<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 33-97130-A
THE THAXTON GROUP, INC.
(Name of small business issuer in its charter)
SOUTH CAROLINA 57-0669498
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1524 PAGELAND HIGHWAY, LANCASTER SOUTH CAROLINA 29271
(Address of principal executive offices)
Issuers telephone number: 803-285-4336
Indicate by check mark whether the issuer (1) has filed all reports required to
by 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 issuer was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
OUTSTANDING AT
CLASS JULY 24, 1996
COMMON STOCK 3,778,863
1
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THE THAXTON GROUP, INC.
FORM 10-QSB
June 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 1996 3
Consolidated Statements of Income for the three months
ended June 30, 1996 and 1995 4
Consolidated Statements of Income for the six months
ended June 30, 1996 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 13
and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
2
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PART I
ITEM 1. FINANCIAL STATEMENTS
THE THAXTON GROUP, INC.
Consolidated Balance Sheet
June 30, 1996
ASSETS
Cash $ 331,450
Finance receivables 57,690,575
Less: Unearned income (13,099,685)
Allowance for credit losses (1,130,935)
------------
Finance receivables, net (notes 2 and 3) 43,459,955
Premises and equipment, net 768,771
Other assets (note 4) 1,889,961
------------
TOTAL ASSETS $ 46,450,137
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable (note 3) $ 37,482,946
Accrued interest payable 323,068
Other liabilities 625,146
------------
TOTAL LIABILITIES 38,431,160
Common stock, $.01 par value; authorized
50,000,000 shares, issued and
outstanding 3,778,863 shares 37,789
Additional paid-in-capital 5,185,489
Retained earnings 3,563,399
Deferred stock award (765,000)
Less: Treasury stock (300 shares of
common stock at cost) (2,700)
------------
TOTAL STOCKHOLDERS' EQUITY 8,018,977
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 46,450,137
============
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THE THAXTON GROUP, INC.
Consolidated Statements of Income
Three Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Interest and fee income $3,345,910 $1,964,494
Interest expense 916,500 572,304
------------------ -------------------
NET INTEREST INCOME 2,429,410 1,392,190
Provision for credit losses 367,326 316,233
------------------ -------------------
NET INTEREST INCOME AFTER PROVISION 2,062,084 1,075,957
FOR CREDIT LOSSES
Other income:
Insurance premiums and 219,656 94,066
commissions, net
Other income -0- 4,489
------------------ -------------------
TOTAL OTHER INCOME 219,656 98,955
Operating expenses:
Compensation 861,168 566,743
Telephone, postage, and supplies 168,672 133,539
Net occupancy 147,432 102,519
Insurance 44,779 27,399
Collection expense 47,303 31,118
Travel 32,555 13,598
Professional fees 35,172 11,345
Goodwill amortization 14,514 -0-
Other 245,819 58,273
------------------ -------------------
TOTAL OPERATING EXPENSES 1,597,414 944,534
------------------ -------------------
NET INCOME BEFORE TAXES 684,326 230,378
Income tax expense (benefit)
Current 257,087 14,388
Deferred 16 24,946
------------------ -------------------
TOTAL INCOME TAX EXPENSE 257,103 39,332
------------------- ------------------
NET INCOME $ 427,223 $ 191,046
=================== ==================
EARNINGS PER SHARE $.11 $.06
================== ===================
</TABLE>
4
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THE THAXTON GROUP, INC.
Consolidated Statements of Income
Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Interest and fee income $6,548,294 $3,595,252
Interest expense 1,790,959 979,689
------------------ -------------------
NET INTEREST INCOME 4,757,335 2,615,563
Provision for credit losses 845,940 424,989
------------------ -------------------
NET INTEREST INCOME AFTER PROVISION 3,911,395 2,190,574
FOR CREDIT LOSSES
Other income:
Insurance premiums and 513,715 268,452
commissions, net
Other income 1,300 9,387
------------------ -------------------
TOTAL OTHER INCOME 515,015 277,839
Operating expenses:
Compensation 1,691,782 1,087,054
Telephone, postage, and supplies 352,199 228,746
Net occupancy 288,886 198,574
Insurance 87,705 54,855
Collection expense 94,418 58,509
Travel 59,517 27,936
Professional fees 56,462 20,968
Goodwill amortization 33,381 0
Other 509,163 199,603
------------------ -------------------
TOTAL OPERATING EXPENSES 3,173,513 1,876,245
------------------ -------------------
NET INCOME BEFORE TAXES 1,252,897 592,168
Income tax expense (benefit)
Current 493,154 186,542
Deferred (22,098) (5,942)
------------------ -------------------
TOTAL INCOME TAX EXPENSE 471,056 180,600
------------------- ------------------
NET INCOME $ 781,841 $ 411,568
=================== ==================
EARNINGS PER SHARE $.21 $.13
================== ===================
</TABLE>
5
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THE THAXTON GROUP, INC.
Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities $ 118,301 $ 799,100
Cash flows from investing activities (6,595,281) (7,572,834)
Cash flows from financing activities 4,979,946 6,648,233
--------- ---------
NET (DECREASE) INCREASE IN CASH (1,497,034) (125,501)
CASH AT BEGINNING OF PERIOD 1,828,484 248,842
---------- -------
CASH AT END OF PERIOD $ 331,450 $ 123,341
==========================================
</TABLE>
6
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THE THAXTON GROUP, INC.
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(1) Summary of Significant Accounting Policies
The Thaxton Group, Inc. (the Company) is incorporated under the laws of
the state of South Carolina and operates branches in South Carolina,
North Carolina, Virginia, Georgia and Tennessee. The Company is a
diversified consumer finance company that is engaged primarily in
purchasing and servicing retail installment contracts purchased from
independent used car dealers and making and servicing personal loans to
borrowers with limited credit histories, low incomes or past credit
problems. The Company also offers insurance premium financing to such
borrowers. The Company provides reinsurance through a wholly-owned
subsidiary, TICO Reinsurance, Ltd. (TRL). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
The following is a description of the more significant accounting and
reporting policies which the Company follows in preparing and presenting
its financial statements.
(a) INTEREST AND FEE INCOME
Interest income from finance receivables is recognized using the
interest (actuarial) method on an accrual basis. Accrual of income
on finance receivables continues until the receivable is either
paid off in full, is charged off, or, in the case of Automobile
Sales Contracts, the collateral is repossessed. Fee income
consists primarily of late fees which are credited to income when
they become due from borrowers. For receivables which are renewed,
interest income is recognized using a method similar to the
interest (actuarial) method.
(b) ALLOWANCE FOR CREDIT LOSSES
Additions to the allowance for credit losses are based on
management's evaluation of the finance receivable portfolio based
on current economic conditions, overall portfolio quality,
charge-off experience, and such other factors which in
management's judgment, deserve recognition in estimating
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credit losses. Loans are charged-off when, in the opinion of
management, such loans are deemed to be uncollectible or six
months has elapsed since the date of the last payment, whichever
occurs first. While management uses the best information available
to make evaluations, future adjustments to the allowance may be
necessary if conditions differ substantially from the assumptions
used in making the evaluations.
(c) NON-FILE INSURANCE
Non-file insurance is written in lieu of recording and perfecting
the Company's security interest in the assets pledged on certain
loans. Non-file insurance premiums are collected from the borrower
on certain loans at inception and renewal and are remitted
directly to an insurance company. Certain losses related to such
loans, which are not recoverable through life, accident and
health, or property insurance claims, are reimbursed through
non-file insurance claims subject to policy limitations. Any
remaining losses are charged to the allowance for credit losses.
(d) PREMISES AND EQUIPMENT
Premises and equipment are reported at cost less accumulated
depreciation which is computed using the straight-line method for
financial reporting and accelerated methods for tax purposes.
Maintenance and repairs are charged to expense as incurred and
improvements are capitalized.
(e) INSURANCE
The Company remits a portion of credit life, accident and health,
property and auto insurance premiums written in connection with
certain loans to an unaffiliated insurance company at the time of
origination. Any portion of the premiums remitted to this
insurance company which are not required to cover their
administrative fees or to pay reinsurance claims expense are
returned to the Company through its reinsurance subsidiary, TRL,
and are included in insurance premiums and commissions in the
accompanying consolidated statements of income. Unearned insurance
commissions are accreted to income over the life of the related
insurance contracts using a method similar to that used for the
recognition of finance charges.
