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 June 30, 1997
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 101 B
Norfolk, Virginia 23513
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code -- (757) 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 August 8, 1997, there were 11,290,308 outstanding shares of the
registrant's $.01 par value per share common stock.
<PAGE>
TFC ENTERPRISES, INC.
REPORT ON FORM 10-Q FOR THE THREE MONTHS
AND SIX MONTHS ENDED JUNE 30, 1997
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
Submission of Matters to a Vote of Security Holders (Item 4) 17
Exhibits and Reports on Form 8-K (Item 6) 17
Signatures 18
Index to Exhibits 19
2
<PAGE>
TFC ENTERPRISES, INC.
FINANCIAL HIGHLIGHTS
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
(dollars in thousands, except ended June 30, ended June 30,
per share amounts) 1997 1996 1997 1996
<S> <C>
Net income (loss) $ 699 $(364) $ 895 $ 376
Net income (loss) per common share $ .06 $ (.03) $ .08 $ .03
Average common and common equivalent
shares outstanding (in thousands) 11,704 11,289 11,532 11,287
Performance ratios (annualized,
as appropriate)
Return on average common equity 9.12% NM 5.90% 2.03%
Return on average assets 1.87 NM 1.18 .38
Yield on interest-earning assets 21.73 21.56% 21.34 21.91
Cost of interest-bearing liabilities 10.99 9.60 10.63 9.52
Net interest margin 13.63 14.41 13.47 14.77
Operating expense as a percentage of
average interest-earning assets 12.95 12.98 12.75 12.26
Total net charge-offs to average
gross contract receivables
net of unearned interest 19.98 25.81 20.53 24.11
60+ days delinquencies to period-end
gross contract receivables 8.13 7.74 8.13 7.74
Total allowance and nonrefundable reserve
to period-end gross contract receivables
net of unearned interest 15.66 17.02 15.66 17.02
Equity to assets, period end 21.03 20.61 21.03 20.61
Average balances:
Interest-earning assets (a) $149,857 $189,828 $153,814 $203,119
Total assets 149,380 185,918 152,286 196,837
Interest-bearing liabilities 110,350 141,410 114,011 152,258
Equity 30,641 37,250 30,326 37,081
</TABLE>
Note: Throughout this report, ratios are based on unrounded numbers and factors
contributing to changes between periods are noted in descending order of
materiality.
NM - Not meaningful
(a) Average interest-bearing deposits and gross contract receivables net of
unearned interest revenue and unearned discount.
3
<PAGE>
TFC ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, Dec 31,
(dollars in thousands) 1997 1996
--------- ------
<S> <C>
Assets
Cash and cash equivalents $ 3,485 $ 2,688
Restricted cash 3,811 5,532
Net contract receivables 121,791 126,252
Recoverable income taxes 1,241 5,831
Property and equipment, net 2,523 2,823
Intangible assets, net 12,615 13,161
Deferred income taxes 188 188
Other assets 3,033 2,108
-------- --------
Total assets $148,687 $158,583
======== ========
Liabilities and shareholders' equity
Liabilities:
Revolving lines of credit $ 89,233 $ 72,562
Term notes 400 19,464
Automobile Receivables - Backed notes 6,367 15,843
Subordinated notes, net 12,468 12,509
Accounts payable and accrued expenses 4,443 3,960
Income taxes 2,075 2,075
Refundable dealer reserve 1,815 2,208
Other liabilities 617 100
--------- ----------
Total liabilities 117,418 128,721
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none outstanding -- --
Common stock, $.01 par value, 40,000,000 shares
authorized; 11,290,308 shares outstanding 49 49
Additional paid-in capital 55,845 55,333
Retained deficit (24,625) (25,520)
--------- -------
Total shareholders' equity 31,269 29,862
--------- -------
Total liabilities and shareholders' equity $148,687 $158,583
======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
TFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30, June 30,
(in thousands, except per share amounts) 1997 1996
- ------------------------------------------------------------ ---------------- --------------------
<S> <C>
Interest and other finance revenue $16,415 $22,248
