UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 2001
OR
( ) 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 29720
------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number: 803-285-4337
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 __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 11, 2001
----- ---------------------------
Common Stock 6,839,355
THE THAXTON GROUP, INC.
FORM 10-Q
March 31, 2001
TABLE OF CONTENTS
-----------------
Item
No. Page
- --- ----
PART I
Financial Information
1. Financial Statements
Consolidated Balance Sheets at March 31, 2001 and December 31, 2000 2
Consolidated Statements of Income for the three months ended March 31, 2001 and 2000 3
Consolidated Statement of Stockholder Equity for the year ended December 31, 2000 and
the quarter ended March 31, 2001 4
Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II
Other Information
1. Legal Proceedings 16
2. Changes in Securities and Use of Proceeds 16
3. Defaults Upon Senior Securities 16
4. Submission of Matters to a Vote of Security Holders 16
5. Other Information 16
6. Exhibits and Reports on Form 8-K 16
Item 1: FINANCIAL STATEMENTS
1
THE THAXTON GROUP, INC.
Consolidated Balance Sheets
March 31, 2001 & December 31, 2000
March 31, 2001 December 31,
-------------- ------------
(Unaudited) 2000
----------- ----
Assets
- ------
Cash $2,307,113 $4,482,553
Finance receivables, net 168,035,603 177,943,646
Premises and equipment, net 4,794,382 5,011,856
Accounts receivable 1,803,838 2,154,637
Repossessed automobiles 455,988 291,057
Deposit 6,230,000 6,230,000
Goodwill and other intangible assets 34,243,129 34,812,558
Other assets 10,815,685 9,640,640
Assets of discontinued operations - 6,981,166
----------- ---------
Total assets $228,685,738 $247,548,113
============ ============
Liabilities and Stockholders' Equity
Liabilities
Accrued interest payable $2,390,596 $2,627,987
Notes payable 212,268,835 232,605,414
Accounts payable 4,412,341 3,173,686
Employee savings plan 547,665 627,702
Other liabilities 4,540,420 4,377,271
Liabilities of discontinued operations 166,000 376,643
----------- -------
Total liabilities 224,325,857 243,788,703
----------- -----------
Stockholders' Equity
Preferred Stock $.01 par value:
Series A: 400,000 shares authorized; issued and outstanding 10,440 shares in 2001,
10,440 shares in 2000; liquidation value $104,400 in 2001 and 2000 104 104
Series C: 50,000 shares authorized issued and outstanding in 2001 and 2000; liquidation
value $500,000 in 2001 and 2000 500 500
Series E: 800,000 shares authorized, issued and outstanding in 2001 and 2000; liquidation
value $8,000,000 in 2001 and 2000 8,000 8,000
Series F: 100,000 shares authorized; issued and outstanding 20,000 in March 2001 none in
prior periods; liquidation value $200,000 in 2001. 200 -
Common stock, $.01 par value, 50,000,000 shares authorized; issued and outstanding 6,839,355
in 2001; 6,974,355 shares in 2000 68,393 69,743
Additional paid-in-capital 8,811,699 8,610,549
Accumulated deficit (4,529,015) (4,929,486)
----------- -----------
Total stockholders' equity 4,359,881 3,759,410
--------- ---------
Total liabilities and stockholders' equity $228,685,738 $247,548,113
============ ============
See accompanying notes to consolidated financial statements.
2
THE THAXTON GROUP, INC.
