<PAGE> 1
THIS REPORT HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION VIA EDGAR
- - --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- - --------------------------------------------------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
Commission File No. 1-11121
T F C E N T E R P R I S E S, I N C.
(Exact name of registrant as specified in its charter)
Delaware 54-1306895
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5425 Robin Hood Road
Suite 101A
Norfolk, Virginia 23513
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code -- (804) 858-1400
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Indicate by check mark whether the registrant (1) 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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
As of May 10, 1996, there were 11,287,308 outstanding shares of the registrant's
$.01 par value per share common stock.
<PAGE> 2
TFC ENTERPRISES, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q FOR
THE QUARTER ENDED MARCH 31, 1996
Table of Contents and 10-Q Cross Reference Index
Part I - Financial Information Page No.
- - ------------------------------ --------
Financial Highlights 3
Financial Statements (Item 1)
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Changes in Shareholders' Equity 7
Consolidated Statements of Cash Flows 8
Notes to Consolidated Financial Statements 9
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Item 2) 12
Part II - Other Information
Exhibits and Reports on Form 8-K (Item 6) 19
Signatures 20
Index to exhibits 21
2
<PAGE> 3
TFC ENTERPRISES, INC.
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
Three months
(dollars in thousands, except ended March 31,
per share amounts) 1996 1995
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 740 $ 1,824
Net income per common share $ .07 $ .16
Average common and common equivalent
shares outstanding (in thousands) 11,286 11,297
- - -----------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS:
Annualized return on average common equity 8.02% 16.66%
Annualized return on average assets 1.43 4.21
Yield on interest earning assets 22.23 22.64
Cost of interest bearing liabilities 9.48 8.35
Net interest margin 15.09 17.12
Operating expense as a percentage of
average interest earning assets 11.63 11.56
Total net charge-offs to average
gross contract receivables
net of unearned interest 22.66 12.54
60 day delinquencies to period end
gross contract receivables 9.14 6.42
Total allowance and nonrefundable reserve
to period end gross contract receivables
net of unearned interest 18.53 15.99
Equity to assets, period end 18.95 24.97
- - -----------------------------------------------------------------------------------------------------------
AVERAGE BALANCES:
Interest earning assets (a) $216,214 $182,454
Total assets 207,547 173,271
Interest bearing liabilities 162,700 120,672
Equity 36,930 43,805
- - -----------------------------------------------------------------------------------------------------------
<FN>
Note: Throughout this report, ratios are based on unrounded numbers and factors contributing to changes
between periods are noted in descending order of materiality.
(a) Average interest bearing deposits and gross contract receivables net of
unearned interest revenue and unearned discount.
</TABLE>
3
<PAGE> 4
TFC ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Mar. 31, Dec. 31, Mar. 31,
(dollars in thousands) 1996 1995 1995
---------- --------- --------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 14,181 $ 12,507 $ 571
Net contract receivables 154,187 171,051 154,473
Recoverable income taxes 3,818 3,904 96
Property and equipment, net 2,925 2,256 1,739
Goodwill, net 11,453 11,656 12,266
Other intangible assets, net 2,527 2,596 2,805
Deferred income taxes 2,720 6,911 5,410
Other assets 4,190 4,265 1,559
------- ------- -------
Total assets $196,001 $215,146 $178,919
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving line of credit $ 54,855 $ 59,475 $ 93,488
Term notes 43,000 50,000 25,000
Automobile Receivables - Backed notes 39,035 47,252 --
Subordinated notes, net 13,748 13,732 4,911
Other debt -- -- 925
Accounts payable and accrued expenses 4,897 4,146 2,970
Income taxes payable -- -- 3,442
Refundable dealer reserve 2,246 3,250 2,902
Other liabilities 1,070 887 606
------- ------- -------
Total liabilities 158,851 178,742 134,244
------- ------- -------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none outstanding -- -- --
Common stock, $.01 par value, 40,000,000 shares
authorized; 11,287,308; 11,283,954 and
11,282,604 shares outstanding, respectively 49 49 49
Additional paid-in capital 54,285 54,279 54,265
Retained deficit (17,184) (17,924) (9,639)
------- ------- -------
Total shareholders' equity 37,150 36,404 44,675
------- ------- -------
Total liabilities and shareholders' equity $196,001 $215,146 $178,919
======= ======= =======
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE> 5
TFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31,
(in thousands, except per share amounts) 1996
- - -------------------------------------------------------------------------------------------------
<S> <C>
Interest and other finance revenue $12,015
Interest expense 3,858
- - -------------------------------------------------------------------------------------------------
Net interest revenue 8,157
Provision for credit losses 1,000
- - -------------------------------------------------------------------------------------------------
Net interest revenue after provision for credit losses 7,157
Other revenue:
Commissions on ancillary products 510
Other 44
- - -------------------------------------------------------------------------------------------------
