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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(MARK ONE)
( X ) Quarterly Report Pursuant To Section 13 Or 15 (d) of the
Securities Exchange Act Of 1934 For The Period Ended March 31,
1996
( ) 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 0-8909
EMERGENT GROUP, INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-0513287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. 0. Box 17526, Greenville, South Carolina 29606
(Address of principal executive offices) (Zip Code)
(864) 235-8056
(Registrant's telephone number, including area code)
________________________________________________________________________________
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (l) has filed all reports
required to be 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 registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Of Common Stock Outstanding at April 30, 1996
Common $.05 par value 6,510,168
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PART I - FINANCIAL INFORMATION
EMERGENT GROUP, INC. AND SUBSIDIARIES
Set forth on pages 3 through 7 are the consolidated balance sheet as of
December 31, 1995 and the unaudited consolidated balance sheet as of
March 31, 1996 of Emergent Group, Inc. and subsidiaries and the
unaudited consolidated statements of income for the three-month periods
ended March 31, 1995 and 1996 and unaudited consolidated statements of
cash flows for the three-month periods ended March 31, 1995 and 1996.
Elliott, Davis & Company, L.L.P. previously examined and reported on the
Company's financial statements for the year ended December 31, 1995,
from which the consolidated balance sheet as of that date is derived.
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EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,
DECEMBER 31, 1996
1995 (Unaudited)
(in thousands)
ASSETS
Cash and Cash equivalents, including
reverse repurchase agreements of
$791,000 (1995) and $815,000 (1996) $ 1,560 $ 1,795
Restricted cash 912 2,984
Loans receivable
Loans receivable 103,502 91,698
Mortgage loans held for sale 22,593 25,244
Notes receivable from related parties 363 373
Excess servicing receivable 2,054 2,223
Other receivables 1,626 1,029
Accrued interest receivable 1,571 1,635
131,709 122,202
Less allowance for credit losses (1,874) (1,885)
Less unearned discount (610) (1,054)
129,225 119,263
Investment in asset-backed securities, net of
allowance for losses of $773,000 (1995) and $1,382,000 (1996) 565 2,185
Property and equipment 4,327 4,723
Less accumulated depreciation (957) (1,110)
3,370 3,613
Excess of cost over net assets of acquired
businesses, net of accumulated amortization
of $370,000 (1995) and $416,000 (1996) 2,865 2,819
Real estate and personal property held
for sale 3,742 4,140
Deposit base intangibles, net of accumulated
amortization of $525,000 (1995) and $553,000 (1996) 600 572
Net assets of discontinued operations 77 61
Other assets 2,015 2,199
Total Assets $144,931 $139,631
See Notes to Unaudited Financial Statements
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EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
MARCH 31,
DECEMBER 31, 1996
1995 (Unaudited)
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable to banks and other $ 31,633 $ 19,831
Investor Savings:
Notes payable to investors, including
$873,000 (1995) and $781,000 (1996)
to related parties 82,132 87,879
Subordinated debentures, including
$63,000 (1995) and $32,000 (1996)
to related parties 16,185 16,176
Total investor savings 98,317 104,055
Other accrued liabilities 3,090 1,911
Remittance due to loan participants 1,188 1,667
Accrued interest 622 564
4,900 4,142
Total liabilities 134,850 128,028
Minority interest 196 208
Shareholders' equity
Common Stock, par value $.05 a share -
authorized 4,000,000 shares (1995 and
1996), issued and outstanding 121,000
shares (1995) and 123,026 shares (1996) 6 6
Class A Common Stock, par value $.05 a
share - authorized 6,666,667 shares
(1995 and 1996); issued and outstanding
6,276,474 shares (1995) and 6,387,142
shares (1996) 314 319
Capital in excess of par value 6,632 6,788
Retained earnings 2,933 4,282
Total shareholders' equity 9,885 11,395
Total liabilities and shareholders' equity $144,931 $139,631
See Notes to Unaudited Financial Statements
4
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EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended
March 31,
1995 1996
(in thousands except per share amounts)
Revenues:
Interest, servicing and finance charges $ 3,368 $ 4,860
Gain on sale of loans 1,220 3,018
Management fees 80 111
