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 June 30, 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
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(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 August 8, 2000
----- --------------
Common Stock 6,974,355
<PAGE>
The Thaxton Group, Inc.
Form 10-QSB
June 30, 2000
Table of Contents
<TABLE>
<CAPTION>
Part I Financial Information Page No.
--------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999 2
Consolidated Statements of Income for the six months
ended June 30, 2000 and 1999 3
Consolidated Statements of Income for the three months
ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 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
</TABLE>
1
<PAGE>
Part I
------
Item 1. Financial Statements
The Thaxton Group, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- --------------
(Unaudited)
Assets
------
<S> <C> <C>
Cash $ 1,151,870 $ 2,036,104
Finance receivables, net 161,122,177 162,827,219
Loans Held for Sale 9,326,122 11,400,639
Premises and equipment, net 7,061,978 6,293,588
Accounts receivable 2,491,525 1,902,981
Repossessed automobiles 268,118 131,908
Goodwill and other intangible assets 39,106,898 39,511,133
Other assets 11,595,108 10,831,465
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Total assets $232,123,796 $234,935,037
============= ==============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Accrued interest payable $ 2,496,867 $ 2,174,397
Notes payable 208,983,133 211,218,953
Notes payable to affiliates 275,428 491,072
Accounts payable 2,808,096 3,298,740
Employee savings plan 1,464,461 1,328,998
Other liabilities 7,070,683 6,620,298
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Total liabilities 223,098,668 225,132,458
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Other Interest in Consolidated Subsidiary 1,237,552 -
-----------------------------------------
Stockholders' Equity
--------------------
Preferred Stock $ .01 par value,
Series A: 400,000 shares authorized, issued and outstanding 10,440
Shares at June 30, 2000, 160,440 shares issued and outstanding
At December 31, 1999 104 1,604
Series C: 50,000 shares authorized, issued and outstanding at
June 30, 2000 and December 31, 1999 500 500
Series E: 800,000 shares authorized, issued and
outstanding at June 30, 2000 and December 31, 1999; 8,000 8,000
liquidation value $8,000,000 as of June 30, 2000 and December 1999.
Common stock, $ .01 par value; authorized 50,000,000 shares;
issued and outstanding 6,974,355 shares at June 30 ,2000; 69,743 69,753
6,975,359 shares at December 31, 1999
Additional paid-in-capital 8,610,549 10,116,774
Accumulated Deficit (901,320) (394,052)
------------- --------------
Total stockholders' equity 7,787,576 9,802,579
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Total liabilities and stockholders' equity $232,123,796 $234,935,037
============= ==============
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
The Thaxton Group, Inc.
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30,
2000 1999
------------ -------------
<S> <C> <C>
Interest and fee income $ 29,934,361 27,622,778
Interest expense 10,343,397 8,449,374
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Net interest income 19,590,964 19,173,404
Provision for credit losses 6,605,514 5,180,467
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Net interest income after provision for credit losses 12,985,450 13,992,937
------------ -------------
Other income:
Insurance premiums and commissions, net 10,161,929 7,159,898
Premiums for Loans Sold 1,707,040 1,325,412
Other income 5,202,521 4,369,516
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Total other income 17,071,490 12,854,826
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Operating expenses:
Compensation and employee benefits 16,453,296 15,283,568
Telephone, postage, and supplies 3,106,910 2,362,792
Net occupancy 3,376,979 3,007,158
Reinsurance claims expense 403,817 343,400
Advertising 1,514,852 1,285,874
Collection expense 126,964 169,931
Travel 569,549 482,253
Professional fees 377,994 313,792
Other 4,772,368 2,501,028
------------ -------------
Total operating expenses 30,702,729 25,749,796
------------ -------------
Income (loss) before income tax expense (645,789) 1,097,967
Benefit from Other Interest in Loss of Consolidated Subsidiary 762,448 -
Income tax expense 278,468 335,814
------------ -------------
Net income (loss) (161,809) 762,153
Dividends on preferred stock 345,458 357,000
Net income (loss) applicable to common shareholders ($507,267) $405,153
============ =============
Net income (loss) per common share - basic and diluted ($0.07) $0.07
============ =============
Weighted average shares outstanding - basic and diluted 6,974,927 6,081,320
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
The Thaxton Group, Inc.
