<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
------------------------------
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 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
(Exact name of registrant as specified in its charter)
Georgia 58-0521233
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
213 East Tugalo Street
Post Office Box 880
Toccoa, Georgia 30577
(Address of principal executive offices)
Registrant's telephone number, including area code: (706) 886-7571
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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 and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (X)
(Cover page 1 of 2 pages)
<PAGE>
State the aggregate market value of the voting stock held by nonaffiliated
of the Registrant: Not Applicable.
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 February 28, 1995
---------------------------- --------------------------------
Common Stock, $100 Par Value 1,700 shares
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Annual Report to security holders for the
fiscal year ended December 31, 1994 are incorporated by reference into
Parts I, II and IV of this Form 10-K.
(Cover page 2 of 2 pages)
<PAGE>
PART I
Item 1. BUSINESS:
The Company, Page 1; Business, Pages 5 - 12; and Financial
Statements, Pages 18-30 of Registrant's Annual Report to security
holders for the fiscal year ended December 31, 1994 are incorporated
herein by reference.
Item 2. PROPERTIES:
Paragraph 1 of The Company, Page 1; Footnote 7 (Commitments) of
Notes to Consolidated Financial Statements, Page 28; and map on
back cover of Registrant's Annual Report to security holders for
the fiscal year ended December 31, 1994 are incorporated herein by
reference.
Item 3. LEGAL PROCEEDINGS:
The Company has been named as defendant in the following legal
proceedings in the state of Alabama:
Annie E. Erkins, et al. v. 1st Franklin, et al.; Filed in the
United States District Court for the Northern District of
Alabama, Southern Division; Civil Action No. CV-94-N-2500-S.
This was a lawsuit originally filed in the Circuit Court for
Jefferson County in May, 1994 as a class action suit seeking
recovery for an alleged violation of the Alabama Mini-Code and
for fraud arising out of the practice of charging for non-
filing insurance premiums, charges for credit property
insurance and refinancing practices. This case has been
dismissed.
Princess Nobels, et al. v. 1st Franklin, et al.; Filed in the
United States District Court for the Middle District of Alabama,
Southern Division; Civil Action No. CV-94-T-699-N.
This is a class action pending in federal district court in
Montgomery. Alabama. The case was filed in July, 1994 alleging
that certain lending practices violated the federal Truth-in-
Lending Act and the federal Racketeer Influenced and Corrupt
Organizations Act. The Plaintiffs are filing an amendment in
which they express claims for liability arising out of the non-
filing insurance under the following theories: (a) Antitrust
violations; (b) Truth-in-Lending Act violations; (c) Fraud;
(d) RICO; (e) Breach of Contract; (f) Conversion. Plantiffs
are seeking to have this case certified as a nationwide class.
At the present, it is too early to reach any type of informed
assessment of the liability of the case. The case is being
vigorously defended.
Dorothy C. Jackson and Rudolph Jackson v. 1st Franklin Financial
Corporation and Voyager Guaranty Insurance Company; Filed in
Circuit Court for Barbour County, Alabama, Clayton Division;
Civil Action No. CV-94-052
This class action case attacked the practice of charging for
credit life insurance premiums based upon the total payments,
rather than for the amount financed, and also attacked the
practice of 1st Franklin's obtaining a commission on sales of
credit life insurance. The claims were based upon fraud,
unconsicionability, and breach of contract. Plantifffs sought
to have certified a state-wide class action. The case has been
dismissed.
<PAGE>
Carl J. White v. 1st Franklin Financial, et al.; Filed in
Circuit Court of Talladega County, Alabama; Civil Action No.
CV-94-374.
This case involves an individual claim of fraud against 1st
Franklin and Voyager Insurance Company arising out of an
allegation of fraud in connection with the sale of a policy.
The plaintiff has recently died, and the case has not been
revived on behalf of his estate. It is unclear whether or
not the case will proceed. It will be vigorously defended.
Mose Burks v. 1st Franklin, et al.; Filed May, 1994, in the
Circuit Court of Barbour County, Alabama, Clayton Division;
Civil Action No. CV-94-084.
This case alleges fraud in connection with the sale of credit
insurance and in connection with the refinancing of loans.
The case is being vigorously defended.
Karen Hilliary v. 1st Franklin Financial, et al.; Filed
September, 1994 in the Circuit Court of Bullock County, Alabama;
Civil Action No. CV-94-92.
This case alleges fraud in connection with the sale of credit
insurance and in connection with the refinancing of loans.
The case is being vigorously defended.
Robbie Martin, et al. v. 1st Franklin Financial, et al.; Filed
November, 1994 in the United States District Court for the Middle
District of Alabama, Southern Division; Civil Action
No. 94-T-1431-S.
This case alleges fraud and Mini-Code violations arising out
of the sale of non-filing insurance and loan refinancing. The
case is being vigorously defended.
James Russaw v. 1st Franklin Financial, et al.; Filed
February, 1995 in the Circuit Court for Barbour County, Alabama,
Clayton Division; Civil Action No. CV-95-023.
This case alleges fraud in connection with the sale of credit
insurance and in connection with the refinancing of loans. The
case is being vigorously defended.
These actions (except the two cases which have been dismissed) are
in their early stages and their outcome currently is not
determinable.
Other than ordinary routine litigation incidental to the finance
business, there are no other material pending legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not applicable.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS:
Source of Funds, Page 12 of Registrant's Annual Report to security
holders for the fiscal year ended December 31, 1994 is incorporated
herein by reference.
Item 6. SELECTED FINANCIAL DATA:
Selected Consolidated Financial Information, Page 4 of Registrant's
Annual Report to security holders for the fiscal year ended
December 31, 1994 is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Management's Discussion of Operations, Pages 13 - 16 of Registrant's
Annual Report to security holders for the fiscal year ended
December 31, 1994 is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Pages 18 - 30 of Registrant's Annual Report to security holders for
the fiscal year ended December 31, 1994 are incorporated herein by
reference.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:
Not applicable.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
DIRECTORS
---------
Director Since
and
Date on Which Position
Name of Director Age Term Will Expire With Company
---------------- --- ---------------- ------------
W. Richard Acree (1)(2) 67 Since 1970; None
When successor
elected and qualified
Ben F. Cheek, III (3)(4)(5) 58 Since 1967; Chairman of
When successor Board
elected and qualified
Lorene M. Cheek (2)(4)(6) 85 Since 1946; None
When successor
elected and qualified
Jack D. Stovall (1)(2) 59 Since 1983; None
When successor
elected and qualified
Robert E. Thompson (1)(2) 63 Since 1970; None
When successor
elected and qualified
__________________________________________________________________________
(1) Member of Audit Committee.
(2) Mr. Acree is President of Acree Oil Company, a distributor of
petroleum products in Northeast Georgia; Mrs. Cheek is an honorary
member of the Board of Trustees of Tallulah Falls School; Dr. Thompson
is a physician at Toccoa Clinic; and Mr. Stovall is President of
Stovall Building Supplies, Inc.
(3) Reference is made to the business experience of executive officers of
the Company as detailed below.
(4) Member of Executive Committee.
(5) Son of Lorene M. Cheek.
(6) Mother of Ben F. Cheek, III.
<PAGE>
EXECUTIVE OFFICERS
------------------
Name, Age, Position
and Family Relationship Business Experience
----------------------- -------------------
Ben F. Cheek, III, 58 Joined the Company in 1961 as attorney and became
Chairman of Board Vice President in 1962, President in 1972 and Chair-
man of Board in 1989.
T. Bruce Childs, 58 Joined the Company in 1958 and was named Vice
President President in charge of Operations in 1973 and
No Family Relationship President in 1989.
Lynn E. Cox, 37 Joined the Company in 1983 and became
Secretary Secretary in 1989.
No Family Relationship
A. Roger Guimond, 40 Joined the Company in 1976 as an accountant and
Vice President and became Chief Accounting Officer in 1978, Chief
Chief Financial Officer Officer in 1991 and Vice President in 1992.
No Family Relationship
Linda L. Sessa, 40 Joined the Company in 1984 and became
Treasurer Treasurer in 1989.
No Family Relationship
The term of office of each Executive Officer expires when a successor is
elected and qualified. There was no, nor is there presently any
arrangement or understanding between any officer and any other person
(except directors or officers of the registrant acting solely in their
capacities as such) pursuant to which the officer was selected.
No event such as bankruptcy, criminal proceedings or securities violation
proceeding has occurred within the past 5 years with regard to any
Director or Executive Officer of the Company.
<PAGE>
Item 11. EXECUTIVE COMPENSATION:
(b) Summary Compensation Table:
Other All
Name Annual Other
and Compen- Compen-
Principal Salary Bonus sation sation
Position Year $ $ $ $ *
-------- ---- ------- ------- ------- -------
Ben F. Cheek, III 1994 228,000 189,693 2,760 38,594
Chairman and 1993 216,000 154,653 2,867 44,268
CEO 1992 204,000 124,106 2,592 45,594
T. Bruce Childs 1994 210,000 188,973 4,682 31,071
President 1993 194,000 153,773 7,179 38,574
1992 178,000 123,066 4,683 34,878
A. Roger Guimond 1994 108,000 62,174 1,650 20,255
Vice President 1993 96,000 36,790 1,650 15,354
and CFO 1992 84,000 29,145 1,625 11,427
* Represents Company contributions to profit-sharing plan, and reported
compensation from premiums on life insurance policies for the benefit
of Ben F. Cheek, III in the amount of $3,816 for 1994, $5,984 for
1993 and $7,310 for 1992.
(g) Compensation of Directors:
Directors who are not employees of the Company receive $1,000 per year
for attending scheduled board meetings.
(k) Board Compensation Committee Report on Executive Compensation:
The Company has no official executive compensation committee. Ben F.
Cheek, III (Chairman of the Company) establishes the bases for all
executive compensation. The Company is a family owned business with
Ben F. Cheek, III being the majority stockholder.
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
(a) Security Ownership of Certain Beneficial Owners:
Name and Address of Amount and Nature of Percent
Beneficial Owner Title of Class Beneficial Ownership Of Class
------------------- -------------- --------------------- --------
Ben F. Cheek, III Common 1,160 Shares - Direct 68.24%
225 Valley Drive
Toccoa, Georgia 30577
John Russell Cheek Common 441 Shares - Direct 25.94%
181 Garland Road
Toccoa, Georgia 30577
(b) Security Ownership of Management:
Ownership listed below represents ownership in 1st Franklin Financial
Corporation, of (i) Directors and named Executive Officers of the
Company and (ii) all Directors and Executive Officers as a group:
Amount and Nature of Percent
Name Title of Class Beneficial Ownership Of Class
---- -------------- --------------------- --------
Ben F. Cheek, III Common Stock 1,160 Shares - Direct 68.24%
T. Bruce Childs Common Stock None None
A. Roger Guimond Common Stock None None
__________________________________________
All Directors and
Executive Officers
as a Group Common Stock 1,160 Shares - Direct 68.24%
(c) The Company knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The Company leases its Home Office building and print shop for a
total of $12,600 per month from Franklin Enterprises, Inc. under
leases which expire December 31, 2004. Franklin Enterprises, Inc.
is 66.67% owned by Ben F. Cheek, III, a director and executive
officer of the Company. In Management's opinion, these leases are
at rates which approximate those obtainable from independent third
parties.
Beneficial owners of the Company are also beneficial owners of
Liberty Bank & Trust ("Liberty"). The Company and Liberty have
management and data processing agreements whereby the Company
provides certain administrative and data processing services to
Liberty for a fee. Income recorded by the Company during the
three year period ended December 31, 1994 related to these
agreements was $63,800 per year which in Management's opinion
approximates the Company's actual cost of these services.
Liberty leases its office space and equipment from the Company
for $4,200 per month, which in Management's opinion are at rates
which approximate these obtainable from independent third parties.
At December 31, 1994, the Company maintained $300,000 of
certificates of deposit and $55,518 in a money market account
with Liberty at market rates and terms. The Company also had
$1,460,003 in demand deposits with Liberty at December 31, 1994.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(a) 1. Financial Statements:
Incorporated by reference from the Registrant's Annual Report to
security holders for the fiscal year ended December 31, 1994:
Report of Independent Public Accountants.
Consolidated Statements of Financial Position at
December 31, 1994 and 1993.
Consolidated Statements of Income and Retained Earnings for
the three years ended December 31, 1994.
Consolidated Statements of Cash Flows for the three years
ended December 31, 1994.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
None - Financial statement schedules are omitted because of the
absence of conditions under which they are required or because
the required information is given in the financial statements or
notes thereto.
3. Exhibits:
2. (a) Articles of Merger of 1st Franklin Corporation with
and into 1st Franklin Financial Corporation dated
December 31, 1994.
3. (a) Restated Articles of Incorporation as amended December 29,
1983 (incorporated herein by reference from Form 10-K for
the fiscal year ended December 31, 1983).
4. (a) Executed copy of Indenture dated October 31, 1984, covering
the Variable Rate Subordinated Debentures - Series 1
(incorporated herein by reference from Registration
Statement No. 2-94191, Exhibit 4a).
(b) Modification of Indenture dated March , 1995.
9. Not applicable.
10. (a) Credit Agreement dated May, 1993 between the registrant and
SouthTrust Bank of Georgia, N.A.. (Incorporated herein by
reference from Form 10-K for the fiscal year ended
December 31, 1993.)
(b) Revolving Credit Agreement dated October 1, 1985 as amended
November 10, 1986; March 1, 1988; August 31, 1989 and
May 1, 1990, among the registrant and the banks named
therein (Incorporated by reference to Exhibit 10 to the
registrant's Form SE dated November 9, 1990.)
<PAGE>
(c) Fifth Amendment to Revolving Credit Agreement dated
April 23, 1992. (Incorporated by reference to Exhibit
10(c) to the Registrant's Form SE dated November 5, 1992.)
(d) Sixth Amendment to Revolving Credit Agreement dated
July 20, 1992. (Incorporated by reference to Exhibit
10(d) to the Registrant's Form SE dated November 5, 1992.)
(e) Seventh Amendment to Revolving Credit Agreement dated
June 20, 1994.
(f) Merger of 1st Franklin Corporation with 1st Franklin
Financial Corporation Consent, Waiver and Eighth Amendment
to Revolving Credit and Term Loan Agreement.
11. Computation of Earnings per Share is self-evident from the
Consolidated Statement of Income and Retained Earnings in the
Registrant's Annual Report to Security Holders for the fiscal
year ended December 31, 1994, incorporated by reference herein.
12. Ratio of Earnings to Fixed Charges.
13. Registrant's Annual Report to security holders for fiscal year
ended December 31, 1994.
18. Not applicable.
19. Not applicable.
21. Subsidiaries of Registrant.
22. Not applicable.
23. Consent of Independent Public Accountants.
24. Not applicable.
27. Financial Data Schedule
28. Not applicable.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 30, 1995 By: Ben F. Cheek, III
--------------- ----------------------------------
Date Chairman of Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacity and on the dates indicated:
Signatures Title Date
---------- ----- ----
Ben F. Cheek, III Chairman of Board; March 30, 1995
-------------------------- Chief Executive
Officer
T. Bruce Childs President March 30, 1995
--------------------------
A. Roger Guimond Vice President; March 30, 1995
-------------------------- Chief Financial
Officer
W. Richard Acree Director March 30, 1995
--------------------------
Lorene M. Cheek Director March 30, 1995
--------------------------
Jack D. Stovall Director March 30, 1995
--------------------------
Robert E. Thompson Director March 30, 1995
--------------------------
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
(a) Except to the extent that the materials enumerated in (1) and/or
(2) below are specifically incorporated into this Form by reference
(in which case see Rule 12b-23b), every registrant which files an
annual report on this Form pursuant to Section 15(d) of the Act
shall furnish to the Commission for its information, at the time of
filing its report on this Form, four copies of the following:
<PAGE>
(1) Any annual report to security holders covering the registrant's
last fiscal year and
(2) Every proxy statement, form of proxy or other proxy soliciting
material sent to more than ten of the registrant's security
holders with respect to any annual or other meeting of security
holders.
(b) The foregoing material shall not be deemed to be "filed" with the
Commission or otherwise subject to the liabilities of Section 18 of
the Act, except to the extent that the registrant specifically
incorporates it in its annual report on this Form by reference.
(c) This Annual Report on Form 10-K incorporates by reference portions of
the Registrant's Annual Report to security holders for the fiscal year
ended December 31, 1994, which is filed as Exhibit 13 hereto. The
Registrant is a privately held corporation and therefore does not
distribute proxy statements or information statements.
<PAGE>
Exhibit 2(a)
ARTICLES OF MERGER
OF
1ST FRANKLIN CORPORATION
WITH AND INTO
1ST FRANKLIN FINANCIAL CORPORATION
Pursuant to the provisions of Sections 14-2-1101 and 14-2-1105
of the Georgia Business Corporation Code, 1st Franklin Financial
Corporation, a Georgia corporation ("Financial"), hereby adopts and
executes the following Articles of Merger:
I.
The Boards of Directors of Financial and 1st Franklin
Corporation ("Parent") approved and adopted on the date of these
Articles an Agreement and Plan of Merger providing for the merger
of Parent with and into Financial (the "Merger"). A copy of such
Agreement and Plan of Merger is attached as Exhibit A to these
Articles of Merger.
II.
The Shareholders of Financial and Parent duly approved the
Merger on the date of these Articles.
III.
The effective date and time of the Merger shall be December
31, 1994 at 5:00 p.m., Eastern time.
IN WITNESS WHEREOF, Financial, as the Corporation surviving
the Merger, has caused these Articles of Merger to be duly executed
in its name this 30th day of December, 1994.
ATTEST: 1ST FRANKLIN FINANCIAL CORPORATION
Lynn Cox By: Ben F. Cheek,III
--------------- -----------------
Secretary Chairman of Board
<PAGE>
Exhibit 4(b)
MODIFICATION OF INDENTURE
This Modification of Indenture, dated March 30, 1995, by and
among Columbus Bank and Trust Company, a bank and trust company
organized under the laws of the State of Georgia (the "Prior
Trustee"), whose corporate trust offices are located in Columbus,
Georgia; Synovus Trust Company, a trust company organized under the
laws of the State of Georgia (the "Successor Trustee"), whose
corporate trust offices are located in Columbus, Georgia; and
1st Franklin Financial Corporation, a Georgia corporation (the
"Company");
WITNESSETH:
WHEREAS, the Company and the predecessor to the Prior Trustee
entered into an Indenture dated as of October 31, 1984 (the
"Indenture"), pursuant to which the Company has issued and proposes
to issue Variable Rate Subordinated Debentures (the "Debentures");
and,
WHEREAS, the Successor Trustee is an "Affiliated Trust Company"
of the Prior Trustee within the meaning of the Georgia Affiliate
Transfer Act, O.C.G.A. Section 7-1-320 ff (the "Act"); and,
WHEREAS, the Prior Trustee has effected an "Affiliate Transfer,"
as defined in the Act, to the Successor Trustee, pursuant to which
the Successor Trustee has succeeded to all of the rights, powers,
privileges, appointments, accounts and designations of the Prior
Trustee regarding its obligations pursuant to the Indenture; and,
WHEREAS, the Prior Trustee has expressly agreed to remain liable
and responsible to beneficiaries of the Indenture and the Company
with respect to all actions of the Successor Trustee as if performed
by the Prior Trustee itself; and,
WHEREAS, the Company wishes to consent to the designation of the
Successor Trustee; and,
WHEREAS, the Company and the Successor Trustee desire to amend
the Indenture in connection therewith;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
ARTICLE 1.
AMENDMENT OF INDENTURE
Section 1.1 Amendment of Indenture. Pursuant to Section
9.01(4) of the Indenture, the sixth paragraph of Section 11.10 of the
Indenture, which provides as follows:
The Trustee shall always have a combined capital and
surplus of at least $10,000,000 as set forth in its most
recent published Annual Report of Condition
is hereby deleted in its entirety, and in lieu thereof the following
new sixth paragraph of Section 11.10 of the Indenture is hereby
adopted:
The Trustee:
(a) shall always have a combined capital and surplus of
at least $10,000,000 as set forth in its most recent
published Annual Report of Condition, or
(b) shall always have a combined capital and surplus of
at least $3,000,000 as set forth in its most recent
published Annual Report of Condition, be the
transferee of an Affiliate Transfer effected pursuant
to the Georgia Affiliate Transfer Act, O.C.G.A.
Section 7-1-320 ff, in which the transferor of such
Affiliate Transfer:
(i) shall agree with the Company that such
transferor shall remain liable and responsible
to the Company and the Holders with respect to
all actions or omissions of the transferee as if
performed by the transferor, and
(ii) shall have a combined capital and surplus of at
least $10,000,000, and
(iii) shall always remain an affiliate (as
defined in O.C.G.A. 7-1-320(2)) of the
Trustee.
<PAGE>
ARTICLE 2.
CONSENT TO SUCCESSOR TRUSTEE
Section 2.1 Consent. The Company hereby consents to the
designation of the Successor Trustee to serve as Successor Trustee
under the Indenture with all authority, rights and powers which are
vested in, and all duties and obligations which are binding on, the
Trustee under the Indenture, effective as of January 3, 1995
(the "Effective Time"). As used herein, "Business Day" means the day
on which the Successor Trustee is not required or authorized to
remain closed under applicable financial institutions regulations.
Section 2.2 Acceptance. The Successor Trustee hereby confirms
its appointment as Trustee under the Indenture pursuant to Section
7.08 of the Indenture, effective as of the Effective Time, and
pursuant to the Affiliate Transfer from the Prior Trustee, and
accepts the authority, rights, powers, trusts, immunities, duties and
obligations as Trustee under the Indenture, and hereby agrees to
perform such authority, rights, powers, trusts, immunities, duties
and obligations upon the terms and conditions set forth in the
Indenture.
Section 2.3 Further Assurances. The Prior Trustee hereby
agrees, upon reasonable request of the Successor Trustee, to execute,
acknowledge and deliver such further instruments of transfer and such
further assurances to do such other things as may reasonably be
required to vest and confirm more fully and certainly in the
Successor Trustee all the property, rights, powers, duties, trusts,
immunities and obligations of the Prior Trustee as Trustee under the
Indenture.
ARTICLE 3.
ASSURANCES BY PRIOR TRUSTEE
Section 3.1 Assurance by Prior Trustee. The Prior Trustee
hereby expressly agrees (i) that nothing contained herein shall
relieve the Prior Trustee of any liability with respect to any of its
acts and doings as fiduciary, and (ii) that it shall remain liable
and responsible to the Company and all Holders with respect to all
actions of the Successor Trustee as if performed by the Prior Trustee
itself. The assurances given herein shall continue in full force and
effect for so long as the Successor Trustee is Trustee hereunder and
remains an affiliated trust company of the Prior Trustee, as defined
pursuant to O.C.G.A. Section 7-1-320(2).
<PAGE>
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SUCCESSOR TRUSTEE
Section 4.1 Representations and Warranties of the Successor
Trustee. The Successor Trustee hereby represents and warrants that:
(a) The Successor Trustee is a trust company validly organized,
existing and doing business under the laws of the State of
Georgia, and authorized under such laws to exercise
corporate trust powers; and,
(b) The Successor Trustee has a combined capital and surplus
of at least $3,000,000 as set forth in its most recent
published Annual Report of Condition and is the transferee
of an Affiliate Transfer effected pursuant to the Georgia
Affiliate Transfer Act, O.C.G.A. Section 7-1-320 ff, in
which the Prior Trustee, as the transferor of such
Affiliate Transfer, has herein agreed with the Company
that such transferor shall remain liable and responsible
to the Company and the Holders with respect to all actions
of the Successor Trustee as if performed by the Prior
Trustee itself.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1 Representations and Warranties of the Company. The
Company hereby represents and warrants that:
(a) The Company is a corporation validly incorporated and
existing under the laws of the State of Georgia;
(b) the Indenture was validly and lawfully executed and
delivered by the Company, and the outstanding Debentures
were validly issued by the Company;
(c) No default or Event of Default or, to the best of its
knowledge, any event which with notice or the passage of
time or both would constitute an Event of Default under the
Indenture, has occurred and is continuing as of the date
hereof;
(d) A Registration Statement under the Securities Act of 1933,
as amended, is in effect with respect to the public
offering of the Debentures.
<PAGE>
ARTICLE 6.
MISCELLANEOUS
Section 6.1 Filings. The Prior Trustee and the Successor
Trustee each agrees to cooperate with the Company in its preparation
and filing of documents with the Securities and Exchange Commission
and any applicable state securities authorities, as deemed
appropriate by the Company, in connection with this Agreement and the
transactions contemplated thereby.
Section 6.2 Definitions. Terms not otherwise defined in this
Agreement shall have the meanings given thereto in the Indenture.
Section 6.3 Compensation. The Company agrees to pay to the
Successor Trustee reasonable compensation for the services it
provides as Successor Trustee and in such other capacities as to
which it may be appointed with respect to the Debentures. The
Company and the Successor Trustee may, from time to time, enter into
agreements specifying the amount, or containing provisions for
determining the amount, of compensation payable to the Successor
Trustee.
Section 6.4 Notices. Pursuant to Section 11.02 of the
Indenture, the Successor Trustee hereby designates the address set
forth below for any notices or communications to be given to the
Successor Trustee:
Synovus Trust Company
Post Office Box 120
Columbus, Georgia 31902-0120
Attn: Corporate Trust Department
The Prior Trustee hereby undertakes and covenants to
promptly forward to the Successor Trustee any materials or
communications intended for the Trustee under the Indenture which are
received by the Prior Trustee after the Effective Time.
Section 6.5 Counterparts. This Agreement may be executed in a
number of counterparts, each of which shall constitute an original,
but such counterparts shall together constitute one and the same
instrument.
Section 6.6 Preservation of Rights. Except as expressly
provided herein, nothing contained in this Agreement shall in any way
affect the obligations or rights of the Company, the Prior Trustee,
the Successor Trustee, or any Debenture holder under the Indenture.
<PAGE>
Section 6.7 Severability. In the event that any provision of
this Agreement shall be held invalid or unenforceable by any court of
competent jurisdiction, such holding shall not invalidate or render
unenforceable any other provision hereof.
Section 6.8 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Prior Trustee, the
Successor Trustee, the Company, and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
1ST FRANKLIN FINANCIAL CORPORATION
By: A. Roger Guimond
----------------------
Title: Vice President and CFO
[SEAL]
Attest:
Name: Judy O. Sheriff
-------------------
Title: Assistant Secretary
COLUMBUS BANK AND TRUST COMPANY
By: Alice H. Stagg
--------------
Title: Vice President
[SEAL]
Attest:
Name: Trisha H. Greer
------------------------
Title: Assistant Vice President
SYNOVUS TRUST COMPANY
By: Alice H. Stagg
--------------
Title: Vice President
[SEAL]
Attest:
Name: Trisha H. Greer
------------------------
Title: Assistant Vice President
<PAGE>
<PAGE>
Exhibit 10(e)
SEVENTH AMENDMENT TO REVOLVING CREDIT
AND TERM LOAN AGREEMENT
THIS SEVENTH AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT ("Seventh
Amendment"), dated as of June 20, 1994, among 1st FRANKLIN FINANCIAL
CORPORATION (formerly called "FRANKLIN DISCOUNT COMPANY"), a Georgia
corporation, as Borrower (the "Company"), CORESTATES BANK, N.A.*, a national
banking association (formerly called the Philadephia National Bank) ("PNB"),
NATIONAL WESTMINSTER BANK USA, a national banking association ("NatWest"),
SOUTHTRUST BANK OF GEORGIA, N.A., a national banking association , as
assignee of First American Bank of Georgia, N.A. ("SouthTrust"), and HARRIS
TRUST AND SAVINGS BANK, an Illinois banking corporation ("Harris"), as
lenders (collectively, the "Banks"), and CORESTATES BANK, N.A., a national
banking association, as Agent for the Banks (in such capacity, the "Agent"),
W I T N E S S E T H:
WHEREAS the Company, PNB, NatWest, United States Trust Company of New York,
a New York banking corporation ("U.S. Trust") and the Agent entered into a
Revolving Credit and Term Loan Agreement dated as of October 1, 1985, as
amended, by an Amendment to Revolving Credit and Term Loan Agreement dated as
of November 10, 1986 pursuant to which each said bank agreed to make Loans to
the Company as set forth therein; and
WHEREAS, U.S. Trust sold and assigned all of its right, title and interest in
and to its Loans under said Credit Agreement as so amended to Dai-Ichi Kangyo
Bank, Ltd. which, pursuant to the Second Amendment, Assignment and Assumption
Agreement dated March 1, 1988 to said Revolving Credit and Term Loan
Agreement, sold, assigned and transferred all of its right, title and
interest in its Loans under said Revolving Credit and Term Loan Agreement to
First American Bank of Georgia, N.A. ("FAB Georgia"); and
WHEREAS, SouthTrust is the assignee of FAB Georgia's right, title and
interest in its Loans under said Revolving Credit and Term Loan Agreement;
and
WHEREAS, said Revolving Credit and Term Loan Agreement was further amended
and extended by a Third Amendment to Revolving Credit and Term Loan Agreement
dated as of August 31, 1989, a Fourth Amendment to Revolving Credit and Term
Loan Agreement dated as of May 1, 1990, a Fifth Amendment and Extension
Agreement dated as of April 23, 1992 and a Sixth Amendment to Revolving
Credit and Term Loan Agreement dated as of July 20, 1992 (the "Sixth
Amendment"); and
WHEREAS, Harris was added as a lender under said Revolving Credit and Term
Loan Agreement pursuant to the Sixth Amendment (said Revolving Credit and
Term Loan Agreement as amended and extended, being referred to herein as the
"Credit Agreement"); and
-------------------------
* CoreStates Bank, N.A. also conducts business as Philadelphia National
Bank, as CoreStates First Pennsylvania Bank and as CoreStates Hamilton Bank
<PAGE>
WHEREAS, the Company, the Banks and the Agent desire to make certain
amendments to the Credit Agreement to extend the final termination date of
the Credit Agreement and the Banks' Commitments to December 31, 1999 and to
add an agreement relating to waiver of jury trial, all as more particularly
set forth herein;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the Company, the Banks and the Agent hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined
herein shall have the meanings given such terms in the Credit
Agreement.
2. The Company, the Banks and the Agent agree that, unless the
Banks' Commitments are terminated sooner in accordance with
Section 2.07 of the Credit Agreement, the termination date of the
Credit Agreement and of all of the Banks' Commitments thereunder
is hereby extended to be December 31, 1999. To that end, the
Credit Agreement is hereby amended as follows:
(a) The defined term "Commitment Termination Date" set forth in
Section 1.01 of the Credit Agreement, relating to Certain
Defined Terms, is hereby amended to read in its entirety
as follows:
"Commitment Termination Date" shall mean June 30 in
any year in which a written notice of termination is
given as provided in Section 2.07, but if no such
notice is given, then December 31, 1999.
(b) Section 2.07(c) of the Credit Agreement is hereby amended
to read in its entirety as follows:
(c) Termination of Commitment. Notwithstanding anything herein
contained to the contrary, unless the Banks and the Company
otherwise agree in writing, the Company's right to borrow
funds hereunder shall terminate, and the outstanding
balance of the Loans shall be paid in full, on December 31,
1999.
3. The Company hereby agrees to execute and deliver to the Agent a
Third Amended and Restated Revolving Credit Note substantially in
the form of Exhibit A-1 hereto payable to the order of each of
PNB, NatWest and SouthTrust and a First Amended and Restated
Revolving Credit Note substantially in the form of Exhibit A-2
hereto payable to the order of Harris, evidencing the Loans to be
made by the Banks to the Company in the amount of the Commitment
of each Bank and Harris, as amended hereby. The term "Notes" as
defined and used in the Agreement and as used herein shall, from
and after the date hereof, mean said Third Amended and Restated
Revolving Credit Notes and said First Amended and Restated
Revolving Credit Note, as said Notes may from time to time be
issued, amended, extended or supplemented.
