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

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                       OR

       ( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                 For the transition period from______ to ______

                        Commission file number 333-28719

                             THE THAXTON GROUP, INC.
                             -----------------------
                 (Name of small business issuer in its charter)

                SOUTH CAROLINA                    57-0669498
                --------------------------------------------
                  (State or other jurisdiction of (IRS Employer
               incorporation or organization) Identification No.)

             1524 PAGELAND HIGHWAY, LANCASTER, SOUTH CAROLINA 29720
             ------------------------------------------------------
                    (Address of principal executive offices)

                     Issuer's telephone number: 803-285-4337

         Securities registered under Section 12(b) of the Exchange Act:

                              Name of each exchange
               Title of each class          on which registered
               ------------------------------------------------
                     None                           None

         Securities registered under Section 12(g) of the exchange Act:

                               Title of each class
                               -------------------
                                      None

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No __

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-KSB or any amendment to
this Form 10-KSB. (X)

State issuer's revenues for its most recent fiscal year. $23,280,731

At March 25, 1999, there were 3,763,836 shares of common stock outstanding. The
aggregate market value of the shares held by non-affiliates of the registrant,
based upon the price at which the stock was sold on March 17, 1999, is
approximately $3,329,180.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE



<PAGE>

                            THE THAXTON GROUP, INC.
                                 FORM 10-KSB/A

NOTE: This amendment to the registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1998 (the "Initial Filing") is being filed to:

(1) make certain minor corrections to Items 6 and 7 of the Initial Filing; and
(2) file Exhibit Number 27, the registrant's Financial Data Schedule and
    Exhibit Number 99, the Independent Auditors' Report for the year ended 
    December 31, 1997.



                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

Item                                                                                          Page
No.                                                                                           ----
---

                                                    

<S>                                                                                             <C>
                                                     PART II


6.    Management's Discussion and Analysis                                                      2
7.    Financial Statements                                                                      9


                                                    PART III


13.   Exhibits and Reports on Form 8-K                                                         26

</TABLE>
    
                                       1
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

HISTORICAL DEVELOPMENT, GROWTH AND TRENDS

Prior to 1991, the Company primarily was engaged in making and servicing direct
consumer and insurance premium finance loans to Non-prime Borrowers. In 1991,
the Company made a strategic decision to begin diversifying its portfolio by
actively seeking to finance purchases of used automobiles by Non-prime
Borrowers. Management believed that the expertise it had developed in extending
and servicing installment credit to Non-prime Borrowers would enable it to
profitably finance used automobile purchases by borrowers having similar credit
profiles. The Company facilitated its entry into this segment of the consumer
credit industry by engaging additional senior and mid-level management personnel
with substantial used automobile lending experience. Since 1991, the Company has
evolved into a diversified consumer financial services company engaged in used
automobile lending through the purchase and servicing of Automobile Sales
Contracts, the origination and servicing of Direct Loans and Premium Finance
Contracts, selling insurance products on an agency basis and originating
residential mortgage loans. Additionally, in 1998 the Company entered the
commercial lending business, and engages in factoring and secured commercial
lending for small and medium size businesses.

During 1998, the Company opened consumer lending finance offices in Charlotte,
NC, and Beaufort, SC. Additionally, the Company acquired four consumer finance
offices formerly owned by Budget Financial Service, Inc., ("Budget"). The
offices are located in Amory and Aberdeen, Mississippi, and in Vernon and
Hamilton, Alabama.

The Company acquired all of the outstanding capital stock of Paragon in
November, 1998, in exchange for 300,000 shares of the Company's stock plus
$100,000 in cash. Paragon is incorporated under the laws of the State of North
Carolina and operates as a licensed mortgage banker through nine offices in the
states of North Carolina and South Carolina.

Thaxton Insurance acquired twenty-two non-standard insurance agency offices
located in three southwestern states - Arizona, Nevada, and New Mexico.

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

                                                                            Year Ended December 31,

                                                                        1998                       1997
                                                                        ----                       ----

AUTOMOBILE SALES CONTRACTS
<S>                                                                   <C>                   <C>        
        Total balance at year end, net (1)                            $27,774,997           $37,463,211
        Average account balance at year end                                 3,190                 3,247
        Interest income for the year                                    8,112,770             9,900,934
        Average interest rate earned                                        24.71%                25.59%
        Number of accounts at year end                                      8,708                11,537

DIRECT LOANS
        Total balance at year end, net (1)                            $24,391,966           $12,302,995
        Average account balance at year end                                 2,604                 1,719
          Interest income for the year                                  4,378,825             3,110,850
        Average interest rate earned                                        27.45%                28.08%
        Number of accounts at year end                                      9,367                 7,159

PREMIUM FINANCE CONTRACTS
        Total balance at year end, net (1)                             $3,228,160            $3,860,936
        Average account balance at year end                                   286                   319
        Interest income for the year                                      733,477               573,005
        Average interest rate earned                                        18.46%                17.04%
        Number of accounts at year end                                     11,288                12,108
</TABLE>

(1)   Finance receivable balances are presented net of unearned finance charges,
      dealer reserves on Automobile Sales Contracts and discounts on bulk
      purchases ("Net Finance Receivables").

 Management believes the best opportunities for continued growth in the
 Company's Automobile Sales Contract and Direct Loan

                                       2
<PAGE>

portfolios lie in the opening or acquisition of new finance offices in small to
medium-sized markets in the states where the Company presently operates and
contiguous states that management believes to be under served by its
competitors. The Company opened five new finance offices in 1997 and added six
additional offices in 1998 (two offices were opened, and four were added through
acquisition). While there are certain risks associated with such expansion,
management believes that its ability to identify and retain finance office
management personnel having established relationships with local independent
dealers, its expertise in extending and servicing credit to Non-prime Borrowers,
and other factors will enable it to manage anticipated growth in its finance
office network and in its Automobile Sales Contract and Direct Loan portfolios.
The Company will seek to expand its Premium Finance Contract portfolio by
establishing and broadening relationships with insurance agencies having a
client base in need of premium financing. The Company also periodically may make
bulk purchases of Automobile Sales Contracts and Premium Finance Contracts if
such purchases are deemed beneficial to the Company's competitive position and
portfolio mix and will seek opportunities to expand its network of insurance
offices primarily through the acquisition of independent insurance agencies.

 In January 1999, Thaxton Investment Corporation ("Thaxton Investment") was
 organized by James D. Thaxton. Thaxton Investment's board of directors and
 executive officers are, with one exception, identical. With 100% financing
 provided by the Company's primary lender, Thaxton Investment acquired the
 consumer finance operations of First Plus Consumer Finance, Inc., consisting of
 144 Direct Loan offices in 7 states, including 31 offices in South Carolina.
 While Thaxton Investment is a separate legal entity from the Company, the
 Company's exectuve officers and other administrative personnel of the Company
 will devote a substantial portion of their management time in future periods to
 Thaxton Investment. Thaxton Investment will be charged a monthly management fee
 to compensate the Company for the time and resources utilized by Thaxton
 Investment. The management fee was based upon time estimates of Company
 personnel for anticipated work to be performed for the benefit of Thaxton
 Investment, and included the reimbursement of other direct costs anticipated to
 be incurred by the Company. It is estimated that the Company's pretax income
 will increase by approximately $370 thousand as a result of this fee.


NET INTEREST MARGIN

The following table sets forth certain data relating to the Company's net
interest margin for the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>


                                                                1998                     1997
                                                                ----                     ----
<S>                                                         <C>                      <C>
  Average Net Finance Receivables(1)                        $52,919,907              $53,058,041
  Average notes payable(1)                                   47,095,575               45,739,084

  Interest and fee income (2)                                15,727,484               15,808,386
  Interest expense (3)                                        4,366,757                4,484,600
                                                             ----------               ----------

  Net interest income                                        11,360,727               11,323,786

  Average interest rate earned(1)                                 29.72%                   29.79%
  Average interest rate paid(1)                                    9.27%                    9.80%
                                                             ----------               ----------

  Net interest rate spread                                        20.45%                   19.99%

  Net interest margin(4)                                          21.47%                   21.34%
</TABLE>

(1) Averages are computed using month-end balances during the year presented
(2) Excludes interest and fee income earned by Thaxton Insurance.
(3) Excludes interest expense paid on Thaxton Insurance related debt.
(4) Net interest margin represents net interest income divided by average Net
    Finance Receivables.

The principal component of the Company's profitability is its net interest
spread, the difference between interest earned on finance receivables and
interest expense paid on borrowed funds. Statutes in some states regulate the
interest rates that the Company may charge its borrowers while interest rates in
other states are unregulated and consequently are established by competitive
market conditions. There are significant differences in the interest rates
earned on the various components of the Company's finance receivable portfolio.
The interest rate earned on Automobile Sales Contracts generally is lower than
the interest rates earned on Direct Loans due to competition from other lenders,
superior collateral and longer terms. The interest rates earned on Premium
Finance Contracts are state regulated and vary based on the type of underlying
insurance and the term of the contract.