Consolidated Statements of Income
Quarters Ended March 31, 2001 and 2000
(Unaudited)
2001 2000
---- ----
Interest and fee income $18,529,310 $16,060,814
Interest expense 5,634,820 4,695,534
--------- ---------
Net interest income 12,894,490 11,365,280
Provision for credit losses 2,974,833 3,124,571
--------- ---------
Net interest income after provision for credit losses 9,919,657 8,240,709
Other income:
Insurance premiums and commissions, net 3,559,576 3,337,651
Other income 1,199,380 1,101,326
--------- ---------
Total other income 4,758,956 4,438,977
--------- ---------
Operating expenses:
Compensation and employee benefits 7,828,456 7,090,414
Telephone, computers 598,807 527,135
Net occupancy 1,565,050 1,310,629
Reinsurance claims expense 225,647 293,562
Advertising 653,733 543,919
Collection expense 103,322 64,669
Travel 222,258 172,264
Professional fees 270,975 216,070
Office expense 612,524 536,283
Amortization expense 608,423 508,051
Other 963,938 704,846
------- -------
Total operating expenses 13,653,133 11,967,842
---------- ----------
Income from continuing operations before income tax expense 1,025,480 711,844
Income tax expense 453,662 347,027
------- -------
Net income from continuing operations 571,818 364,817
------- -------
Discontinued operations (Note 9)
Loss from discontinued operations of Paragon division(less benefit from income taxes of
$78,587 in 2000) - (152,551)
Loss from discontinued operations of non-standard insurance division (less benefit from
income taxes of $193,000 in 2000) - (305,245)
Net income (loss) 571,818 (92,979)
Dividends on preferred stock 171,347 167,846
------- -------
Net income (loss) applicable to common shareholders $400,471 $(260,825)
======== ==========
Net income (loss) per common share--basic and diluted 0.06 (0.04)
From discontinued operations - (0.07)
From continuing operations 0.06 0.03
See accompanying notes to consolidated financial statements.
3
THE THAXTON GROUP, INC.
Consolidated Statements of Stockholders' Equity
Year Ended December 31, 2000 and Quarter Ended March 31, 2001
(Unaudited)
Additional Total
Common Preferred Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
----- ----- ------- -------- ------
Balance at December 31, 1999 $69,753 $10,104 $10,116,774 $(394,052) $9,802,579
-------- --------- -------------- ---------- ----------
Purchase and retirement of 974 shares of common stock (10) - (7,725) - (7,735)
Repurchase of 1,500 shares of Series A preferred stock - (1,500) (1,498,500) - (1,500,000)
Dividends paid on preferred stock - - - (723,885) (723,885)
Net loss - - - (3,811,549) (3,811,549)
-------- --------- -------------- ---------- ----------
Balance at December 31, 2000 $69,743 $8,604 $8,610,549 $(4,929,486) $3,759,410
-------- --------- -------------- ---------- ----------
Cancelled 135,000 shares of common stock (1,350) - 1,350 - -
Issued 20,000 shares of Series F preferred stock 200 199,800 - 200,000
Dividends paid on preferred stock - - - (171,347) (171,347)
Net income - - - 571,818 571,818
-------- --------- -------------- ---------- ----------
Balance at March 31, 2001 $68,393 $8,804 $8,811,699 $(4,529,015) $4,359,881
======== ========= ============== ========== ==========
See accompanying notes to consolidated financial statements.
4
THE THAXTON GROUP, INC.
Consolidated Statements of Cash Flows
Quarters ended March 31, 2001 and 2000
(Unaudited)
March 31, March 31,
---------- ---------
2001 2000
---- ----
Cash flows from operating activities:
Net income (loss) $571,818 $(92,979)
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for credit losses 2,974,833 3,125,557
Depreciation and amortization 1,008,436 930,602
Deferred taxes 484,898 198,122
Increase in accounts receivable 359,325 294,977
Decrease (increase) in other assets 892,736 (3,873,797)
Increase (decrease) in accrued interest payable and other liabilities (566,540) 1,055,247
--------- ---------
Net cash provided by operating activities 5,725,506 1,637,729
--------- ---------
Cash flows from investing activities:
Net decrease in finance receivables 12,517,479 11,010,077
Net capital expenditures for premises and equipment (110,499) (896,109)
Proceeds from sale of Thaxton RBE - 75,000
---------- ------
Net Cash provided by investing activities 12,406,980 10,188,968
---------- ----------
Cash flows from financing activities:
Notes payable to affiliates - (491,072)
Repurchase of common stock - (7,735)
Dividends paid (171,347) (167,846)
Net decrease in notes payable (20,336,579) (7,288,780)
Proceeds from sale of Thaxton RBE stock by Thaxton RBE - 2,000,000
Issuance (repurchase) of preferred stock 200,000 (1,500,000)
------- -----------
Net cash used by financing activities (20,307,926) (7,455,433)
------------ -----------
Net increase (decrease) in cash (2,175,440) 4,371,264
Cash at beginning of period 4,482,553 2,036,104
--------- ---------
Cash at end of period $2,307,113 $6,407,368
========== ==========
See accompanying notes to consolidated financial statements.
