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 MARCH 31, 1999
( ) 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 000-27086
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.
CLASS OUTSTANDING AT
------------------ MARCH 31, 1999
COMMON STOCK --------------
3,757,986
---------
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THE THAXTON GROUP, INC.
FORM 10-QSB
MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
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PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1999 and 3
December 31, 1998
Consolidated Statements of Income for the three months
ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
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PART I
ITEM 1. FINANCIAL STATEMENTS
The Thaxton Group, Inc.
Consolidated Balance Sheet
( in $000's)
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
Assets
Cash $ 1,831 $ 781
Finance receivables, net 58,254 61,870
Premises and equipment, net 3,243 2,844
Accounts receivable 860 1,252
Repossessed automobiles 802 603
Goodwill and other intangible assets 9,612 8,305
Other assets 4,584 3,342
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Total assets $79,186 $78,997
======= =======
Liabilities and Stockholders' Equity
Liabilities
Accrued interest payable $ 561 $ 429
Notes payable
63,198 62,144
Notes payable to affiliates 768 779
Accounts payable 1,236 929
Employee savings plan 1,128 1,070
Other liabilities 1,499 716
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Total liabilities 68,390 66,067
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Stockholders' Equity
Preferred Stock $ .01 par value,
Series A: 400,000 shares authorized; issued and
outstanding 161,640 shares at March 31, 1999,
175,014 shares at December 31, 1998 1 2
Series C: 50,000 shares authorized, issued and
Outstanding at March 31, 1999 and December 31, 1998 1 1
Series D: 56,276 shares authorized and issued;
no shares outstanding March 31, 1999, 56,276 shares
outstanding December 31, 1998 -- 1
Series E: 800,000 shares authorized, issued and
outstanding at March 31, 1999 and December 31, 1998 8 8
Common stock, $ .01 par value; authorized 50,000,000 shares;
issued and outstanding 3,757,986 shares at March 31, 1999, 38 39
3,885,218 shares at December 31, 1998
Additional paid-in-capital 10,217 12,184
Retained earnings 531 695
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Total stockholders' equity 10,796 12,930
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-------
Total liabilities and stockholders' equity $79,186 $78,997
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
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The Thaxton Group, Inc.
Consolidated Statements of Income (Unaudited)
(in $000's except per share data )
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, Ended March 31,
1999 1998
---- ----
<S> <C> <C>
Interest and fee income $ 5,480 $ 3,682
Interest expense 1,508 1,078
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Net interest income 3,972 2,604
Provision for credit losses 886 1,033
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Net interest income after provision for credit losses 3,086 1,571
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Other income:
Insurance premiums and commissions, net 2,453 1,385
Other income 428 224
----------- -----------
Total other income 2,881 1,609
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Operating expenses:
Compensation and employee benefits 3,525 1,789
Telephone, postage, and supplies 528 387
Net occupancy 388 357
Reinsurance claims expense 187 68
Insurance 34 66
Collection expense 27 37
Travel 38 33
Professional fees 83 32
Other 1,135 730
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Total operating expenses 5,945 3,499
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Income (loss) before income tax expense 22 (319)
Income tax expense (benefit) 7 (104)
----------- -----------
Net income (loss) $ 15 $ (215)
=========== ===========
Dividends on preferred stock $ 179 $ 54
=========== ===========
Net income (loss) applicable to common shareholders $ (164) $ (269)
=========== ===========
Net income (loss) per common share--basic and diluted $ (.04) $ (.07)
=========== ===========
Weighted average shares outstanding 3,795,211 3,792,709
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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THE THAXTON GROUP, INC.
Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 1999 and 1998
(in $000's)
1999 1998
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Cash flows from operating activities $ 1,441 $ 1,370
Cash flows from investing activities 634 1,646
Cash flows from financing activitites (1,025) (3,141)
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Net increase (decrease) in cash 1,050 (125)
Cash at beginning of period 781 1,163
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Cash at end of Period $ 1,831 $ 1,038
======= =======
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THE THAXTON GROUP, INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
The Thaxton Group, Inc., (the "Company") is incorporated under the laws of the
state of South Carolina and operates, primarily through subsidiaries, finance
branches in seven southeastern states, and insurance agency branches in six
states located in the southeast and southwest. The Company is a diversified
financial services company that is engaged primarily in consumer lending and
consumer automobile sales financing to borrowers with limited credit histories,
low incomes or past credit problems. The Company also offers insurance premium
financing to such borrowers. A substantial amount of the Company's premium
finance business has been derived from customers of the independent insurance
agencies owned by Thaxton Insurance Group, Inc. ("Thaxton Insurance"), which was
acquired by the Company in 1996. The Company provides reinsurance through a
wholly owned subsidiary, TICO Reinsurance, Ltd. ("TRL"). Through a wholly owned
subsidiary, Paragon, Inc., 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. Through another
wholly owned subsidiary, Thaxton Commercial Lending, Inc., the Company makes
factoring loans and collateralized commercial loans to small and medium sized
businesses. 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 March 31, 1999 and 1998, 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 three months and quarter ended March 31, 1999 are not
necessarily indicative of results to be expected for the entire fiscal year.
6
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(2) FINANCE RECEIVABLES
Finance receivables consist of the following at March 31, 1999 and December 31,
1998:
March 31, December 31,
1999 1998
Automobile Sales Contracts $ 35,116,257 $ 37,124,775
Mortgage loans 6,911,478 11,096,383
Commercial loans 1,391,233 1,267,742
Direct Loans 28,691,014 27,852,566
Premium Finance Contracts 4,962,377 3,343,320
Total finance receivables 77,072,359 80,684,786
Unearned interest (11,786,633) (11,914,393)
Unearned insurance premiums, net (97,470) (275,476)
Valuation discount for acquired loans (626,453) (672,673)
Bulk purchase discount (521,441) (601,973)
Dealer hold back (994,145) (639,660)
allowance for credit losses (4,792,029) (4,710,829)
Finance receivables, net $ 58,254,188 $ 61,869,782
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 $4,496,000 and $521,000, respectively, at
March 31, 1999 and approximately $5,659,000 and $602,000, respectively,
at December 31, 1998.
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
$23,320,000 and $944,000, respectively, at March 31, 1999 and
approximately $24,464,000 and $640,000, respectively, at December 31,
1998. The valuation discount for acquired loans relates to our
acquisition of four finance offices from Budget Financial Services, Inc.
("Budget"). The amount of finance receivables, net of unearned interest
and insurance, and related valuation discount was approximately
$2,029,000 and $627,000 at March 31, 1999; and $2,564,000 and $673,000
at December 31, 1998.
At March 31, 1999 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).
7
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Changes in the allowance for credit losses for the three months ended
March 31, 1999 and 1998 are as follows:
1999 1998
----------- -----------
Beginning balance $ 4,710,829 $ 4,809,400
Provision for credit losses 877,819 1,033,454
Charge-offs (866,693) (1,124,547)
Recoveries 70,074 43,493
Net charge-offs (796,619) (1,081,054)
Ending balance $ 4,792,029 $ 4,761,800
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 March 31, the Company maintained a line of credit agreement with a commercial
finance company for $92 million, maturing on October 31, 2003. At March 31, 1999
the Company's net finance receivables would have allowed it to borrow an
additional $7.4 million against existing collateral. The outstanding balance
under this line of credit was $57,126,000 at March 31, 1999. There are five
tranches under this agreement, Tranche A, B, C, D and F. The total line of
credit, amount of credit line available at March 31, 1999 and interest rate for
each Tranche is summarized below:
Tranche A: $ 92,000,000; $54,313,000; 8.75% (Lender's prime rate + 1%)
Tranche B: $ 10,000,000; $10,000,000; 12.75% (Lender's prime rate + 5%)
Tranche C: $ 5,000,000; $ 3,740,000; 8.75% (Lender's prime rate + 1%)
Tranche D: $ 10,000,000; $ 7,585,000; 9.75% (Lender's prime rate + 2%)
Tranche F: $ 25,000,000; $17,236,000; 8.75% (Lender's prime rate + 1%)
The borrowing availability under certain Tranches is also limited by amounts
borrowed under other Tranches, outstanding receivables, insurance premiums
written, and in some cases, additional restrictions. As a result of these
additional restrictions, the Company had approximately $43 million total
potential borrowing capacity, and actual borrowing capacity of approximately
$7.4 million as of March 31, 1999.