<PAGE>
4. To induce the Banks and the Agent to enter into this Seventh
Amendment, the Company represents and warrants to each Bank and
to the Agent as follows:
(a) The Company has taken all corporate action necessary to
authorize the execution, delivery and performance of this
Seventh Amendment, the Third Amended Revolving Credit Notes
payable to the order of PNB, NatWest and SouthTrust and the
First Amended and Restated Revolving Credit Note payable to
the order of Harris. This Seventh Amendment and said Notes
are, or when executed by the Company and delivered to the
Agent will be, duly executed and constitute the valid and
legally binding obligations of the Company, enforceable
against the Company in accordance with their respective
terms. The Company hereby ratifies and confirms the
representations and warranties of the Company set forth in
Article 3 of the Credit Agreement as being true and correct
on the date hereof, as brought current pursuant to Section
10(a) of the Sixth Amendment; provided that the
representations and warranties which refer to the Form 10-K
shall be deemed to refer to the Company's most recent Form
10-K filed by the Company with the Security and Exchange
Commission and the representations and warranties which
refer to financial statements of the Company and the Parent
shall be deemed to refer to the most recent financial
statements furnished by the Company and the Parent to the
Banks.
5. To further induce the Banks and the Agent to enter in to this
Seventh Amendment, the Company agrees with the Banks and the
Agent as follows:
WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR
RELATED TO THE CREDIT AGREEMENT AS AMENDED BY THIS SEVENTH
AMENDMENT, THE NOTES OR THE RELATIONSHIP ESTABLISHED
THEREUNDER.
6. The effectiveness of this Seventh Amendment is subject to the
fulfillment of the conditions precedent to all Loans set forth in
Section 4.02 of the Credit Agreement and to the following
conditions precedent:
(a) The Agent shall have received from Messrs. Jones, Day,
Reavis and Pogue, counsel to the Company, five executed
copies of their opinion dated the date of this Seventh
Amendment, addressed to each of the Banks in care of the
Agent and substantially in the form annexed hereto as
Exhibit B;
(b) The Agent shall have received one Note (in the form of
Exhibit A-1 hereto annexed) for each Bank except Harris and
one Note (in the form of Exhibit A-2 hereto annexed) for
Harris, all dated the date of this Seventh Amendment and
duly executed by the Company;
(c) The Agent shall have received five copies of a Confirmation
of Guaranty substantially in the form of Exhibit C hereto
annexed (the "Confirmation") each dated the date of this
Seventh Amendment and duly executed by the Parent;
<PAGE>
(d) The Agent shall have received five certified copies of
resolutions of the Boards of Directors of the Parent and
the Company, respectively, authorizing the execution,
delivery and performance by the Parent of the Confirmation
and by the Company of this Seventh Amendment and the Notes
and the borrowings hereunder, which certificates shall
state that said resolutions are in full force and effect
without modification on the date of such certification.
7. All other terms and conditions of the Credit Agreement shall
remain unchanged and are hereby ratified and confirmed.
IN WITNESS WHEREOF, the undersigned have caused this Seventh Amendment to be
executed by their respective officers thereunto duly authorized as of the
date first above written in several counterparts, each of which is an
original and all of which are identical, and each of the counterparts hereof
so executed shall for all purposes be deemed to be an original.
1st FRANKLIN FINANCIAL CORPORATION
By: A. Roger Guimond
----------------------
Vice President and CFO
CORESTATES BANK, N.A. as SOUTHTRUST BANK OF GEORGIA, N.A.
a Bank and as Agent
By William E. Musselman By Kenneth E. Davis
-------------------- ----------------
A.V.P V.P.
NATIONAL WESTMINSTER BANK HARRIS TRUST AND SAVINGS BANK
USA
By Mark Sicinski By Jerome P. Crokin
------------- ----------------
A.V.P V.P.
<PAGE>
EXHIBIT A-1
Third Amended and Restated
Revolving Credit Note
$___________________ Philadelphia, Pennsylvania
June 20, 1994
FOR VALUE RECEIVED, 1st FRANKLIN FINANCIAL CORPORATION, a Georgia
corporation (the "Company"), promises to pay to the order of
[_______________________] (the "Bank"), at the office of CoreStates Bank,
N.A., as Agent, at Broad and Chestnut Streets, Philadelphia, Pennsylvania
19107 in lawful money of the United States of America, in Immediately
Available Funds, on the first to occur of December 31, 1999 or the January
1 following a "Commitment Termination Date" as defined in the Agreement
hereinafter referred to, the sum of ____________ Million Dollars
($_______________) or the amount outstanding on said date of all Loans made
by the Bank to the Company pursuant to Section 2.01 of the Agreement
hereinafter referred to, as conclusively evidenced by written endorsement
with respect thereto by an officer of the Bank upon the Schedule hereto
annexed, whichever is less.
The Company shall also pay to the Bank interest (computed on the basis of
the actual number of days elapsed in a year of 360 days) on the unpaid
principal amount hereof in like money, on the last business day of each
June, September, December and March, in each year, commencing on the first
of such dates after the date hereof, and at maturity until payment in full
at a rate per annum, determined daily, equal to one quarter of one
percentage point above the rate of interest for loans established and
publicly announced in Philadelphia from time to time by CoreStates Bank,
N.A. as its "Prime Rate" (the "Prime Rate"). Interest shall be payable on
any overdue amount of principal at a rate per annum equal to two percentage
points above the Prime Rate. Each change in the rate of interest hereon
due to a change in the Prime Rate shall be effective on the effective date
of such change in the Prime Rate, but in no event shall interest be payable
at a rate higher than that permitted by applicable law. The undersigned
also agrees to pay the Facility Service Fee and the Agents's fee described
in the Agreement hereinafter referred to.
The outstanding principal balance of this Note may be prepaid by the
Company, in whole or in part, at any time or from time to time, but any
partial prepayment shall not be less than the minimum amount provided in
Section 2.01(a) of the Agreement hereinafter referred to.
As used herein, the term "business day" shall mean a day other than a
Saturday, Sunday or legal bank holiday under the laws of the States of
Pennsylvania or New York, and the term "Immediately Available Funds" shall
mean funds which are available for immediate use by the Bank at the Bank's
office hereinabove set forth not later that the due date of such payment.
<PAGE>
This Note is one of the Notes issued pursuant to Paragraph 3 of a certain
Seventh Amendment to Revolving Credit and Term Loan Agreement dated as of
June 20, 1994 among the Company, CoreStates Bank, N.A., National Westminster
Bank USA, SouthTrust Bank of Georgia, N.A., Harris Trust and Savings Bank and
CoreStates Bank, N.A., as Agent, which amends a certain Credit Agreement
dated as of October 1, 1985 among the Company, CoreStates Bank, N.A.,
National Westminster Bank USA, United States Trust Company of New York
(predecessor by way of assignment to SouthTrust Bank of Georgia, N.A.) and
CoreStates Bank, N.A., as Agent, as amended (herein, together with said
Seventh Amendment, all other prior amendments thereto and any amendments
which may hereafter be made thereto, called the "Agreement"). Upon the
occurrence of any one or more of the Events of Default specified in the
Agreement, the amounts then remaining unpaid on this Note may be declared to
be immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company, and the
Company shall be further obligated to reimburse the holder hereof for all
reasonable out-of-pocket expenses of the holder in enforcing or attempting to
enforce this Note, all as provided in the Agreement.
This Note replaces and supersedes but does not extinguish the Company's
liabilities and outstanding obligations under the Company's
$_______________________ Second Amended and Restated Revolving Credit Note
dated July 20, 1992 to the order of the Bank.
This Note and all rights and obligations hereunder shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
1st FRANKLIN FINANCIAL CORPORATION
By ______________________________
Title
<PAGE>
Schedule of Loans and Principal Payments
Name of
Unpaid Person
Amount of Amount of Principal Making
Date Loan Principal Paid Balance Notation
<PAGE>
EXHIBIT A-2
First Amended and Restated Revolving Credit Note
$5,000,000 Philadelphia, Pennsylvania
June 20, 1994
FOR VALUE RECEIVED, 1st FRANKLIN FINANCIAL CORPORATION, a Georgia
corporation (the "Company"), promises to pay to the order of HARRIS TRUST
AND SAVINGS BANK, an Illinois banking corporation (the "Bank"), at the
office of CoreStates Bank, N.A., as Agent, at Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107 in lawful money of the United States of
America, in Immediately Available Funds, on the first to occur of December
31, 1999 or the January 1 following a "Commitment Termination Date" as
defined in the Agreement hereinafter referred to, the sum of Five Million
Dollars ($5,000,000) or the amount outstanding on said date of all Loans
made by the Bank to the Company pursuant to Section 2.01 of the Agreement
hereinafter referred to, as conclusively evidenced by written endorsement
with respect thereto by an officer of the Bank upon the Schedule hereto
annexed, whichever is less.
The Company shall also pay to the Bank interest (computed on the basis of
the actual number of days elapsed in a year of 360 days) on the unpaid
principal amount hereof in like money, on the last business day of each
June, September, December and March, in each year, commencing on the first
of such dates after the date hereof, and at maturity until payment in full
at a rate per annum, determined daily, equal to one quarter of one
percentage point above the rate of interest for loans established and
publicly announced in Philadelphia from time to time by CoreStates Bank,
N.A. as its "Prime Rate" (the "Prime Rate"). Interest shall be payable on
any overdue amount of principal at a rate per annum equal to two percentage
points above the Prime Rate. Each change in the rate of interest hereon
due to a change in the Prime Rate shall be effective on the effective date
of such change in the Prime Rate, but in no event shall interest be payable
at a rate higher than that permitted by applicable law. The undersigned
also agrees to pay the Facility Service Fee and the Agents's fee described
in the Agreement hereinafter referred to.
The outstanding principal balance of this Note may be prepaid by the
Company, in whole or in part, at any time or from time to time, but any
partial prepayment shall not be less than the minimum amount provided in
Section 2.01(a) of the Agreement hereinafter referred to.
As used herein, the term "business day" shall mean a day other than a
Saturday, Sunday or legal bank holiday under the laws of the States of
Pennsylvania or New York, and the term "Immediately Available Funds" shall
mean funds which are available for immediate use by the Bank at the Bank's
office hereinabove set forth not later that the due date of such payment.
<PAGE>
This Note is one of the Notes issued pursuant to Paragraph 3 of a certain
Seventh Amendment to Revolving Credit and Term Loan Agreement dated as of
June 20, 1994 among the Company, CoreStates Bank, N.A., National Westminster
Bank USA, SouthTrust Bank of Georgia, N.A., Harris Trust and Savings Bank and
CoreStates Bank, N.A., as Agent, which amends a certain Credit Agreement
dated as of October 1, 1985 among the Company, CoreStates Bank, N.A.,
National Westminster Bank USA, United States Trust Company of New York
(predecessor by way of assignment to SouthTrust Bank of Georgia, N.A.) and
CoreStates Bank, N.A., as Agent, as amended (herein, together with said
Seventh Amendment, all other prior amendments thereto and any amendments
which may hereafter be made thereto, called the "Agreement"). Upon the
occurrence of any one or more of the Events of Default specified in the
Agreement, the amounts then remaining unpaid on this Note may be declared to
be immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company, and the
Company shall be further obligated to reimburse the holder hereof for all
reasonable out-of-pocket expenses of the holder in enforcing or attempting to
enforce this Note, all as provided in the Agreement.
This Note replaces and supersedes but does not extinguish the Company's
liabilities and outstanding obligations under the Company's $5,000,000
Revolving Credit Note dated July 20, 1992 to the order of the Bank.
This Note and all rights and obligations hereunder shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
1st FRANKLIN FINANCIAL CORPORATION
By ______________________________
Title
<PAGE>
Schedule of Loans and Principal Payments
Name of
Unpaid Person
Amount of Amount of Principal Making
Date Loan Principal Paid Balance Notation
<PAGE>
Third Amended and Restated
Revolving Credit Note
$6,000,000 Philadelphia, Pennsylvania
June 20, 1994
FOR VALUE RECEIVED, 1st FRANKLIN FINANCIAL CORPORATION, a Georgia
corporation (the "Company"), promises to pay to the order of CORESTATES
BANK, N.A., a national banking association (the "Bank"), at the office of
CoreStates Bank, N.A., as Agent, at Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107 in lawful money of the United States of
America, in Immediately Available Funds, on the first to occur of December
31, 1999 or the January 1 following a "Commitment Termination Date" as
defined in the Agreement hereinafter referred to, the sum of Six Million
Dollars ($6,000,000) or the amount outstanding on said date of all Loans
made by the Bank to the Company pursuant to Section 2.01 of the Agreement
hereinafter referred to, as conclusively evidenced by written endorsement
with respect thereto by an officer of the Bank upon the Schedule hereto
annexed, whichever is less.
The Company shall also pay to the Bank interest (computed on the basis of
the actual number of days elapsed in a year of 360 days) on the unpaid
principal amount hereof in like money, on the last business day of each
June, September, December and March, in each year, commencing on the first
of such dates after the date hereof, and at maturity until payment in full
at a rate per annum, determined daily, equal to one quarter of one
percentage point above the rate of interest for loans established and
publicly announced in Philadelphia from time to time by CoreStates Bank,
N.A. as its "Prime Rate" (the "Prime Rate"). Interest shall be payable on
any overdue amount of principal at a rate per annum equal to two percentage
points above the Prime Rate. Each change in the rate of interest hereon
due to a change in the Prime Rate shall be effective on the effective date
of such change in the Prime Rate, but in no event shall interest be payable
at a rate higher than that permitted by applicable law. The undersigned
also agrees to pay the Facility Service Fee and the Agents's fee described
in the Agreement hereinafter referred to.
The outstanding principal balance of this Note may be prepaid by the
Company, in whole or in part, at any time or from time to time, but any
partial prepayment shall not be less than the minimum amount provided in
Section 2.01(a) of the Agreement hereinafter referred to.
As used herein, the term "business day" shall mean a day other than a
Saturday, Sunday or legal bank holiday under the laws of the States of
Pennsylvania or New York, and the term "Immediately Available Funds" shall
mean funds which are available for immediate use by the Bank at the Bank's
office hereinabove set forth not later that the due date of such payment.
<PAGE>
This Note is one of the Notes issued pursuant to Paragraph 3 of a certain
Seventh Amendment to Revolving Credit and Term Loan Agreement dated as of
June 20, 1994 among the Company, CoreStates Bank, N.A., National Westminster
Bank USA, SouthTrust Bank of Georgia, N.A., Harris Trust and Savings Bank and
CoreStates Bank, N.A., as Agent, which amends a certain Credit Agreement
dated as of October 1, 1985 among the Company, CoreStates Bank, N.A.,
National Westminster Bank USA, United States Trust Company of New York
(predecessor by way of assignment to SouthTrust Bank of Georgia, N.A.) and
CoreStates Bank, N.A., as Agent, as amended (herein, together with said
Seventh Amendment, all other prior amendments thereto and any amendments
which may hereafter be made thereto, called the "Agreement"). Upon the
occurrence of any one or more of the Events of Default specified in the
Agreement, the amounts then remaining unpaid on this Note may be declared to
be immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company, and the
Company shall be further obligated to reimburse the holder hereof for all
reasonable out-of-pocket expenses of the holder in enforcing or attempting to
enforce this Note, all as provided in the Agreement.
This Note replaces and supersedes but does not extinguish the Company's
liabilities and outstanding obligations under the Company's $6,000,000
Revolving Credit Note dated July 20, 1992 to the order of the Bank.
This Note and all rights and obligations hereunder shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
1st FRANKLIN FINANCIAL CORPORATION
By A. Roger Guimond
Vice President and CFO
<PAGE>
Schedule of Loans and Principal Payments
Name of
Unpaid Person
Amount of Amount of Principal Making
Date Loan Principal Paid Balance Notation
<PAGE>
Third Amended and Restated
Revolving Credit Note
$5,000,000 Philadelphia, Pennsylvania
June 20, 1994
FOR VALUE RECEIVED, 1st FRANKLIN FINANCIAL CORPORATION, a Georgia
corporation (the "Company"), promises to pay to the order of SOUTHTRUST
BANK OF GEORGIA, N.A., a national banking association (as assignee of First
American Bank of Georgia, N.A.)(the "Bank"), at the office of CoreStates
Bank, N.A., as Agent, at Broad and Chestnut Streets, Philadelphia,
Pennsylvania 19107 in lawful money of the United States of America, in
Immediately Available Funds, on the first to occur of December 31, 1999 or
the January 1 following a "Commitment Termination Date" as defined in the
Agreement hereinafter referred to, the sum of Five Million Dollars
($5,000,000) or the amount outstanding on said date of all Loans made by
the Bank to the Company pursuant to Section 2.01 of the Agreement
hereinafter referred to, as conclusively evidenced by written endorsement
with respect thereto by an officer of the Bank upon the Schedule hereto
annexed, whichever is less.
