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


                                   FORM 10-QSB


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

                     FOR THE QUARTER ENDED SEPTEMBER 30, 1998

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

                  For the transition period from _____ to _____


                        Commission file number 333-42623

                             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 29270
              -----------------------------------------------------
                    (Address of principal executive offices)

                      Issuers telephone number: 803-285-4337


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

Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.



                                            OUTSTANDING AT
             CLASS                         OCTOBER  31, 1998
             -----                         -----------------
         COMMON  STOCK                        3,744,592                        


                                       1
<PAGE>
                             THE THAXTON GROUP, INC.

                                   FORM 10-QSB

                                SEPTEMBER 30, 1998
<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

                                                                          PAGE NO.
                                                                          -------
<S>                                                                              <C>
PART I      FINANCIAL INFORMATION

      Item 1.     Financial Statements

                  Consolidated Balance Sheet at September 30, 1998 and           3
                  December 31, 1997

                  Consolidated Statements of Income for the nine months ended
                  September 30, 1998 and 1997                                    4

                  Consolidated Statements of Income for the three months ended
                  September 30, 1998 and 1997                                    5

                  Consolidated Statements of Cash Flows for the nine months
                  ended September 30, 1998 and 1997                              6

                  Notes to Consolidated Financial Statements                     7

      Item 2.     Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                           10

PART II     OTHER INFORMATION

      Item 6.  Exhibits and Reports on Form 8-K                                 16
</TABLE>

                                       2
<PAGE>

PART I

ITEM 1.  FINANCIAL STATEMENTS


                             THE THAXTON GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS


                                                   September 30,   December 31,
                                                         1998         1997
                                                         ----         ----
Assets                                              (Unaudited)
------
Cash                                                $  469,095      1,162,793
Finance receivables, net                            48,431,349     48,662,228
Premises and equipment, net                          2,486,338      2,003,787
Accounts receivable                                  2,362,778      1,616,570
Repossessed automobiles                                788,849        744,030
Goodwill and other intangible assets                 3,651,960      3,894,956
Other assets                                         3,600,014      2,881,308
                                                    ----------     ----------
   Total assets                                     61,790,383     60,965,672
                                                    ==========     ==========

Liabilities and Stockholders' Equity
------------------------------------                                           
Liabilities
-----------
Accrued interest payable                               342,871        420,863
Notes payable                                       53,126,940     51,071,066
Notes payable to affiliates                            996,417      1,015,358
Accounts payable                                       928,879      1,357,739
Employee savings plan                                  883,828      1,045,533
Other liabilities                                      326,677         85,796
                                                    ----------     ----------
   Total liabilities                                56,605,612     54,996,355
                                                    ----------     ----------


Stockholders' Equity
--------------------
Preferred Stock $ .01 par value,
Series A:  400,000 shares authorized,
  178,014 shares issued and outstanding                  1,780          1,780
Series B:  27,076 shares authorized, issued and
  outstanding at December 31, 1997; no shares
  outstanding at September 30, 1998                         -             271
Series C: 50,000 shares authorized, issued and
  outstanding                                              500            500
Series D:  56,276 shares authorized, issued and
  outstanding at September 30, 1998; no shares             563             -
  outstanding at December 31, 1997


Common stock, $ .01 par value; authorized 50,000,000 
 shares;
  issued and outstanding 3,747,642 shares at 
   September 30,1998;  3,795,600 shares at
   December 31, 1997                                    37,476         37,956
Additional paid-in-capital                           4,281,442      4,521,354
Deferred stock award                                  (540,000)      (630,000)
Retained earnings                                    1,403,010      2,037,456
                                                     ---------      ---------
   Total stockholders' equity                        5,184,771      5,969,317
                                                     ---------      ---------

   Total liabilities and stockholders' equity      $61,790,383     60,965,672
                                                   ===========     ==========

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                             THE THAXTON GROUP, INC.
                  Consolidated Statements of Income (Unaudited)


