)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses		25,429		46,632
Goodwill impairment		11,288		—
Loss on disposal of assets		840		246
Gain on sale of receivables		(207)		—
Depreciation		10,265		16,082
Amortization of deferred debt issuance costs		909		392
Amortization of intangibles		220		217
Non-cash interest on PIK notes		16,621		14,955
Right of use assets - operating leases		634		1,013
Changes in assets and liabilities:
Card related pre-funding and receivables		127		(92)
Other assets		7,669		(10,894)
Deferred revenue		(1,267)		(1,267)
Accrued interest		(88)		20
Money orders payable		(4,491)		(1,350)
Lease termination payable		—		(387)
Deferred payroll taxes		768		—
Accounts payable and accrued expenses		(3,826)		8,161
Net cash provided by operating activities		19,913		54,958
Cash flows from investing activities
Net receivables collected (originated)		12,669		(42,288)
Proceeds from sale of receivables		1,368		—
Purchase of leasehold improvements and equipment		(4,597)		(2,666)
Net cash provided by (used in) investing activities		9,440		(44,954)
Cash flows from financing activities
Repurchase of secured notes		—		(2,000)
Payments on subsidiary note		(4,064)		(57)
Debt issuance costs		(1,943)		(1,445)
Net cash used in financing activities		(6,007)		(3,502)
Net increase in cash and cash equivalents and restricted cash		23,346		6,502
Cash and cash equivalents and restricted cash:
Beginning		55,106		57,383
Ending	$	78,452	$	63,885


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

	June 30,
	2020		2019
Cash and cash equivalents	$	74,362	$	59,740
Restricted Cash		4,090		4,145
Total cash and cash equivalents and restricted cash	$	78,452	$	63,885

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 467 retail locations in 12 states and was licensed to deliver similar financial services over the internet in 28 states as of June 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.

In response to the coronavirus, the Company had most of its corporate employees working remotely through June 29, 2020 and has restricted operating hours at certain retail locations to ensure the safety or our employees and customers. As of June 30, 2020, the Company experienced a significant decline in the demand for its products and services, and portfolio levels have declined because of the COVID-19 pandemic. 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, 2019, on Form 10-K filed with the Securities & Exchange Commission on March 12, 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

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report of RSM relating to the financial statements of the Company and its predecessor, as applicable, for the period 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.

Reclassifications: Certain amounts reported in the 2019 consolidated financial statements have been reclassified to conform to classifications presented in the 2020 consolidated financial statements, without affecting the previously reported net income or members’ equity. See Note 7 for further details.

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 $28,032 and $63,321 for the three months, and $78,183 and $130,256 for the six months ended June 30, 2020, and 2019, respectively. Revenues for check cashing, card fees, and other are recognized at the time of service and were $23,643 and $19,172 for the three months, and $49,471 and $38,733 for the six months ended June 30, 2020, and 2019, respectively.

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


	For the three months ending June 30, 2020						For the three months ending June 30, 2019
	Retail		Internet				Retail		Internet
	Segment		Segment		Total		Segment		Segment		Total
Finance receivable and CSO fees	$	22,231	$	5,801	$	28,032	$	52,658	$	10,663	$	63,321
Check cashing, card fees and other		23,496		147		23,643		18,877		295		19,172
Total revenues	$	45,727	$	5,948	$	51,675	$	71,535	$	10,958	$	82,493


	For the six months ending June 30, 2020						For the six months ending June 30, 2019
	Retail		Internet				Retail		Internet
	Segment		Segment		Total		Segment		Segment		Total
Finance receivable and CSO fees	$	62,693	$	15,490	$	78,183	$	109,352	$	20,904	$	130,256
Check cashing, card fees and other		49,041		430		49,471		38,167		566		38,733
Total revenues	$	111,734	$	15,920	$	127,654	$	147,519	$	21,470	$	168,989

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 19.2% and 14.2% of short-term consumer loans at June 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 11.9% and 15.4% of medium-term consumer loans at June 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

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on the product. The Company had $760 and $1,560 of loans in non-accrual status as of June 30, 2020 and 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 $107 for the three months, and $220 and $217 for the six months ended June 30, 2020, and 2019, respectively. Intangible assets were determined to be not impaired as of June 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 June 30, 2020 and 2019, respectively, and $1,267 and $1,267 for the six months ended June 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,

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through December 31, 2020. Half of the deferred amount is due by December 31, 2021, with the other half due by December 31, 2022.