Interest expense 6,059 7,251
- ------------------------------------------------------------ ---------------- --------------------
Net interest revenue 10,356 14,997
Provision for credit losses 252 2,500
- ------------------------------------------------------------ ---------------- --------------------
Net interest revenue after provision for credit losses 10,104 12,497
Other revenue:
Commissions on ancillary products 412 935
Other 182 73
Total other revenue 594 1,008
- ------------------------------------------------------------ ---------------- --------------------
Operating expense:
Salaries 4,836 6,316
Employee benefits 696 1,008
Occupancy 451 482
Equipment 629 620
Amortization of intangible assets 546 546
Other 2,645 3,476
- ------------------------------------------------------------ ---------------- --------------------
Total operating expense 9,803 12,448
- ------------------------------------------------------------ ---------------- --------------------
Income (loss) before income taxes 895 1,057
Provision for (benefit from) income taxes -- 681
- ------------------------------------------------------------ ---------------- --------------------
Net income (loss) $ 895 $ 376
- ------------------------------------------------------------ ---------------- --------------------
Net income (loss) per common share $ .08 $ .03
- ------------------------------------------------------------ ---------------- --------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Three months ended
June 30, March 31, June 30,
(in thousands, except per share amounts) 1997 1997 1996
- ------------------------------------------------------------ ----------------- ----------- -------------
<S> <C>
Interest and other finance revenue $ 8,140 $ 8,275 $10,233
Interest expense 3,032 3,027 3,393
- ------------------------------------------------------------ ----------------- ----------- -------------
Net interest revenue 5,108 5,248 6,840
Provision for credit losses 160 92 1,500
- ------------------------------------------------------------ ----------------- ----------- -------------
Net interest revenue after provision for credit losses 4,948 5,156 5,340
Other revenue:
Commissions on ancillary products 158 253 425
Other 160 23 29
Total other revenue 318 276 454
- ------------------------------------------------------------ ----------------- ----------- -------------
Operating expense:
Salaries 2,393 2,443 2,998
Employee benefits 373 323 461
Occupancy 214 236 262
Equipment 335 294 358
Amortization of intangible assets 273 273 273
Other 1,262 1,384 1,810
- ------------------------------------------------------------ ----------------- ----------- -------------
Total operating expense 4,850 4,953 6,162
- ------------------------------------------------------------ ----------------- ----------- -------------
Income (loss) before income taxes 416 479 (368)
Provision for (benefit from) income taxes ( 283) 283 (4)
- ------------------------------------------------------------ ----------------- ----------- -------------
Net income (loss) $ 699 $ 196 $ (364)
- ------------------------------------------------------------ ----------------- ----------- -------------
Net income (loss) per common share $ .06 $ .02 $ (.03)
- ------------------------------------------------------------ ----------------- ----------- -------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
TFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Six months ended
June 30,
(in thousands) 1997 1996
---- ----
Common stock
Balance at end of period $ 49 $ 49
== ==
Additional paid-in capital
Balance at beginning of period $55,333 $54,279
Stock options exercised -- 11
Issuance of warrants 512 --
------- ---------
Balance at end of period $ 55,845 $54,290
======= ======
Retained deficit
Balance at beginning of period $(25,520) $(17,924)
Net income 895 376
--------- ---------
Balance at end of period $(24,625) $(17,548)
======= ========
See accompanying Notes to Consolidated Financial Statements.