                                                 Nine months Ended September 30,
                                                       1998          1997
                                                      ------       -------
Interest and fee income                            $11,265,996     11,837,182
Interest expense                                     3,703,073      3,706,770
                                                     ---------   ------------
   Net interest income                               7,562,923      8,130,412
Provision for credit losses                          2,952,167      3,885,424
                                                     ---------   ------------

Net interest income after provision for 
 credit losses                                       4,610,756      4,244,988

 Other income:
   Insurance premiums and commissions, net           4,841,760      3,961,939
   Other income                                        618,690        843,797
                                                     ---------   ------------
   Total other income                                5,460,450      4,805,736
                                                     ---------      ---------
Operating expenses:
   Compensation and employee benefits                5,255,529      4,538,859
   Telephone, postage, and supplies                  1,301,830      1,056,751
   Net occupancy                                     1,171,643      1,113,405
   Reinsurance claims expense                          227,305        276,952
   Insurance                                           190,002        211,148
   Collection expense                                  110,516        146,724
   Travel                                               96,202        103,681
   Professional fees                                   282,719        166,188
   Other                                             2,134,883      1,731,864
                                                     ---------    -----------
   Total operating expenses                         10,770,629      9,345,572
                                                    ----------     ----------

Income (loss) before income tax expense               (699,423)      (294,848)
Income tax expense (benefit)                          (227,313)      (112,042)
                                                    ----------     ----------

   Net income (loss)                                $ (472,110)      (182,806)
                                                    ==========     ==========

   Dividends on preferred stock                     $  162,335           -     
                                                      =========    ==========

   Net income (loss) applicable to common 
    shareholders                                     $(634,445)      (182,806)
                                                     =========     ==========
   Net income (loss) per common share  -- basic      $    (.17)          (.05)
                                                     =========     ==========

   Net income (loss) per common share  -- diluted    $    (.17)          (.05)
                                                     =========     ==========

   Weighted average shares outstanding -- basic      3,776,146      3,925,973
                                                     =========      =========

   Weighted average shares outstanding -- diluted    3,776,146      3,925,973
                                                     =========      =========


See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                             THE THAXTON GROUP, INC.
                  Consolidated Statements of Income (Unaudited)


                                                Three Months Ended September 30,
                                                         1998         1997
                                                        ------       ------
Interest and fee income                             $3,744,016      4,068,983
Interest expense                                     1,290,220      1,312,430
                                                     ---------   ------------
   Net interest income                               2,453,796      2,756,553
Provision for credit losses                            985,125      2,346,592
                                                     ---------   ------------

Net interest income after provision for credit
    losses                                           1,468,671        409,961
Other income:
   Insurance premiums and commissions, net           1,988,810      1,432,139
   Other income                                        145,557        194,245
                                                     ---------     ----------
   Total other income                                2,134,367      1,626,384
                                                     ---------      ---------
Operating expenses:
   Compensation and employee benefits                1,884,139      1,516,063
   Telephone, postage, and supplies                    471,670        395,246
   Net occupancy                                       361,259        398,541
   Reinsurance claims expense                          100,745         60,995
   Insurance                                           123,662         73,856
   Collection expense                                   30,585         64,331
   Travel                                               32,797         43,416
   Professional fees                                   167,982         79,782
   Other                                               781,833        614,875
                                                     ---------      ---------
   Total operating expenses                          3,954,672      3,247,105
                                                     ---------     ----------

Income (loss) before income tax expense               (351,634)    (1,210,760)

Income tax expense (benefit)                          (114,282)      (441,215)
                                                    ----------     ----------

   Net income (loss)                                $ (237,352)      (769,545)
                                                   ===========      =========

   Dividends on preferred stock                     $   57,133          -     
                                                     =========      =========

   Net income (loss) applicable to common
    shareholders                                     $(294,485)      (769,545)
                                                     =========      =========
   Net income (loss) per common share  -- basic      $    (.08)          (.20)
                                                     =========      =========

   Net income (loss) per common share  -- diluted    $    (.08)          (.20)
                                                     =========      =========

