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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-KSB
                                   (MARK ONE)
(X)   ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                       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 333-28719

                             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 29721
              ------------------------------------------------------
                         (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. $22,583,875
                                                               -----------
      At March 25, 1998, there were 3,959,154 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 most recently sold,
is approximately $3,922,446.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE


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                             THE THAXTON GROUP, INC.
                                   FORM 10-KSB

                                TABLE OF CONTENTS
                                -----------------
Item                                                                                               Page
 No.                                                                                               ----
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                                                      PART I

<C>                                                                                               <C>
1.    Description of Business                                                                     3

2.    Description of Property                                                                    12

3.    Legal Proceedings                                                                          12

4.    Submission of Matters to a Vote of Security Holders                                        12


                                                      PART II

5.    Market for Common Equity and Related Stockholder Matters                                   13
6.    Management's Discussion and Analysis                                                       13
7.    Financial Statements                                                                       22

8.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure       39

                                                     PART III

9.    Directors, Executive Officers, Promoters and Control Persons; Compliance with Section
       16(a) of the Exchange Act                                                                 40

10.   Executive Compensation                                                                     41
11.   Security Ownership of Certain Beneficial Owners and Management                             42
12.   Certain Relationships and Related Transactions                                             42

13.   Exhibits and Reports on Form 8-K                                                           43




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                                                      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, the Company made a strategic
decision to begin diversifying its portfolio by actively seeking to finance
purchases of used automobiles ("Automobile Sales Contracts") by Non-Prime
Borrowers and has since evolved into a diversified consumer financial services
company. The Company also sells credit related insurance products and, through
its subsidiary, Thaxton Insurance Group, Inc. ("Thaxton Insurance"), on an
agency basis, various lines of property and casualty, life, and accident and
health insurance. The Company also entered the mortgage brokerage business
during 1996.

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 consumers with limited credit histories, low incomes, or past
credit problems. 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 non-prime consumer credit market is highly fragmented, consisting
of many national, regional, and local competitors, is characterized by relative
ease of entry and, in the case of used automobile financing, by the recent
arrival of a number of well capitalized publicly-held companies. Management
believes that most of these companies are concentrating their activities on
providing financing to Non-prime Borrowers with less extensive credit problems
who are purchasing late model used cars (coming off lease or former rental cars)
from franchised automobile dealers. By contrast, the Company concentrates on
providing financing to Non-prime Borrowers who have more extensive credit
problems and are purchasing lower-priced, older model automobiles from
independent dealers and making direct loans to Non-prime Borrowers to meet
short-term cash needs.

         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.


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BUSINESS AND GROWTH STRATEGY

         In order to expand its business and improve operating results, the
Company intends to continue to pursue a business strategy based on its (i)
in-depth understanding of the consumer finance business, (ii) ability to
evaluate credit risks associated with the non-prime credit market, (iii)
substantial experience with automobile dealers' financing requirements for
Non-prime Borrowers, (iv) efficient and effective servicing and collection of
its finance receivables, and (v) diversification into additional financial
services activities. The principal components of the Company's business and
growth strategy include:

(bullet)     COMMITMENT TO DIVERSIFICATION -- Unlike many of its competitors who
             specialize in used automobile finance, the Company is a diversified
             consumer financial services company and intends to continue to
             diversify. Although management anticipates that some of the
             Company's growth over the next 12 to 18 months will be in its
             portfolio of Automobile Sales Contracts, Direct Loan, Premium
             Finance Contract origination, and the origination of residential
             mortgage loans will be emphasized as well. Moreover, management
             believes the customer base of Thaxton Insurance will continue to
             provide significant opportunities to cross-sell the Company's
             various financial products and services. The Company operates
             finance offices in a number of markets where Thaxton Insurance
             operates, and in many cases the profile of a Thaxton Insurance
             customer is similar to that of a Non-prime Borrower. An incentive
             program that rewards employees who successfully pursue
             cross-selling opportunities has been in place since 1996. The
             Company is actively seeking to enter other financial services
             businesses.

(bullet)     EXPERIENCED MANAGEMENT -- The management team for the Company's
             lending operations, including its regional supervisors and office
             managers, possesses extensive experience in consumer finance, most
             of which has involved lending to Non-prime Borrowers. The Company
             believes that the retention of this experienced management team is
             critical to the Company's ability to maintain credit quality,
             supervise its operations, and further expand its network of finance
             offices. The management team for the Company's insurance agency
             activities also has extensive experience in insurance agency
             operations.

(bullet)     EXPANSION OF THE COMPANY'S OFFICE NETWORK -- The Company currently
             has a total of 24 finance offices located in Georgia, North
             Carolina, South Carolina, Tennessee, and Virginia. The Company
             currently plans to open at least two additional finance offices in
             1998, either in the states where the Company currently operates or
             in adjacent southeastern states where the Company believes that its
             business strategy is likely to be successful. In deciding where to
             open additional finance offices, the Company intends to concentrate
             on smaller urban areas where the Company is able to hire
             experienced personnel who not only have substantial experience in
             the consumer finance industry but are also familiar with local
             market conditions and have existing relationships with local
             dealers. When management deems it to be advantageous to do so, the
             Company may choose to expand its finance office network through the
             acquisition of other independent finance companies. The Company
             will also seek opportunities to expand its insurance office network
             through acquisition of additional independent insurance agencies in
             markets management believes are attractive.

(bullet)     INCENTIVE COMPENSATION FOR FINANCE OFFICE MANAGEMENT -- The Company
             rewards its finance office managers for business development by
             providing, in addition to a base salary, incentive compensation
             arrangements that are tied to the productivity of their respective
             offices. To ensure credit quality is maintained, however, finance
             office managers must keep their delinquent accounts within certain
             parameters and maintain a certain return on receivables before they
             are eligible to receive the incentive compensation.

(bullet)     STRONG INDEPENDENT DEALER RELATIONSHIPS -- The Company emphasizes
             service by providing independent dealers from whom it purchases
             Automobile Sales Contracts with a timely, reliable, and consistent
             source of financing for purchases of used automobiles by Non-prime
             Borrowers. In hiring managers for existing and new finance offices,
             the Company seeks to identify and recruit individuals with existing
             relationships with dealers in targeted areas.



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(bullet)     SUPERVISION AND MONITORING OF FINANCE OFFICES -- The Company's
             senior management has established policies based on years of
             experience in the non-prime credit market for monitoring and
             supervising all aspects of finance office operations, which serves
             as a counterbalance to the Company's otherwise decentralized
             operations. Each of the Company's regional supervisors conduct
             periodic unannounced visits to each finance office within their
             region to conduct an extensive review of its operations and finance
             receivables recently originated. The supervisors' findings and
             recommendations are reported to senior management, and the
             supervisors are responsible for monitoring future compliance by
             finance office managers with their recommendations.

(bullet)     MANAGEMENT INFORMATION SYSTEMS -- The management information
             systems used by the Company provide management with daily reports
             that contain critical operational information from each finance
             office. This information includes the daily volume of Automobile
             Sales Contracts purchased and Direct Loans made and repossession
             activities. The Company's premium finance business also is highly
             automated, using a separate management information system, and the
             insurance agency operations utilize one of the most widely used
             agency management systems available.

(bullet)     NEW BUSINESS INITIATIVES - During 1996 and 1997, the Company
             continued to expand two business activities. Through Thaxton
             Insurance, the Company expanded its revenue generated selling, on
             an agency basis, property and casualty, life, and accident and
             health insurance, and conducts this business through a network of
             20 insurance offices located in North Carolina and South Carolina.
             The Company presently is developing strategies to increase the
             volume of premiums generated by these offices as well as improving
             the profitability of its insurance agency operations. In addition,
             the Company began a mortgage brokerage operation during the fourth
             quarter of 1996. All of the Company's insurance offices are being
             utilized to take mortgage applications from both prime and
             non-prime borrowers , which are reviewed for compliance with the
             underwriting standards of correspondent lenders at a central
             location. Presently, all mortgage loans are being funded by
             correspondent lenders, which take ownership of the loan immediately
             upon closing. The Company takes no interest rate risk, and has no
             liability to the correspondent lenders in the event of a monetary
             default by the borrower. The Company receives a fee for originating
             the mortgage.

AUTOMOBILE SALES CONTRACT PURCHASES

         Set forth below is a description of the process that the Company
follows in connection with its purchase of an Automobile Sales Contract from an
independent dealer and the sale of ancillary insurance products.

         DEALER SOLICITATION. The Company solicits business from independent
dealers through the business development efforts of the manager of each finance
office and regional supervisors. Dealers in the area are evaluated by the office
manager with a view to ensuring that the Company purchases Automobile Sales
Contracts from reputable dealers carrying an inventory of quality used
automobiles. A relationship with a dealer begins only after the soundness of the
dealer's business is determined by a credit investigation of the dealer,
inquiries with state regulatory agencies and inquiries of local civic and
community organizations. The Company seeks to form relationships with dealers
that have been independently operating for a sufficient period of time to have
established a base of repeat customers with a track record of paying their
obligations under Automobile Sales Contracts despite an otherwise non-prime
credit history. The Company tracks the monthly performance of borrowers'
accounts by dealer, allowing the Company to review and evaluate the quality of
the Automobile Sales Contracts purchased from each dealer. This procedure allows
the Company to terminate business dealings with a dealer quickly if the
Automobile Sales Contracts purchased from that dealer have a higher than average
rate of delinquency.

         DEALER AGREEMENTS. The Company enters into a non-exclusive agreement
with each dealer (a "Dealer Agreement") which sets forth the terms and
conditions under which the Company will purchase Automobile Sales Contracts. The
Dealer Agreement provides that all Automobile Sales Contracts sold to the
Company are without recourse to the dealer with respect to the credit risk of
the borrower, except for Automobile Sales Contracts for vehicles sold to
relatives or employees of the dealer. A Dealer Agreement includes
representations and warranties of the dealer that relate generally to such
matters as whether the dealer has (i) filed an application for a certificate of
title showing a first lien in favor of the Company, (ii) obtained the full down
payment specified in the Automobile Sales Contract either in cash or in the form
of cash and an allowance for a vehicle trade-in and (iii) complied with
applicable state and federal consumer credit protection laws relating to
Automobile Sales Contracts. If the dealer

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breaches the terms of the Dealer Agreement with respect to any Automobile Sales
Contract purchased by the Company or if the dealer's customer withholds payment
as required under any Automobile Sales Contract because of a claim, defense,
counterclaim, or setoff against the dealer, the dealer is obligated to
repurchase the Automobile Sales Contract on demand by the Company for its net
unpaid balance. If the purchaser of the automobile recovers any amount from the
Company as a result of a claim against the dealer, the Dealer Agreement provides
that the dealer will reimburse the Company for any amounts paid the customer and
for any costs incurred as a result of such claim.

