UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 333-42623
THE THAXTON GROUP, INC.
-----------------------
(Name of small business issuer in its charter)
South Carolina 57-0669498
-------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1524 Pageland Highway, Lancaster South Carolina 29270
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(Address of principal executive offices)
Issuers telephone number: 803-285-4337
Indicate by check mark whether the issuer (1) has filed all reports required to
by 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 issuer was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days.
Yes X No
------ -----
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Outstanding at
Class November 9, 2000
----- ----------------
Common Stock 6,974,355
The Thaxton Group, Inc.
Form 10-QSB
September 30, 2000
Table of Contents
Part I Financial Information Page No.
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Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2000 and
December 31, 1999 2
Consolidated Statements of Income for the nine months
ended September 30, 2000 and 1999 3
Consolidated Statements of Income for the three months
ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 16
1
Part I
Item 1. Financial Statements
The Thaxton Group, Inc.
Consolidated Balance Sheet
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
Assets
- ------
Cash $ 7,467,272 $ 2,110,246
Finance receivables, net 174,416,059 162,780,503
Loans held for sale 9,778,576 11,400,639
Premises and equipment, net 5,142,824 4,778,719
Accounts receivable 1,199,890 1,901,497
Repossessed automobiles 384,399 131,908
Goodwill and other intangible assets 35,971,707 32,730,803
Other assets 9,542,870 10,190,071
Assets of discontinued operations - 8,910,651
------------- -------------
Total assets $ 243,903,597 $ 234,935,037
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Accrued interest payable $ 2,726,171 $ 2,174,397
Notes payable 223,687,205 209,542,862
Notes payable to affiliates - 491,072
Accounts payable 2,432,860 2,746,712
Employee savings plan 557,051 1,328,998
Other liabilities 7,009,834 6,516,470
Liabilities of discontinued operations - 2,331,947
------------- -------------
Total liabilities 236,413,121 225,132,458
------------- -------------
Stockholders' Equity
- --------------------
Preferred stock $ .01 par value,
Series A: 400,000 shares authorized, issued and outstanding 10,440
Shares at September 30, 2000, 160,440 shares issued and outstanding
At December 31, 1999 104 1,604
Series C: 50,000 shares authorized, issued and outstanding at
September 30, 2000 and December 31, 1999 500 500
Series E: 800,000 shares authorized, issued and
outstanding at September 30, 2000 and December 31, 1999;
liquidation value $8,000,000 as of September 30, 2000 and December 1999 8,000 8,000
Common stock, $ .01 par value; authorized 50,000,000 shares;
issued and outstanding 6,974,355 shares at September 30, 2000;
6,975,359 shares at December 31, 1999 69,743 69,753
Additional paid-in-capital 8,610,549 10,116,774
Accumulated deficit (1,198,420) (394,052)
------------- -------------
Total stockholders' equity 7,490,476 9,802,579
------------- -------------
Total liabilities and stockholders' equity $ 243,903,597 $ 234,935,037
============= =============
See accompanying notes to consolidated financial statements.
2
The Thaxton Group, Inc.
Consolidated Statements of Income (Unaudited)
Nine Months ended September 30,
2000 1999
---- ----
Interest and fee income $ 47,560,269 $ 44,073,585
Interest expense 15,556,771 14,583,095
---------- ----------
Net interest income 32,003,498 29,490,490
Provision for credit losses 10,844,168 8,772,823
---------- ---------
Net interest income after provision for credit losses 21,159,330 20,717,667
---------- ----------
Other income:
Insurance premiums and commissions, net 9,714,577 6,497,549
Premiums for loans sold 2,553,632 2,232,359
Other income 5,071,427 6,617,474
---------- ----------
Total other income 17,339,636 15,347,382
---------- ----------
Operating expenses:
Compensation and employee benefits 22,271,885 20,810,834
Telephone, postage, and supplies 3,863,793 3,524,846
Net occupancy 4,436,373 3,710,757
Reinsurance claims expense 647,965 485,000
Advertising 1,972,168 1,513,681
Collection expense 189,428 249,143
Travel 891,446 731,455
Professional fees 687,861 462,255
Other 2,750,785 2,658,507
---------- ----------
Total operating expenses 37,711,704 34,146,478
---------- ----------
Income from continuing operations before income tax expense 787,262 1,918,571
Income tax expense 582,669 937,000
---------- ----------
Income from continuing operations 204,593 981,571
Discontinued operations (Note 6)
Loss from operations of discontinued Non-Standard
insurance division (Less benefit from income taxes of $148,904 in
2000, and $301,188 in 1999) (475,268) (885,848)
Net income (loss) (270,675) 95,723
Dividends on preferred stock 533,693 534,000
Net loss applicable to common shareholders ($804,368) ($438,277)
========= =========
Net income (loss) per common share-- basic and diluted ($0.12) ($0.06)
========= =========
Continuing operations ($0.05) $0.06
Discontinued operations ($0.07) ($0.13)
Weighted average shares outstanding - basic and diluted 6,974,815 6,994,687
See accompanying notes to consolidated financial statements.