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 June 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 June 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 June 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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	June 30, 2020
	Carrying
	Amount		Fair Value		Level
Financial assets:
Cash and cash equivalents	$	74,362	$	74,362	1
Restricted cash		4,090		4,090	1
Finance receivables		42,736		42,736	3
Financial liabilities:
Senior PIK Notes		16,553		16,553	3
Secured Note Payable		40,000		40,000	2
Subsidiary Note payable		70,667		70,667	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 June 30, 2020) through the issuance date of August 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 June 30, 2020, and December 31, 2019, consisted of the following:


	June 30,		December 31,
	2020		2019
Short-term consumer loans:
Secured	$	6,245	$	8,774
Unsecured		26,239		53,199
Total short-term consumer loans		32,484		61,973
Medium-term consumer loans
Secured		2,607		5,612
Unsecured		19,311		30,745
Total medium-term consumer loans		21,918		36,357
Total gross receivables		54,402		98,330
Unearned advance fees, net of deferred loan origination costs		(1,067)		(2,507)
Finance receivables before allowance for loan losses		53,335		95,823
Allowance for loan losses		(10,599)		(13,828)
Finance receivables, net	$	42,736	$	81,995

Finance receivables, net
Current portion	$	42,173	$	79,692
Non-current portion		563		2,303
Total finance receivables, net	$	42,736	$	81,995

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


													Allowance as
	Balance								Balance		Receivables		a percentage
	4/1/2020		Provision		Charge-Offs		Recoveries		6/30/2020		6/30/2020		of receivable
Short-term consumer loans	$	2,146	$	266	$	(6,754)	$	5,944	$	1,602	$	32,484	4.93	%
Medium-term consumer loans		9,274		3,488		(4,786)		1,021		8,997		21,918	41.05	%
	$	11,420	$	3,754	$	(11,540)	$	6,965	$	10,599	$	54,402	19.48	%

The provision for loan losses for the three months ended June 30, 2020, also includes losses from returned items from check cashing of $712.

The provision for short-term consumer loans of $266 is net of debt sales of $515 for the three months ended June 30, 2020.

The provision for medium-term consumer loans of $3,488 is net of debt sales of $400 for the three months ended June 30, 2020.

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 $12 and is included in the provision for medium-term consumer loans for the three months ended June 30, 2020. For these loans evaluated for impairment, there were $9 of payment defaults during the three months ended June 30, 2020. The troubled debt restructurings during the three months ended June 30, 2020, are subject to an allowance of $3 with a net carrying value of $11 at June 30, 2020.

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


													Allowance as
	Balance								Balance		Receivables		a percentage
	1/1/2020		Provision		Charge-Offs		Recoveries		6/30/2020		6/30/2020		of receivables
Short-term consumer loans	$	2,654	$	8,335	$	(24,122)	$	14,735	$	1,602	$	32,484	4.93	%
Medium-term consumer loans		11,174		9,044		(12,869)		1,648		8,997		21,918	41.05	%
	$	13,828	$	17,379	$	(36,991)	$	16,383	$	10,599	$	54,402	19.48	%

The provision for loan losses for the six months ended June 30, 2020, also includes losses from returned items from check cashing of $2,032.

The provision for short-term consumer loans of $8,335 is net of debt sales of $515 for the six months ended June 30, 2020.

The provision for medium-term consumer loans of $9,044 is net of debt sales of $400 for the six months ended June 30, 2020.

