<PAGE>
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 September 30, 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 October 31, 1994
- -------------------------------------- -------------------------------
Common Stock, par value $100 per share 1,700 Shares
<PAGE>
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 Nine Months Ended September 30, 1994.
See Exhibit 19
Consolidated Statements of Financial Position:
September 30, 1994 and December 31, 1993
Consolidated Statements of Income:
Quarters and Nine Months ended September 30, 1994 and
September 30, 1993
Consolidated Statements of Cash Flows:
Nine Months Ended September 30, 1994 and September 30, 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 Nine
Months Ended September 30, 1994. See Exhibit 19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1994 describes legal proceedings pending against the
Company and numerous other defendants in connection with complaints
filed in the Circuit Court of Jefferson County, Alabama, and in the
U.S. District Court for the Middle District of Alabama, Southern
Division.
In May and July, 1994 two additional complaints alleging different
violations of Alabama consumer lending laws were filed in the
Circuit Court of Barbour County, Alabama, against the Company and
Voyager Guaranty Insurance Company. The plaintiff borrowers assert
that the Company and Voyager overcharged for credit life insurance
premiums and they seek to have the Court certify the action as a
class action. The plaintiffs have also requested that the Court
void all of the loans made to the plaintiffs, order refunds of all
payments on the loans, assess all penalties and other damages
provided by Alabama law, and award compensatory and punitive damages.
These actions are in their early stages and their outcome currently
is not determinable. Management believes these actions to be without
merit as to the Company and will vigorously contest them.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
19 Quarterly Report to Investors for the Nine Months Ended
September 30, 1994.
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
September 30,1994.
<PAGE>
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: November 2, 1994
<PAGE>
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
INDEX TO EXHIBITS
Exhibit No. Page No.
19 Quarterly Report to Investors for the
Nine Months Ended September 30, 1994 . . . . 4
27 Financial Data Schedule. . . . . . . . . . . . 13
<PAGE>
<PAGE>
Exhibit 19
1st
FRANKLIN
FINANCIAL
CORPORATION
QUARTERLY
REPORT TO INVESTORS
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1994
<PAGE>
MANAGEMENT'S LETTER
Total Assets of the Company increased by $7,147,636 from $125,472,170 at
December 31, 1993 to $132,619,806 at September 30, 1994 primarily due to
increases in loans outstanding and increases in cash and cash equivalents.
Net receivables (gross receivables less unearned finance charges) increased
$5,903,368 during the nine months just ended as compared to the prior
year-end due to increases in consumer loan demand and business generated in
new offices opened. The Company has opened five new branch offices during
1994, bringing the total number of branch offices to 117.
The Company's investment portfolio consists mainly of U.S. Treasury
bonds and Government Agency bonds held by the Company's insurance
subsidiaries. Management has designated all investment securities as
"available for sale". Any unrealized gain or loss is accounted for in the
Company's equity section, net of deferred taxes. Although investment
securities increased during the first nine months of 1994 from additional
funds invested by the insurance subsidiaries, volatility in bond market
values resulted in a $753,072 decrease, net of deferred taxes, in the
portfolio's fair market value during the period just ended as compared to
December 31, 1993.
Average net receivables were $112,284,484 during the nine months just
ended as compared to $97,036,288 during the same period a year ago. 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 $1,147,090 (19%) and $3,793,902 (22%) during
the quarter and nine months just ended as compared to the same periods in
1993 primarily due to the higher levels of average net receivables. Lower
borrowing rates also contributed to the increase in the interest income
margin. Although average borrowings increased, the lower borrowing rates
enabled the Company to keep the increase in interest expense to a minimum.
The higher level of average net receivables during the period just
ended also led to a $241,592 (9%) and $1,267,860 (17%) increase in net
insurance income for the quarter and nine month comparable periods. 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. Offsetting some of the increase in insurance income
during the current quarter was approximately $60,000 in property claims
filed by customers in south Alabama and south Georgia whom suffered losses
as a result of the devastating floods in July from tropical storm Alberto.
Provision for loan losses increased $75,311 (13%) and $357,619 (23%)
during the quarter and nine months just ended as compared to the same
periods a year ago primarily due to increases in loan losses. Net charge-
offs increased $153,824 (31%) and $475,198 (38%) during the comparable
periods mainly due to the aforementioned increase in average receivables
outstanding.
Additional personnel required to staff the new offices opened during
the current and prior year and annual cost-of-living and merit salary
increases, effective January 1 of each year, were the major factors causing
the $254,735 (7%) and $1,310,235 (12%) increase in personnel expense during
the comparable periods this year as compared to last year. Other factors
contributing to the increase were increases in accrued profit sharing
contribution expenses and employee incentive awards.
Occupancy expense increased $65,471 (8%) and $291,471 (12%) during the
comparable periods mainly due to rent expense related to new offices opened
and increased rent on leases renewed in existing branch offices. Other
additional overhead expenses related to new offices opened, such as
telephone, utilities and depreciation expense on fixed assets, also
contributed to the increase in occupancy expense.