Total other revenue 554
- - -------------------------------------------------------------------------------------------------
Operating expense:
Salaries 3,318
Employee benefits 547
Occupancy 220
Equipment 262
Amortization of intangible assets 273
Other 1,666
- - -------------------------------------------------------------------------------------------------
Total operating expense 6,286
- - -------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,425
Provision for (benefit from) income taxes 685
- - -------------------------------------------------------------------------------------------------
Net income (loss) $ 740
- - -------------------------------------------------------------------------------------------------
Primary net income (loss) per common share $ .07
Fully diluted net income (loss) per common share .07
- - -------------------------------------------------------------------------------------------------
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
Three months ended
- - ------------------------------------------------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31,
1995 1995 1995 1995
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 13,588 $13,420 $12,021 $10,329
3,753 3,341 2,921 2,518
- - ------------------------------------------------------------------------------------------------------------------------
9,835 10,079 9,100 7,811
25,000 1,250 250 --
- - ------------------------------------------------------------------------------------------------------------------------
(15,165) 8,829 8,850 7,811
428 602 594 500
86 31 14 37
- - ------------------------------------------------------------------------------------------------------------------------
514 633 608 537
- - ------------------------------------------------------------------------------------------------------------------------
2,460 3,270 3,260 3,083
488 485 514 520
208 199 151 154
275 348 271 223
272 273 273 273
1,504 1,408 1,711 1,019
- - ------------------------------------------------------------------------------------------------------------------------
5,207 5,983 6,180 5,272
- - ------------------------------------------------------------------------------------------------------------------------
(19,858) 3,479 3,278 3,076
(7,552) 1,409 1,327 1,252
- - ------------------------------------------------------------------------------------------------------------------------
$(12,306) $ 2,070 $ 1,951 $ 1,824
- - ------------------------------------------------------------------------------------------------------------------------
$ (1.09) $ .18 $ .17 $ .16
(1.09) .18 .17 .16
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
TFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------
(in thousands) 1996 1995
---- ----
<S> <C> <C>
COMMON STOCK $ 49 $ 49
====== ======
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period $ 54,279 $ 54,259
Stock options exercised 6 6
------ ------
Balance at end of period $ 54,285 $ 54,265
====== ======
RETAINED DEFICIT
Balance at beginning of period $(17,924) $(11,463)
Net income 740 1,824
------- ------
Balance at end of period $(17,184) $ (9,639)
======= ======
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
7
<PAGE> 8
TFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
(in thousands) 1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 740 $ 1,824
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of intangible assets 273 273
Depreciation and other amortization 405 269
Provision for (benefit from) deferred income taxes 4,191 (553)
Provision for credit losses 1,000 --
Gain on disposal of assets -- (6)
Changes in operating assets and liabilities:
Decrease in recoverable income taxes 86 1
(Increase) decrease in other assets (127) 307
Increase (decrease) in accounts payable and accrued expenses 751 (477)
Increase in income taxes payable -- 1,474
(Decrease) increase in refundable dealer reserve (1,004) 698
Increase in other liabilities 183 49
------ ------
Net cash provided by operating activities 6,498 3,859
------ ------
INVESTING ACTIVITIES
Repayments on (net cost of acquiring) contract receivables 15,864 (15,296)
Purchase of property and equipment (857) (61)
Proceeds on disposal of assets -- 6
------ ------
Net cash provided by (used in) investing activities 15,007 (15,351)
------ ------
FINANCING ACTIVITIES
Net (payments) borrowings on revolving line of credit (4,620) 8,696
Payments on Term notes (7,000) --
Payments on Automobile Receivables-Backed notes (8,217) --
Net borrowings on other debt -- 73
Proceeds from stock options exercised 6 6
------ ------
Net cash (used in) provided by financing activities (19,831) 8,775
------ ------
Increase (decrease) in cash and cash equivalents 1,674 (2,717)
Cash and cash equivalents at beginning of period 12,507 3,288
------ ------
Cash and cash equivalents at end of period $14,181 $ 571
====== ======
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
8
<PAGE> 9
TFC ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and business. TFC Enterprises, Inc. ("TFCE") is the holding
company for its two wholly-owned subsidiaries, The Finance Company ("TFC") and
First Community Finance, Inc. ("FCF"). TFCE has no significant operations of
its own. TFC specializes in purchasing and servicing installment sales
contracts originated by automobile and motorcycle dealers in the sale of used
automobiles, vans, light trucks, and new and used motorcycles (collectively
"vehicles") both on an individual basis ("point of sale" purchase) and on a
portfolio basis ("portfolio" purchase). Based in Norfolk, Virginia, TFC also
has offices in Dallas, Texas; Jacksonville, Florida; and San Diego, California.
