TFC Enterprises Announces Execution of Definitive Merger Agreement With Consumer Portfolio Services, Inc.; Fiscal 2002 Results; And Extension of Its Credit Facility With Its Principal Lender
NORFOLK, Va., April 1 -- TFC Enterprises, Inc. , a specialty consumer finance company, today announced that it has executed a definitive agreement with Consumer Portfolio Services, Inc. ("CPSS") in which CPSS has agreed to acquire TFCE in a cash for stock merger valued at $1.87 per share of TFCE common stock. The boards of both companies have approved the merger agreement.
The transaction is subject to approval by the stockholders of TFCE, is subject to certain conditions, and is scheduled to be completed before the end of May, 2003.
"We are convinced that the proposed transaction with CPSS is in the best interests of our shareholders," said Robert S. Raley, TFCE's founder and Chief Executive Officer. "The combination of our two operations will offer new opportunities for our employees and enable our dealers to offer their customers a wider range of financing options," Raley said. TFCE received a fairness opinion relating to this transaction from Houlihan Lokey Howard and Zukin.
TFCE will be sending a proxy statement to its shareholders seeking their approval of the proposed transaction. Investors and security holders are advised to read the proxy statement for further information. When filed, the proxy statement, as well as other SEC filings, can be obtained free of charge from the web site maintained by the SEC at www.sec.gov.
TFCE and its respective directors and executive officers may be deemed to be participants in the solicitation of proxies in respect of the transactions contemplated by the merger agreement. Information regarding TFCE's directors and officers is contained in TFCE's proxy statement dated October 17, 2002 which is filed with the SEC. Additional information regarding the interests of these participants may be obtained by reading the proxy statement regarding the proposed transaction when it becomes available.
TFCE also reported 2002 results. In accordance with FAS 142, TFCE has completed its transitional impairment evaluation of TFCE's goodwill. Effective January 1, 2002, TFCE adopted FASB Statement Number 142, Goodwill and Other Intangible Assets. TFCE has determined the impairment of goodwill is $6.8 million and as required by FAS 142 is recorded as a change in accounting principle.
For the year ended December 31, 2002, income from continuing operations totaled $2,872,000, or $0.24 per diluted share, compared with income from continuing operations of $4,597,000, or $0.39 per diluted share for the previous year. For the year ended December 31, 2002, net loss totaled $(4,031,000) or $(0.34) per diluted share, compared with net income of $5,076,000, or $0.43 per diluted share, for the previous year.
On October 1, 2002, the Board of Directors authorized TFCE, as the sole shareholder of First Community Finance, to sell substantially all the assets of First Community Finance. On November 4, 2002, TFCE sold the majority of its consumer finance receivables to an unrelated third party "buyer" for approximately $21 million. Pursuant to the terms of the transaction, the buyer offered employment to the majority of First Community Finance's employees and assumed all of the leases relating to the branch locations. Total net proceeds were paid on the closing date in cash. Pursuant to the terms of the transaction, TFCE has retained approximately $3.8 million in consumer finance receivables. TFCE has stopped originating loans through First Community Finance and is currently attempting to collect the remaining receivables. First Community Finance has been accounted for as discontinued operations. Unless otherwise noted, disclosures herein pertain to TFCE's continuing operations.
Summary of Financial Highlights
($ in thousands except per share amounts)
Twelve months ended December 31
2002 2001 Change
Contract volume $113.9 $185.4 (39%)
60+ days delinquencies
to gross contract
receivables, period end 5.91% 6.16% (25 bps)
Net charge-off to average
gross contract receivables
net of unearned interest 13.99% 16.79% (280 bps)
Yield on interest-earning
assets 18.31% 20.15% (184 bps)
Cost of interest-bearing
liabilities 8.80% 9.93% (113 bps)
Operating expense as a
percentage of
interest-earning assets 8.84% 9.06% (22 bps)
Net income from
continuing operations $2,872 $4,597 (38%)
Net income per
diluted common share
from continuing operations $0.24 $0.39 (38%)
Net income (loss) $(4,031) $5,076 $(9,107)
Net income (loss)
per diluted common share $(0.34) $0.43 $(0.77)
Point of sale auto finance contract volume totaled $25.6 million for the fourth quarter of 2002 and $38.4 million in the fourth quarter of 2001. For the year of 2002, point of sale auto finance contract purchase volume was $113.9 million, a decrease of $57.9 million, or 34%, compared to the year of 2001. Point of sale contract purchases volume is down as a result of increased competition for the military contract purchases, fewer stateside military due to increased overseas deployments, and a more selective buying program in TFCE's military and non-military purchases. There was no Bulk auto finance contract volume for the year of 2002 compared to $0.1 million for the second quarter of 2001 and $13.5 million for the first quarter of 2001. As previously announced, TFCE ceased purchasing Bulk Acquisitions from "Buy Here Pay Here" automobile dealers in March 2001.
