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, 2000
( ) 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 MAY 12, 2000
------- ------------
COMMON STOCK 6,974,355
1
<PAGE>
THE THAXTON GROUP, INC.
FORM 10-QSB
MARCH 31, 2000
TABLE OF CONTENTS
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2000 and 3
December 31, 1999
Consolidated Statements of Income for the three months
ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
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 15
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
The Thaxton Group, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Assets
- ------
Cash $ 7,424,540 $ 2,036,104
Finance receivables, net 151,739,526 162,827,219
Loans Held for Sale 8,509,871 11,400,639
Premises and equipment, net 6,460,367 6,293,588
Accounts receivable 594,342 1,902,981
Repossessed automobiles 255,764 131,908
Goodwill and other intangible assets 39,046,085 39,511,133
Other assets 11,684,105 10,831,465
------------- -------------
Total assets $ 225,714,600 $ 234,935,037
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Accrued interest payable $ 2,091,066 $ 2,174,397
Notes payable 204,035,382 211,218,953
Notes payable to affiliates 271,774 491,072
Accounts payable 3,378,693 3,298,740
Employee savings plan 1,461,602 1,328,998
Other liabilities 4,577,844 6,620,298
------------- -------------
Total liabilities $ 215,816,361 $ 225,132,458
------------- -------------
Other Interest in Consolidated Subsidiary 1,850,577 0
- ----------------------------------------- ------------- -------------
Stockholders' Equity
- --------------------
Preferred Stock $ .01 par value,
Series A: 400,000 shares authorized; issued and outstanding 10,440
shares at March 31, 2000, 160,440 shares at December 31, 1999 104 1,604
Series C: 50,000 shares authorized, issued and
outstanding at March 31, 2000 and December 31, 1999 500 500
Series E: 800,000 shares authorized, issued and
outstanding at March 31, 2000 and December 31, 1999 8,000 8,000
Common stock, $ .01 par value; authorized 50,000,000 shares;
issued and outstanding 6,974,796 shares at March 31, 2000, 69,748 69,753
6,975,359 shares at December 31, 1999
Additional paid-in-capital 8,612,648 10,116,774
Accumulated Deficit (643,338) (394,052)
------------- -------------
Total stockholders' equity 8,047,662 9,802,579
------------- -------------
Total liabilities and stockholders' equity $ 225,714,600 $ 234,935,037
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
The Thaxton Group, Inc.
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, Ended March 31,
2000 1999
------------ ------------
<S> <C> <C>
Interest and fee income $ 15,879,412 $ 13,175,078
Interest expense 5,198,304 3,915,902
------------ ------------
Net interest income 10,681,108 9,259,176
Provision for credit losses 3,151,990 1,801,401
------------ ------------
Net interest income after provision for credit losses 7,529,118 7,457,775
------------ ------------
Other income:
Insurance premiums and commissions, net 5,568,918 2,819,987
Other income 1,885,574 1,689,456
------------ ------------
Total other income 7,454,492 4,509,443
------------ ------------
Operating expenses:
Compensation and employee benefits 8,828,767 6,683,430
Telephone, computers, and supplies 841,970 576,150
Net occupancy 2,144,767 1,160,573
Reinsurance claims expense 293,562 186,685
Advertising 696,601 255,058
Collection expense 66,587 27,035
Travel 277,376 66,150
Professional fees 210,065 125,266
Other 1,737,646 2,388,808
------------ ------------
Total operating expenses 15,097,341 11,469,155
------------ ------------
Income (loss) before income tax expense (113,731) 498,063
and benefit from other interest
Benefit from Other Interest in Loss of 149,423 0
Consolidated Subsidiary
Income tax expense 117,135 239,341
------------ ------------
Net Income (loss) $ (81,443) $ 258,722
============ ============
Dividends on preferred stock $ 167,846 $ 178,849
============ ============
Net loss applicable to common shareholders $ (249,289) $ 79,873
============ ============
Net loss per common share--basic and diluted $ (0.04) $ 0.02
============ ============
Weighted average shares outstanding 6,975,056 3,795,211
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE THAXTON GROUP, INC.
Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities $ 3,311,263 $ 407,877
Cash flows from investing activities 10,920,914 7,589,500
Cash flows from financing activities (8,843,741) (2,602,632)
------------ ------------
Net increase in cash 5,388,436 5,394,745
Cash at beginning of period 2,036,104 780,864
------------ ------------
Cash at end of period $ 7,424,540 $ 6,175,609
============ ============
</TABLE>
5
<PAGE>
THE THAXTON GROUP, INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2000 and 1999
(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, primarily through subsidiaries. The
Company operates consumer finance branches in 11 states, primarily under the
names of TICO Credit, Southern Finance, and Covington Credit. The Company also
operates insurance agency branches in seven 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 wholly owned subsidiaries, TICO
Reinsurance, Ltd. ("TRL"), Fitch National Reinsurance, Ltd., Soco Reinsurance,
Inc., and Thaxton Reinsurance, Inc. 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, 2000 and 1999, 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, 2000 are not
necessarily indicative of results to be expected for the entire fiscal year.
On March 1, 2000, the Company disposed of a 90% interest in certain assets and
liabilities of Thaxton RBE, Inc. ("RBE") formerly a wholly owned subsidiary of
the Company. The sale of these assets was to a corporation in which the
Company's majority shareholder exercises substantial control. Additionally, the
Company continues to have a substantial receivable from RBE. As a result of
this, the Company accounts for the assets, liabilities, equity and ongoing
results of operations of RBE as a consolidated subsidiary, and records the other
interest in consolidated subsidiary as a single line item on the Company's
balance sheet and income statement.
The 1999 financial statements have been restated in order to account for the
impact of the acquisition of Thaxton Investment Corp. ("TIC") which was
accounted for at historical cost in a manner similar to pooling of interests
accounting.
6
<PAGE>
(2) FINANCE RECEIVABLES
Finance receivables consist of the following at March 31, 2000 and December 31,
1999:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Automobile Sales Contracts $ 30,705,340 $ 33,138,025
Mortgage loans 27,187,188 27,477,365
Commercial loans 3,385,615 3,440,166
Direct Loans 129,509,871 140,751,353
Premium Finance Contracts 7,951,981 8,362,591
------------- -------------
Total finance receivables 198,739,995 213,169,500
Unearned interest (35,147,314) (37,805,852)
Unearned insurance premiums, net (2,525,988) (2,797,033)
Valuation discount for acquired loans 0 (93,534)
Dealer Holdback Bulk purchase discount (454,704) (704,657)
Allowance for credit losses (10,558,445) (10,661,339)
Deferred Loan Cost, net 1,685,982 1,720,134
------------- -------------
Finance receivables, net $ 151,739,526 $ 162,827,219
============= =============
Loans Held for Sale $ 8,509,871 $ 11,400,639
</TABLE>
Consumer loans include bulk purchases of receivables, auto dealer
receivables under holdback arrangements, and small consumer loan
receivables. With bulk purchase arrangements, the Company typically
purchases a group of receivables from an auto dealer or other retailer at
a discount to par based on management's review and assessment of the
portfolio to be purchased. This discount amount is then maintained in an
unearned income account to which losses on these loans are charged. To
the extent that losses from a bulk purchase exceed the purchase discount,
the allowance for credit losses will be charged. To the extent losses
experienced are less than the purchase discount, the remaining discount
is accreted into income. 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 bulk purchase and
holdback receivables, net of unearned interest and insurance, and the
related holdback and discount amount outstanding were approximately
$25,294,047 and $454,704, respectively, at March 31, 2000 and
approximately $26,870,193 and $704,657, respectively, at December 31,
1999.
At March 31, 2000 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
<PAGE>
Changes in the allowance for credit losses for the three months ended
March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
------------ -------------
<S> <C> <C>
Beginning balance $ 10,661,339 $ 4,710,829
Valuation allowance for acquired loans 0 6,276,309
Provision for credit losses 3,151,990 1,801,401
Charge-offs (3,596,662) (2,399,529)
Recoveries 341,778 175,815
------------ ------------
Net charge-offs (3,254,884) (1,720,201)
------------ ------------
Ending balance $ 10,558,445 $ 10,564,825
</TABLE>
The Company's loan portfolio primarily consists of short-term loans, the
majority of which are originated or renewed during the current year.