The provision and subsequent charge off related to troubled debt restructurings totaled $23 and is included in the provision for medium-term consumer loans for the six months ended June 30, 2020. For these loans evaluated for impairment, there were $31 of payment defaults during the six months ended June 30, 2020. The troubled debt restructurings during the six months ended June 30, 2020, are subject to an allowance of $5 with a net carrying value of $15 at June 30, 2020.

Changes in the allowance for loan losses by product type for the three months ended June 30, 2019, are as follows:


													Allowance as
	Balance								Balance		Receivables		a percentage
	4/1/2019		Provision		Charge-Offs		Recoveries		6/30/2019		6/30/2019		of receivable
Short-term consumer loans	$	2,315	$	9,066	$	(16,684)	$	7,877	$	2,574	$	58,014	4.44	%
Medium-term consumer loans		3,724		7,458		(1,290)		983		10,875		37,838	28.74	%
	$	6,039	$	16,524	$	(17,974)	$	8,860	$	13,449	$	95,852	14.03	%

The provision for loan losses for the three months ended June 30, 2019, also includes losses from returned items from check cashing of $1,243.

The provision for short-term consumer loans of $9,066 is net of debt sales of $475 for the three months ended June 30, 2019.

The provision for medium-term consumer loans of $7,458 is net of debt sales of $323 for the three months ended June 30, 2019.

The provision and subsequent charge off related to troubled debt restructurings totaled $8 and is included in the provision for medium-term consumer loans for the three months ended June 30, 2019. For these loans evaluated for impairment, there were $22 of payment defaults during the three months ended June 30, 2019. The troubled debt restructurings during the three months ended June 30, 2019, are subject to an allowance of $2 with a net carrying value of $5 at June 30, 2019.

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Changes in the allowance for loan losses by product type for the six months ended June 30, 2019, are as follows:


													Allowance as
	Balance								Balance		Receivables		a percentage
	1/1/2019		Provision		Charge-Offs		Recoveries		6/30/2019		6/30/2019		of receivables
Short-term consumer loans	$	2,018	$	16,638	$	(33,087)	$	17,005	$	2,574	$	58,014	4.44	%
Medium-term consumer loans		1,456		14,391		(6,923)		1,951		10,875		37,838	28.74	%
	$	3,474	$	31,029	$	(40,010)	$	18,956	$	13,449	$	95,852	14.03	%

The provision for loan losses for the six months ended June 30, 2019, also includes losses from returned items from check cashing of $2,266.

The provision for short-term consumer loans of $16,638 is net of debt sales of $475 for the six months ended June 30, 2019.

The provision for medium-term consumer loans of $14,391 is net of debt sales of $323 for the six months ended June 30, 2019.

The provision and subsequent charge off related to troubled debt restructurings totaled $19 and is included in the provision for medium-term consumer loans for the six months ended June 30, 2019. For these loans evaluated for impairment, there were $45 of payment defaults during the six months ended June 30, 2019. The troubled debt restructurings during the six months ended June 30, 2019, are subject to an allowance of $5 with a net carrying value of $11 at June 30, 2019.

The Company has subsidiaries that facilitate third-party lender loans under the CSO model. Changes in the accrual for third-party lender losses for the three months and six months ended June 30, 2020, and 2019, were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019

Short-term balance, beginning of period	$	811	$	2,901	$	1,304	$	4,454
Provision for loan losses		492		200		2,617		3,056
Charge-offs, net		(633)		(1,974)		(3,251)		(6,383)
Short-term balance, end of period	$	670	$	1,127	$	670	$	1,127

Medium-term balance, beginning of period	$	858	$	2,953	$	1,266	$	59
Provision for loan losses		(563)		3,115		(713)		6,017
Charge-offs, net		(284)		(2,382)		(542)		(2,390)
Medium-term balance, end of period	$	11	$	3,686	$	11	$	3,686

Total balance, beginning of period	$	1,669	$	5,854	$	2,570	$	4,513
Provision for loan losses		(71)		3,315		1,904		9,073
Charge-offs, net		(917)		(4,356)		(3,793)		(8,773)
Total balance, end of period	$	681	$	4,813	$	681	$	4,813

