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UNITED STATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

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FORM
10-K

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(MARK ONE)

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission file number
333-42623

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THE THAXTON GROUP, INC.

(Exact name of registrant as specified in its charter)

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| | SOUTH CAROLINA(State or other jurisdiction ofincorporation or organization) |  | 57-0669498(IRS EmployerIdentification No.) | 
| | --------------------------------------------------------------------------- |  | ------------------------------------------ | 

1524 PAGELAND HIGHWAY, LANCASTER, SOUTH CAROLINA 29720

(Address of principal executive offices)

Registrants telephone number, including area code:
803-285-4337

Securities registered pursuant to Section 12(b) of the Act:



| | Title of each classNone |  | Name of each exchangeon which registeredNone | 
| | ----------------------- |  | -------------------------------------------- | 

Securities registered under Section 12(g) of the Act:Title of each
classNone

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No
o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the price at which the stock was last sold, was approximately $1,905,671.

At March 21, 2003, there were 6,867,390 shares of common stock outstanding.

DOCUMENTS
INCORPORATED BY REFERENCE: NONE

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THE THAXTON GROUP, INC.FORM 10-K

TABLE OF CONTENTS



|ItemNo. |  |                                                                                                                 | Page
|------- |  | --------------------------------------------------------------------------------------------------------------- | ----
|        |  | PART I                                                                                                          |     
|1.      |  | Description of Business                                                                                         | 2   
|        |  |                                                                                                                 |     
|2.      |  | Description of Property                                                                                         | 6   
|        |  |                                                                                                                 |     
|3.      |  | Legal Proceedings                                                                                               | 6   
|        |  |                                                                                                                 |     
|4.      |  | Submission of Matters to a Vote of Security Holders                                                             | 6   
|        |  |                                                                                                                 |     
|        |  | PART II                                                                                                         |     
|        |  |                                                                                                                 |     
|5.      |  | Market for Registrants Common Equity and Related Stockholder Matters                                           | 7   
|6.      |  | Selected Consolidated Financial Data                                                                            | 7   
|7.      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           | 8   
|7A.     |  | Quantitative and Qualitative Disclosures about Market Risk                                                      | 16  
|8.      |  | Financial Statements and Supplementary Data                                                                     | 17  
|        |  |                                                                                                                 |     
|9.      |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            | 34  
|        |  |                                                                                                                 |     
|        |  | PART III                                                                                                        |     
|        |  |                                                                                                                 |     
|10.     |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act | 35  
|        |  |                                                                                                                 |     
|11.     |  | Executive Compensation                                                                                          | 36  
|12.     |  | Security Ownership of Certain Beneficial Owners and Management                                                  | 36  
|13.     |  | Certain Relationships and Related Transactions                                                                  | 36  
|14.     |  | Controls and Procedures                                                                                         | 37  
|        |  |                                                                                                                 |     
|15.     |  | Exhibits, Financial statement schedules and Reports on Form 8-K                                                 | 38  

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PART I

NOTE REGARDING FORWARD-LOOKING
STATEMENTS

The Thaxton Groups (the Company) Annual Report on Form 10-K, specifically certain of the statements set forth under Item 1  Business, Item 7 
Managements Discussion and Analysis of Financial Condition and Results of Operations, Item 7A  Quantitative & Qualitative Disclosures about Market Risk, and elsewhere in this Form 10-K contain forward-looking statements, identified
as such for purposes of the safe harbor provided in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations,
estimates, and projections about the Companys industry, managements beliefs, and certain assumptions made by the Companys management. Words such as anticipates, expects, intends, plans, believes, estimates, or variations of such
words and similar expressions, are intended to identify forward-looking statements. Readers are cautioned that any forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual
results could differ materially from those indicated by forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by forward-looking statements include, but are not limited to, the
following: (1) that the information is of a preliminary nature and may be subject to further and/or continuing review and adjustment; (2) changes in the financial industry regulatory environment; (3) changes in the economy in areas served by the
Company and its subsidiaries; (4) the impact of competition; (5) the management of the Companys operations; (6) changes in the market interest rate environment and/or the Federal Reserves monetary policies; and (7) the other risks and
uncertainties described from time to time in the Companys periodic reports filed with the SEC. The Company disclaims any obligation to update any forward-looking statements.

ITEM 1.DESCRIPTION OF BUSINESS

We are a diversified consumer financial services company engaged in the origination and servicing of direct consumer loans made
to credit-impaired borrowers, used automobile lending through the purchase and servicing of used automobile sales contracts, insurance premium finance lending through the purchase of insurance premium finance contracts, selling insurance products on
an agency basis, and the factoring of accounts receivable and the origination and servicing of small commercial loans to small and medium sized businesses. For purposes of the following discussion, revenues means the sum of our interest
and fee income, insurance commissions, net and other income. We were organized in 1985.

Direct Consumer Lending. Making small loans to borrowers with
impaired credit is our largest line of business in our Consumer Finance division, comprising approximately 86% of our total revenues in 2002. Direct loans are relied upon by credit-impaired borrowers to meet short-term cash needs, finance purchases
of consumer goods or refinance existing indebtedness. The usual term of a direct loan is 15 months. Interest rates on direct loans vary based on a number of factors, the most important of which is the extent to which the borrowers state of
residence regulates interest rates. Some states in which we operate permit consumer lenders to simply post a maximum rate of interest in filings with regulatory authorities. In these states we typically post a maximum annual interest rate of 69%.
Other states where we have offices impose specific maximum annual interest rates on direct loans that range from 10% to 36%. Other factors that we consider in setting the interest rate on a particular direct loan are credit profile of the borrower,
the type and value of any collateral and competitive market conditions.

Each applicant for a direct loan must pass a credit review. This review is conducted by the manager or
personnel under his or her supervision in the office where the application is taken. This review generally takes into account the borrowers credit history, ability to pay, stability of residence, employment history, income, discretionary
income, debt service ratio and the value of any collateral. We use an industry standard application analysis score sheet to compile information on the factors described above. If a direct loan is to be secured by real estate, we obtain an appraisal
of the property, obtain a title opinion from an attorney and verify filing of a mortgage or deed of trust before disbursing funds to the borrower. A senior officer must approve any direct loan to be secured by real estate. The principal competitive
factors for these types of loans are the interest rate charged and customer service.

In connection with making direct consumer loans we also offer, as agent, credit life and
credit accident and health insurance. Instead of filing financing statements to perfect our security interest in the collateral on all direct consumer loans secured by personal property other than an automobile, we purchase non-filing insurance from
an unaffiliated insurer. On these loans we charge an amount approximately equal to the filing fees that we would have charged to the customer if we had filed financing statements to perfect our security interest. This amount is typically included in
the amount of the loan. We use this amount to pay premiums for non-filing insurance against losses resulting from failure to file. Under our non-filing insurance arrangements, approximately 90% of the premiums paid are refunded to us on a quarterly
basis and are netted against charge-offs for the period.

Used Automobile Sales Finance. Another line of business in our Consumer Finance division is
the financing of used automobile purchases, which comprised approximately 7% of our total revenues in 2002. We purchase sales contracts from independent automobile dealers who have been approved by the manager of an individual finance office or a
regional supervisor. Office managers

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and regional supervisors periodically evaluate independent dealers in their market areas to ensure that we purchase sales contracts only from reputable
dealers carrying an inventory of quality used automobiles. We enter into a non-exclusive agreement with each dealer which sets forth the terms and conditions on which we will purchase sales contracts. The dealer agreement generally provides that
sales contracts are sold to us without recourse to the dealer with respect to the credit risk of the borrower. However, if the dealer breaches the terms of the sales contract or a customer withholds payment because of a dispute with the dealer
regarding the quality of the automobile purchased, the dealer typically is obligated to repurchase the sales contract on our demand for its net unpaid balance. If the purchaser of the automobile recovers any amount from us as a result of a claim
against the dealer, the dealer agreement provides that the dealer will reimburse us for any amount paid the customer and for any costs we incur as a result of the claim.

The
dealer agreement allows us to withhold a specified percentage of the principal amount of each sales contract purchased. This dealer reserve arrangement is designed to protect us from credit losses on sales contracts. These dealer reserves, which
range from 5% to 10% of the net amount of each sales contract, are negotiated on a dealer-by-dealer basis and are subject to change based upon the collection history on sales contracts we have purchased from the dealer.

In purchasing used automobile sales contracts, underwriting standards are used that take into account principally the degree of a proposed buyers creditworthiness and the market value of the
vehicle being financed. The office manager, or other office personnel under the managers supervision, conducts the credit evaluation review. This review generally takes into account factors similar to those performed in our review of direct
consumer loans. We generally do not finance more than 100% of the average trade-in value of the automobile as listed in the current edition of the National Association of Automobile Dealers Official Used Car Guide.

From time to time we purchase used automobile sales contracts in bulk from dealers who have originated and accumulated contracts over a period of time. By doing so, we are able to obtain large volumes
of sales contracts in a cost-effective manner. For bulk purchases, our underwriting standards take into account principally the borrowers payment history and the collateral value of the automobiles financed. These purchases are typically made
at discounts ranging from 25% to 50% of the financed portion of the contract. Generally no dealer reserve arrangements are established with bulk purchases. In connection with bulk purchases, we review all credit evaluation information collected by
the dealer and the servicing and collection history of the sales contracts.

We compete with others in used car financing primarily based on the price paid for used automobile
sales contracts, which is a function of the amount of the dealer reserve and the reliability of service to participating dealers. We generally do not compete based on the same type of used automobile to be financed because our competition
concentrates their financing activities on late-model used automobiles purchased from franchised dealers rather than older-model used automobiles purchased from independent dealers, which is the target market of our used automobile sales financing
activities. The size of our average used automobiles sales contract is considerably smaller than that of many other companies engaged in purchasing used automobiles sales contracts. We believe this is due in large part to the fact that most of our
competitors are seeking to do business primarily with franchised dealers selling late-model, lower mileage used automobiles, coming off leases or which were rental cars, for significantly higher prices than the prices for automobiles offered for
sale by the independent dealers with whom we have relationships. The independent dealers from whom we purchase used automobile sales contracts typically sell automobiles that tend to be somewhat older, higher mileage vehicles. Because the costs of
servicing and collecting a portfolio of finance receivables increase with the number of accounts included in the portfolio, we believe that many apparent potential competitors will choose not to do business with independent dealers.

In connection with the origination of used automobile sales contracts, we offer, as agent, credit life, and credit accident and health insurance. Borrowers under sales contracts and direct
loans secured by an automobile are required to obtain comprehensive and collision insurance on the automobile that designates us as loss payee. A loss payee is the person who receives insurance proceeds in the event an automobile is damaged in a
collision. If the borrower allows the insurance to lapse during the term of the contract or loan, we will purchase a vendors single interest insurance policy, which insures us against a total loss on the automobile. The cost of the premium
will then be added to the borrowers account balance. We also offer, as agent, limited physical damage insurance, which satisfies the requirement that the borrower purchase comprehensive and collision insurance.

Insurance Premium Finance. Also in our Consumer Finance division we provide short-term financing of insurance premiums purchased indirectly through independent insurance
agents. Our insurance premium finance business made up approximately 2% of our total revenues in 2002. The premiums are primarily for personal lines of insurance that are typically too high for a credit-impaired borrower to pay in six-month
increments, such as automobile insurance. Financing the premium allows the insured to pay it in smaller increments, usually monthly. Most agents who refer premium finance business to us are located in North Carolina, South Carolina, and Virginia. A
small amount of our business involves financing premiums for commercial lines of insurance for small businesses, including property and casualty, business automobile, general liability, and workers compensation. Substantially all of our
premium finance business is derived from customers of the 48 insurance offices owned and operated by Thaxton RBE, Inc. (RBE), which is owned by Thaxton Group CEO James D. Thaxton and members of his family.

When an individual purchases an insurance policy from an agent with whom we have a relationship, the agent will offer the opportunity to enter into a premium finance contract that allows the insured
to make a down payment and finance the balance of the

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premium. The typical term of a premium finance contract ranges from three to eight months depending primarily upon the term of the underlying insurance
policy. The required down payment ranges from 20% to 50% of the premium. In accordance with our arrangement with RBE, we allow RBE agencies to charge a smaller down payment. In those instances, we have an arrangement where RBE reimburses our premium
finance company for any losses incurred in excess of 5% of the premium and in turn we pay back 85% of the net income in accordance with our arrangement with RBE. We generally impose the maximum finance charges and late fees that applicable state law
permits for premium finance contracts, which are extensively regulated in the states where we engage in this business. In all of the states in which we operate, we charge the maximum interest rate permitted by law. Because we are 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 our portfolio of premium finance contracts.

Insurance Agency Activities. We sell, on an agency basis, various lines of automobile, property and casualty, life, accident, and health insurance. Our insurance agency activities comprised approximately 4% of our total revenues in 2002. The insurance companies that we
represent assume all underwriting risk on most of the policies we sell. The insurance company that issues a policy we sell pays us a commission based on a standard or negotiated schedule. We are eligible for additional commission payments from some
of the companies we represent if the loss experience on the policies we sell for those companies falls below specified levels and the total premiums on such policies exceed a specified minimum.

Commercial Finance. In 1998, we began making commercial loans and offering factoring services to small business clients. Our commercial finance activities made up approximately 1% of our total
revenues in 2002. Our commercial loans usually are secured, most often with real estate. In factoring, we advance funds to the client based upon the balance of designated accounts receivable due from their customers. The client then assigns or sells
these receivables to us, notifies its customers to send payment directly to us and we collect the receivables and credit the amount advanced to the client. Generally, we advance to our factoring client 80% to 95% of the dollar value of each
receivable, holding the difference in reserve. We charge a fee equal to one to four percent of the amount advanced for this service and may also charge interest on any uncollected balances. Almost all of our factoring contracts are with recourse,
which allows us to charge any uncollected receivables back to the client after a period ranging from 60 to 90 days.

The Consumer Finance and Insurance Agency
Industries

The segment of the consumer finance industry in which we operate is commonly called the non-prime credit market. Our borrowers of direct loans and
automobile sales contracts typically have limited credit histories, low incomes and/or past credit problems. These borrowers generally do not have access to the same 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 that most traditional lenders use. The non-prime credit market for used automobile finance and loans is highly competitive and fragmented, consisting of many
national, regional and local competitors. New competitors are able to enter this market with relative ease. Historically, commercial banks, savings and loans, credit unions, financing arms of automobile manufacturers, and other lenders providing
traditional consumer financing have not consistently served this segment of the consumer finance market. Several large bank holding companies, in an effort to recapture some of the customers their bank subsidiaries have traditionally rejected on the
basis of their rigid credit scoring systems, now serve the non-prime credit market through automobile finance subsidiaries. We also face increasing competition from a number of companies, including bank credit card companies, providing similar
financing to individuals that cannot qualify for traditional financing. Many of these competitors or potential competitors have significantly greater resources than we do and have pre-existing relationships with established networks of dealers. To
the extent that any of these lenders significantly expand their activities in the markets where we operate or plan to operate, our profitability could be threatened.

Although the
primary service-providers in the premium finance industry are different than those who serve the non-prime credit market for direct loans and used automobile finance, credit-impaired borrowers also are the primary borrowers under premium finance
contracts. Insurance companies that engage in direct writing of insurance policies generally provide premium financing to their customers who need the service. Numerous small independent finance companies like us are engaged in providing premium
financing for personal lines of insurance purchased by credit-impaired 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 the use of independent agencies to be a more cost-effective method of selling their
products than using a direct agent force. Competition among independent insurance agencies is intense. Numerous other independent agencies operate in most of the markets where our insurance offices are located. Direct agents for various insurance
companies located in some of our markets also compete with us. We compete primarily on the basis of service and convenience. We attempt to develop and maintain long-term

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customer relationships through low employee turnover and responsive service and offer virtually all types of insurance products.

Banks and commercial finance companies dominate the commercial lending industry. Many banks, however, do not offer factoring services, and most banks do not make loans to the higher risk business
clients that we finance. Most commercial finance companies engage in lending to larger businesses or engage in lending to specialized businesses. Our primary competition comes from independent factoring companies who, like us, specialize in smaller,
higher risk clients.

Regulation

Consumer finance companies and insurance agents are extensively
supervised and regulated under state and federal statutes and regulations. Depending upon the nature of a particular transaction and the state of residence of the borrower or the customer, we may be required 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 specified other terms and conditions of the
financing;

Govern the sale and terms of insurance products; and

Define and limit the right to repossess and sell collateral.