FCF is involved in the direct origination and servicing of small consumer loans.
FCF operates six offices throughout Virginia.
Basis of presentation. The unaudited consolidated financial statements of the
Company are prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. These financial statements should be read in
conjunction with the Company's 1995 Annual Report on Form 10-K. In the opinion
of management, all normal recurring adjustments which management of the Company
considers necessary for a fair presentation of the financial position and
results of operations for the periods are reflected in the financial statements.
Operating results for the three months ended March 31, 1996, are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1996.
2. CONTRACT RECEIVABLES
The following is a summary of contract receivables at March 31, 1996, December
31, 1995 and March 31, 1995:
<TABLE>
<CAPTION>
March 31, Dec. 31, March 31,
(in thousands) 1996 1995 1995
--------- -------- ---------
<S> <C> <C> <C>
Gross contract receivables $233,164 $271,039 $235,693
Less:
Unearned interest revenue 40,106 49,878 41,126
Unearned discount 974 1,320 2,428
Unearned commissions 1,778 2,193 1,578
Unearned service fees (84) (210) 167
Payments in process 5 2,906 3,484
Escrow for pending acquisitions 417 419 1,324
Allowance for credit losses 21,394 23,046 5,411
Nonrefundable reserve 14,387 20,436 25,702
------- ------- -------
Net contract receivables $154,187 $171,051 $154,473
======= ======= =======
</TABLE>
9
<PAGE> 10
TFC ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. CONTRACT RECEIVABLES (CONTINUED)
Changes in the allowance for credit losses and nonrefundable reserve for the
three months ended March 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
(in thousands) 1996 1995
---- ----
<S> <C> <C>
ALLOWANCE FOR CREDIT LOSSES
Balance at beginning of period $23,046 $ 5,492
Provision for credit losses 1,000 --
Charge-offs (4,540) (718)
Recoveries 1,888 637
------ -------
Balance at end of period $21,394 $ 5,411
====== ======
NONREFUNDABLE RESERVE
Balance at beginning of period $20,436 $24,348
Allocation for credit losses 3,023 7,064
Charge-offs (9,072) (5,710)
------ ------
Balance at end of period $14,387 $25,702
====== ======
</TABLE>
10
<PAGE> 11
TFC ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER COMMON SHARE
Primary and fully diluted net income per common share for the three months ended
March 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
(in thousands, except per share amounts) 1996 1995
---- ----
<S> <C> <C>
PRIMARY NET INCOME PER COMMON SHARE:
Net income $ 740 $ 1,824
Stock and stock equivalents (average shares):
Common shares outstanding 11,286 11,282
Stock options (a) -- 15
------ ------
Total stock and stock equivalents 11,286 11,297
------ ------
Primary net income per common share (b) $ .07 $ .16
====== ======
FULLY DILUTED NET INCOME PER COMMON SHARE:
Net income $ 740 $ 1,824
Stock and stock equivalents (average shares):
Common shares outstanding 11,286 11,282
Stock options (c) -- 17
------ ------
Total stock and stock equivalents 11,286 11,299
------ ------
Fully diluted net income per common share (b) $ .07 $ .16
====== ======
<FN>
(a) Shares were assumed to be repurchased at the average closing common
stock prices of $3.36 and $7.30 in the first quarter of 1996 and 1995,
respectively.
(b) Calculation based on unrounded numbers.
