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): February 24, 1998
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
5425 Robin Hood Road, Suite 101B Identification No.)
Norfolk, Virginia 23513
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (804) 466-1222
N.A.
(Former name of former address, if changed since last report)
<PAGE>
Item 5. Other Events
A press release announcing 1997 financial results is attached as
Exhibit 99.1.
The company's wholly-owned subsidiary, The Finance Company ("TFC"),
entered into Amendment No. 2 to its Amended and Restated Motor Vehicle
Installment Contract Loan and Security Agreement with its principal lender. In
this Amendment, the lender waived compliance by TFC with the Maximum Delinquency
Measurement provisions set forth in Exhibit 13.6 of the Agreement for the period
January 1, 1998 through January 31, 1998. The lender also amended the Maximum
Delinquency Measurement provision as set forth in the Amendment attached to this
report as Exhibit 99.3. As consideration for this waiver and amendment, TFC
agreed to reduce the percentage of outstanding principal balance of eligible
contracts in the calculation of its borrowing base from 76% to 73%. The
Company's subsidiary, Recoveries, Inc., also guarantied the obligations of TFC
and granted the lender a security interest in its assets as additional
consideration.
Item 7. Financial Statements and Exhibits
(c) Exhibits
99.1 Press Release dated February 24, 1998.
99.2 Letter Agreement between G.E. Capital Corporation,
The Finance Company and Recoveries, Inc. dated as of February 1, 1998.
99.3 Amendment No.2 dated as of February 1, 1998 to the
Amended and Restated Motor Vehicle Installment Contract Loan and Security
Agreement between The Finance Company and G.E. Capital Corporation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and 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/Robert S. Raley
---------------------
Robert S. Raley
President, Chief Executive Officer
Date March 3, 1998
Exhibit 99.1
CONTACT: ROBERT S. RALEY, JR. TFC ENTERPRISES, INC.
757-858-4054 NEWS RELEASE
*FOR IMMEDIATE RELEASE*
TFC ENTERPRISES ANNOUNCES 1997 FINANCIAL RESULTS
NORFOLK, VA, February 24, 1998/PRNewswire/ -- TFC Enterprises, Inc.
(NASDAQ: TFCE) today reported 1997 net income of $0.7 million, or $0.06 per
common share. This compares to a net loss of $7.6 million, or $0.67 per common
share, for 1996. Results reported for the fourth quarter of 1997 were a net loss
of $0.1 million, or $0.01 per common share, compared to a net loss of $7.1
million, or $0.63 per common share, in the fourth quarter of 1996. The Company
also reported that new contract volume had increased by $38.7 million, or 29.0%,
for 1997 compared to 1996, with volume for the fourth quarter of 1997 up by
$19.3 million, or 54.9%, over the fourth quarter of 1996.
"We are extremely pleased to see this continuing evidence that the many
difficult changes we undertook during 1996 are paying off with improved
operating results," said Robert S. Raley, Jr., the TFCEI Chairman, President and
Chief Executive officer. "Our goal for 1997 was to continue to build on this
success, with particular emphasis on high quality service, sound credit quality,
and increased growth in our contract purchase volume. Contract volume increased
$38.7 million or 29.0% in 1997 over 1996 without sacrificing our credit quality
and pricing. This combined with the continued improvement in delinquency and
charge-off further support that the renewed business strategies are working. To
achieve these improvements, in an environment as volatile as the sub prime
industry, is rewarding. Given the problems many of our competitors are
experiencing the Company views 1998 as a year of opportunity and will strive to
capitalize on this opportunity," he added.
The Company's return to profitability was primarily the result of
continuing improvement in the performance of its contract receivables and a
24.7% reduction in operating expenses resulting from the restructuring during
1996.
Improved credit quality and servicing of the Company's auto finance
contracts eliminated the need for a loss provision in 1997 compared to a
provision of $8.4 million for 1996. The provision for credit losses on the
Company's consumer finance loan business increased to $0.3 million in the fourth
quarter of 1997 compared to $0.1 million in the fourth quarter of 1996, and
increased to $0.7 million for 1997 compared to $0.3 million for 1996, due to
growth in the loan portfolio.