Federal and state laws also require
us to provide various disclosures to prospective borrowers, prohibit misleading advertising, protect against discriminatory lending practices, and prohibit unfair credit practices. We believe we comply in all material respects with applicable
governmental regulations. These requirements change frequently however, and we cannot be certain that future changes or modifications in these laws will not have a material adverse effect on our business with increased compliance costs or
prohibition or limitation of a profitable line of business.

EMPLOYEES

As of February 28, 2003, we
employed 967 full-time employees and 90 part-time employees, none of whom were covered by a collective bargaining agreement. Of that total, 55 were located in the Companys headquarters in Lancaster, South Carolina and 1,002 were located in our
other offices. We generally consider our relationships with our employees to be good.

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ITEM 2.DESCRIPTION OF PROPERTY

Our executive offices are located at 1524 Pageland Highway Lancaster, South Carolina 29720 in leased office facilities of
approximately 28,000 square feet. The lease expires in August 2012, and includes an option to renew for an additional five-year term. We lease all of our branch office facilities. In some instances we lease these facilities from related parties.
These offices range in size from approximately 800 square feet to 2,200 square feet. Since most of our business with automobile dealers is conducted by facsimile machine and telephone, we do not believe that the particular locations of our finance
offices are critical to our business of purchasing used automobile sales contracts or our premium finance operations. Location is somewhat more important for our direct loan and insurance agency operations. Other satisfactory locations are, however,
generally available for lease at comparable rates and for comparable terms in each of our markets.

We currently have a total of 214 finance offices and 15 insurance agency
offices in the following states.



|Finance Offices |  | Insurance Agency Offices | 
|--------------- |  | ------------------------ | 
|                |  |                          | 
|                |  |                          | 
|South Carolina  |  | 77                       | 
|Texas           |  | 52                       | 
|Georgia         |  | 24                       | 
|Mississippi     |  | 19                       | 
|Tennessee       |  | 12                       | 
|Kentucky        |  | 9                        | 
|Ohio            |  | 9                        | 
|Oklahoma        |  | 6                        | 
|Alabama         |  | 2                        | 
|Virginia        |  | 2                        | 
|North Carolina  |  | 2                        | 

ITEM 3.LEGAL PROCEEDINGS

We presently are not a party to any material legal proceedings nor is our management aware of any material threatened litigation
against us.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of shareholders during the fourth quarter of
2002.

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PART II

ITEM
5.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Due to the relatively small number of shares held by non-affiliates, there is no active
trading market for our common stock, although trades in the stock occur occasionally in the over-the-counter market. At March 21, 2003, there were 145 shareholders of record.

We
have not paid any dividends on common stock during the last three fiscal years and we have no plans to pay any cash dividends on common stock in the foreseeable future. In addition, we intend to retain future earnings for working capital purposes.
As a holding company, we depend on dividends and other payments from our subsidiaries to meet our working capital needs. Our credit facility with FINOVA Capital Corporation (FINOVA) prohibits us from paying any cash dividends on common
stock.

ITEM 6.SELECTED CONSOLIDATED FINANCIAL DATA



|                                                      |  | For the Year EndedDecember 31,                   |       
|----------------------------------------------------- |  | ------------------------------------------------ | ------
|                                                      |  |                                                  |       
|                                                      |  | 2002                                             |       
|                                                      |  |                                                  |       
|                                                      |  | (Dollars in thousands, except per share amounts) |       
|Income Statement Data:                                |  |                                                  |       
|Interest and fee income                               |  | $                                                | 80,939
|Interest expense                                      |  | 15,211                                           |       
|                                                      |  |                                                  |       
|Net interest income                                   |  | 65,728                                           |       
|Provision for credit losses                           |  | 21,285                                           |       
|                                                      |  |                                                  |       
|Net interest income after provision for credit losses |  | 44,443                                           |       
|Insurance premiums and commissions, net               |  | 19,396                                           |       
|Other income                                          |  | 2,850                                            |       
|Operating expenses                                    |  | 58,425                                           |       
|                                                      |  |                                                  |       
|Pretax income (loss) from continuing operations       |  | 8,264                                            |       
|Income tax expense (benefit)                          |  | 3,130                                            |       
|                                                      |  |                                                  |       
|Income (loss) from continuing operations              |  | 5,134                                            |       
|Discontinued operations net loss                      |  |                                                 |       
|                                                      |  |                                                  |       
|Net Income (loss)                                     |  | $                                                | 5,134 
|                                                      |  |                                                  |       
|                                                      |  |                                                  |       
|Net income (loss) per common share                    |  | 0.67                                             |       
|Average common shares outstanding                     |  | 6,867                                            |       



|                            |  | At Year EndedDecember 31,                        |        
|--------------------------- |  | ------------------------------------------------ | -------
|                            |  |                                                  |        
|                            |  | 2002                                             |        
|                            |  |                                                  |        
|                            |  | (Dollars in thousands, except per share amounts) |        
|Balance Sheet Data:         |  |                                                  |        
|Finance receivables         |  | $                                                | 251,141
|Unearned income (1)         |  | (48,859                                          | )      
|Allowance for credit losses |  | (13,964                                          | )      
|Finance receivables, net    |  | 188,318                                          |        
|Total assets                |  | 250,020                                          |        
|Total liabilities           |  | 239,141                                          |        
|Shareholders equity        |  |                                                  | 10,879 

(1)Includes unearned finance charges, dealer reserves, and discounts on bulk purchases.

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ITEM 7.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a diversified consumer financial
services company. The primary divisions of our business include:

origination and servicing of direct consumer loans made to credit-impaired borrowers,

used automobile lending through the purchase and servicing of used automobile sales
contracts,

insurance premium finance lending through the purchase of insurance premium finance contracts,

selling insurance products on an agency basis, and the factoring of accounts receivable and

the origination and servicing of
small commercial loans to small and medium sized businesses.

Recent Expansion Activities:

Over the past four years, we have added approximately 175 branch offices and have begun the process of identifying the offices that are more profitable than others, seeking to enhance the performance of each office and determining whether to
close or dispose of offices that are marginally profitable or operate at a loss. While we continue to expand existing operations and consider acquisition opportunities, our business strategy focuses primarily on making our current business more
profitable. As part of this strategy, we periodically make bulk purchases of loan contracts to improve our competitive position and portfolio mix.

Acquisitions:In November 1999, we acquired all of the outstanding shares of Thaxton Investment Corporation (Thaxton Investment), a corporation controlled by Mr. James D. Thaxton, for 3,223,000 shares
of our common stock. At that time, Thaxton Investment owned and operated 144 consumer finance offices in six states. Thaxton Investment had acquired these offices from FirstPlus Consumer Finance, Inc. in February 1999. When we acquired Thaxton
Investment, the estimated aggregate fair market value of the common stock issued to Mr. Thaxton was approximately $30 million. Because we had been under common ownership and control with Thaxton Investment since February 1999, our acquisition
of Thaxton Investment was accounted for at historical cost in a manner similar to pooling of interests accounting.

On August 18, 2000, we acquired all of the stock of Quick
Credit Corporation, a consumer finance company with 25 branch offices located in South Carolina, for $12.75 million in cash. This acquisition was accounted for as a purchase and resulted in goodwill of approximately $3.8 million.

Discontinued Operations:We discontinued the operations of two of our businesses in 2000. On March 1, 2000, we transferred all of the assets and liabilities of 32
insurance agency operations to a newly formed entity, Thaxton RBE, Inc. The purpose of the transfer was to place the insurance operations in a separate entity to facilitate raising capital to fund the specialized non-standard automobile insurance
business of Thaxton RBE. Immediately after the transfer, Thaxton Life Partners, Inc. acquired 90% of the equity of Thaxton RBE for $2 million in cash. During the third quarter of 2000, Thaxton Life Partners purchased our remaining 10% interest in
Thaxton RBE and all amounts owed to us by Thaxton RBE were paid in full. We recorded a loss, net of income tax benefit, from operations of Thaxton RBE of approximately $1.5 million for the year ended December 31, 1999 and $374,683 for the year ended
December 31, 2000.

In December 2000, we adopted a plan to discontinue the operations of the mortgage banking business conducted by Paragon, Inc. Paragon ceased operations in
December of 2000, and its assets have been sold. We recorded a loss, net of income tax benefit, from the operations of Paragon of $100,355 for the year ended December 31, 1999 and approximately $3 million for the year ended December 31, 2000.

For additional information about the effects of the discontinued operations, see Note 13 to our consolidated financial statements contained elsewhere in this annual
report.

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Sources of Income

We derive revenues and our resulting income from direct
consumer lending, used automobile sales finance, insurance premium finance, the sale of insurance products on an agency basis and commercial finance. For purposes of the following discussion, revenues means the sum of our interest and
fee income, insurance commissions, net and other income.

Direct Consumer Lending. We make small loans to borrowers with impaired credit. In connection
with these loans, our income consists of interest and fees paid by the borrowers. Our interest income is based on the interest rates we charge borrowers for loans. Interest rates vary from loan to loan based on several factors, including the extent
to which interest rates are regulated in the state where the loan is originated. Substantially all of the fee income we derive from these loans consists of late fees. Interest and fee income from our direct consumer lending business comprised
approximately 86% of our total revenues in 2002.

Used Automobile Sales Finance. We finance used automobile purchases by individuals with impaired
credit by purchasing sales contracts from independent automobile dealers. Our income in this line of business also consists of interest and fees charged to borrowers. Like our direct consumer loans, interest rates charged on automobile sales
contracts vary from contract to contract based on several factors, including the extent to which the interest rates are regulated in the state where the contract is originated. Substantially all of the fee income we generate consists of late fees.
Interest and fee income from our used automobile sales finance business comprised approximately 7% of our total revenues in 2002.

Insurance Premium Finance. We provide short-term financing of insurance premiums for customers of independent insurance agents primarily of a related party, Thaxton Life Partners. The premiums are for personal lines of insurance that are typically too high for a
credit-impaired borrower to pay in six-month increments, such as automobile insurance. A smaller amount of this business involves financing premiums for commercial lines of insurance for small businesses. Substantially all of our premium finance
business is derived from customers of the 48 insurance offices owned and operated by Thaxton Life Partners, Inc. which is owned by James D. Thaxton and members of his family.

Our
income from our premium finance business consists of interest charges and fees, both of which are extensively regulated in the states where we operate. The fee income we derive consists primarily of an origination fee of up to $15 on each contract
and late fees as permitted under applicable state law. Our insurance premium finance business made up approximately 2% of our total revenues in 2002.

Insurance Agency
Activities. We sell, on an agency basis, various lines of automobile, property and casualty, life, accident and health insurance. Our income from the sale of these products consists of commissions paid by the insurance
company that issues the policy we sell. The commission rates are based on a standard or negotiated schedule. Our insurance agency activities comprised approximately 4% of our total revenues in 2002.

Commercial Finance. We offer commercial loans and factoring services to small business clients. We derive interest and fee income from these financing activities. The interest rates we charge
are typically negotiated with commercial borrowers because the interest rates are generally not regulated by state laws. In factoring the accounts receivable, we typically charge a fee of 1% to 4% of the amount we advance. We may also charge
interest on uncollected balances. Approximately 1% of our total revenues in 2002 was derived from our commercial finance activities.

Over the next 12 months, we plan to grow our
direct consumer lending portfolio by about five percent, grow our automobile sales finance portfolio by about two percent and maintain our insurance premium finance portfolio at approximately its level at December 31, 2002. We do not intend to make
any new loans secured by real estate in the future and expect that our existing portfolio of these loans will either be sold or liquidated over time as the loans are paid off.

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Finance Receivables

Our finance receivables are comprised of direct loans,
used automobile sales contracts, real estate secured loans, premium finance contracts and commercial loans. Our financial performance depends in part on the growth of our outstanding loan receivables and the maintenance of loan quality. The
following table sets forth certain information about the components of our finance receivables as of the end of the period presented.



|                                     |  | Year Ended December 31, |            
|------------------------------------ |  | ----------------------- | -----------
|                                     |  |                         |            
|                                     |  | 2002                    |            
|                                     |  |                         |            
|DIRECT LOANS                         |  |                         |            
|Total balance at year end, net (1)   |  | $                       | 173,357,576
|Average account balance at year end  |  | 799                     |            
|Interest and fee income for the year |  | 71,138,217              |            
|Average interest rate earned         |  | 45.61                   | %          
|Number of accounts at year end       |  | 217,086                 |            
|                                     |  |                         |            
|USED AUTOMOBILE SALES CONTRACTS      |  |                         |            
|Total balance at year end, net (1)   |  | 18,947,831              |            
|Average account balance at year end  |  | 3,589                   |            
|Interest and fee income for the year |  | 5,288,588               |            
|Average interest rate earned         |  | 28.20                   | %          
|Number of accounts at year end       |  | 5,280                   |            
|                                     |  |                         |            
|REAL ESTATE SECURED LOANS            |  |                         |            
|Total balance at year end, net (1)   |  | 12,607,572              |            
|Average account balance at year end  |  | 11,257                  |            
|Interest and fee income for the year |  | 2,289,886               |            
|Average interest rate earned         |  | 16.67                   | %          
|Number of accounts at year end       |  | 1,120                   |            
|                                     |  |                         |            
|PREMIUM FINANCE CONTRACTS            |  |                         |            
|Total balance at year end, net (1)   |  | 3,900,293               |            
|Average account balance at year end  |  | 274                     |            
|Interest and fee income for the year |  | 1,574,831               |            
|Average interest rate earned         |  | 31.08                   | %          
|Number of accounts at year end       |  | 14,252                  |            
|                                     |  |                         |            
|COMMERCIAL LOANS                     |  |                         |            
|Total balance at year end, net (1)   |  | 1,806,263               |            
|Average account balance at year end  |  | 58,267                  |            
|Interest and fee income for the year |  | 647,513                 |            
|Average interest rate earned         |  | 29.75                   | %          
|Number of accounts at year end       |  |                         | 31         

(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).

NET INTEREST MARGIN

The principal component
of our profitability is our net interest margin, which is the difference between interest earned on finance receivables and interest expense paid on borrowed funds. Statutes in some states regulate the interest rates that we may charge our borrowers
while interest rates in other states competitive market conditions establish the interest rate borrowers may be charged. Significant differences exist in the interest rates earned on the various components of our finance receivable portfolio. The
interest rate earned on used automobile sales contracts and real estate secured loans generally are lower than the interest rates earned on direct consumer 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 our interest
income, our interest expenses are sensitive to general market fluctuations in interest rates. The interest rates paid to our primary lender, FINOVA, are based upon a published prime rate plus set percentages. Thus, general market fluctuations in
interest rates directly impact our cost of funds. Our general inability to increase the interest rates earned on finance receivables may impair our ability to adjust to increases in the cost of funds resulting from changes in market conditions.
Accordingly, increases in market interest

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rates generally will narrow our interest rate margin and lower our profitability, while decreases in market interest rates generally will widen our interest
rates spreads and increase profitability.

The following table presents important data relating to our net interest margin for the years ended December 31, 2000, 2001, and 2002.



|                                    |  | 2002        |             | 2001        |   | 2000        |  
|----------------------------------- |  | ----------- | ----------- | ----------- | - | ----------- | -
|                                    |  |             |             |             |   |             |  
|Average net finance receivables (1) |  | $           | 195,696,123 |             | $ | 179,688,836 |  
|Average notes payable (1)           |  | 214,057,626 |             | 216,824,106 |   | 200,221,483 |  
|Interest and fee income             |  | 80,939,034  |             | 76,137,625  |   | 66,662,413  |  
|Interest expense                    |  | 15,210,755  |             | 19,069,792  |   | 21,024,576  |  
|                                    |  |             |             |             |   |             |  
|Net interest income                 |  | 65,728,279  |             | 57,067,833  |   | 45,637,837  |  
|Average interest rate earned        |  | 41.36       | %           | 42.37       | % | 39.35       | %
|Average interest rate paid          |  | 7.11        | %           | 8.80        | % | 10.50       | %
|                                    |  |             |             |             |   |             |  
|Net interest rate spread            |  | 34.25       | %           | 33.57       | % | 28.85       | %
|Net interest margin (2)             |  |             | 33.59       | %           |   | 31.76       | %

(1)Averages are computed using month-end balances during the year presented

(2)Net interest margin represents net interest income divided by average Net Finance Receivables.

RESULTS OF
OPERATIONS

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Our
aggregate finance receivables grew 3% from $182,684,000 on December 31, 2001 to $188,318,000 on December 31, 2002. We continued to change the mix of our portfolio during 2002. Our direct loan finance receivables increased by $19 million due to
increased emphasis on the growth and quality of this division by management. Our Premium Finance and Commercial loans balances declined $4.5 million and $1.3 million for the year, respectively. Due to the profitability of our direct loan finance
receivables, we plan to continue to grow this category of our business.

