TFC ENTERPRISES INC - 10-Q Quarterly Report

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THIS REPORT HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION VIA EDGAR

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2003

Commission File No. 0-22910

T F C E N T E R P R I S E S, I N C.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

54-1306895
(I.R.S. Employer
Identification No.)

5425 Robin Hood Road
Suite 101 B
Norfolk, Virginia 23513
(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code — (757) 858-1400

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No x

As of May 15, 2003, there were 11,551,033 outstanding shares of the registrant’s $.01 par value per share common stock.

TFC ENTERPRISES, INC.
QUARTERLY REPORT ON FORM 10-Q FOR
THE THREE MONTHS ENDED MARCH 31, 2003

Table of Contents and 10-Q Cross Reference Index

		Page No.
Part I	Financial Information

	Financial Highlights	3

	Financial Statements-Unaudited (Item 1)
	Consolidated Balance Sheets	5
	Consolidated Statements of Income	6
	Consolidated Statements of Changes in Shareholders’ Equity	8
	Consolidated Statements of Cash Flows	9
	Notes to Consolidated Financial Statements	10

	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)	15

	Quantitative and Qualitative Disclosures about Market Risk (Item 3)	23

	Disclosure Controls and Procedures (Item 4)	24

Part II	Other Information

	Exhibits and Reports on Form 8-K (Item 6)	25

Signatures	27

Certifications	28-30

Index to Exhibits	31

TFC ENTERPRISES, INC.
FINANCIAL HIGHLIGHTS
(Unaudited)

	Three months ended March 31,

(in thousands, except per share amounts)	2003			2002

Income from continuing operations	$	308		$	1,014
Income (loss) from discontinued operations, net of taxes	$	(13	)	$	26
Cumulative effect of change in accounting principle		—		$	(6,777	)
Net income (loss)	$	295		$	(5,737	)
Net income per basic common share from continuing operations	$	0.03		$	0.09
Net income per diluted common share from continuing operations	$	0.03		$	0.09
Net income (loss) per basic common share from discontinued operations, net of taxes		—			—
Net income (loss) per diluted common share from discontinued operations, net of taxes		—			—
Net income (loss) per basic common share from cumulative effect of change in accounting principle		—		$	(0.59	)
Net income (loss) per diluted common share from cumulative effect of change in accounting principle		—		$	(0.57	)
Net income (loss) per basic common share	$	0.03		$	(0.50	)
Net income (loss) per diluted common share	$	0.03		$	(0.48	)
Average common shares outstanding (in thousands)		11,551			11,536

Performance ratios (annualized, as appropriate)
Return on average common equity (b)		2.61	%		8.71	%
Return on average assets (b)		0.70			1.90
Yield on interest-earning assets		17.36			18.63
Cost of interest-bearing liabilities		9.45			8.91
Net interest margin		10.20			11.34
Operating expense as a percentage of average interest-earning assets		9.30			8.52
Total net charge-offs to average gross contract receivables (a)		11.49			19.08
60+ days delinquencies to period-end gross contract receivables (d)		12.58			4.96
30+ days delinquencies to period-end gross contract receivables (d)		14.25			6.88
Total allowance, nonrefundable reserve and unearned discount to period end gross contract receivables, net of unearned interest		14.87			5.96
Total allowance, nonrefundable reserve and unearned discount to period end gross contract receivables , net of unearned interest (c )		5.85			5.96
Equity to assets, period end		27.61			18.93

Average balances:
Interest-earning assets (a)	$	160,724	$	198,530
Total assets		175,416		213,568
Interest-bearing liabilities		121,783		162,169
Equity		47,260		46,555

Note:

Throughout this report, ratios are based on unrounded numbers and factors contributing to changes between periods are noted in descending order of materiality.

(a)

Gross contract receivables net of unearned interest revenue less restoration of net contract receivables in the amount of $16,572,000 at March 31, 2003 and $0 at March 31, 2002.

(b)

Before income (loss) from discontinued operations and cumulative effect of change in accounting principle.

(c)

Nonrefundable reserve is net of $16.6 million of reserve attributable to restoration of net contract receivables.

(d)

Includes restoration of net contract receivables in the amount of $16,572,000 at March 31, 2003 and $0 at March 31, 2002.

TFC ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

(in thousands, except share amounts)	March 31, 2003			December 31, 2002 (a)


Assets
Cash and cash equivalents	$	1,191		$	285
Restricted cash		18,220			22,441
Net contract receivables		147,097			150,221
Equipment and leasehold improvements, net		1,393			1,508
Intangible assets, net		579			649
Net assets from discontinued operations		1,823			2,286
Other assets		3,042			4,188

Total assets	$	173,345		$	181,578


Liabilities and shareholders’ equity
Liabilities:
Revolving lines of credit	$	29,204		$	19,386
Automobile receivables-backed notes		80,625			96,780
Subordinated notes and other term debt		8,806			9,755
Accounts payable and accrued expenses		1,239			1,767
Income taxes payable and other liabilities		5,823			6,459
Net liabilities from discontinued operations		27			57
Refundable dealer reserve		256			304

Total liabilities		125,980			134,508
Shareholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; none outstanding		—			—
Common stock, $.01 par value, 40,000,000 shares authorized; 11,551,033 and 11,551,033 shares issued and outstanding, respectively		51			51
Additional paid-in capital		56,207			56,207
Accumulated deficit		(8,893	)		(9,188	)

Total shareholders’ equity		47,365			47,070

Total liabilities and shareholders’ equity	$	173,345		$	181,578

See accompanying Notes to Consolidated Financial Statements.

(a)

The 12/31/02 numbers were extracted from the audited financial statements.

TFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

	Three months ended March 31,

(in thousands, except per share amounts)	2003			2002

Interest and other finance revenue	$	6,974		$	9,244
Interest expense		2,876			3,613

Net interest revenue		4,098			5,631
Provision for credit losses		59			45

Net interest revenue after provision for credit losses		4,039			5,586

Other revenue:
Commissions on ancillary products		117			189
Other		85			130

Total other revenue		202			319

Total net interest and other revenue		4,241			5,905

Operating expense:
Salaries		1,763			2,036
Employee benefits		356			465
Occupancy		148			184
Equipment		307			297
Amortization of intangible assets		70			70
Other		1,093			1,178

Total operating expense		3,737			4,230

Income before income taxes		504			1,675
Provision for income taxes		196			661

Income from continuing operations	$	308		$	1,014

Income (loss) from discontinued operations		(13	)		26
Cumulative effect of change in accounting principle		—			(6,777	)
Net income (loss)	$	295		$	(5,737	)

Net income per common share from continuing operations:
Basic	$	0.03		$	0.09
Diluted	$	0.03		$	0.09
Discontinued operations:
Basic	$	—		$	—
Diluted	$	—		$	—

Cumulative effect of change in accounting principle: