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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1994
OR
( ) 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 2-27985
-----------------------
1st Franklin Financial Corporation
A Georgia Corporation I.R.S. Employer No. 58-0521233
213 East Tugalo Street
Post Office Box 880
Toccoa, Georgia 30577
(706) 886-7571
-----------------------
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1994
- - -------------------------------------- -----------------------------
Common Stock, par value $100 per share 1,700 Shares
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
The following financial statements required hereunder are
incorporated by reference from the Company's Quarterly
Report to Investors for the Three Months Ended March 31,
1994. See Exhibit 20.1
Consolidated Statements of Financial Position:
March 31, 1994 and December 31, 1993
Consolidated Statements of Income:
Quarters Ended March 31, 1994 and March 31, 1993
Consolidated Statements of Cash Flows:
Quarters Ended March 31, 1994 and March 31, 1993
Notes to Consolidated Financial Statements
ITEM 2. Managements' Discussion and Analysis of Financial Condition
and Results of Operations.
The information required hereunder is set forth under
"Management's Letter" of the Company's Quarterly Report to
Investors for the Three Months Ended March 31, 1994. See
Exhibit 20.1
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
20.1 Quarterly Report to Investors for the Three
Months Ended March 31, 1994.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the
quarter ended March 31,1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
1st FRANKLIN FINANCIAL CORPORATION
----------------------------------
Registrant
Ben F. Cheek, III
-----------------
Chairman of Board
A. Roger Guimond
------------------------
Vice President and
Chief Financial Officer
Date: May 13, 1994
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1st FRANKLIN FINANCIAL CORPORATION
INDEX TO EXHIBITS
Exhibit No. Page No.
19 Quarterly Report to Investors for the Three Months Ended
March 31, 1994 . . . . . . . . . . . . . . . . . . . . . 4
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Exhibit 19
1st
FRANKLIN
FINANCIAL
CORPORATION
QUARTERLY
REPORT TO INVESTORS
FOR THE
THREE MONTHS ENDED
MARCH 31, 1994
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MANAGEMENT'S LETTER
Average net receivables (gross receivables less unearned finance charges)
were $109,326,776 during the quarter ended March 31, 1994 as compared to
$105,165,627 during the previous quarter ended December 31, 1993 and
$93,211,120 during the quarter ended March 31, 1993. Increases in consumer
loan demand and business generated in new offices opened in the prior year
were the main causes for the growth in average loans outstanding.
Cash and cash equivalents decreased $403,175 (7%) during the first quarter
of 1994 as compared to 1993 year-end. Funds were used to finance the
higher levels of average net receivables outstanding and to reduce other
liabilities. During February, the Company disbursed the 1993 employee
incentive bonus, which had accrued at December 31, 1993, thereby reducing
other liabilities.
The Company's investment portfolio consists mainly of U.S. Treasury bonds
and Government Agency bonds backed by the U.S. Government held by the
Company's insurance subsidiaries. Management has designated all investment
securities as being "available for sale". Any unrealized gain or loss is
booked against the Company's equity section, net of deferred taxes.
Although investment securities increased during the first quarter of 1994
due to funds invested by the insurance subsidiaries, volatility in bond
market values resulted in a $586,227 decrease in portfolio fair market
value during the quarter just ended as compared to December 31, 1993.
Total revenues increased 24% during the quarter ended March 31, 1994 as
compared to the same quarter in 1993 primarily due to increases in net
interest income. Net interest income (representing the margin between the
amount the Company earns on loans and investments and the amount the
Company pays on securities and other borrowings) increased $1,510,158 (27%)
during the quarter just ended as compared to 1993 primarily due to higher
levels of average net receivables outstanding. Lower overall borrowing
rates also contributed to the increase in the interest income margin.
The higher level of average net receivables during the first quarter of
1994 also led to a $441,875 (18%) increase in net insurance income.
Changes in net insurance income generally correspond to changes in the
level of average net receivables outstanding. Increases in average net
receivables normally lead to higher levels of insurance in force which
increases insurance income.