Interest and fee income grew 6.3% during 2002 primarily because of an increase in direct loan receivables.
Interest and fee income was $80,939,000 in 2002 compared to $76,138,000 in 2001. Interest expense decreased 20.2% to $15,211,000 in 2002 from $19,069,000 in 2001. Our overall interest expense decreased due to the substantial decrease in interest
rates compared to the prior year. As we increase our direct loan finance receivables, we expect our interest income to increase in future periods. Our average interest rate earned decreased slightly due to less growth in our higher yielding small
loan business. We do not expect the prime interest rate to decrease as substantially in the future, if at all, and may increase which would cause our interest expense to rise.

We
increased our allowance for credit losses by 16% to $13,964,000 at December 31, 2001 versus $12,012,000 at December 31, 2001 due to the 17% increase in credit losses experienced during 2002. Credit losses increased to $21,141,000 for 2002 versus
$18,024,000 for 2001 and our provision for credit losses increased comparably between years from $16,584,000 in 2001 to $21,285,000 in 2002, or a 28% increase. As our finance receivables portfolio mix changes to more direct loans, we expect our
credit losses will increase, and the weakening economy may cause an additional increase in credit losses as well.

Total operating expenses increased 1.2% during 2002 due
primarily to an increase in normal operating expenses. Operating expenses were $58,425,000 during 2002 versus $57,737,000 during 2001. We have experienced and expect to continue to experience nominal increases in operating expenses associated with
normal growth.

We generated pretax income of $8,264,000 and net income of $5,134,000 in 2002 compared to pretax income of $5,130,000 and net income of $3,035,000 in
2001.

Our net income, after payment of preferred stock dividends, increased our stockholders equity to $10,879,000 from $6,285,000 for the year ended December 31,
2002.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Our aggregate finance
receivables grew slightly during 2001. Finance receivables grew 3% from $177,944,000 on December 31, 2000 to $182,684,000 on December 31, 2001. In addition, the mix of our portfolio changed during 2001. Our direct loan finance receivables
increased by $13 million due to the addition of new branches and increased emphasis on the growth and quality of this division by management. Our automobile sales finance receivables decreased by approximately $8 million due to a management decision
to liquidate portions of this portfolio. Due to the profitability of our direct loan finance receivables, we plan to continue to grow this category of our business, while we maintain our other portfolios.



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Interest and fee income grew 14.2% during 2001 primarily because of an increase in receivables as a result of the full year effect of the August 2000
acquisition of Quick Credit and the change in the mix of our portfolio. Interest and fee income was $76,138,000 in 2001 compared to $66,662,000 in 2000. Interest expense decreased 9.3% to $19,069,000 in 2001 from $21,024,000 in 2000. Even though our
average notes payable for the year increased, our overall interest expense decreased due to the substantial decrease in interest rates during the year. As we increase our direct loan finance receivables, we expect our interest income to increase in
future periods. If the prime interest rate continues to decline, we expect our interest expense to decrease.

We increased our allowance for credit losses by 3% to $12,012,000 at
December 31, 2001 versus $11,631,000 at December 31, 2000 due to the 12% increase in credit losses experienced during 2001. Credit losses increased to $18,024,000 for 2001 versus $16,052,000 for 2000 and our provision for credit losses increased
comparably between years from $14,658,000 in 2000 to $16,584,000 in 2001, or a 13% increase. As our finance receivables portfolio expands, we expect our credit losses will increase as well, and the weakening economy may cause an additional increase
in credit losses.

Insurance commissions, net of insurance cost, increased by 4.4% during 2001 primarily due to increased sales of insurance products to borrowers. Insurance
commissions, net of insurance costs, were $18,554,000 in 2001 versus $17,764,000 in 2000. Other income increased from $4,239,000 in 2000 to $5,640,000 in 2001 primarily due to law changes in Georgia, Tennessee and Oklahoma that allowed us to charge
increased fees to borrowers and the opening of five additional branches in those states.

Total operating expenses increased 11.5% during 2001 due primarily to an increase in
normal operating expenses and the full year of operating expenses associated with Quick Credit. Operating expenses were $57,737,000 during 2001 versus $51,781,000 during 2000. We only incurred 4 months of operating expenses in 2000 due to the Quick
Credit acquisition. We do not expect to continue to see comparable increases in our operating expenses in the future. However, we have experienced and expect to continue to experience nominal increases in operating expenses associated with normal
growth.

We generated pretax income of $5,130,000 and net income of $3,035,000 in 2001 compared to pretax income from continuing operations of $153,000 and a net loss from
continuing operations of $397,000 in 2000.

Our net income, after payment of preferred stock dividends, increased our stockholders equity to $6,285,000 from $3,759,000 at
December 31, 2001.

CREDIT LOSS EXPERIENCE

Provisions for credit losses are charged to income in
amounts sufficient to maintain the allowance for loan losses at a level considered adequate to cover the expected future losses of principal and interest in our existing finance receivable portfolio as of December 31, 2002. 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. Our 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 utilizes historical charge-off data to predict the charge-offs likely to be generated in the future by the existing finance receivable portfolio. The model takes into consideration overall loss levels, as well as
losses by originating office and by type, and develops historical loss factors which are applied to the current portfolio. In addition, changes in dealer and bulk purchase reserves are reviewed for each individual dealer and bulk purchase, and
additional reserves are established for any dealer or bulk purchase if coverage is deemed to have declined below adequate levels. Our 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 our
dealer reserve arrangements, when a dealer assigns a used automobile sales contract to us, we withhold a certain percentage of the principal amount of the contract, usually between five and ten percent. The amounts withheld from a particular dealer
are recorded in a specific reserve account. Any losses incurred on used 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 withheld percentage to the total amount of principal and interest due under all outstanding used automobile sales contracts purchased from the dealer, the dealer is entitled to receive distributions from
the specific reserve account in an amount equal to the excess. If we continue to purchase used automobile sales contracts from a dealer, distributions of excess dealer reserves generally are paid quarterly. If we do not continue to purchase used
automobile sales contracts from a dealer, distributions of excess dealer reserves are not paid out until all used 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. Our allowance for credit losses is charged only to the extent that the loss on a used automobile sales contract exceeds the
originating dealers specific reserve account at the time of the loss.



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We periodically purchase used automobile sales contracts in bulk. In a bulk purchase arrangement, we typically purchase a portfolio of used automobile sales
contracts from a dealer at a discount to par upon our managements review and assessment of the portfolio. 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.

The following table sets forth our allowance for credit losses and credit loss experience
at or over the periods presented.



|                                                                                                              |  | 2002       |             | 2001       |   | 2000        |  
|------------------------------------------------------------------------------------------------------------- |  | ---------- | ----------- | ---------- | - | ----------- | -
|                                                                                                              |  |            |             |            |   |             |  
|Net finance receivables (1)                                                                                   |  | $          | 200,475,472 |            | $ | 190,105,324 |  
|Allowance for credit losses                                                                                   |  | 13,963,909 |             | 12,012,169 |   | 11,630,555  |  
|Allowance for credit losses as a percentage of net finance receivables
(1)                                    |  | 6.97       | %           | 6.32       | % | 6.27        | %
|Dealer reserves and discounts on bulk purchases                                                               |  | 1,710,542  |             | 2,036,818  |   | 2,406,165   |  
|Dealer reserves and discounts on bulk purchases as percentage of Net Automobile
Sales Contracts at period end |  | 9.03       | %           | 10.58      | % | 10.89       | %
|Allowance for credit losses and dealer reserves and discount on bulk purchases                                |  | 15,674,451 |             | 14,048,987 |   | 14,036,720  |  
|Allowance for credit losses and dealer reserves as a percentage of finance
receivables                        |  | 7.82       | %           | 7.39       | % | 7.56        | %
|Provision for credit losses                                                                                   |  | 21,285,161 |             | 16,583,919 |   | 14,657,930  |  
|Charge-offs (net of recoveries)                                                                               |  | 19,333,421 |             | 16,202,305 |   | 14,526,731  |  
|Charge-offs (net of recoveries) as a percentage of average net finance receivables (2)                        |  |            | 9.64        | %          |   | 8.32        | %

(1)Net finance receivable balances are presented net of unearned finance charges, net of unearned insurance premiums, dealer holdbacks and bulk purchase discounts, deferred loan
costs, and exclude commercial finance receivables.

(2)Average net receivables computed using month end balances

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The following table sets forth certain information concerning our finance contracts at the end of the periods indicated:



|                                                                                                                          |  | 2002        |           | 2001        |   | 2000        |  
|------------------------------------------------------------------------------------------------------------------------- |  | ----------- | --------- | ----------- | - | ----------- | -
|                                                                                                                          |  |             |           |             |   |             |  
|                                                                                                                          |  |             |           |             |   |             |  
|Direct Finance Receivables Contractually past due 90 days or more                                                         |  | $           | 8,279,602 |             | $ | 7,373,910   |  
|Direct Finance Receivables outstanding                                                                                    |  | 173,357,576 |           | 148,214,621 |   | 134,016,945 |  
|Direct Finance Receivables Contractually past due 90 days or more as a percentage
of Direct Finance receivables           |  | 4.78        | %         | 4.98        | % | 4.83        | %
|                                                                                                                          |  |             |           |             |   |             |  
|Real Estate Secured Receivables Contractually past due 90 days or more                                                    |  | 912,571     |           | 1,632,483   |   | 1,601,906   |  
|Real Estate Secured Receivables outstanding                                                                               |  | 12,607,572  |           | 15,732,857  |   | 18,873,231  |  
|Real Estate Secured Receivables Contractually past due 90 days or more as a percentage of Real Estate
Secured receivables |  | 7.24        | %         | 10.38       | % | 8.49        | %
|                                                                                                                          |  |             |           |             |   |             |  
|Vehicle Secured Receivables Contractually past due 60 days or more                                                        |  | 737,068     |           | 1,090,032   |   | 1,534,520   |  
|Vehicle Secured Receivables outstanding                                                                                   |  | 18,947,831  |           | 17,782,135  |   | 25,392,262  |  
|Vehicle Secured Receivables Contractually past due 60 days or more as a
percentage of Vehicle Secured receivables         |  | 3.89        | %         | 6.13        | % | 6.04        | %
|                                                                                                                          |  |             |           |             |   |             |  
|Premium finance contracts contractually past due 60 days or more                                                          |  | 294,959     |           | 679,091     |   | 917,508     |  
|Premium finance contracts outstanding                                                                                     |  | 3,900,293   |           | 8,375,711   |   | 7,355,818   |  
|Premium finance contracts contractually past due 60 days or more as a percentage of premium finance
contracts             |  |             | 7.56      | %           |   | 8.11        | %

Finance receivable balances are presented net of unearned finance
charges.

LIQUIDITY AND CAPITAL RESOURCES

We finance our operations through cash flow from
operations, borrowings under our credit facility with FINOVA Capital Corporation (FINOVA) and the sale to public investors of our subordinated notes.

As of December
31, 2002, our credit facility with FINOVA included a term loan and a revolving credit line used to finance receivables. Advances under the term loan accrued interest at the prime rate plus 2%, or 6.25% as of December 31, 2002. We had $6.6 million
outstanding under the term loan as of December 31, 2002. Advances under the revolving credit line accrued interest at prime rate plus 1%, or 5.25% as of December 31, 2002. We had $116.6 million outstanding under the revolving credit line as of
December 31, 2002.

On February 24, 2003, we amended our credit facility with FINOVA. In connection with the amendment, we repaid the $6.6 million outstanding under the term loan.
Our credit facility now consists of a revolving credit line with advances accruing interest at the prime rate plus 1%, or 5.25% at February 28, 2003. The prime rate is the prime rate published by Citibank, N.A., or other money center bank as FINOVA
may select. The interest rates are adjusted monthly to reflect fluctuations in this 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. Maximum
borrowings under the credit facility as of February 28, 2003 are limited to the lesser of $135 million, or 85% of eligible consumer finance receivables as defined by the agreement. Our maximum borrowing amount decreases on a quarterly basis and will
decrease $13.5 million during the remainder of 2003, $18 million in 2004, $18 million in 2005 and $9 million in 2006. The credit facility matures in 2006 and requires us to comply with restrictive covenants, including financial condition covenants.
As of December 31, 2002 and February 24, 2003, we met all such requirements.

Substantially all of our and our subsidiaries assets secure the credit facility. James D.
Thaxton also guarantees our repayment obligations under the credit facility.

As of February 28, 2003, we had borrowed $113.3 under the credit facility and an additional $21.7
million was available under the terms of the credit facility to borrow against existing collateral.

We also fund our liquidity needs through the sale of subordinated notes. In
February 1998, we began offering subordinated notes in several states by registering $50 million of subordinated notes with the Securities and Exchange Commission (SEC). In May 2001, we registered an additional $75 million offering of
subordinated notes with the SEC. In December 2002, we registered an additional $125 million offering of subordinated notes. The notes are sold primarily to individual investors. The maturity terms range from daily



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(demand) notes to sixty-month notes. Interest rates vary based on the principal amounts and maturity dates of the notes. Notes currently being offered carry
interest rates ranging from 5.25% to 8.0%. The notes are unsecured and issued under an indenture which we entered into with The Bank of New York, as trustee, in February 1998. The terms of the indenture do not require us to comply with any financial
covenants nor do they impose any material restrictions on the operations of our business.

As of February 28, 2003, we had $105.5 million of these registered subordinated notes
outstanding and $2.8 million notes registered in predecessor state registrations. To date, we have used the proceeds from the sale of these notes to reduce, on a temporary basis, the amount of our revolving credit facility with FINOVA. We intend to
continue this note program by seeking to register additional offerings of subordinated notes with the SEC. The sale of subordinated notes is an important aspect of the financing of our business. It enables us to reduce our overall borrowing costs,
particularly during periods of increasing interest rates. In addition, it allows us to hedge the interest rate risk inherent in our variable rate credit facility, and to diversify our sources of borrowed funds.

We plan to continue to reduce borrowings under our credit facility and replace those borrowings with an increasing principal amount of subordinated notes. Although the maximum amount we can borrow
under our credit facility will be decreasing, we anticipate that our cash flow from operations, available borrowings under our credit facility and the proceeds from the sale of subordinated notes will be adequate to meet the cash requirements
necessary to fund our operating, investing and financing activities. We estimate that the amount required to fund these activities will be approximately $35 million during the fiscal year ending December 31, 2003.

IMPACT OF INFLATION AND GENERAL ECONOMIC CONDITIONS

Although we do not believe that inflation has a direct material
adverse effect on our financial condition or results of operations, increases in the inflation rate generally are associated with increased interest rates. Because we borrow funds on a floating rate basis and generally extend credit at fixed
interest rates, increased interest rates increases our cost of funds and could materially impair our profitability. We intend to explore opportunities to fix or cap the interest rates on all or a portion of our borrowings. We can, however, give no
assurance that fixed rate or capped rate financing will be available on terms acceptable to us. Inflation also may affect our operating expenses. Other general economic conditions in the United States could affect our business, including economic
factors affecting the ability of our customers or prospective customers to purchase used automobiles and to obtain and repay loans.

Recent Accounting
Pronouncements

Impact of Recently Adopted Accounting standards  Effective January 1, 2002, the Company adopted the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with its provisions. SFAS 142 also requires
that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values. In connection with adoption of SFAS 142, the Company is required to perform an initial assessment of
whether there is an indication that goodwill is impaired. During the second quarter of 2002, the Company completed its initial analysis of potential impairment under the provisions of SFAS No. 142, and determined based on that analysis that goodwill
was not impaired. The Company also completed its annual impairment test at December 31, 2002 and determined based on that analysis that goodwill was not impaired. Goodwill will be tested for impairment annually, or between annual tests if an event
occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

SFAS 144, Accounting for the Impairment
or Disposal of Long-lived Assets, was issued in August 2001 and supersedes SFAS No. 121. SFAS No. 144 establishes standards for the financial accounting and reporting requirements for the impairment or disposal of long-lived assets. The
provisions of SFAS No. 144 were adopted effective January 1, 2002. The adoption of the provisions of SFAS No. 144 did not have a material impact on the consolidated financial statements of the Company.

SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, was issued in April 2002. The adoption of the provisions of this statement did
not have a significant effect on financial position or results of operation of the Company.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, was issued in June 2002 and addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement is effective for exit or disposal activities initiated after December 31, 2002 and is
not expected to have a material impact on the financial statements of the Company.

SFAS No. 147, Acquisitions of Certain Financial Institutions an amendment of FASB
Statements No. 72 and 144 and FASB Interpretation No. 9, was issued in October 2002 and provides guidance on the application of the purchase method to acquisitions of financial institutions. This statement is effective for acquisitions on or
after October 1, 2002 and is not expected to have a material impact on the financial statements of the Company.