(f) EMPLOYEE SAVINGS PLAN
The Company offers a payroll deduction savings plan to all its
employees. The Company pays interest monthly at an annual rate of
10% on the prior months ending balance. Employees may withdraw
savings on demand.
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(g) INCOME TAXES
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109), requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and
liability method of accounting for income taxes. Under the asset
and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using the enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
(h) EARNINGS PER SHARE
Earnings per share is calculated using the weighted average shares
outstanding adjusted for the 10,025.48 for one stock split
declared by the board of directors on September 8, 1995. All share
and per share data have been retroactively adjusted for the stock
split.
(i) INTANGIBLE ASSETS
Intangible assets include the premium paid to acquire Eagle
Premium Finance which is amortized on a straight-line basis over
10 years.
(j) INTERIM UNAUDITED FINANCIAL STATEMENTS
Information with respect to June 30, 1996 and 1995, and the three
and six month periods then ended, have not been audited by the
Company's independent auditors, but in the opinion of management,
reflect all adjustments(which include only normal recurring
adjustments) necessary for the fair presentation of the operations
of Company.
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(2) Finance Receivables
Finance receivables consisted of the following at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- -----
<S> <C> <C>
Consumer $52,213,613 28,763,712
Real estate secured 673,187 819,572
Insurance premium finance 4,488,803 2,644,066
Wholesale loans 314,971 211,434
------- -------
Total finance receivables 57,690,575 32,438,784
Unearned interest (12,563,609) (7,686,406)
Unearned insurance premiums, net (536,076) (247,627)
Allowance for credit losses (1,130,935) (641,342)
----------- ---------
Finance receivables, net $43,459,955 23,863,409
=========== ==========
</TABLE>
Consumer loans include bulk purchases of receivables, auto dealer
receivables under holdback arrangements, and small consumer loan
receivables. With bulk purchase arrangements, the Company typically
purchases a group of receivables from an auto dealer or other retailer at
a discount to par based on management's review and assessment of the
portfolio to be purchased. This discount amount is then maintained in an
unearned income account to which losses on these loans are charged. To
the extent that losses from a bulk purchase exceed the purchase discount,
the allowance for credit losses will be charged. To the extent losses
experienced are less than the purchase discount, the remaining discount
is accreted into income. The amount of bulk purchased receivables, net of
unearned interest and insurance, and the related purchase discount
outstanding were approximately $3,683,750 and $389,225, respectively, at
June 30, 1996 and approximately $1,674,000 and $152,000, respectively, at
June 30, 1995.
With holdback arrangements, an auto dealer or other retailer will assign
receivables to the Company on a loan-by-loan basis, typically at par. The
Company will withhold a certain percentage of the proceeds, generally 5%
to 10%, as a dealer reserve to be used to cover any losses which occur on
these loans. The agreements are structured such that all or a portion of
these holdback amounts can be reclaimed by the dealer based on the
performance of the receivables. To the extent that losses from these
holdback receivables exceed the holdback amounts, the allowance for
credit losses will be charged. The amount of holdback receivables, net of
unearned interest and insurance, and the related holdback amount
outstanding were approximately $28,372,925 and $1,320,250, respectively,
at June 30, 1996 and approximately $12,715,000 and $784,000,
respectively, at June 30, 1995.
At June 30, 1996, $1,221,475 of the purchase discounts and holdback
amounts were included in unearned interest, and $488,000 of purchase
discounts and holdback
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amounts were netted against repossessions and included in other assets.
At June 30, 1995, $871,472 of the purchase discounts and holdback
amounts were included in unearned interest, and $65,000 of purchase
discounts and holdback amounts were netted against repossessions and
included in other assets.
At June 30, 1996, there were no significant concentrations of receivables
in any type of property or from one borrower.
These receivables are pledged as collateral for a line of credit
agreement.
Changes in the allowance for credit losses for the six months ended June
30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Beginning balance $ 908,800 424,425
Valuation allowance for acquired loans 28,842 32,986
Provision for credit losses 845,940 424,989
Charge-offs (788,368) (303,439)
Recoveries 135,721 62,381
------------ --------
Net charge-offs (652,647) (241,058)
------------ ------------
Ending balance $ 1,130,935 641,342
============ ============
</TABLE>
The Company's loan portfolio primarily consists of short term loans, the
majority of which are originated or renewed during the current year.