Operating expenses, excluding the 1996 charge for severance benefits
and restructuring, decreased by $4.1 million, or 17.3%, for 1997 compared to
1996. In the fourth quarter of 1997, operating expenses decreased $0.1 million,
or 1.9%, compared to the fourth quarter of 1996 even with the cost of opening
one auto finance office and three consumer finance offices in 1997. This
decrease reflects the impact of the Company's restructuring plans implemented
during 1996 to consolidate service center operations from three locations into
two and to downsize the management staff.
Auto finance contract purchase volume totaled $47.9 million in the
fourth quarter of 1997, or 58.1% above the $30.3 million purchased in the fourth
quarter of 1996. For the full year 1997, gross contract volume totaled $155.8
million, or 29.8%, above the $120.0 million volume for 1996. In spite of a
highly competitive market during 1997 and an overall tightening of its credit
and pricing guidelines the Company increased its gross contract volume in the
fourth quarter and full year 1997, relative to the comparable periods in 1996.
Consumer finance contract originations totaled $6.7 million in the fourth
quarter of 1997, an increase of $1.7 million, or 35%, from the fourth quarter of
1996. Consumer finance contract originations totaled $16.0 million in 1997, an
increase of $2.8 million, or 21%, compared to 1996.
Key performance indicators that have improved in 1997 include 60+ days
delinquencies as a percent of period-end gross contract receivables, which
improved from 9.9% at December 31, 1996, to 8.9% at December 31, 1997. In
addition, the Company reported that net loan charge-offs as a percentage of
average contract receivables (net of unearned interest) decreased from 22.3% for
1996 to 18.5% for 1997 and 17.0% in the fourth quarter of 1997 compared to 21.4%
in the fourth quarter of 1996. These positive trends are especially significant
because the Company achieved the improved ratios while its contract receivables
decreased.
Net interest revenue reported for the fourth quarter of 1997 totaled
$5.2 million, a decrease of 10.6% compared with the $5.8 million reported in the
fourth quarter of 1996. For the full year 1997, net interest income was $20.3
million, down 24.9% from $27.0 million in 1996. The decreases were attributable
to reductions in the net interest margin and average interest-earning assets.
In addition to historical information, this press release contains
forward-looking statements that are subject to risks and uncertainties that
could cause the Company's actual results to differ materially from those
anticipated in these forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's current analysis. For example, during 1998 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.
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. through its subsidiary The Finance
Company, has offices in Killeen, TX; Jacksonville, FL; San Diego, CA; and
through its subsidiary First Community Finance, Inc., has offices throughout
Virginia and North Carolina.
NOTE: Detailed supplemental information follows.
Conference Call Notice
Robert S. Raley, Jr., Chairman, President and Chief Executive Officer
of TFC Enterprises, Inc., will host a conference call for analysts and investors
at 3:00 p.m. eastern time on Wednesday, February 25, 1998. Those wishing to
participate should call 1-800-786-4914 a few minutes prior to the scheduled
start of the conference call.