A subsidiary of the Company offers a CSO product in Texas, and another subsidiary offered a CSO product in Ohio until April 2019, to assist consumers in obtaining credit with unaffiliated third-party lenders. Ohio House Bill 123 (“HB123”) prohibits CSO transactions in Ohio on or after April 28, 2019, at which time, the Ohio CSO product was no longer offered. Total gross finance receivables for which the Company has recorded an accrual for third-party lender losses totaled $2,733 and $12,096 at June 30, 2020, and December 31, 2019, respectively, and the corresponding guaranteed consumer loans are disclosed as an off-balance sheet arrangement. The total gross finance receivables for the Ohio CSO product consist of $113 and $7,143 in medium-term loans at June 30, 2020, and December 31, 2019, respectively. The total gross finance receivables for the Texas CSO product consist of $2,620 and $4,953 in short-term

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loans at June 30, 2020 and December 31, 2019, respectively. The provision for short-term third-party lender losses of $492 and $2,617 for the three months and six months ending June 30, 2020 is net of debt sales of $103, respectively. The provision for short-term third-party lender losses of $200 and $3,056 for the three months and six months ending June 30, 2019 is net of debt sales of $249 and $249, respectively.

For the Ohio CSO Program, the Company was required to purchase $41 and $2,310 of short-term loans and $748 and $3,011 of medium-term loans during the three months, and $121 and $12,209 of short-term loans and $1,364 and $3,073 of medium-term loans during the six months ended June 30, 2020, and 2019, respectively. As these loans were in default when purchased, they met the Company’s policy and were fully charged-off at acquisition. The Company recognized recoveries of $134 and $2,397 of short-term and $469 and $520 of medium-term collections on these loans during the three months, and $172 and $9,333 of short-term and $837 and $578 of medium-term collections on these loans during the six months ended June 30, 2020, and 2019, respectively.

For the Texas CSO Program, the Company was required to purchase $2,158 and $3,437 of short-term loans during the three months, and $6,631 and $5,984 of short-term loans during the six months ended June 30, 2020 and 2019, respectively. As these loans were in default when purchased, they met the Company’s policy and were fully charged-off at acquisition. The Company recognized recoveries of $1,565 and $1,310 of short-term collections on these loans during the three months, and $3,672 and $2,516 of short-term collections on these loans during the six months ended June 30, 2020, and 2019, respectively.

Additionally, certain subsidiaries of ours entered debt buying agreements with other third parties whereby the subsidiaries will purchase certain delinquent loans. Total gross finance receivables for which the Company recorded a debt buyer liability was $16,414 and $28,444 and the amount reserved for the debt buyer liability was $3,442 and $3,474 as of June 30, 2020 and December 31, 2019, respectively. The purchase price for any delinquent loan is equal to an agreed upon percentage of the unpaid principal balance and accrued interest and fees. The Company records these at fair value and the difference between the purchase price and expected recoverability is charged through the provision for loan losses. The Company has determined the fair value at repurchase based on a historical review of collections on defaulted or delinquent loans. The Company will sell to a third-party or will charge-off the remaining balance after a certain time period of collections activity.

Under the debt buying agreements, the Company’s subsidiaries purchased $2,128 and $6,244 of loans and recognized recoveries of $857 and $2,098 of collections on these loans during the three months and six months ended June 30, 2020, and purchased $509 of loans and recognized recoveries of $68 of collections on these loans during the three months and six months ended June 30, 2019, respectively.

Changes in the accrual for the debt buyer liability for the three months and six months ended June 30, 2020, were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019

Balance, beginning of period	$	3,408	$	-	$	3,474	$	-
Provision for loan losses		1,305		4,264		4,114		4,264
Charge-offs, net		(1,271)		(441)		(4,146)		(441)
Balance, end of period	$	3,442	$	3,823	$	3,442	$	3,823

The Company considers the near-term repayment performance of finance receivables as its primary credit quality indicator. The Company performs credit checks through consumer reporting agencies on certain borrowers. If a third-party lender provides the advance, the applicable third-party lender decides whether to approve the loan and establishes all the underwriting criteria and terms, conditions, and features of the customer’s loan agreement.