Accordingly, the Company estimates that fair value of the finance
receivables is not materially different from carrying value.
(3) Indebtedness
At June 30, 1996, the Company maintained a line of credit agreement with
a commercial finance company for $50 million maturing on February 28,
1998. Of this amount, approximately $13.3 million remained at June 30,
1996. Borrowings under this arrangement bear interest at the lender's
prime rate plus a specified percentage, payable monthly. The carrying
amount of this financial instrument approximates market value.
The terms of the line of credit agreement provide that the finance
receivables are pledged as collateral for the amount outstanding. The
agreement requires the Company to maintain certain financial ratios at
established levels and comply with other non-financial requirements.
Also, the agreement prohibits the company from distributing more than 75%
of it's net income. As of June 30, 1996, it is management's opinion that
the Company met all such ratios and requirements.
The Company also had borrowings from a credit insurance company which
totaled $500,000 at June 30, 1996 and $300,000 at June 30, 1995.
Borrowings at June 30, 1996 consisted of a $500,000 note maturing in May
1998 and bearing interest at
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prime plus 2% reset quarterly. The carrying amount of this financial
instrument approximates market value.
(4) Non-earning Assets
As of June 30, 1996, the Company began to classify repossessed
automobiles as non-earning assets and include them in other assets at
realizable value. Previously, repossessed units had been included in
finance receivables, adjusted to realizable value by dealer reserves and
holdback amounts included in unearned interest. Amounts receivable
related to repossessed automobiles and related dealer reserves and
holdback amounts included in other assets at June 30, 1996 and 1995 were
as follows:
1996 1995
---- -----
Amounts receivable related to
repossessed automobiles $1,106,363 152,165
Dealer reserves and holdbacks (488,000) (65,000)
------------ ---------
Realizable value $ 618,363 87,165
=========== =======
All June 30, 1995 amounts have been restated to reflect this treatment.
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Thaxton Group, Inc.(the "Company") is a diversified consumer finance
company that, operating in South Carolina, North Carolina, Virginia, Georgia and
Tennessee under the name "TICO Credit Company," is engaged primarily in
purchasing and servicing retail installment contracts ("Automobile Sales
Contracts") originated by independent used automobile dealers ("Dealers") and
making and servicing personal loans ("Direct Loans") to persons with limited
credit histories, low incomes or past credit problems ("Non-prime Borrowers").
Under the name "TICO Premium Finance Company" in North Carolina and South
Carolina the Company finances insurance premiums ("Premium Finance Contracts"),
primarily for personal lines of insurance purchased by Non-prime Borrowers
through independent agents ("Premium Finance"). A subsidiary of the Company is
engaged in Premium Finance in Virginia under the name "Eagle Premium Finance".
The Company, as agent, also sells various insurance products (primarily credit
life and credit accident and health) in conjunction with the purchase of
Automobile Sales Contracts or the making of Direct Loans.
The Company believes the best opportunities for continued growth in its
Automobile Sales Contract and Direct Loan portfolios lie in the opening of new
branch offices in small to medium-sized markets in the states where the Company
presently operates and contiguous states that management believes to be under
served by its competitors. The Company opened an office in Augusta, Georgia
during the second quarter of 1996, and plans to open one or more additional
branch offices in 1996 and three or more in 1997. The Company estimates that the
capital expenditure necessary for opening each new branch office is
approximately $21,000. While there are certain risks associated with such
expansion, the Company believes that its ability to identify and retain branch
management personnel having established relationships with Dealers, its
expertise in extending and servicing credit to Non-prime Borrowers and other
factors will enable it to manage anticipated growth in its branch office network
and in its Automobile Sales Contract and Direct Loan portfolios. The Company
will continue to expand its Premium Finance Contract portfolio by establishing
and broadening relationships with insurance agencies having a client base in
need of premium financing. The Company also periodically may make bulk purchases
of Automobile Sales Contracts and Premium Finance Contracts if such purchases
are deemed beneficial to the Company's competitive position and portfolio mix.