(c) Shares were assumed to be repurchased at the closing common stock
prices of $3.94 and $7.50 per common share at March 31, 1996 and 1995,
respectively.
</TABLE>
11
<PAGE> 12
TFC ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Volume. Gross contracts purchased or originated totaled $25.9 million in the
first quarter of 1996, or 65% below the $73.5 million purchased in the first
quarter of 1995. The first quarter decrease was attributable to a $40.5 million
decrease in point of sale purchases and originations and a $7.1 million decrease
in portfolio purchases reflecting, in part, increased competition from other
lenders. In addition, the decrease in point of sale purchases in the first
quarter of 1996, as compared to the respective prior year period, resulted from
adjustments to the Company's credit and pricing guidelines in late 1995. These
adjustments were directed toward reducing the level of charge-offs and
delinquencies in the future. Management expects that contract purchase volume
for the remainder of 1996 will continue to be well below the corresponding
levels in 1995 and, accordingly, this could have a material adverse effect on
the Company's future profitability.
Gross contracts purchased or originated were as follows for the three months
ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
GROSS CONTRACT VOLUME Three months ended
March 31,
1996 1995
--------------------------- ---------------------------
(dollars in thousands) Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Contracts purchased or originated:
Point of sale $16,025 61.9% $56,559 76.9%
Portfolio 9,877 38.1 16,942 23.1
----- ----- ------ -----
Total $25,902 100.0% $73,501 100.0%
====== ===== ====== =====
Number of contracts purchased
or originated:
Point of sale 2,533 57.8% 5,715 57.5%
Portfolio 1,850 42.2 4,225 42.5
----- ----- ----- -----
Total 4,383 100.0% 9,940 100.0%
===== ===== ===== =====
</TABLE>
The decrease in gross contracts purchased or originated in the first quarter of
1996 reflected reductions in each of the Company's three Regional Service
Centers located in Norfolk, Virginia (Mid-Atlantic), Dallas, Texas (Southwest),
and Jacksonville, Florida (Southern) offset, in part, by an increase in First
Community Finance, Inc. originations.
12
<PAGE> 13
TFC ENTERPRISES, INC.
VOLUME. (continued)
Gross contract purchase and origination volume for each of the Company's
Regional Service Centers, as well as First Community Finance, Inc. was as
follows for the three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
GROSS CONTRACT VOLUME BY LOCATION Three months ended
March 31,
------------------------------
(in thousands) 1996 1995
---- ----
<S> <C> <C>
Service Center:
Mid-Atlantic $ 8,787 $17,361
Southern 502 34,271
Southwest 14,915 21,586
------ ------
Subtotal 24,204 73,218
First Community Finance, Inc. 1,698 283
------- --------
Total $25,902 $73,501
======= =======
</TABLE>
As discussed in the TFC Enterprises, Inc. 1995 Annual Report on Form 10-K, the
Company, in the first quarter of 1996, transferred the underwriting functions of
the Southern Regional Service Center to the Mid-Atlantic Regional Service
Center. This action was taken to improve control over the underwriting process
by reducing the number of locations at which contracts are purchased. As a
result, the Southern Regional Service Center's contract purchase volume
decreased significantly in the first quarter of 1996. No significant purchases
by the Southern Regional Service Center are expected for the foreseeable future.
Net interest revenue. Net interest revenue for the first quarter of 1996
totaled $8.2 million, an increase of 4%, from $7.8 million in the prior year
period. The increase was attributable to higher interest earning asset levels
offset, in part, by a decrease in the net interest margin. Average interest
earning assets for the first quarter of 1996 totaled $216.2 million, an increase
of 19% over the first quarter 1995 level of $182.5 million. The net interest
margin was 15.1% in the first quarter of 1996, compared to 17.1% in the first
quarter of 1995. The decrease was attributable to a reduction in the yield on
interest earning assets and an increase in the cost of interest bearing
liabilities.
The yield on interest earning assets was 22.2% in the first quarter of 1996,
compared to 22.6% in the first quarter of 1995. The decrease was primarily
attributable to a $.6 million reduction in the amount of contract purchase
discount accreted to interest revenue as a yield enhancement. This was offset,
in part, by an increase in the weighted average annual percentage rate of the
contract receivables portfolio.
