UNITED STATES
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 SEPTEMBER 30, 1998
( ) 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 333-42623
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 29270
-----------------------------------------------------
(Address of principal executive offices)
Issuers telephone number: 803-285-4337
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 OCTOBER 31, 1998
----- -----------------
COMMON STOCK 3,744,592
1
<PAGE>
THE THAXTON GROUP, INC.
FORM 10-QSB
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE NO.
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 1998 and 3
December 31, 1997
Consolidated Statements of Income for the nine months ended
September 30, 1998 and 1997 4
Consolidated Statements of Income for the three months ended
September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
THE THAXTON GROUP, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1998 1997
---- ----
Assets (Unaudited)
- ------
Cash $ 469,095 1,162,793
Finance receivables, net 48,431,349 48,662,228
Premises and equipment, net 2,486,338 2,003,787
Accounts receivable 2,362,778 1,616,570
Repossessed automobiles 788,849 744,030
Goodwill and other intangible assets 3,651,960 3,894,956
Other assets 3,600,014 2,881,308
---------- ----------
Total assets 61,790,383 60,965,672
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Accrued interest payable 342,871 420,863
Notes payable 53,126,940 51,071,066
Notes payable to affiliates 996,417 1,015,358
Accounts payable 928,879 1,357,739
Employee savings plan 883,828 1,045,533
Other liabilities 326,677 85,796
---------- ----------
Total liabilities 56,605,612 54,996,355
---------- ----------
Stockholders' Equity
- --------------------
Preferred Stock $ .01 par value,
Series A: 400,000 shares authorized,
178,014 shares issued and outstanding 1,780 1,780
Series B: 27,076 shares authorized, issued and
outstanding at December 31, 1997; no shares
outstanding at September 30, 1998 - 271
Series C: 50,000 shares authorized, issued and
outstanding 500 500
Series D: 56,276 shares authorized, issued and
outstanding at September 30, 1998; no shares 563 -
outstanding at December 31, 1997
Common stock, $ .01 par value; authorized 50,000,000
shares;
issued and outstanding 3,747,642 shares at
September 30,1998; 3,795,600 shares at
December 31, 1997 37,476 37,956
Additional paid-in-capital 4,281,442 4,521,354
Deferred stock award (540,000) (630,000)
Retained earnings 1,403,010 2,037,456
--------- ---------
Total stockholders' equity 5,184,771 5,969,317
--------- ---------
Total liabilities and stockholders' equity $61,790,383 60,965,672
=========== ==========
See accompanying notes to consolidated financial statements.
3
<PAGE>
THE THAXTON GROUP, INC.
Consolidated Statements of Income (Unaudited)
Nine months Ended September 30,
1998 1997
------ -------
Interest and fee income $11,265,996 11,837,182
Interest expense 3,703,073 3,706,770
--------- ------------
Net interest income 7,562,923 8,130,412
Provision for credit losses 2,952,167 3,885,424
--------- ------------
Net interest income after provision for
credit losses 4,610,756 4,244,988
Other income:
Insurance premiums and commissions, net 4,841,760 3,961,939
Other income 618,690 843,797
--------- ------------
Total other income 5,460,450 4,805,736
--------- ---------
Operating expenses:
Compensation and employee benefits 5,255,529 4,538,859
Telephone, postage, and supplies 1,301,830 1,056,751
Net occupancy 1,171,643 1,113,405
Reinsurance claims expense 227,305 276,952
Insurance 190,002 211,148
Collection expense 110,516 146,724
Travel 96,202 103,681
Professional fees 282,719 166,188
Other 2,134,883 1,731,864
--------- -----------
Total operating expenses 10,770,629 9,345,572
---------- ----------
Income (loss) before income tax expense (699,423) (294,848)
Income tax expense (benefit) (227,313) (112,042)
---------- ----------
Net income (loss) $ (472,110) (182,806)
========== ==========
Dividends on preferred stock $ 162,335 -
========= ==========
Net income (loss) applicable to common
shareholders $(634,445) (182,806)
========= ==========
Net income (loss) per common share -- basic $ (.17) (.05)
========= ==========
Net income (loss) per common share -- diluted $ (.17) (.05)
========= ==========
Weighted average shares outstanding -- basic 3,776,146 3,925,973
========= =========
Weighted average shares outstanding -- diluted 3,776,146 3,925,973
========= =========
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE THAXTON GROUP, INC.