5
THE THAXTON GROUP, INC.
Notes to Consolidated Financial Statements
March 31, 2001 and December 31, 2000
(Unaudited)
(1) Summary of Significant Accounting Policies
- ---------------------------------------------------
The Thaxton Group, Inc. (the "Company") is incorporated under the laws of the
state of South Carolina. 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 North
and South Carolina. 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 owned by Thaxton Insurance
Group, Inc. ("Thaxton Insurance"), which was acquired by the Company in 1996.
The Company provides reinsurance through wholly owned subsidiaries, TICO
Reinsurance, Ltd. ("TRL"), Fitch National Reinsurance, Ltd., Soco Reinsurance,
Inc., and Thaxton Reinsurance, Inc. 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 March 31, 2001 and 2000, 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 three months and quarter ended March 31, 2001 are not
necessarily indicative of results to be expected for the entire fiscal year.
(2) Finance Receivables
- ----------------------------
Finance receivables consisted of the following at March 31, 2001 and December
31, 2000:
March 31, 2001 December 31, 2000
-------------- -----------------
Automobile Sales Contracts $29,963,465 $31,196,711
Direct Loans 149,471,124 163,337,432
Mortgage Loans 30,150,954 29,908,119
Premium Finance Contracts 8,540,975 7,527,689
Commercial Loans 3,454,177 3,935,945
--------- ---------
Total finance receivables 221,580,695 235,905,896
Unearned interest (35,611,551) (39,658,705)
Unearned insurance premiums, net (8,171,911) (8,190,021)
Dealer Holdback and Bulk purchase discount (647,025) (858,176)
Allowance for credit losses (11,365,942) (11,630,555)
Deferred Loan Cost, net 2,251,337 2,375,207
--------- ---------
Finance receivables, net $168,035,603 $177,943,646
============ ============
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
6
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 us on a loan-by-loan basis, typically at par. We 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 $16,391,814 and $647,025, respectively, at
March 31, 2001, and $18,204,448 and $858,176, respectively, at December 31,
2000.
At March 31, 2001, 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 5).
Changes in the allowance for credit losses for the quarters ended March 31, 2001
and 2000, and the years ended December 31, 2000 and 1999 are as follows:
March 31, December 31, March 31, December 31,
--------- ------------ --------- ------------
2001 2000 2000 1999
---- ---- ---- ----
Beginning balance $11,630,555 $10,661,339 $10,661,339 $4,710,829
Valuation allowance for acquired loans - 838,017 - 6,276,309
Provision for credit losses 2,974,833 14,657,930 3,124,571 11,937,679
Charge-offs (3,683,076) (16,052,319) (3,572,395) (13,461,390)
Recoveries 443,630 1,525,588 344,930 1,197,912
------- --------- ------- ---------
Net charge-offs (3,239,446) (14,526,731) (3,227,465) (12,263,478)
----------- ------------ ----------- ------------
Ending balance $11,365,942 $11,630,555 $10,558,445 $10,661,339
=========== =========== =========== ===========
Our loan portfolio primarily consists of short term loans, the majority of which
are originated or renewed during the current year. Accordingly, we estimate that
fair value of the finance receivables is not materially different from carrying
value.
(3) Premises and Equipment
- -------------------------------
A summary of premises and equipment at March 31, 2001 and December 31, 2000
follows:
March 31, December 31,
2001 2000
---- ----
Leasehold improvements $2,203,186 $2,159,214
Furniture and fixtures 2,791,310 2,721,965
Equipment and automobiles 7,594,003 7,658,183
--------- ---------
Total cost 12,588,499 12,539,362
Accumulated depreciation 7,794,117 7,527,506
--------- ---------
Net premises and equipment $4,794,382 $5,011,856
========== ==========
Depreciation expense was approximately $400,000 for the 1st quarter of 2001,
$390,000 the 1st quarter of 2000, and $1,538,000 for the year ended December 31,
2000.
