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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(MARK ONE)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
( ) TRANSITION REPORT UNDER 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.
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(Name of small business issuer in its charter)
SOUTH CAROLINA 57-0669498
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1524 PAGELAND HIGHWAY, LANCASTER, SOUTH CAROLINA 29720
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(Address of principal executive offices)
Issuer's telephone number: 803-285-4337
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered under Section 12(g) of the exchange Act:
Title of each class
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None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 __
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-KSB or any amendment to
this Form 10-KSB. (X)
State issuer's revenues for its most recent fiscal year. $83,156,719
- --------------------------------------------------------------------
At March 22, 2000, there were 6,974,796 shares of common stock outstanding. The
aggregate market value of the shares held by non-affiliates of the registrant,
based upon the price at which the stock was sold on March 7, 2000, is
approximately $3,217,210.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
THE THAXTON GROUP, INC.
FORM 10-KSB
TABLE OF CONTENTS
Item
No. Page
- ----- ----
PART I
1. Description of Business 2
2. Description of Property 5
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security Holders 5
PART II
5. Market for Common Equity and Related Stockholder Matters 5
6. Management's Discussion and Analysis 6
7. Financial Statements 13
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 28
PART III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 29
10. Executive Compensation 30
11. Security Ownership of Certain Beneficial Owners and Management 30
12. Certain Relationships and Related Transactions 30
13. Exhibits and Reports on Form 8-K 32
1
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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"); selling insurance products on an agency basis;
and originating residential mortgage loans.
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, North Carolina,
Virginia, Arizona, New Mexico, Colorado, and Nevada.
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.
DIRECT LOANS PROGRAM
2
The Company has been in the business of making Direct Loans to Non-prime
Borrowers since 1985. Direct Loans are typically sought by such borrowers to
meet short-term cash needs, finance the purchase of consumer goods or refinance
existing indebtedness. Generally, less than 10% of Direct Loans are secured by
first or second liens on real property. The remainder are secured by personal
property or are unsecured. The typical original term on a Direct Loan is 12 to
24 months.
In connection with making Direct Loans, the Company also offers, as agent,
credit life and credit accident and health insurance on terms and conditions
similar to those on which it sells such credit insurance in conjunction with the
purchase of Automobile Sales Contracts. On all Direct Loans that are secured by
personal property other than a used car, the Company, in lieu of filing
financing statements to perfect its security interest in the collateral,
purchases non-filing insurance from an unaffiliated insurer. The Company charges
its customers on such loans an amount approximately equal to the filing fees
that would have been charged to the customer if the Company had filed financing
statements to perfect its security interest, which amount is typically included
in the amount of the loan. The Company uses such amount to pay premiums for
non-filing insurance against losses resulting from failure to file. Under the
Company's non-filing insurance arrangements, approximately 90% of the premiums
paid are refunded to the Company on a quarterly basis and are netted against
charge-offs for the period.
AUTOMOBILE SALES FINANCE PROGRAM
AUTOMOBILE SALES CONTRACT PURCHASES. The Company engages in relationships with
independent dealers, where upon consummation of the sale of an automobile to a
borrower, the dealer delivers all required documentation to the Company's
office. The required documentation includes the executed Automobile Sales
Contract, proof of title indicating the Company's lien, an odometer statement
confirming the vehicle's mileage, proof that the automobile is insured with the
Company designated as loss payee and any supporting documentation the Company
specified in its conditional approval of the purchase. Only when compliance with
these requirements is verified, does the Company remit funds to the dealer.
BULK PURCHASES OF AUTOMOBILE SALES CONTRACTS. From time to time the Company
purchases Automobile Sales Contracts in bulk from dealers who have originated
and accumulated contracts over a period of time. By doing so, the Company is
able to obtain large volumes of Automobile Sales Contracts in a cost-effective
manner. The Company applies underwriting standards in purchasing Automobile
Sales Contracts that take into account principally the borrowers' payment
history and the collateral value of the automobiles financed. Such purchases are
typically made at discounts ranging from 25% to 50% of the financed portion of
the Automobile Sales Contracts. There generally are no dealer reserve
arrangements on bulk purchases. In connection with such bulk purchases, the
Company reviews all credit evaluation information collected by the dealer and
reviews the servicing and collection history of the Automobile Sales Contracts
and obtains the required supporting documents.
SALES OF INSURANCE PRODUCTS IN FINANCE OFFICES. In connection with the
origination of Automobile Sales Contracts, the Company offers, as agent, credit
life, and credit accident and health insurance. Borrowers under Automobile Sales
Contracts and Direct Loans secured by automobiles generally must obtain
comprehensive collision insurance on the automobile that designates the Company
as loss payee. If the borrower allows such insurance to lapse during the term of
the contract or loan, the Company will purchase a vendors' single interest
insurance policy, which insures the Company against a total loss on the
automobile, and add the cost of the premium to the borrower's account balance.
The Company also offers, as agent, limited physical damage insurance, which
satisfies the requirement that the borrower purchase comprehensive collision
insurance. Limited physical damage insurance is a modified form of collision
insurance that will pay the borrower or the Company the lesser of (i) the cost
of repairs, less a designated deductible amount, (ii) the actual cash value of
the automobile, less a designated deductible amount or (iii) the net unpaid
contract or loan balance, less any delinquent payments. The Company receives
commissions on the sales of insurance equal to 20% of the premiums on credit
life and credit accident and health insurance and 25% of the premiums on limited
physical damage coverage.
PREMIUM FINANCE
The Company is engaged in the business of providing short-term financing of
insurance premiums, primarily for personal lines of insurance such as automobile
insurance purchased by Non-prime Borrowers, indirectly through independent
insurance agents. Most agents who refer premium finance business to the Company
are located in North Carolina, South Carolina, and Virginia and represent
insurance companies that either have a rating of C+ or better from A.M. Best &
Company or participate in state-guaranteed reinsurance facilities. A small
amount of the Company's business involves financing premiums for commercial
lines of insurance for small businesses, including property and casualty,
business automobile, general liability, and workers' compensation.
The typical term of a Premium Finance Contract ranges from three to eight months
depending primarily upon the term of the underlying insurance policy, which in
most cases is six months but in some cases may be as long as 12 months. The
required down payment generally ranges from 20% to 50% of the premium depending
upon the state in which the insured resides, the term of the underlying
insurance contract, the identity of the referring agency and the insured's
financial circumstances. The smaller the down payment by the customer on a
Premium Finance Contract (and the resulting higher original principal balance of
the loan), the greater
3
the Company's risk that the amount of the unearned premium at the time of a
payment default will not be sufficient to cover the unpaid principal balance of
the loan. Conversely, the higher the down payment (and the resulting lower
original principal balance of the loan), the lower the Company's risk of loss in
the event of a payment default.
NON STANDARD AUTOMOBILE INSURANCE AGENCY OPERATIONS
In 1998, The Company began a program where it sells, on an agency basis,
automobile insurance to the non-standard market. Generally, non-standard drivers
are underwritten to a higher premium because of an unsatisfactory driving
record, or because of a credit-impaired record. The Company has entered into a
contractual arrangement with a licensed insurance carrier where The Company pays
a fee to the carrier for each policy written, retains the remainder of the
premiums paid, and retains the underwriting risk of the policy. The Company only
writes minimum limit policies under this arrangement. The Company has invested
significant sums in specialized insurance software, which allows for operating
efficiencies by underwriting and issuing each policy at the point of sale.
INSURANCE AGENCY OPERATIONS
The Company sells, on an agency basis, various lines of automobile, property and
casualty, life, and accident and health insurance. The Company does not assume
any underwriting risk in connection with its insurance agency activities. All
underwriting risk is assumed by the insurance companies represented by the
Company. The Company is paid a commission by the insurance company for which
business is placed. On some policies, the Company is eligible for additional
commission payments (profit sharing) if the loss experience on the business
falls below specified levels.
MORTGAGE BANKING OPERATIONS
The Company owns a mortgage banking firm which operates under the name of
Paragon Lending. Paragon originates, closes, and funds predominately B and C
credit quality mortgage loans. The loans are held by Paragon until they can be
packaged and sold to long term investors. Paragon receives fee income from the
mortgagee, and loans are generally sold at a premium ranging from 1% to 5% to
the permanent investor. The amount of premium is dependent upon the credit
quality of the customer, the attributes of the particular loan, and market
conditions.
COMPETITION
The non-prime consumer credit market for used automobile finance and personal
loans is highly competitive and fragmented. Historically, commercial banks,
savings and loans, credit unions, financing arms of automobile manufacturers and
other lenders providing traditional consumer financing have not consistently
served the non-prime segment of the consumer finance market. The Company faces
increasing competition from a number of companies providing similar financing to
individuals that cannot qualify for traditional financing. The Company competes
with numerous small, regional consumer finance companies. The basis on which the
Company competes with others in used car financing is primarily the price paid
for Automobile Sales Contracts, which is a function of the amount of the dealer
reserve, and the reliability of service to participating dealers. The basis on
which the Company competes with others in making Direct Loans is the interest
rate charged and customer service.
The premium finance business, particularly for personal lines of insurance, also
is highly fragmented and competitive. Because interest rates are highly
regulated, competition is primarily on the basis of customer service, response
time, and the required amount of down payment. There are numerous independent
finance companies specializing in premium finance for personal lines of
insurance. In addition, many independent insurance agencies finance premiums for
their customers either directly or through an affiliate. Some bank holding
companies have subsidiaries that finance premiums on insurance sold by other
subsidiaries of the holding company as well as by independent agents.
Competition among independent insurance agencies 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 insurance
companies located in some of the Company's 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 virtually all types
of insurance products.
The origination of residential mortgages for Non-prime Borrowers is highly
competitive and the number of companies engaged in the business is increasing
rapidly. The basis on which the Company competes with others in the Mortgage
business is in the level of service provided to the borrower, the speed at which
the loan can be closed and funded, and the interest rate offered.
REGULATION
Consumer finance companies and mortgage banking companies are subject to
extensive supervision and regulation under state and federal statutes and
regulations. Depending upon the nature of the transactions entered into by the
company and the states in which it does business, governmental statutes and
regulations may require the lender to obtain licenses and meet specified minimum
qualifications, limit the interest rates, fees and other charges for which the
borrower may be assessed, limit or prescribe certain other terms and conditions
of the financing, govern the sale and terms of related insurance products, and
define and limit the right to repossess or foreclose and sell collateral.