The Company shall also pay to the Bank interest (computed on the basis of
the actual number of days elapsed in a year of 360 days) on the unpaid
principal amount hereof in like money, on the last business day of each
June, September, December and March, in each year, commencing on the first
of such dates after the date hereof, and at maturity until payment in full
at a rate per annum, determined daily, equal to one quarter of one
percentage point above the rate of interest for loans established and
publicly announced in Philadelphia from time to time by CoreStates Bank,
N.A. as its "Prime Rate" (the "Prime Rate"). Interest shall be payable on
any overdue amount of principal at a rate per annum equal to two percentage
points above the Prime Rate. Each change in the rate of interest hereon
due to a change in the Prime Rate shall be effective on the effective date
of such change in the Prime Rate, but in no event shall interest be payable
at a rate higher than that permitted by applicable law. The undersigned
also agrees to pay the Facility Service Fee and the Agents's fee described
in the Agreement hereinafter referred to.
The outstanding principal balance of this Note may be prepaid by the
Company, in whole or in part, at any time or from time to time, but any
partial prepayment shall not be less than the minimum amount provided in
Section 2.01(a) of the Agreement hereinafter referred to.
As used herein, the term "business day" shall mean a day other than a
Saturday, Sunday or legal bank holiday under the laws of the States of
Pennsylvania or New York, and the term "Immediately Available Funds" shall
mean funds which are available for immediate use by the Bank at the Bank's
office hereinabove set forth not later that the due date of such payment.
<PAGE>
This Note is one of the Notes issued pursuant to Paragraph 3 of a certain
Seventh Amendment to Revolving Credit and Term Loan Agreement dated as of
June 20, 1994 among the Company, CoreStates Bank, N.A., National Westminster
Bank USA, SouthTrust Bank of Georgia, N.A., Harris Trust and Savings Bank and
CoreStates Bank, N.A., as Agent, which amends a certain Credit Agreement
dated as of October 1, 1985 among the Company, CoreStates Bank, N.A.,
National Westminster Bank USA, United States Trust Company of New York
(predecessor by way of assignment to SouthTrust Bank of Georgia, N.A.) and
CoreStates Bank, N.A., as Agent, as amended (herein, together with said
Seventh Amendment, all other prior amendments thereto and any amendments
which may hereafter be made thereto, called the "Agreement"). Upon the
occurrence of any one or more of the Events of Default specified in the
Agreement, the amounts then remaining unpaid on this Note may be declared to
be immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company, and the
Company shall be further obligated to reimburse the holder hereof for all
reasonable out-of-pocket expenses of the holder in enforcing or attempting to
enforce this Note, all as provided in the Agreement.
This Note replaces and supersedes but does not extinguish the Company's
liabilities and outstanding obligations under the Company's $5,000,000
Revolving Credit Note dated July 20, 1992 to the order of the Bank.
This Note and all rights and obligations hereunder shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
1st FRANKLIN FINANCIAL CORPORATION
By A. Roger Guimond
Vice President and CFO
<PAGE>
Schedule of Loans and Principal Payments
Name of
Unpaid Person
Amount of Amount of Principal Making
Date Loan Principal Paid Balance Notation
<PAGE>
Third Amended and Restated
Revolving Credit Note
$5,000,000 Philadelphia, Pennsylvania
June 20, 1994
FOR VALUE RECEIVED, 1st FRANKLIN FINANCIAL CORPORATION, a Georgia
corporation (the "Company"), promises to pay to the order of NATIONAL
WESTMINSTER BANK USA, a national banking association (the "Bank"), at the
office of CoreStates Bank, N.A., as Agent, at Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107 in lawful money of the United States of
America, in Immediately Available Funds, on the first to occur of December
31, 1999 or the January 1 following a "Commitment Termination Date" as
defined in the Agreement hereinafter referred to, the sum of Five Million
Dollars ($5,000,000) or the amount outstanding on said date of all Loans
made by the Bank to the Company pursuant to Section 2.01 of the Agreement
hereinafter referred to, as conclusively evidenced by written endorsement
with respect thereto by an officer of the Bank upon the Schedule hereto
annexed, whichever is less.
The Company shall also pay to the Bank interest (computed on the basis of
the actual number of days elapsed in a year of 360 days) on the unpaid
principal amount hereof in like money, on the last business day of each
June, September, December and March, in each year, commencing on the first
of such dates after the date hereof, and at maturity until payment in full
at a rate per annum, determined daily, equal to one quarter of one
percentage point above the rate of interest for loans established and
publicly announced in Philadelphia from time to time by CoreStates Bank,
N.A. as its "Prime Rate" (the "Prime Rate"). Interest shall be payable on
any overdue amount of principal at a rate per annum equal to two percentage
points above the Prime Rate. Each change in the rate of interest hereon
due to a change in the Prime Rate shall be effective on the effective date
of such change in the Prime Rate, but in no event shall interest be payable
at a rate higher than that permitted by applicable law. The undersigned
also agrees to pay the Facility Service Fee and the Agents's fee described
in the Agreement hereinafter referred to.
The outstanding principal balance of this Note may be prepaid by the
Company, in whole or in part, at any time or from time to time, but any
partial prepayment shall not be less than the minimum amount provided in
Section 2.01(a) of the Agreement hereinafter referred to.
As used herein, the term "business day" shall mean a day other than a
Saturday, Sunday or legal bank holiday under the laws of the States of
Pennsylvania or New York, and the term "Immediately Available Funds" shall
mean funds which are available for immediate use by the Bank at the Bank's
office hereinabove set forth not later that the due date of such payment.
<PAGE>
This Note is one of the Notes issued pursuant to Paragraph 3 of a certain
Seventh Amendment to Revolving Credit and Term Loan Agreement dated as of
June 20, 1994 among the Company, CoreStates Bank, N.A., National Westminster
Bank USA, SouthTrust Bank of Georgia, N.A., Harris Trust and Savings Bank and
CoreStates Bank, N.A., as Agent, which amends a certain Credit Agreement
dated as of October 1, 1985 among the Company, CoreStates Bank, N.A.,
National Westminster Bank USA, United States Trust Company of New York
(predecessor by way of assignment to SouthTrust Bank of Georgia, N.A.) and
CoreStates Bank, N.A., as Agent, as amended (herein, together with said
Seventh Amendment, all other prior amendments thereto and any amendments
which may hereafter be made thereto, called the "Agreement"). Upon the
occurrence of any one or more of the Events of Default specified in the
Agreement, the amounts then remaining unpaid on this Note may be declared to
be immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company, and the
Company shall be further obligated to reimburse the holder hereof for all
reasonable out-of-pocket expenses of the holder in enforcing or attempting to
enforce this Note, all as provided in the Agreement.
This Note replaces and supersedes but does not extinguish the Company's
liabilities and outstanding obligations under the Company's $5,000,000
Revolving Credit Note dated July 20, 1992 to the order of the Bank.
This Note and all rights and obligations hereunder shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
1st FRANKLIN FINANCIAL CORPORATION
By A. Roger Guimond
Vice President and CFO
<PAGE>
Schedule of Loans and Principal Payments
Name of
Unpaid Person
Amount of Amount of Principal Making
Date Loan Principal Paid Balance Notation
<PAGE>
First Amended and Restated Revolving Credit Note
$5,000,000 Philadelphia, Pennsylvania
June 20, 1994
FOR VALUE RECEIVED, 1st FRANKLIN FINANCIAL CORPORATION, a Georgia
corporation (the "Company"), promises to pay to the order of HARRIS TRUST
AND SAVINGS BANK, an Illinois banking corporation (the "Bank"), at the
office of CoreStates Bank, N.A., as Agent, at Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107 in lawful money of the United States of
America, in Immediately Available Funds, on the first to occur of December
31, 1999 or the January 1 following a "Commitment Termination Date" as
defined in the Agreement hereinafter referred to, the sum of Five Million
Dollars ($5,000,000) or the amount outstanding on said date of all Loans
made by the Bank to the Company pursuant to Section 2.01 of the Agreement
hereinafter referred to, as conclusively evidenced by written endorsement
with respect thereto by an officer of the Bank upon the Schedule hereto
annexed, whichever is less.
The Company shall also pay to the Bank interest (computed on the basis of
the actual number of days elapsed in a year of 360 days) on the unpaid
principal amount hereof in like money, on the last business day of each
June, September, December and March, in each year, commencing on the first
of such dates after the date hereof, and at maturity until payment in full
at a rate per annum, determined daily, equal to one quarter of one
percentage point above the rate of interest for loans established and
publicly announced in Philadelphia from time to time by CoreStates Bank,
N.A. as its "Prime Rate" (the "Prime Rate"). Interest shall be payable on
any overdue amount of principal at a rate per annum equal to two percentage
points above the Prime Rate. Each change in the rate of interest hereon
due to a change in the Prime Rate shall be effective on the effective date
of such change in the Prime Rate, but in no event shall interest be payable
at a rate higher than that permitted by applicable law. The undersigned
also agrees to pay the Facility Service Fee and the Agents's fee described
in the Agreement hereinafter referred to.
The outstanding principal balance of this Note may be prepaid by the
Company, in whole or in part, at any time or from time to time, but any
partial prepayment shall not be less than the minimum amount provided in
Section 2.01(a) of the Agreement hereinafter referred to.
As used herein, the term "business day" shall mean a day other than a
Saturday, Sunday or legal bank holiday under the laws of the States of
Pennsylvania or New York, and the term "Immediately Available Funds" shall
mean funds which are available for immediate use by the Bank at the Bank's
office hereinabove set forth not later that the due date of such payment.
<PAGE>
This Note is one of the Notes issued pursuant to Paragraph 3 of a certain
Seventh Amendment to Revolving Credit and Term Loan Agreement dated as of
June 20, 1994 among the Company, CoreStates Bank, N.A., National Westminster
Bank USA, SouthTrust Bank of Georgia, N.A., Harris Trust and Savings Bank and
CoreStates Bank, N.A., as Agent, which amends a certain Credit Agreement
dated as of October 1, 1985 among the Company, CoreStates Bank, N.A.,
National Westminster Bank USA, United States Trust Company of New York
(predecessor by way of assignment to SouthTrust Bank of Georgia, N.A.) and
CoreStates Bank, N.A., as Agent, as amended (herein, together with said
Seventh Amendment, all other prior amendments thereto and any amendments
which may hereafter be made thereto, called the "Agreement"). Upon the
occurrence of any one or more of the Events of Default specified in the
Agreement, the amounts then remaining unpaid on this Note may be declared to
be immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company, and the
Company shall be further obligated to reimburse the holder hereof for all
reasonable out-of-pocket expenses of the holder in enforcing or attempting to
enforce this Note, all as provided in the Agreement.
This Note replaces and supersedes but does not extinguish the Company's
liabilities and outstanding obligations under the Company's $5,000,000
Revolving Credit Note dated July 20, 1992 to the order of the Bank.
This Note and all rights and obligations hereunder shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
1st FRANKLIN FINANCIAL CORPORATION
By A. Roger Guimond
Vice President and CFO
<PAGE>
Schedule of Loans and Principal Payments
Name of
Unpaid Person
Amount of Amount of Principal Making
Date Loan Principal Paid Balance Notation
<PAGE>
CONFIRMATION OF GUARANTY
The undersigne, 1st FRANKLIN CORPORATION, a Georgia corporation as
Guarantor under that certain Guaranty dated as of October 1, 1985, as
previously confirmed, (the "Guaranty") given to United States Trust Company
of New York (predecessor by way of assignment to SouthTrust Bank of Georgia,
N.A.), CoreStates Bank, N.A. (formerly called The Philadelphia National
Bank). National Westminster Bank USA and Harris Trust and Savings Bank, to
guaranty the payment of the Guaranteed Obligations due or to become due to
the Bank of 1st Franklin Financial Corporation, a Georgia corporation, as
Borrower,
DOES HEREBY RATIFY AND CONFIRM the Guaranty and its guaranty contained
therein of the Guaranteed Obligations, which term shall mean all amounts due
or to become due to the Banks under the Agreement or the Notes, as the same
have been or shall after the date hereof be amended, including without
limitation the amemdments contained in (i) the Amendment to Revolving Credit
and Term Loan Agreement dated as of November 10, 1986; (ii) the Second
Amendment, Assignment and Assumption Agreement dated March 1, 1988; (iii) the
Third Amendment to Revolving Credit and Term Loan Agreement dated as of
August 31,1989 between the Borrower and the Banks; (iv) the Fourth Amendment
and Extension Agreement dated as of May 1, 1990 between the Borrower and the
Banks; (v) the Fifth Amendment and Extension Agreement dated as of April 23,
1992 between the Borrower and the Banks; (vi) the Sixth Amendment to
Revolving Credit and Term Loan Agreement dated as of July 20, 1992 and;
(vii) the Seventh Amendment to Revolving Credit and Term Loan Agreement dated
as of the date hereof between the Borrower, the Banks and the Agent.
AND the Undersigned, as an inducement to the Banks and the Agent to
enter into said Seventh Amendment, DOES HEREBY AGREE AS FOLLOWS:
1. WAIVER OF JURY TRIAL. THE UNDERSIGNED HEREBY WAIVES, AND THE
BANKS AND THE AGENT BY ACCEPTANCE HEREOF WAIVE, TRIAL BY JURY IN
ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF OR RELATED TO THE GUARANTY OR THE RELATIONSHIP
ESTABLISHED THEREUNDER.
All capitalized terms not otherwise defined herein shall have the
meaning given to them in, and shall be used as they are used in, the
Guaranty.
IN WITNESS WHEREOF, the undersigned has caused this Confirmation to be
duly executed and delivered to the Banks as of the 20th day of June, 1994.
1st FRANKLIN CORPORATION
By: A. Roger Guimond
Vice President and CFO
<PAGE>
Exhibit 10(f)
December 31, 1994
CoreStates
Bank
Mr. A. Roger Guimond
Vice President and Chief Financial Officer
1st Franklin Financial Corporation
213 East Tugalo Street
Toccoa, GA 30577
Re: Merger of 1st Franklin Corporation with 1st Franklin
Financial Corporation Consent, Waiver and Eighth Amendment
to Revolving Credit and Term Loan Agreement
Dear Roger:
Pursuant to the request in your letter dated December 21, 1994,
this letter is to inform you that the Banks hereby consent to
the merger of 1st Franklin Corporation with 1st Franklin
Financial Corporation and hereby grant a waiver of Section 6.05,
Section 7.01(k) and certain other covenant violations referred
to in your letter and contained in the Finance Agreement dated
October 1, 1985, as amended, between 1st Franklin Financial
Corporation and the Banks named therein and CoreStates Bank,
N.A., as Agent ("Agreement").
The Banks and the Agent hereby agree with you that, effective
upon the execution and delivery hereof by you and the Banks,
Section 7.01(k) of the Agreement shall be and is hereby amended
to read in its entirety as follows:
(k) Ben F. Cheek, III and members of his
immediate family, collectively, ceasing to
own beneficially at least 51 percent of the
outstanding common stock of the Company; or
This consent is limited to the merger and the waiver is limited
to Section 6.05, specifically to permit the mortgage described
in the above referenced letter, Section 7.01(k) specifically to
permit the change in ownership to shift from the Parent to the
Company and to any violation of Section 4.02, 5.02, and 6.11
which the merger may cause, and no other instances of covenant
violations or Events of Default that existed or may exist. All
other terms and conditions of the Agreement remain in full force
and effect. All capitalized terms used herein and not otherwise
defined herein have the meanings assigned to those terms in the
Agreement and are used here as therein defined.
Also, per our conversation, please supply the Banks with your
certificate regarding the continued correctness of the
representations and warranties and the continued compliance with
the covenants contained in the Agreement (except as specifically
waived hereby) and an opinion of your counsel regarding
specifics of the merger, together with copies of the merger
documents. If you have any questions, please feel free to call
me.
<PAGE>
Very truly yours,
CORESTATES BANK, N.A., as a Bank and as Agent
By: William E. Musselman
------------------------
Assistant Vice President
SOUTHTRUST BANK OF GEORGIA, N.A.
By: Kenneth Davis
--------------
Vice President
NATIONAL WESTMINSTER BANK USA
By: Mark Sicinski
------------------------
Assistant Vice President
HARRIS TRUST AND SAVINGS BANK
By: Jerome P. Crokin
----------------
Vice President
Agreed and Accepted by 1st Franklin Financial Corporation
By: A. Roger Guimond
-------------------------
Vice President and
Chief Financial Officer
<PAGE>
Exhibit 13
1st FRANKLIN FINANCIAL CORPORATION
ANNUAL REPORT
DECEMBER 31, 1994
<PAGE>
*****************************
** PICTURE OF ALL MANAGEMENT EMPLOYEES**
*****************************
Our Company is focused on people: customers,
employees and the communities in which they live and work.
