<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
----------------------------
Date of Report (Date of earliest event reported): August 14, 1996
TFC ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
1-11121 54-1306895
(Commission File Number) (I.R.S. Employer Identification No.)
5425 Robin Hood Road, Suite 101A 23513
Norfolk, Virginia (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (804) 858-1400
Page 1 of 14 pages
Exhibit Index on Page 4
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
A press release regarding the Company's financial results for the second
quarter of 1996-Exhibit 99.7
The exhibits on the accompanying Exhibit Index are filed or
incorporated by reference as part of this Form 8-K and the Exhibit
Index is incorporated herein by reference.
Page 2 of 13 pages
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SIGNATURE
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 hereunto duly authorized.
TFC ENTERPRISES. INC.
By: /s/ CHARLES M. JOHNSTON
-------------------------
Charles M. Johnston
Chief Financial Officer
Date: August 14, 1996
Page 3 of 13 pages
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS SEQUENTIAL PAGE NO.
- ----------- ----------------------- -------------------
99.7 Press release dated August 14, 1996 5
Page 4 of 13 pages
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EXHIBIT 99.7
CONTACT: Robert S. Raley, Jr. TFC ENTERPRISES, INC.
804-858-4054 NEWS RELEASE
*FOR IMMEDIATE RELEASE*
TFC ENTERPRISES REPORTS FINANCIAL RESULTS FOR SECOND QUARTER 1996
NORFOLK, VA, August 14, 1996 /PRNewswire/ -- TFC Enterprises, Inc. (NASDAQ:
TFCE) today reported a second quarter 1996 net loss of $(.4) million, or $(.03)
per common share. This compares to net income of $2.0 million, or $.17 per
common share, in the second quarter of 1995. Net income for the first six
months of 1996 was $.4 million, or $.03 per common share, compared to $3.8
million, or $.33 per common share, in the first six months of 1995.
Gross contracts purchased or originated totaled $29.4 million in the
second quarter of 1996, or 67% below the $89.6 million purchased in the second
quarter of 1995. For the first six months of 1996, gross contracts purchased or
originated totaled $55.3 million, or 66% below the $163.1 million purchased
during the first half of last year. The decrease in gross contract purchases in
the second quarter and first six months of 1996, relative to the comparable
periods in 1995, was primarily attributable to a significant reduction in point
of sale purchases resulting from adjustments to the Company's credit and
pricing guidelines in late 1995, and to increased competition from other
lenders. The adjustments to the Company's credit and pricing guidelines were
directed toward reducing the rate of future charge-offs and delinquencies.
Net interest revenue for the second quarter of 1996 totaled $6.8 million,
a decrease of 25% compared with $9.1 million in the second quarter of 1995. The
decrease was attributable to a reduction in interest earning assets and a
decrease in the net interest margin. For the first half of 1996, net interest
revenue
<PAGE> 2
was $15.0 million, down 11% from $16.9 million in the first six months of 1995.
The decrease was attributable to a decrease in the net interest margin offset,
in part, by an increase in interest earning assets.
Average interest earning assets for the second quarter of 1996 were $189.8
million, a decrease of 7% compared to the second quarter 1995 level of $204.9
million. For the first six months of 1996, average interest earning assets were
$203.1 million, up 5% from $193.9 million in the first half of 1995.
The net interest margin was 14.4% in the second quarter of 1996, compared
to 17.8% in the second quarter of 1995. For the first half of 1996, the net
interest margin was 14.8%, compared to 17.4% in the first half of 1995. The
decreases were 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 21.6% in the second quarter of
1996 and 21.9% in the first half of 1996. This compares to 23.5% and 23.1% in
the second quarter and first six months of 1995, respectively. The decreases
were primarily attributable to reductions in the amount of contract purchase
discount accreted to interest revenue as a yield enhancement. Contract purchase
discount accreted to interest revenue totaled $.3 million and $.7 million in
the second quarter and first six months of 1996, respectively. This compares to
$.9 million and $1.9 million during the comparable periods in 1995.
The cost of interest bearing liabilities was 9.6% in the second quarter of
1996 and 9.5% in the first six months of 1996. This compares to 8.5% and 8.4%,
respectively, in the comparable periods in 1995. The increases were primarily
attributable to higher interest rates charged to the Company by its lenders
under forbearance agreements.