7
<PAGE>
TFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
(in thousands) 1997 1996
---- ----
<S> <C>
Operating activities
Net income $ 895 $ 376
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of intangible assets 546 546
Depreciation and other amortization 457 852
Provision for deferred income taxes -- 3,701
Provision for credit losses 252 2,500
Changes in operating assets and liabilities:
Decrease in recoverable income taxes 4,589 573
(Increase) decrease in other assets (909) 569
Increase in accounts payable and accrued expenses 483 67
Decrease in refundable dealer reserve (393) (1,168)
Increase in other liabilities 450 219
------- ------
Net cash provided by operating activities 6,370 8,235
------ -----
Investing activities
Net cost of acquiring contract receivables (48,197) (35,371)
Repayment on contract receivables 52,407 63,901
Purchase of property and equipment (168) (1,581)
Proceeds on disposal of assets 21 --
------- ---------
Net cash provided by investing activities 4,063 26,949
------ ------
Financing activities
Net borrowings (payments) on revolving line of credit 17,183 (2,097)
Payments on Term notes (19,464) (16,000)
Payments on Automobile Receivables-Backed notes (9,476) (18,113)
Borrowings on Term note 400 --
Decrease in restricted cash 1,721 1,946
Proceeds from stock options exercised -- 11
---------- ---------
Net cash used in financing activities ( 9,636) (34,253)
------- --------
Increase in cash and cash equivalents 797 931
Cash and cash equivalents at beginning of period 2,688 2,110
----- -------
Cash and cash equivalents at end of period $ 3,485 $ 3,041
======== =======
Supplemental disclosures:
Interest paid $5,533 $6,443
Income taxes paid -- --
Noncash transactions:
Issuance of stock warrants $ 512 $ --
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
8
<PAGE>
TFC ENTERPRISES, INC.
Notes to Consolidated Financial Statements
1. Summary of significant accounting policies
Organization and business. TFC Enterprises, Inc. ("TFCE") is a holding company
that owns two primary 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
branch offices in Virginia and North Carolina.
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 1996 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 and six months ended June 30, 1997, are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1997.
2. Contract receivables
The following is a summary of contract receivables as of June 30, 1997, and
December 31, 1996:
June 30, Dec. 31,
(In thousands) 1997 1996
-------- --------
Contract receivables:
Auto finance $161,102 $177,388
Consumer finance 10,864 9,645
-------- -------
Gross contract receivables 171,966 187,033
Less:
Unearned interest revenue 24,934 27,200
Unearned discount 884 504
Unearned commissions 589 1,132
Unearned service fees 271 324
Payments in process (2) 2,560
Escrow for pending acquisitions 478 486
Allowance for credit losses 3,407 11,730
Nonrefundable reserve 19,614 16,845
------ ------
Net contract receivables $121,791 $126,252
======== ========
9
<PAGE>
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 and six months ended June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C>
Allowance for credit losses
Balance at beginning of period $5,275 $21,394 $11,730 $23,046
Provision for credit losses 160 1,500 252 2,500
Charge-offs (3,285) (7,924) (11,047) (12,464)
Recoveries 1,257 2,292 2,472 4,180
----- ----- ---- -----
Balance at end of period $ 3,407 $ 17,262 $ 3,407 $ 17,262
======= ======== ======= ========
Nonrefundable reserve
Balance at beginning of period $19,286 $14,387 $16,845 $20,436
Allocation for credit losses 5,635 3,717 9,625 6,740
Charge-offs (5,307) (6,077) (6,856) (15,149)
------- ------- ------- -------
Balance at end of period $19,614 $12,027 $19,614 $12,027
======= ======= ======= =======
</TABLE>
10
<PAGE>
TFC ENTERPRISES, INC.
Notes to Consolidated Financial Statements (continued)
3. Computation of primary and fully diluted net income (loss) per common share
Primary and fully diluted net income (loss) per common share for the three and
six months ended June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(in thousands, except per share amounts) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C>
Primary net income (loss) per common
share:
Net income (loss) $ 699 $ (364) $ 895 $ 376
Stock and stock equivalents (average shares):
Common shares outstanding 11,290 11,289 11,290 11,287
Stock options and warrants (a) 414 -- 242 --
------- -------- ------- --------
Total stock and stock equivalents 11,704 11,289 11,532 11,287
------ ------ ------ ------
Primary net income (loss) per common
share $ .06 $ (.03) $ .08 $ .03
======== ========= ====== ========
Fully diluted net income (loss) per common
share:
Net income (loss) $ 699 $ (364) $ 895 $ 376
Stock and stock equivalents (average shares):
Common shares outstanding 11,290 11,289 11,290 11,287
Stock options and warrants (a) 414 -- 242 --
-------- -------- ------ --------
Total stock and stock equivalents 11,704 11,289 11,532 11,287
------ ------ ------ ------
Fully diluted net income (loss) per common
share $ .06 $ (.03) $ .08 $ .03
======== ======= ====== ========
</TABLE>
(a) Shares were assumed to be repurchased at the average closing common
stock price of $1.49 and $1.53 in the second quarter and first six
months of 1997, respectively.
