THAXTON GROUP INC
10QSB, 1996-05-07
PERSONAL CREDIT INSTITUTIONS
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<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 MARCH 31, 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                                                   APRIL 24, 1996
 COMMON STOCK                                                    3,777,173


                                       1

<PAGE>


                             THE THAXTON GROUP, INC.

                                   FORM 10-QSB

                                 March 31, 1996

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                     PAGE NO.
<S>                                                                                  <C>

PART I   FINANCIAL INFORMATION

         Item 1.  Financial Statements

                  Consolidated Balance Sheet at March 31, 1996                          3

                  Consolidated Statements of Income for the three months
                  ended March 31, 1996 and 1995                                         4

                  Consolidated Statements of Cash Flows for the three months
                  ended March 31, 1996 and 1995                                         5

                  Notes to Consolidated Financial Statements                            6

         Item 2.  Management's Discussion and Analysis of Financial Condition          11
                  and Results of Operations

PART II  OTHER INFORMATION

         Item 6.  Exhibits and Reports on Form 8-K                                      17
</TABLE>




                                       2

<PAGE>



PART I

ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>


                             THE THAXTON GROUP, INC.

                           Consolidated Balance Sheet

                                 March 31, 1996

ASSETS
<S>                                                                    <C>            
Cash                                                                   $        59,048

Finance receivables                                                            53,761,576
  Less: Unearned income                                                       (12,141,454)
        Allowance for credit losses                                            (1,090,326)
                                                                       -------------------------
Finance receivables, net (notes 2 and 3)                                       40,529,797

Premises and equipment, net                                                    700,249
Other assets                                                                 1,602,640
                                                                      --------------------------

                  TOTAL ASSETS                                         $    42,891,734
                                                                      ==========================

LIABILITIES AND STOCKHOLDERS' EQUITY

Notes payable (note 3)                                                $    34,619,946
Accrued interest payable                                                       302,803
Other liabilities                                                              416,632
                                                                      --------------------------

                  TOTAL LIABILITIES                                         35,339,381

Common stock, $.01 par value; authorized
  50,000,000 shares, issued and
  outstanding 3,777,173 shares                                                  37,772
Additional paid-in-capital                                                   5,168,606
Retained earnings                                                            3,136,175
Deferred stock award                                                          (787,500)
Less: Treasury stock (300 shares of
                  common stock at cost)                                         (2,700)
                                                                      --------------------------

                  TOTAL STOCKHOLDERS' EQUITY                                 7,552,353
                                                                      --------------------------

                  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                       $    42,891,734
                                                                      ==========================
</TABLE>


                                       3

<PAGE>




                             THE THAXTON GROUP, INC.

                        Consolidated Statements of Income

                   Three Months Ended March 31, 1996 and 1995


<TABLE>
<CAPTION>


                                                                        1996                             1995
                                                                        ----                             ----
<S>                                                                      <C>                              <C>       
Interest and fee income                                                  $3,202,385                       $1,630,758
Interest expense                                                            874,459                          407,385
                                                                  ------------------              -------------------

     NET INTEREST INCOME                                                  2,327,925                        1,223,373

Provision for credit losses                                                 478,614                          108,756
                                                                  ------------------              -------------------

     NET INTEREST INCOME AFTER PROVISION                                  1,849,311                        1,114,617
        FOR CREDIT LOSSES

Other income:
     Insurance premiums and                                                 294,059                          174,386
          commissions, net
     Other income                                                             1,300                            4,498
                                                                  ------------------              -------------------

          TOTAL OTHER INCOME                                                295,359                          178,885

Operating expenses:
     Compensation                                                           830,616                          520,311
     Telephone, postage, and supplies                                       183,527                           95,207
     Net occupancy                                                          141,455                           96,055
     Insurance                                                               42,925                           27,456
     Collection expense                                                      47,115                           27,391
     Travel                                                                  26,962                           14,338
     Professional fees                                                       21,291                            9,623
     Goodwill amortization                                                   18,867                                0
     Other                                                                  263,342                          141,330
                                                                  ------------------              -------------------

          TOTAL OPERATING EXPENSES                                        1,576,099                          931,711
                                                                  ------------------              -------------------

     NET INCOME BEFORE TAXES                                                568,571                          361,790

Income tax expense (benefit)
     Current                                                                236,067                          172,157
     Deferred                                                              (22,114)                         (30,888)
                                                                  ------------------              -------------------

          TOTAL INCOME TAX EXPENSE                                          213,953                          141,269
                                                                  -------------------              ------------------

     NET INCOME                                                           $  354,618                      $  220,522
                                                                  ===================              ==================

     EARNINGS PER SHARE                                                  $     0.09                       $     0.07
                                                                  ==================              ===================
</TABLE>


                                       4

<PAGE>




                             THE THAXTON GROUP, INC.