Net charge-offs increased $208,614 (63%) during the quarter just ended as
compared to the same period a year ago, mainly due to the aforementioned
increase in average receivables outstanding. This increase in net charge-
offs caused the Company's provision for loan losses to increase $157,807
(43%) during the comparable periods.
Additional personnel required to staff the new offices opened during the
prior year and annual cost-of-living and merit salary increases, effective
January 1 of each year, were the major factors causing the $771,573 (24%)
increase in personnel expense during the quarter ended March 31, 1994 as
compared to the same period in 1993. Other factors contributing to the
increase were increases in accrued profit sharing contribution expenses and
employee incentive awards.
Occupancy expense increased $107,130 (14%) during the comparable periods
mainly due to rent expense related to new offices opened during the prior
year and increased rent on leases renewed in existing branch offices .
Other additional overhead expenses related to offices opened during the
prior year, such as telephone, utilities and depreciation expense on fixed
assets, also contributed to the increase in occupancy expense.
Increases in advertising expenses, postage, computer expenses and taxes and
licenses were the main causes of the $232,417 (15%) increase in Other
Operating Expenses.
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Effective income tax rates were 31.8% and 30.9% for the quarters ended
March 31, 1994 and 1993, respectively. Certain tax benefits provided by
law to life insurance companies substantially reduce the life insurance
subsidiary's effective tax rate and thus decreases the Company's overall
tax rate below statutory rates. The increase in the effective rate for the
quarter just ended was mainly due to the Company and the property insurance
subsidiary, which are taxed at higher rates, earning a larger portion of
pretax income as compared to the prior year.
Liquidity requirements of the Company are financed through the collection
of receivables and through the issuance of public debt securities. Net
cash flows from financing activities, excluding bank borrowings, increased
$4,753,006 during the first quarter of 1994 as compared to the same period
a year ago and collections on loans increased $4,655,932 over the same
period. In addition to the securities program, the Company has three
external sources of funds through the use of three Credit Agreements. One
agreement provides for available borrowings of $21,000,000. Available
borrowings were $15,454,000 and $8,800,000 at March 31, 1994 and December
31, 1993, respectively, relating to this agreement. Another agreement
provides for an additional $1,500,000 for general operating purposes.
Available borrowings under this agreement were $1,500,000 and $1,377,444 at
March 31, 1994 and December 31, 1993, respectively. This $1,500,000
agreement has a maturity date of June 1994 and will not be renewed. During
the second quarter of 1993, the Company established a third line of credit
providing $2,000,000 for general operating purposes (all of which was
available at March 31, 1994). This $2,000,000 agreement will ultimately
replace the $1,500,000 agreement maturing in June, 1994.
Liquidity was not adversely affected by delinquent accounts as the
percentage of outstanding receivables 60 days or more past due decreased to
3.7% of receivables at March 31, 1994 from 4.0% of receivables at December
31, 1993.