SFAS No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure  An Amendment of FASB Statement No.

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123, was issued in December 2002 and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This statement is effective for fiscal years ending after December 15, 2002 and is not expected to have a material impact on the financial statements of the Company.

Critical Accounting Policies

Our accounting and reporting policies are in accordance with accounting principles
generally accepted in the United States of America and conform to general practices within the finance company industry. The significant accounting policies used in the preparation of the consolidated financial statements are discussed in Note 1 to
the consolidated financial statements.

Certain critical accounting policies require our management to make estimates and assumptions, which affect the reported amounts of
assets, liabilities, income and expenses. As a result, changes in these estimates and assumptions could significantly affect our financial position and results of operations. We consider our policies regarding the allowance and resulting provision
for loan losses to be our most critical accounting policy due to the significant degree of management judgment that is applied in establishing the allowance and the provision. We have developed policies and procedures for assessing the adequacy of
the allowance for loan losses, which take into consideration various assumptions and estimates with respect to the loan portfolio. The assumptions and estimates used by management may be significantly affected in the future by changes in economic
conditions, among other factors.

ITEM 7A:QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our outstanding debt under the Revolving Credit Facility and Term Loan was $123.2 million at
December 31, 2002. Interest on borrowings under these facilities is based on the prime rate. Based on the outstanding balance at December 31, 2002, a change of 1% in the prime interest rate would cause a change in interest expense of approximately
$1,232,000 on an annual basis.

Our outstanding receivables are not affected by external interest rate changes because we usually charges rates typically fixed at the maximum rate
allowable by law or, in states 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 credit impaired borrowers. This
causes the interest rate risk on our outstanding receivables to be minimal.

Interest rates being charged by competitors, even those outside our markets, also influence the
interest rates we are able to charge customers. A decrease in the interest rates being charged by others in the market could impact our ability to attract new customers and/or retain the customers we currently serve. Similarly, new market entrants
and the resulting increased competition for customers in our market could adversely affect our profitability.

Additionally, changes in the maximum interest rate allowable by law
would affect our profitability. A decrease in the maximum rate would cause the interest rates we are able to charge to be commensurately decreased and, as a result, our interest rate margin would be reduced. A legally imposed maximum interest rate
adopted by a state where we operate that previously did not have a limit could also impair our profitability because our interest rates may be reduced to fall within the legal limit.

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##### Table of Contents

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



















THE THAXTON GROUP,
INC.

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31,
2002, 2001, AND 2000

(WITH INDEPENDENT AUDITORS REPORT THEREON)

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##### Table of Contents

Independent Auditors Report

The Board of DirectorsThe Thaxton Group, Inc.

We have audited the accompanying consolidated balance sheets of The Thaxton Group, Inc. and subsidiaries as of
December 31, 2002 and 2001, and the related consolidated statements of income, stockholders equity, and cash flows for each of the years in the three year period ended December 31, 2002. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the financial position of The Thaxton Group, Inc. and subsidiaries as of December 31, 2002 and 2001 and the results of their operations and their cash flows for each of
the years in the three year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1
to the financial statements, the Company changed its method of accounting for goodwill in 2002.



| |  |  |                                      
| |  |  | -------------------------------------
| |  |  | /s/ Cherry, Bekaert & Holland, L.L.P.
| |  |  |                                      
| |  |  |                                      

Charlotte, North CarolinaMarch 10, 2003

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##### Table of Contents

THE THAXTON GROUP, INC.Consolidated Balance SheetsDecember 31, 2002 and 2001



|                                                                                                                                          |  | 2002        |             | 2001        |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | ----------- | -
|                                                                                                                                          |  |             |             |             |  
|                                                                                                                                          |  |             |             |             |  
|Assets                                                                                                                                    |  |             |             |             |  
|                                                                                                                                          |  |             |             |             |  
|Cash                                                                                                                                      |  | $           | 4,593,419   |             | $
|Finance receivables, net                                                                                                                  |  | 188,317,826 |             | 182,684,368 |  
|Premises and equipment, net                                                                                                               |  | 5,169,163   |             | 4,246,816   |  
|Accounts receivable                                                                                                                       |  | 1,494,919   |             | 1,813,743   |  
|Accounts receivable from related parties                                                                                                  |  | 84,590      |             | 113,185     |  
|Repossessed automobiles and properties                                                                                                    |  | 687,840     |             | 952,153     |  
|Deposit                                                                                                                                   |  | 7,919,667   |             | 6,710,692   |  
|Goodwill and other intangible assets                                                                                                      |  | 31,558,407  |             | 32,044,802  |  
|Deferred tax asset                                                                                                                        |  | 3,392,000   |             | 2,752,000   |  
|Other assets                                                                                                                              |  | 6,801,891   |             | 7,146,187   |  
|                                                                                                                                          |  |             |             |             |  
|                                                                                                                                          |  |             |             |             |  
|Total assets                                                                                                                              |  | $           | 250,019,722 |             | $
|                                                                                                                                          |  |             |             |             |  
|                                                                                                                                          |  |             |             |             |  
|Liabilities and Stockholders Equity                                                                                                      |  |             |             |             |  
|                                                                                                                                          |  |             |             |             |  
|Liabilities                                                                                                                               |  |             |             |             |  
|Accrued interest payable                                                                                                                  |  | $           | 2,355,805   |             | $
|Notes payable                                                                                                                             |  | 225,676,293 |             | 225,033,166 |  
|Accounts payable                                                                                                                          |  | 2,377,349   |             | 3,631,558   |  
|Accounts payable to related parties                                                                                                       |  | 2,102,146   |             | 254,043     |  
|Employee savings plan                                                                                                                     |  | 1,456,689   |             | 1,083,594   |  
|Accrued salaries and bonuses                                                                                                              |  | 1,946,970   |             | 1,106,324   |  
|Other liabilities                                                                                                                         |  | 3,225,863   |             | 2,972,270   |  
|                                                                                                                                          |  |             |             |             |  
|                                                                                                                                          |  |             |             |             |  
|Total liabilities                                                                                                                         |  | 239,141,115 |             | 236,275,769 |  
|                                                                                                                                          |  |             |             |             |  
|                                                                                                                                          |  |             |             |             |  
|Stockholders Equity                                                                                                                      |  |             |             |             |  
|                                                                                                                                          |  |             |             |             |  
|Preferred Stock $.01 par value:                                                                                                           |  |             |             |             |  
|Series A: 1,400,000 shares authorized; issued and outstanding 10,440 shares
in 2002 and 2001;                                             |  |             |             |             |  
|Liquidation value $104,400 in 2002                                                                                                        |  | 104         |             | 104         |  
|Series C: 50,000 shares authorized issued and outstanding in 2002 and 2001;
liquidation value $500,000 in 2002 and 2001                   |  | 500         |             | 500         |  
|Series E: 800,000 shares authorized, issued and outstanding in 2002 and 2001; liquidation value
$8,000,000 in 2002 and 2001               |  | 8,000       |             | 8,000       |  
|Series F: 100,000 shares authorized; issued and outstanding 20,000 Shares in
2002 and 2001; liquidation value $200,000 in 2002 and 2001   |  | 200         |             | 200         |  
|                                                                                                                                          |  |             |             |             |  
|Common stock, $.01 par value, 50,000,000 shares authorized; issued and outstanding 6,868,940
shares in 2002; and 6,849,355 shares in 2001 |  | 68,689      |             | 68,493      |  
|Additional paid-in-capital                                                                                                                |  | 8,850,169   |             | 8,831,599   |  
|Retained Earnings (Accumulated deficit)                                                                                                   |  | 1,950,945   |             | (2,624,360  | )
|                                                                                                                                          |  |             |             |             |  
|                                                                                                                                          |  |             |             |             |  
|Total stockholders equity                                                                                                                |  | 10,878,607  |             | 6,284,536   |  
|                                                                                                                                          |  |             |             |             |  
|                                                                                                                                          |  |             |             |             |  
|Total liabilities and stockholders equity                                                                                                |  | $           | 250,019,722 |             | $
|                                                                                                                                          |  |             |             |             |  

See accompanying notes to consolidated financial
statements.

19



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##### Table of Contents

THE THAXTON GROUP, INC.Consolidated Statements of IncomeYears Ended December 31, 2002,
2001, and 2000



|                                                                                                                |  | 2002       |            | 2001       |   | 2000       |  
|--------------------------------------------------------------------------------------------------------------- |  | ---------- | ---------- | ---------- | - | ---------- | -
|                                                                                                                |  |            |            |            |   |            |  
|                                                                                                                |  |            |            |            |   |            |  
|Interest and fee income                                                                                         |  | $          | 80,939,034 |            | $ | 76,137,625 |  
|Interest expense                                                                                                |  | 15,210,755 |            | 19,069,792 |   | 21,024,576 |  
|                                                                                                                |  |            |            |            |   |            |  
|                                                                                                                |  |            |            |            |   |            |  
|Net interest income                                                                                             |  | 65,728,279 |            | 57,067,833 |   | 45,637,837 |  
|Provision for credit losses                                                                                     |  | 21,285,161 |            | 16,583,919 |   | 14,657,930 |  
|                                                                                                                |  |            |            |            |   |            |  
|                                                                                                                |  |            |            |            |   |            |  
|Net interest income after provision for credit losses                                                           |  | 44,443,118 |            | 40,483,914 |   | 30,979,907 |  
|Other income:                                                                                                   |  |            |            |            |   |            |  
|                                                                                                                |  |            |            |            |   |            |  
|Insurance premiums and commissions, net                                                                         |  | 19,396,151 |            | 18,553,690 |   | 17,763,558 |  
|Other income                                                                                                    |  | 2,849,553  |            | 3,828,813  |   | 3,191,028  |  
|                                                                                                                |  |            |            |            |   |            |  
|                                                                                                                |  |            |            |            |   |            |  
|Total other income                                                                                              |  | 22,245,704 |            | 22,382,503 |   | 20,954,586 |  
|                                                                                                                |  |            |            |            |   |            |  
|                                                                                                                |  |            |            |            |   |            |  
|Operating expenses:                                                                                             |  |            |            |            |   |            |  
|Compensation and employee benefits                                                                              |  | 31,762,900 |            | 29,917,431 |   | 28,391,768 |  
|Telephone, computers                                                                                            |  | 2,514,281  |            | 2,414,989  |   | 2,134,435  |  
|Net occupancy                                                                                                   |  | 6,681,813  |            | 6,560,051  |   | 5,615,002  |  
|Reinsurance claims expense                                                                                      |  | 4,475,254  |            | 4,569,834  |   | 2,962,259  |  
|Advertising                                                                                                     |  | 2,448,555  |            | 2,700,041  |   | 2,494,271  |  
|Collection expense                                                                                              |  | 639,634    |            | 639,153    |   | 245,644    |  
|Travel                                                                                                          |  | 1,382,624  |            | 1,228,631  |   | 1,201,653  |  
|Professional fees                                                                                               |  | 918,271    |            | 954,730    |   | 814,376    |  
|Office expense                                                                                                  |  | 2,581,709  |            | 2,583,984  |   | 2,553,694  |  
|Amortization expense                                                                                            |  | 631,392    |            | 2,435,724  |   | 2,173,879  |  
|Other                                                                                                           |  | 4,388,241  |            | 3,732,226  |   | 3,194,152  |  
|                                                                                                                |  |            |            |            |   |            |  
|Total operating expenses                                                                                        |  | 58,424,674 |            | 57,736,794 |   | 51,781,133 |  
|                                                                                                                |  |            |            |            |   |            |  
|                                                                                                                |  |            |            |            |   |            |  
|Income from continuing operations before income tax expense                                                     |  | 8,264,148  |            | 5,129,623  |   | 153,360    |  
|Income tax expense                                                                                              |  | 3,130,000  |            | 2,095,000  |   | 550,000    |  
|                                                                                                                |  |            |            |            |   |            |  
|Net income (loss) from continuing operations                                                                    |  | 5,134,148  |            | 3,034,623  |   | (396,640   | )
|Discontinued operations (Note 13)                                                                               |  |            |            |            |   |            |  
|Loss from operations of discontinued Paragon division (less benefit from income
taxes of $1,226,000 in 2000)    |  |           |            |           |   | (3,040,226 | )
|Loss from operations of discontinued non-standard division (less benefit from income taxes of
$193,000 in 2000) |  |           |            |           |   | (374,683   | )
|                                                                                                                |  |            |            |            |   |            |  
|Net income (loss)                                                                                               |  | 5,134,148  |            | 3,034,623  |   | (3,811,549 | )
|                                                                                                                |  |            |            |            |   |            |  
|Dividends on preferred stock                                                                                    |  | 558,843    |            | 729,497    |   | 723,886    |  
|                                                                                                                |  |            |            |            |   |            |  
|                                                                                                                |  |            |            |            |   |            |  
|Net income (loss) applicable to common shareholders                                                             |  | $          | 4,575,305  |            | $ | 2,305,126  |  
|                                                                                                                |  |            |            |            |   |            |  
|                                                                                                                |  |            |            |            |   |            |  
|Net income (loss) per common sharebasic and diluted                                                            |  | 0.67       |            | 0.34       |   | (0.65      | )
|From continuing operations                                                                                      |  | 0.67       |            | 0.34       |   | (0.16      | )
|From discontinued operations                                                                                    |  |           |            |           |   | (0.49      | )

See accompanying notes to consolidated financial
statements.

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##### Table of Contents

THE THAXTON GROUP, INC.Consolidated Statements of Stockholders EquityYears Ended
December 31, 2002, 2001, and 2000



|                                                        |  | CommonStock |        | PreferredStock |   | AdditionalPaid-inCapital |   | RetainedEarnings |            | TotalStockholdersEquity |  
|------------------------------------------------------- |  | ----------- | ------ | -------------- | - | ------------------------ | - | ---------------- | ---------- | ------------------------ | -
|                                                        |  |             |        |                |   |                          |   |                  |            |                          |  
|                                                        |  |             |        |                |   |                          |   |                  |            |                          |  
|Balance at December 31, 1999                            |  | $           | 69,753 |                | $ | 10,104                   |   | $                | 10,116,774 |                          | $
|                                                        |  |             |        |                |   |                          |   |                  |            |                          |  
|Purchase and retirement of 974 shares of common stock   |  | (10         | )      |               |   | (7,725                   | ) |                 |            | (7,735                   | )
|Repurchase of 1,500 shares of Series A preferred stock  |  |            |        | (1,500         | ) | (1,498,500               | ) |                 |            | (1,500,000               | )
|Dividends paid on preferred stock                       |  |            |        |               |   |                         |   | (723,885         | )          | (723,885                 | )
|Net loss                                                |  |            |        |               |   |                         |   | (3,811,549       | )          | (3,811,549               | )
|                                                        |  |             |        |                |   |                          |   |                  |            |                          |  
|                                                        |  |             |        |                |   |                          |   |                  |            |                          |  
|Balance at December 31, 2000                            |  | 69,743      |        | 8,604          |   | 8,610,549                |   | (4,929,486       | )          | 3,759,410                |  
|                                                        |  |             |        |                |   |                          |   |                  |            |                          |  
|Cancelled 135,000 shares of common stock                |  | (1,350      | )      |               |   | 1,350                    |   |                 |            |                         |  
|Issued 20,000 shares of Series F preferred stock        |  |            |        | 200            |   | 199,800                  |   |                 |            | 200,000                  |  
|Issued 10,000 shares of common stock for compensation   |  | 100         |        |               |   | 19,900                   |   |                 |            | 20,000                   |  
|Dividends paid on preferred stock                       |  |            |        |               |   |                         |   | (729,497         | )          | (729,497                 | )
|Net Income                                              |  |            |        |               |   |                         |   | 3,034,623        |            | 3,034,623                |  
|                                                        |  |             |        |                |   |                          |   |                  |            |                          |  
|                                                        |  |             |        |                |   |                          |   |                  |            |                          |  
|Balance at December 31, 2001                            |  | 68,493      |        | 8,804          |   | 8,831,599                |   | (2,624,360       | )          | 6,284,536                |  
|                                                        |  |             |        |                |   |                          |   |                  |            |                          |  
|Issued 22,500 shares of common stock for compensation   |  | 225         |        |               |   | 44,775                   |   |                 |            | 45,000                   |  
|Purchase and retirement of 2,915 shares of common stock |  | (29         | )      |               |   | (26,205                  | ) |                 |            | (26,234                  | )
|Dividends paid on preferred stock                       |  |            |        |               |   |                         |   | (558,843         | )          | (558,843                 | )
|Net Income                                              |  |            |        |               |   |                         |   | 5,134,148        |            | 5,134,148                |  
|                                                        |  |             |        |                |   |                          |   |                  |            |                          |  
|                                                        |  |             |        |                |   |                          |   |                  |            |                          |  
|Balance at December 31, 2002                            |  | $           | 68,689 |                | $ | 8,804                    |   | $                | 8,850,169  |                          | $
|                                                        |  |             |        |                |   |                          |   |                  |            |                          |  

See accompanying notes to consolidated financial
statements.