The cost of interest bearing liabilities was 9.5% in the first quarter of 1996,
compared with 8.4% in the first quarter of 1995. The increase was primarily
attributable to higher interest rates charged to the Company under forbearance
agreements with its lenders, as more fully disclosed in the TFC Enterprises,
Inc. 1995 Annual Report on Form 10-K.
13
<PAGE> 14
TFC ENTERPRISES, INC.
Net interest revenue. (continued)
The following table summarizes net interest revenue and the net interest margin
for the three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
NET INTEREST REVENUE Three months ended
March 31,
-------------------------------
(dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
Average interest earning assets (a) $216,214 $182,454
Average interest bearing liabilities 162,700 120,672
------- -------
Net interest earning assets $ 53,514 $ 61,782
====== ======
Interest and other finance revenue $ 12,015 $ 10,329
Interest expense 3,858 2,518
------ -------
Net interest revenue $ 8,157 $ 7,811
===== =====
Yield on interest earning assets 22.23% 22.64%
Cost of interest bearing liabilities 9.48 8.35
----- -----
Net interest spread 12.75% 14.29%
===== =====
Net interest margin (b) 15.09% 17.12%
===== =====
<FN>
(a) Average interest bearing deposits and gross contract receivables net
of unearned interest revenue and unearned discount.
(b) Net interest margin is annualized net interest revenue divided by
average interest earning assets.
</TABLE>
Operating expense. Operating expense was $6.3 million in the first quarter of
1996, compared with $5.3 million in the first quarter of 1995. The increase was
primarily attributable to higher repossession and salary expenses. Also
contributing to the increase in operating expense was the growth of First
Community Finance, Inc., the Company's subsidiary engaged in the business of
originating and servicing small consumer loans. As a percentage of average
interest earning assets, operating expense was 11.63% in the first quarter of
1996, compared with 11.56% in the respective prior year period.
14
<PAGE> 15
TFC ENTERPRISES, INC.
FINANCIAL CONDITION
Assets. Total assets decreased by $19.1 million, or 8.9%, to $196.0 million at
March 31, 1996, from $215.1 million at December 31, 1995. The decrease was
primarily attributable to a reduction in net contract receivables which
resulted from the Company's sharply lower contract purchase volume in the first
quarter of 1996. Total assets increased by $17.1 million, or 9.5%, from $178.9
million at March 31, 1995. The increase was due primarily to growth in net
contract receivables, which occurred during 1995.
Net contract receivables. Net contract receivables were $154.2 million, or 79%
of total assets at March 31, 1996; $171.1 million, or 80% of total assets at
year-end 1995; and $154.5 million, or 86% of total assets at March 31, 1995.
The decrease in net contract receivables at March 31, 1996, compared with
December 31, 1995, reflected decreases in each of the Company's three Regional
Service Centers offset, in part, by an increase in net contract receivables at
First Community Finance, Inc. Management expects net contract receivables to
continue to decrease in the second quarter of 1996 as a result of the reduced
level of contract purchases by the Mid-Atlantic, Southern and Southwest
Regional Service Centers, as more fully discussed in the "Results of
Operations" and "Credit Quality and Reserves" discussion.
The following table summarizes net contract receivables at March 31, 1996,
December 31, 1995 and March 31, 1995:
<TABLE>
<CAPTION>
NET CONTRACT RECEIVABLES March 31, Dec.31, March 31,
(in thousands) 1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Service Center:
Mid-Atlantic $ 52,159 $ 58,406 $ 45,700
Southern 47,018 56,860 59,132
Southwest 50,049 51,393 49,368
-------- -------- --------
Subtotal 149,226 166,659 154,200
First Community Finance, Inc. 4,961 4,392 273
-------- -------- --------
Total $154,187 $171,051 $154,473
======== ======== ========
</TABLE>
Liabilities. Total liabilities were $158.9 million at March 31, 1996, a
decrease of $19.9 million, or 11%, from December 31, 1995, and an increase of
$24.6 million, or 18%, compared with March 31, 1995. The decrease in liabilities
compared with year-end 1995 primarily reflected decreased borrowings under the
Company's credit facilities which, in turn, resulted from a contraction in net
contract receivables. The increase in liabilities compared to March 31, 1995,
primarily reflected increased borrowings under the Company's credit facilities
which were to fund growth in net contract receivables. As a percentage of total
liabilities and equity, liabilities represented 81%, 83% and 75%, respectively,
at March 31, 1996, December 31, 1995 and March 31, 1995.