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The aging of receivables at June 30, 2020, and December 31, 2019, were as follows:


	June 30, 2020				December 31, 2019
Current finance receivables	$	48,930	89.9	%	$	86,935	88.4	%
Past due finance receivables (1 - 30 days)
Secured short-term consumer loans		800	1.5	%		1,513	1.5	%
Unsecured short-term consumer loans		866	1.6	%		1,132	1.2	%
Short-term consumer loans		1,666	3.1	%		2,645	2.7	%
Secured medium-term consumer loans		542	1.0	%		1,321	1.3	%
Unsecured medium-term consumer loans		1,935	3.6	%		4,241	4.4	%
Medium-term consumer loans		2,477	4.6	%		5,562	5.7	%
Total past due finance receivables (1 - 30 days)		4,143	7.7	%		8,207	8.4	%
Past due finance receivables (31 - 60 days)
Secured medium-term consumer loans		169	0.3	%		461	0.5	%
Unsecured medium-term consumer loans		865	1.6	%		2,373	2.4	%
Medium-term consumer loans		1,034	1.9	%		2,834	2.9	%
Total past due finance receivables (31 - 60 days)		1,034	1.9	%		2,834	2.9	%
Past due finance receivables (61 - 90 days)
Secured medium-term consumer loans		15	0.0	%		10	-	%
Unsecured medium-term consumer loans		280	0.5	%		344	0.3	%
Medium-term consumer loans		295	0.5	%		354	0.3	%
Total past due finance receivables (61 - 90 days)		295	0.5	%		354	0.3	%
Total delinquent		5,472	10.1	%		11,395	11.6	%
	$	54,402	100.0	%	$	98,330	100.0	%
Finance receivables in non-accrual status	$	760	1.4	%	$	1,560	1.6	%

Note 3. Related Party Transactions and Balances

There were no new significant related party transactions, or material changes to existing related party transactions, during the six months ended June 30, 2020.

Note 4. Goodwill and Other Intangible Assets

The following table summarizes goodwill and other intangible assets as of June 30, 2020 and December 31, 2019:


	June 30,		December 31,
	2020		2019
Goodwill	$	—	$	11,288

Other intangible assets, net:
Trade names	$	2,403	$	2,624
Favorable lease		19		26
	$	2,422	$	2,650

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.

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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. For the discounted cash flow model, the most significant inputs were revenue and EBITDA projections, expected changes in working capital, and capital expenditure needs. The discount rate used in the model was approximately 17.0%. The Company’s goodwill was fully impaired as of March 31, 2020.

The carrying amounts of goodwill by reportable segment at June 30, 2020 and December 31, 2019 were as follows:


	June 30, 2020						December 31, 2019
	Retail		Internet				Retail		Internet
	Financial Services		Financial Services		Total		Financial Services		Financial Services		Total
Goodwill	$	11,288	$	—	$	11,288	$	11,288	$	—	$	11,288
Accumulated impairment losses		(11,288)		—		(11,288)		-		—		—
	$	—	$	—	$	—	$	11,288	$	—	$	11,288

Intangible amortization expense was $110 and $107 for the three months, and $220 and $217 for the six months ended June 30, 2020, and 2019, respectively. There were no significant changes to other intangible assets during the six months ended June 30, 2020. Intangible assets were determined to be not impaired as of June 30, 2020.