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##### Table of Contents

THE THAXTON GROUP, INC.Consolidated Statements of Cash FlowsYears Ended December 31, 2002,
2001, and 2000



|                                                                                  |  | 2002        |           | 2001        |   | 2000        |  
|--------------------------------------------------------------------------------- |  | ----------- | --------- | ----------- | - | ----------- | -
|                                                                                  |  |             |           |             |   |             |  
|                                                                                  |  |             |           |             |   |             |  
|Cash flows from operating activities:                                             |  |             |           |             |   |             |  
|Net income (loss)                                                                 |  | $           | 5,134,148 |             | $ | 3,034,623   |  
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |             |           |             |   |             |  
|Provision for credit losses                                                       |  | 21,285,161  |           | 16,583,919  |   | 14,657,930  |  
|Depreciation and amortization                                                     |  | 2,432,973   |           | 4,065,895   |   | 5,308,745   |  
|Deferred taxes                                                                    |  | (640,000    | )         | 645,000     |   | (310,000    | )
|Decrease (increase) in accounts receivable                                        |  | 611,732     |           | (329,951    | ) | (840,916    | )
|Stock issued for compensation                                                     |  | 45,000      |           | 20,000      |   |            |  
|(Increase) in other assets                                                        |  | 344,295     |           | (333,899    | ) | (4,526,138  | )
|Increase (decrease) in accrued interest payable and other liabilities             |  | 374,117     |           | (396,578    | ) | 5,320,368   |  
|                                                                                  |  |             |           |             |   |             |  
|Net cash provided by operating activities                                         |  | 29,587,426  |           | 23,269,009  |   | 15,798,440  |  
|                                                                                  |  |             |           |             |   |             |  
|                                                                                  |  |             |           |             |   |             |  
|Cash flows from investing activities:                                             |  |             |           |             |   |             |  
|Net increase in finance receivables                                               |  | (26,918,619 | )         | (14,194,855 | ) | (18,071,663 | )
|Capital expenditures for premises and equipment                                   |  | (2,723,928  | )         | (793,091    | ) | (2,375,869  | )
|Proceeds from sale of Thaxton RBE                                                 |  |            |           |            |   | 75,000      |  
|Cash paid for deposit with Voyager                                                |  | (1,208,975  | )         | (480,692    | ) | (6,230,000  | )
|Acquisitions, net of acquired cash equivalents                                    |  | (144,997    | )         | (104,820    | ) | (11,963,358 | )
|                                                                                  |  |             |           |             |   |             |  
|Net cash used by investing activities                                             |  | (30,996,519 | )         | (15,573,458 | ) | (38,565,890 | )
|                                                                                  |  |             |           |             |   |             |  
|                                                                                  |  |             |           |             |   |             |  
|Cash flows from financing activities:                                             |  |             |           |             |   |             |  
|Notes payable to affiliates                                                       |  | 1,848,103   |           |            |   | (491,072    | )
|Repurchase of common stock                                                        |  | (26,234     | )         |            |   | (7,735      | )
|Dividends paid                                                                    |  | (558,843    | )         | (729,497    | ) | (723,886    | )
|Net increase (decrease) in notes payable                                          |  | 643,127     |           | (7,572,248  | ) | 25,936,592  |  
|Proceeds from sale of Thaxton RBE stock by Thaxton RBE                            |  |            |           |            |   | 2,000,000   |  
|Issuance (repurchase) of preferred stock                                          |  |            |           | 200,000     |   | (1,500,000  | )
|                                                                                  |  |             |           |             |   |             |  
|Net cash provided by (used in) financing activities                               |  | 1,906,153   |           | (8,081,745  | ) | 25,213,899  |  
|                                                                                  |  |             |           |             |   |             |  
|                                                                                  |  |             |           |             |   |             |  
|Net increase (decrease) in cash                                                   |  | 497,060     |           | (386,194    | ) | 2,446,449   |  
|Cash at beginning of period                                                       |  | 4,096,359   |           | 4,482,553   |   | 2,036,104   |  
|                                                                                  |  |             |           |             |   |             |  
|Cash at end of period                                                             |  | $           | 4,593,419 |             | $ | 4,096,359   |  
|                                                                                  |  |             |           |             |   |             |  
|                                                                                  |  |             |           |             |   |             |  
|Supplemental disclosures of cash flow information:                                |  |             |           |             |   |             |  
|Cash paid during the period for:                                                  |  |             |           |             |   |             |  
|Interest                                                                          |  | 15,049,764  |           | 19,502,965  |   | 20,507,875  |  
|Income taxes                                                                      |  | 3,747,589   |           | 976,155     |   | 924,404     |  

See accompanying notes to
consolidated financial statements.

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##### Table of Contents

THE THAXTON GROUP, INC.Notes to Consolidated Financial StatementsDecember 31, 2002,
2001, and 2000

(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Thaxton Group, Inc. (the Company) is incorporated under the laws of the state of South Carolina. The Company operates consumer finance branches in 11
states, primarily under the names of TICO Credit, Southern Finance, and Covington Credit. The Company also operates insurance agency branches in South and North Carolina. The Company is a diversified financial services company that is engaged
primarily in consumer lending and consumer automobile sales financing to borrowers with limited credit histories, low incomes or past credit problems. The Company also offers insurance premium financing to such borrowers. Substantially all of the
Companys premium finance business has been derived from customers of Thaxton RBE (RBE), a related party. The Company provides reinsurance through wholly owned subsidiaries, TICO Reinsurance, Ltd. (TRL), Fitch National
Reinsurance, Ltd., and Soco Reinsurance, Inc. Through a wholly owned subsidiary, Thaxton Commercial Lending, Inc., the Company makes factoring loans and collateralized commercial loans to small and medium sized businesses. All significant
intercompany accounts and transactions have been eliminated in consolidation.

The preparation of the consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.

The following is a description of the more significant accounting and reporting policies which the
Company follows in preparing and presenting its financial statements.

Interest and Fee Income:Interest income from
finance receivables is recognized using the interest (actuarial) method on an accrual basis. Accrual of income on finance receivables continues until the receivable is either paid off in full, is charged-off or is classified as nonperforming by
management. Fee income consists primarily of late fees which are credited to income when they become due from borrowers. Net deferred loan costs are amortized as an adjustment to yield over the life of the loan.

Allowance for Credit Losses:Additions to the allowance for credit losses are based on managements evaluation of the finance
receivables portfolio considering current economic conditions, overall portfolio quality, charge-off experience, and such other factors which, in managements judgment, deserve recognition in estimating credit losses. Loans are charged-off
when, in the opinion of management, such loans are deemed to be uncollectible or six months has elapsed since the date of the last payment, whichever occurs first. While management uses the best information available to make such evaluations, future
adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the evaluations.

Non-file
Insurance:Non-file insurance is written in lieu of recording and perfecting the Companys security interest in the assets pledged to secure certain loans. Non-file insurance premiums are
collected from the borrower on certain loans at inception and renewal and are remitted directly to an unaffiliated insurance company. Certain losses related to such loans, which are not recoverable through life, accident and health, or property
insurance claims, are reimbursed through non-file insurance claims subject to policy limitations. Any remaining losses are charged to the allowance for credit losses.

Premises and Equipment:Premises and equipment are reported at cost less accumulated depreciation which is computed using the straight-line method for financial reporting and accelerated
methods for tax purposes. For financial reporting purposes the Company depreciates furniture and equipment over 5 years, leasehold improvements over the remaining term of the related lease, and automobiles over 3 years. Maintenance and repairs are
expensed as incurred and improvements are capitalized.

Insurance:The Company remits a portion of credit life,
accident and health, property and auto insurance premiums written in connection with certain loans to an unaffiliated insurance company at the time of origination. Any portion of the premiums remitted to this insurance company which are not required
to cover their administrative fees or to pay reinsurance claims expense are returned to the Company through its reinsurance subsidiaries, and are included in insurance premiums and commissions in the accompanying consolidated statements of income.
Unearned insurance premiums are accreted to income over the life of the related insurance contracts using a method similar to that used for the recognition of finance charges. Insurance commissions earned by Thaxton Insurance are recognized as
services are performed in accordance with Thaxton Insurances contractual obligations with the underwriters, but not before protection is placed with insurers.

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% compounded daily. Employees may
withdraw savings on demand, subject to a subordination agreement with the Companys primary lender.

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Income Taxes:Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes (Statement 109), requires the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.

Earnings Per Share:The Company adopted the provisions of SFAS 128, Earning
per Share (EPS) in 1997. 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 preferred stock that is convertible to common stock.

Intangible Assets:Intangible assets include goodwill, expiration lists, and covenants not to compete related to
acquisitions made by the Company. Goodwill represents the excess of the cost over the fair value of net assets acquired at the date of acquisition. Goodwill is not amortized and is tested for impairment on an annual basis in accordance with SFAS
142. The expiration lists are amortized over their estimated useful lives on a straight-line basis. Covenants not to compete are amortized according to the purchase contract on a straight-line basis. Recoverability of recorded intangibles is
periodically evaluated by using undiscounted cash flows.

Fair Value of Financial Instruments:Substantially all
financial assets of the Company are short term in nature. As such, the carrying values of these financial assets approximate their fair value. The Senior Notes payable of the Company are variable in rate, therefore fair value approximates carrying
value. The Companys subordinated notes payable are payable at fixed rates, with terms up to sixty months in maturity. In evaluating the fair value of the subordinated notes it was determined that the fair value approximated the carrying value,
due to the majority of these notes being short term in nature.

Repossessed Assets:Repossessed assets are recorded
at their estimated fair value less costs to dispose. Any difference between the loan balance and the fair value of the collateral on the date of repossession is charged to the allowance for credit losses.

Advertising:Advertising costs are expensed as incurred.

Cash and Cash
Equivalents:The Company considers cash on hand, cash due from banks, and interest-earning deposits, which are maintained in financial institutions as cash and cash equivalents.

Deposit:The Company maintains a deposit with an AM Best rated A insurance carrier to serve as security for insurance
reserves of its wholly owned credit insurance re-insurance subsidiaries. The deposit earns interest at the rate of 100 basis points above the 12-month Treasury Bill rate. The rate is fixed for 12 months, adjusted annually on November 1st.
The current rate is 2.52%.

Loans/Impairment:Finance receivables are collateralized by personal property. Finance
receivables are classified as nonaccrual, and the accrual of interest is discontinued, when the contractual payment of principal and interest has become 180 days past due or when, in managements judgment, principal or interest is not
collectible in accordance with the terms of the obligation. Typically loans are charged off when they become 180 days past due. Cash receipts on non-accrual loans are applied to principal. Interest recognition resumes when the loan returns to
performing status. The Company evaluates impairment of finance receivables on a collective basis by pools of homogenous loans.

Reclassifications:Certain amounts in the 2000 and 2001 financial statements have been reclassified in order to conform to the 2002 presentation.

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IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Effective January 1, 2002, the
Company adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at
least annually in accordance with its provisions. SFAS 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values. In connection with adoption of
SFAS 142, the Company is required to perform an initial assessment of whether there is an indication that goodwill is impaired. During the second quarter of 2002, the Company completed its initial analysis of potential impairment under the
provisions of SFAS No. 142, and determined based on that analysis that goodwill was not impaired. The Company also completed its annual impairment test at December 31, 2002 and determined based on that analysis that goodwill was not impaired.
Goodwill will be tested for impairment annually, or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

SFAS 144, Accounting for the Impairment or Disposal of Long-lived Assets, was issued in August 2001 and supersedes SFAS No. 121. SFAS No. 144 establishes standards for the financial
accounting and reporting requirements for the impairment or disposal of long-lived assets. The provisions of SFAS No. 144 were adopted effective January 1, 2002. The adoption of the provisions of SFAS No. 144 did not have a material impact on the
consolidated financial statements of the Company.

SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, was issued in April 2002. The adoption of the provisions of this statement did not have a significant effect on financial position or results of operation of the Company.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, was issued in June 2002 and addresses financial accounting and reporting for costs associated with exit or disposal activities.
This statement is effective for exit or disposal activities initiated after December 31, 2002 and is not expected to have a material impact on the financial statements of the Company.

SFAS No. 147, Acquisitions of Certain Financial Institutions an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9, was issued in October 2002 and provides guidance on the application of the purchase method
to acquisitions of financial institutions. This statement is effective for acquisitions on or after October 1, 2002 and is not expected to have a material impact on the financial statements of the Company.

SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure  An Amendment of FASB Statement No. 123, was issued in December 2002 and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for fiscal years ending after December 15, 2002 and is not expected
to have a material impact on the financial statements of the Company.

(2)Business Combinations

On August 18, 2000, the Company acquired all of the stock of Quick Credit Corporation, a consumer finance company with 25 branch offices
located in South Carolina. The purchase price was $12.75 million in cash. This acquisition was accounted for as a purchase and resulted in goodwill of approximately $3.8 million.

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(3)Finance Receivables

Finance receivables consist of the following at December 31, 2002 and 2001:



|                                           |  | 2002        |             | 2001        |  
|------------------------------------------ |  | ----------- | ----------- | ----------- | -
|                                           |  |             |             |             |  
|                                           |  |             |             |             |  
|Automobile sales contracts                 |  | $           | 23,436,046  |             | $
|Direct loans                               |  | 208,353,717 |             | 189,163,818 |  
|Mortgage loans                             |  | 13,519,222  |             | 16,468,209  |  
|Premium finance contracts                  |  | 4,025,950   |             | 8,618,497   |  
|Commercial loans                           |  | 1,806,263   |             | 3,161,875   |  
|                                           |  |             |             |             |  
|                                           |  |             |             |             |  
|Total finance receivables                  |  | 251,141,198 |             | 240,533,512 |  
|                                           |  |             |             |             |  
|Unearned interest                          |  | (39,906,714 | )           | (36,703,784 | )
|Unearned insurance premiums, net           |  | (1,535,772  | )           | (1,798,520  | )
|Insurance loss reserve                     |  | (8,109,076  | )           | (7,592,829  | )
|Dealer holdback and bulk purchase discount |  | (1,710,542  | )           | (2,036,818  | )
|Allowance for credit losses                |  | (13,963,909 | )           | (12,012,169 | )
|Deferred loan cost, net                    |  | 2,402,641   |             | 2,294,976   |  
|                                           |  |             |             |             |  
|                                           |  |             |             |             |  
|Finance receivables, net                   |  | $           | 188,317,826 |             | $
|                                           |  |             |             |             |  

Consumer loans include bulk purchases of receivables, auto dealer
receivables under holdback arrangements, and small consumer loan receivables. With bulk purchase arrangements, the Company typically purchases a group of receivables from an auto dealer or other retailer at a discount to par based on
managements review and assessment of the portfolio to be purchased. This discount amount is then maintained in an unearned income account to which losses on these loans are charged. To the extent that losses from a bulk purchase exceed the
purchase discount, the allowance for credit losses will be charged. To the extent losses experienced are less than the purchase discount, the remaining discount is accreted into income. With holdback arrangements, an automobile dealer or other
retailer will assign receivables to us on a loan-by-loan basis, typically at par. We will withhold a certain percentage of the proceeds, generally 5% to 10%, as a dealer reserve to be used to cover any losses which occur on these loans. The
agreements are structured such that all or a portion of these holdback amounts can be reclaimed by the dealer based on the performance of the receivables. To the extent that losses from these holdback receivables exceed the total remaining holdback
amount for a particular dealer, the allowance for credit losses will be charged. The amount of bulk purchase and holdback receivables, net of unearned interest and insurance, and the related holdback and discount amount outstanding were
approximately $11,258,000 and $569,000, respectively, at December 31, 2002, and $11,450,000 and $429,000, respectively, at December 31, 2001.