Accordingly, the Company estimates that fair value of the finance
receivables is not materially different from carrying value.
(3) NOTES PAYABLE
-------------
At March 31, 2000, the Company maintained two lines of credit with a commercial
finance company for $242 million, maturing on July 31, 2004. The credit line is
set up in four Tranches, allowing the Company to borrow against its eligible
collateral of finance receivables. At March 31, 2000 the Company had
approximately $90 million total potential borrowing capacity under these
facilities. However, in addition to the eligible collateral restrictions, the
borrowing availability under 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 $12.4 million total potential borrowing capacity
as of March 31, 2000.
The aggregate outstanding balance under these lines of credit was $152 million
at March 31, 2000, of which $58.6 million was borrowed at 10.25% (Lenders prime
+1 1/4%); $87.3 million was borrowed at 10% (Lenders prime + 1%); and $6.2
million was borrowed at 12.5% (Lenders prime +3 1/2%).
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, 2000, the Company met all such ratios and requirements or
obtained waivers for any instances of non-compliance.
In connection with the FirstPlus acquisition, the Company assumed $2.1 million
of subordinated notes issued by Voyager Insurance Co. In November 1999, those
notes were cancelled and re-issued in the name of the Company. The note
agreement contained an interest coverage ratio restrictive covenant, which the
Company did not meet at March 2000, and a waiver was obtained for the year.
However, the Company cannot say with certainty that it will meet this covenant
requirement for the year 2000, and if it does not meet this requirement that a
waiver will be obtained. However, the Company is confident that it has adequate
availability under it primary credit facility to borrow adequate funds to
liquidate this note, if required.
In 1997, the Company began issuing subordinated term notes to individual
investors in an intrastate public offering registered with the State of South
Carolina. The registration of a similar offering was declared effective by the
U.S. Securities and Exchange Commission in March 1998 (and amended in November
1999), and the Company now offers notes in multiple states under this federal
registration. The Maturity terms on these notes range from daily to sixty
months, and interest rates vary in accordance with market rates. Notes currently
being offered carry interest rates ranging from 5.25% to 8.0%. Approximately $
47.9 million in notes were outstanding at March 31, 2000 and 43.9 million were
outstanding at December 31, 1999 and are reflected as notes payable and notes
payable to affiliates.
8
<PAGE>
(4) BUSINESS COMBINATIONS
On March 1, 2000, The Thaxton Group, Inc. transferred all of the assets and
liabilities of certain insurance agency operations into a newly formed company
named Thaxton RBE, Inc. The assets involve approximately 30 non-standard
automobile insurance agency offices in North Carolina, Arizona, New Mexico, and
Colorado. These agencies offer an insurance product in which The Thaxton Group,
Inc. bears insurance underwriting risk. Additionally, also transferred were the
assets and liabilities of an insurance general agency in Virginia, and an
insurance general agency in South Carolina. Both of these general agencies also
offer products which bear insurance underwriting risk. The total amount of the
assets transferred approximate $8 million, the majority of which are intangible.
The purpose of the transfer was to raise additional capital for Thaxton RBE, as
its operations are in their initial stages. As such, immediately subsequent to
the formation and asset transfer, Thaxton Life Partners, Inc. invested
$2,000,000 in the capital stock of Thaxton RBE, Inc., and obtained a 90%
interest in this company as a result of the investment. Thaxton Life Partners,
Inc., is a company owned by James D. Thaxton (Thaxton Chairman and majority
shareholder of Thaxton Group, Inc.); C. L. Thaxton (Director of Thaxton Group,
Inc.); and other Thaxton family members. As a result of these transactions,
Thaxton Group, Inc. has a net receivable from Thaxton RBE in the amount of $5
million at March 31, 2000.