11
<PAGE>
TFC ENTERPRISES, INC.
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
This report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, those factors set forth elsewhere in this report.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date hereof. For
example, during 1997 the Company's operations could be materially adversely
affected if interest rates were to rise, if credit experience deteriorated, or
the Company were to face increased competition.
Results Of Operations
Net income for the second quarter of 1997 increased to $0.7 million, or $.06 per
common share, compared to a net loss of $0.4 million, or $.03 per common share,
in the second quarter of 1996. Net income for the first six months of 1997
increased to $0.9 million, or $.08 per common share, compared to net income of
$0.4 million, or $.03 per common share, for the first six months of 1996. The
primary causes of the increased 1997 income were a 21% reduction in operating
expenses compared to 1996 and the improved performance of the Company's loan
portfolio, with a significant reduction in the rate of loan charge-offs compared
to 1996.
Volume. Gross contracts purchased or originated totaled $42.7 million in the
second quarter of 1997, or 45% above the $29.4 million purchased in the second
quarter of 1996. For the first six months of 1997, gross contracts purchased or
originated totaled $77.0 million, or 39% above the $55.3 million purchased
during the first half of 1996. The increase in gross contract purchases in the
second quarter and first six months of 1997, relative to the comparable periods
in 1996, was primarily attributable to an increase in portfolio purchases,
resulting from increased management emphasis on this line of business.
Gross contracts purchased or originated were as follows for the three months and
six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Gross contract volume Three months ended Six months ended
June 30 June 30,
(dollars in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C>
Contracts purchased or originated:
Auto finance:
Point of sale $19,448 $14,109 $35,123 $28,436
Portfolio 19,412 12,406 35,817 22,283
Consumer finance 3,823 2,931 6,090 4,629
------ ------ ------ ------
Total $42,683 $29,446 $77,030 $55,348
======= ======= ======= =======
Number of contracts purchased or originated:
Auto finance:
Point of sale 1,737 1,599 3,147 3,240
Portfolio 3,811 2,349 7,083 4,199
Consumer finance 2,070 1,477 3,173 2,369
----- ----- ------ -----
Total 7,618 5,425 13,403 9,808
====== ===== ====== =====
</TABLE>
12
<PAGE>
TFC ENTERPRISES, INC.
Net interest revenue. Net interest revenue for the second quarter of 1997
totaled $5.1 million, a decrease of 25% compared with $6.8 million in the
prior-year period. For the first half of 1997, net interest revenue was $10.4
million, down 31% from $15.0 million in the first six months of 1996. The
decreases were attributable to a reduction in interest-earning assets and a
decrease in the net interest margin.
The net interest margin was 13.63% in the second quarter of 1997, compared to
14.41% in the second quarter of 1996. For the first half of 1997, the net
interest margin was 13.47%, compared to 14.77% in the first half of 1996. The
decreases were primarily attributable to an increase in interest expense in 1997
compared to 1996. The cost of interest-bearing liabilities was 10.99% in the
second quarter of 1997 and 10.63% in the first six months of 1997. This compared
to 9.60% and 9.52%, respectively, in the comparable periods in 1996. The
increases were primarily attributable to higher interest rates charged to the
Company under new and amended agreements with its lenders, as more fully
disclosed in the TFC Enterprises, Inc. 1996 Annual Report on Form 10-K.
The following table summarizes net interest revenue and the net interest margin
for the three months and six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(dollars in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C>
Average interest-earning assets (a) $ 149,857 $189,828 $ 153,814 $203,119
Average interest-bearing liabilities 110,350 141,410 114,011 152,258
------- ------- ------- -------
Net interest-earning assets $ 39,507 $ 48,418 $ 39,803 $ 50,861
====== ======= ====== ======
Interest revenue $ 8,140 $ 10,233 $ 16,415 $ 22,248
Interest expense 3,032 3,393 6,059 7,251
----- ------ ----- -------
Net interest revenue $ 5,108 $ 6,840 $ 10,356 $ 14,997
===== ===== ======= =======
Yield on interest-earning assets 21.73% 21.56% 21.34% 21.91%
Cost of interest-bearing liabilities 10.99 9.60 10.63 9.52
----- ----- ----- -----
Net interest spread 10.74% 11.96% 10.71% 12.39%
===== ===== ===== =====
Net interest margin (b) 13.63% 14.41% 13.47% 14.77%
===== ===== ===== =====
</TABLE>
(a) Average gross contract receivables net of unearned interest revenue and
unearned discount.