         The Dealer Agreement allows the Company to withhold a specified
percentage of the principal amount of each Automobile Sales Contract purchased,
an arrangement designed to protect the Company from credit losses on Automobile
Sales Contracts. These dealer reserves, which range from five to 10% of the net
amount of each Automobile Sales Contract purchased, are negotiated on a
dealer-by-dealer basis and are subject to change based upon the collection
history of the Automobile Sales Contracts purchased from each dealer. See
"Management's Discussion and Analysis of Financial Condition and Results of
Oerations -- Credit Loss Experience."

         ORIGINATION OF AUTOMOBILE SALES CONTRACTS. Automobile Sales Contracts
purchased by the Company are originated by dealers when they sell a used car at
retail to a customer. The dealer completes and the customer signs a retail
installment contract and security agreement (giving the dealer a security
interest in the vehicle financed) on a printed form provided by the Company,
which includes the extensive disclosures required by state and federal law
regarding such matters as the annual percentage rate, the finance charge, the
amount financed, the total amount of all scheduled payments, and the total sale
price. The contract also includes a section where the customer may indicate
whether he or she desires to purchase credit life and credit accident and health
insurance, the premiums for which are included in the amount financed if the
customer elects to purchase credit insurance. The printed form identifies the
Company as the intended assignee of the contract and the terms and conditions of
the assignment to the Company are printed on the back of the form. The form
specifically provides that the terms of the assignment are subject to the terms
of the Dealer Agreement between the Company and the dealer.

         The maximum interest rates on Automobile Sales Contracts originated in
South Carolina are based upon the maximum rate filed by the originating dealer
with state regulatory authorities. Such rates are not subject to a statutory
maximum. The maximum interest rates on Automobile Sales Contracts originated in
North Carolina are subject to a statutory maximum based on the model year of the
vehicle. Rates on used automobile purchases range from 18% per annum on vehicles
one or two model years old to 29% per annum on vehicles more than four model
years old. Interest rates on Automobile Sales Contracts originated in Virginia,
Georgia, and Tennessee are not subject to regulation. The actual interest rate
on an Automobile Sales Contract is set within statutory limits, if applicable,
based upon the borrower's credit profile, the collateral, and market conditions.

         CREDIT EVALUATION AND APPROVAL PROCEDURES. The Company applies
underwriting standards in purchasing Automobile Sales Contracts that take into
account principally the degree of a proposed buyer's creditworthiness and the
collateral value of the vehicle being financed. If a borrower elects to finance
the purchase of an automobile through a dealer with whom the Company has an
established relationship, which is typically the case, the dealer will submit
the borrower's credit application to the Company for review and proposed
transaction terms. The office manager, or other office personnel under the
manager's supervision, conducts the credit evaluation review. This review
generally takes into account, among other things, the borrower's credit history,
ability to pay, stability of residence, employment history, income,
discretionary income, and debt service ratio, as well as the collateral value of
the vehicle. The borrower's credit history is assessed principally through the
evaluation of a credit bureau report which is obtained immediately after receipt
of an application from a dealer. The Company uses a standard application
analysis score sheet to conduct a credit evaluation that incorporates the
factors described above. Unless the borrower's total score falls below a
specified cutoff point, the office manager has the authority to approve the
purchase of the Automobile Sales Contract, up to his credit limit, with no
further review. If the borrower's total score falls below the specified cut-off
point, the office manager must receive approval from a regional supervisor
before approving the application for credit.

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         Generally, the Company will not finance more than 100% of the average
trade-in value of the automobile as set forth in the current edition of the
National Association of Automobile Dealers Official Used Car Guide and requires
that a borrower make a down payment of at least 10% of the purchase price. In
certain limited instances when the borrower is unable to make a sufficiently
large down payment, the Company will agree to purchase the Automobile Sales
Contract but will issue to the dealer a "deferred certificate" for the
difference between the average trade-in value of the automobile and the portion
of the sale price not covered by the borrower's down payment. Only when the
borrower has paid the entire balance of the Automobile Sales Contract is the
Company obligated to pay to the dealer the amount of the deferred certificate.

         AUTOMOBILE SALES CONTRACT PURCHASES. Upon consummation of the sale of
the automobile to the 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.

DIRECT LOANS PROGRAM

         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 15 months. In South Carolina and Tennessee, where there is no limit on the
maximum interest rate the Company may charge on Direct Loans, the Company has a
posted maximum rate of 69% per annum, which it may not exceed until the Company
files a higher maximum rate with the state regulatory authorities. In North
Carolina, the Company generally charges the maximum interest rates permitted by
law for such loans, which range from 18% to 30% per annum, depending upon the
amount financed. The Company currently does not make Direct Loans in Georgia or
Virginia. The actual interest rate on a Direct Loan is set within statutory
limits, if applicable, based upon the credit profile of the borrower, the type
and value of any collateral and market conditions.

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         The credit evaluation procedures employed by the Company in connection
with Direct Loans are, with the exception of loans secured by real estate,
similar to the credit evaluation procedures employed in connection with the
purchase of Automobile Sales Contracts. The value of the collateral, if any,
however, is a far less significant factor in the Company's credit evaluation of
a Direct Loan. Instead, the Company places its primary emphasis on the ratio of
the anticipated debt service to the borrower's disposable income. Office
managers approve direct Loans not secured by real estate. If the loan is to be
secured by real estate, the Company obtains an appraisal of the property,
obtains a title opinion from an attorney and verifies filing of a mortgage or
deed of trust before disbursement of funds to the borrower. The Company
generally will not loan an amount in excess of 50% of the appraised value of the
real estate or, in the case of a home equity loan, 50% of the borrower's equity
in the property. All applications for Direct Loans secured by real estate must
be approved by the Company's President or Executive Vice President.

         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.

SERVICING AND COLLECTION OF AUTOMOBILE SALES CONTRACTS AND DIRECT LOANS

         The Company has a staff of experienced personnel to collect, account
for, and post all payments received using a computerized management information
system to track each borrower's account activity. The Company's computer system
provides office personnel with access to all information contained in the
customer's contract including the amount of the contract, maturity, interest
rate, vehicle and reference information and payment history. Customer service
personnel in each finance office also respond to borrower inquiries, investigate
delinquencies and communicate with borrowers to obtain timely payments, monitor
the insurance coverage of the automobile serving as collateral, and, when
necessary, repossess financed automobiles.

         When an Automobile Sales Contract is purchased or a Direct Loan is
made, the finance office personnel follow procedures that are designed to ensure
that borrowers understand their obligations and the terms of the Automobile
Sales Contract or Direct Loan. Particular emphasis is placed on the amount and
due date of each payment, the Company's expectations regarding the timely
receipt of payments and maintenance of insurance coverage, and the Company's
delinquency and repossession policies. The Company provides payment coupon books
to borrowers to remind them of their monthly payment obligations. Finance office
personnel typically contact borrowers by telephone whose payments are not
received within one or two days after the due date of a payment. A customer
service representative in the office continues to contact the delinquent
borrower by telephone and, in some instances by mail, until payment has been
received. When a delinquent borrower brings his account current, the Company
places special emphasis on getting assurances from the borrower that he or she
will make the next payment on the due date. The Company believes that early and
frequent contact with delinquent borrowers reinforces their recognition of their
obligation and the Company's expectation for timely payment. The Company's
policy for payment deferments is to permit no more than two in a twelve-month
period on Direct Loans. Payment deferments on Automobile Sales Contracts are
granted only upon review by the office manager of the Company's equity position
and the borrower's needs.

         The Company's repossession policy on Automobile Sales Contracts and
Direct Loans secured by automobiles is administered on a case-by-case basis. The
Company's policy is to work with a delinquent borrower for a brief period to
permit the customer to keep the car and continue making payments to the Company.
However, should a borrower become seriously delinquent or should the office
personnel determine the borrower is not dealing in good faith, the Company
repossesses the borrower's car. In most instances, the Company's employees
handle repossessions. Most automobiles are repossessed 30-45 days after the
account initially becomes delinquent, although in some cases repossessions occur
in less than 30 days. Repossessed vehicles are generally sold by independent
dealers on a consignment basis or through wholesale automobile auctions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Credit Loss Experience."


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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
Company also periodically makes bulk purchases of Premium Finance Contracts. A
substantial amount of the Company's premium finance business is derived from
customers of the 20 insurance offices owned by Thaxton Insurance.

         When an individual purchasing insurance through an agent with whom the
Company has an established relationship is unable to pay the full amount of the
premium, the agent will offer a Premium Finance Contract that allows the insured
to make a down payment and finance the balance of the premium. Because the
Company is able to cancel the insurance policy generally within a period of 23
to 28 days after the due date of a delinquent payment and receive a refund of
the unearned portion of the premium, the creditworthiness of the insured is a
less important factor than the size of the down payment and an efficient and
effective system for servicing and collecting the portfolio of Premium Finance
Contracts.

         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 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 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. The Company
allows a down payment of 20% only on Premium Finance Contracts for policies sold
by certain "non-standard" insurance agencies operated by Thaxton Insurance in
North Carolina. At December 31, 1997, such Premium Finance Contracts represented
approximately $1.0 million, or 24%, of total Premium Finance Contracts
outstanding. Because the original principal balance of such Premium Finance
Contracts is larger than it would be if higher percentage down payments were
required, the Company's risk of loss is increased.

         The Company generally imposes the maximum finance charges and late fees
permitted by law for Premium Finance Contracts, which are subject to extensive
regulation in the states where the Company engages in this business. All of the
states in which the Company operates permit assessment of a fee of up to $15 on
each Premium Finance Contract and a maximum interest rate of 12% per annum.
After the Premium Finance Contract is originated, the Company sends the insured
a payment coupon book to serve as a reminder of the payment due dates. Although
most payments are received by mail, in some instances payments are made directly
to the agent who wrote the underlying insurance contract and then forwarded to
the Company. If a payment is not received by the sixth day after the due date, a
late fee is added to the past due payment and a notice of intent to cancel the
underlying insurance policy is mailed to the insured. If payment is not received
by the 10th day after the notice of intent to cancel is mailed (the 15th day in
South Carolina), the Company mails a notice of cancellation advising the insured
that the Company will cancel the underlying insurance policy in seven days
unless payment is received. If the insured fails to make payment by the seventh
day, using a power of attorney provided by the insured at the time the insurance
was purchased, the Company notifies the insurance company to cancel the
underlying insurance policy. Upon receipt of this notice the insurance company
remits to the Company the unearned portion of the premium, if any. The Company's
procedures for providing notices to borrowers are set up to provide a parallel
set of notices to the agent who wrote the underlying insurance policy.