Note 5. Pledged Assets and Debt

PIK notes payable at June 30, 2020 and December 31, 2019 consisted of the following:


	June 30, 2020						December 31, 2019
	Principal		Discount		Fair Value		Principal		Discount		Fair Value
Senior PIK notes, 10.750% interest payable in-kind, due December 2023	$	324,408	$	307,855	$	16,553	$	307,860	$	233,617	$	74,243
		324,408		307,855		16,553		307,860		233,617		74,243
Less current maturities		—		—		—		—		—		—
Long-term portion	$	324,408	$	307,855	$	16,553	$	307,860	$	233,617	$	74,243

The Company elected to apply the fair value option to the PIK Notes because the notes were initially recognized at a significant discount, all subsequent interest will be paid-in kind rather than in cash, and management expects it to be likely that the notes will be converted to equity upon maturity. For these reasons, management believes reporting the PIK Notes at fair value provides better information to the users of the Company’s financial statements. The fair value option was not elected for the Company’s other debt obligations because they do not have the same characteristics as the PIK Notes.

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. This approach was selected because the PIK Notes are expected to be converted to equity upon redemption and the face value of the PIK Notes is greater than the enterprise value of the Company. Significant assumptions used in the Black Scholes option price methodology include the following:

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	June 30,		December 31,
	2020		2019
Risk-free interest rate		0.20%		1.65%
Dividend yield		0.00%		0.00%
Expected volatility		47.90%		39.30%
Expected term (years)		3.45		3.95

The risk-free interest rate is based on the yield on 5-year Treasury bonds, and the expected volatility was determined using the guideline public company method. The expected term is based on when management expects the PIK Notes to be redeemed for equity. The intrinsic value at each measurement date is based on the estimated enterprise value adjusted for net debt, and assumes a redemption of all outstanding PIK Notes at that time. An average of the allocated value from the Black Scholes option price methodology and the intrinsic value is used to estimate fair value at each measurement date.

The change in the fair value of the PIK Notes of $36,664 and $9,492 during the three months ended, and $74,237 and ($5,153) during the six months ended June 30, 2020, and 2019, respectively, has been recognized in other comprehensive income as the entire change in fair value is attributable to the instrument-specific credit risk of the PIK Notes. We measure the fair value of the PIK Notes on a quarterly basis using a similar methodology, unless there is a quoted market price that can be used instead.

Interest on the PIK Notes accrues at the rate of 10.750% per annum and is payable by increasing the principal amount of the PIK Notes. Interest is payable semiannually in arrears for the prior six-month period on June 15 and December 15 to the Holders of PIK Notes of record on the immediately preceding June 1 and December 1. Interest on the PIK Notes is accrued and recorded as accrued interest until June 15 and December 15, at which time the accrual is released and the additional principal amount is recorded. The outstanding principal amount of the PIK Notes was increased by $16,547 on June 15, 2020, in lieu of payment of accrued interest. Accrued interest for the PIK Notes at June 30, 2020, and December 31, 2019, was $1,453 and $1,379, respectively, and is included as a current liability on the Consolidated Balance Sheet.

On December 12, 2018, the Revolving Credit Agreement (which is an intercompany obligation and eliminated upon consolidation) was simultaneously amended and restated. The Revolving Credit Agreement initially provided for borrowings of up to $42,000 and had a maturity date of June 15, 2023. All borrowings under the Revolving Credit Agreement are secured by substantially all of the assets of CCF OpCo, LLC (“CCF OpCo”), CCF Intermediate Holdings LLC, a Delaware limited liability company, the sole member of CCF OpCo and our wholly owned subsidiary and certain of CCF OpCo’s subsidiaries. The Revolving Credit Agreement is guaranteed by certain subsidiaries of CCF OpCo. We discuss this intercompany obligation because the intercompany obligation (and the collateral securing this intercompany obligation) has been given as security for the obligations under the Secured Notes. Borrowings under the Revolving Credit Agreement bear interest at a rate of 9.00% per annum. Those interest payments are used to fund the interest payments on the Secured Notes.