                      Consolidated Statements of Cash Flows

                   Three months ended March 31, 1996 and 1995

<TABLE>
<CAPTION>

                                                                        1996                    1995
                                                                        ----                    ----
<S>                                                             <C>                    <C>        
Cash flows from operating activities                            $    391,526           $   200,592
Cash flows from investing activities                              (4,275,254)           (2,442,027)
Cash flows from financing activities                               2,114,291             2,314,185
                                                                   ---------             ---------

NET (DECREASE) INCREASE IN CASH                                   (1,769,436)               72,750

CASH AT BEGINNING OF PERIOD                                        1,828,484               248,842
                                                                  ----------               -------

CASH AT END OF PERIOD                                           $     59,048            $  321,592
</TABLE>

                                       5

<PAGE>





                             THE THAXTON GROUP, INC.

                   Notes to Consolidated Financial Statements

                             March 31, 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 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 or is charged off. 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 


                                       6

<PAGE>


              factors which in management's judgment, deserve recognition in
              estimating 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 reinsurnance 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.


                                       7

<PAGE>




       (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.

              Effective January 1, 1993, the Company adopted Statement 109 and
              has reported a favorable but immaterial impact as a component of
              the 1993 income tax provision for the cumulative effect of the
              change in the method of accounting.

        (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 March 31, 1996 and 1995, and the
              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.




                                       8

<PAGE>



(2)    Finance Receivables

       Finance receivables consisted of the following at March 31, 1996 and
1995:

<TABLE>
<CAPTION>
                                                                                         1996              1995
                                                                                         ----              ----
<S>                                                                              <C>                      <C>       
           Consumer                                                              $     47,004,521         22,233,846
           Real estate secured                                                            820,323          1,015,360
           Insurance premium finance                                                    5,672,881          1,754,228
           Wholesale loans                                                                263,851            227,855
                                                                                   --------------     --------------
                  Total finance receivables                                            53,761,576         25,231,289
           Unearned interest                                                          (11,812,494)        (5,700,824)
           Unearned insurance premiums, net                                              (328,960)          (193,846)
           Allowance for credit losses                                                 (1,090,326)          (432,417)
                                                                                   --------------     --------------
           Finance receivables, net                                              $     40,529,797         18,904,203
                                                                                   ==============     ==============
</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 $3,276,463 and $333,730, respectively, at
       March 31, 1996 and approximately $1,396,600 and $132,007, respectively,
       at March 31, 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 $24,469,478 and $1,153,450, respectively,
       at March 31, 1996 and approximately $8,293,174 and $602,177,
       respectively, at March 31, 1995.


                                       9

<PAGE>


       The purchase discounts and holdback amounts have been included in
unearned interest.

       At March 31, 1996, there were no significant concentrations of
receivables in any type of property or to one borrower.

         These receivables are pledged as collateral for a line of credit
agreement.

       Changes in the allowance for credit losses for the three months ended
March 31, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>

                                                                      1996                1995
                                                                      ----                ----
<S>                                                            <C>                        <C>    
           Beginning balance                                   $      908,800             424,425
           Valuation allowance for acquired loans                      34,193                  -
           Provision for credit losses                                478,614             108,756
           Charge-offs                                               (398,754)           (140,605)
           Recoveries                                                  67,473              39,841
                                                                 ------------        ------------
           Net charge-offs                                           (325,931)           (100,764)
                                                                 ------------        ------------
           Ending balance                                      $    1,090,326             432,417
                                                                 ============        ============
</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 March 31, 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 $16.2 million was available at March
       31, 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 declaring or paying any
       dividends upon any shares of its capital stock without prior approval. As
       of March 31, 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 March 31, 1996 and $300,000 at March 31, 1995.
       Borrowings at March 31, 1996 consisted of a $500,000 note maturing in May
       1998 and bearing


                                       10

<PAGE>


       interest at prime plus 2% and is reset quarterly. The carrying amount of
       this financial instrument approximates market value.