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As a result of the Company's net loss in the second quarter of 1996,
the Company was not in compliance with certain aspects of forbearance
agreements with lenders. The Company is currently in discussions with its
lenders to resolve the out-of-compliance situations. Although the Company is
not able to predict what the ultimate resolution of the discussions will be,
certain of the remedies available to the lenders as a result of the defaults
include repricing and/or foreclosure of the loans, which could have a material
adverse effect on the Company's business, financial condition and results of
operations, as well as its ability to continue as a going concern.
The Company's credit and forbearance agreements with lenders are
discussed in more detail in the TFC Enterprises, Inc., 1995 Annual Report on
Form 10-K.
Operating expense was $6.2 million in the second quarter of 1996 and
the second quarter of 1995. Compared to the second quarter of 1995, the second
quarter of 1996 primarily reflected higher repossession, occupancy and
equipment expense offset by lower salary and benefits expense. For the first
six months of 1996, operating expense totaled $12.4 million, an increase of 9%
compared to $11.5 million in the first half of 1995. The increase in the first
six months of 1996 was primarily attributable to higher repossession, occupancy
and equipment expense offset, in part, by lower salary and benefits expense.
As a percentage of average interest earning assets, operating expense
was 13.0% in the second quarter of 1996, compared to 12.1% in the second
quarter of 1995. The increase reflected a decrease in average interest earning
assets in the second quarter of 1996. For the first six months of 1996,
operating expense was 12.3% of average interest earning assets, compared to
11.8% in the first half of 1995. The increase was attributable to higher
operating expense offset, in part, by the effect of higher interest earning
assets.
<PAGE> 4
In June 1996, the Company's Board of Directors approved a proposed
restructuring of the Company's senior management. The proposed restructuring,
which would not include the Chairman of the Board, would involve the
termination of the employment agreements of certain key executives. Termination
of the employment agreements would be in exchange for approximately $1.5
million to $1.8 million in combined cash payments and cancellation of certain
notes receivable from these executives. The notes receivable are related to
1995 profit sharing amounts owed to the Company. The purpose of the proposed
restructuring is to reduce salary expense in the future. The combined base
salaries, exclusive of benefits and profit sharing amounts, of the affected
executives total approximately $3.8 million over the remaining 3.5 years of the
employment agreements through December 31, 1999.
The proposed restructuring of senior management is contingent on
approval by the Company's lenders, certain of which approvals have been
obtained. No final agreements have yet been reached with the affected
executives. However, it is anticipated that, assuming lender approval,
agreements will be reached in the third quarter of 1996.
In June 1996, the Company and Robert S. Raley, Jr., the Company's
Chairman of the Board, agreed to extend the term of his employment agreement
through December 31, 2002. In addition, the Board of Directors has agreed to
increase Mr. Raley's annual base salary from $50,000 to an annualized rate of
$300,000 and has approved a $300,000 personal line of credit, subject to lender
approval, for Mr. Raley's use. Although the salary increase will not become a
binding part of Mr. Raley's employment agreement, the Board of Directors
retained the right to amend Mr. Raley's base salary at any time. In 1996, Mr.
Raley will receive the entire $300,000 base salary.
In August 1996, the Company and Mr. Raley agreed to terminate all of
Mr. Raley's rights to the twenty year deferred compensation agreement contained
in his employment agreement. Since Mr. Raley
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is considered a "principal shareholder" of the Company, the voluntary
termination of his deferred compensation agreement and the resultant
elimination of the Company's obligation with respect thereto, aggregating $1.0
million, will be considered an equity contribution in the third quarter of
1996. Deferred compensation expense for the first six months of 1996 totaled
$.1 million.
The benefit from income taxes for the second quarter of 1996 totaled
four thousand dollars. This compares with a provision for income taxes in the
second quarter of 1995 of $1.3 million. The Company's second quarter 1996 tax
benefit reflects the impact of a $.4 million pretax loss offset by $.3 million
of nondeductible goodwill amortization and other nondeductible expenses. The
provision for income taxes totaled $.7 million in the first six months of 1996.