3
The Thaxton Group, Inc.
Consolidated Statements of Income (Unaudited)
Three Months Ended September 30,
2000 1999
---- ----
Interest and fee income $ 16,669,960 $ 14,295,427
Interest expense 5,551,677 5,190,710
---------- ----------
Net interest income 11,118,283 9,104,717
Provision for credit losses 4,243,264 3,054,357
---------- ----------
Net interest income after provision for credit losses 6,875,019 6,050,360
---------- ----------
Other income:
Insurance premiums and commissions, net 3,129,257 2,115,054
Premiums for loans sold 846,592 906,947
Other income 1,638,686 1,130,096
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Total other income 5,614,535 4,152,097
---------- ----------
Operating expenses:
Compensation and employee benefits 6,976,103 5,841,798
Telephone, postage, and supplies 1,321,997 1,039,234
Net occupancy 1,558,052 1,178,775
Reinsurance claims expense 244,148 141,600
Advertising 752,787 566,030
Collection expense 62,463 80,967
Travel 355,852 266,007
Professional fees 317,053 147,254
Other 753,166 650,839
---------- ----------
Total operating expenses 12,341,621 9,912,504
---------- ----------
Income before income tax expense 147,933 289,953
Income tax expense 155,297 120,655
---------- ----------
Income (loss) from continuing operations (7,364) 169,298
Discontinued operations (Note 6)
Loss from operations of discontinued Non-Standard
insurance division (Less benefit from income taxes of $34,511 in
2000, and $108,332 in 1999) (101,502) (318,623)
Net loss (108,866) (149,325)
Dividends on preferred stock 188,235 178,000
Net loss applicable to common shareholders (297,101) (327,325)
======== ========
Net loss per common share-- basic and diluted ($0.04) ($0.05)
======== ========
Continuing operations ($0.03) ($0.00)
Discontinued operations ($0.01) ($0.05)
Weighted average shares outstanding - basic and diluted 6,974,555 6,978,036
See accompanying notes to consolidated financial statements.
4
The Thaxton Group, Inc.
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2000 and 1999
2000 1999
---- ----
Cash flows from operating activities $ 5,983,367 $ 2,457,000
Cash flows from investing activities (10,457,142) (9,914,000)
Cash flows from financing activities 9,830,801 10,729,000
----------- -----------
Net increase (decrease) in cash 5,357,026 3,272,000
Cash at beginning of period 2,110,246 781,000
----------- -----------
Cash at end of Period $ 7,467,272 $ 4,053,000
=========== ===========
5
The Thaxton Group, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2000 and 1999
(1) Basis of Presentation
The Thaxton Group, Inc. (the "Company") is incorporated under the laws of the
state of South Carolina and operates primarily through subsidiaries. The Company
operates consumer finance branches in 11 states, primarily under the names of
TICO Credit, Southern Finance, and Covington Credit. The Company also operates
insurance agency branches in two states located in the southeast. The Company is
a diversified financial services company that is engaged primarily in consumer
lending and consumer automobile sales financing to borrowers with limited credit
histories, low incomes or past credit problems. The Company also offers
insurance premium financing to such borrowers. A substantial amount of the
Company's premium finance business has been derived from customers of the
independent insurance agencies formerly owned by the Company, and now owned by a
non-affiliated company that, however, is owned and controlled by the Thaxton
Group's CEO. The Company provides reinsurance through wholly owned subsidiaries,
TICO Reinsurance, Ltd. ("TRL"), Fitch National Reinsurance, Ltd. and Soco
Reinsurance, Inc. Through a wholly owned subsidiary, Paragon, Inc., the Company
is also engaged in mortgage banking, originating mortgage loans to individuals.