The Company also is subject to state statutes and regulations governing
insurance agents in connection with sales of credit and other insurance. These
provisions may require that officers and employees involved in the sale of
insurance products be licensed, govern the commissions that may be paid to
agents in connection with the sale of credit insurance, and limit the premium
amount charged for
4
insurance.
Management believes the Company operates in substantial compliance with all
applicable statutes and regulations relevant to its consumer finance and
insurance agency activities and that Automobile Sales Contracts purchased
individually or in bulk have been originated in compliance with these
provisions. Violations of the provisions described above may result in private
actions for damages, claims for refunds of payments made, certain fines and
penalties, injunctions against prohibited practices, the potential forfeiture of
rights to repayment of loans, and the revocation of licenses granted by state
regulatory authorities. Adverse changes in the statutes and regulations to which
the Company's business is subject, or in the enforcement or interpretation
thereof, could have a material adverse effect on the Company's business.
Moreover, a reduction in the existing statutory maximum rates or the imposition
of maximum rates below those presently charged by the Company in unregulated
jurisdictions would directly impair the Company's profitability.
EMPLOYEES
As of December 31, 1999, the Company employed 1,181 persons, none of whom was
covered by a collective bargaining agreement. Of that total, 58 were located in
the Company's headquarters in Lancaster, South Carolina and 1,123 were located
in the Company's other offices. The Company generally considers its
relationships with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices are located in Lancaster, South Carolina in a
leased office facility of approximately 12,000 square feet. The lease expires in
October 2000, but includes an option to renew for an additional five-year term.
The Company leases the facilities, in some instances from affiliates, in which
its branch offices are located. These offices range in size from approximately
800 square feet to 2,200 square feet, and are under leases expiring on dates
ranging from April 2000 to September 2009, most of which include renewal options
for periods ranging from two to five years. The monthly rental rates for such
offices range from $165 to $10,265 per month. Since most of the Company's
business with dealers is conducted by facsimile machine and telephone, the
Company does not believe that the particular locations of its finance offices
are critical to its business of purchasing Automobile Sales Contracts or its
premium finance operations. Location is somewhat more important for the
Company's Direct Loan and insurance agency operations. However, other
satisfactory locations are generally available for lease at comparable rates and
for comparable terms in each locality served by the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company presently is not a party to any material legal proceedings nor is it
aware of any material threatened litigation against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Due to the relatively small number of shares held by non-affiliates of the
Company, there is no active and liquid trading market for the Company's common
stock. At March 21, 2000, there were 158 shareholders of record based upon
information provided to the Company. The following table presents high and low
bid information for the common stock during the periods indicated. These
quotations reflect prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
As more than 90% of the shares outstanding are owned by the majority
shareholder, there is no traditional public market for the stock. In recognition
of this, the Company instituted a program in the fourth quarter of 1998 where it
would repurchase shares from non-affiliated shareholders at a price of $10 per
share. This price was set to allow non-affiliated shareholders to redeem their
investment at their approximate inflation adjusted basis at the time of the
Company's initial public offering. The trades listed below reflect those
repurchases.
High Low
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First Quarter 1998 8.13 7.68
Second Quarter 1998 7.80 7.70
Third Quarter 1998 8.27 7.63
5
Fourth Quarter 1998 10.00 7.15
First Quarter 1999 10.00 10.00
Second Quarter 1999 10.00 10.00
Third Quarter 1999 10.00 10.00
Fourth Quarter 1999 10.00 10.00
The Company has not paid any dividends on common stock during the past three
years. At the present time, there are no plans to pay any cash dividends on
common stock. The Revolving Credit Facility restricts the Company from paying
any cash dividends in excess of 25% of net income for the year.
On November 8, 1999, pursuant to the terms of the Plan of Share Exchange
Agreement dated as of September 30, 1999 among the Company, Thaxton Investment
Corporation ("TIC"), Thaxton Operating Company, Mr. James D. Thaxton, the sole
shareholder of TIC, transferred all of his shares of common stock of TIC to the
Company in exchange for 3,223,000 shares of common stock of the Company. The
Company's management estimated that the aggregate fair market value of the
common stock issued to Mr. Thaxton at approximately $30 million. For more
information, see Item 6, Management's Discussion and Analysis of Financial
Condition and Results of Operations--Historical Developments, Growth and Trends.
This transaction was not registered under the Securities Act of 1933, as amended
(the "Act"), pursuant to the exemption from such registration provided by
Section 4 (2) of the Act for transactions not involving any public offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
HISTORICAL DEVELOPMENT, GROWTH AND TRENDS
Prior to 1991, the Company primarily was engaged in making and servicing direct
consumer and insurance premium finance loans to 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 by Non-prime
Borrowers. Management believed that the expertise it had developed in extending
and servicing installment credit to Non-prime Borrowers would enable it to
profitably finance used automobile purchases by borrowers having similar credit
profiles. The Company facilitated its entry into this segment of the consumer
credit industry by engaging additional senior and mid-level management personnel
with substantial used automobile lending experience. Since 1991, the Company has
evolved into a diversified consumer financial services company engaged in used
automobile lending through the purchase and servicing of Automobile Sales
Contracts, the origination and servicing of Direct Loans and Premium Finance
Contracts, selling insurance products on an agency basis and originating
residential mortgage loans. Additionally, in 1998 the Company entered the
commercial lending business, and engages in factoring and secured commercial
lending for small and medium size businesses.
RECENT EXPANSION ACTIVITIES
1998 Acquisitions. Our business significantly expanded in 1998 with the
addition of our commercial finance business and with the growth of our consumer
finance, insurance agency and mortgage brokerage businesses. A wholly-owned
subsidiary, Thaxton Commercial Lending, Inc., began our commercial finance
business, which consists of making factoring and secured commercial loans to
small and medium-sized businesses. We also increased the size of our consumer
finance business in 1998 with the opening of consumer finance offices in
Charlotte, North Carolina, Beaufort, South Carolina and the acquisition of
Budget Financial Service, Inc.'s consumer finance offices in Amory and Aberdeen,
Mississippi and in Vernon and Hamilton, Alabama. The territory within which we
sell insurance products on an agency basis was significantly enlarged in 1998
with Thaxton Insurance's acquisition of twenty-two non-standard insurance agency
offices located in three southwestern states - Arizona, Nevada, and New
6
Mexico. Finally, the growth of our business in 1998 was completed with the
acquisition of Paragon, Inc. in November of that year. Paragon is a mortgage
banking company engaged in the origination, funding, and whole loan sale of
primarily "B" and "C" credit quality residential mortgages.
1999 Acquisitions. On February 1, 1999, the Company's CEO and majority
shareholder purchased approximately 144 consumer finance offices from FirstPlus
Consumer Finance, Inc., and operated those offices in 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.
In March 1999, Thaxton Insurance, Inc. acquired four insurance agencies
operating in both Arizona and Colorado. The acquired insurance agencies sell
non-standard auto insurance. In June 1999, the Company acquired U. S. Financial
Group Agency, Inc., a wholesale insurance agency located in Richmond Virginia.
With the addition of ten branch offices from these acquisitions, Thaxton
Insurance, Inc. now operates 34 insurance agency branch offices within seven
states.
The following table sets forth certain information with regard to growth in the
Company's finance receivable portfolio.
Year Ended December 31,
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1999 1998
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AUTOMOBILE SALES CONTRACTS
Total balance at year end, net (1) $26,870,193 $27,774,997
Average account balance at year end 3,352 3,190
Interest income for the year 7,928,282 8,112,770
Average interest rate earned 25.32% 24.71%
Number of accounts at year end 8,017 8,708
DIRECT LOANS
Total balance at year end, net (1) $116,219,740 $24,391,966
Average account balance at year end 680 2,604
Interest income for the year 38,227,767 4,378,825
Average interest rate earned 35.50% 27.45%
Number of accounts at year end 171,028 9,367
PREMIUM FINANCE CONTRACTS
Total balance at year end, net (1) $8,029,703 $3,228,160
Average account balance at year end 285 286
Interest income for the year 1,691,469 733,477
Average interest rate earned 25.19% 18.46%
Number of accounts at year end 29,298 11,288
(1) Finance receivable balances are presented net of unearned finance
charges, dealer reserves on Automobile Sales Contracts and discounts on
bulk purchases ("Net Finance Receivables").
Management believes the best opportunities for continued growth in the
Company's Automobile Sales Contract and Direct Loan portfolios lie in the
opening or acquisition of new finance offices in small to medium-sized markets
in the states where the Company presently operates and contiguous states that
management believes to be under served by its competitors. The Company added
six additional offices in 1998 (two offices were opened, and four were added
through acquisition), and acquired 144 offices via a purchase in 1999. While
there are certain risks associated with such expansion, management believes
that its ability to identify and retain finance office management personnel
having established relationships with local independent dealers, its expertise
in extending and servicing credit to Non-prime Borrowers, and other factors
will enable it to manage anticipated growth in its finance office network and
in its Automobile Sales Contract and Direct Loan portfolios. The Company also
periodically may make bulk purchases of Automobile Sales Contracts if such
purchases are deemed beneficial to the Company's competitive position and
portfolio mix and will seek opportunities to expand its network of insurance
offices primarily through the acquisition of independent insurance agencies.
NET INTEREST MARGIN
The following table sets forth certain data relating to the Company's net
interest margin for the years ended December 31, 1999 and 1998.
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1999 1998
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Average Net Finance Receivables (1) $178,630,026 $52,919,907
Average notes payable(1) $191,663,621 $47,095,575
Interest and fee income (2) 60,073,689 15,727,484
Interest expense (3) 17,549,804 4,366,757
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Net interest income 42,523,885 11,360,727
Average interest rate earned(1) 33.63% 29.72%
Average interest rate paid(1) 9.16% 9.27%
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Net interest rate spread 24.47% 20.45%
Net interest margin(4) 23.81% 21.47%
(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.
The principal component of the Company's profitability is its net interest
spread, the difference between interest earned on finance receivables and
interest expense paid on borrowed funds. Statutes in some states regulate the
interest rates that the Company may charge its borrowers while interest rates in
other states are unregulated and consequently are established by competitive
market conditions. There are significant differences in the interest rates
earned on the various components of the Company's finance receivable portfolio.
The interest rate earned on Automobile Sales Contracts generally is lower than
the interest rates earned on Direct Loans due to competition from other lenders,
superior collateral and longer terms. The interest rates earned on Premium
Finance Contracts are state regulated and vary based on the type of underlying
insurance and the term of the contract.