   Weighted average shares outstanding -- basic      3,756,768      3,923,632
                                                     =========      =========

   Weighted average shares outstanding -- diluted    3,756,768      3,923,632
                                                    ==========      =========


See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                             THE THAXTON GROUP, INC.
                Consolidated Statements of Cash Flows (Unaudited)
                  Nine months ended September 30, 1998 and 1997




                                                       1998           1997
                                                       ----           ----
Cash flows from operating activities               $ 1,328,445      4,286,969
Cash flows from investing activities                (3,746,641)   (10,886,844)
Cash flows from financing activities                 1,724,498      6,861,932

Net increase (decrease) in cash                       (693,698)       262,057

Cash  at beginning of period                         1,162,793        421,465

Cash at end of Period                               $  469,095        683,522


                                       6
<PAGE>

                             THE THAXTON GROUP, INC.
              Notes to Consolidated Financial Statements (Unaudited)
                           September 30, 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 branches in South Carolina, North Carolina,
Georgia, Virginia and Tennessee. The Company is a diversified consumer finance
company that is engaged primarily in purchasing and servicing retail installment
contracts purchased from independent used car dealers and making and servicing
personal loans to borrowers with limited credit histories, low incomes or past
credit problems. The Company also offers insurance premium financing to such
borrowers and sells, on an agency basis, various lines of automobile, property 
and casualty, life and accident and health insurance, and also sells various 
insurance products (primarily credit life and credit accident and health) in 
conjunction with the purchase of automobile sales contracts or the making of 
direct loans. In addition, the Company is also engaged in mortgage banking, 
originating mortgage loans to individuals. The Company sells substantially all 
mortgage loans it originates to independent third parties. All significant 
intercompany accounts and transactions have been eliminated in consolidation.


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

Information with respect to September 30, 1998 and 1997, and the periods then
ended, have not been audited by the Company's independent auditors, but in the
opinion of management, reflect all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the operations of
the Company. Users of financial information produced for interim periods are
encouraged to refer to the footnotes contained in the Company's Annual Report on
Form 10-KSB when reviewing interim financial statements. The results of
operations for the nine months and quarter ended September 30, 1998 are not
necessarily indicative of results to be expected for the entire fiscal year.


Effective January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") Number 130, "Reporting Comprehensive 
Income." SFAS No. 130 establishes standards for reporting comprehensive income 
and its components in a full set of general purpose financial statements. The 
objective of the statement is to report a measure of all changes in equity of an
enterprise that result from transactions and other economic events during the 
period other than transactions with owners. Comprehensive income is divided into
net income and other comprehensive income. Adoption of SFAS No. 130 will not 
change total stockholders' equity as previously reported. The Company's adoption
of SFAS No. 130 had no effect on the presentation of income in the Company's 
financial statements for the periods ending September 30, 1998 and 1997, as 
comprehensive income equals net income.


                                       7
<PAGE>
 (2)  Finance Receivables

Finance receivables consist of the following at September 30, 1998 and December
31,1997:

                                                 September 30,   December 31,
                                                      1998          1997
                                                     ------       -------

        Automobile Sales Contracts                 $41,110,636     48,098,657
        Direct Loans                                20,432,439     15,449,004
        Premium Finance Contracts                    4,154,982      4,010,608
        Commercial                                     628,513              0  
                                                    ----------     ----------
           Total finance receivables                66,326,570     67,558,269

        Unearned interest                          (11,455,566)   (12,902,552)
        Unearned insurance premiums, net              (136,659)      (155,514)
        Bulk purchase discount                        (633,657)      (359,945)
        Dealer hold back                              (851,539)      (668,630)
        Allowance for credit losses                 (4,817,800)    (4,809,400)
                                                    ----------     ----------
        Finance receivables, net                   $48,431,349     48,662,228
                                                   ===========     ==========



     Consumer loans include bulk purchases of receivables, automobile sales
     contracts under holdback arrangements, and small consumer loan receivables.
     With bulk purchase arrangements, the Company typically purchases a group of
     receivables from an automobile dealer 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 $6,739,000 and 
     $634,000, respectively, at September 30, 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 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 $26,970,000 and
     $852,000, respectively, at September 30, 1998 and approximately $31,593,000
     and $669,000, respectively, at December 31, 1997.