The Company sells substantially all mortgage loans it originates through Paragon
to independent third parties. Through another wholly owned subsidiary, Thaxton
Commercial Lending, Inc., the Company makes factoring loans and collateralized
commercial loans to small and medium sized businesses. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
Information with respect to September 30, 2000 and 1999, and the periods then
ended, have not been audited by the Company's independent auditors, but in the
opinion of management, reflect all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the operations of
the Company. Users of financial information produced for interim periods are
encouraged to refer to the footnotes contained in the Company's Annual Report on
Form 10-KSB when reviewing interim financial statements. The results of
operations for the nine months and quarter ended September 30, 2000 are not
necessarily indicative of results to be expected for the entire fiscal year.
On February 1, 1999, the Company's CEO and majority shareholder purchased 144
consumer finance offices from FirstPlus Consumer Finance, Inc., and operated
those offices in Thaxton Investment Corporation, Inc. ("TIC"), a corporation set
up for that purpose. This acquisition was accounted for as a purchase. TIC was
a private corporation, with Mr. Thaxton as the sole shareholder. TIC operated
independently from the Company from February 1, 1999 through November 8, 1999.
On November 8th, the Company acquired TIC in exchange for 3,223,000 shares of
the Company's common stock. Because TIC and the Company had been under common
ownership and control since February, 1999, the Company's acquisition of TIC was
accounted for at historical cost in a manner similar to pooling of interests
accounting. The 1999 financial statements have been restated to account for the
impact of the acquisition of Thaxton Investment Corporation. Certain amounts in
the 1999 presentation have been reclassified in order to conform to the 2000
presentation.
6
(2) Finance Receivables
Finance receivables consist of the following at September 30, 2000 and December
31, 1999:
September 30, December 31,
2000 1999
---- ----
Automobile sales contracts $ 33,392,604 $ 33,138,025
Mortgage loans 28,715,735 27,477,365
Commercial loans 3,746,606 3,440,166
Direct loans 150,927,627 140,704,637
Premium finance contracts 7,880,834 8,362,591
----------- -----------
Total finance receivables 224,663,406 213,122,784
Unearned interest (37,372,396) (37,805,852)
Unearned insurance premiums, net (3,133,937) (2,797,033)
Valuation discount for acquired loans (12,533) (93,534)
Bulk purchase discount and dealer holdback (1,220,265) (704,657)
Allowance for credit losses (10,596,974) (10,661,339)
Deferred loan cost, net 2,088,758 1,720,134
----------- -----------
Finance receivables, net $174,416,059 $162,780,503
=========== ===========
Loans held for sale $ 9,778,576 $ 11,400,639
=========== ===========
Consumer loans include bulk purchases of receivables, auto dealer receivables
under holdback arrangements, and small consumer loan receivables. With bulk
purchase arrangements, the Company typically purchases a group of receivables
from an auto dealer or other retailer at a discount to par based on management's
review and assessment of the portfolio to be purchased. This discount amount is
then maintained in an unearned income account to which losses on these loans are
charged. To the extent that losses from a bulk purchase exceed the purchase
discount, the allowance for credit losses will be charged. To the extent losses
experienced are less than the purchase discount, the remaining discount is
accreted into income. With holdback arrangements, an automobile dealer or other
retailer will assign receivables to the Company on a loan-by-loan basis,
typically at par. The Company will withhold a certain percentage of the
proceeds, generally 5% to 10%, as a dealer reserve to be used to cover any
losses which occur on these loans. The agreements are structured such that all
or a portion of these holdback amounts can be reclaimed by the dealer based on
the performance of the receivables. To the extent that losses from these
holdback receivables exceed the total remaining holdback amount for a particular
dealer, the allowance for credit losses will be charged. The amount of bulk
purchase and holdback receivables, net of unearned interest and insurance, and
the related holdback and discount amount outstanding were approximately
$20,654,820 and $1,220,265, respectively, at September 30, 2000 and
approximately $26,870,193 and $704,657, respectively, at December 31, 1999.