Unlike the Company's interest income, its interest expenses are sensitive to
general market fluctuations in interest rates. The interest

                                       3
<PAGE>

rate paid to the Company's primary lender is based upon a published prime rate
plus a set percentage. Thus, general market fluctuations in interest rates
directly impact the Company's cost of funds. The Company's general inability to
increase the interest rates earned on finance receivables may impair its ability
to adjust to increases in the cost of funds resulting from changes in market
conditions. Accordingly, increases in market interest rates generally will
narrow the Company's interest rate spread and lower its profitability while
decreases in market interest rates generally will widen the Company's interest
rates spreads and increase profitability.

RESULTS OF OPERATIONS

COMPARISON OF 1998 TO 1997. Finance receivables at December 31, 1998 were
$80,684,786 versus $67,558,269 at December 31, 1997, a 19% increase. The Company
opened or acquired six new finance branch offices and also began offering
commercial loans during 1998. Additionally, the acquisition of Paragon, a
mortgage banking company, with loans held for sale of approximately $11 million
at the end of 1998, contributed to this increase.

Unearned income at December 31, 1998 was $12,862,542 versus $13,058,066 at
December 31, 1997, essentially flat between years, even though receivables were
increased significantly. This is primarily attributable to three factors: (1)
The increase in interest bearing receivables which have no unearned income
associated with them, and include the mortgage loans held for sale, the
commercial loans, and a growing number of consumer loans; (2) The aging of the
automobile sales finance portfolio as the company attempts to shift its emphasis
away from automobile sales finance contracts and into higher yielding consumer
loans; and (3) The increased percentage of consumer loans in the portfolio,
which have on average, shorter maturities, and hence smaller unearned interest
balances at date of inception.

The allowance for credit losses remained relatively stable between years,
$4,710,829 at December 31, 1998 versus $4,809,400 at December 31, 1997, a 2%
decline. Credit losses also remained relatively flat between years, $4,105,031
for 1998 versus $3,965,532 for 1997, and credit losses expressed as a percentage
of ending net finance receivables declined from 7.4% in 1997 to 6.2% in 1998.
After giving effect to the shifting portfolio mix, the allowance for credit
losses required by the Company's reserve methodology indicated appropriateness
of the ending reserve balance for 1998.

Interest and fee income for the twelve months ended December 31, 1998 was
$15,727,484, compared to $15,892,683 for the twelve months ended December 31,
1997, a 1% decline. Interest expense remained essentially constant between
years, $5,037,289 for the twelve months ended December 31, 1998 versus
$5,023,179 for the comparable period of 1997. The static level of interest
income and interest expense follows the portfolio. Virtually all of the
portfolio growth occurred at the end of 1998, coinciding with the acquisition of
Budget and Paragon in the autumn of 1998. For most of 1998, the level of average
net finance receivables was actually slightly less than the prior year. This was
due to a strategic decision by the Company, begun in 1997, to tighten credit
guidelines for its automobile sales finance contract portfolio in order to
reverse the pattern of increasing credit losses which the Company had
experienced over the prior two years. Most of the growth in direct loans
occurred in the latter part of 1998, and its affect on interest income will be
generated in subsequent years.

Provision for credit losses declined significantly between years, from
$6,579,932 in 1997 to $4,046,460 in 1998, or a 39% decline. Credit losses had
been increasing in 1996 and 1997, and a large provision for credit loss expense
in 1997 was required to build the allowance for credit loss to adequate levels.
In 1998, however, due to the Company's tightened credit guidelines instituted
during 1997, credit losses were held in check, and in fact declined as a
percentage of the portfolio. Accordingly, additional provision for loss expense
was not required under the Company's reserve methodology.

Insurance premiums and commissions net of insurance cost increased to $6,590,849
for the twelve months ended December 31, 1998 from $5,469,667 for the comparable
period of 1997, a 20% increase. This was primarily due to increased sales of
insurance products to borrowers, brought about by management emphasis on this
product line, and increased revenue and insurance commissions from the Thaxton
Insurance agency offices. Other income decreased from $1,221,525 for the twelve
months ended December 31, 1997 to $962,397 for the comparable period of 1998 due
primarily to profit sharing payments to the Company from various insurance
carriers in 1997, which were above levels normally experienced.

Total operating expenses increased from $13,210,791 for the twelve months ended
December 31, 1997 to $15,777,486 for the comparable period of 1998, a 19%
increase. The increase in expenses was due, in large part, to the acquisition in
the latter part of 1998 of Paragon, the four finance offices from Budget, and
the acquisition of the insurance agency offices in Arizona, Nevada, and New
Mexico by Thaxton Insurance. Additionally, there was a general increase in other
operating costs associated with the start up of the commercial lending and
non-standard insurance agency programs, and administering a larger finance
receivable portfolio.

The Company generated a net loss for the twelve months ended December 31, 1998
of $1,084,017 as compared to a net loss of $1,506,333 for the comparable period
of 1997, a 28% decrease. The decrease in net loss is attributed to improved
performance with

                                       4
<PAGE>

respect to credit losses, and the corresponding decrease in required provision
for loan loss in order to maintain an adequate allowance for credit loss.

Stockholders' equity increased from $5,969,317 at December 31, 1997 to
$12,928,872 at December 31, 1998 primarily as a result of the Company's private
placement of $8 million of Series E Preferred Stock, partially offset by a
reduction in retained earnings caused by the year's net loss from operations.



CREDIT LOSS EXPERIENCE

Provisions for credit losses are charged to income in amounts sufficient to
maintain the allowance for credit losses at a level considered adequate to cover
the expected future losses of principal and interest in the existing finance
receivable portfolio. Credit loss experience, contractual delinquency of finance
receivables, the value of underlying collateral, and management's judgment are
factors used in assessing the overall adequacy of the allowance and resulting
provision for credit losses. The Company's reserve methodology is designed to
provide an allowance for credit losses that, at any point in time, is adequate
to absorb the charge-offs expected to be generated by the finance receivable
portfolio, based on events or losses that have occurred or are known to be
inherent in the portfolio. The model used by the Company utilizes historical
charge-off data to predict the charge-offs likely to be generated in the future
by the existing finance receivable portfolio. The model takes into consideration
overall loss levels, as well as losses by originating office and by type, and
develops historical loss factors which are applied to the current portfolio. 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. The Company's charge-off policy is based on an account by
account review of delinquent receivables. Losses on finance receivables secured
by automobiles are recognized at the time the collateral is repossessed. Other
finance receivables are charged off when they become contractually past due 180
days, unless extenuating circumstances exist leading management to believe such
finance receivables will be collectible. Finance receivables may be charged off
prior to the normal charge-off period if management deems them to be
uncollectible.

Under the Company's dealer reserve arrangements, when a dealer assigns an
Automobile Sales Contract to the Company, the Company withholds a certain
percentage of the principal amount of the contract, usually between five and ten
percent (the "Discount Percentage"). The amounts withheld from a particular
dealer are recorded in a subsidiary ledger account (the "Specific Reserve
Account"). Any losses incurred on Automobile Sales Contracts purchased from that
dealer are charged against its Specific Reserve Account. If at any time the
balance of a dealer's Specific Reserve Account exceeds the amount derived by
applying the Discount Percentage to the total amount of principal and interest
due under all outstanding Automobile Sales Contracts purchased from such dealer
(the "Excess Dealer Reserve"), the dealer is entitled to receive distributions
from the Specific Reserve Account in an amount equal to the Excess Dealer
Reserve. If the Company is continuing to purchase Automobile Sales Contracts
from a dealer, distributions of Excess Dealer Reserves generally are paid
quarterly. If the Company is not continuing to purchase Automobile Sales
Contracts from a dealer, distributions of Excess Dealer Reserves are not paid
out until all Automobile Sales Contracts originated by that dealer have been
paid in full. The aggregate balance of all Specific Reserve Accounts, including
unpaid Excess Dealer Reserves, are reflected in the balance sheet as a reduction
of finance receivables. The Company's allowance for credit losses is charged
only to the extent that the loss on an Automobile Sales Contract exceeds the
originating dealer's Specific Reserve Account at the time of the loss.

The Company periodically purchases Automobile Sales Contracts in bulk. In a bulk
purchase arrangement, the Company typically purchases a portfolio of Automobile
Sales Contracts from a dealer at a discount to par upon a review and assessment
of the portfolio by the Company's management. This discount is maintained in a
separate account against which losses on the bulk portfolio purchased are
charged. To the extent losses experienced are less than the discount, the
remaining discount is accreted into income.