Secured notes payable at June 30, 2020, and December 31, 2019, consisted of the following:


	June 30, 2020						December 31, 2019
			Deferred						Deferred
			Issuance		Net				Issuance		Net
	Principal		Costs		Principal		Principal		Costs		Principal
$40,000 Secured note payable, 9.00%, collateralized by all Guarantor company assets, due June 2023	$	40,000	$	—	$	40,000	$	40,000	$	—	$	40,000
		40,000		—		40,000		40,000		—		40,000
Less current maturities		—		—		—		—		—		—
Long-term portion	$	40,000	$	—	$	40,000	$	40,000	$	—	$	40,000

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On December 12, 2018, CCF Financial Issuer, LLC (“CCF Issuer”) issued an aggregate principal amount of $42,000 in Secured Notes to previous holders of secured obligations. The Secured Notes bear interest at 9.00% per annum and mature on June 15, 2023. Pursuant to the indenture dated as of September 6, 2018, CCF Issuer and Community Choice Financial Holdings LLC each granted a pledge over all of their respective assets. CCF Issuer was also required to pledge its interests in the Revolving Credit Agreement and the security granted pursuant thereto as collateral for the obligations under the Revolving Credit Agreement. The SPV Indenture also contains restrictive covenants that limit our subsidiaries’ ability to incur additional indebtedness, pay dividends on or make other distributions or repurchase our capital stock or the capital stock of our subsidiaries, make certain investments, enter into certain types of transactions with affiliates, create liens or merge with or into other companies.

On January 15, 2019, the Company repaid $2,000 of the outstanding borrowings under the Credit Agreement, and repurchased $2,000 of the Secured Notes and 7,143 Class B Common Units corresponding to the repurchased Secured Notes, with the payment allocated to the Secured Notes. The outstanding balances of the Credit Agreement and Secured Notes are $40,000 at June 30, 2020.

Subsidiary notes payable at June 30, 2020, and December 31, 2019, consisted of the following:


	June 30, 2020						December 31, 2019
			Deferred						Deferred
			Issuance		Net				Issuance		Net
	Principal		Costs		Principal		Principal		Costs		Principal
$73,000 Note, secured, 16.75%, collateralized by acquired loans, due April 2021	$	69,000	$	1,403	$	67,597	$	73,000	$	367	$	72,633
$1,425 Term note, secured, 4.75%, collateralized by financed asset, due November 2024		745		—		745		777		—		777
$1,165 Term note, secured, 4.50%, collateralized by financed asset, due May 2021		922		5		917		954		6		948
		70,667		1,408		69,259		74,731		373		74,358
Less current maturities		69,986		1,408		68,578		128		1		127
Long-term portion	$	681	$	—	$	681	$	74,603	$	372	$	74,231

On December 12, 2018, CCFI Funding II LLC, a non-guarantor subsidiary of CCF OpCo, entered into an amendment to the Amended and Restated Loan and Security Agreement, dated as of April 25, 2017 (as amended, amended and restated, modified or supplemented from time to time, the “Ivy Credit Agreement”) pursuant to which, among other things, our borrowings under the Ivy Credit Agreement were increased from $63,500 to $70,000.

The Ivy Credit Agreement was amended on March 18, 2019, to extend the maturity date to April 30, 2020, and establish an interest rate of 16.75% on the entire credit facility. The Agreement was further amended on September 9, 2019, to increase the Company’s borrowings from $70,000 to $73,000.

The Ivy Credit Agreement was amended on February 7, 2020, to extend the maturity date to April 30, 2021 and amended on April 24, 2020, resulting in the credit facility being paid down from $73,000 to $69,000. The amendment also cancelled an $8,000 mandatory repayment due on April 30, 2020, raised the cap on allowable dividends to be paid by CCFI Funding II, LLC to its parent to $7,000 per month, temporarily reduced collateral coverage requirements, increased the advance rate on eligible receivables, and temporarily suspended an adjusted EBITDA test until September 30, 2020, which test will be based on new covenant levels to be determined.

The $1,425 term note was amended on November 22, 2019, to extend the maturity date to November 22, 2024, and increased the interest rate to 4.75%.

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Capital structure and concerns about Company’s ability to continue as a going concern

The Company’s indebtedness includes $69,000 outstanding under the Ivy Credit Agreement that is due in the second quarter of 2021, and its expected cash position will not be sufficient to repay this indebtedness as it becomes due. Declining portfolio levels will have a negative impact on operating profits and liquidity and will impact our ability to meet the Ivy Credit Agreement and Revolving Credit Agreement covenants, which are enforceable by the agent of the holders of the Secured Note.