At September 30, 2000 there were no significant concentrations of receivables in
any type of property or to one borrower.
These receivables are pledged as collateral for a line of credit agreement (see
note 3).
7
Changes in the allowance for credit losses for the nine months ended September
30, 2000 and 1999 are as follows:
2000 1999
---- ----
Beginning balance $ 10,661,339 $ 4,710,829
Valuation allowance for acquired loans - 6,276,309
Provision for credit losses 10,844,168 8,772,823
Charge-offs (11,988,681) (9,487,897)
Recoveries 1,080,148 822,245
----------- ----------
Net charge-offs (10,908,533) (8,665,652)
Ending balance $ 10,596,974 $ 11,094,309
The Company's loan portfolio primarily consists of short-term loans, the
majority of which are originated or renewed during the current year.
Accordingly, the Company estimates that fair value of the finance receivables is
not materially different from carrying value.
(3) Notes Payable
At September 30, 2000, the Company maintained two lines of credit with a
commercial finance company for $232 million, maturing on July 31, 2004. The
credit line is set up in four Tranches, allowing the Company to borrow against
its eligible collateral of finance receivables. At September 30, 2000 the
Company had approximately $62 million total potential borrowing capacity under
these facilities. However, in addition to the eligible collateral restrictions,
the borrowing availability under Tranches is also limited by amounts borrowed
under other Tranches, outstanding receivables, insurance premiums written, and
in some cases, additional restrictions. As a result of these additional
restrictions, the Company had approximately $3.9 million total potential
borrowing capacity as of September 30, 2000.
The aggregate outstanding balance under these lines of credit was $170.4 million
at September 30, 2000, of which $58.0 million was borrowed at 10.75% (Lenders
prime + 1 1/4%); $101.9 million was borrowed at 10.5% (Lenders prime + 1%); and
$10.5 million was borrowed at 13% (Lenders prime + 3 1/2%).
The terms of the line of credit agreement provide that the finance receivables
are pledged as collateral for the amount outstanding. The agreement requires the
Company to maintain certain financial ratios at established levels and comply
with other non-financial requirements, which may be amended from time to time.
Also, the Company may pay dividends up to 25% of the current year's net income.
The Company met all such ratios and requirements or obtained waivers for any
instances of non-compliance as of the prior year end, and expects to meet all
such ratios and requirements or obtain waivers for any instances of
non-compliance for the current year.
In connection with the FirstPlus acquisition, the Company assumed $2.2 million
of subordinated notes issued to Voyager Insurance Co. In November 1999, those
notes were cancelled and re-issued in the name of the Company. The note
agreement contained an interest coverage ratio restrictive covenant, which the
Company did not meet at December 31, 1999, and a waiver was obtained for the
year. However, the Company cannot say with certainty that it will meet this
covenant requirement for the year 2000, and if it does not meet this requirement
that a waiver will be obtained. However, the Company is confident that it has
adequate availability under it primary credit facility to borrow adequate funds
to liquidate this note, if required.
In 1997, the Company began issuing subordinated term notes to individual
investors in an intrastate public offering registered with the State of South
Carolina. The registration of a similar offering was declared effective by the
U.S. Securities and Exchange Commission in March 1998 (and amended in November
1999), and the Company now offers notes in multiple states under this federal
registration. The Maturity terms on these notes range from daily to sixty
months, and interest rates vary in accordance with market rates. Notes currently
being offered carry interest rates ranging from 5.5% to 9.0%. Approximately
$50.8 million in notes were outstanding at September 30, 2000 and $43.9 million
were outstanding at December 31, 1999 and are reflected as notes payable and
notes payable to affiliates.
8
(4) Business Combinations
On August 18, 2000, the Company acquired all of the stock of Quick Credit
Corporation, a consumer finance company with 25 branch offices located in South
Carolina. The purchase price was $12.75 million in cash. This acquisition was
accounted for as a purchase and resulted in goodwill of approximately $5.0
million which is being amortized over 15 years.
