SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB A
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
( ) 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.
(Exact name of small business issuer as specified 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 including area code: 803-285-4336
Check whether the issuer (1) filed all reports required to by filed by Section
13 or 15 (d) of the Exchange Act of 1934 during the past 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
--- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
OUTSTANDING AT
CLASS AUGUST 5, 1997
COMMON STOCK 3,922,683
1
<PAGE>
The Company is amending its Report on Form 10-Q for the period ended June 30,
1997, because the Company determined subsequent to the filing of the Form that
all financial statements presented should combine the accounts of the Company
with those of The Thaxton Insurance Group, Inc., which the company acquired in
October of 1996. That acquisition was accounted for as a pooling of interests,
but did not present combined statements for periods prior to the acquisition.
This amendment combines the accounts for all statements for all periods
presented.
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
THE THAXTON GROUP, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
Cash $ 795,169 $ 421,465
Finance receivables, net 51,468,393 46,546,087
Premises and equipment, net 1,961,699 1,947,210
Accounts receivable 1,651,859 1,269,384
Repossessed automobiles 810,011 1,166,495
Goodwill and other intangible assets 3,948,002 3,463,814
Other assets 2,073,004 1,867,112
------------ ------------
TOTAL ASSETS $ 62,708,137 $ 56,681,567
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 51,634,290 $ 46,345,883
Accrued interest payable 379,427 387,237
Notes payable to affiliates 737,621 743,621
Accounts payable 945,284 1,350,306
Employee savings plan 1,255,746 1,098,457
Other liabilities 836,329 384,758
------------ ------------
TOTAL LIABILITIES 55,788,697 50,310,262
Common stock, $.01 par value; authorized
50,000,000 shares, issued and
outstanding 3,924,382 shares 39,244 39,322
Additional paid-in-capital 3,420,500 3,504,027
Retained earnings 4,134,696 3,547,956
Deferred stock award (675,000) (720,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,919,440 6,371,305
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 62,708,137 $ 56,681,567
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
THE THAXTON GROUP, INC.
Consolidated Statements of Income
(Unaudited)
Three Months Ended June 30
1997 1996
---- ----
Interest and fee income $4,248,988 $3,348,580
Interest expense 1,245,544 1,027,247
---------- ----------
NET INTEREST INCOME 3,003,444 2,321,333
Provision for credit losses 809,065 367,326
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 2,194,379 1,954,007
Other income:
Insurance premiums and
commissions, net 1,322,143 1,452,455
Other income 200,690 208,431
---------- ----------
TOTAL OTHER INCOME 1,522,833 1,660,886
Operating expenses:
Compensation and employee benefits 1,593,322 1,393,237
Telephone, postage, and supplies 344,230 273,993
Net occupancy 359,330 296,673
Insurance 80,331 40,590
Collection expense 39,082 5,648
Travel 27,858 40,870
Professional fees 52,937 37,595
Reinsurance claims expense 92,301 182,027
Other 694,878 655,271
---------- ----------
TOTAL OPERATING EXPENSES 3,284,269 2,925,904
---------- ----------
NET INCOME BEFORE INCOME TAX EXPENSE 432,943 688,989
Income tax expense 160,480 257,103
---------- ----------
NET INCOME $ 272,463 $ 431,886
========== ==========
Dividends on preferred stock -- $ 8,500
========== ==========
NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS $ 272,463 $ 423,386
========== ==========
NET INCOME PER COMMON SHARE $ .07 $ .11
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 3,925,507 3,938,236
========== ==========
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE THAXTON GROUP, INC.