(b) Net interest margin is net interest revenue divided by average interest
earning assets.
Operating expense. Operating expense was $4.9 million in the second quarter of
1997, compared with $6.2 million in the second quarter of 1996, a decrease of
21%. For the first six months of 1997, operating expense totaled $9.8 million, a
decrease of 21% compared to $12.4 million in the first half of 1996. The
decreases reflect the impact of the Company's previously-announced restructuring
plans implemented during 1996 to consolidate service center locations from three
locations into two and to downsize the management staff, as discussed more fully
in the TFC Enterprises, Inc. 1996 Annual Report on Form 10-K.
13
<PAGE>
TFC ENTERPRISES, INC.
Provision for income taxes. No income tax expense was provided for the first six
months of 1997 because of a tax credit resulting from the reversal of a portion
of a deferred tax valuation allowance recorded at year-end 1996.
Other matters. The Company is testing and modifying its computer systems, as
necessary, to ensure that the situation commonly referred to as the "year 2000
problem" will not have a significant effect on operations or financial
condition. The problem arises when computer programs cannot process data for the
year 2000 and beyond. It is estimated that the cost of addressing the year 2000
problem and making the Company's computer systems year 2000 compliant will not
be material.
Financial Condition
Assets. Total assets decreased by $9.9 million, or 6%, to $148.7 million at June
30, 1997, from $158.6 million at December 31, 1996. The decrease was primarily
attributable to a reduction in net contract receivables caused by liquidations
exceeding new contract purchases and originations.
The following table summarizes net contract receivables at June 30, 1997, and
December 31, 1996.
<TABLE>
<CAPTION>
Net contract receivables June 30, Dec. 31,
(in thousands) 1997 1996
---------- ----------
<S> <C>
Auto finance:
Point-of-sale $ 73,623 $ 80,725
Portfolio 38,224 36,711
Consumer finance 9,944 8,816
----- -----
Total $ 121,791 $126,252
======= =======
Liabilities. Total liabilities were $117.4 million at June 30, 1997, a decrease
of $11.3 million, or 9%, from December 31, 1996. The decrease in liabilities
from year-end 1996 primarily reflected decreased borrowings under the Company's
credit facilities, which, in turn, resulted from a contraction in net contract
receivables.
Credit Quality and Reserves
Net charge-offs. Net charge-offs to the allowance for credit losses and
nonrefundable dealer reserve were $7.3 million in the second quarter of 1997,
representing an annualized rate of 19.98% of average contract receivables net of
unearned interest revenue. This compares to $11.7 million, or 25.81%, in the
second quarter of 1996. For the first six months of 1997, net charge-offs were
$15.4 million, or 20.53%, of average contract receivables net of unearned
interest revenue. This compares to $23.4 million, or 24.11%, of average net
contract receivables net of unearned interest revenue in the first six months of
1996.
14
<PAGE>
TFC ENTERPRISES, INC.
Net charge-offs (continued).