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.
Also, the Company may pay dividends up to 25% of the current year's net income.
As of March 31, 1999, the Company met all such ratios and requirements or
obtained waivers for any instances of non-compliance.
(4) BUSINESS COMBINATIONS
In March 1999, the Company acquired all of the assets of four insurance
agencies, operating from nine branch locations, in Colorado and Arizona,
for a total purchase price of approximately $1.6 million. The purchase
was allocated to the assets acquired and liabilities assumed based upon their
fair values at the date of acquisition. The excess of the purchase price over
the fair value of net assets acquired of $1,488,000 has been recorded as
goodwill and is being amortized on a straight line basis over 15 years.
(5) BUSINESS SEGMENTS
For the year ended December 31, 1998, the Company has adopted Statement of
Financial Accounting Standards No. 131 ("SFAS NO. 131"), "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires the
presentation of descriptive information about reportable segments consistent
with that used by management of the Company to assess performance. Additionally,
SFAS No. 131 requires disclosures of certain information by geographic region.
The Company reports its results of operations in three primary segments;
consumer finance, mortgage banking and insurance. The consumer finance segment
provides financing to consumers with limited credit histories, low incomes or
past credit problems. Revenues in the consumer finance business are derived
primarily from interest and fees on loans, and the sale of credit related
insurance products to its customers. The Company's mortgage banking operations
are conducted through Paragon, a wholly-owned subsidiary acquired in November
1998. Paragon originates, closes and funds predominantly B and C credit quality
mortgage loans, which are warehoused until they can be packaged and sold to long
term investors. Paragon receives fee income from originating mortgages and loans
are generally sold at a premium to the permanent investor. The Company's
insurance operations consist of selling, on an agency basis, various lines of
automobile, property and casualty, life and accident and health insurance.
Revenue is generated through fees paid by the insurance companies for which
business is placed.
The following table summarizes certain financial information concerning the
Company's reportable operating segments for the quarters ended March 31, 1999
and 1998.
<TABLE>
<CAPTION>
Consumer Mortgage
Finance Banking Insurance Other Total
-------- -------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
1999
Income Statement Data
Total Revenue 4,264,563 1,773,403 2,207,122 116,039 8,361,127
Net Income 236,500 81,219 (274,561) (28,000) 15,158
Total Assets 65,892,714 2,259,242 9,649,692 1,385,000 79,186,648
Consumer Mortgage
Finance Banking Insurance Other Total
-------- -------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
1998
Income Statement Data
Total Revenue 3,887 -- 1,404 -- 5,291
Net Income 50 -- (264) -- (214)
Total Assets 72,337 -- 6,660 -- 78,997
</TABLE>
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Thaxton Group, Inc. and its subsidiaries (the "Company") were organized in
July 1978 as C.L. Thaxton & Sons, Inc., and from that date until 1991 was
primarily engaged in making and servicing direct consumer loans ("Direct Loans")
and insurance premium finance loans ("Premium Finance Contracts") to persons
with limited credit histories, low incomes, or past credit problems ("Non-Prime
Borrowers"). In 1991, the Company made a strategic decision to begin
diversifying its portfolio by actively seeking to finance purchases of used
automobiles ("Automobile Sales Contracts") by Non-Prime Borrowers and has since
evolved into a diversified consumer financial services company. The Company also
sells credit related insurance products and, through its subsidiary, Thaxton
Insurance Group, Inc. ("Thaxton Insurance"), on an agency basis, various lines
of property and casualty, life, and accident and health insurance. The Company
also entered the mortgage brokerage business during 1996, and in 1998 acquired
Paragon, Inc., ("Paragon") a mortgage banking company engaged in the
origination, funding, and whole loan sale of primarily "B" and "C" credit
quality residential mortgages. In 1998 the Company also began making factoring
and commercial loans to smaller sized businesses through a wholly owned
subsidiary, Thaxton Commercial Lending, Inc. ("Commercial").