                                       5
<PAGE>



The following table sets forth the Company's allowance for credit losses at
December 31, 1998 and 1997, and the credit loss experience over the periods
presented for its finance receivables. (1)
<TABLE>
<CAPTION>

                                                                                                   1998                      1997
                                                                                                   ----                      ----

<S>                                                                                           <C>                       <C>
 Net finance receivables (1)                                                                  $56,130,791               $54,500,203
 Allowance for credit losses                                                                    4,710,829                 4,809,400
  Allowance for credit losses as a percentage of
 net finance receivables (1)                                                                         8.39%                     8.82%

 Dealer reserves and discounts on bulk purchases                                              $ 1,241,633               $ 1,028,575
 Dealer reserves and discounts on bulk purchases as
 percentage of Net Automobile Sales Contracts at
 period end                                                                                          3.46%                     2.67%

Allowance for credit losses and dealer reserves and
 discount on bulk purchases (2)                                                               $ 5,952,462               $ 5,837,975
 Allowance for credit losses and dealer reserves
 as a percentage of finance
receivables                                                                                         10.60%                    10.71%

 Provision for credit losses                                                                  $ 4,046,460               $ 6,579,932

Charge-offs (net of recoveries)                                                                 4,145,031                 3,965,532
 Charge-offs (net of recoveries) as a percentage of                                                  7.64%                     7.47%
 average net finance receivables (3)
</TABLE>



(1) Net finance receivable balances are presented net of unearned finance
    charges, and exclude mortgage warehoused loans and commercial finance
    receivables.

(2) Excludes valuation discount for acquired loans

(3) Average net receivables computed using month end balances



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


                                                                               At December 31,

                                                                              1998           1997
                                                                              ----           ----
<S>                                                                         <C>            <C>     
  Automobile Sales Contracts and Direct Loans                               $734,359       $551,363
  contractually past due 90 days or more (1)

  Automobile Sales Contracts and Direct Loans (1)                         52,166,963     49,766,206
  Automobile Sales Contracts and Direct Loans                                   1.41%          1.11%
  contractually past due 90 days or more as a
  percentage of Automobile Sales Contracts and Direct
  Loans
</TABLE>

      (1) Finance receivable balances are presented net of unearned finance
      charges, dealer reserves on Automobile Sales Contracts and discounts on
      bulk purchases.


                                       6
<PAGE>




The following table sets forth certain information concerning Premium Finance
Contracts at the end of the periods indicated:
<TABLE>
<CAPTION>

                                                                                At December 31,
                                                                                ---------------
                                                                           1998                1997
                                                                           ----                ----
<S>                                                                     <C>                   <C>    
Premium finance contracts contractually past due 60                     $119,345              $89,331
days or more(1)
Premium finance contracts outstanding(1)                               3,228,160            3,860,936
Premium finance contracts contractually past due 60
days or more as a percentage of premium finance                              3.6%                 2.3%
contracts
---------
</TABLE>


(1) Finance receivable balances are presented net of unearned finance charges.


LIQUIDITY AND CAPITAL RESOURCES

The Company generally finances its operations and new offices through cash flow
from operations and borrowings under the revolving credit facility extended by
FINOVA Capital Corporation ( the "Revolving Credit Facility"). The Revolving
Credit Facility, which provides for borrowings of up to $92 million, matures on
October 31, 2003. The facility consists of five tranches. The primary tranche is
used to finance consumer receivables and provides for advances of up to $92
million, less any amounts advanced under the secondary tranches. Tranche B, one
of the secondary tranches, is also used to finance consumer receivables and
allows the Company to borrow up to $10 million against a higher percentage of
Net Finance Receivables than under the primary tranche. The Company borrows
against Tranche B only when it has exhausted available borrowings under the
primary tranche. The Revolving Credit facility also provides a $5 million
tranche dedicated to non-consumer receivables, a $25 million tranche established
to provide a mortgage loan warehouse facility, and a $10 million tranche which
permits borrowings against insurance commissions. As of December 31, 1998, $47.0
million was outstanding under the Revolving Credit Facility, $37.2 million of
which had been advanced under the primary tranche and $9.8 million of which had
been advanced under secondary tranches. At December 31, 1998, there were no
advances under Tranche B. Under the terms of the Revolving Credit Facility, the
Company's Net Finance Receivables at December 31, 1998 would have allowed it to
borrow an additional $8.3 million against existing collateral, with $45 million
of total potential capacity available for borrowing against qualified finance
receivables generated by the Company in future periods. The interest rate for
borrowings is the prime rate published by Citibank, N.A. (or other money center
bank designated by the lender) plus one percent per annum for the primary
tranche, the non-consumer receivable tranche, and the mortgage loan tranche,
plus five percent per annum for Tranche B and plus two percent per annum for the
insurance commission tranche. The interest rate is adjusted monthly to reflect
fluctuations in the designated prime rate. Accrued interest on borrowings is
payable monthly. Principal is due in full on the maturity date and can be
prepaid without penalty. The Revolving Credit Facility is secured by
substantially all of the Company's assets and requires the Company to comply
with certain restrictive covenants, including covenants to maintain a certain
debt to equity ratio, tangible net worth, annual net income within prescribed
limits, and a covenant to limit annual distributions to common stockholders to
25% of net income.

In 1997, the Company began issuing subordinated term notes to individual
investors in an intrastate public offering registered with the State of South
Carolina. The registration of a similar offering was declared effective by the
U.S. Securities and Exchange Commission in March 1998, and the Company now
offers notes under this federal registration. Maturity terms on these notes
range from daily to sixty months, and interest rates vary in accordance with
market rates. Notes currently being offered carry interest rates ranging from
5.25% to 8.0%. Approximately $11.1 million in notes were outstanding as of
December 31, 1998. Proceeds from the issuance of these notes generally are used
to repay borrowings under the Revolving Credit Facility.

Cash flows from financing activities during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>


                                                                                                1998                          1997
                                                                                                ----                          ----
<S>                                                                                        <C>                         <C>
Proceeds from the issuance of preferred stock                                              $  7,907,323                $    718,067
Notes payable to affiliates                                                                    (236,368)                         --
Repurchase of common stock                                                                   (1,075,732)                   (137,983)
Dividends paid                                                                                 (258,289)                         --
Net increase in line of credit                                                                  255,000                   4,079,053
Net increase in notes payable                                                                 5,754,188                   1,303,226
Repurchase of preferred stock                                                                   (30,000)                         --
                                                                                           ------------                ------------
Total                                                                                      $ 12,316,122                $  5,962,363
                                                                                           ============                ============
</TABLE>


                                       7
<PAGE>



Management believes that the maximum borrowings available under the Revolving
Credit Facility, in addition to cash expected to be generated from operations
and the sale of subordinated notes, will provide the resources necessary to fund
the Company's liquidity and capital needs through 1999.

IMPACT OF INFLATION AND GENERAL ECONOMIC CONDITIONS

Although the Company does not believe that inflation directly has a material
adverse effect on its financial condition or results of operations, increases in
the inflation rate generally are associated with increased interest rates.
Because the Company borrows funds on a floating rate basis and generally extends
credit at the maximum interest rates permitted by law or market conditions,
increased interest rates would increase the Company's cost of funds and could
materially impair the Company's profitability. The Company intends to explore
opportunities to fix or cap the interest rates on all or a portion of its
borrowings; however, there can be no assurance that fixed rate or capped rate
financing will be available on terms acceptable to the Company. Inflation also
can affect the Company's operating expenses. The Company's business could be
affected by other general economic conditions in the United States, including
economic factors affecting the ability of its customers or prospective customers
to purchase used automobiles and to obtain and repay loans.

IMPACT OF YEAR 2000

The Company recognizes that there is a business risk in computerized systems as
we move into the next century. If computer systems misinterpret the date, items
such as interest calculations on loans will be incorrect. This is commonly
called the "Year 2000 Problem." A number of computer systems used by the Company
in its day to day operations may be affected by this problem. The issue is
whether computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could fail or generate erroneous data.

In the ordinary course of business, the Company has replaced a significant
portion of its non-compliant hardware and software with Year 2000 compliant
systems. The Company has minimal proprietary processing software - virtually all
key sub-systems, payroll system, and general ledger were written, and are
maintained by reputable outside vendors. The Company has confirmed with
licensors from which it licenses software that all such software is Year 2000
compliant. The majority of vendor licensors have offered or provided the Company
the results of their Year 2000 testing.

With respect to our systems, networks, and licensed software, management has
established a project team which has identified affected systems and is
currently working to ensure that the advent of the year 2000 will not disrupt
operations. This project team reports periodically to senior management. The
company is also working closely with outside computer vendors to ensure that all
software corrections and warranty commitments are obtained. The estimated cost
to the Company for these corrective actions, and the related hardware required
to run the upgraded software was originally estimated at approximately $1
million. A significant portion of this budget has already been spent, much of it
on upgrading hardware throughout our branch network. The remaining amounts to be
incurred are included in the Company's capital and operating budgets for 1999.