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999
------------ ------------
<S> <C> <C>
Interest and fee income $ 14,054,949 $ 13,447,700
Interest expense 5,145,093 4,533,472
------------ ------------
Net interest income 8,909,856 8,914,228
Provision for credit losses 3,453,524 3,379,066
------------ ------------
Net interest income after provision for credit losses 5,456,332 5,535,162
------------ ------------
Other income:
Insurance premiums and commissions, net 4,593,011 4,339,911
Premiums for Loans Sold 812,955 686,911
Other income 4,211,032 3,318,561
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Total other income 9,616,998 8,345,383
------------ ------------
Operating expenses:
Compensation and employee benefits 7,624,529 7,600,138
Telephone, postage, and supplies 2,264,940 1,786,642
Net occupancy 1,232,212 1,346,585
Reinsurance claims expense 110,255 156,715
Advertising 818,251 1,030,816
Collection expense 60,377 142,896
Travel 292,173 416,103
Professional fees 167,929 188,526
Other 3,034,722 612,220
------------ ------------
Total operating expenses 15,605,388 13,280,641
------------ ------------
Income (loss) before income tax expense (532,058) 599,904
Benefit from Other Interest in Loss of Consolidated Subsidiary 613,025 -
Income tax expense 161,333 96,473
------------ ------------
Net income (loss) (80,366) 503,431
Dividends on preferred stock 177,612 178,151
Net income (loss) applicable to common shareholders ($257,978) $325,280
============ ============
Net income (loss) per common share - basic and diluted ($0.04) $0.05
============ ============
Weighted average shares outstanding - basic and diluted 6,974,665 7,002,177
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
The Thaxton Group, Inc.
Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 2000 and 1999
2000 1999
----------- -----------
Cash flows from operating activities $ 5,983,367 $ 7,570,000
Cash flows from investing activities (4,698,402) (1,706,000)
Cash flows from financing activities (2,169,199) (7,690,000)
----------- -----------
Net increase (decrease) in cash (884,234) (1,826,000)
Cash at beginning of period 2,036,104 8,808,000
----------- -----------
Cash at end of Period $ 1,151,870 $ 6,982,000
=========== ===========
5
<PAGE>
The Thaxton Group, Inc.
Notes to Consolidated Financial Statements (Unaudited)
June 30, 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 through Paragon 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 June 30, 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 six months and quarter ended June 30, 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 Company is currently engaged in
negotiations with RBE's majority shareholder regarding the Company's disposition
of its remaining interest in RBE.
On February 1, 1999, the Company's CEO and majority shareholder purchased 144
consumer finance offices from FirstPlus Consumer Finance, Inc., and operated
those offices in Thaxton Investment Corporation, Inc. ("TIC"), a corporation set
up for that purpose. This acquisition was accounted for as a purchase. TIC was a
private corporation, with Mr. Thaxton as the sole shareholder. TIC operated
independently from the Company from February 1, 1999 through November 8, 1999.
On November 8th, the Company acquired TIC in exchange for 3,223,000 shares of
the Company's common stock. Because TIC and the Company had been under common
ownership and control since February, 1999, the Company's acquisition of TIC was
accounted for at historical cost in a manner similar to pooling of interests
accounting. The 1999 financial statements have been restated to account for the
impact of the acquisition of Thaxton Investment Corporation. Certain amounts in
the 1999 presentation have been reclassified in order to conform to the 2000
presentation.
6
<PAGE>
(2) Finance Receivables
Finance receivables consist of the following at June 30, 2000 and December 31,
1999:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ -------------
<S> <C> <C>
Automobile Sales Contracts $ 33,942,978 $ 33,138,025
Mortgage loans 28,303,665 27,477,365
Commercial loans 3,663,379 3,440,166
Direct Loans 136,539,720 140,751,353
Premium Finance Contracts 8,207,772 8,362,591
------------ -------------
Total finance receivables 210,657,514 213,169,500
Unearned interest (36,593,854) (37,805,852)
Unearned insurance premiums, net (3,776,949) (2,797,033)
Valuation discount for acquired loans (12,533) (93,534)
Bulk purchase discount and Dealer holdback (915,663) (704,657)
Allowance for credit losses (10,043,561) (10,661,339)
Deferred Loan Cost, net 1,807,223 1,720,134
------------ -------------
Finance receivables, net $161,122,177 $ 162,827,219
============ =============
Loans Held for Sale $ 9,326,122 $ 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 deurer 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 occ 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 $26,607,787 and
$915,663, respectively, at June 30, 2000 and approximately $26,870,193 and
$704,657, respectively, at December 31, 1999.