Other income 154 294
Total revenues 4,822 8,283
Expenses:
Interest expense 1,727 2,740
Provision for credit losses 489 910
Salaries, wages and employee benefits 1,212 1,824
Depreciation 72 151
Legal, audit and professional fees 103 149
Travel and entertainment 69 140
Telephone 56 107
Other general and administrative expense 597 857
Total expenses 4,325 6,878
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST 497 1,405
Provision for income taxes:
Current 31 72
Deferred (27) (28)
4 44
INCOME FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST 493 1,361
Minority interest in earnings of
subsidiary (8) (12)
INCOME FROM CONTINUING OPERATIONS 485 1,349
Discontinued Transportation and Apparel
Manufacturing Segments:
Loss from operations, net of income
tax expense (316) --
NET INCOME $ 169 $ 1,349
Income per share of Common Stock:
Continuing operations $ 0.07 $ 0.20
Discontinued operations (0.05) --
Net Income $ 0.02 $ 0.20
Computed on the weighted average number
of shares issued and outstanding 6,699,266 6,679,229
See Notes to Unaudited Financial Statements
5
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EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31,
1995 1996
(in thousands)
Operating Activities
Net income $ 169 $ 1,349
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 155 233
Provision for credit losses 489 910
Proceeds from securitization of loans -- 13,489
Payments to securitization trustee for
cash reserve -- (1,519)
Net increase in deferred loan costs -- 445
Net increase in deferred gain on sale 254 --
Loans originated - held for sale (32,158) (69,672)
Principal proceeds from loans sold 31,102 65,844
Minority interest in income of
subsidiaries 7 12
Changes in operating assets and
liabilities increasing (decreasing) cash:
Other receivables 283 626
Excess servicing receivable (13) (169)
Customer commitment deposits (209) (24)
Remittance due loan participants 138 (176)
Accrued interest payable 1 (57)
Accounts payable, income taxes payable
and other accrued liabilities (912) (1,154)
Accrued interest receivable (74) (63)
Other assets (134) (483)
Net cash provided by operating
activities of discontinued operations 224 --
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES $ (678) $ 9,591
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EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)--(Continued)
Three Months Ended
March 31,
1995 1996
(in thousands)
Investing Activities
Loans originated - held for investment $(14,655) $(16,786)
Principal proceeds from loans not sold 12,099 12,958
Principal proceeds from Asset-Backed
Securities -- 48
Proceeds from sale of short term investments 400 --
Proceeds from sale of real estate
and personal property held for sale 560 751
Purchase of property and equipment (181) (395)
Rent received on real estate held for sale 32 32
Improvements and related costs incurred
on real estate held for sale (82) (60)
Net cash used in investing activities of
discontinued operations 97 --
NET CASH (USED IN) INVESTING ACTIVITIES (1,730) (3,452)
Financing Activities
Advances under bank lines of credit 34,513 76,861
Payments on bank lines of credit (33,328) (88,663)
Net increase in notes payable to
investors 8,715 5,746
Net decrease in subordinated debentures (6,366) (10)
Proceeds from exercise of stock options -- 162
Net cash used in financing activities
of discontinued operations (221) --
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,313 (5,904)
Net increase in cash and
cash equivalents 905 235
Cash and cash equivalents at beginning
of year 278 1,560
Cash and cash equivalents at March 31 $ 1,183 $ 1,795
See Notes to Unaudited Financial Statements
7
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EMERGENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PREPARATION
The accompanying consolidated financial statements are prepared in
accordance with the SEC's rules regarding interim financial statements,
and therefore do not contain all disclosures required by generally
accepted accounting principles for annual financial statements.
Reference should be made to the financial statements included in the
Company's annual report for 1995 including the footnotes thereto.
The consolidated balance sheet as of March 31, 1996 and the consolidated
statements of income for the three-month periods ended March 31, 1995
and 1996 and the consolidated statements of cash flows for the
three-month periods ended March 31, 1995 and 1996 are unaudited and in
the opinion of management contain all known adjustments necessary to
present fairly the financial position, results of operations and cash
flows of the Company.