     At September 30, 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 3).

                                       8
<PAGE>

     Changes in the allowance for credit losses for the nine months ended
     September 30, 1998 and 1997 are as follows:

                                                       1998           1997
                                                       ----           ----
        Beginning balance                         $  4,809,400      2,195,000
        Provision for credit losses                  2,952,167      3,885,424
        Charge-offs                                 (3,076,077)    (2,767,660)
        Recoveries                                     132,310        127,916
                                                    ----------     ----------
        Net charge-offs                             (2,943,767)    (2,639,744)
                                                   -----------    -----------
        Ending balance                            $  4,817,800      3,440,680
                                                  ============     ==========

     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.

(3)   Notes Payable
      -------------


At September 30, 1998, the Company maintained a revolving credit facility with a
commercial finance company for $100 million, maturing on August 31, 1999. The 
outstanding balance under this facility was $42,713,000 at September 30,
1998. At September 30, 1998, the Company's net finance receivables would have 
allowed it to borrow an additional $8.9 million against existing collateral. 
There are six tranches under this facility, Tranches A, B, C, D, E and F. The 
total line of credit, amount of credit line available at September 30, 1998, and
interest rate for each Tranche is summarized below:


      Tranche A: $100,000,000; $57,428,000; 9.5% (Lender's prime rate + 1%)
      Tranche  B: $ 10,000,000; $10,000,000; 13.5% (Lender's prime rate + 5%)
      Tranche  C: $ 5,000,000; $ 4,859,000; 9.5% (Lender's prime rate +1%)
      Tranche  D: $ 10,000,000; $10,000,000; 10.5% (Lender's prime rate + 2%)
      Tranche  E: $ 7,000,000; $ 7,000,000; 13.5% (Lender's prime rate + 5%)
      Tranche  F: $ 25,000,000; $25,000,000; 9.5% (Lender's prime rate + 1%)


The borrowing availability under certain tranches is also limited by amounts
borrowed under other tranches, outstanding receivables, insurance policies
written, and in some cases, additional restrictions.

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.
As of September 30, 1998, the Company met all such ratios and requirements or
had obtained waivers for any instances of non-compliance.



(4)  Deferred Stock Award
     --------------------

One of the Company's executive officers has notified the Company that he does
not intend to accept 10,000 shares of common stock previously granted under the
Company's deferred stock compensation plan which were scheduled to vest on
December 30, 1998. Accordingly, no compensation expense related to the vesting
of those shares has been recognized for the period ended September 30, 1998. The
common stock, paid-in-capital, and deferred stock award accounts have been
adjusted to reflect cancellation of those shares.

                                       9
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


                                       10
<PAGE>

PROFITABILITY

The following table sets forth certain data relating to the Company's
profitability.


                           For the Nine months           For the Three Months
                             Ended September 30            Ended September 30 
                         -----------------------         -------------------
                                1998         1997        1998       1997
                                ----         ----        ----       ----

Average Net Finance                                                
Receivables (1)              $52,047,746  $52,478,778  $52,782,750  $55,348,806
Average notes payable         44,997,663   45,038,305   45,988,969   47,026,029

Interest and fee income       11,263,334   11,779,303    3,743,266    4,004,367
Interest expense (2)           3,254,326    3,315,055    1,141,765    1,181,139
                               ---------    ---------    ---------    ---------
Net interest income            8,009,008    8,464,248    2,601,501    2,823,228
                             ===========   ==========   ==========   ==========
Average interest rate                                                
earned (1)                         28.85%       29.93%       28.37%       28.94%
Average interest rate paid                                                  
(1)                                 9.64         9.81         9.93        10.05
                                    ----        -----         ----        -----
Net interest spread                19.21        20.12        18.44        18.89
                             ===========   ==========   ==========   ==========
Net interest margin (3)            20.52%       21.51%       19.71%       20.40%
------------
(1)   Averages are computed using month-end balances during the periods
      presented.
(2)   Excludes interest income and expense earned and incurred by the Company's 
      insurance agency subsidiary.
(3)   Net interest margin represents net interest income divided by average Net
      Finance Receivables.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