This compares to $2.6 million in the first six months of 1995.
Provision for credit losses totaled $1.5 million and $2.5 million in the
second quarter and first six months of 1996, respectively. Provision for credit
losses totaled $.3 million in the second quarter and the first half of 1995.
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
maintain the combined allowance for credit losses and nonrefundable dealer
reserve at an amount considered adequate to absorb future credit losses.
At June 30, 1996, the combination of the Company's allowance for credit
losses and nonrefundable dealer reserve totaled $29.3 million, or 17.0% of
gross contract receivables net of unearned interest. This compared to $43.5
million, or 19.7%, at December 31, 1995 and $34.5 million, or 15.6%, at June
30, 1995. In addition, the refundable dealer reserve, which is available to
absorb losses relating to contracts purchased from certain dealers,
<PAGE> 6
totaled $2.1 million at June 30, 1996, compared to $3.3 million at December 31,
1995 and $4.5 million at June 30, 1995.
Net charge-offs to the allowance for credit losses and nonrefundable
dealer reserve were $11.7 million in the second quarter of 1996, representing
an annualized rate of 25.8% of average contract receivables net of unearned
interest. This compares to $6.1 million, or 11.8%, in the second quarter of
1995. For the first six months of 1996, net charge-offs were $23.4 million, or
24.1% of average gross contract receivables net of unearned interest, compared
to $11.9 million, or 12.1%, in the first half of 1995. The increase in net
charge-offs in the second quarter and first six months of 1996, relative to the
comparable prior year periods, was primarily attributable to higher charge-offs
relating to assets purchased prior to 1996. This was offset, in part, by an
increase in recoveries. Recoveries increased to $2.3 million in the second
quarter of 1996 and $4.2 million in the first half of 1996. This compares to
$.7 million in the second quarter of 1995, and $1.4 million in the first six
months of 1995.
Gross contract receivables that were 60 days or more past due totaled
$15.9 million, or 7.7% of gross contract receivables at June 30, 1996. This
compares to $18.4 million, or 6.8%, at December 31, 1995 and $17.7 million, or
6.5% at June 30, 1995.
TFC Enterprises, Inc., through its wholly-owned subsidiary, The Finance
Company, specializes in purchasing and servicing installment sales contracts
originated by automobile and motorcycle dealers. Through First Community
Finance, Inc., another wholly-owned subsidiary, TFC Enterprises, Inc., is
involved in the direct origination and servicing of small consumer loans. Based
in Norfolk, VA, TFC Enterprises, Inc. also has offices in Dallas, TX,
Jacksonville, FL, San Diego, CA, and throughout Virginia and North Carolina.
NOTE: Detailed supplemental information follows.
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TFC ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
6/30/96 12/31/95 6/30/95
(dollars in thousands)
<S> <C> <C> <C>
Assets
Cash and cash equivalents $ 11,492 $ 12,507 $ 2,987
Net contract receivables 140,021 171,051 177,970
Recoverable income taxes 3,331 3,904 162
Property and equipment, net 3,398 2,256 1,926
Goodwill, net 11,250 11,656 12,063
Other intangible assets, net 2,457 2,596 2,735
Deferred income taxes 3,210 6,911 8,406
Other assets 3,314 4,265 2,559
-------- -------- --------
Total assets $178,473 $215,146 $208,808
======== ======== ========
Liabilities and shareholders'
equity
Liabilities:
Revolving line of credit $ 57,378 $ 59,475 $106,421
Term notes 34,000 50,000 25,000
Automobile Receivables-
Backed notes 29,139 47,252 --
Subordinated notes, net 13,764 13,732 14,935
Other debt -- -- 341
Accounts payable and
accrued expenses 4,213 4,146 5,256
Income taxes payable -- -- 5,050
Refundable dealer reserve 2,082 3,250 4,525
Other liabilities 1,106 887 653