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 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 plans to open two branch offices in 1996
and three 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.



                                       11

<PAGE>




PROFITABILITY

         The following table sets forth certain data relating to the Company's
profitability.

<TABLE>
<CAPTION>


                                               For the Three Months Ended March 31,
                                                      199                   1995
<S>                                             <C>                  <C>        
 Average Net Finance Receivables(1)             $39,636,208          $17,951,557
 Average notes payable (1)                       33,382,553           15,584,075

 Interest and fee income                          3,202,385            1,630,758
 Interest expense                                   874,459              407,385
                                               ------------          -----------
 Net interest income                              2,327,926            1,223,373

 Average interest rate earned(1)                    32.32%               36.34%
 Average interest rate paid(1)                     10.48                10.46
                                                   -----                -----
 Net interest rate spread                          21.84                25.88

 Net interest margin(2)                             23.49%               27.26%
</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.


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995

      Finance Receivables at March 31, 1996 were $53,761,576 versus $25,231,289
at March 31, 1995, a 113% increase. The primary component of this increase was
Automobile Sales Contracts, which increased from $13,430,802 at March 31, 1995
to $34,517,347 at March 31, 1996, or 157%. The Company opened four branch
offices in 1995, which generated a significant volume of Automobile Sales
Contracts in 1996. Premium Finance Contracts were up 223%, primarily due to the
purchase of Eagle Premium Finance in September of 1995.

      Unearned income at March 31, 1996 was $12,141,454 versus $5,894,669 at
March 31, 1995, a 106% increase which was directly related to the higher volume
of Automobile Sales Contract originations during 1996 and the dealer reserves
associated therewith. The provision for credit losses established for the three
months ended March 31, 1996 was $478,614, versus $108,756 for 1995. The increase
in the provision was due to the increase in receivables outstanding as well as
more conservative reserving practices. The allowance for credit losses as a
percentage of average Net Finance Receivables increased from 2.41% at March 31,
1995 to 2.75% at March 31, 1996.

      The growth in finance receivables during the three months ended March 31,
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 March 31,
1996 was $3,202,385, versus $1,630,758 for the three months ended March 31,
1995, a 96% increase. Interest expense also was higher, increasing to $874,459
for the three months ended March 31, 1996 versus $407,385 for the three months
ended March 31, 1995, a 115% increase. The increase in interest expense was due
to the higher levels of borrowings needed to fund finance receivable
originations.


                                       12

<PAGE>


      Net interest income for the three months ended March 31, 1996 increased to
$2,327,925 from $1,223,373 for the comparable period of 1994, a 90% 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 16% decrease in net interest spread for the three months ended March 31,
1996 versus 1995.

      Insurance commissions net of insurance cost increased to $294,059 for the
three months ended March 31, 1996 from $174,386 for 1995, a 69% 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 $931,711 for the three months ended
March 31, 1995 to $1,576,099 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 $354,618 for the three months ended March 31, 1996
from $220,522 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.

      Stockholders' equity increased from $2,177,209 at March 31, 1995 to
$7,552,353 at March 31, 1996, a 247% 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.

FINANCIAL CONDITION AT MARCH 31, 1996 AND DECEMBER 31, 1995

      Cash decreased from $1,828,484 at December 31, 1995 to $59,048 at March
31, 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 March 31, 1996 were $53,761,576 compared to
$49,252,834 at December 31, 1995, an increase of 9.2%. The primary component of
this increase was Automobile Sales Contracts, which increased $2,061,693, or
6.3%.

      Unearned income increased from $11,550,232 at December 31, 1995 to
$12,141,454 at March 31, 1996, a 5.1% increase. The allowance for credit losses
increased from $908,800 at December 31, 1995 to $1,090,326 at March 31, 1996, an
increase of 20%. 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
$7,552,353 at March 31, 1996, a 5.2% increase, as a result of retained earnings
from after tax profits during the period.

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.

                                       13

<PAGE>


     The following table sets forth the Company's allowance for credit losses at
March 31, 1996, and 1995 and the credit loss experience over the periods
presented.