(4) Intangible Assets
- --------------------------
7
Intangible assets consisted of the following at March 31, 2001 and December 31,
2000. Weighted average amortization periods are shown in parentheses.
March 31, December 31,
--------- ------------
2001 2000
---- ----
Covenants not to compete (5.5 years) $102,022 $102,022
Goodwill and purchase premium (22.7 years) 37,545,556 37,578,496
Insurance expirations (17.9 years) 1,890,301 1,890,301
--------- ---------
Total cost 39,537,879 39,570,819
Less accumulated amortization 5,294,750 4,758,261
--------- ---------
Intangible assets, net $34,243,129 $34,812,558
=========== ===========
The Company acquired the majority of the intangibles in connection with our
acquisition of FirstPlus Consumer Finance. Amortization expense was
approximately $569,000 for the 1st quarter of 2001, $508,000 for the 1st quarter
of 2000, and $2,174,000 for the year ended December 31, 2000.
(5) Notes Payable and Notes Payable to Affiliates
- ------------------------------------------------------
At March 31, 2001 and December 31, 2000, notes payable consisted of the
following:
March 31, December 31,
--------- ------------
2001 2000
---- ----
Senior Notes Payable/Lines of Credit $155,259,884 $178,278,386
Subordinated Notes payable to individuals with varying maturity
dates and rates ranging from 5 1/4% to 12% 54,455,650 51,721,405
Other subordinated notes payable to companies with varying
maturity dates and rates ranging from 4 1/4% to 10% 2,553,301 2,605,623
--------- ---------
Total notes payable $212,268,835 $232,605,414
============ ============
Our credit facility with FINOVA, as amended on April 4, 2001, comprises a term
loan of $23.8 million, and a revolving credit line used to finance consumer
receivables. Maximum borrowings under the revolving credit line are limited to
the lesser of $157 million, or 85% of eligible consumer finance receivables as
defined by the agreement.
Advances under the term loan accrue interest at the prime rate + 2%; advances
under the revolving credit line accrue interest at the prime rate + 1%. The
prime rate is the prime rate published by Citibank, N.A., or other money center
bank as FINOVA may select. The credit facility matures in 2004. The interest
rates are adjusted monthly to reflect fluctuations in the designated prime rate.
Accrued interest on borrowings is payable monthly.
The term loan amortizes with twenty-three equal monthly principal and interest
payments, beginning April 15, 2001, in the amount of $600,000, with the
remaining principal balance due one month thereafter.
Under the revolving credit facility, principal is due in full on the maturity
date and can be prepaid without penalty. Substantially all of our and our
subsidiaries' assets secure this revolving credit facility, which require us to
comply with restrictive covenants, including financial condition covenants. As
of December 31, 2000, the Company met all such requirements or obtained waivers
for any instances of non-compliance through the signing of the new agreement.
As of April 4, 2001, an additional $14.3 million was available under the terms
of the revolving credit line to borrow against existing collateral, with $19.0
million of total potential capacity available for borrowing against qualified
finance receivables generated in future periods. As of April 4, 2001, the
interest rates for borrowings were 9% for the revolving credit line, and 10% for
the term loan.
In connection with the FirstPlus acquisition, the Company assumed $2.2 million
of subordinated notes issued by Voyager Insurance Co. In November 1999, those
notes were cancelled and re-issued in the name of the Company.
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
8
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 5.25% to 8.0%. Approximately $54.5 million at March 31, 2001, and $51.7
million in notes were outstanding at December 31, 2000, and are reflected as
notes payable to individuals.
(6) Preferred Stock
- ------------------------
In March 2001, the Company, through a private placement, issued 10,000 shares of
Cumulative Series F preferred stock for $10 per share, to C.L. Thaxton, a
director of the Company. The stock pays a dividend rate of 10% and is redeemable
by the Company at any time at a price of $10 per share.