(Inside Front Cover)
<PAGE>
TABLE OF CONTENTS
-----------------
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Ben F. Cheek, Jr. Office of the Year. . . . . . . . . . . . . 2
Chairman's Letter. . . . . . . . . . . . . . . . . . . . . . . 3
Selected Consolidated Financial Information. . . . . . . . . . 4
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management's Discussion of Operations. . . . . . . . . . . . . 13
Management's Report. . . . . . . . . . . . . . . . . . . . . . 16
Report of Independent Public Accountants . . . . . . . . . . . 17
Financial Statements . . . . . . . . . . . . . . . . . . . . . 18
Directors and Management . . . . . . . . . . . . . . . . . . . 32
Corporate Information. . . . . . . . . . . . . . . . . . . . . 32
THE COMPANY
-----------
1st Franklin Financial Corporation has been engaged in the consumer
finance business since 1941, particularly in direct cash loans and real
estate loans. The business is operated through 84 branch offices in Georgia,
22 in Alabama and 11 in South Carolina.
As of December 31, 1994, the resources of the Company were invested
principally in loans which comprise 80% of the Company's assets.
Approximately 66% of the Company's revenues for the fiscal year were derived
from finance charges earned on these loans, 31% from insurance income earned
on insurance written thereon and 3% from other sources, principally income
from investments. On the basis of total capital funds employed (common
stockholder's equity and subordinated debt), American Banker recently ranked
the Company as the 61st largest finance company in the United States.
-1-
<PAGE>
HAZLEHURST, GEORGIA
1994 BEN F. CHEEK, JR. "OFFICE OF THE YEAR"
*********************
** PICTURE OF EMPLOYEES **
*********************
This award is presented annually in recognition of the office that represents
the highest overall performance within the Company. Congratulations to the
entire Hazlehurst Staff for this significant achievement. The Friendly
Franklin Folks salute you!
-2-
<PAGE>
TO OUR INVESTORS, EMPLOYEES AND FRIENDS:
Reporting the results of another good year for 1st Franklin is always a
thrill and pleasure for me. Hopefully, the facts and figures that follow
this letter will reveal to each of you the superior performance produced
through the combined efforts of each of the "Friendly Franklin Folks." We
are pleased to have the opportunity to tell you about our work during 1994.
All of the information contained in this report is important for your
review and study. There are certain highlights that I would like to call to
your attention. The gross outstanding receivables in our 117 branches grew
over $14,700,000 during the year representing a 11.7% increase over the
previous year-end. We saw a 14.3% improvement in our loan volume during the
year and our 10.4% growth in assets kept us on course to reach our goal of
being a $200,000,000 company by the year 2000. The addition of five new
offices in Richmond Hill, Greensboro and Georgetown, Georgia and in
Birmingham and Tuscaloosa, Alabama, gave us the opportunity to introduce our
services to customers in these two states that we had not previously served.
Significantly, the above mentioned growth was enhanced by the 20% increase in
our retained earnings. This addition to an already strong capital base will
support the anticipated growth that we expect during the next five years. It
will also allow us to take advantage of any new opportunities for expansion
which come our way.
The addition of almost 1,000 new investors and approximately $19,000,000
in new investments resulted in a record year of growth and activity in our
Investment Center. All of us are grateful and humbled by the confidence and
support given to us by our investors, new and old. Without you a successful
1994 would not have been possible.
Our past and future growth and success have been and will continue to be
dependent on a large number of very important people and organizations; our
investors and bankers who provide the funding resources necessary in the
consumer finance business; our customers who chose 1st Franklin Financial
when they could have chosen from any number of alternate credit sources; and
our outstanding associates and co-workers whose daily commitment and
dedication to excellence make the results in this report possible. To all of
you I extend my heartfelt thanks for the vital part you have played and,
hopefully, will continue to play in the growth and success of our company.
Very sincerely yours,
Ben F. Cheek, III
Chairman of the Board
-3-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------
Set forth below is selected financial data of the Company. This information
should be read in conjunction with the more detailed financial statements and
notes thereto included elsewhere herein.
Year Ended December 31
----------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In 000's, except ratio data)
Selected Income Statement Data:
Revenues . . . . . . . . . . $ 49,334 $ 41,625 $ 34,613 $ 30,730 $ 28,556
Net Interest Income. . . . . 28,111 23,449 19,461 16,760 14,691
Interest Expense . . . . . . 5,556 4,910 4,423 4,733 4,875
Provision for
Loan Losses. . . . . . . . 3,238 2,407 2,209 2,137 1,815
Income Before
Income Taxes . . . . . . . 10,319 8,322 6,177 5,199 4,856
Net Income . . . . . . . . . 7,165 5,891 4,498 3,748 3,621
Ratio of Earnings to
Fixed Charges. . . . . . . 2.73 2.58 2.31 2.04 1.95
Selected Balance Sheet Data:
Loans, Net . . . . . . . . . $108,667 $ 97,485 $ 82,820 $ 70,748 $ 63,419
Total Assets . . . . . . . . 136,468 123,661 105,812 88,823 78,795
Senior Debt. . . . . . . . . 66,677 60,540 47,822 34,603 31,145
Subordinated Debt. . . . . . 21,603 20,875 21,455 22,312 20,567
Stockholder's Equity . . . . 40,605 34,678 28,718 24,406 22,812
Ratio of Total Liabilities
to Stockholders' Equity. . 2.36 2.57 2.68 2.64 2.79
-4-
<PAGE>
BUSINESS
--------
The Company is engaged in the business of making consumer loans to
individuals in relatively small amounts and for relatively short periods of
time and in making first and second mortgage loans on real estate in larger
amounts and for longer periods of time. The Company also purchases sales
finance contracts from various retail dealers. At December 31, 1994 direct
cash loans comprised 69% of the Company's outstanding loans, real estate
loans 21% and sales finance contracts 10%.
In connection with this business, the Company writes credit insurance
as an agent for a nonaffiliated company specializing in such insurance.
Two wholly owned subsidiaries, Frandisco Life Insurance Company and
Frandisco Property and Casualty Insurance Company, reinsure the life, the
accident and health and the property insurance so written.
The following table shows the sources of the Company's earned finance
charges over each of the past five periods:
Year Ended December 31
-------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands)
Direct Cash Loans. . . . . $22,962 $18,618 $14,669 $12,624 $10,963
Real Estate Loans. . . . . 7,284 6,722 6,587 6,454 5,909
Sales Finance Contracts. . 2,472 2,249 1,825 1,523 1,455
------- ------- ------- ------- -------
Total Finance Charges . . $32,718 $27,589 $23,081 $20,601 $18,327
======= ======= ======= ======= =======
Direct cash loans are made primarily to people who need money for some
unusual or unforeseen expense or for the purpose of paying off an
accumulation of small debts. These loans are repayable in 6 to 48 monthly
installments and generally do not exceed $5,000 in principal amount. The
loans are generally secured by personal property, motor vehicles and/or
real estate. Interest and fees charged on these loans are in compliance
with applicable federal and state laws.
First and second mortgage loans on real estate are made to homeowners
who wish to improve their property or who wish to restructure their
financial obligations. They are generally made in amounts from $3,000 to
$50,000 on maturities of 35 to 120 months. Interest and fees on these loans
are in compliance with applicable federal and state laws.
Sales finance contracts are purchased from retail dealers. These
contracts have maturities that range from 3 to 48 months and generally do
not individually exceed $5,000 in principal amount. The interest rates
charged on these contracts are in compliance with applicable federal and
state laws.
Prior to the making of a loan, a credit investigation is undertaken
to determine the income, existing indebtedness, length and stability of
employment, and other relevant information concerning the customer. In
granting the loan, the Company takes a security interest in real or
personal property of the borrower. In making direct cash loans, emphasis is
placed upon the customer's ability to repay rather than upon the potential
resale value of the underlying security. In making real
estate and sales finance loans, however, more emphasis is placed upon the
marketability and value of the underlying collateral.
-5-
<PAGE>
The Company is in competition with several national and regional
finance companies, as well as a variety of local finance companies in the
communities which it serves. The Company competes effectively in the
market place primarily based on its emphasis on customer service.
The business of the Company consists mainly of the making of loans to
salaried people and wage earners who depend on their earnings to make their
repayments. The continued profitable operation of the Company will
therefore depend to a large extent on the continued employment of these
people and their ability to meet their obligations as they become due. In
the event of a sustained recession or a significant downturn in business
with consequent unemployment, the Company's collection ratios and
profitability could be detrimentally affected.
The average annual yield on loans made by the Company (the % of
finance charges earned to average net outstanding balance) has been as
follows:
Year Ended December 31
--------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Direct Cash Loans. . . . . . . 31.76% 31.81% 31.87% 32.55% 32.54%
Real Estate Loans. . . . . . . 24.37 22.70 23.42 23.70 23.75
Sales Finance Contracts. . . . 21.27 20.47 20.66 20.94 22.53
Information regarding the Company's operations:
As of December 31
-------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Number of Branch Offices . . . 117 112 102 85 77
Number of Employees . . . . . 473 456 390 346 312
Average Total Loans
Outstanding Per
Branch ( in 000's) . . . . . $1,202 $1,124 $1,037 $1,041 $1,034
Average Number of Loans
Outstanding Per Branch . . . 814 778 761 772 758
-6-
<PAGE>
DESCRIPTION OF LOANS
Year Ended December 31
---------------------------------------------------
1994 1993 1992 1991 1990
DIRECT CASH LOANS: ---- ---- ---- ---- ----
-----------------
Number of Loans Made
to New Borrowers. . . . 26,616 24,978 23,479 17,779 14,101
Number of Loans Made
to Former Borrowers . . 13,185 11,710 9,639 7,901 7,903
Number of Loans Made
to Present Borrowers. . 60,014 54,311 44,866 37,708 34,236
Total Number of Loans
Made. . . . . . . . . . 99,815 90,999 77,984 63,388 56,240
Total Volume of Loans
Made (in 000's) . . . .$150,658 $127,103 $100,176 $77,111 $68,607
Average Size of
Loans Made. . . . . . .$ 1,509 $ 1,397 $ 1,285 $ 1,216 $ 1,220
Number of Loans
Outstanding . . . . . . 72,993 66,209 57,458 47,489 42,099
Total of Loans
Outstanding (in 000's).$ 96,620 $ 82,595 $ 65,560 $51,027 $45,518
Percent of Total Loans . 69% 66% 62% 58% 57%
Average Balance on
Outstanding Loans . . .$ 1,324 $ 1,247 $ 1,141 $ 1,075 $ 1,081
REAL ESTATE LOANS:
-----------------
Total Number of Loans
Made. . . . . . . . . . 2,264 2,315 1,886 3,345 2,024
Total Volume of Loans
Made (in 000's) . . . .$ 18,755 $ 20,330 $ 15,366 $15,693 $17,769
Average Size of
Loans Made. . . . . . .$ 8,284 $ 8,782 $ 8,147 $ 4,692 $ 8,779
Number of Loans
Outstanding . . . . . . 3,811 3,930 3,796 3,836 3,663
Total of Loans
Outstanding (in 000's).$ 29,150 $ 30,174 $ 28,171 $28,388 $26,394
Percent of Total Loans . 21% 24% 27% 32% 33%
Average Balance on
Outstanding Loans . . .$ 7,649 $ 7,678 $ 7,421 $ 7,401 $ 7,206
SALES FINANCE CONTRACTS:
-----------------------
Number of Contracts
Purchased . . . . . . . 21,744 20,726 20,507 17,463 14,330
Total Volume of Contracts
Purchased (in 000's). .$ 20,489 $ 18,770 $ 17,512 $13,160 $10,580
Average Size of Contracts
Purchased . . . . . . .$ 942 $ 906 $ 854 $ 754 $ 738
Number of Contracts
Outstanding . . . . . . 18,395 17,020 16,405 14,303 12,588
Total of Contracts
Outstanding (in 000's).$ 14,806 $ 13,099 $ 12,053 $ 9,096 $ 7,744
Percent of Total Loans . 10% 10% 11% 10% 10%
Average Balance on
Outstanding Contracts .$ 805 $ 770 $ 735 $ 636 $ 615
-7-
<PAGE>
LOANS ACQUIRED, LIQUIDATED AND OUTSTANDING
Year Ended December 31
-----------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands)
LOANS ACQUIRED
DIRECT CASH LOANS . . . . $150,217 $127,084 $ 98,488 $ 74,672 $ 67,645
REAL ESTATE LOANS . . . . 17,916 19,485 13,779 11,195 11,412
SALES FINANCE CONTRACTS . 19,386 17,759 15,814 11,694 9,323
NET BULK PURCHASES. . . . 2,383 1,875 4,973 8,403 8,576
-------- -------- -------- -------- --------
TOTAL LOANS ACQUIRED. . . $189,902 $166,203 $133,054 $105,964 $ 96,956
======== ======== ======== ======== ========
LOANS LIQUIDATED
DIRECT CASH LOANS . . . . $136,633 $110,068 $ 85,643 $ 71,602 $ 62,779
REAL ESTATE LOANS . . . . 19,779 18,327 15,583 13,699 16,006
SALES FINANCE CONTRACTS . 18,782 17,724 14,555 11,808 10,257
-------- -------- -------- -------- --------
TOTAL LOANS LIQUIDATED. . $175,194 $146,119 $115,781 $ 97,109 $ 89,042
======== ======== ======== ======== ========
LOANS OUTSTANDING
DIRECT CASH LOANS . . . . $ 96,620 $ 82,595 $ 65,560 $ 51,027 $ 45,518
REAL ESTATE LOANS . . . . 29,150 30,174 28,171 28,388 26,394
SALES FINANCE CONTRACTS . 14,806 13,099 12,053 9,096 7,744
-------- -------- -------- -------- --------
TOTAL LOANS OUTSTANDING . $140,576 $125,868 $105,784 $ 88,511 $ 79,656
======== ======== ======== ======== ========
UNEARNED FINANCE CHARGES
DIRECT CASH LOANS . . . . $ 16,114 $ 14,125 $ 10,959 $ 8,340 $ 7,429
REAL ESTATE LOANS . . . . 43 65 133 176 206
SALES FINANCE CONTRACTS . 2,140 1,832 1,691 1,212 1,060
-------- -------- -------- -------- --------
TOTAL UNEARNED
FINANCE CHARGES. . . . $18,297 $ 16,022 $ 12,783 $ 9,728 $ 8,695
======= ======== ======== ======== ========
-8-
<PAGE>
DELINQUENCIES
Delinquent accounts are classified at the end of each month according
to the number of installments past due at that time based on the original
or extended terms of the contract. When 80% of an installment has been
paid, it is not considered delinquent for the purpose of this
classification. When three installments are past due, the account is
classified as being 60-89 days past due; when four or more installments are
past due the account is classified as being 90 days or more past due.
The table below shows the amount of certain classifications of
delinquencies and the ratio such delinquencies bear to related outstanding
loans.