                                       9


<PAGE>


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.

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.
These include a number of well-capitalized public companies which have only
recently entered the business of purchasing Automobile Sales Contracts and are
seeking to rapidly expand their business. Management believes that currently its
primary competitor is TransSouth Financial Corporation, a financial services
company, which operates in most of the markets where the Company operates. The
Company also competes with numerous small, regional consumer finance companies.
Many of these competitors or potential competitors, including TransSouth
Financial Corporation, have significantly greater resources than the Company and
have pre-existing relationships with established networks of dealers. To the
extent that any of such lenders significantly expand their activities in the
markets where the Company operates or plans to operate, the Company could be
materially adversely effected. 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 size of the Company's average Automobile Sales Contract is
considerably smaller than that of many other companies engaged in purchasing
Automobile Sales Contracts. The Company believes this is due in large part to
the fact that most of the Company's competitors are seeking to do business
primarily with franchised dealers selling late-model, lower mileage used
automobiles for significantly higher prices than the automobiles offered for
sale by the independent dealers with which the Company has relationships, which
tend to be somewhat older, higher mileage vehicles. Because the costs of
servicing and collecting a portfolio of finance receivables increases with the
number of accounts included in the portfolio, management believes that many
apparent potential competitors will choose not to do business with the type of
dealer targeted by the Company.

         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 Company has only recently begun originating residential
mortgages and currently expects to compete mainly on the basis of the service
that it provides to customers in markets where it already has a presence with
its finance and insurance offices.

                                       10
<PAGE>


REGULATION

         Consumer finance 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 consumer finance 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 and sell collateral.

         The relevant federal statutes include the Truth In Lending Act, the
Equal Credit Opportunity Act, the Fair Credit Reporting Act, and the Real Estate
Settlement Procedures Act ("RESPA"). These statutes generally are enforced
against consumer finance companies by the Federal Trade Commission and are
supplemented by regulations promulgated by this and other federal agencies. In
general, these laws require the Company to provide certain disclosures to
prospective borrowers, prohibit misleading advertising, protect against
discriminatory lending practices, and prohibit unfair credit practices. Among
the principal disclosure items under the Truth In Lending Act are the terms of
repayment, the final maturity, the total finance charge, and the annual
percentage rate charged on each loan. The Equal Credit Opportunity Act prohibits
creditors from discriminating against loan applicants on the basis of race,
color, sex, age, or marital status. Pursuant to Regulation B promulgated under
the Equal Credit Opportunity Act, creditors are required to make certain
disclosures regarding consumer rights and advise consumers whose credit
applications are not approved of the reasons for the rejection. The Fair Credit
Reporting Act requires the Company to provide certain information to consumers
whose credit applications are not approved on the basis of a report obtained
from a consumer credit reporting agency. Regulations promulgated by the Federal
Trade Commission limit the types of property a creditor may accept as collateral
to secure a consumer loan and provide for the preservation of the consumer's
claims and defenses when a consumer obligation such as an Automobile Sales
Contract is assigned to a subsequent holder. RESPA imposes specific disclosure
requirements, escrow account and borrower inquiry procedures, and kickback and
referral fee prohibitions upon lenders whose portfolio of receivables secured by
first or second liens on residential real property exceeds a specified dollar
amount.

         The Company presently purchases Automobile Sales Contracts in Georgia,
North Carolina, South Carolina, Tennessee, and Virginia, originates Direct Loans
in South Carolina, North Carolina and Tennessee, and originates Premium Finance
Loans in North Carolina, South Carolina, and Virginia. Interest rates on Premium
Finance Contracts are subject to statutory ceilings in all three states. See
--"Premium Finance." Interest rates on Automobile Sales Contracts are subject to
statutory ceilings only in North Carolina. See --"Automobile Sales Contract
Purchases." Direct Loans are subject to statutory ceilings only in North
Carolina and Tennessee. See --"Direct Loans Program." Each state regulates other
aspects of the Company's business, such as charges for insurance, forms of
collateral, application of payments, default charges, repossession, and
disclosure matters, in varying degrees. Such regulations may require the
licensing of the Company or one or more of its finance offices. The Company's
finance offices also may be subject to periodic examination by the division of
state government charged with enforcing consumer finance statutes and
regulations. In some instances, state statutes and regulations impose more
stringent disclosure and antidiscriminatory provisions than comparable federal
provisions and may impose specific statutory liabilities upon and create causes
of action against creditors who fail to comply with such provisions.

         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 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.


                                       11

<PAGE>

EMPLOYEES

      As of December 31, 1997, the Company employed 241 persons, none of whom
was covered by a collective bargaining agreement. Of that total, 33 were located
in the Company's headquarters in Lancaster, South Carolina and 208 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 September 1999, 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 1998 to July 2004, most of which include
renewal options for periods ranging from two to five years. The monthly rental
rates for such offices range from $300 to $5,100 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 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 during the fourth quarter of 1997 submitted to a
vote of shareholders.


                                       12

<PAGE>




                                     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. The common stock does trade occasionally in the over-the-counter market
and is quoted in the OTC Bulletin Board service operated by the National
Association of Securities Dealers, Inc. At March 25, 1998 there were 270
stockholders of record based on 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.


                                                     High              Low
                                                     ----              ---

                  First quarter 1996                  $10.00             $9.13

                  Second quarter 1996                  10.25              8.75

                  Third quarter 1996                   10.25              9.00

                  Fourth quarter 1996                  11.00             10.00

                  First Quarter 1997                   11.00              9.00

                  Second Quarter 1997                  10.00              9.00

                  Third Quarter 1997                   10.00              8.50

                  Fourth Quarter 1997                   9.25              8.75

       The Company has not paid any dividends on common stock during the past
two years. At the present time, there are no plans to pay any cash dividends on
common stock. The Company plans to retain its earnings to finance the growth of
the business. The Revolving Credit Facility restricts the Company from paying
any cash dividends in excess of 25% of net income for the year.

      On December 31, 1997, the Company issued 27,076 shares of its Series B
Preferred Stock to Jack W. Robinson, a director of the Company, in exchange for
an equal number of shares of common stock. Also on that date, the Company issued
50,000 shares of its Series C Preferred Stock to American Bankers Insurance
Company of Florida in exchange for the cancellation of a $500,000 note payable.
Neither of these transactions was 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 AND GROWTH

      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


                                       13

<PAGE>


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.

      During 1997, the Company opened finance offices in Anderson and Florence
South Carolina, Cumming, and Columbus, Georgia and Christiansburg, Virginia that
will be devoted almost exclusively to the purchase and servicing of Automobile
Sales Contracts, and Thaxton Insurance acquired independent agencies in York,
South Carolina and Winston-Salem, North Carolina.

      The following table sets forth certain information with regard to growth
in the Company's finance receivable portfolio.

</TABLE>
<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                                    -----------------------


                                                                                1997                     1996
                                                                                ----                     ----

AUTOMOBILE SALES CONTRACTS
<S>                                    <C>                                  <C>                      <C>        
        Total balance at year end, net (1)                                  $37,463,211              $35,998,537
        Average account balance at year end                                       3,247                    3,699
        Interest income for the year                                          9,900,934                8,361,396
        Average interest rate earned                                             25.59%                   27.98%
        Number of accounts at year end                                           11,537                    9,733

DIRECT LOANS
        Total balance at year end, net (1)                                  $12,302,995               $9,896,100
        Average account balance at year end                                       1,719                    1,324
           Interest income for the year                                       3,110,850                2,941,705
        Average interest rate earned                                             28.08%                   30.01%
        Number of accounts at year end                                            7,159                    7,475

PREMIUM FINANCE CONTRACTS
        Total balance at year end, net (1)                                   $3,860,936               $2,846,451
        Average account balance at year end                                         319                      287
        Interest income for the year                                            573,005                  737,895
        Average interest rate earned                                             17.04%                   17.52%
        Number of accounts at year end                                           12,108                    9,931

</TABLE>

---------------------------
 (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 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 opened two new
finance offices in 1996 and five in 1997. The Company estimates that the capital
expenditure necessary for opening each new finance office is approximately
$21,000. 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 will seek to expand its Premium Finance Contract portfolio by
establishing and broadening relationships with insurance agencies having a
client base in need of premium financing. The Company also periodically may make
bulk purchases of Automobile Sales Contracts and Premium Finance 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.


                                       14

<PAGE>


NET INTEREST MARGIN

         The following table sets forth certain data relating to the Company's
net interest margin for the years ended December 31, 1997 and 1996.




                                                 1997               1996
                                                 ----               ----

 Average Net Finance Receivables(1)          $53,058,041         $43,717,445
 Average notes payable(1)                     45,739,084          37,611,963

 Interest and fee income (2)                  15,808,386          13,518,563
 Interest expense (3)                          4,484,600           3,841,683
                                               ---------           ---------
 Net interest income                          11,323,786           9,676,880

 Average interest rate earned(1)                  29.79%              30.92%
 Average interest rate paid(1)                    9.80%               10.21%
                                                  ------              ------
 Net interest rate spread                         19.99%              20.71%

 Net interest margin(4)
                                                  21.34%             22.14%
-------------
(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 intends to explore opportunities to fix
or cap the interest rates paid on all or a portion of its borrowings, however,
there can be no assurance that fixed rate financing or suitable interest-rate
hedge facilities will be available on terms acceptable to the Company. 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.

      The decline in net interest rate spread from 1995 to 1997 is attributable
primarily to the increased level of Automobile Sales Contracts in the Company's
finance receivable portfolio. The Company expects Automobile Sales Contracts to
be the principal component of future growth in its finance receivable portfolio.
If this growth in Automobile Sales Contracts occurs, the Company expects that
its net interest spread will continue to narrow. See --"Liquidity and Capital
Resources."


                                       15
<PAGE>



RESULTS OF OPERATIONS

         COMPARISON OF 1997 TO 1996. Finance receivables at December 31, 1997
were $67,558,269 versus $63,106,601 at December 31, 1996, a 7% increase. The
Company opened two branch offices in 1996 and five in 1997 devoted primarily to
the purchase and servicing of Automobile Sales Contracts, which generated an
increased volume of such contracts during 1997.