THE INDUSTRY
The segment of the consumer finance industry in which the Company operates,
which is commonly called the "non-prime credit market," provides financing to
consumers with limited credit histories, low incomes, or past credit problems.
These consumers generally do not have access to the same variety of sources of
consumer credit as borrowers with long credit histories, no defaults, and stable
employment, because they do not meet the stringent objective credit standards
imposed by most traditional lenders. The Company, like its competitors in the
same segment of the consumer finance industry, generally charges interest to
Non-prime Borrowers at the maximum rate permitted by law or, in states such as
South Carolina where there are no legal maximum rates, at competitive rates
commensurate with the increased default risk and the higher cost of servicing
and administering a portfolio of loans to such borrowers. By contrast,
commercial banks, captive financing subsidiaries of automobile manufacturers,
and other traditional sources of consumer credit to prime borrowers typically
impose more stringent credit requirements and generally charge lower interest
rates.
The non-prime consumer credit market is highly fragmented, consisting of many
national, regional, and local competitors, is characterized by relative ease of
entry. Management believes that most of these companies are concentrating their
activities on providing financing to Non-prime Borrowers with less extensive
credit problems who are purchasing late model used cars (coming off lease or
former rental cars) from franchised automobile dealers. By contrast, the Company
concentrates on providing financing to Non-prime Borrowers who have more
extensive credit problems and are purchasing lower-priced, older model
automobiles from independent dealers and making direct loans to Non-prime
Borrowers to meet short-term cash needs.
The premium finance industry for personal lines of insurance is also highly
fragmented. Insurance companies that engage in direct writing of insurance
policies generally provide financing to their customers who need the service.
Numerous small independent finance companies such as the Company are engaged in
providing premium financing for personal lines of insurance purchased by
Non-prime Borrowers through independent insurance agents. Because the rates they
charge are highly regulated, these companies compete primarily on the basis of
efficiency in providing the financing and servicing the loans. A significant
number of independent insurance agents provide premium financing to their
customers either directly or through affiliated entities. As banks are allowed
to enter the insurance business, they also are increasingly engaging in the
premium finance business.
Independent insurance agencies represent numerous insurance carriers, and
typically place a customer's business with the carrier whose combination of
features and price best match the customer's needs. In comparison, direct agents
represent only one carrier. Most carriers find use of independent agencies to be
a more cost effective method of selling their products than using a direct agent
force. Competition in the
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independent insurance agency business is intense. There are numerous other
independent agencies in most of the markets where the Company's insurance
offices are located. There are also direct agents for various insurers operating
in some of these markets. The Company competes primarily on the basis of service
and convenience. The Company attempts to develop and maintain long-term customer
relationships through low employee turnover and responsive service
representatives and offers a broad range of insurance products underwritten by
reputable insurance companies.
NET INTEREST MARGIN
The following table sets forth certain data relating to the Company's
net interest margin for the three months ended March 31, 1999 and 1998.
1999 1998
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Average Net Finance Receivables (1) $60,180 $52,783
Average notes payable 55,996 45,989
Interest and fee income (2) 3,667 3,743
Interest expense (2) 1,328 1,142
Net interest income 2,339 2,601
Average interest rate earned (1) 24.37% 28.37%
Average intereat rate paid (1) 9.49% 9.93%
Net interest spread 14.89% 18.43%
Net interest margin (3) 15.55% 19.71%
(1) Averages are computed using month-end balances during the periods presented.
(2) Excludes Thaxton Insurance Group interest income, expense and Paragon
Lending loan fee income.
(3) Net interest margin represents net interest income divided by average Net
Finance Receivables.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Finance Receivables at March 31, 1999 were $77,072,000 versus $63,071,000 at
March 31, 1998 an 22% increase. Approximately 50% of the increase is due to the
acquisition of Paragon, Inc., and the mortgage receivables carried in its
warehouse line. The remaining increase is due primarily to growth in our
consumer lending receivables.