(5) Business Segments
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS No. 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 requires the presentation of descriptive information
about reportable segments consistent with that used by management of the Company
to assess performance. Additionally, SFAS No. 131 requires disclosure of certain
information by geographic region.
The Company reports its results of operations in four primary segments; consumer
finance, mortgage banking, insurance agency, and insurance underwriting risk
bearing. The consumer finance segment provides financing to consumers with
limited credit histories, low incomes or past credit problems. Revenues in the
consumer finance business are derived primarily from interest and fees on loans,
and the sale of credit related insurance products to its customers. The
Company's mortgage banking operations are conducted through Paragon, a
wholly-owned subsidiary acquired in November 1998. Paragon originates, closes
and funds predominantly B and C credit quality mortgage loans, which are
warehoused until they can be packaged and sold to long term investors. Paragon
receives fee income from originating mortgages and loans are generally sold at a
premium to the permanent investor. The Company's insurance agency operations
consist of selling, on an agency basis, various lines of automobile, property
and casualty, life and accident and health insurance. Revenue is generated
through fees paid by the insurance for which business is placed.
The following table summarizes certain financial information concerning the
Company's reportable operating segments for the nine months ended September 30,
2000 and 1999:
Consumer Mortgage Insurance
2000 Finance Banking Agency Other Total
----------------------------------------------------------------------------------------------------
Total Revenue 56,016,294 5,089,620 2,999,338 794,653 64,899,905
Income(loss) from
continuing operations 527,976 (123,686) (286,666) 86,969 204,593
Total Assets 220,939,141 11,972,387 7,284,520 3,707,952 243,904,000
Consumer Mortgage Insurance
1999 Finance Banking Agency Other Total
----------------------------------------------------------------------------------------------------
Total Revenue 49,215,031 6,351,210 3,422,528 432,198 59,420,967
Income(loss) from
continuing operations 577,265 206,896 191,039 6,371 981,571
Total Assets 199,645,908 11,223,361 13,555,160 2,751,571 227,176,000
9
(6) Discontinued Operations
At the end of 1998, and throughout 1999, the Company made a series of
acquisitions of agencies in Arizona, New Mexico, Nevada, Colorado and North
Carolina, as well as a general insurance agency in Virginia. At the same time,
the Company entered into a contract with American Bankers Insurance Group, Inc.
("ABIG"), where the Company would sell ABIG non-standard insurance policies in
these locations, but Thaxton Group would contractually retain the underwriting
risk, and retain any profit or loss from operations. This business ultimately
contained 30 non-standard automobile agency office locations, plus two insurance
general agencies (located in Virginia and South Carolina).
On March 1, 2000, the Company transferred all of the assets and liabilities of
these agency operations into a newly formed company named Thaxton RBE, Inc.
("Thaxton RBE"). The total amount of the assets transferred approximate $8
million, the majority of which were intangible. The purpose of the transfer was
to raise additional capital for Thaxton RBE, as it operations were in their
initial stages. As such, immediately subsequent to the formation and asset
transfer, Thaxton Life Partners, Inc. invested $2,000,000 in the capital stock
of RBE and obtained a 90% interest in that company as a result of the
investment. Thaxton Life Partners, Inc., is a company owned by James D. Thaxton
(Chairman and majority shareholder of Thaxton Group, Inc.); C. L. Thaxton, Sr.
(Director of Thaxton Group, Inc.); and other Thaxton family members. As a result
of those transactions, Thaxton Group, Inc. had a net receivable from Thaxton RBE
in the amount of $5 million at March 31, 2000.
During the third quarter of 2000, Thaxton Group made the decision to discontinue
operations and dispose of its interest and investment in Thaxton RBE as soon as
suitable financing for Thaxton RBE could be obtained. On August 31, 2000,
Thaxton Life Partners was able to arrange financing for Thaxton RBE independent
of Thaxton Group, Inc., and Thaxton Life Partners purchased the remaining 10%
interest in RBE from Thaxton Group. At the time of the sale, all amounts owed
Thaxton Group were paid in full. Thaxton Group has recognized no gain or loss on
the disposition of Thaxton RBE. The transaction has been accounted for in
accordance with Accounting Principles Board Statement #30, ("APB 30"),
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions."