(5) BUSINESS SEGMENTS
- ----------------------
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 disclosure 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 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, 2000
and 1999:
<TABLE>
<CAPTION>
Consumer Mortgage Insurance
Finance Banking Insurance RBE Other Total
------------------------------------------------------------------------------------
2000
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Total Revenue 18,235,000 1,702,000 991,000 2,172,000 244,000 23,334,000
Net Income (loss) 741,000 (237,000) (24,000) (599,000) 38,000 (81,000)
Total Assets 203,431,000 5,924,000 3,061,000 9,072,000 4,227,000 225,715,000
</TABLE>
<TABLE>
<CAPTION>
Consumer Mortgage Insurance
Finance Banking Insurance RBE Other Total
------------------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Total Revenue 13,589,000 1,773,000 2,207,000 N/A 116,000 17,685,000
Net Income (loss) 481,000 81,000 (275,000) N/A (28,000) 259,000
Total Assets 220,909,000 2,259,000 9,650,000 N/A 1,385,000 234,203,000
</TABLE>
9
<PAGE>
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, we made a strategic decision
to diversify our portfolio by actively seeking to finance credit-impaired
borrowers' purchases of used automobiles. Our management believed that the
expertise it had developed in extending and servicing installment credit to
credit-impaired borrowers would enable it to profitably finance used automobile
purchases by borrowers having similar credit profiles. The employment of
additional senior and mid-level management personnel with substantial used
automobile lending experience facilitated our entry into this segment of the
consumer credit industry. Since 1991, we have evolved into a diversified
consumer financial services company engaged in the origination and servicing of
loans made to credit-impaired borrowers; used automobile lending through the
purchase and servicing of used automobile sales contracts ("Automobile Sales
Contracts"); insurance premium finance lending through the purchase of insurance
premium finance contracts ("Premium Finance Contracts"); selling insurance
products on an agency basis; and originating residential mortgage loans.
The Company operates its finance businesses in South Carolina, North
Carolina, Georgia, Tennessee, Virginia, Kentucky, Alabama, Mississippi, Ohio,
Oklahoma and Texas. It operates its insurance businesses in South Carolina,
North Carolina, Virginia, Arizona, New Mexico, Colorado, and Nevada.
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
non-prime borrowers. 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 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 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.
10
<PAGE>
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, 2000 and 1999.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------------
2000 1999
------------- ------------
<S> <C> <C>
Average Net Finance Receivables (1) $ 160,384,572 $ 159,459,554
Average notes payable 212,063,360 182,389,000
Interest and fee income (2) 15,879,412 13,175,078
Interest expense (2) 5,198,304 3,915,902
Net interest income 10,681,108 9,259,176
Average interest rate earned (1) 39.60% 33.05%
Average interest rate paid (1) 9.81% 8.59%
Net interest spread 26.55% 24.46%
Net interest margin (3) 26.64% 23.23%
</TABLE>
(1) Averages are computed using month-end balances during the periods
presented.
(2) Net interest margin represents net interest income divided by average Net
Finance Receivables.
(3) 1999 Interest Income and Interest Expense include two months for related
amounts due to the acquisition of FirstPlus as of February 1, 1999.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Finance Receivables at March 31, 2000 were $207,250,000 versus $211,888,000 at
March 31, 1999 a 2% decrease, due to slightly greater liquidations.
Unearned income at March 31, 2000 was $37,673,000 versus $39,624,000 at March
31, 1999, a 5% decrease which was directly related to the lower receivable
level. The provision for credit losses established for the three months ended
March 31, 2000 was $3,152,000 versus $1,801,000 for the same period in 1999, and
the allowance for credit losses decreased slightly to $10,558,000 at March 31,
2000, from $10,565,000 at March 31, 1999. The larger provision for loan loss in
the current year relates primarily to TIC being included as part of the Company
for three months in 2000, versus only two months of the first quarter of 1999.
Interest and fee income for the three months ended March 31, 2000 was
$15,879,000, versus $13,175,000 for the three months ended March 31, 1999, a 21%
increase. Interest expense increased to $5,198,000 for the three months ended
March 31, 2000 versus $3,916,000 for the three months ended March 31, 1999, an
increase of 48% larger levels relate directly to the inclusion of three months
of income and expense in 2000 from the FirstPlus Acquisition as opposed to
two months in 1999.