         Unearned income at December 31, 1997 was $13,058,066 versus $12,578,514
at December 31 , 1996, a 4% increase which was directly related to the higher
volume of finance receivable originations during 1997. The provision for credit
losses established for the twelve months ended December 31, 1997 was $6,579,932
versus $3,593,399 for 1996, and the allowance for credit losses increased from
$2,195,000 at December 31, 1996 to $4,809,400 at December 31, 1997. The
allowance for credit losses as a percentage of Net Finance Receivables increased
from 4.4% at December 31, 1996 to 8.8% at December 31, 1997. The allowance for
credit losses required by the Company's reserve methodology increased
significantly from the end of 1996 to the end of 1997 due to a high charge-off
experience during the third and fourth quarters of 1997, which indicated a
higher level of potential losses in the portfolio, as well as the additional
allowance for loss required on the higher level of finance receivables
outstanding.

         The growth in finance receivables during the twelve months ended
December 31, 1997 versus the comparable period in 1996 resulted in higher levels
of interest and fee income. Interest and fee income for the twelve months ended
December 31, 1997 was $15,892,683, compared to $13,528,881 for the twelve month
ended December 31, 1996, a 17% increase. Interest expense also was higher,
increasing to $5,023,179 for the twelve months ended December 31, 1997 versus
$4,209,763 for the comparable period of 1996, a 19% increase. The increase in
interest expense was due to the higher levels of borrowings required to fund
finance receivable originations and the working capital requirements of the
Company.

         Net interest income for the twelve months ended December 31, 1997
increased to $10,869,504 from $9,319,118 for the comparable period of 1996, a
17% increase. The increase in net interest income was attributable to the higher
level of finance receivables.

         Insurance commissions net of insurance cost decreased to $5,469,667 for
the twelve months ended December 31, 1997 from $5,893,606 for the comparable
period of 1996, due to reduced sales of insurance products to borrowers. Other
income increased from $985,763 for the twelve months ended December 31, 1996 to
$1,221,525 for the comparable period of 1997 due primarily to increased profit
sharing payments to the Company from various insurance carriers.

         Total operating expenses increased from $11,974,280 for the twelve
months ended December 31, 1996 to $13,210,791 for the comparable period of 1997,
a 10% increase. The increase in expenses was due to opening new finance offices
in addition to a general increase in costs associated with administering a
larger finance receivable portfolio.

         The Company generated a net loss for the twelve months ended December
31, 1997 of $1,506,333 as compared to net income of $384,184 for the comparable
period of 1996. The decrease in net income was due primarily to the substantial
increased provision for credit losses.

         Stockholders' equity decreased from $6,371,305 at December 31,
1996 to $5,969,317 at December 31, 1997 as a result of the Company's net
loss from operations during the period, partially offset by additional
equity raised by the Company. In December, the Company completed a
public offering of its Series A Preferred Stock. The offering, made to
the Company's common stockholders, allowed each common stockholder to
exchange one share of common stock for one share of preferred stock,
subject to the requirement that for each share exchanged, one additional
share of preferred must be purchased for $10 in cash. The offer resulted
in the exchange of 89,007 shares of common stock for an equal number of
shares of preferred stock, and the sale of an additional 89,007 shares
of preferred stock at $10 per share. After expenses, net cash proceeds
of the offering were $718,067. Also in December, an individual investor
converted 27,076 shares of common stock into an equal number of shares
of the Company's Series B Preferred Stock, and an insurance company from
which the Company had borrowed $500,000 converted that note into 50,000
shares of the Company's Series C Preferred Stock.



                                       16

<PAGE>

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
stratifies losses by originating office and by type, and develops historical
loss factors which are applied to the current portfolio. In addition, changes in
dealer and bulk purchase reserves are analyzed for each individual dealer and
bulk purchase, and additional reserves are established for any dealer or bulk
purchase if coverage has declined below adequate levels. The Company's
charge-off policy is based on an account by account review of delinquent
receivables. 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
purchased are charged. To the extent losses experienced are less than the
discount, the remaining discount is accreted into income.

RECENT MATERIAL ADVERSE TREND IN CREDIT LOSS EXPERIENCE

         The Company's charge-offs as a percentage of average Net Finance
Receivables increased from 3.08% for the year ended December 31, 1995 to 5.06%
for the year ended December 31, 1996 and to 7.47% for the twelve months ended
December 31, 1997. These increases were attributed to a general deterioration in
loan performance experienced by the Company during the latter part of 1996 and
continuing into 1997. Management believes that its charge-off experience was
comparable to that experienced by other lenders in the non-prime sector. In
response to this increased loss experience, the Company made several operational
changes in the second half of 1996 which, over the long-term, are expected to
reduce the Company's charge-offs. These changes included tightening its branch
credit guidelines, reducing purchases of Automobile Sales Contracts from certain
dealers for which loss experience had been unsatisfactory, splitting several
offices to obtain improved collection by locating collection personnel in closer
geographic proximity to borrowers, and reorganizing the Company's regional
structure to place more experienced supervisory personnel in charge of certain
offices with higher than average credit loss experience. Although management
believes that these changes have resulted in fewer charge-offs than would have
been experienced without


                                       17

<PAGE>



the changes, they have not yet had the effect of reducing losses to acceptable
levels. As a result, in the fourth quarter of 1997 the Company further tightened
its credit policies by, among other things, increasing qualifying ratios for
credit approval of borrowers and increasing required down payments on Automobile
Sales Contracts financed by the Company. These policy changes have resulted in
slower growth of the Company's Automobile Sales Contract portfolio, as the
current credit market for Non-prime Borrowers is highly competitive. Management
believes that over time these changes will reduce charge-offs to acceptable
levels.

      The following table sets forth the Company's allowance for credit losses
at December 31, 1997 and 1996, and the credit loss experience over the periods
presented.
<TABLE>
<CAPTION>


                                                                             1997                           1996
                                                                             ----                           ----
<S>                      <C>                                               <C>                           <C>        
 Net finance receivables (1)                                               $54,500,203                   $50,447,410
 Allowance for credit losses                                                 4,809,400                     2,195,000
 Allowance for credit losses as a percentage of  net                             8.82%                         4.35%
 finance receivables (1)
 Dealer reserves and discounts on bulk purchases                            $1,028,575                    $1,747,000
 Dealer reserves and discounts on bulk purchases as                              2.67%                         4.64%
 percentage of Net Automobile Sales Contracts at
 period end
 Allowance for credit losses and dealer reserves and                        $5,837,975                    $3,942,000
 discount on bulk purchases
 Allowance for credit losses and dealer reserves and                            10.71%                         7.81%
 discount on bulk purchases as a percentage of finance
 receivables
 Provision for credit losses                                                $6,579,932                    $3,593,399
 Charge-offs (net of recoveries)                                             3,965,532                     2,210,441
 Charge-offs (net of recoveries) as a percentage of                              7.47%                         5.06%
 average net finance receivables

</TABLE>


---------------------

(1)     Net finance receivable balances are presented net of unearned finance
        charges only


                                       18
<PAGE>



The following table sets forth certain information concerning Automobile Sales
Contracts and Direct Loans at the end of the periods indicated:

                                                               At December 31,
                                                             ------------------
                                                            1997           1996
                                                            -------        ----
 Automobile Sales Contracts and Direct Loans               $551,363    $380,569
 contractually past due 90 days or more(1)

 Automobile Sales Contracts and Direct Loans (1)         49,766,206  45,894,637
 Automobile Sales Contracts and Direct Loans                  1.11%        .83%
 contractually past due 90 days or more as a
 percentage of Automobile Sales  Contracts and Direct
 Loans
----------------------
      (1) 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:
                                                             At December 31,
                                                           --------------------
                                                           1997             1996
                                                        --------       ---------
Premium finance contracts contractually past due 60     $89,331         $100,633
days or more(1)
Premium finance contracts outstanding(1)              3,860,936        2,846,451
Premium finance contracts contractually past due 60
days or more as a percentage of premium finance            2.3%             3.5%
contracts
----------------------------
(1) 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 $100 million, matures on
August 31, 1999. The facility consists of six tranches. The primary tranche is
used to finance consumer receivables and provides for advances of up to $100
million, less any amounts advanced under the secondary tranches. Tranche B, one
of the secondary tranches, is also used to finance consumer receivables and
allows the Company to borrow up to $10 million against a higher percentage of
Net Finance Receivables than under the primary tranche. The Company borrows
against Tranche B only when it has exhausted available borrowings under the
primary tranche. The Revolving Credit facility also provides a $5 million
tranche dedicated to non-consumer receivables, a $25 million tranche established
to provide a mortgage loan warehouse facility, a $10 million tranche which
permits borrowings against insurance commissions, and a $7 million tranche to
finance future acquisitions. As of December 31, 1997, $46.7 million was
outstanding under the Revolving Credit Facility, $45.0 million of which had been
advanced under the primary tranche and $1.7 million of which had been advanced
under secondary tranches. At December 31, 1997, there were no advances under
Tranche B. Under the terms of the Revolving Credit Facility, the Company's Net
Finance Receivables at December 31, 1997 would have allowed it to borrow an
additional $4.4 million against existing collateral, with $53.3 million of total
potential capacity available for borrowing against qualified finance receivables
generated by the Company in future periods. The interest rate

                                       19

<PAGE>


for borrowings is the prime rate published by Citibank, N.A. (or other
money center bank designated by the lender) plus one percent per annum for the
primary tranche, the non-consumer receivable tranche, and the mortgage loan
tranche, plus five percent per annum for Tranche B and the acquisition tranche
and plus two percent per annum for the insurance commission tranche. 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, including
covenants to maintain a certain debt to equity ratio, tangible net worth, annual
net income within prescribed limits, and a covenant to limit annual
distributions to common shareholders to 25% of net income.

      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, which will enable the
Company to offer notes in additional states. 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 6.25% to
9.5%. Approximately $3.5 million in notes were outstanding as of December 31,
1997. 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,
1997 and 1996 were as follows:


                                                        1997               1996
                                                        ----               ----
Proceeds from the issuance of preferred stock    $  718,067        $         -
Repurchase of common stock                         (137,983)           (76,560)
Dividends paid                                             -           (25,500)
Net increase in line of credit                     4,079,053          7,983,666
Net increase in notes payable                      1,303,226          1,466,185
                                                  --------------- --------------
Total                                             $5,962,363       $  9,347,791
                                                  =============== ==============


         Management believes that the recent increase in 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 and capital needs
through 1998.

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.