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1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
March 31, December 31,
1994 1993
----------- ------------
(Unaudited) (Audited)
ASSETS
CASH AND CASH EQUIVALENTS. . . . . . . . $ 5,422,890 $ 5,826,065
LOANS, net . . . . . . . . . . . . . . . 97,547,283 97,485,170
INVESTMENT SECURITIES. . . . . . . . . . 12,859,509 12,764,567
OTHER ASSETS . . . . . . . . . . . . . . 8,964,129 9,396,368
------------- ------------
TOTAL ASSETS. . . . . . . . . . $ 124,793,811 $125,472,170
============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
SENIOR DEBT. . . . . . . . . . . . . . . $ 59,863,722 $ 60,147,877
OTHER LIABILITIES. . . . . . . . . . . . 5,837,338 7,495,036
SUBORDINATED DEBT. . . . . . . . . . . . 20,792,780 20,855,733
------------- ------------
Total Liabilities . . . . . . . . . 86,493,840 88,498,646
------------- ------------
STOCKHOLDER'S EQUITY:
Common Stock . . . . . . . . . . . . . 170,000 170,000
Net Unrealized Gain (Loss) on
Investment Securities Available
for Sale. . . . . . . . . . . . . . (299,322) 286,905
Retained Earnings. . . . . . . . . . . 38,429,293 36,516,619
------------- ------------
Total Stockholder's Equity. . . . . 38,299,971 36,973,524
------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY. . . . $ 124,793,811 $125,472,170
============= ============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
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1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31
-----------------------
(Unaudited)
1994 1993
---- ----
INTEREST INCOME. . . . . . . . . . . . . . . . . $ 8,376,564 $6,721,239
INTEREST EXPENSE . . . . . . . . . . . . . . . . 1,312,455 1,167,288
----------- ----------
NET INTEREST INCOME. . . . . . . . . . . . . . . 7,064,109 5,553,951
Provision for Loan Losses. . . . . . . . . . . 521,942 364,135
----------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . . . . . . . . 6,542,167 5,189,816
----------- ----------
NET INSURANCE INCOME . . . . . . . . . . . . . . 2,843,347 2,401,472
----------- ----------
OTHER REVENUE. . . . . . . . . . . . . . . . . . 75,382 63,658
----------- ----------
OTHER OPERATING EXPENSES:
Personnel Expense. . . . . . . . . . . . . . . 4,015,805 3,244,232
Occupancy. . . . . . . . . . . . . . . . . . . 873,969 766,839
Other . . . . . . . . . . . . . . . . . . . . 1,764,586 1,532,169
----------- ----------
Total . . . . . . . . . . . . . . . . . . . 6,654,360 5,543,240
----------- ----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . 2,806,536 2,111,706
Provision for Income Taxes . . . . . . . . . . 893,862 652,053
----------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . $ 1,912,674 $1,459,653
=========== ==========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
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1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended
March 31
------------------------
(Unaudited)
1994 1993
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . . . . $ 1,912,674 $ 1,459,653
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses . . . . . . . . . 521,942 364,135
Depreciation and Amortization . . . . . . . 232,781 209,946
Other, net. . . . . . . . . . . . . . . . . (15,388) (40,711)
Decrease in Miscellaneous assets. . . . . . 527,567 67,553
(Decrease) in Accounts Payable and
Accrued Expenses . . . . . . . . . . . . (1,657,698) (1,350,246)
----------- -----------
Net Cash Provided by Operating Activities 1,521,878 710,330
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans Originated or purchased . . . . . . . . . (21,127,626)(17,846,162)
Loan Payments . . . . . . . . . . . . . . . . . 20,543,571 15,887,639
Purchases of marketable debt securities . . . . (1,217,405) (4,102,403)
Sales of marketable securities. . . . . . . . . 103,897 1,287,234
Redemptions of securities . . . . . . . . . . . 300,000 --
Principal payments on securities. . . . . . . . -- 14,135
Other, net. . . . . . . . . . . . . . . . . . . (180,382) (180,576)
------------ -----------
Net Cash Provided by Operating Activities . (1,577,945) (4,940,133)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Senior Debt . . . . . . . . . . . . (284,155) 794,790
Subordinated Debt Issued. . . . . . . . . . . . 1,437,375 1,215,290
Subordinated Debt redeemed. . . . . . . . . . . (1,500,328) (1,251,275)
------------ -----------
Net Cash Provided by Financing Activities . (347,108) 758,805
------------ -----------
NET DECREASE (INCREASE) IN CASH
AND CASH EQUIVALENTS. . . . . . . . . . . . . . (403,175) (3,470,998)
CASH AND CASH EQUIVALENTS, beginning . . . . . . 5,826,065 8,573,140
----------- -----------
CASH AND CASH EQUIVALENTS, ending. . . . . . . . $ 5,422,890 $5,102,142
=========== ===========
Cash Paid during the period for: Interest. . . . $ 1,285,725 $1,147,291
Income Taxes. . 884,500 5,300
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
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-NOTES-
1. The accompanying interim financial information of 1st Franklin
Financial Corporation and subsidiaries (the Company) should be read
in conjunction with the annual financial statements and notes thereto
as of December 31, 1993 and for the years then ended included in the
Company's December 31, 1993 Annual Report. The Company is a wholly
owned subsidiary of 1st Franklin Corporation and therefore earnings
per share is not shown.