Equity. Equity increased to $37.2 million at March 31, 1996, from $36.4 million
at December 31, 1995, and decreased $7.5 million from $44.7 million at March 31,
1995. The increase in equity at March 31, 1996, compared with year-end 1995,
was primarily attributable to earnings retention. The decrease in equity at
March 31, 1996, compared with March 31, 1995, was primarily attributable to the
Company's net loss in the fourth quarter of 1995.
15
<PAGE> 16
TFC ENTERPRISES, INC.
CREDIT QUALITY AND RESERVES
Net charge-offs. Net charge-offs to the allowance for credit losses and
nonrefundable dealer reserve were $11.7 million in the first quarter of 1996,
representing an annualized rate of 22.66% of average gross contract receivables
net of unearned interest revenue. This compares to $5.8 million, or 12.5%, in
the first quarter of 1995. The increase in net charge-offs in the first quarter
of 1996, relative to the comparable period in 1995, was due primarily to higher
charge-offs relating to receivables purchased prior to 1996 offset, in part, by
an increase in recoveries. Recoveries tripled to $1.9 million in the first
quarter of 1996, compared to $.6 million in the first quarter of 1995.
An additional factor which contributed to the increase in net charge-offs in the
first quarter of 1996, compared with the first quarter of 1995, was a modest
tightening of the Company's charge-off guidelines. Prior to the third quarter
of 1995, credits on which no payments had been received for 120 days were
generally charged-off when they became 180 days contractually past due. In the
third quarter of 1995, the payment recency guideline was reduced from 120 days
to 90 days.
Net charge-offs by Regional Service Center for the three months ended March 31,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
NET CHARGE-OFFS BY LOCATION Three months ended
March 31,
-------------------------------
(in thousands) 1996 1995
---- ----
<S> <C> <C>
Service Center:
Mid-Atlantic $ 4,167 $2,511
Southern 3,923 2,119
Southwest 3,619 1,161
------ -----
Subtotal 11,709 5,791
First Community Finance, Inc. 15 --
------ -----
Total $11,724 $5,791
====== =====
</TABLE>
In late 1995, the Company made certain adjustments to its credit and pricing
guidelines which were directed toward reducing the level of charge-offs and
delinquencies in the future. In part because of the adjustments to the credit
and pricing guidelines, the Company's contract purchase volume decreased
significantly in the first quarter of 1996, compared to the first quarter of
1995. Management expects that contract purchase volume for the remainder of
1996 will continue to be well below the corresponding levels in 1995 and,
accordingly, this could have a material adverse effect on the Company's future
profitability.
16
<PAGE> 17
TFC ENTERPRISES, INC.
Reserves. At March 31, 1996, the combination of the Company's allowance for
credit losses and nonrefundable dealer reserve totaled $35.8 million, or 18.53%
of gross contract receivables net of unearned interest revenue. This compares
to $43.5 million, or 19.66%, at December 31, 1995 and $31.1 million, or
15.99%, at March 31, 1995.
The Company's refundable dealer reserve totaled $2.2 million at March 31, 1996,
compared with $3.3 million and $2.9 million at December 31, 1995 and March 31,
1995, respectively. Under certain of the Company's programs, contracts from
dealers are purchased under a refundable, rather than a nonrefundable, reserve
relationship. The Company's refundable reserve is available to absorb losses
relating only to those contracts purchased from specific dealers.
Delinquencies. Gross contract receivables that were 60 days or more past due
at March 31, 1996, December 31, 1995 and March 31, 1995 were as follows:
<TABLE>
<CAPTION>
DELINQUENCY March 31, Dec. 31, March 31,
(dollars in thousands) 1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Gross contract receivables 60 days and over delinquent $ 21,315 $ 18,441 $ 15,129
Gross contract receivables 233,164 271,039 235,693
Percent 9.14% 6.80% 6.42%
</TABLE>
Provision for credit losses. The Company's primary business involves
purchasing installment sales contracts at a discount to the remaining principal
balance. A portion of the discount is generally held in a nonrefundable dealer
reserve against which credit losses are first applied. Additional provisions
for credit losses, if necessary, are charged to income in amounts considered by
management to be adequate to absorb future credit losses. The provision for
credit losses totaled $1.0 million in the first quarter of 1996. No provision
for credit losses was recorded in the first quarter of 1995.
