Faltering Subprime Car Lender Ousts Managers

TFC Enterprises Inc., a troubled Virginia subprime auto lender, has pushed out its entire executive management team in the wake of serious loan-quality problems.

TFC said Wednesday that chairman Robert S. Raley Jr. had taken the helm after the early retirements of CEO George Kouri, chief marketing officer Joseph Becka, chief operations officer Preston Gnagey, and chief financial officer Charles Johnston.

"The company could not afford that payroll any longer," Mr. Raley said in a telephone interview. He will act as CEO and will take over investment and lender relations.

Mr. Raley, who founded the Norfolk company with Mr. Kouri in 1977, returned to an active management role at TFC earlier this year after a few years of semiretirement.

Financial services company analyst Henry J. Coffey of J.C. Bradford & Co. described the shake-up at TFC as a downsizing. "They just don't need that big a staff to run that small a company," he said.

TFC said it will take a $1.8 million expense in the third quarter to settle the executives' employment contracts. But even with that charge, the firm expects to save $4 million before taxes in salaries and benefits over the life of the contracts, which expire at yearend 1999.

The company's most recent regulatory filing reveals that the board approved the management restructuring in June.

TFC, which has $178 million in assets, lost $364,000 in the second quarter. The company has been struggling with major credit problems since the third quarter of last year.

Mr. Coffey, who put a "sell" recommendation on TFC last spring, said he is now dropping coverage of the stock, as have most other analysts who once followed the company. TFC's stock has fallen from its initial offering price of $11.50 a share in December 1993 to just over $1.

"It's just a penny stock now," Mr. Coffey said.

TFC is one of several finance companies specializing in auto loans to credit-impaired customers that has recently reported faltering credit and disappointing earnings.

Others include MS Financial Inc., Eagle Finance Corp., Olympic Financial Ltd., General Acceptance Corp., and Monaco Finance Inc. Most of these companies went public a few years ago to take advantage of the growing market for subprime auto loans.

After raising $50 million in December 1993, TFC promptly expanded from its Norfolk headquarters to open centers in Jacksonville, Dallas, and San Diego. Analysts say TFC lost control of its underwriting standards during this expansion.

Its loan-loss provision - $1.3 million in the third quarter of 1995 - surged to $25 million in the fourth, causing a $12.3 million loss for that quarter and a $7 million loss for 1995.

TFC earned $376,000 in the first half of this year. But loan volume plunged 66%, from $163.1 million in the first half of 1995 to $55.3 million in the same period this year, as the company struggled to control its credit problems.

Net chargeoffs were running at an annualized rate of 25.81% of average contract receivables at the end of June, up from an annualized 11.77% a year earlier.

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