Unlike the Company's interest income, its interest expenses are sensitive to
general market fluctuations in interest rates. The interest rate paid to the
Company's primary lender is based upon a published prime rate plus a set
percentage. Thus, general market fluctuations in interest rates directly impact
the Company's cost of funds. The Company's general inability to increase the
interest rates earned on finance receivables may impair its ability to adjust to
increases in the cost of funds resulting from changes in market conditions.
Accordingly, increases in market interest rates generally will narrow the
Company's interest rate spread and lower its profitability while decreases in
market interest rates generally will widen the Company's interest rates spreads
and increase profitability.
RESULTS OF OPERATIONS
COMPARISON OF 1999 TO 1998. Finance receivables at December 31, 1999 were
$224,570,141 versus $80,684,786 at December 31, 1998, a 178% increase. The
increase was primarily attributable to the acquisition of 144 consumer finance
offices from FirstPlus Consumer Finance, via the merger with TIC.
Unearned income at December 31, 1999 was $38,184,319 versus $12,862,542 at
December 31, 1998. This is primarily attributable to the receivables acquired
from the FirstPlus acquisition.
The allowance for credit losses increased to $10,661,339 at December 31, 1999
versus $4,710,829 at December 31, 1998, a 126% increase. This increase is
primarily attributable to the $6.7 million additional allowance acquired in the
course of the FirstPlus acquisition. Credit losses increased to $12,263,478 for
1999 versus $4,145,031 for 1998, an increase of 296%, again a function of the
increased receivables associated with the FirstPlus acquisition. However, credit
losses expressed as a percentage of ending net finance receivables remained
constant at 6.2% for both 1999 and 1998.
Interest and fee income for the twelve months ended December 31, 1999 was
$60,906,447 compared to $15,727,484 for the twelve months ended December 31,
1998, a 252% increase. Interest expense also increased to $18,570,670 for the
twelve months ended December 31, 1999 versus $5,037,289 for the comparable
period of 1998, an increase of 368%. The larger levels relate directly to the
larger portfolio, and related levels of borrowings associated with the FirstPlus
Acquisition. Additionally, our overall interest cost of borrowings, as related
to earning assets, increased in 1999 as a result of higher leverage associated
with the FirstPlus acquisition.
Provision for credit losses increased significantly between years, from
$4,046,460 in 1998 to $11,937,679 in 1999, or a 195% increase. As our credit
losses, as a percentage of ending net finance receivables reamined constant at
6.2% between years, the increase in provision for credit losses was
predominately the result of the increased receivables and operational activity
associated with the FirstPlus acquisition.
8
Insurance premiums and commissions net of insurance cost increased to
$15,109,876 for the twelve months ended December 31, 1999 from $6,590,849 for
the comparable period of 1998, a 18% increase. This was primarily due to
increased sales of insurance products to borrowers, brought about by management
emphasis on this product line, and increased revenue and insurance commissions
from the Thaxton Insurance agency offices. Other income increased from $962,398
for the twelve months ended December 31, 1998 to $3,963,131 for the comparable
period of 1999 due primarily to increased activity from the FirstPlus
acquisition and the additional insurance agency offices.
Total operating expenses increased from $15,777,486 for the twelve months ended
December 31, 1998 to $53,691,003 for the comparable period of 1999, a 240%
increase. The increase in expenses was due, in large part, to the acquisition in
the latter part of 1998 of Paragon, the four finance offices from Budget, and
the acquisition of the insurance agency offices in Arizona, Nevada, and New
Mexico by Thaxton Insurance; and the 1999 acquisition of 144 consumer finance
offices from FirstPlus, the acquisition of additional non-standard insurance
agency offices in North Carolina, and the acquisition of an insurance general
agency in Virginia and the start up of an insurance general agency in South
Carolina. Additionally, there was a general increase in other operating costs
associated with administering a larger finance receivable portfolio and
additional branch offices.
For the twelve months ended December 31, 1999, The Company generated a pretax
profit of $134,810, and a net loss of $355,190 as compared to a pretax and net
loss of $1,580,584 and $1,084,017 for the comparable period of 1998. The 1999
pretax profit, and reduced net loss between years, is attributed to improved
performance in the consumer finance business, which generated a pretax segment
profit in excess of $3 million for 1999, which was offset by operating losses in
the insurance segment. The large insurance operating loss was primarily due to
start up and continuing losses associated with the non-standard operations in
the Arizona, Nevada, New Mexico and Colorado.
Stockholders' equity decreased from $12,928,872 at December 31, 1998 to
$9,802,578 at December 31, 1999 primarily as a result of the Company's
repurchase and retirement of 132,859 shares of common stock, 70,850 shares of
Series A and Series D preferred stock; dividends paid on preferred stock of
$734,012; and the net loss from operations of $355,190.
CREDIT LOSS EXPERIENCE
Provisions for credit losses are charged to income in amounts sufficient to
maintain the allowance for credit losses at a level considered adequate to cover
the expected future losses of principal and interest in the existing finance
receivable portfolio. Credit loss experience, contractual delinquency of finance
receivables, the value of underlying collateral, and management's judgment are
factors used in assessing the overall adequacy of the allowance and resulting
provision for credit losses. The Company's reserve methodology is designed to
provide an allowance for credit losses that, at any point in time, is adequate
to absorb the charge-offs expected to be generated by the finance receivable
portfolio, based on events or losses that have occurred or are known to be
inherent in the portfolio. The model used by the Company utilizes historical
charge-off data to predict the charge-offs likely to be generated in the future
by the existing finance receivable portfolio. The model takes into consideration
overall loss levels, as well as losses by originating office and by type, and
develops historical loss factors which are applied to the current portfolio.
Losses on finance receivables secured by automobiles are recognized at the time
the collateral is repossessed. Other finance receivables are charged off when
they become contractually past due 180 days, unless extenuating circumstances
exist leading management to believe such finance receivables will be
collectible. Finance receivables may be charged off prior to the normal
charge-off period if management deems them to be uncollectible.
Under the Company's dealer reserve arrangements, when a dealer assigns an
Automobile Sales Contract to the Company, the Company withholds a certain
percentage of the principal amount of the contract, usually between five and ten
percent (the "Discount Percentage"). The amounts withheld from a particular
dealer are recorded in a subsidiary ledger account (the "Specific Reserve
Account"). Any losses incurred on Automobile Sales Contracts purchased from that
dealer are charged against its Specific Reserve Account. If at any time the
balance of a dealer's Specific Reserve Account exceeds the amount derived by
applying the Discount Percentage to the total amount of principal and interest
due under all outstanding Automobile Sales Contracts purchased from such dealer
(the "Excess Dealer Reserve"), the dealer is entitled to receive distributions
from the Specific Reserve Account in an amount equal to the Excess Dealer
Reserve. If the Company is continuing to purchase Automobile Sales Contracts
from a dealer, distributions of Excess Dealer Reserves generally are paid
quarterly. If the Company is not continuing to purchase Automobile Sales
Contracts from a dealer, distributions of Excess Dealer Reserves are not paid
out until all Automobile Sales Contracts originated by that dealer have been
paid in full. The aggregate balance of all Specific Reserve Accounts, including
unpaid Excess Dealer Reserves, are reflected in the balance sheet as a reduction
of finance receivables. The Company's allowance for credit losses is charged
only to the extent that the loss on an Automobile Sales Contract exceeds the
originating dealer's Specific Reserve Account at the time of the loss.
The Company periodically purchases Automobile Sales Contracts in bulk. In a bulk
purchase arrangement, the Company typically purchases a portfolio of Automobile
Sales Contracts from a dealer at a discount to par upon a review and assessment
of the portfolio by the Company's management. This discount is maintained in a
separate account against which losses on the bulk portfolio
9
purchased are charged. To the extent losses experienced are less than the
discount, the remaining discount is accreted into income.
The following table sets forth the Company's allowance for credit losses at
December 31, 1999 and 1998, and the credit loss experience over the periods
presented for its finance receivables. (1)
1999 1998
---- ----
Net finance receivables (1) $161,805,620 $56,130,791
Allowance for credit losses 10,661,339 4,710,829
Allowance for credit losses as a percentage
of net finance receivables (1) 6.59% 8.39%
Dealer reserves and discounts on bulk
purchases $704,657 $1,241,633
Dealer reserves and discounts on bulk
purchases as percentage of Net Automobile
Sales Contracts at period end 2.62% 3.46%
Allowance for credit losses and dealer reserves
and discount on bulk purchases (2) $11,365,996 $5,952,462
Allowance for credit losses and dealer reserves
as a percentage of finance receivables 7.02% 10.60%
Provision for credit losses 11,937,679 $4,046,460
Charge-offs (net of recoveries) 12,263,478 4,145,031
Charge-offs (net of recoveries) as a percentage
of average net finance receivables (3) 7.58% 7.64%
(1) Net finance receivable balances are presented net of unearned finance
charges, and exclude mortgage warehoused loans and commercial finance
receivables.
(2) Excludes valuation discount for acquired loans
(3) Average net receivables computed using month end balances
The following table sets forth certain information concerning Automobile Sales
Contracts and Direct Loans at the end of the periods indicated:
At December 31,
----------------------------
1999 1998
---- ----
Automobile Sales Contracts and Direct Loans
contractually past due 90 days or more (1) $3,257,056 $734,359
Automobile Sales Contracts and Direct Loans (1) 143,089,933 52,166,963
Automobile Sales Contracts and Direct Loans
contractually past due 90 days or more as a
percentage of Automobile Sales contracts and
Direct Loans 2.28% 1.41%
Finance receivable balances are presented net of unearned finance charges,
dealer reserves on Automobile Sales Contracts and discounts on bulk purchases.
The following table sets forth certain information concerning Premium Finance
Contracts at the end of the periods indicated:
10
At December 31,
1999 1998
---- ----
Premium finance contracts contractually
past due 60 days or more(1) $241,804 $119,345
Premium finance contracts outstanding(1) 8,029,703 3,228,160
Premium finance contracts contractually
past due 60 days or more as a percentage
of premium finance contracts 3.0% 3.6%
Finance receivable balances are presented net of unearned finance charges.