Consolidated Statements of Income
(Unaudited)
Six Months Ended June 30
1997 1996
---- ----
Interest and fee income $7,768,199 $6,553,457
Interest expense 2,394,340 2,007,050
---------- ----------
NET INTEREST INCOME 5,373,859 4,546,407
Provision for credit losses 1,538,832 845,940
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 3,835,027 3,700,467
Other income:
Insurance premiums and
commissions, net 2,529,800 2,692,098
Other income 649,552 554,636
---------- ----------
TOTAL OTHER INCOME 3,179,352 3,246,734
Operating expenses:
Compensation and employee benefits 3,022,796 2,743,228
Telephone, postage, and supplies 661,505 551,408
Net occupancy 714,864 595,523
Insurance 137,292 87,705
Collection expense 82,393 32,610
Travel 60,265 66,314
Professional fees 86,407 56,462
Reinsurance claims expense 215,956 224,952
Other 1,116,989 1,335,355
---------- ----------
TOTAL OPERATING EXPENSES 6,098,467 5,693,557
---------- ----------
NET INCOME BEFORE INCOME TAX EXPENSE 915,912 1,253,644
Income tax expense 329,173 471,056
---------- ----------
NET INCOME $ 586,739 $ 782,588
========== ==========
Dividends on preferred stock -- $ 17,000
========== ==========
NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS $ 586,739 $ 765,588
========== ==========
NET INCOME PER COMMON SHARE $ .15 $ .19
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 3,927,455 3,938,236
========== ==========
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE THAXTON GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended June 30
1997 1996
---- ----
Cash flows from operating activities $ 2,058,723 $ 908,835
Cash flows from investing activities (6,855,393) (7,606,039)
Cash flows from financing activities 5,170,374 4,090,262
----------- -----------
NET (DECREASE) INCREASE IN CASH 373,704 (2,606,942)
CASH AT BEGINNING OF PERIOD 421,465 3,214,977
----------- -----------
CASH AT END OF PERIOD $ 795,169 $ 608,035
============ ===========
See accompanying notes to consolidated financial statements.
6
<PAGE>
THE THAXTON GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1997 and 1996
(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, Georgia, 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, and with the acquisition of Thaxton Insurance Group,
Inc.("TIG") in 1996 began selling on an agency basis various lines of
automobile, property and casualty, life and accident and health
insurance. The Company provides reinsurance through a wholly-owned
subsidiary, TICO Reinsurance, Ltd. (TRL). All significant inter-company
accounts and transactions have been eliminated in consolidation.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities at the date of the financial statements and the amounts of
income and expenses during the reporting period. 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 method.
(b) ALLOWANCE FOR CREDIT LOSSES
Additions to the allowance for credit losses are based on
management's evaluation of the finance receivables portfolio
considering current economic
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conditions, overall portfolio quality, charge-off experience, and
such other 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 such 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 to secure
certain loans. Non-file insurance premiums are collected from the
borrower on certain loans at inception and renewal and are
remitted directly to an unaffiliated 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.
Insurance commissions earned by TIG are recognized as services are
performed in accordance with TIG's contractual obligations with
the underwriters, but not before protection is placed with
insurers.
8
<PAGE>
(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 month's ending balance. Employees may withdraw
savings on demand.
(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 of 3,927,455 and 3,938,236 for 1997 and 1996,
respectively. The effect of common stock equivalent shares
applicable to stock option plans has not been included in the
calculation of net income per share because such effect is not
materially dilutive.
(i) INTANGIBLE ASSETS
Intangible assets include goodwill, expiration lists, and
covenants not to compete related to the purchase of insurance
agencies. Goodwill represents the excess of the cost of insurance
agencies over the fair value of its assets at the date of
acquisition. Goodwill is amortized on a straight-line basis over a
fifteen to twenty year period. The expiration lists are amortized
over their estimated useful life of twenty years on a
straight-line basis . Covenants not to compete are amortized
according to the purchase contract over five to six years on a
straight-line basis. Intangible assets also include the premium
paid to acquire Eagle Premium Finance Company, which is being
amortized on a straight-line basis over ten years. Recoverability
of recorded intangibles is evaluated by using undiscounted cash
flows.
9
<PAGE>
(j) STOCK OPTIONS
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation," which requires that the fair value of employee
stock-based compensation plans be recorded as a component of
compensation expense in the statement of income or the impact of
such fair value on net income and earnings per share be disclosed
on a pro forma basis in a footnote to the financial statements in
accordance with APB 25. The Company will continue such accounting
under the provisions of APB 25.
(k) FAIR VALUE OF FINANCIAL INSTRUMENTS
All financial assets of the Company are short term in nature and
all liabilities are substantially at variable rates of interest.
As such, the carrying values of these financial assets and
liabilities approximate their fair value.
(l) REPOSSESSED ASSETS
Repossessed assets are recorded at their estimated fair value less
costs to dispose. Any difference between the loan balance and the
fair value of the collateral on the date of repossession is
charged to the allowance for credit losses.