-------- -------- --------
Total liabilities 141,682 178,742 162,181
-------- -------- --------
Shareholders' equity:
Common stock, $.01 par value,
40,000,000 shares authorized;
11,290,308, 11,283,954, and
11,282,719 shares outstanding
at 6/30/96, 12/31/95 and
6/30/95, respectively 49 49 49
Additional paid-in capital 54,290 54,279 54,266
Retained deficit (17,548) (17,924) (7,688)
-------- -------- --------
Total shareholders' equity 36,791 36,404 46,627
-------- -------- --------
Total liabilities and
shareholders' equity $178,473 $215,146 $208,808
======== ======== ========
</TABLE>
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TFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
6/30/96 6/30/95 6/30/96 6/30/95
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest and other
finance revenue $10,233 $12,021 $22,248 $22,350
Interest expense 3,393 2,921 7,251 5,439
------- ------- ------- -------
Net interest revenue 6,840 9,100 14,997 16,911
Provision for
credit losses 1,500 250 2,500 250
------- ------- ------- -------
Net interest revenue
after provision for
credit losses 5,340 8,850 12,497 16,661
Other revenue 454 608 1,008 1,145
Operating expense:
Salaries 2,998 3,260 6,316 6,343
Employee benefits 461 514 1,008 1,034
Occupancy 262 151 482 305
Equipment 358 271 620 494
Amortization of
intangible assets 273 273 546 546
Other 1,810 1,711 3,476 2,730
------- ------- ------- -------
Total operating
expense 6,162 6,180 12,448 11,452
------- ------- ------- -------
Income (loss) before
income taxes (368) 3,278 1,057 6,354
Provision for (benefit from)
income taxes (4) 1,327 681 2,579
------- ------- ------- -------
Net income (loss) $ (364) $ 1,951 $ 376 $ 3,775
======= ======= ======= =======
Net income (loss) per
common share $ (.03) $ .17 $ .03 $ .33
======= ======= ======= =======
</TABLE>
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TFC ENTERPRISES, INC.
FINANCIAL HIGHLIGHTS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
6/30/96 6/30/95 6/30/96 6/30/95
(dollars in thousands)
<S> <C> <C> <C> <C>
CONTRACT PURCHASES
Point of sale $ 17,040 $ 72,913 $ 33,065 $129,472
Portfolio 12,406 16,656 22,283 33,598
-------- -------- -------- --------
Total 29,446 89,569 55,348 163,070
======== ======== ======== ========
AVERAGE BALANCES
Interest earning
assets 189,828 204,942 203,119 193,921
Total assets 185,918 194,887 196,837 184,816
Interest bearing
liabilities 141,410 137,076 152,258 129,524
Equity 37,250 45,288 37,081 44,401
PERFORMANCE RATIOS
Return on average
assets NM 4.00% .38% 4.08%
Return on average
equity NM 17.23 2.03 17.00
Yield on interest
earning assets 21.56% 23.46 21.91 23.05
Cost of interest
bearing liabilities 9.60 8.53 9.52 8.40
Net interest margin 14.41 17.76 14.77 17.44
Operating expense as a
percentage of average
interest earning
assets 12.98 12.06 12.26 11.81
Total net charge-offs
to average gross
contract receivables,net
of unearned interest 25.81 11.77 24.11 12.14
60 day delinquencies
to gross contract
receivables, period
end 7.74 6.52 7.74 6.52
Total allowance and
nonrefundable reserve
to gross contract
receivables net of
unearned interest,
period end 17.02 15.60 17.02 15.60
Equity to assets,
period end 20.61 22.33 20.61 22.33
</TABLE>
NM - Not meaningful.
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TFC ENTERPRISES, INC.
CONTRACT RECEIVABLES SUMMARY
(Unaudited)
<TABLE>
<CAPTION>
6/30/96 12/31/95 6/30/95
(dollars in thousands)
<S> <C> <C> <C>
Gross contract receivables $205,098 $271,039 $271,922
Less:
Unearned interest revenue 33,013 49,878 50,648
Unearned discount 663 1,320 2,278
Unearned commissions 1,444 2,193 1,831
Unearned service fees 131 (210) 249
Payments in process -- 2,906 3,562
Escrow for pending
acquisitions 537 419 874
Allowance for credit losses 17,262 23,046 4,714
Nonrefundable reserve 12,027 20,436 29,796
-------- -------- --------
Net contract receivables $140,021 $171,051 $177,970
======== ======== ========
</TABLE>