LIQUIDITY AND CAPITAL RESOURCES
The Company generally finances its operations and new offices through cash flow
from operations and borrowings under the revolving credit facility extended by
FINOVA Capital Corporation (the "Revolving Credit Facility"). The Revolving
Credit Facility, which provides for borrowings of up to $242 million, matures on
July 31, 2004. The facility consists of two agreements, each with multiple
tranches. The primary tranche of each agreement is used to finance consumer
receivables, based upon a percentage of available collateral, and carries the
most favorable interest rate of the agreement. Secondary tranches provide
additional availability, but as they increased collateral leverage, and
therefore carry increased interest rates. At December 31, 1999, the Company
could have borrowed an additional $14.6 million under the credit facility based
upon the existing level of receivables and collateral. The interest rate on the
tranches range from lender's prime rate plus from 1% to 5%. Of the $163 million
outstanding at December 31, 1999, $154 million carried interest rates of prime
plus 1% or prime plus 1-1/4%. The remaining $9 million was borrowed at prime
plus 3-1/2%. The interest rate is adjusted monthly to reflect fluctuations in
the designated prime rate. Accrued interest on borrowings is payable monthly.
Principal is due in full on the maturity date and can be prepaid without
penalty. The Revolving Credit Facility is secured by substantially all of the
Company's assets and requires the Company to comply with certain restrictive
covenants.
In connection with the FirstPlus acquisition, the Company assumed $2.1 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. The note
agreement contained an interest coverage ratio restrictive covenant which the
Company did not meet at December 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 its 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, as 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 under this federal
registration. 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 $42
million in notes were outstanding as of December 31, 1999. Proceeds from the
issuance of these notes generally are used to repay borrowings under the
Revolving Credit Facility.
Cash flows from financing activities during the years ended December 31, 1999
and 1998 were as follows:
1999 1998
---- ----
Proceeds from the issuance of preferred 0 7,907,323
stock
Notes payable to affiliates (287,918) (236,368)
Repurchase of common stock (2,036,383) (1,075,732)
Dividends paid (734,012) (258,289)
Net increase in line of credit 0 255,000
Net increase in notes payable 51,667,792 5,754,188
Repurchase of preferred stock (708) (30,000)
----------- -----------
Total 48,608,771 5,962,363
=========== ===========
Management believes that the maximum borrowings available under the Revolving
Credit Facility, in addition to cash expected to be generated from operations
and the sale of subordinated notes, will provide the resources necessary to fund
the Company's liquidity
11
and capital needs through 1999.
IMPACT OF INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company does not believe that inflation directly has a material
adverse effect on its financial condition or results of operations, increases in
the inflation rate generally are associated with increased interest rates.
Because the Company borrows funds on a floating rate basis and generally extends
credit at the maximum interest rates permitted by law or market conditions,
increased interest rates would increase the Company's cost of funds and could
materially impair the Company's profitability. The Company intends to explore
opportunities to fix or cap the interest rates on all or a portion of its
borrowings; however, there can be no assurance that fixed rate or capped rate
financing will be available on terms acceptable to the Company. Inflation also
can affect the Company's operating expenses. The Company's business could be
affected by other general economic conditions in the United States, including
economic factors affecting the ability of its customers or prospective customers
to purchase used automobiles and to obtain and repay loans.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). This statement addresses the accounting
for derivative instruments, including certain derivative instruments imbedded in
other contracts, and hedging activities. The Statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. Management
does not anticipate the adoption of the provisions of SFAS No. 133 will
significantly impact the Company's financial reporting.
YEAR 2000 ISSUES
Management believes it has adequately addressed the Year 2000 issue and has
successfully executed its Year 2000 Plan. The Company and its subsidiaries have
processed transactions in the year 2000 and have experienced no significant
interruptions in customer service or processing ability. The Company has not
identified any additional credit losses related to any customer due to Year 2000
issues nor does it anticipate that any will be identified going forward.
12
ITEM 7. FINANCIAL STATEMENTS
THE THAXTON GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(WITH INDEPENDENT AUDITORS' REPORTS THEREON)
13
Independent Auditors' Report
THE BOARD OF DIRECTORS
THE THAXTON GROUP, INC.
We have audited the accompanying consolidated balance sheets of The Thaxton
Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Thaxton Group,
Inc. and subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Cherry, Bekaert & Holland, LLP
Charlotte, North Carolina
March 28, 2000
14
THE THAXTON GROUP, INC.
Consolidated Balance Sheets
December 31, 1999 and 1998
1999 1998
---- ----
Assets
Cash $2,036,104 $780,864
Finance receivables, net 162,827,219 54,794,487
Loans Held for Sale 11,400,639 7,075,295
Premises and equipment, net 6,293,588 2,843,753
Accounts receivable 1,902,981 1,252,412
Repossessed automobiles 131,908 603,288
Goodwill and other intangible assets 39,511,133 8,305,129
Other assets 10,831,465 3,340,784
---------- ---------
Total assets 234,935,037 78,996,012
=========== ==========
Liabilities and Stockholders' Equity
Liabilities
Accrued interest payable 2,174,397 428,906
Notes payable 211,218,953 62,144,209
Notes payable to affiliates 491,072 778,990
Accounts payable 3,298,740 928,580
Employee savings plan 1,328,998 1,070,425
Other liabilities 6,620,296 716,030
---------- ---------
Total Liabilities 225,132,456 66,067,140
=========== ==========
Commitments and Contingencies
Stockholders' Equity
Preferred Stock $.01 parvalue:
Series A: 400,000 shares authorized; issued
and outstanding 160,440 shares in 1999,
175,014 shares in 1998; liquidation value
$1,604,400 in 1999 1,604 1,750
Series C: 50,000 shares authorized issued
and outstanding in 1999 and 1998;
liquidation value $500,000 in 1999 500 500
Series D: 56,276 shares authorized, no shares
issued and outstanding in 1999 56,276 in 1998 - 563
Series E: 800,000 shares authorized, issued
and outstanding in 1999 and 1998; liquidation
value $8,000,000 in 1999 and 1998 8,000 8,000
Common stock, $.01 par value, 50,000,000 shares
authorized; issued and outstanding 6,975,359 shares
in 1999; 3,885,218 shares in 1998 69,754 38,852
Additional paid-in-capital 10,116,772 12,184,057
Retained earnings (deficit) (394,049) 695,150
--------- -------
Total stockholders' equity 9,802,581 12,928,872
--------- ----------
Total liabilities and stockholders' equity $234,935,037 $78,996,012
============ ===========
See accompanying notes to consolidated financial statements.
15
THE THAXTON GROUP, INC.
Consolidated Statements of Income
Years Ended December 31, 1999 and 1998
1999 1998
---- ----
Interest and fee income $60,946,117 $15,727,484
Interest expense 18,570,670 5,037,289
---------- ---------
Net interest income 42,375,447 10,690,195
Provision for credit losses 11,937,679 4,046,460
---------- ---------
Net interest income after provision for credit losses 30,437,768 6,643,735
Other income:
Insurance premiums and commissions, net 15,109,876 6,590,849
Premiums for loans sold 3,137,595 263,296
Other income 3,963,131 699,102
--------- ---------
Total other income 22,210,602 7,553,247
---------- ---------
Operating expenses:
Compensation and employee benefits 30,107,781 8,636,026
Telephone, computers, postage, and supplies 3,026,163 2,187,264
Net occupancy 7,874,185 1,460,174
Reinsurance claims expense 1,142,724 314,995
Advertising 2,630,826 307,253
Collection expense 312,894 132,488
Travel 1,174,907 153,046
Professional fees 825,273 452,152
Other 5,418,807 2,134,088
--------- ---------
Total operating expenses 52,513,560 15,777,486
Income (loss) before income tax expense 134,810 (1,580,504)
Income tax expense (benefit) 490,000 (496,487)
------- ---------
Net loss $ (355,190) $ (1,084,017)
========== ============
Dividends on preferred stock $ 734,012 $258,289
========= ========
Net loss applicable to common shareholders $(1,089,202) $ (1,342,306)
=========== ============
Net loss per common share--basic and diluted $(0.26) $ (0.35)
======= =======
See accompanying notes to consolidated financial statements.
16
THE THAXTON GROUP, INC.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999 and 1998
Additional
Common Preferred Paid-in
Stock Stock Capital
----- ----- -------
Balance at December 31, 1997 37,956 2,551 4,521,354
------- ------ ----------
Purchase and retirement of 114,761 shares
of common stock (1,148) - (1,074,314)
Issuance of 800,000 shares of Series E Preferred Stock - 8,000 7,992,000
Issuance of 300,000 shares of restricted common
Stock 3,000 - 1,497,000
Issuance of 3,580 shares of common stock under
Employee stock purchase plan 36 - 26,590
Conversion of 29,200 shares of common stock and
27,076 shares of Series B Preferred Stock
into 56,276 of Series D Preferred Stock (292) 292 -
Repurchase of 3,000 shares of Series A Preferred Stock - (30) (29,970)
Cancellation and forfeiture of Deferred Stock Award (700) - (629,300)
Costs associated with preferred stock issuance - - (119,303)
Dividends paid on preferred stock - - -
- - -
Net loss -------- ------- ---------
Balance at December 31, 1998 $38,852 10,813 12,184,057
======== ======= ===========
Purchase and retirement of 132,859 shares of common stock (1,329) - (1,327,262)
Repurchase of 14,574 shares of Series A Preferred Stock - (146) (145,594)
Repurchase of 56,276 shares of Series D Preferred Stock - (563) (562,197)
Issuance of 3,223,000 shares of common stock for purchase
of Thaxton Investment Corporation 32,230 - (32,230)
Dividends paid on preferred stock - - -
Net Income (Loss) - - -
-------- -------- ---------
Balance at December 31, 1999 $69,754 10,104 10,116,772
======== ======= ===========
Deferred Total
Stock Retained Stockholders'
Award Earnings Equity
----- ----- -----
Balance at December 31, 1997 (630,000) 5,969,317 5,969,317
------- --------- ---------
Purchase and retirement of 114,761 shares
of common stock - - (1,075,462)
Issuance of 800,000 shares of Series E Preferred Stock - - 8,000,000
Issuance of 300,000 shares of restricted common Stock - - 1,500,000
Issuance of 3,580 shares of common stock under
Employee stock purchase plan 26,626
Conversion of 29,200 shares of common stock and
27,076 shares of Series B Preferred Stock
into 56,276 of Series D Preferred Stock - - -
Repurchase of 3,000 shares of Series A Preferred Stock - - (30,000)
Cancellation and forfeiture of Deferred Stock Award 630,000 - -
Costs associated with preferred stock issuance - - (119,303)
Dividends paid on preferred stock - (258,289) (258,289)
Net loss - 1,084,017) (1,084,017)
------- ----------- ----------
Balance at December 31, 1998 - 695,150 12,928,872
======== =========== ===========
Purchase and retirement of 132,859 shares of common stock - - (1,328,591)
Repurchase of 14,574 shares of Series A Preferred Stock - - (145,740)
Repurchase of 56,276 shares of Series D Preferred Stock - - (562,760)
Issuance of 3,223,000 shares of common stock for purchase
of Thaxton Investment Corporation - - -
Dividends paid on preferred stock - (734,012) (734,012)
Net Income (Loss) - (355,190) (355,190)
------- ----------- ----------
Balance at December 31, 1999 - (394,049) 9,802,581
======== ========== ===========
See accompanying notes to consolidated financial statements.