<PAGE>
TFC ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
12/31/97 12/31/96
(dollars in thousands)
Assets
Cash $ 1,975 $ 2,688
Restricted cash -- 5,532
Net contract receivables 128,503 126,252
Recoverable income taxes 1,229 5,831
Property and equipment, net 2,297 2,823
Intangible assets, net 12,070 13,161
Deferred income taxes 188 188
Other assets 1,571 2,108
---------- ----------
Total assets $147,833 $158,583
======= =======
Liabilities and shareholders'
equity
Liabilities:
Revolving line of credit $ 98,572 $ 2,562
Term notes -- 19,464
Automobile Receivables-
Backed notes -- 15,843
Subordinated notes, net 11,214 12,509
Accounts payable and
accrued expenses 2,841 3,960
Income taxes 2,075 2,075
Refundable dealer reserve 1,987 2,208
Other liabilities 64 100
---------- ---------
Total liabilities 116,753 128,721
Shareholders' equity:
Common stock, $.01 par value,
40,000,000 shares authorized;
11,290,308 shares outstanding 49 49
Additional paid-in capital 55,844 55,333
Retained deficit (24,813) (25,520)
---------- ----------
Total shareholders' equity 31,080 29,862
---------- ------------
Total liabilities and
shareholders' equity $147,833 $158,583
======= =======
<PAGE>
TFC ENTERPRISES, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Year ended
12/31/97 12/31/96 12/31/97 12/31/96
(in thousands, except per share amounts)
<S> <C>
Interest and other
finance revenue $8,132 $ 8,777 $ 32,317 $40,484
Interest expense 2,979 3,011 12,019 13,451
------- --------- --------- --------
Net interest revenue 5,153 5,766 20,298 27,033
Provision for
credit losses 253 6,103 719 8,733
-------- --------- ----------- --------
Net interest revenue
after provision for
credit losses 4,900 (337) 19,579 18,300
Other revenue 293 53 1,105 1,436
Operating expense:
Salaries 2,633 2,473 9,866 12,107
Employee benefits 425 492 1,511 1,957
Occupancy 230 301 896 1,053
Equipment 324 434 1,253 1,379
Amortization of
Intangibles 272 272 1,091 1,091
Severance benefits - - - 1,804
Restructuring charge - 590 - 590
Other 1,427 1,461 5,360 6,559
-------- -------- -------- -------
Total operating
Expense 5,311 6,023 19,977 26,540
-------- -------- -------- --------
Income (loss) before
income taxes ( 118) (6,307) 707 (6,804)
Provision for
income taxes - 749 - 792
------------ --------- ------------ ---------
Net income (loss) $ ( 118) $ (7,056) $ 707 $(7,596)
======== ======== ========= ======
Net income (loss) per common share:
Basic $ ( .01) $ ( .63) $ .06 $ ( .67)
========== ========== ========== ========
Diluted $ ( .01) $ ( .63) $ .06 $ ( .67)
========== ========== ========== ========
Weighted average shares
Outstanding 11,290 11,290 11,290 11,290
</TABLE>
<PAGE>
TFC ENTERPRISES, INC.
FINANCIAL HIGHLIGHTS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Year ended
12/31/97 12/31/96 12/31/97 12/31/96
(dollars in thousands)
<S> <C>
CONTRACT PURCHASES OR ORIGINATIONS
Auto finance:
Point of sale $ 29,079 $ 14,651 $ 85,311 $ 58,623
Portfolio 18,796 15,635 70,520 61,391
Consumer Finance 6,661 4,932 16,023 13,174
---------- ---------- --------- ---------
Total $ 54,536 $ 35,218 $171,854 $133,188
======= ======= ======= =======
AVERAGE BALANCES
Interest earning
Assets $150,480 $168,430 $151,743 $188,239
Total assets 145,395 168,133 148,932 186,040
Interest bearing
Liabilities 107,839 125,737 110,812 140,943
Equity 31,143 34,735 30,731 36,386
PERFORMANCE RATIOS*
Return on average
Assets NM NM .47% NM
Return on average
Equity NM NM 2.30% NM
Yield on interest
earning assets 21.62% 20.84% 21.30% 21.51%
Cost of interest
bearing liabilities 11.05% 9.58% 10.85% 9.54%
Net interest margin 13.70% 13.69% 13.38% 14.36%
Operating expense/
Interest earning
Assets 14.12% 12.44% 13.17% 12.83%
Total net charge-offs
to average gross
contract receivables,
net of unearned
interest 16.99% 21.36% 18.53% 22.25%
60 day delinquencies
to gross contract
receivables, period
end 8.85% 9.89% 8.85% 9.89%
Total allowance and
nonrefundable reserve
to gross contract
receivables net of
unearned interest,
period end 14.70% 17.88% 14.70% 17.88%
Equity to assets,
period end 21.02% 18.83% 21.02% 18.83%
*Annualized as appropriate
</TABLE>
Exhibit 99.2
GE CAPITAL
Laurie K. Breitenstein Auto Financial Services
600 Hart Road
Barrington, IL 60010
847-304-3374, Fx. 847-3094-3444
February 1, 1998
By Facsimile and Federal Express
Mr. Robert Raley
The Finance Company
5425 Robinhood Road, Suite 101B
Norfolk, VA 23513
Re: Amended and Restated Motor Vehicle Installment Contract Loan and
Security Agreement (the "LSA") dated December 20, 1996 by and between
The Finance Company and General Electric Capital Corporation; Amendment
No. 1 dated April 4, 1997 to the LSA (the "Amendment"); and all other
documents executed in connection with the foregoing (collectively with
the foregoing, the "Loan Documents"). All terms not otherwise defined
shall have the meaning set forth in the LSA.