(M) INTERIM UNAUDITED FINANCIAL STATEMENTS
Information with respect to June 30, 1997 and 1996, 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.
Users of financial information produced for interim periods are
encouraged to refer to the footnotes contained in the Annual
Report on Form 10-KSB when reviewing interim financial statements.
The results of operations for the three and six month periods
ended June 30, 1997 are not necessarily indicative of the results
which may be expected for the entire fiscal year.
10
<PAGE>
(2) Finance Receivables
Finance receivables consisted of the following at June 30, 1997.
Automobile sales contracts $53,636,050
Direct loans 12,655,681
Premium finance contracts 3,380,685
---------
Total finance receivables 69,672,416
Unearned interest (13,775,488)
Unearned insurance premiums, net (101,923)
Allowance for credit losses (2,390,070)
Bulk purchase discount (921,313)
Dealer holdback (1,015,229)
-----------
Finance receivables, net $51,468,393
===========
Finance receivables include bulk purchases of receivables, automobile
sales contracts under holdback arrangements, and small consumer loan
receivables. With bulk purchase arrangements, the Company typically
purchases a group of receivables from an automobile dealer 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 $7,769,780 and $921,313, respectively, at June 30,
1997.
With holdback arrangements, an automobile dealer 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 total remaining holdback amount for a particular
dealer, 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 $33,571,649 and
$1,015,229, respectively, at June 30, 1997.
At June 30, 1997, there were no significant concentrations of receivables
in any type of property or to one borrower.
11
<PAGE>
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, 1997 and 1996 were as follows:
1997 1996
---- ----
Beginning balance $ 2,195,000 $ 783,200
Valuation allowance for acquired loans -0- 28,872
Provision for credit losses 1,538,832 845,940
Charge-offs (1,436,203) (788,368)
Recoveries 92,441 135,721
----------- -----------
Net charge-offs (1,343,762) (652,647)
----------- -----------
Ending balance $ 2,390,070 $ 1,005,365
=========== ===========
(3) Indebtedness
At June 30, 1997, the Company maintained a line of credit agreement with
a commercial finance company for $80 million, which matures on July 31,
1998. Of this amount, approximately $34.6 million was available at June
30, 1997. The outstanding balance under this line of credit was
$45,350,000 at June 30, 1997. There are two tranches under this
agreement, Tranche A and Tranche B. The total line of credit under
Tranche A is $70 million of which $44,575,000 was outstanding at June 30,
1997. This tranche bears interest at the lender's prime rate plus 1%
(9.5% at June 30, 1997). The total line of credit under Tranche B is $10
million of which $775,000 was outstanding at June 30, 1997. This tranche
bears interest at the lender's prime rate plus 5% (13.5% at June 30,
1997). Interest on the outstanding line of credit balance is payable
monthly.
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 Company's ability to declare and pay dividends is limited to
50% of net income for the current year. As of June 30, 1997, the Company
met all such ratios and requirements.
TIG maintains a line of credit agreement with the same commercial finance
company for $3 million which matures March 31, 1998. Of this amount,
$1,614,324 was outstanding at June 30, 1997. Borrowings under this
arrangement bear interest at the lender's prime rate plus 3% (11.5% at
June 30, 1997), payable monthly.
TIG also has a line of credit agreement with a commercial bank under
which the Company can borrow up to $400,000. The principal is payable on
demand, and interest is payable quarterly at the bank's prime rate plus
one percent (9.5% at June 30, 1997). The amount outstanding as of June
30, 1997 was $175,345. The line of credit is secured by certain real
estate, furniture, fixtures, equipment and investments
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<PAGE>
owned by TIG and individual shareholders. TIG also has a sweep account
with the bank. The bank requires TIG to maintain a $55,000 balance in the
account. If the account drops below $55,000 the bank automatically
advances money from the line-of-credit to increase the account to
$55,000.