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PROFITABILITY
The following table sets forth certain data relating to the Company's
profitability.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Net Finance Receivables(1) $42,521,187 $22,493,642 $40,701,351 $20,510,573
Average notes payable 36,379,696 19,984,347 34,918,435 17,837,453
Interest and fee income 3,345,910 1,964,494 6,548,295 3,595,252
Interest expense 916,500 572,304 1,790,959 979,689
----------- ----------- ----------- -----------
Net interest income 2,429,410 1,392,190 4,757,335 2,615,563
Average interest rate earned(1) 31.48% 34.93% 32.18% 35.06%
Average interest rate paid(1) 10.08 11.46 10.26 10.98
----------- ----------- ----------- -----------
Net interest spread 21.40 23.47 21.92 24.08
Net interest margin(2) 22.85% 24.76% 23.38% 25.50%
</TABLE>
- ------------
(1) Averages are computed using month-end balances during the periods
presented.
(2) Net interest margin represents net interest income divided by average
Net Finance Receivables.
FINANCIAL CONDITION AT JUNE 30, 1996 AND 1995
Finance Receivables at June 30, 1996 were $57,690,575 versus $32,438,784
at June 30, 1995, a 78% increase. The primary component of this increase was
Automobile Sales Contracts, which increased from $20,691,067 at June 30, 1995 to
$39,632,179 at June 30, 1996, or 90%. The Company opened four branch offices in
1995 and one in 1996 dedicated to Automobile Sales Contract Origination, which
generated a significant volume of Automobile Sales Contracts in 1996. Premium
Finance Contracts were up 75%, primarily due to the purchase of Eagle Premium
Finance in September of 1995.
Unearned income at June 30, 1996 was $13,099,685 versus $7,934,033 at June
30, 1995, a 65% increase which was directly related to the higher volume of
Automobile Sales Contract originations during 1996 and the dealer reserves
associated therewith.
The allowance for credit losses as a percentage of average Net Finance
Receivables decreased from 2.85% at June 30, 1995 to 2.66% at June 30, 1996, due
to the increase in the relative portion of Automobile Sales Contracts in the
portfolio. Automobile Sales Contracts carry a lower allowance due to the loss
coverage provided by dealer reserves.
Stockholders' equity increased from $2,368,256 at June 30, 1995 to
$8,018,977 at June 30, 1996, a 239% increase, as a result of the proceeds of the
initial public offering, conversion of subordinated debt to equity, and retained
earnings from after tax profits during the period.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
The growth in finance receivables during the three months ended June 30,
1996 versus the comparable period in 1995 resulted in higher levels of interest
and fee income. Interest and fee income for the three months ended June 30, 1996
was $3,345,910, versus $1,964,494 for the three months ended June 30, 1995, a
70% increase. Interest expense also was higher, increasing to $916,500 for the
three
14
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months ended June 30, 1996 versus $572,304 for the three months ended June
30, 1995, a 60% increase. The increase in interest expense was due to the higher
levels of borrowings needed to fund finance receivable originations.
Net interest income for the three months ended June 30, 1996 increased to
$2,429,410 from $1,392,190 for the comparable period of 1994, a 75% increase.
The increases in net interest income are attributable to the higher levels of
finance receivables, the interest income and fees from which more than offset
the 9% decrease in net interest spread for the three months ended June 30, 1996
versus 1995.
The provision for credit losses established for the three months ended
June 30, 1996 was $367,326, versus $316,233 for 1995. The increase in the
provision was due to the increase in receivables outstanding as well as more
conservative reserving practices.
Insurance commissions net of insurance cost increased to $219,656 for the
three months ended June 30, 1996 from $94,066 for 1995, a 134% increase
primarily due to the higher levels of Automobile Sales Contract originations,
the triggering event for most sales of insurance products to borrowers.
Operating expenses increased from $944,534 for the three months ended June
30, 1995 to $1,597,414 for 1996, a 69% increase. The increase in expenses was
due to opening new offices and expenses incurred related to being a public
company, including one additional executive officer, in addition to a general
increase in costs associated with administering a significantly larger finance
receivable portfolio.