Dear Mr. Raley:
This letter evidences the agreement of General Electric Capital
Corporation ("Lender"), The Finance Company, Inc. ("Borrower") and Recoveries,
Inc. ("Recoveries") as set forth herein.
On or about February 4, 1998, Borrower informed Lender that Borrower
had exceeded the Maximum Delinquency Measurement (the "Covenant") established in
the LSA, as amended, for the month of January, 1998. Such violation of the
Covenant would constitute a default under the LSA absent the agreement of Lender
to waive compliance with the Covenant. Borrower hereby acknowledges Lender's
right to declare a default due to Borrower's violation of the Covenant as well
as Lender's right to take any and all actions available to it upon a default.
Borrower has requested that Lender waive compliance with the Covenant
for the period January 1, 1998 through and including January 31, 1998 and has
further requested that Lender modify the Covenant as set forth in Amendment No.
2 to the LSA dated as of February 1, 1998 ("Amendment No. 2"). Lender as agreed
to such waiver and Covenant modification upon the terms and conditions as set
forth herein and in Amendment No. 2.
In consideration for the waiver and Covenant modification granted by
Lender, Borrower and Recoveries agree that Recoveries shall, on or before
February 20, 1998, provide Lender with a guaranty of the obligations of Borrower
to Lender (the "Guaranty") and a security interest in the assets of Recoveries
(the "Security Interest") to secure its guaranty obligations. The Guaranty and
Security Interest shall be in a form reasonably acceptable to both parties.
Recoveries is an affiliate of Borrower and acknowledges that it derives a direct
economic benefit from Lender's waiver and modification of the Covenant. Borrower
and Recoveries further acknowledge that Lender has agreed to the terms of
Amendment No. 2 in reliance on the agreements and acknowledgements of Borrower
and Recoveries herein.
Very truly yours,
General Electric Capital Corporation
Laurie K. Breitenstein
Counsel
ACKNOWLEDGED AND AGREED:
THE FINANCE COMPANY, INC. RECOVERIES, INC.
By:________________________________ By:__________________________________
Its: Its:
Exhibit 99.3
AMENDMENT NO. 2
This AMENDMENT NO. 2 (this "Amendment") dated as of February 1, 1998 is
made by and between THE FINANCE COMPANY, a Virginia corporation ("Borrower") and
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("Lender").
RECITALS
A. Borrower and Lender are parties to an Amended and Restated Motor
Vehicle Installment Contract Loan and Security Agreement dated December 20,
1996, as amended by Amendment No. 1 thereto dated April 4, 1997 (collectively,
the "Agreement"), which Agreement restated and amended that certain Loan and
Security Agreement, dated September 24, 1992, as amended.
B. Borrower failed to comply with the Maximum Delinquency Measurement
covenant established in Paragraph 13.6 and Exhibit 13.6 of the Agreement for the
Accounting Period of January, 1998. Borrower has requested that Lender waive the
default arising from the violation of the Maximum Delinquency Measurement
covenant and Lender has agreed to such waiver in consideration for, and pursuant
to the terms of, this Amendment No. 2.