(7) Earnings Per Share Information
- ---------------------------------------
The following is a summary of the earnings per share calculation for the
quarters ended March 31, 2001 and 2000, and the year ended December 31, 2000:
March 31, December 31, March 31, December 31,
--------- ------------ --------- ------------
2001 2000 2000 1999
---- ---- ---- ----
BASIC & DILUTED
Net income (loss) from continuing operations $571,818 $(396,640) $364,817 $1,287,574
Less: Dividends on preferred stock 171,347 723,886 167,846 734,012
------- ------- ------- -------
Net income (loss) applicable to common shareholders (numerator) 400,471 (1,120,526) 196,971 553,562
Average common shares outstanding (denominator) 6,940,605 6,974,508 6,975,006 6,494,438
Income (loss) per share from continuing operations - basic and diluted $0.06 $(0.16) $0.03 $0.09
===== ======= ===== =====
The earnings per share calculation does not include 10,440 shares of Preferred
Series A and 50,000 shares of Preferred Series C stock, which are convertible to
common shares, because the effect is anti-dilutive.
(8) Business Segments
- --------------------------
For the year ended December 31, 1998, the Company 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 non-standard 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 were conducted through Paragon, a
wholly-owned subsidiary acquired in November 1998. Paragon originated, closed,
and funded predominantly B and C credit quality mortgage loans, which were
warehoused until they could be packaged and sold to long term investors. Paragon
received fee income from originating mortgages and the loans were generally sold
at a premium to the permanent investor. The Company's insurance 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 company for which business is placed.
Insurance non-standard risk bearing consisted of selling non-standard automobile
insurance, through agencies, where the Company retained a portion of the
insurance risk
9
The following table summarizes certain financial information concerning the
Company's reportable operating segments for the quarter ended March 31, 2001,
and the year ended December 31, 2000:
Consumer
--------
Finance Insurance Other Total
------- --------- ----- -----
March 31, 2001
Income Statement Data
Total Revenue $21,813,902 $1,224,172 $250,192 $23,288,266
Net Interest Income 12,942,765 (204,665) 156,390 12,894,490
Provision for credit losses 2,962,732 2,101 10,000 2,974,833
Noninterest income 3,534,784 1,224,172 - 4,758,956
Insurance premiums and
commissions, net 2,653,518 906,058 - 3,559,576
Noninterest expenses 12,384,914 1,129,287 138,932 13,653,133
Depreciation and amortization 920,246 82,881 5,309 1,008,436
Net income 632,752 (72,455) 11,521 571,818
Balance Sheet Data
Total assets 221,766,896 3,594,287 3,324,555 228,685,738
Loans, net 164,716,426 - 3,319,177 168,035,603
Allowance for credit losses 11,230,942 - 135,000 11,365,942
Intangibles 32,821,493 1,421,636 - 34,243,129
Consumer Insurance Mortgage
--------- ------------- --------
Finance Insurance Other Total RBE Banking Total
------- --------- ----- ----- --- ------- -----
December 31, 2000 Continuing (Discontinued (Discontinued
Income Statement Data Operations Operations) Operations)
Total Revenue $79,536,374 $4,284,716 $1,060,693 $84,881,783 $1,875,013 $5,733,973 $92,490,769
Net Interest Income 44,823,340 (841,657) 671,132 44,652,815 (91,038) 87,853 44,649,630
Provision for credit losses 14,517,240 - 140,690 14,657,930 3,265 1,278,938 15,940,133
Noninterest income 14,982,787 4,284,716 - 19,267,503 1,875,013 4,424,051 25,566,567
Insurance premiums and
commissions, net 12,559,586 3,718,756 - 16,278,342 1,836,695 - 18,115,037
Noninterest expenses 43,772,059 4,885,507 451,462 49,109,028 2,478,255 8,778,129 60,365,412
Depreciation and amortization 3,331,621 360,225 19,619 3,711,465 148,726 1,448,554 5,308,745
Net income (83,428) (365,339) 52,127 (396,640) (374,682) (3,040,226) (3,811,549)
Balance Sheet Data
Total assets 232,693,388 4,087,249 3,786,310 240,566,947 - 6,981,166 247,548,113
Loans, net 174,132,701 - 3,810,945 177,943,646 - 5,558,974 183,502,620
Allowance for credit losses 11,505,555 - 125,000 11,630,555 - 1,278,938 12,909,493
Intangibles 33,346,575 1,465,983 - 34,812,558 - - 34,812,558
10
(9) Discontinued Operations
- --------------------------------
In December 2000, the Board of Directors adopted a plan to discontinue
operations in the Mortgage Banking market place. Paragon ceased operations in
December of 2000, and its assets have either been sold, or are being held for
ultimate sale or disposal.