The Company has taken significant steps toward insuring that the Year 2000 will
not adversely affect our ability to function. However, it should be noted that
incomplete or untimely compliance would have a material adverse impact on the
Company, the dollar amount of which cannot be accurately quantified at this time
because of the inherent variables and uncertainties involved.

ACCOUNTING MATTERS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). This statement addresses the accounting
for derivative instruments, including certain derivative instruments imbedded in
other contracts, and hedging activities. The Statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. Management
does not anticipate the adoption of the provisions of SFAS No. 133 will
significantly impact the Company's financial reporting.


For the year ended December 31, 1998, the Company has adopted Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires the
presentation of descriptive information about reportable segments consistent
with that used by management of the Company to assess performance. Additionally,
SFAS No. 131 requires disclosure of certain information by geographic region.
This disclosure is presented in footnote 13 of the Company's Audited Financial
Statements included in this report.

                                       8
<PAGE>



ITEM 7. FINANCIAL STATEMENTS

















                             THE THAXTON GROUP, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

                  (WITH INDEPENDENT AUDITORS' REPORTS THEREON)




                                       9
<PAGE>







                          Independent Auditors' Report





THE BOARD OF DIRECTORS
THE THAXTON GROUP, INC.

We have audited the accompanying consolidated balance sheet of The Thaxton
Group, Inc. and subsidiaries as of December 31, 1998 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit. The financial 
statements of The Thaxton Group, Inc. and subsidiaries as of December 31, 1997,
were audited by other auditors whose report dated March 25, 1998, expressed an
unqualified opinion on those statements.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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, 1998 and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.



                                             Cherry, Bekaert & Holland, LLP


Charlotte, North Carolina
March 24, 1999





                                       10
<PAGE>




                                          THE THAXTON GROUP, INC.
                                        Consolidated Balance Sheets
                                         December 31, 1998 and 1997
<TABLE>
<CAPTION>


                                                                                                        1998                1997
                                                                                                        ----                ----
Assets

<S>                                                                                                <C>                    <C>
Cash                                                                                               $   780,864            1,162,793
Finance receivables, net                                                                            61,869,782           48,662,228
Premises and equipment, net                                                                          2,843,753            2,003,787
Accounts receivable                                                                                  1,252,412            1,616,570
Repossessed automobiles                                                                                603,288              744,030
Goodwill and other intangible assets                                                                 8,305,129            3,894,956
Other assets                                                                                         3,340,784            2,881,308
                                                                                                   -----------          -----------

     Total assets                                                                                   78,996,012           60,965,672
                                                                                                   ===========          ===========


Liabilities and Stockholders' Equity

Liabilities

Accrued interest payable                                                                               428,906              420,863
Notes payable                                                                                       62,144,209           51,071,066
Notes payable to affiliates                                                                            778,990            1,015,358
Accounts payable                                                                                       928,580            1,357,739
Employee savings plan                                                                                1,070,425            1,045,533
Other liabilities                                                                                      716,030               85,796
                                                                                                   -----------          -----------

     Total liabilities                                                                              66,067,140           54,996,355
                                                                                                   -----------          -----------

Stockholders' Equity

Preferred Stock $.01 par value:
Series A: 400,000 shares authorized; issued and outstanding
    175,014 shares in 1998, 178,014 in 1997; liquidation
    value $1,750,140 in 1998                                                                             1,750                1,780
Series B: 40,000 shares authorized; issued and outstanding 
       no shares in 1998, 27,076 shares in 1997                                                              0                  271
Series C: 50,000 shares authorized, issued and
  outstanding in 1998 and 1997; liquidation value $500,000 in 1998                                         500                  500
Series D:  56,276 shares authorized, issued and outstanding
     in 1998, no shares in 1997; liquidation value $562,760 in 1998                                        563                    0
Series E:  800,000 shares authorized, issued and outstanding
    in 1998, no shares in 1997; liquidation value $8,000,000 in 1998                                     8,000                    0


Common stock, $.01 par value, 50,000,000 shares authorized; issued 
and outstanding 3,885,218 shares in 1998, 3,795,600 shares in 1997                                      38,852               37,956
Additional
paid-in-capital                                                                                     12,184,057            4,521,354
Deferred stock award                                                                                        --             (630,000)
Retained earnings                                                                                      695,150            2,037,456
                                                                                                   -----------          -----------

     Total stockholders' equity                                                                     12,928,872            5,969,317
                                                                                                   -----------          -----------

     Total liabilities and stockholders' equity                                                    $78,996,012           60,965,672
                                                                                                   ===========          ===========
</TABLE>


                                       
See accompanying notes to consolidated financial statements.



                                       11
<PAGE>
<TABLE>
<CAPTION>


                                          THE THAXTON GROUP, INC.
                                     Consolidated Statements of Income
                                   Years Ended December 31, 1998 and 1997

                                                                                                    1998                    1997
                                                                                                    ----                    ----

<S>                                                                                            <C>                       <C>
Interest and fee income                                                                        $ 15,727,484              15,892,683
Interest expense                                                                                  5,037,289               5,023,179
                                                                                               ------------            ------------

     Net interest income                                                                         10,690,195              10,869,504
Provision for credit losses                                                                       4,046,460               6,579,932
                                                                                               ------------            ------------

Net interest income after provision for credit losses                                             6,643,735               4,289,572
                                                                                               ------------            ------------
Other income:
     Insurance premiums and commissions, net                                                      6,590,849               5,469,667
     Other income                                                                                   962,398               1,221,525
                                                                                               ------------            ------------
     Total other income                                                                           7,553,247               6,691,192
                                                                                               ------------            ------------

Operating expenses:
     Compensation and employee benefits                                                           8,636,026               6,799,738
     Telephone, postage, and supplies                                                             1,960,292               1,511,477
     Net occupancy                                                                                1,460,174               1,528,218
     Reinsurance claims expense                                                                     314,995                 355,437
     Insurance                                                                                      414,304                 128,916
     Collection expense                                                                             132,488                  94,462
     Travel                                                                                         153,046                 176,186
     Professional fees                                                                              452,152                 260,410
     Other                                                                                        2,254,009               2,355,947
                                                                                               ------------            ------------

     Total operating expenses                                                                    15,777,486              13,210,791
                                                                                               ------------            ------------

     Income (loss) before income tax expense                                                     (1,580,504)             (2,230,027)
Income tax expense (benefit)                                                                       (496,487)               (723,694)
                                                                                               ------------            ------------

     Net income (loss)                                                                         $ (1,084,017)             (1,506,333)
                                                                                               ============            ============

     Dividends on preferred stock                                                              $    258,289                   4,167
                                                                                               ============            ============


     Net income (loss) applicable to common shareholders                                       $ (1,342,306)             (1,510,500)
                                                                                               ============            ============
                                                                                                                         


     Net income (loss) per common share-- basic and diluted                                    $      (0.35)                  (0.39)
                                                                                               ============            ============
</TABLE>


See accompanying notes to consolidated financial statements.

                                       12
<PAGE>


                                          THE THAXTON GROUP, INC.
                              Consolidated Statements of Stockholders' Equity
                                   Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>

                                                                               Additional    Deferred                       Total
                                                      Common        Preferred   Paid-in       Stock         Retained   Stockholders'
                                                      Stock           Stock     Capital       Award         Earnings      Equity
                                                      -----           -----     -------       -----         --------      ------