The Company considers all highly liquid investments readily convertible
to known amounts of cash or having a maturity of three months or less to
be cash equivalents.
NOTE B--INTEREST AND INCOME TAXES
For the three month period ended March 31, the Company paid interest of
$1,795,000 in 1995 and $2,797,000 in 1996.
For the three month period ended March 31, the Company paid income taxes
of $17,000 in 1995 and $22,000 in 1996.
NOTE C--CASH AND CASH EQUIVALENTS
The Company maintains its primary checking accounts with three principal
banks and makes overnight investments in reverse repurchase agreements
with those same banks. The amounts maintained in the checking accounts
are insured by the Federal Deposit Insurance Corporation ("FDIC") up to
$100,000. At March 31, 1996 the amounts maintained in overnight
investments in reverse repurchase agreements, which are not insured by
the FDIC, totaled $815,000. The investments were collateralized by U.S.
Government securities held by the banks.
NOTE D - RESTRICTED CASH
The Company is required to establish and maintain cash reserve and
collection accounts with a trustee in connection with the securitization
of SBA and Auto Loans. These accounts are shown as restricted cash on
the Company's consolidated balance sheets.
NOTE E - SECURITIZATION OF LOANS
In March of 1996, the Company securitized $16,107,000 of auto loans. The
securitization was effected through a grantor trust (the "Trust"), the
ownership of which was represented by Class A and Class B certificates.
The Class A certificate was purchased by an investor, while the Company
retained the Class B certificate. The Company has classified its Class B
certificate as a trading security under SFAS 115 and such certificate
is carried at fair value. This certificate, in addition to the Class
B certificates held by the Company pursuant to the securitization of the
unguaranteed portions of its SBA loans in 1995, are carried on the
balance sheet as asset-backed securities in the amount of $1,879,000
which is net of $1,382,000 allowance for losses. These certificates give
the holders thereof the right to receive payments and other recoveries
attributable to the loans held by the Trust. The Class B certificates
represent approximately 10% of the principal amount of the loans
transferred in the securitization and are subordinate in payment and all
other aspects to the Class A certificates. Accordingly, in the event
that payments received by the Trust are not sufficient to pay certain
expenses of the Trust and the required principal and interest payments
due on the Class A certificates, the Company, as holder of the Class B
certificates, would not be entitled to receive principal or interest
payments due thereon. Although securitizations provide liquidity, the
Company has utilized securitizations principally to provide a lower cost
of funds and to reduce interest rate risk. The Company's excess spread
from the transaction is recognized over the life of the underlying
loans.
The Company serves as master servicer for the Trust and, accordingly,
forwards payments received on account of the
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loans held by the Trust to the trustee, which, in turn, pays the
holders of the certificates in accordance with the terms of and
priorities set forth in the securitization documents. Because the
transfer of the loans to the Trust constitutes a sale of the underlying
loans, no liability is created on the Company's Consolidated Financial
Statements. However, the Company has the obligation to repurchase the
loans from the Trust in the event that certain representations made
with respect to the transferred loans are breached or in the event of
certain defaults by the Company, as master servicer. The Class A
certificates for both the SBA securitization and the Auto
securitization received a rating of Aaa from Moody's Investors Service,
Inc. In addition, the Class A certificates for the Auto securitization
received a rating of AAA from Standards and Poors ratings group, and
were guaranteed by Financial Security Assurance, Inc. The Class B
certificates were not rated. In connection with the Auto
securitization, the Company received cash proceeds, net of
securitization costs, of $14,195,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company appearing elsewhere
herein. As used herein, "Discontinued Operations" refers to the
Company's Transportation and Apparel Segments. Unless otherwise noted,
the discussion contained herein relates to the continuing operations of
the Company, which consist of its Financial Services Segment
operations which are comprised of Carolina Investors, Inc. ("CII") and
Emergent Mortgage Corporation (the "Mortgage Loan Division"), Emergent
Business Capital, Inc. (the "Small Business Loan Division") and The Loan
Pros, Inc. and Premier Financial Services, Inc. (the "Auto Loan Division").
Results of Operations
Three Months Ended March 31,1996 Compared to Three Months Ended March
31,1995
Total revenues increased $3.5 million, or 73%, from $4.8 million for
the three month period ended March 31, 1995 to $8.3 million for the
three month period ended March 31, 1996. The increase in revenues
resulted principally from increases in interest and servicing revenue
and gain on sale of loans.
Interest and servicing revenue increased $1.5 million, or 45%, from
$3.4 million for the three month period ended March 31, 1995 to $4.9
million for the three month period ended March 31, 1996. This increase
was due principally to the growth in the serviced loan portfolio of the
Mortgage and Auto Loan Divisions. Interest and servicing revenue earned
by the Mortgage Loan Division increased $797,000, or 35%, from $2.3
million for the three month period ended March 31, 1995 to $3.1 million
for the three month period ended March 31, 1996. Interest and servicing
revenue earned by the Small Business Loan Division increased $99,000, or
12%, from $823,000 for the three month period ended March 31, 1995 to
$922,000 for the three month period ended March 31, 1996. This increase
resulted from continued growth in serviced Small Business Loans and from
the removal of the temporary change in the US Small Business Administration
("SBA") policy reducing the maximum loan amount to $500,000 which negatively
impacted the Company's Small Business Loan originations during the three
month period ended March 31, 1995. Interest and servicing revenue earned by
the Auto Loan Division increased $604,000, or 98%, from $615,000 for the
three month period ended March 31, 1995 to $1.2 million for the three month
period ended March 31, 1996. The increase in interest and servicing revenue
for the Auto Loan Division was due to the growth of its loan portfolio.
Gain on sale of loans increased $1.8 million, or 147%, from $1.2
million for the three month period ended March 31, 1995 to $3.0 million
for the three month period ended March 31, 1996. Gain on sale of loans
was generated by the sale of Mortgage Loans and SBA Loan
Participations. The increase resulted principally from increased sales
of Mortgage Loans associated with the increased loan originations of
the Mortgage Loan Division.
Other revenues increased $171,000, or 73%, from $234,000 for the
three month period ended March 31, 1995 to $405,000 for the three month
period ended March 31, 1996. Other revenues is comprised principally of
origination and processing fees, insurance commissions and management
fees paid in connection with the management of two venture capital funds
by the Company (the "Venture Funds"). The increase in other revenues resulted
principally from the increase in the Company's loan originations, as well
as from increased management fees paid by the Venture Funds.
Total expenses increased $2.6 million, or 59%, from $4.3 million
for the three month period ended March 31, 1995 to $6.9 million for the
three month period ended March 31, 1996. Total expenses are comprised
of interest expense, provision for credit losses and general and
administrative expenses.
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Interest expense increased $1.0 million, or 59%, from $1.7 million
for the three month period ended March 31, 1995 to $2.7 million for the
three month period ended March 31, 1996. The increase was due principally
to increased borrowings by the Mortgage and Auto Loan Divisions
associated with increased loan originations. Total borrowings
attributable to the Mortgage Loan Division, both under the Credit
Facilities and in connection with the sale of Notes Payable to Investors
and Subordinated Debentures (the "Debentures"), increased $29.2 million,
or 36%, from $82.0 million at March 31,1995 to $111.2 million at
March 31, 1996. Total borrowings attributable to the Small Business Loan
Division increased $1.6 million, or 14%, from $11.1 million at March
31, 1995 to $12.7 million for the three month period ended March 31,
1996. This increase in debt resulted principally from the loan
origination activity for the three month period ended March 31, 1996 as
compared to the same period in 1995. This increase in loan originations
was due principally to the elimination of the SBA's $500,000 loan
limitation in October 1995. Total borrowings attributable to the Auto
Loan Division decreased $5.2 million, or 100%, from $5.2 million at
March 31, 1995 to $0 at March 31, 1996. This decrease was due to the
repayment of all bank debt with proceeds of the securitization of $16.1
million of Auto Loans in March 1996.
Provision for credit losses increased $421,000, or 86%, from $489,000
in the three months ended March 31, 1995 to $910,000 in the three months
ended March 31, 1996. The provision was made to maintain the general
reserves for credit losses associated with loan growth, as well as to
fund specific reserves for possible losses associated with particular
loans. This increase in the provision for credit losses was due principally
to the increase in the Company's serviced loan portfolio from $98,493,000
at March 31, 1995 to $117,317,000 at March 31, 1996, an increase of l9%.