At June 30, the Company had notes payable to other non-affiliates in the
amount of $4,494,621 and affiliates in the amount of $737,621.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PROFITABILITY
The following table sets forth certain data relating to the Company's
profitability during the periods presented.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average net finance receivables(1) $52,289,595 $42,521,187 $51,035,860 $40,701,351
Average notes payable(1) 44,758,058 36,379,696 43,873,630 34,918,435
Interest and fee income(2) 4,039,702 3,345,910 7,740,263 6,548,295
Interest expense(2) 1,111,725 916,500 2,133,916 1,790,959
----------- ----------- ----------- -----------
Net interest income 2,927,977 2,429,410 5,606,347 4,757,335
=========== =========== =========== ===========
Average interest rate earned(1) 30.90% 31.48% 30.33% 32.18%
Average interest rate paid(1) 9.94 10.08 9.73 10.26
----------- ----------- ----------- -----------
Net interest spread 20.96 21.40 20.60 21.92
=========== =========== =========== ===========
Net interest margin(3) 22.40% 22.85% 21.97% 23.38%
=========== =========== =========== ===========
</TABLE>
- ------------
(1) Averages are computed using month-end balances during the
periods presented and are annualized for periods of less than one year
(2) Excludes Thaxton Insurance fee income and interest expense on Thaxton
related debt.
(3) Net interest margin represents net interest income divided by average Net
Finance Receivables.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Finance receivables at June 30, 1997 were $69,672,416 versus $57,690,575
at June 30, 1996, a 21% increase. The primary component of this increase was
Automobile Sales Contracts, which increased from $41,663,134 at June 30, 1996 to
$53,636,050 at June 30, 1997, or 29%. The Company opened two branch offices in
1996 and one in early 1997, which generated significant additional volume of
Automobile Sales Contracts during the first half of 1997.
Unearned income at June 30, 1997 was $13,877,411 versus $11,878,210 at
June 30, 1996, a 17% increase which was directly related to the higher volume of
Automobile Sales Contract originations during the first half of 1997. The
provision for credit losses established for the six months ended June 30, 1997
was $1,538,832 versus $845,940 for 1996, and the allowance for credit losses
increased from $1,005,365 at June 30, 1996 to $2,390,070 at June 30, 1997. The
increase in the provision was due to strengthening the Company's allowance for
credit losses in response to higher than expected loan losses and repossessions.
The allowance for credit losses as a percentage of Net Finance Receivables
increased from 2.19% at June 30, 1996 to 4.28% at June 30, 1997.
The growth in finance receivables during the six months ended June 30,
1997 versus the comparable period in 1996 resulted in higher levels of interest
and fee income. Interest and fee income for the six months ended June 30, 1997
was $7,768,199, versus $6,553,457 for the six months ended June 30, 1996, a 19%
increase. Interest expense also was higher, increasing to $2,394,340 for the six
months ended June 30, 1997 versus $2,007,050 for the comparable period of 1996,
a 19% increase. The increase in interest expense was due to the higher levels of
borrowings needed to fund finance receivable originations and the working
capital requirements of Thaxton Insurance.
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<PAGE>
Net interest income for the six months ended June 30, 1997 increased to
$5,373,859 from $4,546,407 for the comparable period of 1996, a 18% 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 6% decrease in net interest spread for the six months ended June 30, 1997
versus the comparable period of 1996.
Insurance commissions net of insurance cost decreased to $2,529,800 for
the six months ended June 30, 1997 from $2,692,098 for the comparable period of
1996, due to reduced sales of insurance products to borrowers. Other income
increased from $554,336 for the six months ended June 30, 1996 to $649,552 for
the comparable period of 1997 due to increased profit sharing payments to
Thaxton Insurance from various insurance carriers.
Reinsurance claims and collection expenses remained fairly constant for
the six months ended June 30, 1997 compared to the six months ended June 30,
1996, with reinsurance claims expense decreasing 4% and collection expenses
increasing 5%.
Total operating expenses increased from $5,693,557 for the six months
ended June 30, 1996 to $6,098,467 for the comparable period of 1997, a 7%
increase. The increase in expenses was due to opening new finance offices in
addition to a general increase in costs associated with administering a larger
finance receivable portfolio.
Net income decreased to $586,739 for the six months ended June 30, 1997
from $782,588 for the comparable period of 1996. The decrease in net income was
due to the higher levels of net interest and insurance commission income being
offset by higher provisions for credit losses and expenses.