Increases in advertising expenses, credit bureau dues, postage,
computer expenses and taxes and licenses were the main causes of the
$158,760 (12%) and $706,454 (17%) increase in Other Operating Expenses
during the quarter and nine months ended September 30, 1994 as compared
to the same periods a year ago.
Effective income tax rates were 31.8% and 27.1% for the quarters ended
September 30, 1994 and 1993 and 31.5% and 27.2% for the nine months just
ended as compared to the same period a year ago, 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 consolidated tax rate below statutory rates. The increase in the
effective rates for the quarter and nine months 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. During 1993, the utilization of loss carryforwards to offset capital
gains also contributed to the lower rates during that 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 $2,979,230 during the nine months just ended as compared to the
same period a year ago and collections on loans increased $12,027,263 over
the same period. In addition to the securities program, the Company has two
external sources of funds through the use of two Credit Agreements. One
agreement provides for available borrowings of $21,000,000. Available
borrowings were $21,000,000 and $8,800,000 at September 30, 1994 and
December 31, 1993, respectively, relating to this agreement. Another
agreement provides for an additional $2,000,000 for general operating
purposes, all of which was available September 30, 1994 and December 31,
1993. The Company had previously had a third credit agreement for $1,500,000
which matured during June 1994. Management believes the existing cash flow
generated by operations, proceeds from the sale of investment securities and
borrowings under the two current credit agreements will be adequate to meet
the Company's funding requirements for the foreseeable future. It therefore
chose not to renew the $1,500,000 credit agreement when it matured.
Liquidity was not adversely affected by delinquent accounts as the
percentage of outstanding receivables 60 days or more past due decreased
to 3.9% of receivables at September 30, 1994 from 4.0% of receivables at
December 31, 1993.
The Company's Quarterly Report to Investors for the Six Months Ended
June 30, 1994 describes legal proceedings pending against the Company and
numerous other defendants in connection with complaints filed in the Circuit
Court of Jefferson County, Alabama, and in the U.S. District Court for the
Middle District of Alabama, Southern Division.
In May and July, 1994 two additional complaints alleging different
violations of Alabama consumer lending laws were filed in the Circuit Court
of Barbour County, Alabama, against the Company and Voyager Guaranty
Insurance Company. The plaintiff borrowers assert that the Company and
Voyager overcharged for credit life insurance premiums and they seek to have
the Court certify the action as a class action. The plaintiffs have also
requested that the Court void all of the loans made to the plaintiffs, order
refunds of all payments on the loans, assess all penalties and other damages
provided by Alabama law, and award compensatory and punitive damages. These
actions are in their early stages and their outcome currently is not
determinable. Management believes these actions to be without merit as to
the Company and will vigorously contest them.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, December 31,
1994 1993
------------ -------------
(Unaudited) (Audited)
ASSETS
CASH AND CASH EQUIVALENTS. . . . . . . . $ 6,875,659 $ 5,826,065
LOANS, net . . . . . . . . . . . . . . . 103,453,793 97,485,170
INVESTMENT SECURITIES. . . . . . . . . . 12,939,087 12,764,567
OTHER ASSETS . . . . . . . . . . . . . . 9,351,267 9,396,368
------------ ------------
TOTAL ASSETS. . . . . . . . . . $132,619,806 $125,472,170
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
SENIOR DEBT. . . . . . . . . . . . . . . $ 62,107,046 $ 60,147,877
OTHER LIABILITIES. . . . . . . . . . . . 7,141,992 7,495,036
SUBORDINATED DEBT. . . . . . . . . . . . 21,212,182 20,855,733
------------ ------------
Total Liabilities . . . . . . . . . 90,461,220 88,498,646
------------ ------------
STOCKHOLDER'S EQUITY:
Common Stock . . . . . . . . . . . . . 170,000 170,000
Net Unrealized Gain (Loss) on
Investment Securities Available
for Sale. . . . . . . . . . . . . . (466,167) 286,905
Retained Earnings. . . . . . . . . . . 42,454,753 36,516,619
------------ ------------
Total Stockholder's Equity. . . . . 42,158,586 36,973,524
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY. . . . $132,619,806 $125,472,170
============ ============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30 September 30
------------ ------------
(Unaudited) (Unaudited)
1994 1993 1994 1993
---- ---- ---- ----
INTEREST INCOME. . . . . . $ 8,521,169 $ 7,238,345 $25,072,870 $20,857,959
INTEREST EXPENSE . . . . . 1,387,267 1,251,533 4,048,690 3,627,681
----------- ----------- ----------- -----------
NET INTEREST INCOME. . . . 7,133,902 5,986,812 21,024,180 17,230,278
Provision for Loan Losses 670,816 595,505 1,899,001 1,541,382
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,463,086 5,391,307 19,125,179 15,688,896