As of December 31
-----------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands, except % data)
DIRECT CASH LOANS:
60-89 Days Past Due. . . . $ 1,353 $ 1,120 $ 850 $ 819 $ 802
Percentage of Outstanding. 1.40% 1.36% 1.30% 1.61% 1.76%
90 Days or More Past Due . $ 2,482 $ 1,781 $1,524 $ 1,643 $ 1,085
Percentage of Outstanding. 2.57% 2.16% 2.32% 3.22% 2.38%
REAL ESTATE LOANS:
60-89 Days Past Due. . . . $ 299 $ 439 $ 364 $ 627 $ 395
Percentage of Outstanding. 1.03% 1.46% 1.29% 2.21% 1.50%
90 Days or More Past Due . $ 919 $ 1,206 $1,551 $ 1,796 $ 963
Percentage of Outstanding. 3.15% 4.00% 5.51% 6.33% 3.65%
SALES FINANCE CONTRACTS:
60-89 Days Past Due. . . . $ 281 $ 195 $ 165 $ 140 $ 132
Percentage of Outstanding. 1.90% 1.49% 1.37% 1.54% 1.70%
90 Days or More Past Due . $ 293 $ 298 $ 265 $ 261 $ 195
Percentage of Outstanding. 1.98% 2.27% 2.20% 2.87% 2.52%
-9-
<PAGE>
LOSS EXPERIENCE
Net losses (charge-offs less recoveries) and their percentage to the
average net loans (loans less unearned finance charges) and to the
liquidations (payments, refunds, renewals and charge-offs of customer's
loans) are shown in the following table:
Year Ended December 31
------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands, except % data)
DIRECT CASH LOANS
Average Net Loans . . . . .$ 72,298 $ 58,538 $ 46,026 $ 38,786 $ 33,686
Liquidations. . . . . . . .$136,633 $110,068 $ 85,643 $ 71,602 $ 62,779
Net Losses. . . . . . . . .$ 2,475 $ 1,582 $ 1,388 $ 1,788 $ 1,317
Net Losses as % of Average
Net Loans . . . . . . . . 3.42% 2.70% 3.02% 4.61% 3.91%
Net Losses as % of
Liquidations. . . . . . . 1.81% 1.44% 1.62% 2.50% 2.10%
REAL ESTATE LOANS
Average Net Loans . . . . .$ 29,889 $ 29,608 $ 28,124 $ 27,235 $ 24,886
Liquidations. . . . . . . .$ 19,779 $ 18,327 $ 15,583 $ 13,699 $ 16,006
Net Losses. . . . . . . . .$ 43 $ 20 $ 7 $ 63 $ 172
Net Losses as % of Average
Net Loans . . . . . . . . .14% .07% .02% .23% .69%
Net Losses as % of
Liquidations. . . . . . . .22% .11% .04% .46% 1.07%
SALES FINANCE CONTRACTS
Average Net Loans . . . . .$ 11,623 $ 10,984 $ 8,833 $ 7,274 $ 6,461
Liquidations. . . . . . . .$ 18,782 $ 17,724 $ 14,555 $ 11,808 $ 10,257
Net Losses. . . . . . . . .$ 353 $ 272 $ 196 $ 223 $ 214
Net Losses as % of Average
Net Loans . . . . . . . . 3.04% 2.48% 2.22% 3.06% 3.31%
Net Losses as % of
Liquidations. . . . . . . 1.88% 1.53% 1.35% 1.89% 2.09%
ALLOWANCE FOR LOAN LOSSES
The Allowance for Loan Losses is determined based on the Company's
previous loss experience, a review of specifically identified potentially
uncollectible loans and management's evaluation of the inherent risks and
change in the composition of the Company's loan portfolio. Such allowance
is, in the opinion of management, sufficient to provide adequate protection
against possible loan losses on the current loan portfolio. The allowance
is maintained out of income except in the case of bulk purchases when it is
provided in the allocation of the purchase price.
-10-
<PAGE>
CREDIT INSURANCE
When authorized to do so by the borrowers, the Company writes life,
accident and health, property and automobile insurance in connection with its
loans. Non-recording insurance is written on direct cash loans where the
security instrument is not recorded. The Company writes such insurance as an
agent for a non-affiliated insurance company.
Frandisco Life Insurance Company and Frandisco Property and Casualty
Insurance Company, wholly owned subsidiaries of the Company, reinsure the
insurance written from the non-affiliated insurance company.
REGULATION AND SUPERVISION
In Georgia, direct cash loans of less than $3,000 in principal amount are
made under the Georgia Industrial Loan Act. Direct cash loans in excess of
$3,000 and the larger first and second mortgage real estate loans are not
subject to the Georgia Industrial Loan Act and the rates are negotiable
subject to State Usury Laws. First and second mortgage real estate loans are
made in compliance with the Georgia Residential Mortgage Act. Sales finance
contracts are made under the Georgia Retail Installment and Home Solicitation
Sales Act.
All loans and sales finance contracts in South Carolina are made under
the South Carolina Consumer Protection Code. Rates are negotiable. Maximum
rates are filed with the Department of Consumer Affairs and posted in each
location.
In Alabama, direct cash loans of less than $750 in principal amount are
made under the Alabama Small Loan Act. Direct cash loans in excess of $750 in
principal amount are made under the Alabama Consumer Finance Law, with a
negotiable rate allowed on loans in excess of $2,000 in principal amount. The
larger first and second mortgage real estate loans are made under the Alabama
Consumer Finance Law at a negotiable rate. Sales finance contracts are made
under the Alabama Consumer Finance Law.
State laws require that each office in which a small loan business is
conducted be licensed by the state. Georgia law also requires a license for
conducting mortgage loan business in the state. The granting of a license
depends on the financial responsibility, character and fitness of the
applicant, and where applicable, the applicant must show finding of a need
through convenience and advantage documentation. As a condition to obtaining
such license, the applicant must consent to state regulation and examination
and to the making of periodic reports to the appropriate governing agencies.
Licenses are revocable for cause, and their continuance depends upon
compliance with the law and regulations issued pursuant thereto. The Company
has never had any of its licenses revoked.
All lending operations are carried on under the provisions of the Federal
Consumer Credit Protection Act ("Truth-in-Lending Act"), the Fair Credit
Reporting Act and the Federal Real Estate Settlement Procedures Act. The
Truth-in-Lending Act requires disclosure to the customer of the finance
charge, the annual percentage rate, the total of payments and other
information on all loans. On real estate secured loans, the Truth-in-Lending
Act requires that customers be provided a three-day right of rescission and
certain disclosures.
A Federal Trade Commission ruling prevents the Company and other consumer
lenders from using household goods as collateral on direct cash loans. The
Company collateralizes such loans with non-household goods such as
automobiles, boats and other exempt items. The Company has not experienced
any adverse impact on the quality of its receivables from the ruling as the
primary credit consideration in making direct cash loans is the customer's
ability to repay the loan.
The Company is also subject to state regulations governing insurance
agents in the states in which it sells credit insurance. State insurance
regulations require that insurance agents be licensed and limit the premium
amount charged for such insurance.
-11-
<PAGE>
SOURCE OF FUNDS
The sources of the Company's funds stated as a % of total liabilities
and stockholder's equity and the number of persons investing in the Company's
debt securities is as follows:
Year Ended December 31
-------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Bank Borrowings . . . . . . 1% 10% 12% 14% 16%
Public Senior Debt. . . . . 48 39 33 25 24
Public Subordinated Debt. . 16 17 20 25 26
Other Liabilities . . . . . 5 6 8 8 8
Stockholder's Equity. . . . 30 28 27 28 26
--- --- --- --- ---
Total. . . . . . . . . . 100% 100% 100% 100% 100%
=== === === === ===
Number of Investors . . . . 5,486 4,400 4,195 3,964 3,845
All of the Company's outstanding common stock is held by five related
individuals and is not traded in an established public trading market.
The Company's average interest rate on borrowings, computed by dividing
the interest paid by the average indebtedness outstanding, has been as
follows:
Year Ended December 31
-------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Senior Borrowings . . . . 5.75% 6.24% 6.52% 8.09% 8.83%
Subordinated Borrowings . 6.14 6.37 7.25 8.43 8.96
All Borrowings. . . . . . 5.86 6.29 6.82 8.24 8.89
The Company's financial ratios relating to debt are as follows:
At December 31
------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Total Liabilities to
Stockholder's Equity . . 2.36 2.57 2.68 2.64 2.79
Unsubordinated Debt to
Subordinated Debt plus
Stockholder's Equity . . 1.19 1.23 1.11 .90 .90
-12-
<PAGE>
MANAGEMENT'S DISCUSSION OF OPERATIONS
Financial Condition:
Total assets increased $12,807,044 (10%) to $136,468,257 at December 31,
1994 as compared to $123,661,213 at December 31, 1993 primarily due to growth
in the Company's loan portfolio. Net income increased $1,273,939 (22%)
during the same comparable period on gross revenues of $49,334,499. The
Company continued its expansion of operations with the opening of 5 new
branch offices during the year, bringing the total number of offices to 117
in three states.
Average net outstanding receivables (gross receivables less unearned
finance charges) increased $14,680,974 (15%) to $113,810,272 at December
31,1994 from $99,129,298 at December 31, 1993 due to increases in consumer
loan demand. The expansion of operations during the last two years has
allowed the Company to penetrate new market areas which has also been a major
factor in the increase in average net receivables.
The Company's investment portfolio consists mainly of U.S. Treasury
bonds, Government Agency bonds and various Georgia municipal bonds.
Management has designated a significant portion of these investment
securities as "available for sale" with any unrealized gain or loss accounted
for in the Company's equity section, net of deferred taxes. Although overall
investment securities increased during 1994 from additional funds invested by
the insurance subsidiaries, volatility in bond market values resulted in a
$980,362 decrease, net of deferred taxes, in the portfolio's fair market
value during the year. The remainder of the investment portfolio represents
securities purchased during the fourth quarter of 1994 that are carried at
amortized cost and designated "held to maturity," as Management has both the
ability and intent to hold these securities to maturity.
Net cash flows from financing activities, excluding bank borrowings,
increased $18,864,137 during 1994 as compared to 1993 and collections on
loans increased $14,036,443 during the same period. This increase in cash
flow financed the aforementioned increase in the loan portfolio and resulted
in a $861,796 (15%) increase in Cash and Cash Equivalents. The increase in
internally generated funds also enabled the Company to reduce its bank
borrowings $11,998,556. Due to the increase in sales of the Company's debt
securities, senior debt increased $6,137,650 (10%) and subordinated debt
increased $727,951 (3%) during the current year as compared to same period a
year ago.
Effective December 31, 1994, 1st Franklin Corporation (the "Parent") was
merged into the Company, with the Company being the surviving corporation.
The merger was accounted for as a downstream pooling transaction and was done
to increase corporate efficiency and eliminate unnecessary corporate
entities. Prior to the merger, the Company was a wholly owned subsidiary of
the Parent. Intercompany receivables and liabilities between the Parent and
the Company were eliminated as a result of the merger. The merger had no
material affect on the results of operations. Financial data for prior years
have been restated to reflect the results of the merger.
Net Interest Income:
The Company's net interest margin (the margin between the amount the
Company earns on loans and investments and the amount the Company pays on
securities and other borrowings) increased $4,662,363 (20%) during 1994 as
compared to 1993 and $3,988,151 (20%) during 1993 as compared to 1992. These
increases in the margin spreads were primarily due to the aforementioned
higher levels of average net outstanding receivables.
-13-
<PAGE>
Declining interest rates on the Company's borrowings during the last two
years has also contributed to the increase in the net interest margin.
Although average borrowings increased, lower market rates of interest enabled
the Company to decrease average borrowing cost to 5.86% during 1994 as
compared to 6.29% during 1993 and 6.82% during 1992.
Net Insurance Income:
The aforementioned increase in average net receivables also led to the
$1,499,243 (15%) and $1,955,877 (24%) increase in net insurance income during
the comparable periods. Changes in net insurance income generally correspond
to changes in the level of average net outstanding receivables. 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 year was approximately $70,000 in
property claims filed by customers in south Alabama and south Georgia who
suffered losses as a result of the devastating floods in July from tropical
storm Alberto. Effective November 1, 1993, the Georgia Insurance Department
adopted regulations that reduced premium rates which may be charged on credit
life insurance. This reduction in rates also offset some of the increase in
insurance income during the current year.
Provision for Loan Losses:
Provision for Loan Losses increased $831,967 (35%) during the current
year as compared to 1993 and $197,842 (9%) during 1993 as compared to 1992.
Net charge-offs increased $996,761 (53%) and $283,099 (18%) during the same
comparable periods, respectively, mainly due to higher levels of average net
outstanding receivables and a rise in bankruptcy filings.
Other Operating Expenses:
Fifteen new branch offices have been opened during the two-year period
just ended adding 83 new employees to the "1st Franklin family." The
addition in personnel contributed to the $1,940,097 (14%) and $2,453,486
(21%) increase in Personnel Expense during 1994 and 1993, respectively.
Increases in employee compensation based on cost-of-living and/or merit
salary raises and increases in other accrued employee benefits also
contributed to the increase in Personnel Expense. During 1993, increases in
claims of the Company's self-insured group medical plan was another factor
contributing to the increase during that respective period.
Additional expenses related to the new offices opened particularly rent,
telephone, utilities, maintenance and depreciation were the major cause of
the $369,263 (11%) and $426,314 (15%) increase in Occupancy Expense during
1994 and 1993, respectively. Cost incurred in remodeling some older offices
also contributed to the increase in Occupancy Expense during the comparable
periods.
Other miscellaneous operating expenses increased $1,056,272 (18%) during
1994 as compared to 1993 and $807,435 (16%) during 1993 as compared to 1992
mainly due to increases in advertising expenses, computer expenses,
collection expenses, legal and audit expenses, supervision expenses, taxes
and licenses, postage and supplies.
-14-
<PAGE>
Income Taxes:
Effective income tax rates for the years ended December 31, 1994, 1993
and 1992 were 30.6%, 29.2% and 27.2%, 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 1994 was mainly due to the
Company and its property insurance subsidiary, which are taxed at higher
rates, earning a larger portion of the pretax income as compared to 1993 and
1992. Utilization of loss carryforwards to offset capital gains resulted in
the lower rate during 1992. Although the Company also utilized loss
carryforwards during 1993, the rate increased due to the aforementioned
increase in the share of pretax income earned by the Company and it's
property insurance subsidiary.
Liquidity:
Liquidity is the ability of the Company to meet short-term financial
obligations, either through the collection of receivables or by generating
additional funds through liability management. Continued liquidity of the
Company is therefore dependent on the collection of its receivables and the
sale of debt securities that meet the investment requirements of the public
and the continued availability of unused bank credit from its lenders. The
previously discussed increases in net cash flows during the current year
provided a positive effect on liiquidity.
The majority of the Company's loan portfolio is financed through public
debt securities which, because of redemption features, have a shorter average
maturity than the loan portfolio. The difference in maturities may adversely
affect liquidity if the Company does not continue to sell debt securities at
interest rates and terms that are responsive to the demands of the
marketplace or maintain sufficient unused bank borrowings.
In addition to the debt 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
$20,626,000 and $8,800,000 at December 31, 1994 and 1993, respectively,
relating to this agreement. The Company has an additional $2,000,000 credit
agreement (all of which was available at December 31, 1994 and 1993) for
general operating purposes. A third credit line for $1,500,000 matured
during 1994 and the Company chose not to renew it.
Liquidity was not adversely affected by delinquent accounts as the
percentage of outstanding receivables 60 days or more past due was 4.0% of
receivables at both December 31, 1994 and December 31, 1993.
As opportunities become available, the Company plans to continue to
expand its network of branch offices during 1995. Management does not expect
any significant adverse impact on liquidity as a result of these expansion
plans.
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. One of the complaints (the
one filed in Jefferson County, Alabama) has been dismissed and the other is
being vigorously defended.
-15-
<PAGE>
Two additional complaints were reported in the Company's Quarterly
Report to Investors for the Nine Months ended September 30, 1994 alleging
different violations of Alabama consumer lending laws filed in the Circuit
Court of Barbour County, Alabama. One of these complaints has also been
dismissed and the Company is vigorously defending the other.
The Company has been named as defendant in four other complaints filed
in Alabama alleging violations in connection with the sale of credit
insurance and loan refinancing.
Each of the complaints seek compensatory and punitive damages. All of
these actions are in their early stages and their outcome currently is not
determinable. The financial condition and operating results of the Company
could be materially affected in the event of an unfavorable outcome.
However, Management believes that the Company's Alabama operations are in
compliance with applicable regulations and that the actions are without
merit. The Company is diligently contesting them.
Beginning January 1, 1995, the Company will adopt Statement of Financial
Accounting Standards ("SFAS") No. 114 -- "Accounting by Creditors for
Impairment of a Loan," subsequently amended by SFAS No. 118 -- "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosures".
These standards require that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price, or at the fair value of
the collateral if the loan is collateral dependent. The adoption of these
two accounting pronouncements will not have a material impact on the
Company's financial condition or results of operations.
Other Developments:
Columbus Bank and Trust Company has recently transferred its trust
operations to its new separate trust company affiliate named Synovus Trust
Company, which has thereby become the Trustee under the Indenture governing
the Company's Variable Rate Subordinated Debentures. Pursuant to applicable
banking regulations and by agreement with the Company, Columbus Bank and
Trust Company remains responsible to Debenture holders for all actions of
Synovus Trust Company as if preformed by Columbus Bank and Trust Company
itself.