<S>                                                   <C>         <C>          <C>            <C>           <C>           <C>
Balance at December 31, 1996                          $39,322           -      3,504,027      (720,000)     3,547,956     6,371,305
Purchase and retirement of 13,300 shares of stock        (133)          -       (137,850)            -              -      (137,983)
Issuance of 2,007 shares of restricted stock               20           -         22,057             -              -        22,077
Issuance of 797 shares of stock under Employee
  stock purchase plan                                       8           -          6,343             -              -         6,351
Forfeiture of deferred stock award                       (100)          -        (89,900)       90,000              -             -
Conversion of  89,007 shares of common stock
  into 178,014 shares of Series A preferred stock        (890)      1,780        717,177             -              -       718,067
Conversion of 27,076 shares of common stock
  into 27,076 shares of Series B preferred stock         (271)        271              -             -              -             -
Conversion of subordinated debt into
    50,000 shares of Series C preferred stock               -         500        499,500             -              -       500,000
Dividends paid on preferred stock                           -           -              -             -         (4,167)       (4,167)
Net loss                                                    -           -              -             -     (1,506,333)   (1,506,333)
                                                      -------    --------    -----------   -----------    -----------   -----------
Balance at December 31, 1997                           37,956       2,551      4,521,354      (630,000)     2,037,456     5,969,317
                                                      -------    --------    -----------   -----------    -----------   -----------
Purchase and retirement of 114,761 shares
  of common stock                                      (1,148)          -     (1,074,314)            -              -    (1,075,462)
Issuance of 800,000 shares of
  Series E Preferred Stock                                  -       8,000      7,992,000             -              -     8,000,000
Issuance of 300,000 shares of restricted common
  Stock                                                 3,000           -      1,497,000             -              -     1,500,000
Issuance of 3,580 shares of common stock under
  Employee stock purchase plan                             36           -         26,590             -              -        26,626
Conversion of 29,200 shares of common stock and
  27,076 shares of Series B Preferred Stock
  into 56,276 of Series D Preferred Stock                (292)        292              -             -              -             -
Repurchase of 3,000 shares of Series A
  Preferred Stock                                                     (30)       (29,970)            -              -       (30,000)
Cancellation and forfeiture of Deferred Stock Award      (700)          -       (629,300)      630,000              -             -
Costs associated with preferred stock issuance              -           -       (119,303)            -              -      (119,303)
Dividends paid on preferred stock                           -           -              -             -       (258,289)     (258,289)
Net loss                                                    -           -              -             -     (1,084,017)   (1,084,017)
                                                       -----------------------------------------------------------------------------

Balance at December 31, 1998                          $38,852      10,813     12,184,057             -        695,150    12,928,872
                                                      =======      ======     ==========    ==========        =======    ==========
</TABLE>

See accompanying notes to consolidated financial statements

                                       13
<PAGE>


                                          THE THAXTON GROUP, INC.
                                   Consolidated Statements of Cash Flows
                                   Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>

                                                                                      1998                        1997
Cash flows from operating activites:
<S>                                                                              <C>                           <C>        
Net income (loss)                                                                $ (1,084,017)                 (1,506,333)
Adjustments to reconcile net income to
net cash provided by operating activities
    Provision for credit losses                                                     4,046,460                   6,579,932
    Depreciation and amortization                                                   1,224,170                     958,192
    Deferred taxes                                                                   (300,000)                      6,705
    Compensatory grant of stock to employees                                                -                      28,428
    Decrease (increase) in other assets                                                41,436                    (992,293)
    Increase (decrease) in accrued interest payable and other liabilities             156,506                    (200,353)
                                                                                 ------------                ------------
                        Net cash provided by operating activities                   4,084,555                   4,874,278
                                                                                 ------------                ------------
Cash flows from investing activities:
    Net increase in finance receivables                                           (10,398,970)                 (8,696,073)
    Capital expenditures for premises and equipment                                (1,490,452)                   (706,498)
    Proceeds from sale of premises and equipment                                       79,316                      36,875
    Proceeds from sale of investments                                                  46,935                      24,481
    Acquisitions, net of acquired cash equivalents                                 (4,976,488)                   (754,098)
    Purchase of securities                                                            (42,947)                          -
                                                                                 ------------                ------------
                            Net Cash used by investing activities                 (16,782,606)                (10,095,313)
                                                                                 ------------                ------------
Cash flows from financing activities:
    Proceeds from the issuance of preferred stock                                   7,907,323                     718,067
    Notes payable to affiliates                                                      (236,368)                          -
    Repurchase of common stock                                                     (1,075,732)                   (137,983)
    Dividends paid                                                                   (258,289)                          -
    Net increase in line of credit                                                    255,000                   4,079,053
    Net increase in notes payable                                                   5,754,188                   1,303,226
    Repurchase of preferred stock                                                     (30,000)                          -
                                                                                 ------------                ------------
                        Net cash provided by financing activities                  12,316,122                   5,962,363
                                                                                 ------------                ------------

Net increase (decrease) in cash                                                      (381,929)                    741,328
Cash at beginning of period                                                         1,162,793                     421,465
                                                                                 ------------                ------------
Cash at end of period                                                            $    780,864                   1,162,793
                                                                                 ============                   =========

Supplemental disclosures of cash flow information: Cash paid during the period
    for:
        Interest                                                                    5,029,246                   4,874,912
        Income taxes                                                                        -                      36,843
</TABLE>



See accompanying notes to consolidated financial statements.

                                       14
<PAGE>



                             THE THAXTON GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Thaxton Group, Inc. (the "Company") is incorporated under the laws of the
state of South Carolina and operates, primarily through subsidiaries, finance
branches in seven southeastern states, and insurance agency branches in six
states located in the southeast and southwest. The Company is a diversified
financial services company that is engaged primarily in consumer lending and
consumer automobile sales financing to borrowers with limited credit histories,
low incomes or past credit problems. The Company also offers insurance premium
financing to such borrowers. A substantial amount of the Company's premium
finance business has been derived from customers of the independent insurance
agencies owned by Thaxton Insurance Group, Inc. ("Thaxton Insurance"), which was
acquired by the Company in 1996. The Company provides reinsurance through a
wholly owned subsidiary, TICO Reinsurance, Ltd. ("TRL"). Through a wholly owned
subsidiary, Paragon, Inc., the Company is also engaged in mortgage banking,
originating mortgage loans to individuals. The Company sells substantially all
mortgage loans it originates to independent third parties. Through another
wholly owned subsidiary, Thaxton Commercial Lending, Inc., the Company makes
factoring loans and collateralized commercial loans to small and medium sized
businesses. All significant intercompany accounts and transactions have been
eliminated in consolidation.

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

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


(A) INTEREST AND FEE INCOME: Interest income from finance receivables is
recognized using the interest (actuarial) method on an accrual basis. Accrual of
income on finance receivables continues until the receivable is either paid off
in full or is charged off. Fee income consists primarily of late fees which are
credited to income when they become due from borrowers. For receivables which
are renewed, interest income is recognized using a method similar to the
interest method.


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

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

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


(E) INSURANCE: The Company remits a portion of credit life, accident and health,
property and auto insurance premiums written in connection with certain loans to
an unaffiliated insurance company at the time of origination. Any portion of the
premiums remitted to this insurance company which are not required to cover
their administrative fees or to pay reinsurance claims expense are returned to
the Company through its reinsurance subsidiary, TRL, and are included in
insurance premiums and commissions in the accompanying consolidated statements
of income. Unearned insurance commissions are accreted to income over the life
of the related insurance contracts using a method similar to that used for the
recognition of finance charges. Insurance commissions earned by Thaxton

                                       15
<PAGE>

Insurance are recognized as services are performed in accordance with Thaxton
Insurance's contractual obligations with the underwriters, but not before
protection is placed with insurers.

(F) EMPLOYEE SAVINGS PLAN: The Company offers a payroll deduction savings plan
to all its employees. The Company pays interest monthly at an annual rate of 10%
on the prior month's ending balance. Employees may withdraw savings on demand,
subject to a subordination agreement with the Company's primary lender.

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

(H) EARNINGS PER SHARE: The Company adopted the provisions of SFAS 128, "Earning
per Share" ("EPS") in 1997. The presentation of primary and fully diluted EPS
has been replaced with basic and diluted EPS. Basic earnings per share are
computed by dividing net income applicable to common shareholders by the
weighted average number of common shares outstanding. Diluted earnings per share
are computed by dividing net income by the weighted average number of shares of
common stock and common stock equivalents calculated based upon the average
market price. Common stock equivalents consist of stock options issued by the
Company, and are computed using the treasury stock method.

(I) INTANGIBLE ASSETS: Intangible assets include goodwill, expiration lists, and
covenants not to compete related to acquisitions made by the Company. Goodwill
represents the excess of the cost over the fair value of net assets acquired at
the date of acquisition. Goodwill is amortized on a straight-line basis,
generally over a five to twenty year period. The expiration lists are amortized
over their estimated useful lives, generally fifteen to twenty years, on a
straight-line basis. Covenants not to compete are amortized according to the
purchase contract over five to six years on a straight-line basis.
Recoverability of recorded intangibles is evaluated by using undiscounted cash
flows.

(J) STOCK OPTIONS: Effective January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which requires that the fair value of
employee stock-based compensation plans be recorded as a component of
compensation expense in the statement of income or the impact of such fair value
on net income and earnings per share be disclosed on a pro forma basis in a
footnote to the financial statements if the Company continues to use the
intrinsic value method in accordance with APB 25. The Company will continue such
accounting under the provisions of APB 25.

(K) FAIR VALUE OF FINANCIAL INSTRUMENTS: All financial assets of the Company are
short term in nature and all liabilities are substantially at variable rates of
interest. As such, the carrying values of these financial assets and liabilities
approximate their fair value. A small percentage of subordinated notes payable
are at fixed rates, with terms up to sixty months in maturity. For these
liabilities, an evaluation is made annually to assess the appropriateness of the
carrying value.