General and administrative expense increased $1.1 million, or 53%,
from $2.1 million for the three month period ended March 31, 1995 to
$3.2 million for the three month period ended March 31, 1996 principally
as a result of increased personnel costs in the Mortgage Loan Division
due to the continued expansion in the servicing and underwriting areas,
and increased expenses associated with the opening of three new loan
production offices by the Auto Loan Division. General and administrative
expense decreased from 5.2% of average serviced loans at March 31, 1995
to 4.7% at March 31, 1996, principally as a result of the increase in
serviced loans for the three-month period ended March 31, 1996. This
decrease in general and administrative expense as a percentage of
serviced loans was partially offset by the costs associated with the
expansion of the Mortgage Loan Division's servicing operations in
anticipation of increased originations of Mortgage Loans, including
Mortgage Loans which may be sold servicing retained.
Income from continuing operations increased $864,000, or 178%, from
$485,000 for the three months ended March 31, 1995 to $1.3 million for
the three month period ended March 31, 1996. The improvement in income
was due principally to increased growth and profitability of the
Mortgage Loan Division as a result of increased gain on sale of loans
and interest and servicing revenue.
Allowance for Credit Losses and Credit Loss Experience
To provide for credit losses, the Company charges against current
earnings an amount necessary to maintain the allowance for credit losses
at levels expected to cover future losses of principal. At March 31,
1996 the total allowance for credit losses for the Company was $3.3
million, including $1.4 million reserved for potential losses relating
to the Company's securitized SBA and Auto Loans. This compares to an
allowance for credit losses at December 31, 1995 of $2.6 million
including $773,000 reserved for potential losses relating to the
Company's securitized SBA loans. The increase in the allowance resulted
from corresponding increases in the Company's serviced loans receivable,
rather than in connection with specific loans or circumstances.
The allowance for credit losses is a composite of the allowance
for credit losses of the Mortgage Loan Division, the Small Business Loan
Division and the Auto Loan Division as of March 31, 1996. The Mortgage Loan
Division maintains an allowance for credit losses equal to approximately
1% of its loan portfolio, the Small Business Loan Division currently maintains
an allowance for credit losses equal to approximately 3% of the unguaranteed
portion of its loan portfolio, and the Auto Loan Division currently
maintains an allowance for credit losses equal to approximately 5% of
its loan portfolio. In addition, each subsidiary may establish a specific
reserve for a particular loan that is deemed by management to be a potential
problem loan where full recovery is questionable. The Company considers its
allowance for credit losses to be adequate in view of the Company's loss
experience and the secured nature of most of the Company's outstanding loans.
Although management considers the allowance appropriate and adequate to cover
possible losses in the loan portfolio, management's judgment is based upon a
number of assumptions about future events, which are believed to be
reasonable, but which may or may not prove valid. Thus, there can be no
assurance
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that charge-offs in future periods will not exceed the allowance for
possible credit losses or that additional increases in the allowance for
possible credit losses will not be required.
Liquidity and Capital Resources
The Company's business requires continued access to short- and
long-term sources of debt financing and equity capital. The Company's
cash requirements arise from loan originations and purchases, repayments
of debt upon maturity, payments of operating and interest expenses,
expansion activities and capital expenditures. The Company's primary
sources of liquidity are cash flow from operations, sales of the loans
it originates and purchases, proceeds from the sale of Debentures,
borrowings under available lines of credit and proceeds from securitizations
of loans. While the Company believes that such sources of funds will be
adequate to meet its liquidity requirements, no assurance of such fact may
be given.