Net income increased to $427,233 for the three months ended June 30, 1996
from $191,046 for 1995. The increase in net income was due to higher levels of
net interest and insurance income, partially offset by higher loss provisions
and expenses.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
The growth in finance receivables during the three months ended June 30,
1996 versus the comparable period in 1995 resulted in higher levels of interest
and fee income. Interest and fee income for the six months ended June 30, 1996
was $6,548,294, versus $3,595,252 for the six months ended June 30, 1995, an 82%
increase. Interest expense also was higher, increasing to $1,790,959 for the six
months ended June 30, 1996 versus $979,689 for the six months ended June 30,
1995, an 83% increase. The increase in interest expense was due to the higher
levels of borrowings needed to fund finance receivable originations.
Net interest income for the six months ended June 30, 1996 increased to
$3,911,395 from $2,190,574 for the comparable period of 1994, a 79% increase.
The increases in net interest income are attributable to the higher levels of
finance receivables, the interest income and fees from which more than offset
the 11% decrease in net interest spread for the six months ended June 30, 1996
versus 1995.
The provision for credit losses established for the six months ended June
30, 1996 was $845,940, versus $424,989 for 1995. The increase in the provision
was due to the increase in receivables outstanding as well as more conservative
reserving practices
Insurance commissions net of insurance cost increased to $513,715 for the
six months ended June 30, 1996 from $268,452 for 1995, a 91% increase primarily
due to the higher levels of Automobile Sales Contract originations, the
triggering event for most sales of insurance products to borrowers.
Operating expenses increased from $1,876,245 for the six months ended June
30, 1995 to $3,173,513 for 1996, a 69% increase. The increase in expenses was
due to opening new offices and expenses incurred related to being a public
company, including one additional executive officer, in addition to a general
increase in costs associated with administering a significantly larger finance
receivable portfolio.
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<PAGE>
Net income increased to $781,841 for the six months ended June 30, 1996
from $411,568 for 1995. The increase in net income was due to higher levels of
net interest and insurance income, partially offset by higher loss provisions
and expenses.
FINANCIAL CONDITION AT JUNE 30, 1996 AND DECEMBER 31, 1995
Cash decreased from $1,828,484 at December 31, 1995 to $331,450 at June
30, 1996, due to the use of the proceeds from the initial public offering being
used to pay down the Company's Revolving Credit Facility.
Finance receivables at June 30, 1996 were $57,690,575 compared to
$47,900,235 at December 31, 1995, an increase of 20%. The primary component of
this increase was Automobile Sales Contracts, which increased $8,529,115 or 26%.
Premium Finance Contracts outstanding decreased 11%, due to the Company's
decision to reduce it's exposure in Virginia.
Unearned income increased from $11,02,232 at December 31, 1995 to
$13,099,685 at June 30, 1996, a 19% increase. The allowance for credit losses
increased from $908,800 at December 31, 1995 to $1,130,935 at June 30, 1996, an
increase of 24%. The increase was due to the increase in receivables outstanding
as well as more conservative reserving practices.
Stockholders' equity increased from $7,177,890 at December 31, 1995 to
$8,018,977 at June 30, 1996, an 12% increase, as a result of retained earnings
from after tax profits during the period.
16
<PAGE>
CREDIT LOSS EXPERIENCE
Provisions for credit losses are charged to income in amounts sufficient
to maintain the allowance for credit losses at a level considered adequate to
cover the expected future losses of principal and interest in the existing
finance receivable portfolio. Credit loss experience, contractual delinquency of
finance receivables, the value of underlying collateral and management's
judgement are factors used in assessing the overall adequacy of the allowance
and resulting provision for credit losses. The Company's charge-off policy is
based on an account by account review of delinquent receivables. Losses on
finance receivables secured by automobiles are recognized at the time the
collateral is repossessed. Other finance receivables are charged off when they
become contractually past due 180 days, unless extenuating circumstances exist
leading management to believe such finance receivables will be collectible.
Finance receivables may be charged off prior to the normal charge-off period if
management deems them to be uncollectible.