MANAGEMENT'S REPORT
The accompanying financial statements were prepared in accordance with
generally accepted accounting principles by the management of 1st Franklin
Financial Corporation who assumes responsibility for their integrity and
reliability.
The Company maintains a system of internal accounting controls which is
supported by a program of internal audits with appropriate management follow-
up action. The integrity of the financial accounting system is based on
careful selection and training of qualified personnel, on organizational
arrangements which provide for appropriate division of responsibilities and
on the communication of established written policies and procedures.
The financial statements of the Company have been audited by Arthur
Andersen LLP, independent public accountants. Their report expresses their
opinion as to the fair presentation of the financial statements and is based
upon their independent audit conducted in accordance with generally accepted
auditing standards.
The Audit Committee, comprised solely of outside directors, meets
periodically with the independent public accountants, the internal auditors
and representatives of management to discuss auditing and financial reporting
matters. The independent public accountants have free access to meet with the
Audit Committee without management representatives present to discuss the
scope and results of their audit and their opinions on the quality of
financial reporting. -16-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO 1st FRANKLIN FINANCIAL CORPORATION:
We have audited the accompanying Consolidated Statements of Financial
Position of 1ST FRANKLIN FINANCIAL CORPORATION (a Georgia corporation) AND
SUBSIDIARIES as of December 31, 1994 and 1993, and the related Consolidated
Statements of Income and Retained Earnings and Consolidated Statements of Cash
Flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of 1st Franklin
Financial Corporation and subsidiaries as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 23, 1995
-17-
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1994 AND 1993
ASSETS
1994 1993
------------- ------------
CASH AND CASH EQUIVALENTS:
Cash and Due From Banks. . . . . . . . $ 1,589,320 $ 1,231,239
Short-term Investments,
$300,000 in trust in 1994
and 1993 (Note 4) . . . . . . . . . 5,100,224 4,596,509
------------ ------------
6,689,544 5,827,748
------------ ------------
LOANS (Note 2):
Direct Cash Loans. . . . . . . . . . . 96,620,653 82,595,004
First Mortgage Real Estate Loans . . . 23,385,188 24,920,180
Second Mortgage Real Estate Loans. . . 5,764,579 5,254,556
Sales Finance Contracts. . . . . . . . 14,805,644 13,098,609
------------ ------------
140,576,064 125,868,349
Less: Unearned Finance Charges . . . . 18,296,608 16,022,558
Unearned Insurance Premiums
and Commissions. . . . . . . 9,542,400 8,707,500
Allowance for Loan Losses. . . . 4,069,881 3,653,121
------------ ------------
Net Loans . . . . . . . . 108,667,175 97,485,170
------------ ------------
MARKETABLE DEBT SECURITIES (Note 3):
Available for Sale, at fair market value 12,651,527 12,764,567
Held to Maturity, at amortized cost. . 697,144 --
------------ ------------
13,348,671 12,764,567
------------ ------------
OTHER ASSETS:
Land, Buildings, Equipment and
Leasehold Improvements,
less accumulated depreciation and
amortization of $4,936,692 and
$4,177,245 in 1994 and 1993,
respectively (Note 5). . . . . . . . 2,798,250 2,973,521
Prepaid Income Taxes, net (Note 9) . . 1,746,241 1,487,484
Due from Nonaffiliated Insurance Company 746,747 696,624
Miscellaneous. . . . . . . . . . . . . 2,471,629 2,426,099
------------ ------------
7,762,867 7,583,728
------------ ------------
TOTAL ASSETS . . . . . . . . . . $136,468,257 $123,661,213
============ ============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-18-
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1994 AND 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
1994 1993
------------ -----------
SENIOR DEBT (Note 5):
Senior Demand Notes, including
accrued interest. . . . . . . . . . $ 33,186,950 $ 26,685,656
Commercial Paper. . . . . . . . . . . 32,774,577 21,139,665
Notes Payable to Banks. . . . . . . . 715,762 12,714,318
------------ ------------
66,677,289 60,539,639
------------ ------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES. . 7,582,833 7,569,096
------------ ------------
SUBORDINATED DEBT (Note 6) . . . . . . . 21,602,656 20,874,705
------------ ------------
Total Liabilities . . . . . . . . . 95,862,778 88,983,440
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common stock; par value $100 per share;
2,000 shares authorized;
1,700 shares outstanding. . . . . . 170,000 170,000
Net Unrealized Gains (Losses) on
Investment Securities
Available for Sale. . . . . . . . . (693,457) 286,905
Retained Earnings . . . . . . . . . . 41,128,936 34,220,868
------------ ------------
Total Stockholders' Equity. . . . . 40,605,479 34,677,773
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY. . . . . . . . $136,468,257 $123,661,213
============ ============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-19-
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
----------- ----------- -----------
INTEREST INCOME:
Finance Charges. . . . . . . . . $32,718,152 $27,589,389 $23,080,510
Investment Income. . . . . . . . 949,404 769,959 803,374
----------- ----------- -----------
33,667,556 28,359,348 23,883,884
----------- ----------- -----------
INTEREST EXPENSE:
Senior Debt. . . . . . . . . . . 4,057,682 3,282,791 2,543,497
Subordinated Debt. . . . . . . . 1,498,616 1,627,662 1,879,643
----------- ----------- -----------
5,556,298 4,910,453 4,423,140
NET INTEREST INCOME. . . . . . . . 28,111,258 23,448,895 19,460,744
PROVISION FOR
LOAN LOSSES (Note 2) . . . . . . 3,238,479 2,406,512 2,208,670
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES. . . . 24,872,779 21,042,383 17,252,074
NET INSURANCE INCOME:
Premiums and Commissions . . . . 15,262,466 12,893,679 10,444,021
Insurance Claims and Expenses. . (3,518,988) (2,649,444) (2,155,663)
----------- ----------- -----------
11,743,478 10,244,235 8,288,358
----------- ----------- -----------
OTHER REVENUE (Note 8) . . . . . . 404,477 371,734 285,297
----------- ----------- -----------
OPERATING EXPENSES (Note 8):
Personnel Expense. . . . . . . . 16,147,362 14,207,265 11,753,779
Occupancy Expense. . . . . . . . 3,705,288 3,336,025 2,909,711
Other Expense. . . . . . . . . . 6,849,283 5,793,011 4,985,576
----------- ----------- -----------
26,701,933 23,336,301 19,649,066
----------- ----------- -----------
INCOME BEFORE INCOME TAXES . . . . 10,318,801 8,322,051 6,176,663
PROVISION FOR
INCOME TAXES (Note 9). . . . . . 3,154,184 2,431,373 1,678,787
----------- ----------- -----------
NET INCOME . . . . . . . . . . . . 7,164,617 5,890,678 4,497,876
RETAINED EARNINGS, beginning . . . 34,220,868 28,548,219 24,236,259
Dividends on Common Stock. . . . (256,549) (218,029) (185,916)
----------- ----------- -----------
RETAINED EARNINGS, ending. . . . . $41,128,936 $34,220,868 $28,548,219
=========== =========== ===========
EARNINGS PER SHARE (1,700 shares
outstanding all years) . . . . . $4,214.48 $3,465.10 $2,645.81
========= ========= =========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-20-
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Increase (Decrease) in Cash and Cash Equivalents
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES: ---- ---- ----
Net Income . . . . . . . . . . . $ 7,164,617 $ 5,890,678 $ 4,497,876
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for Loan Losses. . . . 3,238,479 2,406,512 2,208,670
Depreciation and Amortization. . 994,896 922,132 747,125
Prepaid Income Taxes . . . . . . (10,925) (321,968) (321,081)
Gain on sale of marketable
securities and equipment . . . (47,754) (234,507) (323,795)
Increase in Miscellaneous Assets (95,653) (189,214) (1,383,397)
Increase (Decrease) in
Other Liabilities. . . . . . . 13,737 (248,172) 315,270
------------ ------------ ------------
Net Cash Provided. . . . . 11,257,397 8,225,461 5,740,668
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated or purchased. . (96,816,742) (85,431,146) (71,641,927)
Loan payments. . . . . . . . . . 82,396,258 68,359,815 57,360,540
Purchases of marketable securities (2,162,283) (11,543,876) (6,011,483)
Sales of marketable securities . 103,897 6,151,337 4,702,268
Redemptions of marketable
securities . . . . . . . . . . 300,000 300,000 480,998
Principal payments on
marketable securities. . . . . -- 47,660 26,249
Capital expenditures . . . . . . (851,351) (806,101) (1,710,866)
Proceeds from sale of equipment. 25,568 25,395 39,777
------------ ----------- ------------
Net Cash Used. . . . . . . (17,004,653) (22,896,916) (16,754,444)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in
Notes Payable to Banks
and Senior Demand Notes. . . . (5,497,262) 5,497,844 8,205,439
Commercial Paper issued. . . . . 24,041,798 12,038,076 11,092,191
Commercial Paper redeemed. . . . (12,406,886) (4,818,161) (6,078,408)
Subordinated Debt issued . . . . 5,175,292 4,843,874 3,299,673
Subordinated Debt redeemed . . . (4,447,341) (5,423,774) (4,157,343)
Dividends Paid . . . . . . . . . (256,549) (218,029) (185,916)
------------ ------------ ------------
Net Cash Provided. . . . . 6,609,052 11,919,830 12,175,636
------------ ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS. . . 861,796 (2,751,625) 1,161,860
CASH AND CASH EQUIVALENTS,
beginning. . . . . . . . . . . 5,827,748 8,579,373 7,417,513
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ending. $ 6,689,544 $ 5,827,748 $ 8,579,373
============ ============ ============
Cash paid during the year for:
Interest . . . $ 5,488,335 $ 4,875,340 $ 4,641,573
Income Taxes . $ 3,301,461 $ 2,490,673 $ 2,171,210
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-21-
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business:
1st Franklin Financial Corporation (the "Company") is a consumer finance
company which acquires and services direct cash loans, real estate loans and
sales finance contracts through 117 branch offices. Effective December 31,
1994, 1st Franklin Corporation (the "Parent") was merged into the Company,
with the Company being the surviving corporation. The merger was accounted
for as a downstream pooling transaction and was done to increase corporate
efficiency and eliminate unnecessary corporate entities. Prior to the merger
the Company was a wholly owned subsidiary of the Parent. All financial data
for prior years have been restated to reflect results of the merger.
Basis of Consolidation:
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Loans:
Statement of Financial Accounting Standards ("SFAS") No. 114 --
"Accounting by Creditors for Impairment of a Loan", subsequently amended by
SFAS No. 118 -- "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures", requires impaired loans to be measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate, at the loan's observable market price, or at the fair
value of the collateral if the loan is collateral dependent. These two
accounting pronouncements, which were adopted on a prospective basis on
January 1, 1995, will not have a material impact on the Company's financial
condition or results of operations.
Income Recognition:
Although generally accepted accounting principles require other methods
to be used for income recognition, the Company uses the Rule of 78's method to
recognize interest and insurance income on loans which have precomputed
charges. Since the majority of these loans are paid off or renewed in less
than one year and because the interest and insurance charges are contractually
rebated using the Rule of 78's method, the results obtained by using the Rule
of 78's closely approximate those that would be obtained if other generally
accepted methods were used.
Finance charges are precomputed and included in the gross amount of all
direct cash loans, sales finance contracts and certain real estate loans.
These precomputed charges are deferred and recognized as income on an accrual
basis using the Rule of 78's (which approximates the interest method).
Finance charges on the other real estate loans are recognized as income on a
simple interest accrual basis. Income is not accrued on a loan that is more
than 60 days past due.
When material, the Company defers loan fees and recognizes them as an
adjustment to yield over the contractual life of the related loan. The
Company's method of accounting for such fees does not materially differ from
generally accepted accounting principles for such fees.
The property and casualty credit insurance policies written by the
Company are reinsured by the property insurance subsidiary. The premiums are
deferred and earned on a Rule of 78's basis (which approximates the pro-rata
method).
-22-
<PAGE>
The credit life and accident and health policies written by the Company
are reinsured by the life insurance subsidiary. The premiums are deferred and
earned using the pro-rata method for level-term life policies, the Rule of
78's (which approximates the pro-rata method) for decreasing-term life
policies and an average of the pro-rata method and Rule of 78's for accident
and health policies.
Claims of the insurance subsidiaries are expensed as incurred and
reserves are established for incurred but not reported (IBNR) claims.
Policy acquisition costs of the insurance subsidiaries are deferred and
amortized to expense over the life of the policies on the same methods used to
recognize premium income.
Depreciation and Amortization:
Office machines, equipment and company automobiles are recorded at cost
and depreciated on a straight-line basis over a period of three to ten years.
Leasehold improvements are amortized over seven years using the double
declining method for book and tax.
Income Taxes:
The Company and its insurance subsidiaries have certain temporary
differences between reported income and expenses for financial statement
purposes and for income tax purposes. Deferred income taxes are provided
where applicable.
Collateral Held for Resale:
When the Company takes possession of the collateral which secures a
loan, the collateral is recorded at the lower of its estimated resale value or
the loan balance. Any losses incurred at that time are charged against the
Allowance for Loan Losses.
Bulk Purchases:
A bulk purchase is a group of loans purchased by the Company from
another lender. Bulk purchases are recorded at the outstanding loan balance
and an allowance for losses is established in accordance with management's
evaluation of the specific loans purchased and their comparability to similar
type loans in the Company's existing portfolio.
For loans with precomputed charges, unearned finance charges are also
recorded based on the Rule of 78's (which approximates the interest method).
Any difference between the purchase price of the loans and their net balance
(outstanding balance less allowance for losses and unearned finance charges)
is amortized or accreted to income over the average life of the loans
purchased.
Marketable Debt Securities:
Management has designated a significant portion of the marketable debt
securities held in the Company's investment portfolio at December 31, 1994 and
1993 as being available-for-sale. This portion of the investment portfolio is
reported at fair market value with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders' equity, net of
taxes. The remainder of the investment portfolio is carried at amortized cost
and designated as held-to-maturity as Management has both the ability and
intent to hold these securities to maturity.
-23-
<PAGE>
2. LOANS
There were $5,097,961 and $5,038,929 of loans in a non-accrual status at
December 31, 1994 and 1993, respectively.
Contractual Maturities of Loans:
An estimate of contractual maturities stated as a percentage of the loan
balances based upon an analysis of the Company's portfolio as of December 31,
1994 is as follows:
1st Mortgage 2nd Mortgage Sales
Due In Direct Cash Real Estate Real Estate Finance
Calendar Year Loans Loans Loans Contracts
------------- ----- ----- ----- ---------
1995. . . . . . 72.72% 17.38% 16.13% 72.15%
1996. . . . . . 24.87 17.76 17.71 22.73
1997. . . . . . 2.01 16.33 17.82 4.59
1998. . . . . . .26 12.81 15.74 .42
1999. . . . . . .06 9.72 11.39 .11
2000 & later. . .08 26.00 21.21 --
------ ------ ------ ------
100.00% 100.00% 100.00% 100.00%
====== ====== ====== ======
Experience of the Company has shown that a majority of its loans will be
renewed many months prior to their final contractual maturity dates.
Accordingly, the above contractual maturities should not be regarded as a
forecast of future cash collections.
Cash Collections on Principal:
During the years ended December 31, 1994 and 1993, cash collections
applied to principal of loans totaled $82,396,259 and $68,359,815,
respectively, and the ratios of these cash collections to average net
receivables were 72.40% and 68.96%, respectively.
Allowance for Loan Losses:
The Allowance for Loan Losses is based on the Company's previous loss
experience, a review of specifically identified potentially uncollectible
loans and management's evaluation of the inherent risks and changes in the
composition of the Company's loan portfolio. Such allowance is, in the
opinion of management, sufficient to provide adequate protection against
possible losses in the current loan portfolio.
When a loan becomes five installments past due, it is charged off unless
management directs that it be retained as an active loan. In making this
charge off evaluation, no installment is counted as being past due if at least
80% of the contractual payment has been paid. The amount charged off is the
unpaid balance less the unearned finance charges and the unearned insurance
premiums.