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


(2)    BUSINESS COMBINATIONS

On November 13, 1998, the Company acquired all of the outstanding capital of
stock of Paragon, Inc. ("Paragon"), a North Carolina corporation, for $1.6
million consisting of $100,000 in cash and 300,000 shares of the Company's
common stock. Stock issued in the acquisition was valued at $5 per share based
on market prices near the date of acquisition with consideration given to the
one year required holding period on the shares issued. Paragon operates as a
licensed mortgage banker through nine offices in North and South Carolina. The
purchase price was allocated to the assets acquired and liabilities assumed
based on their fair values at the date of acquisition. The excess of the
purchase price over the fair value of net assets acquired of $1,630,000 has been
recorded as goodwill and is being amortized on a straight-line basis over seven
years.

On October 27, 1998, the Company acquired substantially all of the assets of the
finance operations in Alabama and Mississippi from Budget Financial Services,
Inc. ("Budget") for cash of $3 million. Budget operates in the consumer finance
business. The purchase was allocated to the assets acquired and liabilities
assumed based on their fair values at the date of acquisition. The excess of the
purchase price over the fair value of net assets acquired of $1,273,000 has been
recorded as goodwill and is being amortized on a straight-line basis over five
years.

                                       16
<PAGE>

During September and October 1998, the Company acquired substantially all of the
assets of two Arizona insurance agencies, Inter-Combined Agencies, Inc. ("ICA")
and National Insurance Centers, Inc. ("NIC") for cash of $1.8 million. ICA is in
the business of acting as agent for property and casualty insurance. NIC is in
the business of acting as agent for non-standard automobile insurance. The
purchase price in each of these acquisitions was allocated to the assets
acquired and liabilities assumed based on their fair values at the date of
acquisition. The combined excess of the purchase price over the fair value of
net assets acquired of $1,371,000 has been recorded as goodwill and is being
amortized on a straight-line basis over fifteen years.

The acquisitions were accounted for under the purchase method of accounting.
Accordingly, the results of operations of the acquired businesses are included
in the accompanying financial statements from the dates of acquisition. The
following table presents unaudited pro forma combined results of operations as
if the acquisitions had occurred at the beginning of each year presented. Such
pro forma amounts are not necessarily indicative of what the actual consolidated
results of operations might have been if the acquisitions had occurred at the
beginning of 1997.

                                                  1998                  1997
                                                  ----                  ----

Total revenues                               $ 34,200,000          $ 33,900,000
Net income (loss)                            $ (1,900,000)         $ (1,800,000)

Basic and Diluted                            $       (.50)         $       (.46)
earnings  per share



(3)    FINANCE RECEIVABLES

Finance receivables consist of the following at December 31, 1998 and 1997:

<TABLE>
<CAPTION>

                                                                   1998                         1997
                                                                   ----                         ----

<S>                                                          <C>                             <C>
Automobile Sales Contracts                                   $ 37,124,775                    48,098,657
Direct Loans                                                   27,852,566                    15,449,004
Mortgage Loans                                                 11,096,383                             -
Premium Finance Contracts                                       3,343,320                     4,010,608
Commercial Loans                                                1,267,742                             -
                                                             ------------                  ------------

    Total finance receivables                                  80,684,786                    67,558,269

Unearned interest                                             (11,914,393)                  (12,902,552)
Unearned insurance premiums, net                                 (275,476)                     (155,514)
Valuation discount for acquired loans                            (672,673)                            -
Bulk purchase discount                                           (601,973)                     (359,945)
Dealer hold back                                                 (639,660)                     (668,630)
Allowance for credit losses                                    (4,710,829)                   (4,809,400)
                                                             ------------                  ------------

Finance receivables, net                                     $ 61,869,782                    48,662,228
                                                             ============                  ============
</TABLE>


Consumer loans include bulk purchases of receivables, auto dealer receivables
under holdback arrangements, and small consumer loan receivables. With bulk
purchase arrangements, the Company typically purchases a group of receivables
from an auto dealer or other retailer at a discount to par based on management's
review and assessment of the portfolio to be purchased. This discount amount is
then maintained in an unearned income account to which losses on these loans are
charged. To the extent that losses from a bulk purchase exceed the purchase
discount, the allowance for credit losses will be charged. To the extent losses
experienced are less than the purchase discount, the remaining discount is
accreted into income. The amount of bulk purchased receivables, net of unearned
interest and insurance, and the related purchase discount outstanding were
approximately $5,659,000 and $602,000, respectively, at December 31, 1998 and
approximately $8,328,000 and $360,000, respectively, at December 31, 1997. With
holdback arrangements, an automobile dealer or other retailer will assign
receivables to the Company on a loan-by-loan basis, typically at par. The
Company will withhold a certain percentage of the proceeds, generally 5% to 10%,
as a dealer reserve to be used


                                       17
<PAGE>

to cover any losses which occur on these loans. The agreements are structured
such that all or a portion of these holdback amounts can be reclaimed by the
dealer based on the performance of the receivables. To the extent that losses
from these holdback receivables exceed the total remaining holdback amount for a
particular dealer, the allowance for credit losses will be charged. The amount
of holdback receivables, net of unearned interest and insurance, and the related
holdback amount outstanding were approximately $24,463,738 and $640,000,
respectively, at December 31, 1998 and approximately $31,593,000 and $669,000,
respectively, at December 31, 1997.

The valuation discount for acquired loans relates to our acquisition of four
finance offices from Budget. The amount of finance receivables, net of unearned
interest and insurance, and related valuation discount at December 31, 1998,
were $2,564,085 and $672,673.

At December 31, 1998, there were no significant concentrations of receivables in
any type of property or to one borrower. These receivables are pledged as
collateral for a line of credit agreement (see note 7).

Changes in the allowance for credit losses for the years ended December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>

                                                                             1998               1997
                                                                             ----               ----

          <S>                                                            <C>                   <C>
          Beginning balance                                              $4,809,400            2,195,000

          Provision for credit losses                                     4,046,460            6,579,932

          Charge-offs                                                    (4,307,260)          (4,129,313)
          Recoveries                                                        162,229              163,781
                                                                         ----------          -----------
          Net charge-offs                                                (4,145,031)          (3,965,532)
                                                                         ----------          -----------

          Ending balance                                                 $4,710,829            4,809,400
                                                                         ==========          ===========
</TABLE>


The Company's loan portfolio primarily consists of short term loans, the
majority of which are originated or renewed during the current year.
Accordingly, the Company estimates that fair value of the finance receivables is
not materially different from carrying value.


(4)    PREMISES AND EQUIPMENT

A summary of premises and equipment at December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>

                                                                                1998              1997
                                                                                ----              ----

           <S>                                                              <C>                <C>
           Leasehold improvements                                            $712,709           591,596
           Furniture and fixtures                                             806,668           558,566
           Equipment and automobiles                                        3,871,999         2,719,773
                                                                            ---------         ---------

                   Total cost                                               5,391,376         3,869,935
           Accumulated depreciation                                         2,547,623         1,866,148
                                                                            ---------         ---------

                   Net premises and equipment                              $2,843,753         2,003,787
                                                                           ==========         =========
</TABLE>


Depreciation expense was approximately $721,000 and $617,000 in 1998 and 1997,
respectively.


                                       18
<PAGE>



(5)    INTANGIBLE ASSETS

Intangible assets consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>

                                                                                 1998             1997
                                                                                 ----             ----

           <S>                                                              <C>               <C>
           Covenants not to compete                                         $ 118,495           118,494
           Goodwill and purchase premium                                    7,051,516         2,608,390
           Insurance expirations                                            3,114,363         2,657,399
                                                                            ---------         ---------

                   Total cost                                              10,284,374         5,384,283

           Less accumulated amortization                                    1,979,245         1,489,327
                                                                            ---------         ---------

           Intangible assets, net                                          $8,305,129         3,894,956
                                                                            =========         =========

</TABLE>

The majority of the intangibles were acquired by the Company in connection with
its acquisition of Thaxton Insurance, the acquisition of Paragon, and the
acquisition of four finance offices from Budget. Amortization expense was
approximately $503,000 and $341,000 in 1998 and 1997, respectively.


(6)    LEASES

The Company conducts all of its operations from leased facilities. It is
expected that in the normal course of business, leases that expire will be
renewed at the Company's option or replaced by other leases or acquisitions of
other properties. Total rental expense was approximately $801,000 in 1998 and
$662,000 in 1997. The future minimum lease payments under noncancelable
operating leases as of December 31, 1998, are as follows:


1999                          $  819,873
2000                             562,912
2001                             322,756
2002                             185,668
2003                              74,263
Thereafter                         6,251
                               ---------
Total minimum lease payments  $1,971,723
                              ==========


Four of the office buildings in which the Company conducts business are owned by
related parties. These premises are leased to the Company for a total monthly
rental of approximately $4,700.