Consolidated Statements of Income (Unaudited)
Three Months Ended September 30,
1998 1997
------ ------
Interest and fee income $3,744,016 4,068,983
Interest expense 1,290,220 1,312,430
--------- ------------
Net interest income 2,453,796 2,756,553
Provision for credit losses 985,125 2,346,592
--------- ------------
Net interest income after provision for credit
losses 1,468,671 409,961
Other income:
Insurance premiums and commissions, net 1,988,810 1,432,139
Other income 145,557 194,245
--------- ----------
Total other income 2,134,367 1,626,384
--------- ---------
Operating expenses:
Compensation and employee benefits 1,884,139 1,516,063
Telephone, postage, and supplies 471,670 395,246
Net occupancy 361,259 398,541
Reinsurance claims expense 100,745 60,995
Insurance 123,662 73,856
Collection expense 30,585 64,331
Travel 32,797 43,416
Professional fees 167,982 79,782
Other 781,833 614,875
--------- ---------
Total operating expenses 3,954,672 3,247,105
--------- ----------
Income (loss) before income tax expense (351,634) (1,210,760)
Income tax expense (benefit) (114,282) (441,215)
---------- ----------
Net income (loss) $ (237,352) (769,545)
=========== =========
Dividends on preferred stock $ 57,133 -
========= =========
Net income (loss) applicable to common
shareholders $(294,485) (769,545)
========= =========
Net income (loss) per common share -- basic $ (.08) (.20)
========= =========
Net income (loss) per common share -- diluted $ (.08) (.20)
========= =========
Weighted average shares outstanding -- basic 3,756,768 3,923,632
========= =========
Weighted average shares outstanding -- diluted 3,756,768 3,923,632
========== =========
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE THAXTON GROUP, INC.
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1998 and 1997
1998 1997
---- ----
Cash flows from operating activities $ 1,328,445 4,286,969
Cash flows from investing activities (3,746,641) (10,886,844)
Cash flows from financing activities 1,724,498 6,861,932
Net increase (decrease) in cash (693,698) 262,057
Cash at beginning of period 1,162,793 421,465
Cash at end of Period $ 469,095 683,522
6
<PAGE>
THE THAXTON GROUP, INC.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1998 and 1997
(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 sells, on an agency basis, various lines of automobile, property
and casualty, life and accident and health insurance, and 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. In addition, the Company is also engaged in mortgage banking,
originating mortgage loans to individuals. The Company sells substantially all
mortgage loans it originates to independent third parties. All significant
intercompany 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 the 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.
Information with respect to September 30, 1998 and 1997, 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
the Company. Users of financial information produced for interim periods are
encouraged to refer to the footnotes contained in the Company's Annual Report on
Form 10-KSB when reviewing interim financial statements. The results of
operations for the nine months and quarter ended September 30, 1998 are not
necessarily indicative of results to be expected for the entire fiscal year.
Effective January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") Number 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting comprehensive income
and its components in a full set of general purpose financial statements. The
objective of the statement is to report a measure of all changes in equity of an
enterprise that result from transactions and other economic events during the
period other than transactions with owners. Comprehensive income is divided into
net income and other comprehensive income. Adoption of SFAS No. 130 will not
change total stockholders' equity as previously reported. The Company's adoption
of SFAS No. 130 had no effect on the presentation of income in the Company's
financial statements for the periods ending September 30, 1998 and 1997, as
comprehensive income equals net income.