17
THE THAXTON GROUP, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 1999 and 1998
1999 1998
---- ----
Cash flows from operating activites:
Net income (loss) $ (355,190) $ (1,084,017)
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for credit losses 11,937,679 4,046,460
Depreciation and amortization 3,415,392 1,224,170
Deferred taxes (709,934) (300,000)
Proceeds from loans held for sale (3,137,595) (263,296)
Decrease (increase) in other assets (4,716,880) 308,732
Increase (decrease) in accrued interest payable and other liabilities 6,381,914 156,506
---------- ----------
Net cash provided by operating activities 12,815,386 4,084,555
---------- ----------
Cash flows from investing activities:
Net increase in finance receivables (16,238,690) (10,398,970)
Capital expenditures for premises and equipment (2,338,721) (1,490,452)
Proceeds from sale of premises and equipment 742,992 79,316
Proceeds from sale of investments 0 46,935
Acquisitions, net of acquired cash equivalents (42,424,498) (4,976,488)
Purchase of securities 0 (42,947)
---------- ----------
Net Cash used by investing activities (60,258,917) (16,782,606)
---------- ----------
Cash flows from financing activities:
Proceeds from the issuance of preferred stock 0 7,907,323
Notes payable to affiliates (287,918) (236,368)
Repurchase of common stock (1,328,591) (1,075,732)
Dividends paid (734,012) (258,289)
Net increase in line of credit 0 0
Net increase in notes payable 51,757,792 6,009,188
Repurchase of preferred stock (708,500) (30,000)
---------- ----------
Net cash provided by financing activities 48,698,771 12,316,122
---------- ----------
Net increase (decrease) in cash 1,255,240 (381,929)
Cash at beginning of period 780,864 1,162,793
---------- ----------
Cash at end of period $ 2,036,104 $ 780,864
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 16,825,179 5,029,246
Income taxes 2,011 -
Total non-cash activities
Investing:
Non-cash portion of acquisitions (2,584,260)
----------
Financing:
Portion of acquisition financed by note to seller 2,584,260
----------
See accompanying notes to consolidated financial statements.
18
THE THAXTON GROUP, INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 seven states located in the southeast and
southwest. 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 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 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.
The following is a description of the more significant accounting and reporting
policies which the Company follows in preparing and presenting its financial
statements.
INTEREST AND FEE INCOME: Interest income from finance receivables is recognized
using the interest (actuarial) method on an accrual basis. Accrual of income on
finance receivables continues until the receivable is either paid off in full or
is charged off. Fee income consists primarily of late fees which are credited to
income when they become due from borrowers. For receivables which are renewed,
interest income is recognized using a method similar to the interest method.
ALLOWANCE FOR CREDIT LOSSES: Additions to the allowance for credit losses are
based on management's evaluation of the finance receivables portfolio
considering current economic conditions, overall portfolio quality, charge-off
experience, and such other factors which, in management's judgment, deserve
recognition in estimating credit losses. Loans are charged-off when, in the
opinion of management, such loans are deemed to be uncollectible or six months
has elapsed since the date of the last payment, whichever occurs first. While
management uses the best information available to make such evaluations, future
adjustments to the allowance may be necessary if conditions differ substantially
from the assumptions used in making the evaluations.
NON-FILE INSURANCE: Non-file insurance is written in lieu of recording and
perfecting the Company's security interest in the assets pledged to secure
certain loans. Non-file insurance premiums are collected from the borrower on
certain loans at inception and renewal and are remitted directly to an
unaffiliated insurance company. Certain losses related to such loans, which are
not recoverable through life, accident and health, or property insurance claims,
are reimbursed through non-file insurance claims subject to policy limitations.
Any remaining losses are charged to the allowance for credit losses.
PREMISES AND EQUIPMENT: Premises and equipment are reported at cost less
accumulated depreciation which is computed using the straight-line method for
financial reporting and accelerated methods for tax purposes. For financial
reporting purposes the Company depreciates furniture and equipment over 5 years,
leasehold improvements over the remaining term of the related lease, and
automobiles over 3 years. Maintenance and repairs are expensed as incurred and
improvements are capitalized.
INSURANCE: The Company remits a portion of credit life, accident and health,
property and auto insurance premiums written in connection with certain loans to
an unaffiliated insurance company at the time of origination. Any portion of the
premiums remitted to this insurance company which are not required to cover
their administrative fees or to pay reinsurance claims expense are returned to
the Company through its reinsurance subsidiaries, and are included in insurance
premiums and commissions in the accompanying consolidated statements of income.
Unearned insurance premiums are accreted to income over the life of the related
insurance contracts using a method similar to that used for the recognition of
finance charges. Insurance commissions earned by Thaxton Insurance are
recognized as services are performed in accordance with Thaxton Insurance's
contractual obligations with the underwriters, but not before protection is
placed with insurers.
19
EMPLOYEE SAVINGS PLAN: The Company offers a payroll deduction savings plan to
all its employees. The Company pays interest monthly at an annual rate of 10% on
the prior month's ending balance. Employees may withdraw savings on demand,
subject to a subordination agreement with the Company's primary lender.
INCOME TAXES: Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes (Statement 109), requires the asset and liability
method of accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
EARNINGS PER SHARE: The Company adopted the provisions of SFAS 128, "Earning per
Share" ("EPS") in 1997. The presentation of primary and fully diluted EPS has
been replaced with basic and diluted EPS. Basic earnings per share are computed
by dividing net income applicable to common shareholders by the weighted average
number of common shares outstanding. Diluted earnings per share are computed by
dividing net income by the weighted average number of shares of common stock and
common stock equivalents calculated based upon the average market price. Common
stock equivalents consist of stock options issued by the Company, and are
computed using the treasury stock method.
INTANGIBLE ASSETS: Intangible assets include goodwill, expiration lists, and
covenants not to compete related to acquisitions made by the Company. Goodwill
represents the excess of the cost over the fair value of net assets acquired at
the date of acquisition. Goodwill is amortized on a straight-line basis,
generally over a five to twenty-five year period. The expiration lists are
amortized over their estimated useful lives, generally fifteen to twenty-five
years, on a straight-line basis. Covenants not to compete are amortized
according to the purchase contract over five to six years on a straight-line
basis. Recoverability of recorded intangibles is evaluated by using undiscounted
cash flows.
STOCK OPTIONS: Effective January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which requires that the fair value of
employee stock-based compensation plans be recorded as a component of
compensation expense in the statement of income or the impact of such fair value
on net income and earnings per share be disclosed on a pro forma basis in a
footnote to the financial statements if the Company continues to use the
intrinsic value method in accordance with APB 25. The Company will continue such
accounting under the provisions of APB 25.
FAIR VALUE OF FINANCIAL INSTRUMENTS: All financial assets of the Company are
short term in nature and all liabilities are substantially at variable rates of
interest. As such, the carrying values of these financial assets and liabilities
approximate their fair value. A small percentage of subordinated notes payable
are at fixed rates, with terms up to sixty months in maturity. For these
liabilities, an evaluation is made annually to assess the appropriateness of the
carrying value.
REPOSSESSED ASSETS: Repossessed assets are recorded at their estimated fair
value less costs to dispose. Any difference between the loan balance and the
fair value of the collateral on the date of repossession is charged to the
allowance for credit losses.
ADVERTISING: Advertising costs are expensed as incurred.
CASH AND CASH EQUIVALENTS: The Company considers cash on hand, cash due from
banks, and interest-earning deposits, which are maintained in financial
institutions as cash and cash equivalents.
LOANS HELD FOR SALE: Loans held for sale include certain mortgage loans and are
carried at the lower of aggregate cost or market value.
OTHER COMPREHENSIVE INCOME: Comprehensive income is the change in the Company's
equity during the period from transactions and other events and circumstances
from non-owner sources. Total comprehensive income is divided into net income
and other comprehensive income. There were no items of other comprehensive
income in 1999 or 1998.
LOANS/ALLOWANCE IMPAIRMENT: Finance receivables are classified as nonaccrual,
and the accrual of interest is discontinued, when the contractual payment of
principal and interest has been xx days past due or when, in management's
judgment, principal or interest is not collectible in accordance with the terms
of the obligation. Cash receipts on non accrual loans are applied to principal.
Interest recognition resumes when the loan returns to performing status.
RECLASSIFICATIONS: Certain amounts in the 1998 financial statements have been
reclassified in order to conform with the 1999 presentation.
IMPACT OF RECENTLY USED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). This statement addresses the accounting
for derivative instruments, including certain derivative instruments imbedded in
other contracts, and hedging activities. The Statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. Management
does not anticipate the adoption of the provisions of SFAS No. 133 will
significantly impact the Company's financial reporting.
(2) BUSINESS COMBINATIONS
On February 1, 1999, the Company's CEO and majority shareholder purchased
approximately 144 consumer finance offices from FirstPlus Consumer Finance,
Inc., and operated those offices in Thaxton Investment Corporation ("TIC"), a
corporation set up for that purpose. The purchase price paid was $49.4 million,
including a cash payment of $46.5 million, with the balance in notes and amounts
payable to FirstPlus. The note payable arising from the purchase was paid in
full prior to December 31, 1999. This acquisition, which was accounted for as a
purchase, resulted in goodwill in the amount of $29.5 million, which is being
amortized over 25 years. At the time of the acquisition, Thaxton Investment
Corp. 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.
On July 1, 1999, the Company acquired all of the stock of U. S. Financial Group
Agency, Inc., ("USFG"), an insurance general agency located in Virginia. The
purchase price of $1.1 million included a cash payment of $300,000, and the
balance due in a 6% note payable maturing in July, 2001. This acquisition
resulted in $1 million of goodwill and other intangible assets being recorded,
which are being amortized over 20 years.
20
On October 1, 1999, the Company acquired the assets of a business operating as
American United Insurance Agency. The purchase price of $1.5 million included a
cash payment of $900,000, and $600,000 of 8% notes maturing in December, 2000.
The acquisition resulted in $1.4 million of goodwill and other intangible assets
being recorded, which are being amortized over 20 years.