Finance Receivables at September 30, 1998 were $66,326,570 versus $70,990,704 at
September 30, 1997, an 8% decrease. The decline is due primarily to a decline in
volume associated with the tightened underwriting policies instituted in the 
third quarter of 1997 designed to reduce credit losses.

Unearned income at September 30, 1998 was $11,592,225 versus $14,066,851 at
September 30, 1997, an 18% decrease which was directly related to the lower
receivable level. The provision for credit losses established for the nine
months ended September 30, 1998 was $2,952,167 versus $3,885,424 for the same
period in 1997, and the allowance for credit losses increased to $4,817,800 at
September 30, 1998, from $3,440,680 at September 30, 1997. The increase in the
provision, and the corresponding increase in the allowance for credit loss 
balance, is due to the Company's strengthening of its allowance for credit 
losses in response to higher than expected loan losses. The allowance for credit
losses as a percentage of average Net Finance Receivables increased to 9.26% at
September 30, 1998, from 6.04% at September 30, 1997.

Interest and fee income for the nine months ended September 30, 1998 was
$11,265,996, versus $11,837,182 for the nine months ended September 30, 1997, a
10% decrease. This decrease is the result of lower average earning receivables
in 1998 due to tightened underwriting established in the third quarter of 1997
and a corresponding increase in the average age of the portfolio. Interest
expense decreased slightly to $3,703,073 for the nine months ended September 30,
1998 versus $3,706,770 for the nine months ended September 30, 1997, a decrease
of less than 1%, the direct result of a slightly lower level of average
borrowings. As a result, net interest income for the nine months ended September
30, 1998 decreased to $7,562,923 from $8,130,412 for the comparable period of
1997, a 7% decrease.

Insurance commissions net of insurance cost increased to $4,841,760 for the nine
months ended September 30, 1998 from $3,961,939 for the same period of 1997, due
to a higher penetration rate for the product. Other income decreased from
$843,797 at September 30, 1997, to $618,690 at September 30, 1998 due primarily
to a timing difference in the recognition of insurance profit sharing payments
from the Company's carriers.

                                       11
<PAGE>
Operating expenses increased to $10,770,629, for the nine months ended September
30, 1998 from $9,345,572 for the comparable period of 1997, a 15% increase, due
to additional expenses incurred as a result of a larger branch network and
increased home office expenses associated primarily with the Company's mortgage
banking business.


As a result of the above, the Company posted a $634,445 loss for the nine months
ended September 30, 1998, versus a $182,806 loss for the nine months ended
September 30, 1997.


Stockholders' equity decreased from $5,969,317 at December 31, 1997 to
$5,184,771 at September 30, 1998, a 9% decrease, as a result of a reduction in
retained earnings from after tax losses during the period combined with
preferred stock dividends paid and legal expenses associated with the preferred
stock offering.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

Interest and fee income for the three months ended September 30, 1998 was
$3,744,016, versus $4,068,983 for the three months ended September 30, 1997, a
13% decrease. This decrease is the result of lower average receivables in 1998
due to tightened underwriting established in the third quarter 1997. Interest
expense decreased to $1,290,220 for the three months ended September 30, 1998
versus $1,312,430 for the three months ended September 30, 1997, a 2% decrease,
the direct result of a lower level of borrowings brought about, in part, by a
lower level of outstandings. As a result, net interest income for the three
months ended September 30, 1998 decreased to $2,453,796 from $2,756,553 for the
comparable period of 1997, an 11% decrease.