Shareholders' equity increased from $9.9 million at December 31,
1995 to $11.4 million at March 31, 1996. This increase resulted
Principally from the retention of income by the Company. Cash and cash
equivalents increased from $1.6 million at December 31, 1995 to $1.8
million at March 31, 1996. Cash provided by (used in) operating
activities increased from $(678,000) for the three month period ended
March 31, 1995 to $9.6 million for the three month period ended March
31, 1996; cash used in investing activities increased from $1.7
million for the three month period ended March 31, 1995 to $3.4 million
for the three month period ended March 31, 1996; and cash provided by
(used in) financing activities decreased from $3.3 million for the three
month period ended March 31, 1995 to $(5.9) million for the three month
period ended March 31, 1996. The increase in cash provided by operations
was due principally to the proceeds received from the securitization of
$16.1 million of Auto Loans in March 1996. Cash used in investing
activities was principally for the net increase in loans originated with
the expectation of holding the loans until maturity. Cash used in
financing activities was due principally to the repayment of the Credit
Facilities, principally from the proceeds of the securitization of $16.1
million in Auto Loans in March 1996. At March 31, 1996, the Company's
Credit Facilities were comprised of credit facilities of $90 million for
the Mortgage Loan Division which had aggregate unused borrowing
availability of $28.2 million (the "Mortgage Loan Division Facility"),
credit facilities of $32 million for the Small Business Loan Division
which had aggregate unused borrowing availability of $1.8 million (the
"Small Business Loan Division Facility"), and credit facilities of
$26 million for the Auto Loan Division which had aggregate unused borrowing
availability of $2.9 million (the "Auto Loan Division Facility"). At
March 31, 1996, $7.2 million bearing interest at the lender's prime rate
was outstanding under the Mortgage Loan Division Facility, $12.7 million
bearing interest at the lender's prime rate was outstanding under the
Small Business Loan Division Facility, and $0 bearing interest at .75%
over the lender's prime rate was outstanding under the Auto Loan Division
Facilities. The Credit Facilities have terms ranging from one to three years
and are renewable upon the mutual agreement of the Company and the respective
lender.
The Credit Facilities contain a number of financial covenants,
including, but not limited to, covenants with respect to certain debt to
equity ratios, delinquent loans, and minimum adjusted tangible net
worth. The Credit Facilities also contain certain other covenants,
including, but not limited to, covenants that impose limitations on the
Company with respect to declaring or paying dividends, making payments
with respect to certain subordinated debt, and making certain changes to
its equity capital structure. The Company believes that it is currently
in material compliance with these covenants.
CII engages in the sale of Debentures to Investors. The
Debentures are comprised of senior notes and subordinated debentures
bearing fixed rates of interest which are sold by CII only to South
Carolina residents. The offering of the Debentures is registered under
South Carolina securities law and exempt from federal registration under
the federal intrastate exemption. CII conducts its operations so as to
qualify for the safe harbor provisions of Rule 147 promulgated pursuant
to the Securities Act of 1933, as amended, which requires that, among other
things, at least 80% of the Proceeds from the Debentures must be loaned by
CII to South Carolina borrowers. At March 31, 1996, CII had an aggregate of
$87.9 million of senior notes outstanding bearing a weighted average interest
rate of 8.2%, and an aggregate of $16.2 million of subordinated debentures
bearing a weighted average interest rate of 5.5%. Both senior notes and
subordinated debentures are subordinate in Priority to the Mortgage Loan
Division Credit Facility. Substantially all of the Debentures have one year
maturities.
The Company has no additional significant capital requirements as
of March 31, 1996.
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PART II - OTHER INFORMATION
Item 2. Changes in Securities
The Articles of Incorporation of the Company were amended by vote of
the shareholders at the Annual Meeting of Shareholders on April 18,
1996. The Class A Common Stock, $.05 par value, was converted to Common
Stock on a one-for-one basis effective April 19, 1996.
All authorized but unissued shares of Class A Common Stock were
cancelled. The number of authorized shares of Common Stock was increased
from 4,000,000 to 30,000,000 shares.
Item 4. Submission of Matters to a Vote of Security Holders
The shareholders of the Company voted on the election of directors
and four proposals at the Annual Meeting of Shareholders held on April
18, 1996.
1 . Election of Directors:
Against Broker
For or Withheld Abstain Nonvotes
Clarence B. Bauknight
Class A Common 4,436,738 262 -- --
Common 81,356 16 -- --
Robert S. Davis
Class A Common 4,436,738 262 -- --
Common 81,356 16 -- --
Keith B. Giddens
Class A Common 4,436,738 262 -- --
Common 81,356 16 -- --
Tecumseh Hooper, Jr.