The following table sets forth the Company's allowance for credit losses at
June 30, 1996, and 1995 and the credit loss experience over the periods
presented.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average net finance receivables(1) $42,521,187 $22,493,642 $40,701,351 $20,510,573
Allowance for credit losses 1,130,935 641,342 1,130,935 641,342
Allowance for credit losses as a percentage of 2.66% 2.85% 2.78% 3.13%
average net finance receivables (1)
Dealer reserves and discounts on bulk purchases (3) $1,221,475 $871,472 1,221,475 871,472
Dealer reserves and discounts on bulk purchases as 3.91% 5.49% 3.91% 5.49%
percentage of Automobile Sales Contracts at period
end(2)
Allowance for credit losses and dealer reserves and 5.53% 6.73% 5.78% 7.38%
discount on bulk purchases as a percentage of
average finance receivables (1)
Provision for credit losses $367,326 $316,233 $845,940 $424,989
Charge-offs (net of recoveries) 326,716 140,294 652,647 241,058
Charge-offs (net of recoveries) as a percentage of 3.02% 2.49% 3.15% 2.35%
average net finance receivables (1)
</TABLE>
- ---------------------
(1) Averages are computed using month-end balances of Net Finance Receivables
during the period presented.
(2) Percentages are computed using Automobile Sales Contracts, net of unearned
finance charges only.
(3) Amount remaining after allocation to repossessed automobiles.
17
<PAGE>
The following table presents an allocation of the Company's reserves and
allowances for credit losses, by type of receivable. The allowance for credit
losses has been allocated on an approximate basis between Direct Loans and
Premium Finance Contracts because losses on Automobile Sales Contracts are
charged against dealer reserves if the originating dealer's Specific Reserve
Account is adequate to cover the loss. The entire allowance is, however,
available to absorb losses occurring on any type of finance receivable. The
allocation is not indicative of future losses.
<TABLE>
<CAPTION>
At June 30,
1996 1995
<S> <C> <C>
Dealer reserves and discounts on bulk purchases on Automobile $1,221,475 $871,472
Sales Contracts, after allocation to repossessed automobiles
Allowance for credit losses:
Direct Loans 881,850 500,616
Premium Finance Contracts 249,086 140,726
------- -------
Subtotal 1,130,936 641,342
--------- -------
Total $2,352,411 $1,512,814
========== ==========
</TABLE>
The following table sets forth certain information concerning Automobile
Sales Contracts and Direct Loans at the end of the periods indicated:
<TABLE>
<CAPTION>
At June 30,
1996 1995
<S> <C> <C>
Automobile Sales Contracts and Direct Loans contractually $424,261 $216,968
past due 90 days or more(1)
Automobile Sales Contracts and Direct Loans (1) 40,316,349 22,033,264
Automobile Sales Contracts and Direct Loans contractually 1.05% 1.0%
past due 90 days or more as a percentage of Automobile
Sales Contracts and Direct Loans
</TABLE>
- -------------------------
(1) Finance receivable balances are presented net of unearned finance
charges, dealer reserves on Automobile Sales Contracts and discounts on bulk
purchases.
18
<PAGE>
The following table sets forth certain information concerning Premium
Finance Contracts at the end of the periods indicated:
<TABLE>
<CAPTION>
At June 30,
1996 1995
<S> <C> <C>
Premium finance contracts contractually $123,063 $30,932
past due 60 days or more(1)
Premium finance contracts outstanding(1) 4,302,579 2,558,652
Premium finance contracts contractually 2.9% 1.2%
past due 60 days or more as a percentage
of premium finance contracts
</TABLE>
- ------------------------------------------
(1) Finance receivable balances are presented net of unearned finance charges
and discounts on bulk purchases
LIQUIDITY AND CAPITAL RESOURCES
The Company generally finances its operations and new offices through cash
flow from operations and borrowings under the Revolving Credit Facility. On
February 23, 1996 the Company and its primary lender agreed to amend the
Revolving Credit Facility to provide for borrowings of up to $50 million through
February 28, 1998, an increase of $15 million. As of June 30, 1996, $36.7
million was outstanding under the Revolving Credit Facility and there was $13.3
million available for additional borrowing. Funds borrowed under the Revolving
Credit Facility bear interest at a rate equal to a designated prime rate plus a
fixed percentage. The amended Revolving Credit Facility provides for a lower
fixed percentage over prime than did the previous agreement. Amounts outstanding
may not exceed specified percentages of eligible finance receivables. The
Revolving Credit Facility imposes several financial and other covenants,
including leverage tests, dividend restrictions, and minimum net worth
requirements. The Company does not believe these covenants will materially limit
its business or its expansion strategy.