7
<PAGE>
(2) Finance Receivables
Finance receivables consist of the following at September 30, 1998 and December
31,1997:
September 30, December 31,
1998 1997
------ -------
Automobile Sales Contracts $41,110,636 48,098,657
Direct Loans 20,432,439 15,449,004
Premium Finance Contracts 4,154,982 4,010,608
Commercial 628,513 0
---------- ----------
Total finance receivables 66,326,570 67,558,269
Unearned interest (11,455,566) (12,902,552)
Unearned insurance premiums, net (136,659) (155,514)
Bulk purchase discount (633,657) (359,945)
Dealer hold back (851,539) (668,630)
Allowance for credit losses (4,817,800) (4,809,400)
---------- ----------
Finance receivables, net $48,431,349 48,662,228
=========== ==========
Consumer loans 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 $6,739,000 and
$634,000, respectively, at September 30, 1998 and approximately $8,328,000
and $360,000, respectively, at December 31, 1997.
With holdback arrangements, an automobile 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 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 $26,970,000 and
$852,000, respectively, at September 30, 1998 and approximately $31,593,000
and $669,000, respectively, at December 31, 1997.
At September 30, 1998, 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
(see note 3).
8
<PAGE>
Changes in the allowance for credit losses for the nine months ended
September 30, 1998 and 1997 are as follows:
1998 1997
---- ----
Beginning balance $ 4,809,400 2,195,000
Provision for credit losses 2,952,167 3,885,424
Charge-offs (3,076,077) (2,767,660)
Recoveries 132,310 127,916
---------- ----------
Net charge-offs (2,943,767) (2,639,744)
----------- -----------
Ending balance $ 4,817,800 3,440,680
============ ==========
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) Notes Payable
-------------
At September 30, 1998, the Company maintained a revolving credit facility with a
commercial finance company for $100 million, maturing on August 31, 1999. The
outstanding balance under this facility was $42,713,000 at September 30,
1998. At September 30, 1998, the Company's net finance receivables would have
allowed it to borrow an additional $8.9 million against existing collateral.
There are six tranches under this facility, Tranches A, B, C, D, E and F. The
total line of credit, amount of credit line available at September 30, 1998, and
interest rate for each Tranche is summarized below:
Tranche A: $100,000,000; $57,428,000; 9.5% (Lender's prime rate + 1%)
Tranche B: $ 10,000,000; $10,000,000; 13.5% (Lender's prime rate + 5%)
Tranche C: $ 5,000,000; $ 4,859,000; 9.5% (Lender's prime rate +1%)
Tranche D: $ 10,000,000; $10,000,000; 10.5% (Lender's prime rate + 2%)
Tranche E: $ 7,000,000; $ 7,000,000; 13.5% (Lender's prime rate + 5%)
Tranche F: $ 25,000,000; $25,000,000; 9.5% (Lender's prime rate + 1%)
The borrowing availability under certain tranches is also limited by amounts
borrowed under other tranches, outstanding receivables, insurance policies
written, and in some cases, additional restrictions.
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 which may be amended from time to time.
As of September 30, 1998, the Company met all such ratios and requirements or
had obtained waivers for any instances of non-compliance.
(4) Deferred Stock Award
--------------------
One of the Company's executive officers has notified the Company that he does
not intend to accept 10,000 shares of common stock previously granted under the
Company's deferred stock compensation plan which were scheduled to vest on
December 30, 1998. Accordingly, no compensation expense related to the vesting
of those shares has been recognized for the period ended September 30, 1998. The
common stock, paid-in-capital, and deferred stock award accounts have been
adjusted to reflect cancellation of those shares.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
10
<PAGE>
PROFITABILITY
The following table sets forth certain data relating to the Company's
profitability.