The components of the Discontinued Assets and Discontinued Liabilities in the
consolidated balance sheet at December 31, 1999, are as follows:
December 31,
1999
------------
Assets
Cash (74,142)
Accounts receivable 1,484
Finance receivables 46,716
Premises and equipment, net 1,514,869
Intangibles, net 6,780,230
Other assets 641,494
---------
Total Discontinued assets 8,910,651
Liabilities
Subordinated notes payable 1,676,091
Accounts payable 552,028
Other liabilities 103,828
---------
Total Discontinued liabilities 2,331,947
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
The Thaxton Group, Inc. and its subsidiaries (the "Company") were organized in
July 1978 as C.L. Thaxton & Sons, Inc., and from that date until 1991 was
primarily engaged in making and servicing direct consumer loans ("Direct Loans")
and insurance premium finance loans ("Premium Finance Contracts") to persons
with limited credit histories, low incomes, or past credit problems ("Non-Prime
Borrowers"). In 1991, the Company made a strategic decision to begin
diversifying its portfolio by actively seeking to finance purchases of used
automobiles ("Automobile Sales Contracts") by Non-Prime Borrowers and has since
evolved into a diversified consumer financial services company. The Company also
sells credit related insurance products and, through its subsidiary, Thaxton
Insurance Group, Inc. ("Thaxton Insurance"), on an agency basis, various lines
of property and casualty, life, and accident and health insurance. The Company
also entered the mortgage brokerage business during 1996, and in 1998 acquired
Paragon, Inc., ("Paragon") a mortgage banking company engaged in the
origination, funding, and whole loan sale of primarily "B" and "C" credit
quality residential mortgages. In 1998 the Company also began making factoring
and commercial loans to smaller sized businesses through a wholly owned
subsidiary, Thaxton Commercial Lending, Inc. ("Commercial").
THE INDUSTRY
The segment of the consumer finance industry in which the Company operates,
which is commonly called the "non-prime credit market," provides financing to
consumers with limited credit histories, low incomes, or past credit problems.
These consumers generally do not have access to the same variety of sources of
consumer credit as borrowers with long credit histories, no defaults, and stable
employment, because they do not meet the stringent objective credit standards
imposed by most traditional lenders. The Company, like its competitors in the
same segment of the consumer finance industry, generally charges interest to
Non-prime Borrowers at the maximum rate permitted by law or, in states such as
South Carolina where there are no legal maximum rates, at competitive rates
commensurate with the increased default risk and the higher cost of servicing
and administering a portfolio of loans to such borrowers. By contrast,
commercial banks, captive financing subsidiaries of automobile manufacturers,
and other traditional sources of consumer credit to prime borrowers typically
impose more stringent credit requirements and generally charge lower interest
rates.
The premium finance industry for personal lines of insurance is also highly
fragmented. Insurance companies that engage in direct writing of insurance
policies generally provide financing to their customers who need the service.
Numerous small independent finance companies such as the Company are engaged in
providing premium financing for personal lines of insurance purchased by
Non-prime Borrowers through independent insurance agents. Because the rates they
charge are highly regulated, these companies compete primarily on the basis of
efficiency in providing the financing and servicing the loans. A significant
number of independent insurance agents provide premium financing to their
customers either directly or through affiliated entities. As banks are allowed
to enter the insurance business, they also are increasingly engaging in the
premium finance business.
Independent insurance agencies represent numerous insurance carriers, and
typically place a customer's business with the carrier whose combination of
features and price best match the customer's needs. In comparison, direct agents
represent only one carrier. Most carriers find use of independent agencies to be
a more cost-effective method of selling their products than using a direct agent
force. Competition in the independent insurance agency business is intense.
There are numerous other independent agencies in most of the markets where the
Company's insurance offices are located. There are also direct agents for
various insurers operating in some of these markets. The Company competes
primarily on the basis of service and convenience. The Company attempts to
develop and maintain long-term customer relationships through low employee
turnover and responsive service representatives and offers a broad range of
insurance products underwritten by reputable insurance companies.