60+ delinquencies were 5.91% of gross contract receivables outstanding at December 31, 2002, versus 6.16% at December 31, 2001. 30+ delinquencies were 8.12% of gross contract receivables outstanding at December 31, 2002, versus 9.16% at December 31, 2001.
Net loan charge-offs, as a percentage of average contract receivables (net of unearned interest), calculated on an annualized basis, decreased to 13.16% for the fourth quarter of 2002, from 20.06% for the fourth quarter of 2001 and decreased to 13.99% for the year of 2002 from 16.79% for the year of 2001.
Operating expense as a percentage of interest-earning assets, calculated on an annualized basis, increased to 9.71% for the fourth quarter of 2002 from 8.98% for the fourth quarter of 2001 and decreased to 8.84% for the year of 2002 from 9.06% for the year of 2001. Included in the fourth quarter of 2002 is a $0.3 million charge related to expenses incurred for strategic alternatives. Excluding this expense, operating expense as a percentage of interest-earning assets, calculated on an annualized basis, would have been 9.00% for the fourth quarter of 2002 and 8.68% for the year of 2002.
The yield on interest-earning assets decreased to 18.09% for the fourth quarter of 2002 from 18.44% for the fourth quarter of 2001 and decreased to 18.31% for the year of 2002 from 20.15% for the year of 2001. During fourth quarter of 2002 and the fourth quarter of 2001, $1.6 million, and $0.7 million respectively was not accreted to income but rather reclassified to nonrefundable reserve. For 2002 and 2001 respectively, $2.7 million and $0.7 million was reclassified from unearned discount to non-refundable reserves to absorb charge-offs. This reclassification allows TFCE to maintain reserves at adequate levels. The operations of TFCE have been favorably impacted by new programs directed at higher quality loans with lower APR's.
The cost of interest-bearing liabilities decreased to 8.22% for the fourth quarter of 2002 from 9.25% for the fourth quarter of 2001 and decreased to 8.80% for the year of 2002 from 9.93% for the year of 2001. Provided there are no increases in interest rates TFCE anticipates it will continue to benefit from the interest rate reductions. Additionally, TFCE has been successful in accessing the securitization market at not only lower rates, but on a fixed term as well.
TFCE also announced an extension of its credit facility with its principal lender until the earliest to occur of the consummation of the CPS merger, the termination of the merger agreement for any reason and May 31, 2003.
TFCE disclosed that due to its inability to replace its material credit facilities through January 1, 2004, the audit report relating to its December 31, 2002 financial statements contained in its Annual Report on Form 10-K which was filed today with the SEC contains a "going concern" explanatory paragraph. Although this explanatory paragraph causes certain defaults to occur in certain of its credit facilities, TFCE has obtained waivers of this default.
For a financial profile, press releases, and additional information on TFC Enterprises, Inc., please visit TFCE's individual webpages at www.tfcenterprises.com. You can also visit Corporate Window at their web site http://www.corporatewindow.com/.
In addition to the historical information, statements included in this press release, by TFCE's management team, may contain forward-looking statements that are subject to risks and uncertainties that could cause TFCE's results to differ materially from those anticipated in forward-looking statements. Readers are cautioned not to place undue reliance on forward- looking statements. For example, the statement that the merger is scheduled to close before the end of May, 2003 is a forward-looking statement. Factors that could cause the transaction not to close at that time, or not at all, include the possibility that TFCE shareholders may not approve of the transaction, that TFCE may not have cash on hand or financing in place to repay its principal lender at the closing, or that certain required consents may not have been obtained. In general, all statements other than statements of historical fact are statements that could be deemed forward-looking statements. In accordance with the Private Securities Litigation Reform Act of 1995, the following are among the factors that could cause TFCE's actual results to differ materially from those expressed or implied by such forward- looking statements: the inability of TFCE to obtain favorable credit facilities to replace its current facility with its principal lender, a rise in interest rates, a deterioration of credit experience, competitive pricing and other factors, the loss of or reduction in its credit facilities, or if TFCE were to face increased competition. Investors are encouraged to review TFC Enterprises SEC filings, including its 2002 Annual Report on Form 10-K, filed today with the SEC, for more information about the factors affecting TFCE's business.
TFC Enterprises, Inc. conducts its operations primarily through THE Finance Company, a wholly-owned subsidiary, which specializes in purchasing and servicing installment sales contracts originated by automobile and motorcycle dealers. Based in Norfolk, VA, TFC Enterprises, Inc. has contract production offices of THE Finance Company throughout the United States. The company's common stock symbol is listed on Nasdaq National Market and trades under the symbol "TFCE."
NOTE: Detailed supplemental information follows.