For the Nine months For the Three Months
Ended September 30 Ended September 30
----------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
Average Net Finance
Receivables (1) $52,047,746 $52,478,778 $52,782,750 $55,348,806
Average notes payable 44,997,663 45,038,305 45,988,969 47,026,029
Interest and fee income 11,263,334 11,779,303 3,743,266 4,004,367
Interest expense (2) 3,254,326 3,315,055 1,141,765 1,181,139
--------- --------- --------- ---------
Net interest income 8,009,008 8,464,248 2,601,501 2,823,228
=========== ========== ========== ==========
Average interest rate
earned (1) 28.85% 29.93% 28.37% 28.94%
Average interest rate paid
(1) 9.64 9.81 9.93 10.05
---- ----- ---- -----
Net interest spread 19.21 20.12 18.44 18.89
=========== ========== ========== ==========
Net interest margin (3) 20.52% 21.51% 19.71% 20.40%
- ------------
(1) Averages are computed using month-end balances during the periods
presented.
(2) Excludes interest income and expense earned and incurred by the Company's
insurance agency subsidiary.
(3) Net interest margin represents net interest income divided by average Net
Finance Receivables.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Finance Receivables at September 30, 1998 were $66,326,570 versus $70,990,704 at
September 30, 1997, an 8% decrease. The decline is due primarily to a decline in
volume associated with the tightened underwriting policies instituted in the
third quarter of 1997 designed to reduce credit losses.
Unearned income at September 30, 1998 was $11,592,225 versus $14,066,851 at
September 30, 1997, an 18% decrease which was directly related to the lower
receivable level. The provision for credit losses established for the nine
months ended September 30, 1998 was $2,952,167 versus $3,885,424 for the same
period in 1997, and the allowance for credit losses increased to $4,817,800 at
September 30, 1998, from $3,440,680 at September 30, 1997. The increase in the
provision, and the corresponding increase in the allowance for credit loss
balance, is due to the Company's strengthening of its allowance for credit
losses in response to higher than expected loan losses. The allowance for credit
losses as a percentage of average Net Finance Receivables increased to 9.26% at
September 30, 1998, from 6.04% at September 30, 1997.
Interest and fee income for the nine months ended September 30, 1998 was
$11,265,996, versus $11,837,182 for the nine months ended September 30, 1997, a
10% decrease. This decrease is the result of lower average earning receivables
in 1998 due to tightened underwriting established in the third quarter of 1997
and a corresponding increase in the average age of the portfolio. Interest
expense decreased slightly to $3,703,073 for the nine months ended September 30,
1998 versus $3,706,770 for the nine months ended September 30, 1997, a decrease
of less than 1%, the direct result of a slightly lower level of average
borrowings. As a result, net interest income for the nine months ended September
30, 1998 decreased to $7,562,923 from $8,130,412 for the comparable period of
1997, a 7% decrease.
Insurance commissions net of insurance cost increased to $4,841,760 for the nine
months ended September 30, 1998 from $3,961,939 for the same period of 1997, due
to a higher penetration rate for the product. Other income decreased from
$843,797 at September 30, 1997, to $618,690 at September 30, 1998 due primarily
to a timing difference in the recognition of insurance profit sharing payments
from the Company's carriers.
11
<PAGE>
Operating expenses increased to $10,770,629, for the nine months ended September
30, 1998 from $9,345,572 for the comparable period of 1997, a 15% increase, due
to additional expenses incurred as a result of a larger branch network and
increased home office expenses associated primarily with the Company's mortgage
banking business.
As a result of the above, the Company posted a $634,445 loss for the nine months
ended September 30, 1998, versus a $182,806 loss for the nine months ended
September 30, 1997.
Stockholders' equity decreased from $5,969,317 at December 31, 1997 to
$5,184,771 at September 30, 1998, a 9% decrease, as a result of a reduction in
retained earnings from after tax losses during the period combined with
preferred stock dividends paid and legal expenses associated with the preferred
stock offering.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Interest and fee income for the three months ended September 30, 1998 was
$3,744,016, versus $4,068,983 for the three months ended September 30, 1997, a
13% decrease. This decrease is the result of lower average receivables in 1998
due to tightened underwriting established in the third quarter 1997. Interest
expense decreased to $1,290,220 for the three months ended September 30, 1998
versus $1,312,430 for the three months ended September 30, 1997, a 2% decrease,
the direct result of a lower level of borrowings brought about, in part, by a
lower level of outstandings. As a result, net interest income for the three
months ended September 30, 1998 decreased to $2,453,796 from $2,756,553 for the
comparable period of 1997, an 11% decrease.