----------- ----------- ----------- -----------
NET INSURANCE INCOME . . . 2,885,753 2,644,161 8,677,432 7,409,572
----------- ----------- ----------- -----------
OTHER REVENUE. . . . . . . 97,913 66,796 234,419 216,745
----------- ----------- ----------- -----------
OTHER OPERATING EXPENSES:
Personnel Expense. . . . 3,879,937 3,625,202 11,838,369 10,528,134
Occupancy. . . . . . . . 928,679 863,208 2,738,300 2,446,829
Other. . . . . . . . . . 1,506,644 1,347,884 4,789,382 4,082,928
----------- ----------- ----------- -----------
Total . . . . . . . . 6,315,260 5,836,294 19,366,051 17,057,891
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 3,131,492 2,265,970 8,670,979 6,257,322
Provision for
Income Taxes. . 996,749 613,385 2,732,845 1,702,750
----------- ----------- ----------- -----------
NET INCOME . . . . . . . . $ 2,134,743 $1,652,585 $ 5,938,134 $ 4,554,572
=========== ========== =========== ===========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Nine Months Ended
September 30
------------
(Unaudited)
1994 1993
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . $ 5,938,134 $ 4,554,572
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for Loan Losses. . . . . . . 1,899,001 1,541,382
Depreciation and Amortization. . . . . 715,054 655,326
Other, net . . . . . . . . . . . . . . (24,225) (245,761)
(Increase) Decrease in
Miscellaneous assets. . . . . . . . . 200,708 (312,765)
(Decrease) in Accounts Payable and
Accrued Expenses . . . . . . . . . . (353,044) (598,591)
------------ -----------
Net Cash Provided by Operating
Activities . . . . . . . . . . . . 8,375,628 5,594,163
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans Originated or purchased. . . . (70,060,897) (60,236,861)
Loan Payments. . . . . . . . . . . . 62,193,273 50,166,010
Purchases of marketable
debt securities. . . . . . . . . . (1,465,543) (9,769,041)
Sales of marketable securities . . . 103,897 6,151,337
Redemptions of securities. . . . . . 300,000 --
Principal payments on securities . . -- 47,660
Other, net . . . . . . . . . . . . . (712,382) (595,212)
------------ -----------
Net Cash Provided by Operating
Activities. . . . . . . . . . . . (9,641,652) (14,236,107)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Senior Debt. . . . . . . 1,959,169 7,102,901
Subordinated Debt Issued . . . . . . 3,701,101 3,799,460
Subordinated Debt redeemed . . . . . (3,344,652) (3,910,268)
------------ -----------
Net Cash Provided by Financing
Activities. . . . . . . . . . . . 2,315,618 6,992,093
------------ -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . . . 1,049,594 (1,649,851)
CASH AND CASH EQUIVALENTS, beginning . . . 5,826,065 8,573,140
------------ -----------
CASH AND CASH EQUIVALENTS, ending. . . . . $ 6,875,659 $ 6,923,289
============ ===========
Cash Paid during the period for:
Interest. . . . . . . $ 4,007,256 $ 3,551,634
Income Taxes. . . . . 2,512,317 1,816,659
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
-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 September 30, 1994, and December 31,
1993, and the results of its operations and its cash flows for the nine
months ended September 30, 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 nine months ended September 30, 1994,
are not necessarily indicative of the results to be expected for the
full fiscal year.
<PAGE>
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 Joe Seale
Robert Carnes Judy Landon Bob Seawright
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 CarrolIton 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 Richmond Hill
Eufaula Conyers Rome
Florence Cordele Royston
Gadsden Cornelia Savannah
Huntsville Covington Statesboro
Jasper Cumming Swainsboro
Ozark Dallas Sylvania
Prattville Douglas Sylvester
Russellville Douglasville Thomaston
Scottsboro Eastman Thomson
Selma Elberton Tifton
Sylacauga Ellijay Toccoa
Troy Forsyth Valdosta
Tuscaloosa Fort Valley Vidalia
Gainesville Warner Robins
Georgia Offices: Garden City Washington
- --------------- Greensboro Winder
Adel Griffin
Albany Hartwell South Carolina Offices
Alma Hawkinsville ----------------------
Americus Hazlehurst Aiken
Athens Hinesville Anderson
Barnesville Hogansville Cayce
Baxley Jackson Clemson
Blue Ridge Jasper Easley
Bremen Jefferson Greenwood
Brunswick Jesup Laurens
Buford Lavonia Orangeburg
Butler Lawrenceville Seneca
Cairo Madison Union
Calhoun Manchester York
Canton McDonough
<PAGE>
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 LLP
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 6,875,659
<SECURITIES> 12,939,087
<RECEIVABLES> 132,224,824
<ALLOWANCES> 3,851,415
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,842,176
<DEPRECIATION> 4,346,129
<TOTAL-ASSETS> 132,619,806
<CURRENT-LIABILITIES> 69,249,038
<BONDS> 83,319,228
<COMMON> 170,000
0
0
<OTHER-SE> 41,988,586
<TOTAL-LIABILITY-AND-EQUITY> 132,619,806
<SALES> 0
<TOTAL-REVENUES> 36,576,454
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21,957,784
<LOSS-PROVISION> 1,899,001
<INTEREST-EXPENSE> 4,048,690
<INCOME-PRETAX> 8,670,979
<INCOME-TAX> 2,732,845
<INCOME-CONTINUING> 5,938,845
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,938,134
<EPS-PRIMARY> 3,493.02
<EPS-DILUTED> 0
</TABLE>