                                       20
<PAGE>


IMPACT OF YEAR 2000

         The Company recognizes that there is a business risk in computerized
systems as we move into the next century. If computer systems misinterpret the
date, items such as interest calculations on loans will be incorrect. This is
commonly called the "Year 2000 Problem." A number of computer systems used by
the Company in its day to day operations may be affected by this problem.
Management has established a project team which has identified affected systems
and is currently working to ensure that this event will not disrupt operations.
This project team reports regularly to senior management. The company is also
working closely with outside computer vendors to ensure that all software
corrections and warranty commitments are obtained. The estimated cost to the
Company for these corrective actions, and the related hardware required to run
the upgraded software is estimated at approximately $1 million, the cost for
which is included in the Company's capital and operating budgets for 1998 and
1999. However, it should be noted that incomplete or untimely compliance would
have a material adverse impact on the Company, the dollar amount of which cannot
be accurately quantified at this time because of the inherent variables and
uncertainties involved.


ACCOUNTING MATTERS

         The Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income" in June, 1997. The purpose of SFAS 130 is to
address concerns over the practice of reporting elements of comprehensive income
directly in equity. This SFAS requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal prominence with the
other financial statements. This statement is effective for periods beginning
after December 15, 1997. Comparative financial statements are required to be
reclassified to reflect the provisions of this statement. The Company will adopt
the provisions of this SFAS for fiscal year 1998.

         The FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in June, 1997. This statement applies to all
public entities. The provisions of SFAS 131 require certain disclosures
regarding material industry segments within an entity. The statement is
effective for periods beginning after December 15, 1997. The adoption of this
standard is not expected to have a material effect on the Company's financial
reporting.




                                       21
<PAGE>






ITEM 7. FINANCIAL STATEMENTS












                             THE THAXTON GROUP, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1996

                   (WITH INDEPENDENT AUDITOR'S REPORT THEREON)











                                       22

<PAGE>


KPMG PEAT MARWICK, LLP






                          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, 1997 and 1996, 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 at December 31, 1997 and 1996, and the results of their
operations and cash flows for the years then ended, in conformity with generally
accepted accounting principles.




Greenville, South Carolina
March 25, 1998



                                       23
<PAGE>
<TABLE>
<CAPTION>


                                              THE THAXTON GROUP, INC.
                                            Consolidated Balance Sheets
                                            December 31, 1997 and 1996

                                                                                           December 31,
                                                                                           -------------
                                                                                    1997               1996
Assets                                                                              ----               -----
------
<S>                                                                           <C>                     <C>    
Cash                                                                          $   1,162,793           421,465
Finance receivables, net                                                         48,662,228         46,546,087
Premises and equipment, net                                                       2,003,787          1,947,210
Accounts receivable                                                               1,616,570          1,269,384
Repossessed automobiles                                                             744,030          1,166,495
Goodwill and other intangible assets                                              3,894,956          3,463,814
Other assets                                                                      2,881,308          1,867,112
                                                                                -----------       ------------
     Total assets                                                                60,965,672         56,681,567
                                                                                ===========       ============

Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Accrued interest payable                                                            420,863            387,237
Notes payable                                                                    51,071,066         46,345,883
Notes payable to affiliates                                                       1,015,358            743,621
Accounts payable                                                                  1,357,739          1,350,306
Employee savings plan                                                             1,045,533          1,098,457
Other liabilities                                                                    85,796            384,758
                                                                                -----------       ------------
     Total liabilities                                                           54,996,355         50,310,262
                                                                                -----------       ------------

Stockholders' Equity
--------------------
Preferred Stock $ .01 par value,
Series A:  400,000 shares authorized,
178,014 shares issued and outstanding in 1997.                                        1,780                  -
Series B:  27,076 shares authorized, issued and
  outstanding in 1997.                                                                  271                  -
Series C: 50,000 shares authorized, issued and
  outstanding in 1997.                                                                  500                  -

Common stock, $ .01 par value; authorized 50,000,000 shares, issued and
outstanding 3,795,600 shares in 1997, 3,932,178
     shares in 1996                                                                  37,956             39,322
Additional paid-in-capital                                                        4,521,354          3,504,027
Deferred stock award                                                               (630,000)          (720,000)
Retained earnings                                                                 2,037,456          3,547,956
                                                                                  ---------       ------------

     Total stockholders' equity                                                   5,969,317          6,371,305
                                                                                -----------       ------------

     Total liabilities and stockholders' equity                                $ 60,965,672         56,681,567
                                                                                ===========       ============
</TABLE>


See accompanying notes to consolidated financial statements.



                                       24
<PAGE>
<TABLE>
<CAPTION>






                                              THE THAXTON GROUP, INC.
                                         Consolidated Statements of Income
                                      Years Ended December 31, 1997 and 1996


                                                                                    1997               1996
                                                                                    ----               ----

<S>                                                                             <C>                 <C>       
Interest and fee income                                                         $15,892,683         13,528,881
Interest expense                                                                  5,023,179          4,209,763
                                                                                -----------       ------------
     Net interest income                                                         10,869,504          9,319,118
Provision for credit losses                                                       6,579,932          3,593,399
                                                                                -----------       ------------

Net interest income after provision for credit losses                             4,289,572          5,725,719
Other income:
     Insurance premiums and commissions, net                                      5,469,667          5,893,606
     Other income                                                                 1,221,525            985,763
                                                                                -----------       ------------
     Total other income                                                           6,691,192          6,879,369
                                                                                -----------       ------------
Operating expenses:
     Compensation and employee benefits                                           6,799,738          5,602,895
     Telephone, postage, and supplies                                             1,511,477          1,126,599
     Net occupancy                                                                1,528,218          1,228,414
     Reinsurance claims expense                                                     355,437            516,194
     Insurance                                                                      128,916            193,670
     Collection expense                                                              94,462             63,797
     Travel                                                                         176,186            158,513
     Professional fees                                                              260,410            175,821
     Other                                                                        2,355,947          2,908,377
                                                                                -----------       ------------
     Total operating expenses                                                    13,210,791         11,974,280
                                                                                -----------       ------------

     Income (loss) before income tax expense                                     (2,230,027)           630,808
Income tax expense (benefit)                                                       (723,694)           246,624
                                                                                ------------      ------------

     Net income (loss)                                                         $ (1,506,333)           384,184
                                                                                ============      ============

     Dividends on preferred stock                                              $      4,167             25,500
                                                                                ===========       ============

     Net income (loss) applicable to common shareholders                       $ (1,510,500)           358,684
                                                                                ============      ============

     Net income (loss) per common share  -- basic and diluted                  $      (0.39)              0.09
                                                                                ============      ============
</TABLE>




See accompanying notes to consolidated financial statements.


                                       25
<PAGE>
<TABLE>
<CAPTION>


                             THE THAXTON GROUP, INC.
                 Consolidated Statements of Stockholders' Equity
                     Years Ended December 31, 1997 and 1996

                                                                                          Additional       Deferred    
                                                        Common          Preferred           Paid-in          Stock     
                                                        Stock             Stock             Capital          Award     
                                                        ------            -----             -------          -----     

<S>                                               <C>                      <C>            <C>                <C>       
Balance at December 31, 1995                      $       39,383           340,000        3,563,681          (810,000) 

Employee stock grant                                          17             -               16,828             -      
Purchase and retirement of 7,786 shares of stock             (78)            -              (76,482)            -      
Conversion of 340,000 shares of preferred
     stock to $340,000 of subordinated debt                -              (340,000)           -                 -      
Dividends on preferred stock                               -                 -                -                 -      
Vesting of 10,000 shares of stock award                    -                 -                -                90,000  
Unrealized gain on securities available for sale           -                 -                -                 -      

Net income                                                 -                 -                -                 -      
                                                   -------------     -------------    -------------     -------------  
Balance at December 31, 1996                              39,322             -            3,504,027          (720,000) 
                                                  --------------     -------------    -------------     -------------- 


Purchase and retirement of 13,300 shares of stock           (133)                -         (137,850)                -  
Issuance of 2,007 shares of restricted stock                  20                 -           22,057                 -  
Issuance of 797 shares of stock under Employee
  stock purchase plan                                          8                 -            6,343                 -  
Forfeiture of deferred stock award                          (100)                -          (89,900)           90,000  
Conversion of  89,007 shares of common stock
  into 178,014 shares of Series A preferred stock           (890)            1,780          717,177                 -  
Conversion of 27,100 shares of common stock
  into 27,100 shares of Series B preferred stock            (271)              271                -                 -  
Conversion of subordinated debt into
    50,000 shares of Series C preferred stock                  -               500          499,500                 -  
Dividends paid on preferred stock                              -                 -                -                 -  
Net loss                                                       -                 -                -                 -  
                                                  --------------     -------------    -------------     --------------   

Balance at December 31, 1997                      $       37,956             2,551        4,521,354          (630,000) 
                                                  ==============     =============    =============     ============== 




<CAPTION>







                                                             Unrealized Gain                          Total         
                                                          (Loss) on Securities  Retained          Stockholders'     
                                                           Available for Sale   Earnings             Equity         
                                                           ------------------   --------             ------         
                                                                                                                    
<S>                                                            <C>             <C>                 <C>            
Balance at December 31, 1995                                     (6,392)         3,189,272           6,315,944      
                                                                                                                    
Employee stock grant                                              -                  -                  16,845      
Purchase and retirement of 7,786 shares of stock                  -                  -                 (76,560)     
Conversion of 340,000 shares of preferred                                                                           
     stock to $340,000 of subordinated debt                       -                  -                (340,000)     
Dividends on preferred stock                                      -                (25,500)            (25,500)     
Vesting of 10,000 shares of stock award                           -                  -                  90,000      
Unrealized gain on securities available for sale                  6,392              -                   6,392      
                                                                                                                    
Net income                                                        -                384,184             384,184      
                                                             ----------     --------------    ----------------      
Balance at December 31, 1996                                      -              3,547,956           6,371,305      
                                                             ----------     --------------    ----------------      
                                                                                                                    
                                                                                                                    
Purchase and retirement of 13,300 shares of stock                     -                  -            (137,983)     
Issuance of 2,007 shares of restricted stock                          -                  -              22,077      
Issuance of 797 shares of stock under Employee                                                                      
  stock purchase plan                                                 -                  -               6,351      
Forfeiture of deferred stock award                                    -                  -                   -      
Conversion of  89,007 shares of common stock                                                                        
  into 178,014 shares of Series A preferred stock                     -                  -             718,067      
Conversion of 27,100 shares of common stock                                                                         
  into 27,100 shares of Series B preferred stock                      -                  -                   -      
Conversion of subordinated debt into                                                                                
    50,000 shares of Series C preferred stock                         -                  -             500,000      
Dividends paid on preferred stock                                     -             (4,167)             (4,167)     
Net loss                                                              -         (1,506,333)         (1,506,333)     
                                                             ----------      --------------    ----------------     
                                                                                                                    
Balance at December 31, 1997                                          -          2,037,456           5,969,317      
                                                             ==========      ==============    ================      
                                                                                                                    
                                                         
</TABLE>





See accompanying notes to consolidated financial statements.