On November 13, 1998, the Company acquired all of the outstanding capital of
stock of Paragon, Inc. ("Paragon"), a North Carolina corporation, for $1.6
million consisting of $100,000 in cash and 300,000 shares of the Company's
common stock. Stock issued in the acquisition was valued at $5 per share based
on market prices near the date of acquisition with consideration given to the
one year required holding period on the shares issued. Paragon operates as a
licensed mortgage banker through nine offices in North and South Carolina. The
purchase price was allocated to the assets acquired and liabilities assumed
based on their fair values at the date of acquisition. The excess of the
purchase price over the fair value of net assets acquired of $1,630,000 has been
recorded as goodwill and is being amortized on a straight-line basis over seven
years.
On October 27, 1998, the Company acquired substantially all of the assets of the
finance operations in Alabama and Mississippi from Budget Financial Services,
Inc. ("Budget") for cash of $3 million. Budget operates in the consumer finance
business. The purchase was allocated to the assets acquired and liabilities
assumed based on their fair values at the date of acquisition. The excess of the
purchase price over the fair value of net assets acquired of $1,273,000 has been
recorded as goodwill and is being amortized on a straight-line basis over five
years.
During September and October 1998, the Company acquired substantially all of the
assets of two Arizona insurance agencies, Inter-Combined Agencies, Inc. ("ICA")
and National Insurance Centers, Inc. ("NIC") for cash of $1.8 million. ICA is in
the business of acting as agent for property and casualty insurance. NIC is in
the business of acting as agent for non-standard automobile insurance. The
purchase price in each of these acquisitions was allocated to the assets
acquired and liabilities assumed based on their fair values at the date of
acquisition. The combined excess of the purchase price over the fair value of
net assets acquired of $1,371,000 has been recorded as goodwill and is being
amortized on a straight-line basis over fifteen years.
The acquisitions (other than the Company's acquisition of "TIC") were accounted
for under the purchase method of accounting. Accordingly, the results of
operations of the acquired businesses are included in the accompanying financial
statements from the dates of acquisition. The following table presents unaudited
pro forma combined results of operations as if the acquisitions had occurred at
the beginning of each year presented. Such pro forma amounts are not necessarily
indicative of what the actual consolidated results of operations might have been
if the acquisitions had occurred at the beginning of each year.
1999 1998
---- ----
Total revenues $ 88,750,000 $ 74,200,000
Net income (loss) $(150,000) $ 100,000
Basic and Diluted earnings $ (0.21) $ .10
per share
FINANCE RECEIVABLES
Finance receivables consist of the following at December 31, 1999 and 1998:
21
1999 1998
---- ----
Automobile Sales Contracts 33,138,025 $37,124,775
Direct Loans 140,751,353 27,852,566
Mortgage Loans 27,477,365 4,021,088
Premium Finance Contracts 8,362,591 3,343,320
Commercial Loans 3,440,166 1,267,742
--------- ---------
Total finance receivables 213,169,500 73,609,491
Unearned interest (37,805,852) (11,914,393)
Unearned insurance premiums, net (2,797,035) (275,476)
Valuation discount for acquired loans (93,534) (672,673)
Dealer Holdback and Bulk purchase discount (704,657) (1,241,633)
Allowance for credit losses (10,661,339) (4,710,829)
Deferred Loan Cost, net 1,720,134 805,053
--------- -------
Finance receivables, net 162,827,217 55,599,540
Loans held for sale 11,400,639 7,075,295
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
$26,870,193 and $704,657, respectively, at December 31, 1999 and approximately
$24,463,738 and $1,241,633, respectively, at December 31, 1998.
At December 31, 1999, 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 7).
Changes in the allowance for credit losses for the years ended December 31, 1999
and 1998 are as follows:
1999 1998
---- ----
Beginning balance 4,710,829 $4,809,400
Valuation allowance for acquired loans 6,276,309 0
Provision for credit losses 11,937,679 4,046,460
Charge-offs (13,461,390) (4,307,260)
Recoveries 1,197,912 162,229
--------- -------
Net charge-offs (12,263,478) (4,145,031)
------------ -----------
Ending balance $10,661,339 $4,710,829
=========== ==========
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.
PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1999 and 1998 follows:
1999 1998
---- ----
22
Leasehold improvements 1,949,082 712,709
Furniture and fixtures 3,106,962 806,668
Equipment and automobiles 8,603,651 3,871,999
--------- ---------
Total cost 13,624,697 5,391,376
Accumulated depreciation 7,366,108 2,547,623
--------- ---------
Net premises and equipment $6,293,589 $2,843,753
========== ==========
Depreciation expense was approximately $1,374,000 and $721,000 in 1999 and 1998,
respectively.
INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1999 and 1998:
1999 1998
---- ----
Covenants not to compete $ 267,444 $ 118,495
Goodwill and purchase premium 38,290,731 7,051,516
Insurance expirations 4,636,588 3,114,363
--------- ---------
Total cost 43,194,763 10,284,374
Less accumulated amortization 3,683,630 1,979,245
--------- ---------
Intangible assets, net $39,511,133 $8,305,129
=========== ==========
The majority of the intangibles were acquired by the Company in connection with
its acquisition of FirstPlus Consumer Finance, as well as the Thaxton Insurance
(and related subsequent purchases of individual agencies), the acquisition of
Paragon, and the acquisition of four finance offices from Budget. Amortization
expense was approximately $2,041,000 and $503,000 in 1999 and 1998,
respectively.
LEASES
The Company conducts all of its operations from leased facilities. It is
expected that in the normal course of business, leases that expire will be
renewed at the Company's option or replaced by other leases or acquisitions of
other properties. Total rental expense was approximately $2,192,734 in 1999 and
$801,000 in 1998. The future minimum lease payments under noncancelable
operating leases as of December 31, 1999, are as follows:
2000 2,589,883
2001 1,724,904
2002 1,098,498
2003 628,065
2004 325,672
Thereafter 335,843
-------
Total minimum lease payments 6,702,864
=========
Six of the office buildings in which the Company conducts business are owned by
related parties. These premises are leased to the Company for a total monthly
rental of approximately $3,350.
NOTES PAYABLE AND NOTES PAYABLE TO AFFILIATES
At December 31, 1999 and 1998, notes payable consist of the following:
1999 1998
---- ----
Senior Notes Payable/Lines of Credit $163,370,892 $46,950,000
Warehouse credit lines for mortgage loans at
various rates and maturities 0 3,638,220
23
Subordinated notes payable to individuals with
varying maturity dates and rates ranging from
5 1/4% to 12% 43,411,547 10,281,246
Note payable to finance company collateralized
by an aircraft, due in monthly installments
of $9,091 through July 2003 including interest
at 8.99% 0 408,583
Other subordinated notes payable to companies with
varying maturity dates and rates ranging from 4,436,518 866,160
4 1/4% to 10% --------- -------
Total notes payable $211,218,957 $62,144,209
============ ===========
Subordinated note payable to affiliates, with
varying maturity dates and rates ranging from
6 1/4% to 10% $491,072 $778,990
======== ========
A schedule of maturities of long-term debt is as follows:
Year Ending
December 31, Amount
------------ ------
2000 27,116,850
2001 13,322,953
2002 3,646,150
2003 1,026,800
2004 166,415,926
Thereafter 181,350
-------
Total 211,710,029
===========
At December 31, 1999, the Company maintained two lines of credit with a
commercial finance company for $242 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 December 31, 1999, the
Company's net finance receivables would have allowed it to borrow an additional
$14.6 million against existing collateral. The aggregate outstanding balance
under these lines of credit was $163 million at December 31, 1999, of which
$60.9 million was borrowed at 9.75% (Lenders prime +1 1/4%); $93.2 million was
borrowed at 9.5% (Lenders prime + 1%); and $9.2 million was borrowed at 12%
(Lenders prime +3 1/2%).
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 $79 million total potential borrowing capacity as of
December 31, 1999.
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.
As of December 31, 1998, the Company met all such ratios and requirements or
obtained waivers for any instances of non-compliance.
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 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 $ 43.9 million and $11.1 million
in notes were outstanding at December 31, 1999 and 1998, and are reflected as
notes payable to individuals and notes payable to affiliates.
(8) BENEFITS
In 1995 the Board of Directors of the Company adopted the Thaxton Group, Inc.
1995 Stock Incentive Plan (the "Incentive Plan"), under which 620,000 shares of
common stock were available for grants to key employees of the Company. Awards
under the Incentive Plan may include, but are not limited to, stock options,
stock appreciation rights, restricted stock, performance awards and other common
stock and common stock-based awards. Stock options granted under the Incentive
Plan may be either incentive stock options or non-qualified stock options.
During 1996, the Company granted 20,000 options to employees under the Incentive
Plan at an exercise price of $9.00 per share. All of these options have since
been cancelled
24
During 1995 the Board of Directors of the Company also adopted the Thaxton
Group, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"), under
which 100,000 shares of common stock are available for purchase by substantially
all employees. The Stock Purchase Plan enables eligible employees of the
Company, through payroll deductions, to purchase at twelve-month intervals
specified in the Stock Purchase Plan, shares of common stock at a 15% discount
from the lower of the fair market value of the common stock on the first day or
the last day of the year. The Stock Purchase Plan allows for employee
contributions up to 3% of the participant's annual compensation and limits the
aggregate fair value of common stock that may be purchased by a participant
during any calendar year to $25,000. As of December 31, 1998, 4,377 shares were
purchased under this Stock Purchase Plan. This plan was cancelled by the Board
of Directors in January, 1999.
An ongoing benefit to the employees is the Employee Savings Plan. This plan
allows employees to contribute and earn a rate of 10%, the balances as of 1999
and 1998 were $1,328,998 and $1,070,425, respectively.