At December 31, 2002, there were no
significant concentrations of receivables in any type of property or to any 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, 2002, 2001, and 2000 are as follows:



|                                       |  | 2002        |            | 2001        |   | 2000        |  
|-------------------------------------- |  | ----------- | ---------- | ----------- | - | ----------- | -
|                                       |  |             |            |             |   |             |  
|                                       |  |             |            |             |   |             |  
|Beginning balance                      |  | $           | 12,012,169 |             | $ | 11,630,555  |  
|Valuation allowance for acquired loans |  |            |            |            |   | 838,017     |  
|Provision for credit losses            |  | 21,285,161  |            | 16,583,919  |   | 14,657,930  |  
|                                       |  |             |            |             |   |             |  
|Charge-offs                            |  | (21,140,964 | )          | (18,024,265 | ) | (16,052,319 | )
|Recoveries                             |  | 1,807,543   |            | 1,821,960   |   | 1,525,588   |  
|                                       |  |             |            |             |   |             |  
|Net charge-offs                        |  | (19,333,421 | )          | (16,202,305 | ) | (14,526,731 | )
|                                       |  |             |            |             |   |             |  
|                                       |  |             |            |             |   |             |  
|Ending balance                         |  | $           | 13,963,909 |             | $ | 12,012,169  |  
|                                       |  |             |            |             |   |             |  

Our loan portfolio primarily consists of short term fixed rate loans,
the majority of which are originated or renewed during the current year. Accordingly, we estimate that fair value of the finance receivables is not materially different from carrying value.



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(4)Premises and Equipment

A summary of premises and equipment at December 31, 2002 and 2001 follows:



|                           |  | 2002       |           | 2001       |  
|-------------------------- |  | ---------- | --------- | ---------- | -
|                           |  |            |           |            |  
|                           |  |            |           |            |  
|Leasehold improvements     |  | $          | 2,355,898 |            | $
|Furniture and fixtures     |  | 3,012,696  |           | 3,054,216  |  
|Equipment and automobiles  |  | 8,072,224  |           | 7,680,873  |  
|                           |  |            |           |            |  
|                           |  |            |           |            |  
|Total cost                 |  | 13,440,818 |           | 13,024,194 |  
|Accumulated depreciation   |  | 8,271,655  |           | 8,777,378  |  
|                           |  |            |           |            |  
|                           |  |            |           |            |  
|Net premises and equipment |  | $          | 5,169,163 |            | $
|                           |  |            |           |            |  

Depreciation expense was approximately $1,802,000 in 2002, and
$1,630,000 and $1,538,000 in 2001 and 2000, respectively.

(5)Intangible
Assets

Intangible assets consist of the following at December 31, 2002 and 2001 the weighted average amortization period is listed in parenthesis for
those intangibles that are amortized:



|                                  |  | 2002      |            | 2001      |  
|--------------------------------- |  | --------- | ---------- | --------- | -
|                                  |  |           |            |           |  
|Goodwill (not amortized)          |  |           | 34,582,895 |           |  
|Insurance expirations (6.3 years) |  | 2,034,906 |            | 1,890,301 |  
|                                  |  |           |            |           |  
|                                  |  |           |            |           |  
|Total cost                        |  |           | 36,617,801 |           |  
|                                  |  |           |            |           |  
|Less accumulated amortization     |  | 5,059,394 |            | 4,428,394 |  
|                                  |  |           |            |           |  
|                                  |  |           |            |           |  
|Intangible assets, net            |  | $         | 31,558,407 |           | $
|                                  |  |           |            |           |  

The Company acquired the majority of the goodwill in connection with our
acquisition of FirstPlus Consumer Finance in 1999. Amortization expense was approximately $631,000 in 2002, and $2,436,000 and $2,174,000 in 2001 and 2000, respectively.

Estimated amortization expense for the next five succeeding fiscal years ending December 31, are as follows:



|2003 |  | $ | 491,000 | 
|---- |  | - | ------- | 
|2004 |  | $ | 191,000 | 
|2005 |  | $ | 150,000 | 
|2006 |  | $ | 128,000 | 
|2007 |  | $ | 128,000 | 

The table below summarizes the effect of not
amortizing goodwill in accordance with SFAS 142 on prior periods net income:



|                                                      |  | 2002 |           | 2001      |   | 2000      | 
|----------------------------------------------------- |  | ---- | --------- | --------- | - | --------- | 
|                                                      |  |      |           |           |   |           | 
|Net income (loss) before extraordinary items          |  | $    | 5,134,148 |           | $ | 3,034,623 | 
|Goodwill amortization adjustment (net of income tax)  |  |     |           | 1,171,500 |   | 942,480   | 
|                                                      |  |      |           |           |   |           | 
|Adjusted net income                                   |  |      | 5,134,148 |           |   | 4,206,123 | 
|Less: Dividends on preferred stock                    |  |      | 558,843   |           |   | 729,497   | 
|                                                      |  |      |           |           |   |           | 
|Adjusted net income applicable to common shareholders |  | $    | 4,575,305 |           | $ | 3,476,626 | 
|                                                      |  |      |           |           |   |           | 
|Average common shares outstanding                     |  |      | 6,866,557 |           |   | 6,875,893 | 
|                                                      |  |      |           |           |   |           | 
|Adjusted net income per common share                  |  | $    | 0.67      |           | $ | 0.51      | 

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(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 our option or replaced by other
leases or acquisitions of other properties. Total rental expense was approximately $3,520,000 in 2002, $3,411,000 in 2001, and $3,100,000 in 2000. The future minimum lease payments under noncancelable operating leases as of December 31, 2002, are as
follows:



|                             |  |           |          
|---------------------------- |  | --------- | ---------
|2003                         |  | $         | 2,868,045
|2004                         |  | 2,070,828 |          
|2005                         |  | 1,331,168 |          
|2006                         |  | 680,117   |          
|2007                         |  | 413,797   |          
|Thereafter                   |  | 1,146,963 |          
|                             |  |           |          
|Total minimum lease payments |  | $         | 8,510,918
|                             |  |           |          

Related parties own eight of the office buildings in which the Company
conducts business. These premises are leased to the Company for a total monthly rental of approximately $5,343.

(7)Notes Payable and Notes Payable to Affiliates

At December 31, 2002 and
2001, notes payable consist of the following:



|                                                                                                            |  | 2002        |             | 2001       |  
|----------------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | ---------- | -
|                                                                                                            |  |             |             |            |  
|Senior Notes Payable/Lines of Credit with FINOVA                                                            |  | $           | 123,219,272 |            | $
|Subordinated Notes payable to individuals with varying maturity dates and rates ranging from 5
1⁄4% to 12%    |  | 100,125,379 |             | 71,542,844 |  
|Other subordinated notes payable to companies with varying maturity dates and
rates ranging from 41⁄4% to 10% |  | 2,331,642   |             | 2,255,562  |  
|                                                                                                            |  |             |             |            |  
|Total notes payable                                                                                         |  | $           | 225,676,293 |            | $
|                                                                                                            |  |             |             |            |  

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



|Year EndingDecember 31, |  |            | Amount      | 
|----------------------- |  | ---------- | ----------- | 
|                        |  |            |             | 
|2003                    |  | $          | 87,378,806  | 
|2004                    |  | 21,009,581 |            
|2005                    |  | 23,640,835 |            
|2006                    |  | 92,374,730 |            
|2007                    |  | 1,211,546  |            
|Thereafter              |  | 60,795     |            
|                        |  |            |            
|Total                   |  | $          | 225,676,293 | 
|                        |  |            |             | 

We finance our operations through cash flow from operations, borrowings
under our credit facility with FINOVA Capital Corporation (FINOVA) and the sale to public investors of our subordinated notes.

As of December 31, 2002, our credit
facility with FINOVA included a term loan and a revolving credit line used to finance receivables. Advances under the term loan accrued interest at the prime rate plus 2%, or 6.25% as of December 31, 2002. We had $6.6 million outstanding under the
term loan as of December 31, 2002. Advances under the revolving credit line accrued interest at prime rate plus 1%, or 5.25% as of December 31, 2002. We had $116.6 million outstanding under the revolving credit line as of December 31,
2002.

On February 24, 2003, we amended our credit facility with FINOVA. In connection with the amendment, we repaid the $6.6 million outstanding under the term loan. Our credit
facility now consists of a revolving credit line with advances accruing interest at the prime rate plus 1%, or 5.25% at February 28, 2003. The prime rate is the prime rate published by Citibank, N.A., or other money center bank as FINOVA may select.
The interest rates are adjusted monthly to reflect fluctuations in this 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. Maximum borrowings
under the credit facility as of February 28, 2003 are limited to the lesser of $135 million, or 85% of eligible consumer

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finance receivables as defined by the agreement. Our maximum borrowing amount decreases on a quarterly basis and will decrease $13.5 million during the
remainder of 2003, $18 million in 2004, $18 million in 2005 and $9 million in 2006. The credit facility matures in 2006 and requires us to comply with restrictive covenants, including financial condition covenants such as a minimums for net income,
net worth, and net cash flows, as well as a leverage ratio limit. As of December 31, 2002 and February 24, 2003, we met all such requirements.

Substantially all of our and our
subsidiaries assets secure the credit facility. James D. Thaxton also guarantees our repayment obligations under the credit facility.

As of February 28, 2003, we had
borrowed $113.3 under the credit facility and an additional $21.7 million was available under the terms of the credit facility to borrow against existing collateral.

We also fund
our liquidity needs through the sale of subordinated notes. In February 1998, we began offering subordinated notes in several states by registering $50 million of subordinated notes with the Securities and Exchange Commission (SEC). In
May 2001, we registered an additional $75 million offering of subordinated notes with the SEC. In December 2002, we registered an additional $125 million offering of subordinated notes. The notes are sold primarily to individual investors. The
maturity terms range from daily (demand) notes to sixty-month notes. Interest rates vary based on the principal amounts and maturity dates of the notes. Notes currently being offered carry interest rates ranging from 5.25% to 8.0%. The notes are
unsecured and issued under an indenture which we entered into with The Bank of New York, as trustee, in February 1998. The terms of the indenture do not require us to comply with any financial covenants nor do they impose any material restrictions
on the operations of our business.

As of February 28, 2003, we had $105.5 million of these registered subordinated notes outstanding and $2.8 million notes registered in
predecessor state registrations. To date, we have used the proceeds from the sale of these notes to reduce, on a temporary basis, the amount of our revolving credit facility with FINOVA. We intend to continue this note program by seeking to register
additional offerings of subordinated notes with the SEC. The sale of subordinated notes is an important aspect of the financing of our business. It enables us to reduce our overall borrowing costs, particularly during periods of increasing interest
rates. In addition, it allows us to hedge the interest rate risk inherent in our variable rate credit facility, and to diversify our sources of borrowed funds.

(8)Benefits

An ongoing benefit to the employees is the Employee
Savings Plan. This plan allows employees to contribute and earn a rate of 10%, the balances as of 2002 and 2001, were approximately $1,457,000 and $1,084,000, respectively.

(9)Income Taxes

Income tax expense attributable to continuing
operations consists of the following:



|     |  |         |  | Current |           | Deferred |   | Total    |  
|---- |  | ------- |  | ------- | --------- | -------- | - | -------- | -
|     |  |         |  |         |           |          |   |          |  
|2002 |  | Federal |  | $       | 3,230,000 |          | $ | (640,000 | )
|     |  | State   |  | 540,000 |           |         |   | 540,000  |  
|     |  |         |  |         |           |          |   |          |  
|     |  |         |  | $       | 3,770,000 |          | $ | (640,000 | )
|     |  |         |  |         |           |          |   |          |  
|     |  |         |  |         |           |          |   |          |  
|2001 |  | Federal |  | $       | 1,390,000 |          | $ | 645,000  |  
|     |  | State   |  | 60,000  |           |         |   | 60,000   |  
|     |  |         |  |         |           |          |   |          |  
|     |  |         |  | $       | 1,450,000 |          | $ | 645,000  |  
|     |  |         |  |         |           |          |   |          |  
|     |  |         |  |         |           |          |   |          |  
|2000 |  | Federal |  | $       | 640,000   |          | $ | (310,000 | )
|     |  | State   |  | 220,000 |           |         |   | 220,000  |  
|     |  |         |  |         |           |          |   |          |  
|     |  |         |  | $       | 860,000   |          | $ | (310,000 | )
|     |  |         |  |         |           |          |   |          |  

A reconciliation of the Companys income tax provision and the
amount computed by applying the statutory federal income tax rate of 34% to income before income taxes is as follows:



|                                                           |  | 2002 |           | 2001 |   | 2000      | 
|---------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | 
|                                                           |  |      |           |      |   |           | 
|Statutory rate applied to income before income tax expense |  | $    | 2,810,000 |      | $ | 1,750,000 | 
|                                                           |  |      |           |      |   |           | 

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|Increase (decrease) in income taxes resulting from: |  |         |           |         |   |           |  
|--------------------------------------------------- |  | ------- | --------- | ------- | - | --------- | -
|Goodwill amortization                               |  |         |          |         |   | 310,000   |  
|State taxes, less related federal benefit           |  | 360,000 |           | 71,000  |   | 7,000     |  
|Valuation allowance adjustment                      |  |        |           | (69,000 | ) | (17,000   | )
|Other                                               |  | (40,000 | )         | 33,000  |   | 40,000    |  
|                                                    |  |         |           |         |   |           |  
|                                                    |  |         |           |         |   |           |  
|Income taxes                                        |  | $       | 3,130,000 |         | $ | 2,095,000 |  
|                                                    |  |         |           |         |   |           |  

The effective tax rate attributable to continuing operations was 38%,
41%, and 358%, for the years ended December 31, 2002, 2001 and 2000, respectively. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2002, 2001, and 2000 are
presented below:



|                                         |  | 2002       |           | 2001       |   | 2000       |  
|---------------------------------------- |  | ---------- | --------- | ---------- | - | ---------- | -
|                                         |  |            |           |            |   |            |  
|Deferred tax assets:                     |  |            |           |            |   |            |  
|Loan loss reserves                       |  | $          | 5,446,000 |            | $ | 3,620,000  |  
|Federal net operating loss carryforwards |  |           |           |           |   | 969,000    |  
|State net operating loss carryforwards   |  |           |           |           |   | 69,000     |  
|Other                                    |  |           |           | 155,000    |   | 405,000    |  
|                                         |  |            |           |            |   |            |  
|                                         |  |            |           |            |   |            |  
|Total gross deferred tax asset           |  | 5,446,000  |           | 3,775,000  |   | 5,411,000  |  
|Less valuation allowance                 |  |           |           |           |   | 69,000     |  
|                                         |  |            |           |            |   |            |  
|Net deferred tax assets                  |  | 5,446,000  |           | 3,775,000  |   | 5,432,000  |  
|                                         |  |            |           |            |   |            |  
|Deferred tax liabilities:                |  |            |           |            |   |            |  
|Prepaid insurance                        |  |           |           |           |   | (67,000    | )
|Depreciable basis of fixed assets        |  | (303,000   | )         | (245,000   | ) | (147,000   | )
|Deferred loan costs                      |  | (1,131,000 | )         | (566,000   | ) | (666,000   | )
|Intangible assets                        |  | (487,000   | )         | (172,000   | ) | (226,000   | )
|Other                                    |  | (133,000   | )         | (40,000    | ) | (45,000    | )
|                                         |  |            |           |            |   |            |  
|Total gross deferred tax liability       |  | (2,054,000 | )         | (1,023,000 | ) | (1,151,000 | )
|                                         |  |            |           |            |   |            |  
|Net deferred tax asset                   |  | $          | 3,392,000 |            | $ | 2,752,000  |  
|                                         |  |            |           |            |   |            |  

It is managements opinion that realization of the net deferred tax
asset, net of valuation allowance, is more likely than not based upon the Companys history of taxable income and estimates of future taxable income. The companys income tax returns for 1997 and subsequent years are subject to review by
taxing authorities.

(10)Preferred Stock

The Company issued three series of preferred stock during 1997 and two additional series of preferred stock in 1998. 400,000 shares of 7.5% cumulative redeemable convertible Series A preferred stock were authorized, and
178,014 were issued in a December 1997 public offering to existing shareholders. The terms of the offering included the conversion of one share of common stock plus $10 for two shares of Series A preferred stock. For a five year conversion period
commencing January 1, 1998, each share of preferred stock can be converted into one share of common stock. The Company may redeem all or a portion of the outstanding shares of Series A stock at any time after December 31, 1999. The Company
repurchased and retired 14,574 shares of Series A Preferred Stock in December 1999 at $15 per share, and 150,000 shares at $10 per share during 2000 and no shares during 2001.

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 were $1 per share
through December 31, 2000, and $1.80 per share, per annum, thereafter. Each share of preferred stock can be converted into one share of common stock after January 1, 1998. The Company may redeem all or a portion of the outstanding shares of Series C
stock at any time after December 31, 2000, for $10 per share.

In December 1998, the Company, through a private placement, issued 800,000 shares of Cumulative Series E preferred
stock for $10 per share. On February 24, 2003, Thaxton Life Partners purchased 800,000 shares of Thaxton Group Series E preferred stock, from FINOVA for $4 million cash. According to the agreement dividends may not exceed 8% as long as The Thaxton
Group maintains a loan balance with FINOVA.