2. In the opinion of Management of the Company, the accompanying
consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
Company's financial position as of March 31, 1994, and December 31, 1993,
and the results of its operations and its cash flows for the three
months ended March 31, 1994 and 1993. While certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission, the Company believes that the
disclosures herein are adequate to make the information presented
not misleading.
3. The results of operations for the three months ended March 31, 1994,
are not necessarily indicative of the results to be expected for the
full fiscal year.
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BRANCH OPERATIONS
Jarrell Coffee . . . . . . . . . . . . . . . . . . . Vice President
Jack Coker . . . . . . . . . . . . . . . . . . . . . Vice President
Isabel Vickery . . . . . . . . . . . . . . . . . . . Vice President
SUPERVISORS
Richard Asmussen Donald Floyd Melvin Osley
Robert Canfield Jack Hobgood Bob Seawright
Robert Carnes Judy Landon Joe Seale
Donald Carter Tommy Lennon Timothy Schmotz
Mike Culpepper Steve Maze Gaines Snow
Jimmy Davis Dianne Moore Rick Woods
Tony Ellison Ronnie Morrow
OFFICES
Alabama Offices: Georgia Offices: Georgia Offices:
- - --------------- --------------- ---------------
Alexander City Carrollton McRae
Arab Cartersville Milledgeville
Athens Cedartown Monroe
Bessemer Chatsworth Montezuma
Birmingham Clarkesville Monticello
Clanton Claxton Moultrie
Cullman Clayton Nashville
Decatur Cleveland Newnan
Dothan Cochran Perry
Enterprise Commerce Rome
Eufaula Conyers Royston
Florence Cordele Savannah
Gadsden Cornelia Statesboro
Huntsville Covington Swainsboro
Jasper Cumming Sylvania
Ozark Dallas Sylvester
Prattville Douglas Thomaston
Russellville Douglasville Thomson
Scottsboro Eastman Tifton
Selma Elberton Toccoa
Sylacauga Ellijay Valdosta
Troy Forsyth Vidalia
Tuscaloosa Fort Valley Warner Robins
Gainesville Washington
Georgia Offices: Garden City Winder
- - -------------- Griffin
Adel Hartwell South Carolina Offices:
Albany Hawkinsville ----------------------
Alma Hazlehurst Aiken
Americus Hinesville Anderson
Athens Hogansville Cayce
Barnesville Jackson Clemson
Baxley Jasper Easley
Blue Ridge Jefferson Greenwood
Bremen Jesup Laurens
Brunswick Lavonia Orangeburg
Buford Lawrenceville Seneca
Butler Madison Union
Cairo Manchester York
Calhoun McDonough
Canton
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DIRECTORS
W. Richard Acree
President, Acree Oil Company
Ben F. Cheek, III
Chairman and Chief Executive Officer
1st Franklin Financial Corporation
Lorene M. Cheek
Homemaker
Jack D. Stovall
President, Stovall Building Supplies, Inc.
Dr. Robert E. Thompson
Physician, Toccoa Clinic
EXECUTIVE OFFICERS
Ben F. Cheek, III
Chairman and Chief Executive Officer
T. Bruce Childs
President and Chief Operating Officer
A. Roger Guimond
Vice President and Chief Financial Officer
Lynn E. Cox
Secretary
Linda L. Sessa
Treasurer
INVESTMENT CENTER
Lynn E. Cox
Account Executive
Phoebe P. Martin
Account Executive
Sandra N. Oliver
New Accounts
COUNSEL
Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
AUDITORS
Arthur Andersen & Co.
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
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