Unearned income at March 31, 1999 was $12,511,000 versus $11,623,000 at March
31, 1998, an 8% increase which was directly related to the higher receivable
level. The provision for credit losses established for the three months ended
March 31, 1999 was $878,000 versus $1,033,000 for the same period in 1998, and
the allowance for credit losses increased to $4,792,000 at March 31, 1999, from
$4,711,000 at March 31, 1998. The reduction in the provision is directly
attributable to reduced credit losses, due primarily to the Company's programs
during 1997 and 1998 to improve the quality of it loan portfolio. Accordingly,
the allowance for credit losses has not required a significant increase in order
to maintain its level in accordance with the Company's allowance for loan loss
model.
Interest and fee income for the three months ended March 31, 1999 was
$5,480,000, versus $3,682,000 for the three months ended March 31, 1998, a 49%
increase. This increase is primarily due to our acquisition of Paragon, Inc. in
the fourth quarter of 1998, and the fees earned by Paragon in the course of its
mortgage banking operations. Interest expense increased to $1,508,000 for the
three months ended March 31, 1999 versus $1,078,000 for the three months ended
March 31, 1998, a increase of than 40%, the direct result of a higher level of
average outstandings during 1999.
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Insurance commissions net of insurance cost increased to $2,453,000 for the
three months ended March 31, 1999 from $1,385,000 for the same period of 1998,
due primarily to the acquisition of an additional 27 non-standard auto insurance
agency offices during the fourth quarter of 1998, which more than doubled the
number locations selling insurance in Thaxton Insurance Group.
Operating expenses increased to $5,945,000 for the three months ended March 31,
1999 from $3,499,000 for the comparable period of 1998, a 70% increase, due to
additional expenses incurred as a result of the 1998 acquisition of insurance
branch offices, consumer finance offices, and Paragon, Inc., the Company's
mortgage banking subsidiary.
As a result of the above, the company recorded net income of $15,000 for the
three months ended March 31, 1999 versus a $215,000 loss for the three months
ended March 31, 1998.
Stockholders' equity decreased from $12,930,000 at December 31, 1998 to
$10,796,000 at March 31, 1999, a 16% decrease, primarily as a result of the
Company's program to repurchase its common stock. During the quarter ended March
31, 1999, the Company repurchased 127,232 shares of common stock , 13,374 shares
of Series A preferred stock, and retired all of the shares of its Series D
preferred stock, for a total reduction in related to these repurchases of
$1,969,000.
11
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CREDIT LOSS EXPERIENCE
The following table sets forth the Company's allowance for credit losses at
March 31, 1999, and 1998 and the credit loss experience over the periods
presented.
<TABLE>
<CAPTION>
At or for the three months Ended
March 31,
---------------- ---------------
<S> <C> <C>
1999 1998
---------------- ---------------
Net finance receivables (1) $57,838,219 $51,448,922
Allowance for credit losses 4,792,029 4,761,800
Allowance for credit losses as a percentage of net finance
receivables (1) 8.27% 9.26%
Dealer reserves and discounts on bulk purchases 1,515,586 752,093
Dealer reserves and discounts on bulk purchases as percentage
of Automobile sales Contracts as period end(2) 5.52% 2.14%
Allowance for credit losses and dealer reserves and discount on
bulk purchases as a percentage of net finance receivables (1) 10.89% 10.72%
Provision for loan losses 877,819 1,033,454
Charge-offs (net of recoveries) 796,619 1,081,054
Charge-offs (net of recoveries) as a percentage of average net
finance receivables (1) 1.32% 8.40%
</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 March 31,
---------------------------
1999 1998
---------- ----------
Dealer reserves and discounts on bulk purchases on
Automobile Sales Contracts $1,515,586 $ 752,093
Allowance for credit losses 4,568,886 4,534,816
Direct Loans
Premium Finance Contracts 223,143 226,984
---------- ----------
Subtotal 4,792,029 4,761,800
----------
========== ==========
Total $6,307,615 5,513,893
========== ==========
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The following table sets forth certain information concerning Automobile Sales
Contracts and Direct Loans at the end of the periods indicated:
<TABLE>
<CAPTION>
<S> <C>
At March 31,
------------------------------------------
1999 1998
--------------- ---------------
Automobile Sales Contracts and Direct Loans contractually
past due 90 days or more (1) $ 376,618 $ 472,410
Automobile Sales Contracts and Direct Loans(1) 59,134,699 46,671,809
Automobile Sales Contracts and Direct Loans contractually
past due 90 days or more as a percentage of Automobile
Sales Contracts and Direct Loans 0.64% 1.01%
(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 March 31,
-------------------------------------------
1999 1998
---------------- ---------------
Premium finance contracts contractually past due 60 days
or more (FF1) $ 462,390 $ 80,744
Premium finance contracts outstanding (1) 4,737,002 4,025,020
Premium finance contracts contractually past due 60 days
or more as a percentage of premium finance contracts 9.76% 2.01%
</TABLE>
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(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. The
Revolving Credit Facility is extended by Finova and consists of five tranches.