                                       26
<PAGE>
<TABLE>
<CAPTION>





                             THE THAXTON GROUP, INC.
                      Consolidated Statements of Cash Flows
                     Years Ended December 31, 1997 and 1996



                                                                                   1997              1996

Cash flows from operating activities:
<S>                                                                           <C>                      <C>    
Net income                                                                    $  (1,506,333)           384,184
Adjustments to reconcile net income to
net cash provided by operating  activities:
     Provision for credit losses                                                  6,579,932          3,593,399
     Depreciation and amortization                                                  958,192            756,791
     Deferred taxes                                                                   6,705            (26,715)
     Vesting of stock awards                                                          -                 90,000
     Compensatory grant of stock to employees                                        28,428             16,845
     Unrealized loss on  securities available for sale                                -                  6,392
     (Gain) loss on sale of premises and equipment                                  (22,190)           (25,301)
     Gain on sale of investment                                                     (10,859)             -
     Increase  in other assets                                                     (959,244)        (2,026,919)
     Increase (decrease) in accrued interest payable and other liabilities         (200,353)            76,869
                                                                                ------------      ------------
                  Net cash provided by operating activities                       4,874,278          2,845,545
                                                                                -----------       ------------

Cash flow from investing activities:
     Net increase in finance receivables                                         (8,696,073)       (13,845,854)
     Capital expenditures for premises and equipment                               (706,498)        (1,295,387)
     Proceeds from sale of premises and equipment                                    36,875             79,907
     Proceeds from the sale of investments                                           24,481              -
     Acquisitions, net of acquired cash equivalents                                (754,098)          (752,973)
     Purchase of securities                                                           -                (68,843)
     Notes receivable (affiliate)                                                     -                896,302
                                                                                -----------       ------------
                  Net cash used by investing activities                         (10,095,313)       (14,986,848)
                                                                                -----------       ------------

Cash flows from financing activities:
     Proceeds from the issuance of preferred stock                                  718,067              -
     Repurchase of common stock                                                    (137,983)           (76,560)
     Dividends paid                                                                   -                (25,500)
     Net increase in line of credit                                               4,079,053          7,983,666
     Net increase in notes payable                                                1,303,226          1,466,185
                                                                                ------------      ------------
                  Net cash provided by financing activities                       5,962,363          9,347,791
                                                                                ------------      ------------

Net increase (decrease) in cash                                                     741,328         (2,793,512)
Cash at beginning of period                                                         421,465          3,214,977
                                                                                -----------       ------------

Cash at end of period                                                         $   1,162,793            421,465
                                                                                ===========       ============

Supplemental disclosures of cash flow information: Cash paid during the period
for:
     Interest                                                                 $   4,874,912          3,805,229
     Income taxes                                                                    36,843            554,651
                                                                                ===========       ============

Noncash financing activities:
     Conversion of preferred stock to notes payable                                     -             340,000
     Conversion of common stock to preferred stock                                      271               -
     Conversion of subordinated debt to preferred stock                             500,000               - 
                                                                                ===========     ==============


</TABLE>


See accompanying notes to consolidated financial statements.

                                       27
<PAGE>





                             THE THAXTON GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 1997 and 1996


(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         ------------------------------------------
The Thaxton Group, Inc. (the "Company") is incorporated under the laws of the
state of South Carolina and operates branches in South Carolina, North Carolina,
Georgia, Virginia and Tennessee. The Company is a diversified consumer finance
company that is engaged primarily in purchasing and servicing retail installment
contracts purchased from independent used car dealers and making and servicing
personal loans 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 a wholly owned
subsidiary, TICO Reinsurance, Ltd. ("TRL"). Through a wholly owned subsidiary,
CFT Financial Corporation, 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. 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.

Prior year consolidated financial statements have been restated to include the
balances of companies combined and accounted for as poolings-of-interests as
discussed in Note 2. Certain amounts for 1996 have been reclassified to conform
to the 1997 presentation. These reclassifications have no effect on
shareholders' equity or net income as previously reported. The following is a
description of the more significant accounting and reporting policies which the
Company follows in preparing and presenting its financial statements.

         (a)      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.

         (b)      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.


                                       28
<PAGE>


(1)       Summary of Significant Accounting Policies, Continued
          -----------------------------------------------------


         (c)      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.

         (d)      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.


         (e)      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 subsidiary, TRL, and are included in insurance
                  premiums and commissions in the accompanying consolidated
                  statements of income. Unearned insurance commissions 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.

         (f)      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.

         (g)      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.

                                       29
<PAGE>



 (1)      Summary of Significant Accounting Policies, Continued
          -----------------------------------------------------


         (h)      Earnings Per Share
                  ------------------
                  The Company has adopted the provisions of SFAS 128, "Earning
                  per Share" ("EPS"), for the year ended December 31, 1997. The
                  presentation of primary and fully diluted EPS has been
                  replaced with basic and diluted EPS. Prior period EPS data has
                  been restated to reflect the adoption of SFAS 128. 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.

         (i)      Intangible Assets
                  -----------------
                  Intangible assets include goodwill, expiration lists, and
                  covenants not to compete related to the purchase of insurance
                  agencies. Goodwill represents the excess of the cost of
                  insurance agencies over the fair value of its assets at the
                  date of acquisition. Goodwill is amortized on a straight-line
                  basis over a fifteen to twenty year period. The expiration
                  lists are amortized over their estimated useful lives of
                  twenty 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. Intangible assets
                  also include the premium paid to acquire Eagle Premium
                  Finance, which is being amortized on a straight-line basis
                  over ten years. Recoverability of recorded intangibles is
                  evaluated by using undiscounted cash flows.

         (j)      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.

         (k)      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.


          (l)     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.


                                       30
<PAGE>



(2)    Business Combinations
       ---------------------
The Company acquired all of the outstanding capital stock of Thaxton Insurance
on October 31, 1996 in exchange for 300,000 shares of the Company's stock.
Thaxton Insurance is incorporated under the laws of the State of South Carolina
and licensed as an insurance agency in the states of North Carolina and South
Carolina. This business combination was accounted for under the "as if" pooling
method as the companies were deemed to be under common control. Accordingly, the
consolidated financial statements for periods prior to the combination have been
restated to include the assets, liabilities and equity and results of operation
and cash flows of Thaxton Insurance at their historical cost basis.

(3)    Finance Receivables
       -------------------
Finance receivables consist of the following at December 31, 1997 and 1996:

<TABLE>
<CAPTION>

                                                                                       December 31,
                                                                                1997                 1996
                                                                                ----                 ----

           <S>                                                         <C>                       <C>       
           Automobile Sales Contracts                                    $    48,098,657           47,603,138
           Direct Loans                                                       15,449,004           12,560,126
           Premium Finance Contracts                                           4,010,608            2,943,337
                                                                          --------------       --------------
                Total finance receivables                                     67,558,269           63,106,601


           Unearned interest                                                 (12,902,552)         (12,445,781)
           Unearned insurance premiums, net                                     (155,514)            (132,733)
           Bulk purchase discount                                               (359,945)          (1,014,000)
           Dealer hold back                                                     (668,630)            (773,000)
           Allowance for credit losses                                        (4,809,400)          (2,195,000)
                                                                          --------------       --------------
           Finance receivables, net                                      $    48,662,228           46,546,087
                                                                          ==============       ==============
</TABLE>


       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. The amount of bulk purchased receivables, net of
       unearned interest and insurance, and the related purchase discount
       outstanding were approximately $8,328,000 and $360,000, respectively, at
       December 31, 1997 and approximately $7,371,000 and $1,014,000,
       respectively, at December 31, 1996.

       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 holdback receivables, net of unearned interest and
       insurance, and the related holdback amount outstanding were approximately
       $31,593,000 and $669,000, respectively, at December 31, 1997 and
       approximately $31,451,000 and $773,000, respectively, at December 31,
       1996.

                                       31
<PAGE>




(3)    Finance Receivables (continued)
       -------------------------------
       At December 31, 1997, 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, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>

                                                                                  1997                 1996
                                                                                  ----                 ----
        <S>                                                               <C>                           <C>    
           Beginning balance                                             $      2,195,000              783,200
           Valuation allowance for acquired loans                                       -               28,842
           Provision for credit losses                                          6,579,932            3,593,399
           Charge-offs                                                         (4,129,313)          (2,526,231)
           Recoveries                                                             163,781              315,790
                                                                           --------------      ---------------
           Net charge-offs                                                     (3,965,532)          (2,210,441)
                                                                           ---------------     ---------------
           Ending balance                                                $      4,809,400            2,195,000
                                                                           ==============      ===============

</TABLE>


       The valuation allowance for acquired loans relates to the acquisition of
       approximately $748,000 of receivables in 1996.

       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.

(4)    Premises and Equipment
       ----------------------
        A summary of premises and equipment at December 31, 1997 and 1996
follows:
<TABLE>
<CAPTION>

                                                                                   1997                1996
                                                                                   ----                ----

        <S>                                                                <C>                        <C>    
           Leasehold improvements                                           $      591,596             504,328
           Furniture and fixtures                                                  558,566             477,158
           Equipment and automobiles                                             2,719,773           2,762,214
                                                                             -------------       -------------
                    Total cost                                                   3,869,935           3,743,700
           Accumulated depreciation                                              1,866,148           1,796,490
                                                                             -------------       -------------

                    Net premises and equipment                              $    2,003,787           1,947,210
                                                                             =============       =============

</TABLE>


         Depreciation expense was approximately $617,000 and $521,000 in 1997
and 1996, respectively.



                                       32
<PAGE>





(5)    Intangible Assets
       ----------------- 
<TABLE>
<CAPTION>


         Intangible assets consist of the following at December 31, 1997 and
1996:
                                                                                   1997                1996
                                                                                   ----                ----

      <S>                                                                    <C>                       <C>    
           Covenants not to compete                                         $      118,494            102,022
           Goodwill                                                              2,204,944          2,036,563
           Insurance expirations                                                 2,657,399          2,135,098
           Purchase premium                                                        403,446            348,938
                                                                             -------------       ------------
                    Total cost                                                   5,384,283          4,622,621

           Less accumulated amortization                                         1,489,327          1,158,807
                                                                             -------------          ---------

           Intangible assets, net                                           $    3,894,956          3,463,814
                                                                             =============          =========
</TABLE>

       The majority of the intangibles were acquired by the Company in
       connection with its acquisition of Thaxton Insurance. Amortization
       expense was approximately $341,000 and $236,000 in 1997 and 1996,
       respectively.