The components of the assets and liabilities of discontinued operations in the
consolidated balance sheets as of March 31, 2001 and December 31, 2000 are as
follows:
Paragon
-------
March 31, December 31,
--------- ------------
2001 2000
----- ----
(1)Assets
Accounts receivable............. $----- $8,526
Loans held for Sale ----- 6,837,912
Allowance for credit losses..... ----- (1,278,938)
Premises and equipment, net..... ----- 72,040
Intangibles, net................ -------- ----------
Other assets.................... ----- 1,341,626
-------- ----------
Total assets of discontinued operations. $----- $6,981,166
======== ==========
Liabilities
Accounts payable................ $----- $2,762
Other liabilities............... $166,000 373,881
-------- -------
Total liabilities of discontinued operations $166,000 $376,643
======== ========
Paragon
-------
2001 2000
---- ----
(2) Premises and Equipment
Leasehold improvements.................. $7,000 $7,000
Furniture and fixtures.................. 126,368 126,368
Equipment and automobiles............... 73,704 73,704
------ ------
Total cost...................... 207,072 207,072
Accumulated depreciation................ 207,072 135,032
------- -------
Net premises and equipment...... $----- $72,040
====== =======
(10) Related Party Balances
- -------------------------------
During the quarter ended March 31, 2001, the Company billed RBE approximately
$375,000 for services performed. Furthermore, RBE and the Company continued to
share common office space after the disposition and maintained a combined cash
management arrangement. Due to these arrangements the Company had both a payable
to RBE of approximately $2.6 million as well as a receivable from RBE for
approximately $600,000 at March 31, 2001.
At 03/31/01, there were approximately $2.2 million in outstanding premium
finance receivables recorded by TICO Premium Finance that relate to insurance
policies underwritten by RBE. In addition, for the quarter ended March 31, 2001,
there were approximately $84,000 of reimbursements from RBE to TICO Premium
Finance for losses incurred by TICO Premium Finance. TICO Premium Finance had a
receivable from RBE of approximately $58,000 at 03/31/01 for additional
reimbursements for losses incurred.
During the quarter ended March 31, 2001 there was approximately $12,000 of
insurance commissions recognized by Thaxton Insurance Group on non-standard
insurance policies that were issued through Thaxton Insurance Group as agent.
11
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, we made a strategic decision to diversify our portfolio by
actively seeking to finance credit-impaired borrowers' purchases of used
automobiles. Our management believed that the expertise it had developed in
extending and servicing installment credit to credit-impaired borrowers would
enable it to profitably finance used automobile purchases by borrowers having
similar credit profiles. The employment of additional senior and mid-level
management personnel with substantial used automobile lending experience
facilitated our entry into this segment of the consumer credit industry. Since
1991, we have evolved into a diversified consumer financial services company
engaged in the origination and servicing of loans made to credit-impaired
borrowers; used automobile lending through the purchase and servicing of used
automobile sales contracts ("Automobile Sales Contracts"); insurance premium
finance lending through the purchase of insurance premium finance contracts
("Premium Finance Contracts"); and selling insurance products on an agency
basis.
The Company operates its finance businesses in South Carolina, North Carolina,
Georgia, Tennessee, Virginia, Kentucky, Alabama, Mississippi, Ohio, Oklahoma and
Texas. It operates its insurance businesses in South Carolina and North
Carolina.
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
non-prime borrowers. 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.
12
NET INTEREST MARGIN
The following table presents important data relating to our net interest margin
for the quarters ended March 31, 2001 & 2000 and the years ended December 31,
2000 & 1999.
March 31, December 31, March 31, December 31,
-------- ----------- -------- -----------
2001 2000 2000 1999
---- ---- ---- ----
Average Net Finance Receivables (1) $186,062,762 $169,390,119 $160,384,572 $162,784,651
Average notes payable(1) 222,418,878 200,221,483 204,063,360 191,663,621
Interest and fee income (2) 18,529,310 65,614,280 16,060,814 59,140,308
Interest expense (3) 5,634,820 20,124,545 4,695,534 17,146,411
--------- ---------- --------- ----------
Net interest income 12,894,490 45,489,735 11,365,280 41,993,897
Average interest rate earned(1) 39.83% 38.74% 40.06% 36.33%
Average interest rate paid(1) 10.13% 10.05% 9.20% 8.95%
------ ------ ----- -----
Net interest rate spread 29.70% 28.69% 30.86% 27.38%
Net interest margin(4) 27.72% 26.86% 28.35% 25.80%
(1) Averages are computed using month-end balances during the year presented
(2) Excludes interest and fee income earned by Thaxton Insurance.