In March 2001, the Company, through a private placement, issued 20,000 shares of Cumulative Series F preferred stock for $10 per
share, to C.L. Thaxton, a director of the Company. The stock pays a dividend rate of 10% and is redeemable by the Company at any time at a price of $10 per share.

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(11)Earnings Per Share Information

The following is a summary of the earnings per share calculation for the years ended December 31, 2002, 2001, and 2000:



|BASIC & DILUTED                                                        |  | 2002      |           | 2001      |   | 2000       |  
|---------------------------------------------------------------------- |  | --------- | --------- | --------- | - | ---------- | -
|                                                                       |  |           |           |           |   |            |  
|Net income (loss) from continuing operations                           |  | $         | 5,134,148 |           | $ | 3,034,623  |  
|Less: Dividends on preferred stock                                     |  | 558,843   |           | 729,497   |   | 723,886    |  
|                                                                       |  |           |           |           |   |            |  
|Net income (loss) applicable to common shareholders (numerator)        |  | 4,575,305 |           | 2,305,126 |   | (1,120,526 | )
|                                                                       |  |           |           |           |   |            |  
|Average common shares outstanding (denominator)                        |  | 6,866,557 |           | 6,875,893 |   | 6,974,508  |  
|                                                                       |  |           |           |           |   |            |  
|Income (loss) per share from continuing operations  basic and
diluted |  | $         | 0.67      |           | $ | 0.34       |  
|                                                                       |  |           |           |           |   |            |  

The earnings per share calculation does not include 10,440 shares of
Preferred Series A and 50,000 shares of Preferred Series C stock, which are convertible to common shares, because the effect is anti-dilutive.

(12)Business Segments

For the year ended December 31, 2000 the Company previously reported its results of
operations in four primary segments; consumer finance, mortgage banking, insurance agency, and insurance non-standard risk bearing. Due to the discontinuation of the mortgage bank and non-standard risk bearing insurance businesses we now have two
primary segments. The consumer finance segment provides financing to consumers with limited credit histories, low incomes or past credit problems. Revenues in the consumer finance business are derived primarily from interest and fees on loans, and
the sale of credit related insurance products to its customers. The Companys mortgage banking operations were conducted through Paragon, a wholly-owned subsidiary acquired in November 1998. Paragon originated, closed, and funded predominantly
B and C credit quality mortgage loans, which were warehoused until they could be packaged and sold to long term investors. Paragon received fee income from originating mortgages and the loans were generally sold at a premium to the permanent
investor. This business has been discontinued. The Companys insurance operations consist of selling, on an agency basis, various lines of automobile, property and casualty, life and accident and health insurance. Revenue is generated through
fees paid by the insurance company for which business is placed. Insurance non-standard risk bearing consisted of selling non-standard automobile insurance, through agencies, where the Company retained a portion of the insurance risk. This business
has also been discontinued.

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The following tables summarize certain financial information concerning the Companys reportable operating segments for the years ended December 31,
2002, 2001, and 2000:



|2002Income Statement Data               |  | ConsumerFinance |            | Insurance |   | Other     |   | Total       |        
|--------------------------------------- |  | --------------- | ---------- | --------- | - | --------- | - | ----------- | -------
|                                        |  |                 |            |           |   |           |   |             |        
|                                        |  |                 |            |           |   |           |   |             |        
|Total revenue                           |  | $               | 98,360,774 |           | $ | 4,176,452 |   | $           | 647,512
|Net interest income                     |  | 65,237,007      |            |          |   | 491,272   |   | 65,728,279  |        
|Provision for credit losses             |  | 20,988,326      |            | 152,820   |   | 144,015   |   | 21,285,161  |        
|Noninterest income                      |  | 20,276,467      |            | 4,176,452 |   |          |   | 24,452,919  |        
|Insurance premiums and commissions, net |  | 15,460,245      |            | 3,935,906 |   |          |   | 19,396,151  |        
|Noninterest expenses                    |  | 53,911,091      |            | 4,163,069 |   | 350,514   |   | 58,424,674  |        
|Depreciation and amortization           |  | 2,151,616       |            | 260,778   |   | 20,579    |   | 2,432,973   |        
|Net income (loss)                       |  | 5,529,167       |            | (333,469  | ) | (61,550   | ) | 5,134,148   |        
|                                        |  |                 |            |           |   |           |   |             |        
|Balance Sheet Data                      |  |                 |            |           |   |           |   |             |        
|Total assets                            |  | 246,140,243     |            | 2,306,479 |   | 1,573,000 |   | 250,019,722 |        
|Loans, net                              |  | 186,711,563     |            |          |   | 1,606,263 |   | 188,317,826 |        
|Allowance for credit losses             |  | 13,763,909      |            |          |   | 200,000   |   | 13,963,909  |        
|Intangibles                             |  |                 | 30,234,418 |           |   | 1,323,989 |   |             |       



|2001Income Statement Data               |  | ConsumerFinance |            | Insurance |   | Other     |  | Total       |          
|--------------------------------------- |  | --------------- | ---------- | --------- | - | --------- |  | ----------- | ---------
|                                        |  |                 |            |           |   |           |  |             |          
|                                        |  |                 |            |           |   |           |  |             |          
|Total revenue                           |  | $               | 93,669,290 |           | $ | 3,819,716 |  | $           | 1,031,122
|Net interest income                     |  | 57,012,437      |            | (668,380  | ) | 723,776   |  | 57,067,833  |          
|Provision for credit losses             |  | 16,428,712      |            | 25,777    |   | 129,430   |  | 16,583,919  |          
|Noninterest income                      |  | 20,374,036      |            | 3,819,686 |   |          |  | 24,193,722  |          
|Insurance premiums and commissions, net |  | 15,291,211      |            | 3,262,479 |   |          |  | 18,553,690  |          
|Noninterest expenses                    |  | 53,309,207      |            | 3,933,597 |   | 493,990   |  | 57,736,794  |          
|Depreciation and amortization           |  | 3,724,681       |            | 323,770   |   | 17,444    |  | 4,065,895   |          
|Net income (loss)                       |  | 3,501,713       |            | (533,325  | ) | 66,235    |  | 3,034,623   |          
|                                        |  |                 |            |           |   |           |  |             |          
|Balance Sheet Data                      |  |                 |            |           |   |           |  |             |          
|Total assets                            |  | 237,387,631     |            | 2,211,886 |   | 2,960,788 |  | 242,560,305 |          
|Loans, net                              |  | 179,699,900     |            |          |   | 2,984,468 |  | 182,684,368 |          
|Allowance for credit losses             |  | 11,834,762      |            |          |   | 177,407   |  | 12,012,169  |          
|Intangibles                             |  |                 | 30,748,103 |           |   | 1,296,699 |  |             |         

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|2000Income Statement Data               |  | ConsumerFinance |            | Insurance |           | Other     |           | TotalContinuingOperations |            | InsuranceRBE(DiscontinuedOperations) |           | MortgageBanking(DiscontinuedOperations) |           | Total       |           
|--------------------------------------- |  | --------------- | ---------- | --------- | --------- | --------- | --------- | ------------------------- | ---------- | ------------------------------------ | --------- | --------------------------------------- | --------- | ----------- | ----------
|                                        |  |                 |            |           |           |           |           |                           |            |                                      |           |                                         |           |             |           
|                                        |  |                 |            |           |           |           |           |                           |            |                                      |           |                                         |           |             |           
|Total revenue                           |  | $               | 82,271,590 |           | 4,284,716 |           | 1,060,693 |                           | 87,616,999 |                                      | 1,875,013 |                                         | 5,733,973 |             | 95,225,985
|Net interest income                     |  | 45,811,547      |            | (841,657  | )         | 671,132   |           | 45,641,022                |            | (91,038                              | )         | 87,853                                  |           | 45,637,837  |           
|Provision for credit losses             |  | 14,517,240      |            |          |           | 140,690   |           | 14,657,930                |            | 3,265                                |           | 1,278,938                               |           | 15,940,133  |           
|Noninterest income                      |  | 17,718,003      |            | 4,284,716 |           |          |           | 22,002,719                |            | 1,875,013                            |           | 4,424,051                               |           | 28,301,783  |           
|Insurance premiums and commissions, net |  | 14,044,802      |            | 3,718,756 |           |          |           | 17,763,558                |            | 1,836,695                            |           |                                        |           | 19,600,253  |           
|Noninterest expenses                    |  | 46,444,164      |            | 4,885,507 |           | 451,462   |           | 51,781,133                |            | 2,478,255                            |           | 8,778,129                               |           | 63,037,517  |           
|Depreciation and amortization           |  | 3,331,621       |            | 360,225   |           | 19,619    |           | 3,711,465                 |            | 148,726                              |           | 1,448,554                               |           | 5,308,745   |           
|Net income (loss)                       |  | (83,428         | )          | (365,339  | )         | 52,127    |           | (396,640                  | )          | (374,682                             | )         | (3,040,226                              | )         | (3,811,549  | )         
|Balance Sheet Data                      |  |                 |            |           |           |           |           |                           |            |                                      |           |                                         |           |             |           
|Total assets                            |  | 232,693,388     |            | 4,087,249 |           | 3,786,310 |           | 240,566,947               |            |                                     |           | 6,981,166                               |           | 247,548,113 |           
|Loans, net                              |  | 174,132,701     |            |          |           | 3,810,945 |           | 177,943,646               |            |                                     |           | 5,558,974                               |           | 183,502,620 |           
|Allowance for credit losses             |  | 11,505,555      |            |          |           | 125,000   |           | 11,630,555                |            |                                     |           | 1,278,938                               |           | 12,909,493  |           
|Intangibles                             |  |                 | 33,346,575 |           | 1,465,983 |           |          |                           | 34,812,558 |                                      |          |                                         |          |             | 34,812,558

(13)Discontinued Operations

At the end of 1998, and throughout 1999, the Company made a series of acquisitions
of agencies in Arizona, New Mexico, Nevada, Colorado and North Carolina, as well as a general insurance agency in Virginia. At the same time, the Company entered into a contract with American Bankers Insurance Group, Inc. (ABIG), where
the Company would sell ABIG non-standard insurance policies in these locations, but Thaxton Group would contractually retain the underwriting risk, and retain any profit or loss from operations. This business ultimately contained 30 non-standard
automobile agency office locations, plus two insurance general agencies (located in Virginia and South Carolina).

On March 1, 2000, the Company transferred all of the assets and
liabilities of these agency operations into a newly formed company named Thaxton RBE, Inc. (Thaxton RBE). The total amount of the assets transferred approximate $8 million, the majority of which were intangible. The purpose of the
transfer was to raise additional capital for Thaxton RBE, as it operations were in their initial stages. As such, immediately subsequent to the formation and asset transfer, Thaxton Life Partners, Inc. invested $2,000,000 in the capital stock of RBE
and obtained a 90% interest in that company as a result of the investment. Thaxton Life Partners, Inc., is a company owned by James D. Thaxton (Chairman and majority shareholder of Thaxton Group, Inc.); C. L. Thaxton, Sr. (Director of Thaxton Group,
Inc.); and other Thaxton family members. As a result of those transactions, Thaxton Group, Inc. had a net receivable from Thaxton RBE in the amount of $5 million at March 31, 2000.

During the third quarter of 2000, Thaxton Group made the decision to discontinue operations and dispose of its interest and investment in Thaxton RBE as soon as suitable financing for Thaxton RBE could be obtained. On August 31, 2000, Thaxton
Life Partners was able to arrange financing for Thaxton RBE independent of Thaxton Group, Inc., and Thaxton Life Partners purchased the remaining 10% interest in RBE from Thaxton Group. At the time of the sale, all amounts owed Thaxton Group were
paid in full. Thaxton Group has recognized no gain or loss on the disposition of Thaxton RBE. The transaction has been accounted for in accordance with Accounting Principles Board Opinion #30, (APB 30), Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.

In December
2000, the Board of Directors adopted a plan to discontinue operations in the Mortgage Banking market place. Paragon ceased operations in December of 2000, and its assets have been sold. The Company recorded a loss, net of income tax benefit, from
operations of Paragon of $100,355 for the year ended December 31, 1999 and a loss of $3,040,226 for the year month ended December 31, 2000.

In 2000 Paragon wrote down the entire
amount of goodwill due to its impairment. Paragon had a loss from operations of $771,649 net of an income tax benefit of $397,517 in 2000. Paragons loss on disposal during the phase out period was $2,268,577 net of an income tax benefit of
$828,483 in 2000.

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(14)Related Party Transactions

As discussed in Note 13, after the sale of the capital stock of RBE, we continued to perform certain back-office and management roles, such as the accounting, human resources, and information systems
management functions, which were outsourced by RBE to us during 2002. We billed RBE for these services performed based on the amount of time spent by our personnel performing the services for RBE. During the years ended December 31, 2002, 2001 and
2000, we billed RBE approximately $480,000, $1,050,000, and $600,000, respectively, for these services. Furthermore, we continued to share common office space with RBE after the disposition. Also on occasion the Company borrows funds from RBE, as a
result of these arrangements, we had a payable to RBE of approximately $2,102,000 and $199,000 at December 31, 2002 and 2001, respectively.

We have also structured an
arrangement with RBE whereby TICO Premium Finance, our insurance premium finance subsidiary, will originate loans to certain RBE customers to finance their insurance policies underwritten by RBE. In connection with this process, TICO Premium Finance
agrees to accept a down payment on the loan which is smaller than TICO Premium Finance typically receives from borrowers when the insurance policy is underwritten by third party insurance companies. TICO Premium Finance, in accordance with this
structured arrangement pays RBE 85% of its net income beginning in 2002. For the year ended December 31, 2002 this was approximately $308,000. In turn, TICO Premium Finance is reimbursed by RBE for any losses on such loans originated to customers of
RBE. By requiring a lower down payment, RBE is able to generate a higher volume of business than it would be able to if down payments typically received in the industry were required by TICO Premium Finance. At December 31, 2002 and 2001, there were
approximately $4.0 million and $3.1 million, respectively, in outstanding premium finance receivables recorded by TICO Premium Finance that relate to insurance policies underwritten by RBE. In addition, for the years ended December 31, 2002, 2001,
and 2000, there were approximately $597,000, $584,000, and $250,000, respectively, of reimbursements from RBE to TICO Premium Finance for losses incurred by TICO Premium Finance. TICO Premium Finance had a receivable from RBE of approximately
$85,000 at December 31, 2002 and $62,000 at December 31, 2001 for additional reimbursements for losses incurred.

On February 24, 2003, Thaxton Life Partners purchased 800,000
shares of Thaxton Group Series E preferred stock, from Finova for $4 million cash. According to this purchase agreement dividends may not exceed 8% as long as The Thaxton Group maintains a loan balance with Finova.

Thaxton Insurance Group agencies, our standard insurance operations, are acting as agents for non-standard policies underwritten by Thaxton RBE. Thaxton Insurance Group acts as agent for certain RBE
customers and recognizes commissions on policies that are underwritten by RBE. During the years ended December 31, 2002, 2001, and 2000 there were approximately $319,000, $51,000, and $11,000, respectively, of insurance commissions recognized by
Thaxton Insurance Group on non-standard insurance policies that were issued through Thaxton Insurance Group, as agent.

The employees of RBE are covered under our self-insured
health insurance plan. In addition, we purchased general liability insurance that covers both the employees of Thaxton Insurance Group and RBE.

The employees of RBE are eligible
to participate in our Employee Savings Plan benefit plan.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

We did not change accounting firms and had no disagreements on
accounting or financial disclosure matters with our independent certified public accountants to report under this Item.

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PART III

ITEM
10.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Our directors and executive officers
and their ages as of March 21, 2003 were as follows:

|NAME              |  | AGE |  | POSITION                                                                  
|----------------- |  | --- |  | --------------------------------------------------------------------------
|                  |  |     |  |                                                                           
|James D. Thaxton  |  | 56  |  | Chairman of the Board, President and Chief Executive Officer              
|                  |  |     |  |                                                                           
|Robert L. Wilson  |  | 62  |  | Executive Vice President, Chief Operating Officer and Director            
|                  |  |     |  |                                                                           
|Allan F. Ross     |  | 54  |  | Vice President, Chief Financial Officer, Treasurer, Secretary and Director
|                  |  |     |  |                                                                           
|C. L. Thaxton, Sr |  | 79  |  | Director                                                                  

JAMES D. THAXTON has served as our
Chairman of the Board, President and Chief Executive Officer since we were founded. Prior to joining us, 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 us in January 1991 and has served
since July 1991, as our 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 to October
1988, 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 us 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 Deloitte and Touche, LLP. He is a certified public accountant.