(6)    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
       $662,000 in 1997 and $304,000 in 1996. The future minimum lease payments
       under noncancelable operating leases as of December 31, 1997, are as
       follows:

           1998                                                  $    615,988
           1999                                                       504,750
           2000                                                       237,666
           2001                                                        98,519
           2002                                                        35,908
           Thereafter                                                  16,967
                                                                    -----------

           Total minimum lease payments                          $  1,509,798
                                                                    ===========

       Four 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 rate of $4,350.

(7)    Notes Payable
       -------------
<TABLE>
<CAPTION>


       At December 31, 1997 and 1996, notes payable consist of the following:
                                                                                     1997                1996
                                                                                     ----                ----
          <S>                                                                       <C>                <C>
           Note payable to insurance company maturing in May, 1998 and bearing
                interest at prime plus 2% and is reset quarterly                     $      -           500,000

           Note payable to insurance company payable within sixty days after
                written demand by the lender.  The note bears interest at prime
                plus 2% and is reset monthly                                          250,000            250,000

           Lines of credit                                                         46,695,000         42,615,947

           Note payable to finance company due in monthly installments of
                $9,091 through July, 2003 including interest at 8.99%. This note 
                is secured by an aircraft purchased with the funds                    477,545            540,600

</TABLE>
                                       33

<PAGE>
<TABLE>
<CAPTION>



(7)    Notes Payable, Continued
       ------------------------
<S>                                                                              <C>                       <C>

                                                                                     1997                    1996
                                                                                     ----                     ----
           Note payable to insurance agency due annually on July 1 in
                installments of $78,022 through July 1997, including interest at
                a rate of 9% and secured by agency purchased with funds and
                various individual stockholders' assets                           $        -                 71,578

           Note payable to individual due annually on January 1 in installments
                of $23,496 through January 2001, including interest at a rate of
                8% and secured by agency purchased with funds and various
                individual stockholders' assets                                        77,823                 93,814

           Note payable to individual due annually on June 1 in installments of
                $40,000 through June 1998, including interest at a rate of 7%
                and secured by stock purchased with funds and various individual
                stockholders' assets 37,383 72,321

           Note payable to individual due on January 1, 1997 plus interest at
                a rate of 7%.  Secured by agency purchased with funds and
                various individual stockholders' assets                                      -                60,000

           Note payable to individual due in monthly installments of $3,607
                through January 1999, including interest at a rate of 6% and
                secured by agency purchased with funds and various individual
                stockholders' assets                                                    39,533                 79,012

           Note payable to individual due in monthly installments of $9,478,
                through March 2001, including interest at a rate of 6%                 333,205                423,449

           Notes payable to individuals with varying maturity dates and 
               rates ranging from 51/4% - 12%                                        4,175,935              2,382,783
                                                                                   -----------            -----------


                                                                                 $  52,086,424             47,089,504

                                                                                   ===========            ===========

</TABLE>

    A schedule of maturities of long-term debt is as follows:

           Year Ending
           December 31,                                                Amount
           ------------                                                ------
                1998     $                                        2,379,185
                1999                                             48,345,692
                2000                                                738,490
                2001                                                190,959
                2002                                                332,216
                Thereafter                                           99,882
                                                                 --------------

                Total                                    $       52,086,424
                                                              =================

                                       34
<PAGE>






(7) Notes Payable, Continued
    ------------------------
At December 31, 1997, the Company maintained a line of credit agreement with a
commercial finance company for $100 million, maturing on August 31, 1999. At
December 31, 1997, the Company's net finance receivables would have allowed it
to borrow an additional $4.4 million against existing collateral. The
outstanding balance under this line of credit was $46,695,000 at December 31,
1997. There are six tranches under this agreement, Tranche A, B, C, D, E and F.
The total line of credit, amount of credit line available at December 31, 1997,
and interest rate for each Tranche is summarized below:

         Tranche A: $100,000,000; $54,986,500; 9.5% (Lender's prime rate + 1%)
         Tranche B: $ 10,000,000; $10,000,000; 13.5% (Lender's prime rate + 5%)
         Tranche C: $ 5,000,000; $ 4,779,000; 9.5% (Lender's prime rate + 1%)
         Tranche D: $ 10,000,000; $ 8,539,500; 10.5% (Lender's prime rate + 2%)
         Tranche E: $ 7,000,000; $ 7,000,000; 13.5% (Lender's prime rate + 5%)
         Tranche F: $ 25,000,000; $25,000,000; 9.5% (Lender's prime rate + 1%)

The borrowing availability under certain 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 $53 million total
potential borrowing capacity as of December 31, 1997.

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, 1997, the Company met all such ratios and requirements or
obtained waivers for any instances of non-compliance.


(8)    Notes Payable to Affiliates
       ---------------------------
The Company had notes payable to affiliates of approximately $1,015,000 at
December 31, 1997 and $744,000 at December 31, 1996. During 1996, 340,000 shares
of Preferred Stock B of Thaxton Insurance Group were converted to $340,000 of
notes payable.

(9)    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. The options vest and become
exercisable in installments of 20% of the shares on each of the first, second,
third, fourth, and fifth anniversary dates of the grant. Options to purchase
4,000 shares were exercisable at December 31, 1997. All options granted in 1996
have a contractual maturity of ten years. The grant date fair value of options
granted during 1996 was $3.90 per share as determined by using the Black-Scholes
option pricing model with the following assumptions: (1) risk-free interest rate
of 6.25%; (2) expected life of 5 years; (3) expected volatility of 10.40%; and
(4) no expected dividends. These options were immaterial to the proforma net
income or earnings per share in 1997 and 1996.


                                       35
<PAGE>



(9)      Benefits, Continued
         -------------------

Under the Incentive Plan, the Company granted a restricted stock award of
100,000 shares of common stock to an executive officer of the Company. The stock
award became effective December 29, 1995 ("Vesting Date") with 10,000 shares
vesting at that time. The remaining shares become vested at the rate of 10,000
shares per year on the first through the ninth anniversaries of the Vesting Date
only if the executive officer is employed by the Company on the applicable
anniversary date. The Company will record compensation expense over the vesting
period based on the market value at the date of grant. In 1997, the amount to be
vested during 1997 was forfeited by the employee. This is reflected as a
reduction in additional paid-in capital capital and deferred stock award in the
statement of stockholders' equity.

         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, 1997, 797
shares were purchased under this Stock Purchase Plan.
<TABLE>
<CAPTION>


(10)     Income Taxes
         ------------
Income tax expense consists of the following:
                                                                Current           Deferred            Total
                                                                -------           --------            -----
              1997:
                 <S>                                        <C>                     <C>             <C>      
                  Federal                                    $    (727,994)          6,364           (721,630)
                  State                                             (2,405)            341             (2,064)
                                                              -------------     ----------      --------------

                                                             $    (730,399)          6,705           (723,694)
                                                              =============     ==========      ==============

              1996:
                  Federal                                          234,067         (22,487)           211,580
                  State                                             39,272          (4,228)            35,044
                                                              ------------      ----------      -------------

                                                             $     273,339         (26,715)           246,624
                                                              ============      ==========      =============

</TABLE>


A reconciliation of the Company's income tax provision and the amount computed
by applying the statutory federal income tax rate of 34% to net income before
income taxes is as follows:
<TABLE>
<CAPTION>

                                                                                   1997              1996
                                                                                   ----              ----

              <S>                                                           <C>                    <C>    
              Statutory rate applied to net income before taxes                $  (758,209)           214,475
              Increase (decrease) in income resulting from:
                  Goodwill amortization                                             43,909             50,809
                  TRL nontaxable income                                           (109,847)           (79,132)
                  State taxes, less related federal benefit                        (83,045)            23,129
                  Valuation allowance adjustment                                    81,283              -
                  Other                                                            102,215             37,343
                                                                                ----------      -------------

              Income taxes                                                     $  (723,694)           246,624
                                                                                ===========     =============


</TABLE>

                                       36

<PAGE>




(10)   Income Taxes, Continued
       -----------------------
The effective tax rate was (32.5%) and 39.1% for the years ended December 31,
1997 and 1996, respectively. The tax effects of temporary differences that give
rise to significant portions of the deferred tax assets and (liabilities) at
December 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>

                                                                                 1997                1996
                                                                                 ----                ----
              Deferred tax assets:
              <S>                                                       <C>                       <C>    
                  Loan loss reserves                                       $     984,280             872,213
                  State net operating loss carryforwards                          81,283                   -
                  Unearned interest and fees                                       -                  28,856
                  Other                                                          100,454              34,016
                                                                             -----------         -----------
                  Total gross deferred tax assets                              1,166,017             935,085
                                                                             -----------         -----------
                  Less valuation allowance                                       (81,283)              -
                                                                             ------------        -----------
                  Net deferred tax assets                                      1,084,734             935,085
                                                                             -----------         -----------

              Deferred tax (liabilities)
                  Prepaid insurance                                             (209,799)           (300,525)
                  Depreciable basis of fixed assets                             (139,417)            (92,144)
                  Deferred loan costs                                           (250,279)            (88,232)
                  Intangible Assets                                             (232,115)           (146,667)
                  Other                                                          (15,124)             (4,705)
                                                                             ------------        ------------
                  Total gross deferred tax liability                            (846,734)           (632,273)
                                                                             -----------         -----------

                  Net deferred tax asset                                   $     238,000             302,812
                                                                             ===========         ===========
</TABLE>


The Company recorded deferred tax liabilities of $58,107 related to its 1997
acquisition of Auto-Cycle Insurance Agency, Inc. The balance of the change in
the net deferred tax asset, net of the change in the valuation allowance, is
reflected as a deferred income tax expense in the accompanying consolidated
statements of income.

There was no valuation allowance for deferred tax assets as of January 1, 1996.
The change in the valuation allowance for 1997 and 1996 was an increase of
$81,283 and $0, 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 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.


 (11)     Preferred Stock
          ---------------
The Company issued three series of preferred stock during 1997. 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.

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. 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 B stock at any time after December 31, 1999, for $15 per share.

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.


                                       37

<PAGE>

<TABLE>
<CAPTION>



(12)    Earnings Per Share Information
        ------------------------------
The Company has adopted the provisions of SFAS 128, "Earnings per Share"
("EPS"), for the year ended December 31, 1997. The presentation of primary and
fully diluted EPS has been replaced with a presentation of basic and diluted
EPS. Prior period EPS data has been restated to reflect the adoption of SFAS
128.