C. Accordingly, Borrower and Lender desire to amend certain provisions
of the Agreement pursuant to the terms set forth in this Amendment.
D. It is the intent of Borrower and Lender that the execution and
delivery of this Amendment shall not effect a novation of the indebtedness
outstanding under the Agreement, but rather, shall constitute the substitution
of certain of the terms and conditions governing payment and performance under
the Agreement, and, except as expressly modified by this Amendment, the
Agreement shall continue, unchanged, in full force and effect.
In consideration of the mutual covenants and agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged by each of the parties hereto, Borrower and
Lender agree as follows:
1. Defined Terms. Unless otherwise specified herein, all capitalized
terms used in this Amendment shall have the same meaning given to such term(s)
in the Agreement.
2. Waiver of Covenant Violation. In consideration for the terms of this
Amendment No. 2 and the agreements in the Letter Agreement dated February 1,
1998, between Lender, Borrower and Recoveries, Inc., an affiliate of Borrower,
Lender agrees and hereby does waive, effective as of January 1, 1998, compliance
by Borrower with the Maximum Delinquency Measurement provisions set forth in
Exhibit 13.6 of the Agreement for the period January 1, 1998 through and
including January 31, 1998. From and after February 1, 1998, Borrower must be in
compliance with the Maximum Deficiency Measurement established in this Amendment
No. 2.
3. Amendments to Agreement. Effective as of the date hereof, the
Agreement is hereby amended as follows:
(a) Borrowing Base: The definition of "Borrowing Base" set forth in
Section 16.0 of the Agreement is hereby amended in its entirety to read as
follows:
"Borrowing Base: The amount equal to the lesser of (i) the
Available Line or (ii) the sum of (a) fifty percent (50%) of the Outstanding
Principal Balance of all Contracts which are Credit Builder Contracts and (b)
seventy-three percent (73%) of the Outstanding Principal Balance of all other
Eligible Contracts during the time they are included in the Borrowing Base
pursuant to Section 3.1."
(b) Portfolio Covenants: The "Maximum Delinquency Measurement"
set forth in Exhibit 13.6 of the Agreement is hereby amended as follows:
"Maximum Delinquency Measurement:
Fiscal 1998
1st Q. 2nd Q. 3rd Q. 4th Q.
------ ------ ------ ------
TFC Rolling Average Delinquency 14.5% 14.5% 14% 14%"
4. Incorporation of Amendment. The parties acknowledge and agree that
this Amendment is incorporated into and made a part of the Agreement, the terms
and provisions of which, unless expressly modified herein, or unless no longer
applicable by their terms, are hereby affirmed and ratified and remain in full
force and effect. To the extent that any term or provision of this Amendment is
or may be deemed expressly inconsistent with any term or provision of the
Agreement, the terms and provisions of this Amendment shall control. Each
reference to the Agreement shall be a reference to the Agreement as amended by
this Amendment. Nothing contained herein is intended, nor shall be construed to
be a novation or an accord and satisfaction of the outstanding Note or any of
Borrower's obligations to Lender.
5. Borrower Remains Liable. Borrower hereby confirms that the Agreement
and each document executed by Borrower in connection therewith continue
unimpaired and in full force and effect and shall cover and secure all of
Borrower's existing and future obligations to Lender.
6. Headings. The paragraph headings contained in this Amendment are for
convenience of reference and shall not be considered a part of this Amendment in
any respect.
7. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Illinois. Nothing herein shall preclude
Lender from bringing suit or taking other legal action in any jurisdiction.
8. Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have entered into this Amendment as
of February 1, 1998.
GENERAL ELECTRIC CAPITAL CORPORATION
By:_________________________________
Title:______________________________
THE FINANCE COMPANY
By:_________________________________
Title:______________________________