Management hired advisors to assist the Company with its capital structure. This engagement includes, but is not limited to, assisting the Company with efforts to amend its credit facilities, obtain waivers from its lenders, and to pursue other sources of capital.

While the Company believes that it will be successful in extending the maturity of the Ivy Credit Agreement and amending the Revolving Credit Agreements’ covenants, there is no assurance that the Company will be able to extend the maturity or otherwise refinance the Ivy Credit Agreement and amend the Ivy Credit Agreement and Revolving Credit Agreements’ covenants. Therefore, as of the issuance of our Form 10-Q, substantial doubt exists regarding the Company’s ability to continue as a going concern within one year after the date of issuance.

Any amendment to or refinancing of either credit agreement could result in an even higher interest rate and may require us to comply with more burdensome restrictive covenants, which may have a material adverse effect on our business, ability to meet our payment obligations, financial condition, and results of operations.

Note 6. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities at June 30, 2020, and December 31, 2019, consisted of the following:



	June 30,		December 31,
	2020		2019
Accounts payable	$	6,667	$	5,818
Accrued payroll and compensated absences		6,998		7,982
Wire transfers payable		2,421		1,244
Accrual for third-party losses		681		2,570
Debt buyer liability		3,442		3,474
Unearned CSO Fees		354		2,846
Bill payment service liability		651		897
Lease termination		232		467
Prepaid card liability		1,642		1,227
Other		3,281		3,670
	$	26,369	$	30,195

Note 7. Operating and Capital Lease Commitments and Total Rental Expense

The Company leases its facilities under various non-cancelable agreements, which require various minimum annual rentals and may also require the payment of normal common area maintenance on the properties.

All of the Company’s 494 leases are operating leases with renewal options and are included in right-of-use assets – operating leases, current portion of operating lease obligation and noncurrent operating lease obligation on our consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rates or implicit rates, when readily determinable. Short-term operating leases which have an initial term of 12 months or less are not recorded on the consolidated balance sheets. Variable lease costs include common area maintenance, real estate taxes and insurance for the Company’s operating leases.

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	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Lease cost:
Operating lease cost	$	4,261		$	4,851		$	8,752		$	9,732
Short-term lease cost		1,517			1,068			3,017			2,115
Variable lease cost		382			21			680			37
Total lease cost	$	6,160		$	5,940		$	12,449		$	11,884

Other Information:
Payments included in the measurement of lease liabilities
Operating cash flows from operating leases	$	4,131		$	4,798		$	8,562		$	9,617
Right-of-use assets obtained in exchange for new operating lease liabilities	$	4,555		$	2,879		$	7,593		$	4,580
Weighted-average remaining lease term - operating leases		3.8 years			2.7 years			3.8 years			2.7 years
Weighted-average discount rate - operating leases		9.0	%		9.0	%		9.0	%		9.0	%

Future minimum lease payments for our operating leases as of June 30, 2020 were as follows:


	Operating
Fiscal Years	Leases
Remaining 2020	$	8,252
2021		14,002
2022		9,515
2023		5,696
2024		3,360
Thereafter		4,361
Total minimum lease payments		45,186
Less imputed interest		(6,977)
Present value of net minimum lease payments		38,209
Less current portion of operating lease obligation		(13,040)
Operating lease obligation	$	25,169

Utilities, property & casualty insurance, and repairs & maintenance expenses have been reclassified to the occupancy line item on the consolidated statements of operations and comprehensive loss. Previously, occupancy consisted of rent, common area maintenance, and real estate tax expenses. Utilities, property & casualty insurance, and repairs & maintenance were part of other operating expenses.

Note 8. Concentrations of Credit Risks

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

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The following table summarizes the allocation of the portfolio balance by state at June 30, 2020, and December 31, 2019:

CCF Holdings LLC 10-Q