The following is a summary of the earnings per share calculation for the years
ended December 31, 1997 and 1996:

                                                                          1997                  1996
                                                                          ----                  ----
 BASIC
<S>                                                              <C>                              <C>
 Net income (loss)                                               $       (1,506,333)              384,184

 Less:  Dividends on preferred stock
                                                                              4,167                25,500
                                                               --------------------------------------------
 Net income applicable to common shareholders (numerator)                (1,510,500)              358,684

                                                               --------------------------------------------

 Average common shares outstanding (denominator)                           3,913,083            3,830,472

                                                               --------------------------------------------

 Earnings (loss) per share -- basic                              $         (0.39)                   0.09
                                                               ============================================

 DILUTED
 Net income (loss)                                               $    (1,506,333)                384,184

 Less:  Dividends on preferred stock                                       4,167                  25,500
                                                               --------------------------------------------
 Net income applicable to common shareholders (numerator)             (1,510,500)                358,684
                                                               --------------------------------------------

 Average common shares outstanding                                     3,913,083               3,830,472


 Dilutive common stock assumed converted                                     234                       -
                                                               --------------------------------------------
 Average diluted shares outstanding (denominator)                      3,913,317               3,830,472
                                                               --------------------------------------------

 Earnings (loss) per share -- diluted                            $         (0.39)                   0.09
                                                               ============================================

</TABLE>


                                       38

<PAGE>






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.











                                       39
<PAGE>

<TABLE>
<CAPTION>





                                    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
11, 1998 were as follows:

       NAME                             AGE                  POSITION
       ----                             ---                  --------

<S>                                      <C>                 <C>                                          
James D. Thaxton .....................   51                  Chairman of the Board, President and Chief
                                                             Executive Officer

Robert L. Wilson......................   57                  Executive Vice President, Chief
                                                             Operating Officer and Director

Allan F. Ross.........................   49                  Vice President, Chief Financial Officer,
                                                             Treasurer, Secretary and Director

C. L. Thaxton, Sr.....................   74                  Director

Jack W. Robinson*.....................   67                  Director

Perry L. Mungo*.......................   60                  Director

</TABLE>


*Members of Audit and Compensation Committees

        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.

        JACK W. ROBINSON, who became a director in August 1995, is the
President, Chief Executive Officer and principal owner of MMC Holding, Inc.,
which through its principal subsidiary is engaged in mica mining.

        PERRY L. MUNGO, who became a director in August 1995, is the President,
Chief Executive Officer and principal owner of P.F. & P.L. Mungo, Inc., a
privately-owned industrial and commercial construction company.

                                       40
<PAGE>



      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. Messrs. Robinson and Mungo are the members
of the Compensation and Audit Committees. 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.

ITEM 10. EXECUTIVE COMPENSATION

     The table below shows the compensation paid or accrued by the Company, for
the year ended December 31, 1997, 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 1997 (together, the "Named Executive Officers").

<TABLE>
<CAPTION>


                           SUMMARY COMPENSATION TABLE

                                                                                                LONG TERM
                                                                                              COMPENSATION
                                                                 ANNUAL COMPENSATION          ------------ 
                                                                 -------------------             AWARDS
                                                                                                 ------ 
                                                                                               RESTRICTED
NAME AND PRINCIPLE POSITION                      YEAR        SALARY               BONUS        STOCK AWARD
                                                              ($)                  ($)             ($)
                                                             --------           -------        ----------- 
<S>                                             <C>           <C>                <C>              
James D. Thaxton, President                     1997          113,600            40,704         --
and Chief Executive Officer                     1996           83,908            66,037         --
                                                1995           74,513            10,100         --

Robert L. Wilson, Executive                     1997          125,000           133,106         --
Vice President                                  1996          131,507           127,747         --
                                                1995          123,076            32,985        900,000(1)

</TABLE>


(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 will 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 and, not withstanding such restriction, had
     a market value of $612,500 on that date. Mr. Wilson is entitled to vote and
     receive dividends on restricted shares.



                                       41

<PAGE>


<TABLE>
<CAPTION>

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 25, 1998 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 BENEFICIAL  PERCENTAGE OF COMMON
 NAME OF BENEFICIAL OWNER               OWNERSHIP          STOCK OUTSTANDING(1)
-------------------------             -----------------   ---------------------

<S>                                   <C>                           <C>
James D. Thaxton                      3,233,000(2)                  81.7%
Robert L. Wilson                         90,000                      2.3%
C. L. Thaxton, Sr.                       15,555(3)                    *
Jack W. Robinson                         85,477(4)                   2.2%
Perry L. Mungo                           29,000                       *
Directors and officers                3,453,032                     87.2%
as a group(5)

</TABLE>

-------------------------------
(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.
(4)   Includes 4,150 shares held of record by Mr. Robinson's spouse, Kathryn H.
      Robinson, as to which Mr. Robinson shares voting and investment power.



<PAGE>



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Issuance of Series B Preferred Stock

     On December 31, 1997, Jack W. Robinson, a director of the Company,
exchanged 27,076 shares of common stock for an equal number of shares of the
Company's Series B Preferred Stock. Holders of Series B Preferred Stock are
entitled to receive, when and as declared by the Board of Directors, dividends
on a pro rata basis in additional shares of Series P Preferred Stock at the
annual rate of 0.075 shares per outstanding share of Series B Preferred Stock.
The Board of Directors may elect to declare and pay dividends on Series B
Preferred Stock in cash. Dividends on the Series B Preferred Stock are
cumulative. With respect to liquidation preferences, the Series B Stock is
pari pasu with the Company's Series A Preferred Stock and senior to its
common stock. Through December 31, 2002, each share of Series B Preferred
Stock is convertible, at the option of the holder, into one share of
common stock. The Company may redeem all or a portion of the Series B Preferred
Stock at any time after December 31, 1999 for $15 per share. Holders of Series
B Preferred Stock have no voting rights.

ACQUISITION OF THAXTON INSURANCE GROUP, INC.

      On October 31, 1996, the Company acquired Thaxton Insurance by exchanging
300,000 shares of common stock in a private placement for all outstanding shares
of capital stock of Thaxton Insurance. Pursuant to this acquisition, the Company
acquired all of the property, plant and equipment of Thaxton Insurance, which
operated 19 independent insurance agencies in North and South Carolina at the
time of the acquisition. The number of shares issued in the transaction was
determined based upon a multiple of gross commissions collected by TIG during
the twelve month period ended December 31, 1995 which were approximately $3.7
million, and the market value of the Company's shares issued in this
transaction, taking into account the transferability restrictions applicable
thereto.


                                       42

<PAGE>



      The shares were acquired from James D. Thaxton, William H. Thaxton, and
Calvin L. Thaxton, Jr. James D. Thaxton is an executive officer, director and
majority shareholder of the Company. William H. and Calvin L. Thaxton are James
D. Thaxton's brothers.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

3.1      Amended and Restated Articles of Incorporation of The Thaxton Group,
         Inc. (1)
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 (7)
4.2      Form of Subordinated Daily Note (included as Exhibit A to Form of
         Indenture)
4.3      Form of Subordinated One Month Note (included as Exhibit B to Form of
         Indenture)
4.4      Form of Subordinated Term Note for 6, 12, 36 and 60 Month Notes
         (included as Exhibit C to Form of Indenture)
4.5      Certificate of Designation, Preferences, and Rights of the Series A
         Preferred Stock (6)
4.6      Certificate of Designation, Preferences, and Rights of the Series B
         Preferred Stock (6)
4.7      Certificate of Designation, Preferences, and Rights of the Series C
         Preferred Stock
10.2     Note Exchange Agreement, dated December 1, 1997, between the American
         Bankers Insurance Company of Florida and the Company
10.3     Security Agreement dated January 19, 1995 between the Company and
         Oakland Auto Sales, including Guaranty by Thaxton Insurance Group, Inc.
         (1)
10.4     Form of Restricted Stock Award between the Company and Robert L Wilson
         (1)
10.5     The Thaxton Group, Inc. 1995 Stock Incentive Plan (1)
10.6     The Thaxton Group, Inc. Employee Stock Purchase Plan (1)
10.10    Incentive Stock Option Agreement between James A. Cantley and the
         Company (2)
10.11    Loan Agreement dated March 18, 1996 between the American Bankers
         Insurance Company of Florida and the Company (2)
10.12    Aircraft Sales Agreement between Corporate Aircraft Marketing and The
         Company dated July 16, 1996 (3)
10.13    Share Exchange Agreement by and among The Thaxton Group, Inc., Thaxton
         Insurance Group, Inc., James D. Thaxton, William H. Thaxton and Calvin
         L. Thaxton, Jr. (4)
10.14    Form of Stock Purchase Agreement by and between the Company and Jack W.
         Robinson (6)
10.15    First Amended and Restated Loan and Security Agreement dated September
         3, 1997 between Finova Capital Corporation and the Company (6)
10.16    Schedule to First Amended and Restated Loan and Security Agreement (6)
22       Subsidiaries of The Thaxton Group, Inc.
27.1     Financial Data Schedule
27.2     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 Quarterly Report on Form
         10-QSB for the quarter ended September 30, 1996.
(4)      Incorporated by reference the Company's Current Report on Form 8-K
         dated October 31, 1996.
(5)      Incorporated by reference to the Company's Annual Report on Form 10-KSB
         for the year ended December 31, 1996.
(6)      Incorporated by reference to the Company's Registration Statement on
         Form S-4, Commission File No. 333-28719
(7)      Incorporated by reference to the Company's Registration Statement on
         Form SB-2, Commission File No. 333-42623


(B) REPORTS ON FORM 8-K

     No Reports on Form 8-K were filed during the fourth quarter.



                                       43
<PAGE>



                                   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 13, 1998          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.

<TABLE>
<CAPTION>


         SIGNATURE                              CAPACITY                                            DATE

<S>                                             <C>                                               <C>
/s/ JAMES D. THAXTON                            President, Chief Executive Officer                April 13, 1998
--------------------                              and Chairman of the Board of Directors
James D. Thaxton

/s/ ALLAN F. ROSS                             Vice President, Chief                               April 13, 1998
------------------
Allan F. Ross                                 Financial Officer (Principle Accounting
                                              and Financial Officer) and Director

/s/ ROBERT L. WILSON                             Executive Vice President and Director            April 13, 1998
--------------------
Robert L. Wilson


/s/ C. L. THAXTON, SR.                            Director                                        April 13, 1998
----------------------
C. L. Thaxton, Sr.


/s/ JACK W. ROBINSON                            Director                                          April 13, 1998
--------------------
Jack W. Robinson


/s/ PERRY L. MUNGO                               Director                                          April 13, 1998
------------------
Perry L. Mungo
</TABLE>


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.

                                       44