Provision for credit losses is dependent on a number of factors, including, but
not limited to, the level and trend of delinquencies and net charge-offs, the
amount of nonrefundable and refundable dealer reserves and the overall economic
conditions in the markets in which the Company operates. Because of the
inherent uncertainty involved in predicting the future performance of these
factors, there can be no assurance regarding the future level of provision for
credit losses.
17
<PAGE> 18
TFC ENTERPRISES, INC.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management. As shown on the Consolidated Statements of Cash Flows,
cash and cash equivalents increased by $1.7 million in the first quarter of
1996, to $14.2 million at March 31, 1996. The increase reflected $15.0 million
of net cash provided by investing activities and $6.5 million of net cash
provided by operating activities partially offset by $19.8 million of net cash
used in financing activities. Net cash provided by investing activities
principally reflected $15.9 million in net repayments on contract receivables.
Net cash used in financing activities reflected $19.8 million in payments on
the Company's senior credit facilities. For the first three months of 1995,
net cash provided by financing activities totaled $8.8 million, primarily
reflecting $8.7 million in net borrowings under the Company's revolving line of
credit. In the first quarter of 1996, the combination of cash on hand and net
cash provided by investing activities was sufficient to fund business volume.
In the first quarter of 1995, the combination of cash on hand and net cash
provided by financing activities was sufficient to fund the growth in business
volume.
Forbearance agreements with lenders. The Company reported a net loss of $(6.5)
million for the full year 1995 which reflected a substantial increase in the
provision for credit losses resulting from a significant increase in
delinquencies and credit losses in the Company's portfolio of contract
receivables. As a result of the reported loss and the increase in
delinquencies and credit losses, the Company was not in compliance at December
31, 1995, and does not expect to be in compliance in 1996, with certain aspects
of the credit agreements relating to its revolving line of credit, term notes
and subordinated notes. In March 1996, the Company's lenders agreed to forbear
in the exercise of their rights and remedies under the credit agreements,
provided the Company continues to meet certain terms and conditions. At March
31, 1996, the Company was in compliance with the terms and conditions related
to the forbearance agreements with its lenders. With these forbearance
agreements, management believes that the funding resources necessary to achieve
the Company's business plan for 1996 are in place. A more detailed discussion
of the Company's forbearance agreements with its lenders is included in the TFC
Enterprises, Inc. 1995 Annual Report on Form 10-K.
18
<PAGE> 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
(b) Reports on Form 8-K
On February 1, 1996, the Company filed a report on Form 8-K,
under Item 7, regarding the Company's fourth quarter and full
year 1995 results.
19
<PAGE> 20
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.
TFC ENTERPRISES, INC.
(Registrant)
Date: May 10, 1996 By: /s/ GEORGE R. KOURI
----------------------------------
George R. Kouri
President, Chief Executive Officer
and Director
Date: May 10, 1996 By: /s/ CHARLES M. JOHNSTON
----------------------------------
Charles M. Johnston
Vice President,
Treasurer and Chief
Financial Officer
(Principal Financial Officer
of the Registrant)
Date: May 10, 1996 By: /s/ JOHN W. CALNAN
----------------------------------
John W. Calnan
Controller
(Chief Accounting Officer)
20
<PAGE> 21
INDEX TO EXHIBITS
Exhibit No. Description
- - ----------- -----------------------------------------------------
27.1 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from TFC
Enterprises, Inc. quarterly report on Form 10-Q for the Quarter ended March 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000913958
<NAME> TFC ENTERPRISES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 14,181
<SECURITIES> 0
<RECEIVABLES> 189,968
<ALLOWANCES> 35,781
<INVENTORY> 0
<CURRENT-ASSETS> 172,186
<PP&E> 5,560
<DEPRECIATION> 2,635
<TOTAL-ASSETS> 196,001
<CURRENT-LIABILITIES> 158,851
<BONDS> 150,638
<COMMON> 49
0
0
<OTHER-SE> 37,101
<TOTAL-LIABILITY-AND-EQUITY> 196,001
<SALES> 12,015
<TOTAL-REVENUES> 12,569
<CGS> 0
<TOTAL-COSTS> 6,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 3,858
<INCOME-PRETAX> 1,425
<INCOME-TAX> 685
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 740
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