At June 30, 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 June 30,
2000 and 1999 are as follows:
2000 1999
---------- ----------
Beginning balance 10,558,445 10,564,825
Provision for credit losses 3,453,524 3,379,066
Charge-offs (4,414,257) (4,142,883)
Recoveries 445,849 442,992
---------- ----------
Net charge-offs (3,968,408) (3,699,891)
Ending balance 10,043,561 10,244,000
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 June 30, 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 June 30, 2000 the Company had
approximately $84 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 $11.6 million total potential borrowing capacity
as of June 30, 2000.
The aggregate outstanding balance under these lines of credit was $157.9 million
at June 30, 2000, of which $59.0 million was borrowed at 10.75% (Lenders prime
+1 1/4%); $90.8 million was borrowed at 10.5% (Lenders prime + 1%); and $8.1
million was borrowed at 13% (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.
The Company met all such ratios and requirements or obtained waivers for any
instances of non-compliance as of the prior year end, and expects to meet all
such ratios and requirements or obtain waivers for any instances of
non-compliance for the current year.
In connection with the FirstPlus acquisition, the Company assumed $2.2 million
of subordinated notes issued to 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 December 31, 1999, 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 5.5% to 9.0%. Approximately $
47.9 million in notes were outstanding at June 30, 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 approximated $8 million, the majority of which were
intangible.
(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 four primary segments; consumer
finance, mortgage banking, insurance agency, and insurance underwriting risk
bearing. The consumer finance segment provides financing to consumers with
limited creditndistories, 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 agency 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 six months ended June 30, 2000
and 1999:
<TABLE>
<CAPTION>
Consumer Mortgage Insurance Insurance Underwriting
2000 Finance Banking Agency Risk Bearing Total
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenue 37,168,869 3,478,711 1,901,831 4,456,589 47,006,000
Net Income(loss) 535,039 (83,355) (91,015) (522,669) (162,000)
Total Assets 217,978,002 9,064,591 665,774 4,415,633 232,124,000
<CAPTION>
Consumer Mortgage Insurance Insurance Underwriting
1999 Finance Banking Agency Risk Bearing Total
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenue 31,870,805 3,895,000 2,216,485 2,495,314 40,477,604
Net Income(loss) 1,336,094 243,000 2,784 (819,725) 762,153
Total Assets 214,209,592 2,179,000 4,961,267 5,826,141 227,176,000
</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, 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"). In 1999, the
Company entered the underwriting risk bearing business primarily in non-standard
automobile.
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 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 six months and three months ended June 30, 2000 and
1999.
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30 Ended June 30
2000 1999 2000 1999
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Average Net Finance Receivables (1) 162,925,723 142,961,727 165,466,874 161,139,090
Average notes payable 212,572,821 187,293,106 212,542,283 200,850,001
Interest and fee income (2) 29,934,361 27,622,778 14,054,949 13,447,700
Interest expense (2) 10,343,397 8,449,374 5,145,093 4,533,472
Net interest income 19,590,964 19,173,404 8,909,856 8,914,228
Average interest rate earned (1) 36.75% 38.64% 33.98% 33.38%
Average interest rate paid (1) 9.73% 9.02% 9.68% 9.03%
Net interest spread 27.01% 29.62% 24.29% 24.35%
Net interest margin (3) 18.43% 20.47% 21.54% 22.13%
</TABLE>
(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.
11
<PAGE>
Results of Operations for the Six Months Ended June 30, 2000 and 1999
Net Finance receivables remained relatively constant between years ($161,122,000
in 2000 vs. $162,827,000 in 1999). Interest and fee income, however, increased
8% between years ($29,934,000 in 2000 vs. $27,623,000 in 1999), primarily as a
result of the operations of the First Plus acquisition being included for only
five months in 1999, and the entire six months in the current year. Interest
expense increased to $10,343,000 for 2000 from $8,449,000 in 1999. This increase
is primarily attributable to interest rate increases in our variable rate credit
facility associated with an increasing prime rate, as well as the First Plus
acquisition being included in our results of operations for only five months of
1999.
Insurance commissions net of insurance cost increased to $10,162,000 for the six
months ended June 30, 2000 from $7,160,000 for the same period of 1999, due to
increased business as a result of additional branch locations in our insurance
operations.
Operating expenses increased to $30,703,000 for the six months ended June 30,
2000 from $25,750,000 for the comparable period of 1999, a 19% increase,
primarily as a result of additional branch locations operating in the current
year.
As a result of the above, the company recognized a $162,000 loss for the six
months ended June 30, 2000 versus a $762,000 net profit for the six months ended
June 30, 1999.