INCOME TAXES
Income tax expense consists of the following:
Current Deferred Total
------- -------- -----
1999 Federal 1,010,133 (709,934) 300,199
State 189,801 0 189,801
1,199,933 (709,934) 490,000
========= ========= =======
1998 Federal $(196,487) (300,000) (496,487)
State - - -
$(196,487) (300,000) (496,487)
========== ========= =========
A reconciliation of the Company's income tax provision and the amount computed
by applying the statutory federal income tax rate of 34% to income before income
taxes is as follows:
1999 1998
---- ----
Statutory rate applied to income before income tax expense $45,802 $(537,371)
Increase (decrease) in income taxes resulting from:
Goodwill amortization 427,760 43,904
TICO Reinsurance Ltd. Nontaxable income (82,828) (93,160)
State taxes, less related federal benefit 4,120 (82,347)
Valuation allowance adjustment 121,149 82,347
Other (26,003) 90,140
-------- ------
Income taxes $490,000 $(496,487)
======== ==========
The effective tax rate was 365.7% and 31.4% for the years ended December 31,
1999 and 1998, respectively. The tax effects of temporary differences that give
rise to significant portions of the deferred tax assets and liabilities at
December 31, 1999 and 1998 are presented below:
1999 1998
---- ----
Deferred tax assets:
Loan loss reserves $3,091,466 $1,090,357
Federal net operating loss carryforwards 898,103 311,078
State net operating loss carryforwards 284,779 163,630
Other 27,767 54,819
------ ------
25
Total gross deferred tax asset 4,302,115 1,619,884
Less valuation allowance 284,779 163,630
------- -------
Net deferred tax assets 4,017,336 1,456,254
--------- ---------
Deferred tax liabilities:
Prepaid insurance (66,926) (123,112)
Depreciable basis of fixed assets (165,323) (162,417)
Deferred loan costs (381,670) (313,971)
Intangible assets (251,355) (266,486)
Other (65,007) (52,268)
-------- --------
Total gross deferred tax liability (930,281) (918,254)
--------- ---------
Net deferred tax asset $3,087,055 $538,000
========== ========
This change in the valuation allowance for 1999 and 1998 was an increase of
$121,149 and $82,347 respectively. The valuation allowance relates to certain
state net operating loss carryforwards. It is management's opinion that
realization of the net deferred tax asset, net of valuation allowance is more
likely than not based upon the Company's history of taxable income and estimates
of future taxable income. The Company's income tax returns for 1994 and
subsequent years are subject to review by taxing authorities.
(10) PREFERRED STOCK
The Company issued three series of preferred stock during 1997, and two
additional series of preferred stock in 1998. 400,000 shares of 7.5% cumulative
redeemable convertible Series A preferred stock were authorized, and 178,014
were issued in a December 1997 public offering to existing shareholders. The
terms of the offering included the conversion of one share of common stock plus
$10 for two shares of Series A preferred stock.. For a five year conversion
period commencing January 1, 1998, each share of preferred stock can be
converted into one share of common stock. The Company may redeem all or a
portion of the outstanding shares of Series A stock at any time after December
31, 1999, for $15 per share. The Company repurchased and retired 3,000 shares of
Series A Preferred Stock in December 1998, and 14,574 shares during 1999.
In December 1997, the Company, through a private placement, issued 27,076 shares
of 7.5% cumulative redeemable convertible Series B preferred stock. The terms of
this transaction involved the exchange of one share of common stock for one
share of preferred stock. In July 1998, the Company, through a private
placement, exchanged all of the 27,076 shares of outstanding Series B Preferred
stock, plus 29,200 shares of common stock, for 56,276 shares of Cumulative
Series D preferred stock. The Series D preferred stock pays annual dividends of
$ .80 per share, and is redeemable at any time by the company at $10 per share.
In January 1999, all of the shares of Series D Preferred Stock were repurchased
by the Company, and retired.
In December 1997, the Company converted a $500,000 subordinated note held by one
corporate investor into 50,000 shares of Series C cumulative redeemable
convertible preferred stock. The annual dividends attributable to this series
are $1 per share through December 31, 2000, and $1.80 per share, per annum,
thereafter. Each share of preferred stock can be converted into one share of
common stock after January 1, 1998. The Company may redeem all or a portion of
the outstanding shares of Series C stock at any time after December 31, 2000,
for $10 per share.
In December 1998, the Company, through a private placement, issued 800,000
shares of Cumulative Series E preferred stock for $10 per share. The stock pays
a variable rate dividend rate of prime minus 1% through October 31, 2003, and
prime plus 3% thereafter. The stock is redeemable by the Company at any time at
price of $10 per share.
EARNINGS PER SHARE INFORMATION
The following is a summary of the earnings per share calculation for the years
ended December 31, 1999 and 1998:
1999 1998
---- ----
BASIC
Net loss $ (355,190) $(1,084,017)
Less: Dividends on preferred stock 734,012 258,289
------- -------
Net income applicable to common shareholders (numerator) (1,089,202) (1,342,306)
Average common shares outstanding (denominator) 4,263,146 3,802,759
Loss per share - basic $(0.26) $(0.35)
======= =======
DILUTED
26
Net loss $ (355,190) $(1,084,017)
Less: Dividends on preferred stock 734,012 258,289
-------
73
Net loss applicable to common shareholders (numerator) (1,089,202) (1,342,306)
Average common shares outstanding 4,263,146 3,802,759
Dilutive common stock assumed converted
Average diluted shares outstanding (denominator) 4,263,146 3,802,759
Loss per share - diluted $(0.26) $(0.35)
======= =======
(12) SUBSEQUENT EVENTS
On March 1, 2000, the The Thaxton Group, Inc. transferred all of the assets and
liabilities of certain insurance agency operations into a newly formed company
named Thaxton RBE, Inc. The assets involve approximately 30 non-standard
automobile insurance agency offices in North Carolina, Arizona, New Mexico, and
Colorado. These agencies offer an insurance product in which The Thaxton Group,
Inc., bears insurance underwriting risk. Additionally, also transferred were the
assets and liabilities of an insurance general agency in Virginia, and an
insurance general agency in South Carolina. Both of these general agencies also
offer products which bear insurance underwriting risk. The total amount of the
assets transferred approximate $8 million, the majority of which are intangible.
As a result of this transfer, Thaxton Group, Inc., has a net receivable from
Thaxton RBE in the amount of $7 million.
The purpose of the transfer was to raise additional capital for Thaxton RBE, as
its operations are 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 Thaxton RBE, Inc., and obtained a 90%
interest in this company as a result of the investment. Thaxton Life Partners,
Inc., is a company owned by James D. Thaxton (Thaxton Chairman and majority
shareholder of Thaxton Group, Inc.); C. L. Thaxton (Director of Thaxton Group,
Inc.); and other Thaxton family members.
This transaction was reported to the Securities and Exchange Commission on Form
8-K on March 16, 2000.
(13) BUSINESS SEGMENTS
For the year ended December 31, 1998, 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 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 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 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. Insurance non-standard risk
bearing consists of selling non-standard automobile insurance, through agencies,
where the Company retains a portion of the insurance risk
The following table summarizes certain financial information concerning the
Company's reportable operating segments for the years ended December 31, 1999
and 1998:
Consumer Mortgage Insurance
Finance Banking Insurance RBE Other Total
1999
INCOME STATEMENT DATA
Total revenue 66,693,690 6,132,999 4,035,734 5,661,959 632,337 83,156,719
Net interest income 40,061,849 2,039,015 (235,236) 97,314 412,505 42,375,447
Provision for credit losses 11,923,527 14,152 11,937,679
Noninterest income 10,245,847 3,139,789 3,717,300 5,107,965 (299) 22,210,612
Insurance premiums and
commissions, net 7,962,065 15,109,876
Non interest expenses 35,529,472 5,347,192 3,289,358 7,920,837 440,853 66,255,657
27
Depreciation and
amortization 2,257,937 143,062 366,927 631,660 15,807 3,415,393
Net income 2,403,908 (294,650) 132,358 (2,632,382) 35,578 (355,190)
BALANCE SHEET DATA
Total assets 204,359,542 8,789,645 8,865,785 8,991,154 3,928,912 234,935,037
Loans, net of unearned
income 147,982,873 11,404,180 3,440,160 162,827,219
Allowance for credit losses 10,661,339 10,661,339
Intangibles 29,711,553 1,371,155 1,707,559 6,720,866 0 39,511,133
Consumer Mortgage
Finance Banking Insurance Other Total
1998
INCOME STATEMENT DATA
Total revenue 16,182,000 917,000 6,013,000 169,000 23,281,000
Net interest income 9,745,000 814,000 131,000 10,690,000
Provision for credit losses 4,046,000 4,046,000
Noninterest income 1,257,000 278,000 6,013,000 5,000 7,553,000
Insurance premiums and
commissions, net 1,142,000 5,449,000 6,591,000
Non interest expenses 7,457,000 1,178,000 7,008,000 134,000 15,777,000
Depreciation and
amortization 626,000 32,000 566,000 1,224,000
Net income (8,000) ( 85,000) (953,000) (38,000) (1,084,000)
BALANCE SHEET DATA
Total assets 55,871,000 12,967,000 9,017,000 1,141.000 78,996,000
Loans, net of unearned
income 54,536,000 10,784,000 1,261,000 66,581,000
Allowance for credit losses 4,711,000 4,711,000
Intangibles 1,641,000 1,601,000 5,063,000 8,305,000
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company did not change accounting firms and had no disagreements on
accounting or financial disclosure matters with its independent certified public
accountants to report under this Item.
28
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company's directors and executive officers and their ages as of
March 25, 2000 were as follows:
NAME AGE POSITION
---- --- --------
James D. Thaxton..................... 53 Chairman of the Board,
President and
Chief Executive Officer
Robert L. Wilson..................... 59 Executive Vice President,
Chief Operating Officer
and Director
Allan F. Ross........................ 51 Vice President,
Chief Financial Officer,
Treasurer, Secretary and
Director
C. L. Thaxton, Sr.................... 76 Director
JAMES D. THAXTON has served as Chairman of the Board, President and Chief
Executive Officer of the Company since it was founded. Prior to joining the
Company, Mr. Thaxton was an insurance agent at C.L. Frates & Company in Oklahoma
City, Oklahoma from 1974 to 1976. From 1972 to 1973, he was employed as an
underwriter by United States Fidelity and Guaranty. James D. Thaxton is the son
of C.L. Thaxton, Sr.
ROBERT L. WILSON joined the Company in January 1991 and has served since July
1991, as its Executive Vice President, Chief Operating Officer and a director.
From October 1988 until July 1990, Mr. Wilson served as Operations Manager of
MANH - Financial Services Corp. For more than 25 years prior thereto, Mr. Wilson
served in various positions with American Credit Corporation and its successor,
Barclays American Corporation, including as Southeastern Regional Manager and
Executive Vice President of Barclays American Credit Division.
ALLAN F. ROSS joined the Company in March 1997, and has served as Vice President
and Corporate Controller since April 1997, and as a Director, Secretary,
Treasurer and Chief Financial Officer since February 1998. From 1989 to 1997,
Mr. Ross was the managing partner of a CPA and consulting practice. From 1978 to
1989, Mr. Ross was Vice President and Financial Controls Director of Barclays
American Corporation. From 1974 to 1978, Mr. Ross was a practicing CPA with
Arthur Andersen & Company, and with Deloitte and Touche, LLP. He is a certified
public accountant.