Insurance commissions net of insurance cost increased to $1,988,810 for the
three months ended September 30, 1998 from $1,432,139 for the comparable period
of 1997, due to a higher penetration rate for the product. Other income
decreased from $194,245 for the three months ended September 30, 1997 to
$145,557 for the three months ended September 30, 1998 due, in part, to a timing
difference in the recognition of insurance profit sharing payments from the
Company's carriers.
Operating expenses increased from $3,247,105 for the three months ended
September 30, 1997 to $3,954,672 for the three months ended September 30, 1998,
a 22% increase, due to additional expenses incurred as a result of a larger
branch network and increased main office expenses associated primarily with the
Company's mortgage banking business.
As a result of the above, the Company posted a $237,352 loss for the three
months ended September 30, 1998, versus a $769,545 loss for the three months
ended September 30, 1997.
12
<PAGE>
The following table sets forth the Company's allowance for credit losses at
September 30, 1998, and 1997 and the credit loss experience over the periods
presented.
<TABLE>
<CAPTION>
For the Nine months For the Three Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net finance receivables(1) $52,047,746 $56,923,85 $52,782,750 $56,923,853
Allowance for credit losses 4,817,800 3,440,680 4,817,800 3,440,680
Allowance for credit losses as a
percentage of net finance
receivables (1) 9.26% 6.04% 9.13% 6.04%
Dealer reserves and discounts on
bulk purchases $1,485,196 1,308,367 1,1485,196 1,308,367
Dealer reserves and discounts on
bulk purchases as percentage of
Automobile Sales Contracts at
period end(2) 4.54% 3.08% 4.54% 3.08%
Allowance for credit losses and
dealer reserves and discount on
bulk purchases as a percentage of
net finance receivables (1) 12.11% 8.34% 11.94% 8.34%
Provision for credit losses $2,952,167 3,885,424 985,125 2,346,592
Charge-offs (net of recoveries) . 2,943,767 2,639,745 986,925 1,295,683
Charge-offs (net of recoveries)
as a percentage of average net
finance receivables (1) 7.56% 6.71% 7.47% 9.36%
</TABLE>
- ------------
(1) Finance Receivable balances are presented net of unearned finance
charges. 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.
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 September 30,
----------------
1998 1997
Dealer reserves and discounts on bulk ---- ----
purchases on Automobile Sales Contracts $1,485,196 $1,308,367
Allowance for credit losses:
Direct Loans 4,535,816 3,213,696
Premium Finance Contracts 281,984 226,984
------- -------
Subtotal 4,817,800 3,440,680
--------- ---------
Total $6,302,996 $4,749,047
========= =========
13
<PAGE>
The following table sets forth certain information concerning Automobile Sales
Contracts and Direct Loans at the end of the periods indicated:
At September 30,
---------------
1998 1997
---- ----
Automobile Sales Contracts and Direct Loans
contractually past due 90 days or more(1) $479,011 $484,772
Automobile Sales Contracts and Direct Loans (1) 49,226,412 51,692,115
Automobile Sales Contracts and Direct Loans
contractually past due 90 days or more as a
percentage of Automobile Sales Contracts and
Direct Loans .97% .94%
- -------------------------
(1) Finance receivable balances are presented net of unearned finance
charges, dealer reserves on Automobile Sales Contracts and discounts on bulk
purchases.