Class A Common 4,436,738 262 -- --
Common 81,356 16 -- --
Jacob H. Martin
Class A Common 4,436,738 262 -- --
Common 81,356 16 -- --
Buck Mickel
Class A Common 4,436,738 262 -- --
Common 81,356 16 -- --
Porter B. Rose
Class A Common 4,436,738 262 -- --
Common 81,356 16 -- --
John M. Sterling, Jr.
Class A Common 4,436,738 262 -- --
Common 81,356 16 -- --
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2. Proposal to Amend the Company's Articles of Incorporation to
Increase the Authorized Shares of Common Stock to 30,000,000 Shares.
Against Broker
For or Withheld Abstain Nonvotes
Class A Common 4,396,192 5,422 496 --
Common 80,426 938 8 --
3. Proposal to Amend the Company's Articles of Incorporation to
Convert All Existing Shares of Class A Common Stock Into Common Stock on
a One-For-One Basis.
Against Broker
For or Withheld Abstain Nonvotes
Class A Common 4,396,516 5,098 496 --
Common 80,432 918 22 --
4. Proposal to Amend the Company's Articles of Incorporation to
Cancel All Authorized but Unissued Shares of Class A Common Stock.
Against Broker
For or Withheld Abstain Nonvotes
Class A Common 4,401,130 420 560 --
Common 81,350 16 6 --
5. Proposal to Adopt the Company's Restricted Stock Agreement
Plan to be Granted Only to Those Directors of the Company Who, On the
Date of Grant, Are Not Employees of the Company.
Against Broker
For or Withheld Abstain Nonvotes
Class A Common 4,408,388 28,046 566 --
Common 79,836 1,534 2 --
Item 5. Other Information
In March of 1996, the Company securitized $16,107,000 of auto
loans. The securitization was effected through a grantor trust, the
ownership of which was represented by Class A and Class B certificates.
The Class A certificate, in the amount of $14,496,000, was purchased by
an investor, while the Company retained the Class B certificate in the
amount of $1,612,000. In connection with the securitization, the Company
received cash proceeds, net of securitization costs, of $14,195,000.
The Company originates substantially all of its mortgage loans on a
wholesale basis through mortgage bankers and mortgage brokers ("Mortgage
Bankers") with whom the Company has a relationship. The Company has
established strategic alliance agreements with five Mortgage Bankers
which, among other things, require such Mortgage Bankers to originate
through the Company all of their loans which meet the Company's
underwriting criteria. These five Mortgage Bankers originated 75% and
86% of the Company's mortgage loans during 1995 and the first quarter of
1996 respectively. One such Mortgage Banker, First Greensboro Home
Equity, Inc. ("First Greensboro") originated 65% and 61% of the
Company's mortgage loans during 1995 and the first quarter of 1996
respectively.
13
<PAGE>
The Company has been notified by First Greensboro that it is
discussing the sale of all or part of its business to a third party, and
that such sale may result in First Greensboro's breach of its strategic
alliance contract with the Company. Such contract terminates, if not
renewed, on December 31, 1997. In the event that a third party makes
an offer to purchase First Greensboro which is acceptable to First
Greensboro, the Company would have the right of first refusal to acquire
First Greensboro on the same terms offered by a third party. In the event
that the Company did not exercise such right of first refusal and First
Greensboro effected an early termination of its strategic alliance agreement
with the Company (whether in connection with a sale to a third party or
otherwise), then the strategic alliance agreement provides for damages.
Damages as defined in the contract would not be less than $5,478,000
(although no assurance can be given as to the ultimate amount that might
be collected by the Company). The Company also believes that under South
Carolina law it may be entitled to additional damages to the extent such
damages can be demonstrated. The Company cannot determine which option it
will pursue or what impact this situation may have on the Company until
further actions, if any, are taken by First Greensboro.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1 Articles of Amendment to the Company's Articles of
Incorporation filed with the Secretary of State of South Carolina on
April 19, 1996.
b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMERGENT GROUP, INC.