(3) Excludes interest expense paid on Thaxton Insurance related debt.
(4) Net interest margin represents net interest income divided by average Net Finance Receivables.
Results of Operations for the Three Months Ended March 31, 2001 and 2000
For the three months ended we incurred the normal liquidation of the loans we
added during the fourth quarter of the previous year. Our gross finance
receivables declined by $14,325,000 to $221,581,000 since December 31, 2000.
Comparatively in 2000 for the same period our gross receivables declined
$14,430,000 to $198,740,000. This is due to our normal business activity of our
customers paying off the loans they took out during the 4th quarter of the
previous year.
Our net finance receivables as of March 31, 2001 were $168,036,000 compared to
$151,740,000 as of March 31, 2000, an increase of 10.7%. This increase is due to
the addition of approximately $10 million of loans associated with the Quick
Credit purchase during 2000 and growth of our current portfolio.
Due to this increase in our receivables our interest income increased to
$18,529,000 for the current period from $16,061,000 for the same period last
year. Our interest expense also increased this year to $5,635,000 from
$4,696,000 in the prior period. This increase was 55% due to the volume of our
loans increasing and 45% due to our interest rate increasing. The majority of
our interest is variable, based on the Prime Rate, during the quarter the prime
rate decreased significantly, however, the effect of this decrease will not be
seen until the second quarter of 2001.
As to be expected with overall business growth our operating expenses also
increased from $11,968,000 in 2000 to $13,653,000 in 2001 or 14%. This increase
is related to normal growth of our business and an increase in salaries from the
prior year.
Due to our revenues growth outpacing our expense growth our pretax income from
continuing operations increased significantly from $365,000 in the 1st quarter
of 2000 to $572,000 in 2001. The aforementioned reasons contributed to this
increase.
The income along with the issuance of Series F Preferred Stock during the
quarter, our stockholders equity increased to $4,360,000 from $3,759,000 at year
end.
13
CREDIT LOSS EXPERIENCE
The following table sets forth our allowance for credit losses and credit loss
experience at or over the periods presented.
March 31, December 31,
---------- ------------
2001 2000
---- ----
Net finance receivables (1) $175,947,368 $185,638,256
Allowance for credit losses 11,365,942 11,630,555
Allowance for credit losses as a percentage of net finance receivables (1) 6.46% 6.27%
Dealer reserves and discounts on bulk purchases 647,025 858,176
Dealer reserves and discounts on bulk purchases as percentage of Net Automobile Sales
Contracts at period end 2.55% 3.38%
Allowance for credit losses and dealer reserves and discount on bulk purchases (2) 12,012,967 12,488,731
Allowance for credit losses and dealer reserves as a percentage of finance receivables 6.83% 6.73%
Provision for credit losses 2,974,833 14,657,930
Charge-offs (net of recoveries) 3,239,446 14,526,731
Charge-offs (net of recoveries) as a percentage of average net finance receivables (3) 7.36% 7.83%
(1) Net finance receivable balances are presented net of unearned finance
charges, net unearned insurance premiums, dealer holdbacks and bulk
purchase discounts, deferred loan costs, and exclude mortgage warehoused
loans and commercial finance receivables.
(2) Excludes valuation discount for acquired loans
(3) March 31, 2001 is annualized for comparison purpose.
The following table sets forth certain information concerning our premium
finance contracts at the end of the periods indicated:
At March 31, At December 31,
------------ ---------------
2001 2000
---- ----
Premium finance contracts contractually past due 60 days or more(1) $848,350 $1,001,108
Premium finance contracts outstanding(1) 8,310,787 7,355,818
Premium finance contracts contractually past due 60 days or more as a percentage of
premium finance contracts 10.21% 13.61%
(1)FINANCE RECEIVABLE BALANCES ARE PRESENTED NET OF UNEARNED FINANCE CHARGES.