TFC ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
12/31/02 12/31/01
(dollars in thousands)
Assets
Cash and cash equivalents $ 285 $ 414
Restricted cash 22,441 23,176
Net contract receivables 150,221 182,875
Property and equipment, net 1,508 1,851
Goodwill, net -- 6,777
Intangible assets, net 649 927
Net assets from discontinued operations 2,286 26,826
Other assets 4,188 3,940
Total assets $ 181,578 $ 246,786
Liabilities and shareholders' equity
Liabilities
Revolving lines of credit $ 19,386 $ 97,143
Automobile receivables-backed notes 96,780 55,056
Subordinated notes and other debt 9,755 12,377
Accounts payable and accrued expenses 1,767 2,654
Income taxes payable and
other liabilities 6,459 6,234
Refundable dealer reserve 304 711
Net liabilities from
discontinued operations 57 21,530
Total liabilities 134,508 195,705
Shareholders' equity:
Common stock, $.01 par value,
40,000,000 shares authorized,
11,551,033 and 11,534,890 outstanding
at 12/31/02 and 12/31/01 51 51
Additional paid-in capital 56,207 56,187
Retained deficit (9,188) (5,157)
Total shareholders' equity 47,070 51,081
Total liabilities and
shareholders' equity $ 181,578 $ 246,786
TFC ENTERPRISES, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three months ended Twelve months ended
12/31/02 12/31/01 12/31/02 12/31/01
(in thousands, except
per share amounts)
Interest and other $ 7,681 $ 9,697 $ 33,437 $ 45,117
finance revenue
Interest expense 2,713 3,869 12,790 17,548
Net interest revenue 4,968 5,828 20,647 27,569
Provision for
credit losses 615 634 899 756
Net interest revenue
after provision for
credit losses 4,353 5,194 19,748 26,813
Other revenue 288 285 1,110 1,492
Total net interest and
other revenue 4,641 5,479 20,858 28,305
Operating expense:
Salaries 1,698 2,177 7,406 9,944
Employee benefits 346 385 1,557 1,887
Occupancy 143 244 765 853
Equipment 291 308 1,155 1,300
Amortization of
intangible assets 70 273 278 1,091
Other 1,574 1,336 4,983 5,206
Total operating expense 4,122 4,723 16,144 20,281
Income before
income taxes 519 756 4,714 8,024
Provision for
income taxes 206 382 1,842 3,427
Net income from
continuing operations $ 313 $ 374 $ 2,872 $ 4,597
Income (loss) from
discontinued operations (260) 119 (126) 479
Cumulative effect of
change in
accounting principle -- -- (6,777) --
Net income (loss) $ 53 $ 493 $ (4,031) $ 5,076
Net income per
common share from
continuing operations:
Basic $ 0.02 $ 0.03 $ 0.25 $ 0.40
Diluted $ 0.02 $ 0.03 $ 0.24 $ 0.39
Discontinued operations:
Basic $ (0.02) 0.01 $ (0.01) $ 0.04
Diluted $ (0.02) 0.01 $ (0.01) $ 0.04
Cumulative effect of
change in accounting
principle:
Basic $ -- $ -- $ (0.59) $ --
Diluted $ -- $ -- $ (0.57) $ --
Net income (loss)
per common share:
Basic $ 0.00 $ 0.04 $ (0.35) $ 0.44
Diluted $ 0.00 $ 0.04 $ (0.34) $ 0.43
TFC ENTERPRISES, INC.
FINANCIAL HIGHLIGHTS
(Unaudited)
Three months Twelve months
ended ended
December 31, December 31,
(dollars in thousands) 2002 2001 2002 2001
Contracts purchased or
originated:
Auto finance:
Point-of-sale $25,586 $38,428 $113,936 $171,776
Bulk -- -- -- 13,651
Total $25,586 $38,428 $113,936 $185,427
Average balances:
Interest-earning assets $169,841 $210,317 $182,591 $223,897
Total assets 185,020 222,746 197,025 230,670
Interest-bearing liabilities 132,131 167,226 145,306 176,673
Equity 47,094 50,671 46,557 48,716
Performance ratios (annualized,
as appropriate)
Return on average common equity * 2.66% 2.96% 6.17% 9.44%
Return on average assets * 0.68 0.67 1.46 1.99
Yield on interest-earning assets 18.09 18.44 18.31 20.15
Cost of interest-bearing
liabilities 8.22 9.25 8.80 9.93
Net interest margin 11.70 11.09 11.31 12.31
Operating expense as a percentage
of Average interest-earning assets 9.71 8.98 8.84 9.06
Total net charge-offs to average
gross contract receivables,
net of unearned interest 13.16 20.06 13.99 16.79
60+ days delinquencies to period-end
gross contract receivables 5.91 6.16 5.91 6.16
30+ days delinquencies to period-end
gross contract receivables 8.12 9.16 8.12 9.16
Total allowance, nonrefundable
reserve and unearned discount to
period end gross contract
receivables, net of
unearned interest 6.07 7.45 6.07 7.45
Equity to assets, period end 26.25 23.22 26.25 23.22
* Prior to cumulative effect of accounting change.