Insurance commissions net of insurance cost increased to $5,569,000 for the
three months ended March 31, 2000 from $2,820,000 for the same period of 1999.
This was primarily due to increased sales of insurance products to borrowers,
brought about by management emphasis on this product line, and increased revenue
and insurance commissions from the Thaxton Insurance agency offices.
Operating expenses increased to $15,097,000 for the three months ended March 31,
2000 from $11,469,000 for the comparable period of 1999, a 32% increase. The
increase in expenses was due, in large part, to the inclusion of three months of
operations of TIC in 2000 versus two months in 1999, the acquisition of
additional non-standard insurance agency offices in North Carolina, and the
acquisition of an insurance general agency in Virginia and the start up of an
insurance general agency in South Carolina. Additionally, there was a general
increase in other operating costs associated with administering a larger finance
receivable portfolio and additional branch offices.
As a result of the above, the company recorded a net loss of $81,000 for the
three months ended March 31, 2000 versus net income of $259,000 for the three
months ended March 31, 1999.
Stockholders' equity decreased from $9,803,000 at December 31, 1999 to
$7,971,000 at March 31, 2000, a 19% decrease, primarily as a result of the
Company's repurchase of 150,000 shares of Series A preferred stock.
11
<PAGE>
CREDIT LOSS EXPERIENCE
The following table sets forth the Company's allowance for credit losses at
March 31, 2000, and 1999 and the credit loss experience over the periods
presented.
<TABLE>
<CAPTION>
------------------------------------
AT OR FOR THE THREE MONTHS ENDED
MARCH 31,
------------------------------------
2000 1999
------------------------------------
<S> <C> <C>
Net finance receivables (1) $151,739,526 $159,456,554
Allowance for credit losses 10,558,445 10,564,825
Allowance for credit losses as a percentage of net finance
receivables (1) 6.96% 6.63%
Dealer reserves and discounts on bulk purchases 454,704 1,515,586
Dealer reserves and discounts on bulk purchases as percentage
of Automobile sales Contracts as period end(2) 1.76% 3.42%
Allowance for credit losses and dealer reserves and discount on
bulk purchases as a percentage of net finance receivables (1) 7.40% 7.58%
Provision for loan losses 3,151,990 1,801,401
Charge-offs (net of recoveries) 3,254,884 2,223,714
Charge-offs (net of recoveries) as a percentage of average net
finance receivables (1) 2.15% 1.39%
</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.
12
<PAGE>
The following table presents an allocation of the Company's reserves and
allowances for credit losses, by type of receivable. The allowance for credit
losses has been allocated on an approximate basis between Direct Loans and
Premium Finance Contracts because losses on Automobile Sales Contracts are
charged against dealer reserves if the originating dealer's Specific Reserve
Account is adequate to cover the loss. The entire allowance is, however,
available to absorb losses occurring on any type of finance receivable. The
allocation is not indicative of future losses.