Stockholders' equity increased from $6,271,305 at December 31, 1996 to
$6,919,440 at June 30, 1997 as a result of retained earnings from after tax
profits earned during the period.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
The growth in finance receivables during the three months ended June 30,
1997 versus the comparable period of 1996 resulted in higher levels of interest
and fee income. Interest and fee income for the three months ended June 30, 1997
was $4,248,988, versus $3,348,580 for the three months ended June 30, 1996, a
27% increase. Interest expense also was higher, increasing to $1,245,544 for the
three months ended June 30, 1997 versus $1,027,247 for the three months ended
June 30, 1996, a 21% 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, 1997 increased to
$3,003,444 from $2,321,333 for the comparable period of 1996, a 29% 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 2% decrease in net interest spread for the three months ended June 30, 1997
versus the comparable period of 1996.
Insurance commissions net of insurance cost decreased to $1,322,143 for
the three months ended June 30, 1997 from $1,452,455 for the comparable period
of 1996, due to reduced sales of insurance products to borrowers. Other income
was comparable for the two three month periods.
Operating expenses increased from $2,925,904 for the three months ended
June 30, 1996 to $3,284,269 for the comparable period of 1997, a 12% increase.
The increase in expenses was due to the opening new finance offices and the
additional expenses associated with the insurance agency operations, in addition
to a general increase in costs associated with administering a larger finance
receivable portfolio.
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<PAGE>
Net income decreased to $272,463 for the three months ended June 30, 1997
from $431,886 for the comparable period of 1996. The decrease in net income was
due to the higher levels of net interest and insurance income being offset by
higher provisions for credit losses and expenses.
CREDIT LOSS EXPERIENCE
The following table sets forth the Company's allowance for credit losses
at June 30, 1997, and 1996 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,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Net finance receivables (1) $55,795,005 $45,812,365 $55,795,005 $45,812,365
Allowance for credit losses 2,390,070 1,005,365 2,390,070 1,005,365
Allowance for credit losses as a percentage of net 4.28% 2.19% 4.28% 2.19%
finance receivables
Dealer reserves and discounts on bulk purchases $1,936,542 $1,221,475 $1,936,542 $1,221,475
Dealer reserves and discounts on bulk purchases as
percentage of Automobile Sales Contracts at period
end (2) 4.56% 3.91% 4.56% 3.91%
Allowance for credit losses and dealer reserves and 7.75 4.86 7.75 4.86
discount on bulk purchases as a percentage of net
finance receivables
Provision for credit losses $809,065 $367,326 $1,538,832 $845,940
Charge-offs (net of recoveries) 704,053 326,716 1,343,762 652,647
Charge-offs (net of recoveries) as a percentage of 5.38% 3.07% 5.26% 3.20%
average net finance receivables (3)
</TABLE>
_____________
(1) Finance receivable balances are presented net of unearned finance charges.
(2) Percentages are computed using Automobile Sales Contracts, net of unearned
finance charges only.
(3) Averages are computed using month-end balances of net finance receivables
during the period presented.
16
<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.
At June 30,
1997 1996
--------- ----------
Dealer reserves and discounts on bulk purchases
on Automobile Sales Contracts $1,936,542 $1,221,475
Allowance for credit losses:
Direct Loans 2,163,086 756,279
Premium Finance Contracts 226,984 249,086
------- -------
Subtotal 2,390,070 1,005,365
--------- ---------
Total $4,326,612 $2,226,840
=========== ===========
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,
-----------------
1997 1996
-------- ------
<S> <C> <C>
Automobile Sales Contracts and Direct Loans contractually
past due 90 days or more(1) $ 490,572 $ 296,072
Automobile Sales Contracts and Direct Loans (1) 50,608,830 40,316,349
Automobile Sales Contracts and Direct Loans contractually .97% .73%
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.
17
<PAGE>
The following table sets forth certain information concerning Premium
Finance Contracts at the end of the periods indicated:
At June 30,
-------------
1997 1996
------- -------
Premium finance contracts contractually $68,269 $123,063
past due 60 days or more(1)
Premium finance contracts outstanding(1) 3,249,634 4,302,579
Premium finance contracts contractually 2.1% 2.9%
past due 60 days or more as a percentage
of premium finance contracts
- -------------------------------------------
(1) Finance receivable balances are presented net of unearned finance charges
and discounts on bulk purchases