                                       19
<PAGE>





(7)    NOTES PAYABLE AND NOTES PAYABLE TO AFFILIATES

At December 31, 1998 and 1997, notes payable consist of the following:

<TABLE>
<CAPTION>

                                                                                             1998          1997
                                                                                             ----          ----
<S>                                                                                   <C>           <C>
Lines of Credit                                                                       $46,950,000   $46,695,000
Warehouse credit lines for mortgage loans at various rates and maturities               3,638,220             -
Notes payable to individuals with varying maturity dates and rates ranging from
5 1/4% to 12%                                                                          10,281,246     3,160,577
Note payable to finance company collateralized by an aircraft, due in monthly
installments of $9,091 through July 2003 including interest at 8.99%                      408,583       477,545
Other                                                                                     866,160       737,944
                                                                                          -------       -------

Total notes payable                                                                   $62,144,209   $51,071,066
                                                                                      ===========   ===========


Note payable to affiliates, with varying maturity dates and rates ranging from
6.25% to 10%                                                                             $778,990    $1,015,358
                                                                                         ========    ==========
</TABLE>



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

                                  Year Ending
                                 December 31,                    Amount
                                 ------------                    ------
                                         1999               $11,042,241
                                         2000                 1,257,986
                                         2001                 2,513,734
                                         2002                 1,053,297
                                         2003                47,014,369
                                   Thereafter                    41,572
                                                             ----------

                                        Total               $62,923,199
                                                            ===========



At December 31, 1998, the Company maintained a line of credit agreement with a
commercial finance company for $92 million, maturing on October 31, 2003. At
December 31, 1998, the Company's net finance receivables would have allowed it
to borrow an additional $8.3 million against existing collateral. The
outstanding balance under this line of credit was $46,950,000 at December 31,
1998. There are five tranches under this agreement, Tranche A, B, C, D and F.
The total line of credit, amount of credit line available at December 31, 1998,
and interest rate for each Tranche is summarized below:

         Tranche A: $92,000,000; $54,833,000; 8.75% (Lender's prime rate + 1%)
         Tranche B: $ 10,000,000; $10,000,000; 12.75% (Lender's prime rate + 5%)
         Tranche C: $ 5,000,000; $ 3,829,000; 8.75% (Lender's prime rate + 1%)
         Tranche D: $ 10,000,000; $ 8,585,000; 9.75% (Lender's prime rate + 2%)
         Tranche F: $ 25,000,000; $17,803,000; 8.75% (Lender's prime rate + 1%)

The borrowing availability under certain Tranches is also limited by amounts
borrowed under other Tranches, outstanding receivables, insurance premiums
written, and in some cases, additional restrictions. As a result of these
additional restrictions, the Company had approximately $45 million total
potential borrowing capacity as of December 31, 1998.

The terms of the line of credit agreement provide that the finance receivables
are pledged as collateral for the amount outstanding. The agreement requires the
Company to maintain certain financial ratios at established levels and comply
with other non-financial requirements which may be amended from time to time.
Also, the Company may pay dividends up to 25% of the current year's net income.
As of December 31, 1998, the Company met all such ratios and requirements or
obtained waivers for any instances of non-compliance.

                                       20
<PAGE>

In 1997, the Company began issuing subordinated term notes to individual
investors in an intrastate public offering registered with the State of South
Carolina. The registration of a similar offering was declared effective by the
U.S. Securities and Exchange Commission in March 1998, and the Company now
offers notes under this federal registration. Maturity terms on these notes
range from daily to sixty months, and interest rates vary in accordance with
market rates. Notes currently being offered carry interest rates ranging from
5.25% to 8.0%. Approximately $11.1 million in notes were outstanding as of
December 31, 1998 and are reflected as notes payable to individuals and notes
payable to affiliates.


(8)    BENEFITS

In 1995 the Board of Directors of the Company adopted the Thaxton Group, Inc.
1995 Stock Incentive Plan (the "Incentive Plan"), under which 620,000 shares of
common stock were available for grants to key employees of the Company. Awards
under the Incentive Plan may include, but are not limited to, stock options,
stock appreciation rights, restricted stock, performance awards and other common
stock and common stock-based awards. Stock options granted under the Incentive
Plan may be either incentive stock options or non-qualified stock options.
During 1996, the Company granted 20,000 options to employees under the Incentive
Plan at an exercise price of $9.00 per share. 10,000 of these options have since
been cancelled The remaining options vest and become exercisable in installments
of 20% of the shares on each of the first, second, third, fourth, and fifth
anniversary dates of the grant. Options to purchase 4,000 shares were
exercisable at December 31, 1998. All options granted in 1996 have a contractual
maturity of ten years. The grant date fair value of options granted during 1996
was $3.90 per share as determined by using the Black-Scholes option pricing
model with the following assumptions: (1) risk-free interest rate of 6.25%; (2)
expected life of 5 years; (3) expected volatility of 10.40%; and (4) no expected
dividends. These options were immaterial to the proforma net income or earnings
per share in 1998 and 1997.

During 1995 the Board of Directors of the Company also adopted the Thaxton
Group, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"), under
which 100,000 shares of common stock are available for purchase by substantially
all employees. The Stock Purchase Plan enables eligible employees of the
Company, through payroll deductions, to purchase at twelve-month intervals
specified in the Stock Purchase Plan, shares of common stock at a 15% discount
from the lower of the fair market value of the common stock on the first day or
the last day of the year. The Stock Purchase Plan allows for employee
contributions up to 3% of the participant's annual compensation and limits the
aggregate fair value of common stock that may be purchased by a participant
during any calendar year to $25,000. As of December 31, 1998, 4,377 shares were
purchased under this Stock Purchase Plan. This plan was cancelled by the Board
of Directors in January, 1999.

Upon the closing of the Company's initial public offering on December 29, 1995,
a Senior Executive was awarded 100,000 shares of restricted common stock.
Subject to his continued employment by the Company, the award was scheduled to
vest in ten annual installments which commenced on the date of the grant. At
December 31, 1997, 20,000 shares had vested, 10,000 shares had been voluntarily
forfeited by executive, and 70,000 shares of the award remained subject to
restriction. In 1998, the executive voluntarily agreed to forfeit any remaining
rights or interest in these shares, and the Company repurchased his outstanding
20,000 shares at a price of $10 per share.


(9)    INCOME TAXES

Income tax expense consists of the following:

                    Current     Deferred    Total

1998      Federal  $(196,487)  (300,000)  (496,487)
          State             -          -          -
                     --------   --------   --------
                   $(196,487)  (300,000)  (496,487)
                   ==========  =========  =========

1997      Federal  $(727,994)      6,364  (721,630)
          State       (2,405)        341    (2,064)
                    ---------  ---------  ---------

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


                                       21
<PAGE>

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:

<TABLE>
<CAPTION>

                                                                    1998         1997
                                                                    ----         ----
<S>                                                              <C>          <C>
Statutory rate applied to income before income tax expense       $(537,371)   (758,209)
Increase (decrease) in income taxes resulting from:
     Goodwill amortization                                          43,904      43,909
     TICO Reinsurance Ltd. nontaxable income                       (93,160)   (109,847)
     State taxes, less related federal benefit                     (82,347)    (83,045)
     Valuation allowance adjustment                                 82,347      81,283
     Other                                                          90,140     102,215
                                                                  --------     -------

Income taxes                                                     $(496,487)  $(723,694)
                                                                  ========     ========





The effective tax rate was 31.4% and 32.5% for the years ended December 31, 1998
and 1997, respectively. The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and liabilities at December
31, 1998 and 1997 are presented below:


                                                                    1998              1997
                                                                    ----              ----
             Deferred tax assets:
                  Loan loss reserves                          $1,090,357           984,280
                  Federal net operating loss carryforwards       311,078                 -
                  State net operating loss carryforwards         163,630            81,283
                  Other                                           54,819           100,454
                                                                  ------           -------

             Total gross deferred tax asset                    1,619,884         1,166,017
             Less valuation allowance                            163,630            81,283
                                                                 -------            ------

             Net deferred tax assets                           1,456,254         1,084,734
                                                               ---------         ---------


             Deferred tax liabilities:
                 Prepaid insurance                             (123,112)         (209,799)
                 Depreciable basis of fixed assets             (162,417)         (139,417)
                 Deferred loan costs                           (313,971)         (250,279)
                 Intangible assets                             (266,486)         (232,115)
                 Other                                          (52,268)          (15,124)
                                                                --------          --------

             Total gross deferred tax liability                (918,254)         (846,734)
                                                               ---------         ---------

             Net deferred tax asset                             $538,000           238,000
                                                                ========           =======
</TABLE>


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

The change in the valuation allowance for 1998 and 1997 was an increase of
$82,347 and $81,283, respectively. The valuation allowance relates to certain
state net operating loss carryforwards. It is management's opinion that
realization of the net deferred tax asset is more likely than not based upon the
Company's history of taxable income and estimates of future taxable income. The
Company's income tax returns for 1994 and subsequent years are subject to review
by taxing authorities.