The following table sets forth certain information concerning Premium Finance
Contracts at the end of the periods indicated:
At September 30,
----------------
1998 1997
---- ----
Premium finance contracts contractually
past due 60 days or more(1) $220,234 $60,154
Premium finance contracts outstanding(1) 4,022,738 3,923,371
Premium finance contracts contractually
past due 60 days or more as a percentage
of premium finance contracts 5.47% 1.53%
- -------------------------------------------
(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 a revolving credit facility extended by
Capital Corporation ("Finova"). The primary tranche provides for advances of up
to $100 million and the secondary tranches provides for advances from $5 million
to $25 million during their respective terms, all of which expire on August 31,
1999, subject to the limitation that advances under each tranche may not exceed
an amount equal to specified percentages of Net Finance Receivables. As of
September 30, 1998, $42 million was outstanding under the facility and there was
$58 million available for additional borrowing subject to limits based upon the
amount of available collateral. The interest rate for borrowings is the prime
rate published by Citibank, N.A. (or other money center bank designated by
Finova) plus one percent per annum for the primary tranche and ranges from plus
one to five percent per annum for the secondary tranches. The revolving credit
facility, amended on September 3, 1997, provides for a lower fixed percentage
over prime for certain secondary tranches than did the previous agreement. The
Subordinated Notes 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.
14
<PAGE>
Management believes that the recent increase in the maximum borrowings available
under the facility, in addition to cash expected to be generated from
operations, will provide the resources necessary to pursue the Company's
business and growth strategy through 1998. The Company is currently
investigating several options for raising additional funds to support growth in
future years.
RECENT ACQUISITION
On November 13, 1998, the Company exchanged 300,000 shares of its common stock
for all of the outstanding shares of Paragon, Inc., ("Paragon"), a North
Carolina corporation. The acquisition was accounted for using the purchase
method of accounting. Paragon, a mortgage banking company, originates, closes,
and sells residential mortgages, and has eight office locations operating under
the name of Paragon Lending. Paragon currently does business in eight states,
but plans to expand both the volume and geographic scope of its business. The
Company believes that Paragon compliments the Company's existing product lines,
and enhances the Company's ability to generate revenue from its mortgage
businesses.
15
<PAGE>
Part II
- -------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS
--------
Exhibit # 27, Financial Data Schedule
(b) REPORTS ON FORM 8-K
-------------------
There were no reports on Form 8-K during the quarter ended September
30, 1998.
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: November 23, 1998 /S/JAMES D. THAXTON
-------------------
James D. Thaxton
President and Chief
Executive Officer
Date: November 23, 1998 /S/ALLAN F. ROSS
----------------
Allan F. Ross
Vice President, Treasurer,
Secretary, and
Chief Financial Officer
16
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C>
27 Financial Data Schedule
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JUL-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 469,095 469,095
<SECURITIES> 0 0
<RECEIVABLES> 53,249,149 53,249,149
<ALLOWANCES> 4,817,800 4,817,800
<INVENTORY> 0 0
<CURRENT-ASSETS> 48,900,444 48,900,444
<PP&E> 4,851,770 4,851,770
<DEPRECIATION> 2,365,432 2,365,432
<TOTAL-ASSETS> 61,790,383 61,790,383
<CURRENT-LIABILITIES> 1,598,427 1,598,427
<BONDS> 0 0
0 0
2,843 2,843
<COMMON> 37,476 37,476
<OTHER-SE> 5,144,452 5,144,452
<TOTAL-LIABILITY-AND-EQUITY> 61,790,383 61,790,393
<SALES> 0 0
<TOTAL-REVENUES> 16,726,446 5,878,383
<CGS> 0 0
<TOTAL-COSTS> 10,770,629 3,954,672
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 2,952,167 985,125
<INTEREST-EXPENSE> 3,703,073 1,290,220
<INCOME-PRETAX> (629,423) (351,634)
<INCOME-TAX> (227,313) (114,282)
<INCOME-CONTINUING> (472,110) (237,352)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (472,110) (237,352)
<EPS-PRIMARY> (0.17) (0.08)
<EPS-DILUTED> (0.17) (0.08)
</TABLE>