C.L. THAXTON, SR. has been a director since we were founded.
Mr. Thaxton is a director of Thaxton Insurance, which he founded in 1950 and is the manager of its Pageland branch office. Mr. Thaxton is the father of James D. Thaxton.

All directors hold office until the next annual meeting of shareholders or until their successors have been duly elected and qualified. Our executive officers are appointed by and serve at the discretion of the Board.

Our board of directors directly oversees executive compensation, and oversees and approves salaries and incentive compensation for our executive officers and other employees. The board of directors
also directly oversees the selection of our independent auditors and reviews the results and scope of the audit and other services that the independent auditors provide. Directors do not receive any compensation for their service as members of the
board of directors. All directors are reimbursed for their expenses reasonably in attending board meetings.

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ITEM 11.EXECUTIVE COMPENSATION

The following table shows the compensation paid or accrued to our executive officers for the years ended December 31, 2000,
2001, and 2002.

SUMMARY COMPENSATION TABLE



|                                                       |  |      |      | ANNUALCOMPENSATION |           
|------------------------------------------------------ |  | ---- | ---- | ------------------ | ----------
|                                                       |  |      |      |                    |           
|NAME AND PRINCIPLE POSITION                            |  |      | YEAR |                    | SALARY ($)
|                                                       |  |      |      |                    |           
|                                                       |  |      |      |                    |           
|James D. Thaxton,                                      |  |      | 2002 |                    | $         
|President and Chief Executive Officer                  |  | 2001 |      | 125,693            |           
|                                                       |  | 2000 |      | 115,363            |           
|                                                       |  |      |      |                    |           
|Robert L. Wilson,                                      |  | 2002 |      | 207,856            |           
|Executive Vice President                               |  | 2001 |      | 170,902            |           
|                                                       |  | 2000 |      | 152,821            |           
|                                                       |  |      |      |                    |           
|Allan F. Ross                                          |  | 2002 |      | 120,019            |           
|Vice President, Chief Financial Officer, and Treasurer |  | 2001 |      | 110,149            |           
|                                                       |  |      | 2000 |                    |           

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to the beneficial ownership of
our outstanding common stock as of March 21, 2002, for each person known to us to own more than 5% of our outstanding common stock, each of our executive officers and directors and our directors and executive officers as a group.



|NAME OF BENEFICIAL OWNER          |  | NUMBER OF SHARES ANDNATURE OF BENEFICIALOWNERSHIP |     | PERCENTAGE OF COMMONSTOCK OUTSTANDING(1) |  
|--------------------------------- |  | ------------------------------------------------- | --- | ---------------------------------------- | -
|                                  |  |                                                   |     |                                          |  
|James D. Thaxton                  |  | 6,456,000                                         | (1) | 94.0                                     | %
|C. L. Thaxton, Sr.                |  | 17,621                                            | (2) |                                          | *
|Directors and officers as a group |  | 6,473,621                                         |     | 94.2                                     | %

*Indicates less than one percent

(1)Includes 1,112,828 shares held by a family limited partnership as to which Mr. Thaxton shares voting and
investment power.

(2)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.

The address of all of the
beneficial owners of our common stock is 1524 Pageland Highway, Lancaster, South Carolina 29720.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Acquisition and Subsequent Disposition of Thaxton RBE, Inc.

At the end of 1998, and throughout 1999, we made a series of acquisitions of insurance agencies in Arizona, New Mexico, Nevada, Colorado, and North Carolina, as well as a general insurance agency in
Virginia. At the same time, we entered into a contract with American Bankers Insurance Group, Inc., pursuant to which we agreed to sell American Bankers non-standard insurance policies sold by these agencies and to retain the underwriting risk, and
any profit or loss from operations. This business ultimately consisted of 30 non-standard automobile agency office locations, plus two insurance general agencies in Virginia and South Carolina.

On March 1, 2000, we transferred all of the assets and liabilities of these agency operations to Thaxton RBE, a newly-formed subsidiary. The total amount of the assets transferred was approximately $8 million, the
majority of which were intangible. The purpose of the transfer was to place the operations of Thaxton RBE in a single entity to facilitate raising additional capital for Thaxton RBE to fund its initial stage operations. Immediately subsequent to the
formation and asset transfer, Thaxton Life Partners, Inc. invested $2,000,000 in the capital stock of Thaxton RBE and obtained a 90% interest in that company as a result of the investment. Thaxton Life Partners, Inc., is owned by James D. Thaxton,
C.L. Thaxton, Sr., and other Thaxton family members.

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During the third quarter of 2000, we decided to discontinue operations and dispose of our interest and investment in Thaxton RBE as soon as suitable
financing for Thaxton RBE could be obtained. On August 31, 2000, Thaxton Life Partners was able to arrange independent financing for Thaxton RBE, and Thaxton Life Partners purchased the remaining 10% interest in Thaxton RBE from us. At the time of
the sale all amounts owed us were paid in full.

Thaxton Life Partners, Inc., a related party, invested $2,000,000 in the capital stock of RBE and obtained a 90% interest in RBE
as a result of the investment. The acquisition of the 90% interest in RBE by Thaxton Life Partners was funded primarily through our repurchase of 150,000 shares of Series A Preferred stock from certain members of Thaxton Life Partners. The proceeds
received from us from the repurchase of the Series A Preferred stock were used by Thaxton Life Partners to obtain the 90% interest in RBE. On August 31, 2000, Thaxton Life Partners purchased the remaining 10% interest in RBE from us. We recognized
no gain or loss on the disposal of RBE. As the Thaxton Group, Inc. and RBE are under common ownership, there are various activities and transactions that occur between the two entities to take advantage of economies of scale.

After the sale of the capital stock of RBE, we continued to perform certain back-office and management roles, such as the accounting, human resources, and information systems management functions,
which were outsourced by RBE to us during 2002. We billed RBE for these services performed based on the amount of time spent by our personnel performing the services for RBE. During the years ended December 31, 2002, 2001 and 2000, we billed RBE
approximately $480,000, $1,050,000, and $600,000, respectively, for these services. Furthermore, we continued to share common office space with RBE after the disposition. Also on occasion the Company borrows funds from RBE, as a result of these
arrangements, we had a payable to RBE of approximately $2,102,000 and $199,000 at December 31, 2002 and 2001, respectively.

We have also structured an arrangement with RBE
whereby TICO Premium Finance, our insurance premium finance subsidiary, will originate loans to certain RBE customers to finance their insurance policies underwritten by RBE. In connection with this process, TICO Premium Finance agrees to accept a
down payment on the loan which is smaller than TICO Premium Finance typically receives from borrowers when the insurance policy is underwritten by third party insurance companies. TICO Premium Finance, in accordance with this structured arrangement
pays RBE 85% of its net income beginning in 2002. For the year ended December 31, 2002 this was approximately $308,000. In turn, TICO Premium Finance is reimbursed by RBE for any losses on such loans originated to customers of RBE. By requiring a
lower down payment, RBE is able to generate a higher volume of business than it would be able to if down payments typically received in the industry were required by TICO Premium Finance. At December 31, 2002 and 2001, there were approximately $4.0
million and $3.1 million, respectively, in outstanding premium finance receivables recorded by TICO Premium Finance that relate to insurance policies underwritten by RBE. In addition, for the years ended December 31, 2002, 2001, and 2000, there were
approximately $597,000, $584,000, and $250,000, respectively, of reimbursements from RBE to TICO Premium Finance for losses incurred by TICO Premium Finance. TICO Premium Finance had a receivable from RBE of approximately $85,000 at December 31,
2002 and $62,000 at December 31, 2001 for additional reimbursements for losses incurred.

On February 24, 2003, Thaxton Life Partners purchased 800,000 shares of Thaxton Group
Series E preferred stock, from Finova for $4 million cash. According to this purchase agreement dividends may not exceed 8% as long as The Thaxton Group maintains a loan balance with Finova.

Thaxton Insurance Group agencies, our standard insurance operations, are acting as agents for non-standard policies underwritten by Thaxton RBE. Thaxton Insurance Group acts as agent for certain RBE customers and
recognizes commissions on policies that are underwritten by RBE. During the years ended December 31, 2002, 2001, and 2000 there were approximately $319,000, $51,000, and $11,000, respectively, of insurance commissions recognized by Thaxton Insurance
Group on non-standard insurance policies that were issued through Thaxton Insurance Group, as agent.

The employees of RBE are covered under our self-insured health insurance
plan. In addition, we purchased general liability insurance that covers both the employees of Thaxton Insurance Group and RBE.

The employees of RBE are eligible to participate in
our Employee Savings Plan benefit plan.

ITEM 14.CONTROLS AND PROCEDURES

Our management, under the supervision and with the participation of our principal executive officer and principal financial
officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures within 90 days of the filing date of this Annual Report on Form 10-K. Based on this evaluation, our principal executive officer and principal
financial officer have concluded that the design and operation of our disclosure controls and procedures are effective. There were no significant changes in



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our internal controls or in other factors that could significantly affect these controls subsequent to the date the evaluation was completed.

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The exhibits and other documents filed as part of this report including exhibits
that are incorporated by reference herein are:



|(1) | Report of Independent auditorsConsolidated balance sheets as of December 31, 2001 and 2002.Consolidated statements of income for the years ended December 31, 2000, 2001, and 2002Consolidated statements of stockholders equity for years ended December 31, 2000, 2001, and 2002Consolidated statements of cash flows for years ended December 31, 2000 2001 and 2002Notes to consolidated financial statements for years ended December 31, 2000, 2001, and 2002
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(2) | No financial statement schedules are required to be filed as part of this report.                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(3) | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3.1         | Second Amended and Restated Articles of Incorporation of The Thaxton Group, Inc. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3.2         | Amended and Restated Bylaws of the Thaxton Group, Inc. (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.1         | Indenture, dated as of February 17, 1998, between the Company and The Bank of New York, as Trustee (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.2         | D2, Subordinated Daily Note (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.3         | M2, Subordinated One Month Note (5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.4         | T2, Subordinated Term Note for 6, 12, 36 and 60 Month Notes (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.1        | Third Amended and Restated Loan and Security Agreement dated April 4, 2001 among Finova Capital Corporation, The Thaxton Group, Inc., Thaxton
Operating Company, Thaxton Insurance Group, Inc., TICO Credit Company, Inc., Eagle Premium Finance Co., Inc., Thaxton Commercial Lending, Inc., Paragon, Inc., TICO Premium Finance Company of South Carolina, Inc., TICO Reinsurance, LTD., TICO Credit
Company of Tennessee, Inc., TICO Credit Company of North Carolina, Inc., TICO Credit Company of Alabama, Inc., TICO Credit Company of Georgia, Inc., TICO Credit Company (DE), TICO Credit Company (MS), TICO Credit Company (TN), Thaxton Investment
Corporation, The Modern Finance Company, Southern Management Corporation, Modern Financial Services, Inc., Southern Finance of Tennessee, Inc., Covington Credit of Texas, Inc., Covington Credit of Georgia, Inc., Southern Finance of Tennessee, Inc.,
Fitch National Reinsurance, LTD., SOCO Reinsurance, LTD., Quick Credit Corporation, Covington Credit, Inc.(Oklahoma), Covington Credit of Louisiana, Inc., Southern Financial Management, Inc.(7)                                                                                                                                                           
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.2        | Second Amended and Restated Schedule, dated February 24, 2003, to Third Amended and Restated Loan and Security Agreement, among Finova Capital
Corporation, The Thaxton Group, Inc., Thaxton Operating Company, Thaxton Insurance Group, Inc., TICO Credit Company, Inc., Eagle Premium Finance Co., Inc., Thaxton Commercial Lending, Inc., Paragon, Inc., TICO Premium Finance Company of South
Carolina, Inc., TICO Reinsurance, LTD., TICO Credit Company of Tennessee, Inc., TICO Credit Company of North Carolina, Inc., TICO Credit Company of Alabama, Inc., TICO Credit Company of Mississippi, Inc., TICO Credit Company of Georgia, Inc., TICO
Credit Company (DE), TICO Credit Company (MS), TICO Credit Company (TN), Thaxton Investment Corporation, The Modern Finance Company, Southern Management Corporation, Modern Financial Services, Inc., Southern Finance of South Carolina, Inc.,
Covington Credit of Texas, Inc., Covington Credit of Georgia, Inc., Southern Finance of Tennessee, Inc., Fitch National Reinsurance, LTD., SOCO Reinsurance, LTD., Quick Credit Corporation, Covington Credit, Inc.(Oklahoma), Covington Credit of
Louisiana, Inc., Southern Financial Management, Inc., TICO Credit Corporation, TICO Credit Company of Virginia, Inc.
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.3        | Stock Purchase Agreement, dated August 31, 2000 between Thaxton Insurance Group, Inc. and Thaxton Life Partners, Inc., (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|21          | Subsidiaries of The Thaxton Group, Inc. (9)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|99.1        | Sarbanes/Oxley Certification Section 906 James D. Thaxton                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|99.2        | Sarbanes/Oxley Certification Section 906 Allan F. Ross                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

(1)Incorporated by reference to the Companys Annual Report on Form 10-KSB for the year
ended December 31, 1998.

(2)Incorporated by reference to Exhibit 3.2 of the Companys Registration Statement on Form SB-2 (Reg. No. 333-55022)(the 2001 Registration Statement).

(3)Incorporated by reference to Exhibit 4.1 of the Companys Registration Statement on From
S-1 (Reg. No. 333-1000847) (the 2002 Registration Statement).

(4)Incorporated by reference to Exhibit 4.2 of the 2002 Registration Statement.

(5)Incorporated by reference to Exhibit 4.3 of the 2002 Registration Statement.

(6)Incorporated by reference to Exhibit 4.4 of the 2002 Registration Statement.

(7)Incorporated by reference to the
Companys Annual Report on Form 10-KSB for the year ended December 31, 2000.

(8)Incorporated by reference to Exhibit 10.9 the Companys Registration Statement on Form SB-2 (Reg. No. 333-42623)(the 1998 Registration Statement) filed with Post-Effective Amendment
No. 2 to the 1998 Registration Statement.



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(9)Incorporated by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 2001.

(B)REPORTS ON FORM 8-KNone

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

THE THAXTON GROUP, INC.(Registrant)



|                     |  |    
|-------------------- |  | ---
|Date: March 26, 2003 |  | By:
|                     |  |    
|                     |  |    
|                     |  |    

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|SIGNATURE              |  | CAPACITY                                                                                          |  | DATE          
|---------------------- |  | ------------------------------------------------------------------------------------------------- |  | --------------
|                       |  |                                                                                                   |  |               
|/s/ JAMESD.THAXTON     |  | President, Chief Executive Officer and Chairman of the Board of Directors                         |  | March 26, 2003
|                      
|James D. Thaxton      
|                       |  |                                                                                                   |  |               
|                       |  |                                                                                                   |  |               
|/s/ ALLANF.ROSS        |  | Vice President, Chief Financial Officer (Principle Accounting and Financial Officer) and Director |  | March 26, 2003
|                      
|Allan F. Ross         
|                      
|                       |  |                                                                                                   |  |               
|/s/ ROBERTL.WILSON     |  | Executive Vice President and Director                                                             |  | March 26, 2003
|                      
|Robert L. Wilson      
|                       |  |                                                                                                   |  |               
|                       |  |                                                                                                   |  |               
|/s/ C. L. THAXTON, SR. |  | Director                                                                                          |  | March 26, 2003
|                      
|C. L. Thaxton, Sr.    
|                       |  |                                                                                                   |  |               

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE EXCHANGE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.

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.

Certification

I, James D. Thaxton, certify that:

1. I have reviewed this annual report on Form 10-K of The Thaxton Group;

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2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my
knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;

4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

6. The registrants other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



|Date: March 26, 2003                                                   |  |  | 
|---------------------------------------------------------------------- |  |  | 
|/s/ JAMESD.THAXTON                                                     |  |  | 
|                                                                       |  |  | 
|James D. ThaxtonPresident & Chief Executive Officer, The Thaxton
Group |  |  | 



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Certification

I, Allan F. Ross, certify that:

1. I have reviewed this annual report on Form 10-K of The Thaxton Group;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrants
other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a
date within 90 days prior to the filing date of this annual report (the Evaluation Date); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for
the registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal controls; and

6. The registrants other certifying officers and I have indicated in this annual report whether there were
significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.



|Date: March 26, 2003                 |  |  | 
|------------------------------------ |  |  | 
|/s/ ALLANF.ROSS                      |  |  | 
|                                     |  |  | 
|Allan F. RossChief Financial Officer |  |  | 



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