11
Net Interest Margin
The following table sets forth-certain data relating to the Company's net
interest margin for the nine months and three months ended September 30, 2000
and 1999.
For the Nine Months For the Three Months
Ended September 30 Ended September 30
2000 1999 2000 1999
----------- ----------- ------------ -----------
Average Net Finance Receivables (1) 168,861,276 150,222,994 180,732,384 164,745,529
Average notes payable 210,182,066 191,211,077 219,965,183 206,116,412
Interest and fee income (2) 47,560,269 44,073,585 16,669,960 14,295,427
Interest expense (2) 15,556,771 14,583,095 5,551,677 5,190,710
Net interest income 32,003,498 29,490,490 11,118,283 9,104,717
Average interest rate earned (1) 37.55% 39.12% 36.89% 34.71%
Average interest rate paid (1) 9.87% 10.17% 10.10% 10.07%
Net interest spread 27.68% 28.95% 26.80% 24.64%
Net interest margin (3) 20.30% 20.56% 24.61% 22.11%
(1) Averages are computed using month-end balances during the periods presented.
(2) Excludes Thaxton Insurance Group interest income, expense and Paragon Lending loan fee income.
(3) Net interest margin represents net interest income divided by average Net Finance Receivables.
12
Results of Operations for the Nine Months Ended September 30, 2000 and 1999
Net Finance receivables increased for the year ($174,416,000 in 2000 vs.
$162,780,000 in 1999) an increase of 7%. This was primarily due to the purchase
of approximately $10 million of receivables from Quick Credit.
Interest and fee income, increased 8% between years ($47,560,000 in 2000 vs.
$44,074,000 in 1999), primarily as a result of the operations of the First Plus
acquisition being included for only eight months in 1999, and the entire nine
months in the current year; the results of operations of Quick Credit included
for the current year; and an overall attempt to raise interest rates charged to
compensate for increased interest expense on our variable rate debt.
Interest expense increased to $15,557,000 for 2000 from $14,583,000 in 1999.
This increase is primarily attributable to interest rate increases in our
variable rate credit facility associated with an increasing prime rate, as well
as the First Plus acquisition being included in our results of operations for
only eight months of 1999, and additional overall borrowings related to the
acquisition of Quick Credit.
Insurance commissions net of insurance cost increased to $9,715,000 for the nine
months ended September 30, 2000 from $6,498,000 for the same period of 1999, due
to increased penetration in credit insurance sold in our finance branches, as
well as the First Plus acquisition being included in our results of operations
for the entire nine months of the current year, but only eight months of the
prior year.
Operating expenses increased to $37,712,000 for the nine months ended September
30, 2000 from $34,146,000 for the comparable period of 1999, a 12% increase,
primarily as a result of additional branch locations operating in the current
year; the inclusion of the operating expenses of the Quick Credit acquisition
during the current year; and the First Plus acquisition's inclusion in the
results of operations for the entire nine months of the current year, but only
eight months of the prior year.
As a result of the above, the company recognized net income from continuing
operations of $205,000 for the nine months ended September 30, 2000 versus
$982,000 for the nine months ended September 30, 1999.
Stockholders' equity decreased from $9,803,000 at December 31, 1999 to
$7,490,000 at September 30, 2000, a 25% decrease, primarily to the repurchase of
$1,500,000 of preferred stock in March, 2000; and the payment of dividends on
the Company's preferred stock.
Results of Operations for the Three Months Ended September 30, 2000 and 1999
Interest and fee income for the three months ended September 30, 2000 was
$16,670,000, versus $14,295,000 for the three months ended September 30, 1999, a
17% increase, primarily due to higher interest rates charged on small loans,
part of a program to increase this segment of our business.
Interest expense increased to $5,552,000 for the three months ended September
30, 2000 versus $5,191,000 for the three months ended September 30, 1999, a 7%
increase, due primarily to interest rate increases in our variable rate credit
facility associated with an increasing prime rate.
Insurance commissions net of insurance cost increased to $3,129,000 for the
three months ended September 30, 2000 from $2,115,000 for the three months ended
September 30, 1999, a 48% increase due primarily to increase penetration of
credit insurance sold in our finance branches.