C.L. THAXTON, SR. has served on the Board of Directors of the Company since it
was founded. Mr. Thaxton is a director of Thaxton Insurance, which he founded in
1950 and is the manager of its Pageland branch office. Mr. Thaxton is the father
of James D. Thaxton.
All directors hold office until the next annual meeting of shareholders or until
their successors have been duly elected and qualified. The Company's executive
officers are appointed by and serve at the discretion of the Board.
The Board of Directors has established a Compensation Committee which makes
recommendations concerning salaries and incentive compensation for executive
officers and other employees of the Company and administers the Company's stock
plans. The Board has also established an Audit Committee, which recommends to
the Board of Directors the selection of the Company's independent auditors and
reviews the results and scope of the audit and other services provided by the
independent auditors. Directors do not receive any compensation from the Company
for their service as members of the Board of Directors. All directors are
reimbursed for reasonable expenses incurred by them in attending Board and Board
committee meetings.
29
ITEM 10. EXECUTIVE COMPENSATION
The table below shows the compensation paid or accrued by the Company, for the
year ended December 31, 1999, to or for the account of the Chief Executive
Officer and its only other executive officer whose total salary and bonus
exceeded $100,000 during 1999 (together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
----------------------
NAME AND PRINCIPLE POSITION YEAR SALARY ($) BONUS ($)
--------------------------- ---- ---------- ---------
James D. Thaxton, President 1999 113,880 92,757
And Chief Executive Officer 1998 119,419 62,317
Robert L. Wilson, Executive 1999 125,280 5,102
Vice President (1) 1998 135,444 0
(1) Upon the closing of the Company's initial public offering on December
29, 1995, Mr. Wilson was awarded 100,000 shares of restricted common
stock. Subject to his continued employment by the Company, the award was
scheduled to vest in ten annual installments which commenced on the date
of the grant. At December 31, 1997, 20,000 shares had vested, 10,000
shares had been voluntarily forfeited by Mr. Wilson, and 70,000 shares of
the award remained subject to restriction. In 1998, Mr. Wilson
voluntarily agreed to forfeit any remaining rights or interest in these
shares, and the Company repurchased his outstanding 20,000 shares at a
price of $10 per share.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the common stock at March 21, 2000 by: (i) the only
person who is the beneficial owner of more than five percent of the outstanding
common stock; (ii) each director; and (iii) directors and officers of the
Company as a group.
NUMBER OF SHARES AND NATURE OF PERCENTAGE OF COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING(1)
------------------------ -------------------- --------------
James D. Thaxton 6,456,000 (2) 92.6%
C. L. Thaxton, Sr. 15,555 (3) *
Directors and officers as a group 6 ,471,555 92.8%
(1) An asterisk (*) indicates less than one percent
(2) Includes 1,112,828 shares held by a family limited partnership as
to which Mr. Thaxton shares voting and investment power.
(3) Includes 15,222 shares held of record by Mr. Thaxton's spouse,
Katherine D. Thaxton, as to which Mr. Thaxton shares voting and
investment power.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK TRANSACTIONS WITH DIRECTORS
In December 1997, the Company, through a private placement, issued 27,076 shares
of 7.5% cumulative redeemable convertible Series B preferred stock to Jack
Robinson, a Director of the Company at the time. The terms of this transaction
involved the exchange of one share of common stock for one share of preferred
stock.. In July 1998, the Company, through a private placement, exchanged all of
the 27,076 shares of outstanding Series B Preferred stock, plus 29,200 shares of
common stock, for 56,276 shares of Cumulative Series D preferred stock. The
Series D preferred stock pays annual dividends of $ .80 per share, and is
redeemable at any time by the company at $10 per share. In January 1999, Mr.
Robinson resigned from the Board of Directors. At his request, the Company
repurchased his Series D preferred stock, plus all of his remaining common stock
at $10 per share.
In January 1999, Mr. Perry Mungo resigned from the Board of Directors and, at
his request, the Company repurchased all of his remaining common stock (29,200
shares) at $10 per share.
DISPOSITION OF ASSETS
On March 1, 2000, the Company transferred all of the assets of certain insurance
agency operations into a newly-formed company named Thaxton RBE, Inc. ("RBE").
The assets consist of approximately 40 non-standard automobile insurance agency
offices in North Carolina, Arizona, New Mexico, Nevada and Colorado. These
agencies offer an insurance product in which the Company bears insurance
underwriting risk. After the transfer, this risk will be assumed by RBE. Also
transferred were the assets and liabilities of insurance general agencies in
Virginia and South Carolina. Both of these general agencies also offer products
which bear insurance underwriting risk that will be assumed by RBE. The total
amount of the assets transferred approximates $9 million, the majority of which
are intangible. In connection with the transaction, RBE assumed approximately $2
million in liabilities to third parties and issued a $7 million note payable to
the Company.
The purpose of the transfer was to reduce the Company's equity in the
transferred assets and its exposure to the related underwriting risk and raise
additional capital from investors to fund growth in RBE's insurance activities.
Immediately subsequent to the formation and asset transfer, Thaxton Life
Partners, Inc. ("Thaxton Partners") invested $2,000,000 in the capital stock of
RBE and obtained a 90% interest in this company as a result of the investment.
Thaxton Partners is a company owned by James D. Thaxton (Thaxton
Group Chairman and majority shareholder); C. L. Thaxton (a Thaxton Group
director); and other Thaxton family members.
30
SIGNATURES
In accordance with Section 13 or 15(d) 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: April 14, 2000 By:/s/ ALLAN F. ROSS
--------------------
Allan F. Ross
Vice President and Chief
Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
/s/ JAMES D. THAXTON President, Chief Executive Officer April 14, 2000
- -------------------- and Chairman of the Board of Directors
James D. Thaxton
/s/ ALLAN F. ROSS Vice President, Chief Financial Officer April 14, 2000
- ----------------- (Principle Accounting and Financial
Allan F. Ross Officer) and Director
/s/ ROBERT L. WILSON Executive Vice President and Director April 14, 2000
- --------------------
Robert L. Wilson
/s/ C. L. THAXTON, SR. Director April 14, 2000
- ----------------------
C. L. Thaxton, Sr.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
No annual report or proxy statement has been sent to security holders. An annual
report will be furnished to security holders subsequent to the filing of the
annual report on this Form.
31
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3.1 Second Amended and Restated Articles of Incorporation of The Thaxton
Group, Inc. (3)
3.2 Bylaws of the Thaxton Group, Inc. (1)
4.1 Form of Indenture, dated as of February 17, 1998, between the Company and
The Bank of New York, as Trustee (4)
4.2 Form of Subordinated Daily Note (included as Exhibit A to Form of
Indenture) (4)
4.3 Form of Subordinated One Month Note (included as Exhibit B to Form of
Indenture) (4)
4.4 Form of Subordinated Term Note for 6, 12, 36 and 60 Month Notes
(included as Exhibit C to Form of Indenture) (4)
10.1 The Thaxton Group, Inc. 1995 Stock Incentive Plan (1)
10.2 The Thaxton Group, Inc. Employee Stock Plan (1)
10.3 Share Exchange Agreement by and among The Thaxton Group, Inc., Thaxton
Insurance Group, Inc., James D. William H. Thaxton and Calvin L. Thaxton,
Jr. (2)
10.4 Form of Stock Purchase Agreement by and between the Thaxton Group, Inc.
and Jack W. Robinson and affiliates. (4)
10.5 Share Exchange Agreement dated July 1, 1998, between The Thaxton Group,
Inc. and Jack W. Robinson and affiliates (4)
10.6 Second Amended and Restated Loan and Security Agreement dated August 30,
1999 among FINOVA Capital Corporation, The Thaxton Group, Inc., Thaxton
Operating Company, Thaxton Insurance Group, Inc., TICO Credit Company,
Inc., Eagle Premium Finance Co., Inc., Thaxton Commercial Lending, Inc.,
and Paragon Lending, Inc. (4)
10.6(a)Schedule to Second Amended and Restated Loan and Security Agreement
dated August 30, 1999 among Finova Capital Corporation, The Thaxton
Group, Inc., Thaxton Operating Company, Thaxton Insurance Group, Inc.,
TICO Credit Company, Inc., Eagle Premium Finance Co, Inc., Thaxton
Commercial Lending, Inc., and Paragon Lending, Inc. (4)
10.7 Loan and Security Agreement dated January 25, 1999 among Finova Capital
Corporation, Thaxton Investment Corporation, TICO Credit Company
(Mississippi), Modern Finance Company, TICO Credit Company (Kentucky),
TICO Credit Company (Tennessee), Southern Management Corporation, Modern
Financial Services, Inc., Southern Finance of South Carolina, Inc.,
Covington Credit of Texas, Inc., Covington Credit of Georgia, Inc. and
Southern Finance of Tennessee, Inc. (4)
10.7(a)Second Amended and Restated Schedule to Loan and Security Agreement
dated August 30, 1999 among Finova Capital Corporation, Thaxton
Investment Corporation, TICO Credit Company (Mississippi), Modern
Finance Company, TICO Credit Company (Kentucky), TICO Credit Company
(Tennessee), Southern Management Corporation, Modern Financial Services,
Inc., Southern Finance of South Carolina, Inc., Covington Credit of
Texas, Inc., Covington Credit of Georgia, Inc. and Southern Finance of
Tennessee, Inc. (4)
10.8 Plan of Share Exchange Agreement, dated September 30, 1999 by and among
The Thaxton Group, Inc., Thaxton Operating Company, thaxton Investment
Corporation and James D. Thaxton. (4)
21 Subsidiaries of The Thaxton Group, Inc.
27 Financial Data Schedule
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2, Commission File No. 33-97130-A.
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995.
(3) Incorporated by reference to the Company's Annual Report on Form 10-QSB for
the year ended December 31, 1996.
(4) Incorporated by reference to the Company's Amendment No. 2 to the
Registration Statement on Form SB-2, Commission File No. 33-42623.
(B) REPORTS ON FORM 8-K
On November 12, 1999, the Company filed a Current Report on Form 8-K to report
the Company's acquisition of all of the outstanding shares of common stock of
Thaxton Investment Corportion.
On March 16, 2000, the Company filed a Current Report on Form 8-K to report the
transfer of the assets of certain insurance agency operations into a
newly-formed company, Thaxton RBE, Inc.
32