Insurance commissions net of insurance cost increased to $1,988,810 for the
three months ended September 30, 1998 from $1,432,139 for the comparable period
of 1997, due to a higher penetration rate for the product. Other income
decreased from $194,245 for the three months ended September 30, 1997 to
$145,557 for the three months ended September 30, 1998 due, in part, to a timing
difference in the recognition of insurance profit sharing payments from the
Company's carriers.


Operating expenses increased from $3,247,105 for the three months ended
September 30, 1997 to $3,954,672 for the three months ended September 30, 1998,
a 22% increase, due to additional expenses incurred as a result of a larger
branch network and increased main office expenses associated primarily with the
Company's mortgage banking business.

As a result of the above, the Company posted a $237,352 loss for the three
months ended September 30, 1998, versus a $769,545 loss for the three months
ended September 30, 1997.

                                       12
<PAGE>
The following table sets forth the Company's allowance for credit losses at
September 30, 1998, and 1997 and the credit loss experience over the periods
presented.
<TABLE>
<CAPTION>

                                            For the Nine months           For the Three Months 
                                            Ended September 30,            Ended September 30,
                                           1998            1997           1998           1997
                                           ----            ----           ----           ----
<S>                                     <C>             <C>           <C>             <C>  

Net finance receivables(1)              $52,047,746      $56,923,85   $52,782,750     $56,923,853

Allowance for credit losses               4,817,800       3,440,680     4,817,800       3,440,680

Allowance for credit losses as a
percentage of  net finance
receivables (1)                                9.26%           6.04%         9.13%           6.04%

Dealer reserves and discounts on
bulk purchases                           $1,485,196       1,308,367    1,1485,196       1,308,367

Dealer reserves and discounts on
bulk purchases as percentage of
Automobile Sales Contracts at
period end(2)                                  4.54%           3.08%         4.54%           3.08%

Allowance for credit losses and
dealer reserves and discount on
bulk purchases as a percentage of
net finance receivables (1)                   12.11%           8.34%        11.94%           8.34%
                                                                                         
Provision for credit losses              $2,952,167       3,885,424       985,125       2,346,592

Charge-offs (net of recoveries) .         2,943,767       2,639,745       986,925       1,295,683

Charge-offs (net of recoveries)
as a percentage of average net
finance receivables (1)                        7.56%           6.71%         7.47%           9.36%
</TABLE>

------------
      (1)   Finance Receivable balances are presented net of unearned finance
            charges. Averages are computed using month-end balances of Net
            Finance Receivables during the period presented.
      (2)   Percentages are computed using Automobile Sales Contracts, net of
            unearned finance charges only.

The following table presents an allocation of the Company's reserves and
allowances for credit losses, by type of receivable. The allowance for credit
losses has been allocated on an approximate basis between Direct Loans and
Premium Finance Contracts because losses on Automobile Sales Contracts are
charged against dealer reserves if the originating dealer's Specific Reserve
Account is adequate to cover the loss. The entire allowance is, however,
available to absorb losses occurring on any type of finance receivable. The
allocation is not indicative of future losses.

                                                              At September 30,
                                                              ----------------
                                                             1998        1997
Dealer reserves and discounts on bulk                        ----        ----  
purchases on Automobile Sales Contracts                  $1,485,196   $1,308,367

Allowance for credit losses:

  Direct Loans                                            4,535,816    3,213,696

  Premium Finance Contracts                                 281,984      226,984
                                                            -------      -------
    Subtotal                                              4,817,800    3,440,680
                                                          ---------    ---------
    Total                                                $6,302,996   $4,749,047
                                                          =========    =========

                                       13
<PAGE>
The following table sets forth certain information concerning Automobile Sales
Contracts and Direct Loans at the end of the periods indicated:

                                                             At September 30,
                                                             ---------------
                                                           1998          1997
                                                           ----          ----
Automobile Sales Contracts and Direct Loans                             
contractually past due 90 days or more(1)                  $479,011     $484,772

Automobile Sales Contracts and Direct Loans (1)          49,226,412   51,692,115

Automobile Sales Contracts and Direct Loans                             
contractually past due 90 days or more as a                             
percentage of Automobile Sales  Contracts and                           
Direct Loans                                                    .97%        .94%
-------------------------
      (1) Finance receivable balances are presented net of unearned finance
charges, dealer reserves on Automobile Sales Contracts and discounts on bulk
purchases.