<TABLE>
<CAPTION>

                                                                    At or for the Three Months Ended March 31,
                                                                         1996                      1995
<S>                                                                 <C>                        <C>        
 Average net finance receivables(1)                                 $39,636,208                $17,951,557
 Allowance for credit losses                                          1,090,326                    432,417
 Allowance for credit losses as a percentage of                           2.75%                      2.41%
 average net finance receivables (1)
 Dealer reserves and discounts on bulk purchases                     $1,487,180                   $734,184
 Dealer reserves and discounts on bulk purchases as                       5.85%                      5.97%
 percentage of Automobile Sales Contracts at period
 end(2)
 Allowance for credit losses and dealer reserves and                      6.50%                      6.50%
 discount on bulk purchases as a percentage of
 average finance receivables (1)
 Provision for credit losses                                           $478,614                   $108,756
 Charge-offs (net of recoveries)                                        325,931                    100,764
 Charge-offs (net of recoveries) as a percentage of                       3.29%                      2.25%
 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.


                                       14

<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 March 31,
                                                                                1996             1995
<S>                                                                       <C>                <C>     
 Dealer reserves and discounts on bulk purchases on Automobile            $1,487,180         $734,184
 Sales Contracts Allowance for credit losses:
   Direct Loans                                                              773,577          369,336
   Premium Finance Contracts                                                 316,749           63,081
                                                                             -------           ------
       Subtotal                                                            1,090,326          432,417
                                                                           ---------          -------
       Total                                                              $2,577,506       $1,166,601
</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 March 31,
                                                                            1996                 1995
<S>                                                                        <C>                  <C>     
 Automobile Sales Contracts and Direct Loans contractually                 $339,977             $214,566
 past due 90 days or more(1)

 Automobile Sales Contracts and Direct Loans (1)                         36,229,145           18,193,785
 Automobile Sales Contracts and Direct Loans contractually                     .94%                1.18%
 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.



                                       15

<PAGE>






      The following table sets forth certain information concerning Premium
Finance Contracts at the end of the periods indicated:

<TABLE>
<CAPTION>


                                                                    At March 31,
                                                             1996                  1995
<S>                                                      <C>                    <C>    
 Premium finance contracts contractually                 $124,150               $28,460
 past due 60 days or more(1)
 Premium finance contracts outstanding(1)               5,390,978             1,535,252
 Premium finance contracts contractually                    2.30%                 1.85%
 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 March 31, 1996, $33,833,000
was outstanding under the Revolving Credit Facility and there was $16,167,000
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. The Company's
ability to continue its business and growth strategy beyond 1996 may be limited
if its efforts to raise additional capital are unsuccessful.

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 March
            31, 1996.


                                       16

<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: April 30, 1996                /s/JAMES D. THAXTON
James D. Thaxton
                                    President and Chief Executive Officer

Date: April 30, 1996                /s/KENNETH H. JAMES
                                    Kenneth H. James
                                    Vice President, Secretary, and
                                    Chief Financial Officer





                                       17

<PAGE>







                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>


EXHIBIT NO.                          DESCRIPTION                                            PAGE NO.

<S>        <C>                                                                                <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                                      8
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



                                       18

<TABLE> <S> <C>

<ARTICLE> 5
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-END>                               MAR-31-1996
<CASH>                                          59,048
<SECURITIES>                                         0
<RECEIVABLES>                               53,761,576
<ALLOWANCES>                                 1,090,326
<INVENTORY>                                          0
<CURRENT-ASSETS>                            40,588,845
<PP&E>                                       1,547,288
<DEPRECIATION>                                 847,038
<TOTAL-ASSETS>                              42,891,734
<CURRENT-LIABILITIES>                          719,435
<BONDS>                                              0
                                0
                                          0
<COMMON>                                        37,772
<OTHER-SE>                                   7,514,581
<TOTAL-LIABILITY-AND-EQUITY>                42,891,734
<SALES>                                              0
<TOTAL-REVENUES>                             3,497,744
<CGS>                                                0
<TOTAL-COSTS>                                1,576,099
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                               478,614
<INTEREST-EXPENSE>                             874,459
<INCOME-PRETAX>                                568,571
<INCOME-TAX>                                   213,953
<INCOME-CONTINUING>                            354,618
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   354,618
<EPS-PRIMARY>                                      .09
<EPS-DILUTED>                                      .09
        


</TABLE>

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