Net charge-offs for the three months and six months ended June 30, 1997 and
1996, were as follows:
</TABLE>
<TABLE>
<CAPTION>
Net charge-offs Three months ended Six months ended
June 30, June 30,
(in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C>
Auto finance:
Point-of-sale $5,200 $10,208 $12,104 $20,259
Portfolio 2,031 1,467 3,143 3,124
Consumer finance 106 35 186 50
------ -------- --------- --------
Total $7,337 $11,709 $15,433 $23,433
====== ======= ======= =======
</TABLE>
Delinquencies. Gross contract receivables that were 60 days or more delinquent
at June 30, 1997, and December 31, 1996, were as follows:
<TABLE>
<CAPTION>
Delinquency June 30, Dec. 31,
(dollars in thousands) 1997 1996
--------- ----------
<S> <C>
Gross contract receivables 60 days and over delinquent $13,987 $ 18,495
Gross contract receivables 171,966 187,033
Percent 8.13% 9.89%
</TABLE>
Provision for credit losses. Improved credit quality and servicing of the
Company's auto finance contracts eliminated the need for a loss provision on the
auto finance receivables in the first six months of 1997 compared to a provision
of $1.47 million in the second quarter of 1996 and $2.42 million for the first
six months of 1996. The provision for credit losses on the Company's consumer
finance loan business increased to $0.16 million in the second quarter of 1997
compared to $0.03 million in the second quarter of 1996, and increased to $0.25
million for the first six months of 1997 compared to $0.08 million for the first
six months of 1996. The Company's primary business involves purchasing motor
vehicle installment sales contracts at a discount to the remaining principal
balance. An amount ranging from 80 percent to 100 percent of the discount, based
on experience, is 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. For the Company's consumer finance contracts, which
are not purchased at a discount, the reserve for credit losses must be
established by a charge to income in an amount considered to be adequate to
absorb future credit losses.
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. Due to 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.
15
<PAGE>
TFC ENTERPRISES, INC.
Liquidity and Capital Resources
Liquidity management. As shown on the Consolidated Statements of Cash Flows,
cash and cash equivalents increased by $0.8 million in the first six months of
1997, to $3.5 million at June 30, 1997. The increase reflected $4.1 million of
net cash provided by investing activities and $6.4 million of net cash provided
by operating activities, partially offset by $9.6 million of net cash used in
financing activities. Net cash provided by investing activities principally
reflected $4.2 million in net repayments on contract receivables. Net cash used
in financing activities primarily reflected $11.8 million of net payments on the
Company's revolving line of credit, term notes and Automobile Receivables-Backed
notes. In the first half of 1997 and 1996, the combination of cash on hand and
net cash provided by operating and financing activities was sufficient to fund
business volume.
New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 (FAS No. 128), "Earnings per Share," which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options and warrants will be excluded. The impact
of FAS No. 128 on primary and fully diluted earnings per share for the second
quarter and first six months of 1997 and 1996 is not expected to be material.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The 1997 Annual Meeting of Stockholders of TFC Enterprises, Inc. was held on May
13, 1997, to consider one matter of business. The matter brought before the
shareholders and the voting results are as follows:
Election of Directors
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-votes*
<S> <C>
Douglas E. Bywater 9,607,016 -- 85,445 --
Linwood R. Watson 9,276,536 -- 415,925 --
</TABLE>
The following directors' terms of office as a director continued after the
meeting: Walter S. Boone, Andrew M. Ockershausen, Robert S. Raley, Jr., and
Philip R. Smiley.
* " Broker non-votes" occur where a broker holding stock in street name does not
vote those shares.
ITEM 6. Exhibits and Reports of 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
None.
17
<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.
TFC ENTERPRISES, INC.
(Registrant)
Date: August 8, 1997 By:/s/ Robert S. Raley, Jr.
------------------------
Robert S. Raley, Jr.
Chairman, President and
Chief Executive Officer and
Director
Date: August 8, 1997 By:/s/ David W. Karsten
--------------------
David W. Karsten
Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer
of the Registrant)
18
<PAGE>
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.
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,296
<SECURITIES> 0
<RECEIVABLES> 144,812
<ALLOWANCES> 23,021
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,194
<DEPRECIATION> 3,671
<TOTAL-ASSETS> 148,687
<CURRENT-LIABILITIES> 117,418
<BONDS> 108,468
49
0
<COMMON> 0
<OTHER-SE> 31,220
<TOTAL-LIABILITY-AND-EQUITY> 148,687
<SALES> 16,415
<TOTAL-REVENUES> 17,009
<CGS> 0
<TOTAL-COSTS> 9,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 252
<INTEREST-EXPENSE> 6,059
<INCOME-PRETAX> 895
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 895
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