LIQUIDITY AND CAPITAL RESOURCES
We generally finance our operations through cash flow from operations and
borrowings under revolving credit facilities with FINOVA Capital Corporation
("FINOVA") and the sale of subordinated notes.
Our credit facility with FINOVA, as amended on April 4, 2001, comprises a term
loan of $23.8 million, and a revolving credit line used to finance consumer
receivables. Maximum borrowings under the revolving credit line are limited to
the lesser of $157 million, or 85% of eligible consumer finance receivables as
defined by the agreement.
Advances under the term loan accrue interest at the prime rate + 2%; advances
under the revolving credit line accrue interest at the prime rate + 1%. The
prime rate is the prime rate published by Citibank, N.A., or other money center
bank as FINOVA may select. The credit facility matures in 2004. The interest
rates are adjusted monthly to reflect fluctuations in the designated prime rate.
Accrued interest on borrowings is payable monthly. Under this facility,
principal is due in full on the maturity date and can be prepaid without
penalty. Substantially all of our and our subsidiaries' assets secure this
revolving credit facility, which require us to comply with restrictive
covenants, including financial condition covenants.
As of April 4, 2001, the first day of the revised facility, $23,850,000 was
outstanding on our term loan. This loan amortizes with twenty-three equal
monthly principal and interest payments of $600,000, with the remaining
principal balance due one month thereafter.
As of April 4, 2001, $138.0 million was outstanding under our revolving credit
line. An additional $14.3 million was available under the terms of this
agreement to borrow against existing collateral, with $19.0 million of total
potential capacity available for borrowing against qualified finance receivables
generated in future periods. As of April 4, 2001, the interest rates for
borrowings were 9% for the revolving credit line, and 10% for the term loan.
FINOVA has filed for Chapter 11 protection under the US Bankruptcy laws.
Currently, a plan is before the bankruptcy trustee which provides for the
orderly takeover of control of the company by a joint venture company owned by
Berkshire Hathaway Inc., and
14
Leucadia National Corporation. As noted above, our lending facility has just
been amended, and our contract expiration date of 2004 been re-confirmed. All
indications are that the plan will be accepted, and an orderly transition of
ownership will be in place.
Beginning in March 1998, we registered under the Securities Act of 1933, as
amended, a continuous offering of up to $50 million of subordinated notes which
are sold primarily to individual investors in South Carolina, Ohio, and North
Carolina. The maturities of the notes range from a daily (or demand) note to a
sixty month note. Interest rates vary in accordance with the fixed rates offered
by us from time to time. The notes are currently offered at rates ranging from
6.5% to 7.75%. As of March 31, 2001, approximately $54.5 million of notes were
outstanding, all of which were issued under this federal registration or under
predecessor intra-state offerings of subordinated notes. The net proceeds from
the sale of these notes are used to temporarily reduce the borrowings under our
credit facilities under our credit facilities with FINOVA.
In connection with the FirstPlus acquisition, we assumed $2.2 million of
subordinated notes issued by Voyager Insurance Co. In November 1999, those notes
were cancelled and re-issued in our name.
Management believes that the maximum borrowings available under our credit
facilities with FINOVA, the net proceeds from the continued sale of subordinated
notes, together with cash expected to be generated from operations, will provide
the resources necessary to fund our liquidity and capital needs through 2001.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's outstanding debt under the Revolving Credit Facility and Term Loan
was $155.3 million at March 31, 2001. Interest on borrowings under these
facilities is based on the prime rate. Based on the outstanding balance at March
31, 2001, a change of 1% in the prime interest rate would cause a change in
interest expense of approximately $1,553,000 on an annual basis.
15
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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.
THE THAXTON GROUP, INC.
-----------------------
(Registrant)
Date: May 15, 2001 By:/s/ JAMES D. THAXTON
-----------------------
James D. Thaxton
President and Chief Executive Officer
Date: May 15, 2001 By:/s/ ALLAN F. ROSS
--------------------
Allan F. Ross
Vice President, Treasurer, Secretary, and
Chief Financial Officer
16