The primary tranche provides for advances of up to $92 million and the
secondary tranches provides for advances from $5 million to $25 million during
their respective terms, all of which expire on October 31, 2003, subject to the
limitation that advances under each tranche of the Revolving Credit Facility may
not exceed an amount equal to specified percentages of Net Finance Receivables.
As of March 31, 1999, $57 million was outstanding under the Revolving Credit
Facility and there was $58 million available for additional borrowing. 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 agreement, amended on
September 3, 1997, provides for a lower fixed percentage over prime for certain
secondary tranches than did the previous agreement. 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.
Management believes that the recent increase in the maximum borrowings available
under the Revolving Credit 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.
13
<PAGE>
IMPACT OF YEAR 2000
The Company recognizes that there is a business risk in computerized systems as
we move into the next century. If computer systems misinterpret the date, items
such as interest calculations on loans will be incorrect. This is commonly
called the "Year 2000 Problem." A number of computer systems used by the Company
in its day to day operations may be affected by this problem. The issue is
whether computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could fail or generate erroneous data.
In the ordinary course of business, the Company has replaced a significant
portion of its non-compliant hardware and software with Year 2000 compliant
systems. The Company has minimal proprietary processing software virtually all
key sub-systems, payroll system, and general ledger were written, and are
maintained by reputable outside vendors. The Company has confirmed with
licensors from which it licenses software that all such software is Year 2000
compliant. The majority of vendor licensors have offered or provided the Company
the results of their Year 2000 testing.
With respect to our systems, networks, and licensed software, management has
established a project team which has identified affected systems and is
currently working to ensure that the advent of the year 2000 will not disrupt
operations. This project team reports periodically to senior management. The
company is also working closely with outside computer vendors to ensure that all
software corrections and warranty commitments are obtained. The estimated cost
to the Company for these corrective actions, and the related hardware required
to run the upgraded software was originally estimated at approximately $1
million. A significant portion of this budget has already been spent, much of it
on upgrading hardware throughout our branch network. The remaining amounts to be
incurred are included in the Company's capital and operating budgets for the
remainder of 1999.
The Company has taken significant steps toward insuring that the Year 2000 will
not adversely affect our ability to function. However, it should be noted that
incomplete or untimely compliance would have a material adverse impact on the
Company, the dollar amount of which cannot be accurately quantified at this time
because of the inherent variables and uncertainties involved.
RECENT ACQUISITION BY AFFILIATE
On February 1, 1999, the Company's CEO and majority shareholder purchased
approximately 144 consumer finance offices from FirstPlus Consumer Finance,
Inc., and operates those offices in Thaxton Investment Corporation ("TIC"), a
corporation set up for that purpose. Thaxton Investment Corp. is a private
corporation, and Mr. Thaxton is the sole shareholder. The Company provides
management services to TIC, and charges TIC a reasonable fee for those services.
TIC operates in seven states, four of which the Company also operates finance
branch offices within. Additionally, some of TIC's finance offices do business
using the "TICO" business name.
14
<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 filed on Form 8-K during the quarter ended
March 31, 1999.
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: May 14, 1999 /s/JAMES D. THAXTON
-------------------
James D. Thaxton
President and Chief Executive Officer
Date: May 14, 1999 /s/ALLAN F. ROSS
----------------
Allan F. Ross
Vice President, Treasurer, Secretary, and
Chief Financial Officer
15
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