Although the Company's recent public offering of common stock did not
raise sufficient capital to fully implement the Company's long-term business and
growth strategy, management believes that the recent increase in the maximum
borrowings under the Revolving Credit Facility, in addition to cash expected to
be generated from operations, will provide the resources necessary to pursue its
strategy through 1996. The company is currently investigating several options
for raising additional funds to support growth in future years.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Information in response to this item is incorporated by
reference from the attached Index to Exhibits.
(B) REPORTS ON FORM 8-K
There were no reports on Form 8-K during the quarter ended June 30,
1996.
19
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE THAXTON GROUP, INC.
(Registrant)
Date: July 31, 1996 /s/JAMES D. THAXTON
-------------------
James D. Thaxton
President and Chief Executive Officer
Date: July 31, 1996 /s/KENNETH H. JAMES
-------------------
Kenneth H. James
Vice President, Secretary, and
Chief Financial Officer
20
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
<S> <C>
2 Stock Purchase Agreement, dated as of September 1, 1995 with Eagle Premium --
Finance Company, Inc.(1)
3.1 Amended and Restated Articles of Incorporation of The Thaxton Group, Inc.(1) --
3.2 Bylaws of the Thaxton Group,Inc.(1) --
10.1 Amended and Restated Loan and Security Agreement dated March 27, 1995 between --
Finova Capital Corporation and the Company(1)
10.2 Loan Agreement dated May 16, 1994 between the American Bankers Insurance --
Company of Florida and the Company(1)
10.3 Promissory note dated April 1, 1995 payable in the amount of $250,000 to --
Thaxton Insurance Group(1)
10.4 Promissory note dated April 1, 1995 payable in the amount of $165,000 to C. L. --
Thaxton, Sr. (1)
10.5 Promissory note dated April 1, 1995 payable in the amount of $250,000 to --
Katherine D. Thaxton(1)
10.6 Promissory note dated April 1, 1995 payable in the amount of $35,000 to --
Katherine D. Thaxton (1)
10.7 Promissory note dated May 1, 1995 payable in the amount of $350,000 to Thaxton --
Insurance Group(1)
10.8 Promissory note dated August 21, 1995 payable in the amount of $100,000 to --
Katherine D. Thaxton(1)
10.9 Security Agreement dated January 19, 1995 between the Company and Oakland Auto --
Sales, including Guaranty by Thaxton Insurance Group, Inc.(1)
10.10 Form of Restricted Stock Award between the Company and Robert L Wilson --
10.11 The Thaxton Group, Inc. 1995 Stock Incentive Plan(1) --
10.12 The Thaxton Group, Inc. Employee Stock Purchase Plan(1) --
10.13 Form of Note Conversion Agreement(1) --
10.14 Amended and Restated Schedule to Loan and Security Agreement dated February 23, --
1996 between Finova Capital Corporation and the Company(2)
10.15 Incentive Stock Option Agreement between Kenneth H. James and the Company (2) --
10.16 Incentive Stock Option Agreement between James A. Cantley and the Company(2) --
10.17 Loan Agreement dated March 18, 1996 between the American Bankers Insurance --
Company of Florida and the Company(2)
11 Statement re: computation of per share earnings 9
21 Subsidiaries of The Thaxton Group, Inc. (1) --
</TABLE>
- -----------------------------------
(1) Incorporated by reference from Registration Statement on Form SB-2,
Commission File No. 33-97130-A
(2) Incorporated by reference from 1995 Annual Report on Form 10-KSB
21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1995
<CASH> 331,450
<SECURITIES> 0
<RECEIVABLES> 57,690,575
<ALLOWANCES> 1,130,935
<INVENTORY> 0
<CURRENT-ASSETS> 43,459,955
<PP&E> 1,676,035
<DEPRECIATION> 907,263
<TOTAL-ASSETS> 46,450,137
<CURRENT-LIABILITIES> 948,214
<BONDS> 0
0
0
<COMMON> 37,789
<OTHER-SE> 7,981,188
<TOTAL-LIABILITY-AND-EQUITY> 46,450,137
<SALES> 0
<TOTAL-REVENUES> 7,063,309
<CGS> 0
<TOTAL-COSTS> 3,173,513
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 845,940
<INTEREST-EXPENSE> 1,790,959
<INCOME-PRETAX> 1,252,897
<INCOME-TAX> 471,056
<INCOME-CONTINUING> 781,841
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 781,841
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>