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

                                                            At September 30,
                                                            ----------------
                                                            1998        1997
                                                            ----        ----
Premium finance contracts contractually                           
past due 60 days or more(1)                                $220,234      $60,154

Premium finance contracts outstanding(1)                  4,022,738    3,923,371

Premium finance contracts contractually                           
past due 60 days or more as a percentage                          
of premium finance contracts                                   5.47%       1.53%
-------------------------------------------
(1) Finance receivable balances are presented net of unearned finance charges
and discounts on bulk purchases

LIQUIDITY AND CAPITAL RESOURCES


The Company generally finances its operations and new offices through cash flow
from operations and borrowings under a revolving credit facility extended by 
Capital Corporation ("Finova"). The primary tranche provides for advances of up 
to $100 million and the secondary tranches provides for advances from $5 million
to $25 million during their respective terms, all of which expire on August 31, 
1999, subject to the limitation that advances under each tranche may not exceed 
an amount equal to specified percentages of Net Finance Receivables. As of 
September 30, 1998, $42 million was outstanding under the facility and there was
$58 million available for additional borrowing subject to limits based upon the 
amount of available collateral. The interest rate for borrowings is the prime 
rate published by Citibank, N.A. (or other money center bank designated by 
Finova) plus one percent per annum for the primary tranche and ranges from plus 
one to five percent per annum for the secondary tranches. The revolving credit 
facility, amended on September 3, 1997, provides for a lower fixed percentage 
over prime for certain secondary tranches than did the previous agreement. The 
Subordinated Notes facility imposes several financial and other covenants, 
including leverage tests, dividend restrictions, and minimum net worth 
requirements. The Company does not believe these covenants will materially 
limit its business or its expansion strategy.


                                       14
<PAGE>

Management believes that the recent increase in the maximum borrowings available
under the facility, in addition to cash expected to be generated from 
operations, will provide the resources necessary to pursue the Company's 
business and growth strategy through 1998. The Company is currently 
investigating several options for raising additional funds to support growth in
future years.



RECENT ACQUISITION

On November 13, 1998, the Company exchanged 300,000 shares of its common stock
for all of the outstanding shares of Paragon, Inc., ("Paragon"), a North
Carolina corporation. The acquisition was accounted for using the purchase
method of accounting. Paragon, a mortgage banking company, originates, closes,
and sells residential mortgages, and has eight office locations operating under
the name of Paragon Lending. Paragon currently does business in eight states,
but plans to expand both the volume and geographic scope of its business. The
Company believes that Paragon compliments the Company's existing product lines, 
and enhances the Company's ability to generate revenue from its mortgage
businesses.

                                       15
<PAGE>

Part II
-------
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
          --------------------------------
(a)       EXHIBITS
          --------
          Exhibit # 27, Financial Data Schedule

(b)       REPORTS ON FORM 8-K
          -------------------
          There were no reports on Form 8-K during the quarter ended September
          30, 1998.






                                    SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


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


Date: November 23, 1998                            /S/JAMES D. THAXTON
                                                   -------------------
                                                   James D. Thaxton
                                                   President and Chief 
                                                   Executive Officer

Date: November 23, 1998                            /S/ALLAN F. ROSS
                                                   ----------------
                                                   Allan F. Ross
                                                   Vice President, Treasurer, 
                                                   Secretary, and
                                                   Chief Financial Officer

                                       16
<PAGE>
<TABLE>
<CAPTION>

                                INDEX TO EXHIBITS

EXHIBIT NO.                    DESCRIPTION                                         PAGE NO.
-----------                    -----------                                        --------

<S>                                                                               <C>                             

27                             Financial Data Schedule









</TABLE>


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