Stockholders' equity decreased from $9,803,000 at December 31, 1999 to
$7,788,000 at June 30, 2000, a 21% decrease, primarily to the repurchase of
$1,500,000 of preferred stock in March, 2000.
Results of Operations for the Three Months Ended June 30, 2000 and 1999
Interest and fee income for the three months ended June 30, 2000 was
$14,055,000, versus $13,448,000 for the three months ended June 30, 1999, a 5%
increase, primarily due to higher interest rates charged on small loans, part of
a program to increase this segment of our business. Interest expense increased
to $5,145,000 for the three months ended June 30, 2000 versus $4,533,000 for the
three months ended June 30, 1999, a 14% increase, due primarily to interest rate
increases in our variable rate credit facility associated with an increasing
prime rate.
Insurance commissions net of insurance cost increased to $4,593,000 for the
three months ended June 30, 2000 from $4,340,000 for the three months ended June
30, 1999, a 6% increase due primarily to additional branch locations in our
insurance operations.
Operating expenses increased to $15,605,000 for the three months ended June 30,
2000 from $13,281,000 for the comparable period of 1999, a 17% increase, due
primarily to additional branch locations and related expansion in the insurance
underwriting risk bearing segments of our business.
As a result of the above, the company recognized an $80,000 net loss for the
three months ended June 30, 2000, versus a net gain of $503,000 for 1999.
12
<PAGE>
Credit Loss Experience
The following table sets forth the Company's allowance for credit losses at June
30, 2000, and 1999 and the credit loss experience over the periods presented.
<TABLE>
<CAPTION>
June 30,
-----------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net finance receivables (1) 161,122,177 162,827,219
Allowance for credit losses 10,043,561 10,244,000
Allowance for credit losses as a percentage of net finance
receivables (1) 6.23% 6.29%
Dealer reserves and discounts on bulk purchases 928,196 1,202,000
Dealer reserves and discounts on bulk purchases as percentage
of Automobile sales Contracts as period end(2) 2.73% 3.18%
Allowance for credit losses and dealer reserves and discount on
bulk purchases as a percentage of net finance receivables (1) 6.81% 7.03%
For the six months ended June 30,
Average net finance receivables (1) 162,925,723 142,961,727
Provision for loan losses 6,605,514 5,180,467
Charge-offs (net of recoveries) 7,223,292 5,923,605
Charge-offs (net of recoveries) as a percentage of average net
finance receivables (1) 8.87% 8.29%
For the three months ended June 30,
Average net finance receivables (1) 165,466,874 161,139,090
Provision for loan losses 3,453,524 3,379,066
Charge-offs (net of recoveries) 3,968,408 3,699,891
Charge-offs (net of recoveries) as a percentage of average net
finance receivables (1) 9.59% 9.18%
</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 sets forth certain information concerning delinquency on our
finance receivable portfolio.
<TABLE>
<CAPTION>
At June 30, At December 31,
-------------- ---------------
2000 1999
-------------- ---------------
<S> <C> <C>
Total finance receivables contractually past due
90 days or more (1) 5,022,385 5,886,818
Total Finance Receivables (1) 174,063,660 175,363,648
Finance receivables contractually past due 90 days or more 2.89% 3.36%
============== ===============
</TABLE>
(1) Finance receivable balances are presented net of unearned finance charges.
13
<PAGE>
Liquidity and Capital Resources
At June 30, 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 June 30, 2000 the Company had
approximately $84 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 $11.6 million total potential borrowing capacity
as of June 30, 2000.
The aggregate outstanding balance under these lines of credit was $157.9 million
at June 30, 2000, of which $59.0 million was borrowed at 10.75% (Lenders prime
+1 1/4%); $90.8 million was borrowed at 10.5% (Lenders prime + 1%); and $8.1
million was borrowed at 13% (Lenders prime +3 1/2%).
Management believes that its borrowing capacity under its existing revolving
credit facility, in addition to its ability to raise additional subordinated
debt under its subordinated note program, will provide the resources necessary
to pursue the Company's business and growth strategies through the next several
years.
14
<PAGE>
Part II
Item 6. E 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 June
30, 2000.
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: August 14, 2000 /s/James D. Thaxton
-------------------
James D. Thaxton
President and Chief Executive Officer
Date: August 14, 2000 /s/Allan F. Ross
-------------------
Allan F. Ross
Vice President, Treasurer, Secretary, and
Chief Financial Officer
15