An analysis of the allowance for the years ended December 31, 1994, 1993
and 1992 is shown in the following table:
1994 1993 1992
---- ---- ----
Beginning Balance. . . . . . . . . . $3,653,121 $3,091,983 $2,363,480
Provision for Loan Losses . . . . . 3,238,479 2,406,512 2,208,670
Bulk Purchase Accounts. . . . . . . 49,120 28,704 110,812
Charge-Offs . . . . . . . . . . . . (3,648,948) (2,523,801) (2,251,123)
Recoveries. . . . . . . . . . . . . 778,109 649,723 660,144
---------- ---------- ----------
Ending Balance . . . . . . . . . . . $4,069,881 $3,653,121 $3,091,983
========== ========== ==========
-24-
<PAGE>
3. MARKETABLE DEBT SECURITIES
Debt securities available for sale are carried at estimated fair market
value. The amortized cost and estimated fair market values of these debt
securities are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
December 31, 1994: --------- ---------- ---------- -----------
-----------------
U.S. Treasury Securities
and obligations of
U.S. government corporations
and agencies . . . . . . . . .$ 4,327,088 $ 1,193 $(375,154) $ 3,953,127
Obligations of states and
political subdivisions. . . . 8,673,401 -- (465,380) 8,208,021
Corporate Securities . . . . . . 526,441 690 (36,752) 490,379
----------- -------- ---------- -----------
$13,526,930 $ 1,883 $(877,286) $12,651,527
=========== ======== ========= ===========
December 31, 1993:
-----------------
U.S. Treasury Securities
and obligations of
U.S. government corporations
and agencies . . . . . . . . .$ 4,689,224 $100,769 $ (8,790) $ 4,781,203
Obligations of states and
political subdivisions. . . . 7,195,722 236,385 (904) 7,431,203
Corporate Securities . . . . . . 526,832 31,170 (5,841) 552,161
----------- -------- --------- -----------
$12,411,778 $368,324 $ (15,535) $12,764,567
=========== ======== ========= ===========
Debt securities classified as "Other" are carried at amortized cost
based on Management's intent to hold such securities to maturity. The
amortized cost and estimated fair market values of these debt securities are
as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Value
December 31, 1994: ---------- -------- ---------- ----------
-----------------
U.S. Treasury Securities
and obligations of
U.S. government corporations
and agencies. . . . . . . . . $ 493,963 $ -- $ (5,368) $ 488,595
Obligations of states and
political subdivisions. . . . 203,181 4,359 -- 207,540
----------- -------- ---------- ----------
$ 697,144 $ 4,359 $ (5,368) $ 696,135
=========== ======== ========== ==========
-25-
<PAGE>
The amortized cost and estimated fair market values of debt securities
available for sale at December 31, 1994, by contractual maturity, are shown
below:
Estimated
Amortized Fair Market
Cost Value
---- -----
Due in one year or less . . . . . . . . . $ 732,409 $ 712,578
Due after one year through five years . . 3,656,313 3,471,170
Due after five years through ten years. . 6,960,989 6,459,379
Due after ten years . . . . . . . . . . . 2,177,219 2,008,400
----------- -----------
$13,526,930 $12,651,527
=========== ===========
The amortized cost and estimated fair market values of debt securities
Management intends to hold to maturity at December 31, 1994, by contractual
maturity, are shown below:
Estimated
Amortized Fair Market
Cost Value
---- -----
Due after one year through five years. . $ 697,144 $ 696,135
Proceeds from sales of investments in debt securities available for sale
during 1994 were $103,897. Gross gains of $6,630 and gross losses of $(-0-)
were realized on these sales.
Proceeds from sales of investments in debt securities available for sale
during 1993 were $6,151,337. Gross gains of $223,982 and gross losses of
$(954) were realized on these sales.
4. PLEDGED ASSETS
At December 31, 1994, certain Short-term Investments of the insurance
subsidiaries were on deposit with the Georgia Insurance Commissioner to meet
the deposit requirements of Georgia insurance laws.
-26-
<PAGE>
5. SENIOR DEBT
The Company has a Credit Agreement with four major banks which provides
for maximum borrowings of $21,000,000. All borrowings are on an unsecured
basis at 1/4% above the prime rate of interest. An annual facility fee is paid
quarterly based on 5/8% of the available line less the average borrowings
during the quarter. In addition, an agent fee equal to 1/8% per annum of the
total loan commitment is paid quarterly.
The Credit Agreement has a termination date of December 31, 1999. The
banks may, however, terminate the agreement upon the violation of any of the
financial ratio requirements or covenants contained in the agreement or in
May of any calendar year if the financial condition of the Company becomes
unsatisfactory to the banks. Such financial ratio requirements include a
minimum equity requirement, an interest expense coverage ratio and a minimum
debt to equity ratio.
The Company has an additional Credit Agreement for $2,000,000 which is
used for general operating purposes. This agreement provides for borrowings
on an unsecured basis at 1/8% above the prime rate of interest and has
termination date of July 1, 1996.
A bank loan was entered into in 1986, which carries an interest rate of
70% of the prime rate of interest repayable in 180 monthly installments.
This loan is collateralized by land and a building.
The Senior Demand Notes are unsecured obligations which are payable on
demand. The interest rate payable on any Senior Demand Note is a variable
rate, compounded daily, established from time to time by the Company.
Commercial Paper is issued by the Company in amounts in excess of
$50,000, with maturities of less than 270 days and at negotiable interest
rates.
Additional data related to the Company's Senior Debt is as follows:
Weighted
Average Maximum Average Weighted
Interest Amount Amount Average
Year Ended Rate at end Outstanding Outstanding Interest Rate
December 31 of Year During Year During Year During Year
---------- ------ ----------- ----------- -----------
(In thousands, except % data)
1994:
----
Bank. . . . . . . . . 7.41% $12,714 $ 4,966 6.56%
Senior Notes. . . . . 6.28 34,595 31,930 6.07
Commercial Paper. . . 7.39 33,095 26,454 6.67
All Categories. . 6.84 67,650 63,350 6.36
1993:
----
Bank. . . . . . . . . 6.19% $13,061 $11,054 6.17%
Senior Notes. . . . . 6.02 26,967 23,602 6.03
Commercial Paper. . . 6.49 21,270 17,729 6.50
All Categories. . 6.22 60,540 52,385 6.22
1992:
----
Bank. . . . . . . . . 6.18% $13,061 $ 9,465 6.41%
Senior Notes. . . . . 6.03 20,841 15,984 6.21
Commercial Paper. . . 6.53 16,277 13,444 6.95
All Categories. . 6.22 47,822 38,893 6.51
-27-
<PAGE>
6. SUBORDINATED DEBT
The payment of the principal and interest on the subordinated debt is
subordinate and junior in right of payment to all unsubordinated indebtedness
of the Company.
Subordinated debt consists of Variable Rate Subordinated Debentures
which mature four years after date of issue. The maturity date is
automatically extended for an additional four years unless the holder or the
Company redeems the debenture on its original maturity date. The debentures
have various minimum purchase amounts with varying interest rates and
interest adjustment periods for each respective minimum purchase amount.
Interest rates on the debentures are adjusted at the end of each adjustment
period. The debentures may be redeemed by the holder at the applicable
interest adjustment date without penalty. Redemptions at any other time are
subject to an interest penalty. The Company may redeem the debentures for a
price equal to 100% of the principal.
Interest rate information on the Subordinated Debt at December 31 is as
follows:
Weighted Average Rate at Weighted Average Rate
End of Year During Year
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
6.54% 6.42% 6.96% 6.36% 6.63% 7.57%
Maturity information on the Company's Subordinated Debt at
December 31, 1994 is as follows:
Amount Maturing
Based on Maturity Based on Interest
Date Adjustment Period
----------------- -----------------
1995 . . . . . . $ 2,936,700 $17,515,902
1996 . . . . . . 3,795,430 3,823,751
1997 . . . . . . 6,154,408 113,715
1998 . . . . . . 8,716,118 149,288
----------- -----------
$21,602,656 $21,602,656
=========== ===========
7. COMMITMENTS AND CONTINGENCIES
The Company's operations are carried on in locations which are occupied
under lease agreements. The lease agreements usually provide for a lease
term of five years with a renewal option for an additional five years. Rent
expense was $1,257,977, $1,085,694 and $911,447 for the years ended December
31, 1994, 1993 and 1992, respectively. Under the existing noncancelable
leases, the Company's minimum aggregate rental commitment at December 31,
1994, amounts to $1,218,781 for 1995, $962,851 for 1996, $742,440 for 1997,
$576,606 for 1998, $314,321 for 1999 and $171,855 for the year 2000 and
beyond. The total commitment is $3,986,854.
The Company is defendant in several lawsuits arising in the course of
its normal business activities in the state of Alabama. Each of the
complaints seek compensatory and punitive damages. All of these suits are in
their early stages and their outcome currently is not determinable.
Management is vigorously defending these actions. The Company's legal
counsel is unable to state the probability of damages which may be awarded.
No accrual for such possible damages has been made in the accompanying
financial statements. The financial condition and operating results of the
Company could be materially affected in the event of an unfavorable outcome.
However, Management believes that the Company's Alabama operations are in
compliance with applicable regulations, and therefore that the suits are
without merit and that the resolution of the suits should not have a material
effect on the Company.
-28-
<PAGE>
8. RELATED PARTY TRANSACTIONS
Beneficial owners of the Company are also beneficial owners of Liberty
Bank & Trust ("Liberty"). The Company and Liberty have management and data
processing agreements whereby the Company provides certain administrative
and data processing services to Liberty for a fee. Income recorded by the
Company in 1994, 1993 and 1992 related to these agreements was $63,800 each
year, which in Management's opinion approximates the Company's actual cost
of these services.
Liberty leases its office space and equipment from the Company for
$4,200 per month, which in Management's opinion are at rates which
approximate those obtainable from independent third parties.
At December 31, 1994, the Company maintained $300,000 of certificates
of deposit and $55,518 in a money market account with Liberty at market
rates and terms. The Company also had $1,460,003 in demand deposits with
Liberty at December 31, 1994.
The Company leases a portion of its properties (see Note 7) for an
aggregate of $13,333 per month from certain officers or stockholders. In
Management's opinion, these leases are at rates which approximate those
obtainable from independent third parties.
9. INCOME TAXES
The Provision for Income Taxes for the years ended December 31, 1994,
1993 and 1992 is made up of the following components:
1994 1993 1992
---- ---- ----
Current - Federal. . . $2,786,238 $2,393,351 $1,719,482
Current - State. . . . 378,871 359,990 280,386
---------- ---------- ----------
Total Current. . . . 3,165,109 2,753,341 1,999,868
---------- ---------- ----------
Prepaid - Federal. . . 38,652 (250,984) (252,483)
Prepaid - State. . . . (49,577) (70,984) (68,598)
---------- ---------- ----------
Total Prepaid . . . (10,925) (321,968) (321,081)
---------- ---------- ----------
Total Provision . $3,154,184 $2,431,373 $1,678,787
========== ========== ==========
-29-
<PAGE>
Temporary differences create deferred federal tax assets and
liabilities which are detailed below for December 31, 1994 and 1993:
Deferred Tax
Assets (Liabilities)
1994 1993
---- ----
Depreciation . . . . . . . . . . . $ (131,037) $ (143,157)
Provision for Loan Losses. . . . . 1,521,999 1,318,565
Insurance Commissions. . . . . . . (565,330) (451,390)
Unearned Premium Reserves. . . . . 576,141 647,678
Unrealized Gains (Losses) on
Investment Securities. . . . . 181,950 (65,883)
Other. . . . . . . . . . . . . . . 162,518 181,671
---------- ----------
$1,746,241 $1,487,484
========== ==========
The Company's effective tax rate for the years ended December 31, 1994,
1993 and 1992 is analyzed as follows:
1994 1993 1992
---- ---- ----
Statutory Federal income tax rate. . . . 34.0% 34.0% 34.0%
State income tax, net of Federal
tax effect. . . . . . . . . . . . . . 2.1 2.3 2.2
Net tax effect of IRS regulations
on life insurance subsidiary. . . . . (4.9) (6.9) (7.9)
Other items. . . . . . . . . . . . . . . (.6) ( .2) (1.1)
---- ---- ----
Effective Tax Rate . . . . . . . . 30.6% 29.2% 27.2%
==== ==== ====
-30-
<PAGE>
1st FRANKLIN FINANCIAL CORPORATION
** PICTURE OF SENIOR MANAGEMENT **
***********
-31-
<PAGE>
DIRECTORS AND MANAGEMENT
Directors
---------
Principal Occupation, Has Served as a
Name Title and Company Director Since
---- ----------------- ---------------
W. Richard Acree President, Acree Oil Company, 1970
Toccoa, Georgia
Ben F. Cheek, III Chairman of Board, 1967
1st Franklin Financial Corporation
Lorene M. Cheek Housewife 1946
Jack D. Stovall President, 1983
Stovall Building Supplies, Inc.
Robert E. Thompson Physician, Toccoa Clinic 1970
Executive Officers
----------------- Served in this
Name Position with Company Position Since
---- --------------------- --------------
Ben F. Cheek, III Chairman of Board 1989
T. Bruce Childs President 1989
Lynn E. Cox Secretary 1989
A. Roger Guimond Vice President
and Chief Financial Officer 1991
Linda L. Sessa Treasurer 1989
CORPORATE INFORMATION
---------------------
Corporate Offices General Counsel Independent Accountants
----------------- --------------- -----------------------
P.O. Box 880 Jones, Day, Reavis & Pogue Arthur Andersen LLP
213 East Tugalo Street Atlanta, Georgia Atlanta, Georgia
Toccoa, Georgia 30577
(706) 886-7571
Information
-----------
Informational inquiries, including requests for a Prospectus
describing the Company's current securities offering or the Form 10-K
annual report filed with the Securities and Exchange Commission should be
addressed to the Company's Secretary.
-32-
<PAGE>
*** PICTURE OF ALL MANAGEMENT EMPLOYEES ***
Serving our Neighbors Since 1941
(Inside Back Cover)
<PAGE>
BACK COVER PAGE OF ANNUAL REPORT
(A map showing the locations of the
following offices:)
1st FRANKLIN FINANCIAL CORPORATION BRANCH OFFICES
Alabama Offices: Georgia Offices: Georgia Offices:
Alexander City Cartersville McRae
Arab Cedartown Milledgeville
Athens Chatsworth Monroe
Bessemer Clarkesville Montezuma
Birmingham Claxton Monticello
Clanton Clayton Moultrie
Cullman Cleveland Nashville
Decatur Cochran Newnan
Dothan Commerce Perry
Enterprise Conyers Richmond Hill
Florence Cordele Rome
Gadsden Cornelia Royston
Huntsville Covington Savannah
Jasper Cumming Statesboro
Ozark Dallas Swainsboro
Prattville Douglas Sylvania
Russellville Douglasville Sylvester
Scottsboro Eastman Thomaston
Selma Elberton Thomson
Sylacauga Ellijay Tifton
Troy Forsyth Toccoa
Tuscaloosa Fort Valley Valdosta
Gainesville Vidalia
Georgia Offices: Garden City Warner Robbins
Georgetown Washington
Adel Greensboro Winder
Albany Griffin
Alma Hartwell South Carolina Offices:
Americus Hawkinsville
Athens Hazlehurst Aiken
Barnesville Hinesville Anderson
Baxley Hogansville Cayce
Blue Ridge Jackson Clemson
Bremen Jasper Easley
Brunswick Jefferson Greenwood
Buford Jesup Laurens
Butler Lavonia Orangeburg
Cairo Lawrenceville Seneca
Calhoun Madison Union
Canton Manchester York
Carrollton McDonough
<PAGE>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
Franklin Securities, Inc., a Georgia company, was incorporated on
May 4, 1982, as a wholly owned subsidiary to handle securities transactions.
The subsidiary is currently in an inactive status.
Frandisco Property and Casualty Insurance Company, a Georgia company,
was incorporated on August 7, 1989, as a wholly owned subsidiary to reinsure
the property and casualty insurance policies written by the Company in
connection with its credit transactions.
Frandisco Life Insurance Company of Georgia was incorporated on
August 7, 1989, as a wholly owned subsidiary to reinsure the life and the
accident and health insurance policies written by the Company in connection
with its credit transactions. Effective December 27, 1990, Frandisco Life
Insurance Company of Georgia was merged with Frandisco Life Insurance Company
of Arizona (incorporated on August 16, 1978 as a wholly owned subsidiary)
with Frandisco Life Insurance Company of Georgia becoming the surviving
Company.
<PAGE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-56299.
Arthur Andersen LLP
Atlanta, Georgia
March 30, 1995
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
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0
0
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<PAGE>
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