 (10)    PREFERRED STOCK

                                       22
<PAGE>

The Company issued three series of preferred stock during 1997, and two
additional series of preferred stock in 1998. 400,000 shares of 7.5% cumulative
redeemable convertible Series A preferred stock were authorized, and 178,014
were issued in a December 1997 public offering to existing shareholders. The
terms of the offering included the conversion of one share of common stock plus
$10 for two shares of Series A preferred stock.. For a five year conversion
period commencing January 1, 1998, each share of preferred stock can be
converted into one share of common stock. The Company may redeem all or a
portion of the outstanding shares of Series A stock at any time after December
31, 1999, for $15 per share. The Company repurchased and retired 3,000 shares of
Series A Preferred Stock in December 1998.

In December 1997, the Company, through a private placement, issued 27,076 shares
of 7.5% cumulative redeemable convertible Series B preferred stock. The terms of
this transaction involved the exchange of one share of common stock for one
share of preferred stock.. In July 1998, the Company, through a private
placement, exchanged all of the 27,076 shares of outstanding Series B Preferred
stock, plus 29,200 shares of common stock, for 56,276 shares of Cumulative
Series D preferred stock. The Series D preferred stock pays annual dividends of
$ .80 per share, and is redeemable at any time by the company at $10 per share.
Subsequent to year end, all of the shares of Series D Preferred Stock were
repurchased by the Company, and retired.

In December 1997, the Company converted a $500,000 subordinated note held by one
corporate investor into 50,000 shares of Series C cumulative redeemable
convertible preferred stock. The annual dividends attributable to this series
are $1 per share through December 31, 2000, and $1.80 per share, per annum,
thereafter. Each share of preferred stock can be converted into one share of
common stock after January 1, 1998. The Company may redeem all or a portion of
the outstanding shares of Series C stock at any time after December 31, 2000,
for $10 per share.

In December 1998, the Company, through a private placement, issued 800,000
shares of Cumulative Series E preferred stock for $10 per share. The stock pays
a variable rate dividend rate of prime minus 1% through October 31, 2003, and
prime plus 3% thereafter. The stock is redeemable by the Company at any time at
price of $10 per share.


(11)    EARNINGS PER SHARE INFORMATION


The following is a summary of the earnings per share calculation for the years
ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>

                                                                                 1998                    1997
                                                                                 ----                    ----

 BASIC
<S>                                                                         <C>                      <C>
Net income (loss)                                                           $(1,084,017)             $(1,506,333)
Less:  Dividends on preferred stock                                             258,289                    4,167
                                                                            -----------              -----------
 Net income applicable to common shareholders (numerator)                    (1,342,306)              (1,510,500)

Average common shares outstanding (denominator)                               3,802,759                3,913,083

Earnings (loss) per share -- basic                                          $     (0.35)                   (0.39)
                                                                            ===========              ===========


DILUTED
Net income (loss)                                                           $(1,084,017)              (1,506,333)
Less:  Dividends on preferred stock                                             258,289                    4,167
                                                                            -----------              -----------
Net income applicable to common shareholders (numerator)                     (1,342,306)              (1,510,500)
                                                                            -----------              -----------

Average common shares outstanding                                             3,802,759                3,913,083
Dilutive common stock assumed converted                                               -                      234
                                                                            -----------              -----------
Average diluted shares outstanding (denominator)                              3,802,759                3,913,317
                                                                            -----------              -----------

Earnings (loss) per share -- diluted                                        $     (0.35)                   (0.39)
                                                                            ===========              ===========
</TABLE>



(12)    SUBSEQUENT EVENTS

                                       23
<PAGE>

On February 1, 1999, the Company's CEO and majority shareholder purchased
approximately 144 consumer finance offices from FirstPlus Consumer Finance,
Inc., and operates those offices in Thaxton Investment Corporation ("TIC"), a
corporation set up for that purpose. Thaxton Investment Corp. is a private
corporation, and Mr. Thaxton is the sole shareholder. The Company provides
management services to TIC, and charges TIC a reasonable fee for those services.
TIC operates in seven states, four of which the Company also operates finance
branch offices within. Additionally, some of TIC's finance offices do business
using the "TICO" business name.

The Company has embarked on a program of repurchasing and retiring shares of its
stock. Since December 1998, approximately 121 thousand shares of stock, or
approximately 3% of the outstanding shares, have been repurchased. The shares
are being repurchased at $10 per share.


(13)  BUSINESS SEGMENTS

For the year ended December 31, 1998, the Company has adopted Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires the
presentation of descriptive information about reportable segments consistent
with that used by management of the Company to assess performance. Additionally,
SFAS No. 131 requires disclosure of certain information by geographic region.

The Company reports its results of operations in three primary segments;
consumer finance, mortgage banking and insurance. The consumer finance segment
provides financing to consumers with limited credit histories, low incomes or
past credit problems. Revenues in the consumer finance business are derived
primarily from interest and fees on loans, and the sale of credit related
insurance products to its customers. The Company's mortgage banking operations
are conducted through Paragon, a wholly-owned subsidiary acquired in November
1998. Paragon originates, closes and funds predominantly B and C credit quality
mortgage loans, which are warehoused until they can be packaged and sold to long
term investors. Paragon receives fee income from originating mortgages and loans
are generally sold at a premium to the permanent investor. The Company's
insurance operations consist of selling, on an agency basis, various lines of
automobile, property and casualty, life and accident and health insurance.
Revenue is generated through fees paid by the insurance for which business is
placed.

The following table summarizes certain financial information concerning the
Company's reportable operating segments for the years ended December 31, 1998
and 1997:
<TABLE>
<CAPTION>

                               Consumer    Mortgage
                                Finance     Banking   Insurance      Other                   Total
                       1998

      INCOME STATEMENT DATA
<S>                          <C>            <C>       <C>          <C>                  <C>
              Total revenue  16,182,000     917,000   6,013,000    169,000              23,281,000
        Net interest income   9,745,000     814,000                131,000              10,690,000
Provision for credit losses   4,046,000                                                  4,046,000
         Noninterest income   1,257,000     278,000   6,013,000      5,000               7,553,000

     Insurance premiums and
           commissions, net   1,142,000               5,449,000                          6,591,000
      Non interest expenses   7,457,000   1,178,000   7,008,000    134,000              15,777,000
           Depreciation and
               amortization     626,000      32,000     566,000                          1,224,000
                 Net income     (8,000)    (85,000)   (953,000)   (38,000)             (1,084,000)

         BALANCE SHEET DATA
               Total assets  55,871,000  12,967,000   9,017,000  1,141,000              78,996,000
     Loans, net of unearned
                     income  54,536,000  10,784,000              1,261,000              66,581,000
Allowance for credit losses   4,711,000                                                  4,711,000
                Intangibles   1,641,000   1,601,000   5,063,000                          8,305,000
</TABLE>

                                       24
<PAGE>


<TABLE>
<CAPTION>



                             Consumer    Mortgage     Insurance      Other                   Total
                                Finance     Banking


                       1997

      INCOME STATEMENT DATA
<S>                          <C>            <C>       <C>                               <C>
              Total revenue  16,219,000     518,000   5,847,000                         22,584,000
        Net interest income  10,870,000                                                 10,870,000
Provision for credit losses   6,580,000                                                  6,580,000
         Noninterest income     326,000     518,000   5,847,000          -               6,691,000
     Insurance premiums and     920,000           -   4,550,000          -               5,470,000
           commissions, net                             
      Non interest expenses   6,963,000     589,000   5,659,000                         13,211,000
           Depreciation and     498,000      18,000     442,000          -                 958,000
               amortization
                 Net income  (1,105,000)   (44,000)   (357,000)                        (1,506,000)

         BALANCE SHEET DATA
               Total assets  53,602,000     107,000   7,257,000                         60,966,000
     Loans, net of unearned  53,471,000                                                 53,471,000
                     income
Allowance for credit losses   4,809,000                                                  4,809,000
          Intangible Assets     294,000      14,000   3,587,000                          3,895,000
</TABLE>


                                       25

<PAGE>
   
                                    PART III


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

27     Financial Data Schedule
99     Independent Auditors Report for the year ended December 31, 1997





                                   SIGNATURES

                 In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                  THE THAXTON GROUP, INC.
                                  -----------------------
                                        (Registrant)

Date: April 28, 1999                                By:/s/ ALLAN F. ROSS
                                                    --------------------

                                                    Allan F. Ross
                                                    Vice  President and Chief
                                                    Financial Officer



                                     26