Operating expenses increased to $12,342,000 for the three months ended September
30, 2000 from $9,913,000 for the comparable period of 1999, a 25% increase, due
primarily to increased branch locations; additional operating expenses
associated with the Quick Credit acquisition.
As a result of the above, the company recognized a $7,000 net loss from
continuing operations for the three months ended September 30, 2000, versus
income from continuing operations of $169,000 for the comparable period of 1999.
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Credit Loss Experience
The following table sets forth the Company's allowance for credit losses at
September 30, 2000, and 1999 and the credit loss experience over the periods
presented.
September 30,
-------------
2000 1999
---- ----
Net finance receivables (1) 174,416,059 162,780,503
Allowance for credit losses 10,596,974 11,094,309
Allowance for credit losses as a percentage of net finance
receivables (1) 6.08% 6.82%
Dealer reserves and discounts on bulk purchases 1,220,265 1,202,000
Dealer reserves and discounts on bulk purchases as percentage
of Automobile sales Contracts as period end(2) 3.65% 3.18%
Allowance for credit losses and dealer reserves and discount on
bulk purchases as a percentage of net finance receivables (1) 6.78% 7.55%
For the nine months ended September 30,
Average Net finance receivables (1) 168,861,276 150,222,994
Provision for loan losses 10,844,168 8,772,823
Charge-offs (net of recoveries) 10,908,533 8,665,652
Charge-offs (net of recoveries) as a percentage of average net
finance receivables (1) 8.61% 7.69%
For the three months ended September 30,
Average Net finance receivables (1) 180,732,384 164,745,529
Provision for loan losses 4,243,264 3,054,357
Charge-offs (net of recoveries) 3,685,241 2,742,047
Charge-offs (net of recoveries) as a percentage of average net
finance receivables (1) 8.16% 6.66%
(1) Finance Receivable balances are presented net of unearned finance
charges. Averages are computed using month-end balances of Net Finance
Receivables during the period presented.
(2) Percentages are computed using Automobile Sales Contracts, net of
unearned finance charges only.
The following table sets forth certain information concerning delinquency on our
finance receivable portfolio.
At September 30, At December 31,
2000 1999
---- ----
Total finance receivables contractually past due
90 days or more (1) 6,146,149 5,886,818
Total Finance Receivables (1) 187,291,010 175,316,932
Finance receivables contractually past due 90 days or more 3.28% 3.36%
========== ==========
(1) Finance receivable balances are presented net of unearned finance charges.
14
Liquidity and Capital Resources
At September 30, 2000, the Company maintained two lines of credit with a
commercial finance company for $232 million, maturing on July 31, 2004. The
credit line is set up in four Tranches, allowing the Company to borrow against
its eligible collateral of finance receivables. At September 30, 2000 the
Company had approximately $52 million total potential borrowing capacity under
these facilities. However, in addition to the eligible collateral restrictions,
the borrowing availability under Tranches is also limited by amounts borrowed
under other Tranches, outstanding receivables, insurance premiums written, and
in some cases, additional restrictions. As a result of these additional
restrictions, the Company had approximately $3.9 million total potential
borrowing capacity as of September 30, 2000.
The aggregate outstanding balance under these lines of credit was $170.4 million
at September 30, 2000, of which $58.0 million was borrowed at 10.75% (Lenders
prime + 1 1/4%); $101.9 million was borrowed at 10.5% (Lenders prime + 1%); and
$10.5 million was borrowed at 13% (Lenders prime + 3 1/2%).
Management believes that its borrowing capacity under its existing revolving
credit facility, in addition to its ability to raise additional subordinated
debt under its subordinated note program, will provide the resources necessary
to pursue the Company's business and growth strategies through the next several
years.
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Part II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended
September 30, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Thaxton Group, Inc.
-----------------------
(Registrant)
Date: November 1, 2000 /s/James D. Thaxton
James D. Thaxton
President and Chief Executive Officer
Date: November 1, 2000 /s/Allan F. Ross
Allan F. Ross
Vice President, Treasurer, Secretary, and
Chief Financial Officer
16