<TABLE>
<CAPTION>
AT MARCH 31,
------------------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
Dealer reserves and discounts on bulk purchases on
Automobile Sales Contracts $454,704 $1,515,586
Allowance for credit losses:
Direct Loans 9,855,234 9,728,341
Premium Finance Contracts 703,211 836,484
---------------- ---------------
Subtotal 10,558,445 10,564,825
---------------- ---------------
Total $11,013,149 $12,176,925
================ ===============
The following table sets forth certain information concerning Automobile Sales
Contracts and Direct Loans at the end of the periods indicated:
<CAPTION>
AT MARCH 31,
-----------------------------
2000 1999
------------- -----------
<S> <C> <C>
Automobile Sales Contracts and Direct Loans contractually
past due 90 days or more (1) $3,333,735 $4,161,025
Automobile Sales Contracts and Direct Loans(1) 124,590,874 135,540,620
Automobile Sales Contracts and Direct Loans contractually
past due 90 days or more as a percentage of Automobile
Sales Contracts and Direct Loans 2.68% 3.07%
(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:
<CAPTION>
AT MARCH 31,
-------------------------
2000 1999
----------- ----------
<S> <C> <C>
Premium finance contracts contractually past due 60 days
or more (FF1) 657,485 $ 462,390
Premium finance contracts outstanding (1) 7,638,608 4,737,002
Premium finance contracts contractually past due 60 days
or more as a percentage of premium finance contracts 8.61% 9.76%
</TABLE>
- -------------------------------------------
(1) Finance receivable balances are presented net of unearned finance charges
and discounts on bulk purchases.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company maintained two lines of credit with a commercial
finance company for $242 million, maturing on July 31, 2004. The credit line is
set up in four Tranches, allowing the Company to borrow against its eligible
collateral of finance receivables. At March 31, 2000 the Company had
approximately $90 million total potential borrowing capacity under these
facilities. However, in addition to the eligible collateral restrictions, the
borrowing availability under 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 $12.4 million total potential borrowing capacity
as of March 31, 2000.
The aggregate outstanding balance under these lines of credit was $152 million
at March 31, 2000, of which $58.6 million was borrowed at 10.25% (Lenders prime
+1 1/4%); $87.3 million was borrowed at 10% (Lenders prime + 1%); and $6.2
million was borrowed at 12.5% (Lenders prime +3 1/2%).
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 2000. The company is currently
investigating several options for raising additional funds to support growth in
future years.
RECENT DISPOSITION/ACQUISITION BY AFFILIATE
On March 1, 2000, The Thaxton Group, Inc. transferred all of the assets and
liabilities of certain insurance agency operations into a newly formed company
named Thaxton RBE, Inc. The assets involve approximately 30 non-standard
automobile insurance agency offices in North Carolina, Arizona, New Mexico, and
Colorado. These agencies offer an insurance product in which The Thaxton Group,
Inc. bears insurance underwriting risk. Additionally, also transferred were the
assets and liabilities of an insurance general agency in Virginia, and an
insurance general agency in South Carolina. Both of these general agencies also
offer products which bear insurance underwriting risk. The total amount of the
assets transferred approximate $8 million, the majority of which are intangible.
The purpose of the transfer was to raise additional capital for Thaxton RBE, as
its operations are in their initial stages. As such, immediately subsequent to
the formation and asset transfer, Thaxton Life Partners, Inc. invested
$2,000,000 in the capital stock of Thaxton RBE, Inc., and obtained a 90%
interest in this company as a result of the investment. Thaxton Life Partners,
Inc., is a company owned by James D. Thaxton (Thaxton Chairman and majority
shareholder of Thaxton Group, Inc.); C. L. Thaxton (Director of Thaxton Group,
Inc.); and other Thaxton family members. As a result of these transactions,
Thaxton Group, Inc. has a net receivable from Thaxton RBE in the amount of $5
million.
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
-------------------
On March 16, 2000, the Company filed a Current Report on Form 8-K to
report the transfer of certain assets and liabilities into Thaxton RBE,
and the disposition of a 90% interest in Thaxton RBE to Thaxton Life
Partners, Inc.
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 15, 2000 /s/JAMES D. THAXTON
-------------------
James D. Thaxton
President and Chief Executive Officer
Date: May 15, 2000 /s/ALLAN F. ROSS
----------------
Allan F. Ross
Vice President, Treasurer, Secretary, and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,424,540
<SECURITIES> 0
<RECEIVABLES> 207,249,865
<ALLOWANCES> 10,558,445
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 14,212,159
<DEPRECIATION> 7,751,792
<TOTAL-ASSETS> 225,714,600
<CURRENT-LIABILITIES> 0
<BONDS> 204,307,156
0
69,748
<COMMON> 7,977,914
<OTHER-SE> 225,714,600
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 23,333,904
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,097,341
<LOSS-PROVISION> 3,151,990
<INTEREST-EXPENSE> 5,663,352
<INCOME-PRETAX> (113,731)
<INCOME-TAX> 117,135
<INCOME-CONTINUING> (81,443)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81,443)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