Date May 14, 1996 /s/ Robert S. Davis
Robert S. Davis, Vice President,
Chief Financial Officer
<PAGE>
EXHIBIT 3.1
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
Pursuant to (Section Mark) Section 33-10-106 of the 1976 South Carolina Code,
as amended, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
1. The name of the corporation is Emergent Group, Inc.
2. On April 18, 1996, the corporation adopted the following
Amendments of its Articles of Incorporation:
1. RESOLVED, that the authorized number of shares of Common
Stock of the Company, par value $.05 per share (the "Common
Stock"), be increased from the present number of 4,000,000
shares to 30,000,000 shares;
2. RESOLVED, that on the next business day following the
approval by shareholders of the increase in authorized shares
of Common Stock of the Company described in Paragraph 1
above, each of the outstanding shares of Class A Common
Stock, par value $.05 per share (the "Class A Common"), and
each of the shares of Class A Common Stock reserved for
issuance pursuant to existing Company obligations be
automatically converted into one share of Common Stock; and
3. RESOLVED, that, immediately following the conversion
described in Paragraph 2 above, all authorized but unissued
shares of Class A Common Stock be canceled, and all
references to Class A Common Stock in the Articles of
Incorporation be deleted.
3. The manner, if not set forth in the amendment, in which any
exchange, reclassification, or cancellation of issued shares
provided for in the Amendment shall be effected, is as follows:
N/A
4. Complete either a or b, whichever is applicable.
a. [X] Amendment(s) adopted by shareholder action.
At the date of adoption of the amendment, the number of
outstanding shares of each voting group entitled to vote
separately on the Amendment, and the vote of such shares was:
<PAGE>
<TABLE>
<CAPTION>
Number of Number of Number of Votes Number of Undisputed*
Voting Outstanding Votes Entitled Represented at Shares Voted
Group Shares to be Cast the Meeting For Against**
<S> <C> <C> <C> <C> <C>
As to 6,387,142 6,387,142 4,402,110 4,396,192 5,918
Item 1 (Class A Common) (Class A Common) (Class A Common) (Class A Common) (Class A Common)
123,026 123,026 81,372 80,426 946
(Common) (Common) (Common) (Common) (Common)
As to 6,387,142 6,387,142 4,402,110 4,396,516 5,594
Item 2 (Class A Common) (Class A Common) (Class A Common) (Class A Common) (Class A Common)
123,026 123,026 81,372 80,432 940
(Common) (Common) (Common) (Common) (Common)
As to 6,387,142 6,387,142 4,402,110 4,401,130 980
Item 3 (Class A Common) (Class A Common) (Class A Common) (Class A Common) (Class A Common)
123,026 123,026 81,372 81,350 22
(Common) (Common) (Common) (Common) (Common)
</TABLE>
*NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can
alternatively state the total number of undisputed shares cast
for the amendment by each voting group together with a statement
that the number of votes cast for the amendment by each voting
group was sufficient for approval by that voting group.
**: Abstentions are treated as votes against the proposals.
b. [ ] The Amendment(s) was duly adopted by the incorporators or
board of directors without shareholder approval pursuant to
(Section Mark) 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South
Carolina Code as amended, and shareholder action was not
required.
5. Unless a delayed date is specified, the effective date of these
Articles of Amendment shall be the date of acceptance for filing
by the Secretary of State (See Section Mark) 33-1-230(b)).
Date: April 19, 1996 Emergent Group, Inc.
(Name of Corporation)
By: /s/ Robert S. Davis
Robert S. Davis
Vice President and Chief Financial
Officer
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,795
<SECURITIES> 0
<RECEIVABLES> 122,202
<ALLOWANCES> 1,885
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 4,723
<DEPRECIATION> 1,110
<TOTAL-ASSETS> 139,631
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 325
<OTHER-SE> 11,070
<TOTAL-LIABILITY-AND-EQUITY> 139,631
<SALES> 0
<TOTAL-REVENUES> 8,283
<CGS> 0
<TOTAL-COSTS> 6,878
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 910
<INTEREST-EXPENSE> 2,740
<INCOME-PRETAX> 1,405
<INCOME-TAX> 44
<INCOME-CONTINUING> 1,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,349
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
<FN>
<F1>Unclassified Balance Sheet
</FN>
</TABLE>
