-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KBTV6Iz8zYkn9qwA1wrMO1pmQ7vreoee6VQdASRGsU3AXTFdeFlcm/hQMRmgP+A5 QgIQaMBkh7mZq90u42GB5g== 0000950168-00-001018.txt : 20000417 0000950168-00-001018.hdr.sgml : 20000417 ACCESSION NUMBER: 0000950168-00-001018 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THAXTON GROUP INC CENTRAL INDEX KEY: 0001001430 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 570669498 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27086 FILM NUMBER: 602457 BUSINESS ADDRESS: STREET 1: 1524 PAGELAND HIGHLAND CITY: LANCASTER STATE: SC ZIP: 29270 BUSINESS PHONE: 8032854336 MAIL ADDRESS: STREET 1: P O BOX 1069 CITY: LANCASTER STATE: SC ZIP: 29721 10-K 1 THE THAXTON GROUP 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. ----------------------- (Name of small business issuer in its charter) SOUTH CAROLINA 57-0669498 -------------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1524 PAGELAND HIGHWAY, LANCASTER, SOUTH CAROLINA 29720 ------------------------------------------------------ (Address of principal executive offices) Issuer's telephone number: 803-285-4337 Securities registered under Section 12(b) of the Exchange Act: Name of each exchange Title of each class on which registered ------------------- ------------------- None None Securities registered under Section 12(g) of the exchange Act: Title of each class ------------------- 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 ---- ---- 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, ------------------------- 1999 1998 ---- ---- 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. 7 1999 1998 ---- ---- 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 ---------- --------- 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% ----- ----- 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 ------ ------
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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 EX-21 2 SUBSIDIARIES OF THE THAXTON GROUP, INC. EXHIBIT 21 SUBSIDIARIES OF THE THAXTON GROUP, INC. As of April 1, 2000
THAXTON OPERATING COMPANY THAXTON INVESTMENT CORPORATION TICO CREDIT COMPANY, INC. (SC) MODERN FINANCE COMPANY, INC. (OH) D/b/a TICO Credit Company D/b/a TICO Credit Company TICO PREMIUM FINANCE COMPANY, INC. (SC) MODERN FINANCIAL SERVICES, INC. THAXTON COMMERCIAL LENDING, INC. (SC) D/b/a TICO Financial Services PARAGON, INC. (SC) PEOPLES MOTOR CO. (OHIO) D/b/a Paragon Lending, Inc. TICO CREDIT COMPANY (MS) D/b/a Paragon Lending FITCH INSURANCE AGENCY, INC. (MS) D/b/a Paragon, Inc. (South Carolina) FITCH NATIONAL REINSURANCE, LTD. (TURKS AND CAICOS) TICO REINSURANCE LTD. (TURKS AND CAICOS) TICO CREDIT COMPANY (TN) EAGLE PREMIUM FINANCE CO., INC. (VA) TICO CREDIT COMPANY (DE) D/b/a TICO Premium Finance Company SOUTHERN MANAGEMENT CORPORATION (SC) CFT FINANCIAL CORP. (NC) SOUTHERN FINANCE OF TENNESSEE, INC. (TN) TICO CREDIT COMPANY OF NORTH CAROLINA, INC. (NC) D/b/a Covington Credit D/b/a TICO Credit Company SOCO REINSURANCE, LTD. (TURKS AND CAICOS) TICO CREDIT COMPANY OF TENNESSEE, INC. (TN) COVINGTON CREDIT OF TEXAS, INC. (TX) D/b/a TICO Credit Company D/b/a Southern Finance THAXTON INSURANCE GROUP, INC. (SC) SOUTHERN FINANCIAL MANAGEMENT, INC. (SC) THAXTON RBE, INC. (SC) COVINGTON CREDIT OF GEORGIA, INC. (GA) D/b/a Thaxton Insurance Group D/b/a Southern Finance Company D/b/a Lakeside Insurance Agency SOUTHERN FINANCE OF SOUTH CAROLINA, INC. (SC) D/b/a The Insurance Shoppe D/b/a Southern Finance Company D/b/a Auto Security Agency D/b/a Southern Finance Company of Charleston D/b/a Auto Security Agency/Safeguard D/b/a Southern Finance Company of Columbia D/b/a Auto Cycle Insurance Agency D/b/a Southern Finance Company of Orangeburg D/b/a American United Insurance Agency D/b/a Southern Finance Company of Sumter D/b/a Insur A Car D/b/a Southern Finance Company of Georgetown ATLANTIC SOUTHERN INSURANCE GROUP, INC., G.A. (SC) D/b/a Southern Finance Company of Spartanburg THAXTON CLAIMS MANAGEMENT SERVICES, INC. ( SC) D/b/a Southern Finance Company of Abbeville US FINANCIAL GROUP AGENCY, INC. (VA) D/b/a Covington Credit of South Carolina THAXTON INSURANCE GROUP OF ARIZONA, INC. (AZ) D/b/a SoCo Finance Company D/b/a The Insurance Center D/b/a Southern Finance Co. D/b/a Inter City Agency D/b/a National Insurance D/b/a Able Insurance D/b/a Cooksey Insurance D/b/a Hotline Insurance D/b/a Insurance Hotline D/b/a Inter City Associates D/b/a North City Agency D/b/a South City Agency D/b/a West City Agency D/b/a Mex-Am Insurance Agency D/b/a East City Agency THAXTON INSURANCE GROUP OF NEVADA, INC. (NV) D/b/a National Insurance D/b/a Inter City Agency THAXTON INSURANCE GROUP OF NEW MEXICO (NM) D/b/a Inter City Agency NIC OF ARIZONA, INC. (AZ)
EX-27 3 FDS
5 YEAR YEAR DEC-31-1999 DEC-31-1998 DEC-31-1999 DEC-31-1998 2,036,104 780,864 0 28,630 224,570,140 80,684,786 10,661,339 4,710,829 0 0 0 0 13,624,697 5,391,376 7,366,108 2,547,623 237,353,605 78,996,012 0 0 211,923,199 62,923,199 0 0 10,104 10,813 69,754 38,852 9,722,723 12,879,207 237,353,605 78,996,012 0 0 84,334,162 23,280,731 0 0 0 0 53,691,003 15,777,486 11,937,679 4,046,460 18,570,670 5,037,289 134,810 (1,580,504) 490,000 (496,487) (355,190) (1,084,017) 0 0 0 0 0 0 (355,190) (1,084,017) (0.26) (0.35) (0.26) (0.35)
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